United States

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June 30, 2020~~

March 31, 2021

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

Commission File Number:

1-9583

MBIA INC.

(Exact name of registrant as specified in its charter)


C~~onnectic~~ut Connecticut		06-1185706
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1 Manhattanville Road, Suite 301, Purchase, New York		10577
(Address of principal executive offices)		(Zip Code)

(914) 273-4545

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	MBI	New York Stock Exchange

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

☒

☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes

☒

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒ ☐	Accelerated filer	☐ ☒

Non-accelerated filer	☐	Smaller reporting company	☐


		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes

☐

☒

As of ~~July 29, 2020, 57,751,718~~May 3, 2021, 54,349,163 shares of Common Stock, par value $1 per share, ~~were outstanding.~~

were outstanding.

Table of Contents


		PAGE
PART I FINANCIAL INFORMATION


Item 1.	Financial Statements MBIA Inc. and Subsidiaries (Unaudited)



	Consolidated Balance Sheets as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 (Unaudited)		1


	Consolidated Statements of Operations for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ (Unaudited)		2


	Consolidated Statements of Comprehensive Income (Loss) for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ (Unaudited)		3

	Consolidated ~~Statement~~Statements of Changes in Shareholders’ Equity for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ (Unaudited)		4


	Consolidated Statements of Cash Flows for the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ (Unaudited)		5


	Notes to Consolidated Financial Statements (Unaudited)		6
	~~Note 1: Business Developments and Risks and Uncertainties~~			6
	~~Note 2: Significant Accounting Policies~~		9
	~~Note 3: Recent Accounting Pronouncements~~		10
	~~Note 4: Variable Interest Entities~~		12
	~~Note 5: Loss and Loss Adjustment Expense Reserves~~		14
	~~Note 6: Fair Value of Financial Instruments~~		20
	~~Note 7: Investments~~		36
	~~Note 8: Derivative Instruments~~		41
	~~Note 9: Income Taxes~~		45
	~~Note 10: Business Segments~~		46
	~~Note 11: Earnings Per Share~~		49
	~~Note 12: Accumulated Other Comprehensive Income~~		50
	~~Note 13: Commitments and Contingencies~~		51

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		5544

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		8169

Item 4.	Controls and Procedures		8169

PART II OTHER INFORMATION


Item 1.	Legal Proceedings		8270

Item 1A.	Risk Factors		8270

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		8571

Item 6.	Exhibits		8672

SIGNATURES			8773

Table of Contents

FORWARD-LOOKING AND CAUTIONARY STATEMENTS

This quarterly report of MBIA Inc., together with its consolidated subsidiaries, (collectively, “MBIA”, the “Company”, “we”, “us” or “our”) includes statements that are not historical or current facts and are “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The words “believe”, “anticipate”, “project”, “plan”, “expect”, “estimate”, “intend”, “will likely result”, “looking forward”, 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. MBIA cautions readers not to place undue reliance on any such forward-looking statements, which speak only to their respective dates. We undertake no obligation to publicly correct or update any forward-looking statement if the Company later becomes aware that such result is not likely to be achieved.

The following are some of the general factors that could affect financial performance or could cause actual results to differ materially from estimates contained in or underlying the Company’s forward-looking statements:

increased credit losses or impairments on public finance obligations that National Public Finance Guarantee Corporation (“National”) insures issued by state, local and territorial governments and finance authorities and other providers of public services, located in the U.S. or abroad, that are experiencing fiscal stress;

the possibility that loss reserve estimates are not adequate to cover potential claims;

a disruption in the cash flow from National or an inability to access the capital markets and our exposure to significant fluctuations in liquidity and asset values in the global credit markets as a result of collateral posting requirements;

our ability to fully implement our strategic plan;

the possibility that MBIA Insurance Corporation will have inadequate liquidity or resources to timely pay claims as a result of higher than expected losses on certain insured transactions or as a result of a delay or failure in collecting expected recoveries, which could lead the New York State Department of Financial Services (“NYSDFS”) to put MBIA Insurance Corporation into a rehabilitation or liquidation proceeding under Article 74 of the New York Insurance Law and/or take such other actions as the NYSDFS may deem necessary to protect the interests of MBIA Insurance Corporation’s policyholders;

the impact on our insured portfolios or business operations caused by the global spread of the novel coronavirus

COVID-19;

deterioration in the economic environment and financial markets in the United States or abroad, real estate market performance, credit spreads, interest rates and foreign currency levels; and

the effects of changes to governmental regulation, including insurance laws, securities laws, tax laws, legal precedents and accounting rules.

The above factors provide a summary of and are qualified in their entirety by the risk factors discussed under “Risk Factors” in Part II, Other Information, Item 1A included in this Quarterly Report on Form

10-Q.

In addition, refer to “Note 1: Business Developments and Risk and Uncertainties” in ~~the~~ Notes to Consolidated Financial Statements included in this Quarterly Report on Form

10-Q

for a discussion of certain risks and uncertainties related to our financial statements.

This quarterly report of MBIA Inc. also includes statements of the opinion and belief of MBIA management which may be forward-looking statements subject to the preceding cautionary disclosure. Unless otherwise indicated herein, the basis for each statement of opinion or belief of MBIA management in this report is the relevant industry or subject matter experience and views of certain members of MBIA’s management. Accordingly, MBIA cautions readers not to place undue reliance on any such statements, because like all statements of opinion or belief they are not statements of fact and may prove to be incorrect. We undertake no obligation to publicly correct or update any statement of opinion or belief if the Company later becomes aware that such statement of opinion or belief was not or is not then accurate. In addition, readers are cautioned that each statement of opinion or belief may be further qualified by disclosures set forth elsewhere in this report or in other disclosures by MBIA.

Table of Contents

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

MBIA INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Unaudited)

(In millions except share and per share amounts)

June 30, 2020

December 31, 2019

Assets

Investments:

Fixed-maturity securities held as available-for-sale, at fair value (amortized cost $2,278 and $2,705)
   $ 2,473 $ 2,820
Investments carried at fair value
   203 209
Investments pledged as collateral, at fair value (amortized cost $6 and $15)
   1 10
Short-term investments, at fair value (amortized cost $252 and $423)
   252 423


Total investments
   2,929 3,462
Cash and cash equivalents
   446 75
Premiums receivable (net of allowance for credit losses $4 and $-)
   232 249
Deferred acquisition costs
   55 60
Insurance loss recoverable
   1,543 1,694
Other assets
   104 115
Assets of consolidated variable interest entities:

Cash
   8 8
Investments held-to-maturity, at amortized cost (net of allowance for credit losses $23 and $-, fair value $574 and $892)
   552 890
Investments carried at fair value
   76 83
Loans receivable at fair value
   116 136
Loan repurchase commitments
   524 486
Other assets
   28 26


Total assets

$
6,613

$
7,284



Liabilities and Equity

Liabilities:

Unearned premium revenue
   $ 444 $ 482
Loss and loss adjustment expense reserves
   1,018 901
Long-term debt
   2,289 2,228
Medium-term notes (includes financial instruments carried at fair value of $96 and $108)
   668 680
Investment agreements
   289 304
Derivative liabilities
   233 175
Other liabilities
   134 136
Liabilities of consolidated variable interest entities:

Variable interest entity notes (includes financial instruments carried at fair value of $342 and $403)
   1,178 1,539


Total liabilities


6,253

6,445



Commitments and contingencies (Refer to Note 13: Commitments and Contingencies)

Equity:

Preferred stock, par value $1 per share; authorized shares—10,000,000; issued and outstanding—0ne
   -   -
Common stock, par value $1 per share; authorized shares—400,000,000; issued shares
--
283,433,401 and 283,433,401
   283 283
Additional paid-in capital
   2,958 2,999
Retained earnings
   126 607
Accumulated other comprehensive income (loss), net of tax of $8 and $8
   129 (2 )
Treasury stock, at cost—220,924,081 and 204,000,108 shares
   (3,149 ) (3,061 )


Total shareholders’ equity of MBIA Inc.
   347 826
Preferred stock of subsidiary
   13 13


Total equity


360

839



Total liabilities and equity

$
6,613

$
7,284


	March 31, 2021			December 31, 2020
Assets
Investments:
Fixed-maturity securities held as available-for-sale, at fair value (amortized cost $2,135 and $2,078)	$	2,222		$	2,257
Investments carried at fair value		207			196
Investments pledged as collateral, at fair value (amortized cost 0 and $6)		0			1
Short-term investments, at fair value (amortized cost $623 and $281)		623			282

Total investments		3,052			2,736
Cash and cash equivalents		116			158
Premiums receivable (net of allowance for credit losses $5 and $5)		215			216
Deferred acquisition costs		48			50
Insurance loss recoverable		1,622			1,677
Other assets		94			84
Assets of consolidated variable interest entities:
Cash		5			9
Investments carried at fair value		76			77
Loans receivable at fair value		124			120
Loan repurchase commitments		0			604
Other assets		23			20

Total assets	$	5,375		$	5,751

Liabilities and Equity
Liabilities:
Unearned premium revenue	$	386		$	405
Loss and loss adjustment expense reserves		990			990
Long-term debt		2,258			2,229
Medium-term notes (includes financial instruments carried at fair value of $105 and $110)		698			710
Investment agreements		268			269
Derivative liabilities		126			215
Other liabilities		203			161
Liabilities of consolidated variable interest entities:
Variable interest entity notes (includes financial instruments carried at fair value of $325 and $350)		451			623
Other liabilities		23			-

Total liabilities		5,403			5,602

Commitments and contingencies (Refer to Note 13: Commitments and Contingencies)		0			0
Equity:
Preferred stock, par value $1 per share; authorized shares - 10,000,000; issued and outstanding - 0ne		0			0
Common stock, par value $1 per share; authorized shares - 400,000,000; issued shares - 283,186,115 and 283,186,115		283			283
Additional paid-in capital		2,934			2,962
Retained earnings (deficit)		(119	)		(13	)
Accumulated other comprehensive income (loss), net of tax of $8 and $8		39			115
Treasury stock, at cost - 228,837,465 and 229,508,967 shares		(3,178	)		(3,211	)

Total shareholders’ equity of MBIA Inc.		(41	)		136
Preferred stock of subsidiary		13			13

Total equity		(28	)		149

Total liabilities and equity	$	5,375		$	5,751

The accompanying notes are an integral part of the consolidated financial statements.

Table of Contents

MBIA INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(In millions except share and per share amounts)

Three Months Ended June 30,

Six Months Ended June 30,


2020

2019

2020

2019

Revenues

Premiums earned:

Scheduled premiums earned
   $ 15 $ 17 $ 31 $ 35
Refunding premiums earned
   4 5 8 10


Premiums earned (net of ceded premiums of $1, $1, $2 and $2)
   19 22 39 45
Net investment income
   20 30 43 62
Fees and reimbursements
   - 1 - 1
Change in fair value of insured derivatives:

Realized gains (losses) and other settlements on insured derivatives
   - (1 ) - (1 )
Unrealized gains (losses) on insured derivatives
   - - - 14


Net change in fair value of insured derivatives
   - (1 ) - 13
Net gains (losses) on financial instruments at fair value and foreign exchange
   24 (26 ) (39 ) (4 )
Net investment losses related to other-than-temporary impairments:

Other-than-temporary impairments recognized in accumulated other comprehensive income (loss)
   - (9 ) - (37 )


Net investment losses related to other-than-temporary impairments
   - (9 ) - (37 )
Other net realized gains (losses)
   - 1 - 2
Revenues of consolidated variable interest entities:

Net investment income
   5 10 13 20
Net gains (losses) on financial instruments at fair value and foreign exchange
   23 18 38 36
Other net realized gains (losses)
   23 (16 ) 14 (58 )


Total revenues
   114 30 108 80
Expenses

Losses and loss adjustment
   136 140 379 102
Amortization of deferred acquisition costs
   3 2 5 6
Operating
   22 19 40 45
Interest
   45 52 92 104
Expenses of consolidated variable interest entities:

Operating
   1 1 3 4
Interest
   13 23 28 45


Total expenses
   220 237 547 306


Income (loss) before income taxes
   (106 ) (207 ) (439 ) (226 )
Provision (benefit) for income taxes
   - - - 2


Net income (loss)

$
(106
)

$
(207
)

$
(439
)

$
(228
)


Net income (loss) per common share

Basic
   $ (1.69 ) $ (2.45 ) $ (6.51 ) $ (2.68 )
Diluted
   $ (1.69 ) $ (2.45 ) $ (6.51 ) $ (2.68 )
Weighted average number of common shares outstanding

Basic
   62,605,656 84,275,261 67,347,335 84,911,215
Diluted
   62,605,656 84,275,261 67,347,335 84,911,215


	Three Months Ended March 31,
	2021			2020
Revenues:
Premiums earned:
Scheduled premiums earned	$	15		$	16
Refunding premiums earned		5			4

Premiums earned (net of ceded premiums of $1 and $1)		20			20
Net investment income		15			23
Net gains (losses) on financial instruments at fair value and foreign exchange		51			(63	)
Revenues of consolidated variable interest entities:
Net investment income		0			8
Net gains (losses) on financial instruments at fair value and foreign exchange		(14	)		15
Other net realized gains (losses)		0			(9	)

Total revenues		72			(6	)
Expenses:
Losses and loss adjustment		98			243
Amortization of deferred acquisition costs		2			2
Operating		26			18
Interest		41			47
Expenses of consolidated variable interest entities:
Operating		2			2
Interest		9			15

Total expenses		178			327

Income (loss) before income taxes		(106	)		(333	)

Provision (benefit) for income taxes		0			0

Net income (loss)	$	(106	)	$	(333	)

Net income (loss) per common share:
Basic	$	(2.16	)	$	(4.62	)
Diluted	$	(2.16	)	$	(4.62	)
Weighted average number of common shares outstanding:
Basic		49,258,110			72,089,016
Diluted		49,258,110			72,089,016

The accompanying notes are an integral part of the consolidated financial statements.

Table of Contents

MBIA INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)

(In millions)

Three Months

Ended June 30,

Six Months

Ended June 30,

2020

2019

2020

2019
Net income (loss)
   $ (106 ) $ (207 ) $ (439 ) $ (228 )
Other comprehensive income (loss):

Available-for-sale securities with no credit losses:

Unrealized gains (losses) arising during the period
   40 46 88 125
Provision (benefit) for income taxes
   - (1 ) - (1 )


Total
   40 47 88 126
Reclassification adjustments for (gains) losses included in net income (loss)
   (5 ) 16 (8 ) (23 )
Available-for-sale securities with credit losses:

Unrealized gains (losses) arising during the period
   - 19 - 30
Reclassification adjustments for (gains) losses included in net income (loss)
   - 9 - 37
Foreign currency translation:

Foreign currency translation gains (losses)
   (1 ) (1 ) (1 ) -
Instrument-specific credit risk of liabilities measured at fair value:

Unrealized gains (losses) arising during the period
   3 (2 ) 49 -
Reclassification adjustments for (gains) losses included in net income (loss)
   1 19 3 23


Total other comprehensive income (loss)
   38 107 131 193


Comprehensive income (loss)

$
(68
)

$
(100
)

$
(308
)

$
(35
)


	Three Months Ended March 31,
	2021			2020
Net income (loss)	$	(106	)	$	(333	)
Other comprehensive income (loss):
Available-for-sale securities with no credit losses:
Unrealized gains (losses) arising during the period		(87	)		48
Reclassification adjustments for (gains) losses included in net income (loss)		(5	)		(3	)
Foreign currency translation:
Foreign currency translation gains (losses)		1			0
Instrument-specific credit risk of liabilities measured at fair value:
Unrealized gains (losses) arising during the period		(5	)		46
Reclassification adjustments for (gains) losses included in net income (loss)		20			2

Total other comprehensive income (loss)		(76	)		93

Comprehensive income (loss)	$	(182	)	$	(240	)

The accompanying notes are an integral part of the consolidated financial statements.

Table of Contents

MBIA INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

(In millions except share amounts)

Three Months Ended June 30,

Six Months Ended June 30,


2020

2019

2020

2019

Common shares

Balance at beginning and end of period
   283,433,401 283,625,689 283,433,401 283,625,689
Common
stock amount

Balance at beginning and end of period
   $ 283 $ 284 $ 283 $ 284
Additional paid-in capital

Balance at beginning of period
   $ 2,961 $ 2,996 $ 2,999 $ 3,025
Period change
   (3 ) (1 ) (41 ) (30 )


Balance at end of period
   $ 2,958 $ 2,995 $ 2,958 $ 2,995
Retained earnings

Balance at beginning of period
   $ 232 $ 945 $ 607 $ 966
ASU 2016-13 transition adjustment
   - - (42 ) -
Net income (loss)
   (106 ) (207 ) (439 ) (228 )


Balance at end of period
   $ 126 $ 738 $ 126 $ 738
Accumulated other comprehensive income (loss)

Balance at beginning of period
   $ 91 $ (70 ) $ (2 ) $ (156 )
Other comprehensive income (loss)
   38 107 131 193


Balance at end of period
   $ 129 $ 37 $ 129 $ 37
Treasury shares

Balance at beginning of period
   (211,272,995 ) (193,446,168 ) (204,000,108 ) (193,803,976 )
Treasury shares acquired under share repurchase program
   (9,765,326 ) (5,445,053 ) (17,848,082 ) (5,932,659 )
Other
   114,240 66,528 924,109 911,942


Balance at end of period
   (220,924,081 ) (198,824,693 ) (220,924,081 ) (198,824,693 )
Treasury stock amount

Balance at beginning of period
   $ (3,083 ) $ (2,967 ) $ (3,061 ) $ (3,000 )
Treasury shares acquired under share repurchase program
   (71 ) (50 ) (136 ) (54 )
Other
   5 3 48 40


Balance at end of period
   $ (3,149 ) $ (3,014 ) $ (3,149 ) $ (3,014 )
Total shareholders’ equity of MBIA Inc.

Balance at beginning of period
   $ 484 $ 1,188 $ 826 $ 1,119
Period change
   (137 ) (148 ) (479 ) (79 )


Balance at end of period

$
347

$
1,040

$
347

$
1,040

Preferred stock of subsidiary shares

Balance at beginning and end of period
   1,315 1,315 1,315 1,315
Preferred stock of subsidiary amount

Balance at beginning and end of period
   $ 13 $ 13 $ 13 $ 13


Total equity

$
360

$
1,053

$
360

$
1,053


	Three Months Ended March 31,
	2021			2020
Common shares
Balance at beginning of period		283,186,115			283,433,401
Common shares issued (cancelled), net		0			0

Balance at end of period		283,186,115			283,433,401
Common stock amount
Balance at beginning and end of period	$	283		$	283
Additional paid-in capital
Balance at beginning of period	$	2,962		$	2,999
Period change		(28	)		(38	)

Balance at end of period	$	2,934		$	2,961
Retained earnings
Balance at beginning of period	$	(13	)	$	607
ASU 2016-13 transition adjustment		0			(42	)
Net income (loss)		(106	)		(333	)

Balance at end of period	$	(119	)	$	232
Accumulated other comprehensive income (loss)
Balance at beginning of period	$	115		$	(2	)
Other comprehensive income (loss)		(76	)		93

Balance at end of period	$	39		$	91
Treasury shares
Balance at beginning of period		(229,508,967	)		(204,000,108	)
Treasury shares acquired under share repurchase program		0			(8,082,756	)
Other		671,502			809,869

Balance at end of period		(228,837,465	)		(211,272,995	)
Treasury stock amount
Balance at beginning of period	$	(3,211	)	$	(3,061	)
Treasury shares acquired under share repurchase program		0			(65	)
Other		33			43

Balance at end of period	$	(3,178	)	$	(3,083	)
Total shareholders’ equity of MBIA Inc.
Balance at beginning of period	$	136		$	826
Period change		(177	)		(342	)

Balance at end of period	$	(41	)	$	484

Preferred stock of subsidiary shares
Balance at beginning and end of period		1,315			1,315
Preferred stock of subsidiary amount
Balance at beginning and end of period	$	13		$	13

Total equity	$	(28	)	$	497

The accompanying notes are an integral part of the consolidated financial statements.

Table of Contents

MBIA INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In millions)

Six Months Ended June 30,


2020

2019

Cash flows from operating activities:

Premiums, fees and reimbursements received
   $ 12 $ 14
Investment income received
   66 91
Insured derivative commutations and losses paid
   - (1 )
Financial guarantee losses and loss adjustment expenses paid
   (115 ) (115 )
Proceeds from recoveries and reinsurance
   27 91
Operating and employee related expenses paid
   (46 ) (44 )
Interest paid, net of interest converted to principal
   (47 ) (91 )
Income taxes (paid) received
   14 (2 )


Net cash provided (used) by operating activities
   (89 ) (57 )


Cash flows from investing activities:

Purchases of available-for-sale investments
   (574 ) (1,410 )
Sales of available-for-sale investments
   569 1,367
Paydowns and maturities of available-for-sale investments
   464 567
Purchases of investments at fair value
   (85 ) (104 )
Sales, paydowns, maturities and other proceeds of investments at fair value
   88 237
Sales, paydowns and maturities (purchases) of short-term investments, net
   172 (72 )
Sales, paydowns and maturities of held-to-maturity investments
   315 -
Paydowns and maturities of loans receivable
   7 64
Consolidation of variable interest entities
   - 72
Deconsolidation of variable interest entities
   - (2 )
(Payments) proceeds for derivative settlements
   (7 ) (15 )
Collateral (to) from counterparties
   (8 ) (21 )


Net cash provided (used) by investing activities
   941 683


Cash flows from financing activities:

Proceeds from investment agreements
   7 7
Principal paydowns of investment agreements
   (20 ) (13 )
Principal paydowns of medium-term notes
   - (56 )
Principal paydowns of variable interest entity notes
   (327 ) (301 )
Purchases of treasury stock
   (134 ) (58 )
Other financing
   (7 ) (7 )


Net cash provided (used) by financing activities
   (481 ) (428 )


Net increase (decrease) in cash and cash equivalents
   371 198
Cash and cash equivalents - beginning of period
   83 280


Cash and cash equivalents - end of period
   $ 454 $ 478


Reconciliation of net income (loss) to net cash provided (used) by operating activities:

Net income (loss)
   $ (439 ) $ (228 )
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:

Change in:

Premiums receivable
   10 34
Deferred acquisition costs
   5 7
Unearned premium revenue
   (38 ) (67 )
Loss and loss adjustment expense reserves
   133 103
Insurance loss recoverable
   151 (28 )
Accrued interest payable
   68 56
Accrued expenses
   (12 ) (3 )
Net investment losses related to other-than-temporary impairments
   - 37
Unrealized (gains) losses on insured derivatives
   - (14 )
Net (gains) losses on financial instruments at fair value and foreign exchange
   1 (32 )
Other net realized (gains) losses
   (14 ) 56
Deferred income tax provision (benefit)
   13 -
Interest on variable interest entities, net
   3 -
Other operating
   30 22


Total adjustments to net income (loss)
   350 171


Net cash provided (used) by operating activities
   $ (89 ) $ (57 )


	Three Months Ended March 31,
	2021			2020
Cash flows from operating activities:
Premiums, fees and reimbursements received	$	3		$	3
Investment income received		21			37
Financial guarantee losses and loss adjustment expenses paid		(58	)		(75	)
Proceeds from recoveries and reinsurance		17			10
Proceeds from loan repurchase commitments		600			0
Operating and employee related expenses paid		(32	)		(34	)
Interest paid, net of interest converted to principal		(22	)		(23	)

Net cash provided (used) by operating activities		529			(82	)

Cash flows from investing activities:
Purchases of available-for-sale investments		(299	)		(242	)
Sales of available-for-sale investments		178			279
Paydowns and maturities of available-for-sale investments		96			123
Purchases of investments at fair value		(62	)		(33	)
Sales, paydowns, maturities and other proceeds of investments at fair value		59			34
Sales, paydowns and maturities (purchases) of short-term investments, net		(342	)		178
Sales, paydowns and maturities of held-to-maturity investments		0			315
Paydowns and maturities of loans receivable		5			3
(Payments) proceeds for derivative settlements		(53	)		(3	)
Collateral (to) from counterparties		0			(44	)

Net cash provided (used) by investing activities		(418	)		610

Cash flows from financing activities:
Proceeds from investment agreements		0			3
Principal paydowns of investment agreements		0			(12	)
Principal paydowns of variable interest entity notes		(156	)		(323	)
Purchases of treasury stock		(1	)		(62	)

Net cash provided (used) by financing activities		(157	)		(394	)

Net increase (decrease) in cash and cash equivalents		(46	)		134
Cash and cash equivalents - beginning of period		167			83

Cash and cash equivalents - end of period	$	121		$	217

Reconciliation of net income (loss) to net cash provided (used) by operating activities:
Net income (loss)	$	(106	)	$	(333	)
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:
Change in:
Accrued investment income		23			0
Unearned premium revenue		(19	)		(19	)
Loss and loss adjustment expense reserves		1			84
Insurance loss recoverable		55			86
Loan repurchase commitments		604			0
Accrued interest payable		25			35
Accrued expenses		(33	)		(19	)
Net (gains) losses on financial instruments at fair value and foreign exchange		(41	)		48
Other net realized (gains) losses		0			9
Other operating		20			27

Total adjustments to net income (loss)		635			251

Net cash provided (used) by operating activities	$	529		$	(82	)

The accompanying notes are an integral part of the consolidated financial statements.

Table of Contents

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 1: Business Developments and Risks and Uncertainties

Summary

MBIA Inc., together with its consolidated subsidiaries, (collectively, “MBIA” or the “Company”) operates within the financial guarantee insurance industry. MBIA manages 3 operating segments: 1) United States (“U.S.”) public finance insurance; 2) corporate; and 3) international and structured finance insurance. The Company’s U.S. public finance insurance business is managed through National Public Finance Guarantee Corporation (“National”), the corporate segment is operated through MBIA Inc. and several of its subsidiaries, including its service company, MBIA Services Corporation (“MBIA Services”) and its international and structured finance insurance business is primarily operated through MBIA Insurance Corporation and its subsidiary (“MBIA Corp.”).

Refer to “Note 10: Business Segments” for further information about the Company’s operating segments.

Business Developments

Puerto Rico

On January 1, ~~2020 and July 1, 2020,~~2021, the Commonwealth of Puerto Rico and certain of its instrumentalities (“Puerto Rico”) defaulted on scheduled debt service for National insured bonds and National paid gross ~~claims~~claim payments in the aggregate of ~~$391~~$51 million. As of ~~June 30, 2020,~~March 31, 2021, National had ~~$3.3~~$2.9 billion of debt service outstanding related to Puerto Rico. Refer to the “Risks and Uncertainties” section below for additional information on the Company’s Puerto Rico exposures.

PREPA RSA

In September of 2019, National agreed to join the restructuring support agreement, as amended (“RSA”), with the Puerto Rico Electric Power Authority (“PREPA”), other monoline insurers, a group of uninsured PREPA bondholders, Puerto Rico, and the Financial Oversight and Management Board for Puerto Rico (the “Oversight Board”). The Rule 9019 hearing to approve the RSA has been delayed several times, and most recently was adjourned due to the outbreak of the novel coronavirus

COVID-19

(“COVID-19”)

until further notice. The Oversight Board and the Commonwealth submitted a status report to the Title III court on July 31, 2020, requesting additional time to negotiate with creditors and seeking to file a further update with the Court on September 25, 2020. The debt restructuring contemplated by the RSA will not be effective until (i) confirmation of a plan of adjustment under the Puerto Rico Oversight, Management and Economic Stability Act (“PROMESA”), (ii) negotiation and consummation of definitive documentation and legal opinions, (iii) enactment and implementation of supportive Puerto Rico legislation and (iv) receipt of Puerto Rico regulatory approval, each of which outcome is uncertain and subject to varying degrees of risk.

GO PSA and HTA PSA

~~GO PSA~~

g certain clawback claims and providing for a distribution of cash, bonds and a contingent value instrument to bondholders ~~and guaranteed~~in the Puerto Rico ~~Buildings~~Highway and Transportation Authority (“~~PBA”~~HTA”) ~~bondholders~~Title III case subject to completing negotiations on a ~~framework for~~plan support agreement in respect of an HTA plan of adjustment (the “HTA PSA”). On May 5, 2021, National, Assured Guaranty Corp., Assured Guaranty Municipal Corp. and the Oversight Board entered into the HTA PSA, and National thereby agreed not to terminate its participation in the GO PSA. The Oversight Board has committed to filing a plan of adjustment for HTA by January 31, 2022. The GO PSA contemplates a Commonwealth plan becoming effective on or before December 15, 2021. Pursuant to ~~resolve $35.0 billion worth of debt and unsecured claims against~~ the ~~Commonwealth. On February 9, 2020,~~GO PSA, the Oversight Board ~~posted~~and National shall jointly request the entry of an ~~amended PSA, which provides for faster debt maturities and increased creditor support than~~order in the ~~originally filed PSA. The Oversight Board asserts that~~Title III court staying National’s actions to appoint a trustee in the ~~amended PSA has~~HTA Title III case pursuant to Section 926 currently before the ~~support~~First Circuit Court of approximately $10.7 billion (or approximately 58%) in GO bonds and PBA bonds, and settles disputes regarding the validity of the 2011, 2012 and 2014 GO bonds without the need of a litigation trust as previously contemplated under the initial PSA. National and theAppeals, together with other ~~monolines are not parties~~actions related to the ~~amended PSA.~~ clawback of HTA funds from the Commonwealth, and National shall take no further action with respect to those proceedings subject to the Commonwealth plan becoming effective.

On ~~July 15, 2020,~~April 6, 2021, the Oversight Board filed ~~its court-mandated status report concerning~~a m

tion seeking to schedule the ~~PSA. The Oversight Board stated that it was unprepared~~hearing to ~~propose a schedule~~consider the adequacy of the disclosure statement for the Commonwealth plan of adjustment ~~and~~for June 16, 2021.By order dated May 4, 2021, Judge Swain set the disclosure statement ~~processes~~hearing for July 13, 2021.

Table of Contents

MBIA Inc. and Subsidiaries

Notes to ~~restart due~~Consolidated Financial Statements (Unaudited)

Note 1: Business Developments and Risks and Uncertainties (continued)

Credit Suisse

2007-2

RMBS transaction sponsored by Credit Suisse, issued an order declaring that Credit Suisse was liable to MBIA for approximately $604

million in damages. In February of 2021, the parties to the ~~uncertainty~~litigation entered into a settlement agreement pursuant to which Credit Suisse paid MBIA Corp.

$600 million, and the Court entered an order dismissing the case. Refer to “Note 5: Loss and Loss Adjustment Expense Reserves” for a discussion of the ~~pandemic, fiscal and economic disruption,~~Company’s Credit Suisse

put-back

claims.

MBIA Corp. Refinanced Facility

During the ~~severe drought conditions present~~three months ended March 31, 2021, MBIA Corp. prepaid $150 million of the MZ Funding LLC (“MZ Funding”) financing facility’s 12% senior notes maturing on January 20, 2022 (“Refinanced Facility”). As of March 31, 2021, the consolidated outstanding amount of the Refinanced Facility was $127 million is included in ~~Puerto Rico as well as political and legislative hurdles. The Board proposed September 11, 2020 as~~“Variable interest entity notes” under “Liabilities of consolidated variable interest entities” on the ~~next date to provide a further status report to the Court.~~Company’s consolidated balance sheet.

Risks and Uncertainties

The Company’s financial statements include estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. The outcome of certain significant risks and uncertainties could cause the Company to revise its estimates and assumptions or could cause actual results to differ materially from the Company’s estimates. The discussion below highlights the significant risks and uncertainties that could have a material effect on the Company’s financial statements and business objectives in future periods.

COVID-19

vaccines approved by the U.S. Food and Drug Administration may materially reduce the impact ~~scope and duration~~of

COVID-19

going forward, although the long-term impact of the ~~outbreak, and the availability of treatment or vaccine,~~virus including certain new strains remain ~~largely unknown.~~uncertain. The attendant governmental policy and social responses, and economic and financial consequences, continue to be the subject of considerable ~~attention and development. The Company continues to perform all of its traditional operations, including surveilling and, as necessary, remediating, the credits in its insured portfolios.~~attention.

~~MBIA Inc. and Subsidiaries~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~Note 1: Business Developments and Risks and Uncertainties (continued)~~

Insured portfolios

The Company continues to ~~regularly~~ assess the financial impact of the pandemic on its operating insurance companies’ overall insured portfolios. It remains challenging to comprehensively quantify, or account for the impact of the outbreak on most of the specific credits within those portfolios, due to, in part, challenges in determining whether and to what extent the underlying credits will be able or willing to continue to meet their debt service obligations or avoid long term impairment in this environment. Adverse ~~impacts~~developments on macroeconomic factors resulting from the spread of

COVID-19,

Federal legislation passed to combat the economic impact of the pandemic ~~principally~~has been significant, including the $2.7 trillion Coronavirus Aid, Relief, and Economic Security (“CARES”) Act in 2020, which included significant aid to offset

COVID-19

related expenditures of public sector issuers including states, territories, healthcare, higher education and transportation issuers. ~~In addition,~~Also, the Federal Reserve has ~~announced several actions in furtherance of its mandate from Congress~~shown willingness to promote the stability of the financial system that are directly supportive of the municipal ~~market. It is premature~~market, such as the Municipal Lending Facility created in 2020. In March of 2021, Congress passed the American Rescue Plan Act of 2021, a $1.9 trillion economic stimulus package designed to ~~assess whether these or any subsequent~~further stabilize the financial system. This law allocated nearly $350 billion of aid to state and local governments to replace lost revenues resulting from the pandemic with relatively few restrictions on use of said funds. While the unprecedented amount of federal ~~responses will prevent or reduce financial distress in~~aid directed to state and local municipalities has blunted the ~~municipal sector. If~~impact of the pandemic, not all of the issuers of the obligations in National’s insured portfolio ~~including Puerto Rico,~~are eligible to receive it. Further, if issuers are unable to raise taxes, reduce spending, or receive federal assistance, the Company may experience new or additional losses or impairments on those obligations, which could materially and adversely affect its business, financial condition and financial results.

Table of Contents

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 1: Business Developments and Risks and Uncertainties (continued)

Certain of MBIA Corp.’s structured finance policies, including those in which the underlying principal obligations are comprised of residential or commercial mortgages and mortgage-backed securities (“MBS”), could be negatively impacted by delays or failures of borrowers to make payments of principal and interest when due, or delays or moratoriums on foreclosures or enforcement actions with respect to delinquent or defaulted mortgages imposed by governmental authorities. MBIA Corp. has recorded significant loss reserves on its residential mortgage-backed securities (“RMBS”) and collateralized debt obligations (“CDO”) exposures, and there can be no assurance that these reserves will be sufficient if the pandemic causes further deterioration to the economy. These transactions are also subject to servicer risks, which relate to problems with the transaction’s servicer that could adversely impact performance of the underlying assets. Additionally, several of the Company’s credits, particularly within its international public finance sector, feature large, near term debt-service payments, and there can be no assurance that the liquidity position of MBIA Corp. will enable it to satisfy any claims that arise if the issuers of such credits are unable or unwilling to refinance or repay their obligations. MBIA Corp. has recorded substantial expected recoveries on certain RMBS transactions, and the forbearance options ~~available under the~~

~~CARES~~

~~Act for~~that mortgage borrowers who ~~are~~were facing financial difficulties took advantage of under the CARES Act, may delay or impair collections on these recoveries.

Liquidity

The Company continues to monitor its cash and liquid asset resources using cash forecasting and stress-scenario testing. Members of the Company’s senior management meet regularly to review liquidity metrics, discuss contingency plans and establish target liquidity levels. It remains ~~premature~~uncertain to predict the full long-term impact the pandemic may have on the Company’s future liquidity position and needs. Declines in the market value or rating eligibility of assets pledged against the Company’s obligations as a result of credit market deterioration caused by

COVID-19

require additional eligible assets to be pledged in order to meet minimum required collateral amounts against these obligations. This could require the Company to sell assets, potentially with substantial losses or use free cash or other assets to meet the collateral requirements, thus negatively impacting the Company’s liquidity position. Associated declines in the yields in its insurance companies’ fixed-income portfolios could materially impact investment income.

U.S. Public Finance Market Conditions

National continues to monitor and remediate its existing insured portfolio and may also pursue strategic alternatives that could enhance shareholder value. Certain state and local governments and territory obligors that National insures are under financial and budgetary stress. This could lead to an increase in defaults by such entities on the payment of their obligations and losses or impairments on a greater number of National’s insured transactions. National monitors and analyzes these situations and other stressed credits closely, and the overall extent and duration of this stress is uncertain.

~~MBIA Inc. and Subsidiaries~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~Note 1: Business Developments and Risks and Uncertainties (continued)~~

Puerto Rico had been experiencing significant fiscal stress and constrained liquidity, and in response, the U.S. Congress passed PROMESA, which established an independent Oversight Board vested with the sole power to certify fiscal plans for Puerto Rico. Any current proposed or contemplated plan, including any revisions thereto, can provide no assurance that National will fully recover past amounts paid or future amounts that may be covered under its insurance policies. In addition, the extent and duration of any federal aid that may be offered to Puerto Rico is inherently uncertain, and the necessary and greater involvement of the federal government, through its actions to deliver disaster relief and other support services, in addition to the role of the Oversight Board and the role of Puerto Rico in its own recovery, heightens political risk in connection with the restructuring of legacy debt. This risk could lead the Oversight Board, Puerto Rico or the federal government to seek to extract greater concessions from creditors based on the uncertainty of Puerto Rico’s long term recovery prospects. In this event, losses at National on select Puerto Rico exposures could increase materially.

MBIA Corp. Insured Portfolio

MBIA Corp.’s primary objectives are to satisfy all claims by its policyholders and to maximize future recoveries, if any, for its senior lending and surplus note holders, and then its preferred stock holders. MBIA Corp. is executing this strategy by, among other things, ~~pursuing various actions focused on maximizing~~taking steps to maximize the collection of recoveries and by reducing and mitigating potential losses on its insurance exposures. MBIA Corp.’s insured portfolio performance could deteriorate and result in additional significant loss reserves and claim payments. MBIA Corp.’s ability to meet its obligations is limited by available liquidity and its ability to secure additional liquidity through financing and other transactions. There can be no assurance that MBIA Corp. will be successful in generating sufficient resources to meet its obligations.

Zohar and RMBS Recoveries

Payment of claims on MBIA Corp.’s policies insuring the Class A-1 and A-2 notes issued by Zohar CDO 2003-1, Limited (“Zohar I”) and Zohar II 2005-1, Limited (“Zohar II”), entitles MBIA Corp. to reimbursement of such amounts plus interest and expenses and/or to exercise certain rights and remedies to seek recovery of such amounts. MBIA Corp. anticipates that the primary source of the recoveries will come from the monetization of the assets of Zohar I and Zohar II (the “Zohar Assets”), which include, among other things, loans made to, and equity interests in, companies that, until late March of 2020, were purportedly controlled and managed by the sponsor and former collateral manager of Zohar I and Zohar II (the “Zohar Sponsor”). In late March of 2020, the Zohar Sponsor resigned as director and manager of all but ~~one portfolio company, and new directors and managers are currently in place at all but two portfolio companies, which are all subject to a monetization process approved by the Court. However,~~ there can be no assurance that the monetization of the Zohar Assets will yield amounts sufficient to permit MBIA Corp. to recover a substantial portion of the payments it made on Zohar I and Zohar II.

In particular, as the monetization process unfolds ~~in coordination with the new directors and managers in place,~~ and new information concerning the financial condition of the portfolio companies which comprise a significant portion of the Zohar Assets is disclosed, the Company may revise its expectations for recoveries. For example, at a June 3, 2020 hearing, counsel for one of the portfolio companies announced that the monetization process for that company would be delayed as a consequence of having to investigate issues relating to the integrity of the company’s financial statements.

Table of Contents

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 1: Business Developments and Risks and Uncertainties (continued)

MBIA Corp. also projects to collect excess spread from insured RMBS, and to recover proceeds from Credit Suisse Securities (USA) LLC and DLJ Mortgage Capital, Inc. (collectively, “Credit Suisse”) arising from its failure to repurchase ineligible loans that were included in a Credit Suisse sponsored RMBS transaction. However,RMBS; however, the amount and timing of these ~~recoveries and~~ collections are uncertain.

Failure to collect its expected recoveries could impede MBIA Corp.’s ability to make payments when due on other policies. MBIA Corp. believes that if the New York State Department of Financial Services (“NYSDFS”) concludes at any time that MBIA Insurance Corporation will not be able to pay its policyholder claims, the NYSDFS would likely put MBIA Insurance Corporation into a rehabilitation or liquidation proceeding under Article 74 of the New York Insurance Law (“NYIL”) and/or take such other actions as the NYSDFS may deem necessary to protect the interests of MBIA Insurance Corporation’s policyholders. The determination to commence such a proceeding or take other such actions is within the exclusive control of the NYSDFS.

Given the separation of MBIA Inc. and MBIA Corp. as distinct legal entities, the absence of any cross defaults between the entities and the lack of reliance by MBIA Inc. on MBIA Corp. for dividends, the Company does not believe that a rehabilitation or liquidation proceeding with respect to MBIA Insurance Corporation would have any significant liquidity impact on MBIA Inc. Such a proceeding could have material adverse consequences for MBIA Corp., including the termination of ~~insured credit default swaps (“CDS”) and other~~ derivative contracts for which counterparties may assert market-based claims, the acceleration of debt obligations issued by affiliates and insured by MBIA Corp., the loss of control of MBIA Insurance Corporation to a rehabilitator or liquidator, and unplanned costs.

Refer to “Note 5: Loss and Loss Adjustment Expense Reserves” for additional information about MBIA Corp.’s recoveries.

~~MBIA Inc. and Subsidiaries~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~Note 1: Business Developments and Risks and Uncertainties (continued)~~

Corporate Liquidity

Based on the Company’s projections of National’s dividends and other cash inflows, ~~including potential additional releases under its tax sharing agreement and related tax escrow account (“Tax Escrow Account”),~~ the Company expects that MBIA Inc. will have sufficient cash to satisfy its debt service and general corporate needs. However, MBIA Inc. continues to have liquidity risk that could be caused by interruption of or reduction in dividends ~~or tax payments received~~ from ~~operating subsidiaries,~~National, deterioration in the performance of invested assets, impaired access to the capital markets, as well as other factors, which are not anticipated at this time. Furthermore, failure by MBIA Inc. to settle liabilities that are insured by MBIA Corp. could result in claims on MBIA Corp.

Note 2: Significant Accounting Policies

The Company has disclosed its significant accounting policies in “Note 2: Significant Accounting Policies” in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form

10-K

for the year ended December 31, ~~2019.~~2020. The following significant accounting policies provide an update to those included in the Company’s Annual Report on Form

10-K.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form

10-Q

and Article 10 of Regulation

S-X

and, accordingly, do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America (“GAAP”) for annual periods. These statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form

10-K

for the year ended December 31, ~~2019.~~2020. The accompanying consolidated financial statements have not been audited by an independent registered public accounting firm in accordance with the standards of the Public Company Accounting Oversight Board (U.S.), but in the opinion of management such financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for the fair statement of the Company’s consolidated financial position and results of operations. All material intercompany balances and transactions have been eliminated.

