MBIA Inc. Annual Report 2017

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FY2017 Annual Report · MBIA Inc.

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017

or
‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934
For the transition period from

Commission File Number 1-9583

MBIA INC.

(Exact name of registrant as specified in its charter)

Connecticut
(State of incorporation)

1 Manhattanville Road, Suite 301,
Purchase, New York
(Address of principal executive offices)

06-1185706
(I.R.S. Employer
Identification No.)

10577
(Zip Code)

Registrant’s telephone number, including area code: (914) 273-4545
Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Name of each exchange
on which registered

Common Stock, par value $1 per share

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:
None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes È No ‘
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes ‘ No È
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes È No ‘
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes È No ‘
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K. È
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer È
Non-accelerated filer ‘ (Do not check if a smaller reporting company)

‘
Accelerated filer
Smaller reporting company ‘
Emerging growth company ‘

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange
Act. ‘
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ‘ No È
The aggregate market value of the voting stock held by non-affiliates of the Registrant as of June 30, 2017 was
$1,141,143,207.
As of February 22, 2018, 88,763,473 shares of Common Stock, par value $1 per share, were outstanding.

Portions of the Definitive Proxy Statement of the Registrant for its 2017 Annual Meeting, which will be filed on or before
March 31, 2018, are incorporated by reference into Part III of this Form 10-K.

Documents incorporated by reference:

TABLE OF CONTENTS

PART I

Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 3.
Item 4. Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer

Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 6
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of

Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial

1
14
24
24
24
24

25
27

29
68
70

Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157

PART III

Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . 158
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related

Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158
Item 13. Certain Relationships and Related Transactions, and Director Independence . . . . . . . . 159
Item 14. Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159

Item 15. Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164
Schedule I
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165
Schedule II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166
Schedule IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171

PART IV

FORWARD-LOOKING AND CAUTIONARY STATEMENTS

This annual report of MBIA Inc., together with its consolidated subsidiaries, (collectively, “MBIA”, the
“Company”, “we”, “us” or “our”) includes statements that are not historical or current facts and are
“forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. The words “believe”, “anticipate”, “project”, “plan”, “expect”, “estimate”,
“intend”, “will likely result”, “looking forward”, or “will continue” and similar expressions identify forward-
looking statements. These statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from historical earnings and those presently anticipated or projected.
MBIA cautions readers not to place undue reliance on any such forward-looking statements, which
speak only to their respective dates. We undertake no obligation to publicly correct or update any
forward-looking statement if the Company later becomes aware that such result is not likely to be
achieved.

The following are some of the general factors that could affect financial performance or could cause
actual results to differ materially from estimates contained in or underlying the Company’s forward-
looking statements:

(cid:129)

increased credit losses or impairments on public finance obligations that National Public
Finance Guarantee Corporation (“National”) insures issued by state, local and territorial
governments and finance authorities and other providers of public services, located in the
U.S. or abroad, that are experiencing fiscal stress;

the possibility that loss reserve estimates are not adequate to cover potential claims;

a disruption in the cash flow from our subsidiaries or an inability to access the capital markets
and our exposure to significant fluctuations in liquidity and asset values in the global credit
markets as a result of collateral posting requirements;

our ability to fully implement our strategic plan;

the possibility that MBIA Insurance Corporation will have inadequate liquidity or resources to
timely pay claims as a result of higher than expected losses on certain structured finance
transactions or as a result of a delay or failure in collecting expected recoveries, which could
lead the New York State Department of Financial Services (“NYSDFS”) to put MBIA
Insurance Corporation into a rehabilitation or liquidation proceeding under Article 74 of the
New York Insurance Law and/or take such other actions as the NYSDFS may deem
necessary to protect the interests of MBIA Insurance Corporation’s policyholders;

deterioration in the economic environment and financial markets in the United States or
abroad, real estate market performance, credit spreads, interest rates and foreign currency
levels; and

the effects of changes to governmental regulation, including insurance laws, securities laws,
tax laws, legal precedents and accounting rules.

The above factors provide a summary of and are qualified in their entirety by the risk factors discussed
under “Risk Factors” in Part I, Item 1A included of this Annual Report on Form 10-K. The Company
encourages readers to review these risk factors in their entirety.

This annual report of MBIA Inc. also includes statements of the opinion and belief of MBIA
management which may be forward-looking statements subject to the preceding cautionary disclosure.
Unless otherwise indicated herein, the basis for each statement of opinion or belief of MBIA
management in this report is the relevant industry or subject matter experience and views of certain
members of MBIA’s management. Accordingly, MBIA cautions readers not to place undue reliance on
any such statements, because like all statements of opinion or belief they are not statements of fact
and may prove to be incorrect. We undertake no obligation to publicly correct or update any statement
of opinion or belief if the Company later becomes aware that such statement of opinion or belief was
not or is not then accurate. In addition, readers are cautioned that each statement of opinion or belief
may be further qualified by disclosures set forth elsewhere in this report or in other disclosures by
MBIA.

Item 1. Business

PART I

As used in this Annual Report on Form 10-K, (i) “MBIA,” the “Company,” “we,” “our” and “us” refer to MBIA Inc., a
Connecticut corporation incorporated in 1986, together with its subsidiaries, and (ii) unless otherwise indicated or
the context otherwise requires, references to “MBIA Corp.” are (i) for any references relating to the period ended
January 10, 2017, to MBIA Insurance Corporation, together with its subsidiaries, MBIA UK Insurance Limited
(“MBIA UK”), and MBIA Mexico S.A. de C.V (“MBIA Mexico”) and (ii) for any references relating to the period after
January 10, 2017, to MBIA Insurance Corporation together with MBIA Mexico.

OVERVIEW

MBIA’s primary business has been to provide financial guarantee insurance to the United States’ public finance
markets through our indirect, wholly-owned subsidiary, National Public Finance Guarantee Corporation
(“National”). National’s financial guarantee insurance policies provide investors with unconditional and irrevocable
guarantees of the payment of the principal, interest or other amounts owing on insured obligations when due. In
June of 2017, National was downgraded by Standard & Poor’s Financial Services LLC (“S&P”), and the Company
subsequently determined that National would cease pursuing the writing of new financial guarantee policies.
National’s primary activity today is to provide ongoing surveillance of its existing insured portfolio of $71.9 billion
gross par outstanding as of December 31, 2017.

The Company’s primary focus today is on ensuring that adequate liquidity exists at MBIA Inc. to satisfy all of its
outstanding obligations, mitigating losses at National and MBIA Corp., including National’s exposures to insured
debt obligations of the Commonwealth of Puerto Rico, as described further herein, and maximizing recoveries on
paid insurance claims. The Company may also pursue strategic alternatives that could enhance shareholder
value.

MBIA has also provided financial guarantee insurance in the international and structured finance markets through
its MBIA Corp. subsidiary. MBIA Corp. continues to manage its insured portfolio, which has reduced substantially
from $331.2 billion as of December 31, 2007 to $15.1 billion as of December 31, 2017. Effective on January 10,
2017, MBIA Corp.’s wholly-owned subsidiary, MBIA UK (Holdings) Limited (“MBIA UK Holdings”), the parent
company to MBIA UK, sold MBIA UK, to Assured Guaranty Corp. (“Assured”), a subsidiary of Assured Guaranty
Ltd. We do not expect MBIA Corp. to write any significant new policies in the foreseeable future in light of
accumulated losses and non-policy claims related to our subordinate surplus note holders, preferred stock
holders, and other lenders.

Given MBIA Corp.’s capital structure and business prospects, we do not expect its financial performance to have
a material impact on MBIA Inc. Refer to “Results of Operations—Capital Resources” in Part II, Item 7 of this Form
10-K for a further discussion of MBIA Corp.’s insurance statutory capital.

MBIA Services Corporation (“MBIA Services”), also owned by MBIA Inc., is a service company which provides
support services such as surveillance, risk management, legal, accounting, treasury and information technology,
among others, to our businesses on a fee-for-service basis.

MBIA completed the sale of its asset management advisory services business operated under Cutwater Holdings
LLC, during the first quarter of 2015.

MBIA Inc. Capital Management

The Company manages its capital and liquidity in order to ensure that it can service its debt and other financial
obligations and pay its operating costs while maintaining an adequate cushion against adverse events. MBIA Inc.
has consistently received dividends from National and releases from the tax escrow account over the past several
years and currently maintains a stable liquidity position which is expected to allow it to service its obligations over
the next several years without needing to access the capital markets. Our capital management strategies include
enhancing shareholder value by (i) having the Company or National repurchase outstanding MBIA Inc. common
shares when management deems such actions are appropriate, taking into account the price of the stock,
anticipated liquidity needs, and other relevant factors and (ii) retiring our unsecured debt through calls and
repurchases at prices that create economic benefit to the Company.

Item 1. Business (continued)

During 2017, the Company and National collectively repurchased 43 million shares at a cost of $325 million under
repurchase authorizations approved by the Board in February of 2016 and June of 2017. During 2016, the
Company and National collectively repurchased 16.6 million shares at a cost of $105 million under repurchase
authorizations approved by the Board in October of 2015 and February of 2016. During 2015, the Company
repurchased 31.9 million shares at a cost of $233 million under repurchase authorizations approved by the Board
in October of 2014 and July of 2015. In addition, National purchased eight million shares at a cost of $70 million
under a one-time authorization approved by the Board in May of 2015. At each time of repurchase, management
and the Board viewed such use of available capital as the best alternative for capital management.

Unsecured debt includes MBIA Inc.’s senior notes and medium-term notes (“MTNs”) issued by its subsidiary
MBIA Global Funding, LLC (“GFL”). During 2017, the Company repurchased $160 million and repaid $38 million
related to GFL debt. During 2016, the Company repurchased $6 million and repaid $123 million related to GFL
debt. During 2015, the Company repurchased $50 million of debt issued by MBIA Inc. or GFL, and repaid
$78 million related to GFL debt.

In each of the fourth quarters of 2017 and 2016, National declared and paid dividends of $118 million, to its
ultimate parent, MBIA Inc. In addition, during the first quarters of 2018 and 2017, MBIA Inc. received $18 million
and $94 million, respectively, in cash from an escrow account held by MBIA Inc. under the MBIA group’s tax
sharing agreement as described further under “Management’s Discussion and Analysis of Financial Condition and
Results of Operations––Liquidity––Corporate Liquidity” in Part II, Item 7 of this Form 10-K.

National Risk Mitigation

National’s most significant risk is credit risk in its large and diverse insured portfolio of domestic public finance
credits. National’s risk mitigation strategy is premised on proactive portfolio management, including surveillance of
financial performance and covenant compliance, the exercise of creditor rights, remediation and – in select cases
– workouts of distressed credits. National’s approach generally focuses on the early detection of stress and
proactive intervention, though its rights and its ability to take certain actions on a particular credit will always be
case-specific. As part of its remediation efforts, National may elect to facilitate and participate in refinancings of
existing credit exposures where the new transaction will have the anticipated effect of improving the issuer’s
ability to service its debt and strengthen National’s legal security or covenant package. National may also seek to
purchase its own insured obligations as part of an overall risk mitigation strategy, subject to internal and
regulatory limitations.

Presently, the most distressed credits in National’s portfolio are obligations issued by the Commonwealth of
Puerto Rico and certain of its instrumentalities. As described further herein, four of these credits, the
Commonwealth’s General Obligation Bonds, the Puerto Rico Sales Tax Financing Corporation (“COFINA”), the
Puerto Rico Highways and Transportation Authority (“PRHTA”) and the Puerto Rico Electric Power Authority
(PREPA) have been placed into bankruptcy-like processes under Title III of the Puerto Rico Oversight,
Management, and Economic Stability Act (“PROMESA”). For additional information relating to the risks arising
from National’s Puerto Rico exposures, refer to the “Insured Portfolio Loss Related Risk Factors” section in Part I,
Item 1A of this Form 10-K.

MBIA Corp. Risk Mitigation

MBIA Corp. has not written a meaningful amount of new business since 2008 as a result of declining financial
capacity, ratings downgrades and regulatory limitations placed on its business. Since that time it has experienced
considerable stress as a result of unprecedented levels of loss in its structured finance insurance business,
primarily in its residential mortgage-backed securities (“RMBS”), commercial mortgage-backed securities
(“CMBS”) pools, and collateralized debt obligation (“CDO”) portfolios. As a result, since 2008, MBIA Corp.’s
strategy has focused primarily on recovering losses on insured RMBS transactions related to the failure of certain
RMBS sellers/servicers to honor their contractual obligations to repurchase ineligible mortgage loans from
securitizations that MBIA Corp. insured, reducing future expected economic losses in the insured portfolio through
commutations and other risk mitigation strategies, and managing liquidity. To date, MBIA Corp. has settled the
majority of its claims related to the improper inclusion of ineligible mortgage loans in insured securitizations,
except with regards to its claims against Credit Suisse, which it estimates as totaling $436 million as of
December 31, 2017. Refer to “Note 6: Loss and Loss Adjustment Expense” in the Notes to Consolidated Financial
Statements in Part II, Item 8 of this Form 10-K for further information regarding loss reserves and recoveries.

Item 1. Business (continued)

Our liquidity and capital forecasts for MBIA Corp. and projected collections of the remaining put-back recoverable,
excess spread (the difference between interest inflows on assets and interest outflows on liabilities in our insured
RMBS transactions) and the Zohar CDOs reflect resources that we expect to be adequate to pay expected
insurance claims. However, there can be no assurance that MBIA Corp. will realize its expected recoveries in full
or on its projected timeframe. Refer to “Risk Factors-MBIA Corp. Risk Factors-Continuing elevated loss payments
and delay or failure in realizing expected recoveries on insured transactions may materially and adversely affect
MBIA Insurance Corporation’s statutory capital and its ability to meet liquidity needs and could cause the New
York State Department of Financial Services (the “NYSDFS”) to put MBIA Insurance Corporation into a
rehabilitation or liquidation proceeding if the NYSDFS concludes that MBIA Insurance Corporation will not be able
to pay expected insurance claims,” in Part I, Item 1A of this Form 10-K. Given the separation of MBIA Inc. and
MBIA Corp. as distinct legal entities, the absence of any cross defaults between the entities, and the lack of
reliance by MBIA Inc. on MBIA Corp. for the receipt of dividends, we do not believe that a rehabilitation or
liquidation proceeding of MBIA Insurance Corporation by the NYSDFS would have any significant long-term
liquidity impact on MBIA Inc. or result in a liquidation or similar proceeding of MBIA Mexico.

OUR INSURANCE OPERATIONS

Our U.S. public finance insurance portfolio is managed through National, and our international and structured
finance insurance portfolios are managed through MBIA Corp. We do not expect National or MBIA Corp. to write
new business for the foreseeable future.

We have been compensated for our insurance policies by insurance premiums that were paid upfront or on an
installment basis. Our financial guarantee insurance was offered in both the new issue and secondary markets. In
addition, we have provided financial guarantees or sureties to debt service reserve funds. The primary risk in our
insurance operations is that of adverse credit performance in the insured portfolio. When writing new business we
sought to maintain a diversified insured portfolio and have insured transactions with the aim of managing and
diversifying risk based on a variety of criteria including revenue source, issue size, type of asset, industry
concentrations, type of bond and geographic location. Despite this objective, there can be no assurance that we
will avoid losses on multiple credits as a result of a single event or series of events.

Because we generally guarantee to the holder of an insured obligation the timely payment of amounts due on the
obligation in accordance with its original payment schedule, in the case of a default or other triggering event,
payments under the insurance policy generally cannot be accelerated against us unless we consent to the
acceleration. In the event of a default, however, we may have the right, in our sole discretion, to accelerate the
obligations and pay them in full. Otherwise, we are required to pay principal, interest or other amounts only as
scheduled payments come due, even if the holders are permitted by the terms of the insured obligations to have
the full amount of principal, accrued interest or other amounts due, declared due and payable immediately in the
event of a default.

Our payment obligations after a default vary by deal and by insurance type. Our public finance insurance
generally insures scheduled interest and principal. Our structured finance policies generally insure (i) timely
interest and ultimate principal; (ii) ultimate principal only at final maturity; or, (iii) payments upon settlement of
individual collateral losses as they occur after any deductible or subordination has been exhausted. With respect
to the insurance of certain derivative transactions, including credit default swap (“CDS”) contracts written in the
international and structured finance insurance segment, in certain circumstances, including the occurrence of
certain insolvency or payment defaults under the CDS contracts, the CDS contracts may be subject to termination
by the counterparty, triggering a claim for the fair value of the contract. Our U.S. public finance segment did not
write insurance in CDS form and therefore its policies do not feature this potential trigger.

In the event of a default in the payment of principal, interest or other insured amounts by an issuer, the insurance
company will make funds available in the insured amount generally within one to three business days following
notification. Longer timeframes may apply for international transactions. Generally, our insurance companies
provide for this payment upon receipt of proof of ownership of the obligations due, as well as upon receipt of
instruments appointing the insurer as agent for the holders and evidencing the assignment of the rights of the
holders with respect to the payments made by the insurer or other appropriate documentation.

Item 1. Business (continued)

National Insured Portfolio

National’s insured portfolio consists of municipal bonds, including tax-exempt and taxable indebtedness of U.S.
political subdivisions and territories, as well as utilities, airports, health care institutions, higher educational
facilities, student loan issuers, 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 are generally supported by taxes, assessments, user fees or
tariffs related to the use of these projects, lease payments or other similar types of revenue streams.

As of December 31, 2017, National had $71.9 billion of insured gross par outstanding on U.S. public finance
obligations covering 4,753 policies and diversified among 2,585 “credits,” which we define as any group of issues
supported by the same revenue source. Insurance in force, which includes all insured debt service, as of
December 31, 2017 was $134.0 billion.

All of the policies were underwritten on the assumption that the insurance will remain in force until maturity or
early retirement of the insured obligations. National estimates that the average life of its domestic public finance
insurance policies in force as of December 31, 2017 was 10 years. The average life was determined by applying a
weighted average calculation, using the remaining years to contractual maturity and weighting them on the basis
of the remaining debt service insured. No assumptions were made for any future refundings, early redemptions or
terminations of insured issues. Average annual insured debt service on the portfolio as of December 31, 2017
was $7.9 billion.

National’s underwriting guidelines limited the insurance in force for any one insured credit, and for other
categories such as geography. In addition, National is subject to regulatory single-risk limits with respect to any
insured bond issue. See the “Insurance Regulation” section below for a description of these regulatory
requirements. As of December 31, 2017, National’s gross par amount outstanding for its ten largest insured U.S.
public finance credits totaled $10.8 billion, representing 15.0% of National’s total U.S. public finance gross par
amount outstanding. Refer to “Note 13: Insurance in Force” in the Notes to Consolidated Financial Statements in
Part II, Item 8 of this Form 10-K for further information regarding the Company’s insured portfolio.

MBIA Corp. Insured Portfolio

MBIA Corp.’s insured portfolio consists of policies that insure various types of international public finance and
global structured finance obligations that were sold in the new issue and secondary markets or are referenced in
CDS contracts. International public finance obligations include bonds and loans extended to entities located
outside of the U.S., including utilities, infrastructure projects and sovereign-related and sub-sovereign issuers,
such as regions, authorities or their equivalent as well as sovereign owned entities that might be supported by a
sovereign state, region or authority. Sovereign-related includes Private Finance Initiative transactions that involve
private entities that receive contractual payments for providing services to public sector entities. Global structured
finance obligations include asset-backed transactions and financing of commercial activities that are typically
secured by undivided interests or collateralized by the related assets or cash flows or, in the case of certain CDS
transactions, reference the underlying obligations. Certain policies cover payments potentially due under CDS,
including termination payments that may become due in certain circumstances, including the occurrence of
certain insolvency or payment defaults under the CDS or derivative contracts by the insured counterparty or by
the guarantor.

As of December 31, 2017, MBIA Corp. had 388 policies outstanding in its insured portfolio. In addition, MBIA
Corp. had 67 insurance policies outstanding relating to liabilities issued by MBIA Inc. and its subsidiaries, which
are described further under the section “Affiliated Financial Obligations Insured by MBIA Corp.” below. MBIA
Corp.’s total policies in its insured portfolio are diversified among 254 “credits,” which we define as any group of
policies supported by the same revenue source.

Item 1. Business (continued)

As of December 31, 2017, the gross par amount outstanding of MBIA Corp.’s insured obligations (excluding
$1.5 billion of MBIA insured investment agreements, MTNs and the MBIA Corp. Financing Facility and
$44.9 billion of U.S. public finance debt ceded to National), was $15.1 billion. Insurance in force for the above
portfolio, which includes all insured debt service, as of December 31, 2017 was $21.0 billion.

MBIA Corp. estimates that the average life of its international and structured finance insurance policies in force as
of December 31, 2017 is 8 years. The average life was determined by applying a calculation using the remaining
years to contractual maturity for international public finance obligations and estimated maturity for structured
finance obligations and weighting them on the basis of the remaining debt service insured. No assumptions were
made for any future refundings, early redemptions or terminations of insured issues. Average annual insured debt
service on the portfolio as of December 31, 2017 was $1.8 billion. Refer to “Note 13: Insurance in Force” in the
Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K for further information regarding
the Company’s insured portfolio.

Affiliated Financial Obligations Insured by MBIA Corp.

Prior to 2008, MBIA Inc. provided customized investment agreements by MBIA Inc. and one of its subsidiaries,
GFL, issued MTNs with varying maturities. Each of these obligations is guaranteed by MBIA Corp. GFL lent the
proceeds of its GFL MTN issuances to MBIA Inc. As a result of ratings downgrades of MBIA Corp., MBIA Inc. is
required to post collateral for the remaining investment agreements. Since the ratings downgrades of MBIA Corp.
that began in 2008, we have not issued new MTNs or investment agreements. The investment agreements are
currently fully collateralized with high quality assets. We believe the outstanding investment agreements and
MTNs and corresponding asset balances will continue to decline over time as the liabilities mature, terminate, or
are repurchased by the Company.

In January of 2017, MBIA Corp. executed a financing facility (the “Facility”) with affiliates of certain holders of 14%
Fixed-to-Floating Rate Surplus Notes of MBIA Corp. (collectively, the “Senior Lenders”), and with MBIA Inc.,
pursuant to which the Senior Lenders have provided $325 million of senior financing and MBIA Inc. has provided
$38 million of subordinated financing to MZ Funding LLC (“MZ Funding”), a newly formed wholly-owned
subsidiary of the Company, which in turn lent the proceeds of such financing to MBIA Corp. MBIA Corp. issued
financial guarantee insurance policies insuring MZ Funding’s obligations under the Facility. Refer to “Note 10:
Debt” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K for further information
on the Facility.

Risk Management

Our largest risk is the credit exposure in our insured portfolio. The Company’s credit risk management and
remediation functions are managed through committees and units that oversee risks in ongoing portfolio
monitoring, surveillance and remediation. The Company’s Insured Portfolio Management Division (“IPM”)
monitors and remediates U.S. public finance transactions, global structured finance and international public
finance risks. National and MBIA Insurance Corporation each has risk and investment committees to review
investment and portfolio-related decisions. On an enterprise-wide basis, executive committees provide risk
oversight.

The Company’s Risk Oversight Committee (the “Risk Oversight Committee”) reviews transactions not otherwise
reviewable by the subsidiary risk committees, and provides firm-wide review of policies and decisions related to
credit, market, operational, legal, financial and business risks. The Company’s Loss Reserve Committees review
loss reserve activity.

The Company’s Board of Directors and its Committees oversee risks faced by the Company and its subsidiaries.
The Board regularly evaluates and discusses risks associated with strategic initiatives. On an annual basis, the
Board also evaluates and approves the Company’s risk tolerance policy. The purpose of the risk tolerance policy
is to delineate the types and amounts of risks the Company is prepared to accept. This policy provides the basis
upon which risk criteria and procedures are developed and seeks to have these applied consistently across the
Company. The Board’s Audit Committee and Finance and Risk Committee meaningfully participate in the
oversight of risks faced by the Company.

Item 1. Business (continued)

The Audit Committee oversees risks associated with financial and other reporting, auditing, legal and regulatory
compliance, and risks that may otherwise result from the Company’s operations. The Audit Committee oversees
these risks by monitoring (i) the integrity of the financial statements of the Company and of other material financial
disclosures made by the Company, (ii) the qualifications, independence and performance of the Company’s
independent auditor, (iii) the performance of the Company’s internal audit function, (iv) the Company’s compliance
policies and procedures and its compliance with legal and regulatory requirements, and (v) the performance of the
Company’s operational risk management function.

The Finance and Risk Committee oversees the Company’s credit risk governance framework, market risk,
liquidity risk and other material financial risks. The Finance and Risk Committee oversees these risks by
monitoring the Company’s: (i) capital and liquidity, (ii) proprietary investment portfolios, (iii) exposure to changes
in the market value of assets and liabilities, (iv) credit exposures in the Insured Portfolios, and (v) financial risk
policies and procedures, including regulatory requirements and limits.

At each regular meeting of the Board, the Chairs of each of these committees report to the full Board regarding
the meetings and activities of their respective committees.

The Company’s Risk Oversight Committee has designated a Models Governance Team. Given the significance of
models in the Company’s surveillance, financial reporting and corporate treasury operations, among other
activities, the Company established a Models Risk Governance Policy to enhance the reliability, maintenance and
transparency of its models so that models risk can be mitigated on an enterprise-wide basis. The Models
Governance Team is responsible for the Models Risk Governance Policy as well as other Models Governance
related initiatives.

Insurance Monitoring and Remediation

We monitor and remediate our existing insured portfolios on an ongoing basis. Although our monitoring and
remediation activities vary somewhat by sector and bond type, in all cases we focus on assessing event risk and
possible losses under stress.

(cid:129)

U.S. Public Finance: For U.S. public finance, our underwriting at origination and ongoing monitoring
focuses on economic and political trends, issuer or project debt and financial management, construction
and start up risk, adequacy of historical and anticipated cash flows under stress, satisfactory legal
structure and bond security provisions, viable tax and economic bases, including consideration of tax
limitations and unemployment trends, adequacy of stressed loss coverage and project feasibility,
including satisfactory reports from consulting engineers, traffic advisors and others, if applicable.
Depending on the transaction, specialized cash flow analyses may be conducted to understand loss
sensitivity. In addition, specialized credit analysts consider the potential event risk of natural disasters or
headline events on both single transactions and across a sector, as well as regulatory issues. U.S. public
finance transactions are monitored by reviewing trustee, issuer and project financial and operating
reports as well as reports provided by technical advisors and counsel. Projects may be periodically
visited by National personnel.

International Public Finance: International public finance transactions are monitored and remediated in a
manner relatively consistent with U.S. public finance transactions. In addition, credit analysts consider
country risk, including economic and political factors, the type and quality of local regulatory oversight,
the strength of the legal framework in each country and the stability of the local institutional framework.
Analysts also monitor local accounting and legal requirements, local financial market developments, the
impact of exchange rates and local demand dynamics. Furthermore, exposures are reviewed
periodically; the frequency and scope of review is often increased when an exposure is downgraded.
MBIA personnel may periodically visit projects or issuers to meet with management.

Global Structured Finance Transactions: For global structured finance transactions, we focus on the
historical and projected cash flows generated by the assets, the credit and operational strength of the
originator, servicer, manager and/or operator of the assets, and the transaction’s structure (including the
degree of protection from bankruptcy of the originator or servicer). We may use both probability modeling
and cash flow sensitivity analysis (both at the transaction and asset specific levels) to test asset
performance assumptions and performance covenants, triggers and remedies. In addition, IPM may use
various quantitative tools and qualitative analyses to test for credit quality, correlation, liquidity and
capital sensitivity within the insured portfolio.

Item 1. Business (continued)

A key to our ongoing monitoring is early detection of deterioration in either transaction credit quality or macroeconomic
or market factors that could adversely impact an insured credit. If deterioration is detected, analysts generally evaluate
possible remedial actions and, in the event of significant stress, we may develop and implement a remediation strategy.
The nature of any remedial action is based on the type of insured issue and the nature and scope of the event giving
rise to the remediation. In most cases, as part of any such remedial activity, we work with the issuer, trustee, legal
counsel, financial advisors, servicer, other creditors, underwriters and/or other related parties to reduce chances of
default and the potential severity of loss if a default should occur.

We use an internal credit rating system to rank credits, with frequency of review based on risk type, internal
rating, performance and credit quality. Credits with performance issues are designated as “Caution List-Low,”
“Caution List-Medium” or “Caution List-High” based on the nature and extent of our concerns, but these
categories do not require establishment of any case basis reserves. In the event we determine that a claim for
payment is expected with respect to an insured issue using probability-weighted expected cash flows based on
available information, including market data, we place the issue on the “Classified List” and establish a case basis
loss reserve for that insured issue. See “Losses and Reserves” below for information on our loss reserving
process.

Credit Risk Models

We use credit risk models to test qualitative judgments, to design appropriate structures and to understand
sensitivity within transactions and across broader portfolio exposure concentrations. Models are updated to reflect
changes in both portfolio and transaction data and also in expectations of stressed future outcomes. For portfolio
monitoring we use internal and third-party models based on individual transaction attributes and customized
structures and these models are also used to determine case basis loss reserves and, where applicable, to
mark-to-market any insured obligations as may be required for financial reporting. When using third-party models,
we generally perform the same review and analyses of the collateral, transaction structure, performance triggers
and cash flow waterfalls as when using our internal models. See “Risk Factors—Insured Portfolio Loss Related
Risk Factors—Financial modeling involves uncertainty over ultimate outcomes which makes it difficult to estimate
liquidity, potential paid claims payments, loss reserves and fair values” in Part I, Item 1A of this Form 10-K.

Market Risk Assessment

We measure and assess market risk on a consolidated basis as well as at the holding company and subsidiaries
on a stand-alone basis. Key market risks are changes in interest rates, credit spreads and foreign exchange. We
use various models and methodologies to test exposure under market stress scenarios, including parallel and
non-parallel shifts in the yield curve, changes in credit spreads, and changes in foreign exchange rates. We also
analyze stressed liquidity scenarios and stressed counterparty exposures. The analyses are used in testing
investment portfolio guidelines. The Risk Oversight Committee and the Finance and Risk Committee of the
Company’s Board of Directors receive periodic reports on market risk.

Operational Risk Assessment

The Operational Risk function assesses potential economic loss or reputational impact arising from processes
and controls, systems, or staff actions and seeks to identify vulnerabilities to operational disruptions caused by
external events. The Operational Risk framework is generally managed using a self-assessment process across
our business units, with controls associated with the execution of key processes monitored through Internal Audit
reviews. The Operational Risk function reports periodically to the Risk Oversight Committee and the Audit
Committee of the Company’s Board of Directors. The Audit Committee reviews the Company’s operational risk
profile, risk event activity and ongoing risk mitigation efforts.

Item 1. Business (continued)

Losses and Reserves

Loss and loss adjustment expense (“LAE”) reserves are established by Loss Reserve Committees in each of our
operating insurance companies and are reviewed by our executive Loss Reserve Committee, which consists of
members of senior management. The Company’s loss and LAE reserves as of December 31, 2017 represent
case basis reserves and estimates for LAE to be incurred. Case basis reserves represent the Company’s
estimate of expected losses to be paid under its insurance contracts, net of potential recoveries and discounted
using a current risk-free interest rate, for contracts where the estimated loss amount exceeds the unearned
premium revenue on the related insurance contract. The Company estimates expected losses net of potential
recoveries using the present value of probability-weighted estimated loss payments and recoveries, discounted at
a rate equal to the risk-free rate applicable to the currency and weighted average remaining life of the insurance
contract as required by accounting principles for financial guarantee contracts. We record case basis loss
reserves on insured obligations which have defaulted or are expected to default during the remaining life of the
obligation.

For a further discussion of the methodology used by the Company for determining when a case basis reserve is
established, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—
Critical Accounting Estimates—Loss and Loss Adjustment Expense Reserves” in Part II, Item 7 of this Form 10-K.
Management believes that our reserves are adequate to cover the ultimate net cost of claims. However, because
the reserves are based on management’s judgment and estimates, there can be no assurance that the ultimate
liability will not exceed such estimates or that the timing of claims payments and the realization of recoveries will
not create liquidity issues for the corresponding insurance company.

Reinsurance

We currently have third-party reinsurance agreements in place covering 3% of our insured par outstanding. At this
time we do not intend to utilize reinsurance to decrease the insured exposure in our portfolio; however, we may,
from time to time, look to enter into transactions to reduce risks embedded in our insured portfolios on an
individual and portfolio-wide basis.

Intercompany Reinsurance Arrangements

MBIA Corp. and National are parties to a reinsurance agreement pursuant to which National reinsures certain
public finance financial guarantee policies originally written by MBIA Corp., as well as an assignment agreement
under which MBIA Corp. assigned to National its rights and obligations under public finance financial guarantee
policies of Financial Guaranty Insurance Company (“FGIC”) which were originally reinsured by MBIA Corp., and
ultimately novated to National pursuant to a novation agreement between National and FGIC effective August of
2013. In addition, National entered into second-to-pay policies covering the policies covered by each of these
agreements. The reinsurance agreement pursuant to which MBIA Corp. had reinsured the FGIC public finance
guarantee policies was terminated in 2013 in connection with the novation to National of the policies covered by
the agreement.

MBIA Insurance Corporation maintains a reinsurance agreement and net worth maintenance agreement with
MBIA Mexico pursuant to which MBIA Insurance Corporation reinsures 100% of the business underwritten by
MBIA Mexico and agrees to maintain the amount of capital in MBIA Mexico required by applicable law or
regulation, subject to certain New York State regulatory requirements as well as certain contract restrictions. In
December of 2015, MBIA Insurance Corporation terminated its reinsurance agreement and its net worth
maintenance agreement with MBIA UK by mutual consent.

Insurance Regulation

National and MBIA Insurance Corporation are incorporated in and subject to primary insurance regulation and
supervision by the State of New York. MBIA Corp.’s Spanish Branch is subject to local regulation in Spain. MBIA
Mexico is organized and subject to primary regulation and supervision in Mexico. The Company’s insurance
subsidiaries are also licensed to issue financial guarantee policies in multiple jurisdictions as needed to conduct
their business activities.

Item 1. Business (continued)

The extent of state and national insurance regulation and supervision varies by jurisdiction, but New York, Spain,
Mexico and most other jurisdictions have laws and regulations prescribing minimum standards of solvency,
including minimum capital requirements, and business conduct which must be maintained by insurance
companies, and if our insurance companies fail to meet such requirements our regulators may impose certain
remedial actions. Among other regulated conduct, these laws and regulations prescribe permitted classes and
concentrations of investments. In addition, some state laws and regulations require the approval or filing of policy
forms and rates. MBIA Insurance Corporation and National each are required to file detailed annual financial
statements with the NYSDFS and similar supervisory agencies in each of the other jurisdictions in which it is
licensed. The operations and accounts of the insurance companies are subject to examination by regulatory
agencies at regular intervals. In addition to being subject to the insurance laws in the jurisdictions in which we
operate, as a condition to obtaining required insurance regulatory approvals to enter into certain transactions and
take certain other corporate actions, including the release of excessive contingency reserves in MBIA Insurance
Corporation described below under “Contingency Reserves” and entry into the asset swap between MBIA Inc.
and National described under “Management’s Discussion and Analysis of Financial Condition and Results of
Operations––Liquidity––Corporate Liquidity” in Part II, Item 7 of this Form 10-K, MBIA Inc. and its operating
insurance subsidiaries have and may in the future agree to provide notice to the NYSDFS or other applicable
regulators prior to entering into transactions or taking other corporate actions (such as paying dividends when
applicable statutory tests are satisfied) that would not otherwise require regulatory approval.

New York Insurance Regulation

Our domestic insurance companies are licensed to provide financial guarantee insurance under Article 69 of the
New York Insurance Law (the “NYIL”). Article 69 defines financial guarantee insurance to include any guarantee
under which loss is payable upon proof of occurrence of financial loss to an insured as a result of certain events.
These events include the failure of any obligor or any issuer of any debt instrument or other monetary obligation
to pay principal, interest, premium, dividend or purchase price of or on such instrument or obligation when due.
Under Article 69, our domestic insurance companies are permitted to transact financial guarantee insurance,
surety insurance and credit insurance and such other kinds of business to the extent necessarily or properly
incidental to the kinds of insurance which they are authorized to transact. In addition, they are empowered to
assume or reinsure the kinds of insurance described above. Amendments to the statutes or regulations governing
financial guarantee insurers are possible, but the adoption or timing of any such amendments is uncertain.

New York State Dividend Limitations

The laws of New York regulate the payment of dividends by National and MBIA Insurance Corporation and
provide that a New York domestic stock property/casualty insurance company may not declare or distribute
dividends except out of statutory earned surplus. New York law provides that the sum of (i) the amount of
dividends declared or distributed during the preceding 12-month period and (ii) the dividend to be declared may
not exceed the lesser of (a) 10% of policyholders’ surplus, as shown by the most recent statutory financial
statement on file with the NYSDFS, or (b) 100% of adjusted net investment income for such 12-month period (the
net investment income for such 12-month period plus the excess, if any, of net investment income over dividends
declared or distributed during the two-year period preceding such 12-month period), unless the Superintendent of
Financial Services of the State of New York (the “Superintendent”) approves a greater dividend distribution based
upon a finding that the insurer will retain sufficient surplus to support its obligations and writings.

National declared and paid a dividend of $118 million to its ultimate parent, MBIA Inc., during the fourth quarter of
2017.

Due to its significant negative earned surplus, MBIA Insurance Corporation has not had the statutory capacity to
pay dividends since December 31, 2009 and is not expected to have any statutory capacity to pay any dividends
for the foreseeable future. In connection with MBIA Insurance Corporation obtaining approval from the NYSDFS
to release excessive contingency reserves as of September 30, 2011, December 31, 2011 and March 31, 2012,
MBIA Corp. agreed that it would not pay any dividends without receiving prior approval from the NYSDFS. The
foregoing dividend limitations are determined in accordance with statutory accounting principles (“U.S. STAT”).

Item 1. Business (continued)

Contingency Reserves

As financial guarantee insurers, our domestic insurance companies are required by the laws and regulations of New
York and other states to maintain, as applicable, contingency reserves on their municipal bond, asset-backed
securities (“ABS”) or other financial guarantee liabilities. Under New York law, a financial guarantee insurance
company is required to contribute to contingency reserves 50% of premiums as they are earned on policies written
prior to July 1, 1989 (net of reinsurance), and, with respect to policies written on and after July 1, 1989, such an
insurer must make contributions over a period of 15 or 20 years (based on issue type), or until the contingency
reserve for such insured issues equals the greater of 50% of premiums written for the relevant category of insurance
or a percentage of the principal guaranteed, varying from 0.55% to 2.5%, depending upon the type of obligation
guaranteed (net of collateral, reinsurance, refunding, refinancings and certain insured securities). Other states
maintain similar requirements. The contribution to, and maintenance of, the contingency reserve limits the amount of
earned surplus that might otherwise be available for the payment of dividends. In each state, our domestic insurance
companies may apply for release of portions of their contingency reserves in certain circumstances.

Risk Limits

Insurance laws and regulations also limit both the aggregate and individual securities risks that our domestic
insurance companies may insure on a net basis based on the type of obligations insured. The individual limits are
generally on the amount of insured par and/or annual debt service for a given insured issue, entity or revenues
source and stated as a percentage of the insurer’s policyholders’ surplus and contingency reserves. The
aggregate risk limits limit the aggregate amount of insured par to a stated multiple of the insurer’s policyholders’
surplus and contingency reserves based on the types of obligations insured. The aggregate risk limits can range
from 300:1 for certain municipal obligations to 50:1 for certain non-municipal obligations.

National is in compliance with the relevant aggregate and single risk limits. During 2017 and 2016, MBIA
Insurance Corporation reported single risk limit overages to the NYSDFS due to changes in its statutory capital.
MBIA Insurance Corporation is currently in compliance with its aggregate risk limits as of December 31, 2017.

Holding Company Regulation

MBIA Inc., National and MBIA Insurance Corporation also are subject to regulation under the insurance holding
company statutes of New York. The requirements of holding company statutes vary from jurisdiction to jurisdiction
but generally require insurance companies that are part of an insurance holding company system to register and
file certain reports describing, among other information, their capital structure, ownership and financial condition.
The holding company statutes also generally require prior approval of changes in control, of certain dividends and
other inter-corporate transfers of assets, and of certain transactions between insurance companies, their parents
and affiliates. The holding company statutes impose standards on certain transactions with related companies,
which include, among other requirements, that all transactions be fair and reasonable and those transactions not
in the ordinary course of business exceeding specified limits receive prior regulatory approval.

Change of Control

Prior approval by the NYSDFS is required for any entity seeking to acquire, directly or indirectly, “control” of
National or MBIA Insurance Corporation. In many states, including New York, “control” is presumed to exist if 10%
or more of the voting securities of the insurer are owned or controlled, directly or indirectly, by an entity, although
the insurance regulator may find that “control” in fact does or does not exist when an entity owns or controls either
a lesser or greater amount of securities. MBIA Insurance Corporation would require the prior approval of MBIA
Mexico’s regulator in order to transfer the shares it currently holds in MBIA Mexico.

Insurance Guarantee Funds

National and MBIA Insurance Corporation are exempt from assessments by the insurance guarantee funds in the
majority of the states in which they do business. Guarantee fund laws in most states require insurers transacting
business in the state to participate in guarantee associations, which pay claims of policyholders and third-party
claimants against impaired or insolvent insurance companies doing business in the state. In most states, insurers
licensed to write only municipal bond insurance, financial guarantee insurance and other forms of surety
insurance are exempt from assessment by these funds and their policyholders are prohibited from making claims
on these funds.

Item 1. Business (continued)

Insured Credit Default Swaps

Certain of MBIA Corp. guarantee payments due under CDS and other derivatives. In July of 2010, the Dodd-
Frank Reform and Consumer Protection Act (the “Dodd-Frank Act”) was signed into law for the purpose of
enacting broad financial industry regulatory reform, including by enhancing regulation of the over-the-counter
derivatives markets. Among other reforms, the Dodd-Frank Act requires “swap dealers” and “major swap
participants” to register with either or both of the Commodity Futures Trading Commission (“CFTC”) and the
Securities and Exchange Commission (“SEC”), and to be subject to enhanced regulation, including capital
requirements. Previously, MBIA Corp. was registered with the CFTC as a major swap participant and had been
required to comply with the CFTC’s business conduct rules as applied to portfolios in place prior to the enactment
of the Dodd-Frank Act. In May of 2015, MBIA Corp. de-registered as a major swap participant as the notional
amount and fair value of its CDS exposures declined below the registration thresholds. As of December 31, 2017,
MBIA Corp. insured one CDS derivative policy with $127 million of gross par outstanding.

OUR ADVISORY SERVICES

Until January of 2015, we conducted our asset management advisory services business through two registered
investment adviser subsidiaries of Cutwater Holdings, LLC (together, “Cutwater”), a wholly-owned subsidiary of
MBIA Inc. Effective January 1, 2015, we completed the sale of Cutwater to the Bank of New York Mellon
Corporation. This transaction had a positive but immaterial impact on the Company’s financial position and results
of operations. In connection with the sale, the Company and its subsidiaries entered into investment management
agreements with Cutwater (now known as “Insight Investment”) to manage their respective fixed-income
investment portfolios for the following five years.

INVESTMENTS AND INVESTMENT POLICY

Investment objectives, policies and guidelines related to the Company’s businesses are generally subject to
review and approval by the Finance and Risk Committee of the Board of Directors. Investment objectives, policies
and guidelines related to investment activity on behalf of our insurance companies are also subject to review and
approval by the respective Investment Committee of their Boards of Directors or similar body.

Insight Investment manages the proprietary investment portfolios of the Company and its subsidiaries in
accordance with the guidelines adopted for each such portfolio. The agreements with Insight Investment provide
generally that Insight Investment will have the exclusive right to manage the fixed-income investment portfolios of
the Company and its subsidiaries until December 31, 2019 and guarantee certain minimum revenues thereunder.
The agreements are subject to early termination under certain conditions including if certain performance
objectives are not met.

To continue to optimize capital resources and provide for claims-paying capabilities, the investment objectives
and policies of our insurance operations are tailored to reflect their various strategies and operating conditions.
The investment objectives of MBIA Corp. are primarily to maintain adequate liquidity to meet claims-paying and
other corporate needs and secondarily to maximize after-tax income within defined investment risk limits. The
investment objectives of National set preservation of capital as the primary objective, subject to an appropriate
degree of liquidity, and optimization of after-tax income and total return as secondary objectives. The investment
objectives of the corporate segment are to provide sufficient liquidity to meet maturing liabilities and, in the case of
the investment agreement business collateral posting obligations, while maximizing the total long-term return. The
investment portfolio of each subsidiary is managed by Insight Investment under separate investment services
agreements.

Item 1. Business (continued)

RATING AGENCIES

On September 28, 2017, MBIA Inc., on behalf of its subsidiaries, National and MBIA Corp., provided notice to
Moody’s Investors Services (“Moody’s”) terminating the agreement by which Moody’s agreed to provide financial
strength ratings to MBIA Inc., National, MBIA Corp. and MBIA Mexico. Also on September 28, 2017, National
provided notice to Kroll Bond Rating Agency (“Kroll”) terminating the agreement by which Kroll agreed to provide
a financial strength rating to National. These termination notices were effective in October of 2017. On
December 5, 2017, Kroll downgraded the rating of National from AA+ to AA with a negative outlook and
subsequently withdrew its rating. On January 17, 2018 Moody’s downgraded the rating of National from A3 with a
negative outlook to Baa2 with a stable outlook. Similarly, Moody’s downgraded the rating of MBIA Inc. from Ba1
with a negative outlook to Ba3 with a stable outlook. The rating of MBIA Corp. was affirmed at Caa1 with a
developing outlook. The rating of MBIA Mexico was affirmed at Caa1/B3.mx with a developing outlook. Moody’s,
at its discretion and in the absence of a contract with the Company, continues to maintain ratings on MBIA Inc.
and its subsidiaries. On November 28, 2017, MBIA Inc. and its subsidiaries, National and MBIA Corp., provided
notice to S&P terminating the agreements by which S&P agreed to provide financial strength ratings to MBIA Inc.,
National and MBIA Corp. On December 1, 2017, S&P affirmed the National A with a stable outlook and
subsequently withdrew all of its ratings.

The Company does not currently maintain a capital facility. For a discussion of the Company’s capital resources
refer to “Capital Resources” in Part II, Item 7 of this Form 10-K.

CAPITAL FACILITIES

FINANCIAL INFORMATION

Refer to “Note 12: Business Segments” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this
Form 10-K for information on the Company’s financial information by segment and premiums earned by
geographic location.

As of December 31, 2017, the Company had 103 employees. None of the Company’s employees are covered by
collective bargaining agreements. The Company considers its employee relations to be satisfactory.

EMPLOYEES

AVAILABLE INFORMATION

The Company maintains a website at www.mbia.com. The Company is not including the information on its
website as a part of, nor is it incorporating such information by reference into, this Form 10-K. The Company
makes available through its website under the “SEC Filings” tab, free of charge, all of its SEC filings, including
annual reports on Form 10-K, quarterly filings on Form 10-Q, current reports on Form 8-K and amendments to
those reports as soon as is reasonably practicable after these materials have been filed with or furnished to the
SEC.

As a courtesy, the Company posts on its website under the section “Legal Proceedings,” selected information and
documents in reference to selected legal proceedings in which the Company is the plaintiff or the defendant. The
Company will not necessarily post all documents for each proceeding and undertakes no obligation to revise or
update them to reflect changes in events or expectations. The complete official court docket can be publicly
accessed by contacting the clerk’s office of the respective court where each litigation matter is pending.

Item 1. Business (continued)

The Company is providing public access to certain non-confidential information regarding the assets securing the
facility extended by its subsidiary, MZ Funding LLC (“MZ Funding”), on the Company’s MZ Funding web page. It
will also make available certain confidential information subject to the execution of a non-disclosure agreement.
Instructions for accessing the information are available on the MZ Funding web page. A description of the MZ
Funding facility, as well as several documents pertaining thereto, including, among others, the Senior Note
Indenture, the Credit Agreement, and the Security Agreement, can be found on the Form 8-K filed by the
Company on January 10, 2017, available on the Company’s website at www.mbia.com.

EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officers of the Company and their present ages and positions with the Company as of March 1,
2018 are set forth below:

Name

Age Position and Term of Office

William C. Fallon
Anthony McKiernan

58 Chief Executive Officer and Director (executive officer since July 2005)
48 Executive Vice President and Chief Financial Officer (executive officer since

August 2011)

Jonathan C. Harris
Daniel M. Avitabile

46 General Counsel and Secretary (executive officer since September 2017)
44 Assistant Vice President, and President and Chief Risk Officer of MBIA Corp.

Adam T. Bergonzi

54 Assistant Vice President, and Chief Risk Officer of National (executive officer

(executive officer since September 2017)

Christopher H. Young

45 Assistant Vice President, and Chief Financial Officer of National (executive

Joseph R. Schachinger

49 Controller (executive officer since May 2017)

officer since September 2017)

since September 2017)

William C. Fallon was elected as a Director of the Company in May 2017, and appointed as Chief Executive
Officer on September 15, 2017. Prior to being named Chief Executive Officer and Director, Mr. Fallon served as
President, Chief Operating Officer, and Vice President of the Company and head of the Global Structured
Finance Division. Mr. Fallon also serves as President and Chief Executive Officer of National. From July of 2005
to March 1, 2007, Mr. Fallon was Vice President of the Company and head of Corporate and Strategic Planning.
Prior to joining the Company in 2005, Mr. Fallon was a partner at McKinsey & Company and co-leader of that
firm’s Corporate Finance and Strategy Practice.

Anthony McKiernan was named Executive Vice President and Chief Financial Officer on May 1, 2012 and
March 11, 2016, respectively. Immediately prior to those appointments Mr. McKiernan was Vice President and
Chief Portfolio Officer of the Company. Mr. McKiernan is also Chairman and Chief Financial Officer of MBIA Corp.
Mr. McKiernan joined MBIA in 2000 as a vice president in the Credit Analytics Group, and managed the
Corporate Insured Portfolio Management Group prior to becoming the Head of the Structured Finance Insured
Portfolio Management Group in 2007.

The Board of Directors of MBIA Inc. appointed Mr. Fallon to the office set forth opposite his name above on
September 15, 2017 and appointed Mr. McKiernan to the offices set forth opposite his name above on May 1,
2012 and March 11, 2016.

Jonathan C. Harris is General Counsel and Secretary of the Company. Prior to being named General Counsel
and Secretary, Mr. Harris served as Assistant Vice President and Head of Litigation. Mr. Harris joined the
Company as Head of Litigation in 2009. Prior to joining the Company, Mr. Harris was litigation counsel at Lehman
Brothers, and practiced in the litigation department of Willkie Farr & Gallagher. The Board of Directors of MBIA
Inc. appointed Mr. Harris to the offices set forth opposite his name above on May 3, 2017.

Item 1. Business (continued)

Daniel M. Avitabile is an Assistant Vice President of the Company and President and Chief Risk Officer of MBIA
Corp. Prior to being named Chief Risk Officer in 2016, Mr. Avitabile managed MBIA Corp.’s Special Situations
Group, which was responsible for remediation and commutation activity. Mr. Avitabile has worked at MBIA since
2000, where he has held positions in insured portfolio management, remediation, corporate strategy and
structured finance new business. Prior to joining MBIA, he held positions at The Chase Manhattan Bank and
State Street Bank. The Board of Directors of MBIA Inc. and MBIA Insurance Corporation appointed Mr. Avitabile
to the offices set forth opposite his name above on February 13, 2018, September 15, 2017 and March 11, 2016,
respectively.

Adam T. Bergonzi is an Assistant Vice President of the Company and Chief Risk Officer of National, overseeing
all of National’s risk and insured portfolio management activities. Prior to being named Chief Risk Officer of
National in 2010 when he rejoined the Company, Mr. Bergonzi was employed at Municipal and Infrastructure
Assurance Corporation, which he co-founded and served as its Chief Risk Officer, from 2008 to 2010. The Board
of Directors of MBIA Inc. and National Public Finance Guarantee Corporation appointed Mr. Bergonzi to the
offices set forth opposite his name above on May 3, 2016 and November 15, 2010, respectively.

Christopher H. Young is an Assistant Vice President of the Company and Chief Financial Officer of National. Prior
to being named National’s Chief Financial Officer in March of 2009, from 2001 to 2009, Mr. Young worked at
MBIA Insurance Corporation in a variety of Structured Finance positions and in Corporate Strategy. The Board of
Directors of MBIA Inc. and National Public Finance Guarantee Corporation appointed Mr. Young to the offices set
forth opposite his name above on February 13, 2018 and March 5, 2009, respectively.

Joseph R. Schachinger is the Company’s Controller. Prior to being named Controller in May of 2017, since 2009
Mr. Schachinger served as Deputy Controller. The Board of Directors of MBIA Inc. appointed Mr. Schachinger to
the office set forth opposite his name above on May 3, 2017.

Item 1A. Risk Factors

References in the risk factors to the “Company” are to MBIA Inc., together with its domestic and international
subsidiaries. References to “we,” “our” and “us” are to MBIA Inc. or the Company, as the context requires. Our
risk factors are grouped into categories and are presented in the following order: “Insured Portfolio Loss Related
Risk Factors”, “Legal, Regulatory and Other Risk Factors”, “Capital, Liquidity and Market Related Risk Factors”
and “MBIA Corp. Risk Factors.” Risk factors are generally listed in order of significance within each category.

Insured Portfolio Loss Related Risk Factors

Some of the state, local and territorial governments and finance authorities and other providers of public
services, located in the U.S. or abroad, that issue public finance obligations we insure are experiencing
fiscal stress that could result in increased credit losses or impairments on those obligations.

Some of the state, local and territorial governments and finance authorities that issued the obligations we insure
are reporting fiscal stress that has resulted in a significant increase in taxes and/or a reduction in spending or
other measures in efforts to satisfy their financial obligations. In particular, certain jurisdictions have significantly
underfunded pension liabilities which are placing additional stress on their finances and are particularly
challenging to restructure either through negotiation or under Chapter 9 of the United States Bankruptcy Code. If
the issuers of the obligations in our public finance portfolio are unable to raise taxes, or increase other revenues,
cut spending, reduce liabilities, and/or receive state or federal assistance, we may experience losses or
impairments on those obligations, which could materially and adversely affect our business, financial condition
and results of operations. The financial stress experienced by certain municipal issuers could result in the filing of
Chapter 9 proceedings in states where municipal issuers are permitted to seek bankruptcy protection. In these
proceedings, which remain rare, the resolution of bondholder claims (and by extension, those of bond insurers)
may be subject to legal challenge by other creditors.

Item 1A. Risk Factors (continued)

In particular, the Commonwealth of Puerto Rico and certain of its instrumentalities (“Puerto Rico”) are
experiencing fiscal stress and constrained liquidity due to, among other things, Puerto Rico’s structural budget
imbalances, lack of access to the capital markets, a prolonged stagnating local economy, net migration of people
out of Puerto Rico and high debt burdens. The impact of Hurricane Maria, which made landfall in Puerto Rico on
September 20, 2017, may also impact its ability to repay its legacy indebtedness. The physical damage and
resultant lost economic activity may exceed the collective aid Puerto Rico receives from private insurance, relief
from the Federal Emergency Management Agency (“FEMA”) and other federal agencies and programs. In
September of 2015, a working group formed by the former Governor of Puerto Rico released a report that
projected a sizable deficit of available cash resources to expenses and debt service over the next five years
absent meaningful fiscal and structural reform, and concluded that a voluntary adjustment of the terms of the
Commonwealth’s debt is necessary. On June 30, 2016, after passage by the United States Congress, the
President of the United States signed into law the Puerto Rico Oversight, Management and Economic Stability
Act (“PROMESA”). PROMESA provides a statutory framework for the creation of an independent oversight board
(“the “Oversight Board”) whose purpose is to restore Puerto Rico’s fiscal responsibility and access to the capital
markets. The Oversight Board can, among other things, develop and implement fiscal plans for Puerto Rico and
its instrumentalities, and can avail itself of collective action and judicial processes—separate from the Federal
Bankruptcy Code—by which Puerto Rico may restructure its debt on a voluntary or non-voluntary basis.

On May 3, 2017, the Oversight Board certified and filed a bankruptcy-like petition under Title III of PROMESA for
Puerto Rico with the District Court of Puerto Rico. Under a separate petition, the Oversight Board also
commenced a Title III proceeding for Puerto Rico Sales Tax Financing Corporation (“COFINA”) on May 5, 2017.
On May 21, 2017, upon the expiration of the PROMESA stay, the Oversight Board commenced a Title III
proceeding for the Puerto Rico Highway and Transportation Authority (“PRHTA”). On July 2, 2017, the Oversight
Board commenced a Title III proceeding for the Puerto Rico Electric Power Authority (“PREPA”). While National
has entered into a voluntary mediation process with the Oversight Board and Puerto Rico, there can be no
assurance that National will be able to avoid a non-voluntary outcome which could result in unanticipated losses
to National which could be material.

Economic activity in Puerto Rico may not return to pre-hurricane levels and Puerto Rico’s recovery could be more
shallow and protracted than that experienced by other similarly affected governments, given Puerto Rico’s prior
constrained liquidity and economic activity. On January 24, 2018, Puerto Rico issued a Fiscal Plan which provides
financial projections for a five year period including fiscal years 2018-2022. The Plan, which is subject to
certification by the Oversight Board under PROMESA, projects no debt service payments for the plan period. It
also assumes $35.3 billion of FEMA public assistance funding. Following receipt of the government’s draft fiscal
plan, the Oversight Board determined that the proposed fiscal plan was noncompliant with the requirements of
PROMESA and therefore required certain revisions before certification by the Oversight Board. As a result, the
government submitted a revised fiscal plan for Puerto Rico on February 12, 2018 to incorporate the Oversight
Board’s comments and the incremental disaster relief funding provided by recent legislation approved by
Congress on February 9, 2018. Notwithstanding the revisions, the draft fiscal plan remains subject to further
adjustment following additional input and review by the Oversight Board.

While the federal government and FEMA have made aid available to Puerto Rico, there can be no assurance that
such aid will be made available in the amounts necessary to offset the adverse impacts from Hurricane Maria in
their entirety. In addition, the necessary and greater involvement of the federal government, through its actions to
deliver disaster relief and other support services, in addition to the evolving role of the Oversight Board and the
role of Puerto Rico in its own recovery, heightens political risk in connection with the restructuring of legacy debt.
This risk could lead the Oversight Board, Puerto Rico or the federal government to seek to extract greater
concessions from creditors based on the uncertainty of Puerto Rico’s long term recovery prospects. In this event,
losses at National on select Puerto Rico exposures could increase materially.

Item 1A. Risk Factors (continued)

As of December 31, 2017, National had $3.4 billion of gross insured par outstanding ($3.9 billion of gross insured
par outstanding when including accreted interest on insured capital appreciation bonds) related to Puerto Rico.
Puerto Rico may be unable or unwilling to pay their obligations as and when due, in which case National would be
required to pay claims of unpaid principal and interest when due under its insurance policies, which could be
material. Prior to 2017, National paid claims on defaulted Puerto Rico debt in the amount of $173 million. Puerto
Rico defaulted on scheduled debt service for National insured bonds and National paid gross claims in the
aggregate of $242 million during 2017. On January 1, 2018, Puerto Rico also defaulted on scheduled debt service
for National insured bonds and National paid gross claims in the aggregate of $69 million. While National will seek
to recover any claim payments it makes under its guarantees, there is no assurance that it will be able to recover
such payments. To the extent that its claims payments are ultimately substantially greater than its claims
recoveries, National would experience losses on those obligations, which could materially and adversely affect
our business, financial condition and results of operations. Refer to the “U.S. Public Finance Insurance Puerto
Rico Exposures” section in Part II, Item 7 of this Form 10-K for additional information on our Puerto Rico
exposures.

Loss reserve estimates and credit impairments are subject to additional uncertainties and loss reserves
may not be adequate to cover potential claims.

Our insurance companies issued financial guarantee policies that insure the financial performance of the
obligations guaranteed over an extended period of time, in some cases over more than 30 years, and which are
unconditional and irrevocable. Under substantially all of our policies, we do not have a right to cancel the policy.
We do not use actuarial approaches that are customarily used by other types of insurance companies to
determine our loss reserves. The establishment of the appropriate level of loss reserves is an inherently uncertain
process involving numerous assumptions, estimates and subjective judgments by management, and therefore,
there can be no assurance that future net claims in our insured portfolio will not exceed our loss reserves. If our
loss reserves are not adequate to cover actual losses, our results of operations and financial condition could be
materially adversely affected. We use financial models to project future net claims on our insured portfolio,
including insured credit derivatives, and to establish loss reserves and estimate impairments and related
recoveries. There can be no assurance that the future loss projection and impairments based on these models
will ultimately reflect the actual losses and impairment and recovery that we experience. Additionally, small
changes in the assumptions underlying these estimates could significantly impact loss expectations. For example,
our loss reserves are discounted to a net present value reflecting our general obligation to pay claims over time
and not on an accelerated basis. Risk-free rates are used to discount our loss reserves under accounting
principles generally accepted in the U.S., and the yield-to-maturity of each insurer’s investment fixed-income
portfolio (excluding cash and cash equivalents and other investments not intended to defease long-term liabilities)
as of year-end is used to discount each insurer’s loss reserves under statutory accounting principles. Accordingly,
changes in the risk-free rates or the yield in our insurance companies’ fixed-income investment portfolios may
materially impact loss reserves.

