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Income Taxes | 12 Months Ended
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Dec. 31, 2013
Text Block [Abstract] |
Income Taxes | Note 11: Income Taxes Income (loss) from operations before provision (benefit) for income taxes consisted of:
|  |  | Years Ended December 31, |
| In millions |  | 2013 |  | 2012 |  | 2011 |
| Domestic |  | $ | 435 |  | $ | 1,486 |  | $ | (2,231) |
| Foreign |  |  | (19) |  |  | 112 |  |  | (8) |
| Income (loss) before income taxes |  | $ | 416 |  | $ | 1,598 |  | $ | (2,239) |
The Company files a consolidated tax return that includes all of its U.S. subsidiaries and foreign branches. The Company also files tax returns in the United Kingdom (“U.K.”), France, Spain, and various state and local jurisdictions. Income tax expense (benefit) on income (loss) and shareholders' equity consisted of:
|  |  |  | Years Ended December 31, |
| In millions |  | 2013 |  | 2012 |  | 2011 |
| Current taxes: |  |  |  |  |  |  |  |  |  |
|  | Federal |  | $ | 0 |  | $ | 3 |  | $ | (1) |
|  | State |  |  | 8 |  |  | 2 |  |  | 1 |
|  | Foreign |  |  | 1 |  |  | (6) |  |  | 15 |
| Deferred taxes: |  |  |  |  |  |  |  |  |  |
|  | Federal |  |  | 165 |  |  | 350 |  |  | (919) |
|  | Foreign |  |  | (8) |  |  | 15 |  |  | (16) |
| Provision (benefit) for income taxes |  |  | 166 |  |  | 364 |  |  | (920) |
| Income taxes charged (credited) to shareholders' equity related to: |  |  |  |  |  |  |  |  |  |
|  | Change in unrealized gains and losses on investments |  |  | (81) |  |  | 86 |  |  | 116 |
|  | Change in other-than-temporary impairment losses |  |  | 4 |  |  | 42 |  |  | 9 |
|  | Change in foreign currency translation |  |  | 1 |  |  | (2) |  |  | (1) |
|  | Share-based compensation |  |  | 4 |  |  | 7 |  |  | 4 |
| Total income taxes charged (credited) to shareholders' equity |  |  | (72) |  |  | 133 |  |  | 128 |
| Total effect of income taxes |  | $ | 94 |  | $ | 497 |  | $ | (792) |
A reconciliation of the U.S. federal statutory tax rate of 35% to the Company's effective income tax rate for the years ended December 31, 2013, 2012 and 2011 is presented in the following table:
|  |  |  | Years Ended December 31, |
|  |  |  | 2013 |  | 2012 |  | 2011 |
| Federal income tax computed at the statutory rate |  | 35.0% |  | 35.0% |  | 35.0% |
| Increase (reduction) in taxes resulting from: |  |  |  |  |  |  |
|  | Tax-exempt interest |  | (1.1)% |  | (0.7)% |  | 1.5% |
|  | Mark-to-market on warrants |  | 3.8% |  | (0.7)% |  | 0.3% |
|  | Change in valuation allowance |  | (12.6)% |  | (5.6)% |  | 6.2% |
|  | Change in uncertain tax positions |  | 2.8% |  | (0.1)% |  | (1.0)% |
|  | State income tax, net of federal benefit |  | 2.0% |  | 0.1% |  | 0.0% |
|  | Out-of-period adjustment |  | 0.0% |  | (3.8)% |  | 0.0% |
|  | Foreign taxes |  | (0.8)% |  | (1.2)% |  | 0.1% |
|  | Basis difference in foreign subsidiary |  | 11.4% |  | 0.0% |  | 0.0% |
|  | Other |  | (0.6)% |  | (0.2)% |  | (1.0)% |
| Effective tax rate |  | 39.9% |  | 22.8% |  | 41.1% |
Deferred Tax Asset, Net of Valuation Allowance The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the differences be tween the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on tax assets and liabilities is recognized in income in the period that includes the enactment date. The tax effects of temporary differences that give rise to deferred tax assets and liabilities as of December 31, 2013 and 2012 are presented in the following table:
|  |  |  | As of December 31, |
| In millions |  | 2013 |  | 2012 |
| Deferred tax liabilities: |  |  |  |  |  |  |
|  | Unearned premium revenue |  | $ | 220 |  | $ | 241 |
|  | Deferral of cancellation of indebtedness income(1) |  |  | 114 |  |  | 114 |
|  | Deferred acquisition costs |  |  | 87 |  |  | 102 |
|  | Net unrealized gains in accumulated other comprehensive income |  |  | 0 |  |  | 32 |
|  | Other |  |  | 57 |  |  | 64 |
| Total gross deferred tax liabilities |  |  | 478 |  |  | 553 |
| Deferred tax assets: |  |  |  |  |  |  |
|  | Compensation and employee benefits |  |  | 31 |  |  | 23 |
|  | Loss and loss adjustment expense reserves |  |  | 85 |  |  | 112 |
|  | Net operating loss and tax credit carryforwards |  |  | 917 |  |  | 441 |
|  | Capital loss carryforward and other-than-temporary impairments |  |  | 93 |  |  | 183 |
|  | Net unrealized losses on insured derivatives |  |  | 400 |  |  | 982 |
|  | Net losses on financial instruments at fair value and foreign exchange |  |  | 47 |  |  | 98 |
|  | Net unrealized losses in accumulated other comprehensive income |  |  | 30 |  |  | 0 |
|  | Alternative minimum tax credit carryforward |  |  | 22 |  |  | 19 |
|  | Net deferred taxes on VIEs |  |  | 55 |  |  | 40 |
| Total gross deferred tax assets |  |  | 1,680 |  |  | 1,898 |
