SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 1998. Commission file number 1-9583 MBIA INC. (Exact name of registrant as specified in its charter) Connecticut 06-1185706 (State of Incorporation) (I.R.S. Employer Identification No.) 113 King Street, Armonk, New York 10504 (Address of principal executive offices) (Zip Code) (914) 273-4545 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered - ------------------- ----------------------------------------- Common Stock, par value $1 per share New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No __. The aggregate market value of the voting stock held by non-affiliates of the Registrant as of March 25, 1999 was $ 5,885,163,919.00 As of March 25, 1999, 99,748,541 shares of Common Stock, par value $1 per share, were outstanding. Documents incorporated by reference. Portions of Registrant's Annual Report to Shareholders for the fiscal year ended December 31, 1998 are incorporated by reference into Parts I and II. Portions of the Definitive Proxy Statement of the Registrant, dated March 29, 1999 are incorporated by reference into Parts I and III. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (SS 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
PART I Item 1. Business MBIA Inc. (the "Company") is engaged in providing financial guarantee insurance and investment management and financial and consulting services to public finance clients and financial institutions on a global basis. Financial guarantees for municipal bonds, asset-backed and mortgage-backed securities, investor-owned utility bonds, and debt of high-quality financial institutions, both in the new issue and secondary markets, are provided through the Company's wholly-owned subsidiary, MBIA Insurance Corporation ("MBIA Corp."). MBIA Corp. is the successor to the business of the Municipal Bond Insurance Association (the "Association") which began writing financial guarantees for municipal bonds in 1974. In 1989, the Company purchased Bond Investors Guaranty Insurance Company ("BIG Ins."), another municipal bond insurance company. MBIA Corp. reinsured the net exposure on the municipal bond insurance policies previously issued by BIG Ins. (See "Business-Reinsurance" below) and changed the name of BIG Ins. to MBIA Insurance Corp. of Illinois ("MBIA Illinois"). In 1990, the Company formed a French company, MBIA Assurance S.A. ("MBIA Assurance"), to write financial guarantee insurance in the countries of the international community. MBIA Assurance, which is a wholly-owned subsidiary of MBIA Corp., writes policies insuring sovereign risk, public infrastructure financings, asset-backed transactions and certain obligations of corporations and financial institutions. In September 1995, MBIA Corp. entered into a joint venture agreement with Ambac Assurance Corporation for the purpose of jointly marketing financial guarantee insurance outside the United States. In February, 1998, the Company acquired CapMAC Holdings Inc. ("Holdings"), in a stock-for-stock merger. Holdings, through its wholly-owned subsidiary Capital Markets Assurance Corporation ("CapMAC"), insures structured asset-backed, corporate, municipal and other financial obligations in the U.S. and international capital markets. CapMAC also provides financial guarantee reinsurance for structured asset-backed, corporate, municipal and other financial obligations written by other major insurance companies. Generally, throughout the text references to MBIA Corp. include the activities of its subsidiaries, MBIA Illinois, MBIA Assurance and CapMAC. Financial guarantee insurance provides an unconditional and irrevocable guarantee of the payment of the principal of and interest on insured obligations when due. MBIA Corp.'s substantial capital base permits it to support a large portfolio of insured obligations and to write new business. MBIA Corp. primarily insures obligations which are sold in the new issue and secondary markets, or which are held in unit investment trusts ("UIT") and by mutual funds. It also provides surety bonds for debt service reserve funds. The principal economic value of financial guarantee insurance to the entity offering the obligations is the savings in interest costs resulting from the difference in the market yield between an insured obligation and the same obligation on an uninsured basis. In addition, for complex financings and for obligations of issuers that are not well-known by investors, insured obligations receive greater market acceptance than uninsured obligations. The financial guarantee industry is subject to the direct and indirect effects of governmental regulation, including changes in tax laws affecting the municipal and asset-backed debt markets. No assurance can be given that future legislative or regulatory changes might not adversely affect the results of operations and financial conditions of the Company. The Association was the first issuer of financial guarantees to receive both the AAA claims-paying rating from Standard and Poor's Corporation ("S&P"), which it received in 1974, and the Aaa claims-paying rating from Moody's Investors Service, Inc. ("Moody's"), which it received in 1984. Both rating agencies have continuously issued Triple-A claims-paying ratings for MBIA Corp. and Triple-A ratings to obligations guaranteed by MBIA Corp. Both rating agencies have also continued the Triple-A rating on MBIA Illinois and CapMAC guaranteed bond issues. In addition, in 1995 MBIA Corp. received a Triple-A claims-paying rating from Fitch IBCA, Inc. ("Fitch"). The Company also provides investment management products and financial and consulting services through a group of subsidiary companies. These services include cash management, municipal investment agreements, discretionary asset management, purchase and administrative services, tax discovery and compliance, tax audit, analysis and information services and bond administration services. MBIA Municipal Investors Service Corporation ("MBIA-MISC") provides cash management services and investment placement services to local governments and school districts, and provides those clients with fund administration services In 1996, MBIA-MISC acquired American Money Management Associates, Inc. ("AMMA") which offers investment and treasury management consulting services to municipal and quasi-municipal clients. 1
In 1997, MBIA MuniServices Company ("MuniServices"), formed to provide bond administration, revenue enhancement and other services to state and local governments, acquired (i) the Municipal Tax Bureau entities ("MTB"), which provide tax revenue compliance and collection services to the public sector and (ii) MBIA MuniFinancial to provide debt administration services to municipalities. Early in 1998, MuniServices acquired Municipal Resource Consultants which specializes in providing revenue enhancement and information services to municipalities. In 1996, MuniServices acquired an equity interest in Capital Asset Holdings, which purchases and services delinquent taxes for municipalities. In 1998, the Company increased its ownership in Capital Asset Holdings to 86% in order to control the future of that entity. MBIA Investment Management Corp. ("IMC") offers guaranteed investment agreements primarily for bond proceeds to states and municipalities. MBIA Capital Management Corp. ("CMC") performs investment management services for the Company, MBIA-MISC, IMC and selected external clients. In July of 1998, the Company merged with 1838 Investment Advisors, Inc. a provider of asset management services. Additionally in 1997, the Company formed MBIA & Associates Consulting, Inc. to provide strategic financial planning and management consulting to state and local governments, colleges and universities, and international entities. Through the acquisition of CapMAC, the Company is also providing advisory services to specialty finance companies, making equity investments in those companies, and creating synthetic investment products. MBIA Corp. Insured Portfolio At December 31, 1998, the net par amount outstanding on MBIA Corp.'s insured obligations (including insured obligations of MBIA Illinois, MBIA Assurance and CapMAC but excluding the guarantee of $3.5 billion of obligations of IMC (see "Operations-Miscellaneous")) was $359.5 billion, comprised of $316.9 billion in new issues and $42.6 billion in secondary market issues. Net insurance in force was $595.9 billion. MBIA Corp. guarantees to the holder of the underlying obligation the timely payment of the principal of and interest on such obligation in accordance with its original payment schedule. Accordingly, in the case of a default on an insured obligation, payments under the insurance policy cannot be accelerated by the holder. MBIA Corp. will be required to pay principal and interest only as originally scheduled payments come due. MBIA Corp. seeks to maintain a diversified insured portfolio designed to spread risk based on a variety of criteria including revenue source, issue size, type of bond and geographic area. As of December 31, 1998, MBIA Corp. had 34,566 policies outstanding. These policies are diversified among 9,276 "credits," which MBIA Corp. defines as any group of issues supported by the same revenue source. 2
The table below sets forth information with respect to the original par amount written per issue in MBIA Corp.'s portfolio as of December 31, 1998: MBIA Corp. Original Par Amount Per Issue as of December 31, 1998 (1) <TABLE> <CAPTION> % of Total Number of Number of Net Par % of Net Original Par Amount Issues Issues Amount Par Amount Written Per Issue Outstanding Outstanding Outstanding Outstanding (In billions) <S> <C> <C> <C> <C> Less than $10 million 27,526 79.6% $ 46.7 13.0% $10-25 million 3,063 8.9 40.0 11.1 $25-50 million 1,744 5.1 47.3 13.2 $50-100 million 1,157 3.3 58.7 16.3 Greater than $100 million 1,076 3.1 166.8 46.4 ------ ------ ------ ------ Total 34,566 100.0% $359.5 100.0% ====== ====== ====== ====== </TABLE> - ---------- (1) Excludes IMC's $3.5 billion relating to municipal investment agreements guaranteed by MBIA Corp. MBIA Corp. underwrites financial guarantee insurance on the assumption that the insurance will remain in force until maturity of the insured obligations. MBIA Corp. estimates that the average life (as opposed to the stated maturity) of its insurance policies in force at December 31, 1998 was 11.0 years. The average life was determined by applying a weighted average calculation, using the remaining years to maturity of each insured obligation, and weighting them on the basis of the remaining debt service insured. No assumptions were made for any future refundings of insured issues. Average annual debt service on the portfolio at December 31, 1998 was $38.5 billion. 3
The table below shows the diversification of MBIA Corp.'s insured portfolio by bond type: MBIA Corp. Insured Portfolio by Bond Type as of December 31, 1998 (1) (In billions) Bond Type Number Net Par % of Net Of Issues Amount Par Amount Domestic Outstanding Outstanding Outstanding Municipal General obligation 12,694 $ 83.6 23.2% Utilities 4,895 45.0 12.5 Health care 2,241 38.5 10.7 Transportation 1,543 23.7 6.6 Special Revenue 1,787 23.4 6.5 Higher Education 1,498 14.8 4.1 Housing 2,161 10.7 3.0 ID & PCR 1,037 7.8 2.2 Other 75 3.3 0.9 ------ ------ ------ Total Municipal 27,931 250.8 69.7 ------ ------ ------ Structured Finance* 850 80.8 22.5 Other 5,462 10.8 3.0 ------ ------ ------ Total Domestic 34,243 342.4 95.2 ------ ------ ------ International Infrastructure 114 3.4 1.0 Structured Finance* 102 11.7 3.2 Other 107 2.0 0.6 ------ ------ ------ Total International 323 17.1 4.8 ------ ------ ------ Total 34,566 $359.5 100.0% ====== ====== ====== * Asset/mortgage-backed - ---------- (1) Excludes IMC's $3.5 billion relating to municipal investment agreements guaranteed by MBIA Corp. 4
As of December 31, 1998, of the $359.5 billion outstanding net par amount of obligations insured, $250.8 billion, or 70%, consisted of municipal bonds, $91.6 billion, or approximately 25%, consisted primarily of asset/mortgage-backed transactions and investor-owned utility obligations and $17.1 billion or approximately 5% consisted of transactions done in the international market. The table below shows the diversification by type of insurance written by MBIA Corp. in each of the last five years: MBIA Corp. Net Par Amount by Bond Type (1) Bond Type 1994 1995 1996 1997 1998 (In millions) Domestic Municipal General obligation $11,165 $10,226 $13,036 $13,798 $15,424 Health care 3,695 2,913 4,310 7,414 8,174 Utilities 4,880 5,098 6,749 6,877 6,458 Special Revenue 1,896 1,952 3,787 3,110 6,374 Higher Education 1,346 1,312 2,132 2,517 4,217 Transportation 1,767 2,624 3,153 6,059 4,175 Housing 886 1,962 1,802 1,791 2,093 Other 600 1,240 401 1,301 1,077 Industrial Development & Pollution Control Revenue 1,486 1,155 693 781 237 ------- ------- ------- ------- ------- Total Municipal 27,721 28,482 36,063 43,648 48,229 ------- ------- ------- ------- ------- Structured Finance* 10,135 14,053 24,451 32,563 35,781 Other 1,782 1,562 4,740 4,438 3,525 ------- ------- ------- ------- ------- Total Domestic $39,638 $44,097 $65,254 $80,649 $87,535 ------- ------- ------- ------- ------- International Structured Finance* 1,470 7,003 4,039 2,586 6,267 Infrastructure 262 626 839 1,080 778 Other 1,055 884 1,341 1,209 701 ------- ------- ------- ------- ------- Total International 2,787 8,513 6,219 4,875 7,746 ------- ------- ------- ------- ------- Total $42,425 $52,610 $71,473 $85,524 $95,281 ======= ======= ======= ======= ======= * Asset/mortgage-backed - ---------- (1) Par amount insured by year, net of reinsurance. 5
