MBIA Insurance Corporation · Services (“Moody’s”) terminating the agreement by which Moody’s agreed to provide financial strength ratings to MBIA Corp. and MBIA Mexico. On

MBIA Insurance Corporation Statutory-Basis Financial Statements December 31, 2018 and 2017

MBIA Insurance Corporation Table of Contents December 31, 2018 and 2017

Page(s)

Independent Auditor’s Report ................................................................................................................. 1-2

Statutory-Basis Financial Statements

Statements of Admitted Assets, Liabilities and Capital and Surplus .............................................................. 3

Statements of Income ..................................................................................................................................... 4

Statements of Changes in Capital and Surplus ............................................................................................... 5

Statements of Cash Flows ............................................................................................................................... 6

Notes to Statutory-Basis Financial Statements ........................................................................................ 7 - 40

Supplemental Schedules

Summary Investment Schedule .....................................................................................................................41

Supplemental Investment Risks Interrogatories .................................................................................... 42 - 47

Supplemental Schedule of Reinsurance Disclosures ............................................................................. 48 - 49

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MBIA INSURANCE CORPORATION STATUTORY-BASIS STATEMENTS OF ADMITTED ASSETS, LIABILITIES and CAPITAL and SURPLUS

(Dollars in thousands except share and per share amounts) December 31, 2018 December 31, 2017

Admitted Assets Investments: Fixed-maturity securities, (fair value $93,822 and $97,856) $ 86,425 $ 86,010 Investments in subsidiaries 6,161 5,908 Other investments 1 - Total investments 92,587 91,918 Cash and cash equivalents 140,499 166,113 Total cash and investments 233,086 258,031 Accrued investment income 1,132 859 Current tax receivable - 37 Other assets 1,675 3,504 Total admitted assets $ 235,893 $ 262,431

Liabilities, Capital and Surplus Liabilities: Deferred premium revenue $ 109,212 $ 194,409 Loss and loss adjustment expense reserves (net of salvage and subrogation recoverable) (865,529) (792,102) Contingency reserve 198,836 226,917 Borrowed money 429,055 385,508 Other liabilities 8,378 11,164 Total liabilities (120,048) 25,896 Capital and Surplus: Common stock, par value $220.80 per share; authorized, issued and outstanding - 67,936 shares 15,000 15,000 Series A non-cumulative perpetual preferred stock, par value $1,000 per share; liquidation value $100,000 per share; authorized - 4,000.08 shares, issued and outstanding - 2,759.08 shares 2,759 275,908 Surplus notes 952,655 952,655 Additional paid-in capital 1,055,941 782,792 Unassigned surplus (deficit) (1,670,414) (1,789,820) Total capital and surplus 355,941 236,535 Total liabilities, capital and surplus $ 235,893 $ 262,431

The accompanying notes are an integral part of the statutory-basis financial statements.

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MBIA INSURANCE CORPORATION STATUTORY-BASIS STATEMENTS OF INCOME

(Dollars in thousands)

Years ended December 31, 2018 2017 Revenues: Gross premiums written $ 70,125 $ 54,040 Ceded premiums (14,933) (13,354) Net premiums written 55,192 40,686 Decrease in deferred premium revenue 75,594 23,795 Net premiums earned 130,786 64,481 Fees and reimbursements 24,674 11,541 Total revenues 155,460 76,022 Expenses: Losses incurred (37,214) 182,645 Loss adjustment expenses incurred 1,104 3,459 Other underwriting expenses 13,642 23,844 Total underwriting expenses (benefit) (22,468) 209,948 Net underwriting income (loss) 177,928 (133,926) Investment income: Net investment (loss) income (50,689) (41,111) Net realized gains (losses) 316 271,226 Net investment (loss) gain (50,373) 230,115 Other income (expense), net 6,948 10,960 Income (loss) before income taxes 134,503 107,149 Provision for income taxes 22 4 Net income (loss) $ 134,481 $ 107,145


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MBIA INSURANCE CORPORATION STATUTORY-BASIS STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS

For the years ended December 31, 2018 and 2017

(Dollars in thousands except share amounts)

Additional Unassigned Total Common Stock Preferred Stock Surplus Paid-in Surplus Capital and Shares Amount Shares Amount Notes Capital (Deficit) Surplus Balance, January 1, 2017 67,936 $ 15,000 2,759.08 $ 275,908 $ 952,655 $ 782,792 $ (1,788,112) $ 238,243 Net income (loss) - - - - - - 107,145 107,145 Change in non-admitted assets - - - - - - 110,457 110,457 Change in net unrealized foreign capital gain (loss) - - - - - - 2,670 2,670 Change in contingency reserve - - - - - - 26,441 26,441 Change in net unrealized gain on investment in subsidiaries - - - - - - (259,175) (259,175) Change in net unrealized (gain) on investments - - - - - - (1,026) (1,026) Correction of error - - - - - - 11,780 11,780 Balance, December 31, 2017 67,936 15,000 2,759.08 275,908 952,655 782,792 (1,789,820) 236,535 Net income (loss) - - - - - - 134,481 134,481 Change in non-admitted assets - - - - - - (43,755) (43,755) Change in net unrealized foreign capital gain (loss) - - - - - - 714 714 Change in contingency reserve - - - - - - 28,081 28,081 Change in net unrealized (gain) on investment in subsidiaries - - - - - - (442) (442) Change in net unrealized loss on investments - - - - - - 327 327 Correction of error - - - (273,149) - 273,149 - - Balance, December 31, 2018 67,936 $ 15,000 2,759.08 $ 2,759 $ 952,655 $ 1,055,941 $ (1,670,414) $ 355,941


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MBIA INSURANCE CORPORATION STATUTORY-BASIS STATEMENTS OF CASH FLOWS

(Dollars in thousands)

Years ended December 31, 2018 2017 Cash from operations Premiums collected, net of reinsurance $ 55,116 $ 26,714 Net investment income (8,601) (22,989) Miscellaneous income (expense) (1) 31,000 Total 46,514 34,725 Loss payments 18,264 403,126 Loss adjustment expense, commissions, expenses paid and income received 8,506 34,763 Federal and foreign income taxes (received) paid (15) 8 Total 26,755 437,897 Net cash provided (used) by operations 19,759 (403,172) Cash from investments Proceeds from investments sold, matured or repaid: Fixed-maturity securities 730 13,030 Common stocks 103 461 Miscellaneous - (12,701) Total investment proceeds 833 790 Cost of investments acquired: Fixed-maturity securities 10 7,331 Common stocks 695 23,876 Miscellaneous 1 - Total investments acquired 706 31,207 Net cash provided (used) by investments 127 (30,417) Cash from financing Proceeds (repayments) from (to) Facility (44,283) 359,831 Net transfers from (to) affiliates (35) 9,497 Other (1,182) 9,796 Net cash provided (used) for financing (45,500) 379,124 Net change in cash and cash equivalents (25,614) (54,465) Cash and cash equivalents - beginning of year 166,113 220,578 Cash and cash equivalents - end of year $ 140,499 $ 166,113 Note: Supplemental disclosures of cash flow information for non-cash transactions: Paid interest in kind on the Facility $ 42,538 $ 16,744 Zohar II Notes received from Assured Guaranty Corp. $ - $ 346,549 Non-cash consideration received from the sale of MBIA UK $ - $ (331,232) Appreciation to the par value of the Zohar II Notes $ - $ (15,317)


MBIA INSURANCE CORPORATION NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS As of and for the years ended December 31, 2018 and 2017

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1. Business Developments and Risks and Uncertainties

Summary

MBIA Insurance Corporation, an entity domiciled in the state of New York (“MBIA,” “MBIA Corp.” or the “Company”), is a wholly-owned subsidiary of MBIA Inc. (“Parent Company”). MBIA Inc. was incorporated in Connecticut on November 12, 1986 as a licensed insurer and, through a series of transactions during December 1986, became the successor to the business of the Municipal Bond Insurance Association, a voluntary unincorporated association of insurers writing municipal bond and note insurance as agent for the member insurance companies.

The guarantees of MBIA Corp. generally provide unconditional and irrevocable guarantees of the payments of the principal of, and interest or other amounts owing on, insured obligations when due or, in the event MBIA Corp. has the right at its discretion to accelerate insured obligations upon default or otherwise, upon MBIA Corp.’s acceleration. MBIA Corp.’s guarantees insure structured finance and asset-backed obligations and privately issued bonds used for the financing of public purpose projects, which are primarily located outside of the United States (“U.S.”) that include toll roads, bridges, airports, public transportation facilities, utilities and other types of infrastructure projects serving a substantial public purpose, and obligations of sovereign-related and sub-sovereign issuers. Structured finance and asset-backed securities 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, leases for equipment, aircraft and real property.

MBIA Corp. insures certain financial obligations written by affiliates of MBIA Corp. If these affiliates were to have insufficient assets to pay amounts due, MBIA Corp. would be called upon to make such payments under its insurance policies.

MBIA Corp. issued financial guarantee insurance in Mexico, through its wholly-owned subsidiary, MBIA México, S.A. de C.V. (“MBIA Mexico”).

Business Developments

Financial Strength Ratings

On November 28, 2017, MBIA Inc., on behalf of its subsidiary, MBIA Corp., provided notice to Standard and Poor’s (“S&P”) terminating the agreements by which S&P agreed to provide financial strength ratings to MBIA Inc. and MBIA Corp. On December 1, 2017, S&P withdrew its ratings. On September 28, 2017, MBIA Inc., on behalf of its subsidiary, 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 Corp. and MBIA Mexico. On January 17, 2018, Moody’s affirmed the financial strength rating of MBIA Corp. at Caa1 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.

Sale of MBIA UK

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”), a financial guarantee insurance company licensed in the United Kingdom, and made a cash payment of $23 million to Assured Guaranty Corp. (“Assured”), a subsidiary of Assured Guaranty Ltd., in exchange for the receipt by MBIA UK Holdings of certain notes (“Zohar II Notes”) owned by Assured that were issued by Zohar II 2005-1, Limited (“Zohar II”) (the “Sale Transaction”). In connection with the sale, in 2017, MBIA Corp. 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. This adjustment was included within “Net realized gains (losses)” on the Company’s Statutory-Basis Statements of Income.

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 MBIA Inc., 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 12. Debt” for further information about the Facility.


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Insured Portfolio MBIA Corp.’s primary objectives are to satisfy claims for 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 reducing and mitigating 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 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 the Company’s 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 Corp. will not be able to pay its policyholder claims, the NYSDFS would likely put MBIA Corp. 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 Corp.’s policyholders. The determination to commence such a proceeding or take other such actions is within the exclusive control of the NYSDFS.

Zohar 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 collateralized debt obligation (“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. MBIA Corp. anticipates that the primary source of recovery will come from the monetization of the Zohar assets, 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. There can be no assurance, however, 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.

RMBS Recoveries MBIA Corp. also projects to collect excess spread from insured residential mortgage-backed securities (“RMBS”), and to recover proceeds from Credit Suisse Securities (USA) LLC, DLJ Mortgage Capital, Inc. and Select Portfolio Servicing Inc. (collectively, “Credit Suisse”) arising from its failure to repurchase ineligible loans that were included in a Credit Suisse sponsored RMBS transaction. However, the amount and timing of these collections and recoveries are uncertain. Refer to “Note 9. Loss and Loss Adjustment Expense Reserves” for information about MBIA Corp.’s recoveries.

Liquidity

The primary sources of cash available to MBIA Corp. are: • 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: • loss and loss adjustment expense 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 “Note 8.

Capital and Surplus and Dividend Restrictions” for a discussion on the non-approval of requests to the NYSDFS to pay interest on its surplus notes.


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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 its monitoring process. In order to monitor liquidity risk and maintain appropriate liquidity resources, MBIA Corp. uses the same methodology as it uses to monitor credit quality and losses within its insured portfolio, including stress scenarios. Refer to “Note 9: Loss and Loss Adjustment Expense Reserves” for a discussion of MBIA Corp.’s loss process.

Advances Agreement

MBIA Inc., National Public Finance Guarantee Corporation (“National”), MBIA Corp. and certain other subsidiaries of MBIA Inc. 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 London Inter-bank Offered Rate (“LIBOR”) plus 0.25%. The agreement also permits other affiliates to advance funds to National or MBIA Corp. at a rate per annum equal to LIBOR minus 0.10%. As of December 31, 2018 and 2017, there were no amounts drawn under the agreement.

