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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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, 1998.
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 25, 1999 was $ 5,885,163,919.00
As of March 25, 1999, 99,748,541 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, 1998 are incorporated by
reference into Parts I and II. Portions of the Definitive Proxy Statement of the
Registrant, dated March 29, 1999 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") is engaged in providing financial guarantee
insurance and investment management and financial and consulting services to
public finance clients and financial institutions on a global basis. Financial
guarantees for municipal bonds, asset-backed and mortgage-backed securities,
investor-owned utility bonds, and debt of high-quality financial institutions,
both in the new issue and secondary markets, are provided through the Company's
wholly-owned subsidiary, MBIA Insurance Corporation ("MBIA Corp."). MBIA Corp.
is the successor to the business of the Municipal Bond Insurance Association
(the "Association") which began writing financial guarantees for municipal bonds
in 1974.
In 1989, the Company purchased Bond Investors Guaranty Insurance Company
("BIG Ins."), another municipal bond insurance company. MBIA Corp. reinsured the
net exposure on the municipal bond insurance policies previously issued by BIG
Ins. (See "Business-Reinsurance" below) and changed the name of BIG Ins. to MBIA
Insurance Corp. of Illinois ("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 international community. MBIA Assurance, which is a wholly-owned subsidiary
of MBIA Corp., writes policies insuring sovereign risk, public infrastructure
financings, asset-backed transactions and certain obligations of corporations
and financial institutions. In September 1995, MBIA Corp. entered into a joint
venture agreement with Ambac Assurance Corporation for the purpose of jointly
marketing financial guarantee insurance outside the United States.
In February, 1998, the Company acquired CapMAC Holdings Inc. ("Holdings"),
in a stock-for-stock merger. Holdings, through its wholly-owned subsidiary
Capital Markets Assurance Corporation ("CapMAC"), insures structured
asset-backed, corporate, municipal and other financial obligations in the U.S.
and international capital markets. CapMAC also provides financial guarantee
reinsurance for structured asset-backed, corporate, municipal and other
financial obligations written by other major insurance companies. Generally,
throughout the text references to MBIA Corp. include the activities of its
subsidiaries, MBIA Illinois, MBIA Assurance and CapMAC.
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 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 principal economic
value of financial guarantee insurance to the entity offering the obligations is
the savings 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.
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 and CapMAC
guaranteed bond issues. In addition, in 1995 MBIA Corp. received a Triple-A
claims-paying rating from Fitch IBCA, Inc. ("Fitch").
The Company also provides investment management products and financial and
consulting services through a group of subsidiary companies. These services
include cash management, municipal investment agreements, discretionary asset
management, purchase and administrative services, tax discovery and compliance,
tax audit, analysis and information services and bond administration services.
MBIA Municipal Investors Service Corporation ("MBIA-MISC") provides cash
management services and investment placement services to local governments and
school districts, and provides those clients with fund administration services
In 1996, MBIA-MISC acquired American Money Management Associates, Inc. ("AMMA")
which offers investment and treasury management consulting services to municipal
and quasi-municipal clients.
1
In 1997, MBIA MuniServices Company ("MuniServices"), formed to provide bond
administration, revenue enhancement and other services to state and local
governments, acquired (i) the Municipal Tax Bureau entities ("MTB"), which
provide tax revenue compliance and collection services to the public sector and
(ii) MBIA MuniFinancial to provide debt administration services to
municipalities. Early in 1998, MuniServices acquired Municipal Resource
Consultants which specializes in providing revenue enhancement and information
services to municipalities. In 1996, MuniServices acquired an equity interest in
Capital Asset Holdings, which purchases and services delinquent taxes for
municipalities. In 1998, the Company increased its ownership in Capital Asset
Holdings to 86% in order to control the future of that entity.
MBIA Investment Management Corp. ("IMC") offers guaranteed investment
agreements primarily for bond proceeds to states and municipalities. MBIA
Capital Management Corp. ("CMC") performs investment management services for the
Company, MBIA-MISC, IMC and selected external clients. In July of 1998, the
Company merged with 1838 Investment Advisors, Inc. a provider of asset
management services.
Additionally in 1997, the Company formed MBIA & Associates Consulting, Inc.
to provide strategic financial planning and management consulting to state and
local governments, colleges and universities, and international entities.
Through the acquisition of CapMAC, the Company is also providing advisory
services to specialty finance companies, making equity investments in those
companies, and creating synthetic investment products.
MBIA Corp. Insured Portfolio
At December 31, 1998, the net par amount outstanding on MBIA Corp.'s
insured obligations (including insured obligations of MBIA Illinois, MBIA
Assurance and CapMAC but excluding the guarantee of $3.5 billion of obligations
of IMC (see "Operations-Miscellaneous")) was $359.5 billion, comprised of $316.9
billion in new issues and $42.6 billion in secondary market issues. Net
insurance in force was $595.9 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, 1998, MBIA Corp. had 34,566
policies outstanding. These policies are diversified among 9,276 "credits,"
which MBIA Corp. defines as any group of issues supported by the same revenue
source.
2
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, 1998:
MBIA Corp. Original Par Amount Per Issue
as of December 31, 1998 (1)
% 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 27,526 79.6% $ 46.7 13.0%
$10-25 million 3,063 8.9 40.0 11.1
$25-50 million 1,744 5.1 47.3 13.2
$50-100 million 1,157 3.3 58.7 16.3
Greater than $100 million 1,076 3.1 166.8 46.4
------ ------ ------ ------
Total 34,566 100.0% $359.5 100.0%
====== ====== ====== ======
- ----------
(1) Excludes IMC's $3.5 billion relating to municipal investment agreements
guaranteed by MBIA Corp.
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, 1998 was 11.0 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, 1998 was $38.5 billion.
3
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, 1998 (1)
(In billions)
Bond Type
Number Net Par % of Net
Of Issues Amount Par Amount
Domestic Outstanding Outstanding Outstanding
Municipal
General obligation 12,694 $ 83.6 23.2%
Utilities 4,895 45.0 12.5
Health care 2,241 38.5 10.7
Transportation 1,543 23.7 6.6
Special Revenue 1,787 23.4 6.5
Higher Education 1,498 14.8 4.1
Housing 2,161 10.7 3.0
ID & PCR 1,037 7.8 2.2
Other 75 3.3 0.9
------ ------ ------
Total Municipal 27,931 250.8 69.7
------ ------ ------
Structured Finance* 850 80.8 22.5
Other 5,462 10.8 3.0
------ ------ ------
Total Domestic 34,243 342.4 95.2
------ ------ ------
International
Infrastructure 114 3.4 1.0
Structured Finance* 102 11.7 3.2
Other 107 2.0 0.6
------ ------ ------
Total International 323 17.1 4.8
------ ------ ------
Total 34,566 $359.5 100.0%
====== ====== ======
* Asset/mortgage-backed
- ----------
(1) Excludes IMC's $3.5 billion relating to municipal investment agreements
guaranteed by MBIA Corp.
4
As of December 31, 1998, of the $359.5 billion outstanding net par amount
of obligations insured, $250.8 billion, or 70%, consisted of municipal bonds,
$91.6 billion, or approximately 25%, consisted primarily of
asset/mortgage-backed transactions and investor-owned utility obligations and
$17.1 billion or approximately 5% consisted of transactions done in the
international market.
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 by Bond Type (1)
Bond Type 1994 1995 1996 1997 1998
(In millions)
Domestic
Municipal
General obligation $11,165 $10,226 $13,036 $13,798 $15,424
Health care 3,695 2,913 4,310 7,414 8,174
Utilities 4,880 5,098 6,749 6,877 6,458
Special Revenue 1,896 1,952 3,787 3,110 6,374
Higher Education 1,346 1,312 2,132 2,517 4,217
Transportation 1,767 2,624 3,153 6,059 4,175
Housing 886 1,962 1,802 1,791 2,093
Other 600 1,240 401 1,301 1,077
Industrial Development &
Pollution Control Revenue 1,486 1,155 693 781 237
------- ------- ------- ------- -------
Total Municipal 27,721 28,482 36,063 43,648 48,229
------- ------- ------- ------- -------
Structured Finance* 10,135 14,053 24,451 32,563 35,781
Other 1,782 1,562 4,740 4,438 3,525
------- ------- ------- ------- -------
Total Domestic $39,638 $44,097 $65,254 $80,649 $87,535
------- ------- ------- ------- -------
International
Structured Finance* 1,470 7,003 4,039 2,586 6,267
Infrastructure 262 626 839 1,080 778
Other 1,055 884 1,341 1,209 701
------- ------- ------- ------- -------
Total International 2,787 8,513 6,219 4,875 7,746
------- ------- ------- ------- -------
Total $42,425 $52,610 $71,473 $85,524 $95,281
======= ======= ======= ======= =======
* Asset/mortgage-backed
- ----------
(1) Par amount insured by year, net of reinsurance.
