mbia insurance corporation april 2005 mbia’s results through 12/31/04 capital strength. triple-a...

MBIA Insurance Corporation

April 2005

MBIA’s results through 12/31/04

Capital Strength. Triple-A Performance.

P R E S E N T A T I O N

- 2 - Capital Strength. Triple-A Performance.

Foundation Principles

· Build the strongest team

· No-loss underwriting

· Triple-A ratings

· Build shareholder value


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


For Triple-A Financial Strength Rating

Rating Agency Rationale

· Conservative credit standards

· Strong capitalization levels

· Diversified insured portfolio

· High quality investments

· Stable profitability

· Highly experienced management


Monoline Industry -- Financial Strength

$ Billions

Definition of TermsClaims-Paying Resources Formula: Statutory Capital + Unearned Premium Reserves + PV of Installment Premiums + Loss Reserves + Soft Capital FacilitiesLeverage Ratio Formula: Net Par Outstanding ÷ Claims-Paying ResourcesCredit Quality Ratio Formula: Expected PV of Net Losses/Adjusted Net Par OutstandingTail Risk Ratio Formula: 99.9 Percentile Losses/Adjusted Net Par OutstandingDispersion Ratio Formula: 99.9 Percentile Losses ÷ Expected LossesHard Capital Ratio Formula: Hard Capital (QSC & UPR) ÷ 99.9 Percentile LossesTotal 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

(As of December 31, 2004)

Claims-Paying Resources Rating Agency Ratios

$5.1

$0.4

$3.3

$11.2

$12.9

0

2

4

6

8

10

12

14

MBIA Ambac FSA* FGIC XLCA*

LeverageRatio 46:1 41:1 66:1 73:1 16:1

* As of 9/30/04

MBIA 40 bps 125 bps 3.13x 1.50x 1.46x 1.5-1.6xAmbac 40 bps 131 bps 3.28x 1.45x 1.43x 1.3-1.4xFSA 22 bps 75 bps 3.39x 1.72x 1.62x 1.6-1.7xFGIC 16 bps 67 bps 4.12x 1.92x 1.78x 1.3-1.4xXLCA/XLFA 39 bps 168 bps 4.58x 1.50x 1.28x 1.3-1.4xIndustry Avg. (2) 34 bps 115 bps 3.51x 1.55x 1.49x 1.4-1.5x

Credit Tail Hard Total Margin Quality Risk Dispersion Capital Capital of Ratio* Ratio* Ratio* Ratio* Ratio* Safety**

(Lower is Better) (Higher is Better)

* 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

12/31/03 12/31/03

(1)


Financial Highlights

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

MBIA Inc. and Subsidiaries(As of December 31, 2004)($ in MM)

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.


* 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.

December 31, 1999$384 Billion

71.5% Rated A or Better

December 31, 2004$586 Billion

80.3% Rated A or Better

Insured Portfolio - Credit Quality DistributionMBIA’s Net Par Outstanding



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

Aaa68%

Baa1% A

14%

Aa17%


Portfolio Sector GrowthOverview of MBIA’s Portfolio

Total Net Par Outstanding

Bil l

ions

$0

$50

$100

$150

$200

$250

$300

$350

$400

1995 $188B

1996 $233B

1997 $277B

1998 $359B

1999 $382B

2000 $420B

2001 $452B

2002 $497B

2003 $541B

2004 $585B

U.S. Public Finance U.S. Structured Finance Non U.S.


Total Portfolio Runoff –Declining Net Par Outstanding(As of December 31, 2004)20

04

2007

2010

2013

2016

2019

2022

2025

2028

2031

2034

2037

2040

2043

2046

2049

U.S. PFG U.S. STF Non U.S. INTL600

500

400

300

200

100

0

$ in Billions

2049


Key Characteristics

Risk Management

· 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


Municipal· 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

Public Finance

· Essentiality

· Issuer Strength

Risk Management Criteria

· Legal Provisions· Investment Grade


Risk Management Criteria

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

Structured Finance


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


MBIA Loss History Inception to December 31, 2004

* Includes $236 million for AHERFUnallocated Reserves: $284 Million


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

Observations


Overview and MBIA Profile (as of June 30, 2004)

International

· 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.


