10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarter Ended March 31, 2005

OR

¨ TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from                      to                     

Commission File No. 1-9583 I.R.S. Employer Identification No. 06-1185706

MBIA INC.

A Connecticut Corporation

113 King Street, Armonk, N. Y. 10504

(914) 273-4545

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the Registrant is an accelerated filer (as specified in Rule 12 b-2 of the Act). Yes x No ¨

As of April 29, 2005 there were outstanding 135,408,786 shares of Common Stock, par value $1 per share, of the registrant.

INDEX

		PAGE
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	MBIA Inc. and Subsidiaries
	Consolidated Balance Sheets – March 31, 2005 and December 31, 2004	3
	Consolidated Statements of Income – Three months ended March 31, 2005 and 2004	4
	Consolidated Statement of Changes in Shareholders’ Equity - Three months ended March 31, 2005	5
	Consolidated Statements of Cash Flows - Three months ended March 31, 2005 and 2004	6
	Notes to Consolidated Financial Statements	7 - 14
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15 - 39
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40
Item 4.	Controls and Procedures	40
PART II	OTHER INFORMATION, AS APPLICABLE
Item 1.	Legal Proceedings	40 - 41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41 - 42
Item 4.	Submission Of Matters to a Vote of Security Holders	42 - 44
Item 6.	Exhibits	44
SIGNATURES		45

(2)

MBIA INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Unaudited)

(In thousands except per share amounts)

	March 31, 2005			December 31, 2004
Assets
Investments:
Fixed-maturity securities held as available-for-sale, at fair value (amortized cost $20,476,640 and $18,802,894)	$	21,134,588		$	19,679,905
Investments held-to-maturity, at amortized cost (fair value $7,120,369 and $7,535,787)		7,140,265			7,540,218
Investment agreement portfolio pledged as collateral, at fair value (amortized cost $744,071 and $713,704)		768,196			730,870
Short-term investments, at amortized cost (which approximates fair value)		1,859,417			2,405,192
Other investments		258,949			261,865
Total investments		31,161,415			30,618,050
Cash and cash equivalents		544,484			366,236
Accrued investment income		336,904			312,208
Deferred acquisition costs		371,932			360,496
Prepaid reinsurance premiums		462,390			471,375
Reinsurance recoverable on unpaid losses		33,202			33,734
Goodwill		79,406			79,406
Property and equipment, at cost (less accumulated depreciation of $112,416 and $108,848)		113,124			114,692
Receivable for investments sold		100,865			67,205
Derivative assets		270,648			288,811
Other assets		282,295			315,197
Total assets	$	33,756,665		$	33,027,410
Liabilities and Shareholders’ Equity
Liabilities:
Deferred premium revenue	$	3,238,851		$	3,211,181
Loss and loss adjustment expense reserves		755,563			726,617
Investment agreements		9,316,470			8,678,036
Commercial paper		2,302,859			2,598,655
Medium-term notes		7,414,651			6,943,840
Variable interest entity floating rate notes		600,670			600,505
Securities sold under agreements to repurchase		686,131			647,104
Short-term debt		58,745			58,745
Long-term debt		1,325,460			1,332,540
Current income taxes		12,126			—
Deferred income taxes, net		573,849			610,545
Deferred fee revenue		24,355			26,780
Payable for investments purchased		201,138			94,609
Derivative liabilities		428,360			528,562
Other liabilities		381,426			390,620
Total liabilities		27,320,654			26,448,339
Shareholders’ Equity:
Preferred stock, par value $1 per share; authorized shares—10,000,000; issued and outstanding—none		—			—
Common stock, par value $1 per share; authorized shares—400,000,000; issued shares — 156,241,947 and 155,607,737		156,242			155,608
Additional paid-in capital		1,449,944			1,410,799
Retained earnings		5,377,327			5,215,191
Accumulated other comprehensive income, net of deferred income tax of $268,807 and $317,563		500,516			611,173
Unearned compensation — restricted stock		(56,206	)		(34,686	)
Treasury stock, at cost — 19,829,450 and 16,216,405 shares		(991,812	)		(779,014	)
Total shareholders’ equity		6,436,011			6,579,071
Total liabilities and shareholders’ equity	$	33,756,665		$	33,027,410

The accompanying notes are an integral part of the consolidated financial statements.

(3)

MBIA INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(In thousands except per share amounts)

	Three months ended March 31
	2005			2004
				Restated
Insurance
Revenues:
Gross premiums written	$	282,619		$	204,693
Ceded premiums		(35,688	)		(30,732	)
Net premiums written		246,931			173,961
Scheduled premiums earned		169,873			161,994
Refunding premiums earned		36,365			39,876
Premiums earned (net of ceded premiums of $45,415 and $44,918)		206,238			201,870
Net investment income		119,146			121,841
Advisory fees		6,425			5,865
Net realized gains		211			46,293
Net gains (losses) on derivative instruments and foreign exchange		(6,075	)		1,070
Total insurance revenues		325,945			376,939
Expenses:
Losses and loss adjustment		20,385			19,439
Amortization of deferred acquisition costs		16,293			15,586
Operating		29,166			27,526
Total insurance expenses		65,844			62,551
Insurance income		260,101			314,388
Investment management services
Revenues		186,235			121,460
Net realized gains (losses)		3,194			(1,817	)
Net gains (losses) on derivative instruments and foreign exchange		11,178			(11,733	)
Total investment management services revenues		200,607			107,910
Interest expense		149,418			91,035
Expenses		14,377			18,587
Total investment management services expenses		163,795			109,622
Investment management services income		36,812			(1,712	)
Municipal services
Revenues		5,536			5,959
Net realized losses		(85	)		(5	)
Net gains on derivative instruments and foreign exchange		130			—
Total municipal services revenues		5,581			5,954
Expenses		5,405			5,854
Municipal services income		176			100
Corporate
Net investment income		7,927			2,120
Net realized losses		(1,608	)		(220	)
Interest expense		22,021			17,774
Corporate expenses		3,681			5,890
Corporate loss		(19,383	)		(21,764	)
Income from continuing operations before income taxes		277,706			291,012
Provision for income taxes		77,202			82,424
Income from continuing operations		200,504			208,588
Income from discontinued operations, net of tax		—			29
Net income	$	200,504		$	208,617
Income from continuing operations per common share:
Basic	$	1.46		$	1.45
Diluted	$	1.43		$	1.42
Net income per common share:
Basic	$	1.46		$	1.45
Diluted	$	1.43		$	1.42
Weighted-average number of common shares outstanding:
Basic		137,258,739			143,608,056
Diluted		140,442,217			146,647,142
Gross revenues from continuing operations		538,452			492,703
Gross expenses from continuing operations		260,746			201,691

The accompanying notes are an integral part of the consolidated financial statements.

(4)

MBIA INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

For the three months ended March 31, 2005

(In thousands except per share amounts)

	Common Stock			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income			Unearned Compensation- Restricted Stock			Treasury Stock					Total Shareholders’ Equity
	Shares	Amount														Shares		Amount
Balance, January 1, 2005	155,608	$	155,608	$	1,410,799		$	5,215,191		$	611,173		$	(34,686	)	(16,216	)	$	(779,014	)	$	6,579,071
Comprehensive income:
Net income	—		—		—			200,504			—			—		—			—			200,504
Other comprehensive income (loss):
Change in unrealized appreciation of investments net of change in deferred income taxes of $(74,077)	—		—		—			—			(135,724	)		—		—			—			(135,724	)
Change in fair value of derivative instruments net of change in deferred income taxes of $20,476	—		—		—			—			38,027			—		—			—			38,027
Change in foreign currency translation net of change in deferred income taxes of $4,845	—		—		—			—			(12,960	)		—		—			—			(12,960	)
Other comprehensive income (loss)																						(110,657	)
Comprehensive income																						89,847
Treasury shares acquired, net	—		—		—			—			—			—		(3,613	)		(212,798	)		(212,798	)
Stock-based compensation	634		634		39,938			—			—			(21,520	)	—			—			19,052
Capital issuance costs	—		—		(793	)		—			—			—		—			—			(793	)
Dividends (declared per common share $0.280, paid per common share $0.240)	—		—		—			(38,368	)		—			—		—			—			(38,368	)
Balance, March 31, 2005	156,242	$	156,242	$	1,449,944		$	5,377,327		$	500,516		$	(56,206	)	(19,829	)	$	(991,812	)	$	6,436,011

	2005
Disclosure of reclassification amount:
Unrealized appreciation of investments arising during the period, net of taxes	$	(134,478	)
Reclassification adjustment, net of taxes		(1,246	)
Net unrealized appreciation, net of taxes	$	(135,724	)

The accompanying notes are an integral part of the consolidated financial statements.

(5)

MBIA INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)

	Three months ended March 31
	2005			2004
				(Restated)
Cash flows from operating activities of continuing operations:
Net income	$	200,504		$	208,617
Income from discontinued operations, net of tax		—			(29	)
Net income from continuing operations		200,504			208,588
Adjustments to reconcile net income from continuing operations to net cash provided by operating activities of continuing operations:
(Increase) decrease in accrued investment income		(24,696	)		6,765
Increase in deferred acquisition costs		(11,436	)		(20,203	)
Decrease in prepaid reinsurance premiums		8,985			14,186
Increase (decrease) in deferred premium revenue		27,670			(42,095	)
Increase in loss and loss adjustment expense reserves		28,946			70,058
Decrease in reinsurance recoverable on unpaid losses		532			18,631
Depreciation		3,568			3,218
Amortization of discount on bonds, net		15,955			12,307
Amortization of premium on medium-term notes and commercial paper		(4,552	)		(4,676	)
Net realized gains on sale of investments		(1,712	)		(44,251	)
Current income tax provision		12,126			50,768
Deferred income tax provision		12,220			14,594
Net (gains) losses on derivative instruments and foreign exchange		(5,233	)		10,663
Stock option compensation		4,917			5,007
Other, net		7,146			(86,352	)
Total adjustments to net income		74,436			8,620
Net cash provided by operating activities of continuing operations		274,940			217,208
Cash flows from investing activities of continuing operations:
Purchases of fixed-maturity securities, net of payable for investments purchased		(2,597,593	)		(2,374,625	)
Sale of fixed-maturity securities, net of receivable for investments sold		2,263,137			1,863,574
Redemption of fixed-maturity securities, net of receivable for investments redeemed		83,857			202,993
Purchases for investment agreement and medium-term note portfolios, net of payable for investments purchased		(996,116	)		(588,833	)
Sales for investment agreement and medium-term note portfolios, net of receivable for investments sold		13,470			219,840
Purchases of held-to-maturity investments		(31,145	)		(29,520	)
Proceeds from principal paydown of held-to-maturity investments		426,031			703,123
Sale of short-term investments		114,689			108,175
Sale of other investments		3,401			14,968
Capital expenditures		(2,138	)		(2,480	)
Disposals of capital assets		—			38
Net cash provided (used) by investing activities of continuing operations		(722,407	)		117,253
Cash flows from financing activities of continuing operations:
Proceeds from issuance of investment agreements		1,413,495			840,175
Payments for drawdowns of investment agreements		(757,409	)		(881,626	)
Decrease in commercial paper, net		(296,034	)		(166,976	)
Issuance of medium-term notes		587,714			382,175
Principal paydown of medium-term notes		(121,412	)		(636,642	)
Securities sold under agreements to repurchase, net		39,027			241,847
Net proceeds from issuance of short-term debt		—			1,408
Dividends paid		(33,494	)		(28,814	)
Capital issuance costs		(793	)		(531	)
Other borrowings		—			(3,879	)
Purchase of treasury stock		(212,798	)		(20,377	)
Exercise of stock options		7,419			30,760
Net cash provided (used) by financing activities of continuing operations		625,715			(242,480	)
Discontinued operations:
Net cash used by discontinued operations		—			(512	)
Net increase in cash and cash equivalents		178,248			91,469
Cash and cash equivalents - beginning of period		366,236			227,544
Cash and cash equivalents - end of period	$	544,484		$	319,013
Supplemental cash flow disclosures:
Income taxes paid	$	3,450		$	13,527
Interest paid:
Investment agreements	$	69,192		$	60,307
Commercial paper		15,984			6,902
Medium-term notes		44,925			35,268
Variable interest entity floating rate notes		4,304			1,806
Securities sold under agreements to repurchase		3,794			2,999
Long-term debt		15,291			16,033
Other borrowings		—			354
Non cash items:
Stock compensation	$	4,917		$	5,007
Dividends declared but not paid		38,363			34,733

The accompanying notes are an integral part of the consolidated financial statements.

(6)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MBIA Inc. and Subsidiaries

NOTE 1: Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, accordingly, do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America (GAAP). These statements should be read in conjunction with the consolidated financial statements and notes thereto included in Form 10-K for the year ended December 31, 2004 for MBIA Inc. and Subsidiaries (MBIA or the Company). The accompanying consolidated financial statements have not been audited by an independent registered public accounting firm in accordance with the standards of the Public Company Accounting Oversight Board (United States), but in the opinion of management such financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the Company’s financial position and results of operations. The results of operations for the three months ended March 31, 2005 may not be indicative of the results that may be expected for the year ending December 31, 2005. The December 31, 2004 balance sheet was derived from audited financial statements, but does not include all disclosures required by GAAP. The consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries and other entities required by GAAP. All significant intercompany balances have been eliminated. Business segment results are presented net of all material intersegment transactions.

NOTE 2: Restatement of Consolidated Financial Statements

As reported in the Company’s Form 10-K for the year ended December 31, 2004, the Company restated its previously issued consolidated financial statements for 1998 and subsequent years to correct the accounting treatment for two reinsurance agreements entered into in 1998. The following table presents the effects of the restatement on the consolidated financial statements of the Company for the quarter ended March 31, 2004.

7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MBIA Inc. and Subsidiaries

In thousands except per share information	As of and For the Quarter Ended March 31, 2004
	Previously Reported		Restated
Consolidated Statement of Income Data:
Net premiums written	$	169,729	$	173,961
Scheduled premiums earned		160,280		161,994
Refunding premiums earned		39,542		39,876
Premiums earned		199,822		201,870
Insurance revenues		374,891		376,939
Losses and loss adjustment expenses		19,234		19,439
Operating expenses		27,172		27,526
Insurance income		312,899		314,388
Income from continuing operations before income taxes		289,523		291,012
Provision for income taxes		81,903		82,424
Income from continuing operations		207,620		208,588
Net income	$	207,649	$	208,617
Basic EPS:
Income from continuing operations	$	1.45	$	1.45
Net income	$	1.45	$	1.45
Diluted EPS:
Income from continuing operations	$	1.42	$	1.42
Net income	$	1.42	$	1.42
Consolidated Balance Sheet Data:
Prepaid reinsurance premiums	$	523,726	$	452,576
Total assets		30,940,671		30,869,521
Loss and loss adjustment expense reserves		754,848		761,539
Current income taxes		71,046		60,395
Deferred income taxes, net		605,367		585,922
Other liabilities		364,069		372,218
Total liabilities		24,387,237		24,371,981
Retained earnings		4,766,412		4,710,518
Shareholders’ equity	$	6,553,434	$	6,497,540

Information presented in the Notes to Consolidated Financial Statements gives effect to the restatement, as applicable.

NOTE 3: Dividends Declared

Dividends declared by the Company during the three months ended March 31, 2005 were $38.4 million.

