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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X ] Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1995.
Commission file number 1-9583
MBIA INC.
(Exact name of registrant as specified in its charter)
Connecticut 06-1185706
(State of Incorporation) (I.R.S. Employer Identification No.)
113 King Street, Armonk, New York 10504
(Address of principal executive offices) (Zip Code)
(914) 273-4545
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class NAME OF EACH EXCHANGE ON WHICH REGISTERED
- -------------------
Common Stock, par value $1 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No___.
The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of March 22, 1996 was $ 3,294,392,871.00.
As of March 22, 1996, 42,853,891 shares of Common Stock, par value $1
per share, were outstanding.
Documents incorporated by reference. Portions of Registrant's Annual Report to
Shareholders for the fiscal year ended December 31, 1995 are incorporated by
reference into Parts I and II. Portions of the Definitive Proxy Statement of the
Registrant, dated March 25, 1996 are incorporated by reference into Parts I and
III.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (SS 229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
PART I
Item 1. Business
MBIA Inc. (the "Company") insures municipal bonds, asset-backed
securities and other non-municipal obligations through its wholly-owned
subsidiary, MBIA Insurance Corporation ("MBIA Corp."). MBIA Corp. is the
successor to the business of the Municipal Bond Insurance Association (the
"Association"), a consortium of five multi-line insurers, which began writing
municipal bond insurance in 1974. Four of the five members of the Association,
together with certain of their affiliates, participated in the formation of the
Company in December 1986. (See "Certain Relationships and Related
Transactions--Organization of the Company" in the Company's Proxy Statement
dated March 25, 1996 which is incorporated herein by reference.)
Effective as of December 31, 1989, the Company purchased Bond Investors
Guaranty Insurance Company ("BIG Ins."), another municipal bond insurance
company, through the acquisition of all of the common stock of its parent
company, Bond Investors Group, Inc. ("BIG"). Subsequently, MBIA Corp. reinsured
the net exposure on the municipal bond insurance policies previously issued by
BIG Ins. and the Company contributed the common stock of BIG to MBIA Corp. (See
"Business--Reinsurance" below). On August 21, 1990, the Company changed the name
of BIG Ins. to MBIA Insurance Corp. of Illinois ("MBIA Illinois"). Subsequently,
BIG was merged into MBIA Illinois.
In 1990, the Company formed a French company, MBIA Assurance S.A.
("MBIA Assurance"), to write financial guarantee insurance in the countries of
the European community. MBIA Assurance, which is a subsidiary of MBIA Corp.,
writes policies insuring public infrastructure financings, asset-backed
transactions and certain obligations of financial institutions. By the end of
1995, MBIA Corp. and MBIA Assurance had collectively insured 58 international
transactions. In September 1995, MBIA Corp. entered into a joint venture
agreement with AMBAC Indemnity Corporation for the purpose of jointly marketing
financial guarantee insurance within the European Community.
Over the last five years, the Company has undertaken the development of
investment management services which capitalize on its capabilities, reputation
and marketplace relationships. The Company is delivering these services through
a group of subsidiary companies. As of December 31, 1995, in the aggregate,
these investment management ventures contributed $19.9 million in operating
revenues.
Generally, throughout the text references to MBIA Corp. include the activities
of its subsidiaries, MBIA Illinois and MBIA Assurance.
Financial guarantee insurance provides an unconditional and irrevocable
guarantee of the payment of the principal of and interest on insured obligations
when due. MBIA Corp.'s primary business is insuring obligations issued by
states, municipalities and other governmental authorities, instrumentalities and
agencies. Such obligations are secured by the issuer's taxing power in the case
of general obligation or special tax supported bonds, or by the issuer's ability
to impose and collect fees and charges for public services or specific projects
in the case of most revenue bonds. MBIA Corp. also provides financial guarantees
for structured finance transactions (principally morgage-backed and
asset-backed securities), investor-owned utility debt and obligations of
high-quality financial institutions.
MBIA Corp.'s substantial capital base permits it to support a large
portfolio of insured obligations and to write new business. MBIA Corp. primarily
insures obligations which are sold in the new issue and secondary markets, or
which are held in unit investment trusts ("UIT") and by mutual funds. It also
provides surety bonds for debt service reserve funds.
The Association was the first issuer of financial guarantees to receive
both the AAA claims-paying rating from Standard and Poor's Corporation ("S&P"),
which it received in 1974, and the Aaa claims-paying rating from Moody's
Investors Service, Inc. ("Moody's"), which it received in 1984. Both rating
agencies have continuously issued Triple-A claims-paying ratings for MBIA Corp.
and Triple-A ratings to obligations guaranteed by MBIA Corp. Both rating
agencies have also continued the Triple-A rating on MBIA Illinois guaranteed
bond issues which have been reinsured by MBIA Corp. In addition, in 1995 MBIA
Corp. received a Triple-A claims paying rating from Fitch Investors Services,
L.P. ("Fitch").
The principal economic value of financial guarantee insurance to the
entity offering the obligations is the saving in interest costs resulting from
the difference in the market yield between an insured obligation and the same
obligation on an uninsured basis. In addition, for complex financings and for
obligations of issuers that are not well-known by investors, insured obligations
receive greater market acceptance than uninsured obligations.
The financial guarantee industry is subject to the direct and indirect
effects of governmental regulation, including changes in tax laws affecting the
municipal and asset-backed debt markets. No assurance can be given that future
legislative or regulatory changes might not adversely affect the results of
operations and financial conditions of the Company.
MBIA CORP. INSURED PORTFOLIO
At December 31, 1995, the net par amount outstanding on MBIA Corp.'s
insured obligations (including insured obligations of MBIA Illinois and MBIA
Assurance but excluding the guarantee of $2.7 billion of obligations of MBIA
Investment Management Corp. ("IMC") (see "Operations--Miscellaneous")) was
$188.6 billion, comprised of $163.0 billion in new issues and $25.6 billion in
secondary market issues. Net insurance in force was $344.0 billion.
MBIA Corp. guarantees to the holder of the underlying obligation the
timely payment of the principal of and interest on such obligation in accordance
with its original payment schedule. Accordingly, in the case of a default on an
insured obligation, payments under the insurance policy cannot be accelerated by
the holder. MBIA Corp. will be required to pay principal and interest only as
originally scheduled payments come due.
MBIA Corp. seeks to maintain a diversified insured portfolio designed
to spread risk based on a variety of criteria including revenue source, issue
size, type of bond and geographic area. As of December 31, 1995, MBIA Corp. had
30,778 policies outstanding. These policies are diversified among 7,161
"credits," which MBIA Corp. defines as any group of issues supported by the same
revenue source.
The table below sets forth information with respect to the original par
amount written per issue in MBIA Corp.'s portfolio as of December 31, 1995:
MBIA Corp. Original Par Amount Per Issue
as of December 31, 1995
% of Total
Number of Number of Net Par % of Net
Original Par Amount Issues Issues Amount Par Amount
Written per Issue Outstanding Outstanding Outstanding Outstanding
- ----------------- ----------- ----------- ----------- -----------
(In billions)
Less than $10 million ..... 26,227 85.2 $ 36.3 19.3%
$10-25 million ........... 2,259 7.3 27.8 14.8
$25-50 million ............ 1,133 3.7 29.7 15.7
$50-100 million ........... 699 2.3 34.6 18.3
Greater than $100 million . 460 1.5 60.2 31.9
------ ----- ---- ----
Total ..................... 30,778 100.0 188.6 100.0
====== ===== ===== =====
MBIA Corp. underwrites financial guarantee insurance on the assumption
that the insurance will remain in force until maturity of the insured
obligations. MBIA Corp. estimates that the average life (as opposed to the
stated maturity) of its insurance policies in force at December 31, 1995 was
11.6 years. The average life was determined by applying a weighted average
calculation, using the remaining years to maturity of each insured obligation,
and weighting them on the basis of the remaining debt service insured. No
assumptions were made for any future refundings of insured issues. Average
annual debt service on the portfolio at December 31, 1995 was $17.6 billion.
-2-
The table below shows the diversification of MBIA Corp.'s insured
portfolio by bond type:
MBIA CORP. INSURED PORTFOLIO BY BOND TYPE
AS OF DECEMBER 31, 1995 (1)
NUMBER OF NET PAR % OF NET
ISSUES AMOUNT PAR AMOUNT
BOND TYPE OUTSTANDING OUTSTANDING OUTSTANDING
- --------- ----------- ----------- -----------
(In billions)
Municipal
General obligation ....... 11,445 $ 54.3 28.8%
Utilities ................ 4,931 31.7 16.8
Health care .............. 2,458 27.0 14.3
Special revenue .......... 1,445 13.2 7.0
Transportation ........... 1,562 13.2 7.0
Higher education ......... 1,261 8.4 4.4
Housing .................. 2,671 6.8 3.6
Industrial development and
pollution control revenue 924 6.3 3.4
Other .................... 134 3.6 1.9
------ -------- -------
Total Municipal ......... 26,831 164.5 87.2
------ ------- -------
Non-Municipal
Asset/mortgage-backed .... 256 15.4 8.1
International 53 3.5 1.9
Investor-owned utilities . 3,559 2.2 1.2
Other .................... 79 3.0 1.6
------ ------- -------
Total Non-Municipal ..... 3,947 24.1 12.8
------ ------- -------
30,778 $ 188.6 100.0%
====== ======= =====
_____________________________
(1) Excludes IMC's $2.7 billion relating to municipal investment agreements
guaranteed by MBIA Corp.
As illustrated by the table above, approximately 46% of the net par
amount outstanding of the MBIA Corp. insured portfolio consists of general
obligation bonds, which are supported by the full faith and credit and taxing
power of state and local governmental issuers, and water, sewer and electric
revenue bonds, which are secured by a pledge of revenues imposed and collected
by state and local public entities for the provision of essential services. MBIA
Corp. seeks to avoid bond issues which entail excessive single project risk,
over-capacity or customer contract disputes.
To date, MBIA Corp. has engaged primarily in insuring municipal bonds.
As of December 31, 1995, of the $188.6 billion outstanding net par amount of
obligations insured, $164.5 billion, or 87%, consisted of municipal bonds and
$24.1 billion, or approximately 13%, consisted primarily of
asset/mortgage-backed transactions, investor-owned utility obligations and
transactions done in the European market.
-3-
The table below shows the diversification by type of insurance written
by MBIA Corp. in each of the last five years:
MBIA Corp. Net Par Amount Insured by Bond Type (1)
BOND TYPE 1991 1992 1993 1994 1995
- --------- ---- ---- ---- ---- ----
(In millions)
MUNICIPAL
General obligation ..... $ 6,629 $ 8,951 $ 11,952 $ 11,086 $10,127
Utilities .............. 2,903 5,975 9,293 4,858 5,018
Health care ............ 3,715 4,401 6,342 3,655 2,913
Special Revenue ........ 1,475 2,776 3,246 1,888 1,935
Transportation ......... 1,202 2,283 3,419 1,747 2,624
Higher Education ....... 1,052 1,532 2,126 1,346 1,264
Housing ................ 744 592 469
876 1,962
Other .................. 839 966 1,532 2,061 2,395
--- --- ----- ----- -----
TOTAL MUNICIPAL ....... 18,559 27,476 8,379 27,517 28,238
------- ------- ------- ------- -------
NON-MUNICIPAL
Asset/mortgage-backed .. 443 2,842 3,581 4,832 7,766
International -- -- 190 1,948 1,514
Investor-owned utilities 418 476 642 643 412
Other .................. -- 693 907 712 877
------- ------- ------- ------- -------
Total Non-Municipal ... 861 4,011 5,320 8,135 10,569
------- ------- ------- ------- -------
$ 19,420 $ 31,487 $ 43,699 $ 35,652 $38,807
======== ======== ======== ======== ========
- ----------
(1) Par amount insured each year, net of reinsurance.
-4-
MBIA Corp. is licensed to write business in all 50 states, the District
of Columbia, France, Guam, the Northern Mariana Islands, the U.S. Virgin Islands
and Puerto Rico. MBIA Illinois is licensed to write business in 48 states, the
District of Columbia and Puerto Rico. MBIA Assurance is licensed to write
business in France. The following table sets forth by state those states in
which MBIA Corp. has at least 2% of its total net par amount outstanding:
MBIA Corp. Insured Portfolio By State
as of December 31, 1995 (1)
Number of Net Par % of Net
Issues Amount Par Amount
Outstanding Outstanding Outstanding
----------- ----------- -----------
(In billions)
State
California 3,122 $ 25.6 13.6%
New York 4,679 15.2 8.0
Florida 1,684 14.6 7.8
Pennsylvania 2,143 10.5 5.6
Texas 2,031 10.4 5.5
New Jersey 1,730 8.7 4.6
Illinois 1,090 8.1 4.3
Ohio 1,017 5.3 2.8
Massachusetts 1,070 5.1 2.7
Michigan 1,012 4.1 2.2
All other states 11,147 77.5 41.0
------ ----- -----
Total United States 30,725 185.1 98.1%
------ ----- ----
International 53 3.5 1.9
-- --- ---
Total 30,778 $188.6 100.0%
====== ====== =====
- ----------
(1) Excludes IMC's $2.7 billion relating to municipal investment agreements
guaranteed by MBIA Corp.
