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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, 2001.
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 21, 2002 was $8,032,111,440.00.
As of March 21, 2002, 148,166,601 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, 2001 are incorporated by
reference into Parts I and II. Portions of the Definitive Proxy Statement of the
Registrant, dated which will be filed on or before April 3, 2002, 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 services to public finance
clients and financial institutions on a global basis. Financial guarantee
insurance provides an unconditional and irrevocable guarantee of the payment of
the principal of, and interest or other amounts owing on, insured obligations
when due. The Company conducts its financial guarantee business through its
wholly-owned subsidiary, MBIA Insurance Corporation ("MBIA Corp."). MBIA Corp.
is the successor to the business of the Municipal Bond Insurance Association
(the "Association") which began writing financial guarantees for municipal bonds
in 1974. MBIA Corp. is the parent of MBIA Insurance Corp. of Illinois ("MBIA
Illinois") and Capital Markets Assurance Corporation ("CapMAC"), both financial
guarantee companies that were acquired by MBIA Corp. MBIA Corp. also owns MBIA
Assurance S.A. ("MBIA Assurance"), a French insurance company, which writes
financial guarantee insurance in the countries of the European Community.
Generally, throughout the text, references to MBIA Corp. include the activities
of its subsidiaries, MBIA Illinois, MBIA Assurance and CapMAC. 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. On March 21, 2000, the two companies restructured the
joint venture and agreed to begin marketing and originating financial guarantee
insurance outside the United States independently, and also to continue to
maintain certain reciprocal reinsurance arrangements for international business
until the end of 2001.
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 financial guarantees for debt service
reserve funds. As a result of the triple-A ratings assigned to insured
obligations, the principal economic value of financial guarantee insurance to
the entity issuing the obligations is the savings in interest costs 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.
MBIA Corp. issues financial guarantees for municipal bonds,
asset-backed and mortgage-backed securities, investor-owned utility bonds, bonds
issued by highly rated sovereign and sub-sovereign entities and collateralized
obligations of corporations and financial institutions, both in the new issue
and secondary markets. The municipal obligations that MBIA Corp. insures include
tax-exempt and taxable indebtedness of states, counties, cities, utility
districts and other political subdivisions, as well as airports, higher
education and health care facilities and similar authorities. The asset-backed
and structured finance obligations insured by MBIA Corp. typically consist of
securities that are payable from or which are tied to the performance of a
specified pool of assets that have a defined cash flow, such as residential and
commercial mortgages, a variety of consumer loans, corporate loans and bonds,
trade and export receivables, equipment and real property leases and
infrastructure projects.
MBIA Corp. has a Triple-A financial strength rating from Standard and
Poor's Corporation ("S&P"), which it received in 1974; from Moody's Investors
Service, Inc. ("Moody's"), which it received in 1984; from Fitch, Inc.
("Fitch"), which it received in 1995; and from Rating and Investment
Information, Inc. ("RII"), which it received in 1998. Obligations which are
guaranteed by MBIA Corp. are rated Triple-A primarily based on these
claims-paying ratings of MBIA Corp. Both S&P and Moody's have also continued the
Triple-A rating on MBIA Assurance, MBIA Illinois and CapMAC guaranteed bond
issues. The Triple-A ratings are important to the operation of the Company's
business and any reduction in these ratings could have a material adverse effect
on MBIA Corp.'s ability to compete and could have a material adverse effect on
the business, operations and financial results of the Company.
The Company also provides investment management products and financial
services through a group of subsidiary companies, all of which are owned by our
wholly-owned subsidiary, MBIA Asset Management, LLC. These services include cash
management, the issuance of municipal investment agreements, discretionary asset
management, purchase and administrative services, and municipal revenue
enhancement services. MBIA Municipal Investors Service Corporation ("MBIA-MISC")
provides cash management and investment placement services to local governments,
school districts and other institutional clients, providing those clients with
fund administration services. MBIA Investment Management Corp. ("IMC")
offers guaranteed investment agreements primarily for
bond proceeds to states and municipalities. MBIA Capital Management Corp.
("CMC") performs fixed income investment management services for the investment
portfolios of the Company, MBIA Corp., MBIA-MISC, IMC and selected external
clients. In 1998, the Company acquired what is now 1838 Investment Advisors, LLC
("1838"), an investment advisor to equity mutual funds and to third party
clients.
MBIA MuniServices Company ("MuniServices") provides revenue enhancement
services and products (discovery, audit, collections/recovery, enforcement and
information services) to state and local governments. The Company continues to
own a majority interest in Capital Asset Holdings GP, Inc. and certain
affiliated entities (collectively, "Capital Asset"). Capital Asset was in the
business of acquiring and servicing tax liens. The Company became a majority
owner in December, 1998, when it acquired the interest of Capital Asset's
founder. In 1999, the Company announced that it was exiting the tax lien
business. Capital Asset's primary activity today is servicing the three
securitizations of tax liens that are insured by MBIA Corp.
Statements included in this Form 10-K which are not historical or
current facts are "forward-looking statements" made pursuant to the safe harbor
provisions of the private Securities Litigation Reform Act of 1998. The words
"believe," "anticipate," "project," "plan," "expect," "intend," "will likely
result," or "will continue," and similar expressions identify forward-looking
statements. These statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from historical earnings and
those presently anticipated or projected. We wish to caution readers not to
place undue reliance on any such forward-looking statements, which speak only as
of their respective dates. The following are some of the factors that could
cause actual results to differ materially from estimates contained in or
underlying the Company's forward-looking statements: (1) fluctuations in the
economic, credit or interest rate environment in the United States or abroad;
(2) level of activity within the national and international credit markets; (3)
competitive conditions and pricing levels; (4) legislative or regulatory
developments; (5) technological developments; (6) changes in tax laws; (7) the
effects of mergers, acquisitions and divestitures; and (8) uncertainties that
have not been identified at this time. The Company undertakes no obligation to
publicly correct or update any forward-looking statement if it later becomes
aware that such result is not likely to be achieved.
MBIA Corp. Insured Portfolio
At December 31, 2001, 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 $6.7 billion of
intercompany investment management transactions) was $452.4 billion. Net
insurance in force was $722.4 billion.
Since generally MBIA Corp. guarantees to the holder of the underlying
obligation the timely payment of amounts due on such obligation in accordance
with its original payment schedule, in the case of a default on an insured
obligation, payments under the insurance policy cannot be accelerated unless
MBIA Corp. consents to the acceleration. Otherwise, MBIA Corp. is required to
pay principal, interest or other amounts only as originally scheduled payments
come due.
MBIA Corp. seeks to maintain a diversified insured portfolio designed
to manage and diversify risk based on a variety of criteria including revenue
source, issue size, type of asset, industry concentrations, type of bond and
geographic area. As of December 31, 2001, MBIA Corp. had 34,315 policies
outstanding (excluding 566 policies relating to investment management
transactions guaranteed by MBIA Corp.). These policies are diversified among
10,524 "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, 2001:
MBIA Corp. Original Par Amount Per Issue
as of December 31, 2001 (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 25,736 75.0% $52.2 11.5%
$10-25 million 3,500 10.2 45.8 10.1
$25-50 million 2,104 6.1 55.3 12.2
$50-100 million 1,434 4.2 69.5 15.4
Greater than $100 million 1,541 4.5 229.6 50.8
--------------- -------------- --------------- ---------------
Total 34,315 100.0% $452.4 100.0%
=============== ============== =============== ===============
- ------------------------
(1) Excludes $6.7 billion relating to investment management transactions
guaranteed by MBIA Corp.
3
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, 2001 was
10.5 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, 2001 was $58.3 billion.
MBIA Corp. had, until the early-1990's, written only financial
guarantees for municipal issuers in the United States. Municipal bonds consist
of both taxable and tax-exempt bonds and notes that are issued by states,
cities, political subdivisions, utility districts, airports, health care
institutions, higher educational facilities, housing authorities and other
similar agencies. These types of obligations are supported by taxes,
assessments, fees related to use of projects, lease payments, etc. By the
mid-1990's, MBIA Corp. had begun to write guarantees for the structured finance
and asset-backed market. In general, structured finance and asset-backed
obligations are secured by or payable from a specific pool of assets having an
ascertainable cash flow. These obligations are either "pass-through"
obligations, which represent interests in the related assets, or "pay-through"
obligations, which generally are debt obligations collateralized by the related
assets. MBIA Corp. also insures payments due under credit derivatives, including
termination payments, that may become due upon the occurrence of certain events.
These types of obligations also generally have the benefit of
over-collateralization, excess cash flow or one or more forms of credit
enhancement to cover credit risks associated with the related assets. Structured
finance and asset-backed obligations contain certain risks: asset risk, which
relates to the amount and quality of asset coverage; and structural risk, which
relates to the extent to which the transaction structure protects the interests
of the investors. In general, the asset risk is addressed by sizing the asset
pool based on the historical performance of the assets. Structural risks include
bankruptcy and tax risks. Structured and asset-backed securities are usually
designed to protect the investors from the bankruptcy or insolvency of the
entity that originated the underlying assets as well as from the bankruptcy or
insolvency of the servicer. These issues concern whether the sale of the assets
by the originator to the issuer would be upheld in the event of the bankruptcy
or insolvency of the originator and whether the servicer of the assets may be
required to delay the remittance of any cash collections held by it or received
by it after the time it becomes subject to bankruptcy or insolvency proceedings.
In addition, servicer risk, the risk that problems at the servicer level could
result in a decline in the collection of cash payments, may also be present in
the transaction. The ability of the servicer (the entity which is responsible
for collecting the cash flow from the asset pool) to properly service and
collect on the underlying assets is also a factor in determining future asset
performance. These issues are addressed through MBIA Corp.'s underwriting
guidelines and procedures.