5
MBIA Corp. is licensed to write business in all 50 states, the District of
Columbia, Guam, the Northern Mariana Islands, the U.S. Virgin Islands, Puerto
Rico, the Kingdom of Spain and the Republic of France. MBIA Assurance is
licensed to write business in France. The following table sets forth by
geographic location the areas 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, 1998 (1)
Number of Net Par % of Net
Issues Amount Par Amount
Outstanding Outstanding Outstanding
State (In billions)
California 3,681 $ 40.3 11.2%
New York 5,310 38.3 10.7
Florida 1,589 19.8 5.5
Pennsylvania 2,278 14.0 3.9
New Jersey 1,884 13.5 3.8
Texas 2,131 13.5 3.8
Illinois 1,275 12.8 3.5
Massachusetts 1,107 10.1 2.8
Ohio 1,076 8.1 2.2
Michigan 1,066 8.0 2.2
------ ------ -----
Sub-Total 21,397 178.4 49.6
All Other States 12,004 96.0 26.7
Nationally Diversified 842 68.0 18.9
------ ------ -----
Total United States 34,243 342.4 95.2
International 323 17.1 4.8
------ ------ -----
Total 34,566 $359.5 100.0%
====== ====== =====
- ---------
(1) Excludes IMC's $3.5 billion relating to municipal investment agreements
guaranteed by MBIA Corp.
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, 1998, MBIA Corp.'s net par amount outstanding for its ten largest
insured municipal credits totaled $15.1 billion, representing 4.2% of MBIA
Corp.'s total net par amount outstanding, and for its ten largest structured
finance credits, the net par outstanding was $16.2 billion, or 4.5% of the
total.
6
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 or CapMAC, but it is possible that either of those
entities may insure transactions in the future. MBIA Corp. and MBIA Assurance
offer financial guarantee insurance in Europe and other areas outside the United
States.
Transactions in the new issue market are sold either through negotiated
offerings or competitive bidding. In the first case, either the issuer or the
underwriter purchases the insurance policy directly from MBIA Corp. On
competitive bid issues, the insurance is offered as an option to the
underwriters bidding on the transaction. The successful bidder would then have
the option to purchase the insurance.
In the secondary market, MBIA Corp. provides insurance on whole and partial
maturities in response to requests from bond traders and institutions who trade
in the secondary market. MBIA Corp. also offers insurance to the unit investment
trust market through ongoing arrangements with investment banks and financial
service companies. Each issue in the trust is insured, in some cases until
maturity, in others only while it is held in the trust. Lastly, insurance is
offered in the mutual fund sector through ongoing arrangements with the fund
sponsors. All fund issues are insured on a "while-in-trust" basis, but in some
cases, MBIA Corp. is committed to offer insurance to maturity to the sponsor for
an additional premium.
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, 1998 (1)
Net Par Amount
Type of Program Outstanding % Of Net Par
(In billions) Amount Outstanding
New Issue $316.9 88.1%
Secondary market issues
Unit investment trusts 9.1 2.5
Mutual funds 0.2 0.1
Other secondary market issues 33.3 9.3
------ -----
Total $359.5 100.0%
====== =====
- ----------
(1) Excludes IMC's $3.5 billion relating to municipal investment agreements
guaranteed by MBIA Corp.
7
Operations
The insurance operations of MBIA Corp. are conducted through the Public
Finance Division, the Structured Finance Division, the joint venture with Ambac
(for all international transactions) and the Risk Management Group. The Public
Finance Division has underwriting authority with respect to certain categories
of business up to pre-determined par amounts based on a risk-ranking system. In
order to ensure that the guidelines are followed, Risk Management monitors and
periodically reviews underwriting decisions made by the Public Finance Division.
With respect to larger, complex, or unique transactions, underwriting is
performed by a committee consisting of senior representatives of Public Finance,
Risk Management, Insured Portfolio Management, and the Company's Finance
Department. For all transactions done by the Structured Finance Division or for
international deals, MBIA Corp.'s review and approval procedure has two stages.
The first stage consists of screening, credit review and structuring by the
appropriate business unit, in consultation with Risk Management officers. The
second stage, consisting of the final review and approval of credit and
structure, is performed by a committee consisting of two Risk Management
officers and the head of the applicable business unit. Certain transactions,
based on size, complexity, or other factors, must also be approved by a
division-level committee consisting of senior representatives of Structured
Finance or the joint venture, Risk Management and Insured Portfolio Management.
Premium rates for Public Finance transactions are established by the Market
Research Department and Structured Finance premiums are set by analysts in the
division, in conjunction with the Risk Management Group's quantitative analysis
team. Pricing for international transactions is done by analysts working in the
joint venture, in conjunction with the Market Research Department.
Risk Management
The Risk Management Group 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. For Public Finance and
international infrastructure transactions, 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. For Structured Finance
and international structured finance transactions, MBIA Corp's underwriting
guidelines, analysis and due diligence focus primarily on seller/servicer credit
and operational quality, the quality and historical and projected performance of
the asset pool, and the strength of the structure, including cash flow analysis,
the size and source of first loss protection, and asset performance triggers and
financial covenants. Such guidelines are subject to periodic review by an
interdivisional committee which is responsible for establishing and maintaining
underwriting standards and criteria for all insurance products.
The financial institution and corporate analysis groups within Risk
Management underwrite and monitor (in conjunction with Insured Portfolio
Management) MBIA Corp.'s direct and indirect exposure to financial institutions
and other corporate entities with respect to seller/servicer exposure,
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.
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. The Insured Portfolio
Management Group works closely with Risk Management and New Business Departments
to provide feedback on insured issue performance and credit risk parameters.
Although MBIA Corp. has to date had only eighteen insured issues requiring
claim payments for which it has not been fully reimbursed, there are eight
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
8
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's experience is 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 typically
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. At
underwriting, issues are given an internal credit rating. All credits are
monitored according to a frequency of review schedule that is based on risk type
and credit quality. 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 four departments in the Insured Portfolio Management Group. The
Public Finance Portfolio Management Department handles the traditional types of
domestic municipal issues such as general obligation, utility, special revenue
and health care bonds. The Structured Finance Portfolio Management Department is
responsible for domestic housing, asset backed and other structured
transactions. The International Portfolio Management Department is responsible
for all international transactions. The Financial Institutions and Corporate
Department monitors direct exposure to financial institutions and corporate
obligors across the entire insured portfolio and provides analytical support to
the other three departments.
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 site visits with management, 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.
The International Portfolio Management Departments monitors insured
international programs. This departments monitors all credit types, including
sovereign, sub-sovereign issuers, single risk and structured finance
transactions. The department applies similar policies and procedures as the
Public Finance and Structured Finance Portfolio Management Departments. The
department is responsible for remedial activities on weaker credits.
Investment Management Services
Over the last eight years, the Company's investment management businesses
have expanded their services to the public sector and added new revenue sources.
MBIA-MISC provides cash management services and fixed-rate investment
placement services directly to local governments and school districts. In
addition, MBIA-MISC performs investment fund administration services for
clients, which provide an additional source of revenue. AMMA provides investment
and treasury management consulting services for municipal and quasi-public
sector clients. Both MBIA-MISC and AMMA are Securities and Exchange Commission
registered investment advisers. MBIA-MISC/AMMA operates in 20 states and the
Commonwealth of Puerto Rico.
9
IMC provides customized guaranteed investment agreements and flexible
repurchase agreements for bond proceeds and other public funds. At year-end
1998, principal and accrued interest outstanding on investment agreements was
$3.5 billion compared with $3.2 billion at year-end 1997.
