Business Segments

6 Months Ended

Jun. 30, 2018

Note 10: Business Segments

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 Company manages its businesses across three operating segments: 1) U.S. public finance insurance; 2) corporate; and 3) international and structured finance insurance. The Company’s U.S. public finance insurance business is operated through National and its international and structured finance insurance business is operated through MBIA Corp.

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 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, U.S. public finance insured obligations when due. The obligations are not subject to acceleration, except that National may have the right, at its discretion, to accelerate insured obligations upon default or otherwise. National’s guarantees insure municipal bonds, including tax-exempt and taxable indebtedness of U.S. political subdivisions, as well as utilities, 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.

Corporate

The Company’s corporate segment consists of general corporate activities, including providing support services to MBIA Inc.’s subsidiaries as well as asset and capital management. Support services are provided by the Company’s service company, MBIA Services Corporation, 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 subsidiaries, MBIA Global Funding, LLC (“GFL”) and MBIA Investment Management Corp. (“IMC”). MBIA Inc. issued debt to finance the operations of the MBIA group. GFL raised funds through the issuance of MTNs with varying maturities, which were in turn guaranteed by MBIA Corp. GFL lent the proceeds of these MTN issuances to MBIA Inc. 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. The Company has ceased issuing new MTNs and investment agreements and the outstanding liability balances and corresponding asset balances have declined over time as liabilities matured, terminated or were called or repurchased. All of the debt within the corporate segment is managed collectively and is serviced by available liquidity.

International and Structured Finance Insurance

The Company’s international and structured finance 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, 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 the investment contracts written by MBIA Inc., 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. insures debt obligations of the following affiliates:

MBIA Inc.;
GFL;
IMC;
MZ Funding LLC; and
LaCrosse Financial Products, LLC, a wholly-owned affiliate, to which MBIA Insurance Corporation has written insurance policies guaranteeing the obligations under CDS. Certain policies cover payments potentially due under CDS, including termination payments that may become due in certain circumstances, including the occurrence of certain insolvency or payment defaults under the CDS or derivatives contracts by the insured counterparty or by the guarantor.

MBIA Corp. insures non-U.S. public finance and global structured finance obligations, including asset-backed obligations. MBIA Corp. has insured sovereign-related and sub-sovereign bonds, utilities, privately issued bonds used for the financing of projects that include toll roads, bridges, airports, 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 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, and leases for equipment, aircraft and real estate property. MBIA Corp. has also written policies guaranteeing obligations under certain other derivative contracts, including termination payments that may become due upon certain insolvency or payment defaults of the financial guarantor or the issuer. The Company is no longer insuring new credit derivative contracts except for transactions related to the restructuring or reduction of existing derivative exposure. MBIA Corp. has not written any meaningful amount of business since 2008.

Segments Results

The following tables provide the Company’s segment results for the three months ended June 30, 2018 and 2017:

			Three Months Ended June 30, 2018
			U.S.				International
			Public				and Structured
			Finance				Finance
In millions			Insurance		Corporate		Insurance		Eliminations			Consolidated
Revenues⁽¹⁾			$	41	$	7	$	22	$	-		$	70
Net change in fair value of insured derivatives				-		-		(7)		-			(7)
Net gains (losses) on financial instruments at fair value and
	foreign exchange			(8)		28		2		-			22
Net investment losses related to other-than-temporary impairments				(1)		-		-		-			(1)
Revenues of consolidated VIEs				-		-		(72)		-			(72)
Inter-segment revenues⁽²⁾				6		11		6		(23)			-
		Total revenues		38		46		(49)		(23)			12
Losses and loss adjustment				59		-		-		-			59
Operating				6		13		4		-			23
Interest				-		20		32		-			52
Expenses of consolidated VIEs				-		-		24		-			24
Inter-segment expenses⁽²⁾				9		3		12		(24)			-
		Total expenses		74		36		72		(24)			158
Income (loss) before income taxes				(36)		10		(121)		1			(146)
Provision (benefit) for income taxes				(8)		-		-		8			-
Net income (loss)			$	(28)	$	10	$	(121)	$	(7)		$	(146)
Identifiable assets			$	4,412	$	1,100	$	5,217	$	(2,030)	⁽³⁾	$	8,699
________________
(1) - Represents the sum of third-party financial guarantee net premiums earned, net investment income, insurance-related fees and reimbursements and other fees.
(2) - Represents intercompany premium income and expense and intercompany interest income and expense pertaining to intercompany receivables and payables.
(3) - Consists primarily of intercompany reinsurance balances and repurchase agreements.


