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Capital Strength. Triple-A Performance. P R E S E N T A T I O N. MBIA Insurance Corporation. April 2005 MBIA’s results through 12/31/04. Foundation Principles. Build the strongest team No-loss underwriting Triple-A ratings Build shareholder value.

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Capital Strength. Triple-A Performance.


MBIA Insurance Corporation

April 2005

MBIA’s results through 12/31/04

foundation principles
Foundation Principles
  • Build the strongest team
  • No-loss underwriting
  • Triple-A ratings
  • Build shareholder value
mbia the financial guarantee product
MBIA & The Financial Guarantee Product
  • MBIA is a “monoline” insurance company
  • Irrevocable & unconditional guarantee of scheduled debt service when due
  • The securities we guarantee are rated Triple-A by Standard & Poor's, Moody's and Fitch
  • We guarantee a wide range of debt obligations

Benefits to Investors

  • Eliminates credit losses and downgrade risk; and significantly reduces “headline risk”
  • Greatly improves liquidity and price stability
  • Long-term “buy & hold” investor in credit risk
  • Active surveillance; interests aligned with investor’s
  • Diversification of portfolio
rating agency rationale
Rating Agency Rationale

For Triple-A Financial Strength Rating

  • Conservative credit standards
  • Strong capitalization levels
  • Diversified insured portfolio
  • High quality investments
  • Stable profitability
  • Highly experienced management
monoline industry financial strength
Monoline Industry -- Financial Strength

Claims-Paying Resources

Rating Agency Ratios

12/31/03 12/31/03

$ Billions

Credit Tail Hard Total Margin Quality Risk Dispersion Capital Capital ofRatio* Ratio* Ratio*Ratio* Ratio* Safety** (Lower is Better) (Higher is Better)

(As of December 31, 2004)

MBIA 40 bps 125 bps 3.13x 1.50x 1.46x 1.5-1.6x

Ambac 40 bps 131 bps 3.28x 1.45x 1.43x 1.3-1.4x

FSA 22 bps 75 bps 3.39x 1.72x 1.62x 1.6-1.7x

FGIC 16 bps 67 bps 4.12x 1.92x 1.78x 1.3-1.4x

XLCA/XLFA 39 bps 168 bps 4.58x 1.50x 1.28x 1.3-1.4x

Industry Avg. (2) 34 bps 115 bps 3.51x 1.55x 1.49x 1.4-1.5x


* Moody’s Measurements (Both Hard and Total Capital Ratios should be >1.30 to earn the Aaa)

** S&P’s Measurements (1.25x is the minimum for a AAA rating for a publicly-held company)(1) XLCA/XLFA’s Margin of Safety is an average of the weighted averages of XLCA’s and XLFA’s theoretical depression losses, claims-paying resources and capital remaining at end of depression.

(2) $ weighted average of NPO


Ratio 46:1 41:1 66:1 73:1 16:1

* As of 9/30/04

Definition of Terms

Claims-Paying Resources Formula: Statutory Capital + Unearned Premium Reserves + PV of Installment Premiums + Loss Reserves + Soft Capital Facilities

Leverage Ratio Formula: Net Par Outstanding ÷ Claims-Paying Resources

Credit Quality Ratio Formula:Expected PV of Net Losses/Adjusted Net Par Outstanding

Tail Risk Ratio Formula: 99.9 Percentile Losses/Adjusted Net Par Outstanding

Dispersion Ratio Formula: 99.9 Percentile Losses ÷ Expected Losses

Hard Capital Ratio Formula: Hard Capital (QSC & UPR) ÷ 99.9 Percentile Losses

Total Capital Ratio Formula: Total Capital (Hard & Soft Capital & PV Installment Premiums) ÷ 99.99 percentile losses

Margin of Safety Formula: Coverage of theoretical losses generated over a 7-year stress period by capital remaining at the end of the stress period

financial highlights
Financial Highlights

MBIA Inc. and Subsidiaries

(As of December 31, 2004)

($ in MM)

Adjusted Direct Premiums 710* 829 1,042 1,204 1,621 1,146

Gross revenues from

continuing operations 1,149 1,274 1,406 1,433 1,857 2,001

Net Income 315 525 568 579 816 815

Expense Ratio - Statutory 23.6% 22.1% 13.4% 16.8% 12.8% 18.3%

Total Assets 12,247 13,865 16,210 18,835 30,324 33,027

Claims-Paying Resources 8,539 9,140 10,087 11,015 12,639 12,888

Loss Reserves 469 503 581 621 691 727

1999 2000 2001 2002 2003 2004

* Starting 2001, we are reporting “ADP” (Adjusted Direct Premium), rather than “AGP” (Adjusted Gross Premium). ADP represents upfront premiums and the estimated present value of current period and future installment premiums for policies issued in the period. AGP netted our reinsurance with Ambac.