-5-
MBIA Corp. has underwriting guidelines that limit the net insurance in
force for any one insured credit. MBIA Corp. has not exceeded any applicable
regulatory single-risk limit with respect to any bond issue insured by it. As of
December 31, 1995, MBIA Corp.'s net par amount outstanding for its ten largest
insured credits totalled $9.1 billion, representing 4.9% of MBIA Corp.'s total
net par amount outstanding, and was as follows:
MBIA Corp.'s Ten Largest Insured Credits
as of December 31, 1995
Net Par
Amount
Outstanding
-----------
(In millions)
Puerto Rico Unlimited General Obligations $1,085
Louisiana State Unlimited General Obligations 1,036
City of New York Unlimited General Obligations 979
New Jersey Single Family Mortgage Revenue Obligations 957
District of Columbia Unlimited General Obligations 926
Massachusetts Unlimited General Obligations 878
Los Angeles City Waste Water 829
Sacramento Municipal Utilities District, Electric Revenue 825
New York Municipal Water Finance Authority 806
Ohio Public Building Authority Lease 777
MBIA CORP. INSURANCE PROGRAMS
MBIA Corp. offers financial guarantee insurance in both the new issue
and secondary markets. At present, no new financial guarantee insurance is being
offered by MBIA Illinois, but it is possible that MBIA Illinois will insure
transactions in the future. MBIA Corp. and MBIA Assurance offer financial
guarantee insurance in Europe and other areas outside the United States. Set
forth below are the different types of programs through which insurance
presently is offered.
NEW ISSUE PROGRAMS:
DIRECT PURCHASE PROGRAM. Under the Direct Purchase Program, an issuer or
underwriter purchases a policy directly from MBIA Corp. and pays the premium
itself. Substantially all MBIA Corp. insured issues that are sold through a
negotiated offering utilize this program. Of those issues which sell through
competitive bidding, some use this program but the majority use the Optional
Bidding Program described below. The critical elements in the Direct Purchase
Program are that the issuer or underwriter determines to use insurance well
before the sale date and then works closely with MBIA Corp. in developing
documentation and legal structure.
OPTIONAL BIDDING PROGRAM. Under the Optional Bidding Program, MBIA Corp. offers
insurance as an option to the underwriters bidding on an issue. It is used only
for issues sold through competitive bidding. Under this program, the MBIA Corp.
policy is purchased and the premium paid by the successful underwriter who
chooses to use MBIA Corp. insurance. The flexibility of this program, where
insurance may be chosen or rejected until sale time, makes adjustment to current
market conditions easy for underwriters. In addition, this program eliminates
any need for the issuer to budget for or allocate bond proceeds to pay the
premium.
SECONDARY MARKET PROGRAMS:
Unit Investment Trusts. MBIA Corp. offers insurance to the UIT market through
ongoing arrangements with investment banking and financial service companies
which are UIT sponsors. MBIA Corp. insurance covers all of the bond issues in
each of the insured unit trusts through one of two programs. Under one program,
each issue in a trust is insured until maturity and, under the other program,
each issue is insured only while it is held in the UIT.
-6-
Mutual Funds. MBIA Corp. offers insurance in the mutual fund sector through
ongoing arrangements with fund sponsors, which are investment advisers to
individual mutual funds or families of mutual funds. All premiums for insuring
bond issues in mutual funds are paid on the "while-in-trust" basis and consist
of monthly charges. Under certain of these policies, MBIA Corp. is committed to
offer insurance to maturity to the sponsor on issues sold out of the fund for an
additional premium payable at the time of sale.
Other Secondary Market Insurance. MBIA Corp. provides insurance on whole and
partial maturities for bond issues which are being traded in the secondary
market in response to requests from bond traders and institutions. MBIA Corp.
charges the purchaser of this insurance a single premium payable upon issuance
of the policy for insuring the designated bonds to maturity.
The following table indicates the percentage of net par outstanding
with respect to each type of insured program:
MBIA CORP. TYPES OF INSURED PROGRAMS
AS OF DECEMBER 31, 1995
NET PAR
AMOUNT % OF NET
TYPE OF PROGRAM OUTSTANDING PAR AMOUNT
(IN BILLIONS) OUTSTANDING
New issue $163.0 86.4%
Secondary market issues
Unit investment trusts ................. 5.7 3.0
Mutual funds ........................... 0.3 0.2
Other secondary market issues .......... 19.6 10.4
------ -----
Total ................................. $188.6 100.0%
====== =====
OPERATIONS
The operations of MBIA Corp. are conducted primarily through two
divisions: the Underwriting, Policy and Review Division and the Insurance
Operations Division. The Insurance Operations Division includes the Public
Finance and the Secondary Market Groups, the Structured Finance and the
International Departments, and the Insured Portfolio Management Group. The
functions of each are more fully described below.
The Public Finance Group, the Secondary Market Group and the Structured
Finance Department each have underwriting authority with respect to certain
categories of business and with respect to credits up to a certain par amount
per category. As a result, they are responsible for analyzing and approving
approximately 80% of the number of issues insured (representing 47% of the gross
par value insured), although their underwriting decisions are monitored by the
Underwriting Policy and Review Division which is responsible for ascertaining
that MBIA Corp.'s underwriting guidelines and procedures are being followed.
With respect to larger, complex or unique credits, as well as all
asset/mortgage-backed transactions and international transactions, MBIA Corp.'s
review and approval procedure has two stages. The first stage consists of
transaction screening and in-depth credit review and structuring by the
appropriate department within the Insurance Operations Division. The second
stage, final review and approval of credit and structure, is performed by the
Underwriting, Policy and Review Division. Pricing, in all cases, is carried out
by the Market Research Group in the Insurance Operations Division, and the
continuing review of insured issues is administered by the Insured Portfolio
Management Group.
-7-
MARKETING AND CREDIT REVIEW:
MBIA Corp.'s marketing activities and initial credit review
functions for municipal transactions are carried out primarily by the Public
Finance Group and the Secondary Market Group. They are also involved in
structuring credits on negotiated new issue business and in insuring secondary
market issues. These groups employ municipal research analysts who have
extensive experience in the municipal bond industry and who develop business
within established credit analysis criteria. Market intelligence and client
contact related to identifying, screening and developing candidates for
insurance are handled by the individual departments within the Insurance
Operations Division. The primary factors in issue screening are credit quality,
legal security and transaction structure, as well as evaluation of the potential
for interest cost savings through the use of insurance. In the area of
asset/mortgage-backed transactions, functions similar to these are performed by
the Structured Finance Department. The International Department performs similar
tasks with respect to financings done outside the United States.
Premium rates are determined by the Market Research Group, MBIA
Corp.'s pricing and syndicate unit, which focuses on the type of business and
credit strength of the bond issue, the maturity and structure of the issue, and
other credit and market factors. Premium rates are based upon established
premium ranges, which take into account capital charges, rating agency models
and degrees of perceived risk. The Market Research Group also conducts extensive
consultation with analysts on the issue and considers updated market
intelligence developed from daily contact with syndicate managers and traders to
help form the most accurate view of the value of MBIA Corp.'s guarantee on each
issue. Minimum pricing standards are established at levels that management
believes should generate an appropriate level of return on capital.
The Company recognizes that adherence to its pricing and quality
standards may result in the loss of business to other insurers offering
insurance at rates or on terms that the Company does not believe to be
appropriate. The Company gives primary emphasis to maintaining its pricing and
quality standards and secondary emphasis to market share.
UNDERWRITING REVIEW:
The Underwriting, Policy and Review Division is responsible for
adherence to MBIA Corp.'s underwriting guidelines and procedures, which are
designed to maintain an insured portfolio with low risk characteristics. MBIA
Corp. maintains underwriting guidelines based on those aspects of credit quality
that it deems important for each category of obligation considered for
insurance. These include economic and social trends, debt management, financial
management, adequacy of anticipated cash flow, satisfactory legal structure and
other security provisions, viable tax and economic bases, adequacy of loss
coverage and project feasibility, including a satisfactory consulting engineer's
report, if applicable. Such guidelines are subject to periodic review. An
inter-divisional committee, the Credit Policy Committee, is responsible for
establishing and maintaining underwriting standards and criteria for all
insurance products.
In order to ensure that the existing guidelines are followed, the
Underwriting, Policy and Review Division monitors and periodically reviews
underwriting decisions made by the Insurance Operations Division. In addition,
on large, unique or complex transactions and on all asset/mortgage-backed
transactions and international transactions (estimated to be about 20% of the
number of issues or 53% of the gross par value insured by MBIA Corp.), the final
underwriting decisions are made by the Underwriting Policy and Review Division.
The Financial Institution Analysis Department of the
Underwriting, Policy and Review Division underwrites and monitors MBIA Corp.'s
direct and indirect exposure to financial institutions with respect to
investment contracts, letters of credit and liquidity facilities supporting
MBIA-insured issues, and recommends limits on such exposures. The department
provides in-depth financial analyses of financial institutions for which there
is existing or proposed exposure and gives advice on related contract terms,
transfers of these instruments to new institutions and renewal dates and
procedures.
-8-
INSURED PORTFOLIO MANAGEMENT:
The Insured Portfolio Management Group is responsible for
monitoring outstanding issues insured by MBIA Corp. This group's first function
is to detect any deterioration in credit quality or changes in the economic or
political environment which could interrupt the timely payment of debt service
on an insured issue. Once a problem is detected, the group then works with the
issuer, trustee, bond counsel, underwriters and other interested parties to deal
with the concern before it develops into a default.
Although MBIA Corp. has to date had only eight insured issues
requiring claim payments for which it has not been fully reimbursed, there are
seven additional insured issues for which case loss reserves have been
established (see "Losses and Reserves" below). Other potential losses have been
avoided through the early detection of problems and subsequent negotiations with
the issuer and other parties involved. In a limited number of instances, the
solution involved the restructuring of insured issues or underlying security
arrangements. More often, MBIA Corp. utilizes a variety of other techniques to
resolve problems, such as enforcement of covenants, assistance in resolving
management problems and working with the issuer to develop potential political
solutions. Issuers are under no obligation to restructure insured issues or
underlying security arrangements in order to prevent losses. Moreover, MBIA
Corp. is obligated to pay amounts equal to defaulted interest and principal
payments on insured bonds on their respective due dates even if the issuer or
other parties involved refuse to restructure or renegotiate the terms of the
insured bonds or related security arrangements. The Company believes that early
detection and continued involvement by the Insured Portfolio Management Group
are crucial in avoiding or minimizing claims on insurance policies.
Once an obligation is insured, the issuer and the trustee are
asked, or in some cases required, to furnish financial information, including
audited financial statements, annually to the Insured Portfolio Management Group
for review. Potential problems uncovered through this review, such as low
operating fund balances, covenant violations, trustee or servicer problems, tax
certiorari proceedings or excessive litigation, could result in an immediate
surveillance review and an evaluation of possible remedial actions. The Insured
Portfolio Management Group also monitors state finances and budget developments
and evaluates their impact on local issuers.
The Company's computerized credit surveillance system records
situations where follow-up is needed, such as letter of credit renewal,
construction status and the receipt of additional data after the closing of a
transaction. Further, issues that experience financial difficulties,
deteriorating economic conditions, excessive litigation or covenant violations
are placed on the appropriate review list and are subject to surveillance
reviews at intervals commensurate to the problem which has been detected.
There are two departments within the Insured Portfolio Management
Group: the Public Finance Portfolio Management Department handles the more
traditional types of issues such as general obligation, utility, special revenue
and health care bonds; and the Structured Finance Portfolio Management
Department is responsible for housing and asset-backed issues.
The Public Finance Portfolio Management Department reviews and
reports on the major credit quality factors of risks insured by the Company,
evaluates the impact of new developments on insured weaker credits and carries
out remedial activity. In addition, it performs analysis of financial statements
and key operating data on a large scale basis and maintains various databases
for research purposes. It responds to consent and waiver requests and monitors
pool programs. This department is responsible for preparing special reports
which include analyses of regional economic trends, proposed tax limitations,
the impact of employment trends on local economies or legal developments
affecting bond security.
The Structured Finance Portfolio Management Department monitors
insured structured finance programs, focusing on the adequacy of reserve
balances and investment of earnings, the status of mortgage or loan
delinquencies and underlying insurance coverage and the performance of the
trustee for insured issues. Monitoring of issues typically involves review of
records and statements, review of transaction documents with regard to
compliance, analysis of cash flow adequacy and communication with trustees.
Review of servicer performance is also conducted through review of servicer
financial statements, review of servicer reports where available and contacts
with program administrators and trustees. The department also carries out
remedial activity on weaker credits.
-9-
INVESTMENT MANAGEMENT SERVICES
Over the last five years, the Company has undertaken the development of
investment management services which capitalize on its capabilities, reputation
and marketplace relationships. The Company is delivering these services through
a group of subsidiary companies. In 1995, in the aggregate, these new ventures
contributed $19.9 million in operating revenues.
MBIA Municipal Investors Service Corporation ("MBIA/MISC"), was
formed as a subsidiary of the Company to provide cash management services for
local governments, school districts and similar authorities. As of December 31,
1995, MBIA/MISC, a registered investment advisor, had approximately 1,250
clients and over $2.5 billion of client assets under management. In addition,
MBIA/MISC provides fund administration services to over 230 clients with
invested assets of $154 million. MBIA/MISC is operating in nine states and the
Commonwealth of Puerto Rico and plans to continue its expansion into additional
states in the near term.
In 1993, the Company formed a wholly-owned subsidiary, MBIA
Investment Management Corp. ("IMC"), to provide an investment vehicle in the
form of investment agreements guaranteed as to principal and interest, for
states, municipalities and municipal authorities. IMC's agreements are
structured with individual terms and draw schedules and the length of the
agreements ranges from one month to forty years. At year-end, IMC had
outstanding investment agreements of $2.6 billion.
In 1994, the Company formed a wholly-owned subsidiary, MBIA
Securities Corp. ("SECO"), to perform investment management services for the
Company, MBIA Corp., MBIA/MISC and IMC. SECO performs internal fixed-income
trading and portfolio management offering the Company greater control over its
investment management activities. At year-end, SECO was managing more than $5
billion of assets for MBIA Corp., IMC and MBIA/MISC.
