As part of the GO PSA, in March of 2022, National received certain consideration including cash, bonds and the CVI and it is anticipated that National will receive cash, the CVI and bonds related to the HTA PSA. The ultimate recovery value to National will depend on the value of these assets upon issuance and over time. Refer to “Note 1: Business Developments and Risks and Uncertainties” for further information on the Company’s Puerto Rico exposures and “Note 13: Commitments and Contingencies” for information on the Company’s Puerto Rico litigation.

International and Structured Finance Insurance

The international and structured finance insurance segment’s case basis reserves and insurance loss recoveries recorded in accordance with GAAP do not include reserves and recoveries on consolidated VIEs, since they are eliminated in consolidation.

RMBS Case Basis Reserves (Financial Guarantees)

The Company’s RMBS case basis reserves primarily relate to RMBS backed by alternative

A-paper

and subprime mortgage loans. The Company calculated RMBS case basis reserves as of March 31, 2022 using a process called the Roll Rate Methodology (“Roll Rate Methodology”). The Roll Rate Methodology is a multi-step process using databases of loan level information, proprietary internal cash flow models, and commercially available models to estimate potential losses and recoveries on insured bonds. Roll Rate is defined as the probability that current loans become delinquent and subsequently default and loans in the delinquent pipeline are

charged-off

or liquidated. The loss reserve estimates are based on a probability-weighted average of potential scenarios of loan losses. Additional data used for both first and second-lien loans include historic averages of deal specific voluntary prepayment rates, forward projections of the LIBOR interest rates, and historic averages of deal-specific loss severities. Where applicable, the Company factors in termination scenarios when clean up calls are imminent.

In calculating ultimate cumulative losses for RMBS, the Company estimates the amount of first-lien loans that are expected to be liquidated in the future through foreclosure or short sale, and estimates, the amount of second-lien loans that are expected to be

charged-off

(deemed uncollectible by servicers of the transactions). The time to liquidation for a defaulted loan is specific to the loan’s delinquency bucket.

For all RMBS transactions, cash flow models consider allocations and other structural aspects and claims against MBIA Corp.’s insurance policy consistent with such policy’s terms and conditions. The estimated net claims from the procedure above are then discounted using a risk-free rate to a net present value reflecting MBIA’s general obligation to pay claims over time and not on an accelerated basis.

The Company monitors RMBS portfolio performance on a monthly basis against projected performance, reviewing delinquencies, roll rates, and prepayment rates (including voluntary and involuntary). However, loan performance remains difficult to predict and losses may exceed expectations. In the event of a material deviation in actual performance from projected performance, the Company would increase or decrease the case basis reserves accordingly and

re-evaluate

its assumptions.

RMBS Recoveries

The Company’s RMBS recoveries relate to structural features within the trust structures that allow for the Company to be reimbursed for prior claims paid. These reimbursements for specific trusts include recoveries that are generated from the excess spread of the transactions. Excess spread within insured RMBS securitizations is the difference between interest inflows on mortgage loan collateral and interest outflows on the insured RMBS notes.

CDO Reserves and Recoveries

The Company also has loss and loss adjustment expense (“LAE”) reserves on certain transactions within its CDO portfolio, primarily its multi-sector CDO asset class that was insured in the form of financial guarantee policies. MBIA’s insured multi-sector CDOs are transactions that include a variety of collateral ranging from corporate bonds to structured finance assets (which includes, but are not limited to, RMBS, commercial mortgage-backed securities (“CMBS”), asset-backed securities (“ABS”) and CDO collateral). The Company’s process for estimating reserves and credit impairments on these policies is determined as the present value of the probability-weighted potential future losses, net of estimated recoveries, across multiple scenarios. The Company considers several factors when developing the range of potential outcomes and their impact on MBIA. A range of loss scenarios is considered under different default and severity rates for each transaction’s collateral. Additionally, each transaction is evaluated for its commutation potential.

Zohar Recoveries

MBIA Corp. is seeking to recover the payments it made (plus interest and expenses) with respect to Zohar I and Zohar II. Salvage and subrogation recoveries related to Zohar I and Zohar II are reported within “Insurance loss recoverable” on the Company’s consolidated balance sheet. The Company’s estimate of the insurance loss recoverable for Zohar I and Zohar II includes probability-weighted scenarios of the ultimate monetized recovery from the Zohar Collateral.