Political and economic conditions in the United States, the Eurozone and elsewhere may materially
adversely affect our business and results of operations.

As a financial guarantee company, our insured exposures and our results of operations can be materially affected
by general political and economic conditions, both in the U.S. and around the world. General global unrest, fraud,
terrorism, catastrophic events, natural disasters, pandemics or similar events could disrupt the economy in the
U.S. and other countries where we have insured exposure or operate our businesses. In certain jurisdictions
outside the U.S. we face higher risks of governmental intervention through nationalization or expropriation of
assets, changes in regulation, an inability to enforce our rights in court or otherwise and corruption, which may
cause us to incur losses on the exposures we insure or reputational harm.

Budget deficits at all levels of government in the U.S., recessions, increases in corporate, municipal, sovereign,
sub-sovereign or consumer default rates and other general economic conditions may adversely impact the
performance of our insured portfolios and the Company’s investment portfolio. In addition, we are exposed to
correlation risk as a result of the possibility that multiple credits will experience losses as a result of any such
event or series of events, in particular exposures that are backed by revenues from business and personal travel,
such as aircraft securitizations and bonds backed by hotel taxes.

Item 1A. Risk Factors (continued)

Financial modeling involves uncertainty over ultimate outcomes, which makes it difficult to estimate
liquidity, potential paid claims payments, loss reserves and fair values.

The Company uses third-party and internal financial models to estimate liquidity, potential claims payments, loss
reserves and fair values. We use internal financial models to conduct liquidity stress-scenario testing to ensure
that we maintain cash and liquid securities sufficient to meet our payment requirements. These measurements
are performed on a legal entity and operating segment basis. We also rely on financial models, generated
internally and supplemented by models generated by third parties, to estimate factors relating to the highly
complex securities we insure, including future credit performance of the underlying assets, and to evaluate
structures, rights and our potential obligations over time. We also use internal models for ongoing insurance
portfolio monitoring and to estimate case basis loss reserves and, where applicable, to report our obligations
under our contracts at fair value. We may supplement such models with third-party models or use third-party
experts to consult with our internal modeling specialists. Both internal and external models are subject to model
risk and information risk, and there can be no assurance that the inputs into the models received from third parties
will be accurate or that the models themselves are accurate or comprehensive in estimating our liquidity, potential
future paid claims, related loss reserves and fair values or that they are similar to methodologies employed by our
competitors, counterparties or other market participants. Estimates of our claims payments, in particular, may
materially impact our liquidity position. We may make changes to our estimated claims payments, loss reserves or
fair value models from time to time. These changes could materially impact our financial results.

Our risk management policies and procedures may not adequately detect or prevent future losses.

We assess our risk management policies and procedures on a periodic basis. As a result of such assessment, we
may take steps to change our internal risk assessment capabilities and procedures, portfolio management
policies, systems and processes and our policies and procedures for monitoring and assessing the performance
of our insured portfolio in changing market conditions. There can be no assurance, however, that these steps will
be adequate to avoid future losses. In some cases, losses can be substantial, particularly if a loss occurs on a
transaction in which we have a large notional exposure or on a transaction structured with large, bullet-type
maturities.

Legal, Regulatory and Other Risk Factors

Regulatory change could adversely affect our businesses, and regulations limit investors’ ability to effect
a takeover or business combination that shareholders might consider in their best interests.

The financial guarantee insurance industry has historically been and will continue to be subject to the direct and
indirect effects of governmental regulation, including insurance laws, securities laws, tax laws, legal precedents
and accounting rules affecting asset-backed and municipal obligations, as well as changes in those laws. Also,
the failure to comply with applicable laws and regulations could expose our insurance companies, their directors
or shareholders to fines, the loss of their insurance licenses, and the inability to engage in certain business
activity, as the case may be. These laws also limit investors’ ability to affect a takeover or business combination
without the approval of our insurance regulators.

Changes to laws and regulations, or the interpretation thereof could subject our insurance companies to
increased loss reserves and capital requirements or more stringent regulation generally, which could materially
adversely affect our financial condition and results of operations. Finally, changes to accounting standards and
regulations may require modifications to our accounting methodology, both prospectively and for prior periods;
such changes could have an adverse impact on our reported financial results and/or make it more difficult for
investors to understand the economics of our business and may thus influence the types or volume of business
that we may choose to pursue.

Our insurance companies could become subject to regulatory action.

Our insurance companies are subject to various statutory and regulatory restrictions that require them to maintain
qualifying investments to support their reserves and required minimum surplus. Furthermore, our insurance
companies may be restricted from making commutation or other payments if doing so would cause them to fail to
meet such requirements, and the NYSDFS may impose other remedial actions on us as described further below
to the extent our insurance companies do not meet such requirements.

Item 1A. Risk Factors (continued)

Under the NYIL, the Superintendent of Financial Services may apply for an order directing the rehabilitation or
liquidation of a domestic insurance company under certain circumstances, including upon the insolvency of the
company, if the company has willfully violated its charter or the NYIL, or if the company is found, after
examination, to be in such condition that further transaction of business would be hazardous to its policyholders,
creditors or the public. The Superintendent of Financial Services may also suspend an insurer’s license, restrict its
license authority, or limit the amount of premiums written in New York if, after a hearing, the Superintendent
determines that the insurer’s surplus to policyholders is not adequate in relation to its outstanding liabilities or
financial needs. If the Superintendent were to take any such action, it could result in the reduction or elimination of
the payment of dividends to MBIA Inc.

In addition to the Superintendent’s authority to commence a rehabilitation or liquidation proceeding, if the
Superintendent finds that the liabilities of MBIA Insurance Corporation exceed its admitted assets, the
Superintendent could use its authority under Section 1310 of the NYIL to order MBIA Insurance Corporation to
cease making claims payments (a “1310 Order”). Continuing elevated loss payments and delay or failure in
realizing expected recoveries as well as certain other factors may materially and adversely affect MBIA Insurance
Corporation’s liquidity and its ability to timely meet its insurance obligations, and could cause the NYSDFS to put
MBIA Insurance Corporation into a rehabilitation or liquidation proceeding, or issue a 1310 Order, if it does not
believe MBIA Insurance Corporation will be able to pay expected claims. See Risk Factor “An MBIA Insurance
Corporation rehabilitation or liquidation proceeding could accelerate certain of the Company’s other obligations
and have other adverse consequences” under “MBIA Corp. Risk Factors” for the potential impacts of an MBIA
Insurance Corporation rehabilitation or liquidation proceeding, or a 1310 Order.

We depend heavily on our information technology and other operational systems and on the integrity and
timeliness of data we use to run our businesses. These systems may fail to operate properly or become disabled
as a result of events or circumstances wholly or partly beyond our control. Further, we face the risk of operational
and technology failures by others, including various financial intermediaries and of vendors and parties to which
we outsource the provision of services or business operations. If this risk is realized, we may experience
operational difficulties, increased costs and other adverse effects on our business.

Despite our implementation of a variety of security measures, our information technology and other systems could
be subject to physical or electronic break-ins, unauthorized tampering or other security breaches, resulting in a
failure to maintain the security, confidentiality or privacy of sensitive data.

Interruption in information technology and other operational systems, or a failure to maintain the security,
confidentiality or privacy of sensitive data residing on such systems, whether due to actions by us or others, could
delay or disrupt our ability to do business, harm our reputation, subject us to regulatory sanctions and other
claims, lead to a loss of clients and revenues and otherwise adversely affect our business.

Private litigation claims could materially adversely affect our reputation, business, results of operations
and financial condition.

As further set forth in “Note 20: Commitments and Contingencies” in the Notes to Consolidated Financial
Statements of MBIA Inc. and Subsidiaries in Part II, Item 8 of this Form 10-K, the Company and/or its subsidiaries
are named as defendants in certain litigations, and in the ordinary course of business, may be a defendant in or
party to a new or threatened legal action. Although the Company intends to vigorously defend against any current
or future action, there can be no assurance that it will prevail in any such action, and any adverse ultimate
outcome could result in a loss and/or have a material adverse effect on our reputation, business, results of
operations or financial condition.

Item 1A. Risk Factors (continued)

The Company is dependent on key executives and the loss of any of these executives, or its inability to
retain other key personnel, could adversely affect its business.

The Company’s success substantially depends upon its ability to attract and retain qualified employees and upon
the ability of its senior management and other key employees to implement its business strategy. The Company
believes there are only a limited number of available qualified executives in the business lines in which the
Company competes. The Company relies substantially upon the services of William C. Fallon, Chief Executive
Officer, and other senior executives. There is no assurance that the Company will be able to retain the services of
key executives. While the Company has a succession plan for key executives and does not expect the departure
of any key executives to have a material adverse effect on its operations, there can be no assurance that the loss
of the services of any of these individuals or other key members of the Company’s management team would not
adversely affect the implementation of its business strategy.

An ownership change under Section 382 of the Internal Revenue Code could have materially adverse tax
consequences.

In connection with transactions in our shares from time to time, we may in the future experience an “ownership
change” within the meaning of Section 382 of the Internal Revenue Code. In general terms, an ownership change
may result from transactions increasing the aggregate ownership of certain stockholders in our stock by more
than 50 percentage points over a testing period (generally three years). If an ownership change were to occur, our
ability to use certain tax attributes, including certain losses, credits, deductions or tax basis, may be limited. There
can be no assurance that MBIA Inc. will not undergo an ownership change at a time when these limitations could
have a materially adverse effect on the Company’s financial condition.

Changes in U.S. federal income tax law could materially adversely affect the value of the Company’s net
deferred tax asset.

MBIA Inc. carries a net deferred tax asset whose value is calculated by application of the federal corporate
taxation rates in effect at the time of determination. Changes in applicable U.S. tax laws and regulations, or their
interpretation and application, including the possibility of retroactive effect, could affect our net deferred tax asset
as they did in 2017 upon passage of the Tax Cuts and Jobs Act, that the President of the United States signed
into law on December 22, 2017. As a result of the Company having established a full valuation allowance against
its net deferred tax asset in 2017, any adjustment to the Company’s net deferred tax asset, will likely result in a
corresponding change to the Company’s valuation allowance, resulting in no impact to the Company’s balance
sheet or income statement.

Capital, Liquidity and Market Related Risk Factors

We are a holding company and rely to a significant degree on cash flow from our principal operating
subsidiaries and access to third-party capital. A disruption in the cash flow from our subsidiaries or an
inability to access capital could materially and adversely affect our business, operating results and
financial condition and ultimately adversely affect liquidity.

As a holding company, MBIA Inc. is largely dependent on dividends and payments under our tax sharing
agreement to pay principal and interest on our indebtedness and operating expenses, among other items. We
expect that for the foreseeable future National will be the primary source of dividends and tax sharing agreement
payments. National is subject to various statutory and regulatory restrictions, applicable to insurance companies
generally, that limit the amount of cash dividends, loans and advances that it may pay. See “New York State
Dividend Limitations” in Part 1, Item 1 and “Note 14: Insurance Regulations and Dividends” in the Notes to
Consolidated Financial Statements of MBIA Inc. and Subsidiaries in Part II, Item 8 of this Form 10-K for a further
discussion of dividends.

We may also from time to time seek to raise capital from external sources. The Company’s access to external
sources of financing, as well as the cost of such financing would be influenced by various factors, which could
include (i) the long-term debt ratings of the Company, (ii) expected dividends from our subsidiaries, (iii) the
financial condition and business prospects of our insurance companies and (iv) the perceptions of the financial
strength of MBIA Inc. and our insurance companies. If we cannot obtain adequate capital on favorable terms or at
all, our business, future growth, operating results and financial condition could be adversely affected.

Item 1A. Risk Factors (continued)

To the extent that we are unable to access external capital necessary to support our insurance companies, our
insurance companies may not have sufficient liquidity to meet their obligations and may not be able to pay
dividends to us. Consequently, our inability to maintain access to capital on favorable terms could have an
adverse impact on our ability to pay losses and debt obligations, to pay dividends on our capital stock, to pay
principal and interest on our indebtedness, to pay our operating expenses and to make capital investments in our
subsidiaries. In addition, future capital raises for equity or equity-linked securities could result in dilution to the
Company’s shareholders. In addition, some securities that the Company could issue, such as preferred stock or
securities issued by the Company’s operating subsidiaries may have rights, preferences and privileges that are
senior to those of its common shares.

MBIA Inc. has substantial indebtedness, and may incur additional indebtedness, which could adversely
affect our financial condition, and/or our ability to obtain financing in the future, react to changes in our
business and/or satisfy our obligations.

As of December 31, 2017, MBIA Inc. had $765 million of medium-term note liabilities, $576 million of Senior
Notes liabilities and $337 million of investment agreement liabilities. Our substantial indebtedness and other
liabilities could have material consequences because:

(cid:129)

we may be unable to obtain additional financing, should such a need arise, which may limit our ability to
satisfy obligations with respect to our debt;

a large portion of MBIA Inc.’s financial resources must be dedicated to the payment of principal and
interest on our debt, thereby reducing the funds available to use for other purposes;

it may be more difficult for us to satisfy our obligations to our creditors, resulting in possible defaults on,
and acceleration of, such debt;

we may be more vulnerable to general adverse economic and industry conditions;

our ability to refinance debt may be limited or the associated costs may increase;

our flexibility to adjust to changing market conditions could be limited, or we may be prevented from
carrying out capital spending that is necessary or important to our growth strategy and efforts to improve
operating margins of our businesses; and

we are exposed to the risk of fluctuations in interest rates and foreign currency exchange rates because
a portion of our liabilities are at variable rates of interest or denominated in foreign currencies.

Adverse developments in the credit markets may materially and adversely affect MBIA Inc.’s ability to
post collateral and meet other liquidity needs.

Currently, the majority of the cash and securities of MBIA Inc. are pledged against investment agreement
liabilities, intercompany financing arrangements and derivatives, which limit its ability to raise liquidity through
asset sales. If the market value or rating eligibility of the assets which are pledged against MBIA Inc.’s obligations
were to decline, we would be required to pledge additional eligible assets in order to meet minimum required
collateral amounts against these liabilities. In such event, we may sell assets, potentially with substantial losses,
finance unencumbered assets through intercompany facilities, or use free cash or other assets, although there
can be no assurance that these strategies will be available or adequate to meet liquidity requirements.

The level of interest rates and foreign currency exchange rates could materially and adversely affect our
financial condition.

Increases in prevailing interest rate levels can adversely affect the value of our investment portfolios and,
therefore, our financial condition. In the event that investments must be sold in order to make payments on
insured exposures or other liabilities, such investments would likely be sold at discounted prices. Increases in
interest rates also adversely affect the values of investments collateralizing our investment agreement liabilities in
our corporate operations, which would require the Company to post additional collateral to its counterparties.
Additionally, in the insurance operations, increasing interest rates could lead to increased credit stress on
transactions in our insured portfolio, while a decline in interest rates could result in larger loss reserves on a
present value basis.

Item 1A. Risk Factors (continued)

Lower interest rates can result in lower net interest income since a substantial amount of assets are now held in
cash and cash equivalents given the increased focus on liquidity. Lower interest rates would also adversely
impact the value of our interest rate swap contracts in our corporate operations, and would require the Company
to post additional collateral to its counterparties.

In addition, the Company is exposed to foreign currency exchange rate fluctuation risk in respect of assets and
liabilities denominated in currencies other than U.S. dollars. In addition to insured liabilities denominated in foreign
currencies, some of the remaining liabilities in our corporate segment are denominated in currencies other than
U.S. dollars and the assets of our corporate segment are predominantly denominated in U.S. dollars. Accordingly,
the weakening of the U.S. dollar versus foreign currencies could substantially increase our potential obligations
and statutory capital exposure. Conversely, the Company makes investments denominated in a foreign currency
and the weakening of the foreign currency versus the U.S. dollar will diminish the value of such non-U.S. dollar
denominated asset. Exchange rates have fluctuated significantly in recent periods and may continue to do so in
the future, which could adversely impact the Company’s financial position, results of operations and cash flows.

MBIA Corp. Risk Factors

As described further and for the reasons stated herein, we believe that MBIA Corp. will not provide significant
economic or shareholder value to MBIA Inc. For additional information on MBIA Corp., refer to “Results of
Operations—International and Structured Finance Insurance” in Part II, Item 7 of this Form 10-K. Additionally,
also as described further herein, given the separation of MBIA Inc. and MBIA Corp. as distinct legal entities, the
absence of any cross defaults between the entities, and the lack of reliance by MBIA Inc. on MBIA Corp. for the
receipt of dividends, we do not believe that a rehabilitation or liquidation proceeding of MBIA Insurance
Corporation by the NYSDFS would have any significant long-term impact on the financial condition or liquidity of
MBIA Inc. However, there can be no assurance that the financial condition or a rehabilitation or liquidation
proceeding of MBIA Insurance Corporation would not have an adverse impact on MBIA Inc. The risk factors
described below with respect to MBIA Corp. are set forth for that reason, as well as for an independent
understanding of the risks to MBIA Corp.

Continuing elevated loss payments and delay or failure in realizing expected recoveries on insured
transactions may materially and adversely affect MBIA Insurance Corporation’s statutory capital and its
ability to meet liquidity needs and could cause the NYSDFS to put MBIA Insurance Corporation into a
rehabilitation or liquidation proceeding if the NYSDFS concludes that MBIA Insurance Corporation will
not be able to pay expected claims.

MBIA Insurance Corporation is particularly sensitive to the risk that it will not have sufficient capital or liquid
resources to meet contractual payment obligations when due or to make settlement payments in order to
terminate insured exposures to avoid losses. While management’s expected liquidity and capital forecasts for
MBIA Insurance Corporation reflect adequate resources to pay expected claims, there are risks to the capital and
liquidity forecasts as MBIA Insurance Corporation’s remaining insured exposures and its expected salvage
recoveries are potentially volatile. Such volatility exists in the amount of excess spread and put-back recoverable
that MBIA Insurance Corporation may collect, its ability to recover the approximately $919 million in aggregate
claims it paid in respect of the insured notes (the “Zohar I Notes”) issued by Zohar CDO 2003-1, Limited (“Zohar
I”) and in respect of the insured notes (the “Zohar II Notes”) issued by Zohar II 2005-1 CDO (“Zohar II”), and the
exposure in its remaining insured portfolio, which could deteriorate and result in significant additional loss
reserves and claim payments, including claims on insured exposures that in some cases may require large bullet
payments.

Regarding the recoveries on the payments on the Zohar I Notes and Zohar II Notes, on November 20, 2015 MBIA
Insurance Corporation paid a $149 million claim on the Zohar I Notes. On January 20, 2017 (the “Zohar II Maturity
Date”), it paid a claim of approximately $770 million (the “Zohar II Claim Payment”) on the Zohar II Notes
(collectively, the “Zohar Claims Payments”). MBIA Insurance Corporation is entitled to reimbursement of the
Zohar Claims Payments plus interest and certain costs and expenses and to exercise certain rights and remedies
to seek recovery of the Zohar Claim Payments.

Item 1A. Risk Factors (continued)

In connection with its satisfaction of the Zohar II Claim Payment, MBIA Insurance Corporation consummated a
financing facility, which is described in more detail under the “Liquidity—MBIA Corp. Liquidity” section in Part II,
Item 7 of this Form 10-K (the “Facility”), with affiliates of certain holders of its 14% Fixed-to-Floating Rate Surplus
Notes (collectively, the “Senior Lenders”), and with the Company, pursuant to which the Senior Lenders have
provided $325 million of senior financing and the Company has provided $38 million of subordinated financing.

Under the Facility the Company has also agreed to provide an additional $50 million of subordinated financing to
MZ Funding, which MZ Funding will lend to MBIA Insurance Corporation if needed by MBIA Insurance
Corporation for liquidity purposes.

MBIA Insurance Corporation believes that the primary source of funds for the repayment of its obligations under
the Facility and for reimbursement for the Zohar Claims Payments will come from the liquidation or refinancing of
the loans made to, and equity interests in, companies purportedly controlled by the sponsor and former collateral
manager of Zohar I and Zohar II (the “Zohar Sponsor”) and any claims that MBIA may have against the Zohar
Sponsor (collectively, the “Zohar Collateral”). Any proceeds from the Zohar Collateral will first be used to repay
MBIA Corporation’s obligations under the Facility, before MBIA Insurance Corporation can use any such proceeds
as reimbursement for the Zohar Claims Payments, except that any payments on or recoveries made on the Zohar
II Collateral will be allocated on a pro-rata basis to repayment of the senior notes of the Facility and the MBIA
Corp. Payment.

Referring to the description of the Facility in “Liquidity—MBIA Corp. Liquidity” section in Part II, Item 7 of this Form
10-K, the Company’s ability to collect the principal and interest on the Insured Subordinated Notes will be based
primarily on the amount recovered by MBIA Insurance Corporation with respect to the Collateral, after payment in
full of the Insured Senior Notes and other related payment obligations that are senior to the Insured Subordinated
Notes, pursuant to the Intercreditor Agreement. Based on the estimated value of the Collateral in relation to the
amount of the Senior Insured Notes and the Subordinated Insured Notes, the Company expects that the
recoveries from the Collateral will be sufficient to enable the payment in full of the Subordinated Insured Notes.
There is uncertainty, however, with respect to the realizable value of the Collateral and there can be no assurance
that recoveries on the Collateral will be sufficient to pay the Subordinated Insured Notes in full or that, in the event
that recoveries on the Collateral are not sufficient to pay the Subordinated Insured Notes in full, that MBIA
Insurance Corporation will be able to pay any shortfall necessary to pay the Subordinated Insured Notes in full
under the policy insuring the Subordinated Insured Notes.

Similarly, while MBIA Insurance Corporation believes there will be sufficient recoveries on the Zohar Collateral to
both repay amounts due under the Facility and to substantially reimburse it for the Zohar Claims Payments, there
is significant uncertainty with respect to the realizable value of the Zohar Collateral, and there can be no
assurance that recoveries on the Zohar Collateral will be sufficient to pay the Facility, together with accrued
interest and other costs in full, particularly in light of the substantial interest and associated costs to be incurred in
connection with the Facility, and to reimburse MBIA Insurance Corporation for the Zohar Claims Payments. If the
amount of recoveries on the Zohar Collateral is not sufficient to repay amounts due under the Facility on or before
its maturity date and to reimburse MBIA Insurance Corporation for a substantial portion of the Zohar Claims
Payments, MBIA Insurance Corporation would likely incur substantial additional losses, which could materially
impair its statutory capital and liquidity.

MBIA Insurance Corporation believes that if the NYSDFS concludes at any time that MBIA Insurance Corporation
will not be able to satisfy its obligations under the Facility and under its other issued policies, the NYSDFS would
likely put MBIA Insurance Corporation into a rehabilitation or liquidation proceeding under Article 74 of the NYIL
and/or take such other actions as the NYSDFS may deem necessary to protect the interests of MBIA Insurance
Corporation’s policyholders. The determination to commence such a proceeding or take other such actions is
within the exclusive control of the NYSDFS. The NYSDFS enjoys broad discretion in this regard, and any
determination they may make would not be limited to consideration of the matters described above. As noted,
however, given the separation of MBIA Inc. and MBIA Corp. as distinct legal entities, the absence of any cross
defaults between the entities, and the lack of reliance by MBIA Inc. on MBIA Corp. for the receipt of dividends, we
do not believe that a rehabilitation or liquidation proceeding of MBIA Insurance Corporation by the NYSDFS would
have any significant long-term liquidity impact on MBIA Inc.

Item 1A. Risk Factors (continued)

MBIA Corp. insures certain transactions that continue to perform poorly and increased losses or a delay
or failure in collecting expected recoveries may materially and adversely affect its financial condition and
results of operations.

MBIA Corp. insures certain structured finance transactions that remain volatile and could result in additional
losses, which could be substantial, including RMBS, CDOs, and one CMBS pool transaction.

MBIA Corp. has also recorded significant loss reserves on its RMBS and CDO exposures, and there can be no
assurance that these reserves will be sufficient, in particular if the economy deteriorates. These transactions are
also subject to servicer risks, which relates to problems with the transaction’s servicer that could adversely affect
performance of the underlying assets. Furthermore, MBIA Corp. has recorded substantial expected recoveries on
certain RMBS, and the timing and amount of those recoveries are subject to risk. Any delay or failure in collecting
expected recoveries may materially and adversely affect MBIA Corp.’s financial condition and results of
operations. As of December 31, 2017, it recorded expected receipts of $233 million on a pre-VIE elimination basis
(on a present value basis) from excess spread (the difference between interest inflows on assets and interest
outflows on liabilities) in our RMBS transactions, in reimbursement of our past and future expected claims. Of this
amount, $226 million is included in “Insurance loss recoverable” and $7 million is included in “Loss and loss
adjustment expense reserves” on the Company’s consolidated balance sheets. The amount of excess spread
depends on future interest rates and borrower refinancing and defaults. There can be no assurance that this
recovery will be received in its entirety or in the expected timeframe. In addition, the Company has recorded a
recovery on a transaction containing ineligible loans securitized by Credit Suisse. The Company is pursuing
recovery of its losses on this transaction in a litigation in which its assessment of the ineligibility of individual
mortgage loans has been challenged by Credit Suisse, and there is no assurance that the Company’s
determinations will prevail, or that the Company will be successful in collecting its estimated recoveries in the
anticipated timeframe. The litigation may take several years to resolve, during which time we will continue to be
required to pay losses on the subject transaction, which may exceed the reserves established for the transaction.

With respect to the one remaining insured static CMBS pool transaction, it has experienced ratings erosion of the
pool’s CMBS collateral. Since 2013, MBIA Corp. has paid claims on this transaction after the deductible was
eliminated, and we expect to experience additional claims on this transaction in the future. The ultimate loss rate on
this transaction remains uncertain. It is possible that MBIA Corp. will experience losses or near-term liquidity needs
on this transaction, particularly if the economy does not continue to improve, there is a new recession, increased
delinquencies, higher levels of liquidations of delinquent loans, or higher severities of loss upon liquidation.

An MBIA Insurance Corporation rehabilitation or liquidation proceeding could accelerate certain of the
Company’s other obligations and have other adverse consequences.

As noted above, MBIA Insurance Corporation continues to face a number of significant risks and contingencies,
which could, if realized, result in MBIA Insurance Corporation being placed into a rehabilitation or liquidation
proceeding by the NYSDFS. In the event of an MBIA Insurance Corporation rehabilitation or liquidation
proceeding, the Company may be subject to, among other things, the following:

(cid:129) MTNs issued by GFL, which are insured by MBIA Insurance Corporation, would accelerate. To the

extent GFL failed to pay the accelerated amounts under the GFL MTNs, the MTN holders would have
policy claims against MBIA Insurance Corporation for scheduled payments of interest and principal;

(cid:129)

An MBIA Insurance Corporation proceeding may accelerate certain investment agreements issued by
MBIA Inc., including, in some cases, with make-whole payments. While the investment agreements are
fully collateralized with high quality collateral, the settlements of these amounts could reduce MBIA Inc.’s
liquidity resources, and to the extent MBIA Inc. fails to pay the accelerated amounts under these
investment agreements or the collateral securing these investment agreements is deemed insufficient to
pay the accelerated amounts due, the holders of the investment agreements would have policy claims
against MBIA Insurance Corporation;

The payment of installment premiums due to National from MBIA Insurance Corporation under the
reinsurance agreement between National and MBIA Insurance Corporation (Refer to Item 1, “Our
Insurance Operations”, “Reinsurance” for a description of the agreement) could be disrupted, delayed or
subordinated to the claims of policyholders of MBIA Insurance Corporation;

Item 1A. Risk Factors (continued)

(cid:129)

CDS and other derivative counterparties may seek to terminate derivative contracts insured by MBIA
Insurance Corporation and make market-based damage claims (irrespective of whether actual credit-
related losses are expected under the underlying exposure);

The rehabilitator or liquidator would replace the Board of Directors of MBIA Insurance Corporation and
take control of the operations and assets of MBIA Insurance Corporation, which would result in the
Company losing control of MBIA Insurance Corporation and possible changes to MBIA Insurance
Corporation’s strategies and management; and

Unplanned costs on MBIA Inc., as well as significant additional expenses for MBIA Insurance
Corporation arising from the appointment of a rehabilitator or liquidator, as receiver, and payment of the
fees and expenses of the advisors to such rehabilitator or liquidator.

Revenues and liquidity would be adversely impacted by a decline in realization of installment premiums.

Due to the installment nature of a significant percentage of its premium income, MBIA Corp. has an embedded
future revenue stream. The amount of installment premiums actually realized by MBIA Corp. could be reduced in
the future due to factors such as early termination of insurance contracts, accelerated prepayments of underlying
obligations, commutation of existing financial guarantee insurance policies or non-payment. Such a reduction
would result in lower revenues and reduced liquidity.

Item 1B. Unresolved Staff Comments

The Company from time to time receives written comments from the staff of the SEC regarding its periodic or
current reports under the Securities Exchange Act of 1934, as amended. There are no comments that remain
unresolved that the Company received more than 180 days before the end of the year to which this report relates.

Item 2. Properties

The Company maintains office space located in Purchase, New York, in which the Company, National, MBIA
Corp., and MBIA Services Corporation have their headquarters. The Company also leases office space in New
York, New York; San Francisco, California; and Mexico City, Mexico. The Company generally believes that these
facilities are adequate and suitable for its current needs.

Item 3. Legal Proceedings

For a discussion of the Company’s litigation and related matters, see “Note 20: Commitments and Contingencies”
in the Notes to Consolidated Financial Statements of MBIA Inc. and Subsidiaries in Part II, Item 8. In the normal
course of operating its businesses, MBIA Inc. may be involved in various legal proceedings. As a courtesy, the
Company posts on its website under the section “Legal Proceedings,” selected information and documents in
reference to selected legal proceedings in which the Company is the plaintiff or the defendant. The Company will
not necessarily post all documents for each proceeding and undertakes no obligation to revise or update them to
reflect changes in events or expectations. The complete official court docket can be publicly accessed by
contacting the clerk’s office of the respective court where each litigation is pending.

Item 4. Mine Safety Disclosures

Not applicable.

Part II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of

Equity Securities

The Company’s common stock is listed on the New York Stock Exchange under the symbol “MBI.” As of
February 22, 2018, there were 359 shareholders of record of the Company’s common stock. The Company did
not pay cash dividends on its common stock during 2017 or 2016. For information on the ability for certain
subsidiaries of the Company to transfer funds to the Company in the form of cash dividends or otherwise, refer to
“Item 1. Business—Insurance Regulation” in this annual report.

The high and low sales stock prices with respect to the Company’s common stock for the last two years are
presented below:

Quarter Ended

March 31
June 30
September 30
December 31

2017

Stock Price

2016

Stock Price

High

Low

High

Low

11.65
9.47
10.72
9.66

7.81
7.81
8.38
6.04

9.49
8.95
8.70
11.46

5.51
6.34
6.61
7.15

Repurchases of common stock may be made from time to time in the open market or in private transactions as
permitted by securities laws and other legal requirements. We believe that share repurchases can be an
appropriate deployment of capital in excess of amounts needed to support our liquidity and maintain the claims-
paying ratings of MBIA Corp. and National as well as other business needs.

On June 27, 2017, the Company’s Board of Directors authorized the repurchase by the Company or National of
up to $250 million of its outstanding shares under a new share repurchase authorization. This program replaced
the approximately $13 million remaining under the Board’s February 23, 2016 authorization. As of December 31,
2017, there was no remaining authorized capacity under the June 27, 2017 repurchase program.

On November 3, 2017, the Company’s Board of Directors authorized the repurchase by the Company or National
of up to $250 million of its outstanding shares under a new share repurchase authorization. As of December 31,
2017, $250 million remained available under the November 3, 2017 repurchase program.

The table below presents repurchases made by the Company or National in each month during the fourth quarter
of 2017. See “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters” in Part III for a further discussion of securities authorized for issuance under long-term
incentive plans.

Month

October
November
December

Total Number
of Shares
Purchased(1)

27,068,764
4,264,245
50,179

Average
Price
Paid Per
Share

$ 7.15
7.27
7.25

Total Number of
Shares
Purchased as
Part of Publicly
Announced Plan

Maximum Amount That
May Be Purchased Under
the Plan (in millions)

27,067,713
4,263,932

—

31
250
250

(1)—Includes 1,051 shares in October, 313 shares in November and 50,179 shares in December purchased in open market transactions
as investments in the Company’s non-qualified deferred compensation plan.

As of December 31, 2017, 283,717,973 shares of Common Stock of the Company, par value $1 per share, were
issued and 91,484,447 shares were outstanding.

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of

Equity Securities (continued)

Stock Performance Graph The following graph compares the cumulative total shareholder return (rounded to
the nearest whole dollar) of our common stock, the S&P 500 Index (“S&P 500 Index”) and the S&P 500 Financials
Sector Index (“S&P Financials Index”) for the last five fiscal years. The graph assumes a $100 investment at the
closing price on December 31, 2012 and reinvestment of dividends in the security/index on the respective
dividend payment dates without commissions. This graph does not forecast future performance of our common
stock.

Total Return
MBIA Inc. vs. S&P 500 Index vs.
S&P Financials Index

$250

$225

$200

$175

$150

$125

$100

$75

$50

$25

2012

2013

2014

2015

2016

2017

MBIA Inc. Common Stock

S&P 500 Index

S&P Financials Index

MBIA Inc. Common Stock
S&P 500 Index
S&P Financials Index

Source: Bloomberg Finance L.P.

2012

2013

2014

2015

2016

2017

100.00
100.00
100.00

152.10
132.37
135.59

121.53
150.48
156.17

82.55
152.55
153.72

136.31
170.78
188.69

93.25
208.05
230.47

Item 6. Selected Financial Data

In millions except per share amounts

2017

2016

2015

2014

2013

Summary Statement of Operations Data:

Premiums earned
Net investment income
Net change in fair value of insured derivatives
Net gains (losses) on financial instruments at fair

value and foreign exchange

Net investment losses related to other-than-

temporary impairments

Other net realized gains (losses)
Revenues of consolidated variable interest entities
Total revenues
Losses and loss adjustment
Operating
Interest
Expenses of consolidated variable interest entities
Total expenses
Income (loss) before income taxes
Net income (loss)
Net income (loss) per common share:

201 $
154
(51)

300 $
152
(19)

372 $
152
129

397 $
179
459

(24)

(106)
31
185
433
683
106
197
85
1,094
(661)
(1,605)

(5)
(282)
31
294
220
137
197
39
633
(339)
(338)

(13)
17
128
853
123
140
199
52
564
289
180

(15)
28
101
1,270
133
195
210
47
629
641
569

457
166
232

—
(29)
233
1,209
117
338
236
56
793
416
250

Basic
Diluted

$ (13.50) $ (2.54) $
$ (13.50) $ (2.54) $

1.06 $
1.06 $

2.94 $
2.76 $

1.30
1.29

Summary Balance Sheet Data:

Investments and cash and cash equivalents
Total assets of consolidated variable interest entities
Total assets
Unearned premium revenue
Loss and loss adjustment expense reserves
Long-term debt
Medium-term notes
Investment agreements
Derivative liabilities
Total liabilities of consolidated variable interest

entities
Total equity
Book value per share

Insurance Statistical Data:
Debt service outstanding
Gross par amount outstanding

4,777
3,215
9,095
752
979
2,121
765
337
262

5,796
2,672
11,137
958
541
1,986
895
399
299

6,814
5,378
14,836
1,591
516
1,889
1,016
462
314

7,559
5,041
16,263
1,986
506
1,789
1,201
547
437

7,996
5,592
16,931
2,441
641
1,680
1,427
700
1,152

2,289
1,425

5,297
3,299
$ 15.44 $ 23.87 $ 24.61 $ 20.47 $ 17.05

2,241
3,239

5,096
3,741

4,804
3,950

$154,945 $235,899 $326,612 $437,778 $554,296
357,246
202,661

141,225

277,481

87,031

Item 6. Selected Financial Data (continued)

Quarterly Financial Information (unaudited):

In millions except per share amounts

Premiums earned
Net investment income
Net change in fair value of insured derivatives
Net gains (losses) on financial instruments at fair value and

foreign exchange

Net investment losses related to other-than-temporary

impairments

Basic
Diluted

(1)—May not cross-foot due to rounding.

First

Second

2017

Third

Fourth

Full Year(1)

49 $
52
(53)

44 $
37
3

53 $
33
(1)

55 $
32
—

(61)

(11)

(2)
3
1
77
94
29
48
19
197
(120)
(72)

(11)
34
20
72
170
32
50
22
282
(210)
(1,229)

(71)
(1)
29
33
205
21
50
22
306
(273)
(267)

(22)
(5)
135
251
214
24
49
22
309
(58)
(37)

201
154
(51)

(24)

(106)
31
185
433
683
106
197
85
1,094
(661)
(1,605)

$(0.55) $ (9.78) $(2.17) $(0.39) $ (13.50)
$(0.55) $ (9.78) $(2.17) $(0.39) $ (13.50)

In millions except per share amounts

First

Second

Third

Fourth

Full Year(1)

2016

Premiums earned
Net investment income
Net change in fair value of insured derivatives
Net gains (losses) on financial instruments at fair value and

foreign exchange

Net investment losses related to other-than-temporary

75 $
39
(28)

73 $ 77 $
37
(8)

39
16

75 $
37
1

(69)

101

impairments

Basic
Diluted

(1)—May not cross-foot due to rounding.

300
152
(19)

(5)
(282)
31
294
220
137
197
39
633
(339)
(338)

(1)
(1)
14
32
22
35
50
16
133
(101)
(78)

—
—
(2)
118
77
30
49
7
173
(55)
(27)

—
(2)
13
203
50
32
49
7
148
55
31

(4)
(279)
6
(59)
71
40
49
9
179
(238)
(265)

$(0.58) $(0.20) $0.23 $(2.01) $ (2.54)
$(0.58) $(0.20) $0.23 $(2.01) $ (2.54)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of financial condition and results of operations of MBIA Inc. should be read
in conjunction with the consolidated financial statements and notes thereto included in this Form 10-K. In addition,
this discussion and analysis of financial condition and results of operations includes statements of the opinion of
MBIA Inc.’s management which may be forward-looking statements made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. These statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from historical earnings and those presently
anticipated or projected. Refer to “Forward-Looking Statements” and “Risk Factors” in Part I, Item 1A of this Form
10-K for a further discussion of risks and uncertainties.

INTRODUCTION

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 operated 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 operated through MBIA Insurance Corporation and its
subsidiaries (“MBIA Corp.”). Effective on January 10, 2017, MBIA Corp.’s wholly-owned subsidiary, MBIA UK
(Holdings) Limited (“MBIA UK Holdings”), sold its operating subsidiary, MBIA UK Insurance Limited (“MBIA UK”),
to Assured Guaranty Corp. (“Assured”), a subsidiary of Assured Guaranty Ltd. References to MBIA Inc. generally
refer to activities within our corporate segment and, unless otherwise indicated or the context otherwise requires,
references to “MBIA Corp.” are (i) for any references relating to the period ended January 10, 2017, to MBIA
Insurance Corporation, together with its subsidiaries, MBIA UK, and MBIA Mexico S.A. de C.V (“MBIA Mexico”)
and (ii) for any references relating to the period after January 10, 2017, to MBIA Insurance Corporation together
with MBIA Mexico.

National’s primary objective is to maximize the economics of our existing insured portfolio, including our insured
exposure with the Commonwealth of Puerto Rico and certain of its instrumentalities (“Puerto Rico”), through
effective surveillance and remediation and to 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 claims for its policyholders, maximize future
recoveries, if any, for its senior lending and other surplus note holders and, then its preferred stock holders. MBIA
Corp. is executing this strategy by pursuing various actions focused on maximizing the collection of recoveries
and reducing and mitigating potential losses on its insurance exposures. We do not expect National and MBIA
Corp. to write new business.

EXECUTIVE OVERVIEW

2017 Events

The following is a summary of notable 2017 events:

(cid:129)

In July of 2017, Puerto Rico defaulted on scheduled debt service for National insured bonds. National
paid gross claims in the aggregate of $242 million during 2017. On January 1, 2018, Puerto Rico also
defaulted on scheduled debt service for National insured bonds and National paid gross claims in the
aggregate of $69 million. As of December 31, 2017, National had $3.4 billion of gross insured par
outstanding ($3.9 billion of gross insured par outstanding when including accreted interest on insured
capital appreciation bonds (“CABs”)) related to Puerto Rico. Refer to the “U.S. Public Finance Insurance
Puerto Rico Exposures” section for additional information on our Puerto Rico exposures.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

EXECUTIVE OVERVIEW (continued)

(cid:129)

In the second quarter of 2017, Standard & Poor’s Financial Services LLC (“S&P”) downgraded the
financial strength rating of National from AA- with a stable outlook to A with a stable outlook. We believe
that National’s ability to write new business and to compete with other financial guarantors was largely
dependent on the financial strength ratings assigned to National by major rating agencies, and with the A
rating assigned by S&P, it would be difficult for National to compete with higher-rated competitors.
Therefore, at that time, we ceased our efforts to actively pursue writing new financial guarantee
business. National immediately initiated cost savings measures related to the cessation of new business,
which included reducing our headcount by approximately 25%. Operating expenses for the year ended
December 31, 2017 include $8 million of costs associated with the headcount reduction. Refer to the
“U.S. Public Finance Insurance” section for additional information on the U.S. public finance insurance
business and the below discussion “Financial Strength Ratings” for additional information about our
ratings.

In the second quarter of 2017, we recorded a full valuation allowance on our net deferred tax asset. The
full valuation allowance resulted from our conclusion that, at this time, we do not have sufficient positive
evidence required by accounting principles generally accepted in the United States of America (“GAAP”)
to support our ability to use our net deferred tax asset before it expires. Refer to the following “Taxes”
section and “Note 11: Income Taxes” in the Notes to Consolidated Financial Statements for further
information about this valuation allowance on our net deferred tax asset. Notwithstanding the
establishment of the valuation allowance on our net deferred tax asset, the Company believes that it may
be able to derive some economic benefit over time from its net deferred tax asset before the expirations
associated with that asset based upon expected earnings at National and potential future sources of
taxable income to be identified by the Company.

In the first quarter of 2017, we completed the sale of MBIA UK and executed a secured financing facility
which enabled MBIA Corp. to satisfy a claim of $770 million on an insurance policy insuring certain notes
issued by Zohar II 2005-1, Limited (“Zohar II”). Refer to the following “Results of Operations” and
“Liquidity” sections for a further discussion of the sale of MBIA UK and the financing facility.

In September of 2017, William C. Fallon replaced Joseph W. Brown as Chief Executive Officer of MBIA
Inc., bringing to conclusion MBIA Inc.’s long-term succession plan, which had been implemented over
the past two years.

Financial Highlights

The following tables present our financial highlights. A detailed discussion of our financial results is presented
within the “Results of Operations” section included herein. Refer to the “Capital Resources—Insurance Statutory
Capital” section for a discussion of National’s and MBIA Insurance Corporation’s capital positions under statutory
accounting principles (“U.S. STAT”).

In millions except for per share amounts

Net income (loss)
Net income (loss) per diluted share
Adjusted net income (loss)(1)
Adjusted net income (loss) per diluted share(1)
Cost of shares repurchased

Years Ended December 31,

2017

2016

2015

$(1,605)
(13.50)
(410)
(3.45)
325

$ (338)
(2.54)
30
0.23
105

$ 180
1.06
87
0.52
303

(1)—Adjusted net income (loss) and adjusted net income (loss) per diluted share are non-GAAP measures. These non-GAAP measures
were previously referred to as operating income (loss) and operating income (loss) per diluted share. Refer to the following “Results of
Operations” section for a discussion of adjusted net income (loss) and adjusted net income (loss) per diluted share and a reconciliation
of GAAP net income (loss) to adjusted net income (loss) and GAAP net income (loss) per diluted share to adjusted net income (loss) per
diluted share.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

EXECUTIVE OVERVIEW (continued)

In millions except per share amounts

Shareholders’ equity of MBIA Inc.
Book value per share
Adjusted book value per share(1)

As of December 31,

2017

2016

$1,413
15.44
29.32

$3,227
23.87
31.88

(1)—Adjusted book value per share is a non-GAAP measure. Refer to the following “Results of Operations” section for a discussion of
adjusted book value and a reconciliation of GAAP book value per share to adjusted book value per share.

Financial Strength Ratings

During 2017, MBIA Inc., on behalf of its subsidiaries, National and MBIA Corp., provided notice to Moody’s
Investors Services (“Moody’s”) and S&P terminating the agreements by which Moody’s and S&P agreed to
provide financial strength ratings to MBIA Inc., National, MBIA Corp. and MBIA Mexico. Also in 2017, National
provided notice to Kroll Bond Rating Agency (“Kroll”) terminating the agreement by which Kroll agreed to provide
a financial strength rating to National. In December of 2017, S&P affirmed National’s A with a stable outlook rating
and subsequently withdrew all of its ratings and Kroll downgraded National’s rating from AA+ to AA with a
negative outlook and subsequently withdrew its rating. In January of 2018, Moody’s downgraded National’s rating
to Baa2 from A3 with a stable outlook, affirmed MBIA Corp.’s rating at Caa1 with a developing outlook,
downgraded MBIA Inc.’s rating to Ba3 with a stable outlook from Ba1 with a negative outlook, and affirmed MBIA
Mexico’s Caa1/B3.mx with a developing outlook rating. Moody’s, at its discretion and in the absence of a contract
with the Company, continues to maintain ratings on MBIA Inc. and its subsidiaries.

Economic and Financial Market Trends

The U.S. economy continued to improve during the fourth quarter of 2017. The labor market remains strong and
economic activity has been increasing steadily. In addition, U.S. home prices across the country have maintained
a positive trajectory over the year and there has been an increase in business investment. Gross domestic
product increased during the quarter, driven by consumer spending and business investment and unplanned
spending due to the effects of the hurricanes in the third quarter of 2017.

The Federal Open Market Committee (“FOMC”) increased its target for the federal funds rate in December of 2017 by
25 basis points citing the economic factors of a strong labor market and solid economic growth along with low inflation.
There is an expectation of three rate increases in 2018. The FOMC stated that it will continue to monitor economic
conditions relative to its objectives of maximum employment and 2% inflation as they work to a path towards a
relatively gradual normalization of rates. Congress successfully passed comprehensive tax reform in December of
2017 which includes a reduction in the corporate federal tax rate to 21%, effective on January 1, 2018. Tax reform,
along with Congress’ emphasis on a reduction in regulation, is expected to lead to continued economic growth.

Economic and financial market trends could impact MBIA’s business outlook and its financial results. Many states
and municipalities have experienced growing tax collections that resulted from increased economic activity and
higher assessed property valuations. The 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. In addition, higher projected
interest rates could yield increased returns on our Company’s investment portfolio. A decrease in oil prices could
have a positive impact on certain sales taxes to the extent consumer spending increases as a result. However,
some states and municipalities will experience a decrease in revenues where their economies are reliant on the
oil and gas industries.

CRITICAL ACCOUNTING ESTIMATES

We prepare our financial statements in accordance with GAAP, which requires the use of estimates and
assumptions. The following accounting estimates are viewed by management to be critical because they require
significant judgment on the part of management. Management has discussed and reviewed the development,
selection, and disclosure of critical accounting estimates with the Company’s Audit Committee. Financial results
could be materially different if other methodologies were used or if management modified its assumptions.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

CRITICAL ACCOUNTING ESTIMATES (continued)

Loss and Loss Adjustment Expense Reserves

Loss and loss adjustment expense (“LAE”) reserves are established by loss reserve committees in each of our
major operating insurance companies (National and MBIA Insurance Corporation) and reviewed by our executive
Loss Reserve Committee, which consists of members of senior management. Loss and LAE reserves include
case basis reserves and accruals for LAE incurred with respect to non-derivative financial guarantees. Case basis
reserves represent our estimate of expected losses to be paid under insurance contracts, net of expected
recoveries, on insured obligations that have defaulted or are expected to default. These reserves require the use
of judgment and estimates with respect to the occurrence, timing and amount of paid losses and recoveries on
insured obligations. Given that the reserves are based on such estimates and assumptions, there can be no
assurance that the actual ultimate losses will not be greater than or less than such estimates, resulting in the
Company recognizing additional or reversing excess loss and LAE reserves through earnings.

We take into account a number of variables in establishing specific case basis reserves for individual policies that
depend primarily on the nature of the underlying insured obligation. These variables include the nature and
creditworthiness of the issuers of the insured obligations, expected recovery rates on unsecured obligations, the
projected cash flow or market value of any assets pledged as collateral on secured obligations, and the expected
rates of recovery, cash flow or market values on such obligations or assets. Factors that may affect the actual
ultimate realized losses for any policy include economic conditions and trends, political developments, the extent
to which sellers/servicers comply with the representations or warranties made in connection therewith, levels of
interest rates, rates of inflation, borrower behavior, the default rate and salvage values of specific collateral, and
our ability to enforce contractual rights through litigation and otherwise. Our remediation strategy for an insured
obligation that has defaulted or is expected to default may also have an impact on our loss reserves.

In establishing case basis loss reserves, we calculate the present value of probability-weighted estimated loss
payments, net of estimated recoveries, using a discount rate equal to the risk-free rate applicable to the currency
and the weighted average remaining life of the insurance contract. Yields on U.S. Treasury offerings are used to
discount loss reserves denominated in U.S. dollars, which represent the majority of our loss reserves. Similarly,
yields on foreign government offerings are used to discount loss reserves denominated in currencies other than
the U.S. dollar.

Refer to “Note 6: Loss and Loss Adjustment Expense Reserves” in the Notes to Consolidated Financial
Statements for a comprehensive discussion of our loss reserves and recoveries, including critical accounting
estimates used in the determination of these amounts.

Valuation of Financial Instruments

We have categorized our financial instruments measured at fair value into the three-level hierarchy according to
accounting guidance for fair value measurements and disclosures based on the significance of pricing inputs to
the measurement in its entirety. Fair value measurements of financial instruments that use quoted prices in active
markets for identical assets or liabilities are generally categorized as Level 1, fair value measurements of financial
instruments that use quoted prices in markets that are not active where significant inputs are observable are
generally categorized as Level 2, and fair value measurements of financial instruments where significant inputs
are not observable are generally categorized as Level 3. We categorize our financial instruments based on the
lowest level category at which we can generate reliable fair values. The determination of reliability requires
management to exercise judgment. The degree of judgment used to determine the fair values of financial
instruments generally correlates to the degree that pricing is not observable.

The fair value measurements of financial instruments held or issued by the Company are determined through the
use of observable market data when available. Market data is obtained from a variety of third-party sources,
including dealer quotes. If dealer quotes are not available for an instrument that is infrequently traded, we use
alternate valuation methods, including either dealer quotes for similar contracts or modeling using market data
inputs. The use of alternate valuation methods generally requires considerable judgment in the application of
estimates and assumptions and changes to these variables may produce materially different values.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

CRITICAL ACCOUNTING ESTIMATES (continued)

The fair value pricing of assets and liabilities is a function of many components which include interest rate risk,
market risk, liquidity risk and credit risk. For financial instruments that are internally valued by the Company, as
well as those for which the Company uses broker quotes or pricing services, credit risk is typically incorporated by
using appropriate credit spreads or discount rates as inputs. Substantially all of the Company’s investments
carried and reported at fair value are priced by independent third parties, including pricing services and brokers.

Instruments that trade infrequently and, therefore, have little or no price transparency are classified within Level 3
of the fair value hierarchy. Also included in Level 3 are financial instruments that have significant unobservable
inputs deemed significant to the instrument’s overall fair value. Level 3 assets represented approximately 30%
and 21% of total assets measured at fair value on a recurring basis as of December 31, 2017 and 2016,
respectively. Level 3 liabilities represented approximately 41% and 37% of total liabilities measured at fair value
on a recurring basis as of December 31, 2017 and 2016, respectively.

Refer to “Note 7: Fair Value of Financial Instruments” in the Notes to Consolidated Financial Statements for
further information about the Company’s financial assets and liabilities that are accounted for at fair value,
including valuation techniques and significant inputs.

Deferred Income Taxes

Deferred income taxes are recorded with respect to the temporary differences between the tax bases of assets
and liabilities and the reported amounts in our consolidated financial statements that will result in deductible or
taxable amounts in future years when the reported amounts of assets and liabilities are recovered or settled. Our
temporary differences relate principally to net operating losses, premium revenue recognition, accrued interest on
outstanding surplus notes, insured loss reserves, unrealized gains or losses on investments and insured
derivatives and deferred acquisition costs.

Valuation allowances are established to reduce deferred tax assets. Changes in the amount of a valuation
allowance are reflected within our provision for income taxes in our consolidated statements of operations.
Determining whether to establish a valuation allowance and, if so, the amount of the valuation allowance requires
management to exercise judgment and make assumptions regarding whether such tax benefits will be realized in
future periods prior to the expiration of the deferred tax assets.

In evaluating our ability to recover our net deferred tax asset, we consider all available positive and negative
evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, and results of
recent operations. In projecting future taxable income, we begin with historical results and incorporate
assumptions about the amount of future federal pre-tax income. The assumptions about future taxable income
require significant judgment and are consistent with the plans and estimates we are using to manage our
underlying businesses. Actual future taxable income or loss could be significantly different from our projections. In
evaluating the objective evidence that recent results provide, we consider the prior three years of cumulative
pre-tax comprehensive income (loss). We consider a trend of comprehensive income to be positive evidence of
our ability to recover our net deferred tax asset and a trend of comprehensive losses to be negative evidence.

During 2017, the Company established a full valuation allowance against its net deferred tax asset. The Company
will continue to analyze the valuation allowance on a quarterly basis. Refer to the following “Taxes” section and
“Note 11: Income Taxes” in the Notes to Consolidated Financial Statements for further information about this
valuation allowance on our net deferred tax asset.

RECENT ACCOUNTING PRONOUNCEMENTS

Refer to “Note 3: Recent Accounting Pronouncements” in the Notes to Consolidated Financial Statements for a
discussion of accounting guidance recently adopted by the Company.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS

Summary of Consolidated Results

The following table presents a summary of our consolidated financial results for the years ended December 31,
2017, 2016 and 2015:

In millions except for per share amounts

2017

2016

2015

Years Ended December 31,

Total revenues
Total expenses

Income (loss) before income taxes
Provision (benefit) for income taxes

Net income (loss)

Net income (loss) per common share:

Basic
Diluted

Weighted average number of common shares

outstanding:
Basic
Diluted

2017 vs. 2016

$
$

433
1,094

(661)
944

(1,605)

(13.50)
(13.50)

$
$

294
633

(339)
(1)

(338)

(2.54)
(2.54)

$
$

853
564

289
109

180

1.06
1.06

118,930,282
118,930,282

133,001,088
133,001,088

163,936,318
164,869,788

The increase in consolidated total revenues was primarily due to an impairment loss related to the sale of MBIA
UK recorded in 2016, gains related to changes in the fair values of assets of consolidated variable interest entities
(“VIEs”) and warrants on MBIA Inc. stock and a realized gain related to the settlement of litigation, partially offset
by foreign exchange losses on Euro denominated liabilities due to the weakening of the U.S. dollar, an increase in
net investment losses related to other-than-temporary impairments (“OTTI”) and lower net premiums earned due
to higher refunding activity in 2016. The increase in OTTI related to several impaired securities for which a loss
was recognized as the difference between a security’s amortized cost and fair value.

Consolidated total expenses for the years ended December 31, 2017 and 2016 included $683 million and
$220 million, respectively, of net insurance losses and LAE. This increase was principally due to losses incurred
on certain Puerto Rico exposures and insured first-lien residential mortgage-backed securities (“RMBS”).

The provision (benefit) for income taxes increased for 2017 compared with 2016 primarily due to the
establishment of a full valuation allowance against the Company’s net deferred tax asset. Refer to the following
“Taxes” section and “Note 11: Income Taxes” in the Notes to Consolidated Financial Statements for further
information about this valuation allowance on our net deferred tax asset.

2016 vs. 2015

The decrease in consolidated total revenues was primarily due to an impairment loss related to the sale of MBIA
UK, a decrease in net gains on insured derivatives and lower net premiums earned due to higher refunding
activity in 2015. Net losses on insured derivatives in 2016 were primarily the result of claim payments on
commercial mortgage-backed securities (“CMBS”) transactions. Net gains on insured derivatives in 2015 were
principally the result of changes in transaction-specific factors, such as credit ratings, partially offset by claim
payments.

Consolidated total expenses for the years ended December 31, 2016 and 2015 included $220 million and
$123 million, respectively, of net insurance losses and LAE. This increase was principally due to losses incurred
on certain Puerto Rico exposures and insured second-lien RMBS transactions, partially offset by decreases in
insured collateralized debt obligation (“CDO”) losses.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

Non-GAAP Adjusted Net Income (Loss)

In addition to our results prepared in accordance with GAAP, we also analyze the operating performance of the
Company using adjusted net income (loss), and adjusted net income (loss) per diluted common share, both
non-GAAP measures. Previously, these non-GAAP measures were referred to as combined operating income
(loss) and combined operating income (loss) per diluted common share. There was no change to the calculation
of these non-GAAP measures. There was only a change to the names of these non-GAAP measures. Since
adjusted net income (loss) is used by management to assess performance and make business decisions, we
consider adjusted net income (loss) and adjusted net income (loss) per diluted common share fundamental
measures of periodic financial performance which are useful in understanding our results. Adjusted net income
(loss) and adjusted net income (loss) per diluted common share are not substitutes for net income (loss) and net
income (loss) per diluted common share determined in accordance with GAAP, and our definitions of adjusted net
income (loss) and adjusted net income (loss) per diluted common share may differ from those used by other
companies.

Adjusted net income (loss) and adjusted net income (loss) per diluted common share include the after-tax results
of the Company and remove the after-tax results of our international and structured finance insurance segment,
which is not part of our ongoing business strategy, as well as the following:

(cid:129)

Elimination of the impact of mark-to-market gains (losses) on financial instruments that primarily include
interest rate swaps and hybrid financial instruments. Also eliminated are the mark-to-market gains
(losses) on warrants issued by the Company. All of these amounts fluctuate based on market interest
rates, credit spreads, MBIA Inc.’s common stock price and other market factors.

Elimination of foreign exchange gains (losses) on the remeasurement of certain assets and liabilities and
transactions in non-functional currencies. Given the possibility of volatility in foreign exchange markets,
we exclude the impact of foreign exchange gains (losses) to provide a measurement of comparability of
adjusted net income (loss).

Elimination of gains (losses) on the sale of investments, net investment losses related to OTTI and net
gains (losses) on extinguishment of debt since the timing of these transactions are subject to
management’s assessment of market opportunities and capital liquidity positions.

Elimination of the tax provision as a result of establishing a full valuation allowance against the
Company’s net deferred tax asset in 2017.

The following table presents our adjusted net income (loss) and adjusted net income (loss) per diluted common
share and provides a reconciliation of GAAP net income (loss) to adjusted net income (loss) for the years ended
December 31, 2017, 2016 and 2015:

In millions, except share and per share amounts

Net income (loss)
Less: adjusted net income adjustments:

Years Ended December 31,

2017

2016

2015

$(1,605)

$(338)

$ 180

Income (loss) before income taxes of our international and structured finance

insurance segment and eliminations

(185)

(475)

Adjustments to income before income taxes of our U.S. public finance insurance

and corporate segments:
Mark-to-market gains (losses) on financial instruments(1)
Foreign exchange gains (losses)(1)
Net gains (losses) on sales of investments(1)
Net investment losses related to OTTI
Net gains (losses) on extinguishment of debt
Other net realized gains (losses)

Adjusted net income adjustment to the (provision) benefit for income tax(3)

64
(63)
14
(106)
28
(3)
(944)

Adjusted net income (loss)

$ (410)

12
11
60
(5)
5
(5)
29

39
60
20
(13)
(1)
21(2)

(45)

$ 87

Adjusted net income (loss) per diluted common share

$ (3.45)(4) $ 0.23(5) $0.52(4)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

(1)—Reported within “Net gains (losses) on financial instruments at fair value and foreign exchange” on the Company’s consolidated
statements of operations.
(2)—Primarily relates to the results from the sale of Cutwater.
(3)—Reported within “Provision (benefit) for income taxes” on the Company’s consolidated statements of operations.
(4)—Adjusted net income (loss) per diluted common share is calculated by taking adjusted net income (loss) divided by GAAP weighted
average number of diluted common shares outstanding.
(5)—Adjusted net income (loss) per diluted common share is calculated by taking adjusted net income (loss) divided by the weighted
average number of diluted common shares outstanding, which includes the GAAP diluted weighted average number of common shares
of 133,001,088 and the dilutive effect of common stock equivalents of 444,557 shares.

