Note 15: Business Segments

MBIA manages its activities through three principal business operations: U.S. public finance insurance, structured finance and international insurance, and advisory services. The Company's U.S. public finance insurance business is operated through National, its structured finance and international insurance business is operated through MBIA Corp., and its advisory services business is operated through Cutwater. MBIA Inc. and certain of its subsidiaries also manage certain other business activities, the results of which are reported in its corporate, asset/liability products, and conduit segments. The corporate segment includes revenues and expenses that arise from general corporate activities. While the asset/liability products and conduit businesses represent separate business segments, they may be referred to collectively as "wind-down operations" as the funding programs managed through those businesses are in wind-down.

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

U.S. Public Finance Insurance

The Company's U.S. public finance insurance segment is principally conducted through National. The financial guarantees issued by National provide unconditional and irrevocable guarantees of the payment of principal of, and interest or other amounts owing on, U.S. public finance insured obligations when due. The obligations are generally not subject to acceleration, except that National may have the right, at its discretion, to accelerate insured obligations upon default or otherwise. National issues financial guarantees for municipal bonds, including tax-exempt and taxable indebtedness of U.S. political subdivisions, as well as utility districts, airports, health care institutions, higher educational facilities, student loan issuers, housing authorities and other similar agencies and obligations issued by private entities that finance projects that serve a substantial public purpose. Municipal bonds and privately issued bonds used for the financing of public purpose projects are generally supported by taxes, assessments, fees or tariffs related to the use of these projects, lease payments or other similar types of revenue streams. National has not written any meaningful amount of business since its formation in 2009.

Structured Finance and International Insurance

The Company's structured finance and international insurance segment is principally conducted through MBIA Corp. The financial guarantees issued by MBIA Corp. generally provide unconditional and irrevocable guarantees of the payment of principal of, and interest or other amounts owing on, global structured finance and non-U.S. public 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, upon MBIA Corp.'s acceleration. Certain guaranteed investment contracts written by MBIA Inc. are insured by MBIA Corp., and if MBIA Inc. were to have insufficient assets to pay amounts due upon maturity or termination, MBIA Corp. would make such payments. MBIA Corp. also insures debt obligations of the following affiliates:

•

MBIA Inc.;

•

GFL;

•

Meridian Funding Company LLC;

•

LaCrosse Financial Products, LLC ("LaCrosse"), a wholly-owned affiliate, in which MBIA Corp. has written insurance policies guaranteeing the obligations under credit default swaps ("CDS"), including termination payments that may become due upon certain events including the insolvency or payment default by MBIA Corp. or LaCrosse; and

•

Triple-A One.

MBIA Corp.'s guarantees insure structured finance and asset-backed obligations, privately issued bonds used for the financing of public purpose projects, which are primarily located outside of the U.S. and that include toll roads, bridges, airports, public transportation facilities, utilities and other types of infrastructure projects serving a substantial public purpose, and obligations of sovereign-related and sub-sovereign issuers. Structured finance and ABS typically are securities repayable from expected cash flows generated by a specified pool of assets, such as residential and commercial mortgages, insurance policies, consumer loans, corporate loans and bonds, trade and export receivables, leases for equipment, aircraft and real property. The Company is no longer insuring new credit derivative contracts except for transactions related to the reduction of existing derivative exposure. MBIA Corp. has not written any meaningful amount of business since 2008.

In 2010, the accounting guidance for the consolidation of VIEs was amended and the Company was required to consolidate certain entities that are designed as VIEs where MBIA has contractual rights under insurance policies to direct the activities of the VIE when performance and other triggers were breached. The Company does not believe there is any difference in the risks and profitability of financial guarantees provided to VIEs compared with other financial guarantees written by MBIA. Refer to "Note 3: Recent Accounting Pronouncements" for information on accounting guidance that affected the consolidation of VIEs.

Advisory Services

The advisory services segment primarily consists of the operations of Cutwater-ISC, Cutwater Asset Management Corp. ("Cutwater-AMC"), and Cutwater Asset Management U.K. Limited ("Cutwater-UK"). Cutwater-ISC and Cutwater-AMC offers advisory services, including cash management, discretionary asset management and structured products on a fee-for-service basis. The Company offers these services to public, not-for-profit, corporate and financial services clients, including the Company and its subsidiaries, as well as portfolio accounting and reporting services. Cutwater-ISC and Cutwater-AMC are Securities and Exchange Commission ("SEC") registered investment advisers. Cutwater-AMC is also a Financial Industry Regulatory Authority member firm. Cutwater-UK provides fee-based asset management services to the Company's foreign insurance affiliates and Euro Asset Acquisition Limited ("EAAL"), and to third-party institutional clients and investment structures. Cutwater-UK is registered with the Financial Services Authority in the U.K.