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. As additional information becomes available or actual amounts become determinable, the recorded estimates are revised and reflected in operating results.

The results of operations for the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 may not be indicative of the results that may be expected for the year ending December 31, ~~2020.~~2021. The December 31, ~~2019~~2020 consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by GAAP for annual periods.

~~Investments~~

~~The Company classifies its investments as~~

~~available-for-sale~~

~~(“AFS”),~~

~~held-to-maturity~~

~~(“HTM”), or trading. AFS investments are reported in the consolidated balance sheets at fair value with~~

~~non-credit~~

related unrealized gains and losses, net of applicable deferred income taxes, reflected in accumulated other comprehensive income (loss) (“AOCI”) in shareholders’ equity. The specific identification method is used to determine realized gains and losses on AFS securities. HTM investments, for which the Company has the ability and intent to hold such investments to maturity, are reported in the consolidated balance sheets at amortized cost (net of an allowance for credit losses). Investments carried at fair value consist of equity instruments, and certain investments elected under the fair value option, or classified as trading. Short-term investments held as AFS include all fixed-maturity securities with a remaining maturity of less than one year at the date of purchase, commercial paper and money market securities. Changes in fair value of investments carried at fair value and realized gains and losses from the sale of investment securities are reflected in earnings as part of “Net gains (losses) on financial instruments at fair value and foreign exchange” on the Company’s consolidated statements of operations.

Investment income is recorded as earned which includes the current period interest accruals deemed collectible. Accrued interest income is recorded as part of “Other assets” on the Company’s consolidated balance sheets. Bond discounts and premiums are amortized using the effective yield method over the remaining term of the securities and reported in “Net investment income” on the Company’s consolidated statements of operations. However, premiums on certain callable debt securities are amortized to the earliest call date. For MBS and asset-backed securities (“ABS”), discounts and premiums are amortized using the retrospective or prospective method.

Effective January 1, 2020, accrued interest income on debt securities is not assessed for credit losses as the Company reverses any past due accrued interest income and charges it against net investment income. Interest income is subsequently recognized to the extent cash is received.

~~MBIA Inc. and Subsidiaries~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~Note 2: Significant Accounting Policies (continued)~~

~~Credit Losses on Debt Securities~~

For AFS debt securities, the Company’s consolidated statements of operations reflect the full impairment (the difference between a security’s amortized cost basis and fair value) if the Company intends to sell or would more likely than not be required to sell before the expected recovery of the amortized cost basis. For AFS debt securities in an unrealized loss position and HTM debt securities that the Company has the intent and ability to hold, the securities are evaluated on a quarterly basis to determine if a credit loss exists. The Company considers a credit loss exists when the Company does not expect to recover the entire amortized cost basis of the debt security. The Company measures the allowance for credit loss on a security-by-security basis as the difference between the recorded investment and the present value of the cash flows expected to be collected, discounted at the instrument’s effective interest rate. In the event of a credit loss, only the amount of impairment associated with the credit loss is recognized in income and reflected in earnings as part of “Other net realized gains (losses)” on the Company’s statements of operations.

Effective January 1, 2020, the Company no longer records impairment for credit losses as adjustments to the amortized cost of the debt securities, but rather records an allowance for credit loss. For AFS debt securities, adjustments to the amortized cost basis are recorded if there is an intent to sell before recovery from impairment. For debt securities with an allowance for credit loss, changes in credit losses including accretion of the allowance for credit losses are recognized through other net realized gains (losses) as discussed above.

~~Financial Guarantee Insurance Premiums~~

The Company has disclosed its financial guarantee insurance premiums in “Note 2: Significant Accounting Policies” and “Note: 5 Insurance Premiums” in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. Below is an update on the Company’s premium receivables accounting policy.

~~Credit Losses on Premium Receivables~~

The Company evaluates the collectability of outstanding premium receivables on a quarterly basis and measures any allowance for credit losses as the difference between the receivable amounts compared to the projected net present value of premiums expected to be collected, discounted at the effective interest rate which is the risk-free rate for the insurance contracts. The estimation of the allowance for credit losses involves substantial judgment, requires forecasting cash flows, and incorporates any historical experience of uncollectible balances, future performance of the transaction’s underlying assets, certain macro-economic factors and each transaction’s liability structure, including the seniority of premium payments to the Company.

Note 3: Recent Accounting Pronouncements

Recently Adopted Accounting Standards

~~Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13)~~

In June of 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 requires financing receivables and other financial assets measured at amortized cost to be presented at the net amount expected to be collected by recording an allowance for credit losses with changes in the allowance recorded as credit loss expense or a reversal of credit loss expense based on management’s current estimate of expected credit losses each period. ASU 2016-13 does not apply to credit losses on financial guarantee insurance contracts within the scope of Accounting Standards Codification Topic 944, “Financial Services-Insurance.” ASU 2016-13 also makes targeted amendments to the current impairment model for AFS debt securities, which include requiring the recognition of an allowance rather than a direct write-down of the investment’s cost basis. An allowance on an AFS investment may be reversed in the event that the credit quality of the issuer improves. The new guidance also replaces the model for purchased credit impaired debt securities and requires the establishment of an allowance for credit losses at acquisition of such securities by grossing up the purchase price when recording the initial amortized cost. ASU 2016-13 is effective for interim and annual periods beginning January 1, 2020 with early adoption permitted beginning January 1, 2019. ASU 2016-13 is applied on a modified retrospective basis except that prospective application is applied to AFS debt securities with other-than-temporary impairments (“OTTI”) recognized before the date of adoption.

~~MBIA Inc. and Subsidiaries~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~Note 3: Recent Accounting Pronouncements (continued)~~

The Company adopted ASU 2016-13 in its entirety as of January 1, 2020. For financial assets held by the Company and measured at amortized cost, which primarily include HTM debt securities, premiums receivable, accrued investment income and reinsurance

~~recoverables~~

~~the Company’s aggregate cumulative-effect adjustment, net of tax, related to allowances for credit losses as of the date of adoption was a $~~

million reduction in retained earnings. In addition, the Company updated its models and implemented or modified processes and controls necessary for the proper identification, measurement and recording of expected credit losses on financial assets within the scope of ASU 2016-13.

~~Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13)~~

In August of 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.” ASU 2018-13 modifies the disclosure requirements on fair value measurements. ASU 2018-13 was effective for interim and annual periods beginning January 1, 2020 with early adoption permitted to remove or modify disclosures upon issuance of the standard and delay adoption of the additional disclosures until the effective date. Since the amendments of ASU 2018-13 only impact disclosure requirements, the adoption of ASU 2018-13 did not impact the Company’s consolidated financial statements. The Company adopted the amendments of ASU 2018-13 in its entirety as of January 1, 2020. The adoption of ASU 2018-13 only impacted the fair value disclosures within the Company’s consolidated financial statements and did not impact amounts reported on the Company’s balance sheet, statement of operations, statement of comprehensive income or statement of cash flows.

~~Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12)~~

As previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, in the fourth quarter of 2019, the Company adopted ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” as of January 1, 2019. As a result of adopting ASU 2019-12, the Company revised its previously reported amounts for the three and six months ended June 30, 2019. For the three months ended June 30, 2019, the Company previously reported an income tax benefit and a net loss of $37 million and $170 million, respectively, which were revised to 0 and a net loss of $207 million, respectively. In addition, for the three months ended June 30, 2019, the Company previously reported a net loss per basic and diluted common share of $2.02 which was revised to a $2.45 net loss per basic and diluted common share. For the six months ended June 30, 2019 the Company previously reported an income tax benefit and a net loss of $39 million and $187 million, respectively, which were revised to an income tax provision and a net loss of $2 million and $228 million, respectively. In addition, for the six months ended June 30, 2019, the Company previously reported a net loss per basic and diluted common share of $2.20 which was revised to a $2.68 net loss per basic and diluted common share. There was no impact to the Company’s consolidated shareholders’ equity.

The Company has not adopted any ~~other~~ new accounting pronouncements that had a material impact on its consolidated financial statements.

Table of Contents

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 3: Recent Accounting Pronouncements (continued)

Recent Accounting Developments

Reference Rate Reform (Topic 848): Scope (ASU 2021-01) and Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (ASU 2020-04)

In ~~March~~January of ~~2020,~~2021, the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-01, “Reference Rate Reform – Scope,” which clarified the scope and application of the original guidance, ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial ~~Reporting.~~Reporting,” issued in March of 2020. ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships ~~subject to meeting certain criteria~~ that reference London Interbank Offered Rate (“LIBOR”) ~~and another rate~~or other rates that isare expected to be ~~discontinued.~~discontinued, subject to meeting certain criteria. Both ASU 2020-04 isand ASU 2021-01 were effective ~~as of March 12, 2020~~upon issuance, and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company is evaluating the impact of adopting ASU 2021-01 and 2020-04.

~~MBIA Inc. and Subsidiaries~~

~~Notes to Consolidated Financial Statements (~~

~~Unaudited~~

)

Note 4: Variable Interest Entities

Primarily through MBIA’s international and structured finance insurance segment, the Company provides credit protection to issuers of obligations that may involve issuer-sponsored special purpose entities (“SPEs”). An SPE may be considered a variable interest entity (“VIE”) to the extent the SPE’s total equity at risk is not sufficient to permit the SPE to finance its activities without additional subordinated financial support or its equity investors lack any one of the following characteristics: (i) the power to direct the activities of the SPE that most significantly impact the entity’s economic performance or (ii) the obligation to absorb the expected losses of the entity or the right to receive the expected residual returns of the entity. A holder of a variable interest or interests in a VIE is required to assess whether it has a controlling financial interest, and thus is required to consolidate the entity as primary beneficiary. An assessment of a controlling financial interest identifies the primary beneficiary as the variable interest holder that has both of the following characteristics: (i) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance and (ii) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. The primary beneficiary is required to consolidate the VIE. An ongoing reassessment of controlling financial interest is required to be performed based on any substantive changes in facts and circumstances involving the VIE and its variable interests.

The Company evaluates issuer-sponsored SPEs initially to determine if an entity is a VIE, and is required to reconsider its initial determination if certain events occur. For all entities determined to be VIEs, MBIA performs an ongoing reassessment to determine whether its guarantee to provide credit protection on obligations issued by VIEs provides the Company with a controlling financial interest. Based on its ongoing reassessment of controlling financial interest, the Company determines whether a VIE is required to be consolidated or deconsolidated.

The Company makes its determination for consolidation based on a qualitative assessment of the purpose and design of a VIE, the terms and characteristics of variable interests of an entity, and the risks a VIE is designed to create and pass through to holders of variable interests. The Company generally provides credit protection on obligations issued by VIEs, and holds certain contractual rights according to the purpose and design of a VIE. The Company may have the ability to direct certain activities of a VIE depending on facts and circumstances, including the occurrence of certain contingent events, and these activities may be considered the activities of a VIE that most significantly impact the entity’s economic performance. The Company generally considers its guarantee of principal and interest payments of insured obligations, given nonperformance by a VIE, to be an obligation to absorb losses of the entity that could potentially be significant to the VIE. At the time the Company determines it has the ability to direct the activities of a VIE that most significantly impact the economic performance of the entity based on facts and circumstances, MBIA is deemed to have a controlling financial interest in the VIE and is required to consolidate the entity as primary beneficiary. The Company performs an ongoing reassessment of controlling financial interest that may result in consolidation or deconsolidation of any VIE.

Table of Contents

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 4: Variable Interest Entities (continued)

Consolidated VIEs

The carrying amounts of assets and liabilities of consolidated VIEs ~~was $1.3 billion~~were $228 million and ~~$1.2 billion,~~$474 million, respectively, as of ~~June 30, 2020~~March 31, 2021 and ~~$1.6 billion~~$830 million and ~~$1.5 billion,~~$623 million, respectively, as of December 31, ~~2019.~~2020. The carrying amounts of assets and liabilities are presented separately in “Assets of consolidated variable interest entities” and “Liabilities of consolidated variable interest entities” on the Company’s consolidated balance sheets. VIEs are consolidated or deconsolidated based on an ongoing reassessment of controlling financial interest, when events occur or circumstances arise, and whether the ability to exercise rights that constitute power to direct activities of any VIEs are present according to the design and characteristics of these entities. In the ~~second~~first quarter of ~~2020,~~2021, there was no0 consolidation or deconsolidation of VIEs by the Company. In the first quarter of 2020, the Company deconsolidated 1

structured finance VIE due to the prepayment of the outstanding notes of the VIE. Also in the first quarter of 2020, the Puerto Rico Sales Tax Financing Corporation (“COFINA”) Trusts established in 2019 (the “Trusts”) were legally dissolved and the 7 related VIEs were deconsolidated. There was no0 impact toon the Company’s consolidated statement of operations for the first quarter of 2020 due to the deconsolidation of these VIEs. In the first quarter of 2019, the Company consolidated 7 VIEs related to the Trusts established in connection with the COFINA Plan of Adjustment. On the initial consolidation of the Trusts, the Company recorded a loss of $42 million, representing the difference between the fair value of the Company’s financial guarantee within the Trusts and the carrying value of the insurance related balances on the COFINA policies. During 2019, all of the uninsured bonds held in the Trusts were sold and the proceeds were used to reduce National’s obligations under its original insurance policies upon passing the proceeds through the Trusts to certificate holders. In addition, in 2019, National elected to make a voluntary additional payment in the amount of $66 million with the effect of simultaneously reducing the Trust’s obligations to zero and satisfying in full the obligations under its original insurance policies. In the second quarter of 2019, 2 VIEs were deconsolidated as a result of the termination of the Company’s insurance policies related to those VIEs and the Company recorded losses of $16 million primarily due to credit losses in AOCI that were released to earnings. Consolidation and deconsolidation gains and losses, if any, are recorded within “Other net realized gains (losses)” under “Revenues of consolidated variable interest entities” on the Company’s consolidated statements of operations.

~~MBIA Inc. and Subsidiaries~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~Note 4: Variable Interest Entities (continued)~~

Holders of insured obligations of issuer-sponsored VIEs do not have recourse to the general assets of the Company. In the event of nonpayment of an insured obligation issued by a consolidated VIE, the Company is obligated to pay principal and interest, when due, on the respective insured obligation only. The Company’s exposure to consolidated VIEs is limited to the credit protection provided on insured obligations and any additional variable interests held by the Company.

Nonconsolidated VIEs

The following tables present the Company’s maximum exposure to loss for nonconsolidated VIEs and carrying values of the assets and liabilities for its interests in these VIEs in its insurance operations as of ~~June 30, 2020~~March 31, 2021 and December 31, 2019. The amounts included under the headings for the carrying value of assets and liabilities represent amounts reported within the applicable financial statement line items on the Company’s consolidated balance sheets.2020. The maximum exposure to loss as a result of MBIA’s variable interests in VIEs is represented by insurance in force. Insurance in force is the maximum future payments of principal and interest which may be required under commitments to make payments on insured obligations issued by nonconsolidated VIEs. The Company has aggregated nonconsolidated VIEs based on the underlying credit exposure of the insured obligation. The nature of the Company’s variable interests in nonconsolidated VIEs is related to financial guarantees and any investments in obligations issued by nonconsolidated VIEs.

June 30, 2020




Carrying Value of Assets

Carrying Value of Liabilities

In millions

Maximum
Exposure
to Loss

Investments

Premiums
Receivable

Insurance Loss
Recoverable

Unearned
Premium
Revenue

Loss and Loss
Adjustment
Expense
Reserves

Insurance:

Global structured finance:

Mortgage-backed residential

$
1,993


$
13


$
16


$
115


$
15


$
481

Consumer asset-backed


335



-



1



1



1



17

Corporate asset-backed


839



-



6



475



6



2

Total global structured finance


3,167



13



23



591



22



500

Global public finance


1,834



-



7



-



8



-













Total insurance

$
5,001


$
13


$
30


$
591


$
30


$
500


	March 31, 2021
			Carrying Value of Assets						Carrying Value of Liabilities
In millions	Maximum Exposure to Loss		Investments		Premiums Receivable		Insurance Loss Recoverable		Unearned Premium Revenue		Loss and Loss Adjustment Expense Reserves
Insurance:
Global structured finance:
Mortgage-backed residential	$	1,757	$	80	$	16	$	69	$	13	$	428
Consumer asset-backed		277		0		1		1		1		13
Corporate asset-backed		628		0		4		333		5		3

Total global structured finance		2,662		80		21		403		19		444
Global public finance		1,415		0		7		0		7		2

Total insurance	$	4,077	$	80	$	28	$	403	$	26	$	446

December 31, 2019


Carrying Value of Assets

Carrying Value of Liabilities

In millions

Maximum

  Exposure

to Loss

  Investments

Premiums
Receivable

Insurance Loss
Recoverable

Unearned
Premium
Revenue

Loss and Loss
Adjustment
Expense
Reserves
Insurance:






Global structured finance:






Mortgage-backed residential

$
2,253


$
15


$
19


$
107


$
16


$
436

Mortgage-backed commercial


26



-



-



-



-



-

Consumer asset-backed


384



-



1



1



1



11

Corporate asset-backed


937



-



6



673



7



-













Total global structured finance


3,600



15



26



781



24



447

Global public finance


1,926



-



8



-



9



-













Total insurance

$
5,526


$
15


$
34


$
781


$
33


$
447


	December 31, 2020
			Carrying Value of Assets						Carrying Value of Liabilities
In millions	Maximum Exposure to Loss		Investments		Premiums Receivable		Insurance Loss Recoverable		Unearned Premium Revenue		Loss and Loss Adjustment Expense Reserves
Insurance:
Global structured finance:
Mortgage-backed residential	$	1,835	$	21	$	16	$	90	$	14	$	482
Consumer asset-backed		293		0		1		1		1		15
Corporate asset-backed		735		0		5		364		5		0

Total global structured finance		2,863		21		22		455		20		497
Global public finance		1,434		0		7		0		7		2

Total insurance	$	4,297	$	21	$	29	$	455	$	27	$	499

1311

Table of Contents

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial

Statements

(

~~Unaudited~~

) (Unaudited)

Note 5: Loss and Loss Adjustment Expense Reserves

U.S. Public Finance Insurance

U.S. public finance insured transactions consist of municipal bonds, including

tax-exempt

and taxable indebtedness of U.S. political subdivisions, as well as utilities, airports, health care institutions, higher educational facilities, ~~student loan issuers,~~ housing authorities and other similar agencies and obligations issued by private entities that finance projects that serve a substantial public purpose. The Company estimates future losses by using probability-weighted cash flow scenarios that are customized to each insured transaction. Future loss estimates consider debt service due for each insured transaction, which includes par outstanding and interest due, as well as recoveries for such payments, if any. Gross par outstanding for capital appreciation bonds represents the par amount at the time of issuance of the insurance policy.

Certain state and local governments and territory obligors that National insures are under financial and budgetary stress. In addition, the COVID-19 pandemic may present additional but unknown credit risks to National’s insured portfolio. Puerto Rico had been experiencing significant fiscal stress and constrained liquidity, and in response, the U.S. Congress passed PROMESA. In formulating loss reserves, the Company considers the following: environmental and political impacts; litigation; ongoing discussions with creditors; timing and amount of debt service payments and future recoveries; existing proposed restructuring plans or agreements; and deviations from these proposals in its probability-weighted scenarios. On April 12, 2021, National, other monoline insurers and the Oversight Board reached an agreement in principle settling certain HTA clawback claims in the Commonwealth Title III case and providing for a distribution to HTA holders of cash, bonds and a contingent value instrument and on February 22, 2021, National agreed to join the GO PSA. In September of 2019, National agreed to join the RSA with PREPA, other monoline insurers, a group of uninsured PREPA bondholders, Puerto Rico, and the Oversight Board. Refer to “Note 1: Business Developments and ~~Risk~~Risks and Uncertainties”, for further information on COVID-19 and the Company’s Puerto Rico exposures.

Recoveries on Puerto Rico Losses

For recoveries on paid Puerto Rico losses, the estimates include assumptions related to the following: economic conditions and trends; political developments; the Company’s ability to enforce contractual rights through litigation and otherwise; discussions with other creditors and the obligors, any existing proposals; and the remediation strategy for an insured obligation that has defaulted or is expected for default.

International and Structured Finance Insurance

The international and structured finance insurance segment’s case basis reserves and insurance loss recoveries recorded in accordance with GAAP do not include ~~estimates for a policy insuring a credit derivative or on~~ financial guarantee VIEs that are eliminated in consolidation. The policy insuring a credit derivative contract is accounted for as a derivative and is carried at fair value in the Company’s consolidated financial statements under GAAP. The fair value of the insured credit derivative contract is influenced by a variety of market and transaction-specific factors that may be unrelated to potential future claim payments under the Company’s insurance policy. Refer to “Note 8: Derivative Instruments” for a further discussion of the Company’s use of derivatives and their impact on the Company’s consolidated financial statements. In addition, COVID-19 may present additional but unknown credit risks to MBIA Corp.’s insured portfolio. Refer to “Note 1: Business Developments and ~~Risk~~Risks and Uncertainties”, for further information on COVID-19.

RMBS Case Basis Reserves (Financial Guarantees)

The Company’s RMBS reserves and recoveries relate to financial guarantee insurance policies, excluding those on consolidated VIEs. The Company’s first-lien RMBS case basis reserves primarily relate to RMBS backed by alternative A-paper and subprime mortgage loans. The Company’s second-lien RMBS case basis reserves relate to RMBS backed by home equity lines of credit and closed-end second mortgages. The Company calculated RMBS case basis reserves as of ~~June 30, 2020~~March 31, 2021 for both first and second-lien RMBS transactions using a process called the Roll Rate Methodology (“Roll Rate Methodology”). The Roll Rate Methodology is a multi-step process using databases of loan level information, proprietary internal cash flow models, and commercially available models to estimate potential losses and recoveries on insured bonds. Roll Rate is defined as the probability that current loans become delinquent and subsequently default and loans in the delinquent pipeline are charged-off or liquidated. The loss reserve estimates are based on a probability-weighted average of ~~three~~potential scenarios of loan losses. Additional data used for both second and first-liens include historic averages of deal specific voluntary prepayment rates, forward projections of the LIBOR interest rates, and historic averages of deal-specific loss severities. In addition, for second-lien RMBS backed by home equity lines of credit, the Company assumes a constant basis spread between Prime and LIBOR interest rates. Where applicable, the Company factors in termination scenarios when clean up calls are imminent.

In calculating ultimate cumulative losses for RMBS, the Company estimates the amount of second-lien loans that are expected to be charged-off (deemed uncollectible by servicers of the transactions) and, for first-lien RMBS, the Company estimates the amount of loans that are expected to be liquidated in the future through foreclosure or short sale. The time to liquidation for a defaulted loan is specific to the loan’s delinquency bucket.

Table of Contents

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 5: Loss and Loss Adjustment Expense Reserves (continued)

For all RMBS transactions, cash flow models consider allocations and other structural aspects and claims against MBIA Corp.’s insurance policy consistent with such policy’s terms and conditions. The estimated net claims from the procedure above are then discounted using a risk-free rate to a net present value reflecting MBIA’s general obligation to pay claims over time and not on an accelerated basis.

The Company monitors RMBS portfolio performance on a monthly basis against projected performance, reviewing delinquencies, roll rates, and prepayment rates (including voluntary and involuntary). However, loan performance remains difficult to predict and losses may exceed expectations. In the event of a material deviation in actual performance from projected performance, the Company would increase or decrease the case basis reserves accordingly and re-evaluate its assumptions.

RMBS Recoveries

The ~~Company~~Company’s RMBS recoveries primarily ~~records two types of recoveries related~~relate to ~~insured RMBS exposures:~~ excess spread that is generated from the trust structures in the insured ~~transactions;~~transactions and second-lien “put-back” claims related to those mortgage loans whose inclusion in an insured securitization failed to comply with representations and warranties (“ineligible loans”). As of March 31, 2021, the Company had settled all of its put-back claims relating to the inclusion of ineligible loans in securitizations it insured. See “Second-lien Put-Back Claims Related to Ineligible Loans” below.

Excess Spread

Excess spread within insured RMBS securitizations is the difference between interest inflows on mortgage loan collateral and interest outflows on the insured RMBS notes. The aggregate amount of excess spread depends on the future loss trends, which include future delinquency trends, average time to

charge-off/liquidate

delinquent loans, the future spread between Prime and the LIBOR interest rates, and borrower refinancing behavior (which may be affected by changes in the interest rate environment) that results in voluntary prepayments. Excess spread also includes subsequent recoveries on previously

charged-off

loans associated with insured second-lien RMBS securitizations.

Second-lien Put-Back Claims Related to Ineligible Loans

~~The~~During the first quarter of 2021, the Company ~~has settled the majority of~~entered into a settlement agreement with Credit Suisse related to its put-back ~~claims relating~~claims. In the litigation brought to ~~the inclusion of ineligible loans in securitizations it insured. Only its~~pursue these claims, ~~against~~ Credit Suisse ~~remain outstanding. Credit Suisse has~~had challenged the Company’s assessment of the ineligibility of individual mortgage ~~loans and~~loans. In November of 2020, following a trial ~~concerning~~and post-trial briefing, the ~~dispute~~court overseeing the litigation issued a decision declaring that MBIA Corp. had succeeded in establishing that a majority of the loans in the transaction were ineligible. In January of 2021, the Court issued an order declaring that Credit Suisse was ~~held~~liable to MBIA for approximately

$604

million in ~~July~~damages. On February 9, 2021, the parties to the litigation entered into a settlement agreement pursuant to which Credit Suisse paid MBIA Corp.

$600

million, and ~~August of 2019. While~~on February 11, 2021, the court entered an order dismissing the case. Refer to “Note 13: Commitments and Contingencies” for further information about the Company’s ~~settlement amounts on its prior put-back claims have been consistent~~litigation with ~~the put-back recoveries that had been included in the Company’s financial statements at the times preceding the settlements, there can be no assurance that~~Credit Suisse. As of December 31, 2020, the Company will prevail in its litigation against Credit Suisse. However, based on the Company’s assessment of the strength of its contractual put-back rights against Credit Suisse, as well as on its prior settlements with other sellers/servicers and success of other monolines’ put-back settlements, the Company believes it will prevail in enforcing its contractual rights and that it is entitled to collect the full amount of its incurred losses plus contractual interest due. The Company consolidatesconsolidated the RMBS securitization originated by Credit Suisse as a VIE and, therefore, eliminates its estimate of recoveries from its insurance accounting and reflects such recoveries in its accounting for the loan repurchase commitments asset of the VIE using a ~~measurement process similar to that used for insurance accounting.~~fair value measurement.

The uncertainty remaining with respect to the ultimate outcome of the litigation with Credit Suisse is contemplated in the probability-weighted scenario based-modeling the Company uses. The Credit Suisse recovery scenarios are based on certain probabilities of ultimate resolution of the dispute with Credit Suisse and the fair values are determined using discounted cash flow models.

The Company continues to consider relevant facts and circumstances in developing its assumptions on expected cash inflows, probability of potential recoveries (including the timing and outcome of the litigation) and recovery period. While the Company believes it will be successful in realizing its recoveries from its put-back contract claims against Credit Suisse, the ultimate amount recovered may be materially different from that recorded by the Company given the inherent uncertainty of the manner of resolving the claims (i.e., litigation and/or negotiated out-of-court settlement) and the assumptions used in the required estimation process for accounting purposes which are based, in part, on judgments and other information that are not easily corroborated by historical data or other relevant benchmarks. Refer to “Note 13: Commitments and Contingencies” for further information about the Company’s litigation with Credit Suisse.

~~MBIA Inc. and Subsidiaries~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~Note 5: Loss and Loss Adjustment Expense Reserves (continued)~~

CDO Reserves and Recoveries

The Company also has loss and ~~loss adjustment expense (“LAE”)~~LAE reserves on certain transactions within its CDO portfolio, primarily its multi-sector CDO asset class that was insured in the form of financial guarantee policies. MBIA’s insured multi-sector CDOs are transactions that include a variety of collateral ranging from corporate bonds to structured finance assets (which includes, but are not limited to, RMBS, ~~CMBS,~~commercial mortgage-backed securities (“CMBS”), ABS and CDO collateral). The Company’s process for estimating reserves and credit impairments on these policies is determined as the present value of the probability-weighted potential future losses, net of estimated recoveries, across multiple scenarios. The Company considers several factors when developing the range of potential outcomes and their impact on MBIA. A range of loss scenarios is considered under different default and severity rates for each transaction’s collateral. Additionally, each transaction is evaluated for its commutation potential.

Zohar Recoveries

MBIA Corp. is seeking to recover the payments it made (plus interest and expenses) with respect to Zohar I and Zohar II. In March of 2018, the then-director of Zohar I and Zohar II placed those funds into voluntary bankruptcy proceedings in federal bankruptcy court in the District of Delaware (the “Zohar Funds Bankruptcy Cases”). In May of 2018, MBIA and certain parties to the Zohar Funds Bankruptcy Cases agreed to a stay of litigation and a process, among other things (the “Zohar Bankruptcy Settlement”) by which the debtor funds, through an independent director and a chief restructuring officer, would work with the original sponsor of the funds to monetize the Zohar Assets and repay creditors, including MBIA Corp. While the stay of litigation provided for in the Zohar Bankruptcy Settlement has expired, the court has ruled that the monetization process will continue, a decision that was affirmed by the federal District Court for the District of Delaware in July 2020.

While MBIA Corp. anticipates that the primary source of the recoveries will come from the monetization of the Zohar Assets, significant uncertainty remains with respect to realizable value. Notably, one of the portfolio companies, Dura Automotive Systems, LLC, and certain of its affiliates, filed for bankruptcy protection in the fall of 2019 and

~~the Company no longer projects~~

~~any~~

recovery on the Zohar debtors’ substantial debt and equity interests in the Dura debtors. In late March of 2020, the original sponsor of the Zohar Funds resigned from her role as director and manager of all the portfolio companies, except for Dura, which companies have debt and equity that comprise, in part, the Zohar Assets. New directors and managers are currently in place at all but two of the portfolio companies, which are all subject to the above-referenced monetization process. There can be no assurance, however, that the recent coronavirus outbreak and/or other developments will not cause the monetization of the Zohar Assets to be delayed or impacted. Salvage and subrogation recoveries related to Zohar I and Zohar II are reported within “Insurance loss recoverable” on the Company’s consolidated balance sheet. The Company’s estimate of the insurance loss recoverable for Zohar I and Zohar II includes probability-weighted scenarios of the ultimate monetized recovery from the Zohar Assets.

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (

~~Unaudited~~

)(Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

Fair Value Measurements at Reporting Date Using

In millions

Quoted Prices in
Active Markets
for Identical
Assets (Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Counterparty
and Cash
Collateral
Netting

Balance as of
June 30,
2020
Assets of consolidated VIEs:

Corporate obligations
   -    6    -    - 6
Mortgage-backed securities:

Residential mortgage-backed non-agency
   -    40    -    - 40
Commercial mortgage-backed
   -    15    -    - 15
Asset-backed securities:

Collateralized debt obligations
   -    8    -    - 8
Other asset-backed
   -    7    -    - 7
Cash
   8    -    -    - 8
Loans receivable at fair value:

Residential loans receivable
   -    -    116    - 116
Loan repurchase commitments
   -    -    524    - 524
Other assets:

Currency derivatives
   -    -    14    - 14
Other
   -    -    14    - 14








Total assets
   $ 1,330    $ 2,082    $ 669    $ - $ 4,128








Liabilities:

Medium-term notes
   $ -    $ -    $ 96    $ - $ 96
Derivative liabilities:

Insured derivatives:

Credit derivatives
   -    2    8    - 10
Non-insured derivatives:

Interest rate derivatives
   -    189    -    (3 ) 186
Other
   -    -    37    - 37
Liabilities of consolidated VIEs:

Variable interest entity notes
   -    51    291    - 342








Total liabilities
   $ -    $ 242    $ 432    $ (3 ) $ 671

~~(1) -~~


	Fair Value Measurements at Reporting Date Using
In millions	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of March 31, 2021
Assets of consolidated VIEs:
Corporate obligations		0		6		0		6
Mortgage-backed securities:
Residential mortgage-backed non-agency		0		38		0		38
Commercial mortgage-backed		0		16		0		16
Asset-backed securities:
Collateralized debt obligations		0		8		0		8
Other asset-backed		0		8		0		8
Cash		5		0		0		5
Loans receivable at fair value:
Residential loans receivable		0		0		124		124
Other assets:
Currency derivatives		0		0		9		9
Other		0		0		14		14

Total assets	$	1,146	$	2,104	$	147	$	3,397

Liabilities:
Medium-term notes	$	0	$	0	$	105	$	105
Derivative liabilities:
Insured derivatives:
Credit derivatives		0		1		0		1
Non-insured derivatives:
Interest rate derivatives		0		125		0		125
Liabilities of consolidated VIEs:
Variable interest entity notes		0		45		280		325

Total liabilities	$	0	$	171	$	385	$	556

~~Investment that was measured at fair value by applying the net asset value per share practical expedient, and was required not to be classified in the fair value hierarchy.~~

Table of Contents

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)


	Fair Value Measurements at Reporting Date Using
In millions	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of December 31, 2020
Assets:
Fixed-maturity investments:

U.S. Treasury and government agency	$	750	$	105	$	0	$	855
State and municipal bonds		0		195		0		195
Foreign governments		0		15		0		15
Corporate obligations		0		975		0		975
Mortgage-backed securities:
Residential mortgage-backed agency		0		319		0		319
Residential mortgage-backed non-agency		0		32		0		32
Commercial mortgage-backed		0		20		0		20
Asset-backed securities:
Collateralized debt obligations		0		121		0		121
Other asset-backed		0		141		0		141

Total fixed-maturity investments		750		1,923		0		2,673
Money market securities		1		0		0		1
Perpetual debt and equity securities		37		25		0		62
Cash and cash equivalents		158		0		0		158
Derivative assets:
Non-insured derivative assets:
Interest rate derivatives		0		1		0		1

Table of Contents

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

Fair Value Measurements at Reporting Date Using


Quoted Prices in

Significant


Active Markets

Other

Significant


for Identical

Observable

Unobservable

Balance as of

Assets

Inputs

Inputs

December 31,
In millions

(Level 1)

(Level 2)

(Level 3)

2019
Assets:

Fixed-maturity investments:

U.S. Treasury and government agency
   $ 791    $ 97    $ -    $ 888
State and municipal bonds
   -    200    -    200
Foreign governments
   -    10    -    10
Corporate obligations
   -    1,266    -    1,266
Mortgage-backed securities:

Residential mortgage-backed agency
   -    330    -    330
Residential mortgage-backed non-agency
   -    19    -    19
Commercial mortgage-backed
   -    22    -    22
Asset-backed securities:

Collateralized debt obligations
   -    140    -    140
Other asset-backed
   -    326    1    327








Total fixed-maturity investments
   791    2,410    1    3,202
Money market securities
   154    -    -    154
Perpetual debt and equity securities
   30    25    -    55
Fixed-income fund
   -    -    -    51
(1)

Cash and cash equivalents
   75    -    -    75
Derivative assets:

Non-insured derivative assets:

Interest rate derivatives
   -    1    -    1

~~MBIA Inc. and Subsidiaries~~

~~Notes to Consolidated Financial Statements (~~

~~Unaudited~~

)

~~Note 6: Fair Value of Financial Instruments (continued)~~


	Fair Value Measurements at Reporting Date Using								Fair Value Measurements at Reporting Date Using
In millions	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of December 31, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of December 31, 2020
Assets of consolidated VIEs:
Corporate obligations		-		8		-		8		0		6		0		6
Mortgage-backed securities:
Residential mortgage-backed non-agency		-		45		-		45		0		40		0		40
Commercial mortgage-backed		-		16		-		16		0		16		0		16
Asset-backed securities:
Collateralized debt obligations		-		6		-		6		0		8		0		8
Other asset-backed		-		8		-		8		0		7		0		7
Cash		8		-		-		8		9		0		0		9
Loans receivable at fair value:
Residential loans receivable		-		-		136		136		0		0		120		120
Loan repurchase commitments		-		-		486		486		0		0		604		604
Other assets:
Currency derivatives		-		-		8		8		0		0		6		6
Other		-		-		18		18		0		0		14		14

Total assets	$	1,058	$	2,519	$	649	$	4,277	$	955	$	2,026	$	744	$	3,725

Liabilities:
Medium-term notes	$	-	$	-	$	108	$	108	$	0	$	0	$	110	$	110
Derivative liabilities:
Insured derivatives:
Credit derivatives		-		2		7		9		0		2		0		2
Non-insured derivatives:
Interest rate derivatives		-		132		-		132		0		164		0		164
Other		-		-		34		34		0		0		49		49
Other liabilities:
Other payable		-		-		4		4
Liabilities of consolidated VIEs:
Variable interest entity notes		-		56		347		403		0		47		303		350

Total liabilities	$	-	$	190	$	500	$	690	$	0	$	213	$	462	$	675

~~(1) -~~

~~Investment that was measured at fair value by applying the net asset value per share practical expedient, and was required not to be classified in the fair value hierarchy.~~

Level 3 assets at fair value as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 represented approximately ~~16%~~4% and ~~15%~~20%, respectively, of total assets measured at fair value. Level 3 liabilities at fair value as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 represented approximately ~~64%~~69% and ~~72%~~68%, respectively, of total liabilities measured at fair value.

284

Table of Contents

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial

Statements

(

~~Unaudited~~

) (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

The following tables present the fair values and carrying values of the Company’s assets and liabilities that are disclosed at fair value but not reported at fair value on the Company’s consolidated balance sheets as of ~~June~~

~~2020~~

March 31, 2021 and December

31,

~~2019~~

. 2020. The majority of the financial assets and liabilities that the Company requires fair value reporting or disclosures are valued based on the estimated value of the underlying collateral, the Company’s or a third-party’s estimate of discounted cash flow model ~~estimated,~~estimates, or quoted market values for similar products.

Fair Value Measurements at Reporting Date Using

In millions

Quoted Prices in
Active Markets
for Identical
Assets (Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Fair Value
Balance as of
December 31,
2019

Carry Value
Balance as of
December 31,
2019
Assets:
Assets of consolidated VIEs:
Investments held-to-maturity $ - $ - $ 892 $ 892 $ 890










Total assets $ - $ - $ 892 $ 892 $ 890










Liabilities:
Long-term debt $ - $ 1,073 $ - $ 1,073 $ 2,228
Medium-term notes - - 396 396 570
Investment agreements - - 394 394 304
Liabilities of consolidated VIEs:
Variable interest entity notes - 261 892 1,153 1,136










Total liabilities $ - $ 1,334 $ 1,682 $ 3,016 $ 4,238










Financial Guarantees:
Gross liability (recoverable) $ - $ - $ 556 $ 556 $ (311 )
Ceded - - 56 56 24

~~MBIA Inc. and Subsidiaries~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~Note 6: Fair Value of Financial Instruments~~

~~(continued)~~


	Fair Value Measurements at Reporting Date Using
In millions	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value Balance as of March 31, 2021		Carry Value Balance as of March 31, 2021
Liabilities:
Long-term debt	$	0	$	736	$	0	$	736	$	2,258
Medium-term notes		0		0		395		395		590
Investment agreements		0		0		353		353		268
Liabilities of consolidated VIEs:
Variable interest entity notes		0		129		0		129		126

Total liabilities	$	0	$	865	$	748	$	1,613	$	3,242

Financial Guarantees:
Gross liability (recoverable)	$	0	$	0	$	874	$	874	$	(246	)
Ceded recoverable (liability)		0		0		45		45		(19	)


	Fair Value Measurements at Reporting Date Using
In millions	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value Balance as of December 31, 2020		Carry Value Balance as of December 31, 2020
Liabilities:
Long-term debt	$	0	$	631	$	0	$	631	$	2,229
Medium-term notes		0		0		396		396		598
Investment agreements		0		0		376		376		269
Liabilities of consolidated VIEs:
Variable interest entity notes		0		276		0		276		273

Total liabilities	$	0	$	907	$	772	$	1,679	$	3,369

Financial Guarantees:
Gross liability (recoverable)	$	0	$	0	$	811	$	811	$	(282	)
Ceded recoverable (liability)		0		0		45		45		(17	)

The following tables present information about changes in Level 3 assets (including short-term investments) and liabilities measured at fair value on a recurring basis for the three months ended ~~June 30, 2020~~March 31, 2021 and ~~2019:~~2020:

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended ~~June 30, 2020~~

March 31, 2021

In millions

Balance,
Beginning
of Period

Total
Gains /
(Losses)
Included
in
Earnings

Unrealized
Gains /
(Losses)
Included
in OCI
(1)

Purchases

Issuances

Settlements

Sales

Transfers
into
Level 3

Transfers
out of
Level 3

Ending
Balance

Change in
Unrealized
Gains
(Losses) for
the Period
Included in
Earnings
for Assets
still held as
of

June 30,
2020

Change in
Unrealized
Gains
(Losses) for
the Period
Included in
OCI for
Assets still
held as of
June 30,
2020
(1)

Assets:

Other asset-backed

$
1 $
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
1
$
-
$
-

Assets of consolidated VIEs:

Loans receivable-residential

98

22

-

-

-

(4
)
-

-

-

116

20

-

Loan repurchase commitments

506

18

-

-

-

-

-

-

-

524

18

-

Currency derivatives

18

(4
)
-

-

-

-

-

-

-

14

(4
)
-

Other

15

(1
)
-

-

-

-

-

-

-

14

(1
)
-

Total assets
$
638
$
35
$
-
$
-
$
-
$
(4
) $
-
$
-
$
-
$
669
$
33
$
-


In millions	Balance, Beginning of Period		Total Gains / (Losses) Included in Earnings			Unrealized Gains / (Losses) Included in OCI (1)		Purchases		Issuances		Settlements			Sales		Transfers into Level 3		Transfers out of Level 3		Ending Balance		Change in Unrealized Gains (Losses) for the Period Included in Earnings for Assets still held as of March 31, 2021		Change in Unrealized Gains (Losses) for the Period Included in OCI for Assets still held as of March 31, 2021 (1)
Assets:

Assets of consolidated VIEs:
Loans receivable- residential	$	120	$	9		$	0	$	0	$	0	$	(5	)	$	0	$	0	$	0	$	124	$	8	$	0
Loan repurchase commitments		604		(4	)		0		0		0		(600	)		0		0		0		0		0		0
Currency derivatives		6		3			0		0		0		0			0		0		0		9		3		0
Other		14		0			0		0		0		0			0		0		0		14		0		0

Total assets	$	744	$	8		$	0	$	0	$	0	$	(605	)	$	0	$	0	$	0	$	147	$	11	$	0

Table of Contents

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

In millions

Balance,
Beginning
of Period

Total
(Gains) /
Losses
Included
in
Earnings

Unrealized
(Gains) /
Losses
Included
in in OCI
(2)

Purchases

Issuances

Settlements

Sales

Transfers
into
Level 3

Transfers
out of
Level 3

Ending
Balance

Change in
Unrealized
(Gains)
Losses for
the Period
Included in
Earnings for
Liabilities
still held as
of June 30,
2020

Change in
Unrealized
(Gains)
Losses for
the Period
Included in
OCI for
Liabilities
still held
as of
June 30,
2020
(2)

Liabilities:

Medium-term notes
$
98
$
(1
) $
(1
) $
-
$
-
$
-
$
-
$
-
$
-
$
96
$
(1
) $
(1
)
Credit derivatives

8

-

-

-

-

-

-

-

-

8

-

-

Other derivatives

37

-

-

-

-

-

-

-

-

37

-

-

Liabilities of consolidated VIEs:

VIE notes

281

16

(3
)
-

-

(3
)
-

-

-

291

15

(3
)

Total liabilities
$
424
$
15
$
(4
) $
-
$
-
$
(3
) $
-
$
-
$
-
$
432
$
14
$
(4
)


In millions	Balance, Beginning of Period		Total (Gains) / Losses Included in Earnings			Unrealized (Gains) / Losses Included in in OCI (2)			Purchases		Issuances		Settlements			Sales		Transfers into Level 3		Transfers out of Level 3		Ending Balance		Change in Unrealized (Gains) Losses for the Period Included in Earnings for Liabilities still held as of March 31, 2021			Change in Unrealized (Gains) Losses for the Period Included in OCI for Liabilities still held as of March 31, 2021 (2)
Liabilities:

Medium-term notes	$	110	$	(7	)	$	2		$	0	$	0	$	0		$	0	$	0	$	0	$	105	$	(7	)	$	2
Other derivatives		49		0			0			0		0		(49	)		0		0		0		0		0			0
Liabilities of consolidated VIEs:
VIE notes		303		22			(16	)		0		0		(29	)		0		0		0		280		4			3

Total liabilities	$	462	$	15		$	(14	)	$	0	$	0	$	(78	)	$	0	$	0	$	0	$	385	$	(3	)	$	5

(1) -

Reported within the “Unrealized gains (losses) on

available-for-sale

securities” on MBIA’s Consolidated Statement of Comprehensive Income/Loss.