In 1998, the Company merged with 1838 Investment Advisors, Inc. an asset
management firm with over $7.0 billion in equity, fixed income and balanced
portfolios. CMC provides investment management services for IMC's investment
agreements, MBIA-MISC's municipal cash management programs and MBIA Corp.'s
insurance related fixed-income investment portfolios, as well as third-party
accounts. CMC assumed full management for MBIA Corp.'s insurance related
fixed-income investment portfolios in 1996. CMC is also a registered investment
advisor.
Financial and Consulting Services
MuniServices provides various financial, consulting and administrative
services to municipal clients through a network of subsidiaries. MTB offers tax
revenue enhancement, compliance and collection services to public clients.
Municipal Resources Consultants, acquired in early 1998, provides revenue
enhancement and related information services to public sector clients. MBIA
MuniFinancial provides municipalities in California and other neighboring states
with debt administration, disclosure, arbitrage rebate and related services.
Capital Asset acquires delinquent tax liens and services them for the benefit of
municipalities. The Company is continuing to examine its investment in Capital
Asset and it is likely that the Company will sell its interest in that company.
The Company cannot as yet assess the economic impact of that sale although it is
anticipated that it will result in a modest write-off. MBIA & Associates
Consulting, Inc. has begun to provide strategic planning and management
consulting to public sector clients.
Competition
The financial guarantee insurance business is highly competitive. In 1998
MBIA Corp. was the largest insurer of new issue long-term municipal bonds,
accounting for 36% of the par amount of such insured bonds. The other principal
insurers in 1998 were Ambac Assurance Corporation, Financial Guaranty Insurance
Company and Financial Security Assurance Inc., 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 1998 MBIA Corp. was the leading insurer of
new issue asset/mortgage-backed securities. The two principal competitors in
this area in 1998 were Financial Security Assurance and Ambac Assurance
Corporation.
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 Corp. also competes in the
international market with composite (multi-line) insurers.
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, multi-line insurers are prohibited from writing financial
guarantee insurance in New York State. See "Business-Regulation." However, there
can be no assurance that major multi-line insurers or other financial
institutions will not participate in financial guarantee insurance in the
future, either directly or through monoline subsidiaries.
10
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, 1998, MBIA Corp. retained approximately 85% of the gross
debt service outstanding of all transactions insured by it, MBIA Assurance and
MBIA Illinois, and ceded approximately 15% to treaty and facultative reinsurers.
The principal reinsurers of MBIA Corp., CapMAC and MBIA Illinois are Capital Re
Management Corporation, Enhance Reinsurance Company, AXA Re Finance, Munich
Reinsurance Corp., and KRE Reinsurance, Ltd. The first four of these reinsurers,
whose claims-paying ability is rated Triple-A by S&P, reinsured approximately
67% of the total ceded insurance in force at December 31, 1998. The other
principal reinsurer is rated AA by S&P. All of the other reinsurers reinsured
approximately 33% of the total ceded insurance in force at December 31, 1998 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, 1998 and 1997 by bond type and by
geographic location are set forth in Note 16 to the Consolidated Financial
Statements of MBIA Inc. and Subsidiaries.
MBIA Corp. and MBIA Assurance have entered into a reinsurance agreement
providing for MBIA Corp.'s reimbursement of the risks of MBIA Assurance and a
net worth maintenance agreement in which MBIA Corp. agrees to maintain the net
worth of MBIA Assurance, to remain its sole shareholder and not to pledge its
shares. Under the reinsurance agreement MBIA Corp. agrees to reimburse MBIA
Assurance on an excess of loss basis for losses incurred in each calendar year
for net retained insurance liability, subject to certain contract limitations.
Under the net worth maintenance agreement, MBIA Corp. agrees to maintain a
minimum capital and surplus position in accordance with French and New York
legal requirements.
In connection with the BIG Ins. 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. 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. Effective January 1, 1999, MBIA Corp. and MBIA Illinois
entered into a replacement reinsurance agreement whereby MBIA Corp. agreed to
accept as reinsurance from MBIA Illinois 100 % of the net liabilities and other
obligations of MBIA Illinois, for losses paid on or after that date, thereby
eliminating the 10% retrocession arrangement previously in place.
11
In connection with the CapMAC acquisition, MBIA Corp. and CapMAC entered
into a reinsurance agreement, effective April 1, 1998, under which MBIA Corp.
agreed to reinsure 100% of the net liability and other obligations of CapMAC in
exchange for CapMAC's payment of a premium equal to the ceded reserves and
contingency reserves. Pursuant to such reinsurance agreement with CapMAC, MBIA
Corp. reinsured all of the net exposure of $31.6 billion, or approximately 78%
of the gross debt service outstanding, the remaining 22% having been previously
ceded to treaty and facultative reinsurers of CapMAC.
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. On January 1, 1996 CMC assumed full 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.
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, policies 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
CMC subject to an investment management agreement between IMC and CMC.
12
For 1998, approximately 68% 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, 1996, 1997 and 1998:
Investment Income of the Company (1)
1996 1997 1998
(In thousands)
Investment income before expenses (2) $268,280 $305,569 $337,565
Investment expenses 3,133 3,571 5,763
-------- -------- --------
Net investment income before income taxes 265,147 301,998 331,802
Net realized gains 9,936 16,903 29,962
-------- -------- --------
Total investment income before income taxes $275,083 $318,901 $361,764
======== ======== ========
Total investment income after income taxes $232,975 $263,071 $296,232
======== ======== ========
- ----------
(l) Excludes investment income and realized gains and losses from investment
management services and municipal and financial services segments
(2) Includes taxable and tax-exempt interest income.
13
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 market value as of December 31, 1998, 1997 and 1996.
Investment Portfolio by Security Type
as of December 31, 1998
Investment
Insurance Management Services
Weighted Weighted
Fair Value Average Fair Value Average
Investment Category (in thousands) Yield (1) (in thousands) Yield (1)
Fixed income investments:
Long-term bonds:
Taxable bonds:
U.S. Treasury & Agency obligations $ 487,132 6.15% $1,404,668 5.54%
GNMAs 154,088 6.58 100,033 6.42
Other mortgage & asset backed securities 206,171 6.25 849,922 5.33
Corporate obligations 1,026,847 5.85 842,330 6.05
Foreign obligations(2) 136,416 5.45 292,979 6.46
---------- ---- ---------- ----
Total 2,010,654 5.99 3,489,932 5.71
Tax-exempt bonds:
State & municipal 3,873,399 7.15 -- --
---------- ---- ---------- ----
Total long-term investments 5,884,053 6.76 3,489,932 5.71
Short-term investments(3) 423,194 4.94 188,297 5.03
---------- ---- ---------- ----
Total fixed income investments 6,307,247 6.63% 3,678,229 5.68%
Other investments(4) 94,975 -- -- --
---------- ----------
Total investments $6,402,222 -- $3,678,229 --
========== ==========
- ----------
(1) Prospective market yields as of December 31, 1998. Yield on tax-exempt
bonds is presented on a taxable bond equivalent basis using a 35% federal
income tax rate
(2) Consists of U.S. denominated foreign government 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.
14
Investment Portfolio by Security Type
as of December 31, 1997
Investment
Insurance Management Services
Weighted Weighted
Fair Value Average Fair Value Average
Investment Category (in thousands) Yield (1) (in thousands) Yield (1)
Fixed income investments:
Long-term bonds:
Taxable bonds:
U.S. Treasury & Agency obligations $ 472,100 6.87% $1,106,396 6.08%
GNMAs 148,065 7.15 105,865 6.91
Other mortgage & asset backed securities 189,904 6.60 726,126 6.03
Corporate obligations 836,334 6.38 691,252 6.49
Foreign obligations(2) 165,506 6.27 300,232 6.73
---------- ---- ---------- ----
Total 1,811,909 6.58 2,929,871 6.26
Tax-exempt bonds:
State & municipal 3,399,402 7.36 -- --
---------- ---- ---------- ----
Total long-term investments 5,211,311 7.09 2,929,871 6.26
Short-term investments(3) 303,898 5.19 411,523 5.73
---------- ---- ---------- ----
Total fixed income investments 5,515,209 6.99% 3,341,394 6.19%
Other investments(4) 51,693 -- -- --
---------- ----------
Total investments $5,566,902 -- $3,341,394 --
========== ==========
- ----------
(1) Prospective market yields as of December 31, 1997. Yield on tax-exempt bonds
is presented on a taxable bond equivalent basis using a 35% federal income
tax rate.