8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MBIA Inc. and Subsidiaries

NOTE 4: Earnings Per Share (Restated)

Basic earnings per share excludes dilution and is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share shows the dilutive effect of all stock options and other items outstanding during the period that could potentially result in the issuance of common stock. For the three months ended March 31, 2005 and 2004, there were 2,627,938 and 1,797,496 stock options outstanding, respectively, that were not included in the diluted earnings per share calculation because they were antidilutive.

The following table sets forth the computation of basic and diluted earnings per share for the three months ended March 31, 2005 and 2004:

	March 31,
In thousands except per share amounts	2005		Restated 2004
Income from continuing operations, net of tax	$	200,504	$	208,588
Income from discontinued operations, net of tax		—		29
Net income	$	200,504	$	208,617
Basic weighted average shares		137,258,739		143,608,056
Effect of stock options		3,183,478		3,039,086
Diluted weighted average shares		140,442,217		146,647,142
Basic EPS:
Income from continuing operations	$	1.46	$	1.45
Income from discontinued operations		0.00		0.00
Net income	$	1.46	$	1.45
Diluted EPS:
Income from continuing operations	$	1.43	$	1.42
Income from discontinued operations		0.00		0.00
Net income	$	1.43	$	1.42

NOTE 5: Business Segments (Restated)

MBIA Inc., through its subsidiaries, is a leading provider of financial guarantee products and specialized financial services. MBIA provides innovative and cost-effective products and services that meet the credit enhancement, financial and investment needs of its public- and private-sector clients worldwide. MBIA manages its activities primarily through three principal business operations: insurance, investment management services and municipal services. The Company’s reportable segments within its business operations are determined based on the way management assesses the performance and resource requirements of such operations.

9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MBIA Inc. and Subsidiaries

The insurance operations provide an unconditional and irrevocable guarantee of the payment of principal and interest on insured obligations when due. MBIA issues financial guarantees for municipal bonds, asset-backed and mortgage-backed securities, investor-owned utility bonds, bonds backed by publicly or privately funded public-purpose projects, bonds issued by sovereign and sub-sovereign entities, obligations collateralized by diverse pools of corporate loans and credit default swaps and pools of corporate and asset-backed bonds, both in the new issue and secondary markets. The Company views its insurance operations as a reportable segment. This segment includes all activities related to global credit enhancement services provided principally by MBIA Insurance Corporation and its subsidiaries (MBIA Corp.).

The Company’s investment management services operations provide an array of products and services to the public, not-for-profit and corporate sectors. Such products and services are provided primarily through wholly owned subsidiaries of MBIA Asset Management, LLC (MBIA-AML) and include cash management, discretionary asset management and fund administration services and investment agreement, medium-term note and commercial paper programs related to the origination of assets for investment purposes. The investment management services operations’ reportable segments are comprised of asset/liability products, which include investment agreements and medium-term notes (MTNs) not related to the conduit programs, advisory services and conduits. During the second quarter of 2004, the Company completed the sale of the assets of 1838 Investment Advisors, LLC (1838), the Company’s equity advisory services segment. This segment is reported as a discontinued operation for the quarter ended March 31, 2004.

The Company’s municipal services operations provide revenue enhancement services and products to public-sector clients nationwide consisting of discovery, audit, collections/recovery and information services through MBIA MuniServices and its wholly owned subsidiaries. Additionally, the municipal services operations include Capital Asset Holdings GP, Inc. and certain affiliated entities, a servicer of delinquent tax certificates. The Company views its municipal services operations as a reportable segment.

The Company’s corporate operations include investment income, interest expense and general expenses that relate to general corporate activities and not to one of the Company’s three principal business operations. The Company views its corporate operations as a reportable segment.

Reportable segment results are presented net of material intersegment transactions. Transactions between the Company’s segments are executed at an arm’s length basis, as

10

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MBIA Inc. and Subsidiaries

established by management. The following table summarizes the Company’s operations for the three months ended March 31, 2005 and 2004:

	Three months ended March 31, 2005
In thousands	Insurance			Investment Management Services			Municipal Services			Corporate			Total
Revenues(a)	$	331,809		$	186,235		$	5,536		$	7,927		$	531,507
Net realized gains (losses)		211			3,194			(85	)		(1,608	)		1,712
Net gains (losses) on derivative instruments and foreign exchange		(6,075	)		11,178			130			—			5,233
Total revenues		325,945			200,607			5,581			6,319			538,452
Interest expense		—			149,418			—			22,021			171,439
Operating expenses		65,844			14,377			5,405			3,681			89,307
Total expenses		65,844			163,795			5,405			25,702			260,746
Net income (loss) before taxes	$	260,101		$	36,812		$	176		$	(19,383	)	$	277,706
Identifiable assets(b)	$	12,383,851		$	21,043,648		$	23,370		$	305,796		$	33,756,665
	Restated
	Three months ended March 31, 2004
In thousands	Insurance			Investment Management Services			Municipal Services			Corporate			Total
Revenues(a)	$	329,576		$	121,460		$	5,959		$	2,120		$	459,115
Net realized gains (losses)		46,293			(1,817	)		(5	)		(220	)		44,251
Net gains (losses) on derivative instruments and foreign exchange		1,070			(11,733	)		—			—			(10,663	)
Total revenues		376,939			107,910			5,954			1,900			492,703
Interest expense		—			91,035			—			17,774			108,809
Operating expenses		62,551			18,587			5,854			5,890			92,882
Total expenses		62,551			109,622			5,854			23,664			201,691
Net income (loss) before taxes	$	314,388		$	(1,712	)	$	100		$	(21,764	)	$	291,012
Identifiable assets(b)	$	13,463,614		$	16,798,965		$	24,264		$	558,124		$	30,844,967

^(a) Represents the sum of net premiums earned, net investment income, advisory fees, investment management fees and other fees.

^(b) At March 31, 2005, there were no assets associated with the Company’s discontinued operations. At March 31, 2004, identifiable assets related to the Company’s discontinued operations were $24.6 million.

11

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MBIA Inc. and Subsidiaries

The following table summarizes the segments within the investment management services operations for the three months ended March 31, 2005 and 2004:

	Three months ended March 31, 2005
In thousands	Asset/ Liability Products			Advisory Services			Conduits			Eliminations			Total Investment Management Services
Revenues(a)	$	130,654		$	12,975		$	46,458		$	(3,852	)	$	186,235
Net realized gains (losses)		3,197			(3	)		—			—			3,194
Net gains (losses) on derivative instruments and foreign exchange		(3,403	)		(9	)		14,590			—			11,178
Total revenues		130,448			12,963			61,048			(3,852	)		200,607
Interest expense		109,008			267			40,143			—			149,418
Operating expenses		6,892			7,602			3,700			(3,817	)		14,377
Total expenses		115,900			7,869			43,843			(3,817	)		163,795
Net income (loss) before taxes	$	14,548		$	5,094		$	17,205		$	(35	)	$	36,812
Identifiable assets	$	14,669,279		$	56,772		$	6,697,527		$	(379,930	)	$	21,043,648
	Three months ended March 31, 2004
In thousands	Asset/ Liability Products			Advisory Services			Conduits			Eliminations			Total Investment Management Services
Revenues(a)	$	90,713		$	12,199		$	22,005		$	(3,457	)	$	121,460
Net realized gains (losses)		(1,460	)		(357	)		—			—			(1,817	)
Net gains (losses) on derivative instruments and foreign exchange		(3,562	)		36			(8,207	)		—			(11,733	)
Total revenues		85,691			11,878			13,798			(3,457	)		107,910
Interest expense		73,688			—			17,347			—			91,035
Operating expenses		8,521			8,456			4,679			(3,069	)		18,587
Total expenses		82,209			8,456			22,026			(3,069	)		109,622
Net income (loss) before taxes	$	3,482		$	3,422		$	(8,228	)	$	(388	)	$	(1,712	)
Identifiable assets	$	10,746,178		$	31,030		$	6,310,001		$	(288,244	)	$	16,798,965

^(a) Represents the sum of interest income, investment management services fees and other fees.

12

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MBIA Inc. and Subsidiaries

An increasingly significant portion of premiums reported within the insurance segment is generated outside the United States. The following table summarizes net premiums earned by geographic location of risk for the three months ended March 31, 2005 and 2004:

	March 31,
In thousands	2005		Restated 2004
Total premiums earned:
United States	$	155,441	$	156,795
Non-United States		50,797		45,075
Total	$	206,238	$	201,870

NOTE 6: LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES

Loss and LAE reserves are established in an amount equal to the Company’s estimate of unallocated losses, identified or case basis reserves and costs of settlement and other loss mitigation expenses on obligations it has insured. A summary of the unallocated and case basis activity and the components of the liability for loss and LAE reserves for the first quarter of 2005 are shown in the following table:

In thousands	2005
Case basis loss and LAE reserves:
Balance at January 1	$	434,924
Less: reinsurance recoverable		33,734
Net balance at January 1		401,190
Case basis transfers from unallocated loss reserve related to:
Current year		2,569
Prior years		16,935
Total		19,504
Paid (recovered) related to:
Current year		(4,231	)
Prior years		(5,034	)
Total paid (recovered)		(9,265	)
Net balance at March 31		429,959
Plus: reinsurance recoverable		33,202
Case basis reserve balance at March 31		463,161
Unallocated loss reserve:
Balance at January 1		291,693
Losses and LAE incurred(1)		20,385
Channel Re elimination(2)		(172	)
Transfers to case basis and LAE reserves		(19,504	)
Unallocated loss reserve balance at March 31		292,402
Total	$	755,563

⁽¹⁾ Represents the Company’s provision for losses calculated as 12% of scheduled net earned premium.

⁽²⁾ Represents the amount of losses and LAE incurred that have been eliminated in proportion to MBIA’s ownership interest in Channel Reinsurance Ltd. (Channel Re), which is carried on an equity method accounting basis.

13

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MBIA Inc. and Subsidiaries

Case basis activity transferred from the Company’s unallocated loss reserve was approximately $19 million in the first quarter of 2005 and primarily consisted of additional loss reserves for MBIA’s guaranteed tax lien portfolios, insured obligations issued by Fort Worth Osteopathic Hospital and Allegheny Health, Education and Research Foundation (AHERF). Unallocated loss reserves approximated $293 million at March 31, 2005, which represent the Company’s estimate of losses associated with credit deterioration that has occurred in the Company’s insured portfolio and are available for future case-specific activity. The Company recorded $20 million in loss and loss adjustment expenses in the first quarter of 2005 based on 12% of scheduled net earned premium. See “Note 3: Significant Accounting Policies” in the Notes to Consolidated Financial Statements included in the Company’s Form 10-K for the year ended December 31, 2004 for a description of the Company’s loss reserving policy.

NOTE 7: Contingencies

On March 9, 2005, the Company received a subpoena from the U.S. Attorney’s Office for the Southern District of New York (U.S. Attorney) seeking information related to the reinsurance agreements it entered into in connection with the AHERF loss. On March 30, 2005, the Company received additional requests from the Securities and Exchange Commission (SEC) and the New York Attorney General’s office (NYAG) that supplement the subpoenas it received in late 2004. The requests seek documents relating to the Company’s accounting treatment of advisory fees, its methodology for determining loss reserves and case reserves, instances of purchases of credit default protection on itself and documents relating to Channel Re, a reinsurance company of which the Company is part owner. The requests cover the period January 1, 2000 to the present. The Company is cooperating fully with the requests from the SEC, the NYAG and the U.S. Attorney.

Several class action lawsuits have been filed in the United States District Court for the Southern District of New York against the Company and certain of its officers. The Company expects that additional lawsuits may be filed. No time currently is set for the Company to respond to the complaints filed with respect to such lawsuits.

14

MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations

FORWARD-LOOKING AND CAUTIONARY STATEMENTS

This quarterly report of MBIA Inc. (MBIA or the Company) includes statements that are not historical or current facts and are “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The words “believe,” “anticipate,” “project,” “plan,” “expect,” “intend,” “will likely result,” “looking forward” or “will continue,” and similar expressions identify forward-looking statements. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. MBIA cautions readers not to place undue reliance on any such forward-looking statements, which speak only to their respective dates. The following are some of the factors that could affect financial performance or could cause actual results to differ materially from estimates contained in or underlying the Company’s forward-looking statements:

• fluctuations in the economic, credit, interest rate or foreign currency environment in the United States (U.S.) and abroad;

• level of activity within the national and international credit markets;

• competitive conditions and pricing levels;

• legislative or regulatory developments;

• technological developments;

• changes in tax laws;

• the effects of mergers, acquisitions and divestitures; and

• uncertainties that have not been identified at this time.

The Company undertakes no obligation to publicly correct or update any forward-looking statement if it later becomes aware that such results are not likely to be achieved.

OVERVIEW

MBIA Inc., through its subsidiaries, is a leading provider of financial guarantee products and specialized financial services. MBIA provides innovative and cost-effective products and services that meet the credit enhancement, financial and investment needs of its public- and private-sector clients worldwide. MBIA manages these activities through three principal business operations:

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MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations

insurance, investment management services and municipal services. The Company’s corporate operations include revenues and expenses that arise from general corporate activities and not from one of the Company’s three principal business operations. Results of operations included herein are presented in accordance with accounting principles generally accepted in the United States of America (GAAP).

RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS

As reported in the Company’s Form 10-K for the year ended December 31, 2004, the Company restated its previously issued consolidated financial statements for 1998 and subsequent years to correct the accounting treatment for two reinsurance agreements entered into in 1998. The following table presents the effects of the restatement on the consolidated financial statements of the Company for the quarter ended March 31, 2004.

	As of and For the Quarter Ended March 31, 2004
In thousands except per share information	Previously Reported		Restated
Consolidated Statement of Income Data:
Net premiums written	$	169,729	$	173,961
Scheduled premiums earned		160,280		161,994
Refunding premiums earned		39,542		39,876
Premiums earned		199,822		201,870
Insurance revenues		374,891		376,939
Losses and loss adjustment expenses		19,234		19,439
Operating expenses		27,172		27,526
Insurance income		312,899		314,388
Income from continuing operations before income taxes		289,523		291,012
Provision for income taxes		81,903		82,424
Income from continuing operations		207,620		208,588
Net income	$	207,649	$	208,617
Basic EPS:
Income from continuing operations	$	1.45	$	1.45
Net income	$	1.45	$	1.45
Diluted EPS:
Income from continuing operations	$	1.42	$	1.42
Net income	$	1.42	$	1.42
Consolidated Balance Sheet Data:
Prepaid reinsurance premiums	$	523,726	$	452,576
Total assets		30,940,671		30,869,521
Loss and loss adjustment expense reserves		754,848		761,539
Current income taxes		71,046		60,395
Deferred income taxes, net		605,367		585,922
Other liabilities		364,069		372,218
Total liabilities		24,387,237		24,371,981
Retained earnings		4,766,412		4,710,518
Shareholders’ equity	$	6,553,434	$	6,497,540

The following information presented in Management’s Discussion and Analysis of Financial Condition and Results of Operations gives effect to the restatement.

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MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations

RESULTS OF OPERATIONS

SUMMARY OF CONSOLIDATED RESULTS

The following table presents highlights of the Company’s consolidated financial results for the first three months of 2005 and 2004. Items listed under “Other per share information (effect on net income)” are items that management commonly identifies for the readers of its financial statements because they are the result of changes in accounting standards, a by-product of the Company’s operations or due to general market conditions beyond the control of the Company.