MBIA Corp. anticipates that it will receive substantial recoveries on the Zohar Collateral. There still remains significant uncertainty with respect to the realizable value of the remaining Zohar Collateral. Further, as the monetization process at the remaining portfolio companies continues to unfold in coordination with the new directors and managers in place, and new information concerning the financial condition of the portfolio companies is disclosed, the Company will continue to revise its expectations for recoveries.

Summary of Loss and LAE Reserves and Recoveries

The Company’s loss and LAE reserves and recoveries before consolidated VIE eliminations, along with amounts that were eliminated as a result of consolidating VIEs for the international and structured finance insurance segment, which are included in the Company’s consolidated balance sheets as of March 31, 2022 and December 31, 2021 are presented in the following table:


	As of March 31, 2022						As of December 31, 2021
In millions	Balance Sheet Line Item						Balance Sheet Line Item
	Insurance loss recoverable			Loss and LAE reserves (1)			Insurance loss recoverable			Loss and LAE reserves (1)
U.S. Public Finance Insurance	$	128		$	460		$	1,054		$	425
International and Structured Finance Insurance:
Before VIE eliminations		240			635			244			687
VIE eliminations		(2	)		(209	)		(2	)		(218	)

Total international and structured finance insurance		238			426			242			469

Total	$	366		$	886		$	1,296		$	894

(1) - Amounts are net of estimated recoveries of expected future claims.

Changes in Loss and LAE Reserves

Loss and LAE reserves represent the Company’s estimate of future claims and LAE payments, net of any future recoveries of such payments. The following table presents changes in the Company’s loss and LAE reserves for the three months ended March 31, 2022. Changes in loss and LAE reserves, with the exception of loss and LAE payments and the impact of the revaluation of loss reserves denominated in amounts other than U.S. dollars, are recorded in “Losses and loss adjustment” expenses in the Company’s consolidated statements of operations. As of March 31, 2022, the weighted average risk-free rate used to discount the Company’s loss reserves (claim liability) was 2.46%. LAE reserves are generally expected to be settled within a

one-year

period and are not discounted. As of March 31, 2022 and December 31, 2021, the Company’s gross loss and LAE reserves included $34 million and $38

million, respectively, related to LAE.


In millions	Changes in Loss and LAE Reserves for the Three Months Ended March 31, 2022
Gross Loss and LAE Reserves as of December 31, 2021 (1)	Loss Payments	Accretion of Claim Liability Discount	Changes in Discount Rates	Changes in Assumptions	Changes in Unearned Premium Revenue	Gross Loss and LAE Reserves as of March 31, 2022 (1)
$894	$(326)	$3	$(22)	$336	$1	$886

(1) -

Includes

changes in amount and timing of estimated payments and recoveries.

The Company’s loss and LAE reserves declined from December 31, 2021, primarily due to an increase in the estimated value of recoveries related to the HTA restructuring, which is netted in loss and LAE reserves, claims payments related to the acceleration and commutation of GO exposure, scheduled claim payments on Puerto Rico exposures during the three months ended March 31, 2022, and a decline in net reserves on RMBS exposure as a result of an increase in risk-free rates used to present value loss reserves. This decline was partially offset by a decrease in PREPA recoveries on claims not yet paid, which are netted in loss and LAE reserves.

Changes in Insurance Loss Recoverable

Insurance loss recoverable represents the Company’s estimate of recoveries on paid claims and LAE. The Company recognizes potential recoveries on paid claims based on the probability-weighted net cash inflows present valued at applicable risk-free rates as of the measurement date. The following table presents changes in the Company’s insurance loss recoverable for the three months ended March 31, 2022. Changes in insurance loss recoverable with the exception of collections, are recorded in “Losses and loss adjustment” expenses in the Company’s consolidated statements of operations.