|  | Valuation allowance |  |  | 93 |  |  | 146 |
| Net deferred tax asset |  | $ | 1,109 |  | $ | 1,199 |
| (1) Pursuant to Internal Revenue Code Section 108(i), cancellation of indebtedness income will be amortized ratably into taxable income over five years beginning in 2014.
The Company establishes a valuation allowance against its deferred tax asset when it is more likely than not that all or a portion of the deferred tax asset will not be realized. All evidence, both positive and negative, needs to be identified and considered in making the determination. Future realization of the existing deferred tax asset ultimately depends, in part, on the existence of sufficient taxable income of appropriate character (for example, ordinary income versus capital gains) within the carryforward period available under the tax law. As of December 31, 2013, the Company reported a net deferred tax asset of $1.1 billion. The $1.1 billion net deferred tax asset is net of a $93 million valuation allowance. As of December 31, 2013, the Company had a valuation allowance against a portion of the deferred tax asset related to losses from asset impairments. The December 31, 2013 valuation allowance reflects a decrease of $53 million from the December 31, 2012 valuation allowance of $146 million. The decrease in the valuation allowance for the year ended December 31, 2013 was primarily due to the generation of capital gain income against which the 2012 capital carryforward loss was utilized. The Company has concluded that it is more likely than not that its net deferred tax asset will be realized. In its conclusion, the Company considered the following evidence (both positive and negative): Due to the long-tail nature of the financial guarantee business, MBIA Inc.'s insurance subsidiaries, without regard to any new business, will have a steady stream of scheduled premium earnings with respect to the existing insured portfolio. Additionally, MBIA Corp.'s announcement in February 2008 of a suspension in writing new structured finance transactions and a permanent cessation with respect to insuring new CDS contracts, except in transactions related to the reduction of existing derivative exposure, would not have an impact on the expected earnings related to the existing insured portfolio. The Company has positive cumulative comprehensive income in recent years. The Company performed taxable income projections over a twenty-year period to determine whether it will have sufficient income to offset its deferred tax asset that will generate future ordinary deductions. In this analysis, the Company concluded that premium earnings, combined with investment income, less deductible expenses, will be sufficient to recover its net deferred tax asset. The Company's taxable income projections used to assess the recoverability of its deferred tax asset include an estimate of future loss and LAE equal to the present value discount of loss reserves already recognized on the balance sheet and an estimate of LAE which is generally insignificant. The Company does not assume additional losses, with the exception of the accretion of its existing p resent value loss reserves, because the Company establishes case basis reserves on a present value basis based on an estimate of probable losses on specifically identified credits that have defaulted or are expected to default. While the lack of strong credit ratings assigned by the rating agencies have significantly adversely impacted the Company's ability to write new insurance business, th ese ratings did not have a material impact on earnings from the existing insured portfolio, which the Company believes will be sufficient to absorb losses in the event that the cumulative unrealized losses become fully impaired. With respect to installment policies, the Company generally does not have an automatic cancellation provision solely in connection with ratings downgrades. With regard to upfront policies, to the extent that the issuer chooses to terminate a policy, any unearned premium reserve with respect to that policy will be accelerated into earnings (i.e. refundings). After reviewing all of the evidence available, both positive and negative, the Company believes that it has appropriately valued the recoverability of its deferred tax assets, net of the valuation allowance, as of December 31, 2013. The Company continues to assess the adequacy of its valuation allowance as additional evidence becomes available. The Company's recent financial results have been volatile which has impacted management's ability to accurately project future taxable income. Continued volatility or losses beyond those projected may cause the Company to conclude that certain of the deferred tax assets within the total deferred tax assets of $1.1 billion as of December 31, 2013 may not be