(2) Consists of U.S. denominated foreign government 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.
15
Investment Portfolio by Security Type
as of December 31, 1996
Investment
Insurance Management Services
Weighted Weighted
Fair Value Average Fair Value Average
Investment Category (in thousands) Yield (1) (in thousands) Yield (1)
Fixed income investments:
Long-term bonds:
Taxable bonds:
U.S. Treasury & Agency obligations $ 415,007 7.29% $1,121,511 6.32%
GNMAs 107,217 7.56 71,315 7.35
Other mortgage & asset backed securities 136,913 7.13 767,271 5.92
Corporate obligations 469,823 6.78 706,574 6.82
Foreign obligations(2) 152,392 6.87 182,885 7.37
---------- ---- ---------- ----
Total 1,281,352 7.06 2,849,556 6.43
Tax-exempt bonds:
State & municipal 3,173,770 8.07 -- --
---------- ---- ---------- ----
Total long-term investments 4,455,122 7.78 2,849,556 6.43
Short-term investments(3) 209,840 5.85 443,742 5.65
---------- ---- ---------- ----
Total fixed income investments 4,664,962 7.70% 3,293,298 6.33%
Other investments(4) 49,737 -- -- --
---------- ----------
Total investments $4,714,699 -- $3,293,298 --
========== ==========
- ----------
(1) Prospective market yields as of December 31, 1996. Yield on tax-exempt
bonds is presented on a taxable bond equivalent basis using a 35% federal
income tax rate.
(2) Consists of U.S. denominated foreign government 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.
16
The average maturity of the insurance fixed income portfolio excluding
short-term investments as of December 31, 1998 was 11.1 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:
Fixed Income Investments by Maturity
as of December 31, 1998
Insurance Investment
Management Services
% of Total % of Total
Fair Value Fixed Income Fair Value Fixed Income
Maturity In thousands) Investments (In thousands) Investments
Within 1 year $ 423,194 6.7% $ 188,297 5.1%
Beyond 1 year but within 5 years 1,044,997 16.6 960,503 26.1
Beyond 5 years but within 10 years 1,749,798 27.7 834,206 22.7
Beyond 10 years but within 15 years 999,642 15.8 254,631 6.9
Beyond 15 years but within 20 years 1,020,534 16.2 603,252 16.4
Beyond 20 years 1,069,082 17.0 837,340 22.8
---------- ----- ---------- -----
Total fixed income investments $6,307,247 100.0% $3,678,229 100.0%
========== ==========
The quality distribution of the Company's fixed income investments based on
ratings of Moody's was as shown in the table below:
Fixed Income Investments by Quality Rating (1)
as of December 31, 1998
Investment
Insurance Management Services
% of Total % of Total
Fair Value Fixed Income Fair Value Fixed Income
Quality Rating (In thousands) Investments (In thousands) Investments
Aaa $3,671,994 60.7% $2,675,396 72.7%
Aa 1,262,103 20.9 314,972 8.6
A 1,053,863 17.4 687,861 18.7
Baa 56,948 1.0 -- --
---------- ------ ---------- -----
$6,044,908 100.0% $3,678,229 100.0%
========== ==========
- ----------
(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.
17
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, Guam, the
Northern Mariana Islands, the U.S. Virgin Islands, Puerto Rico, the Kingdom of
Spain and the Republic of France. 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 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. The operations and accounts of MBIA Corp.
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 or any issuer of any debt
instrument or other monetary obligation to pay principal, interest, premium,
dividend or purchase price of or on such instrument or obligation, when due.
Under Article 69, MBIA Corp. is licensed to transact financial guarantee
insurance, surety insurance and credit insurance and such other kinds of
business to the extent necessarily or properly incidental to the kinds of
insurance which MBIA Corp. is authorized to transact. In addition, MBIA Corp. is
empowered to assume or reinsure the kinds of insurance described above.
As a financial guarantee insurer, MBIA Corp. is required by the laws of New
York, California, Connecticut, Florida, Illinois, Iowa, New Jersey and Wisconsin
to maintain contingency reserves on its 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 (net of
reinsurance) 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 (net of reinsurance, refunding, refinancings and
certain insured securities). California, Connecticut, Iowa and Florida law
impose a generally similar requirement. In each of these states, MBIA Corp. 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. 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.
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, Connecticut and Florida impose a 100:1
limit for certain types of non-municipal bonds.
The Company, MBIA Corp., MBIA Illinois and CapMAC are subject to regulation
under the insurance holding company statutes of New York, Illinois and other
jurisdictions in which MBIA Corp., MBIA Illinois and CapMAC 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 generally
require prior approval of changes in control, of certain dividends and other
intercorporate transfers of assets, and of transactions between insurance
18
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, MBIA Corp or CapMAC. Prior
approval by the Illinois Department of Insurance is required for any entity
seeking to acquire "control" of the Company, MBIA Corp., MBIA Illinois or
CapMAC. 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.
The laws of New York regulate the payment of dividends by MBIA Corp. and
provide that a New York domestic stock property/casualty insurance company (such
as MBIA Corp.) may not declare or distribute dividends except out of statutory
earned surplus. New York law provides that the sum of (i) the amount of
dividends declared or distributed during the preceding 12-month period and (ii)
the dividend to be declared may not exceed the lesser of (a) 10% of
policyholders' surplus, as shown by the most recent statutory financial
statement on file with the 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
13 to the Consolidated Financial Statements of MBIA Inc. and Subsidiaries.
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 5 to the Consolidated Financial Statements of MBIA Inc. and
Subsidiaries.
MBIA Corp., MBIA Illinois and CapMAC 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.
Both MBIA Illinois and CapMAC are currently inactive and their insurance
business is in run-off. MBIA Corp. has reinsured their respective net
liabilities on financial guarantee insurance business and maintains required
reserves in connection therewith.
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, 1998, $188.6 million of
the $270.1 million reserve for loss and loss adjustment expense represents case
basis reserves, of which $162.8 million and $20.3 million are attributable to
two health care facilities in Pennsylvania. The remaining case basis reserves
represent various housing financings and structured finance transactions, the
largest of which is $3.6 million.
The reserves for losses and loss adjustment expenses 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 reviews the appropriateness
of the loss reserves and loss rate factor and is currently conducting such
an analysis.
19
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 5 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,
1995 1996 1997 1998
MBIA Corp.
Loss ratio 0.4% 1.7% 1.2% 8.0%
Expense ratio 27.2 22.8 21.2 16.8
Combined ratio 27.6 24.5 22.4 24.8
Financial guarantee industry (1)
Loss ratio 5.3% 4.9% 8.3% *
Expense ratio 32.7 31.6 28.1 *
Combined ratio 38.0 36.5 36.4 *
- ----------
(1) Industry statistics were taken from the 1997 Annual Report of the
Association of Financial Guaranty Insurors.
* Not Available.
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,
1995 1996 1997 1998
(Dollars in millions)
MBIA Corp.
Net insurance in force $359,175 $ 434,417 $ 513,736 $595,895
Qualified statutory capital 2,257 2,620 3,140 3,741
Policyholders' leverage ratio 159:1 166:1 164:1 159:1
Financial guarantee industry(1)
Net insurance in force $895,559 $1,076,821 $1,262,697 *
Qualified statutory capital 6,495 7,350 8,851 *
Policyholders' leverage ratio 138:1 147:1 143:1 *
- ----------
(1) Industry statistics were taken from the 1997 Annual Report of the
Association of Financial Guaranty Insurors.
* Not Available.
20
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 guarantor's insured portfolio, nor does it give
any benefit for third-party commitments such as standby lines of credit.
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.
MBIA Assurance writes policies that are substantially similar in coverage
and manner of payment to the MBIA Corp. policies. The MBIA Illinois insurance
policies provide for payments on default in substantially the same manner as the
MBIA Corp. policies. Financial guaranty insurance written by CapMAC generally
guarantees to the holder of the guaranteed obligation the timely payment of
principal and interest in accordance with the obligation's original payment
schedule. In the case of a default on the insured obligation, payment under the
insurance policy generally may not be accelerated by the holder without the
consent of CapMAC, even though the underlying obligation may be accelerated.
