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These excerpts taken from the MBI 10-K filed Mar 2, 2009. OUR BUSINESS STRATEGY The Company’s insurance and funding programs, like those of other financial guarantors, have historically depended on Triple-A credit ratings. The continuing extreme disruption in global financial markets and economic conditions that began in 2007 has impacted the industry and MBIA, with resulting ratings downgrades below Triple-A for many financial guarantors. The loss of those ratings for MBIA Corp. in the second quarter of 2008 and the events and process leading to the loss of those ratings, each of which is described further under “Rating Agencies” below, resulted in a dramatic reduction of our traditional insurance and funding activities. In response to the economic and rating events described above, we are continuing efforts that we began in the fourth quarter of 2007 to strengthen our balance sheet and evaluate our business model:
Under the MBIA Illinois Transformation, the stock of MBIA Illinois was transferred by MBIA Corp. to the Company, which in turn contributed the stock to a newly established holding company, National Public Finance Guarantee Holdings, Inc., that is 100% owned by the Company. In addition, MBIA Illinois reinsured, effective January 1, 2009, all of the U.S. public finance business of MBIA Corp. through a reinsurance agreement with MBIA Corp. and an assignment by MBIA Corp. of its rights and obligations under its reinsurance agreement with FGIC. The MBIA Illinois reinsurance in each case was offered on a cut-through basis, allowing a reinsurance claim to be presented directly to MBIA Illinois. In addition, MBIA Illinois issued second-to-pay policies covering the MBIA Corp. and FGIC policies it reinsured. Each of these transactions is described in more detail in the “Our Insurance Operations—MBIA Illinois Portfolio” section below. As a result of these actions, MBIA Illinois is now a stand-alone, separately capitalized and governed insurance company with $554 billion of net par insured. Its assets are available to service the policies of its domestic public finance insureds. MBIA Corp. is now a stand-alone, separately capitalized and governed insurance company with $233 billion of net par insured. Its assets are available to service the policies of its structured finance and international infrastructure insureds. The major rating agencies have recognized this separation with their ratings decisions on these two companies to date. Following the announcement of the MBIA Illinois Transformation, the ratings assigned to the Company, MBIA Illinois, MBIA Corp. and certain of the underlying bonds that were reinsured by MBIA Illinois through the transaction were revised. Standard and Poor’s Corporation (“S&P”) announced that it had lowered its ratings on MBIA Corp. and its subsidiaries to BBB+ with a negative outlook, lowered its
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Table of ContentsItem 1. Business (Continued)
ratings on MBIA Illinois to AA- and placed them on CreditWatch with developing implications, and lowered its rating on the Company to BB+ with a negative outlook. Moody’s Investors Service, Inc. (“Moody’s”) downgraded the ratings of MBIA Corp. and its subsidiaries to B3 with developing outlook and placed the Baa1 rating of MBIA Illinois on review for possible upgrade. Both S&P and Moody’s indicated that they would apply the ratings of MBIA Illinois to the underlying MBIA Corp.-insured bonds that were reinsured by MBIA Illinois through the transaction, and in the case of S&P, also to the underlying FGIC-insured bonds that were reinsured by MBIA Illinois, except in each case for those bonds with higher public underlying ratings. Further information on these rating actions can be found under the “Rating Agencies” section below. The next step in the MBIA Illinois Transformation will be to further position MBIA Illinois to write new U.S. public finance financial guarantee insurance policies through the achievement of high stable ratings. It is our intent to capitalize MBIA Illinois at a level well in excess of the historical capital requirements for Triple-A ratings, including potentially through the raising of sufficient new third party capital, although no assurance can be given that we will be able to achieve such ratings or raise such capital.
These steps have preserved capital for the Company and reduced its insured liabilities. In addition, because certain guaranteed investment contracts written by MBIA Inc. are subject to collateralization and/or are terminable upon ratings downgrades, we took steps in the second, third and fourth quarters of 2008 to reduce the liabilities in the asset-liability management portfolio and preserve liquidity to make payments that may become due in connection with such collateralization or termination requirements.
We continue to evaluate our business model and may pursue a different set of strategies in the future. There can be no assurance that the strategies that have been implemented or that will be pursued in the future in connection with this evaluation will result in high stable ratings for each of our businesses or for MBIA Inc., will enable us to write new financial guarantee business, will otherwise improve our financial condition, business condition or operations or will not result in a material adverse effect on the Company.
