Insurance in Force

12 Months Ended

Dec. 31, 2016

Note 13: Insurance in Force

MBIA guarantees the payment of principal of, and interest or other amounts owing on, municipal, asset-backed, mortgage-backed and other non-municipal securities. Additionally, MBIA Corp. has insured CDS primarily on pools of collateral, which it previously considered part of its core financial guarantee business. The pools of collateral are made up of corporate obligations, but also include commercial and RMBS-related assets and ABS securities. MBIA’s insurance in force represents the aggregate amount of the insured principal of, and interest or other amounts owing on, insured obligations. MBIA’s ultimate exposure to credit loss in the event of nonperformance by the issuer of the insured obligation is represented by the insurance in force in the tables that follow.

The financial guarantees issued by MBIA provide unconditional and irrevocable guarantees of the payment of the principal of, and interest or other amounts owing on, insured obligations when due. The obligations are generally not subject to acceleration, except that MBIA may have the right, at its discretion, to accelerate insured obligations upon default or otherwise. Certain guaranteed investment contracts written by MBIA Inc. and guaranteed by MBIA Corp. are terminable based upon the credit ratings downgrades of MBIA Corp. and if MBIA Inc. were to have insufficient assets to pay the termination payments, MBIA Corp.’s insurance coverage would be drawn on to make such payments. These amounts have been excluded in the tables that follow.

The creditworthiness of each insured obligation is evaluated prior to the issuance of insurance, and each insured obligation must comply with National’s or MBIA Corp.’s underwriting guidelines. Further, the payments to be made by the issuer on the bonds or notes may be backed by a pledge of revenues, reserve funds, letters of credit, investment contracts or collateral in the form of mortgages or other assets. The right to such funds or collateral would typically become National’s or MBIA Corp.’s upon the payment of a claim by either National or MBIA Corp.

National and MBIA Corp. maintain underwriting guidelines based on those aspects of credit quality that it deems important for each category of obligation considered for insurance.

As of December 31, 2016, insurance in force, which represents principal and interest or other amounts owing on insured obligations, had an expected maturity range of 1 to 41 years. The distribution of MBIA Corp.’s and National’s combined insurance in force by geographic location, excluding $1.9 billion and $2.2 billion relating to debt obligations guaranteed by MBIA Corp. on behalf of affiliated companies as of December 31, 2016 and 2015, respectively, is presented in the following table:

		As of December 31,
$ in billions		2016			2015
				% of			% of
		Insurance		Insurance	Insurance		Insurance
Geographic Location		in Force		in Force	in Force		in Force
California		$	42.7	18.1%	$	55.5	17.0%
New York			16.6	7.0%		23.4	7.1%
Illinois			15.4	6.5%		20.5	6.3%
New Jersey			11.5	4.9%		13.7	4.2%
Texas			9.1	3.9%		14.5	4.4%
Florida			8.7	3.7%		15.2	4.7%
Puerto Rico			8.6	3.6%		9.0	2.8%
Virginia			5.2	2.2%		6.2	1.9%
Hawaii			5.2	2.2%		6.1	1.9%
Colorado			5.1	2.2%		6.9	2.1%
	Subtotal		128.1	54.3%		171.0	52.4%
Nationally diversified			20.4	8.6%		28.9	8.9%
Other states			57.0	24.2%		90.4	27.6%
	Total United States		205.5	87.1%		290.3	88.9%
Internationally diversified			0.5	0.2%		1.1	0.3%
Country specific			29.9	12.7%		35.2	10.8%
	Total non-United States		30.4	12.9%		36.3	11.1%
Total		$	235.9	100.0%	$	326.6	100.0%

The insurance in force by type of bond, excluding transactions guaranteed by MBIA Corp. on behalf of affiliated companies, is presented in the following table:

				As of December 31,
$ in billions				2016			2015
						% of			% of
				Insurance		Insurance	Insurance		Insurance
Bond type				in Force		in Force	in Force		in Force
Global public finance¾United States:
	General obligation⁽¹⁾			$	64.6	27.4%	$	89.4	27.4%
	General obligation¾lease				12.2	5.2%		20.0	6.1%
	Municipal utilities				26.1	11.0%		41.8	12.8%
	Tax-backed				33.0	14.0%		41.6	12.7%
	Transportation				21.7	9.2%		28.9	8.8%
	Higher education				6.8	2.9%		13.5	4.1%
	Health care				4.2	1.8%		6.6	2.0%
	Military housing				16.8	7.1%		17.3	5.3%
	Investor-owned utilities⁽²⁾				3.7	1.6%		5.4	1.7%
	Municipal housing				0.7	0.3%		1.5	0.5%
	Other⁽³⁾				1.7	0.7%		1.5	0.5%
		Total United States			191.5	81.2%		267.5	81.9%
Global public finance¾non-United States:
	International utilities				10.1	4.3%		12.1	3.7%
	Sovereign-related and sub-sovereign⁽⁴⁾				11.3	4.8%		13.7	4.2%
	Transportation				7.1	3.0%		7.6	2.3%
	Local governments				0.1	0.0%		0.3	0.1%
	Tax-backed				0.2	0.1%		0.2	0.1%
		Total non-United States			28.8	12.2%		33.9	10.4%
			Total global public finance		220.3	93.4%		301.4	92.3%

Global structured finance:
	Collateralized debt obligations				2.7	1.1%		6.4	1.9%
	Mortgage-backed residential				6.3	2.7%		8.0	2.5%
	Mortgage-backed commercial				0.7	0.3%		0.9	0.3%
	Consumer asset-backed				1.2	0.5%		1.6	0.5%
	Corporate asset-backed⁽⁵⁾				4.7	2.0%		8.3	2.5%
		Total global structured finance			15.6	6.6%		25.2	7.7%
			Total	$	235.9	100.0%	$	326.6	100.0%
___________________
(1) - Includes general obligation unlimited and limited (property) tax bonds, general fund obligation bonds and pension obligation bonds of states, cities, counties, schools and special districts.
(2) - Includes investor owned utilities, industrial development and pollution control revenue bonds.
(3) - Includes certain non-profit enterprises, stadium related financing and student loans.
(4) - Includes regions, departments or their equivalent in each jurisdiction as well as sovereign owned entities that are supported by a sovereign state, region or department.
(5) - Includes $2.6 billion and $5.1 billion of structured insurance securitizations as of December 31, 2016 and 2015, respectively.

Included in the preceding tables, as of December 31, 2016, there was $18.6 billion of insurance in force related to MBIA UK, which was sold to Assured in January of 2017. Refer to “Note 1: Business Developments and Risks and Uncertainties” for a discussion on the sale of MBIA UK. The insurance operations have entered into certain guarantees of derivative contracts, included in the preceding tables, which are accounted for as derivative instruments. MBIA generally guarantees the timely payment of principal and interest related to these derivatives upon the occurrence of a credit event with respect to a referenced obligation. The maximum amount of future payments that MBIA may be required to make under these guarantees is $1 billion. MBIA’s guarantees of derivative contracts have a legal maximum maturity range of 1 to 40 years. A small number of insured credit derivative contracts have long-dated maturities, which comprise the longest maturity dates of the underlying collateral. However, the expected maturities of such contracts are much shorter due to amortizations and prepayments in the underlying collateral pools. The fair values of these guarantees as of December 31, 2016 and 2015 are recorded on the consolidated balance sheets as derivative liabilities, representing gross losses, of $66 million and $88 million, respectively.