(2) -

Reported within the “Instrument-specific credit risk of liabilities measured at fair value” on MBIA’s Consolidated Statement of Comprehensive Income/Loss.

~~MBIA Inc. and Subsidiaries~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~Note 6: Fair Value of Financial Instruments (continued)~~

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended ~~June 30, 2019~~March 31, 2020

In millions

Balance,
Beginning
of Period

Total
Gains /
(Losses)
Included
in
Earnings

Unrealized
Gains /
(Losses)
Included
in OCI

Purchases

Issuances

Settlements

Sales

Transfers
into
Level 3
(1)

Transfers
out of
Level 3
(1)

Ending
Balance

Change in
Unrealized
Gains
(Losses) for
the Period
Included in
Earnings
for Assets
still held as
of June 30,
2019

Assets:

Commercial mortgage-backed
$
6
$
-
$
-
$
-
$
-
$
(2
) $
-
$
-
$
-
$
4
$
-

Other asset-backed

2

(1
)
-

-

-

-

-

-

-

1

-

Assets of consolidated VIEs:

Corporate obligations

5

-

-

-

-

(2
)
-

-

(3
)
-

-

Collateralized debt obligations

1

-

-

-

-

-

(1
)
-

-

-

-

Loans receivable-residential

206

1

-

-

-

(5
)
(48
)
-

-

154

(1
)
Loan repurchase
commitments

420

8

-

-

-

-

-

-

-

428

8

Currency derivatives

14

(3
)
-

-

-

-

-

-

-

11

(3
)
Other

15

-

-

-

-

-

-

-

-

15

-

Total assets
$
669
$
5
$
-
$
-
$
-
$
(9
) $
(49
) $
-
$
(3
) $
613
$
4


In millions	Balance, Beginning of Period		Total Gains / (Losses) Included in Earnings			Unrealized Gains / (Losses) Included in OCI (1)		Purchases		Issuances		Settlements			Sales		Transfers into Level 3		Transfers out of Level 3		Ending Balance		Change in Unrealized Gains (Losses) for the Period Included in Earnings for Assets still held as of March 31, 2020			Change in Unrealized Gains (Losses) for the Period Included in OCI for Assets still held as of March 31, 2020 (1)
Assets:

Other asset-backed	$	1	$	0		$	0	$	0	$	0	$	0		$	0	$	0	$	0	$	1	$	0		$	0
Assets of consolidated VIEs:
Loans receivable- residential		136		(35	)		0		0		0		(3	)		0		0		0		98		(35	)		0
Loan repurchase commitments		486		20			0		0		0		0			0		0		0		506		20			0
Currency derivatives		8		10			0		0		0		0			0		0		0		18		10			0
Other		18		(3	)		0		0		0		0			0		0		0		15		(3	)		0

Total assets	$	649	$	(8	)	$	0	$	0	$	0	$	(3	)	$	0	$	0	$	0	$	638	$	(8	)	$	0

In millions

Balance,
Beginning
of Period

Total
(Gains) /
Losses
Included
in
Earnings

Unrealized
(Gains) /
Losses
Included
in OCI

Purchases

Issuances

Settlements

Sales

Transfers
into
Level 3
(1)

Transfers
out of
Level 3
(1)

Ending
Balance

Change in
Unrealized
(Gains)
Losses for
the Period
Included in
Earnings for
Liabilities
still held as
of June 30,
2019

Liabilities:

Medium-term notes
$
106
$
(3
) $
10
$
-
$
-
$
(3
) $
-
$
-
$
-
$
110
$
(2
)
Credit derivatives

19

1

-

-

-

(2
)
-

-

-

18

-

Other derivatives

7

9

-

-

-

-

-

-

-

16

9

Other payable

3

-

-

-

-

-

-

-

-

3

-

Liabilities of consolidated VIEs:

VIE notes

397

9

(1
)
-

-

(3
)
(60
)
-

-

342

10

Total liabilities
$
532
$
16
$
9
$
-
$
-
$
(8
) $
(60
) $
-
$
-
$
489
$
17


In millions	Balance, Beginning of Period		Total (Gains) / Losses Included in Earnings			Unrealized (Gains) / Losses Included in OCI (2)			Purchases		Issuances		Settlements			Sales		Transfers into Level 3		Transfers out of Level 3		Ending Balance		Change in Unrealized (Gains) Losses for the Period Included in Earnings for Liabilities still held as of March 31, 2020			Change in Unrealized (Gains) Losses for the Period Included in OCI for Liabilities still held as of March 31, 2020 (2)
Liabilities:
Medium-term notes	$	108	$	2		$	(12	)	$	0	$	0	$	0		$	0	$	0	$	0	$	98	$	2		$	(12	)
Credit derivatives		7		1			0			0		0		0			0		0		0		8		1			0
Other derivatives		34		3			0			0		0		0			0		0		0		37		3			0
Other payable		4		0			0			0		0		(4	)		0		0		0		0		0			0
Liabilities of consolidated VIEs:
VIE notes		347		(25	)		(36	)		0		0		(5	)		0		0		0		281		(28	)		(34	)

Total liabilities	$	500	$	(19	)	$	(48	)	$	0	$	0	$	(9	)	$	0	$	0	$	0	$	424	$	(22	)	$	(46	)

(1) -

~~Transferred in and out at the end of the period.~~

For the three months ended June 30, 2019, sales included the impact of the deconsolidation of VIEs. Refer to “Note 4: Variable Interest Entities” for additional information about the deconsolidation of VIEs.

For the three months ended June 30, 2019, there were no transfers into Level 3 and out of Level 2. Corporate obligations comprised the instruments transferred out of Level 3 where inputs, which are significant to their valuation, became observable during the quarter. These inputs included spreads, prepayment speeds, default speeds, default severities, yield curves observable at commonly quoted intervals, and market corroborated inputs.

~~MBIA Inc. and Subsidiaries~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~Note 6: Fair Value of Financial Instruments (continued)~~

~~Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Six Months Ended June 30, 2020~~

In millions

Balance,
Beginning
of Year

Total
Gains /
(Losses)
Included
in
Earnings

Unrealized
Gains /
(Losses)
Included
in OCI
(1)

Purchases

Issuances

Settlements

Sales

Transfers
into
Level 3

Transfers
out of
Level 3

Ending
Balance

Change in
Unrealized
Gains
(Losses) for
the Period
Included in
Earnings
for Assets
still held as
of June 30,
2020

Change in
Unrealized
Gains
(Losses) for
the Period
Included in
OCI for
Assets still
held as of
June 30,
2020
(1)

Assets:

Other asset-backed
$ 1 $
-
$
  -
$
  -
$
  -
$
-
$
-
$
-
$
-
$
1
$
-
$
-

Assets of consolidated VIEs:

Loans receivable- residential

136

(13
)
-

-

-

(7
)
-

-

-

116

(14
)
-

Loan repurchase commitments

486

38

-

-

-

-

-

-

-

524

38

-

Currency derivatives

8

6

-

-

-

-

-

-

-

14

6

-

Other

18

(4
)
-

-

-

-

-

-

-

14

(4
)
-

Total assets
$
649
$
27
$
-
$
-
$
-
$
(7
) $
-
$
-
$
-
$
669
$
26
$
-

In millions

Balance,
Beginning
of Year

Total
(Gains) /
Losses
Included
in
Earnings

Unrealized
(Gains) /
Losses
Included
in Credit
Risk in
OCI
(2)

Purchases

Issuances

Settlements

Sales

Transfers
into
Level 3

Transfers
out of
Level 3

Ending
Balance

Change in
Unrealized
(Gains)
Losses for
the Period
Included in
Earnings for
Liabilities
still held as
of June 30,
2020

Change in
Unrealized
(Gains)
Losses for
the Period
Included
in OCI for
Liabilities
still held
as of
June 30,
2020
(2)

Liabilities:

Medium-term notes
$
108
$
1
$
(13
) $
-
$
-
$
-
$
-
$
-
$
-
$
96
$
1
$
(13
)
Credit derivatives

7

1

-

-

-

-

-

-

-

8

1

-

Other derivatives

34

3

-

-

-

-

-

-

-

37

3

-

Other payable

4

-

-

-

-

(4
)
-

-

-

-

-

-

Liabilities of consolidated VIEs:

VIE notes

347

(9
)
(38
)
-

-

(9
)
-

-

-

291

(12
)
(37
)

Total liabilities
$
500
$
(4
) $
(51
) $
-
$
-
$
(13
) $
-
$
-
$
-
$
432
$
(7
) $
(50
)

~~(1) -~~

Reported within the “Unrealized gains (losses) on

available-for-sale

securities” on MBIA’s Consolidated Statement of Comprehensive Income/Loss.

(2) -

Reported within the “Instrument-specific credit risk of liabilities measured at fair value” on MBIA’s Consolidated Statement of Comprehensive Income/Loss.

326

Table of Contents

~~MBIA Inc. and Subsidiaries~~

~~Notes to Consolidated Financial Statements (~~

~~Unaudited~~

)

~~Note 6: Fair Value of Financial Instruments (continued)~~

~~Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Six Months Ended June 30, 2019~~

In millions

Balance,
Beginning
of Year

Total
Gains /
(Losses)
Included
in
Earnings

Unrealized
Gains /
(Losses)
Included
in OCI

Purchases

Issuances

Settlements

Sales

Transfers
into
Level 3
(1)

Transfers
out of
Level 3
(1)

Ending
Balance

Change in
Unrealized
Gains
(Losses) for
the Period
Included in
Earnings
for Assets
still held as
of June 30,
2019

Assets:

Commercial mortgage-backed

7

-

-

-

-

(3
)
-

-

-

4

-

Other asset-backed

3

(1
)
-

-

-

(1
)
-

-

-

1

-

Assets of consolidated VIEs:

Corporate obligations

5

-

-

-

-

(2
)
-

-

(3
)
-

-

Collateralized debt obligations

1

-

-

-

-

-

(1
)
-

-

-

-

Loans receivable-residential

172

43

-

-

-

(13
)
(48
)
-

-

154

38

Loan repurchase
commitments

418

10

-

-

-

-

-

-

-

428

10

Currency derivatives

17

(6
)
-

-

-

-

-

-

-

11

(6
)
Other

14

1

-

-

-

-

-

-

-

15

1

Total assets $ 637 $ 47 $ - $ - $ - $ (19 ) $ (49 ) $ - $ (3 ) $ 613 $ 43

In millions

Balance,
Beginning
of Year

Total
(Gains) /
Losses
Included
in
Earnings

Unrealized
(Gains) /
Losses
Included
in OCI

Purchases

Issuances

Settlements

Sales

Transfers
into
Level 3
(1)

Transfers
out of
Level 3
(1)

Ending
Balance

Change in
Unrealized
(Gains)
Losses for
the Period
Included in
Earnings for
Liabilities
still held as
of June 30,
2019

Liabilities:

Medium-term notes
$
102
$
5
$
6
$
-
$
-
$
(3
) $
-
$
-
$
-
$
110
$
4

Credit derivatives

33

(13
)
-

-

-

(2
)
-

-

-

18

(14
)
Other derivatives

7

9

-

-

-

-

-

-

-

16

9

Other payable

5

1

-

-

-

(3
)
-

-

-

3

1

Liabilities of consolidated VIEs:

VIE notes

366

50

(7
)
-

4

(11
)
(60
)
-

-

342

43

Total liabilities
$
513
$
52
$
(1
) $
-
$
4
$
(19
) $
(60
) $
-
$
-
$
489
$
43

~~(1) -~~

~~Transferred in and out at the end of the period.~~

For the six months ended June 30, 2019, sales include the impact of the deconsolidation of VIEs. Refer to “Note 4: Variable Interest Entities” for additional information about the deconsolidation of VIEs.

For the six months ended June 30, 2019, there were no transfers into Level 3 and out of Level 2. Corporate obligations comprised the instruments transferred out of Level 3 where inputs, which are significant to their valuation, became observable during the period. These inputs included spreads, prepayment speeds, default speeds, default severities, yield curves observable at commonly quoted intervals, and market corroborated inputs.

~~MBIA Inc. and Subsidiaries~~

~~Notes to Consolidated Financial Statements (~~

~~Unaudited~~

)

~~Note 6: Fair Value of Financial Instruments (~~

~~continued~~

)

Gains and losses (realized and unrealized) included in earnings related to Level 3 assets and liabilities for the three months ended June 30, 2020 and 2019 are reported on the Company’s consolidated statements of operations as follows:

Three Months Ended June 30, 2020

Three Months Ended June 30, 2019

Change in

Change in

Unrealized

Unrealized

Gains (Losses)

Gains (Losses)

for the

for the

Period Included

Period Included

in Earnings

in Earnings

for Assets

for Assets

and

and

Total Gains

Liabilities still

Total Gains

Liabilities still

(Losses)

held as of

(Losses)

held as of

Included

June 30,

Included

June 30,

In millions

in Earnings

2020

in Earnings

2019

Revenues:
Realized gains (losses) and other
settlements on insured derivatives $ - $ - $ (1 ) $ -
Net gains (losses) on financial instruments
at fair value and foreign exchange 1 1 (6 ) (7 )
Net investment losses related to other-than-temporary impairments - - (1 ) -
Revenues of consolidated VIEs:

Net gains (losses) on financial instruments at fair value and foreign exchange
19 18 (3 ) (6 )

Total $ 20 $ 19 $ (11 ) $ (13 )

Gains and losses (realized and unrealized) included in earnings relating to Level 3 assets and liabilities for the six months ended June 30, 2020 and 2019 are reported on the Company’s consolidated statements of operations as follows:

Six Months Ended June 30, 2020

Six Months Ended June 30, 2019

Change in

Change in

Unrealized

Unrealized

Gains (Losses)

Gains (Losses)

for the

for the

Period Included

Period Included

in Earnings

in Earnings

for Assets

for Assets

and

and

Total Gains

Liabilities still

Total Gains

Liabilities still

(Losses)

held as of

(Losses)

held as of

Included

June 30,

Included

June 30,

In millions

in Earnings

2020

in Earnings

2019

Revenues:
Unrealized gains (losses) on insured derivatives $ (1 ) $ (1 ) $ 14 $ 14
Realized gains (losses) and other settlements on insured derivatives - - (1 ) -
Net gains (losses) on financial
instruments at fair value and foreign exchange (4 ) (4 ) (14 ) (13 )
Net investment losses related to other-than-temporary impairments - - (1 ) -
Other net realized gains (losses)
- - (1 ) (1 )
Revenues of consolidated VIEs:

Net gains (losses) on financial instruments at fair value and
foreign exchange 36 38 (2 ) -

Total $ 31 $ 33 $ (5 ) $ -

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

For the three months ended March 31, 2021 and 2020, there were no transfers into or out of Level 3.

Gains and losses (realized and unrealized) included in earnings related to Level 3 assets and liabilities for the three months ended March 31, 2021 and 2020 are reported on the Company’s consolidated statements of operations as follows:


	Three Months Ended March 31, 2021					Three Months Ended March 31, 2020
In millions	Total Gains (Losses) Included in Earnings			Change in Unrealized Gains (Losses) for the Period Included in Earnings for Assets and Liabilities still held as of March 31, 2021		Total Gains (Losses) Included in Earnings			Change in Unrealized Gains (Losses) for the Period Included in Earnings for Assets and Liabilities still held as of March 31, 2020
Revenues:

Unrealized gains (losses) on insured derivatives	$	0		$	0	$	(1	)	$	(1	)
Net gains (losses) on financial instruments at fair value and foreign exchange		7			7		(5	)		(5	)
Revenues of consolidated VIEs:
Net gains (losses) on financial instruments at fair value and foreign exchange		(14	)		7		17			20
Total	$	(7	)	$	14	$	11		$	14

Fair Value Option

The Company elected to record at fair value certain financial instruments that are consolidated in connection with the adoption of the accounting guidance for consolidation of VIEs, among ~~others.~~others

The following table presents the gains and (losses) included in the Company’s consolidated statements of operations for the

three ~~and~~

~~six~~ months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ for financial instruments for which the fair value option was elected:

Three Months Ended June 30,

Six Months Ended June 30,
In millions

2020

2019

2020

2019
Investments carried at fair value
(1)
$ 13 $ 4 $ (7 ) $ 11
Fixed-maturity securities held at fair value-VIE
(2)
4 26 (2 ) 56
Loans receivable at fair value:
Residential mortgage loans
(2)
22 1 (13 ) 43
Loan repurchase commitments
(2)
18 9 38 10
Other assets-VIE
(2)
(1 ) - (3 ) -
Medium-term notes
(1)
1 3 (1 ) (5 )
Other liabilities
(3)
- (1 ) - (1 )
Variable interest entity notes
(2)
(18 ) (24 ) 9 (80 )


	Three Months Ended March 31,
In millions	2021		2020

Investments carried at fair value (1)	$	3	$	(20)
Fixed-maturity securities held at fair value-VIE (2)		1		(6)
Loans receivable at fair value:
Residential mortgage loans (2)		9		(35)
Loan repurchase commitments (2)		(4)		20
Other assets-VIE (2)		0		(3)
Medium-term notes (1)		7		(2)
Variable interest entity notes (2)		(23)		27

(1) -

Reported within “Net gains (losses) onof financial instruments at fair value and foreign exchange” on MBIA’s consolidated statements of operations.

(2) -

Reported within “Net gains (losses) onof financial instruments at fair value and foreign exchange-VIE” on MBIA’s consolidated statements of operations.

Table of Contents

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

~~(3) -~~

~~Reported within “Other net realized gains (losses)” on MBIA’s consolidated statements of operations.~~

The following table reflects the difference between the aggregate fair value and the aggregate remaining contractual principal balance outstanding as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 for loans and notes for which the fair value option was elected:

As of June 30, 2020

As of December 31, 2019

Contractual

Contractual


Outstanding

Fair

Outstanding

Fair

In millions

Principal

Value

Difference

Principal

Value

Difference
Loans receivable at fair value:
Residential mortgage loans - current $ 93 $ 93 $ - $ 107 $ 107 $ -
Residential mortgage loans (90 days or more past due) 124 23 101 154 29 125

Total loans receivable and other instruments at fair value $ 217 $ 116 $ 101 $ 261 $ 136 $ 125
Variable interest entity notes $ 1,097 $ 342 $ 755 $ 1,126 $ 403 $ 723
Medium-term notes $ 112 $ 96 $ 16 $ 112 $ 108 $ 4


	As of March 31, 2021						As of December 31, 2020
	Contractual						Contractual
	Outstanding		Fair				Outstanding		Fair
In millions	Principal		Value		Difference		Principal		Value		Difference
Loans receivable at fair value:
Residential mortgage loans - current	$	85	$	85	$	0	$	89	$	89	$	0
Residential mortgage loans (90 days or more past due)		144		39		105		147		31		116

Total loans receivable and other instruments at fair value	$	229	$	124	$	105	$	236	$	120	$	116
Variable interest entity notes	$	1,080	$	325	$	755	$	1,117	$	350	$	767
Medium-term notes	$	118	$	105	$	13	$	122	$	110	$	12

The differences between the contractual outstanding principal and the fair values on loans receivable, VIE notes and MTNs, in the preceding table, are primarily attributable to credit risk. This is due to the high rate of defaults on loans (90 days or more past due), the collateral supporting the VIE notes and the nonperformance risk of the Company on its MTNs, which resulted in depressed pricing of the financial instruments.

~~MBIA Inc. and Subsidiaries~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~Note 6: Fair Value of Financial Instruments (continued)~~

Instrument-Specific Credit Risk of Liabilities Elected Under the Fair Value Option

As of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the cumulative changes in instrument-specific credit risk of liabilities elected under the fair value option were losses of ~~$55~~$36 million and ~~$107~~$51 million, respectively, reported in “Accumulated other comprehensive income” on the Company’s consolidated balance sheets. Changes in value attributable to instrument-specific credit risk were derived principally from changes in the Company’s credit spread. For liabilities of VIEs, additional adjustments to instrument-specific credit risk are required, which is determined by an analysis of deal specific performance of collateral that support these liabilities. During the three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ the portions of instrument-specific credit risk included in AOCI that were recognized in earnings due to settlement of liabilities were losses of $1$20 million and $19 million, respectively. During the six months ended June 30, 2020 and 2019, the portions of instrument-specific credit risk included in AOCI that were recognized in earnings due to settlement of liabilities were losses of $3 million and $23$2 million, respectively.

Note 7: Investments

Investments, excluding those elected under the fair value option, include debt and equity securities classified as ~~either AFS or HTM.~~AFS.

The following ~~table~~tables presents the amortized cost, allowance for credit losses, corresponding gross unrealized gains and losses and fair value for AFS ~~and HTM~~ investments in the Company’s consolidated investment portfolio as of ~~June 30,~~March 31, 2021 and December 31, 2020:

June 30, 2020
In millions

Amortized
Cost

Allowance
for Credit
Losses

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value
AFS Investments

Fixed-maturity investments:
U.S. Treasury and government agency $ 784 $ - $ 91 $ (1 ) $ 874
State and municipal bonds 160 - 31 - 191
Foreign governments 13 - 1 - 14
Corporate obligations 915 - 79 (6 ) 988
Mortgage-backed securities:
Residential mortgage-backed agency 250 - 9 - 259
Residential mortgage-backed non-agency 27 - - (6 ) 21
Commercial mortgage-backed 23 - 1 - 24
Asset-backed securities:
Collateralized debt obligations 128 - - (6 ) 122
Other asset-backed 158 - 1 - 159

Total AFS investments $ 2,458 $ - $ 213 $ (19 ) $ 2,652

HTM Investments

Assets of consolidated VIEs:
Corporate obligations $ 575 $ (23 ) $ 22 $ - $ 574

Total HTM investments $ 575 $ (23 ) $ 22 $ - $ 574


	March 31, 2021
In millions	Amortized Cost		Allowance for Credit Losses		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
AFS Investments
Fixed-maturity investments:
U.S. Treasury and government agency	$	1,006	$	0	$	47	$	(5	)	$	1,048
State and municipal bonds		160		0		25		0			185
Foreign governments		13		0		0		0			13
Corporate obligations		883		0		31		(16	)		898
Mortgage-backed securities:
Residential mortgage-backed agency		285		0		7		(3	)		289
Residential mortgage-backed non-agency		83		0		4		(3	)		84
Commercial mortgage-backed		11		0		1		0			12
Asset-backed securities:
Collateralized debt obligations		114		0		0		(1	)		113
Other asset-backed		173		0		0		0			173

Total AFS investments	$	2,728	$	0	$	115	$	(28	)	$	2,815

Table of Contents

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 7: Investments (continued)


	December 31, 2020
In millions	Amortized Cost		Allowance for Credit Losses		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
AFS Investments
Fixed-maturity investments:
U.S. Treasury and government agency	$	775	$	0	$	75	$	(1	)	$	849
State and municipal bonds		162		0		32		0			194
Foreign governments		11		0		1		0			12
Corporate obligations		827		0		64		(1	)		890
Mortgage-backed securities:
Residential mortgage-backed agency		305		0		8		(1	)		312
Residential mortgage-backed non-agency		22		0		3		0			25
Commercial mortgage-backed		17		0		1		0			18
Asset-backed securities:				-
Collateralized debt obligations		120		0		0		(2	)		118
Other asset-backed		121		0		0		0			121

Total AFS investments	$	2,360	$	0	$	184	$	(5	)	$	2,539

~~The following table presents the amortized cost, fair value, corresponding gross unrealized gains and losses and OTTI for~~Total AFS ~~and HTM~~ investments ~~in the Company’s consolidated investment portfolio~~increased as of March 31, 2021 compared to December 31, ~~2019:~~

December 31, 2019
In millions

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

Other-Than-
Temporary
Impairments
(1)
AFS Investments





Fixed-maturity investments:





U.S. Treasury and government agency

$
838


$
46


$
(2
)

$
882


$
-

State and municipal bonds


178



22



-

200



-

Foreign governments


8



1



-

9



-

Corporate obligations


1,140



52



(1
)

1,191



-

Mortgage-backed securities:

Residential mortgage-backed agency


317



3



-

320



-

Residential mortgage-backed
non-agency


23



1



(5
)

19



-

Commercial mortgage-backed


20



-



-

20



-

Asset-backed securities:






Collateralized debt obligations


139



-



(2
)

137



-

Other asset-backed


321



1



(1
)

321



-









Total AFS investments

$
2,984


$
126


$
(11
)

$
3,099


$
-









HTM Investments

Assets of consolidated VIEs:

Corporate obligations

$
890


$
2


$
-

$
892


$
-









Total HTM investments

$
890


$
2


$
-

$
892


$
-

~~(1) -~~

~~Represents unrealized gains or losses on OTTI securities recognized in AOCI, which includes the~~

~~non-credit~~

~~component of impairments, as well as all subsequent changes in fair value of such impaired securities reported in AOCI.~~

~~HTM investments declined~~2020 primarily due to the ~~early redemption~~investment of ~~assets and liabilities within a structured finance VIE that was deconsolidated during~~proceeds received from the ~~first quarter of 2020.~~Credit Suisse settlement.

The following table presents the distribution by contractual maturity of AFS ~~and HTM~~ fixed-maturity securities at amortized cost, net of allowance for credit losses, and fair value as of ~~June 30, 2020.~~March 31, 2021. Contractual maturity may differ from expected maturity as borrowers may have the right to call or prepay obligations.

AFS Securities

HTM Securities

Consolidated VIEs
In millions

Net
Amortized
Cost

Fair
Value

Net
Amortized
Cost

Fair
Value
Due in one year or less

$
377


$
378


$
-


$
-

Due after one year through five years


477



498



-



-

Due after five years through ten years


304



334



-



-

Due after ten years


714



857



552



574

Mortgage-backed and asset-backed


586



585



-



-









Total fixed-maturity investments

$
2,458


$
2,652


$
552


$
574


	AFS Securities
In millions	Net Amortized Cost		Fair Value
Due in one year or less	$	827	$	829
Due after one year through five years		374		387
Due after five years through ten years		231		248
Due after ten years		630		680
Mortgage-backed and asset-backed		666		671

Total fixed-maturity investments	$	2,728	$	2,815

Deposited and Pledged Securities

The fair value of securities on deposit with various regulatory authorities as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 was $11 million. These deposits are required to comply with state insurance laws.

Pursuant to the Company’s tax sharing agreement, securities held by MBIA Inc. in the Tax Escrow Account are included as “Investments pledged as collateral, at fair value” on the Company’s consolidated balance sheets.

~~MBIA Inc. and Subsidiaries~~

~~Notes to Consolidated Financial Statements (~~

~~Unaudited~~

)

~~Note 7: Investments (continued)~~

Investment agreement obligations require the Company to pledge securities as collateral. Securities pledged in connection with investment agreements may not be repledged by the investment agreement counterparty. As of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the fair value of securities pledged as collateral for these investment agreements approximated ~~$288~~$278 million and ~~$313~~$282 million, respectively. The Company’s collateral as of ~~June 30, 2020~~March 31, 2021 consisted principally of U.S. Treasury and government agency and corporate obligations, and was primarily held with major U.S. banks. ~~Additionally, the Company pledged cash as collateral under investment agreements in the amount of $7 million as of June 30, 2020.~~

Refer to “Note 8: Derivative Instruments” for information about securities posted to derivative counterparties.

Table of Contents

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 7: Investments (continued)

Impaired Investments

The following ~~table presents~~tables present the

non-credit

related gross unrealized losses related to AFS investments as of ~~June 30, 2020:~~

June 30, 2020

Less than 12 Months

12 Months or Longer

Total

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized
In millions

Value

Losses

Value

Losses

Value

Losses
AFS Investments

Fixed-maturity investments:
U.S. Treasury and government agency $ 66 $ (1 ) $ - $ - $ 66 $ (1 )
State and municipal bonds 1 - - - 1 -
Foreign governments 5 - - - 5 -
Corporate obligations 115 (5 ) 7 (1 ) 122 (6 )
Mortgage-backed securities:
Residential mortgage-backed agency 19 - - - 19 -
Residential mortgage-backed non-agency 3 - 10 (6 ) 13 (6 )
Commercial mortgage-backed 5 - - - 5 -
Asset-backed securities:
Collateralized debt obligations 46 (1 ) 76 (5 ) 122 (6 )
Other asset-backed 16 - - - 16 -

Total AFS investments $ 276 $ (7 ) $ 93 $ (12 ) $ 369 $ (19 )

~~The following table presents the gross unrealized losses related to AFS investments as of~~March 31, 2021 and December 31, ~~2019:~~2020:


	December 31, 2019
	Less than 12 Months					12 Months or Longer					Total					March 31, 2021
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Less than 12 Months					12 Months or Longer					Total
In millions	Value		Losses			Value		Losses			Value		Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
AFS Investments
Fixed-maturity investments:
U.S. Treasury and government agency	$	148	$	(1	)	$	79	$	(1	)	$	227	$	(2	)	$	125	$	(5	)	$	0	$	0		$	125	$	(5	)
State and municipal bonds		11		-			15		-			26		-			4		0			0		0			4		0
Foreign governments																	6		0			0		0			6		0
Corporate obligations		53		(1	)		10		-			63		(1	)		278		(15	)		15		(1	)		293		(16	)
Mortgage-backed securities:
Residential mortgage-backed agency		62		-			7		-			69		-			100		(3	)		0		0			100		(3	)
Residential mortgage-backed non-agency		-		-			11		(5	)		11		(5	)		35		(3	)		1		0			36		(3	)
Commercial mortgage-backed		5		-			-		-			5		-			2		0			0		0			2		0
Asset-backed securities:
Collateralized debt obligations		44		-			77		(2	)		121		(2	)		19		0			71		(1	)		90		(1	)
Other asset-backed		48		(1	)		7		-			55		(1	)		77		0			1		0			78		0

Total AFS investments	$	371	$	(3	)	$	206	$	(8	)	$	577	$	(11	)	$	646	$	(26	)	$	88	$	(2	)	$	734	$	(28	)


	December 31, 2020
	Less than 12 Months					12 Months or Longer					Total
In millions	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
AFS Investments
Fixed-maturity investments:
U.S. Treasury and government agency	$	99	$	(1	)	$	0	$	0		$	99	$	(1	)
Foreign governments		2		0			0		0			2		0
Corporate obligations		103		(1	)		7		0			110		(1	)
Mortgage-backed securities:
Residential mortgage-backed agency		53		(1	)		0		0			53		(1	)
Residential mortgage-backed non-agency		2		0			1		0			3		0
Commercial mortgage-backed		0		0			5		0			5		0
Asset-backed securities:
Collateralized debt obligations		37		0			78		(2	)		115		(2	)
Other asset-backed		29		0			0		0			29		0

Total AFS investments	$	325	$	(3	)	$	91	$	(2	)	$	416	$	(5	)

Gross unrealized losses on AFS investments increased as of ~~June 30, 2020~~March 31, 2021 compared with December 31, ~~2019~~2020 primarily due to ~~widening credit spreads,~~higher interest rates, partially offset by ~~lower interest rates.~~

~~MBIA Inc. and Subsidiaries~~

~~Notes to Consolidated Financial~~

~~Statements~~

(

~~Unaudited~~

)

~~Note 7: Investments (continued)~~

tightening credit spreads.

With the weighting applied on the fair value of each security relative to the total fair value, the weighted average contractual maturity of securities in an unrealized loss position as of ~~June~~

~~2020~~

March 31, 2021 and December

31,

~~2019~~

2020 was

14 and

9 years, respectively. As of ~~June~~

~~2020~~

March 31, 2021 and December

31,

~~2019~~

, 2020, there were

45 and 42

~~and~~

securities, respectively, that were in an unrealized loss position for a continuous twelve-month period or longer, of which, fair values of

7 and

9 securities, respectively, were below book value by more than

% 5%.

The following table presents the distribution of securities in an unrealized loss position for a continuous twelve-month period or longer where fair value was below book value by more than 5% as of ~~June 30, 2020:~~March 31, 2021:

AFS Securities
Percentage of Fair Value Below Book Value

Number of
Securities

Book Value
(in millions)

Fair Value
(in millions)
> 5% to 15% 20 $ 59 $ 54
> 15% to 25% 5 2 2
> 25% to 50% 4 14 8
> 50% 2 - -

Total 31 $ 75 $ 64


	AFS Securities
Percentage of Fair Value Below Book Value	Number of Securities		Book Value (in millions)		Fair Value (in millions)
> 5% to 15%		2	$	1	$	1
> 15% to 25%		3		1		1
> 50%		2		0		0

Total		7	$	2	$	2

Table of Contents

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 7: Investments (continued)

Impaired securities that the Company intends to sell before the expected recovery of such securities’ fair values have been written down to fair value. ~~The~~As of March 31, 2021, the Company concluded that it ~~has~~does not have the intent to sell ~~certain~~ securities in an unrealized loss position and it is more likely than not, that it would not have to sell these securities before recovery of their cost ~~basis and has written these down to fair value as of June 30, 2020.~~basis. In making this conclusion, the Company examined the cash flow projections for its investment portfolios, the potential sources and uses of cash in its businesses, and the cash resources available to its business other than sales of securities. It also considered the existence of any risk management or other plans as of ~~June 30, 2020~~March 31, 2021 that would require the sale of impaired securities.

Credit Losses on Investments

~~In calculating credit-related losses, the Company uses cash flow modeling based on the type of security.~~

The Company’s cash flow analysis considers all sources of cash that support the payment of amounts owed by an issuer of a security. For AFS investments, this includes the credit enhancement taking into the consideration of cash expectedfixed-maturity securities for which fair value is less than amortized cost are reviewed quarterly in order to be provided by financial guarantors, including MBIA Corp. and National, resulting from an actual or potential insurance policy claim. In general, any change in the amount and/or timing of cash flows received or expected to be received,determine whether ~~or not such cash flows are contractually defined, is reflected in the Company’s cash flow analysis for purposes of assessing~~ a credit loss ~~on an impaired security.~~

~~Each quarter, an internal committee, comprising staff that is independent of~~exists. If the ~~Company’s evaluation process for determining credit losses of securities, reviews and approves the valuation of investments. Among other responsibilities, this committee ensures~~Company determines that the ~~Company’s process for identifying and calculating~~declines in the fair value are related to credit loss, the Company will establish an allowance for credit losses ~~including~~and recognize the ~~use of models and assumptions, is reasonable and complies with~~credit component through earnings. Refer to “Note 8: Investments” in the ~~Company’s internal policy.~~

~~Determination of Credit Losses on ABS, MBS and Corporate Obligations~~

AFS ABS investments are evaluated for credit loss using historical collateral performance, deal waterfall and structural protections, credit ratings, and forward looking projections of collateral performance based on business and economic conditions specific to each collateral type and risk. The underlying collateral is evaluated to identify any specific performance concerns, and stress scenarios are considered in forecasting ultimate returns of principal. Based on this evaluation, if a principal default is projected for a security, estimated future cash flows are discounted at the security’s effective interest rate used to recognize interest income on the security. For CDO investments, the Company uses the same tools as its RMBS investments discussed below, aggregating the bond level cash flows to the CDO investment level. If the present value of cash flows is less than the Company’s amortized cost for the security, the difference is recorded as a credit loss.

AFS RMBS investments are evaluated for credit losses using several quantitative tools. Loan level data is obtained and analyzed in a model that produces prepayment, default, and severity vectors. The model uses macro inputs, including housing price assumptions and interest rates. The vector outputs are used as inputs to a third-party cash flow model, which considers deal waterfall dynamics and structural features, to generate cash flows for an RMBS investment. The expected cash flows of the security are then discounted at the interest rate used to recognize interest income of the security to arrive at a present value amount. If the present value of the cash flows is less than the Company’s amortized cost for the investment, the difference is recorded as a credit loss.

~~MBIA Inc. and~~

~~Subsidiaries~~

Notes to Consolidated Financial Statements (

~~Unaudited~~

)

~~Note 7: Investments (continued)~~

~~For AFS corporate obligation investments, credit losses are evaluated using credit analysis techniques. The~~included in the Company’s ~~analysis includes~~Annual Report on Form 10-K for the year ended December 31, 2020 for a ~~detailed review of a number of quantitative and qualitative factors impacting the value of an individual security. These factors include the interest rate~~discussion of the ~~security (fixed or floating), the security’s current market spread, any collateral supporting the security, the security’s position in the issuer’s capital structure, and~~Company’s policy for its determination of credit rating upgrades or downgrades. Additionally, these factors include an assessment of various issuer-related credit metrics including market capitalization, earnings, cash flow, capitalization, interest coverage, leverage, liquidity and management. The Company’s analysis is augmented by comparing market prices for similar securities of other issuers in the same sector, as well as any recent corporate or government actions that may impact the ultimate return of principal. If the Company determines that a principal default is projected, a recovery analysis is performed using the above data. If the Company’s estimated recovery value for the security is less than its amortized cost, the difference is recorded as a credit loss.losses.

For HTM corporate obligation investments, credit losses are evaluated based on quarterly estimates of the probability-weighted amount of principal and interest cash flows expected to be collected over the estimated remaining lives of the security. Developing the Company’s probability-weighted expected future cash flows is a quantitative and qualitative process that incorporates information received from third-party sources along with certain internal assumptions regarding the future performance. The Company’s considerations include, but are not limited to, (a) changes in the financial conditions of the security’s underlying collateral, (b) whether the issuer is current on contractually obligated interest and principal payments, (c) changes in the financial condition, credit rating and near-term prospects of the issuer, (d) level of excess cash flows generated from the underlying collateral supporting the principal and interest payments of the security. Estimates of collectability require the use of significant management judgment and include the probability and timing of issuer’s default and loss severity estimates. In addition, cash flow projections may change when these factors are reviewed and updated as appropriate.

~~Determination of Credit Loss Guaranteed by the Company on Other Third-Party Guarantors~~

The Company does not recognize credit losses on securities insured by MBIA Corp. and National since those securities, whether or not owned by the Company, are evaluated for impairments in accordance with its loss reserving policy. The following table provides information about securities held by the Company as of ~~June 30, 2020~~March 31, 2021 that were in an unrealized loss position and insured by a financial guarantor, along with the amount of insurance loss reserves corresponding to the par amount owned by the Company. The Company did not hold any securities in an unrealized loss position that were insured by a third-party financial guarantor as of ~~June 30, 2020.~~March 31, 2021.

In millions

Fair Value

Unrealized
Loss

Insurance Loss
Reserve
(1)

MBS
$ 9 (6) 21
Corporate obligations
6 - -
Total
$ 15 $ (6) $ 21


In millions	Fair Value		Unrealized Loss		Insurance Loss Reserve (1)

Mortgage-backed	$	36	$	(3)	$	44
Corporate obligations		85		(10)		0

Total	$	121	$	(13)	$	44

(1) -

~~(1) -~~

Insurance loss reserve estimates are based on the proportion of par value owned to the total amount of par value ~~insured.~~

insured and are discounted using a discount rate equal to the risk-free rate applicable to the currency and weighted average remaining life of the insurance contract and may differ from the fair value.

Allowance for Credit Losses Rollforward

The Company did not establish an allowance for credit losses for AFS securities as of ~~June 30, 2020~~March 31, 2021 or purchase any credit-deteriorated assets for the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021.

The following table presents the rollforward of the allowance for credit losses on HTM investments for the ~~six~~three months ended ~~June 30, 2020:~~March 31, 2020.


			Three Months Ended March 31, 2020
In millions	Balance as of January 1, 2020 (1)		Current period provision for expected credit losses		Initial allowance recognized for PCD assets		Write-Offs		Recoveries		Balance as of March 31, 2020
HTM Investments
Assets of consolidated VIEs:
Corporate obligations	$	37	$	9	$	0	$	0	$	0	$	46

Total Allowance on HTM investments	$	37	$	9	$	0	$	0	$	0	$	46

In millions

Six Months Ended June 30, 2020


Balance
as of
January 1,
2020
(1)

Current period
provision for
expected
credit losses

Initial
allowance
recognized for
PCD assets

Write-Offs

Recoveries

Balance
as of
June 30,
2020
HTM Investments

Assets of consolidated VIEs:

Corporate obligations
   $ 37    $ (14 ) $ -    $ -    $ -    $ 23










Total Allowance on HTM investments
   $ 37    $ (14 ) $ -    $ -    $ -    $ 23

~~(1) -~~

~~Represents transition adjustment upon adoption of ASU 2016-13.~~

(1) - Represents

transition adjustment upon adoption of ASU 2016-13.

4031

Table of Contents

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (

~~Unaudited~~

)(Unaudited)

Note 7: Investments (continued)

~~Credit Loss Rollforward for AFS~~

The portion of certain unrealized losses on fixed-maturity securities that does not represent credit losses is recognized in AOCI. For these impairments, the net amount recognized in earnings represents the difference between the amortized cost of the security and the net present value of its projected future discounted cash flows prior to impairment. Any remaining difference between the fair value and amortized cost is recognized in AOCI. The following table presents the amount of credit loss impairments recognized in earnings on fixed-maturity securities held by MBIA as of the dates indicated, for which a portion of the non-credit related losses was recognized in AOCI, and the corresponding changes in such amounts. The additional credit loss impairments on securities previously impaired for the three and six months ended June 30, 2019 were primarily related to an impaired security for which a loss was recognized as the difference between the amortized cost and net present value of projected cash flows. The OTTI resulted from updated liquidity concerns and other adverse financial conditions of the issuer.