Outside of the United States, sovereign and sub-sovereign, structured
and asset-backed, utilities and other issuers are increasingly using financial
guarantee insurance. Ongoing privatization efforts have shifted the burden from
the government to public and private capital markets, where investors may seek
the security of financial guarantee insurance. There is also growing interest in
asset-backed securitization. While the principles of securitization have been
increasingly applied in overseas markets, development in particular countries
has varied due to the sophistication of the local capital markets and the impact
of financial regulatory requirements, accounting standards and legal systems. It
is expected that securitization will continue to expand internationally, at
varying rates in each country. MBIA Corp. insures both asset-backed and
structured transactions, sovereign and sub-sovereign debt issues, utilities,
project financings and other obligations in selected international markets. MBIA
Corp. believes that the risk profile of the international business it insures is
generally the same as in the United States, but recognizes that there are
particular risks related to each country and region. These risks include the
legal and political situation, the capital markets and currency exchange risks.
MBIA Corp. monitors these risks carefully.
4
MBIA Corp. Insured Portfolio by Bond Type
as of December 31, 2001 (1)
(In billions)
Bond Type
Net Par % of Net
Amount Par Amount
Global Public Finance Outstanding Outstanding
United States
- -------------
General Obligation $ 99.7 22.0%
Utilities 48.2 10.7
Special Revenue 36.4 8.0
Health Care 36.3 8.0
Transportation 24.8 5.5
Higher Education 17.1 3.8
Investor-Owned Utilities 15.8 3.5
Housing 14.2 3.1
--------------------------------
Total United States 292.5 64.6
--------------------------------
Non-United States
- -----------------
Investor-Owned Utilities 2.2 0.5
Sovereign 1.6 0.4
Utilities 1.5 0.3
Transportation 1.4 0.3
Sub-Sovereign 0.8 0.2
Health Care 0.4 0.1
Housing 0.2 0.0
--------------------------------
Total Non-United States 8.1 1.8
--------------------------------
Total Global Public Finance 300.6 66.4
--------------------------------
5
Net Par % of Net
Amount Par Amount
Global Structured Finance Outstanding Outstanding
United States
- -------------
Asset-Backed:
Auto 16.7 3.7
Credit Cards 15.8 3.5
Leasing 6.3 1.4
Other 5.4 1.2
Mortgage-Backed:
Home Equity 24.9 5.5
Other 9.2 2.0
First Mortgage 6.7 1.5
Corporate Debt Obligations 16.6 3.7
Pooled Corp. Obligations & Other 9.3 2.0
Financial Risk 3.9 0.9
-----------------------------
Total United States 114.8 25.4
-----------------------------
Non-United States
- -----------------
Corporate Debt Obligations 21.1 4.7
Pooled Corp. Obligations & Other 8.1 1.8
Mortgage-Backed:
First Mortgage 4.0 0.9
Other 0.7 0.1
Home Equity 0.4 0.1
Asset-Backed 1.3 0.3
Financial Risk 1.4 0.3
-----------------------------
Total Non-United States 37.0 8.2
-----------------------------
Total Global Structured Finance 151.8 33.6
-----------------------------
Total $452.4 100.0%
=============================
- ------------------------
(1) Excludes $6.7 billion relating to investment management transactions
guaranteed by MBIA Corp.
6
As of December 31, 2001, of the $452.4 billion outstanding net par
amount of obligations insured, $300.6 billion, or 66%, were insured in the
global public finance market and $151.8 billion, or 34%, were insured in the
global structured finance 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)
(In millions)
Bond Type 1997 1998 1999 2000 2001
Global Public Finance
United States
- -------------
General Obligation $ 14,068 $ 15,468 $ 9,981 $ 9,829 $ 15,848
Utilities 6,944 6,475 2,440 2,747 6,350
Special Revenue 4,384 7,369 4,627 5,746 5,567
Housing 1,817 2,093 1,872 1,294 2,723
Higher Education 2,537 4,072 1,434 1,645 2,110
Investor Owned Utilities 1,548 1,477 1,340 2,523 1,652
Health Care 7,523 8,174 3,529 1,276 1,244
Transportation 6,097 4,174 709 2,637 1,098
----------- -------------- ------------- ------------ ------------
Total United States 44,918 49,302 25,932 27,697 36,592
----------- -------------- ------------- ------------ ------------
Total Non-United States 1,023 1,038 692 1,437 2,923
----------- -------------- ------------- ------------ ------------
Total Global Public Finance 45,941 50,340 26,624 29,134 39,515
----------- -------------- ------------- ------------ ------------
Global Structured Finance
United States
- -------------
Asset Backed:
Auto 3,452 3,424 5,872 10,400 14,443
Credit Cards 1,782 4,077 1,844 9,100 8,418
Leasing 3,883 1,044 1,726 1,408 2,307
Other 1,711 1,562 2,149 1,576 1,958
Mortgage Backed:
Home Equity 17,895 16,041 10,191 4,656 7,206
First Mortgage 2,536 2,434 5,205 2,171 2,561
Other 911 2,145 10,098 1,893 2,234
Corporate Debt Obligations 202 980 1,462 5,287 10,492
Pooled Corp. Obligations & Other 21 4,085 1,717 2,306 3,282
Financial Risk 3,338 2,441 1,409 1,905 149
----------- -------------- ------------- ------------ ------------
Total United States 35,731 38,233 41,673 40,702 53,050
----------- -------------- ------------- ------------ ------------
Total Non-United States 3,852 6,708 5,061 15,424 11,114
----------- -------------- ------------- ------------ ------------
Total Global Structured Finance 39,583 44,941 46,734 56,126 64,164
----------- -------------- ------------- ------------ ------------
Total $ 85,524 $ 95,281 $ 73,358 $ 85,260 $ 103,679
=========== ============== ============= ============ ============
_____________________________________
(1) Par amount insured by year, net of reinsurance.
7
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, the Republic of Singapore and the Republic of
France. MBIA Assurance is licensed to write business in France. The following
table sets forth the geographic distribution of MBIA Corp.'s net par outstanding
including the ten largest states:
MBIA Corp. Insured Portfolio by State
As of December 31, 2001 (1)
Net Par % of Net
Amount Par Amount
Outstanding Outstanding
(In billions)
Domestic
California $ 46.8 10.4%
New York 42.2 9.3
Florida 20.4 4.5
Texas 15.9 3.5
New Jersey 15.0 3.3
Pennsylvania 13.4 2.9
Illinois 13.1 2.9
Massachusetts 12.7 2.8
Michigan 8.9 2.0
Ohio 8.2 1.8
--------------- ---------------
Sub-Total 196.6 43.4
All Other States 107.9 23.9
Nationally Diversified 102.8 22.7
--------------- ---------------
Total United States 407.3 90.0
International
Regional Specific 20.1 4.4
Internationally Diversified 22.0 4.9
Other 3.0 0.7
--------------- ---------------
Total International 45.1 10.0
--------------- ---------------
Total $ 452.4 100.0%
=============== ===============
________________________
(1) Excludes $6.7 billion relating to investment management transactions
guaranteed by MBIA Corp.
MBIA Corp. has underwriting guidelines that limit the net insurance in
force for any one insured credit and is subject to both rating agency and
regulatory single-risk limits with respect to any bond issue insured by it. As
of December 31, 2001, MBIA Corp.'s net par amount outstanding for its ten
largest insured public finance credits totaled $21.3 billion, representing 4.7%
of MBIA Corp.'s total net par amount outstanding, and for its ten largest
structured finance credits (without aggregating common issuers), the net par
outstanding was $15.3 billion, representing 3.4% of the total.
8
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, Asia, Latin America and other
areas outside the United States. 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. On
March 21, 2000, the two companies restructured the joint venture. Under the
restructuring, the companies agreed to begin marketing and originating financial
guarantee insurance outside the United States independently, and also to
continue to maintain certain reciprocal reinsurance arrangements for
international business until at least the end of 2001. After the end of 2001,
there are no such reciprocal reinsurance arrangements in place. In the first
quarter of 2001, the Company entered into a memorandum of understanding with
Mitsui Marine and Fire Insurance Co. Ltd. relating to financial guarantee
insurance in Japan, including certain reciprocal reinsurance agreements.
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. For
municipal bond issues involving competitive bidding, 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.
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.
Operations
The worldwide insurance operations of MBIA Corp. are conducted through
the Global Public Finance Division, the Global Structured Finance Division, the
Risk Management Group and the Insured Portfolio Management Group. The Global
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 Global
Public Finance Division. With respect to larger, complex, or unique
transactions, underwriting is performed by a committee consisting of senior
representatives of Global Public Finance, Risk Management, Insured Portfolio
Management, and the Company's Finance Department. For all transactions done by
the Global Structured Finance Division and 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 the head of the applicable business unit, one officer from Risk
Management and a third officer from either Risk Management or Insured Portfolio
Management. Certain transactions, based on size, complexity, or other factors,
must also be approved by a division-level committee consisting of senior
representatives of Global Structured Finance, Risk Management, Insured Portfolio
Management, Legal and the Company's Finance Department. Premium rates for all
groups within the insurance operations enterprise are established by a Pricing
Committee with representation from the Business Analysis Group (pricing and
quantitative analysis) and the relevant insurance operations group.
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
structured finance transactions, these include economic and social trends, debt
management, financial management, adequacy of anticipated cash flow,
satisfactory legal
9
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 global structured finance transactions,
MBIA Corp.'s underwriting guidelines, analysis and due diligence focus 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 legal segregation of the assets, cash flow analysis, the size and
source of first loss protection, and asset performance triggers and financial
covenants. All non-U.S. transactions also include an assessment of country risk.
Such guidelines are subject to periodic review by senior committees which are
responsible for establishing and maintaining underwriting standards and criteria
for all insurance products.
The Credit Analysis Group within Risk Management analyzes and monitors
MBIA Corp.'s direct and indirect exposure to financial institutions and
corporate entities with respect to seller/servicer exposure, investment
contracts, letters of credit, swaps, liquidity and other facilities supporting
MBIA-insured issues, and recommends terms and conditions, as well as capacity
guidelines for such exposures. The Portfolio Management Group within Risk
Management analyzes the insured portfolio by various quantitative tools to test
for diversity and credit quality, as well as to recommend guidelines for risk
concentrations.