COMPETITION
The financial guarantee insurance business is highly competitive. In
1995 MBIA Corp. was the largest insurer of new issue long-term municipal bonds,
accounting for 42% of the par amount of such insured bonds. The other principal
insurers in 1995 were AMBAC Indemnity Corporation, Financial Guaranty Insurance
Company, Financial Security Assurance Inc. and Capital Guaranty Insurance Co.,
all of which, like MBIA Corp., have Aaa and AAA claims-paying ratings from
Moody's and S&P, respectively. According to Asset Sales Report, in 1995 MBIA
Corp. was the leading insurer of new issue asset/mortgage-backed securities. The
three principal competitors in this area in 1995 were Capital Markets Assurance
Corp., Financial Security Assurance and Financial Guaranty Insurance Company.
Financial guarantee insurance also competes with other forms of credit
enhancement, including over-collateralization, letters of credit and guarantees
(for example, mortgage guarantees where pools of mortgages secure debt service
payments) provided by banks and other financial institutions, some of which are
governmental agencies or have been assigned the highest credit ratings awarded
by one or more of the major rating agencies. Letters of credit are most often
issued for periods of less than 10 years, although there is no legal restriction
on the issuance of letters of credit having longer terms. Thus, financial
institutions and banks issuing letters of credit compete directly with MBIA
Corp. to guarantee short-term notes and bonds with a maturity of less than 10
years. To the extent that banks providing credit enhancement may begin to issue
letters of credit with commitments longer than 10 years, the competitive
position of financial guarantee insurers, such as MBIA Corp., could be adversely
affected. Letters of credit also are frequently used to assure the liquidity of
a short-term put option for a long-term bond issue. This assurance of liquidity
effectively confers on such issues, for the short term, the credit standing of
the financial institution providing the facility, thereby competing with MBIA
Corp. and other financial guarantee insurers in providing interest cost savings
on such issues. Financial guarantee insurance and other forms of credit
enhancement also compete in nearly all instances with the issuer's alternative
of foregoing credit enhancement and paying a higher interest rate. If the
interest savings from insurance or another form of credit enhancement are not
greater than the cost of such credit enhancement, the issuer will generally
choose to issue bonds without enhancement. MBIA Assurance also competes in the
international market with composite (multi-line) insurers.
-10-
There are minimum capital requirements imposed on a financial guarantee
insurer by Moody's and S&P to obtain Triple-A claims-paying ratings. Also, under
a New York law, multiline insurers are prohibited from writing financial
guarantee insurance in New York State, except during a transitional period
which, subject to certain specific conditions, will expire in May 1997. See
"Business--Regulation." However, there can be no assurance that major multiline
insurers or other financial institutions will not participate in financial
guarantee insurance in the future, either directly or through monoline
subsidiaries.
REINSURANCE
State insurance laws and regulations, as well as Moody's and S&P,
impose minimum capital requirements on financial guarantee companies, limiting
the aggregate amount of insurance which may be written and the maximum size of
any single risk exposure which may be assumed. MBIA Corp. increases its capacity
to write new business by using treaty and facultative reinsurance to reduce its
gross liabilities on an aggregate and single risk basis.
From its reorganization in December 1986 through December 1987, MBIA
Corp. reinsured a portion of each policy through quota and surplus share
reinsurance treaties. Each treaty provides reinsurance protection with respect
to policies written by MBIA Corp. during the term of the treaty, for the full
term of the policy. Under its quota share treaty MBIA Corp. ceded a fixed
percentage of each policy insured. Since 1988, MBIA Corp. has entered into only
surplus share treaties under which a variable percentage of risk over a minimum
size is ceded, subject to a maximum percentage specified in the treaty.
Reinsurance ceded under the treaties is for the full term of the underlying
policy.
MBIA Corp. also enters into facultative reinsurance arrangements from
time to time primarily in connection with issues which, because of their size,
require additional capacity beyond MBIA Corp.'s retention and treaty limits.
Under these facultative arrangements, portions of MBIA Corp.'s liabilities are
ceded on an issue-by-issue basis. MBIA Corp. utilizes facultative arrangements
as a means of managing its exposure to single issuers to comply with regulatory
and rating agency requirements, as well as internal underwriting and portfolio
management criteria.
As a primary insurer, MBIA Corp. is required to honor its obligations
to its policyholders whether or not its reinsurers perform their obligations to
MBIA Corp. The financial position of all reinsurers is monitored by MBIA Corp.
on a regular basis.
As of December 31, 1995, MBIA Corp. retained approximately 87% of the
gross debt service outstanding of all municipal bonds insured by it, MBIA
Assurance and MBIA Illinois, and ceded approximately 13% to treaty and
facultative reinsurers. MBIA Corp.'s and MBIA Illinois' principal reinsurers are
Enhance Reinsurance Company, Capital Re Management Corporation, Asset Guaranty
Reinsurance Co. and Capital Mortgage Reinsurance Company The first two of these
reinsurers, whose claims paying ability is rated Triple-A by S&P and Moody's,
reinsured approximately 67% of the total ceded insurance in force at December
31, 1995. The other principal reinsurers are rated AA by S&P. All other
reinsurers reinsured less than 5% of the total ceded insurance in force at
December 31, 1995 and are diversified geographically and by lines of insurance
written. MBIA Corp.'s net retention on the policies it writes varies from time
to time depending on its own business needs and the capacity available in the
reinsurance market. The amounts of reinsurance ceded at December 31, 1995 and
1994 by bond type and by state are set forth in Note 12 to the Consolidated
Financial Statements of MBIA Inc. and Subsidiaries.
In connection with the BIG acquisition, MBIA Corp. and MBIA Illinois
entered into a reinsurance agreement under which MBIA Corp. agreed to reinsure
100% of all business written by MBIA Illinois, net of cessions by MBIA Illinois
to third party reinsurers, in exchange for MBIA Illinois' transfer of the assets
underlying the related unearned premium and contingency reserves. Pursuant to
such reinsurance agreement with MBIA Illinois, MBIA Corp. reinsured all of the
net exposure of $30.9 billion, or approximately 68% of the gross debt service
outstanding, of the municipal bond insurance portfolio of MBIA Illinois, the
remaining 32% having been previously ceded to treaty and facultative reinsurers
of MBIA Illinois (see preceding paragraph). MBIA Corp. retroceded 3% and 1% of
this portfolio to its treaty and facultative reinsurers in 1990 and 1991,
respectively; additionally, in 1990, 10% of this portfolio was ceded back to
MBIA Illinois to comply with regulatory requirements.
MBIA Corp. and MBIA Assurance have both a reinsurance agreement and a net
worth maintenance agreement.
-11-
INVESTMENTS AND INVESTMENT POLICY
The Finance Committee of the Board of Directors of the Company approves
the general investment objectives and policies of the Company, and also reviews
more specific investment guidelines. The Company has investment management and
advisory agreements with an affiliate of a principal shareholder, which provides
for payment of fees on assets under management. These agreements were terminated
on January 1, 1996 at which time SECO commenced management of all of MBIA
Corp.'s consolidated investment portfolios. Certain investments of the Company
and MBIA Assurance related to non-U.S. insurance operations are managed by
independent managers in France.
To continue to provide strong capital resources and claims-paying
capabilities for its insurance operations, the investment objectives and
policies for insurance operations set quality and preservation of capital as the
primary objective subject to an appropriate degree of liquidity. Maximization of
after-tax investment income and investment returns are an important but
secondary objective.
Investment objectives, polices and guidelines related to the Company's
municipal investment agreement business are also subject to review and approval
by the Finance Committee of the Board of Directors. The primary investment
objectives are to preserve capital, to achieve an investment duration that
closely approximates the expected duration of related liabilities, and to
maintain appropriate liquidity. The investment agreement assets are managed by
SECO subject to an investment management agreement between IMC and SECO.
For 1995, approximately 72% of the Company's net income was derived
from after-tax earnings on its investment portfolio (excluding the amounts
earned on investment agreement assets which are recorded as a component of
investment management services revenues). The following table sets forth
investment income and related data for the years ended December 31, 1993, 1994
and 1995:
Investment Income of the Company (1)
Years Ended December 31,
1993 1994 1995
---- ---- ----
(In thousands)
Investment income before expenses (2) $181,598 $196,662 $222,704
Investment expenses 2,714 2,809 2,846
-------- -------- --------
Net investment income before income taxes 178,884 193,853 219,858
Net realized gains 9,727 10,335 11,312
-------- -------- --------
Total investment income before income taxes $188,611 $204,188 $231,170
======== ======== ========
Total investment income after income taxes $159,844 $175,007 $196,269
======== ======== ========
- ----------
(1) Excludes investment income and realized gains and losses from
investment management services subsidiaries.
(2) Includes taxable and tax-exempt interest income.
-12-
The tables below set forth the composition of the Company's investment
portfolios. The weighted average yields in the tables reflect the nominal yield
on book value as of December 31, 1995, 1994 and 1993.
Investment Portfolio by Security Type
as of December 31, 1995
Investment
Insurance Management Services
------------------------------- -----------------------------------
Investment Category ............ Fair Value Weighted Fair Value Weighted
(in thousands) Average Yield(1) (in thousands) Average Yield (1)
-------------- ----------------- -----------------------------------
Fixed income investments:
Long-term Bonds:
Taxable Bonds:
U.S. Treasury & Agency
Obligations .................. $ 265,209 6.82% $ 1,028,805 5.90%
GNMAs......................... 58,853 7.07 141,957 7.01
Other Mortgage & Asset
Backed Securities ............ 137,542 6.71 702,144 5.58
Corporate Obligations .......... 366,076 6.12 520,236 6.29
Foreign Obligations (2) ........ 98,620 6.08 122,692 6.86
--------- --------
Total.......................... 926,300 6.46 2,515,834 6.00
Tax-exempt Bonds:
State & Municipal .............. 2,726,321 7.76 -- --
--------- ----------
Total long-term investments .... 3,652,621 7.44 2,515,834 6.00
Short-term investments (3) ........ 198,035 6.49 226,792 5.48
--------- ---------
Total fixed income investments . 3,850,656 7.39% 2,742,626 5.96%
Other investments (4) .............. 14,064 -- -- --
--------- ---------
Total investments ............. $3,864,720 -- $2,742,626 --
========== ==========
(1) Prospective market yields as of December 31, 1995. Yield on tax-exempt
bonds is presented on a taxable equivalent basis using a 35%
federal income tax rate.
(2) Consists of U.S. demoninated foreign governments and corporate securities.
(3) Taxable and tax-exempt investments, including bonds with a remaining
maturity of less than one year.
(4) Consists of equity investments and other fixed income investments; yield
information not meaningful.
-13-
Investment Portfolio by Security Type
as of December 31, 1994
Investment
Insurance Management Services
------------------------------- -----------------------------------
Investment Category ............ Fair Value Weighted Fair Value Weighted
(in thousands) Average Yield(1) (in thousands) Average Yield (1)
-------------- ----------------- -----------------------------------
Fixed income investments:
Long-term Bonds:
Taxable Bonds:
U.S. Treasury & Agency
Obligations .................. $ 180,405 8.52% $ 477,530 7.15%
GNMAs ........................ 70,476 8.76 102,903 8.38
Other Mortgage & Asset
Backed Securities .............. 111,611 8.69 680,530 7.27
Corporate Obligations .......... 235,839 8.44 208,371 8.70
Foreign Obligations (2) ........ 98,558 8.46 53,916 8.70
------ ---------
Total.......................... 696,889 8.54 1,523,250 7.55
Tax-exempt Bonds:
State & Municipal .............. 2,355,017 9.46 -- --
---------- ----------
Total long-term investments .... 3,051,906 9.25 1,523,250 7.55
Short-term investments (3) ........ 121,384 5.56 152,685 6.48
--------- ---------
Total fixed income investments . 3,173,290 9.11% 1,675,935 7.46%
Other investments (4) .............. 17,550 -- -- --
--------- ---------
Total investments .............. $3,190,840 -- $1,675,935 --
========== ==========
(1) Prospective market yields as of December 31, 1994. Yield on tax-exempt
bonds is presented on a taxable equivalent basis using a 35% federal income
tax rate.
(2) Includes direct obligations of foreign governments and foreign
corporations.
(3) Taxable and tax-exempt investments, including bonds with a remaining
maturity of less than one year.
(4) Consists of marketable equity securities and interests in limited
partnerships; yield information not meaningful
-14-
Investment Portfolio by Security Type
as of December 31, 1993
Investment
Insurance Management Services
------------------------------- -----------------------------------
Investment Category ............ Amortized Cost Weighted Amortized Cost Weighted
(in thousands) Average Yield(1) (in thousands) Average Yield (1)
-------------------------------- -----------------------------------
Fixed income investments:
Long-term Bonds:
Taxable Bonds:
U.S. Treasury & Agency
Obligations .................. $ 256,388 7.74% $ 107,358 5.10%
GNMAs ......................... 73,880 8.18 -- --
Other Mortgage & Asset
Backed Securities .............. 49,862 6.68 274,423 4.57
Corporate Obligations .......... 227,495 7.31 19,191 6.68
Foreign Obligations (2) ........ 135,489 7.31 15,420 6.94
--------- - ------
Total.......................... 743,114 7.51 416,392 4.89
Tax-exempt Bonds:
State & Municipal .............. 2,053,585 9.46 -- --
--------- ----------
Total long-term investments .... 2,796,699 8.94 416,392 4.89
Short-term investments (3) ........ 104,205 4.69 122,359 3.26
--------- ---------
Total fixed income investments 2,900,904 8.79% 538,751 4.52%
Other investments (4) .............. 104,681 -- -- --
--------- ---------
Total investments .............. $3,005,585 -- $ 538,751 --
========== ==========
(1) Prospective yields at amortized cost as of December 31, 1993. Yield on
tax-exempt bonds is presented on a taxable equivalent basis using a 35%
federal income tax rate.
(2) Includes direct obligations of foreign governments and foreign corporations.
(3) Taxable and tax-exempt investments, including bonds with a remaining
maturity of less than one year.
(4) Consists of marketable equity securities and interests in limited
partnerships; yield information not meaningful.
-15-
The average maturity of the insurance fixed income portfolio excluding
short-term investments as of December 31, 1995 was 10.1 years. After allowing
for estimated principal pre-payments on mortgage pass-through securities, the
duration of the portfolio was 6.8 years.