In millions

Three Months Ended

Six Months Ended
Credit Losses Recognized in Earnings Related to Other-Than-Temporary Impairments

June 30, 2019

June 30, 2019
Beginning balance
   $ 65    $ 37
Additions for credit loss impairments recognized in the current period on securities previously impaired
   9 37


Ending balance
   $ 74    $ 74

Sales of Available-for-Sale Investments

Gross realized gains and losses are recorded within “Net gains (losses) on financial instruments at fair value and foreign exchange” on the Company’s consolidated statements of operations. The proceeds and the gross realized gains and losses from sales of fixed-maturity securities held as AFS for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ are as follows:


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
In millions	2020			2019			2020			2019			2021			2020
Proceeds from sales	$	290		$	684		$	569		$	1,367		$	178		$	279
Gross realized gains	$	20		$	16		$	31		$	21		$	4		$	11
Gross realized losses	$	(4	)	$	(2	)	$	(12	)	$	(3	)	$	(5	)	$	(8	)

Equity Investments

Unrealized gains and losses recognized on equity investments held as of the end of each period for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ are as follows:

Three

Months

Ended
June 30,

Six

Months

Ended
June 30,
In millions

2020

2019

2020

2019
Net gains (losses) recognized during the period on equity securities
   $ 8    $ 2    $ (5 ) $ 7
Less:

Net gains (losses) recognized during the period on equity securities sold during the period
   -    -    - 1






Unrealized gains (losses) recognized during the period on equity securities still held at the reporting date
   $ 8    $ 2    $ (5 ) $ 6


	Three Months Ended March 31,
In millions	2021		2020
Net gains and (losses) recognized during the period on equity securities	$	2	$	(13	)
Less:
Net gains and (losses) recognized during the period on equity securities sold during the period		0		0

Unrealized gains and (losses) recognized during the period on equity securities still held at the reporting date	$	2	$	(13	)

Note 8: Derivative Instruments

U.S. Public Finance Insurance

The Company’s derivative exposure within its U.S. public finance insurance operations primarily consists of insured interest rate ~~and inflation-linked~~ swaps related to insured U.S. public finance debt issues. These derivatives do not qualify for the financial guarantee scope exception and are accounted for as derivative instruments. Changes in the fair values of the Company’s insured derivatives within its U.S. Public Finance segment are included in “Net change in fair value of insured derivatives” on the Company’s consolidated statements of operations.

~~MBIA Inc. and Subsidiaries~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~Note 8: Derivative Instruments (continued)~~

Corporate

The Company has entered into derivative instruments primarily consisting of interest rate swaps to manage the risks associated with fluctuations in interest rates affecting the value of certain assets. Changes in the fair values of the Company’s derivatives within its Corporate segment are included in “Net gains (losses) on financial instruments at fair value and foreign exchange” on the Company’s consolidated statements of operations.

International and Structured Finance Insurance

The Company has entered into a derivative instrument to provide financial guarantee insurance to a structured finance transaction that does not qualify for the financial guarantee scope exception and, therefore, is accounted for as a derivative. The insured CDS contract, referencing CMBS, is intended to be held for the entire term of the contract unless a settlement with the counterparty is negotiated. The Company no longer insures new CDS contracts except for transactions related to the restructuring of existing exposures. The Company’s derivative exposure within its international and structured finance insurance segment ~~also~~ includes insured interest rate and inflation-linked swaps related to insured debt issues. Changes in the fair values of the Company’s insured derivatives within its International and Structured Finance segment are included in “Net change in fair value of insured derivatives” on the Company’s consolidated statements of operations.

The Company ~~has~~had also entered into a derivative contract in connection with the commutation of certain insurance exposure, which occurred in 2014. Changes in the fair value of this

non-insured

derivative are included in “Net gains (losses) on financial instruments at fair value and foreign exchange” on the Company’s consolidated statements of operations.

This derivative contract was settled in the first quarter of 2021 for an amount consistent with the amount reported at fair value as of December 31, 2020.

Variable Interest Entities

A VIE consolidated by the Company is party to a cross currency swap, which was entered into to manage the variability in cash flows resulting from fluctuations in foreign currency rates. Changes in the fair value of the VIE derivative are included in “Net gains (losses) on financial instruments at fair value and foreign

exchange-VIE”

on the Company’s consolidated statements of operations.

Table of Contents

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 8: Derivative Instruments (continued)

Credit Derivatives Sold

The following tables present information about credit derivatives sold by the Company’s insurance operations that were outstanding as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020. Credit ratings represent the lower of underlying ratings assigned to the collateral by Moody’s Investor Services (“Moody’s”), Standard & Poor’s Financial Services, LLC (“S&P”) or MBIA.

$ in millions

As of June 30, 2020

Notional Value

Credit Derivatives Sold

Weighted
Average
Remaining
Expected
Maturity

AAA

AA

A

BBB

Below
Investment
Grade

Total
Notional

Fair
Value
Asset
(Liability)
Insured credit default swaps 0.5 Years $ - $ - $ - $ - $ 24 $ 24 $ (8 )
Insured swaps 14.2 Years - 115 1,324 363 - 1,802 (2 )

Total notional $ - $ 115 $ 1,324 $ 363 $ 24 $ 1,826

Total fair value $ - $ - $ (1 ) $ (1 ) $ (8 ) $ (10 )

$ in millions

As of December 31, 2019

Notional Value

Credit Derivatives Sold

Weighted
Average
Remaining
Expected
Maturity

AAA

AA

A

BBB

Below
Investment
Grade

Total
Notional

Fair
Value
Asset
(Liability)
Insured credit default swaps 1.0 Years $ - $ - $ - $ - $ 32 $ 32 $ (7 )
Insured swaps 14.0 Years - 121
(1)

1,371
(2)

433
(3)

- 1,925
(4)

(2 )

Total notional $ - $ 121 $ 1,371 $ 433 $ 32 $ 1,957

Total fair value $ - $ - $ (1 ) $ (1 ) $ (7 ) $ (9 )

~~(1) -~~

~~The Company revised its previously reported amount of $66 million to $121 million.~~

~~(2) -~~

~~The Company revised its previously reported amount of $1,284 million to $1,371 million.~~

~~(3) -~~

~~The Company revised its previously reported amount of $445 million to $433 million.~~

~~(4) -~~

~~The Company revised its previously reported amount of $1,795 million to $1,925 million.~~

~~MBIA Inc. and Subsidiaries~~

~~Notes to Consolidated Financial Statements (~~

~~Unaudited~~

)

~~Note 8: Derivative Instruments (continued)~~


$ in millions	As of March 31, 2021
	Notional Value
Credit Derivatives Sold	Weighted Average Remaining Expected Maturity		AAA		AA		A			BBB			Below Investment Grade		Total Notional		Fair Value Asset (Liability)
Insured swaps		13.8 Years	$	0	$	56	$	1,311		$	358		$	0	$	1,725	$	(1	)

Total notional			$	0	$	56	$	1,311		$	358		$	0	$	1,725

Total fair value			$	0	$	0	$	0		$	(1	)	$	-			$	(1	)


$ in millions	As of December 31, 2020
	Notional Value
Credit Derivatives Sold	Weighted Average Remaining Expected Maturity		AAA		AA		A			BBB			Below Investment Grade		Total Notional		Fair Value Asset (Liability)
Insured swaps		13.9 Years	$	0	$	58	$	1,327		$	358		$	0	$	1,743	$	(2	)

Total notional			$	0	$	58	$	1,327		$	358		$	0	$	1,743

Total fair value			$	0	$	0	$	(1	)	$	(1	)	$	-			$	(2	)

Internal credit ratings assigned by MBIA on the underlying ~~collateral~~credit exposures are ~~derived~~assigned by the Company’s surveillance group. In assigning an internal rating, current status reports from issuers and trustees, as well as publicly available transaction-specific information, are reviewed. ~~Also, where appropriate, cash flow analyses and collateral valuations are considered.~~ The maximum potential amount of future payments (undiscounted) on insured ~~CDS and~~swaps that are primarily insured interest rate swaps is estimated as the ~~notional value of such contracts.~~

net interest settlements plus principal payments where applicable, on amortizing swaps.

MBIA may hold recourse provisions ~~with third parties in derivative instruments~~ through subrogation rights of the swap counterparty, whereby if MBIA makes a claim payment, it may be entitled to ~~any rights of~~receive net swap settlements from the ~~insured counterparty, including~~issuer under the ~~right to any assets held as collateral.~~swap agreement.

Counterparty Credit Risk

The Company manages counterparty credit risk on an individual counterparty basis through master netting agreements covering derivative instruments in the corporate segment. These agreements allow the Company to contractually net amounts due from a counterparty with those amounts due to such counterparty when certain triggering events occur. The Company only executes swaps under master netting agreements, which typically contain mutual credit downgrade provisions that generally provide the ability to require assignment or termination in the event either MBIA or the counterparty is downgraded below a specified credit rating.

Under these agreements, the Company may receive or provide cash, U.S. Treasury or other highly rated securities to secure counterparties’ exposure to the Company or its exposure to counterparties, respectively. Such collateral is available to the holder to pay for replacing the counterparty in the event that the counterparty defaults. As of ~~June 30, 2020, the Company did not hold cash collateral to derivative counterparties but posted $8 million cash collateral to derivative counterparties. As of~~March 31, 2021 and December 31, ~~2019,~~2020, the Company did 0t hold or post cash collateral to derivative counterparties.

As of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the Company had securities with a fair value of ~~$244~~$154 million and ~~$181~~$214 million, respectively, posted to derivative counterparties and these amounts are included within “Fixed-maturity securities held as

available-for-sale,

at fair value” on the Company’s consolidated balance sheets.

As of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the fair value on 1 Credit Support Annex (“CSA”) was $1 million. This CSA governs collateral posting requirements between MBIA and its derivative counterparties. The Company did not receive collateral due to the Company’s credit rating, which was below the CSA minimum credit ratings level for holding counterparty collateral. As of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the counterparty was rated Aa3 by Moody’s and A+ by S&P.

Table of Contents

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 8: Derivative Instruments (continued)

Financial Statement Presentation

The fair value of amounts recognized for eligible derivative contracts executed with the same counterparty under a master netting agreement, including any cash collateral that may have been received or posted by the Company, is presented on a net basis in accordance with accounting guidance for the offsetting of fair value amounts related to derivative instruments. Insured CDS and insured swaps are not subject to master netting agreements. VIE derivative assets and liabilities are not presented net of any master netting agreements. Counterparty netting of derivative assets and liabilities offsets balances in “Interest rate swaps”, when applicable.

The following table presents the total fair value of the Company’s derivative assets and liabilities by instrument and balance sheet location, before counterparty netting, as of ~~June 30, 2020:~~

In millions

Derivative Assets
(1)

Derivative Liabilities
(1)
Derivative Instruments

Notional
Amount
Outstanding

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Not designated as hedging instruments:
Insured credit default swaps $ 24 Other assets $ - Derivative liabilities $ (8 )
Insured swaps 1,802 Other assets - Derivative liabilities (2 )
Interest rate swaps 438 Other assets 1 Derivative liabilities (189 )
Interest rate swaps-embedded 232
Medium-term
notes
- Medium-term notes (10 )
Currency
swaps-VIE
57
Other
assets-VIE
13
Derivative
liabilities-VIE
-
All other 49 Other assets - Derivative liabilities (37 )

Total
non-designated
derivatives
$ 2,602 �� $ 14 $ (246 )

~~(1) -~~

In accordance with the accounting guidance for derivative instruments and hedging activities, the balance sheet location of the Company’s embedded derivative instruments is determined by the location of the related host contract.

~~MBIA Inc. and Subsidiaries~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~Note 8: Derivative Instruments (continued)~~

March 31, 2021:

~~The following table presents the total fair value of the Company’s derivative assets and liabilities by instrument and balance sheet location, before~~

~~counterparty~~

~~netting, as of December 31, 2019:~~

In millions

Derivative Assets
(1)

Derivative Liabilities
(1)
Derivative Instruments

Notional
Amount
Outstanding

Balance Sheet
Location

Fair
Value

Balance Sheet Location

Fair
Value
Not designated as hedging instruments:
Insured credit default swaps $ 32 Other assets $ - Derivative liabilities $ (7 )
Insured swaps 1,925
(2)

Other assets - Derivative liabilities (2 )
Interest rate swaps 441 Other assets 1 Derivative liabilities (132 )
Interest rate swaps-embedded 232
Medium-term
notes
- Medium-term notes (15 )
Currency
swaps-VIE
58
Other
assets-VIE
8
Derivative
liabilities-VIE
-
All other 49 Other assets - Derivative liabilities (34 )

Total
non-designated
derivatives
$ 2,737 $ 9 $ (190 )


In millions			Derivative Assets (1)				Derivative Liabilities (1)
Derivative Instruments	Notional Amount Outstanding		Balance Sheet Location		Fair Value		Balance Sheet Location		Fair Value
Not designated as hedging instruments:
Insured swaps	$	1,725		Other assets	$	0		Derivative liabilities	$	(1	)
Interest rate swaps		429		Other assets		1		Derivative liabilities		(125	)
Interest rate swaps-embedded		241		Medium-term notes		0		Medium-term notes		(10	)
Currency swaps-VIE		52		Other assets-VIE		9		Derivative liabilities-VIE		0

Total non-designated derivatives	$	2,447			$	10			$	(136	)

~~(1)~~(

1) -

The following table presents the total fair value of the Company’s derivative assets and liabilities by instrument and balance sheet location, before counterparty netting, as of December 31, 2020:


In millions			Derivative Assets (1)				Derivative Liabilities (1)
Derivative Instruments	Notional Amount Outstanding		Balance Sheet Location		Fair Value		Balance Sheet Location		Fair Value
Not designated as hedging instruments:
Insured swaps	$	1,743		Other assets	$	0		Derivative liabilities	$	(2	)
Interest rate swaps		437		Other assets		1		Derivative liabilities		(164	)
Interest rate swaps-embedded		252		Medium-term notes		0		Medium-term notes		(10	)
Currency swaps-VIE		53		Other assets-VIE		6		Derivative liabilities-VIE		0
All other		49		Other assets		0		Derivative liabilities		(49	)

Total non-designated derivatives	$	2,534			$	7			$	(225	)

(1) -

~~(2) -~~

~~The Company revised its previously reported amount of $1,795 million to $1,925 million.~~

The following table presents the effect of derivative instruments on the consolidated statements of operations for the three months ended ~~June 30, 2020~~March 31, 2021 and ~~2019:~~2020:

In millions

Derivatives Not Designated as

Three Months Ended June 30,

Hedging Instruments

Location of Gain (Loss) Recognized in Income on Derivative

2020

2019

Insured credit default swaps Unrealized gains (losses) on insured derivatives $ - $ 1
Insured credit default swaps Realized gains (losses) and other settlements on insured derivatives - (1 )
Interest rate swaps Net gains (losses) on financial instruments at fair value and foreign exchange (3 ) (35 )
Currency swaps-VIE Net gains (losses) on financial instruments at fair value and foreign exchange-VIE (5 ) (2 )
All other Net gains (losses) on financial instruments at fair value and foreign exchange - (9 )




Total $ (8 ) $ (46 )

~~The following table presents the effect of derivative instruments on the consolidated statements of operations for the six months ended June 30, 2020 and 2019:~~

In millions

Derivatives Not Designated as

Six Months Ended June 30,

Hedging Instruments

Location of Gain (Loss) Recognized in Income on Derivative

2020

2019

Insured credit default swaps Unrealized gains (losses) on insured derivatives $ (1 ) $ 14
Insured credit default swaps Realized gains (losses) and other settlements on insured derivatives - (1 )
Interest rate swaps Net gains (losses) on financial instruments at fair value and foreign exchange (59 ) (55 )
Currency swaps-VIE Net gains (losses) on financial instruments at fair value and foreign exchange-VIE 5 (5 )
All other Net gains (losses) on financial instruments at fair value and foreign exchange (3 ) (9 )




Total $ (58 ) $ (56 )



In millions
Derivatives Not Designated as		Three Months Ended March 31,
Hedging Instruments	Location of Gain (Loss) Recognized in Income on Derivative	2021		2020
Insured credit default swaps	Unrealized gains (losses) on insured derivatives	$	0	$	(1	)
Interest rate swaps	Net gains (losses) on financial instruments at fair value and foreign exchange		35		(56	)
Currency swaps-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		2		10
All other	Net gains (losses) on financial instruments at fair value and foreign exchange		0		(3	)

Total		$	37	$	(50	)

Table of Contents

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 9: Income Taxes

The Company’s income taxes and the related effective tax rates for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ are as follows:

Three Months Ended June 30,

Six Months Ended June 30,
In millions

2020

2019

2020

2019

Income (loss) before income taxes $ (106 ) $ (207 ) $ (439 ) $ (226 )
Provision (benefit) for income taxes $ - $ - $ - $ 2
Effective tax rate 0.0% 0.0% 0.0% -0.9%


	Three Months Ended March 31,
In millions	2021			2020
Income (loss) before income taxes	$	(106	)	$	(333	)
Provision (benefit) for income taxes	$	0		$	0
Effective tax rate		0.0%			0.0%

For the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ the ~~Company’~~Company’s effective tax rate applied to its loss before income taxes was lower than the U.S. statutory tax rate due to the full valuation allowance on the changes in its net deferred tax asset.

Deferred Tax Asset, Net of Valuation

Allowance

The Company assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of its existing deferred tax assets. A significant piece of objective negative evidence evaluated was the Company having a three-year cumulative loss. Such objective evidence limits the ability to consider other subjective evidence, such as the Company’s projections of

pre-tax

income. On the basis of this evaluation, the Company has recorded a full valuation allowance against its net deferred tax asset of ~~$937 million~~$1.0 billion and ~~$873~~$966 million as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively. The Company will continue to analyze the valuation allowance on a quarterly basis.

~~Net operating losses (“NOLs”)~~NOLs of property and casualty insurance companies are permitted to be carried back two years and carried forward 20 years, except where modified by the CARES Act as outlined below. NOLs of property and casualty insurance companies are not subject to the 80 percent taxable income limitation and indefinite lived carryforward period required by the Tax Cuts and Jobs Act applicable to general corporate ~~NOLs.~~NOLs

Accounting for Uncertainty in Income Taxes

The Company’s policy is to record and disclose any change in unrecognized tax benefit (“UTB”) and related interest and/or penalties to income tax in the consolidated statements of operations. The Company includes interest as a component of income tax expense. As of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the Company had 0 UTB.

Federal income tax returns through 2011 have been examined or surveyed. As of ~~June 30, 2020,~~March 31, 2021, the Company’s NOL is approximately $3.2 billion. NOLs generated prior to tax reform and property and casualty NOLs generated after tax reform will expire between tax years ~~2032~~2031 through ~~2040.~~2041. As of ~~June 30, 2020,~~March 31, 2021, the Company has a foreign tax credit carryforward of $61 million, which will expire between tax years ~~2020~~2021 through 2030.

Section 382 of the Internal Revenue Code

On May 2, 2018, MBIA Inc.’s shareholders ratified an amendment to the Company’s

By-Laws,

which had been adopted earlier by MBIA Inc.’s Board of Directors. The amendment places restrictions on certain acquisitions of Company stock that otherwise may have increased the likelihood of an ownership change within the meaning of Section 382 of the Internal Revenue Code. With certain exceptions, the amendment generally prohibits a person from becoming a “Section 382 five-percent shareholder” by acquiring, directly or by attribution, 5%

% or more of the outstanding shares of the Company’s common stock.

~~Coronavirus Aid, Relief, and Economic Security Act~~COVID-19 Tax Impact

On March 27, 2020, as part of the business stimulus package in response to COVID-19, ~~pandemic,~~ the U.S. government enacted the CARES Act. The CARES Act established new tax provisions including, but not limited to: (1) five-year carryback of NOLs generated in 2018, 2019 and 2020; (2) accelerated refund of alternative minimum tax (“AMT”) credit carryforwards; and (3) retroactive changes to allow accelerated depreciation for certain depreciable property. The legislation ~~does~~did not have a material impact on the Company’s tax positions due to the lack of taxable income in the carryback periods. AsOn December 21, 2020, The Consolidated Appropriations Act (“Act”) passed by Congress to respond to the health and economic impacts of ~~June 30, 2020,~~COVID-19. The Act includes a number of tax law changes, including the ~~Company had received~~expansion of Employee Retention Credit, important changes to Paycheck Protection Program, and extension of a ~~cash benefit~~variety of expiring tax provisions. On March 6, 2021, The American Rescue Plan Act was passed by Congress to further respond to the health and economic impacts of COVID-19. Among other changes, the legislation provides for ~~its remaining AMT credits as provided by~~an extension of the ~~CARES Act.~~Employee Retention Credit through 2021. These two legislations do not have a material impact on the Company’s tax positions.

455

Table of Contents

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 10: Business Segments

As defined by segment reporting, an operating segment is a component of a company (i) that engages in business activities from which it earns revenue and incurs expenses, (ii) whose operating results are regularly reviewed by the Chief Operating Decision Maker to assess the performance of the segment and to make decisions about the allocation of resources to the segment and, (iii) for which discrete financial information is available.

The Company manages its businesses across 3 operating segments: 1) U.S. public finance insurance; 2) corporate; and 3) international and structured finance insurance. The Company’s U.S. public finance insurance business is operated through National and its international and structured finance insurance business is operated through MBIA Corp.

The following sections provide a description of each of the Company’s reportable operating segments.

U.S. Public Finance Insurance

The Company’s U.S. public finance insurance portfolio is managed through National. The financial guarantees issued by National provide unconditional and irrevocable guarantees of the payment of the principal of, and interest or other amounts owing on, U.S. public finance insured obligations when due. The obligations are not subject to acceleration, except that National may have the right, at its discretion, to accelerate insured obligations upon default or otherwise. National’s guarantees insure municipal bonds, including tax-exempt and taxable indebtedness of U.S. political subdivisions, as well as utilities, airports, health care institutions, higher educational facilities, ~~student loan issuers,~~ housing authorities and other similar agencies and obligations issued by private entities that finance projects that serve a substantial public purpose. Municipal bonds and privately issued bonds used for the financing of public purpose projects are generally supported by taxes, assessments, fees or tariffs related to the use of these projects, lease payments or other similar types of revenue streams.

Corporate

The Company’s corporate segment consists of general corporate activities, including providing support services to MBIA Inc.’s subsidiaries as well as asset and capital management. Support services are provided by the Company’s service company, MBIA

Services, and include, among others, management, legal, accounting, treasury, information technology, and insurance portfolio surveillance, on a fee-for-service basis. Capital management includes activities related to servicing obligations issued by MBIA Inc. and its subsidiaries, MBIA Global Funding, LLC (“GFL”) and MBIA Investment Management Corp. (“IMC”). MBIA Inc. issued debt to finance the operations of the MBIA group. GFL raised funds through the issuance of MTNs with varying maturities, which were in turn guaranteed by MBIA Corp. GFL lent the proceeds of these MTN issuances to MBIA Inc. IMC, along with MBIA Inc., provided customized investment agreements, guaranteed by MBIA Corp., for bond proceeds and other public funds for such purposes as construction, loan origination, escrow and debt service or other reserve fund requirements. The Company has ceased issuing new MTNs and investment agreements and the outstanding liability balances and corresponding asset balances have declined over time as liabilities matured, terminated or were called or repurchased. During 2020, the remaining investment agreements issued by IMC matured, and as of December 31, 2020, there were no outstanding investment agreements issued by IMC. All of the debt within the corporate segment is managed collectively and is serviced by available liquidity.

International and Structured Finance Insurance

The Company’s international and structured finance insurance segment is principally conducted through MBIA Corp. The financial guarantees issued by MBIA Corp. generally provide unconditional and irrevocable guarantees of the payment of principal of, and interest or other amounts owing on, non-U.S. public finance and global structured finance insured obligations when due, or in the event MBIA Corp. has the right, at its discretion, to accelerate insured obligations upon default or otherwise. MBIA Corp. insures the investment contracts written by MBIA Inc., and if MBIA Inc. were to have insufficient assets to pay amounts due upon maturity or termination, MBIA Corp. would make such payments. MBIA Corp. insures debt obligations of the following affiliates:

MBIA Inc.;

GFL;

IMC;

MZ Funding LLC; and

LaCrosse Financial Products, LLC, a wholly-owned affiliate, to which MBIA Insurance Corporation ~~has~~had written insurance policies guaranteeing the obligations under CDS. Certain policies ~~cover~~covered payments potentially due under CDS, including termination payments that may become due in certain circumstances, including the occurrence of certain insolvency or payment defaults under the CDS or ~~derivatives~~derivative contracts by the insured counterparty or by the guarantor.

The Company no longer insures new CDS contracts except for potential transactions related to the restructuring of existing exposures.

Table of Contents

MBIA Inc. and

Subsidiaries

Notes to Consolidated

Financial

Statements

(

~~Unaudited~~

) (Unaudited)

Note 10: Business Segments (continued)

MBIA Corp. insures non-U.S. public finance and global structured finance obligations, including asset-backed obligations. MBIA Corp. has insured sovereign-related and sub-sovereign bonds, utilities, privately issued bonds used for the financing of projects that include toll roads, bridges, airports, public transportation facilities, and other types of infrastructure projects serving a substantial public purpose. Global structured finance and asset-backed obligations typically are securities repayable from expected cash flows generated by a specified pool of assets, such as residential and commercial mortgages, insurance policies, consumer loans, corporate loans and bonds, ~~trade~~ and ~~export receivables, and leases for equipment,~~ aircraft ~~and real estate property.~~leases. MBIA Corp. has also written policies guaranteeing obligations under certain other derivative contracts, including termination payments that may become due upon certain insolvency or payment defaults of the financial guarantor or the issuer. ~~The Company is no longer insuring new CDS contracts except for transactions related to the restructuring of existing exposures.~~ MBIA Corp. has not written any meaningful amount of business since 2008.

Segments Results

The following tables provide the Company’s segment results for the three months ended ~~June 30, 2020~~March 31, 2021 and ~~2019:~~2020:


	Three Months Ended June 30, 2020													Three Months Ended March 31, 2021
					International									U.S.					International
	U.S. Public				and Structured									Public					and Structured
	Finance				Finance									Finance					Finance
In millions	Insurance		Corporate		Insurance			Eliminations			Consolidated			Insurance			Corporate		Insurance			Eliminations			Consolidated
Revenues (1)	$	26	$	5	$	8		$	-		$	39		$	23		$	5	$	7		$	0		$	35
Net gains (losses) on financial instruments at fair value and foreign exchange		25		-		(1)			-			24			(3	)		55		(1	)		0			51
Revenues of consolidated VIEs		-		-		51			-			51			0			0		(14	)		0			(14	)
Inter-segment revenues (2)		8		17		3			(28)			-			8			18		4			(30	)		0

Total revenues		59		22		61			(28)			114			28			78		(4	)		(30	)		72
Losses and loss adjustment		72		-		64			-			136			109			0		(11	)		0			98
Operating		3		19		3			-			25			4			21		3			0			28
Interest		-		16		29			-			45			0			14		27			0			41
Expenses of consolidated VIEs		-		-		14			-			14			0			0		11			0			11
Inter-segment expenses (2)		11		6		11			(28	)		-			14			6		10			(30	)		0

Total expenses		86		41		121			(28	)		220			127			41		40			(30	)		178

Income (loss) before income taxes	$	(27)	$	(19)	$	(60	)	$	-		$	(106	)	$	(99	)	$	37	$	(44	)	$	0		$	(106	)

Identifiable assets	$	3,868	$	1,021	$	4,077		$	(2,353)	(3)	$	6,613		$	3,562		$	899	$	3,477		$	(2,563	) (3)	$	5,375

(1) -

Represents

the sum of third-party financial guarantee net premiums earned, net investment income, insurance-related fees and reimbursements and other fees.

(2) -

Represents

intercompany premium income and expense and intercompany interest income and expense pertaining to intercompany receivables and payables.

(3) -

Consists

principally of intercompany reinsurance balances.

Table of Contents

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 10: Business Segments (continued)


	Three Months Ended March 31, 2020
	U.S.						International
	Public						and Structured
	Finance						Finance
In millions	Insurance			Corporate			Insurance			Eliminations			Consolidated
Revenues (1)	$	30		$	6		$	7		$	0		$	43
Net gains (losses) on financial instruments at fair value and foreign exchange		(18	)		(56	)		11			0			(63	)
Revenues of consolidated VIEs		0			0			14			0			14
Inter-segment revenues (2)		7			18			4			(29	)		0

Total revenues		19			(32	)		36			(29	)		(6	)
Losses and loss adjustment		48			0			195			0			243
Operating		2			14			4			0			20
Interest		0			16			31			0			47
Expenses of consolidated VIEs		0			0			17			0			17
Inter-segment expenses (2)		14			6			9			(29	)		0

Total expenses		64			36			256			(29	)		327

Income (loss) before income taxes	$	(45	)	$	(68	)	$	(220	)	$	0		$	(333	)

(1) -

Represents the sum of third-party financial guarantee net premiums earned, net investment income, insurance-related fees and reimbursements and other fees.

(2) -

Represents intercompany premium income and expense and intercompany interest income and expense pertaining to intercompany receivables and payables.

~~(3) -~~

~~Consists principally of intercompany reinsurance balances.~~

~~MBIA Inc. and Subsidiaries~~

~~Notes to Consolidated Financial~~

~~Statements~~

(

~~Unaudited~~

)

~~Note 10: Business Segments (continued)~~

Three Months Ended June 30, 2019


International


U.S. Public

and Structured


Finance

Finance

In millions

Insurance

Corporate

Insurance

Eliminations

Consolidated

Revenues
(1)
   $ 38    $ 8    $ 7    $ -    $ 53
Net change in fair value of insured derivatives
   -    -    (1)    -    (1)
Net gains (losses) on financial instruments at fair value and foreign exchange
   17    (33)    (10)    -    (26)
Net investment losses related to other-than-temporary impairments
   (9)    -    -    -    (9)
Other net realized gains (losses)
   -    -    1    -    1
Revenues of consolidated VIEs
   20    -    (9)    1    12
Inter-segment revenues
(2)
   8    14    6    (28)    -










Total revenues
   74    (11)    (6)    (27)    30
Losses and loss adjustment
   106    -    34    -    140
Operating
   2    16    3    -    21
Interest
   -    20    32    -    52
Expenses of consolidated VIEs
   -    -    24    -    24
Inter-segment expenses
(2)
   12    5    10    (27)    -










Total expenses
   120    41    103    (27)    237










Income (loss) before income taxes
   $ (46)    $ (52)    $ (109)    $ -    $ (207)

~~(1) -~~

~~Represents the sum of third-party financial guarantee net premiums earned, net investment income, insurance-related fees and reimbursements and other fees.~~

~~(2) -~~

~~Represents intercompany premium income and expense and intercompany interest income and expense pertaining to intercompany receivables and payables.~~

~~The following tables provide the Company’s segment results for the six months ended June 30, 2020 and 2019:~~

Six Months Ended June 30, 2020


International


U.S. Public

and Structured


Finance

Finance

In millions

Insurance

Corporate

Insurance

Eliminations

Consolidated

Revenues
(1)
   $ 57    $ 11    $ 14    $ - $ 82
Net gains (losses) on financial instruments at fair value and foreign exchange
   7    (56)    10    - (39)
Revenues of consolidated VIEs
   -    -    65    - 65
Inter-segment revenues
(2)
   14    35    8    (57) -








Total revenues
   78    (10)    97    (57) 108
Losses and loss adjustment
   120    -    259    - 379
Operating
   5    34    6    - 45
Interest
   -    32    60    - 92
Expenses of consolidated VIEs
   -    -    31    - 31
Inter-segment expenses
(2)
   25    11    21    (57) -








Total expenses
   150    77    377    (57) 547








Income (loss) before income taxes
   $ (72)    $ (87)    $ (280)    $ - $ (439)








Identifiable assets
   $ 3,868    $ 1,021    $ 4,077    $ (2,353)
(3)

$ 6,613

~~(1) -~~

~~Represents the sum of third-party financial guarantee net premiums earned, net investment income, insurance-related fees and reimbursements and other fees.~~

~~(2) -~~

~~Represents intercompany premium income and expense and intercompany interest income and expense pertaining to intercompany receivables and payables.~~

~~(3) -~~

~~Consists principally of intercompany reinsurance balances.~~

~~MBIA Inc. and Subsidiaries~~

~~Notes to Consolidated Financial Statements (~~

~~Unaudited~~

)

~~Note 10: Business Segment~~

~~s (continued)~~

Six Months Ended June 30, 2019

International


U.S. Public

and Structured


Finance

Finance

In millions

Insurance

Corporate

Insurance

Eliminations

Consolidated

Revenues
(1)
   $ 76 $ 15 $ 17 $ - $ 108
Net change in fair value of insured derivatives
   - - 13 - 13
Net gains (losses) on financial instruments at fair value and foreign exchange
   57 (51 ) (10 ) - (4 )
Net investment losses related to other-than-temporary impairments
   (37 ) - - - (37 )
Other net realized gains (losses)
   1 (1 ) 2 - 2
Revenues of consolidated VIEs
   6 - (9 ) 1 (2 )
Inter-segment revenues
(2)
   15 33 9 (57 ) -


Total revenues
   118 (4 ) 22 (56 ) 80
Losses and loss adjustment
   56 - 46 - 102
Operating
   4 38 9 - 51
Interest
   - 39 65 - 104
Expenses of consolidated VIEs
   - - 49 - 49
Inter-segment expenses
(2)
   27 11 18 (56 ) -


Total expenses
   87 88 187 (56 ) 306


Income (loss) before income taxes
   $ 31 $ (92 ) $ (165 ) $ - $ (226 )

~~(1) - Represents~~

~~the sum of third-party financial guarantee net premiums earned, net investment income, insurance-related fees and reimbursements and other fees.~~

~~(2) - Represents~~

~~intercompany premium income and expense and intercompany interest income and expense pertaining to intercompany receivables and payables.~~

Note 11: Earnings Per

Earnings per share is calculated using the

two-class

method in which earnings are allocated to common stock and participating securities based on their rights to receive nonforfeitable dividends or dividend equivalents. The Company grants restricted stock to certain employees and

non-employee

directors in accordance with the Company’s long-term incentive programs, which entitle the participants to receive nonforfeitable dividends or dividend equivalents during the vesting period on the same basis as those dividends are paid to common shareholders. These unvested stock awards represent participating securities. During periods of net income, the calculation of earnings per share exclude the income attributable to participating securities in the numerator and the dilutive impact of these securities from the denominator. During periods of net loss, no effect is given to participating securities in the numerator and the denominator excludes the dilutive impact of these securities since they do not share in the losses of the Company.

Basic earnings per share excludes dilution and is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects the dilutive effect of all unvested restricted stock outstanding during the period that could potentially result in the issuance of common stock. The dilution from unvested restricted stock is calculated by applying the two-class method and using the treasury stock method. The treasury stock method assumes the proceeds from the unrecognized compensation expense from unvested restricted stock will be used to purchase shares of the Company’s common stock at the average market price during the period. If the potentially dilutive securities disclosed in the table below become vested, the transaction would be net share settled resulting in a significantly lower impact to the outstanding share balance in comparison to the total amount of the potentially dilutive securities. During periods of net loss, unvested restricted stock is excluded from the calculation because itthey would have an antidilutive ~~effect.~~affect. Therefore, in periods of net loss, the calculation of basic and diluted earnings per share would result in the same value.

938

Table of Contents

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 11:

~~Earning~~

Earnings Per Share (continued)

The following table presents the computation of basic and diluted earnings per share for the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 and ~~2019:~~2020:

Three Months
Ended June 30,

Six Months
Ended June 30,

In millions except per share amounts

2020

2019

2020

2019

Basic earnings per share:

Net income (loss) available to common shareholders

$
(106
)

$
(207
)

$
(439
)

$
(228
)
Basic weighted average shares
(1)


62.6

84.3

67.3

84.9



Net income (loss) per basic common share

$
(1.69
)

$
(2.45
)

$
(6.51
)

$
(2.68
)


Diluted earnings per share:


Net income (loss) available to common shareholders

$
(106
)

$
(207
)

$
(439
)

$
(228
)
Diluted weighted average shares


62.6

84.3

67.3

84.9



Net income (loss) per diluted common share

$
(1.69
)

$
(2.45
)

$
(6.51
)

$
(2.68
)


Potentially dilutive securities excluded from the calculation of diluted EPS because of antidilutive affect


4.9

4.5

4.9

4.5


	Three Months Ended March 31,
In millions except per share amounts	2021			2020
Basic earnings per share:
Net income (loss) available to common shareholders	$	(106	)	$	(333	)
Basic weighted average shares (1)		49.3			72.1

Net income (loss) per basic common share	$	(2.16	)	$	(4.62	)

Diluted earnings per share:
Net income (loss) available to common shareholders	$	(106	)	$	(333	)
Diluted weighted average shares (1)		49.3			72.1

Net income (loss) per diluted common share	$	(2.16	)	$	(4.62	)

Potentially dilutive securities excluded from the calculation of diluted EPS because of antidilutive affect		5.0			4.9

(1) -

Includes 0.9 ~~million and 1.1~~ million of participating securities that met the service condition and were eligible to receive nonforfeitable dividends or dividend equivalents for each of the three months ended ~~June 30,~~March 31, 2021 and 2020, and 2019, respectively. Includes 0.9 million and 1.0 million of participating securities that met the service condition and were eligible to receive nonforfeitable dividends or dividend equivalents for the six months ended June 30, 2020 and 2019, respectively.

Note 12: Accumulated Other Comprehensive Income

The following table presents the changes in the components of AOCI for the ~~six~~three months ended ~~June 30, 2020:~~March 31, 2021:

In millions

Unrealized
Gains (Losses)
on AFS
Securities, Net

Foreign Currency
Translation, Net

Instrument-Specific

Credit Risk of
Liabilities Measured
at Fair Value, Net

Total

Balance, December 31, 2019
   $ 112 $ (7 ) $ (107 ) $ (2 )
Other comprehensive income (loss) before reclassifications
   88 (1 ) 49 136
Amounts reclassified from AOCI
   (8 ) - 3 (5 )


Net period other comprehensive income (loss)
   80 (1 ) 52 131




Balance, June 30, 2020
   $ 192 $ (8 ) $ (55 ) $ 129


In millions	Unrealized Gains (Losses) on AFS Securities, Net			Foreign Currency Translation, Net			Instrument-Specific Credit Risk of Liabilities Measured at Fair Value, Net			Total

Balance, December 31, 2020	$	176		$	(10	)	$	(51	)	$	115
Other comprehensive income (loss) before reclassifications		(87	)		1			(5	)		(91	)
Amounts reclassified from AOCI		(5	)		0			20			15
Net period other comprehensive income (loss)		(92	)		1			15			(76	)
Balance, March 31, 2021	$	84		$	(9	)	$	(36	)	$	39

~~MBIA Inc. and Subsidiaries~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~Note 12: Accumulated Other Comprehensive Income (continued)~~

The following table ~~presents~~prese

ts the details of the reclassifications from AOCI for the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 and ~~2019:~~2020:


In millions	Amounts Reclassified from AOCI
	Three Months Ended March 31,
Details about AOCI Components	2021			2020			Affected Line Item on the Consolidated Statements of Operations
Unrealized gains (losses) on AFS securities:

Realized gains (losses) on sale of securities	$	5		$	3		Net gains (losses) on financial instruments at fair value and foreign exchange
Total unrealized gains (losses) on AFS
securities		5			3
Instrument-specific credit risk of liabilities:
Settlement of liabilities		(20	)		(2	)	Net gains (losses) on financial instruments at fair value and foreign exchange
Total reclassifications for the period	$	(15	)	$	1		Net income (loss)

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MBIA Inc. and Subsidiaries

In millions

Amounts Reclassified from AOCI


Three Months Ended June 30,

Six Months Ended June 30,

Details about AOCI Components

2020

2019

2020

2019

Affected Line Item on the Consolidated
Statements of Operations
Unrealized gains (losses) on

AFS securities:

Realized gains (losses) on sale of securities
$ 5 $ (16) $ 8 $ 23
Net gains (losses) on financial instruments
at fair value and foreign exchange
Credit losses
- (9) - (37) Net investment losses related to OTTI


Total unrealized gains (losses) on AFS securities
5 (25) 8 (14)
Instrument-specific credit risk of liabilities:

Settlement of liabilities
(1) (19) (3) (23)
Net gains (losses) on financial instruments
at fair value and foreign exchange


Total reclassifications for the period
$ 4 $ (44) $ 5 $ (37) Net income (loss)

Notes to Consolidated Financial Statements (Unaudited)

Note 13: Commitments and Contingencies

The following commitments and contingencies provide an update of those discussed in “Note 19: Commitments and Contingencies” in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, and should be read in conjunction with the complete descriptions provided in the aforementioned Form 10-K.

Litigation

MBIA Insurance Corp. v. Credit Suisse Securities (USA) LLC, et al.

; Index No. 603751/2009 (N.Y. Sup. Ct., N.Y. County)

On ~~September 13, 2018,~~December 14, 2009, MBIA Corp. commenced an action in New York State Supreme Court, New York County, against Credit Suisse. The complaint sought damages for claims in connection with the ~~Appellate Division~~procurement of financial guarantee insurance on the Home Equity Mortgage Trust Series 2007-2 securitization. On January 30, 2013, MBIA Corp. filed an amended complaint. In November of 2020, following a trial and post-trial briefing, the court overseeing the litigation issued a decision declaring that MBIA Corp. had succeeded in establishing that a majority of the ~~Supreme~~loans in the transaction were ineligible. In January of 2021, the Court ~~First Judicial Department~~ issued ~~a ruling on~~an order declaring that Credit Suisse was liable to MBIA for approximately $604 million in damages. On February 9, 2021, the ~~parties’ cross-appeals from the court’s March 31, 2017 decision and order on the parties’ summary judgment motions. The ruling affirmed the trial court’s decision, except reversed as~~parties to the ~~trial court’s determination~~litigation entered into a settlement agreement pursuant to ~~interpret as a matter of law, prior to trial, certain of~~which Credit Suisse paid MBIA Corp. $600 million, and on February 11, 2021, the ~~representations and warranties that form~~court entered an order dismissing the ~~predicate for certain of MBIA Corp.’s breach of contract claims. Trial of the case concluded on August 2, 2019. Post-trial briefs have been submitted, and the case is under submission.~~case.

Tilton v. MBIA Inc., ~~et al.;~~

Index No. ~~7:19-cv-09733-WHP (S.D.N.Y.)~~68880/2015 (N.Y. Sup. Ct., Westchester County)

On November 2, 2015, Lynn Tilton and Patriarch Partners XV, LLC filed a complaint in New York State Supreme Court, Westchester County, against MBIA Inc. and MBIA Corp., ~~alleging~~seeking damages based on allegations of fraudulent inducement and related claims arising from purported promises made in connection with insurance policies issued by MBIA Corp. on certain collateralized loan obligations managed by Ms. Tilton and affiliated Patriarch ~~entities, and seeking damages.~~entities. Plaintiffs filed an amended complaint on January 15, 2016. ~~On October 21, 2019,~~The parties completed discovery in 2017. In February of 2021, the ~~Company removed the case to the United States District Court~~parties submitted respective cross-motions for ~~the Southern District.~~summary judgment.

Tilton et al. v. MBIA Inc., et al.; Adversary Case No. 19-50390 (KBO) (Bankr. Del.)

On October 1, 2019, Lynn Tilton and certain affiliated entities commenced an adversary proceeding in the Zohar Funds Bankruptcy Cases against MBIA Inc., MBIA Corp. and other Zohar ~~Fund~~Funds creditors seeking the equitable subordination of those creditors’ claims with respect to the Zohar Funds. Plaintiffs claim they are entitled to relief due to inequitable and unfair conduct by defendants. The Company and the other defendants filed their respective motions to dismiss on October 30, 2020

Briefing on those motions is complete and the motions are under submission.

Zohar CDO 2003-1, Ltd., et al. v. Patriarch Partners, LLC et al.,

Case No. 1:17-cv-0307-WHP (S.D.N.Y.)

On November 27, 2017, Lynn Tilton and certain affiliated entities commenced a third-party complaint against MBIA Inc., MBIA Insurance Corp. and other Zohar Fund stakeholders seeking damages for alleged breaches of the contracts governing the Zohar Funds and additional alleged legal duties and obligations relating to the Funds. On December 22, 2020, the Company and the other third-party defendants moved to dismiss the third-party complaint. Briefing on those motions to dismiss is complete and the motions are under submission.

MBIA Insurance Corp. v. Tilton et al., Adversary

Case

No. 20-50776

(KBO) (Bankr. Del.)

On July 30, 2020, MBIA Corp. commenced an adversary proceeding in the Zohar Funds Bankruptcy Cases against Lynn Tilton and certain affiliated entities seeking damages incurred by MBIA Corp. in connection with insurance policies it issued on senior notes issued by Zohar I and Zohar II. Tilton and her affiliated defendants moved to dismiss the complaint on October 23, 2020. Briefing on the motion is complete and the motion is under submission.

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MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 13: Commitments and Contingencies (continued)

Motion of Assured Guaranty Corp., Assured Guaranty Municipal Corp., and National Public Finance Guarantee Corporation for Adequate Protection or, in the Alternative, for Relief from the Automatic Stay

, Case No. 17 BK 3567-LTS (D.P.R. August 23, 2019) (Swain, J.)

On January 16, 2020, National, Ambac and Assured (“Movants”) filed a renewed motion in the PRHTA Title III case for relief from the automatic stay or, in the alternative, adequate protection. The motion seeks leave to file a complaint in Puerto Rico, and argues that the revenues securing the bonds insured by Movants are being improperly diverted away from PRHTA, despite such revenues being the exclusive property of PRHTA and its bondholders. Following a preliminary lift stay hearing held on June 4, 2020, on July 2, 2020, Judge Swain ruled that the Movants had failed to satisfy its burden of presenting a colorable claim that they had a statutory, contractual or equitable lien on HTA.

~~MBIA Inc.~~ On September 9, 2020, the Court entered a final order denying the HTA lift stay motion, finding that a balancing of factors does not support stay relief. The Movants appealed, and ~~Subsidiaries~~the case was argued before the First Circuit Court of Appeals on February 4, 2021. On March 3, 2021 the First Circuit affirmed Judge Swain’s decision holding

that

the Title III court did not abuse its discretion in denying relief from the automatic stay.

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~Note 13: Commitments and Contingencies (continued)~~

The Financial Oversight and Management Board for Puerto Rico, as representative of The Puerto Rico Electric Power Authority, et al.,

, Case No. 17 BK

4780-LTS

~~(D.P.R.~~ (D.P.R. July 19, 2017) (Swain, J.)

On July 18, 2017, National, together with other PREPA bondholders, asked the court overseeing PREPA’s Title III bankruptcy proceeding to lift the automatic bankruptcy stay, and permit bondholders to seek appointment of a receiver to oversee PREPA. On September 14, 2017, the court held that PROMESA barred relief from the stay. The bondholders appealed the decision to the First Circuit. On August 8, 2018, the First Circuit issued an order reversing Judge Swain’s decision on jurisdictional grounds and remanding the motion. On October 3, 2018, National, together with other monolines filed an updated motion for relief from the automatic stay to allow Movants to exercise their statutory right to have a receiver appointed at PREPA. The Oversight Board filed a motion to dismiss the receiver motion. ~~The~~These motions have been stayed until five business days following the ruling on the PREPA 9019 Settlement Motion. The PREPA 9019 Settlement Motion has been adjourned until further order of the Court.

~~Definitive Restructuring Support Agreement for PREPA~~

On May 3, 2019, PREPA, the Oversight Board, the Puerto Rico Fiscal Agency and Financial Advisory Authority (“AAFAF”), the Ad Hoc Group of PREPA bondholders (the “Ad Hoc Group”), and Assured Guaranty Corp. and Assured Guaranty Municipal Corp. (“Assured”) (together, the “RSA Parties”) entered into the RSA. On September 9, 2019 National, Syncora Guarantee Inc. (“Syncora”), and the RSA Parties agreed on an amendment to the RSA pursuant to which National and Syncora joined the RSA. The RSA includes the agreement for resolving PREPA’s restructuring plan issues and arrangements.

Pursuant to the RSA, the Oversight Board filed a Rule 9019 motion with the Title III court in May of 2019 seeking approval of the RSA (the “Settlement Motion”). The RSA requires, upon entry of the order approving the Settlement Motion (the “9019 Order”), that Movants will withdraw the Receiver Motion, and the Ad Hoc Group will support such withdrawal. As contemplated by the RSA, on July 1, 2019, the Oversight Board and AAFAF also filed an adversary complaint against the Trustee for the PREPA Bonds, challenging the validity of the liens arising under the Trust Agreement that secure insured obligations of National. The adversary proceeding is stayed until the earlier of (a) 60 days after the Court denies the Settlement Motion, (b) consummation of a Plan, (c) 60 days after the filing by the Oversight Board and AAFAF of a Litigation Notice, or (d) further order of the Court. The hearing for the Settlement Motion has been adjourned until further order of the Court.

Cortland Capital Market Services LLC, et al. v. The Financial Oversight and Management Board for Puerto Rico et al.,

Case No. 19-00396 (D.P.R. July 9, 2019) (Swain, J.)

On July 9, 2019, the “Fuel Line Lenders,” parties who extended approximately $700 million to PREPA beginning in 2012 to fund fuel purchases, filed an adversary complaint against the Oversight Board, PREPA, AAFAF, and the Trustee for the PREPA Bonds, alleging that they are entitled to be paid in full before National and other bondholders have any lien on or recourse to PREPA’s assets, including pursuant to the RSA. On September 30, 2019, the Fuel Line Lenders filed an amended complaint which added National, Assured, Syncora, and the Ad Hoc Group as defendants. Defendants moved to dismiss the Fuel Line Lenders’ adversary complaint on November 11, 2019. The Fuel Line Lenders filed their opposition to the motion to dismiss on December 5, 2019. Defendants’ reply in support of the motion to dismiss was filed February 3, 2020. The hearing on the motion to dismiss was adjourned until the Court determines when the 9019 Settlement Motion and related litigation will recommence.

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MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 13: Commitments and Contingencies (continued)

The Financial Oversight and Management Board for Puerto Rico, as Representative of the Commonwealth of Puerto Rico, et al. v. the Puerto Rico Public Buildings Authority

, Case

No. 18-00149

~~(D.P.R.~~ (D.P.R. December 21, 2018) (Swain, J.)

On December 21, 2018, the Oversight Board and the Official Committee of Unsecured Creditors of all Debtors other than COFINA filed an adversary complaint against the ~~Puerto Rico Public Buildings Authority (“PBA”),~~PBA, seeking a declaration that leases purportedly entered into by PBA are in fact disguised financing transactions and that PBA therefore has no right under PROMESA or the Bankruptcy Code to receive post-petition payments from the Title III debtors or administrative claims against the debtors. On January 28, 2019, National filed a motion to intervene in the proceeding. On March 12, 2019, the Court granted National’s intervention motion. On March 19, 2019, National filed an answer to the complaint. On September 27, 2019, the Oversight Board filed a voluntary petition for relief for PBA pursuant to PROMESA, commencing a case under Title III. The complaint has been stayed indefinitely by order of the Court. As part of the GO PSA, National has agreed to stay its participation in this litigation subject to the effective date of the Commonwealth plan of adjustment.

The Financial Oversight and Management Board for Puerto Rico, as Representative of the Commonwealth of Puerto Rico, et al. v. National Public Finance Guarantee Corporation, et ~~al.,~~al

., Case

No. 19-00291

~~(D.P.R.~~ (D.P.R. May 2, 2019) (Swain, J.)

On May 2, 2019, the Oversight Board and the Official Committee of Unsecured Creditors of all Title III Debtors (other than COFINA) (the “Committee”) filed lien avoidance adversary complaints against several hundred defendants, including National, challenging the existence, extent, and enforceability of GO bondholders’ liens. After an approximately five-month stay of litigation entered by the Court on July 24, 2019, these adversary proceedings resumed pursuant to an interim schedule entered by the Court in December 2019. On February 5, 2020, National and Assured Guaranty Municipal Corp. filed a motion to dismiss the adversary proceeding. The motion has been stayed indefinitely by order of the Court. As part of the GO PSA, National has agreed to stay its participation in this litigation subject to the effective date of the Commonwealth plan of adjustment.

The Financial Oversight and Management Board for Puerto Rico, as Representative of the Commonwealth of Puerto Rico, et al., Case No. 17-03567 LTS (D.P.R. July 17, 2020) (Swain, J.)

On July 17, 2020, National, Ambac Assurance Corporation, Assured Guaranty Corp., Assured Guaranty Municipal Corp. and Financial Guaranty Insurance Company sought appointment as trustees under Section 926 of Title 11 of the United States Code to pursue certain claims on behalf of HTA against the Commonwealth of Puerto Rico. On August 11, 2020, Judge Swain denied the motion. The movants appealed to the First Circuit Court of Appeals, and briefing is underway. As part of the GO PSA and HTA PSA, National’s participation in this litigation will be stayed subject to the effective date of the Commonwealth plan of adjustment.

National Public Finance Guarantee Corporation et al. v. UBS Financial Services, Inc. et al., ~~No.~~

~~19-422-LTS~~

~~(D.P.R.),~~

~~removed from~~ No. SJ2019CV07932 (Superior Court San Juan)

On August 8, 2019, National and MBIA Corp. filed suit in the Court of First Instance in San Juan, Puerto Rico against UBS Financial Services, Inc., UBS Securities LLC, Citigroup Global Markets Inc., Goldman Sachs & Co. LLC, J.P. Morgan Securities LLC, Morgan Stanley & Co. LLC, Merrill Lynch, Fenner & Smith Inc., RBC Capital Markets LLC, and Santander Securities LLC, bringing two claims under Puerto Rico law: doctrina de actos propios (the doctrine of one’s own acts) and unilateral declaration of will. These claims concern the insurance by National of bonds issued by the Commonwealth of Puerto Rico and its instrumentalities that were underwritten by these defendants. National alleges that, when the defendants solicited bond insurance, they represented through their acts that they would investigate certain information they provided to National and that they had a reasonable basis to believe that information was true and complete. National further alleges that the defendants did not perform such investigations and that key information was untrue or incomplete. National seeks damages to be proven at trial. On September 9, 2019, Defendants removed National’s claims to federal court in the District of Puerto Rico. National filed its motion to remand the case on October 9, 2019. The Court held a hearing on the remand motion on July 29, 2020, at the end of which it granted National’s motion and remanded the case to the Commonwealth Court of First Instance. On July 31, 2020, National filed an informative motion with the Commonwealth of Puerto Rico Court of First Instance, Superior Court of San Juan, advising that the case has been remanded and requesting the reopening of the case in the Superior Court for further proceedings. On August 2, 2020, the Superior Court recognized the order of Judge Swain remanding the case and acknowledged that proceedings would continue in Commonwealth Court. On September 16, 2020, Defendants filed a motion to dismiss the complaint. National filed its objection to that motion on October 7, 2020, and briefing concluded on November 30, 2020. A decision is pending.

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MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 13: Commitments and Contingencies (continued)

Complaint Objecting to Defendants’ Claims and Seeking Related Relief,

Case No.

17-03283-LTS

~~(D.P.R.~~ (D.P.R. January 16, 2020) (Swain J.)

On January 16, 2020, the Oversight Board filed an adversary complaint against National, Ambac, Assured Guaranty, Assured Guaranty Municipal Corp., Financial Guaranty Insurance Company, Peaje Investments LLC and the Bank of New York Mellon as fiscal agent. The Oversight Board challenges the claims and validity of the liens asserted against the Commonwealth by holders of HTA bonds. The complaint contains 201 counts against the bondholder parties objecting to proofs of claim and security interests asserted regarding the Commonwealth’s retention of certain revenues previously assigned to HTA. This matter is currently stayed but the Court permitted the Oversight Board to file certain limited cross motions on April 28, 2020. The cross motions for summary judgment were filed on July 16, 2020. On September 23, 2020, Judge Swain heard argument on the limited cross motions for summary judgment, which remain pending. On January 20, 2021, Judge Swain issued an order deferring the adjudication of the summary judgment motions so that defendant monolines can seek limited discovery from the Oversight Board on all documents related to the collection and flow of Excise Taxes and pledged revenue into and out of its accounts, among other things. On April 6, 2021, the Oversight Board filed a motion to lift the litigation stay for the limited purpose of filing further summary judgment motions that would dispose of substantially all of the remaining claims challenged in this complaint. The hearing on this motion was held April 28, 2021, and the motion was denied. As part of the GO PSA and HTA PSA, National has agreed to stay its participation in this litigation subject to the effective date of the HTA plan of adjustment.

Complaint Objecting to Defendants’ Claims and Seeking Related Relief,

Case No.

20-00007-LTS

~~(January~~ (January 16, 2020) (Swain J.)

On January 16, 2020, the Oversight Board and the Creditors Committee filed an adversary complaint against National and other defendants challenging the claims and validity of the liens asserted against HTA by holders and insurers of HTA bonds. The complaint contains 302 counts challenging the claims and liens asserted against HTA. This matter has been stayed indefinitely by order of the Court.

As part of the GO PSA and HTA PSA, National has agreed to stay its participation in this litigation subject to the effective date of the Commonwealth plan of adjustment.

~~MBIA Inc. and Subsidiaries~~

~~Notes to Consolidated Financial Statements (~~

~~Unaudited~~

)

~~Note 13: Commitments and Contingencies (continued)~~

For those aforementioned actions in which it is a defendant, the Company is defending against those actions and expects ultimately to prevail on the merits. There is no assurance, however, that the Company will prevail in these actions. Adverse rulings in these actions could have a material adverse effect on the Company’s ability to implement its strategy and on its business, results of operations, cash flows and financial condition. At this stage of the litigation, there has not been a determination as to the amount, if any, of damages. Accordingly, the Company is not able to estimate any amount of loss or range of loss. The Company similarly can provide no assurance that it will be successful in those actions in which it is a plaintiff.

There are 0 other material lawsuits pending or, to the knowledge of the Company, threatened, to which the Company or any of its subsidiaries is a party.

Lease Commitments

The Company has a lease agreement for its headquarters in Purchase, New York as well a

an immaterial lease for

office

San Francisco, California, as well as office equipment. The Purchase, New York initial lease term expires in 2030 with the option to terminate the lease in 2025 upon the payment of a termination amount. This lease agreement included an incentive amount to fund certain leasehold improvements, renewal options, escalation clauses and a free rent period. This lease agreement has been classified as an operating lease, and operating rent expense is recognized on a straight-line basis. The following table provides information about the Company’s leases as of ~~June 30, 2020:~~March 31, 2021:


~~$ in millions~~	As of June 30, 2020		~~Balance Sheet Location~~
~~Right-of-use~~ ~~asset~~	$	20		~~Other assets~~
~~Lease liability~~	$	20		~~Other liabilities~~
~~Weighted average remaining lease term (years)~~		~~8.3~~
~~Discount rate used for operating leases~~		~~7.5%~~
~~Total future minimum lease payments~~	$	30


$ in millions	As of March 31, 2021		Balance Sheet Location
Right-of-use asset	$	19		Other assets
Lease liability	$	19		Other liabilities

Weighted average remaining lease term (years)		8.4
Discount rate used for operating leases		7.5%
Total future minimum lease payments	$	28

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of financial condition and results of operations of MBIA Inc. should be read in conjunction with our Annual Report on Form

10-K

for the year ended December 31, ~~2019~~2020 and the consolidated financial statements and notes thereto included in this Form

10-Q.

In addition, this discussion and analysis of financial condition and results of operations includes statements of the opinion of MBIA Inc.’s management which may be forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. 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. Refer to “Risk Factors” in Part II, Item 1A and “Forward-Looking Statements” and “Risk Factors” in Part I, Item 1A of MBIA Inc.’s Annual Report on Form

10-K

for the year ended December 31, ~~2019~~2020 for a further discussion of risks and uncertainties.

INTRODUCTION

MBIA Inc., together with its consolidated subsidiaries, (collectively, “MBIA”, the “Company”, “we”, “us”, or “our”) operates within the financial guarantee insurance industry. MBIA manages its business within three operating segments: 1) United States (“U.S.”) public finance insurance; 2) corporate; and 3) international and structured finance insurance. Our U.S. public finance insurance portfolio is managed through National Public Finance Guarantee Corporation (“National”), our corporate segment is managed through MBIA Inc. and several of its subsidiaries, including our service company, MBIA Services Corporation (“MBIA Services”) and our international and structured finance insurance business is primarily managed through MBIA Insurance Corporation and its subsidiary (“MBIA Corp.”).

National’s primary objectives are to maximize the performance of its existing insured portfolio through effective surveillance and remediation activity and effectively manage its investment portfolio. Our corporate segment consists of general corporate activities, including providing support services to MBIA’s operating subsidiaries and asset and capital management. MBIA Corp.’s primary objectives are to satisfy all claims by its policyholders and to maximize future recoveries, if any, for its senior lending and surplus note holders, and then its preferred stock holders. MBIA Corp. is executing this strategy by, among other things, ~~pursuing various actions focused on maximizing~~taking steps to maximize the collection of recoveries and reducing and mitigating potential losses on its insurance exposures. We do not expect National or MBIA Corp. to write significant new business.

EXECUTIVE OVERVIEW

COVID-19

The global outbreak of the novel coronavirus

COVID-19

(“COVID-19”),

~~a respiratory disease caused by a new strain of coronavirus, was declared a pandemic by the World Health Organization in March of 2020 and has spread globally. The pandemic~~ continues to affect a wide range of economic activities, domestic and global business and financial markets. The ~~impact, scope and duration~~distribution of the ~~outbreak,~~COVID-19 vaccines approved by the U.S. Food and Drug Administration may materially reduce the ~~availability~~impact of ~~treatment or vaccine, remain largely unknown.~~COVID-19 going forward, although the long-term impact of the virus including certain new strains remains uncertain. The attendant governmental policy and social responses, and economic and financial consequences, continue to be the subject of considerable attention and development. The Company’s employees have continued to work remotely since early March when the Company successfully implemented its business continuity plans. We continue to perform all of our traditional operations, including surveilling and, as necessary, remediating, the credits in our insured portfolios.

Insured portfolios

The Company continues to ~~regularly~~ assess the financial impact of the pandemic on its operating insurance companies’ overall insured ~~portfolios. It remains challenging to comprehensively quantify, or account for the impact~~portfolios as part of the outbreak on most of the specific credits within those portfolios, due to, in part, challenges in determining whether and to what extent the underlying credits will be able or willing to continue to meet their debt service obligations or avoid long term impairment in this environment.its regular monitoring functions. Adverse ~~impacts~~developments on macroeconomic factors resulting from the spread of

COVID-19,

Federal legislation passed to combat the economic impact of the pandemic has been significant, including the $2.7 trillion Coronavirus Aid, Relief, and ~~MBIA Corp.’s insured portfolios.~~Economic Security (“CARES”) Act in 2020, which included significant aid to offset COVID-19 related expenditures of public sector issuers including states, territories, healthcare, higher education and transportation issuers. Also, the Federal Reserve has shown a willingness to promote the stability of the financial system that are directly supportive of the municipal market, such as the Municipal Lending Facility created in 2020. In March of 2021, the American Rescue Plan Act of 2021 was enacted — a $1.9 trillion economic stimulus package designed to further stabilize the financial system. This law allocated nearly $350 billion of aid to state and local governments to replace lost revenues resulting from the pandemic with relatively few restrictions on use of said funds.

5544

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

EXECUTIVE OVERVIEW (continued)

~~Federal legislation passed~~While the unprecedented amount of federal aid directed to ~~combat~~state and local municipalities has blunted the ~~economic~~ impact of the pandemic, principally the $2.7 trillion Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, included significant aid to public sector issuers including states, territories, healthcare, higher education and transportation issuers. In addition, the Federal Reserve has announced several actions in furtherancenot all of its mandate from Congress to promote the stability of the financial system that are directly supportive of the municipal market. It is premature to assess whether these or any subsequent federal responses will prevent or reduce financial distress in the municipal sector. If the issuers of the obligations in National’s insured portfolio ~~including the Commonwealth of Puerto Rico and its instrumentalities (“Puerto Rico”),~~are eligible to receive it. Further, if issuers are unable to raise taxes, reduce spending, or receive federal assistance, wethe Company may experience new or additional losses or impairments on those obligations, which could materially and adversely affect ~~our~~its business, financial condition and financial results.

Certain of MBIA Corp.’s structured finance policies, including those in which the underlying principal obligations are comprised of residential or commercial mortgages and mortgage-backed securities (“MBS”), could be negatively impacted by delays or failures of borrowers to make payments of principal and interest when due, or delays or moratoriums on foreclosures or enforcement actions with respect to delinquent or defaulted mortgages imposed by governmental authorities. MBIA Corp. has recorded significant loss reserves on its residential mortgage-backed securities (“RMBS”) and collateralized debt obligations (“CDO”) exposures, and there can be no assurance that these reserves will be sufficient if the pandemic causes further deterioration to the economy. These transactions are also subject to servicer risks, which relate to problems with the transaction’s servicer that could adversely impact performance of the underlying assets. Additionally, several of our credits, particularly within our international public finance sector, feature large, near term debt-service payments, and there can be no assurance that the liquidity position of MBIA Corp. will enable it to satisfy any claims that arise if the issuers of such credits are unable or unwilling to refinance or repay their obligations. MBIA Corp. has recorded substantial expected recoveries on certain RMBS transactions, and the forbearance options ~~available~~that mortgage borrowers who were facing financial difficulties took advantage of under the CARES Act, ~~for mortgage borrowers who are facing financial difficulties,~~ may delay or impair collections on these recoveries.

Liquidity

The Company continues to monitor its cash and liquid asset resources using cash forecasting and stress-scenario testing. Members of the Company’s senior management meet regularly to review liquidity metrics, discuss contingency plans and establish target liquidity levels. ~~It remains premature to predict the~~The full long-term impact the pandemic may have on our future liquidity position and ~~needs.~~needs remains uncertain. Declines in the market value or rating eligibility of assets pledged against the Company’s obligations as a result of credit market deterioration caused by

COVID-19

require additional eligible assets to be pledged in order to meet minimum required collateral amounts against these obligations. This could require the Company to sell assets, potentially with substantial losses or use free cash or other assets to meet the collateral requirements, thus negatively impacting the Company’s liquidity position. Associated declines in the yields in our insurance companies’ fixed-income portfolios could materially impact investment income.

2021 Business Developments

The following is a summary of 2021 business developments:

Puerto Rico (Refer to the “U.S. Public Finance Insurance Puerto Rico Exposures” section for additional information on our Puerto Rico exposures)

On January 1, 2021, the Commonwealth of Puerto Rico and certain of its instrumentalities (“Puerto Rico”) defaulted on scheduled debt service for National insured bonds and National paid gross claims in the aggregate of $51 million. As of March 31, 2021, National had $2.9 billion of debt service outstanding related to Puerto Rico.

On February 22, 2021, National agreed to join a plan support agreement, dated as of February 22, 2021 (the “GO PSA”), among the Financial Oversight and Management Board for Puerto Rico (the “Oversight Board”), certain holders of GO Bonds and PBA Bonds, Assured Guaranty Corp. and Assured Guaranty Municipal Corp, and Syncora Guarantee Inc. in connection with the GO and PBA Title III cases. The GO PSA provides that, among other things, National shall receive a pro rata share of allocable cash, newly issued General Obligation bonds, a contingent value instrument and certain fees. The GO PSA also permitted National to terminate its participation in the GO PSA on or prior to March 31, 2021, which date was extended ultimately to May 5, 2021. On April 12, 2021, National, Assured Guaranty Corp., Assured Guaranty Municipal Corp. and the Oversight Board reached an agreement in principle settling certain clawback claims and providing for a distribution of cash, bonds and a contingent value instrument to Puerto Rico Highway and Transportation Authority (“HTA”) bondholders subject to completing negotiations on a plan support agreement in respect of an HTA plan of adjustment (the “HTA PSA”). On May 5, 2021, National, Assured Guaranty Corp., Assured Guaranty Municipal Corp. and the Oversight Board entered into the HTA PSA and National thereby agreed not to terminate its participation in the GO PSA. The Oversight Board has committed to filing a plan of adjustment for HTA by January 31, 2022. The GO PSA contemplates a Commonwealth plan becoming effective on or before December 15, 2021; however there can be no assurance that such plans will become effective, or on the contemplated timeline.

On April 6, 2021, the Oversight Board filed a motion seeking to schedule the hearing to consider the adequacy of the disclosure statement for the Commonwealth plan of adjustment for June 16, 2021. By order dated May 4, 2021, Judge Swain set the disclosure statement hearing for July 13, 2021.

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

EXECUTIVE OVERVIEW (continued)

In the HTA Title III case, in September of 2020, the Court entered an order denying the motion of National and other monolines seeking to lift the automatic stay to protect HTA bondholders’ property interests in certain designated cash flows. On March 3, 2021 the First Circuit affirmed Judge Swain’s decision holding that the Title III court did not abuse its discretion in denying relief from the automatic stay.

In January of 2021, the reconstitution of the Oversight Board with the reappointment of three existing members and appointment of four new members for three year terms, including the newly elected Governor sitting as an

ex officio

member, was confirmed.

Credit Suisse

In January of 2021, the Court overseeing MBIA Corp.’s litigation against Credit Suisse Securities (USA) LLC and DLJ Mortgage Capital, Inc. (collectively, “Credit Suisse”), involving the ineligibility of a majority of the loans in the HEMT 2007-2 RMBS transaction sponsored by Credit Suisse, issued an order declaring that Credit Suisse was liable to MBIA for approximately $604 million in damages. In February of 2021, the parties to the litigation entered into a settlement agreement pursuant to which Credit Suisse paid MBIA Corp. $600 million, and the Court entered an order dismissing the case. Refer to “Note 5: Loss and Loss Adjustment Expense Reserves” in the Notes to Consolidated Financial Statements for a discussion of our Credit Suisse put-back claims.

Financial Highlights

The following table presents our financial highlights. ~~In the fourth quarter of 2019, the Company adopted Accounting Standards Update (“ASU”)~~

~~2019-12,~~

~~“Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” as of January 1, 2019. As a result of adopting ASU~~

~~2019-12,~~

the Company revised its previously reported amounts for the three and six months ended June 30, 2019. Refer to “Note 3: Recent Accounting Pronouncements” in the Notes to Consolidated Financial Statements for more information about the impact of ASU

~~2019-12.~~

A detailed discussion of our financial results is presented within the “Results of Operations” section included herein. Refer to the “Capital Resources—Insurance Statutory Capital” section for a discussion of National’s and MBIA Insurance Corporation’s capital position under statutory accounting principles (“U.S. STAT”).

Three Months Ended June 30,

Six Months Ended June 30,
In millions except per share amounts

    2020

    2019

    2020

    2019
Net income (loss)
   $ (106)    $ (207)    $ (439)    $ (228)
Net income (loss) per diluted share
   $ (1.69)    $ (2.45)    $ (6.51)    $ (2.68)
Adjusted net income (loss)
(1)
   $ (72)    $ (76)    $ (119)    $ (37)
Adjusted net income (loss) per diluted share
(1)
   $ (1.15)    $ (0.90)    $ (1.77)    $ (0.44)
Cost of shares repurchased
   $ 71    $ 50    $ 136    $ 54


	Three Months Ended March 31,
In millions except per share amounts	2021		2020
Net income (loss)	$	(106)	$	(333)
Net income (loss) per diluted share	$	(2.16)	$	(4.62)
Adjusted net income (loss) (1)	$	(116)	$	(47)
Adjusted net income (loss) per diluted share (1)	$	(2.36)	$	(0.65)
Cost of shares purchased or repurchased	$	-	$	65

(1) -

Adjusted net income (loss) and adjusted net income (loss) per diluted share are

non-GAAP

measures. Refer to the following “Results of Operations” section for a discussion of adjusted net income (loss) and adjusted net income (loss) per diluted share and a reconciliation of GAAP net income (loss) to adjusted net income (loss) and GAAP net income (loss) per diluted share to adjusted net income (loss) per diluted share.

~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

~~EXECUTIVE OVERVIEW (continued)~~

Economic and Financial Market Trends

The U.S. economy ~~continued to face~~improved during the first quarter of 2021 driven by positive developments from both a public health and economic standpoint since the significant ~~challenges during~~drop in gross domestic product (“GDP”) in the second quarter of 2020 when the nation dealt with the emerging challenges of facing COVID-19. The economy has substantially improved from the beginning of this year due to the

~~COVID-19~~

~~pandemic which has remained an ongoing public health crisis around the world. The persistent spread~~ end of the winter spike in coronavirus cases, acceleration of vaccinations and additional stimulus from Congress. Economic activity and employment have improved, however, sectors of the ~~governmental measures taken to contain it have remained a burden on~~economy most negatively impacted by the ~~economy.~~ COVID-19 pandemic remain weak and U.S. unemployment rate remains above pre-pandemic levels.

Some financial conditions have improved due to measures taken by Congress and the Federal Reserve to support the economy and enhance access to credit for U.S. households and businesses. ~~Also,~~However, economic activity, ~~has been bolstered~~employment and inflation remain at risk as the path of economic recovery will be significantly affected by the ~~easing~~course of ~~certain restrictions~~the virus, including new variants, and the continuing progress on ~~businesses which~~vaccinations throughout the country. The Federal Reserve continued to state that until the labor market has improved it will allow inflation to run above its 2 percent target, but it has persistently been running below that target, including through the first quarter of 2021. The enactment of the $1.9 trillion American Rescue Plan, along with the positive trends in the pace of vaccinations, has resulted in ~~job gains and increased consumer spending during~~an expected increase in GDP in the ~~second quarter~~range of ~~2020. However,~~6 percent for 2021, according to the recent surge of new coronavirus cases in regions previously less affected creates uncertainty regarding the sustainability of future economic growth. Inflation remained low due to overall weak consumer demand and low oil prices.Federal Open Market Committee.

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

EXECUTIVE OVERVIEW (continued)

The Federal Open Market Committee maintained its target range for the federal funds rate at 0 to

⁄

percent at its ~~July 2020~~April 2021 meeting. The Federal Reserve has committed to keeping interest rates at or near zero in order to lower borrowing costs until they are confident that the economy has stabilized and the health crisis has subsided. Furthermore, the Federal Reserve has remained committed to using all of its resources and tools to support the economy by assisting households, employers, and state and local governments during the coronavirus pandemic.

Economic and financial market trends could impact the Company’s financial results. As a result of the pandemic, many states and municipalities will experience financial distress through delayed tax collections, inability to reduce spending and not receiving timely financial assistance. Economic deterioration at the state and local level weakens the credit quality of the issuers of our insured municipal bonds, reduces the performance of our insured U.S. public finance portfolio and could increase the amount of National’s potential incurred losses. In addition, lower interest rates could result in decreased returns on our Company’s investment portfolios. Refer to the

~~“COVID-19”~~

“COVID-19” section above for further information about the pandemic.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”), which requires the use of estimates and assumptions. Management has discussed and reviewed the development, selection, and disclosure of critical accounting estimates with the Company’s Audit Committee. Our most critical accounting estimates include loss and loss adjustment expense (“LAE”) reserves and valuation of financial instruments, since these estimates require significant judgment. Any modifications in these estimates could materially impact our financial results.

For a discussion of the Company’s critical accounting estimates, refer to “Critical Accounting Estimates” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Company’s Annual Report on Form

10-K

for the year ended December 31, ~~2019.~~2020. In addition, refer to “Note 5: Loss and Loss Adjustment Expense Reserves” and “Note 6: Fair Value of Financial Instruments” in the Notes to Consolidated Financial Statements for a current description of estimates used in our insurance loss reserving process and information about our financial assets and liabilities that are accounted for at fair value, including valuation techniques and significant inputs.

RECENT ACCOUNTING PRONOUNCEMENTS

Refer to “Note 3: Recent Accounting Pronouncements” in the Notes to Consolidated Financial Statements for a discussion of accounting guidance recently adopted by the Company.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

RESULTS OF OPERATIONS

Summary of Consolidated Results

The following table presents a summary of our consolidated financial results for the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 and ~~2019:~~2020:

Three Months Ended June 30,

Six Months Ended June 30,
In millions except for per share amounts

    2020

    2019

    2020

    2019
Total revenues
   $ 114 $ 30 $ 108 $ 80
Total expenses
   220 237 547 306


Income (loss) before income taxes
   (106 ) (207 ) (439 ) (226 )
Provision (benefit) for income taxes
   - - - 2


Net income (loss)
   $ (106 ) $ (207 ) $ (439 ) $ (228 )


Net income (loss) per common share:

Basic
   $ (1.69 ) $ (2.45 ) $ (6.51 ) $ (2.68 )
Diluted
   $ (1.69 ) $ (2.45 ) $ (6.51 ) $ (2.68 )
Weighted average number of common shares outstanding:

Basic
   62.6 84.3 67.3 84.9
Diluted
   62.6 84.3 67.3 84.9


	Three Months Ended March 31,
In millions except per share amounts	2021			2020
Total revenues	$	72		$	(6	)
Total expenses		178			327

Income (loss) before income taxes		(106	)		(333	)

Provision (benefit) for income taxes		-			-

Net income (loss)	$	(106	)	$	(333	)

Net income (loss) per common share:
Basic	$	(2.16	)	$	(4.62	)
Diluted	$	(2.16	)	$	(4.62	)
Weighted average number of common shares outstanding:
Basic		49.3			72.1
Diluted		49.3			72.1

~~Three Months Ended June 30, 2020 vs. Three Months Ended June 30, 2019~~

~~The increase in consolidated~~Consolidated total revenues inincreased for the ~~second quarter of 2020 was primarily~~three months ended March 31, 2021 principally due to fair value gains on our interest rate swaps ~~for which we receive floating~~as a result of an increase in rates ~~versus~~during the first quarter of 2021 compared with fair value losses ~~during the second quarter of 2019 and favorable changes in revenues of consolidated variable interest entities (“VIEs”). The gains~~ on our interest rate swaps in ~~2020 were due to favorable changes to interest rate curves when compared to~~ the same period ~~in 2019. The favorable change in revenues~~ of ~~consolidated VIEs was primarily due to a reversal of an allowance for credit losses and higher~~2020, partially offset by gains from ~~putback~~put-back claims ~~on ineligible~~related to mortgage loans whose inclusion in a insured securitization failed to comply with representations and warranties (“ineligible loans”) within a second-lien RMBS ~~VIE. Refer to~~variable interest entity (“VIE”) in the ~~following “Revenues~~first quarter of ~~Consolidated VIEs” sections~~2020. These put-back claims on ineligible loans were settled in the first quarter of ~~National and MBIA Corp. for additional information on our consolidated VIE revenue.~~2021.

Consolidated total expenses for the three months ended ~~June 30, 2020 and 2019~~March 31, 2021 included ~~net insurance loss~~$98 million of losses and LAE compared with $243 million for the same period of ~~$136 million and $140 million, respectively. The~~2020. This decrease in ~~loss~~losses and LAE was primarily due to decreases in losses incurred on ~~certain Puerto Rico credits~~CDOs and ~~insured~~ first-lien RMBS, partially offset by a decrease in expected salvage collections from insured CDOs. Refer to the following “Loss and Loss Adjustment Expenses” sections of National and MBIA Corp. for additional information on our losses and LAE.

~~Six Months Ended June 30, 2020 vs. Six Months Ended June 30, 2019~~

The increase in consolidated total revenues was primarily due to favorable changes in revenues of consolidated VIEs and the absence of net investment losses related to other-than-temporary investments (“OTTI”) on an impaired security for which a loss was recognized as the difference between the amortized cost and the net present value of projected cash flows. The impaired security was sold during the first quarter of 2020. The favorable change in revenues of consolidated VIEs was primarily due to the absence of net realized losses due to the consolidation of the Puerto Rico Tax Financing (“COFINA”) consolidated VIEs following the confirmation of the COFINA Plan of Adjustment and the deconsolidation of consolidated VIEs during the six months ended June 30, 2019. These favorable changes in revenues of consolidated VIEs were partially offset by fair value losses on securities from a widening of credit spreads during the six months ended June 30, 2020.

Consolidated total expenses for the six months ended June 30, 2020 and 2019 included net insurance loss and LAE of $379 million and $102 million, respectively. The increase in loss and LAE was primarily due to a decrease in expected salvage collections from insured CDOs and an increaseincreases in losses on certain Puerto Rico credits. ~~In addition, declines in the risk-free rates during the six months ended June 30, 2020, increased the present value of loss reserves, primarily on our insured first-lien RMBS transactions.~~ Refer to the following “Loss and Loss Adjustment Expenses” sections of National and MBIA Corp. for additional information on our losses and LAE.

5848

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

RESULTS OF OPERATIONS (continued)

Non-GAAP

Adjusted Net Income (Loss)

In addition to our results prepared in accordance with GAAP, we also analyze the operating performance of the Company using adjusted net income (loss) and adjusted net income (loss) per diluted common share, both

non-GAAP

measures. Since adjusted net income (loss) is used by management to assess performance and make business decisions, we consider adjusted net income (loss) and adjusted net income (loss) per diluted common share fundamental measures of periodic financial performance which are useful in understanding our results. Adjusted net income (loss) and adjusted net income (loss) per diluted common share are not substitutes for net income (loss) and net income (loss) per diluted common share determined in accordance with GAAP, and our definitions of adjusted net income (loss) and adjusted net income (loss) per diluted common share may differ from those used by other companies.

Adjusted net income (loss) and adjusted net income (loss) per diluted common share include the

after-tax

results of the Company and remove the

after-tax

results of our international and structured finance insurance segment, comprising the results of MBIA Corp. which given its capital structure and business prospects, we do not expect its financial performance to have a material economic impact on MBIA Inc., as well as the following:

Mark-to-market

gains (losses) on financial instruments

– We remove the impact of

mark-to-market

gains (losses) on financial instruments that primarily include interest rate swaps and hybrid financial instruments. These amounts fluctuate based on market interest rates, credit spreads and other market factors.

Foreign exchange gains (losses)

– We remove foreign exchange gains (losses) on the remeasurement of certain assets and liabilities and transactions in

non-functional

currencies. Given the possibility of volatility in foreign exchange markets, we exclude the impact of foreign exchange gains (losses) to provide a measurement of comparability of adjusted net income (loss).

Net gains (losses) on sales of investments, ~~and~~ impaired securities and extinguishment of debt

– We remove gains (losses) on the sale of investments, ~~and~~ net investment losses related to impairment of securities and net gains (losses) on extinguishment of debt since the timing of these transactions are subject to management’s assessment of market opportunities and conditions and capital liquidity positions.

Income taxes

–The Company applies a zero effective tax rate for federal income tax purposes to its

pre-tax

adjustments, if applicable.

~~Management further adjusts~~

~~non-GAAP~~

adjusted net income (loss) and adjusted net income (loss) per diluted common share by removing the impact of our U.S. public finance insurance segment VIE consolidations. GAAP requires the Company to consolidate certain VIEs that have issued debt obligations insured by the Company. However, since the Company does not own such VIEs, management uses certain measures adjusted to remove the impact of VIE consolidations for our U.S. public finance insurance segment in order to reflect financial exposure limited to its financial guarantee contracts. Wherever appropriate, the Company has separately disclosed the effect of our U.S. public finance insurance segment VIE consolidations.

~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

~~RESULTS OF OPERATIONS (continued)~~

The following table presents our adjusted net income (loss) and adjusted net income (loss) per diluted common share and provides a reconciliation of GAAP net income (loss) to adjusted net income (loss) for the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 and ~~2019:~~2020:

Three Months Ended June 30,

Six Months Ended June 30,
In millions except share and per share amounts

    2020

    2019

    2020

    2019
Net income (loss)
   $ (106 ) $ (207 ) $ (439 ) $ (228 )
Less: adjusted net income (loss) adjustments:

Income (loss) before income taxes of our international and structured finance insurance segment and eliminations
   (59 ) (108 ) (279 ) (163 )
Adjustments to income before income taxes of our U.S. public finance insurance and corporate segments:

Mark-to-market
gains (losses) on financial instruments
(1)
   17 (22 ) (60 ) (38 )
Foreign exchange gains (losses)
(1)
   (8 ) (5 ) - 2
Net gains (losses) on sales of investments
(1)
   16 14 19 47
Net investment losses related to impairments of securities
   - (9 ) - (37 )
Other net realized gains (losses)
   - - - (1 )
Adjusted net income adjustment to the (provision) benefit for income tax
(2)
   - (1 ) - (1 )


Adjusted net income (loss)
   $ (72 ) $ (76 ) $ (119 ) $ (37 )


Adjusted net income (loss) per diluted common share
(3)
   $ (1.15 ) $ (0.90 ) $ (1.77 ) $ (0.44 )
Gain (loss) related to our U.S. public finance insurance segment VIE consolidations included in adjusted net income (loss)
   - (7 ) - (20 )
Gain (loss) related to our U.S. public finance insurance segment VIE consolidations per diluted common share included in adjusted net income (loss) per diluted common share
   - (0.08 ) - (0.23 )


	Three Months Ended March 31,
In millions except share and per share amounts	2021			2020
Net income (loss)	$	(106	)	$	(333	)
Less: adjusted net income (loss) adjustments:
Income (loss) before income taxes of our international and structured finance insurance segment and eliminations		(44	)		(220	)
Adjustments to income before income taxes of our U.S. public finance insurance and corporate segments:
Mark-to-market gains (losses) on financial instruments (1)		38			(77	)
Foreign exchange gains (losses) (1)		17			8
Net gains (losses) on sales of investments (1)		(1	)		3
Adjusted net income adjustment to the (provision) benefit for income tax (2)		-			-

Adjusted net income (loss)	$	(116	)	$	(47	)

Adjusted net income (loss) per diluted common share (3)		(2.36	)		(0.65	)

(1) - Reported

~~Reported~~ within “Net gains (losses) on financial instruments at fair value and foreign exchange” on the Company’s consolidated statements of operations.

(2) - Reported

~~Reported~~ within “Provision (benefit) for income taxes” on the Company’s consolidated statements of operations.

(3) -

Adjusted net income (loss) per diluted common share is calculated by taking adjusted net income (loss) divided by the GAAP weighted average number of diluted common shares outstanding.

