MBIA Inc. was incorporated as a business corporation under
the laws of the state of Connecticut in 1986. The Company is engaged in providing
financial guarantee insurance, investment management services and municipal
and other services to public finance and structured finance clients on a global
basis. Financial guarantee insurance provides an unconditional and irrevocable
guarantee of the payment of the principal of, and interest or other amounts
owing on, insured obligations when due. The Company conducts its financial guarantee
business through its wholly-owned subsidiary, MBIA Insurance Corporation ('MBIA
Corp.'). MBIA Corp. is the successor to the business of the Municipal Bond Insurance
Association (the 'Association') which began writing financial guarantees for
municipal bonds in 1974. MBIA Corp. is the parent of MBIA Insurance Corp. of
Illinois ('MBIA Illinois') and Capital Markets Assurance Corporation ('CapMAC'),
both financial guarantee companies that were acquired by MBIA Corp. MBIA Corp.
also owns MBIA Assurance S.A. ('MBIA Assurance), a French insurance company,
which writes financial guarantee insurance in the member countries of the European
Union. Generally, throughout the text, references to MBIA Corp. include the
activities of its subsidiaries, MBIA Illinois, MBIA Assurance and CapMAC.
MBIA Corp. primarily insures financial obligations which are sold in the new
issue and secondary markets. It also provides financial guarantees for debt
service reserve funds. As a result of the Triple-A ratings assigned to insured
obligations, the principal economic value of financial guarantee insurance is
the lower interest cost of an insured obligation relative to the same obligation
on an uninsured basis. In addition, for complex financings and for obligations
of issuers that are not well-known by investors, insured obligations receive
greater market acceptance than uninsured obligations.
MBIA Corp. issues financial guarantees for municipal bonds, asset-backed and
mortgage-backed securities, investor-owned utility bonds, bonds backed by publicly
or privately funded public purpose projects, bonds issued by sovereign and sub-sovereign
entities and obligations collateralized by diverse pools of corporate loans
and credit default swaps, and also pools of corporate and asset-backed bonds,
both in the new issue and secondary markets. The municipal obligations that
MBIA Corp. insures include tax-exempt and taxable indebtedness of states, counties,
cities, utility districts and other political subdivisions, as well as airports,
higher education and health care facilities and similar authorities and obligations
issued by private entities that finance projects that serve a substantial public
purpose. The asset-backed and structured finance obligations insured by MBIA
Corp. typically consist of securities that are payable from or which are tied
to the performance of a specified pool of assets that in most cases have a defined
cash flow, such as residential and commercial mortgages, a variety of consumer
loans, corporate loans and bonds, trade and export receivables, equipment and
real property leases, and infrastructure projects.
MBIA Corp. also insures privately issued bonds used for the financing of public
purpose projects which are primarily located overseas and include toll roads,
bridges, airports, public transportation facilities and other types of infrastructure
projects that serve a substantial public purpose. While in the United States
projects of this nature are financed through the issuance of tax-exempt bonds
by special purpose, government sponsored tax-exempt entities, the general absence
of tax-advantaged financing, among other reasons, has led to the transfer of
the operation of many such public purpose projects to the private sector. Generally,
the private entities operate under a concession agreement with the sponsoring
government agency, which maintains a level of regulatory oversight and control
over the project.
The worldwide insurance operations of MBIA Corp. are conducted through the
Global Public Finance Division, the Global Structured Finance Division, the
Risk Management Division and the Insured Portfolio Management Division. Public
Finance and Structured Finance operations outside of the United States are conducted
in coordination with the International Division.
The Global Public Finance Division has underwriting authority with respect
to certain categories of business up to pre-determined par amounts based on
a risk-ranking system. In order to ensure that the guidelines are followed,
Risk Management monitors and periodically reviews underwriting decisions made
by the Global Public Finance Division and also participates in many transactions
depending on the risk ranking. With respect to larger, complex, or unique transactions,
underwriting is performed by a division-level committee consisting of senior
representatives of Global Public Finance, the Risk Management Division, the
Insured Portfolio Management Division, the Company's Finance Division and the
Legal Division. Select public finance transactions may alternatively be approved
at MBIA Corp.'s most senior level, the Executive Risk Committee ('ERC'), which
consists of the Chief Executive Officer, the Chief Operating Officer, the Chief
Risk Officer, the Chief Financial Officer and the heads of the Public Finance,
Structured Finance and International new business divisions and the Insured
Portfolio Management Division and the head credit officer in Public and Structured
Finance.
For all transactions done by the Global Structured Finance Division, MBIA Corp.'s
review and approval procedure has two stages. The first stage consists of screening,
credit review and structuring by the appropriate business unit, in consultation
with Risk Management officers. The second stage, consisting of the final review
and approval of credit and structure, is performed by an underwriting committee
consisting of the head of the applicable business unit, one officer from Risk
Management and a third officer from either the Risk Management Division or the
Insured Portfolio Management Division. Certain transactions, based on size,
complexity, or other factors, must also be approved by a division-level committee
consisting of senior representatives drawn from Global Structured Finance, the
Risk Management Division, the Insured Portfolio Management Division, the Legal
Division and the Company's Finance Division. As in Public Finance, select structured
finance transactions are approved by the Executive Risk Committee.
Premium rates for the both the Global Public and Global Structured Finance
Divisions are established by a Pricing Committee with representation from the
relevant business unit and from the Business Analysis Group, which provides
pricing and other analysis.
Competition
The financial guarantee insurance business is highly competitive. Several other
monoline insurance companies compete directly against MBIA Corp. in writing
financial guarantee insurance, all of which, like MBIA Corp., have Triple-A
financial strength ratings from Moody's and S&P. In addition there are several
other monoline insurance companies which compete with MBIA Corp. in writing
financial guarantee insurance as a primary which have lower ratings. MBIA Corp.
also competes with composite (multi-line) insurers.
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