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, servicers, underwriters, and other interested
parties to deal with the concern in order to try to avoid a default. The Insured
Portfolio Management Group works closely with the Risk Management and New
Business Departments to provide feedback on insured issue performance and credit
risk parameters.
To date, MBIA Corp. has had 40 insured issues requiring claim payments.
There are currently 8 additional insured issues for which case loss reserves
have been established but claims have not yet been paid (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 and triggers, assistance in resolving management
problems, transfer of servicing and working with the issuer to develop potential
political solutions. In most cases, 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 payments on insured obligations on their respective due dates even if
the issuer or other parties involved refuse to restructure or renegotiate the
terms of the insured bonds or related security arrangements. The Company'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. There can be no assurance, however, that there will be no
material losses in the future in respect of any issues guaranteed by MBIA Corp.,
MBIA Illinois, MBIA Assurance or CapMAC.
Once an obligation is insured, the issuer and the trustee are typically
required to furnish financial and asset related information, including audited
financial statements, periodically to the Insured Portfolio Management Group for
review. Potential problems uncovered through this review, such as poor financial
results, low fund balances, covenant or trigger violations, trustee or servicer
problems, 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.
During the underwriting process, 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 or trigger 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 three departments in the Insured Portfolio Management Group.
The Global Public Finance Group handles all types of domestic and international
municipal issues such as general obligation, utility and special revenue
10
bonds. It also follows project financings, future flow transactions and
collateralized debt obligation issues. The units within the Global Structured
Finance Group are responsible for domestic and international asset-backed and
other structured transactions. The Enterprise Group is responsible for all
health care, housing and student loan transactions. Each of the three groups is
responsible for processing waiver and consent requests and other deal
modifications within their areas.
The Global Public Finance Group 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. 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 units within the Global Structured Finance Group monitor 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 Enterprise Group, which monitors insured health care, student loan and
single and multi-family housing transactions as well as all pool programs,
performs similar functions to, and applies the same policies and procedures as,
the Global Public Finance and Global Structured Finance Groups. In addition, it
is responsible for remedial activities on weaker credits.
Investment Management Services
Over the last ten years, the Company's investment management businesses
have expanded their services to the public sector and added new revenue sources.
MBIA Asset Management, LLC is the holding company under which the resources and
capabilities of our four investment management subsidiaries have been
consolidated.
MBIA-MISC provides cooperative cash management services directly to local
governments and school districts. It also provides customized asset management
and treasury management consulting services for municipal and quasi-public
sector clients. In addition, MBIA-MISC performs investment fund administration
services for clients, which provide an additional source of revenue. MBIA-MISC
is a Securities and Exchange Commission registered investment adviser. MBIA-MISC
operates in 20 states and the Commonwealth of Puerto Rico.
IMC provides customized guaranteed investment agreements and flexible
repurchase agreements for bond proceeds and other public funds. At year-end
2001, principal and accrued interest outstanding on investment and repurchase
agreements was $6.1 billion compared with $4.8 billion at year-end 2000. IMC may
use derivative contracts in the course of providing its investment agreements as
a protection against interest rate risks. While these derivatives are designed
to help manage interest rate risk, they may involve amounts in excess of those
reflected in the financial statements.
In 1998, the Company acquired 1838, a full-service asset management firm
with a strong institutional focus. 1838 currently has approximately $11.9
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 and now manages substantially all of
the Company's investment portfolio. CMC is an NASD member and both CMC and 1838
are registered investment advisers.
11
Municipal Services
MuniServices
MuniServices provides revenue enhancement services and products (discovery,
audit, collections/recovery, enforcement and information services) to municipal
clients through a single national enterprise. MuniServices uses a consultative
marketing strategy to focus clients on its unique capability to identify and
recover revenues across the full range of tax sources under performance-based,
self-funding business contracts.
Capital Asset
Through its interest in Capital Asset, between May, 1996 and December,
1998, the Company was involved in the business of acquiring and servicing
delinquent real estate tax liens from municipalities. In December, 1998, the
Company became a majority owner of Capital Asset. During the first two quarters
of 1999, the Company attempted to sell its interest in Capital Asset. At the end
of the second quarter of 1999, the Company ceased these efforts and decided to
limit the activities of Capital Asset primarily to the servicing of the
portfolios then being serviced by Capital Asset. In the second quarter of 1999,
the Company completed an internal evaluation of Capital Asset's tax lien
portfolio, as a result of which the Company determined that it was necessary to
write down its investment in Capital Asset by $102 million. In the third quarter
of 1999, Capital Asset engaged a specialty servicer of residential mortgages to
help manage its business and operations and to assist in administering the tax
lien portfolios serviced by Capital Asset.
In the third quarter of 1999, Capital Asset also completed the refinancing
of substantially all of its remaining tax liens. These liens were originally
financed through a commercial paper warehouse facility that matured at the end
of the third quarter, and which was guaranteed by the Company. The refinancing
was accomplished through a securitization transaction in which the tax liens
were sold to a qualifying special purpose vehicle which in turn issued notes
secured by those liens. The proceeds of the securitization were used primarily
to extinguish the warehouse facility. This was Capital Asset's third
securitization of tax liens and MBIA Corp. has insured all of the notes issued
by these securitizations. These securitizations were structured through the sale
by Capital Asset of substantially all of its tax liens to off-balance sheet
qualifying special purpose vehicles that were established in connection with
these securitizations. These vehicles are not included in the consolidation of
the MBIA group. The first transaction, done in 1997, had an original net par
insured of $328 million and at year-end 2001 had $67 million net par insured
outstanding; the second transaction, executed in 1998, had an original net par
insured of $132 million, with the year-end 2001 net par insured outstanding at
$24 million; the 1999 transaction was issued at $196 million net par insured
outstanding and at year-end 2001 had $136 million net par insured outstanding
(these net par insured outstanding amounts give no effect to the value of
collateral). MBIA Corp. has established case basis loss reserves related to
these policies (from which approximately $6.9 million in claims have been paid
to date), but there can be no assurance that such reserves will be sufficient to
cover future potential losses, if any, under such policies.
Capital Asset continues to have certain contingent liabilities outstanding,
including various individual and class action lawsuits. The claims giving rise
to these lawsuits are a result of Capital Asset's business activities that took
place primarily before the Company assumed majority ownership and Capital Asset
is defending these lawsuits. The Company has no reason to believe that it has
financial liability for these lawsuits. Plaintiffs in one of the class action
lawsuits have filed a lawsuit against MBIA Corp. and certain affiliates claiming
that the securitization completed by Capital Asset in 1999 was a fraudulent
transfer under state law because the tax liens sold to the special purpose
vehicle were sold at less than their fair value and because the transaction
allegedly was done to avoid the effect of an adverse legal ruling against
Capital Asset on certain issues. Although there are inherent risks in any
litigation, the Company believes that it has substantial defenses on the merits
of those claims and intends to defend against the claims vigorously.
12
Competition
The financial guarantee insurance business is highly competitive: there are
four other monolines that write financial guarantee insurance and another in the
process of becoming licensed in the United States. The other principal insurers
in 2001 in public finance 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. The two principal competitors in the new issue structured finance
securities market in 2001 were Financial Security Assurance and Ambac Assurance
Corporation.
Financial guarantee insurance also competes with other forms of credit
enhancement, including senior-subordinated structures, 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.
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 and the maximum size of any single risk exposure
which may be written. 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 primarily 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.
13
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, 2001, MBIA Corp. retained approximately 82% of the gross
debt service outstanding of all transactions insured by it, MBIA Assurance,
CapMAC and MBIA Illinois, and ceded approximately 18% to treaty and facultative
reinsurers. The principal reinsurers of MBIA Corp., MBIA Assurance, CapMAC and
MBIA Illinois are ACE Guaranty Re Inc., Radian Reinsurance, Inc., AXA Re
Finance, Munich Reinsurance Corp. and Ambac Assurance Corporation. These
reinsurers, whose claims-paying ability is rated Triple-A by S&P, reinsured
approximately 76% of the total ceded insurance in force at December 31, 2001.
All of the other reinsurers reinsured approximately 24% of the total ceded
insurance in force at December 31, 2001 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, 2001 and 2000 by bond type and by geographic location are set
forth in Note 21 to the Consolidated Financial Statements of MBIA Inc. and
Subsidiaries. The downgrade or default of one or more of the Company's
reinsurers could have an adverse impact on the Company's results of operations.
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
State legal requirements.
MBIA Corp. and MBIA Illinois entered into a reinsurance agreement under
which MBIA Corp. reinsured 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, 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. 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.
MBIA Corp. and CapMAC have 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 and currently manages
substantially all of the Company's investment portfolio.
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 is an important but
secondary objective.
14
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.
For 2001, approximately 60% of the Company's net income, was derived from
after-tax earnings on its investment portfolio (excluding the amounts 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, 1999, 2000 and 2001.
Investment Income of the Company (1)
1999 2000 2001
(In thousands)
Investment income before expenses (2) $365,823 $400,754 $427,262
Investment expenses 6,367 6,769 7,600
-------- -------- --------
Net investment income before income taxes 359,456 393,985 419,662
Net realized gains 25,160 32,884 8,896
-------- -------- --------
Total investment income before income taxes $384,616 $426,869 428,558
======== ======== ========
Total investment income after income taxes $312,200 $335,435 $343,788
======== ======== ========
______________________________
(l) Excludes investment income from investment management services and
municipal services segments.
(2) Includes taxable and tax-exempt interest income.
15
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, 2001, 2000 and 1999.
