On September 13, 2018, the Appellate Division of the Supreme Court, First Judicial Department issued a ruling on the parties’ cross-appeals from the court’s March 31, 2017 decision and order on the parties’ summary judgment motions. The ruling affirmed the trial court’s decision, except reversed as to the trial court’s determination to interpret as a matter of law, prior to trial, certain of the representations and warranties that form the predicate for certain of MBIA Corp.’s breach of contract claims. Trial began on July 22, 2019 and concluded on August 2, 2019. Post-trial briefs were exchanged on October 17, 2019, and replies are due November 21, 2019, following which the case will be under submission to the Court.

On November 2, 2015, Lynn Tilton and Patriarch Partners XV, LLC filed a complaint in New York State Supreme Court,

Westchester

County, against MBIA Inc. and MBIA Corp., alleging fraudulent inducement and related claims arising from purported promises made in connection with insurance policies issued by MBIA Corp. on certain collateralized loan obligations managed by Ms. Tilton and affiliated Patriarch entities, and seeking damages. The plaintiffs filed an amended complaint on January 15, 2016. On March 11, 2018, Ms. Tilton commenced the Zohar Funds Bankruptcy Cases. On May 21, 2018, the court approved the Zohar Bankruptcy Settlement. Subsequently, the parties to the above-captioned litigation jointly filed a request to stay the case for, at minimum, fifteen months, which was granted by Justice Walsh on June 11, 2018. On September 30, 2019, the parties’ agreed-upon stay expired. On October 21, 2019, the Company removed the case to the United States District Court for the Southern District, where it is currently pending

On November 22, 2017, in a previously pending litigation commenced by the Zohar Funds against Lynn Tilton and her various Patriarch Partners and Octaluna affiliates (collectively “Tilton”), Tilton filed

twenty-two

counterclaims and third-party claims against MBIA Inc., MBIA Corp., the Zohar Funds and other entities involved in the Zohar transactions. With respect to the twelve claims asserted against MBIA Inc. and MBIA Corp., Tilton alleged causes of action based on fraud and breaches of fiduciary duty and contract, among others, relating to Tilton’s resignation as collateral manager of the Zohar Funds, the December 2016 auction of collateral assets belonging to Zohar I and the parties’ various disputes concerning the ownership and control over the portfolio companies to which the Zohar Funds made loans and hold certain equity interests. Following Tilton’s commencement of the Zohar Funds Bankruptcy Cases on March 11, 2018 and approval of the Zohar Bankruptcy Settlement, the court stayed the action until October 8, 2019, on which date the court ordered the parties to conduct briefing regarding the court’s jurisdiction to hear the case and the Zohar Funds’ anticipated motion to transfer the case to Delaware to be heard with the Zohar Funds Bankruptcy Cases. Briefing on those issues is scheduled to commence on November 7, 2019, and argument is scheduled for January 23, 2020.

On October 1, 2019, Lynn Tilton and her various Patriarch Partners and Octaluna affiliated entities commenced an adversary proceeding in the Zohar Funds Bankruptcy Cases by filing a complaint against MBIA Inc., MBIA Corp. and other Zohar Fund creditors seeking the equitable subordination of those creditors’ claims with respect to the Zohar Funds. The plaintiffs claim they are entitled to subordination of the defendants’ claims in the Zohar Funds based on similar allegedly inequitable and unfair conduct described in plaintiffs’ allegations in the Westchester Action and SDNY Action. The plaintiffs further allege that MBIA Inc. and MBIA Corp. engaged in inequitable conduct following the commencement of the Zohar Funds Bankruptcy Cases.