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

RESULTS OF OPERATIONS (continued)

Book Value Adjustments Per Share

In addition to GAAP book value per share, for internal purposes management also analyzes adjusted book value (“ABV”) per share, changes to which we view as an important indicator of financial performance. ABV is also used by management in certain components of management’s compensation. Since many of the Company’s investors and analysts continue to use ABV to evaluate MBIA’s share price and as the basis for their investment decisions, we present GAAP book value per share as well as the individual adjustments used by management to calculate its internal ABV metric.

Management adjusts GAAP book value to remove the book value of MBIA Corp. and for certain items which the Company believes will reverse from GAAP book value through GAAP earnings and comprehensive income, as well as add in the impact of certain items which the Company believes will be realized in GAAP book value in future periods. The Company has limited such adjustments to those items that it deems to be important to fundamental value and performance and for which the likelihood and amount can be reasonably estimated. The following provides a description of management’s adjustments to GAAP book value:

Negative Book value of MBIA Corp.

– We remove the negative book value of MBIA Corp. based on our view that given MBIA Corp.’s current financial condition, the regulatory regime in which it operates, the priority given to its policyholders, surplus note holders and preferred stock holders with respect to the distribution of assets, and its legal structure, it is not and will not likely be in a position to upstream any economic benefit to MBIA Inc. Further, MBIA Inc. does not face any material financial liability arising from MBIA Corp.

~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

~~RESULTS OF OPERATIONS (continued)~~

Net unrealized (gains) losses on

available-for-sale

(“AFS”) securities excluding MBIA Corp.

– We remove net unrealized gains and losses on AFS securities recorded in accumulated other comprehensive income since they will reverse from GAAP book value when such securities mature. Gains and losses from sales and impairments of AFS securities are recorded in book value through earnings.

Net unearned premium revenue in excess of expected losses of National

- We include net unearned premium revenue in excess of expected losses. Net unearned premium revenue in excess of expected losses consists of the financial guarantee unearned premium revenue of National in excess of expected insurance losses, net of reinsurance and deferred acquisition costs. In accordance with GAAP, a loss reserve on a financial guarantee policy is only recorded when expected losses exceed the amount of unearned premium revenue recorded for that policy. As a result, we only add to GAAP book value the amount of unearned premium revenue in excess of expected losses for each policy in order to reflect the full amount of our expected losses. The Company’s net unearned premium revenue will be recognized in GAAP book value in future periods, however, actual amounts could differ from estimated amounts due to such factors as credit defaults and policy terminations, among others.

Since the Company has a full valuation allowance against its net deferred tax asset, the book value per share adjustments were adjusted by applying a zero effective tax rate.

The following table provides the Company’s GAAP book value per share and management’s adjustments to book value per share used in our internal analysis:

In millions except share and per share amounts

As of

June 30, 2020

As of
December 31, 2019
Total shareholders’ equity of MBIA Inc.
   $ 347 $ 826
Common shares outstanding
   62,509,320 79,433,293
GAAP book value per share
   $ 5.55 $ 10.40
Management’s adjustments described above:

Remove negative book value per share of MBIA Corp.
   (25.81 ) (16.81 )
Remove net unrealized gains (losses) on
available-for-sale
securities included in other comprehensive income (loss)
   2.82 1.29
Include net unearned premium revenue in excess of expected losses
   4.12 3.46


In millions except share and per share amounts	As of March 31, 2021			As of December 31, 2020
Total shareholders’ equity of MBIA Inc.	$	(41	)	$	136
Common shares outstanding		54,348,650			53,677,148
GAAP book value per share	$	(0.76	)	$	2.55
Management’s adjustments described above:
Remove negative book value per share of MBIA Corp.		(32.19	)		(31.97	)
Remove net unrealized gains (losses) on available-for-sale securities included in other comprehensive income (loss)		1.26			2.86
Include net unearned premium revenue in excess of expected losses		4.02			4.29

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

RESULTS OF OPERATIONS (continued)

U.S. Public Finance Insurance

Our U.S. public finance insurance portfolio is managed through National. The financial guarantees issued by National provide unconditional and irrevocable guarantees of the payment of the principal of, and interest or other amounts owing on, insured obligations when due or, in the event National has exercised, at its discretion, the right to accelerate the payment under its policies upon the acceleration of the underlying insured obligations due to default or otherwise. National’s guarantees insure municipal bonds, including

tax-exempt

and taxable indebtedness of U.S. political subdivisions, as well as utility districts, airports, healthcare institutions, higher educational facilities, ~~student loan issuers,~~ housing authorities and other similar agencies and obligations issued by private entities that finance projects that serve a substantial public purpose. Municipal bonds and privately issued bonds used for the financing of public purpose projects are generally supported by taxes, assessments, user fees or tariffs related to the use of these projects, lease payments or other similar types of revenue streams. As of ~~June 30, 2020,~~March 31, 2021, National had total insured gross par outstanding of ~~$45.8~~$40.5 billion.

~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

~~RESULTS OF OPERATIONS (continued)~~

National continues to monitor and remediate its existing insured portfolio and may also pursue strategic alternatives that could enhance shareholder value. Some state and local governments and territory obligors that National insures are experiencing financial and budgetary stress which may be exacerbated by

COVID-19.

As a result of

COVID-19,

we have increased our monitoring of certain credits. ~~This~~Financial and budgetary stress could lead to an increase in defaults by such entities on the payment of their obligations and losses or impairments on a greater number of the Company’s insured transactions. In particular, Puerto Rico had been experiencing significant fiscal stress and constrained liquidity, and in response, Congress passed ~~the Puerto Rico Oversight, Management and Economic Stability Act (“PROMESA”),~~PROMESA, which established ~~an independent Financial~~the Oversight ~~and Management~~ Board ~~for Puerto Rico (“Oversight Board”)~~ vested with the sole power to certify fiscal plans for Puerto Rico. On January 1, 2020 and July 1, 2020, Puerto Rico defaulted on scheduled debt service for National insured bonds and National paid gross claims in the aggregate of $391 million. As of June 30, 2020, National had $3.3 billion of debt service outstanding related to Puerto Rico. Refer to the “U.S. Public Finance Insurance Puerto Rico Exposures” section for additional information on PROMESA and our Puerto Rico exposures. We continue to monitor and analyze these situations and other stressed credits closely, and the overall extent and duration of stress affecting our insured credits remains uncertain.

The following table presents our U.S. public finance insurance segment results for the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 and ~~2019:~~2020:

Three Months Ended
June 30,

Percent

Six Months Ended
June 30,

Percent
In millions

2020

2019

Change

2020

2019

Change
Net premiums earned
   $ 15 $ 18 -17%    $ 30 $ 36 -17%
Net investment income
   19 26 -27%    40 53 -25%
Fees and reimbursements
   - 1 -100%    1 2 -50%
Net gains (losses) on financial instruments at fair value and foreign exchange
   25 17 47%    7 57 -88%
Net investment losses related to other-than-temporary impairments
   - (9 ) -100%    - (37 ) -100%
Other net realized gains (losses)
   - - -%    - 1 -100%
Revenues of consolidated VIEs:

Net gains (losses) on financial instruments at fair value and foreign exchange
   - 21 -100%    - 49 -100%
Other net realized gains (losses)
   - - -%    - (43 ) -100%




Total revenues
   59 74 -20%    78 118 -34%




Losses and loss adjustment
   72 106 -32%    120 56 114%
Amortization of deferred acquisition costs
   4 5 -20%    7 9 -22%
Operating
   10 9 11%    23 22 5%




Total expenses
   86 120 -28%    150 87 72%




Income (loss) before income taxes
   $ (27 ) $ (46 ) -41%    $ (72 ) $ 31 n/m


	Three Months Ended March 31,						Percent
In millions	2021			2020			Change
Net premiums earned	$	17		$	15			13%
Net investment income		14			21			-33%
Fees and reimbursements		-			1			-100%
Net gains (losses) on financial instruments at fair value and foreign exchange		(3	)		(18	)		-83%

Total revenues		28			19			47%

Losses and loss adjustment		109			48			127%
Amortization of deferred acquisition costs		4			3			33%
Operating		14			13			8%

Total expenses		127			64			98%

Income (loss) before income taxes	$	(99	)	$	(45	)		120%

~~n/m - Percent change not meaningful.~~

NET PREMIUMS EARNED Net premiums earned on financial guarantees represent gross premiums earned net of premiums ceded to reinsurers, and include scheduled premium earnings and premium earnings from refunded issues. The ~~decrease~~increase in net premiums earned for the three months ended ~~June 30, 2020~~March 31, 2021 compared with the same period of ~~2019 resulted from~~2020 was primarily due to a $2 million decrease in scheduled premiums earned and a $1 million decrease in refunded premiums earned. The decrease in net premiums earned for the six months ended June 30, 2020 compared with the same period of 2019 resulted from a $4 million decrease in scheduled premiums earned and a $2 million decreaseincrease in refunded premiums earned. Refunding activity over the past several years has accelerated premium earnings in prior years and reduced the amount of scheduled premiums that would have been earned in the current year. ~~In addition,~~Refunding activity can vary significantly from period to period based on issuer refinancing behavior.

NET INVESTMENT INCOME The decrease in net ~~premiums earned during~~investment income for the three ~~and six~~ months ended ~~June 30, 2019 includes~~March 31, 2021 compared with the ~~elimination~~same period of ~~$1 million and $2 million, respectively,~~2020 was primarily due to ~~the Company consolidating VIEs related to the COFINA transaction.~~a lower average invested asset base resulting from claim payments and purchases of MBIA Inc. common shares.

NET GAINS (LOSSES) ON FINANCIAL INSTRUMENTS AT FAIR VALUE AND FOREIGN EXCHANGE For the three months ended ~~June 30,~~March 31, 2021, net losses on financial instruments at fair value and foreign exchange were driven by fair value losses on investments as a result of decreases in security prices due to the increase in interest rates during the first quarter of 2021. For the three months ended March 31, 2020, net ~~gains (losses)~~losses on financial instruments at fair value and foreign exchange included fair value ~~gains~~losses on securities due to a ~~tightening~~widening of credit spreads during ~~second~~the first quarter of 2020. For the three and six months ended June 30, 2019, net gains (losses) on financial instruments at fair value and foreign exchange included realized gains on the COFINA bonds owned by National as a result of the COFINA bond exchange and fair value gains on securities due to a decrease in interest rates during the first half of 2019.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

RESULTS OF OPERATIONS (continued)

NET INVESTMENT LOSSES RELATED TO OTHER-THAN-TEMPORARY IMPAIRMENTS Net investment losses related to OTTI for the three and six months ended June 30, 2019 were primarily related to an impaired security for which a credit loss was recognized in earnings. This OTTI resulted from adverse financial conditions of the issuer. This impaired security was sold during the first quarter of 2020.

REVENUES OF CONSOLIDATED VIEs VIEs within our U.S. public finance insurance segment included the Trusts established in connection with the COFINA Plan of Adjustment. For the three months ended June 30, 2019, total revenues of consolidated VIEs were $21 million. This was primarily due to net gains from increases in the fair values of collateral since consolidating the VIEs. For the six months ended June 30, 2019, total revenues of consolidated VIEs were $6 million. This was primarily due to net gains from increases in the fair values of collateral since consolidating the VIEs, partially offset by a loss on the initial consolidation of the VIEs in February of 2019. We elected to record at fair value certain instruments that are consolidated under accounting guidance for consolidation of VIEs and, as such, changes in fair values of these instruments, which included investments held and debt issued, are reflected in earnings. During 2019, all remaining investment assets of the Trusts were sold and National elected to make a voluntary additional payment with the effect of simultaneously reducing the Trust’s debt obligations to zero and satisfying in full the obligations under its original insurance policies.

LOSS AND LOSS ADJUSTMENT EXPENSES Our U.S. public finance insured portfolio management group is responsible for monitoring our U.S. public finance segment’s insured obligations. The level and frequency of monitoring of any insured obligation depends on the type, size, rating and our assessed performance of the insured issue. As a result of COVID-19, we have increased our monitoring of certain credits. Refer to “Note 5: Loss and Loss Adjustment Expense Reserves” in the Notes to Consolidated Financial Statements for additional information related to the Company’s loss reserves.

For the three ~~and six~~ months ended ~~June 30,~~March 31, 2021, losses and LAE primarily related to certain Puerto Rico exposures. For the three months ended March 31, 2020, losses and LAE primarily related to certain Puerto Rico exposures as well as an investor owned utility exposure.

~~For the three and six months ended June 30, 2019, losses and LAE primarily related to Puerto Rico exposures.~~

The following table presents information about our U.S. public finance insurance loss recoverable asset and loss and LAE reserves liabilities as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019:~~2020:

In millions

June 30,
2020

December 31,
2019

Percent
Change
Assets:

Insurance loss recoverable
   $ 950 $ 911 5%
Reinsurance recoverable on paid and unpaid losses
(1)
   7 14 -50%
Liabilities:

Loss and LAE reserves
   495 432 15%
Insurance loss recoverable - ceded
(2)
   20 19 6%


Net reserve (salvage)
   $ (442 ) $ (474 ) -7%


In millions	March 31, 2021			December 31, 2020			Percent Change
Assets:
Insurance loss recoverable	$	1,216		$	1,220			-%
Reinsurance recoverable on paid and unpaid losses (1)		6			6			-%
Liabilities:
Loss and LAE reserves		524			469			12%
Insurance loss recoverable - ceded (2)		50			48			4%

Net reserve (salvage)	$	(648	)	$	(709	)		-9%

~~(1) -~~

(1) – Reported within “Other assets” on our consolidated balance sheets.

~~(2) -~~

(2) – Reported within “Other liabilities” on our consolidated balance sheets.

The insurance loss recoverable as of ~~June 30, 2020 increased~~March 31, 2021 declined slightly compared with December 31, ~~2019 primarily~~2020 as a result of increases in discount rates used to present value future expected recoveries, which was largely offset by a change in expected recoveries related to claims paid on certain Puerto Rico ~~exposures and changes in discount rates.~~exposures. Loss and LAE reserves as of ~~June 30, 2020~~March 31, 2021 increased compared with December 31, ~~2019~~2020 primarily due ~~to a change~~an increase in expected net payments, ~~and~~as well as the impact of ~~changes~~increases in discount rates ~~on our Puerto Rico reserves. This was~~used to present value the net future expected payments, partially offset by actual payments made related to certain Puerto Rico exposures.

POLICY ACQUISITION COSTS AND OPERATING EXPENSES U.S. public finance insurance segment expenses for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ are presented in the following table:

Three Months Ended June 30,

Percent

Six Months Ended June 30,

Percent
In millions

    2020

    2019

Change

    2020

    2019

Change
Gross expenses
   $ 10    $ 10    -%    $ 23    $ 23    -%












Amortization of deferred acquisition costs
   $ 5    $ 5    -%    $ 7    $ 9    -22%
Operating
   10    9    11%    23    22    5%












Total insurance operating expenses
   $ 15    $ 14    7%    $ 30    $ 31    -3%


	Three Months Ended March 31,				Percent
In millions	2021		2020		Change
Gross expenses	$	15	$	13		15%

Amortization of deferred acquisition costs	$	4	$	3		33%
Operating		14		13		8%

Total insurance operating expenses	$	18	$	16		13%

Gross expenses represent total insurance expenses before the deferral of any policy acquisition costs.

~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

~~RESULTS OF OPERATIONS (continued)~~

The decreases in the amortization of deferred acquisition costs for the three and six months ended June 30, 2020 when compared with the same periods of 2019 were due to decreases in refunding activity in the current year. When an insured obligation refunds, we accelerate any remaining deferred acquisition costs associated with the policy covering the refunded insured obligation. We did not defer a material amount of policy acquisition costs during the first ~~half~~quarters of ~~2020~~2021 or ~~2019.~~2020.

INSURED PORTFOLIO EXPOSURE Financial guarantee insurance companies use a variety of approaches to assess the underlying credit risk profile of their insured portfolios. National uses both an internally developed credit rating system as well as third-party rating sources in the analysis of credit quality measures of its insured portfolio. In evaluating credit risk, we obtain, when available, the underlying rating(s) of the insured obligation before the benefit of National’s insurance policy from nationally recognized rating agencies, Moody’s Investor Services (“Moody’s”) and Standard & Poor’s Financial Services LLC (“S&P”). Other companies within the financial guarantee industry may report credit quality information based upon internal ratings that would not be comparable to our presentation. We maintain internal ratings on our entire portfolio, and our ratings may be higher or lower than the underlying ratings assigned by Moody’s or S&P.

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

RESULTS OF OPERATIONS (continued)

The following table presents the credit quality distribution of National’s U.S. public finance outstanding gross par insured as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020. Capital appreciation bonds (“CABs”) are reported at the par amount at the time of issuance of the insurance policy. All ratings are as of the period presented and represent S&P underlying ratings, where available. If transactions are not rated by S&P, a Moody’s equivalent rating is used. If transactions are not rated by either S&P or Moody’s, an internal equivalent rating is used.

Gross Par Outstanding
In millions

June 30, 2020

December 31, 2019
Rating

Amount

%

Amount

%
AAA
   $ 2,415    5.2%    $ 2,709    5.5%
AA
   18,229    39.8%    19,155    39.2%
A
   13,870    30.3%    15,022    30.7%
BBB
   7,648    16.7%    8,225    16.8%
Below investment grade
   3,643    8.0%    3,809    7.8%








Total
   $ 45,805    100.0%    $ 48,920    100.0%


	Gross Par Outstanding
In millions	March 31, 2021				December 31, 2020
Rating	Amount		%		Amount		%
AAA	$	2,047		5.1%	$	2,080		5.0%
AA		15,612		38.5%		16,299		39.0%
A		12,445		30.7%		12,888		30.8%
BBB		6,826		16.9%		7,019		16.7%
Below investment grade		3,548		8.8%		3,570		8.5%

Total	$	40,478		100.0%	$	41,856		100.0%

U.S. Public Finance Insurance Puerto Rico Exposures

The following is a summary of exposures within the insured portfolio of our U.S. public finance insurance segment related to Puerto Rico as of ~~June 30, 2020.~~March 31, 2021.

In millions

Gross Par
Outstanding

Debt
Service
Outstanding

National
Internal
Rating
Puerto Rico Electric Power Authority (PREPA)
   $ 968 $ 1,315    d
Puerto Rico Commonwealth GO
   485 587    d
Puerto Rico Public Buildings Authority (PBA)
(1)
   170 228    d
Puerto Rico Highway and Transportation Authority Transportation Revenue (PRHTA)
   523 895    d
Puerto Rico Highway and Transportation Authority - Subordinated Transportation Revenue (PRHTA)
   27 36    d
Puerto Rico Highway and Transportation Authority Highway Revenue (PRHTA)
   54
(2)

75    d
University of Puerto Rico System Revenue
   76 102    d
Inter American University of Puerto Rico Inc.
   19 25    a3



Total
   $ 2,322 $ 3,263

~~(1) -~~

~~Additionally secured by the guarantee of the Commonwealth of Puerto Rico.~~

~~(2) -~~

~~Includes CABs that reflect the gross par amount at the time of issuance of the insurance policy. As of June 30, 2020, gross par outstanding plus CABs accreted interest was $56 million.~~


In millions	Gross Par Outstanding			Debt Service Outstanding		National Internal Rating
Puerto Rico Electric Power Authority (PREPA)	$	903		$	1,202		d
Puerto Rico Commonwealth GO		290			369		d
Puerto Rico Public Buildings Authority (PBA) (1)		169			218		d
Puerto Rico Highway and Transportation Authority Transportation Revenue (PRHTA)		523			869		d
Puerto Rico Highway and Transportation Authority—Subordinated Transportation Revenue (PRHTA)		27			34		d
Puerto Rico Highway and Transportation Authority Highway Revenue (PRHTA)		41	(2)		60		d
University of Puerto Rico System Revenue		73			96		d
Inter American University of Puerto Rico Inc.		19			23		a3

Total	$	2,045		$	2,871

~~Item 2. Management’s Discussion and Analysis~~(1) - Additionally secured by the guarantee of ~~Financial Condition and Results~~the Commonwealth of ~~Operations~~

Puerto Rico.

~~RESULTS OF OPERATIONS (continued)~~

(2) - Includes CABs that reflect the gross par amount at the time of issuance of the insurance policy. As of March 31, 2021, gross par outstanding plus CABs accreted interest was $43 million.

On June 30, 2016, PROMESA was signed into law by the President of the United States. PROMESA provides for the creation of the Oversight Board with powers relating to the development and implementation of a fiscal plan for the Commonwealth and each of its instrumentalities as well as a court-supervised Title III process that allows Puerto Rico to restructure its debt if voluntary agreements cannot be reached with creditors through a collective action process. Following the resignation and replacement of several Oversight Board members, the Oversight Board has been reconstituted with four new members while three existing members have been reappointed by the President for another three year term. The newly elected Governor of Puerto Rico has appointed himself as a non-voting member of the reconstituted Oversight Board.

On May 3, 2017, the Oversight Board certified and filed a petition under Title III of PROMESA for Puerto Rico with the District Court of Puerto Rico thereby commencing a bankruptcy-like case for the ~~Commonwealth.~~Commonwealth GO. Under separate petitions, the Oversight Board subsequently commenced Title III proceedings for COFINA, PRHTA, PREPA and PBA on May 5, 2017, May 21, 2017, July 2, 2017 and September 27, 2019, respectively. One of the proceedings was resolved on February 4, 2019, when the District of Puerto Rico entered the order confirming the Third Amended Title III Plan of Adjustment for COFINA. The plan became effective on February 12, 2019, and as of December 31, 2019, we no longer have exposure to COFINA. There can be no assurance that the other Title III proceedings will be resolved with similar outcomes.

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

RESULTS OF OPERATIONS (continued)

As a result of prior defaults, various stays and the Title III cases, Puerto Rico failed to make certain scheduled debt service payments for National insured bonds. As a consequence, National has paid gross claims in the aggregate amount of ~~$1.1~~$1.6 billion relating to ~~general obligation (“GO”)~~GO bonds, PBA bonds, PREPA bonds and PRHTA bonds through June 30, 2020. Subsequently, on July 1, 2020, Puerto Rico also defaulted on scheduled debt service for National insured bonds and National paid gross claims in the aggregate of $333 million. InclusiveMarch 31, 2021, inclusive of the commutation payment and the additional payment in the amount of $66 million on December 17, 2019 related to ~~COFINA, National has paid total gross claims in the aggregate amount of approximately $1.6 billion related to Puerto Rico.~~

On February 15, 2019, the United States Court of Appeals for the First Circuit held that the process PROMESA provides for the appointment of Oversight Board members is unconstitutional under the U.S. Constitution’s Appointments Clause. On June 20, 2019, the United States Supreme Court granted certification petitions. On July 2, 2019, the First Circuit granted the Oversight Board’s motion to stay the mandate pending the Supreme Court’s final disposition. The Supreme Court heard oral arguments on October 15, 2019. On June 1, 2020, the Supreme Court reversed the First Circuit’s decision, holding that the selection of the Oversight Board members did not violate the Appointments Clause because they exercise primarily local, not federal, powers.COFINA.

On May 2, 2019, the Oversight Board and the Official Committee of Unsecured Creditors of all Title III Debtors (other than COFINA) (the “Committee”) filed lien avoidance adversary complaints against several hundred defendants, including National, challenging the existence, extent, and enforceability of GO bondholders’ liens. After an approximately five-month stay of litigation entered by the Court on July 24, 2019, these adversary proceedings resumed pursuant to an interim schedule entered by the Court in December 2019. On February 5, 2020, National and Assured Guaranty Municipal Corp. filed a motion to dismiss the adversary proceeding. The adversary proceeding hearing was stayed indefinitely by further order of the Court.

On ~~June 17, 2019, the Oversight Board announced it had reached~~February 22, 2021, National agreed to join a plan support agreement, (“dated as of February 22, 2021 (the “GO PSA”), among the Oversight Board, certain holders of GO Bonds and PBA Bonds, Assured Guaranty Corp. and Assured Guaranty Municipal Corp, and Syncora Guarantee Inc. in connection with the GO and PBA Title III cases. The GO PSA provides that, among other things, National shall receive a pro rata share of allocable cash, newly issued General Obligation bonds, a contingent value instrument and certain ~~Commonwealth~~fees. The GO PSA also permitted National to terminate its participation in the GO PSA on or prior to March 31, 2021, which date was extended ultimately to May 5, 2021. On April 12, 2021, National, Assured Guaranty Corp., Assured Guaranty Municipal Corp. and the Oversight Board reached an agreement in principle settling certain clawback claims and providing for a distribution of cash, bonds and a contingent value instrument to HTA bondholders ~~and guaranteed PBA bondholders~~subject to completing negotiations on a ~~framework for~~plan support agreement in respect of the HTA PSA. On May 5, 2021, National, Assured Guaranty Corp., Assured Guaranty Municipal Corp. and the Oversight Board entered into the HTA PSA, and National thereby agreed not to terminate its participation in the GO PSA. The Oversight Board has committed to filing a plan of adjustment for HTA by January 31, 2022. The GO PSA contemplates a Commonwealth plan becoming effective on or before December 15, 2021; however there can be no assurance that such plans will become effective, or on the contemplated timeline. Pursuant to ~~resolve $35.0 billion worth of debt and unsecured claims against~~ the ~~Commonwealth. On February 9, 2020,~~GO PSA, the Oversight Board ~~posted~~and National shall jointly request the entry of an amended PSA, which provides for faster debt maturities and increased creditor support than the originally filed PSA. The Oversight Board asserts that the amended PSA has the support of approximately $10.7 billion (or approximately 58%) in GO bonds and PBA bonds, and settles disputes regarding the validity of the 2011, 2012 and 2014 GO bonds without the need of a litigation trust as previously contemplated under the initial PSA. Under the amended PSA,

~~pre-2011~~

~~GO bond recoveries are 74.9% and~~

~~pre-2011~~

~~PBA recoveries are 77.6%. Bondholder recoveries will be~~order in the ~~form of both cash and new debt, and the new debt will be issued~~Title III court staying National’s actions to appoint a trustee in the ~~form~~HTA Title III case pursuant to Section 926, currently before the First Circuit Court of ~~50% GO debt and 50% COFINA junior debt. National is not a party~~Appeals, together with other actions related to the ~~amended PSA. The~~clawback of HTA funds from the Commonwealth, ~~also does not support~~and National shall take no further action with respect to those proceedings subject to the revised PSA. The Oversight Board subsequently filed an amended Disclosure Statement and Plan of Adjustment on February 28, 2020. The motion to approve the Disclosure Statement was scheduled to be heard inCommonwealth plan becoming effective.

~~mid-June~~

~~of 2020. However, the Court adjourned the hearing until further notice due to the~~

~~COVID-19~~

~~crisis.~~ On ~~July 15, 2020,~~April 6, 2021, the Oversight Board filed ~~its court-mandated status report concerning~~a motion seeking to schedule the ~~PSA. The Oversight Board stated that it was unprepared~~hearing to ~~propose a schedule~~consider the adequacy of the disclosure statement for the Commonwealth plan of adjustment ~~and~~for June 16, 2021. By order dated May 4, 2021, Judge Swain set the disclosure statement processes to restart due to the uncertainty of the pandemic, fiscal and economic disruption, the severe drought conditions present in Puerto Rico as well as political and legislative hurdles. The Board proposed September 11, 2020 as the next date to provide a further status report to the Court.hearing for July 13, 2021.

On July 24, 2019, Judge Swain entered an order staying certain adversary proceedings and contested matters until December 31, 2019, and imposing mandatory mediation under Judge Houser. Among the matters stayed in which National is either a party in interest or intervenor are the (i) PBA adversary proceeding seeking to recharacterize the PBA bonds as financings and (ii) GO adversary and HTA adversary proceedings, both challenging bondholder liens. Pursuant to interim schedules entered by the Court in December 2019, the PBA adversary proceeding and the HTA adversary proceeding were to remain stayed until March 11, 2020, but the Court subsequently stayed all such adversary proceedings indefinitely subject to the progress of the GO confirmation process.

~~Item 2. Management’s Discussion and Analysis~~ As part of ~~Financial Condition and Results~~the GO PSA, National’s participation in this litigation will be stayed subject to the effective date of ~~Operations~~

the Commonwealth plan of adjustment.

~~RESULTS OF OPERATIONS (continued)~~

PBA

On December 21, 2018, the Oversight Board filed an adversary complaint seeking to disallow the PBA’s administrative rent claims against the Commonwealth. The PBA bonds are payable from the rent the Commonwealth pays under its lease agreements with the PBA. The Oversight Board alleges that the Commonwealth has no obligation to make rent payments under section 365(d)(3) of the Bankruptcy Code and that the PBA is not entitled to a priority administrative expense claim under the leases. On April 16, 2019, Judge Swain entered an order setting a discovery schedule. The proceeding is currently stayed.

On September 27, 2019, the Oversight Board filed a Title III petition for the PBA.

PREPA

National’s largest exposure to Puerto Rico, by gross par outstanding, is to PREPA.

On October 3, 2018, National, together with Assured Guaranty Corp., Assured Guaranty Municipal Corp., and Syncora Guarantee Inc. (collectively, “Movants”) filed a motion in the Title III case for PREPA for relief from the automatic stay to allow Movants to exercise their statutory right to have a receiver appointed at PREPA (the “Receiver Motion”). This motion is stayed pending a resolution of the 9019 Order, discussed below.

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

RESULTS OF OPERATIONS (continued)

On May 3, 2019, PREPA, the Oversight Board, the Puerto Rico Fiscal Agency and Financial Advisory Authority (“AAFAF”), the Ad Hoc Group of PREPA bondholders (the “Ad Hoc Group”), and Assured Guaranty Corp. and Assured Guaranty Municipal Corp. (“Assured”) entered into the RSA which was amended on September 9, 2019 to include National and Syncora Guarantee, Inc. (“Syncora”) as supporting parties. Approximately 90% of PREPA’s bondholders have joined the RSA.

Among other things, the RSA contemplates a transaction pursuant to which, upon the effective date of a plan of adjustment, PREPA’s legacy bonds will be exchanged for new securitization bonds to be issued in two tranches. In addition, beginning on the last day of the month in which the order approving the RSA is entered, holders of bonds that are subject to the RSA will receive monthly settlement payments funded by a settlement charge to be included on customer bills (the “Settlement Payments”) until the effective date of a plan of adjustment for PREPA. The Settlement Payments are subject to increase if a plan of adjustment is not confirmed before March 31, 2021. The RSA provides that supporting parties will receive an administrative claim equal to interest accrued on certain of the securitization bonds, less the amount of any Settlement Payments made on account of such bonds, which administrative claim shall survive termination of the RSA. Additionally, pursuant to the RSA, supporting creditors will also receive certain fees and expense reimbursements. The RSA initially contemplated the filing of a plan of adjustment for PREPA by March 31, 2020; the timing of that action is now uncertain.

Pursuant to the RSA, the Oversight Board filed a Rule 9019 motion with the Title III court in May 2019 seeking approval of the RSA (the “Settlement Motion”) and a Motion to Dismiss the Receiver Motion. The RSA requires, upon entry of the order approving the Settlement Motion (the “9019 Order”), that Movants will withdraw the Receiver Motion, and the Ad Hoc Group will support such withdrawal. The Receiver Motion and the Motion to Dismiss the Receiver Motion have been delayed several times, and most recently were adjourned due to the outbreak of

COVID-19

In addition, the restructuring the RSA contemplates has received criticism from various parties including members of the Puerto Rico government and other stakeholders. This opposition could adversely affect the ability of the Oversight Board and RSA Parties to obtain the Rule 9019 Order and approve the RSA.

As contemplated by the RSA, on July 1, 2019 the Oversight Board and AAFAF also filed an adversary complaint against the Trustee for the PREPA Bonds, challenging the validity of the liens arising under the Trust Agreement that secure insured obligations of National. The adversary proceeding is stayed until the earlier of (a) 60 days after the Court denies the 9019 Motion, (b) consummation of a Plan, (c) 60 days after the filing by the Oversight Board and AAFAF of a Litigation Notice, or (d) further order of the Court.

Certain objectors to the RSA have filed adversary proceedings challenging the payment priority arising under the PREPA Trust Agreement, alleging that they are entitled to be paid in full before National and other bondholders have any lien on or recourse to PREPA’s assets, including pursuant to the RSA. All litigation on this matter has been stayed until the Court places the 9019 Motion back on the calendar for hearing.

On ~~September 26, 2019, National sold its entire holding of uninsured PREPA bonds purchased in 2016 with a par value of $139 million.~~

~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

~~RESULTS OF OPERATIONS (continued)~~

On June 22, 2020, the Oversight Board and the Puerto Rico P3 Authority announced an agreement and contract with LUMA Energy, LLC (“LUMA”) which calls for LUMA to take full responsibility for the operation and maintenance of PREPA’s transmission and distribution system; the contract runs for

15-years

following a transition period expected to take 12 months. PREPA retains ownership of the system as well as responsibility for the power generation system.

On September 18, 2020, FEMA and the PR COR3 Authority announced the commitment by FEMA to provide approximately $11.6 billion (net of the required 10% cost share) to fund projects built by PREPA and the PR Department of Education; approximately $9.4 billion (net) of this amount is designated for PREPA.

PRHTA

On May 20, 2019, the Oversight Board and the Committee filed a lien avoidance adversary complaint against fiscal agents, holders, and insurers of certain PRHTA bonds, including National. The complaint challenges the extent and enforceability of certain security interests in PRHTA’s revenues. Pursuant to an interim schedule entered by the Court in December 2019, the Court has stayed the proceedings, with the understanding that the issues raised in these proceedings would be addressed in new adversary proceedings filed by the Oversight Board on January 16, 2020. Subsequent to those filings, these proceedings were stayed by order of the Court.

On April 12, 2021, National, Assured Guaranty Corp., Assured Guaranty Municipal Corp. and the Oversight Board reached an agreement in principle settling certain HTA clawback claims in the Commonwealth Title III case and providing for a distribution to HTA holders of cash, bonds and a contingent value instrument subject to completing negotiations on a plan support agreement in respect of the HTA PSA. On May 5, 2021, National, Assured Guaranty Corp., Assured Guaranty Municipal Corp. and the Oversight Board entered into the HTA PSA, and National thereby agreed not to terminate its participation in the GO PSA. The Oversight Board has committed to filing a plan of adjustment for HTA by January 31, 2022.

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

RESULTS OF OPERATIONS (continued)

On August 23, 2019, National and Assured (the “HTA Movants”) filed a motion in the Title III case for PRHTA for adequate protection or, in the alternative, relief from the automatic stay. The motion argues that the revenues securing the bonds insured by HTA Movants are being improperly diverted away from PRHTA, despite such revenues being the exclusive property of PRHTA and its bondholders. Pursuant to an interim schedule entered by the Court in December 2019, the HTA Movants, along with Ambac Assurance Corporation and FGIC, amended the motion on January 16, 2020. Following a preliminary hearing held on June 4, 2020, on July 2, 2020, Judge Swain held that the Movants had failed to satisfy its burden of presenting a colorable claim that they had a statutory, contractual or equitable lien on HTA Revenues, including Excise Taxes or Toll Revenues. ~~The HTA Movants are filing additional pleadings by August 5,~~On September 9, 2020, ~~that are expected to complete~~ the ~~necessary filings in order to obtain~~Court entered a final order ~~subject~~denying the HTA lift stay motion, finding a balancing of factors does not support stay relief. National filed a notice of appeal to ~~appeal.~~the First Circuit on September 23, 2020. The First Circuit heard the appeal on February 4, 2021. On March 3, 2021 the First Circuit affirmed Judge Swain’s decision holding that the Title III court did not abuse its discretion in denying relief from the automatic stay.

Status of Puerto Rico’s Fiscal Plans

In January of ~~2020,~~2021, the Oversight Board requested that the Puerto Rico government submit a proposed updated Fiscal Plan for the ~~Commonwealth in light of recent and recurring earthquakes and considering Puerto Rico’s current state of emergency.~~Commonwealth. The Commonwealth submitted a revised fiscal plan on ~~May 3, 2020.~~March 8, 2021. On ~~May 27, 2019, after deeming~~March 15, 2021, the Oversight Board deemed the Puerto Rico government’s fiscal plan as

to be non-compliant,

and has required the government to submit a revised updated fiscal plan, including all financial and supporting models. The Oversight Board certified ~~its own revised~~the government’s fiscal plan ~~for the Commonwealth. The revised fiscal plan reflects a significantly reduced the cumulative surplus of $4.4 billion over the~~

~~six-year~~

~~projection period (after measures and structural reforms, but before contractual debt service) due primarily to the impact of the~~

~~COVID-19~~

~~pandemic. The new surplus is about 65% lower than the previous plan, which reflected a surplus of approximately $13.7 billion.~~on April 23, 2021. For the remaining component units, the Oversight Board ~~certified~~expects to certify fiscal plans for ~~both~~PREPA, the University of Puerto Rico (the “University”) and PRHTA on ~~June 12, 2020 and June 26, 2020, while certifying a revised Fiscal Plan for PREPA on June 29, 2020.~~or by May 28, 2021. The Oversight Board also ~~certified~~expects to certify the fiscal year ~~2020~~2022 budgets for Commonwealth, PREPA, the University and ~~PRHTA.~~PRHTA by June 30, 2021.

University of Puerto Rico

The University is not a debtor in Title III and continues to be current on its debt service payment. However, the University is subject to a standstill agreement with its senior ~~bondholders. In March of 2020, the University gave notice that it would not make its monthly transfers for March 2020 and April 2020, due~~bondholders, which has been extended to ~~the~~

~~COVID-19~~

~~crisis. The parties agreed to amend the standstill agreement to delay the monthly transfer until May 2020.~~August 28, 2021. National is not a party to the standstill agreement. The standstill agreement, which requires monthly transfers to the trustee in the amount of approximately $3.7 million, originally scheduled to expire on July 15, 2020, has been extended to August 21, 2020.

~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

~~RESULTS OF OPERATIONS (continued)~~

The following table presents our scheduled gross debt service due on our Puerto Rico insured exposures for the ~~six~~nine months ending December 31, ~~2020,~~2021, for each of the subsequent four years ending December 31 and thereafter:


	Six Months
	Ending
	December 31,
	2020		2021		2022		2023		2024		Thereafter		Total
In millions															Nine Months Ending December 31, 2021		2022		2023		2024		2025		Thereafter		Total
Puerto Rico Electric Power Authority (PREPA)	$	90	$	140	$	140	$	137	$	137	$	671	$	1,315	$	117	$	140	$	137	$	137	$	105	$	566	$	1,202
Puerto Rico Commonwealth GO		210		82		19		14		13		249		587		74		19		14		13		75		174		369
Puerto Rico Public Buildings Authority (PBA)		5		24		9		27		43		120		228		19		9		27		43		36		84		218
Puerto Rico Highway and Transportation Authority Transportation Revenue (PRHTA)		13		27		27		36		33		759		895		13		27		36		33		36		724		869
Puerto Rico Highway and Transportation Authority - Subordinated Transportation Revenue (PRHTA)		1		1		9		1		1		23		36
Puerto Rico Highway and Transportation Authority—Subordinated Transportation Revenue (PRHTA)																1		9		1		1		1		21		34
Puerto Rico Highway and Transportation Authority Highway Revenue (PRHTA)		14		4		2		4		2		49		75		3		2		4		2		2		47		60
University of Puerto Rico System Revenue		5		7		7		12		11		60		102		5		7		12		11		16		45		96
Inter American University of Puerto Rico Inc.		2		3		3		3		3		11		25		3		3		3		3		3		8		23

Total	$	340	$	288	$	216	$	234	$	243	$	1,942	$	3,263	$	235	$	216	$	234	$	243	$	274	$	1,669	$	2,871

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

RESULTS OF OPERATIONS (continued)

Corporate

Our corporate segment consists of general corporate activities, including providing support services to MBIA Inc.’s subsidiaries and asset and capital management. Support services are provided by our service company, MBIA Services, and include, among others, management, legal, accounting, treasury, information technology, and insurance portfolio surveillance, on a

fee-for-service

basis. Capital management includes activities related to servicing obligations issued by MBIA Inc. and its subsidiaries, MBIA Global Funding, LLC (“GFL”) and MBIA Investment Management Corp. (“IMC”). During 2020, the remaining investment agreements issued by IMC matured, and as of December 31, 2020, there were no outstanding investment agreements issued by IMC. MBIA Inc. issued debt to finance the operations of the MBIA group. GFL raised funds through the issuance of medium-term notes (“MTNs”) with varying maturities, which were in turn guaranteed by MBIA Corp. GFL lent the proceeds of these MTN issuances to MBIA Inc. IMC, along with MBIA Inc., provided customized investment agreements, guaranteed by MBIA Corp., for bond proceeds and other public funds for such purposes as construction, loan origination, escrow and debt service or other reserve fund requirements. The Company has ceased issuing new MTNs and investment agreements and the outstanding liability balances and corresponding asset balances have declined over time as liabilities matured, terminated or were called or repurchased. All of the debt within the corporate segment is managed collectively and is serviced by available liquidity.

The following table summarizes the consolidated results of our corporate segment for the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 and ~~2019:~~2020:

Three Months Ended June 30,

Percent
Change

Six Months Ended June 30,

Percent

Change
In millions

2020

2019

2020

2019
Net investment income
   $ 8 $ 9 -11%    $ 16 $ 19 -16%
Fees
   14 13 8%    30 29 3%
Net gains (losses) on financial instruments at fair value and foreign exchange
   - (33 ) -100%    (56 ) (51 ) 10%
Other net realized gains (losses)
   - - -%    - (1 ) -100%




Total revenues
   22 (11 ) n/m    (10 ) (4 ) 150%




Operating
   20 17 18%    35 40 -13%
Interest
   21 24 -13%    42 48 -13%




Total expenses
   41 41 -%    77 88 -13%




Income (loss) before income taxes
   $ (19 ) $ (52 ) -63%    $ (87 ) $ (92 ) -5%


	Three Months Ended March 31,					Percent Change
In millions	2021		2020			Percent Change
Net investment income	$	7	$	8			-13%
Fees		16		16			-%
Net gains (losses) on financial instruments at fair value and foreign exchange		55		(56	)		n/m

Total revenues		78		(32	)		n/m

Operating		22		15			47%
Interest		19		21			-10%

Total expenses		41		36			14%

Income (loss) before income taxes		37		(68	)		n/m

n/~~m -~~ m—Percent change not meaningful.

~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

~~RESULTS OF OPERATIONS (continued)~~

NET GAINS (LOSSES) ON FINANCIAL INSTRUMENTS AT FAIR VALUE AND FOREIGN EXCHANGE The favorable change in net gains (losses) on financial instruments at fair value and foreign exchange for the three months ended ~~June 30, 2020 compared with the same period of 2019~~March 31, 2021 was primarily due to the impact of increases in interest rates during 2021 on the fair ~~value gains on our~~values of interest rate swaps for which we receive floating rates ~~due to favorable changes to the interest rate curves when~~ compared towith fair value losses on these swaps in the same period of 2020 due to decreases in ~~2019. During 2019, we terminated a portion of these~~ interest rate swaps. The termination amount paid in cash reflected the fair values of the swaps at termination date and all collateral held by the counterparty to the interest rate swaps was returned to the Company. The termination of these swaps was executed to reduce future exposure to interest rate movements.rates.

