MBIA (MBI)

Notes to Consolidated Financial Statements

FACE="Times New Roman" SIZE="2">Note 1: Business and Organization

MBIA Inc., together with its consolidated subsidiaries, (collectively,
“MBIA” or the “Company”) is a leading provider of financial guarantee products and specialized financial services. MBIA provides innovative and cost-effective products and services that meet the credit enhancement, financial and
investment needs of its public- and private-sector clients worldwide. MBIA manages its activities primarily through two principal business operations: insurance and investment management services. The Company’s corporate operations include
revenues and expenses that arise from general corporate activities.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Royal filed a petition with the Third Circuit requesting that the case be reheard, which was denied in April 2006. In April 2006, Royal filed a motion with the District Court seeking a release of the collateral it pledged in connection with its appeal of the District Court judgment against it in 2003.

On April 2, 2007, MBIA announced that MBIA Corp. reached an agreement with Royal to settle the outstanding litigation. The amount paid by Royal under the terms of the settlement was sufficient to repay the approximately $362 million of outstanding par amount of the bonds insured by MBIA Corp. as well as to reimburse MBIA Corp. for a portion of the claims that MBIA Corp. has paid to date under its insurance policies. As a result of the settlement, MBIA Corp. incurred approximately $20 million in losses in the first quarter of 2007. The loss represents a reduction to MBIA Corp.’s expected recoveries for claims it has paid to date under its policies and will be covered by MBIA Corp.’s unallocated loss reserves.

The District Court in Delaware entered a final judgment in the case implementing the settlement on March 30, 2007. The approximately $362 million of outstanding par amount of the bonds insured by MBIA Corp. were repaid in full during the second quarter of 2007.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Royal filed a petition with the Third Circuit requesting that the case be reheard, which was denied in April 2006. In April 2006, Royal filed a motion with the District Court seeking a release of the collateral it pledged in connection with its appeal of the District Court judgment against it in 2003.

On April 2, 2007, MBIA announced that MBIA Corp. reached an agreement with Royal to settle the outstanding litigation. The amount paid by Royal under the terms of the settlement was sufficient to repay the approximately $362 million of outstanding par amount of the bonds insured by MBIA Corp. as well as to reimburse MBIA Corp. for a portion of the claims that MBIA Corp. has paid to date under its insurance policies. As a result of the settlement, MBIA Corp. incurred approximately $20 million in losses in the first quarter of 2007. The loss represents a reduction to MBIA Corp.’s expected recoveries for claims it has paid to date under its policies and will be covered by MBIA Corp.’s unallocated loss reserves.

The District Court in Delaware entered a final judgment in the case implementing the settlement on March 30, 2007.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

guaranteed tax lien portfolios, insured obligations issued by Fort Worth Osteopathic Hospital and Allegheny Health, Education and Research Foundation. Unallocated loss reserves approximated $293 million at March 31, 2005, which represent MBIA Corp.’s estimate of losses associated with credit deterioration that has occurred in MBIA Corp.’s insured portfolio and are available for future case-specific activity. MBIA Corp. recorded $20 million in loss and loss adjustment expenses in the first quarter of 2005 based on 12% of scheduled net earned premium. See “Note 3: Significant Accounting Policies” in the Notes to Consolidated Financial Statements in MBIA Corp.’s audited financial statements for the year ended December 31, 2004 for a description of MBIA Corp.’s loss reserving policy.

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