Investment agreement contracts and MTNs issued by the Company’s corporate segment are insured by MBIA Corp. and are not included in the previous tables. If MBIA Inc. or these subsidiaries were to have insufficient assets to pay amounts due, MBIA Corp. would be obligated to make such payments under its insurance policies. As of December 31, 2016, the maximum amount of future payments that MBIA Corp. could be required to make under these guarantees is $1.9 billion. These guarantees, which have a maximum maturity range of 1 to 21 years, were entered into on an arm’s length basis. MBIA Corp. has both direct recourse provisions and subrogation rights in these transactions. If MBIA Corp. is required to make a payment under any of these affiliate guarantees, it would have the right to seek reimbursement from such affiliate and to liquidate any collateral to recover amounts paid under the guarantee.

Reinsured Exposure

Reinsurance enables the Company to cede exposure for purposes of syndicating risk. When a reinsurer is downgraded by one or more of the rating agencies, less capital credit is given to MBIA under rating agency models and the overall value of the reinsurance to MBIA is reduced. 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. The Company does not use reinsurance on new policies to decrease its insured exposure.

MBIA requires certain unauthorized reinsurers to maintain bank letters of credit or establish trust accounts to cover liabilities ceded to such reinsurers under reinsurance contracts. The Company remains liable on a primary basis for all reinsured risk. MBIA believes that its reinsurers remain capable of meeting their obligations, although, there can be no assurance of such in the future.

The aggregate amount of insurance in force ceded by MBIA to reinsurers was $7.6 billion and $9.5 billion as of December 31, 2016 and 2015, respectively. Included in the reinsurance insurance in force as of December 31, 2016 was $267 million related to MBIA UK.

As of December 31, 2016, the aggregate amount of insured par outstanding ceded by MBIA to reinsurers under reinsurance agreements was $4.2 billion compared with $5.3 billion as of December 31, 2015. As of December 31, 2016, $3.4 billion of the ceded par outstanding was ceded from the Company’s U.S. public finance insurance segment and $804 million was ceded from the Company’s international and structured finance insurance segment. Under National’s reinsurance agreement with MBIA Corp., if a reinsurer of MBIA Corp. is unable to pay claims ceded by MBIA Corp. on U.S. public finance exposure, National will assume liability for such ceded claim payments. The following table presents information about the Company’s reinsurance agreements as of December 31, 2016 for its U.S. public finance and international and structured finance insurance operations.

In millions
	Standard &				Letters of
	Poor's Rating	Moody's Rating	Ceded Par		Credit/ Trust		Reinsurance
Reinsurers	(Status)	(Status)	Outstanding⁽¹⁾		Accounts		Recoverable⁽²⁾

Assured Guaranty Re Ltd.	AA	WR⁽³⁾	$	2,402	$	26	$	-
	(Stable Outlook)
Assured Guaranty Corp.	AA	A3		1,391		-		6
	(Stable Outlook)	(Stable Outlook)
Overseas Private	AA+	Aaa		264		-		-
Investment Corporation	(Stable Outlook)	(Stable Outlook)
Others	A- or above	A2 or above		105		3		-
Total			$	4,162	$	29	$	6
_______________
(1) - Includes $170 million in ceded par outstanding related to MBIA UK.
(2) - Total reinsurance recoverable is primarily related to recoverables on unpaid losses.
(3) - Represents a withdrawal of ratings.

Premium Summary

The components of financial guarantee net premiums earned, including premiums assumed from and ceded to other companies, are presented in the following table:

			Years Ended December 31,
In millions			2016		2015		2014
Net premiums earned:
	Direct		$	305	$	379	$	407
	Assumed			2		2		2
		Gross		307		381		409
	Ceded			(7)		(9)		(12)
		Net	$	300	$	372	$	397

For the year ended December 31, 2016, payments received for claims related to financial guarantee policies under reinsurance contracts totaled $12 million. For the year ended December 31, 2014, total salvage paid for financial guarantee policies under reinsurance contracts was $5 million. Ceding commissions from reinsurance, before deferrals and net of returned ceding commissions, were $1 million, $1 million and $2 million for the years ended December 31, 2016, 2015, and 2014, respectively.