# MBIA INC (MBI) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from MBIA INC's 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/814585/000095017024022129/mbi-20231231.htm
Accession: 0000950170-24-022129
Filing date: 2024-02-28
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/MBI/
All MD&A years: /company/MBI/mda/
Previous year: /company/MBI/mda/fy2022/ (FY 2022)
Next year: /company/MBI/mda/fy2024/ (FY 2024)

Item 7. 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 the other sections of this Form 10-K. 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 I, Item 1A of this Form 10-K for a further discussion of risks and uncertainties.

This section of this Form 10-K generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022 results. Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 results not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

OVERVIEW

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 subsidiaries (“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 surplus note holders, and then its preferred stock holders. MBIA Corp. is executing this strategy by, among other things, 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 new financial guarantee policies outside of remediation related activities. The Company announced in May of 2023 that it had suspended its process of exploring strategic alternatives in light of prevailing market conditions and feedback arising from that process. However, the Company continued to pursue additional measures, such as payments of extraordinary cash dividends on MBIA’s common stock, to enhance shareholder value. Refer to the Business Development section below for a discussion on the extraordinary dividend paid in 2023.

Economic Environment

U.S. economic activity indicators point to modest growth in spending and production, with robust job gains and a low unemployment rate. Inflation remains elevated. With the Federal Open Market Committee (“FOMC”) seeking to achieve maximum employment and 2% inflation, the FOMC has maintained its target range for the federal funds rate at 5.25% to 5.50%. Economic and financial market trends could impact the Company’s financial results. Economic improvement at the state and local level strengthens the credit quality of the issuers of our insured municipal bonds, improves the performance of our insured U.S. public finance portfolio and could reduce the amount of National’s potential incurred losses. Higher interest rates could adversely affect the values of our Company’s investment portfolio, but increase investment portfolio yield and income, and decrease the present value of loss reserves.

2023 Business Developments

The following is a summary of 2023 business developments:

Puerto Rico

•
During 2023, the Puerto Rico Electric Power Authority (“PREPA”) defaulted on scheduled debt service for National insured bonds and National paid gross claims in the aggregate of $137 million. As of December 31, 2023, National had $808 million of debt service outstanding related to PREPA. On January 1, 2024, PREPA defaulted on scheduled debt service for National insured bonds and National paid gross claims in the aggregate of $16 million.

26

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

OVERVIEW (continued)

•
On January 31, 2023, National entered into a restructuring support agreement ("PREPA RSA”) with the Financial Oversight and Management Board for Puerto Rico (the “Oversight Board”), on behalf of itself and as the sole Title III representative of PREPA. An amended plan of adjustment for PREPA and related disclosure statement was filed on February 9, 2023. On August 25, 2023, National entered into the First Amendment to the PREPA Plan Support Agreement (the “Amended PSA”) with the Oversight Board, on behalf of itself and as the sole Title III representative of PREPA. By order dated November 17, 2023, the Court approved the Disclosure Statement for the Third Amended Plan incorporating, among other things, the terms of the Amended PSA. On December 29, 2023, the Oversight Board filed the Corrected Fourth Amended Title III Plan (the "Amended Plan"). The Amended PSA provides that, upon effective date of the Amended Plan, National shall receive cash, together with certain fees and expense reimbursement payments, in an amount based in part on the ultimate participation, if any, of certain currently non-accepting holders of uninsured PREPA bonds. The Amended PSA also provides National with additional consideration in the form of two types of contingent values instruments, whose value cannot be assured. The Amended PSA remains subject to a number of conditions, including (but not limited to) the Title III Court’s confirmation and effectiveness of the Amended Plan, as it may be further amended with the Court’s approval. Confirmation is currently scheduled to begin March 4, 2024. There is no assurance the Amended Plan will ultimately be confirmed and become effective. In the event of a substantially different confirmed plan of adjustment from the Amended PSA, National’s PREPA loss reserves and recoveries could be materially adversely affected.

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

Dividends

In November of 2023, National declared and paid an as-of-right dividend of $97 million to its ultimate parent, MBIA Inc. In addition, on December 7, 2023, National paid a $550 million special dividend that was approved by the New York State Department of Financial Services (“NYSDFS”) to its ultimate parent, MBIA Inc. Also on December 7, 2023, the Company's Board of Directors declared an extraordinary cash dividend on MBIA’s common stock of $8.00 per share. The dividend was paid on December 22, 2023 to shareholders of record as of the close of business on December 18, 2023. Due to the absence of retained earnings for MBIA Inc., the Company accounted for the dividend as a return of capital that was paid from additional paid-in capital on the Company's consolidated balance sheet. In addition, due to the absence of positive current and accumulated earnings and profits of MBIA Inc. as of December 31, 2023, we expect that the dividend will be treated by investors as a tax-free return of investment up to an investor’s adjusted cost basis in its shares. A portion of the dividends from National are being retained by MBIA Inc. and are intended to be used for general corporate purposes including, but not limited to, future operating expenses and debt service obligations.

Zohar CDOs

Pursuant to a plan of liquidation that became effective in August of 2022, MBIA Corp.'s interest in the remaining collateral of the Zohar collateralized debt obligation (“CDO”) 2003-1, Limited (“Zohar I”) and Zohar II 2005-1, Limited (“Zohar II”) (collectively, the "Zohar CDOs") was distributed to MBIA Corp. either directly or in the form of interests in certain asset recovery entities. Refer to “Note 1: Business Developments and Risks and Uncertainties” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K for a further discussion of the Zohar CDOs.

27

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS

Summary of Consolidated Results

The following table presents a summary of our consolidated financial results for the years ended December 31, 2023, 2022 and 2021:

[[GREPCENT_TABLE]]
[["","","","","Years Ended December 31,"],["In millions except for per share, percentage and share amounts","","","2023","","","2022","","","2021"],["Total revenues","","","$","7","","","$","154","","","$","189"],["Total expenses","","","","491","","","","302","","","","634"],["Income (loss) from continuing operations before income taxes","","","","(484",")","","","(148",")","","","(445",")"],["Provision (benefit) for income taxes","","","","-","","","","1","","","","-"],["Net income (loss) from continuing operations","","","","(484",")","","","(149",")","","","(445",")"],["Income (loss) from discontinued operations, net of income taxes","","","","(3",")","","","(54",")","","","-"],["Net income (loss)","","","","(487",")","","","(203",")","","","(445",")"],["Less: Net income (loss) from discontinued operations attributable to noncontrolling interests","","","","4","","","","(8",")","","","-"],["Net income (loss) attributable to MBIA Inc.","","","$","(491",")","","$","(195",")","","","(445",")"],["Net income (loss) per basic and diluted common share attributable to MBIA Inc.","","","$","(10.18",")","","$","(3.92",")","","$","(8.99",")"],["Adjusted net income (loss) (1)","","","$","(169",")","","$","(145",")","","$","(261",")"],["Adjusted net income (loss) per diluted share (1)","","","$","(3.49",")","","$","(2.90",")","","$","(5.27",")"],["Weighted average basic and diluted common shares outstanding","","","","48,207,574","","","","49,803,739","","","","49,472,281"],["___________________"],["(1) - Adjusted net income (loss) and adjusted net income (loss) per diluted share are non-GAAP measures. Refer to the following Non-GAAP Adjusted Net Income (Loss) 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."]]
[[/GREPCENT_TABLE]]