	1st Quarter
In millions except per share amounts	2005		Restated 2004
Revenues:
Insurance	$	326	$	377
Investment management services		201		108
Municipal services		6		6
Corporate		6		2
Revenues from continuing operations		539		493
Expenses:
Insurance		66		63
Investment management services		164		110
Municipal services		5		6
Corporate		26		23
Expenses from continuing operations		261		202
Provision for income taxes		77		82
Income from continuing operations, net of tax		201		209
Income from discontinued operations, net of tax		0		0
Net income	$	201	$	209
Net income per share information:*
Net income	$	1.43	$	1.42
Other per share information (effect on net income):
Accelerated premium earned from refunded issues	$	0.16	$	0.16
Net realized gains	$	0.01	$	0.20
Net gains (losses) on derivative instruments and foreign exchange	$	0.02	$	(0.05	)

* All per share calculations are diluted.

17

MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations

Consolidated revenues for the first three months of 2005 were $539 million compared to $493 million in 2004, a 9% increase. The growth in consolidated revenues was primarily due to an increase in investment management services’ interest income and unrealized gains on derivative instruments. Offsetting the increase in investment management services’ revenues was a 14% decrease in insurance revenues as a result of substantially less realized gains from sales of investment securities. Consolidated expenses for the first three months of 2005 were $261 million compared with $202 million in 2004, a 29% increase. This increase was principally due to an increase in investment management services’ interest expense, which was commensurate with the increase in interest income. Net income for the first quarter of 2005 of $201 million was down 4% from $209 million in 2004. However, net income per share was 1% above the first quarter of 2004 due to a decrease in diluted weighted average shares outstanding resulting from share repurchases made by the Company.

The Company’s book value at March 31, 2005 was $47.18 per share, down slightly from $47.20 at December 31, 2004. Book value remained relatively unchanged as the effect of income from operations was offset by the effect of repurchasing shares into treasury stock at prices above the Company’s book value per share and a decrease in the unrealized appreciation of investments.

INSURANCE OPERATIONS

The Company’s insurance operations are principally comprised of the activities of MBIA Insurance Corporation and its subsidiaries (MBIA Corp.). MBIA Corp. issues financial guarantees for municipal bonds, asset-backed and mortgage-backed securities, investor-owned utility bonds, bonds backed by publicly or privately funded public purpose projects, bonds issued by sovereign and sub-sovereign entities, obligations collateralized by diverse pools of corporate loans and credit default swaps and pools of corporate and asset-backed bonds, both in the new issue and secondary markets.

The municipal obligations that MBIA Corp. insures include tax-exempt and taxable indebtedness of states, counties, cities, utility districts and other political subdivisions, as well as airports, higher education and healthcare facilities and similar authorities and obligations issued by private entities that finance projects that serve a substantial public purpose. The asset-backed and structured finance obligations insured by MBIA Corp. typically consist of securities that are

18

MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations

payable from or which are tied to the performance of a specified pool of assets that, in most cases, have a defined cash flow. Securities of this type include residential and commercial mortgages, a variety of consumer loans, corporate loans and bonds, trade and export receivables, aircraft, equipment and real property leases, and infrastructure projects.

Revenues from the Company’s insurance operations decreased 14% in the first quarter of 2005 to $326 million from $377 million in the first quarter of 2004. The decline in insurance operations’ revenues was primarily the result of a $46 million decrease in net gains from sales of investment securities. Additionally, the Company reported $6 million of net losses on derivative instruments and foreign exchange in 2005 versus a net gain of $1 million in 2004. Insurance expenses, which consist of loss and loss adjustment expenses, amortization of deferred acquisition costs and operating expenses, increased 5% in the first quarter of 2005 compared with the same period in 2004. Loss and loss adjustment expenses and the amortization of deferred acquisition costs both increased 5% and operating expenses increased 6%. Gross insurance expenses (expenses before the deferral or amortization of acquisition costs) increased 4% in the first quarter of 2005 compared with the first quarter of 2004.

The Company’s gross premiums written (GPW), net premiums written (NPW) and net premiums earned for the first quarter of 2005 and 2004 are presented in the following table:

	1st Quarter			Percent Change
			Restated
In millions	2005		2004	2005 vs. 2004
Gross premiums written:
U.S.	$	214	$132	63	%
Non-U.S.		69	73	(6	)%
Total	$	283	$205	38	%
Net premiums written:
U.S.	$	201	$116	73	%
Non-U.S.		46	58	(21	)%
Total	$	247	$174	42	%
Net premiums earned:
U.S.	$	155	$157	(1	)%
Non-U.S.		51	45	13	%
Total	$	206	$202	2	%

GPW reflects premiums received and accrued for in the period and does not include the present value of future cash receipts expected from installment premium policies originated

19

MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations

during the period. GPW was $283 million in the first quarter of 2005, up 38% from the first quarter of 2004, and reflects a 63% increase in U.S. business written.

NPW of $247 million, which represents gross premiums written net of premiums ceded to reinsurers, increased 42% in the first quarter of 2005 compared with the first quarter of 2004. The larger increase in NPW relative to GPW reflects a decline in the percent of premiums ceded to reinsurers. Premiums ceded to reinsurers totaled $36 million or 13% and $31 million or 15% in the first quarter of 2005 and 2004, respectively. Reinsurance enables the Company to cede exposure and comply with its single risk and credit guidelines, although the Company continues to be primarily liable on the insurance policies it underwrites.

Net premiums earned include scheduled premium earnings as well as premium earnings from refunded issues. Net premiums earned in the first quarter of 2005 of $206 million increased 2% over the first quarter of 2004 due to a 5% increase in scheduled premiums earned partly offset by a 9% decrease in refunded premiums earned. The increase in scheduled premiums earned was a result of growth in new business written in past years, as well as a decline in the use of reinsurance. The decrease in refunded premiums earned resulted from a slow down in refinancing activity in the municipal market.

MBIA evaluates the premium rates it receives for insurance guarantees through the use of internal and external rating agency quantitative models. These models assess the Company’s premium rates and return on capital results on a risk adjusted basis. In addition, market research data is used to evaluate pricing levels across the financial guarantee industry for comparable risks. The Company’s pricing levels indicate continued acceptable trends in overall portfolio profitability under all models, and the Company believes the pricing charged for its insurance products produces results that meet its long-term return on capital targets.

When an MBIA-insured obligation is refunded or retired early, the related remaining deferred premium revenue is earned at that time. The level of bond refundings and calls is influenced by a variety of factors such as prevailing interest rates, the coupon rate of the bond issue, the issuer’s desire or ability to modify bond covenants and applicable regulations under the Internal Revenue Code.

CREDIT QUALITY Financial guarantee companies use a variety of approaches to assess the underlying credit risk profile of their insured portfolios. MBIA uses both an internally developed credit rating system as well as third-party rating sources in the analysis of credit quality measures of its insured portfolio. In evaluating credit risk, the Company obtains, when available, the underlying rating of each insured obligation before the benefit of its insurance policy from

20

MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations

nationally recognized rating agencies (Moody’s Investors Service (Moody’s), Standard and Poor’s (S&P) and Fitch Ratings). All references to insured credit quality distributions contained herein reflect the underlying rating levels from these third-party sources. Other companies within the financial guarantee industry may report credit quality information based upon internal ratings that would not be comparable to MBIA’s presentation.

The credit quality of business insured during the first quarter of 2005 remained relatively high as 79% of total insured credits were rated A or above before giving effect to MBIA’s guarantee, compared to 80% in the first quarter of 2004. At March 31, 2005, 81% of the Company’s outstanding book of business was rated A or above before giving effect to MBIA’s guarantee, up from 78% at March 31, 2004.

GLOBAL PUBLIC FINANCE MARKET MBIA’s premium writings and premium earnings in both the new issue and secondary global public finance markets are shown in the following table:

	1st Quarter			Percent Change
Global Public Finance In millions	2005		Restated 2004	2005 vs. 2004
Gross premiums written:
U.S.	$	149	$  57	160	%
Non-U.S.		30	30	0	%
Total	$	179	$  87	106	%
Net premiums written:
U.S.	$	146	$  53	178	%
Non-U.S.		19	26	(28	)%
Total	$	165	$  79	110	%
Net premiums earned:
U.S.	$	101	$104	(2	)%
Non-U.S.		23	18	29	%
Total	$	124	$122	2	%

Global public finance GPW increased 106% to $179 million in the first quarter of 2005 from $87 million in the first quarter of 2004. This increase is due to strong growth in U.S. business written, primarily within the transportation sector. NPW increased 110% to $165 million as a result of the increase in U.S. GPW and the effect of ceding less premiums to reinsurers. In the first quarter of 2005, global public finance net premiums earned increased 2% to $124 million from $122 million in the first quarter of 2004. This growth reflects earnings generated from

21

MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations

increased levels of non-U.S. business written over the last several years and a declining cession rate, offset by a 9% decrease in refunded premiums earned primarily from U.S. business.

The credit quality of global public finance business written by the Company in the first quarter of 2005 remained high. Insured credits rated A or above before the Company’s guarantee represented 92% of global public finance business written in 2005, compared with 97% in the first three months of 2004. At March 31, 2005, 82% of the outstanding global public finance book of business was rated A or above before the Company’s guarantee, up from 81% at March 31, 2004.

GLOBAL STRUCTURED FINANCE MARKET MBIA’s premium writings and premium earnings in both the new issue and secondary global structured finance markets are shown in the following table:

	1st Quarter			Percent Change
Global Structured Finance In millions	2005		Restated 2004	2005 vs. 2004
Gross premiums written:
U.S.	$	65	$  75	(12	)%
Non-U.S.		39	43	(11	)%
Total	$	104	$118	(12	)%
Net premiums written:
U.S.	$	55	$  63	(13	)%
Non-U.S.		27	32	(15	)%
Total	$	82	$  95	(14	)%
Net premiums earned:
U.S.	$	54	$  53	2	%
Non-U.S.		28	27	2	%
Total	$	82	$  80	2	%

Global structured finance GPW decreased 12% in the first quarter of 2005 to $104 million from $118 million in the first quarter of 2004 as a result of decreases in U.S. and non-U.S. business written. The global structured finance sector continues to be adversely impacted by increased competition, tight spreads and greater investor demand for uninsured transactions. Similarly, NPW decreased 14% due to the decrease in GPW and slightly higher cession rates on U.S. and non-U.S. business written. In the first quarter of 2005, global structured finance net premiums earned of $82 million increased 2% over the first quarter of 2004. This increase was

22

MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations

driven by higher levels of new business written over the last two years and a declining cession rate.

The credit quality of MBIA’s global structured finance insured business written rated A or above, before giving effect to the Company’s guarantee, was 64% in the first quarter of 2005, up from 56% in the first quarter of 2004. At March 31, 2005, 77% of the outstanding global structured finance book of business was rated A or above before giving effect to the Company’s guarantee, up from 73% at March 31, 2004.

INVESTMENT INCOME The Company’s insurance-related net investment income and ending asset balances at amortized cost for the first three months of 2005 and 2004 are presented in the following table:

					Percent Change
In millions	2005		2004		2005 vs. 2004
Pre-tax income	$	119	$	122	(2	)%
After-tax income	$	95	$	95	(1	)%
Ending asset balances at amortized cost	$	9,360	$	9,229	1	%

The Company’s insurance-related net investment income, excluding net realized gains, decreased 2% to $119 million in the first quarter of 2005 from $122 million in the first quarter of 2004. After-tax net investment income decreased 1% compared with 2004. Growth in investment income has been unfavorably affected by the low interest rate environment and a substantial increase in dividends paid by MBIA Corp. to MBIA Inc. during 2004, which resulted in only a 1% increase in the insurance portfolio’s ending asset balance at amortized cost from March 31, 2004 to March 31, 2005.

ADVISORY FEES The Company collects advisory fees in connection with certain transactions. Depending upon the type of fee received and whether it is related to an insurance policy, the fee is either earned when it is due or deferred and earned over the life of the related transaction. Work, waiver and consent, termination, administrative and management fees are earned when the related services are completed. Structuring fees are earned on a straight-line basis over the life of the related insurance policy and commitment fees are earned on a straight-line basis over the commitment period.

In the first quarter of 2005, advisory fee revenues increased 10% to $6.4 million from $5.9 million in the first quarter of 2004. The increase in advisory fees was primarily due to the

23

MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations

amortization of a commitment fee received in the second quarter of 2004 partially offset by lower management and termination fees received and earned in 2005. Due to the transaction-specific nature inherent in advisory fees, fee income can vary significantly from period to period.

NET GAINS AND LOSSES Net realized gains from investment securities in the insurance operations were $0.2 million in the first quarter of 2005 compared to $46 million in the first quarter of 2004. The decrease was largely due to a $44 million realized gain resulting from the sale of a common stock investment in the first quarter of 2004 held by MBIA Corp. Net gains (losses) on derivative instruments and foreign exchange from the insurance operations were net losses of $6 million in the first quarter of 2005 compared to net gains of $1 million in the first quarter of 2004. The change was largely due to $8 million of foreign currency losses recorded in 2005 related to non-U.S. dollar holdings and securities sales.

LOSSES AND LOSS ADJUSTMENT EXPENSES (LAE) The following table shows the case-specific, reinsurance recoverable and unallocated components of the Company’s total loss and LAE reserves at the end of the first quarter of 2005 and 2004, as well as its loss provision and loss ratio for the first quarter of 2005 and 2004.

	March 31,					Percent Change
In millions	2005			Restated 2004		2005 vs. 2004
Case-specific:
Gross	$	463		$420		10	%
Reinsurance recoverable on unpaid losses		33		42		(22	)%
Net case reserves	$	430		$378		14	%
Unallocated		293		342		(15	)%
Net loss and LAE reserves	$	723		$720		0	%
Gross loss and LAE reserves	$	756		$762		(1	)%
Losses and LAE (1)	$	20		$  19		5	%
Loss ratio (2)		9.9	%	9.6	%

⁽¹⁾ Calculated as 12% of scheduled net earned premium.

⁽²⁾ Calculated as losses and LAE divided by total net earned premium. This ratio differs from the Company’s loss factor of 12% as total net earned premium includes premium earnings that have been accelerated as a result of the refunding or defeasance of insured obligations, while the loss factor is applied only to scheduled net earned premium.

The Company recorded $20 million in loss and loss adjustment expenses in the first quarter of 2005, a 5% increase compared to $19 million in the first quarter of 2004. This increase was a

24

MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations

direct result of growth in scheduled net earned premium, as scheduled net earned premium is the base upon which the 12% loss factor is applied. At March 31, 2005, the Company had $293 million in unallocated loss reserves, which represent the Company’s estimate of losses associated with credit deterioration that has occurred in the Company’s insured portfolio and are available for future case-specific activity. Total case basis activity transferred from the Company’s unallocated loss reserve was $19 million and $14 million in the first quarter of 2005 and 2004, respectively. Case basis activity during the first quarter of 2005 primarily consisted of additional loss reserves for MBIA’s guaranteed tax lien portfolios, insured obligations issued by Fort Worth Osteopathic Hospital and Allegheny Health, Education and Research Foundation.

MBIA’s Insured Portfolio Management (IPM) Division is responsible for monitoring MBIA insured issues. The level and frequency of MBIA’s monitoring of any insured issue depends on the type, size, rating and performance of the insured issue. If IPM identifies concerns with respect to the performance of an insured issue it may designate such insured issue as “Caution List-Low,” “Caution List-Medium” or “Caution List-High.” The designation of any insured issue as “Caution List-Medium” or “Caution List-High” is based on the nature and extent of these concerns and requires that an increased monitoring and, if needed, a remediation plan be implemented for the related insured issue.

