Note 11: Business Segments

MBIA manages its activities through three principal business operations: U.S. public finance insurance, structured finance and international insurance, and advisory services. The Company’s U.S. public finance insurance business is operated through National, its structured finance and international insurance business is operated through MBIA Corp., and its advisory services business is operated through Cutwater. MBIA Inc. and certain of its subsidiaries also manage certain other business activities, the results of which are reported in its corporate, asset/liability products, and conduit segments. The corporate segment includes revenues and expenses that arise from general corporate activities. While the asset/liability products and conduit businesses represent separate business segments, they may be referred to collectively as “wind-down operations” as the funding programs managed through those businesses are in wind-down.

The following sections provide a description of each of the Company’s reportable operating segments:

U.S. Public Finance Insurance

The Company’s U.S. public finance insurance segment is principally conducted through National. The financial guarantees issued by National provide unconditional and irrevocable guarantees of the payment of principal of, and interest or other amounts owing on, U.S. public finance insured obligations when due. The obligations are generally not subject to acceleration, except that National may have the right, at its discretion, to accelerate insured obligations upon default or otherwise. National issues financial guarantees for municipal bonds, including tax-exempt and taxable indebtedness of U.S. political subdivisions, as well as utility districts, airports, health care institutions, higher educational facilities, student loan issuers, housing authorities and other similar agencies and obligations issued by private entities that finance projects that serve a substantial public purpose. Municipal bonds and privately issued bonds used for the financing of public purpose projects are generally supported by taxes, assessments, fees or tariffs related to the use of these projects, lease payments or other similar types of revenue streams. National has not written any meaningful amount of business since its formation in 2009.

Structured Finance and International Insurance

The Company’s structured finance and international insurance segment is principally conducted through MBIA Corp. The financial guarantees issued by MBIA Corp. generally provide unconditional and irrevocable guarantees of the payment of principal of, and interest or other amounts owing on, global structured finance and non-U.S. public finance insured obligations when due, or in the event MBIA Corp. has the right, at its discretion, to accelerate insured obligations upon default or otherwise, upon MBIA Corp.’s acceleration. Certain guaranteed investment contracts written by MBIA Inc. are insured by MBIA Corp., and if MBIA Inc. were to have insufficient assets to pay amounts due upon maturity or termination, MBIA Corp. would make such payments. MBIA Corp. also insures debt obligations of the following affiliates:

•

MBIA Inc.;

•

GFL;

•

Meridian Funding Company, LLC;

•

LaCrosse Financial Products, LLC (“LaCrosse”), a wholly-owned affiliate, in which MBIA Corp. has written insurance policies guaranteeing the obligations under CDS, including termination payments that may become due upon certain events including the insolvency or payment default by MBIA Corp. or LaCrosse.

MBIA Corp.’s guarantees insure structured finance and asset-backed obligations, privately issued bonds used for the financing of public purpose projects, which are primarily located outside of the U.S. and that include toll roads, bridges, airports, public transportation facilities, utilities and other types of infrastructure projects serving a substantial public purpose, and obligations of sovereign-related and sub-sovereign issuers. Structured finance and ABS typically are securities repayable from expected cash flows generated by a specified pool of assets, such as residential and commercial mortgages, insurance policies, consumer loans, corporate loans and bonds, trade and export receivables, leases for equipment, aircraft and real property. The Company is no longer insuring new credit derivative contracts except for transactions related to the reduction of existing derivative exposure. MBIA Corp. has not written any meaningful amount of business since 2008.

Advisory Services

The advisory services segment primarily consists of the operations of Cutwater Investor Services Corp. (“Cutwater-ISC”), Cutwater Asset Management Corp. (“Cutwater-AMC”), and Trifinium Advisors U.K. Limited (“Trifinium”). Cutwater-ISC and Cutwater-AMC offers advisory services, including cash management, discretionary asset management and structured products on a fee-for-service basis. Cutwater offers these services to public, not-for-profit, corporate and financial services clients, including MBIA Inc. and its subsidiaries, as well as portfolio accounting and reporting services. Cutwater-ISC and Cutwater-AMC are SEC registered investment advisers. Cutwater-AMC is also a Financial Industry Regulatory Authority member firm. Trifinium provides fee-based asset management services to the Company’s foreign insurance affiliate and to third-party institutional clients and investment structures. Trifinium is registered with the Financial Services Authority in the U.K.