Investment Portfolio by Security Type
as of December 31, 2001
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 $ 859,450 3.85 % $ 813,146 4.69 %
GNMAs 116,119 6.24 191,115 3.54
Other mortgage & asset-backed securities 423,942 5.50 2,580,908 3.12
Corporate obligations 1,430,425 5.96 2,106,481 5.17
Foreign obligations (2) 260,132 5.27 561,463 6.02
----------------- ----------- ----------------- ---------
Total 3,090,068 5.26 6,253,113 4.67
Tax-exempt bonds:
State & municipal 4,330,956 4.98 - -
----------------- ----------- ----------------- ----------
Total long-term investments 7,421,023 5.10 6,253,113 4.67
Short-term investments (3) 293,791 5.36 412,868 2.61
----------------- ----------- ----------------- ---------
Total fixed-income investments 7,714,814 5.11 % 6,665,981 4.54 %
Other investments (4) 135,376 - - -
----------------- -----------------
Total investments $7,850,190 - $6,665,981 -
================= =================
_________________________
(1) Prospective market yields as of December 31, 2001. 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
Investment Portfolio by Security Type
as of December 31, 2000
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 $ 841,683 6.34 % $ 443,581 6.09 %
GNMAs 156,284 7.04 149,989 6.49
Other mortgage & asset-backed securities 317,964 6.64 2,954,242 6.20
Corporate obligations 1,388,535 6.87 919,547 7.15
Foreign obligations (2) 235,378 6.28 282,278 7.07
----------------- ----------- ----------------- ---------
Total 2,939,844 6.66 4,749,637 6.43
Tax-exempt bonds:
State & municipal 3,800,283 7.62 - -
----------------- ----------- ----------------- ---------
Total long-term investments 6,740,127 7.20 4,749,637 6.43
Short-term investments (3) 376,604 6.57 246,971 6.05
----------------- ----------- ----------------- ---------
Total fixed-income investments 7,116,731 7.17 % 4,996,608 6.42 %
Other investments (4) 119,591 - - -
----------------- -----------------
Total investments $7,236,322 - $4,996,608 -
================= =================
_____________________________
(1) Prospective market yields as of December 31, 2000 . 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.
17
Investment Portfolio by Security Type
as of December 31, 1999
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 $ 600,350 7.45 % $1,237,005 6.67 %
GNMAs 146,976 7.68 67,950 7.16
Other mortgage & asset-backed securities 267,531 7.94 1,880,944 6.94
Corporate obligations 1,148,565 7.50 766,180 7.61
Foreign obligations (2) 158,938 7.21 317,755 7.66
----------------- ----------- ----------------- ---------
Total 2,322,360 7.53 4,269,834 7.04
Tax-exempt bonds:
State & municipal 3,461,619 8.72 - -
----------------- ------------ ----------------- ---------
Total long-term investments 5,783,979 8.24 4,269,834 7.04
Short-term investments (3) 274,022 5.92 219,717 6.17
----------------- ------------ ----------------- ---------
Total fixed-income investments 6,058,001 8.14 % 4,489,551 7.00 %
Other investments (4) 146,038 - - -
----------------- -----------------
Total investments $6,204,039 - $4,489,551 -
================= =================
____________________________
(1) Prospective market yields as of December 31, 1999. 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.
18
The average maturity of the insurance fixed-income portfolio excluding
short-term investments as of December 31, 2001 was 13.1 years. After allowing
for estimated principal pre-payments on mortgage pass-through securities, the
duration of the portfolio was 7.5 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, 2001
Investment
Insurance Management Services
Fair Value % of Total Fair Value % of Total
(In thousands) Fixed-Income (In thousands) Fixed-Income
Maturity Investments Investments
Within 1 year $ 293,791 3.8% $ 412,868 6.2%
Beyond 1 year but within 5 years 1,271,864 16.5 2,305,455 34.6
Beyond 5 years but within 10 years 1,506,518 19.5 1,420,403 21.3
Beyond 10 years but within 15 years 1,455,672 18.9 695,400 10.4
Beyond 15 years but within 20 years 1,240,611 16.1 620,927 9.3
Beyond 20 years 1,946,358 25.2 1,210,928 18.2
---------- ------- ---------- -------
Total fixed-income investments $7,714,814 100.0% $6,665,981 100.0%
========== ======= ========== =======
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
as of December 31, 2001 (1)
Investment
Insurance Management Services
Fair Value % of Total Fair Value % of Total
(In thousands) Fixed-Income (In thousands) Fixed-Income
Quality Rating Investments Investments
Aaa $4,925,659 65.0% $4,703,968 70.6%
Aa 1,604,104 21.2 843,046 12.6
A 968,297 12.8 1,075,732 16.1
Baa 75,068 1.0 43,235 0.7
---------- ------- ---------- -------
$7,573,128 100.0% $6,665,981 100.0%
========== ======= ========== =======
_________________________
(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.
19
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, the Republic of Singapore 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. MBIA Assurance has
used the provisions of the Third Non-life Insurance Directive to operate in the
United Kingdom both on a services and branch basis and is, to a limited extent,
subject to supervision by the Financial Services Authority. The extent of state
insurance regulation and supervision varies by jurisdiction, but New York,
Illinois and most other jurisdictions have laws and regulations prescribing
minimum standards of solvency, including minimum capital requirements, and
business conduct which must be maintained by insurance companies. These laws
prescribe permitted classes and concentrations of investments. In addition, some
state laws and regulations require the approval or filing of policy forms and
rates. MBIA Corp. is required to file detailed annual financial statements with
the New York Insurance Department and similar supervisory agencies in each of
the other jurisdictions in which it is licensed. 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, asset-backed securities
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 laws 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 and asset-backed securities 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. California, Connecticut, Florida, Illinois and
New York also limit the net insured unpaid principal on a municipal bond issued
by a single entity and backed by a single revenue source to 75% of
policyholders' surplus and contingency reserves. California, Connecticut, and
New York, among other things, require that the lesser of the insured average
debt service and the insured unpaid principal (reduced by the extent to which
unpaid principal of the supporting assets exceeds the insured unpaid principal),
divided by nine, on each issue of asset-backed securities issued by a single
entity shall not exceed 10% of policyholders' surplus and contingency reserves,
while Florida limits insured unpaid principal for any one risk 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.
20
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. Under New York, California,
Connecticut, Florida, and New Jersey law, aggregate insured unpaid principal and
interest under policies insuring asset-backed securities (again, in the case of
New York, California, Connecticut, and Florida, net of reinsurance) are limited
to certain multiples of policyholders' surplus and contingency reserves. New
York, California, Connecticut, and other states impose a 150:1 limit for insured
investment grade asset-backed securities, although more restrictive limits on
asset-backed securities of other types exist. For example, New York, California,
Connecticut, and Florida impose a 50:1 limit for non-investment grade
asset-backed securities.
The Company, MBIA Corp., MBIA Illinois, and CapMAC also are subject to
regulation under 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
inter-corporate transfers of assets, and of transactions between insurance
companies, their parents and affiliates. The holding company statutes impose
standards on certain transactions with related companies, which include, among
other requirements, that all transactions be fair and reasonable and that those
exceeding specified limits receive prior regulatory approval.
Prior approval by the New York Insurance Department is required for any
entity seeking to acquire "control" of the Company, 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, or (b) 100% of
adjusted net investment income for such 12-month period (the net investment
income for such 12-month period plus the excess, if any, of net investment
income over dividends declared or distributed during the two-year period
preceding such 12-month period), unless the 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
16 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 9 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.
21
Losses and Reserves
The Company's policy is to provide (I) specific, identified loss reserves
to cover estimated losses on policies for which the Company has determined that
it is likely to incur losses ("case basis reserves"), and (II) general,
unallocated loss reserves to cover losses that may be reasonably estimated to
occur on its insured obligations over the lives of such obligations. The
aggregate loss reserves, at any financial statement date, are the Company's best
estimate of the reserves needed to cover both types of losses, including
expected costs of settlement.
To the extent that specific insured issues are identified as currently or
likely to be in default, the present value of the expected payments, including
costs of settlement, net of expected recoveries, is allocated within the total
loss reserve as a case basis reserve. For the past three years, the total
reserve has been calculated by applying a loss factor, determined based on an
independent research agency study of bond defaults, to net incurred debt service
written. Beginning with 2002, to more accurately match the recognition of
incurred losses with the related premium revenue, the formula has been altered
so that the Company will begin to reserve based upon a percentage of earned
premiums instead of a percentage of net debt service written. The formula will
be reviewed on a regular basis. At December 31, 2001, $210.9 million (which
reflects anticipated recoveries) of the $483.3 million reserve for loss and loss
adjustment expenses represents case basis reserves, and, of the case basis
reserves, $215.0 million is attributable to a health care facility in
Pennsylvania and four tax lien transactions (on which no recoveries are
expected). The remaining case basis reserves represent various housing
financings and structured finance transactions, the largest of which is $5.6
million. 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.
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 the 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 formula discussed above. 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.
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 9 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,
1997 1998 1999 2000 2001
MBIA Corp.
Loss ratio 1.2% 8.0% 12.3% 6.2% 9.3%
Expense ratio 21.2 16.8 23.6 22.1 13.4
Combined ratio 22.4 24.8 35.9 28.3 22.7
Financial guarantee industry (1)
Loss ratio 8.3% 22.8% 4.2% 4.0 *
Expense ratio 28.1 22.7 24.1 27.9 *
Combined ratio 36.4 45.5 28.3 31.9 *
__________________________
(1) Industry statistics were taken from the 2000 Industry Financial Results of
the Association of Financial Guaranty Insurors.
22
* Not available.
23
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,
1997 1998 1999 2000 2001
(Dollars in millions)
MBIA Corp.
Net insurance in force $ 513,736 $ 595,895 $ 635,883 $ 680,878 $722,408
Qualified statutory capital 3,140 3,741 4,152 4,505 4,940
Policyholders' leverage ratio 164:1 159:1 153:1 151:1 146:1
Financial guarantee industry (1)
Net insurance in force $1,262,697 $1,416,433 $1,616,226 1,639,829 *
Qualified statutory capital 8,851 9,833 11,139 11,845 *
Policyholders' leverage ratio 143:1 144:1 145:1 138:1 *
___________________________
(1) Industry statistics were taken from the 2000 Industry Financial Results of
the Association of Financial Guaranty Insurors.
* Not available.