Risks and Uncertainties

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

• Medium-term notes (“MTNs”) issued by MBIA Inc.’s subsidiary, MBIA Global Funding, LLC ("GFL”), which areinsured by MBIA Corp., would accelerate. To the extent GFL failed to pay the accelerated amounts under the GFLMTNs, the MTN holders would have policy claims against MBIA Corp. for scheduled payments of interest andprincipal;

• An MBIA Corp. proceeding may accelerate certain investment agreements issued by MBIA Inc., including, in somecases, 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 paythe accelerated amounts under these investment agreements or the collateral securing these investment agreements isdeemed insufficient to pay the accelerated amounts due, the holders of the investment agreements would have policyclaims against MBIA Corp.;

• The payment of installment premiums due to National from MBIA Corp. under the reinsurance agreement betweenNational and MBIA Corp. could be disrupted, delayed or subordinated to the claims of policyholders of MBIA Corp.Refer to “Note 10. Insurance in Force” for a description of the agreement;

• Credit default swaps (“CDS”) and other derivative counterparties may seek to terminate derivative contracts insured byMBIA Corp. and make market-based damage claims (irrespective of whether actual credit-related losses are expectedunder the underlying exposure);

• The rehabilitator or liquidator would replace the Board of Directors of MBIA Corp. and take control of the operationsand assets of MBIA Corp., which would result in MBIA Inc. losing control of MBIA Corp. and possible changes toMBIA Corp.’s strategies and management; and

• Significant additional expenses for MBIA Corp. 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.

2. Summary of Significant Accounting Policies

Basis of Presentation

The statutory financial statements of MBIA Corp. are presented on the basis of accounting practices prescribed or permitted by the NYSDFS. The NYSDFS recognizes only statutory accounting practices prescribed or permitted by the State of New York for determining and reporting the financial condition and results of operations of an insurance company and determining its solvency under the NYIL. The National Association of Insurance Commissioners (“NAIC”) Accounting Practices and Procedures Manual (“NAIC SAP”) has been


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adopted as a component of prescribed or permitted practices by the State of New York. The Superintendent of the NYSDFS has the right to permit other specific practices that deviate from prescribed practices.

As of December 31, 2018 and 2017, MBIA Corp. does not have any accounting practices which are permitted, rather than prescribed, by the NYSDFS.

Use of Estimates in the Preparation of the Financial Statements

The preparation of financial statements in conformity with Statutory Accounting Principles (“SAP”) requires management to make estimates and assumptions that affect the reported amounts of admitted 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.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand and money market funds. Cash equivalents are stated at amortized cost.

Investments

Bonds with an NAIC designation of 1 or 2 that are not backed by other loans are reported at amortized cost. Amortized cost is calculated using the effective yield method. For bonds purchased at a price below par value, discounts are accreted over the remaining term of the bonds. For bonds purchased at a price above par value, which have call features, premiums are amortized to the call date that produces the lowest yield. For premium bonds that do not have call features, such premium is amortized over the remaining term of the bond.

Investments in bonds, loan-backed bonds and structured securities with an NAIC designation of 3 through 6 are reported at the lower of amortized cost (as described above) or fair value as determined by independent third-parties. In cases where specific market quotes are unavailable, interpreting market data and estimating market values require considerable judgment by management. Accordingly, the estimates presented are not necessarily indicative of the amount MBIA Corp. could realize in the market.

SSAP No. 43R “Loan-Backed and Structured Securities-Revised” establishes principles for investments in loan-backed and structured securities and increased disclosures regarding other-than-temporarily impaired (“OTTI”) securities. Loan-backed bonds and structured securities with an NAIC designation of 1 or 2 are reported at amortized cost using the effective yield method, including anticipated prepayments at the date of purchase. Changes in the estimated cash flows from the original purchase assumptions are accounted for using the retrospective method. Prepayment assumptions for loan-backed and structured securities were obtained from an independent third-party data service or internal estimates.

Investment income is recorded as earned. All investment income due and accrued with amounts that are over 90 days past due are recorded as non-admitted assets. Realized gains or losses on the sale of investments are determined by utilizing the first-in, first-out method to identify the investments sold and are included in the Statutory-Basis Statements of Income as a separate component of revenues. Unrealized gains and losses from the revaluation of bonds and common stocks not valued at amortized cost are credited or charged to unassigned surplus.

Investments in foreign insurance subsidiaries are reported at their audited U.S. GAAP equity value adjusted to a statutory basis of accounting and carried at their statutory equity basis in accordance with Section 1414 Valuation of Investments of the New York Insurance Statutes and SSAP No. 97 “Investments in Subsidiary, Controlled and Affiliated Entities.” MBIA Corp.’s investments in foreign insurance company shares are limited in accordance with Section 1408 (b) and (c) Acquisition of insurance company shares; limitations thereon of the New York Insurance Statutes.

Refer to “Note 5. Fair Value of Financial Instruments” for further information regarding valuation methodologies and related disclosures.


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Other-Than-Temporary Impairments on Investment Securities

MBIA Corp.’s bonds, other than loan-backed and structured securities, for which the fair value is less than amortized cost are reviewed no less than quarterly in order to determine whether such a decline in value is other-than-temporary. This evaluation includes both qualitative and quantitative considerations. In assessing whether a decline in value is other-than-temporary, MBIA Corp. 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, (c) any guarantees associated with a security such as those provided by investment-grade financial guarantee insurance companies, and (d) MBIA Corp.’s ability and intent to retain the investment for the period of time sufficient to allow for an anticipated recovery in value. Based on this assessment, if MBIA Corp. determines that a decline in the value of an investment is other-than-temporary, the investment is written down to its fair value and a realized loss is recorded in the Statutory-Basis Statements of Income.

For loan-backed and structured securities, MBIA Corp. estimates cash flows expected to be collected over the life of the security. If MBIA Corp. determines that, based on current information and events, there is a decrease in cash flows expected to be collected (that is they will be unable to collect all cash flows expected at acquisition plus any additional cash flows expected to be collected arising from changes in estimates after acquisition) an OTTI shall be considered to have occurred. For loan-backed 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 OTTI is recognized as a realized loss, representing the difference between the securities’ amortized cost basis and the present value of cash flows expected to be collected from these securities. If management intends to sell the security or if management believes that it is more likely than not such securities will be required to be sold prior to recovery, the entire amount of the unrealized loss is recognized as a realized loss. These assessments require management to exercise judgment as to whether an investment is impaired based on market conditions and trends and the availability of relevant data.

Premium Revenue Recognition

The Company’s premiums written consist of installment premiums received and accrued for policies issued in prior years. Upfront premiums are earned proportionately to the ratio of scheduled periodic maturity of principal and payment of interest (debt service) to the original total principal and interest insured. Installment premiums are earned on a straight-line basis over each installment period, generally one year or less. Unearned premiums represent the portion of premiums written that is applicable to the unexpired risk of insured obligations. When an insured obligation is retired early, is called by the issuer, or is in substance paid in advance through a refunding accomplished by placing U.S. Government securities in escrow, the remaining unearned premium is earned at that time, since there is no longer risk to MBIA Corp. As the outstanding principal of an installment-based policy is paid down by the issuer of an MBIA-insured obligation, less premium is collected and recognized by MBIA Corp. Additionally, MBIA Corp. may receive premiums upon the early termination of installment-based policies, which are earned when received.

Premiums ceded to reinsurers reduce the amount of earned premium MBIA Corp. will recognize from its insurance policies. For both upfront and installment policies, ceded premium is recognized in earnings in proportion to and at the same time the related gross premium revenue is recognized.

Expenses incurred in connection with the acquisition of new insurance business, including ceding commission expenses, are charged to operations as incurred. Expenses incurred are reduced for ceding commissions received or receivable, to the extent admissible.

The Company does not utilize anticipated investment income as a factor in the premium deficiency calculation. The Company had no premium deficiency as of December 31, 2018 or 2017.

Fees and Reimbursements

MBIA Corp. collects insurance related fees for services performed in connection with certain transactions. Depending upon the type of fee received, the fee is either recognized when it is received or deferred and recognized as the related service has been completed.


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Loss and Loss Adjustment Expense (“LAE”) Reserves

MBIA Corp.’s financial guarantee insurance provides an unconditional and irrevocable guarantee of the payment of the principal of, and interest or other amounts owing on, insured obligations when due or, in the event that MBIA Corp. has the right, at its discretion, to accelerate insured obligations upon default or otherwise, upon such acceleration by MBIA Corp. Loss and LAE reserves are established by MBIA Corp.’s Loss Reserve Committee, which consists of members of senior management, and require the use of judgment and estimates with respect to the occurrence, timing and amount of a loss on an insured obligation.

MBIA Corp. recognizes loss reserves on a contract-by-contract basis where an insured event has occurred (i.e., a payment default on the insured obligation) or an insured event is expected in the future based upon credit deterioration which has already occurred and has been identified. Case reserves are measured based on the probability-weighted present value of expected net cash inflows and outflows to be paid under the contract, discounted using a rate equal to the yield-to-maturity of MBIA Corp.’s fixed-income investment portfolio, excluding cash and cash equivalents and other investments not intended to defease long-term liabilities. The 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 reserve are recognized as losses incurred in the period of change. Measurement and recognition of loss reserves are reported net of any reinsurance. MBIA Corp. 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. The methods for making such estimates are continually reviewed and any adjustments are reflected in the period determined. Once a case basis reserve is established for an insured obligation, MBIA Corp. continues to record premium revenue to the extent premiums have been or are expected to be collected on that obligation.

Case basis reserves cover the estimated amount of principal and interest the Company expects to pay on its insured obligations and the costs of settlement and other loss mitigation expenses, net of expected recoveries. MBIA Corp. recognizes potential salvage and subrogation recoveries on paid losses based on a similar probability-weighted net cash flow projection discounted using the same rate discussed above, as of the measurement date. When MBIA Corp. becomes entitled to potential recoveries which are typically based on either salvage rights, the rights conferred to MBIA Corp. through the transactional documents (inclusive of the insurance agreement), subrogation rights embedded within insurance policies, or the underlying collateral of an insured obligation, it reports this type of salvage and subrogation as a contra liability within “Loss and LAE reserves” on MBIA Corp.’s Statutory-Basis Statements of Admitted Assets, Liabilities and Capital and Surplus. References in the aforementioned and following disclosures to these items should be considered to be salvage and subrogation for purposes of financial reporting on a statutory basis.

A number of variables are taken into account 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 underwriting losses for any policy include economic conditions and trends, 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 the ability to enforce contractual rights through litigation and otherwise. The remediation strategy for an insured obligation that has defaulted or is expected to default may also have an impact on the Company’s loss reserves. Management believes that the Company’s reserves are adequate to cover the 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.

Refer to “Note 9. Loss and Loss Adjustment Expense Reserves” for additional information regarding the Company’s loss reserving methodology.

Contingency Reserve

A contingency reserve is established for the protection of all policyholders by direct charges to unassigned surplus and is established by the Company for past business and new business, as follows:

• For policies in force prior to July 1, 1989, MBIA Corp. establishes and maintains a contingency reserve equal to 50% of the cumulativeearned premiums on such policies.


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• For policies written on or after July 1, 1989, a contingency reserve, which represents the greater of 50% of premiums written or astated percentage of the principal guaranteed dependent on the category of obligation insured, is established over a 15 to 20 yearperiod. The stated percentage ranges from 0.55% on municipal general obligation bonds to 2.5% on certain industrial developmentbonds and non-investment grade obligations.

Contingency reserves are established and maintained net of collateral and reinsurance. The reserves may be released in the same manner in which they were established and withdrawals, to the extent there may be excess, may be made with either the prior written approval of the Superintendent of the NYSDFS or upon thirty days prior written notice, depending upon the circumstances specified in Article 69, Financial Guaranty Insurance Corporations, Section 6903 of the NYIL. Contingency reserves established for policies which are terminated, matured or net of refundings to the extent that the refunded issue is paid off or secured by obligations which are directly payable or guaranteed by the U.S. Government, may be released without prior approval or notice. MBIA Corp. continually assesses its contingency reserve to determine if amounts are excessive in relation to the outstanding insured obligations and could potentially release additional contingency reserves in the future upon demonstrating to the satisfaction of the NYSDFS that the amounts are excessive.Refer to “Note 8. Capital and Surplus and Dividend Restrictions” for further information regarding MBIA Corp.’s contingency reserves.

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 reporting date and any related translation adjustments resulting from the translation of the statutory-basis financial statements of MBIA Corp.’s non-U.S. operations from its functional currency into U.S. dollars are included in “Unassigned surplus (deficit)” in the statutory-basis statements of admitted assets, liabilities and capital and surplus. Operating results of MBIA Corp.’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.

Income Taxes

MBIA Corp. files its U.S. Corporation Income Tax Return as a member of the MBIA Inc. consolidated group and participates in the MBIA Inc. tax sharing agreement under which MBIA Corp. is allocated its share of the consolidated tax liability or tax benefit as determined under the tax sharing agreement. To the extent that the consolidated tax liability of the Parent Company and its subsidiaries is less than MBIA Corp.’s tax liability on a separate company basis, the difference would be held in escrow for two years in the event MBIA Corp. were to incur a tax loss which could be carried back. Intercompany tax balances are settled annually following the Parent Company’s filing of its federal income tax return.

The provision for federal income taxes is based on income from operations. Deferred income taxes are provided based on temporary differences between the financial reporting and tax bases of assets and liabilities. Changes in net deferred income taxes are recognized as a separate component of unassigned surplus.