Corporate

The Company’s corporate segment is a reportable segment and includes revenues and expenses that arise from general corporate activities, such as fees, net investment income, net gains and losses, interest expense on MBIA Inc. debt and general corporate expenses.

Wind-down Operations

The Company’s wind-down operations consist of the asset/liability products and conduit segments. The asset/liability products segment principally consists of the activities of MBIA Inc., MBIA Investment Management Corp. (“IMC”), GFL and Euro Asset Acquisition Limited (“EAAL”). IMC, along with MBIA Inc., provided customized investment agreements, guaranteed by MBIA Corp., for bond proceeds and other public funds for such purposes as construction, loan origination, escrow and debt service or other reserve fund requirements. It has also provided customized products for funds that are invested as part of asset-backed or structured product transactions. GFL raises funds through the issuance of MTNs with varying maturities, which are, in turn, guaranteed by MBIA Corp. GFL lends the proceeds of these MTN issuances to MBIA Inc. (“GFL Loans”). MBIA Inc. invests the proceeds of investment agreements and GFL Loans in eligible investments, which consisted of investment grade securities at the time of purchase with a minimum average double-A credit quality rating. MBIA Inc. primarily purchases domestic securities, which are pledged to MBIA Corp. as security for its guarantees on investment agreements and MTNs. Additionally, MBIA Inc. loans a portion of the proceeds from investment agreements and MTNs to EAAL. EAAL primarily purchases foreign assets as permitted under the Company’s investment guidelines.

The Company’s conduit segment administers one conduit through MBIA Asset Finance, LLC. Assets financed by this conduit are currently funded by MTNs.

The ratings downgrades of MBIA Corp. have resulted in a substantial reduction of funding activities and the termination and collateralization of certain investment agreements, as well as winding down of existing asset/liability products and conduit obligations.

Segments Results

The following tables provide the Company’s segment results for the three months ended September 30, 2012 and 2011:


	Three Months Ended September 30, 2012
In millions	U.S. Public Finance Insurance		Structured Finance and International Insurance		Advisory Services		Corporate		Wind-down Operations		Eliminations			Consolidated
Revenues⁽¹⁾	$	149	$	59	$	5	$	3	$	9	$	-		$	225
Realized gains (losses) and other settlements on insured derivatives		-		12		-		-		-		-			12
Unrealized gains (losses) on insured derivatives		-		(33)		-		-		-		-			(33)
Net gains (losses) on financial instruments at fair value and foreign exchange		22		14		-		11		(40)		-			7
Net investment losses related to other-than-temporary impairments		-		(4)		-		(4)		-		-			(8)
Other net realized gains (losses)		-		-		-		1		-		-			1
Revenues of consolidated VIEs		-		57		-		-		20		-			77
Inter-segment revenues⁽²⁾		43		29		8		53		(1)		(132)			-

Total revenues		214		134		13		64		(12)		(132)			281
Losses and loss adjustment		4		167		-		-		-		-			171
Operating		14		29		12		24		1		-			80
Interest		-		33		-		14		22		-			69
Expenses of consolidated VIEs		-		15		-		-		3		-			18
Inter-segment expenses⁽²⁾		32		54		3		4		39		(132)			-

Total expenses		50		298		15		42		65		(132)			338

Income (loss) before income taxes	$	164	$	(164)	$	(2)	$	22	$	(77)	$	-		$	(57)

Identifiable assets	$	7,134	$	17,399	$	53	$	843	$	2,861	$	(6,158)	⁽³⁾	$	22,132

(1) -

Represents the sum of third-party financial guarantee net premiums earned, net investment income, insurance-related fees and reimbursements, investment management fees and other fees.