2023 vs. 2022 GAAP Results

Income (loss) from Continuing Operations Before Income Taxes

The decrease in consolidated total revenues was principally due to unfavorable changes in fair value gains on interest rate swaps, revenues from variable interest entities (“VIEs”), net realized investment losses and foreign exchange rates. These unfavorable changes were partially offset by a decrease in losses from fair valuing investments and an increase in net investment income. Fair value gains on our interest rate swaps for 2023 were $14 million compared with gains of $89 million for 2022. The decrease was primarily due to the impact of a larger increase in interest rates in 2022. Consolidated VIE revenue for 2023 was a loss of $70 million compared with a gain of $5 million for 2022. Consolidated VIE revenue for 2023 was primarily driven by the reclassification of credit risk losses from accumulated other comprehensive income ("AOCI") to net income (loss) in 2023. Consolidated VIE revenues for 2022 included a gain from a litigation settlement by a litigation trust that we consolidate as a VIE, partially offset by the reclassification of net credit risk losses from AOCI to net income (loss). These reclassifications were due to early redemptions of VIE liabilities carried at fair value and the deconsolidation of VIEs. Net realized investment losses from sales of investments for 2023 were $76 million compared with $41 million for 2022. Foreign exchange losses for 2023 on euro-denominated liabilities was $6 million compared with gains of $16 million for 2022. This unfavorable change in foreign exchange was due to weakening and strengthening of the U.S. dollar against the euro in 2023 and 2022, respectively. 2023 included $6 million of gains from fair valuing investments compared with $51 million of losses from fair valuing investments for 2022. The losses from fair valuing investments for 2022 were primarily driven by increases in interest rates, widening of credit spreads and mark-to-market changes on Puerto Rico contingent value instruments (“CVI”). Net investment income increased $21 million for 2023 compared with 2022 primarily due to the higher interest rate environment in 2023.

28

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

Consolidated total expenses for 2023 and 2022 included net insurance losses and loss adjustment expense ("LAE") of $177 million and $38 million, respectively. The increase in losses and LAE was primarily due to incurred losses and LAE in 2023 compared with an incurred loss and LAE benefit in 2022 on our insured first-lien residential mortgage-backed securities ("RMBS") exposure. These changes were primarily related to the impact of changes in risk-free interest rates on the present value of loss reserves. In addition, there was a net increase in net losses and LAE on Puerto Rico related credits in 2023 compared with 2022. Refer to the following “Loss and Loss Adjustment Expenses” sections of the U.S. Public Finance Insurance and International and Structured Finance Insurance segments for additional information on our losses and LAE. Interest expense and non-VIE operating expense increased $31 million and $19 million, respectively, for 2023 compared with 2022. The increase in interest expense was primarily due to an increase in the interest rate on MBIA Corp.'s surplus notes. Refer to the following “Interest Expense” section of the International and Structured Finance Insurance segment for additional information MBIA Corp.'s surplus note interest. The increase in operating expense was primarily due to an increase in compensation expense primarily related to the Company’s non-qualified deferred compensation plan.

Provision for Income Taxes

For 2023 and 2022, our effective tax rate applied to our loss before income taxes was below the U.S. statutory tax rate of 21% due to the full valuation allowance on the changes in our net deferred tax asset, which included our net operating loss (“NOL”).

As of December 31, 2023 and 2022, the Company’s valuation allowance against its net deferred tax asset was $1.2 billion. 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. 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 11: Income Taxes” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K 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.

Income (loss) from discontinued operations, net of income taxes

The Company classifies certain portfolio companies that the Company acquired from the Zohar CDOs bankruptcy distribution as discontinued operations. Refer to “Note 1: Business Developments and Risks and Uncertainties” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K for a further discussion of our discontinued operations.

29

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

Non-GAAP Adjusted Net Income (Loss)

In addition to our results prepared in accordance with accounting principles generally accepted in the United States of America (“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. and its discontinued operations net of noncontrolling interest and income taxes, which given MBIA Corp.’s capital structure and business prospects, we do not expect its financial performance to have a material economic impact on MBIA Inc., as well as adjusting the following:

•
Mark-to-market gains (losses) on financial instruments – We remove the impact of mark-to-market gains (losses) on financial instruments such as interest rate swaps, investment securities 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 realized investment gains (losses), impaired securities and extinguishment of debt – We remove realized gains (losses) on the sale of investments, 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 –We apply a zero effective tax rate for federal income tax purposes to our pre-tax adjustments, if applicable, consistent with our consolidated effective tax rate.

30

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

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 years ended December 31, 2023, 2022 and 2021:

[[GREPCENT_TABLE]]
[["","","","","","","Year Ended December 31,"],["In millions except share and per share amounts","","","2023","","","2022","","","2021"],["Net income (loss)","","","$","(491",")","","$","(195",")","","$","(445",")"],["Less: adjusted net income (loss) adjustments:"],["","Income (loss) from discontinued operations, net of noncontrolling interest","","","","(7",")","","","(46",")","","","-"],["","Income (loss) before income taxes of our international and structured finance insurance segment and eliminations","","","","(249",")","","","(20",")","","","(283",")"],["","Adjustments to income before income taxes of our U.S. public finance insurance and corporate segments:"],["","Mark-to-market gains (losses) on financial instruments (1)","","","","19","","","","58","","","","39"],["","Foreign exchange gains (losses) (1)","","","","(6",")","","","15","","","","25"],["","Net realized investment gains (losses)","","","","(72",")","","","(40",")","","","5"],["","Net gains (losses) on extinguishment of debt","","","","1","","","","5","","","","30"],["","Net investment losses related to impairments of securities (2)","","","","(8",")","","","(21",")","","","-"],["Adjusted net income adjustment to the (provision) benefit for income tax","","","","-","","","","(1",")","","","-"],["Adjusted net income (loss)","","","$","(169",")","","$","(145",")","","$","(261",")"],["Adjusted net income (loss) per diluted common share (3)","","","$","(3.49",")","","$","(2.90",")","","$","(5.27",")"],["___________________"],["(1) - Reported within \u201cNet gains (losses) on financial instruments at fair value and foreign exchange\u201d on the Company\u2019s consolidated statements of operations."],["(2) - Reported within \u201cOther net realized gains (losses)\u201d on the Company\u2019s 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."]]
[[/GREPCENT_TABLE]]

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., its discontinued operations, 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., including its discontinued operations 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.

•
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.

31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

•
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 and a zero consolidated effective tax rate, the book value per share adjustments reflect 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:

[[GREPCENT_TABLE]]
[["","","","","","As of December 31,","","","As of December 31,"],["In millions except share and per share amounts","","2023","","","2022"],["Total shareholders' equity of MBIA Inc.","","$","(1,657",")","","$","(882",")"],["Common shares outstanding","","","50,862,931","","","","54,852,671"],["GAAP book value per share","","$","(32.56",")","","$","(16.07",")"],["Management's adjustments described above:"],["","","Remove negative book value per share of MBIA Corp.","","","(44.91",")","","","(37.76",")"],["","","Remove net unrealized gains (losses) on available-for-sale securities included in other comprehensive income (loss)","","","(2.40",")","","","(3.96",")"],["","","Include net unearned premium revenue in excess of expected losses","","","2.91","","","","3.08"]]
[[/GREPCENT_TABLE]]

U.S. Public Finance Insurance Segment

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, 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 December 31, 2023, National had total insured gross par outstanding of $28.4 billion.

National continues to monitor and remediate its existing insured portfolio and has pursued and may continue to pursue other transactions that could enhance shareholder value, including receiving NYSDFS approval of a $550 million special dividend that was paid to its ultimate parent, MBIA Inc., in 2023. Regarding its insured portfolio, some state and local governments and territory obligors that National insures are experiencing financial and budgetary stress which could lead to an increase in defaults by such entities on the payment of their obligations and, while such stress has not yet occurred materially, losses or impairments on a greater number of the Company’s insured transactions. In particular, PREPA had been experiencing significant fiscal stress and constrained liquidity. Refer to the “U.S. Public Finance Insurance Puerto Rico Exposures” section for additional information on our PREPA 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.

