For the nine months ended September 30, 2019, the Company’ effective tax rate applied to its loss before income taxes was lower than the U.S. statutory tax rate due to the full valuation allowance on the changes in its net deferred tax asset and the application of intraperiod tax accounting, partially offset by state income tax expense. There is an offsetting expense recorded to other comprehensive income for the change in the valuation allowance related to the application of intraperiod tax accounting.

For the nine months ended September 30, 2018, the Company’s effective tax rate applied to its loss before income taxes was lower than the U.S. statutory rate due to the full valuation allowance on the changes in its net deferred tax asset.

Deferred Tax Asset, Net of Valuation Allowance

The Company assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of its existing deferred tax assets. A significant piece of objective negative evidence evaluated was the Company having a three-year cumulative loss. Such objective evidence limits the ability to consider other subjective evidence, such as the Company’s projections of

pre-tax

income. On the basis of this evaluation, the Company has recorded a full valuation allowance against its net deferred tax asset of $832 million and $834 million as of September 30, 2019 and December 31, 2018, respectively. The Company will continue to analyze the valuation allowance on a quarterly basis.

Under the Act, net operating losses (“NOLs”) of property and casualty insurance companies retain their current

two-year

carryback and

20-year

carryforward periods and will not be subject to the 80 percent taxable income limitation and indefinite lived carryforward period applicable to general corporate NOLs. Therefore, NOLs generated after 2017 by the Company’s insurance companies and

non-insurance

companies will be treated differently under the Act.

Accounting for Uncertainty in Income Taxes

The Company’s policy is to record and disclose any change in unrecognized tax benefit (“UTB”) and related interest and/or penalties to income tax in the consolidated statements of operations. The Company includes interest as a component of income tax expense. As of September 30, 2019 and

December 31,

2018, the Company had

UTB.

Federal income tax returns through 2011 have been examined or surveyed. As of September 30, 2019, the Company’s NOL is approximately $2.5 billion. The NOL will expire between tax years 2032 through 2039. As of September 30, 2019, the Company has a foreign tax credit carryforward of $62 million, which will expire between tax years 2019 through 2029. As of September 30, 2019, the Company has an alternative minimum tax (“AMT”) credit carryforward of $26 million, which does not expire. As a result of tax reform, AMT credits are now fully refundable no later than 2022. The AMT credit has been reclassed out of the deferred tax asset and into other assets as the AMT credits are now a receivable.

Section 382 of the Internal Revenue Code

On May 2, 2018, MBIA Inc.’s shareholders ratified an amendment to the Company’s

By-Laws,

which had been adopted earlier by MBIA Inc.’s Board of Directors. The amendment places restrictions on certain acquisitions of Company stock that otherwise may have increased the likelihood of an ownership change within the meaning of Section 382 of the Internal Revenue Code. The amendment generally prohibits a person from becoming a “Section 382 five-percent shareholder” by acquiring, directly or by attribution, 5% or more of the outstanding shares of the Company’s common stock and will generally restrict existing “Section 382 five-percent shareholders” from increasing their ownership interest under Section 382 by more than one percentage point over their percentage stock ownership immediately prior to the effective date of the amendment or, if lower, their percentage thereafter.