In the event MBIA determines that it must pay a claim or that a claim is probable and estimable with respect to an insured issue, it places the issue on its “Classified List” and establishes a case basis reserve for that insured issue. As of March 31, 2005, MBIA had 39 open case basis issues on its “Classified List” that had $430 million in aggregate case reserves, net of reinsurance. The Company does not establish any case basis reserves for issues that are listed as “Caution List-Low,” “Caution List-Medium” or “Caution List-High” until such issues are placed on the Company’s “Classified List.”

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MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations

Included in the Company’s case basis reserves are both loss reserves for insured obligations for which a payment default has occurred and MBIA has already paid a claim and also for which a payment default has not yet occurred but a claim is probable and estimable in the future. Such amounts as of March 31, 2005 are as follows:

Dollars in millions	Number of Case Basis Issues	Loss Reserve	Par Outstanding
Gross of reinsurance:
Issues with defaults	31	$378	$1,032
Issues without defaults	8	85	1,955
Total gross	39	$463	$2,987
Net of reinsurance:
Issues with defaults	31	$362	$   994
Issues without defaults	8	68	1,746
Total net	39	$430	$2,740

When MBIA becomes entitled to a reimbursement of a claim payment under salvage and subrogation rights, it records the amount that it estimates it will recover as salvage and subrogation as an asset. Such amounts are included in the Company’s balance sheet within “Other assets.” As of March 31, 2005 and 2004, the Company had recorded salvage and subrogation of $157 million and $139 million, respectively.

As a result of discussions in January and February 2005 between the Securities and Exchange Commission (SEC) staff and several financial guarantee industry participants, including MBIA, the Company understands that the Financial Accounting Standards Board (FASB) staff is considering whether additional guidance with respect to accounting for financial guarantee insurance should be provided. The Company cannot currently assess how the FASB’s and SEC staff’s ultimate resolution of this issue will impact its loss reserving policy or the effect it might have on recognizing premium revenue and policy acquisition costs. Until the issue is resolved, the Company intends to continue to apply its existing policy with respect to the establishment of both case basis and unallocated loss reserves. A description of the Company’s loss reserving policy is included in “Note 3: Significant Accounting Policies” in the Notes to Consolidated Financial Statements included in the Company’s Form 10-K for the year ended December 31, 2004.

RISK MANAGEMENT In an effort to mitigate losses, MBIA is regularly involved in the ongoing remediation of credits that may involve, among other things, waivers or renegotiations of financial covenants or triggers, waivers of contractual provisions, the granting of consents, and the taking of various other remedial actions. The nature of any remedial action is based on the type of the insured issue and the nature and scope of the event giving rise to the remediation. In most cases, as part of any such remedial activity, MBIA is able to improve its security position and to obtain concessions from the issuer of the insured bonds. From time to time, the issuer of

26

MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations

an MBIA-insured obligation may, with the consent of MBIA, restructure the insured obligation by extending the term, increasing or decreasing the par amount or decreasing the related interest rate with MBIA insuring the restructured obligation. If, as the result of the restructuring, MBIA estimates that it will suffer an ultimate loss on the restructured obligation, MBIA will record a case basis loss reserve for the restructured obligation or, if it has already recorded a case basis loss reserve, it will re-evaluate the impact of the restructuring on the recorded reserve and adjust the amount of the reserve accordingly.

REINSURANCE Reinsurance enables the Company to cede exposure for purposes of increasing its capacity to write new business while complying with its single risk and credit guidelines. The rating agencies continuously review reinsurers providing coverage to the financial guarantee industry. Many of MBIA’s reinsurers have been downgraded over the past several years, and others remain under review. When a reinsurer is downgraded, less capital credit is given to MBIA under rating agency models. Reduced capital credit associated with reinsurer downgrades has not and is not expected to have a material adverse effect on the Company. The Company generally retains the right to reassume the business ceded to reinsurers under certain circumstances, including the downgrade of the reinsurers. The Company remains liable on a primary basis for all reinsured risks, and although the Company believes that its reinsurers remain capable of meeting their obligations, there can be no assurance that the reinsurers will be able to meet these obligations.

As of March 31, 2005, the aggregate amount of insured par ceded by MBIA to reinsurers was $84.7 billion. The following table shows the percentage ceded to and reinsurance recoverable from reinsurers by S&P’s rating levels:

Reinsurers’ S&P Rating Range	Percent of Total Par Ceded		Reinsurance Recoverable (in thousands)
AAA	76.67	%	$	11,014
AA	12.38	%		8,638
A	10.86	%		13,226
Not Currently Rated	0.08	%		324
Non-Investment Grade	0.01	%		—
Total	100	%	$	33,202

The top two reinsurers within the AAA rating category represented approximately 55% of total par ceded by MBIA; the top two reinsurers within the AA rating category represented

27

MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations

approximately 8% of total par ceded by MBIA; and the top two reinsurers within the A rating category represented approximately 11% of total par ceded by MBIA.

POLICY ACQUISITION COSTS AND OPERATING EXPENSES Expenses that vary with and are primarily related to the production of the Company’s insurance business (policy acquisition costs) are deferred and recognized over the period in which the related premiums are earned. If an insured bond issue is refunded and the related premium is earned early, the associated acquisition costs previously deferred are also recognized early.

MBIA will recognize a premium deficiency if the sum of the expected loss and loss adjustment expenses, maintenance costs and unamortized policy acquisition costs exceed the related unearned premiums. If MBIA was to have a premium deficiency that is greater than unamortized acquisition costs, the unamortized acquisition costs would be reduced by a charge to expense and a liability would be established for any remaining deficiency. Although GAAP permits the inclusion of anticipated investment income when determining a premium deficiency, MBIA currently does not include this in making its determination.

The Company’s policy acquisition costs, operating expenses and total insurance operating expenses, as well as its expense ratio, are shown in the following table:

	1st Quarter						Percent Change
In millions	2005			Restated 2004			2005 vs. 2004
Gross expenses	$	63		$	60		4	%
Amortization of deferred acquisition costs	$	16		$	16		5	%
Operating expenses		29			28		6	%
Total insurance operating expenses	$	45		$	44		5	%
Expense ratio		22.0	%		21.4	%

In the first quarter of 2005, the amortization of deferred acquisition costs increased 5% over the first quarter of 2004, which was proportionately in line with the increase in the Company’s insurance premiums earned. The ratio of policy acquisition costs, net of deferrals, to earned premiums has remained steady at approximately 8% over the last several years. Operating expenses increased 6% from $28 million in the first quarter of 2004 to $29 million in the same period of 2005 largely due to higher premiums related to the renewal of directors and officers’ liability insurance, office maintenance and rent costs and loss prevention costs.

28

MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations

Financial guarantee insurance companies use the expense ratio (expenses divided by net premiums earned) as a measure of expense management. The Company’s expense ratio for the first quarter of 2005 was 22.0% compared to 21.4% in the first quarter of 2004. The increase in the ratio from 2004 to 2005 was the result of slower growth in premium earnings relative to the increase in expenses.

VARIABLE INTEREST ENTITIES The Company provides structured funding and credit enhancement services to global finance clients through the use of certain MBIA-administered, bankruptcy-remote special purpose vehicles (SPVs) and through third-party SPVs. Third-party SPVs are used in a variety of structures guaranteed or managed by MBIA, whereby the Company has risks analogous to those of MBIA-administered SPVs. The Company has determined that such SPVs fall within the definition of a variable interest entity (VIE) under FASB Interpretation No. (FIN) 46(R), “Consolidation of Variable Interest Entities (Revised).” Under the provisions of FIN 46(R), MBIA must determine whether it has a variable interest in a VIE and if so, whether that variable interest would cause MBIA to be the primary beneficiary. The primary beneficiary is the entity that will absorb the majority of the expected losses, receive the majority of the expected residual returns, or both, of the VIE and is required to consolidate the VIE.

In the third quarter of 2004, the Company began consolidating two VIEs established in connection with the Capital Asset Research Funding Series 1997A and Series 1998A tax lien securitizations to which the Company provided financial guarantees. The assets of these entities, which are principally reported within “Other assets” on MBIA’s consolidated balance sheet, totaled $13.3 million at March 31, 2005 and $16.8 million at December 31, 2004. Liabilities of the securitizations substantially represented amounts due to MBIA, which were eliminated in consolidation. Additionally, the Company began consolidating a third-party VIE in 2003 as a result of providing a financial guarantee to this entity. The assets and liabilities of this VIE are primarily reported in “Investments held-to-maturity” and “Variable interest entity floating rate notes,” respectively, on the face of the Company’s balance sheet and totaled approximately $600 million each at March 31, 2005 and December 31, 2004. Consolidation of such VIEs does not increase MBIA’s exposure above that already committed to in its insurance policies.

INVESTMENT MANAGEMENT SERVICES

The Company’s investment management services operations provide an array of products and services to the public, not-for-profit and corporate sectors. Such products and services are provided primarily through wholly owned subsidiaries of MBIA Asset Management, LLC

29

MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations

(MBIA-AML) and include cash management, discretionary asset management and fund administration services and investment agreement, medium-term note and commercial paper programs related to the origination of assets for investment purposes. The investment management services operations are comprised of asset/liability products, which include investment agreements and medium-term notes (MTNs) not related to the conduit programs, investment advisory services, which include third-party and related-party advisory services, and conduit programs. During the second quarter of 2004, the Company completed the sale of the assets of 1838 Investment Advisors, LLC (1838), which comprised the Company’s equity advisory services segment. This segment is reported as a discontinued operation for the quarter ended March 31, 2004.

Investment management services’ revenues for the first quarter of 2005 totaled $201 million, increasing 86% compared to the first quarter of 2004. Excluding net realized gains of $3 million and gains on derivative instruments and foreign exchange of $11 million, total revenues increased $65 million or 53% over the first quarter of 2004. This growth is primarily attributable to increased activity in the Company’s asset/liability products and conduit programs. Advisory Services’ revenues were favorable compared to the first quarter of 2004 due to an increase in new business. Total expenses in the first quarter of 2005 were $164 million, up 49% compared to the first quarter of 2004. This increase was primarily driven by higher interest expense from increased asset/liability products and conduit program activity, which was consistent with the growth in revenues, partially offset by a non-recurring reduction in compensation expenses.

Net realized gains from investment securities in the investment management services operations were $3 million in the first quarter of 2005 compared to net realized losses of $2 million in the first quarter of 2004. Realized gains and losses were generated from the ongoing active total return management of the investment portfolios. Net gains on derivative instruments and foreign exchange related to the investment management services operations were $11 million in the first quarter of 2005 compared to a net loss of $12 million in the first quarter of 2004. The net gains in 2005 were primarily generated from an increase in U.S. dollar interest rates resulting in higher market values on pay fixed/receive float U.S. dollar interest rate swaps associated with the conduit programs. Similarly, the net losses in 2004 were largely due to movements in interest rates on interest rate swaps associated with the conduit programs. These interest rate swaps economically hedge against interest rate movements but do not qualify for hedge accounting treatment under Statement of Financial Accounting Standards (SFAS)133, “Accounting for Derivative Instruments and Hedging Activities.”

30

MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations

Fixed-income ending assets under management as of March 31, 2005, which do not include conduit program assets, were $42 billion, 8% above the 2004 year-end level and 6% above the March 31, 2004 level. Conduit assets are held to their contractual maturity and are originated and managed differently from those held as available-for-sale by the Company or those managed for third parties. The following table summarizes the consolidated investment management services’ results and assets under management for the first quarter of 2005 and 2004:

						Percent Change
In millions	2005		2004			2005 vs. 2004
Interest and fees	$	187	$	122		53	%
Net realized gains (losses)		3		(2	)	276	%
Net gains (losses) on derivative instruments and foreign exchange		11		(12	)	195	%
Total revenues		201		108		86	%
Interest expense		150		91		64	%
Operating expenses		14		19		(23	)%
Total expenses		164		110		49	%
Pre-tax income	$	37	$	(2	)	2,250	%
Ending assets under management:
Fixed-income	$	42,361	$	39,841		6	%

The following provides a summary of the results of each of the investment management services businesses by segment.

Asset/liability products’ pre-tax income, excluding realized gains and derivative and foreign currency losses, totaled $15 million in the first quarter of 2005 compared to $9 million in the first quarter of 2004, resulting in an increase of 73%. At March 31, 2005, principal and accrued interest outstanding on investment agreement and medium-term note obligations and securities sold under agreements to repurchase totaled $14 billion compared to $13 billion at December 31, 2004. Assets supporting these agreements had market values of $14 billion and $13 billion at March 31, 2005 and December 31, 2004, respectively. These assets are comprised of high quality securities with an average credit quality rating of Double-A.

Advisory services’ pre-tax income, excluding realized losses and derivative and foreign currency losses, totaled $5 million in the first quarter of 2005 compared to $4 million in the first quarter of 2004. The increase is primarily due to new business volume from new and existing

31

MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations

clients. Third-party ending assets under management were $18 billion and $16 billion at March 31, 2005 and December 31, 2004, respectively. The market values of assets related to the Company’s insurance and corporate investment portfolios managed by the investment management services operations at March 31, 2005 were $10 billion, consistent with the balance at December 31, 2004.

Conduit program pre-tax income, excluding derivative and foreign currency gains, totaled $3 million in the first quarter of 2005 compared to a break-even result in the first quarter of 2004. Certain of MBIA’s consolidated subsidiaries have invested in MBIA’s conduit debt obligations or have received compensation for services provided to MBIA’s conduits. As such, MBIA has eliminated intercompany transactions with its conduits from its balance sheet and income statement. After the elimination of such intercompany assets and liabilities, conduit investments and conduit debt obligations were $6.5 billion and $6.1 billion, respectively at March 31, 2005. The difference between the investments and debt obligations is primarily the result of the elimination of conduit debt owned by other MBIA subsidiaries. The effect of the elimination on the Company’s consolidated balance sheet is a reduction of fixed-maturity investments with a corresponding reduction of medium-term notes.

Typically, conduit programs involve the use of rating agencies in assessing the quality of asset purchases and in assigning ratings to the various programs funded through the conduits. An underlying rating is the implied rating for the transaction without giving consideration to the MBIA guarantee. All transactions currently funded in the conduits had an underlying rating of at least investment grade by Moody’s and S&P prior to funding. The weighted average underlying rating for transactions currently funded in the conduits was A by S&P and A2 by Moody’s at the time such transactions were funded. MBIA estimates that the current weighted average underlying rating of all outstanding conduit transactions was A- by S&P and A2 by Moody’s as of March 31, 2005.

MUNICIPAL SERVICES

MBIA’s municipal services operations is consolidated under MuniServices Company (MBIA MuniServices) and provides revenue enhancement services and products to public-sector clients nationwide consisting of discovery, audit, collections/recovery and information (data) services. The municipal services operations also include Capital Asset Holdings GP, Inc. and certain affiliated entities (Capital Asset), a servicer of delinquent tax certificates.

32

MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations

In the first quarter of 2005, the municipal services operations reported pre-tax income of $0.2 million compared to pre-tax income of $0.1 million in the first quarter of 2004. Revenues decreased by 6% and expenses decreased by 8%, which were largely impacted by a decline in the delinquent tax certificate portfolio serviced by Capital Asset as a result of tax certificate redemptions.