(2) -

Represents intercompany premium income and expense, intercompany asset management fees and expenses, and intercompany interest income and expense pertaining to intercompany receivables and payables.

(3) -

Consists of intercompany reinsurance balances, repurchase agreements and loans.


	Three Months Ended September 30, 2011
In millions	U.S. Public Finance Insurance		Structured Finance and International Insurance		Advisory Services		Corporate		Wind-down Operations		Eliminations			Consolidated
Revenues⁽¹⁾	$	181	$	72	$	9	$	1	$	21	$	-		$	284
Realized gains (losses) and other settlements on insured derivatives		-		(53)		-		-		-		-			(53)
Unrealized gains (losses) on insured derivatives		-		776		-		-		-		-			776
Net gains (losses) on financial instruments at fair value and foreign exchange		6		(12)		-		8		11		-			13
Net investment losses related to other-than-temporary impairments		-		-		-		(10)		(1)		-			(11)
Other net realized gains (losses)		-		1		-		-		-		-			1
Revenues of consolidated VIEs		-		105		-		-		5		-			110
Inter-segment revenues⁽²⁾		21		25		5		22		(4)		(69)			-

Total revenues		208		914		14		21		32		(69)			1,120
Losses and loss adjustment		10		180		-		-		-		-			190
Operating		10		38		14		24		2		-			88
Interest		-		33		-		14		28		-			75
Expenses of consolidated VIEs		-		17		-		-		5		-			22
Inter-segment expenses⁽²⁾		31		33		1		4		6		(75)			-

Total expenses		51		301		15		42		41		(75)			375

Income (loss) before income taxes	$	157	$	613	$	(1)	$	(21)	$	(9)	$	6		$	745

Identifiable assets	$	8,015	$	21,251	$	53	$	652	$	5,556	$	(6,157)	⁽³⁾	$	29,370

(1) -

Represents the sum of third-party financial guarantee net premiums earned, net investment income, insurance-related fees and reimbursements, investment management fees and other fees.

(2) -

Represents intercompany premium income and expense, intercompany asset management fees and expenses, and intercompany interest income and expense pertaining to intercompany receivables and payables.

(3) -

Consists of intercompany reinsurance balances, repurchase agreements and loans.

The following tables provide the Company’s segment results for the nine months ended September 30, 2012 and 2011:


	Nine Months Ended September 30, 2012
In millions	U.S. Public Finance Insurance		Structured Finance and International Insurance		Advisory Services		Corporate		Wind-down Operations		Eliminations			Consolidated
Revenues⁽¹⁾	$	419	$	194	$	16	$	10	$	44	$	-		$	683
Realized gains (losses) and other settlements on insured derivatives		-		(420)		-		-		-		-			(420)
Unrealized gains (losses) on insured derivatives		-		1,473		-		-		-		-			1,473
Net gains (losses) on financial instruments at fair value and foreign exchange		43		80		-		19		(160)		-			(18)
Net investment losses related to other-than-temporary impairments		-		(45)		-		(4)		(56)		-			(105)
Net gains (losses) on
Other net realized gains (losses)		-		1		-		6		-		-			7
Revenues of consolidated VIEs		-		23		-		-		60		-			83
Inter-segment revenues⁽²⁾		123		10		26		132		(19)		(272)			-

Total revenues		585		1,316		42		163		(131)		(272)			1,703
Losses and loss adjustment		15		315		-		-		-		-			330
Operating		112		120		38		69		4		-			343
Interest		-		99		-		43		72		-			214
Expenses of consolidated VIEs		-		46		-		-		11		-			57
Inter-segment expenses⁽²⁾		91		154		10		10		87		(352)			-

Total expenses		218		734		48		122		174		(352)			944

Income (loss) before income taxes	$	367	$	582	$	(6)	$	41	$	(305)	$	80		$	759

Identifiable assets	$	7,134	$	17,399	$	53	$	843	$	2,861	$	(6,158)	⁽³⁾	$	22,132

(1) -

Represents the sum of third-party financial guarantee net premiums earned, net investment income, insurance-related fees and reimbursements, investment management fees and other fees.