The table below sets forth the distribution by maturity of the
Company's consolidated fixed income investments:
Distribution of Fixed Income Investments of the Company by Maturity
as of December 31, 1995
INVESTMENT
INSURANCE MANAGEMENT SERVICES
MATURITY FAIR VALUE % OF TOTAL FAIR VALUE % OF TOTAL
(IN THOUSANDS) FIXED INCOME (IN THOUSANDS) FIXED INCOME
INVESTMENTS INVESTMENTS
Within 1 year ..................... $ 198,035 5.1% $ 226,793 8.3%
Beyond 1 year but within 5 years ... 567,809 14.8 870,410 31.7
Beyond 5 years but within 10 years 1,340,550 34.8 331,193 12.1
Beyond 10 years but within 15 years 902,002 23.4 364,393 13.3
Beyond 15 years but within 20 years 790,008 20.5 302,659 11.0
Beyond 20 years ................... 52,252 1.4 647,178 23.6
---------- ----- ---------- ----
Total fixed income investments .... $3,850,656 100.0% $2,742,626 100.0%
========== ===== ========== =====
The quality distribution of the Company's fixed income investments
based on ratings of S&P was as shown in the table below:
Fixed Income Investments by Quality Rating (1)
as of December 31, 1995
INVESTMENT
INSURANCE MANAGEMENT SERVICES
QUALITY RATING FAIR VALUE % OF TOTAL FAIR VALUE % OF TOTAL
(IN THOUSANDS) FIXED INCOME (IN THOUSANDS) FIXED INCOME
INVESTMENTS INVESTMENTS
AAA .... $1,392,241 37.0% $1,911,117 73.6%
AA ..... 1,404,999 37.4 136,757 5.3
A ...... 860,645 22.9 547,739 21.1
BBB... 103,023 2.7 -- --
BB ..... -- -- -- --
---------- ----- ---------- -----
Total $3,760,908 100.0% $2,595,613 100.0%
========== ===== ========== =====
(1) Excludes short-term investments with an original maturity of less
than one year, but includes bonds having a remaining maturity of
less than one year.
-16-
REGULATION
MBIA Corp. is licensed to do insurance business in, and is subject to
insurance regulation and supervision by, the State of New York (its state of
incorporation), the 49 other states, the District of Columbia, France, Guam, the
Northern Mariana Islands, the U.S. Virgin Islands and Puerto Rico and the
Republic of France. MBIA Illinois is licensed in, and is subject to insurance
regulation and supervision by, the State of Illinois (its state of
incorporation), 47 other states, the District of Columbia and Puerto Rico. MBIA
Assurance is licensed to do insurance business in France and is subject to
regulation under the corporation and insurance laws of the Republic of France.
The extent of state insurance regulation and supervision varies by jurisdiction,
but New York, Illinois and most other jurisdictions have laws and regulations
prescribing minimum standards of solvency, including minimum capital
requirements, and business conduct which must be maintained by insurance
companies. These laws prescribe permitted classes and concentrations of
investments. In addition, some state laws and regulations require the approval
or filing of policy forms and rates. MBIA Corp. is required to file detailed
annual financial statements with the New York Insurance Department and similar
supervisory agencies in each of the other jurisdictions in which it is licensed.
MBIA Illinois is required to file detailed annual financial statements with the
Illinois Department of Insurance and similar supervisory agencies in each of the
other jurisdictions in which it is licensed. The operations and accounts of both
MBIA Corp. and MBIA Illinois are subject to examination by these regulatory
agencies at regular intervals.
MBIA Corp. is licensed to provide financial guarantee insurance under
Article 69 of the New York Insurance Law. Article 69 defines financial guarantee
insurance to include any guarantee under which loss is payable upon proof of
occurrence of financial loss to an insured as a result of certain events. These
events include the failure of any obligor on any debt instrument or other
monetary obligation to pay principal, interest, premium, dividend or purchase
price of or on such instrument or obligation, when due. Under Article 69, MBIA
Corp. is licensed to transact financial guarantee insurance, residual value
insurance, surety insurance and credit insurance and such other kinds of
business to the extent necessarily or properly incidental to the kinds of
insurance which MBIA Corp. is authorized to transact. In addition, MBIA Corp. is
empowered to assume or reinsure the kinds of insurance described above.
MBIA Illinois is licensed to provide fidelity and surety and other
miscellaneous lines of insurance under Section 4 of the Illinois Insurance Code.
Section 4 defines fidelity and surety insurance to include becoming surety or
guarantor for any person, co-partnership or corporation in any position or place
of trust or as custodian of money or property, public or private; or becoming a
surety or guarantor for the performance of any person, co-partnership or
corporation of any lawful obligation, undertaking, agreement or contract of any
kind, except contracts or policies of insurance; and underwriting blanket bonds.
Under Section 9, MBIA Illinois is licensed to transact any business activity
reasonably complementary or supplementary to its insurance business. In
addition, MBIA Illinois is empowered to assume or reinsure the kinds of
insurance described above.
As financial guarantee insurers, MBIA Corp. and MBIA Illinois are
required by the laws of New York, California, Connecticut, Florida, Illinois,
lowa, New Jersey and Wisconsin to maintain contingency reserves on their
municipal bond and other financial guarantee liabilities. Under New Jersey,
Illinois and Wisconsin regulations, contributions by such an insurer to its
contingency reserves are required to equal 50% of earned premiums on its
municipal bond business. Under New York law, such an insurer is required to
contribute to contingency reserves 50% of premiums as they are earned on
policies written prior to July 1, 1989 and, with respect to policies written on
and after July 1, 1989, must make contributions over a period of 15 or 20 years
(based on issue type), or until the contingency reserve for such insured issues
equals the greater of 50% of premiums written for the relevant category of
insurance or a percentage of the principal guaranteed, varying from 0.55% to
2.5%, depending upon the type of obligation guaranteed. California, Connecticut,
Iowa and Florida law impose a generally similar requirement. In each of these
states, MBIA Corp. and MBIA Illinois may apply for release of portions of the
contingency reserves in certain circumstances.
The laws and regulations of these states also limit both the aggregate
and individual municipal bond risks that MBIA Corp. and MBIA Illinois may insure
on a net basis. California, Connecticut, Florida, Illinois and New York, among
other things, limit insured average annual debt service on insured municipal
bonds with respect to a single entity and backed by a single revenue source (net
of qualifying collateral and reinsurance) to 10% of policyholders' surplus and
contingency reserves. In New Jersey, Virginia and Wisconsin, the average annual
debt service on any single issue of municipal bonds (net of reinsurance) is
limited to 10% of policyholders' surplus. Other states that do not explicitly
regulate financial guarantee or municipal bond insurance do impose single risk
limits which are similar in effect to the foregoing. California, Connecticut,
Florida, Illinois and New York also limit the net insured unpaid principal
issued by a single entity and backed by a single revenue source to 75% of
policyholders' surplus and contingency reserves.
-17-
Under New York, California, Connecticut, Florida, Illinois, New Jersey
and Wisconsin law, aggregate insured unpaid principal and interest under
policies insuring municipal bonds (in the case of New York, California,
Connecticut, Florida and Illinois, net of reinsurance) are limited to certain
multiples of policyholders' surplus and contingency reserves. New York,
California, Connecticut, Florida, Illinois and other states impose a 300:1 limit
for insured municipal bonds, although more restrictive limits on bonds of other
types do exist. For example, New York, California and Florida impose a 100:1
limit for certain types of non-municipal bonds.
The Company, MBIA Corp. and MBIA Illinois are also subject to
regulation under insurance holding company statutes of New York, Illinois and
other jurisdictions in which MBIA Corp. and MBIA Illinois are licensed to write
insurance. The requirements of holding company statutes vary from jurisdiction
to jurisdiction but generally require insurance holding companies, such as the
Company, and their insurance subsidiaries, to register and file certain reports
describing, among other information, their capital structure, ownership and
financial condition. The holding company statutes also require prior approval of
changes in control, of certain dividends and other intercorporate transfers of
assets, and of transactions between insurance companies, their parents and
affiliates. The holding company statutes impose standards on certain
transactions with related companies, which include, among other requirements,
that all transactions be fair and reasonable and that those exceeding specified
limits receive prior regulatory approval.
Prior approval by the New York Insurance Department is required for any
entity seeking to acquire "control" of the Company or MBIA Corp. Prior approval
by the Illinois Department of Insurance is required for any entity seeking to
acquire "control" of the Company, MBIA Corp. or MBIA Illinois. In many states,
including New York and Illinois, "control" is presumed to exist if 10% or more
of the voting securities of the insurer are owned or controlled by an entity,
although the supervisory agency may find that "control" in fact does or does not
exist when an entity owns or controls either a lesser or greater amount of
securities. In 1986, the New York Superintendent of Insurance determined that
none of the shareholders of the Company "controlled" the Company since, among
other factors, pursuant to the Shareholders' Agreement, none of them could
individually control the Board of Directors of the Company. This determination
was conditioned upon the Company's giving notice to the New York Superintendent
of Insurance of any changes in the Founding Shareholders' ownership of the
Company's stock or in the Shareholders' Agreement. The Company has given notice
of such stock ownership changes, and in late 1991, the Company notified the New
York Superintendent of the termination of the Shareholders' Agreement, other
than its registration rights provisions. In connection with the acquisition of
MBIA Illinois, the shareholders received a similar determination regarding
control from the Illinois Department of Insurance.
The laws of New York and Illinois regulate the payment of dividends by
MBIA Corp. and MBIA Illinois, respectively, and provide that a New York domestic
stock property/casualty insurance company (such as MBIA Corp.) or an Illinois
domestic stock insurance company (such as MBIA Illinois) may not declare or
distribute dividends except out of statutory earned surplus. In the case of MBIA
Corp., New York law provides that the sum of (i) the amount of dividends
declared or distributed during the preceding 12-month period and (ii) the
dividend to be declared may not exceed the lesser of (a) 10% of policyholders'
surplus, as shown by the most recent statutory financial statement on file with
the New York Insurance Department, and (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 New York Superintendent of Insurance approves a greater dividend
distribution based upon a finding that the insurer will retain sufficient
surplus to support its obligations and writings. See Note 8 to the Consolidated
Financial Statements of MBIA Inc. and Subsidiaries. In the case of MBIA
Illinois, Illinois law provides that the fair market value of the dividend to be
declared, together with other dividends declared or distributed during the
preceding 12-month period, may not exceed the greater of (a) 10% of
policyholders' surplus as of the previous December 31, and (b) net income during
the previous calendar year (which includes net realized capital gains in an
amount not to exceed 20% of net unrealized capital gains) without the approval
of the Illinois Director of Insurance. The foregoing restrictions are currently
the most restrictive limitations on the ability of MBIA Corp. and MBIA Illinois
to declare and pay dividends.
The foregoing dividend limitations are determined in accordance with
Statutory Accounting Practices ("SAP"), which generally produce statutory
earnings in amounts less than earnings computed in accordance with Generally
Accepted Accounting Principles ("GAAP"). Similarly, policyholders' surplus,
computed on a SAP basis, will normally be less than net worth computed on a GAAP
basis. See Note 3 to the Consolidated Financial Statements of MBIA Inc. and
Subsidiaries.
-18-
MBIA Corp. and MBIA Illinois are exempt from assessments by the
insurance guarantee funds in the majority of the states in which they do
business. Guarantee fund laws in most states require insurers transacting
business in the state to participate in guarantee associations which pay claims
of policyholders and third-party claimants against impaired or insolvent
insurance companies doing business in the state. In most states, insurers
licensed to write only municipal bond insurance, financial guarantee insurance
and other forms of surety insurance are exempt from assessment by these funds
and their policyholders are prohibited from making claims on these funds.
LOSSES AND RESERVES
The Company's policy is to provide for loss reserves to cover losses
that may be reasonably estimated on its insured obligations over the lives of
such obligations. The loss reserve, at any financial statement date, is the
Company's estimate of the identified and unidentified losses on the obligations
it has insured, including expected costs of settlement.
To the extent that specific insured issues are identified as currently or
likely to be in default, the present value of the expected payments, including
costs of settlement, net of expected recoveries, is allocated within the total
loss reserve as a case basis reserve. At December 31, 1995, $14.5 million of the
$42.5 million reserve for loss and loss adjustment expense represents case basis
reserves, of which $12.4 million is attributable to a health care financing in
Pennsylvania, $2.4 million is attributable to various housing financings in
Texas and $(0.3)million is attributable to salvage accrued on a structured
finance issue.
The Company believes that the reserves for losses and loss adjustment
expenses are adequate to cover the ultimate net cost of claims. Such reserves
are based on estimates, and there can be no assurance that the ultimate
liability will not exceed such estimates. To the extent that actual case losses
for any period are less than the unallocated portion of total loss reserve,
there will be no impact on the Company's earnings for that period other than an
addition to the reserve which results from applying the loss rate factor to new
debt service insurance. To the extent that case losses, for any period, exceed
the unallocated portion of the total loss reserve, the excess will be charged
against the Company's earnings for that period. The Company periodically
evaluates the appropriateness of the loss rate factor based on actual case loss
experience.
SAP RATIOS
The financial statements in this Form 10-K are prepared on the basis
of GAAP. For reporting to state regulatory authorities, SAP is used.
See Note 3 to the Consolidated Financial Statements of MBIA Inc. and
Subsidiaries.
The SAP combined ratio is a traditional measure of underwriting
profitability for insurance companies. The SAP loss ratio (which is losses
incurred divided by premiums earned), SAP expense ratio (which is underwriting
expenses divided by net premiums written) and SAP combined ratio (which is the
sum of the loss and expense ratios) for MBIA Corp. and for the financial
guarantee industry, which includes the monoline primary insurers (including MBIA
Corp.) and monoline reinsurers, are shown in the table below:
Years Ended December 31,
1992 1993 1994 1995
MBIA Corp. .....................