CORPORATE

The corporate operations consist of net investment income, net realized gains and losses of holding company investment assets, interest expense and corporate expenses. The corporate operations incurred a loss of $19 million in the first quarter of 2005 compared to a $22 million loss in the same period of 2004.

Net investment income increased from $2 million in the first quarter of 2004 to $8 million in the first quarter of 2005. The increase was driven by substantially higher invested assets and a shift to longer term higher yielding investments. The increase in the invested assets resulted from additional debt issued by MBIA Inc. and dividends paid by MBIA Corp. to MBIA Inc. in the fourth quarter of 2004, somewhat offset by share repurchases of the Company’s common stock.

The corporate operations incurred $22 million of interest expense in the first quarter of 2005 compared to $18 million in the first quarter of 2004, a 24% increase. The increase in interest expense primarily resulted from the issuance of $350 million of debt, partially offset by the retirement of $50 million of debt, in the fourth quarter of 2004.

Corporate expenses of $4 million in the first quarter of 2005 decreased 38% from $6 million in the first quarter of 2004. The decrease is principally due to non-recurring costs incurred in the first quarter of 2004 associated with ASIA Ltd partly offset by additional legal and consulting costs incurred in the first quarter of 2005.

TAXES

MBIA’s tax policy is to optimize after-tax income by maintaining the appropriate mix of taxable and tax-exempt investments. However, the effective tax rate fluctuates from time to time as the Company manages its investment portfolio on an after-tax total return basis. The effective tax rate for the first quarter of 2005 was 27.8%, down from 28.3% for the first quarter of 2004, including tax related to discontinued operations.

33

MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations

CAPITAL RESOURCES

The Company carefully manages its capital resources to minimize its cost of capital while maintaining appropriate claims-paying resources to sustain its Triple-A claims-paying ratings. Capital resources are defined by the Company as total shareholders’ equity, long-term debt issued for general corporate purposes and various soft capital credit facilities. Total shareholders’ equity at March 31, 2005 was $6.4 billion, with total long-term debt at $1.3 billion. The Company uses debt financing to lower its overall cost of capital. MBIA maintains debt at levels it considers to be prudent based on its cash flow and total capital. The following table shows the Company’s long-term debt and the ratio used to measure it:

	March 31, 2005			December 31, 2004
Long-term debt (in millions)	$	1,325		$	1,333
Long-term debt to total capital		17	%		17	%

In August 1999, the Company announced that its board of directors had authorized the repurchase of 11.25 million shares of common stock of the Company, after adjusting for the 2001 stock split. The Company began the repurchase program in the fourth quarter of 1999. In July 2004, the Company completed the repurchase of all 11.25 million shares at an average price of $44.08 per share and received authorization from its board of directors to repurchase 1 million shares under a new repurchase program. On August 5, 2004, the Company’s board of directors authorized the repurchase of an additional 14 million shares of common stock in connection with the new repurchase program. As of March 31, 2005, the Company had repurchased a total of 7.6 million shares under the current plan at an average price of $57.43 per share, of which 3.5 million shares were repurchased in 2005 at an average price of $58.52 per share.

The Company has various soft capital credit facilities, such as lines of credit and equity-based facilities at its disposal, which further support its claims-paying resources. At March 31, 2005, MBIA Corp. maintained a $450 million limited recourse standby line of credit facility, reduced from $700 million at December 31, 2004, with a group of major Triple-A rated banks to provide funds for the payment of claims in excess of the greater of $500 million or 5% of average annual debt service with respect to public finance transactions. The agreement is for a ten-year term, amended from a seven-year term, which expires in March 2015.

MBIA Corp. has access to $400 million of Money Market Committed Preferred Custodial Trust securities (CPS securities) issued by eight trusts, which were created for the primary purpose of issuing CPS securities and investing the proceeds in high quality commercial paper or

34

MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations

short-term U.S. Government obligations. MBIA Corp. has a put option to sell to the trusts the perpetual preferred stock of MBIA Corp. If MBIA Corp. exercises its put option, the trusts will transfer the proceeds to MBIA Corp. in exchange for the preferred stock that will be held by the trusts. The trusts are vehicles for providing MBIA Corp. the opportunity to access new capital at its sole discretion through the exercise of the put options. The trusts are rated AA and Aa2 by S&P and Moody’s, respectively. To date, MBIA Corp. has not exercised its put options under any of these arrangements.

From time to time, MBIA accesses the capital markets to support the growth of its businesses. As such, MBIA filed a $500 million registration statement on Form S-3 with the SEC utilizing a “shelf” registration process. In November 2004, the Company completed its $350 million debt issuance of senior notes and currently has in effect a shelf registration with the SEC for $150 million. This shelf registration permits the Company to issue various debt and equity securities described in the prospectus filed as part of the registration statement.

LIQUIDITY

Cash flow needs at the parent company level are primarily for dividends to its shareholders and interest payments on its debt. Liquidity and operating cash requirements of the Company are met by its cash flows generated from operations, which were more than adequate in the first quarter of 2005. Management of the Company believes that cash flows from operations will be sufficient to meet the Company’s liquidity and operating cash requirements for the foreseeable future.

Cash requirements have historically been met by upstreaming dividend payments from MBIA Corp., which generates substantial cash flow from premium writings and investment income. In the first quarter of 2005, the Company’s operating cash flow from continuing operations totaled $275.0 million compared to $217.2 million in the first quarter of 2004. The majority of net cash provided by operating activities is generated from premium revenue and investment income in the Company’s insurance operations.

Under New York State insurance law, without prior approval of the superintendent of the state insurance department, financial guarantee insurance companies can pay dividends from earned surplus subject to retaining a minimum capital requirement. In MBIA Corp.’s case, dividends in any twelve-month period cannot be greater than 10% of policyholders’ surplus as shown on MBIA Corp.’s latest filed statutory financial statements.

35

MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations

In addition to its regular dividends, in the fourth quarter of 2004 MBIA Corp. declared and paid a special dividend of $375 million to MBIA Inc., which was approved by the New York State Department of Insurance. As a result of the payment of the special dividend and under the formula applicable to the payment of dividends, MBIA Corp. may not pay any dividends without prior approval by the New York State Department of Insurance until the fourth quarter of 2005. In the first quarter of 2005, MBIA Corp. requested approval for the payment of additional special dividends as its capital position continues to exceed both the capital required by New York State Insurance Law and the rating agencies for purposes of maintaining its Triple-A ratings. Approval by the New York State Department of Insurance is still pending on this request.

The Company has significant liquidity supporting its businesses. At March 31, 2005, cash, cash equivalents and short-term investments totaled $2.4 billion. If, for any reason, significant cash flow reductions occur in any of its businesses, MBIA has alternatives for meeting ongoing cash requirements. They include selling or pledging its fixed-income investments in its investment portfolio, tapping existing liquidity facilities and new borrowings.

As part of MBIA’s external borrowing capacity, it maintained two bank lines totaling $500 million. These bank lines were maintained with a group of highly rated global banks and were comprised of a renewable $167 million facility with a term of 364 days and a $333 million facility with a five-year term, maturing in April 2009. As of March 31, 2005, there were no balances outstanding under these agreements. In April 2005, the $167 million facility expired on its stated expiration date and the $333 million facility was increased to $500 million and the term was extended one year to April 2010.

36

The available-for-sale investment portfolio provides a high degree of liquidity, since it is comprised of readily marketable high quality fixed-income securities and short-term investments. At March 31, 2005, the fair value of the consolidated available-for-sale investment portfolio was $24 billion, as shown in the following table:

	March 31, 2005			December 31, 2004	Percent Change
In millions					2005 vs. 2004
Available-for-sale investments:
Insurance operations:
Amortized cost	$	9,355		$  9,205	2	%
Unrealized net gain (loss)		371		531	(30	)%
Fair value	$	9,726		$  9,736	0	%
Investment management services operations:
Amortized cost	$	13,314		$12,209	9	%
Unrealized net gain (loss)		322		398	(19	)%
Fair value	$	13,636		$12,607	8	%
Corporate operations:
Amortized cost	$	666		$     731	(9	)%
Unrealized net gain (loss)		(7	)	4	(288	)%
Fair value	$	659		$     735	(10	)%
Total available-for-sale portfolio:
Amortized cost	$	23,335		$22,145	5	%
Unrealized net gain (loss)		686		933	(27	)%
Fair value	$	24,021		$23,078	4	%

The increase in the amortized cost of insurance-related available-for-sale investments in 2005 was the result of positive cash flow from operations. However, this increase was offset by a decrease in unrealized gains largely due to a rise in interest rates from the fourth quarter of 2004. The increase in the amortized cost of available-for-sale investments in the investment management services operations was the result of growth in the Company’s asset/liability products program. Corporate investments decreased in the first quarter of 2005 due to increased share repurchase activity by the Company.

The fair value of the Company’s investments is based on quoted market prices, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities. Differences between fair value and amortized cost arise primarily as a result of changes in interest rates occurring after a fixed-income security is purchased, although other factors influence fair value, including credit-related actions, supply and demand forces and other market factors. When the Company holds its available-for-sale investments to maturity, unrealized gains or losses currently recorded in accumulated other comprehensive income in the shareholders’ equity section of the balance sheet will decrease over time as the investments approach maturity. As a result, the Company expects to realize a value substantially equal to

37

MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations

amortized cost. However, when investments are sold prior to maturity, the Company will realize any gains or losses in current net income. The conduit portfolios are considered held-to-maturity, as the Company has the ability and intent to hold these investments to their contractual maturity. Therefore, these portfolios are reported at amortized cost and are not adjusted to reflect unrealized changes in fair value.

The weighted average credit quality of the Company’s fixed-income portfolios has been maintained at Double-A since its inception. The quality distribution of the Company’s fixed-maturity investment portfolios, excluding short-term investments, based on ratings from Moody’s as of March 31, 2005 is presented in the following table:

	Insurance				Investment Management Services				Investments Held-to-Maturity				Total
In millions	Fair Value		% of Fixed-Income Investments		Fair Value		% of Fixed-Income Investments		Fair Value		% of Fixed-Income Investments		Fair Value		% of Fixed-Income Investments
Aaa	$	6,285	67	%	$	7,798	62	%	$	6,520	92	%	$	20,603	71	%
Aa		1,656	18	%		2,434	19	%		—	—			4,090	14	%
A		1,271	14	%		1,958	15	%		600	8	%		3,829	13	%
Baa		88	1	%		82	1	%		—	—			170	1	%
Below investment grade		—	—			—	—			—	—			—	—
Not rated		5	—			326	3	%		—	—			331	1	%
Total	$	9,305	100	%	$	12,598	100	%	$	7,120	100	%	$	29,023	100	%

MBIA’s consolidated investment portfolio includes investments that are insured by MBIA Corp. (MBIA Insured Investments). At March 31, 2005, MBIA Insured Investments, excluding conduit investments, at fair value represented $4.9 billion or 17% of the total portfolio. Conduit investments represented $6.5 billion or 22% of the total portfolio. Without giving effect to the MBIA guarantee of the MBIA Insured Investments in the consolidated investment portfolio, as of March 31, 2005, based on the actual or estimated underlying ratings (i) the weighted average rating of the investment portfolio would be in the Double-A range, (ii) the weighted average rating of just the MBIA Insured Investments in the investment portfolio would be in the Single-A range and (iii) approximately 1% of the investment portfolio would be rated below investment grade.

The underlying ratings of the MBIA Insured Investments as of March 31, 2005 are reflected in the following table. Amounts represent the fair value of such investments including the benefit of the MBIA guarantee. The ratings in the table below are the lower underlying rating assigned by S&P or Moody’s when an underlying rating exists from either rating service, or when an external underlying rating is not available, the underlying rating is based on the Company’s best estimate of the rating of such investment.

38

MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations

Underlying Ratings Scale In thousands	Insurance Portfolio		Investment Management Services Portfolio		Held-to- Maturity Investment Portfolio		Total
Aaa	$	43,941	$	510,140	$	1,247,548	$	1,801,629
Aa		281,002		73,618		419,906		774,526
A		775,602		852,116		724,818		2,352,536
Baa		416,508		1,795,603		4,084,549		6,296,660
Below investment grade		5,227		189,261		43,548		238,036
Total	$	1,522,280	$	3,420,738	$	6,520,369	$	11,463,387

The Company generates significant liquidity from its operations. Because of its risk management policies and procedures, diversification and reinsurance, the Company believes that the occurrence of an event that would significantly adversely affect liquidity is unlikely.

39

PART I - FINANCIAL INFORMATION

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There has been no material changes in the Company’s market risk during the first three months ended March 31, 2005. For additional information on market risk, refer to page 37 of the Company’s 2004 Annual Report or Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the heading “Market Risk” of the Company’s Form 10-K for the year ended December 31, 2004.

Item 4. Controls and Procedures

As of the end of the period covered by this report, an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934) was performed under the supervision and with the participation of the Company’s senior management, including the Chief Executive Officer and the Chief Financial Officer. Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report. In addition, there have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during the fiscal quarter to which this report relates that have materially affected, or are likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

In July 2002, MBIA Corp. filed suit against Royal Indemnity Company (Royal), in the United States District Court for the District of Delaware, to enforce insurance policies that Royal issued on certain vocational student loan transactions that MBIA Corp. insured. To date, claims in the amount of approximately $350 million have been made under the Royal policies with respect to loans that have defaulted. MBIA Corp. expects that there will be additional claims made under the policies with respect to student loans that may default in the future. Royal has filed an action seeking a declaration that it is not obligated to pay on its policies. If Royal does not honor its policies, MBIA Corp. will be required to make payment on the notes it insured, and will incur material losses under its policies. In October 2003, the court granted MBIA Corp.’s motion for summary judgment and ordered Royal to pay all claims under its policies. While Royal has appealed the order, MBIA expects that the order will be upheld on appeal. As part of the appeals process, Royal has pledged $382 million of investment grade collateral to MBIA Corp. to secure the entire amount of the judgment, with interest, and has agreed to post additional security for future claims and interest. The Federal District Court has ordered Royal to comply with the pledge agreement.

MBIA Corp. believes that it will prevail in the litigation with Royal and will have no ultimate loss on these policies, although there can be no assurance that MBIA Corp. will in fact prevail. If MBIA Corp. does not prevail in the litigation and Royal does not make payments on the Royal Policies, MBIA Corp. expects to incur material losses under its policies. MBIA Corp. does not believe, however, that any such losses will have a material adverse effect on its financial condition.

In November 2004, the Company received identical document subpoenas from the Securities and Exchange Commission (SEC) and the New York Attorney General’s Office (NYAG) requesting information with respect to non-traditional or loss mitigation insurance products developed, offered or

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sold by the Company to third parties from January 1, 1998 to the present. While the subpoenas did not identify any specific transaction, subsequent conversations with the SEC and the NYAG revealed that the investigation will include the reinsurance arrangements entered into by MBIA Corp. in 1998 in connection with the bankruptcy of the Delaware Valley Obligated Group, an entity that is part of Pittsburgh-based Allegheny Health, Education and Research Foundation (AHERF).

On March 9, 2005, the Company received a subpoena from the U.S. Attorney’s Office for the Southern District of New York (U.S. Attorney) seeking information related to the reinsurance agreements it entered into in connection with the AHERF loss. On March 30, 2005, the Company received additional requests from the SEC and the NYAG that supplement the subpoenas it received in late 2004. The requests seek documents relating to the Company’s accounting treatment of advisory fees; its methodology for determining loss reserves and case reserves; instances of purchases of credit default protection on itself; and documents relating to Channel Reinsurance Ltd., a reinsurance company of which the Company is part owner. The requests cover the period January 1, 2000 to the present. The Company is cooperating fully with the requests from the SEC, the NYAG and the U.S. Attorney.