realizable. The Company performs an analysis every quarter to review its conclusion as to the ability to realize the deferred tax asset. Out-of-Period Adjustment During the fourth quarter of 2012, the Company completed a balance sheet focused analysis to enhance efficiency and accuracy with its deferred income tax balances, and as a result, identified errors to the current and deferred income tax balances. The Company evaluated the materiality of these errors in accordance with SEC Staff Accounting Bulletin No. 99, Materiality, and SEC Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements, and concluded that these errors, individually and in the aggregate, w ere immaterial to the year ended December 31, 2012 and all prior periods to which these errors relate. Accordingly, the Company recorded the se adjustments in its consolidated financial statements as of and for the year ended December 31, 2012 by increasing the deferred tax asset by $61 million, decreasing “Accumulated other comprehensive income (loss)” by $5 million, decreasing current tax receivable, included in “Other Assets” by $6 million and increasing “Net income (loss)” by $60 million. For the year ended December 31, 2011, this adjustment would have decreased “Net income (loss)” by $1 million. Treatment of Undistributed Earnings of Certain Foreign Subsidiaries—“Accounting for Income Taxes—Special Areas” In the fourth quarter of 2013, U.S. deferred income taxes were provided on the differences in the book and tax basis in the Company's carrying value of MBIA UK Insurance Limited and certain other entities since the Company no longer inten ds to permanently reinvest these earnings. The impact is reflected in the Company's 2013 tax provision. A cc o u n t i n g f o r U n c e r t a i n t y i n I n c o m e T ax e s The C o m p a ny's po l i c y is t o r eco r d a n d d i s c l o s e an y c h an g e i n U T B an d r e l a t e d i n t e r es t a n d/or p e n a l t i e s t o i n c o m e t a x i n t h e co n s o l i d a t e d s t a t e m en t s o f o pe r a t i ons. The Company includes interest as a component of income tax expense. The amounts in the table below do not include accrued interest of $2 million. All amounts below are reflected before any applicable tax benefit.
| In millions |  |  |  |
| Unrecognized tax benefit as of January 1, 2011 |  | $ | 26 |
| The gross amount of the increase/(decrease) in the UTB as a result of tax positions taken: |  |  |  |
|  | During a prior year |  |  | 21 |
| The amounts of decreases in the UTB as a result of the applicable statute of limitations |  |  | 0 |
| Unrecognized tax benefit as of December 31, 2011 |  | $ | 47 |
| The gross amount of the increase/(decrease) in the UTB as a result of tax positions taken: |  |  |  |
|  | During the current year |  |  | 26 |
| The amounts of decreases in the UTB related to settlements with taxing authorities |  |  | (26) |
| Unrecognized tax benefit as of December 31, 2012 |  | $ | 47 |
| The gross amount of the increase/(decrease) in the UTB as a result of tax positions taken: |  |  |  |
|  | During the current year |  |  | 18 |
| The amounts of decreases in the UTB related to settlements with taxing authorities |  |  | 0 |
| Unrecognized tax benefit as of December 31, 2013 |  | $ | 65 |
The Company does not anticipate any amount to reverse in the next twelve months based on settling certain issues. In the fourth quarter of 2013, the I nternal Revenue Service contacted the Company to review the 2011 consolidated return on MBIA and its subsidiaries and for the purpose of determining whether to formally examine the tax return. To date no formal examination has been initiated. The U.K. tax authorities are currently auditing tax years 2005 through 201 1. On June 5, 2013, the Company met with the HM Revenue & Customs (“HMRC”). During the third and fourth quarter s of 2013, the Company sent HMRC additional information supporting its position. Currently, discussions with HMRC are ongoing and a resolution has not been reached. During 2013, the Company met with New York State Department of Taxation and Finance to discuss the Company's respective positions regarding certain issues related to the 2008 tax year. D iscussions are ongoing and the Company has presented its technical position in writing to the State. As of December 31, 2013, the Company's NOL is approximately $2.8 billion which will expire between tax years 2029 through 2033. As of December 31, 201 3, the Company ha s an alternative minimum tax credit carryforward of $22 million, which does not expire. As a result of the commutation of CMBS exposure that occurred subsequent to December 31, 2013, the Company's NOL will increase from December 31, 2013.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 + Details
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