Correction of Errors During 2018, MBIA Corp. recorded a correction of an error related to its outstanding preferred stock to properly record it at its par value. The correction recorded by the Company decreased Series A non-cumulative perpetual preferred stock and increased additional paid in capital by $273 million. There was no impact to the Company’s total admitted assets and liabilities, total capital and surplus and net income.

During 2017, MBIA Corp. recorded $12 million as a correction of an error to unassigned surplus in accordance with SSAP No. 3 related to premium transactions that should have been earned in prior periods. Net income and liabilities in prior periods were understated and overstated, respectively, by $12 million.

Recently Adopted Accounting Pronouncements Effective January 1, 2018, SSAP No. 100R “Fair Value” (“SSAP No. 100R”) was amended to allow the use of net asset value (“NAV”) as a practical expedient to fair value and to add disclosures to identify assets valued using NAV. The Company adopted SSAP No. 100R on January 1, 2018. Refer to “Note 5. Fair Value of Financial Instruments”, for further information.


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3. Investments The Company’s investment policies limit the amount of credit exposure to any one issuer or category. The bond portfolio consists of taxable and tax-exempt investments of diversified maturities. The following tables set forth the book/adjusted carry value, gross unrealized gains and losses, and fair value of fixed-maturity securities included in the investment portfolio of MBIA Corp. as of December 31, 2018 and 2017:

As of December 31, 2018

Gross Gross Book/Adjusted Unrealized Unrealized Fair In thousands Carry Value Gains Losses Value U.S. governments $ 9,404 $ - $ (91) $ 9,313 States, territories and possessions 18,108 1,417 - 19,525 Political subdivisions of states,

territories and possessions 49,310 6,215 (86) 55,439 Special revenue and special assessment obligations 581 - - 581 Industrial and miscellaneous 9,022 15 (73) 8,964

Total fixed-maturity investments $ 86,425 $ 7,647 $ (250) $ 93,822

As of December 31, 2017

Gross Gross Book/Adjusted Unrealized Unrealized Fair In thousands Carry Value Gains Losses Value U.S. governments $ 9,387 $ - $ (41) $ 9,346 States, territories and possessions 18,197 2,781 - 20,978 Political subdivisions of states,

territories and possessions 48,495 9,112 - 57,607 Special revenue and special assessment obligations 300 - - 300 Industrial and miscellaneous 9,631 30 (36) 9,625

Total fixed-maturity investments $ 86,010 $ 11,923 $ (77) $ 97,856

Included in the tables above are fixed-maturity investments carried at book/adjusted carry value of $4 million as of December 31, 2018 and 2017, which were on deposit with various regulatory authorities to comply with insurance laws. The fair value of these bonds was $4 million as of December 31, 2018 and 2017. As of December 31, 2018, the book/adjusted carry value on deposit with various regulatory authorities represented 1.43% and 1.80% of total assets and total admitted assets, respectively, and were included in general accounts. As of December 31, 2017, the book/adjusted carry value on deposit with various regulatory authorities represented 1.42% and 1.50% of total assets and total admitted assets, respectively, and were included in general accounts. Securities which are designated 5GI are securities that are unrated but current on principal and interest. The Company did not have any 5GI securities in its investment portfolio as of December 31, 2018 and 2017.


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The following table sets forth the distribution by contractual maturity of the Company’s fixed-maturity at book/adjusted carrying value and fair value as of December 31, 2018. Contractual maturities may differ from expected maturities because borrowers may have the right to call or prepay obligations. As of December 31, 2018

Book/Adjusted In thousands Carry Value Fair Value Due in one year or less $ 5,745 $ 5,705 Due after one year through five years 4,240 4,190 Due after five years through ten years 20 33 Due after ten years 67,418 74,964 Loan-backed and structured securities 9,002 8,930

Total fixed-maturity $ 86,425 $ 93,822

The following tables set forth the gross unrealized losses of the Company’s fixed–maturity securities as of December 31, 2018 and 2017. The tables have segregated investments that have been in a continuous unrealized loss position for less than twelve months from those that have been in a continuous unrealized loss position for twelve months or longer. The tables below exclude securities recorded at fair value where the fair value of these securities was lower than amortized cost.

As of December 31, 2018 Less than 12 Months 12 Months or Longer Total Fair Unrealized Fair Unrealized Fair Unrealized In thousands Value Losses Value Losses Value Losses U.S. governments $ 5,705 $ (41) $ 3,599 $ (50) $ 9,304 $ (91) Political subdivisions of states, territories and possessions 1,595 (86) - - 1,595 (86) Industrial and miscellaneous (1) - - 453 (73) 453 (73)

Total fixed-maturity investments $ 7,300 $ (127) $ 4,052 $ (123) $ 11,352 $ (250) (1) Relates to a loan-backed security.

As of December 31, 2017 Less than 12 Months 12 Months or Longer Total Fair Unrealized Fair Unrealized Fair Unrealized In thousands Value Losses Value Losses Value Losses U.S. governments $ 9,345 $ (41) $ - $ - $ 9,345 $ (41) Industrial and miscellaneous (1) 563 (36) - - 563 (36)

Total fixed-maturity investments $ 9,908 $ (77) $ - $ - $ 9,908 $ (77) (1) Relates to a loan-backed security.

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, 2018 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.


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Prepayment Penalty and Acceleration Fees

The following table discloses the number of securities sold, disposed or otherwise redeemed as a result of a callable feature and the aggregate amount of investment income generated as a result of a prepayment penalty and/or acceleration fees for the years ended December 31, 2018 and 2017:

Years Ended December 31,

In thousands 2018 2017

Number of CUSIPs - 1

Aggregate Amount of Investment Income (Loss) $ - $ (8,719)

4. Investment Income and Gains and Losses All investment income due and accrued with amounts that are over 90 days past due are non-admitted. The proceeds and the gross realized gains from sales of fixed-maturity securities for the years ended December 31, 2018 and 2017, are as follows:

Years Ended December 31, In thousands 2018 2017 Proceeds from sales $ - $ 10,048 Gross realized gains $ - $ 465

5. Fair Value of Financial Instruments The Company is required to measure and report 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. SSAP No. 100R “Fair Value” 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 an 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 an asset or liability based on available information. The three levels of the fair value hierarchy are defined as follows:

• Level 1—Valuations based on quoted prices in active markets for identical assets or liabilities that the Company can access at measurement date. 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.

• 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.


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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. Valuation Techniques Valuation techniques for financial instruments measured at fair value are described below. These determinations were based on available market information and valuation approaches. Considerable judgment is required to interpret market data to develop estimates and therefore, estimates may not necessarily be indicative of the amount the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. Fixed-maturity securities – Fixed-maturity securities with an NAIC designation of 1 and 2 are carried at amortized cost while those with an NAIC designation of 3 through 6 are carried at the lower of amortized cost or fair value. Fair value of fixed-maturity securities are valued based on recently executed transaction prices or quoted market prices that are generally provided by independent third-party pricing vendors. When quoted market prices are not available, fair value is generally determined using quoted prices of similar securities or a valuation model based on observable and unobservable inputs. Inputs vary depending on the type of security. Observable inputs include contractual cash flows, interest rate yield curves, credit default swap 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. When bonds have significant inputs that are observable, they are categorized in Level 2 of the fair value hierarchy; in instances where significant inputs are unobservable, they are categorized in Level 3 of the hierarchy. Cash and cash equivalents – The carrying amounts of these items approximate their fair values due to the short-term nature and creditworthiness of these instruments. The investment in money market securities is measured at fair value by applying the net asset value per share practical expedient. These funds are backed by high quality, very liquid short-term instruments and the probability is remote that the funds would be sold for a value other than net asset value. Borrowed money – Fair value of borrowed money is based on recently executed transaction prices or quoted market prices plus accrued interest. The carrying amount consists of the outstanding balance plus any accrued interest. Financial guarantees – The fair value of financial guarantees, net of reinsurance 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. The carrying value of MBIA Corp.’s financial guarantees consists of deferred premium revenue and loss and LAE reserves, which include subrogation recoverable, net of reinsurance as reported on MBIA Corp.’s Statutory-Basis Statements of Admitted Assets, Liabilities and Capital and Surplus.


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Fair Value The following tables present the fair value of the Company’s assets measured and reported at fair value on a recurring basis as of December 31, 2018 and 2017.

Fair Value at Reporting Date

In thousands (Level 1) (Level 2) (Level 3) Net Asset

Value (NAV)

Balance as of December 31,

2018 Assets at fair value Bonds:

Industrial and miscellaneous $ - $ 8,476 $ - $ - $ 8,476

Special revenue and special assessment obligation - 581 - - 581

Total bonds - 9,057 - - 9,057 Money market securities - - - 18,600 18,600

Total assets at fair value $ - $ 9,057 $ - $ 18,600 $ 27,657

Fair Value at Reporting Date

In thousands (Level 1) (Level 2) (Level 3) Balance as of

December 31, 2017 Assets at fair value Bonds:

Industrial and Miscellaneous $ - $ 8,971 $ - $ 8,971

Special revenue and special assessment obligation - 300 - 300 Total bonds - 9,271 - 9,271 Total assets as fair value $ - $ 9,271 $ - $ 9,271

As of December 31, 2018 and 2017, no liabilities were measured and reported at fair value. Policy on transfer into and out of Level 1, 2 and 3

Transfers into and out of Levels 1, 2 or 3 are recognized at the end of the quarter. For the years ended December 31, 2018 and 2017, there were no transfers into or out of Level 1, 2 and 3.


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Disclosures about Fair Value of Financial Instruments The tables below present the fair value for all financial instruments and the related admitted values as of December 31, 2018 and 2017 excluding equity method investments. The fair values are categorized into Levels 1, 2 and 3 of the fair value hierarchy as described above.

In thousands Fair Value at Reporting Date

Type of Financial Instrument Level 1 Level 2 Level 3 Net Asset

Value (NAV) Fair Value

Admitted Value as of

December 31, 2018

Assets: Fixed-maturity investments $ 9,313 $ 84,474 $ 35 $ - $ 93,822 $ 86,425 Cash and cash equivalents 111,908 9,991 - 18,600 140,499 140,499

Total assets $ 121,221 $ 94,465 $ 35 $ 18,600 $ 234,321 $ 226,924 Liabilities: Borrowed money $ - $ 378,481 $ 50,092 $ - $ 428,573 $ 429,055

Total liabilities $ - $ 378,481 $ 50,092 $ - $ 428,573 $ 429,055 Financial Guarantees: Net of reinsurance $ - $ - $ (453,212) $ - $ (453,212) $ (755,338)

In thousands Fair Value at Reporting Date

Type of Financial Instrument Level 1 Level 2 Level 3 Fair Value

Admitted Value as of December

31, 2017 Assets: Fixed-maturity investments $ 9,345 $ 88,420 $ 91 $ 97,856 $ 86,010 Cash and cash equivalents 166,113 - - 166,113 166,113 Total assets $ 175,458 $ 88,420 $ 91 $ 263,969 $ 252,123

Liabilities: Borrowed money $ - $ 396,587 $ - $ 396,587 $ 385,508 Total liabilities $ - $ 396,587 $ - $ 396,587 $ 385,508

Financial Guarantees: Net of reinsurance $ - $ - $ (307,252) $ (307,252) $ (596,560)

6. Income Taxes SSAP No. 101 “Income Taxes” provides for an admission calculation of deferred tax assets (“DTAs”) specific to financial guarantors which states that if the reporting entity meets the minimum capital and reserve requirements for the state of domicile, they shall use the Realization Threshold Limitation Table when calculating the admission of DTAs. The financial guaranty entity table’s threshold limitations are contingent upon the ratio of statutory capital excluding the admitted DTA to the required surplus and contingency reserve (the Aggregate Risk Limit). The Aggregate Risk Limit is the amount of aggregate capital that the NYSDFS requires to be maintained based on the risk characteristic and amount of insurance in force under NYIL.


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The components of DTAs and deferred tax liabilities (“DTLs”) as of December 31, 2018 and 2017 are as follows:

DTA/(DTL) Components: As of December 31, 2018 As of December 31, 2017 Change

In thousands Ordinary Capital Total Ordinary Capital Total Ordinary Capital Total

Gross DTAs $ 735,417 $ 2,440 $ 737,857 $ 760,307 $ 2,503 $ 762,810 $ (24,890) $ (63) $ (24,953)

Statutory valuation allowance adjustment (735,417) (2,440) (737,857) (760,307) (2,503) (762,810) 24,890 63 24,953

Adjusted gross DTAs - - - - - - - - -

Gross Deferred Tax Liabilities - - - - - - - - - Net deferred tax asset/(liability) before admissibility test - - - - - - - - -

Non-admitted deferred tax asset/(liability) - - - - - - - - -

Net admitted DTAs $ - $ - $ - $ - $ - $ - $ - $ - $ -

Admission Calculation Components:

As of December 31, 2018 As of December 31, 2017 Change

In thousands Ordinary Capital Total Ordinary Capital Total Ordinary Capital Total

Admission calculation under 11.a. - 11.c.