During the past five weeks, the Company has been named as a defendant in the following putative securities class action suits: Anthony Capone v. MBIA Inc., et al.; (Case No. 05 CV 3514; S.D.N.Y.) (filed April 4, 2005); Thomas Cassady v. MBIA Inc., et al.; (Case No. 05 CV 3730; S.D.N.Y.) (filed April 7, 2005); Todd Simon v. MBIA Inc., et al.; (Case No. 05 CV 3636; S.D.N.Y.) (filed April 8, 2005); Mariss Partners, LLP v. MBIA Inc., et al. (Case No. 05 CV 3709; S.D.N.Y) (filed April 11, 2005); and Alan D. Sadowsky and Barbara S. Katvin v. MBIA Inc., et al.; (Case No. 05 CV 4150; S.D.N.Y.) (filed April 26, 2005). Joseph W. Brown, the Company’s Chairman and former Chief Executive Officer, Gary C. Dunton, the Company’s Chief Executive Officer, Nicholas Ferreri, the Company’s Chief Financial Officer, Neil G. Budnick, a Vice President of the Company and the Company’s former Chief Financial Officer and Douglas C. Hamilton, the Company’s Controller were also named as defendants in each of these suits. The plaintiffs in these cases assert claims under Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), Rule 10b-5 promulgated thereunder, and Section 20(a) of the Exchange Act. The plaintiffs in these lawsuits seek to act as representatives for a putative class consisting of purchasers of the Company’s stock during the period from August 5, 2003 to March 30, 2005 (the “Class Period”). The Company expects that additional putative class action lawsuits may be filed.

Although the individual lawsuits vary, the allegations include, among other things, violations of the federal securities laws arising out of the Company’s allegedly false and misleading statements about its financial condition and the defendant’s failure “to disclose or indicate” the following alleged facts: “(1) that MBIA, during the Class Period, overleveraged itself, deeply under-reserved against possible credit defaults, and overly exposed to guaranteeing risky structured financings; (2) that MBIA accelerated its recognition of current income by classifying many of its upfront guarantee fees as advisory fees taken at closing, rather than accounted for over the life of the bonds insured; (3) that MBIA improperly booked a $70 million payment received from Converium Re (then called Zurich Reinsurance North America) in 1998, which at the time was depicted as a loss-reducing reinsurance recovery for MBIA, but was, in substance, a loan; (4) that as result, MBIA financial statements were materially overstated by $60 million; (5) that MBIA artificially inflated premium income and portfolio credit quality by insuring bonds in the secondary market that were attracting prices lower than their stale credit ratings would dictate; (6) that MBIA’s low loss ratios resulted from the Company’s practice to defer recognizing problems rather than providing layers of excess collateral, other underwriting protection, and its self-proclaimed prowess at restructurings; (7) that MBIA set forth an illegal scheme of covering the loss, from the failed Allegheny Health, Education and Research Foundation (“Aherf”) bond issuance, with a retroactive reinsurance policy, giving it a reinsurance recovery of $170 million to cover the present value of the future Aherf interest and principal payments, which resulted in MBIA showing a better than 40% jump in pretax income that year — $565 million over what the income figure would have been without resort to the reinsurance; (8) that MBIA was dumping on Channel Reinsurance Ltd., a Bermuda reinsurer where MBIA owns a 17.4% interest, performing but troubled policies from its existing portfolio, with the provison that it could make up any quality problems later so that MBIA could buy time by getting potential workout loans off its balance sheet in order to make its financial results appear better; and (9) that the Company lacked adequate internal controls and was therefore unable to ascertain the true financial condition of the Company.” The plaintiffs allege that, as a result of these misleading statements or omissions, the Company’s stock traded at artificially inflated prices. These lawsuits seek unspecified compensatory damages in connection with purchases by members of the putative class of the Company’s stock at such allegedly inflated prices during the Class Period.

There are no other material lawsuits pending or, to the knowledge of the Company, threatened, to which the Company or any of its subsidiaries is a party.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

From time to time, the Company repurchases shares of its common stock when, in the opinion of management, it is economically advantageous to do. In August, 1999, the Company’s board of directors authorized the repurchase of up to 11.25 million shares of the Company’s common stock (after adjusting

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for the 2001 stock split). In July 2004, the Company completed the repurchase of all 11.25 million shares and received authorization from its board of directors to repurchase 1 million shares under a new repurchase program. On August 5, 2004, MBIA’s board of directors authorized the repurchase of an additional 14 million shares of its common stock in connection with the new repurchase program. The Company will only repurchase shares of its common stock under the repurchase program when it feels that it is economically attractive to do so and in conformity with regulatory and rating agency guidelines.

The following table sets forth repurchases made by the Company in each month during the first quarter of 2005:

Month	Total Number of Shares Purchased(1)	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan(2)	Maximum Number of Shares That May Yet Be Purchased Under the Plan
January	283,701	$	61.72	201,600	10,705,900
February	1,301,568		59.03	1,281,000	9,424,900
March	2,075,364		57.86	1,993,700	7,431,200

⁽¹⁾ 184,333 shares were purchased by the Company for settling awards under the Company’s long-term incentive plans.

⁽²⁾ Repurchased pursuant to stock repurchase plans authorized by the Company’s board of directors in 2004.

Item 4. Submission Of Matters to a Vote of Security Holders

The Annual Meeting of Shareholders of the Company was held on May 5, 2005 (the “Annual Meeting”). Proxies for the Annual Meeting were solicited pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the “Act”), there was no solicitation in opposition to the nine nominees of the Board of Directors of the Company listed in the Company’s Proxy Statement, dated March 30, 2005, for the Annual Meeting (the “Proxy Statement”), filed with the Securities and Exchange Commission, and said nine nominees were elected.

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The following matters were acted upon by Company shareholders at the Annual Meeting, at which 121,046,043 shares of the Common Stock, $1.00 par value, of the Company (the “Common Stock”), or approximately 87.95 percent of the 137,630,961 shares of Common Stock entitled to vote at the Annual Meeting, were present in person or by proxies:

1. Election of Directors. The proposal to elect the Company’s Board of Directors was adopted with the following number of votes per director:

Nominees	In Favor	Withheld
Joseph W. Brown	112,990,926	8,055,117
C. Edward Chaplin	118,669,165	2,376,878
David C. Clapp	117,432,066	3,613,977
Gary C. Dunton	113,030,950	8,015,093
Claire L. Gaudiani	117,429,239	3,616,804
Daniel P. Kearney	116,988,798	4,057,245
Laurence H. Meyer	118,741,826	2,304,217
Debra J. Perry	118,742,322	2,303,721
John A. Rolls	114,057,677	6,988,366

2. Approval of Adoption of MBIA Inc. Annual Incentive Plan. A resolution proposed by the Board of Directors of the Company that the shareholders approve the MBIA Inc. Annual Incentive Plan (the “Annual Incentive Plan”) was submitted to, and voted upon by, the shareholders of the Company at the Annual Meeting. There were 106,524,611 votes cast in favor of, and 3,681,575 votes cast against, said resolution. The holders of 899,438 shares of Common Stock abstained and there were “broker non-votes” in respect of 9,940,419 shares of Common Stock. Accordingly, the resolution received the affirmative vote of the holders of a majority of the Common Stock outstanding and entitled to vote at the Annual Meeting and, therefore, the resolution was adopted and the Annual Incentive Plan was approved by the shareholders. The resolution and information relating to the Annual Incentive Plan are set forth at pages 35 through 37, inclusive, of the Proxy Statement. The Annual Incentive Plan is set forth in its entirety as Appendix C to the Proxy Statement.

3. Approval of Adoption of MBIA Inc. 2005 Omnibus Incentive Plan. A resolution proposed by the Board of Directors of the Company that the shareholders approve the MBIA Inc. 2005 Omnibus Incentive Plan (the “Omnibus Incentive Plan”) was submitted to, and voted upon by, the shareholders of the Company at the Annual Meeting. There were 95,503,472 votes cast in favor of, and 14,725,016 votes cast against, said resolution. The holders of 877,236 shares of Common Stock abstained and there were “broker non-votes” in respect of 9,940,319 shares of Common Stock. Accordingly, the resolution received the affirmative vote of the holders of a majority of the Common Stock outstanding and entitled to vote at the Annual Meeting and, therefore, the resolution was adopted and the Omnibus Incentive Plan was approved by the shareholders. The resolution and information relating to the Annual Incentive Plan are set forth at pages 38 through 44, inclusive, of the Proxy Statement. The Annual Incentive Plan is set forth in its entirety as Appendix D to the Proxy Statement.

4. Approval of Amendment to Section 8 of the Certificate of Incorporation. A resolution proposed by the Board of Directors of the Company that the shareholders approve an amendment to the Company’s Certificate of Incorporation to reduce to a simple majority the percentage of votes required to amend or repeal Section 8 of the Certificate of Incorporation, which Section discusses the factors that the Board of Directors of the Company is authorized to consider in the event of a proposed tender offer, merger or acquisition of the Company was submitted to, and voted upon by, the shareholders of the Company at the Annual Meeting. There were 119,466,506 votes cast in favor of, and 724,511 votes cast against, said resolution. The holders of 855,026 shares of Common Stock abstained and there were no “broker non-votes”. Accordingly, the resolution received the affirmative vote of the holders of over 80% of the Common Stock outstanding and entitled to vote at the Annual Meeting and, therefore, the resolution was adopted and the amendment to the Company’s Certificate of Incorporation was approved by the shareholders. The resolution and information relating to the amendment are set forth at pages 45 through 46, inclusive, of the Proxy Statement.

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5. Approval of Amendment to Section 4 of the Certificate of Incorporation. A resolution proposed by the Board of Directors of the Company that the shareholders approve an amendment to the Company’s Certificate of Incorporation to permit shareholders to act by majority written consent by amending Section 4 of the Certificate of Incorporation was submitted to, and voted upon by, the shareholders of the Company at the Annual Meeting. There were 107,027,004 votes cast in favor of, and 2,993,858 votes cast against, said resolution. The holders of 1,084,762 shares of Common Stock abstained and there were “broker non-votes” in respect of 9,940,419 shares of Common Stock. Accordingly, the resolution received the affirmative vote of the holders of a majority of the Common Stock outstanding and entitled to vote at the Annual Meeting and, therefore, the resolution was adopted and the amendment to the Company’s Certificate of Incorporation was approved by the shareholders. The resolution and information relating to the amendment are set forth at pages 46 through 47, inclusive, of the Proxy Statement.

6. Ratification of Appointment of Independent Registered Public Accounting Firm. A resolution that the shareholders ratify the action of the Audit Committee in selecting and appointing PricewaterhouseCoopers LLP as the independent registered public accounting firm for the Company for the year ending December 31, 2005 was submitted to, and voted upon by, the shareholders. There were 118,299,221 shares of Common Stock voted in favor of, and 1,906,525 shares of Common Stock voted against, said resolution. The holders of 840,297 shares of Common Stock abstained and there were no “broker non-votes”. The resolution, having received the affirmative vote of the holders of a majority of the shares of Common Stock outstanding and entitled to vote at the Annual Meeting, was adopted and the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm for the Company for 2005 was ratified by the shareholders.

Item 6. Exhibits

3.1	Amended and Restated Certificate of Incorporation, dated May 5, 2005
10.1	Fourth Amended and Restated Credit Agreement, effective March 31, 2005, incorporated by reference to Exhibit 10.01 to the Company’s Current Report on Form 8-K filed on April 5, 2005.
10.2	Second Amendment to the Second Amended and Restated Credit Agreement, dated as of April 14, 2005, incorporated by reference to Exhibit 10.01 to the Company’s Current Report on Form 8-K filed on April 22, 2005.
10.3	MBIA Inc. Annual Incentive Plan, effective January 1, 2006, incorporated by reference to Appendix C to the Company’s definitive proxy statement filed on March 30, 2005
10.4	MBIA Inc. 2005 Omnibus Incentive Plan, effective May 5, 2005, incorporated by reference to Appendix D to the Company’s definitive proxy statement filed on March 30, 2005
31.1	Chief Executive Officer – Sarbanes-Oxley Act of 2002 Section 302
31.2	Chief Financial Officer – Sarbanes-Oxley Act of 2002 Section 302
32.1	Chief Executive Officer – Sarbanes-Oxley Act of 2002 Section 906
32.2	Chief Financial Officer – Sarbanes-Oxley Act of 2002 Section 906
99.1	Additional Exhibits - MBIA Insurance Corporation and Subsidiaries Consolidated Financial Statements

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	MBIA INC. Registrant
Date: May 10, 2005	/s/    NICHOLAS FERRERI
	Nicholas Ferreri
	Chief Financial Officer
Date: May 10, 2005	/s/    DOUGLAS C. HAMILTON
	Douglas C. Hamilton
	Controller (Principal Accounting Officer)

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EX-3.1

Exhibit 3.1

CERTIFICATE OF AMENDMENT

STOCK CORPORATION

Office of the Secretary of State

30 Trinity Street, P.O. Box 150470, Hartford, CT 06115-0470

MBIA INC.

The undersigned officer of MBIA Inc. (the “Corporation”), a corporation organized under the laws of the State of Connecticut, does hereby certify as follows:

1. The name of the Corporation is MBIA Inc.

2. The attached Certificate of Incorporation is amended.

3. Section 4 of the Certificate of Incorporation is amended to add the following paragraph at the conclusion thereof:

Any action that may be taken at a meeting of shareholders may be taken without a meeting by consent in writing, setting forth the action to be taken, signed by persons holding a majority of the voting power of the shares entitled to vote thereon, except that directors may be elected by action of shareholders without a meeting of shareholders only by unanimous written consent or pursuant to a plan of merger. If action is proposed to be taken by written consent of less than all of the shareholders, notice in writing of such proposed action shall be given to each shareholder who would be entitled to vote thereon not less than 20 nor more than 50 days before the date any such consents are to become effective.

4. In accordance with Section 33-800 of the Connecticut General Statutes, the amendment set forth above was approved by the holders of common stock of the Corporation (the only class of voting securities of the Corporation) on May 5, 2005 and such approval remains in effect. The total number of shares entitled to vote on the amendment and the results of the vote were as follows:

Total Number of Shares Outstanding on the Record Date: 137,630,961

Total Number of Shares Represented at the Meeting: 121,046,043

Total Number of Shares Voted: 110,020,862

Vote Favoring Adoption: 107,027,004

Such vote was sufficient for approval of the amendment.