32

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

The following table presents our U.S. public finance insurance segment results for the years ended December 31, 2023, 2022 and 2021:

[[GREPCENT_TABLE]]
[["","","","","Years Ended December 31,","","","Percent Change"],["In millions","","2023","","","2022","","","2021","","","2023 vs. 2022","","","2022 vs. 2021"],["Net premiums earned","","$","30","","","$","47","","","$","49","","","","-36","%","","","-4","%"],["Net investment income","","","93","","","","81","","","","58","","","","15","%","","","40","%"],["Net realized investment gains (losses)","","","(39",")","","","(30",")","","","2","","","","30","%","","n/m"],["Net gains (losses) on financial instruments at fair value and foreign exchange","","","8","","","","(47",")","","","(2",")","","","-117","%","","n/m"],["Fees and reimbursements","","","2","","","","3","","","","3","","","","-33","%","","","-","%"],["Other net realized gains (losses)","","","(8",")","","","(19",")","","","-","","","","-58","%","","n/m"],["","","Total revenues","","","86","","","","35","","","","110","","","","146","%","","","-68","%"],["Losses and loss adjustment","","","170","","","","143","","","","227","","","","19","%","","","-37","%"],["Amortization of deferred acquisition costs","","","7","","","","11","","","","11","","","","-36","%","","","-","%"],["Operating","","","40","","","","41","","","","51","","","","-2","%","","","-20","%"],["","","Total expenses","","","217","","","","195","","","","289","","","","11","%","","","-33","%"],["Income (loss) from continuing operations before income taxes","","$","(131",")","","$","(160",")","","$","(179",")","","","-18","%","","","-11","%"],["_______________"],["n/m - Percent change not meaningful."]]
[[/GREPCENT_TABLE]]

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. 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. Refunding activity can vary significantly from period to period based on issuer refinancing behavior. For 2023 and 2022, scheduled premiums earned were $28 million and $32 million, respectively, and refunded premiums earned were $2 million and $15 million, respectively.

NET INVESTMENT INCOME The increase in net investment income for 2023 compared with 2022 was primarily due to higher yields on investments as a result of investing in a rising interest rate environment.

NET REALIZED INVESTMENT GAINS (LOSSES) The net realized investment losses for 2023 and 2022 related to sales of securities from the ongoing management of our U.S. public finance investment portfolio, including to generate liquidity to pay dividends and claims.

NET GAINS (LOSSES) ON FINANCIAL INSTRUMENTS AT FAIR VALUE AND FOREIGN EXCHANGE For 2022, net losses on financial instruments at fair value and foreign exchange were driven by fair value losses on investments for which the fair value option was elected and investments designated as trading. The losses on the fair value option investments were driven by increases in interest rates and widening of credit spreads during 2022. The losses on the trading investments were driven by mark-to-market changes on the Puerto Rico Puerto Rico Commonwealth GO (“GO”) and Puerto Rico Highway and Transportation Authority (“HTA”) CVI.

OTHER NET REALIZED GAINS (LOSSES) For 2023 and 2022, other net realized losses were primarily related to impairments of certain investments that were in an unrealized loss position and which we intended to sell before their values recovered to their amortized cost basis.

33

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

LOSSES 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. Refer to “Note 6: Loss and Loss Adjustment Expense Reserves” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K for additional information related to the Company’s loss reserves.

For 2023, losses and LAE incurred related to updating PREPA scenarios to reflect the Amended PSA and extending the effective date of a settlement into 2024.

For 2022, losses and LAE incurred primarily related to changes in our estimated recoveries on National’s PREPA exposure, partially offset by benefits related to Puerto Rico HTA and GO recoveries. National’s expected recoveries on PREPA reflected assumptions based on the PREPA PSA agreed to in January of 2023. In addition, an increase in risk-free rates during 2022 contributed to the decrease in our estimated present value of expected PREPA recoveries. This was partially offset by loss incurred benefits on our HTA and GO recoveries to reflect the fair values of the consideration received as of the acquisition dates, which were higher than our previous estimates.

The following table presents information about our U.S. public finance insurance loss recoverable asset and loss and LAE reserves liabilities as of December 31, 2023 and 2022:

[[GREPCENT_TABLE]]
[["","","","December 31,","","","December 31,","","","Percent"],["In millions","","2023","","","2022","","","Change"],["Assets:"],["","Insurance loss recoverable","","$","152","","","$","107","","","","42","%"],["","Reinsurance recoverable on paid and unpaid losses (1)","","","11","","","","6","","","","83","%"],["Liabilities:"],["","Loss and LAE reserves","","","230","","","","154","","","","49","%"],["","Insurance loss recoverable - ceded (2)","","","1","","","","1","","","","-","%"],["","Net reserve (salvage)","","$","68","","","$","42","","","","62","%"],["","_______________"],["","(1) - Reported within \"Other assets\" on our consolidated balance sheets."],["","(2) - Reported within \"Other liabilities\" on our consolidated balance sheets."]]
[[/GREPCENT_TABLE]]

The insurance loss recoverable as of December 31, 2023 increased compared with December 31, 2022, primarily due to anticipated recoveries on the 2023 PREPA debt service payments, as well as a change in scenarios to reflect the PREPA Amended PSA. The loss and LAE reserve as of December 31, 2023 increased compared with December 31, 2022, primarily related to updating PREPA scenarios to reflect the Amended PSA and extending the effective date of a settlement into 2024.

34

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

POLICY ACQUISITION COSTS AND OPERATING EXPENSES U.S. public finance insurance segment expenses for the years ended December 31, 2023, 2022 and 2021 are presented in the following table:

[[GREPCENT_TABLE]]
[["","","","","Years Ended December 31,","","Percent Change"],["In millions","","","","2023","","","","2022","","","","2021","","2023 vs. 2022","","2022 vs. 2021"],["Gross expenses","","","$","40","","","$","41","","","$","51","","-2","%","","-20","%"],["Amortization of deferred acquisition costs","","","$","7","","","$","11","","","$","11","","-36","%","","-","%"],["Operating","","","","40","","","","41","","","","51","","-2","%","","-20","%"],["Total insurance operating expenses","","","$","47","","","$","52","","","$","62","","-10","%","","-16","%"]]
[[/GREPCENT_TABLE]]

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

When an insured obligation refunds, we accelerate to expense 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 2023 or 2022 as we did not write any new insurance business in those years.

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.

The following table presents the credit quality distribution of National’s U.S. public finance outstanding gross par insured as of December 31, 2023 and 2022. Capital appreciation bonds 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.

[[GREPCENT_TABLE]]
[["","","","Gross Par Outstanding"],["In millions","","December 31, 2023","","","December 31, 2022"],["Rating","","Amount","","","%","","","Amount","","","%"],["AAA","","$","1,283","","","","4.5","%","","$","1,433","","","","4.5","%"],["AA","","","11,919","","","","42.0","%","","","13,448","","","","42.5","%"],["A","","","10,539","","","","37.1","%","","","9,672","","","","30.5","%"],["BBB","","","2,394","","","","8.5","%","","","5,055","","","","16.0","%"],["Below investment grade","","","2,242","","","","7.9","%","","","2,044","","","","6.5","%"],["","Total","","$","28,377","","","","100.0","%","","$","31,652","","","","100.0","%"]]
[[/GREPCENT_TABLE]]

U.S. Public Finance Insurance Puerto Rico Exposures

On May 3, 2017, the Oversight Board certified and filed a petition under Title III of the Puerto Rico Oversight, Management, and Economic Stability Act for Puerto Rico with the District Court of Puerto Rico thereby commencing a bankruptcy-like case for GO. Under separate petitions, the Oversight Board subsequently commenced Title III proceedings for the Puerto Rico Sales Tax Financing Corporation (“COFINA”), HTA, PREPA and the Public Buildings Authority (“PBA”) on May 5, 2017, May 21, 2017, July 2, 2017 and September 27, 2019, respectively. On February 4, 2019, the District of Puerto Rico entered the order confirming the Third Amended Title III Plan of Adjustment for COFINA. The Title III cases for GO and PBA were confirmed on January 18, 2022, and became effective on March 15, 2022. The confirmation hearing for the HTA Title III case was completed on August 17, 2022, and the confirmation order was entered on October 12, 2022, which became effective on December 6, 2022.