InternationalTop 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.

CountryForeign Currency

Rating Net Par ($MM) % of Intl Net Par% of Total Book Net

Par

United Kingdom AAA/Aaa 14,675 14.0% 2.5%Germany AAA/Aaa 10,903 10.4% 1.9%Australia AAA/Aaa 6,150 5.9% 1.1%France AAA/Aaa 2,258 2.2% 0.4%Japan Aaa/AA- 2,084 2.0% 0.4%Spain AAA/Aaa 1,922 1.8% 0.3%Italy Aa2/AA- 1,912 1.8% 0.3%

Canada AAA/Aaa 1,730 1.6% 0.3%Chile** Baa1/A 1,646 1.6% 0.3%

Portugal Aa2/AA 1,560 1.5% 0.3%Total: 44,842 42.7% 7.7%

Total International Net Par: 104,994 Global (Intl) Portfolio*: 53,913 51.3% 9.2%

Total Book Net Par: 585,575


International MBIA Net Par by Bond Type

* Includes direct corporates, corporate pools

$105 Billion

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


$98.66

$99.53$99.63

$97.53

$94

$95

$96

$97

$98

$99

$100

$101

$102

Jun-99 Jul-99

Insured (MBIA)

Sen/Sub

Benefits to Investors

Price Protection

Source: Bloomberg

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

(0.1%) (1.15%)


Why Sell Insured Bonds?

Hidden Value - Price Protection

Southern California Edison Bonds 7.625% 2010

$102.81 $106.00$115.00

$102.81$102.81 $103.72 $110.00$101.50$95.00

$45.00

$68.05

$102.05

0

20

40

60

80

100

120

140

Insured Uninsured

12/7/00 12/21/00 1/14/01 12/31/01 6/6/02 11/13/03Per $100of Par Value


How to Measure Exposure to MBIA

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


Joint Default Probability Approach

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.

Benefits to Investors

· 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


05

101520253035404550

12/3

0/19

87

12/3

0/19

88

12/2

9/19

89

12/3

1/19

90

12/3

1/19

91

12/3

1/19

92

12/3

1/19

93

12/3

0/19

94

12/2

9/19

95

12/3

1/19

96

12/3

1/19

97

12/3

1/19

98

12/3

1/19

99

12/2

9/20

00

12/3

1/20

01

12/3

1/20

02

12/3

1/20

03

6/30

/200

4

9/30

/200

4

12/3

1/20

04

MBIA’s Book Value

MBIA Performance Perseveres Through AdversityHurricane Andrew - 50 killed, $25B in damage in Southern Florida

Savings and Loan crisis U.S. Recession, declining real estate values, stress on munis and consumer ABS; Philadelphia financial crisis

Mississippi River flood, 52 killed, $15-$20B in damage, 70,000 displaced; First World Trade Center bombing, Port Authority exposure

California earthquake (Northridge) 57 killed, $15B in damage; Orange County bankruptcy; Mexico financial crisis

Asian crisis; Subprime auto sector difficulties; Balanced Budget Act - stress on health care sector

Russian crisis

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

9/11 - Afghan war Airline consolidation stresses airports; Declining enrollment stresses colleges

Iraq war; CA crisis

Black Monday Stock Market Drop

Gulf War; Brevard County Lease Revenue Bonds

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

EETCS challenged; CDOs under scrutiny; Consumer ABS stressed


MBIA Strengths

Conclusion

· 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


Contacts

Contact Phone E-mail

Italy and Greece:Luis Cuttica +39 02 86 337 627 [email protected]

European Infrastructure:Paul David +44 20 7920 6360 [email protected]

Fixed Income Investor Relations:Charlie Williams +1-914-765-3481 [email protected] Reilly +1-914-765-3227 [email protected] Dougherty [email protected]

Equity Investor Relations:Willard Hill +1-914-765-3860 [email protected]

Website: www.mbia.com/investor/index.html

For more information about MBIA Insurance Corporation please contact us:

mbia insurance corporation april 2005 mbia’s results through 12/31/04 capital strength. triple-a...

Documents

capital strength

total capital ratios

credit losses

hard capital qsc upr

rated triple

net par outstanding

coverage of theoretical

net income