5. Section 8 of the Certificate of Incorporation is amended to read as follows in its entirety:

The Board of Directors of the Corporation, when evaluating any offer of another party to (a) make a tender or exchange offer for any equity security of the Corporation, (b) merge or consolidate the Corporation into or with another corporation, or (c) purchase or otherwise acquire all or substantially all of the properties and assets of the Corporation, shall, in connection with the exercise of its judgment in determining what is in the best interests of the Corporation as a whole, be authorized to give due consideration to such factors as the Board of Directors determines to be relevant, including, without limitation:

(i) the interests of the Corporation’s shareholders;

(ii) whether the proposed transaction might violate federal or state laws;

(iii) the form and amount of consideration being offered in the proposed transaction, not only in relation to the then current market price for the outstanding capital stock of the Corporation, but also in relation to (1) the market price for the

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capital stock of the Corporation over a period of years, (2) the estimated price that might be achieved in a freely negotiated sale of the Corporation as a whole or in part or through orderly liquidation, (3) the premiums over market price paid for the securities of other corporations in similar transactions, (4) current political, economic and other factors bearing on securities prices, and (5) the Corporation’s then current value (including its financial condition and the unrealized value of its properties and assets determined over a period of years), its long-term plans and its future prospects as an independent going concern; and

(iv) the social, legal, environmental and economic effects on (1) policy holders, employees, clients, suppliers and other affected persons, firms and corporations, (2) the communities and economic regions in which the Corporation and its subsidiaries operate or are located and (3) any of the businesses and properties of the Corporation or of any of its subsidiaries.

In connection with such evaluation, the Board of Directors is authorized to conduct such investigations and to engage in such legal proceedings as the Board of Directors may determine.

Notwithstanding anything to the contrary contained in this Amended and Restated Certificate of Incorporation, the By-Laws of the Corporation or otherwise (and notwithstanding the fact that a lesser percentage may be specified by law, this Amended and Restated Certificate of Incorporation or the By-Laws of the Corporation), the affirmative vote of the holders of at least a majority of the voting power of all of the shares of the Corporation then entitled to vote generally in the election of Directors shall be required to amend or repeal, or adopt any provision inconsistent with, this Section 8.

6. In accordance with Section 33-800 of the Connecticut General Statutes, the amendment set forth above was approved by the holders of common stock of the Corporation (the only class of voting securities of the Corporation) on May 5, 2005 and such approval remains in effect. The total number of shares entitled to vote on the amendment and the results of the vote were as follows:

Total Number of Shares Outstanding on the Record Date: 137,630,961

Total Number of Shares Represented at the Meeting: 121,046,043

Total Number of Shares Voted: 120,191,017

Vote Favoring Adoption: 119,466,506

Such vote was sufficient for approval of the amendment.

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IN WITNESS WHEREOF, the undersigned has caused this Certificate of Amendment to be duly executed on behalf of the Corporation as of the 5^th day of May, 2005.

/s/    RAM D. WERTHEIM
Name:	Ram D. Wertheim
Title:	Secretary

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CERTIFICATE OF AMENDMENT

STOCK CORPORATION

Office of the Secretary of State

30 Trinity Street, P.O. Box 150470, Hartford, CT 06115-0470

MBIA INC.

The undersigned officer of MBIA Inc. (the “Corporation”), a corporation organized under the laws of the State of Connecticut, does hereby certify as follows:

1. The name of the Corporation is MBIA Inc.

2. The attached Certificate of Incorporation is amended.

3. Section 3 of the Certificate of Incorporation is amended to read as follows in its entirety:

The designation of each class of shares, the authorized number of shares of each such class, and the par value (if any) of each such share thereof, are as follows:

The total number of shares of capital stock that the Corporation shall have authority to issue is Four Hundred Ten Million (410,000,000) shares, of which Four Hundred Million (400,000,000) shares shall be common stock, par value $1.00 per share, and of which Ten Million (10,000,000) shares shall be preferred stock, par value $1.00 per share.

Immediately following the effectiveness of the Amended and Restated Certificate of Incorporation filed with the Secretary of the State of the State of Connecticut on May 21, 1987, there shall be a 736-for-1 stock split applicable to each share of common stock of the corporation issued and outstanding immediately prior to such time, so that each share of common stock of the Corporation issued and outstanding immediately prior to such time shall be changed into 736 shares of such common stock.

4. In accordance with Section 33-800 of the Connecticut General Statutes, the amendment set forth above was approved by the holders of common stock of the Corporation (the only class of voting securities of the Corporation) on May 10, 2001 and such approval remains in effect. The total number of shares entitled to vote on the amendment and the results of the vote were as follows:

Total Number of Shares Outstanding on the Record Date: 98,815,231

Total Number of Shares Represented at the Meeting: 85,907,099

Total Number of Shares Voted: 85,587,219 Vote Favoring Adoption: 74,875,912

Such vote was sufficient for approval of the amendment.

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IN WITNESS WHEREOF, the undersigned has caused this Certificate of Amendment to be duly executed on behalf of the Corporation as of the 23^rd day of August, 2001.

/s/    RICHARD L. WEILL
Name:	Richard L. Weill
Title:	Secretary

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MBIA INC.

(Stock Corporation)

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

1. The name of the Corporation is MBIA Inc.

2. The nature of the business to be transacted, or the purposes to be promoted or carried out by the corporation, are as follows:

The Corporation shall have the power to engage in any lawful act or activity for which corporations may be formed under the Stock Corporation Act of the State of Connecticut.

3. The designation of each class of shares, the authorized number of shares of each such class, and the par value (if any) of each such share thereof, are as follows:

The total number of shares of capital stock that the Corporation shall have authority to issue is Four Hundred Ten Million (410,000,000) shares, of which Four Hundred Million (400,000,000) shares shall be common stock, par value $1.00 per share, and of which Ten Million (10,000,000) shares shall be preferred stock, par value $1.00 per share.

Immediately following the effectiveness of the Amended and Restated Certificate of Incorporation filed with the Secretary of the State of the State of Connecticut on May 21, 1987, there shall be a 736-for-1 stock split applicable to each share of common stock of the corporation issued and outstanding immediately prior to such time, so that each share of common stock of the Corporation issued and outstanding immediately prior to such time shall be changed into 736 shares of such common stock.

4. The terms, limitations and relative rights and preferences of each class of shares and series thereof (if any), or an express grant of authority to the Board of Directors pursuant to Section 33-341 of the Stock Corporation Act of the State of Connecticut, Connecticut General Statutes, are as follows:

Each share of common stock shall have one vote on all matters on which shareholders are entitled to vote by this Amended and Restated Certificate of Incorporation, the By-Laws of the Corporation, or the statutes of Connecticut. Each share of common stock shall participate equally in any dividend distribution and upon liquidation or dissolution.

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Authority is hereby expressly vested in the Board of Directors of the Corporation pursuant to the Stock Corporation Act of the State of Connecticut to adopt from time to time resolutions and amendments to this Amended and Restated Certificate of Incorporation providing for the issuance of the Corporation’s authorized and unissued shares of preferred stock, fixing and determining the terms, limitations, and relative rights and preferences of the preferred stock, establishing series and fixing and. determining the variations as among particular series of the preferred stock. The resolution or resolutions providing for the issue of shares of a particular series shall fix, subject to applicable laws, the designation, rights, preferences and limitations of the shares of each such series. The authority of the Board of Directors with respect to each series shall include, but not be limited to, determination of the following:

(a) the number of shares constituting such series, including the authority to increase or decrease such number, and the distinctive designation of such series;

(b) the dividend rate of the shares of such series, whether the dividends shall be cumulative and, if so, the date from which they shall be cumulative, and the relative rights of priority, if any, of payment of dividends on shares of such series;

(c) the right, if any, of the Corporation to redeem shares of such series and the terms and conditions of such redemption, including the redemption price;

(d) the rights of the shares in case of a voluntary or involuntary liquidation, dissolution or winding up of the Corporation, and the relative rights of priority, if any, of payment of shares of such series;

(e) the voting rights, if any, of the shares of such series and the terms and conditions under which such voting rights may be exercised;

(f) the obligation, if any, of the Corporation to provide a retirement or sinking fund or funds of a similar nature and the terms and conditions of such obligation;

(g) the terms and conditions, if any, upon which shares of such series shall be convertible into or exchangeable for shares of stock of any other class or classes or of any other series of preferred stock, including the price or prices or the rate or rates of conversion or exchange and the terms of adjustment, if any; and

(h) any other terms, rights, preferences or limitations of the shares of such series as may be permitted by law.

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The Board of Directors may not make any change in the designations, terms, limitations or relative rights or preferences of shares of preferred stock after their issuance, except upon compliance with any applicable provisions of the applicable law, of the By-Laws of the Corporation and of such designations, terms, limitations and relative rights and preferences.

5. The minimum amount of stated capital with which the Corporation shall commence business is Five Hundred Thousand Dollars ($500,000) and Five Hundred Thousand Dollars ($500,000) in capital surplus.

6. Upon the offering or sale by the Corporation of its shares or securities convertible into shares (including warrants, rights to subscribe and options to acquire shares), no shareholder shall have the preemptive right to purchase any such shares or securities.

7. The Corporation has expressly elected not to be governed by Sections 33-374a to 33-374c, inclusive, of the Stock Corporation Act of the State of Connecticut, Connecticut General Statutes, pursuant to the authority granted by Section 33-374c thereof.

8. The Board of Directors of the Corporation, when evaluating any offer of another party to (a) make a tender or exchange offer for any equity security of the Corporation, (b) merge or consolidate the Corporation into or with another corporation, or (c) purchase or otherwise acquire all or substantially all of the properties and assets of the Corporation, shall, in connection with the exercise of its judgment in determining what is in the best interests of the Corporation as a whole, be authorized to give due consideration to such factors as the Board of Directors determines to be relevant, including, without limitation:

(i) the interests of the Corporation’s shareholders;

(ii) whether the proposed transaction might violate federal or state laws;

(iii) the form and amount of consideration being offered in the proposed transaction, not only in relation to the then current market price for the outstanding capital stock of the Corporation, but also in relation to (1) the market price for the capital stock of the Corporation over a period of years, (2) the estimated price that might be achieved in a freely negotiated sale of the Corporation as a whole or in part or through orderly liquidation, (3) the premiums over market price paid for the securities of other corporations in similar transactions, (4) current political, economic and other factors bearing on securities prices, and (5) the Corporation’s then current value (including its financial condition and the unrealized value of its properties and assets determined over a period of years), its long-term plans and its future prospects as an independent going concern; and

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(iv) the social, legal, environmental and economic effects on (1) policy holders, employees, clients, suppliers and other affected persons, firms and corporations, (2) the communities and economic regions in which the Corporation and its subsidiaries operate or are located and (3) any of the businesses and properties of the Corporation or of any of its subsidiaries.

In connection with such evaluation, the Board of Directors is authorized to conduct such investigations and to engage in such legal proceedings as the Board of Directors may determine.

Notwithstanding anything to the contrary contained in this Amended and Restated Certificate of Incorporation, the By-Laws of the Corporation or otherwise (and notwithstanding the fact that a lesser percentage may be specified by law, this Amended and Restated Certificate of Incorporation or the By-Laws of the Corporation), the affirmative vote of the holders of at least 80% of the voting power of all of the shares of the Corporation then entitled to vote generally in the election of Directors shall be required to amend or repeal, or adopt any provision inconsistent with, this Section 8.

9. No person who is or was a director of the corporation shall be personally liable to the corporation or its shareholders for monetary damages for breach of duty as a director in an amount that exceeds the compensation received by the director for serving the Corporation during the year of the violation if such breach did not (a) involve a knowing and culpable violation of law by the director, (b) enable the director or an associate, as defined in subdivision (3) of Section 33-374d of the Connecticut Stock Corporation Act as in effect on the effective date hereof and as it may be amended from time to time, to receive an improper personal economic gain, (c) show a lack of good faith and a conscious disregard for the duty of the director to the Corporation under circumstances in which the director was aware that such conduct or omission created an unjustifiable risk of serious injury to the corporation, (d) constitute a sustained and unexcused pattern of inattention that amounted to an abdication of the director’s duty to the Corporation, or (e) create liability under Section 33-321 of the Connecticut Stock Corporation Act as in effect on the effective date hereof and as it may be amended from time to time. This Section 9 shall not limit or preclude the liability of a person who is or was a director for any act or omission occurring prior to the effective date hereof. Any lawful repeal or modification of this Section 9 or the adoption of any provision inconsistent herewith by the Board of Directors and the shareholders of the Corporation shall not, with respect to a person who is or was a director, adversely affect any limitation of liability, right or protection of such person existing hereunder with respect to any breach of duty occurring prior to the effective date of such repeal, modification or adoption of a provision inconsistent herewith.

9

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Gary C. Dunton, certify that:

1. I have reviewed the Quarterly Report of MBIA Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (the “Report”);

2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report;

3. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this Report;

4. The Company’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and

(d) disclosed in this Report that there were no changes in the Company’s internal control over financial reporting that occurred during the Company’s first quarter of 2005 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

5. The Company’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and to the audit committee of the board of directors:

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

/s/    GARY C. DUNTON        

Gary C. Dunton

Chief Executive Officer

May 10, 2005

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Nicholas Ferreri, certify that:

1. I have reviewed the Quarterly Report of MBIA Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”);

2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report;

3. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this Report;

4. The Company’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and

(d) disclosed in this Report that there were no changes in the Company’s internal control over financial reporting that occurred during the Company’s first quarter of 2005 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

5 The Company’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and to the audit committee of the board of directors:

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

/s/    NICHOLAS FERRERI        

Nicholas Ferreri

Chief Financial Officer

May 10, 2005

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of MBIA Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Gary C. Dunton, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/    GARY C. DUNTON        

Gary C. Dunton

Chief Executive Officer

May 10, 2005

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of MBIA Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Nicholas Ferreri, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/    NICHOLAS FERRERI        

Nicholas Ferreri

Chief Financial Officer

May 10, 2005

EX-99.1

Exhibit 99.1

MBIA INSURANCE CORPORATION

AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

As of March 31, 2005 and December 31, 2004

and for the periods ended March 31, 2005 and 2004

MBIA INSURANCE CORPORATION

AND SUBSIDIARIES

INDEX

	PAGE
Consolidated Balance Sheets - March 31, 2005 and December 31, 2004 (Unaudited)	3
Consolidated Statements of Income - Three months ended March 31, 2005 and 2004 (Unaudited)	4
Consolidated Statement of Changes in Shareholder’s Equity - Three months ended March 31, 2005 (Unaudited)	5
Consolidated Statements of Cash Flows - Three months ended March 31, 2005 and 2004 (Unaudited)	6
Notes to Consolidated Financial Statements (Unaudited)	7-12

MBIA INSURANCE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Unaudited)

(in thousands except per share amounts)

	March 31, 2005		December 31, 2004
Assets
Investments:
Fixed-maturity securities held as available-for-sale, at fair value (amortized cost $7,887,062 and $7,572,892)	$	8,255,530	$	8,059,329
Fixed-maturity securities pledged as collateral, at fair value (amortized cost $456,596 and $483,842)		457,526		489,759
Investments held-to-maturity, at amortized cost		600,000		600,000
Short-term investments, at amortized cost (which approximates fair value)		815,371		979,464
Other investments		175,325		185,037
Total investments		10,303,752		10,313,589
Cash and cash equivalents		152,386		182,347
Securities purchased under agreements to resell		477,406		476,251
Accrued investment income		119,724		129,210
Deferred acquisition costs		371,932		360,496
Prepaid reinsurance premiums		462,390		471,375
Reinsurance recoverable on unpaid losses		33,202		33,734
Goodwill		76,938		76,938
Property and equipment, at cost (less accumulated depreciation of $86,988 and $84,204)		101,149		102,283
Receivable for investments sold		8,689		2,023
Derivative assets		33,718		40,012
Other assets		384,544		252,721
Total assets	$	12,525,830	$	12,440,979
Liabilities and Shareholder’s Equity
Liabilities:
Deferred premium revenue	$	3,238,851	$	3,211,181
Loss and loss adjustment expense reserves		755,563		726,617
Securities sold under agreements to repurchase		477,406		476,251
Variable interest entity floating rate notes		600,670		600,505
Short-term debt		58,745		58,745
Current income taxes		8,088		—
Deferred income taxes, net		465,608		493,425
Deferred fee revenue		18,559		20,624
Payable for investments purchased		24,626		15,686
Derivative liabilities		18,550		26,366
Other liabilities		159,455		214,431
Total liabilities		5,826,121		5,843,831
Shareholder’s Equity:
Preferred stock, par value $1,000 per share; authorized shares - 4,000.08, issued and outstanding - none		—		—
Common stock, par value $150 per share; authorized, issued and outstanding - 100,000 shares		15,000		15,000
Additional paid-in capital		1,658,421		1,654,201
Retained earnings		4,737,475		4,546,400
Accumulated other comprehensive income, net of deferred income tax of $156,055 and $194,130		288,813		381,547
Total shareholder’s equity		6,699,709		6,597,148
Total liabilities and shareholder’s equity	$	12,525,830	$	12,440,979

The accompanying notes are an integral part of the consolidated financial statements.