MBIA Corp. is licensed to write business in all 50 states, the District of Columbia, Guam, the Northern Mariana Islands, the U.S. Virgin Islands, Puerto Rico, the Kingdom of Spain and the Republic of France. MBIA Assurance is licensed to write business in France. The following table sets forth by geographic location the areas in which MBIA Corp. has at least 2% of its total net par amount outstanding: MBIA Corp. Insured Portfolio By State as of December 31, 1998 (1) Number of Net Par % of Net Issues Amount Par Amount Outstanding Outstanding Outstanding State (In billions) California 3,681 $ 40.3 11.2% New York 5,310 38.3 10.7 Florida 1,589 19.8 5.5 Pennsylvania 2,278 14.0 3.9 New Jersey 1,884 13.5 3.8 Texas 2,131 13.5 3.8 Illinois 1,275 12.8 3.5 Massachusetts 1,107 10.1 2.8 Ohio 1,076 8.1 2.2 Michigan 1,066 8.0 2.2 ------ ------ ----- Sub-Total 21,397 178.4 49.6 All Other States 12,004 96.0 26.7 Nationally Diversified 842 68.0 18.9 ------ ------ ----- Total United States 34,243 342.4 95.2 International 323 17.1 4.8 ------ ------ ----- Total 34,566 $359.5 100.0% ====== ====== ===== - --------- (1) Excludes IMC's $3.5 billion relating to municipal investment agreements guaranteed by MBIA Corp. MBIA Corp. has underwriting guidelines that limit the net insurance in force for any one insured credit. MBIA Corp. has not exceeded any applicable regulatory single-risk limit with respect to any bond issue insured by it. As of December 31, 1998, MBIA Corp.'s net par amount outstanding for its ten largest insured municipal credits totaled $15.1 billion, representing 4.2% of MBIA Corp.'s total net par amount outstanding, and for its ten largest structured finance credits, the net par outstanding was $16.2 billion, or 4.5% of the total. 6
MBIA Corp. Insurance Programs MBIA Corp. offers financial guarantee insurance in both the new issue and secondary markets. At present, no new financial guarantee insurance is being offered by MBIA Illinois or CapMAC, but it is possible that either of those entities may insure transactions in the future. MBIA Corp. and MBIA Assurance offer financial guarantee insurance in Europe and other areas outside the United States. Transactions in the new issue market are sold either through negotiated offerings or competitive bidding. In the first case, either the issuer or the underwriter purchases the insurance policy directly from MBIA Corp. On competitive bid issues, the insurance is offered as an option to the underwriters bidding on the transaction. The successful bidder would then have the option to purchase the insurance. In the secondary market, MBIA Corp. provides insurance on whole and partial maturities in response to requests from bond traders and institutions who trade in the secondary market. MBIA Corp. also offers insurance to the unit investment trust market through ongoing arrangements with investment banks and financial service companies. Each issue in the trust is insured, in some cases until maturity, in others only while it is held in the trust. Lastly, insurance is offered in the mutual fund sector through ongoing arrangements with the fund sponsors. All fund issues are insured on a "while-in-trust" basis, but in some cases, MBIA Corp. is committed to offer insurance to maturity to the sponsor for an additional premium. The following table indicates the percentage of net par outstanding with respect to each type of insured program: MBIA Corp. Types of Insured Programs as of December 31, 1998 (1) Net Par Amount Type of Program Outstanding % Of Net Par (In billions) Amount Outstanding New Issue $316.9 88.1% Secondary market issues Unit investment trusts 9.1 2.5 Mutual funds 0.2 0.1 Other secondary market issues 33.3 9.3 ------ ----- Total $359.5 100.0% ====== ===== - ---------- (1) Excludes IMC's $3.5 billion relating to municipal investment agreements guaranteed by MBIA Corp. 7
Operations The insurance operations of MBIA Corp. are conducted through the Public Finance Division, the Structured Finance Division, the joint venture with Ambac (for all international transactions) and the Risk Management Group. The Public Finance Division has underwriting authority with respect to certain categories of business up to pre-determined par amounts based on a risk-ranking system. In order to ensure that the guidelines are followed, Risk Management monitors and periodically reviews underwriting decisions made by the Public Finance Division. With respect to larger, complex, or unique transactions, underwriting is performed by a committee consisting of senior representatives of Public Finance, Risk Management, Insured Portfolio Management, and the Company's Finance Department. For all transactions done by the Structured Finance Division or for international deals, MBIA Corp.'s review and approval procedure has two stages. The first stage consists of screening, credit review and structuring by the appropriate business unit, in consultation with Risk Management officers. The second stage, consisting of the final review and approval of credit and structure, is performed by a committee consisting of two Risk Management officers and the head of the applicable business unit. Certain transactions, based on size, complexity, or other factors, must also be approved by a division-level committee consisting of senior representatives of Structured Finance or the joint venture, Risk Management and Insured Portfolio Management. Premium rates for Public Finance transactions are established by the Market Research Department and Structured Finance premiums are set by analysts in the division, in conjunction with the Risk Management Group's quantitative analysis team. Pricing for international transactions is done by analysts working in the joint venture, in conjunction with the Market Research Department. Risk Management The Risk Management Group is responsible for adherence to MBIA Corp.'s underwriting guidelines and procedures which are designed to maintain an insured portfolio with low risk characteristics. MBIA Corp. maintains underwriting guidelines based on those aspects of credit quality that it deems important for each category of obligation considered for insurance. For Public Finance and international infrastructure transactions, these include economic and social trends, debt management, financial management, adequacy of anticipated cash flow, satisfactory legal structure and other security provisions, viable tax and economic bases, adequacy of loss coverage and project feasibility, including a satisfactory consulting engineer's report, if applicable. For Structured Finance and international structured finance transactions, MBIA Corp's underwriting guidelines, analysis and due diligence focus primarily on seller/servicer credit and operational quality, the quality and historical and projected performance of the asset pool, and the strength of the structure, including cash flow analysis, the size and source of first loss protection, and asset performance triggers and financial covenants. Such guidelines are subject to periodic review by an interdivisional committee which is responsible for establishing and maintaining underwriting standards and criteria for all insurance products. The financial institution and corporate analysis groups within Risk Management underwrite and monitor (in conjunction with Insured Portfolio Management) MBIA Corp.'s direct and indirect exposure to financial institutions and other corporate entities with respect to seller/servicer exposure, investment contracts, letters of credit and liquidity facilities supporting MBIA-insured issues, and recommends limits on such exposures. The department provides in-depth financial analyses of financial institutions for which there is existing or proposed exposure and gives advice on related contract terms, transfers of these instruments to new institutions and renewal dates and procedures. Insured Portfolio Management: The Insured Portfolio Management Group is responsible for monitoring outstanding issues insured by MBIA Corp. This group's first function is to detect any deterioration in credit quality or changes in the economic or political environment which could interrupt the timely payment of debt service on an insured issue. Once a problem is detected, the group then works with the issuer, trustee, bond counsel, underwriters and other interested parties to deal with the concern before it develops into a default. The Insured Portfolio Management Group works closely with Risk Management and New Business Departments to provide feedback on insured issue performance and credit risk parameters. Although MBIA Corp. has to date had only eighteen insured issues requiring claim payments for which it has not been fully reimbursed, there are eight additional insured issues for which case loss reserves have been established (see "Losses and Reserves" below). Other potential losses have been avoided through the early detection of problems and subsequent negotiations with the issuer and other parties involved. In a limited number of instances, the solution involved the restructuring of insured issues or underlying security arrangements. More often, MBIA Corp. utilizes a variety of other techniques to resolve problems, such as enforcement of covenants, assistance in resolving management problems and working with the issuer to develop potential political solutions. Issuers are under no obligation to restructure insured issues or underlying security arrangements in order to prevent losses. Moreover, MBIA Corp. is obligated to pay amounts equal to defaulted interest and principal payments on insured bonds on their 8
respective due dates even if the issuer or other parties involved refuse to restructure or renegotiate the terms of the insured bonds or related security arrangements. The Company's experience is that early detection and continued involvement by the Insured Portfolio Management Group are crucial in avoiding or minimizing claims on insurance policies. Once an obligation is insured, the issuer and the trustee are typically required to furnish financial information, including audited financial statements, annually to the Insured Portfolio Management Group for review. Potential problems uncovered through this review, such as low operating fund balances, covenant violations, trustee or servicer problems, tax certiorari proceedings or excessive litigation, could result in an immediate surveillance review and an evaluation of possible remedial actions. The Insured Portfolio Management Group also monitors state finances and budget developments and evaluates their impact on local issuers. The Company's computerized credit surveillance system records situations where follow-up is needed, such as letter of credit renewal, construction status and the receipt of additional data after the closing of a transaction. At underwriting, issues are given an internal credit rating. All credits are monitored according to a frequency of review schedule that is based on risk type and credit quality. Issues that experience financial difficulties, deteriorating economic conditions, excessive litigation or covenant violations are placed on the appropriate review list and are subject to surveillance reviews at intervals commensurate to the problem which has been detected. There are four departments in the Insured Portfolio Management Group. The Public Finance Portfolio Management Department handles the traditional types of domestic municipal issues such as general obligation, utility, special revenue and health care bonds. The Structured Finance Portfolio Management Department is responsible for domestic housing, asset backed and other structured transactions. The International Portfolio Management Department is responsible for all international transactions. The Financial Institutions and Corporate Department monitors direct exposure to financial institutions and corporate obligors across the entire insured portfolio and provides analytical support to the other three departments. The Public Finance Portfolio Management Department reviews and reports on the major credit quality factors of risks insured by the Company, evaluates the impact of new developments on insured weaker credits and carries out remedial activity. In addition, it performs analysis of financial statements and key operating data on a large scale basis and maintains various databases for research purposes. It responds to consent and waiver requests and monitors pool programs. This department is responsible for preparing special reports which include analyses of regional economic trends, proposed tax limitations, the impact of employment trends on local economies or legal developments affecting bond security. The Structured Finance Portfolio Management Department monitors insured structured finance programs, focusing on the adequacy of reserve balances and investment of earnings, the status of mortgage or loan delinquencies and underlying insurance coverage and the performance of the trustee for insured issues. Monitoring of issues typically involves review of records and statements, review of transaction documents with regard to compliance, analysis of cash flow adequacy and communication with trustees. Review of servicer performance is also conducted through site visits with management, review of servicer financial statements, review of servicer reports where available and contacts with program administrators and trustees. The department also carries out remedial activity on weaker credits. The International Portfolio Management Departments monitors insured international programs. This departments monitors all credit types, including sovereign, sub-sovereign issuers, single risk and structured finance transactions. The department applies similar policies and procedures as the Public Finance and Structured Finance Portfolio Management Departments. The department is responsible for remedial activities on weaker credits. Investment Management Services Over the last eight years, the Company's investment management businesses have expanded their services to the public sector and added new revenue sources. MBIA-MISC provides cash management services and fixed-rate investment placement services directly to local governments and school districts. In addition, MBIA-MISC performs investment fund administration services for clients, which provide an additional source of revenue. AMMA provides investment and treasury management consulting services for municipal and quasi-public sector clients. Both MBIA-MISC and AMMA are Securities and Exchange Commission registered investment advisers. MBIA-MISC/AMMA operates in 20 states and the Commonwealth of Puerto Rico. 9
