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Business Segments
 9 Months Ended
Sep. 30, 2014
Text Block [Abstract]  
Business Segments

Note 10: Business Segments

MBIA manages its activities through three principal business operations: U.S. public finance insurance, structured finance and international insurance, and advisory services. 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.

As defined by segment reporting, an operating segment is a component of a company (i) that engages in business activities from which it earns revenue and incurs expenses, (ii) whose operating results are regularly reviewed by the Chief Operating Decision Maker to assess the performance of the segment and to make decisions about the allocation of resources to the segment and, (iii) for which discrete financial information is available. 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 the 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.

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.;
  • MBIA Global Funding, LLC (“GFL”);
  • MBIA Investment Management Corp. (“IMC”); and
  • LaCrosse Financial Products, LLC, 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 of the financial guarantor or the CDS issuer.

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, and leases for equipment, aircraft and real estate 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”) and Cutwater Asset Management Corp. (“Cutwater-AMC”). Cutwater-ISC and Cutwater-AMC provide 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 Securities and Exchange Commission registered investment advisers. Cutwater-AMC is also a Financial Industry Regulatory Authority member firm. During the nine months ended September 30, 2014, the Company exited the advisory and asset management services business in the European Union. In October of 2014, the Company signed an agreement to sell Cutwater to a subsidiary of The Bank of New York Mellon Corporation. The sale is expected to close at the beginning of the first quarter of 2015, subject to regulatory approval and other customary closing conditions. The transaction is expected to have a positive but immaterial impact on the Company’s financial position and results of operations.

Corporate

The Company’s corporate segment is principally conducted through MBIA Services Corporation (“MBIA Services”), formally Optinuity Alliance Resources Corporation, which provides general support services to the corporate segment and other operating businesses. MBIA Services is a reportable segment that 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. Employees of the service company provide various support services including management, legal, accounting, treasury, information technology, and insurance portfolio surveillance, among others, on a fee-for-service basis. The service company’s revenues and expenses are included in the results of the corporate segment.

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., IMC and GFL. IMC, along with MBIA Inc., provided customized investment agreements. It also provided customized products for funds that are invested as part of asset-backed or structured product transactions. GFL raised funds through the issuance of MTNs with varying maturities, which were, in turn, guaranteed by MBIA Corp. GFL lent the proceeds of these MTN issuances to MBIA Inc.

The Company’s conduit segment was operated through Meridian Funding Company, LLC (“Meridian”) and administered through MBIA Asset Finance, LLC. Assets financed by Meridian were funded by MTNs. During the nine months ended September 30, 2014, the Company retired Meridian’s remaining $129 million of outstanding MTNs, which resulted in a gain on extinguishment of debt of $4 million, and completed the winding down of the business. Meridian was dissolved during the second quarter of 2014.

Segments Results

The following tables provide the Company’s segment results for the three months ended September 30, 2014 and 2013:

Three Months Ended September 30, 2014
U.S. Structured
Public Finance and
FinanceInternational Advisory Wind-down
In millionsInsuranceInsuranceServicesCorporateOperationsEliminationsConsolidated
Revenues(1)$ 100$ 67$ 3$ (2)$ 9$ -$ 177
Net change in fair value of
insured derivatives - 24 - - - - 24
Net gains (losses) on financial
instruments at fair value
and foreign exchange 2 (13) - 18 50 - 57
Net investment losses related
to other-than-temporary
impairments (14) - - - - - (14)
Other net realized gains (losses) 18 11 - 1 - - 30
Revenues of consolidated VIEs - 21 (4) - - - 17
Inter-segment revenues(2) 7 13 5 17 (2) (40) -
Total revenues 113 123 4 34 57 (40) 291
Losses and loss adjustment (8) 28 - - - - 20
Operating 9 19 8 22 1 - 59
Interest - 26 - 11 15 - 52
Expenses of consolidated VIEs - 12 - - - - 12
Inter-segment expenses(2) 18 14 2 4 2 (40) -
Total expenses 19 99 10 37 18 (40) 143
Income (loss) before income taxes$ 94$ 24$ (6)$ (3)$ 39$ -$ 148
Identifiable assets$ 6,132$ 10,450$ 481$ 1,239$ 1,497$ (3,598) (3)$ 16,201
________________
(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 deferred income taxes.
Three Months Ended September 30, 2013
U.S. Structured
Public Finance and
FinanceInternational Advisory Wind-down
In millionsInsuranceInsuranceServicesCorporateOperationsEliminationsConsolidated
Revenues(1)$ 93$ 39$ 3$ 10$ 6$ -$ 151
Net change in fair value of
insured derivatives - 257 - - - - 257
Net gains (losses) on financial
instruments at fair value and
foreign exchange - (3) - 37 (29) - 5
Net gains (losses) on
extinguishment of debt - - - - 7 (1) 6
Other net realized gains (losses) (29) - - - - - (29)
Revenues of consolidated VIEs - 30 - (1) 1 - 30
Inter-segment revenues(2) 10 20 8 35 (3) (70) -
Total revenues 74 343 11 81 (18) (71) 420
Losses and loss adjustment 35 63 - - - - 98
Operating 13 22 16 29 - - 80
Interest - 27 - 13 19 - 59
Expenses of consolidated VIEs - 12 - - - - 12
Inter-segment expenses(2) 20 23 3 3 17 (66) -
Total expenses 68 147 19 45 36 (66) 249
Income (loss) before income taxes$ 6$ 196$ (8)$ 36$ (54)$ (5)$ 171
Identifiable assets$ 6,509$ 12,096$ 47$ 910$ 1,785$ (3,714) (3)$ 17,633
________________
(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 deferred income taxes.

The following tables provide the Company’s segment results for the nine months ended September 30, 2014 and 2013:

Nine Months Ended September 30, 2014
U.S. Structured
Public Finance and
FinanceInternational Advisory Wind-down
In millionsInsuranceInsuranceServicesCorporateOperationsEliminationsConsolidated
Revenues(1)$ 272$ 144$ 10$ 4$ 24$ -$ 454
Net change in fair value of
insured derivatives 1 445 - - - - 446
Net gains (losses) on financial
instruments at fair value and
foreign exchange 21 (3) (3) 56 (8) - 63
Net investment losses related
to other-than-temporary
impairments (14) - - - - - (14)
Net gains (losses) on
extinguishment of debt - - - - 3 - 3
Other net realized gains (losses) 18 11 - 2 - - 31
Revenues of consolidated VIEs - 72 (4) - 4 - 72
Inter-segment revenues(2) 30 37 17 100 (8) (176) -
Total revenues 328 706 20 162 15 (176) 1,055
Losses and loss adjustment (5) 87 - - - - 82
Operating 29 51 30 60 2 - 172
Interest - 80 - 31 47 - 158
Expenses of consolidated VIEs - 36 - - - - 36
Inter-segment expenses(2) 56 49 5 14 15 (139) -
Total expenses 80 303 35 105 64 (139) 448
Income (loss) before income taxes$ 248$ 403$ (15)$ 57$ (49)$ (37)$ 607
Identifiable assets$ 6,132$ 10,450$ 481$ 1,239$ 1,497$ (3,598)(3)$ 16,201
________________
(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, intercompany interest income and expense pertaining to intercompany
receivables and payables and intercompany loans.
(3) - Consists of intercompany reinsurance balances, repurchase agreements and deferred income taxes.
Nine Months Ended September 30, 2013
U.S. Structured
Public Finance and
FinanceInternational Advisory Wind-down
In millionsInsuranceInsuranceServicesCorporateOperationsEliminationsConsolidated
Revenues(1)$ 314$ 120$ 13$ 15$ 21$ -$ 483
Net change in fair value of
insured derivatives - 14 - - - - 14
Net gains (losses) on financial
instruments at fair value and
foreign exchange 30 31 - 39 (38) - 62
Net gains (losses) on
extinguishment of debt - - - - 11 38(3) 49
Other net realized gains (losses) (29) - - - - - (29)
Revenues of consolidated VIEs - 174 - (10) 8 - 172
Inter-segment revenues(2) 81 52 20 56 (5) (204) -
Total revenues 396 391 33 100 (3) (166) 751
Losses and loss adjustment 105 (13) - - - - 92
Operating 57 91 42 125 1 - 316
Interest - 84 - 36 59 - 179
Expenses of consolidated VIEs - 38 - - 4 - 42
Inter-segment expenses(2) 72 115 6 8 32 (233) -
Total expenses 234 315 48 169 96 (233) 629
Income (loss) before income taxes$ 162$ 76$ (15)$ (69)$ (99)$ 67$ 122
Identifiable assets$ 6,509$ 12,096$ 47$ 910$ 1,785$ (3,714)(4)$ 17,633
________________
(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, intercompany interest income, expenses pertaining to intercompany
receivables and payables and intercompany loans.
(3) - Represents the gain on the debt received as consideration in connection with the settlement with Bank of America.
(4) - Consists of intercompany reinsurance balances, repurchase agreements and deferred income taxes.