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., CapMAC, MBIA Illinois and to MBIA Assurance. The ratings
for MBIA Illinois and CapMAC are based in significant part on reinsurance
agreements between MBIA Corp. and MBIA Illinois and MBIA Corp. and CapMAC,
respectively. 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 more 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.
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 Second Amended and Restated Credit Agreement, dated as of
October 1, 1997 among MBIA Corp., Credit Suisse, as Administrative Agent and a
consortium of highly rated banks. The Credit Agreement was further amended as of
October 1, 1998 to extend the expiration date and to replace the Administrative
Agent, Credit Suisse, with Cooperatieve Centrale Raiffeissen-Boerenleenbank B.A.
"Robobank Nederland." The line of credit is available to
21
be drawn upon by MBIA Corp., in an amount up to $825 million, after MBIA Corp.
has incurred, during the period commencing October 1, 1997 and ending October
31, 2005, cumulative losses (net of any recoveries) in excess of $825 million or
4.00% 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 October 31, 2005, 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 25, 1999, the Company had 939 employees. No employee is covered
by a collective bargaining agreement. The Company considers its employee
relations to be satisfactory.
Forward-Looking Statements
The Company through its management may from time to time make
forward-looking statements. Important factors, including general market
conditions and the competitive environment, could cause actual results to differ
materially from those contained in any forward-looking statements. The Company
undertakes no obligation to update any forward-looking statements to reflect
changes in events or expectations or otherwise.
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 57 Chairman (officer since 1986)
Joseph W. Brown, Jr. 50 Chief Executive Officer (officer
since January 1999)
Richard L. Weill 56 Vice Chairman (officer since 1989)
Neil G. Budnick 44 Chief Financial Officer and Treasurer
(officer since 1992)
John B. Caouette 54 President, Structured Finance Division
(officer since February, 1998)
Gary C. Dunton 43 President, Public Finance Division and
President, Investment Management and
Financial Services Division
(officer since January, 1998)
Louis G. Lenzi 50 General Counsel and Secretary
(officer since 1986)
Kevin D. Silva 45 Senior Vice President (officer
since 1995)
Ruth M. Whaley 43 Chief Risk Officer (officer since
January 1999)
David H. Elliott is Chairman of the Company and of MBIA Corp. It is
expected that he will step down as Chairman in May. From 1991 to 1998, he was
also the Company's Chief Executive Officer and, 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.
Joseph W. Brown, Jr. is Chief Executive Officer of the Company (effective
January 7, 1999) and a director of MBIA Corp. It is expected that Mr. Brown will
be appointed Chairman in May. Prior to joining the Company in January 1999, Mr.
Brown was Chairman of the Board of Talegen Holdings, Inc.
Richard L. Weill is Vice Chairman of the Company, President 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.
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.
22
Neil G. Budnick is Chief Financial Officer and Treasurer of the Company and
MBIA Corp. and a director of MBIA Corp. Mr. Budnick has been primarily involved
in the insurance operations area of MBIA Corp. since joining the Company in
1983.
John B. Caouette is President, Structured Finance Division of the Company
and MBIA Corp. and a director of MBIA Corp. Mr. Caouette was, until February of
1998, the Chairman and Chief Executive Officer of CapMAC Holdings Inc.
Gary C. Dunton is President, Public Finance Division and President,
Investment Management and Financial Services Division of the Company and MBIA
Corp. and a director of MBIA Corp. Mr. Dunton was, prior to joining the Company
as an officer, a director of the Company and President of the Family and
Business Insurance Group, USF&G Insurance.
Louis G. Lenzi is General Counsel and Secretary of the Company and MBIA
Corp. He is also a director of MBIA Corp. Mr. Lenzi has held various legal
positions within the Company and MBIA Corp. since 1984.
Ruth M. Whaley is the Chief Risk Officer of the Company and MBIA Corp. and
a director of MBIA Corp.. She was, until February of 1998, the Chief
Underwriting Officer of CapMAC Holdings Inc.
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 headquarters. The Company is currently in the process of constructing
a 105,000 square foot addition to the Armonk property at an estimated cost of
$35.0 million. The Company also has rental space in New York, New York, San
Francisco, California, Paris, France, Madrid, Spain and Sydney, Australia. The
Company believes that these facilities are 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.
23
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 1998 Annual Report to
Shareholders and is incorporated herein by reference. As of March 25, 1999,
there were 504 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 34-35 of the Company's 1998 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 36-43 of
the Company's 1998 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 PricewaterhouseCoopers LLP and the unaudited
"Quarterly Financial Information" are set forth on pages 44-64 of the Company's
1998 Annual Report to Shareholders and are incorporated by reference.
Item 9. Disagreements on Accounting and Financial Disclosure
None.
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 29, 1999, 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 29, 1999, which is incorporated by reference.
24
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 29,
1999, 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 29, 1999, 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 1998 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. 44
Consolidated balance sheets as of December 31, 1998 and 45
1997.
Consolidated statements of income for the years ended 46
December 31, 1998, 1997 and 1996.
Consolidated statements of changes in shareholders' 47
Equity for the years ended December 31, 1998, 1997 and
1996.
Consolidated statements of cash flows for the years 48
Ended December 31, 1998, 1997 and 1996.
Notes to consolidated financial statements. 49-64
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, as of December 31, 1998.
II Condensed financial information of Registrant
for December 31, 1998, 1997 and 1996.
IV Reinsurance for the years
ended December 31, 1998, 1997 and 1996.
The report of the Registrant's independent accountants with respect to the
above listed financial statement schedules is included with the schedules.
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements or notes
thereto.
25
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.)
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 March 19, 1998.
10. Material Contracts
10.06. 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.
10.07. 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 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").
10.08. 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, as further amended by the Third
Amendment to Revolving Credit Agreement, dated as of May 23, 1996, incorporated
by reference to Exhibit 10.43 to the Company's Annual Report on Form 10-K for
fiscal year ended December 31, 1996 (Comm. File No. 1-9583) (the "1996 10-K").
10.09. 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 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"), 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.
10.10. 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, incorporated by reference to Exhibit 10.47 to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995
(Comm. File No. 1-9583) (the "1995 10-K"), as amended by Fifth Amendment to
Trust Agreement, dated as of November 1, 1995, as further amended by Sixth
Amendment to Trust Agreement, dated as of January 1, 1996, incorporated by
reference to Exhibit 10.46 to the 1996 10-K, further amended by Seventh
Amendment to Trust Agreement, dated as of October 15, 1997, incorporated by
reference to Exhibit 10.36 of the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 (Comm. File No. 1-9583) (the "1997 10-K") as
further amended by the Eighth Amendment to Trust Agreement, dated as of January
1, 1998 and by the Ninth Amendment to Trust Agreement, dated as of March 1,
1999.
10.12. 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.
10.13. 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,
26
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, as further amended by the Second
Amendment to the First Restated Credit Agreement, dated as of January 1, 1996,
and as further amended by the Third Amendment to the First Restated Credit
Agreement, dated as of October 1, 1996, incorporated by reference to Exhibit
10.57 to the 1996 10-K, as further amended and restated by the Second Amended
and Restated Credit Agreement, dated as of October 1, 1997, incorporated by
reference to Exhibit 10.46 to the 1997 10-K, as further amended by the First
Amendment to Second Amended and Restated Credit Agreement, dated as of October
1, 1998.
10.14. 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 1993 10-K.
10.15. 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.
10.16. 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, incorporated by reference to
Exhibit 10.61 to 1995 10-K.
10.17. 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, incorporated by reference to
Exhibit 10.65 to the 1995 10-K, as further amended by Amendment No. 2 to
Investment Services Agreement, dated January 14, 1997, incorporated by reference
to Exhibit 10.53 to the 1997 10-K.
10.18. Investment Services Agreement, effective January 2, 1996, between
MBIA Insurance Corp. of Illinois and MBIA Securities Corp., incorporated by
reference to Exhibit 10.66 to the 1995 10-K.