IMC provides customized guaranteed investment agreements and flexible repurchase agreements for bond proceeds and other public funds. At year-end 1998, principal and accrued interest outstanding on investment agreements was $3.5 billion compared with $3.2 billion at year-end 1997. In 1998, the Company merged with 1838 Investment Advisors, Inc. an asset management firm with over $7.0 billion in equity, fixed income and balanced portfolios. CMC provides investment management services for IMC's investment agreements, MBIA-MISC's municipal cash management programs and MBIA Corp.'s insurance related fixed-income investment portfolios, as well as third-party accounts. CMC assumed full management for MBIA Corp.'s insurance related fixed-income investment portfolios in 1996. CMC is also a registered investment advisor. Financial and Consulting Services MuniServices provides various financial, consulting and administrative services to municipal clients through a network of subsidiaries. MTB offers tax revenue enhancement, compliance and collection services to public clients. Municipal Resources Consultants, acquired in early 1998, provides revenue enhancement and related information services to public sector clients. MBIA MuniFinancial provides municipalities in California and other neighboring states with debt administration, disclosure, arbitrage rebate and related services. Capital Asset acquires delinquent tax liens and services them for the benefit of municipalities. The Company is continuing to examine its investment in Capital Asset and it is likely that the Company will sell its interest in that company. The Company cannot as yet assess the economic impact of that sale although it is anticipated that it will result in a modest write-off. MBIA & Associates Consulting, Inc. has begun to provide strategic planning and management consulting to public sector clients. Competition The financial guarantee insurance business is highly competitive. In 1998 MBIA Corp. was the largest insurer of new issue long-term municipal bonds, accounting for 36% of the par amount of such insured bonds. The other principal insurers in 1998 were Ambac Assurance Corporation, Financial Guaranty Insurance Company and Financial Security Assurance Inc., all of which, like MBIA Corp., have Aaa and AAA claims-paying ratings from Moody's and S&P, respectively. According to Asset Sales Report, in 1998 MBIA Corp. was the leading insurer of new issue asset/mortgage-backed securities. The two principal competitors in this area in 1998 were Financial Security Assurance and Ambac Assurance Corporation. Financial guarantee insurance also competes with other forms of credit enhancement, including over-collateralization, letters of credit and guarantees (for example, mortgage guarantees where pools of mortgages secure debt service payments) provided by banks and other financial institutions, some of which are governmental agencies or have been assigned the highest credit ratings awarded by one or more of the major rating agencies. Letters of credit are most often issued for periods of less than 10 years, although there is no legal restriction on the issuance of letters of credit having longer terms. Thus, financial institutions and banks issuing letters of credit compete directly with MBIA Corp. to guarantee short-term notes and bonds with a maturity of less than 10 years. To the extent that banks providing credit enhancement may begin to issue letters of credit with commitments longer than 10 years, the competitive position of financial guarantee insurers, such as MBIA Corp., could be adversely affected. Letters of credit also are frequently used to assure the liquidity of a short-term put option for a long-term bond issue. This assurance of liquidity effectively confers on such issues, for the short term, the credit standing of the financial institution providing the facility, thereby competing with MBIA Corp. and other financial guarantee insurers in providing interest cost savings on such issues. Financial guarantee insurance and other forms of credit enhancement also compete in nearly all instances with the issuer's alternative of foregoing credit enhancement and paying a higher interest rate. If the interest savings from insurance or another form of credit enhancement are not greater than the cost of such credit enhancement, the issuer will generally choose to issue bonds without enhancement. MBIA Corp. also competes in the international market with composite (multi-line) insurers. There are minimum capital requirements imposed on a financial guarantee insurer by Moody's and S&P to obtain Triple-A claims-paying ratings. Also, under a New York law, multi-line insurers are prohibited from writing financial guarantee insurance in New York State. See "Business-Regulation." However, there can be no assurance that major multi-line insurers or other financial institutions will not participate in financial guarantee insurance in the future, either directly or through monoline subsidiaries. 10
Reinsurance State insurance laws and regulations, as well as Moody's and S&P, impose minimum capital requirements on financial guarantee companies, limiting the aggregate amount of insurance which may be written and the maximum size of any single risk exposure which may be assumed. MBIA Corp. increases its capacity to write new business by using treaty and facultative reinsurance to reduce its gross liabilities on an aggregate and single risk basis. From its reorganization in December 1986 through December 1987, MBIA Corp. reinsured a portion of each policy through quota and surplus share reinsurance treaties. Each treaty provides reinsurance protection with respect to policies written by MBIA Corp. during the term of the treaty, for the full term of the policy. Under its quota share treaty MBIA Corp. ceded a fixed percentage of each policy insured. Since 1988, MBIA Corp. has entered into only surplus share treaties under which a variable percentage of risk over a minimum size is ceded, subject to a maximum percentage specified in the treaty. Reinsurance ceded under the treaties is for the full term of the underlying policy. MBIA Corp. also enters into facultative reinsurance arrangements from time to time primarily in connection with issues which, because of their size, require additional capacity beyond MBIA Corp.'s retention and treaty limits. Under these facultative arrangements, portions of MBIA Corp.'s liabilities are ceded on an issue-by-issue basis. MBIA Corp. utilizes facultative arrangements as a means of managing its exposure to single issuers to comply with regulatory and rating agency requirements, as well as internal underwriting and portfolio management criteria. As a primary insurer, MBIA Corp. is required to honor its obligations to its policyholders whether or not its reinsurers perform their obligations to MBIA Corp. The financial position of all reinsurers is monitored by MBIA Corp. on a regular basis. As of December 31, 1998, MBIA Corp. retained approximately 85% of the gross debt service outstanding of all transactions insured by it, MBIA Assurance and MBIA Illinois, and ceded approximately 15% to treaty and facultative reinsurers. The principal reinsurers of MBIA Corp., CapMAC and MBIA Illinois are Capital Re Management Corporation, Enhance Reinsurance Company, AXA Re Finance, Munich Reinsurance Corp., and KRE Reinsurance, Ltd. The first four of these reinsurers, whose claims-paying ability is rated Triple-A by S&P, reinsured approximately 67% of the total ceded insurance in force at December 31, 1998. The other principal reinsurer is rated AA by S&P. All of the other reinsurers reinsured approximately 33% of the total ceded insurance in force at December 31, 1998 and are diversified geographically and by lines of insurance written. MBIA Corp.'s net retention on the policies it writes varies from time to time depending on its own business needs and the capacity available in the reinsurance market. The amounts of reinsurance ceded at December 31, 1998 and 1997 by bond type and by geographic location are set forth in Note 16 to the Consolidated Financial Statements of MBIA Inc. and Subsidiaries. MBIA Corp. and MBIA Assurance have entered into a reinsurance agreement providing for MBIA Corp.'s reimbursement of the risks of MBIA Assurance and a net worth maintenance agreement in which MBIA Corp. agrees to maintain the net worth of MBIA Assurance, to remain its sole shareholder and not to pledge its shares. Under the reinsurance agreement MBIA Corp. agrees to reimburse MBIA Assurance on an excess of loss basis for losses incurred in each calendar year for net retained insurance liability, subject to certain contract limitations. Under the net worth maintenance agreement, MBIA Corp. agrees to maintain a minimum capital and surplus position in accordance with French and New York legal requirements. In connection with the BIG Ins. acquisition, MBIA Corp. and MBIA Illinois entered into a reinsurance agreement under which MBIA Corp. agreed to reinsure 100% of all business written by MBIA Illinois, net of cessions by MBIA Illinois to third party reinsurers, in exchange for MBIA Illinois' transfer of the assets underlying the related unearned premium and contingency reserves. Pursuant to such reinsurance agreement with MBIA Illinois, MBIA Corp. reinsured all of the net exposure of $30.9 billion, or approximately 68% of the gross debt service outstanding, of the municipal bond insurance portfolio of MBIA Illinois, the remaining 32% having been previously ceded to treaty and facultative reinsurers of MBIA Illinois. MBIA Corp. retroceded 3% and 1% of this portfolio to its treaty and facultative reinsurers in 1990 and 1991, respectively; additionally, in 1990, 10% of this portfolio was ceded back to MBIA Illinois to comply with regulatory requirements. Effective January 1, 1999, MBIA Corp. and MBIA Illinois entered into a replacement reinsurance agreement whereby MBIA Corp. agreed to accept as reinsurance from MBIA Illinois 100 % of the net liabilities and other obligations of MBIA Illinois, for losses paid on or after that date, thereby eliminating the 10% retrocession arrangement previously in place. 11
In connection with the CapMAC acquisition, MBIA Corp. and CapMAC entered into a reinsurance agreement, effective April 1, 1998, under which MBIA Corp. agreed to reinsure 100% of the net liability and other obligations of CapMAC in exchange for CapMAC's payment of a premium equal to the ceded reserves and contingency reserves. Pursuant to such reinsurance agreement with CapMAC, MBIA Corp. reinsured all of the net exposure of $31.6 billion, or approximately 78% of the gross debt service outstanding, the remaining 22% having been previously ceded to treaty and facultative reinsurers of CapMAC. Investments and Investment Policy The Finance Committee of the Board of Directors of the Company approves the general investment objectives and policies of the Company, and also reviews more specific investment guidelines. On January 1, 1996 CMC assumed full management of all of MBIA Corp.'s consolidated investment portfolios. Certain investments of the Company and MBIA Assurance related to non-U.S. insurance operations are managed by independent managers. To continue to provide strong capital resources and claims-paying capabilities for its insurance operations, the investment objectives and policies for insurance operations set quality and preservation of capital as the primary objective subject to an appropriate degree of liquidity. Maximization of after-tax investment income and investment returns are an important but secondary objective. Investment objectives, policies and guidelines related to the Company's municipal investment agreement business are also subject to review and approval by the Finance Committee of the Board of Directors. The primary investment objectives are to preserve capital, to achieve an investment duration that closely approximates the expected duration of related liabilities, and to maintain appropriate liquidity. The investment agreement assets are managed by CMC subject to an investment management agreement between IMC and CMC. 12
For 1998, approximately 68% of the Company's net income was derived from after-tax earnings on its investment portfolio (excluding the amounts earned on investment agreement assets which are recorded as a component of investment management services revenues). The following table sets forth investment income and related data for the years ended December 31, 1996, 1997 and 1998: Investment Income of the Company (1) 1996 1997 1998 (In thousands) Investment income before expenses (2) $268,280 $305,569 $337,565 Investment expenses 3,133 3,571 5,763 -------- -------- -------- Net investment income before income taxes 265,147 301,998 331,802 Net realized gains 9,936 16,903 29,962 -------- -------- -------- Total investment income before income taxes $275,083 $318,901 $361,764 ======== ======== ======== Total investment income after income taxes $232,975 $263,071 $296,232 ======== ======== ======== - ---------- (l) Excludes investment income and realized gains and losses from investment management services and municipal and financial services segments (2) Includes taxable and tax-exempt interest income. 13
The tables below set forth the composition of the Company's investment portfolios. The weighted average yields in the tables reflect the nominal yield on market value as of December 31, 1998, 1997 and 1996. Investment Portfolio by Security Type as of December 31, 1998 <TABLE> <CAPTION> Investment Insurance Management Services Weighted Weighted Fair Value Average Fair Value Average Investment Category (in thousands) Yield (1) (in thousands) Yield (1) <S> <C> <C> <C> <C> Fixed income investments: Long-term bonds: Taxable bonds: U.S. Treasury & Agency obligations $ 487,132 6.15% $1,404,668 5.54% GNMAs 154,088 6.58 100,033 6.42 Other mortgage & asset backed securities 206,171 6.25 849,922 5.33 Corporate obligations 1,026,847 5.85 842,330 6.05 Foreign obligations(2) 136,416 5.45 292,979 6.46 ---------- ---- ---------- ---- Total 2,010,654 5.99 3,489,932 5.71 Tax-exempt bonds: State & municipal 3,873,399 7.15 -- -- ---------- ---- ---------- ---- Total long-term investments 5,884,053 6.76 3,489,932 5.71 Short-term investments(3) 423,194 4.94 188,297 5.03 ---------- ---- ---------- ---- Total fixed income investments 6,307,247 6.63% 3,678,229 5.68% Other investments(4) 94,975 -- -- -- ---------- ---------- Total investments $6,402,222 -- $3,678,229 -- ========== ========== </TABLE> - ---------- (1) Prospective market yields as of December 31, 1998. Yield on tax-exempt bonds is presented on a taxable bond equivalent basis using a 35% federal income tax rate (2) Consists of U.S. denominated foreign government and corporate securities. (3) Taxable and tax-exempt investments, including bonds with a remaining maturity of less than one year. (4) Consists of equity investments and other fixed income investments; yield information not meaningful. 14