OPERATING EXPENSES Operating expenses increased for the three months ended ~~June 30, 2020~~March 31, 2021 compared with the same period of ~~2019~~2020 primarily due to an increase in compensation ~~expense. Operating expenses decreased for the six months ended June 30, 2020 compared with the same period of 2019 primarily due~~expense related to a ~~decrease in~~deferred compensation ~~expense.~~plan.

International and Structured Finance Insurance

Our international and structured finance insurance portfolio is managed through MBIA Corp. The financial guarantees issued by MBIA Corp. generally provide unconditional and irrevocable guarantees of the payment of the principal of, and interest or other amounts owing on,

non-U.S.

public finance and global structured finance insured obligations when due or, in the event MBIA Corp. has the right, at its discretion, to accelerate insured obligations upon default or otherwise.

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

RESULTS OF OPERATIONS (continued)

MBIA Corp. has insured sovereign-related and

sub-sovereign

bonds, privately issued bonds used for the financing of utilities, toll roads, bridges, airports, public transportation facilities, and other types of infrastructure projects serving a substantial public purpose. Global structured finance and asset-backed obligations typically are securities repayable from cash flows generated by a specified pool of assets, such as residential and commercial mortgages, insurance policies, consumer loans, corporate loans and bonds, ~~trade~~ and ~~export receivables, and leases for equipment,~~ aircraft ~~and real estate property.~~leases. MBIA Insurance Corporation insures the investment agreements written by MBIA Inc., and if MBIA Inc. were to have insufficient assets to pay amounts due upon maturity or termination, MBIA Insurance Corporation would be required to make such payments under its insurance policies. MBIA Insurance Corporation also insured debt obligations of other affiliates, including GFL, IMC and MZ Funding LLC (“MZ Funding”). MBIA Corp. ~~has~~had also written insurance policies guaranteeing the obligations under credit default swap (“CDS”) contracts of an affiliate, LaCrosse Financial Products, LLC and certain other derivative contracts. Certain policies ~~cover~~covered payments potentially due under CDS, including termination payments that may become due in certain circumstances, including the occurrence of certain insolvency or payment defaults under the CDS or derivative contracts by the insured counterparty or by the guarantor. We no longer insure new CDS contracts except for potential transactions related to the restructuring of existing exposures. MBIA Insurance Corporation provides 100% reinsurance to its subsidiary, MBIA Mexico S.A. de C.V. (“MBIA Mexico”).

MBIA Corp. has contributed to the Company’s net operating loss (“NOL”) carryforward, which is used in the calculation of our consolidated income taxes. If MBIA Corp. becomes profitable, it is not expected to make any tax payments under our tax sharing agreement. Based on MBIA Corp.’s current projected earnings and our expectation that it will not write significant new business, we believe it is unlikely that MBIA Corp. will generate significant income in the near future. As a result of MBIA Corp.’s capital structure and business prospects, we do not expect its financial performance to have a material economic impact on MBIA Inc.

The following table presents our international and structured finance insurance segment results for the three months ended March 31, 2021 and 2020:


	Three Months Ended March 31,						Percent Change
In millions	2021			2020			Percent Change
Net premiums earned	$	6		$	6			-%
Net investment income		1			1			-%
Fees and reimbursements		4			4			-%
Net gains (losses) on financial instruments at fair value and foreign exchange		(1	)		11			-109%
Revenues of consolidated VIEs:
Net investment income		-			8			-100%
Net gains (losses) on financial instruments at fair value and foreign exchange		(14	)		15			n/m
Other net realized gains (losses)		-			(9	)		-100%

Total revenues		(4	)		36			-111%

Losses and loss adjustment		(11	)		195			-106%
Amortization of deferred acquisition costs		4			4			-%
Operating		7			7			-%
Interest		27			31			-13%
Expenses of consolidated VIEs:
Operating		2			2			-%
Interest		11			17			-35%

Total expenses		40			256			-84%

Income (loss) before income taxes		(44	)		(220	)		-80%

n/m—Percent change not meaningful.

As of March 31, 2021, MBIA Corp.’s total insured gross par outstanding was $7.3 billion.

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

RESULTS OF OPERATIONS (continued)

~~The following table presents our international and structured finance insurance segment results for the three and six months ended June 30, 2020 and 2019:~~

Three Months Ended June 30,

Percent

Change

Six Months Ended June 30,

Percent
Change
In millions

2020

2019

2020

2019

Net premiums earned
   $ 7    $ 6    17 %    $ 13    $ 13    -%
Net investment income
   1    2    -50 %    2    4    -50%
Fees and reimbursements
   3    5    -40 %    7    9    -22%
Change in fair value of insured derivatives:

Realized gains (losses) and other settlements on insured derivatives
   -    (1 )    -100 %    -    (1 )    -100%
Unrealized gains (losses) on insured derivatives
   -    -    - %    -    14    -100%












Net change in fair value of insured derivatives
   -    (1 )    -100 %    -    13    -100%
Net gains (losses) on financial instruments at fair value and foreign exchange
   (1 )    (10 )    -90 %    10    (10 )    n/m
Other net realized gains (losses)
   -    1    -100 %    -    2    -100%
Revenues of consolidated VIEs:

Net investment income
   5    10    -50 %    13    20    -35%
Net gains (losses) on financial instruments at fair value and foreign exchange
   23    (3 )    n/m    38    (13 )    n/m
Other net realized gains (losses)
   23    (16 )    n/m    14    (16 )    n/m












Total revenues
   61    (6 )    n/m    97    22    n/m












Losses and loss adjustment
   64    34    88 %    259    46    n/m
Amortization of deferred acquisition costs
   4    4    - %    8    9    -11%
Operating
   7    6    17 %    14    13    8%
Interest
   30    34    -12 %    61    67    -9%
Expenses of consolidated VIEs:

Operating
   1    1    - %    3    4    -25%
Interest
   15    24    -38 %    32    48    -33%












Total expenses
   121    103    17 %    377    187    102%












Income (loss) before income taxes
   $ (60 )    $ (109 )    -45 %    $ (280 )    $ (165 )    70%

~~n/m - Percent change not meaningful.~~

~~As of June 30, 2020, MBIA Corp.’s total insured gross par outstanding was $9.0 billion.~~

NET PREMIUMS EARNED Our international and structured finance insurance segment generates net premiums from insurance policies accounted for as financial guarantee contracts. Certain premiums may be eliminated in our consolidated financial statements as a result of the Company consolidating VIEs. In addition, we generate net premiums from insured credit derivatives that are included in “Realized gains (losses) and other settlements on insured derivatives” on our consolidated statements of operations. The following table provides net premiums earned from our financial guarantee contracts for the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 and ~~2019:~~2020:


	Three Months Ended June 30,				Percent Change		Six Months Ended June 30,					Percent Change		Three Months Ended March 31,					Percent
In millions	2020		2019		Percent Change		2020			2019		Percent Change		2021		2020			Change
Net premiums earned:
Non-U.S.														$	5	$	5			-%
U.S.	$	2	$	1		100%	$	3		$	3		-%		1		1			-%
Non-U.S.		5		5		-%		10			10		-%

Total net premiums earned	$	7	$	6		17%	$	13		$	13		-%	$	6	$	6			-%

VIEs (eliminated in consolidation)	$	1	$	2		-50%	$	(3	)	$	3		n/m
VIE premiums eliminated in consolidation														$	1	$	(4	)		-125%

~~n/m - Percent change not meaningful.~~

Net premiums earned represent gross premiums earned net of premiums ceded to reinsurers, and include scheduled premium earnings and premium earnings from refunded issues. The negative ~~$3 million of~~ VIE net premiums ~~eliminated~~earned (eliminated in ~~consolidation~~consolidation) for ~~the six months ended June 30,~~ 2020 was primarily due to the termination of a policy, resulting in the reversal of previously eliminated net premiums in excess of cash received.

~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

~~RESULTS OF OPERATIONS (continued)~~

UNREALIZED GAINS (LOSSES) ON INSURED DERIVATIVES For the six months ended June 30, 2019, unrealized gains on insured derivatives were principally due to the reversal of unrealized losses resulting from gross par amortization of insured transactions, partially offset by unfavorable changes in the estimated value of the remaining underlying collateral. Refer to “Note 8: Derivatives” in the Notes to Consolidated Financial Statements for additional information regarding our insured CDS credit.

NET GAINS (LOSSES) ON FINANCIAL INSTRUMENTS AT FAIR VALUE AND FOREIGN EXCHANGE The net gains on financial instruments at fair value and foreign exchange for the ~~six~~three months ended ~~June 30,~~March 31, 2020 were primarily related to gains from foreign currency revaluations onof Mexican ~~peso denominated~~peso-denominated loss reserves as a result of the strengthening of the ~~U. S.~~U.S. dollar, partially offset by losses from foreign currency revaluations onof Chilean unidad de ~~fomento denominated~~foment-denominated premium receivables as a result of the strengthening of the U.S. dollar. ~~The net losses on financial instruments and foreign exchange for the three and six months ended June 30, 2019 were primarily related to unfavorable~~

~~mark-to-market~~

~~fluctuations on derivatives.~~

REVENUES OF CONSOLIDATED VIEs For the three and six months ended June 30, 2020, total revenues of consolidated VIEs were $51 million and $65 million, respectively, compared with total losses of $9 million for the same periods of 2019. The ~~increase~~decrease in revenues of consolidated VIEs for ~~the~~ three months ended ~~June 30, 2020 when~~March 31, 2021 compared with the same period of 2019 was primarily due a reversal of an allowance for credit losses and higher gains from putback claims on ineligible mortgage loans within a second-lien RMBS VIE. In addition, the three months ended June 30, 2019 included losses related to the deconsolidation of VIEs and fair value changes in the collateral of insured first-lien RMBS transactions. The increase in revenues of consolidated VIEs for the six months ended June 30, 2020 ~~when compared with the same period of 2019~~ was primarily due to higher fair value gains from ~~putback~~put-back claims on ineligible ~~mortgage~~ loans within a second-lien RMBS VIE and ~~reversals~~higher net investment income in 2020 from VIEs. These decreases were partially offset by credit losses on held-to-maturity investments of ~~allowance~~a consolidated VIE in 2020. During 2020, we deconsolidated VIEs for ~~credit losses.~~which net investment income was recorded.

LOSSES AND LOSS ADJUSTMENT EXPENSES Our international and structured finance insured portfolio management group is responsible for monitoring international and structured finance insured obligations. The level and frequency of monitoring of any insured obligation depends on the type, size, rating and our assessed performance of the insured issue. As a result of

COVID-19,

we have increased our monitoring of certain credits. Refer to “Note 5: Loss and Loss Adjustment Expense Reserves” in the Notes to Consolidated Financial Statements for a description of the Company’s loss reserving policy and additional information related to its loss reserves.

For the three ~~and six~~ months ended ~~June 30,~~March 31, 2021, the losses and LAE benefit primarily related to increases in the risk-free rates used to discount expected claims, which decreased the present value of net loss reserves, primarily on our insured first-lien RMBS transactions. This decrease in losses and LAE was partially offset by a decline in expected salvage collections from insured CDOs. For the three months ended March 31, 2020, ~~loss~~losses and LAE primarily related to a decrease in expected salvage collections ~~from insured CDOs and~~related to CDOs. In addition, declines in the risk-free rates during the first quarter of 2020 ~~which~~ increased the present value of loss reserves, primarily on our insured first-lien RMBS transactions. These increases in losses and LAE were partially offset by a benefit related to second-lien RMBS. For the three and six months ended June 30, 2019, loss and LAE activity primarily related to increases in losses incurred on insured first-lien RMBS transactions, partially offset by an increase in salvage receipts on CDOs. As a result of the ~~consolidation~~consolidations of VIEs, ~~loss~~losses and LAE includes the elimination of a losses and LAE benefit of ~~$43~~$16 million and ~~$65~~$22 million for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020, ~~respectively and the elimination of loss and LAE expense of $22 million and $36 million for the three and six months ended June 30, 2019,~~ respectively.

Refer to “Note 5: Loss and Loss Adjustment Expense Reserves” in the Notes to Consolidated Financial Statements for further information about our insurance loss recoverable and loss and LAE reserves. The following table presents information about our insurance loss recoverable and loss and LAE reserves as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020:

In millions

June 30,
2020

December 31,
2019

Percent
Change

Assets:

Insurance loss recoverable
   $ 593    $ 783    -25%
Reinsurance recoverable on paid and unpaid losses
(1)
   5    5    -%
Liabilities:

Loss and LAE reserves
   523    469    12%






Net reserve (salvage)
   $ (75)    $ (319)    -76%


In millions	March 31, 2021		December 31, 2020		Percent Change
Assets:
Insurance loss recoverable	$	406	$	457		-11%
Reinsurance recoverable on paid and unpaid losses (1)		5		5		-%
Liabilities:
Loss and LAE reserves		466		521		-11%

Net reserve (salvage)	$	55	$	59		-7%

(1) -

- Reported within “Other assets” on our consolidated balance sheets.

Table of Contents

~~Insurance~~

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

RESULTS OF OPERATIONS (continued)

The insurance loss recoverable primarily relates to reimbursement rights arising from the payment of claims on MBIA Corp.’s policies insuring certain CDOs. Such payments also entitle MBIA Corp. to exercise certain rights and remedies to seek recovery of its reimbursement entitlements. Refer to “Note 1: Business Developments and Risks and Uncertainties” in the Notes to Consolidated Financial Statements for additional information regarding our estimates of recoveries.

~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

~~RESULTS OF OPERATIONS (continued)~~

Refer to “Note 5: Loss and Loss Adjustment Expense Reserves” in the Notes to Consolidated Financial Statements for additional information about our loss reserving policy, loss reserves and recoverables.

POLICY ACQUISITION COSTS AND OPERATING EXPENSES International and structured finance insurance segment expenses for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ are presented in the following table:

Three Months Ended June 30,

Percent

Six Months Ended June 30,

Percent
In millions

2020

2019

Change

2020

2019

Change
Gross expenses
   $ 7    $ 6    17%    $ 14    $ 13    8%












Amortization of deferred acquisition costs
   $ 4    $ 4    -%    $ 8    $ 9    -11%
Operating
   7    6    17%    14    13    8%












Total insurance operating expenses
   $ 11    $ 10    10%    $ 22    $ 22    -%


	Three Months Ended March 31,				Percent Change
In millions	2021		2020		Percent Change
Gross expenses	$	7	$	7		-%

Amortization of deferred acquisition costs	$	4	$	4		-%

Operating		7		7		-%

Total insurance operating expenses	$	11	$	11		-%

Gross expenses represent total insurance expenses before the deferral of any policy acquisition costs. We did not defer a material amount of policy acquisition costs during the first ~~half~~quarters of ~~2020~~2021 or ~~2019.~~2020. Policy acquisition costs in these periods were primarily related to ceding commissions and premium taxes on installment policies written in prior periods.

INTEREST EXPENSE OF CONSOLIDATED VIEs For the three months ended March 31, 2021, total interest expense of consolidated VIEs decreased compared with the same period of 2020 due to the deconsolidation of VIEs in 2020.

International and Structured Finance Insurance Portfolio Exposures

Credit Quality

The credit quality of our international and structured finance insured portfolio is assessed in the same manner as our U.S. public finance insured portfolio. As of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019, 29%~~2020, 25% and ~~27%~~24%, respectively, of our international and structured finance insured portfolio was rated below investment grade, before giving effect to MBIA’s guarantees, based on MBIA’s internal ratings, which are generally more current than the underlying ratings provided by S&P and Moody’s for this subset of our insured portfolio.

Selected Portfolio Exposures

The following is a summary of selected significant exposures within our residential mortgage insured portfolio of our international and structured finance insurance segment. In addition, as of ~~June 30, 2020,~~March 31, 2021, MBIA Corp. insured ~~$303~~$276 million of CDOs and related instruments. We may experience considerable incurred losses in certain of these sectors. There can be no assurance that the loss reserves recorded in our financial statements will be sufficient or that we will not experience losses on transactions on which we currently have no loss reserves, in particular if the economy deteriorates. We may seek to purchase, directly or indirectly, obligations guaranteed by MBIA Corp. or seek to commute policies. The amount of insurance exposure reduced, if any, and the nature of any such actions will depend on market conditions, pricing levels from time to time, and other considerations. In some cases, these activities may result in a reduction of loss reserves, but in all cases they are intended to limit our ultimate losses and reduce the future volatility in loss development on the related policies. Our ability to purchase guaranteed obligations and to commute policies will depend on management’s assessment of available liquidity.

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

RESULTS OF OPERATIONS (continued)

Residential Mortgage Exposure

MBIA Corp. insures RMBS backed by residential mortgage loans, including second-lien RMBS transactions (revolving home equity lines of credit (“HELOC”) loans and

closed-end

second (“CES”) mortgages). MBIA Corp. also insures ~~mortgage-backed securities (“MBS”)~~MBS backed by first-lien alternative

A-paper

(“Alt-A”)

and subprime mortgage loans directly through RMBS securitizations. The following table presents the gross par outstanding of MBIA Corp.’s total direct RMBS insured exposure as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020. Amounts include the gross par outstanding related to transactions that the Company consolidates under accounting guidance for VIEs.

In millions

Gross Par Outstanding as of


June 30,

December 31,

Percent

Collateral Type

2020

2019

Change

HELOC Second-lien
   $ 331    $ 381    -13%
CES Second-lien
   122    136    -10%
Alt-A
First-lien
(1)
   836    909    -8%
Subprime First-lien
   314    343    -8%
Prime First-lien
   6    7    -14%






Total
   $ 1,609    $ 1,776    -9%


In millions	Gross Par Outstanding as of
Collateral Type	March 31, 2021		December 31, 2020		Percent Change
HELOC Second-lien	$	248	$	269		-8%
CES Second-lien		93		104		-11%
Alt-A First-lien (1)		807		825		-2%
Subprime First-lien		269		285		-6%
Prime First-lien		5		6		-17%

Total	$	1,422	$	1,489		-4%

(1) -

Includes international exposure of ~~$212~~$234 million and ~~$248~~$237 million as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively.

~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

~~RESULTS OF OPERATIONS (continued)~~

U.S. Public Finance and International and Structured Finance Reinsurance

Reinsurance enables the Company to cede exposure for purposes of syndicating risk. The Company generally retains the right to reassume the business ceded to reinsurers under certain circumstances, including a reinsurer’s rating downgrade below specified thresholds. Currently, we do not intend to use reinsurance to decrease the insured exposure in our portfolio.

As of ~~June 30, 2020,~~March 31, 2021, the aggregate amount of insured par outstanding ceded by MBIA to reinsurers under reinsurance agreements was ~~$1.6~~$1.4 billion compared with ~~$1.8~~$1.5 billion as of December 31, ~~2019.~~2020. Under National’s reinsurance agreement with MBIA Corp., if a reinsurer of MBIA Corp. is unable to pay claims ceded by MBIA Corp. on U.S. public finance exposure, National will assume liability for such ceded claim payments. For a further discussion of the Company’s reinsurance, refer to “Note 13: Insurance in Force” in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form

10-K

for the year ended December 31, ~~2019.~~2020.

Taxes

Provision for Income Taxes

The Company’s income taxes and the related effective tax rates for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ are presented in the following table:

Three Months Ended June 30,

Six Months Ended June 30,
In millions

        2020

        2019

        2020

        2019
Income (loss) before income taxes
   $ (106 ) $ (207 ) $ (439 ) $ (226 )
Provision (benefit) for income taxes
   $ - $ - $ - $ 2
Effective tax rate
   -% -% -% -0.9%


	Three Months Ended March 31,
In millions	2021			2020
Income (loss) before income taxes	$	(106	)	$	(333	)
Provision (benefit) for income taxes	$	-		$	-
Effective tax rate		-%			-%

For the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ our effective tax rate applied to our loss before income taxes was lower than the U.S. statutory tax rate of 21% due to the full valuation allowance on the changes in our net deferred tax asset.

As of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the Company’s valuation allowance against its net deferred tax asset was ~~$937 million~~$1.0 billion and ~~$873~~$966 million, respectively. Notwithstanding the full valuation allowance on its net deferred tax asset, the Company believes that it may be able to use some of its net deferred tax asset before the expirations associated with that asset based upon expected earnings at National and potential future sources of taxable income to be identified by the Company. Accordingly, the Company will continue to

re-evaluate

its net deferred tax asset on a quarterly basis. There is no assurance that the Company will reverse any of its valuation allowance on its net deferred tax asset in the future. Refer to “Note 9: Income Taxes” in the Notes to Consolidated Financial Statements for a further discussion of income taxes, including the valuation allowance against the Company’s net deferred tax asset and its accounting for tax uncertainties.

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

RESULTS OF OPERATIONS (continued)

The CARES Act established new tax provisions including, but not limited to: (1) five-year carryback of NOLs generated in 2018, 2019 and 2020; (2) accelerated refund of alternative minimum tax (“AMT”) credit carryforwards; and (3) retroactive changes to allow accelerated depreciation for certain depreciable property. The legislation ~~does~~did not have a material impact on the Company’s tax positions due to the lack of taxable income in the carryback periods. As

On December 21, 2020, The Consolidated Appropriations Act (“Act”) was passed by Congress to respond to the health and economic impacts of ~~June 30, 2020,~~COVID-19. The Act includes a number of tax law changes, including the ~~Company had received~~expansion of the Employee Retention Credit, important changes to the Paycheck Protection Program, and extension of a ~~cash benefit~~variety of expiring tax provisions. On March 6, 2021, The American Rescue Plan Act was passed by Congress to further respond to the health and economic impacts of COVID-19. Among other changes, the legislation provides for ~~its remaining AMT credits as provided by~~an extension of the ~~CARES Act.~~Employee Retention Credit through 2021. These two legislations do not have a material impact on the Company’s tax positions.

CAPITAL RESOURCES

The Company manages its capital resources to minimize its cost of capital while maintaining appropriate claims-paying resources (“CPR”) for National and MBIA Corp. The Company’s capital resources consist of total shareholders’ equity, total debt issued by MBIA Inc. for general corporate purposes, surplus notes issued by MBIA Corp., and MBIA Corp.’s financing facility between MZ Funding and certain purchasers, pursuant to which the purchasers or their affiliates agreed to refinance the outstanding insured senior notes of MZ Funding (“Refinanced Facility”). Total capital resources were ~~$2.0~~$1.3 billion and ~~$2.4~~$1.6 billion as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively.

In addition to scheduled debt maturities, from time to time, we reduce unsecured debt through calls or repurchases. Also, MBIA Inc. may repurchase or National may purchase outstanding MBIA Inc. common shares when we deem it beneficial to our shareholders. Purchases or repurchases of debt and common stock may be made from time to time in the open market or in private transactions as permitted by securities laws and other legal requirements. We may also choose to redeem debt obligations where permitted by the relevant agreements. MBIA Inc. or National may acquire or redeem outstanding common shares of MBIA Inc. and outstanding debt obligations at prices when we deem it beneficial to our shareholders.

~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

~~CAPITAL RESOURCES (continued)~~

MBIA Inc. supports the MTN and investment agreement obligations issued by the Company. We seek to maintain sufficient liquidity and capital resources to meet the Company’s general corporate needs and debt service. Based on MBIA Inc.’s debt service requirements and expected operating expenses, we expect that MBIA Inc. will have sufficient resources to satisfy its debt obligations and its general corporate needs over time from distributions from its operating subsidiaries; however, there can be no assurance that MBIA Inc. will have sufficient resources to do so. In addition, the Company may also consider raising third-party capital. Refer to “Capital, Liquidity and Market Related Risk Factors” in Part I, Item 1A of our Form

10-K

for the year ended December 31, ~~2019~~2020 and the “Liquidity—Corporate Liquidity” section included herein for additional information about MBIA Inc.’s liquidity.

Equity securities

~~On May 5, 2020,~~Currently, MBIA Inc. or National does not have an authorization approved by the Company’s Board of Directors ~~authorized the~~to repurchase or purchase ~~or repurchase by the Company or National of up to $100 million of its outstanding shares under a new share repurchase authorization.~~shares. MBIA Inc.’s and National’s share purchases or repurchases that were authorized under our share repurchase program for the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ are presented in the following table:

In millions except per share amounts

Six Months Ended June 30,


2020

2019

Number of shares purchased or repurchased
   17.8    5.9
Average price paid per share
   $ 7.62    $ 9.10
Remaining authorization as of June 30
   $ 62    $ 148


In millions except per share amounts	Three Months Ended March 31,
	2021		2020
Number of shares purchased or repurchased		-		8.1
Average price paid per share	$	-	$	7.99
Remaining authorization as of March 31	$	-	$	36

~~Subsequent to June 30, 2020 through July 29, 2020, National purchased an addition 4.8 million common shares of MBIA Inc. at an average share price of $7.42.~~

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

CAPITAL RESOURCES (continued)

Debt securities

During the three months ended March 31, 2021, MBIA Corp. prepaid $150 million of the Refinanced Facility.

Insurance Statutory Capital

National and MBIA Insurance Corporation are incorporated and licensed in, and are subject to primary insurance regulation and supervision by New York State Department of Financial Services (“NYSDFS”). MBIA Mexico is regulated by the Comisión Nacional de Seguros y Fianzas in Mexico. MBIA Corp.’s Spanish Branch is subject to local regulation in Spain. National and MBIA Insurance Corporation each are required to file detailed annual financial statements, as well as interim financial statements, with the NYSDFS and similar supervisory agencies in each of the other jurisdictions in which it is licensed. These financial statements are prepared in accordance with New York State and the National Association of Insurance Commissioners’ statements of U.S. STAT and assist our regulators in evaluating minimum standards of solvency, including minimum capital requirements, and business conduct.

National

Capital and Surplus

National had statutory capital of ~~$2.0~~$1.9 billion as of ~~June 30, 2020~~March 31, 2021 compared with ~~$2.4~~$2.0 billion as of December 31, ~~2019.~~2020. As of ~~June 30, 2020,~~March 31, 2021, National’s unassigned surplus was ~~$974~~$900 million. For the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, National had a statutory net loss of ~~$115~~$35 million. Refer to the “Claims-Paying Resources (Statutory Basis)” section below for additional information on National’s statutory capital.

In order to maintain its New York State financial guarantee insurance license, National is required to maintain a minimum of $65 million of policyholders’ surplus. National is also required to maintain contingency reserves to provide protection to policyholders in the event of extreme losses in adverse economic events. As of ~~June 30, 2020,~~March 31, 2021, National was in compliance with its aggregate risk limits under ~~NYIL,~~New York Insurance Law (“NYIL”), but was not in compliance with certain of its single risk limits. If National does not comply with its single risk limits, the NYSDFS may prevent National from transacting any new financial guarantee insurance business.

~~New York Insurance Law (“NYIL”)~~NYIL regulates the payment of dividends by financial guarantee insurance companies and provides that such companies may not declare or distribute dividends except out of statutory earned surplus. Under NYIL, the sum of (i) the amount of dividends declared or distributed during the preceding

12-month

period and (ii) the dividend to be declared may not exceed the lesser of (a) 10% of policyholders’ surplus, as reported in the latest statutory financial statements or (b) 100% of adjusted net investment income for such

12-month

period (the net investment income for such

12-month

period plus the excess, if any, of net investment income over dividends declared or distributed during the

two-year

period preceding such

12-month

period), unless the Superintendent of the NYSDFS approves a greater dividend distribution based upon a finding that the insurer will retain sufficient surplus to support its obligations.

National had positive earned surplus as of ~~June 30, 2020~~March 31, 2021 from which it may pay dividends, subject to the limitations described above. We expect the

as-of-right

declared and paid dividend amounts from National to be limited to prior year adjusted net investment income for the foreseeable future.

~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

~~CAPITAL RESOURCES (continued)~~

Claims-Paying Resources (Statutory Basis)

CPR is a key measure of the resources available to National to pay claims under its insurance policies. CPR consists of total financial resources and reserves calculated on a statutory basis. CPR has been a common measure used by financial guarantee insurance companies to report and compare resources and continues to be used by MBIA’s management to evaluate changes in such resources. We have provided CPR to allow investors and analysts to evaluate National using the same measure that MBIA’s management uses to evaluate National’s resources to pay claims under its insurance policies. There is no directly comparable GAAP measure. Our calculation of CPR may differ from the calculation of CPR reported by other companies.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

CAPITAL RESOURCES (continued)

National’s CPR and components thereto, as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 are presented in the following table:

As of June 30,

As of December 31,

In millions

2020

2019

Policyholders’ surplus
   $ 1,564    $ 1,891
Contingency reserves
   470    485




Statutory capital
   2,034    2,376
Unearned premiums
   385    411
Present value of installment premiums
(1)
   138    139




Premium resources
(2)
   523    550
Net loss and LAE reserves
(1)
   29    (169)
Salvage reserves
(1)
   735    789




Gross loss and LAE reserves
   764    620




Total claims-paying resources
   $ 3,321    $ 3,546


	As of March 31,		As of December 31,
In millions	2021		2020
Policyholders’ surplus	$	1,490	$	1,526
Contingency reserves		433		445

Statutory capital		1,923		1,971
Unearned premiums		344		355
Present value of installment premiums (1)		129		129

Premium resources (2)		473		484
Net loss and LAE reserves (1)		(303)		(301)
Salvage reserves on paid claims (1)		996		961

Gross loss and LAE reserves		693		660

Total claims-paying resources	$	3,089	$	3,115

(1) - Calculated using a discount rate of ~~3.64%~~3.49% as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020.

(2) - Includes financial guarantee and insured derivative related premiums.

MBIA Insurance Corporation

Capital and Surplus

MBIA Insurance Corporation had statutory capital of ~~$360~~$237 million as of ~~June 30, 2020~~March 31, 2021 compared with ~~$476~~$273 million as of December 31, ~~2019.~~2020. As of ~~June 30, 2020,~~March 31, 2021, MBIA Insurance Corporation’s negative unassigned surplus was ~~$1.8~~$1.9 billion. For the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, MBIA Insurance Corporation had a statutory net loss of ~~$113~~$34 million. Refer to the “Claims-Paying Resources (Statutory Basis)” section below for additional information on MBIA Insurance Corporation’s statutory capital.

In the first quarter of 2021, MBIA received a court decision against Credit Suisse holding it liable to MBIA Corp. for approximately $604 million in damages relating to put-back claims and the parties to the litigation subsequently entered into a settlement agreement pursuant to which Credit Suisse paid MBIA Corp. $600 million. As of ~~June 30, 2020,~~March 31, 2021, MBIA Insurance ~~Corporation recognized~~Corporation’s estimated ~~recoveries~~salvage on a statutory basis primarily related to

~~put-back~~

~~claims against Credit Suisse Securities (USA)~~ recoveries on CDOs and ~~DLJ Mortgage Capital, Inc.,~~ excess spread recoveries on RMBS and recoveries related to CDOs. There can be no assurance that we will be successful or that we will not be delayed in realizing these recoveries. Refer to “Note 5: Loss and Loss Adjustment Expense Reserves” in the Notes to Consolidated Financial Statements for additional information about these recoveries.RMBS.

In order to maintain its New York State financial guarantee insurance license, MBIA Insurance Corporation is required to maintain a minimum of $65 million of policyholders’ surplus. ~~As of June 30, 2020, MBIA Corp. met the required minimum requirement. Under NYIL,~~ MBIA Insurance Corporation is also required to ~~invest its minimum surplus and~~maintain contingency reserves ~~and 50%~~to provide protection to policyholders in the event of ~~its loss reserves and unearned premium reserves~~extreme losses in ~~certain qualifying assets.~~adverse economic events. As of June 30, 2020, MBIA Insurance Corporation maintained its minimum requirement of policyholders’ surplus but did not have enough qualifying assets to support its contingency reserves and 50% of its loss reserves and unearned premium reserves. As of June 30, 2020,March 31, 2021, MBIA Insurance Corporation was in compliance with its aggregate risk limits under the NYIL, but was not in compliance with certain of its single risk limits. If MBIA Insurance Corporation does not comply with ~~the above mentioned requirements,~~its single risk limits, the NYSDFS may prevent MBIA Insurance Corporation from transacting any new financial guarantee insurance ~~business until it no longer exceeds the limitations.~~business.

Due to its significant earned surplus deficit, MBIA Insurance Corporation has not had the statutory capacity to pay dividends since December 31, 2009. Based on estimated future income, MBIA Insurance Corporation is not expected to have any statutory capacity to pay dividends.

~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

~~CAPITAL RESOURCES (continued)~~

The NYSDFS has not approved MBIA Insurance Corporation’s requests to make interest payments on MBIA Insurance Corporation’s ~~14%~~

~~Fixed-to-Floating~~

~~Rate~~ Surplus Notes due January 15, 2033 (the “Surplus Notes”) since, and including, the January 15, 2013 interest payment. The NYSDFS has cited both MBIA Insurance Corporation’s liquidity and financial condition as well as the availability of “free and divisible surplus” as the basis for such

non-approvals.

As of ~~July~~April 15, ~~2020,~~2021, the most recent scheduled interest payment date, there was ~~$948 million~~$1.0 billion of unpaid interest on the par amount outstanding of $953 million of the Surplus Notes. Under Section 1307 of the NYIL and the Fiscal Agency Agreement governing the surplus notes, Surplus Note payments may be made only with the prior approval by the NYSDFS and if MBIA Insurance Corporation has sufficient “Eligible Surplus”, or as we believe, “free and divisible surplus” as an appropriate calculation of “Eligible Surplus.” As of ~~June 30, 2020,~~March 31, 2021, MBIA Insurance Corporation had “free and divisible surplus” of ~~$161~~$52 million. There is no assurance the NYSDFS will approve Surplus Note payments, notwithstanding the sufficiency of MBIA Insurance Corporation’s liquidity and financial condition. The unpaid interest on the Surplus Notes will become due on the first business day on or after which MBIA Insurance Corporation obtains approval to pay some or all of such unpaid interest. No interest has been accrued or will accrue on the deferred interest.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

CAPITAL RESOURCES (continued)

Claims-Paying Resources (Statutory Basis)

CPR is a key measure of the resources available to MBIA Corp. to pay claims under its insurance policies. CPR consists of total financial resources and reserves calculated on a statutory basis. CPR has been a common measure used by financial guarantee insurance companies to report and compare resources, and continues to be used by MBIA’s management to evaluate changes in such resources. We have provided CPR to allow investors and analysts to evaluate MBIA Corp., using the same measure that MBIA’s management uses to evaluate MBIA Corp.’s resources to pay claims under its insurance policies. There is no directly comparable GAAP measure. Our calculation of CPR may differ from the calculation of CPR reported by other companies.

MBIA Corp.’s CPR and components thereto, as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 are presented in the following table:

As of June 30,

As of December 31,

In millions

2020

2019

Policyholders’ surplus
   $ 179    $ 282
Contingency reserves
   181    194




Statutory capital
   360    476
Unearned premiums
   84    93
Present value of installment premiums
(1) (4)
   79    92




Premium resources
(2)
   163    185
Net loss and LAE reserves
(1)
   (563)    (669)
Salvage reserves
(1) (3)
   1,095    1,247




Gross loss and LAE reserves
   532    578




Total claims-paying resources
   $ 1,055    $ 1,239


	As of March 31,			As of December 31,
In millions	2021			2020
Policyholders’ surplus	$	70		$	106
Contingency reserves		167			167

Statutory capital		237			273
Unearned premiums		74			79
Present value of installment premiums (1) (2)		71			73

Premium resources		145			152
Net loss and LAE reserves (1)		108			(478)
Salvage reserves on paid claims (1)		405	(3)		1,045	(4)

Gross loss and LAE reserves		513			567

Total claims-paying resources	$	895		$	992

(1) - Calculated using a discount rate of ~~5.21%~~5.10% as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020.

(2) - ~~Includes financial guarantee and~~Based on the Company’s estimate of the remaining life for its insured ~~credit derivative related premiums.~~exposures.

(3) - This amount primarily consists of expected recoveries related to the Company’s CDOs and excess ~~spread and~~

~~put-backs.~~

spread.

(4) - ~~Based on~~This amount primarily consists of expected recoveries related to the Company’s ~~estimate of the remaining life for its insured exposures.~~put-backs, CDOs and excess spread.

LIQUIDITY

We use a liquidity risk management framework, the primary objective of which is to match liquidity resources to needs. We monitor our cash and liquid asset resources using cash forecasting and stress-scenario testing. Members of MBIA’s senior management meet regularly to review liquidity metrics, discuss contingency plans and establish target liquidity levels. We evaluate and manage liquidity on a legal-entity basis to take into account the legal, regulatory and other limitations on available liquidity resources within the enterprise. Additionally, we continue to monitor the current

COVID-19

pandemic with respect to our cash and liquid asset positions and resources. It remains premature to predict the full impact the pandemic may have on our future liquidity position and needs. Refer to the “Executive

Overview—COVID-19”

section for additional information about liquidity and

COVID-19.

The following is a discussion of our liquidity resources and requirements for our holding company and our insurance subsidiaries.

~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

~~LIQUIDITY (continued)~~

National Liquidity

The primary sources of cash available to National are:

principal and interest receipts on assets held in its investment portfolio, including proceeds from the sale of assets;

recoveries associated with insurance loss payments; and

installment premiums.

The primary uses of cash by National are:

loss payments and LAE on insured transactions;

payments of dividends; and

payments of operating expenses, taxes and investment portfolio asset purchases.

As of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, National held cash and investments of ~~$2.5~~$2.0 billion and ~~$2.7~~$2.1 billion, respectively, of which ~~$558~~$298 million and ~~$442~~$359 million, respectively, were cash and cash equivalents or short-term investments comprised of highly rated commercial paper, money market funds and municipal, U.S. agency and corporate bonds.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

LIQUIDITY (continued)

The insurance policies issued or reinsured by National provide unconditional and irrevocable guarantees of payments of the principal of, and interest or other amounts owing on, insured obligations when due. In the event of a default in payment of principal, interest or other insured amounts by an issuer, National generally promises to make funds available in the insured amount within one to three business days following notification. In some cases, the amount due can be substantial, particularly if the default occurs on a transaction to which National has a large notional exposure or on a transaction structured with large, bullet-type principal maturities. The U.S. public finance insurance segment’s financial guarantee contracts generally cannot be accelerated by a party other than the insurer which helps to mitigate liquidity risk in this segment.

Corporate Liquidity

The primary sources of cash available to MBIA Inc. are:

dividends from National;

available cash and liquid assets not subject to collateral posting requirements;

principal and interest receipts on assets held in its investment portfolio, including proceeds from the sale of assets;

~~release of funds under the tax sharing agreement;~~ and

access to capital markets.

The primary uses of cash by MBIA Inc. are:

servicing outstanding unsecured corporate debt obligations and MTNs;

meeting collateral posting requirements under investment agreements and derivative arrangements;

payments related to interest rate swaps;

payments of operating expenses; and

funding share repurchases and debt buybacks.

As of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the liquidity positions of MBIA Inc. were ~~$325~~$298 million and ~~$375~~$294 million, respectively, and included cash and cash equivalents and other investments comprised of highly rated commercial paper and U.S. government and asset-backed bonds.

During the ~~six~~three months ended ~~June 30, 2020, $33~~March 31, 2021, MBIA Inc. returned $10 million ~~was returned~~of tax payments to National as a result of tax losses incurred ~~in 2019, of which $9 million was in cash.~~by National. The return was pursuant to the terms of the tax sharing ~~agreement following the expiration of National’s~~

~~two-year~~

~~NOL carry-back period under U.S. tax rules.~~agreement. Under the CARES Act, National’s ~~2019~~2020 taxable loss isbecame subject to a five-year NOL carry-back, which ~~allows~~allowed it to recover taxes paid in years in which the tax rate was 35%. ~~Similarly, a taxable loss generated in 2020 will be subject to a five-year NOL carry-back under the CARES Act, after which the~~

~~two-year~~

~~NOL carry-back provision will again become effective. In addition to releases or returns following the expiration of National’s~~

~~two-year~~

NOL carry-back period, from time to time, MBIA Inc. is permitted to withdraw assets from the Tax Escrow Account if the aggregate market value of all assets held in the Tax Escrow Account exceeds the required minimum balance. There can be no assurance that any future payments under the Tax Escrow Account from subsidiaries will be released to MBIA Inc. due to deductible or creditable tax attributes of those subsidiaries and/or the market value performance of the assets supporting the Tax Escrow Account.

~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

~~LIQUIDITY (continued)~~

Based on our projections of National’s and MBIA Corp.’s future earnings and losses, we expect that for the foreseeable future National will be the primary source of payments to MBIA Inc. There can be no assurance as to the amount and timing of any such future dividends or payments from the tax escrow account under the tax sharing agreement. Also, absent a special dividend subject to the approval of the NYSDFS, we expect the declared and paid dividend amounts from National to be limited to the prior twelve months of adjusted net investment income as reported in its most recent statutory filings. Refer to the “Capital Resources – Insurance Statutory Capital” section for additional information on payments of dividends. We do not expect MBIA Inc. to receive ~~distributions~~dividends or utilize the Company’s tax escrow account from MBIA Corp.

Currently, a significant portion of the cash and securities held by MBIA Inc. is pledged against investment agreement liabilities, the Asset Swap (simultaneous repurchase and reverse repurchase agreement) and derivatives, which limits its ability to raise liquidity through asset sales. As the market value or rating eligibility of the assets which are pledged against MBIA Inc.’s obligations declines, we are required to pledge additional eligible assets in order to meet minimum required collateral amounts against these liabilities. To mitigate these risks, we seek to maintain cash and liquidity resources that we believe will be sufficient to make all payments due on our obligations and to meet other financial requirements, such as posting collateral. Contingent liquidity resources include: (1) sales of invested assets exposed to credit spread stress risk, which may occur at losses; (2) termination and settlement of interest rate swap agreements; and (3) accessing the capital markets. These actions, if taken, are expected to result in either additional liquidity or reduced exposure to adverse credit spread movements. There can be no assurance that these actions will be sufficient to fully mitigate this risk.

MBIA Corp. Liquidity

The primary sources of cash available to MBIA Corp. are:

recoveries associated with insurance loss payments;

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

LIQUIDITY (continued)

installment premiums and fees; and

principal and interest receipts on assets held in its investment portfolio, including the proceeds from the sale of assets.

The primary uses of cash by MBIA Corp. are:

loss and LAE or commutation payments on insured transactions;

repayment of the Refinanced Facility; and

payments of operating expenses.

As of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, MBIA Corp. held cash and investments of ~~$231~~$669 million and ~~$230~~$243 million, respectively, of which ~~$123~~$503 million and ~~$124~~$130 million, respectively, were cash and cash equivalents or liquid investments comprised of money market funds and municipal, U.S. Treasury and corporate bonds that were immediately available to MBIA Insurance Corporation. The increase in cash and investments for the three months ended March 31, 2021 was due to the collection of proceeds from the settlement of the Credit Suisse litigation.

Insured transactions that require payment of scheduled debt service payments insured when due or payment in full of the principal insured at maturity could present liquidity risk for MBIA Corp., as any salvage recoveries from such payments could be recovered over an extended period of time after the payment is made. MBIA Corp. is generally required to satisfy claims within one to three business days, and as a result seeks to identify potential claims in advance through our monitoring process. In order to monitor liquidity risk and maintain appropriate liquidity resources, we use the same methodology as we use to monitor credit quality and losses within our insured portfolio, including stress scenarios. Refer to “Note 5: Loss and Loss Adjustment Expense Reserves” in the Notes to Consolidated Financial Statements for a discussion of our loss process.