(a) Admitted pursuant to 11.a. $ - $ - $ - $ - $ - $ - $ - $ - $ -

(b) Admitted pursuant to 11.b. (lessor of b.i. or b.ii.) - - - - - - - - -

(c ) Admitted pursuant to 11.b.i. N/A N/A - N/A N/A - N/A N/A -

(d) Admitted pursuant to 11.b.ii. N/A N/A - N/A N/A - N/A N/A -

(e) Admitted pursuant to 11.c. - - - - - - - - -

(f) Total admitted under 11.a., 11.b., and 11.c. $ - $ - $ - $ - $ - $ - $ - $ - $ -

(g) Deferred Tax Liabilities - - - - - - - - - Net admitted DTA/(DTL) under 11.a., 11.b., and 11.c. $ - $ - $ - $ - $ - $ - $ - $ - $ -

Threshold used in 11.b.

(i) Ex DTA Surplus/Policyholders

and Contingency Reserves Ratio N/A N/A 244% N/A N/A 172% N/A N/A 72%

The Company has not implemented any tax planning strategies that would affect adjusted gross and net admitted deferred tax assets.

The Company has not entered into any tax planning strategies involving reinsurance.

The Company has no unrecognized DTL for amounts described in SSAP No. 101, paragraph 7(d) and paragraph 31 of accounting principles for income taxes.


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Current Tax and Change in Deferred Tax:

Current income tax incurred consists of the following major components as of December 31, 2018 and 2017: As of December 31, In thousands 2018 2017 Current income taxes incurred Current federal income tax expense $ - $ - State tax expense 18 - Foreign taxes 4 4 Subtotal $ 22 $ 4 Tax on capital gains/(losses) - - Other, including prior year (under)/over accrual - - Uncertain tax positions reversal - - Federal and foreign income taxes incurred $ 22 $ 4

The Company currently does not have any uncertain tax positions. Additionally, the Company does not expect a significant increase in tax contingencies within the twelve month period following the balance sheet date.


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The tax effects of temporary differences that give rise to significant portions of DTAs and DTLs as of December 31, 2018 and 2017 are as follows: DTAs Resulting from Book/Tax Differences in

(in thousands) As of December 31,

2018 As of December 31,

2017 Change

(a) Ordinary Contingency Reserve $ 41,755 $ 47,653 $ (5,898) Losses Incurred 35,305 29,517 5,788 Salvage & Subrogation 10,557 20,896 (10,339) Net Operating Loss 541,048 556,180 (15,132) Unearned Premium Reserve 2,493 4,385 (1,892) Non-admitted Assets 12,571 3,382 9,189 Foreign Exchange 17,893 22,585 (4,692) Unrealized (Gains) and Losses 10,580 10,798 (218) Foreign Tax Credits 61,739 61,760 (21) Other 1,476 3,151 (1,675) Gross Deferred Tax Assets - Ordinary 735,417 760,307 (24,890) (b) Statutory Valuation Allowance (-) (735,417) (760,307) 24,890 (c ) Non-admitted deferred tax assets (-) - - - (d) Net deferred tax asset/(liability) $ - $ - $ - (e) Capital Capital Loss Carryovers and OTTI 2,440 2,503 (63) Gross Deferred Tax Assets - Capital 2,440 2,503 (63) (f) Statutory Valuation Allowance - Capital (-) (2,440) (2,503) 63 (g) Non-admitted deferred tax assets - Capital (-) - - - (h) Admitted Deferred Tax Assets - Capital - - - (i) Total Admitted Deferred Tax Assets $ - $ - $ - DTLs Resulting from Book/Tax Differences in

(in thousands) As of December 31,

2018 As of December 31,

2017 Change (a) Ordinary Other $ - $ - $ - Ordinary Deferred Tax Liabilities - - - (b) Capital Other - - - Capital Deferred Tax Liabilities - - - (c ) Deferred Tax Liabilities $ - $ - $ - Net Deferred Tax Assets/(Liabilities) $ - $ - $ -


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The change in net deferred income taxes as of December 31, 2018 and 2017 is comprised of the following: As of December 31, in thousands 2018 2017 Change Total deferred tax assets $ 737,857 $ 762,810 $ (24,953) Valuation allowance (737,857) (762,810) 24,953 Total deferred tax liabilities - - - Net deferred tax asset (liability) $ - $ - - Tax effect of unrealized gains/(losses) (net of valuation allowance) - Change in net deferred income tax (expense)/benefit) $ -

Reconciliation of Federal Income Tax Rate to Actual Effective Tax Rate: The provision for federal income taxes incurred is different from that which would be obtained by applying the statutory federal income tax rate to income before income taxes. The significant items causing this difference are as follows:

In thousands Tax Effect Effective Tax Rate Income before taxes $ 28,246 21% Change in valuation allowance (24,735) -18% Change in contingency reserve 5,898 4% Change in non-admitted assets (9,189) -7% Other items (198) 0% Total statutory income taxes $ 22 0% Federal and foreign income tax incurred 22 0% Change in net deferred income tax - 0% Total statutory income taxes $ 22 0%

Carryforwards, recoverable taxes, and IRC § 6603 deposits: As of December 31, 2018, the Company had $2.6 billion of net operating loss carryforwards expiring through the year 2037. As of December 31, 2018, the Company had $62 million of foreign tax credit carryforwards expiring through the year 2027. Additionally, as of December 31, 2018, the Company had a capital loss carryforward of $3 million expiring through the year 2020. The Company does not have any Minimum Tax Credit carryforwards. MBIA Corp. does not have any deposits admitted under Section 6603 of the Internal Revenue Code. There were no income taxes paid for tax years 2018 and 2017 that are available for recoupment in the event of future net losses. As of December 31, 2018, the Company’s federal income tax return was consolidated with the following entities: MBIA Inc. MBIA Capital Corporation MBIA Investment Management Corporation MBIA Services Corporation Municipal Issuers Service Corporation National Public Finance Guarantee Corporation National Public Finance Guarantee Holdings, Inc.

MBIA Corp. is included in the consolidated tax return of MBIA Inc., its Parent Company. The method of allocation between the companies


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is subject to written agreement, and is approved by the members of the consolidated group. In accordance with the tax sharing agreement, MBIA Corp. will receive benefits of its losses and credits as it is able to earn them out in the future as the method of allocation between the members is generally based upon separate-company calculations as if each member had filed a separate tax return. Given present facts and circumstances, the Parent Company no longer anticipates providing compensation to any member for expiring net operating losses, capital losses or tax credit carryforwards.

As of December 31, 2018, MBIA Corp. has not made tax payments under this tax sharing agreement for 2018 and 2017. If tax payments had been made, all funds would have been placed in escrow by MBIA Inc. and would remain in escrow until the expiration of a two-year carryback period which would allow MBIA Corp. to carryback a separate company tax loss and recover all or a portion of the escrowed funds. 7. Reconciliation of Statutory Accounting to GAAP-Basis Accounting The accompanying statutory-basis financial statements have been prepared in conformity with NAIC SAP, which differs in some respects from accounting principles generally accepted in the United States of America (“GAAP”). The more significant of these differences are as follows: • upfront premiums are earned on a SAP basis proportionate to the scheduled periodic maturity of principal and payment of interest

(debt service) to the original total principal and interest insured. Additionally, under SAP, installment premiums are earned on a straight-line basis over each installment period generally one year or less. Under GAAP, MBIA Corp. recognizes and measures premium revenue over the period of the contract in proportion to the amount of insurance protection provided. Upfront and installment 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. Additionally, under GAAP, installment premiums receivable are recorded at the present value of the premiums due or expected to be collected over the period of the insurance contract using a discount rate which reflects the risk-free rate at the inception of the contract;

• under SAP, acquisition costs, (including ceding commission expense or income) are charged to operations as incurred rather than

GAAP’s requirement to defer and amortize the costs as the related premiums are earned; • loss reserves are reported net of insurance loss recoverables and are discounted using a rate equal to the yield-to-maturity of

MBIA Corp.’s fixed-income portfolio, excluding cash and cash equivalents and other investments not intended to defease long-term liabilities. Under GAAP, loss reserves are discounted using a risk-free rate as of the measurement date and are reported net of the unearned premium revenue and gross of insurance loss recoverables which are reported as an asset;

• salvage and subrogation generally are recorded as a reduction to loss and loss LAE reserves for GAAP and statutory reporting.

In addition under GAAP, the Company records salvage and subrogation, including insurance loss recoverables, as an asset. This would occur, for example, when the Company becomes entitled to the underlying collateral of an insured credit under salvage and subrogation rights as a result of a claim payment and the recovery of such salvage is reasonable and estimable;

• assets and liabilities relating to reinsurance are reported on a net basis. Therefore, incurred losses and LAE are reported net of

reinsurance recoverables and deferred premiums are reported net of prepaid reinsurance premium. Under GAAP, these reinsurance balances are required to be shown on a gross basis as an asset;

• a contingency reserve is computed on the basis of statutory requirements, and is not permitted under GAAP;

• changes in net deferred income taxes are recognized as a separate component of gains and losses in surplus. Under GAAP,

changes in MBIA Corp.’s net deferred income tax balances are either recognized as a component of net income or other comprehensive income depending on how the underlying pre-tax impact is reflected. Under SAP, the calculation of the valuation allowance on deferred tax assets is performed on a separate company basis, under GAAP a consolidated analysis is permitted;

• investments in bonds are generally carried at amortized cost under SAP. Accordingly, unrealized changes in fair value are not reflected in the statutory-basis statement of income and changes in capital and surplus or the statutory-basis statements of admitted assets, liabilities and capital and surplus. Bonds not qualified to be carried at amortized cost are carried at fair value as required


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by the NAIC with the differences between these values recorded directly to unassigned surplus net of an adjustment for deferred federal income taxes, rather than recording the difference in unrealized gains and losses through shareholders’ equity. Unrealized gains and losses on common stocks are recorded directly to unassigned surplus net of an adjustment for deferred federal income taxes. Investments in subsidiaries and affiliates are valued pursuant to Section 1414 Valuation of Investments of the New York Insurance Statutes and SSAP No. 97 and subject to limitations under NYIL;

• surplus notes are recorded as a component of surplus, while under GAAP, surplus notes are recorded as a long-term debt obligation. Under SAP, interest expense is not recorded until approval for payment has been granted by the NYSDFS. Under GAAP, interest expense is accrued regardless of approval;

• under SAP, guarantees of derivatives are not recorded at fair value, while under GAAP, guarantees that do not qualify for the financial guarantee scope exception under accounting principles for derivative instruments and hedging activities are recorded at fair value;

• certain assets, which consist primarily of amounts related to an excess of an investment in insurance company shares under NYIL, premium and intercompany receivables over 90 days, prepaid expenses and certain electronic data processing equipment described as “non-admitted”, are excluded from the statutory-basis statement of assets, liabilities and capital and surplus and charged directly to unassigned surplus under SAP. Non-admitted assets were $60 million and $16 million as of December 31, 2018 and 2017, respectively. Under GAAP, these amounts are typically reflected as assets;

• under SAP, debt issuance costs are charged to operations in the period incurred. Under GAAP these costs are deferred and amortized over the life of the issuance and reported as interest expense; and

• subsidiary financial data is not consolidated and the results of operations of subsidiary companies are charged or credited directly

to surplus as part of unrealized capital gains and losses. Under GAAP, subsidiaries are consolidated;

The following is a reconciliation of statutory capital and surplus to shareholders’ equity (deficit) on a GAAP-basis for MBIA Corp. as of December 31, 2018 and 2017:

As of December 31, In thousands 2018 2017 Statutory capital and surplus $ 355,941 $ 236,535 Premium revenue recognition 96,973 162,117 Deferral of acquisition costs 11,979 24,686 Loss reserves (67,749) (18,711) Contingency reserves 198,836 226,917 Investments, including unrealized gains 10,027 14,053 Surplus notes and accrued interest (1,695,579) (1,566,522) Derivative assets and liabilities (39,998) (67,333) Non-admitted assets 59,861 16,106 Other items 6,146 12,471 GAAP-basis shareholders' equity (deficit) $ (1,063,563) $ (959,681)


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The following is a reconciliation of statutory net income (loss) presented on a GAAP-basis for MBIA Corp.