35

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

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 $3.0 billion relating to GO bonds, PBA bonds, PREPA bonds and HTA bonds through December 31, 2023, inclusive of the commutation payment and the additional payment in the amount of $66 million in 2019 related to COFINA and the GO and HTA acceleration and commutation payments of $277 million and $556 million, respectively, in 2022.

Status of Puerto Rico’s Fiscal Plans

The Oversight Board certified fiscal plans for PREPA, University of Puerto Rico (the “University”) and HTA on June 28, 2022, May 27, 2022 and October 14, 2022, respectively. The Oversight Board also certified the fiscal year 2023 budgets for Commonwealth, PREPA, the University and HTA on June 30, 2022. On June 23, 2023, the Oversight Board filed a fiscal plan for PREPA for FY2023, which provided for approximately $2.4 billion of distributions to PREPA bondholders. 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, which has been extended to May 31, 2024. National is not a party to the standstill agreement. As of December 31, 2023, National had $73 million of debt service outstanding related to the University.

PREPA

National’s largest remaining exposure to Puerto Rico, by gross par outstanding, is to PREPA.

On January 31, 2023, National entered into the PREPA RSA with the Oversight Board, on behalf of itself and as the sole Title III representative of PREPA. On February 9, 2023, the Oversight Board filed an amendment to the Plan of Adjustment originally filed with the Title III court on December 16, 2022, that reflects the entry into the PREPA PSA and the settlement described therein. On June 26, 2023, the Court entered an order reducing Bondholder allowed net unsecured claims to $2.4 billion from approximately $7.6 billion. On August 25, 2023, National entered into the Amended PSA with the Oversight Board, on behalf of itself and as the sole Title III representative of PREPA. By order dated November 17, 2023, the Court approved the Disclosure Statement for the Third Amended Title III Plan (as such plan may be further amended) incorporating, among other things, the terms of the Amended PSA. On December 29, 2023, the Oversight Board filed the Amended Plan. The Amended PSA provides that, upon the effective date of the Amended Plan, National shall receive cash, together with certain fees and expense reimbursement payments, in an amount based in part on the ultimate participation, if any, of certain currently non-accepting holders of uninsured PREPA bonds. The Amended PSA also provides National with additional consideration in the form of two types of contingent values instruments, whose value cannot be assured. The Amended PSA remains subject to a number of conditions, including (but not limited to) the Title III Court’s confirmation and effectiveness of the Amended Plan, as it may be further amended with the Court’s approval. Confirmation is currently scheduled to begin March 4, 2024.

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. LUMA assumed responsibility for operations on June 1, 2021.

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. LUMA is now involved in the planning of the related projects as well as proceedings related thereto in front the PR Energy Bureau as well as PR-COR3.

36

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

On January 25, 2023, the Oversight Board and Puerto Rico P3 Authority announced an agreement and contract with Genera PR LLC (“Genera”) which calls for Genera to take full responsibility of the operation and maintenance of the existing power generation assets owned by PREPA; the contract will run for 10-years following a transition period. PREPA retains ownership of the assets.

The following table presents our scheduled gross debt service due on our PREPA insured exposures as of December 31, 2023, for each of the subsequent five years ending December 31, and thereafter:

[[GREPCENT_TABLE]]
[["In millions","","2024","","","2025","","","2026","","","2027","","","2028","","","Thereafter","","","Total"],["Puerto Rico Electric Power Authority (PREPA)","","$","137","","","$","105","","","$","57","","","$","20","","","$","20","","","$","469","","","$","808"]]
[[/GREPCENT_TABLE]]

Corporate Segment

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 subsidiary, MBIA Global Funding, LLC (“GFL”). 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. 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 ceased issuing new MTNs and investment agreements and the outstanding liability balances and corresponding asset balances have declined over time as liabilities matured, terminated, 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 years ended December 31, 2023, 2022 and 2021:

[[GREPCENT_TABLE]]
[["","","","","Years Ended December 31,","","","Percent Change"],["In millions","","2023","","","2022","","","2021","","","2023 vs. 2022","","","2022 vs. 2021"],["Net investment income","","$","25","","","$","22","","","$","29","","","","14","%","","","-24","%"],["Net realized investment gains (losses)","","","(33",")","","","(10",")","","","3","","","n/m","","","n/m"],["Net gains (losses) on financial instruments at fair value and foreign exchange","","","8","","","","99","","","","56","","","","-92","%","","","77","%"],["Net gains (losses) on extinguishment of debt","","","1","","","","5","","","","30","","","","-80","%","","","-83","%"],["Fees","","","50","","","","51","","","","55","","","","-2","%","","","-7","%"],["Other net realized gains (losses)","","","-","","","-","","","","(7",")","","","-","%","","","-100","%"],["","","Total revenues","","","51","","","","167","","","","166","","","","-69","%","","","1","%"],["Operating","","","77","","","","58","","","","74","","","","33","%","","","-22","%"],["Interest","","","76","","","","76","","","","75","","","","-","%","","","1","%"],["","","Total expenses","","","153","","","","134","","","","149","","","","14","%","","","-10","%"],["Income (loss) from continuing operations before income taxes","","$","(102",")","","$","33","","","$","17","","","n/m","","","","94","%"],["____________________"],["n/m - Percent change not meaningful."]]
[[/GREPCENT_TABLE]]

37

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

NET REALIZED INVESTMENT GAINS (LOSSES) The increase in net realized investment losses for 2023 compared with 2022 primarily related to sales of securities to generate liquidity to terminate interest rate swaps.

NET GAINS (LOSSES) ON FINANCIAL INSTRUMENTS AT FAIR VALUE AND FOREIGN EXCHANGE Net gains (losses) on financial instruments at fair value and foreign exchange were primarily driven by changes in market values on interest rate swaps and changes in the revaluation of euro-denominated liabilities. 2023 included fair value net gains of $14 million on interest rate swaps compared with fair value net gains of $89 million on these swaps for 2022. This unfavorable change was primarily due to the impact of larger increases in interest rates in 2022 than in 2023 on swaps for which we receive floating rates. 2023 also included foreign currency losses of $6 million on euro-denominated liabilities compared with foreign currency gains of $16 million on these liabilities for 2022. This decline was due to the weakening of the U.S. dollar against the euro in 2023 compared with the strengthening of the U.S. dollar against the euro in 2022.

NET GAINS (LOSSES) ON EXTINGUISHMENT OF DEBT Net gains (losses) on extinguishment of debt for all periods include gains from purchases, at discounts, of MTNs issued by the Company.

OPERATING EXPENSE Operating expense increased for 2023 compared with 2022 primarily due to an increase in compensation expense primarily related to the Company’s non-qualified deferred compensation plan. Compensation expense related to the Company's non-qualified deferred compensation plan will fluctuation primarily based on plan activity and changes in the value of the plan liability.

International and Structured Finance Insurance Segment

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.

MBIA Corp. insures sovereign-related and sub-sovereign bonds, privately issued bonds used for the financing of utilities, toll roads, bridges, 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, structured settlements, consumer loans, and corporate loans and bonds. 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 insures debt obligations of GFL and obligations under certain types of derivative contracts. MBIA Insurance Corporation provided 100% reinsurance to its subsidiary, MBIA Mexico S.A. de C.V. (“MBIA Mexico”). In August of 2023, MBIA Insurance Corporation’s reinsurance agreement with MBIA Mexico terminated after the termination of MBIA Mexico's last insurance policy. As of December 31, 2023, MBIA Corp.’s total insured gross par outstanding was $2.9 billion. In addition, MBIA Corp. consolidates insured transactions as VIEs if it determines it is the primary beneficiary, and deconsolidates such VIEs when it is no longer the primary beneficiary.

MBIA Corp. has contributed to the Company’s 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 new business outside of remediation activities, 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.

