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Business Developments and Risks and Uncertainties | 12 Months Ended
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Dec. 31, 2014
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Business Developments and Risks and Uncertainties | Note 1: Business Developments and Risks and Uncertainties Summary MBIA Inc., together with its consolidated subsidiaries, (collectively, “MBIA” or the “Company”) operates one of the largest financial guarantee insurance businesses in the industry and was a provider of asset management and advisory services. MBIA manages five operating segments: 1) United States (“U.S.”) public finance insurance; 2) international and structured finance insurance; 3) corporate; 4) advisory services; and 5) conduit. The Company’s U.S. public finance insurance business is primarily operated through National Public Finance Guarantee Corporation and its subsidi aries (“National”), its international and structured finance insurance business is primarily operated through MBIA Insurance Corporation and its subsidiaries (“MBIA Corp.”), and its asset management and advisory services business was operated through Cutwater Holdings, LLC and its subsidiaries (“Cutwater”). Unless otherwise indicated or the context otherwise requires, references to “MBIA Corp.” are to MBIA Insurance C orporation, together with its subsidiaries, MBIA UK Insurance Limited (“MBIA UK”) and MBIA Mexico S.A. de C.V. MBIA Inc. and certain of its subsidiaries also manage certain other business activities, the results of which are reported in the corporate and c onduit segments. During the second quarter of 2014, the Company dissolved its conduit segment. During the fourth quarter of 2014, the Company changed the name of its structured finance and international insurance operating segment to international and str uctured finance insurance. Also during the fourth quarter of 2014, the Company entered into an agreement to sell Cutwater to a subsidiary of The Bank of New York Mellon Corporation. This transaction, which was effective January 1, 2015, had a positive but immaterial impact on the Company’s financial position and results of operations. Effective in the fourth quarter of 2014, the Company’s previously reported asset/liability products segment and its corporate segment are managed and reported as one operating segment referred to as the corporate segment. Refer to “Note 12: Business Segments” for further information about the Company’s operating segments. Business Developments National Ratings and New Business Opportunities National’s ability to write new business and compete with other financial guarantors is largely dependent on the financial strength ratings assigned to National by major rating agencies. As of December 31, 2014, National was rated AA+ with a stable outlook by Kroll Bond Rating Agency, AA- with a stable o utlook by Standard & Poor’s Financial Services LLC (“S&P”), and A3 with a negative outlook by Moody’s Investors Service, Inc. (“Moody’s”). National seeks to generate shareholder value through appropriate risk adjusted pricing; however, current market cond itions and the competitive landscape may limit National’s new business opportunities and its abilities to price and underwrite risk with attractive returns. Refer to “Risks and Uncertainties” below for a discussion of business risks related to National’s i nsured portfolio. MBIA Corp. Risk Reductions During 2014, the Company continued to focus on the collection of excess spread and put-back recoveries and the mitigation of MBIA Corp.’s high risk insurance exposures, primarily through commutations of insur ance policies. During 2014, MBIA Corp. commuted $7.1 billion of gross par exposure, primarily comprising structured commercial mortgage-backed securities (“CMBS”) pools, investment grade corporate collateralized debt obligations (“CDOs”), small business securitizations, commercial real estate (“CRE”) CDOs and asset-backed securities (“ABS”) CDOs. During 2013, MBIA Corp. commuted $20.0 billion of gross par exposure, including $7.4 billion and $4.2 billion commuted with Bank of America an d Societe Generale, respectively, primarily comprising structured CMBS pools, investment grade CDOs, ABS CDOs, first-lien residential mortgage-backed securities (“RMBS”), high yield corporate CDOs, CRE CDOs and structured insurance securities. During 2012, MBIA Corp. commuted $13.4 billion of gross par exposure, primarily comprising structured CMBS pools, CRE CDOs, investment grade CDOs, ABS CDOs, and subprime RMBS transactions. MBIA Corp. may make negotiated settlement payments to counterparties and/or for ego its right to all or some termination premiums when it commutes insurance exposures. The difference between the fair values of the Company’s derivative liabilities for the commuted policies and the aggregate cost of the commutation is reflected in earni ngs. Held For Sale Classifications Armonk, New York Facility In the fourth quarter of 2013, the Company approved and initiated a plan to sell its Armonk, New York facility and, since then, has actively marketed the facility for sale. As a result, the facility was classified as held for sale as of December 31, 2014 a nd 2013 and presented within “Assets held for sale” on the Company’s consolidated balance sheets and measured at the lower of its carrying value or fair value less cost to sell. The Company no longer recognizes depreciation expense on the facility while cl assified as held for sale. During 2014 and 2013, the Company recorded impairment charges of $3 million and $29 million, respectively, on the Armonk, New York facility to adjust the carrying amount to its estimated fair market value less costs to sell. The fair market value was estimated based on an independent third-party appraisal. The impairment charges were reflected in the results of the Company’s U.S. public finance insurance segment and included in “Other net realized gains (losses)” on the Company’s consolidated statements of operations. Also, during 2014, the Company moved its headquarters from its Armonk, New York facility to a leased facility in Purchase, New York. Sale of Cutwater Business As a result of the agreement to sell Cutwater, the assets and liabilities of Cutwater were classified as held for sale as of December 31, 2014 and presented within “Assets held for sale” and “Liabilities held for sale” on the Company’s consolidated balance she et and measured at the lower of its carrying value or fair value less cost to sell. Assets and Liabilities Held for Sale by Major Category The following table summarizes the components of assets and liabilities held for sale as of December 31, 2014 and 2 013:
|  |  |  |  | As of December 31, |
| In millions |  | 2014 |  | 2013 |
| Assets |  |  |  |  |  |  |
|  | Investments carried at fair value |  | $ | 6 |  | $ | - |
|  | Cash and cash equivalents |  |  | 15 |  |  | - |
|  | Facility |  |  | 26 |  |  | 29 |
|  | Other assets |  |  | 4 |  |  | - |
|  | Assets of consolidated variable interest entities: |  |  |  |  |  |  |
|  |  | Cash |  |  | 40 |  |  | - |
|  |  | Loans receivable at fair value |  |  | 711 |  |  | - |
|  |  | Total assets held for sale |  | $ | 802 |  | $ | 29 |
| Liabilities |  |  |  |  |  |  |
|  | Other liabilities |  | $ | 18 |  | $ | - |
|  | Liabilities of consolidated variable interest entities: |  |  |  |  |  |  |
|  |  | Variable interest entity notes |  |  | 431 |  |  | - |
|  |  | Payable for loans purchased |  |  | 323 |  |  | - |
|  |  | Total liabilities held for sale |  | $ | 772 |  | $ | - |
Risks and Uncertainties The Company’s financial statements inc lude estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. The outcome of certain significant risks and uncertainties could cause the Company to revise its estimates and assumptions or could cause actual results to differ from the Company’s estimates. While the Company believes it continues to have sufficient capital and liquidity to meet all of its expected obligations, if one or more possible adverse outcomes were to be realized, its financial position, results of operations and cash flows, and its insurance companies’ statutory capital, could be materially and adversely affected. The discussion below highlights the significant risks and uncer tainties that could have a material effect on the Company’s financial statements and business objectives in future periods. U.S. Public Finance Market Conditions National’s insured portfolio continued to perform satisfactorily against a backdrop of stren gthening domestic economic activity. While this trend will generally benefit tax revenues and fees charged for essential municipal services which secure National’s insured bond portfolio, some state and local governments and territory obligors National ins ures remain under financial and budgetary stress. In addition, a few of these local governments have filed for protection under Chapter 9 of the United States Bankruptcy Code or have entered into state statutory proceedings established to assist municipali ties in managing through periods of severe fiscal stress. This could lead to an increase in defaults by such entities on the payment of their obligations and losses or impairments on a greater number of the Company’s insured transactions. The Company monit ors and analyzes these situations and other stressed credits closely, and the overall extent and duration of this stress is uncertain. MBIA Corp. Recoveri es and Insured Portfolio The amount and timing of projected collections from excess spread from sec ond-lien RMBS and the put-back recoverable from Credit Suisse Securities (USA) LLC, DLJ Mortgage Capital, Inc., and Select Portfolio Servicing Inc. (collectively, “Credit Suisse”) and the potential of claims from MBIA Corp.’s remaining insured exposures ar e uncertain. Further, the remaining insured portfolio, aside from these exposures, could deteriorate and result in additional significant loss reserves and claim payments. Management’s expected liquidity and capital forecasts for MBIA Corp., which include expected put-back recoveries from Credit Suisse and excess spread recoveries, reflect adequate resources to pay claims when due. However, if MBIA Corp. experiences higher than expected claim payments or is unable to terminate the remaining exposures that r epresent substantial risk to the Company, MBIA Corp. may ultimately have insufficient resources to continue to pay claims, which could cause the New York State Department of Financial Services (“NYSDFS”) to put MBIA Insurance Corporation, exclusive of MBIA UK, into a rehabilitation or liquidation proceeding. The Company does not believe that a rehabilitation or liquidation proceeding of MBIA Insurance Corporation by NYSDFS would have any significant long-term liquidity impact on MBIA Inc. or result in a liq uidation or similar proceeding of MBIA UK. Such a proceeding could have material adverse consequences for MBIA Corp., including the termination of insured credit default swaps (“CDS”) contracts for which counterparties may assert market-based claims, the a cceleration of debt obligations issued by affiliates and insured by MBIA Corp., the loss of control of MBIA Insurance Corporation to a rehabilitator or liquidator, and unplanned costs. Refer to “Note 6: Loss and Loss Adjustment Expense Reserves” for information about MBIA Corp.’s loss reserves and recoveries. Corporate Liquidity As of December 31, 2014 and 2013, the liquidity position, which comprise cash and liquid assets available for general liquidity purposes, of the Company’s corporate segment was $498 million and $359 million, respectively. During 2014, $220 million was released to MBIA Inc. under the MBIA group’s tax sharing agreement (the “Tax Escrow Account”) and National declared and paid a dividend of $220 million to its ultimate parent, MBIA Inc. Subsequent to December 31, 2014, an additional $228 million was released to MBIA Inc. from the Tax Escrow Account. While MBIA Inc.’s liquidity position improved during 2014 due to the Tax Escrow Account release and dividends received, MBIA I nc. continues to have liquidity risk. If invested asset performance deteriorates or the flow of dividends from subsidiaries is interrupted and/or access to the capital markets is impaired, its liquidity position could be eroded over time. While the Company expects that MBIA Inc. will generate sufficient cash to satisfy its debt obligations and its general corporate needs over time from distributions from its operating subsidiaries and payments under the Tax Escrow Account once the payments become unrestrict ed, there can be no assurance that such sources will generate sufficient cash. In addition, a failure by MBIA Inc. to settle liabilities that are also insured by MBIA Corp. could result in claims on MBIA Corp.

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