Years Ended December 31,

In thousands 2018 2017 Statutory net income (loss) $ 134,481 $ 107,145 Premium revenue recognition (45,873) (10,004) Amortization of acquisition costs (31,641) (44,047) Incurred losses 8,338 (32,700) Change in fair value of insured derivatives (25,402) (50,739) Current and deferred income taxes 5,552 (1,120,642) Borrowed money (interest expense) (5,943) (5,567) Surplus notes (issuance cost and interest expense) (185,596) (171,575) Ceding commissions 17,606 43,995 Loss on sale of MBIA UK - (260,670) Other 31,068 60,014 GAAP-basis net income (loss) $ (97,409) $ (1,484,790)

8. Capital and Surplus and Dividend Restrictions

MBIA Corp. is subject to insurance regulations and supervision of the State of New York (its state of incorporation) and all U.S. and non-U.S. jurisdictions in which it is licensed to conduct insurance business. In order to maintain its New York State financial guarantee insurance license, MBIA Corp. is required to maintain a minimum of $65 million of surplus. 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. 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 MBIA Corp. 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. MBIA Corp. is 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. The operations and accounts of MBIA Corp. are subject to examination by regulatory agencies at regular intervals. The 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 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. In 2018, MBIA Corp. did not declare or pay any dividends to MBIA Inc. or the holders of its preferred stock. MBIA Corp. 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, 2018, and is not expected to have any statutory capacity to pay any dividends in the near term. In connection with MBIA Corp. obtaining approval from the NYSDFS to release excess contingency reserves in previous periods, MBIA Corp. agreed that it would not pay any dividends without prior approval from the NYSDFS. As of December 31, 2018 and 2017, MBIA Corp. 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 Corp. will report them to the NYSDFS.


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MBIA Corp.’s capital and surplus included a negative unassigned surplus of $1.7 billion and $1.8 billion as of December 31, 2018 and 2017, respectively. MBIA Corp.’s capital and surplus may be further negatively impacted if future additional insured losses are incurred. In 2017, there was a $112 million reversal to capital and surplus to reflect the sale of MBIA UK. This reversal was the result of MBIA Corp. not being 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 of December 31, 2016, as required under NYIL. In addition, in 2017, MBIA Corp. released contingency reserves of approximately $20 million related to the maturity of the Zohar II Notes, as well as recorded a gain of $20 million related to the appreciation to the par value of certain Zohar II notes received as consideration. Therefore, in 2017, MBIA Corp.’s capital and surplus increased approximately $152 million as a result of these transactions. MBIA Corp. owns no common stock in affiliates for special purposes as of December 31, 2018 and 2017. Contingency reserve Under NYIL, MBIA Corp. is 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). 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.

As a result of regulatory approved reductions, MBIA Corp.’s contingency reserves of $199 million as of December 31, 2018 represented reserves on 27 of the 220 outstanding credits insured by MBIA Corp. Under NYIL, MBIA Corp. is also 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, 2018, MBIA Corp. maintained its minimum requirements of capital and surplus but did not have enough qualifying assets to support its statutory reserve requirements. Common and Preferred Stock MBIA Corp. has 67,936 common shares authorized, issued and outstanding as of December 31, 2018, with a par value of $220.80 per share. All shares are Class A shares. As of December 31, 2018, MBIA Corp. had 2,759 shares of preferred stock issued and outstanding with a carrying value of $3 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 2018, MBIA Corp. recorded a correction of an error relating to its preferred stock. Refer to “Note 2. Summary of Significant Accounting Policies” for further information about this correction of error on its preferred stock. In accordance with MBIA Corp.’s fixed-rate election, the dividend rate on the preferred stock was determined using a fixed-rate equivalent of London Interbank Offered Rate (“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, 2018 and 2017, 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. MBIA Corp. is currently unable to pay dividends, including dividends on its preferred stock, due to earned surplus deficits as of December 31, 2018 and 2017.

Surplus Notes As of December 31, 2018, the par amount outstanding of MBIA Corp.’s 14% Fixed-to-Floating Rate Surplus Notes due January 15, 2033 (the “Surplus Notes”) was $953 million. Section 1307 of the Insurance Law and the Fiscal Agency Agreement governing the surplus notes (the “Fiscal Agency Agreement”), which was approved as it relates to Section 1307 by the NYSDFS in connection with the issuance of the Surplus Notes, each impose restrictions on the payments of principal and interest (or the redemption price or any make-whole premium) on the Surplus Notes (“Surplus Note Payments”). The cash received from the issuance of surplus notes was used for general business purposes. The notes are unsecured debt obligations and were issued in accordance with Section 1307 of the NYIL. The notes rank equally


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with any future surplus notes or similar obligations of MBIA Corp., and will be subordinate in right of payment to all other existing and future indebtedness, policy claims and other creditor claims of MBIA Corp. Section 1307 of the Insurance Law provides that any payments on surplus notes issued by an insurer “shall be repaid only out of free and divisible surplus of such insurer with the approval of the Superintendent whenever, in his/her judgment, the financial condition of such insurer warrants.” The Superintendent has broad discretion in determining whether to allow MBIA Corp. to make Surplus Note Payments. As of December 31, 2018, MBIA Corp. had “free and divisible surplus” of $338 million. The NYSDFS has not approved MBIA Corp.’s requests to make interest payments on the Surplus Notes since, and including, the January 15, 2013 interest payment. The NYSDFS has cited both MBIA Corp.’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, 2019, the most recent scheduled interest payment date, there was $757 million of unpaid interest on the par amount outstanding of $953 million of the Surplus Notes. The unpaid interest on the Surplus Notes will become due on the first business day on or after which MBIA Corp. obtains approval to pay some or all of such unpaid interest. No interest has been accrued or will accrue on the deferred interest. As of December 31, 2018, the total principal and/or interest paid on the surplus notes was $650 million.

9. Loss and Loss Adjustment Expense Reserves MBIA Corp.’s insured portfolio management group within its international and structured finance insurance business (“IPM”) monitor MBIA Corp.’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 Corp. 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 Corp. 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 Corp. 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 Corp.-insured obligation may, with the consent of MBIA Corp., restructure the insured obligation by extending the term, increasing or decreasing the par amount or decreasing the related interest rate, with MBIA Corp. insuring the restructured obligation.


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MBIA Corp. 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 Corp. 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. “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 Corp. 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.

Net case basis activity during 2018 primarily consisted of a loss and LAE benefit related to second-lien RMBS exposures and CDOs partially offset by loss and LAE incurred on first-lien RMBS and commercial mortgage-backed securities (“CMBS”) exposures. Net case basis activity during 2017 primarily consisted of loss and LAE incurred related to first and second-lien RMBS exposures and CDO obligations. Refer to the ‘RMBS Case Basis Reserves’, ‘RMBS Recoveries’ and ‘CDO Reserves and Recoveries’ sections included herein for additional information regarding MBIA Corp.’s loss and LAE reserves related to these exposures. Within established loss and LAE reserves in contra-liability positions there are net salvage reserves of $1.4 billion as of December 31, 2018 and 2017, for which MBIA Corp. expects to incur actual claims or receive a benefit in the future. RMBS Case Basis Reserves

MBIA Corp.’s RMBS reserves and recoveries relate to financial guarantee insurance policies. MBIA Corp.’s first-lien RMBS case basis reserves primarily relate to RMBS backed by alternative A-paper and subprime mortgage loans. MBIA Corp.’s second-lien RMBS case basis reserves relate to RMBS backed by home equity lines of credit and closed-end second mortgages. MBIA Corp. calculated RMBS case basis reserves 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. Additional data used for both second and first-liens include historic averages of deal specific voluntary prepayment rates, forward projections of LIBOR interest rates, and historic averages of deal-specific loss severities. In addition, for second-lien RMBS backed by home equity lines of credit, MBIA Corp. assumes a constant basis spread between Prime and LIBOR interest rates. In calculating ultimate cumulative losses for RMBS, MBIA Corp. 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, MBIA Corp. 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.


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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 to a net present value reflecting MBIA’s general obligation to pay claims over time and not on an accelerated basis.

MBIA Corp. 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, MBIA Corp. would increase or decrease the case basis reserves accordingly.

RMBS Recoveries

MBIA Corp. 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 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 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 Mortgage Loans MBIA Corp. has settled the majority of its put-back claims relating to the inclusion of ineligible loans in securitizations it insured. Only its claims against Credit Suisse remain outstanding. 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. MBIA Corp.’s settlement amounts on its prior put-back claims have been consistent with the put-back recoveries that had been included in MBIA Corp.’s financial statements at the times preceding the settlements. Based on MBIA Corp.’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, MBIA Corp. believes it will prevail in enforcing its contractual rights and that it is entitled to collect the full amount of its incurred losses. MBIA Corp. 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, MBIA Corp. currently calculates its put-back recoveries using the contractual interest rate, which is lower than the New York State statutory rate.

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 MBIA Corp. 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 a 5.17% discount rate against the underlying transaction’s cash flows.

MBIA Corp. continues to consider all 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 MBIA Corp. believes it will be successful in realizing its recoveries from its contract claims against Credit Suisse, the ultimate amount recovered may be materially different from that recorded by MBIA Corp. 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 14. Contingencies and Commitments” for further information about MBIA Corp.’s litigation with Credit Suisse.


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CDO Reserves and Recoveries

MBIA Corp. also has loss and LAE reserves on certain transactions within its CDO portfolio, including its multi-sector CDO, and CMBS asset classes. MBIA Corp.’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), while its CMBS transaction references a static pool of CMBS tranches.

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

MBIA Corp. considers several factors when developing the range of potential outcomes and their impact on MBIA Corp. 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 Zohar II. MBIA Corp. anticipates that the primary source of the recoveries will come from the monetization of the Zohar Assets as anticipated in the Zohar Bankruptcy Settlement. Refer to “Note 1: Business Developments and Risks and Uncertainties” for additional information about the estimated Zohar recoveries. Notwithstanding the procedures agreed to in the Zohar Bankruptcy Settlement, 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.

Failure to recover a substantial amount of such payments could impede MBIA Corp.’s 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.

Discount Rate

Loss reserves are discounted on a non-tabular basis by applying a discount rate equal to the yield-to-maturity of MBIA Corp.’s fixed-income investment portfolio, excluding cash and cash equivalents and other investments not intended to defease long-term liabilities. LAE reserves are reported net of reinsurance and are generally not discounted. As of December 31, 2018 and 2017, the rates used to discount the net claim liability were 5.17% and 5.20%, respectively. The amount of non-tabular discount as of December 31, 2018 and 2017 was $511 million and $41 million, respectively.


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Surveillance Categories The following tables provide information about the financial guarantees and related claim liability included in each of MBIA Corp.’s surveillance categories as of December 31, 2018 and 2017:

Surveillance Categories - 2018 Caution List Caution List Caution List Classified $ in millions Low Medium High List Total

Number of policies 40 18 - 245 - 303

Number of issues (1) 13 4 - 113 130

Remaining weighted average contract period (in years) 4.8 8.0 - 10.7 10.1

Gross insured contractual payments outstanding (2):

Principal $ 472 $ 249 $ - $ 5,784 $ 6,505

Interest 123 123 - 5,042 5,288

Total $ 595 $ 372 $ - $ 10,826 $ 11,793

Gross claim liability (3) $ - $ - $ - $ 1,587 $ 1,587

Less:

Gross potential recoveries (4) - - - 1,942 1,942

Discount, net (5) - - - 511 511

Net claim liability (recoverable) $ - $ - $ - $ (866) $ (866)

Net unearned premium reserve $ 0 $ - $ - $ 1 $ 1

___________

(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 Corp.

(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, net of reinsurance.


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Surveillance Categories - 2017 Caution List Caution List Caution List Classified $ in millions Low Medium High List Total Number of policies 75 5 1 302 383 Number of issues (1) 16 4 1 141 162 Remaining weighted average contract period (in years) 6.5 4.3 8.7 9.9 9.3 Gross insured contractual payments outstanding (2):

Principal $ 1,426 $ 13 $ 104 $ 7,150 $ 8,693 Interest 520 3 46 5,502 6,071 Total $ 1,946 $ 16 $ 150 $ 12,652 $ 14,764 Gross claim liability (3) $ - $ - $ - $ 1,594 $ 1,594 Less:

Gross potential recoveries (4) - - - 2,345 2,345 Discount, net (5) - - - 41 41 Net claim liability (recoverable) $ - $ - $ - $ (792) $ (792) Net unearned premium reserve $ 3 $ 0 $ - $ 1 $ 4

___________

(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 Corp.

(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.

In the 2018 surveillance categories table, MBIA Corp. revised the presentation related to gross potential recoveries and discount, from the prior year presentation to reflect the reclass of the discount on reinsurance from gross potential recoveries to discount, net. Additionally, MBIA Corp. also revised the presentation from the prior year to reclass LAE salvage from the gross claim liability to gross potential recoveries. The above mentioned reclasses had no impact to the net claim liability (recoverable) and the presentation of 2017 was not revised to conform to the 2018 presentation. The following tables present changes in MBIA Corp.’s loss and LAE reserves as of December 31, 2018 and 2017. Changes in the loss reserve attributable to the accretion of the claim liability discount, changes in discount rate, changes in amount and timing of estimated claim payments and recoveries and changes in assumptions are recorded in “Losses incurred” in MBIA Corp.’s Statements of Income. LAE reserves are generally expected to be settled within a one-year period. Changes in LAE reserves are recorded in “Loss adjustment expenses incurred” in MBIA Corp.’s Statements of Income.