38

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

The following table presents our international and structured finance insurance segment results for the years ended December 31, 2023, 2022 and 2021:

[[GREPCENT_TABLE]]
[["","","","","","Years Ended December 31,","","","Percent Change"],["In millions","","2023","","","2022","","","2021","","","2023 vs. 2022","","","2022 vs. 2021"],["Net premiums earned","","$","10","","","$","11","","","$","32","","","","-9","%","","","-66","%"],["Net investment income","","","23","","","","17","","","","6","","","","35","%","","n/m"],["Net realized investment gains (losses)","","","(4",")","","","(1",")","","","-","","","n/m","","","n/m"],["Net gains (losses) on financial instruments at fair value and foreign exchange","","","(12",")","","","(7",")","","","(14",")","","","71","%","","","-50","%"],["Fees and reimbursements","","","7","","","","14","","","","17","","","","-50","%","","","-18","%"],["Other net realized gains (losses)","","","3","","","","7","","","","1","","","","-57","%","","n/m"],["Revenues of consolidated VIEs:"],["","Net gains (losses) on financial instruments at fair value and foreign exchange","","","(45",")","","","(14",")","","","(8",")","","n/m","","","","75","%"],["","Other net realized gains (losses)","","(25",")","","","19","","","","(15",")","","n/m","","","n/m"],["","","","Total revenues","","","(43",")","","","46","","","","19","","","n/m","","","","142","%"],["Losses and loss adjustment","","","7","","","","(105",")","","","123","","","","-107","%","","n/m"],["Amortization of deferred acquisition costs","","","8","","","","12","","","","13","","","","-33","%","","","-8","%"],["Operating","","","22","","","","22","","","","24","","","","-","%","","","-8","%"],["Interest","","","158","","","","127","","","","109","","","","24","%","","","17","%"],["Expenses of consolidated VIEs:"],["","Operating","","","11","","","","8","","","","6","","","","38","%","","","33","%"],["","Interest","","","1","","","","3","","","","26","","","","-67","%","","","-88","%"],["","","","Total expenses","","","207","","","","67","","","","301","","","n/m","","","","-78","%"],["Income (loss) from continuing operations before income taxes","","$","(250",")","","$","(21",")","","$","(282",")","","n/m","","","","-93","%"],["_______________"],["n/m - Percent change not meaningful."]]
[[/GREPCENT_TABLE]]

NET PREMIUMS EARNED Our international and structured finance insurance segment generates net premiums from insurance policies accounted for as financial guarantee contracts. Net premiums earned represent gross premiums earned net of premiums ceded to reinsurers, and include scheduled premium earnings and premium earnings from refunded issues. Certain premiums may be eliminated in our consolidated financial statements as a result of the Company consolidating VIEs. The following table provides net premiums earned from our financial guarantee contracts for the years ended December 31, 2023, 2022 and 2021:

[[GREPCENT_TABLE]]
[["","","","Years Ended December 31,","","Percent Change"],["In millions","","2023","","2022","","2021","","2023 vs. 2022","","","2022 vs. 2021"],["Net premiums earned:"],["U.S.","","$","2","","$","2","","$","3","","-","%","","","-33","%"],["Non-U.S.","","","8","","","9","","","29","","-11","%","","","-69","%"],["Total net premiums earned","","$","10","","$","11","","$","32","","-9","%","","","-66","%"]]
[[/GREPCENT_TABLE]]

_______________

n/m - Percent change not meaningful.

NET INVESTMENT INCOME The increase in net investment income for 2023 compared with 2022 was primarily due to the acceleration of accretion to par value upon the redemption of securities that were purchased at a discount.

NET GAINS (LOSSES) ON FINANCIAL INSTRUMENTS AT FAIR VALUE AND FOREIGN EXCHANGE The increase in net losses for 2023 compared with 2022 was primarily due to fair value losses on investments for which the fair value option was elected in 2023 compared with fair value gains in 2022. The net losses were partially offset by a decrease in foreign exchange losses on the revaluation of non-U.S. dollar insurance balances in 2023 compared with 2022.

39

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

FEES AND REIMBURSEMENTS The decrease in fees and reimbursements for 2023 compared with 2022 was primarily due to a decrease in waiver and consent fees in 2023. Due to the transaction-specific nature inherent in fees and reimbursements, these revenues can vary significantly from period to period.

REVENUES OF CONSOLIDATED VIEs The net losses of consolidated VIE revenues for 2023 included the reclassification of $45 million of credit risk losses from AOCI to net income (loss). These reclassifications were due to early redemptions of VIE liabilities and the deconsolidation of VIEs. In addition, 2023 included an additional loss of $7 million from the deconsolidation of a VIE. The net gains of consolidated VIE revenues for 2022 was principally due to a gain from a litigation settlement by a litigation trust that we consolidate as a VIE, partially offset by the reclassification of net credit risk losses from AOCI to net income (loss). These reclassifications were due to early redemptions of VIE liabilities.

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. Refer to "Note 6: Loss and Loss Adjustment Expense Reserves" in the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K for a description of the Company’s loss reserving policy and additional information related to its loss reserves and recoverables.

For 2023, losses and LAE incurred primarily related to the termination of a first-lien RMBS insured transaction for which claim payments were higher than previous reserves.

For 2022, the losses and LAE benefit primarily related to an increase in risk-free rates used to discount net loss reserves, which resulted in a decline in the value of expected future payments, net of future recoveries, primarily on our first-lien RMBS portfolio. An increase in expected salvage collections from insured CDOs also contributed to the losses and LAE benefit.

As a result of the consolidation of VIEs, loss and LAE excludes losses and LAE benefits of $30 million and $9 million, for 2023 and 2022, respectively, as VIE losses and LAE activity is eliminated in consolidation.

Refer to "Note 6: Loss and Loss Adjustment Expense Reserves" in the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K 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 December 31, 2023 and 2022.

[[GREPCENT_TABLE]]
[["","","","December 31,","","","December 31,","","","Percent"],["In millions","","2023","","","2022","","","Change"],["Assets:"],["","Insurance loss recoverable","","$","31","","","$","30","","","","3","%"],["","Reinsurance recoverable on paid and unpaid losses (1)","","","2","","","","4","","","","-50","%"],["Liabilities:"],["","Loss and LAE reserves","","","243","","","","285","","","","-15","%"],["","Net reserve (salvage)","","$","210","","","$","251","","","","-16","%"],["_______________"],["(1) - Reported within \"Other assets\" on our consolidated balance sheets."]]
[[/GREPCENT_TABLE]]

40

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

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 RMBS transactions. Such payments also entitle MBIA Corp. to exercise certain rights and remedies to seek recovery of its reimbursement entitlements. The decrease in MBIA Corp.’s loss and LAE reserves from 2022 was primarily due to the termination of a first-lien RMBS insured transaction, partially offset by a year-to-date decline in risk-free rates, which caused case reserves to increase.

POLICY ACQUISITION COSTS AND OPERATING EXPENSES International and structured finance insurance segment expenses for the years ended December 31, 2023, 2022 and 2021 are presented in the following table:

[[GREPCENT_TABLE]]
[["","","","","Years Ended December 31,","","Percent Change"],["In millions","","","","2023","","","","2022","","","","2021","","2023 vs. 2022","","2022 vs. 2021"],["Gross expenses","","","$","23","","","$","22","","","$","25","","5","%","","-12","%"],["Amortization of deferred acquisition costs","","","$","8","","","$","12","","","$","13","","-33","%","","-8","%"],["Operating","","","","22","","","","22","","","","24","","-","%","","-8","%"],["Total insurance operating expenses","","","$","30","","","$","34","","","$","37","","-12","%","","-8","%"]]
[[/GREPCENT_TABLE]]

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 2023 or 2022 as no new business was written. Policy acquisition costs in these periods were primarily related to ceding commissions and premium taxes on installment policies written in prior periods.

INTEREST EXPENSE Interest expense relates to MBIA Corp.’s surplus notes that are indexed to the 3-month secured overnight financing rate ("SOFR"). During 2023, the Company transitioned from the previously indexed 3-month London Interbank Offered Rate (“LIBOR”) rate to the 3-month SOFR plus 0.26161%. The increase in interest expense for 2023 compared with 2022 was due to an increase in the indexed interest rates. Refer to the following “Liquidity and Capital Resources” section for more information about MBIA Corp.’s surplus notes.