Adjusted Book Value

In addition to book value per share, we also analyze adjusted book value (“ABV”) per share, a non-GAAP
measure. We consider ABV a measure of fundamental value of the Company and the change in ABV an
important measure of financial performance. ABV adjusts GAAP book value to remove the legal entity book value
of MBIA Corp. In addition, ABV adjusts for certain items which the Company believes will reverse from GAAP
book value through GAAP earnings and other comprehensive income, as well as add in the impact of certain
items which the Company believes will be realized in GAAP book value in future periods. The Company has
limited such adjustments to those items that it deems to be important to fundamental value and performance and
for which the likelihood and amount can be reasonably estimated. We have presented ABV to allow investors and
analysts to evaluate the Company using the same measure that MBIA’s management regularly uses to measure
financial performance and value. ABV is not a substitute for and should not be viewed in isolation of GAAP book
value, and our definition of ABV may differ from that used by other companies.

As of December 31, 2017, ABV per share was $29.32, a decrease from $31.88 as of December 31, 2016. The
decrease in ABV per share was primarily driven by the establishment of a full valuation allowance on the
Company’s net deferred tax asset and losses incurred on certain Puerto Rico exposures, partially offset by a
decrease in common shares outstanding from the share repurchases made by the Company during 2017. The
following table provides a reconciliation of consolidated book value per share to consolidated ABV per share:

In millions except share and per share amounts

Total shareholders’ equity of MBIA Inc.
Common shares outstanding
Book value per share

Reverse book value of the MBIA Corp. legal entity(1)

As of December 31,

2017

2016

1,413 $

91,484,447

15.44 $
8.84

3,227
135,200,831
23.87
5.07

Book value after MBIA Corp. legal entity adjustment

24.28

28.94

Other book value adjustments:

Reverse net unrealized (gains) losses included in other comprehensive

income (loss)

Add net unearned premium revenue(2)
Add tax effect on unrealized (gains) losses and unearned premium revenue(3)

Total other book value adjustments per share

Adjusted book value per share

0.26
4.78
—

5.04

29.32 $

0.24
4.31
(1.61)

2.94

31.88

(1)—The book value of the MBIA Corp. legal entity does not provide significant economic or shareholder value to MBIA Inc.
(2)—Consists of financial guarantee premiums, net of deferred acquisition costs. The discount rate on financial guarantee installment
premiums was the risk-free rate as defined by the accounting principles for financial guarantee insurance contracts.
(3)—As of December 31, 2017, ABV per share was adjusted by applying a zero effective tax rate to the book value adjustments.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

U.S. Public Finance Insurance

Our U.S. public finance insurance portfolio is managed through National. 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. National’s guarantees insure municipal bonds, including tax-exempt and taxable
indebtedness of U.S. political subdivisions, as well as utility districts, airports, healthcare institutions, higher
educational facilities, student loan issuers, 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 are generally supported by taxes, assessments,
user fees or tariffs related to the use of these projects, lease payments or other similar types of revenue streams.
As of December 31, 2017, National had total insured gross par outstanding of $71.9 billion.

On June 26, 2017, S&P downgraded the financial strength rating of National from AA- with a stable outlook to A
with a stable outlook. S&P noted that the downgrade of National was based on its view that National had not
gained wide market acceptance as demonstrated by its low new business volume. We determined that with the A
rating it would be difficult for National to compete with higher-rated competitors, and therefore, we ceased at that
time our efforts to actively pursue writing new financial guarantee business. Subsequent to the S&P financial
strength rating downgrade, National terminated its agreement for ratings from S&P, Moody’s and Kroll.

National continues to surveil and remediate its existing insured portfolio and will seek opportunities to enhance
shareholder value using its strong financial resources, while protecting the interests of its policyholders. Certain
state and local governments and territory obligors that National insures remain under financial and budgetary
stress. This could lead to an increase in defaults by such entities on the payment of their obligations and losses or
impairments on a greater number of the Company’s insured transactions. In particular, Puerto Rico is
experiencing significant fiscal stress and constrained liquidity due to, among other things, Puerto Rico’s structural
budget imbalance, the lack of access to the capital markets, a stagnating local economy, net migration of people
out of Puerto Rico and a high debt burden. Although Puerto Rico has tried to address its challenges through
various fiscal policies, it continues to experience significant fiscal stress. Also, on September 20, 2017, Hurricane
Maria made landfall in Puerto Rico as a Category 4 hurricane resulting in catastrophic damage to much of the
island’s basic infrastructure, including its electrical transmission and distribution grid, telecommunications network,
housing, roads, bridges, water and sewer systems. On September 21, 2017, the President of the United States
approved a Major Disaster Declaration for Puerto Rico and the Federal Emergency Management Agency
(“FEMA”) made federal disaster assistance available to Puerto Rico to supplement its recovery efforts. Refer to
the “U.S. Public Finance Insurance Puerto Rico Exposures” section for additional information on our Puerto Rico
exposures. We continue to monitor and analyze these situations and other stressed credits closely, and the
overall extent and duration of this stress is uncertain.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

The following table presents our U.S. public finance insurance segment results for the years ended December 31,
2017, 2016 and 2015:

In millions

Net premiums earned
Net investment income
Fees and reimbursements
Net gains (losses) on financial instruments at fair value

and foreign exchange

Net investment losses related to other-than-temporary

impairments

Other net realized gains (losses)

Total revenues

Losses and loss adjustment
Amortization of deferred acquisition costs
Operating

Total expenses

Income (loss) before income taxes
Provision (benefit) for income taxes

Net income (loss)

n/m—Percent change not meaningful.

Years Ended December 31,

Percent Change

2017

2016

2015

2017 vs. 2016

2016 vs. 2015

$ 174 $ 236 $ 304
116
3

113
2

119
2

(106)
(4)

200

499
39
69

607

(407)
(152)

(4)
2

427

74
49
60

183

244
68

(10)
(4)

423

5
65
62

132

291
100

$ (255) $ 176 $ 191

-26%
-5%
—%

-71%

n/m
n/m

-53%

n/m
-20%
15%

n/m

n/m
n/m

n/m

-22%
3%
-33%

n/m

-60%
-150%

n/m
-25%
-3%

39%

-16%
-32%

-8%

NET PREMIUMS EARNED Net premiums earned on financial guarantees represent gross premiums earned net
of premiums ceded to reinsurers, and include scheduled premium earnings and premium earnings from refunded
issues. The decrease in net premiums earned for 2017 compared with 2016 resulted from decreases in refunded
premiums earned of $41 million and scheduled premiums earned of $21 million. The decrease in net premiums
earned for 2016 compared with 2015 resulted from decreases in refunded premiums earned of $42 million and
scheduled premiums earned of $26 million. Scheduled premium earnings declined due to the refunding and
maturity of insured issues in prior periods. Refunding activity over the past several years has accelerated
premium earnings in prior periods and reduced the amount of scheduled premiums that would have been earned
in the current period.

NET GAINS (LOSSES) ON FINANCIAL INSTRUMENTS AT FAIR VALUE AND FOREIGN EXCHANGE Net gains
(losses) on financial instruments at fair value and foreign exchange primarily relate to net realized gains from the
sales of securities as a result of favorable market conditions. In 2016, the increase in these net realized gains was
primarily due to generating liquidity for anticipated claim payments on certain Puerto Rico exposures.

NET INVESTMENT LOSSES RELATED TO OTHER-THAN-TEMPORARY IMPAIRMENTS Net investment losses
related to OTTI for 2017, 2016 and 2015 were primarily related to impaired securities for which losses were
recognized as the difference between a security’s amortized cost and fair value or recovery value. This OTTI
resulted from liquidity concerns, recent credit rating downgrades and other adverse financial conditions of the
issuers.

LOSSES AND LOSS ADJUSTMENT EXPENSES National’s insured portfolio management group within our U.S.
public finance insurance segment is responsible for monitoring our U.S. public finance insured obligations. The
level and frequency of monitoring of any insured obligation depends on the type, size, rating and performance of
the insured issue.

Refer to “Note 6: Loss and Loss Adjustment Expense Reserves” in the Notes to Consolidated Financial
Statements for a description of the Company’s loss reserving policy and additional information related to its loss
reserves.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

The following table presents information about our U.S. public finance insurance losses and LAE expenses for the
years ended December 31, 2017, 2016 and 2015:

In millions

Years Ended December 31,

Percent Change

2017

2016

2015

2017 vs. 2016 2016 vs. 2015

Losses and LAE related to actual and expected payments(1)
Recoveries of actual and expected payments

513 $
1

Gross losses incurred
Reinsurance

514
(15)

75 $
—

75
(1)

Losses and loss adjustment expenses

499 $

74 $

8
(3)

5
—

n/m
n/m

n/m

n/m
-100%

n/m
n/m

n/m

(1)—Losses and LAE with respect to Puerto Rico exposures reflect the expected losses and LAE payments net of expected recoveries on
such payments.
n/m—Percent change not meaningful.

For the years ended December 31, 2017, 2016 and 2015, losses and LAE primarily related to certain Puerto Rico
exposures.

The following table presents information about our U.S. public finance insurance loss and LAE reserves and
recoverables as of December 31, 2017 and 2016:

In millions

Assets:

Insurance loss recoverable
Reinsurance recoverable on paid and unpaid losses(1)

Liabilities:

Gross loss and LAE reserves(2)
Expected recoveries on unpaid losses

Loss and LAE reserves

Insurance loss recoverable—ceded(3)

December 31, 2017 December 31, 2016 Percent Change

333 $
—

531
(19)

512 $

12 $

174
1

118
(21)

91%
-100%

n/m
-10%

n/m

—%

(1)—Reported within “Other assets” on our consolidated balance sheets.
(2)—Puerto Rico exposures are reflected net of expected recoveries on such reserves.
(3)—Reported within “Other liabilities” on our consolidated balance sheets.
n/m—Percent change not meaningful.

Insurance loss recoverable as of December 31, 2017 increased compared with December 31, 2016 primarily as a
result of expected recoveries related to claims paid on certain Puerto Rico exposures in 2017. Loss and LAE
reserves as of December 31, 2017 increased compared with December 31, 2016 primarily as a result of increases in
expected payments net of expected recoveries on those payments related to certain Puerto Rico exposures.

Included in our U.S. public finance loss and LAE reserves are both reserves for insured obligations for estimated
future claims payments, which includes insured credits where a payment default has occurred and National has
already paid a claim and insured credits where a payment default has not yet occurred. As of December 31, 2017
and 2016, loss and LAE reserves were comprised of the following:

$ in millions

Gross of reinsurance:
Issues with defaults
Issues without defaults

Total gross of reinsurance

Number of Issues(1)

Loss and LAE Reserve

Par Outstanding

December 31, December 31, December 31, December 31, December 31, December 31,

2017

2016

2017

2016

2017

2016

7
4

5 $
6

11 $

456 $
56

512 $

75 $
22

97 $

2,655 $
781

3,436 $

1,519
1,446

2,965

(1)—An “issue” represents the aggregate of financial guarantee policies that share the same revenue source for purposes of making debt
service payments on the insured debt.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

POLICY ACQUISITION COSTS AND OPERATING EXPENSES U.S. public finance insurance segment expenses
for the years ended December 31, 2017, 2016 and 2015 are presented in the following table:

In millions

Gross expenses

Amortization of deferred acquisition costs
Operating

Years Ended December 31,

Percent Change

2017

2016

2015

2017 vs. 2016

2016 vs. 2015

$ 70 $ 62 $ 63

$ 39 $ 49 $ 65
62

13%

-20%
15%

-1%

-2%

-25%
-3%

-14%

Total insurance operating expenses

$ 108 $ 109 $ 127

Gross expenses represent total insurance expenses before the deferral of any policy acquisition costs. Gross
expenses increased for 2017 compared with 2016 primarily due to severance related expenses associated with
the headcount reduction.

Amortization of deferred acquisition costs decreased for 2017 compared with 2016 and 2015 due to higher
refunding activity in prior years. When an insured obligation refunds, we accelerate any remaining deferred
acquisition costs associated with the policy covering the refunded insured obligation. We did not defer a material
amount of policy acquisition costs during 2017, 2016 or 2015.

INSURED PORTFOLIO EXPOSURE Financial guarantee insurance companies use a variety of approaches to
assess the underlying credit risk profile of their insured portfolios. National uses both an internally developed
credit rating system as well as third-party rating sources in the analysis of credit quality measures of its insured
portfolio. In evaluating credit risk, we obtain, when available, the underlying rating(s) of the insured obligation
before the benefit of its insurance policy from nationally recognized rating agencies, Moody’s and S&P. Other
companies within the financial guarantee industry may report credit quality information based upon internal ratings
that would not be comparable to our presentation. We maintain internal ratings on our entire portfolio, and our
ratings may be higher or lower than the underlying ratings assigned by Moody’s or S&P.

The following table presents the credit quality distribution of National’s U.S. public finance outstanding gross par
insured as of December 31, 2017 and 2016. CABs are reported at the par amount at the time of issuance of the
insurance policy. All ratings are as of the period presented and represent S&P underlying ratings, where available.
If transactions are not rated by S&P, a Moody’s equivalent rating is used. If transactions are not rated by either
S&P or Moody’s, an internal equivalent rating is used.

In millions

Rating

AAA
AA
A
BBB
Below investment grade

Total

Gross Par Outstanding

December 31, 2017

December 31, 2016

Amount

$ 3,271
28,354
23,530
10,870
5,903

4.6% $ 5,167
49,466
34,544
15,120
6,070

39.4%
32.7%
15.1%
8.2%

4.7%
44.8%
31.3%
13.7%
5.5%

$71,928

100.0% $110,367

100.0%

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

U.S. Public Finance Insurance Puerto Rico Exposures

The following is a summary of exposures within the insured portfolio of our U.S. public finance insurance segment
related to Puerto Rico as of December 31, 2017.

In millions

Gross Par
Outstanding
Plus CAB
Accreted
Interest

Gross Par
Outstanding

Debt Service
Outstanding

National
Internal
Rating

Puerto Rico Electric Power Authority (PREPA)
Puerto Rico Commonwealth GO(1)
Puerto Rico Public Buildings Authority (PBA)(2)
Puerto Rico Highway and Transportation Authority Transportation

1,151 $
647
188

1,151 $
663
188

1,637
850
274

Revenue (PRHTA)(1)

Puerto Rico Highway and Transportation Authority—
Subordinated Transportation Revenue (PRHTA)

Puerto Rico Sales Tax Financing Corporation (COFINA)(1)
Puerto Rico Highway and Transportation Authority Highway

Revenue (PRHTA)(1)

University of Puerto Rico System Revenue
Inter American University of Puerto Rico Inc.

528

30
684

68
82
23

528

968

30
1,146

69
82
23

43
4,170

98
118
31

Total

3,401 $

3,880 $

8,189(3)

d
d
d

d
d

d
d
a3

(1)—Includes CABs that reflect the gross par amount at the time of issuance of the insurance policy.
(2)—Additionally secured by the guarantee of the Commonwealth of Puerto Rico.
(3)—As a result of debt service payments made as of January 1, 2018, National’s total Puerto Rico debt service outstanding declined by
$70 million.

On September 20, 2017, Hurricane Maria made landfall in Puerto Rico as a Category 4 hurricane resulting in
catastrophic damage to much of the island’s basic infrastructure, including its electrical transmission and distribution
grid, telecommunications network, housing, roads, bridges, water and sewer systems. On September 21, 2017, the
President of the United States approved a Major Disaster Declaration for Puerto Rico and FEMA made federal
disaster assistance available to Puerto Rico to supplement its recovery efforts. Many residents of Puerto Rico
continue to lack access to basic necessities such as clean water, food and health care. The lack of passable roads
and compromised infrastructure has complicated recovery efforts. Given the significant physical barriers to
assistance, the Department of Defense took over much of the initial search, rescue and restoration effort. The U.S.
Army Corps of Engineers has taken the lead in the effort to rebuild the Island’s infrastructure, in cooperation with
FEMA and Puerto Rico. Damage estimates vary widely, but a preliminary report from Moody’s Analytics places the
upper bound of the range at $95 billion. This estimate includes lost economic activity and physical damage to
infrastructure. Given the numerous estimates of physical damage and the extent of insurance coverage, uninsured
damages are not reasonably estimable at this time. On October 12, 2017, the House of Representatives passed
legislation providing $36.5 billion in emergency disaster assistance for areas of the U.S. impacted by recent
hurricanes and wildfires including California, Texas, Louisiana, Florida, Puerto Rico and the U.S. Virgin Islands. This
amount includes $4.9 billion in community disaster loans which will be, in part, made available to Puerto Rico. Under
the Stafford Act, the legislation that directs federal emergency disaster response, that portion of the $4.9 billion
made available to Puerto Rico may be directed to activities that directly mitigate the impacts of the disaster. The
measure was approved by the U.S. Senate and has been signed by the President of the United States. As of
February 12, 2018, no monies have been advanced to Puerto Rico under this authorization. On February 9, 2018,
the U.S. Congress approved, and the President of the United States signed into law, a new supplemental spending
authorization totaling approximately $90.0 billion to cover necessary expenses related to the consequences of
Hurricanes Harvey, Irma and Maria and wildfires that occurred in 2017. Of this amount, Puerto Rico expects to
receive approximately $16.5 billion in federal funds, including up to $4.8 billion for healthcare, $10.0 billion for
housing and $2.0 billion for improvements to the island’s electrical power systems. Refer to the following “PREPA”
section below for further information about Hurricane Maria’s impact to Puerto Rico.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

On June 30, 2016, the Puerto Rico Oversight, Management and Economic Stability Act (“PROMESA”), was
signed into law by the President of the United States. PROMESA provides both for the creation of an independent
oversight board (the “Oversight Board”) with powers relating to the development and implementation of a fiscal
plan for Puerto Rico as well as a court-supervised process that allows Puerto Rico to restructure its debt if
voluntary agreements cannot be reached with creditors through a collective action process.

On March 13, 2017, the Oversight Board approved the Governor’s revised long-term fiscal plan, which decreased
the 10 year cumulative cash flow by $3.85 billion from $11.6 billion to $7.8 billion (pre-Affordable Care Act (“ACA”)
funding and debt service). The certified plan identified fiscal cliffs from an absence of ACA, the assumed loss of
Act 154 excise taxes, and pension contributions under current law and both suggested similar solutions, including
tax reform, improved tax compliance, centralized procurement, headcount reductions, and the extension of the
Act 154 excise tax for a period of time. As part of Act 3-2017 passed by the new administration, the Act 154
excise tax was extended until December 31, 2027. Additionally, on April 28, 2017, the Oversight Board certified
four instrumentality fiscal plans, including fiscal plans for PREPA and PRHTA, subject to certain requested
amendments.

On May 3, 2017, the Oversight Board certified and filed a petition under Title III of PROMESA for Puerto Rico with
the District Court of Puerto Rico thereby commencing a bankruptcy-like case for Puerto Rico. Following the filing
of this petition by the Oversight Board, National, together with Assured and Assured Guaranty Municipal Corp.,
filed an adversary complaint in the Title III case alleging that the Fiscal Plan and the Fiscal Plan Compliance Act,
as discussed below, violate PROMESA and the U.S. Constitution. Under a separate petition, the Oversight Board
also commenced a Title III case for COFINA on May 5, 2017. Subsequently, the Oversight Board also certified
and filed voluntary petitions under Title III of PROMESA for several other municipalities, including PRHTA and
PREPA on May 21, 2017 and July 2, 2017, respectively.

Pursuant to PROMESA, the Title III cases were filed in the U.S. District Court for Puerto Rico, and the court has
entered an order directing the cases to be jointly administered for procedural purposes. The Oversight Board and
creditors met for the first time in court in May of 2017 in San Juan before the judge presiding over the cases to
begin addressing the nearly $70 billion of debt amassed by Puerto Rico and its instrumentalities. Given the
unprecedented legal disputes and the complexity of the issues expected, the judge has designated five federal
judges to act as mediators in all of the Title III cases and the University of Puerto Rico which, at this time, has
indicated a desire to pursue a Title VI resolution. These judges will attempt to facilitate voluntary mediation
discussions.

As a result of prior defaults, various stays and the Title III cases, National paid gross claims in the aggregate
amount of $91 million, $24 million and $173 million against general obligation (“GO”) bonds, PBA bonds and
PRHTA bonds, relating to debt service due on July 1, 2017, January 1, 2017 and July 1, 2016, respectively. In
addition, National paid claims in the aggregate amount of $127 million against PREPA bonds relating to debt
service due on July 1, 2017, following the expiration of the Restructuring Support Agreement (“RSA”), as further
discussed below, on June 29, 2017.

In light of the impact of Hurricane Maria on Puerto Rico, and the resulting inevitable need for Puerto Rico and the
Oversight Board to overhaul the Fiscal Plan, on October 6, 2017, National, Assured and Assured Guaranty
Municipal Corp. filed a voluntary notice of dismissal, without prejudice, of their adversary complaint regarding the
Fiscal Plan and Fiscal Plan Compliance Act. Also, on October 13, 2017, National, together with the other plaintiffs
in the filing, voluntarily dismissed without prejudice the adversary complaint filed on August 7, 2017 which sought
to compel PREPA to deposit revenues with the bond trustee as required by the terms of the PREPA Trust
Agreements, PROMESA and the U.S. Constitution. At its October 31, 2017 meeting, the Oversight Board
sought from Puerto Rico and certain of its instrumentalities covered under PROMESA, revised fiscal plans that
account for the damage suffered from Hurricane Maria. Puerto Rico and PREPA submitted their updated fiscal
plans to the Oversight Board on January 24, 2018. The University of Puerto Rico and PRHTA must submit their
revised fiscal plans to the Oversight Board by March 9, 2018. The Oversight Board intends to certify or
recommend additional changes to these revised fiscal plans during the first quarter of 2018.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

On January 24, 2018, the Puerto Rico government submitted its draft fiscal plan to the Oversight Board, which
reflects the government’s expected economic outlook of Puerto Rico over a five year period after integrating four
additional key drivers in the projections: (i) the negative impact of Hurricane Maria, (ii) mitigating impact of
disaster relief assistance, (iii) changes to revenue and expense measures, and (iv) the impact of structural
reforms. After these four additional key drivers are fully implemented, the draft fiscal plan shows Puerto Rico
going from a $3.7 billion surplus to a $3.4 billion deficit (before debt service) over the five year period. Following
receipt of the government’s draft fiscal plan, the Oversight Board determined that the proposed fiscal plan was
noncompliant with the requirements of PROMESA and, therefore, required certain revisions before certification by
the Oversight Board. As a result, the government submitted a revised fiscal plan for Puerto Rico on February 12,
2018 to incorporate the Oversight Board’s comments and the incremental disaster relief funding provided by
recent legislation approved by U.S. Congress on February 9, 2018. Notwithstanding the revisions, the draft fiscal
plan remains subject to further adjustment following additional input and review by the Oversight Board.

COFINA

In October of 2016, a group of GO bondholders, which had previously initiated litigation against Puerto Rico in
July of 2016, moved to amend its complaint to add a challenge to Puerto Rico’s putative diversion of funds to the
Puerto Rico Sales Tax Financing Corporation (“COFINA”). The plaintiff group contends that the funds being used
to pay bonds issued by COFINA constitute “available resources” within the meaning of article VI, section 8 of the
Puerto Rico Constitution, and therefore must be devoted to payment of principal and interest on Puerto Rico’s
public debt before they may be used for other purposes. By failing to redirect such funds to pay GO bondholders,
the plaintiff group claims that Puerto Rico is improperly diverting funds to COFINA bondholders.

I. Bank of New York Mellon Interpleader Action

Following alleged events of default, certain creditors, the Puerto Rico Fiscal Agency and Financial Advisory
Authority (“AAFAF”), and the Oversight Board provided COFINA’s Trustee, Bank of New York, with conflicting
instructions regarding the application of funds held by the trustee. In addition, certain creditors have sued Bank of
New York, for alleged breach of fiduciary duties in connection with the application of funds held by the trustee
upon an event of default. As a result, Bank of New York filed an interpleader motion with the court overseeing
COFINA’s Title III case, seeking relief from any potential liability brought by creditors and direction from the court
as to control and application of approximately $1.1 billion of funds held by the trustee as of February 1, 2018.
National has intervened in this matter. Given the complexity of the issues, on May 30, 2017, the judge granted
Bank of New York’s interpleader request upon ordering a freeze on disbursements to all bondholders and
temporarily setting aside the funds until the dispute can be resolved between the parties. On November 6, 2017,
National, along with Ambac Assurance Corporation, filed a joint motion for summary judgment asserting, among
other things, that (i) events of default have occurred under the COFINA Resolution requiring payment to senior
bondholders before any distribution to subordinate bondholders, and (ii) the COFINA bonds have been
accelerated. All summary judgment motions are fully briefed and pending.

II. Commonwealth-COFINA Dispute

On August 10, 2017, the judge entered a stipulated order establishing procedures to govern resolution of certain
disputes between Puerto Rico and COFINA (the “Commonwealth-COFINA Dispute”). In recognition of the fact
that the Oversight Board acts for both Puerto Rico and COFINA, the Court appointed the official Unsecured
Creditors Committee to serve as Puerto Rico’s representative to litigate and/or settle the Commonwealth-COFINA
Dispute on behalf of Puerto Rico (the “Commonwealth Agent”) and Bettina M. Whyte of Bettina Whyte
Consultants, LLC, to serve as the COFINA representative to litigate and/or settle the Commonwealth-COFINA
Dispute on behalf of COFINA (the “COFINA Agent”). The Commonwealth Agent filed an adversary complaint on
September 8, 2017. On September 15, 2017, the COFINA Agent filed an Answer to the Complaint and asserted
eight counterclaims for declaratory judgment regarding the enforceability of the COFINA structure. On
October 25, 2017, the Commonwealth Agent filed an amended complaint that contained minor revisions to the
factual allegations concerning the directors of COFINA, permitted use of bond proceeds, and the enactment of the
sales and use tax. On October 30, 2017, the COFINA Agent filed its amended answer and counterclaims.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

Pursuant to the stipulated order, National was permitted to intervene in this adversary proceeding. Accordingly, on
November 6, 2017, National filed a notice of intervention, an answer to the Commonwealth Agent’s amended
complaint, and counterclaims. In its counterclaims, National asserted four causes of action seeking, inter alia,
declarations that the COFINA enabling statutes are constitutional, the sales and use tax revenues were validly
transferred to COFINA, and the Commonwealth’s appropriation of the sales and use tax revenues violates the
takings and contracts clauses of the U.S. and Puerto Rico constitutions.

On November 13, 2017, the Oversight Board filed a motion to confirm the scope of the COFINA and
Commonwealth Agents’ authority and to determine whether certain claims exceeded the scope of the
Commonwealth-COFINA Dispute. The Court also received additional filings relating to the scope of the agents’
authority in connection with the Commonwealth-COFINA Dispute.

On December 21, 2017, the Court issued an order limiting the scope of the Commonwealth-COFINA Dispute to
whether the sales taxes pledged for repayment of the COFINA bonds are the property of the Commonwealth or
COFINA and dismissed without prejudice any claims the Court determined to exceed that scope. On January 13,
2018, the Court granted the Commonwealth Agent leave to file a second amended complaint re-pleading two
causes of action that previously had been dismissed as exceeding the scope of the Commonwealth-COFINA
Dispute and seeking declarations that the COFINA enabling statutes violate the debt limit, debt priority, and
balanced budget clauses of the Puerto Rico Constitution. The COFINA Agent and permitted intervenors, including
National, filed answers to the second amended complaint in January of 2018. Discovery is ongoing. Motions for
summary judgment were due in February of 2018.

Currently, National has exposure to senior-lien COFINA debt of over $1.1 billion, including CAB accreted interest.
As legal opinions from Puerto Rico justice secretaries and bond counsel have confirmed, National believes that
the legal structure of COFINA is sound and that COFINA bondholders are the owners of the COFINA funds and
maintain a valid statutory lien on the sales tax revenue stream backing the bonds. Notwithstanding the foregoing,
until all legal challenges are resolved, there can be no assurance that the COFINA structure will be upheld and
the sales tax revenue lien will be recognized.

PREPA

National’s largest exposure to Puerto Rico, by gross par outstanding, is to PREPA. On December 23, 2015,
National, Assured Guaranty, and the ad hoc group of bondholders (representing approximately $3.0 billion, or
37.0% of the power revenue bonds, (collectively the “Supporting Creditors”)) entered into an RSA with the support
of almost 70% of $8.4 billion of outstanding PREPA bonds, including approximately $1.2 billion of PREPA bonds
insured by National. The RSA was supplemented and extended several times during subsequent periods and the
Supporting Creditors made three separate bond purchases to assist with PREPA’s liquidity. National bought and
currently owns $139 million of PREPA bonds.

On January 27, 2017, the newly created AAFAF announced that it would lead future negotiations on behalf of
PREPA (and all Puerto Rico entities). On April 5, 2017, the Governor, AAFAF and PREPA announced their
collective intention to enter into a modified RSA with the Supporting Creditors, subject to final documentation,
which was completed in April of 2017; this revised RSA was effective until June 29, 2017.

The revised RSA and related PREPA fiscal plan were submitted to the Oversight Board and the Oversight Board
certified the Fiscal Plan on April 28, 2017. Notwithstanding certification of the Fiscal Plan, the Oversight Board
rejected the RSA on June 28, 2017. The RSA was then terminated by PREPA and PREPA requested certification
of a Title III case. The Oversight Board commenced a Title III case for PREPA on July 2, 2017.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

PREPA sustained heavy damage to its infrastructure from the two September 2017 hurricanes and in particular
from Hurricane Maria. Its generating assets, located along the coast sustained only minor damage but damage to
the transmission and distribution infrastructure was extensive. Power is still out across portions of the island,
particularly in the rural inland areas. Lack of power has a knock-on effect of disabling telecommunication and
water systems as well. Restoration efforts are being coordinated by the U.S. Army Corps of Engineers under
contract with FEMA; monies from FEMA are expected to finance the reconstruction effort. In December of 2017
and continuing into January of 2018, mainland electric crews have arrived in force with equipment and supplies to
continue the restoration effort. As of February 5, 2018, PREPA is reporting approximately 72% of its customers
have had power restored.

The PREPA revised Fiscal Plan released January 24, 2018 calls for a wholesale transformation of PREPA to at
least a partially privatized entity. Specifics regarding implementation and the impact on creditors were not detailed
or readily apparent in the Plan.

PRHTA

On May 21, 2017, upon the expiration of the PROMESA stay, the Oversight Board commenced a Title III case for
PRHTA. On June 3, 2017, National, together with Assured and Assured Guaranty Municipal Corp., filed an
adversary proceeding in the PRHTA’s Title III case. The complaint seeks to enforce the special revenue
protections of the Bankruptcy Code which are incorporated into PROMESA. These provisions ensure, among
other things, that (i) current tax and toll revenues remain subject to liens and (ii) the automatic stay resulting from
a filing of a Title III petition does not stay or limit application of these pledged special revenues to the repayment
of PRHTA debt. Motions to dismiss were filed on June 28, 2017, and oral arguments were heard on
November 21, 2017. The court took the matter under advisement, but ordered a supplemental briefing, which was
submitted on November 28, 2017. On January 30, 2018, the judge granted the motions to dismiss the monolines’
PRHTA-related adversary proceeding. On February 9, 2018, National, together with Assured, Assured Guaranty
Municipal Corp. and Financial Guaranty Insurance Company filed their notice of appeal of the motions to dismiss
to the United States Court of Appeals for the First Circuit.

Additionally, on June 20, 2017, AAFAF informed Bank of New York, as fiscal agent for the PRHTA bonds, that
due to the Title III case, the funds in the debt service reserve account in AAFAF’s view were not property of the
bondholders and that Bank of New York should not disburse these funds to bondholders on July 1, 2017. The
parties agreed that such funds would be held by the Bank of New York and disbursement of such funds would be
addressed in the pending adversary proceeding.

Other

Other than Inter American University of Puerto Rico Inc., S&P, Fitch Ratings and/or Moody’s have downgraded
the ratings of all Puerto Rico issuers to below investment grade with a negative outlook due to narrowing liquidity,
sluggish economic growth and persistent structural deficits. Additionally, subsequent to the declaration of a state
of emergency and suspension of debt service payments by the then Governor of Puerto Rico, S&P revised its
rating for Puerto Rico, its GO, PREPA and PRHTA’s subordinated transportation revenue bonds, series 1998,
state infrastructure bank, to “D” (default). On June 6, 2017, S&P further downgraded COFINA from “CC” to “D”
based on court motions that directed the trustee to withhold scheduled monthly payments until property interest
disputes have been resolved.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

The following tables presents our scheduled gross debt service due on our Puerto Rico insured exposures as of
December 31, 2017, for each of the subsequent five years ending December 31 and thereafter:

In millions

2018

2019

2020

2021

2022

Thereafter

Total

Puerto Rico Electric Power Authority (PREPA)
Puerto Rico Commonwealth GO
Puerto Rico Public Buildings Authority (PBA)
Puerto Rico Highway and Transportation Authority
Transportation Revenue (PRHTA)
Puerto Rico Highway and Transportation Authority—
Subordinated Transportation Revenue (PRHTA)
Puerto Rico Sales Tax Financing Corporation (COFINA)
Puerto Rico Highway and Transportation Authority
Highway Revenue (PRHTA)
University of Puerto Rico System Revenue
Inter American University of Puerto Rico Inc.

$120 $177 $115 $140 $140 $
223
10

154
24

96
17

82
24

19
9

5
—

5
7
3

1
—

16
7
2

1
—

16
7
3

1
—

3
7
3

9
—

2
6
3

945 $1,637
850
276
274
190

829

968

26
4,170

43
4,170

56
84
17

98
118
31

Total

$285 $408 $401 $287 $215 $ 6,593 $8,189

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

Corporate

Our corporate segment consists of general corporate activities, including providing support services to MBIA Inc.’s
subsidiaries as well as asset and capital management. Support services are provided by our service company,
MBIA Services, and include, among others, management, legal, accounting, treasury, information technology, and
insurance portfolio surveillance, on a fee-for-service basis. Capital management includes activities related to
servicing obligations issued by MBIA Inc. and its subsidiaries, GFL and MBIA Investment Management Corp
(“IMC”). MBIA Inc. issued debt to finance the operations of the MBIA group. GFL raised funds through the
issuance of medium-term notes (“MTNs”) with varying maturities, which were in turn guaranteed by MBIA Corp.
GFL lent the proceeds of these MTN issuances to MBIA Inc. IMC, along with MBIA Inc., provided customized
investment agreements, guaranteed by MBIA Corp., for bond proceeds and other public funds for such purposes
as construction, loan origination, escrow and debt service or other reserve fund requirements. The Company has
ceased issuing new MTNs and investment agreements and the outstanding liability balances and corresponding
asset balances have declined over time as liabilities matured, terminated or were called or repurchased. All of the
debt within the corporate segment is managed collectively and is serviced by available liquidity.

The following table summarizes the consolidated results of our corporate segment for the years ended
December 31, 2017, 2016 and 2015:

In millions

Net investment income
Fees
Net gains (losses) on financial instruments at fair value and

foreign exchange

Net investment losses related to other-than-temporary

impairments

Net gains (losses) on extinguishment of debt
Other net realized gains (losses)

Total revenues

Operating
Interest

Total expenses

Income (loss) before income taxes
Provision (benefit) for income taxes

Net income (loss)

n/m—Percent change not meaningful.

Years Ended December 31,

Percent Change

2017

2016

2015

2017 vs. 2016

2016 vs. 2015

37 $
53

33 $ 36
52
49

12%
8%

-8%
-6%

(32)

(14)

—
28
(4)

62
89

151

(69)
556

(1)
5
(5)

83
92

175

(108)
(15)

(3)
(1)
21

169

82
101

183

(14)
7

$(625) $ (93) $(21)

129%

-122%

-100%
n/m
-20%

22%

-25%
-3%

-14%

-36%
n/m

n/m

-67%
n/m
-124%

-60%

1%
-9%

-4%

n/m
n/m

n/m

NET GAINS (LOSSES) ON FINANCIAL INSTRUMENTS AT FAIR VALUE AND FOREIGN EXCHANGE The
unfavorable change in net gains (losses) on financial instruments at fair value and foreign exchange for 2017
compared with 2016 was primarily due to foreign exchange losses on Euro denominated liabilities from the
weakening of the U.S. dollar, partially offset by favorable changes in the fair value of the outstanding warrants
issued on MBIA Inc. common stock, a decrease in net losses on the sales of investments and an increase in
gains from our interest rate swaps. The changes in the fair value of outstanding warrants were primarily
attributable to a decrease in the price of MBIA Inc.’s common stock and changes in volatility, which are used in
the valuation of the warrants.

The unfavorable change in net gains (losses) on financial instruments at fair value and foreign exchange for 2016
compared with 2015 was primarily due to a decrease in foreign exchange gains on Euro denominated liabilities
from a decline in the strengthening of the U.S. dollar and unfavorable changes in the fair value of the outstanding
warrants issued on MBIA Inc. common stock. The changes in the fair value of outstanding warrants were primarily
attributable to an increase in the price of MBIA Inc. common stock, partially offset by changes in volatility.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

NET GAINS (LOSSES) ON EXTINGUISHMENT OF DEBT The increase in net gains (losses) on extinguishment
of debt for 2017 compared with 2016 was primarily due to an increase in gains from purchases, at discounts, of
MTNs issued by the Company.

OTHER NET REALIZED GAINS (LOSSES) The decrease in other net realized gains (losses) for 2016 compared
with 2015 was primarily due to the results from the sale of Cutwater in 2015.

OPERATING EXPENSES Operating expenses decreased for 2017 compared with 2016 primarily due to
decreases in compensation expense, primarily as a result of lower headcount.

INTEREST EXPENSE Interest expense decreased for 2017 compared with 2016 and 2015 due to the continued
maturities and repurchases of debt obligations issued by the Company.

PROVISION (BENEFIT) FOR INCOME TAXES The provision for income taxes for 2017 was driven by the
establishment of a full valuation allowance against the Company’s net deferred tax asset. Refer to the following
“Taxes” section and “Note 11: Income Taxes” in the Notes to Consolidated Financial Statements for further
information about this valuation allowance on our net deferred tax asset. The 2016 benefit for income taxes was
impacted by foreign tax credit adjustments, the fluctuation of the value of nontaxable warrants issued by the
Company and nondeductible equity-based compensation expense. The 2015 provision for income taxes was
impacted by nondeductible equity-based compensation expense.

International and Structured Finance Insurance

Our international and structured finance insurance portfolios are managed through MBIA Corp. The financial
guarantees issued by MBIA Corp. generally provide unconditional and irrevocable guarantees of the payment of
the principal of, and interest or other amounts owing on, non-U.S. public finance and global structured finance
insured obligations when due or, in the event MBIA Corp. has the right, at its discretion, to accelerate insured
obligations upon default or otherwise. Effective on January 10, 2017, MBIA Corp.’s wholly-owned subsidiary,
MBIA UK Holdings, sold MBIA UK to Assured.

MBIA Corp. has insured sovereign-related and sub-sovereign bonds, privately issued bonds used for the financing
of utilities, toll roads, bridges, airports, public transportation facilities, and other types of infrastructure projects
serving a substantial public purpose. Global structured finance and asset-backed obligations typically are
securities repayable from cash flows generated by a specified pool of assets, such as residential and commercial
mortgages, insurance policies, consumer loans, corporate loans and bonds, trade and export receivables, and
leases for equipment, aircraft and real estate property. We no longer insure new credit derivative contracts except
for transactions related to the restructuring or reduction of existing derivative exposure. MBIA Insurance
Corporation insures the investment contracts written by MBIA Inc., and if MBIA Inc. or such subsidiaries were to
have insufficient assets to pay amounts due upon maturity or termination, MBIA Insurance Corporation would be
required to make such payments under its insurance policies. MBIA Insurance Corporation also insured debt
obligations of other affiliates, including GFL and IMC. MBIA Corp. has also written insurance policies
guaranteeing the obligations under credit default swap (“CDS”) contracts of an affiliate, LaCrosse Financial
Products, LLC and certain other derivative contracts. Certain policies cover payments potentially due under CDS,
including termination payments that may become due in certain circumstances, including the occurrence of
certain insolvency or payment defaults under the CDS or derivative contracts by the insured counterparty or by
the guarantor. MBIA Insurance Corporation provides reinsurance to MBIA Mexico.

MBIA Corp. has contributed to the Company’s net operating loss (“NOL”) carryforward, which is used in the
calculation of our consolidated income taxes. If MBIA Corp. becomes profitable, it is not expected to make any tax
payments under our tax sharing agreement. Based on MBIA Corp.’s current projected earnings and our
expectation that it will not write new business, we believe it is unlikely that MBIA Corp. will generate significant
income in the near future. As a result, we believe MBIA Corp. does not provide significant economic value to
MBIA Inc. and its shareholders. Refer to “Note 11: Income Taxes” in the Notes to Consolidated Financial
Statements for further information about taxes.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

The following table presents our international and structured finance insurance segment results for the years
ended December 31, 2017, 2016 and 2015:

In millions

Net premiums earned
Net investment income
Fees and reimbursements
Change in fair value of insured derivatives:

Realized gains (losses) and other settlements on

insured derivatives

Unrealized gains (losses) on insured derivatives

Net change in fair value of insured derivatives
Net gains (losses) on financial instruments at fair value

and foreign exchange

Other net realized gains (losses)
Revenues of consolidated VIEs:

Net investment income
Net gains (losses) on financial instruments at fair value

and foreign exchange

Other net realized gains (losses)

Total revenues

Losses and loss adjustment
Amortization of deferred acquisition costs
Operating
Interest
Expenses of consolidated VIEs:

Operating
Interest

Total expenses

Income (loss) before income taxes
Provision (benefit) for income taxes

Net income (loss)

n/m—Percent change not meaningful.

Years Ended December 31,

Percent Change

2017

2016

2015

2017 vs. 2016

2016 vs. 2015

44 $
21
57

84 $ 99
11
12
67
72

(51)
—

(51)

(17)
39

130
28

278

184
43
30
119

10
80

(40)
21

(19)

30
(279)

—
—

(69)

146
56
44
115

14
25

(28)
157

129

(9)
—

42
—

425

118
78
50
111

13
39

466

400

409

(188)
1,143

(469)
(52)

16
3

$(1,331) $(417) $ 13

-48%
75%
-21%

28%
-100%

n/m

n/m
-114%

-15%
9%
7%

43%
-87%

-115%

n/m
n/m

-13%

-64%

n/m
n/m

n/m

26%
-23%
-32%
3%

-29%
n/m

17%

-60%
n/m

n/m

-100%
-%

-116%

24%
-28%
-12%
4%

8%
-36%

-2%

n/m
n/m

n/m

As of December 31, 2017, MBIA Corp.’s total insured gross par outstanding was $15.1 billion. Since
December 31, 2007, MBIA Corp.’s total insured gross par outstanding has decreased approximately 95% from
$331.2 billion.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

On January 20, 2017, MBIA Corp. was presented with and fully satisfied a claim of $770 million (the “Zohar II
Claim”) on an insurance policy it had written insuring certain notes issued by Zohar II. In order to satisfy the claim,
MBIA Corp. used approximately $60 million from its own resources and executed the following two related
transactions: 1) MBIA UK Holdings sold its operating subsidiary, MBIA UK, and made a cash payment of
$23 million, to Assured, in exchange for the receipt by MBIA UK Holdings of certain Zohar II notes owned by
Assured, which had an aggregate outstanding principal amount of $347 million as of January 10, 2017, which
notes were distributed as a dividend to MBIA Corp. upon completion of the sale of MBIA UK; and 2) MBIA Corp.
executed a financing facility (the “Facility”) with affiliates of certain holders of 14% Fixed-to-Floating Rate Surplus
Notes of MBIA Corp. (collectively, the “Senior Lenders”), and with MBIA Inc., pursuant to which the Senior
Lenders provided $325 million of senior financing and MBIA Inc. provided $38 million of subordinated financing to
MZ Funding LLC (“MZ Funding”), a newly formed wholly-owned subsidiary of the Company, which in turn lent the
proceeds of such financing to MBIA Corp. Refer to “Liquidity” for additional information on the Facility.

NET PREMIUMS EARNED Our international and structured finance insurance segment generates net premiums
from insurance policies accounted for as financial guarantee contracts. Certain premiums are eliminated in our
consolidated financial statements as a result of the Company consolidating VIEs. In addition, we generate net
premiums from insured credit derivatives that are included in “Realized gains (losses) and other settlements on
insured derivatives” on our consolidated statements of operations. The following table provides net premiums
earned from our financial guarantee contracts for the years ended December 31, 2017, 2016 and 2015:

In millions

Net premiums earned:

Non-U.S.
U.S.

Total net premiums earned

VIEs (eliminated in consolidation)

Years Ended December 31,

Percent Change

2017

2016

2015

2017 vs. 2016

2016 vs. 2015

$ 34 $ 69 $ 73
26

$ 44 $ 84 $ 99

8 $

7 $ 56

-51%
-33%

-48%

14%

-5%
-42%

-15%

-88%

Net premiums earned represent gross premiums earned net of premiums ceded to reinsurers, and include
scheduled premium earnings and premium earnings from refunded issues. Net premiums earned decreased for
2017 compared with 2016 primarily due to decreases in scheduled premiums as a result of the sale of MBIA UK
on January 10, 2017 and from the maturity and early settlements of insured transactions with no writings of new
insurance policies. Net premiums earned decreased for 2016 compared with 2015 primarily due to decreases in
scheduled premiums earned from the maturity and early settlements of insured transactions with no writings of
new insurance policies.

NET INVESTMENT INCOME The increase in net investment income for 2017 compared with 2016 was primarily
related to the accretion on certain Zohar II notes received in exchange for the sale of MBIA UK to Assured on
January 10, 2017.

FEES AND REIMBURSEMENTS The decrease in fees and reimbursements for 2017 compared with 2016 was
primarily due to decreases in termination and waiver and consent fees related to the ongoing management of our
international and structured finance insurance business and ceding commission income as a result of lower
refunding activity. The increase in fees and reimbursements for 2016 compared with 2015 was primarily due to an
increase in termination and waiver and consent fees related to the ongoing management of our international and
structured finance insurance business, partially offset by a decrease in ceding commission income as a result of
lower refunding activity. Due to the transaction-specific nature inherent in fees and reimbursements, these
revenues can vary significantly from period to period.

NET CHANGE IN FAIR VALUE OF INSURED DERIVATIVES Realized losses on insured derivatives include
payments made net of premiums and fees earned and salvage received. Premiums earned related to insured
credit derivatives will decrease over time as a result of settlements prior to maturity and scheduled amortizations.
For 2017, 2016 and 2015, realized losses on insured derivatives primarily resulted from claim payments on CMBS
exposure.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

For 2016, unrealized gains on insured derivatives were principally the result of a decline in the weighted average
life on transactions, favorable changes in spreads/prices on the underlying collateral and a reversal of unrealized
losses due to commutations partially offset by the effects of MBIA’s nonperformance risk on its derivative
liabilities. For 2015, unrealized gains on insured derivatives were principally the result of refining the credit rating
of underlying collateral.

As of December 31, 2017 and 2016, the fair value of MBIA Corp.’s insured CDS liability was $63 million and
$64 million, respectively. As of December 31, 2017, MBIA Corp. had $127 million of gross par outstanding on
insured credit derivatives compared with $588 million as of December 31, 2016.

NET GAINS (LOSSES) ON FINANCIAL INSTRUMENTS AT FAIR VALUE AND FOREIGN EXCHANGE The net
losses on financial instruments and foreign exchange for 2017 were primarily related to unfavorable
mark-to-market fluctuations on derivatives. The net gains on financial instruments at fair value and foreign
exchange for 2016 were primarily related to gains from foreign currency revaluation of Chilean Unidad de
Fomento and Euro denominated premium receivables and realized foreign exchange gains from the liquidation of
an investment portfolio in the United Kingdom. The net losses on financial instruments at fair value and foreign
exchange for 2015 were primarily due to losses from foreign currency revaluation of Chilean Unidad de Fomento
denominated premium receivables and foreign exchange currency losses on the sale of Euro denominated
investments.

OTHER NET REALIZED GAINS (LOSSES) Other net realized gains (losses) for 2017 were primarily related to
the settlement of litigation. Other net realized losses for 2016 related to the loss recorded to adjust the carrying
value of MBIA UK to its fair value less costs to sell prior to the sale.

REVENUES OF CONSOLIDATED VIEs For 2017, total revenues of consolidated VIEs were $185 million
compared with $31 million for 2016 and $128 million for 2015. The increase in revenues of consolidated VIEs for
2017 compared with 2016 was primarily the result of gains related to changes in the fair value of assets within
certain VIEs. Fair value gains related to assets were mostly driven by higher collateral values resulting from
changes in estimated cash flows. The decrease in revenues of consolidated VIEs for 2016 compared with 2015
was primarily due to a decrease in net investment income due to the deconsolidation of VIEs and lower
mark-to-market gains on assets of consolidated VIEs. We elected to record at fair value certain instruments that
are consolidated under accounting guidance for consolidation of VIEs, and as such, changes in fair value are
reflected in earnings.

LOSSES AND LOSS ADJUSTMENT EXPENSES MBIA Corp.’s insured portfolio management group within our
international and structured finance insurance business is responsible for monitoring international and structured
finance insured obligations. The level and frequency of monitoring of any insured obligation depends on the type,
size, rating and our assessed performance of the insured issue.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

Summary of Financial Guarantee Insurance Losses and LAE

The following table presents information about our financial guarantee insurance losses and LAE recorded in
accordance with GAAP for the years ended December 31, 2017, 2016 and 2015:

In millions

Losses and LAE related to actual and expected payments(1)
Recoveries of actual and expected payments

Gross losses incurred
Reinsurance

Losses and loss adjustment expenses(2)

Years Ended
December 31,

Percent Change

2017

2016

2015

2017 vs. 2016

2016 vs. 2015

$125 $110 $ 196
(78)
35

191
(7)

145
1

118
—

$184 $146 $ 118

14%
89%

32%
n/m

26%

-44%
-145%

23%
n/m

24%

(1)—Losses and LAE with respect to Zohar II exposure reflect the expected losses and LAE payments net of expected recoveries on such
payments.
(2)—As a result of consolidation of VIEs, these amounts include the elimination of losses and LAE of $29 million, $29 million and $3 million for
2017, 2016 and 2015, respectively.
n/m—Percent change not meaningful

For 2017, losses and LAE primarily related to increases in expected payments on insured first and second-lien
RMBS transactions and decreases in projected recoveries primarily related to the mortgage insurance settlement
with Old Republic Insurance Corporation.

For 2016, losses and LAE primarily related to increases in expected payments on insured first and second-lien
RMBS transactions and decreases in projected collections from excess spread within insured second-lien RMBS
securitizations, partially offset by decreases in expected payments related to CDOs.

Refer to “Note 6: Loss and Loss Adjustment Expense Reserves” in the Notes to Consolidated Financial
Statements for further information about our insurance loss recoverable and loss and LAE reserves. The following
table presents information about our insurance loss recoverable and reserves as of December 31, 2017 and
2016.

In millions

Assets:

Insurance loss recoverable(1)
Reinsurance recoverable on paid and unpaid losses(2)

Liabilities:

Gross loss and LAE reserves(3)
Expected recoveries on unpaid losses(4)

Loss and LAE reserves

December 31, December 31, Percent
Change

2017

2016

178 $
14

482
(16)

466 $

330
5

503
(59)

444

-46%
n/m

-4%
-73%

-5%

(1)—The change was primarily due to the collection of a mortgage insurance settlement with Old Republic Insurance Corporation and ongoing
excess spread collections.
(2)—Reported within “Other assets” on our consolidated balance sheets.
(3)—As of December 31, 2016, Zohar II is reflected net of expected recoveries on such reserves.
(4)—The decrease was primarily related to first-lien and second-lien RMBS transactions.
n/m—Percent change not meaningful

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

Payment of a claim in November of 2015 on MBIA Corp.’s policy insuring the class A-1 and A-2 notes issued by
Zohar CDO 2003-1, Limited (“Zohar I”) and satisfying the Zohar II Claim entitles MBIA Corp. to reimbursement of
such amounts plus interest and expenses and/or to exercise certain rights and remedies to seek recovery of such
amounts. In connection with the exercise of its rights and remedies, MBIA Corp. directed the trustee for Zohar I to
commence an auction (the “Auction”) of all of the assets of Zohar I, which occurred on December 21, 2016. MBIA
Corp. was the winning bidder in the Auction, and in connection therewith, acquired the beneficial ownership of the
Zohar I assets, which include loans made to, and equity interests in, companies purportedly controlled by the
sponsor and former collateral manager of Zohar I and Zohar II. As of December 31, 2017, the recoveries of Zohar
I and Zohar II are included in “Loans receivable at fair value” which are presented in “Assets of consolidated
variable interest entities” on our consolidated balance sheets. Refer to “Note 6: Loss and Loss Adjustment
Expense Reserves” in the Notes to Consolidated Financial Statements for a further discussion on the Zohar I and
Zohar II recoveries.

Included in MBIA Corp.’s loss and LAE reserves are estimated future claims payments for insured obligations for
which a payment default has occurred and MBIA Corp. has already paid a claim and for insured obligations where
a payment default has not yet occurred. As of December 31, 2017 and 2016, loss and LAE reserves comprised
the following:

$ in millions

Gross of reinsurance:
Issues with defaults
Issues without defaults

Total gross of reinsurance

Number of Issues(1)

Loss and LAE Reserve

Par Outstanding

December 31, December 31, December 31, December 31, December 31, December 31,

2017

2016

2017

2016

2017

2016

108
1

109

114 $
3

117 $

466 $
—

466 $

370 $
74

444 $

2,635 $
11

2,646 $

3,239
827

4,066

(1)—An “issue” represents the aggregate of financial guarantee policies that share the same revenue source for purposes of making debt
service payments on the insured debt.

POLICY ACQUISITION COSTS AND OPERATING EXPENSES International and structured finance insurance
segment expenses for the years ended December 31, 2017, 2016 and 2015 are presented in the following table:

In millions

Gross expenses

Amortization of deferred acquisition costs
Operating

Total insurance operating expenses

Years Ended
December 31,

Percent Change

2017

2016

2015

2017 vs. 2016

2016 vs. 2015

$ 31 $ 45 $ 51

$ 43 $ 56 $ 78
50
44

$ 73 $100 $128

-31%

-23%
-32%

-27%

-12%

-28%
-12%

-22%

Gross expenses represent total insurance expenses before the deferral of any policy acquisition costs. Gross
expenses decreased for 2017 compared with 2016 primarily due to decreases in compensation expense. Gross
expenses decreased for 2016 compared with 2015 primarily due to decreases in premium taxes and
assessments, compensation expense and building related expenses. Operating expenses decreased for 2017
compared with 2016 and 2015 due to decreases in gross expenses.

The decreases in the amortization of deferred acquisition costs for 2017 compared with 2016 and 2015 were due
to higher refunding activity in prior years. We did not defer a material amount of policy acquisition costs during
2017, 2016 or 2015. Policy acquisition costs in these periods were primarily related to ceding commissions and
premium taxes on installment policies written in prior periods.

INTEREST EXPENSE OF CONSOLIDATED VIEs For 2017, total interest expense of consolidated VIEs
increased compared with 2016 primarily due to interest expense from the Facility. Refer to “Liquidity” for
additional information on the Facility.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

PROVISION (BENEFIT) FOR INCOME TAXES The provision for income taxes for 2017 was lower than the
statutory rate of 35% primarily due to the establishment of a full valuation allowance against the Company’s net
deferred tax asset. Refer to the following “Taxes” section and “Note 11: Income Taxes” in the Notes to
Consolidated Financial Statements for further information about this valuation allowance on our net deferred tax
asset.

International and Structured Finance Insurance Portfolio Exposures

Credit Quality

The credit quality of our international and structured finance insured portfolio is assessed in the same manner as
our U.S. public finance insured portfolio. As of December 31, 2017 and 2016, 33% and 25%, respectively, of our
international and structured finance insured portfolio, was rated below investment grade, before giving effect to
MBIA’s guarantees, based on MBIA’s internal ratings, which are generally more current than the underlying
ratings provided by S&P and Moody’s for this subset of our insured portfolio.

Selected Portfolio Exposures

The following is a summary of selected significant exposures within the insured portfolio of our international and
structured finance insurance segment. Many of these sectors are and have been considered volatile over the past
several years. We may experience considerable incurred losses and future expected payments in certain of these
sectors. There can be no assurance that the loss reserves described below will be sufficient or that we will not
experience losses on transactions on which we currently have no loss reserves, in particular if the economy
deteriorates. We may seek to purchase, directly or indirectly, obligations guaranteed by MBIA Corp. or seek to
commute policies. The amount of insurance exposure reduced, if any, and the nature of any such actions will
depend on market conditions, pricing levels from time to time, and other considerations. In some cases, these
activities may result in a reduction of loss reserves, but in all cases they are intended to limit our ultimate losses
and reduce the future volatility in loss development on the related policies. Our determination to purchase
guaranteed obligations and/or to commute policies will depend in part on management’s assessment of available
liquidity.

Residential Mortgage Exposure

MBIA Corp. insures mortgage-backed securities (“MBS”) backed by residential mortgage loans, including second-
lien RMBS transactions (revolving home equity lines of credit (“HELOC”) loans and closed-end second (“CES”)
mortgages). MBIA Corp. also insures MBS backed by first-lien alternative A-paper (“Alt-A”) and subprime
mortgage loans directly through RMBS securitizations. There was considerable stress and deterioration in the
mortgage market since 2008 reflected by heightened delinquencies and losses, particularly related to mortgage
loans originated during 2005, 2006 and 2007.

The following table presents the gross par outstanding of MBIA Corp.’s total direct RMBS insured exposure as of
December 31, 2017 and 2016. Amounts include the gross par outstanding related to transactions that the
Company consolidates under accounting guidance for VIEs.

In millions

Collateral Type

HELOC Second-lien
CES Second-lien
Alt-A First-lien(1)
Subprime First-lien
Prime First-lien

Total

Gross Par Outstanding as of

December 31,
2017

December 31,
2016

Percent
Change

975
1,037
1,078
512
19

3,621

1,368
1,373
1,318
606
56

4,721

-29%
-24%
-18%
-16%
-66%

-23%

(1)—Includes international exposure of $245 million and $349 million as of December 31, 2017 and 2016, respectively.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

Collateralized Debt Obligations and Related Instruments

As part of our international and structured finance insurance activities, MBIA Corp. typically provided guarantees
on senior and, in a limited number of cases, mezzanine tranches of CDOs, as well as protection on structured
CMBS pools and corporate securities, and CDS referencing such securities. The following discussion, including
reported amounts and percentages, includes insured CDO transactions consolidated by the Company as VIEs.

In addition to the below table, MBIA Corp. insures approximately $317 million in commercial real estate (“CRE”)
loan pools, comprising both European and domestic assets. The distribution of our insured CDO and related
instruments portfolio by collateral type is presented in the following table:

In millions

Collateral Type

Multi-sector CDOs(1)
High yield corporate CDOs
Structured CMBS pools
CRE CDOs

Total

Gross Par Outstanding as of

December 31,
2017

December 31,
2016

319
—
127
—

446

401
1,635
188
326

2,550

Percent
Change

-20%
-100%
-32%
-100%

-83%

(1)—Excludes $40 million and $44 million as of December 31, 2017 and 2016, respectively, of gross par outstanding where MBIA’s
insured exposure has been fully offset by way of loss remediation transactions.

U.S. Public Finance and International and Structured Finance Reinsurance

Reinsurance enables the Company to cede exposure for purposes of syndicating risk. The Company generally
retains the right to reassume the business ceded to reinsurers under certain circumstances, including a
reinsurer’s rating downgrade below specified thresholds. Currently, we do not intend to use reinsurance to
decrease the insured exposure in our portfolio. Refer to “Note 13: Insurance in Force” in the Notes to
Consolidated Financial Statements for a further discussion about our reinsurance agreements.

Taxes

Provision for Income Taxes

The Company’s income taxes and the related effective tax rates for the years ended December 31, 2017, 2016
and 2015 are presented in the following table:

In millions

Income (loss) before income taxes
Provision (benefit) for income taxes
Effective tax rate

Years Ended December 31,

2017

2016

2015

$
$

(661)
944
-142.8%

$(339)
$ (1)
0.3%

$
$

289
109
37.7%

For 2017, our effective tax rate applied to our income (loss) before income taxes was lower than the U.S. statutory
tax rate of 35% primarily due to the establishment of a full valuation allowance against our net deferred tax asset.

In June of 2017, S&P downgraded the financial strength rating of National, which led the Company to cease its
efforts to actively pursue writing new financial guarantee business. In addition to National’s cessation of new
business activity, there was an increase in loss and LAE due to changes in assumptions on certain Puerto Rico
credits. As a result of the increase in loss and LAE, the Company has a three-year cumulative loss, which is
considered significant negative evidence in the assessment of its ability to use its net deferred tax asset. In
addition, the Company considered all available positive and negative evidence as required by GAAP, to estimate
if sufficient taxable income will be generated to use its net deferred tax asset. After considering all positive and
negative evidence, including the Company’s inability to objectively identify and forecast future sources of taxable
income, the Company concluded that it does not have sufficient positive evidence to support its ability to use its
net deferred tax asset before it expires. Accordingly, the Company had a full valuation allowance against its net
deferred tax asset of $770 million as of December 31, 2017.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

Notwithstanding the establishment of the 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 and potential future sources of taxable income to be identified by the
Company. 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.