<TABLE> <CAPTION> Investment Portfolio by Security Type as of December 31, 1997 Investment Insurance Management Services Weighted Weighted Fair Value Average Fair Value Average Investment Category (in thousands) Yield (1) (in thousands) Yield (1) <S> <C> <C> <C> <C> Fixed income investments: Long-term bonds: Taxable bonds: U.S. Treasury & Agency obligations $ 472,100 6.87% $1,106,396 6.08% GNMAs 148,065 7.15 105,865 6.91 Other mortgage & asset backed securities 189,904 6.60 726,126 6.03 Corporate obligations 836,334 6.38 691,252 6.49 Foreign obligations(2) 165,506 6.27 300,232 6.73 ---------- ---- ---------- ---- Total 1,811,909 6.58 2,929,871 6.26 Tax-exempt bonds: State & municipal 3,399,402 7.36 -- -- ---------- ---- ---------- ---- Total long-term investments 5,211,311 7.09 2,929,871 6.26 Short-term investments(3) 303,898 5.19 411,523 5.73 ---------- ---- ---------- ---- Total fixed income investments 5,515,209 6.99% 3,341,394 6.19% Other investments(4) 51,693 -- -- -- ---------- ---------- Total investments $5,566,902 -- $3,341,394 -- ========== ========== </TABLE> - ---------- (1) Prospective market yields as of December 31, 1997. Yield on tax-exempt bonds is presented on a taxable bond equivalent basis using a 35% federal income tax rate. (2) Consists of U.S. denominated foreign government and corporate securities. (3) Taxable and tax-exempt investments, including bonds with a remaining maturity of less than one year. (4) Consists of equity investments and other fixed income investments; yield information not meaningful. 15
<TABLE> <CAPTION> Investment Portfolio by Security Type as of December 31, 1996 Investment Insurance Management Services Weighted Weighted Fair Value Average Fair Value Average Investment Category (in thousands) Yield (1) (in thousands) Yield (1) <S> <C> <C> <C> <C> Fixed income investments: Long-term bonds: Taxable bonds: U.S. Treasury & Agency obligations $ 415,007 7.29% $1,121,511 6.32% GNMAs 107,217 7.56 71,315 7.35 Other mortgage & asset backed securities 136,913 7.13 767,271 5.92 Corporate obligations 469,823 6.78 706,574 6.82 Foreign obligations(2) 152,392 6.87 182,885 7.37 ---------- ---- ---------- ---- Total 1,281,352 7.06 2,849,556 6.43 Tax-exempt bonds: State & municipal 3,173,770 8.07 -- -- ---------- ---- ---------- ---- Total long-term investments 4,455,122 7.78 2,849,556 6.43 Short-term investments(3) 209,840 5.85 443,742 5.65 ---------- ---- ---------- ---- Total fixed income investments 4,664,962 7.70% 3,293,298 6.33% Other investments(4) 49,737 -- -- -- ---------- ---------- Total investments $4,714,699 -- $3,293,298 -- ========== ========== </TABLE> - ---------- (1) Prospective market yields as of December 31, 1996. Yield on tax-exempt bonds is presented on a taxable bond equivalent basis using a 35% federal income tax rate. (2) Consists of U.S. denominated foreign government and corporate securities. (3) Taxable and tax-exempt investments, including bonds with a remaining maturity of less than one year. (4) Consists of equity investments and other fixed income investments; yield information not meaningful. 16
The average maturity of the insurance fixed income portfolio excluding short-term investments as of December 31, 1998 was 11.1 years. After allowing for estimated principal pre-payments on mortgage pass-through securities, the duration of the portfolio was 6.8 years. The table below sets forth the distribution by maturity of the Company's consolidated fixed income investments: Fixed Income Investments by Maturity as of December 31, 1998 <TABLE> <CAPTION> Insurance Investment Management Services % of Total % of Total Fair Value Fixed Income Fair Value Fixed Income Maturity In thousands) Investments (In thousands) Investments <S> <C> <C> <C> <C> Within 1 year $ 423,194 6.7% $ 188,297 5.1% Beyond 1 year but within 5 years 1,044,997 16.6 960,503 26.1 Beyond 5 years but within 10 years 1,749,798 27.7 834,206 22.7 Beyond 10 years but within 15 years 999,642 15.8 254,631 6.9 Beyond 15 years but within 20 years 1,020,534 16.2 603,252 16.4 Beyond 20 years 1,069,082 17.0 837,340 22.8 ---------- ----- ---------- ----- Total fixed income investments $6,307,247 100.0% $3,678,229 100.0% ========== ========== </TABLE> The quality distribution of the Company's fixed income investments based on ratings of Moody's was as shown in the table below: Fixed Income Investments by Quality Rating (1) as of December 31, 1998 <TABLE> <CAPTION> Investment Insurance Management Services % of Total % of Total Fair Value Fixed Income Fair Value Fixed Income Quality Rating (In thousands) Investments (In thousands) Investments <S> <C> <C> <C> <C> Aaa $3,671,994 60.7% $2,675,396 72.7% Aa 1,262,103 20.9 314,972 8.6 A 1,053,863 17.4 687,861 18.7 Baa 56,948 1.0 -- -- ---------- ------ ---------- ----- $6,044,908 100.0% $3,678,229 100.0% ========== ========== </TABLE> - ---------- (1) Excludes short-term investments with an original maturity of less than one year, but includes bonds having a remaining maturity of less than one year. 17
Regulation MBIA Corp. is licensed to do insurance business in, and is subject to insurance regulation and supervision by, the State of New York (its state of incorporation), the 49 other states, the District of Columbia, Guam, the Northern Mariana Islands, the U.S. Virgin Islands, Puerto Rico, the Kingdom of Spain and the Republic of France. MBIA Assurance is licensed to do insurance business in France and is subject to regulation under the corporation and insurance laws of the Republic of France. The extent of state insurance regulation and supervision varies by jurisdiction but New York and most other jurisdictions have laws and regulations prescribing minimum standards of solvency, including minimum capital requirements, and business conduct which must be maintained by insurance companies. These laws prescribe permitted classes and concentrations of investments. In addition, some state laws and regulations require the approval or filing of policy forms and rates. MBIA Corp. is required to file detailed annual financial statements with the New York Insurance Department and similar supervisory agencies in each of the other jurisdictions in which it is licensed. The operations and accounts of MBIA Corp. are subject to examination by these regulatory agencies at regular intervals. MBIA Corp. is licensed to provide financial guarantee insurance under Article 69 of the New York Insurance Law. Article 69 defines financial guarantee insurance to include any guarantee under which loss is payable upon proof of occurrence of financial loss to an insured as a result of certain events. These events include the failure of any obligor on or any issuer of any debt instrument or other monetary obligation to pay principal, interest, premium, dividend or purchase price of or on such instrument or obligation, when due. Under Article 69, MBIA Corp. is licensed to transact financial guarantee insurance, surety insurance and credit insurance and such other kinds of business to the extent necessarily or properly incidental to the kinds of insurance which MBIA Corp. is authorized to transact. In addition, MBIA Corp. is empowered to assume or reinsure the kinds of insurance described above. As a financial guarantee insurer, MBIA Corp. is required by the laws of New York, California, Connecticut, Florida, Illinois, Iowa, New Jersey and Wisconsin to maintain contingency reserves on its municipal bond and other financial guarantee liabilities. Under New Jersey, Illinois and Wisconsin regulations, contributions by such an insurer to its contingency reserves are required to equal 50% of earned premiums on its municipal bond business. Under New York law, such an insurer is required to contribute to contingency reserves 50% of premiums as they are earned on policies written prior to July 1, 1989 (net of reinsurance) and, with respect to policies written on and after July 1, 1989, must make contributions over a period of 15 or 20 years (based on issue type), or until the contingency reserve for such insured issues equals the greater of 50% of premiums written for the relevant category of insurance or a percentage of the principal guaranteed, varying from 0.55% to 2.5%, depending upon the type of obligation guaranteed (net of reinsurance, refunding, refinancings and certain insured securities). California, Connecticut, Iowa and Florida law impose a generally similar requirement. In each of these states, MBIA Corp. may apply for release of portions of the contingency reserves in certain circumstances. The laws and regulations of these states also limit both the aggregate and individual municipal bond risks that MBIA Corp. may insure on a net basis. California, Connecticut, Florida, Illinois and New York, among other things, limit insured average annual debt service on insured municipal bonds with respect to a single entity and backed by a single revenue source (net of qualifying collateral and reinsurance) to 10% of policyholders' surplus and contingency reserves. In New Jersey, Virginia and Wisconsin, the average annual debt service on any single issue of municipal bonds (net of reinsurance) is limited to 10% of policyholders' surplus. Other states that do not explicitly regulate financial guarantee or municipal bond insurance do impose single risk limits which are similar in effect to the foregoing. California, Connecticut, Florida, Illinois and New York also limit the net insured unpaid principal issued by a single entity and backed by a single revenue source to 75% of policyholders' surplus and contingency reserves. Under New York, California, Connecticut, Florida, Illinois, New Jersey and Wisconsin law, aggregate insured unpaid principal and interest under policies insuring municipal bonds (in the case of New York, California, Connecticut, Florida and Illinois, net of reinsurance) are limited to certain multiples of policyholders' surplus and contingency reserves. New York, California, Connecticut, Florida, Illinois and other states impose a 300:1 limit for insured municipal bonds, although more restrictive limits on bonds of other types do exist. For example, New York, California, Connecticut and Florida impose a 100:1 limit for certain types of non-municipal bonds. The Company, MBIA Corp., MBIA Illinois and CapMAC are subject to regulation under the insurance holding company statutes of New York, Illinois and other jurisdictions in which MBIA Corp., MBIA Illinois and CapMAC are licensed to write insurance. The requirements of holding company statutes vary from jurisdiction to jurisdiction but generally require insurance holding companies, such as the Company, and their insurance subsidiaries, to register and file certain reports describing, among other information, their capital structure, ownership and financial condition. The holding company statutes also generally require prior approval of changes in control, of certain dividends and other intercorporate transfers of assets, and of transactions between insurance 18
companies, their parents and affiliates. The holding company statutes impose standards on certain transactions with related companies, which include, among other requirements, that all transactions be fair and reasonable and that those exceeding specified limits receive prior regulatory approval. Prior approval by the New York Insurance Department is required for any entity seeking to acquire "control" of the Company, MBIA Corp or CapMAC. Prior approval by the Illinois Department of Insurance is required for any entity seeking to acquire "control" of the Company, MBIA Corp., MBIA Illinois or CapMAC. In many states, including New York and Illinois, "control" is presumed to exist if 10% or more of the voting securities of the insurer are owned or controlled by an entity, although the supervisory agency may find that "control" in fact does or does not exist when an entity owns or controls either a lesser or greater amount of securities. The laws of New York regulate the payment of dividends by MBIA Corp. and provide that a New York domestic stock property/casualty insurance company (such as MBIA Corp.) may not declare or distribute dividends except out of statutory earned surplus. New York law provides that the sum of (i) the amount of dividends declared or distributed during the preceding 12-month period and (ii) the dividend to be declared may not exceed the lesser of (a) 10% of policyholders' surplus, as shown by the most recent statutory financial statement on file with the New York Insurance Department, and (b) 100% of adjusted net investment income for such 12-month period (the net investment income for such 12-month period plus the excess, if any, of net investment income over dividends declared or distributed during the two-year period preceding such 12-month period), unless the New York Superintendent of Insurance approves a greater dividend distribution based upon a finding that the insurer will retain sufficient surplus to support its obligations and writings. See Note 13 to the Consolidated Financial Statements of MBIA Inc. and Subsidiaries. The foregoing dividend limitations are determined in accordance with Statutory Accounting Practices ("SAP"), which generally produce statutory earnings in amounts less than earnings computed in accordance with Generally Accepted Accounting Principles ("GAAP"). Similarly, policyholders' surplus, computed on a SAP basis, will normally be less than net worth computed on a GAAP basis. See Note 5 to the Consolidated Financial Statements of MBIA Inc. and Subsidiaries. MBIA Corp., MBIA Illinois and CapMAC are exempt from assessments by the insurance guarantee funds in the majority of the states in which they do business. Guarantee fund laws in most states require insurers transacting business in the state to participate in guarantee associations which pay claims of policyholders and third-party claimants against impaired or insolvent insurance companies doing business in the state. In most states, insurers licensed to write only municipal bond insurance, financial guarantee insurance and other forms of surety insurance are exempt from assessment by these funds and their policyholders are prohibited from making claims on these funds. Losses and Reserves The Company's policy is to provide for loss reserves to cover losses that may be reasonably estimated on its insured obligations over the lives of such obligations. The loss reserve, at any financial statement date, is the Company's estimate of the identified and unidentified losses on the obligations it has insured, including expected costs of settlement. Both MBIA Illinois and CapMAC are currently inactive and their insurance business is in run-off. MBIA Corp. has reinsured their respective net liabilities on financial guarantee insurance business and maintains required reserves in connection therewith. To the extent that specific insured issues are identified as currently or likely to be in default, the present value of the expected payments, including costs of settlement, net of expected recoveries, is allocated within the total loss reserve as a case basis reserve. At December 31, 1998, $188.6 million of the $270.1 million reserve for loss and loss adjustment expense represents case basis reserves, of which $162.8 million and $20.3 million are attributable to two health care facilities in Pennsylvania. The remaining case basis reserves represent various housing financings and structured finance transactions, the largest of which is $3.6 million. The reserves for losses and loss adjustment expenses are based on estimates, and there can be no assurance that the ultimate liability will not exceed such estimates. To the extent that actual case losses for any period are less than the unallocated portion of total loss reserve, there will be no impact on the Company's earnings for that period other than an addition to the reserve which results from applying the loss rate factor to new debt service insurance. To the extent that case losses, for any period, exceed the unallocated portion of the total loss reserve, the excess will be charged against the Company's earnings for that period. The Company periodically reviews the appropriateness of the loss reserves and loss rate factor and is currently conducting such an analysis. 19
SAP Ratios The financial statements in this Form 10-K are prepared on the basis of GAAP. For reporting to state regulatory authorities, SAP is used. See Note 5 to the Consolidated Financial Statements of MBIA Inc. and Subsidiaries. The SAP combined ratio is a traditional measure of underwriting profitability for insurance companies. The SAP loss ratio (which is losses incurred divided by premiums earned), SAP expense ratio (which is underwriting expenses divided by net premiums written) and SAP combined ratio (which is the sum of the loss and expense ratios) for MBIA Corp. and for the financial guarantee industry, which includes the monoline primary insurers (including MBIA Corp.) and monoline reinsurers, are shown in the table below: Years Ended December 31, 1995 1996 1997 1998 MBIA Corp. Loss ratio 0.4% 1.7% 1.2% 8.0% Expense ratio 27.2 22.8 21.2 16.8 Combined ratio 27.6 24.5 22.4 24.8 Financial guarantee industry (1) Loss ratio 5.3% 4.9% 8.3% * Expense ratio 32.7 31.6 28.1 * Combined ratio 38.0 36.5 36.4 * - ---------- (1) Industry statistics were taken from the 1997 Annual Report of the Association of Financial Guaranty Insurors. * Not Available. The SAP loss ratio differs from the GAAP loss ratio because the GAAP ratio recognizes a provision for unidentified losses. The SAP expense ratio varies from the GAAP expense ratio because the GAAP ratio recognizes the deferral of policy acquisition costs and includes the amortization of purchase accounting adjustments, principally goodwill. In addition, the SAP expense ratio is calculated using premiums written while the GAAP expense ratio uses premiums earned. Net insurance in force, qualified statutory capital (which is comprised of policyholders' surplus and the contingency reserve), and policyholders' leverage ratios for MBIA Corp. and for the financial guarantee industry are shown in the table below: <TABLE> <CAPTION> As of December 31, 1995 1996 1997 1998 (Dollars in millions) <S> <C> <C> <C> <C> MBIA Corp. Net insurance in force $359,175 $ 434,417 $ 513,736 $595,895 Qualified statutory capital 2,257 2,620 3,140 3,741 Policyholders' leverage ratio 159:1 166:1 164:1 159:1 Financial guarantee industry(1) Net insurance in force $895,559 $1,076,821 $1,262,697 * Qualified statutory capital 6,495 7,350 8,851 * Policyholders' leverage ratio 138:1 147:1 143:1 * </TABLE> - ---------- (1) Industry statistics were taken from the 1997 Annual Report of the Association of Financial Guaranty Insurors. * Not Available. 20
The policyholders' leverage ratio is the ratio of net insurance in force to qualified statutory capital. This test is sometimes focused on as a measure of a company's claims-paying capacity. The Company believes that the leverage ratio has significant limitations since it compares the total debt service (undiscounted) coming due over the next 30 years or so to a company's current capital base. It thereby fails to recognize future capital that will be generated during the period of risk being measured, arising from unearned premium reserve and future installment premium commitments. Further, the leverage ratio does not consider the underlying quality of the issuers whose debt service is insured and thereby does not differentiate among the risk characteristics of a financial guarantor's insured portfolio, nor does it give any benefit for third-party commitments such as standby lines of credit. MBIA Corp. Insurance Policies The insurance policies issued by MBIA Corp. provide an unconditional and irrevocable guarantee of the payment to a designated paying agent for the bondholders of an amount equal to the principal of and interest on insured bonds not paid when due. In the event of a default in payment of principal or interest by an issuer, MBIA Corp. promises to make funds available in the amount of the default on the next business day following notification. MBIA Corp. has a Fiscal Agency Agreement with State Street Bank and Trust Company, N.A. to provide for this payment upon receipt of proof of ownership of the bonds, as well as upon receipt of instruments appointing MBIA Corp. as agent for the bondholders and evidencing the assignment of bondholder rights with respect to the debt service payments made by MBIA Corp. Even if bondholders are permitted by the indenture securing the bonds to have the full amount of principal of the bonds, together with accrued interest, declared due and payable immediately in the event of a default, MBIA Corp. is required to pay only the principal and interest scheduled to be paid, but not in fact paid, on each original principal and interest payment date. MBIA Assurance writes policies that are substantially similar in coverage and manner of payment to the MBIA Corp. policies. The MBIA Illinois insurance policies provide for payments on default in substantially the same manner as the MBIA Corp. policies. Financial guaranty insurance written by CapMAC generally guarantees to the holder of the guaranteed obligation the timely payment of principal and interest in accordance with the obligation's original payment schedule. In the case of a default on the insured obligation, payment under the insurance policy generally may not be accelerated by the holder without the consent of CapMAC, even though the underlying obligation may be accelerated. Rating Agencies Moody's, S&P and Fitch perform periodic reviews of MBIA Corp. and other companies providing financial guarantee insurance. Their reviews focus on the insurer's underwriting policies and procedures and on the issues insured. Additionally, each rating agency has certain criteria as to exposure limits and capital requirements for financial guarantors. The rating agencies have reaffirmed their Triple-A claims-paying ratings assigned to MBIA Corp., CapMAC, MBIA Illinois and to MBIA Assurance. The ratings for MBIA Illinois and CapMAC are based in significant part on reinsurance agreements between MBIA Corp. and MBIA Illinois and MBIA Corp. and CapMAC, respectively. The rating of MBIA Assurance is based in significant part on the reinsurance agreement between MBIA Corp. and MBIA Assurance and the net worth maintenance agreement between the two parties. See "Business-Reinsurance." Although MBIA Corp. intends to comply with the requirements of the rating agencies, no assurance can be given that these requirements will not change or that, even if MBIA Corp. complies with these requirements, one or more rating agencies will not reduce or withdraw their rating. MBIA Corp.'s ability to attract new business and to compete with other financial guarantors, and its results of operations and financial condition would be materially adversely affected by any reduction in its ratings. Credit Agreement MBIA Corp. entered into a Credit Agreement, dated as of December 29, 1989, which has been amended from time to time (the "Credit Agreement") with Credit Suisse, New York Branch ("Credit Suisse") to provide MBIA Corp. with an unconditional, irrevocable line of credit. The Credit Agreement was amended and restated by the Second Amended and Restated Credit Agreement, dated as of October 1, 1997 among MBIA Corp., Credit Suisse, as Administrative Agent and a consortium of highly rated banks. The Credit Agreement was further amended as of October 1, 1998 to extend the expiration date and to replace the Administrative Agent, Credit Suisse, with Cooperatieve Centrale Raiffeissen-Boerenleenbank B.A. "Robobank Nederland." The line of credit is available to 21
be drawn upon by MBIA Corp., in an amount up to $825 million, after MBIA Corp. has incurred, during the period commencing October 1, 1997 and ending October 31, 2005, cumulative losses (net of any recoveries) in excess of $825 million or 4.00% of average annual debt service. The obligation to repay loans made under the Credit Agreement is a limited recourse obligation of MBIA Corp. payable solely from, and secured by a pledge of, recoveries realized on defaulted insured obligations, from certain pledged installment premiums and other collateral. Borrowings under the Credit Agreement are repayable on the expiration date of the Credit Agreement. The current expiration date of the Credit Agreement is October 31, 2005, subject to annual extensions under certain circumstances. The Credit Agreement contains covenants that, among other things, restrict MBIA Corp.'s ability to encumber assets or merge or consolidate with another entity. Employees As of March 25, 1999, the Company had 939 employees. No employee is covered by a collective bargaining agreement. The Company considers its employee relations to be satisfactory. Forward-Looking Statements The Company through its management may from time to time make forward-looking statements. Important factors, including general market conditions and the competitive environment, could cause actual results to differ materially from those contained in any forward-looking statements. The Company undertakes no obligation to update any forward-looking statements to reflect changes in events or expectations or otherwise. Executive Officers The executive officers of the Company and their present ages and positions with the Company are set forth below. Name Age Position and Term of Office ----- ---- --------------------------- David H. Elliott 57 Chairman (officer since 1986) Joseph W. Brown, Jr. 50 Chief Executive Officer (officer since January 1999) Richard L. Weill 56 Vice Chairman (officer since 1989) Neil G. Budnick 44 Chief Financial Officer and Treasurer (officer since 1992) John B. Caouette 54 President, Structured Finance Division (officer since February, 1998) Gary C. Dunton 43 President, Public Finance Division and President, Investment Management and Financial Services Division (officer since January, 1998) Louis G. Lenzi 50 General Counsel and Secretary (officer since 1986) Kevin D. Silva 45 Senior Vice President (officer since 1995) Ruth M. Whaley 43 Chief Risk Officer (officer since January 1999) David H. Elliott is Chairman of the Company and of MBIA Corp. It is expected that he will step down as Chairman in May. From 1991 to 1998, he was also the Company's Chief Executive Officer and, from 1986 to 1991, he served as the President and Chief Operating Officer of the Company and MBIA Corp. He is a director of MBIA Corp. and was the President of the Association from 1976 to 1980 and from 1982 through 1986. Joseph W. Brown, Jr. is Chief Executive Officer of the Company (effective January 7, 1999) and a director of MBIA Corp. It is expected that Mr. Brown will be appointed Chairman in May. Prior to joining the Company in January 1999, Mr. Brown was Chairman of the Board of Talegen Holdings, Inc. Richard L. Weill is Vice Chairman of the Company, President of MBIA Corp. and a director of MBIA Corp. From 1989 through 1991, Mr. Weill was General Counsel and Corporate Secretary of the Company. Mr. Weill was previously a partner with the law firm of Kutak Rock, with which he had been associated from 1969 to 1989. Kevin D. Silva is Senior Vice President of the Company and MBIA Corp. and a director of MBIA Corp. He has been in charge of the Management Services Division of MBIA Corp. since joining the Company in late 1995. 22