Corporate

The Company's corporate segment is a reportable segment and includes revenues and expenses that arise from general corporate activities, such as fees, net investment income, net gains and losses, interest expense on MBIA Inc. debt and general corporate expenses. In the first quarter of 2010, MBIA established a service company, Optinuity Alliance Resources Corporation, which provides general support services to the corporate segment and other operating businesses. Employees of the service company provide various support services including management, legal, accounting, treasury, information technology, and insurance portfolio surveillance, among others, on a fee-for-service basis. The service company's revenues and expenses are included in the results of the corporate segment.

Wind-down Operations

The Company's wind-down operations consist of the asset/liability products and conduit segments.

The asset/liability products segment principally consists of the activities of MBIA Inc., MBIA Investment Management Corp. ("IMC"), GFL and EAAL. IMC, along with MBIA Inc., provided customized investment agreements, guaranteed by MBIA Corp., for bond proceeds and other public funds for such purposes as construction, loan origination, escrow and debt service or other reserve fund requirements. It has also provided customized products for funds that are invested as part of asset-backed or structured product transactions. GFL raises funds through the issuance of MTNs with varying maturities, which are, in turn, guaranteed by MBIA Corp. GFL lends the proceeds of these MTN issuances to MBIA Inc. ("GFL Loans"). MBIA Inc. invests the proceeds of investment agreements and GFL Loans in eligible investments, which consisted of investment grade securities at the time of purchase with a minimum average double-A credit quality rating. MBIA Inc. primarily purchases domestic securities, which are pledged to MBIA Corp. as security for its guarantees on investment agreements and MTNs. Additionally, MBIA Inc. loans a portion of the proceeds from investment agreements and MTNs to EAAL. EAAL primarily purchases foreign assets as permitted under the Company's investment guidelines.

The Company's conduit segment administers two conduits through MBIA Asset Finance, LLC. Assets financed by these conduits are currently funded by MTNs and liquidity loans.

The ratings downgrades of MBIA Corp. have resulted in a substantial reduction of funding activities and the termination and collateralization of certain investment agreements, as well as winding down of existing asset/liability products and conduit obligations.

Segment Results

The following tables provide the Company's segment results for the years ended December 31, 2011, 2010 and 2009:


	Year Ended December 31, 2011
In millions	U.S. Public Finance Insurance			Structured Finance and International Insurance			Advisory Services		Corporate			Wind-down Operations			Eliminations					Consolidated
Revenues⁽¹⁾	$	599		$	319		$	26	$	4		$	90		$	—				$	1,038
Realized gains and other settlements on insured derivatives		2			(2,373	)		—		—			—			—					(2,371	)
Unrealized gains (losses) on insured derivatives		—			(441	)		—		—			—			—					(441	)
Net gains (losses) on financial instruments at fair value and foreign exchange		96			58			—		23			(276	)		—					(99	)
Net investment losses related to other-than-temporary impairments		—			(62	)		—		(8	)		(31	)		—					(101	)
Net gains (losses) on extinguishment of debt		—			—			—		—			24			2					26
Other net realized gains (losses)		(31	)		1			—		25			4			—					(1	)
Revenues of consolidated VIEs		—			361			—		—			31			—					392
Inter-segment revenues⁽²⁾		79			91			41		152			(23	)		(340	)				—

Total revenues		745			(2,046	)		67		196			(181	)		(338	)				(1,557	)
Loss and loss adjustment expense		4			(84	)		—		—			—			—					(80	)
Operating expenses		52			166			58		92			3			—					371
Interest expense		—			133			—		58			109			—					300
Expenses of consolidated VIEs		—			70			—		—			21			—					91
Inter-segment expenses⁽²⁾		114			124			6		22			95			(361	)				—

Total expenses		170			409			64		172			228			(361	)				682

Income (loss) before taxes	$	575		$	(2,455	)	$	3	$	24		$	(409	)	$	23				$	(2,239	)


Identifiable assets	$	7,848		$	19,985		$	53	$	829		$	5,203		$	(7,045	)	⁽³	⁾	$	26,873

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

(2)—Represents intercompany premium income and expense, intercompany asset management fees and expenses, and intercompany interest income and expense pertaining to intercompany receivable and payables.