3
Table of ContentsItem 1. Business (Continued)
Statements included in this Form 10-K which are not historical or current facts are “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The words “believe,” “anticipate,” “project,” “plan,” “expect,” “intend,” “will likely result,” or “will continue,” and similar expressions identify forward-looking statements. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only to their respective dates. The following are some of the factors that could cause actual results to differ materially from estimates contained in or underlying the Company’s forward-looking statements: (1) the possibility that the Company will experience severe losses due to increased deterioration in its insurance portfolios and in particular, due to the performance of residential mortgage-backed securities (“RMBS”) and collateralized debt obligations (“CDOs”); (2) significant fluctuations in liquidity and asset values within the global credit markets; (3) our ability to fully implement our Strategic Plan, including our ability to achieve high stable ratings for each of our businesses and compete for new business; (4) further changes in the Company’s credit ratings; (5) further deterioration in the economic environment and financial markets in the United States or abroad, particularly with regard to credit spreads, interest rates and foreign currency levels; (6) competitive conditions for bond insurance, including potential entry into the public finance market of a national insurer of municipal bonds; (7) legislative, regulatory or political developments; (8) technological developments; (9) changes in tax laws; (10) the effects of mergers, acquisitions and divestitures; and (11) uncertainties that have not been identified at this time. The Company undertakes no obligation to publicly correct or update any forward-looking statement if it later becomes aware that such result is not likely to be achieved. OUR BUSINESS STRATEGY The Company’s insurance and funding programs, like those of other financial guarantors, have historically depended on Triple-A credit ratings. The continuing extreme disruption in global financial markets and economic conditions that began in 2007 has impacted the industry and MBIA, with resulting ratings downgrades below Triple-A for many financial guarantors. The loss of those ratings for MBIA Corp. in the second quarter of 2008 and the events and process leading to the loss of those ratings, each of which is described further under “Rating Agencies” below, resulted in a dramatic reduction of our traditional insurance and funding activities. In response to the economic and rating events described above, we are continuing efforts that we began in the fourth quarter of 2007 to strengthen our balance sheet and evaluate our business model:
Under the MBIA Illinois Transformation, the stock of MBIA Illinois was transferred by MBIA Corp. to the Company, which in turn contributed the stock to a newly established holding company, National Public Finance Guarantee Holdings, Inc., that is 100% owned by the Company. In addition, MBIA Illinois reinsured, effective January 1, 2009, all of the U.S. public finance business of MBIA Corp. through a reinsurance agreement with MBIA Corp. and an assignment by MBIA Corp. of its rights and obligations under its reinsurance agreement with FGIC. The MBIA Illinois reinsurance in each case was offered on a cut-through basis, allowing a reinsurance claim to be presented directly to MBIA Illinois. In addition, MBIA Illinois issued second-to-pay policies covering the MBIA Corp. and FGIC policies it reinsured. Each of these transactions is described in more detail in the “Our Insurance Operations—MBIA Illinois Portfolio” section below. As a result of these actions, MBIA Illinois is now a stand-alone, separately capitalized and governed insurance company with $554 billion of net par insured. Its assets are available to service the policies of its domestic public finance insureds. MBIA Corp. is now a stand-alone, separately capitalized and governed insurance company with $233 billion of net par insured. Its assets are available to service the policies of its structured finance and international infrastructure insureds. The major rating agencies have recognized this separation with their ratings decisions on these two companies to date. Following the announcement of the MBIA Illinois Transformation, the ratings assigned to the Company, MBIA Illinois, MBIA Corp. and certain of the underlying bonds that were reinsured by MBIA Illinois through the transaction were revised. Standard and Poor’s Corporation (“S&P”) announced that it had lowered its ratings on MBIA Corp. and its subsidiaries to BBB+ with a negative outlook, lowered its
2
Table of ContentsItem 1. Business (Continued)
ratings on MBIA Illinois to AA- and placed them on CreditWatch with developing implications, and lowered its rating on the Company to BB+ with a negative outlook. Moody’s Investors Service, Inc. (“Moody’s”) downgraded the ratings of MBIA Corp. and its subsidiaries to B3 with developing outlook and placed the Baa1 rating of MBIA Illinois on review for possible upgrade. Both S&P and Moody’s indicated that they would apply the ratings of MBIA Illinois to the underlying MBIA Corp.-insured bonds that were reinsured by MBIA Illinois through the transaction, and in the case of S&P, also to the underlying FGIC-insured bonds that were reinsured by MBIA Illinois, except in each case for those bonds with higher public underlying ratings. Further information on these rating actions can be found under the “Rating Agencies” section below. The next step in the MBIA Illinois Transformation will be to further position MBIA Illinois to write new U.S. public finance financial guarantee insurance policies through the achievement of high stable ratings. It is our intent to capitalize MBIA Illinois at a level well in excess of the historical capital requirements for Triple-A ratings, including potentially through the raising of sufficient new third party capital, although no assurance can be given that we will be able to achieve such ratings or raise such capital.