For 2016, our effective tax rate applied to our income (loss) before income taxes was lower than the U.S.
statutory rate of 35% primarily due to the provision for deferred taxes on the basis differences of our foreign
subsidiary, MBIA UK, which resulted from the change in assertion of MBIA UK paying future dividends over time
to calculating deferred taxes on the basis of the sale of MBIA UK and a valuation allowance against certain
foreign tax credits.

For 2015, our effective tax rate applied to our income (loss) before income taxes was higher than the U.S.
statutory rate of 35% primarily due to nondeductible equity-based compensation expense.

Refer to “Note 11: Income Taxes” in the Notes to Consolidated Financial Statements 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.

CAPITAL RESOURCES

The Company manages its capital resources to minimize its cost of capital while maintaining appropriate claims-
paying resources (“CPR”) for National and MBIA Corp. The Company’s capital resources consist of total
shareholders’ equity, total debt issued by MBIA Inc. for general corporate purposes, surplus notes issued by
MBIA Corp., and the Facility issued by MZ Funding. Total capital resources were $3.2 billion and $4.7 billion as of
December 31, 2017 and 2016, respectively. MBIA Inc. uses its capital resources to support the business activities
of its subsidiaries. As of December 31, 2017, MBIA Inc.’s investment in subsidiaries totaled $2.3 billion.

In addition to scheduled debt maturities, from time to time, we reduce unsecured debt through calls or
repurchases. MBIA Inc. or National may also repurchase outstanding MBIA Inc. common shares when we deem it
beneficial to our shareholders. MBIA Inc. also supports the MTN and investment agreement obligations issued by
the Company. We seek to maintain sufficient liquidity and capital resources to meet the Company’s general
corporate needs and debt service. Based on MBIA Inc.’s debt service requirements and expected operating
expenses, we expect that MBIA Inc. will have sufficient cash to satisfy its debt obligations and its general
corporate needs over time from distributions from its operating subsidiaries; however, there can be no assurance
that MBIA Inc. will have sufficient cash to do so. In addition, the Company may also consider raising third-party
capital. For further information, refer to “Capital, Liquidity and Market Related Risk Factors” in Part I, Item 1A of
this Form 10-K and “Liquidity—Corporate Liquidity” section for additional information about MBIA Inc.’s liquidity.

Securities Repurchases

Repurchases of debt and common stock may be made from time to time in the open market or in private
transactions as permitted by securities laws and other legal requirements. We may also choose to redeem debt
obligations where permitted by the relevant agreements. MBIA Inc. or National may repurchase or redeem
outstanding common shares of MBIA Inc. and outstanding debt obligations at prices when we deem it beneficial
to our shareholders.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

CAPITAL RESOURCES (continued)

Equity securities

The Company’s and National’s share repurchases that were authorized under share repurchase programs, for the
years ended December 31, 2017, 2016 and 2015, are presented in the following table:

In millions except per share amounts

Number of shares repurchased
Average price paid per share
Remaining authorization as of December 31

Years ended December 31,

2017

2016

2015

43.0
$7.55
$ 250

16.6
$6.37
$ 88

39.9
$7.60
$ 94

On June 27, 2017, the Company’s Board of Directors approved a new share repurchase authorization for the
Company or National to repurchase up to $250 million of the Company’s outstanding common shares. This new
program replaced the approximately $13 million remaining under the Board’s February 23, 2016 authorization.

During 2017, we exhausted the June 27, 2017 repurchase program by repurchasing 34 million common shares of
MBIA Inc. at an average share price of $7.35. On November 3, 2017, the Company’s Board of Directors approved
a new share repurchase authorization for the Company or National to repurchase up to $250 million of the
Company’s outstanding common shares.

Subsequent to December 31, 2017 through February 22, 2018, we repurchased 2 million common shares of
MBIA Inc. at an average share price of $7.25 under the November 3, 2017 share repurchase authorization. As of
February 22, 2018, $236 million remained available to repurchase under this new program.

Debt securities

During 2017, we repurchased $160 million par value outstanding of GFL MTNs issued by our corporate segment
at a weighted average cost of approximately 84% of par value.

Also, during 2017, National purchased from MBIA Inc., $129 million principal amount of MBIA Inc.’s 5.700%
Senior Notes due 2034 at a cost of approximately 99% of par value plus accrued interest. These notes had been
previously repurchased by MBIA Inc. and had not been retired.

Insurance Statutory Capital

National and MBIA Insurance Corporation are incorporated and licensed in, and are subject to primary insurance
regulation and supervision by New York State Department of Financial Services (“NYSDFS”). MBIA Mexico is
regulated by the Comisión Nacional de Seguros y Fianzas in Mexico. MBIA Corp.’s Spanish Branch is subject to
local regulation in Spain. National and MBIA Insurance Corporation each are required to file detailed annual
financial statements, as well as interim financial statements, with the NYSDFS and similar supervisory agencies in
each of the other jurisdictions in which it is licensed. These financial statements are prepared in accordance with
New York State and the National Association of Insurance Commissioners’ statements of U.S. STAT and assist
our regulators in evaluating minimum standards of solvency, including minimum capital requirements, and
business conduct.

National

Capital and Surplus

National reported total statutory capital of $2.8 billion as of December 31, 2017, compared with $3.5 billion as of
December 31, 2016. As of December 31, 2017, statutory capital comprised $2.2 billion of policyholders’ surplus
and $594 million of contingency reserves. National had a statutory net loss of $321 million for the year ended
December 31, 2017. As of December 31, 2017, National’s unassigned surplus was $1.6 billion.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

CAPITAL RESOURCES (continued)

In order to maintain its New York State financial guarantee insurance license, National is required to maintain a
minimum of $65 million of policyholders’ surplus. National is also required to maintain contingency reserves to
provide protection to policyholders in the event of extreme losses in adverse economic events. Refer to the
following “MBIA Insurance Corporation—Capital and Surplus” section for additional information about contingency
reserves under New York Insurance Law (“NYIL”).

NYIL regulates the payment of dividends by financial guarantee insurance companies and provides that such
companies may not declare or distribute dividends except out of statutory earned surplus. Under NYIL, the sum of
(i) the amount of dividends declared or distributed during the preceding 12-month period and (ii) the dividend to
be declared may not exceed the lesser of (a) 10% of policyholders’ surplus, as reported in the latest statutory
financial statements or (b) 100% of adjusted net investment income for such 12-month period (the net investment
income for such 12-month period plus the excess, if any, of net investment income over dividends declared or
distributed during the two-year period preceding such 12-month period), unless the Superintendent of the
NYSDFS approves a greater dividend distribution based upon a finding that the insurer will retain sufficient
surplus to support its obligations.

National had positive earned surplus as of December 31, 2017, which provides National with dividend capacity.
During 2017, National declared and paid a dividend of $118 million to its ultimate parent, MBIA Inc. We expect the
as-of-right declared and paid dividend amounts from National to be limited to prior year net investment income.

Claims-Paying Resources (Statutory Basis)

CPR is a key measure of the resources available to National to pay claims under its insurance policies. CPR
consists of total financial resources and reserves calculated on a statutory basis. CPR has been a common
measure used by financial guarantee insurance companies to report and compare resources and continues to be
used by MBIA’s management to evaluate changes in such resources. We have provided CPR to allow investors
and analysts to evaluate National using the same measure that MBIA’s management uses to evaluate National’s
resources to pay claims under its insurance policies. There is no directly comparable GAAP measure. Our
calculation of CPR may differ from the calculation of CPR reported by other companies.

National’s CPR and components thereto, as of December 31, 2017 and 2016 are presented in the following table:

In millions

Policyholders’ surplus
Contingency reserves

Statutory capital
Unearned premiums
Present value of installment premiums(1)

Premium resources(2)

Net loss and LAE reserves(1)
Salvage reserves

Gross loss and LAE reserves

Total claims-paying resources

As of
December 31,
2017

As of
December 31,
2016

2,166
594

2,760
585
164

749
227
387

614

2,731
745

3,476
786
187

973
(98)
256

158

4,123

4,607

(1)—As of December 31, 2017 and 2016, the discount rate was 3.25% and 3.18%, respectively.
(2)—Includes financial guarantee and insured credit derivative related premiums.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

CAPITAL RESOURCES (continued)

MBIA Insurance Corporation

Capital and Surplus

MBIA Insurance Corporation reported total statutory capital of $464 million as of December 31, 2017 compared
with $492 million as of December 31, 2016. As of December 31, 2017, statutory capital comprised $237 million of
policyholders’ surplus and $227 million of contingency reserves. As of December 31, 2016, statutory capital
comprised $238 million of policyholders’ surplus and $254 million of contingency reserves. For the year ended
December 31, 2017, MBIA Insurance Corporation had statutory net income of $107 million. MBIA Insurance
Corporation’s policyholders’ surplus included negative unassigned surplus of $1.8 billion as of December 31, 2017
and 2016. MBIA Insurance Corporation’s policyholders’ surplus may be further negatively impacted if future
additional insured losses are incurred.

As of December 31, 2016, MBIA Insurance Corporation’s policyholders’ surplus was negatively impacted by
$112 million, as it was not permitted to treat the portion of its investment in subsidiaries in excess of 60% of net
admitted assets less the par value of common and preferred stock and liabilities as an admitted asset, as required
under NYIL.

The $112 million reduction to policyholders’ surplus was reversed in 2017 to reflect the sale of MBIA UK. In
addition, in 2017, MBIA Insurance Corporation released contingency reserves of approximately $20 million related
to the maturity of the Zohar II notes, as well as, recorded income of $20 million related to the appreciation to the
par value of certain Zohar II notes received as consideration. Therefore, in 2017, MBIA Insurance Corporation’s
policyholders’ surplus increased approximately $152 million as a result of these transactions.

As of December 31, 2017, MBIA Insurance Corporation recognized estimated recoveries of $408 million, net of
reinsurance on a statutory basis related to put-back claims against Credit Suisse and $205 million related to
excess spread recoveries on RMBS, net of reinsurance. These excess spread recoveries represented 44% of
MBIA Insurance Corporation’s statutory capital as of December 31, 2017. In addition, MBIA Insurance
Corporation has recorded recoveries related to CDOs. There can be no assurance that we will be successful or
that we will not be delayed in realizing these recoveries. Refer to “Note 6: Loss and Loss Adjustment Expense
Reserves” in the Notes to Consolidated Financial Statements for additional information about these recoveries.

In order to maintain its New York State financial guarantee insurance license, MBIA Insurance Corporation is
required to maintain a minimum of $65 million of policyholders’ surplus. As of December 31, 2017, MBIA Corp.
met the required minimum surplus of $65 million. Under NYIL, MBIA Insurance Corporation is required to invest
its minimum surplus and contingency reserves and 50% of its loss reserves and unearned premium reserves in
certain qualifying assets. As of December 31, 2017, MBIA Insurance Corporation maintained its minimum
requirement of policyholders’ surplus but did not have enough qualifying assets to support its contingency
reserves and 50% of its loss reserves and unearned premium reserves. As of December 31, 2017, MBIA
Insurance Corporation was in compliance with its aggregate risk limits under the NYIL, but was not in compliance
with certain of its single risk limits. Under NYIL, MBIA Insurance Corporation is required to maintain admitted
assets greater than the aggregate amount of liabilities and outstanding capital stock. As of December 31, 2017,
MBIA Insurance Corporation’s admitted assets did not exceed the aggregate amount of its liabilities and
outstanding capital stock. If MBIA Insurance Corporation is not in compliance with the above mentioned
requirements, the NYSDFS may prevent MBIA Insurance Corporation from transacting any new financial
guarantee insurance business until it no longer exceeds the limitations.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

CAPITAL RESOURCES (continued)

In connection with MBIA Insurance Corporation obtaining approval from the NYSDFS to release excess
contingency reserves in previous periods, MBIA Insurance Corporation agreed that it would not pay any dividends
without prior approval from the NYSDFS. Due to its significant negative earned surplus, MBIA Insurance
Corporation has not had the statutory capacity to pay dividends since December 31, 2009. Based on estimated
future income, MBIA Insurance Corporation is not expected to have any statutory capacity to pay any dividends.

The NYSDFS has not approved MBIA Insurance Corporation’s requests to make interest payments on MBIA
Insurance Corporation’s 14% Fixed-to-Floating Rate Surplus Notes due January 15, 2033 (the “Surplus Notes”)
since, and including, the January 15, 2013 interest payment. The NYSDFS has cited both MBIA Insurance
Corporation’s liquidity and financial condition as well as the availability of “free and divisible surplus” as the basis
for such non-approvals. As of January 15, 2018, the most recent scheduled interest payment date, there was
$629 million of unpaid interest on the par amount outstanding of $953 million of the Surplus Notes. Under
Section 1307 of the NYIL and the Fiscal Agency Agreement governing the surplus notes, Surplus Note payments
may be made only with the prior approval by the NYSDFS and if MBIA Insurance Corporation has sufficient
“Eligible Surplus”, or as we believe, “free and divisible surplus” as an appropriate calculation of “Eligible Surplus.”
As of December 31, 2017, MBIA Insurance Corporation had negative “free and divisible surplus,” of $54 million.
There is no assurance the NYSDFS will approve Surplus Note payments, notwithstanding the sufficiency of MBIA
Insurance Corporation’s liquidity and financial condition. The unpaid interest on the Surplus Notes will become
due on the first business day on or after which MBIA Insurance Corporation obtains approval to pay some or all of
such unpaid interest. No interest has been accrued or will accrue on the deferred interest.

Claims-Paying Resources (Statutory Basis)

CPR is a key measure of the resources available to MBIA Corp. to pay claims under its insurance policies. CPR
consists of total financial resources and reserves calculated on a statutory basis. CPR has been a common
measure used by financial guarantee insurance companies to report and compare resources, and continues to be
used by MBIA’s management to evaluate changes in such resources. We have provided CPR to allow investors
and analysts to evaluate MBIA Corp., using the same measure that MBIA’s management uses to evaluate MBIA
Corp.’s resources to pay claims under its insurance policies. There is no directly comparable GAAP measure. Our
calculation of CPR may differ from the calculation of CPR reported by other companies.

MBIA Corp.’s CPR and components thereto, as of December 31, 2017 and 2016 are presented in the following
table:

In millions

Policyholders’ surplus
Contingency reserves

Statutory capital
Unearned premiums
Present value of installment premiums(1) (4)

Premium resources(2)

Net loss and LAE reserves(1)
Salvage reserves(3)

Gross loss and LAE reserves

Total claims-paying resources

As of
December 31,
2017

As of
December 31,
2016

237
227

464
195
192

387
(792)
1,428

636

238
254

492
319
424

743
(207)
917

710

1,487

1,945

(1)—As of December 31, 2017 and 2016, the discount rate was 5.20% and 5.15%, respectively.
(2)—Includes financial guarantee and insured credit derivative related premiums.
(3)—This amount primarily consists of expected recoveries related to the Company’s CDOs, excess spread and put-backs.
(4)—Based on the Company’s estimate of the remaining life for its insured exposures.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

LIQUIDITY

We use a liquidity risk management framework, the primary objective of which is to match liquidity resources to
needs. We monitor our cash and liquid asset resources using daily cash forecasting and stress-scenario testing.
Members of MBIA’s senior management meet regularly to review liquidity metrics, discuss contingency plans and
establish target liquidity levels. We evaluate and manage liquidity on a legal-entity basis to take into account the
legal, regulatory and other limitations on available liquidity resources within the enterprise. The following is a
discussion of our liquidity resources and requirements for our holding company and our insurance subsidiaries.

National Liquidity

The primary sources of cash available to National are:

(cid:129)

principal and interest receipts on assets held in its investment portfolio, including proceeds from the sale
of assets; and

installment premiums.

The primary uses of cash by National are:

(cid:129)

payments of operating expenses, taxes and funding purchases of MBIA Inc. shares;

loss payments and loss adjustment expenses on insured transactions; and

payments of dividends.

As of December 31, 2017 and 2016, National held cash and investments of $3.6 billion and $4.2 billion,
respectively, of which $228 million and $366 million, respectively, were cash and cash equivalents or short-term
investments comprised of highly rated commercial paper, money market funds and municipal, U.S. agency and
corporate bonds.

The insurance policies issued or reinsured by National provide unconditional and irrevocable guarantees of
payments of the principal of, and interest or other amounts owing on, insured obligations when due. In the event
of a default in payment of principal, interest or other insured amounts by an issuer, National generally promises to
make funds available in the insured amount within one to three business days following notification. In some
cases, the amount due can be substantial, particularly if the default occurs on a transaction to which National has
a large notional exposure or on a transaction structured with large, bullet-type principal maturities. The fact that
the U.S. public finance insurance segment’s financial guarantee contracts generally cannot be accelerated by a
party other than the insurer helps to mitigate liquidity risk in this segment.

Corporate Liquidity

The primary sources of cash available to MBIA Inc. are:

(cid:129)

dividends from National;

release of funds under the tax sharing agreement, which are funded by National;

available cash and liquid assets not subject to collateral posting requirements;

principal and interest receipts on assets held in its investment portfolio, including proceeds from the sale
of assets; and

(cid:129)

access to capital markets.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

LIQUIDITY (continued)

The primary uses of cash by MBIA Inc. are:

(cid:129)

servicing outstanding unsecured corporate debt obligations and MTNs;

(cid:129) meeting collateral posting requirements under investment agreements and derivative arrangements;

(cid:129)

payments related to interest rate swaps;

payments of operating expenses; and

funding share repurchases and debt buybacks.

As of December 31, 2017 and 2016, the liquidity positions of MBIA Inc. which included cash and cash equivalents
or short-term investments comprised of highly rated commercial paper, money market funds and municipal, U.S.
agency and corporate bonds for general corporate purposes, excluding the amounts held in escrow under its tax
sharing agreement, were $419 million and $403 million, respectively.

During the year ended December 31, 2017, $94 million was released to MBIA Inc. under the MBIA group tax
sharing agreement and related tax escrow account (“Tax Escrow Account”), representing National’s liability under
the tax sharing agreement for the 2014 tax year. The release was pursuant to the terms of the tax sharing
agreement following the expiration of National’s two-year NOL carry-back period under U.S. tax rules. As of
December 31, 2017, $234 million had been deposited for the 2015 and 2016 tax years. Subsequent to
December 31, 2017, $90 million of these deposits were returned to National as a result of National’s 2017
financial results and $18 million was released to MBIA Inc. from the Tax Escrow Account related to the 2015 year.
National’s tax escrow payment of $108 million for the 2016 tax year is not eligible for release or return until
National’s 2018 tax liability is calculated. The remaining amount in the tax escrow now represents National’s 2016
tax liability. There can be no assurance that any future payments under the Tax Escrow Account from subsidiaries
will be released to MBIA Inc. due to deductible or creditable tax attributes of those subsidiaries and/or the market
value performance of the assets supporting the Tax Escrow Account.

Based on our projections of National’s and MBIA Corp.’s future earnings and losses, we expect that for the
foreseeable future National will be the primary source of dividends and tax sharing agreement payments to MBIA
Inc. During 2017, National declared and paid a dividend of $118 million to its ultimate parent, MBIA Inc. There can
be no assurance as to the amount and timing of any such future dividends or payments from the tax escrow
account under the tax sharing agreement. Also, absent a special dividend subject to the approval of the NYSDFS,
we expect the declared and paid dividend amounts from National to be limited to prior year net investment
income. Refer to the “Capital Resources – Insurance Statutory Capital” section for additional information on
payments of dividends. We do not expect MBIA Inc. to receive distributions from MBIA Corp.

During 2017, National purchased from MBIA Inc., $129 million principal amount of MBIA Inc.’s 5.700% Senior
Notes due 2034 at a cost of approximately 99% of par value plus accrued interest. These notes had been
previously repurchased by MBIA Inc. and had not been retired. This transaction increased MBIA Inc.’s liquidity
position by a total of $130 million and had no impact to the Company’s consolidated outstanding debt obligations.

Currently, the majority of the cash and securities of MBIA Inc. is pledged against investment agreement liabilities,
the Asset Swap (simultaneous repurchase and reverse repurchase agreement) and derivatives, which limits its
ability to raise liquidity through asset sales. If the market value or rating eligibility of the assets which are pledged
against MBIA Inc.’s obligations were to decline, we would be required to pledge additional eligible assets in order
to meet minimum required collateral amounts against these liabilities. To mitigate these risks, we seek to maintain
cash and liquidity resources that we believe will be sufficient to make all payments due on our obligations and to
meet other financial requirements, such as posting collateral. Contingent liquidity resources include: (1) sales of
invested assets exposed to credit spread stress risk, which may occur at losses; (2) termination and settlement of
interest rate swap agreements; and (3) accessing the capital markets. These actions, if taken, are expected to
result in either additional liquidity or reduced exposure to adverse credit spread movements. There can be no
assurance that these actions will be sufficient to fully mitigate this risk.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

LIQUIDITY (continued)

MBIA Corp. Liquidity

The primary sources of cash available to MBIA Corp. are:

(cid:129)

recoveries associated with loss payments;

installment premiums and fees; and

principal and interest receipts on assets held in its investment portfolio, including the proceeds from the
sale of assets.

The primary uses of cash by MBIA Corp. are:

(cid:129)

loss and LAE or commutation payments on insured transactions;

repayment of the Facility;

payments of operating expenses; and

payment of principal and interest related to its surplus notes, if and to the extent approved by the
NYSDFS. Refer to “Capital Resources—Insurance Statutory Capital” for a discussion on the
non-approval of requests to the NYSDFS to pay interest on its surplus notes.

As of December 31, 2017 and 2016, MBIA Corp. held cash and investments of $271 million and $328 million,
respectively, of which $145 million and $201 million, respectively, were cash and cash equivalents or short-term
investments comprised of money market funds and municipal, U.S. agency and corporate bonds that were
immediately available to MBIA Insurance Corporation.

Insured transactions that require payment in full of the principal insured at maturity could present liquidity risk for
MBIA Corp. as any salvage recoveries from such payments could be recovered over an extended period of time
after the payment of the principal amount. MBIA Corp. is generally required to satisfy claims within one to three
business days, and as a result seeks to identify potential claims in advance through our monitoring process. While
our financial guarantee policies generally cannot be accelerated, thereby helping to mitigate liquidity risk,
insurance of CDS and certain other derivative contracts may, in certain circumstances, including the occurrence
of certain insolvency or payment defaults, be subject to termination by the counterparty, triggering a claim for the
fair value of the contract. In order to monitor liquidity risk and maintain appropriate liquidity resources, we use the
same methodology as we use to monitor credit quality and losses within our insured portfolio, including stress
scenarios. Refer to “Note 6: Loss and Loss Adjustment Expense Reserves” in the Notes to Consolidated Financial
Statements for a discussion of our loss process.

MBIA Corp. has recorded expected excess spread recoveries of $233 million as of December 31, 2017
associated with insured RMBS issues, including recoveries related to consolidated VIEs. MBIA Corp. has also
recorded expected recovery amounts related to its claims against Credit Suisse for ineligible mortgage loans
included in an MBIA Corp. insured RMBS transaction. In addition, MBIA Insurance Corporation has recorded
recoveries related to CDOs. There can be no assurance that it will be successful or not be delayed in realizing
these recoveries. During 2017, MBIA Corp. collected $147 million from insured RMBS transactions related to
excess spread recoveries and a mortgage insurance settlement with Old Republic Insurance Corporation.

MBIA Corp. Financing Facility

In January of 2017, MBIA Corp. entered into the Facility with the Senior Lenders and with MBIA Inc., pursuant to
which the Senior Lenders provided $325 million of senior financing and MBIA Inc. provided $38 million of
subordinated financing to MZ Funding, which in turn lent the proceeds of such financing to MBIA Corp. MBIA Inc.
also committed to provide an additional $50 million subordinated financing to MZ Funding under certain
circumstances, which MZ Funding would then lend to MBIA Corp. For a further discussion of the Facility, refer to
“Note 10: Debt” in the Notes to Consolidated Financial Statements.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

LIQUIDITY (continued)

Advances Agreement

MBIA Inc., National, MBIA Insurance Corporation and certain other affiliates are party to an intercompany
advances agreement (the “MBIA Advances Agreement”). The MBIA Advances Agreement permits National to
make advances to MBIA Inc. and other MBIA group companies that are party to the agreement at a rate per
annum equal to LIBOR plus 0.25%. The agreement also permits other affiliates to make advances to National or
MBIA Insurance Corporation at a rate per annum equal to LIBOR minus 0.10%. Advances by National cannot
exceed 3% of its net admitted assets as of the last quarter end. As of December 31, 2017 and 2016, there were
no amounts drawn under the agreement.

Consolidated Cash Flows

Information about our consolidated cash flows by category is presented on our consolidated statements of cash
flows. The following table summarizes our consolidated cash flows for the years ended December 31, 2017, 2016
and 2015:

In millions

Statement of cash flow data:
Net cash provided (used) by:
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes on cash and cash

equivalents

Cash and cash equivalents—beginning of year
Reclassification to assets held for sale

Years Ended December 31,

Percent Change

2017

2016

2015

2017 vs. 2016

2016 vs. 2015

$ (630) $ (140) $

1,202
(611)

2,424
(2,544)

(2)
187
—

(2)
522
(73)

(54)
817
(1,015)

(8)
782
—

522

n/m
-50%
-76%

-%
-64%
-100%

-22%

n/m
n/m
n/m

-75%
-33%
n/m

-64%

Cash and cash equivalents—end of year

$ 146 $

187 $

n/m—Percent change not meaningful.

Operating activities

Net cash used by operating activities increased for the year ended December 31, 2017 compared with 2016
primarily due to an increase in losses and LAE paid of $417 million and a decrease in investment income received
of $70 million. Net cash used by operating activities increased for the year ended December 31, 2016 compared
with 2015 primarily due to an increase in loss and LAE payments of $113 million and a decrease in investment
income received of $35 million, partially offset by a decrease in interest paid of $30 million and an increase in
premiums, fees and reimbursements received of $20 million.

Investing activities

Net cash provided by investing activities decreased for the year ended December 31, 2017 compared with 2016
primarily due to a decrease in net proceeds from paydowns of held-to-maturity investments of consolidated VIEs
of $1.8 billion, partially offset by an increase in net proceeds from purchases, sales and paydowns and maturities
of available-for-sale investments of $582 million. Net cash provided by investing activities increased for the year
ended December 31, 2016 compared with 2015 primarily due to an increase in net proceeds from paydowns of
held-to-maturity investments of consolidated VIEs of $1.7 billion related to the deconsolidation of VIEs in 2016.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

LIQUIDITY (continued)

Financing activities

Net cash used by financing activities decreased for the year ended December 31, 2017 compared with 2016
primarily due to a decrease in the principal paydowns of consolidated VIE notes of $1.9 billion primarily related to
the deconsolidation of VIEs in 2016 and proceeds received from the Facility in 2017, partially offset by an
increase in purchases of treasury stock of $220 million. Net cash used by financing activities increased for the
year ended December 31, 2016 compared with 2015 primarily due to an increase in the principal paydowns of
consolidated VIE notes of $1.7 billion related to the deconsolidation of VIEs in 2016, partially offset by a decrease
in the purchases of treasury stock of $194 million.

Investments

The following discussion of investments, including references to consolidated investments, excludes investments
reported under “Assets of consolidated variable interest entities” on our consolidated balance sheets. Investments
of VIEs support the repayment of VIE obligations and are not available to settle obligations of MBIA. Our
available-for-sale (“AFS”) investments comprise high-quality fixed-income securities and short-term investments.
Refer to “Note 8: Investments” in the Notes to Consolidated Financial Statements for detailed discussion about
our investments.

The following table presents our investment portfolio as of December 31, 2017 and 2016. As of December 31,
2016, AFS investments with a fair value of $466 million reported under “Assets held for sale” within our
international and structured finance segment are excluded due to the sale of MBIA UK in January of 2017.

As of December 31, As of December 31,

2017

2016

Percent Change

In millions

Available-for-sale investments(1):
U.S. public finance insurance

Amortized cost
Unrealized net gain (loss)

Fair value

Corporate

Amortized cost
Unrealized net gain (loss)

Fair value

International and structured finance insurance

Amortized cost
Unrealized net gain (loss)

Fair value

Total available-for-sale investments:

Amortized cost
Unrealized net gain (loss)

Total available-for-sale investments at fair value

Investments carried at fair value(2):
U.S. public finance insurance
Corporate

Total investments carried at fair value

Other investments at amortized cost:

U.S. public finance insurance

3,150 $
(72)

3,078

1,078
49

1,127

210
8

218

4,438
(15)

4,423

174
56

230

3,975
(63)

3,912

1,218
39

1,257

257
5

262

5,450
(19)

5,431

120
79

199

5,633

-21%
14%

-21%

-11%
26%

-10%

-18%
60%

-17%

-19%
-21%

-19%

45%
-29%

16%

-33%

-17%

Consolidated investments at carrying value

4,655 $

(1)—Unrealized gains and losses, net of applicable deferred income taxes, are reflected in accumulated other comprehensive income in
shareholders’ equity.
(2)—Changes in fair value and realized gains and losses from the sale of these investments are reflected in net income.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

LIQUIDITY (continued)

The fair value of the Company’s investments is based on prices which include quoted prices in active markets and
prices based on market-based inputs that are either directly or indirectly observable, as well as prices from dealers
in relevant markets. Differences between fair value and amortized cost arise primarily as a result of changes in
interest rates and general market credit spreads occurring after a fixed-income security is purchased, although other
factors may also influence fair value, including specific credit-related changes, supply and demand forces and other
market factors. When the Company holds an AFS investment to maturity, any unrealized gain or loss currently
recorded in accumulated other comprehensive income (loss) in the shareholders’ equity section of the balance sheet
is reversed. As a result, the Company would realize a value substantially equal to amortized cost. However, when
investments are sold prior to maturity, the Company will realize any difference between amortized cost and the sale
price of an investment as a realized gain or loss within its consolidated statements of operations.

Credit Quality

The credit quality distribution of the Company’s AFS fixed-maturity investment portfolios, excluding short-term
investments, are based on ratings from Moody’s and alternate ratings sources, such as S&P or the best estimate
of the ratings assigned by the Company, have been used for a small percentage of securities that are not rated by
Moody’s. As of December 31, 2017, the weighted average credit quality ratings and percentage of investment
grade of the Company’s AFS fixed-maturity investment portfolios, excluding short-term investments, are
presented in the following table:

Weighted average credit quality ratings
Investment grade percentage

Insured Investments

U.S. Public

Finance Insurance Corporate

International and
Structured
Finance Insurance

Aa
96%

Aa
97%

Aa
90%

Total

Aa
96%

MBIA’s consolidated investment portfolio includes investments that are insured by various financial guarantee
insurers (“Insured Investments”), including investments insured by National and MBIA Corp. (“Company-Insured
Investments”). When purchasing Insured Investments, the Company’s third-party portfolio manager independently
assesses the underlying credit quality, structure and liquidity of each investment, in addition to the
creditworthiness of the insurer. Insured Investments are diverse by sector, issuer and size of holding. The third-
party portfolio manager assigns underlying ratings to Insured Investments without giving effect to financial
guarantees based on underlying ratings assigned by Moody’s or S&P, when a rating is not published by Moody’s.
When a Moody’s or S&P underlying rating is not available, the underlying rating is based on the portfolio
manager’s best estimate of the rating of such investment. A downgrade of a financial guarantee insurer has
historically had an adverse effect on the fair value of investments insured by the downgraded financial guarantee
insurer. If the Company determines that declines in the fair values of Insured Investments are other-than-
temporary, the Company will record a realized loss through earnings.

As of December 31, 2017, Insured Investments at fair value represented $391 million or 8% of consolidated
investments, of which $274 million or 6% of consolidated investments were Company-Insured Investments. As of
December 31, 2017, based on the actual or estimated underlying ratings of our consolidated investment portfolio,
without giving effect to financial guarantees, the weighted average rating of only the Insured Investments in the
investment portfolio would be in the below investment grade range. Without giving effect to the National and MBIA
Corp. guarantees of the Company-Insured Investments in the consolidated investment portfolio, as of
December 31, 2017, based on actual or estimated underlying ratings, the weighted average rating of the
consolidated investment portfolio was in the Aa range. The weighted average rating of only the Company-Insured
Investments was in the below investment grade range, and investments rated below investment grade in the
Company-Insured Investments were 5% of the total consolidated investment portfolio.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

LIQUIDITY (continued)

Contractual Obligations

The following table summarizes the Company’s future estimated cash payments relating to contractual obligations
as of December 31, 2017. Estimating these payments requires management to make estimates and assumptions
regarding these obligations. The estimates and assumptions used by management are described below. Since
these estimates and assumptions are subjective, actual payments in future periods may vary from those reported
in the following table. Refer to “Note 13: Insurance in Force” in the Notes to Consolidated Financial Statements for
information about the Company’s exposure under insurance contracts.

In millions

2018

2019

2020

2021

2022

Thereafter

Total

As of December 31, 2017

U.S. public finance insurance segment:
Gross insurance claim obligations(1)
Lease liability
Corporate segment:
Long-term debt
Investment agreements
Medium-term notes
Lease liability

International and structured finance insurance

segment:
Surplus notes
Gross insurance claim obligations(1)
MBIA Corp. Financing Facility

3 $ 2 $ 1 $ 2 $ 2 $
3

37
28
46
1

37
19
70
1

37
47
8
—

37
13
8
—

735
181
47

119
41
47

119
30
336

119
24
—

296
13
128
—

119
17
—

18 $
22

28
37

412
403
902
—

945
959
—

856
523
1,162
2

2,156
1,252
430

Total

$1,081 $339 $581 $206 $578 $ 3,661 $6,446

(1)—Amounts on certain policies are presented net of expected recoveries. Excludes intercompany reinsurance agreements.

Gross insurance claim obligations represent the future value of probability-weighted payments MBIA expects to
make (before reinsurance and the consolidation of VIEs) under insurance policies for which the Company has
recorded loss reserves (financial guarantees) or has estimated credit impairments (insured derivatives). Certain
policies included in gross insurance claim obligations are presented net of expected recoveries. The discounted
value of estimated payments included in the table, along with probability-weighted estimated recoveries and
estimated negotiated early settlements, on policies accounted for as financial guarantee insurance contracts is
reported as case basis reserves within “Loss and loss adjustment expense reserves” on the Company’s
consolidated balance sheets. Insured derivatives are recorded at fair value and reported within “Derivative
liabilities” on the Company’s consolidated balance sheets. Estimated potential claim payments on obligations
issued by VIEs consolidated in our international and structured finance insurance segment are included within
“Gross insurance claim obligations” in the preceding table. Obligations of these VIEs are collateralized by assets
held by the VIEs, and investors in such obligations do not have recourse to the general credit of MBIA. As of
December 31, 2017, VIE notes issued by issuer-sponsored consolidated VIEs totaled $2.3 billion, including
$1.1 billion recorded at fair value, and are not considered contractual obligations of MBIA beyond MBIA’s
insurance claim obligation. The Company’s involvement with VIEs is continually reassessed as required by
consolidation guidance, and may result in consolidation or deconsolidation of VIEs in future periods. As the
Company consolidates and deconsolidates VIEs, the amount of VIE debt obligations recorded on its balance
sheet may change significantly.

Long-term debt, investment agreements, MTNs, surplus notes and the MBIA Corp. Financing Facility include
principal and interest and exclude premiums or discounts. Liabilities issued at discounts reflect principal due at
maturity. Interest payments on floating rate obligations are estimated using applicable forward rates. Principal and
interest on callable obligations or obligations that allow investors to withdraw funds prior to legal maturity are
based on the expected call or withdrawal dates of such obligations. Liabilities denominated in foreign currencies
are presented in U.S. dollars using applicable exchange rates as of December 31, 2017.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

LIQUIDITY (continued)

Included in international and structured finance insurance segment’s surplus notes for 2018 is $616 million of
unpaid interest related to the 2013 through 2017 interest payments in which MBIA Insurance Corporation’s
requests for approval to pay was denied by the NYSDFS. This deferred interest payment will be due on the first
business day on or after which MBIA Insurance Corporation obtains approval to make such payment. No interest
will accrue on the deferred interest. There can be no assurance that the NYSDFS will approve any subsequent
payments, or that it will approve any payment by the scheduled interest payment date.

The repayment of principal on our surplus notes is reflected in 2023, which is the next call date. Refer to “Capital
Resources — MBIA Insurance Corporation” section for additional information on MBIA Insurance Corporation’s
surplus notes and statutory capital. Principal payments under investment agreements are based on expected
withdrawal dates. All other principal payments are based on contractual maturity dates.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The Company’s market risk exposures relate to changes in interest rates, foreign exchange rates and credit
spreads that affect the fair value of its financial instruments, primarily investment securities, MTNs, investment
agreement liabilities and certain derivative instruments. The Company’s investments are primarily U.S. dollar-
denominated fixed-income securities including municipal bonds, U.S. government bonds, corporate bonds, MBS
and asset-backed securities. In periods of rising and/or volatile interest rates, foreign exchange rates and credit
spreads, profitability could be adversely affected should the Company have to liquidate these securities. MBIA
minimizes its exposure to interest rate risk, foreign exchange risk and credit spread movement through active
portfolio management to ensure a proper mix of the types of securities held and to stagger the maturities of its
fixed-income securities.

INTEREST RATE SENSITIVITY

Interest rate sensitivity can be estimated by projecting a hypothetical instantaneous increase or decrease in
interest rates. The following table presents the estimated pre-tax change in fair value of the Company’s financial
instruments as of December 31, 2017 from instantaneous shifts in interest rates:

In millions

Estimated

change in
fair value

300 Basis Point
Decrease

200 Basis Point
Decrease

100 Basis Point
Decrease

100 Basis Point
Increase

200 Basis Point
Increase

300 Basis Point
Increase

Change in Interest Rates

393 $

226 $

102 $

(83) $

(151) $

(207)

FOREIGN EXCHANGE RATE SENSITIVITY

The Company is exposed to foreign exchange rate risk in respect of assets and liabilities denominated in
currencies other than U.S. dollars. Certain liabilities included in our corporate segment are denominated in
currencies other than U.S. dollars. The majority of the Company’s foreign exchange rate risks is with the euro.
Foreign exchange rate sensitivity can be estimated by projecting a hypothetical instantaneous increase or
decrease in foreign exchange rates. The following table presents the estimated pre-tax change in fair value of the
Company’s financial instruments as of December 31, 2017 from instantaneous shifts in foreign exchange rates:

In millions

Estimated change in fair value

Change in Foreign Exchange Rates

Dollar Weakens

Dollar Strengthens

20%

10%

20%

$ (93) $ (46) $

46 $

Item 7A. Quantitative and Qualitative Disclosures About Market Risk (continued)

CREDIT RATE SENSITIVITY

Credit spread sensitivity can be estimated by projecting a hypothetical instantaneous increase or decrease in
credit spreads. The following table presents the estimated pre-tax change in fair value of the Company’s financial
instruments as of December 31, 2017 from instantaneous shifts in credit spread curves. It was assumed that all
credit spreads move by the same amount. It is more likely that the actual changes in credit spreads will vary by
security. National’s investment portfolio would generally be expected to experience lower credit spread volatility
than other investment portfolios since National has higher credit quality and portfolio composition in sectors that
have been less volatile historically. The changes in fair value reflect partially offsetting effects as the value of the
investment portfolios generally changes in an opposite direction from the liability portfolio.

In millions

Estimated change in fair value

WARRANTS SENSITIVITY

Change in Credit Spreads

50 Basis Point
Decrease

50 Basis Point
Increase

200 Basis Point
Increase

57 $

(55) $

(197)

Warrants issued by the Company to purchase shares of MBIA Inc. common stock are recorded at fair value in the
Company’s balance sheet and changes in fair value are recorded through earnings. The Company values these
warrants using the Black-Scholes model. Refer to “Note 7: Fair Value of Financial Instruments” in the Notes to
Consolidated Financial Statements for further information about the valuation of warrants issued by the Company.

While several factors influence the value of the Company’s warrants, including stock price, stock volatility, interest
rates, expiration dates and dividends, changes in the value of the Company’s warrants are primarily driven by
changes in the Company’s stock price. The outstanding warrants are scheduled to expire in May and August of
2018. The following table presents the estimated pre-tax change in fair value and the estimated aggregate fair
value of the Company’s warrants assuming hypothetical stock price as of December 31, 2017 holding other inputs
constant.

In millions

25% Increase

10% Increase No Change

10% Decrease

25% Decrease

Estimated pre-tax net gains (losses)
Estimated net fair value

$
$

(10) $
(16) $

(3) $
(9) $

— $
(6) $

2 $
(4) $

5
(1)

Change in Stock Price

Item 8. Financial Statements and Supplementary Data

MBIA INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2017 and 2016
Consolidated Statements of Operations for the years ended December 31, 2017, 2016 and 2015
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2017, 2016

and 2015

Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2017,

2016 and 2015

Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015
Notes to Consolidated Financial Statements

Note 1: Business Developments and Risks and Uncertainties
Note 2: Significant Accounting Policies
Note 3: Recent Accounting Pronouncements
Note 4: Variable Interest Entities
Note 5: Insurance Premiums
Note 6: Loss and Loss Adjustment Expense Reserves
Note 7: Fair Value of Financial Instruments
Note 8: Investments
Note 9: Derivative Instruments
Note 10: Debt
Note 11: Income Taxes
Note 12: Business Segments
Note 13: Insurance in Force
Note 14: Insurance Regulations and Dividends
Note 15: Pension and Profit Sharing Plans
Note 16: Long-term Incentive Plans
Note 17: Earnings Per Share
Note 18: Common and Preferred Stock
Note 19: Accumulated Other Comprehensive Income
Note 20: Commitments and Contingencies

Refer to “Item 6. Selected Financial Data” for Supplementary Financial Information

71
73
74

76
77
78
78
81
88
90
93
95
105
122
128
132
134
137
142
145
147
147
150
151
152
153

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of MBIA Inc.:

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of MBIA Inc. and its subsidiaries (the
"Company") as of December 31, 2017 and 2016 and the related consolidated statements of operations, of
comprehensive income (loss), of changes in shareholders’ equity and of cash flows for each of the three years in
the period ended December 31, 2017, including the related notes and financial statement schedules listed in the
index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also
have audited the Company’s internal control over financial reporting as of December 31, 2017, based on criteria
established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2017 in conformity with accounting
principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria
established in Internal Control—Integrated Framework (2013) issued by the COSO.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective
internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial
reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A.
Our responsibility is to express opinions on the Company’s consolidated financial statements, and on the
Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are
free of material misstatement, whether due to error or fraud, and whether effective internal control over financial
reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts
and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of
the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of
the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

New York, New York
March 1, 2018

We have served as the Company’s auditor since at least 1994. We have not determined the specific year we
began serving as auditor for the Company.

MBIA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions except share and per share amounts)

Assets
Investments:

Fixed-maturity securities held as available-for-sale, at fair value (amortized cost $3,728 and $4,713)
Investments carried at fair value
Investments pledged as collateral, at fair value (amortized cost $147 and $234)
Short-term investments held as available-for-sale, at fair value (amortized cost $589 and $552)
Other investments (includes investments at fair value of $4 and $5)

Total investments

Cash and cash equivalents
Premiums receivable
Deferred acquisition costs
Insurance loss recoverable
Assets held for sale
Deferred income taxes, net
Other assets
Assets of consolidated variable interest entities:

Cash
Investments held-to-maturity, at amortized cost (fair value $916 and $876)
Investments carried at fair value
Loans receivable at fair value
Loan repurchase commitments
Other assets

Total assets

Liabilities and Equity
Liabilities:

Unearned premium revenue
Loss and loss adjustment expense reserves
Long-term debt
Medium-term notes (includes financial instruments carried at fair value of $115 and $101)
Investment agreements
Derivative liabilities
Liabilities held for sale
Other liabilities
Liabilities of consolidated variable interest entities:

Variable interest entity notes (includes financial instruments carried at fair value of $1,069 and $1,351)

Total liabilities

Commitments and contingencies (Refer to Note 20)
Equity:

December 31,
2017

December 31,
2016

3,712
200
148
589
6

4,655
122
369
95
511
—
—
128

24
890
182
1,679
407
33

4,694
146
233
552
8

5,633
163
409
118
504
555
970
113

24
890
255
1,066
404
33

9,095

11,137

752
979
2,121
765
337
262
—
165

2,289

7,670

958
541
1,986
895
399
299
346
233

2,241

7,898

Preferred stock, par value $1 per share; authorized shares—10,000,000; issued and outstanding—none
Common stock, par value $1 per share; authorized shares—400,000,000; issued shares—283,717,973

—

and 283,989,999

Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss), net of tax of $16 and $37
Treasury stock, at cost—192,233,526 and 148,789,168 shares

Total shareholders’ equity of MBIA Inc.

Preferred stock of subsidiary

Total equity

Total liabilities and equity

284
3,171
1,095
(19)
(3,118)

1,413
12

1,425

284
3,160
2,700
(128)
(2,789)

3,227
12

3,239

9,095

11,137

The accompanying notes are an integral part of the consolidated financial statements.

MBIA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions except share and per share amounts)

Years Ended December 31,

2017

2016

2015

199
173

372
152
6

(28)
157

129

(12)

(1)

(13)
(1)
17

42
—

853

123
50
140
199

13
39

564

289
109

180

Revenues:

Premiums earned:

Scheduled premiums earned
Refunding premiums earned

Premiums earned (net of ceded premiums of $6, $7 and $9)

Net investment income
Fees and reimbursements
Change in fair value of insured derivatives:

Realized gains (losses) and other settlements on insured derivatives
Unrealized gains (losses) on insured derivatives

Net change in fair value of insured derivatives

Net gains (losses) on financial instruments at fair value and foreign

exchange

Net investment losses related to other-than-temporary impairments:
Investment losses related to other-than-temporary impairments
Other-than-temporary impairments recognized in accumulated other

comprehensive income (loss)

Net investment losses related to other-than-temporary impairments

Net gains (losses) on extinguishment of debt
Other net realized gains (losses)
Revenues of consolidated variable interest entities:

Net investment income
Net gains (losses) on financial instruments at fair value and foreign

exchange

Other net realized gains (losses)

Total revenues

Expenses:

Losses and loss adjustment
Amortization of deferred acquisition costs
Operating
Interest
Expenses of consolidated variable interest entities:

Operating
Interest

Total expenses

Income (loss) before income taxes
Provision (benefit) for income taxes

Net income (loss)

Net income (loss) per common share:

Basic
Diluted

107 $

201
154
15

(51)
—

(51)

(24)

(101)

(5)

(106)
28
31

130
28

433

683
23
106
197

10
75

1,094

(661)
944

168 $
132

300
152
28

(40)
21

(19)

(1)

(4)

(5)
5
(282)

—
—

294

220
40
137
197

14
25

633

(339)
(1)

(1,605)

(338)

$
$

(13.50) $
(13.50) $

(2.54) $
(2.54) $

1.06
1.06

Weighted average number of common shares outstanding:

Basic
Diluted

118,930,282
118,930,282

133,001,088
133,001,088

163,936,318
164,869,788

The accompanying notes are an integral part of the consolidated financial statements.

MBIA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In millions)

Net income (loss)
Other comprehensive income (loss):
Unrealized gains (losses) on available-for-sale securities:

Unrealized gains (losses) arising during the period
Provision (benefit) for income taxes

Total

Reclassification adjustments for (gains) losses included in net income (loss)
Provision (benefit) for income taxes

Total

Available-for-sale securities with other-than-temporary impairments:

Other-than-temporary impairments and unrealized gains (losses) arising during

the period

Provision (benefit) for income taxes

Total

Reclassification adjustments for (gains) losses included in net income (loss)
Provision (benefit) for income taxes

Total

Foreign currency translation:

Foreign currency translation gains (losses)
Provision (benefit) for income taxes

Total

Total other comprehensive income (loss)

Comprehensive income (loss)

Years Ended December 31,

2017

2016

2015

$(1,605) $ (338) $

180

(22)
(1)

(21)
2
—

(3)
—

(3)
7
1

146
21

125

109

28
7

21
(1)
1

(2)

10
4

6
4
1

(94)
1

(95)

(67)

(80)
(27)

(53)
(7)
(3)

(4)

(3)
(1)

(2)
4
1

(40)
(14)

(26)

(82)

$(1,496) $ (405) $

The accompanying notes are an integral part of the consolidated financial statements.

MBIA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
For The Years Ended December 31, 2017, 2016 and 2015
(In millions except share amounts)

Common Stock

Amount

Additional
Paid-in
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income (loss)

Treasury Stock

Amount

Total
Shareholders’
Equity
of MBIA Inc.

Preferred Stock
of Subsidiary and
Noncontrolling interest

Amount

Total
Equity

Balance, January 1, 2015

281,352,782 $

281 $

3,128 $ 2,858 $

21 (89,409,887) $(2,359) $

3,929

1,315 $

21 $ 3,950

ASU 2015-02 transition

adjustment
Net income (loss)
Other comprehensive income

(loss)

Share-based compensation, net

of tax of $9

Treasury shares acquired under
share repurchase program

—
—

—

480,836

—

—
—

—

—
—

—

—
180

—

—
—

(82)

—
—

—

(986,455)

—
—

—

(6)

— (39,906,899)

(303)

Balance, December 31, 2015

281,833,618 $

282 $

3,138 $ 3,038 $

(61) (130,303,241) $(2,668) $

Net income (loss)
Other comprehensive income

(loss)

Share-based compensation, net

of tax

Treasury shares acquired under
share repurchase program

—

2,156,381

—

— (338)

—

(67)

—

— (1,925,990)

(16)

— (16,559,937)

(105)

Balance, December 31, 2016

283,989,999 $

284 $

3,160 $ 2,700 $

(128) (148,789,168) $(2,789) $

Net income (loss)
Other comprehensive income

(loss)

Share-based compensation, net

of tax

Treasury shares acquired under
share repurchase program

—

(272,026)

—

— (1,605)

—

109

—

(402,707)

—

(4)

— (43,041,651)

(325)

Balance, December 31, 2017

283,717,973 $

284 $

3,171 $ 1,095 $

(19) (192,233,526) $(3,118) $

—
180

(82)

(303)

3,729

(338)

(67)

(105)

3,227

(1,605)

109

(325)

1,413

—
—

—

(9)
—

—

(9)
180

(82)

— (303)

1,315 $

12 $ 3,741

—

— (338)

—

(67)

— (105)

1,315 $

12 $ 3,239

—

— (1,605)

—

109

— (325)

1,315 $

12 $ 1,425

The accompanying notes are an integral part of the consolidated financial statements.

MBIA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)

Cash flows from operating activities:

Premiums, fees and reimbursements received
Investment income received
Insured derivative commutations and losses paid
Financial guarantee losses and loss adjustment expenses paid
Proceeds from recoveries and reinsurance
Operating and employee related expenses paid
Interest paid, net of interest converted to principal
Income taxes (paid) received

Net cash provided (used) by operating activities

Cash flows from investing activities:

Purchases of available-for-sale investments
Sales of available-for-sale investments
Paydowns and maturities of available-for-sale investments
Purchases of investments at fair value
Sales, paydowns and maturities of investments at fair value
Sales, paydowns and maturities (purchases) of short-term investments, net
Sales, paydowns and maturities of held-to-maturity investments
Paydowns and maturities of loans receivable
Consolidation of variable interest entities
Deconsolidation of variable interest entities
(Payments) proceeds for derivative settlements
Collateral (to) from counterparties
Capital expenditures
Other investing

Net cash provided (used) by investing activities

Cash flows from financing activities:

Proceeds from investment agreements
Principal paydowns of investment agreements
Principal paydowns of medium-term notes
Proceeds from the MBIA Corp. Financing Facility
Principal paydowns of variable interest entity notes
Principal paydowns of long-term debt
Purchases of treasury stock
Other financing

Net cash provided (used) by financing activities

Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents—beginning of period
Reclassification to assets held for sale

Cash and cash equivalents—end of period

Change in:

Premiums receivable
Deferred acquisition costs
Unearned premium revenue
Loss and loss adjustment expense reserves
Insurance loss recoverable
Accrued interest payable
Accrued expenses

Net investment losses related to other-than-temporary impairments
Unrealized (gains) losses on insured derivatives
Net (gains) losses on financial instruments at fair value and foreign exchange
Other net realized (gains) losses
Deferred income tax provision (benefit)
Interest on variable interest entities, net
Other operating

Total adjustments to net income (loss)

Net cash provided (used) by operating activities

Supplementary Disclosure of Consolidated Cash Flow Information

Non-cash investing activities:

Years Ended December 31,

2017

2016

2015

61
248
(52)
(768)
170
(130)
(155)
(4)

(630)

115
318
(43)
(351)
99
(134)
(139)
(5)

(140)

95
353
(42)
(238)
85
(129)
(169)
(9)

(54)

(1,811)
2,256
568
(263)
326
(67)
—
259
18
—
(64)
4
(1)
(23)

1,202

17
(84)
(171)
328
(368)
—
(330)
(3)

(611)

(2)
(41)
187
—

146

(2,661)
2,412
680
(199)
260
(125)
1,799
261
9
(8)
(44)
49
(1)
(8)

2,424

19
(85)
(129)
—
(2,234)
—
(110)
(5)

(2,544)

(2)
(262)
522
(73)

187

49
22
(206)
778
(681)
138
(29)
106
—
(106)
(59)
940
35
(12)

975

75
41
(263)
29
(74)
111
7
5
(21)
(84)
282
(5)
57
38

198

(2,146)
1,145
800
(390)
551
525
67
232
7
—
13
(31)
(3)
47

817

24
(116)
(118)
—
(490)
(11)
(304)
—

(1,015)

(8)
(260)
782
—

522

180

50
49
(371)
12
(44)
105
14
13
(157)
(105)
(17)
107
71
39

(234)

$ (630)

$ (140)

(54)

Reconciliation of net income (loss) to net cash provided (used) by operating activities:

Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:

$(1,605)

$ (338)

Non-cash consideration received from the sale of MBIA UK Insurance Limited

332

— $

—

The accompanying notes are an integral part of the consolidated financial statements.

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 1: Business Developments and Risks and Uncertainties

Summary

MBIA Inc., together with its consolidated subsidiaries, (collectively, “MBIA” or the “Company”) operates within the
financial guarantee insurance industry. MBIA manages three operating segments: 1) United States (“U.S.”) public
finance insurance; 2) corporate; and 3) international and structured finance insurance. The Company’s U.S. public
finance insurance business is primarily operated through National Public Finance Guarantee Corporation (“National”)
and its international and structured finance insurance business is primarily operated through MBIA Insurance
Corporation and its subsidiaries (“MBIA Corp.”). Effective on January 10, 2017, MBIA Corp.’s wholly-owned subsidiary,
MBIA UK (Holdings) Limited (“MBIA UK Holdings”), sold its operating subsidiary, MBIA UK Insurance Limited (“MBIA
UK”), to Assured Guaranty Corp. (“Assured”), a subsidiary of Assured Guaranty Ltd. Refer below for a further
discussion of the sale of MBIA UK. Unless otherwise indicated or the context otherwise requires, references to “MBIA
Corp.” are (i) for any references relating to the period ended January 10, 2017, to MBIA Insurance Corporation,
together with its subsidiaries, MBIA UK, and MBIA Mexico S.A. de C.V. (“MBIA Mexico”) and (ii) for any references
relating to the period after January 10, 2017, to MBIA Insurance Corporation together with MBIA Mexico.

Refer to “Note 12: Business Segments” for further information about the Company’s operating segments.

Business Developments

Financial Strength Ratings

On June 26, 2017, Standard & Poor’s Financial Services LLC (“S&P”) downgraded the financial strength rating of
National from AA- with a stable outlook to A with a stable outlook. National’s ability to write new business and to
compete with other financial guarantors was largely dependent on the financial strength ratings assigned to National
by major rating agencies, and with the A rating assigned by S&P, it would be difficult for National to compete with
higher-rated competitors. Therefore, at that time, National ceased its efforts to actively pursue writing new financial
guarantee business. On November 28, 2017, the Company provided notice to S&P terminating the agreements by
which S&P agreed to provide financial strength ratings to MBIA Inc., National and MBIA Corp. On December 1,
2017, S&P affirmed National’s A with a stable outlook rating and subsequently withdrew all of its ratings. On
September 28, 2017, National provided notice to Kroll Bond Rating Agency (“Kroll”) terminating the agreement by
which Kroll agreed to provide a financial strength rating to National. On December 5, 2017, Kroll downgraded the
financial strength rating of National from AA+ to AA with a negative outlook and subsequently withdrew its rating. On
September 28, 2017, the Company provided notice to Moody’s Investors Services (“Moody’s”) terminating the
agreement by which Moody’s agreed to provide financial strength ratings to MBIA Inc., National, MBIA Corp. and
MBIA Mexico. On January 17, 2018, Moody’s downgraded the financial strength rating of National to Baa2 from A3
with a stable outlook, affirmed the financial strength rating of MBIA Corp. at Caa1 with a developing outlook,
downgraded MBIA Inc.’s rating to Ba3 with a stable outlook from Ba1 with a negative outlook, and affirmed the
financial strength rating of MBIA Mexico at Caa1/B3.mx with a developing outlook. Moody’s, at its discretion and in
the absence of a contract with the Company, continues to maintain ratings on MBIA Inc. and its subsidiaries.

Full Valuation Allowance on the Company’s Net Deferred Tax Asset

As of December 31, 2017, the Company had a full valuation allowance on its net deferred tax asset of
$770 million. Refer to “Note 11: Income Taxes” for further information about this valuation allowance on the
Company’s net deferred tax asset.

Sale of MBIA UK

On January 10, 2017, MBIA UK Holdings sold its operating subsidiary, MBIA UK, and made a cash payment of
$23 million, to Assured in exchange for the receipt by MBIA UK Holdings of certain notes owned by Assured that
were issued by Zohar II 2005-1, Limited (“Zohar II”) with an aggregate outstanding principal amount of $347 million
as of January 10, 2017 (the “Sale Transaction”). In connection with the sale, the Company adjusted the carrying
value of MBIA UK to its fair value less costs to sell and recorded a $278 million loss in 2016. During 2017, the
Company recorded a gain of $5 million to adjust the carrying value of MBIA UK to its fair value less costs to sell as of
the sale date. These results were reflected in the Company’s international and structured finance insurance segment
and included in “Other net realized gains (losses)” on the Company’s consolidated statement of operations.

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 1: Business Developments and Risks and Uncertainties (continued)

Held for Sale Classification

The assets and liabilities of MBIA UK were classified as held for sale as of December 31, 2016 and presented
within “Assets held for sale” and “Liabilities held for sale” on the Company’s consolidated balance sheet. Income
(loss) before income taxes for MBIA UK was income of $45 million and a loss of $5 million for the years ended
December 31, 2016 and 2015, respectively. The following table summarizes the components of assets and
liabilities held for sale as of December 31, 2016:

In millions

Assets

Investments
Cash and cash equivalents
Premiums receivable
Other assets
Valuation allowance

Total assets held for sale

Liabilities

Unearned premium revenue
Other liabilities

Total liabilities held for sale

As of
December 31, 2016

466
73
267
19
(270)

555

304
42

346

MBIA Corp. Financing Facility

On January 10, 2017, MBIA Corp. executed a financing facility (the “Facility”) with affiliates of certain holders of
14% Fixed-to-Floating Rate Surplus Notes of MBIA Corp. (collectively, the “Senior Lenders”), and with MBIA Inc.,
pursuant to which the Senior Lenders have provided $325 million of senior financing and MBIA Inc. has provided
$38 million of subordinated financing to MZ Funding LLC (“MZ Funding”), a newly formed wholly-owned
subsidiary of the Company, which in turn lent the proceeds of such financing to MBIA Corp. MBIA Corp. issued
financial guarantee insurance policies insuring MZ Funding’s obligations under the Facility. Refer to “Note 10:
Debt” for further information about the Facility.

Risks and Uncertainties

The Company’s financial statements include estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses. The outcome of certain significant risks and uncertainties could cause
the Company to revise its estimates and assumptions or could cause actual results to differ from the Company’s
estimates. The discussion below highlights the significant risks and uncertainties that could have a material effect
on the Company’s financial statements and business objectives in future periods.