Neil G. Budnick is Chief Financial Officer and Treasurer of the Company and MBIA Corp. and a director of MBIA Corp. Mr. Budnick has been primarily involved in the insurance operations area of MBIA Corp. since joining the Company in 1983. John B. Caouette is President, Structured Finance Division of the Company and MBIA Corp. and a director of MBIA Corp. Mr. Caouette was, until February of 1998, the Chairman and Chief Executive Officer of CapMAC Holdings Inc. Gary C. Dunton is President, Public Finance Division and President, Investment Management and Financial Services Division of the Company and MBIA Corp. and a director of MBIA Corp. Mr. Dunton was, prior to joining the Company as an officer, a director of the Company and President of the Family and Business Insurance Group, USF&G Insurance. Louis G. Lenzi is General Counsel and Secretary of the Company and MBIA Corp. He is also a director of MBIA Corp. Mr. Lenzi has held various legal positions within the Company and MBIA Corp. since 1984. Ruth M. Whaley is the Chief Risk Officer of the Company and MBIA Corp. and a director of MBIA Corp.. She was, until February of 1998, the Chief Underwriting Officer of CapMAC Holdings Inc. Item 2. Properties MBIA Corp. owns the 157,500 square foot office building on approximately 15.5 acres of property in Armonk, New York, in which the Company and MBIA Corp. have their headquarters. The Company is currently in the process of constructing a 105,000 square foot addition to the Armonk property at an estimated cost of $35.0 million. The Company also has rental space in New York, New York, San Francisco, California, Paris, France, Madrid, Spain and Sydney, Australia. The Company believes that these facilities are adequate and suitable for its current needs. Item 3. Legal Proceedings There are no material lawsuits pending or, to the knowledge of the Company, threatened to which the Company or any of its subsidiaries is a party. Item 4. Submission of Matters to a Vote of Security Holders Not Applicable. 23
PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters The information concerning the market for the Company's Common Stock and certain information concerning dividends appears under the heading "Shareholder Information" on the inside back cover of the Company's 1998 Annual Report to Shareholders and is incorporated herein by reference. As of March 25, 1999, there were 504 shareholders of record of the Company's Common Stock. The information concerning dividends on the Company's Common Stock is under "Business - Regulation" in this report. Item 6. Selected Financial Data The information under the heading "Selected Financial and Statistical Data" as set forth on pages 34-35 of the Company's 1998 Annual Report to Shareholders is incorporated by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The information under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" as set forth on pages 36-43 of the Company's 1998 Annual Report to Shareholders is incorporated by reference. Item 8. Financial Statements and Supplementary Data The consolidated financial statements of the Company, the Report of Independent Accountants thereon by PricewaterhouseCoopers LLP and the unaudited "Quarterly Financial Information" are set forth on pages 44-64 of the Company's 1998 Annual Report to Shareholders and are incorporated by reference. Item 9. Disagreements on Accounting and Financial Disclosure None. PART III Item 10. Directors and Executive Officers of the Registrant Information regarding directors is set forth under "Election of Directors" in the Company's Proxy Statement, dated March 29, 1999, which is incorporated by reference. Information regarding executive officers is set forth under Item 1, "Business - Executive Officers," in this report. Item 11. Executive Compensation Information regarding compensation of the Company's executive officers is set forth under "Compensation of Executive Officers" in the Company's Proxy Statement, dated March 29, 1999, which is incorporated by reference. 24
Item 12. Security Ownership of Certain Beneficial Owners and Management Information regarding security ownership of certain beneficial owners and management is set forth under "Election of Directors" and "Security Ownership of Certain Beneficial Owners" in the Company's Proxy Statement, dated March 29, 1999, which is incorporated by reference. Item 13. Certain Relationships and Related Transactions Information regarding relationships and related transactions is set forth under "Certain Relationships and Related Transactions" in the Company's Proxy Statement dated March 29, 1999, which is incorporated by reference. PART IV Item 14. (a) Financial Statements and Financial Statement Schedules and Exhibits. 1. Financial Statements MBIA Inc. has incorporated by reference from the 1998 Annual Report to Shareholders the following consolidated financial statements of the Company: Annual Report to Shareholders Page(s) MBIA INC. AND SUBSIDIARIES Report of independent accountants. 44 Consolidated balance sheets as of December 31, 1998 and 45 1997. Consolidated statements of income for the years ended 46 December 31, 1998, 1997 and 1996. Consolidated statements of changes in shareholders' 47 Equity for the years ended December 31, 1998, 1997 and 1996. Consolidated statements of cash flows for the years 48 Ended December 31, 1998, 1997 and 1996. Notes to consolidated financial statements. 49-64 2. Financial Statement Schedules The following financial statement schedules are filed as part of this report. Schedule Title -------- ----- I Summary of investments, other than investments in related parties, as of December 31, 1998. II Condensed financial information of Registrant for December 31, 1998, 1997 and 1996. IV Reinsurance for the years ended December 31, 1998, 1997 and 1996. The report of the Registrant's independent accountants with respect to the above listed financial statement schedules is included with the schedules. All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto. 25
3. Exhibits (An exhibit index immediately preceding the Exhibits indicates the page number where each exhibit filed as part of this report can be found.) 3. Articles of Incorporation and By-Laws. 3.1. Restated Certificate of Incorporation, dated August 17, 1990, incorporated by reference to Exhibit 3.1 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990 (Comm. File 1-9583) (the "1990 10-K"). 3.2. By-Laws as Amended as of March 19, 1998. 10. Material Contracts 10.06. Amended and Restated Tax Allocation Agreement, dated as of January 1, 1990, between the Company and MBIA Corp., incorporated by reference to Exhibit 10.66 to the 1989 10-K. 10.07. Reinsurance Agreement, dated as of December 31, 1990, between MBIA Corp. and Bond Investors Guaranty Insurance Company, incorporated by reference to Exhibit 10.54 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990 (Comm. File No. 1-9583) (the "1990 10-K"). 10.08. Revolving Credit Agreement, dated as of February 15, 1991, between the Company and Credit Suisse, New York Branch, incorporated by reference to Exhibit 10.76 to the 1991 10-K, as amended by the First Amendment to Revolving Credit Agreement, dated as of September 30, 1992, incorporated by reference to Exhibit 10.61 to the 1992 10-K, as further amended by the Second Amendment to Revolving Credit Agreement, dated as of September 30, 1994, incorporated by reference to Exhibit 10.48 to the 1994 10-K, as further amended by the Third Amendment to Revolving Credit Agreement, dated as of May 23, 1996, incorporated by reference to Exhibit 10.43 to the Company's Annual Report on Form 10-K for fiscal year ended December 31, 1996 (Comm. File No. 1-9583) (the "1996 10-K"). 10.09. Rights Agreement, dated as of December 12, 1991, between the Company and Mellon Bank, N.A., incorporated by reference to the Company's Current Report on Form 8-K, filed on December 31, 1991, incorporated by reference to Exhibit 10.62 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (Comm. File No. 1-9583) (the "1993 10-K"), as amended by Amendment to Rights Agreement, dated as of October 24, 1994, incorporated by reference to Exhibit 10.49 to the 1994 10-K. 10.10. Trust Agreement, dated as of December 31, 1991, between MBIA Corp. and Fidelity Management Trust Company, incorporated by reference to Exhibit 10.64 to the 1992 10-K, as amended by the Amendment to Trust Agreement, dated as of April 1, 1993, incorporated by reference to Exhibit 10.64 to the 1993 10-K, as amended by First Amendment to Trust Agreement, dated as of January 21, 1992, as further amended by Second Amendment to Trust Agreement, dated as of March 5, 1992, as further amended by Third Amendment to Trust Agreement, dated as of April 1, 1993, as further amended by the Fourth Amendment to Trust Agreement, dated as of July 1, 1995, incorporated by reference to Exhibit 10.47 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 (Comm. File No. 1-9583) (the "1995 10-K"), as amended by Fifth Amendment to Trust Agreement, dated as of November 1, 1995, as further amended by Sixth Amendment to Trust Agreement, dated as of January 1, 1996, incorporated by reference to Exhibit 10.46 to the 1996 10-K, further amended by Seventh Amendment to Trust Agreement, dated as of October 15, 1997, incorporated by reference to Exhibit 10.36 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (Comm. File No. 1-9583) (the "1997 10-K") as further amended by the Eighth Amendment to Trust Agreement, dated as of January 1, 1998 and by the Ninth Amendment to Trust Agreement, dated as of March 1, 1999. 10.12. Indenture, dated as of August 1, 1990, between MBIA Inc. and The First National Bank of Chicago, Trustee, incorporated by reference to Exhibit 10.72 to the 1992 10-K. 10.13. First Restated Credit Agreement, dated as of October 1, 1993, among MBIA Corp., Credit Suisse, New York Branch, as Agent, Credit Suisse, New York Branch, Caisse Des Depots Et Consignations, Deutsche Bank AG, Bayerische Landesbank Girozentrale and Landesbank Hessen-Thuringen Girozentrale, as amended by an Assignment and Assumption Agreement, dated as of December 31, 1993, among MBIA Corp., Credit Suisse, New York Branch, as Agent and Assignor and Deutsche Bank AG, 26
New York Branch, as further amended by a Modification Agreement, dated as of January 1, 1994, among Deutsche Bank, AG, New York Branch, MBIA Corp. and Credit Suisse, New York Branch, as Agent, as amended by a Joinder Agreement, dated December 31, 1993, among Credit Suisse, New York Branch, as Agent, Sudwestdeutsche Landesbank Girozentrale and MBIA Corp., incorporated by reference to Exhibit 10.78 to the 1993 10-K, as amended by the First Amendment to First Restated Credit Agreement, dated as of September 23, 1994, incorporated by reference to Exhibit 10.63 to the 1994 10-K, as further amended by the Second Amendment to the First Restated Credit Agreement, dated as of January 1, 1996, and as further amended by the Third Amendment to the First Restated Credit Agreement, dated as of October 1, 1996, incorporated by reference to Exhibit 10.57 to the 1996 10-K, as further amended and restated by the Second Amended and Restated Credit Agreement, dated as of October 1, 1997, incorporated by reference to Exhibit 10.46 to the 1997 10-K, as further amended by the First Amendment to Second Amended and Restated Credit Agreement, dated as of October 1, 1998. 10.14. Net Worth Maintenance Agreement, dated as of November 1, 1991, between MBIA Corp. and MBIA Assurance S.A., as amended by Amendment to Net Worth Agreement, dated as of November 1, 1991, incorporated by reference to Exhibit 10.79 to 1993 10-K. 10.15. Reinsurance Agreement, dated as of January 1, 1993, between MBIA Assurance S.A. and MBIA Corp., incorporated by reference to Exhibit 10.80 to the 1993 10-K. 10.16. Credit Agreement, dated as of August 31, 1994, among Municipal Bond Investors Assurance Corporation, the Company, Wachovia Bank of Georgia, N.A., Banco Santander, The Sumitomo Bank, Ltd., New York Branch, The Chase Manhattan Bank, N.A., Commerzbank Aktiengesellschaft, The Industrial Bank of Japan, Limited New York Branch and NBD Bank, N.A., and as further amended by the First Amendment to Credit Agreement, dated as of October 14, 1994, incorporated by reference to Exhibit 10.66 to the 1994 10-K, as amended by the Second Amendment to Credit Agreement, dated as of October 31, 1995, incorporated by reference to Exhibit 10.61 to 1995 10-K. 10.17. Investment Services Agreement, effective as of April 28, 1995, between MBIA Insurance Corporation and MBIA Securities Corp., as amended by Amendment No. 1, dated as of December 29, 1995, incorporated by reference to Exhibit 10.65 to the 1995 10-K, as further amended by Amendment No. 2 to Investment Services Agreement, dated January 14, 1997, incorporated by reference to Exhibit 10.53 to the 1997 10-K. 10.18. Investment Services Agreement, effective January 2, 1996, between MBIA Insurance Corp. of Illinois and MBIA Securities Corp., incorporated by reference to Exhibit 10.66 to the 1995 10-K. 10.21. Agreement and Plan of Merger among the Company, CMA Acquisition Corporation and CapMAC Holdings Inc. ("CapMAC"), dated as of November 13, 1997, incorporated by reference to the Company's Form S-4 (Reg. No. 333-41633) filed on December 5, 1997. 10.22. Amendment No. 1 to Agreement and Plan of Merger among the Company, CMA Acquisition Corporation and CapMAC Holdings Inc. ("CapMAC"), dated January 16, 1998, incorporated by reference to the Company's Post Effective Amendment No. 1 to Form S-4 (Reg. No. 333-41633) filed on January 21, 1998. 10.30. Reinsurance Agreement, dated as of April 1, 1998, between CapMAC and MBIA Corp. 10.31. Reinsurance Agreement, dated as of January 1, 1999, between MBIA Illinois and MBIA Corp. 10.32. Agreement and Plan of Merger by and among the Company, MBIA Acquisition, Inc. and 1838 Investment Advisors, Inc., dated as of June 19, 1998. 27
