Full Description

MBIA Inc. (MBIA), incorporated in 1986, is engaged in providing financial guarantee business through its wholly owned subsidiaries MBIA Corp. and MBIA Insurance Corp. of Illinois (MBIA Illinois) and conduct the investment management business through the Company and its subsidiaries, the wholly owned subsidiary MBIA Asset Management, LLC (MBIA Asset Management). The financial services provided by the Company includes financial guarantee insurance, as well as related reinsurance, advisory and portfolio services for the public and structured finance markets, and investment management services, including advisory services, asset/liability products and conduits. In February 2009, the Company restructured the business to re-launch MBIA Illinois as a United States public finance-only financial guarantee company (the MBIA Illinois Transformation) through a series of transactions.

The financial guarantee insurance provides investors with an unconditional and irrevocable guarantee of the payment of the principal, interest or other amounts owing on insured obligations when due or, in the event that have the right at the discretion to accelerate insured obligations upon default or otherwise, upon the acceleration. The investment management business has three operating segments: asset/liability products, which historically raised funds for investment through the issuance by the Company or its subsidiaries of investment agreements and medium-term notes which are guaranteed by, and receive the rating of, MBIA Insurance Corporation (MBIA Corp.); advisory services, including cash management, discretionary asset management and structured products provided on a fee-for-service basis for public, not-for-profit corporate and financial services clients, including the Company, MBIA Corp., other affiliates and third-party clients, and conduits, which through two wholly owned and MBIA-administered financing vehicles, historically provided funding for multiple customers by issuance of commercial paper and medium-term notes (MTNs) guaranteed by MBIA Corp. in exchange for administrative fees.

Insurance operations

MBIA Illinois offers financial guarantee insurance in the United States for domestic public finance bonds. MBIA Corp. has in the past offered, directly and through its subsidiaries, financial guarantee insurance in the United States, Europe, Asia, Latin America and other regions outside the United States. Through its reinsurance of United States public finance financial guarantees from MBIA Corp. and FGIC, MBIA Illinois’ insurance portfolio consists of municipal bonds, including tax-exempt and taxable indebtedness of Unites States political subdivisions, as well as utility districts, 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. During the year ended December 31, 2008, MBIA Corp. had 32,954 policies outstanding in the portion of its insurance portfolio that was ceded or assigned to MBIA Illinois.

MBIA Corp. has insured and reinsured structured finance and international financial obligations which are sold in the new issue and secondary markets. MBIA Corp. has guaranteed structured finance and asset-backed obligations, including obligations collateralized by diverse pools of corporate loans or secured by or payable from a specific pool of assets having an ascertainable future cash flow; payments due under credit and other derivatives, including termination payments that may become due upon the occurrence of certain events, as further described below; privately issued bonds used for the financing of public purpose projects, which are primarily located outside of the United States and that include toll roads, bridges, airports, public transportation facilities and other types of infrastructure projects serving a substantial public purpose, and obligations of sovereign and sub-sovereign obligations. In 2008, MBIA Corp. had 1,469 policies outstanding in the portion of its insured portfolio that was not ceded or assigned to MBIA Illinois effective January 1, 2009. In addition, MBIA Corp. has issued 425 policies relating to MBIA Asset Management transactions.

Structured finance obligations insured by MBIA Corp. typically are securities repayable from expected cash flows generated by a pool of assets, such as residential and commercial mortgages, insurance policies, consumer loans, corporate loans and bonds, trade and export receivables, leases for equipment, aircraft and real property, and infrastructure projects. Structured finance obligations are either secured by undivided interests or collateralized by the related assets. Additional policies have included payments due under credit and other derivatives, including termination payments that may become due upon certain events, including the insolvency or payment default of MBIA Corp.

Outside the United States, financial guarantee insurance has been used by issuers of sovereign and sub-sovereign bonds, structured finance securities, utility debt and financing for public purpose projects, among others. The Company have insured both structured finance and public finance obligations in select international markets and the risk profile of the international exposure is similar to that in the United States, although there are unique risk factors related to each country and region that are evaluated at origination and on an ongoing basis. These factors include legal, regulatory, economic and political variables, the sophistication of and trends in local capital markets and currency exchange risks. Ongoing privatization initiatives in some regions have shifted the financing of new projects from the government to the capital markets, where investors can benefit from the default protection provided by financial guarantee insurance. The development of structured finance securitizations has varied to date by region depending on the development stage of the local capital markets and the impact of financial regulatory requirements, accounting standards and legal systems.

Investment management services

The investment management services operations consist of three operating segments: asset/liability products, advisory services and conduits. Under the asset/liability management business, MBIA Inc. and its subsidiaries have issued debt and investment agreements, which are insured by MBIA Corp. to capital markets and municipal investors and then purchased assets that match the duration of those liabilities.

MBIA Asset Management’s assets/liability products segment historically raised funds for investment through several sources: customized investment agreements for bond proceeds and other public funds for such purposes as construction, loan origination, escrow and debt service or other reserve fund requirements; customized products for funds that are invested as part of asset-backed or structured product transactions, and issuance of MTNs with varying maturities by the affiliate MBIA Global Funding, LLC (GFL). All of these products are guaranteed by MBIA Corp.

In the advisory services segment, MBIA Asset Management offers cash management, customized asset management and investment consulting services to local governments, school districts and other institutional clients through MBIA Municipal Investors Service Corporation (MBIA-MISC). MBIA Asset Management also offers fixed-income asset management services for third parties and the investment portfolios of the Company, MBIA Corp. and other affiliates on a fee-for-service basis through MBIA Capital Management Corp. (CMC). Third-party clients include corporations, pension funds, municipalities, insurance companies and investment companies, as well as structured programs, such as collateralized debt obligations (CDOs) and funding vehicles.

The Conduits have been used by banks and other financial institutions to raise funds for their customers in the capital markets. No new MTNs were issued in 2008 and there were no outstanding issues of commercial paper at the end of the year. The Conduits have provided funding for multiple customers through special purpose vehicles that issue commercial paper and MTNs. The proceeds from these issuances were used to either make loans to customers, who are secured by certain assets or to purchase assets from customers. All transactions in the Conduits are insured by MBIA Corp. and are subject to MBIA Corp.’s standard underwriting process.