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Insurance Regulations And Dividends | 12 Months Ended
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Dec. 31, 2012
Insurance Regulations And Dividends | Note 14: Insurance Regulations and Dividends MBIA Corp. and National are subject to insurance regulations and supervision of the State of New York (their state of incorporation) and all U.S. and non-U.S. jurisdictions in which they are licensed to conduct insurance business. The extent of insurance regulation and supervision varies by jurisdiction, but New York and most other jurisdictions have laws and regulations prescribing minimum standards of solvency and business conduct, which must be maintained by insurance companies. Among other things, these laws prescribe permitted classes and concentrations of investments and limit both the aggregate and individual securities risks that MBIA Corp. and National may insure on a net basis based on the type of obligations insured. In addition, some insurance laws and regulations require the approval or filing of policy forms and rates. MBIA Corp. and National are required to file detailed annual financial statements with the NYSDFS and similar supervisory agencies in other jurisdictions in which it is licensed. The operations and accounts of MBIA Corp. and National are subject to examination by regulatory agencies at regular intervals. NYIL regulates the payment of dividends by financial guarantee insurance companies and provides that such companies may not declare or distribute dividends except out of statutory earned surplus. Under the NYIL, 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 reported in the latest statutory financial statements 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 Superintendent of the NYSDFS approves a greater dividend distribution based upon a finding that the insurer will retain sufficient surplus to support its obligations. In 2012, MBIA Corp. did not declare or pay any dividends to MBIA Inc. or the holders of its preferred stock. MBIA Corp. is currently unable to pay dividends, including those related to its preferred stock, as a result of its earned surplus deficit as of December 31, 2012 and is not expected to have any statutory capacity to pay any dividends in the near term. In connection with MBIA Corp. obtaining approval from the NYSDFS to release excessive contingency reserves as of September 30, 2011, December 31, 2011 and March 31, 2012, as described below, MBIA Corp. agreed that it would not pay any dividends without prior approval from the NYSDFS. Effective January 1, 2010, National was granted a permitted practice by the NYSDFS to reset its unassigned surplus to zero. Previously, National had an unassigned surplus deficit principally as a result of the 2009 reinsurance transaction between MBIA Corp. and National. The reset provides National with dividend capacity of $200 million and $142 million as of December 31, 2012 and 2011, respectively. National did not declare or pay any dividends during 2012 or 2011. In October 2010, the plaintiffs in the Transformation litigation initiated a court proceeding challenging the approval of the surplus reset. Refer to “Note 20: Commitments and Contingencies” for further information on the Transformation litigation. In connection with this court proceeding, the Company has agreed that National will not pay dividends during the current adjournment of the proceeding (i.e., through April 19, 2013). In addition, in connection with the approval of a release of excessive contingency reserves as of December 31, 2011 for MBIA Insurance Corporation, as described above, the Company has agreed that National will not pay dividends without the prior approval of the NYSDFS prior to July 19, 2013. As a result of the establishment of National and the reinsurance of the MBIA Corp. and FGIC portfolios by National, National and MBIA Corp. exceeded as of the closing date certain single and aggregate risk limits under the NYIL. These insurers obtained waivers from the NYSDFS of such limits. In connection with the waivers, they submitted a plan to the NYSDFS to achieve compliance with the applicable regulatory limits. Under the plans, they agreed not to write new financial guarantee insurance for certain issuers, and in MBIA Corp.’s case, in certain categories of business, until they were in compliance with their single risk limits and agreed to take commercially reasonable steps, including considering reinsurance, the addition of capital and other risk mitigation strategies, in order to comply with the regulatory single and aggregate risk limits. As a condition to granting the waiver, the NYSDFS required that, in addition to complying with these plans, upon written notice from the NYSDFS, MBIA Corp. and National, as applicable, would cease writing new financial guarantee insurance if it were not in compliance with the risk limitation requirements by December 31, 2009. As of December 31, 2012 and 2011, National was not in compliance with its single risk limits requirements but was in compliance with its aggregate risk limits. To date, no such notice has been received from the NYSDFS. As of December 31, 2012, MBIA Insurance Corporation exceeded its aggregate risk limits under the NYIL by $56 million. MBIA Insurance Corporation notified the NYSDFS of the overage and submitted a plan to achieve compliance with the limits in accordance with the NYIL. If MBIA Insurance Corporation is not in compliance with its aggregate risk limits, the NYSDFS may prevent MBIA Insurance Corporation from transacting any new financial guarantee insurance business until it no longer exceeds the limitations. During 2011, MBIA Insurance Corporation was in compliance with its aggregate risk limits. In 2012 and 2011, MBIA Corp. reported additional overages to the NYSDFS with respect to its single risk limits due to changes in its statutory capital. Under the NYIL, MBIA Insurance Corporation is also required to establish a contingency reserve to provide protection to policyholders in the event of extreme losses in adverse economic events. The amount of the reserve is based on the percentage of principal insured or premiums earned, depending on the type of obligation (net of collateral, reinsurance, refunding, refinancings and certain insured securities). Under the NYIL, MBIA Insurance Corporation is required to invest its minimum surplus and contingency reserves, and 50% of its loss reserves and unearned premium reserves, in certain qualifying assets. Reductions in the contingency reserve may be recognized based on excess reserves and under certain stipulated conditions, subject to the approval of the Superintendent of the NYSDFS. As of December 31, 2012, MBIA Insurance Corporation had a deficit of $140 million of qualifying assets required to support its contingency reserves. The deficit was caused by the failure of certain mortgage originators, particularly Bank of America, to honor their contractual obligations to repurchase ineligible mortgage loans from securitizations the Company insured thus requiring MBIA Insurance Corporation to sell liquid assets in order to make claim payments. Absent a resolution of the disputes with these parties, the deficit is expected to grow as additional commutation and claim payments are made in the future. The Company has reported the deficit to the NYSDFS as of September 30, 2012 and December 31, 2012. MBIA Insurance Corporation has requested approval from the NYSDFS to release $140 million of contingency reserves as of December 31, 2012, but to date has not received approval. Results of operations for MBIA Corp. determined in accordance with statutory accounting practices for the years ended December 31, 2012 and 2011 were net losses of $843 million and $477 million, respectively. As of December 31, 2012, MBIA Corp.’s statutory capital was $1.5 billion, consisting of policyholders’ surplus of $965 million and contingency reserve of $493 million. As of December 31, 2011, MBIA Corp. had statutory capital of $2.3 billion. For the years ended December 31, 2012 and 2011, National had statutory net income of $416 million and $478 million, respectively. As of December 31, 2012, National’s statutory capital was $3.2 billion, consisting of policyholders’ surplus of $2.0 billion and contingency reserves of $1.2 billion. As of December 31, 2011, National had statutory capital of $2.8 billion.

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