10.21. Agreement and Plan of Merger among the Company, CMA Acquisition
Corporation and CapMAC Holdings Inc. ("CapMAC"), dated as of November 13, 1997,
incorporated by reference to the Company's Form S-4 (Reg. No. 333-41633) filed
on December 5, 1997.
10.22. Amendment No. 1 to Agreement and Plan of Merger among the Company,
CMA Acquisition Corporation and CapMAC Holdings Inc. ("CapMAC"), dated January
16, 1998, incorporated by reference to the Company's Post Effective Amendment
No. 1 to Form S-4 (Reg. No. 333-41633) filed on January 21, 1998.
10.30. Reinsurance Agreement, dated as of April 1, 1998, between CapMAC and
MBIA Corp.
10.31. Reinsurance Agreement, dated as of January 1, 1999, between MBIA
Illinois and MBIA Corp.
10.32. Agreement and Plan of Merger by and among the Company, MBIA
Acquisition, Inc. and 1838 Investment Advisors, Inc., dated as of June 19, 1998.
27
10.33. Credit Agreement (364 day agreement) among the Company, MBIA Corp.,
various designated borrowers, various lending institutions, Deutsche Bank AG,
New York Branch, as Administrative Agent, The First National Bank of Chicago, as
Syndication Agent and Fleet National Bank, as Documentation Agent, dated as of
August 28, 1998.
10.34. Credit Agreement (5 year agreement) among the Company, MBIA Corp.,
various designated borrowers, various lending institutions, Deutsche Bank AG,
New York Branch, as Administrative Agent, The First National Bank of Chicago, as
Syndication Agent and Fleet National Bank, as Documentation Agent, dated as of
August 28, 1998
10.48. Ambac Assurance Corporation, AMBAC Insurance UK Limited, MBIA
Insurance Corporation, and MBIA Assurance S.A. Agreement Regarding A Global
Joint Venture, effective as of January 15, 1999.
10.49. Special Excess Of Loss Reinsurance Agreement, between MBIA Insurance
Corporation and/or MBIA Assurance S.A. and/or any other insurance or reinsurance
company subsidiaries of MBIA Inc. listed in Exhibit No. 1 and Muenchener
Rueckversicherungs-Gesellshaft, effective September 1, 1998.
10.50. Second Special Per Occurrence Excess Of Loss Reinsurance Agreement,
between MBIA Insurance Corporation and/or MBIA Assurance S.A. and/or any other
insurance or reinsurance company subsidiaries of MBIA Inc. listed in Exhibit No.
1 and AXA Re Finance S.A., effective September 1, 1998.
10.51. Third Special Per Occurrence Excess Of Loss Reinsurance Agreement,
between MBIA Insurance Corporation and/or MBIA Assurance S.A. and/or any other
insurance or reinsurance company subsidiaries of MBIA Inc. listed in Exhibit No.
1 and Zurich Reinsurance (North America), Inc., effective September 15, 1998.
Executive Compensation Plans and Arrangements
The following Exhibits identify all existing executive compensation plans
and arrangements:
10.01. MBIA Inc. 1987 Stock Option Plan, incorporated by reference to
Exhibit 10.13 to the 1987 S-1, as amended by the First Amendment to the MBIA
Inc. 1987 Stock Option Plan, effective June 1, 1995, as further amended by the
Second Amendment to the MBIA Inc. 1987 Stock Option Plan, effective as of
January 7, 1999.
10.02. MBIA Inc. Deferred Compensation and Excess Benefit Plan,
incorporated by reference to Exhibit 10.16 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1988 (Comm. File No. 1-9583)
(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").
10.03. 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 Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1991 (Comm. File No.
1-9583) (the "1991 10-K"), as further amended and restated effective January 1,
1994, incorporated by reference to Exhibit 10.16 of the Company's Annual Report
on Form 10-K for fiscal year ended December 31, 1994 (Comm. File No. 1-9583)
(the "1994 10-K").
10.04. 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 Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1989 (Comm. File No.
1-9583) (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.
10.05. 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.
28
10.11. 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.
10.19. MBIA Inc. 1996 Incentive Plan, effective as of January 1, 1996,
incorporated by reference to Exhibit 10.70 to the 1995 10-K.
10.20. MBIA Inc. 1996 Directors Stock Unit Plan, effective as of December
4, 1996, incorporated by reference to Exhibit 10.70 to the 1996 10-K.
10.23. Employment Agreement, dated as of June 25, 1992, between CapMAC
Acquisition Corp. and John B. Caouette, incorporated by reference to Exhibit
10.7 of CapMAC's Registration Statement on Form S-1 (Reg. No. 33-982554), filed
in 1992, as amended (the "CapMAC Form S-1").
10.24. CapMAC Employee Stock Ownership Plan, incorporated by reference to
Exhibit 10.18 to the CapMAC Form S-1.
10.25. CapMAC Employee Stock Ownership Plan Trust Agreement, incorporated
by reference to Exhibit 10.19 to the CapMAC Form S-1, as amended by Amendment
No. 2 to the CapMAC Employee Stock Ownership Plan, executed December 22, 1998.
10.26. ESOP Loan Agreement by and between CapMAC and the ESOP Trust dated
as of June 25, 1992, incorporated by reference to Exhibit 10.20 to the CapMAC
Form S-1.
10.27. Deferred Compensation and Restricted Stock Agreement, dated as of
December 7, 1995, between John B. Caouette and CapMAC, incorporated by reference
to Exhibit 10.28 of the CapMAC Annual Report on Form 10-K for the year ended
December 31, 1995 (the "CapMAC 1995 10-K").
10.28. Deferred Compensation and Restricted Stock Agreement, dated as of
December 7, 1995, between Joyce S. Richardson and CapMAC, incorporated by
reference to Exhibit 10.35 of the CapMAC 1995 10-K.
10.29. Deferred Compensation and Restricted Stock Agreement, dated as of
December 7, 1995, between Ram D. Wertheim and CapMAC, incorporated by reference
to Exhibit 10.35 of the CapMAC 1995 10-K.
10.35. Retirement and Consulting Agreement, between the Company and David
H. Elliott, dated as of January 7, 1999 and Summary Retirement and Consulting
Agreement, between the Company and David H. Elliott, dated as of January 7,
1999.
10.36. Terms of Employment letter between MBIA and Joseph W. Brown, Jr.,
dated January 7, 1999.
10.37. Stock Option Agreement between MBIA Inc. and Joseph W. Brown, Jr.,
dated January 7, 1999.
10.38. Key Employee Employment Protection Agreement between MBIA Inc. and
Joseph W. Brown, Jr., dated January 20, 1999.
10.39. Key Employee Employment Protection Agreement between MBIA Inc. and
Neil G. Budnick, dated January 25, 1999.
10.40. Key Employee Employment Protection Agreement between MBIA Inc. and
W. Thacher Brown, dated January 25, 1999.
10.41. Key Employee Employment Protection Agreement between MBIA Inc. and
John B. Caouette, dated January 25, 1999.
10.42. Key Employee Employment Protection Agreement between MBIA Inc. and
Gary C. Dunton, dated January 25, 1999
29
10.43. Key Employee Employment Protection Agreement between MBIA Inc. and
Louis G. Lenzi, dated January 25, 1999.
10.44. Key Employee Employment Protection Agreement between MBIA Inc. and
Kevin D. Silva , dated January 25, 1999.
10.45. Key Employee Employment Protection Agreement between MBIA Inc. and
Richard L. Weill, dated January 25, 1999.
10.46. Key Employee Employment Protection Agreement between MBIA Inc. and
Ruth M. Whaley, dated January 25, 1999.
10.47. Key Employee Employment Protection Agreement between MBIA Inc. and
Michael J. Maguire, dated March 19, 1999.
13. Annual Report to Shareholders of MBIA Inc. for fiscal year ended
December 31, 1998. 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 PricewaterhouseCoopers LLP
24. Power of Attorney
27. Financial Data Schedule
99. Additional Exhibits - MBIA Corp. GAAP Financial Statements
(b) Reports on Form 8-K: The Company filed no report on Form 8-K in the
fourth quarter of 1998.
30
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 29, 1999 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 29, 1999
-----------------------------
David H. Elliott
/s/ Elizabeth B. Sullivan Vice President and March 29, 1999
----------------------------- Controller
Elizabeth B. Sullivan
/s/ Joseph W. Brown, Jr. * Director March 29, 1999
-----------------------------
Joseph W. Brown, Jr.