Loss ratio .................... 2.4% (3.5)% 9.8% 0.4%
Expense ratio ................. 18.3 17.6 22.9 20.8
Combined ratio 20.7 14.1 32.7 21.2
Financial guarantee industry (1)
Loss ratio .................... 13.8% 0.7% 11.3% *
Expense ratio ................. 24.8 23.8 36.3 *
Combined ratio ................ 38.6 4.5 47.6 *
- ----------------------
(1) Industry statistics were taken from the 1994 Annual Report of the
Association of Financial Guaranty Insurors.
* Not Available.
-19
The SAP loss ratio differs from the GAAP loss ratio because the GAAP
ratio recognizes a provision for unidentified losses. The SAP expense ratio
varies from the GAAP expense ratio because the GAAP ratio recognizes the
deferral of policy acquisition costs and includes the amortization of purchase
accounting adjustments, principally goodwill. In addition, the SAP expense ratio
is calculated using premiums written while the GAAP expense ratio uses premiums
earned.
Net insurance in force, qualified statutory capital (which is comprised
of policyholders' surplus and the contingency reserve), and policyholders'
leverage ratios for MBIA Corp. and for the financial guarantee industry are
shown in the table below:
AS OF DECEMBER 31,
1992 1993 1994 1995
(DOLLARS IN MILLIONS)
MBIA Corp. ............
Net insurance in force ........ $223,056 $266,784 $304,502 $344,037
Qualified statutory capital .... 1,300 1,517 1,731 2,018
Policyholders' leverage ratio .. 172:1 176:1 176:1 171:1
Financial guarantee industry (1)
Net insurance in force ...... $586,579 $704,569 $785,126 *
Qualified statutory capital 4,392 5,195 5,807 *
Policyholders' leverage ratio 134:1 136:1 135:1 *
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(1) Industry statistics were taken from the 1994 Annual Report of the
Association of Financial Guaranty Insurors.
* Not Available.
The policyholders' leverage ratio is the ratio of net insurance in
force to qualified statutory capital. This test is sometimes focused on as a
measure of a company's claims-paying capacity. The Company believes that the
leverage ratio has significant limitations since it compares the total debt
service (undiscounted) coming due over the next 30 years or so to a company's
current capital base. It thereby fails to recognize future capital that will be
generated during the period of risk being measured, arising from unearned
premium reserve and future installment premium commitments. Further, the
leverage ratio does not consider the underlying quality of the issuers whose
debt service is insured and thereby does not differentiate among the risk
characteristics of a financial quarantor's insured portfolio, nor does it give
any benefit for third-party commitments such as standby lines of credit.
To assist state insurance departments in overseeing the financial
condition of the insurance companies in their respective states, the National
Association of Insurance Commissioners (the "NAIC") has developed a system
intended to provide an early warning of impending financial trouble, the
Insurance Regulatory Information System ("IRIS"). IRIS identifies eleven
financial ratios and specifies "usual values" for each ratio. These are derived
from financial statements prepared on a SAP basis. For each of the years 1987 to
1992, MBIA Corp. had financial ratio values within the usual values established
by the NAIC for all of the applicable financial ratio tests with the exception
of the test that measures the change in net premiums written. For the year ended
December 31, 1992 the growth in net premiums written exceeded NAIC test range
values of -33% to +33% due to an extremely favorable business environment marked
by a surge in municipal financings and strong demand for insurance. MBIA Corp.
also had values outside of the normal range for premiums written for the years
ended December 31, 1987, 1990 and 1991. These were due to the assumption by MBIA
Corp. of most of the book of net insured obligations of its predecessor, the
Association, in 1986, and upon the assumption of the entire book of net insured
obligations of MBIA Illinois in 1990 following its acquisition by the Company.
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In 1993, MBIA Corp. had financial ratio values within the NAIC test
ranges for all ratios except loss-related ratios. MBIA Corp. fell below the NAIC
test range values of 0% to +25% for the three loss reserve development ratios
due to the reduction in expected losses related to the Aurora salvage. In 1994
and 1995, MBIA Corp. had financial ratio values within the NAIC test ranges for
all ratios.
MBIA CORP. INSURANCE POLICIES
The insurance policies issued by MBIA Corp. provide an unconditional
and irrevocable guarantee of the payment to a designated paying agent for the
bondholders of an amount equal to the principal of and interest on insured bonds
not paid when due. In the event of a default in payment of principal or interest
by an issuer, MBIA Corp. promises to make funds available in the amount of the
default on the next business day following notification. MBIA Corp. has a Fiscal
Agency Agreement with State Street Bank and Trust Company, N.A. to provide for
this payment upon receipt of proof of ownership of the bonds, as well as upon
receipt of instruments appointing MBIA Corp. as agent for the bondholders and
evidencing the assignment of bondholder rights with respect to the debt service
payments made by MBIA Corp. Even if bondholders are permitted by the indenture
securing the bonds to have the full amount of principal of the bonds, together
with accrued interest, declared due and payable immediately in the event of a
default, MBIA Corp. is required to pay only the principal and interest scheduled
to be paid, but not in fact paid, on each original principal and interest
payment date.
The MBIA Illinois insurance policies provide for payments on default in
substantially the same manner as the MBIA Corp. policies. The paying agent on
MBIA Illinois policies is Bankers Trust Company. MBIA Assurance writes policies
that are substantially similar in coverage and manner of payment to the MBIA
Corp. policies.
RATING AGENCIES
Moody's, S&P and Fitch perform periodic reviews of MBIA Corp. and other
companies providing financial guarantee insurance. Their reviews focus on the
insurer's underwriting policies and procedures and on the issues insured.
Additionally, each rating agency has certain criteria as to exposure limits and
capital requirements for financial guarantors.
The rating agencies have reaffirmed their Triple-A claims-paying
ratings assigned to MBIA Corp., MBIA Illinois and to MBIA Assurance. The rating
for MBIA Illinois is based in significant part on the reinsurance agreement
between MBIA Corp. and MBIA Illinois. The rating of MBIA Assurance is based in
significant part on the reinsurance agreement between MBIA Corp. and MBIA
Assurance and the net worth maintenance agreement between the two parties. See
"Business--Reinsurance."
Although MBIA Corp. intends to comply with the requirements of the
rating agencies, no assurance can be given that these requirements will not
change or that, even if MBIA Corp. complies with these requirements, one or both
rating agencies will not reduce or withdraw their rating. MBIA Corp.'s ability
to attract new business and to compete with other financial guarantors, and its
results of operations and financial condition would be materially adversely
affected by any reduction in its ratings.
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CREDIT AGREEMENT
MBIA Corp. entered into a Credit Agreement, dated as of December 29,
1989, which has been amended from time to time (the "Credit Agreement") with
Credit Suisse, New York Branch ("Credit Suisse") to provide MBIA Corp. with an
unconditional, irrevocable line of credit. The Credit Agreement was amended and
restated by the First Restated Credit Agreement, dated as of October 1, 1993 as
amended by the First Amendment, dated as of September 23, 1994 among MBIA Corp.,
Credit Suisse, as Agent and a consortium of highly rated banks, including Credit
Suisse. The line of credit is available to be drawn upon by MBIA Corp., in an
amount up to $650 million, after MBIA Corp. has incurred, during the period
commencing October 1, 1995 and ending September 30, 2002, cumulative losses (net
of any recoveries) in excess of the greater of $500 million or 6.25% of average
annual debt service. The obligation to repay loans made under the Credit
Agreement is a limited recourse obligation of MBIA Corp. payable solely from,
and secured by a pledge of, recoveries realized on defaulted insured
obligations, from certain pledged installment premiums and other collateral.
Borrowings under the Credit Agreement are repayable on the expiration date of
the Credit Agreement. The current expiration date of the Credit Agreement is
September 30, 2002, subject to annual extensions under certain circumstances.
The Credit Agreement contains covenants that, among other things, restrict MBIA
Corp.'s ability to encumber assets or merge or consolidate with another entity.
EMPLOYEES
As of March 22, 1996, the Company had 366 employees. No employee is
covered by a collective bargaining agreement. The Company considers its employee
relations to be satisfactory.
EXECUTIVE OFFICERS
The executive officers of the Company and their present ages and
positions with the Company are set forth below.
NAME AGE POSITION AND TERM OF OFFICE
David H. Elliott 54 Chairman and Chief Executive Officer
(officer since 1986)
Richard L. Weill 53 President (officer since 1989)
James E. Malling 54 Executive Vice President (officer since 1991)
Hilda H. Boas* 64 Senior Vice President (officer since 1992)
Janis S. Christensen 46 Senior Vice President (officer since 1992)
Louis G. Lenzi 47 General Counsel and Secretary
(officer since 1986)
Kevin D. Silva 42 Senior Vice President
Julliette S. Tehrani 49 Senior Vice President and Chief Financial
Officer(officer since 1987)
Christopher W. Tilley 40 Senior Vice President and Treasurer
(officer since 1994)
Arthur M. Warren* 61 Senior Vice President and
Chief Financial Officer (officer since 1987)
*Retired on January 2, 1996
David H. Elliott is the Chairman and Chief Executive Officer of the
Company and of MBIA Corp. From 1986 to 1991, he served as the President and
Chief Operating Officer of the Company and MBIA Corp He is a director of MBIA
Corp. and was the President of the Association from 1976 to 1980 and from 1982
through 1986.
Richard L. Weill is President of the Company and of MBIA Corp., in
charge of the Insurance Operations Division of MBIA Corp., and a director of
MBIA Corp. From 1989 through 1991, Mr. Weill was General Counsel and Corporate
Secretary of the Company. Mr. Weill was previously a partner with the law firm
of Kutak Rock, with which he had been associated from 1969 to 1989.
James E. Malling is an Executive Vice President of the Company and the
head of the Corporate Marketing, Corporate Development and Management Services
Division, as well as a director of MBIA Corp. Mr. Malling was the President of
the International Finance Division of CIGNA Corporation from 1984 to 1990 and
also served as a director of the Company from December of 1986 to December 31,
1990.
Kevin D. Silva is Senior Vice President of the Company and MBIA Corp.
and a director of MBIA Corp. He has been in charge of the Management
Services Division of MBIA Corp. since joining the Company in late 1995.
Janis S. Christensen is Senior Vice President of the Company and
MBIA Corp., head of the Underwriting Policy and Review Division and a
director of MBIA Corp. Ms. Christensen has been responsible for the
underwriting function at MBIA Corp. since joining the Company in 1987.
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Louis G. Lenzi is General Counsel of the Company and MBIA Corp. He is
also a director of MBIA Corp. Mr.Lenzi has held various legal positions
within MBIA Corp. (and MISC) since July of 1984.
Julliette S. Tehrani is Senior Vice President and Chief Financial
Officer of the Company and a director of MBIA Corp. From 1986 to 1995, Ms.
Tehrani held the position of Senior Vice President and Controller. Ms. Tehrani
has held various positions in the Company's and MlSC's Finance Division since
1978, including the offices of Vice President and Treasurer of MISC from 1982
through 1985.
Christopher W. Tilley is Senior Vice President and Treasurer of the
Company and a director of MBIA Corp. He has held various positions in the
Finance Division of the Company since 1989.
ITEM 2. PROPERTIES
MBIA Corp. owns the 157,500 square foot office building on
approximately 15.5 acres of property in Armonk, New York, in which the Company
and MBIA Corp. have their offices. The Company believes that this office
building is adequate and suitable for its current needs.
ITEM 3. LEGAL PROCEEDINGS
There are no material lawsuits pending or, to the knowledge of the
Company, threatened to which the Company or any of its subsidiaries is a party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information concerning the market for the Company's Common Stock
and certain information concerning dividends appears under the heading
"Shareholder Information" on the inside back cover of the Company's 1995 Annual
Report to Shareholders and is incorporated herein by reference. As of March 22,
1996, there were 446 shareholders of record of the Company's Common Stock. The
information concerning dividends on the Company's Common Stock is under
"Business--Regulation" in this report.
ITEM 6. SELECTED FINANCIAL DATA
The information under the heading "Selected Financial and Statistical
Data" as set forth on pages 18-19 of the Company's 1995 Annual Report to
Shareholders is incorporated by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations" as set forth on pages
20-24 of the Company's 1995 Annual Report to Shareholders is incorporated by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company, the Report of
Independent Accountants thereon by Coopers & Lybrand L.L.P. and the unaudited
"Quarterly Financial Information" are set forth on pages 25-43 of the Company's
1995 Annual Report to Shareholders and are incorporated by reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANt
Information regarding directors is set forth under "Election of
Directors" in the Company's Proxy Statement, dated March 25, 1996, which is
incorporated by reference.
Information regarding executive officers is set forth under Item 1,
"Business--Executive Officers," in this report.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding compensation of the Company's executive officers
is set forth under "Compensation of Executive Officers" in the Company's Proxy
Statement, dated March 25, 1996, which is incorporated by reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
Information regarding security ownership of certain beneficial owners
and management is set forth under "Election of Directors" and "Security
Ownership of Certain Beneficial Owners" in the Company's Proxy Statement, dated
March 25, 1996, which is incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding relationships and related transactions is set
forth under "Certain Relationships and Related Transactions" in the Company's
Proxy Statement dated March 25, 1996, which is incorporated by reference.
PART IV
ITEM 14.
(a) Financial Statements and Financial Statement Schedules and Exhibits.
1. FINANCIAL STATEMENTS
MBIA Inc. has incorporated by reference from the 1995 Annual Report to
Shareholders the following consolidated financial statements of the Company:
Annual Report to Shareholders
Page(s)
MBIA INC. AND SUBSIDIARIES
Report of independent accountants. 25
Consolidated statements of income for the years ended 26
December 31, 1995, 1994 and 1993.
Consolidated balance sheets at December 31, 1995 and 27
1994.
Consolidated statements of changes in shareholders' 28
equity for the years ended December 31, 1995, 1994 and
1993.