			Changes in Insurance Loss Recoverable
			for the Three Months Ended March 31, 2022
In millions	Gross Recoverable as of December 31, 2021		Collections for Cases			Accretion of Recoveries		Changes in Discount Rates			Changes in Assumptions		Gross Recoverable as of March 31, 2022
Insurance loss recoverable	$	1,296	$	(1,197	)	$	1	$	(18	)	$	284	$	366

The decrease in the Company’s insurance loss recoverable reflected in the preceding table was primarily due to the receipt of recoveries pursuant to the implemented GO PSA whereby National received cash, GO Bonds, and a CVI. In addition, the insurance loss recoverable declined due to the sale of PREPA bankruptcy claims and due to changes in assumptions related to the value of the remaining PREPA recoveries on paid claims.

Loss and LAE Activity

For the three months ended March 31, 2022, loss and LAE incurred primarily related to changes in the Company’s estimate of expected recoveries on National’s PREPA exposure. PREPA loss reserves and recoveries include certain assumptions about the timing and amount of claims payments and recoveries, including assumptions about the values of recoveries on the date the Company expects to receive reimbursement under an implemented RSA. During the first quarter of 2022, the Company updated assumptions used to estimate the value of recoveries, the timing and amount of claim payments, as well as the timing of an implemented plan. These assumption changes resulted in a decrease in the Company’s estimated present value of PREPA recoveries. Loss and LAE incurred during the quarter related to PREPA was partially offset by benefits related to Puerto Rico HTA and GO recoveries. During the first quarter of 2022, the Company increased the estimated values of recoveries expected to be received as part of the HTA restructuring to reflect updated information about potential values when received, including considering the current fair values of similar recently issued GO securities. In addition, the Company recorded a benefit on its GO recoveries to reflect the fair values of the consideration received as of the acquisition date, which was higher than its previous estimate. Additionally, an increase in risk-free rates during the first quarter of 2022, resulted in a decrease in the present value of net case reserves on first-lien RMBS.

For the three months ended March 31, 2021, loss and LAE incurred primarily reflected changes in assumptions within the Company’s HTA loss scenarios and an increase in the risk-free rates used to discount the value of long-dated future recoveries on all Puerto Rico exposures, which caused the present value of the recoveries to decline and a decrease in expected salvage collections related to CDOs. These losses were partially offset by a benefit driven by a change in certain assumptions related to the Puerto Rico GO restructuring and a decrease in loss reserves on the Company’s first-lien RMBS transactions, as a result of the increase in risk-free discount rates.

Costs associated with remediating insured obligations assigned to the Company’s surveillance categories are recorded as LAE and are included in “Losses and loss adjustment” expenses on the Company’s consolidated statements of operations. For the three months ended March 31, 2022 and 2021, gross LAE related to remediating insured obligations were $5 million and $12 million, respectively.

Surveillance Categories

The following table provides information about the financial guarantees and related claim liability included in each of MBIA’s surveillance categories as of March 31, 2022:


	Surveillance Categories
$ in millions	Caution List Low		Caution List Medium		Caution List High		Classified List		Total
Number of policies		55		3		-		174		232
Number of issues (1)		16		2		-		87		105
Remaining weighted average contract period (in years)		6.0		2.3		-		8.5		7.6
Gross insured contractual payments outstanding: (2)
Principal	$	1,325	$	6	$	-	$	2,321	$	3,652
Interest		1,825		1		-		1,053		2,879
Total	$	3,150	$	7	$	-	$	3,374	$	6,531
Gross Claim Liability (3)	$	-	$	-	$	-	$	1,118	$	1,118
Less:
Gross Potential Recoveries (4)		-		-		-		421		421
Discount, net (5)		-		-		-		187		187
Net claim liability (recoverable)	$	-	$	-	$	-	$	510	$	510
Unearned premium revenue	$	8	$	-	$	-	$	25	$	33
Reinsurance recoverable on paid and unpaid losses (6)									$	14

(1) - An “issue” represents the aggregate of financial guarantee policies that share the same revenue source for purposes of making debt service payments on the insured debt.

(2) - Represents contractual principal and interest payments due by the issuer of the obligations insured by MBIA.

(3) - The gross claim liability with respect to Puerto Rico exposures are net of expected recoveries for policies in a net payable position.

(4) - Gross potential recoveries with respect to certain Puerto Rico exposures are net of the claim liability for policies in a net recoverable position.

(5) - Represents discount related to Gross Claim Liability and Gross Potential Recoveries.

(6) - Included in “Other assets” on the Company’s consolidated balance sheets.