41

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

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 December 31, 2023 and 2022, 26% and 30%, 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. Below investment grade insurance policies primarily include our first-lien RMBS and CDO exposures.

Selected Portfolio Exposures

MBIA Corp. insures RMBS backed by residential mortgage loans, including first-lien alternative A-paper and subprime mortgage loans directly through RMBS securitizations. As of December 31, 2023 and 2022, MBIA Corp. had $596 million and $802 million, respectively, of first-lien RMBS gross par outstanding. These amounts include the gross par outstanding related to transactions that the Company consolidates under accounting guidance for VIEs and includes international exposure of $39 million and $149 million, as of December 31, 2023 and 2022, respectively.

In addition, as of December 31, 2023 and 2022, MBIA Corp. insured $117 million and $201 million, respectively, 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.

Effective in the first quarter of 2022, MBIA Corp. was granted a permitted practice by the NYSDFS related to the purchase of certain MBIA Corp.-insured securities with gross case base loss reserves (“Remediation Securities”). The Remediation Securities are being acquired with the intent to terminate or commute the related insurance policies. MBIA Corp. may elect to sell the Remediation Securities to facilitate a termination or commutation.

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. Refer to “Note 13: Insurance in Force” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K for a further discussion about reinsurance agreements.

LIQUIDITY AND CAPITAL RESOURCES

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.

42

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

LIQUIDITY AND CAPITAL RESOURCES (continued)

Consolidated Cash Flows

Information about our consolidated cash flows by category is presented on our consolidated statements of cash flows. The following table summarizes our consolidated cash flows for the years ended December 31, 2023, 2022 and 2021:

[[GREPCENT_TABLE]]
[["","","","","Years Ended December 31,","","","Percent Change"],["In millions","","","","2023","","","","2022","","","","2021","","2023 vs. 2022","","2022 vs. 2021"],["Statement of cash flow data:"],["Net cash provided (used) by:"],["Operating activities","","","$","(195)","","","$","(418",")","","$","511","","","-53","%","","n/m"],["Investing activities","","","","767","","","","623","","","","(61",")","","23","%","","n/m"],["Financing activities","","","","(542)","","","","(285",")","","","(457",")","","90","%","","-38","%"],["Effect of exchange rate changes on cash and cash equivalents","","","","-","","","","(2",")","","","-","","","-100","%","","n/m"],["Cash and cash equivalents - beginning of period","","","","78","","","","160","","","","167","","","-51","%","","-4","%"],["Cash and cash equivalents - end of period","","","$","108","","","$","78","","","$","160","","","38","%","","-51","%"]]
[[/GREPCENT_TABLE]]

_________________________________

n/m - Percent change not meaningful.

Operating activities

Net cash used by operating activities decreased for 2023 compared with 2022 primarily due to a decrease of $894 million of losses and LAE paid. The decrease in losses and LAE paid was primarily due to the acceleration and commutation payments in connection with the Puerto Rico GO and HTA transactions in 2022. This was partially offset by a decrease in proceeds from recoveries and reinsurance of $684 million, primarily from the sale of certain PREPA bankruptcy claims and recoveries received from the GO and HTA transactions in 2022.

Investing activities

Net cash provided by investing activities increased for 2023 compared with 2022 primarily due to higher net proceeds from the sales of investments in connection with generating liquidity to pay the extraordinary dividend and to pay claims.

Financing activities

Net cash used by financing activities increased for 2023 compared with 2022 primarily due to the extraordinary cash dividend payment of $409 million to shareholders in 2023, partially offset by a decrease of $130 million of principal paydowns of non-VIE related debt.

Consolidated 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. Fixed-maturity securities purchased by the Company are generally designated as AFS. Our AFS investments comprise high-quality fixed-income securities and short-term investments.

43

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

LIQUIDITY AND CAPITAL RESOURCES (continued)

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 December 31, 2023, the weighted average credit quality rating of the Company’s AFS fixed-maturity investment portfolio, excluding short-term investments, was Aa and 96% of the investments were investment grade.

The fair values of securities in the Company’s AFS fixed-maturity investment portfolio are sensitive to changes in interest rates. Decreases in interest rates generally result in increases in the fair values of fixed-maturity securities and increases in interest rates generally result in decreases in the fair values of fixed-maturity securities.

As of December 31, 2023 and 2022, the Company had $133 million and $233 million of unrealized losses, respectively, net of deferred taxes related to its investment portfolio recorded in accumulated other comprehensive income within equity. The decline in unrealized losses during 2023 was primarily due to the reversal of unrealized losses into earnings driven by sales of investments and, to a lesser extent, due to lower interest rates and tighter credit spreads.

Refer to “Note 2: Significant Accounting Policies” and “Note 8: Investments” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K for further information about our accounting policies and investments.

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 December 31, 2023, Insured Investments at fair value represented $135 million or 7% of consolidated investments, of which $125 million or 6% of consolidated investments were Company-Insured Investments. As of December 31, 2023, 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 December 31, 2023, 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 6% of the total consolidated investment portfolio.

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; and

•
recoveries associated with insurance loss payments;

44

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

LIQUIDITY AND CAPITAL RESOURCES (continued)

The primary uses of cash by National are:

•
loss payments and LAE on insured transactions;

•
payments of dividends;

•
payments of operating expenses, taxes and investment portfolio asset purchases; and

•
funding share repurchases.

As of December 31, 2023 and 2022, National held cash and investments of $1.3 billion and $2.1 billion, respectively, of which $75 million and $230 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.

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.

As of December 31, 2023, National has a stand-alone NOL carryforward of $474 million. If National becomes profitable, it is not expected to make any tax payments under our tax sharing agreement until it fully utilizes the available stand-alone NOL.

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; 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;

•
payments related to interest rate swaps (substantially all were terminated in 2023);

•
payments of operating expenses;

•
funding share repurchases and debt buybacks; and

•
payment of dividends to shareholders.

As of December 31, 2023 and 2022, the liquidity positions of MBIA Inc. were $411 million and $230 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.

45

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

LIQUIDITY AND CAPITAL RESOURCES (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 future dividends from National. During 2023, National declared and paid an as-of-right dividend of $97 million to its ultimate parent, MBIA Inc. In addition, in 2023, National paid a $550 million special dividend that was approved by the NYSDFS to its ultimate parent, MBIA Inc. We expect that National will continue to seek approval to pay additional special dividends to MBIA in future years. However, there can be no assurance whether or when NYSDFS will approve such requests and, if the NYSDFS does approve such dividends, in what amounts. Furthermore, any future dividend payments by MBIA Inc. to shareholders are within the absolute discretion of our board of directors and will depend on, among other things, the receipt of additional special dividends from National, our results of operations, working capital requirements, capital expenditure requirements, financial condition, level of indebtedness, contractual restrictions with respect to the payment of dividends, business opportunities, anticipated cash needs, provisions of applicable law and other factors that our board of directors may deem relevant. Also, MBIA Inc. expects the as-of-right 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 following “Liquidity and Capital Resources-Capital Resources” section for additional information on payments of dividends. We do not expect MBIA Inc. to receive dividends from MBIA Corp.

Currently, a 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), which limits its ability to raise liquidity through asset sales of these securities. As the market value or rating eligibility of the assets 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 sales of invested assets exposed to credit spread stress risk, which may occur at losses, and 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;

•
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; and

•
payments of operating expenses.

As of December 31, 2023 and 2022, MBIA Corp. held cash and investments of $323 million and $386 million, respectively, of which $41 million was 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.

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.