U.S. Public Finance Market Conditions

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 1: Business Developments and Risks and Uncertainties (continued)

In particular, the Commonwealth of Puerto Rico and certain of its instrumentalities (“Puerto Rico”) are
experiencing significant fiscal stress and constrained liquidity due to, among other things, Puerto Rico’s structural
budget imbalance, the lack of access to the capital markets, a stagnating local economy, net migration of people
out of Puerto Rico and a high debt burden. Although Puerto Rico has tried to address its challenges through
various fiscal policies, it continues to experience significant fiscal stress. Puerto Rico defaulted on scheduled debt
service for National insured bonds and National paid gross claims in the aggregate of $242 million during 2017.
On January 1, 2018, Puerto Rico also defaulted on scheduled debt service for National insured bonds and
National paid gross claims in the aggregate of $69 million. On September 20, 2017, Hurricane Maria made
landfall in Puerto Rico as a Category 4 hurricane resulting in catastrophic damage to much of the island’s basic
infrastructure, including its electrical transmission and distribution grid, telecommunications network, housing,
roads, bridges, water and sewer systems. On September 21, 2017, the President of the United States approved a
Major Disaster Declaration for Puerto Rico and the Federal Emergency Management Agency (“FEMA”) made
federal disaster assistance available to Puerto Rico to supplement its recovery efforts. Hurricane Maria’s impact
on Puerto Rico will likely also impact its ability to both repay its legacy indebtedness and participate in ongoing
debt restructuring negotiations. The physical damage and resultant lost economic activity may exceed the
collective aid Puerto Rico receives from private insurance, relief from FEMA and other federal agencies and
programs. Economic activity in Puerto Rico may not return to pre-hurricane levels and Puerto Rico’s recovery
could be more shallow and protracted than that experienced by other similarly affected governments, given
Puerto Rico’s prior constrained liquidity and economic activity. While the federal government has made aid
available to Puerto Rico, there can be no assurance that such aid will continue in the amounts necessary to offset
the adverse impacts from Hurricane Maria in their entirety. In addition, the necessary and greater involvement of
the federal government, through its actions to deliver disaster relief and other support services, in addition to the
evolving role of the Financial Oversight and Management Board for Puerto Rico (“Oversight Board”) and the role
of Puerto Rico in its own recovery, heightens political risk in connection with the restructuring of legacy debt. This
risk could lead the Oversight Board, Puerto Rico or the federal government to seek to extract greater concessions
from creditors based on the uncertainty of Puerto Rico’s long term recovery prospects. In this event, losses at
National on select Puerto Rico exposures could increase materially.

MBIA Corp. Insured Portfolio

MBIA Corp.’s primary objectives are to satisfy claims of its policyholders, maximize future recoveries, if any, for its
Senior Lenders and surplus note holders and, then its preferred stock holders. MBIA Corp. is executing this
strategy by pursuing various actions focused on maximizing the collection of recoveries and by reducing potential
losses on its insurance exposures. MBIA Corp.’s insured portfolio could deteriorate and result in additional
significant loss reserves and claim payments. MBIA Corp.’s ability to meet its obligations is limited by available
liquidity and its ability to secure additional liquidity through financing and other transactions. There can be no
assurance that MBIA Corp. will be successful in generating sufficient cash to meet its obligations.

On January 20, 2017, MBIA Corp. was presented with and fully satisfied a claim of $770 million (the “Zohar II
Claim”) on an insurance policy it had written insuring the certain notes issued by Zohar II. MBIA Corp. was able to
satisfy the Zohar II Claim as a result of having completed the Sale Transaction and by borrowing from the Facility,
as described above, together with using approximately $60 million from its own resources.

Failure to recover a substantial amount of such payments could impede its ability to make payments when due on
other policies. MBIA Corp. believes that if the New York State Department of Financial Services (“NYSDFS”)
concludes at any time that MBIA Insurance Corporation will not be able to pay its policyholder claims, the
NYSDFS would likely put MBIA Insurance Corporation into a rehabilitation or liquidation proceeding under Article
74 of the New York Insurance Law (“NYIL”) and/or take such other actions as the NYSDFS may deem necessary
to protect the interests of MBIA Insurance Corporation’s policyholders. The determination to commence such a
proceeding or take other such actions is within the exclusive control of the NYSDFS.

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 1: Business Developments and Risks and Uncertainties (continued)

Given the separation of MBIA Inc. and MBIA Corp. as distinct legal entities, the absence of any cross defaults
between the entities and the lack of reliance by MBIA Inc. on MBIA Corp. for the receipt of dividends, the
Company does not believe that a rehabilitation or liquidation proceeding with respect to MBIA Insurance
Corporation would have any significant liquidity impact on MBIA Inc. or result in a liquidation or similar proceeding
of MBIA Mexico. Such a proceeding could have material adverse consequences for MBIA Corp., including the
termination of insured credit default swaps (“CDS”) and other derivative contracts for which counterparties may
assert market-based claims, the acceleration of debt obligations issued by affiliates and insured by MBIA Corp.,
the loss of control of MBIA Insurance Corporation to a rehabilitator or liquidator, and unplanned costs.

Zohar and RMBS Recoveries

Payment of a claim in November of 2015 on MBIA Corp.’s policy insuring the class A-1 and A-2 notes issued by
Zohar CDO 2003-1, Limited (“Zohar I”) and satisfying the Zohar II Claim in 2017, entitles MBIA Corp. to
reimbursement of such amounts plus interest and expenses and/or to exercise certain rights and remedies to
seek recovery of such amounts. However, there can be no assurance that the value of the Zohar assets will be
sufficient to permit MBIA Corp. to recover all or substantially all of the payments it made on Zohar I and Zohar II.

The amount and timing of projected collections from excess spread and subsequent recoveries from residential
mortgage-backed securities (“RMBS”) and the put-back recoverable from Credit Suisse are uncertain.

Refer to “Note 6: Loss and Loss Adjustment Expense Reserves” for additional information about MBIA Corp.’s
recoveries.

Corporate Liquidity

Based on the Company’s projections of National’s dividends, additional anticipated releases under its tax sharing
agreement and related tax escrow account (“Tax Escrow Account”), and other cash inflows, the Company expects
that MBIA Inc. will have sufficient cash to satisfy its debt service and general corporate needs. However, MBIA
Inc. continues to have liquidity risk which could be triggered by deterioration in the performance of invested
assets, interruption of or reduction in dividends or tax payments received from operating subsidiaries, impaired
access to the capital markets, as well as other factors which are not anticipated at this time. Furthermore, failure
by MBIA Inc. to settle liabilities that are also insured by MBIA Corp. could result in claims on MBIA Corp.

Note 2: Significant Accounting Policies

Basis of Presentation

The consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America (“GAAP”). The preparation of financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting period. Actual results could differ from those
estimates. As additional information becomes available or actual amounts become determinable, the recorded
estimates are revised and reflected in operating results.

Certain amounts have been reclassified in prior years’ financial statements to conform to the current presentation.
This includes a change in the presentation of cash paid when withholding shares for tax-withholding purposes in
“Purchases of treasury stock” on the Company’s consolidated statement of cash flows as required under
Accounting Standards Update (“ASU”) 2016-09, “Compensation-Stock Compensation (Topic 718)”. The change in
presentation effected “Operating and employee related expenses paid”, in operating cash flows and “Purchases
of treasury stock”, in financing cash flows, on the Company’s consolidated statement of cash flows in prior
periods. Such reclassifications did not materially impact on total revenues, expenses, assets, liabilities,
shareholders’ equity, operating cash flows, investing cash flows, or financing cash flows for all periods presented.

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 2: Significant Accounting Policies (continued)

Consolidation

The consolidated financial statements include the accounts of MBIA Inc., its wholly-owned subsidiaries and all
other entities in which the Company has a controlling financial interest. All intercompany balances and
transactions have been eliminated. The Company determines whether it has a controlling financial interest in an
entity by first evaluating whether an entity is a voting interest entity or a variable interest entity (“VIE”).

Voting interest entities are entities in which (i) the total equity investment at risk is sufficient to enable an entity to
finance its activities independently and (ii) the equity holders have the obligation to absorb losses, the right to
receive residual returns and the right to make decisions about the entity’s activities. Voting interest entities are
consolidated when the Company has a majority voting interest.

VIEs are entities that lack one or more of the characteristics of a voting interest entity. The consolidation of a VIE
is required if an entity has a variable interest (such as an equity or debt investment, a beneficial interest, a
guarantee, a written put option or a similar obligation) and that variable interest or interests give it a controlling
financial interest in the VIE. A controlling financial interest is present when an enterprise has both (a) the power to
direct the activities of a VIE that most significantly impact the entity’s economic performance and (b) the obligation
to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. The
enterprise with the controlling financial interest, known as the primary beneficiary, is required to consolidate the
VIE. The Company consolidates all VIEs in which it is the primary beneficiary. The Company elected to apply the
fair value option to all financial assets and financial liabilities of certain consolidated VIEs on a VIE-by-VIE basis.
Refer to “Note 4: Variable Interest Entities” for additional information.

Investments

The Company classifies its investments as available-for-sale (“AFS”), held-to-maturity (“HTM”), or trading. AFS
investments are reported in the consolidated balance sheets at fair value with unrealized gains and losses, net of
applicable deferred income taxes, reflected in accumulated other comprehensive income (loss) (“AOCI”) in
shareholders’ equity. Investments carried at fair value are reported in the consolidated balance sheets at fair
value and changes in fair value and realized gains and losses from the sale of these securities are reflected in
earnings as part of “Net gains (losses) on financial instruments at fair value and foreign exchange.” Investments
carried at fair value consist of certain investments elected under the fair value option. Short-term investments held
as AFS include all fixed-maturity securities with a remaining maturity of less than one year at the date of
purchase, commercial paper and money market securities. HTM investments are reported in the consolidated
balance sheets at amortized cost. Debt securities are classified as HTM investments when the Company has the
ability and intent to hold such investments to maturity. Investment income is recorded as earned. Bond discounts
and premiums are amortized using the effective yield method over the remaining term of the securities and
reported in “Net investment income.” For mortgage-backed securities (“MBS”) and asset-backed securities
(“ABS”), discounts and premiums are amortized using the retrospective method. Realized gains and losses
represent the difference between the amortized cost value and the sale proceeds.

Other-Than-Temporary Impairments on Investments

The Company’s consolidated statements of operations reflect the full impairment (the difference between a
security’s amortized cost basis and fair value) on debt securities that the Company intends to sell or would more
likely than not be required to sell before the expected recovery of the amortized cost basis. For AFS and HTM
debt securities that management has no intent to sell and believes that it is more likely than not such securities
will not be required to be sold prior to recovery, only the credit loss component of the impairment is recognized in
earnings. For AFS securities, the remaining fair value loss is recognized in AOCI, net of applicable deferred
income taxes.

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 2: Significant Accounting Policies (continued)

The Company’s AFS and HTM securities for which the fair value is less than amortized cost are reviewed no less
than quarterly in order to determine whether a credit loss exists. This evaluation includes both qualitative and
quantitative considerations. In assessing whether a decline in value is related to a credit loss, the Company
considers several factors, including but not limited to (a) the magnitude and duration of the decline, (b) credit
indicators and the reasons for the decline, such as general interest rate or credit spread movements, credit rating
downgrades, issuer-specific changes in credit spreads, and the financial condition of the issuer, and (c) any
guarantees associated with a security such as those provided by financial guarantee insurance companies. Credit
loss expectations for ABS and collateralized debt obligations (“CDOs”) are assessed using discounted cash flow
modeling, and the recoverability of amortized cost for corporate obligations is generally assessed using issuer-
specific credit analyses.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, demand deposits, and deposits with banks with original
maturities of less than three months.

Acquisition Costs

The Company capitalizes and defers acquisition costs that are directly related to the successful acquisition of new
or renewal insurance business. Acquisition costs are costs to acquire an insurance contract which result directly
from and are essential to the insurance contracts transaction and would not have been incurred by the Company
had the contract transaction not occurred. Acquisition costs include compensation of employees involved in
underwriting, certain rating agency fees, state premium taxes and certain other underwriting expenses, reduced
by ceding commission income on premiums ceded to reinsurers. Acquisition costs also include ceding
commissions paid by the Company in connection with assuming business from other financial guarantors.
Acquisition costs, net of ceding commissions received, related to non-derivative insured financial guarantee
transactions are deferred and amortized over the period in which the related premiums are earned. Acquisition
costs related to insured derivative transactions are expensed as incurred.

Derivatives

Derivative instruments are reported at fair value on the consolidated balance sheets as either assets or liabilities
depending on the rights or obligations under the contract, and changes in fair value are reported in the
consolidated statements of operations as “Net gains (losses) on financial instruments at fair value and foreign
exchange” or “Unrealized gains (losses) on insured derivatives” depending on the nature of the derivative. The
net change in the fair value of the Company’s insured derivatives has two primary components: (i) realized gains
(losses) and other settlements on insured derivatives and (ii) unrealized gains (losses) on insured derivatives.
“Realized gains (losses) and other settlements on insured derivatives” include (i) premiums received and
receivable on sold CDS contracts, (ii) premiums paid and payable to reinsurers in respect to CDS contracts,
(iii) net amounts received or paid on reinsurance commutations, (iv) losses paid and payable to CDS contract
counterparties due to the occurrence of a credit event or settlement agreement, (v) losses recovered and
recoverable on purchased CDS contracts due to the occurrence of a credit event or settlement agreement and
(vi) fees relating to CDS contracts. “Unrealized gains (losses) on insured derivatives” includes all other changes in
fair value of the insured derivative contracts.

In certain instances, the Company purchased or issued securities that contain embedded derivatives that were
separated from the host contract and accounted for as derivative instruments. In addition, the Company elected to
record at fair value certain financial instruments that contained an embedded derivative that required bifurcation
from the host contract and to be accounted for separately as a derivative instrument. These hybrid financial
instruments included certain medium-term notes (“MTNs”) and certain AFS securities. The Company elected to
fair value these hybrid financial instruments given the complexity of bifurcating the embedded derivatives.

Refer to “Note 9: Derivative Instruments” for a further discussion of the Company’s use of derivatives and their
impact on the Company’s consolidated financial statements and “Note 7: Fair Value of Financial Instruments” for
derivative valuation techniques and fair value disclosures.

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 2: Significant Accounting Policies (continued)

Fair Value Measurements—Definition and Hierarchy

The Company carries certain financial instruments at fair value. Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. The fair value measurement of financial instruments held or issued by the Company are
determined through the use of observable market data when available. Market data is obtained from a variety of
third-party sources, including dealer quotes. If dealer quotes are not available for an instrument that is infrequently
traded, the Company uses alternate valuation methods, including either dealer quotes for similar instruments or
pricing models that use market data inputs. The use of alternate valuation methods generally requires
considerable judgment in the application of estimates and assumptions and changes to such estimates and
assumptions may produce materially different fair values. The Company considers its own nonperformance risk
and the nonperformance risk of its counterparties when measuring fair value.

The accounting guidance establishes a fair value hierarchy that categorizes into three levels, the inputs used to
measure fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by
requiring that the most observable inputs be used when available and reliable. Observable inputs are those the
Company believes that market participants would use in pricing the asset or liability based on available market
data. Unobservable inputs are those that reflect the Company’s beliefs about the assumptions market participants
would use in pricing the asset or liability based on the best information available. The three levels of the fair value
hierarchy are defined as follows:

(cid:129)

Level 1—Valuations based on quoted prices in active markets for identical assets or liabilities that the
Company can access. Valuations are based on quoted prices that are readily and regularly available in
an active market, with significant trading volumes.

Level 2—Valuations based on quoted prices in markets that are not active or for which all significant
inputs are observable, either directly or indirectly. Level 2 assets include debt securities with quoted
prices that are traded less frequently than exchange-traded instruments, securities which are priced
using observable inputs and derivative contracts whose values are determined using a pricing model
with inputs that are observable in the market or can be derived principally from or corroborated by
observable market data.

Level 3—Valuations based on inputs that are unobservable or supported by little or no market activity,
and that are significant to the overall fair value measurement. Level 3 assets and liabilities include
financial instruments whose value is determined using pricing models, discounted cash flow
methodologies, or similar techniques where significant inputs are unobservable, as well as instruments
for which the determination of fair value requires significant management judgment or estimation.

The availability of observable inputs can vary from financial instrument to financial instrument and period to period
depending on the type of instrument, market activity, the approach used to measure fair value, and other factors.
The Company categorizes a financial instrument within the fair value hierarchy based on the least observable
input that is significant to the fair value measurement. When the inputs used to measure fair value of an asset or a
liability are categorized within different levels based on the definition of the fair value hierarchy, the fair value
measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input
that is significant to the entire measurement.

Refer to “Note 7: Fair Value of Financial Instruments” for additional fair value disclosures.

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 2: Significant Accounting Policies (continued)

Loss and Loss Adjustment Expenses

The Company recognizes loss reserves on a contract-by-contract basis when the present value of expected net
cash outflows to be paid under the contract discounted using a risk-free rate as of the measurement date exceeds
the unearned premium revenue. A loss reserve is subsequently remeasured each reporting period for expected
increases or decreases due to changes in the likelihood of default and potential recoveries. Subsequent changes
to the measurement of the loss reserves are recognized as loss expense in the period of change. Measurement
and recognition of loss reserves are reported gross of any reinsurance. The Company estimates the likelihood of
possible claim payments and possible recoveries using probability-weighted expected cash flows based on
information available as of the measurement date, including market information. Accretion of the discount on a
loss reserve is included in loss expense.

The Company recognizes potential recoveries on paid claims based on probability-weighted net cash inflows
present valued at applicable risk-free rates as of the measurement date. Such amounts are reported within
“Insurance loss recoverable” on the Company’s consolidated balance sheets. To the extent the Company had
recorded potential recoveries in its loss reserves previous to a claim payment, such recoveries are reclassified to
“Insurance loss recoverable” upon payment of the related claim and remeasured each reporting period.

The Company’s loss reserve, insurance loss recoverable, and accruals for loss adjustment expense (“LAE”)
incurred are disclosed in “Note 6: Loss and Loss Adjustment Expense Reserves.”

Long-term Debt

Long-term debt is carried at the principal amount outstanding plus accrued interest and net of unamortized debt
issuance costs and discounts. Interest expense is accrued at the contractual interest rate. Debt issuance costs
and discounts are amortized and reported as interest expense.

Medium-Term Notes and Investment Agreements

MTNs and investment agreements are carried at the principal amount outstanding plus accrued interest and net
of unamortized discounts or at fair value for certain MTNs. Interest expense is accrued at the contractual interest
rate. Discounts are amortized and reported as interest expense.

Financial Guarantee Insurance Premiums

Unearned Premium Revenue and Receivable for Future Premiums

The Company recognizes a liability for unearned premium revenue at the inception of financial guarantee
insurance and reinsurance contracts on a contract-by-contract basis. Unearned premium revenue recognized at
inception of a contract is measured at the present value of the premium due. For most financial guarantee
insurance contracts, the Company receives the entire premium due at the inception of the contract, and
recognizes unearned premium revenue liability at that time. For certain other financial guarantee contracts, the
Company receives premiums in installments over the term of the contract. Unearned premium revenue and a
receivable for future premiums are recognized at the inception of an installment contract, and measured at the
present value of premiums expected to be collected over the contract period or expected period using a risk-free
discount rate. The expected period is used in the present value determination of unearned premium revenue and
receivable for future premiums for contracts where (a) the insured obligation is contractually prepayable,
(b) prepayments are probable, (c) the amount and timing of prepayments are reasonably estimable, and (d) a
homogenous pool of assets is the underlying collateral for the insured obligation. The Company has determined
that substantially all of its installment contracts meet the conditions required to be treated as expected period
contracts. The receivable for future premiums is reduced as installment premiums are collected. The Company
reports the accretion of the discount on installment premiums receivable as premium revenue and discloses the
amount recognized in “Note 5: Insurance Premiums.” The Company assesses the receivable for future premiums
for collectability each reporting period, adjusts the receivable for uncollectible amounts and recognizes any
write-off as operating expense, and discloses the amount recognized in “Note 5: Insurance Premiums.” As
premium revenue is recognized, the unearned premium revenue liability is reduced.

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 2: Significant Accounting Policies (continued)

Premium Revenue Recognition

The Company recognizes and measures premium revenue over the period of the contract in proportion to the
amount of insurance protection provided. Premium revenue is measured by applying a constant rate to the
insured principal amount outstanding in a given period to recognize a proportionate share of the premium
received or expected to be received on a financial guarantee insurance contract. A constant rate for each
respective financial guarantee insurance contract is calculated as the ratio of (a) the present value of premium
received or expected to be received over the period of the contract to (b) the sum of all insured principal amounts
outstanding during each period over the term of the contract.

An issuer of an insured financial obligation may retire the obligation prior to its scheduled maturity through
refinancing or legal defeasance in satisfaction of the obligation according to its indenture, which results in the
Company’s obligation being extinguished under the financial guarantee contract. The Company recognizes any
remaining unearned premium revenue on the insured obligation as refunding premiums earned in the period the
contract is extinguished to the extent the unearned premium revenue has been collected.

Non-refundable commitment fees are considered insurance premiums and are initially recorded under unearned
premium revenue in the consolidated balance sheets when received. Once the related financial guarantee
insurance policy is issued, the commitment fees are recognized as premium written and earned using the
constant rate method. If the commitment agreement expires before the related financial guarantee is issued, the
non-refundable commitment fee is immediately recognized as premium written and earned at that time.

Fee and Reimbursement Revenue Recognition

The Company collects insurance related fees for services performed in connection with certain transactions.
Depending upon the type of fee received and whether it is related to an insurance policy, the fee is either earned
when it is received or deferred and earned over the life of the related transaction. Work, waiver and consent, and
termination fees are earned when the related services are completed and the fee is received.

Stock-Based Compensation

The Company recognizes in earnings all stock-based payment transactions at the fair value of the stock-based
compensation provided. Refer to “Note 16: Long-term Incentive Plans” for a further discussion regarding the
methodology utilized in recognizing employee stock compensation expense.

Foreign Currency Translation

Financial statement assets and liabilities denominated in foreign currencies are reported in U.S. dollars generally
using rates of exchange prevailing as of the balance sheet date and any related translation adjustments resulting
from the translation of the financial statements of the Company’s non-U.S. operations from its functional currency
into U.S. dollars are included in “Accumulated other comprehensive income (loss)” in shareholders’ equity.
Operating results of the Company’s non-U.S. operations are translated at average rates of exchange prevailing
during the year. Foreign currency remeasurement gains and losses resulting from transactions in non-functional
currencies are recorded in earnings. The Company derecognizes the cumulative translation adjustment reported
in “Accumulated other comprehensive income (loss)” and includes the amount as part of the gain or loss on the
sale or liquidation of its investment in a foreign entity in the period in which the sale or liquidation occurs.

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 2: Significant Accounting Policies (continued)

Income Taxes

Deferred income taxes are recorded with respect to loss carryforwards and temporary differences between the tax
bases of assets and liabilities and the reported amounts in the Company’s financial statements that will result in
deductible or taxable amounts in future years when the reported amounts of assets and liabilities are recovered or
settled. Such temporary differences relate principally to net operating losses, accrued surplus note interest, loss
reserve deductions, premium revenue recognition, deferred acquisition costs, asset impairments net foreign tax
credits. Valuation allowances are established to reduce deferred tax assets to the amount that more likely than
not will be realized. Deferred tax assets and liabilities are adjusted for the effect of changes in tax laws and rates
in the period in which changes are approved by the relevant authority.

On December 22, 2017, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 118
(“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary
information available in reasonable detail to complete the accounting for certain income tax effects of the Tax
Cuts and Jobs Act (the “Act”). Pursuant to the guidance within SAB 118, the Company’s remeasurement of its
deferred taxes included certain provisional effects associated with enactment of the Act for which measurement
could be reasonably estimated. SAB 118 provides a measurement period that should not extend beyond one year
from the Act enactment date for companies to complete the accounting under Accounting Standards Codification
(“ASC”) 740. If a company cannot determine a provisional estimate to be included in the financial statements, it
should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately
before the enactment of the Act. Additional information that may affect the provisional amounts would include
completion of the Company’s 2017 tax return filing, and potential future guidance from the Internal Revenue
Service.

MBIA Inc. and its eligible U.S. subsidiaries file a consolidated federal income tax return. The U.S. income taxes
are allocated based on the provisions of the Company’s tax sharing agreement which governs the intercompany
settlement of tax obligations and benefits. The method of allocation between the members is generally based
upon calculations as if each member filed a separate tax return on its own. Under the Company’s tax sharing
agreement, each member with a net operating loss (“NOL”) will receive the benefits of its tax losses and credits
as it is able to earn them out in the future. Given present facts and circumstances, the Company no longer
anticipates providing compensation to any member for expiring NOLs, capital losses or tax credit carryforwards.

In establishing a liability for an unrecognized tax benefit (“UTB”), assumptions may be made in determining
whether a tax position is more likely than not to be sustained upon examination by the taxing authority and also in
determining the ultimate amount that is likely to be realized. A tax position is recognized only when, based on
management’s judgment regarding the application of income tax laws, it is more likely than not that the tax
position will be sustained upon examination. The amount of tax benefit recognized is based on the Company’s
assessment of the largest amount of benefit that is more likely than not to be realized on ultimate settlement with
the taxing authority. This measurement is based on many factors, including whether a tax dispute may be settled
through negotiation with the taxing authority or is only subject to review in the courts. As new information
becomes available, the Company evaluates its tax positions, and adjusts its UTB, as appropriate. If the tax benefit
ultimately realized differs from the amount previously recognized, the Company recognizes an adjustment of the
UTB.

Refer to “Note 11: Income Taxes” for additional information about the Company’s income taxes.

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 3: Recent Accounting Pronouncements

Recently Adopted Accounting Standards

The Company has not adopted any new accounting pronouncements that had a material impact on its
consolidated financial statements.

Recent Accounting Developments

Revenue from Contracts with Customers (Topic 606) (ASU 2014-09) and Deferral of the Effective Date (ASU
2015-14)

In May of 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, “Revenue from
Contracts with Customers (Topic 606).” ASU 2014-09 amends the accounting guidance for recognizing revenue
for the transfer of goods or services from contracts with customers unless those contracts are within the scope of
other accounting standards. ASU 2014-09 does not apply to financial guarantee insurance contracts within the
scope of Topic 944, “Financial Services — Insurance.” ASU 2014-09 applies to certain fees and reimbursements,
and is not expected to materially impact revenue recognition of these fees and reimbursements. In August of
2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606)—Deferral of the
Effective Date.” ASU 2015-14 defers the effective date of ASU 2014-09 to interim and annual periods beginning
January 1, 2018, and is applied on a retrospective or modified retrospective basis. The adoption of ASU 2014-09
is not expected to materially impact the Company’s consolidated financial statements.

Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial
Liabilities (ASU 2016-01)

In January of 2016, the FASB issued ASU 2016-01, “Financial Instruments-Overall (Subtopic 825-10):
Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU 2016-01 requires certain equity
investments other than those accounted for under the equity method of accounting or result in consolidation of the
investee to be measured at fair value with changes in fair value recognized in net income, and permits an entity to
measure equity investments that do not have readily determinable fair values at cost less any impairment plus or
minus adjustments for certain changes in observable prices. An entity is also required to evaluate the need for a
valuation allowance on a deferred tax asset related to AFS debt securities in combination with the entity’s other
deferred tax assets. ASU 2016-01 requires an entity to present separately in other comprehensive income the
portion of the total change in the fair value of a liability that results from a change in the instrument-specific credit
risk for financial liabilities that the entity has elected to measure at fair value in accordance with the fair value
option for financial instruments. ASU 2016-01 is effective for interim and annual periods beginning January 1,
2018, and is applied on a modified retrospective basis. Early adoption is not permitted with the exception of early
application of the guidance that requires separate presentation in other comprehensive income of the change in
the instrument-specific credit risk for financial liabilities measured at fair value in accordance with the fair value
option.

Based on the fair values as of December 31, 2017 of financial liabilities measured at fair value in accordance with
the fair value option, the cumulative-effect adjustment, net of tax, related to the instrument-specific credit risk
portion of such financial liabilities was a loss of approximately $162 million, which represents the amount that
would have been reclassed from retained earnings to AOCI had the Company adopted ASU 2016-01 on
December 31, 2017. Based on fair values as of December 31, 2017 of equity investments, the cumulative-effect
adjustment, net of tax, related to net unrealized gains of such investments was approximately $2 million, which
represents the amount that would have been reclassed from AOCI to retained earnings had the Company
adopted ASU 2016-01 on December 31, 2017. As of December 31, 2017, the Company had a full valuation
allowance against its deferred tax asset. Refer to “Note 11: Income Taxes” for further information about this
valuation allowance on the Company’s deferred tax asset. The Company plans to adopt ASU 2016-01 in its
entirety in the first quarter of 2018.

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 3: Recent Accounting Pronouncements (continued)

Leases (Topic 842) (ASU 2016-02)

In February of 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”, that amends the accounting guidance
for leasing transactions. ASU 2016-02 requires a lessee to classify lease contracts as finance or operating leases,
and to recognize assets and liabilities for the rights and obligations created by leasing transactions with lease
terms more than twelve months. ASU 2016-02 substantially retains the criteria for classifying leasing transactions
as finance or operating leases. For finance leases, a lessee recognizes a right-of-use asset and a lease liability
initially measured at the present value of the lease payments, and recognizes interest expense on the lease
liability separately from the amortization of the right-of-use asset. For operating leases, a lessee recognizes a
right-of-use asset and a lease liability initially measured at the present value of the lease payments, and
recognizes lease expense on a straight-line basis. ASU 2016-02 is effective for interim and annual periods
beginning January 1, 2019 with early adoption permitted, and is applied on a modified retrospective basis. The
adoption of ASU 2016-02 is not expected to materially impact the Company’s consolidated financial statements.

Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU
2016-13)

In June of 2016, the FASB issued ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement
of Credit Losses on Financial Instruments.” ASU 2016-13 requires financing receivables and other financial assets
measured at amortized cost to be presented at the net amount expected to be collected by recording an
allowance for credit losses with changes in the allowance recorded as credit loss expense or reversal of credit
loss expense based on management’s current estimate of expected credit losses each period. ASU 2016-13 does
not apply to credit losses on financial guarantee insurance contracts within the scope of Topic 944, “Financial
Services-Insurance.” ASU 2016-13 also requires impairment relating to credit losses on AFS debt securities to be
presented through an allowance for credit losses with changes in the allowance recorded in the period of the
change as credit loss expense or reversal of credit loss expense. Any impairment amount not recorded through
an allowance for credit losses on AFS debt securities is recorded through other comprehensive income. ASU
2016-13 is effective for interim and annual periods beginning January 1, 2020 with early adoption permitted
beginning January 1, 2019. ASU 2016-13 is applied on a modified retrospective basis except that prospective
application is applied to AFS debt securities with other-than-temporary impairments (“OTTI”) recognized before
the date of adoption. The Company is evaluating the impact of adopting ASU 2016-13.

Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from
Accumulated Other Comprehensive Income (ASU 2018-02)

In February of 2018, the FASB issued ASU 2018-02, “Income Statement – Reporting Comprehensive Income
(Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” ASU
2018-02 permits, but does not require, the reclassification of the income tax effects of the Act from AOCI to
retained earnings. The election to reclassify the income tax effects from the Act applies to all items within AOCI.
ASU 2018-02 is effective for interim and annual periods beginning after December 15, 2018. Early adoption of
ASU 2018-02 is permitted and is applied in the period of adoption or retroactively to each period in which the
effect of the change in the U.S. federal corporate income tax rate in the Act is recognized. The Company is
evaluating the impact of adopting ASU 2018-02.

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 4: Variable Interest Entities

Through MBIA’s international and structured finance insurance segment, the Company provides credit protection
to issuers of obligations that may involve issuer-sponsored special purpose entities (“SPEs”). An SPE may be
considered a VIE to the extent the SPE’s total equity at risk is not sufficient to permit the SPE to finance its
activities without additional subordinated financial support or its equity investors lack any one of the following
characteristics: (i) the power to direct the activities of the SPE that most significantly impact the entity’s economic
performance or (ii) the obligation to absorb the expected losses of the entity or the right to receive the expected
residual returns of the entity. A holder of a variable interest or interests in a VIE is required to assess whether it
has a controlling financial interest, and thus is required to consolidate the entity as primary beneficiary. An
assessment of a controlling financial interest identifies the primary beneficiary as the variable interest holder that
has both of the following characteristics: (i) the power to direct the activities of the VIE that most significantly
impact the entity’s economic performance and (ii) the obligation to absorb losses of the entity or the right to
receive benefits from the entity that could potentially be significant to the VIE. The primary beneficiary is required
to consolidate the VIE. An ongoing reassessment of controlling financial interest is required to be performed
based on any substantive changes in facts and circumstances involving the VIE and its variable interests.

The Company evaluates issuer-sponsored SPEs initially to determine if an entity is a VIE, and is required to
reconsider its initial determination if certain events occur. For all entities determined to be VIEs, MBIA performs
an ongoing reassessment to determine whether its guarantee to provide credit protection on obligations issued by
VIEs provides the Company with a controlling financial interest. Based on its ongoing reassessment of controlling
financial interest, the Company determines whether a VIE is required to be consolidated or deconsolidated.

The Company makes its determination for consolidation based on a qualitative assessment of the purpose and
design of a VIE, the terms and characteristics of variable interests of an entity, and the risks a VIE is designed to
create and pass through to holders of variable interests. The Company generally provides credit protection on
obligations issued by VIEs, and holds certain contractual rights according to the purpose and design of a VIE. The
Company may have the ability to direct certain activities of a VIE depending on facts and circumstances, including
the occurrence of certain contingent events, and these activities may be considered the activities of a VIE that
most significantly impact the entity’s economic performance. The Company generally considers its guarantee of
principal and interest payments of insured obligations, given nonperformance by a VIE, to be an obligation to
absorb losses of the entity that could potentially be significant to the VIE. At the time the Company determines it
has the ability to direct the activities of a VIE that most significantly impact the economic performance of the entity
based on facts and circumstances, MBIA is deemed to have a controlling financial interest in the VIE and is
required to consolidate the entity as primary beneficiary. The Company performs an ongoing reassessment of
controlling financial interest that may result in consolidation or deconsolidation of any VIE.

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 4: Variable Interest Entities (continued)

Nonconsolidated VIEs

The following tables present the total assets of nonconsolidated VIEs in which the Company holds a variable
interest as of December 31, 2017 and 2016, through its insurance operations. The following tables also present
the Company’s maximum exposure to loss for nonconsolidated VIEs and carrying values of the assets and
liabilities for its interests in these VIEs as of December 31, 2017 and 2016. The Company has aggregated
nonconsolidated VIEs based on the underlying credit exposure of the insured obligation. The nature of the
Company’s variable interests in nonconsolidated VIEs is related to financial guarantees, CDS contracts and any
investments in obligations issued by nonconsolidated VIEs.

In millions

Insurance:

Global structured finance:

Mortgage-backed

residential

Mortgage-backed
commercial

Consumer asset-backed
Corporate asset-backed

Total global structured

finance

Global public finance

December 31, 2017

Carrying Value of Assets

Carrying Value of Liabilities

VIE
Assets

Maximum
Exposure
to Loss

Investments(1)

Premiums
Receivable(2)

Insurance
Loss
Recoverable(3)

Unearned
Premium
Revenue(4)

Loss and
Loss
Adjustment
Expense
Reserves(5)

$ 7,295 $ 3,741 $

19 $

22 $

172 $

20 $

396

216
5,010
2,418

94
981
1,645

14,939
15,568

6,461
2,524

—
—
—

19
—

—
4
13

39
10

—
1
—

173
—

—
3
14

37
14

—
10
—

406
—

406

Total insurance

$30,507 $ 8,985 $

19 $

49 $

173 $

51 $

(1)—Reported within “Investments” on MBIA’s consolidated balance sheets.
(2)—Reported within “Premiums receivable” on MBIA’s consolidated balance sheets.
(3)—Reported within “Insurance loss recoverable” on MBIA’s consolidated balance sheets.
(4)—Reported within “Unearned premium revenue” on MBIA’s consolidated balance sheets.
(5)—Reported within “Loss and loss adjustment expense reserves” on MBIA’s consolidated balance sheets.

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 4: Variable Interest Entities (continued)

December 31, 2016

Carrying Value of Assets

Carrying Value of Liabilities

VIE
Assets

Maximum
Exposure
to Loss

Investments(1)

Premiums
Receivable(2)

Insurance
Loss
Recoverable(3)

Unearned
Premium
Revenue(4)

Loss and
Loss
Adjustment
Expense
Reserves(5)

In millions

Insurance:

Global structured finance:

Collateralized debt

obligations

Mortgage-backed

residential

Mortgage-backed
commercial

Consumer asset-backed
Corporate asset-backed

Total global structured

finance

Global public finance

$ 3,167 $ 1,914 $

51 $

2 $

— $

9,146

4,796

257
4,893
2,625

145
1,331
2,205

20,088
44,306

10,391
12,051

—
—
5

76
—

—
7
18

55
11

304

—
2
—

306
—

—
5
20

52
18

325

—
8
—

406
—

406

Total insurance

$64,394 $22,442 $

76 $

66 $

306 $

70 $

(1)—Reported within “Investments” on MBIA’s consolidated balance sheets.
(2)—Reported within “Premiums receivable” on MBIA’s consolidated balance sheets. Excludes $125 million that is included within “Assets held
for sale” on the Company’s consolidated balance sheets.
(3)—Reported within “Insurance loss recoverable” on MBIA’s consolidated balance sheets.
(4)—Reported within “Unearned premium revenue” on MBIA’s consolidated balance sheets. Excludes $134 million that is included within
“Liabilities held for sale” on the Company’s consolidated balance sheets.
(5)—Reported within “Loss and loss adjustment expense reserves” on MBIA’s consolidated balance sheets.

The maximum exposure to loss as a result of MBIA’s variable interests in VIEs is represented by insurance in
force. Insurance in force is the maximum future payments of principal and interest which may be required under
commitments to make payments on insured obligations issued by nonconsolidated VIEs.

Consolidated VIEs

The carrying amounts of assets and liabilities of consolidated VIEs were $3.2 billion and $2.3 billion, respectively,
as of December 31, 2017, and $2.7 billion and $2.2 billion, respectively, as of December 31, 2016. The carrying
amounts of assets and liabilities are presented separately in “Assets of consolidated variable interest entities” and
“Liabilities of consolidated variable interest entities” on the Company’s consolidated balance sheets. VIEs are
consolidated or deconsolidated based on an ongoing reassessment of controlling financial interest, when events
occur or circumstances arise, and whether the ability to exercise rights that constitute power to direct activities of
any VIEs are present according to the design and characteristics of these entities. Two additional VIEs were
consolidated during the year ended December 31, 2017 and one additional VIE was consolidated during the year
ended December 31, 2016.

Holders of insured obligations of issuer-sponsored VIEs related to the Company’s international and structured
finance insurance segment do not have recourse to the general assets of MBIA. In the event of nonpayment of an
insured obligation issued by a consolidated VIE, the Company is obligated to pay principal and interest, when
due, on the respective insured obligation only. The Company’s exposure to consolidated VIEs is limited to the
credit protection provided on insured obligations and any additional variable interests held by MBIA.

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 5: Insurance Premiums

The Company recognizes and measures premiums related to financial guarantee (non-derivative) insurance and
reinsurance contracts in accordance with the accounting principles for financial guarantee insurance contracts.

As of December 31, 2017 and 2016, premiums receivable was $369 million and $409 million, respectively,
primarily related to installment policies for which premiums will be collected over the estimated term of the
contracts. Premiums receivable for an installment policy is initially measured at the present value of premiums
expected to be collected over the expected period or contract period of the policy using a risk-free discount rate.
Premiums receivable for policies that use the expected period of risk due to expected prepayments are adjusted
in subsequent measurement periods when prepayment assumptions change using the risk-free discount rate as
of the remeasurement date. Premiums receivable also includes the current amount of premiums due from
installment policies insuring consolidated VIEs when the premiums are payable by third-parties on behalf of the
consolidated VIEs.

The Company evaluates whether any premiums receivable are uncollectible at each balance sheet date. If the
Company determines that premiums are uncollectible, it records a write-off of such amounts in current earnings.
The majority of the Company’s premiums receivable consists of the present values of future installment premiums
that are not yet billed or due, primarily from structured finance transactions. Given that premiums due to MBIA
typically have priority over most other payment obligations of structured finance transactions, the Company
determined that the amount of uncollectible premiums as of December 31, 2017 and 2016 was insignificant.

As of December 31, 2017 and 2016, the risk-free rate used to discount future installment premiums was 2.8%,
and the weighted average expected collection term of the premiums receivable was 9.45 years and 10.07 years,
respectively. As of December 31, 2017 and 2016, reinsurance premiums payable was $25 million and $26 million,
respectively, and is included in “Other liabilities” in the Company’s consolidated balance sheets. In addition, as of
December 31, 2016, $6 million was included in “Liabilities held for sale” in the Company’s consolidated balance
sheet. The reinsurance premiums payable is accreted and paid to reinsurers as premiums due to MBIA are
accreted and collected.

The following tables present a roll forward of the Company’s premiums receivable for the years ended
December 31, 2017 and 2016.

In millions

Premiums
Receivable as of
December 31,
2016

Premium
Payments
Received

Premiums
from New
Business
Written

Changes in
Expected Term
of Policies

Adjustments

Accretion of
Premiums
Receivable
Discount(1)

Premiums
Receivable as of
December 31,
2017

Other(2)

409

(50) $

3 $

(15) $

10 $

12 $

369

(1)—Recorded within premiums earned on MBIA’s consolidated statement of operations.
(2)—Primarily consists of realized gains due to changes in foreign currency exchange rates.

In millions

Premiums
Receivable as of
December 31,
2015

Premium
Payments
Received

Premiums
from New
Business
Written

Changes in
Expected Term
of Policies

Adjustments

Accretion of
Premiums
Receivable
Discount (1)

Premiums
Receivable as of
December 31,
2016

Other(2)

792

(115) $

10 $

(5) $

19 $

(292) $

409

(1)—Recorded within premiums earned on MBIA’s consolidated statement of operations.
(2)—Primarily consists of premiums receivable of $267 million reported within “Assets held for sale” on MBIA’s consolidated balance sheet.

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 5: Insurance Premiums (continued)

The following table presents the undiscounted future amount of premiums expected to be collected and the period
in which those collections are expected to occur:

In millions

Three months ending:
March 31, 2018
June 30, 2018
September 30, 2018
December 31, 2018

Twelve months ending:
December 31, 2019
December 31, 2020
December 31, 2021
December 31, 2022

Five years ending:
December 31, 2027
December 31, 2032
December 31, 2037 and thereafter

Total

Expected
Collection of
Premiums

5
15
7
14

38
35
32
28

120
71
81

446

The following table presents the unearned premium revenue balance and future expected premium earnings as of
and for the periods presented:

In millions

December 31, 2017

Three months ending:
March 31, 2018
June 30, 2018
September 30, 2018
December 31, 2018

Twelve months ending:
December 31, 2019
December 31, 2020
December 31, 2021
December 31, 2022

Five years ending:
December 31, 2027
December 31, 2032
December 31, 2037 and thereafter

Total

Expected Future
Premium Earnings

Upfront

Installments

Accretion

Total Expected
Future Premium
Earnings

Unearned
Premium
Revenue

752

729
707
686
665

587
516
452
395

195
94
—

12
12
11
11

41
37
33
30

105
54
40

11
10
10
10

37
34
31
27

95
47
54

$ 386

366

2
2
2
2

9
8
7
7

25
14
13

25
24
23
23

87
79
71
64

225
115
107

843

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 6: Loss and Loss Adjustment Expense Reserves

The Company’s insured portfolio management groups within its U.S. public finance insurance and international
and structured finance insurance businesses (collectively, “IPM”) monitor MBIA’s outstanding insured obligations
with the objective of minimizing losses. IPM meets this objective by identifying issuers that, because of
deterioration in credit quality or changes in the economic, regulatory or political environment, are at a heightened
risk of defaulting on debt service of obligations insured by MBIA. In such cases, IPM works with the issuer,
trustee, bond counsel, servicer, underwriter and other interested parties in an attempt to alleviate or remedy the
problem and avoid defaults on debt service payments. Once an obligation is insured, MBIA typically requires the
issuer, servicer (if applicable) and the trustee to furnish periodic financial and asset-related information, including
audited financial statements, to IPM for review. IPM also monitors publicly available information related to insured
obligations. Potential problems uncovered through this review, such as poor financial results, low fund balances,
covenant or trigger violations and trustee or servicer problems, or other events that could have an adverse impact
on the insured obligation, could result in an immediate surveillance review and an evaluation of possible remedial
actions. IPM also monitors and evaluates the impact on issuers of general economic conditions, current and
proposed legislation and regulations, political developments, as well as sovereign, state and municipal finances
and budget developments.

The frequency and extent of IPM’s monitoring is based on the criteria and categories described below. Insured
obligations that are judged to merit more frequent and extensive monitoring or remediation activities due to a
deterioration in the underlying credit quality of the insured obligation or the occurrence of adverse events related
to the underlying credit of the issuer are assigned to a surveillance category (“Caution List—Low,” “Caution List—
Medium,” “Caution List—High” or “Classified List”) depending on the extent of credit deterioration or the nature of
the adverse events. IPM monitors insured obligations assigned to a surveillance category more frequently and, if
needed, develops a remediation plan to address any credit deterioration.

Remediation actions may involve, among other things, waivers or renegotiations of financial covenants or triggers,
waivers of contractual provisions, the granting of consents, transfer of servicing, consideration of restructuring
plans, acceleration, security or collateral enforcement, actions in bankruptcy or receivership, litigation and similar
actions. The types of remedial actions pursued are based on the insured obligation’s risk type and the nature and
scope of the event giving rise to the remediation. As part of any such remedial actions, MBIA seeks to improve its
security position and to obtain concessions from the issuer of the insured obligation. From time to time, the issuer
of an MBIA-insured obligation may, with the consent of MBIA, restructure the insured obligation by extending the
term, increasing or decreasing the par amount or decreasing the related interest rate, with MBIA insuring the
restructured obligation.

The Company does not establish any case basis reserves for insured obligations that are assigned to “Caution
List—Low,” “Caution List—Medium” or “Caution List—High.” In the event MBIA expects to pay a claim with
respect to an insured transaction, it places the insured transaction on its “Classified List” and establishes a case
basis reserve. When there are no remaining expected future claim payments, the insured transaction is removed
from the “Classified List.” The following provides a description of each surveillance category:

“Caution List—Low”—Includes issuers where debt service protection is adequate under current and
anticipated circumstances. However, debt service protection and other measures of credit support and
stability may have declined since the transaction was underwritten and the issuer is less able to withstand
further adverse events. Transactions in this category generally require more frequent monitoring than
transactions that do not appear within a surveillance category. IPM subjects issuers in this category to
heightened scrutiny.

“Caution List—Medium”—Includes issuers where debt service protection is adequate under current and
anticipated circumstances, although adverse trends have developed and are more pronounced than for
“Caution List – Low.” Issuers in this category may have breached one or more covenants or triggers. These
issuers are more closely monitored by IPM but generally take remedial action on their own.

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 6: Loss and Loss Adjustment Expense Reserves (continued)

“Caution List—High”—Includes issuers where more proactive remedial action is needed but where no
defaults on debt service payments are expected. Issuers in this category exhibit more significant
weaknesses, such as low debt service coverage, reduced or insufficient collateral protection or inadequate
liquidity, which could lead to debt service defaults in the future. Issuers in this category may have breached
one or more covenants or triggers and have not taken conclusive remedial action. Therefore, IPM adopts a
remediation plan and takes more proactive remedial actions.

“Classified List”—Includes all insured obligations where MBIA has paid a claim or where a claim payment is
expected. It also includes insured obligations where a significant LAE payment has been made, or is
expected to be made, to mitigate a claim payment. This may include property improvements, bond purchases
and commutation payments. Generally, IPM is actively remediating these credits where possible, including
restructurings through legal proceedings, usually with the assistance of specialist counsel and advisors.

In establishing case basis loss reserves, the Company calculates the present value of probability-weighted
estimated loss payments, net of estimated recoveries, using a discount rate equal to the risk-free rate applicable
to the currency and the weighted average remaining life of the insurance contract as required by accounting
principles for financial guarantee contracts. Yields on U.S. Treasury offerings are used to discount loss reserves
denominated in U.S. dollars, which represent the majority of the loss reserves. Similarly, yields on foreign
government offerings are used to discount loss reserves denominated in currencies other than the U.S. dollar. If
the Company were to apply different discount rates, its case basis reserves may have been higher or lower than
those established as of December 31, 2017. For example, a higher discount rate applied to expected future
payments would have decreased the amount of a case basis reserve established by the Company and a lower
rate would have increased the amount of a reserve established by the Company. Similarly, a higher discount rate
applied to the potential future recoveries would have decreased the amount of a loss recoverable established by
the Company and a lower rate would have increased the amount of a loss recoverable established by the
Company.

U.S. Public Finance Insurance

U.S. public finance insured transactions consist of municipal bonds, including tax-exempt and taxable
indebtedness of U.S. political subdivisions, as well as utilities, airports, health care institutions, higher educational
facilities, student loan issuers, housing authorities and other similar agencies and obligations issued by private
entities that finance projects that serve a substantial public purpose. The Company estimates future losses by
using probability-weighted cash flow scenarios that are customized to each insured transaction. Future loss
estimates consider debt service due for each insured transaction, which includes par outstanding and interest
due, as well as recoveries for such payments, if any. Gross par outstanding for capital appreciation bonds
represents the par amount at the time of issuance of the insurance policy.

Certain local governments remain under financial and budgetary stress and a few have filed for protection under
title 11, United States Code (the “Bankruptcy Code”), or have entered into state statutory proceedings established
to assist municipalities in managing through periods of severe fiscal stress. In the case of Puerto Rico, certain
credits that the Company insures have filed petitions for covered instrumentalities under Title III of the Puerto Rico
Oversight, Management and Economic Stability Act (“PROMESA”), which incorporates by reference provisions
from the Bankruptcy Code. This could lead to an increase in defaults by such entities on the payment of their
obligations and losses or impairments in greater amounts on the Company’s insured transactions. The filing for
protection under the Bankruptcy Code or entering state statutory proceedings does not necessarily result in a
default or indicate that an ultimate loss will occur.

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 6: Loss and Loss Adjustment Expense Reserves (continued)

On September 20, 2017, Hurricane Maria made landfall in Puerto Rico as a Category 4 hurricane resulting in
catastrophic damage to much of the island’s basic infrastructure, including its electrical transmission and
distribution grid, telecommunications network, housing, roads, bridges, water and sewer systems. On
September 21, 2017, the President of the United States approved a Major Disaster Declaration for Puerto Rico
and the FEMA made federal disaster assistance available to Puerto Rico to supplement its recovery efforts.
Hurricane Maria’s impact on Puerto Rico will likely also impact its ability to both repay its legacy indebtedness and
participate in ongoing debt restructuring negotiations. The physical damage and resultant lost economic activity
may exceed the collective aid Puerto Rico receives from private insurance, relief from FEMA and other federal
agencies and programs. Economic activity in Puerto Rico may not return to pre-hurricane levels and Puerto Rico’s
recovery could be more shallow and protracted than that experienced by other similarly affected governments,
given Puerto Rico’s prior constrained liquidity and economic activity. While the federal government has made aid
available to Puerto Rico, there can be no assurance that such aid will continue in the amounts necessary to offset
the adverse impacts from Hurricane Maria in their entirety. In addition, the necessary and greater involvement of
the federal government, through its actions to deliver disaster relief and other support services, in addition to the
evolving role of the Oversight Board and the role of Puerto Rico in its own recovery, heightens political risk in
connection with the restructuring of legacy debt. This risk could lead the Oversight Board, Puerto Rico or the
federal government to seek to extract greater concessions from creditors based on the uncertainty of Puerto
Rico’s long term recovery prospects. In this event, losses at National on select Puerto Rico exposures could
increase materially. The Company monitors and analyzes these situations closely, however, the overall extent
and duration of such events are uncertain.

International and Structured Finance Insurance

The international and structured finance insurance segment’s case basis reserves and insurance loss recoveries
recorded in accordance with GAAP do not include estimates for policies insuring credit derivatives or on financial
guarantee VIEs that are eliminated in consolidation. Policies insuring credit derivative contracts are accounted for
as derivatives and are carried at fair value in the Company’s consolidated financial statements under GAAP. The
fair values of insured credit derivative contracts are influenced by a variety of market and transaction-specific
factors that may be unrelated to potential future claim payments under the Company’s insurance policies. In the
absence of credit impairments on insured credit derivative contracts or the early termination of such contracts at a
loss, the cumulative unrealized losses recorded from these contracts should reverse before or at the maturity of
the contracts. As the Company’s insured credit derivatives have similar terms, conditions, risks, and economic
profiles to its financial guarantee insurance policies, the Company evaluates them for impairment, under Statutory
accounting, in the same way that it estimates loss and LAE for its financial guarantee policies. Refer to “Note 9:
Derivative Instruments” for a further discussion of the Company’s use of derivatives and their impact on the
Company’s consolidated financial statements.

RMBS Case Basis Reserves (Financial Guarantees)

The Company’s RMBS reserves and recoveries relate to financial guarantee insurance policies, excluding those
on consolidated VIEs. The Company’s first-lien RMBS case basis reserves primarily relate to RMBS backed by
alternative A-paper and subprime mortgage loans. The Company’s second-lien RMBS case basis reserves relate
to RMBS backed by home equity lines of credit and closed-end second mortgages. The Company calculated
RMBS case basis reserves as of December 31, 2017 for both first and second-lien RMBS transactions using a
process called the “Roll Rate Methodology.” The Roll Rate Methodology is a multi-step process using databases
of loan level information, proprietary internal cash flow models, and commercially available models to estimate
potential losses and recoveries on insured bonds. “Roll Rate” is defined as the probability that current loans
become delinquent and subsequently default and loans in the delinquent pipeline are charged-off or liquidated.
Generally, Roll Rates are calculated for the previous twelve months and averaged. The loss reserve estimates
are based on a probability-weighted average of three scenarios of loan losses. Additional data used for both
second and first-liens include historic averages of deal specific voluntary prepayment rates, forward projections of
the London Interbank Offered Rate (“LIBOR”) interest rates, and historic averages of deal-specific loss severities.
In addition, for second-lien RMBS backed by home equity lines of credit, the Company assumes a constant basis
spread between Prime and LIBOR interest rates.

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 6: Loss and Loss Adjustment Expense Reserves (continued)

In calculating ultimate cumulative losses for RMBS, the Company estimates the amount of second-lien loans that
are expected to be charged-off (deemed uncollectible by servicers of the transactions) or first-lien loans liquidated
in the future.

For first-lien RMBS, the Company estimates the amount of loans that are expected to be liquidated through
foreclosure or short sale. The time to liquidation for a defaulted loan is specific to the loan’s delinquency bucket.

For all transactions, cash flow models consider allocations and other structural aspects and claims against MBIA
Corp.’s insurance policy consistent with such policy’s terms and conditions. The estimated net claims from the
procedure above are then discounted using a risk-free rate to a net present value reflecting MBIA’s general
obligation to pay claims over time and not on an accelerated basis.

The Company monitors portfolio performance on a monthly basis against projected performance, reviewing
delinquencies, roll rates, and prepayment rates (including voluntary and involuntary). However, loan performance
remains difficult to predict and losses may exceed expectations. In the event of a material deviation in actual
performance from projected performance, the Company would increase or decrease the case basis reserves
accordingly.

RMBS Recoveries

The Company primarily records two types of recoveries related to insured RMBS exposures: excess spread that
is generated from the trust structures in the insured transactions; and second-lien “put-back” claims related to
those mortgage loans whose inclusion in an insured securitization failed to comply with representations and
warranties (“ineligible loans”).

Excess Spread

Excess spread within insured RMBS securitizations is the difference between interest inflows on mortgage loan
collateral and interest outflows on the insured RMBS notes. The aggregate amount of excess spread depends on
the future loss trends, which include future delinquency trends, average time to charge-off/liquidate delinquent
loans, the future spread between Prime and the LIBOR interest rates, and borrower refinancing behavior (which
may be affected by changes in the interest rate environment) that results in voluntary prepayments. Minor
deviations in loss trends and voluntary prepayments may substantially impact the amounts collected from excess
spread. Excess spread also includes subsequent recoveries on previously charged-off loans associated with the
insured second-lien RMBS securitizations.

Second-lien Put-Back Claims Related to Ineligible Loans

The Company has settled the majority of the Company’s put-back claims. Only its claims against Credit Suisse
remain outstanding. The Company’s settlement amounts have been consistent with the put-back recoveries that
had been included in the Company’s financial statements at the times preceding the settlements. The put-back
contract claim remaining with Credit Suisse is related to the inclusion of ineligible loans in the 2007-2 Home
Equity Mortgage Trust securitization. Credit Suisse has challenged the Company’s assessment of the ineligibility
of individual mortgage loans and the dispute is the subject of litigation for which there is no assurance that the
Company will prevail.

Based on the Company’s assessment of the strength of its contractual put-back rights against Credit Suisse, as
well as on its prior settlements with other sellers/servicers and success of other monolines’ put-back settlements,
the Company believes it will prevail in enforcing its contractual rights and that it is entitled to collect the full
amount of its incurred losses, which totaled $436 million through December 31, 2017. The Company is also
entitled to collect interest on amounts paid; it believes that in the context of its put-back litigation, the appropriate
interest rate should be the New York State statutory rate. However, the Company currently calculates its put-back
recoveries using the contractual interest rate, which is lower than the New York State statutory rate.

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 6: Loss and Loss Adjustment Expense Reserves (continued)

Notwithstanding the foregoing, uncertainty remains with respect to the ultimate outcome of the litigation with
Credit Suisse, which is contemplated in the probability-weighted cash flow scenario based-modeling the Company
uses. The Credit Suisse recovery scenarios are based on the amount of incurred losses measured against certain
probabilities of ultimate resolution of the dispute with Credit Suisse. Most of the probability weight is assigned to
partial recovery scenarios and are discounted using the current risk-free discount rates associated against the
underlying transaction’s cash flows.

The Company continues to consider relevant facts and circumstances in developing its assumptions on expected
cash inflows, probability of potential recoveries (including the outcome of litigation) and recovery period. The
estimated amount and likelihood of potential recoveries are expected to be revised and supplemented to the
extent there are developments in the pending litigation and/or changes to the financial condition of Credit Suisse.
While the Company believes it will be successful in realizing its recoveries from its put-back contract claims
against Credit Suisse, the ultimate amount recovered may be materially different from that recorded by the
Company given the inherent uncertainty of the manner of resolving the claims (i.e., litigation and/or negotiated
out-of-court settlement) and the assumptions used in the required estimation process for accounting purposes
which are based, in part, on judgments and other information that are not easily corroborated by historical data or
other relevant benchmarks. Refer to “Note 20: Commitments and Contingencies” for further information about the
Company’s litigation with Credit Suisse.

CDO Reserves

The Company also has loss and LAE reserves on certain transactions within its CDO portfolio, primarily including
its multi-sector CDO asset class that was insured in the form of financial guarantee policies. MBIA’s insured multi-
sector CDOs are transactions that include a variety of collateral ranging from corporate bonds to structured
finance assets (which includes, but are not limited to, RMBS-related collateral, multi-sector and corporate CDOs).

The following discussion provides information about the Company’s process for estimating reserves and credit
impairments on these policies, determined as the present value of the probability-weighted potential future losses,
net of estimated recoveries, across multiple scenarios.

The Company considers several factors when developing the range of potential outcomes and their impact on
MBIA. The following approaches require substantial judgments about the future performance of each transaction:

1. Each transaction is evaluated for its commutation potential, which is customized by counterparty and

considers historical commutation prices, the level of dialogue with the counterparty and the credit quality
and payment profile of the underlying exposure.

2. A range of loss scenarios is considered under different default and severity rates for each transaction’s

collateral.

Zohar Recoveries

MBIA Corp. will seek to recover the payments it made (plus interest and expenses) with respect to Zohar I and
the Zohar II Claim. MBIA Corp. anticipates that the primary source of the recovery of the Zohar II Claim will come
from the monetization of the assets of Zohar II, which include, among other things, loans made to, and equity
interests in, companies purportedly controlled by the sponsor and former collateral manager of Zohar I and Zohar
II (the “Zohar Sponsor”) (all the assets of Zohar II, the “Zohar II Assets”).

In connection with the exercise of its rights and remedies, MBIA Corp. acquired the beneficial ownership of the
Zohar I assets, which include loans made to, and equity interests in, companies purportedly controlled by the
Zohar Sponsor (all the assets of Zohar I, the “Zohar I Assets”). Over time, MBIA Corp. expects to acquire the legal
ownership of the Zohar I Assets and recover all or substantially all of the payment it made (plus interest and
expenses) with regards to the Zohar I claim. As of December 31, 2017, the recoveries of Zohar I and Zohar II are
included in “Loans receivable at fair value” which are presented in “Assets of consolidated variable interest
entities” on the Company’s consolidated balance sheets.

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 6: Loss and Loss Adjustment Expense Reserves (continued)

There can be no assurance, however, that the value of the Zohar II Assets and the Zohar I Assets will be
sufficient to permit MBIA Corp. to recover all or substantially all of the payments it made on the Zohar I and the
Zohar II Claims. Failure to recover a substantial amount of such payments could impede its ability to make
payments when due on other policies. MBIA Corp. believes that if the NYSDFS concludes at any time that MBIA
Insurance Corporation will not be able to pay its policyholder claims, the NYSDFS would likely put MBIA
Insurance Corporation into a rehabilitation or liquidation proceeding under Article 74 of the New York Insurance
Law and/or take such other actions as the NYSDFS may deem necessary to protect the interests of MBIA
Insurance Corporation’s policyholders. The determination to commence such a proceeding or take other such
actions is within the exclusive control of the NYSDFS.