On May 21, 2017, the Oversight Board filed a petition under Title III of PROMESA to adjust the debts for the Puerto Rico Highways & Transportation Authority (“PRHTA”). On June 3, 2017, National, together with Assured Guaranty Corp. and Assured Guaranty Municipal Corp. and Financial Guaranty Insurance Company, filed an adversary complaint in the case commenced by the Title III filing, alleging that the Commonwealth and PRHTA are unlawfully diverting pledged special revenues from the payment of certain PRHTA bonds to the Commonwealth’s General Fund. Motions to dismiss were filed on June 28, 2017, and oral arguments were heard on November 21, 2017. On January 30, 2018, the court granted the Commonwealth defendants’ motion to dismiss the PRHTA-related adversary complaint. On February 9, 2018, National, together with Assured, Assured Guaranty Municipal Corp. and Financial Guaranty Insurance Company filed their notice of appeal of the motions to dismiss to the United States Court of Appeals for the First Circuit. Appellants filed their opening brief on May 9, 2018, and Appellees filed their opposition brief on July 9, 2018. Appellants’ reply brief was filed on August 8, 2018. Oral argument was held on November 5, 2018. On March 26, 2019, the First Circuit held that consensual prepetition liens on special revenues will remain in place after the filing of the bankruptcy petition, but agreed with the district court that the provision “does not mandate the turnover of special revenues or require continuity of payments of the PRHTA Bonds during the pendency of the Title III proceeding.” Appellants have submitted a motion seeking review of this opinion by the full First Circuit panel, and will determine within the 90 days of this decision whether to file a writ of certiorari for hearing before the United States Supreme Court. On July 31, 2019, the First Circuit denied the request for full panel review, which permit

the movants to file a writ of certiorari requesting a Supreme Court review of the First Circuit’s ruling.

On September 20, 2019, Appellants filed a petition for a writ of certiorari requesting Supreme Court review of the First Circuit’s ruling.

On August 23, 2019, National and Assured (“Movants”) filed a motion in the Title III case for PRHTA for adequate protection or, in the alternative, relief from the automatic stay. The motion argues that the revenues securing the bonds insured by Movants are being improperly diverted away from PRHTA, despite such revenues being the exclusive property of PRHTA and its bondholders. The proceeding is currently stayed until

December

, 2019 pending the outcome of mandatory mediation ordered by the Title III Court.

On July 18, 2017, National, together with other PREPA bondholders, asked the court overseeing PREPA’s Title III bankruptcy proceeding to lift the automatic bankruptcy stay, and permit bondholders to seek appointment of a receiver to oversee PREPA. On September 14, 2017, the court held that PROMESA barred relief from the stay because the appointment of a receiver would (i) interfere with PREPA’s property and governmental powers, and (ii) violate the court’s exclusive jurisdiction over PREPA’s property. The court also held that a comparison of the harms facing both parties pointed towards denying relief from the stay. The bondholders appealed the decision to the First Circuit. As of April 23, 2018, the appeal was fully briefed. The First Circuit heard oral argument on June 5, 2018. On August 8, 2018, the United State Court of Appeals for the First Circuit issued an order reversing Judge Swain’s decision on jurisdictional grounds and remanding the motion. On October 3, 2018, National, together with Assured Guaranty Corp., Assured Guaranty Municipal Corp., and Syncora Guarantee Inc. (collectively, “Movants”) filed an updated motion for relief from the automatic stay to allow Movants to exercise their statutory right to have a receiver appointed at PREPA (the “Receiver Motion”). Discovery in connection with the Receiver Motion is ongoing. The Oversight Board filed a Motion to Dismiss the Receiver Motion (together with the Receiver Motion, the “Motions”). The Title III Court approved a number of requests to extend the deadline for the Oversight Board to respond to the Receiver Motion and for Movants to respond to the Motion to Dismiss the Receiver Motion. The Motions have been stayed until the Court rules on the motion currently scheduled to be heard on January 14, 2020 seeking to approve the Definitive Restructuring Support Agreement (as amended, the “RSA”).