46

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

LIQUIDITY AND CAPITAL RESOURCES (continued)

Advances Agreement

MBIA Inc., National, MBIA Insurance Corporation and certain other affiliates are party to an intercompany advances agreement (the “MBIA Advances Agreement”). The MBIA Advances Agreement permits National to make advances to MBIA Inc. and other MBIA group companies that are party to the agreement at a rate per annum equal to SOFR plus 0.51161%. The agreement also permits other affiliates to make advances to National or MBIA Insurance Corporation at a rate per annum equal to SOFR plus 0.16161%. Advances by National cannot exceed 3% of its net admitted assets as of the last quarter end. As of December 31, 2023 and 2022, there were no amounts drawn under the agreement.

Contractual Obligations

The following table summarizes the Company’s future estimated cash payments relating to contractual obligations as of December 31, 2023. Estimating these payments requires management to make estimates and assumptions regarding these obligations. The estimates and assumptions used by management are described below. Since these estimates and assumptions are subjective, actual payments in future periods may vary from those reported in the following table. Refer to the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K for additional information about these contractual obligations, including “Note 6: Loss and Loss Adjustment Expense Reserves” and “Note 13: Insurance in Force” for additional information about our insurance claim obligations and exposures under our insurance contracts.

[[GREPCENT_TABLE]]
[["","","","","","","Due Within"],["In millions","","Total","","","1 Year"],["U.S. public finance insurance segment:"],["","Gross insurance claim obligations (1)","$","665","","","$","641"],["","Lease liability","","20","","","","3"],["Corporate segment:"],["","Long-term debt","","","355","","","","18"],["","Investment agreements","","","286","","","","30"],["","Medium-term notes","","","707","","","","38"],["International and structured finance insurance segment:"],["","Gross insurance claim obligations (1)","","","550","","","","68"],["","Surplus notes","","","3,744","","","","1,492"],["Total","","$","6,327","","","$","2,290"],["________________"],["(1) - Amounts exclude any recoveries the Company expects to receive related to these estimated payments or to prior paid claims."]]
[[/GREPCENT_TABLE]]

Gross insurance claim obligations represent the future value of probability-weighted payments the Company’s insurance companies expect to make (before reinsurance and the consolidation of VIEs) under insurance policies for which the Company has recorded loss reserves. Certain probability-weighted payments incorporate commutation and/or acceleration of specific exposures and, therefore, expected payments may differ from those the Company is contractually obligated to make. Also, these amounts exclude any recoveries National or MBIA Corp. expect to receive related to these estimated payments or to claims paid in prior periods. For certain of our estimated future payments, the amount of recoveries expected to be received in the future will offset some or all of the payments.

Estimated potential insurance claim payments for obligations issued by VIEs consolidated in our international and structured finance insurance segment are included within “Gross insurance claim obligations” in the preceding table. Obligations of these VIEs are collateralized by assets held by the VIEs, and investors in such obligations do not have recourse to the general credit of MBIA. As of December 31, 2023, VIE notes issued by issuer-sponsored consolidated VIEs totaled $78 million and are not considered contractual obligations of MBIA beyond MBIA’s insurance claim obligation. The Company’s involvement with VIEs is continually reassessed as required by consolidation guidance, and may result in consolidation or deconsolidation of VIEs in future periods. As the Company consolidates and deconsolidates VIEs, the amount of VIE debt obligations recorded on its balance sheet may change significantly.

Long-term debt, investment agreements, MTNs and surplus notes include principal and interest and exclude premiums or discounts. Liabilities issued at discounts reflect principal due at maturity. Interest payments on floating rate obligations are estimated using applicable forward rates. Principal and interest on callable obligations or obligations that allow investors to withdraw funds prior to legal maturity are based on the expected call or withdrawal dates of such obligations. Liabilities denominated in foreign currencies are presented in U.S. dollars using applicable exchange rates as of December 31, 2023. Principal payments under investment agreements are based on contractual maturity and exclude puttable options.

47

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

LIQUIDITY AND CAPITAL RESOURCES (continued)

All other principal payments are based on contractual maturity dates. Refer to “Note 10: Debt” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K for information about MBIA Inc.’s debt obligations.

Included in the international and structured finance insurance segment’s surplus notes due within one year is $1.4 billion of unpaid interest related to 2013 through 2023 interest payments for which MBIA Insurance Corporation’s requests for approval to pay was not approved by the NYSDFS. This deferred interest payment will be due on the first business day on or after which MBIA Insurance Corporation obtains approval to make such payment from the NYSDFS. No interest will accrue on the deferred interest. There can be no assurance that the NYSDFS will approve any subsequent payments, or that it will approve any payment by its scheduled interest payment date. Refer to “MBIA Insurance Corporation – Capital and surplus” section below for additional information on MBIA Insurance Corporation’s surplus notes and statutory capital.

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 and surplus notes issued by MBIA Corp.

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. Refer to "Note 17: Common and Preferred Stock" in the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K for information about MBIA Inc.'s share repurchases and National's share purchases. Also, refer to "Note 10: Debt" in the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K for information about debt repurchases or redemptions. 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 National; 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 this Form 10-K and the “Liquidity and Capital Resources—Liquidity—Corporate Liquidity” section included herein for additional information about MBIA Inc.’s liquidity.

Insurance Statutory Capital

National and MBIA Insurance Corporation are incorporated and licensed in, and are subject to primary insurance regulation and supervision by the NYSDFS. MBIA Mexico is regulated by the Comisión Nacional de Seguros y Fianzas in Mexico. MBIA Corp.’s Spanish Branch was subject to local regulation in Spain. In May of 2023, MBIA Corp.’s Spanish Branch was legally closed. 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 with statutory accounting principles (“U.S. STAT”) and assist our regulators in evaluating minimum standards of solvency, including minimum capital requirements, and business conduct.

48

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

LIQUIDITY AND CAPITAL RESOURCES (continued)

National – Statutory Capital and Surplus

National had statutory capital of $1.1 billion and $1.9 billion as of December 31, 2023 and 2022, respectively. As of December 31, 2023, National’s unassigned surplus was $174 million. For 2023 and 2022, National had statutory net loss of $142 million and statutory net income of $75 million, respectively. Refer to the “National — 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 December 31, 2023, National was in compliance with its aggregate risk limits under New York Insurance Law (“NYIL”), but was not in compliance with certain of its single risk limits. Since National does not comply with certain of its single risk limits, the NYSDFS could prevent National from transacting any new financial guarantee insurance business.

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 December 31, 2023 from which it may pay dividends, subject to the limitations described above. During 2023, National paid a $550 million special dividend that was approved by the NYSDFS to its ultimate parent, MBIA Inc. In addition, in 2023, National declared and paid an as-of-right dividend of $97 million to its ultimate parent, MBIA Inc. During 2022, National declared and paid an as-of-right dividend of $72 million to its ultimate parent, MBIA Inc. 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. Refer to “Overview—Business Developments—Dividends” section included herein for additional information about dividends paid.

National – 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.

National’s CPR and components thereto, as of December 31, 2023 and 2022 are presented in the following table:

[[GREPCENT_TABLE]]
[["","","","As of December 31,","","","As of December 31,"],["In millions","","2023","","","2022"],["Policyholders' surplus","","$","763","","","$","1,545"],["Contingency reserves","","","354","","","","379"],["","Statutory capital","","","1,117","","","","1,924"],["Unearned premiums","","","237","","","","262"],["Present value of installment premiums (1)","","","101","","","","110"],["","Premium resources (2)","","","338","","","","372"],["Net loss and LAE reserves (1)","","","75","","","","(140",")"],["Salvage reserves on paid claims (1)","","","151","","","","288"],["","Gross loss and LAE reserves","","","226","","","","148"],["Total claims-paying resources","","$","1,681","","","$","2,444"],["________________"],["(1) - Calculated using a discount rate of 4.67% and 4.29% as of December 31, 2023 and 2022, respectively ."],["(2) - Includes financial guarantee and insured derivative related premiums."]]
[[/GREPCENT_TABLE]]

49

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

LIQUIDITY AND CAPITAL RESOURCES (continued)

MBIA Insurance Corporation – Statutory Capital and Surplus

MBIA Insurance Corporation had statutory capital of $152 million and $169 million as of December 31, 2023 and 2022, respectively. As of December 31, 2023, MBIA Insurance Corporation’s negative unassigned surplus was $1.9 billion. For 2023 and 2022, MBIA Insurance Corporation had a statutory net loss of $28 million and statutory net income of $46 million, respectively. Refer to the “MBIA Insurance Corporation — Claims - Paying Resources (Statutory Basis)” section below for additional information on MBIA Insurance Corporation’s statutory capital.

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. In addition, under NYIL, MBIA Insurance Corporation is required to invest its minimum surplus and contingency reserves and 50% of its loss reserves and unearned premium reserves in certain qualifying assets. As of December 31, 2023, MBIA Insurance Corporation maintained its minimum requirement of policyholders’ surplus and had enough qualifying assets to support its contingency reserves and 50% of its loss reserves and unearned premium reserves. As of December 31, 2023, 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. Since MBIA Insurance Corporation does not comply with its single risk limits, the NYSDFS could prevent MBIA Insurance Corporation from transacting any new financial guarantee insurance business.

MBIA Insurance Corporation is also required to maintain contingency reserves to provide protection to policyholders in the event of extreme losses in adverse economic events. MBIA Corp. maintains a fixed $5 million of contingency reserves.

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.

The NYSDFS has not approved MBIA Insurance Corporation’s requests to make interest payments on MBIA Insurance Corporation’s 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 January 15, 2024, the most recent scheduled interest payment date, there was $1.4 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 December 31, 2023, MBIA Insurance Corporation had “free and divisible surplus” of $129 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.

MBIA Insurance Corporation — 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.

50

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

LIQUIDITY AND CAPITAL RESOURCES (continued)

MBIA Corp.’s CPR and components thereto, as of December 31, 2023 and 2022 are presented in the following table:

[[GREPCENT_TABLE]]
[["","","","As of December 31,","","","As of December 31,"],["In millions","","2023","","","2022"],["Policyholders\u2019 surplus","","$","147","","","$","164"],["Contingency reserves","","","5","","","","5"],["","Statutory capital","","","152","","","","169"],["Unearned premiums","","","30","","","","36"],["Present value of installment premiums (1)","","","26","","","","34"],["","Premium resources (2)","","","56","","","","70"],["Net loss and LAE reserves (1)","","","27","","","","35"],["Salvage reserves on paid claims (1) (3)","","","269","","","","395"],["","Gross loss and LAE reserves","","","296","","","","430"],["Total claims-paying resources","","$","504","","","$","669"],["________________"],["(1) - Calculated using a discount rate of 5.48% and 5.53% as of December 31, 2023 and 2022, respectively."],["(2) - Includes financial guarantee and insured derivative related premiums."],["(3) - This amount primarily consists of expected recoveries related to the payment of claims on insured CDOs and RMBS. In addition, the amount includes salvage related to a permitted practice granted by NYSDFS."]]
[[/GREPCENT_TABLE]]

CRITICAL ACCOUNTING ESTIMATES

We prepare our consolidated financial statements in accordance with GAAP, which requires the use of estimates and assumptions. Refer to “Note 2: Significant Accounting Policies” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K for a discussion of our significant accounting policies and methods used in the preparation of our consolidated financial statements.

The following accounting estimates are viewed by management to be critical because they require significant judgment on the part of management. Management has discussed and reviewed the development, selection, and disclosure of critical accounting estimates with the Company’s Audit Committee. Financial results could be materially different if other methodologies were used or if management modified its assumptions.

Loss and Loss Adjustment Expense Reserves

Loss and LAE reserves are established by loss reserve committees in each of our major operating insurance companies (National and MBIA Insurance Corporation) and reviewed by our executive Loss Reserve Committee, which consists of members of senior management. Loss and LAE reserves include case basis reserves and accruals for LAE incurred with respect to non-derivative financial guarantees. Case basis reserves represent our estimate of expected losses to be paid under insurance contracts, net of expected recoveries, on insured obligations that have defaulted or are expected to default. These reserves require the use of judgment and estimates with respect to the occurrence, timing and amount of paid losses and recoveries on insured obligations. Given that the reserves are based on such estimates and assumptions, there can be no assurance that the actual ultimate losses will not be greater than or less than such estimates, resulting in the Company recognizing additional or reversing excess loss and LAE reserves through earnings.

We take into account a number of variables in establishing specific case basis reserves for individual policies that depend primarily on the nature of the underlying insured obligation. These variables include the nature and creditworthiness of the issuers of the insured obligations, expected recovery rates on unsecured obligations, the projected cash flow or market value of any assets pledged as collateral on secured obligations, and the expected rates of recovery, cash flow or market values on such obligations or other expected consideration. Factors that may affect the actual ultimate realized losses for any policy include economic conditions and trends, political developments, levels of interest rates, borrower behavior, the default rate and salvage values of specific collateral or other expected consideration, and our ability to enforce contractual rights through litigation and otherwise. Also, any adverse developments on macroeconomic factors could result in new or additional losses on insured obligations. Our remediation strategy for an insured obligation that has defaulted or is expected to default may also have an impact on our loss reserves.

51

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

CRITICAL ACCOUNTING ESTIMATES (continued)

In establishing case basis loss reserves, we calculate the present value of probability-weighted estimated loss payments, net of estimated recoveries, using a discount rate equal to the risk-free rate applicable to the currency and the weighted average remaining life of the insurance contract. Yields on U.S. Treasury offerings are used to discount loss reserves denominated in U.S. dollars, which represent the majority of our loss reserves. Similarly, yields on foreign government offerings are used to discount loss reserves denominated in currencies other than the U.S. dollar.

Refer to “Note 6: Loss and Loss Adjustment Expense Reserves” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K for further information on our loss reserves and recoveries, including critical accounting estimates used in the determination of these amounts.

Valuation of Financial Instruments

We have categorized our financial instruments measured at fair value into the three-level hierarchy according to accounting guidance for fair value measurements and disclosures based on the significance of pricing inputs to the measurement in its entirety. Fair value measurements of financial instruments that use quoted prices in active markets for identical assets or liabilities are generally categorized as Level 1, fair value measurements of financial instruments that use quoted prices in markets that are not active where significant inputs are observable are generally categorized as Level 2, and fair value measurements of financial instruments where significant inputs are not observable are generally categorized as Level 3. We categorize our financial instruments based on the lowest level category at which we can generate reliable fair values. The determination of reliability requires management to exercise judgment. The degree of judgment used to determine the fair values of financial instruments generally correlates to the degree that pricing is not observable.

The fair value measurements of financial instruments held or issued by the Company are determined through the use of observable market data when available. Market data is obtained from a variety of third-party sources, including dealer quotes. If dealer quotes are not available for an instrument that is infrequently traded, we use alternate valuation methods, including either dealer quotes for similar contracts or modeling using market data inputs. The use of alternate valuation methods generally requires considerable judgment in the application of estimates and assumptions and changes to these

variables may produce materially different values.

The fair value pricing of assets and liabilities is a function of many components which include interest rate risk, market risk, liquidity risk and credit risk. For financial instruments that are internally valued by the Company, as well as those for which the Company uses broker quotes or pricing services, credit risk is typically incorporated by using appropriate credit spreads or discount rates as inputs. Substantially all of the Company’s investments carried and reported at fair value are priced by independent third parties, including pricing services and brokers.

Instruments that trade infrequently and, therefore, have little or no price transparency are classified within Level 3 of the fair value hierarchy. Also included in Level 3 are financial instruments that have significant unobservable inputs deemed significant to the instrument’s overall fair value. Level 3 assets represented approximately 7% of total assets measured at fair value on a recurring basis as of December 31, 2023 and 2022. Level 3 liabilities represented approximately 99% and 82% of total liabilities measured at fair value on a recurring basis as of December 31, 2023 and 2022, respectively.

Refer to “Note 7: Fair Value of Financial Instruments” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K for further information about our financial assets and liabilities that are accounted for at fair value, including valuation techniques and significant inputs used to estimate fair values.

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