insured portfolio credit quality distribution
Insured Portfolio - Credit Quality Distribution

MBIA’s Net Par Outstanding

December 31, 1999$384 Billion 71.5% Rated A or Better

December 31, 2004$586 Billion 80.3% Rated A or Better

* All ratings current: Ratings derived using S&P Priority Method. If not rated by S&P, Moody’s equivalent used. If not rated by either, MBIA equivalent rating used.

mbia insurance corporation
MBIA Insurance Corporation

Percent of Net Par Outstanding by Bond Type(As of December 31, 2004)

$585.6 Billion


Insurance Investment Portfolio

  • $10.2 billion as of December 31, 2004
  • Fixed-income securities
  • Average quality Aa
  • Only investment grade bonds
  • No real estate
  • Limits by bond sector, issuer, maturity and state
  • Effective duration 5.27 years
  • Average maturity 8.46 years
portfolio sector growth
Portfolio Sector Growth

Overview of MBIA’s Portfolio

Total Net Par Outstanding


total portfolio runoff declining net par outstanding
Total Portfolio Runoff –Declining Net Par Outstanding

(As of December 31, 2004)

$ in Billions









risk management
Risk Management

Key Characteristics

  • State of the art analytic and modeling tools
  • Coordinate human capital
  • Rigorous approval process
  • Ongoing refinement via feedback mechanisms
  • Two levels of underwriting committees
    • Underwriting Committee
    • Executive Risk Committee
risk management criteria

Willingness and ability to pay

Minimum size of jurisdiction/tax area

Diversity of taxpayers/taxes

Legal basis

Special Revenue

Public purpose/community support

Size of institution/service area and strong market position

Diversity of users/revenue

Ample/diverse liquidity and historical debt service coverage over 1.0x

Growth based - projections must pass worst/probable case scenario

Risk Management Criteria

Public Finance

  • Essentiality
  • Issuer Strength
  • Legal Provisions
  • Investment Grade
risk management criteria14
Risk Management Criteria

Structured Finance

Goal: Asset pools diversified by geography and industry with structural protections against


  • Assets
    • Historical asset pool information and due diligence on statistical sample
  • Structure
    • First loss protection via excess cash flow, reserve accounts, overcollateralization, bank letters-of-credit
    • Legal structure separates assets from seller/servicer through “true sale” to a bankruptcy remote vehicle. Also perfected first security interest
    • Asset performance tests for delinquency, losses, etc. trap excess cash flow into a reserve account, re-direct excess cash flow, transfer servicing
  • Players
    • Investment grade and non investment grade seller/servicers: financially viable with successful history of originating and servicing
    • Financial covenants:
      • Termination of new asset purchases (revolving deals)
      • Trapping excess cash flow
      • Accelerated debt paydown
      • Servicing transfer
    • On-site financial and operational review
mbia insurance corporation15
MBIA Insurance Corporation

MBIA Loss History Inception to December 31, 2004

Issues insured Over 99,000

Debt Service Insured from Inception: $ 1.820 Trillion

Aggregate Incurred Losses: * $ 586 Million

Case Loss Reserves: $ 247 Million

Paid Losses: $ 339 Million

Losses Equal to 0.03% of Insured Debt Service Since Inception

* Includes $236 million for AHERF

Unallocated Reserves: $284 Million

portfolio management
Portfolio Management


  • The probability of MBIA defaulting on a guaranty is on the order of 100 times less than the probability of a Triple-A corporate defaulting on its debt
  • MBIA holds capital equal to a 99.99th percentile or a 1 in 10,000 event
  • MBIA’s product diversification, rigorous selection and underwriting process and active monitoring and surveillance lowers portfolio risk and improves the quality of our guaranty
  • International expansion lowers an insurer’s portfolio risk

Overview and MBIA Profile

(as of June 30, 2004)

  • Substantial growth potential - 20%+ CAGR
  • Globalization and convergence of capital markets
      • Privatization ·Decentralization
  • International offices
    • London, Paris, Madrid, Milan, Sydney, Tokyo and Singapore.
  • Depth of analytical talent in Armonk supports our global effort
    • Product specialists in Armonk work jointly with analysts located in overseas offices.
    • Same underwriting process and committees as in U.S.
  • International Net Par Outstanding represents 18% of the 12/31/04 book.International ADP YTD 2004 represents 35% of the company’s total.