Summary of Loss and LAE Reserves and Recoveries

The Company’s loss and LAE reserves and recoveries before consolidated VIE eliminations, along with amounts
that were eliminated as a result of consolidated VIEs, which are included in the Company’s consolidated balance
sheets as of December 31, 2017 and 2016 are presented in the following table:

As of December 31, 2017

Balance Sheet Line Item

As of December 31, 2016

Balance Sheet Line Item

Insurance
loss
recoverable

Loan
repurchase
commitments

Loss and
LAE
reserves

Insurance
loss
recoverable

Loan
repurchase
commitments

Loss and
LAE
reserves

333 $

— $

512 $

174 $

— $

In millions

U.S. Public Finance Insurance
International and Structured Finance

Insurance:
Before VIE eliminations
VIE eliminations

Total international and structured

finance insurance

Total

511 $

407 $

979 $

504 $

404 $

1,478
(1,300)

407
—

710
(243)

551
(221)

178

407

467

330

404
—

404

650
(206)

444

541

Changes in Loss and LAE Reserves

The following tables present changes in the Company’s loss and LAE reserves for the years ended December 31,
2017 and 2016. Changes in loss reserves attributable to the accretion of the claim liability discount, changes in
discount rates, changes in amount and timing of estimated claim payments and recoveries, changes in
assumptions and changes in LAE reserves are recorded in “Losses and loss adjustment” expenses in the
Company’s consolidated statements of operations. As of December 31, 2017 and 2016, the weighted average
risk-free rate used to discount the Company’s loss reserves (claim liability) was 2.31% and 2.07%, respectively.
LAE reserves are generally expected to be settled within a one-year period and are not discounted. As of
December 31, 2017 and 2016, the Company’s gross loss and LAE reserves included $66 million and $60 million,
respectively, related to LAE.

In millions

Gross Loss
and LAE
Reserves as of
December 31,
2016

Changes in Loss and LAE Reserves for the Year Ended December 31, 2017

Loss
Payments
for Cases
with
Reserves(1)

Accretion
of Claim
Liability
Discount

Changes in
Discount
Rates

Changes in
Assumptions

Changes in
Unearned
Premium
Revenue

Changes in
LAE
Reserves

Other(2)

Gross Loss
and LAE
Reserves as of
December 31,
2017

541

$ (1,069)

661

(30)

$ 843

979

(1)—Includes payments made to satisfy the Zohar II Claim.
(2)—Primarily changes in the amount to satisfy the Zohar II Claim.

100

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 6: Loss and Loss Adjustment Expense Reserves (continued)

In millions

Gross Loss
and LAE
Reserves as of
December 31,
2015

Changes in Loss and LAE Reserves for the Year Ended December 31, 2016

Loss
Payments
for Cases
with
Reserves

Accretion
of Claim
Liability
Discount

Changes in
Discount
Rates

Changes in
Assumptions

Changes in
Unearned
Premium
Revenue

Changes
in LAE
Reserves

Other(1)

Gross Loss
and LAE
Reserves as of
December 31,
2016

516

$ (128)

(15)

541

(1)—Primarily changes in amount and timing of payments.

The increase in the Company’s gross loss and LAE reserves during 2017 was primarily related to increases due
to changes in assumptions on certain Puerto Rico exposures.

The increase in the Company’s gross loss and LAE reserves during 2016 was primarily related to increases due
to changes in assumptions on insured first and second-lien RMBS transactions and U.S. public finance
transactions. These were partially offset by decreases in changes in assumptions on CDOs.

Changes in Insurance Loss Recoverable and Recoveries on Unpaid Losses

Current period changes in the Company’s estimate of potential recoveries may be recorded as an insurance loss
recoverable asset, netted against the gross loss and LAE reserve liability, or both. The following table presents
changes in the Company’s insurance loss recoverable and changes in recoveries on unpaid losses reported
within the Company’s claim liability for the years ended December 31, 2017 and 2016. Changes in insurance loss
recoverable attributable to the accretion of the discount on the recoverable, changes in discount rates, changes in
amount and timing of estimated collections, changes in assumptions and changes in LAE recoveries are recorded
in “Losses and loss adjustment” expenses in the Company’s consolidated statements of operations.

Changes in Insurance Loss Recoverable and Recoveries on Unpaid
Losses for the Year Ended December 31, 2017

In millions

Insurance loss recoverable
Recoveries on unpaid losses(3)

Total

Gross
Reserve as of
December 31,
2016

Collections
for Cases
with
Recoveries

Accretion of
Recoveries

Changes in
Discount
Rates

Changes in
Assumptions

Changes
in LAE

Recoveries Other(1)

Gross
Reserve as of
December 31,
2017

504 $
79

(124) $
—

583 $

(124) $

10 $
1

11 $

2 $
1

3 $

113(2) $
(45)

68 $

— $
(1)

(1) $

6 $
—

6 $

511
35

546

(1)—Primarily changes in amount and timing of collections.
(2)—Includes amounts which have been paid and are expected to be recovered in the future.
(3)—As of December 31, 2017 and 2016, excludes Puerto Rico recoveries, and as of December 31, 2016, the Zohar II recoveries, which have
been netted against reserves.

In millions

Insurance loss recoverable
Recoveries on unpaid losses(2)

Total

Changes in Insurance Loss Recoverable and Recoveries on Unpaid
Losses for the Year Ended December 31, 2016

Gross
Reserve as of
December 31,
2015

Collections
for Cases
with
Recoveries

Accretion of
Recoveries

Changes in
Discount
Rates

Changes in
Assumptions

Changes
in LAE

Recoveries Other(1)

Gross
Reserve as of
December 31,
2016

577 $
100

677 $

(69) $
—

(69) $

5 $
1

6 $

(17) $
3

(14) $

86 $

(34)

52 $

(6) $ (72) $

—

3 $ (72) $

504
79

583

(1)—Primarily changes in amount and timing of collections.
(2)—Excludes Puerto Rico and Zohar II recoveries, which have been netted against reserves.

The increase in the Company’s insurance loss recoverable during 2017 was primarily due to paid losses on
certain Puerto Rico credits offset by a decrease in insured RMBS transactions. The decrease in the RMBS
insurance loss recoverable was primarily related to the collection of mortgage insurance from the settlement of
litigation involving Old Republic Insurance Corporation and a decrease in expected recoveries from first-lien
RMBS transactions. The decrease in the Company’s recoveries on unpaid losses is primarily related to insured
RMBS transactions.

101

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 6: Loss and Loss Adjustment Expense Reserves (continued)

The decrease in the Company’s insurance loss recoverable and recoveries on unpaid losses during 2016 was
primarily due to a decrease in expected future recoveries on CDOs as the result of the consolidation of a VIE and
related elimination of a VIE and a decrease in changes in the amount of expected collections on first and second-
lien RMBS issues, partially offset by an increase related to changes in assumptions on certain Puerto Rico
credits.

Loss and LAE Activity

The Company’s financial guarantee insurance losses and LAE (excluding insured credit derivative and
consolidated VIEs), net of reinsurance for the years ended December 31, 2017, 2016 and 2015 are presented in
the following table:

In millions

U.S. Public Finance Insurance Segment
International and Structured Finance Insurance Segment:

Second-lien RMBS
First-lien RMBS
CDOs
Other(1)

Losses and LAE

(1)—Includes non-U.S. public finance and other issues.

Years Ended December 31,

2017

2016

2015

499

62
92
10
20

121
41
(32)
16

63
34
29
(8)

683

220

123

For 2017, losses and LAE primarily related to increases in actual and expected payments on certain Puerto Rico
exposures, insured first-lien RMBS transactions and a decrease in actual and projected collections from mortgage
insurance included in the Company’s excess spread within its second-lien RMBS transactions from the settlement
of litigation regarding insurance coverage involving Old Republic Insurance Corporation, Bank of America, N.A.
and The Bank of New York Mellon.

For 2016, losses and LAE primarily related to increases in actual and expected payments on certain Puerto Rico
exposures and insured first and second-lien RMBS transactions and decreases in projected collections from
excess spread within insured second-lien RMBS transactions. These were partially offset by increases in
recoveries of actual and expected payments on certain Puerto Rico exposures and decreases in actual and
expected payments on CDOs.

For 2015, losses and LAE primarily related to increases in expected payments on CDOs and insured first-lien
RMBS transactions and decreases in projected collections from excess spread within insured second-lien RMBS
securitizations. These were partially offset by increases in recoveries of expected payments related to CDOs and
increases in projected collections from excess spread within insured second-lien RMBS securitizations due to an
anticipated sale of loans within certain securitizations that had been previously charged off by the servicer.

Costs associated with remediating insured obligations assigned to the Company’s surveillance categories are
recorded as LAE and included in “Losses and loss adjustment” expenses on the Company’s consolidated
statements of operations. For 2017, 2016 and 2015, gross LAE related to remediating insured obligations were
$42 million, $48 million and $26 million, respectively.

102

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 6: Loss and Loss Adjustment Expense Reserves (continued)

Surveillance Categories

The following table provides information about the financial guarantees and related claim liability included in each
of MBIA’s surveillance categories as of December 31, 2017:

Surveillance Categories

$ in millions

Number of policies
Number of issues(1)
Remaining weighted average contract period (in years)
Gross insured contractual payments outstanding: (2)

Principal
Interest

Total

Gross Claim Liability(3)
Less:

Gross Potential Recoveries(4)
Discount, net(5)

Net claim liability (recoverable)

Unearned premium revenue

Caution Caution Caution
List
Medium

List
High

List
Low

Classified
List

Total

89
20
7.4

5
4
4.3

1
1
8.7

280
119
9.7

375
144
8.9

$2,764 $
2,676

13 $ 104 $ 6,083 $ 8,964
8,481

5,756

$5,440 $

16 $ 150 $ 11,839 $17,445

$ — $ — $ — $ 1,082 $ 1,082

—
—

782
(178)

$ — $ — $ — $

478 $

478

9 $ — $

4 $

77 $

(1)—An “issue” represents the aggregate of financial guarantee policies that share the same revenue source for purposes of making debt
service payments on the insured debt.
(2)—Represents contractual principal and interest payments due by the issuer of the obligations insured by MBIA.
(3)—The gross claim liability with respect to Puerto Rico exposures are net of expected recoveries for policies in a net payable position.
(4)—Gross potential recoveries with respect to certain Puerto Rico exposures are net of the claim liability for policies in a net recoverable
position.
(5)—Represents discount related to Gross Claim Liability and Gross Potential Recoveries.

103

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 6: Loss and Loss Adjustment Expense Reserves (continued)

The following table provides information about the financial guarantees and related claim liability included in each
of MBIA’s surveillance categories as of December 31, 2016:

$ in millions

Number of policies
Number of issues(1)
Remaining weighted average contract period (in years)
Gross insured contractual payments outstanding:(2)

Principal
Interest

Total

Gross Claim Liability(3)
Less:

Gross Potential Recoveries(4)
Discount, net(5)

Net claim liability (recoverable)

Unearned premium revenue

Surveillance Categories

Caution
List
Low

Caution Caution

List
Medium

List
High

Classified
List

Total

90
17
7.5

6
4
3.4

3
2
7.2

331
126
7.0

430
149
7.1

$2,917 $
2,795

17 $ 320 $ 7,031 $10,285
5,683

2,777

107

$5,712 $

21 $ 427 $ 9,808 $15,968

$ — $ — $ — $

718 $

718

—
—

770
(75)

$ — $ — $ — $

9 $ — $

8 $

23 $

68 $

770
(75)

(1)—An “issue” represents the aggregate of financial guarantee policies that share the same revenue source for purposes of making debt
service payments on the insured debt.
(2)—Represents contractual principal and interest payments due by the issuer of the obligations insured by MBIA.
(3)—The gross claim liability with respect to Puerto Rico and Zohar II exposures are net of expected recoveries for policies in a net payable
position.
(4)—Gross potential recoveries with respect to certain Puerto Rico exposures are net of the claim liability for policies in a net recoverable
position.
(5)—Represents discount related to Gross Claim Liability and Gross Potential Recoveries.

As of December 31, 2017, the gross claim liability primarily related to insured first-lien RMBS transactions as well
as certain Puerto Rico exposures. As of December 31, 2016, the gross claim liability primarily related to insured
first-lien RMBS transactions. As of December 31, 2017 and 2016, the gross potential recoveries principally related
to certain Puerto Rico exposures and insured second-lien RMBS transactions. As of December 31, 2017, these
potential recoveries exclude the recoveries of Zohar I and Zohar II that are included in “Loans receivable at fair
value” which are presented in “Assets of consolidated variable interest entities” on the Company’s consolidated
balance sheets.

The Company’s recoveries have been, and remain based on either salvage rights, the rights conferred to MBIA
through the transactional documents (inclusive of the insurance agreement), or subrogation rights embedded
within financial guarantee insurance policies. Expected salvage and subrogation recoveries, as well as recoveries
from other remediation efforts, reduce the Company’s claim liability. Once a claim payment has been made, the
claim liability has been satisfied and MBIA’s right to recovery is no longer considered an offset to future expected
claim payments, it is recorded as a salvage asset. The amount of recoveries recorded by the Company is limited
to paid claims plus the present value of projected estimated future claim payments. As claim payments are made,
the recorded amount of potential recoveries may exceed the remaining amount of the claim liability for a given
policy. The gross claim liability and gross potential recoveries reflect the elimination of claim liabilities and
potential recoveries related to VIEs consolidated by the Company. As of December 31, 2017 and 2016,
reinsurance recoverable on paid and unpaid losses was $17 million and $6 million, respectively, and was included
in “Other assets” on the Company’s consolidated balance sheets.

104

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 7: Fair Value of Financial Instruments

Fair Value Measurement

Financial Assets

Financial assets held by the Company primarily consist of investments in debt securities. Substantially all of the
Company’s investments are priced by independent third parties, including pricing services and brokers. Typically,
the Company receives one pricing service value or broker quote for each instrument, which represents a
non-binding indication of value. The Company, along with its third-party portfolio manager, reviews the
assumptions, inputs and methodologies used by pricing services and brokers to obtain reasonable assurance that
the prices used in its valuations reflect fair value. When the Company and its third-party portfolio manager believe
a third-party quotation differs significantly from its internally developed expectation of fair value, whether higher or
lower, the Company reviews its data or assumptions with the provider. This review includes comparing significant
assumptions such as prepayment speeds, default ratios, forward yield curves, credit spreads and other significant
quantitative inputs to internal assumptions, and working with the price provider to reconcile the differences. The
price provider may subsequently provide an updated price. In the event that the price provider does not update its
price, and the Company still does not agree with the price provided, its third-party portfolio manager will obtain a
price from another third-party provider or use an internally developed price which it believes represents the fair
value of the investment. The fair values of investments for which internal prices were used were not significant to
the aggregate fair value of the Company’s investment portfolio as of December 31, 2017 or 2016. All challenges
to third-party prices are reviewed by staff of the Company as well as its third-party portfolio manager with relevant
expertise to ensure reasonableness of assumptions. A pricing analysis is reviewed and approved by the
Company’s valuation committee.

Financial Liabilities (excluding derivative liabilities)

Financial liabilities, excluding derivative liabilities, issued by the Company primarily consist of debt issued for
general corporate purposes within its corporate segment, MTNs, investment agreements, debt issued by
consolidated VIEs and warrants. The majority of the financial liabilities that the Company has elected to fair value
or that require fair value reporting or disclosures are valued based on the estimated value of the underlying
collateral, the Company’s or a third-party’s estimate of discounted cash flow model estimates, or quoted market
values for similar products. These valuations include adjustments for expected nonperformance risk of the
Company.

Derivative Liabilities

The Company’s derivative liabilities are primarily interest rate swaps and an insured credit derivative. The
Company’s insured credit derivative contract is a non-traded structured credit derivative transaction and since
they are highly customized and there is generally no observable market for this derivative. The Company
estimates its fair value in a hypothetical market based on an internal model that incorporates market or estimated
prices of similar securities that are obtained for all collateral within a transaction, the present value of the market-
implied potential loss and nonperformance risk. The Company reviews its valuation model results on a quarterly
basis to assess the appropriateness of the assumptions and results in light of current market activity and
conditions. This review is performed by internal staff with relevant expertise.

Internal Review Process

All significant financial assets and liabilities are reviewed by the valuation committee to ensure compliance with
the Company’s policies and risk procedures in the development of fair values of financial assets and liabilities.
The valuation committee reviews, among other things, key assumptions used for internally developed prices,
significant changes in sources and uses of inputs, including changes in model approaches, and any adjustments
from third-party inputs or prices to internally developed inputs or prices. The committee also reviews any
significant impairment or improvements in fair values of the financial instruments from prior periods. The
committee is comprised of senior finance team members with relevant experience in the financial instruments
their committee is responsible for. The committee documents its agreement with the fair value measurements
reported in the Company’s consolidated financial statements.

105

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 7: Fair Value of Financial Instruments (continued)

Valuation Techniques

Valuation techniques for financial instruments measured at fair value or disclosed at fair value are described
below.

Fixed-Maturity Securities (including short-term investments) Held as Available-For-Sale, Investments Carried at
Fair Value, Investments Pledged as Collateral, Investments Held-to-Maturity, and Other Investments

These investments include investments in U.S. Treasury and government agencies, state and municipal bonds,
foreign governments, corporate obligations, MBS, asset-backed securities (“ABS”), money market securities, and
perpetual debt and equity securities.

These investments are generally valued based on recently executed transaction prices or quoted market prices.
When quoted market prices are not available, fair value is generally determined using quoted prices of similar
investments or a valuation model based on observable and unobservable inputs. Inputs vary depending on the
type of investment. Observable inputs include contractual cash flows, interest rate yield curves, CDS spreads,
prepayment and volatility scores, diversity scores, cross-currency basis index spreads, and credit spreads for
structures similar to the financial instrument in terms of issuer, maturity and seniority. Unobservable inputs include
cash flow projections and the value of any credit enhancement.

The investment in the fixed-income fund was measured at fair value by applying the net asset value per share
practical expedient. The investment in the fixed-income fund may be redeemed on a quarterly basis with prior
redemption notification of ninety days subject to withdrawal limitations. The investment is required to be held for a
minimum of twelve months, and any subsequent quarterly redemption is limited to 25% of the investment or a
complete redemption over four consecutive quarters in the amounts of 25%, 33%, 50%, and 100% of the
remaining investment balance as of the first, second, third and fourth consecutive quarters, respectively.

The fair value of the held-to-maturity (“HTM”) investments is determined using discounted cash flow models. Key
inputs include unobservable cash flows projected over the expected term of the investment discounted using
observable interest rate yield curves of similar securities.

Investments based on quoted market prices of identical investments in active markets are classified as Level 1 of
the fair value hierarchy. Level 1 investments generally consist of U.S. Treasury and government agency, foreign
government, money market securities and perpetual debt and equity securities. Quoted market prices of
investments in less active markets, as well as investments which are valued based on other than quoted prices
for which the inputs are observable, such as interest rate yield curves, are categorized in Level 2 of the fair value
hierarchy. Investments that contain significant inputs that are not observable are categorized as Level 3.

Cash and Cash Equivalents

The carrying amounts of cash and cash equivalents approximate fair value due to the short-term nature and credit
worthiness of these instruments and are categorized in Level 1 of the fair value hierarchy.

Loans Receivable at Fair Value

Loans receivable at fair value are comprised of loans held by consolidated VIEs consisting of residential mortgage
and corporate loans. Fair values of residential mortgage loans are determined using quoted prices for MBS
issued by the respective VIE and adjusted for the fair values of the financial guarantees provided by MBIA Corp.
on the related MBS. The fair values of the financial guarantees consider expected claim payments, net of
recoveries, under MBIA Corp.’s policies. Fair values of corporate loans, which are to privately held companies,
are based on methodologies that generally use comparable EBITDA multiples and the most current available
EBITDAs. Loans receivable at fair value are categorized in Level 3 of the fair value hierarchy.

106

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 7: Fair Value of Financial Instruments (continued)

Loan Repurchase Commitments

Loan repurchase commitments are obligations owed by the sellers/servicers of mortgage loans to MBIA as
reimbursement of paid claims. Loan repurchase commitments are assets of the consolidated VIEs. This asset
represents the rights of MBIA against the sellers/servicers for breaches of representations and warranties that the
securitized residential mortgage loans sold to the trust to comply with stated underwriting guidelines and for the
sellers/servicers to cure, replace, or repurchase mortgage loans. Fair value measurements of loan repurchase
commitments represent the amounts owed by the sellers/servicers to MBIA as reimbursement of paid claims.
Loan repurchase commitments are not securities and no quoted prices or comparable market transaction
information are observable or available. Fair values of loan repurchase commitments are determined using
discounted cash flow techniques and are categorized in Level 3 of the fair value hierarchy.

Other Assets

VIEs consolidated by the Company have entered into derivative instruments consisting of cross currency swaps.
Cross currency swaps are entered into to manage the variability in cash flows resulting from fluctuations in foreign
currency rates. The fair value of VIE derivatives is determined based on inputs from unobservable cash flows
projection of the derivative, discounted using observable discount rates. As the significant inputs are
unobservable, the derivative contract is categorized in Level 3 of the fair value hierarchy.

Other assets also include receivables representing the right to receive reimbursement payments on claim
payments expected to be made on certain insured VIE liabilities due to risk mitigating transactions with third
parties executed to effectively defease, or, in-substance commute the Company’s exposure on its financial
guarantee policies. The right to receive reimbursement payments is based on the value of the Company’s
financial guarantee determined using the cash flow model. The fair value of the financial guarantee primarily
contains unobservable inputs and is categorized in Level 3 of the fair value hierarchy.

Long-term Debt

The fair value of long-term notes, debentures and surplus notes are estimated based on quoted prices for these
or similar securities.

The fair value of the accrued interest expense on the surplus notes due in 2033 is determined based on the
carrying amount of the accrued interest expense, adjusted for the credit risk of the Company. The carrying
amounts of accrued interest expense on all other long-term debt approximate fair value due to the short-term
nature of the interest payment. Long-term debt is categorized in Level 2 of the fair value hierarchy.

Medium-term Notes

The fair values of certain MTNs are based on quoted market prices provided by third-party sources, where
available. When quoted market prices are not available, the Company applies a matrix pricing grid to determine
fair value based on the quoted market prices received for similar instruments and considering the MTNs’ stated
maturity and interest rate. Nonperformance risk is included in the quoted market prices and the matrix pricing grid.
The Company has elected to measure certain MTNs at fair value on a recurring basis with changes in fair value
reflected in earnings. MTNs are categorized in Level 3 of the fair value hierarchy.

Investment Agreements

The fair values of investment agreements are determined using discounted cash flow techniques based on
contractual cash flows and observable interest rates currently being offered for similar agreements with
comparable maturity dates. Investment agreements contain collateralization and termination agreements that
substantially mitigate the nonperformance risk of the Company. As the terms of the notes are private, and the
timing and amount of contractual cash flows are not observable, these investment agreements are categorized in
Level 3 of the fair value hierarchy.

107

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 7: Fair Value of Financial Instruments (continued)

Variable Interest Entity Notes

The fair values of VIE notes are determined based on recently executed transaction prices or quoted prices where
observable. When position-specific quoted prices are not observable, fair values are based on quoted prices of
similar securities. Fair values based on quoted prices of similar securities may be adjusted for factors unique to
the securities, including any credit enhancement. When observable quoted prices are not available, fair value is
determined based on discounted cash flow techniques of the underlying collateral using observable and
unobservable inputs. Observable inputs include interest rate yield curves and bond spreads of similar securities.
Unobservable inputs include the value of any credit enhancement. VIE notes are categorized in Level 2 or Level 3
of the fair value hierarchy based on the lowest level input that is significant to the fair value measurement in its
entirety.

Derivatives

The corporate segment has entered into derivative transactions primarily consisting of interest rate swaps. Fair
values of over-the-counter derivatives are determined using valuation models based on observable inputs,
nonperformance risk of the Company and nonperformance risk of the counterparties. Observable and market-
based inputs include interest rate yields, credit spreads and volatilities. These derivatives are categorized in
Level 2 or Level 3 of the fair value hierarchy based on the lowest level input that is significant to the fair value
measurement in its entirety.

Derivatives—Insurance

The derivative contracts insured by the Company cannot be legally traded and generally do not have observable
market prices. The Company determines the fair values of insured credit derivatives using valuation models
based on observable inputs and considering nonperformance risk of the Company. Negotiated settlements are
also considered to validate the valuation models and to reflect assumptions the Company believes market
participants would use.

Valuation Model Overview

For the year ended December 31, 2017, the Company used an internally developed Direct Price Model to value
its insured credit derivative that incorporates market prices or estimated prices of similar securities that are
obtained for all collateral within a transaction, the present value of the market-implied potential losses, and
nonperformance risk. The valuation of the insured credit derivative includes the impact of its credit standing. The
insured credit derivative is categorized in Level 3 of the fair value hierarchy based on unobservable inputs that are
significant to the fair value measurement in its entirety.

Prior to 2017, the Company used the Binomial Expansion Technique (“BET”) Model and the Direct Price Model to
value insured CDS contracts. The BET Model estimates what a bond insurer would charge to guarantee a
transaction at the measurement date, based on the market-implied default risk of the underlying collateral and the
remaining structural protection in a deductible or subordination. Inputs to the process of determining fair value for
structured transactions using the BET Model include estimates of collateral loss, allocation of loss to separate
tranches of the capital structure, credit spreads, recovery rates and nonperformance risk and weighted average
life.

The Company also has other derivative liabilities as a result of a commutation occurring in 2014. The fair value of
the derivative is determined using a discounted cash flow model. Key inputs include unobservable cash flows
projected over the expected term of the derivative. As the significant inputs are unobservable, the derivative
contract is categorized in Level 3 of the fair value hierarchy.

108

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 7: Fair Value of Financial Instruments (continued)

Other Liabilities

Stock warrants issued by the Company are valued using the Black-Scholes model and are recorded at fair value.
Inputs into the warrant valuation include the Company’s stock price, the strike price of the warrant, time to
expiration, a volatility parameter, interest rates, and dividend data. As all significant inputs are market-based and
observable, warrants are categorized in Level 2 of the fair value hierarchy.

Other payable relates to certain contingent consideration. The fair value of the liability is based on the cash flow
methodologies using observable and unobservable inputs. Unobservable inputs include invested asset balances
and asset management fees that are significant to the fair value estimate and the liability is categorized in Level 3
of the fair value hierarchy.

Held For Sale

As of December 31, 2016, the Company estimated the fair value of the assets and liabilities of MBIA UK held for
sale based on the fair value of the expected total consideration for the sale of MBIA UK. The fair value of the sale
consideration is categorized in Level 2 of the fair value hierarchy. Refer to “Note 1: Business Developments and
Risks and Uncertainties” for additional information about the sale of MBIA UK.

Financial Guarantees

Gross Financial Guarantees—The fair value of gross financial guarantees is determined using discounted cash
flow techniques based on inputs that include (i) assumptions of expected losses on financial guarantee policies
where loss reserves have not been recognized, (ii) amount of losses expected on financial guarantee policies
where loss reserves have been established, net of expected recoveries, (iii) the cost of capital reserves required
to support the financial guarantee liability, (iv) operating expenses, and (v) discount rates which reflect the
expected nonperformance risk and recovery rates of the Company.

The carrying value of the Company’s gross financial guarantees consists of unearned premium revenue and loss
and LAE reserves, net of the insurance loss recoverable as reported on the Company’s consolidated balance
sheets.

Ceded Financial Guarantees—The fair value of ceded financial guarantees is determined by applying the
percentage ceded to reinsurers to the related fair value of the gross financial guarantees. The carrying value of
ceded financial guarantees consists of prepaid reinsurance premiums and reinsurance recoverable on paid and
unpaid losses as reported within “Other assets”, net of gross salvage payable to reinsurers as reported within
“Other liabilities” on the Company’s consolidated balance sheets.

109

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 7: Fair Value of Financial Instruments (continued)

Significant Unobservable Inputs

The following tables provide quantitative information regarding the significant unobservable inputs used by the
Company for assets and liabilities measured at fair value on a recurring basis as of December 31, 2017 and 2016.

In millions

Fair Value as
of
December 31,
2017

Valuation Techniques

Unobservable Input

Range (Weighted
Average)

Assets of consolidated VIEs:
Loans receivable at fair

value

Loan repurchase
commitments

Liabilities of consolidated

VIEs:
Variable interest entity

notes

Credit derivative liabilities,

net:
CMBS

Other derivative liabilities

1,679 Market prices adjusted
for financial guarantees
provided to VIE
obligations
Multiples of EBITDA

407 Discounted cash flow

Impact of financial
guarantee(1)

-25%—35% (-2%)

Multiples(2)

Recovery rates(3)
Breach rates(3)

406 Market prices of VIE

assets adjusted for
financial guarantees
provided

Impact of financial
guarantee

0%—60% (36%)

63 Direct Price Model

4 Discounted cash flow

Nonperformance risk
Cash flows

54%—54% (54%)
$0—$49 ($25)(4)

(1)—Negative percentage represents financial guarantee policies in a receivable position.
(2)—Unobservable inputs are primarily based on comparable companies’ EBITDA multiples.
(3)—Recovery rates and breach rates include estimates about potential variations in the outcome of litigation with a counterparty.
(4)—Midpoint of cash flows are used for the weighted average.

110

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 7: Fair Value of Financial Instruments (continued)

In millions

Assets of consolidated VIEs:
Loans receivable at fair

value

Loan repurchase
commitments

Liabilities of consolidated

VIEs:
Variable interest entity notes

Fair Value as
of
December 31,
2016

Valuation Techniques

Unobservable Input

Range (Weighted
Average)

916 Market prices adjusted

for financial
guarantees provided to
VIE obligations
Multiples of EBITDA

404 Discounted cash flow

Impact of financial
guarantee

0%—28%(3%)

Multiples(1)

Recovery rates(2)
Breach rates(2)

476 Market prices of VIE

assets
adjusted for financial
guarantees provided

Impact of financial
guarantee

0%—54%(24%)

Credit derivative liabilities, net:

CMBS

62 BET Model

Multi-sector CDO

Other derivative liabilities

2 Direct Price Model
20 Discounted cash flow

Recovery rates
Nonperformance risk
Weighted average life
(in years)
CMBS spreads
Nonperformance risk
Cash flows

25%—40%(33%)
10%—32%(32%)
1.1—1.5 (1.3)

25%—35%(30%)
58%—58%(58%)
$0—$83 ($42)(3)

(1)—Unobservable inputs are primarily based on comparable companies’ EBITDA multiples.
(2)—Recovery rates and breach rates include estimates about potential variations in the outcome of litigation with a counterparty.
(3)—Midpoint of cash flows are used for the weighted average.

Sensitivity of Significant Unobservable Inputs

The significant unobservable inputs used in the fair value measurement of the Company’s loans receivable at fair
value of consolidated VIEs are the impact of the financial guarantee and multiples. The fair value of loans
receivable are calculated by subtracting the value of the financial guarantee from the market value of VIE
liabilities and methodologies using multiples of EBITDA. The value of a financial guarantee is estimated by the
Company as the present value of expected cash payments, net of recoveries, under the policy. As the value of
the financial guarantee provided by the Company under the insurance policy increases, there is a lower expected
cash flow on the underlying loans receivable of the VIE. This results in a lower fair value of the loans receivable in
relation to the obligations of the VIE. Multiples are external factors that are considered when determining the fair
values of corporate loans. These loans are to privately held companies for which MBIA has limited information.
Therefore, the Company uses multiples of EBITDA of comparable companies and any increase or decrease in
these multiples would result in an increase or decrease in the fair values of the loans, respectively.

111

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 7: Fair Value of Financial Instruments (continued)

The significant unobservable inputs used in the fair value measurement of the Company’s loan repurchase
commitments of consolidated VIEs are the recovery rates and breach rates. Recovery rates reflect the estimates
of future cash flows reduced for litigation delays and risks and/or potential financial distress of the sellers/
servicers. The estimated recoveries of the loan repurchase commitments may differ from the actual recoveries
that may be received in the future. Breach rates represent the rate at which mortgages fail to comply with stated
representations and warranties of the sellers/servicers. Significant increases or decreases in the recovery rates
and the breach rates would result in significantly higher or lower fair values of the loan repurchase commitments,
respectively. Additionally, changes in the legal environment and the ability of the counterparties to pay would
impact the recovery rate assumptions, which could significantly impact the fair value measurement. Any
significant challenges by the counterparties to the Company’s determination of breaches of representations and
warranties could have a material adverse impact on the fair value measurement. Recovery rates and breach rates
are determined independently. Changes in one input will not necessarily have any impact on the other input.

The significant unobservable input used in the fair value measurement of the Company’s VIE notes of
consolidated VIEs is the impact of the financial guarantee. The fair value of VIE notes is calculated by adding the
value of the financial guarantee to the market value of VIE assets. The value of a financial guarantee is estimated
by the Company as the present value of expected cash payments under the policy. As the value of the guarantee
provided by the Company to the obligations issued by the VIE increases, the credit support adds value to the
liabilities of the VIE. This results in an increase in the fair value of the liabilities of the VIE.

Effective in 2017, the Company changed its technique on valuing its commercial mortgage-backed securities
(“CMBS”) credit derivative to the Direct Price Model from the BET Model. The significant unobservable input used
in the fair value measurement was nonperformance risk. The nonperformance risk is an assumption of MBIA
Corp.’s own ability to pay and whether MBIA Corp. will have the necessary resources to pay the obligations as
they come due. Any significant increase or decrease in MBIA Corp.’s nonperformance risk would result in a
decrease or increase in the fair value of the derivative liabilities, respectively. Prior to 2017, the Company used
the BET Model to value its CMBS credit derivatives. The significant unobservable inputs used in the fair value
measurement of its CMBS credit derivatives were CMBS spreads, recovery rates, nonperformance risk and
weighted average life. The CMBS spread is an indicator of credit risk of the collateral securities. The recovery rate
represents the percentage of notional expected to be recovered after an asset defaults, indicating the severity of a
potential loss. The nonperformance risk is an assumption of MBIA Corp.’s own ability to pay and whether MBIA
Corp. will have the necessary resources to pay the obligations as they come due. Weighted average life is based
on the Company’s estimate of when the principal of the underlying collateral of the CMBS structure will be repaid.
A significant increase or decrease in CMBS spreads would result in an increase or decrease in the fair value of
the derivative liability, respectively. A significant increase in weighted average life can result in an increase or
decrease in the fair value of the derivative liability, depending on the discount rate and the timing of significant
losses. Any significant increase or decrease in recovery rates, or MBIA Corp.’s nonperformance risk would result
in a decrease or increase in the fair value of the derivative liabilities, respectively. CMBS spreads, recovery rates,
nonperformance risk and weighted average lives are determined independently. Changes in one input will not
necessarily have any impact on the other inputs.

The significant unobservable input used in the fair value measurement of MBIA Corp.’s other derivatives, which
are valued using a discounted cash flow model, is the estimates of future cash flows discounted using market
rates and CDS spreads. Any significant increase or decrease in future cash flows would result in an increase or
decrease in the fair value of the derivative liability, respectively.

112

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 7: Fair Value of Financial Instruments (continued)

Fair Value Measurements

The following tables present the fair value of the Company’s assets (including short-term investments) and
liabilities measured and reported at fair value on a recurring basis as of December 31, 2017 and 2016:

Fair Value Measurements at Reporting Date Using

Quoted Prices in
Active Markets
for Identical
Assets (Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Counterparty
and Cash
Collateral
Netting

Balance as of
December 31,
2017

In millions

Assets:
Fixed-maturity investments:

U.S. Treasury and government agency $
State and municipal bonds
Foreign governments
Corporate obligations
Mortgage-backed securities:

Residential mortgage-backed

1,256 $
—
—
—

—
—
—
2(1)

—

—
7(1)

—
5(1)

14
—
—
—
—

—

— $
—
—
—

1,352
858
10
1,340

—

—
—

—
—
—
—
—

—

368

32
67

118
183

4,328
180
63
82(2)

122

agency

Residential mortgage-backed

non-agency

Commercial mortgage-backed

Asset-backed securities:

Collateralized debt obligations
Other asset-backed

Total fixed-maturity investments

Money market securities
Perpetual debt and equity securities
Fixed-income fund
Cash and cash equivalents
Derivative assets:

Non-insured derivative assets:

Interest rate derivatives

96 $

858
10
1,338

368

32
60

118
178

3,058
—
37
—
—

—

—
—

1,256
180
26
—
122

—

113

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 7: Fair Value of Financial Instruments (continued)

In millions

Assets of consolidated VIEs:

Corporate obligations
Mortgage-backed securities:

Residential mortgage-backed

non-agency

Commercial mortgage-backed

Asset-backed securities:

Collateralized debt obligations
Other asset-backed

Cash
Loans receivable at fair value:
Residential loans receivable
Corporate loans receivable
Loan repurchase commitments
Other assets:

Currency derivatives
Other

Total assets

Liabilities:
Medium-term notes
Derivative liabilities:

Insured derivatives:
Credit derivatives

Non-insured derivatives:

Interest rate derivatives
Other
Other liabilities:
Warrants
Other payable

Liabilities of consolidated VIEs:
Variable interest entity notes

Fair Value Measurements at Reporting Date Using

Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Counterparty
and Cash
Collateral
Netting

Balance as of
December 31,
2017

—

—
—

—
—
24

—
—
—

—
—

108
30

8
10
—

—
—
—

—
—

—

—
6(1)

1(1)
—
—

759
920
407

19(1)
14(1)

—

—
—

—
—
—

—
—

108
36

9
10
24

759
920
407

19
14

1,608 $

3,272 $

2,140

— $

115(1)

— $

7,102

— $

115

—

—
—

—

193
—

6
—

663

—
4

—
7(1)

406

595

—

—
—

—

— $

193
4

6
7

1,069

1,459

Total liabilities

— $

864 $

(1)—Unobservable inputs are either not developed by the Company or do not significantly impact the overall fair values of the aggregate
financial assets and liabilities.
(2)—Investment that was measured at fair value by applying the net asset value per share practical expedient, and was required not to be
classified in the fair value hierarchy.

114

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 7: Fair Value of Financial Instruments (continued)

Fair Value Measurements at Reporting Date Using

Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Counterparty
and Cash
Collateral
Netting

Balance as of
December 31,
2016

In millions

Assets:
Fixed-maturity investments:

U.S. Treasury and government agency
State and municipal bonds
Foreign governments
Corporate obligations
Mortgage-backed securities:

Residential mortgage-backed agency
Residential mortgage-backed

non-agency

Commercial mortgage-backed

Asset-backed securities:

Collateralized debt obligations
Other asset-backed

Total fixed-maturity investments

Money market securities
Perpetual debt and equity securities
Fixed-income fund
Cash and cash equivalents
Derivative assets:

Non-insured derivative assets:

Interest rate derivatives

825 $
—
—
—

112 $

1,440
9
1,332

— $
—
—
2(1)

— $
—
—
—

937
1,440
9
1,334

—

—
—

825
521
26
—
163

868

45
43

7
257

4,113
—
9
—
—

—

—
—

15(1)
44(1)

61
—
—
—
—

—

—
—

—
—
—
—
—

—

868

45
43

22
301

4,999
521
35
75(2)

163

115

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 7: Fair Value of Financial Instruments (continued)

In millions

Assets of consolidated VIEs:

Corporate obligations
Mortgage-backed securities:

Residential mortgage-backed

non-agency

Commercial mortgage-backed

Asset-backed securities:

Collateralized debt obligations
Other asset-backed

Cash
Loans receivable at fair value:
Residential loans receivable
Corporate loans receivable
Loan repurchase commitments
Derivative assets:

Currency derivatives

Total assets

Liabilities:
Medium-term notes
Derivative liabilities:

Insured derivatives:
Credit derivatives

Non-insured derivatives:

Interest rate derivatives
Other
Other liabilities:
Warrants

Liabilities of consolidated VIEs:
Variable interest entity notes

Fair Value Measurements at Reporting Date Using

Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Counterparty
and Cash
Collateral
Netting

Balance as of
December 31,
2016

—

—
—

—
—
24

—
—
—

—

149
52

7
18
—

—
—
—

—

—
—

1(1)
1(1)
—

916
150(1)
404

19(1)

—

—
—

—
—
—

—

149
52

8
19
24

916
150
404

1,559 $

4,378 $

1,552

— $

101(1)

— $

7,564

— $

101

—

—
—

—

213
—

875

—
20

—

476

661

—

—
—

—

— $

213
20

1,351

1,784

Total liabilities

— $

1,123 $

116

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 7: Fair Value of Financial Instruments (continued)

Level 3 assets at fair value as of December 31, 2017 and 2016 represented approximately 30% and 21%,
respectively, of total assets measured at fair value. Level 3 liabilities at fair value as of December 31, 2017 and
2016 represented approximately 41% and 37%, respectively, of total liabilities measured at fair value.

The following tables present the fair values and carrying values of the Company’s assets and liabilities that are
disclosed at fair value but not reported at fair value on the Company’s consolidated balance sheets as of
December 31, 2017 and 2016:

In millions

Assets:

Other investments

Assets of consolidated VIEs:

Investments held-to-maturity

Total assets

Liabilities:

Long-term debt
Medium-term notes
Investment agreements

Liabilities of consolidated VIEs:
Variable interest entity notes

Total liabilities

Financial Guarantees:

Gross
Ceded

In millions

Assets:

Other investments
Assets held for sale

Assets of consolidated VIEs:

Investments held-to-maturity

Total assets

Liabilities:

Long-term debt
Medium-term notes
Investment agreements

Liabilities of consolidated VIEs:
Variable interest entity notes

Total liabilities

Financial Guarantees:

Gross
Ceded

Fair Value Measurements at Reporting Date Using

Quoted Prices in
Active Markets for
Identical Assets
(Level 1)

Significant
Other Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Fair Value
Balance as of
December 31,
2017

Carry Value
Balance as of
December 31,
2017

— $

—

— $

— $
—
—

—

— $

— $
—

2 $

— $

2 $

—

916

2 $

916 $

918 $

1,002 $
—
—

352

— $

406
433

916

1,002 $
406
433

1,268

1,354 $

1,755 $

3,109 $

890

892

2,121
650
337

1,220

4,328

— $
—

1,785 $
61

1,220
39

Fair Value Measurements at Reporting Date Using

Quoted Prices in
Active Markets for
Identical Assets
(Level 1)

Significant
Other Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Fair Value
Balance as of
December 31,
2016

Carry Value
Balance as of
December 31,
2016

2 $

306

—

— $
—

876

2 $

306

876

3
306

890

308 $

876 $

1,184 $

1,199

1,030 $
—
—

—

— $

478
508

882

1,030 $
478
508

882

1,986
794
399

890

1,030 $

1,868 $

2,898 $

4,069

— $
—

2,638 $
18

995
43

— $
—

—

— $

— $
—
—

—

— $

— $
—

117

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 7: Fair Value of Financial Instruments (continued)

The following tables present information about changes in Level 3 assets (including short-term investments) and
liabilities measured at fair value on a recurring basis for the years ended December 31, 2017 and 2016:

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Year Ended
December 31, 2017

Balance,
Beginning
of Year

Realized
Gains /
(Losses)

Unrealized
Gains /
(Losses)
Included
in
Earnings

Unrealized
Gains /
(Losses)
Included
in OCI

Foreign
Exchange
Recognized
in OCI or
Earnings Purchases Issuances Settlements Sales

Transfers
into
Level 3(1)

Transfers
out of
Level 3(1)

Ending
Balance

Change in
Unrealized
Gains
(Losses) for
the Period
Included in
Earnings for
Assets still
held as of
December 31,
2017

2 $

— $

1 $

— $

— $ — $

— $

(1) $

2 $

—

15
44
—

—

1
1

916
150

404
19
—

—

—
—
—

—

—
—

—
—
—

—

—
—
—

—

—
—

79
89

3
2
(3)

—

—
2
—

—

—
—

—
—
—

—

—
—
—

—

—
—

—
(2)
—

—

—
—
—

—

—
—

—
719

—
—
17

—

—
—
—

—

—
—

—
—
—

— —

(7) —
(41) —
— —

(2) —

— (3)

— —
— —

(236) —
(38) —

— —
— —
— —

—
—
1

—
1

—
—

—
—
—

(7)

(8)
—
(1)

(4)

—

—
(2)

—
—

—
—
—

—
5
—

—

1
—

759
920

407
19
14

—

—
—
—

—

—
—

79
89

3
—
(3)

In millions

Assets:
Corporate obligations
Commercial mortgage-

backed

Collateralized debt

obligations

Other asset-backed
State and municipal bonds
Assets of consolidated

VIEs:

Corporate obligations
Commercial mortgage-

backed

Collateralized debt

obligations

Other asset-backed
Loans receivable-

residential

Loans receivable-corporate
Loan repurchase
commitments

Currency derivatives, net
Other

Total assets

1,552 $

— $

170 $

2 $

(2) $

737 $

— $

(324) $ (3) $

31 $

(23) $ 2,140 $

168

Balance,
Beginning
of Year

Realized
(Gains) /
Losses

Unrealized
(Gains) /
Losses
Included
in
Earnings

Unrealized
(Gains) /
Losses
Included
in OCI

Foreign
Exchange
Recognized
in OCI or
Earnings Purchases Issuances Settlements Sales

Transfers
into
Level 3(1)

Transfers
out of
Level 3(1)

Ending
Balance

Change in
Unrealized
(Gains)
Losses for
the Period
Included in
Earnings for
Liabilities
still held
as of
December 31,
2017

In millions

Liabilities:
Medium-term notes
Credit derivatives, net
Other derivatives, net
Other payable
Liabilities of consolidated

VIEs:
VIE notes

101 $
64
20
—

— $
51
—
—

476

—

Total liabilities

661 $

51 $

(1) $
(1)
18
—

53 $

— $
—
—
—

—

— $

15 $
—
—
—

—

15 $

— $
—
—
7

—

7 $

— $
—
—
—

—

— $

— $ — $

(51) —
(34) —
— —

(56)

(51)

(141) $(51) $

— $
—
—
—

—

— $

— $
—
—
—

115 $
63
4
7

—

406

— $

595 $

14
1
18
—

(1)—Transferred in and out at the end of the period.

118

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 7: Fair Value of Financial Instruments (continued)

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Year Ended
December 31, 2016

Balance,
Beginning
of Year

Realized
Gains /
(Losses)

Unrealized
Gains /
(Losses)
Included
in
Earnings

Unrealized
Gains /
(Losses)
Included
in OCI

Foreign
Exchange
Recognized
in OCI or
Earnings Purchases Issuances Settlements Sales

Transfers
into
Level 3(1)

Transfers
out of
Level 3(1)

Ending
Balance

Change in
Unrealized
Gains
(Losses) for
the Period
Included in
Earnings for
Assets
still held
as of
December 31,
2016

In millions

Assets:
Foreign governments
Corporate obligations
Commercial mortgage-

backed

Collateralized debt

obligations

Other asset-backed
State and municipal bonds
Assets of consolidated

VIEs:

Corporate obligations
Residential mortgage-
backed non-agency
Commercial mortgage-

backed

Collateralized debt

obligations

Other asset-backed
Loans receivable-

residential

Loans receivable-

corporate

Loan repurchase
commitments

Currency derivatives, net

2 $
7

— $
—

(1) $
—

10 $
—

— $
—

(10) $ — $

—

— $
2

(1) $ — $
(7)

—

29
38
41

—

1
6

1,185

107

396
11

—

—
(1)
—

—

—
—

—

—
—

—

—
(1)
—

(6)

(1)

(4)

—
(7)

(11)

8
2

—

18
14
—

—

—
—

—

—
—

—

—
—
—

—

—
—

—

—
6

—

—
—
122

—

—
—

—

146

—
—

—

—
—
—

—

—
—

—

—
—

— (1)

(32)
(3)
(39)

(2)

—

—
—

(258)

—
—
(1)

—

—
—

—

— (107)

—
—

—
—
2

—
5

—

—
—

—

—
(3)
(125)

(5)

—

—
(3)

—

—
—

—

15
44
—

—

1
1

916

150

404
19

Total assets

1,834 $

(1) $

(16) $

32 $

5 $

278 $

— $

(344) $(109) $

17 $

(144) $ 1,552 $

—
—

—

—
(1)
—

—

—
—

(11)

8
8

Balance,
Beginning
of Year

Realized
(Gains) /
Losses

Unrealized
(Gains) /
Losses
Included
in
Earnings

Unrealized
(Gains) /
Losses
Included
in OCI

Foreign
Exchange
Recognized
in OCI or
Earnings Purchases Issuances Settlements Sales

Transfers
into
Level 3(1)

Transfers
out of
Level 3(1)

Ending
Balance

Change in
Unrealized
(Gains)
Losses for
the Period
Included in
Earnings for
Liabilities
still held
as of
December 31,
2016

— $
—
—

—

— $

(1) $
—
—

—

(1) $

— $
—
—

9 $

— $
—
—

—

— $

(56) $ — $
(43)
—

—
—

(146)

(631)

(245) $(631) $

— $
—
—

—

— $

— $
—
—

101 $
64
20

—

476

— $

661 $

(4)
(13)
2

(23)

(38)

In millions

Liabilities:
Medium-term notes
Credit derivatives, net
Other derivatives, net
Liabilities of consolidated

VIEs:
VIE notes

161 $
85
18

— $
43
—

(3) $

(21)
2

1,267

—

(23)

Total liabilities

1,531 $

43 $

(45) $

(1)—Transferred in and out at the end of the period.

For the year ended December 31, 2017, transfers into Level 3 and out of Level 2 were principally related to CMBS
and corporate obligations, where inputs, which are significant to their valuation, became unobservable during the
period. CDOs, CMBS, corporate obligations and other asset-backed comprised the majority of the instruments
transferred out of Level 3 where inputs, which are significant to their valuation, became observable during the
period. These inputs included spreads, prepayment speeds, default speeds, default severities, yield curves
observable at commonly quoted intervals, and market corroborated inputs. There were no transfers into or out of
Level 1.

119

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 7: Fair Value of Financial Instruments (continued)

For the year ended December 31, 2016, transfers into Level 3 and out of Level 2 were principally related to other
asset-backed, CMBS, corporate obligations, state and municipal bonds, and RMBS, where inputs, which are
significant to their valuation, became unobservable during the period. State and municipal bonds, corporate
obligations and other asset-backed comprised the majority of the instruments transferred out of Level 3 where
inputs, which are significant to their valuation, became observable during the period. These inputs included
spreads, prepayment speeds, default speeds, default severities, yield curves observable at commonly quoted
intervals, and market corroborated inputs. There were no transfers into or out of Level 1.

All Level 1, 2 and 3 designations are made at the end of each accounting period.

Gains and losses (realized and unrealized) included in earnings relating to Level 3 assets and liabilities for the
years ended December 31, 2017, 2016 and 2015 are reported on the Company’s consolidated statements of
operations as follows:

In millions

Revenues:

Unrealized gains (losses) on insured derivatives
Realized gains (losses) and other settlements on insured

derivatives

Net gains (losses) on financial instruments at fair value

and foreign exchange

Net investment losses related to other-than-temporary

impairments

Revenues of consolidated VIEs:

Total Gains (Losses)
Included in Earnings

Change in Unrealized Gains (Losses)
for the Period Included in Earnings
for Assets and Liabilities still held as
of December 31,

2017

2016

2015

2017

2016

2015

$ 1 $ 21 $ 159 $

(1) $

13 $

145

(51)

(43)

(28)

(32)

— (1)

—

(32)

—

206

Net gains (losses) on financial instruments at fair value

and foreign exchange

131

Total

Fair Value Option

$ 49 $(8) $ 193 $

98 $

46 $

The Company elected to record at fair value certain financial instruments that have been consolidated in
connection with the adoption of the accounting guidance for consolidation of VIEs, among others.

The following table presents the changes in fair value included in the Company’s consolidated statements of
operations for the years ended December 31, 2017, 2016 and 2015 for financial instruments for which the fair
value option was elected:

In millions

Investments carried at fair value(1)
Fixed-maturity securities held at fair value-VIE(2)
Loans receivable at fair value:

Residential mortgage loans(2)
Other loans(2)

Loan repurchase commitments(2)
Other(2)
Medium-term notes(1)
Variable interest entity notes (2)

Years Ended December 31,

2017

2016

2015

8
(22)

7
(124)

$ (3)
(146)

(158)
52
3
(3)
(14)
230

(268)
—
8
—
4
383

(246)
—
17
—
36
381

(1)—Reported within “Net gains (losses) on financial instruments at fair value and foreign exchange” on MBIA’s consolidated
statements of operations.
(2)—Reported within “Net gains (losses) on financial instruments at fair value and foreign exchange-VIE” on MBIA’s
consolidated statements of operations.

120

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 7: Fair Value of Financial Instruments (continued)

The following table reflects the difference between the aggregate fair value and the aggregate remaining
contractual principal balance outstanding as of December 31, 2017 and 2016 for loans and notes for which the
fair value option was elected:

In millions

Loans receivable at fair value:
Residential mortgage loans
Residential mortgage loans (90 days or more

past due)

Corporate loans (90 days or more past due)

Total loans receivable at fair value
Variable interest entity notes
Medium-term notes

As of December 31, 2017

As of December 31, 2016

Contractual
Outstanding
Principal

Fair
Value

Difference

Contractual
Outstanding
Principal

Fair
Value

Difference

732 $ 727 $

5 $

965 $ 894 $

170
1,394

2,296
1,882
180

32
920

1,679
1,069
115

138
474

617
813
65

143
150

1,258
2,449
158

22
150

1,066
1,351
101

121
—

192
1,098
57

The difference between the contractual outstanding principal and the fair values on loans receivable, VIE notes
and MTNs, in the preceding table, are primarily attributable to credit risk. This is due to the high rate of defaults on
loans and the collateral supporting the VIE notes and the nonperformance risk of the Company on its MTNs,
which resulted in depressed pricing of the financial instruments.

121

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 8: Investments

Investments, excluding those elected under the fair value option, include debt and equity securities classified as
either AFS or HTM. Other AFS investments primarily comprise money market funds.

The following tables present the amortized cost, fair value, corresponding gross unrealized gains and losses and
OTTI for AFS and HTM investments in the Company’s consolidated investment portfolio as of December 31, 2017
and 2016:

In millions

AFS Investments
Fixed-maturity investments:

U.S. Treasury and government agency
State and municipal bonds
Foreign governments
Corporate obligations
Mortgage-backed securities:

Residential mortgage-backed agency
Residential mortgage-backed non-agency
Commercial mortgage-backed

Asset-backed securities:

Collateralized debt obligations
Other asset-backed

Total fixed-maturity investments

Money market securities
Perpetual debt and equity securities

Total AFS investments

HTM Investments
Assets of consolidated VIEs:

Corporate obligations

Total HTM investments

December 31, 2017

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

Other-Than-
Temporary
Impairments(1)

$ 1,317 $
840
10
1,332

34 $
29
—
25

(6) $1,345 $

(12)
—
(80)

857
10
1,277

365
35
66

116
175

4,256
179
3

1
1
—

—
—

90
—
1

(4)
(4)
—

—
—

362
32
66

116
175

(106)
—
—

4,240
179
4

$ 4,438 $

91 $

(106) $4,423 $

890 $

26 $

— $ 916 $

—
—
—
(72)

—
—
—

—
1

(71)
—
—

(71)

—

(1)—Represents unrealized gains or losses on OTTI securities recognized in AOCI, which includes the non-credit component of impairments,
as well as all subsequent changes in fair value of such impaired securities reported in AOCI.

122

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 8: Investments (continued)

In millions

AFS Investments
Fixed-maturity investments:

U.S. Treasury and government agency
State and municipal bonds
Foreign governments
Corporate obligations
Mortgage-backed securities:

Residential mortgage-backed agency
Residential mortgage-backed non-agency
Commercial mortgage-backed

Asset-backed securities:

Collateralized debt obligations
Other asset-backed

Total fixed-maturity investments

Money market securities
Perpetual debt and equity securities

Total AFS investments

HTM Investments
Assets of consolidated VIEs:

Corporate obligations

Total HTM investments

December 31, 2016

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

Other-Than-
Temporary
Impairments(1)

909 $

1,382
8
1,352

871
50
41

22
294

4,929
517
4

30 $
72
—
20

(10) $ 929 $
(15)
—
(102)

1,439
8
1,270

3
1
—

—
2

128
—
1

(12)
(6)
—

—
(3)

(148)
—
—

862
45
41

22
293

4,909
517
5

$ 5,450 $

129 $

(148) $5,431 $

890 $

— $

(14) $ 876 $

—
—
—
(73)

—
(3)
—

—
1

(75)
—
—

(75)

—

The following table presents the distribution by contractual maturity of AFS and HTM fixed-maturity securities at
amortized cost and fair value as of December 31, 2017. Contractual maturity may differ from expected maturity as
borrowers may have the right to call or prepay obligations.

In millions

Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Mortgage-backed and asset-backed

Total fixed-maturity investments

Deposited and Pledged Securities

AFS Securities

HTM Securities

Consolidated VIEs

Amortized
Cost

Fair Value

Amortized
Cost

Fair Value

674 $

1,157
601
1,067
757

1,159
540
1,116
751

— $
—
—
890
—

$ 4,256 $ 4,240 $

890 $

—
—
—
916
—

916

The fair value of securities on deposit with various regulatory authorities as of December 31, 2017 and 2016 was
$10 million and $11 million, respectively. These deposits are required to comply with state insurance laws.

Pursuant to the Company’s tax sharing agreement, securities held by MBIA Inc. in the Tax Escrow Account are
included as “Investments pledged as collateral, at fair value” on the Company’s consolidated balance sheets.

123

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 8: Investments (continued)

Investment agreement obligations require the Company to pledge securities as collateral. Securities pledged in
connection with investment agreements may not be repledged by the investment agreement counterparty. As of
December 31, 2017 and 2016, the fair value of securities pledged as collateral for these investment agreements
approximated $353 million and $416 million, respectively. The Company’s collateral as of December 31, 2017
consisted principally of U.S. Treasury and government agency and state and municipal bonds, and was primarily
held with major U.S. banks. Additionally, the Company pledged cash and money market securities as collateral
under investment agreements of $6 million as of December 31, 2016.

Impaired Investments

The following tables present the gross unrealized losses related to AFS and HTM investments as of
December 31, 2017 and 2016:

In millions

AFS Investments
Fixed-maturity investments:

U.S. Treasury and government agency
State and municipal bonds
Foreign governments
Corporate obligations
Mortgage-backed securities:

Residential mortgage-backed agency
Residential mortgage-backed non-agency
Commercial mortgage-backed

Asset-backed securities:

Collateralized debt obligations
Other asset-backed

December 31, 2017

Less than 12 Months

12 Months or Longer

Total

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

$ 353 $
203
8
425

(1) $ 124 $
(8)
—
(3)

116
—
163

(5) $ 477 $
(4)
—
(77)

319
8
588

105
—
27

12
71

(1)
—
—

—
—

156
14
5

—
39

(3)
(4)
—

—
—

261
14
32

12
110

(6)
(12)
—
(80)

(4)
(4)
—
—
—
—

Total AFS investments

$1,204 $

(13) $ 617 $

(93) $1,821 $

(106)

In millions

AFS Investments
Fixed-maturity investments:

U.S. Treasury and government agency
State and municipal bonds
Foreign governments
Corporate obligations
Mortgage-backed securities:

Residential mortgage-backed agency
Residential mortgage-backed non-agency
Commercial mortgage-backed

Asset-backed securities:

Collateralized debt obligations
Other asset-backed

Total AFS investments

HTM Investments
Assets of consolidated VIEs:

Corporate obligations

Total HTM investments

December 31, 2016

Less than 12 Months

12 Months or Longer

Total

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

$ 432 $
339
5
534

(10) $ — $
(13)
—
(29)

18
—
52

— $ 432 $
(2)
—
(73)

357
5
586

(10)
(15)
—
(102)

436
1
6

7
112

(9)
—
—

—
(1)

122
29
15

15
49

(3)
(6)
—

—
(2)

558
30
21

22
161

(12)
(6)
—

—
(3)

$1,872 $

(62) $ 300 $

(86) $2,172 $

(148)

$ — $

— $ 876 $

(14) $ 876 $

— $ 876 $

(14) $ 876 $

(14)

124

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 8: Investments (continued)

Gross unrealized losses on AFS investments decreased as of December 31, 2017 compared with December 31,
2016 primarily due to tightening credit spreads and lower long-term interest rates. Gross unrealized losses on
HTM investments decreased as of December 31, 2017 compared with December 31, 2016 primarily due to
tightening credit spreads.

With the weighting applied on the fair value of each security relative to the total fair value, the weighted average
contractual maturity of securities in an unrealized loss position as of December 31, 2017 and 2016 was 12 and 22
years, respectively. As of December 31, 2017 and 2016, there were 133 and 46 securities, respectively, that were
in an unrealized loss position for a continuous twelve-month period or longer, of which, fair values of 24 and 12
securities, respectively, were below book value by more than 5%.