During the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, MBIA Corp. ~~requested~~allocated and ~~was denied permission by~~paid $150 million towards the ~~NYSDFS to prepay approximately $26 million~~prepayment of the Refinanced Facility.

~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

~~LIQUIDITY (continued)~~

Consolidated Cash Flows

Information about our consolidated cash flows by category is presented on our consolidated statements of cash flows. The following table presents a summary of our consolidated cash flows for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 and ~~2019:~~2020:


	Six Months Ended June 30,								Three Months Ended March 31,						Percent Change
In millions	2020			2019			Percent Change		2021			2020			Percent Change
Statement of cash flow data:
Net cash provided (used) by:
Operating activities	$	(89	)	$	(57	)		56%	$	529		$	(82	)		n/m
Investing activities		941			683			38%		(418	)		610			n/m
Financing activities		(481	)		(428	)		12%		(157	)		(394	)		-60%
Cash and cash equivalents - beginning of period		83			280			-70%		167			83			101%

Cash and cash equivalents - end of period	$	454		$	478			-5%	$	121		$	217			-44%

n/m—Percent change not meaningful.

Operating activities

Net cash provided by operating activities increased for the three months ended March 31, 2021 compared with the same period of 2020 primarily due to an increase in proceeds from loan repurchase commitments of $600 million as a result of the settlement of the Credit Suisse litigation.

Investing activities

Net cash used by ~~operating~~investing activities increased for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 compared with the same period of ~~2019~~2020 primarily due to ~~decreases~~a net decrease in ~~proceeds from recoveries~~sales, maturities and ~~reinsurance~~purchases of ~~$64~~short-term investments of $516 million, ~~and net investment income of $25 million, partially offset by~~ a decrease in ~~interest paid, net~~repayments of ~~interest converted to principal of $44 million and an increase in income taxes received of $16 million.~~

~~Investing activities~~

~~Net cash provided by investing activities increased for the six months ended June 30, 2020 compared with the same period of 2019 primarily due to an increase in paydowns of HTM~~held-to-maturity investments of $315 million ~~and~~due to the deconsolidation of a ~~net decrease~~VIE in ~~purchases~~the first quarter of 2020 and ~~sales of AFS investments of $38 million, partially offset by~~ a decrease in ~~paydowns and maturities~~sales of available-for-sale investments ~~at fair value~~ of ~~$149~~$101 million.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

LIQUIDITY (continued)

Financing activities

Net cash used by financing activities ~~increased~~decreased for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 compared with the same period of ~~2019~~2020 primarily due to ~~increases~~decreases in ~~purchases of treasury stock of $76 million and~~ principal repayments of VIE notes of ~~$26~~$167 million ~~partially offset by a decrease~~and purchases of treasury stock of $61 million in ~~principal paydowns~~the first quarter of ~~medium-term notes of $56 million.~~2020.

Investments

The following discussion of investments, including references to consolidated investments, excludes investments reported under “Assets of consolidated variable interest entities” on our consolidated balance sheets. Investments of VIEs support the repayment of VIE obligations and are not available to settle obligations of MBIA. Our AFS investments comprise high-quality fixed-income securities and short-term investments.

Refer to “Note 2: Significant Accounting Policies,” and “Note 7: Investments” in the Notes to Consolidated Financial Statements for further information about our accounting policies and investments.

Credit Quality

The credit quality distribution of the Company’s AFS fixed-maturity investment portfolios, excluding short-term investments, are based on ratings from Moody’s and alternate ratings sources, such as S&P or the best estimate of the ratings assigned by the Company, have been used for a small percentage of securities that are not rated by Moody’s. As of ~~June 30, 2020,~~March 31, 2021, the weighted average credit quality rating of the Company’s AFS fixed-maturity investment portfolio, excluding short-term investments, was Aa and ~~97%~~93% of the investments were investment grade.

~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

~~LIQUIDITY (continued)~~

Insured Investments

MBIA’s consolidated investment portfolio includes investments that are insured by various financial guarantee insurers (“Insured Investments”), including investments insured by National and MBIA Corp. (“Company-Insured Investments”). When purchasing Insured Investments, the Company’s third-party portfolio manager independently assesses the underlying credit quality, structure and liquidity of each investment, in addition to the creditworthiness of the insurer. Insured Investments are diverse by sector, issuer and size of holding. The third-party portfolio manager assigns underlying ratings to Insured Investments without giving effect to financial guarantees based on underlying ratings assigned by Moody’s or S&P, when a rating is not published by Moody’s. When a Moody’s or S&P underlying rating is not available, the underlying rating is based on the portfolio manager’s best estimate of the rating of such investment. If the Company determines that declines in the fair values of third-party Insured Investments are related to credit loss, the Company will establish an allowance for credit losses and recognize the credit component through earnings.

As of ~~June 30, 2020,~~March 31, 2021, Insured Investments at fair value represented ~~$195~~$236 million or 7%8% of consolidated investments, of which ~~$169~~$209 million or 6%7% of consolidated investments were Company-Insured Investments. As of ~~June 30, 2020,~~March 31, 2021, based on the actual or estimated underlying ratings of our consolidated investment portfolio, without giving effect to financial guarantees, the weighted average rating of only the Insured Investments in the investment portfolio would be in the below investment grade range. Without giving effect to the National and MBIA Corp. guarantees of the Company-Insured Investments in the consolidated investment portfolio, as of ~~June 30, 2020,~~March 31, 2021, based on actual or estimated underlying ratings, the weighted average rating of the consolidated investment portfolio was in the Aa range. The weighted average rating of only the Company-Insured Investments was in the below investment grade range, and investments rated below investment grade in the Company-Insured Investments were 5%6% of the total consolidated investment portfolio.

Contractual Obligations

For a discussion of the Company’s contractual obligations, refer to “Liquidity-Contractual Obligations” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Company’s Annual Report on Form

10-K

for the year ended December 31, ~~2019.~~2020. In March of 2021, MBIA Corp. repaid $150 million of the Refinanced Facility. There were no material changes in contractual obligations since December 31, ~~2019.~~2020.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company’s market risk exposures relate to changes in interest rates, foreign exchange rates and credit spreads that affect the fair value of its financial instruments, primarily investment securities, MTNs and investment agreement liabilities. The Company’s investments are primarily U.S. dollar-denominated fixed-income securities including municipal bonds, U.S. government bonds, corporate bonds, MBS and asset-backed securities. In periods of rising and/or volatile interest rates, foreign exchange rates and credit spreads, profitability could be adversely affected should the Company have to liquidate these securities. The Company minimizes its exposure to interest rate risk, foreign exchange risk and credit spread movement through active portfolio management to ensure a proper mix of the types of securities held and to stagger the maturities of its fixed-income securities. ~~The following tables present updates in our market risk relating to interest rates and credit spreads.~~ There were no material changes in market risk since December 31, ~~2019~~2020 related to interest rates, foreign exchange ~~rates.~~rates and credit spreads. For a discussion of our quantitative and qualitative disclosures about market risk related to ~~foreign exchange rates,~~these risks, refer to Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” included in the Company’s Annual Report on Form

10-K

for the year ended December 31, ~~2019.~~2020.

~~INTEREST RATE SENSITIVITY~~

~~Interest rate sensitivity can be estimated by projecting a hypothetical instantaneous increase or decrease in interest rates. The following table presents the estimated~~

~~pre-tax~~

~~change in fair value of the Company’s financial instruments as of June 30, 2020 from instantaneous shifts in interest rates:~~

Change in Interest Rates
In millions

300 Basis
Point
Decrease

200 Basis
Point
Decrease

100 Basis
Point
Decrease

100 Basis
Point
Increase

200 Basis
Point
Increase

300 Basis
Point
Increase
Estimated change in fair value
   $ 284    $ 157    $ 66    $ (53 ) $ (97 ) $ (133 )

~~CREDIT SPREAD SENSITIVITY~~

~~Credit spread sensitivity can be estimated by projecting a hypothetical instantaneous increase or decrease in credit spreads. The following table presents the estimated~~

~~pre-tax~~

change in fair value of the Company’s financial instruments as of June 30, 2020 from instantaneous shifts in credit spread curves. It was assumed that all credit spreads move by the same amount. It is more likely that the actual changes in credit spreads will vary by security. The changes in fair value reflect partially offsetting effects as the value of the investment portfolios generally changes in an opposite direction from the liability portfolio:

Change in Credit Spreads

In millions

50 Basis
Point
Decrease

50 Basis
Point
Increase

200 Basis
Point
Increase

Estimated change in fair value
   $ 44    $ (56)    $ (168)

Item 4. Controls and Procedures

As of the end of the period covered by this report, an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as such term is defined in Rules

13a-15(e)

and

15(d)-15(e)

under the Securities Exchange Act of 1934) was performed under the supervision and with the participation of the Company’s senior management, including the Chief Executive Officer and the Chief Financial Officer. Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report. In addition, there have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules

13a-15(f)

and

15d-15(f)

under the Securities Exchange Act of 1934) during the fiscal quarter to which this report relates that have materially affected, or are likely to materially affect, the Company’s internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings

For a discussion of the Company’s litigation and related matters, see “Note 13: Commitments and Contingencies” in the Notes to Consolidated Financial Statements of MBIA Inc. and Subsidiaries in Part I, Item 1. In the normal course of operating its businesses, MBIA Inc. may be involved in various legal proceedings. As a courtesy, the Company posts on its website under the section “Legal Proceedings,” selected information and documents in reference to selected legal proceedings in which the Company is the plaintiff or the defendant. The Company will not necessarily post all documents for each proceeding and undertakes no obligation to revise or update them to reflect changes in events or expectations. The complete official court docket can be publicly accessed by contacting the clerk’s office of the respective court where each litigation is pending.

Item 1A. Risk Factors

The following should be read in conjunction with and supplements the risk factors described under Part I, Item 1A, “Risk Factors” of the Company’s Annual Report on Form

10-K

for the year ended December 31, ~~2019.~~2020. Except as set forth below, there have been no material changes to the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Insured Portfolio Loss Related Risk Factors

Some of the state, local and territorial governments and finance authorities and other providers of public services, located in the U.S. or abroad, that ~~issue~~issued public finance obligations we ~~insure~~insured are experiencing fiscal stress that could result in increased credit losses or impairments on those ~~obligations~~

obligations.

Certain issuers are reporting fiscal stress that has resulted in a significant increase in taxes and/or a reduction in spending or other measures in efforts to satisfy their financial obligations. In particular, certain jurisdictions have significantly underfunded pension liabilities which are placing additional stress on their finances and are particularly challenging to restructure either through negotiation or under Chapter 9 of the United States Bankruptcy Code. If the issuers of the obligations in our public finance portfolio are unable to raise taxes, or increase other revenues, cut spending, reduce liabilities, and/or receive state or federal assistance, we may experience losses or impairments on those obligations, which could materially and adversely affect our business, financial condition and results of operations. The financial stress experienced by certain municipal issuers could result in the filing of Chapter 9 proceedings in states where municipal issuers are permitted to seek bankruptcy protection. In these proceedings, which remain rare, the resolution of bondholder claims (and by extension, those of bond insurers) may be subject to legal challenge by other creditors.

~~On June 30, 2016, after passage by~~In particular, the Commonwealth of Puerto Rico and several of its public corporations and instrumentalities, which have reported significant fiscal stress, are currently in bankruptcy-like proceedings in the United States ~~Congress,~~District Court for the ~~President~~District of ~~the United States signed into law~~Puerto Rico, pursuant to the Puerto Rico Oversight, Management and Economic Stability Act (“PROMESA”). PROMESA provides a statutory framework for the creation of an independent oversight board (“the “Oversight Board”) with powers relating to, among other things, the development and implementation of fiscal plans for Puerto Rico, as well as collective action and judicial processes—separate from the Federal Bankruptcy Code—by which Puerto Rico may restructure its debt on a consensual or

~~non-consensual~~

~~basis.~~

On May 3, 2017, the Oversight Board certified and filed a bankruptcy-like petition under Title III of PROMESA for Puerto Rico with the District Court of Puerto Rico thereby commencing a bankruptcy-like case for Puerto Rico. Under a separate petition, the Oversight Board also commenced a Title III proceeding for Puerto Rico Sales Tax Financing Corporation (“COFINA”) on May 5, 2017. Subsequently, the Oversight Board also certified and filed voluntary petitions under Title III of PROMESA for several municipalities, including the Puerto Rico Highway and Transportation Authority (“PRHTA”), the Puerto Rico Electric Power Authority (“PREPA”) and Public Buildings Authority (“PBA”) on May 21, 2017, July 2, 2017 and September 27, 2019, respectively. On February 4, 2019, the District Court for the District of Puerto Rico entered the order confirming the Third Amended Title III Plan of Adjustment for COFINA. The plan became effective on February 12, 2019.

The extent and duration of any aid from the Federal Emergency Management Agency and other federal agencies that may be offered to Puerto Rico is ~~inherently uncertain, and the necessary and~~uncertain. Further, greater involvement of the federal government through its ~~actions~~action to deliver disaster relief and ~~other~~ support services ~~in addition~~ to ~~the role of the Oversight Board and the role of~~ Puerto Rico ~~in its own recovery,~~ heightens the political risk already inherent in ~~connection with~~ the ~~restructuring of~~ legacy ~~debt.~~debt restructuring. This risk could lead the ~~Oversight Board,~~independent oversight board created by PROMESA to oversee Puerto Rico’s debt restructuring (the “Oversight Board”), Puerto Rico itself, or the federal government to seek to extract greater concessions from creditors based on the uncertainty of Puerto Rico’s long term recovery prospects. In this event, losses at National on select Puerto Rico exposures could increase materially.

~~Item 1A. Risk Factors (continued)~~

As of ~~June 30, 2020,~~March 31, 2021, National had ~~$3.3~~$2.9 billion of debt service outstanding related to Puerto Rico. Puerto Rico may be unable or unwilling to pay their obligations as and when due, in which case National would be required to pay claims of unpaid principal and interest when due under its insurance policies, which could be material. On January 1, ~~2020 and July 1, 2020,~~2021, Puerto Rico defaulted on scheduled debt service for certain National insured bonds and as a result, National paid gross claims in the aggregate of ~~$391 million as a result.~~$51 million. While National will seek to recover any claim payments it makes under its guarantees, there is no assurance that it will be able to recover such payments. To the extent that its claims payments are ultimately substantially greater than its claims recoveries, National would experience losses on those obligations, which could materially and adversely affect our business, financial condition and results of operations.

Table of Contents

Item1A. Risk Factors (continued)

On February 22, 2021, National agreed to join a Plan Support Agreement, dated as of February 22, 2021 (the “GO PSA”), among the Oversight Board, certain holders of GO Bonds and PBA Bonds, Assured Guaranty Corp. and Assured Guaranty Municipal Corp, and Syncora Guarantee Inc. in connection with the GO and PBA Title III cases. The GO PSA provides that, among other things, National shall receive a pro rata share of allocable cash, newly issued General Obligation bonds, a contingent value instrument and certain fees. The GO PSA also permitted National to terminate its participation in the GO PSA on or prior to March 31, 2021, which date was extended ultimately to May 5, 2021. On April 12, 2021, National, Assured Guaranty Corp., Assured Guaranty Municipal Corp. and the Oversight Board reached an agreement in principle settling certain clawback claims and providing for a distribution of cash, bonds and a contingent value instrument to HTA bondholders subject to completing negotiations on a plan support agreement in respect of an HTA plan of adjustment (the “HTA PSA”). On May 5, 2021, National, Assured Guaranty Corp., Assured Guaranty Municipal Corp. and the Oversight Board entered into the HTA PSA and National thereby agreed not to terminate its participation in the GO PSA. The Oversight Board has committed to filing a plan of adjustment for HTA by January 31, 2022. The GO PSA contemplates a Commonwealth plan becoming effective on or before December 15, 2021; however there can be no assurance that such plans will become effective, or on the contemplated timeline.

On May 3, 2019, PREPA, the Oversight Board, the ~~AAFAF,~~Puerto Rico Fiscal Agency and Financial Advisory Authority (“AAFAF”), the Ad Hoc Group of PREPA bondholders (the “Ad Hoc Group”), and Assured Guaranty Corp. and Assured Guaranty Municipal Corp. entered into a Definitive Restructuring Support Agreement which was amended on September 9, 2019 to include National and Syncora Guarantee, Inc. as supporting parties (as amended, the “RSA”). The Rule 9019 hearing to approve the RSA has been delayed several times, and most recently was adjourned due to the coronavirus crisis until further notice. The Oversight Board and the Commonwealth submitted a status report to the Title III court on July 31, 2020, requesting additional time to negotiate with creditors and seeking to file a further update with the Court on September 25, 2020. The debt restructuring contemplated by the RSA will not be effective until (i) confirmation of a plan of adjustment under PROMESA, (ii) negotiation and consummation of definitive documentation and legal opinions, (iii) enactment and implementation of supportive Puerto Rico legislation and (iv) receipt of Puerto Rico regulatory approval, each of which outcome is uncertain and subject to varying degrees of risk. In addition, the restructuring the RSA contemplates has received criticism from various parties including members of the Puerto Rico government and other stakeholders. This opposition could adversely affect the ability of the Oversight Board and RSA Parties to obtain the Rule 9019 Order and approve the RSA.

Refer to the “U.S. Public Finance Insurance Puerto Rico Exposures” section in Part I, ~~Financial Information,~~ Item 2 of this Form

10-Q

for additional information on our Puerto Rico exposures.

~~Legal, Regulatory and Other Risk Factors~~

~~The pandemic caused by the spread of~~

~~COVID-19~~

~~could have an adverse impact on our financial condition and results of operations and other aspects of our business.~~

~~The outbreak of the novel coronavirus~~

~~COVID-19~~

~~(“COVID-19”),~~

a respiratory disease caused by a new strain of coronavirus, was declared a pandemic by the World Health Organization in March of 2020 and has spread globally. The pandemic continues to cause significant economic turmoil in our country and abroad and affect a wide range of economic activities, as well as domestic and global business and financial markets. We are continuing to closely monitor developments related to the pandemic to assess its impact on our business. There is no assurance that global and domestic economic conditions will not continue to worsen, and we continue to regularly assess the financial impact of the pandemic on our insured portfolios. It remains challenging to comprehensively quantify, or account for the impact of the outbreak on most of the credits within those portfolios, investment portfolios, or general business operations. The extent of such impact will depend on future developments which are highly uncertain, including but not limited to the severity of the pandemic, and the effectiveness of financial and regulatory actions taken at the state and federal levels to contain or address its impact. While governmental and

~~non-governmental~~

~~organizations are engaging in efforts to combat the spread and severity of the~~

~~COVID-19~~

pandemic and related public health issues, the effectiveness of such measures cannot be assured. We also cannot predict how political, legal and regulatory responses to the pandemic, such as the nature of and conditions to aid to states or municipalities, tax policy, or programs designed to assist impacted individuals, will impact our business.

~~Adverse impacts on macroeconomic factors resulting from the spread of~~

~~COVID-19,~~

including without limitation reduced economic activity and certainty, increased unemployment, increased loan defaults or delinquencies, and increased stress on municipal budgets, including due to reduced tax revenues and the ability to raise taxes or limit spending, could materially and adversely affect the performance of our insured portfolio and our business, financial condition and results of operations. Specifically, such adverse effects could impact whether the individual municipal or structured finance credits we insure will be able to continue to meet their debt service obligations or avoid long term impairment, and could therefore result in an increase in defaults and on the amount of claims we will be obligated to pay on the related insurance policies. Such increases could cause us to revise our loss projections or other guidance we have previously provided. In particular, certain insured municipal credits, including those relating to the Commonwealth of Puerto Rico and its instrumentalities, could come under stress depending in part on the nature of the taxes, fees and revenues pledged to debt repayment and their sensitivity to the related slowdown in economic activity. Further, those structured finance policies in which the underlying principal obligations are comprised of residential or commercial mortgages and mortgage-backed securities, could be negatively affected by delays or failures of borrowers to make payments of principal and interest when due, or delays or moratoriums on foreclosures or enforcement actions with respect to delinquent or defaulted mortgages imposed by governmental authorities. These transactions are also subject to servicer risks, which relate to problems with the transaction’s servicer that could adversely impact performance of the underlying assets. Additionally, several of our credits, particularly within our international public finance sector, feature large, near term debt-service payments, and there can be no assurance that the liquidity position of MBIA Insurance Corporation will enable it to satisfy any claims that arise if the issuers of such credits are unable or unwilling to refinance or repay their obligations. Further, any national recession that may result from the pandemic and its aftermath could present additional but yet unknown credit risks to all of our insured portfolios.

~~Item 1A. Risk Factors (continued)~~

Additionally, our liquidity position and our investment portfolios (and, specifically, the valuations of investment assets we hold) have been, and may continue to be, adversely affected as a result of market developments from the

~~COVID-19~~

pandemic and uncertainty regarding its outcome. Changes in interest rates, reduced market liquidity or a continued slowdown in U.S. or global economic conditions may also adversely affect the values and cash flows of these assets or the investment portfolio yield and income. Further, extreme market volatility may impact our ability to efficiently and effectively react to market events. Market dislocations, decreases in observable market activity or unavailability of information, in each case, arising from the spread of

~~COVID-19,~~

may restrict our access to key inputs used to derive certain estimates and assumptions made in connection with estimating the values of financial instruments within our financial reporting or otherwise, including estimates and changes in long term macro-economic assumptions relating to our estimate of current expected credit losses on our financial assets. Restricted access to such inputs may make our financial statement balances and estimates and assumptions used to run our business subject to greater variability and subjectivity.

Further, while we have implemented risk management and business continuity plans and taken preventive measures and other precautions that address the pandemic, there can be no assurance that such measures will prevent a material impact on our business operations. Currently, our employees are working remotely. An extended period of remote work arrangements could strain our business continuity plans, introduce operational risks including but not limited to cybersecurity risk, and impair our ability to manage our business. We also outsource certain business activities to third parties, and thus rely upon the successful implementation and execution of those third parties’ business continuity plans as well. If one or more of the third parties to whom we outsource certain business activities experience operational failures as a result of the impacts from the spread of

~~COVID-19,~~

~~it may have a material adverse effect on our business, financial condition, results of operations, liquidity and cash flows.~~

~~MBIA Corp. Risk Factors~~

Continuing elevated loss payments and delay or failure in realizing expected recoveries on insured transactions may materially and adversely affect MBIA Insurance Corporation’s statutory capital and its ability to meet liquidity needs and could cause the NYSDFS to put MBIA Insurance Corporation into a rehabilitation or liquidation proceeding if the NYSDFS concludes that MBIA Insurance Corporation will not be able to pay expected claims.

MBIA Insurance Corporation is particularly sensitive to the risk that it will not have sufficient capital or liquid resources to meet contractual payment obligations when due or to make settlement payments in order to terminate insured exposures to avoid losses. While management’s expected liquidity and capital forecasts for MBIA Insurance Corporation reflect adequate resources to pay expected claims, there are risks to the capital and liquidity forecasts as MBIA Insurance Corporation’s remaining insured exposures and its expected salvage recoveries are potentially volatile. Such volatility exists in the amount of putback recoverables, excess spread, and other salvage that MBIA Insurance Corporation may collect, including recoveries on the claims it paid in respect of the insured notes issued by Zohar CDO

~~2003-1,~~

~~Limited and Zohar II~~

~~2005-1~~

CDO (collectively, the “Zohar Claims Payments”), and the exposure in its remaining insured portfolio, which could deteriorate and result in significant additional loss reserves and claim payments, including claims on insured exposures that in some cases may require large bullet payments.

In July of 2019, MBIA Insurance Corporation consummated a financing facility (the “Refinanced Facility”) between MZ Funding LLC (“MZ Funding”) and certain purchasers, pursuant to which the purchasers or their affiliates (collectively, the “Senior Lenders”), agreed to refinance the outstanding insured senior notes of MZ Funding, and MBIA Inc. received amended subordinated notes of MZ Funding. In connection with the Refinanced Facility, the Senior Lenders purchased new senior notes issued by MZ Funding with an aggregate principal amount of $278 million. In addition, MBIA Inc. received amended subordinated notes issued by MZ Funding with an aggregate principal amount of $54 million. The Refinanced Facility is described in more detail under the “Liquidity—MBIA Corp. Liquidity” section in Part II, Item 7 of the Company’s Annual Report on Form

~~10-K~~

~~for the year ended December 31, 2019.~~

MBIA Insurance Corporation believes that the primary source of funds for the repayment of its obligations under the Refinanced Facility and for reimbursement for the Zohar Claims Payments will come from the monetization of the loans made to, and equity interests in, companies that, until late March of 2020, were purportedly controlled and managed by the sponsor and former collateral manager of the Zohar CDOs referenced above (collectively, the “Zohar Collateral”). In late March of 2020, the original sponsor resigned as director and manager of all but one portfolio company, and new directors and managers are currently in place at all but two portfolio companies.

~~Item 1A. Risk Factors (continued)~~

While MBIA Insurance Corporation believes that it will receive substantial recoveries on the Zohar Collateral, there is significant uncertainty with respect to its realizable value. Notably, one of the portfolio companies, Dura Automotive Systems, LLC, and certain of its affiliates, filed for bankruptcy protection in the fall of 2019 and the Company no longer projects any recovery on Zohar debtors’ substantial debt and equity interests in the Dura debtors. Further, as the monetization process at the other portfolio companies unfolds in coordination with the new directors and managers in place, and new information concerning the financial condition of the portfolio companies is disclosed, we may revise our expectations for recoveries. For example, at a June 3, 2020 hearing, counsel for one of the portfolio companies announced that the monetization process for that company would be delayed as a consequence of having to investigate issues relating to the integrity of the company’s financial statements. There can be no assurance that the outcome of such an investigation would not lead to a material revision to our expectations for the recovery from that portfolio company.

If the amount of recoveries on the Zohar Collateral is not sufficient to repay amounts due under the Refinanced Facility on or before its maturity date and to reimburse MBIA Insurance Corporation for a substantial portion of the Zohar Claims Payments, MBIA Insurance Corporation would likely incur substantial additional losses, which could materially impair its statutory capital and liquidity. Further, MBIA Insurance Corporation believes that if the NYSDFS concludes at any time that MBIA Insurance Corporation will not be able to satisfy its obligations under the Facility and under its other issued policies, the NYSDFS would likely put MBIA Insurance Corporation into a rehabilitation or liquidation proceeding under Article 74 of the NYIL and/or take such other actions as the NYSDFS may deem necessary to protect the interests of MBIA Insurance Corporation’s policyholders. The determination to commence such a proceeding or take other such actions is within the exclusive control of the NYSDFS. The NYSDFS enjoys broad discretion in this regard, and any determination they may make would not be limited to consideration of the matters described above. As noted, however, given the separation of MBIA Inc. and MBIA Corp. as distinct legal entities, the absence of any cross defaults between the entities, and the lack of reliance by MBIA Inc. on MBIA Corp. for the receipt of dividends, we do not believe that a rehabilitation or liquidation proceeding of MBIA Insurance Corporation by the NYSDFS would have any material economic long-term liquidity impact on MBIA Inc.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On May 5, 2020, the Company’s Board of Directors authorized the purchase or repurchase by the Company or National of up to $100 million of its outstanding shares under a new share repurchase authorization. During the six months ended June 30, 2020, we purchased 17.8 million common shares of MBIA Inc. at an average share price of $7.62.

The table below presents purchases or repurchases made by the Company or National in each month during the ~~second~~first quarter of ~~2020:~~2021:

Total Number

Maximum

Total

Average

of Shares

Amount That May

Number

Price

Purchased as

Be Purchased

of Shares

Paid Per

Part of Publicly

Under the Plan
Month

Purchased
(1)

Share

Announced Plan

(in millions)
April
   4,383,963    $ 7.50    4,383,885    $ 3
May
   1,012,076    7.22    1,006,731    93
June
   4,374,838    7.16    4,374,710    62





   9,770,877    $ 7.32    9,765,326    $ 62


					Total Number		Maximum
	Total		Average		of Shares		Amount That May
	Number		Price		Purchased as		Be Purchased
	of Shares		Paid Per		Part of Publicly		Under the Plan
Month	Purchased (1)		Share		Announced Plan		(in millions)
January		-	$	-		-	$	-
February		2,787		7.08		-		-
March		123,337		7.43		-		-

		126,124	$	7.42		-	$	-

(1) -

782,787 shares in ~~April, 92~~February and 64 shares in ~~May and 128 shares in June~~March were repurchased in open market transactions as investments in the Company’s

non-qualified

deferred compensation ~~plan and 5,253~~plan. 123,273 shares in ~~May~~March were repurchased by the Company in open market transactions for settling awards under the Company’s ~~long-term~~long term incentive plans.

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Table of Contents

Item 6. Exhibits


*31.1.		Chief Executive Officer - Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

*31.2.		Chief Financial Officer - Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

**32.1.		Chief Executive Officer - Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

**32.2.		Chief Financial Officer - Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*101.INS.		XBRL Instance Document – the instance document does not appear in the Interactive Data File because iXBRL tags are embedded within the Inline XBRL document.

*101.SCH.		XBRL Taxonomy Extension Schema Document.

*101.CAL.		XBRL Taxonomy Extension Calculation Linkbase Document.

*101.DEF.		XBRL Taxonomy Extension Definition Linkbase Document.

*101.LAB.		XBRL Taxonomy Extension Label Linkbase Document.

*101.PRE.		XBRL Taxonomy Extension Presentation Linkbase Document.

*104.		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)


*		Filed herewith.

Furnished herewith.

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Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		MBIA Inc. Registrant

Date: ~~August 5, 2020~~May 10, 2021		/s/ Anthony McKiernan
		Anthony McKiernan
		Chief Financial Officer

Date: ~~August 5, 2020~~May 10, 2021		/s/ Joseph R. Schachinger
		Joseph R. Schachinger
		Controller (Chief Accounting Officer)

8773


In millions	Changes in Loss and LAE Reserves for the Three Months Ended March 31, 2021
Gross Loss and LAE Reserves as of December 31, 2020 (1)	Loss Payments	Accretion of Claim Liability Discount	Changes in Discount Rates	Changes in Assumptions	Changes in Unearned Premium Revenue	Other	Gross Loss and LAE Reserves as of March 31, 2021 (1)
$990	$(55)	$3	$(11)	$57	$0	$6	$990


			Changes in Insurance Loss Recoverable
			for the Six Months Ended June 30, 2020
In millions	Gross Reserve as of December 31, 2019		Collections for Cases			Accretion of Recoveries		Changes in Discount Rates		Changes in Assumptions (1)			Gross Reserve as of June 30, 2020
Insurance loss recoverable	$	1,694	$	(25	)	$	9	$	156	$	(291	)	$	1,543


			Changes in Insurance Loss Recoverable
			for the Three Months Ended March 31, 2021
In millions	Gross Reserve as of December 31, 2020		Collections for Cases			Accretion of Recoveries		Changes in Discount Rates			Changes in Assumptions (1)		Other (2)		Gross Reserve as of March 31, 2021

Insurance loss recoverable	$	1,677	$	(14	)	$	3	$	(98	)	$	53	$	1	$	1,622


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

Number of policies		46		16		0		217			279
Number of issues (1)		16		3		0		98			117
Remaining weighted average contract period (in years)		6.3		6.1		-		7.8			7.3
Gross insured contractual payments outstanding: (2)
Principal	$	1,390	$	123	$	0	$	3,251		$	4,764
Interest		1,933		53		0		1,370			3,356

Total	$	3,323	$	176	$	0	$	4,621		$	8,120

Gross Claim Liability (3)	$	0	$	0	$	0	$	1,010		$	1,010
Less:
Gross Potential Recoveries (4)		0		0		0		2,115			2,115
Discount, net (5)		0		0		0		(464	)		(464	)

Net claim liability (recoverable)	$	0	$	0	$	0	$	(641	)	$	(641	)

Unearned premium revenue	$	9	$	0	$	0	$	34		$	43
Reinsurance recoverable on paid and unpaid losses (6)										$	11


	Surveillance Categories
$ in millions	Caution List Low		Caution List Medium		Caution List High		Classified List			Total
Number of policies		54		17		-		223			294
Number of issues (1)		19		4		-		102			125
Remaining weighted average contract period (in years)		6.2		6.8		-		7.5			7.1
Gross insured contractual payments outstanding: (2)
Principal	$	1,628	$	218	$	-	$	3,691		$	5,537
Interest		2,084		91		-		1,533			3,708

Total	$	3,712	$	309	$	-	$	5,224		$	9,245

Gross Claim Liability (3)	$	-	$	-	$	-	$	1,102		$	1,102
Less:
Gross Potential Recoveries (4)		-		-		-		1,718			1,718
Discount, net (5)		-		-		-		(111	)		(111	)

Net claim liability (recoverable)	$	-	$	-	$	-	$	(505	)	$	(505	)

Unearned premium revenue	$	11	$	3	$	-	$	37		$	51
Reinsurance recoverable on paid and unpaid losses (6)										$	13


	June 30, 2020			December 31, 2019
Assets
Investments:
Fixed-maturity securities held as available-for-sale, at fair value (amortized cost $2,278 and $2,705)	$	2,473		$	2,820
Investments carried at fair value		203			209
Investments pledged as collateral, at fair value (amortized cost $6 and $15)		1			10
Short-term investments, at fair value (amortized cost $252 and $423)		252			423

Total investments		2,929			3,462
Cash and cash equivalents		446			75
Premiums receivable (net of allowance for credit losses $4 and $-)		232			249
Deferred acquisition costs		55			60
Insurance loss recoverable		1,543			1,694
Other assets		104			115
Assets of consolidated variable interest entities:
Cash		8			8
Investments held-to-maturity, at amortized cost (net of allowance for credit losses $23 and $-, fair value $574 and $892)		552			890
Investments carried at fair value		76			83
Loans receivable at fair value		116			136
Loan repurchase commitments		524			486
Other assets		28			26

Total assets	$	6,613		$	7,284

Liabilities and Equity
Liabilities:
Unearned premium revenue	$	444		$	482
Loss and loss adjustment expense reserves		1,018			901
Long-term debt		2,289			2,228
Medium-term notes (includes financial instruments carried at fair value of $96 and $108)		668			680
Investment agreements		289			304
Derivative liabilities		233			175
Other liabilities		134			136
Liabilities of consolidated variable interest entities:
Variable interest entity notes (includes financial instruments carried at fair value of $342 and $403)		1,178			1,539

Total liabilities		6,253			6,445

Commitments and contingencies (Refer to Note 13: Commitments and Contingencies)
Equity:
Preferred stock, par value $1 per share; authorized shares—10,000,000; issued and outstanding—0ne		-			-
Common stock, par value $1 per share; authorized shares—400,000,000; issued shares -- 283,433,401 and 283,433,401		283			283
Additional paid-in capital		2,958			2,999
Retained earnings		126			607
Accumulated other comprehensive income (loss), net of tax of $8 and $8		129			(2	)
Treasury stock, at cost—220,924,081 and 204,000,108 shares		(3,149	)		(3,061	)

Total shareholders’ equity of MBIA Inc.		347			826
Preferred stock of subsidiary		13			13

Total equity		360			839

Total liabilities and equity	$	6,613		$	7,284


	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Net income (loss)	$	(106	)	$	(207	)	$	(439	)	$	(228	)
Other comprehensive income (loss):
Available-for-sale securities with no credit losses:
Unrealized gains (losses) arising during the period		40			46			88			125
Provision (benefit) for income taxes		-			(1	)		-			(1	)

Total		40			47			88			126
Reclassification adjustments for (gains) losses included in net income (loss)		(5	)		16			(8	)		(23	)
Available-for-sale securities with credit losses:
Unrealized gains (losses) arising during the period		-			19			-			30
Reclassification adjustments for (gains) losses included in net income (loss)		-			9			-			37
Foreign currency translation:
Foreign currency translation gains (losses)		(1	)		(1	)		(1	)		-
Instrument-specific credit risk of liabilities measured at fair value:
Unrealized gains (losses) arising during the period		3			(2	)		49			-
Reclassification adjustments for (gains) losses included in net income (loss)		1			19			3			23

Total other comprehensive income (loss)		38			107			131			193

Comprehensive income (loss)	$	(68	)	$	(100	)	$	(308	)	$	(35	)


	As of June 30, 2020						As of December 31, 2019
In millions	Balance Sheet Line Item						Balance Sheet Line Item
	Insurance loss recoverable			Loss and LAE reserves (2)			Insurance loss recoverable			Loss and LAE reserves (2)
U.S. Public Finance Insurance	$	950		$	495		$	911		$	432
International and Structured Finance Insurance:
Before VIE eliminations (1)		1,140			782			1,286			749
VIE eliminations (1)		(547	)		(259	)		(503	)		(280	)

Total international and structured finance insurance		593			523			783			469

Total	$	1,543		$	1,018		$	1,694		$	901


In millions		Changes in Loss and LAE Reserves for the Six Months Ended June 30, 2020
Gross Loss and LAE Reserves as of December 31, 2019 (1)		Loss Payments			Accretion of Claim Liability Discount		Changes in Discount Rates			Changes in Assumptions		Changes in Unearned Premium Revenue		Other			Gross Loss and LAE Reserves as of June 30, 2020 (1)
$	901	$	(97	)	$	6	$	(87	)	$	291	$	7	$	(3	)	$	1,018


	Surveillance Categories
$ in millions	Caution List Low		Caution List Medium		Caution List High		Classified List			Total
Number of policies		45		19		-		212			276
Number of issues (1)		13		5		-		94			112
Remaining weighted average contract period (in years)		7.3		7.2		-		7.9			7.7
Gross insured contractual payments outstanding: (2)
Principal	$	1,546	$	248	$	-	$	3,794		$	5,588
Interest		2,107		110		-		1,668			3,885

Total	$	3,653	$	358	$	-	$	5,462		$	9,473

Gross Claim Liability (3)	$	-	$	-	$	-	$	965		$	965
Less:
Gross Potential Recoveries (4)		-		-		-		2,184			2,184
Discount, net (5)		-		-		-		(453	)		(453	)

Net claim liability (recoverable)	$	-	$	-	$	-	$	(766	)	$	(766	)

Unearned premium revenue	$	6	$	3	$	-	$	39		$	48
Reinsurance recoverable on paid and unpaid losses (6)										$	19


	Fair Value Measurements at Reporting Date Using
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable		Balance as of
	Assets		Inputs		Inputs		December 31,
In millions	(Level 1)		(Level 2)		(Level 3)		2019
Assets:
Fixed-maturity investments:
U.S. Treasury and government agency	$	791	$	97	$	-	$	888
State and municipal bonds		-		200		-		200
Foreign governments		-		10		-		10
Corporate obligations		-		1,266		-		1,266
Mortgage-backed securities:
Residential mortgage-backed agency		-		330		-		330
Residential mortgage-backed non-agency		-		19		-		19
Commercial mortgage-backed		-		22		-		22
Asset-backed securities:
Collateralized debt obligations		-		140		-		140
Other asset-backed		-		326		1		327

Total fixed-maturity investments		791		2,410		1		3,202
Money market securities		154		-		-		154
Perpetual debt and equity securities		30		25		-		55
Fixed-income fund		-		-		-		51	(1)
Cash and cash equivalents		75		-		-		75
Derivative assets:
Non-insured derivative assets:
Interest rate derivatives		-		1		-		1


In millions	Balance, Beginning of Year		Total Gains / (Losses) Included in Earnings			Unrealized Gains / (Losses) Included in OCI (1)		Purchases		Issuances		Settlements			Sales		Transfers into Level 3		Transfers out of Level 3		Ending Balance		Change in Unrealized Gains (Losses) for the Period Included in Earnings for Assets still held as of June 30, 2020			Change in Unrealized Gains (Losses) for the Period Included in OCI for Assets still held as of June 30, 2020 (1)
Assets:
Other asset-backed	$	1	$	-		$	-	$	-	$	-	$	-		$	-	$	-	$	-	$	1	$	-		$	-
Assets of consolidated VIEs:
Loans receivable- residential		136		(13	)		-		-		-		(7	)		-		-		-		116		(14	)		-
Loan repurchase commitments		486		38			-		-		-		-			-		-		-		524		38			-
Currency derivatives		8		6			-		-		-		-			-		-		-		14		6			-
Other		18		(4	)		-		-		-		-			-		-		-		14		(4	)		-

Total assets	$	649	$	27		$	-	$	-	$	-	$	(7	)	$	-	$	-	$	-	$	669	$	26		$	-


	Three Months Ended June 30, 2020				Three Months Ended June 30, 2019
			Change in					Change in
			Unrealized					Unrealized
			Gains (Losses)					Gains (Losses)
			for the					for the
			Period Included					Period Included
			in Earnings					in Earnings
			for Assets					for Assets
			and					and
	Total Gains		Liabilities still		Total Gains			Liabilities still
	(Losses)		held as of		(Losses)			held as of
	Included		June 30,		Included			June 30,
In millions	in Earnings		2020		in Earnings			2019
Revenues:
Realized gains (losses) and other settlements on insured derivatives	$	-	$	-	$	(1	)	$	-
Net gains (losses) on financial instruments at fair value and foreign exchange		1		1		(6	)		(7	)
Net investment losses related to other-than-temporary impairments		-		-		(1	)		-
Revenues of consolidated VIEs:
Net gains (losses) on financial instruments at fair value and foreign exchange		19		18		(3	)		(6	)

Total	$	20	$	19	$	(11	)	$	(13	)


	Six Months Ended June 30, 2020						Six Months Ended June 30, 2019
				Change in						Change in
				Unrealized						Unrealized
				Gains (Losses)						Gains (Losses)
				for the						for the
				Period Included						Period Included
				in Earnings						in Earnings
				for Assets						for Assets
				and						and
	Total Gains			Liabilities still			Total Gains			Liabilities still
	(Losses)			held as of			(Losses)			held as of
	Included			June 30,			Included			June 30,
In millions	in Earnings			2020			in Earnings			2019
Revenues:
Unrealized gains (losses) on insured derivatives	$	(1	)	$	(1	)	$	14		$	14
Realized gains (losses) and other settlements on insured derivatives		-			-			(1	)		-
Net gains (losses) on financial instruments at fair value and foreign exchange		(4	)		(4	)		(14	)		(13	)
Net investment losses related to other-than-temporary impairments		-			-			(1	)		-
Other net realized gains (losses)		-			-			(1	)		(1	)
Revenues of consolidated VIEs:
Net gains (losses) on financial instruments at fair value and foreign exchange		36			38			(2	)		-

Total	$	31		$	33		$	(5	)	$	-



	AFS Securities				HTM Securities
					Consolidated VIEs
In millions	Net Amortized Cost		Fair Value		Net Amortized Cost		Fair Value
Due in one year or less	$	377	$	378	$	-	$	-
Due after one year through five years		477		498		-		-
Due after five years through ten years		304		334		-		-
Due after ten years		714		857		552		574
Mortgage-backed and asset-backed		586		585		-		-

Total fixed-maturity investments	$	2,458	$	2,652	$	552	$	574


In millions	Fair Value		Unrealized Loss		Insurance Loss Reserve (1)
MBS	$	9		(6)		21
Corporate obligations		6		-		-
Total	$	15	$	(6)	$	21