Consolidated statements of cash flows for the years 29
ended December 31, 1995, 1994 and 1993.
Notes to consolidated financial statements 30-43
-24-
2. FINANCIAL STATEMENT SCHEDULES
The following financial statement schedules are filed as part of
this report.
Schedule Title
I Summary of investments, other than investments in
related parties, at December 31, 1995.
III Condensed financial information of
Registrant for December 31, 1995, 1994 and 1993.
VI Reinsurance for the years ended December 31, 1995,
1994 and 1993.
The report of the Registrant's independent accountants with
respect to the above listed financial statement schedules is set forth on page
36 of this Form 10-K.
All other schedules are omitted because they are not applicable
or the required information is shown in the consolidated financial statements or
notes thereto.
3. Exhibits
(An exhibit index immediately preceding the Exhibits indicates
the page number where each exhibit filed as part of this report can be found.)
-25-
3. Articles of Incorporation and By-Laws.
3.1. Restated Certificate of Incorporation, dated August 17,
1990, incorporated by reference to Exhibit 3.1 of the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1990 (Comm.
File 1-9583) (the "1990 10-K").
3.2. By-Laws as Amended as of May 7, 1992, incorporated by
reference to Exhibit 3.2 of the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992 (Comm. File 1-9583) (the "1992 10-K").
10. Material Contracts
10.02. Reinsurance Agreements, each dated as of December 30, 1986,
between the Company and each of The Aetna Casualty and Surety Company, Fireman's
Fund Insurance Company, Aetna Insurance Company and The Continental Insurance
Company, incorporated by reference to Exhibit 10.09 to the 1987 S-1.
10.03. Reinsurance Assumption Agreements, each dated as of December
30, 1986, among the Company, Municipal Bond Investors Assurance Corporation
("MBIA Corp.") and each of The Aetna Casualty and Surety Company, Fireman's Fund
Insurance Company, Aetna Insurance Company and The Continental Insurance
Company, incorporated by reference to Exhibit 10.10 to the 1987 S- 1.
10.04. Endorsement No. 1 to the December 30, 1986 Reinsurance
Agreements, dated as of July 1, 1987, between MBIA Corp. and each of The Aetna
Casualty and Surety Company, Fireman's Fund Insurance Company, Aetna Insurance
Company and The Continental Insurance Company, incorporated by reference to
Exhibit 10.34 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1987(Comm. File No. 1-9583) (the "1987 10-K").
10.05. Endorsement No. 2 to the December 30, 1986 Reinsurance
Agreements, dated as of October 1, 1987, between MBIA Corp. and each of The
Aetna Casualty and Surety Company, Fireman's Fund Insurance Company, Aetna
Insurance Company and The Continental Insurance Company, incorporated by
reference to Exhibit 10.35 to the 1987 10-K.
10.06. Endorsement No. 3 to the December 30, 1986 Reinsurance
Agreements, dated as of December 31, 1987, between MBIA Corp. and each of The
Aetna Casualty and Surety Company, Fireman's Fund Insurance Company, CIGNA
Property and Casualty Company (formerly Aetna Insurance Company) and The
Continental Insurance Company, incorporated by reference to Exhibit 10.06 to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989
(Comm. File No. 1-9583) (the "1989 10K")
10.07. Endorsement No. 4 to the December 30, 1986 Reinsurance
Agreements, dated as of January 1, 1988, between MBIA Corp. and each of The
Aetna Casualty and Surety Company, Fireman's Fund Insurance Company, CIGNA
Property and Casualty Company (formerly Aetna Insurance Company) and The
Continental Insurance Company, incorporated by reference to Exhibit 10.07 to the
1989 10-K.
10.08. Endorsement No. 5 to the December 30, 1986 Reinsurance
Agreements, dated as of January 1, 1988, between MBIA Corp. and each of The
Aetna Casualty and Surety Company, Fireman's Fund Insurance Company, CIGNA
Property and Casualty Company (formerly Aetna Insurance Company) and The
Continental Insurance Company, incorporated by reference to Exhibit 10.08 to the
1989 10-K.
10.09. Endorsement No. 6 to the December 30, 1986 Reinsurance
Agreements, dated as of January 1, 1988, between MBIA Corp. and each of The
Aetna Casualty and Surety Company, Fireman's Fund Insurance Company, CIGNA
Property and Casualty Company (formerly Aetna Insurance Company) and The
Continental Insurance Company, incorporated by reference to Exhibit 10.09 to the
1989 10-K.
10.10. Endorsement No. 7 to the December 30, 1986 Reinsurance
Agreements, effective September 30, 1989, between MBIA Corp. and each of The
Aetna Casualty and Surety Company, Fireman's Fund Insurance Company, CIGNA
Property and Casualty Company (formerly Aetna Insurance Company) and The
Continental Insurance Company, incorporated by reference to Exhibit 10.10 to the
1989 10-K.
-26-
10.11. First Amended and Restated Investment Management Agreement,
dated as of December 30, 1986, between Aetna Financial Services, Inc. and MBIA
Corp., incorporated by reference to Exhibit 10.11 to the 1989 10-K, as amended
by Amendment No. 2 to the First Amended and Restated Investment Management
Agreement, dated as of October 1, 1994, as modified by a Consent, effective
February 28, 1994, incorporated by reference to Exhibit 10.11 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1994
(Comm.File No. 1-9583) (the "1994 10-K").
10.12. Restated Management Agreement, dated as of January 5, 1987,
between MISC and Municipal Bond Insurance Association (the "Association"), as
further amended by Supplement to the Restated Management Agreement, dated
September 30, 1989, incorporated by reference to Exhibit 10.16 to the 1989 10-K.
as amended by Second Amendment and Restatement of Management Agreement, dated as
of August 31, 1993, incorporated by reference to Exhibit 10.12 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (Comm.
File No. 1-9583) (the "1993 10-K").
10.13. License Agreement, dated as of December 30, 1986, between the
Company and the Association, incorporated by reference to Exhibit 10.15 to the
1987 S-l.
10.14. MBIA Inc. 1987 Stock Option Plan, incorporated by reference to
Exhibit 10.13 to the 1987 S-1. 10.15. MBIA Inc. Deferred Compensation and Excess
Benefit Plan, incorporated by reference to Exhibit 10.16 to the 1988 10-K, as
amended as of July 22, 1992, incorporated by reference to Exhibit 10.15 to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992
(Comm. File No. 1-9583) (the "1992 10-K").
10.16. MBIA Inc. Employees Pension Plan, amended and restated
effective January 1, 1987, incorporated by reference to Exhibit 10.28 of the
Company's Amendment No. 1 to the 1987 S-1, as further amended and restated as of
December 12, 1991, incorporated by reference to Exhibit 10.18 to the 1991 10-K,
as further amended and restated effective January 1, 1994, incorporated by
reference to Exhibit 10.16 to the 1994 10-K.
10.17. MBIA Inc. Employees Profit Sharing Plan, as amended and
restated effective January 1, 1987, incorporated by reference to Exhibit 10.29
to Amendment No. 1 to the 1987 S-1, as further amended by Amendment dated
December 8, 1988, incorporated by reference to Exhibit 10.21 to the 1989 10-K,
as further amended and restated as of December 12, 1991, incorporated by
reference to Exhibit 10.19 to the 1991 10-K, as further amended and restated as
of May 7, 1992, incorporated by reference to Exhibit 10.17 to the 1992 10K, as
further amended and restated effective January 1, 1994, incorporated by
reference to Exhibit 10.17 to the 1994 10-K.
10.18. MBIA Corp. Split Dollar Life Insurance Plan, dated as of
February 9, 1988, issued by Aetna Life Insurance and Annuity Company,
incorporated by reference to Exhibit 10.23 to the 1989 10-K.
10.19. Stock Option Agreement, dated as of January 1, 1987, between
the Company and William O. Bailey, incorporated by reference to Exhibit 10.31 to
Amendment No. 1 to the 1987 S-1.
10.20. Stock Option Agreement, dated as of March 27, 1987, between the
Company and David H. Elliott, incorporated by reference to Exhibit 10.32 to
Amendment No. 1 to the 1987 S-1.
10.21. Indemnification Agreement, dated as of January 5, 1987, among
MISC, The Aetna Casualty and Surety Company, Fireman's Fund Insurance Company,
The Travelers Indemnity Company, Aetna Insurance Company, The Continental
Insurance Company and the Company, incorporated by reference to Exhibit 10.33 to
Amendment No. 1 to the 1987 S-l.
10.22. Amended and Restated Shareholders' Agreement, dated as of May
21, 1987, among the Company, Aetna Life and Casualty Company, The Aetna Casualty
and Surety Company, Fireman's Fund Insurance Company, CIGNA Guaranty Holdings,
Inc., Aetna Insurance Company, The Continental Insurance Company and The
Fidelity and Casualty Company of New York, incorporated by reference to Exhibit
10.30 to Amendment No. I to the 1987 S-1, as amended by Amendment No. 1 to the
Amended and Restated Shareholders' Agreement, dated as of April 1, 1989, as
amended by Amendment No. 2 to the Amended and Restated Shareholders' Agreement,
dated November 21, 1989, incorporated by reference to Exhibit 10.41 to the 1989
10-K, as amended by Amendment No. 3 to the Amended and Restated Shareholders'
Agreement, dated as of November 30, 1990, incorporated by reference to Exhibit
10.28 to the 1990 10-K and as amended by Amendment No. 4 to the Amended and
Restated Shareholders' Agreement, dated as of September 30, 1991, incorporated
by reference to Exhibit 10.28 to the 1991 10-K.
10.23. Assignment of Warranties, dated April 7, 1989, from Trafalgar
House Real Estate, Inc. to MBIA Corp., incorporated by reference to Exhibit
10.48 to the 1989 10-K.
10.24. Stock Purchase Agreement, dated as of October 27, 1989, among
Government Employees Insurance Company, Bankers Trust New York Corporation,
Xerox Credit Corporation, American International Group, Inc., Salomon Inc and
the Company, as amended by Letter Agreement dated as of January 5, 1990,
incorporated by reference to Exhibit 10.53 to the 1989 10-K.
-27-
10.25. Trust Agreement, effective as of December 31, 1989, among BIG
Ins., MBIA Corp. and Morgan Guaranty Trust Company of New York, incorporated by
reference to Exhibit 10.55 to the 1989 10-K, as amended by Amendment to Trust
Agreement, dated as of February 28, 1995.
10.26. Investment Management Agreement, dated as of January 5, 1990,
between Aetna Financial Services, Inc. and BIG Ins., incorporated by reference
to Exhibit 10.57 to the 1989 10-K, as modified by a Consent, effective February
28, 1994, incorporated by reference to Exhibit 10.27 to the 1994 10-K.
10.27. Surety Bond, dated December 28, 1989, issued by MBIA Corp. to
Citibank, N.A. with regard to the payment obligations of Continental Insurance
Company (the "Continental Surety Bond"), incorporated by reference to Exhibit
10.62 to the 1989 10-K.
10.28. The Fiscal Agency Agreement, dated December 27, 1989, between
MBIA Corp. and Citibank, N.A., with regard to the Continental Surety Bond,
incorporated by reference to Exhibit 10.63 to the 1989 10-K.
10.29. Surety Bond, dated December 28, 1989, issued by MBIA Corp. to
Citibank, N.A. with regard to the payment obligations of CIGNA Property and
Casualty Insurance Company (the "CIGNA Surety Bond"), incorporated by reference
to Exhibit 10.64 to the 1989 10-K.
10.30. Fiscal Agency Agreement, dated December 27, 1989, between MBIA Corp. and
Citibank, N.A., with regard to the CIGNA Surety Bond, incorporated by
reference to Exhibit 10.65 to the 1989 10-K.
10.31. Amended and Restated Tax Allocation Agreement, dated as of
January 1, 1990, between the Company and MBIA Corp., incorporated by reference
to Exhibit 10.66 to the 1989 10-K.
10.32. Endorsement No. 8 to the December 30, 1986 Reinsurance
Agreements, effective June 30, 1988, between MBIA Corp. and each of The Aetna
Casualty and Surety Company, Fireman's Fund Insurance Company, CIGNA Property
and Casualty Insurance Company (formerly Aetna Insurance Company) and The
Continental Insurance Company, incorporated by reference to Exhibit 10.51 to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990
(Comm. File No. 1-9583) (the "1990 10 K")
10.33. Endorsement No. 9 to the December 30, 1986 Reinsurance
Agreements, effective December 31, 1988, between MBIA Corp. and each of The
Aetna Casualty and Surety Company, Fireman's Fund Insurance Company, CIGNA
Property and Casualty Insurance Company (formerly Aetna Insurance Company) and
The Continental Insurance Company, incorporated by reference to Exhibit 10.52 to
the 1990 10-K.
10.34. Endorsement No. 10 to the December 30, 1986 Reinsurance
Agreements, effective January 1, 1990, between MBIA Corp. and each of The Aetna
Casualty and Surety Company, Fireman's Fund Insurance Company, CIGNA Property
and Casualty Insurance Company (formerly Aetna Insurance Company) and The
Continental Insurance Company, incorporated by reference to Exhibit 10.53 to the
1990 10-K.
10.35. Reinsurance Agreement, dated as of December 31, 1990, between
MBIA Corp. and Bond Investors Guaranty Insurance Company, incorporated by
reference to Exhibit 10.54 to the 1990 10-K.
10.36. Surety Bond, dated August 24, 1990, issued by MBIA Corp. to
Citibank, N.A. with regard to the payment obligations of The Travelers Indemnity
Company (the "Travelers Surety Bond"), incorporated by reference to Exhibit
10.59 to the 1990 10-K.
10.37. Insurer Fiscal Agency Agreement, dated August 24, 1990, between
MBIA Corp. and Citibank, N.A. with regard to the Travelers Surety Bond,
incorporated by reference to Exhibit 10.60 to the 1990 10-K.