(3)—Consists of intercompany reinsurance balances, repurchase agreements and loans.


	Year Ended December 31, 2010
In millions	U.S. Public Finance Insurance		Structured Finance and International Insurance			Advisory Services			Corporate			Wind-down Operations			Eliminations				Consolidated
Revenues⁽¹⁾	$	601	$	463		$	30		$	4		$	113		$	—			$	1,211
Realized gains and other settlements on insured derivatives		1		(163	)		—			—			—			—				(162	)
Unrealized gains (losses) on insured derivatives		—		(607	)		—			—			—			—				(607	)
Net gains (losses) on financial instruments at fair value and foreign exchange		55		135			2			(28	)		(76	)		—				88
Net investment losses related to other-than-temporary impairments		—		(5	)		—			—			(59	)		—				(64	)
Net gains (losses) on extinguishment of debt		—		—			—			—			35			—				35
Other net realized gains (losses)		—		29			—			—			—			—				29
Revenues of consolidated VIEs		—		246			—			—			96			22				364
Inter-segment revenues⁽²⁾		93		113			38			94			(18	)		(320	)			—

Total revenues		750		211			70			70			91			(298	)			894
Loss and loss adjustment expense		73		159			—			—			—			—				232
Operating expenses		43		149			64			89			4			—				349
Interest expense		—		135			—			65			125			—				325
Expenses of consolidated VIEs		—		64			—			—			19			—				83
Inter-segment expenses⁽²⁾		104		135			7			14			60			(320	)			—

Total expenses		220		642			71			168			208			(320	)			989

Income (loss) before taxes	$	530	$	(431	)	$	(1	)	$	(98	)	$	(117	)	$	22			$	(95	)


Identifiable assets	$	8,436	$	23,980		$	54		$	653		$	6,432		$	(7,276	)	⁽³⁾	$	32,279

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

(3)—Consists of intercompany reinsurance balances, repurchase agreements and loans.


	Year Ended December 31, 2009
In millions	U.S. Public Finance Insurance		Structured Finance and International Insurance			Advisory Services		Corporate			Wind-down Operations			Eliminations				Consolidated
Revenues⁽¹⁾	$	638	$	593		$	32	$	4		$	193		$	—			$	1,460
Realized gains and other settlements on insured derivatives		1		(167	)		—		—			—			—				(166	)
Unrealized gains (losses) on insured derivatives		—		1,650			—		—			—			—				1,650
Net gains (losses) on financial instruments at fair value and foreign exchange		23		59			—		(3)			146			—				225
Net investment losses related to other-than-temporary impairments		—		(9	)		—		—			(352	)		—				(361	)
Net gains (losses) on extinguishment of debt		—		13			—		4			203			5				225
Other net realized gains (losses)		—		(64	)		—		—			4			—				(60	)
Revenues of consolidated VIEs		—		(58	)		—		—			39			—				(19	)
Inter-segment revenues⁽²⁾		146		177			22		19			(3	)		(361	)			—

Total revenues		808		2,194			54		24			230			(356	)			2,954
Loss and loss adjustment expense		94		770			—		—			—			—				864
Operating expenses		38		260			48		24			27			—				397
Interest expense		—		136			—		69			169			—				374
Expenses of consolidated VIEs		—		88			—		—			14			—				102
Inter-segment expenses⁽²⁾		125		116			1		—			116			(358	)			—

Total expenses		257		1,370			49		93			326			(358	)			1,737

Income (loss) before income taxes	$	551	$	824		$	5	$	(69	)	$	(96	)	$	2			$	1,217


Identifiable assets	$	8,184	$	16,447		$	125	$	1,276		$	8,092		$	(8,423	)	⁽³⁾	$	25,701

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

(3)—Consists of intercompany reinsurance balances, repurchase agreements and loans.