The following table presents the distribution of securities in an unrealized loss position for a continuous twelve-
month period or longer where fair value was below book value by more than 5% as of December 31, 2017:

Percentage of Fair Value
Below Book Value

Number of
Securities

Book Value
(in millions)

Fair Value
(in millions)

Number of
Securities

Book Value
(in millions)

Fair Value
(in millions)

AFS Securities

HTM Securities

> 5% to 15%
> 15% to 25%
> 25% to 50%
> 50%

Total

17 $
1
2
4

24 $

76 $

3
12
101

71
2
9
29

192 $

111

— $
—
—
—

— $

— $
—
—
—

— $

—
—
—
—

—

The Company concluded that it does not have the intent to sell securities in an unrealized loss position and it is
more likely than not, that it would not have to sell these securities before recovery of their cost basis. In making
this conclusion, the Company examined the cash flow projections for its investment portfolios, the potential
sources and uses of cash in its businesses, and the cash resources available to its business other than sales of
securities. It also considered the existence of any risk management or other plans as of December 31, 2017 that
would require the sale of impaired securities. Impaired securities that the Company intends to sell before the
expected recovery of such securities’ fair values have been written down to fair value.

Other-Than-Temporary Impairments

Evaluating AFS Securities for OTTI

The Company has an ongoing review process for all securities in its investment portfolio, including a quarterly
assessment of OTTI. This evaluation includes both qualitative and quantitative considerations. In assessing
whether a decline in value is related to a credit loss, the Company considers several factors, including but not
limited to (i) the magnitude and duration of declines in fair value; (ii) the reasons for the declines in fair value, such
as general credit spread movements in each asset-backed sector, transaction-specific changes in credit spreads,
credit rating downgrades, modeled defaults, and principal and interest payment priorities within each investment
structure; and (iii) any guarantees associated with a security such as those provided by financial guarantee
insurance companies, including MBIA Corp. and National.

In calculating credit-related losses, the Company uses cash flow modeling based on the type of security. The
Company’s cash flow analysis considers all sources of cash, including credit enhancement, that support the
payment of amounts owed by an issuer of a security. This includes the consideration of cash expected to be
provided by financial guarantors, including MBIA Corp. and National, resulting from an actual or potential
insurance policy claim. In general, any change in the amount and/or timing of cash flows received or expected to
be received, whether or not such cash flows are contractually defined, is reflected in the Company’s cash flow
analysis for purposes of assessing an OTTI loss on an impaired security.

125

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 8: Investments (continued)

Each quarter, an internal committee, comprising staff that is independent of the Company’s evaluation process for
determining OTTI of securities, reviews and approves the valuation of investments. Among other responsibilities,
this committee ensures that the Company’s process for identifying and calculating OTTI, including the use of
models and assumptions, is reasonable and complies with the Company’s internal policy.

Determination of Credit Loss on ABS, MBS and Corporate Obligations

ABS investments are evaluated for OTTI using historical collateral performance, deal waterfall and structural
protections, credit ratings, and forward looking projections of collateral performance based on business and
economic conditions specific to each collateral type and risk. The underlying collateral is evaluated to identify any
specific performance concerns, and stress scenarios are considered in forecasting ultimate returns of principal.
Based on this evaluation, if a principal default is projected for a security, estimated future cash flows are
discounted at the security’s effective interest rate used to recognize interest income on the security. For CDO
investments, the Company uses the same tools as its RMBS investments discussed below, aggregating the bond
level cash flows to the CDO investment level. If the present value of cash flows is less than the Company’s
amortized cost for the security, the difference is recorded as an OTTI loss.

RMBS investments are evaluated for OTTI using several quantitative tools. Loan level data is obtained and
analyzed in a model that produces prepayment, default, and severity vectors. The model uses macro inputs,
including housing price assumptions and interest rates. The vector outputs are used as inputs to a third-party
cash flow model, which considers deal waterfall dynamics and structural features, to generate cash flows for an
RMBS investment. The expected cash flows of the security are then discounted at the interest rate used to
recognize interest income of the security to arrive at a present value amount. If the present value of the cash
flows is less than the Company’s amortized cost for the investment, the difference is recorded as an OTTI loss.

Corporate obligation investments are evaluated for OTTI using credit analysis techniques. The Company’s
analysis includes a detailed review of a number of quantitative and qualitative factors impacting the value of an
individual security. These factors include the interest rate of the security (fixed or floating), the security’s current
market spread, any collateral supporting the security, the security’s position in the issuer’s capital structure, and
credit rating upgrades or downgrades. Additionally, these factors include an assessment of various issuer-related
credit metrics including market capitalization, earnings, cash flow, capitalization, interest coverage, leverage,
liquidity, management and a third-party quantitative default probability model. The Company’s analysis is
augmented by comparing market prices for similar securities of other issuers in the same sector, as well as any
recent corporate or government actions that may impact the ultimate return of principal. If the Company
determines that a principal default is projected, a recovery analysis is performed using the above data. If the
Company’s estimated recovery value for the security is less than its amortized cost, the difference is recorded as
an OTTI loss.

During 2017, certain municipal bonds had liquidity concerns, recent credit downgrades and other adverse
financial conditions. As a result, the Company placed these bonds on a non-accrual basis and recognized an
OTTI loss for the difference between its amortized cost and fair value. This OTTI loss was included in “Investment
losses related to other-than-temporary impairments” on the Company’s consolidated statement of operations.

Determination of Credit Loss Guaranteed by the Company on Other Third-Party Guarantors

The Company does not recognize OTTI on securities insured by MBIA Corp. and National since those securities,
whether or not owned by the Company, are evaluated for impairments in accordance with its loss reserving policy.
Refer to “Note 2: Significant Accounting Policies” included herein for information about the Company’s loss
reserving policy and “Note 6: Loss and Loss Adjustment Expenses Reserves” for information about loss reserves.

126

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 8: Investments (continued)

The following table provides information about securities held by the Company as of December 31, 2017 that
were in an unrealized loss position and insured by a financial guarantor, along with the amount of insurance loss
reserves corresponding to the par amount owned by the Company:

In millions

Mortgage-backed:

MBIA(1)

Corporate obligations:

MBIA(1)

Other:

MBIA(1)
Other

Total other

Total

Fair Value

Unrealized
Loss

Insurance Loss
Reserve(2)

(4)

93
3

—

(7)
—

(7)

124

(11)

—

34
—

(1)—Includes investments insured by MBIA Corp. and National.
(2)—Insurance loss reserve estimates are based on the proportion of par value owned to the total amount of par value insured.

Credit Loss Rollforward

The portion of certain OTTI losses on fixed-maturity securities that does not represent credit losses is recognized
in AOCI. For these impairments, the net amount recognized in earnings represents the difference between the
amortized cost of the security and the net present value of its projected future discounted cash flows prior to
impairment. Any remaining difference between the fair value and amortized cost is recognized in AOCI. The
following table presents the amount of credit loss impairments recognized in earnings on fixed-maturity securities
held by MBIA as of the dates indicated, for which a portion of the OTTI losses was recognized in AOCI, and the
corresponding changes in such amounts. The additional credit loss impairment on securities not previously
impaired for the year ended December 31, 2017, primarily related to municipal bonds for which a loss was
recognized as the difference between its amortized cost and fair value. The additional credit loss impairments on
securities previously impaired for the years ended December 31, 2017, 2016 and 2015, primarily related to a
corporate obligation that incurred liquidity concerns, ongoing credit risk and other adverse financial conditions.

In millions

Credit Losses Recognized in Earnings Related to OTTI

Years Ended December 31,

2017

2016

2015

Beginning balance
Additions for credit loss impairments recognized in the current period on securities

29 $

26 $

not previously impaired

Additions for credit loss impairments recognized in the current period on securities

previously impaired

Reductions for credit loss impairments previously recognized on securities sold

during the period

Reductions for credit loss impairments previously recognized on securities impaired

to fair value during the period

Ending balance

(2)

(11)

—

(1)

—

32 $

29 $

—

127

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 8: Investments (continued)

Sales of Available-for-Sale Investments

Gross realized gains and losses are recorded within “Net gains (losses) on financial instruments at fair value and
foreign exchange” on the Company’s consolidated statements of operations. The proceeds and the gross realized
gains and losses from sales of fixed-maturity securities held as AFS for the years ended December 31, 2017,
2016 and 2015 are as follows:

In millions

Proceeds from sales
Gross realized gains
Gross realized losses

Note 9: Derivative Instruments

U.S. Public Finance Insurance

Years Ended December 31,

2017

2016

2015

$
$
$

2,256
40
(22)

$
$
$

2,412
84
(23)

$
$
$

1,145
32
(16)

The Company’s derivative exposure within its U.S. public finance insurance operations primarily consists of
insured interest rate and inflation-linked swaps related to insured U.S. public finance debt issues. These
derivatives do not qualify for the financial guarantee scope exception and are accounted for as derivative
instruments.

Corporate

The Company has entered into derivative instruments primarily consisting of interest rate swaps to manage the
risks associated with fluctuations in interest rates affecting the value of certain assets and liabilities.

International and Structured Finance Insurance

The Company has entered into derivative instruments to provide financial guarantee insurance to structured
finance transactions that do not qualify for the financial guarantee scope exception and, therefore, are accounted
for as derivatives. These insured CDS contracts, primarily referencing CMBS, are intended to be held for the
entire term of the contract unless a settlement with the counterparty is negotiated. The Company no longer
insures new CDS contracts except for transactions related to the restructuring or reduction of existing derivative
exposure. The Company’s derivative exposure within its international and structured finance insurance segment
also includes insured interest rate and inflation-linked swaps related to insured debt issues.

The Company has also entered into a derivative contract as a result of a commutation occurring in 2014.
Changes in the fair value of the Company’s non-insured derivative are included in “Net gains (losses) on financial
instruments at fair value and foreign exchange” on the Company’s consolidated statements of operations.

Variable Interest Entities

128

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 9: Derivative Instruments (continued)

Credit Derivatives Sold

The following tables present information about credit derivatives sold by the Company’s insurance operations that
were outstanding as of December 31, 2017 and 2016. Credit ratings represent the lower of underlying ratings
assigned to the collateral by Moody’s, S&P or MBIA.

$ in millions

As of December 31, 2017

Notional Value

Credit Derivatives Sold

Insured credit default swaps
Insured swaps

Total notional

Total fair value

$ in millions

Credit Derivatives Sold

Insured credit default swaps
Insured swaps
Insured swaps—held for sale

Total notional

Total fair value

Weighted
Average
Remaining
Expected
Maturity

AAA

BBB

Below
Investment
Grade

Total
Notional

Fair Value
Asset
(Liability)

1.0 Years $ — $ — $ — $ — $

127 $

15.5 Years

— 117

1,818

846

2,801

(63)
(2)

$ — $117 $1,818 $ 846 $

147 $ 2,928

$ — $ — $

(1) $

(63)

(65)

As of December 31, 2016

Notional Value

Weighted
Average
Remaining
Expected
Maturity

AAA

BBB

Below
Investment
Grade

Total
Notional

Fair Value
Asset
(Liability)

3.8 Years $ — $ — $ 115 $ — $

473 $

588 $

15.7 Years
14.3 Years

— 137
—
—

2,146
—

732
420

20
—

3,035
420

(64)
(2)
—

$ — $137 $2,261 $1,152 $

493 $ 4,043

$ — $ — $

(1) $

(64)

(66)

Internal credit ratings assigned by MBIA on the underlying collateral are derived by the Company’s surveillance
group. In assigning an internal rating, current status reports from issuers and trustees, as well as publicly
available transaction-specific information, are reviewed. Also, where appropriate, cash flow analyses and
collateral valuations are considered. The maximum potential amount of future payments (undiscounted) on
insured credit default swaps and insured swaps is estimated as the notional value of such contracts.

MBIA may hold recourse provisions with third parties in derivative instruments through subrogation rights,
whereby if MBIA makes a claim payment, it may be entitled to any rights of the insured counterparty, including the
right to any assets held as collateral.

Counterparty Credit Risk

The Company manages counterparty credit risk on an individual counterparty basis through master netting
agreements covering derivative instruments in the corporate segment. These agreements allow the Company to
contractually net amounts due from a counterparty with those amounts due to such counterparty when certain
triggering events occur. The Company only executes swaps under master netting agreements, which typically
contain mutual credit downgrade provisions that generally provide the ability to require assignment or termination
in the event either MBIA or the counterparty is downgraded below a specified credit rating.

129

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 9: Derivative Instruments (continued)

Under these agreements, the Company may receive or provide cash, U.S. Treasury or other highly rated
securities to secure counterparties’ exposure to the Company or its exposure to counterparties, respectively.
Such collateral is available to the holder to pay for replacing the counterparty in the event that the counterparty
defaults. As of December 31, 2017, the Company did not hold or post cash collateral to derivative counterparties.
As of December 31, 2016, the Company did not hold cash collateral to derivative counterparties but posted cash
collateral to derivative counterparties of $1 million. The $1 million is included within “Other liabilities” as cash
collateral netted against accrued interest on derivative liabilities. As of December 31, 2017 and 2016, the
Company had securities with a fair value of $237 million and $276 million, respectively, posted to derivative
counterparties and these amounts are included within “Fixed-maturity securities held as available-for-sale, at fair
value” on the Company’s consolidated balance sheets.

As of December 31, 2017 and 2016, the fair value on one Credit Support Annex (“CSA”) was $2 million and
$3 million, respectively. This CSA governs collateral posting requirements between MBIA and its derivative
counterparties. The Company did not receive collateral due to the Company’s credit rating, which was below the
CSA minimum credit ratings level for holding counterparty collateral. As of December 31, 2017 and 2016, the
counterparty was rated A1 by Moody’s and A by S&P.

Financial Statement Presentation

The fair value of amounts recognized for eligible derivative contracts executed with the same counterparty under
a master netting agreement, including any cash collateral that may have been received or posted by the
Company, is presented on a net basis in accordance with accounting guidance for the offsetting of fair value
amounts related to derivative instruments. Insured CDS and insured swaps are not subject to master netting
agreements. VIE derivative assets and liabilities are not presented net of any master netting agreements.
Counterparty netting of derivative assets and liabilities offsets balances in “Interest rate swaps”, when applicable.

The following table presents the total fair value of the Company’s derivative assets and liabilities by instrument
and balance sheet location, before counterparty netting and posting of cash collateral, as of December 31, 2017:

In millions

Derivative Assets(1)

Derivative Liabilities(1)

Derivative Instruments

Outstanding Balance Sheet Location

Notional
Amount

Fair
Value Balance Sheet Location

Fair
Value

Not designated as hedging instruments:

Insured credit default swaps
Insured swaps
Interest rate swaps
Interest rate swaps-embedded
Currency swaps-VIE
All other
All other-embedded

127 Other assets
2,801 Other assets
747 Other assets
305 Medium-term notes
69 Other assets-VIE
49 Other assets

2 Other investments

$ — Derivative liabilities
— Derivative liabilities
2 Derivative liabilities
1 Medium-term notes

19 Derivative liabilities-VIE
— Derivative liabilities
— Other investments

Total non-designated derivatives

4,100

$ 22

$ (63)
(2)
(193)
(6)
—
(4)
(1)

$(269)

(1)—In accordance with the accounting guidance for derivative instruments and hedging activities, the balance sheet location of the
Company’s embedded derivative instruments is determined by the location of the related host contract.

130

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 9: Derivative Instruments (continued)

In millions

Derivative Assets(1)

Derivative Liabilities(1)

Derivative Instruments

Outstanding Balance Sheet Location

Not designated as hedging instruments:

Notional
Amount

Fair
Value Balance Sheet Location

Fair
Value

Insured credit default swaps
Insured swaps
Insured swaps—held for sale
Interest rate swaps
Interest rate swaps-embedded
Currency swaps-VIE
All other
All other-VIE
All other-embedded

588 Other assets
3,035 Other assets

420 Assets held for sale

1,062 Other assets

376 Medium-term notes
71 Other assets-VIE
83 Other assets
35 Other assets-VIE
5 Other investments

$ — Derivative liabilities
— Derivative liabilities
— Liabilities held for sale
3 Derivative liabilities
2 Medium-term notes

20 Derivative liabilities-VIE
— Derivative liabilities
— Derivative liabilities-VIE
— Other investments

Total non-designated derivatives

5,675

$ 25

$ (64)
(2)
—
(213)
(17)
—
(20)
—
—

$(316)

The following table presents the effect of derivative instruments on the consolidated statements of operations for
the years ended December 31, 2017, 2016 and 2015:

In millions

Derivatives Not Designated as
Hedging Instruments

Location of Gain (Loss) Recognized in Income on Derivative

2017

2016

2015

Years Ended December 31,

Insured credit default swaps
Insured credit default swaps

Unrealized gains (losses) on insured derivatives
Realized gains (losses) and other settlements on

insured derivatives

Interest rate swaps

Net gains (losses) on financial instruments at fair

value and foreign exchange

Interest rate swaps-VIE

Net gains (losses) on financial instruments at fair

value and foreign exchange-VIE

Currency swaps-VIE

Net gains (losses) on financial instruments at fair

All other

Total

value and foreign exchange-VIE

Net gains (losses) on financial instruments at fair

value and foreign exchange

(19)

(2)

$ — $ 21 $ 157

(51)

(40)

(28)

—

(1)

(11)

(108)

$ (68) $ (15) $ 69

131

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 10: Debt

Long-Term Debt

The Company’s long-term debt consists of notes and debentures including accrued interest as follows:

In millions

6.400% Senior Notes due 2022(1)
7.000% Debentures due 2025
7.150% Debentures due 2027
6.625% Debentures due 2028
5.700% Senior Notes due 2034(2)
Surplus Notes due 2033 (3)
Accrued interest
Debt issuance costs

Total

As of December 31,

2017

2016

265
46
100
141
21
940
624
(16)

266
46
100
141
21
940
506
(34)

$ 2,121

$ 1,986

(1)—Callable on or after August 15, 2006 at par.
(2)—Callable anytime at the greater of par or the present value of the remaining scheduled payments of principal and
interest.
(3)—Contractual interest rate is based on three month LIBOR plus 11.26%.

During 2017, National purchased from MBIA Inc., $129 million principal amount of MBIA Inc. 5.700% Senior
Notes due 2034 that were previously repurchased by MBIA Inc. and had not been retired. In addition to the
preceding table, as of December 31, 2017, National owned $264 million principal amount of the 5.700% Senior
Notes due 2034 and MBIA Inc., through its corporate segment, owned $13 million of MBIA Corp. surplus notes
and owned an additional $54 million of Senior Notes that were previously repurchased but not retired. These
amounts are eliminated on a consolidated basis.

Interest and principal payments on the surplus notes are subject to prior approval by the NYSDFS. From the
January 15, 2013 interest payment to the present, MBIA Corp.’s requests for approval of the note interest
payments have been denied by the NYSDFS. MBIA Corp. provides notice to the Fiscal Agent when it does not
make a scheduled interest payment. The deferred interest payment will become due on the first business day on
or after which MBIA Corp. obtains approval to make such payment. No interest will accrue on the deferred
interest. The surplus notes were callable at par at the option of MBIA Corp. on the fifth anniversary of the date of
issuance, and are callable at par on January 15, 2023 and every fifth anniversary thereafter and are callable on
any other date at par plus a make-whole amount, subject to prior approval by the Superintendent and other
restrictions. The cash received from the issuance of surplus notes was used for general business purposes and
the deferred debt issuance costs are being amortized over the term of the surplus notes.

The aggregate maturities of principal payments of long-term debt obligations in each of the next five years ending
December 31, and thereafter, are as follows:

In millions

Corporate debt
Surplus Notes due 2033

Total debt obligations due

Investment Agreements

2018

2019

2020

2021

2022

Thereafter

Total

$ — $ — $ — $ — $265 $

— — — —

—

308 $ 573
940
940

$ — $ — $ — $ — $265 $ 1,248 $1,513

Certain investment agreements provide for early termination, including, in some cases, with make-whole
payments, upon certain contingent events including the bankruptcy of MBIA Inc. or the commencement of an
insolvency proceeding with respect to MBIA Corp. Upon the occurrence of certain contractually agreed-upon
events, some of these funds may be withdrawn by the investor prior to their contractual maturity dates. All of the
investment agreements have been collateralized in accordance with the contractual terms.

132

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 10: Debt (continued)

Investment agreements have been issued with either fixed or floating interest rates in U.S. dollars. As of
December 31, 2017, the annual interest rates on these agreements ranged from 4.74% to 6.88% and the
weighted average interest rate was 5.75%. As of December 31, 2016, the annual interest rates on these
agreements ranged from 4.48% to 6.89% and the weighted average interest rate was 5.66%. Expected principal
payments due under these investment agreements in each of the next five years ending December 31 and
thereafter, based upon contractual maturity dates, are as follows:

In millions

Maturity date:
2018
2019
2020
2021
2022
Thereafter (through 2037)

Total expected principal payments (1)
Less discount and other adjustments(2)

Total

Principal Amount

17
7
35
3
3
328

393
56

337

(1)—Amounts reflect principal due at maturity for investment agreements issued at a discount.
(2)—Includes discounts net of carrying amount adjustments of $61 million, net of accrued interest of $5 million.

Medium-Term Notes

MTNs are denominated in U.S. dollars or foreign currencies and accrue interest based on fixed or floating interest
rates. Certain MTNs are measured at fair value in accordance with the accounting guidance for hybrid financial
instruments. As of December 31, 2017, the interest rates of the MTNs ranged from 0% to 6.00% and the weighted
average interest rate was 2.90%. As of December 31, 2016, the interest rates of the MTNs ranged from 0% to
6.00% and the weighted average interest rate was 2.43%. During 2017, the Company repurchased $160 million
par value outstanding at a cost of approximately 84% of par value of MTNs issued by the Company’s corporate
segment. Expected principal payments due under MTN obligations based on their contractual maturity dates are
as follows:

In millions

Maturity date:
2018
2019
2020
2021
2022
Thereafter (through 2036)

Total expected principal payments (1)
Less discount and other adjustments(2)

Total

Principal Amount

36
61
—
—
121
847

1,065
300

765

(1)—Amounts reflect principal due at maturity for notes issued at a discount.
(2)—Includes discounts net of carrying amount adjustments and embedded derivatives of $240 million, fair value
adjustments of $65 million, net of accrued interest of $5 million.

133

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 10: Debt (continued)

Variable Interest Entity Notes

VIE notes are variable interest rate debt instruments that were issued primarily in U.S. dollars by consolidated
VIEs within the Company’s international and structured finance insurance segment. These VIE notes consist of
debt instruments issued by issuer-sponsored consolidated VIEs collateralized by assets held by those
consolidated VIEs. As of December 31, 2017, for VIE notes not accounted for at fair value, contractual interest
rates ranged from 1.85% to 14.00% and the weighted average interest rate was 6.01%. As of December 31,
2016, for VIE notes not accounted for at fair value, contractual interest rates ranged from 1.07% to 2.77% and the
weighted average interest rate was 2.25%.

In connection with the Zohar II Claim in January of 2017, MBIA Corp. entered into the Facility. The initial
outstanding principal amount of the Facility was $366 million, of which, $38 million of subordinated financing was
provided by MBIA Inc. and eliminated in consolidation. As of December 31, 2017, the consolidated outstanding
amount of the Facility was $330 million. Under the Facility, MBIA Inc. has agreed to provide an additional
$50 million subordinated financing to MZ Funding, which MZ Funding would then lend to MBIA Corp., if needed by
MBIA Insurance Corporation for liquidity purposes. The Facility is secured by a first priority security interest in all
of MBIA Corp.’s right, title and interest in the recovery of its claims from the assets of Zohar I and Zohar II which
include, among other things, loans made to, and equity interests in, companies purportedly controlled by the
Zohar Sponsor and any claims that the Company may have against the Zohar Sponsor. MBIA Corp. was
obligated to pay a commitment fee of $10 million for this facility. The Facility matures on January 20, 2020 and
bears interest at 14% per annum. If funds received from MBIA Corp. under the Facility are insufficient to pay
interest on interest payment dates, MZ Funding may elect to pay interest in kind, which increases the outstanding
principal amount.

The maturity of the Company’s international and structured finance insurance segment’s VIE notes, as of
December 31, 2017 is presented in the following table:

In millions

Maturity date:
2018
2019
2020
2021
2022
Thereafter (through 2052)

Total

Principal Amount

203
147
485
132
116
1,206

2,289(1)

(1)—Includes $1.1 billion of VIE notes accounted for at fair value as of December 31, 2017.

Note 11: Income Taxes

Income (loss) from operations before provision (benefit) for income taxes consisted of:

In millions

Domestic
Foreign

Income (loss) before income taxes

Years Ended December 31,

2017

2016

2015

$(638)
(23)

$(362)
23

$(661)

$(339)

$ 303
(14)

$ 289

134

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 11: Income Taxes (continued)

The Company files a consolidated tax return that includes all of its U.S. subsidiaries and foreign branches. The
Company also files tax returns in Spain, Mexico, and various state and local jurisdictions. Income tax expense
(benefit) on income (loss) and shareholders’ equity consisted of:

In millions

Current taxes:
Federal
State
Foreign

Deferred taxes:

Federal
Foreign

Provision (benefit) for income taxes

Income taxes charged (credited) to shareholders’ equity related to:

Change in unrealized gains (losses) on AFS securities
Change in AFS securities with OTTI
Change in foreign currency translation
Share-based compensation

Total income taxes charged (credited) to shareholders’ equity

Years Ended December 31,

2017

2016

2015

4
—
—

945
(5)

944

(1)
1
21
—

4
1
—

(8)
2

(1)

8
5
1
—

$ —
1
2

97
9

109

(30)
—
(14)
9

(35)

Total effect of income taxes

$ 965

$ 13

$ 74

A reconciliation of the U.S. federal statutory tax rate of 35% to the Company’s effective income tax rate for the
years ended December 31, 2017, 2016 and 2015 is presented in the following table:

Federal income tax computed at the statutory rate
Increase (reduction) in taxes resulting from:

Tax Reform/Change in Tax Rate
Mark-to-market on warrants
Change in valuation allowance
Nondeductible compensation
Deferred inventory adjustments
Foreign Taxes
Basis difference in foreign subsidiary
Other

Effective tax rate

Years Ended December 31,

2017

2016

2015

35.0%

35.0% 35.0%

0.0%

(71.4)%
0.0%
1.4%
(1.5)% (1.2)%
(116.9)%
0.0%
(2.2)%
0.0%
2.7%
(1.4)%
0.0%
0.8%
3.6%
0.0%
0.0%
8.2%
0.0%
0.0% (33.0)%
1.2%
(0.3)%
0.1%

(142.8)%

0.2% 37.7%

Deferred Tax Asset, Net of Valuation Allowance

The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events
that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are
determined based on the differences between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in
tax rates on tax assets and liabilities is recognized in income in the period that includes the enactment date.
Valuation allowances are established to reduce deferred tax assets to the amount that more likely than not will be
realized.

135

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 11: Income Taxes (continued)

The tax effects of temporary differences that give rise to deferred tax assets and liabilities as of December 31,
2017 and 2016 are presented in the following table:

In millions

Deferred tax liabilities:

As of

December 31,
2017

December 31,
2016

Unearned premium revenue
Deferral of cancellation of indebtedness income
Deferred acquisition costs
Net unrealized gains in accumulated other comprehensive income
Partnership basis difference
Basis difference in foreign subsidiaries
Net deferred taxes on VIEs
Other

Total gross deferred tax liabilities

Deferred tax assets:

Compensation and employee benefits
Accrued interest
Loss and loss adjustment expense reserves
Net operating loss
Foreign tax credits
Other-than-temporary impairments
Net unrealized losses on insured derivatives
Net losses on financial instruments at fair value and foreign exchange
Net unrealized losses in accumulated other comprehensive income
Alternative minimum tax credit carryforward
Other

Total gross deferred tax assets

Valuation allowance

Net deferred tax asset

75
14
21
—
11
1
38
—

160

11
131
87
582
62
22
14
13
5
—
3

930

770

143
46
42
4
36
64
—
27

362

19
177
142
929
7
4
29
—
6
26
—

1,339

970

— $

On June 26, 2017, S&P downgraded the financial strength rating of National, which led the Company to cease its
efforts to actively pursue writing new financial guarantee business. In addition to National’s cessation of new
business activity, there was an increase in loss and LAE due to changes in assumptions on certain Puerto Rico
credits. As a result of the increase in loss and LAE, the Company has a three-year cumulative loss, which is
considered significant negative evidence in the assessment of its ability to use its deferred tax assets. In addition,
the Company considered all available positive and negative evidence as required by GAAP, to estimate if
sufficient taxable income will be generated to use its deferred tax assets. After considering all positive and
negative evidence, including the Company’s inability to objectively identify and forecast future sources of taxable
income, the Company concluded in the second quarter of 2017 it did not have sufficient positive evidence to
support its ability to use its deferred tax assets before they would expire. Accordingly, the Company has a full
valuation allowance against its net deferred tax asset of $770 million in 2017. The Company will continue to
analyze the valuation allowance on a quarterly basis.

On December 22, 2017, the President of the United States signed into law the Act, which among other items
reduces the federal corporate tax rate to 21% effective January 1, 2018. As a result, during the fourth quarter of
2017, the Company revalued its net tax deferred tax asset using the newly enacted tax rate of 21% and recorded
a $472 million reduction to both its net deferred tax asset and valuation allowance.

136

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 11: Income Taxes (continued)

The Company’s revaluation of its net deferred tax asset is subject to further clarifications of the new law that
cannot be estimated at this time. However, as further clarification of the new law is determined, any adjustment
would be offset with a valuation allowance resulting in no change to the Company’s net deferred tax asset. The
Company does not anticipate future cash expenditures as a result of the reduction to its net deferred tax asset.

Under the Act, NOLs of property and casualty insurance companies retain their current two-year carryback and
20-year carryforward periods and will not be subject to the 80 percent taxable income limitation and indefinite
lived carryforward period applicable to general corporate NOLs. Therefore, NOLs generated after 2017 by the
Company’s insurance companies and non-insurance companies will be treated differently under the Act.

Due to held for sale accounting of MBIA UK as of December 31, 2016, $36 million of deferred tax liabilities has
been reported within “Liabilities held for sale” on the Company’s consolidated balance sheet.

Tax Sharing Agreement

The Company has a tax sharing agreement among its members effective January 1, 1987. The agreement was
amended and restated effective September 8, 2011 to change the method of calculating each domestic insurer’s
tax liability to the method permitted by paragraph 3(a) of Department Circular Letter #33 (1979). The agreement
was submitted to the NYSDFS for review and non-disapproval pursuant to Section 1505 of the New York
Insurance Law. Refer to “Note 2: Significant Accounting Policies” for further discussion on the Company’s tax
sharing agreement.

Treatment of Undistributed Earnings of Certain Foreign Subsidiaries—“Accounting for Income Taxes—
Special Areas”

During 2017, the Company sold MBIA UK and reversed any deferred income taxes with respect to the differences
in the book and tax basis in the Company’s carrying value of MBIA UK. The Company’s amount of undistributed
earnings of certain foreign subsidiaries was not material as of December 31, 2017.

Accounting for Uncertainty in Income Taxes

The Company’s policy is to record and disclose any change in UTB and related interest and/or penalties to
income tax in the consolidated statements of operations. The Company includes interest as a component of
income tax expense. As of December 31, 2017 and 2016, the Company had no UTB.

Federal income tax returns through 2011 have been examined or surveyed.

As of December 31, 2017, the Company’s NOL is approximately $2.8 billion. The NOL will expire between tax
years 2031 through 2037. As of December 31, 2017, the Company has a foreign tax credit carryforward of
$62 million, which will expire between tax years 2019 through 2027. As of December 31, 2017, the Company has
an alternative minimum tax (“AMT”) credit carryforward of $30 million, which does not expire. As a result of tax
reform, AMT credits are now fully refundable no later than 2022. The AMT credit has been reclassed out of the
deferred tax asset and into other assets as the AMT credits are now a receivable.

Note 12: Business Segments

As defined by segment reporting, an operating segment is a component of a company (i) that engages in
business activities from which it earns revenue and incurs expenses, (ii) whose operating results are regularly
reviewed by the Chief Operating Decision Maker to assess the performance of the segment and to make
decisions about the allocation of resources to the segment and, (iii) for which discrete financial information is
available.

The Company manages its businesses across three operating segments: 1) U.S. public finance insurance; 2)
corporate; and 3) international and structured finance insurance. The Company’s U.S. public finance insurance
business is operated through National and its international and structured finance insurance business is operated
through MBIA Corp.

137

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 12: Business Segments (continued)

The following sections provide a description of each of the Company’s reportable operating segments.

U.S. Public Finance Insurance

The Company’s U.S. public finance insurance portfolio is managed through National. 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, U.S. public finance insured obligations when due. The obligations are not
subject to acceleration, except that National may have the right, at its discretion, to accelerate insured obligations
upon default or otherwise. National’s guarantees insure municipal bonds, including tax-exempt and taxable
indebtedness of U.S. political subdivisions, as well as utilities, airports, health care institutions, higher educational
facilities, student loan issuers, 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 are generally supported by taxes, assessments, fees or tariffs
related to the use of these projects, lease payments or other similar types of revenue streams.

Corporate

The Company’s corporate segment consists of general corporate activities, including providing support services to
MBIA Inc.’s subsidiaries as well as asset and capital management. Support services are provided by the
Company’s service company, MBIA Services Corporation, and include, among others, management, legal,
accounting, treasury, information technology, and insurance portfolio surveillance, on a fee-for-service basis.
Capital management includes activities related to servicing obligations issued by MBIA Inc. and its subsidiaries,
MBIA Global Funding, LLC (“GFL”) and MBIA Investment Management Corp. (“IMC”). MBIA Inc. issued debt to
finance the operations of the MBIA group. GFL raised funds through the issuance of MTNs with varying
maturities, which were in turn guaranteed by MBIA Corp. GFL lent the proceeds of these MTN issuances to MBIA
Inc. IMC, along with MBIA Inc., provided customized investment agreements, guaranteed by MBIA Corp., for
bond proceeds and other public funds for such purposes as construction, loan origination, escrow and debt
service or other reserve fund requirements. The Company has ceased issuing new MTNs and investment
agreements and the outstanding liability balances and corresponding asset balances have declined over time as
liabilities matured, terminated or were called or repurchased. All of the debt within the corporate segment is
managed collectively and is serviced by available liquidity.

International and Structured Finance Insurance

The Company’s international and structured finance insurance segment is principally conducted through MBIA
Corp. The financial guarantees issued by MBIA Corp. generally provide unconditional and irrevocable guarantees
of the payment of principal of, and interest or other amounts owing on, non-U.S. public finance and global
structured finance insured obligations when due, or in the event MBIA Corp. has the right, at its discretion, to
accelerate insured obligations upon default or otherwise. MBIA Corp. insures the investment contracts written by
MBIA Inc., and if MBIA Inc. were to have insufficient assets to pay amounts due upon maturity or termination,
MBIA Corp. would make such payments. MBIA Corp. insures debt obligations of the following affiliates:

(cid:129) MBIA Inc.;

(cid:129)

GFL;

IMC; and

LaCrosse Financial Products, LLC, a wholly-owned affiliate, to which MBIA Insurance Corporation has
written insurance policies guaranteeing the obligations under CDS. Certain policies cover payments
potentially due under CDS, including termination payments that may become due in certain
circumstances, including the occurrence of certain insolvency or payment defaults under the CDS or
derivatives contracts by the insured counterparty or by the guarantor.

138

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 12: Business Segments (continued)

MBIA Corp. insures non-U.S. public finance and global structured finance obligations, including asset-backed
obligations. MBIA Corp. has insured sovereign-related and sub-sovereign bonds, utilities, privately issued bonds
used for the financing of projects that include toll roads, bridges, airports, public transportation facilities, and other
types of infrastructure projects serving a substantial public purpose. Global structured finance and asset-backed
obligations typically are securities repayable from expected cash flows generated by a specified pool of assets,
such as residential and commercial mortgages, insurance policies, consumer loans, corporate loans and bonds,
trade and export receivables, and leases for equipment, aircraft and real estate property. MBIA Corp. has also
written policies guaranteeing obligations under certain other derivative contracts, including termination payments
that may become due upon certain insolvency or payment defaults of the financial guarantor or the issuer. The
Company is no longer insuring new credit derivative contracts except for transactions related to the restructuring
or reduction of existing derivative exposure. MBIA Corp. has not written any meaningful amount of business since
2008.

Segments Results

The following tables provide the Company’s segment results for the years ended December 31, 2017, 2016 and
2015:

In millions

Year Ended December 31, 2017

U.S.
Public
Finance
Insurance Corporate

International
and Structured
Finance
Insurance

Eliminations Consolidated

Revenues(1)
Net change in fair value of insured derivatives
Net gains (losses) on financial instruments at fair value and

foreign exchange

Net investment losses related to other-than-temporary

impairments

Net gains (losses) on extinguishment of debt
Other net realized gains (losses)
Revenues of consolidated VIEs
Inter-segment revenues(2)

Total revenues

Losses and loss adjustment
Operating
Interest
Expenses of consolidated VIEs
Inter-segment expenses(2)

Total expenses

Income (loss) before income taxes
Provision (benefit) for income taxes

Net income (loss)

Identifiable assets

262
—

(106)
—
(4)
—
23

200
499
36
—
—
72

607

(407)
(152)

(255)

4,582

30
—

(32)

—
28
(4)
—
60

82
—
59
81
—
11

151

(69)
556

(625)

1,312

78
(51)

(17)

—
—
39
185
44

278
184
34
116
85
47

466

— $
—

—

—
—
—
—
(127)

(127)
—
—
—
—
(130)

(130)

3
(603)

370
(51)

(24)

(106)
28
31
185
—

433
683
129
197
85
—

1,094

(661)
944

(188)
1,143

(1,331)

5,404

606

(1,605)

(2,203)(3) $

9,095

(1)—Represents the sum of third-party financial guarantee net premiums earned, net investment income, insurance-related fees and
reimbursements and other fees.
(2)—Represents intercompany premium income and expense and intercompany interest income and expense pertaining to intercompany
receivables and payables.
(3)—Consists of intercompany reinsurance balances and repurchase agreements.

139

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 12: Business Segments (continued)

In millions

Revenues(1)
Net change in fair value of insured derivatives
Net gains (losses) on financial instruments at fair value and

foreign exchange

Net investment losses related to other-than-temporary

impairments

Net gains (losses) on extinguishment of debt
Other net realized gains (losses)
Revenues of consolidated VIEs
Inter-segment revenues(2)

Total revenues

Losses and loss adjustment
Operating
Interest
Expenses of consolidated VIEs
Inter-segment expenses(2)

Total expenses

Income (loss) before income taxes
Provision (benefit) for income taxes

Net income (loss)

Identifiable assets

Year Ended December 31, 2016

U.S.
Public
Finance
Insurance Corporate

International
and Structured
Finance
Insurance

Eliminations Consolidated

— $
—

335
—

24
—

(4)
—
2
—
22

427
74
40
—
—
69

183

244
68

176

5,077

(14)

(1)
5
(5)
—
58

67
—
80
91
—
4

175

(108)
(15)

(93)

2,479

121
(19)

—
—
(279)
31
51

(69)
146
57
106
39
52

400

(469)
(52)

(417)

6,486

480
(19)

(5)
5
(282)
31
—

294
220
177
197
39
—

633

(339)
(1)

(338)

—

—
—
—
—
(131)

(131)
—
—
—
—
(125)

(125)

(6)
(2)

(4)

(2,905)(3) $

11,137

140

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 12: Business Segments (continued)

In millions

Year Ended December 31, 2015

U.S.
Public
Finance
Insurance Corporate

International
and Structured
Finance
Insurance

Eliminations Consolidated

Revenues(1)
Net change in fair value of insured derivatives
Net gains (losses) on financial instruments at fair value and

foreign exchange

Net investment losses related to other-than-temporary

impairments

Net gains (losses) on extinguishment of debt
Other net realized gains (losses)
Revenues of consolidated VIEs
Inter-segment revenues(2)

Total revenues

Losses and loss adjustment
Operating
Interest
Expenses of consolidated VIEs
Inter-segment expenses(2)

Total expenses

Income (loss) before income taxes
Provision (benefit) for income taxes

Net income (loss)

Identifiable assets

389
—

(10)
—
(4)
—
34

423
5
38
—
—
89

132

291
100

191

5,265

27
—

(3)
(1)
21
—
67

169
—
79
97
—
7

183

(14)
7

(21)

2,599

114
129

(9)

—
—
—
128
63

425
118
73
102
52
64

409

16
3

9,870

— $
—

—

—
—
—
—
(164)

(164)
—
—
—
—
(160)

(160)

(4)
(1)

(3)

530
129

(13)
(1)
17
128
—

853
123
190
199
52
—

564

289
109

180

(2,898)(3) $

14,836

Premiums on financial guarantees and insured derivatives reported within the Company’s insurance segments are
generated within and outside the U.S. The following table summarizes premiums earned on financial guarantees
and insured derivatives by geographic location of risk for the years ended December 31, 2017, 2016 and 2015:

In millions

Total premiums earned:

United States
United Kingdom
Europe (excluding United Kingdom)
Internationally diversified
Other Americas
Asia
Other

Total

Years Ended December 31,

2017

2016

2015

169
2
1
1
25
1
3

202

238
27
4
3
26
2
4

304

310
30
4
3
29
3
6

385

141

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 13: Insurance in Force

The Company guarantees the payment of principal of, and interest or other amounts owing on, municipal, asset-
backed, mortgage-backed and other non-municipal securities including CDS contracts. The Company’s insurance
in force represents the aggregate amount of the insured principal of, and interest or other amounts owing on,
insured obligations. The Company’s ultimate exposure to credit loss in the event of nonperformance by the issuer
of the insured obligation is represented by the insurance in force in the tables that follow.

The financial guarantees issued by the Company provide unconditional and irrevocable guarantees of the
payment of the principal of, and interest or other amounts owing on, insured obligations when due. The
obligations are generally not subject to acceleration, except in the event the Company has the right, at its
discretion, to accelerate insured obligations upon default or otherwise. Payments to be made by the issuer on the
bonds or notes may be backed by a pledge of revenues, reserve funds, letters of credit, investment contracts or
collateral in the form of mortgages or other assets. The right to such funds or collateral would typically become
National’s or MBIA Corp.’s upon the payment of a claim by either National or MBIA Corp.

As of December 31, 2017, insurance in force, which represents principal and interest or other amounts owing on
insured obligations, had an expected maturity range of 1 to 40 years. The distribution of MBIA Corp.’s and
National’s combined insurance in force by geographic location, excluding financial obligations guaranteed by
MBIA Corp. on behalf of affiliated companies, is presented in the following table:

$ in billions

Geographic Location

California
Illinois
New York
Puerto Rico
New Jersey
Texas
Hawaii
Virginia
Florida
Oregon

Subtotal

Nationally Diversified
Other states

Total United States

Internationally Diversified
Country specific

Total non-United States

Total

As of December 31,

2017

2016

Insurance
in Force

% of
Insurance
in Force

Insurance
in Force

% of
Insurance
in Force

30.3
13.1
9.3
8.2
7.6
6.1
4.5
4.2
3.8
3.6

90.7
15.7
37.0

143.4

0.4
11.1

11.5

19.6% $

8.5%
6.0%
5.3%
4.9%
3.9%
2.9%
2.7%
2.5%
2.3%

58.6%
10.1%
23.9%

92.6%

0.3%
7.1%

7.4%

42.7
15.4
16.6
8.6
11.5
9.1
5.2
5.2
8.7
4.2

127.2
20.4
57.9

205.5

0.5
29.9

30.4

18.1%
6.5%
7.0%
3.6%
4.9%
3.9%
2.2%
2.2%
3.7%
1.8%

53.9%
8.6%
24.6%

87.1%

0.2%
12.7%

12.9%

$ 154.9

100.0% $ 235.9

100.0%

142

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 13: Insurance in Force (continued)

The insurance in force and insured gross par outstanding by type of bond, excluding financial obligations
guaranteed by MBIA Corp. on behalf of affiliated companies, are presented in the following table:

$ in billions

Bond type

Global public finance—United States:

General obligation(1)
General obligation—lease
Municipal utilities
Tax-backed
Transportation
Higher education
Health care
Military housing
Investor-owned utilities(2)
Municipal housing
Other (3)

Total United States

Global public finance—non-United States:

International utilities
Sovereign-related and sub-sovereign(4)
Transportation
Other(5)

Total non-United States

Total global public finance

Global structured finance:

Collateralized debt obligations(6)
Mortgage-backed residential
Mortgage-backed commercial
Consumer asset-backed
Corporate asset-backed(7)

Total global structured finance

As of December 31,

2017

2016

Insurance
in Force

Gross Par
Amount

Insurance
in Force

Gross Par
Amount

42.8
5.1
17.7
26.5
15.2
3.2
2.6
16.3
3.1
0.4
1.1

134.0

1.7
3.8
4.5
0.2

10.2

144.2

0.5
4.7
0.7
0.9
3.9

10.7

22.9
3.8
11.8
12.4
6.9
2.1
1.8
7.3
2.0
0.3
0.6

71.9

1.4
2.7
3.6
0.1

7.8

0.4
3.6
0.3
0.7
2.3

7.3

64.6
12.2
26.1
33.0
21.7
6.8
4.2
16.8
3.7
0.7
1.7

38.3
8.7
17.4
16.7
11.1
4.5
2.7
7.4
2.3
0.4
0.9

191.5

110.4

10.1
11.3
7.1
0.3

28.8

2.7
6.3
0.7
1.2
4.7

6.5
7.5
5.2
0.2

19.4

129.8

2.6
4.7
0.3
0.9
2.9

15.6

11.4

79.7

220.3

Total

$ 154.9

87.0

$ 235.9

$ 141.2

(1)—Includes general obligation unlimited and limited (property) tax bonds, general fund obligation bonds and pension obligation bonds of
states, cities, counties, schools and special districts.
(2)—Includes investor owned utilities, industrial development and pollution control revenue bonds.
(3)—Includes certain non-profit enterprises, stadium related financing and student loans.
(4)—Includes regions, departments or their equivalent in each jurisdiction as well as sovereign owned entities that are supported by a
sovereign state, region or department.
(5)—Includes municipal owned entities backed by sponsoring local government and tax backed transactions.
(6)—Includes a transaction (represented by structured pools of CRE assets) that does not include typical CDO structuring characteristics, such
as tranched credit risk, cash flow waterfalls, or interest and over-collateralization coverage tests.
(7)—As of December 31, 2017, includes structured insurance securitizations of $2.3 billion and $1.1 billion of insurance in force and gross par
amount, respectively. As of December 31, 2016, includes structured insurance securitizations of $2.6 billion and $1.3 billion of insurance in
force and gross par amount, respectively.

Included in the preceding tables, as of December 31, 2016, were $18.6 billion of insurance in force and
$12.0 billion of insured gross par outstanding related to MBIA UK, which was sold to Assured in January of 2017.
Refer to “Note 1: Business Developments and Risks and Uncertainties” for a discussion on the sale of MBIA UK.

143

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 13: Insurance in Force (continued)

Affiliated Financial Obligations Insured by MBIA Corp.

Investment agreement contracts and MTNs issued by the Company’s corporate segment and the Facility issued
by the Company’s international and structured finance insurance segment are insured by MBIA Corp. and are not
included in the previous tables. If MBIA Inc. or these subsidiaries were to have insufficient assets to pay amounts
due, MBIA Corp. would be obligated to make such payments under its insurance policies. As of December 31,
2017, the maximum amount of future payments that MBIA Corp. could be required to make under these
guarantees is $2.2 billion. These guarantees, which have a maturity range of 1 to 20 years, were entered into on
an arm’s length basis. MBIA Corp. has both direct recourse provisions and subrogation rights in these
transactions. If MBIA Corp. is required to make a payment under any of these affiliate guarantees, it would have
the right to seek reimbursement from such affiliate and to liquidate any collateral to recover amounts paid under
the guarantee.

Reinsured Exposure

Reinsurance enables the Company to cede exposure for purposes of syndicating risk. The Company generally
retains the right to reassume the business ceded to reinsurers under certain circumstances, including a
reinsurer’s rating downgrade below specified thresholds. At this time, the Company does not intend to utilize
reinsurance to decrease the insured exposure in its portfolio.

MBIA requires certain unauthorized reinsurers to maintain bank letters of credit or establish trust accounts to
cover liabilities ceded to such reinsurers under reinsurance contracts. The Company remains liable on a primary
basis for all reinsured risk. MBIA believes that its reinsurers remain capable of meeting their obligations, although,
there can be no assurance of such in the future.

The aggregate amount of insurance in force ceded by MBIA to reinsurers was $5.1 billion and $7.6 billion as of
December 31, 2017 and 2016, respectively. Included in the reinsurance insurance in force as of December 31,
2016 was $267 million related to MBIA UK.

As of December 31, 2017, the aggregate amount of insured par outstanding ceded by MBIA to reinsurers under
reinsurance agreements was $2.7 billion compared with $4.2 billion as of December 31, 2016. As of
December 31, 2017, $2.1 billion of the ceded par outstanding was ceded from the Company’s U.S. public finance
insurance segment and $593 million was ceded from the Company’s international and structured finance
insurance segment. Under National’s reinsurance agreement with MBIA Corp., if a reinsurer of MBIA Corp. is
unable to pay claims ceded by MBIA Corp. on U.S. public finance exposure, National will assume liability for such
ceded claim payments. The following table presents information about the Company’s reinsurance agreements as
of December 31, 2017 for its U.S. public finance and international and structured finance insurance operations.

In millions

Reinsurers

Assured Guaranty Re Ltd.

Assured Guaranty Corp.

Overseas Private

Investment Corporation

Others

Total

Standard &
Poor’s Rating
(Status)

AA
(Stable Outlook)
AA
(Stable Outlook)
AA+
(Stable Outlook)
A+ or above

Moody’s Rating
(Status)

Ceded Par
Outstanding

Letters of
Credit/Trust
Accounts

Reinsurance
Recoverable(1)

WR(2)

1,321 $

27 $

A3
(Stable Outlook)
Aaa
(Stable Outlook)

WR(2)

1,031

281

—

2,724 $

30 $

—

(1)—Total reinsurance recoverable is primarily related to recoverables on unpaid losses.
(2)—Represents a withdrawal of ratings.

144

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 13: Insurance in Force (continued)

Premium Summary

The components of financial guarantee net premiums earned, including premiums assumed from and ceded to
other companies, are presented in the following table:

In millions

Net premiums earned:

Direct
Assumed

Gross

Ceded

Net

Years Ended December 31,

2017

2016

2015

205
2

207
(6)

201

305
2

307
(7)

300

379
2

381
(9)

372

For the years ended December 31, 2017 and 2016, payments received for claims related to financial guarantee
policies under reinsurance contracts totaled $4 million and $12 million, respectively. Ceding commissions from
reinsurance, before deferrals and net of returned ceding commissions, were $1 million for each of the years
ended December 31, 2017, 2016, and 2015.

Note 14: Insurance Regulations and Dividends

National and MBIA Insurance Corporation are subject to insurance regulations and supervision of the State of
New York (their state of incorporation) and all U.S. and non-U.S. jurisdictions in which they are licensed to
conduct insurance business. In order to maintain their New York State financial guarantee insurance license,
National and MBIA Insurance Corporation are required to maintain a minimum of $65 million of policyholders’
surplus. MBIA Mexico is regulated by the Comisión Nacional de Seguros y Fianzas in Mexico. The extent of
insurance regulation and supervision varies by jurisdiction, but New York and most other jurisdictions have laws
and regulations prescribing minimum standards of solvency and business conduct, which must be maintained by
insurance companies. Among other things, these laws prescribe permitted classes and concentrations of
investments and limit both the aggregate and individual securities risks that National and MBIA Insurance
Corporation may insure on a net basis based on the type of obligations insured. In addition, some insurance laws
and regulations require the approval or filing of policy forms and rates. National and MBIA Insurance Corporation
are required to file detailed annual financial statements with the NYSDFS. The operations and accounts of
National and MBIA Insurance Corporation are subject to examination by regulatory agencies at regular intervals.

Statutory Capital and Regulations

National

For the years ended December 31, 2017 and 2016, National had a statutory net loss of $321 million and statutory
net income of $192 million, respectively. As of December 31, 2017, National’s statutory capital was $2.8 billion,
consisting of policyholders’ surplus of $2.2 billion and contingency reserves of $594 million. As of December 31,
2016, National had statutory capital of $3.5 billion.

MBIA Insurance Corporation

As of December 31, 2017, MBIA Insurance Corporation’s statutory capital was $464 million, consisting of
policyholders’ surplus of $237 million and contingency reserve of $227 million. As of December 31, 2016, MBIA
Insurance Corporation had statutory capital of $492 million.

As of December 31, 2017 and 2016, MBIA Insurance Corporation was in compliance with its aggregate risk limits
under the NYIL, but was not in compliance with certain of its single risk limits. If new overages occur with respect
to its single risk limits, MBIA Insurance Corporation will report them to the NYSDFS.

145

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 14: Insurance Regulations and Dividends (continued)

Under NYIL, MBIA Insurance Corporation is also required to establish a contingency reserve to provide protection
to policyholders in the event of extreme losses in adverse economic events. The amount of the reserve is based
on the percentage of principal insured or premiums earned, depending on the type of obligation (net of collateral,
reinsurance, refunding, refinancings and certain insured securities). Under NYIL, MBIA Insurance Corporation is
required to invest its minimum surplus and contingency reserves, and 50% of its loss reserves and unearned
premium reserves, in certain qualifying assets. As of December 31, 2017, MBIA Insurance Corporation
maintained its minimum requirement of policyholders’ surplus but did not have enough qualifying assets to
support its contingency reserves and 50% of its loss reserves and unearned premium reserves. Not having
enough qualifying assets to support its contingency reserves limits the amount of earned surplus that might
otherwise be available for the payment of dividends. Reductions in the contingency reserve may be recognized
based on excess reserves and under certain stipulated conditions, subject to the approval of the Superintendent
of the NYSDFS.

Under NYIL, MBIA Insurance Corporation is required to maintain admitted assets greater than the aggregate
amount of liabilities and outstanding capital stock. As of December 31,2017, MBIA Insurance Corporation’s
admitted assets did not exceed the aggregate amount of its liabilities and outstanding capital stock. If MBIA
Insurance Corporation is not in compliance with the above mentioned requirements, the NYSDFS may prevent
MBIA Insurance Corporation from transacting any new financial guarantee insurance business until it no longer
exceeds the limitations.

Results of operations for MBIA Insurance Corporation determined in accordance with statutory accounting
practices for the years ended December 31, 2017 and 2016 were statutory net income of $107 million and a
statutory net loss of $323 million, respectively. For the year ended December 31, 2016, MBIA Insurance
Corporation recorded a loss of $114 million to adjust the carrying value of MBIA UK to its estimated fair value less
costs to sell. In addition, MBIA Insurance Corporation’s policyholders’ surplus was negatively impacted as of
December 31, 2016 by $112 million, as it was not permitted to treat the portion of its investment in subsidiaries in
excess of 60% of net admitted assets less the par value of common and preferred stock and liabilities as an
admitted asset, as required under NYIL. MBIA Insurance Corporation’s policyholders’ surplus as of December 31,
2017 and 2016 included negative unassigned surplus of $1.8 billion. MBIA Insurance Corporation’s policyholders’
surplus may be further negatively impacted if future additional insured losses are incurred.

Dividends

In 2017 and 2016, National declared and paid dividends of $118 million to its ultimate parent, MBIA Inc.

In 2017, MBIA Insurance Corporation did not declare or pay any dividends to MBIA Inc. or the holders of its
preferred stock. MBIA Insurance Corporation is currently unable to pay dividends, including those related to its
preferred stock, as a result of its earned surplus deficit as of December 31, 2017 and is not expected to have any
statutory capacity to pay any dividends in the near term. In connection with MBIA Insurance Corporation obtaining
approval from the NYSDFS to release excess contingency reserves in previous periods, MBIA Insurance
Corporation agreed that it would not pay any dividends without prior approval from the NYSDFS.

146

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 15: Pension and Profit Sharing Plans

The Company maintains a qualified non-contributory defined contribution pension plan to which the Company
contributes 10% of each eligible employee’s annual compensation. Annual compensation for determining such
contributions consists of base salary and bonus, as applicable, up to a maximum of $2 million in 2017. Pension
benefits vest over a five-year period with 20% vested after two years, 60% vested after three years, 80% vested
after four years and 100% vested after five years. The Company funds the annual pension contribution by the
following February of each applicable year. Pension expense related to the Company’s qualified pension plan for
the years ended December 31, 2017, 2016 and 2015 was $2 million, $1 million, and $3 million, respectively.

The Company also maintains a qualified profit sharing/401(k) plan. The plan is a voluntary contributory plan that
allows eligible employees to defer compensation for federal income tax purposes under Section 401(k) of the
Internal Revenue Code of 1986, as amended. Employees may contribute, through payroll deductions, up to 25%
of eligible compensation. The Company matches employee contributions up to the first 5% of such compensation.
The 401(k) matching contributions are made in the form of cash, whereby participants may direct the Company
match to an investment of their choice. The 401(k) matching benefits vest over a five-year period with 20% vested
after two years, 60% vested after three years, 80% vested after four years and 100% vested after five years.
Generally, a participating employee is entitled to distributions from the plans upon termination of employment,
retirement, death or disability. Participants who qualify for distribution may receive a single lump sum, transfer the
assets to another qualified plan or individual retirement account, or receive a series of specified installment
payments. Profit sharing/401(k) expense related to the Company’s qualified plan for the years ended
December 31, 2017, 2016 and 2015 was $1 million, $1 million and $2 million, respectively.

In addition to the above two plans, the Company maintains a non-qualified deferred compensation plan.
Contributions to the above qualified plans that exceed limitations established by federal regulations are then
contributed to the non-qualified deferred compensation plan. The non-qualified pension expense for the years
ended December 31, 2017, 2016 and 2015 was $2 million, $2 million and $1 million, respectively. The
non-qualified profit sharing/401(k) expense for each of the years ended December 31, 2017, 2016 and 2015 was
$1 million.

Note 16: Long-term Incentive Plans

Plan Description

The Company maintains the MBIA Inc. 2005 Omnibus Incentive Plan (the “Omnibus Plan”), as amended on
May 7, 2009 and May 1, 2012. Under the Omnibus Plan a maximum of 14,000,000 shares of the Company’s
common stock can be used for any type of award including stock options, performance shares, performance
units, restricted stock, restricted stock units and dividend equivalents. Any shares issued under the Omnibus Plan
in connection with stock options shall be counted against this limit as 1 share covered by such option. For all
awards other than stock options, any shares issued shall be counted against this limit as 1.28 shares for every
share issued after the May 1, 2012 amendment and two shares for every share issued prior to the May 1, 2012
amendment.

The stock option component of the Omnibus Plan enables key employees of the Company and its subsidiaries to
acquire shares of common stock of the Company or to benefit from appreciation in the price of the common stock
of the Company. The stock option grants, which may be awarded every year, provide the right to purchase shares
of common stock at the fair value of the stock on the date of the grant. Options granted will either be Incentive
Stock Options (“ISOs”) that qualify under Section 422(a) of the Internal Revenue Code, or Non-Qualified Stock
Options (“NQSOs”). ISOs and NQSOs are granted at a price not less than 100% of the fair value, defined as the
closing price on the grant date, of the Company’s common stock. Options are exercisable as specified at the time
of grant depending on the level of the recipient (generally five years) and expire either seven or ten years from the
date of grant (or shorter if specified or following termination of employment).

Under the restricted stock component of the Omnibus Plan, certain employees are granted restricted shares of
the Company’s common stock. These awards have a restriction period lasting three to five years depending on
the type of award, after which time the awards fully vest. During the vesting period, these shares may not be sold.
Restricted stock may be granted to all employees.

147

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 16: Long-term Incentive Plans (continued)

There were 6,207,299 shares available for future grants under the Omnibus Plan as of December 31, 2017.

In accordance with accounting guidance for share-based payments, the Company expenses the fair value of
employee stock options and other forms of stock-based compensation. In addition, the guidance classifies share-
based payment awards as either liability awards, which are remeasured at fair value at each balance sheet date,
or equity awards, which are measured on the grant date and not subsequently remeasured. Generally, awards
with cash-based settlement repurchase features or that are settled at a fixed dollar amount are classified as
liability awards, and changes in fair value will be reported in earnings. Awards with net-settlement features or that
permit a cashless exercise with third-party brokers are classified as equity awards and changes in fair value are
not reported in earnings. The Company’s long-term incentive plans include features which result in equity awards.
In addition, the guidance requires the use of a forfeiture estimate. The Company uses historical employee
termination information to estimate the forfeiture rate applied to current stock-based awards.

The Company maintains voluntary retirement benefits, which provide certain benefits to eligible employees of the
Company upon retirement. A description of these benefits is included in the Company’s proxy statement. One of
the components of the retirement program for those employees that are retirement eligible is to continue to vest
all performance-based stock options and restricted share awards beyond the retirement date in accordance with
the original vesting terms and to immediately vest all outstanding time-based stock options and restricted share
grants. The accounting guidance for share-based payment requires compensation costs for those employees to
be recognized from the date of grant through the retirement eligible date. Accelerated expense, if any, relating to
this retirement benefit for both stock option awards and restricted stock awards has been included in the
compensation expense amounts.

Restricted Stock

The fair value of the restricted shares awarded, net of cancellations, determined on the grant date was $6 million
and $5 million for 2017 and 2016, respectively. The amount of unearned compensation, net of estimated
forfeitures, was $5 million as of December 31, 2017, which is expected to be recognized as expense over a
weighted average period of 2.3 years. Unearned compensation is amortized to expense over the appropriate
three to five-year vesting period.