10.38. Custody Agreement, dated as of December 30, 1986, between MBIA
Corp. and Morgan Guaranty Trust Company of New York, as amended by the First
Amendment to Custody Agreement, dated as of December 1, 1989, incorporated by
reference to Exhibit 10.62 to the 1990 10-K.
10.39. Closing Agreement, dated September 28, 1990, between Trafalgar
House Property, Inc. and MBIA Corp., incorporated by reference to Exhibit 10.64
to the 1990 10-K.
10.40. Guaranty of Trafalgar House Holdings, Inc., dated as of
September 28, 1990, between Trafalgar House Holdings, Inc. and MBIA Corp.,
incorporated by reference to Exhibit 10.67 to the 1990 10-K.
10.41. Land-Banked Parking Agreement, dated September 28, 1990,
between MBIA Corp. and the Town of North Castle, incorporated by reference to
Exhibit 10.69 to the 1990 10-K.
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10.42. Surety Bond, dated April 5, 1991, issued by MBIA Corp. to
Citibank, N.A. with regard to the payment obligations of The Aetna Casualty and
Surety Company (the "Aetna Surety Bond"), incorporated by reference to Exhibit
10.73 to the 1991 10-K.
10.43. The Fiscal Agency Agreement, dated April 5, 1991, between MBIA
Corp. and Citibank, N.A. with regard to the Aetna Surety Bond, incorporated by
reference to Exhibit 10.74 to the 1991 10-K.
10.44. Revolving Credit Agreement, dated as of February 15, 1991,
between the Company and Credit Suisse, New York Branch, incorporated by
reference to Exhibit 10.76 to the 1991 10-K, as amended by the First Amendment
to Revolving Credit Agreement, dated as of September 30, 1992, incorporated by
reference to Exhibit 10.61 to the 1992 10-K, as further amended by the Second
Amendment to Revolving Credit Agreement, dated as of September 30, 1994,
incorporated by reference to Exhibit 10.48 to the 1994 10-K
10.45. Rights Agreement, dated as of December 12, 1991, between the
Company and Mellon Bank, N.A., incorporated by reference to the Company's
Current Report on Form 8-K, filed on December 31, 1991, incorporated by
reference to Exhibit 10.62 to the 1993 10-K, as amended by Amendment to Rights
Agreement, dated as of October 24, 1994, incorporated by reference to Exhibit
10.49 to the 1994 10-K.
10.46. Owner/Contractor Agreement, dated as of June 1, 1991, between
MBIA Corp. and Trafalgar House Construction Management, Inc., incorporated by
reference to Exhibit 10.77 to the 1991 10-K.
10.47. Trust Agreement, dated as of December 31, 1991, between MBIA
Corp. and Fidelity Management Trust Company, incorporated by reference to
Exhibit 10.64 to the 1992 10-K, as amended by the Amendment to Trust Agreement,
dated as of April 1, 1993, incorporated by reference to Exhibit 10.64 to the
1993 10-K, as amended by First Amendment to Trust Agreement, dated as of January
21, 1992, as further amended by Second Amendment to Trust Agreement, dated as of
March 5, 1992, as further amended by Third Amendment to Trust Agreement, dated
as of April 1, 1993, as further amended by the Fourth Amendment to Trust
Agreement, dated as of July 1, 1995.
10.48. MBIA Inc. Employees Change of Control Benefits Plan, effective
as of January 1, 1992, incorporated by reference to Exhibit 10.65 to
the 1992 10-K.
10.49. Investment Management Agreement, dated as of October 8, 1992,
between Aetna Financial Services, Inc. and the Company, incorporated by
reference to Exhibit 10.66 to the 1992 10-K, as modified by a Consent, effective
February 28, 1994, incorporated by reference to Exhibit 10.53 to the 1994 10-K.
10.50. Endorsements to the December 30, 1986 Reinsurance Agreements
(i) Nos. 11 and 12, both effective June 30, 1992; (ii) No. 14, effective
November 30, 1990; and (iii) No. 16, effective September 30, 1992, each, between
the Company (except with respect to No. 14 which was subsequently assumed by
MBIA Corp.) and each of The Aetna Casualty and Surety Company, Fireman's Fund
Insurance Company, CIGNA Property and Casualty Insurance Company (formerly Aetna
Insurance Company), the Continental Insurance Company, incorporated by reference
to Exhibit 10.69 to the 1992 10-K.
10.51. Surety Bond, dated October 15, 1992, issued by MBIA Corp. to
Citibank, N.A. with regard to the payment obligations of Fireman's Fund
Insurance Company (the "Fireman's Surety Bond"), incorporated by reference to
Exhibit 10.70 to the 1992 10-K.
10.52. Fiscal Agency Agreement, dated October 15, 1992, between MBIA
Corp. and Citibank, N.A. with regard to the Fireman's Surety Bond, incorporated
by reference to Exhibit 10.71 to the 1992 10-K.
10.53. Indenture, dated as of August 1, 1990, between MBIA Inc. and
The First National Bank of Chicago, Trustee, incorporated by reference to
Exhibit 10.72 to the 1992 10-K.
10.54. Reinsurance Agreement. dated as of August 31, 1993, between The
Travelers Indemnity Company and MBIA Corp., incorporated by reference to Exhibit
10.73 to the 1993 10-K.
10.55. Endorsement No. 15 to the December 30, 1986 Reinsurance
Agreements, effective January 1, 1992, between MBIA Corp. and each of The Aetna
Casualty and Surety Company, Fireman's Fund Insurance Company, CIGNA Property
and Casualty Insurance Company (formerly Aetna Insurance Company) and The
Continental Insurance Company, incorporated by reference to Exhibit 10.74 to the
1993 10-K.
10.56. Endorsement No. 17 to the December 30, 1986 Reinsurance
Agreements, effective January 1, 1993, between MBIA Corp. and each of The Aetna
Casualty and Surety Company, Fireman's Fund Insurance Company, CIGNA Property
and Casualty Insurance Company (formerly Aetna Insurance Company) and The
Continental Insurance Company, incorporated by reference to Exhibit 10.75 to the
1993 10-K.
-29
10.57. Endorsement No. 18 to the December 30, 1986 Reinsurance
Agreements, effective April 1, 1993, between MBIA Corp. and each of The Aetna
Casualty and Surety Company, Fireman's Fund Insurance Company, CIGNA Property
and Casualty Insurance Company (formerly Aetna Insurance Company) and The
Continental Insurance Company, incorporated by reference to Exhibit 10.76 to the
1993 10-K.
10.58. First Restated Credit Agreement, dated as of October 1, 1993,
among MBIA Corp., Credit Suisse, New York Branch, as Agent, Credit Suisse, New
York Branch, Caisse Des Depots Et Consignations, Deutsche Bank AG, Bayerische
Landesbank Girozentrale and Landesbank Hessen-Thuringen Girozentrale, as amended
by an Assignment and Assumption Agreement, dated as of December 31, 1993, among
MBIA Corp., Credit Suisse, New York Branch, as Agent and Assignor and Deutsche
Bank AG, New York Branch, as further amended by a Modification Agreement, dated
as of January 1, 1994, among Deutsche Bank, AG, New York Branch, MBIA Corp. and
Credit Suisse, New York Branch, as Agent, as amended by a Joinder Agreement,
dated December 31, 1993, among Credit Suisse, New York Branch, as Agent,
Sudwestdeutsche Landesbank Girozentrale and MBIA Corp., incorporated by
reference to Exhibit 10.78 to the 1993 10-K, as amended by the First Amendment
to First Restated Credit Agreement, dated as of September 23, 1994, incorporated
by reference to Exhibit 10.63 to the 1994 10-K.
10.59. Net Worth Maintenance Agreement, dated as of November 1, 1991,
between MBIA Corp. and MBIA Assurance S.A., as amended by Amendment to Net Worth
Agreement, dated as of November 1, 1991, incorporated by reference to Exhibit
10.79 to the 1993 10-K.
10.60. Reinsurance Agreement, dated as of January 1, 1993, between
MBIA Assurance S.A. and MBIA Corp., incorporated by reference to Exhibit 10.80
to the 1993 10-K.
10.61. Credit Agreement, dated as of August 31, 1994, among Municipal
Bond Investors Assurance Corporation, the Company, Wachovia Bank of Georgia,
N.A., Banco Santander, The Sumitomo Bank, Ltd., New York Branch, The Chase
Manhattan Bank, N.A., Commerzbank Aktiengesellschaft, The Industrial Bank of
Japan, Limited New York Branch and NBD Bank, N.A., and as further amended by the
First Amendment to Credit Agreement, dated as of October 14, 1994, incorporated
by reference to Exhibit 10.66 to the 1994 10-K, as amended by the Second
Amendment to Credit Agreement, dated as of October 31, 1995.
10.62. Endorsement No. 13 to the December 30, 1986 Reinsurance
Agreements, effective December 1, 1990, between MBIA Corp. and each of The Aetna
Casualty and Surety Company, Fireman's Fund Insurance Company, CIGNA Property
and Casualty Insurance Company (formerly Aetna Insurance Company) and The
Continental Insurance Company, dated as of March, 1993, incorporated by
reference to Exhibit 10.67 to the 1994 10-K.
10.63. Endorsement No. 16 to the December 30, 1986 Reinsurance
Agreements, effective September 30, 1992, between MBIA Corp. and each of The
Aetna Casualty and Surety Company, Fireman's Fund Insurance Company, CIGNA
Property and Casualty Insurance Company (formerly Aetna Insurance Company) and
The Continental Insurance Company, dated as of February 28, 1993, incorporated
by reference to Exhibit 10.68 to the 1994 10-K.
10.64. Endorsement No. 19 to the December 30, 1986 Reinsurance
Agreements, effective October 1, 1993, between MBIA Corp. and each of The Aetna
Casualty and Surety Company, Fireman's Fund Insurance Company, CIGNA Property
and Casualty Insurance Company (formerly Aetna Insurance Company) and The
Continental Insurance Company, dated as of June 30, 1994, incorporated by
reference to Exhibit 10.69 to the 1994 10-K.
10.65. Investment Services Agreement, effective as of April 28, 1995,
between MBIA Insurance Corporation and MBIA Securities Corp., as amended by
Amendment No. 1, dated as of December 29, 1995.
10.66. Investment Services Agreement, effective January 2, 1996,
between MBIA Insurance Corp. of Illinois and MBIA Securities Corp.
10.67. Custody Agreement, as of March 1, 1995, between MBIA Corp. and
The Chase Manhattan Bank, N.A.
10.68. Custody Agreement, as of March 1, 1995, between MBIA Corp. and
The Chase Manhattan Bank, N.A.
10.69. Custody Agreement, as of March 1, 1995, between MBIA Inc. and
The Chase Manhattan Bank, N.A.
10.70. MBIA Inc. 1996 Incentive Plan, effective as of January 1, 1996.
-30-
Executive Compensation Plans and Arrangements
The following Exhibits identify all existing executive compensation
plans and arrangements:
10.14. MBIA Inc. 1987 Stock Option Plan, incorporated by reference to
Exhibit 10.13 to the 1987 S-1.
10.15. MBIA Inc. Deferred Compensation and Excess Benefit Plan,
incorporated by reference to Exhibit 10.16 to the 1988 10-K, as amended as of
July 22, 1992, incorporated by reference to Exhibit 10.15 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1992 (Comm.
File No. 1-9583) (the " 1992 10-K").
10.16. MBIA Inc. Employees Pension Plan, amended and restated
effective January 1, 1987, incorporated by reference to Exhibit 10.28 of the
Company's Amendment No. 1 to the 1987 S-1, as further amended and restated as of
December 12, 1991, incorporated by reference to Exhibit 10.18 to the 1991 10-K.
10.17. MBIA Inc. Employees Profit Sharing Plan, as amended and
restated effective January 1, 1987, incorporated by reference to Exhibit 10.29
to Amendment No. 1 to the 1987 S-1, as further amended by Amendment dated
December 8, 1988, incorporated by reference to Exhibit 10.21 to the 1989 10-K,
as further amended and restated as of December 12, 1991, incorporated by
reference to Exhibit 10.19 to the 1991 10-K, as further amended and restated as
of May 7, 1992, incorporated by reference to Exhibit 10.17 to the 1992 10-K.
10.19. MBIA Corp. Split Dollar Life Insurance Plan, dated as of
February 9, 1988, issued by Aetna Life Insurance and Annuity Company,
incorporated by reference to Exhibit 10.23 to the 1989 10-K.
10.22. Stock Option Agreement, dated as of January 1, 1987, between
the Company and William O. Bailey, incorporated by reference to Exhibit 10.31 to
Amendment No. 1 to the 1987 S-1.
10.23. Stock Option Agreement, dated as of March 27, 1987, between the
Company and David H. Elliott, incorporated by reference to Exhibit 10.32 to
Amendment No. 1 to the 1987 S-1.
10.65. MBIA Inc. Employees Change of Control Benefits Plan, effective
as of January 1, 1992, incorporated by reference to Exhibit 10.65 to the 1992
10-K.
10.70. MBIA Inc. 1996 Incentive Plan, effective as of January 1, 1996.
11. Statement Re Computation of Per Share Earnings.
13. Annual Report to Shareholders of MBIA Inc. for fiscal year ended
December 31, 1995. Such report is furnished for the information of the
Commission only and, except for those portions thereof which are expressly
incorporated by reference in this Annual Report on Form 10-K, is not to be
deemed filed as part of this report.
21. List of Subsidiaries
23. Consent of Coopers & Lybrand L.L.P.
24. Power of Attorney
27. Financial Data Schedule
99. Additional Exhibits - MBIA Corp. GAAP Financial Statements
(b) Reports on Form 8-K: No reports on Form 8-K were filed by the
Company in 1995
-31-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MBIA Inc.