Top 10 Country Exposures (excluding Global Portfolios*) - As of 12/31/04

*Represents the aggregation of exposure to transactions that span multiple countries

**Emerging market exposure remains modest. Net Par from this country and other Emerging Markets countries equaled $5,778 million, representing 5.5% of International Net Par and 1.0% of total Net Par.

international mbia net par by bond type
International MBIA Net Par by Bond Type

$105Billion Outstanding (as of December 31, 2004)

$105 Billion

* Includes direct corporates, corporate pools

benefits to investors
Benefits to Investors

Price Protection



MBIA - ContiMortgage Home Equity Loan Trust 6.63% - 12/15/18Sen/Sub - ContiMortgage Home Equity Loan Trust 6.36% 11/15/19

Source: Bloomberg

why sell insured bonds
Why Sell Insured Bonds?

Hidden Value - Price Protection

Per $100

of Par Value

12/7/00 12/21/00 1/14/01 12/31/01 6/6/02 11/13/03

Southern California Edison Bonds 7.625% 2010

exposure to mbia
Exposure to MBIA

How to Measure Exposure to MBIA

  • Joint Default Probability Approach: use joint default probabilities to “gross-up” standard limit
  • Tenor Approach: vary exposure by tenor of underlying transaction
  • Risk Based Capital Charge Approach: calculate the amount of incremental risk covered by MBIA as demonstrated by the S&P capital charge
  • BIS Risk Weighted Approach: Use the BIS guidelines to calculate the amount of exposure in a deal which is attributable to MBIA
benefits to investors23
Benefits to Investors

Joint Default Probability Approach

  • Default probability of MBIA wrapped assets far lower than default probability of unwrapped, Triple-A rated assets:
    • Default probability of Aaa rated corporate -- 0.79%*
    • Default probability of A2 rated ABS (1/3)/munis(2/3) -- 0.95%**
    • Default probability of A2 rated corporates/munis wrapped by MBIA -- .0079 X .0095 = .000075***
  • Conclusion: The joint default probability of an average MBIA-wrapped security is less than 1% of an unwrapped Triple-A corporate (.000075/.0079 = .00949).
  • In terms of default probability, $10 million of exposure to unwrapped, Triple-A rated corporates is equivalent credit risk to $1.05 billion of exposure to MBIA wrapped obligations

Source: Moody’s Feb 2002 Corporate Bond Default Study (10 year average cumulative default rates by ratings over 1970-2000 period) & Moody’s Portfolio Risk Model for Financial Guarantors, July 2000.

* This does not take into account that MBIA is less likely to default than a Triple-A rated corporate.

** Assumes that ABS defaults at the same rate as corporates, which is not true; ABS default less frequently.

*** Does not take into account correlation risk.


MBIA Performance Perseveres Through Adversity

lHurricane Andrew - 50 killed, $25B in damage in Southern Florida

l Savings and Loan crisis

l Russian crisis

  • l Subprime mortgage sector difficulties;
  • AHERF bankruptcy;
  • Capital Asset write-off

l Iraq war; l CA crisis

l U.S. Recession, declining real estate values, stress on munis and consumer ABS;

l Philadelphia financial crisis

l Gulf War;

l Brevard County Lease Revenue Bonds

l Black Monday

Stock Market Drop

l Mississippi River flood, 52 killed, $15-$20B in damage, 70,000 displaced;

l First World Trade Center bombing, Port Authority exposure

lUS Tech bubble burst;lCalifornia utility crisis, PG&E in Ch 11 , SoCal Ed restructuring

l California earthquake (Northridge) 57 killed, $15B in damage;

l Orange County bankruptcy;l Mexico financial crisis

l 9/11 - Afghan war

l Airline consolidation stresses airports;

l Declining enrollment stresses colleges

l EETCS challenged;

l CDOs under scrutiny;

l Consumer ABS stressed

l Asian crisis;

l Subprime auto sector difficulties;

l Balanced Budget Act - stress on health

care sector

MBIA’s Book Value


MBIA Strengths

  • Rated Triple-A by Moody's, Standard and Poor's, and Fitch
  • Leading financial guarantee insurance company
  • Excellent credit quality and diversification of insured portfolio
  • Strong financial position
  • Highly rated and liquid investment portfolio
  • Conservative underwriting and monitoring standards
  • Strong management team

For more information about MBIA Insurance Corporation please contact us:


Italy and Greece:

Luis Cuttica +39 02 86 337 627

European Infrastructure:

Paul David +44 20 7920 6360

Fixed Income Investor Relations:

Charlie Williams +1-914-765-3481

Chip Reilly +1-914-765-3227

Stephanie Dougherty +1-914-765-3631

Equity Investor Relations:

Willard Hill +1-914-765-3860