(2) -

Represents intercompany premium income and expense, intercompany asset management fees and expenses, and intercompany interest income and expense pertaining to intercompany receivables and payables.

(3) -

Consists of intercompany reinsurance balances, repurchase agreements and loans.


	Nine Months Ended September 30, 2011
In millions	U.S. Public Finance Insurance		Structured Finance and International Insurance		Advisory Services		Corporate		Wind-down Operations		Eliminations			Consolidated
Revenues⁽¹⁾	$	455	$	253	$	22	$	2	$	70	$	-		$	802
Realized gains (losses) and other settlements on insured derivatives		2		(601)		-		-		-		-			(599)
Unrealized gains (losses) on insured derivatives		-		(531)		-		-		-		-			(531)
Net gains (losses) on financial instruments at fair value and foreign exchange		24		21		-		47		(206)		-			(114)
Net investment losses related to other-than-temporary impairments		-		(4)		-		(10)		(30)		-			(44)
Net gains (losses) on extinguishment of debt		-		-		-		-		24		2			26
Other net realized gains (losses)		-		2		-		-		4		-			6
Revenues of consolidated VIEs		-		39		-		-		25		-			64
Inter-segment revenues⁽²⁾		56		55		24		66		(12)		(189)			-

Total revenues		537		(766)		46		105		(125)		(187)			(390)
Losses and loss adjustment		4		200		-		-		-		-			204
Operating		36		124		48		67		2		-			277
Interest		-		99		-		44		82		-			225
Expenses of consolidated VIEs		-		54		-		-		15		-			69
Inter-segment expenses⁽²⁾		84		91		4		11		24		(214)			-

Total expenses		124		568		52		122		123		(214)			775

Income (loss) before income taxes	$	413	$	(1,334)	$	(6)	$	(17)	$	(248)	$	27		$	(1,165)

Identifiable assets	$	8,015	$	21,251	$	53	$	652	$	5,556	$	(6,157)	⁽³⁾	$	29,370

(1) -

Represents the sum of third-party financial guarantee net premiums earned, net investment income, insurance-related fees and reimbursements, investment management fees and other fees.

(2) -

Represents intercompany premium income and expense, intercompany asset management fees and expenses, and intercompany interest income and expense pertaining to intercompany receivables and payables.

(3) -

Consists of intercompany reinsurance balances, repurchase agreements and loans.

Premiums on financial guarantees and insured derivatives reported within the Company’s insurance segments are generated within and outside the U.S. The following table summarizes premiums earned on financial guarantees and insured derivatives by geographic location of risk for the three and nine months ended September 30, 2012 and 2011:


	Three Months Ended September 30,				Nine Months Ended September 30,
In millions	2012		2011		2012		2011
Total premiums earned:
United States	$	141	$	161	$	402	$	413
United Kingdom		9		10		27		27
Europe (excluding United Kingdom)		3		4		12		25
Internationally diversified		3		9		13		27
Central and South America		8		9		40		28
Asia		2		2		4		14
Other		2		4		8		10

Total	$	168	$	199	$	506	$	544

The following tables provide the results of the segments within the wind-down operations for the three months ended September 30, 2012 and 2011:


	Three Months Ended September 30, 2012
In millions	Asset / Liability Products		Conduits		Eliminations		Total Wind- down Operations
Revenues⁽¹⁾	$	9	$	-	$	-	$	9
Net gains (losses) on financial instruments at fair value and foreign exchange		(40)		-		-		(40)
Revenues of consolidated VIEs		-		20		-		20
Inter-segment revenues⁽²⁾		(1)		-		-		(1)

Total revenues		(32)		20		-		(12)
Operating		1		-		-		1
Interest		22		-		-		22
Expenses of consolidated VIEs		-		3		-		3
Inter-segment expenses⁽²⁾		3		36		-		39

Total expenses		26		39		-		65

Income (loss) before income taxes	$	(58)	$	(19)	$	-	$	(77)

Identifiable assets	$	2,219	$	693	$	(51)	$	2,861

(1) -

Represents the sum of third-party interest income, investment management services fees and other fees.

(2) -

Represents intercompany asset management fees and expenses plus intercompany interest income and expense pertaining to intercompany debt.


	Three Months Ended September 30, 2011
In millions	Asset / Liability Products		Conduits		Eliminations		Total Wind- down Operations
Revenues⁽¹⁾	$	23	$	(2)	$	-	$	21
Net gains (losses) on financial instruments at fair value and foreign exchange		11		-		-		11
Net investment losses related to other-than-temporary impairments		(1)		-		-		(1)
Revenues of consolidated VIEs		(2)		7		-		5
Inter-segment revenues⁽²⁾		(3)		(1)		-		(4)

Total revenues		28		4		-		32
Operating		-		2		-		2
Interest		27		1		-		28
Expenses of consolidated VIEs		-		5		-		5
Inter-segment expenses⁽²⁾		9		(3)		-		6

Total expenses		36		5		-		41

Income (loss) before income taxes	$	(8)	$	(1)	$	-	$	(9)

Identifiable assets	$	3,982	$	1,574	$	-	$	5,556

(1) -

Represents the sum of third-party interest income, investment management services fees and other fees.

(2) -

Represents intercompany asset management fees and expenses plus intercompany interest income and expense pertaining to intercompany debt.

The following tables provide the results of the segments within the wind-down operations for the nine months ended September 30, 2012 and 2011:


	Nine Months Ended September 30, 2012
In millions	Asset / Liability Products		Conduits		Eliminations		Total Wind- down Operations
Revenues⁽¹⁾	$	44	$	-	$	-	$	44
Net gains (losses) on financial instruments at fair value and foreign exchange		(160)		-		-		(160)
Net investment losses related to other-than-temporary impairments		(56)		-		-		(56)
Revenues of consolidated VIEs		-		60		-		60
Inter-segment revenues⁽²⁾		(15)		(2)		(2)		(19)

Total revenues		(187)		58		(2)		(131)
Operating		4		-		-		4
Interest		72		-		-		72
Expenses of consolidated VIEs		-		11		-		11
Inter-segment expenses⁽²⁾		16		71		-		87

Total expenses		92		82		-		174

Income (loss) before income taxes	$	(279)	$	(24)	$	(2)	$	(305)

Identifiable assets	$	2,219	$	693	$	(51)	$	2,861

(1) -

Represents the sum of third-party interest income, investment management services fees and other fees.

(2) -

Represents intercompany asset management fees and expenses plus intercompany interest income and expense pertaining to intercompany debt.


	Nine Months Ended September 30, 2011
In millions	Asset / Liability Products		Conduits		Eliminations		Total Wind- down Operations
Revenues⁽¹⁾	$	70	$	-	$	-	$	70
Net gains (losses) on financial instruments at fair value and foreign exchange		(206)		-		-		(206)
Net investment losses related to other-than-temporary impairments		(30)		-		-		(30)
Net gains (losses) on extinguishment of debt		24		-		-		24
Other net realized gains (losses)		4		-		-		4
Revenues of consolidated VIEs		10		15		-		25
Inter-segment revenues⁽²⁾		(9)		(3)		-		(12)

Total revenues		(137)		12		-		(125)
Operating		2		-		-		2
Interest		82		-		-		82
Expenses of consolidated VIEs		-		15		-		15
Inter-segment expenses⁽²⁾		25		(1)		-		24

Total expenses		109		14		-		123

Income (loss) before income taxes	$	(246)	$	(2)	$	-	$	(248)

Identifiable assets	$	3,982	$	1,574	$	-	$	5,556

(1) -

Represents the sum of third-party interest income, investment management services fees and other fees.

(2) -

Represents intercompany asset management fees and expenses plus intercompany interest income and expense pertaining to intercompany debt.