These steps have preserved capital for the Company and reduced its insured liabilities. In addition, because certain guaranteed investment contracts written by MBIA Inc. are subject to collateralization and/or are terminable upon ratings downgrades, we took steps in the second, third and fourth quarters of 2008 to reduce the liabilities in the asset-liability management portfolio and preserve liquidity to make payments that may become due in connection with such collateralization or termination requirements.
We continue to evaluate our business model and may pursue a different set of strategies in the future. There can be no assurance that the strategies that have been implemented or that will be pursued in the future in connection with this evaluation will result in high stable ratings for each of our businesses or for MBIA Inc., will enable us to write new financial guarantee business, will otherwise improve our financial condition, business condition or operations or will not result in a material adverse effect on the Company.
3
Table of ContentsItem 1. Business (Continued)
Statements included in this Form 10-K which are not historical or current facts are “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The words “believe,” “anticipate,” “project,” “plan,” “expect,” “intend,” “will likely result,” or “will continue,” and similar expressions identify forward-looking statements. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only to their respective dates. The following are some of the factors that could cause actual results to differ materially from estimates contained in or underlying the Company’s forward-looking statements: (1) the possibility that the Company will experience severe losses due to increased deterioration in its insurance portfolios and in particular, due to the performance of residential mortgage-backed securities (“RMBS”) and collateralized debt obligations (“CDOs”); (2) significant fluctuations in liquidity and asset values within the global credit markets; (3) our ability to fully implement our Strategic Plan, including our ability to achieve high stable ratings for each of our businesses and compete for new business; (4) further changes in the Company’s credit ratings; (5) further deterioration in the economic environment and financial markets in the United States or abroad, particularly with regard to credit spreads, interest rates and foreign currency levels; (6) competitive conditions for bond insurance, including potential entry into the public finance market of a national insurer of municipal bonds; (7) legislative, regulatory or political developments; (8) technological developments; (9) changes in tax laws; (10) the effects of mergers, acquisitions and divestitures; and (11) uncertainties that have not been identified at this time. The Company undertakes no obligation to publicly correct or update any forward-looking statement if it later becomes aware that such result is not likely to be achieved. OUR BUSINESS STRATEGY The Company’s insurance and funding programs, like those of other financial guarantors, have historically depended on Triple-A credit ratings. The continuing extreme disruption in global financial markets and economic conditions that began in 2007 has impacted the industry and MBIA, with resulting ratings downgrades below Triple-A for many financial guarantors. The loss of those ratings for MBIA Corp. in the second quarter of 2008 and the events and process leading to the loss of those ratings, each of which is described further under “Rating Agencies” below, resulted in a dramatic reduction of our traditional insurance and funding activities. In response to the economic and rating events described above, we are continuing efforts that we began in the fourth quarter of 2007 to strengthen our balance sheet and evaluate our business model:
Under the MBIA Illinois Transformation, the stock of MBIA Illinois was transferred by MBIA Corp. to the Company, which in turn contributed the stock to a newly established holding company, National Public Finance Guarantee Holdings, Inc., that is 100% owned by the Company. In addition, MBIA Illinois reinsured, effective January 1, 2009, all of the U.S. public finance business of MBIA Corp. through a reinsurance agreement with MBIA Corp. and an assignment by MBIA Corp. of its rights and obligations under its reinsurance agreement with FGIC. The MBIA Illinois reinsurance in each case was offered on a cut-through basis, allowing a reinsurance claim to be presented directly to MBIA Illinois. In addition, MBIA Illinois issued second-to-pay policies covering the MBIA Corp. and FGIC policies it reinsured. Each of these transactions is described in more detail in the “Our Insurance Operations—MBIA Illinois Portfolio” section below. As a result of these actions, MBIA Illinois is now a stand-alone, separately capitalized and governed insurance company with $554 billion of net par insured. Its assets are available to service the policies of its domestic public finance insureds. MBIA Corp. is now a stand-alone, separately capitalized and governed insurance company with $233 billion of net par insured. Its assets are available to service the policies of its structured finance and international infrastructure insureds. The major rating agencies have recognized this separation with their ratings decisions on these two companies to date. Following the announcement of the MBIA Illinois Transformation, the ratings assigned to the Company, MBIA Illinois, MBIA Corp. and certain of the underlying bonds that were reinsured by MBIA Illinois through the transaction were revised. Standard and Poor’s Corporation (“S&P”) announced that it had lowered its ratings on MBIA Corp. and its subsidiaries to BBB+ with a negative outlook, lowered its