			Three Months Ended June 30, 2017
			U.S.				International
			Public				and Structured
			Finance				Finance
In millions			Insurance		Corporate		Insurance		Eliminations			Consolidated
Revenues⁽¹⁾			$	62	$	8	$	17	$	-		$	87
Net change in fair value of insured derivatives				-		-		3		-			3
Net gains (losses) on financial instruments at fair value and
	foreign exchange			14		(55)		(20)		-			(61)
Net investment losses related to other-than-temporary impairments				(11)		-		-		-			(11)
Other net realized gains (losses)				-		(1)		35		-			34
Revenues of consolidated VIEs				-		-		20		-			20
Inter-segment revenues⁽²⁾				5		15		11		(31)			-
		Total revenues		70		(33)		66		(31)			72
Losses and loss adjustment				158		-		12		-			170
Operating				16		14		10		-			40
Interest				-		22		28		-			50
Expenses of consolidated VIEs				-		-		22		-			22
Inter-segment expenses⁽²⁾				16		1		14		(31)			-
		Total expenses		190		37		86		(31)			282
Income (loss) before income taxes				(120)		(70)		(20)		-			(210)
Provision (benefit) for income taxes				(43)		1,074		1,199		(1,211)			1,019
Net income (loss)			$	(77)	$	(1,144)	$	(1,219)	$	1,211		$	(1,229)
Identifiable assets			$	5,074	$	1,233	$	5,313	$	(1,853)	⁽³⁾	$	9,767
________________
(1) - Represents the sum of third-party financial guarantee net premiums earned, net investment income, insurance-related fees and reimbursements and other fees.
(2) - Represents intercompany premium income and expense and intercompany interest income and expense pertaining to intercompany receivables and payables.
(3) - Consists primarily of intercompany reinsurance balances and repurchase agreements.

The following tables provide the Company’s segment results for the six months ended June 30, 2018 and 2017:

			Six Months Ended June 30, 2018
			U.S.				International
			Public				and Structured
			Finance				Finance
In millions			Insurance		Corporate		Insurance		Eliminations			Consolidated
Revenues⁽¹⁾			$	94	$	14	$	39	$	-		$	147
Net change in fair value of insured derivatives				-		-		(12)		-			(12)
Net gains (losses) on financial instruments at fair value and
	foreign exchange			(14)		31		(4)		-			13
Net investment losses related to other-than-temporary impairments				(2)		-		-		-			(2)
Other net realized gains (losses)				-		(2)		1		-			(1)
Revenues of consolidated VIEs				-		-		(60)		-			(60)
Inter-segment revenues⁽²⁾				13		24		13		(50)			-
		Total revenues		91		67		(23)		(50)			85
Losses and loss adjustment				136		-		(5)		-			131
Operating				9		26		12		-			47
Interest				-		40		63		-			103
Expenses of consolidated VIEs				-		-		46		-			46
Inter-segment expenses⁽²⁾				24		9		18		(51)			-
		Total expenses		169		75		134		(51)			327
Income (loss) before income taxes				(78)		(8)		(157)		1			(242)
Provision (benefit) for income taxes				(17)		(33)		(5)		57			2
Net income (loss)			$	(61)	$	25	$	(152)	$	(56)		$	(244)
Identifiable assets			$	4,412	$	1,100	$	5,217	$	(2,030)	⁽³⁾	$	8,699
________________
(1) - Represents the sum of third-party financial guarantee net premiums earned, net investment income, insurance-related fees and reimbursements and other fees.
(2) - Represents intercompany premium income and expense and intercompany interest income and expense pertaining to intercompany receivables and payables.
(3) - Consists primarily of intercompany reinsurance balances and repurchase agreements.

			Six Months Ended June 30, 2017
			U.S.				International
			Public				and Structured
			Finance				Finance
In millions			Insurance		Corporate		Insurance		Eliminations			Consolidated
Revenues⁽¹⁾			$	130	$	16	$	44	$	-		$	190
Net change in fair value of insured derivatives				-		-		(50)		-			(50)
Net gains (losses) on financial instruments at fair value and
	foreign exchange			18		(39)		(23)		-			(44)
Net investment losses related to other-than-temporary impairments				(13)		-		-		-			(13)
Net gains (losses) on extinguishment of debt				-		8		-		-			8
Other net realized gains (losses)				-		(2)		39		-			37
Revenues of consolidated VIEs				-		-		21		-			21
Inter-segment revenues⁽²⁾				10		31		20		(61)			-
		Total revenues		145		14		51		(61)			149
Losses and loss adjustment				169		-		95		-			264
Operating				26		32		18		-			76
Interest				-		44		54		-			98
Expenses of consolidated VIEs				-		-		41		-			41
Inter-segment expenses⁽²⁾				31		2		28		(61)			-
		Total expenses		226		78		236		(61)			479
Income (loss) before income taxes				(81)		(64)		(185)		-			(330)
Provision (benefit) for income taxes				(31)		1,070		1,142		(1,210)			971
Net income (loss)			$	(50)	$	(1,134)	$	(1,327)	$	1,210		$	(1,301)
Identifiable assets			$	5,074	$	1,233	$	5,313	$	(1,853)	⁽³⁾	$	9,767
________________
(1) - Represents the sum of third-party financial guarantee net premiums earned, net investment income, insurance-related fees and reimbursements and other fees.
(2) - Represents intercompany premium income and expense and intercompany interest income and expense pertaining to intercompany receivables and payables.
(3) - Consists primarily of intercompany reinsurance balances and repurchase agreements.