/s/ David C. Clapp * Director March 29, 1999
-----------------------------
David C. Clapp
/s/ Gary C. Dunton Director March 29, 1999
-----------------------------
Gary C. Dunton
31
/s/ Claire L. Gaudiani * Director March 29, 1999
-----------------------------
Claire L. Gaudiani
/s/ William H. Gray, III * Director March 29, 1999
-----------------------------
William H. Gray, III
/s/ Freda S. Johnson * Director March 29, 1999
-----------------------------
Freda S. Johnson
/s/ Daniel P. Kearney * Director March 29, 1999
-----------------------------
Daniel P. Kearney
/s/ James A. Lebenthal * Director March 29, 1999
-----------------------------
James A. Lebenthal
/s/ Pierre-Henri Richard * Director March 29, 1999
-----------------------------
Pierre-Henri Richard
/s/ John A. Rolls * Director March 29, 1999
-----------------------------
John A. Rolls
/s/ Richard L. Weill Director March 29, 1999
-----------------------------
Richard L. Weill
*By /s/ Louis G. Lenzi
-----------------------------
Louis G. Lenzi
Attorney-in Fact
32
Report of Independent Accountants on
Financial Statement Schedules
To the Board of Directors of MBIA Inc.:
Our audits of the consolidated financial statements referred to in our report
dated February 2, 1999 appearing on page 44 of the 1998 Annual Report to
Shareholders of MBIA Inc. (which report and consolidated financial statements
are incorporated by reference in this Annual Report on Form 10-K) also included
an audit of the financial statement schedules listed in item 14(a)(2) of this
Form 10-K. In our opinion, these financial statement schedules present fairly,
in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
New York, New York
February 2, 1999
SCHEDULE I
MBIA INC. AND SUBSIDIARIES
SUMMARY OF INVESTMENTS, OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1998
(In thousands)
- -----------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D
AMOUNT AT WHICH
FAIR SHOWN IN THE
TYPE OF INVESTMENT COST VALUE BALANCE SHEET
- -----------------------------------------------------------------------------------------
FIXED-MATURITIES
Bonds:
United States Treasury
and Government
agency obligations $ 443,130 $ 490,415 $ 490,415
State and municipal
obligations 3,633,841 3,873,399 3,873,399
Corporate and other
obligations 3,162,344 3,303,693 3,303,693
Mortgage-backed 1,679,525 1,706,478 1,706,478
----------- ----------- ----------
Total fixed-maturities 8,918,840 9,373,985 9,373,985
SHORT-TERM INVESTMENTS 611,491 XXXXXXX 611,491
OTHER INVESTMENTS 99,393 XXXXXXX 94,975
----------- ----------- ----------
Total investments $9,629,724 XXXXXXX $10,080,451
=========== =========== ===========
SCHEDULE II
MBIA INC. (PARENT COMPANY)
CONDENSED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
December 31, 1998 December 31, 1997
----------------- -----------------
ASSETS
Investments:
Municipal investment agreement portfolio
held as available-for-sale at fair value
(amortized cost $2,683,882 and $1,986,139) $2,737,874 $2,020,489
Short-term investments, at amortized cost
(which approximates fair value) --- 2,300
----------------- -----------------
Total investments 2,737,874 2,022,789
Cash and cash equivalents 5,177 3,891
Securities borrowed or purchased under
agreements to resell 648,281 512,283
Investment in and amounts due from
wholly-owned subsidiaries 4,542,945 3,906,852
Accrued investment income 24,900 22,389
Receivables for investments sold 15,439 11,272
Other assets 9,774 10,368
----------------- -----------------
Total assets $7,984,390 $6,489,844
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Municipal investment agreements $2,055,225 $1,356,926
Municipal repurchase agreements 632,409 567,897
Long-term debt 673,996 473,878
Short-term debt --- 20,000
Securities loaned or sold under
agreements to repurchase 683,352 645,583
Deferred income taxes 18,818 11,973
Payable for investments purchased 65,757 14,925
Dividends payable 19,897 17,449
Other liabilities 42,719 19,701
----------------- -----------------
Total liabilities 4,192,173 3,128,332
----------------- -----------------
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 - 99,569,625 and 98,754,487 99,570 98,754
Additional paid-in capital 1,169,192 1,133,950
Retained earnings 2,246,221 1,901,608
Accumulated other comprehensive income,
net of deferred income taxes
of $157,410 and $132,026 288,915 236,095
Unallocated ESOP shares (4,044) (4,083)
Unearned compensation - restricted stock (6,807) (4,812)
Treasury stock - 21,717 shares in 1998 (830) ---
----------------- -----------------
Total shareholders' equity 3,792,217 3,361,512
----------------- -----------------
Total liabilities and shareholders' equity $7,984,390 $6,489,844
================= =================
The condensed financial statements should be read in
conjunction with the consolidated financial statements and
notes thereto and the accompanying notes.
SCHEDULE II
MBIA INC. (PARENT COMPANY)
CONDENSED STATEMENTS OF INCOME
(In thousands)
Years Ended December 31
-----------------------------------------------------
1998 1997 1996
------------------ -------------- -------------
Revenues:
Net investment income $ (178) $ (909) $ 283
Investment management
services income 4,553 4,469 2,806
Investment management
services realized gains (losses) 4,253 202 (2,549)
------------------ -------------- -------------
Total revenues 8,628 3,762 540
------------------ -------------- -------------
Expenses:
Interest expense 38,875 34,762 32,705
Operating expenses 67,252 4,304 2,384
------------------ -------------- -------------
Total expenses 106,127 39,066 35,089
------------------ -------------- -------------
Loss before income taxes
and equity in earnings
of subsidiaries (97,499) (35,304) (34,549)
Benefit for income taxes (13,888) (12,444) (10,911)
------------------ -------------- -------------
Loss before equity in earnings
of subsidiaries (83,611) (22,860) (23,638)
Equity in earnings of subsidiaries 516,339 428,470 371,374
------------------ -------------- -------------
Net income $432,728 $405,610 $347,736
================== ============== =============
The condensed financial statements should be read in
conjunction with the consolidated financial statements and
notes thereto and the accompanying notes.
SCHEDULE II
MBIA INC. (PARENT COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended December 31
-------------------------------------------------------
1998 1997 1996
--------------- --------------- ---------------
Cash flows from operating activities:
Net income $ 432,728 $ 405,610 $ 347,736
Adjustments to reconcile net income
to net cash provided by
operating activities:
Equity in undistributed
earnings of subsidiaries (516,339) (387,970) (342,374)
Net realized (gains) losses on
sales of investments (4,253) (202) 2,549
Benefit for deferred income taxes (30) --- ---
Other, net 27,823 297 593
--------------- --------------- ---------------
Total adjustments to net income (492,799) (387,875) (339,232)
--------------- --------------- ---------------
Net cash provided by
operating activities (60,071) 17,735 8,504
--------------- --------------- ---------------
Cash flows from investing activities:
Purchase of fixed-maturity
securities --- --- ---
Sale of fixed-maturity securities --- --- ---
Sale (purchase) of short-term investments 2,300 3,898 (6,198)
Sale of other investments --- --- ---
Purchases for municipal investment
agreement portfolio, net of payable
for investments purchased (2,351,385) (1,264,882) (1,189,132)
Sales from municipal investment
agreement portfolio, net of receivable
for investments sold 1,707,407 845,365 464,593
Contributions to subsidiaries (17,616) (93,666) (11,301)
Advances to subsidiaries, net (62,085) (96,597) (21,764)
--------------- --------------- ---------------
Net cash used by investing activities (721,379) (605,882) (763,802)
--------------- --------------- ---------------
Cash flows from financing activities:
Net proceeds from issuance of
common stock --- 127,775 54,880
Net proceeds from issuance
of long-term debt 197,113 98,880 ---
Net proceeds from issuance of
short-term debt (20,000) (9,100) 11,100
Dividends paid (85,667) (76,743) (69,795)
Proceeds from issuance of municipal
investment and repurchase agreements 2,065,200 1,499,080 1,504,140
Payments for drawdowns of
municipal investment agreements (1,306,389) (1,195,939) (786,938)
Securities loaned or sold under
agreements to repurchase, net (98,229) 133,300 ---
Exercise of stock options 30,708 14,372 28,218
--------------- --------------- ---------------
Net cash provided by financing activities 782,736 591,625 741,605
--------------- --------------- ---------------
Net (decrease) increase in cash and
cash equivalents 1,286 3,478 (13,693)
Cash and cash equivalents
-beginning of year 3,891 413 14,106
--------------- --------------- ---------------
Cash and cash equivalents
-end of year $ 5,177 $ 3,891 $ 413
=============== =============== ===============
Supplemental cash flow disclosures:
Income taxes paid $ 618 $ 1,568 $ 305
Interest paid:
Long-term debt 39,499 32,953 32,850
Short-term debt 1,057 2,017 1,309
The condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto and the accompanying notes.