2
Table of ContentsItem 1. Business (Continued)
ratings on MBIA Illinois to AA- and placed them on CreditWatch with developing implications, and lowered its rating on the Company to BB+ with a negative outlook. Moody’s Investors Service, Inc. (“Moody’s”) downgraded the ratings of MBIA Corp. and its subsidiaries to B3 with developing outlook and placed the Baa1 rating of MBIA Illinois on review for possible upgrade. Both S&P and Moody’s indicated that they would apply the ratings of MBIA Illinois to the underlying MBIA Corp.-insured bonds that were reinsured by MBIA Illinois through the transaction, and in the case of S&P, also to the underlying FGIC-insured bonds that were reinsured by MBIA Illinois, except in each case for those bonds with higher public underlying ratings. Further information on these rating actions can be found under the “Rating Agencies” section below. The next step in the MBIA Illinois Transformation will be to further position MBIA Illinois to write new U.S. public finance financial guarantee insurance policies through the achievement of high stable ratings. It is our intent to capitalize MBIA Illinois at a level well in excess of the historical capital requirements for Triple-A ratings, including potentially through the raising of sufficient new third party capital, although no assurance can be given that we will be able to achieve such ratings or raise such capital.
These steps have preserved capital for the Company and reduced its insured liabilities. In addition, because certain guaranteed investment contracts written by MBIA Inc. are subject to collateralization and/or are terminable upon ratings downgrades, we took steps in the second, third and fourth quarters of 2008 to reduce the liabilities in the asset-liability management portfolio and preserve liquidity to make payments that may become due in connection with such collateralization or termination requirements.
We continue to evaluate our business model and may pursue a different set of strategies in the future. There can be no assurance that the strategies that have been implemented or that will be pursued in the future in connection with this evaluation will result in high stable ratings for each of our businesses or for MBIA Inc., will enable us to write new financial guarantee business, will otherwise improve our financial condition, business condition or operations or will not result in a material adverse effect on the Company.
3
Table of ContentsItem 1. Business (Continued)
Statements included in this Form 10-K which are not historical or current facts are “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The words “believe,” “anticipate,” “project,” “plan,” “expect,” “intend,” “will likely result,” or “will continue,” and similar expressions identify forward-looking statements. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only to their respective dates. The following are some of the factors that could cause actual results to differ materially from estimates contained in or underlying the Company’s forward-looking statements: (1) the possibility that the Company will experience severe losses due to increased deterioration in its insurance portfolios and in particular, due to the performance of residential mortgage-backed securities (“RMBS”) and collateralized debt obligations (“CDOs”); (2) significant fluctuations in liquidity and asset values within the global credit markets; (3) our ability to fully implement our Strategic Plan, including our ability to achieve high stable ratings for each of our businesses and compete for new business; (4) further changes in the Company’s credit ratings; (5) further deterioration in the economic environment and financial markets in the United States or abroad, particularly with regard to credit spreads, interest rates and foreign currency levels; (6) competitive conditions for bond insurance, including potential entry into the public finance market of a national insurer of municipal bonds; (7) legislative, regulatory or political developments; (8) technological developments; (9) changes in tax laws; (10) the effects of mergers, acquisitions and divestitures; and (11) uncertainties that have not been identified at this time. The Company undertakes no obligation to publicly correct or update any forward-looking statement if it later becomes aware that such result is not likely to be achieved. | EXCERPTS ON THIS PAGE:
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