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, 2014 and 2013:

Three Months Ended September 30,Nine Months Ended September 30,
In millions2014201320142013
Total premiums earned:
United States$ 78$ 82$ 216$ 297
United Kingdom 9 9 28 26
Europe (excluding United Kingdom) 2 3 6 9
Internationally diversified 4 2 7 8
Central and South America 26 13 42 28
Asia 1 1 3 3
Other 2 2 6 6
Total $ 122$ 112$ 308$ 377

The following tables provide the results of the segments within the wind-down operations for the three months ended September 30, 2014 and 2013:

Three Months Ended September 30, 2014
Asset / Total Wind-
Liabilitydown
In millions ProductsConduitsEliminationsOperations
Revenues(1)$ 9$ -$ -$ 9
Net gains (losses) on financial
instruments at fair value and foreign
exchange 50 - - 50
Inter-segment revenues(2) (2) - - (2)
Total revenues 57 - - 57
Operating 1 - - 1
Interest 15 - - 15
Inter-segment expenses(2) 2 - - 2
Total expenses 18 - - 18
Income (loss) before income taxes$ 39$ -$ -$ 39
Identifiable assets$ 1,497$ -$ -$ 1,497
_______________
(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, 2013
Asset / Total Wind-
Liabilitydown
In millions ProductsConduitsEliminationsOperations
Revenues(1)$ 6$ -$ -$ 6
Net gains (losses) on financial
instruments at fair value and foreign
exchange (29) - - (29)
Net gains (losses) on extinguishment
of debt 7 - - 7
Revenues of consolidated VIEs - 1 - 1
Inter-segment revenues(2) (1) (2) - (3)
Total revenues (17) (1) - (18)
Interest 19 - - 19
Inter-segment expenses(2) 2 15 - 17
Total expenses 21 15 - 36
Income (loss) before income taxes$ (38)$ (16)$ -$ (54)
Identifiable assets$ 1,586$ 198$ 1$ 1,785
_______________
(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, 2014 and 2013:

Nine Months Ended September 30, 2014
Asset / Total Wind-
Liabilitydown
In millions ProductsConduitsEliminationsOperations
Revenues(1)$ 24$ -$ -$ 24
Net gains (losses) on financial
instruments at fair value and foreign
exchange (8) - - (8)
Net gains (losses) on extinguishment
of debt 3 - - 3
Revenues of consolidated VIEs - 4 - 4
Inter-segment revenues(2) (7) (1) - (8)
Total revenues 12 3 - 15
Operating 2 - - 2
Interest 47 - - 47
Inter-segment expenses(2) 6 9 - 15
Total expenses 55 9 - 64
Income (loss) before income taxes$ (43)$ (6)$ -$ (49)
Identifiable assets$ 1,497$ -$ -$ 1,497
_______________
(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, 2013
Asset / Total Wind-
Liabilitydown
In millions ProductsConduitsEliminationsOperations
Revenues(1)$ 21$ -$ -$ 21
Net gains (losses) on financial
instruments at fair value and foreign
exchange (38) - - (38)
Net gains (losses) on extinguishment
of debt 11 - - 11
Revenues of consolidated VIEs - 8 - 8
Inter-segment revenues(2) (3) (8) 6 (5)
Total revenues (9) - 6 (3)
Operating 1 - - 1
Interest 59 - - 59
Expenses of consolidated VIEs - 4 - 4
Inter-segment expenses(2) 6 26 - 32
Total expenses 66 30 - 96
Income (loss) before income taxes$ (75)$ (30)$ 6$ (99)
Identifiable assets$ 1,586$ 198$ 1$ 1,785
_______________
(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.