The policyholders' leverage ratio is the ratio of net insurance in force to
qualified statutory capital. This test is sometimes focused on as a measure of a
company's claims-paying capacity. The Company believes that the leverage ratio
has significant limitations since it compares the total debt service
(undiscounted) coming due over the next 30 years or so to a company's current
capital base. It thereby fails to recognize future capital that will be
generated during the period of risk being measured, arising from unearned
premium reserve and future installment premium commitments. Further, the
leverage ratio does not consider the underlying quality of the issuers whose
debt service is insured and thereby does not differentiate among the risk
characteristics of a financial guarantor's insured portfolio, nor does it give
any benefit for third-party commitments such as standby lines of credit.
MBIA Corp. Insurance Policies
Virtually all of the insurance policies issued by MBIA Corp., MBIA
Assurance, MBIA Illinois and CapMAC provide an unconditional and irrevocable
guarantee of the payment to a designated paying agent for the holders of the
insured obligations of an amount equal to the principal of and interest or other
amounts due on the insured obligations that have not been paid. In the event of
a default in payment of principal, interest or other insured amounts by an
issuer, the insurance company promises to make funds available in the amount of
the default on the next business day following notification. Each insurance
company has a Fiscal Agency Agreement with a bank which provides for this
payment upon receipt of proof of ownership of the obligations due, as well as
upon receipt of instruments appointing the insurer as agent for the holders and
evidencing the assignment of the rights of the holders with respect to the
payments made by the insurer. Even if the holders are permitted by the terms of
the insured obligations to have the full amount of principal, accrued interest
or other amounts due, declared due and payable immediately in the event of a
default, the insurer is required to pay only the amounts scheduled to be paid,
but not in fact paid, on each originally scheduled payment date.
24
Rating Agencies
Moody's, S&P, Fitch and RII perform periodic reviews of MBIA Corp. and
other companies providing financial guarantee insurance. Their reviews focus on
the insurer's operations, financial conditions, 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 confirmed their Triple-A claims-paying ratings
assigned to MBIA Corp., CapMAC, MBIA Illinois and to MBIA Assurance in every
year since those ratings were granted. 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.
Investment Considerations
Claims-Paying Ability Rating
----------------------------
MBIA Corp.'s ability to attract new business and to compete with other
triple-A rated financial guarantors is largely dependent on the Triple-A claims
paying ratings assigned to it by the major rating agencies. Although MBIA Corp.
intends to comply with the requirements of the rating agencies to maintain such
ratings, no assurance can be given that these requirements will not change or
that, even if MBIA Corp. complies with these requirements, one or more of such
rating agencies will not reduce or withdraw their claims-paying ability ratings
of MBIA Corp. in the future. MBIA Corp.'s ability to attract new business and to
compete with other triple-A rated financial guarantors, and its results of
operations and financial condition, would be materially adversely affected by
any reduction in its ratings. See "Business - Rating Agencies".
Competition
-----------
The businesses engaged in by MBIA Corp. are highly competitive. MBIA
Corp. faces competition from other financial guarantee insurance companies,
other providers of third-party credit enhancement, such as multi-line insurance
companies and banks, and alternative executions which do not employ third-party
credit enhancement. To the extent that there is no increase in the dollar volume
of obligations that require guaranties, increased competition, either in terms
of price or new providers of credit enhancement, would likely have an adverse
effect on MBIA Corp.'s business. See "Business - Competition".
Effect of September 11
----------------------
In addition to the tragic loss of life, the terrorist attacks in New
York City and Washington, D.C. on September 11, 2001 disrupted and are expected
to continue to disrupt commerce worldwide. These events have had a direct
material adverse impact on certain industries and on general economic activity.
The Company has exposure in certain sectors that will suffer increased
stress as a direct result of these events. The Company's exposure to New York
City and New York State and their respective agencies, to domestic airports and
to domestic enhanced equipment trust certificate aircraft securitizations has
experienced increased stress as a result of these events, including a
downgrading of the ratings of some of the underlying issuers. Other exposures
that depend on revenues from business and personal travel, such as bonds backed
by hotel taxes and car rental fleet securitizations, are also likely to see
direct increased stress as a result of these events. In addition, certain other
sectors in which the Company has insured exposure such as consumer loan
securitizations (e.g., home equity, auto
25
loan and credit card transactions) and certain collateralized debt obligations
backed by high yield bonds have seen increased delinquencies and defaults in the
underlying pools of loans.
In accordance with the Company's underwriting criteria, transactions
insured by the Company are structured to endure significant stress under various
stress assumptions, including an assumed economic recession. The Company has
assessed each of its related portfolio exposures and, based on the transaction
structures and on the Company's evaluation of the likely effects and impact of
these events, the Company believes at this time that it will not incur any
material losses due to these events. There can be no assurance, however, that
the Company will not incur material losses due to these exposures if the
economic stress caused by these events in certain sectors is more severe than
the Company currently foresees and had assumed in underwriting its exposures.
Market and Other Factors
------------------------
The demand for financial guarantee insurance depends upon many factors,
some of which are beyond the control of MBIA Corp. While all the major financial
guarantee insurers have triple-A claims-paying ability ratings from the major
rating agencies, investors may from time to time distinguish among financial
guarantors on the basis of various factors, including size, insured portfolio
concentration and financial performance. These distinctions may result in
differentials in trading levels for securities insured by particular financial
guarantors which, in turn, may provide a competitive advantage to those
financial guarantors with better trading characteristics. Conversely, various
investors may, due to regulatory or internal guidelines, lack additional
capacity to purchase securities insured by certain financial guarantors, which
may provide a competitive advantage to guarantors with fewer insured obligations
outstanding.
Prevailing interest rate levels affect demand for financial guarantee
insurance to the extent that lower interest rates are accompanied by narrower
spreads between insured and uninsured obligations. The purchase of insurance
during periods of relatively narrower interest rate spreads will generally
provide lower cost savings to the issuer than during periods of relatively wider
spreads. These lower cost savings could be accompanied by a corresponding
decrease in demand for financial guarantee insurance. However, historically, the
level of refundings during lower interest rate periods has increased the demand
for insurance.
The perceived financial strength of financial guarantee insurers also
affects demand for financial guarantee insurance. Should a major financial
guarantee insurer, or the industry generally, have its claims-paying ability
rating lowered, or suffer for some other reason deterioration in investors'
confidence, demand for financial guarantee insurance may be reduced
significantly.
Premium rates are affected by factors such as the insurer's appraisal
of the insured credit, the spread between interest rates prevailing on insured
and uninsured obligations and capital charges associated with these exposures as
determined by the rating agencies and regulators, as well as competition for
such business among financial guarantee insurance providers and other forms of
credit enhancement. Lower interest rates generally result in lower premium
amounts to the extent that premium amounts are based on the total dollar amount
of principal interest and other amounts insured.
Regulation
----------
The financial guarantee insurance industry has historically been and
will continue to be subject to the direct and indirect effects of governmental
regulation, including changes in tax laws and legal precedents affecting
asset-backed and municipal obligations. No assurance can be given that future
legislative regulatory or judicial changes will not adversely affect MBIA
Corp.'s business. See "Business - Regulation" for a description of current
insurance regulations affecting MBIA Corp.
Adequacy of Loss Reserves
-------------------------
The financial guarantees issued by MBIA Corp. insure the financial
performance of the obligations guaranteed over an extended period of time, in
some cases over 30 years, under policies that MBIA Corp. cannot cancel. As a
result of the lack of statistical loss data due to the low level of losses in
MBIA Corp.'s financial guarantee business and in the financial guarantee
industry in general, particularly in the structured asset-backed
area, MBIA Corp. does not use traditional actuarial approaches to determine its
loss reserves. Instead, a general loss
26
reserve is established in an amount deemed adequate to cover the expected levels
of losses and loss adjustment expense on MBIA's overall portfolio. The size of
the general loss reserve is determined by a formula, the components of which are
reviewed regularly. Management believes that the current level of general loss
reserves is adequate to cover the estimated liability for claims and the related
adjustment expenses with respect to financial guarantees issued by MBIA Corp.
The establishment of the appropriate level of loss reserves is an inherently
uncertain process involving numerous estimates and subjective judgments by
management, and therefore there can be no assurance that losses in MBIA Corp.'s
insured portfolio will not exceed the loss reserves. Losses from future
defaults, depending on their magnitude, could have a material adverse effect on
the results of operations and financial condition of MBIA Corp. See "Business -
Losses and Reserves".
Realization of Installment Premiums
-----------------------------------
Due to the annuity nature of a significant percentage of its premium
income, MBIA Corp. has an embedded future revenue stream. The amount of
installment premiums actually realized by MBIA Corp. could be reduced in the
future due to factors such as early termination of insurance contracts or
accelerated prepayments of underlying obligations. Although increases in
installment premium due to renewals of existing insurance contracts historically
have been greater than reductions, there can be no assurance that future
circumstances might not cause a net reduction overall, resulting in lower
revenues.
Reinsurance
-----------
MBIA Corp.'s ability to maintain reinsurance capacity is important to
its business. In order to comply with regulatory, rating agency or internal
single risk retention limits for transactions of significant size, MBIA Corp.
needs access to sufficient reinsurance capacity to underwrite large
transactions. If MBIA Corp. were to become unable to obtain sufficient
reinsurance, this could have an adverse impact on its ability to issue policies
for large transactions. See "Business - Reinsurance". MBIA Corp. remains liable
for insurance ceded to reinsurers to the extent such reinsurers are unable to
meet their obligations.
Anti-Takeover Provisions
------------------------
The Company's Charter and Bylaws contain special notice and other
provisions the effect of which could be to discourage non-negotiated takeover
attempts, which takeovers some stockholders might otherwise deem to be in their
interests.
Given the importance of MBIA Corp.'s triple-A ratings to the Company's
business, as a practical matter, a change of control would require confirmation
in advance from the rating agencies that such transaction would not result in a
downgrading of the claims-paying ability rating assigned to MBIA Corp. The
Company's Rights Plan originally adopted to deter non-negotiated takeovers,
expired in December 2001. The Board elected not to renew the Rights Plan.