10.33. Credit Agreement (364 day agreement) among the Company, MBIA Corp., various designated borrowers, various lending institutions, Deutsche Bank AG, New York Branch, as Administrative Agent, The First National Bank of Chicago, as Syndication Agent and Fleet National Bank, as Documentation Agent, dated as of August 28, 1998. 10.34. Credit Agreement (5 year agreement) among the Company, MBIA Corp., various designated borrowers, various lending institutions, Deutsche Bank AG, New York Branch, as Administrative Agent, The First National Bank of Chicago, as Syndication Agent and Fleet National Bank, as Documentation Agent, dated as of August 28, 1998 10.48. Ambac Assurance Corporation, AMBAC Insurance UK Limited, MBIA Insurance Corporation, and MBIA Assurance S.A. Agreement Regarding A Global Joint Venture, effective as of January 15, 1999. 10.49. Special Excess Of Loss Reinsurance Agreement, between MBIA Insurance Corporation and/or MBIA Assurance S.A. and/or any other insurance or reinsurance company subsidiaries of MBIA Inc. listed in Exhibit No. 1 and Muenchener Rueckversicherungs-Gesellshaft, effective September 1, 1998. 10.50. Second Special Per Occurrence Excess Of Loss Reinsurance Agreement, between MBIA Insurance Corporation and/or MBIA Assurance S.A. and/or any other insurance or reinsurance company subsidiaries of MBIA Inc. listed in Exhibit No. 1 and AXA Re Finance S.A., effective September 1, 1998. 10.51. Third Special Per Occurrence Excess Of Loss Reinsurance Agreement, between MBIA Insurance Corporation and/or MBIA Assurance S.A. and/or any other insurance or reinsurance company subsidiaries of MBIA Inc. listed in Exhibit No. 1 and Zurich Reinsurance (North America), Inc., effective September 15, 1998. Executive Compensation Plans and Arrangements The following Exhibits identify all existing executive compensation plans and arrangements: 10.01. MBIA Inc. 1987 Stock Option Plan, incorporated by reference to Exhibit 10.13 to the 1987 S-1, as amended by the First Amendment to the MBIA Inc. 1987 Stock Option Plan, effective June 1, 1995, as further amended by the Second Amendment to the MBIA Inc. 1987 Stock Option Plan, effective as of January 7, 1999. 10.02. MBIA Inc. Deferred Compensation and Excess Benefit Plan, incorporated by reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1988 (Comm. File No. 1-9583) (the "1988 10-K"), as amended as of July 22, 1992, incorporated by reference to Exhibit 10.15 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992 (Comm. File No. 1-9583) (the "1992 10-K"). 10.03. MBIA Inc. Employees Pension Plan, amended and restated effective January 1, 1987, incorporated by reference to Exhibit 10.28 of the Company's Amendment No. 1 to the 1987 S-1, as further amended and restated as of December 12, 1991, incorporated by reference to Exhibit 10.18 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1991 (Comm. File No. 1-9583) (the "1991 10-K"), as further amended and restated effective January 1, 1994, incorporated by reference to Exhibit 10.16 of the Company's Annual Report on Form 10-K for fiscal year ended December 31, 1994 (Comm. File No. 1-9583) (the "1994 10-K"). 10.04. MBIA Inc. Employees Profit Sharing Plan, as amended and restated effective January 1, 1987, incorporated by reference to Exhibit 10.29 to Amendment No. 1 to the 1987 S-1, as further amended by Amendment dated December 8, 1988, incorporated by reference to Exhibit 10.21 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989 (Comm. File No. 1-9583) (the "1989 10-K"), as further amended and restated as of December 12, 1991, incorporated by reference to Exhibit 10.19 to the 1991 10-K, as further amended and restated as of May 7, 1992, incorporated by reference to Exhibit 10.17 to the 1992 10K, as further amended and restated effective January 1, 1994, incorporated by reference to Exhibit 10.17 to the 1994 10-K. 10.05. MBIA Corp. Split Dollar Life Insurance Plan, dated as of February 9, 1988, issued by Aetna Life Insurance and Annuity Company, incorporated by reference to Exhibit 10.23 to the 1989 10-K. 28
10.11. MBIA Inc. Employees Change of Control Benefits Plan, effective as of January 1, 1992, incorporated by reference to Exhibit 10.65 to the 1992 10-K. 10.19. MBIA Inc. 1996 Incentive Plan, effective as of January 1, 1996, incorporated by reference to Exhibit 10.70 to the 1995 10-K. 10.20. MBIA Inc. 1996 Directors Stock Unit Plan, effective as of December 4, 1996, incorporated by reference to Exhibit 10.70 to the 1996 10-K. 10.23. Employment Agreement, dated as of June 25, 1992, between CapMAC Acquisition Corp. and John B. Caouette, incorporated by reference to Exhibit 10.7 of CapMAC's Registration Statement on Form S-1 (Reg. No. 33-982554), filed in 1992, as amended (the "CapMAC Form S-1"). 10.24. CapMAC Employee Stock Ownership Plan, incorporated by reference to Exhibit 10.18 to the CapMAC Form S-1. 10.25. CapMAC Employee Stock Ownership Plan Trust Agreement, incorporated by reference to Exhibit 10.19 to the CapMAC Form S-1, as amended by Amendment No. 2 to the CapMAC Employee Stock Ownership Plan, executed December 22, 1998. 10.26. ESOP Loan Agreement by and between CapMAC and the ESOP Trust dated as of June 25, 1992, incorporated by reference to Exhibit 10.20 to the CapMAC Form S-1. 10.27. Deferred Compensation and Restricted Stock Agreement, dated as of December 7, 1995, between John B. Caouette and CapMAC, incorporated by reference to Exhibit 10.28 of the CapMAC Annual Report on Form 10-K for the year ended December 31, 1995 (the "CapMAC 1995 10-K"). 10.28. Deferred Compensation and Restricted Stock Agreement, dated as of December 7, 1995, between Joyce S. Richardson and CapMAC, incorporated by reference to Exhibit 10.35 of the CapMAC 1995 10-K. 10.29. Deferred Compensation and Restricted Stock Agreement, dated as of December 7, 1995, between Ram D. Wertheim and CapMAC, incorporated by reference to Exhibit 10.35 of the CapMAC 1995 10-K. 10.35. Retirement and Consulting Agreement, between the Company and David H. Elliott, dated as of January 7, 1999 and Summary Retirement and Consulting Agreement, between the Company and David H. Elliott, dated as of January 7, 1999. 10.36. Terms of Employment letter between MBIA and Joseph W. Brown, Jr., dated January 7, 1999. 10.37. Stock Option Agreement between MBIA Inc. and Joseph W. Brown, Jr., dated January 7, 1999. 10.38. Key Employee Employment Protection Agreement between MBIA Inc. and Joseph W. Brown, Jr., dated January 20, 1999. 10.39. Key Employee Employment Protection Agreement between MBIA Inc. and Neil G. Budnick, dated January 25, 1999. 10.40. Key Employee Employment Protection Agreement between MBIA Inc. and W. Thacher Brown, dated January 25, 1999. 10.41. Key Employee Employment Protection Agreement between MBIA Inc. and John B. Caouette, dated January 25, 1999. 10.42. Key Employee Employment Protection Agreement between MBIA Inc. and Gary C. Dunton, dated January 25, 1999 29
10.43. Key Employee Employment Protection Agreement between MBIA Inc. and Louis G. Lenzi, dated January 25, 1999. 10.44. Key Employee Employment Protection Agreement between MBIA Inc. and Kevin D. Silva , dated January 25, 1999. 10.45. Key Employee Employment Protection Agreement between MBIA Inc. and Richard L. Weill, dated January 25, 1999. 10.46. Key Employee Employment Protection Agreement between MBIA Inc. and Ruth M. Whaley, dated January 25, 1999. 10.47. Key Employee Employment Protection Agreement between MBIA Inc. and Michael J. Maguire, dated March 19, 1999. 13. Annual Report to Shareholders of MBIA Inc. for fiscal year ended December 31, 1998. Such report is furnished for the information of the Commission only and, except for those portions thereof which are expressly incorporated by reference in this Annual Report on Form 10-K, is not to be deemed filed as part of this report. 21. List of Subsidiaries 23. Consent of PricewaterhouseCoopers LLP 24. Power of Attorney 27. Financial Data Schedule 99. Additional Exhibits - MBIA Corp. GAAP Financial Statements (b) Reports on Form 8-K: The Company filed no report on Form 8-K in the fourth quarter of 1998. 30
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. MBIA Inc. (Registrant) Dated: March 29, 1999 By /s/ David H. Elliott -------------------------------- Name: David H. Elliott Title: Chairman Pursuant to the requirements of Instruction D to Form 10-K under the Securities Exchange Act of 1934, this Report has been signed below by the following persons in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- /s/ David H. Elliott Chairman and Director March 29, 1999 ----------------------------- David H. Elliott /s/ Elizabeth B. Sullivan Vice President and March 29, 1999 ----------------------------- Controller Elizabeth B. Sullivan /s/ Joseph W. Brown, Jr. * Director March 29, 1999 ----------------------------- Joseph W. Brown, Jr. /s/ David C. Clapp * Director March 29, 1999 ----------------------------- David C. Clapp /s/ Gary C. Dunton Director March 29, 1999 ----------------------------- Gary C. Dunton 31
/s/ Claire L. Gaudiani * Director March 29, 1999 ----------------------------- Claire L. Gaudiani /s/ William H. Gray, III * Director March 29, 1999 ----------------------------- William H. Gray, III /s/ Freda S. Johnson * Director March 29, 1999 ----------------------------- Freda S. Johnson /s/ Daniel P. Kearney * Director March 29, 1999 ----------------------------- Daniel P. Kearney /s/ James A. Lebenthal * Director March 29, 1999 ----------------------------- James A. Lebenthal /s/ Pierre-Henri Richard * Director March 29, 1999 ----------------------------- Pierre-Henri Richard /s/ John A. Rolls * Director March 29, 1999 ----------------------------- John A. Rolls /s/ Richard L. Weill Director March 29, 1999 ----------------------------- Richard L. Weill *By /s/ Louis G. Lenzi ----------------------------- Louis G. Lenzi Attorney-in Fact 32
Report of Independent Accountants on Financial Statement Schedules To the Board of Directors of MBIA Inc.: Our audits of the consolidated financial statements referred to in our report dated February 2, 1999 appearing on page 44 of the 1998 Annual Report to Shareholders of MBIA Inc. (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedules listed in item 14(a)(2) of this Form 10-K. In our opinion, these financial statement schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ PricewaterhouseCoopers LLP New York, New York February 2, 1999
SCHEDULE I MBIA INC. AND SUBSIDIARIES SUMMARY OF INVESTMENTS, OTHER THAN INVESTMENTS IN RELATED PARTIES DECEMBER 31, 1998 (In thousands) <TABLE> <CAPTION> - ----------------------------------------------------------------------------------------- COLUMN A COLUMN B COLUMN C COLUMN D AMOUNT AT WHICH FAIR SHOWN IN THE TYPE OF INVESTMENT COST VALUE BALANCE SHEET - ----------------------------------------------------------------------------------------- <S> <C> <C> <C> FIXED-MATURITIES Bonds: United States Treasury and Government agency obligations $ 443,130 $ 490,415 $ 490,415 State and municipal obligations 3,633,841 3,873,399 3,873,399 Corporate and other obligations 3,162,344 3,303,693 3,303,693 Mortgage-backed 1,679,525 1,706,478 1,706,478 ----------- ----------- ---------- Total fixed-maturities 8,918,840 9,373,985 9,373,985 SHORT-TERM INVESTMENTS 611,491 XXXXXXX 611,491 OTHER INVESTMENTS 99,393 XXXXXXX 94,975 ----------- ----------- ---------- Total investments $9,629,724 XXXXXXX $10,080,451 =========== =========== =========== </TABLE>
SCHEDULE II MBIA INC. (PARENT COMPANY) CONDENSED BALANCE SHEETS (Dollars in thousands, except per share amounts) <TABLE> <CAPTION> December 31, 1998 December 31, 1997 ----------------- ----------------- ASSETS <S> <C> <C> Investments: Municipal investment agreement portfolio held as available-for-sale at fair value (amortized cost $2,683,882 and $1,986,139) $2,737,874 $2,020,489 Short-term investments, at amortized cost (which approximates fair value) --- 2,300 ----------------- ----------------- Total investments 2,737,874 2,022,789 Cash and cash equivalents 5,177 3,891 Securities borrowed or purchased under agreements to resell 648,281 512,283 Investment in and amounts due from wholly-owned subsidiaries 4,542,945 3,906,852 Accrued investment income 24,900 22,389 Receivables for investments sold 15,439 11,272 Other assets 9,774 10,368 ----------------- ----------------- Total assets $7,984,390 $6,489,844 ================= ================= LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Municipal investment agreements $2,055,225 $1,356,926 Municipal repurchase agreements 632,409 567,897 Long-term debt 673,996 473,878 Short-term debt --- 20,000 Securities loaned or sold under agreements to repurchase 683,352 645,583 Deferred income taxes 18,818 11,973 Payable for investments purchased 65,757 14,925 Dividends payable 19,897 17,449 Other liabilities 42,719 19,701 ----------------- ----------------- Total liabilities 4,192,173 3,128,332 ----------------- ----------------- Shareholders' Equity: Preferred stock, par value $1 per share; authorized shares - 10,000,000; issued and outstanding shares - none --- --- Common stock, par value $1 per share; authorized shares - 200,000,000; issued shares - 99,569,625 and 98,754,487 99,570 98,754 Additional paid-in capital 1,169,192 1,133,950 Retained earnings 2,246,221 1,901,608 Accumulated other comprehensive income, net of deferred income taxes of $157,410 and $132,026 288,915 236,095 Unallocated ESOP shares (4,044) (4,083) Unearned compensation - restricted stock (6,807) (4,812) Treasury stock - 21,717 shares in 1998 (830) --- ----------------- ----------------- Total shareholders' equity 3,792,217 3,361,512 ----------------- ----------------- Total liabilities and shareholders' equity $7,984,390 $6,489,844 ================= ================= </TABLE> The condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto and the accompanying notes.
SCHEDULE II MBIA INC. (PARENT COMPANY) CONDENSED STATEMENTS OF INCOME (In thousands) <TABLE> <CAPTION> Years Ended December 31 ----------------------------------------------------- 1998 1997 1996 ------------------ -------------- ------------- <S> <C> <C> <C> Revenues: Net investment income $ (178) $ (909) $ 283 Investment management services income 4,553 4,469 2,806 Investment management services realized gains (losses) 4,253 202 (2,549) ------------------ -------------- ------------- Total revenues 8,628 3,762 540 ------------------ -------------- ------------- Expenses: Interest expense 38,875 34,762 32,705 Operating expenses 67,252 4,304 2,384 ------------------ -------------- ------------- Total expenses 106,127 39,066 35,089 ------------------ -------------- ------------- Loss before income taxes and equity in earnings of subsidiaries (97,499) (35,304) (34,549) Benefit for income taxes (13,888) (12,444) (10,911) ------------------ -------------- ------------- Loss before equity in earnings of subsidiaries (83,611) (22,860) (23,638) Equity in earnings of subsidiaries 516,339 428,470 371,374 ------------------ -------------- ------------- Net income $432,728 $405,610 $347,736 ================== ============== ============= </TABLE> The condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto and the accompanying notes.