In millions Changes in Loss and LAE Reserves for the Year Ended December 31, 2018

Loss and Loss and LAE LAE

Reserve Gross Accretion Changes Changes Reserve as of Loss of Claim in Changes in as of

December 31, (Payments) Liability Discount in LAE December 31,

2017 Collections Discount Rate Assumptions Reserves Other Reinsurance 2018

$ (792) $ (274) $ (40) $ 46 $ 28 $ (18) $ (6) $ 190 $ (866)


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

Loss and Loss and LAE LAE

Reserve Gross Accretion Changes Changes Reserve as of Loss of Claim in Changes in as of

December 31, (Payments) Liability Discount in LAE December 31,

2016 Collections(1) Discount Rate Assumptions (2) Reserves Other Reinsurance 2017

$ (207) $ (984) $ (50) $ 5 $ 695 $ (18) $ 36 $ (269) $ (792)

(1) - Includes payments made to satisfy the Zohar II Claim. (2) - Primarily relates to changes in reserves for certain Puerto Rico and RMBS credits.

10. Insurance In Force MBIA Corp. guarantees the payment of principal of, and interest or other amounts owing on, municipal, asset-/mortgage-backed and other non-municipal securities. MBIA Corp.’s insurance in force represents the aggregate amount of the insured principal of, and interest or other amounts owing on insured obligations. MBIA Corp.’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 MBIA Corp. provide unconditional and irrevocable guarantees of the payment of the principal and interest or other amounts owing on, insured obligations when due. The obligations are generally not subject to acceleration, except that MBIA Corp. may have the right, at its discretion, to accelerate insured obligations upon default or otherwise. MBIA Corp. insures certain financial obligations issued by affiliates of MBIA Corp. These include investment agreements contracts and medium-term notes issued by MBIA Inc. and the Facility issued by MZ Funding. If these affiliates were to have insufficient assets to pay amounts due upon maturity or termination, MBIA Corp. would make such payments. As of December 31, 2018, $2.0 billion related to financial obligations guaranteed by MBIA Corp. on behalf of affiliates and these amounts were excluded in the tables that follow. These guarantees, which mature through 2037, 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. 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 MBIA Corp.’s upon the payment of a claim by MBIA Corp. In February of 2009, MBIA Corp. entered into a quota share reinsurance agreement effective January 1, 2009 pursuant to which MBIA Corp. ceded all of its U.S. public finance exposure to National. The reinsurance enables covered policyholders and certain ceding reinsurers to make claims for payment directly against National in accordance with the terms of the cut-through provisions of the reinsurance agreement. As of December 31, 2018, the aggregate amount of insurance in force ceded by MBIA Corp. to National under the above reinsurance agreement was $73.8 billion. As a result of the cut-through provision of the above reinsurance agreement; amounts related to U.S. public finance have been excluded from the following tables and disclosures.


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As of December 31, 2018, insurance in force, which represents principal and interest or other amounts owing on insured obligations, had an expected maturity through 2058. The distribution of insurance in force by geographic location and by type of bond, are presented in the following tables:

As of December 31, In billions 2018 2017

Geographic Location Insurance in Force % of Insurance

in Force Insurance in Force % of Insurance

in Force United States $ 7.3 44.3% $ 9.4 45.0% Australia 2.1 12.7% 2.4 11.5% Canada 1.8 10.9% 1.9 9.1% Chile 1.5 9.1% 2.6 12.4% Mexico 1.3 7.9% 1.5 7.1% United Kingdom 1.3 7.9% 1.4 6.7% Spain 0.3 1.8% 0.6 2.9% New Zealand 0.3 1.8% 0.3 1.4% Ireland 0.1 0.6% 0.2 1.0% France 0.1 0.6% 0.2 1.0% Subtotal 16.1 97.6% 20.5 98.1% Internationally diversified 0.4 2.4% 0.4 1.9% Total $ 16.5 100.0% $ 20.9 100.0%

The insurance in force and insured gross par outstanding by type of bond is presented in the following table: As of December 31, In billions 2018 2017

Bond Type in Insurance

Force Par Gross

Amount in Insurance

Force Par Gross

Amount Global public finance - non-United States: Transportation $ 3.0 $ 2.5 $ 4.5 $ 3.6 Sovereign and sub-sovereign (1) 3.5 2.5 3.8 2.7 International utilities 1.4 1.2 1.7 1.4 Other(2) 0.1 0.1 0.2 0.1 Total non-United States 8.0 6.3 10.2 7.8 Global structured finance: Mortgage-backed residential 3.4 2.5 4.7 3.6 Corporate asset-backed(3) 3.5 2.0 3.9 2.3 Collateralized debt obligations(4) 0.5 0.4 0.5 0.4 Consumer asset-backed 0.5 0.4 0.9 0.7 Mortgage-backed commercial 0.6 0.3 0.7 0.3 Total global structured finance 8.5 5.6 10.7 7.3 Total $ 16.5 11.9 $ 20.9 $ 15.1

(1) - 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.

(2) - Includes municipal owned entities backed by sponsoring local government and tax backed transactions. (3) - As of December 31, 2018, includes structured insurance securitizations of $2.2 billion and $1.0 billion of insurance in force and gross par amount, respectively. 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.

(4) - Includes a transaction (represented by a structured pool of commercial real estate assets) that does not include typical CDO structuring characteristics, such as tranched credit risk, cash flow waterfalls, or interest and over-collateralization coverage tests.


36

Excluded from the preceding tables, were insured exposures that were fully offset by way of loss remediation transactions. As of December 31, 2018, $49 million and $38 million of insurance in force and gross par outstanding, respectively, were excluded, and as of December 31, 2017, $52 million and $40 million of insurance in force and gross par outstanding, respectively, were excluded.

Reinsured Exposure Reinsurance enables MBIA Corp. to cede exposure for purposes of syndicating risk. MBIA Corp. generally retains the right to reassume the business ceded to reinsurers under certain circumstances, including a reinsurer’s rating downgrade below specified thresholds. As of December 31, 2018, MBIA Corp.’s use of unaffiliated reinsurance was immaterial to the Company. MBIA Corp. expects that it will continue to be immaterial in the future. MBIA Corp. requires certain unauthorized reinsurers to maintain bank letters of credit or establish trust accounts to cover liabilities ceded to such reinsurers under reinsurance contracts. As of December 31, 2018 and 2017, the total amount available under these letters of credit and trust arrangements was $7 million and $6 million, respectively. MBIA Corp. remains liable on a primary basis for all reinsured risk. MBIA Corp. believes that its reinsurers remain capable of meeting their obligations, although, there can be no assurance of such in the future. As of December 31, 2018, the aggregate amount of insured par outstanding ceded by MBIA Corp. to third-party reinsurers under reinsurance agreements was $1.0 billion, compared with $1.2 billion as of December 31, 2017. The aggregate amount of insurance in force ceded by MBIA Corp. to third-party reinsurers under reinsurance agreements was $2.0 billion and $2.3 billion as of December 31, 2018 and 2017, respectively. As of December 31, 2018, the aggregate amount of insured par outstanding ceded by MBIA Corp. to National under the reinsurance agreement referenced above, was $35.9 billion. As a result of the cut-through provision of this reinsurance agreement; amounts related to U.S. public finance have been excluded from the following table and disclosures. The following table presents information about MBIA Corp.’s third-party reinsurance agreements as of December 31, 2018.

In millions

Standard & Letters of

Poor's Rating Moody's Rating Ceded Par Credit/Trust Reinsurance

Reinsurers (Status) (Status) Outstanding Accounts Recoverable (1) Assured Guaranty Corp. AA A3 or above $ 565 $ - $ 4

(Stable Outlook) (Stable Outlook) Assured Guaranty Re Ltd. AA WR (2) 141 4 - (Stable Outlook) Overseas Private Investment AA+ Aaa 244 - - Corporation (Stable Outlook) (Stable Outlook) Others A+ or above A2 or above 19 3 - Total $ 970 $ 7 $ 4

_______________ (1) - Total reinsurance recoverable of $4 million is primarily related to recoverables on unpaid losses. (2) - Represents a withdrawal of ratings.

11. Information Concerning Parent, Subsidiaries and Affiliates MBIA Corp. is a wholly-owned subsidiary of MBIA Inc., an insurance holding company incorporated in the state of Connecticut and located in the State of New York. MBIA Corp. has provided guarantees for various members of the holding company group of MBIA Inc. Investment in subsidiaries are reported at their audited U.S. GAAP equity value adjusted to a statutory basis of accounting as provided for in paragraph 9 of SSAP No. 97. Refer to “Note 1. Business Developments and Risks and Uncertainties” for further information.


37

MBIA Services Corporation (“MBIA Services”), provides services such as management, legal, accounting, treasury, portfolio surveillance and information technology, among others, to MBIA Inc. and other subsidiaries including MBIA Corp. on a fee-for-service basis. The service fees charged to MBIA Corp. by MBIA Services were $13 million and $22 million, respectively, for the years ended December 31, 2018 and 2017, respectively. MBIA Corp. maintains a reinsurance agreement and net worth maintenance agreement with MBIA Mexico pursuant to which MBIA Corp. reinsurers 100% of the business underwritten by MBIA Mexico and agrees to maintain the amount of capital required by applicable law or regulation. Loss payments made under the reinsurance agreement were $6 million and $5 million for the years ended December 31, 2018 and 2017, respectively. In 2018 and 2017, MBIA Corp. contributed $695 thousand and $876 thousand, respectively, to MBIA Mexico under the net worth maintenance agreement. On January 10, 2017, MBIA Corp. executed the Facility with MBIA Inc. MBIA Corp. issued financial guarantee insurance policies insuring MZ Funding’s obligations to MBIA Inc. under the Facility. Refer to “Note 12. Debt” for further information about the Facility. As of December 31, 2018 and 2017, MBIA Corp.’s receivable from its parent, subsidiaries and affiliates was $1 million and was included in other assets. As of December 31, 2018 and 2017, MBIA Corp.’s payable to its parent, subsidiaries and affiliates were $6 million and $9 million, respectively, and was included in other liabilities. These receivables and payables are required to be settled within 90 days. MBIA Corp. had no loans outstanding with any executive officers or directors during 2018 or 2017.

12. Debt As discussed in “Note 1. Business Developments and Risks and Uncertainties” in connection with the Zohar II Claim in January of 2017, MBIA Corp. entered into the Facility with Senior Lenders and with MBIA Inc. The Facility was provided to MZ Funding, a subsidiary of MBIA Inc., which in turn lent the proceeds of such financing to MBIA Corp. The initial outstanding principal amount of the Facility was $366 million, of which, $38 million of subordinated financing was provided by MBIA Inc. As of December 31, 2018 and 2017, the outstanding amount of the Facility is presented in “Borrowed money” on MBIA Corp.’s Statutory-Basis Statements of Admitted Assets, Liabilities and Capital and Surplus. 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 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. Interest paid on the Facility in 2018 and 2017 was $13 million and $24 million, respectively, and the net increase in interest in kind in 2018 and 2017 was $43 million and $17 million, respectively. 13. Premium Revenue The following table presents a roll forward of MBIA Corp.’s expected future undiscounted premiums receivable on installment contracts for the year ended December 31, 2018.

In thousands Adjustments

Premiums Receivable as of

Premium Payments

Premiums from New Business

Changes in Expected

Term Premiums

Receivable as of

Reinsurance Premiums Payable

as of December 31, 2017 Received Written of Policies Other December 31, 2018 December 31, 2018

$ 541,671 $ (69,688) $ - $ (9,631) $ (15,162) $ 447,190 $ 239,812


38

The gross unearned premium reserve on an undiscounted basis for the entire book of business that would have been reported had all installment premiums been received at inception would have been $963 million as of December 31, 2018.

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

In thousands Expected Collection

of Premiums

Three months ending: March 31, 2019 $ 22,986 June 30, 2019 13,255 September 30, 2019 7,598 December 31, 2019 13,675 Twelve months ending: December 31, 2020 40,149 December 31, 2021 33,042 December 31, 2022 29,054 December 31, 2023 26,569 Five years ending: December 31, 2028 101,120 December 31, 2033 66,727 December 31, 2038 45,498 December 31, 2043 and thereafter 47,517 Total $ 447,190


39

The following table presents future expected premiums on non-installment contracts. MBIA Corp.’s net refunded premiums earned for the year ended December 31, 2018 were $76 million.

In thousands

Gross Expected Future Premium

Earnings on Upfront Contracts

Three months ending: March 31, 2019 $ 5,715 June 30, 2019 5,887 September 30, 2019 12,294 December 31, 2019 9,157 Twelve months ending: December 31, 2020 35,274 December 31, 2021 29,176 December 31, 2022 25,872 December 31, 2023 20,118 Five years ending: December 31, 2028 101,870 December 31, 2033 69,061 December 31, 2038 41,050 December 31, 2043 and thereafter 50,814 Total $ 406,288

14. Contingencies and Commitments

In the normal course of operating its business, MBIA Corp. may be involved in various legal proceedings. Additionally, MBIA Inc. together with its subsidiaries (“MBIA”) may be involved in various legal proceedings that directly or indirectly impact MBIA Corp.

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.


40

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. The complaint seeks damages for claims 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. MBIA’s claims currently include 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 and breached its contractual obligations to cure or repurchase loans found to be in breach of the representations and warranties applicable thereto. In May of 2018, Justice Kornreich, who had presided over the above-captioned case since its inception, retired from the bench. On May 25, 2018, Justice Schecter was assigned to be the new presiding justice. At a pretrial conference on February 7, 2019, the Court scheduled a two-week trial to begin on July 22, 2019.

Lynn Tilton and Patriarch Partners XV, LLC v. MBIA Inc. and MBIA Insurance Corp.; 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 March 11, 2018, Ms. Tilton commenced the Zohar Funds Bankruptcy Cases. On May 21, 2018, the court approved the Zohar Bankruptcy Settlement. Subsequently, the parties to the above-captioned litigation jointly filed a request to stay the case for, at minimum, fifteen months, which was granted by Justice Walsh on June 11, 2018. For those aforementioned actions in which it is a defendant, MBIA is defending against those actions and expects ultimately to prevail on the merits. There is no assurance, however, that MBIA will prevail in these actions. Adverse rulings in these actions could have a material adverse effect on MBIA’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, MBIA is not able to estimate any amount of loss or range of loss. MBIA 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 MBIA Corp., threatened, to which MBIA Corp. is a party. 15. Subsequent Events Subsequent events have been considered through February 28, 2019, the date upon which the audited statutory-basis financial statements were available to be issued. Refer to “Note 8. Capital and Surplus and Dividend Restrictions” for information on the January 15, 2019 surplus notes interest expense payment request that was not approved by the NYSDFS. Refer to “Note 14. Contingencies and Commitments” for information about legal proceedings that commenced after December 31, 2018.


41

ANNUAL STATEMENT FOR THE YEAR 2018 OF THE MBIA Insurance Corporation SUMMARY INVESTMENT SCHEDULE Gross Investment Holdings Admitted Assets as Reported in the Annual Statement

1 2 3 4 5 6

Investment Categories Amount Percentage Amount

Securities Lending

Reinvested Collateral Amount

Total (Col. 3+4) Amount Percentage

1. Bonds: 1.1 U.S. treasury securities 9,404,218 4.035% 9,404,218 9,404,218 0.040 1.2 U.S. government agency obligations (excluding mortgage-backed securities): 1.21 Issued by U.S. government agencies - 0.000% - - 0.000 1.22 Issued by U.S. government sponsored agencies - 0.000% - - 0.000 1.3 Non-U.S. government (including Canada, excluding mortgage-backed securities) - 0.000% - - 0.000 1.4 Securities issued by states, territories, and possessions and political subdivisions in the U.S.: 1.41 States, territories and possessions general obligations 18,107,572 7.769% 18,107,572 18,107,572 0.078 1.42 Political subdivisions of states, territories and possessions and political subdivisions general obligations 49,310,051 21.155% 49,310,051 49,310,051 0.212 1.43 Revenue and assessment obligations 581,250 0.249% 581,250 581,250 0.002 1.44 Industrial development and similar obligations - 0.000% - - 0.000 1.5 Mortgage-backed securities (includes residential and commercial MBS): 1.51 Pass-through securities: 1.511 Issued or guaranteed by GNMA - 0.000% - - 0.000 1.512 Issued or guaranteed by FNMA and FHLMC - 0.000% - - 0.000 1.513 All other - 0.000% - - 0.000 1.52 CMOs and REMICs: 1.521 Issued or guaranteed by GNMA, FNMA, FHLMC or VA - 0.000% - - 0.000

1.522 Issued by non-U.S. Government issuers and collateralized by mortgage-backed securities issued or guaranteed by agencies shown in Line 1.521 - 0.000% - - 0.000

1.523 All other 8,476,089 3.636% 8,476,089 8,476,089 0.036 2. Other debt and other fixed income securities (excluding short term):

2.1 Unaffiliated domestic securities (includes credit tenant loans and hybrid securities) 525,416 0.225% 525,416 525,416 0.002 2.2 Unaffiliated non-U.S. securities (including Canada) 20,032 0.009% 20,032 20,032 0.000 2.3 Affiliated securities - 0.000% - - 0.000 3. Equity interests:

3.1 Investments in mutual funds - 0.000% - - 0.000 3.2 Preferred stocks: 3.21 Affiliated - 0.000% - - 0.000 3.22 Unaffiliated - 0.000% - - 0.000 3.3 Publicly traded equity securities (excluding preferred stocks): 3.31 Affiliated - 0.000% - - 0.000 3.32 Unaffiliated - 0.000% - - 0.000 3.4 Other equity securities: 3.41 Affiliated 6,161,450 2.643% 6,161,450 6,161,450 0.026 3.42 Unaffiliated - 0.000% - - 0.000 3.5 Other equity interests including tangible personal property under lease: 3.51 Affiliated - 0.000% - - 0.000 3.52 Unaffiliated - 0.000% - - 0.000 4. Mortgage loans:

4.1 Construction and land development - 0.000% - - 0.000 4.2 Agricultural - 0.000% - - 0.000 4.3 Single family residential properties - 0.000% - - 0.000 4.4 Multifamily residential properties - 0.000% - - 0.000 4.5 Commercial loans - 0.000% - - 0.000 4.6 Mezzanine real estate loans - 0.000% - - 0.000 5. Real estate investments:

5.1 Property occupied by company - 0.000% - - 0.000 5.2 Property held for production of income (including $0 of property acquired in satisfaction of debt) - 0.000% - - 0.000 5.3 Property held for sale (including $0 property acquired in satisfaction of debt) - 0.000% - - 0.000 6. Contract loans - 0.000% - - 0.000 7. Derivatives - 0.000% - - 0.000 8. Receivables for securities 868 0.000% 868 868 0.000 9. Securities Lending (Line 10, Asset Page reinvested collateral) - 0.000% - XXX XXX XXX 10. Cash, cash equivalents and short-term investments 140,498,572 60.278% 140,498,572 140,498,572 0.603 11. Other invested assets - 0.000% - - 0.000 12. Total invested assets 233,085,518 100.000% 233,085,518 0 233,085,518 100.000%

*12041201828500100*SUPPLEMENT FOR THE YEAR 2018 OF THE MBIA Insurance Corporation

SUPPLEMENTAL INVESTMENT RISKS INTERROGATORIESFor The Year Ended December 31, 2018

(To Be Filed by April 1)

Of The MBIA Insurance Corporation

Address (City, State and Zip Code) Purchase, NY 10577-2100

NAIC Group Code 00528 NAIC Company Code 12041 Employer’s ID Number 43-0899449

The Investment Risks Interrogatories are to be filed by April 1. They are also to be included with the Audited Statutory Financial Statements.

Answer the following interrogatories by reporting the applicable U.S. dollar amounts and percentages of the reporting entity’s total admitted assets held in that category ofinvestments.

1. Reporting entity’s total admitted assets as reported on Page 2 of this annual statement. $ 235,892,580

2. Ten largest exposures to a single issuer/borrower/investment.

1

Issuer

2

Description of Exposure

3

Amount

4Percentage of Total

Admitted Assets

2.01 California St GO BDS U.S. States, Territories and Possessions $ 11,964,033 5.1 %

2.02 New York NY GO BDS U.S. Political Subdivision of States $ 9,101,848 3.9 %

2.03 Morgan Stanley Mortgage Loan Industrial & Miscellaneous $ 8,476,089 3.6 %

2.04 San Diego Unified School District U.S. Political Subdivision of States $ 6,926,783 2.9 %

2.05 Country of Cook IL U.S. Political Subdivision of States $ 6,792,067 2.9 %

2.06 MBIA Mexico SA DE CV Parent , Subsidiary and Affliates $ 6,161,449 2.6 %

2.07 Colton Joint Unified School U.S. Political Subdivision of States $ 5,968,385 2.5 %

2.08 Leander Independent School U.S. Political Subdivision of States $ 5,331,510 2.3 %

2.09 Portsmouth VA U.S. Political Subdivision of States $ 5,077,761 2.2 %

2.10 Los Angeles CA CMNTY CLG Dist U.S. Political Subdivision of States $ 4,655,335 2.0 %

3. Amounts and percentages of the reporting entity’s total admitted assets held in bonds and preferred stocks by NAIC designation.

Bonds 1 2 Preferred Stocks 3 4

3.01 NAIC 1 $ 181,786,581 77.1 % 3.07 P/RP-1 $ 0 0.0 %

3.02 NAIC 2 $ 9,706 0.0 % 3.08 P/RP-2 $ 0 0.0 %

3.03 NAIC 3 $ 0 0.0 % 3.09 P/RP-3 $ 0 0.0 %

3.04 NAIC 4 $ 0 0.0 % 3.10 P/RP-4 $ 0 0.0 %

3.05 NAIC 5 $ 0 0.0 % 3.11 P/RP-5 $ 0 0.0 %

3.06 NAIC 6 $ 591,576 0.3 % 3.12 P/RP-6 $ 0 0.0 %

4. Assets held in foreign investments:

4.01 Are assets held in foreign investments less than 2.5% of the reporting entity’s total admitted assets? Yes [ ] No [X]

If response to 4.01 above is yes, responses are not required for interrogatories 5 – 10.

4.02 Total admitted assets held in foreign investments $ 6,181,481 2.6 %

4.03 Foreign-currency-denominated investments $ 6,181,481 2.6 %

4.04 Insurance liabilities denominated in that same foreign currency $ 0 0.0 %

285

42

SUPPLEMENT FOR THE YEAR 2018 OF THE MBIA Insurance Corporation

SUPPLEMENTAL INVESTMENT RISKS INTERROGATORIES (cont.)5. Aggregate foreign investment exposure categorized by NAIC sovereign designation:

1 2

5.01 Countries designated NAIC 1 $ 20,032 0.0 %

5.02 Countries designated NAIC 2 $ 6,161,449 2.6 %

5.03 Countries designated NAIC 3 or below $ 0 0.0 %

6. Largest foreign investment exposures by country, categorized by the country’s NAIC sovereign designation:1 2

Countries designated NAIC 1:

6.01 Country 1: Chile $ 19,916 0.0 %

6.02 Country 2: Cayman Islands $ 116 0.0 %


6.03 Country 1: Mexico $ 6,161,449 2.6 %

6.04 Country 2: $ 0 0.0 %

Countries designated NAIC 3 or below:

6.05 Country 1: $ 0 0.0 %

6.06 Country 2: $ 0 0.0 %

1 2

7. Aggregate unhedged foreign currency exposure $ 0 0.0 %

8. Aggregate unhedged foreign currency exposure categorized by NAIC sovereign designation:

1 2

8.01 Countries designated NAIC 1 $ 0 0.0 %

8.02 Countries designated NAIC 2 $ 0 0.0 %

8.03 Countries designated NAIC 3 or below $ 0 0.0 %

9. Largest unhedged foreign currency exposures by country, categorized by the country’s NAIC sovereign designation:

Countries designated NAIC 1: 1 2

9.01 Country 1: $ 0 0.0 %

9.02 Country 2: $ 0 0.0 %


9.03 Country 1: $ 0 0.0 %

9.04 Country 2: $ 0 0.0 %

Countries designated NAIC 3 or below:

9.05 Country 1: $ 0 0.0 %

9.06 Country 2: $ 0 0.0 %

10. Ten largest non-sovereign (i.e. non-governmental) foreign issues:

1Issuer

2NAIC Designation

3 4

10.01

MBIA Mexico SA DE CV

Common Stock -Parent, Subsidiaryand Affiliates $ 6,161,449 2.6 %

10.02 SOCIEDAD CONCESIONARIA VESPUCI BAVNO 5.3 6* $ 10,210 0.0 %

10.03 SOCIEDAD CONCESIONARIA AUTOP A AUTOP 5.3 2FE $ 9,706 0.0 %

10.04 BRODERICK CDO LTD SERIES 2006-2 CLASS C 6 $ 116 0.0 %

10.05 $ 0 0.0 %

10.06 $ 0 0.0 %

10.07 $ 0 0.0 %

10.08 $ 0 0.0 %

10.09 $ 0 0.0 %

10.10 $ 0 0.0 %

285.1

43


SUPPLEMENTAL INVESTMENT RISKS INTERROGATORIES (cont.)11. Amounts and percentages of the reporting entity’s total admitted assets held in Canadian investments and unhedged Canadian currency exposure:

11.01 Are assets held in Canadian investments less than 2.5% of the reporting entity’s total admitted assets? Yes [X] No [ ]

If response to 11.01 is yes, detail is not required for the remainder of Interrogatory 11.