The insurance laws of New York provide that no person, other than an
authorized insurer, may acquire control of the Company and thus indirect control
of MBIA Corp., or any other New York-domiciled insurance subsidiary of the
Company, unless it has given prior written notice to MBIA Corp. and any such
subsidiary and received the prior approval of the Superintendent of Insurance of
the State of New York. Furthermore, any purchaser of 10% or more of the
outstanding shares of the Company's Common Stock would be presumed to have
acquired such control unless the Superintendent of Insurance determined
otherwise. Therefore, any takeover of the Company effectively requires
regulatory approval. This regulatory restriction may effectively reduce the
probability of a takeover without the cooperation of management.
Investment Management Services Businesses
-----------------------------------------
The Company's Investment Management Services businesses have grown as a
proportion of its overall business (see "Investment Management Businesses"). As
their contribution continues to grow, events that negatively affect the
performance of the Investment Management Services businesses could affect the
overall performance of the Company.
27
Capital Facilities
MBIA Corp. is party to a Credit Agreement, dated as of December 29,
1989 (the "Credit Agreement"), with various highly rated banks to provide MBIA
Corp. with an unconditional, irrevocable line of credit to cover losses in
excess of a specified amount with respect to its public finance policies. The
line of credit is available to be drawn upon by MBIA Corp., in an amount up to
$900 million, after MBIA Corp. has incurred, during the period commencing
October 27, 2001 and ending October 31, 2008, cumulative losses (net of any
recoveries) in excess of $900 million or 5.6% of average annual debt service in
respect of MBIA Corp.'s public finance policies. 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 public finance 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, 2008, 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.
In 2001, the Company also entered into a $150 million soft capital
facility with certain highly rated reinsurers. Under this facility, the Company
has the right to issue, and the reinsurers have the obligation to purchase
(subject to certain conditions), preferred stock or variable rate subordinated
notes in a par amount that is equal to the amount by which losses incurred by
MBIA Corp. during the term of the facility with respect to substantially all of
its insured book exceed a certain specified level (the "Attachment Point"), up
to $150 million in the aggregate,. The facility has an initial term of ten years
and is expected to be extended annually. The Attachment Point is reset annually
as of December 31 as a percentage of MBIA Corp.'s insured portfolio. As of
December 31, 2001, the Attachment Point was $1.65 billion.
In 2001, MBIA Corp. also entered into a $211 million excess of loss
reinsurance facility with certain highly rated reinsurers. Under this facility,
the reinsurers have agreed to reimburse MBIA Corp. for all losses, up to $211
million in the aggregate, incurred by MBIA Corp. during the term of the
reinsurance agreement with respect to its structured finance policies in excess
of a certain specified level (the "Stop Loss Attachment Point"). The facility
has an initial term of seven years and is expected to be extended annually. The
Stop Loss Attachment Point is reset annually as of December 31 as a percentage
of MBIA Corp.'s insured portfolio. As of December 31, 2001, the Stop Loss
Attachment point was $900 million, increasing to $1.01 billion in January, 2002.
Employees
As of March 21, 2002, the Company had 601 employees. No employee is
covered by a collective bargaining agreement. The Company considers its employee
relations to be satisfactory.
Executive Officers
The executive officers of the Company and their present ages and
positions with the Company are set forth below.
Name Age Position and Term of Office
---- --- ---------------------------
Joseph W. Brown 53 Chairman and Chief Executive Officer (officer since January, 1999)
Gary C. Dunton 46 President (officer since January, 1998)
Richard L. Weill 59 Vice President (officer since 1989)
Neil G. Budnick 47 Vice President and Chief Financial Officer (officer since 1992)
John B. Caouette 57 Vice President (officer since February, 1998)
Ram D. Wertheim 47 Vice President and General Counsel (officer since January, 2000)
Kevin D. Silva 48 Vice President and Chief Administrative Officer (officer since 1995)
Ruth M. Whaley 46 Vice President and Chief Risk Officer (officer since 1999)
Robert T. Wheeler 59 Vice President and Chief Technology Officer (officer since May, 2000)
John S. Pizzarelli 46 Vice President (officer since November, 2000)
Mark S. Zucker 53 Vice President (officer since November, 2000)
28
Joseph W. Brown is Chairman and Chief Executive Officer of the Company
(effective January 7, 1999) and a director of the Company. Prior to joining the
Company in January 1999, Mr. Brown was Chairman of the Board of Talegen
Holdings, Inc.
Gary C. Dunton is President and Chief Operating Officer of the Company
and a director of the Company. 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.
Richard L. Weill is Vice President and Secretary of the Company. Mr.
Weill joined the Company in 1989 and since that time has held a variety of
positions.
Neil G. Budnick is Vice President and Chief Financial Officer of the
Company. Mr. Budnick has been primarily involved in the insurance operations
area of MBIA Corp. since joining the Company in 1983.
John B. Caouette is Vice President of the Company. Mr. Caouette was,
until February of 1998, the Chairman and Chief Executive Officer of CapMAC
Holdings Inc.
Ram D. Wertheim is Vice President and General Counsel of the Company.
From February of 1998 until January, 2000, he served in various capacities in
the Structured Finance Division. Mr. Wertheim was, until February of 1998, the
General Counsel of CapMAC Holdings Inc.
Kevin D. Silva is Vice President and Chief Administrative Officer of
the Company. He has been in charge of the Management Services Division of MBIA
Corp. since joining the Company in late 1995.
Ruth M. Whaley is Vice President and Chief Risk Officer of the Company.
She was, until February of 1998, the Chief Underwriting Officer of CapMAC
Holdings Inc.
Robert T. Wheeler is Vice President and Chief Technology Officer of the
Company. From 1985 until April of 2000, he was the Managing Director and Chief
Information Officer of US Fire Insurance Company.
John S. Pizzarelli is Vice President of the Company and head of the
Public Finance Division. Since joining MBIA Corp. in 1985, he has been primarily
involved in the public finance area.
Mark D. Zucker is Vice President of the Company and head of the
Structured Finance Division. Prior to joining the Company he was Chief Credit
Officer - Investment Banking at Rabobank International.
Item 2. Properties
MBIA Corp. owns the 265,000 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 also has rental space in New
York, New York, San Francisco, California, Paris, France, Madrid, Spain, Sydney,
Australia and London, England. The Company believes that these facilities are
adequate and suitable for its current needs.
Item 3. Legal Proceedings
In the normal course of operating its businesses, the Company may be
involved in various legal proceedings. Several class-action lawsuits have been
filed naming securitization trusts insured by MBIA Corp. as defendants. Various
allegations have been made against the originators of the mortgage loans which
are the assets of these trusts including violations of state and federal truth
in lending laws. Although the Company has not been named in these suits, as the
insurer we are monitoring them and assisting in their defense. We do not expect
there to be any material losses in the trusts as a result of these lawsuits, but
no assurances can be given as to the potential outcome of these actions. There
are no other material lawsuits pending or, to the knowledge of the Company,
threatened, to which the Company or any of its subsidiaries is a party. See
"Capital Asset" for a description of certain litigation against the Company and
certain of its subsidiaries related to its investment in Capital Asset.
29
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
PART II
-------
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The information concerning the market for the Company's Common Stock
and certain information concerning dividends appears under the heading
"Shareholder Information" on page 62 of the Company's 2001 Annual Report to
Shareholders and is incorporated herein by reference. As of March 21, 2002,
there were 851 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 26-27 of the Company's 2001 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 28-37 of
the Company's 2001 Annual Report to Shareholders is incorporated by reference.
Item 7A. Quantitative and Qualitative Disclosure about Market Risk
See the information under the heading "Market Risk" in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" as set
forth on page 37 of the Company's 2001 Annual Report to Shareholders which 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 38-60 of the Company's
2001 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 April 3, 2002, which is
incorporated by reference.
30
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 in the "Report of the Compensation and Organization Committee on
Executive Compensation" and in the five compensation tables in the Company's
Proxy Statement, dated April 3, 2002, which is incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information regarding security ownership of certain beneficial owners
and management is set forth under "Security Ownership of Certain Beneficial
Owners" and "Security Ownership of Directors and Executive Officers" in the
Company's Proxy Statement, dated April 3, 2002, 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 April 3, 2002, which is incorporated by reference.
31
PART IV
-------
Item 14.
(a) Financial Statements and Financial Statement Schedules and
Exhibits.
1. Financial Statements
--------------------
MBIA Inc. has incorporated by reference from the 2001 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. 38
Consolidated balance sheets as of December 31, 2001 and 39
2000.
Consolidated statements of income for the years ended 40
December 31, 2001, 2000 and 1999.
Consolidated statements of changes in shareholders' 41
equity for the years ended December 31, 2001, 2000 and 1999.
Consolidated statements of cash flows for the years 42
ended December 31, 2001, 2000 and 1999.
Notes to consolidated financial statements. 43-60
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, 2001.
II Condensed financial information of Registrant for
December 31, 2001, 2000 and 1999.
IV. Reinsurance for the years ended December 31, 2001, 2000
and 1999.
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.
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 to 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"), as amended December 20, 1995, incorporated by reference to Exhibit
3.1 to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000 (Comm. File 1-9583) (the "2000 10-K"), as further amended
September 5, 2001.
32
3.2. By-Laws as Amended as of March 19, 1998, incorporated by
reference to Exhibit 3.2 of the 1998 10-K.
4. Instruments Defining the Rights of Security Holders, including
--------------------------------------------------------------
Indentures.
- -----------
4.1 Indenture, dated as of August 1, 1990, between MBIA Inc. and
The First National Bank of Chicago, Trustee, incorporated by reference to
Exhibit 10.72 to the 1992 10-K.
4.2 Bond Purchase and Paying Agent Agreement between MBIA Inc. and
various banks, entered into as of December 12, 2000 in connection with CHF
175,000,000 4.5% Bonds, due June 15, 2010, incorporated by reference to Exhibit
4.2 to the 2000 10-K.
10. Material Contracts
------------------
10.01. 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, as supplemented by the Amended and Restated
Tax Allocation Agreement Supplement No. 1, dated as of August 31, 1999,
incorporated by reference to Exhibit 10.06 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31,1999 (Comm. File No. 1-9583)
(the "1999 10-K").
10.02. Note Subscription Agreement and Preferred Shares Subscription
Agreement, both dated as of December 27, 2001 between MBIA Inc. and certain
reinsurers.