(Registrant)
Dated: March 25, 1996 By/s/David H. Elliott
---------------------
Name: David H. Elliott
Title: Chairman
Pursuant to the requirements of Instruction D to Form 10-K under the
Securities Exchange Act of 1934, this Report has been signed below by the
following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/David H. Elliott Chairman and Director March 25, 1996
- -------------------------------
David H. Elliott
/s/ Julliette S. Tehrani Senior Vice President March 25, 1996
- ------------------------------- and
Julliette S. Tehrani Chief Financial Officer
/s/ Elizabeth B. Sullivan Vice President and March 25, 1996
- ------------------------------- Controller
Elizabeth B. Sullivan
Director March 25, 1996
- -------------------------------
William O. Bailey
/s/Joseph W. Brown * Director March 25, 1996
- ------------------------------
Joseph W. Brown, Jr.
/s/David C. Clapp. * Director March 25, 1996
- ------------------------------
David C. Clapp.
-32-
Signature Title Date
/s/Claire L. Gaudiani * Director March 25, 1996
- ------------------------------
Claire L. Gaudiani
Director March 25, 1996
- ------------------------------
William H. Gray, III
/s/Freda S. Johnson * Director March 25, 1996
- -------------------------------
Freda S. Johnson
/s/Daniel P. Kearney * Director March 25, 1996
- -------------------------------
Daniel P. Kearney
/s/James A. Lebenthal * Director March 25, 1996
- -------------------------------------
James A. Lebenthal
/s/Robert B. Nicholas * Director March 25, 1996
- -------------------------------------
Robert B. Nicholas
/s/Pierre-Henri Richard * Director March 25, 1996
- -------------------------------------
Pierre-Henri Richard
/s/John A. Rolls * Director March 25, 1996
- -------------------------------------
John A. Rolls
- ------------------------------------- Director March 25, 1996
Richard L. Weill
*By/s/Louis G. Lenzi
Louis G. Lenzi
Attorney-in Fact
-33-
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and Shareholders of MBIA Inc.:
Our report on the consolidated financial statements of MBIA Inc. and
Subsidiaries has been incorporated by reference in this Form 10-K from page 25
of the 1995 Annual Report to Shareholders of MBIA Inc. and Subsidiaries. In
connection with our audits of such financial statements, we have also audited
the related financial statement schedules listed in the index on Page 25 of this
Form 10-K.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
\s\ COOPERS & LYBRAND L.L.P.
New York, New York
January 22, 1996
-34
SCHEDULE I
MBIA INC. AND SUBSIDIARIES
SUMMARY OF INVESTMENTS, OTHER THAN INVESTMENTS IN RELATED PARTIES
December 31, 1995
(In thousands)
Column A Column B Column C Column D
Amount at which
shown in the
Type of investment Cost Value balance sheet
- ------------------ --------- ---------- ---------------
Fixed-maturities
Bonds:
United States
Treasury and
Government
agency obligations $ 256,613 $ 287,206 $ 287,206
State and municipal
obligations 2,553,835 2,726,321 2,726,321
Corporate and other
obligations 1,790,309 1,863,326 1,863,326
Mortgage-backed 1,247,265 1,291,602 1,291,602
---------- ---------- ----------
Total fixed-maturities 5,848,022 6,168,455 6,168,455
Short-term Investments 424,827 XXXXXXX 424,827
Other Investments 13,930 XXXXXXX 14,064
Total investments $6,286,779 XXXXXXX $6,607,346
========== ==========
-35-
SCHEDULE III
MBIA INC. (PARENT COMPANY)
CONDENSED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
December 31, 1995 December 31, 1994
------------------ -----------------
ASSETS
Investments:
Municipal investment agreement
portfolio held as
available-for-sale at fair
value (amortized cost $837,791) $ 851,328 $ ---
Other investments --- 5,580
---------- ----------
Total investments 851,328 5,580
Cash and cash equivalents 14,106 4,991
Investment in and amounts due from
wholly-owned subsidiaries 2,670,383 2,052,540
Accrued investment income 8,379 ---
Other assets 4,001 3,209
---------- ----------
Total assets $3,548,197 $2,066,320
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Dividends payable $ 14,492 $ 12,901
Municipal investment agreements 892,326 ---
Long-term debt 373,900 298,790
Short-term debt 18,000 17,000
Deferred income taxes 4,688 896
Amounts due to wholly-owned subsidiaries --- 21,934
Other liabilities 10,525 10,083
---------- ---------
Total liabilities 1,313,931 361,604
---------- ---------
Shareholders' Equity:
Preferred stock, par value $1 per
share; authorized shares - 10,000,000;
issued and outstanding shares - none --- ---
Common stock, par value $1 per share;
authorized shares - 200,000,000;
issued shares - 42,077,387 42,077 42,077
Additional paid-in capital 725,153 719,750
Retained earnings 1,261,051 1,057,092
Cumulative translation adjustment 2,849 503
Unrealized appreciation (depreciation) of
investments, net of deferred income tax
provision (benefit) of $112,252 and $(46,292) 207,648 (86,560)
Unearned compensation - restricted stock (426) ---
Treasury stock, at cost - 73,676 shares
in 1995 and 461,763 shares in 1994 (4,086) (28,146)
---------- ----------
Total shareholders' equity 2,234,266 1,704,716
---------- ----------
Total liabilities and shareholders' equity $3,548,197 $2,066,320
========== ==========
The condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto and the accompanying notes.
-36-
SCHEDULE III
MBIA INC. (PARENT COMPANY)
CONDENSED STATEMENTS OF INCOME
(In thousands)
Years Ended December 31
------------------------------------
1995 1994 1993
-------- -------- ----------
Revenues:
Net investment income $ 646 $ 786 $ 3,555
Net realized gains 3,535 --- 786
Investment management
services income 2,929 --- ---
Investment management
services realized losses (5,735) --- ---
Other income --- 1,801 401
-------- -------- ----------
Total revenues 1,375 2,587 4,742
-------- -------- ----------
Expenses:
Interest expense 27,786 27,036 26,900
Operating expenses 2,749 2,202 1,273
-------- -------- ----------
Total expenses 30,535 29,238 28,173
-------- -------- ----------
Loss before income taxes, equity
in earnings of subsidiaries
and cumulative effect of
accounting changes (29,160) (26,651) (23,431)
Benefit for income taxes (9,604) (9,240) (8,963)
-------- -------- ----------
Loss before equity in earnings
of subsidiaries and
cumulative effect of
accounting changes (19,556) (17,411) (14,468)
Equity in earnings of subsidiaries 290,975 277,620 260,578
-------- -------- ----------
Net income before cumulative
effect of accounting changes 271,419 260,209 246,110
Cumulative effect of
accounting changes --- --- 12,923
-------- -------- ----------
Net income $271,419 $260,209 $259,033
======== ======== ==========
The condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto and the accompanying notes.
-37-
SCHEDULE III
MBIA INC. (PARENT COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended December 31
-------------------------------
1995 1994 1993
--------- --------- ----------
Cash flows from operating
activities:
Net income $ 271,419 $ 260,209 $ 259,033
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Equity in undistributed
earnings of subsidiaries (208,075) (239,620) (223,501)
Net realized losses (gains) on
sales of investments 2,200 --- (786)
(Benefit) provision for deferred
income taxes (50) (28) 28
Other, net (2,556) 18,088 (1,512)
--------- --------- ----------
Total adjustments to net income (208,481) (221,560) (225,771)
--------- --------- ----------
Net cash provided by
operating activities 62,938 38,649 33,262
--------- --------- ----------
Cash flows from investing activities:
Purchase of fixed-maturity
securities (252,125) --- (30,041)
Sale of fixed-maturity securities 246,171 42,728 36,369
Sale of other investments 6,552 --- ---
Purchase for municipal investment
agreement portfolio, net of
payable for investments purchased (940,871) --- ---
Sales from municipal investment
agreement portfolio, net of
receivable for investments sold 106,678 --- ---
Contributions to subsidiaries (52,800) (23,010) (5,010)
Advances (to) from subsidiaries, net (89,550) 3,017 2,119
--------- --------- ----------
Net cash (used) provided by
investing activities (975,945) 22,735 3,437
--------- --------- ----------
Cash flows from financing activities:
Net proceeds from issuance
of long-term debt 74,344 --- ---
Dividends paid (53,179) (45,513) (37,342)
Purchase of treasury stock --- (14,411) (15,255)
Proceeds from issuance of
municipal investment agreements 1,182,298 --- ---
Payments for drawdowns of
municipal investment agreements (297,679) --- ---
Exercise of stock options 16,338 1,986 7,109
--------- --------- ---------
Net cash provided (used) by
financing activities 922,122 (57,938) (45,488)
--------- --------- ----------
Net increase (decrease) in
cash and cash equivalents 9,115 3,446 (8,789)
Cash and cash equivalents
- beginning of year 4,991 1,545 10,334
--------- --------- ---------
Cash and cash equivalents
- end of year $ 14,106 $ 4,991 $ 1,545
========= ========= =========
Supplemental cash flow disclosures:
Income taxes paid $ 443 $ 251 $ 392
Interest paid:
Long-term debt 26,575 26,575 26,416
Short-term debt 1,228 56 ---
The condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto and the accompanying notes.
-38-
SCHEDULE III
MBIA INC. (PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. CONDENSED FINANCIAL STATEMENTS
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these condensed financial
statements be read in conjunction with the Company's consolidated financial
statements and the notes thereto.
2. SIGNIFICANT ACCOUNTING POLICIES
The Parent company carries its investments in subsidiaries under the equity
method.
3. DIVIDENDS FROM SUBSIDIARY
Cash dividends paid to MBIA Inc. from the Company's consolidated
subsidiary, MBIA Corp., were $82,900,000, $38,000,000 and $50,000,000 in 1995,
1994 and 1993, respectively.
4. OBLIGATIONS UNDER MUNICIPAL INVESTMENT AGREEMENTS
The municipal investment agreement business, as described in footnotes 2
and 10 to the consolidated financial statements of MBIA Inc. and Subsidiaries
(which are incorporated by reference in the 10-K), is conducted by both the
Registrant and its wholly owned subsidiary, MBIA Investment Management Corp.
-39-
SCHEDULE VI
MBIA INC. AND SUBSIDIARIES
REINSURANCE
for the Years Ended December 31, 1995, 1994 and 1993
(In thousands)
Column A Column B Column C Column D Column E Column F
- -------- -------- -------- -------- ----------- -------------
Insurance Ceded Assumed Percentage
Premiums Gross to Other from Other of Amount
Written Amount Value Companies Net Amount Assumed to Net
- -------- -------- -------- ---------- ---------- --------------
1995 $336,768 $45,050 $11,719 $303,437 3.9%
1994 $354,534 $49,281 $6,302 $311,555 2.0%
1993 $458,979 $47,552 $20,368 $431,795 4.7%
-40-
Securities and Exchange Commission
Washington, D.C. 20549
===============================================================================
Exhibits
to
Form 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1995
Commission File No. 1-9583
================================================================================
-41-
MBIA Inc.
Exhibit Index
10.25. Trust Agreement, effective as of December 31, 1989,
among BIG Ins., MBIA Corp. and Morgan Guaranty Trust Company of New
York, incorporated by reference to Exhibit 10.55 to the 1989 10-K, as
amended by Amendment to Trust Agreement, dated as of February 28, 1995.
10.47. Trust Agreement, dated as of December 31, 1991,
between MBIA Corp. and Fidelity Management Trust Company, incorporated
by reference to Exhibit 10.64 to the 1992 10-K, as amended by the
Amendment to Trust Agreement, dated as of April 1, 1993, incorporated
by reference to Exhibit 10.64 to the 1993 10-K, as amended by First
Amendment to Trust Agreement, dated as of January 21, 1992, as further
amended by Second Amendment to Trust Agreement, dated as of March 5,
1992, as further amended by Third Amendment to Trust Agreement, dated
as of April 1, 1993, as further amended by the Fourth Amendment to
Trust Agreement, dated as of July 1, 1995.
10.61. Credit Agreement, dated as of August 31, 1994, among
Municipal Bond Investors Assurance Corporation, the Company, Wachovia
Bank of Georgia, N.A., Banco Santander, The Sumitomo Bank, Ltd., New
York Branch, The Chase Manhattan Bank, N.A., Commerzbank
Aktiengesellschaft, The Industrial Bank of Japan, Limited New York
Branch and NBD Bank, N.A., and as further amended by the First
Amendment to Credit Agreement, dated as of October 14, 1994,
incorporated by reference to Exhibit 10.66 to the 1994 10-K, as amended
by the Second Amendment to Credit Agreement, dated as of October 31,
1995.
10.65. Investment Services Agreement, effective as of
April 28, 1995, between MBIA Insurance Corporation and MBIA
Securities Corp., as amended by Amendment No. 1, dated as of
December 29, 1995.
10.66. Investment Services Agreement, effective
January 2, 1996, between MBIA Insurance Corp. of Illinois
and MBIA Securities Corp.
10.67. Custody Agreement, as of March 1, 1995,
between MBIA Corp. and The Chase Manhattan Bank, N.A.
10.68. Custody Agreement, as of March 1, 1995,
between MBIA Corp. and The Chase Manhattan Bank, N.A.
10.69. Custody Agreement, as of March 1, 1995,
between MBIA Inc. and The Chase Manhattan Bank, N.A.
10.70. MBIA Inc. 1996 Incentive Plan, effective as
of January 1, 1996.
11. Statement Re Computation of Per Share Earnings.
13. Annual Report to Shareholders of MBIA Inc. for fiscal year ended
December 31, 1995. Such report is furnished for the information of the
Commission only and, except for those portions thereof which are
expressly incorporated by reference in this Annual Report on Form 10-K,
is not to be deemed filed as part of this report.
21. List of Subsidiaries
23. Consent of Coopers & Lybrand L.L.P.
24. Power of Attorney
27. Financial Data Schedule
99. Additional Exhibits - MBIA Corp. GAAP Financial Statements
(b) Reports on Form 8-K: No reports on Form 8-K were filed by the
Company in 1995
-42-