Premiums on financial guarantees and insured derivatives reported within the Company's insurance segments are generated within and outside the U.S. The following table summarizes premiums earned on financial guarantees and insured derivatives by geographic location of risk for the years ended December 31, 2011, 2010 and 2009:


	Years Ended December 31,
In millions	2011		2010		2009
Total premiums earned:
United States	$	545	$	555	$	661
United Kingdom		37		35		29
Europe (excluding United Kingdom)		29		23		21
Internationally diversified		33		41		83
Central and South America		36		40		41
Asia		15		9		17
Other		13		11		16

Total	$	708	$	714	$	868

The following tables provide the results of the segments within the wind-down operations for the years ended December 31, 2011, 2010 and 2009:


	Year Ended December 31, 2011
In millions	Asset / Liability Products			Conduits			Eliminations			Total Wind- down Operations
Revenues⁽¹⁾	$	90		$	—		$	—		$	90
Net gains (losses) on financial instruments at fair value and foreign exchange		(276	)		—			—			(276	)
Net investment losses related to other-than-temporary impairments		(31	)		—			—			(31	)
Net gains (losses) on extinguishment of debt		24			—			—			24
Other net realized gains (losses)		4			—			—			4
Revenues of consolidated VIEs		11			20			—			31
Inter-segment revenues⁽²⁾		(19	)		(4	)		—			(23	)

Total revenues		(197	)		16			—			(181	)
Operating expenses		3			—			—			3
Interest expense		109			—			—			109
Expenses of consolidated VIEs		2			19			—			21
Inter-segment expenses⁽²⁾		29			66			—			95

Total expenses		143			85			—			228

Income (loss) before taxes	$	(340	)	$	(69	)	$	—		$	(409	)

Identifiable assets	$	3,752		$	1,531		$	(80	)	$	5,203

(1)—Represents the sum of third-party interest income, investment management services fees and other fees.

(2)—Represents intercompany asset management fees and expenses plus intercompany interest income and expense pertaining to intercompany debt.


	Year Ended December 31, 2010
In millions	Asset / Liability Products			Conduits			Eliminations			Total Wind- down Operations
Revenues⁽¹⁾	$	109		$	4		$	—		$	113
Net gains (losses) on financial instruments at fair value and foreign exchange		(76	)		—			—			(76	)
Net investment losses related to other-than-temporary impairments		(59	)		—			—			(59	)
Net gains (losses) on extinguishment of debt		35			—			—			35
Other net realized gains (losses)		0			—			—			0
Revenues of consolidated VIEs		44			52			—			96
Inter-segment revenues⁽²⁾		(13	)		(4	)		(1	)		(18	)

Total revenues		40			52			(1	)		91
Operating expenses		5			(1	)		—			4
Interest expense		125			—			—			125
Expenses of consolidated VIEs		0			19			—			19
Inter-segment expenses⁽²⁾		58			3			(1	)		60

Total expenses		188			21			(1	)		208

Income (loss) before taxes	$	(148	)	$	31		$	—		$	(117	)

Identifiable assets	$	5,125		$	1,565		$	(258	)	$	6,432

(1)—Represents the sum of third-party interest income, investment management services fees and other fees.

(2)—Represents intercompany asset management fees and expenses plus intercompany interest income and expense pertaining to intercompany debt.


	Year Ended December 31, 2009
In millions	Asset / Liability Products			Conduits			Eliminations			Total Wind- down Operations
Revenues⁽¹⁾	$	192		$	1		$	—		$	193
Net gains (losses) on financial instruments at fair value and foreign exchange		146			—			—			146
Net investment losses related to other-than-temporary impairments		(352	)		—			—			(352	)
Net gains (losses) on extinguishment of debt		203			—			—			203
Other net realized gains (losses)		4			—			—			4
Revenues of consolidated VIEs		(13	)		52			—			39
Inter-segment revenues⁽²⁾		(1	)		(3	)		1			(3	)

Total revenues		179			50			1			230
Operating expenses		25			2			—			27
Interest expense		169			—			—			169
Expenses of consolidated VIEs		0			14			—			14
Inter-segment expenses⁽²⁾		112			5			(1	)		116

Total expenses		306			21			(1	)		326

Income (loss) before taxes	$	(127	)	$	29		$	2		$	(96	)

Identifiable assets	$	6,191		$	1,992		$	(91	)	$	8,092

(1)—Represents the sum of third-party interest income, investment management services fees and other fees.

(2)—Represents intercompany asset management fees and expenses plus intercompany interest income and expense pertaining to intercompany debt.