On May 3, 2019, PREPA, the Oversight Board, the Puerto Rico Fiscal Agency and Financial Advisory Authority (“AAFAF”), the Ad Hoc Group of PREPA bondholders (the “Ad Hoc Group”), and Assured Guaranty Corp. and Assured Guaranty Municipal Corp. (“Assured”) (together, the “RSA Parties”)

previously entered into the RSA. On September 9, 2019 National, and Syncora Guarantee Inc. (“Syncora”), and the RSA Parties agreed on an amendment to the RSA pursuant to which National and Syncora joined the RSA.

Among other things, the RSA contemplates a transaction pursuant to which, upon the effective date of a plan of adjustment, PREPA’s legacy bonds will be exchanged for new securitization bonds to be issued in two tranches (the “Securitization Bonds”). In addition, beginning on

the last day of the month in which the order approving the RSA is entered

, holders of bonds that are subject to the RSA will receive monthly settlement payments funded by a settlement charge to be included on customer bills (the “Settlement Payments”) until the effective date of a plan of adjustment for PREPA. The Settlement Payments are subject to increase if a plan of adjustment is not confirmed before March 31, 2021. The RSA provides that supporting parties will receive an administrative claim equal to interest accrued on certain of the securitization bonds, less the amount of any Settlement Payments made on account of such bonds, which administrative claim shall survive termination of the RSA. Additionally, pursuant to the RSA, supporting creditors will also receive certain fees and expense reimbursements. The RSA contemplates the filing of a plan of adjustment for PREPA by March 31, 2020.

Pursuant to the RSA, the Oversight Board filed a 9019 motion with the Title III court in May 2019 seeking approval of the RSA (the “Settlement Motion”)

The RSA requires, upon entry of the order approving the Settlement

Motion

(the “9019 Order”), that Movants will withdraw

the Receiver Motion

, and

the Ad Hoc Group

will

support

ch wi

thdrawal

. The RSA further states that the hearing for approval of the Settlement Motion is contingent on receiving no later than two business days prior to such hearing the support of holders or insurers representing a minimum of 60% in aggregate principal amount of all legacy bonds.

Approximately

% of PREPA’s bondholders have joined the deal.

As contemplated by the RSA, on July 1, 2019, the Oversight Board and AAFAF also filed an adversary complaint against the Trustee for the PREPA Bonds, challenging the validity of the liens arising under the Trust Agreement that secure insured obligations of National. The adversary proceeding is stayed until the earlier of (a) 60 days after the Court denies the

Sett

leme

Motion, (b) consummation of a Plan, (c) 60 days after the filing by the Oversight Board and AAFAF of a Litigation Notice, or (d) further order of the Court.

On July 9, 2019, the “Fuel Line Lenders,” parties who extended approximately $700 million in working capital to PREPA beginning in 2012 to fund fuel purchases, filed an adversary complaint against the Oversight Board, PREPA, AAFAF, and the Trustee for the PREPA Bonds, alleging that they are entitled to be paid in full before National and other bondholders have any lien on or recourse to PREPA’s assets, including pursuant to the RSA. On September 17, 2019, National, Assured, Syncora, and the Ad Hoc Group moved to intervene in the proceeding. On September 30, 2019, the Fuel Line Lenders filed an amended complaint which added National, Assured, Syncora, and the Ad Hoc Group as defendants.

On August 6, 2019, the Sistema de Retiro de los Empleados de la Autoridad de Energía Eléctrica filed an adversary complaint against the Oversight Board, PREPA, AAFAF, and the Trustee for the PREPA Bonds, which asserts an entitlement under the Trust Agreement to payment priority ahead of PREPA’s bondholders. On September 17, 2019, National, Assured, Syncora, and the Ad Hoc Group moved to intervene in the proceeding. Responses to the intervention motion were filed October 7, 2019, and replies were filed October 18, 2019.