10.03. 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, incorporated by reference to Exhibit 10.10 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1998 (Comm. File No. 1-9583)
(the "1998 10-K").
10.04. 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, incorporated by reference to Exhibit 10.13 to the 1998 10-K, as further
amended and restated by the Second Amendment to the Second Amended and Restated
Credit Agreement, dated as of October 29, 1999, incorporated by reference to
Exhibit 10.13 to the 1999 10-K, as further amended and
33
restated by the Third Amendment to the Second Amendment and Restated Credit
Agreement, dated as of October 27, 2000, incorporated by reference to Exhibit
10.04 to the 2000 10-K, as further amended by the Fourth Amendment to the Second
Amended and Restated Credit Agreement, dated as of October 31, 2001.
10.05. 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.
10.06. 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.
10.07. 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.
10.08. 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.
10.09. 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.
10.10. 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.
10.11. Reinsurance Agreement, dated as of April 1, 1998, between
CapMAC and MBIA Corp., incorporated by reference to Exhibit 10.30 to the 1998
10-K.
10.12. Reinsurance Agreement, dated as of January 1, 1999, between
MBIA Illinois and MBIA Corp., incorporated by reference to Exhibit 10.31 to the
1998 10-K.
10.13. Agreement and Plan of Merger by and among the Company, MBIA
Acquisition, Inc. and 1838 Investment Advisors, Inc., dated as of June 19, 1998,
incorporated by reference to Exhibit 10.32 to the 1998 10-K.
10.14. 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, incorporated by reference to Exhibit 10.33 to the
1998 10-K, as amended by a Notice of Extension of Final Maturity Date, with
various lending institutions, dated as of August 2000, incorporated by reference
to Exhibit 10.14 to the 2000 10-K, as further amended by the First Amendment,
dated as of February 9, 2001, the Second Amendment to the Credit Agreement,
dated as of July 31, 2001, and the Third Amendment, dated as of December 7,
2001.
10.15. 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, incorporated by reference to Exhibit 10.34 to the
1998 10-K, as amended by a Notice of Extension of Final Maturity Date, with
various lending institutions, dated as of August 2000, incorporated by reference
to Exhibit 10.15 to the 2000 10-K as further amended by the First Amendment,
dated as of February 9,
34
2001, the Second Amendment to the Credit Agreement, dated as of July 31, 2001,
and the Third Amendment, dated as of December 7, 2001.
10.16. 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, incorporated by reference to
Exhibit 10.48 to the 1998 10-K.
10.17. 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,
incorporated by reference to Exhibit 10.49 to the 1998 10-K.
10.18. 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, incorporated
by reference to Exhibit 10.50 to the 1998 10-K.
10.19. ISDA Master Agreement, dated May 2, 2000, between Deutsche
Bank AG and MBIA Inc., as supplemented by the Schedule to the ISDA Master
Agreement and the Credit Support Annex, incorporated by reference to Exhibit
10.19 to the 2000 10-K.
Executive Compensation Plans and Arrangements
The following Exhibits identify all existing executive compensation plans
and arrangements:
10.20. MBIA Inc. 2000 Stock Option Plan, effective May 11, 2000,
incorporated by reference to Exhibit 10.20 to the 2000 10-K.
10.21. 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").
10.22. 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")).
10.23. 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.
10.24. MBIA Corp. Split Dollar Life Insurance Plan, dated as of
February 9, 1988, issued by Aetna Life Insurance and Annuity Company,
incorporated by reference to Exhibit 10.23 to the 1989 10-K.
10.25. 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.
35
10.26. MBIA Inc. 1996 Incentive Plan, effective as of January 1,
1996, incorporated by reference to Exhibit 10.70 to the 1995 10-K.
10.27. 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.
10.28. CapMAC Employee Stock Ownership Plan, incorporated by
reference to Exhibit 10.18 to the CapMAC Form S-1, as Amended and Restated,
effective January 1, 1999, incorporated by reference to Exhibit 10.28 to the
2000 10-K.
10.29. 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, incorporated by reference to Exhibit 10.25 to the 1998 10-K.
10.30. ESOP Loan Agreement by and between MBIA Inc. and the CapMAC
Employee Stock Ownership Plan Trust, dated June 30, 1999, incorporated by
reference to Exhibit 10.30 to the 2000 10-K.
10.31. 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").
10.32. 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.
10.33. 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, incorporated by reference to Exhibit 10.35 to the 1998 10-K.
10.34. Terms of Employment letter between MBIA and Joseph W. Brown,
Jr., dated January 7, 1999, incorporated by reference to Exhibit 10.36 to the
1998 10-K.
10.35. Stock Option Agreement between MBIA Inc. and Joseph W. Brown,
Jr., dated January 7, 1999, incorporated by reference to Exhibit 10.37 to the
1998 10-K.
10.36. Key Employee Employment Protection Agreement between MBIA Inc.
and Joseph W. Brown, Jr., dated January 20, 1999, incorporated by reference to
Exhibit 10.38 to the 1998 10-K.
10.37. Key Employee Employment Protection Agreement between MBIA Inc.
and Neil G. Budnick, dated January 25, 1999, incorporated by reference to
Exhibit 10.39 to the 1998 10-K.
10.38. Key Employee Employment Protection Agreement between MBIA Inc.
and W. Thacher Brown, dated January 25, 1999, incorporated by reference to
Exhibit 10.40 to the 1998 10-K.
10.39. Key Employee Employment Protection Agreement between MBIA Inc.
and John B. Caouette, dated January 25, 1999, incorporated by reference to
Exhibit 10.41 to the 1998 10-K.
10.40. Key Employee Employment Protection Agreement between MBIA Inc.
and Gary C. Dunton, dated January 25, 1999, incorporated by reference to Exhibit
10.42 to the 1998 10-K.
10.41. Key Employee Employment Protection Agreement between MBIA Inc.
and Louis G. Lenzi, dated January 25, 1999, incorporated by reference to Exhibit
10.43 to the 1998 10-K.
10.42. Key Employee Employment Protection Agreement between MBIA Inc.
and Kevin D. Silva , dated January 25, 1999, incorporated by reference to
Exhibit 10.44 to the 1998 10-K.
36
10.43. Key Employee Employment Protection Agreement between MBIA Inc.
and Richard L. Weill, dated January 25, 1999, incorporated by reference to
Exhibit 10.45 to the 1998 10-K.
10.44. Key Employee Employment Protection Agreement between MBIA Inc.
and Ruth M. Whaley, dated January 25, 1999, incorporated by reference to Exhibit
10.46 to the 1998 10-K.
10.45. Key Employee Employment Protection Agreement between MBIA Inc.
and Michael J. Maguire, dated March 19, 1999, incorporated by reference to
Exhibit 10.47 to the 1998 10-K.
10.46. Key Employee Employment Protection Agreement between MBIA Inc.
and John S. Pizzarelli, dated March 14, 2000, incorporated by reference to
Exhibit 10.46 to the 2000 10-K.
10.47. Key Employee Employment Protection Agreement between MBIA Inc.
and Ram D. Wertheim, dated January 24, 2000, incorporated by reference to
Exhibit 10.47 to the 2000 10-K.
10.48. Key Employee Employment Protection Agreement between MBIA Inc.
and Robert T. Wheeler, dated April 17, 2000, incorporated by reference to
Exhibit 10.48 to the 2000 10-K.
10.49. Key Employee Employment Protection Agreement between MBIA Inc.
and Mark S. Zucker, dated March 14, 2000, incorporated by reference to Exhibit
10.49 to the 2000 10-K.
10.50 MBIA Inc. Restricted Stock Plan for Non-Employee Directors,
effective as of March 21, 2002, incorporated by reference to the MBIA Inc. Form
S-8 filed on March 14, 2002 (Reg. No. 333-84300) (the"2002 S-8").
10.51 Amended and Restated Deferred Compensation and Stock Ownership
Plan for Non-Employee Directors, effective as of March 21, 2002, incorporated by
reference to the 2002 S-8.
13. Annual Report to Shareholders of MBIA Inc. for fiscal year
ended December 31, 2001. 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
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 2001.
37
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, 2002 By /s/Joseph W. Brown
--------------------------------------
Name: Joseph W. Brown
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/ Joseph W. Brown Chairman and Director March 29, 2002
- ------------------------------------------
Joseph W. Brown
/s/ Douglas C. Hamilton Vice President and March 29, 2002
- ------------------------------------------ Controller
Douglas C. Hamilton
/s/David H. Elliott Director March 29, 2002
- ------------------------------------------
David H. Elliott
/s/David C. Clapp Director March 29, 2002
- ------------------------------------------
David C. Clapp
/s/Gary C. Dunton Director March 29, 2002
- ------------------------------------------
Gary C. Dunton
/s/Claire L. Gaudiani Director March 29, 2002
- ------------------------------------------
Claire L. Gaudiani
38
/s/William H. Gray, III Director March 29, 2002
- ------------------------------------------
William H. Gray, III
/s/Freda S. Johnson Director March 29, 2002
- ------------------------------------------
Freda S. Johnson
/s/Daniel P. Kearney Director March 29, 2002
- ------------------------------------------
Daniel P. Kearney
/s/James A. Lebenthal Director March 29, 2002
- ------------------------------------------
James A. Lebenthal
/s/John A. Rolls Director March 29, 2002
- ------------------------------------------
John A. Rolls
39
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 1, 2002 appearing in the 2001 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.
February 1, 2002
SCHEDULE I
MBIA INC. AND SUBSIDIARIES
SUMMARY OF INVESTMENTS, OTHER THAN INVESTMENTS IN RELATED PARTIES
December 31, 2001
(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 $ 1,178,078 $ 1,210,554 $ 1,210,554
State and municipal
obligations 4,265,143 4,330,956 4,330,956
Corporate and other
obligations 6,078,101 6,212,069 6,212,069
Mortgage-backed 1,875,537 1,920,557 1,920,557
----------- ----------- -----------
Total fixed-maturities 13,396,859 13,674,136 13,674,136
Short-term investments 706,659 XXXXXXX 706,659
Other investments 135,376 XXXXXXX 135,376
----------- ----------- -----------
Total investments $14,238,894 XXXXXXX $14,516,171
=========== =========== ===========
SCHEDULE II
MBIA INC. (PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Condensed Financial Statements
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed or
omitted. It is suggested that these condensed financial statements be read
in conjunction with the Company's consolidated financial statements and
the notes thereto.