1 2

11.02 Total admitted assets held in Canadian investments $ 0 0.0 %

11.03 Canadian-currency-denominated investments $ 0 0.0 %

11.04 Canadian-denominated insurance liabilities $ 0 0.0 %

11.05 Unhedged Canadian currency exposure $ 0 0.0 %

12. Report aggregate amounts and percentages of the reporting entity’s total admitted assets held in investments with contractual sales restrictions.

12.01 Are assets held in investments with contractual sales restrictions less than 2.5% of the reporting entity’s total admitted assets? Yes [X] No [ ]

If response to 12.01 is yes, responses are not required for the remainder of Interrogatory 12.

1 2 3

12.02 Aggregate statement value of investments with contractual sales restrictions $ 0 0.0 %

Largest three investments with contractual sales restrictions:

12.03 $ 0 0.0 %

12.04 $ 0 0.0 %

12.05 $ 0 0.0 %

13. Amounts and percentages of admitted assets held in the ten largest equity interests:

13.01 Are assets held in equity interest less than 2.5% of the reporting entity’s total admitted assets? Yes [ ] No [X]

If response to 13.01 is yes, responses are not required for the remainder of Interrogatory 13.

1Issuer

2 3

13.02 MBIA MEXICO SA DE CV $ 6,161,449 2.6 %

13.03 $ 0 0.0 %

13.04 $ 0 0.0 %

13.05 $ 0 0.0 %

13.06 $ 0 0.0 %

13.07 $ 0 0.0 %

13.08 $ 0 0.0 %

13.09 $ 0 0.0 %

13.10 $ 0 0.0 %

13.11 $ 0 0.0 %

285.2

44


SUPPLEMENTAL INVESTMENT RISKS INTERROGATORIES (cont.)

14. Amounts and percentages of the reporting entity’s total admitted assets held in nonaffiliated, privately placed equities:

14.01 Are assets held in nonaffiliated, privately placed equities less than 2.5% of the reporting entity’s total admitted assets? Yes [X] No [ ]

If response to 14.01 above is yes, responses are not required for the remainder ofInterrogatory 14.

1 2 3

14.02 Aggregate statement value of investments held in nonaffiliated, privately placed equities $ 0 0.0 %

Largest three investments held in nonaffiliated, privately placed equities:

14.03 $ 0 0.0 %

14.04 $ 0 0.0 %

14.05 $ 0 0.0 %

15. Amounts and percentages of the reporting entity’s total admitted assets held in general partnership interests:

15.01 Are assets held in general partnership interests less than 2.5% of the reporting entity’s total admitted assets? Yes [X] No [ ]


1 2 3

15.02 Aggregate statement value of investments held in general partnership interests $ 0 0.0 %

Largest three investments in general partnership interests:

15.03 $ 0 0.0 %

15.04 $ 0 0.0 %

15.05 $ 0 0.0 %

16. Amounts and percentages of the reporting entity’s total admitted assets held in mortgage loans:

16.01 Are mortgage loans reported in Schedule B less than 2.5% of the reporting entity’s total admitted assets? Yes [X] No [ ]

If response to 16.01 above is yes, responses are not required for the remainder of Interrogatory 16 and Interrogatory 17.

1Type (Residential, Commercial, Agricultural)

2 3

16.02 $ 0 0.0 %

16.03 $ 0 0.0 %

16.04 $ 0 0.0 %

16.05 $ 0 0.0 %

16.06 $ 0 0.0 %

16.07 $ 0 0.0 %

16.08 $ 0 0.0 %

16.09 $ 0 0.0 %

16.10 $ 0 0.0 %

16.11 $ 0 0.0 %

285.3

45


SUPPLEMENTAL INVESTMENT RISKS INTERROGATORIES (cont.)

16. Amount and percentage of the reporting entity’s total admitted assets held in the following categories of mortgage loans:

Loans

16.12 Construction loans $ 0 0.0 %

16.13 Mortgage loans over 90 days past due $ 0 0.0 %

16.14 Mortgage loans in the process of foreclosure $ 0 0.0 %

16.15 Mortgage loans foreclosed $ 0 0.0 %

16.16 Restructured mortgage loans $ 0 0.0 %

17. Aggregate mortgage loans having the following loan-to-value ratios as determined from the most current appraisal as of the annual statement date:

Loan-to-Value Residential Commercial Agricultural1 2 3 4 5 6

17.01 above 95% $ 0 0.0 % $ 0 0.0 % $ 0 0.0 %

17.02 91% to 95% $ 0 0.0 % $ 0 0.0 % $ 0 0.0 %

17.03 81% to 90% $ 0 0.0 % $ 0 0.0 % $ 0 0.0 %

17.04 71% to 80% $ 0 0.0 % $ 0 0.0 % $ 0 0.0 %

17.05 below 70% $ 0 0.0 % $ 0 0.0 % $ 0 0.0 %

18. Amounts and percentages of the reporting entity’s total admitted assets held in each of the five largest investments in real estate:

18.01 Are assets held in real estate reported less than 2.5% of the reporting entity’s total admitted assets? Yes [X] No [ ]


Largest five investments in any one parcel or group of contiguous parcels of real estate.

Description1 2 3

18.02 $ 0 0.0 %18.03 $ 0 0.0 %18.04 $ 0 0.0 %18.05 $ 0 0.0 %18.06 $ 0 0.0 %

19. Report aggregate amounts and percentages of the reporting entity’s total admitted assets held in investments held in mezzanine real estate loans:

19.01 Are assets held in investments held in mezzanine real estate loans less than 2.5% of the reporting entity’s total admitted assets? Yes [X] No [ ]

If response to 19.01 is yes, responses are not required for the remainder of Interrogatory19.

1 2 319.02 Aggregate statement value of investments held in mezzanine real estate loans: $ 0 0.0 %

Largest three investments held in mezzanine real estate loans:

19.03 $ 0 0.0 %19.04 $ 0 0.0 %19.05 $ 0 0.0 %

285.4

46


SUPPLEMENTAL INVESTMENT RISKS INTERROGATORIES (cont.)20. Amounts and percentages of the reporting entity’s total admitted assets subject to the following types of agreements:

At Year-End At End of Each Quarter

1st Qtr 2nd Qtr 3rd Qtr

1 2 3 4 520.01 Securities lending

agreements (do not includeassets held as collateral forsuch transactions) $ 0 0.0 % $ 0 $ 0 $ 0

20.02 Repurchase agreements $ 0 0.0 % $ 0 $ 0 $ 020.03 Reverse repurchase

agreements $ 0 0.0 % $ 0 $ 0 $ 020.04 Dollar repurchase

agreements $ 0 0.0 % $ 0 $ 0 $ 020.05 Dollar reverse repurchase

agreements $ 0 0.0 % $ 0 $ 0 $ 0

21. Amounts and percentages of the reporting entity’s total admitted assets for warrants not attached to other financial instruments, options, caps, and floors:

Owned Written

1 2 3 421.01 Hedging $ 0 0.0 % $ 0 0.0 %21.02 Income generation $ 0 0.0 % $ 0 0.0 %21.03 Other $ 0 0.0 % $ 0 0.0 %

22. Amounts and percentages of the reporting entity’s total admitted assets of potential exposure for collars, swaps, and forwards:

At Year-End At End of Each Quarter1st Qtr 2nd Qtr 3rd Qtr

1 2 3 4 522.01 Hedging $ 0 0.0 % $ 0 $ 0 $ 022.02 Income generation $ 0 0.0 % $ 0 $ 0 $ 022.03 Replications $ 0 0.0 % $ 0 $ 0 $ 022.04 Other $ 0 0.0 % $ 0 $ 0 $ 0

23. Amounts and percentages of the reporting entity’s total admitted assets of potential exposure for futures contracts:

At Year-End At End of Each Quarter

1 21st Qtr

32nd Qtr

43rd Qtr

5

23.01 Hedging $ 0 0.0 % $ 0 $ 0 $ 0

23.02 Income generation $ 0 0.0 % $ 0 $ 0 $ 0

23.03 Replications $ 0 0.0 % $ 0 $ 0 $ 0

23.04 Other $ 0 0.0 % $ 0 $ 0 $ 0

285.5

47


48

1. MBIA Insurance Corporation (“MBIA Corp.”) has not reinsured any risk with any other entity under a quota share reinsurance contract that includes a provision, such as a deductible, a loss ratio corridor, a loss cap, an aggregate limit, or any similar provision, that would limit the reinsurer’s losses below the stated quota share percentage. 2. MBIA Corp. has not ceded any risk under any reinsurance contract other than to National (or under multiple contracts with the same reinsurer or its affiliates) for which during the period covered by this statement: (i) it recorded a positive or negative underwriting result greater than 5% of prior year-end surplus as regards policyholders or it reported calendar year written premium ceded or year-end loss and loss expense reserves ceded greater than 5% of prior year-end surplus as regards policyholders; (ii) it accounted for that contract as reinsurance and not as a deposit; (iii) the contract(s) contain one or more of the following features or other features that would have similar results:

(a) a contract term longer than two years and the contract is noncancellable by the reporting entity during the contract term. (b) a limited or conditional cancellation provision under which cancellation triggers an obligation by the reporting entity, or an

affiliate of the reporting entity, to enter into a new reinsurance contract with the reinsurer, or an affiliate of the reinsurer. (c) aggregate stop loss reinsurance coverage; (d) a unilateral right by either party (or both parties) to commute the reinsurance contract, whether conditional or not, except for

such provisions which are only triggered by a decline in the credit status of the other party; (e) a provision permitting reporting of losses, or payment of losses, less frequently than on a quarterly basis (unless there is no

activity during the period); or (f) payment schedule, accumulating retentions from multiple years or any features inherently designed to delay timing of the

reimbursement to the ceding entity. 3. During the period covered by this statement, MBIA Corp. has not ceded any risk under any reinsurance contract, other than to National, (or under multiple contracts with the same reinsurer or its affiliates), for which, during the period covered by the statement, it recorded a positive or negative underwriting result greater than 5% of the prior year-end surplus as regards policyholders or it reported calendar year written premium ceded or year-end loss and loss expense reserves ceded greater than 5% of prior year-end surplus as regards to policyholders; excluding cessions to approved pooling agreements or to captive insurance companies that are directly or indirectly controlling, controlled by, or under common control with (i) one or more unaffiliated policyholders of the reporting entity, or (ii) an association of which one or more unaffiliated policyholders of the reporting entity is a member where:

(a) The written premium ceded to the reinsurer by the reporting entity or its affiliates represents fifty percent (50%) or more of the entire direct and assumed premium written by the reinsurer, other than National based on its most recently available financial statements; or

(b) Twenty five percent (25%) or more of the written premium ceded to the reinsurer has been retroceded back to the reporting entity or its affiliates.

4. (a) The financial statement impact on MBIA Corp. related to the ceded reinsurance contracts to National is presented in the following table:

In thousands As Reported

Impact of Ceded

Reinsurance Contract

Gross Financial Statement

Impact without Reinsurance

Total Admitted Assets $ 235,893 $ (3,331,175) $ 3,567,068

Total Liabilities (120,048) (1,333,484) 1,213,436

Total Capital & Surplus 355,941 (1,997,691) 2,353,632

Net gain before taxes $ 134,503 $ (22,377) $ 156,880


49

MBIA Corp. entered into a quota share reinsurance agreement effective January 1, 2009 pursuant to which MBIA Corp. ceded all of its U.S. public finance exposure to National. The reinsurance agreement enables covered policyholders and certain ceding reinsurers to make claims for payment directly against National in accordance with the terms of these agreements. In connection with the reinsurance agreement MBIA Corp. paid to National a premium to reinsure the policies covered by the reinsurance agreement net of a ceding commission on the unearned premium reserve.

(b) Management’s Objectives: Management announced a plan to restructure the business in part by creating separate legal operating entities for the public finance, international and structured financial guarantee businesses. The objectives behind this initiative are to provide greater resilience and financial flexibility under extreme market stress, to obtain the highest possible ratings for each business, and to create more transparency to investors and policyholders. The first step in the plan was the establishment of National as a U.S. public finance-only financial guarantee company.

5. MBIA Corp. has not ceded any risk under any reinsurance contract, (or multiple contracts with the same reinsurer or its affiliates) that:

(a) during the period covered by this statement, MBIA Corp. accounted for any contract as reinsurance (either prospective or retroactive) under statutory accounting principles (“SAP”) and as a deposit under generally accepted accounting principles (“GAAP”). MBIA Corp. has not ceded risk under any reinsurance contract, (or multiple contracts with the same reinsurer or its affiliates) that:

(b) during the period covered by this statement, MBIA Corp. did not account for any contracts as reinsurance under GAAP and as a deposit under SAP.

Documents

MBIA Insurance Corporation · Services (“Moody’s”) terminating the agreement by which Moody’s agreed to provide financial strength ratings to MBIA Corp. and MBIA Mexico. On