SCHEDULE II MBIA INC. (PARENT COMPANY) CONDENSED STATEMENTS OF CASH FLOWS (In thousands) <TABLE> <CAPTION> Years Ended December 31 ------------------------------------------------------- 1998 1997 1996 --------------- --------------- --------------- <S> <C> <C> <C> Cash flows from operating activities: Net income $ 432,728 $ 405,610 $ 347,736 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed earnings of subsidiaries (516,339) (387,970) (342,374) Net realized (gains) losses on sales of investments (4,253) (202) 2,549 Benefit for deferred income taxes (30) --- --- Other, net 27,823 297 593 --------------- --------------- --------------- Total adjustments to net income (492,799) (387,875) (339,232) --------------- --------------- --------------- Net cash provided by operating activities (60,071) 17,735 8,504 --------------- --------------- --------------- Cash flows from investing activities: Purchase of fixed-maturity securities --- --- --- Sale of fixed-maturity securities --- --- --- Sale (purchase) of short-term investments 2,300 3,898 (6,198) Sale of other investments --- --- --- Purchases for municipal investment agreement portfolio, net of payable for investments purchased (2,351,385) (1,264,882) (1,189,132) Sales from municipal investment agreement portfolio, net of receivable for investments sold 1,707,407 845,365 464,593 Contributions to subsidiaries (17,616) (93,666) (11,301) Advances to subsidiaries, net (62,085) (96,597) (21,764) --------------- --------------- --------------- Net cash used by investing activities (721,379) (605,882) (763,802) --------------- --------------- --------------- Cash flows from financing activities: Net proceeds from issuance of common stock --- 127,775 54,880 Net proceeds from issuance of long-term debt 197,113 98,880 --- Net proceeds from issuance of short-term debt (20,000) (9,100) 11,100 Dividends paid (85,667) (76,743) (69,795) Proceeds from issuance of municipal investment and repurchase agreements 2,065,200 1,499,080 1,504,140 Payments for drawdowns of municipal investment agreements (1,306,389) (1,195,939) (786,938) Securities loaned or sold under agreements to repurchase, net (98,229) 133,300 --- Exercise of stock options 30,708 14,372 28,218 --------------- --------------- --------------- Net cash provided by financing activities 782,736 591,625 741,605 --------------- --------------- --------------- Net (decrease) increase in cash and cash equivalents 1,286 3,478 (13,693) Cash and cash equivalents -beginning of year 3,891 413 14,106 --------------- --------------- --------------- Cash and cash equivalents -end of year $ 5,177 $ 3,891 $ 413 =============== =============== =============== Supplemental cash flow disclosures: Income taxes paid $ 618 $ 1,568 $ 305 Interest paid: Long-term debt 39,499 32,953 32,850 Short-term debt 1,057 2,017 1,309 </TABLE> The condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto and the accompanying notes.
SCHEDULE II MBIA INC. (PARENT COMPANY) NOTES TO CONDENSED FINANCIAL STATEMENTS 1. CONDENSED FINANCIAL STATEMENTS Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the Company's consolidated financial statements and the notes thereto. 2. SIGNIFICANT ACCOUNTING POLICIES The Parent company carries its investments in subsidiaries under the equity method. 3. DIVIDENDS FROM SUBSIDIARY No dividends were paid by MBIA Corp. to MBIA Inc. in 1998 and 1997. In 1996, MBIA Corp. declared and paid dividends of $29,000,000 to MBIA Inc. Also, in 1997 MBIA Investment Management Corp. declared and paid dividends of $40,500,000 to MBIA Inc. 4. OBLIGATIONS UNDER MUNICIPAL INVESTMENT AND REPURCHASE AGREEMENTS The municipal investment and repurchase agreement business, as described in footnotes 2 and 15 to the consolidated financial statements of MBIA Inc. and Subsidiaries (which are incorporated by reference in the 10-K), is conducted by both the Registrant and its wholly owned subsidiary, MBIA Investment Management Corp.
SCHEDULE IV MBIA INC. AND SUBSIDIARIES REINSURANCE for the Years Ended December 31, 1998, 1997 and 1996 (In thousands) <TABLE> <CAPTION> - -------------------------------------------------------------------------------------------------------------------------- Column A Column B Column C Column D Column E Column F Percentage Insurance Gross Ceded to Other Assumed from of Amount Premiums Written Amount Value Other Companies Net Amount Assumed to Net - -------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> 1998 $664,269 $156,064 $12,781 $520,986 2.5% ---- -------- -------- ------- -------- ---- 1997 $635,660 $116,526 $18,188 $537,322 3.4% ---- -------- -------- ------- -------- ---- 1996 $507,535 $69,956 $27,747 $465,326 6.0% ---- -------- -------- ------- -------- ---- </TABLE>
Securities and Exchange Commission Washington, D.C. 20549 - -------------------------------------------------------------------------------- Exhibits to Form 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1998 Commission File No. 1-9583 - ------------------------------------------------------------------------------- MBIA Inc.
Exhibit Index 3.2. By-Laws as Amended as of March 19, 1998. 10.01. MBIA Inc. 1987 Stock Option Plan, incorporated by reference to Exhibit 10.13 to the 1987 S-1, as amended by the First Amendment to the MBIA Inc. 1987 Stock Option Plan, effective June 1, 1995, as further amended by the Second Amendment to the MBIA Inc. 1987 Stock Option Plan, effective as of January 7, 1999. 10.10. Trust Agreement, dated as of December 31, 1991, between MBIA Corp. and Fidelity Management Trust Company, incorporated by reference to Exhibit 10.64 to the 1992 10-K, as amended by the Amendment to Trust Agreement, dated as of April 1, 1993, incorporated by reference to Exhibit 10.64 to the 1993 10-K, as amended by First Amendment to Trust Agreement, dated as of January 21, 1992, as further amended by Second Amendment to Trust Agreement, dated as of March 5, 1992, as further amended by Third Amendment to Trust Agreement, dated as of April 1, 1993, as further amended by the Fourth Amendment to Trust Agreement, dated as of July 1, 1995, incorporated by reference to Exhibit 10.47 to the 1995 10-K, as amended by Fifth Amendment to Trust Agreement, dated as of November 1, 1995, as further amended by Sixth Amendment to Trust Agreement, dated as of January 1, 1996, incorporated by reference to Exhibit 10.46 to the 1996 10-K, further amended by Seventh Amendment to Trust Agreement, dated as of October 15, 1997, incorporated by reference to Exhibit 10.36 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (Comm. File No. 1-9583) (the "1997 10-K"), as further amended by the Eighth Amendment to Trust Agreement, dated as of January 1, 1998 and by the Ninth Amendment to Trust Agreement, dated as of March 1, 1999. 10.13. First Restated Credit Agreement, dated as of October 1, 1993, among MBIA Corp., Credit Suisse, New York Branch, as Agent, Credit Suisse, New York Branch, Caisse Des Depots Et Consignations, Deutsche Bank AG, Bayerische Landesbank Girozentrale and Landesbank Hessen-Thuringen Girozentrale, as amended by an Assignment and Assumption Agreement, dated as of December 31, 1993, among MBIA Corp., Credit Suisse, New York Branch, as Agent and Assignor and Deutsche Bank AG, New York Branch, as further amended by a Modification Agreement, dated as of January 1, 1994, among Deutsche Bank, AG, New York Branch, MBIA Corp. and Credit Suisse, New York Branch, as Agent, as amended by a Joinder Agreement, dated December 31, 1993, among Credit Suisse, New York Branch, as Agent, Sudwestdeutsche Landesbank Girozentrale and MBIA Corp., incorporated by reference to Exhibit 10.78 to the 1993 10-K, as amended by the First Amendment to First Restated Credit Agreement, dated as of September 23, 1994, incorporated by reference to Exhibit 10.63 to the 1994 10-K, as further amended by the Second Amendment to the First Restated Credit Agreement, dated as of January 1, 1996, and as further amended by the Third Amendment to the First Restated Credit Agreement, dated as of October 1, 1996, incorporated by reference to Exhibit 10.57 to the 1996 10-K, as further amended and restated by the Second Amended and Restated Credit Agreement, dated as of October 1, 1997, incorporated by reference to Exhibit 10.46 to the 1997 10-K, as further amended by the First Amendment to Second Amended and Restated Credit Agreement, dated as of October 1, 1998. 10.30. Reinsurance Agreement, dated as of April 1, 1998, between CapMAC and MBIA Corp. 10.31. Reinsurance Agreement, dated as of January 1, 1999, between MBIA Illinois and MBIA Corp. 10.32. Agreement and Plan of Merger by and among the Company, MBIA Acquisition, Inc. and 1838 Investment Advisors, Inc., dated as of June 19, 1998. 10.33. Credit Agreement (364 day agreement) among the Company, MBIA Corp., various designated borrowers, various lending institutions, Deutsche Bank AG, New York Branch, as Administrative Agent, The First National Bank of Chicago, as Syndication Agent and Fleet National Bank, as Documentation Agent, dated as of August 28, 1998. 10.34. Credit Agreement (5 year agreement) among the Company, MBIA Corp., various designated borrowers, various lending institutions, Deutsche Bank AG, New York Branch, as Administrative Agent, The First National Bank of Chicago, as Syndication Agent and Fleet National Bank, as Documentation Agent, dated as of August 28, 1998
10.35. Retirement and Consulting Agreement, between the Company and David H. Elliott, dated as of January 7, 1999 and Summary Retirement and Consulting Agreement, between the Company and David H. Elliott, dated as of January 7, 1999. 10.36. Terms of Employment letter between MBIA and Joseph W. Brown, Jr., dated January 7, 1999. 10.37. Stock Option Agreement between MBIA Inc. and Joseph W. Brown, Jr., dated January 7, 1999. 10.38. Key Employee Employment Protection Agreement between MBIA Inc. and Joseph W. Brown, Jr., dated January 20, 1999. 10.39. Key Employee Employment Protection Agreement between MBIA Inc. and Neil G. Budnick, dated January 25, 1999. 10.40. Key Employee Employment Protection Agreement between MBIA Inc. and W. Thacher Brown, dated January 25, 1999. 10.41. Key Employee Employment Protection Agreement between MBIA Inc. and John B. Caouette, dated January 25, 1999. 10.42. Key Employee Employment Protection Agreement between MBIA Inc. and Gary C. Dunton, dated January 25, 1999. 10.43. Key Employee Employment Protection Agreement between MBIA Inc. and Louis G. Lenzi, dated January 25, 1999. 10.44. Key Employee Employment Protection Agreement between MBIA Inc. and Kevin D. Silva , dated January 25, 1999. 10.45. Key Employee Employment Protection Agreement between MBIA Inc. and Richard L. Weill, dated January 25, 1999. 10.46. Key Employee Employment Protection Agreement between MBIA Inc. and Ruth M. Whaley, dated January 25, 1999. 10.47. Key Employee Employment Protection Agreement between MBIA Inc. and Michael J. Maguire, dated March 19, 1999. 10.48. Ambac Assurance Corporation, AMBAC Insurance UK Limited, MBIA Insurance Corporation, and MBIA Assurance S.A. Agreement Regarding A Global Joint Venture, effective as of January 15, 1999. 10.49. Special Excess Of Loss Reinsurance Agreement, between MBIA Insurance Corporation and/or MBIA Assurance S.A. and/or any other insurance or reinsurance company subsidiaries of MBIA Inc. listed in Exhibit No. 1 and Muenchener Rueckversicherungs-Gesellshaft, effective September 1, 1998. 10.50. Second Special Per Occurrence Excess Of Loss Reinsurance Agreement, between MBIA Insurance Corporation and/or MBIA Assurance S.A. and/or any other insurance or reinsurance company subsidiaries of MBIA Inc. listed in Exhibit No. 1 and AXA Re Finance S.A., effective September 1, 1998. 10.51. Third Special Per Occurrence Excess Of Loss Reinsurance Agreement, between MBIA Insurance Corporation and/or MBIA Assurance S.A. and/or any other insurance or reinsurance company subsidiaries of MBIA Inc. listed in Exhibit No. 1 and Zurich Reinsurance (North America), Inc., effective September 15, 1998.
13. Annual Report to Shareholders of MBIA Inc. for fiscal year ended December 31, 1998. Such report is furnished for the information of the Commission only and, except for those portions thereof which are expressly incorporated by reference in this Annual Report on Form 10-K, is not to be deemed filed as part of this report. 21. List of Subsidiaries 23. Consent of PricewaterhouseCoopers LLP 24. Power of Attorney 27. Financial Data Schedule 99. Additional Exhibits - MBIA Corp. GAAP Financial Statements