SCHEDULE II
MBIA INC. (PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. CONDENSED FINANCIAL STATEMENTS
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with 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
No dividends were paid by MBIA Corp. to MBIA Inc. in 1998 and 1997.
In 1996, MBIA Corp. declared and paid dividends of $29,000,000 to MBIA Inc.
Also, in 1997 MBIA Investment Management Corp. declared and paid dividends
of $40,500,000 to MBIA Inc.
4. OBLIGATIONS UNDER MUNICIPAL INVESTMENT AND REPURCHASE AGREEMENTS
The municipal investment and repurchase agreement business, as described in
footnotes 2 and 15 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.
SCHEDULE IV
MBIA INC. AND SUBSIDIARIES
REINSURANCE
for the Years Ended December 31, 1998, 1997 and 1996
(In thousands)
- --------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E Column F
Percentage
Insurance Gross Ceded to Other Assumed from of Amount
Premiums Written Amount Value Other Companies Net Amount Assumed to Net
- --------------------------------------------------------------------------------------------------------------------------
1998 $664,269 $156,064 $12,781 $520,986 2.5%
---- -------- -------- ------- -------- ----
1997 $635,660 $116,526 $18,188 $537,322 3.4%
---- -------- -------- ------- -------- ----
1996 $507,535 $69,956 $27,747 $465,326 6.0%
---- -------- -------- ------- -------- ----
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, 1998
Commission File No. 1-9583
- -------------------------------------------------------------------------------
MBIA Inc.
Exhibit Index
3.2. By-Laws as Amended as of March 19, 1998.
10.01. MBIA Inc. 1987 Stock Option Plan, incorporated by reference to
Exhibit 10.13 to the 1987 S-1, as amended by the First Amendment to the MBIA
Inc. 1987 Stock Option Plan, effective June 1, 1995, as further amended by the
Second Amendment to the MBIA Inc. 1987 Stock Option Plan, effective as of
January 7, 1999.
10.10. 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, incorporated by reference to Exhibit 10.47 to the 1995
10-K, as amended by Fifth Amendment to Trust Agreement, dated as of November 1,
1995, as further amended by Sixth Amendment to Trust Agreement, dated as of
January 1, 1996, incorporated by reference to Exhibit 10.46 to the 1996 10-K,
further amended by Seventh Amendment to Trust Agreement, dated as of October 15,
1997, incorporated by reference to Exhibit 10.36 of the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1997 (Comm. File No. 1-9583)
(the "1997 10-K"), as further amended by the Eighth Amendment to Trust
Agreement, dated as of January 1, 1998 and by the Ninth Amendment to Trust
Agreement, dated as of March 1, 1999.
10.13. 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, as further amended by the Second
Amendment to the First Restated Credit Agreement, dated as of January 1, 1996,
and as further amended by the Third Amendment to the First Restated Credit
Agreement, dated as of October 1, 1996, incorporated by reference to Exhibit
10.57 to the 1996 10-K, as further amended and restated by the Second Amended
and Restated Credit Agreement, dated as of October 1, 1997, incorporated by
reference to Exhibit 10.46 to the 1997 10-K, as further amended by the First
Amendment to Second Amended and Restated Credit Agreement, dated as of October
1, 1998.
10.30. Reinsurance Agreement, dated as of April 1, 1998, between CapMAC and
MBIA Corp.
10.31. Reinsurance Agreement, dated as of January 1, 1999, between MBIA
Illinois and MBIA Corp.
10.32. Agreement and Plan of Merger by and among the Company, MBIA
Acquisition, Inc. and 1838 Investment Advisors, Inc., dated as of June 19, 1998.
10.33. Credit Agreement (364 day agreement) among the Company, MBIA Corp.,
various designated borrowers, various lending institutions, Deutsche Bank AG,
New York Branch, as Administrative Agent, The First National Bank of Chicago, as
Syndication Agent and Fleet National Bank, as Documentation Agent, dated as of
August 28, 1998.
10.34. Credit Agreement (5 year agreement) among the Company, MBIA Corp.,
various designated borrowers, various lending institutions, Deutsche Bank AG,
New York Branch, as Administrative Agent, The First National Bank of Chicago, as
Syndication Agent and Fleet National Bank, as Documentation Agent, dated as of
August 28, 1998
10.35. Retirement and Consulting Agreement, between the Company and David
H. Elliott, dated as of January 7, 1999 and Summary Retirement and Consulting
Agreement, between the Company and David H. Elliott, dated as of January 7,
1999.
10.36. Terms of Employment letter between MBIA and Joseph W. Brown, Jr.,
dated January 7, 1999.
10.37. Stock Option Agreement between MBIA Inc. and Joseph W. Brown, Jr.,
dated January 7, 1999.
10.38. Key Employee Employment Protection Agreement between MBIA Inc. and
Joseph W. Brown, Jr., dated January 20, 1999.
10.39. Key Employee Employment Protection Agreement between MBIA Inc. and
Neil G. Budnick, dated January 25, 1999.
10.40. Key Employee Employment Protection Agreement between MBIA Inc. and
W. Thacher Brown, dated January 25, 1999.
10.41. Key Employee Employment Protection Agreement between MBIA Inc. and
John B. Caouette, dated January 25, 1999.
10.42. Key Employee Employment Protection Agreement between MBIA Inc. and
Gary C. Dunton, dated January 25, 1999.
10.43. Key Employee Employment Protection Agreement between MBIA Inc. and
Louis G. Lenzi, dated January 25, 1999.
10.44. Key Employee Employment Protection Agreement between MBIA Inc. and
Kevin D. Silva , dated January 25, 1999.
10.45. Key Employee Employment Protection Agreement between MBIA Inc. and
Richard L. Weill, dated January 25, 1999.
10.46. Key Employee Employment Protection Agreement between MBIA Inc. and
Ruth M. Whaley, dated January 25, 1999.
10.47. Key Employee Employment Protection Agreement between MBIA Inc. and
Michael J. Maguire, dated March 19, 1999.
10.48. Ambac Assurance Corporation, AMBAC Insurance UK Limited, MBIA
Insurance Corporation, and MBIA Assurance S.A. Agreement Regarding A Global
Joint Venture, effective as of January 15, 1999.
10.49. Special Excess Of Loss Reinsurance Agreement, between MBIA Insurance
Corporation and/or MBIA Assurance S.A. and/or any other insurance or reinsurance
company subsidiaries of MBIA Inc. listed in Exhibit No. 1 and Muenchener
Rueckversicherungs-Gesellshaft, effective September 1, 1998.
10.50. Second Special Per Occurrence Excess Of Loss Reinsurance Agreement,
between MBIA Insurance Corporation and/or MBIA Assurance S.A. and/or any other
insurance or reinsurance company subsidiaries of MBIA Inc. listed in Exhibit No.
1 and AXA Re Finance S.A., effective September 1, 1998.
10.51. Third Special Per Occurrence Excess Of Loss Reinsurance Agreement,
between MBIA Insurance Corporation and/or MBIA Assurance S.A. and/or any other
insurance or reinsurance company subsidiaries of MBIA Inc. listed in Exhibit No.
1 and Zurich Reinsurance (North America), Inc., effective September 15, 1998.
13. Annual Report to Shareholders of MBIA Inc. for fiscal year ended
December 31, 1998. 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 PricewaterhouseCoopers LLP
24. Power of Attorney
27. Financial Data Schedule
99. Additional Exhibits - MBIA Corp. GAAP Financial Statements