Compensation expense related to the restricted shares, net of estimated forfeitures, was $10 million, $16 million
and $20 million for the years ended December 31, 2017, 2016 and 2015, respectively. There was no tax charge
related to the restricted share awards during 2017 after consideration of the Company’s valuation allowance. The
tax charge related to the restricted share awards during 2016 and 2015 was $1 million and, $2 million
respectively.

A summary of the Company’s restricted shares outstanding as of December 31, 2017, 2016 and 2015, and
changes during the years ended on those dates, is presented in the following table:

Restricted Share Activity

2017

2016

2015

Number of
Shares

Weighted
Average Price
Per Share

Number of
Shares

Weighted
Average Price
Per Share

Number of
Shares

Weighted
Average Price
Per Share

Outstanding at beginning of

year
Granted
Vested
Forfeited

3,916,661 $
708,529
(1,051,657)
(1,180,555)

9.3553 4,727,319 $
9.3740
9.9732
8.2912

756,381
(917,039)
(650,000)

9.9302
8.2722

6,358,826 $
481,636
13.6196 (2,112,343)
(800)

6.2601

10.0047
8.8012
9.8988
5.0500

Outstanding at end of year

2,392,978 $

9.6142 3,916,661 $

9.3553

4,727,319 $

9.9302

148

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 16: Long-term Incentive Plans (continued)

Stock Options

The Company determines the fair value for stock option awards at the date of grant and is estimated using the
Black-Scholes option pricing model. This model was developed for use in estimating the fair value of traded
options that have no vesting restrictions, are fully transferable, and contain both service and some performance
conditions. In addition, option valuation models require the input of highly subjective assumptions including the
expected stock price volatility.

During 2017, 2016 and 2015, there were no stock option awards granted. The Company did not expense deferred
tax assets during 2017 after consideration of the Company’s valuation allowance. During 2016 and 2015, the
Company expensed deferred tax assets of $1 million and $2 million, respectively, related to the stock option
awards as a charge through the statements of operations. As of December 31, 2017, there was no remaining
unrecognized compensation cost and all stock options had vested.

There were no stock options outstanding as of December 31, 2017. A summary of the Company’s stock options
outstanding as of December 31, 2017, 2016 and 2015, and changes during the years ended on those dates, is
presented in the following tables:

Options

2017

2016

2015

Number of
Shares

Weighted
Average Price
Per Share

Number of
Shares

Weighted
Average Price
Per Share

Number of
Shares

Weighted
Average Price
Per Share

Outstanding at beginning of year
Exercised
Expired or forfeited

237,800 $

14.6689

2,325,300 $

(200,000)
(37,800)

5.0500 (2,050,000)
(37,500)

65.5624

6.3703 2,548,000 $
4.4722
57.5100

—
(222,700)

10.9888
—
59.2118

Outstanding at end of year

Exercisable at end of year

— $

—

237,800 $

14.6689 2,325,300 $

6.3703

237,800 $

14.6689 2,325,300 $

6.3703

Performance Based Awards

During 2017, the Company granted 65,287 restricted shares to certain key employees which have a vesting
schedule dependent on the achievement of certain stock price targets of the Company and 127,001 restricted
shares to certain key employees which have a vesting schedule dependent on the achievement of certain internal
performance conditions of the Company. The grants and corresponding compensation expense have been
included in the above restricted stock disclosures. As permitted by the accounting guidance for share-based
payments, the Company estimates the fair value of awards that contain market performance conditions at the
date of grant using a binomial lattice model with a Monte Carlo simulation and recognizes compensation cost over
the requisite service period. The binomial lattice model can better incorporate assumptions about a stock price
path because the model can accommodate a large number of potential stock prices over the award’s term in
comparison to the Black-Scholes model. The Company estimates the fair value of awards that contain internal
performance conditions at the date of grant and recognizes compensation cost over the requisite service period if
it is probable that the internal performance conditions will be achieved. The Company reassesses the probability
of vesting at each reporting period and the final compensation cost associated with awards dependent on the
achievement of certain internal performance conditions will reflect only those awards that ultimately vest.

149

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 17: Earnings Per Share

Earnings per share is calculated using the two-class method in which earnings are allocated to common stock and
participating securities based on their rights to receive nonforfeitable dividends or dividend equivalents. The
Company grants restricted stock and restricted stock units to certain employees and non-employee directors in
accordance with the Company’s long-term incentive programs, which entitle the participants to receive
nonforfeitable dividends or dividend equivalents during the vesting period on the same basis as those dividends
are paid to common shareholders. These unvested stock awards represent participating securities. During
periods of net income, the calculation of earnings per share exclude the income attributable to participating
securities in the numerator and the dilutive impact of these securities from the denominator. During periods of net
loss, no effect is given to participating securities in the numerator and the denominator excludes the dilutive
impact of these securities since they do not share in the losses of the Company.

Basic earnings per share excludes dilution and is computed by dividing net income available to common
shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings
per share reflects the dilutive effect of all stock options, warrants and unvested restricted stock outstanding during
the period that could potentially result in the issuance of common stock. The dilution from stock options, warrants
and unvested restricted stock are calculated by applying the two-class method and using the treasury stock
method. The treasury stock method assumes the proceeds from the exercise of stock options and warrants or the
unrecognized compensation expense from unvested restricted stock will be used to purchase shares of the
Company’s common stock at the average market price during the period. During periods of net loss, stock
options, warrants and unvested restricted stock are excluded from the calculation because they would have an
antidilutive affect. Therefore, in periods of net loss, the calculation of basic and diluted earnings per share would
result in the same value.

The following table presents the computation of basic and diluted earnings per share for the years ended
December 31, 2017, 2016, and 2015:

In millions except per share amounts

Basic earnings per share:

Net income (loss)
Less: undistributed earnings allocated to participating securities

Years Ended December 31,

2017

2016

2015

$(1,605) $ (338) $ 180
6

—

Net income (loss) available to common shareholders

(1,605)

(338)

174

Basic weighted average shares(1)
Net income (loss) per basic common share

Diluted earnings per share:

Net income (loss)
Less: undistributed earnings allocated to participating securities

Net income (loss) available to common shareholders

Basic weighted average shares(1)
Effect of common stock equivalents:

Stock options

Diluted weighted average shares

Net income (loss) per diluted common share

Potentially dilutive securities excluded from the diluted EPS because of antidilutive

affect

118.9

163.9
$(13.50) $(2.54) $ 1.06

133.0

$(1,605) $ (338) $ 180
6

—

(1,605)

(338)

174

118.9

133.0

163.9

—

1.0

118.9

133.0

164.9

$(13.50) $(2.54) $ 1.06

14.1

16.5

18.0

(1) Includes 0.3 million, 0.9 million and 0.6 million of participating securities that met the service condition and were eligible to receive
nonforfeitable dividends or dividend equivalents for the years ended December 31, 2017, 2016 and 2015, respectively.

150

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 18: Common and Preferred Stock

Common Stock

Share Repurchases

Repurchases of common stock may be made from time to time in the open market or in private transactions as
permitted by securities laws and other legal requirements. The Company believes that share repurchases can be
an appropriate deployment of capital in excess of amounts needed to support the Company’s liquidity while
maintaining the claims-paying resources of MBIA Corp. and National, as well as other business needs.

In the fourth quarter of 2014, the Company’s Board of Directors authorized the repurchase of common stock up to
$200 million under a new share repurchase program. On July 29, 2015, the Company’s Board of Directors
authorized the repurchase by the Company or National of up to $100 million of its outstanding shares under a
new share repurchase program, which superseded and terminated the prior fourth quarter 2014 authorization.
The prior authorization had approximately $61 million of unused capacity at the time it was terminated. On
October 28, 2015, the Company’s Board of Directors authorized the repurchase by the Company or National of up
to $100 million of its outstanding common stock under a new share repurchase program, as the Company’s
July 29, 2015 authorization was fully exhausted. During 2016, the Company exhausted any remaining capacity
under the October 28, 2015 repurchase program.

On February 23, 2016, the Company’s Board of Directors authorized the repurchase by the Company or National
of up to $100 million of its outstanding shares under a new share repurchase authorization. On June 27, 2017, the
Company’s Board of Directors approved a new share repurchase authorization for the Company or National to
repurchase up to $250 million of the Company’s outstanding common shares. This new program replaced
approximately $13 million remaining under the Board’s February 23, 2016 authorization. During 2017, the
Company exhausted any remaining capacity under the June 27, 2017 authorization. On November 3, 2017, the
Company’s Board of Directors approved a new share repurchase authorization for the Company or National to
repurchase up to $250 million of the Company’s outstanding common shares. As of December 31, 2017,
$250 million remained available under the November 3, 2017 program.

The following table provides information about the Company’s or National’s share repurchases for the years
ended December 31, 2017, 2016 and 2015:

In millions, except per share amounts

Number of shares repurchased
Average price paid per share
Remaining authorization as of December 31

2017

2016

2015

43.0
$7.55
$ 250

16.6
$6.37
$ 88

39.9
$7.60
$ 94

During 2017 and 2016, 490,557 and 419,806 shares, respectively, were purchased by the Company for settling
awards under the Company’s long-term incentive plans.

Stock Warrants

In May of 2013, MBIA Inc. issued Blue Ridge Investments LLC (“Blue Ridge”), an affiliate of Bank of America, a
five-year warrant to purchase 9.94 million shares of MBIA Inc. common stock at an exercise price of $9.59 per
share. In March of 2017, Blue Ridge transferred the warrant to Highbridge International LLC (“Highbridge”).

In August of 2013, pursuant to the anti-dilution provisions of warrants issued by MBIA to Warburg Pincus LLC
(“Warburg”) in 2008, MBIA issued Warburg a five-year warrant to purchase 1.91 million shares of MBIA common
stock at an exercise price of $9.59 per share, which was transferred to Highbridge in April of 2016.

Stock warrants are recorded as liabilities and reported within “Other liabilities” on the consolidated balance sheets
due to terms and conditions in the agreements that could require net cash settlement. As of December 31, 2017
and 2016, the fair value of the warrants was $6 million and $33 million, respectively.

151

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 18: Common and Preferred Stock (continued)

Preferred Stock

As of December 31, 2017, MBIA Insurance Corporation had 2,759 shares of preferred stock issued and
outstanding with a carrying value of $28 million, including 1,444 shares held by MBIA Inc. that were purchased at
a weighted average price of $10,900 per share or 10.9% of face value and 1,315 shares held by unaffiliated
investors. During 2017, MBIA Inc. did not repurchase any additional shares.

In accordance with MBIA’s fixed-rate election, the dividend rate on the preferred stock was determined using a
fixed-rate equivalent of LIBOR plus 200 basis points. Each share of preferred stock has a par value of $1,000 with
a liquidation preference of $100,000. The holders of the preferred stock are generally not entitled to any voting
rights. Subject to certain requirements, the preferred stock may be redeemed, in whole or in part, at the option of
MBIA Corp. at any time or from time to time for cash at a redemption price equal to the liquidation preference per
share plus any accrued and unpaid dividends thereon at the date of redemption for the then current dividend
period and any previously accumulated dividends payable without interest on such unpaid dividends. As of
December 31, 2017 and 2016, there were no dividends declared on the preferred stock. Payment of dividends on
MBIA Corp.’s preferred stock is subject to the same restrictions that apply to dividends on common stock under
NYIL.

Note 19: Accumulated Other Comprehensive Income

The following table presents the changes in the components of AOCI for the years ended December 31, 2017,
2016 and 2015:

In millions

Balance, January 1, 2015

Other comprehensive income (loss) before reclassifications
Amounts reclassified from AOCI

Net period other comprehensive income (loss)
Balance, December 31, 2015

Other comprehensive income (loss) before reclassifications
Amounts reclassified from AOCI

Net period other comprehensive income (loss)
Balance, December 31, 2016

Other comprehensive income (loss) before reclassifications
Amounts reclassified from AOCI

Net period other comprehensive income (loss)

Unrealized
Gains (Losses)
on AFS
Securities, Net

34 $

(55)
(1)

(56)
(22)

27
1

28
6

(24)
8

(16)

Foreign Currency
Translation, Net

Total

(13) $
(26)
—

(26)
(39)

(95)
—

21
(81)
(1)

(82)
(61)

(68)
1

(95)
(134)

(67)
(128)

125
—

125

101(1)
8

109

Balance, December 31, 2017

(10) $

(9) $ (19)

(1)—Includes items included in the Company’s loss calculation to adjust the carrying value of MBIA UK to its fair value less costs to sell for the
year ended December 31, 2016. The sale was completed in January of 2017 and as such, these amounts included in AOCI were reversed and
included in the Sale Transaction.

152

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 19: Accumulated Other Comprehensive Income (continued)

The following table presents the details of the reclassifications from AOCI for the years ended December 31,
2017, 2016 and 2015:

In millions

Amounts Reclassified
from AOCI Years
Ended December 31,

Details about AOCI Components

2017

2016

2015

Affected Line Item on the Consolidated
Statements of Operations

Unrealized gains (losses) on

AFS securities:
Realized gain (loss) on sale of

securities

OTTI
Amortization on securities

Total reclassifications for the

period

$ 3
(7)
(5)

(9)
(1)

$ 7
(4)
(6)

(3)
(2)

$11
(4)
(4)

3
2

$(8)

$(1)

$ 1

Net gains (losses) on financial instruments at fair
value and foreign exchange
Net investment losses related to OTTI
Net investment income

Income (loss) before income taxes
Provision (benefit) for income taxes

Net income (loss)

Note 20: Commitments and Contingencies

MBIA has received subpoenas or informal inquiries from a variety of regulators, regarding a variety of subjects.
MBIA has cooperated fully with each of these regulators and has or is in the process of satisfying all such
requests. MBIA may receive additional inquiries from these or other regulators and expects to provide additional
information to such regulators regarding their inquiries in the future.

Litigation

MBIA Insurance Corp. v. Credit Suisse Securities (USA) LLC, et al.; Index No. 603751/2009 (N.Y. Sup. Ct., N.Y.
County)

On December 14, 2009, MBIA Corp. commenced an action in New York State Supreme Court, New York County,
against Credit Suisse Securities (USA) LLC, DLJ Mortgage Capital, Inc. and Select Portfolio Servicing Inc.
(collectively, “Credit Suisse”). The complaint seeks damages for fraud and breach of contractual obligations in
connection with the procurement of financial guarantee insurance on the Home Equity Mortgage Trust Series
2007-2 securitization. On January 30, 2013, MBIA Corp. filed an amended complaint. The amended complaint
alleges, among other claims, that Credit Suisse falsely represented: (i) the attributes of the securitized loans;
(ii) that the loans complied with the governing underwriting guidelines; and (iii) that Credit Suisse had conducted
extensive due diligence on and quality control reviews of the securitized loans to ensure compliance with the
underwriting guidelines. The complaint further alleges that the defendants breached their contractual obligations
to cure or repurchase loans found to be in breach of the representations and warranties applicable thereto and
denied MBIA the requisite access to all records and documents regarding the securitized loans. On March 31,
2017, the court granted in part and denied in part the parties’ summary judgment motions, including granting
Credit Suisse’s request to dismiss MBIA‘s fraud claim. Oral argument before the Appellate Division of the
Supreme Court, First Judicial Department on the parties’ cross-appeals from the court’s March 31, 2017 decision
and order on the parties’ summary judgment motions took place on October 24, 2017 and a decision is pending.

MBIA Insurance Corp. v. J.P. Morgan Securities LLC (f/k/a Bear, Stearns & Co. Inc.); Index No. 64676/2012 (N.Y.
Sup. Ct., County of Westchester)

On September 14, 2012, MBIA Corp. filed a complaint alleging fraud against J.P. Morgan Securities LLC (f/k/a
Bear, Stearns & Co. Inc.) relating to Bear, Stearns & Co. Inc.’s role as lead securities underwriter on the GMAC
Mortgage Corporation Home Equity Loan Trust 2006-HE4. On June 6, 2017, the parties filed a stipulation
acknowledging that they had resolved the claims in litigation and dismissing the action with prejudice.

153

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 20: Commitments and Contingencies (continued)

Ambac Bond Insurance Coverage Cases, Coordinated Proceeding Case No. JCCP 4555 (Super. Ct. of Cal.,
County of San Francisco)

On July 23, 2008, the City of Los Angeles filed a complaint in the Superior Court of the State of California, County
of Los Angeles, against a number of financial guarantee insurers, including MBIA. At the same time and
subsequently, additional complaints were filed by other municipal entities and quasi-municipal entities. These
cases are part of a coordination proceeding in Superior Court, San Francisco County, before Judge Curtis E. A.
Karnow. In August of 2011, the plaintiffs filed amended versions of their respective complaints. The claims allege
violation of California’s antitrust laws through maintaining a dual credit rating scale that misstated the credit
default risk of certain issuers, thereby creating market demand for bond insurance. The plaintiffs also allege that
the individual bond insurers participated in risky financial transactions in other lines of business that damaged
each bond insurer’s financial condition, and failure to adequately disclose the impact of those transactions on their
financial condition. The non-municipal plaintiffs also allege a California unfair competition cause of action. On
December 11, 2017, the parties reached a settlement of the litigation, which is expected to be finalized in the first
half of 2018, at which point the matter will be dismissed with prejudice.

Lynn Tilton and Patriarch Partners XV, LLC v. MBIA Inc. and MBIA Insurance Corp. v.; Index
No.68880/2015 (N.Y. Sup. Ct., County of Westchester)

On November 2, 2015, Lynn Tilton and Patriarch Partners XV, LLC filed a complaint in New York State Supreme
Court, Westchester County, against MBIA Inc. and MBIA Corp., alleging fraudulent inducement and related claims
arising from purported promises made in connection with insurance policies issued by MBIA Corp. on certain
collateralized loan obligations managed by Ms. Tilton and affiliated Patriarch entities, and seeking damages. The
plaintiffs filed an amended complaint on January 15, 2016. On January 17, 2017, MBIA filed its answer. Discovery
concluded in October 2017 and a Trial Readiness Conference was held on November 3, 2017, at which the Court
set a schedule for the briefing of summary judgment motions, which was completed as of February 1, 2018 and a
decision on which is now pending. On January 8, 2018, Justice Gretchen Walsh was assigned to the case.

National Public Finance Guarantee Corporation v. Padilla, Civ. No. 16-cv-2101 (D.P.R. June 15, 2016)
(Besosa J.)

On June 15, 2016, National filed a complaint in federal court in Puerto Rico challenging the Puerto Rico
Emergency Moratorium and Financial Rehabilitation Act (Law 21-2016 or the “Moratorium Act”) as
unconstitutional under the United States Constitution. On June 22, 2016, National filed a motion for partial
summary judgment on its claim that the Moratorium Act is preempted by the federal Bankruptcy Code. On July 7,
2016, the Puerto Rico defendants filed a motion to stay the case pursuant to the Puerto Rico Oversight,
Management and Economic Stability Act (“PROMESA”), which was granted by the Court in August of 2016. The
defendants filed their answer to the complaint on July 26, 2016. On November 15, 2016, the District Court denied
National’s motion to lift the stay on litigation pursuant to PROMESA. On January 30, 2017, the District Court
denied without prejudice National’s partial motion for a summary judgment. On January 11, 2017, the U.S. Court
of Appeals for the First Circuit affirmed the denial of a separate plaintiff’s motion to lift the PROMESA stay in a
related action challenging the Moratorium Act. Accordingly, the case remained stayed through May 1, 2017, at
which time the PROMESA stay expired. However, on May 3, 2017, Puerto Rico filed a Title III petition under
PROMESA, thereby staying this dispute under Title III of PROMESA. On August 1, 2017, the District Court
dismissed the case with prejudice. On August 28, 2017, National filed a motion for reconsideration.

Assured Guaranty Corp. et al. v. Commonwealth of Puerto Rico et al., Case No. 3:17-cv-01578 (D.P.R. May 3,
2017) (Swain, J.)

On May 3, 2017, the Financial Oversight and Management Board filed a petition under Title III of PROMESA to
adjust the debts of Puerto Rico. On the same day, National, together with Assured Guaranty Corp. and Assured
Guaranty Municipal Corp., f/k/a Financial Security Assurance Inc., filed an adversary complaint in the case
commenced by the Title III filing, alleging that the Fiscal Plan and the Fiscal Plan Compliance Act, signed into law by
the Governor of Puerto Rico on April 29, 2017, violate PROMESA and the United States Constitution. On October 6,
2017, National, together with the other plaintiffs in the filing, voluntarily dismissed the complaint without prejudice.

154

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 20: Commitments and Contingencies (continued)

The Bank of New York Mellon v. Puerto Rico Sales Tax Financing Corporation, et al., Case No. 17-133-LTS
(D.P.R. May 16, 2017) (Swain, J.)

On May 16, 2017, the Bank of New York Mellon, as trustee for COFINA, filed an adversary complaint seeking an
interpleader and declaratory relief relating to conflicting directions from multiple stakeholders regarding alleged
events of default. National has intervened in this matter. Given the complexity of the issues, the judge granted
Bank of New York’s interpleader request ordering a freeze on disbursements to all bondholders and temporarily
setting aside the funds until the dispute can be resolved between the parties. Under a scheduling order, discovery
is underway and motions for summary judgment and opening briefs were filed on February 21, 2018.

Assured Guaranty Corp. et al. v. Commonwealth of Puerto Rico et al., Case No. 17 BK 3567-LTS (D.P.R. June 3,
2017) (Swain, J.)

On May 21, 2017, the Oversight Board filed a petition under Title III of PROMESA to adjust the debts for the
Puerto Rico Highways & Transportation Authority (“PRHTA”). On June 3, 2017, National, together with Assured
Guaranty Corp. and Assured Guaranty Municipal Corp. and Financial Guaranty Insurance Company, filed an
adversary complaint PRHTA Title III case, alleging that the Commonwealth and PRHTA are unlawfully diverting
pledged special revenues from the payment of certain PRHTA bonds to the Commonwealth’s General Fund.
Motions to dismiss were filed on June 28, 2017, and oral arguments were heard on November 21, 2017. On
January 30, 2018, the court granted the Commonwealth defendants’ motion to dismiss the PRHTA-related
adversary complaint. On February 9, 2018, National, together with Assured, Assured Guaranty Municipal Corp.
and Financial Guaranty Insurance Company filed their notice of appeal of the motions to dismiss to the United
States Court of Appeals for the First Circuit.

National Public Finance Guarantee Corp. et al. v. The Financial Oversight and Mgmt. Bd. et al., Case No.
3:17-cv-01882 (D.P.R. June 26, 2017) (Besosa, J.)

On June 26, 2017, National, together with Assured Guaranty Corp. and Assured Guaranty Municipal Corp., filed a
complaint against the Oversight Board, its chairman and certain of its members seeking declaratory, injunctive
and mandamus relief requiring the Oversight Board to comply with certain of its obligations under PROMESA. On
July 17, 2017, the plaintiffs filed an amended complaint against the Oversight Board, its chairman, and certain of
its members in their official and individual capacities, seeking declaratory relief under PROMESA and asserting a
claim for nominal damages against the individual defendants for tortious interference with the PREPA
Restructuring Support Agreement. By order of the Court date August 7, 2017, the litigation was stayed.

National Public Finance Guarantee Corp. et al. v. The Financial Oversight and Mgmt. Bd. et al., Case No. 17
BK-04780 (D.P.R. August 7, 2017)

On August 7, 2017, National, together with Assured Guaranty Corp., Assured Guaranty Municipal Corp., the Ad
Hoc Group of PREPA Bondholders, and Syncora Guarantee Inc. filed an adversary complaint under Title III of
PROMESA against PREPA, the Financial Oversight and Management Board for Puerto Rico, Puerto Rico Fiscal
Agency and Financial Advisory Authority, et al to enforce Plaintiffs’ contractual interest and constitutional right to
revenues that PREPA pledged to bondholders but has thus far refused to turn over. Plaintiffs seek a declaration
that Defendants have violated sections 922(d) and 928(a) of the Bankruptcy Code, and that efforts to compel
Defendants to apply such revenues to pay for debt service on the Bonds are not stayed as provided under section
922(d) of the Bankruptcy Code. Plaintiffs also seek a declaration that, pursuant to sections 922(d) and 928 of the
Bankruptcy Code as incorporated into PROMESA, PREPA is only authorized to use Revenues to pay for current
operating expenses in the current time period, not for future expenses that may be deferred to or payable at a
later date. In addition to declaratory relief, Plaintiffs also seek injunctive relief prohibiting Defendants from taking
or causing to be taken any action that would further violate sections 922(d) and 928(a) of the Bankruptcy Code
and ordering Defendants to remit Revenues for the uninterrupted and timely payment of debt service on the
Bonds in accordance with sections 922(d) and 928(a) of the Bankruptcy Code. On October 13, 2017, National,
together with the other plaintiffs in the filing, voluntarily dismissed without prejudice the above referenced
adversary complaint.

155

MBIA Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 20: Commitments and Contingencies (continued)

The Official Committee of Unsecured Creditors of the Commonwealth of Puerto Rico, as agent of the
Commonwealth of Puerto Rico v. Bettina Whyte, as agent of the Puerto Rico Sales Tax Financing Corporation,
Adv. Proc. No. 17-257-LTS in Case No. 17 BK 3283-LTS (D.P.R. Sept. 8, 2017)

On August 10, 2017, the Court approved and entered a Stipulation and Order Approving Procedure to Resolve
Commonwealth-COFINA Dispute in the PROMESA Title III proceeding relating to whether sales and use taxes
purportedly pledged by COFINA to secure debt are property of the Commonwealth or COFINA under applicable
law. On November 16, 2017, National intervened as a Defendant in the adversary proceeding and filed its
answer, affirmative defenses, and counterclaims. On December 21, 2017, the Court issued an order, which, inter
alia, dismissed without prejudice, certain claims of the intervenors that exceeded the scope of the
Commonwealth-COFINA dispute including certain of National’s counterclaims. National’s first counterclaim which
seeks a declaratory judgment that the COFINA statutes are constitutional remains a part of this litigation. On
January 13, 2018, the Court permitted the Commonwealth Agent to file a second amended complaint. National’s
answer was filed on January 30, 2018.

For those aforementioned actions in which it is a defendant, the Company is defending against those actions and
expects ultimately to prevail on the merits. There is no assurance, however, that the Company will prevail in these
actions. Adverse rulings in these actions could have a material adverse effect on the Company’s ability to
implement its strategy and on its business, results of operations, cash flows and financial condition. At this stage
of the litigation, there has not been a determination as to the amount, if any, of damages. Accordingly, the
Company is not able to estimate any amount of loss or range of loss. The Company similarly can provide no
assurance that it will be successful in those actions in which it is a plaintiff.

There are no other material lawsuits pending or, to the knowledge of the Company, threatened, to which the
Company or any of its subsidiaries is a party.

Lease Commitments

The Company has a lease agreement for its headquarters in Purchase, New York as well as other immaterial
leases for offices in New York, New York and San Francisco, California. The Purchase, New York initial lease
term expires in 2030 with the option to terminate the lease in 2025 upon the payment of a termination amount.
This lease agreement included an incentive amount to fund certain leasehold improvements, renewal options,
escalation clauses and a free rent period. This lease agreement has been classified as an operating lease, and
operating rent expense has been recognized on a straight-line basis since the second quarter of 2014. As of
December 31, 2017, total future minimum lease payments remaining on this lease were $36 million.

156

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, an evaluation of the effectiveness of the design and operation
of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934) was performed under the supervision and with the participation of the Company’s senior
management, including the Chief Executive Officer and the Chief Financial Officer. Based on that evaluation, the
Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the
Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting

As required by Rule 13a-15(d) under the Exchange Act, the Company’s management, including its Chief
Executive Officer and Chief Financial Officer, has evaluated the Company’s internal control over financial
reporting to determine whether any changes occurred during the fourth fiscal quarter covered by this annual
report that have materially affected or are reasonably likely to materially affect, our internal control over financial
reporting. Based on that evaluation, there has been no such change during the fourth fiscal quarter of 2017.

Management’s Report on Internal Control over Financial Reporting

Management of MBIA Inc. and its subsidiaries is responsible for establishing and maintaining adequate internal
control over financial reporting. The Company’s internal control over financial reporting is a process designed
under the supervision of the Company’s principal executive and principal financial officers to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external
reporting purposes in accordance with accounting principles generally accepted in the United States of America.

MBIA’s internal control over financial reporting includes policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of
assets; (2) provide reasonable assurances that transactions are recorded as necessary to permit preparation of
financial statements in accordance with accounting principles generally accepted in the United States of America,
and that receipts and expenditures are being made only in accordance with authorizations of management and
the directors of the Company; and, (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the
Company’s financial statements.

Management has assessed the effectiveness of MBIA Inc. internal control over financial reporting as of
December 31, 2017. In making its assessment, management conducted an assessment of the effectiveness of
the Company’s internal control over financial reporting based on the framework established in Internal Control—
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Based on this assessment and those criteria, management has determined that the Company’s internal
control over financial reporting as of December 31, 2017 was effective.

The effectiveness of the Company’s internal control over financial reporting as of December 31, 2017 has been
audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their
report, which is included in Item 8, “Financial Statements and Supplementary Data.”

Item 9B. Other Information

None.

157

Part III

Item 10. Directors, Executive Officers and Corporate Governance

Information regarding directors will be set forth under “Proposals for Shareholder Approval Recommended by the
Board—Proposal 1: Election of Directors” and “Board of Directors Corporate Governance—The Board of
Directors and its Committees” in the Company’s Proxy Statement to be filed within 120 days of the end of our
fiscal year ended December 31, 2017 (the “Proxy Statement”) and is incorporated by reference.

Information regarding executive officers is set forth under Part I, Item 1, “Business—Executive Officers of the
Registrant,” included in this annual report.

Information regarding Section 16(a) beneficial ownership reporting compliance will be set forth in the section
“Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement and is incorporated by
reference.

Information regarding the Company’s Audit Committee will be set forth under “Board of Directors Corporate
Governance—The Board of Directors and its Committees” in the Proxy Statement and is incorporated by
reference.

The Company has adopted a code of ethics that applies to all employees of the Company including its Chief
Executive Officer, Chief Financial Officer and its controller. A copy of such code of ethics can be found on the
Company’s internet website at www.mbia.com. The Company intends to satisfy the disclosure requirements
under Item 10 of Form 8-K regarding an amendment to, or waiver from, a provision of its code of ethics and that
relates to a substantive amendment or material departure from a provision of the Code by posting such
information on its internet website at www.mbia.com.

Item 11. Executive Compensation

Information regarding compensation of the Company’s directors and executive officers will be set forth under
“Board of Directors Corporate Governance—The Board of Directors and its Committees,” “Compensation and
Governance Committee Report,” “Compensation Discussion and Analysis” and “Executive Compensation Tables”
in the Proxy Statement and is incorporated by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters

Information regarding security ownership of certain beneficial owners and management will be set forth under
“Security Ownership of Certain Beneficial Owners” and “Security Ownership of Directors and Executive Officers”
in the Proxy Statement and is incorporated by reference.

The following table provides information as of December 31, 2017, regarding securities authorized for issuance
under our equity compensation plans. All outstanding awards relate to our common stock. For additional
information about our equity compensation plans refer to “Note 16: Long-term Incentive Plans” in the Notes to
Consolidated Financial Statements included in this Annual Report on Form 10-K.

Plan category

Equity compensation plans approved

by security holders

Equity compensation plans not
approved by security holders

Total

(a)

(b)

(c)

Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights(1)

Weighted average
exercise price of
outstanding options,
warrants and rights

Number of securities remaining
available for future issuance
under equity compensation plans
(excluding securities reflected in
column (a))(2)

162,611 $

—

162,611 $

13.25

—

13.25

6,376,068

—

6,376,068

(1)—Represents phantom shares granted under the Deferred Compensation and Stock Ownership Plan for Non-Employee Directors.
(2)—Includes 6,207,299 shares of common stock available for future grants under the MBIA Inc. 2005 Omnibus Incentive Plan and 168,769
shares of common stock available for future grants under the Deferred Compensation and Stock Ownership Plan for Non-Employee Directors.

158

Item 13. Certain Relationships and Related Transactions, and Director Independence

Information regarding certain relationships and related transactions will be set forth under “Certain Relationships
and Related Transactions” in the Proxy Statement and is incorporated by reference. Information regarding
director independence will be set forth under “Proposals for Shareholder Approval Recommended by the Board—
Proposal 1: Election of Directors—Director Independence” in the Proxy Statement and is incorporated by
reference.

Item 14. Principal Accounting Fees and Services

Information regarding principal accounting fees and services will be set forth under “Principal Accountant Fees
and Services” in the Proxy Statement and is incorporated by reference.

159

Item 15. Exhibits, Financial Statement Schedules

(a) Financial Statements and Financial Statement Schedules and Exhibits

Part IV

1. Financial Statements

The following financial statements of MBIA Inc. have been included in Part II, Item 8 hereof:

Report of Independent Registered Public Accounting Firm.

Consolidated balance sheets as of December 31, 2017 and 2016.

Consolidated statements of operations for the years ended December 31, 2017, 2016 and 2015.

Consolidated statements of comprehensive income (loss) for the years ended December 31, 2017, 2016
and 2015.

Consolidated statements of changes in shareholders’ equity for the years ended December 31, 2017,
2016 and 2015.

Consolidated statements of cash flows for the years ended December 31, 2017, 2016 and 2015.

Notes to consolidated financial statements.

2. Financial Statement Schedules

The following financial statement schedules are filed as part of this report.

Schedule

Title

I.
II.

Summary of investments, other than investments in related parties, as of December 31, 2017.
Condensed financial information of Registrant:

Condensed balance sheets as of December 31, 2017 and 2016.
Condensed statements of operations for the years ended December 31, 2017, 2016 and 2015.
Condensed statements of cash flows for the years ended December 31, 2017, 2016 and 2015.
Notes to condensed financial statements.

IV.

Reinsurance for the years ended December 31, 2017, 2016 and 2015.

The report of the Registrant’s Independent Registered Public Accounting Firm with respect to the above listed
financial statement schedules is included within the report listed under Item 15.1 above.

All other schedules are omitted because they are not applicable or the required information is shown in the
consolidated financial statements or notes thereto.

3. Exhibits

An exhibit index immediately preceding the Exhibits indicates the exhibit number where each exhibit filed as part
of this report can be found.

(Note Regarding Reliance on Statements in Our Contracts: In reviewing the agreements included as exhibits
to this Annual Report on Form 10-K, please remember that they are included to provide you with information
regarding their terms and are not intended to provide any other factual or disclosure information about MBIA Inc.,
its subsidiaries or the other parties to the agreements. The agreements contain representations and warranties by
each of the parties to the applicable agreement. These representations and warranties have been made solely for
the benefit of the other parties to the applicable agreement and (i) should not in all instances be treated as
categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements
prove to be inaccurate; (ii) have been qualified by disclosures that were made to the other party in connection with
the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;
(iii) may apply standards of materiality in a way that is different from what may be viewed as material to investors;
and (iv) were made only as of the date of the applicable agreement or such other date or dates as may be
specified in the agreement and are subject to more recent developments. Accordingly, these representations and
warranties may not describe the actual state of affairs as of the date they were made or at any other time.)

160

Item 15. Exhibits, Financial Statement Schedules (continued)

3. Articles of Incorporation and By-Laws.

3.1. Amended and Restated Certificate of Incorporation, dated May 5, 2005, incorporated by reference to
Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2005.

3.2. By-Laws as Amended as of July 14, 2009, incorporated by reference to Exhibit 3.1 to the Company’s Current
Report on Form 8-K filed on July 16, 2009, as Amended as of July 27, 2017, incorporated by reference to
Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on July 31, 2017.

4. Instruments Defining the Rights of Security Holders, including Indentures.

4.1. Indenture, dated as of August 1, 1990, between MBIA Inc. and The First National Bank of Chicago, Trustee,
incorporated by reference to Exhibit 10.72 to the Company’s Annual Report on Form 10-K for the fiscal year
ended December 31, 1992 as amended by the First Supplemental Indenture, dated as of August 22, 2002,
between MBIA Inc. and Bank One Trust Company, N.A., as Trustee, in connection with the $300,000,000 6.4%
senior notes due 2022, incorporated by reference to the Exhibit 4.04 to the Company’s Current Report on Form
8-K filed on August 22, 2002, and the Second Supplemental Indenture, dated as of November 21, 2012, between
MBIA Inc. and The Bank of New York Mellon, as Trustee, incorporated by reference to Exhibit 4.1 to the
Company’s Current Report on Form 8-K filed on November 26, 2012.

4.2. Senior Indenture, dated as of November 24, 2004, between MBIA Inc. and The Bank of New York, as
Trustee, incorporated by reference to Exhibit 4.01 to the Company’s Current Report on Form 8-K filed on
November 29, 2004 as amended by the First Supplemental Indenture, dated as of November 24, 2004, between
MBIA Inc. and The Bank of New York, as Trustee, in connection with the $350,000,000 5.70% senior notes due
2034, incorporated by reference to Exhibit 4.02 to the Company’s Current Report on Form 8-K filed on
November 29, 2004 as amended by the Second Supplemental Indenture, dated as of November 21, 2012,
between MBIA Inc. and The Bank of New York Mellon, as Trustee, incorporated by reference to Exhibit 4.2 to the
Company’s Current Report on Form 8-K filed on November 26, 2012.

4.3. Fiscal Agency Agreement, dated as of January 16, 2008, between MBIA Insurance Corporation and The
Bank of New York, incorporated by reference to Exhibit 4.01 to the Company’s Current Report on Form 8-K filed
on January 17, 2008.

4.4. Form of MBIA Corp. 14% Fixed-to-Floating Rate Global Note due January 15, 2033, incorporated by
reference to Exhibit 4.02 to the Company’s Current Report on Form 8-K filed on January 17, 2008.

4.5. Warrant Agreement, dated as of May 6, 2013, between MBIA Inc. and Blue Ridge Investments, L.L.C.,
incorporated by reference to Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 2013.

4.6. Warrant Agreement, dated as of August 5, 2013, between MBIA Inc. and Warburg Pincus Private Equity X,
L.P., incorporated by reference to Exhibit 4.2 to the Company’s Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 2013.

4.7. Senior Note Indenture, dated as of January 10, 2017, between MZ Funding LLC and Wilmington Savings
Fund Society, FSB, as Trustee and Collateral Agent, incorporated by reference to Exhibit 99.1 to the Company’s
Current Report on Form 8-K filed on January 10, 2017.

4.8. Form of MZ Funding LLC $328,250,000 14% Senior Secured Note due January 20, 2020, incorporated by
reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed on January 10, 2017.

4.9. Subordinated Note Indenture, dated as of January 10, 2017, between MZ Funding LLC and Wilmington
Savings Fund Society, FSB, as Trustee and Collateral Agent, incorporated by reference to Exhibit 99.3 to the
Company’s Current Report on Form 8-K filed on January 10, 2017.

4.10. Form of MZ Funding LLC $88,000,000 14% Senior Secured Note due January 20, 2020, incorporated by
reference to Exhibit 99.4 to the Company’s Current Report on Form 8-K filed on January 10, 2017.

161

Item 15. Exhibits, Financial Statement Schedules (continued)

4.11. Credit Agreement dated as of January 10, 2017 between MBIA Insurance Corp. and MZ Funding LLC,
incorporated by reference to Exhibit 99.5 to the Company’s Current Report on Form 8-K filed on January 10,
2017.

4.12. Security Agreement dated as of January 10, 2017 between MBIA Insurance Corp. as Grantor and MZ
Funding LLC as Secured Party, incorporated by reference to Exhibit 99.6 to the Company’s Current Report on
Form 8-K filed on January 10, 2017.

4.13. Security Agreement dated as of January 10, 2017 between MZ Funding LLC as Grantor and Wilmington
Savings Fund Society, FSB as Collateral Agent under the Senior Note Indenture referenced herein as Exhibit 4.8
and incorporated by reference to Exhibit 99.7 to the Company’s Current Report on Form 8-K filed on January 10,
2017.

4.14. Security Agreement dated as of January 10, 2017 between MZ Funding LLC as Grantor and Wilmington
Savings Fund Society, FSB as Collateral Agent under the Subordinated Note Indenture referenced herein as
Exhibit 4.9 and incorporated by reference to Exhibit 99.8 to the Company’s Current Report on Form 8-K filed on
January 10, 2017.

4.15. Pledge Agreement dated as of January 10, 2017 between MBIA Inc. as Pledgor and Wilmington Savings
Fund Society, FSB as Collateral Agent under the Subordinated Note Indenture referenced herein as Exhibit 4.7
and incorporated by reference to Exhibit 99.9 to the Company’s Current Report on Form 8-K filed on January 10,
2017.

4.16. Intercreditor Agreement dated as of January 10, 2017 amongst Wilmington Savings Fund Society, FSB as
Trustee MZ Funding LLC and MBIA Insurance Corp. as Insurer, incorporated by reference to Exhibit 99.10 to the
Company’s Current Report on Form 8-K filed on January 10, 2017.

10. Material Contracts

Executive Compensation Plans and Arrangements

The following Exhibits identify all existing executive compensation plans and arrangements:

10.1. MBIA Inc. Annual Incentive Plan, effective January 1, 2016, incorporated by reference to Exhibit A to the
Company’s Proxy Statement filed on March 24, 2015.

10.2. MBIA Inc. 2005 Omnibus Incentive Plan, as amended through March, 2012, incorporated by reference to
Exhibit A to the Company’s Proxy Statement filed on March 19, 2012, as amended by the Amendment thereto,
effective as of May 2, 2013.

10.3. Key Employee Employment Protection Plan, amended as of February 27, 2007, incorporated by reference
to Exhibit 10.80 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007, as
further amended by Amendment No. 2, effective February 22, 2010, incorporated by reference to Exhibit 10.13 to
the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009.

10.4. Form of Key Employee Employment Protection Agreement, amended as of February 27, 2007, incorporated
by reference to Exhibit 10.81 to the Company’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2007.

10.5. MBIA Inc. 2005 Non-Employee Director Deferred Compensation Plan (as amended through February 2014),
incorporated by reference to Exhibit 10.1 to the Company’s Form S-8 filed on March 5, 2014 (Reg. No. 333-194335).

162

Item 15. Exhibits, Financial Statement Schedules (continued)

10.6. Amended and Restated MBIA Inc. Deferred Compensation and Excess Benefit Plan, effective as of
March 22, 2010, incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for
the fiscal quarter ended March 31, 2010.

10.7. Cash Retention Award and Restricted Stock Agreement, dated as of December 21, 2012, between MBIA
Inc. and William C. Fallon, incorporated by reference to Exhibit 10.16 to the Company’s Annual Report on Form
10-K for the fiscal year ended December 31, 2012.

10.8. Cash Retention Award and Restricted Stock Agreement, dated as of December 21, 2012, between MBIA
Inc. and Anthony McKiernan, incorporated by reference to Exhibit 10.17 to the Company’s Annual Report on
Form 10-K for the fiscal year ended December 31, 2012.

10.9. Cash Retention Award and Restricted Stock Agreement, dated as of December 21, 2012, between MBIA
Inc. and Ram Wertheim, incorporated by reference to Exhibit 10.18 to the Company’s Annual Report on Form
10-K for the fiscal year ended December 31, 2012.

10.10 Restricted Stock Award Agreement between MBIA Inc. and Joseph W. Brown, dated as of March 17, 2014,
incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 2014.

10.11 Amended Restricted Stock Award Agreement between MBIA Inc. and Joseph W. Brown, dated as of
March 2, 2015, incorporated by reference to Exhibit 10.16 to the Company’s Annual Report on Form 10-K for the
year ended December 31, 2014.

21. List of Subsidiaries.

23. Consent of PricewaterhouseCoopers LLP.

31.1. Chief Executive Officer—Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2. Chief Financial Officer—Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1. Chief Executive Officer—Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.

32.2. Chief Financial Officer— Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.

99.1. Quota Share Reinsurance Agreement between MBIA Insurance Corporation and MBIA Insurance Corp. of
Illinois dated February 17, 2009, incorporated by reference to Exhibit 99.1 to the Company’s Current Report on
Form 8-K filed on February 20, 2009.

99.2. Novation Agreement, dated as of September 14, 2012, between Financial Guaranty Insurance Company
and National Public Finance Guarantee Corporation, incorporated by reference to Exhibit 99.3 to the Company’s
Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2013.

99.3. Amended and Restated Tax Sharing Agreement, dated as of September 8, 2011, between MBIA Inc. and
certain of its subsidiaries, incorporated by reference to Exhibit 99.3 to the Company’s Annual Report on Form
10-K for the year ended December 31, 2014.

101. Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets as of
December 31, 2017 and 2016; (ii) Consolidated Statements of Operations for the years ended December 31,
2017, 2016 and 2015; (iii) Consolidated Statements of Comprehensive Income (Loss) for the years ended
December 31, 2017, 2016 and 2015; (iv) Consolidated Statements of Changes in Shareholders’ Equity for the
years ended December 31, 2017, 2016 and 2015; (v) Consolidated Statements of Cash Flows for the years
ended December 31, 2017, 2016 and 2015 and (vi) Notes to Consolidated Financial Statements.

163

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has
caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

MBIA Inc.
(Registrant)

Dated: March 1, 2018

/s/ William C. Fallon

By
Name: William C. Fallon
Title:

Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature

Title

Date

/s/ William C. Fallon

William C. Fallon

Director and Chief Executive Officer

March 1, 2018

/s/ Anthony McKiernan

Chief Financial Officer

March 1, 2018

Anthony McKiernan

/s/

Joseph R. Schachinger
Joseph R. Schachinger

Assistant Vice President and Controller
(Chief Accounting Officer)

March 1, 2018

/s/ Charles R. Rinehart

Chairman and Director

March 1, 2018

Charles R. Rinehart

/s/

Francis Y. Chin

Director

Francis Y. Chin

/s/ Steven J. Gilbert

Steven J. Gilbert

/s/ Theodore Shasta

Theodore Shasta

Director

/s/ Richard C. Vaughan

Director

Richard C. Vaughan

March 1, 2018

164

SCHEDULE I

MBIA INC. AND SUBSIDIARIES
SUMMARY OF INVESTMENTS, OTHER THAN INVESTMENTS IN RELATED PARTIES
December 31, 2017
(In millions)

Type of investment

Available-for-sale:

U.S. Treasury and government agency
State and municipal bonds
Foreign governments
Corporate obligations
Mortgage-backed securities:

Residential mortgage-backed agency
Residential mortgage-backed non-agency
Commercial mortgage-backed

Asset-backed securities:

Collateralized debt obligations
Other asset-backed

Total long-term available-for-sale

Short-term available-for-sale
Equity available-for-sale

Total available-for-sale

Investments at fair value
Other investments

Total investments

Assets of consolidated variable interest entities:

Investments at fair value
Held-to-maturity:

Corporate obligations

Loans receivable

December 31, 2017

Cost

Fair Value

Amount at
which shown
in the
balance sheet

$ 985 $ 1,014 $

840
4
1,173

365
35
66

116
175

3,759
676
3

4,438
223
2

857
4
1,117

362
32
66

116
175

3,743
676
4

4,423
230
2

$4,663 $ 4,655 $

157

182

890
1,085

916
1,679

1,014
857
4
1,117

362
32
66

116
175

3,743
676
4

4,423
230
2

4,655

182

890
1,679

2,751

Total investments of consolidated variable interest entities

$2,132 $ 2,777 $

165

SCHEDULE II

MBIA INC. (PARENT COMPANY)
CONDENSED BALANCE SHEETS
(In millions except share and per share amounts)

Assets
Investments:

Fixed-maturity securities held as available-for-sale, at fair value (amortized cost

$590 and $687)

Investments carried at fair value
Investments pledged as collateral, at fair value (amortized cost $155 and $242)
Short-term investments held as available-for-sale, at fair value (amortized cost

$283 and $278)
Other investments

Total investments
Cash and cash equivalents
Investment in wholly-owned subsidiaries
Deferred income taxes, net
Other assets

Total assets

Liabilities and Shareholders’ Equity

Liabilities:

Investment agreements
Long-term debt
Affiliate loans payable
Income taxes payable
Other liabilities

Total liabilities

Shareholders’ Equity:

Preferred stock, par value $1 per share; authorized shares—10,000,000; issued

and outstanding—none

Common stock, par value $1 per share; authorized shares—400,000,000; issued

shares—283,717,973 and 283,989,999

Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss), net of tax
Treasury stock, at cost—192,233,526 and 148,789,168 shares

Total shareholders’ equity of MBIA Inc.

Total liabilities and shareholders’ equity

December 31,
2017

December 31,
2016

639 $
8
148

283
1

1,079
10
2,290
—
144

3,523 $

301 $
576
772
237
224

725
6
233

278
2

1,244
13
3,673
1,003
107

6,040

361
576
901
696
279

2,110

2,813

—

284
3,171
1,095
(19)
(3,118)

1,413

3,523 $

284
3,160
2,700
(128)
(2,789)

3,227

6,040

The condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto and the accompanying notes.

166

SCHEDULE II

MBIA INC. (PARENT COMPANY)
CONDENSED STATEMENTS OF OPERATIONS
(In millions)

Revenues:

Net investment income
Net gains (losses) on financial instruments at fair value and foreign exchange
Investment losses related to other-than-temporary impairments:

Investment losses related to other-than-temporary impairments
Other-than-temporary impairments recognized in accumulated other

comprehensive income (loss)

Net investment losses related to other-than-temporary impairments

Net gains (losses) on extinguishment of debt
Other net realized gains (losses)

Total revenues

Expenses:
Operating
Interest

Total expenses

Gain (loss) before income taxes and equity in earnings of subsidiaries

Provision (benefit) for income taxes

Gain (loss) before equity in earnings of subsidiaries

Equity in net income (loss) of subsidiaries

Years ended December 31,

2017

2016

2015

35 $

(34)

29 $ 35
59

(13)

—

—
28
(3)

13
87

100

(74)
507

(1)

—

(3)

(1)

(4)
5 —

(5)

16
90

106

(91)
(15)

111

24
95

119

(8)
1

(9)
189

(581)
(1,024)

(76)
(262)

Net income (loss)

$(1,605) $(338) $180

The condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto and the accompanying notes.

167

SCHEDULE II

MBIA INC. (PARENT COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
(In millions)

Cash flows from operating activities:

Fees and reimbursements received
Investment income received
Operating expenses paid
Interest paid, net of interest converted to principal
Income taxes (paid) received

Net cash provided (used) by operating activities

Cash flows from investing activities:

Purchases of available-for-sale investments
Sales of available-for-sale investments
Paydowns and maturities of available-for-sale investments
Purchases of investments at fair value
Sales, paydowns and maturities of investments at fair value
Sales, paydowns and maturities (purchases) of short-term investments, net
(Payments) proceeds for derivative settlements
Collateral (to) from counterparty
Contributions to subsidiaries, net
Advances to subsidiaries, net
Other investing

Net cash provided (used) by investing activities

Cash flows from financing activities:

Proceeds from investment agreements
Principal paydowns of investment agreements
Proceeds from long-term debt
Principal paydowns of long-term debt
Payments for affiliate loans
Purchases of treasury stock
Restricted stock awards settlements

Net cash provided (used) by financing activities

Effect of exchange rates on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents—beginning of year

Cash and cash equivalents—end of year

Reconciliation of net income (loss) to net cash provided (used) by operating activities:

Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided (used) by operating

activities:
Change in:

Intercompany accounts receivable
Current income taxes

Equity in earnings of subsidiaries
Dividends from subsidiaries
Net investment losses related to other-than-temporary impairments
Net (gains) losses on financial instruments at fair value and foreign exchange
Other net realized (gains) losses
Deferred income tax provision (benefit)
(Gains) losses on extinguishment of debt
Other operating

Total adjustments to net income (loss)

Years ended December 31,

2017

2016

2015

— $

141
(27)
(78)
26

(164)
172
152
(70)
71
(34)
(30)
4
(12)
(3)
—

15
(81)
127
—
(156)
(65)
11

(149)

(2)
(3)
13

4 $ —
142
(24)
(88)
108

144
(18)
(84)
73

119

138

(129)
165
90
(57)
58
1
(37)
52
(10)
—
—

133

16
(80)
—
—
(111)
(108)
8

(275)

1
(22)
35

(606)
325
186
(144)
171
232
43
(31)
16
—
24

216

21
(111)
—
(11)
(103)
(234)
19

(419)

—
(65)
100

10 $

13 $

$(1,605) $(338) $ 180

(22)
48
1,024
118
—
34
3
485
(28)
5

1,667

(8)
78
262
118
1
13
5
(20)
(5)
13

457

(20)
109
(189)
116
4
(59)
(21)
—
—
18

(42)

Net cash provided (used) by operating activities

62 $ 119 $ 138

The condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto and the accompanying notes.

168

SCHEDULE II

MBIA INC. (PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS

1. Condensed Financial Statements

Certain information and footnote disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States of America have been condensed or omitted. It
is suggested that these condensed financial statements be read in conjunction with the Company’s consolidated
financial statements and the notes thereto.

The activities of MBIA Inc. (the “Parent Company”) consist of general corporate activities and funding activities,
which principally include holding and managing investments, servicing outstanding corporate debt, investment
agreements issued by the Parent Company and its subsidiaries, and posting collateral under investment
agreement and derivative contracts.

The Parent Company is subject to the same liquidity risks and uncertainties as described in footnote 1 to the
Company’s consolidated financial statements. As of December 31, 2017, the liquidity position of the Parent
Company, which included cash and cash equivalents or short-term investments comprised of highly rated
commercial paper, money market funds and municipal, U.S. agency and corporate bonds for general corporate
purposes, excluding the amount held in escrow under its tax sharing agreement, was $419 million.

During 2017, National purchased from the Parent Company, $129 million principal amount of MBIA Inc. 5.700%
Senior Notes due 2034 that were previously repurchased by the Parent Company and had not been retired. The
MBIA Inc. 5.700% Senior Notes due 2034 that were purchased by National were eliminated from the Parent
Company’s condensed balance sheet.

2. Accounting Policies

The Parent Company carries its investments in subsidiaries under the equity method.

Certain amounts have been reclassified in prior years’ financial statements to conform to the current presentation.
This includes a change in the presentation of cash paid when withholding shares for tax-withholding purposes in
“Purchases of treasury stock” on the Parent Company’s condensed statement of cash flows as required under
Accounting Standards Update (“ASU”) 2016-09, “Compensation-Stock Compensation (Topic 718)”. The change in
presentation effected “Operating expenses paid”, in operating cash flows and “Purchases of treasury stock”, in
financing cash flows, on the Parent Company’s condensed statement of cash flows in prior periods. The
reclassifications had no material impact on total revenues, expenses, assets, liabilities, shareholders’ equity,
operating cash flows, investing cash flows, or financing cash flows for all periods presented.

For a further discussion of significant accounting policies and recent accounting pronouncements, refer to
footnotes 2 and 3 to the Company’s consolidated financial statements.

3. Dividends from Subsidiaries

During 2017 and 2016, National Public Finance Guarantee Holdings, Inc. declared and paid a dividend of
$118 million to the Parent Company.

During 2015, National Public Finance Guarantee Holdings, Inc. declared and paid a dividend of $114 million to the
Parent Company, Trifinium Holdings Limited declared and paid dividends of $1 million to the Parent Company and
MBIA Services Corp. declared and paid a dividend of $1 million to the Parent Company.

169

4. Deferred Tax Asset, Net of Valuation Allowance

The Parent Company recognizes deferred tax assets and liabilities for the expected future tax consequences of
events that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are
determined based on the differences between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in
tax rates on tax assets and liabilities is recognized in income in the period that includes the enactment date.
Valuation allowances are established to reduce deferred tax assets to the amount that more likely than not will be
realized.

The Parent Company considered all available positive and negative evidence as required by generally accepted
accounting principles, to estimate if sufficient taxable income will be generated to use its net deferred tax asset.
After considering all positive and negative evidence, including the Parent Company’s inability to objectively
identify and forecast future sources of taxable income, the Parent Company concluded in the second quarter of
2017 it did not have sufficient positive evidence to support its ability to use its net deferred tax asset before it
would expire. Accordingly, the Parent Company established a full valuation allowance against its net deferred tax
asset.

For a further discussion of the net deferred tax asset, refer to footnote 11 to the Company’s consolidated financial
statements.

5. Obligations under Investment Agreements

Investment agreements, as described in footnote 10 to the Company’s consolidated financial statements, are
conducted by both the Parent Company and its wholly-owned subsidiary, MBIA Investment Management Corp.

6. Pledged Collateral

Substantially all of the obligations under investment agreements require the Parent Company to pledge securities
as collateral. As of December 31, 2017 and 2016, the fair value of securities pledged as collateral with respect to
these investment agreements approximated $350 million and $394 million, respectively. The Parent Company’s
collateral as of December 31, 2017, consisted principally of U.S. Treasury and government agency and state and
municipal bonds, and was primarily held with major U.S. banks. Additionally, the Parent Company pledged cash
and money market securities as collateral under investment agreements in the amount of $6 million as of
December 31, 2016.

Under derivative contracts entered into by the Parent Company, collateral postings are required by either the
Parent Company or the counterparty when the aggregate market value of derivative contracts entered into with
the same counterparty exceeds a predefined threshold. As of December 31, 2017 and 2016, the Parent Company
pledged securities with a fair value of $237 million and $276 million, respectively, to derivative counterparties.

7. Affiliate Loans Payable

Affiliate loans payable consists of loans payable to MBIA Global Funding, LLC (“GFL”). GFL raised funds through
the issuance of medium-term notes with varying maturities, which were, in turn, guaranteed by MBIA Corp. GFL
lent the proceeds of these medium-term note issuances to the Parent Company.

170

SCHEDULE IV

MBIA INC. AND SUBSIDIARIES
REINSURANCE

Years Ended December 31, 2017, 2016 and 2015
(In millions)

Column A
Insurance
Premium Written

2017

2016

2015

Column B
Direct
Amount

Column C
Ceded to
Others

Column D
Assumed
From
Other
Companies

Column F
Percentage
of Amount
Assumed
to Net

Column E
Net
Amount

(1) $

37 $

11 $

(1) $

1 $

— $

(2)

171

SUBSIDIARIES OF MBIA INC.

Exhibit 21

Name of Subsidiary

State/Country of Incorporation

LaCrosse Financial Products, LLC
LaCrosse Financial Products Member, LLC
MBIA Capital Corp.
MBIA Global Funding, LLC
MBIA Insurance Corporation
MBIA Investment Management Corp.
MBIA Mexico, S.A. de C.V.
MBIA Services Corporation
MBIA UK (Holdings) Limited
Municipal Issuers Service Corporation
MZ Funding LLC
National Public Finance Guarantee Holdings, Inc.
National Public Finance Guarantee Corporation
Promotora de Infraestructura Registral II, S.A. de C.V., SOFOM, E.R.
Trifinium Services Limited

Delaware
Delaware
Delaware
Delaware
New York
Delaware
Mexico
Delaware
England and Wales
New York
Delaware
Delaware
New York
Mexico
England and Wales

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No.
333-213028) and Form S-8 (Nos. 033-46062, 333-152894, 333-159648, 333-165713, 333-183529,
333-190738 and 333-194335) of MBIA Inc. of our report dated March 1, 2018 relating to the
consolidated financial statements, financial statement schedules and the effectiveness of internal
control over financial reporting, which appears in this Form 10-K.

Exhibit 23

/s/ PricewaterhouseCoopers LLP
New York, New York
March 1, 2018

CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, William C. Fallon, certify that:

Exhibit 31.1

I have reviewed the Annual Report of MBIA Inc. (the “Company”) on Form 10-K for the period
ending December 31, 2017 as filed with the Securities and Exchange Commission on the
date hereof (the “Report”);

2. Based on my knowledge, this Report does not contain any untrue statement of a material fact

or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the
period covered by this Report;

3. Based on my knowledge, the financial statements, and other financial information included in
this Report, fairly present in all material respects the financial condition, results of operations
and cash flows of the Company as of, and for, the periods presented in this Report;

4. The Company’s other certifying officers and I are responsible for establishing and maintaining

disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the Company and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls

and procedures to be designed under our supervision, to ensure that material information
relating to the Company, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this Report is being
prepared;

(b) designed such internal control over financial reporting, or caused such internal control

over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting
principles;

(c) evaluated the effectiveness of the Company’s disclosure controls and procedures and
presented in this Report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this Report based on
such evaluation; and

(d) disclosed in this Report that there were no changes in the Company’s internal control

over financial reporting that occurred during the Company’s fourth quarter of 2017 that
has materially affected, or is reasonably likely to materially affect, the Company’s internal
control over financial reporting; and

5. The Company’s other certifying officers and I have disclosed, based on our most recent

evaluation of internal control over financial reporting, to the Company’s auditors and to the
audit committee of the board of directors:

(a) all significant deficiencies and material weaknesses in the design or operation of internal

control over financial reporting which are reasonably likely to adversely affect the
Company’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who
have a significant role in the Company’s internal control over financial reporting.

/s/ William C. Fallon
William C. Fallon
Chief Executive Officer
March 1, 2018

CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Anthony McKiernan, certify that:

Exhibit 31.2