-3-

MBIA INSURANCE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(in thousands)

	Three months ended March 31
	2005			2004
				Restated
Revenues:
Gross premiums written	$	291,114		$	214,660
Ceded premiums		(38,757	)		(34,159	)
Net premiums written		252,357			180,501
(Increase) decrease in deferred premium revenue		(40,692	)		27,909
Premiums earned (net of ceded premiums of $48,484 and $48,345)		211,665			208,410
Net investment income		112,216			111,306
Net realized gains		70			46,129
Net gains on derivative instruments		1,522			1,070
Advisory fees		6,854			6,681
Other		1,013			—
Total revenues		333,340			373,596
Expenses:
Losses and loss adjustment		20,385			19,439
Amortization of deferred acquisition costs		16,293			15,586
Operating		37,236			29,585
Total expenses		73,914			64,610
Income before income taxes		259,426			308,986
Provision for income taxes		68,351			78,760
Net income	$	191,075		$	230,226

The accompanying notes are an integral part of the consolidated financial statements.

-4-

MBIA INSURANCE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER’S EQUITY (Unaudited)

For the three months ended March 31, 2005

(in thousands except per share amounts)

	Common Stock					Additional Paid-in Capital			Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Total Shareholder’s Equity
	Shares			Amount
Balance, January 1, 2005		100,000		$	15,000	$	1,654,201		$	4,546,400	$	381,547		$	6,597,148
Comprehensive income:
Net income		—			—		—			191,075		—			191,075
Other comprehensive income (loss):
Change in unrealized appreciation of investments net of change in deferred income taxes of $(42,957)		—			—		—			—		(79,828	)		(79,828	)
Change in foreign currency translation net of change in deferred income taxes of $4,882		—			—		—			—		(12,906	)		(12,906	)
Other comprehensive income (loss)															(92,734	)
Comprehensive income															98,341
Stock-based compensation		—			—		5,013			—		—			5,013
Capital issuance costs		—			—		(793	)		—		—			(793	)
Balance, March 31, 2005		100,000		$	15,000	$	1,658,421		$	4,737,475	$	288,813		$	6,699,709
Disclosure of reclassification amount:
Unrealized appreciation of investments arising during the period, net of taxes	$	(80,219	)
Reclassification adjustment, net of taxes		391
Net unrealized appreciation, net of taxes	$	(79,828	)

The accompanying notes are an integral part of the consolidated financial statements.

-5-

MBIA INSURANCE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in thousands)

	Three months ended March 31
	2005			2004
				Restated
Cash flows from operating activities:
Net income	$	191,075		$	230,226
Adjustments to reconcile net income to net cash provided by operating activities:
Decrease (increase) in accrued investment income		9,486			(1,986	)
Increase in deferred acquisition costs		(11,436	)		(20,203	)
Decrease in prepaid reinsurance premiums		8,985			14,186
Increase (decrease) in deferred premium revenue		27,670			(42,095	)
Increase in loss and loss adjustment expense reserves		28,946			56,877
Decrease in reinsurance recoverable on unpaid losses		532			18,631
Depreciation		2,784			2,529
Amortization of bond discount, net		7,335			5,466
Net realized gains on sale of investments		(70	)		(46,129	)
Current income tax provision		8,088			46,679
Deferred income tax provision		14,152			14,762
Net gains on derivative instruments		(1,522	)		(1,070	)
Stock option compensation		4,336			3,892
Other, net		(192,512	)		(57,543	)
Total adjustments to net income		(93,226	)		(6,004	)
Net cash provided by operating activities		97,849			224,222
Cash flows from investing activities:
Purchase of fixed-maturity securities, net of payable for investments purchased		(583,640	)		(689,027	)
Sale of fixed-maturity securities, net of receivable for investments sold		288,895			232,202
Redemption of fixed-maturity securities, net of receivable for investments redeemed		83,860			202,993
Sale of short-term investments, net		75,375			112,639
Other investments, net		10,245			7,586
Capital expenditures		(1,752	)		(2,219	)
Disposals of capital assets		—			2
Net cash used by investing activities		(127,017	)		(135,824	)
Cash flows from financing activities:
Net proceeds from issuance of short-term debt		—			1,408
Other borrowings		—			(3,879	)
Capital issuance costs		(793	)		(531	)
Dividends paid		—			(90,000	)
Net cash used by financing activities		(793	)		(93,002	)
Net decrease in cash and cash equivalents		(29,961	)		(4,604	)
Cash and cash equivalents - beginning of period		182,347			57,322
Cash and cash equivalents - end of period	$	152,386		$	52,718
Supplemental cash flow disclosures:
Income taxes paid	$	3,789		$	13,287
Interest paid:
Other borrowings		—		$	354
Medium-term notes		—		$	8,913
Variable interest entity floating rate notes	$	4,304		$	1,806
Non cash items:
Stock compensation	$	4,336		$	3,892

The accompanying notes are an integral part of the consolidated financial statements.

-6-

MBIA INSURANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The accompanying consolidated financial statements are unaudited and include the accounts of MBIA Insurance Corporation and Subsidiaries (MBIA Corp.) and other entities required by accounting principles generally accepted in the United States of America (GAAP). These statements do not include all of the information and disclosures required by GAAP. These statements should be read in conjunction with MBIA Corp.’s consolidated financial statements and notes thereto for the year ended December 31, 2004. The accompanying consolidated financial statements have not been audited by an independent registered public accounting firm in accordance with standards of the Public Company Accounting Oversight Board (United States), but in the opinion of management such financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of MBIA Corp.’s financial position and results of operations. The results of operations for the three months ended March 31, 2005 may not be indicative of the results that may be expected for the year ending December 31, 2005. The December 31, 2004 balance sheet was derived from audited financial statements, but does not include all disclosures required by GAAP.

2. Restatement of Consolidated Financial Statements

As reported in MBIA Corp.’s audited financial statements for the year ended December 31, 2004, MBIA Corp. restated its previously issued consolidated financial statements for 1998 and subsequent years to correct the accounting treatment for two reinsurance agreements entered into in 1998. The following table presents the effects of the restatement on the consolidated financial statements of MBIA Corp. for the quarter ended March 31, 2004.

-7-

MBIA INSURANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

	As of and For the Quarter Ended March 31, 2004
In thousands	Previously Reported		Restated
Consolidated Statement of Income Data:
Net premiums written	$	176,269	$	180,501
Decrease in deferred premium revenue		30,093		27,909
Premiums earned		206,362		208,410
Total revenues		371,548		373,596
Losses and loss adjustment expenses		19,234		19,439
Operating expenses		29,231		29,585
Total expenses		64,051		64,610
Income before income taxes		307,497		308,986
Provision for income taxes		78,239		78,760
Net income	$	229,258	$	230,226
Consolidated Balance Sheet Data:
Prepaid reinsurance premiums	$	523,726	$	452,576
Total assets		14,039,534		13,968,384
Loss and loss adjustment expense reserves		754,848		761,539
Current income taxes		52,402		41,751
Deferred income taxes, net		489,917		470,472
Other liabilities		176,519		184,668
Total liabilities		7,249,490		7,234,234
Retained earnings		4,652,023		4,596,129
Shareholder’s equity	$	6,790,044	$	6,734,150

Information presented in the Notes to Consolidated Financial Statements gives effect to the restatement as applicable.

3. Dividends Declared

MBIA Corp. did not declare or pay dividends during the three months ended March 31, 2005.

4. Variable Interest Entities

MBIA Corp. provides structured funding and credit enhancement services to global finance clients through the use of certain bankruptcy-remote special purpose vehicles (SPVs) administered by subsidiaries of MBIA Inc. and through third-party SPVs. The purpose of the MBIA-administered SPVs is to provide clients with an efficient source of funding, which may offer MBIA Corp. the opportunity to issue financial guarantee insurance policies. Third-party

-8-

MBIA INSURANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

SPVs are used in a variety of structures insured by MBIA Corp., whereby MBIA Corp. has risks analogous to those of MBIA-administered SPVs. MBIA Corp. has determined that such SPVs fall within the definition of a VIE under Financial Accounting Standards Board (FASB) Interpretation No. (FIN) 46(R), “Consolidation of Variable Interest Entities (Revised).”

Under the provisions of FIN 46(R), an entity is considered a VIE subject to consolidation if the equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support or if the equity investors lack one of three characteristics of a controlling financial interest. First, the equity investors lack the ability to make decisions about the entity’s activities through voting rights or similar rights. Second, they do not bear the obligation to absorb the expected losses of the entity if they occur. Lastly, they do not claim the right to receive expected returns of the entity if they occur, which is the compensation for the risk of absorbing the expected losses. A VIE is consolidated with its primary beneficiary, which is defined as the entity that will absorb the majority of the expected losses, receive the majority of the expected residual returns, or both, of the VIE.

In September 2004, MBIA Corp. consolidated two VIEs established in connection with the securitization of Capital Asset tax liens. As a result of a clean-up call exercised for the Capital Asset Research Funding Series 1997A and Series 1998A tax lien securitizations, these securitizations no longer met the conditions of a qualifying special purpose entity under Statement of Financial Accounting Standards 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities.” MBIA Corp. holds a variable interest in these entities, which resulted from its insurance policies, and has determined that it is the primary beneficiary under FIN 46(R). MBIA Corp. has reported the assets of the securitizations totaling $13.3 million at March 31, 2005 and $16.8 million at December 31, 2004, principally within “Other assets” on its consolidated balance sheet. Liabilities of the securitizations substantially represented amounts due to MBIA Corp., which were eliminated in consolidation.

With respect to third-party SPVs, MBIA Corp. must determine whether it has a variable interest in a VIE and if so, whether that variable interest would cause MBIA Corp. to be the primary beneficiary and, therefore, consolidate such entities. Under FIN 46(R), MBIA Corp.’s guarantee of the assets or liabilities of a VIE constitute a variable interest and require MBIA Corp. to assess whether it is the primary beneficiary. Consolidation of such VIEs does not increase MBIA

-9-

MBIA INSURANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

Corp.’s exposure above that already committed to in its insurance policies. VIE assets and liabilities consolidated in MBIA Corp.’s financial statements at December 31, 2004 are related to MBIA Corp.’s guarantee of a VIE. Such assets and liabilities are primarily reported in “Investments held-to-maturity” and “Variable interest entity floating rate notes,” respectively, on the face of MBIA Corp.’s balance sheet and totaled $600.7 million and $600.5 million at March 31, 2005 and December 31, 2004, respectively. The third-party VIE’s creditors do not have recourse to the general assets of MBIA Corp. outside of the financial guarantee provided to the VIE.

5. Recent Litigation

In July 2002, MBIA Corp. filed suit against Royal Indemnity Company (Royal), in the United States District Court for the District of Delaware, to enforce insurance policies that Royal issued on certain vocational student loan transactions that MBIA Corp. insured. To date, claims in the amount of approximately $350 million have been made under the Royal policies with respect to loans that have defaulted. MBIA Corp. expects that there will be additional claims made under the policies with respect to student loans that may default in the future. Royal has filed an action seeking a declaration that it is not obligated to pay on its policies. If Royal does not honor its policies, MBIA Corp. will be required to make payment on the notes it insured, and will incur material losses under its policies. In October 2003, the court granted MBIA Corp.’s motion for summary judgment and ordered Royal to pay all claims under its policies. While Royal has appealed the order, MBIA Corp. expects that the order will be upheld on appeal. As part of the appeals process, Royal has pledged $382 million of investment grade collateral to MBIA Corp. to secure the entire amount of the judgment, with interest, and has agreed to post additional security for future claims and interest. The Federal District Court has ordered Royal to comply with the pledge agreement.

MBIA Corp. believes that it will prevail in the litigation with Royal and will have no ultimate loss on these policies, although there can be no assurance that MBIA Corp. will in fact prevail. If MBIA Corp. does not prevail in the litigation and Royal does not make payments on the Royal Policies, MBIA Corp. expects to incur material losses under its policies. MBIA Corp. does not believe, however, that any such losses will have a material adverse effect on its financial condition.

-10-

MBIA INSURANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

6. Loss and Loss Adjustment Expense Reserves

Loss and LAE reserves are established in an amount equal to MBIA Corp.’s estimate of unallocated losses, identified or case basis reserves and costs of settlement and other loss mitigation expenses on obligations it has insured. A summary of the unallocated and case basis activity and the components of the liability for loss and LAE reserves for the first quarter of 2005 are shown in the following table:

In thousands	2005
Case basis loss and LAE reserves:
Balance at January 1	$	434,924
Less: reinsurance recoverable		33,734
Net balance at January 1		401,190
Case basis transfers from unallocated loss reserve related to:
Current year		2,569
Prior years		16,935
Total		19,504
Paid (recovered) related to:
Current year		(4,231	)
Prior years		(5,034	)
Total paid (recovered)		(9,265	)
Net balance at March 31		429,959
Plus: reinsurance recoverable		33,202
Case basis reserve balance at March 31		463,161
Unallocated loss reserve:
Balance at January 1		291,693
Losses and LAE incurred(1)		20,385
Channel Re elimination(2)		(172	)
Transfers to case basis and LAE reserves		(19,504	)
Unallocated loss reserve balance at March 31		292,402
Total	$	755,563

⁽¹⁾ Represents MBIA Corp.’s provision for losses calculated as 12% of scheduled net earned premium.

⁽²⁾ Represents the amount of losses and LAE incurred that have been eliminated in proportion to MBIA Corp’s ownership interest in Channel Reinsurance Ltd., which is carried on an equity method accounting basis.

Case basis activity transferred from MBIA Corp.’s unallocated loss reserve was approximately $19 million in the first quarter of 2005 and primarily consisted of additional loss reserves for MBIA Corp.’s

-11-

MBIA INSURANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

guaranteed tax lien portfolios, insured obligations issued by Fort Worth Osteopathic Hospital and Allegheny Health, Education and Research Foundation. Unallocated loss reserves approximated $293 million at March 31, 2005, which represent MBIA Corp.’s estimate of losses associated with credit deterioration that has occurred in MBIA Corp.’s insured portfolio and are available for future case-specific activity. MBIA Corp. recorded $20 million in loss and loss adjustment expenses in the first quarter of 2005 based on 12% of scheduled net earned premium. See “Note 3: Significant Accounting Policies” in the Notes to Consolidated Financial Statements in MBIA Corp.’s audited financial statements for the year ended December 31, 2004 for a description of MBIA Corp.’s loss reserving policy.

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