2. Significant Accounting Policies
The Parent company carries its investments in subsidiaries under the
equity method.
3. Dividends from Subsidiaries
During 2001 and 2000, MBIA Corp. declared and paid dividends of $212.4
million and $197.3 million to MBIA Inc. In 2001, MBIA Asset Management LLC
made a distribution of $20.0 million to MBIA Inc. In 2000, MBIA Asset
Management Corp. declared and paid dividends of $25.0 million to MBIA Inc.
4. Obligations under Municipal Investment and Repurchase Agreements
The municipal investment and repurchase agreement business, as described
in footnotes 2 and 19 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 II
MBIA INC. (PARENT COMPANY)
CONDENSED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
December 31, 2001 December 31, 2000
----------------- -----------------
ASSETS
Investments:
Municipal investment agreement portfolio
held as available-for-sale at fair value
(amortized cost $5,104,478 and $4,452,992) $ 5,605,181 $ 4,263,207
Municipal investment agreement portfolio
pledged as collateral at fair value
(amortized cost $577,790 and $211,214) 586,915 211,440
Fixed maturity securities held as available-for-sale
at fair value (amortized cost $106,496 and $72,607) 106,197 74,594
Short-term investments, at amortized cost
(which approximates fair value) 4,466 106,001
------------ ------------
Total investments 6,302,759 4,655,242
Cash and cash equivalents 30,968 30,684
Securities purchased under agreements
to resell or borrowed -- 559,624
Investment in and amounts due from
wholly-owned subsidiaries 5,211,729 4,809,122
Accrued investment income 64,265 43,299
Receivable for investments sold 134,265 11,275
Other assets 34,417 26,776
------------ ------------
Total assets $ 11,778,403 $ 10,136,022
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Municipal investment agreements $ 4,790,172 $ 3,461,095
Municipal repurchase agreements 699,577 757,643
Long-term debt 797,512 783,802
Short-term debt -- 99,992
Securities sold under agreeements
to repurchase or loaned 557,818 734,624
Deferred income taxes 20,019 8,376
Payable for investments purchased 79,859 5,566
Dividends payable 22,274 20,205
Other liabilities 28,534 41,306
------------ ------------
Total liabilities 6,995,765 5,912,609
------------ ------------
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 - 400,000,000 and 200,000,000;
issued shares - 151,950,991 and 151,159,943 151,951 151,160
Additional paid-in capital 1,195,802 1,169,200
Retained earnings 3,415,517 2,934,608
Accumulated other comprehensive income,
net of deferred income tax provision
of $91,222 and $57,141 145,321 85,707
Unallocated ESOP shares (1,983) (2,950)
Unearned compensation - restricted stock (11,335) (10,659)
Treasury stock - 3,516,921 in 2001 and
3,314,037 shares in 2000 (112,635) (103,653)
------------ ------------
Total shareholders' equity 4,782,638 4,223,413
------------ ------------
Total liabilities and shareholders' equity $ 11,778,403 $ 10,136,022
============ ============
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
---------------------------------------
2001 2000 1999
--------- --------- ---------
Revenues:
Net investment income $ 236,837 $ 223,575 $ 188,826
Net realized gains (losses) 7,776 8,386 (8,639)
Change in fair value of derivative instruments 476 -- --
Investment management services income 31,360 23,088 12,733
Investment management services realized gains (losses) 3,817 (1,820) 1,185
--------- --------- ---------
Total revenues 280,266 253,229 194,105
--------- --------- ---------
Expenses:
Interest expense 68,021 54,460 52,857
Operating expenses 15,293 19,452 135,737
--------- --------- ---------
Total expenses 83,314 73,912 188,594
--------- --------- ---------
Gain before income taxes and equity in earnings
of subsidiaries 196,952 179,317 5,511
Benefit for income taxes (26,620) (16,742) (17,617)
--------- --------- ---------
Gain before equity in earnings of subsidiaries 223,572 196,059 23,128
Equity in earnings of subsidiaries 349,062 332,578 297,402
--------- --------- ---------
Income before cumulative effect of accounting change 572,634 528,637 320,530
Cumulative effect of accounting change (2,543) -- --
--------- --------- ---------
Net income $ 570,091 $ 528,637 $ 320,530
========= ========= =========
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
----------------------------------------------
2001 2000 1999
------------ ----------- -----------
Cash flows from operating activities:
Net income $ 570,091 $ 528,637 $ 320,530
Adjustments to reconcile net income
to net cash provided by operating activities:
Equity in undistributed earnings of subsidiaries (349,062) (332,578) (297,402)
Net realized (gains) losses on sales of investments (11,593) (6,566) 7,454
Benefit for deferred income taxes (8,625) (118) (52)
Other, net (40,011) (11,421) 1,364
------------ ----------- -----------
Total adjustments to net income (409,291) (350,683) (288,636)
------------ ----------- -----------
Net cash provided by operating activities 160,800 177,954 31,894
------------ ----------- -----------
Cash flows from investing activities:
Purchase of fixed-maturity securities (13,555,970) (4,433,020) (4,776,543)
Sale of fixed-maturity securities 13,534,744 4,360,435 4,767,905
Sale (purchase) of short-term investments 102,388 (106,001) --
Purchases for municipal investment agreement portfolio,
net of payable for investments purchased (9,374,432) (5,346,474) (2,541,312)
Sales from municipal investment agreement portfolio,
net of receivable for investments sold 7,684,881 4,754,985 1,324,531
Contributions to subsidiaries (3,003) (130) (3,178)
Advances to subsidiaries, net (29,271) 56,310 135,690
------------ ----------- -----------
Net cash used by investing activities (1,640,663) (713,895) (1,092,907)
------------ ----------- -----------
Cash flows from financing activities:
Net (repayment) proceeds from (retirement) issuance
of long-term debt (3,750) 196,108 --
Net repayment from retirement of short-term debt (99,992) -- --
Dividends paid (87,112) (80,708) (79,764)
Purchase of treasury stock (8,982) (77,955) (24,698)
Proceeds from issuance of municipal
investment and repurchase agreements 3,857,293 2,478,519 2,547,714
Payments for drawdowns of
municipal investment agreements (2,584,400) (2,141,733) (1,373,250)
Securities loaned or sold under
agreements to repurchase, net 382,817 147,422 (7,493)
Exercise of stock options 24,273 23,683 14,616
------------ ----------- -----------
Net cash provided by financing activities 1,480,147 545,336 1,077,125
------------ ----------- -----------
Net increase in cash and cash equivalents 284 9,395 16,112
Cash and cash equivalents - beginning of year 30,684 21,289 5,177
------------ ----------- -----------
Cash and cash equivalents - end of year $ 30,968 $ 30,684 $ 21,289
============ =========== ===========
Supplemental cash flow disclosures:
Income taxes paid $ 2,151 $ 1,411 $ 149
Interest paid:
Long-term debt 60,527 52,388 52,338
The condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto and the accompanying notes.
SCHEDULE IV
MBIA INC. AND SUBSIDIARIES
REINSURANCE
for the Years Ended December 31, 2001, 2000 and 1999
(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
- -------------------------------------------------------------------------------------------------------
2001 $839,386 $235,362 $25,840 $629,864 4.1%
---- -------- -------- ------- -------- ---
2000 $641,452 $189,316 $45,956 $498,092 9.2%
---- -------- -------- ------- -------- ---
1999 $590,597 $171,256 $34,274 $453,615 7.6%
---- -------- -------- ------- -------- ---
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, 2001
Commission File No. 1-9583
- --------------------------------------------------------------------------------
MBIA Inc.
Exhibit Index
3.1. Restated Certificate of Incorporation, dated August 17, 1990,
incorporated by reference to Exhibit 3.1 to 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"), as amended December 20, 1995, incorporated by reference to Exhibit 3.1
to the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 2000 (Comm. File 1-9583) (the "2000 10-K"), as further amended September 5,
2001.
10.02. Note Subscription Agreement and Preferred Shares Subscription
Agreement, both dated as of December 27, 2001 between MBIA Inc. and certain
reinsurers.
10.04. 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, incorporated by reference to Exhibit 10.13 to the 1998 10-K, as further
amended and restated by the Second Amendment to the Second Amended and Restated
Credit Agreement, dated as of October 29, 1999, incorporated by reference to
Exhibit 10.13 to the 1999 10-K, as further amended and restated by the Third
Amendment to the Second Amendment and Restated Credit Agreement, dated as of
October 27, 2000, incorporated by reference to Exhibit 10.04 to the 2000 10-K,
as further amended by the Fourth Amendment to the Second Amended and Restated
Credit Agreement, dated as of October 31, 2001.
10.14. 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, incorporated by reference to Exhibit 10.33 to the
1998 10-K, as amended by a Notice of Extension of Final Maturity Date, with
various lending institutions, dated as of August 2000, incorporated by reference
to Exhibit 10.14 to the 2000 10-K, as further amended by the First Amendment,
dated as of February 9, 2001, the Second Amendment to the Credit Agreement,
dated as of July 31, 2001, and the Third Amendment, dated as of December 7,
2001.
10.15. 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, incorporated by reference to Exhibit 10.34 to the
1998 10-K, as amended by a Notice of Extension of Final Maturity Date, with
various lending institutions, dated as of August 2000, incorporated by reference
to Exhibit 10.15 to the 2000 10-K as further amended by the First Amendment,
dated as of February 9, 2001, the Second Amendment to the Credit Agreement,
dated as of July 31, 2001, and the Third Amendment, dated as of December 7,
2001.
13. Annual Report to Shareholders of MBIA Inc. for fiscal year ended
December 31, 2001. 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
99. Additional Exhibits - MBIA Corp. GAAP Financial Statements