On June 5, 2018, the Commonwealth and COFINA Agents agreed in principle to settle the Commonwealth-COFINA Dispute regarding the pledge of sales and use taxes and related issues under the Agents’ mediation authority. The Title III Court held a hearing to approve the settlement agreement, as amended by the parties, and confirm a plan of adjustment in the COFINA case incorporating the settlement on January 16 and 17, 2019 (the “Confirmation Hearing”). On February 4, 2019, the District Court for the District of Puerto Rico entered the order confirming the Third Amended Title III Plan of Adjustment for COFINA. The Plan effective date was February 12, 2019.

On December 21, 2018, the Oversight Board and the Official Committee of Unsecured Creditors of all Debtors other than COFINA filed an adversary complaint against the Puerto Rico Public Buildings Authority (“PBA”), seeking a declaration that leases purportedly entered into by PBA are in fact disguised financing transactions and that PBA therefore has no right under PROMESA or the Bankruptcy Code to receive post-petition payments from the Title III debtors or administrative claims against the debtors. On January 28, 2019, National filed a motion to intervene in the proceeding. On March 12, 2019, the Court granted National’s intervention motion. On March 19, 2019, National filed an answer to the complaint. The proceeding is currently stayed until December 31, 2019, pending the outcome of mandatory mediation ordered by the Title III Court.

On May 2, 2019, the Oversight Board and the Official Committee of Unsecured Creditors of all Title III Debtors filed an adversary complaint against National and numerous other defendants, challenging the existence, extent, and enforceability of asserted consensual and statutory liens on general obligation bonds issued by the Commonwealth. The proceeding is currently stayed until December 31, 2019, pending the outcome of mandatory mediation ordered by the Title III Court.

On August 8, 2019, National and MBIA Corp. filed suit in the Court of First Instance in San Juan, Puerto Rico against UBS Financial Services, Inc., UBS Securities LLC, Citigroup Global Markets Inc., Goldman Sachs & Co. LLC, J.P. Morgan Securities LLC, Morgan Stanley & Co. LLC, Merrill Lynch, Fenner & Smith Inc., RBC Capital Markets LLC, and Santander Securities LLC, bringing two claims under Puerto Rico law: doctrina de actos propios (the doctrine of one’s own acts) and unilateral declaration of will. These claims concern the insurance by National and MBIA of bonds issued by the Commonwealth of Puerto Rico and its instrumentalities that were underwritten by these defendants. National and MBIA allege that, when the defendants solicited bond insurance, they represented through their acts that they would investigate certain information they provided to National and MBIA and that they had a reasonable basis to believe that information was true and complete. National and MBIA further allege, however, that the defendants, contrary to their representations, did not perform such investigations and that key information was untrue or incomplete. National and MBIA relied on defendants’ acts to their detriment. National and MBIA seek damages to be proven at trial. On September 9, 2019, Defendants removed National’s claims to federal court in the District of Puerto Rico. National filed its motion to remand the case on October 9, 2019. Defendants’ opposition is due no later than November 8, 2019 and National expects to file its reply no later than November 29, 2019.

For those aforementioned actions in which it is a defendant, the Company is defending against those actions and expects ultimately to prevail on the merits. There is no assurance, however, that the Company will prevail in these actions. Adverse rulings in these actions could have a material adverse effect on the Company’s ability to implement its strategy and on its business, results of operations, cash flows and financial condition. At this stage of the litigation, there has not been a determination as to the amount, if any, of damages. Accordingly, the Company is not able to estimate any amount of loss or range of loss. The Company similarly can provide no assurance that it will be successful in those actions in which it is a plaintiff.

The Company has a lease agreement for its headquarters in Purchase, New York as well as other immaterial leases for offices in New York, New York and San Francisco, California, as well as office equipment. The Purchase, New York initial lease term expires in 2030 with the option to terminate the lease in 2025 upon the payment of a termination amount. This lease agreement included an incentive amount to fund certain leasehold improvements, renewal options, escalation clauses and a free rent period. This lease agreement has been classified as an operating lease, and operating rent expense is recognized on a straight-line basis. The following table provides information about the Company’s leases as of September 30, 2019: