10-Q

United States

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended September 30, 2012

or

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

For the transition period from              to             

Commission File Number 1-9583

MBIA INC.

(Exact name of registrant as specified in its charter)

Connecticut	06-1185706
(State of incorporation)	(I.R.S. Employer Identification No.)
113 King Street, Armonk, New York	10504
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (914) 273-4545

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 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  þ    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  þ Accelerated filer  ¨ Non-accelerated filer  ¨ Smaller reporting company  ¨

Indicate by check mark whether the Registrant is shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  þ

As of November 1, 2012, 193,731,768 shares of Common Stock, par value $1 per share, were outstanding.

		PAGE
PART I FINANCIAL INFORMATION
Item 1.	Financial Statements MBIA Inc. and Subsidiaries (Unaudited)
	Consolidated Balance Sheets as of September 30, 2012 and December 31, 2011 (Unaudited)		1
	Consolidated Statements of Operations for the three and nine months ended September 30, 2012 and 2011 (Unaudited)		2
	Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2012 and 2011 (Unaudited)		3
	Consolidated Statement of Changes in Shareholders’ Equity for the nine months ended September 30, 2012 (Unaudited)		4
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2012 and 2011 (Unaudited)		5
	Notes to Consolidated Financial Statements (Unaudited)		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		85
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		138
Item 4.	Controls and Procedures		141
PART II OTHER INFORMATION
Item 1.	Legal Proceedings		142
Item 1A.	Risk Factors		142
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		145
Item 3.	Defaults Upon Senior Securities		145
Item 4.	Mine Safety Disclosures		145
Item 5.	Other Information		145
Item 6.	Exhibits		146
SIGNATURES			147

PART 1 FINANCIAL INFORMATION

Item 1. Financial Statements

MBIA INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Unaudited)

(In millions except share and per share amounts)

	September 30, 2012		December 31, 2011
Assets
Investments:
Fixed-maturity securities held as available-for-sale, at fair value (amortized cost $4,412 and $6,259)	$	4,634	$	6,177
Fixed-maturity securities at fair value		237		295
Investments pledged as collateral, at fair value (amortized cost $424 and $642)		350		543
Short-term investments held as available-for-sale, at fair value (amortized cost $1,440 and $1,577)		1,445		1,571
Other investments (includes investments at fair value of $16 and $96)		27		107
Total investments		6,693		8,693
Cash and cash equivalents		298		473
Premiums receivable		1,280		1,360
Deferred acquisition costs		317		351
Insurance loss recoverable		3,316		3,046
Property and equipment, at cost (less accumulated depreciation of $144 and $139)		69		69
Deferred income taxes, net		1,446		1,745
Other assets		414		243
Assets of consolidated variable interest entities:
Cash		143		160
Investments held-to-maturity, at amortized cost (fair value $2,867 and $3,489)		3,015		3,843
Fixed-maturity securities held as available-for-sale, at fair value (amortized cost $461 and $473)		442		432
Fixed-maturity securities at fair value		1,754		2,884
Loans receivable at fair value		1,892		2,046
Loan repurchase commitments		1,051		1,077
Derivative assets		-		450
Other assets		2		1
Total assets	$	22,132	$	26,873
Liabilities and Equity
Liabilities:
Unearned premium revenue	$	3,091	$	3,515
Loss and loss adjustment expense reserves		945		836
Investment agreements		993		1,578
Medium-term notes (includes financial instruments carried at fair value of $168 and $165)		1,606		1,656
Securities sold under agreements to repurchase		-		287
Long-term debt		1,836		1,840
Derivative liabilities		3,332		5,164
Other liabilities		467		391
Liabilities of consolidated variable interest entities:
Variable interest entity notes (includes financial instruments carried at fair value of $3,626 and $4,754)		7,094		8,697
Long-term debt		-		360
Derivative liabilities		180		825
Other liabilities		1		1
Total liabilities		19,545		25,150
Commitments and contingencies (See Note 13)
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—275,455,099 and 274,896,162		275		275
Additional paid-in capital		3,072		3,072
Retained earnings		1,403		805
Accumulated other comprehensive income (loss), net of deferred tax of $24 and $105		90		(176)
Treasury stock, at cost—81,729,792 and 81,752,966 shares		(2,275)		(2,276)
Total shareholders’ equity of MBIA Inc.		2,565		1,700
Preferred stock of subsidiary and noncontrolling interest		22		23
Total equity		2,587		1,723
Total liabilities and equity	$	22,132	$	26,873

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

1

MBIA INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(In millions except share and per share amounts)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Revenues:
Premiums earned:
Scheduled premiums earned	$	85	$	111	$	291	$	354
Refunding premiums earned		70		65		173		108
Premiums earned (net of ceded premiums of $3, $3, $12 and $9)		155		176		464		462
Net investment income		50		92		172		299
Fees and reimbursements		20		16		47		41
Change in fair value of insured derivatives:
Realized gains (losses) and other settlements on insured derivatives		12		(53)		(420)		(599)
Unrealized gains (losses) on insured derivatives		(33)		776		1,473		(531)
Net change in fair value of insured derivatives		(21)		723		1,053		(1,130)
Net gains (losses) on financial instruments at fair value and foreign exchange		7		13		(18)		(114)
Investment losses related to other-than-temporary impairments:
Investment losses related to other-than-temporary impairments		(3)		(12)		(58)		(25)
Other-than-temporary impairments recognized in accumulated other comprehensive income (loss)		(5)		1		(47)		(19)
Net investment losses related to other-than-temporary impairments		(8)		(11)		(105)		(44)
Net gains (losses) on extinguishment of debt		-		-		-		26
Other net realized gains (losses)		1		1		7		6
Revenues of consolidated variable interest entities:
Net investment income		17		17		51		53
Net gains (losses) on financial instruments at fair value and foreign exchange		44		88		(17)		3
Net gains (losses) on extinguishment of debt		16		-		49		-
Other net realized gains (losses)		-		5		-		8
Total revenues		281		1,120		1,703		(390)
Expenses:
Losses and loss adjustment		171		190		330		204
Amortization of deferred acquisition costs		8		12		36		51
Operating		72		76		307		226
Interest		69		75		214		225
Expenses of consolidated variable interest entities:
Operating		5		7		14		24
Interest		13		15		43		45
Total expenses		338		375		944		775
Income (loss) before income taxes		(57)		745		759		(1,165)
Provision (benefit) for income taxes		(64)		301		161		(472)
Net income (loss)	$	7	$	444	$	598	$	(693)
Net income (loss) per common share:
Basic	$	0.04	$	2.27	$	3.09	$	(3.50)
Diluted	$	0.04	$	2.26	$	3.07	$	(3.50)
Weighted average number of common shares outstanding:
Basic		193,879,994		195,612,615		193,760,654		198,262,715
Diluted		194,977,642		196,347,502		194,835,537		198,262,715

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

2

MBIA INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)

(In millions)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Net income (loss)	$	7	$	444	$	598	$	(693)
Other comprehensive income (loss):
Unrealized gains (losses) on available-for-sale securities:
Unrealized gains (losses) arising during the period, net of tax of $17, $39, $69 and $131		55		70		164		285
Less: Reclassification adjustments for (gains) losses included in net income (loss), net of tax of $3, $14, $20 and $19		(6)		(26)		38		(36)
Unrealized gains (losses) on available-for-sale securities, net		49		44		202		249
Other-than-temporary impairments on available-for-sale securities:
Other-than-temporary impairments arising during the period, net of tax of $1, $2, $14 and $10		1		(3)		26		18
Less: Reclassification adjustments for other-than-temporary impairments included in net income (loss), net of tax of $2, $3, $18 and $10		4		4		34		19
Other-than-temporary impairments on available-for-sale securities, net		5		1		60		37
Unrealized gains (losses) on derivative instruments:
Unrealized gains (losses) on derivative instruments arising during the period, net of tax of $1, $4, $1 and $1		2		(7)		2		(3)
Less: Reclassification adjustments for (gains) losses included in net income (loss), net of tax of $0, $3, $9 and $4		1		6		17		8
Unrealized gains (losses) on derivative instruments, net		3		(1)		19		5
Foreign currency translation, net of tax of $4, $3, $3 and $0		(3)		3		(15)		(33)
Total other comprehensive income (loss)		54		47		266		258
Comprehensive income (loss)	$	61	$	491	$	864	$	(435)

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

3

MBIA INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

For The Nine Months Ended September 30, 2012

(In millions except share amounts)

					Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock				Total Shareholders’ Equity of MBIA Inc.		Preferred Stock of Subsidiary and Noncontrolling Interest				Total Equity
	Common Stock
	Shares		Amount								Shares		Amount				Shares		Amount
Balance, December 31, 2011		274,896,162	$	275	$	3,072	$	805	$	(176)		(81,752,966)	$	(2,276)	$	1,700		1,315	$	23	$	1,723
Net income		-		-		-		598		-		-		-		598		-		-		598
Other comprehensive income		-		-		-		-		266		-		-		266		-		-		266
Share-based compensation net of tax of $6		558,937		-		-		-		-		23,174		1		1		-		-		1
Change in noncontrolling interest in subsidiary		-		-		-		-		-		-		-		-		-		(1)		(1)
Balance, September 30, 2012		275,455,099	$	275	$	3,072	$	1,403	$	90		(81,729,792)	$	(2,275)	$	2,565		1,315	$	22	$	2,587

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

4

MBIA INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In millions)

	Nine Months Ended September 30,
	2012		2011
Cash flows from operating activities:
Premiums, fees and reimbursements received	$	223	$	278
Investment income received		459		499
Insured derivative losses and commutations paid		(463)		(683)
Financial guarantee losses and loss adjustment expenses paid		(620)		(778)
Proceeds from reinsurance and recoveries		131		144
Operating and employee related expenses paid		(300)		(244)
Interest paid		(377)		(470)
Income taxes (paid) received		(8)		54
Net cash provided (used) by operating activities		(955)		(1,200)
Cash flows from investing activities:
Purchase of fixed-maturity securities		(2,032)		(5,590)
Sale and redemption of fixed-maturity securities		4,283		7,096
Proceeds from paydowns on variable interest entity loans		203		223
Redemptions of held-to-maturity investments		828		153
Sale (purchase) of short-term investments, net		335		968
Sale (purchase) of other investments, net		109		26
Consolidation (deconsolidation) of variable interest entities, net		(51)		(16)
(Payments) proceeds for derivative settlements		(266)		(66)
Collateral (to) from swap counterparty		(298)		-
Capital expenditures		(5)		(3)
Net cash provided (used) by investing activities		3,106		2,791
Cash flows from financing activities:
Proceeds from issuance of investment agreements		52		89
Payments for drawdowns of investment agreements		(629)		(453)
Issuance of medium-term notes		18		17
Principal paydowns of medium-term notes		(74)		(107)
Principal paydowns of variable interest entity notes		(1,059)		(829)
Payments for securities sold under agreements to repurchase		(287)		(84)
Payments for retirement of debt		(364)		(72)
Purchase of treasury stock		-		(50)
Contribution from noncontrolling interest and redemption of subsidiary preferred stock, net		(1)		9
Restricted stock awards settlements, net		1		(2)
Net cash provided (used) by financing activities		(2,343)		(1,482)
Net increase (decrease) in cash and cash equivalents		(192)		109
Cash and cash equivalents—beginning of period		633		1,130
Cash and cash equivalents—end of period	$	441	$	1,239
Reconciliation of net income (loss) to net cash provided (used) by operating activities:
Net income (loss)	$	598	$	(693)
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:
Change in:
Premiums receivable		98		182
Deferred acquisition costs		35		48
Unearned premium revenue		(443)		(495)
Loss and loss adjustment expense reserves		109		(198)
Insurance loss recoverable		(270)		(239)
Current income taxes		(11)		74
Net investment losses related to other-than-temporary impairments		105		44
Unrealized (gains) losses on insured derivatives		(1,473)		531
Net (gains) losses on financial instruments at fair value and foreign exchange		35		111
Deferred income tax provision (benefit)		163		(497)
(Gains) losses on extinguishment of debt		(49)		(26)
Other operating		148		(42)
Total adjustments to net income (loss)		(1,553)		(507)
Net cash provided (used) by operating activities	$	(955)	$	(1,200)

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

5

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 1: Business Developments, Risks and Uncertainties, and Liquidity

Summary

MBIA Inc., together with its consolidated subsidiaries, (collectively, “MBIA” or the “Company”) operates one of the largest financial guarantee insurance businesses in the industry and is a provider of asset management advisory services. These activities are managed through three business segments: United States (“U.S.”) public finance insurance, structured finance and international insurance, and advisory services. The Company’s U.S. public finance insurance business is primarily operated through National Public Finance Guarantee Corporation and its subsidiaries (“National”), its structured finance and international insurance business is primarily operated through MBIA Insurance Corporation and its subsidiaries (“MBIA Corp.”), and its asset management advisory services business is primarily operated through Cutwater Holdings, LLC and its subsidiaries (“Cutwater”). The holding company, MBIA Inc., and certain of its subsidiaries also manage certain other business activities, the results of which are reported in its corporate, asset/liability products, and conduit segments. The corporate segment includes revenues and expenses that arise from general corporate activities. While the asset/liability products and conduit businesses represent separate business segments, they may be referred to collectively as “wind-down operations” as the funding programs managed through those businesses are in wind-down. Refer to “Note 11: Business Segments” for further information about the Company’s reporting segments.

Business Developments

As a result of insured losses and realized investment losses during the period from 2007 through September 30, 2012, the Company has seen ratings downgrades, a near cessation of new insurance business written by the Company, and increasing liquidity pressure. The Company has been unable to write meaningful amounts of new insurance business since 2008 and does not expect to write significant new insurance business prior to an upgrade of the credit ratings of its insurance subsidiaries. As of September 30, 2012, National was rated BBB with a developing outlook by Standard & Poor’s Financial Services LLC (“S&P”) and Baa2 with a negative outlook by Moody’s Investors Service, Inc. (“Moody’s”). As of September 30, 2012, MBIA Insurance Corporation was rated B with a negative outlook by S&P and B3 with a review for a possible downgrade by Moody’s.

As of September 30, 2012, the liquidity position of MBIA Inc., which consists of the liquidity positions of its corporate and asset/liability products activities, was $432 million and comprised cash and liquid assets of $335 million available for general corporate liquidity purposes, excluding the amounts held in escrow under its tax sharing agreement, and $97 million not pledged directly as collateral for its asset/liability products activities. As of December 31, 2011, MBIA Inc. had $386 million of cash and liquid assets comprising $226 million available for general corporate liquidity purposes, excluding the amounts held in escrow under its tax sharing agreement, and $160 million not pledged directly as collateral for its asset/liability products activities. The Company believes this liquidity position provides MBIA Inc. with sufficient funds to cover expected obligations at least through the next twelve months.

During the nine months ended September 30, 2012, MBIA Corp. continued to seek to reduce both the absolute amount and the volatility of its obligations and potential future claim payments through the execution of commutations of insurance policies. The combination of payments to reduce liabilities, claims payments and the failure of certain mortgage originators to honor contractual obligations to repurchase ineligible mortgage loans from securitizations the Company insured has increased liquidity pressure on MBIA Corp. As of September 30, 2012 and December 31, 2011, MBIA Corp.’s cash and liquid assets were $386 million and $534 million, respectively. During the nine months ended September 30, 2012, MBIA Corp. made $1.0 billion in gross claim payments, and commuted $13.0 billion of gross insured exposure, primarily comprising structured commercial mortgage-backed securities (“CMBS”) pools, commercial real estate (“CRE”) collateralized debt obligations (“CDOs”), investment grade corporate CDOs, asset-backed securities (“ABS”) CDOs, and subprime residential mortgage-backed securities (“RMBS”) transactions, of which $12.8 billion was previously disclosed in earlier MBIA Inc.’s Securities and Exchange Commission (“SEC”) filings. Claims payments primarily resulted from the failure of certain mortgage-backed securities (“MBS”) sponsors to honor contractual obligations to repurchase ineligible mortgage loans. The Company’s ability to commute insured transactions may be limited by available liquidity as determined based on management’s assessment. The Company currently evaluates different methodologies to mitigate liquidity stress, including intercompany lending arrangements and the monetization of illiquid assets.

The reference herein to “ineligible” mortgage loans refers to those mortgage loans that the Company believes failed to comply with the representations and warranties made by the sellers/servicers of the securitizations to which those mortgage loans were sold (including mortgage loans that failed to comply with the related underwriting criteria), based on the Company’s assessment of such mortgage loans’ compliance with such representations and warranties, which included information provided by third-party review firms. The Company’s assessment of the ineligibility of individual mortgage loans could be challenged by the sellers/servicers of the securitizations in litigation and there is no assurance that the Company’s determinations will prevail.

6

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 1: Business Developments, Risks and Uncertainties, and Liquidity (continued)

Risks and Uncertainties

The Company’s financial statements include estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. The outcome of certain significant risks and uncertainties could cause the Company to revise its estimates and assumptions or could cause actual results to differ from the Company’s estimates. While the Company believes it continues to have sufficient capital and liquidity to meet all of its expected obligations, if one or more possible adverse outcomes were to be realized, its statutory capital, financial position, results of operations and cash flows could be materially and adversely affected.

Significant risks and uncertainties that could affect amounts reported in the Company’s financial statements in future periods include, but are not limited to, the following:

• MBIA Corp.’s efforts to recover losses from the second-lien securitization originators could be delayed, settled at amounts below its contractual claims or potentially settled at amounts below those recorded on its balance sheets prepared under accounting principles generally accepted in the United States of America (“GAAP”) and statutory accounting principles (“U.S. STAT”). As of September 30, 2012 and December 31, 2011, the Company’s estimated recoveries after income taxes calculated at the federal statutory rate of 35%, were $2.1 billion and $2.0 billion, respectively, which was 82% and 119% of the consolidated total shareholders’ equity of MBIA, excluding preferred stock of subsidiaries and noncontrolling interests. As of September 30, 2012 and December 31, 2011, the related measures calculated under U.S. STAT were 144% and 89%, respectively, of the statutory capital of MBIA Corp. On May 14, 2012, Residential Capital, LLC (“ResCap”), and its wholly-owned subsidiary companies, Residential Funding Company, LLC (“RFC”) and GMAC Mortgage LLC (“GMAC”) each filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code. MBIA has recorded put-back claims associated with RFC and GMAC. Accordingly, MBIA’s put-back claims are now subject to the ResCap bankruptcy proceeding. Refer to “Note 5: Loss and Loss Adjustment Expense Reserves” for information about the Company’s second-lien RMBS loss recoveries.

• MBIA Inc. may not have sufficient liquidity to make all payments due on its liabilities and to meet other financial requirements, such as posting collateral, primarily as a result of a deficit of invested assets to debt issued to third parties and affiliates and the lack of dividends from its principal operating subsidiaries. During the nine months ended September 30, 2012, MBIA Inc.’s deficit increased as it realized losses from the sale and impairment of invested assets. In addition, it does not expect to receive dividends from its regulated insurance subsidiaries in the near term. If MBIA Inc. were required to continue to sell invested assets at their current market values in order to settle liabilities or to meet minimum required collateral amounts against liabilities, the deficit would increase further. In order to meet liquidity requirements, MBIA Inc. may also finance unencumbered assets through intercompany or third-party facilities, or use free cash or other assets, in some cases with New York State Department of Financial Services (“NYSDFS”) approval, although there can be no assurance that these strategies will be available or adequate. A failure by MBIA Inc. to settle liabilities that are also insured by MBIA Corp. could result in claims on MBIA Corp. The Company’s ability to resolve the deficit will depend on its ability to receive distributions from its operating subsidiaries and/or raise third-party capital, and there can be no assurance that the Company will be successful in eliminating the deficit through these means, or that they will provide adequate liquidity. Refer to the following “Liquidity” section for additional information about MBIA Inc.’s liquidity position.

7

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 1: Business Developments, Risks and Uncertainties, and Liquidity (continued)

• While MBIA Corp. has commuted most of its higher risk CMBS pool exposures, a single counterparty—Bank of America and its subsidiary Merrill Lynch—holds a significant amount of MBIA Corp.’s remaining CMBS pool exposures, including a substantial majority of MBIA Corp.’s CMBS pools originally insured in 2006 and 2007 primarily referencing BBB and lower rated collateral. MBIA Corp. has also recorded its largest put-back asset against Bank of America and certain of its subsidiaries, including Countrywide Home Loans, Inc. (“Countrywide”). While MBIA Corp. has estimated credit impairments or recorded loss reserves for the CMBS exposures, no material claims have been made to date. Bank of America/Merrill Lynch is also one of the two remaining plaintiffs in the litigation challenging the establishment of National (“Transformation Litigation”) (for a discussion of the Transformation Litigation, see “Note 13: Commitments and Contingencies”). As a result, the amount MBIA Corp. may ultimately collect from Bank of America/Countrywide on their put-back obligations in any litigation settlement could be impacted by potential commutation payments on these CMBS exposures and developments in the Transformation Litigation. Likewise, MBIA Corp.’s ability to commute these CMBS exposures may be impacted by developments in the put-back litigation with these entities and the Transformation Litigation. There can be no assurance that any such settlement or commutation will occur or that any such settlement or commutation, if it occurred, would be consummated within the estimates of expected recoveries or loss payments associated with these exposures that are recorded in the Company’s consolidated financial statements. In addition, due to the deterioration in MBIA Corp.’s CMBS exposures, primarily in those exposures held by Bank of America/Merrill Lynch, there is an increased likelihood that MBIA Corp. will experience claims on those exposures, which could be substantial. Depending on the amount of such claims and the amounts of claims on other policies issued by MBIA Corp., MBIA Corp. may not have sufficient liquid assets to pay such claims in the absence of a settlement with Bank of America/Merrill Lynch and the commutation of the CMBS exposures held by Bank of America/Merrill Lynch or in the absence of the collection of other substantial put-back recoverables.

• If commercial real estate servicer behavior does not continue to mitigate potential or actual credit losses in line with current trends, MBIA Corp. could incur substantial losses in that sector, primarily on the Bank of America/Merrill Lynch CMBS exposures described above. As of September 30, 2012, MBIA Corp. had CMBS pool and CRE CDO insured par exposure of approximately $15.7 billion and $2.2 billion, respectively, excluding approximately $2.8 billion of CRE loan pools, primarily comprising European assets. Since the end of 2007 through September 30, 2012, MBIA Corp.’s CMBS pool and CRE CDO gross par exposure has decreased by approximately $36.1 billion, of which $33.1 billion resulted from negotiated commutations and early settlements. Refer to “Note 5: Loss and Loss Adjustment Expense Reserves” for information about the Company’s estimate of CMBS credit impairments.

• Incurred losses from insured RMBS have declined from their peaks. However, due to the large percentage of ineligible mortgage loans included within MBIA Corp.’s insured second-lien portfolio, performance remains difficult to predict and losses could ultimately be in excess of MBIA Corp.’s current estimated loss reserves. Refer to “Note 5: Loss and Loss Adjustment Expense Reserves” for information about MBIA Corp.’s RMBS loss reserves.

• While MBIA Corp. has settled a substantial portion of its insured ABS CDO exposure at levels, on average, within MBIA Corp.’s previously established statutory loss reserves related to those exposures, further economic stress might cause increases in MBIA Corp.’s loss estimates on its remaining exposure. As of September 30, 2012, MBIA Corp.’s ABS CDO gross par outstanding was approximately $4.4 billion, and had decreased approximately $32.9 billion since 2007.

• In recent years, key components of the Company’s strategy have included commuting volatile insured exposures, purchasing instruments issued or guaranteed by the Company in order to reduce future expected economic losses and managing the liquidity requirements and risk in MBIA Inc. In order to implement this strategy, the Company put in place intercompany agreements that allocate liquidity resources among its entities in order to fund commutations and provide liquidity, where needed. The intercompany agreements with the Company’s insurance subsidiaries have required the approval of the NYSDFS. The Company’s ability to continue to draw on intercompany financing, provide other intercompany liquidity and capital support, obtain permission for contingency reserve releases, and the ability of its insurance subsidiaries to pay dividends to MBIA Inc. will in most cases require further approvals from the NYSDFS, and there can be no assurance that the Company will be able to obtain such approvals. In addition, in connection with providing such approvals, the NYSDFS may require the Company or its insurance subsidiaries to agree to take, or refrain from taking, certain actions.

• The Company’s recent financial results have been volatile, which has impacted management’s ability to accurately project future taxable income. Insurance losses incurred beyond those currently projected may cause the Company to record additional allowances against a portion or all of its deferred tax assets. Refer to “Note 10: Income Taxes” for information about the Company’s deferred tax assets.

• Litigation over the NYSDFS approval of National’s creation or additional hurdles to achieving high stable ratings may impede National’s ability to resume writing municipal bond insurance for some time, reducing its long-term ability to generate capital and cash from operations.

8

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 1: Business Developments, Risks and Uncertainties, and Liquidity (continued)

• Municipal and state fiscal distress in the U.S. could adversely affect the Company’s operations if it results in larger-than-expected incurred insurance losses. Additionally, the sovereign debt crisis in the Eurozone could have an adverse impact on insured European exposures and/or cause a global slowdown in growth, thereby adversely affecting U.S. insured exposures.

• In the event the economy and the markets to which MBIA is exposed do not improve, or decline, the unrealized losses on insured credit derivatives could increase, causing additional stress in the Company’s reported financial results. In addition, volatility in the relationship between MBIA’s credit spreads and those on underlying collateral assets of insured credit derivatives can create significant unrealized gains and losses in the Company’s reported results of operations. Refer to “Note 6: Fair Value of Financial Instruments” for information about the Company’s valuation of insured credit derivatives.

As of September 30, 2012, the Company had $2.6 billion of shareholders’ equity and MBIA Insurance Corporation and National had $1.5 billion and $3.1 billion, respectively, of statutory capital. Statutory capital, defined as policyholders’ surplus and contingency reserves, is a key measure of an insurance company’s financial condition under insurance laws and regulations. Failure to maintain adequate levels of statutory surplus and total statutory capital could lead to intervention by the Company’s insurance regulators in its operations and constitute an event of default under certain of the Company’s contracts, thereby materially and adversely affecting the Company’s financial condition and results of operations. Pursuant to approval granted by the NYSDFS in accordance with New York Insurance Law (“NYIL”), as of September 30, 2012, MBIA Insurance Corporation released to surplus an aggregate of $196 million of excessive contingency reserves. As of September 30, 2012, MBIA Insurance Corporation had a deficit of $97 million of qualifying assets required to support its contingency reserves. The deficit was caused by MBIA Insurance Corporation’s sale of liquid assets in order to make claim payments and the failure of certain mortgage originators, particularly Bank of America, to honor their contractual obligations to repurchase ineligible mortgage loans from securitizations the Company insured. The deficit is expected to grow as additional commutation and claim payments are made in the future. The Company has reported the deficit to the NYSDFS. MBIA Insurance Corporation has requested approval from the NYSDFS to release $97 million of contingency reserves as of September 30, 2012, but to date has not received approval. For risks associated with MBIA Insurance Corporation’s failure to meet its contingency reserve requirement, see Item 1A. “Risk Factors—Liquidity and Market Related Risk Factors—If the Company’s insurance subsidiaries fail to meet regulatory capital requirements they may become subject to regulatory action” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

As of September 30, 2012, MBIA Insurance Corporation exceeded its aggregate risk limits under the NYIL by $47 million. MBIA Insurance Corporation will notify the NYSDFS of the overage and will submit a plan to achieve compliance with the limits in accordance with the NYIL. If MBIA Insurance Corporation is not in compliance with its aggregate risk limits, the NYSDFS may prevent MBIA Insurance Corporation from transacting any new financial guarantee insurance business until it no longer exceeds the limitations.

Liquidity

As a financial services company, MBIA has been materially adversely affected by conditions in global financial markets. Current conditions and events in these markets, in addition to the failure by the originators of RMBS to repurchase the ineligible mortgage loans in securitizations that the Company has insured, have put substantial stress on the Company’s liquidity resources.

The Company has utilized a liquidity risk management framework, the primary objectives of which are to monitor liquidity positions and projections in its legal entities and guide the matching of liquidity resources to needs. The Company monitors its cash and liquid asset resources using stress-scenario testing. Members of MBIA’s senior management meet regularly to review liquidity metrics, discuss contingency plans and establish target liquidity cushions on an enterprise-wide basis. As part of the Company’s liquidity risk management framework, the Company evaluates and manages liquidity on a legal-entity basis to take into account the legal, regulatory and other limitations on available liquidity resources within the enterprise.

9

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 1: Business Developments, Risks and Uncertainties, and Liquidity (continued)

The majority of the Company’s liquidity management efforts focus on:

• The liquidity resources of MBIA Inc., which are subject to: uncertainty in the timing and amount of cash inflows from dividends paid by National and MBIA Corp.; the necessity of having to support the liquidity needs of the asset/liability products business; and potential cross-defaults of holding company debt with other obligations in the consolidated group. The asset/liability products business of MBIA Inc. is subject to ongoing negative cash flow and has a deficit of invested assets to liabilities. In addition, the liquidity resources of MBIA Inc. are subject to collateralization requirements in connection with the liabilities it has issued to third parties and affiliates and in connection with third-party derivative contracts.

• The liquidity resources of MBIA Corp. which are subject to: an increased likelihood that MBIA Corp. will experience claims on its CMBS exposures, primarily in those exposures held by Bank of America/Merrill Lynch, due to the deterioration in such exposures; delays in the collection of recoveries related to ineligible mortgage loans in certain insured RMBS transactions; payments to counterparties in consideration for the commutation of insured transactions; and payments on insured exposures that in some cases may be large bullet payments. MBIA Corp. is currently subject to negative cash flow as a result of these payments and delays in collecting recoveries.

In order to address these liquidity risks and efficiently manage liquidity across the entire enterprise, certain of the Company’s subsidiaries which are less liquidity constrained have entered into intercompany agreements that provide resources to subsidiaries that are more liquidity constrained. These resources include intercompany agreements described further below between the Company’s primary insurance subsidiaries and between these insurance subsidiaries and the asset/liability products business (through MBIA Inc.), which in each case were approved by the NYSDFS and are subject to ongoing monitoring by the NYSDFS. The Company monitors the liquidity resources of National, for which the Company has not observed material liquidity risk to date, in order to ensure it maintains sufficient liquidity to pay claims and satisfy its other obligations. National’s liquidity resources are subject to unexpected loss payments on its insured transactions, negative cash flow, and liquidity support arrangements with its affiliates.

Key Intercompany Lending Agreements

National Secured Loan

National provided a $1.1 billion secured loan to MBIA Insurance Corporation (“National Secured Loan”) in order to enable MBIA Insurance Corporation to fund settlements and commutations of its insurance policies. This loan was approved by the NYSDFS as well as by the boards of directors of MBIA Inc., MBIA Insurance Corporation and National. The National Secured Loan has a fixed annual interest rate of 7% and a maturity date of December 2016. MBIA Insurance Corporation has the option to defer payments of interest when due by capitalizing interest amounts to the loan balance, subject to the collateral value exceeding certain thresholds. MBIA Insurance Corporation has elected to defer the interest payments due under the loan. MBIA Insurance Corporation’s obligation to repay the loan is secured by a pledge of collateral having an estimated value in excess of the notional amount of the loan as of September 30, 2012, which collateral comprised the following future receivables of MBIA Corp.: (i) its right to receive put-back recoveries related to ineligible mortgage loans included in its insured second-lien RMBS transactions; (ii) future recoveries on defaulted insured second-lien RMBS transactions resulting from expected excess spread generated by performing loans in such transactions; and (iii) future installment premiums. During the nine months ended September 30, 2012, MBIA Insurance Corporation borrowed an additional $443 million under the National Secured Loan with the approval of the NYSDFS at the same terms as the original loan to fund additional commutations of its insurance policies. As of September 30, 2012, the outstanding principal amount under this loan was $1.6 billion. MBIA Insurance Corporation may seek to borrow additional amounts under the loan in the future. Any such increase or other amendment to the terms of the loan would be subject to regulatory approval by the NYSDFS.

Asset Swap

National maintained simultaneous repurchase and reverse repurchase agreements (“Asset Swap”) with MBIA Inc. for up to $2.0 billion based on the fair value of securities borrowed. The Asset Swap provides MBIA Inc. with eligible assets to pledge under investment agreements and derivative contracts in the asset/liability products business. As of September 30, 2012, the notional amount utilized under each of these agreements was $522 million and the fair value of collateral pledged by National and MBIA Inc. under these agreements was $535 million and $558 million, respectively. The net average interest rate on these transactions was 0.56% and 0.34% for the nine months ended September 30, 2012 and 2011, respectively. The NYSDFS approved the Asset Swap in connection with the re-domestication of National to New York. National has committed to the NYSDFS to use commercially reasonable efforts to reduce the amount of the Asset Swap over time.

10

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 1: Business Developments, Risks and Uncertainties, and Liquidity (continued)

MBIA Corp. Secured Loan

MBIA Corp., as lender, maintained a master repurchase agreement with MBIA Inc. (“MBIA Corp. Secured Loan”) for the benefit of MBIA Inc.’s asset/liability products business, which totaled $2.0 billion at inception and was scheduled to mature in May 2012, as amended. This loan was repaid in May 2012 and there have been no further draws. During 2012, the average interest rate on the MBIA Corp. Secured Loan was 2.51% through the repayment in May 2012. Also in May 2012, the NYSDFS approved the maturity extension of the MBIA Corp. Secured Loan to May 2013 with a maximum outstanding amount of $450 million, subject to MBIA Corp. obtaining prior regulatory approval from the NYSDFS for any draws under the facility.

Conduit Repurchase Agreement

MBIA Inc. maintained a repurchase agreement with Meridian Funding Company, LLC (“Conduit Repurchase Agreement”), with a maximum funded amount of $1.0 billion, subject to a pledge of collateral. The Conduit Repurchase Agreement had an average interest rate during the nine months ended September 30, 2012 of 2.48%. As of September 30, 2012, the amount drawn by MBIA Inc. under this agreement and the fair value of the collateral pledged by MBIA Inc. was $51 million and $63 million, respectively.

MBIA Inc. Liquidity

MBIA Inc.’s liquidity resources support the Company’s corporate and asset/liability products segments. The activities of MBIA Inc. consist of holding and managing investments, servicing outstanding corporate debt instruments, investment agreements and medium-term notes (“MTNs”) issued by the asset/liability products and conduit segments, posting collateral under financing and hedging arrangements and investment agreements, making payments and collateral postings related to interest rate and foreign exchange swaps, and paying operating expenses. The primary sources of cash within MBIA Inc. used to meet its liquidity needs include available cash and liquid assets not subject to collateral posting requirements, scheduled principal and interest on assets held in its investment portfolio, dividends from subsidiaries, payments under tax sharing agreements with these subsidiaries (once the payments become unrestricted) and the ability to issue debt and equity. There can be no assurance as to the amount and timing of any such dividends or payments under the tax sharing agreements. MBIA Inc.’s corporate debt, investment agreements, MTNs, and derivatives may be accelerated by the holders of such instruments upon the occurrence of certain events, such as a breach of covenant or representation, a bankruptcy of MBIA Inc. or the filing of an insolvency proceeding with respect to MBIA Corp. MBIA Inc.’s obligations under its loans from MBIA Global Funding, LLC (“GFL”) may be accelerated only upon the occurrence of a bankruptcy or liquidation of MBIA Inc. Refer to “Note 11: Business Segments” for a description of the GFL loans. In the event of any acceleration of the Company’s obligations, including under its corporate debt, investment agreements, MTNs, or derivatives, the Company likely would not have sufficient liquid resources to pay amounts due with respect to its corporate debt and other obligations.

During the nine months ended September 30, 2012, pursuant to the tax sharing agreement, National settled with MBIA Inc. its taxes related to the 2010 and 2011 tax years of $1 million and $11 million, respectively. In addition, National paid to MBIA Inc. estimated 2012 taxes of $95 million. Consistent with the tax sharing agreement, these amounts were placed in an escrow account until the expiration of National’s two-year net operating loss (“NOL”) carry-back period under U.S. tax rules. At the expiration of National’s carry-back period, any funds remaining after any reimbursement to National in respect of any NOL carry-backs would be available for general corporate purposes, including to satisfy any other obligations under the tax sharing agreement. As of September 30, 2012, $365 million remained in escrow for the 2010 through 2012 tax years.

MBIA Inc. is subject to material liquidity risks and uncertainties. To mitigate these risks, the Company seeks to maintain cash and liquidity resources that are expected to be sufficient to make all payments due on its obligations and to meet other financial requirements, such as posting collateral, at least through the next twelve months.

Liquidity risk within MBIA Inc. is primarily a result of the following factors:

• MBIA Inc.’s asset/liability products segment had a deficit of invested assets to liabilities issued to third parties and affiliates of $980 million as of September 30, 2012, which increased from $591 million as of December 31, 2011. This deficit is a result of selling investments and terminating interest rate swaps at losses, and may further increase as a result of selling investments and terminating interest rates swaps at losses in the future. In addition, this deficit is expected to increase as a result of ongoing expected operating losses. This deficit will need to be reversed prior to the maturity of the liabilities in order to ensure that there are sufficient funds available to fully retire the liabilities. The Company expects that MBIA Inc. will be able to eliminate the deficit prior to the maturity of the related liabilities from distributions from its operating subsidiaries and by raising third-party capital, although there can be no assurance that MBIA Inc. will be able to eliminate the deficit through such means.

• Uncertainty of the timing and amount of cash inflows from dividends paid by MBIA’s principal operating subsidiaries.

11

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 1: Business Developments, Risks and Uncertainties, and Liquidity (continued)

• Currently, the majority of the cash and securities of MBIA Inc. is pledged against investment agreement liabilities, intercompany financing arrangements and derivatives, which limit its ability to raise liquidity through asset sales. In addition, if the market value or rating eligibility of the assets which are pledged against these obligations were to decline, the Company would be required to pledge additional eligible assets in order to meet minimum required collateral amounts against these liabilities. In such event, the Company may sell additional assets, potentially with substantial losses, finance unencumbered assets through intercompany facilities, or use free cash or other assets, in some cases with NYSDFS approval, although there can be no assurance that these strategies will be available or adequate to meet liquidity requirements.

Because the majority of MBIA Inc.’s assets is pledged against the obligations described above, the widening of credit spreads would have an adverse impact on the market value of these assets and increase collateralization requirements for the portfolio. The following table presents the estimated pre-tax change in fair value of the asset/liability products business’ assets as of September 30, 2012 from instantaneous shifts in credit spread curves. This table assumes that all credit spreads move by the same amount; however, it is more likely that the actual changes in credit spreads will vary by investment sector and individual security. The table presents hypothetical increases and decreases in credit spreads of 50 and 200 basis points. Because downward movements of these amounts in some cases would result in negative spreads, a floor was assumed for minimum spreads.

	Change in Credit Spreads (Asset/Liability Products Business)
In millions	200 Basis Point Decrease		50 Basis Point Decrease		50 Basis Point Increase		200 Basis Point Increase
Estimated change in fair value	$	149	$	41	$	(37)	$	(130)

During the nine months ended September 30, 2012, MBIA Inc. maintained three intercompany financing facilities to provide it with additional resources to meet its liquidity requirements within the asset/liability products business: the Asset Swap, the MBIA Corp. Secured Loan and the Conduit Repurchase Agreement. Refer to the preceding “Key Intercompany Lending Agreements” section for a description of these facilities.

Stressed credit market conditions could cause MBIA Inc. to have insufficient resources to cover collateral and/or other liquidity requirements. Management has identified certain actions to mitigate this risk. These contingent actions include: (1) additional sales of other invested assets exposed to credit spread stress risk, which may occur at losses and increase the deficit of invested assets to liabilities; (2) termination and settlement of interest rate swap agreements; and (3) other available advances from subsidiaries. These actions, if taken, are expected to result in either additional liquidity or reduced exposure to adverse credit spread movements. There can be no assurance that these actions will be sufficient to fully mitigate this risk. In the event that the Company cannot implement the contingent actions identified above to raise liquidity, or eliminate the deficit, it may have insufficient assets to make all payments on its obligations as they come due, which could result in a default by MBIA Inc. on its obligations and the potential for MBIA Corp., as guarantor of the investment agreements and GFL MTNs, to be called upon to satisfy obligations on those instruments as they come due.

As of September 30, 2012, the liquidity position of MBIA Inc., which consists of the liquidity positions of its corporate and asset/liability products activities, was $432 million and comprised cash and liquid assets of $335 million available for general corporate liquidity purposes, excluding the amounts held in escrow under its tax sharing agreement, and $97 million not pledged directly as collateral for its asset/liability products activities. As of December 31, 2011, MBIA Inc. had $386 million of cash and liquid assets comprising $226 million available for general corporate liquidity purposes, excluding the amounts held in escrow under its tax sharing agreement, and $160 million not pledged directly as collateral for its asset/liability products activities. This liquidity position provides MBIA Inc. with sufficient funds to cover expected obligations at least through the next twelve months.

MBIA Corp. Liquidity

Liquidity available in the structured finance and international insurance segment is affected by the Company’s ability to collect on receivables associated with loss payments, the payment of claims on insured exposures, payments made to commute insured exposures, the repayment of the National Secured Loan, a reduction in investment income, any unanticipated expenses, or the impairment or a significant decline in the fair value of invested assets. The Company may also experience liquidity constraints as a result of NYIL requirements that the Company maintain specified, high quality assets to back the Company’s reserves and surplus.

12

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 1: Business Developments, Risks and Uncertainties, and Liquidity (continued)

The Company’s current liquidity position of MBIA Corp. is adequate to make expected future claims payments and it expects to settle its insured CMBS exposures with no cash payments. However, the liquidity position of MBIA Corp. has been stressed due to the failure of the sellers/servicers of RMBS transactions insured by MBIA Corp. to repurchase ineligible mortgage loans in certain insured transactions and payments to counterparties in consideration for the commutation of insured transactions, which have resulted in a substantial reduction of exposure and potential loss volatility. While MBIA Corp. has made and may in the future make payments to counterparties in consideration for the commutation of insured transactions, MBIA Corp.’s ability to commute insured transactions will depend on management’s assessment of available liquidity. In addition, due to the deterioration in MBIA Corp.’s CMBS exposures, primarily in those exposures held by Bank of America/Merrill Lynch, there is an increased likelihood that MBIA Corp. will experience claims on those exposures, which claims could be substantial. Depending on the amount of such claims and the amounts of claims on other policies issued by MBIA Corp., MBIA Corp. may not have sufficient liquid assets to pay such claims in the absence of a settlement with Bank of America/Merrill Lynch and the commutation of the CMBS exposures held by Bank of America/Merrill Lynch or in the absence of the collection of other substantial put-back recoverables.

Payment requirements for the structured finance and international financial guarantee contracts fall into three categories: (i) timely interest and ultimate principal; (ii) ultimate principal only at final maturity; and (iii) payments upon settlement of individual collateral losses as they occur after any deductible or subordination has been exhausted, which payments are unscheduled and therefore more difficult to predict, and which category applies to most of the transactions on which the Company has recorded loss reserves. Insured transactions that require payment in full of the principal insured at maturity could present liquidity risks for MBIA Corp. since payment of the principal is due at maturity but any salvage could be recovered over time after payment of the principal amount. MBIA Corp. is generally required to satisfy claims within one to three business days, and as a result seeks to identify potential claims in advance through the Company’s monitoring process. While MBIA Corp.’s financial guarantee policies generally cannot be accelerated, thereby mitigating liquidity risk, the insurance of credit default swap (“CDS”) contracts may, in certain events, including the insolvency or payment default of the insurer or the issuer of the CDS, be subject to termination by the counterparty, triggering a claim for the fair value of the contract. In order to monitor liquidity risk and maintain appropriate liquidity resources, the Company uses the same methodology as it uses to monitor credit quality and losses within its insured portfolio, including stress scenarios. Refer to “Note 5: Loss and Loss Adjustment Expense Reserves” for a discussion of the Company’s loss and loss adjustment expense (“LAE”) process.

The Company’s structured finance and international insurance segment also requires cash for the payment of operating expenses, as well as principal and interest related to its surplus notes. Pursuant to Section 1307 of the NYIL and the Fiscal Agency Agreement governing MBIA Corp.’s surplus notes, any payment on the notes may be made only with the prior approval of the Superintendent of the NYSDFS “whenever, in his judgment, the financial condition of [MBIA Corp.] warrants” and payment may be made only out of MBIA Corp.’s “free and divisible surplus”. If these conditions are not met, MBIA Corp. would not be obligated to make any applicable interest payment and no default or event of default would occur under the Fiscal Agency Agreement or any of the Company’s other agreements. While the NYSDFS has approved the note interest payments in the past, its approval of the most recent note interest payment on July 16, 2012 was not received until after the date on which the Fiscal Agency Agreement required MBIA Corp. to notify the registered holders of the notes and the Fiscal Agent of the failure to obtain such approval, as the Company disclosed on a Form 8-K filed on July 10, 2012. There can be no assurance that the NYSDFS will approve the next scheduled note interest payment on January 15, 2013 or any subsequent payments, or that it will approve any payment by the scheduled interest payment date or by the date on which the notice is required to be delivered to the registered holders and the Fiscal Agent, nor can there be any assurance that the NYSDFS will approve any optional redemption payment that MBIA Corp. may seek to make on or after January 15, 2013.

Since the fourth quarter of 2007 through September 30, 2012, MBIA Corp. has made $11.6 billion of cash payments, before reinsurance and collections and excluding LAE (including payments made to debt holders of consolidated variable interest entities (“VIEs”)), associated with second-lien RMBS securitizations and with commutations and claim payments relating to CDS contracts. These cash payments include loss payments of $893 million made on behalf of MBIA Corp.’s consolidated VIEs. Of the $11.6 billion, MBIA Corp. has paid $6.6 billion of gross claims (before reinsurance and collections and excluding LAE) on policies insuring second-lien RMBS securitizations, driven primarily by an extensive number of ineligible mortgage loans being placed in the securitizations in breach of the representations and warranties of the sellers/servicers. In addition, MBIA Corp. has paid $5.0 billion of gross settlement and claim payments (before reinsurance and collections and excluding LAE) on insured credit derivatives. Also, since the fourth quarter of 2007 through September 30, 2012, MBIA Corp. has collected $185 million on excess spread before reinsurance.

13

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 1: Business Developments, Risks and Uncertainties, and Liquidity (continued)

MBIA Corp. is seeking to enforce its rights to have mortgage sellers/servicers cure, replace or repurchase ineligible mortgage loans from securitizations and has recorded a total of $3.2 billion of related expected recoveries on its consolidated balance sheets as of September 30, 2012, including expected recoveries recorded in the Company’s consolidated VIEs. These put-back claims have been disputed by the loan sellers/servicers and are the subject of certain litigations discussed more fully in “Note 13: Commitments and Contingencies.” On May 14, 2012, ResCap and its wholly-owned subsidiary companies, RFC and GMAC each filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code. Additionally, there is some risk that the sellers/servicers or other responsible parties might not be able to fully satisfy any judgment the Company secures in litigation and ResCap’s bankruptcy filing. Further, there can be no assurance that the Company will be successful or that the Company will not be delayed in realizing these recoveries. Such risks are contemplated in the scenarios the Company utilizes to calculate these recoveries, which are recognized on the Company’s consolidated balance sheets. The Company believes that it has adequate liquidity resources to provide for anticipated cash outflows; however, if the Company does not realize or is delayed in realizing these expected recoveries, the Company may not have adequate liquidity to fully execute the strategy to reduce future potential economic losses by commuting policies and purchasing instruments issued or guaranteed by the Company, or to repay any intercompany borrowings.

A portion of the commutation payments made since the fourth quarter of 2011 were financed through the National Secured Loan. MBIA Insurance Corporation’s ability to repay the loan and any accrued interest will be primarily predicated on MBIA Corp.’s ability to collect on its future receivables, including its ability to successfully enforce its rights to have the mortgage sellers/servicers cure, replace or repurchase ineligible mortgage loans from insured securitizations.

MBIA Corp. also insures third-party holders of the Company’s asset/liability products segment’s obligations. If the Company was unable to meet payment or collateral requirements associated with these obligations, the holders thereof could make claims under the MBIA Corp. insurance policies. In 2008, to provide additional liquidity to the asset/liability products business, MBIA Corp. lent $2.0 billion to the segment on a secured basis under the MBIA Corp. Secured Loan. As of September 30, 2012, the outstanding balance of the MBIA Corp. Secured Loan was repaid in full. In May 2012, the NYSDFS approved the maturity extension of the MBIA Corp. Secured Loan to May 2013 with a maximum outstanding amount of $450 million, subject to MBIA Corp. obtaining prior regulatory approval from the NYSDFS for any draws under the facility.

As of September 30, 2012, MBIA Corp. held cash and available-for-sale investments of $1.4 billion, of which $386 million comprised cash and highly liquid assets. As of December 31, 2011, MBIA Corp. held cash and available-for-sale investments of $1.5 billion, of which $534 million comprised cash and highly liquid assets. The Company believes that MBIA Corp.’s liquidity resources, including expected cash inflows, will adequately provide for anticipated cash outflows. In the event of unexpected liquidity requirements, the Company may have insufficient resources to meet its obligations or insufficient qualifying assets to support its surplus and reserves, and may seek to increase its cash holdings position by selling or financing assets, or raising external capital, and there can be no assurance that the Company will be able to draw on these additional sources of liquidity.

National Liquidity

Despite continued adverse macroeconomic conditions in the U.S., the incidence of default among U.S. public finance issuers remains extremely low and the Company believes that the liquidity position of its U.S. public finance insurance segment is sufficient to meet cash requirements in the ordinary course of business.

Liquidity risk arises in the Company’s U.S. public finance insurance segment primarily from the following:

• The insurance policies issued or reinsured by National, the entity from which the Company conducts its U.S. public finance insurance business, provide unconditional and irrevocable guarantees of payments of the principal of, and interest or other amounts owing on, insured obligations when due or, in the event that the insurance company has the right, at its discretion, to accelerate insured obligations upon default or otherwise, upon the insurance company’s election to accelerate. In the event of a default in payment of principal, interest or other insured amounts by an issuer, National generally promises to make funds available in the insured amount within one to three business days following notification. In some cases, the amount due can be substantial, particularly if the default occurs on a transaction to which National has a large notional exposure or on a transaction structured with large, bullet-type principal maturities. The fact that the U.S. public finance insurance segment’s financial guarantee contracts generally cannot be accelerated by a party other than the insurer helps to mitigate liquidity risk in this segment.

14

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 1: Business Developments, Risks and Uncertainties, and Liquidity (continued)

• National has entered into certain intercompany transactions to support the liquidity needs of its affiliates. These transactions include the National Secured Loan to MBIA Insurance Corporation and the Asset Swap through which National provides liquid assets to the Company’s asset/liability products business. As a result of these transactions, National is subject to repayment risk, which may adversely affect its liquidity. The repayment of the National Secured Loan will primarily be predicated on MBIA Corp.’s ability to successfully enforce its rights to have mortgage sellers/servicers cure, replace or repurchase ineligible mortgage loans from securitizations it insured. In addition, changes in the market value of securities sold to National under its Asset Swap with the asset/liability products business may adversely affect its liquidity position if the asset/liability business were unable to pledge additional eligible assets in order to meet minimum required collateral amounts.

National held cash and short-term investments of $356 million as of September 30, 2012, of which $318 million was highly liquid and consisted predominantly of highly rated municipal, U.S. agency and corporate bonds. As of December 31, 2011, National held cash and short-term investments of $771 million, of which $703 million was highly liquid and consisted predominantly of highly rated municipal, U.S. agency and corporate bonds. With the exception of its loan to MBIA Insurance Corporation, most of National’s investments, including those encumbered by the Asset Swap, are liquid and highly rated.

Note 2: Significant Accounting Policies

The Company has disclosed its significant accounting policies in “Note 2: Significant Accounting Policies” in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. The following significant accounting policies provide an update to those included in the Company’s Annual Report on Form 10-K.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X and, accordingly, do not include all of the information and disclosures required by GAAP for annual periods. These statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2011. 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 (U.S.), but in the opinion of management such financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for the fair statement of the Company’s consolidated financial position and results of operations. All material intercompany balances and transactions have been eliminated.

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. As additional information becomes available or actual amounts become determinable, the recorded estimates are revised and reflected in operating results.

The results of operations for the three and nine months ended September 30, 2012 may not be indicative of the results that may be expected for the year ending December 31, 2012. The December 31, 2011 consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by GAAP for annual periods. Certain amounts have been reclassified in comparison to prior years’ financial statements to conform to the current presentation. Such reclassifications had no impact on total revenues, expenses, assets, liabilities, or shareholders’ equity for all periods presented.

Statements of Cash Flows

Previously, the Company reported its consolidated statements of cash flows using the indirect method. The indirect method uses accrual accounting information to present the cash flows from operations. Effective January 1, 2012, the Company elected to present its consolidated statements of cash flows using the direct method. The direct method uses actual cash flow information from the Company’s operations, rather than using accrual accounting values. Using either the direct or indirect method, total cash flows from operations are consistent. In addition, the presentation of cash flows from investing and financing activities using either the direct or indirect method are consistent. The change to the direct method for calculating and presenting cash flows from operations was implemented retroactively for all statements of cash flows presented herein. Use of the direct method requires a reconciliation of net income to cash flows from operations. This reconciliation is provided as a supplement directly beneath the statements of cash flows.

15

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 3: Recent Accounting Pronouncements

Recently Adopted Accounting Standards

Presentation of Comprehensive Income (ASU 2011-05)

In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-05, “Comprehensive Income (Topic 220)—Presentation of Comprehensive Income.” This amendment eliminates the current option to report other comprehensive income and its components in the statements of changes in equity except for the presentation of reclassification adjustments for which adoption has been deferred by the FASB. The amendment does not change what currently constitutes net income and other comprehensive income. The new guidance is effective for the Company beginning January 1, 2012. In December 2011, the FASB issued ASU 2011-12 “Comprehensive Income (Topic 220)—Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05,” which defers certain aspects of ASU 2011-05 related to the presentation of reclassification adjustments. The Company adopted this standard effective January 1, 2012. The standard only affected the Company’s presentation of comprehensive income and did not affect the Company’s consolidated balance sheets, results of operations, or cash flows.

Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (ASU 2011-04)

In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820)—Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” This amendment results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between GAAP and International Financial Reporting Standards. The Company adopted this standard effective January 1, 2012. This standard only affected the Company’s disclosures related to fair value; therefore, the adoption of this standard did not affect the Company’s consolidated balance sheets, results of operations, or cash flows.

Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts (ASU 2010-26)

In October 2010, the FASB issued ASU 2010-26, “Financial Services—Insurance (Topic 944)—Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts.” This amendment specifies which costs incurred in the acquisition of new and renewal insurance contracts should be capitalized. The Company adopted this standard on a prospective basis effective January 1, 2012. As the Company is currently not writing any significant new business, the adoption of this standard did not have a material effect on the Company’s consolidated balance sheets, results of operations, or cash flows. The difference between the amount of acquisition costs capitalized during the first nine months of 2012 compared with the amount of acquisition costs that would have been capitalized during the period if the Company’s previous policy had been applied during that period is not material because the Company did not write any significant new insurance business during the first nine months of 2012.

Recent Accounting Developments

Disclosures about Offsetting Assets and Liabilities (ASU 2011-11)

In December 2011, the FASB issued ASU 2011-11, “Balance Sheet (Topic 210)—Disclosures about Offsetting Assets and Liabilities.” ASU 2011-11 creates new disclosure requirements about the nature of the Company’s rights of setoff and related arrangements associated with its financial instruments and derivative instruments. This amendment does not change the existing offsetting eligibility criteria or the permitted balance sheet presentation for those instruments that meet the eligibility criteria. The disclosure requirements are effective for the Company beginning in the first quarter of 2013. This standard will only affect the Company’s disclosures and will not affect the Company’s consolidated balance sheets, results of operations, or cash flows.

Refer to the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 for further information regarding the effects of recently adopted accounting standards on prior year financial statements.

16

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 4: Variable Interest Entities

Structured Finance and International Insurance

Through MBIA’s structured finance and international insurance segment, the Company provides credit protection to issuers of obligations that may involve issuer-sponsored special purpose entities (“SPEs”). An SPE may be considered a VIE to the extent the SPE’s total equity at risk is not sufficient to permit the SPE to finance its activities without additional subordinated financial support or its equity investors lack any one of the following characteristics (i) the power to direct the activities of the SPE that most significantly impact the entity’s economic performance or (ii) the obligation to absorb the expected losses of the entity or the right to receive the expected residual returns of the entity. A holder of a variable interest or interests in a VIE is required to assess whether it has a controlling financial interest, and thus is required to consolidate the entity as primary beneficiary. An assessment of a controlling financial interest identifies the primary beneficiary as the variable interest holder that has both of the following characteristics (i) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance and (ii) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. The primary beneficiary is required to consolidate the VIE. An ongoing reassessment of controlling financial interest is required to be performed based on any substantive changes in facts and circumstances involving the VIE and its variable interests.

The Company evaluates issuer-sponsored SPEs initially to determine if an entity is a VIE, and is required to reconsider its initial determination if certain events occur. For all entities determined to be VIEs, MBIA performs an ongoing reassessment to determine whether its guarantee to provide credit protection on obligations issued by VIEs provides the Company with a controlling financial interest. Based on its ongoing reassessment of controlling financial interest, the Company determines whether a VIE is required to be consolidated or deconsolidated.

The Company makes its determination for consolidation based on a qualitative assessment of the purpose and design of a VIE, the terms and characteristics of variable interests of an entity, and the risks a VIE is designed to create and pass through to holders of variable interests. The Company generally provides credit protection on obligations issued by VIEs, and holds certain contractual rights according to the purpose and design of a VIE. The Company may have the ability to direct certain activities of a VIE depending on facts and circumstances, including the occurrence of certain contingent events, and these activities may be considered the activities of a VIE that most significantly impact the entity’s economic performance. The Company generally considers its guarantee of principal and interest payments of insured obligations, given nonperformance by a VIE, to be an obligation to absorb losses of the entity that could potentially be significant to the VIE. At the time the Company determines it has the ability to direct the activities of a VIE that most significantly impact the economic performance of the entity based on facts and circumstances, MBIA is deemed to have a controlling financial interest in the VIE and is required to consolidate the entity as primary beneficiary. The Company performs an ongoing reassessment of controlling financial interest that may result in consolidation or deconsolidation of any VIE.

Wind-down Operations

In its asset/liability products segment, the Company invests in obligations issued by issuer-sponsored SPEs which are included in fixed-maturity securities held as available-for-sale. The Company evaluates issuer-sponsored SPEs to determine if the entity is a VIE. For all entities determined to be VIEs, the Company evaluates whether its investment is determined to have both of the characteristics of a controlling financial interest in the VIE. The Company performs an ongoing reassessment of controlling financial interests in issuer-sponsored VIEs based on investments held. MBIA’s wind-down operations do not have a controlling financial interest in any issuer-sponsored VIEs and are not the primary beneficiary of any issuer-sponsored VIEs.

In the conduit segment, the Company has managed and administered two conduits that invested primarily in debt securities and were funded through the issuance of VIE notes and long-term debt. MBIA Corp. insures the debt obligations of the conduits, and provides credit protection on certain assets held by the conduits. The conduits are VIEs and are consolidated by the Company as primary beneficiary. In 2012, all debt securities held by one of the conduits were entirely repaid, and the proceeds were used to repay all outstanding long-term debt of this conduit. The Company subsequently dissolved this conduit, and no longer provides any related credit protection.

Nonconsolidated VIEs

The following tables present the total assets of nonconsolidated VIEs in which the Company holds a variable interest as of September 30, 2012 and December 31, 2011. The following tables also present the Company’s maximum exposure to loss for nonconsolidated VIEs and carrying values of the assets and liabilities for its interests in these VIEs as of September 30, 2012 and December 31, 2011. The Company has aggregated nonconsolidated VIEs based on the underlying credit exposure of the insured obligation. The nature of the Company’s variable interests in nonconsolidated VIEs is related to financial guarantees, insured CDS contracts and any investments in obligations issued by nonconsolidated VIEs.

17

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 4: Variable Interest Entities (continued)

	September 30, 2012
					Carrying Value of Assets						Carrying Value of Liabilities
In millions	VIE Assets		Maximum Exposure to Loss		Investments(1)		Premiums Receivable(2)		Insurance Loss Recoverable(3)		Unearned Premium Revenue(4)		Loss and Loss Adjustment Expense Reserves(5)		Derivative Liabilities(6)
Insurance:
Global structured finance:
Collateralized debt obligations	$	17,552	$	11,053	$	-	$	67	$	3	$	59	$	78	$	85
Mortgage-backed residential		36,464		13,578		9		75		2,967		73		485		4
Mortgage-backed commercial		4,751		2,456		-		2		-		2		-		-
Consumer asset-backed		6,372		3,390		11		20		-		20		16		-
Corporate asset-backed		22,006		11,261		-		144		21		159		-		1
Total global structured finance		87,145		41,738		20		308		2,991		313		579		90
Global public finance		46,795		21,578		-		216		-		268		-		-
Total insurance	$	133,940	$	63,316	$	20	$	524	$	2,991	$	581	$	579	$	90

(1) - Reported within “Investments” on MBIA’s consolidated balance sheets.

(2) - Reported within “Premiums receivable” on MBIA’s consolidated balance sheets.

(3) - Reported within “Insurance loss recoverable” on MBIA’s consolidated balance sheets.

(4) - Reported within “Unearned premium revenue” on MBIA’s consolidated balance sheets.

(5) - Reported within “Loss and loss adjustment expense reserves” on MBIA’s consolidated balance sheets.

(6) - Reported within “Derivative liabilities” on MBIA’s consolidated balance sheets.

	December 31, 2011
					Carrying Value of Assets						Carrying Value of Liabilities
In millions	VIE Assets		Maximum Exposure to Loss		Investments(1)		Premiums Receivable(2)		Insurance Loss Recoverable(3)		Unearned Premium Revenue(4)		Loss and Loss Adjustment Expense Reserves(5)		Derivative Liabilities(6)
Insurance:
Global structured finance:
Collateralized debt obligations	$	26,507	$	15,466	$	42	$	67	$	-	$	58	$	3	$	113
Mortgage-backed residential		47,669		16,379		25		87		2,773		86		428		5
Mortgage-backed commercial		5,001		2,644		-		2		-		2		-		-
Consumer asset-backed		8,015		4,563		16		26		-		25		23		-
Corporate asset-backed		29,855		15,577		241		192		22		205		-		1
Total global structured finance		117,047		54,629		324		374		2,795		376		454		119
Global public finance		42,106		21,774		-		215		-		270		-		-
Total insurance	$	159,153	$	76,403	$	324	$	589	$	2,795	$	646	$	454	$	119

(1) - Reported within “Investments” on MBIA’s consolidated balance sheets.

(2) - Reported within “Premiums receivable” on MBIA’s consolidated balance sheets.

(3) - Reported within “Insurance loss recoverable” on MBIA’s consolidated balance sheets.

(4) - Reported within “Unearned premium revenue” on MBIA’s consolidated balance sheets.

(5) - Reported within “Loss and loss adjustment expense reserves” on MBIA’s consolidated balance sheets.

(6) - Reported within “Derivative liabilities” on MBIA’s consolidated balance sheets.

The maximum exposure to loss as a result of MBIA’s variable interests in VIEs is represented by insurance in force. Insurance in force is the maximum future payments of principal and interest, net of cessions to reinsurers, which may be required under commitments to make payments on insured obligations issued by nonconsolidated VIEs.

18

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 4: Variable Interest Entities (continued)

Consolidated VIEs

The carrying amounts of assets and liabilities of consolidated VIEs were $8.2 billion and $7.2 billion, respectively, as of September 30, 2012, and $10.9 billion and $9.9 billion, respectively, as of December 31, 2011. The carrying amounts of assets and liabilities are presented separately in “Assets of consolidated variable interest entities” and “Liabilities of consolidated variable interest entities” on the Company’s consolidated balance sheets. Additional VIEs are consolidated or deconsolidated based on an ongoing reassessment of controlling financial interest, when events occur or circumstances arise, and whether the ability to exercise rights that constitute power to direct activities of any VIEs are present according to the design and characteristics of these entities. No additional VIEs were consolidated during the nine months ended September 30, 2012 and 2011. No gains or losses were recognized on the VIEs that were deconsolidated during the nine months ended September 30, 2012 and net realized gains related to the deconsolidation of VIEs were immaterial for the nine months ended September 30, 2011.

Holders of insured obligations of issuer-sponsored VIEs related to the Company’s structured finance and international insurance segment do not have recourse to the general assets of MBIA. In the event of nonpayment of an insured obligation issued by a consolidated VIE, the Company is obligated to pay principal and interest, when due, on the respective insured obligation only. The Company’s exposure to consolidated VIEs is limited to the credit protection provided on insured obligations and any additional variable interests held by MBIA. Creditors of the conduits do not have recourse to the general assets of MBIA apart from the financial guarantee insurance policies provided by MBIA Corp. on insured obligations issued by the conduits.

Note 5: Loss and Loss Adjustment Expense Reserves

Loss and Loss Adjustment Expense Process

As of September 30, 2012, the majority of the Company’s case basis reserves and insurance loss recoveries recorded in accordance with GAAP were related to insured second-lien and first-lien RMBS transactions. These reserves and recoveries do not include estimates for policies insuring credit derivatives. Policies insuring credit derivative contracts are accounted for as derivatives and carried at fair value under GAAP. The fair values of insured derivative contracts are influenced by a variety of market and transaction-specific factors that may be unrelated to potential future claim payments under the Company’s insurance policies. In the absence of credit impairments on insured derivative contracts or the early termination of such contracts at a loss, the cumulative unrealized losses recorded from fair valuing these contracts should reverse before or at the maturity of the contracts.

Notwithstanding the difference in accounting under GAAP for financial guarantee policies and the Company’s insured derivatives, insured derivatives have similar terms, conditions, risks, and economic profiles to financial guarantee insurance policies, and, therefore, are evaluated by the Company for loss (referred to as credit impairment herein) and LAE periodically in a manner similar to the way that loss and LAE reserves are estimated for financial guarantee insurance policies. Credit impairments represent actual payments and collections plus the present value of estimated expected future claim payments, net of recoveries. MBIA Insurance Corporation’s expected future claim payments for insured derivatives were discounted using a rate of 5.59%, the same rate it used to calculate its statutory loss reserves as of September 30, 2012. These credit impairments, calculated in accordance with U.S. STAT, differ from the fair values recorded in the Company’s consolidated financial statements. The Company considers its credit impairment estimates as critical information for investors as it provides information about loss payments the Company expects to make on insured derivative contracts. As a result, the following loss and LAE process discussion includes information about loss and LAE activity recorded in accordance with GAAP for financial guarantee insurance policies and credit impairments estimated in accordance with U.S. STAT for insured derivative contracts. Refer to “Note 6: Loss and Loss Adjustment Expense Reserves” in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 for information about the Company’s monitoring of outstanding insured obligations and for additional information about its loss reserving process. Refer to “Note 6: Fair Value of Financial Instruments” included herein for additional information about the Company’s insured credit derivative contracts.

RMBS Case Basis Reserves and Recoveries (Financial Guarantees)

The Company’s RMBS reserves and recoveries relate to financial guarantee insurance policies. The Company calculated RMBS case basis reserves as of September 30, 2012 for both second-lien and first-lien RMBS transactions using a process called the “Roll Rate Methodology.” The Roll Rate Methodology is a multi-step process using a database of loan level information, a proprietary internal cash flow model, and a commercially available model to estimate expected ultimate cumulative losses on insured bonds. “Roll Rate” is defined as the probability that current loans become delinquent and that loans in the delinquent pipeline are charged-off or liquidated. Generally, Roll Rates are calculated for the previous three months and averaged. The loss reserve estimates are based on a probability-weighted average of three scenarios of loan losses (base case, stress case, and an additional stress case).

19

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 5: Loss and Loss Adjustment Expense Reserves (continued)

In calculating ultimate cumulative losses for RMBS, the Company estimates the amount of loans that are expected to be charged-off (deemed uncollectible by servicers of the transactions) or liquidated in the future. The Company assumes that charged-off loans have zero recovery values.

Second-lien RMBS Reserves

The Company’s second-lien RMBS case basis reserves as of September 30, 2012 relate to RMBS backed by home equity lines of credit (“HELOC”) and closed-end second mortgages (“CES”).

The Roll Rates for 30-59 day delinquent loans and 60-89 day delinquent loans are calculated on a transaction-specific basis. The Company assumes that the Roll Rate for 90+ day delinquent loans, excluding foreclosures, Real Estate Owned (“REO”) and bankruptcies, is 95%. The Roll Rates are applied to the amounts in the respective delinquency buckets based on delinquencies as of August 31, 2012 to estimate future losses from loans that are delinquent as of the current reporting period.

Roll Rates for loans that are current as of August 31, 2012 (“Current Roll to Loss”) are calculated on a transaction-specific basis. A proportion of loans reported current as of August 31, 2012 is assumed to become delinquent every month, at a Current Roll to Loss rate that persists at a high level for a time and subsequently starts to decline. A key assumption in the model is the period of time in which the Company projects high levels of Current Roll to Loss to persist. In the Company’s base case, the Company assumes that the Current Roll to Loss begins to decline immediately and continues to decline over the next six months to 25% of their levels as of August 31, 2012. In the stress case, the period of elevated delinquency and loss is extended by six months. In the additional stress case, the Company assumes that the current trends in losses will remain through late 2013, after which time they will revert to the base case. For example, in the base case, as of August 31, 2012, if the amount of current loans which become 30-59 days delinquent is 10%, and recent performance suggests that 30% of those loans will be charged-off, the Current Roll to Loss for the transaction is 3%. In the base case, it is then assumed that the Current Roll to Loss will reduce linearly to 25% of its original value over the next six months (i.e., 3% will linearly reduce to 0.75% over the six months from September 2012 to February 2013). After that six-month period, the Company further reduces the Current Roll to Loss to 0% by early 2014 with the expectation that the performing seasoned loans will eventually result in loan performance reverting to historically low levels of default. In the model, the Company assumes that all current loans that are projected to become delinquent are charged-off.

In addition, in the Company’s loss reserve models for transactions secured by HELOCs, the Company considers borrower draw and prepayment rates and factors that could affect the excess spread generated by current loans which offsets losses and reduces payments. For HELOCs, the current three-month average draw rate is generally used to project future draws on the line. For HELOCs and transactions secured by fixed-rate CES, the three-month average conditional prepayment rate is generally used to start the projection for trends in voluntary principal prepayments. Projected cash flows are also based on an assumed constant basis spread between floating rate assets and floating rate insured debt obligations (the difference between Prime and London Interbank Offered Rate (“LIBOR”) interest rates, minus any applicable fees). For all transactions, cash flow models consider allocations and other structural aspects of the transactions, including managed amortization periods, rapid amortization periods and claims against MBIA Corp.’s insurance policy consistent with such policy’s terms and conditions. In developing multiple loss scenarios, stress is applied by elongating the Current Roll to Loss rate for various periods, simulating a slower improvement in the transaction performance. The estimated net claims from the procedure above are then discounted using a risk-free rate to a net present value reflecting MBIA’s general obligation to pay claims over time and not on an accelerated basis. The above assumptions represent MBIA’s best estimates of how transactions will perform over time.

The Company monitors portfolio performance on a monthly basis against projected performance, reviewing delinquencies, Roll Rates, and prepayment rates (including voluntary and involuntary). However, given the large percentage of mortgage loans that were not underwritten by the sellers/servicers in accordance with applicable underwriting guidelines, performance remains difficult to predict and losses may exceed expectations. In the event of a material deviation in actual performance from projected performance, the Company would increase or decrease the case basis reserves accordingly. If actual performance were to remain at the peak levels the Company is modeling for six months longer than in the probability-weighted outcome, the addition to the Company’s second-lien RMBS case basis reserves before considering potential recoveries would be approximately $125 million.

20

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 5: Loss and Loss Adjustment Expense Reserves (continued)

Second-lien RMBS Recoveries

As of September 30, 2012, the Company recorded estimated recoveries of $3.2 billion, gross of income taxes, related to second-lien RMBS put-back claims on ineligible mortgage loans, consisting of $2.1 billion included in “Insurance loss recoverable” and $1.1 billion included in “Loan repurchase commitments” presented under the heading “Assets of consolidated variable interest entities” on the Company’s consolidated balance sheets. As of September 30, 2012 and December 31, 2011, the Company’s estimated recoveries after income taxes calculated at the federal statutory rate of 35%, were $2.1 billion and $2.0 billion, respectively, which was 82% and 119% of the consolidated total shareholders’ equity of MBIA, excluding preferred stock of subsidiaries and noncontrolling interests. These estimated recoveries relate to the Company’s put-back claims of ineligible mortgage loans, which have been disputed by the loan sellers/servicers and are currently subject to litigation initiated by the Company to pursue recoveries. While the Company believes that it will prevail in enforcing its contractual rights, there is uncertainty with respect to the ultimate outcome. Furthermore, there is a risk that sellers/servicers or other responsible parties might not be able to satisfy their put-back obligations. Such risks are contemplated in the scenarios the Company utilizes to calculate recoveries.

The Company assesses the financial abilities of the sellers/servicers using external credit ratings and other factors. The impact of such factors on cash flows related to expected recoveries is incorporated into the Company’s probability-weighted scenarios. Accordingly, the Company has not recognized any recoveries related to its IndyMac Bank, F.S.B. insured exposures and has subsequent to the ResCap bankruptcy filing reviewed the indicative scenarios and related probabilities assigned to each scenario to develop a distribution of possible outcomes. The Company’s expected recoveries may be discounted in the future based on additional reviews of the creditworthiness of other sellers/servicers.

On May 14, 2012, ResCap, and its wholly-owned subsidiary companies, RFC and GMAC, each filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code. The Company believes that the claims against RFC and GMAC are stronger and better defined than most other unsecured creditor claims due to the following reasons:

• the direct contractual relationship between MBIA, GMAC and RFC related to the Company’s second-lien RMBS put-back claims on ineligible mortgage loans that were improperly included in the MBIA-insured transactions;

• MBIA’s legal claims against RFC and GMAC based on breach of contract and fraud have withstood motions to dismiss; and

• expert reports submitted in the RFC litigation which established a substantial breach rate in MBIA insured securitizations, and MBIA’s damages as a result thereof.

The Company has modeled scenario-based recoveries which are founded upon the strength of these claims as well as a range of estimated assets available to unsecured creditors of the ResCap companies. These outcomes are based upon information that was available to the Company as of the filing date.

The Company continues to maintain the same probability-weighted scenarios for its non-GMAC and non-RFC exposures (non-ResCap exposures), which are primarily based on the percentage of incurred losses the Company would collect. The non-ResCap recovery estimates incorporate five scenarios that include full recovery of its incurred losses and limited/reduced recoveries due to litigation delays and risks and/or potential financial distress of the sellers/servicers. Probabilities were assigned across these scenarios, with most of the probability weight on partial recovery scenarios. The sum of the probabilities assigned to all scenarios is 100%. Expected cash inflows from recoveries are discounted using the current risk-free discount rates associated with the underlying transaction’s cash flows, which ranged from 0.7% to 1.6%, depending upon the transaction’s expected average life. However, based on the Company’s assessment of the strength of its contract claims, the Company believes it is entitled to collect and/or assert a claim for the full amount of its incurred losses on these transactions, which totaled $5.0 billion through September 30, 2012.

The Company’s potential recoveries are typically based on either salvage rights, the rights conferred to MBIA through the transactional documents (inclusive of the insurance agreement), or subrogation rights embedded within financial guarantee insurance policies. The second-lien RMBS transactions with respect to which MBIA has estimated put-back recoveries provide the Company with such rights. Expected salvage and subrogation recoveries, as well as recoveries from other remediation efforts, reduce the Company’s claim liability. Once a claim payment has been made, the claim liability has been satisfied and MBIA’s right to recovery is no longer considered an offset to future expected claim payments, and is recorded as a salvage asset. The amount of recoveries recorded by the Company is limited to paid claims plus the present value of projected future claim payments. As claim payments are made, the recorded amount of potential recoveries may exceed the remaining amount of the claim liability for a given policy.

21

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 5: Loss and Loss Adjustment Expense Reserves (continued)

To date, sellers/servicers have not substituted loans which MBIA has put-back, and the amount of loans repurchased has been insignificant. The unsatisfactory resolution of these put-backs led MBIA to initiate litigation against five of the sellers/servicers to enforce their obligations. The Company has alleged several causes of action in its complaints, including breach of contract, fraudulent inducement and indemnification. MBIA’s aggregate $3.2 billion of estimated potential recoveries do not include damages from causes of action other than breach of contract. Irrespective of amounts recorded in its financial statements, MBIA is seeking to recover and/or assert claims for the full amount of its incurred losses and other damages on these transactions. MBIA has not collected any material amounts of cash related to these recoveries. Additional information on the status of these litigations can be found in the “Recovery Litigation” discussion within “Note 13: Commitments and Contingencies.”

MBIA has received five decisions with regard to the respective defendants’ motions to dismiss the Company’s claims. In each instance, the respective court denied the motion, allowing MBIA to proceed on, at minimum, its fraud and breach of contract claims. In December 2011, MBIA reached an agreement with one of the five sellers/servicers with whom it had initiated litigation and that litigation has been dismissed.

The Company’s assessment of the recovery outlook for insured second-lien RMBS issues is principally based on the following factors:

1. the strength of the Company’s existing contract claims related to ineligible mortgage loan substitution/repurchase obligations;

2. the settlement of Assured Guaranty’s and Syncora’s put-back related claims with Bank of America;

3. the improvement in the financial strength of certain sellers/servicers due to mergers and acquisitions and/or government assistance, which should facilitate the ability of these sellers/servicers and their successors to comply with required loan repurchase/substitution obligations. The Company is not aware of any provisions that explicitly preclude or limit successors’ obligations to honor the obligations of original sellers/servicers. The Company’s assessment of any credit risk associated with sellers/servicers (or their successors) is reflected in the Company’s probability-weighted potential recovery scenarios;

4. evidence of ineligible mortgage loan repurchase/substitution by sellers/servicers for put-back requests made by other harmed parties; this factor is further enhanced by (i) Bank of America’s disclosure that it has resolved $8.0 billion of repurchase requests in the fourth quarter of 2010; (ii) the Fannie Mae settlements with Ally Bank announced on December 23, 2010 and with Bank of America (which also involved Freddie Mac) announced on December 31, 2010, and (iii) the Company’s settlement agreements entered into on July 16, 2010 and December 13, 2011 respectively, between MBIA Corp. and sponsors of certain MBIA Corp.-insured mortgage loan securitizations in which the Company received consideration in exchange for a release relating to its representation and warranty claims against the sponsors. These settlements resolved all of MBIA’s representation and warranty claims against the sponsors on mutually beneficial terms and in aggregate were slightly more than the recoveries previously recorded by the Company related to these exposures;

5. the defendants’ failure to win dismissals of MBIA’s put-back litigations discussed above, allowing MBIA to continue to pursue its contract and fraud claims;

6. Countrywide’s unsuccessful appeal of its failure to win dismissal of MBIA’s fraud claims in the Countrywide litigation, allowing MBIA to pursue its fraud claims;

7. MBIA’s successful motion in the Countrywide litigation allowing MBIA to present evidence of liability and damages through the introduction of statistically valid random samples of loans rather than on a loan-by-loan basis and subsequent decisions consistent with that ruling;

8. Bank of America’s failure to win dismissal of MBIA’s claims for successor liability in the Countrywide litigation, as well as the completion of discovery relating to MBIA’s successor liability claims against Bank of America;

9. MBIA’s successful motion regarding causation and the right to rescissory damages in the Countrywide litigation, which provides that MBIA is not required to establish a direct causal link between Countrywide’s misrepresentations and MBIA’s claims payments made pursuant to the insurance policies at issue, and that MBIA may seek damages equal to the amount that it has been and will be required to pay under the relevant policies, less premiums received;

10. Syncora’s and Assured Guaranty’s successful motions regarding causation in their Federal court put-back litigations with JP Morgan Chase and Flagstar Bank, respectively, which support the ruling on causation in MBIA’s litigation against Countrywide; and

11. other loan repurchase reserves and/or settlements which have been publicly disclosed by certain sellers/servicers.

22

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 5: Loss and Loss Adjustment Expense Reserves (continued)

The Company continues to consider all relevant facts and circumstances, including the factors described above, in developing its assumptions on expected cash inflows, probability of potential recoveries (including the outcome of litigation) and recovery period. The estimated amount and likelihood of potential recoveries are expected to be revised and supplemented to the extent there are developments in the pending litigation, new litigation is initiated and/or changes to the financial condition of sellers/servicers occur. While the Company believes it will be successful in realizing recoveries from contractual and other claims, the ultimate amounts recovered may be materially different from those recorded by the Company given the inherent uncertainty of the manner of resolving the claims (e.g., litigation) and the assumptions used in the required estimation process for accounting purposes which are based, in part, on judgments and other information that are not easily corroborated by historical data or other relevant benchmarks.

All of the Company’s policies insuring second-lien RMBS for which litigation has been initiated against sellers/servicers are in the form of financial guarantee insurance contracts. In accordance with U.S. GAAP, the Company has not recorded a gain contingency with respect to pending litigation.

First-lien RMBS Reserves

The Company’s first-lien RMBS case basis reserves as of September 30, 2012, which primarily relate to RMBS backed by alternative A-paper (“Alt-A”) and subprime mortgage loans were determined using the Roll Rate Methodology. The Company assumes that the Roll Rate for loans in foreclosure, REO and bankruptcy are 90%, 90% and 75%, respectively. Roll Rates for current, 30-59 day delinquent loans, 60-89 day delinquent loans and 90+ day delinquent loans are calculated on a transaction-specific basis. The Current Roll to Loss stay at the August 31, 2012 level for two months before declining to 25% of this level over a 24-month period. Additionally, the Company runs scenarios where the 90+ day roll rate to loss is set at 90%. The Roll Rates are applied to the amounts in the respective delinquency buckets based on delinquencies as of August 31, 2012 to estimate future losses from loans that are delinquent as of the current reporting period.

In calculating ultimate cumulative losses for first-lien RMBS, the Company estimates the amount of loans that are expected to be liquidated through foreclosure or short sale. The time to liquidation for a defaulted loan is specific to the loan’s delinquency bucket with the latest three-month average loss severities generally used to calculate losses at loan liquidation. The loss severities are reduced over time to account for reduction in the amount of foreclosure inventory, anticipated future increases in home prices, principal amortization of the loan and government foreclosure moratoriums.

ABS CDOs (Financial Guarantees and Insured Derivatives)

MBIA’s insured ABS CDOs are transactions that include a variety of collateral ranging from corporate bonds to structured finance assets (which includes but are not limited to RMBS related collateral, ABS CDOs, corporate CDOs and collateralized loan obligations). These transactions were insured as either financial guarantee insurance policies or credit derivatives with the majority insured in the form of credit derivatives. Since the fourth quarter of 2007, MBIA’s insured par exposure within the ABS CDO portfolio has been substantially reduced through a combination of terminations and commutations. Accordingly, as of September 30, 2012, the insured par exposure of the ABS CDO financial guarantee insurance policies and credit derivatives portfolio has declined by approximately 88% of the insured amount as of December 31, 2007.

The Company’s ABS CDOs originally benefited from two sources of credit enhancement. First, the subordination in the underlying securities collateralizing the transaction must be fully eroded and second, the subordination below the insured tranche in the CDO transaction must be fully eroded before the insured tranche is subject to a claim. The Company’s payment obligations after a default vary by transaction and by insurance type.

The primary factor in estimating reserves on insured ABS CDO policies written as financial guarantee insurance policies and in estimating impairments on insured ABS CDO credit derivatives is the losses associated with the underlying collateral in the transactions. MBIA’s approach to establishing reserves or impairments in this portfolio employs a methodology which is similar to other structured finance asset classes insured by MBIA. The Company uses a total of four probability-weighted scenarios in order to estimate its reserves or impairments for ABS CDOs.

As of September 30, 2012, the Company had loss and LAE reserves totaling $171 million related to ABS CDO financial guarantee insurance policies after the elimination of $242 million as a result of consolidating VIEs. For the nine months ended September 30, 2012, the Company incurred $6 million of losses and LAE recorded in earnings related to ABS CDO financial guarantee insurance policies after the elimination of an $18 million benefit as a result of consolidating VIEs. In the event of further deteriorating performance of the collateral referenced or held in ABS CDO transactions, the amount of losses estimated by the Company could increase materially.

23

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 5: Loss and Loss Adjustment Expense Reserves (continued)

Credit Impairments Related to Structured CMBS Pools, CRE CDOs and CRE Loan Pools (Financial Guarantees and Insured Derivatives)

Most of the structured CMBS pools, CRE CDOs and CRE loan pools insured by MBIA are accounted for as insured credit derivatives and are carried at fair value in the Company’s consolidated financial statements. Since the Company’s insured credit derivatives have similar terms, conditions, risks, and economic profiles to its financial guarantee insurance policies, the Company evaluates them for impairment in the same way that it estimates loss and LAE for its financial guarantee policies. The following discussion provides information about the Company’s process for estimating credit impairments on these contracts using its statutory loss reserve methodology, determined as the present value of the probability-weighted potential future losses, net of estimated recoveries, across multiple scenarios, plus actual payments and collections.

The Company has developed multiple scenarios to consider the range of potential outcomes in the CRE market and their impact on MBIA. The approaches require substantial judgments about the future performance of the underlying loans, and include the following:

• The first approach considers the range of commutation agreements achieved and agreed to since 2010, which included 66 structured CMBS pools, CRE CDOs and CRE loan pool policies totaling $33.1 billion of gross insured exposure. The Company considers the range of commutations achieved over the past several years with multiple counterparties. This approach results in an estimated price to commute the remaining policies with price estimates, based on this experience. It is customized by counterparty and is dependent on the level of dialogue with the counterparty and the credit quality and payment profile of the underlying exposure.

• The second approach considers current delinquency rates and uses current and projected net operating income (“NOI”) and capitalization rates (“Cap Rates”) to project losses under two scenarios. Loans are stratified by size with larger loans being valued utilizing lower Cap Rates than for smaller loans. These scenarios also assume that Cap Rates and NOIs remain flat for the near term and then begin to improve gradually. Additionally, in these scenarios, any loan with a balance greater than $75 million with a debt service coverage ratio (“DSCR”) less than 1.0x or that was reported as being in any stage of delinquency, was reviewed individually so that performance and loss severity could be more accurately determined. Specific loan level assumptions for this large loan subset were then incorporated into these scenarios, as well as specific assumptions regarding certain smaller loans when there appeared to be a material change in the asset’s financial or delinquency performance over the preceding six months. As the Company continues to increase the level of granularity in its individual loan assessments, it analyzes and adjusts assumptions for loans with certain mitigating attributes, such as no lifetime delinquency, recent appraisals indicating sufficient value and large capital reserve levels. These scenarios project different levels of additional defaults with respect to loans that are current. This approach makes use of the most recent financial statements available at the property level.

• The third approach stratifies loans into buckets based on delinquency status (including a “current” bucket) and utilizes recent Roll Rates actually experienced within each of the commercial mortgage-backed index (“CMBX”) series in order to formulate an assumption to predict future delinquencies. Ultimately, this generates losses over a projected time horizon based on the assumption that loss severities will begin to decline from the high levels seen over the past two years. The Company further examines those loans referenced in the CMBX indices which were categorized as 90+ days delinquent or in the process of foreclosure and determined the average monthly balance of such loans which were cured. The Company then applies the most recent rolling six-month average balance of all such cured loans to all underperforming loans in the 90+ day delinquent bucket or in the foreclosure process (and those projected to roll into late stage delinquency from the current and lesser stage levels of delinquency) and assumes all other loans are liquidated. The Company assumes all loans in the REO category liquidate over the next twelve months.

• The fourth approach is based on a proprietary model developed by reviewing performance data on over 80,000 securitized CRE loans originated between 1992 and 2011. The time period covered during the performance review includes the years 2006 through 2011. The Company believes that these five years represent an appropriate time period in which to conduct a performance review because they encompass a period of extreme stress in the economy and the CRE market.

Based on a review of the data, the Company found property type and the DSCR to be the most significant determinants of a loan’s default probability, with other credit characteristics less influential. As a result, the Company developed a model in which the loans were divided into 168 representative cohorts based on their DSCR and property type. For each of these cohorts, the Company calculated the average annual probability of default, and then ran Monte Carlo simulations to estimate the timing of defaults. In addition, the model incorporated the following logic:

• NOI and Cap Rates were assumed to remain at current levels for loans in the Company’s classified portfolio, resulting in no modifications or extensions under the model, other than as described in the next bullet point, to reflect the possibility that the U.S. economy and CRE market could experience no growth for the foreseeable future.

24

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 5: Loss and Loss Adjustment Expense Reserves (continued)

• Any valuation estimates obtained by special servicers since a loan’s origination as well as the Company’s individual large loan level analysis for loans with balances greater than $75 million were incorporated as described in the second approach. However, in the fourth approach no adjustments were made for loans lower than $75 million regardless of any mitigating factors.

The loss severities projected by these scenarios vary widely, from moderate to substantial losses, with the majority of projected losses relating to a subset of transactions with a single counterparty. The Company previously incorporated an additional actuarial based approach, which has been eliminated as it did not reflect the best current market observations. Actual losses will be a function of the proportion of loans in the pools that are foreclosed and liquidated and the loss severities associated with those liquidations. If the deductibles in the Company’s insured transactions and underlying referenced CMBS transactions are fully eroded, additional property level losses upon foreclosures and liquidations could result in substantial losses for MBIA. Since foreclosures and liquidations have only begun to take place during this economic cycle, particularly for larger properties, ultimate loss rates remain uncertain. Whether CMBS collateral is included in a structured pool or in a CRE CDO, the Company believes the modeling related to the underlying bond should be the same. However, adjustments may be needed for structural or legal reasons. The Company assigns a wide range of probabilities to these scenarios, with lower severity scenarios being weighted more heavily than higher severity scenarios. This reflects the view that liquidations will continue to be mitigated by loan extensions and modifications, and that property values and NOIs have bottomed for many sectors and markets in the U.S. The weightings are customized to each counterparty. If macroeconomic stress were to increase or the U.S. goes into a recession, higher delinquencies, liquidations and/or higher severities of loss upon liquidation may result and the Company may incur substantial additional losses. The foreclosure and REO pipelines are still relatively robust, with several restructurings and liquidations yet to occur, so the range of possible outcomes is wider than those for the Company’s exposures to ABS CDOs and second-lien RMBS.

In the CRE CDO portfolio, transaction-specific structures require managers to report reduced enhancement according to certain guidelines which often include downgrades even when the bond is still performing. As a result, as well as additional collateral defaults, reported enhancement has been reduced significantly in some CRE CDOs. Moreover, many of the CRE CDO positions are amortizing more quickly than originally expected as most or all interest proceeds that would have been allocated to more junior classes within the CDO have been diverted and redirected to pay down the senior most classes insured by MBIA.

For the nine months ended September 30, 2012, the Company incurred $87 million of losses and LAE recorded in earnings related to CRE CDO financial guarantee insurance policies. For the nine months ended September 30, 2012, additional credit impairments and LAE on structured CMBS pools, CRE CDOs and CRE loan pools were estimated to be $502 million as a result of additional delinquencies and loan level liquidations, as well as continued refinements of MBIA’s assessment of various commutation possibilities. The majority of the increase relates to a subset of transactions with a single counterparty. The cumulative credit impairments and LAE on structured CMBS pools, CRE CDOs and CRE loan pools were estimated to be $3.3 billion through September 30, 2012. Although the pace of increases in the delinquency rate has slowed and many loans are being modified, liquidations have taken place. Some loans were liquidated with minimal losses of 1% to 2%, others experienced near complete losses, and in some cases severities exceeded 100%. These liquidations have led to losses in the CMBS market, and in many cases, have resulted in reductions of enhancement to the individual CMBS bonds referenced by the insured structured CMBS pools. In certain insured transactions, these losses have resulted in deductible erosion. Bond level enhancement and pool level deductibles are structural features intended to mitigate losses to the Company. However, some of the transactions reference similar rated subordinate tranches of CMBS bonds. When there are broad-based declines in property performance, this leverage can result in rapid deterioration in pool performance.

25

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 5: Loss and Loss Adjustment Expense Reserves (continued)

Loss and LAE Activity

Financial Guarantee Insurance Losses (Non-Derivative)

The Company’s financial guarantee insurance losses and LAE for the nine months ended September 30, 2012 are presented in the following table:

Losses and LAE
	Nine Months Ended September 30, 2012
In millions	Second-lien RMBS		Other(1)		Total
Losses and LAE related to actual and expected payments	$	180	$	273	$	453
Recoveries of actual and expected payments		(74)		(49)		(123)
Gross losses incurred		106		224		330
Reinsurance		-		-		-
Losses and LAE	$	106	$	224	$	330

(1) - Primarily first-lien RMBS and financial guarantee CMBS.

The second-lien RMBS losses and LAE related to actual and expected payments included in the preceding table comprise net increases of previously established reserves. The second-lien RMBS recoveries of actual and expected payments comprise $154 million in recoveries resulting from ineligible mortgage loans included in insured exposures that are subject to contractual obligations by sellers/servicers to repurchase or replace such mortgages, offset by an $80 million reduction in excess spread. Other losses and LAE expense primarily resulted from credit deterioration within first-lien RMBS and CMBS transactions.

The following table provides information about the financial guarantees and related claim liability included in each of MBIA’s surveillance categories as of September 30, 2012:

	Surveillance Categories
$ in millions	Caution List Low		Caution List Medium		Caution List High		Classified List		Total
Number of policies		49		24		11		209		293
Number of issues(1)		27		14		10		137		188
Remaining weighted average contract period (in years)		8.7		4.6		7.8		9.4		8.7
Gross insured contractual payments outstanding(2):
Principal	$	3,747	$	1,409	$	360	$	9,671	$	15,187
Interest		2,690		334		115		5,387		8,526
Total	$	6,437	$	1,743	$	475	$	15,058	$	23,713
Gross claim liability	$	-	$	-	$	-	$	1,670	$	1,670
Less:
Gross potential recoveries		-		-		-		3,844		3,844
Discount, net		-		-		-		178		178
Net claim liability (recoverable)	$	-	$	-	$	-	$	(2,352)	$	(2,352)
Unearned premium revenue	$	130	$	17	$	3	$	119	$	269

(1) - An “issue” represents the aggregate of financial guarantee policies that share the same revenue source for purposes of making debt service payments.

(2) - Represents contractual principal and interest payments due by the issuer of the obligations insured by MBIA.

26

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 5: Loss and Loss Adjustment Expense Reserves (continued)

The following table provides information about the financial guarantees and related claim liability included in each of MBIA’s surveillance categories as of December 31, 2011:

	Surveillance Categories
$ in millions	Caution List Low		Caution List Medium		Caution List High		Classified List		Total
Number of policies		54		28		14		200		296
Number of issues(1)		32		18		11		130		191
Remaining weighted average contract period (in years)		8.2		5.6		6.0		9.6		8.8
Gross insured contractual payments outstanding(2):
Principal	$	4,310	$	1,213	$	561	$	10,420	$	16,504
Interest		2,653		351		144		5,836		8,984
Total	$	6,963	$	1,564	$	705	$	16,256	$	25,488
Gross claim liability	$	-	$	-	$	-	$	1,812	$	1,812
Less:
Gross potential recoveries		-		-		-		3,813		3,813
Discount, net		-		-		-		177		177
Net claim liability (recoverable)	$	-	$	-	$	-	$	(2,178)	$	(2,178)
Unearned premium revenue	$	155	$	16	$	3	$	134	$	308

(1) - An “issue” represents the aggregate of financial guarantee policies that share the same revenue source for purposes of making debt service payments.

(2) - Represents contractual principal and interest payments due by the issuer of the obligations insured by MBIA.

The gross claim liability as of September 30, 2012 and December 31, 2011 in the preceding tables represents the Company’s estimate of undiscounted probability-weighted future claim payments, which principally relate to insured first-lien and second-lien RMBS transactions and U.S. public finance transactions. The gross potential recoveries represent the Company’s estimate of undiscounted probability-weighted recoveries of actual claim payments and recoveries of estimated future claim payments, and principally relate to insured second-lien RMBS transactions. Both amounts reflect the elimination of claim liabilities and potential recoveries related to VIEs consolidated by the Company.

The following table presents the components of the Company’s loss and LAE reserves and insurance loss recoverable as reported on the Company’s consolidated balance sheets as of September 30, 2012 and December 31, 2011 for insured obligations within MBIA’s “Classified List.” The loss reserves (claim liability) and insurance claim loss recoverable included in the following table represent the present value of the probability-weighted future claim payments and recoveries reported in the preceding tables.

In millions	As of September 30, 2012		As of December 31, 2011
Loss reserves (claim liability)	$	862	$	781
LAE reserves		83		55
Loss and LAE reserves	$	945	$	836
Insurance claim loss recoverable	$	(3,281)	$	(3,032)
LAE insurance loss recoverable		(35)		(14)
Insurance loss recoverable	$	(3,316)	$	(3,046)
Reinsurance recoverable on unpaid losses	$	13	$	15
Reinsurance recoverable on paid losses		2		1
Reinsurance recoverable on paid and unpaid losses	$	15	$	16

27

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 5: Loss and Loss Adjustment Expense Reserves (continued)

As of September 30, 2012, loss and LAE reserves include $1.3 billion of reserves for expected future payments offset by expected recoveries of such future payments of $395 million. As of December 31, 2011, loss and LAE reserves included $1.4 billion of reserves for expected future payments offset by expected recoveries of such future payments of $562 million. As of September 30, 2012 and December 31, 2011, the insurance loss recoverable primarily related to estimated recoveries of payments made by the Company resulting from ineligible mortgage loans in certain insured second-lien residential mortgage loan securitizations that are subject to a contractual obligation by the sellers/servicers to repurchase or replace the ineligible mortgage loans and expected future recoveries on second-lien RMBS transactions resulting from expected excess spread generated by performing loans in such transactions. The Company expects to be reimbursed for the majority of its potential recoveries related to ineligible mortgage loans by the second quarter of 2013.

Total paid losses and LAE, net of reinsurance and collections, for the nine months ended September 30, 2012 was $489 million, including $330 million related to insured second-lien RMBS transactions. For the nine months ended September 30, 2012, the increase in insurance loss recoverable related to paid losses totaled $270 million, and primarily related to insured second-lien RMBS transactions.

The following table presents the Company’s second-lien RMBS exposure, gross undiscounted claim liability and potential recoveries for amounts excluding consolidated VIEs and amounts related to consolidated VIEs, as of September 30, 2012. All insured transactions with potential recoveries are included within the “Classified List.”

Second-lien RMBS Exposure			Outstanding				Gross Undiscounted
$ in billions	Issues		Gross Principal		Gross Interest		Claim Liability		Potential Recoveries
Excluding Consolidated VIEs:
Insured issues designated as “Classified List”		22	$	4.2	$	1.7	$	0.3	$	3.2
Insured issues reviewed with potential recoveries		15	$	3.9	$	1.6	$	0.2	$	3.1
Consolidated VIEs:
Insured issues designated as “Classified List”		12	$	2.3	$	0.9	$	0.1	$	1.4
Insured issues reviewed with potential recoveries		11	$	2.2	$	0.8	$	0.1	$	1.4

The Company has performed reviews on 29 of the 34 total insured issues designated as “Classified List” and recorded potential recoveries on 26 of those 29 issues, primarily related to four issuers (Countrywide, RFC, GMAC and Credit Suisse). In addition, the Company has received consideration on two transactions, including one Alt-A transaction, which have been excluded in the preceding table.

The following table presents changes in the Company’s loss and LAE reserves for the nine months ended September 30, 2012. Changes in the loss and LAE reserves attributable to the accretion of the claim liability discount, changes in discount rates, changes in the timing and amounts of estimated payments and recoveries, changes in assumptions and changes in LAE reserves are recorded in “Losses and loss adjustment” expenses in the Company’s consolidated statements of operations. As of September 30, 2012, the weighted average risk-free rate used to discount the Company’s loss reserves (claim liability) was 1.26%. LAE reserves are expected to be settled within a one-year period and are not discounted.

In millions		Changes in Loss and LAE Reserves for the Nine Months Ended September 30, 2012
Gross Loss and LAE Reserves as of December 31, 2011		Loss Payments for Cases with Reserves		Accretion of Claim Liability Discount		Changes in Discount Rates		Changes in Timing of Payments		Changes in Amount of Net Payments		Changes in Assumptions		Changes in Unearned Premium Revenue		Changes in LAE Reserves		Gross Loss and LAE Reserves as of September 30, 2012
$	836	$	(283)	$	9	$	26	$	52	$	3	$	267	$	7	$	28	$	945

The increase in the Company’s gross loss and LAE reserves reflected in the preceding table was primarily due to changes in assumptions, timing of payments, and changes in LAE reserves, offset by decreases in reserves related to loss payments on insured first-lien and second-lien RMBS issues outstanding as of December 31, 2011.

28

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 5: Loss and Loss Adjustment Expense Reserves (continued)

Current period changes in the Company’s estimate of potential recoveries may be recorded as an insurance loss recoverable asset, netted against the gross loss and LAE reserve liability, or both. The following table presents changes in the Company’s insurance loss recoverable and changes in recoveries on unpaid losses reported within the Company’s claim liability for the nine months ended September 30, 2012. Changes in insurance loss recoverable attributable to the accretion of the discount on the recoverable, changes in discount rates, changes in the timing and amounts of estimated collections, changes in assumptions and changes in LAE recoveries are recorded in “Losses and loss adjustment” expenses in the Company’s consolidated statements of operations.

			Changes in Insurance Loss Recoverable and Recoveries on Unpaid Losses for the Nine Months Ended September 30, 2012
In millions	Gross Reserve as of December 31, 2011		Collections for Cases with Recoveries		Accretion of Recoveries		Changes in Discount Rates		Changes in Timing of Collections		Changes in Amount of Collections		Changes in Assumptions		Changes in LAE Recoveries		Gross Reserve as of September 30, 2012
Insurance loss recoverable	$	3,046	$	(6)	$	30	$	8	$	-	$	(149)	$	366	$	21	$	3,316
Recoveries on unpaid losses		562		-		6		19		-		-		(185)		(7)		395
Total	$	3,608	$	(6)	$	36	$	27	$	-	$	(149)	$	181	$	14	$	3,711

The Company’s insurance loss recoverable increased during 2012 primarily due to changes in assumptions associated with issues outstanding as of December 31, 2011, which related to increases in excess spread and ineligible mortgage loans included in insured second-lien residential mortgage securitization exposures that are subject to contractual obligations by sellers/servicers to repurchase or replace such mortgages, partially offset by changes in the amount of collections. Recoveries on unpaid losses decreased primarily due to changes in assumptions as a result of a reduction of excess spread related to first-lien and second-lien RMBS transactions offset by changes in discount rates.

The following table presents the Company’s total estimated recoveries from ineligible mortgage loans included in certain insured second-lien mortgage loan securitizations as of September 30, 2012. The total estimated recoveries from ineligible mortgage loans of $3.2 billion include $2.1 billion recorded as “Insurance loss recoverable” and $1.1 billion recorded as “Loan repurchase commitments” presented under the heading “Assets of consolidated variable interest entities” on the Company’s consolidated balance sheets.

In millions
Total Estimated Recoveries from Ineligible Mortgage Loans as of December 31, 2011		Accretion of Future Collections		Changes in Discount Rates		Recoveries (Collections)		Changes in Amount of Collections		Changes in Assumptions		Total Estimated Recoveries  from Ineligible Mortgage Loans as of September  30, 2012
$	3,119	$	34	$	2	$	-	$	-	$	92	$	3,247

The Company’s total estimated recoveries from ineligible mortgage loans in the preceding table increased primarily as a result of the probability-weighted scenarios as described within the preceding “Second-lien RMBS Recoveries” section.

Remediation actions may involve, among other things, waivers or renegotiations of financial covenants or triggers, waivers of contractual provisions, the granting of consents, transfer of servicing, consideration of restructuring plans, acceleration, security or collateral enforcement, actions in bankruptcy or receivership, litigation and similar actions. The types of remedial actions pursued are based on the insured obligation’s risk type and the nature and scope of the event giving rise to the remediation. As part of any such remedial actions, MBIA seeks to improve its security position and to obtain concessions from the issuer of the insured obligation. From time to time, the issuer of 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.

29

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 5: Loss and Loss Adjustment Expense Reserves (continued)

Costs associated with remediating insured obligations assigned to the Company’s “Caution List—Low,” “Caution List—Medium,” “Caution List—High” and “Classified List” are recorded as LAE. LAE is primarily recorded as part of the Company’s provision for its loss reserves and included in “Losses and loss adjustment” on the Company’s consolidated statements of operations. The following table presents the gross expenses related to remedial actions for insured obligations:

	Nine Months Ended September 30,
In millions	2012		2011
Loss adjustment expense incurred, gross	$	113	$	76

Note 6: Fair Value of Financial Instruments

Fair Value Measurement

Fair value is a market-based measure considered from the perspective of a market participant. Therefore, even when market assumptions are not readily available, the Company’s own assumptions are set to reflect those which it believes market participants would use in pricing an asset or liability at the measurement date. The fair value measurements of financial instruments held or issued by the Company are determined through the use of observable market data when available. Market data is obtained from a variety of third-party sources, including dealer quotes. If dealer quotes are not available for an instrument that is infrequently traded, the Company uses alternate valuation methods, including either dealer quotes for similar instruments or modeling using market data inputs. The use of alternate valuation methods generally requires considerable judgment in the application of estimates and assumptions, and changes to such estimates and assumptions may produce materially different fair values.

The accounting guidance for fair value measurement establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available and reliable. Observable inputs are those the Company believes that market participants would use in pricing an asset or liability based on available market data. Unobservable inputs are those that reflect the Company’s beliefs about the assumptions market participants would use in pricing an asset or liability based on the best information available. The fair value hierarchy is broken down into three levels based on the observability and reliability of inputs, as follows:

• Level 1—Valuations based on quoted prices in active markets for identical assets or liabilities that the Company can access. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail any degree of judgment.

• Level 2—Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly. Level 2 assets include debt securities with quoted prices that are traded less frequently than exchange-traded instruments, securities which are priced using observable inputs and derivative contracts whose values are determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data.

• Level 3—Valuations based on inputs that are unobservable and supported by little or no market activity and that are significant to the overall fair value measurement. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques where significant inputs are unobservable, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

The availability of observable inputs can vary from product to product and period to period and is affected by a wide variety of factors, including, for example, the type of product, whether the product is new and not yet established in the marketplace, and other characteristics particular to the product. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the Company assigns the level in the fair value hierarchy for which the fair value measurement in its entirety falls, based on the least observable input that is significant to the fair value measurement.

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MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

1. Financial Assets (excluding derivative assets)

Financial assets, excluding derivative assets, held by the Company primarily consist of investments in debt securities. Substantially all of the Company’s investments are priced by independent third parties, including pricing services and brokers. Typically the Company receives one pricing service value or broker quote for each instrument, which represents a non-binding indication of value. The Company reviews the assumptions, inputs and methodologies used by pricing services to obtain reasonable assurance that the prices used in its valuations reflect fair value. When the Company believes a third-party quotation differs significantly from its internally developed expectation of fair value, whether higher or lower, the Company reviews its data or assumptions with the provider. This review includes comparing significant assumptions such as prepayment speeds, default ratios, forward yield curves, credit spreads and other significant quantitative inputs to internal assumptions, and working with the price provider to reconcile the differences. The price provider may subsequently provide an updated price. In the event that the price provider does not update their price, and the Company still does not agree with the price provided, the Company will try to obtain a price from another third-party provider, such as a broker, or use an internally developed price which it believes represents the fair value of the investment. The fair values of investments for which internal prices were used were not significant to the aggregate fair value of the Company’s investment portfolio as of September 30, 2012 or December 31, 2011. All challenges to third-party prices are reviewed by staff of the Company with relevant expertise to ensure reasonableness of assumptions.

In addition to challenging pricing assumptions, the Company obtains reports from the independent accountants for significant third-party pricing services attesting to the effectiveness of the controls over data provided to the Company. These reports are obtained annually and are reviewed by the Company to ensure key controls are applied by the pricing services, and that appropriate user controls are in place at the Company to ensure proper measurement of the fair values of its investments. In the event that any controls in these reports are deemed as ineffective by independent accountants, the Company will take the necessary actions to ensure that internal user controls are in place to mitigate the control risks. No deficiencies were noted for significant third-party pricing services used.

2. Financial Liabilities (excluding derivative liabilities)

Financial liabilities, excluding derivative liabilities, issued by the Company primarily consist of investment agreements and MTNs within its wind-down operations, and debt issued for general corporate purposes. Investment agreements, MTNs, and corporate debt are typically recorded at face value adjusted for premiums or discounts. Financial liabilities that the Company has elected to fair value or that require fair value reporting or disclosures are valued based on the estimated value of the underlying collateral, the Company’s or a third-party’s estimate of discounted cash flow model estimates, or quoted market values for similar products. These valuations include adjustments for expected nonperformance risk of the Company.

3. Derivative Assets and Liabilities

The Company’s derivative liabilities are primarily insured credit derivatives that reference structured pools of cash securities and CDSs. The Company generally insured the most senior liabilities of such transactions, and at the inception of transactions its exposure generally had more subordination than needed to achieve triple-A ratings from credit rating agencies. The types of collateral underlying its insured derivatives consist of cash securities and CDSs referencing primarily corporate, asset-backed, residential mortgage-backed, commercial mortgage-backed, CRE loans, and CDO securities.

The Company’s insured credit derivative contracts are non-traded structured credit derivative transactions. Since insured derivatives are highly customized and there is generally no observable market for these derivatives, the Company estimates their fair values in a hypothetical market based on internal and third-party models simulating what a similar company would charge to assume the Company’s position in the transaction at the measurement date. This pricing would be based on the expected loss of the exposure. The Company reviews its valuation model results on a quarterly basis to assess the appropriateness of the assumptions and results in light of current market activity and conditions. This review is performed by internal staff with relevant expertise. If live market spreads or securities prices are observable for similar transactions, those spreads are an integral part of the analysis. New insured transactions that resemble existing (previously insured) transactions, if any, would be considered, as well as negotiated settlements of existing transactions.

The Company may from time to time make changes in its valuation techniques if the change results in a measurement that it believes is equally or more representative of fair value under current circumstances.

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MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

4. Internal Review Process

All significant financial assets and liabilities, including derivative assets and liabilities, are reviewed by committees created by the Company to ensure compliance with the Company’s policies and risk procedures in the development of fair values of financial assets and liabilities. These valuation committees review, among other things, key assumptions used for internally developed prices, significant changes in sources and uses of inputs, including changes in model approaches, and any adjustments from third-party inputs or prices to internally developed inputs or prices. The committees also review any significant impairment or improvements in fair values of the financial instruments from prior periods. From time to time, these committees will reach out to the Company valuation experts to better understand key methods and assumptions used for the determination of fair value, including understanding significant changes in fair values. These committees are comprised of senior finance team members with the relevant experience in the financial assets their committee is responsible for. For each quarter, these committees document their agreement with the fair values developed by management of the Company as reported in the quarterly financial statements.

Valuation Techniques

Valuation techniques for financial instruments measured at fair value and included in the tables that follow are described below.

Fixed-Maturity Securities (including short-term investments) Held as Available-For-Sale, Fixed-Maturity Securities at Fair Value, Investments Pledged as Collateral, Investments Held-to-Maturity, and Other Investments

Fixed-maturity securities (including short-term investments) held as available-for-sale, fixed-maturity securities at fair value, investments pledged as collateral, and other investments include investments in U.S. Treasury and government agencies, foreign governments, corporate obligations, MBS and ABS (including CMBS and CDOs), state and municipal bonds and equity securities (including perpetual preferred securities and money market mutual funds).

These investments are generally valued based on recently executed transaction prices or quoted market prices. When quoted market prices are not available, fair value is generally determined using quoted prices of similar investments or a valuation model based on observable and unobservable inputs. Inputs vary depending on the type of investment. Observable inputs include contractual cash flows, interest rate yield curves, CDS spreads, prepayment and volatility scores, diversity scores, cross-currency basis index spreads, and credit spreads for structures similar to the financial instrument in terms of issuer, maturity and seniority. Unobservable inputs include cash flow projections and the value of any credit enhancement.

The fair value of the investments held-to-maturity is determined using discounted cash flow models. Key inputs include unobservable cash flows projected over the expected term of the investment discounted using observable interest rate yield curves of similar securities.

Investments based on quoted market prices of identical investments in active markets are classified as Level 1 of the fair value hierarchy. Level 1 investments generally consist of U.S. Treasury and foreign government and agency investments. Quoted market prices of investments in less active markets, as well as investments which are valued based on other than quoted prices for which the inputs are observable, such as interest rate yield curves, are categorized in Level 2 of the fair value hierarchy. Investments that contain significant inputs that are not observable are categorized as Level 3.

Cash and Cash Equivalents, Receivable for Investments Sold, and Accrued Investment Income

The carrying amounts of cash and cash equivalents, receivable for investments sold, and accrued investment income approximate fair values due to the short-term nature and credit worthiness of these instruments.

Loans Receivable at Fair Value

Loans receivable at fair value are comprised of loans held by consolidated VIEs consisting of residential mortgage loans, commercial mortgage loans and other whole business loans. Fair values of residential mortgage loans are determined using quoted prices for MBS with similar characteristics and adjustments for the fair values of the financial guarantees provided by MBIA Corp. on the related MBS. Fair values of commercial mortgage loans and other whole business loans are valued based on quoted prices of similar collateralized MBS. Loans receivable at fair value are categorized in Level 3 of the fair value hierarchy.

32

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

Loan Repurchase Commitments

Loan repurchase commitments are obligations owed by the sellers/servicers of mortgage loans to either MBIA as reimbursement of paid claims or to the RMBS trusts as defined in the transaction documents. Loan repurchase commitments are assets of the consolidated VIEs. This asset represents the rights of MBIA against the sellers/servicers for breaches of representations and warranties that the securitized residential mortgage loans sold to the trust to comply with stated underwriting guidelines and for the sellers/servicers to cure, replace, or repurchase mortgage loans. Fair value measurements of loan repurchase commitments represent the amounts owed by the sellers/servicers to either MBIA as reimbursement of paid claims or to the RMBS trusts as defined in the transaction documents. Loan repurchase commitments are not securities and no quoted prices or comparable market transaction information are observable or available. Loan repurchase commitments at fair value are categorized in Level 3 of the fair value hierarchy. Fair values of loan repurchase commitments are determined using discounted cash flow techniques based on inputs including:

• breach rates representing the rate at which the sellers/servicers failed to comply with stated representations and warranties;

• recovery rates representing the estimates of future cash flows for the asset, including estimates about possible variations in the amount of cash flows expected to be collected;

• expectations about possible variations in the timing of collections of the cash flows; and

• time value of money, represented by the rate on risk-free monetary assets.

Investment Agreements

The fair values of investment agreements are determined using discounted cash flow techniques based on contractual cash flows and observable interest rates currently being offered for similar agreements with comparable maturity dates. Investment agreements contain collateralization and termination agreements that substantially mitigate the nonperformance risk of the Company. As the terms of the notes are private, and the contract cash flows are not observable, these investment agreements are categorized as Level 3 of the fair value hierarchy.

Medium-Term Notes

The fair values of MTNs are based on quoted market prices provided by third-party sources, where available. When quoted market prices are not available, the Company applies a matrix pricing grid based on the quoted market prices received and the MTNs’ stated maturity and interest rate to determine fair value. Nonperformance risk is included in the quoted market prices and the matrix pricing grid.

The Company has elected to record three MTNs at fair value as they contain embedded derivatives which cannot accurately be separated from the host debt instrument and fair valued separately, therefore, these three MTNs are carried at fair value with changes in fair value reflected in earnings. The remaining MTNs, which are not carried at fair value, do not contain embedded derivatives.

As these MTNs are illiquid and the prices reflect significant unobservable inputs, they are categorized as Level 3 of the fair value hierarchy.

Variable Interest Entity Notes

The fair values of VIE notes are determined based on recently executed transaction prices or quoted prices where observable. When position-specific quoted prices are not observable, fair values are based on quoted prices of similar securities. Fair values based on quoted prices of similar securities may be adjusted for factors unique to the securities, including any credit enhancement. When observable quoted prices are not available, fair value is determined based on discounted cash flow techniques of the underlying collateral using observable and unobservable inputs. Observable inputs include interest rate yield curves and bond spreads of similar securities. Unobservable inputs include the value of any credit enhancement. VIE notes are categorized in Level 2 or Level 3 of the fair value hierarchy based on the lowest level input that is significant to the fair value measurement in its entirety.

Long-term Debt

Long-term debt consists of notes, debentures, surplus notes and floating rate liquidity loans. The fair value of long-term notes, debentures and surplus notes are estimated based on quoted prices for the identical or similar securities. The fair value for floating rate liquidity loans are determined using discounted cash flow techniques of the underlying collateral pledged to the specific loans, as these loans are non-recourse and fully backed by a pool of underlying assets. Long-term debt is categorized as Level 2 of the fair value hierarchy.

33

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

Derivatives—Asset/Liability Products

The asset/liability products business has entered into derivative transactions primarily consisting of interest rate swaps, cross currency swaps, and CDS contracts. Fair values of over-the-counter derivatives are determined using valuation models based on observable inputs, nonperformance risk of the Company’s own credit and nonperformance risk of the counterparties. Observable and market-based inputs include interest rate yields, credit spreads and volatilities. These derivatives are categorized in Level 2 or Level 3 of the fair value hierarchy based on the input that is significant to the fair value measurement in its entirety.

The Company has policies and procedures in place regarding counterparties, including review and approval of the counterparty and the Company’s exposure limit, collateral posting requirements, collateral monitoring and margin calls on collateral. The Company manages counterparty credit risk on an individual counterparty basis through master netting arrangements covering derivative transactions in the asset/liability products and corporate segments. These agreements allow the Company to contractually net amounts due from a counterparty with those amounts due to such counterparty when certain triggering events occur. The Company only executes swaps under master netting agreements, which typically contain mutual credit downgrade provisions that generally provide the ability to require assignment or termination in the event either the Company or the counterparty is downgraded below a specified credit rating. The netting agreements minimize the potential for losses related to credit exposure and thus serve to mitigate the Company’s nonperformance risk under these derivatives.

In certain cases, the Company also manages credit risk through collateral agreements that give the Company the right to hold or the obligation to provide collateral when the current market value of derivative contracts exceeds an exposure threshold. Under these arrangements, the Company may provide U.S. Treasury and other highly rated securities or cash to secure the derivative. The delivery of high-quality collateral can minimize credit exposure and mitigate the potential for nonperformance risk impacting the fair values of the derivatives.

Derivatives—Insurance

The derivative contracts insured by the Company cannot be legally traded and generally do not have observable market prices. The Company determines the fair values of insured credit derivatives using valuation models.

Approximately 81% of the balance sheet fair value of insured credit derivatives as of September 30, 2012 was valued using the Binomial Expansion Technique (“BET”) Model. Approximately 19% of the balance sheet fair value of insured credit derivatives as of September 30, 2012 was valued using the internally developed Direct Price Model. An immaterial amount of insured credit derivatives were valued using the dual-default model. The valuation of insured derivatives includes the impact of its own credit standing. All of these derivatives are categorized as Level 3 of the fair value hierarchy as their fair value is derived using significant unobservable inputs.

A. Description of the BET Model

1. Valuation Model Overview

The BET Model estimates what a bond insurer would charge to guarantee a transaction at the measurement date, based on the market-implied default risk of the underlying collateral and the remaining structural protection in a deductible or subordination.

Inputs to the process of determining fair value for structured transactions using the BET Model include estimates of collateral loss, allocation of loss to separate tranches of the capital structure, and calculation of the change in value.

• Estimates of aggregated collateral losses are calculated by reference to the following (described in further detail under “BET Model Inputs” below):

• credit spreads of underlying collateral based on actual spreads or spreads on similar collateral with similar ratings, or in some cases, are benchmarked; for collateral pools where the spread distribution is characterized by extremes, each segment of the pool is modeled separately instead of using an overall pool average;

• diversity score of the collateral pool as an indication of correlation of collateral defaults; and

• recovery rate for all defaulted collateral.

• Allocation of losses to separate tranches of the capital structure according to priority of payments in a transaction.

• The inception-to-date unrealized gain or loss on a transaction is the difference between the original price of the risk (the original market-implied expected loss) and the current price of the risk based on the assumed market-implied expected losses derived from the model.

34

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

Additional structural assumptions of the BET Model are:

• Default probabilities are determined by three factors: credit spread, recovery rate after default, and the time period under risk.

• Frequencies of defaults are modeled evenly over time.

• Collateral assets are generally considered on an average basis rather than being modeled on an individual basis.

• Collateral asset correlation is modeled using a diversity score which is calculated based on industry or sector concentrations. Recovery rates are based on historical averages and updated based on market evidence.

2. BET Model Inputs

a. Credit spreads

The average spread of collateral is a key input as the Company assumes credit spreads reflect the market’s assessment of default probability for each piece of collateral. Spreads are obtained from market data sources published by third parties (e.g., dealer spread tables for assets most closely resembling collateral within the Company’s transactions) as well as collateral-specific spreads on the underlying reference obligations provided by trustees or market sources. Also, when these sources are not available, the Company benchmarks spreads for collateral against market spreads or prices. This data is reviewed on an ongoing basis for reasonableness and applicability to the Company’s derivative portfolio. The Company also calculates spreads based on quoted prices and on internal assumptions about expected life, when pricing information is available and spread information is not.

The Company uses the spread hierarchy listed below in determining which source of spread information to use, with the rule being to use CDS spreads where available and cash security spreads as the next alternative.

Spread Hierarchy:

• Collateral-specific credit spreads when observable.

• Sector-specific spread tables by asset class and rating.

• Corporate spreads, including Bloomberg spread tables based on rating.

• Benchmark from most relevant market source when corporate spreads are not directly relevant.

There were some transactions where the Company incorporated multiple levels within the hierarchy, including using actual collateral-specific credit spreads in combination with a calculated spread based on an assumed relationship. In those cases, MBIA classified the transaction as being benchmarked from the most relevant spread source even though the majority of the average spread was from actual collateral-specific spreads. As of September 30, 2012, sector-specific spreads were used in 9% of the transactions valued using the BET Model. Corporate spreads were used in 46% of the transactions and spreads benchmarked from the most relevant spread source were used for 45% of the transactions. The spread source can also be identified by whether or not it is based on collateral weighted average rating factor (“WARF”). No collateral-specific spreads are based on WARF, sector-specific and corporate spreads are based on WARF, and some benchmarked spreads are based on WARF. WARF-sourced and/or ratings-sourced credit spreads were used for 77% of the transactions.

Over time, the data inputs change as new sources become available, existing sources are discontinued or are no longer considered to be reliable or the most appropriate. It is always the Company’s objective to use more observable spread hierarchies defined above. However, the Company may on occasion move to less observable spread inputs due to the discontinuation of data sources or due to the Company considering certain spread inputs no longer representative of market spreads.

b. Diversity Scores

Diversity scores are a means of estimating the diversification in a portfolio. The diversity score estimates the number of uncorrelated assets that are assumed to have the same loss distribution as the actual portfolio of correlated assets. While diversity score is a required input into the BET model, due to current high levels of default within the collateral of the structures, diversity score does not have a significant impact on valuation.

35

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

c. Recovery Rate

The recovery rate represents the percentage of par expected to be recovered after an asset defaults, indicating the severity of a potential loss. MBIA generally uses rating agency recovery assumptions which may be adjusted to account for differences between the characteristics and performance of the collateral used by the rating agencies and the actual collateral in MBIA-insured transactions. The Company may also adjust rating agency assumptions based on the performance of the collateral manager and on empirical market data.

d. Nonperformance Risk

The Company’s valuation methodology for insured credit derivative liabilities incorporates the Company’s own nonperformance risk. The Company calculates the fair value by discounting the market value loss estimated through the BET Model at discount rates which include MBIA CDS spreads as of September 30, 2012. The CDS spreads assigned to each deal are based on the weighted average life of the deal. The Company limits the nonperformance impact so that the derivative liability could not be lower than the Company’s recovery derivative price multiplied by the unadjusted derivative liability.

B. Description of Direct Price Model

1. Valuation Model Overview

The Direct Price Model uses quoted market prices of financial assets correlated to the underlying collateral of the pool of assets backing the liabilities guaranteed by certain insured derivative liabilities. These quoted market prices are adjusted to reflect the unique characteristics of the liabilities of the entities backed by the correlated assets and unique terms of the insured derivative contracts.

2. Model Inputs

• Collateral prices

Fair value of collateral is based on quoted prices when available. When quoted prices are not available, a matrix pricing grid is used based on security type and rating to determine fair value of collateral which applies an average based on securities with the same rating and security type categories.

• Interest rates

The present value of the market-implied potential losses was calculated assuming that MBIA deferred all principal losses to the legal final maturity. This was done through a cash flow model that calculated potential interest payments in each period and the potential principal loss at the legal final maturity. These cash flows were discounted using the LIBOR flat swap curve.

• Nonperformance risk

The methodology for calculating MBIA’s nonperformance risk is the same as used for the BET Model. Due to the current level of MBIA CDS spread rates and the long tenure of these transactions, the derivative recovery rate was used to estimate nonperformance risk for all transactions marked by this model.

Overall Model Results

As of September 30, 2012 and December 31, 2011, the Company’s net insured derivative liability was $3.3 billion and $4.8 billion, respectively, and was primarily related to the fair values of insured credit derivatives, based on the results of the aforementioned pricing models. In the current environment, the most significant driver of changes in fair value is nonperformance risk. In aggregate, the nonperformance calculation resulted in a pre-tax net insured derivative liability that was $4.4 billion and $5.7 billion lower than the net liability that would have been estimated if the Company excluded nonperformance risk in its valuation as of September 30, 2012 and December 31, 2011, respectively. Nonperformance risk is a fair value concept and does not contradict the Company’s internal view, based on fundamental credit analysis of the Company’s economic condition, that the Company will be able to pay all claims when due.

Warrants

Stock warrants issued by the Company are recorded at fair value based on a modified Black-Scholes model. Inputs into the warrant valuation include interest rates, stock volatilities and dividend data. As all significant inputs are market-based and observable, warrants are categorized in Level 2 of the fair value hierarchy.

36

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

Financial Guarantees

Gross Financial Guarantees—The fair value of gross financial guarantees is determined using discounted cash flow techniques based on inputs that include (i) assumptions of expected losses on financial guarantee policies where loss reserves have not been recognized, (ii) amount of losses expected on financial guarantee policies where loss reserves have been established, net of expected recoveries, (iii) the cost of capital reserves required to support the financial guarantee liability, (iv) operating expenses, and (v) discount rates. The MBIA Corp. CDS spread and recovery rate are used as the discount rate for MBIA Corp., while the CDS spread and recovery rate of a similar municipal insurance company are used as the discount rate for National, as National does not have a published CDS spread and recovery rate.

The carrying value of the Company’s gross financial guarantees consists of unearned premium revenue and loss and LAE reserves, net of the insurance loss recoverable as reported on MBIA’s consolidated balance sheets.

Ceded Financial Guarantees—The fair value of ceded financial guarantees is determined by applying the percentage ceded to reinsurers to the related fair value of the gross financial guarantees. The carrying value of ceded financial guarantees consists of prepaid reinsurance premiums and reinsurance recoverable on paid and unpaid losses as reported within “Other assets” on the Company’s consolidated balance sheets.

Significant Unobservable Inputs

The following table provides quantitative information regarding the significant unobservable inputs used by the Company for assets and liabilities measured at fair value on a recurring basis as of September 30, 2012. This table excludes inputs used to measure fair value that are not developed by the Company, such as broker prices and other third-party pricing service valuations.

In millions	Fair Value as of September 30, 2012		Valuation Techniques	Unobservable Input	Range (Weighted Average)
Assets of consolidated VIEs:
Loans receivable at fair value	$	1,892	Quoted market prices adjusted for financial guarantees provided to VIE obligations	Impact of financial guarantee		0% - 22% (4%)
Loan repurchase commitments		1,051	Discounted cash flow	Recovery rates		9% - 96% (43%)
				Breach rates		65% - 94% (78%)
Liabilities of consolidated VIEs:
Variable interest entity notes		1,885	Quoted market prices of VIE assets adjusted for financial guarantees provided	Impact of financial guarantee		0% - 20% (6%)
Credit derivative liabilities, net:
CMBS		1,533	BET Model	Recovery rates		20% - 90% (51%)
				Nonperformance risk		8% - 62% (57%)
				Weighted average life (in years)		0.3 - 5.9 (4.6)
				CMBS spreads		1% - 22% (12%)
Multi-sector CDO		628	Direct Price Model	Nonperformance risk		63% - 63% (63%)
Other		1,156	BET Model	Recovery rates		42% - 75% (47%)
				Nonperformance risk		8% - 63% (50%)
				Weighted average life (in years)		0.2 - 19.0 (3.1)

Sensitivity of Significant Unobservable Inputs

The significant unobservable input used in the fair value measurement of the Company’s loans receivable at fair value of consolidated VIEs is the impact of the financial guarantee. The fair value of loans receivable is calculated by subtracting the value of the financial guarantee from the market value of VIE liabilities. The value of a financial guarantee is estimated by the Company as the present value of expected cash payments under the policy. As expected cash payments provided by the Company under the insurance policy increase, there is a lower expected cash flow on the underlying loans receivable of the VIE. This results in a lower fair value of the loans receivable in relation to the obligations of the VIE.

The significant unobservable inputs used in the fair value measurement of the Company’s loan repurchase commitments of consolidated VIEs are the recovery rates and the breach rates. Recovery rates reflect the estimates of future cash flows reduced for litigation delays and risks and/or potential financial distress of the sellers/services. The estimated recoveries of the loan repurchase commitments may differ from the actual recoveries that may be received in the future. Breach rates represent the rate at which the mortgages fail to comply with stated representations and warranties of the sellers/servicers. Significant increases or decreases in the recovery rates and the breach rates would result in significantly higher or lower fair values of the loan repurchase commitments, respectively. Additionally, changes in the legal environment and the ability of the counterparties to pay would impact the recovery rate assumptions, which could significantly impact the fair value measurement. Any significant challenges by the counterparties to the Company’s determination of breaches of representations and warranties could significantly adversely impact the fair value measurement. Recovery rates and breach rates are determined independently. Changes in one input will not necessarily have any impact on the other input.

37

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

The significant unobservable input used in the fair value measurement of the Company’s variable interest entity notes of consolidated VIEs is the impact of the financial guarantee. The fair value of VIE notes is calculated by adding the value of the financial guarantee to the market value of VIE assets. The value of a financial guarantee is estimated by the Company as the present value of expected cash payments under the policy. As the value of the guarantee provided by the Company to the obligations issued by the VIE increases, the credit support adds value to the liabilities of the VIE. This results in an increase in the fair value of the liabilities of the VIE.

The significant unobservable inputs used in the fair value measurement of the Company’s CMBS credit derivatives, which are valued using the BET Model, are CMBS spreads, recovery rates, nonperformance risk and weighted average life. The CMBS spread is an indicator of credit risk of the collateral securities. The recovery rate represents the percentage of notional expected to be recovered after an asset defaults, indicating the severity of a potential loss. The nonperformance risk is an assumption of the Company’s own ability to pay and whether the Company will have the necessary resources to pay the obligations as they come due. Weighted average life is based on the Company’s estimate of when the principal of the underlying collateral of the CMBS structure will be repaid. A significant increase or decrease in CMBS spreads or weighted average life would result in an increase or decrease in the fair value of the derivative liabilities, respectively. Any significant increase or decrease in recovery rates or the Company’s nonperformance risk would result in a decrease or increase in the fair value of the derivative liabilities, respectively. CMBS spreads, recovery rates, nonperformance risk and weighted average lives are determined independently. Changes in one input will not necessarily have any impact on the other inputs.

The significant unobservable input used in the fair value measurement of the Company’s multi-sector CDO credit derivatives, which are valued using the Direct Price Model, is nonperformance risk. The nonperformance risk is an assumption of the Company’s own ability to pay and whether the Company will have the necessary resources to pay the obligations as they come due. Any significant increase or decrease in the Company’s nonperformance risk would result in a decrease or increase in the fair value of the derivative liabilities, respectively.

The significant unobservable inputs used in the fair value measurement of the Company’s other credit derivatives, which are valued using the BET Model, are recovery rates, nonperformance risk and weighted average life. The recovery rate represents the percentage of notional expected to be recovered after an asset defaults, indicating the severity of a potential loss. The nonperformance risk is an assumption of the Company’s own ability to pay and whether the Company will have the necessary resources to pay the obligations as they come due. Weighted average life is based on the Company’s estimate of when the principal of the underlying collateral will be repaid. Any significant increase or decrease in weighted average life would result in an increase or decrease in the fair value of the derivative liabilities, respectively. Any significant increase or decrease in recovery rates or the Company’s nonperformance risk would result in a decrease or increase in the fair value of the derivative liabilities, respectively. Recovery rates, nonperformance risk and weighted average lives are determined independently. Changes in one input will not necessarily have any impact on the other inputs.

38

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

Fair Value Measurements

The following tables present the fair value of the Company’s assets (including short-term investments) and liabilities measured and reported at fair value on a recurring basis as of September 30, 2012 and December 31, 2011:

	Fair Value Measurements at Reporting Date Using
In millions	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Counterparty and Cash Collateral Netting		Balance as of September 30, 2012
Assets:
Investments:
Fixed-maturity investments:
Taxable bonds:
U.S. Treasury and government agency	$	860	$	101	$	-		$	-	$	961
Foreign governments		257		72		12	(1)		-		341
Corporate obligations		1		1,136		91	(1)		-		1,228
Mortgage-backed securities:
Residential mortgage-backed agency		-		1,073		-			-		1,073
Residential mortgage-backed non-agency		-		169		7	(1)		-		176
Commercial mortgage-backed		-		19		30	(1)		-		49
Asset-backed securities:
Collateralized debt obligations		-		64		30	(1)		-		94
Other asset-backed		-		116		73	(1)		-		189
State and municipal bonds		-		888		71	(1)		-		959
Total taxable bonds		1,118		3,638		314			-		5,070
Tax-exempt bonds:
State and municipal bonds		-		925		23	(1)		-		948
Other fixed-maturity investments		-		10		-			-		10
Total fixed-maturity investments		1,118		4,573		337			-		6,028
Money market securities		593		-		-			-		593
Perpetual preferred securities		-		28		3	(1)		-		31
Other		20		-		11	(1)		-		31
Total investments		1,731		4,601		351			-		6,683
Cash and cash equivalents		298		-		-			-		298
Derivative assets:
Insured derivative assets:
Credit derivatives		-		-		1			-		1
Non-insured derivative assets:
Interest rate derivatives		-		95		4	(1)		(96)		3
Total derivative assets		-		95		5			(96)		4

39

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

	Fair Value Measurements at Reporting Date Using
In millions	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Counterparty and Cash Collateral Netting		Balance as of September 30, 2012
Assets of consolidated VIEs:
Fixed-maturity investments:
Corporate obligations		-		219		83	(1)		-		302
Mortgage-backed securities:
Residential mortgage-backed non-agency		-		852		8	(1)		-		860
Commercial mortgage-backed		-		409		13	(1)		-		422
Asset-backed securities:
Collateralized debt obligations		-		191		173	(1)		-		364
Other asset-backed		-		126		66	(1)		-		192
State and municipal taxable bonds		-		41		-			-		41
Money market securities		15		-		-			-		15
Total fixed-maturity investments		15		1,838		343			-		2,196
Cash		143		-		-			-		143
Loans receivable		-		-		1,892			-		1,892
Loan repurchase commitments		-		-		1,051			-		1,051
Total assets	$	2,187	$	6,534	$	3,642		$	(96)	$	12,267
Liabilities:
Medium-term notes	$	-	$	-	$	168	(1)	$	-	$	168
Derivative liabilities:
Insured derivatives:
Credit derivatives		-		14		3,318			-		3,332
Non-insured derivatives:
Interest rate derivatives		-		305		4	(1)		(311)		(2)
Currency derivatives		-		1		1	(1)		-		2
Other liabilities:
Warrants		-		18		-			-		18
Liabilities of consolidated VIEs:
Variable interest entity notes		-		1,741		1,885			-		3,626
Derivative liabilities:
Interest rate derivatives		-		157		-			-		157
Currency derivatives		-		-		23	(1)		-		23
Total liabilities	$	-	$	2,236	$	5,399		$	(311)	$	7,324

(1) - Unobservable inputs are either not developed by the Company or do not significantly impact the overall fair values of the aggregate financial assets and liabilities.

40

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

	Fair Value Measurements at Reporting Date Using
In millions	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Counterparty and Cash Collateral Netting		Balance as of December 31, 2011
Assets:
Investments:
Fixed-maturity investments:
Taxable bonds:
U.S. Treasury and government agency	$	1,038	$	103	$	-	$	-	$	1,141
Foreign governments		277		62		11		-		350
Corporate obligations		1		1,531		207		-		1,739
Mortgage-backed securities:
Residential mortgage-backed agency		-		1,276		8		-		1,284
Residential mortgage-backed non-agency		-		350		17		-		367
Commercial mortgage-backed		-		34		24		-		58
Asset-backed securities:
Collateralized debt obligations		-		78		60		-		138
Other asset-backed		-		130		317		-		447
State and municipal bonds		-		924		-		-		924
Total taxable bonds		1,316		4,488		644		-		6,448
Tax-exempt bonds:
State and municipal bonds		-		1,137		28		-		1,165
Other fixed-maturity investments		-		15		-		-		15
Total fixed-maturity investments		1,316		5,640		672		-		7,628
Money market securities		912		-		-		-		912
Perpetual preferred securities		-		106		1		-		107
Other		25		-		10		-		35
Total investments		2,253		5,746		683		-		8,682
Cash and cash equivalents		473		-		-		-		473
Derivative assets:
Non-insured derivative assets:
Credit derivatives		-		1		-		-		1
Interest rate derivatives		-		91		3		-		94
Other		-		-		-		(93)		(93)
Total derivative assets		-		92		3		(93)		2

41

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

	Fair Value Measurements at Reporting Date Using
In millions	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Counterparty and Cash Collateral Netting		Balance as of December 31, 2011
Assets of consolidated VIEs:
Fixed-maturity investments:
Corporate obligations		-		170		69		-		239
Mortgage-backed securities:
Residential mortgage-backed agency		-		3		-		-		3
Residential mortgage-backed non-agency		-		1,437		21		-		1,458
Commercial mortgage-backed		-		559		22		-		581
Asset-backed securities:
Collateralized debt obligations		-		330		203		-		533
Other asset-backed		-		236		67		-		303
Money market securities		199		-		-		-		199
Total fixed-maturity investments		199		2,735		382		-		3,316
Cash		160		-		-		-		160
Loans receivable		-		-		2,046		-		2,046
Loan repurchase commitments		-		-		1,077		-		1,077
Derivative assets:
Credit derivatives		-		-		447		-		447
Interest rate derivatives		-		3		-		-		3
Total assets	$	3,085	$	8,576	$	4,638	$	(93)	$	16,206
Liabilities:
Medium-term notes	$	-	$	-	$	165	$	-	$	165
Derivative liabilities:
Insured derivatives:
Credit derivatives		-		18		4,790		-		4,808
Non-insured derivatives:
Interest rate derivatives		-		445		-		-		445
Currency derivatives		-		4		-		-		4
Other		-		-		-		(93)		(93)
Other liabilities:
Warrants		-		38		-		-		38
Liabilities of consolidated VIEs:
Variable interest entity notes		-		1,865		2,889		-		4,754
Derivative liabilities:
Credit derivatives		-		-		527		-		527
Interest rate derivatives		-		281		-		-		281
Currency derivatives		-		-		17		-		17
Total liabilities	$	-	$	2,651	$	8,388	$	(93)	$	10,946

42

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

Level 3 assets at fair value, as of September 30, 2012 and December 31, 2011 represented approximately 30% and 29%, respectively, of total assets measured at fair value. Level 3 liabilities at fair value, as of September 30, 2012 and December 31, 2011 represented approximately 74% and 77%, respectively, of total liabilities measured at fair value.

The following tables present the fair values and carrying values of the Company’s assets and liabilities that are disclosed at fair value but not reported at fair value on the Company’s consolidated balance sheets as of September 30, 2012 and December 31, 2011:

	Fair Value Measurements at Reporting Date Using
In millions	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable  Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value Balance as of September 30, 2012		Carry Value Balance as of September 30, 2012
Assets:
Other investments	$	-	$	-	$	9	$	9	$	9
Accrued investment income(1)		51		-		-		51		51
Receivable for investments sold(1)		159		-		-		159		159
Assets of consolidated VIEs:
Investments held-to-maturity		-		-		2,867		2,867		3,015
Total assets	$	210	$	-	$	2,876	$	3,086	$	3,234
Liabilities:
Investment agreements	$	-	$	-	$	1,254	$	1,254	$	993
Medium-term notes		-		-		1,068		1,068		1,438
Long-term debt		-		1,109		-		1,109		1,836
Payable for investments purchased(2)		150		-		-		150		150
Liabilities of consolidated VIEs:
Variable interest entity notes		-		-		3,166		3,166		3,468
Total liabilities	$	150	$	1,109	$	5,488	$	6,747	$	7,885
Financial Guarantees:
Gross	$	-	$	-	$	866	$	866	$	720
Ceded		-		-		88		88		94

(1) - Reported within “Other assets” on MBIA’s consolidated balance sheets.

(2) - Reported within “Other liabilities” on MBIA’s consolidated balance sheets.

43

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

	Fair Value Measurements at Reporting Date Using						Fair Value Balance as of December 31, 2011		Carry Value Balance as of December 31, 2011
In millions	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Other investments	$	-	$	-	$	11	$	11	$	11
Accrued investment income(1)		63		-		-		63		63
Receivable for investments sold(1)		32		-		-		32		32
Assets of consolidated VIEs:
Investments held-to-maturity		-		-		3,489		3,489		3,843
Total assets	$	95	$	-	$	3,500	$	3,595	$	3,949
Liabilities:
Investment agreements	$	-	$	-	$	1,853	$	1,853	$	1,578
Medium-term notes		-		-		1,187		1,187		1,491
Securities sold under agreements to repurchase		-		286		-		286		287
Long-term debt		-		1,117		-		1,117		1,840
Payable for investments purchased(2)		3		-		-		3		3
Liabilities of consolidated VIEs:
Variable interest entity notes		-		-		3,297		3,297		3,943
Long-term debt		-		-		368		368		360
Total liabilities	$	3	$	1,403	$	6,705	$	8,111	$	9,502
Financial Guarantees:
Gross	$	-	$	-	$	1,451	$	1,451	$	1,305
Ceded		-		-		94		94		104

(1) - Reported within “Other assets” on MBIA’s consolidated balance sheets.

(2) - Reported within “Other liabilities” on MBIA’s consolidated balance sheets.

44

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

The following tables present information about changes in Level 3 assets (including short-term investments) and liabilities measured at fair value on a recurring basis for the three months ended September 30, 2012 and 2011:

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended September 30, 2012

In millions	Balance, Beginning of Period		Realized Gains / (Losses)		Unrealized Gains / (Losses) Included in Earnings		Unrealized Gains / (Losses) Included in OCI		Foreign Exchange Recognized in OCI or Earnings		Purchases		Issuances		Settlements		Sales		Transfers into Level 3(1)		Transfers out of Level 3(1)		Ending Balance		Change in Unrealized Gains (Losses) for the Period Included in Earnings for Assets still held as of September 30, 2012
Assets:
Foreign governments	$	12	$	-	$	-	$	-	$	1	$	9	$	-	$	(10)	$	-	$	-	$	-	$	12	$	-
Corporate obligations		98		-		4		(2)		-		2		-		(13)		-		10		(8)		91		3
Residential mortgage- backed agency		4		-		-		-		-		-		-		(1)		-		-		(3)		-		-
Residential mortgage- backed non-agency		33		(1)		-		2		-		-		-		(5)		-		1		(23)		7		-
Commercial mortgage-backed		27		-		-		1		-		1		-		-		-		1		-		30		-
Collateralized debt obligations		29		(4)		-		9		-		-		-		(4)		-		4		(4)		30		-
Other asset-backed		69		(2)		-		2		-		1		-		(1)		-		4		-		73		-
State and municipal taxable bonds		-		-		-		-		-		-		-		-		-		71		-		71		-
State and municipal tax-exempt bonds		25		-		-		-		-		-		-		(2)		-		-		-		23		-
Perpetual preferred securities		3		-		-		-		-		-		-		-		-		-		-		3		-
Other investments		10		-		1		-		-		-		-		-		-		-		-		11		-
Assets of consolidated VIEs:
Corporate obligations		95		-		(10)		-		-		-		-		(2)		-		3		(3)		83		1
Residential mortgage- backed non-agency		10		-		-		-		-		-		-		(1)		-		2		(3)		8		-
Commercial mortgage-backed		12		-		1		-		-		-		-		-		-		-		-		13		1
Collateralized debt obligations		140		-		(5)		2		-		-		-		(1)		-		37		-		173		(2)
Other asset-backed		42		-		(1)		-		-		-		-		(5)		-		30		-		66		1
Loans receivable		1,903		-		61		-		-		-		-		(72)		-		-		-		1,892		61
Loan repurchase commitments		1,032		-		19		-		-		-		-		-		-		-		-		1,051		19
Total assets	$	3,544	$	(7)	$	70	$	14	$	1	$	13	$	-	$	(117)	$	-	$	163	$	(44)	$	3,637	$	84

45

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

In millions	Balance, Beginning of Period		Realized (Gains) / Losses		Unrealized (Gains) / Losses Included in Earnings		Unrealized (Gains) / Losses Included in OCI		Foreign Exchange Recognized in OCI or Earnings		Purchases		Issuances		Settlements		Sales		Transfers into Level 3(1)		Transfers out of Level 3(1)		Ending Balance		Change in Unrealized (Gains) Losses for the Period Included in Earnings for Liabilities still held as of September 30, 2012
Liabilities:
Medium-term notes	$	151	$	-	$	14	$	-	$	3	$	-	$	-	$	-	$	-	$	-	$	-	$	168	$	14
Credit derivatives, net		3,285		-		32		-		-		-		-		-		-		-		-		3,317		33
Interest rate derivatives, net		(4)		-		-		-		-		-		-		-		-		4		-		-		5
Currency derivatives, net		-		-		-		-		-		-		-		-		-		1		-		1		-
Liabilities of consolidated VIEs:
VIE notes		1,867		-		128		-		-		-		-		(110)		-		-		-		1,885		128
Currency derivatives, net		21		-		2		-		-		-		-		-		-		-		-		23		2
Total liabilities	$	5,320	$	-	$	176	$	-	$	3	$	-	$	-	$	(110)	$	-	$	5	$	-	$	5,394	$	182

(1) - Transferred in and out at the end of the period.

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended September 30, 2011

In millions	Balance, Beginning of Period		Realized Gains / (Losses)		Unrealized Gains / (Losses) Included in Earnings		Unrealized Gains / (Losses) Included in OCI		Foreign Exchange Recognized in OCI or Earnings		Purchases		Issuances		Settlements		Sales		Transfers into Level 3(1)		Transfers out of Level 3(1)		Ending Balance		Change in Unrealized Gains (Losses) for the Period Included in Earnings for Assets still held as of September 30, 2011
Assets:
Foreign governments	$	13	$	-	$	-	$	-	$	(2)	$	3	$	-	$	(3)	$	-	$	-	$	-	$	11	$	-
Corporate obligations		294		(1)		-		(10)		(5)		19		-		(32)		(38)		115		-		342		-
Residential mortgage- backed agency		-		-		-		-		-		1		-		-		-		-		-		1		-
Residential mortgage- backed non-agency		28		(1)		-		1		-		4		-		(4)		-		1		(2)		27		-
Commercial mortgage-backed		50		(2)		-		-		-		-		-		(3)		(13)		-		-		32		-
Collateralized debt obligations		162		(2)		-		(3)		-		39		2		(79)		(28)		1		(25)		67		-
Other asset-backed		331		-		-		(27)		-		-		-		(9)		-		3		(28)		270		-
State and municipal taxable bonds		13		1		-		1		-		-		-		(15)		-		-		-		-		-
State and municipal tax-exempt bonds		32		-		-		-		-		-		-		(2)		-		-		-		30		-
Perpetual preferred securities		-		-		-		-		-		-		-		-		-		1		-		1		-
Assets of consolidated VIEs:
Corporate obligations		62		-		(5)		-		-		-		-		(1)		-		7		-		63		(2)
Residential mortgage- backed non-agency		17		-		3		-		-		-		-		(1)		(6)		2		-		15		1
Commercial mortgage-backed		27		-		(1)		-		-		-		-		-		(11)		2		-		17		(2)
Collateralized debt obligations		201		-		(17)		(7)		-		60		-		(1)		(21)		12		(21)		206		(14)
Other asset-backed		73		-		5		-		-		-		-		-		(6)		-		(1)		71		5
Loans receivable		2,320		-		(36)		-		-		-		-		(66)		-		-		-		2,218		(36)
Loan repurchase commitments		905		-		33		-		-		-		-		-		-		-		-		938		33
Total assets	$	4,528	$	(5)	$	(18)	$	(45)	$	(7)	$	126	$	2	$	(216)	$	(123)	$	144	$	(77)	$	4,309	$	(15)

46

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

In millions	Balance, Beginning of Period		Realized (Gains) / Losses		Unrealized (Gains) / Losses Included in Earnings		Unrealized (Gains) / Losses Included in OCI		Foreign Exchange Recognized in OCI or Earnings		Purchases		Issuances		Settlements		Sales		Transfers into Level 3(1)		Transfers out of Level 3(1)		Ending Balance		Change in Unrealized (Gains) Losses for the Period Included in Earnings for Liabilities still held as of September 30, 2011
Liabilities:
Medium-term notes	$	206	$	-	$	(69)	$	-	$	(9)	$	-	$	-	$	-	$	-	$	-	$	-	$	128	$	(69)
Credit derivatives, net		5,657		78		(777)		-		-		-		-		(78)		-		-		-		4,880		(388)
Interest rate derivatives, net		(4)		-		1		-		-		-		-		-		-		-		-		(3)		5
Liabilities of consolidated VIEs:
VIE notes		4,513		-		(194)		-		-		-		-		(207)		(981)		-		-		3,131		(194)
Credit derivatives, net		920		-		(154)		-		-		-		-		(1)		-		-		-		765		(154)
Currency derivatives, net		16		-		2		-		-		-		-		-		-		-		-		18		2
Total liabilities	$	11,308	$	78	$	(1,191)	$	-	$	(9)	$	-	$	-	$	(286)	$	(981)	$	-	$	-	$	8,919	$	(798)

(1) - Transferred in and out at the end of the period.

Transfers into and out of Level 3 were $168 million and $44 million, respectively, for the three months ended September 30, 2012. Transfers into and out of Level 2 were $44 million and $168 million, respectively, for the three months ended September 30, 2012. Transfers into Level 3 were principally for state and municipal taxable bonds, CDOs, other asset-backed and corporate obligations where inputs, which are significant to their valuation, became unobservable during the year. These inputs included spreads, prepayment speeds, default speeds, default severities, yield curves observable at commonly quoted intervals, and market corroborated inputs. Residential mortgage-backed non-agency and corporate obligations comprised the majority of the transferred instruments out of Level 3. There were no transfers into or out of Level 1.

Transfers into and out of Level 3 were $144 million and $77 million, respectively, for the three months ended September 30, 2011. Transfers into and out of Level 2 were $77 million and $144 million, respectively, for the three months ended September 30, 2011. These transfers were principally for available-for-sale securities where inputs, which are significant to their valuation, became observable or unobservable during the quarter. These inputs included spreads, prepayment speeds, default speeds, default severities, yield curves observable at commonly quoted intervals, and market corroborated inputs. Corporate obligations, CDOs and other asset-backed comprised the majority of the transferred instruments. There were no transfers into or out of Level 1.

All Level 1, 2 and 3 designations are made at the end of each accounting period.

47

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

The following tables present information about changes in Level 3 assets (including short-term investments) and liabilities measured at fair value on a recurring basis for the nine months ended September 30, 2012 and 2011:

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Nine Months Ended September 30, 2012

In millions	Balance, Beginning of Year		Realized Gains / (Losses)		Unrealized Gains / (Losses) Included in Earnings		Unrealized Gains / (Losses) Included in OCI		Foreign Exchange Recognized in OCI or Earnings		Purchases		Issuances		Settlements		Sales		Transfers into Level 3(1)		Transfers out of Level 3(1)		Ending Balance		Change in Unrealized Gains (Losses) for the Period Included in Earnings for Assets still held as of September 30, 2012
Assets:
Foreign governments	$	11	$	-	$	-	$	-	$	1	$	22	$	-	$	(19)	$	(3)	$	-	$	-	$	12	$	-
Corporate obligations		207		(15)		9		24		-		18		-		(29)		(140)		25		(8)		91		8
Residential mortgage- backed agency		8		-		-		1		-		-		-		(1)		-		4		(12)		-		-
Residential mortgage- backed non-agency		17		(1)		-		(1)		-		-		-		(11)		(3)		31		(25)		7		-
Commercial mortgage-backed		24		-		-		5		-		1		-		-		-		1		(1)		30		-
Collateralized debt obligations		60		(9)		-		18		-		-		-		(12)		(10)		14		(31)		30		-
Other asset-backed		317		(58)		-		71		-		5		-		(11)		(250)		5		(6)		73		-
State and municipal taxable bonds		-		-		-		-		-		-		-		-		-		71		-		71		-
State and municipal tax-exempt bonds		28		-		-		-		-		-		-		(5)		-		-		-		23		-
Perpetual preferred securities		1		-		-		1		-		-		-		-		-		4		(3)		3		-
Other investments		10		-		1		-		-		-		-		-		-		-		-		11		-
Assets of consolidated VIEs:
Corporate obligations		69		-		(15)		(6)		-		28		-		(5)		-		15		(3)		83		3
Residential mortgage- backed non-agency		21		-		6		-		-		-		-		(5)		(15)		5		(4)		8		3
Commercial mortgage-backed		22		-		3		-		-		-		-		(3)		(8)		5		(6)		13		2
Collateralized debt obligations		203		-		(5)		(1)		-		-		-		(1)		(74)		51		-		173		5
Other asset-backed		67		-		4		-		-		4		-		(8)		(35)		34		-		66		5
Loans receivable		2,046		-		52		-		-		-		-		(204)		(2)		-		-		1,892		52
Loan repurchase commitments		1,077		-		(26)		-		-		-		-		-		-		-		-		1,051		(26)
Total assets	$	4,188	$	(83)	$	29	$	112	$	1	$	78	$	-	$	(314)	$	(540)	$	265	$	(99)	$	3,637	$	52

48

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

In millions	Balance, Beginning of Year		Realized (Gains) / Losses		Unrealized (Gains) / Losses Included in Earnings		Unrealized (Gains) / Losses Included in OCI		Foreign Exchange Recognized in OCI or Earnings		Purchases		Issuances		Settlements		Sales		Transfers into Level 3(1)		Transfers out of Level 3(1)		Ending Balance		Change in Unrealized (Gains) Losses for the Period Included in Earnings for Liabilities still held as of September 30, 2012
Liabilities:
Medium-term notes	$	165	$	-	$	3	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	168	$	4
Credit derivatives, net		4,790		463		(1,473)		-		-		-		-		(463)		-		-		-		3,317		(538)
Interest rate derivatives, net		(3)		-		(1)		-		-		-		-		-		-		4		-		-		12
Interest rate derivatives, net		-		-		-		-		-		-		-		-		-		1		-		1		-
Liabilities of consolidated VIEs:
VIE notes		2,889		-		348		-		-		-		-		(369)		(983)		-		-		1,885		292
Credit derivatives, net		80		-		2		-		-		-		-		-		(82)		-		-		-		-
Currency derivatives, net		17		-		6		-		-		-		-		-		-		-		-		23		6
Total liabilities	$	7,938	$	463	$	(1,115)	$	-	$	-	$	-	$	-	$	(832)	$	(1,065)	$	5	$	-	$	5,394	$	(224)

(1) - Transferred in and out at the end of the period.

49

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Nine Months Ended September 30, 2011

In millions	Balance, Beginning of Year		Realized Gains / (Losses)		Unrealized Gains / (Losses) Included in Earnings		Unrealized Gains / (Losses) Included in OCI		Foreign Exchange Recognized in OCI or Earnings		Purchases		Issuances		Settlements		Sales		Transfers into Level 3(1)		Transfers out of Level 3(1)		Ending Balance		Change in Unrealized Gains (Losses) for the Period Included in Earnings for Assets still held as of September 30, 2011
Assets:
Foreign governments	$	11	$	-	$	-	$	-	$	(1)	$	9	$	-	$	(8)	$	-	$	7	$	(7)	$	11	$	-
Corporate obligations		246		(1)		-		(3)		(2)		30		-		(65)		(50)		202		(15)		342		-
Residential mortgage- backed agency		41		-		-		1		-		2		-		(1)		(1)		-		(41)		1		-
Residential mortgage- backed non-agency		48		(2)		-		11		(1)		15		-		(14)		(19)		9		(20)		27		-
Commercial mortgage-backed		41		(2)		-		2		1		8		-		(3)		(14)		-		(1)		32		-
Collateralized debt obligations		192		(4)		-		25		-		46		3		(112)		(36)		49		(96)		67		-
Other asset-backed		349		-		-		(26)		-		10		-		(20)		(2)		16		(57)		270		-
State and municipal taxable bonds		14		1		-		-		-		-		-		(15)		-		-		-		-		-
State and municipal tax-exempt bonds		36		-		-		-		-		2		-		(7)		(1)		-		-		30		-
Perpetual preferred securities		-		-		-		-		-		-		-		-		-		1		-		1		-
Assets of consolidated VIEs:
Corporate obligations		82		-		(18)		-		-		-		-		(5)		-		11		(7)		63		(2)
Residential mortgage- backed non-agency		40		-		2		3		-		-		-		(6)		(6)		2		(20)		15		2
Commercial mortgage-backed		23		-		6		-		-		-		-		(2)		(12)		2		-		17		3
Collateralized debt obligations		245		-		(27)		(7)		-		60		-		(3)		(21)		48		(89)		206		1
Other asset-backed		81		-		(3)		-		-		-		-		(2)		(6)		2		(1)		71		2
Loans receivable		2,183		-		260		-		-		-		-		(223)		(2)		-		-		2,218		260
Loan repurchase commitments		835		-		91		-		-		-		12		-		-		-		-		938		91
Total assets	$	4,467	$	(8)	$	311	$	6	$	(3)	$	182	$	15	$	(486)	$	(170)	$	349	$	(354)	$	4,309	$	357

In millions	Balance, Beginning of Year		Realized (Gains) / Losses		Unrealized (Gains) / Losses Included in Earnings		Unrealized (Gains) / Losses Included in OCI		Foreign Exchange Recognized in OCI or Earnings		Purchases		Issuances		Settlements		Sales		Transfers into Level 3(1)		Transfers out of Level 3(1)		Ending Balance		Change in Unrealized (Gains) Losses for the Period Included In Earnings for Liabilities still held as of September 30, 2011
Liabilities:
Medium-term notes	$	116	$	-	$	9	$	-	$	3	$	-	$	-	$	-	$	-	$	-	$	-	$	128	$	9
Credit derivatives, net		4,350		683		530		-		-		-		-		(683)		-		-		-		4,880		2,160
Interest rate derivatives, net		(5)		-		1		-		-		-		-		-		-		1		-		(3)		6
Liabilities of consolidated VIEs:
VIE notes		4,673		-		75		-		-		-		-		(456)		(1,161)		-		-		3,131		75
Credit derivatives, net		768		-		(3)		-		-		-		-		-		-		-		-		765		(3)
Currency derivatives, net		14		-		4		-		-		-		-		-		-		-		-		18		4
Total liabilities	$	9,916	$	683	$	616	$	-	$	3	$	-	$	-	$	(1,139)	$	(1,161)	$	1	$	-	$	8,919	$	2,251

(1) - Transferred in and out at the end of the period.

50

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

Transfers into and out of Level 3 were $270 million and $99 million, respectively, for the nine months ended September 30, 2012. Transfers into and out of Level 2 were $99 million and $270 million, respectively, for the nine months ended September 30, 2012. Transfers into Level 3 were principally related to state and municipal taxable bonds, CDOs, other asset-backed, residential mortgage-backed non-agency and corporate obligations where inputs, which are significant to their valuation, became unobservable during the year. These inputs included spreads, prepayment speeds, default speeds, default severities, yield curves observable at commonly quoted intervals, and market corroborated inputs. CDOs, residential mortgage-backed non-agency, residential mortgage-backed agency and corporate obligations comprised the majority of the transferred instruments out of Level 3. There were no transfers into or out of Level 1.

Transfers into and out of Level 3 were $350 million and $354 million, respectively, for the nine months ended September 30, 2011. Transfers into and out of Level 2 were $354 million and $350 million, respectively, for the nine months ended September 30, 2011. These transfers were principally related to available-for-sale securities where inputs, which are significant to their valuation, became observable or unobservable during the quarter. These inputs included spreads, prepayment speeds, default speeds, default severities, yield curves observable at commonly quoted intervals, and market corroborated inputs. Corporate obligations, CDOs, residential mortgage-backed non-agency and other asset-backed comprised the majority of the transferred instruments. There were no transfers into or out of Level 1.

All Level 1, 2 and 3 designations are made at the end of each accounting period.

Gains and losses (realized and unrealized) included in earnings relating to Level 3 assets and liabilities for the three months ended September 30, 2012 and 2011 are reported on the Company’s consolidated statements of operations as follows:

	Three Months Ended September 30, 2012
							Consolidated VIEs
In millions	Unrealized Gains (Losses) on Insured Derivatives		Net Realized Gains (Losses)		Net Gains (Losses) on Financial Instruments at Fair Value and Foreign Exchange		Net Gains (Losses) on Financial Instruments at Fair Value and Foreign Exchange
Total gains (losses) included in earnings	$	(32)	$	(7)	$	(9)	$	(65)
Change in unrealized gains (losses) for the period included in earnings for assets and liabilities still held as of September 30, 2012	$	(33)	$	-	$	(16)	$	(49)

	Three Months Ended September 30, 2011
							Consolidated VIEs
In millions	Unrealized Gains (Losses) on Insured Derivatives		Net Realized Gains (Losses)		Net Gains (Losses) on Financial Instruments at Fair Value and Foreign Exchange		Net Gains (Losses) on Financial Instruments at Fair Value and Foreign Exchange
Total gains (losses) included in earnings	$	777	$	(83)	$	68	$	328
Change in unrealized gains (losses) for the period included in earnings for assets and liabilities still held as of September 30, 2011	$	388	$	-	$	64	$	331

51

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

Gains and losses (realized and unrealized) included in earnings relating to Level 3 assets and liabilities for the nine months ended September 30, 2012 and 2011 are reported on the Company’s consolidated statements of operations as follows:

	Nine Months Ended September 30, 2012
							Consolidated VIEs
In millions	Unrealized Gains (Losses) on Insured Derivatives		Net Realized Gains (Losses)		Net Gains (Losses) on Financial Instruments at Fair Value and Foreign Exchange		Net Gains (Losses) on Financial Instruments at Fair Value and Foreign Exchange
Total gains (losses) included in earnings	$	1,473	$	(546)	$	8	$	(337)
Change in unrealized gains (losses) for the period included in earnings for assets and liabilities still held as of September 30, 2012	$	538	$	-	$	(8)	$	(254)

	Nine Months Ended September 30, 2011
							Consolidated VIEs
In millions	Unrealized Gains (Losses) on Insured Derivatives		Net Realized Gains (Losses)		Net Gains (Losses) on Financial Instruments at Fair Value and Foreign Exchange		Net Gains (Losses) on Financial Instruments at Fair Value and Foreign Exchange
Total gains (losses) included in earnings	$	(530)	$	(691)	$	(10)	$	235
Change in unrealized gains (losses) for the period included in earnings for assets and liabilities still held as of September 30, 2011	$	(2,160)	$	-	$	(15)	$	281

Fair Value Option

The Company elected to record at fair value certain financial instruments of VIEs that have been consolidated in connection with the adoption of the accounting guidance for consolidation of VIEs, among others.

The following table presents the changes in fair value included in the Company’s consolidated statements of operations for the three and nine months ended September 30, 2012 and 2011 for all financial instruments for which the fair value option was elected:

	Net Gains (Losses) on Financial Instruments at Fair Value and Foreign Exchange
	Three Months Ended September 30,				Nine Months Ended September 30,
In millions	2012		2011		2012		2011
Fixed-maturity securities held at fair value	$	21	$	(286)	$	(36)	$	(338)
Loans receivable at fair value:
Residential mortgage loans		(4)		(65)		(103)		65
Other loans		(7)		(37)		(48)		(30)
Loan repurchase commitments		19		33		62		103
Other assets		-		(162)		-		(184)
Long-term debt		12		481		140		367

Substantially all gains and losses included in earnings during the nine months ended September 30, 2012 on loans receivable and VIE notes reported in the preceding table are attributable to credit risk. This is primarily due to the high rate of defaults on loans and the collateral supporting the VIE notes, resulting in depressed pricing of the financial instruments.

52

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

The following table reflects the difference between the aggregate fair value and the aggregate remaining contractual principal balance outstanding as of September 30, 2012 and December 31, 2011 for loans and VIE notes for which the fair value option was elected:

	As of September 30, 2012						As of December 31, 2011
In millions	Contractual Outstanding Principal		Fair Value		Difference		Contractual Outstanding Principal		Fair Value		Difference
Loans receivable at fair value:
Residential mortgage loans	$	2,430	$	1,746	$	684	$	2,769	$	1,895	$	874
Residential mortgage loans (90 days or more past due)		241		46		195		259		-		259
Other loans		39		16		23		129		43		86
Other loans (90 days or more past due)		206		84		122		324		108		216
Total loans receivable at fair value	$	2,916	$	1,892	$	1,024	$	3,481	$	2,046	$	1,435
Variable interest entity notes	$	9,015	$	3,626	$	5,389	$	13,583	$	4,754	$	8,829

Note 7: Investments

The Company’s fixed-maturity portfolio consists of high-quality (average rating Aa) taxable and tax-exempt investments of diversified maturities. Other investments primarily comprise equity investments, including those accounted for under the equity method, highly rated perpetual securities and loan receivables that bear interest.

53

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 7: Investments (continued)

The following tables present the amortized cost, fair value and other-than-temporary impairments of fixed-maturity investments and other investments designated as available-for-sale in the consolidated investment portfolio of the Company as of September 30, 2012 and December 31, 2011:

	September 30, 2012
In millions	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Other-Than- Temporary Impairments(1)
Fixed-maturity investments:
Taxable bonds:
U.S. Treasury and government agency	$	896	$	44	$	(1)	$	939	$	-
Foreign governments		318		22		-		340		-
Corporate obligations		1,068		59		(21)		1,106		3
Mortgage-backed securities:
Residential mortgage-backed agency		988		48		-		1,036		-
Residential mortgage-backed non-agency		187		16		(36)		167		(24)
Commercial mortgage-backed		46		1		(4)		43		-
Asset-backed securities:
Collateralized debt obligations		165		-		(74)		91		(26)
Other asset-backed		195		3		(14)		184		-
State and municipal bonds		895		73		(11)		957		-
Total taxable bonds		4,758		266		(161)		4,863		(47)
Tax-exempt bonds:
State and municipal bonds		886		60		-		946		-
Total fixed-maturity investments		5,644		326		(161)		5,809		(47)
Other investments:
Perpetual preferred securities		31		-		-		31		-
Other investments		10		-		-		10		-
Money market securities		583		-		-		583		-
Total other investments		624		-		-		624		-
Assets of consolidated VIEs:
Corporate obligations		177		7		(7)		177		-
Mortgage-backed securities:
Residential mortgage-backed non-agency		99		-		(12)		87		-
Asset-backed securities:
Collateralized debt obligations		108		-		(11)		97		-
Other asset-backed		25		1		-		26		-
State and municipal bonds		37		3		-		40		-
Other investments:
Money market securities		15		-		-		15		-
Total available-for-sale investments	$	6,729	$	337	$	(191)	$	6,875	$	(47)

(1) - Represents unrealized gains or losses on other than temporarily impaired securities recognized in accumulated other comprehensive income (loss), which includes the non-credit component of impairments, as well as all subsequent changes in fair value of such impaired securities.

54

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 7: Investments (continued)

	December 31, 2011
In millions	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Other-Than- Temporary Impairments(1)
Fixed-maturity investments:
Taxable bonds:
U.S. Treasury and government agency	$	1,091	$	39	$	-	$	1,130	$	-
Foreign governments		326		23		-		349		-
Corporate obligations		1,698		43		(106)		1,635		(2)
Mortgage-backed securities:
Residential mortgage-backed agency		1,198		47		-		1,245		-
Residential mortgage-backed non-agency		325		31		(83)		273		(57)
Commercial mortgage-backed		58		1		(10)		49		-
Asset-backed securities:
Collateralized debt obligations		251		-		(118)		133		(43)
Other asset-backed		520		2		(82)		440		(37)
State and municipal bonds		903		35		(17)		921		-
Total taxable bonds		6,370		221		(416)		6,175		(139)
Tax-exempt bonds:
State and municipal bonds		1,122		41		(2)		1,161		-
Total fixed-maturity investments		7,492		262		(418)		7,336		(139)
Other investments:
Perpetual preferred securities		127		-		(19)		108		-
Other investments		22		1		-		23		-
Money market securities		911		-		-		911		-
Total other investments		1,060		1		(19)		1,042		-
Assets of consolidated VIEs:
Corporate obligations		2		-		-		2		-
Mortgage-backed securities:
Residential mortgage-backed non-agency		119		-		(26)		93		-
Asset-backed securities:
Collateralized debt obligations		112		-		(15)		97		-
Other asset-backed		41		-		-		41		-
Other investments:
Money market securities		199		-		-		199		-
Total available-for-sale investments	$	9,025	$	263	$	(478)	$	8,810	$	(139)

(1)  - Represents unrealized gains or losses on other than temporarily impaired securities recognized in accumulated other comprehensive income (loss), which includes the non-credit component of impairments, as well as all subsequent changes in fair value of such impaired securities.

The fair value of securities on deposit with various regulatory authorities was $10 million and $11 million as of September 30, 2012 and December 31, 2011, respectively. These deposits are required to comply with state insurance laws.

Substantially all of the obligations under investment agreements require the Company to pledge securities as collateral. As of September 30, 2012 and December 31, 2011, the fair value of securities pledged as collateral with respect to these investment agreements approximated $885 million and $1.9 billion, respectively. The Company’s collateral as of September 30, 2012 consisted principally of RMBS, U.S. Treasury and government agency bonds and state and municipal bonds, and was primarily held with major U.S. banks. Additionally, the Company pledged cash and money market securities as collateral under investment agreements in the amount of $126 million and $224 million as of September 30, 2012 and December 31, 2011, respectively.

55

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 7: Investments (continued)

The following table presents the distribution by contractual maturity of available-for-sale fixed-maturity investments at amortized cost and fair value as of September 30, 2012. Contractual maturity may differ from expected maturity as borrowers may have the right to call or prepay obligations.

					Consolidated VIEs
In millions	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	828	$	830	$	7	$	7
Due after one year through five years		844		872		123		132
Due after five years through ten years		591		635		-		-
Due after ten years through fifteen years		437		468		84		78
Due after fifteen years		1,363		1,483		-		-
Mortgage-backed		1,221		1,246		99		87
Asset-backed		360		275		133		123
Total fixed-maturity investments	$	5,644	$	5,809	$	446	$	427

Investments that are held-to-maturity are reported on the Company’s consolidated balance sheets at amortized cost. These investments, which primarily relate to the Company’s consolidated VIEs, principally consist of ABS and other fixed-income debt obligations issued by major national and international corporations and other structured finance clients. As of September 30, 2012, unrecognized gross gains were $20 million and unrecognized gross losses were $168 million. As of December 31, 2011, unrecognized gross gains were $17 million and unrecognized gross losses were $371 million. The following table presents the distribution of held-to-maturity investments by contractual maturity at amortized cost and fair value as of September 30, 2012:

					Consolidated VIEs
In millions	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	-	$	-	$	-	$	-
Due after one year through five years(1)		1		1		-		-
Due after five years through ten years		-		-		-		-
Due after ten years through fifteen years		-		-		-		-
Due after fifteen years		-		-		-		-
Mortgage-backed		-		-		-		-
Asset-backed		-		-		3,015		2,867
Total held-to-maturity investments	$	1	$	1	$	3,015	$	2,867

(1)  - Relates to tax credit investments reported in “Other investments” on the Company’s consolidated balance sheets.

Impaired Investments

The following tables present the gross unrealized losses included in accumulated other comprehensive income (loss) as of September 30, 2012 and December 31, 2011 related to available-for-sale fixed-maturity and other investments. These tables segregate investments that have been in a continuous unrealized loss position for less than twelve months from those that have been in a continuous unrealized loss position for twelve months or longer.

56

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 7: Investments (continued)

	September 30, 2012
	Less than 12 Months				12 Months or Longer				Total
In millions	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Fixed-maturity investments:
Taxable bonds:
U.S. Treasury and government agency	$	197	$	(1)	$	-	$	-	$	197	$	(1)
Foreign governments		24		-		-		-		24		-
Corporate obligations		60		-		49		(21)		109		(21)
Mortgage-backed securities:
Residential mortgage-backed agency		8		-		41		-		49		-
Residential mortgage-backed non-agency		2		-		102		(36)		104		(36)
Commercial mortgage-backed		3		-		27		(4)		30		(4)
Asset-backed securities:
Collateralized debt obligations		2		-		83		(74)		85		(74)
Other asset-backed		1		-		88		(14)		89		(14)
State and municipal bonds		6		-		66		(11)		72		(11)
Total taxable bonds		303		(1)		456		(160)		759		(161)
Tax-exempt bonds:
State and municipal bonds		1		-		22		-		23		-
Total fixed-maturity investments		304		(1)		478		(160)		782		(161)
Other investments:
Perpetual preferred securities		-		-		3		-		3		-
Assets of consolidated VIEs:
Corporate obligations		-		-		54		(7)		54		(7)
Mortgage-backed securities:
Residential mortgage-backed non-agency		-		-		87		(12)		87		(12)
Asset-backed securities:
Collateralized debt obligations		-		-		96		(11)		96		(11)
Other asset-backed		-		-		3		-		3		-
Total	$	304	$	(1)	$	721	$	(190)	$	1,025	$	(191)

57

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 7: Investments (continued)

	December 31, 2011
	Less than 12 Months				12 Months or Longer				Total
In millions	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Fixed-maturity investments:
Taxable bonds:
U.S. Treasury and government agency	$	200	$	-	$	-	$	-	$	200	$	-
Foreign governments		20		-		-		-		20		-
Corporate obligations		297		(15)		418		(91)		715		(106)
Mortgage-backed securities:
Residential mortgage-backed agency		20		-		49		-		69		-
Residential mortgage-backed non-agency		34		(5)		167		(78)		201		(83)
Commercial mortgage-backed		17		(2)		22		(8)		39		(10)
Asset-backed securities:
Collateralized debt obligations		13		(2)		117		(116)		130		(118)
Other asset-backed		53		(7)		328		(75)		381		(82)
State and municipal bonds		152		(2)		76		(15)		228		(17)
Total taxable bonds		806		(33)		1,177		(383)		1,983		(416)
Tax-exempt bonds:
State and municipal bonds		14		-		75		(2)		89		(2)
Total fixed-maturity investments		820		(33)		1,252		(385)		2,072		(418)
Other investments:
Perpetual preferred securities		47		(3)		45		(16)		92		(19)
Assets of consolidated VIEs:
Corporate obligations		2		-		-		-		2		-
Mortgage-backed securities:
Residential mortgage-backed non-agency		3		-		90		(26)		93		(26)
Asset-backed securities:
Collateralized debt obligations		9		-		88		(15)		97		(15)
Other asset-backed		31		-		-		-		31		-
Total	$	912	$	(36)	$	1,475	$	(442)	$	2,387	$	(478)

Gross unrealized losses on available-for-sale securities presented in the preceding tables decreased as of September 30, 2012 compared with December 31, 2011 primarily due to the sale of several impaired securities included in the Company’s asset/liability products investment portfolio and the other-than-temporary impairment to fair value of several other impaired securities since there was an intent to sell them. Investments with unrealized losses that met the criteria described in the “Other-Than-Temporary Impairments” section below were tested for other-than-temporary impairments and principally related to ABS, MBS, and corporate obligations.

The following table presents the fair values and gross unrealized losses by credit rating category of ABS included in the Company’s consolidated investment portfolio as of September 30, 2012 for which fair value was less than amortized cost. Of the total fair value and unrealized losses of ABS, $57 million of fair value and $52 million of unrealized losses are included in the Company’s asset/liability products investment portfolio. Fair values include the benefit of guarantees provided by financial guarantors, including MBIA. The credit ratings are based on ratings from Moody’s as of September 30, 2012 or an alternate ratings source, such as S&P, when a security is not rated by Moody’s. For investments that are insured by various third-party guarantee insurers, the credit rating reflects the higher of the insurer’s rating or the underlying bond’s rating.

																	Below
In millions	Aaa				Aa				A				Baa				Investment Grade				Not Rated				Total
Asset- backed Sector	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
ABS CDO	$	9	$	-	$	-	$	-	$	4	$	-	$	-	$	-	$	17	$	(51)	$	-	$	-	$	30	$	(51)
Corporate CDO		29		(2)		64		(9)		-		-		-		-		91		(30)		19		(2)		203		(43)
Small business/ student loans		5		-		-		-		-		-		-		-		10		-		-		-		15		-
Other ABS		3		-		1		-		3		-		1		-		10		(2)		7		(3)		25		(5)
Total	$	46	$	(2)	$	65	$	(9)	$	7	$	-	$	1	$	-	$	128	$	(83)	$	26	$	(5)	$	273	$	(99)

58

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 7: Investments (continued)

The Company’s investments in ABS reported in the preceding table included 44% rated investment grade and 17% rated Aaa. Of the total ABS investments reported in the preceding table, $148 million include the benefit of guarantees provided by MBIA Corp. and $27 million include the benefit of guarantees provided by third-party financial guarantors. The average credit rating of all guaranteed ABS investments using the higher of the guarantors’ ratings or the underlying bond ratings was below investment grade and the average underlying credit rating of guaranteed ABS investments, without giving effect to the guarantees, was below investment grade. Without giving effect to the benefit of guarantees provided by financial guarantors, including MBIA Corp., $135 million or 49% of the securities included in the preceding table were rated below investment grade.

The following table presents the fair values and gross unrealized losses by credit rating category of MBS included in the Company’s consolidated investment portfolio as of September 30, 2012 for which fair value was less than amortized cost. Fair values include the benefit of guarantees provided by financial guarantors, including MBIA. The credit ratings are based on ratings from Moody’s as of September 30, 2012 or an alternate ratings source, such as S&P, when a security is not rated by Moody’s. For investments that are insured by various third-party guarantee insurers, the credit rating reflects the higher of the insurer’s rating or the underlying bond’s rating.

																	Below
In millions	Aaa				Aa				A				Baa				Investment Grade				Not Rated				Total
Mortgage- backed Securities	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
RMBS:
Collateralized	$	41	$	-	$	24	$	-	$	-	$	-	$	-	$	-	$	30	$	(5)	$	14	$	(7)	$	109	$	(12)
Home equity		-		-		57		(10)		-		-		3		(1)		56		(21)		-		-		116		(32)
Pass-through securities		8		-		-		-		-		-		-		-		-		-		-		-		8		-
Other		-		-		8		(3)		-		-		-		-		-		-		-		-		8		(3)
CMBS		-		-		-		-		-		-		27		(4)		2		(1)		-		-		29		(5)
Total	$	49	$	-	$	89	$	(13)	$	-	$	-	$	30	$	(5)	$	88	$	(27)	$	14	$	(7)	$	270	$	(52)

The Company’s investments in MBS reported in the preceding table included 62% rated investment grade and 18% rated Aaa. Of the total MBS investments reported in the preceding table, $10 million include the benefit of guarantees provided by MBIA Corp. and $184 million include the benefit of guarantees provided by third-party financial guarantors. The average credit rating of all guaranteed MBS investments using the higher of the guarantors’ ratings or the underlying bond ratings was below investment grade and the average underlying credit rating of guaranteed MBS investments, without giving effect to the guarantees, was below investment grade. Without giving effect to the benefit of guarantees provided by financial guarantors, including MBIA Corp., $197 million or 73% of the securities included in the preceding table were rated below investment grade.

The following table presents the fair values and gross unrealized losses by credit rating category of direct corporate obligations included in the Company’s consolidated investment portfolio as of September 30, 2012 for which fair value was less than amortized cost. Fair values include the benefit of guarantees provided by financial guarantors, including MBIA. The credit ratings are based on ratings from Moody’s as of September 30, 2012 or an alternate ratings source, such as S&P, when a security is not rated by Moody’s. For investments that are insured by various third-party guarantee insurers, the credit rating reflects the higher of the insurer’s rating or the underlying bond’s rating.

In millions	Aaa				Aa				A				Baa				Below Investment Grade				Not Rated				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Corporate Obligations	$	-	$	-	$	4	$	-	$	74	$	(6)	$	59	$	(7)	$	14	$	(3)	$	12	$	(12)	$	163	$	(28)

The Company’s investments in corporate obligations reported in the preceding table included 84% rated investment grade. Of the total corporate obligations reported in the preceding table, $9 million include the benefit of guarantees provided by third-party financial guarantors. The average credit rating of all guaranteed corporate obligations included in the preceding table using the higher of the guarantors’ ratings or the underlying bond ratings was Baa and the average underlying credit rating of these guaranteed corporate obligations without giving effect to the guarantees was Baa. Without giving effect to the benefit of guarantees provided by financial guarantors, $14 million or 9% of the securities included in the preceding table were rated below investment grade.

59

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 7: Investments (continued)

The following tables present the gross unrealized losses of held-to-maturity investments as of September 30, 2012 and December 31, 2011. Held-to-maturity investments are reported at amortized cost on the Company’s consolidated balance sheets. The tables segregate investments that have been in a continuous unrealized loss position for less than twelve months from those that have been in a continuous unrealized loss position for twelve months or longer.

	September 30, 2012
	Less than 12 Months				12 Months or Longer				Total
In millions	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Assets of consolidated VIEs:
Other asset-backed securities	$	-	$	-	$	2,350	$	(168)	$	2,350	$	(168)
	December 31, 2011
	Less than 12 Months				12 Months or Longer				Total
In millions	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Assets of consolidated VIEs:
Other asset-backed securities	$	284	$	(31)	$	2,185	$	(340)	$	2,469	$	(371)

As of September 30, 2012 and December 31, 2011, the Company’s available-for-sale fixed-maturity investment, other investment and held-to-maturity investment portfolios’ gross unrealized losses totaled $359 million and $849 million, respectively. The weighted average contractual maturity of securities in an unrealized loss position as of September 30, 2012 and December 31, 2011 was 21 years. As of September 30, 2012, there were 193 securities that were in an unrealized loss position for a continuous twelve-month period or longer with aggregate unrealized losses of $358 million. Within these securities, the book value of 118 securities exceeded market value by more than 5% as presented in the following table:

Percentage Book Value Exceeded Market Value	Number of Securities		Book Value (in millions)		Fair Value (in millions)
Greater than 5% to less than 16%		35	$	279	$	250
16% to less than 26%		23		791		621
26% to 50%		34		120		75
Greater than 50%		26		87		18
Total		118	$	1,277	$	964

As of December 31, 2011, there were 290 securities that were in an unrealized loss position for a continuous twelve-month period or longer with aggregate unrealized losses of $782 million. Within these securities, the book value of 218 securities exceeded market value by more than 5%. The decrease in the number of securities in an unrealized loss position as of September 30, 2012 compared with December 31, 2011 resulted from the sales and impairments of securities during the first nine months of 2012.

Other-Than-Temporary Impairments

The Company has an ongoing review process for all securities in its investment portfolio, including a quarterly assessment of other-than-temporary impairments. This evaluation includes both qualitative and quantitative considerations. In assessing whether a decline in value is related to a credit loss, the Company considers several factors, including but not limited to (i) the magnitude and duration of declines in fair value; (ii) the reasons for the declines in fair value, such as general credit spread movements in each asset-backed sector, transaction-specific changes in credit spreads, credit rating downgrades, modeled defaults, and principal and interest payment priorities within each investment structure; and (iii) any guarantees associated with a security such as those provided by financial guarantee insurance companies, including MBIA Corp. and National.

In calculating credit-related losses, the Company utilizes cash flow modeling based on the type of security. The Company’s cash flow analysis considers all sources of cash, including credit enhancement, that support the payment of amounts owed by an issuer of a security. This includes the consideration of cash expected to be provided by financial guarantors, including MBIA Corp., resulting from an actual or potential insurance policy claim. In general, any change in the amount and/or timing of cash flows received or expected to be received, whether or not such cash flows are contractually defined, is reflected in the Company’s cash flow analysis for purposes of assessing an other-than-temporary impairment loss on an impaired security.

60

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 7: Investments (continued)

ABS investments are evaluated for other-than-temporary impairments using historical collateral performance, deal waterfall and structural protections, credit ratings, and forward looking projections of collateral performance based on business and economic conditions specific to each collateral type and risk. The underlying collateral is evaluated to identify any specific performance concerns, and stress scenarios are considered in forecasting ultimate returns of principal. Based on this evaluation, if a principal default is projected for a security, estimated future cash flows are discounted at the security’s purchase yield. If the present value of cash flows is less than the Company’s amortized cost for the security, the difference is recorded as an other-than-temporary impairment loss.

RMBS investments are evaluated for other-than-temporary impairments using industry-standard quantitative tools. Loan level data is obtained and analyzed in a model that produces prepayment, default, and severity vectors. The model utilizes macro inputs, including housing price assumptions and interest rates, which are consistent with industry views. The vector outputs are used as inputs to a third-party cash flow model, which considers deal waterfall dynamics and structural features, to generate cash flows for an RMBS investment. These cash flows are then discounted at the security’s purchase yield. If the present value of the cash flows is less than the Company’s amortized cost for the investment, the difference is recorded as an other-than-temporary impairment loss. For CDO investments, the Company utilizes the same tools as for RMBS securities, aggregating the bond level cash flows to the CDO investment level.

Corporate obligation investments are evaluated for other-than-temporary impairments using industry-standard credit analysis techniques. The Company’s analysis includes a detailed review of a number of quantitative and qualitative factors impacting the value of an individual security. These factors include the interest rate of the security (fixed or floating), the security’s current market spread, any collateral supporting the security, the security’s position in the issuer’s capital structure, and credit rating upgrades or downgrades. Additionally, these factors include an assessment of various issuer-related credit metrics including market capitalization, earnings, cash flow, capitalization, interest coverage, leverage, liquidity, management and a third-party quantitative default probability model. The Company’s analysis is augmented by comparing market prices for similar securities of other issuers in the same sector, as well as any recent corporate or government actions that may impact the ultimate return of principal. If the Company determines that, after considering these factors, a principal default is projected, a recovery analysis is performed using the above data. If the Company’s estimated recovery value for the security is less than its amortized cost, the difference is recorded as an other-than-temporary impairment loss.

The Company does not record other-than-temporary impairments related to credit concerns about issuers of securities insured by MBIA Corp. and National since investors in these securities, including MBIA, are guaranteed payment of principal and interest when due by MBIA. Securities insured by the Company, whether or not owned by the Company, are evaluated for impairment as part of its insurance surveillance process and, therefore, losses on securities insured by the Company are recorded in accordance with its loss reserving policy. Refer to “Note 2: Significant Accounting Policies” in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 for information about the Company’s loss reserving policy and “Note 5: Loss and Loss Adjustment Expense Reserves” for information about loss reserves.

In considering cash expected to be provided from other third-party financial guarantors, the Company assesses the financial guarantor’s ability to make claim payments under a variety of scenarios that test the guarantor’s ultimate claims paying ability. The weighted average outcome of these scenarios, combined with the cash flows provided by the insured security, are used to determine the recoverability of the Company’s amortized cost.

61

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 7: Investments (continued)

The following table provides information about securities held by the Company as of September 30, 2012 that were in an unrealized loss position and insured by a financial guarantor, along with the amount of insurance loss reserves corresponding to the par amount owned by the Company:

In millions	Fair Value		Unrealized Loss		Insurance Loss Reserve(2)
Asset-backed:
MBIA(1)	$	148	$	(63)	$	18
Other		27		(7)		-
Total asset-backed		175		(70)		18
Mortgage-backed:
MBIA(1)		10		(1)		-
Other		184		(43)		-
Total mortgage-backed		194		(44)		-
Corporate obligations:
Other		9		(12)		-
Total corporate obligations		9		(12)		-
Other:
MBIA(1)		72		(11)		-
Other		8		-		-
Total other		80		(11)		-
Total	$	458	$	(137)	$	18

(1) - Includes investments insured by MBIA Corp. and National.

(2) - Insurance loss reserve estimates are based on the proportion of par value owned to the total amount of par value insured.

The Company concluded that it does not have the intent to sell securities in an unrealized loss position and it is more likely than not, that it will not have to sell these securities before recovery of their cost basis. In making this conclusion, the Company examined the cash flow projections for its investment portfolios, the potential sources and uses of cash in its businesses, and the cash resources available to its business other than sales of securities. It also considered the existence of any risk management or other plans as of September 30, 2012 that would require the sale of impaired securities. Impaired securities that the Company intends to sell before the expected recovery of such securities’ fair values have been written down to their fair values.

Each quarter, an internal committee, comprising staff that is independent of the Company’s evaluation process for determining other-than-temporary impairments of securities, reviews and approves the valuation of investments. Among other responsibilities, this committee ensures that the Company’s process for identifying and calculating other-than-temporary impairments, including the use of models and assumptions, is reasonable and complies with the Company’s internal policy.

Refer to “Note 8: Investment Income and Gains and Losses” for information on realized losses due to other-than-temporary impairments.

62

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 8: Investment Income and Gains and Losses

The following table includes total investment income from all operations:

	Three Months Ended September 30,				Nine Months Ended September 30,
In millions	2012		2011		2012		2011
Net investment income:
Fixed-maturity	$	47	$	88	$	160	$	284
Short-term investments		1		1		5		5
Other investments		2		3		7		10
Consolidated VIEs		17		17		51		53
Net investment income		67		109		223		352
Realized gains and losses:
Fixed-maturity:
Gains		42		46		94		117
Losses		(12)		(56)		(190)		(133)
Net		30		(10)		(96)		(16)
Other investments:
Gains		-		-		6		9
Losses		(2)		(1)		(16)		(1)
Net		(2)		(1)		(10)		8
Total net realized gains (losses)(1)		28		(11)		(106)		(8)
Total investment income	$	95	$	98	$	117	$	344

(1) - These balances are included in the “Net gains (losses) on financial instruments at fair value and foreign exchange” and “Net investment losses related to other-than-temporary impairments” line items on the Company’s consolidated statements of operations.

Net investment income is generated as a result of the ongoing management of the Company’s investment portfolios. For the three and nine months ended September 30, 2012, net investment income decreased compared to the same periods of 2011 due to a lower asset base in 2012.

Total net realized gains (losses) for the three months ended September 30, 2012 increased compared to the same period of 2011 primarily due to lower other-than-temporary impairment losses. For the nine months ended September 30, 2012, total net realized losses increased compared to the same period of 2011 primarily due to other-than-temporary impairment losses that were recognized on securities impaired to fair value due to the Company’s intent to sell these securities and losses on sales of securities in the Company’s asset/liability products investment portfolio.

63

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 8: Investment Income and Gains and Losses (continued)

The portion of certain other-than-temporary impairment losses on fixed-maturity securities that does not represent credit losses is recognized in accumulated other comprehensive income (loss). For these impairments, the net amount recognized in earnings represents the difference between the amortized cost of the security and the net present value of its projected future discounted cash flows prior to impairment. Any remaining difference between the fair value and amortized cost is recognized in accumulated other comprehensive income (loss). The following table presents the amount of credit loss impairments recognized in earnings on fixed-maturity securities held by MBIA as of the dates indicated, for which a portion of the other-than-temporary impairment losses was recognized in accumulated other comprehensive income (loss), and the corresponding changes in such amounts:

In millions	Three Months Ended September 30,						Nine Months Ended September 30,
Credit Losses Recognized in Earnings Related to Other-Than-Temporary Impairments	2012			2011			2012			2011
Beginning balance	$	269		$	283		$	341		$	262
Additions for credit loss impairments recognized in the current period on securities not previously impaired		-			5			-			5
Additions for credit loss impairments recognized in the current period on securities previously impaired		5			6			8			32
Reductions for credit loss impairments previously recognized on securities sold during the period		(2	)		(5	)		(18	)		(10	)
Reductions for credit loss impairments previously recognized on securities impaired to fair value during the period(1)		(52	)		-			(111	)		-
Ending balance	$	220		$	289		$	220		$	289

(1) - Represents circumstances where the Company determined in the current period that it intends to sell the security or it is more likely than not that it will be required to sell the security before recovery of the security’s amortized cost.

For ABS (e.g., RMBS and CDOs), the Company estimated expected future cash flows of each security by estimating the expected future cash flows of the underlying collateral and applying those collateral cash flows, together with any credit enhancements such as subordination interests owned by third parties, to the security. The expected future cash flows of the underlying collateral are determined using the remaining contractual cash flows adjusted for future expected credit losses (which consider current delinquencies and nonperforming assets, future expected default rates and collateral value by vintage and geographic region) and prepayments. The expected cash flows of the security are then discounted at the interest rate used to recognize interest income on the security to arrive at a present value amount. The following table presents a summary of the significant inputs considered in determining the measurement of the credit loss component recognized in earnings for each significant class of ABS for the nine months ended September 30, 2012 and 2011:

	Nine Months Ended September 30,
Asset-backed Securities	2012		2011
Expected size of losses(1):
Range(2)		12.13% to 97.70%		1.59% to 100.00%
Weighted average(3)		88.48%		64.58%
Current subordination levels(4):
Range(2)		0.00% to 0.00%		0.00% to 29.46%
Weighted average(3)		0.00%		0.00%
Prepayment speed (annual constant prepayment rate)(5):
Range(2)		0.00% to 30.91%		0.00% to 100.00%
Weighted average(3)		12.16%		15.62%

(1) - Represents future expected credit losses on impaired assets expressed as a percentage of total outstanding balance.

(2) - Represents the range of inputs/assumptions based upon the individual securities within each category.

(3) - Calculated by weighting the relevant input/assumption for each individual security by the outstanding notional of the security.

(4) - Represents current level of credit protection (subordination) for the securities, expressed as a percentage of the balance of the collateral group backing the bond.

(5) - Values represent high and low points of lifetime vectors of constant prepayment rates.

64

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 8: Investment Income and Gains and Losses (continued)

Net unrealized gains (losses), including the portion of other-than-temporary impairments included in accumulated other comprehensive income (loss), reported within shareholders’ equity consisted of:

In millions	As of September 30, 2012		As of December 31, 2011
Fixed-maturity:
Gains	$	337	$	262
Losses		(191)		(459)
Foreign exchange		17		(5)
Net		163		(202)
Other investments:
Gains		-		1
Losses		-		(19)
Net		-		(18)
Total		163		(220)
Deferred income tax provision (benefit)		35		(86)
Unrealized gains (losses), net	$	128	$	(134)

The change in net unrealized gains (losses), including the portion of other-than-temporary impairments, presented in the table above consisted of:

In millions	As of September 30, 2012		As of December 31, 2011
Fixed-maturity	$	365	$	386
Other investments		18		(6)
Total		383		380
Deferred income tax charged (credited)		121		122
Change in unrealized gains (losses), net	$	262	$	258

Note 9: Derivative Instruments

Overview

MBIA has entered into derivative transactions through its financial guarantee of CDS and for purposes of hedging risks associated with existing assets and liabilities and forecasted transactions. CDS are also entered into in the asset/liability products business to replicate investments in cash assets consistent with the Company’s risk objectives and credit guidelines for its asset management business. The Company accounts for derivative transactions in accordance with the accounting principles for derivative and hedging activities, which requires that all such transactions be recorded on the balance sheet at fair value. Refer to “Note 6: Fair Value of Financial Instruments” for the definition of fair value of derivative instruments.

Changes in the fair value of derivatives, excluding insured derivatives, are recorded each period in current earnings within “Net gains (losses) on financial instruments at fair value and foreign exchange.” Changes in the fair value of insured derivatives are recorded each period in current earnings within “Net change in fair value of insured derivatives.” The net change in the fair value of the Company’s insured derivatives has two primary components: (i) realized gains (losses) and other settlements on insured derivatives and (ii) unrealized gains (losses) on insured derivatives. “Realized gains (losses) and other settlements on insured derivatives” include (i) premiums received and receivable on written CDS contracts, (ii) premiums paid and payable to reinsurers in respect to CDS contracts, (iii) net amounts received or paid on reinsurance commutations, (iv) losses paid and payable to CDS contract counterparties due to the occurrence of a credit event or settlement agreement, (v) losses recovered and recoverable on purchased CDS contracts due to the occurrence of a credit event or settlement agreement and (vi) fees relating to CDS contracts. The “Unrealized gains (losses) on insured derivatives” include all other changes in fair value of the insured derivative contracts.

65

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 9: Derivative Instruments (continued)

U.S. Public Finance Insurance

The Company’s derivative exposure within its U.S. public finance insurance operations primarily consists of insured interest rate and inflation-linked swaps related to insured U.S. public finance debt issues. These derivatives do not qualify for the financial guarantee scope exception. The Company has also purchased certain investments containing embedded derivatives. All derivatives are recorded at fair value on the Company’s consolidated balance sheets with the changes in fair value recorded on the Company’s consolidated statements of operations within “Unrealized gains (losses) on insured derivatives,” for the insured derivatives, or “Net gains (losses) on financial instruments at fair value and foreign exchange” for the embedded derivatives.

Structured Finance and International Insurance

The Company entered into derivative transactions that it viewed as an extension of its core financial guarantee business but which do not qualify for the financial guarantee scope exception and, therefore, must be recorded at fair value on the balance sheet. The Company’s structured finance and international insurance operations, which insured the majority of the Company’s notional derivative exposure, have insured CDS contracts, primarily referencing corporate, asset-backed, residential mortgage-backed, commercial mortgage-backed, CRE loans, and CDO securities that the Company intends to hold for the entire term of the contract absent a negotiated settlement with the counterparty.

Variable Interest Entities

VIEs consolidated by the Company have entered into derivative transactions primarily consisting of interest rate swaps. Interest rate swaps are entered into to hedge the risks associated with fluctuations in interest rates or fair values of certain contracts.

Asset/Liability Products

The Company’s asset/liability products business has entered into derivative transactions primarily consisting of interest rate swaps, cross currency swaps, and CDS contracts. Interest rate swaps are entered into to hedge the risks associated with fluctuations in interest rates or fair values of certain contracts. Cross currency swaps are entered into to hedge the variability in cash flows resulting from fluctuations in foreign currency rates. CDS contracts are entered into to hedge credit risk or to replicate investments in cash assets consistent with the Company’s risk objectives and credit guidelines for its asset management business.

Certain interest rate swaps qualify as fair value hedges. The fair value hedges are used to protect against changes in the market value of the hedged assets or liabilities. The gains and losses relating to the fair value hedges are recorded directly in earnings. Fair value hedges are hedging existing assets, liabilities or forecasted transactions.

Credit Derivatives Sold

The following table presents information about credit derivatives sold by the Company’s insurance operations that were outstanding as of September 30, 2012. Credit ratings represent the lower of underlying ratings currently assigned by Moody’s, S&P or MBIA.

In millions			Notional Value
Credit Derivatives Sold	Weighted Average Remaining Expected Maturity		AAA		AA		A		BBB		Below Investment Grade		Total Notional		Fair Value Asset (Liability)
Insured credit default swaps		5.3 Years	$	10,456	$	7,519	$	5,196	$	11,811	$	13,870	$	48,852	$	(3,243)
Insured swaps		19.8 Years		-		187		3,762		1,997		71		6,017		(9)
All others		2.1 Years		-		-		-		-		195		195		(80)
Total notional			$	10,456	$	7,706	$	8,958	$	13,808	$	14,136	$	55,064
Total fair value			$	(16)	$	(81)	$	(148)	$	(1,001)	$	(2,086)			$	(3,332)

66

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 9: Derivative Instruments (continued)

The following table presents information about credit derivatives sold by the Company’s insurance operations that were outstanding as of December 31, 2011. Credit ratings represent the lower of underlying ratings currently assigned by Moody’s, S&P or MBIA.

In millions			Notional Value
Credit Derivatives Sold	Weighted Average Remaining Expected Maturity		AAA		AA		A		BBB		Below Investment Grade		Total Notional		Fair Value Asset (Liability)
Insured credit default swaps		5.6 Years	$	15,475	$	12,065	$	6,336	$	14,042	$	17,639	$	65,557	$	(4,716)
Non-insured credit default swaps-VIE		3.6 Years		-		-		-		-		643		643		(527)
Insured swaps		19.7 Years		-		164		4,270		2,589		133		7,156		(9)
All others		2.8 Years		-		-		-		-		195		195		(91)
Total notional			$	15,475	$	12,229	$	10,606	$	16,631	$	18,610	$	73,551
Total fair value			$	(114)	$	(116)	$	(205)	$	(1,355)	$	(3,553)			$	(5,343)

Referenced credit ratings assigned by MBIA to insured credit derivatives are derived by the Company’s surveillance group. In assigning an internal rating, current status reports from issuers and trustees, as well as publicly available transaction-specific information, are reviewed. Also, where appropriate, cash flow analyses and collateral valuations are considered. The maximum potential amount of future payments (undiscounted) on CDS contracts are estimated as the notional value plus any additional debt service costs, such as interest or other amounts owing on CDS contracts. The maximum amount of future payments that MBIA may be required to make under these guarantees is $53.1 billion. This amount is net of $393 million of insured derivatives ceded under reinsurance agreements in which MBIA economically hedges a portion of the credit and market risk associated with its insured derivatives and offsetting agreements with a counterparty. The maximum potential amount of future payments (undiscounted) on insured swaps are estimated as the notional value of such contracts.

MBIA may hold recourse provisions with third parties in derivative transactions through both reinsurance and subrogation rights. MBIA’s reinsurance arrangements provide that in the event MBIA pays a claim under a guarantee of a derivative contract, MBIA has the right to collect amounts from any reinsurers that have reinsured the guarantee on either a proportional or non-proportional basis, depending upon the underlying reinsurance agreement. MBIA may also have recourse through subrogation rights whereby if MBIA makes a claim payment, it is entitled to any rights of the insured counterparty, including the right to any assets held as collateral.

Financial Statement Impact

The fair value of amounts recognized for eligible derivative contracts executed with the same counterparty under a master netting agreement, including any cash collateral that may have been received or posted by the Company, is presented on a net basis in accordance with accounting guidance for the offsetting of fair value amounts related to derivative instruments.

As of September 30, 2012, the total fair value of the Company’s derivative assets, after counterparty netting, was $12 million, of which $4 million was reported within “Other assets” and “Derivative assets-VIEs” on the Company’s consolidated balance sheets, and the total fair value of the Company’s derivative liabilities, after counterparty netting and posting of cash collateral, was $3.5 billion, which was reported within “Derivative liabilities” and “Derivative liabilities-VIEs” on the Company’s consolidated balance sheets.

67

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 9: Derivative Instruments (continued)

As of September 30, 2012, the total fair value of the Company’s derivative assets, before counterparty netting, was $108 million and the total fair value of the Company’s derivative liabilities, before counterparty netting and posting of cash collateral, was $3.9 billion. The following table presents the total fair value of the Company’s derivative assets and liabilities by instrument and balance sheet location, before counterparty netting and posting of cash collateral, as of September 30, 2012:

In millions			Derivative Assets(1)			Derivative Liabilities(1)
Derivative Instruments	Notional Amount Outstanding		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Designated as hedging instruments:
Interest rate swaps	$	65	Other assets	$	-	Derivative liabilities	$	(8)
Total designated	$	65		$	-		$	(8)
Not designated as hedging instruments:
Insured credit default swaps	$	49,171	Other assets	$	1	Derivative liabilities	$	(3,243)
Insured swaps		6,017	Other assets		-	Derivative liabilities		(9)
Non-insured credit default swaps		10	Other assets		-	Derivative liabilities		-
Interest rate swaps		1,666	Other assets		99	Derivative liabilities		(301)
Interest rate swaps-VIE		2,992	Derivative assets-VIE		-	Derivative liabilities-VIE		(157)
Interest rate swaps-embedded		476	Medium-term notes		8	Medium-term notes		(29)
Currency swaps		39	Other assets		-	Derivative liabilities		(2)
Currency swaps-VIE		113	Derivative assets-VIE		-	Derivative liabilities-VIE		(23)
All other		195	Other assets		-	Derivative liabilities		(80)
All other-VIE		280	Derivative assets-VIE		-	Derivative liabilities-VIE		-
All other-embedded		20	Other investments		-	Other investments		(1)
Total non-designated	$	60,979		$	108		$	(3,845)
Total derivatives	$	61,044		$	108		$	(3,853)

(1) - In accordance with the accounting guidance for derivative instruments and hedging activities, the balance sheet location of the Company’s embedded derivative instruments is determined by the location of the related host contract.

As of December 31, 2011, the total fair value of the Company’s derivative assets, after counterparty netting, was $459 million, of which $452 million was reported within “Other assets” and “Derivative assets-VIEs” on the Company’s consolidated balance sheets, and the total fair value of the Company’s derivative liabilities, after counterparty netting, was $6.0 billion which was reported within “Derivative liabilities” and “Derivative liabilities-VIEs” on the Company’s consolidated balance sheets.

68

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 9: Derivative Instruments (continued)

As of December 31, 2011, the total fair value of the Company’s derivative assets, before counterparty netting, was $552 million and the total fair value of the Company’s derivative liabilities, before counterparty netting, was $6.1 billion. The following table presents the total fair value of the Company’s derivative assets and liabilities by instrument and balance sheet location, before counterparty netting, as of December 31, 2011:

In millions			Derivative Assets(1)			Derivative Liabilities(1)
Derivative Instruments	Notional Amount Outstanding		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Designated as hedging instruments:
Interest rate swaps	$	241	Other assets	$	10	Derivative liabilities	$	(44)
Total designated	$	241		$	10		$	(44)
Not designated as hedging instruments:
Insured credit default swaps	$	66,851	Other assets	$	-	Derivative liabilities	$	(4,708)
Insured swaps		7,156	Other assets		-	Derivative liabilities		(9)
Non-insured credit default swaps		30	Other assets		1	Derivative liabilities		-
Non-insured credit default swaps-VIE		1,272	Derivative assets-VIE		447	Derivative liabilities-VIE		(527)
Interest rate swaps		2,706	Other assets		84	Derivative liabilities		(401)
Interest rate swaps-VIE		4,878	Derivative assets-VIE		-	Derivative liabilities-VIE		(281)
Interest rate swaps-embedded		480	Medium-term notes		7	Medium-term notes		(14)
Currency swaps		62	Other assets		-	Derivative liabilities		(4)
Currency swaps-VIE		123	Derivative assets-VIE		-	Derivative liabilities-VIE		(17)
All other		3,465	Other assets		-	Derivative liabilities		(91)
All other-VIE		472	Derivative assets-VIE		3	Derivative liabilities-VIE		-
All other-embedded		121	Other investments		-	Other investments		(12)
Total non-designated	$	87,616		$	542		$	(6,064)
Total derivatives	$	87,857		$	552		$	(6,108)

(1) - In accordance with the accounting guidance for derivative instruments and hedging activities, the balance sheet location of the Company’s embedded derivative instruments is determined by the location of the related host contract.

The following tables present the effect of derivative instruments on the consolidated statements of operations for the three months ended September 30, 2012:

In millions
Derivatives in Fair Value Hedging Relationships	Location of Gain (Loss) Recognized in Income on Derivative	Gain (Loss) Recognized in Income on Derivative			Gain (Loss) Recognized in Income on Hedged Item		Net Gain (Loss) Recognized in Income
Interest rate swaps	Net gains (losses) on financial instruments at fair value and foreign exchange	$	(12	)	$	12	$	-

In millions
Derivatives Not Designated as Hedging Instruments	Location of Gain (Loss) Recognized in Income on Derivative	Net Gain (Loss) Recognized in Income
Insured credit default swaps	Unrealized gains (losses) on insured derivatives	$	(40)
Insured credit default swaps	Realized gains (losses) and other settlements on insured derivatives		12
Interest rate swaps	Net gains (losses) on financial instruments at fair value and foreign exchange		(26)
Interest rate swaps-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		8
Currency swaps	Net gains (losses) on financial instruments at fair value and foreign exchange		1
Currency swaps-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		(2)
All other	Unrealized gains (losses) on insured derivatives		7
Total		$	(40)

69

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 9: Derivative Instruments (continued)

The following tables present the effect of derivative instruments on the consolidated statements of operations for the three months ended September 30, 2011:

In millions
Derivatives in Fair Value Hedging Relationships	Location of Gain (Loss) Recognized in Income on Derivative	Gain (Loss) Recognized in Income on Derivative		Gain (Loss) Recognized in Income on Hedged Item		Net Gain (Loss) Recognized in Income
Interest rate swaps	Net gains (losses) on financial instruments at fair value and foreign exchange	$	(8)	$	8	$	-
Interest rate swaps	Interest income (expense)		-		-		(2)
Total		$	(8)	$	8	$	(2)

In millions
Derivatives Not Designated as Hedging Instruments	Location of Gain (Loss) Recognized in Income on Derivative	Net Gain (Loss) Recognized in Income
Insured credit default swaps	Unrealized gains (losses) on insured derivatives	$	756
Insured credit default swaps	Realized gains (losses) and other settlements on insured derivatives		(53)
Non-insured credit default swaps-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		154
Interest rate swaps	Net gains (losses) on financial instruments at fair value and foreign exchange		(128)
Interest rate swaps-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		(25)
Currency swaps	Net gains (losses) on financial instruments at fair value and foreign exchange		4
Currency swaps-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		(2)
All other	Unrealized gains (losses) on insured derivatives		20
All other	Net gains (losses) on financial instruments at fair value and foreign exchange		(6)
All other-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		(5)
Total		$	715

The following tables present the effect of derivative instruments on the consolidated statements of operations for the nine months ended September 30, 2012:

In millions
Derivatives in Fair Value Hedging Relationships	Location of Gain (Loss) Recognized in Income on Derivative	Gain (Loss) Recognized in Income on Derivative		Gain (Loss) Recognized in Income on Hedged Item		Net Gain (Loss) Recognized in Income
Interest rate swaps	Net gains (losses) on financial instruments at fair value and foreign exchange	$	25	$	(25)	$	-
Interest rate swaps	Interest income (expense)		-		-		(3)
Total		$	25	$	(25)	$	(3)

70

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 9: Derivative Instruments (continued)

In millions
Derivatives Not Designated as Hedging Instruments	Location of Gain (Loss) Recognized in Income on Derivative	Net Gain (Loss) Recognized in Income
Insured credit default swaps	Unrealized gains (losses) on insured derivatives	$	1,463
Insured credit default swaps	Realized gains (losses) and other settlements on insured derivatives		(420)
Non-insured credit default swaps	Net gains (losses) on financial instruments at fair value and foreign exchange		(1)
Non-insured credit default swaps-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		(1)
Interest rate swaps	Net gains (losses) on financial instruments at fair value and foreign exchange		(76)
Interest rate swaps-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		39
Currency swaps	Net gains (losses) on financial instruments at fair value and foreign exchange		1
Currency swaps-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		(5)
All other	Unrealized gains (losses) on insured derivatives		10
All other	Net gains (losses) on financial instruments at fair value and foreign exchange		11
All other-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		(2)
Total		$	1,019

The following tables present the effect of derivative instruments on the consolidated statements of operations for the nine months ended September 30, 2011:

In millions
Derivatives in Fair Value Hedging Relationships	Location of Gain (Loss) Recognized in Income on Derivative	Gain (Loss) Recognized in Income on Derivative		Gain (Loss) Recognized in Income on Hedged Item		Net Gain (Loss) Recognized in Income
Interest rate swaps	Net gains (losses) on financial instruments at fair value and foreign exchange	$	(6)	$	6	$	-
Interest rate swaps	Interest income (expense)		-		-		(7)
Currency swaps	Net gains (losses) on financial instruments at fair value and foreign exchange		2		(2)		-
Total		$	(4)	$	4	$	(7)

In millions
Derivatives Not Designated as Hedging Instruments	Location of Gain (Loss) Recognized in Income on Derivative	Net Gain (Loss) Recognized in Income
Insured credit default swaps	Unrealized gains (losses) on insured derivatives	$	(516)
Insured credit default swaps	Realized gains (losses) and other settlements on insured derivatives		(599)
Non-insured credit default swaps	Net gains (losses) on financial instruments at fair value and foreign exchange		(1)
Non-insured credit default swaps-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		4
Interest rate swaps	Net gains (losses) on financial instruments at fair value and foreign exchange		(178)
Interest rate swaps-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		24
Currency swaps	Net gains (losses) on financial instruments at fair value and foreign exchange		(3)
Currency swaps-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		(4)
All other	Unrealized gains (losses) on insured derivatives		(15)
All other	Net gains (losses) on financial instruments at fair value and foreign exchange		(7)
All other-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		(6)
Total		$	(1,301)

Counterparty Credit Risk

The Company manages counterparty credit risk on an individual counterparty basis through master netting agreements covering derivative transactions in the asset/liability products segment. These agreements allow the Company to contractually net amounts due from a counterparty with those amounts due to such counterparty when certain triggering events occur. The Company only executes swaps under master netting agreements, which typically contain mutual credit downgrade provisions that generally provide the ability to require assignment or termination in the event either MBIA or the counterparty is downgraded below a specified credit rating.

71

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 9: Derivative Instruments (continued)

Under these arrangements, the Company may receive or provide U.S. Treasury and other highly rated securities or cash to secure counterparties’ exposure to the Company or its exposure to counterparties, respectively. Such collateral is available to the holder to pay for replacing the counterparty in the event that the counterparty defaults. As of September 30, 2012, the Company did not hold cash collateral to derivative counterparties but posted cash collateral to derivative counterparties of $298 million. Of this amount, $215 million is netted within “Derivative liabilities”, $17 million is netted within “Other liabilities” and $66 million is included in “Other assets” on the Company’s consolidated balance sheets. As of December 31, 2011, the Company did not hold or post cash collateral to derivative counterparties. As of September 30, 2012, the Company did not post securities to derivative counterparties. As of December 31, 2011, the Company had securities with a fair value of $470 million posted to derivative counterparties.

As of September 30, 2012, the fair value on one positive Credit Support Annex (“CSA”) was $3 million. This CSA governs collateral posting requirements between MBIA and its derivative counterparties. The Company did not receive collateral due to the Company’s credit rating, which was below the CSA minimum credit ratings level for holding counterparty collateral. As of September 30, 2012, the counterparty was rated A2 by Moody’s and A by S&P.

As of December 31, 2011, the fair value was positive on one CSA which governs collateral posting requirements between MBIA and its derivative counterparties. The positive fair value for this CSA was $2 million for which the Company did not receive collateral because the Company’s credit rating was below the CSA minimum credit ratings level for holding counterparty collateral. The counterparty was rated Aa3 by Moody’s and A+ by S&P.

Note 10: Income Taxes

The Company’s income taxes and the related effective tax rates for the three and nine months ended September 30, 2012 and 2011 are as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
In millions	2012		2011		2012		2011
Income (loss) before income taxes	$	(57)	$	745	$	759	$	(1,165)
Provision (benefit) for income taxes	$	(64)	$	301	$	161	$	(472)
Effective tax rate		112.3%		40.4%		21.2%		40.5%

For the nine months ended September 30, 2012, the Company’s effective tax rate applied to its income before income taxes was lower than the U.S. statutory tax rate primarily as a result of the decrease in the valuation allowance, the release of a portion of the reserve for uncertain tax benefits and the benefit of tax-exempt interest income from investments. For the nine months ended September 30, 2011, the Company’s effective tax rate applied to its loss before income taxes was higher than the U.S. statutory tax rate as a result of the Company’s tax-exempt interest income from investments, income earned in non-U.S. jurisdictions, which is being taxed at less than 35%, and a reduction in the valuation allowance.

For interim reporting purposes, the Company has calculated its effective tax rate for the full year of 2012 by adjusting annual forecasted pre-tax income for mark-to-market income, fair value adjustments, capital gains/losses, and other adjustments, when projecting its full year effective tax rate. The Company has accounted for these items at the federal applicable tax rate after applying the projected full year effective tax rate to actual nine-month results before discrete items.

Deferred Tax Asset, Net of Valuation Allowance

The Company establishes a valuation allowance against its deferred tax asset when it is more likely than not that all or a portion of the deferred tax asset will not be realized. All evidence, both positive and negative, needs to be identified and considered in making the determination. Future realization of the existing deferred tax asset ultimately depends, in part, on the existence of sufficient taxable income of appropriate character (for example, ordinary income versus capital gains) within the carryforward period available under the tax law.

As of September 30, 2012, the Company reported a net deferred tax asset of $1.4 billion. The $1.4 billion net deferred tax asset is net of a $167 million valuation allowance. As of September 30, 2012, the Company had a valuation allowance against a portion of the deferred tax asset related to losses from asset impairments as these losses are considered capital losses, have a five-year carryforward period, once recognized, can only offset capital gain income. The September 30, 2012 valuation allowance reflects a decrease of $69 million from the December 31, 2011 valuation allowance of $236 million. The decrease in the valuation allowance for the nine months ended September 30, 2012 was primarily due to the generation of capital gain income and the use of a tax planning strategy.

72

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 10: Income Taxes (continued)

The Company has concluded that it is more likely than not that its net deferred tax asset will be realized. In its conclusion, the Company considered the following evidence (both positive and negative):

• Due to the long-tail nature of the financial guarantee business, MBIA Inc.’s insurance subsidiaries, without regard to any new business, will have a steady stream of scheduled premium earnings with respect to the existing insured portfolio. Additionally, MBIA Corp.’s announcement in February 2008 of a temporary suspension in writing new structured finance transactions and a permanent cessation with respect to insuring new CDS contracts, except in transactions related to the reduction of existing derivative exposure, would not have an impact on the expected earnings related to the existing insured portfolio.

• The Company performed taxable income projections over a fifteen and twenty year period to determine whether it will have sufficient income to offset its deferred tax asset that will generate future ordinary deductions. In this analysis, the Company concluded that premium earnings, even without regard to any new business, combined with investment income, less deductible expenses, will be sufficient to recover its net deferred tax asset. The Company’s taxable income projections used to assess the recoverability of its deferred tax asset include an estimate of future loss and LAE equal to the present value discount of loss reserves already recognized on the balance sheet and an estimate of LAE which is generally insignificant. The Company does not assume additional losses, with the exception of the accretion of its existing present value loss reserves, because the Company establishes case basis reserves on a present value basis based on an estimate of probable losses on specifically identified credits that have defaulted or are expected to default.

• While the ratings downgrades by the rating agencies have significantly adversely impacted the Company’s ability to write new insurance business, the downgrades did not have a material impact on earnings from the existing insured portfolio, which the Company believes will be sufficient to absorb losses in the event that the cumulative unrealized losses become fully impaired.

• With respect to installment policies, the Company generally does not have an automatic cancellation provision solely in connection with ratings downgrades. For purposes of projecting future taxable income, the Company has applied a discount to adjust for the possible cancellation of future installment premiums based on recent data. With regard to upfront policies, to the extent that the issuer chooses to terminate a policy, any unearned premium reserve with respect to that policy will be accelerated into earnings (i.e. refundings).

After reviewing all of the evidence available, both positive and negative, MBIA believes that it has appropriately valued the recoverability of its deferred tax assets, net of the valuation allowance, as of September 30, 2012. The Company continues to assess the adequacy of its valuation allowance as additional evidence becomes available. The Company’s recent financial results have been volatile which has impacted management’s ability to accurately project future taxable income. Continued volatility or losses beyond those projected may cause the Company to conclude that certain of the deferred tax assets within the total deferred tax assets of $1.4 billion as of September 30, 2012 may not be realizable. The Company performs an analysis every quarter to review its conclusion as to the ability to realize the deferred tax asset.

Accounting for Uncertainty in Income Taxes

It is the Company’s policy to record and disclose any change in unrecognized tax benefits (“UTB”) and related interest and penalties to income tax in the consolidated statements of operations. In the first nine months of 2012, the total amount of UTB decreased as a result of settling the 2004-2009 Internal Revenue Service (“IRS”) examination and the 2005-2007 New York State examination, partially offset by a reserve for current year tax positions.

In millions
Unrecognized tax benefit as of December 31, 2011	$	47
The gross amount of the increase/(decrease) in the UTB as a result of tax positions taken:
During a prior year		-
During the current year		18
The amounts of decreases in the UTB related to settlements with taxing authorities		(25)
The reduction in the UTB as a result of the applicable statute of limitations		-
Unrecognized tax benefit as of September 30, 2012	$	40

MBIA’s major tax jurisdictions include the U.S. and the United Kingdom (“U.K.”). MBIA and its U.S. subsidiaries file a U.S. consolidated federal income tax return. The IRS has concluded its field work with respect to the examination of tax years 2004 through 2009 and on January 12, 2012, the Joint Committee on Taxation notified the Company that the results of the IRS field examination were reviewed and accepted.

73

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 10: Income Taxes (continued)

The U.K. tax authorities are currently auditing tax years 2005 through 2009.

After filing the 2011 federal income tax return, the Company had a 2008 capital loss carryforward of $153 million which will expire in 2013, a NOL carryforward of $1.3 billion, which will expire from tax years 2029 through 2031, and a minimum tax credit carryforward of $22 million, which has an unlimited carryforward period.

Note 11: Business Segments

MBIA manages its activities through three principal business operations: U.S. public finance insurance, structured finance and international insurance, and advisory services. The Company’s U.S. public finance insurance business is operated through National, its structured finance and international insurance business is operated through MBIA Corp., and its advisory services business is operated through Cutwater. MBIA Inc. and certain of its subsidiaries also manage certain other business activities, the results of which are reported in its corporate, asset/liability products, and conduit segments. The corporate segment includes revenues and expenses that arise from general corporate activities. While the asset/liability products and conduit businesses represent separate business segments, they may be referred to collectively as “wind-down operations” as the funding programs managed through those businesses are in wind-down.

The following sections provide a description of each of the Company’s reportable operating segments:

U.S. Public Finance Insurance

The Company’s U.S. public finance insurance segment is principally conducted through National. The financial guarantees issued by National provide unconditional and irrevocable guarantees of the payment of principal of, and interest or other amounts owing on, U.S. public finance insured obligations when due. The obligations are generally not subject to acceleration, except that National may have the right, at its discretion, to accelerate insured obligations upon default or otherwise. National issues financial guarantees for municipal bonds, including tax-exempt and taxable indebtedness of U.S. political subdivisions, as well as utility districts, airports, health care institutions, higher educational facilities, student loan issuers, housing authorities and other similar agencies and obligations issued by private entities that finance projects that serve a substantial public purpose. Municipal bonds and privately issued bonds used for the financing of public purpose projects are generally supported by taxes, assessments, fees or tariffs related to the use of these projects, lease payments or other similar types of revenue streams. National has not written any meaningful amount of business since its formation in 2009.

Structured Finance and International Insurance

The Company’s structured finance and international insurance segment is principally conducted through MBIA Corp. The financial guarantees issued by MBIA Corp. generally provide unconditional and irrevocable guarantees of the payment of principal of, and interest or other amounts owing on, global structured finance and non-U.S. public finance insured obligations when due, or in the event MBIA Corp. has the right, at its discretion, to accelerate insured obligations upon default or otherwise, upon MBIA Corp.’s acceleration. Certain guaranteed investment contracts written by MBIA Inc. are insured by MBIA Corp., and if MBIA Inc. were to have insufficient assets to pay amounts due upon maturity or termination, MBIA Corp. would make such payments. MBIA Corp. also insures debt obligations of the following affiliates:

• MBIA Inc.;

• GFL;

• Meridian Funding Company, LLC;

• LaCrosse Financial Products, LLC (“LaCrosse”), a wholly-owned affiliate, in which MBIA Corp. has written insurance policies guaranteeing the obligations under CDS, including termination payments that may become due upon certain events including the insolvency or payment default by MBIA Corp. or LaCrosse.

MBIA Corp.’s guarantees insure structured finance and asset-backed obligations, privately issued bonds used for the financing of public purpose projects, which are primarily located outside of the U.S. and that include toll roads, bridges, airports, public transportation facilities, utilities and other types of infrastructure projects serving a substantial public purpose, and obligations of sovereign-related and sub-sovereign issuers. Structured finance and ABS typically are securities repayable from expected cash flows generated by a specified pool of assets, such as residential and commercial mortgages, insurance policies, consumer loans, corporate loans and bonds, trade and export receivables, leases for equipment, aircraft and real property. The Company is no longer insuring new credit derivative contracts except for transactions related to the reduction of existing derivative exposure. MBIA Corp. has not written any meaningful amount of business since 2008.

74

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 11: Business Segments (continued)

Advisory Services

The advisory services segment primarily consists of the operations of Cutwater Investor Services Corp. (“Cutwater-ISC”), Cutwater Asset Management Corp. (“Cutwater-AMC”), and Trifinium Advisors U.K. Limited (“Trifinium”). Cutwater-ISC and Cutwater-AMC offers advisory services, including cash management, discretionary asset management and structured products on a fee-for-service basis. Cutwater offers these services to public, not-for-profit, corporate and financial services clients, including MBIA Inc. and its subsidiaries, as well as portfolio accounting and reporting services. Cutwater-ISC and Cutwater-AMC are SEC registered investment advisers. Cutwater-AMC is also a Financial Industry Regulatory Authority member firm. Trifinium provides fee-based asset management services to the Company’s foreign insurance affiliate and to third-party institutional clients and investment structures. Trifinium is registered with the Financial Services Authority in the U.K.

Corporate

The Company’s corporate segment is a reportable segment and includes revenues and expenses that arise from general corporate activities, such as fees, net investment income, net gains and losses, interest expense on MBIA Inc. debt and general corporate expenses.

Wind-down Operations

The Company’s wind-down operations consist of the asset/liability products and conduit segments. The asset/liability products segment principally consists of the activities of MBIA Inc., MBIA Investment Management Corp. (“IMC”), GFL and Euro Asset Acquisition Limited (“EAAL”). IMC, along with MBIA Inc., provided customized investment agreements, guaranteed by MBIA Corp., for bond proceeds and other public funds for such purposes as construction, loan origination, escrow and debt service or other reserve fund requirements. It has also provided customized products for funds that are invested as part of asset-backed or structured product transactions. GFL raises funds through the issuance of MTNs with varying maturities, which are, in turn, guaranteed by MBIA Corp. GFL lends the proceeds of these MTN issuances to MBIA Inc. (“GFL Loans”). MBIA Inc. invests the proceeds of investment agreements and GFL Loans in eligible investments, which consisted of investment grade securities at the time of purchase with a minimum average double-A credit quality rating. MBIA Inc. primarily purchases domestic securities, which are pledged to MBIA Corp. as security for its guarantees on investment agreements and MTNs. Additionally, MBIA Inc. loans a portion of the proceeds from investment agreements and MTNs to EAAL. EAAL primarily purchases foreign assets as permitted under the Company’s investment guidelines.

The Company’s conduit segment administers one conduit through MBIA Asset Finance, LLC. Assets financed by this conduit are currently funded by MTNs.

The ratings downgrades of MBIA Corp. have resulted in a substantial reduction of funding activities and the termination and collateralization of certain investment agreements, as well as winding down of existing asset/liability products and conduit obligations.

75

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 11: Business Segments (continued)

Segments Results

The following tables provide the Company’s segment results for the three months ended September 30, 2012 and 2011:

	Three Months Ended September 30, 2012
In millions	U.S. Public Finance Insurance		Structured Finance and International Insurance		Advisory Services		Corporate		Wind-down Operations		Eliminations			Consolidated
Revenues(1)	$	149	$	59	$	5	$	3	$	9	$	-		$	225
Realized gains (losses) and other settlements on insured derivatives		-		12		-		-		-		-			12
Unrealized gains (losses) on insured derivatives		-		(33)		-		-		-		-			(33)
Net gains (losses) on financial instruments at fair value and foreign exchange		22		14		-		11		(40)		-			7
Net investment losses related to other-than-temporary impairments		-		(4)		-		(4)		-		-			(8)
Other net realized gains (losses)		-		-		-		1		-		-			1
Revenues of consolidated VIEs		-		57		-		-		20		-			77
Inter-segment revenues(2)		43		29		8		53		(1)		(132)			-
Total revenues		214		134		13		64		(12)		(132)			281
Losses and loss adjustment		4		167		-		-		-		-			171
Operating		14		29		12		24		1		-			80
Interest		-		33		-		14		22		-			69
Expenses of consolidated VIEs		-		15		-		-		3		-			18
Inter-segment expenses(2)		32		54		3		4		39		(132)			-
Total expenses		50		298		15		42		65		(132)			338
Income (loss) before income taxes	$	164	$	(164)	$	(2)	$	22	$	(77)	$	-		$	(57)
Identifiable assets	$	7,134	$	17,399	$	53	$	843	$	2,861	$	(6,158)	(3)	$	22,132

(1) - Represents the sum of third-party financial guarantee net premiums earned, net investment income, insurance-related fees and reimbursements, investment management fees and other fees.

(2) - Represents intercompany premium income and expense, intercompany asset management fees and expenses, and intercompany interest income and expense pertaining to intercompany receivables and payables.

(3) - Consists of intercompany reinsurance balances, repurchase agreements and loans.

76

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 11: Business Segments (continued)

	Three Months Ended September 30, 2011
In millions	U.S. Public Finance Insurance		Structured Finance and International Insurance		Advisory Services		Corporate		Wind-down Operations		Eliminations			Consolidated
Revenues(1)	$	181	$	72	$	9	$	1	$	21	$	-		$	284
Realized gains (losses) and other settlements on insured derivatives		-		(53)		-		-		-		-			(53)
Unrealized gains (losses) on insured derivatives		-		776		-		-		-		-			776
Net gains (losses) on financial instruments at fair value and foreign exchange		6		(12)		-		8		11		-			13
Net investment losses related to other-than-temporary impairments		-		-		-		(10)		(1)		-			(11)
Other net realized gains (losses)		-		1		-		-		-		-			1
Revenues of consolidated VIEs		-		105		-		-		5		-			110
Inter-segment revenues(2)		21		25		5		22		(4)		(69)			-
Total revenues		208		914		14		21		32		(69)			1,120
Losses and loss adjustment		10		180		-		-		-		-			190
Operating		10		38		14		24		2		-			88
Interest		-		33		-		14		28		-			75
Expenses of consolidated VIEs		-		17		-		-		5		-			22
Inter-segment expenses(2)		31		33		1		4		6		(75)			-
Total expenses		51		301		15		42		41		(75)			375
Income (loss) before income taxes	$	157	$	613	$	(1)	$	(21)	$	(9)	$	6		$	745
Identifiable assets	$	8,015	$	21,251	$	53	$	652	$	5,556	$	(6,157)	(3)	$	29,370

(1) - Represents the sum of third-party financial guarantee net premiums earned, net investment income, insurance-related fees and reimbursements, investment management fees and other fees.

(2) - Represents intercompany premium income and expense, intercompany asset management fees and expenses, and intercompany interest income and expense pertaining to intercompany receivables and payables.

(3) - Consists of intercompany reinsurance balances, repurchase agreements and loans.

77

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 11: Business Segments (continued)

The following tables provide the Company’s segment results for the nine months ended September 30, 2012 and 2011:

	Nine Months Ended September 30, 2012
In millions	U.S. Public Finance Insurance		Structured Finance and International Insurance		Advisory Services		Corporate		Wind-down Operations		Eliminations			Consolidated
Revenues(1)	$	419	$	194	$	16	$	10	$	44	$	-		$	683
Realized gains (losses) and other settlements on insured derivatives		-		(420)		-		-		-		-			(420)
Unrealized gains (losses) on insured derivatives		-		1,473		-		-		-		-			1,473
Net gains (losses) on financial instruments at fair value and foreign exchange		43		80		-		19		(160)		-			(18)
Net investment losses related to other-than-temporary impairments		-		(45)		-		(4)		(56)		-			(105)
Net gains (losses) on
Other net realized gains (losses)		-		1		-		6		-		-			7
Revenues of consolidated VIEs		-		23		-		-		60		-			83
Inter-segment revenues(2)		123		10		26		132		(19)		(272)			-
Total revenues		585		1,316		42		163		(131)		(272)			1,703
Losses and loss adjustment		15		315		-		-		-		-			330
Operating		112		120		38		69		4		-			343
Interest		-		99		-		43		72		-			214
Expenses of consolidated VIEs		-		46		-		-		11		-			57
Inter-segment expenses(2)		91		154		10		10		87		(352)			-
Total expenses		218		734		48		122		174		(352)			944
Income (loss) before income taxes	$	367	$	582	$	(6)	$	41	$	(305)	$	80		$	759
Identifiable assets	$	7,134	$	17,399	$	53	$	843	$	2,861	$	(6,158)	(3)	$	22,132

(1) - Represents the sum of third-party financial guarantee net premiums earned, net investment income, insurance-related fees and reimbursements, investment management fees and other fees.

(2) - Represents intercompany premium income and expense, intercompany asset management fees and expenses, and intercompany interest income and expense pertaining to intercompany receivables and payables.

(3) - Consists of intercompany reinsurance balances, repurchase agreements and loans.

78

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 11: Business Segments (continued)

	Nine Months Ended September 30, 2011
In millions	U.S. Public Finance Insurance		Structured Finance and International Insurance		Advisory Services		Corporate		Wind-down Operations		Eliminations			Consolidated
Revenues(1)	$	455	$	253	$	22	$	2	$	70	$	-		$	802
Realized gains (losses) and other settlements on insured derivatives		2		(601)		-		-		-		-			(599)
Unrealized gains (losses) on insured derivatives		-		(531)		-		-		-		-			(531)
Net gains (losses) on financial instruments at fair value and foreign exchange		24		21		-		47		(206)		-			(114)
Net investment losses related to other-than-temporary impairments		-		(4)		-		(10)		(30)		-			(44)
Net gains (losses) on extinguishment of debt		-		-		-		-		24		2			26
Other net realized gains (losses)		-		2		-		-		4		-			6
Revenues of consolidated VIEs		-		39		-		-		25		-			64
Inter-segment revenues(2)		56		55		24		66		(12)		(189)			-
Total revenues		537		(766)		46		105		(125)		(187)			(390)
Losses and loss adjustment		4		200		-		-		-		-			204
Operating		36		124		48		67		2		-			277
Interest		-		99		-		44		82		-			225
Expenses of consolidated VIEs		-		54		-		-		15		-			69
Inter-segment expenses(2)		84		91		4		11		24		(214)			-
Total expenses		124		568		52		122		123		(214)			775
Income (loss) before income taxes	$	413	$	(1,334)	$	(6)	$	(17)	$	(248)	$	27		$	(1,165)
Identifiable assets	$	8,015	$	21,251	$	53	$	652	$	5,556	$	(6,157)	(3)	$	29,370

(1) - Represents the sum of third-party financial guarantee net premiums earned, net investment income, insurance-related fees and reimbursements, investment management fees and other fees.

(2) - Represents intercompany premium income and expense, intercompany asset management fees and expenses, and intercompany interest income and expense pertaining to intercompany receivables and payables.

(3) - Consists of intercompany reinsurance balances, repurchase agreements and loans.

Premiums on financial guarantees and insured derivatives reported within the Company’s insurance segments are generated within and outside the U.S. The following table summarizes premiums earned on financial guarantees and insured derivatives by geographic location of risk for the three and nine months ended September 30, 2012 and 2011:

	Three Months Ended September 30,				Nine Months Ended September 30,
In millions	2012		2011		2012		2011
Total premiums earned:
United States	$	141	$	161	$	402	$	413
United Kingdom		9		10		27		27
Europe (excluding United Kingdom)		3		4		12		25
Internationally diversified		3		9		13		27
Central and South America		8		9		40		28
Asia		2		2		4		14
Other		2		4		8		10
Total	$	168	$	199	$	506	$	544

79

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 11: Business Segments (continued)

The following tables provide the results of the segments within the wind-down operations for the three months ended September 30, 2012 and 2011:

	Three Months Ended September 30, 2012
In millions	Asset / Liability Products		Conduits		Eliminations		Total Wind- down Operations
Revenues(1)	$	9	$	-	$	-	$	9
Net gains (losses) on financial instruments at fair value and foreign exchange		(40)		-		-		(40)
Revenues of consolidated VIEs		-		20		-		20
Inter-segment revenues(2)		(1)		-		-		(1)
Total revenues		(32)		20		-		(12)
Operating		1		-		-		1
Interest		22		-		-		22
Expenses of consolidated VIEs		-		3		-		3
Inter-segment expenses(2)		3		36		-		39
Total expenses		26		39		-		65
Income (loss) before income taxes	$	(58)	$	(19)	$	-	$	(77)
Identifiable assets	$	2,219	$	693	$	(51)	$	2,861

(1) - Represents the sum of third-party interest income, investment management services fees and other fees.

(2) - Represents intercompany asset management fees and expenses plus intercompany interest income and expense pertaining to intercompany debt.

	Three Months Ended September 30, 2011
In millions	Asset / Liability Products		Conduits		Eliminations		Total Wind- down Operations
Revenues(1)	$	23	$	(2)	$	-	$	21
Net gains (losses) on financial instruments at fair value and foreign exchange		11		-		-		11
Net investment losses related to other-than-temporary impairments		(1)		-		-		(1)
Revenues of consolidated VIEs		(2)		7		-		5
Inter-segment revenues(2)		(3)		(1)		-		(4)
Total revenues		28		4		-		32
Operating		-		2		-		2
Interest		27		1		-		28
Expenses of consolidated VIEs		-		5		-		5
Inter-segment expenses(2)		9		(3)		-		6
Total expenses		36		5		-		41
Income (loss) before income taxes	$	(8)	$	(1)	$	-	$	(9)
Identifiable assets	$	3,982	$	1,574	$	-	$	5,556

(1) - Represents the sum of third-party interest income, investment management services fees and other fees.

(2) - Represents intercompany asset management fees and expenses plus intercompany interest income and expense pertaining to intercompany debt.

80

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 11: Business Segments (continued)

The following tables provide the results of the segments within the wind-down operations for the nine months ended September 30, 2012 and 2011:

	Nine Months Ended September 30, 2012
In millions	Asset / Liability Products		Conduits		Eliminations		Total Wind- down Operations
Revenues(1)	$	44	$	-	$	-	$	44
Net gains (losses) on financial instruments at fair value and foreign exchange		(160)		-		-		(160)
Net investment losses related to other-than-temporary impairments		(56)		-		-		(56)
Revenues of consolidated VIEs		-		60		-		60
Inter-segment revenues(2)		(15)		(2)		(2)		(19)
Total revenues		(187)		58		(2)		(131)
Operating		4		-		-		4
Interest		72		-		-		72
Expenses of consolidated VIEs		-		11		-		11
Inter-segment expenses(2)		16		71		-		87
Total expenses		92		82		-		174
Income (loss) before income taxes	$	(279)	$	(24)	$	(2)	$	(305)
Identifiable assets	$	2,219	$	693	$	(51)	$	2,861

(1) - Represents the sum of third-party interest income, investment management services fees and other fees.

(2) - Represents intercompany asset management fees and expenses plus intercompany interest income and expense pertaining to intercompany debt.

	Nine Months Ended September 30, 2011
In millions	Asset / Liability Products		Conduits		Eliminations		Total Wind- down Operations
Revenues(1)	$	70	$	-	$	-	$	70
Net gains (losses) on financial instruments at fair value and foreign exchange		(206)		-		-		(206)
Net investment losses related to other-than-temporary impairments		(30)		-		-		(30)
Net gains (losses) on extinguishment of debt		24		-		-		24
Other net realized gains (losses)		4		-		-		4
Revenues of consolidated VIEs		10		15		-		25
Inter-segment revenues(2)		(9)		(3)		-		(12)
Total revenues		(137)		12		-		(125)
Operating		2		-		-		2
Interest		82		-		-		82
Expenses of consolidated VIEs		-		15		-		15
Inter-segment expenses(2)		25		(1)		-		24
Total expenses		109		14		-		123
Income (loss) before income taxes	$	(246)	$	(2)	$	-	$	(248)
Identifiable assets	$	3,982	$	1,574	$	-	$	5,556

(1) - Represents the sum of third-party interest income, investment management services fees and other fees.

(2) - Represents intercompany asset management fees and expenses plus intercompany interest income and expense pertaining to intercompany debt.

81

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 12: Earnings Per Share

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 reflects 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 September 30, 2012 and 2011, there were 3,404,672 and 3,783,574, respectively, of stock options outstanding that were not included in the diluted earnings per share calculation because they were antidilutive. For the nine months ended September 30, 2012 and 2011, there were 3,457,769 and 3,804,671, respectively, of stock options outstanding that were not included in the diluted earnings per share calculation because they were antidilutive.

The following table presents the computation of basic and diluted earnings per share for the three and nine months ended September 30, 2012 and 2011:

	Three Months Ended September 30,				Nine Months Ended September 30,
$ in millions except share and per share amounts	2012		2011		2012		2011
Net income (loss)	$	7	$	444	$	598	$	(693)
Basic weighted average shares(1)		193,879,994		195,612,615		193,760,654		198,262,715
Effect of common stock equivalents:
Stock options		1,097,648		734,887		1,074,883		-
Diluted weighted average shares		194,977,642		196,347,502		194,835,537		198,262,715
Net income (loss) per common share:
Basic	$	0.04	$	2.27	$	3.09	$	(3.50)
Diluted	$	0.04	$	2.26	$	3.07	$	(3.50)

(1) - Includes 5,524,396 and 5,038,788 of unvested restricted stock and units that receive nonforfeitable dividends or dividend equivalents for the three months ended September 30, 2012 and 2011, respectively. Includes 5,442,143 and 5,085,256 of unvested restricted stock and units that receive nonforfeitable dividends or dividend equivalents for the nine months ended September 30, 2012 and 2011, respectively.

Note 13: Commitments and Contingencies

The following commitments and contingencies provide an update of those discussed in “Note 23: Commitments and Contingencies” in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, and should be read in conjunction with the complete descriptions provided in the aforementioned Form 10-K.

Corporate Litigation

In re MBIA Inc. Securities Litigation; Case No. 05 cv 03514(LLS) (S.D.N.Y.)

In May 2012, the parties reached a settlement agreement in principle pursuant to which the plaintiffs will receive a settlement payment in exchange for the dismissal with prejudice of the litigation. The Company’s insurance carriers have agreed to cover in full the settlement payment. On September 13, 2012, the court entered an order preliminarily approving the settlement.

Trustees of the Police and Fire Retirement System of the City of Detroit v. Clapp et al.; No. 08-cv-1515 (S.D.N.Y.)

On July 16, 2012, all parties and the Company’s insurance carriers accepted a mediator’s proposal to settle the federal and state CDO-squared related derivative actions. On October 15, 2012, the plaintiff filed a motion with the court seeking preliminary approval of the settlement.

Ambac Bond Insurance Coverage Cases, Coordinated Proceeding Case No. JCCP 4555 (Super. Ct. of Cal., County of San Francisco)

On May 1, 2012, the court ruled in favor of the monoline defendants on their special motion to strike pursuant to California’s Anti-SLAPP statute. The parties will complete the briefing relating to Stage 2 of the Anti-SLAPP motion on February 22, 2013 and a hearing is scheduled for March 5, 2013.

Tri-City Healthcare District v. Citibank. et al.; Case No. 30-2010-00359692 (Super. Ct. of Cal., County of Orange)

On July 20, 2012, the court granted the plaintiff’s motion to further amend its complaint. Briefing on the defendants’ motion to strike portions of the Fifth Amended Complaint was completed on October 19, 2012. MBIA’s portion of the motion has been resolved per stipulation.

82

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 13: Commitments and Contingencies (continued)

City of Phoenix v. AMBAC et al.; Case No. 2:10-cv-00555-TMB (D. Ariz.)

On October 5, 2012, the court granted the plaintiff’s motion to substitute its expert with certain limitations.

Recovery Litigation

MBIA Insurance Corp. v. Countrywide Home Loans, Inc., et al.; Index No. 602825/08 (N.Y. Sup. Ct., N.Y. County)

Expert discovery was completed as of September 20, 2012. On September 19, 2012, MBIA and Countrywide filed respective motions for summary judgment regarding Countrywide’s primary liability. Argument is scheduled for December 5 to 6, 2012. On September 28, 2012, MBIA and Bank of America filed motions for summary judgment regarding Bank of America’s successor liability. Argument is scheduled for December 12 to 13, 2012. The Appellate Division of the New York State Supreme Court, First Department (the “Appellate Division”), has ordered Countrywide to file its opening appellate brief with respect to the trial court’s decision on partial summary judgment regarding causation by November 5, 2012. The appeal is scheduled for the January 2013 term of the Appellate Division.

MBIA Insurance Corp. v. Residential Funding Company, LLC; Index No. 603552/2008 (N.Y. Sup. Ct., N.Y. County)

The case is currently stayed as a result of the Chapter 11 filing of ResCap on May 14, 2012 in the United States Bankruptcy Court for the Southern District of New York.

MBIA Insurance Corp. v. GMAC Mortgage, LLC (f/k/a GMAC Mortgage Corporation); Index No. 600837/2010 (N.Y. Sup. Ct., N.Y. County)

The case is currently stayed as a result of the Chapter 11 filing of ResCap on May 14, 2012 in the United States Bankruptcy Court for the Southern District of New York.

MBIA Insurance Corp. v. Federal Deposit Insurance Corporation (in its corporate capacity and as conservator and receiver for IndyMac Federal Bank, F.S.B.); Civil Action No. 09-01011 (ABJ) (D.D.C.)

On September 12, 2012, the briefing before the Court of Appeals for the District of Columbia was completed. Oral argument is scheduled for November 14, 2012.

MBIA Insurance Corp. v. J.P. Morgan Securities LLC (f/k/a Bear, Stearns & Co. Inc); Index No. 64676/2012 (N.Y. Sup. Ct., County of Westchester)

On September 14, 2012, MBIA Insurance Corporation filed a complaint alleging fraud against J.P. Morgan Securities LLC (f/k/a Bear, Stearns & Co. Inc) relating to Bear, Stearns & Co. Inc.’s role as lead securities underwriter on the GMAC Mortgage Corporation Home Equity Loan Trust 2006-HE4. On October 18, 2012, the defendant filed its motion to dismiss.

MBIA Insurance Corp. v. Ally Financial Inc. (f/k/a GMAC, LLC) et al.; 12-cv-02563 SRN/TNL (D. Minn.)

On September 17, 2012, MBIA Insurance Corporation filed a complaint in Minnesota state court for aiding and abetting fraud and breach of contract against certain Ally Bank companies relating to seven MBIA-insured mortgage-backed securitizations sponsored by RFC and GMAC during 2006-2007. The defendants removed to the United States District Court for the District of Minnesota on October 5, 2012, and filed a notice of motion to dismiss on October 12, 2012.

Transformation Litigation

Aurelius Capital Master, Ltd. et al. v. MBIA Inc. et al.; 09-cv-2242 (R.S.) (S.D.N.Y.)

On April 11, 2012, the Aurelius plaintiffs and MBIA filed a Stipulation of Dismissal resolving the litigation and the case has been closed on the court’s docket.

ABN AMRO Bank N.V. et al. v. Eric Dinallo et al.; Index no. 601846/09 (N.Y. Sup. Ct., N.Y. County)

The Article 78 hearing concluded on June 7, 2012. A decision is pending.

83

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 13: Commitments and Contingencies (continued)

CQS ABS Master Fund Ltd., CQS Select ABS Master Fund Ltd., and CQS ABS Alpha Master Fund Ltd. v. MBIA Inc. et al.; Civil Action No. 12-cv-6840 (R.S.) (S.D.N.Y.)

On September 10, 2012, CQS ABS Master Fund Ltd., CQS Select ABS Master Fund Ltd., and CQS ABS Alpha Master Fund Ltd. as holders of MBIA-insured residential mortgage-backed bonds filed suit against MBIA Inc., MBIA Insurance Corporation and National Public Finance Guarantee Corp. The complaint alleges that certain of the terms of the transactions entered into by MBIA Insurance Corporation, which were approved by the New York State Department of Insurance, constituted fraudulent conveyances under § 273, 274, 276 and 279(c) of New York Debtor and Creditor Law and a breach of the implied covenant of good faith and fair dealing under New York common law. The Company answered on October 19, 2012.

The Company is defending against the aforementioned actions in which it is a defendant and expects ultimately to prevail on the merits. There is no assurance, however, that the Company will prevail in these actions. Adverse rulings in these actions could have a material adverse effect on the Company’s ability to implement its strategy and on its business, results of operations, cash flows and financial condition. At this stage of the litigation, there has not been a determination as to the amount, if any, of damages. Accordingly, the Company is not able to estimate any amount of loss or range of loss.

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.

Note 14: Subsequent Events

Refer to “Note 13: Commitments and Contingencies” for information about legal proceedings that occurred after September 30, 2012.

84

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING AND CAUTIONARY STATEMENTS

This quarterly report of MBIA Inc. (“MBIA”, the “Company”, “we”, “us” or “our”) 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”, “estimate”, “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. We undertake no obligation to publicly correct or update any forward-looking statement if the Company later becomes aware that such result is not likely to be achieved.

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:

• uncertainty regarding whether the Company will realize, or will be delayed in realizing, insurance loss recoveries expected in disputes with sellers/servicers of residential mortgage-backed securities (“RMBS”) transactions at the levels recorded in its consolidated financial statements;

• the possibility that the Company will experience severe losses or liquidity needs due to increased deterioration in its insurance portfolios and in particular, due to the performance of collateralized debt obligations (“CDOs”) including multi-sector and commercial mortgage-backed securities (“CMBS”) pools and commercial real estate (“CRE”) CDOs and RMBS;

• failure to obtain regulatory approval to implement our risk reduction and liquidity strategies;

• the possibility that loss reserve estimates are not adequate to cover potential claims;

• the possibility that MBIA Inc.’s obligations will be accelerated if MBIA Insurance Corporation becomes subject to a rehabilitation or liquidation proceeding;

• our ability to access capital and our exposure to significant fluctuations in liquidity and asset values within the global credit markets, in particular within our asset/liability products segment;

• our ability to fully implement our strategic plan, including our ability to achieve high stable ratings for National Public Finance Guarantee Corporation and subsidiaries (“National”) or any of our other insurance companies and our ability to commute certain of our insured exposures, including as a result of limited available liquidity;

• the resolution of litigation claims against the Company;

• the possibility of deterioration in the economic environment and financial markets in the United States (“U.S.”) or abroad, and adverse developments in real estate market performance, credit spreads, interest rates and foreign currency levels;

• the possibility that unprecedented budget short-falls will result in credit losses or impairments on obligations of state and local governments that we insure;

• changes in the Company’s credit ratings;

• competitive conditions for bond insurance, including potential entry into the public finance market of insurers of municipal bonds, and changes in the demand for financial guarantee insurance;

• the effects of governmental regulation, including insurance laws, securities laws, tax laws, legal precedents and accounting rules; and

• uncertainties that have not been identified at this time.

The above factors provide a summary of and are qualified in their entirety by the risk factors discussed under “Risk Factors” in Part I, Item 1A of MBIA Inc.’s Annual Report on Form 10-K for the year ended December 31, 2011. In addition, refer to “Note 1: Business Developments, Risks and Uncertainties, and Liquidity” in the Notes to Consolidated Financial Statements for a discussion of certain risks and uncertainties related to our financial statements.

EXECUTIVE OVERVIEW

MBIA operates one of the largest financial guarantee insurance businesses in the industry and is a provider of asset management advisory services. These activities are managed through three business segments: U.S. public finance insurance, structured finance and international insurance, and advisory services. Our U.S. public finance insurance business is primarily operated through National, our structured finance and international insurance business is operated through MBIA Insurance Corporation and its subsidiaries (“MBIA Corp.”), and our advisory services business is primarily operated through Cutwater Holdings, LLC and its subsidiaries (“Cutwater”). We also manage certain business activities through our corporate, asset/liability products, and conduit segments. Our corporate segment includes revenues and expenses that arise from general corporate activities. Funding programs managed through our asset/liability products and conduit segments are in wind-down.

85

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

EXECUTIVE OVERVIEW (continued)

During the first nine months of 2012, our businesses continued to maintain adequate liquidity to meet their payment obligations despite minimal collections of recoveries in connection with ineligible mortgage loans in our insured RMBS securitizations. As of September 30, 2012, National and MBIA Corp. had $318 million and $386 million, respectively, of total liquidity without regard to investments in their subsidiaries. Total liquidity within our insurance businesses includes cash and short-term investments, as well as other assets that are readily available for liquidity purposes. Liquidity of MBIA Inc. includes the liquidity positions of its corporate and asset/liability products activities. As of September 30, 2012, MBIA Inc. had liquidity of $432 million comprising cash and liquid assets of $335 million available for general corporate liquidity purposes, excluding the amounts held in escrow under its tax sharing agreement, and $97 million not pledged directly as collateral for its asset/liability products activities. As of December 31, 2011, MBIA Inc. had $386 million of cash and liquid assets comprising $226 million available for general corporate liquidity purposes, excluding the amounts held in escrow under its tax sharing agreement, and $160 million not pledged directly as collateral for its asset/liability products activities. A detailed discussion of the Company’s liquidity position is presented within the “Liquidity” section herein.

Our financial guarantee insurance business model has been significantly impacted since 2008 by adverse credit rating actions by Standard & Poor’s Financial Services LLC (“S&P”) and Moody’s Investors Service, Inc. (“Moody’s”). As of September 30, 2012, National was rated BBB with a developing outlook by S&P and Baa2 with a negative outlook by Moody’s. As of September 30, 2012, MBIA Insurance Corporation was rated B with a negative outlook by S&P and B3 with a review of a possible downgrade by Moody’s. The absence of S&P’s and Moody’s highest ratings has adversely impacted our ability to write new insurance business and the premiums we can charge, and could diminish the future acceptance of our financial guarantee insurance products.

The reference herein to “ineligible” mortgage loans refers to those mortgage loans that the Company believes failed to comply with the representations and warranties made by the sellers/servicers of the securitizations to which those mortgage loans were sold (including mortgage loans that failed to comply with the related underwriting criteria), based on the Company’s assessment of such mortgage loans’ compliance with such representations and warranties, which included information provided by third-party review firms. The Company’s assessment of the ineligibility of individual mortgage loans has been challenged by the sellers/servicers of the securitizations in litigation and there is no assurance that the Company’s determinations will prevail.

Economic and Financial Market Trends

We believe economic conditions during the first nine months of 2012 suggested a mild recovery within the U.S. as positive trends in the first half of the year continued to gain some traction. For the three months ended September 30, 2012, the U.S. economy showed signs of stabilizing as there was mildly positive news on housing and modest gains in the unemployment rate despite a recent spike in oil prices. U.S. Gross Domestic Product grew albeit at a slower rate than expected. The Federal Reserve’s recent announcement of its latest stimulus effort may take time before the effects are felt within the U.S. economy. The business and consumer segments of our economy remain cautiously optimistic as companies wait for signs from Washington on the looming prospects of tax increases and automatic spending cuts slated to take effect at the end of 2012 and early 2013. All considered, we believe the U.S. economy has flattened out, however uncertainties in the global markets and an unclear fiscal policy still remain. MBIA’s business outlook should be viewed against this backdrop since these are some of the key economic conditions which, together with the ineligibility of mortgage loans supporting our insured RMBS transactions, realized losses on insured credit derivatives and the volatility of unrealized gains and losses on our insured credit derivatives, significantly impact our financial results.

Uncertainties regarding the European sovereign debt crisis have also affected the global economy. Outside the U.S., financial guarantee insurance has been used by issuers of sovereign-related and sub-sovereign bonds, structured finance securities, utility debt and financing for public purpose projects, among others. MBIA does not insure any direct European sovereign debt. However, we do insure both structured finance and public finance obligations in select international markets. MBIA’s indirect European sovereign insured debt exposure totaled $7.1 billion as of September 30, 2012 and included obligations of sovereign-related and sub-sovereign issuers, such as regions, departments, and sovereign-owned entities that are supported by a sovereign state, region or department. Of the $7.1 billion of insured gross par outstanding, $808 million, $675 million, and $251 million related to Spain, Portugal, and Ireland, respectively. The remaining $5.4 billion related to the United Kingdom. We closely monitor our existing insured European portfolios on an ongoing basis. We consider country risk, including economic and political factors, the type and quality of local regulatory oversight, the strength of the legal framework in each country and the stability of the local institutional framework. We also monitor local accounting, regulatory and legal requirements, local financial market developments, the impact of exchange rates and local demand dynamics. The Company has an immaterial amount of direct and indirect European sovereign debt holdings included in its investment portfolios. A default by one or more sovereign issuers could have an adverse effect on our insured debt exposures and investment portfolios.

86

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

EXECUTIVE OVERVIEW (continued)

MBIA’s Business Outlook

Our financial results, prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), have been extremely volatile since the fourth quarter of 2007 as a result of unrealized gains and losses from fair valuing our insured credit derivatives. We do not believe that the volatility caused by these unrealized gains and losses on our insured derivatives reflects the underlying economics of our business, and we fully expect that our reported financial results will remain volatile and uncertain during the remainder of 2012 as a result of actual and perceived future performance of our insured credit derivatives and the perception of MBIA’s credit risk. Our economic performance may also be volatile depending on changes in our loss estimates based on deviations in macroeconomic conditions and collateral performance from our expectations, and deterioration in economic conditions and financial markets in the U.S. and abroad.

Our business and financial results have been significantly influenced by a number of factors including, but not limited to, the following:

• MBIA Corp. has repurchase rights arising from the sellers’/servicers’ improper inclusion of ineligible mortgage loans in MBIA-insured securitizations. The sellers/servicers have contractual obligations to cure, repurchase or replace such ineligible mortgage loans and thus we have recognized $3.2 billion for such obligations as of September 30, 2012. These expected recoveries are generally referred to as “put-backs,” and are calculated based on our assessment of a range of possible collection outcomes. Our cumulative incurred loss related to ineligible mortgage loans was $5.0 billion as of September 30, 2012. We believe that, based on the strength of our contract claims, multiple positive court rulings in our favor, and the exceptionally high level of ineligible mortgage loans in our insured transactions, we are entitled to collect and/or assert a claim for the full amount of our incurred loss related to these ineligible mortgage loans. However, our financial statements reflect that we may ultimately collect less than our cumulative incurred loss due to a variety of factors including the risks inherent in litigation, the possibility of legal settlements with some or all of the sellers/servicers, and the risk that one or more of the sellers/servicers will not be able to honor any claims or judgments that we secure against them. We may further discount our expected recoveries in the future based on a review of the creditworthiness of the sellers/servicers. Refer to the following “RMBS Recoveries” section below for more information about our claims against sellers/servicers.

• For the three months ended September 30, 2012, we estimated an additional $123 million of credit losses and loss adjustment expense (“LAE”) related to our insured CMBS exposure. This additional amount reflects the deterioration within some transactions. Although average debt service coverage in transactions in our aggregate current portfolio remains satisfactory, some loans still show signs of significant financial distress. Ultimate loss rates remain uncertain, and we have recorded additional impairments on our insured CMBS portfolio every quarter since the beginning of 2010 as our anticipated economic losses have increased during that time period. It is possible that we will experience severe losses or liquidity needs due to increased deterioration in our insured CMBS portfolio or our failure to commute the policies, primarily on the Bank of America/Merrill Lynch CMBS exposures described below under “RMBS Recoveries”, in particular if macroeconomic stress escalates. A “double dip” recession may result in increased delinquencies, higher levels of liquidations of delinquent loans and/or severities of loss upon liquidation. Although we have also seen stabilization in the delinquency rate over the past several months, loan modifications and extensions granted by the special servicers for these CMBS loans and increased liquidations have contributed to the stabilization. The special servicers are responsible for managing loans that have defaulted and for conducting the remediation and foreclosure process with the objective of maximizing proceeds for all bondholders by avoiding or minimizing loan level losses. As a result of these and other risks facing MBIA Insurance Corporation, MBIA Inc. has launched a consent solicitation seeking approval of its senior noteholders to amend the cross-default provisions in the indentures governing the senior notes that would be triggered by MBIA Insurance Corporation being placed into a rehabilitation or liquidation proceeding. See “The Consent Solicitation” below for a description of this transaction and the circumstances that could lead to MBIA Insurance Corporation being placed in a rehabilitation or liquidation proceeding.

• In the first nine months of 2012, MBIA Corp. commuted $13.0 billion of gross insured exposure, primarily comprising structured CMBS pools, CRE CDOs, investment grade corporate CDOs, asset-backed securities (“ABS”) CDOs, and subprime RMBS transactions, of which $12.8 billion was previously disclosed in earlier MBIA Inc.’s Securities and Exchange Commission (“SEC”) filings. In consideration for the commutation of insured transactions, the Company has made and may in the future make payments to the counterparties, the amounts of which, if any, may be less than or greater than any statutory loss reserves established for the respective transactions. The Company enters into commutations in the ordinary course of its business and generally does not intend to make contemporaneous disclosures regarding any such transactions regardless of the amounts paid to effect such commutations in relation to the statutory loss reserves established for the respective transactions. Our ability to commute insured transactions may be limited by available liquidity as determined based on management’s assessment.

87

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

EXECUTIVE OVERVIEW (continued)

• The pending litigation challenging the establishment of National also has constrained our ability to establish high stable ratings and generate new U.S. public finance financial guarantee insurance business. We do not expect to write significant new financial guarantee insurance business prior to an upgrade of our insurance financial strength ratings. We expect that once the pending litigation is resolved, we will seek to obtain higher ratings for National and the market acceptance necessary to meet our objectives. Our ability to achieve these ratings is subject to rating agency criteria in effect at that time, including qualitative and quantitative factors, and the timing of any such upgrade is uncertain. There is no assurance that we will prevail in the pending litigation or be able to achieve such ratings. While there are currently two bond insurers actively engaged in the market, one of which was recently established, we have observed other new competitors indicating an interest in entering the bond insurance market and continue to consider strategies for launch. We will continue to monitor the impact that new market participants may have on our ability to compete in the U.S. public finance insurance market in the future. Failure by the Company to favorably resolve this litigation could have a material adverse effect on its future business, results of operations, financial condition or cash flows. Refer to “Note 13: Commitments and Contingencies” in the Notes to Consolidated Financial Statements for a detailed discussion on the lawsuits filed by and against the Company.

• In 2011, National entered into a secured loan with MBIA Insurance Corporation (“National Secured Loan”) under which National loaned MBIA Insurance Corporation funds in order to enable MBIA Corp. to fund settlements and commutations of its insurance policies. The existence of the National Secured Loan may adversely affect National’s ability to achieve higher stable ratings and, therefore, its ability to write new business. Refer to the “Liquidity-Key Intercompany Lending Agreements” section herein for information about the National Secured Loan.

• Our U.S. public finance insured portfolio, in National, continues to perform as expected. We have, however, experienced increased stress in this portfolio in the first nine months of 2012 as a portion of the obligations that we insure were issued by some of the state and local governments that continue to remain under extreme financial and budgetary stress. This financial stress on such states and municipalities could lead to an increase in defaults on the payment of their obligations and losses or impairments on a greater number of insured transactions in the future.

88

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

EXECUTIVE OVERVIEW (continued)

RMBS Recoveries

We have recorded our largest put-back asset against Bank of America and certain of its subsidiaries including Countrywide Home Loans, Inc. (“Countrywide”). Bank of America and its subsidiary Merrill Lynch also hold a significant amount of our remaining insured CMBS exposures, including the majority of the $6.0 billion of pools originally insured in 2006 and 2007 primarily referencing BBB and lower rated collateral (for a discussion of our insured CMBS pool exposure, see “Results of Operations—Commercial Real Estate Pool and CRE CDOs”). While the Company has estimated credit impairments or recorded loss reserves for the CMBS exposures, no material claims have been made to date. Bank of America/Merrill Lynch is also one of the two remaining plaintiffs in the litigation challenging the establishment of National (“Transformation Litigation”). For a discussion of the Transformation Litigation, see “Note 13: Commitments and Contingencies” in the Notes to Consolidated Financial Statements. As a result, the amount we may ultimately collect from Bank of America/Countrywide on their put-back obligations in any litigation settlement could be impacted by potential commutation payments on these CMBS exposures and developments in the Transformation Litigation. Likewise, our ability to commute these CMBS exposures may be impacted by developments in the put-back litigation with these entities and the Transformation Litigation. There can be no assurance that any such settlement or commutation will occur or that any such settlement or commutation, if it occurred, would be consummated within the estimates of expected recoveries or loss payments associated with these exposures that are recorded in our consolidated financial statements. In addition, due to the deterioration in MBIA Corp.’s CMBS exposures, primarily in those exposures held by Bank of America/Merrill Lynch, there is an increased likelihood that MBIA Corp. will experience claims on those exposures, which claims could be substantial. Depending on the amount of such claims and the amounts of claims on other policies issued by MBIA Corp., MBIA Corp. may not have sufficient liquid assets to pay such claims in the absence of a settlement with Bank of America/Merrill Lynch and the commutation of the CMBS exposures held by Bank of America/Merrill Lynch or in the absence of the collection of other substantial put-back recoverables.

We have also recorded substantial recoveries related to put-backs against two wholly-owned subsidiaries of Residential Capital, LLC (“ResCap”), GMAC Mortgage, LLC (“GMAC”) and Residential Funding Company, LLC (“RFC”), whose ultimate parent company is Ally Financial Inc. On May 14, 2012, ResCap, RFC and GMAC each filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code. As a result of the bankruptcy filings, we have reassessed our expected recoveries from GMAC and RFC by developing new probability-weighted scenarios based on the following facts: a) we have a direct contractual relationship with GMAC and RFC related to our put-back claims; b) our claims against GMAC and RFC are based on a breach of contract and fraud which have withstood motions to dismiss; and c) we submitted expert reports in the RFC litigation which confirm a substantial degree of ineligible mortgage loans in MBIA insured securitizations and damages as a result thereof. Accordingly, the Company has modeled scenario-based recoveries which are founded upon the strength of these claims as well as a range of estimated assets available to ResCap unsecured creditors. These outcomes are based upon information that was available to the Company as of the filing date. Under this revised methodology, our expected recoveries from GMAC and RFC have been reduced by 7% since December 31, 2011. A more detailed discussion of potential recoveries is presented within “Note 5: Loss and Loss Adjustment Expense Reserves” in the Notes to Consolidated Financial Statements.

The Consent Solicitation

On the date of this Quarterly Report on Form 10-Q, MBIA launched a consent solicitation pursuant to which it is seeking the consent of its senior noteholders to amend the indentures pursuant to which the senior notes were issued to substitute National for MBIA Insurance Corporation in the definition of “Restricted Subsidiary” and “Principal Subsidiaries” in the respective indentures, which provide that an involuntary solvency proceeding with respect to a Restricted or Principal Subsidiary, as the case may be, that remains in place for a specified period of time constitutes an event of default, which would likely result in the acceleration of the senior notes. The Consent Solicitation Statement related to the consent solicitation is filed as Exhibit 99.3 to the Company’s Current Report on Form 8-K filed on the date of this Quarterly Report on Form 10-Q.

MBIA Insurance Corporation may be placed in a rehabilitation or liquidation proceeding as a result of, among other things, a lack of liquid assets available to pay claims due to the failure by RMBS sellers/servicers to honor their contractual obligations to repurchase ineligible mortgage loans combined with the substantial RMBS claims payments, other claims and commutation payments to date, as well as the increased probability that MBIA Insurance Corporation will experience claims payments on certain of its CMBS exposures in the future. As described further above under “RMBS Recoveries” and under “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q and Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, these and other key risks and contingencies increase the possibility that MBIA Insurance Corporation could be placed into rehabilitation or liquidation proceedings by the Superintendent of the New York State Department of Financial Services (“NYSDFS”). The determination to commence an MBIA Insurance Corporation rehabilitation or liquidation proceeding is not within the control of the Company. Article 74 of the New York Insurance Law (“NYIL”) gives the Superintendent of the NYSDFS exclusive authority to commence rehabilitation or liquidation proceedings against a New York insurer under a variety of circumstances, including if the Superintendent finds the insurer is in such condition that its further transaction of business will be hazardous to policyholders, creditors, or the public, or if the Superintendent finds that the insurer is insolvent. In the event of an MBIA Insurance Corporation proceeding and in the absence of the consummation of the consent solicitation, it is likely that the senior notes would be accelerated. If the senior notes are accelerated we believe MBIA Inc. would have insufficient liquidity and capital markets access to pay the obligations under the senior notes. We believe that, under such circumstances, the Company would likely immediately pursue other alternatives, including an out-of-court restructuring, which we believe will be difficult to achieve, or a bankruptcy filing. We further believe that an MBIA Inc. bankruptcy would be highly destructive of the value of the Company, and would impose other costs and risks on its shareholders and creditors. This view is based on the following factors that we believe would result from an MBIA Inc. bankruptcy:

• Reduction in the value of National in an MBIA Inc. bankruptcy as a result of a distressed sale and regulatory restrictions on a sale and on other activities of National, which could also substantially delay any such transaction.

• Potential delays on asset sales and dividends and impairment of intercompany obligations that make up a substantial portion of National’s investment portfolio, which could further diminish National’s value to the Company’s shareholders and creditors.

• Assertion of significant claims against the Company, including approximately $900 million on account of the senior notes and approximately $1.6 billion on account of an intercompany obligation to MBIA Global Funding LLC (“GFL”), that would be triggered by a Company bankruptcy.

• Other significant adverse economic impacts on shareholders and creditors, including:

• The potential for cessation of interest payments, delays in distribution and/or debt for equity conversion of debt obligations.

• The substantial administrative expense and adverse business impact on the Company.

• Potential adverse impact on the trading prices of the Company’s securities in the secondary market.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

EXECUTIVE OVERVIEW (continued)

The purpose of the consent solicitation is to avoid the risk of a substantial value erosion of the Company in the event of an MBIA Insurance Corporation rehabilitation or liquidation. In addition, by removing this risk, we believe the consummation of the consent solicitation would improve the Company’s credit standing over time and improve its ability to raise capital in the future, each of which we believe would inure to the benefit of shareholders and creditors. The Company has had discussions with Moody’s and S&P and expects that the rating and rating outlook of the senior notes will be unchanged if the consent solicitation is consummated. See “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q for a detailed description of the risks associated with the Company failing to consummate the consent solicitation and MBIA Insurance Corporation being placed in a rehabilitation proceeding.

Financial Highlights

For the three months ended September 30, 2012, we recorded consolidated net income of $7 million or $0.04 per diluted share compared with consolidated net income of $444 million or $2.26 per diluted share for the same period of 2011.

For the nine months ended September 30, 2012, we recorded consolidated net income of $598 million or $3.07 per diluted share compared with a consolidated net loss of $693 million or $3.50 per diluted share for the same period of 2011.

We also use adjusted pre-tax income (loss), a non-GAAP measure, to supplement our analysis of our periodic results. We consider adjusted pre-tax income (loss) a fundamental measure of periodic financial performance, which we believe is useful for an understanding of our results. Adjusted pre-tax income (loss) adjusts GAAP pre-tax income (loss) to remove the effects of consolidating insured variable interest entities (“VIEs”) and gains and losses related to insured credit derivatives, which we believe will reverse over time, as well as to add in changes in the present value of insurance claims we expect to pay on insured credit derivatives based on our ongoing insurance loss monitoring. Adjusted pre-tax income (loss) is not a substitute for and should not be viewed in isolation from GAAP pre-tax income (loss), and our definition of adjusted pre-tax income (loss) may differ from that used by other companies. Refer to the following “Results of Operations” section for a reconciliation of adjusted pre-tax income (loss) to GAAP pre-tax income (loss).

For the three months ended September 30, 2012, consolidated adjusted pre-tax loss was $118 million compared with adjusted pre-tax loss of $430 million for the same period of 2011.

For the nine months ended September 30, 2012, consolidated adjusted pre-tax loss was $818 million compared with adjusted pre-tax loss of $244 million for the same period of 2011.

90

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

EXECUTIVE OVERVIEW (continued)

Our consolidated book value (total shareholders’ equity) was $2.6 billion as of September 30, 2012 compared with $1.7 billion as of December 31, 2011. The increase was primarily the result of unrealized gains on insured derivatives driven by commuting derivative liabilities at prices below their fair values, the effects of MBIA’s nonperformance risk on its derivative liabilities which resulted from a widening of its own credit spreads and a reduction in the Company’s recovery rate and favorable movements in spreads and pricing on collateral. Our consolidated book value per share as of September 30, 2012 was $13.25 compared with $8.80 as of December 31, 2011.

In addition to book value per share, we also analyze adjusted book value (“ABV”) per share, a non-GAAP measure. We consider ABV a measure of fundamental value of the Company and the change in ABV an important measure of financial performance. ABV adjusts GAAP book value to remove the impact of certain items which the Company believes will reverse over time through the GAAP statements of operations, as well as to add in the impact of certain items which the Company believes will be realized in GAAP book value in future periods. The Company has limited such adjustments to those items that it deems to be important to fundamental value and performance and which the likelihood and amount can be reasonably estimated. ABV assumes no new business activity. We have presented ABV to allow investors and analysts to evaluate the Company using the same measure that MBIA’s management regularly uses to measure financial performance and value. ABV is not a substitute for and should not be viewed in isolation from GAAP book value, and our definition of ABV may differ from that used by other companies. Refer to the following “Results of Operations” section for a further discussion of ABV and a reconciliation of GAAP book value per share to ABV per share.

As of September 30, 2012, ABV per share was $30.64, down from $34.50 as of December 31, 2011.

A detailed discussion of our financial results is presented within the “Results of Operations” section included herein. Refer to the “Capital Resources—Insurance Statutory Capital” section for a discussion of National’s and MBIA Corp.’s capital positions under statutory accounting principles (“U.S. STAT”).

CRITICAL ACCOUNTING ESTIMATES

We prepare our financial statements in accordance with GAAP, which requires the use of estimates and assumptions. Management has discussed and reviewed the development, selection, and disclosure of critical accounting estimates with the Company’s Audit Committee. Management believes that the most critical accounting estimates, since these estimates require significant judgment, are loss and LAE reserves, valuation of financial instruments, and deferred income taxes. Financial results could be materially different if other methodologies were used or if management modified its assumptions.

For a discussion of the Company’s critical accounting estimates, see “Critical Accounting Estimates” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. In addition, refer to “Note 5: Loss and Loss Adjustment Expense Reserves” in the Notes to Consolidated Financial Statements for a current description of estimates used in our insurance loss reserving process.

RECENT ACCOUNTING PRONOUNCEMENTS

Refer to “Note 3: Recent Accounting Pronouncements” in the Notes to Consolidated Financial Statements for a discussion of accounting guidance recently adopted by the Company, as well as recent accounting developments relating to guidance not yet adopted by the Company.

91

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS

Summary of Consolidated Results

The following table presents a summary of our consolidated financial results for the three and nine months ended September 30, 2012 and 2011:

	Three Months Ended September 30,				Nine Months Ended September 30,
In millions except for per share amounts	2012		2011		2012		2011
Total revenues (losses)	$	281	$	1,120	$	1,703	$	(390)
Total expenses		338		375		944		775
Pre-tax income (loss)		(57)		745		759		(1,165)
Provision (benefit) for income taxes		(64)		301		161		(472)
Net income (loss)	$	7	$	444	$	598	$	(693)
Net income (loss) per common share:
Basic	$	0.04	$	2.27	$	3.09	$	(3.50)
Diluted	$	0.04	$	2.26	$	3.07	$	(3.50)

For the three months ended September 30, 2012, we recorded consolidated net income of $7 million, or $0.04 per diluted common share, compared with consolidated net income of $444 million, or $2.26 per diluted common share, for the same period of 2011. Weighted average diluted common shares outstanding totaled 195 million and 196 million for the three months ended September 30, 2012 and 2011, respectively. Consolidated total revenues for the three months ended September 30, 2012 included $21 million of net losses on insured derivatives compared with $723 million of net gains for the same period of 2011. The net losses on insured derivatives in 2012 were principally due to the effects of unfavorable changes in spreads/prices of underlying collateral and collateral erosion partially offset by a widening of the Company’s credit spreads and a reduction in the Company’s recovery rate. The net gains on insured derivatives in 2011 reflected a widening of the Company’s credit spreads and a reduction in the Company’s recovery rate, partially offset by unfavorable changes in spreads/prices of underlying collateral. Consolidated total expenses for the three months ended September 30, 2012 included $171 million of net insurance loss and LAE compared with $190 million of loss and LAE for the same period of 2011. The net insurance loss and LAE in 2012 and 2011 were primarily related to our insured RMBS and financial guarantee CMBS exposures.

For the nine months ended September 30, 2012, we recorded consolidated net income of $598 million, or $3.07 per diluted common share, compared with a consolidated net loss of $693 million, or $3.50 per diluted common share, for the same period of 2011. Weighted average diluted common shares outstanding totaled 195 million for the nine months ended September 30, 2012, down 2% from the same period of 2011 as a result of share repurchases by the Company during 2011. Consolidated total revenues for the nine months ended September 30, 2012 included $1.1 billion of net gains on insured derivatives compared with $1.1 billion of net losses for the same period of 2011. The net gains on insured derivatives in 2012 were principally the result of commuting derivative liabilities at prices below their fair values and the effects of MBIA’s nonperformance risk on its derivative liabilities which resulted from a widening of its own credit spreads and a reduction in the Company’s recovery rate. The net losses on insured derivatives in 2011 principally resulted from favorable changes in the market perception of MBIA Corp.’s credit risk, which resulted in a tightening of the Company’s credit spreads and an improvement in the Company’s recovery rate and unfavorable changes in spreads/prices of underlying collateral. These changes were partially offset by the reversal of unrealized losses resulting from the settlement of insured derivatives at amounts below their fair value. Consolidated total expenses for the nine months ended September 30, 2012 included $330 million of net insurance loss and LAE compared with $204 million for the same period of 2011. The net insurance losses and LAE in 2012 and 2011 were principally related to our insured financial guarantee CDO and RMBS exposures.

Included in our consolidated net income for the three months ended September 30, 2012 and 2011 was $59 million and $88 million, respectively, of income before income taxes related to consolidated VIEs, after the elimination of intercompany revenues and expenses. Included in our consolidated net income for the nine months ended September 30, 2012 was $26 million of income before income taxes related to consolidated VIEs, after the elimination of intercompany revenues and expenses, compared with losses before income taxes of $5 million for the same period of 2011. The net effect of consolidated VIEs on our financial results will vary over time as VIEs are consolidated or deconsolidated by the Company, and as the values of consolidated VIE assets and liabilities change.

92

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

Adjusted Pre-Tax Income

The following table presents our consolidated adjusted pre-tax income (loss) (a non-GAAP measure) and provides a reconciliation of adjusted pre-tax income (loss) to GAAP pre-tax income (loss) for the three and nine months ended September 30, 2012 and 2011:

	Three Months Ended September 30,				Nine Months Ended September 30,
In millions	2012		2011		2012		2011
Adjusted pre-tax income (loss)	$	(118)	$	(430)	$	(818)	$	(244)
Additions to adjusted pre-tax income (loss):
Impact of consolidating certain VIEs		29		9		62		68
Mark-to-market gains (losses) on insured credit derivatives		(33)		832		1,473		(671)
Subtractions from adjusted pre-tax income (loss):
Impairments on insured credit derivatives		(65)		(334)		(42)		318
Pre-tax income (loss)	$	(57)	$	745	$	759	$	(1,165)

For the three months ended September 30, 2012, our consolidated adjusted pre-tax loss decreased compared with the same period of 2011 primarily as a result of decreased impairments on insured credit derivatives and a decrease in insurance losses and LAE, partially offset by a decrease in net gains related to fair valuing financial instruments and unfavorable changes in foreign exchange rates.

For the nine months ended September 30, 2012, our consolidated adjusted pre-tax loss increased compared with the same period of 2011 primarily as a result of an increase in insurance losses and LAE, increased impairments on insured credit derivatives, lower net investment income, an increase in legal and litigation related costs, and an increase in net investment losses related to other-than-temporary impairments of investments.

Adjusted Book Value

As of September 30, 2012, ABV per share (a non-GAAP measure) was $30.64, down from $34.50 as of December 31, 2011. The decrease in ABV per share was primarily driven by insurance losses, realized losses from sales and impairments of investments, and a significant increase in legal and litigation related costs.

The following table provides a reconciliation of consolidated book value per share to consolidated ABV per share:

In millions except share and per share amounts	As of September 30, 2012		As of December 31, 2011
Total shareholders’ equity of MBIA Inc.	$	2,566	$	1,700
Basic common shares outstanding		193,725,307		193,143,196
Book value per share	$	13.25	$	8.80
Adjustments for items included in book value per share (after-tax):
Cumulative net loss from consolidating certain VIEs(1)		0.66		0.82
Cumulative unrealized loss on insured credit derivatives		11.13		16.12
Net unrealized (gains) losses included in other comprehensive income		(0.66)		0.85
Adjustments for items not included in book value per share (after-tax):
Net unearned premium revenue(2)(3)		10.57		12.00
Present value of insured derivative installment revenue(4)		0.65		0.86
Cumulative impairments on insured credit derivatives(4)		(3.88)		(3.74)
Deferred acquisition costs		(1.08)		(1.21)
Total adjustments per share		17.39		25.70
Adjusted book value per share	$	30.64	$	34.50

(1) - Represents the impact on book value per share of consolidated VIEs that are not considered a business enterprise of the Company.

(2) - Consists of financial guarantee premiums and fees.

(3) - The discount rate on financial guarantee installment premiums was the risk-free rate as defined by the accounting principles for financial guarantee insurance contracts.

(4) - The discount rate on insured derivative installment revenue and impairments was 5% as of September 30, 2012 and December 31, 2011.

93

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

Our “Net unearned premium revenue” adjustment to book value per share consists of unearned premium revenue net of prepaid reinsurance premiums related to financial guarantee insurance contracts, the unamortized portion of installment premiums collected on insured derivative contracts, and the unamortized portion of insurance-related deferred fee revenue. Our “Present value of insured derivative installment revenue” adjustment to book value per share consists of the present value of premiums not yet collected from insured derivative contracts, which are not recorded on our balance sheets in accordance with accounting principles for financial guarantee insurance contracts but which are contractually due to the Company.

U.S. Public Finance Insurance

Our U.S. public finance insurance business is primarily conducted through National. The financial guarantees issued by National provide unconditional and irrevocable guarantees of the payment of the principal of, and interest or other amounts owing on, insured obligations when due or, in the event National has exercised, at its discretion, the right to accelerate insured obligations upon default or otherwise. National’s guarantees insure municipal bonds, including tax-exempt and taxable indebtedness of U.S. political subdivisions, as well as utility districts, airports, healthcare institutions, higher educational facilities, student loan issuers, housing authorities and other similar agencies and obligations issued by private entities that finance projects that serve a substantial public purpose. Municipal bonds and privately issued bonds used for the financing of public purpose projects are generally supported by taxes, assessments, user fees or tariffs related to the use of these projects, lease payments or other similar types of revenue streams.

The following table presents our U.S. public finance insurance segment results for the three and nine months ended September 30, 2012 and 2011:

	Three Months Ended September 30,				Percent Change		Nine Months Ended September 30,				Percent Change
In millions	2012		2011				2012		2011
Net premiums earned	$	134	$	147		-9%	$	370	$	341		9%
Net investment income		56		53		6%		167		165		1%
Fees and reimbursements		2		2		-		5		5		-
Realized gains (losses) and other settlements on insured derivatives		-		-		-		-		2		-100%
Net gains (losses) on financial instruments at fair value and foreign exchange		22		6		n/m		43		24		79%
Total revenues		214		208		3%		585		537		9%
Losses and loss adjustment		4		10		-60%		15		4		n/m
Amortization of deferred acquisition costs		26		22		18%		75		64		17%
Operating		20		19		5%		128		56		129%
Total expenses		50		51		-2%		218		124		76%
Pre-tax income	$	164	$	157		4%	$	367	$	413		-11%

n/m - Percent change not meaningful.

For the three and nine months ended September 30, 2012 and 2011, we did not write a meaningful amount of U.S. public finance insurance. Activity was largely limited to our reinsurance of a financing transaction for a Turkish bank, which closed in the third quarter of 2012. The lack of insurance writings in our U.S. public finance segment reflects the insurance financial strength credit ratings assigned to National by major ratings agencies and the impact of litigation over the formation of National in 2009. We do not expect to write a material amount of new business prior to an upgrade of our insurance financial strength ratings and market acceptance that such ratings will be stable in the future. The timing of any such upgrade is uncertain and will depend on a variety of quantitative and qualitative factors used by the rating agencies in their evaluation, including the resolution of pending litigation. We believe that we will resume writing business in the U.S. public finance market before actively re-engaging in the structured finance and international markets.

ADJUSTED PRE-TAX INCOME In addition to the above results, we also analyze the operating performance of our U.S. public finance insurance segment using adjusted pre-tax income, a non-GAAP measure. We believe adjusted pre-tax income, as used by management, is useful for an understanding of the results of operations of our U.S. public finance insurance segment. Adjusted pre-tax income is not a substitute for pre-tax income determined in accordance with GAAP, and our definition of adjusted pre-tax income may differ from that used by other companies.

94

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

For the three months ended September 30, 2012 and 2011, there were no differences between adjusted pre-tax income of $164 million and $157 million, respectively, and GAAP pre-tax income. For the nine months ended September 30, 2012 and 2011, there were no differences between adjusted pre-tax income of $367 million and $413 million, respectively, and GAAP pre-tax income.

NET PREMIUMS EARNED Net premiums earned on non-derivative financial guarantees represent gross premiums earned net of premiums ceded to reinsurers, and include scheduled premium earnings and premium earnings from refunded issues. The decrease in net premiums earned for the three months ended September 30, 2012 compared with the same period of 2011 resulted from a decrease in scheduled premiums earned of $16 million, partially offset by an increase in refunded premiums earned of $3 million. The increase in net premiums earned for the nine months ended September 30, 2012 compared with the same period of 2011 resulted from an increase in refunded premiums earned of $81 million, partially offset by a decline in scheduled premiums earned of $52 million. Scheduled premium earnings declined due to the maturity of insured issues within our U.S. public finance portfolio with no material new insurance writings. Additionally, refunding activity over the past several years has accelerated premium earnings in prior periods and reduced the amount of premiums that would have been earned in the current period.

NET INVESTMENT INCOME The increase in net investment income for the three and nine months ended September 30, 2012 was primarily due to interest on the National Secured Loan discussed below.

National maintains simultaneous repurchase and reverse repurchase agreements (“Asset Swap”) with our asset/liability products segment, which provides yield enhancement to our U.S. public finance insurance investment portfolio as a result of increased net interest earnings from these collective agreements. In addition, during 2012 the interest income on the National Secured Loan, established in December of 2011, was included in our U.S. public finance net investment income and totaled $74 million for the nine months ended September 30, 2012. The National Secured Loan enhances the overall yield of our U.S. public finance insurance investment portfolio as lower yielding investments were sold to fund the amount loaned under this agreement. While interest due on the National Secured Loan is recorded in the period during which it accrues, the payment of interest is currently being deferred. Refer to the “Liquidity” section included herein for additional information about these agreements.

Investment asset balances at amortized cost as of September 30, 2012 and December 31, 2011 are presented in the following table:

	September 30, 2012					December 31, 2011
In millions	Investments at Amortized Cost		Pre-tax yield(1)			Investments at Amortized Cost		Pre-tax yield(1)
Fixed-income securities:
Tax-exempt	$	859		3.95	%	$	1,067		4.06	%
Taxable		2,068		3.52	%		2,073		3.89	%
Short-term		303		0.81	%		641		0.70	%
Total fixed-income		3,230		3.38	%		3,781		3.40	%
Secured loan to an affiliate		1,623					1,130
Other		14					16
Total	$	4,867				$	4,927

(1) - Estimated yield-to-maturity.

NET GAINS (LOSSES) ON FINANCIAL INSTRUMENTS AT FAIR VALUE AND FOREIGN EXCHANGE The favorable changes in net gains (losses) on financial instruments at fair value and foreign exchange for the three and nine months ended September 30, 2012 compared with the same periods of 2011 were principally due to realized gains from sales of securities related to the ongoing management of our U.S. public finance insurance investment portfolio.

LOSS AND LOSS ADJUSTMENT EXPENSES National’s portfolio surveillance group is responsible for monitoring our U.S. public finance segment’s insured obligations. The level and frequency of monitoring of any insured obligation depends on the type, size, rating and performance of the insured issue.

Refer to “Note 5: Loss and Loss Adjustment Expense Reserves” in the Notes to Consolidated Financial Statements for a description of the Company’s loss reserving policy and additional information related to its loss reserves.

95

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

The following tables present information about our U.S. public finance insurance loss and LAE reserves and recoverables as of September 30, 2012 and December 31, 2011, as well as our related loss and LAE expenses for the three and nine months ended September 30, 2012 and 2011:

In millions	September 30, 2012		December 31, 2011		Percent Change
Gross loss and LAE reserves	$	323	$	369		-12%
Expected recoveries on unpaid losses		(154)		(200)		-23%
Loss and LAE reserves	$	169	$	169		-
Insurance loss recoverable	$	236	$	155		52%
Insurance loss recoverable-ceded(1)	$	6	$	4		50%
Reinsurance recoverable on paid and unpaid losses	$	9	$	8		13%

(1) - Reported within “Other liabilities” on our consolidated balance sheets.

	Three Months Ended September 30,				Percent Change		Nine Months Ended September 30,				Percent Change
In millions	2012		2011				2012		2011
Loss and LAE related to actual and expected payments	$	(10)	$	54		-119%	$	57	$	(89)		n/m
Recoveries of actual and expected payments		14		(44)		-132%		(42)		93		-145%
Gross losses incurred		4		10		-60%		15		4		n/m
Reinsurance		-		-		-		-		-		-
Losses and loss adjustment expenses	$	4	$	10		-60%	$	15	$	4		n/m

n/m - Percent change not meaningful.

Included in our U.S. public finance loss and LAE reserves are both reserves for insured obligations for which a payment default has occurred and National has already paid a claim and also for which a payment default has not yet occurred but a claim is expected in the future. The following table includes LAE reserves as of December 31, 2011 for one issue that had no expected future claim payments or par outstanding but for which the Company is obligated to pay LAE incurred in prior periods. As of September 30, 2012 and December 31, 2011, loss and LAE reserves comprised the following:

$ in millions	Number of Issues(1)				Loss and LAE Reserve				Par Outstanding
	September 30, 2012		December 31, 2011		September 30, 2012		December 31, 2011		September 30, 2012		December 31, 2011
Gross of reinsurance:
Issues with defaults		10		11	$	152	$	163	$	821	$	797
Issues without defaults		9		5		17		6		115		26
Total gross of reinsurance		19		16	$	169	$	169	$	936	$	823

(1) - An “issue” represents the aggregate of financial guarantee policies that share the same revenue source for purposes of making debt service payments.

POLICY ACQUISITION COSTS AND OPERATING EXPENSES U.S. public finance insurance segment expenses for the three and nine months ended September 30, 2012 and 2011 are presented in the following table:

	Three Months Ended September 30,				Percent Change		Nine Months Ended September 30,				Percent Change
In millions	2012		2011				2012		2011
Gross expenses	$	20	$	19		5%	$	128	$	56		129%
Amortization of deferred acquisition costs	$	26	$	22		18%	$	75	$	64		17%
Operating		20		19		5%		128		56		129%
Total insurance operating expenses	$	46	$	41		12%	$	203	$	120		69%

Gross expenses represent total insurance expenses before the deferral of any policy acquisition costs. Gross expenses increased for the three and nine months ended September 30, 2012 compared with the same periods of 2011 primarily due to increases in legal and litigation related costs.

96

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

Amortization of deferred acquisition costs increased for the three and nine months ended September 30, 2012 compared with the same periods of 2011, consistent with the amortization of the related unearned premium revenue. We did not defer a material amount of policy acquisition costs during 2012 or 2011.

INSURED PORTFOLIO EXPOSURE Financial guarantee insurance 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, we obtain, when available, the underlying rating of the insured obligation before the benefit of its insurance policy from nationally recognized rating agencies, Moody’s and S&P. Other companies within the financial guarantee industry may report credit quality information based upon internal ratings that would not be comparable to our presentation.

The following table presents the credit quality distribution of MBIA’s U.S. public finance outstanding gross par insured as of September 30, 2012 and December 31, 2011. All ratings are as of the period presented and represent S&P ratings. If transactions are not rated by S&P, a Moody’s equivalent rating is used. If transactions are not rated by either S&P or Moody’s, an MBIA equivalent rating is used.

	Gross Par Outstanding as of
In millions Rating	September 30, 2012				December 31, 2011
	Amount		%		Amount		%
AAA	$	18,649		5.2%	$	22,593		5.5%
AA		162,636		45.7%		187,036		45.6%
A		138,224		38.8%		158,958		38.7%
BBB		34,046		9.6%		38,949		9.5%
Below investment grade		2,694		0.7%		2,824		0.7%
Total	$	356,249		100.0%	$	410,360		100.0%

The credit quality distribution of our U.S. public finance insurance exposure as of September 30, 2012 remained relatively consistent with December 31, 2011. Total U.S. public finance insurance gross par outstanding rated A or above, before giving effect to National’s guarantee, was approximately 90% and gross par outstanding rated below investment grade, before giving effect to National’s guarantee, was less than 1% as of September 30, 2012 and December 31, 2011.

Structured Finance and International Insurance

Our structured finance and international insurance business is principally conducted through MBIA Corp. The financial guarantees issued by MBIA Corp. generally provide unconditional and irrevocable guarantees of the payment of the principal of, and interest or other amounts owing on, insured obligations when due or, in the event MBIA Corp. has the right, at its discretion, to accelerate insured obligations upon default or otherwise, upon MBIA Corp.’s acceleration. Certain guaranteed investment contracts written by MBIA Inc. or its subsidiaries are insured by MBIA Corp. If MBIA Inc. or such subsidiaries were to have insufficient assets to pay amounts due upon maturity or termination, MBIA Corp. would make such payments under its insurance policies. MBIA Corp. also insured debt obligations of other affiliates, including GFL and Meridian Funding Company, LLC (“Meridian”), and provides reinsurance to its insurance subsidiaries. MBIA Corp. has also written insurance policies guaranteeing the obligations under credit default swap (“CDS”) contracts of an affiliate, LaCrosse Financial Products, LLC, including termination payments that may become due upon certain events including the insolvency or payment default of the financial guarantor or the CDS issuer.

MBIA Corp.’s guarantees insure structured finance and asset-backed obligations, privately issued bonds used for the financing of public purpose projects that are primarily located outside of the U.S. which include toll roads, bridges, airports, public transportation facilities, utilities and other types of infrastructure projects serving a substantial public purpose, and obligations of sovereign-related and sub-sovereign issuers. Structured finance and ABS typically are securities repayable from expected cash flows generated by a specified pool of assets, such as residential and commercial mortgage loans, insurance policies, consumer loans, corporate loans and bonds, trade and export receivables, and leases and loans for equipment, aircraft and real property.

In certain cases, we may be required to consolidate entities established by issuers of insured obligations as part of securitizations when we insure the assets or liabilities of those entities and in connection with remediations under our insurance policies. These entities typically meet the definition of a VIE under accounting principles for the consolidation of VIEs. We do not believe there is any difference in the risks and profitability of financial guarantees provided to VIEs compared with other financial guarantees written by us.

97

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

The following table presents our structured finance and international insurance segment results for the three and nine months ended September 30, 2012 and 2011:

	Three Months Ended September 30,				Percent Change		Nine Months Ended September 30,				Percent Change
In millions	2012		2011				2012		2011
Net premiums earned	$	38	$	51		-25%	$	143	$	181		-21%
Net investment income		8		17		-53%		22		65		-66%
Fees and reimbursements		43		36		19%		109		89		22%
Change in fair value of insured derivatives:
Realized gains (losses) and other settlements on insured derivatives		12		(53)		-123%		(420)		(601)		-30%
Unrealized gains (losses) on insured derivatives		(33)		776		-104%		1,473		(531)		n/m
Net change in fair value of insured derivatives		(21)		723		-103%		1,053		(1,132)		n/m
Net gains (losses) on financial instruments at fair value and foreign exchange		14		(12)		n/m		18		21		-14%
Net investment losses related to other-than-temporary impairments		(4)		-		n/m		(45)		(4)		n/m
Other net realized gains (losses)		1		1		-		1		2		-50%
Revenues of consolidated VIEs:
Net investment income		13		12		8%		40		39		3%
Net gains (losses) on financial instruments at fair value and foreign exchange		42		86		-51%		(25)		(27)		-7%
Total revenues		134		914		-85%		1,316		(766)		n/m
Losses and loss adjustment		167		180		-7%		315		200		58%
Amortization of deferred acquisition costs		24		34		-29%		81		106		-24%
Operating		30		35		-14%		115		104		11%
Interest		62		34		82%		175		101		73%
Expenses of consolidated VIEs:
Operating		5		8		-38%		16		26		-38%
Interest		10		10		-		32		31		3%
Total expenses		298		301		-1%		734		568		29%
Pre-tax income (loss)	$	(164)	$	613		-127%	$	582	$	(1,334)		-144%

n/m - Percent change not meaningful.

For the three and nine months ended September 30, 2012 and 2011, we did not write a meaningful amount of structured finance and international insurance. The lack of insurance writings in our structured finance and international insurance segment reflects the impact of the downgrades of MBIA Corp.’s insurance financial strength ratings by the major rating agencies, which occurred in 2008 and again in 2009. The Company does not expect to write a material amount of new business prior to an upgrade of the insurance financial strength ratings of MBIA Corp. and market acceptance that such ratings will be stable in the future. The timing of any such upgrade is uncertain and will depend on a variety of quantitative and qualitative factors used by the rating agencies in their evaluation, including the resolution of pending litigation. Pre-tax income (loss) in each of the periods included in the preceding table was primarily driven by changes in the fair value of our insured credit derivatives, which reflects changes in the market perception of MBIA Corp.’s credit risk.

ADJUSTED PRE-TAX INCOME (LOSS) In addition to the above results, we also analyze the operating performance of our structured finance and international insurance segment using adjusted pre-tax income (loss), a non-GAAP measure. We believe adjusted pre-tax income (loss), as used by management, is useful for an understanding of the results of operations of our structured finance and international insurance segment. Adjusted pre-tax income (loss) is not a substitute for pre-tax income (loss) determined in accordance with GAAP, and our definition of adjusted pre-tax income (loss) may differ from that used by other companies.

98

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

The following table presents the adjusted pre-tax income (loss) of our structured finance and international insurance segment, and a reconciliation of adjusted pre-tax income (loss) to GAAP pre-tax income (loss) for the three and nine months ended September 30, 2012 and 2011:

	Three Months Ended September 30,				Percent Change		Nine Months Ended September 30,				Percent Change
In millions	2012		2011				2012		2011
Adjusted pre-tax income (loss)	$	(224)	$	(556)		-60%	$	(970)	$	(388)		150%
Additions to adjusted pre-tax income (loss):
Impact of consolidating certain VIEs		28		3		n/m		37		43		-14%
Mark-to-market gain (loss) on insured credit derivatives		(33)		832		-104%		1,473		(671)		n/m
Subtractions from adjusted pre-tax income (loss):
Impairments on insured credit derivatives		(65)		(334)		-81%		(42)		318		-113%
Pre-tax income (loss)	$	(164)	$	613		-127%	$	582	$	(1,334)		-144%

n/m - Percent change not meaningful.

Adjusted pre-tax loss for the three months ended September 30, 2012 decreased compared with the same period of 2011 principally due to decreased impairments on insured credit derivatives and a decrease in insurance losses and LAE.

Adjusted pre-tax loss for the nine months ended September 30, 2012 increased compared with the same period of 2011 principally due to an increase in insurance losses and LAE, increased impairments on insured credit derivatives, an increase in interest expense from the National Secured Loan that was established in December of 2011, and lower premiums earned.

NET PREMIUMS EARNED Our structured finance and international insurance segment generates net premiums from insurance policies accounted for as financial guarantee contracts and insured derivative contracts, and certain of those premiums may be eliminated in our consolidated financial statements as a result of the Company consolidating VIEs. The following table provides net premiums earned by type of insurance contract for the three and nine months ended September 30, 2012 and 2011:

	Three Months Ended September 30,				Nine Months Ended September 30,
In millions	2012		2011		2012		2011
Net premiums earned:
Financial guarantee contracts	$	38	$	51	$	143	$	181
Insured derivative contracts(1)		12		23		42		80
VIEs (eliminated in consolidation)		4		4		11		13
Total net premiums earned	$	54	$	78	$	196	$	274

(1) - Premiums related to insured derivatives are included in “Realized gains (losses) and other settlements on insured derivatives” on our consolidated statements of operations.

Net premiums earned on non-derivative financial guarantee contracts for the three and nine months ended September 30, 2012 and 2011 are presented in the following table. Net premiums earned represent gross premiums earned net of premiums ceded to reinsurers, and include scheduled premium earnings and premium earnings from refunded issues.

	Three Months Ended September 30,				Percent Change			Nine Months Ended September 30,				Percent Change
In millions	2012		2011					2012		2011
Net premiums earned:
U.S.	$	14	$	22		-36	%	$	50	$	77		-35	%
Non-U.S.		24		29		-17	%		93		104		-11	%
Total net premiums earned	$	38	$	51		-25	%	$	143	$	181		-21	%

Structured finance and international net premiums earned decreased in the three and nine months ended September 30, 2012 compared with the same period of 2011 due to the maturity and early settlement of insured transactions with no new material insurance writings.

99

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

NET INVESTMENT INCOME The decreases in net investment income for the three and nine months ended 2012 compared with the same periods of 2011 were primarily due to lower average asset balances in 2012 as a result of claim and commutation payments, and reinvesting proceeds from sales and maturities of high-yielding securities into low-yielding more liquid securities.

MBIA Corp., as lender, maintained a secured lending agreement with our asset/liability products segment (“MBIA Corp. Secured Loan”), which was fully repaid in May 2012. Interest income on this arrangement for the nine months ended September 30, 2012 was approximately $2 million. Interest income for the three and nine months ended September 30, 2011 was approximately $4 million and $12 million, respectively. The decrease in interest income under this facility resulted from lower loan balances in 2012 and the repayment of the facility in May 2012. Refer to the “Liquidity” section included herein for additional information about this agreement.

Investment asset balances at amortized cost as of September 30, 2012 and December 31, 2011 are presented in the following table:

	September 30, 2012					December 31, 2011
In millions	Investments at Amortized Cost		Pre-tax yield(1)			Investments at Amortized Cost		Pre-tax yield(1)
Fixed-income securities:
Tax-exempt	$	-		-		$	1		5.79	%
Taxable		639		2.88	%		1,131		3.38	%
Short-term		633		0.63	%		222		1.46	%
Total fixed-income		1,272		1.76	%		1,354		3.07	%
Secured loan to an affiliate		-					300
Other		1					7
Total	$	1,273				$	1,661

(1) - Estimated yield-to-maturity.

NET CHANGE IN FAIR VALUE OF INSURED DERIVATIVES The following table presents the net premiums and fees earned related to derivatives and the components of the net change in fair value of insured derivatives for the three and nine months ended September 30, 2012 and 2011:

	Three Months Ended September 30,				Percent Change		Nine Months Ended September 30,				Percent Change
In millions	2012		2011				2012		2011
Net premiums and fees earned on insured derivatives	$	12	$	25		-52%	$	43	$	82		-48%
Realized gains (losses) on insured derivatives		-		(78)		-100%		(463)		(683)		-32%
Realized gains (losses) and other settlements on insured derivatives		12		(53)		-123%		(420)		(601)		-30%
Unrealized gains (losses) on insured derivatives		(33)		776		-104%		1,473		(531)		n/m
Net change in fair value of insured derivatives	$	(21)	$	723		-103%	$	1,053	$	(1,132)		n/m

n/m - Percent change not meaningful.

The Company no longer insures new credit derivative contracts except in transactions related to the restructuring or reduction of existing derivative exposure. Premiums earned related to insured credit derivatives will decrease over time as a result of settlements prior to maturity and scheduled amortizations. For the nine months ended September 30, 2012, realized losses on insured derivatives of $463 million resulted primarily from settlements and claim payments on CMBS and ABS transactions. Realized losses on insured derivatives for the three and nine months ended September 30, 2011 primarily resulted from settlement payments related to commutations of transactions.

For the three months ended September 30, 2012, unrealized losses on insured derivatives were principally the result of unfavorable changes in spreads/prices on the underlying collateral and collateral erosion of transactions, partially offset by a widening of the Company’s credit spreads and a reduction in the Company’s recovery rate. For the three months ended September 30, 2011, unrealized gains on insured derivatives were principally the result of a widening of the Company’s credit spreads, a reduction in the Company’s recovery rate and the reversal of unrealized losses from commutations, partially offset by unfavorable changes in spreads/prices of underlying collateral.

100

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

For the nine months ended September 30, 2012, unrealized gains on insured derivatives were principally associated with the reversal of unrealized losses from commutations, the effects of MBIA’s nonperformance risk on its derivative liabilities and the result of favorable movements in spreads and pricing on collateral within transactions, partially offset by collateral erosion. For the nine months ended September 30, 2011, unrealized losses on insured derivatives were principally the result of favorable changes in the market perception of MBIA Corp.’s credit risk and reduced collateral pricing, partially offset by the reversal of unrealized losses from commutations.

As of September 30, 2012, MBIA Corp.’s five year CDS cost was 35.88% upfront plus 5% per annum compared with 50.75% upfront plus 5% per annum as of September 30, 2011. Our mark-to-market on insured credit derivatives uses the most appropriate of the one to ten year CDS cost for each transaction, and those costs ranged from 17.75% upfront plus 5% per annum to 38.25% upfront plus 5% per annum as of September 30, 2012. As of September 30, 2011, those costs ranged from 27.75% upfront plus 5% per annum to 52.75% upfront plus 5% per annum.

As of September 30, 2012, we had $49.4 billion of gross par outstanding on insured credit derivatives compared with $67.0 billion as of December 31, 2011. The decrease in gross par outstanding was primarily due to contractual terminations, amortizations and maturities. During the nine months ended September 30, 2012, 31 insured issues, representing $16.5 billion in gross par outstanding, either matured or were contractually settled prior to maturity.

Since our insured credit derivatives have similar terms, conditions, risks, and economic profiles as our financial guarantee insurance policies, we evaluate them for impairment periodically in the same way that we estimate loss and LAE for our financial guarantee policies. Credit impairments on insured derivatives represent actual payments plus the present values of our estimates of expected future claim payments, net of expected future recoveries. MBIA Insurance Corporation’s expected future claim payments were discounted using a rate of 5.59%, the same rate used to calculate its statutory loss reserves as of September 30, 2012. We estimated that additional credit impairments on insured derivatives (excluding LAE) for the nine months ended September 30, 2012 were $507 million across 19 CDO insured issues. Beginning with the fourth quarter of 2007 through September 30, 2012, total credit impairments on insured derivatives were estimated at $5.3 billion across 71 CDO insured issues, inclusive of 65 insured issues for which we made settlement and claim payments of $4.2 billion, net of reinsurance and collections. Accordingly, we expect to realize additional net losses of $1.1 billion. Refer to the following “Loss and Loss Adjustment Expenses” section for additional information about credit impairments on insured derivatives.

Our estimate of credit impairments, a non-GAAP measure, may differ from the fair values recorded in our consolidated financial statements. Although the Company’s consolidated statements of operations include the fair values, the Company believes its disclosure of credit impairments on insured derivatives provides additional meaningful information about potential realized losses on these contracts. The fair value of an insured derivative contract will be influenced by a variety of market and transaction-specific factors that may be unrelated to potential future claim payments. In the absence of credit impairments or the termination of derivatives at losses, the cumulative unrealized losses recorded from fair valuing insured derivatives should reverse before or at the maturity of the contracts. Contracts also may be settled prior to maturity at amounts that may be more or less than their recorded fair values. Those settlements can result in realized gains or losses, and will result in the reversal of unrealized gains or losses. The Company is not required to post collateral to counterparties of these contracts. Refer to “Risk Factors” in Part I, Item 1A of MBIA Inc.’s Annual Report on Form 10-K for the year ended December 31, 2011 for information on legislative changes that could require collateral posting by MBIA Corp. notwithstanding the contract terms.

Costs associated with mitigating credit impairments on insured derivatives are expensed as incurred and included within “Operating expenses” in our consolidated statements of operations. Such costs totaled $1 million and $3 million for the three months ended September 30, 2012 and 2011, respectively, and $4 million and $11 million for the nine months ended September 30, 2012 and 2011, respectively.

NET INVESTMENT LOSSES RELATED TO OTHER-THAN-TEMPORARY IMPAIRMENTS The increases in net investment losses related to other-than-temporary impairments for the three and nine months ended September 30, 2012 compared with the same periods of 2011 were primarily related to one impaired security that was written down to its fair value as we intend to sell the security before an expected recovery of fair value to its amortized cost. Refer to the “Liquidity” section included herein for additional information about impaired investments.

REVENUES OF CONSOLIDATED VIEs For the three months ended September 30, 2012, total revenues of consolidated VIEs within our structured finance and international insurance segment were $55 million compared with total revenues of $98 million for the same period of 2011. For the nine months ended September 30, 2012, total revenues of consolidated VIEs were $15 million compared with total revenues of $12 million for the nine months ended September 30, 2011. The fluctuations in revenues of consolidated VIEs were principally driven by net gains and losses on financial instruments at fair value and foreign exchange as a result of changes in the fair value of VIE assets and liabilities recorded through earnings.

101

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

LOSS AND LOSS ADJUSTMENT EXPENSES MBIA’s insured portfolio management group within its structured finance and international insurance business is responsible for monitoring structured finance and international insured issues. The level and frequency of monitoring of any insured issue depends on the type, size, rating and performance of the insured issue. If we identify concerns with respect to the performance of an insured issue we may designate such insured issue as “Caution List-Low,” “Caution List-Medium,” “Caution List-High,” or “Classified” depending on the likelihood of a loss. We establish case basis reserves in connection with insured issues designated as classified credits.

The Company faces significant risks and uncertainties related to potential or actual losses from its CMBS and CRE CDO insured exposure, its second-lien RMBS insured exposure (due to the unpredictable performance of ineligible mortgage loans included in the transactions we insured) backed by home equity lines of credit (“HELOC”) or closed-end second mortgages (“CES”), its first-lien RMBS insured exposure and its ABS CDO insured exposure. Continued significant adverse developments and higher than expected payments on these exposures and/or lower than expected recoveries on the RMBS exposures, could result in a decline in the Company’s liquidity and statutory capital position.

The impact of insured exposures on the Company’s liquidity position is best understood by assessing the ultimate amount of payments that the Company will be required to make with respect to these exposures. In this regard, the Company discloses the discounted expected future net cash flows to be made under all insurance contracts, irrespective of the legal form of the guarantee (i.e., financial guarantee insurance policy or insured derivative contract) or the GAAP accounting basis.

All amounts presented in the following aggregate losses and LAE tables are calculated in accordance with GAAP, with the exception of those related to insured credit derivative impairments. The amounts reported for insured credit derivative impairments are calculated in accordance with U.S. STAT because GAAP does not contain a comparable measurement basis for these contracts. All losses and recoverables reported in the following tables are measured using discounted probability-weighted cash flows. Losses and recoverables on VIEs that are eliminated in consolidation are included because the consolidation of these VIEs does not impact whether or not we will be required to make payments under our insurance contracts. As a result of the different accounting bases of amounts included in the following tables, the total provided in each table represents a non-GAAP measure.

102

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

The following tables present the aggregate loss and LAE reserves and insurance loss recoverables as of September 30, 2012 and December 31, 2011, and the aggregate change in the discounted values of net payments expected to be made on all insurance contracts for the three and nine months ended September 30, 2012 and 2011:

Aggregate Losses and LAE Roll Forward

In millions	Financial Guarantee Insurance(1)		Financial Guarantee Insurance Related to VIEs(2)		Insurance Credit Derivative Impairments and LAE(3)		Reinsurance(4)		Total(5)
Gross loss and LAE reserves as of December 31, 2011	$	667	$	353	$	1,103	$	(7)	$	2,116
Gross insurance loss recoverable as of December 31, 2011		(2,891)		(1,365)		(70)		8		(4,318)
Total reserves (recoverable) as of December 31, 2011		(2,224)		(1,012)		1,033		1		(2,202)
Ceded reserves		-		-		1		(1)		-
Net reserves as of December 31, 2011		(2,224)		(1,012)		1,034		-		(2,202)
Total aggregate losses and LAE incurred		315		135		510		-		960
(Payments) collections and other		(395)		(144)		(445)		-		(984)
Net reserves as of September 30, 2012		(2,304)		(1,021)		1,099		-		(2,226)
Ceded reserves		-		-		(1)		1		-
Total reserves (recoverable) as of September 30, 2012	$	(2,304)	$	(1,021)	$	1,098	$	1	$	(2,226)
Gross loss and LAE reserves as of September 30, 2012	$	776	$	295	$	1,142	$	(6)	$	2,207
Gross insurance loss recoverable as of September 30, 2012		(3,080)		(1,316)		(44)		7		(4,433)
Total reserves (recoverable) as of September 30, 2012	$	(2,304)	$	(1,021)	$	1,098	$	1	$	(2,226)

(1) - Included in “Losses and loss adjustment,” “Loss and loss adjustment expense reserves” and “Insurance loss recoverable” on the Company’s consolidated financial statements.

(2) - Represents loss expense, reserves and insurance loss recoverable eliminated upon the consolidation of insured VIEs.

(3) - Represents statutory losses and LAE and recoveries for insurance contracts accounted for as derivatives. Realized and unrealized gains and losses on these contracts under GAAP are recorded in “Net change in fair value of insured derivatives” on the Company’s consolidated statements of operations and the fair value of these contracts are recorded in “Derivative Liabilities” on the Company’s consolidated balance sheets.

(4) - Represents “Losses and loss adjustment,” “Loss and loss adjustment expense reserves” and “Insurance loss recoverable” on the Company’s consolidated financial statements and are ceded to third-party reinsurers under insurance contracts. As of September 30, 2012 and December 31, 2011, there was a $1 million payable related to insured credit derivative impairments and LAE reinsurance.

(5) - Represents totals after ceding to third-party reinsurers under insurance contracts.

Aggregate Losses and LAE (change in discounted values of net payments)

	For the Three Months Ended September 30, 2012
In millions	Second-lien RMBS(1)		ABS CDO		CMBS		Other(2)		Total
Change in actual and expected payments	$	60	$	21	$	131	$	49	$	261
Change in actual and expected salvage		(2)		5		(8)		(4)		(9)
Total aggregate losses and LAE	$	58	$	26	$	123	$	45	$	252

(1) - Includes HELOC loans and CES.

(2) - Includes alternative A-paper transactions and other insurance contracts.

	For the Three Months Ended September 30, 2011
In millions	Second- lien RMBS(1)		ABS CDO		CMBS		Other(2)		Total
Change in actual and expected payments	$	145	$	(27)	$	497	$	118	$	733
Change in actual and expected salvage		(101)		5		-		(6)		(102)
Total aggregate losses and LAE	$	44	$	(22)	$	497	$	112	$	631

(1) - Includes HELOC loans and CES.

(2) - Includes alternative A-paper transactions and other insurance contracts.

103

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

	For the Nine Months Ended September 30, 2012
In millions	Second-lien RMBS(1)		ABS CDO		CMBS		Other(2)		Total
Change in actual and expected payments	$	266	$	(22)	$	602	$	111	$	957
Change in actual and expected salvage		(7)		18		(13)		5		3
Total aggregate losses and LAE	$	259	$	(4)	$	589	$	116	$	960

(1) - Includes HELOC loans and CES.

(2) - Includes alternative A-paper transactions and other insurance contracts.

	For the Nine Months Ended September 30, 2011
In millions	Second-lien RMBS(1)		ABS CDO		CMBS		Other(2)		Total
Change in actual and expected payments	$	282	$	(414)	$	865	$	123	$	856
Change in actual and expected salvage		(279)		60		-		(9)		(228)
Total aggregate losses and LAE	$	3	$	(354)	$	865	$	114	$	628

(1) - Includes HELOC loans and CES.

(2) - Includes alternative A-paper transactions and other insurance contracts.

The decrease in total aggregate losses and LAE for the three months ended September 30, 2012 compared with the same period of 2011 was primarily due to lower expectations of future payments on insured credit derivatives related to our CMBS exposures.

The increase in total aggregate losses and LAE for the nine months ended September 30, 2012 compared with the same period of 2011 was primarily due to commutation settlements in 2011 of ABS policies below established reserves. In addition, during the nine months ended September 30, 2012, we reduced our future expected recoveries on second-lien RMBS exposures, partially offset by a decrease in credit impairments on our CMBS exposures as a result of lower expectations of future payments.

In addition to the information presented above, the following tables present aggregate losses and LAE for the three and nine months ended September 30, 2012 and 2011 by insurance type:

Aggregate Losses and LAE by Insurance Type (change in discounted values of net payments)

	For the Three Months Ended September 30, 2012
In millions	Second-lien RMBS(1)		ABS CDO		CMBS		Other(2)		Total
Financial guarantee insurance(3)	$	38	$	9	$	75	$	45	$	167
Financial guarantee insurance related to consolidated VIEs (eliminated in consolidation)(4)		20		(2)		-		-		18
Insured credit derivatives (statutory basis)(5)		-		19		48		-		67
Total aggregate losses and LAE	$	58	$	26	$	123	$	45	$	252

(1) - Includes HELOC loans and CES.

(2) - Includes alternative A-paper transactions and other insurance contracts.

(3) - Included in “Losses and loss adjustment” as reported on the Company’s consolidated statements of operations.

(4) - Represents losses eliminated upon the consolidation of insured VIEs.

(5) - Represents statutory losses and LAE for insurance contracts accounted for as derivatives. Realized and unrealized gains and losses on these contracts under GAAP are recorded in “Net change in fair value of insured derivatives” on the Company’s consolidated statements of operations.

104

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

	For the Three Months Ended September 30, 2011
In millions	Second-lien RMBS(1)		ABS CDO		CMBS		Other(2)		Total
Financial guarantee insurance(3)	$	37	$	31	$	-	$	112	$	180
Financial guarantee insurance related to consolidated VIEs (eliminated in consolidation)(4)		7		28		-		-		35
Insured credit derivatives (statutory basis)(5)		-		(81)		497		-		416
Total aggregate losses and LAE	$	44	$	(22)	$	497	$	112	$	631

(1) - Includes HELOC loans and CES.

(2) - Includes alternative A-paper transactions and other insurance contracts.

(3) - Included in “Losses and loss adjustment” as reported on the Company’s consolidated statements of operations.

(4) - Represents losses eliminated upon the consolidation of insured VIEs.

(5) - Represents statutory losses and LAE for insurance contracts accounted for as derivatives. Realized and unrealized gains and losses on these contracts under GAAP are recorded in “Net change in fair value of insured derivatives” on the Company’s consolidated statements of operations.

	For the Nine Months Ended September 30, 2012
In millions	Second-lien RMBS(1)		ABS CDO		CMBS		Other(2)		Total
Financial guarantee insurance(3)	$	106	$	6	$	87	$	116	$	315
Financial guarantee insurance related to consolidated VIEs (eliminated in consolidation)(4)		153		(18)		-		-		135
Insured credit derivatives (statutory basis)(5)		-		8		502		-		510
Total aggregate losses and LAE	$	259	$	(4)	$	589	$	116	$	960

(1) - Includes HELOC loans and CES.

(2) - Includes alternative A-paper transactions and other insurance contracts.

(3) - Included in “Losses and loss adjustment” as reported on the Company’s consolidated statements of operations.

(4) - Represents losses eliminated upon the consolidation of insured VIEs.

(5) - Represents statutory losses and LAE for insurance contracts accounted for as derivatives. Realized and unrealized gains and losses on these contracts under GAAP are recorded in “Net change in fair value of insured derivatives” on the Company’s consolidated statements of operations.

	For the Nine Months Ended September 30, 2011
In millions	Second-lien RMBS(1)		ABS CDO		CMBS		Other(2)		Total
Financial guarantee insurance(3)	$	35	$	51	$	-	$	114	$	200
Financial guarantee insurance related to consolidated VIEs (eliminated in consolidation)(4)		(32)		79		-		-		47
Insured credit derivatives (statutory basis)(5)		-		(484)		865		-		381
Total aggregate losses and LAE	$	3	$	(354)	$	865	$	114	$	628

(1) - Includes HELOC loans and CES.

(2) - Includes alternative A-paper transactions and other insurance contracts.

(3) - Included in “Losses and loss adjustment” as reported on the Company’s consolidated statements of operations.

(4) - Represents losses eliminated upon the consolidation of insured VIEs.

(5) - Represents statutory losses and LAE for insurance contracts accounted for as derivatives. Realized and unrealized gains and losses on these contracts under GAAP are recorded in “Net change in fair value of insured derivatives” on the Company’s consolidated statements of operations.

Summary of Financial Guarantee Insurance Losses and LAE

The following information relates to financial guarantee insurance losses and LAE recorded in accordance with GAAP. Refer to “Note 5: Loss and Loss Adjustment Expense Reserves” in the Notes to Consolidated Financial Statements for a description of the Company’s loss and LAE reserving policy and additional information related to its loss reserves.

105

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

The following tables present information about our insurance reserves and recoverable as of September 30, 2012 and December 31, 2011, as well as our loss and LAE incurred for the three and nine months ended September 30, 2012 and 2011. The Company’s insurance loss recoverable represents expected potential recoveries of paid claims based on probability-weighted net cash inflows discounted at applicable risk-free rates as of the measurement date. Our insurance loss recoverable includes expected recoveries related to put-backs of ineligible mortgage loans within second-lien RMBS transactions and other amounts due to MBIA under the terms and conditions of the respective transaction documents (inclusive of subrogation rights).

In millions	September 30, 2012		December 31, 2011		Percent Change
Gross loss and LAE reserves	$	1,017	$	1,029		-1%
Expected recoveries on unpaid losses		(241)		(362)		-33%
Loss and LAE reserves	$	776	$	667		16%
Insurance loss recoverable	$	3,080	$	2,891		7%
Insurance loss recoverable—ceded(1)	$	7	$	7		-
Reinsurance recoverable on paid and unpaid losses	$	6	$	8		-25%

(1) - Reported within “Other liabilities” on our consolidated balance sheets.

	Three Months Ended September 30,				Percent Change		Nine Months Ended September 30,				Percent Change
In millions	2012		2011				2012		2011
Loss and LAE related to actual and expected payments	$	185	$	239		-23%	$	396	$	344		15%
Recoveries of actual and expected payments		(18)		(58)		-69%		(81)		(142)		-43%
Gross losses incurred		167		181		-8%		315		202		56%
Reinsurance		-		(1)		-100%		-		(2)		-100%
Losses and loss adjustment expenses	$	167	$	180		-7%	$	315	$	200		58%

Losses and LAE incurred in our structured finance and international insurance segment totaled $167 million for the three months ended September 30, 2012. Included in the $167 million were gross losses related to actual and expected future payments of $185 million, of which $140 million primarily related to CMBS and insured first-lien RMBS transactions and $45 million related to insured second-lien RMBS transactions. Partially offsetting these losses were recoveries of actual and expected payments of $18 million, including $7 million related to insured second-lien RMBS transactions. The $7 million of recoveries related to insured second-lien RMBS transactions included $44 million of recoveries resulting from ineligible mortgage loans included in insured exposures that are subject to contractual obligations by sellers/servicers to repurchase or replace such mortgage loans offset by a $37 million reduction in excess spread (the difference between interest inflows on assets and interest outflows on liabilities) within the securitizations.

Losses and LAE incurred in our structured finance and international insurance segment totaled $180 million for the three months ended September 30, 2011. Included in the $180 million were gross losses related to actual and expected future payments of $239 million, including $85 million related to insured second-lien RMBS transactions and $154 million of other loss activity. Partially offsetting these losses were recoveries of actual and expected payments of $58 million, including $48 million related to insured second-lien RMBS transactions. The $48 million of recoveries related to insured second-lien RMBS transactions included $44 million of recoveries resulting from ineligible mortgage loans included in insured second-lien residential mortgage securitization exposures that are subject to contractual obligations by sellers/servicers to repurchase or replace such mortgage loans and $4 million related to excess spread within the securitizations.

Losses and LAE incurred in our structured finance and international insurance segment totaled $315 million for the nine months ended September 30, 2012. Included in the $315 million were gross losses related to actual and expected future payments of $396 million, of which $216 million primarily related to insured first-lien RMBS transactions and CMBS transactions and $180 million related to insured second-lien RMBS transactions. Partially offsetting these losses were recoveries of actual and expected payments of $81 million, including $74 million related to insured second-lien RMBS transactions. The $74 million of recoveries related to insured second-lien RMBS transactions included $154 million of recoveries resulting from ineligible mortgage loans included in insured exposures that are subject to contractual obligations by sellers/servicers to repurchase or replace such mortgage loans offset by an $80 million reduction in excess spread within the securitizations.

106

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

Losses and LAE incurred in our structured finance and international insurance segment totaled $200 million for the nine months ended September 30, 2011. Included in the $200 million were gross losses related to actual and expected future payments of $344, including $157 million of losses related to insured second-lien RMBS transactions and $187 million related to other loss activity. Partially offsetting these losses were recoveries of actual and expected payments of $142 million, including $122 million of recoveries related to insured second-lien RMBS transactions. The $122 million of recoveries related to insured second-lien RMBS transactions included $198 million of recoveries resulting from ineligible mortgage loans included in insured second-lien residential mortgage securitization exposures that are subject to contractual obligations by sellers/servicers to repurchase or replace such mortgage loans offset by a $76 million reduction in excess spread within the securitizations. The decrease in recoveries from excess spread resulted from an increase in voluntary prepayments within the securitizations.

For the three and nine months ended September 30, 2012, losses and LAE incurred included the elimination of $18 million and $135 million, respectively, as a result of the consolidation of VIEs. The $18 million elimination included gross losses related to actual and expected future payments of $11 million and a decrease in recoveries of actual and expected payments of $7 million. The $135 million elimination included gross losses related to actual and expected future payments of $68 million and a decrease in recoveries of actual and expected payments of $67 million.

For the three and nine months ended September 30, 2011, losses and LAE incurred included the elimination of $35 million and $47 million, respectively, as a result of the consolidation of VIEs. The $35 million elimination included gross losses related to actual and expected future payments of $90 million offset by recoveries of actual and expected payments of $55 million. The $47 million elimination included gross losses related to actual and expected future payments of $210 million offset by recoveries of actual and expected payments of $163 million.

Included in the Company’s loss and LAE reserves are both reserves for insured obligations for which a payment default has occurred and MBIA Corp. has already paid a claim and also for which a payment default has not yet occurred but a claim is expected in the future. The following table includes LAE reserves as of September 30, 2012 and December 31, 2011 for three issues that had no expected future claim payments or par outstanding, but for which the Company is obligated to pay LAE incurred in prior periods. As of September 30, 2012 and December 31, 2011, loss and LAE reserves comprised the following:

	Number of Issues(1)				Loss and LAE Reserve				Par Outstanding
$ in millions	September 30, 2012		December 31, 2011		September 30, 2012		December 31, 2011		September 30, 2012		December 31, 2011
Gross of reinsurance:
Issues with defaults		97		92	$	469	$	447	$	7,611	$	7,863
Issues without defaults		24		26		307		220		1,124		1,734
Total gross of reinsurance		121		118	$	776	$	667	$	8,735	$	9,597

(1) - An “issue” represents the aggregate of financial guarantee policies that share the same revenue source for purposes of making debt service payments.

MBIA reports expected potential recoveries of certain paid claims within “Insurance loss recoverable” and the corresponding estimated recovery amounts due to reinsurers within “Other liabilities” on the Company’s consolidated balance sheets. As of September 30, 2012 and December 31, 2011, our insurance loss recoverable in our structured finance and international insurance segment was $3.1 billion and $2.9 billion, respectively. The increase in our insurance loss recoverable principally resulted from an increase in expected potential recoveries related to certain sellers’/servicers’ obligation to repurchase ineligible mortgage loans related to insured second-lien transactions. As of September 30, 2012 and December 31, 2011, our insurance loss recoverable also included estimated recoveries of approximately $770 million and $731 million, respectively, from excess spread within insured second-lien RMBS securitizations. Insurance loss recoverables due to reinsurers totaled $7 million as of September 30, 2012 and December 31, 2011. Insurance loss recoverables are only paid to reinsurers upon receipt of such amounts by MBIA.

Residential Mortgage Exposure

MBIA Corp. insures mortgage-backed securities (“MBS”) backed by residential mortgage loans, including second-lien residential mortgage securitizations (revolving HELOC loans and CES). For the three months ended September 30, 2012, we recorded losses and LAE of $58 million related to insured second-lien RMBS transactions, before the elimination of $20 million of losses incurred as a result of consolidating VIEs. The $38 million consolidated losses and LAE was due to gross losses and LAE related to actual and expected payments of $45 million offset by gross recoveries of actual and expected payments of $7 million. For the nine months ended September 30, 2012, we recorded losses and LAE of $259 million related to insured second-lien RMBS transactions, before the elimination of $153 million of losses incurred as a result of consolidating VIEs. The $106 million consolidated losses and LAE was due to gross losses and LAE related to actual and expected payments of $180 million offset by gross recoveries of actual and expected payments of $74 million.

107

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

MBIA Corp. also insures MBS backed by first-lien subprime mortgage loans directly through RMBS securitizations. There has been considerable stress and continued deterioration in the subprime mortgage market since 2008 reflected by increased delinquencies and losses, particularly related to subprime mortgage loans originated during 2005, 2006 and 2007. As of September 30, 2012, the Company had $2.3 billion of gross par outstanding from direct exposure to subprime mortgage loans compared with $3.3 billion as of December 31, 2011. While subprime transactions directly guaranteed by MBIA Corp. include collateral comprising mortgage loans that originated during 2005, 2006, and 2007, we currently do not expect ultimate material losses on these transactions given the amount of subordination below MBIA Corp.’s insured portion of such transactions available to absorb losses from collateral defaults. As of September 30, 2012, the Company had $290 million of gross par outstanding in five insured direct subprime mortgage transactions with 2005 or 2006 subprime mortgage collateral appearing on the Company’s Classified or Caution Lists.

The following table presents the gross par outstanding of MBIA Corp.’s total direct RMBS insured exposure as of September 30, 2012 by S&P credit rating category. Amounts include the gross par outstanding related to transactions that the Company consolidates under accounting guidance for VIEs.

	Gross Par Outstanding
In millions	Prime First- lien		Alternative A-paper First-lien			Subprime First-lien			HELOC Second- lien		CES Second- lien		Total
AAA	$	182	$	789		$	1,374		$	-	$	9	$	2,354
AA		22		105			81			-		-		208
A		2		396			67			20		20		505
BBB		-		493			133			682		135		1,443
Below investment grade		2		1,478			614			2,694		3,309		8,097
Total gross par	$	208	$	3,261	(1)	$	2,269	(2)	$	3,396	$	3,473	$	12,607
(1) - Includes international exposure of $853 million. (2) - Includes international exposure of $13 million.

The following table presents the gross par outstanding by vintage year of MBIA Corp.’s total insured second-lien residential mortgage loan securitizations insured exposure as of September 30, 2012. Amounts include the gross par outstanding related to transactions that the Company consolidates under accounting guidance for VIEs.

	Gross Par Outstanding
In millions	HELOC		% of Total HELOC		CES		% of Total CES
2007	$	460		13%	$	2,289		66%
2006		1,224		36%		1,115		32%
2005		1,027		30%		-		0%
2004		597		18%		40		1%
2003 and prior		88		3%		29		1%
Total gross par	$	3,396		100%	$	3,473		100%

As of September 30, 2012, total gross par outstanding for HELOC and CES was $3.4 billion and $3.5 billion, respectively, compared with HELOC and CES gross par outstanding of $4.0 billion and $4.1 billion, respectively, as of December 31, 2011.

During the three months ended September 30, 2012, we paid approximately $130 million, net of reinsurance and collections, on insured second-lien RMBS transactions, or $78 million after eliminating $52 million of net payments made on behalf of consolidated VIEs. During the nine months ended September 30, 2012, we paid approximately $475 million, net of reinsurance and collections, on insured second-lien RMBS transactions, or $330 million after eliminating $145 million of net payments made on behalf of consolidated VIEs. Through September 30, 2012, we paid a cumulative total of $6.4 billion, net of reinsurance and collections, or $4.2 billion after eliminating $2.2 billion of net payments on insured second-lien RMBS transactions that are currently consolidated as VIEs. As of September 30, 2012, we had loss and LAE reserves related to our remaining insured second-lien RMBS exposure of $212 million before eliminating $53 million of loss and LAE reserves related to our consolidated VIEs. The loss and LAE reserves represent the present value of the difference between cash payments we expect to make on the insured transactions and the cash receipts we expect from the performing mortgage loans in the securitizations. As payments are made, a portion of those expected future receipts is recorded within “Insurance loss recoverable” in our consolidated balance sheets. The payments that we make virtually all go to reduce the principal balances of the securitizations.

108

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

The following table provides information about insured second-lien RMBS transactions included in MBIA Corp.’s insured portfolio for which it has made claim and LAE payments, net of collections, as of September 30, 2012 and for which it does not consolidate under accounting guidance for VIEs:

Second-Lien RMBS Transactions with Claim Payments (Excluding Consolidated VIEs)

$ in millions	Number of Issues		Original Par Insured		Gross Par Outstanding		Claim Payments and LAE Net of Collections Since Inception
HELOC		13	$	14,253	$	2,058	$	2,219
CES		9		8,198		2,163		2,082
Total		22	$	22,451	$	4,221	$	4,301
Total net of reinsurance							$	4,191

As of September 30, 2012, the gross par outstanding on insured second-lien RMBS transactions included in the preceding table was $4.2 billion compared with $4.9 billion as of December 31, 2011. As of September 30, 2012, we expect to pay an additional $300 million (on a present value basis) on these transactions and expect to receive a total of $909 million (on a present value basis) in reimbursement of past and future expected claims through excess spread in these transactions. Of our expected reimbursement from excess spread, $769 million is included in “Insurance loss recoverable” and $140 million is included in “Loss and loss adjustment expense reserves.” In addition, we expect to receive $2.1 billion (on a present value basis) in respect of the sellers’/servicers’ obligation to repurchase ineligible mortgage loans, which is included in “Insurance loss recoverable.”

Since September 2008, MBIA Corp. initiated litigation against multiple mortgage loan sellers/servicers alleging, among other things, that such sellers/servicers made material misrepresentations concerning the quality of loans made by these sellers/servicers, which were included in a number of MBIA Corp.-insured second-lien residential mortgage securitizations. In particular, complaints in these actions allege that a significant percentage of the defaulted loans in these securitizations were ineligible for inclusion and thus reflect breaches of the originators’ representations with respect to such loans. In addition, the complaints allege that the sellers/servicers have failed to honor their contractual obligations regarding loan repurchases and ongoing servicing practices. For more information on these and other lawsuits commenced by MBIA Corp., as well as information related to the May 14, 2012 bankruptcy filing by ResCap, refer to “Note 13: Commitments and Contingencies” in the Notes to Consolidated Financial Statements.

The following table provides information about insured second-lien RMBS transactions included in MBIA Corp.’s insured portfolio for which it has made claim payments and LAE, net of collections, as of September 30, 2012 and for which it consolidates under accounting guidance for VIEs. As such, these payments are not reflected as insurance losses in our consolidated financial statements subsequent to consolidation. Of the $2.3 billion of total payments before reinsurance, $800 million was eliminated subsequent to consolidation. As of September 30, 2012, the Company has recorded actual or expected put-back recoveries for amounts paid on all insured second-lien RMBS transactions included in the following table:

Second-Lien RMBS Transactions with Claim Payments (Consolidated VIEs)

$ in millions	Number of Issues		Original Par Insured		Gross Par Outstanding		Claim Payments and LAE Net of Collections Since Inception
HELOC		6	$	3,657	$	1,001	$	669
CES		7		5,068		1,281		1,648
Total		13	$	8,725	$	2,282	$	2,317
Total net of reinsurance							$	2,245

As of September 30, 2012, we expect to pay an additional $92 million (on a present value basis) on these transactions and expect to receive a total of $304 million (on a present value basis) in reimbursement of past and future expected claims through excess spread in these transactions. In addition, we expect to receive $1.1 billion (on a present value basis) as of September 30, 2012 from the contractual obligation of the sellers/servicers to repurchase ineligible mortgage loans, which is reported in “Loan repurchase commitments” under “Assets of consolidated variable interest entities” on the consolidated balance sheets.

Refer to “Note 5: Loss and Loss Adjustment Expense Reserves” in the Notes to Consolidated Financial Statements for additional information about assumptions used to estimate recoveries on our RMBS exposure.

109

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

Other

We may seek to purchase, from time to time, directly or indirectly, obligations guaranteed by MBIA or seek to commute policies. The amount of insurance exposure reduced, if any, and the nature of any such actions will depend on market conditions, pricing levels from time to time, and other considerations. In some cases, these activities may result in a reduction of expected loss reserves, but in all cases they are intended to limit our ultimate losses and reduce the future volatility in loss development on the related policies. Our ability to purchase guaranteed obligations and to commute policies will depend on management’s assessment of available liquidity.

POLICY ACQUISITION COSTS AND OPERATING EXPENSES Structured finance and international insurance segment expenses for the three and nine months ended September 30, 2012 and 2011 are presented in the following table:

	Three Months Ended September 30,				Percent Change		Nine Months Ended September 30,				Percent Change
In millions	2012		2011				2012		2011
Gross expenses	$	30	$	37		-19%	$	118	$	109		8%
Amortization of deferred acquisition costs	$	24	$	34		-29%	$	81	$	106		-24%
Operating		30		35		-14%		115		104		11%
Total insurance operating expenses	$	54	$	69		-22%	$	196	$	210		-7%

Gross expenses represent total insurance expenses before the deferral of any policy acquisition costs. Gross expenses decreased for the three months ended September 30, 2012 compared with the same period of 2011 due to a reduction in legal and litigation related costs. Gross expenses increased for the nine months ended September 30, 2012 compared with the same period of 2011 due to higher legal and litigation related costs.

The decreases in the amortization of deferred acquisition costs for the three and nine months ended September 30, 2012 compared with the same periods of 2011 principally reflect the acceleration of deferred costs into earnings in prior periods as policies were terminated. Operating expenses decreased for the three months ended September 30, 2012 compared with the same period of 2011 and increased for the nine months ended September 30, 2012 compared with the same period of 2011 as a result of the changes in gross expenses. We did not defer a material amount of policy acquisition costs during 2012 or 2011. Policy acquisition costs in these periods were related to premium taxes and assessments on installment policies written in prior periods.

INSURED PORTFOLIO EXPOSURE The credit quality of our structured finance and international insured portfolio is assessed in the same manner as our U.S. public finance insured portfolio. As of September 30, 2012 and December 31, 2011, 25% and 24%, respectively, of our structured finance and international insured portfolio, was rated below investment grade, before giving effect to MBIA’s guarantees, based on MBIA’s internal ratings, which are more current than the underlying ratings provided by S&P and Moody’s for this subset of our insured portfolio.

Structured Finance and International Insurance Selected Portfolio Exposures

The following is a summary of selected significant exposures within the insured portfolio of our structured finance and international insurance segment. The Company has large exposures to many of these sectors. Moreover, many of these sectors are and have been considered volatile over the past several years. As described below, considerable incurred losses and future expected payments are attributable to many of these sectors.

Collateralized Debt Obligations and Related Instruments

As part of our structured finance and international insurance activities, MBIA Corp. typically provided guarantees on senior and mezzanine tranches of CDOs, as well as protection on structured CMBS pools and corporate securities, and CDS referencing such securities. The following discussion, including reported amounts and percentages, includes insured CDO transactions consolidated by the Company as VIEs.

110

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

MBIA Corp.’s $53.4 billion CDO portfolio represented 46% of its total insured gross par outstanding of $116.4 billion as of September 30, 2012. The distribution of the Company’s insured CDO and related instruments portfolio by collateral type is presented in the following table:

In billions	Gross Par Outstanding as of September 30, 2012
Collateral Type
Multi-sector CDOs(1)	$	4.4
Investment grade CDOs and structured corporate credit pools		25.4
High yield corporate CDOs		5.7
Commercial real estate pools and CRE CDOs		17.9
Total	$	53.4

(1) - Includes one multi-sector CDO-squared transaction with gross par of $90 million as of September 30, 2012.

Multi-Sector CDOs

Multi-sector CDOs are transactions that include a variety of structured finance asset classes in their collateral pools. The underlying collateral in MBIA Corp.’s insured multi-sector CDO transactions, including one CDO-squared transaction, comprises RMBS, CDOs of ABS (multi-sector CDOs), corporate CDOs, collateralized loan obligations (“CLOs”), ABS (e.g., securitizations of auto receivables, credit cards, etc.), CRE CDOs, CMBS and corporate credits. Our insured multi-sector CDO transactions primarily rely on underlying collateral originally rated single-A or above (CDOs of “high-grade U.S. ABS”) and collateral originally rated triple-B (CDOs of “mezzanine U.S. ABS”).

Generally, we are subject to a claim on a multi-sector CDO when the insured tranche incurs an interest or principal shortfall. Such shortfalls result once the underlying collateral supporting the transaction experience losses beyond MBIA Corp.’s subordination in the CDO transaction (“Insured Tranche Subordination”). MBIA Corp.’s payment obligation after a default generally insures current interest and ultimate principal.

Total gross par exposure in our multi-sector CDO portfolio was $37.3 billion as of December 31, 2007. Since the end of 2007 through September 30, 2012, our multi-sector CDO gross par exposure has decreased by approximately $32.9 billion primarily from negotiated commutations of $21.1 billion in gross par and contractual terminations without any payment from MBIA Corp. of $5.4 billion in gross par. The remaining reduction was due to the amortization and maturity of transactions. As of September 30, 2012, our gross par exposure to multi-sector CDOs was $4.4 billion and represented 8% of MBIA Corp.’s CDO exposure and 4% of MBIA Corp.’s total gross par insured.

111

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

The following table presents the collateral as a percent of the performing pool balances for all MBIA Corp.-insured multi-sector CDO transactions:

$ in millions						Collateral as a % of Performing Pool Balance as of September 30, 2012
Year Insured	# of CDOs		Gross Par Outstanding			Other Collateral		RMBS		Total	Current Insured Tranche Subordination Range Below MBIA	Original Insured Tranche Subordination Range Below MBIA	Net Derivative/ Asset (Liability)
CDOs of High-Grade U.S. ABS
2003		1	$	90	(1)		100%		0%	100%	42.7%	10.0%	$	(9)
2004		1		79			100%		0%	100%	9.2%	10.0%		-
2005		1		705			31%		69%	100%	0.0%	20.0%		(124)
2006		1		426			5%		95%	100%	0.0%	14.0%		(147)
2007		1		1,100			100%		0%	100%	0.0%	13.0%		(338)
Subtotal		5		2,400										(618)
CDOs of Mezzanine U.S. ABS
2002		6		410			73%		27%	100%	0.0-98.9%	13.8-28.1%		-
2003		3		458			74%		26%	100%	0.0-60.9%	21.5-29.8%		-
2004		3		297			45%		55%	100%	0.0%	25.0-30.5%		(19)
Subtotal		12		1,165										(19)
Total		17		3,565										(637)
				310			Multi-Sector CDO European Mezzanine and Other Collateral (1 CDO)							(12)
				508			Multi-Sector CDO insured in the Secondary Market prior to 2005 (28 CDOs)							-
Grand Total			$	4,383									$	(649)

(1) This transaction is multi-sector CDO squared.

Our multi-sector CDOs are classified into CDOs of high-grade U.S. ABS, including one CDO-squared transaction, and CDOs of mezzanine U.S. ABS. As of September 30, 2012, gross par outstanding on MBIA Corp.-insured CDOs of high-grade U.S. ABS totaled $2.4 billion. Original Insured Tranche Subordination levels in these transactions ranged from 10.0% to 20.0% compared with current Insured Tranche Subordination levels of 0.0% to 42.7%. As of September 30, 2012, gross par outstanding on MBIA Corp.-insured CDOs of mezzanine U.S. ABS totaled $1.2 billion. Original Insured Tranche Subordination levels in these transactions ranged from 13.8% to 30.5% compared with current Insured Tranche Subordination levels that range from 0.0% to 98.9%.

The significant erosion of Insured Tranche Subordination in our multi-sector CDO transactions principally resulted from the underperformance of RMBS and CDO collateral. As discussed above, the erosion of Insured Tranche Subordination in these transactions increases the likelihood that MBIA Corp. will pay claims. As of September 30, 2012, there were credit impairment estimates for 26 classified multi-sector CDO transactions for which MBIA Corp. expects to incur actual net claims in the future (16 of which are insured in the secondary market), representing 57% of all MBIA Corp.-insured multi-sector CDO transactions (including both CDS and non-CDS contracts). Of the remaining transactions, 17% are on our “Caution List” and 26% continue to perform at or close to our original expectations. In the event of further performance deterioration of the collateral referenced or held in our multi-sector CDO transactions, the amount of credit impairments could increase materially.

112

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

As of September 30, 2012, the ratings distribution of our insured multi-sector CDO transactions is presented in the following table. These ratings are intended to reflect the past and expected future performance of the underlying collateral within each transaction.

Insured Exposure Rating (1)	Original		Current
AAA		100%		0%
AA		0%		2%
A		0%		0%
BBB		0%		7%
Below investment grade		0%		91%
Total		100%		100%
(1) - All ratings are current. Ratings are derived using the most conservative rating among Moody’s, S&P or internal ratings.

Investment Grade Corporate CDOs and Structured Corporate Credit Pools

Our investment grade corporate CDO exposure references pools of predominantly investment grade corporate credits. Additionally, some of these pools may include limited exposure to other asset classes, including structured finance securities (such as RMBS and CDOs). Most of our investment grade corporate CDO policies guarantee coverage of losses on collateral assets once Insured Tranche Subordination in the form of a deductible has been eroded, and are generally highly customized structures. Our gross par exposure to investment grade corporate CDOs of $25.4 billion represents 48% of MBIA Corp.’s CDO exposure and 22% of MBIA Corp.’s total gross par insured. The Company’s insured investment grade corporate CDOs have experienced Insured Tranche Subordination erosion due to the default of underlying referenced corporate obligors, as well as certain structured finance securities, but we currently do not expect losses on MBIA Corp.’s insured tranches. As of September 30, 2012, the collateral amount in the portfolio exceeds the gross par outstanding as a result of credit enhancement (such as over-collateralization and Insured Tranche Subordination).

Our gross par of insured investment grade corporate CDOs includes $12.7 billion that was typically structured to include buckets (typically 30% to 35% of the overall CDO) of references to specific tranches of other investment grade corporate CDOs (monotranches). In such transactions, MBIA Corp.’s insured investment grade corporate CDOs include, among direct corporate or structured credit reference risks, a monotranche or single layer of credit risk referencing a diverse pool of corporate assets or obligors with a specific attachment and a specific detachment point. The referenced monotranches in such CDOs were typically rated double-A and sized to approximately 3% of the overall reference risk pool. The inner referenced monotranches are not typically subject to acceleration and do not give control rights to a senior investor. The inner referenced monotranches have experienced Insured Tranche Subordination erosion due to the default of their referenced corporate assets.

The following table presents the collateral as a percent of the performing pool balances for all MBIA Corp.-insured investment grade corporate CDOs and structured corporate credit pool transactions:

$ in millions				As of September 30, 2012
Year Insured	# of CDOs	Gross Par Outstanding		Corporate Collateral	Other Collateral	Total	Current Insured Tranche Subordination Range Below MBIA	Original Insured Tranche Subordination Range Below MBIA	Net Derivative / Asset (Liability)
2005	4	$	6,331	90%	10%	100%	11.0-23.8%	15.0-27.5%	$	(361)
2006	4		6,774	93%	7%	100%	11.4-19.8%	16.0-25.0%		(426)
2007	10		12,285	98%	2%	100%	11.1-27.9%	15.0-30.0%		(333)
Subtotal	18		25,390							(1,120)
			4	Investment Grade Corporate CDOs insured in the Secondary Market prior to 2003 (2 CDOs)						-
Grand Total		$	25,394						$	(1,120)

High Yield Corporate CDOs

Our high yield corporate CDO portfolio, totaling $5.7 billion of gross par exposure, largely comprises middle-market/special- opportunity corporate loan transactions, broadly syndicated bank CLOs and older vintage corporate high yield bond CDOs. The CDOs in this category are diversified by both vintage and geography (with European and U.S. collateral). Our gross par exposure to high yield corporate CDOs represents 11% of MBIA Corp.’s CDO exposure and 5% of MBIA Corp.’s total gross par insured as of September 30, 2012.

113

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

There have been some declines in Insured Tranche Subordination levels as a result of defaults in underlying collateral, as well as sales of underlying collateral at discounted prices. Insured Tranche Subordination for CDOs insured in earlier years have experienced, on average, more deterioration than those insured in later years. Insured Tranche Subordination within CDOs may decline over time as a result of collateral deterioration. The risk of lower Insured Tranche Subordination levels is typically offset by the amortization of outstanding insured debt and a decrease in the time to maturity. There are no significant losses on MBIA Corp.’s insured high yield corporate CDO tranches at this time. However, there can be no assurance that the Company will not incur significant losses as a result of deterioration in Insured Tranche Subordination.

The following table presents the collateral as a percent of the performing pool balances for all MBIA Corp.-insured high yield corporate CDO transactions:

$ in millions					As of September 30, 2012
Year Insured	# of CDOs		Gross Par Outstanding		Corporate Collateral		Current Insured Tranche Subordination Range Below MBIA	Original Insured Tranche Subordination Range Below MBIA	Net Derivative / Asset (Liability)(1)
2003		1	$	161		100%	18.9%	24.2%	$	-
2004		1		3,000		100%	43.3%	33.3%		-
2005		1		884		100%	27.6%	21.8%		-
2006		1		725		100%	34.7%	33.3%		-
2007		2		869		100%	28.8-29.5%	32.0-32.3%		-
Subtotal		6		5,639						-
				55		High Yield Corporate CDO insured in the Secondary Market prior to 2003 (3 CDOs)				-
Grand Total			$	5,694					$	-

(1) - Net derivative amounts are immaterial due to the positive performance of the credit derivative transactions.

Commercial Real Estate Pools and CRE CDOs

As of September 30, 2012, we had $17.9 billion of gross par exposure to the CRE sector through insured structured transactions primarily comprising CRE collateral. Our CRE portfolio can be largely sub-divided into two distinct categories: structured CMBS pools and CRE CDOs. In addition, MBIA Corp. insures approximately $2.8 billion in CRE loan pools, primarily comprising European assets, some of which are subject to commutation agreements. These CRE loans are not included in the following “Structured CMBS Pools” and “CRE CDOs” sections.

During the nine months ended September 30, 2012, the Company agreed to early settlements which totaled $5.0 billion related to CRE exposure in all three categories of the CRE sector.

Refer to “Note 5: Loss and Loss Adjustment Expense Reserves” in the Notes to Consolidated Financial Statements for a discussion of credit impairments on our CRE pools and CDO exposure, including the methodology used to calculate these impairments.

Structured CMBS Pools

As of September 30, 2012, our gross par exposure to structured CMBS pools totaled $15.7 billion and represented approximately 13% of MBIA Corp.’s total gross par insured. Since the end of 2007 through September 30, 2012, our structured CMBS pools gross par exposure has decreased by approximately $25.0 billion, primarily from negotiated commutations and early settlements. Our structured CMBS pool insured transactions are pools of CMBS bonds, Real Estate Investment Trust (“REIT”) debt and other CRE CDOs structured with first loss deductibles such that MBIA Corp.’s obligation attached at a minimum of a triple-A level when the policies were issued. The deductible sizing was a function of the underlying collateral ratings and certain structural attributes. MBIA Corp.’s guarantees for most structured CMBS pool transactions cover losses on collateral assets once the deductibles have been eroded. These deductibles provide credit enhancement and subordination to MBIA’s insured position.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

The collateral in the pools are generally CMBS bonds or CDSs referencing CMBS bonds (collectively, “CMBS bonds”). MBIA Corp.’s guarantee generally is in the form of a CDS referencing the static pooled transactions. MBIA Corp. would have a payment obligation if the volume of CMBS bond defaults exceeds the deductible level in the transaction. Each pool comprising CMBS bonds is ultimately backed by the commercial mortgage loans securitized within each CMBS trust. The same CMBS bonds may be referenced in multiple pools. The Company’s structured CMBS pools are static, meaning that the collateral pool of securitizations cannot be and has not been changed since the origination of the policy. Most transactions comprise similarly rated underlying tranches. The deductible for each transaction varies according to the ratings of the underlying collateral. For example, a transaction comprising originally BBB rated underlying CMBS bonds would typically include a 30-35% deductible to MBIA Corp.’s position whereas a transaction comprising all originally AAA rated underlying CMBS bonds would typically require a 5-10% deductible.

The following table presents the collateral as a percentage of the pool balances, as well as the current deductible, as of September 30, 2012 for all MBIA Corp.-insured structured CMBS pool transactions:

$ in millions					As of September 30, 2012
Year Insured	# of Pools		Gross Par Outstanding		CMBS		REIT Debt		Other		Total		Current Deductible		Original Deductible		Net Derivative / Asset (Liability)
2003		1	$	99		67%		20%		13%		100%		37.5%		26.0%	$	-
2006		5		1,708		95%		0%		5%		100%		10.1-43.5%		10.0-54.2%		(80)
2007		15		13,843		98%		0%		2%		100%		5.0-82.3%		5.0-84.1%		(1,341)
Subtotal		21		15,650														(1,421)
				42		Structured CMBS Pools insured in the Secondary Market prior to 2005 (3 pools)												-
Grand Total			$	15,692													$	(1,421)

While on an aggregate basis the deductible levels in the above table show little erosion, certain policies reflected in the table have experienced significant deductible erosion. This significant deductible erosion was largely due to liquidations of underlying loan collateral in those transactions over the past two years. Several insured transactions reflected in the table, which together have an aggregate gross par outstanding of $2.0 billion, include concentrations of repackaged CRE-related collateral (e.g., a CRE CDO or other re-securitization of CMBS) that, in many cases, had low original ratings. Given the low ratings of the repackaged CMBS collateral, many of the underlying repackaged securities are expected to have substantial or complete losses, which will cause erosion of the deductibles in those insured transactions, and are modeled as such by MBIA for the purpose of assessing credit impairments.

In addition, we have experienced ratings erosion in the total CMBS collateral underlying our insured static pools. Whereas approximately 34.6% of the total CMBS collateral underlying the pools outstanding as of September 30, 2012 was originally rated BBB and below and approximately 48.4% was originally rated AAA, 58.7% of the total CMBS collateral underlying these pools as of September 30, 2012 was rated below investment grade. The higher risk of the collateral that was originally rated BBB and below was intended to be offset by the diversification in the collateral pool and the level of the deductible, whereas pools backed by all AAA collateral benefited from diversification and required smaller deductibles. In all cases, regardless of the underlying collateral rating, MBIA Corp.’s insured position was rated AAA at origination of the transaction by at least Moody’s, S&P or Fitch.

Currently, we insure eight static CMBS pools, having $6.0 billion of gross par outstanding as of September 30, 2012, that were originally insured in 2006 and 2007, and in which substantially all of the underlying collateral comprised CMBS tranches originally rated BBB and lower. The remainder of the collateral in these eight pools consisted of higher rated CMBS bonds, REIT debt and other securities. The BBB and below rated CMBS bonds underlying these eight pools had original credit enhancement levels that ranged from 0.0% to 9.0% with an original weighted average credit enhancement level of 3.0%, compared with credit enhancement levels that range from 0.0% to 90.6% with a weighted average credit enhancement level of 2.0% as of September 30, 2012. MBIA Corp.’s original policy level deductibles for these eight insured pools ranged from 23.0% to 82.3% with an original weighted average deductible by gross par outstanding of 37.9%, compared with deductibles that range from 14.8% to 84.1% with a weighted average deductible by gross par outstanding of 27.3% as of September 30, 2012. As of September 30, 2012, most of MBIA Corp.’s estimated credit impairments for our static CMBS pools relate to a subset of these eight pools, of which the vast majority relate to a single counterparty, Bank of America and its subsidiary Merrill Lynch.

115

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

The following table presents the vintage and original rating composition of the CMBS collateral in our static CMBS pools:

	CMBS Collateral Vintage
Original Rating	2004 and Prior		2005		2006		2007		Total
AAA		7.9%		4.3%		22.7%		13.4%		48.3%
AA		0.0%		0.0%		1.0%		3.2%		4.2%
A		0.0%		2.3%		8.9%		1.7%		12.9%
BBB		1.9%		4.7%		17.7%		4.7%		29.0%
Below investment grade or not rated		2.4%		1.4%		0.7%		1.1%		5.6%
Total		12.2%		12.7%		51.0%		24.1%		100.0%

As of September 30, 2012, our structured CMBS pool portfolio comprised approximately 38,400 loans. The current weighted average debt service coverage ratio (“DSCR”) of underlying mortgage loans in the CMBS pools was 1.45 based on net operating income derived from the most recent property level financial statements. As of September 30, 2012, some properties still show signs of significant financial distress as evidenced by the fact that 17.1% of the properties have reported a DSCR less than 1.0. The majority of the loans are long-term and fixed-rate in nature. Approximately 28% of the loans will mature within the next three years. The weighted average DSCR of those loans was 1.63 based on the latest available financial statements. Approximately seven percent of the loans mature in the next twelve months and these loans have a weighted average DSCR of 1.70. The large shifts in the Company’s structured CMBS pool portfolio due to early settlements reached over the past several months render comparison to previous periods less meaningful.

Delinquencies have increased markedly in the CRE market over the last three years given the economic climate and the shortage of financing. As of September 30, 2012, 30-day and over delinquencies increased in the fixed-rate conduit CMBS market to 9.1% and increased in MBIA Corp.’s insured static pooled CMBS portfolio to 11.4%. The higher delinquency rate in MBIA Corp.’s portfolio was primarily due to a concentration in the 2006 and early 2007 vintages. Additionally, the market includes newer vintage transactions from 2010 to 2012, which have virtually no delinquencies. Although we have also seen stabilization in the pace of increases in the delinquency rate over the past several months, some of the deceleration is attributable to the loan modifications and extensions granted by the special servicers for these CMBS loans as well as increased liquidations. The special servicers are responsible for managing loans that have defaulted and for conducting the remediation and foreclosure process with the objective of maximizing proceeds for all bondholders by avoiding or minimizing loan level losses.

Actual losses will be a function of the proportion of loans in the pools that are foreclosed and liquidated and the loss severities associated with those liquidations. If the deductibles in the Company’s insured transactions and underlying referenced CMBS transactions are fully eroded, additional property level losses upon foreclosures and liquidations could result in substantial losses for MBIA. Ultimate loss rates remain uncertain and it is possible that we will experience severe losses or liquidity needs due to increased deterioration in our insured CMBS portfolio or our failure to commute the policies, in particular if macroeconomic stress escalates, there is a “double dip” recession, increased delinquencies, higher levels of liquidations of delinquent loans, and/or higher severities of loss upon liquidation. Although we still believe the likelihood of a “double dip” recession is low, we do consider the possibility in our estimates for future claims.

CRE CDOs

As of September 30, 2012, our gross par exposure to CRE CDOs totaled $2.2 billion and represented approximately 2% of MBIA Corp.’s total gross par insured. CRE CDOs are managed pools of CMBS, CRE whole loans, B-Notes, mezzanine loans, REIT debt, and other securities (including, in some instances, buckets for RMBS and CRE CDOs) that allow for reinvestment during a defined time period. Most of these transactions benefit from typical CDO structural features such as cash diversion triggers, collateral quality tests, and manager replacement provisions. Typically, MBIA Corp. guarantees timely interest and ultimate principal of these CDOs. As with our other insured CDOs, these transactions were generally structured with credit protection originally rated triple-A, or a multiple of triple-A, below our guarantee. As of September 30, 2012, our CRE CDO insured portfolio did not contain any CDOs of ABS exposures. Some of the CRE CDO transactions do contain some RMBS collateral, but overall this comprises 1% of the collateral in the CRE CDO portfolio.

Within our CRE CDO portfolio, we had one transaction with 2005, 2006, and 2007 vintage collateral totaling $344 million of gross par outstanding as of September 30, 2012 in which substantially all of the collateral originally comprised BBB or BBB- rated tranches of CMBS. Although the transaction originally allowed for some manager flexibility, no underlying securities were ever traded, nor will they be going forward.

116

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

The following table presents the collateral as a percentage of the performing pool balances as of September 30, 2012 for all MBIA Corp.-insured CRE CDO transactions:

$ in millions					As of September 30, 2012
Year Insured	# of CRE CDOs		Gross Par Outstanding		CMBS		Whole Loans		REIT Debt		Other		Total		Current Enhancement		Original Enhancement		Net Derivative / Asset (Liability)
2004		2	$	36		60%		0%		22%		18%		100%		16.6-41.0%		22.0-22.4%	$	-
2005		1		65		89%		0%		2%		9%		100%		35.2%		22.7%		(2)
2006		7		531		26%		64%		2%		8%		100%		0.0-75.8%		24.0-50.0%		-
2007		6		1,608		68%		26%		1%		5%		100%		14.5-37.0%		21.7-50.0%		(110)
Total		16	$	2,240															$	(112)

U.S. Public Finance and Structured Finance and International Reinsurance

Reinsurance enables the Company to cede exposure for purposes of syndicating risk and increasing its capacity to write new business while complying with its single risk and credit guidelines. When a reinsurer is downgraded by one or more of the rating agencies, less capital credit is given to MBIA under rating agency models and the overall value of the reinsurance to MBIA is reduced. The Company generally retains the right to reassume the business ceded to reinsurers under certain circumstances, including a reinsurer’s rating downgrade below specified thresholds. The following table presents information about our reinsurance agreements as of September 30, 2012 for our U.S. public finance and structured finance and international insurance operations:

In millions
Reinsurers	Standard & Poor’s Rating (Status)	Moody’s Rating (Status)	Ceded Par Outstanding		Letters of Credit/Trust Accounts		Reinsurance Recoverable(1)
Assured Guaranty Corp.	AA- (Stable Outlook)	Aa3 (Ratings Under Review)	$	2,632	$	-	$	15
Assured Guaranty Re Ltd.	AA- (Stable Outlook)	A1 (Ratings Under Review)		521		5		-
Overseas Private Investment Corporation	AA+ (Negative Outlook)	Aaa (Negative Outlook)		357		-		-
Export Development Canada	AAA (Stable Outlook)	Aaa (Stable Outlook)		64		1		-
Others	A+ or above	A2 or above		68		1		-
Total			$	3,642	$	7	$	15

(1) - Total reinsurance recoverable of $15 million comprised recoverables on paid and unpaid losses of $2 million and $13 million, respectively.

MBIA requires certain unauthorized reinsurers to maintain bank letters of credit or establish trust accounts to cover liabilities ceded to such reinsurers under reinsurance contracts. As of September 30, 2012, the total amount available under these letters of credit and trust accounts was $7 million. The Company remains liable on a primary basis for all reinsured risk, and although MBIA believes that its reinsurers remain capable of meeting their obligations, there can be no assurance of such in the future.

As of September 30, 2012, the aggregate amount of insured par outstanding ceded by MBIA to reinsurers under reinsurance agreements was $3.6 billion compared with $4.3 billion as of December 31, 2011. Of the $3.6 billion of ceded par outstanding as of September 30, 2012, $2.0 billion was ceded from our U.S. public finance insurance segment and $1.6 billion was ceded from our structured finance and international insurance segment. Under National’s reinsurance agreement with MBIA Corp., if a reinsurer of MBIA Corp. is unable to pay claims ceded by MBIA Corp. on U.S. public finance exposure, National will assume liability for such ceded claim payments. As of September 30, 2012, the total amount for which National would be liable in the event that the reinsurers of MBIA Corp. were unable to meet their obligations is $2.0 billion. For Financial Guaranty Insurance Company (“FGIC”) policies assigned to National from MBIA Insurance Corporation, National maintains the right to receive third-party reinsurance totaling $8.2 billion.

117

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

Advisory Services

Our asset management advisory business is primarily conducted through Cutwater. Cutwater offers advisory services, including cash management, discretionary asset management and structured products on a fee-for-service basis. Cutwater offers these services to public, not-for-profit, corporate and financial services clients, including MBIA Inc. and its other subsidiaries.

The following table summarizes the results and assets under management of our advisory services segment for the three and nine months ended months ended September 30, 2012 and 2011. These results include revenues and expenses from transactions with the Company’s insurance, corporate, and wind-down operations.

	Three Months Ended September 30,				Percent Change		Nine Months Ended September 30,				Percent Change
In millions	2012		2011				2012		2011
Fees	$	13	$	14		-7%	$	42	$	46		-9%
Operating expenses		15		15		-		48		52		-8%
Pre-tax income (loss)	$	(2)	$	(1)		100%	$	(6)	$	(6)		-
Ending assets under management:
Third-party	$	17,624	$	24,639		-28%	$	17,624	$	24,639		-28%
Insurance and corporate		7,530		8,375		-10%		7,530		8,375		-10%
Asset/liability products and conduits		5,061		4,939		2%		5,061		4,939		2%
Total ending assets under management	$	30,215	$	37,953		-20%	$	30,215	$	37,953		-20%

For the three and nine months ended September 30, 2012, the decreases in fees compared with the same periods of 2011 were primarily driven by declines in third-party managed asset balances. Decreases in third-party fees were partially offset by a performance fee received from our corporate segment for advisory-related services. The amount of this performance fee was $2 million and $6 million for the three and nine months ended September 30, 2012, respectively. In addition, operating expenses for the nine months ended September 30, 2012 decreased compared with the same period of 2011 principally due to lower legal, auditing and consulting expenses.

Average third-party assets under management for the nine months ended September 30, 2012 and 2011 were $19.7 billion and $25.6 billion, respectively. The decrease in third-party assets under management were principally due to declines in our pool products and CDO management business.

Corporate

General corporate activities are conducted through our corporate segment. Our corporate operations primarily consist of holding company activities, including our service company, Optinuity Alliance Resources Corporation (“Optinuity”). Revenues and expenses for Optinuity are included in the results of our corporate segment. Optinuity provides support services such as management, legal, accounting, treasury, information technology, and insurance portfolio surveillance, among others, to our corporate segment and other operating businesses on a fee-for-service basis.

118

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

The following table summarizes the consolidated results of our corporate segment for the three and nine months ended September 30, 2012 and 2011. These results include revenues and expenses that arise from general corporate activities and from providing support to our other segments.

	Three Months Ended September 30,				Percent Change		Nine Months Ended September 30,				Percent Change
In millions	2012		2011				2012		2011
Net investment income	$	3	$	1		n/m	$	10	$	-		n/m
Fees		54		22		145%		133		68		96%
Net gains (losses) on financial instruments at fair value and foreign exchange		11		8		38%		19		47		-60%
Net investment losses related to other-than-temporary impairments		(4)		(10)		-60%		(4)		(10)		-60%
Other net realized gains (losses)		-		-		-		5		-		n/m
Total revenues		64		21		n/m		163		105		55%
Operating		27		28		-4%		79		78		1%
Interest		15		14		7%		43		44		-2%
Total expenses		42		42		-		122		122		-
Pre-tax income (loss)	$	22	$	(21)		n/m	$	41	$	(17)		n/m

n/m - Percent change not meaningful.

NET INVESTMENT INCOME The increases in net investment income for the three and nine months ended September 30, 2012 compared with the same periods of 2011 were principally due to higher average asset balances and an increase in average yields on invested assets.

FEES Fees are generated from support services provided to business units within the Company on a fee-for-service basis. Fees for the three and nine months ended September 30, 2012 increased compared with the same periods of 2011 primarily due to a fee paid by our conduit segment for administrative and other services. The amount of this fee for the three and nine months ended September 30, 2012, was $35 million and $70 million, respectively. Such fees may vary significantly from period to period.

NET GAINS (LOSSES) ON FINANCIAL INSTRUMENTS AT FAIR VALUE AND FOREIGN EXCHANGE Net gains (losses) on financial instruments at fair value and foreign exchange for the periods presented are primarily related to changes in the fair value of outstanding warrants issued on MBIA Inc. common stock. These changes were attributable to fluctuations in MBIA Inc.’s stock price and volatility, which are used in the valuation of the warrants. In addition to the fluctuations in the value of the outstanding warrants issued on MBIA Inc. common stock, the nine months ended September 30, 2012 was impacted by losses on the sale of investments.

OTHER NET REALIZED GAINS (LOSSES) Other net realized gains (losses) for the nine months ended September 30, 2012 relate to insurance recoveries received from our directors’ and officers’ insurance policy. These insurance recoveries reimbursed the Company for a portion of the expenses incurred by the Company related to private securities litigation.

Wind-down Operations

We operate an asset/liability products business in which we historically issued debt and investment agreements insured by MBIA Corp. to capital markets and municipal investors. The proceeds of the debt and investment agreements were used initially to purchase assets that largely matched the duration of those liabilities. We also operate a conduit business in which we historically funded transactions by issuing debt insured by MBIA Corp. The rating downgrades of MBIA Corp. resulted in the termination and collateralization of certain derivatives and investment agreements and, together with the rising cost and declining availability of funding and liquidity within many of the asset classes in which proceeds were invested, caused the Company to begin winding down its asset/liability products and conduit businesses in 2008. Since the downgrades of MBIA Corp., we have not issued debt in connection with either business and, as a result, the outstanding liability balances and corresponding asset balances will continue to decline over time as liabilities mature, terminate or are repurchased by us.

119

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

Asset/Liability Products

The following table presents the results of our asset/liability products segment for the three and nine months ended September 30, 2012 and 2011. These results include revenues and expenses from transactions with the Company’s insurance and corporate operations.

	Three Months Ended September 30,				Percent Change		Nine Months Ended September 30,				Percent Change
In millions	2012		2011				2012		2011
Net investment income	$	7	$	18		-61%	$	37	$	66		-44%
Net gains (losses) on financial instruments at fair value and foreign exchange		(39)		11		n/m		(168)		(206)		-18%
Net investment losses related to other-than-temporary impairments		-		(1)		-100%		(56)		(30)		87%
Net gains (losses) on extinguishment of debt		-		-		-		-		24		-100%
Other net realized gains (losses)		-		(40)		-100%		-		(36)		-100%
Revenues of consolidated VIEs:
Net investment income		-		-		-		-		(7)		-100%
Net gains (losses) on financial instruments at fair value and foreign exchange		-		-		-		-		12		-100%
Other net realized gains (losses)		-		40		-100%		-		40		-100%
Total revenues		(32)		28		n/m		(187)		(137)		36%
Operating		4		3		33%		12		9		33%
Interest expense		22		33		-33%		80		100		-20%
Total expenses		26		36		-28%		92		109		-16%
Pre-tax income (loss)	$	(58)	$	(8)		n/m	$	(279)	$	(246)		13%

n/m - Percent change not meaningful.

NET INVESTMENT INCOME The decreases in net investment income for the three and nine months ended September 30, 2012 compared with the same periods of 2011 were primarily due to lower average asset balances as investments were sold to generate liquidity and repay liabilities.

NET GAINS (LOSSES) ON FINANCIAL INSTRUMENTS AT FAIR VALUE AND FOREIGN EXCHANGE The unfavorable change in net gains (losses) on financial instruments at fair value and foreign exchange for the three months ended September 30, 2012 compared with the same period of 2011 was primarily due to losses from unfavorable changes in foreign exchange rates, partially offset by realized gains from sales of investments. The favorable change in net gains (losses) on financial instruments at fair value and foreign exchange for the nine months ended September 30, 2012 compared with the same period of 2011 was primarily due to gains from fair valuing financial instruments, partially offset by realized losses from sales of investments.

NET INVESTMENT LOSSES RELATED TO OTHER-THAN-TEMPORARY IMPAIRMENTS The Company has an ongoing review process for all securities in assessing whether a decline in value is related to a credit loss. The Company utilizes cash flow modeling for purposes of assessing other-than-temporary impairments. Net investment losses related to other-than-temporary impairments occur when we impair certain securities to their fair value, as we intended to sell these securities before a recovery of their value to amortized cost. Refer to the “Liquidity” section included herein for additional information about impaired investments.

NET GAINS (LOSSES) ON EXTINGUISHMENT OF DEBT For the nine months ended September 30, 2011, net gains (losses) on extinguishment of debt included gains from the repurchases of medium-term notes (“MTNs”) issued by the Company.

INTEREST EXPENSE The decreases in interest expense for the three and nine months ended September 30, 2012 compared with the same periods of 2011 were primarily due to the continued maturity and repurchases of liabilities by the Company.

120

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

BOOK VALUE As of September 30, 2012, our asset/liability products segment had a deficit of total assets to total liabilities of $433 million compared with a deficit of $725 million as of December 31, 2011. Assets primarily comprised cash and investments at market value and tax receivables and totaled $2.2 billion and $3.8 billion as of September 30, 2012 and December 31, 2011, respectively. Investments comprised securities with an average credit quality rating of A1. Liabilities primarily comprised principal and accrued interest outstanding on investment agreements and MTN obligations, securities sold under agreements to repurchase, a loan from an affiliate and derivative liabilities, and totaled $2.7 billion and $4.5 billion as of September 30, 2012 and December 31, 2011, respectively. The decrease in total liabilities primarily resulted from scheduled amortizations of debt and repurchases of liabilities by the Company.

In addition to our asset/liability products segment’s GAAP book value deficit, we also analyze the segment’s adjusted book value deficit (“ALM Adjusted BV Deficit”), a non-GAAP measure. We consider ALM Adjusted BV Deficit a measure of the amount by which liabilities expected to be cash settled exceed assets expected to be cash settled as of the balance sheet date on an amortized cost basis. This deficit represents a potential cash short-fall upon the extinguishment of the selected liabilities as of the balance sheet date without regard to the timing of cash flows. As such, it does not reflect future operating income or losses, particularly those that may be generated from selling assets above or below their amortized costs and from repurchasing debt at discounts. The ALM Adjusted BV Deficit is based on assets and liabilities included in our asset/liability products segment’s GAAP balance sheet, but does not include all balances required by GAAP. The Company believes this measure is useful in analyzing liquidity risk, in conjunction with other measures, within our asset/liability products segment.

As of September 30, 2012, ALM Adjusted BV Deficit was $980 million compared with $591 million as of December 31, 2011. The increase in ALM Adjusted BV Deficit was driven primarily by losses from sales of and other-than-temporary impairments of investments and a negative spread of investment income to interest expense. We expect ALM Adjusted BV Deficit to continue to increase as a result of ongoing expected operating losses. Our ability to resolve this deficit will depend on our ability to successfully implement our strategies. There can be no assurance that we will be successful in implementing our strategies or that such strategies will provide adequate liquidity to meet all payment obligations. Refer to the “Liquidity” section included herein for a discussion about the liquidity position of MBIA Inc. as it relates to the asset/liability products segment.

121

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

The following table provides a reconciliation of our asset/liability products segment’s GAAP book value deficit to ALM Adjusted BV Deficit:

In millions	As of September 30, 2012		As of December 31, 2011
Asset/liability products segment’s GAAP book value	$	(433)	$	(725)
Additions to GAAP book value:
Intersegment payable		-		223	(1)
Subtractions from GAAP book value:
Net unrealized (gains) losses on financial instruments		196		588
Deferred income tax benefit		(743)		(677)
Total adjustments		(547)		134
ALM Adjusted BV Deficit	$	(980)	$	(591)

(1) - Represents amounts owed by the asset/liability products activities of MBIA Inc. to the corporate activities of MBIA Inc., which the Company deems as contributed capital to the asset/liability products activities for purposes of calculating the ALM Adjusted BV Deficit since the payable and corresponding receivable are to and from the same legal entity.

Conduits

The following table presents the results of our conduit segment for the three and nine months ended September 30, 2012 and 2011. These results include revenues and expenses from transactions with the Company’s insurance and corporate operations.

	Three Months Ended September 30,				Percent Change		Nine Months Ended September 30,				Percent Change
In millions	2012		2011				2012		2011
Revenues of consolidated VIEs:
Net investment income	$	4	$	4		-	$	9	$	11		-18%
Net gains (losses) on financial instruments at fair value and foreign exchange		-		-		-		-		1		-100%
Net gains (losses) on extinguishment of debt		16		-		n/m		49		-		n/m
Total revenues		20		4		n/m		58		12		n/m
Expenses of consolidated VIEs:
Operating		37		1		n/m		72		2		n/m
Interest		2		4		-50%		10		12		-17%
Total expenses		39		5		n/m		82		14		n/m
Pre-tax income (loss)	$	(19)	$	(1)		n/m	$	(24)	$	(2)		n/m

n/m - Percent change not meaningful.

Our conduit segment is principally operated through Meridian. Certain of MBIA’s consolidated subsidiaries have invested in our conduit debt obligations or have received compensation for services provided to our conduits.

For the three and nine months ended September 30, 2012, total revenues increased compared with the same periods of 2011 as a result of net gains on the extinguishment of debt issued by Meridian, and total expenses increased compared with the same periods of 2011 as a result of a fee paid to our corporate segment for administrative and other services.

As of September 30, 2012 and December 31, 2011, our conduit segment’s investments (including cash) totaled $642 million and $1.5 billion, respectively, and our conduit segment’s debt obligations totaled $637 million and $1.5 billion, respectively.

122

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS (continued)

Taxes

Provision for Income Taxes

The Company’s income taxes and the related effective tax rates for the three and nine months ended September 30, 2012 and 2011 are presented in the following table:

	Three Months Ended September 30,				Nine Months Ended September 30,
In millions	2012		2011		2012		2011
Pre-tax income (loss)	$	(57)	$	745	$	759	$	(1,165)
Provision (benefit) for income taxes	$	(64)	$	301	$	161	$	(472)
Effective tax rate		112.3%		40.4%		21.2%		40.5%

For the nine months ended September 30, 2012, the Company’s effective tax rate applied to its pre-tax income was lower than the U.S. statutory tax rate of 35% primarily due to a reversal of a portion of the Company’s valuation allowance against its deferred tax asset.

For the nine months ended September 30, 2011, the Company’s effective tax rate applied to its pre-tax loss was higher than the U.S. statutory tax rate of 35% primarily due to a decrease in the valuation allowance, tax-exempt interest income from investments, and income earned in non-U.S. jurisdictions.

Refer to “Note 10: Income Taxes” in the Notes to Consolidated Financial Statements for a further discussion of income taxes, including the Company’s valuation allowance against deferred tax assets and its accounting for tax uncertainties.

CAPITAL RESOURCES

The Company manages its capital resources to minimize its cost of capital while maintaining appropriate claims-paying resources (“CPR”) for National and MBIA Corp. The Company’s capital resources consist of total shareholders’ equity, total debt issued by MBIA Inc. for general corporate purposes, and surplus notes issued by MBIA Insurance Corporation. Total capital resources were $4.4 billion and $3.5 billion as of September 30, 2012 and December 31, 2011, respectively. MBIA Inc. utilizes its capital resources to support the business activities of its subsidiaries. As of September 30, 2012, MBIA Inc.’s investments in subsidiaries totaled $4.1 billion.

Insurance Statutory Capital

National and MBIA Insurance Corporation are incorporated and licensed in, and are subject to primary insurance regulation and supervision by, the State of New York. National and MBIA Insurance Corporation each are required to file detailed annual financial statements, as well as interim financial statements, with the NYSDFS and similar supervisory agencies in each of the other jurisdictions in which it is licensed. These financial statements are prepared in accordance with New York State and the National Association of Insurance Commissioners’ statements of U.S. STAT and assist our regulators in evaluating minimum standards of solvency, including minimum capital requirements, and business conduct. U.S. STAT differs from GAAP in a number of ways. Refer to the statutory accounting practices note to consolidated financial statements of National and MBIA Corp. within exhibits 99.2 and 99.3, respectively, of MBIA Inc.’s annual report on Form 10-K for the year ended December 31, 2011 for an explanation of the differences between U.S. STAT and GAAP.

National

Capital and Surplus

National reported total statutory capital of $3.1 billion as of September 30, 2012 compared with $2.8 billion as of December 31, 2011. As of September 30, 2012, statutory capital comprised $1.3 billion of contingency reserves and $1.8 billion of policyholders’ surplus. The increase in National’s statutory capital is primarily due to statutory net income of $270 million for the nine months ended September 30, 2012. Consistent with our plan to transform our insurance business, the Company received approval from the NYSDFS to reset National’s unassigned surplus to zero, which was effective January 1, 2010. As of September 30, 2012, National’s unassigned surplus was $1.2 billion. In October 2010, the plaintiffs in the litigation challenging the establishment of National initiated a court proceeding challenging the approval of the surplus reset. Refer to “Note 13: Commitments and Contingencies” in the Notes to Consolidated Financial Statements for a discussion of this action.

123

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

CAPITAL RESOURCES (continued)

In order to maintain its New York State financial guarantee insurance license, National is required to maintain a minimum of $65 million of policyholders’ surplus. National is also required to maintain contingency reserves to provide protection to policyholders in the event of extreme losses in adverse economic events. Refer to the following “MBIA Insurance Corporation—Capital and Surplus” section for additional information about contingency reserves under the NYIL. National’s policyholders’ surplus was $1.8 billion as of September 30, 2012. National’s policyholders’ surplus will grow over time from the recognition of unearned premiums and investment income and the expected release of the contingency reserves. Conversely, incurred losses would reduce policyholders’ surplus.

NYIL regulates the payment of dividends by financial guarantee insurance companies and provides that such companies may not declare or distribute dividends except out of statutory earned surplus. Under NYIL, the sum of (i) the amount of dividends declared or distributed during the preceding 12-month period and (ii) the dividend to be declared may not exceed the lesser of (a) 10% of policyholders’ surplus, as reported in the latest statutory financial statements or (b) 100% of adjusted net investment income for such 12-month period (the net investment income for such 12-month period plus the excess, if any, of net investment income over dividends declared or distributed during the two-year period preceding such 12-month period), unless the Superintendent of the NYSDFS approves a greater dividend distribution based upon a finding that the insurer will retain sufficient surplus to support its obligations.

National is subject to NYIL with respect to the payment of dividends as described above. National had a positive earned surplus as of September 30, 2012, which provides National with dividend capacity. National did not declare or pay any dividends during the first nine months of 2012. In connection with the court proceeding challenging the approval of the National surplus reset described above, we agreed that National will not pay dividends during the current adjournment of the proceeding (i.e., through December 19, 2012). In addition, in connection with the approval of a release of excessive contingency reserves as of 2011 in MBIA Insurance Corporation, the Company has agreed that National will not pay dividends without the prior regulatory approval of the NYSDFS prior to July 19, 2013.

National’s statutory policyholders’ surplus was lower than its GAAP shareholder’s equity by $2.2 billion as of September 30, 2012. U.S. STAT differs from GAAP in certain respects. Refer to “Note 12: Statutory Accounting Practices” in the Notes to Consolidated Financial Statements of National within exhibit 99.2 of MBIA Inc.’s annual report on Form 10-K for the year ended December 31, 2011 for an explanation of the differences between U.S. STAT and GAAP.

Claims-Paying Resources (Statutory Basis)

CPR is a key measure of the resources available to National to pay claims under its insurance policies. CPR consists of total financial resources and reserves calculated on a statutory basis. CPR has been a common measure used by financial guarantee insurance companies to report and compare resources and continues to be used by MBIA’s management to evaluate changes in such resources. We have provided CPR to allow investors and analysts to evaluate National using the same measure that MBIA’s management uses to evaluate National’s resources to pay claims under its insurance policies. There is no directly comparable GAAP measure. Our calculation of CPR may differ from the calculation of CPR reported by other companies.

National’s CPR and components thereto, as of September 30, 2012 and December 31, 2011 are presented in the following table:

In millions	As of September 30, 2012		As of December 31, 2011
Policyholders’ surplus	$	1,817	$	1,424
Contingency reserves		1,286		1,385
Statutory capital		3,103		2,809
Unearned premium reserve		2,153		2,485
Present value of installment premiums(1)		226		239
Premium resources(2)		2,379		2,724
Net loss and LAE reserves(1)		(75)		(3)
Salvage reserves		240		161
Gross loss and LAE reserve		165		158
Total claims-paying resources	$	5,647	$	5,691

(1) - Calculated using a discount rate of 4.77% as of September 30, 2012 and December 31, 2011.

(2) - Includes financial guarantee and insured credit derivative related premiums.

124

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

CAPITAL RESOURCES (continued)

National’s total CPR as of September 30, 2012 of $5.6 billion remained flat compared with December 31, 2011, as net income and an increase in salvage reserves were offset by decreases in unearned premiums.

MBIA Insurance Corporation

Capital and Surplus

MBIA Insurance Corporation reported total statutory capital of $1.5 billion as of September 30, 2012 compared with $2.3 billion as of December 31, 2011. As of September 30, 2012, statutory capital comprised $493 million of contingency reserves and $1.0 billion of policyholders’ surplus. For the nine months ended September 30, 2012, MBIA Insurance Corporation had a statutory net loss of $838 million, primarily due to losses and LAE incurred and interest expense recorded on its surplus notes as well as the National Secured Loan partially offset by net premiums earned. MBIA Insurance Corporation’s policyholders’ surplus as of September 30, 2012 includes a negative unassigned surplus of $1.0 billion.

As of September 30, 2012, MBIA Insurance Corporation recognized estimated recoveries of $2.2 billion, net of reinsurance and income taxes at a rate of 35%, on a statutory basis related to put-backs of ineligible mortgage loans in its insured transactions. These expected insurance recoveries represented 144% of MBIA Insurance Corporation’s statutory capital as of September 30, 2012. There can be no assurance that we will be successful or that we will not be delayed in realizing these recoveries. Refer to “Executive Overview—Economic and Financial Market Trends and MBIA’s Business Outlook” included herein for factors that may influence MBIA Corp.’s ability to realize these recoveries.

In order to maintain its New York State financial guarantee insurance license, MBIA Insurance Corporation is required to maintain a minimum of $65 million of policyholders’ surplus. MBIA Insurance Corporation’s policyholders’ surplus was $1.0 billion as of September 30, 2012. MBIA Insurance Corporation’s policyholders’ surplus is expected to grow over time from the recognition of unearned premiums and investment income and the expected release of the contingency reserves. In addition, MBIA Insurance Corporation’s policyholders’ surplus could be enhanced by the settlement, commutation or repurchase of insured transactions at prices less than its statutory loss reserves for such transactions. Conversely, incurred losses or an inability to collect on our ineligible mortgage loan put-back claims would reduce policyholders’ surplus.

Under NYIL, MBIA Insurance Corporation is also required to establish a contingency reserve to provide protection to policyholders in the event of extreme losses in adverse economic events. The amount of the reserve is based on the percentage of principal insured or premiums earned, depending on the type of obligation (net of collateral, reinsurance, refunding, refinancings and certain insured securities). Under NYIL, MBIA Insurance Corporation is required to invest its minimum surplus and contingency reserves, and 50% of its loss reserves and unearned premium reserves, in certain qualifying assets. Reductions in the contingency reserve may be recognized based on excessive reserves and under certain stipulated conditions, subject to the approval of the Superintendent of the NYSDFS. As of September 30, 2012, MBIA Insurance Corporation had a deficit of $97 million of qualifying assets required to support its contingency reserves. The deficit was caused by MBIA Insurance Corporation’s sale of liquid assets in order to make claim payments and the failure of certain mortgage originators, particularly Bank of America, to honor their contractual obligations to repurchase ineligible mortgage loans from securitizations we insured. The deficit is expected to grow as additional commutation and claim payments are made in the future. We have reported the deficit to the NYSDFS. MBIA Insurance Corporation has requested approval from the NYSDFS to release $97 million of contingency reserves as of September 30, 2012, but to date has not received approval. For risks associated with MBIA Insurance Corporation’s failure to meet its contingency reserve requirement, see Item 1A. “Risk Factors—Liquidity and Market Related Risk Factors—If our insurance companies fail to meet regulatory capital requirements they may become subject to regulatory action” in our annual report on Form 10-K for the year ended December 31, 2011.

125

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

CAPITAL RESOURCES (continued)

As of September 30, 2012, MBIA Insurance Corporation exceeded its aggregate risk limits under the NYIL by $47 million. The overage was caused by the decrease in statutory capital described above. MBIA Insurance Corporation will notify the NYSDFS of the overage and will submit a plan to achieve compliance with the limits in accordance with the NYIL. If MBIA Insurance Corporation is not in compliance with its aggregate risk limits, the NYSDFS may prevent MBIA Insurance Corporation from transacting any new financial guarantee insurance business until it no longer exceeds the limitations.

In connection with MBIA Corp. obtaining approval from the NYSDFS to release excessive contingency reserves as discussed above, MBIA Corp. agreed that it would not pay any dividends without prior approval from the NYSDFS. Due to its significant negative earned surplus, MBIA Corp. has not had the statutory capacity to pay dividends since December 31, 2009 and is not expected to have any statutory capacity to pay any dividends in the near term. In addition, as noted above, in connection with the approval of the December 31, 2011 contingency reserve release, National agreed that it would not pay any dividends without prior regulatory approval from the NYSDFS until July 19, 2013.

MBIA Insurance Corporation’s statutory policyholders’ surplus is higher than its GAAP shareholders’ equity by $958 million as of September 30, 2012. U.S. STAT differs from GAAP in certain respects. Refer to “Note 15: Statutory Accounting Practices” in the Notes to Consolidated Financial Statements of MBIA Corp. within exhibit 99.3 of MBIA Inc.’s annual report on Form 10-K for the year ended December 31, 2011 for an explanation of the differences between U.S. STAT and GAAP.

Claims-Paying Resources (Statutory Basis)

CPR is a key measure of the resources available to MBIA Insurance Corporation to pay claims under its insurance policies. CPR consists of total financial resources and reserves calculated on a statutory basis. CPR has been a common measure used by financial guarantee insurance companies to report and compare resources, and continues to be used by MBIA’s management to evaluate changes in such resources. We have provided CPR to allow investors and analysts to evaluate MBIA Insurance Corporation, using the same measure that MBIA’s management uses to evaluate MBIA Insurance Corporation’s resources to pay claims under its insurance policies. There is no directly comparable GAAP measure. Our calculation of CPR may differ from the calculation of CPR reported by other companies.

MBIA Insurance Corporation’s CPR and components thereto, as of September 30, 2012 and December 31, 2011 are presented in the following table:

In millions	As of September 30, 2012		As of December 31, 2011
Policyholders’ surplus	$	1,018	$	1,597
Contingency reserves		493		706
Statutory capital		1,511		2,303
Unearned premium reserve		609		607
Present value of installment premiums(1)		1,092		1,226
Premium resources(2)		1,701		1,833
Net loss and LAE reserves(1)		(2,450)		(2,266)
Salvage reserves(3)		4,378		4,249
Gross loss and LAE reserve		1,928		1,983
Total claims-paying resources	$	5,140	$	6,119

(1) - Calculated using a discount rate of 5.59% as of September 30, 2012 and December 31, 2011.

(2) - Includes financial guarantee and insured credit derivative related premiums.

(3) - This amount primarily consists of expected recoveries related to the Company’s put-back claims.

MBIA Insurance Corporation’s total CPR as of September 30, 2012 was $5.1 billion compared with $6.1 billion as of December 31, 2011. The decrease in CPR is primarily due to loss payments associated with insured RMBS securitizations.

LIQUIDITY

As a financial services company, MBIA has been materially adversely affected by conditions in global financial markets. Current conditions and events in these markets, in addition to the failure by the originators of RMBS to repurchase the ineligible mortgage loans in securitizations that we had insured, have put substantial stress on our liquidity resources.

126

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

LIQUIDITY (continued)

We have utilized a liquidity risk management framework, the primary objectives of which are to monitor liquidity positions and projections in our legal entities and guide the matching of liquidity resources to needs. We monitor our cash and liquid asset resources using stress-scenario testing. Members of MBIA’s senior management meet regularly to review liquidity metrics, discuss contingency plans and establish target liquidity cushions on an enterprise-wide basis. As part of our liquidity risk management framework, we evaluate and manage liquidity on a legal-entity basis to take into account the legal, regulatory and other limitations on available liquidity resources within the enterprise.

The majority of our liquidity management efforts focus on:

• The liquidity resources of MBIA Inc., which are subject to: uncertainty in the timing and amount of cash inflows from dividends paid by National and MBIA Corp.; the necessity of having to support the liquidity needs of the asset/liability products business; and potential cross-defaults of holding company debt with other obligations in the consolidated group. The asset/liability products business of MBIA Inc. is subject to ongoing negative cash flow and has a deficit of invested assets to liabilities. In addition, the liquidity resources of MBIA Inc. are subject to collateralization requirements in connection with the liabilities it has issued to third parties and affiliates and in connection with third-party derivative contracts.

• The liquidity resources of MBIA Corp., which are subject to: an increased likelihood that MBIA Corp. will experience claims on its CMBS exposures, primarily in those exposures held by Bank of America/Merrill Lynch, due to the deterioration in such exposures; delays in the collection of recoveries related to ineligible mortgage loans in certain insured RMBS transactions; payments to counterparties in consideration for the commutation of insured transactions; and payments on insured exposures that in some cases may be large bullet payments. MBIA Corp. is currently subject to negative cash flow as a result of these payments and delays in collecting recoveries.

In order to address these liquidity risks and efficiently manage liquidity across the entire enterprise, certain of our subsidiaries which are less liquidity constrained have entered into intercompany agreements that provide resources to subsidiaries that are more liquidity constrained. These resources include intercompany agreements described further below between our primary insurance subsidiaries and between these insurance subsidiaries and the asset/liability products business (through MBIA Inc.), which in each case were approved by the NYSDFS and are subject to ongoing monitoring by the NYSDFS. We monitor the liquidity resources of National, for which we have not observed material liquidity risk to date, in order to ensure it maintains sufficient liquidity to pay claims and satisfy its other obligations. National’s liquidity resources are subject to unexpected loss payments on its insured transactions, negative cash flow, and liquidity support arrangements with its affiliates.

Key Intercompany Lending Agreements

National Secured Loan

National provided the $1.1 billion National Secured Loan to MBIA Insurance Corporation in order to enable MBIA Insurance Corporation to fund settlements and commutations of its insurance policies. This loan was approved by the NYSDFS as well as by the boards of directors of MBIA Inc., MBIA Insurance Corporation and National. The National Secured Loan has a fixed annual interest rate of 7% and a maturity date of December 2016. MBIA Insurance Corporation has the option to defer payments of interest when due by capitalizing interest amounts to the loan balance, subject to the collateral value exceeding certain thresholds. MBIA Insurance Corporation has elected to defer the interest payments due under the loan. MBIA Insurance Corporation’s obligation to repay the loan is secured by a pledge of collateral having an estimated value in excess of the notional amount of the loan as of September 30, 2012, which collateral comprised the following future receivables of MBIA Corp.: (i) its right to receive put-back recoveries related to ineligible mortgage loans included in its insured second-lien RMBS transactions; (ii) future recoveries on defaulted insured second-lien RMBS transactions resulting from expected excess spread generated by performing loans in such transactions; and (iii) future installment premiums. During the nine months ended September 30, 2012, MBIA Insurance Corporation borrowed an additional $443 million under the National Secured Loan with the approval of the NYSDFS at the same terms as the original loan to fund additional commutations of its insurance policies. As of September 30, 2012, the outstanding principal amount under this loan was $1.6 billion. MBIA Insurance Corporation may seek to borrow additional amounts under the loan in the future. Any such increase or other amendment to the terms of the loan would be subject to regulatory approval by the NYSDFS.

127

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

LIQUIDITY (continued)

Asset Swap

National maintains the Asset Swap (simultaneous repurchase and reverse repurchase agreements) with MBIA Inc. for up to $2.0 billion based on the fair value of securities borrowed. The Asset Swap provides MBIA Inc. with eligible assets to pledge under investment agreements and derivative contracts in the asset/liability products business. As of September 30, 2012, the notional amount utilized under each of these agreements was $522 million and the fair value of collateral pledged by National and MBIA Inc. under these agreements was $535 million and $558 million, respectively. The net average interest rate on these transactions was 0.56% and 0.34% for the nine months ended September 30, 2012 and 2011, respectively. The NYSDFS approved the Asset Swap in connection with the re-domestication of National to New York. National has committed to the NYSDFS to use commercially reasonable efforts to reduce the amount of the Asset Swap over time.

MBIA Corp. Secured Loan

MBIA Corp., as lender, maintains a master repurchase agreement, the MBIA Corp. Secured Loan, with MBIA Inc. for the benefit of MBIA Inc.’s asset/liability products business, which totaled $2.0 billion at inception and was scheduled to mature in May 2012, as amended. This loan was repaid in May 2012 and there have been no further draws. During 2012, the average interest rate on the MBIA Corp. Secured Loan was 2.51% through the repayment in May 2012. Also in May 2012, the NYSDFS approved the maturity extension of the MBIA Corp. Secured Loan to May 2013 with a maximum outstanding amount of $450 million, subject to MBIA Corp. obtaining prior regulatory approval from the NYSDFS for any draws under the facility.

Conduit Repurchase Agreement

MBIA Inc. maintains a repurchase agreement with Meridian (“Conduit Repurchase Agreement”), with a maximum funded amount of $1.0 billion, subject to a pledge of collateral. The Conduit Repurchase Agreement had an average interest rate during the nine months ended September 30, 2012 of 2.48%. As of September 30, 2012, the amount drawn by MBIA Inc. under this agreement and the fair value of the collateral pledged by MBIA Inc. were $51 million and $63 million, respectively.

MBIA Inc. Liquidity

MBIA Inc.’s liquidity resources support our corporate and asset/liability products segments. The activities of MBIA Inc. consist of holding and managing investments, servicing outstanding corporate debt instruments, investment agreements and MTNs issued by the asset/liability products and conduit segments, posting collateral under financing and hedging arrangements and investment agreements, making payments and collateral postings related to interest rate and foreign exchange swaps, and paying operating expenses. The primary sources of cash within MBIA Inc. used to meet its liquidity needs include available cash and liquid assets not subject to collateral posting requirements, scheduled principal and interest on assets held in its investment portfolio, dividends from subsidiaries, payments under tax sharing agreements with these subsidiaries (once the payments become unrestricted) and the ability to issue debt and equity. There can be no assurance as to the amount and timing of any such dividends or payments under the tax sharing agreements. MBIA Inc.’s corporate debt, investment agreements, MTNs, and derivatives may be accelerated by the holders of such instruments upon the occurrence of certain events, such as a breach of covenant or representation, a bankruptcy of MBIA Inc. or the filing of an insolvency proceeding with respect to MBIA Corp. MBIA Inc.’s obligations under its loans from GFL may be accelerated only upon the occurrence of a bankruptcy or liquidation of MBIA Inc. Refer to “Note 11: Business Segments” in the Notes to Consolidated Financial Statements for a description of the GFL loans. In the event of any acceleration of our obligations, including under our corporate debt, investment agreements, MTNs, or derivatives, we likely would not have sufficient liquid resources to pay amounts due with respect to our corporate debt and other obligations. The Company is seeking to amend the indentures governing its corporate debt so that an insolvency proceeding with respect to MBIA Insurance Corporation would not result in acceleration. See “Executive Overview—The Consent Solicitation” and “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q.

During the nine months ended September 30, 2012, pursuant to the tax sharing agreement, National settled with MBIA Inc. its taxes related to the 2010 and 2011 tax years of $1 million and $11 million, respectively. In addition, National paid to MBIA Inc. estimated 2012 taxes of $95 million. Consistent with the tax sharing agreement, these amounts were placed in an escrow account until the expiration of National’s two-year net operating loss (“NOL”) carry-back period under U.S. tax rules. At the expiration of National’s carry-back period, any funds remaining after any reimbursement to National in respect of any NOL carry-backs would be available for general corporate purposes, including to satisfy any other obligations under the tax sharing agreement. As of September 30, 2012, $365 million remained in escrow for the 2010 through 2012 tax years.

MBIA Inc. is subject to material liquidity risks and uncertainty. To mitigate these risks, we seek to maintain cash and liquidity resources that we believe will be sufficient to make all payments due on our obligations and to meet other financial requirements, such as posting collateral, at least through the next twelve months.

128

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

LIQUIDITY (continued)

Liquidity risk within MBIA Inc. is primarily a result of the following factors:

• The ALM Adjusted BV Deficit was $980 million as of September 30, 2012, which increased from $591 million as of December 31, 2011. This deficit is a result of selling investments and terminating interest rate swaps at losses, and may further increase as a result of selling investments and terminating interest rates swaps at losses in the future. In addition, this deficit is expected to increase as a result of ongoing expected operating losses. This deficit will need to be reversed prior to the maturity of the liabilities in order to ensure that there are sufficient funds available to fully retire the liabilities. We expect that MBIA Inc. will be able to eliminate the deficit prior to the maturity of the related liabilities from distributions from its operating subsidiaries and by raising third-party capital, although there can be no assurance that MBIA Inc. will be able to eliminate the deficit through such means.

• Uncertainty of the timing and amount of cash inflows from dividends paid by MBIA’s principal operating subsidiaries. Refer to the “Capital Resources-Insurance Statutory Capital” section for a discussion on our insurance subsidiaries’ dividend restrictions.

• Currently, the majority of the cash and securities of MBIA Inc. is pledged against investment agreement liabilities, intercompany financing arrangements and derivatives, which limit its ability to raise liquidity through asset sales. In addition, if the market value or rating eligibility of the assets which are pledged against these obligations were to decline, we would be required to pledge additional eligible assets in order to meet minimum required collateral amounts against these liabilities. In such event, we may sell additional assets, potentially with substantial losses, finance unencumbered assets through intercompany facilities, or use free cash or other assets, in some cases with NYSDFS approval, although there can be no assurance that these strategies will be available or adequate to meet liquidity requirements.

Because the majority of MBIA Inc.’s assets is pledged against the obligations described above, the widening of credit spreads would have an adverse impact on the market value of these assets and increase collateralization requirements for the portfolio. The following table presents the estimated pre-tax change in fair value of the asset/liability products business’ assets as of September 30, 2012 from instantaneous shifts in credit spread curves. This table assumes that all credit spreads move by the same amount; however, it is more likely that the actual changes in credit spreads will vary by investment sector and individual security. The table presents hypothetical increases and decreases in credit spreads of 50 and 200 basis points. Because downward movements of these amounts in some cases would result in negative spreads, a floor was assumed for minimum spreads.

	Change in Credit Spreads (Asset/Liability Products Business)
In millions	200 Basis Point Decrease		50 Basis Point Decrease		50 Basis Point Increase		200 Basis Point Increase
Estimated change in fair value	$	149	$	41	$	(37)	$	(130)

During the nine months ended September 30, 2012, MBIA Inc. maintained three intercompany financing facilities to provide it with additional resources to meet its liquidity requirements within the asset/liability products business: the Asset Swap, the MBIA Corp. Secured Loan and the Conduit Repurchase Agreement. Refer to the preceding “Key Intercompany Lending Agreements” section for a description of these facilities.

We believe that asset sales undertaken during the first nine months of 2012 have reduced volatility in MBIA Inc.’s portfolio in the event of stressed market conditions. However, stressed credit market conditions could cause MBIA Inc. to have insufficient resources to cover collateral and/or other liquidity requirements. Management has identified certain actions to mitigate this risk. These contingent actions include: (1) additional sales of invested assets exposed to credit spread stress risk, which may occur at losses and increase the deficit of invested assets to liabilities; (2) termination and settlement of interest rate swap agreements; and (3) other available advances from subsidiaries. These actions, if taken, are expected to result in either additional liquidity or reduced exposure to adverse credit spread movements. There can be no assurance that these actions will be sufficient to fully mitigate this risk. In the event that we cannot implement the contingent actions identified above to raise liquidity, or eliminate the deficit, we may have insufficient assets to make all payments on our obligations as they come due, which could result in a default by MBIA Inc. on its obligations and the potential for MBIA Corp., as guarantor of the investment agreements and GFL MTNs, to be called upon to satisfy obligations on those instruments as they come due.

129

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

LIQUIDITY (continued)

As of September 30, 2012, the liquidity position of MBIA Inc., which consists of the liquidity positions of its corporate and asset/liability products activities, was $432 million and comprised cash and liquid assets of $335 million available for general corporate liquidity purposes, excluding the amounts held in escrow under its tax sharing agreement, and $97 million not pledged directly as collateral for its asset/liability products activities. As of December 31, 2011, MBIA Inc. had $386 million of cash and liquid assets comprising $226 million available for general corporate liquidity purposes, excluding the amounts held in escrow under its tax sharing agreement, and $160 million not pledged directly as collateral for its asset/liability products activities. We believe this liquidity position provides MBIA Inc. with sufficient funds to cover expected obligations at least through the next twelve months.

MBIA Corp. Liquidity

Liquidity available in the structured finance and international insurance segment is affected by our ability to collect on receivables associated with loss payments, the payment of claims on insured exposures, payments made to commute insured exposures, the repayment of the National Secured Loan, a reduction in investment income, any unanticipated expenses, or the impairment or a significant decline in the fair value of invested assets. We may also experience liquidity constraints as a result of NYIL requirements that we maintain specified, high quality assets to back our reserves and surplus.

We believe the current liquidity position of MBIA Corp. is adequate to make expected future claims payments. Our expectation assumes payments on insured CMBS exposures are non-cash settled. However, the liquidity position of MBIA Corp. has been stressed due to the failure of the sellers/servicers of RMBS transactions insured by MBIA Corp. to repurchase ineligible mortgage loans in certain insured transactions and payments to counterparties in consideration for the commutation of insured transactions, which have resulted in a substantial reduction of exposure and potential loss volatility. While MBIA Corp. has made and may in the future make payments to counterparties in consideration for the commutation of insured transactions, MBIA Corp.’s ability to commute insured transactions will depend on management’s assessment of available liquidity. In addition, due to the deterioration in MBIA Corp.’s CMBS exposures, primarily in those exposures held by Bank of America/Merrill Lynch, there is an increased likelihood that MBIA Corp. will experience claims on those exposures, which claims could be substantial. Depending on the amount of such claims and the amounts of claims on other policies issued by MBIA Corp., MBIA Corp. may not have sufficient liquid assets to pay such claims in the absence of a settlement with Bank of America/Merrill Lynch and the commutation of the CMBS exposures held by Bank of America/Merrill Lynch or in the absence of the collection of other substantial put-back recoverables.

Payment requirements for the structured finance and international financial guarantee contracts fall into three categories: (i) timely interest and ultimate principal; (ii) ultimate principal only at final maturity; and (iii) payments upon settlement of individual collateral losses as they occur after any deductible or subordination has been exhausted, which payments are unscheduled and therefore more difficult to predict, and which category applies to most of the transactions on which we have recorded loss reserves. Insured transactions that require payment in full of the principal insured at maturity could present liquidity risks for MBIA Corp. since payment of the principal is due at maturity but any salvage could be recovered over time after payment of the principal amount. MBIA Corp. is generally required to satisfy claims within one to three business days, and as a result seeks to identify potential claims in advance through our monitoring process. While our financial guarantee policies generally cannot be accelerated, thereby helping to mitigate liquidity risk, the insurance of CDS contracts may, in certain events, including the insolvency or payment default of the insurer or the issuer of the CDS, be subject to termination by the counterparty, triggering a claim for the fair value of the contract. In order to monitor liquidity risk and maintain appropriate liquidity resources, we use the same methodology as we use to monitor credit quality and losses within our insured portfolio, including stress scenarios. Refer to “Note 5: Loss and Loss Adjustment Expense Reserves” in the Notes to Consolidated Financial Statements for a discussion of our loss process.

Our structured finance and international insurance segment also requires cash for the payment of operating expenses, as well as principal and interest related to its surplus notes. Pursuant to Section 1307 of the NYIL and the Fiscal Agency Agreement governing MBIA Corp.’s surplus notes, any payment on the notes may be made only with the prior approval of the Superintendent of the NYSDFS “whenever, in his judgment, the financial condition of [MBIA Corp.] warrants” and payment may be made only out of MBIA Corp.’s “free and divisible surplus”. If these conditions are not met, MBIA Corp. would not be obligated to make any applicable interest payment and no default or event of default would occur under the Fiscal Agency Agreement or any of the Company’s other agreements. While the NYSDFS has approved the note interest payments in the past, its approval of the most recent note interest payment on July 16, 2012 was not received until after the date on which the Fiscal Agency Agreement requires MBIA Corp. to notify the registered holders of the notes and the Fiscal Agent of the failure to obtain such approval, as we disclosed on a Form 8-K filed on July 10, 2012. There can be no assurance that the NYSDFS will approve the next scheduled note interest payment on January 15, 2013 or any subsequent payments, or that it will approve any payment by the scheduled interest payment date or by the date on which the notice is required to be delivered to the registered holders and the Fiscal Agent, nor can there be any assurance that the NYSDFS will approve any optional redemption payment that MBIA Corp. may seek to make on or after January 15, 2013.

130

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

LIQUIDITY (continued)

Since the fourth quarter of 2007 through September 30, 2012, MBIA Corp. has made $11.6 billion of cash payments, before reinsurance and collections and excluding LAE (including payments made to debt holders of consolidated VIEs), associated with second-lien RMBS securitizations and with commutations and claim payments relating to CDS contracts. These cash payments include loss payments of $893 million made on behalf of MBIA Corp.’s consolidated VIEs. Of the $11.6 billion, MBIA Corp. has paid $6.6 billion of gross claims (before reinsurance and collections and excluding LAE) on policies insuring second-lien RMBS securitizations, driven primarily by an extensive number of ineligible mortgage loans being placed in the securitizations in breach of the representations and warranties of the sellers/servicers. In addition, MBIA Corp. has paid $5.0 billion of gross settlement and claim payments (before reinsurance and collections and excluding LAE) on insured credit derivatives. Also, since the fourth quarter of 2007 through September 30, 2012, MBIA Corp. has collected $185 million on excess spread before reinsurance.

MBIA Corp. is seeking to enforce its rights to have mortgage sellers/servicers cure, replace or repurchase ineligible mortgage loans from securitizations and has recorded a total of $3.2 billion of related expected recoveries on our consolidated balance sheets as of September 30, 2012, including expected recoveries recorded in our consolidated VIEs. These put-back claims have been disputed by the loan sellers/servicers and are the subject of certain litigations discussed more fully in “Note 13: Commitments and Contingencies” in the Notes to Consolidated Financial Statements. On May 14, 2012, ResCap and its wholly-owned subsidiary companies, RFC and GMAC each filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code. Additionally, there is some risk that the sellers/servicers or other responsible parties might not be able to fully satisfy any judgment we secure in litigation and ResCap’s bankruptcy filing. Further, there can be no assurance that we will be successful or that we will not be delayed in realizing these recoveries. Such risks are contemplated in the scenarios we utilize to calculate these recoveries, which are recognized on our consolidated balance sheets. We believe that we have adequate liquidity resources to provide for anticipated cash outflows; however, if we do not realize or are delayed in realizing these expected recoveries, we may not have adequate liquidity to fully execute the strategy to reduce future potential economic losses by commuting policies and purchasing instruments issued or guaranteed by us, or to repay any intercompany borrowings.

A portion of the commutation payments made since the fourth quarter of 2011 were financed through the National Secured Loan. MBIA Insurance Corporation’s ability to repay the loan and any accrued interest will be primarily predicated on MBIA Corp.’s ability to collect on its future receivables, including its ability to successfully enforce its rights to have the mortgage sellers/servicers cure, replace or repurchase ineligible mortgage loans from insured securitizations.

MBIA Corp. also insures third-party holders of our asset/liability products segment’s obligations. If we were unable to meet payment or collateral requirements associated with these obligations, the holders thereof could make claims under the MBIA Corp. insurance policies. In 2008, to provide additional liquidity to the asset/liability products business, MBIA Corp. lent $2.0 billion to the segment on a secured basis under the MBIA Corp. Secured Loan. As of September 30, 2012, the outstanding balance of the MBIA Corp. Secured Loan was repaid in full. In May 2012, the NYSDFS approved the maturity extension of the MBIA Corp. Secured Loan to May 2013 with a maximum outstanding amount of $450 million, subject to MBIA Corp. obtaining prior regulatory approval from the NYSDFS for any draws under the facility.

As of September 30, 2012, MBIA Corp. held cash and available-for-sale investments of $1.4 billion, of which $386 million comprised cash and highly liquid assets. As of December 31, 2011, MBIA Corp. held cash and available-for-sale investments of $1.5 billion, of which $534 million comprised cash and highly liquid assets. We believe that MBIA Corp.’s liquidity resources, including expected cash inflows, will adequately provide for anticipated cash outflows. In the event of unexpected liquidity requirements, we may have insufficient resources to meet our obligations or insufficient qualifying assets to support our surplus and reserves, and may seek to increase our cash holdings position by selling or financing assets, or raising external capital, and there can be no assurance that we will be able to draw on these additional sources of liquidity.

National Liquidity

Despite continued adverse macroeconomic conditions in the U.S., the incidence of default among U.S. public finance issuers remains extremely low and we believe that the liquidity position of our U.S. public finance insurance segment is sufficient to meet cash requirements in the ordinary course of business.

131

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

LIQUIDITY (continued)

Liquidity risk arises in our U.S. public finance insurance segment primarily from the following:

• The insurance policies issued or reinsured by National, the entity from which we conduct our U.S. public finance insurance business, provide unconditional and irrevocable guarantees of payments of the principal of, and interest or other amounts owing on, insured obligations when due or, in the event that the insurance company has the right, at its discretion, to accelerate insured obligations upon default or otherwise, upon the insurance company’s election to accelerate. In the event of a default in payment of principal, interest or other insured amounts by an issuer, National generally promises to make funds available in the insured amount within one to three business days following notification. In some cases, the amount due can be substantial, particularly if the default occurs on a transaction to which National has a large notional exposure or on a transaction structured with large, bullet-type principal maturities. The fact that the U.S. public finance insurance segment’s financial guarantee contracts generally cannot be accelerated by a party other than the insurer helps to mitigate liquidity risk in this segment.

• National has entered into certain intercompany transactions to support the liquidity needs of its affiliates. These transactions include the National Secured Loan to MBIA Insurance Corporation and the Asset Swap through which National provides liquid assets to our asset/liability products business. As a result of these transactions, National is subject to repayment risk, which may adversely affect its liquidity. The repayment of the National Secured Loan will primarily be predicated on MBIA Corp.’s ability to successfully enforce its rights to have mortgage sellers/servicers cure, replace or repurchase ineligible mortgage loans from securitizations it insured. In addition, changes in the market value of securities sold to National under its Asset Swap with the asset/liability products business may adversely affect its liquidity position if the asset/liability business were unable to pledge additional eligible assets in order to meet minimum required collateral amounts.

National held cash and short-term investments of $356 million as of September 30, 2012, of which $318 million was highly liquid and consisted predominantly of highly rated municipal, U.S. agency and corporate bonds. As of December 31, 2011, National held cash and short-term investments of $771 million, of which $703 million was highly liquid and consisted predominantly of highly rated municipal, U.S. agency and corporate bonds. With the exception of its loan to MBIA Insurance Corporation, most of National’s investments, including those encumbered by the Asset Swap, are liquid and highly rated.

Consolidated Cash Flows

Information about our consolidated cash flows by category is presented on our consolidated statements of cash flows. The following table presents our consolidated cash flows for the nine months ended September 30, 2012 and 2011:

	Nine Months Ended September 30,				Percent Change
In millions	2012		2011
Net cash provided (used) by:
Operating activities	$	(955)	$	(1,200)		-20%
Investing activities		3,106		2,791		11%
Financing activities		(2,343)		(1,482)		58%

Operating activities

Net cash used by operating activities decreased for the nine months ended September 30, 2012 compared with the same period of 2011, primarily from a decrease in commutations paid for insured credit derivative contracts and loss payments on financial guarantee insurance policies insuring RMBS exposures. This decrease was partially offset by a reduction in the collection of premiums due to the runoff of our insured portfolio, including terminations of policies with no significant business written, declines in net investment income due to lower average asset balances and a decrease in tax refunds collected.

Investing activities

Net cash provided by investing activities increased for the nine months ended September 30, 2012 compared with the same period of 2011, primarily related to proceeds from net sales and redemptions of securities for purposes of funding commutations and loss payments. This increase was partially offset by collateral postings and terminations related to derivatives.

Financing activities

Net cash used by financing activities increased for the nine months ended September 30, 2012 compared with the same period of 2011, primarily related to retirement of debt related to dissolving one of our conduits and paydowns on debt related to financial guarantee VIEs and securities sold under agreements to repurchase.

132

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

LIQUIDITY (continued)

Investments

The following discussion of investments, including references to consolidated investments, excludes cash and investments reported under “Assets of consolidated variable interest entities” on our consolidated balance sheets. Cash and investments of VIEs support the repayment of VIE obligations and are not available to settle obligations of MBIA.

Our available-for-sale investments comprise high-quality fixed-income securities and short-term investments. As of September 30, 2012 and December 31, 2011, the fair values of our consolidated available-for-sale investments were $6.4 billion and $8.4 billion, respectively, as presented in the following table. Additionally, consolidated cash and cash equivalents as of September 30, 2012 and December 31, 2011 were $298 million and $473 million, respectively.

In millions	As of September 30, 2012		As of December 31, 2011		Percent Change
Available-for-sale investments:
U.S. public finance insurance
Amortized cost	$	3,235	$	3,787		-15%
Unrealized net gain (loss)		177		108		64%
Fair value		3,412		3,895		-12%
Structured finance and international insurance
Amortized cost		1,272		1,361		-7%
Unrealized net gain (loss)		33		(15)		n/m
Fair value		1,305		1,346		-3%
Corporate
Amortized cost		626		448		40%
Unrealized net gain (loss)		(62)		(61)		2%
Fair value		564		387		46%
Advisory services
Amortized cost		12		17		-29%
Unrealized net gain (loss)		-		-		-
Fair value		12		17		-29%
Wind-down operations
Amortized cost		1,123		2,939		-62%
Unrealized net gain (loss)		17		(206)		-108%
Fair value		1,140		2,733		-58%
Total available-for-sale investments:
Amortized cost		6,268		8,552		-27%
Unrealized net gain (loss)		165		(174)		n/m
Total available-for-sale investments at fair value		6,433		8,378		-23%

133

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

LIQUIDITY (continued)

In millions	As of September 30, 2012		As of December 31, 2011		Percent Change
Investments carried at fair value:
U.S. public finance insurance
Amortized cost		182		165		10%
Unrealized net gain (loss)		-		(1)		-100%
Fair value		182		164		11%
Structured finance and international insurance
Amortized cost		27		25		8%
Unrealized net gain (loss)		2		-		n/m
Fair value		29		25		16%
Corporate
Amortized cost		38		41		-7%
Unrealized net gain (loss)		(11)		(19)		-42%
Fair value		27		22		23%
Advisory services
Amortized cost		3		3		-
Unrealized net gain (loss)		-		-		-
Fair value		3		3		-
Wind-down operations
Amortized cost		7		102		-93%
Unrealized net gain (loss)		-		(12)		-100%
Fair value		7		90		-92%
Total investments carried at fair value:
Amortized cost		257		336		-24%
Unrealized net gain (loss)		(9)		(32)		-72%
Total Investments carried at fair value		248		304		-18%
Held-to-maturity investments:
Structured finance and international insurance operations—amortized cost		1		1		-
Total held-to-maturity investments at amortized cost		1		1		-
Other investments at amortized cost:
U.S. public finance insurance operations segment		10		9		11%
Advisory services		1		1		-
Total other investments at amortized cost		11		10		10%
Consolidated investments at carrying value	$	6,693	$	8,693		-23%

n/m - Percent change not meaningful.

The fair value of the Company’s investments is based on prices which include quoted prices in active markets and prices based on market-based inputs that are either directly or indirectly observable, as well as prices from dealers in relevant markets. Differences between fair value and amortized cost arise primarily as a result of changes in interest rates and general market credit spreads occurring after a fixed-income security is purchased, although other factors may also influence fair value, including specific credit-related changes, supply and demand forces and other market factors. When the Company holds an available-for-sale investment to maturity, any unrealized gain or loss currently recorded in accumulated other comprehensive income (loss) in the shareholders’ equity section of the balance sheet is reversed. As a result, the Company would realize a value substantially equal to amortized cost. However, when investments are sold prior to maturity, the Company will realize any difference between amortized cost and the sale price of an investment as a realized gain or loss within its consolidated statements of operations.

134

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

LIQUIDITY (continued)

Credit Quality

The credit quality distribution of the Company’s fixed-income investment portfolios, excluding short-term investments, based on ratings from Moody’s as of September 30, 2012 is presented in the following table. Alternate ratings sources, such as S&P or the best estimate of the ratings assigned by the Company, have been used for a small percentage of securities that are not rated by Moody’s.

	U.S. Public Finance				Structured Finance and International				Advisory Services				Corporate				Wind-down Operations				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		Fair Value		% of Fixed- Income Investments		Fair Value		% of Fixed- Income Investments
Available-for-sale:
Aaa	$	1,691		54%	$	533		80%	$	1		50%	$	-		0%	$	259		30%	$	2,484		51%
Aa		938		30%		29		4%		-		0%		-		0%		190		22%		1,157		23%
A		274		9%		16		2%		1		50%		35		13%		119		14%		445		9%
Baa		156		5%		15		2%		-		0%		41		16%		235		27%		447		9%
Below investment grade		23		1%		45		7%		-		0%		164		63%		49		6%		281		6%
Not rated		21		1%		31		5%		-		0%		20		8%		8		1%		80		2%
Total	$	3,103		100%	$	669		100%	$	2		100%	$	260		100%	$	860		100%	$	4,894		100%
Short-term investments		304				636				10				289				269				1,508
Investments held-to-maturity		-				1				-				-				-				1
Investments held at fair value		182				29				3				27				7				248
Other investments		15				-				1				15				11				42
Consolidated investments at carrying value	$	3,604			$	1,335			$	16			$	591			$	1,147			$	6,693

As of September 30, 2012, the weighted average credit quality of the Company’s available-for-sale investment portfolios, excluding short-term and other investments, as presented in the preceding table are as follows:

	U.S. Public Finance	Structured Finance and International Insurance	Advisory Services	Corporate	Wind-down Operations
Weighted average credit quality ratings	Aa	Aa	Aa	Below investment grade	A

Insured Investments

MBIA’s consolidated investment portfolio includes investments that are insured by various financial guarantee insurers (“Insured Investments”), including investments insured by MBIA Corp. and National (“Company-Insured Investments”). As of September 30, 2012, Insured Investments at fair value represented $797 million or 12% of consolidated investments, of which $432 million or 6% of consolidated investments were Company-Insured Investments.

As of September 30, 2012, based on the actual or estimated underlying ratings of our consolidated investment portfolio, without giving effect to financial guarantees, the weighted average rating of the consolidated investment portfolio would be in the Aa range, the weighted average rating of only the Insured Investments in the investment portfolio would be in the Baa range, and 4% of the total investment portfolio would be rated below investment grade in the Insured Investments.

135

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

LIQUIDITY (continued)

The distribution of the Company’s Insured Investments by financial guarantee insurer as of September 30, 2012 is presented in the following table:

	U.S. Public Finance				Structured Finance and International				Corporate				Wind-Down Operations				Total
In millions	Fair Value		% of Total Investments		Fair Value		% of Total Investments		Fair Value		% of Total Investments		Fair Value		% of Total Investments		Fair Value		% of Total Investments
MBIA Corp.	$	-		0%	$	21		0%	$	67		1%	$	142		3%	$	230		4%
National		123		2%		-		0%		22		0%		57		1%		202		3%
Assured Guaranty Municipal Corp.		66		1%		-		0%		-		0%		129		2%		195		3%
Ambac Financial Group, Inc.		26		0%		-		0%		67		1%		48		1%		141		2%
FGIC		3		0%		2		0%		9		0%		8		0%		22		0%
Other		3		0%		-		0%		4		0%		-		0%		7		0%
Total	$	221		3%	$	23		0%	$	169		2%	$	384		7%	$	797		12%

In purchasing Insured Investments, the Company independently assesses the underlying credit quality, structure and liquidity of each investment, in addition to the creditworthiness of the insurer. Insured Investments are diverse by sector, issuer and size of holding. The Company assigns underlying ratings to its Insured Investments without giving effect to financial guarantees based on underlying ratings assigned by Moody’s, or another external agency when a rating is not published by Moody’s. 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. A downgrade of a financial guarantee insurer will likely have an adverse affect on the fair value of investments insured by the downgraded financial guarantee insurer. If MBIA determines that declines in the fair values of Insured Investments are other-than-temporary, the Company will record a realized loss through earnings.

The underlying ratings of the Company-Insured Investments as of September 30, 2012 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 following table are based on ratings from Moody’s. Alternate ratings sources, such as S&P, have been used for a small percentage of securities that are not rated by Moody’s.

In millions			Structured
Underlying Ratings Scale	U.S. Public Finance Insurance		Finance and International Insurance		Corporate		Wind-down Operations		Total
National:
Aaa	$	-	$	-	$	-	$	-	$	-
Aa		44		-		-		16		60
A		58		-		-		15		73
Baa		21		-		22		26		69
Below investment grade		-		-		-		-		-
Total National	$	123	$	-	$	22	$	57	$	202
MBIA Corp.:
Aaa	$	-	$	-	$	-	$	-	$	-
Aa		-		-		-		-		-
A		-		-		-		14		14
Baa		-		-		-		114		114
Below investment grade		-		21		67		14		102
Total MBIA Corp.	$	-	$	21	$	67	$	142	$	230
Total MBIA Insured Investments	$	123	$	21	$	89	$	199	$	432

Without giving effect to the MBIA guarantee of the Company-Insured Investments in the consolidated investment portfolio, as of September 30, 2012, based on actual or estimated underlying ratings, the weighted average rating of the consolidated investment portfolio was in the Aa range, the weighted average rating of only the Company-Insured Investments was in the Baa range, and investments rated as below investment grade in the Company-Insured Investments were 2% of the total consolidated investment portfolio.

Impaired Investments

As of September 30, 2012 and December 31, 2011, we held impaired investments (investments for which fair value was less than amortized cost) with a fair value of $1.0 billion and $2.4 billion, respectively.

136

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

LIQUIDITY (continued)

We analyze impaired investments within our investment portfolio for other-than-temporary impairments on a quarterly basis. Key factors considered when assessing other-than-temporary impairments include but are not limited to: (a) structural and economic factors among security types that represent our largest exposure to credit impairment losses; (b) the duration and severity of the unrealized losses (i.e., a decline in the market value of a security by 20% or more at the time of the review, or 5% impaired at the time of review with a fair value below amortized cost for a consecutive 12-month period) and (c) the results of various cash flow modeling techniques. Our cash flow analysis considers all sources of cash, including credit enhancement, that support the payment of amounts owed by an issuer of a security. This includes the consideration of cash expected to be provided by financial guarantors, including MBIA Corp., resulting from an actual or potential insurance policy claim.

Refer to “Note 7: Investments” in the Notes to Consolidated Financial Statements for a detailed discussion about impaired investments.

Debt Obligations

Principal payments due under our debt obligations in the three months ending December 31, 2012 and each of the subsequent four years ending December 31 and thereafter are presented in the following table. The repayment of principal on our surplus notes is reflected in 2013, the first call date. Principal payments under investment agreements are based on expected withdrawal dates. All other principal payments are based on contractual maturity dates. Foreign currency denominated liabilities are presented in U.S. dollars using applicable exchange rates as of September 30, 2012, and liabilities issued at a discount reflect principal amounts due at maturity.

	As of September 30, 2012
In millions	Three Months Ending December 31, 2012		2013		2014		2015		2016		Thereafter		Total
Structured finance and international insurance segment:
Variable interest entity notes	$	172	$	533	$	399	$	621	$	546	$	6,586	$	8,857
Surplus notes		-		940		-		-		-		-		940
Corporate segment:
Long-term debt		-		-		-		-		-		897		897
Asset/liability products segment:
Investment agreements		10		183		142		46		51		633		1,065
Medium-term notes		13		40		61		253		125		1,889		2,381
Conduit segment:
Medium-term notes		-		-		150		-		336		149		635
Total	$	195	$	1,696	$	752	$	920	$	1,058	$	10,154	$	14,775

137

Item 3. Quantitative and Qualitative Disclosures About Market Risk

In general, MBIA’s market risk relates to changes in the value of financial instruments that arise from adverse movements in factors such as interest rates, foreign exchange rates and credit spreads. MBIA is exposed to changes in interest rates, foreign exchange rates and credit spreads that affect the fair value of its financial instruments, namely investment securities, investment agreement liabilities, MTNs, debentures and certain derivative transactions. The Company’s investment portfolio holdings are primarily U.S. dollar-denominated fixed-income securities including municipal bonds, U.S. government bonds, MBS, collateralized mortgage obligations, corporate bonds and ABS. In periods of rising and/or volatile interest rates, foreign exchange rates and credit spreads, profitability could be adversely affected should the Company have to liquidate these securities.

MBIA minimizes its exposure to interest rate risk, foreign exchange risk and credit spread movement through active portfolio management to ensure a proper mix of the types of securities held and to stagger the maturities of its fixed-income securities. In addition, the Company enters into various swap agreements that hedge the risk of loss due to interest rate and foreign currency volatility.

Interest Rate Sensitivity

Interest rate sensitivity can be estimated by projecting a hypothetical instantaneous increase or decrease in interest rates. The following table presents the estimated pre-tax change in fair value of the Company’s financial instruments as of September 30, 2012 from instantaneous shifts in interest rates:

	Change in Interest Rates
In millions	300 Basis Point Decrease		200 Basis Point Decrease		100 Basis Point Decrease		100 Basis Point Increase		200 Basis Point Increase		300 Basis Point Increase
Estimated change in fair value	$	(141)	$	(72)	$	(29)	$	(76)	$	(132)	$	(193)

Foreign Exchange Sensitivity

Foreign exchange rate sensitivity can be estimated by projecting a hypothetical instantaneous increase or decrease in foreign exchange rates. The following table presents the estimated pre-tax change in fair value of the Company’s financial instruments as of September 30, 2012 from instantaneous shifts in foreign exchange rates:

	Change in Foreign Exchange Rates
	Dollar Weakens				Dollar Strengthens
In millions	20%		10%		10%		20%
Estimated change in fair value	$	(51)	$	(26)	$	26	$	51

Credit Spread Sensitivity

Credit spread sensitivity can be estimated by projecting a hypothetical instantaneous increase or decrease in credit spreads. The following table presents the estimated pre-tax change in fair value of the Company’s financial instruments as of September 30, 2012 from instantaneous shifts in credit spread curves. For this table it was assumed that all credit spreads move by the same amount. It is more likely that the actual changes in credit spreads will vary by security. MBIA Corp.’s investment portfolio would generally be expected to experience lower credit spread volatility than the investment portfolio of the asset/liability products segment because of higher credit quality and portfolio composition in sectors that have been less volatile historically. The table shows hypothetical increases and decreases in credit spreads of 50 and 200 basis points. Because downward movements of these amounts in some cases would result in negative spreads, a floor was assumed for minimum spreads. The changes in fair value reflect partially offsetting effects as the value of the investment portfolios generally changes in an opposite direction from the liability portfolio.

	Change in Credit Spreads
In millions	200 Basis Point Decrease		50 Basis Point Decrease		50 Basis Point Increase		200 Basis Point Increase
Estimated change in fair value	$	32	$	27	$	(108)	$	(255)

138

Item 3. Quantitative and Qualitative Disclosures About Market Risk (continued)

Credit Derivatives Sensitivity

MBIA issued insurance policies insuring payments due on structured credit derivative contracts and directly entered into credit derivative contracts, which are marked-to-market through earnings under the accounting principles for derivatives and hedging activities. All these transactions were insured by the Company’s structured finance and international insurance operations. The majority of these structured CDSs related to structured finance transactions with underlying reference obligations of cash securities and CDSs referencing liabilities of corporations or of other structured finance securitizations. The asset classes of the underlying reference obligations included corporate, asset-backed, residential mortgage-backed and commercial mortgage-backed securities. These transactions were usually underwritten at or above a triple-A credit rating level. As of September 30, 2012, approximately 21% of the tranches insured by the Company were rated triple-A. Additionally, MBIA’s wind-down operations entered into single-name CDSs as part of its asset management activities. In the first nine months of 2012, the value of the Company’s credit derivative contracts was principally affected by commutations, the movements of MBIA’s nonperformance risk on its derivative liabilities which resulted from a widening of its own credit spreads and a reduction in the Company’s recovery rate and favorable movements in spreads and pricing on collateral within transactions partially offset by collateral erosion. As risk factors change, the values of credit derivative contracts will change and the resulting gains or losses will be recorded within net income.

In the first nine months of 2012, the Company has observed a widening of its own credit spreads. As changes in fair value can be caused by factors unrelated to the performance of MBIA’s business and credit portfolio, including general market conditions and perceptions of credit risk, as well as market use of credit derivatives for hedging purposes unrelated to the specific referenced credits in addition to events that affect particular credit derivative exposures, the application of fair value accounting will cause the Company’s earnings to be more volatile than would be suggested by the underlying performance of MBIA’s business operations and credit portfolio.

The following tables reflect sensitivities to changes in credit spreads, collateral prices, rating migrations, recovery rates and the Company’s own credit spreads and recovery rates. Each table stands on its own and should be read independently of each other. Refer to “Note 6: Fair Value of Financial Instruments” in the Notes to Consolidated Financial Statements for further information about the Company’s financial assets and liabilities that are accounted for at fair value, including valuation techniques and disclosures required by GAAP.

Sensitivity to changes in credit spreads can be estimated by projecting a hypothetical instantaneous shift in credit spread curves. The following table presents the estimated pre-tax change in fair value and the cumulative estimated net fair value of the Company’s credit derivatives portfolio of instantaneous shifts in credit spreads as of September 30, 2012. In scenarios where credit spreads decreased, a floor of zero was used.

	Change in Credit Spreads
In millions	600 Basis Point Decrease		200 Basis Point Decrease		50 Basis Point Decrease		0 Basis Point Change		50 Basis Point Increase		200 Basis Point Increase		600 Basis Point Increase
Estimated pre-tax net gains (losses)	$	1,422	$	437	$	113	$	-	$	(123)	$	(524)	$	(1,606)
Estimated net fair value	$	(1,901)	$	(2,886)	$	(3,210)	$	(3,323)	$	(3,446)	$	(3,847)	$	(4,929)

Actual shifts in credit spread curves will vary based on the credit quality of the underlying reference obligations. In general, within any asset class, higher credit rated reference obligations will exhibit less credit spread movement than lower credit rated reference obligations. Additionally, the degree of credit spread movement can vary significantly for different asset classes. The basis point change presented in the preceding table, however, represents a fixed basis point change in referenced obligation credit spreads across all credit quality rating categories and asset classes and, therefore, the actual impact of spread changes would vary from this presentation depending on the credit rating and distribution across asset classes, both of which will adjust over time depending on new business written and runoff of the existing portfolio.

139

Item 3. Quantitative and Qualitative Disclosures About Market Risk (continued)

Since the Company is now using collateral prices as an input into the Direct Price Model for certain multi-sector insured CDOs, a sensitivity analysis below shows the estimated pre-tax change in fair value and the cumulative estimated net fair value of the Company’s insured credit derivatives portfolio of a 10% and 20% change in collateral prices as of September 30, 2012.

	Change in Collateral Prices
	(Structured Finance and International Insurance)
In millions	20% Increase		10% Increase		No Change		10% Decrease		20% Decrease
Estimated pre-tax net gains (losses)	$	56	$	28	$	-	$	(28)	$	(57)
Estimated net fair value	$	(3,267)	$	(3,295)	$	(3,323)	$	(3,351)	$	(3,380)

Sensitivity to changes in the collateral portfolio credit quality can be estimated by projecting a hypothetical change in rating migrations. The following table presents the estimated pre-tax change in fair value and the cumulative estimated net fair value of the Company’s insured credit derivatives portfolio of a one and three notch rating change in the credit quality as of September 30, 2012. A notch represents a one step movement up or down in the credit rating.

	Change in Credit Ratings
	(Structured Finance and International Insurance)
In millions	Three Notch Increase		One Notch Increase		No Change		One Notch Decrease		Three Notch Decrease
Estimated pre-tax net gains (losses)	$	1,416	$	259	$	-	$	(353)	$	(664)
Estimated net fair value	$	(1,907)	$	(3,064)	$	(3,323)	$	(3,676)	$	(3,987)

Recovery rates on defaulted collateral are an input into the Company’s valuation model. Sensitivity to changes in the recovery rate assumptions used by the Company can be estimated by projecting a hypothetical change in these assumptions. The following table presents the estimated pre-tax change in fair value and the cumulative estimated net fair value of the Company’s insured credit derivatives portfolio of a 10% and 20% change in the recovery rate assumptions as of September 30, 2012.

	Change in Recovery Rates
	(Structured Finance and International Insurance)
In millions	20% Increase		10% Increase		No Change		10% Decrease		20% Decrease
Estimated pre-tax net gains (losses)	$	293	$	142	$	-	$	(135)	$	(263)
Estimated net fair value	$	(3,030)	$	(3,181)	$	(3,323)	$	(3,458)	$	(3,586)

Accounting principles for fair value measurements require the Company to incorporate its own nonperformance risk in its valuation methodology. Sensitivity to changes in the Company’s credit spreads can be estimated by projecting a hypothetical change in this assumption. The following table presents the estimated pre-tax change in fair value and the cumulative estimated net fair value of the Company’s insured credit derivative portfolio using upfront credit spreads of 0%, an increase of 50%, and a decrease of 50%. The actual upfront spread used in the valuation as of September 30, 2012 ranged from 17.75% to 38.25% based on the tenor of each transaction. The below amounts include an additional annual running credit spread of 5%.

	MBIA Upfront Credit Spread
	(Structured Finance and International Insurance)
In millions	Increase by 50 Percent		No Change		Decrease by 50 Percent		Decrease to 0 Percentage Points
Estimated pre-tax net gains (losses)	$	424	$	-	$	(1,039)	$	(2,088)
Estimated net fair value	$	(2,899)	$	(3,323)	$	(4,362)	$	(5,411)

With the inclusion of the MBIA recovery rate in the calculation of nonperformance risk for the Company’s insured credit derivatives portfolio, the following sensitivity table presents the estimated pre-tax change in fair value of insured credit derivatives due to changes in that recovery rate. The values shown below reflect an approximate trading range of the MBIA recovery rate.

	MBIA’s Recovery Rate
	(Structured Finance and International Insurance)
In millions	Decrease to 25 Percentage Points		No Change		Increase to 50 Percentage Points
Estimated pre-tax net gains (losses)	$	206	$	-	$	(614)
Estimated net fair value	$	(3,117)	$	(3,323)	$	(3,937)

140

Item 3. Quantitative and Qualitative Disclosures About Market Risk (continued)

MBIA Corp.’s insurance of structured credit derivatives typically remain in place until the maturity of the derivative. With respect to MBIA Corp.’s insured structured credit derivatives, in the absence of credit impairments or the termination of derivatives at losses, the cumulative unrealized losses should reverse before or at maturity of the contracts. Additionally, in the event of the termination and settlement of a contract prior to maturity, any resulting gain or loss upon settlement will be recorded in our consolidated financial statements. In February 2008, the Company announced its intention not to insure credit derivatives in the future, except in transactions that are intended to reduce its overall exposure to insured derivatives.

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.

141

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

For a discussion of the Company’s litigation and related matters, see “Note 13: Commitments and Contingencies” in the Notes to Consolidated Financial Statements of MBIA Inc. and Subsidiaries in Part I, Item 1. In the normal course of operating its businesses, MBIA Inc. may be involved in various legal proceedings. As a courtesy, the Company posts on its website under the section “Legal Proceedings,” selected information and documents in reference to selected legal proceedings in which the Company is the plaintiff or the defendant. The Company will not necessarily post all documents for each proceeding and undertakes no obligation to revise or update them to reflect changes in events or expectations. The complete official court docket can be publicly accessed by contacting the clerk’s office of the respective court where each litigation is pending.

Item 1A. Risk Factors

The following should be read in conjunction with and supplements the risk factors described under Part I, Item 1A, “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

If MBIA Inc. is unable to consummate the consent solicitation, its senior notes may be accelerated if MBIA Insurance Corporation is placed in a rehabilitation or liquidation proceeding, and we do not expect MBIA Inc. to have sufficient liquidity to pay its accelerated obligations, which could cause it to file for bankruptcy if it were unable to pursue other alternatives, including an out-of-court restructuring, which we believe will be difficult to achieve

MBIA Inc. is seeking the consent of the holders of its senior notes to amend the indentures governing the senior notes to ensure that, if the NYSDFS commences a rehabilitation or liquidation proceeding with respect to MBIA Insurance Corporation, that the proceeding will not lead to an acceleration of the senior notes under the indentures. If the consent solicitation is not consummated and MBIA Insurance Corporation is placed in a rehabilitation or liquidation proceeding, it is likely that the senior notes would be accelerated. If the senior notes are accelerated we believe MBIA Inc. would have insufficient liquidity and capital markets access to pay the obligations under the senior notes. We believe that, under such circumstances, the Company would likely immediately pursue other alternatives, including an out-of-court restructuring, which we believe will be difficult to achieve, or a bankruptcy filing. We further believe that an MBIA Inc. bankruptcy would be highly destructive of the value of the Company, and would impose other costs and risks on its shareholders and creditors. This view is based on the following factors that we believe would result from an MBIA Inc. bankruptcy:

— Reduction in the value associated with National and other assets. An MBIA Inc. bankruptcy may cause the value associated with the business and assets of the Company and its subsidiaries (including the business of National, which is the Company’s primary asset) to be impaired, given the likely forced nature of any monetization transaction of those assets. Further, because National is a regulated entity, any monetization transaction with respect to National would need approval from the NYSDFS, which could impose significant restrictions or delay on the process. Additionally, a significant part of the value of National is made up of intercompany receivables, including the $1.6 billion National Secured Loan to MBIA Insurance Corporation that may be impaired in the event that MBIA Insurance Corporation is in a rehabilitation or liquidation proceeding, which could further diminish National’s value to the Company’s shareholders and creditors. Extraordinary or special dividends designed to accelerate the realization of value by the Company and its creditors would be subject to NYSDFS approval, which may be impacted by an MBIA Inc. bankruptcy. In addition, the NYSDFS could seek to restrict National’s ability to pay regular dividends beyond the restrictions currently in place.

— Assertion of significant claims against the Company. In addition to approximately $900 million of claims with respect to the senior notes, an MBIA Inc. bankruptcy may result in the assertion of substantial claims for intercompany liabilities by subsidiaries of the Company, including a likely asserted claim of approximately $1.6 billion on account of an intercompany obligation to GFL that would be accelerated by an MBIA Inc. bankruptcy and would likely be asserted by GFL on behalf of its creditors, including third-party noteholders, to rank no less than pari passu with MBIA Inc.’s senior notes in priority of payment. In addition, an MBIA Inc. bankruptcy may accelerate or trigger additional claims with respect to current third-party obligations other than the senior notes and the GFL obligation, such as repurchase agreements, swap agreements and other guaranteed investment contracts, including the possibility for assertion of make-whole claims and other penalty obligations in connection with such claims, or assertion of additional litigation claims that cannot be predicted at this time. While the Company would actively challenge any non-legitimate claims asserted in an MBIA Inc. bankruptcy, there can be no assurance a court would not allow such claims or that such claims would not in fact be greater than the Company’s estimated range, which could have the effect of substantial dilution in value available to shareholders and creditors.

142

Item 1A. Risk Factors (continued)

— Other significant potential adverse economic impacts to shareholders and creditors, including the following:

^¡  Cessation of interest payments; delay. Creditors are not likely to receive interest payments during the pendency of an MBIA Inc. bankruptcy, and there is a risk that in the event of a bankruptcy filing, debt obligations could be subject to conversion to equity with a market value below the amounts due on the corresponding debt obligations. Even in the absence of a debt-for-equity conversion, any distributions that debt holders may receive in respect of their claims in a bankruptcy proceeding may be subject to substantial delay following the commencement of the bankruptcy case and may result in less than payment in full.

^¡  Administrative expense and business impact of bankruptcy filing. The Company expects that value available for distribution to its shareholders and creditors would be substantially reduced if an MBIA Inc. bankruptcy becomes necessary, as a result of, among other things, business deterioration, credit impacts, significant administrative expenses and management distraction that the Company anticipates would be associated with any insolvency filing. Given the complex nature of certain of the Company’s intercompany lending and loan facilities, the Company expects that any proposed plan of reorganization, as well as the validity and priority of claims against the Company, would likely be contested, leading to an extended proceeding, further delaying and possibly diluting recoveries.

^¡  Potential impact on trading prices. The Company believes its shares and debt obligations would likely lose value in the secondary market in the event of an MBIA Inc. bankruptcy, in light of the risks described above and other risks that investors may perceive with respect to the amount and timing of any potential recovery at the conclusion of the Company’s bankruptcy process.

MBIA Insurance Corporation may be placed in a rehabilitation or liquidation proceeding as a result of, among other things, a lack of liquid assets available to pay claims due to the failure by RMBS sellers/servicers to honor their contractual obligation to repurchase ineligible mortgage loans, combined with the substantial RMBS claims payments and other claims and commutation payments to date, as well as the increased probability that MBIA Corp. will experience claims payments on certain of its CMBS exposures in the future

The determination to commence an MBIA Insurance Corporation rehabilitation or liquidation proceeding is not within the control of the Company. Article 74 of the NYIL gives the Superintendent of the NYSDFS exclusive authority to commence rehabilitation or liquidation proceedings against a New York insurer under a variety of circumstances, including if the Superintendent finds the insurer is in such condition that its further transaction of business will be hazardous to policyholders, creditors, or the public, or if the Superintendent finds that the insurer is insolvent. MBIA Corp. faces certain key risks and contingencies as described herein that increase the possibility that it could be placed in a rehabilitation or liquidation proceeding by the Superintendent.

143

Item 1A. Risk Factors (continued)

Since the fourth quarter of 2007 through September 30, 2012, MBIA Corp. has made $11.6 billion of cash payments, before reinsurance and collections and excluding LAE (including payments made to debt holders of consolidated VIEs), associated with second-lien RMBS securitizations and with commutations and claim payments relating to CDS contracts. These cash payments include loss payments of $893 million made on behalf of MBIA Corp.’s consolidated VIEs. Of the $11.6 billion, MBIA Corp. has paid $6.6 billion of gross claims (before reinsurance and collections and excluding LAE) on policies insuring second-lien RMBS securitizations, driven primarily by an extensive number of ineligible mortgage loans being placed in the securitizations in breach of the representations and warranties of the sellers/servicers. The Company’s assessment of the ineligibility of individual mortgage loans is being challenged by the originators in litigation and there is no assurance that the Company’s determinations will prevail. See “Note 13: Commitments and Contingencies” in the Notes to Consolidated Financial Statements of MBIA Inc. and Subsidiaries in Part I, Item 1 of this Quarterly Report on Form 10-Q. MBIA Corp. is seeking to enforce its rights to have Bank of America/Countrywide, and other mortgage sellers/servicers cure, replace or repurchase ineligible mortgage loans from these securitizations and has recorded a total of $3.2 billion of related expected recoveries on its consolidated balance sheets as of September 30, 2012, including expected recoveries recorded in the Company’s consolidated VIEs. In addition, the $11.6 billion included $5.0 billion of gross settlement and claim payments (before reinsurance and collections and excluding LAE) on insured credit derivatives comprising CMBS pools, CRE CDOs, CRE loan pools, corporate CDOs, multi-sector CDOs, and multi-sector CDO-squared transactions, among other types of transactions. While MBIA Corp. has commuted most of its higher risk CMBS pool exposures, a single counterparty—Bank of America and its subsidiary Merrill Lynch (collectively, “Bank of America/Merrill Lynch” and, together with Bank of America/Countrywide, “BOA”)—holds a significant amount of MBIA Corp.’s remaining CMBS pool exposures, including a substantial majority of MBIA Corp.’s CMBS pools originally insured in 2006 and 2007 primarily referencing BBB and lower rated collateral (the “BOA CMBS Exposure”). MBIA Corp. has also recorded its largest put-back asset related to ineligible mortgage loans included in insured second-lien RMBS transactions against BOA.

The failure by the mortgage originators, primarily BOA, to honor their contractual obligation to repurchase ineligible mortgage loans combined with the substantial RMBS claims payments and other claims and commutation payments to date have placed substantial stress on MBIA Corp.’s liquidity resources. In addition, due to the deterioration in MBIA Corp.’s CMBS exposures, primarily in the BOA CMBS Exposure, there is an increased possibility that MBIA Corp. will have claims presented on the BOA CMBS Exposure, which claims are likely to occur in the near term and could ultimately be substantial. Depending on the amount of actual claims on the BOA CMBS Exposure and the amount of claims on other policies issued by MBIA Corp., MBIA Corp. may not have sufficient liquid assets to pay such claims in the absence of a settlement of the BOA put-back recoverables and the commutation of the BOA CMBS Exposure. As described further below, in light of these circumstances and especially in the event of claims under the BOA CMBS Exposure the Superintendent may commence a rehabilitation or liquidation proceeding against MBIA Insurance Corporation. MBIA Corp. has recorded loss reserves for the BOA CMBS Exposure that reflect our current estimate of ultimate losses and that are based on various assumptions about potential payments by MBIA Corp. with respect to the BOA CMBS Exposure, including, among other things, that the BOA CMBS Exposure will likely be commuted. There have been no material claims made to date on the policies insuring such exposures. If economic conditions deteriorate or we are unable to commute the BOA CMBS Exposure, MBIA Corp. could incur substantial additional losses in its portfolio in excess of its estimates. In addition, because the reserves are based on management’s judgment and estimates, there can be no assurance that the ultimate liability will not exceed such estimates, that the BOA CMBS Exposure will be commuted, or that the timing of claims payments and the realization of recoveries will not create liquidity issues.

144

Item 1A. Risk Factors (continued)

The amount MBIA Corp. may ultimately collect from BOA on its put-back obligations in any litigation settlement could be impacted by potential commutation payments or offset on the BOA CMBS Exposure and developments in the Transformation Litigation (for discussion of the Transformation Litigation, see “Note 13: Commitments and Contingencies” in the Notes to Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q) given that Bank of America/Merrill Lynch is also one of the two remaining plaintiffs in the Transformation Litigation. Likewise, MBIA Corp.’s ability to commute the BOA CMBS Exposure may be impacted by developments in the put-back litigation with BOA and the Transformation Litigation. There can be no assurance that any such settlement or commutation will occur or that any such settlement or commutation, if it occurs, would be consummated within the estimates of expected recoveries or loss payments associated with these exposures that are recorded in the Company’s consolidated financial statements. In addition, there can be no assurance that MBIA Corp. will have adequate resources to meet its obligations even if it enters into any such settlement or commutation, or wins a judgment in its favor in its actions against BOA.

As of September 30, 2012, MBIA Insurance Corporation’s statutory capital was $1.5 billion under U.S. STAT. In addition, as of September 30, 2012, MBIA Corp. held cash and available-for-sale investments of $1.4 billion, of which $386 million comprised cash and highly liquid assets. As of December 31, 2011, MBIA Corp. held cash and available-for-sale investments of $1.5 billion, of which $534 million comprised cash and highly liquid assets. However, due to liquidity constraints caused by the factors described above or if future claims exceed expectations due to an unexpected deterioration in economic conditions or due to other unanticipated factors, MBIA Corp. may not be able to pay claims on a timely basis in the future, in particular if BOA and other sellers/servicers continue their strategy of refusing to honor put-back claims or disputing and delaying their put-back obligations and MBIA Corp. receives claims on the BOA CMBS Exposure before recovery of the BOA or other significant put-back recoverables, if any. Furthermore, MBIA Corp. may have insufficient resources to meet its obligations if it fails to collect expected put-back recoveries, is unable to commute its most volatile exposures or experiences higher than expected claims payments on its insured obligations. In these potential circumstances, among others, the Superintendent may commence a proceeding against MBIA Insurance Corporation under Article 74 as described above. Given the Superintendent’s authority to find that MBIA Insurance Corporation’s continued transaction of business will be hazardous to policyholders, creditors or the public, and the lack of any clear standards on what would constitute such a hazard, the Superintendent generally has broad discretion to put MBIA Insurance Corporation into a rehabilitation or liquidation proceeding.

In addition to the Superintendent’s authority to commence rehabilitation or liquidation proceedings, the Superintendent could, should he find that the liabilities of MBIA Insurance Corporation exceed its admitted assets, use its authority under Section 1310 of the NYIL to order MBIA Insurance Corporation to cease making claims payments (a “1310 Order”). The issuance of a 1310 Order could result in material adverse consequences for MBIA Insurance Corporation, including that holders of some or all of the CDS insured by MBIA Insurance Corporation may potentially seek to terminate one or more of such swaps on the basis of such order (or the findings by the Superintendent underlying such order’s issuance) and assert claims for mark-to-market termination payments with respect to such terminations (which claims MBIA Corp. may not be able to pay).

Developments in the regulation of derivatives may create additional burdens on the Company

In July 2010, the Dodd-Frank Act was signed into law for the purpose of enacting broad financial industry regulatory reform, including by enhancing regulation of the over-the-counter derivatives markets. Among other reforms, the Dodd-Frank Act requires “swap dealers” and “major swap participants” to register with either or both of the Commodity Futures Trading Commission (“CFTC”) and the SEC, and to be subject to enhanced regulation, including capital requirements. The CFTC and SEC have promulgated rules to implement this enhanced regulatory framework, including final rules that require the Company to include its legacy insured derivatives in tests used to determine whether it is a major swap participant. Although the Company is still analyzing its position under these rules, it believes that it may be required to register as a major swap participant.

If the Company were required to register as a major swap participant, it could incur substantial costs in its efforts to comply with these new requirements, many of which would be novel in their application to the Company. Because the CFTC and SEC have not yet issued final rules establishing capital requirements for major swap participants, the ultimate impact of such requirements on the Company is not yet clear. However, to the extent that the Company becomes subject to significant additional capital requirements, it is unlikely that the Company will be able to meet those standards.

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

The table below presents repurchases made by the Company in each month during the third quarter of 2012:

Month	Total Number of  Shares Purchased(1)		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan		Maximum Amount That May Be Purchased Under the Plan (in millions)(2)
July		-	$	-		-	$	23
August		130		10.54		-		23
September		3,755		11.59		-		23

(1) - 3,885 shares were purchased in open market transactions as an investment in the Company’s non-qualified deferred compensation plan.

(2) - On February 1, 2007, the Company’s Board of Directors authorized the repurchase of common stock up to $1 billion under a new share repurchase program, which superseded the previously authorized program.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

145

Item 6. Exhibits

+31.1.	Chief Executive Officer - Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
+31.2.	Chief Financial Officer - Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*32.1.	Chief Executive Officer - Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*32.2.	Chief Financial Officer - Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
+99.1.	Additional Exhibits - National Public Finance Guarantee Corporation and Subsidiaries GAAP Consolidated Financial Statements.
+99.2.	Additional Exhibits - MBIA Insurance Corporation and Subsidiaries GAAP Consolidated Financial Statements.
+101.	Additional Exhibits - MBIA Inc. and Subsidiaries Consolidated Financial Statements and Notes to Consolidated Financial Statements from the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2012, formatted in XBRL.

+ Filed Herewith

* Furnished Herewith

146

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: November 7, 2012	/s/ C. Edward Chaplin
	C. Edward Chaplin
	Chief Financial Officer
Date: November 7, 2012	/s/ Douglas C. Hamilton
	Douglas C. Hamilton
	Controller (Principal Accounting Officer)

147

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Joseph W. Brown, certify that:

1. I have reviewed the Quarterly Report of MBIA Inc. (the “Company”) on Form 10-Q for the period ending September 30, 2012 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 third quarter of 2012 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/ Joseph W. Brown

Joseph W. Brown

Chief Executive Officer

November 7, 2012

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, C. Edward Chaplin, certify that:

1. I have reviewed the Quarterly Report of MBIA Inc. (the “Company”) on Form 10-Q for the period ending September 30, 2012 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 third quarter of 2012 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/ C. Edward Chaplin

C. Edward Chaplin

Chief Financial Officer

November 7, 2012

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 September 30, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Joseph W. Brown, 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 results of operations of the Company.

/s/ Joseph W. Brown

Joseph W. Brown

Chief Executive Officer

November 7, 2012

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 September 30, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, C. Edward Chaplin, 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 results of operations of the Company.

/s/ C. Edward Chaplin

C. Edward Chaplin

Chief Financial Officer

November 7, 2012

EX-99.1

Exhibit 99.1

NATIONAL PUBLIC FINANCE GUARANTEE CORPORATION AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2012 and December 31, 2011

and for the periods ended September 30, 2012 and 2011

NATIONAL PUBLIC FINANCE GUARANTEE CORPORATION AND SUBSIDIARIES

INDEX

	PAGE
Consolidated Balance Sheets as of September 30, 2012 and December 31, 2011 (Unaudited)		1
Consolidated Statements of Operations for the three and nine months ended September 30, 2012 and 2011 (Unaudited)		2
Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2012 and 2011 (Unaudited)		3
Consolidated Statement of Changes in Shareholder’s Equity for the nine months ended September 30, 2012 (Unaudited)		4
Consolidated Statements of Cash Flows for the nine months ended September 30, 2012 and 2011 (Unaudited)		5
Notes to Consolidated Financial Statements (Unaudited)		6

NATIONAL PUBLIC FINANCE GUARANTEE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Unaudited)

(In thousands except share and per share amounts)

	September 30, 2012		December 31, 2011
Assets
Investments:
Fixed-maturity securities held as available-for-sale, at fair value (amortized cost $2,455,433 and $1,811,171)	$	2,597,231	$	1,863,877
Investments carried at fair value		181,960		164,610
Investments pledged as collateral, at fair value (amortized cost $501,056 and $1,371,670)		534,987		1,426,413
Short-term investments held as available-for-sale, at fair value (amortized cost $273,515 and $598,117)		274,220		599,094
Other investments (amortized cost of $8,760 and $9,376)		13,922		14,867
Total investments		3,602,320		4,068,861
Cash and cash equivalents		58,168		137,170
Securities purchased under agreements to resell		522,000		1,335,000
Secured loan to an affiliate		1,622,776		1,130,000
Accrued investment income		59,945		40,254
Deferred acquisition costs		427,799		504,591
Premiums receivable		270,886		288,214
Insurance loss recoverable		229,726		150,143
Property and equipment at cost (less accumulated depreciation of $8,828 and $6,082)		62,014		61,035
Receivable for investments sold		126,876		1,517
Current income taxes		-		7,198
Other assets		20,931		14,573
Total assets	$	7,003,441	$	7,738,556
Liabilities and shareholder’s equity
Liabilities:
Unearned premium revenue	$	2,062,025	$	2,442,794
Loss and loss adjustment expense reserves		161,899		161,937
Securities sold under agreements to repurchase		522,000		1,335,000
Current income taxes, net		16,518		-
Deferred income taxes, net		234,527		237,539
Payable for investments purchased		150,284		3,039
Derivative liabilities		8,107		8,513
Other liabilities		22,990		16,471
Total liabilities		3,178,350		4,205,293
Commitments and contingencies (See Note 9)
Shareholder’s equity:
Common stock, par value $30 per share; authorized, issued and outstanding shares — 500,000 shares		15,000		15,000
Additional paid-in capital		2,363,016		2,363,164
Retained earnings		1,322,317		1,073,775
Accumulated other comprehensive income (loss), net of tax of $61,731 and $37,698		115,165		70,519
Total shareholder’s equity of National Public Finance Guarantee Corporation		3,815,498		3,522,458
Noncontrolling interest		9,593		10,805
Total equity		3,825,091		3,533,263
Total liabilities and shareholder’s equity	$	7,003,441	$	7,738,556

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

1

NATIONAL PUBLIC FINANCE GUARANTEE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(In thousands)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Revenues:
Premiums earned:
Scheduled premiums earned	$	50,621	$	61,310	$	164,784	$	212,648
Refunding premiums earned		79,338		62,791		190,088		102,698
Premiums earned (net of ceded premiums of $0, $1, $1, and $2)		129,959		124,101		354,872		315,346
Net investment income		56,392		52,551		166,513		164,701
Fees, reimbursements and other		1,730		1,909		4,905		5,109
Change in fair value of insured derivatives:
Realized gains and other settlements on insured derivatives		147		109		356		1,693
Unrealized gains (losses) on insured derivatives		28		(6)		50		(90)
Net change in fair value of insured derivatives		175		103		406		1,603
Net gains (losses) on financial instruments at fair value and foreign exchange		22,501		6,179		43,445		23,604
Total revenues		210,757		184,843		570,141		510,363
Expenses:
Losses and loss adjustment		3,842		9,950		15,139		4,516
Amortization of deferred acquisition costs		26,922		24,923		75,030		65,993
Operating		19,701		18,224		128,175		56,046
Interest expense		5		-		20		-
Total expenses		50,470		53,097		218,364		126,555
Income before income taxes		160,287		131,746		351,777		383,808
Provision for income taxes		45,593		40,063		102,717		107,983
Net income		114,694		91,683		249,060		275,825
Net income attributable to noncontrolling interest		166		306		518		306
Net income available to common shareholder	$	114,528	$	91,377	$	248,542	$	275,519

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

2

NATIONAL PUBLIC FINANCE GUARANTEE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(In thousands)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Net income	$	114,694	$	91,683	$	249,060	$	275,825
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on available-for-sale securities:
Unrealized holding gains (losses) arising during the period, net of tax of $11,145, $51,456, $29,424 and $86,000		20,767		95,900		54,658		160,175
Less: Reclassification adjustments for (gains) losses included in net income, net of tax of $2,314, $100, $5,391 and $1,915		(4,297)		186		(10,012)		(3,556)
Unrealized gains (losses) on available-for-sale securities, net		16,470		96,086		44,646		156,619
Total other comprehensive income (loss), net of tax		16,470		96,086		44,646		156,619
Comprehensive income (loss)		131,164		187,769		293,706		432,444
Less: comprehensive (income) loss attributable to noncontrolling interest		(166)		(306)		(518)		(306)
Comprehensive income attributable to common shareholder	$	130,998	$	187,463	$	293,188	$	432,138

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

3

NATIONAL PUBLIC FINANCE GUARANTEE CORPORATION AND SUBSIDIARIES

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

For The Nine Months Ended September 30, 2012

(In thousands except share amounts)

									Accumulated
					Additional				Other		Total
	Common Stock				Paid-in		Retained		Comprehensive		Shareholder’s		Noncontrolling		Total
	Shares		Amount		Capital		Earnings		Income (Loss)		Equity		Interest		Equity
Balance, December 31, 2011		500,000	$	15,000	$	2,363,164	$	1,073,775	$	70,519	$	3,522,458	$	10,805	$	3,533,263
Net income		-		-		-		248,542		-		248,542		518		249,060
Other comprehensive income (loss)		-		-		-		-		44,646		44,646		-		44,646
Share-based compensation net of tax of $148		-		-		(148)		-		-		(148)		-		(148)
Distributions to noncontrolling interest		-		-		-		-		-		-		(1,730)		(1,730)
Balance, September 30, 2012		500,000	$	15,000	$	2,363,016	$	1,322,317	$	115,165	$	3,815,498	$	9,593	$	3,825,091

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

4

NATIONAL PUBLIC FINANCE GUARANTEE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)

	Nine Months Ended September 30,
	2012		2011
Cash flows from operating activities:
Premiums, fees and reimbursements received	$	15,254	$	18,504
Return of refunded premiums paid		(17,711)		-
Investment income received		123,683		189,366
Financial guarantee losses and loss adjustment expenses paid		(101,948)		(111,412)
Proceeds from reinsurance and recoveries		7,185		1,775
Operating and employee related expenses paid		(129,701)		(97,720)
Income taxes paid		(106,195)		(193,807)
Net cash used by operating activities		(209,433)		(193,294)
Cash flows from investing activities:
Purchase of fixed-maturity securities		(777,518)		(1,002,701)
Sale and redemption of fixed-maturity securities		1,061,082		1,143,078
Issuance of secured loan to an affiliate		(443,000)		-
Acquisition of an entity from an affiliate		-		(146,151)
Sale (purchase) of short-term investments, net		293,431		259,082
Sale (purchase) of other investments, net		1,776		(5,485)
Capital expenditures		(3,610)		(1,273)
Net cash provided by investing activities		132,161		246,550
Cash flows from financing activities:
Issuance of noncontrolling interest		-		3,054
Distributions to noncontrolling interest, net		(1,730)		-
Net cash (used) provided by financing activities		(1,730)		3,054
Net (decrease) increase in cash and cash equivalents		(79,002)		56,310
Cash and cash equivalents - beginning of period		137,170		9,072
Cash and cash equivalents - end of period	$	58,168	$	65,382
Reconciliation of net income to net cash used by operating activities:
Net income	$	249,060	$	275,825
Adjustments to reconcile net income to net cash used by operating activities:
Changes in:
Accrued investment income		(69,497)		3,982
Premiums receivable		17,330		17,322
Deferred acquisition costs		76,792		62,555
Unearned premium revenue		(380,769)		(317,357)
Loss and loss adjustment expense reserves		(38)		(32,160)
Insurance loss recoverable		(79,583)		(72,961)
Payable to affiliates		(4,859)		(43,853)
Accrued expenses		5,611		3,730
Current income taxes		23,716		(111,602)
Amortization of bond discounts, net		15,780		15,917
Depreciation		2,632		2,573
Net (gains) losses on financial instruments at fair value and foreign exchange		(43,445)		(23,604)
Unrealized (gains) losses on insured derivatives		(50)		90
Deferred income tax (benefit) provision		(27,194)		25,773
Other operating		5,081		476
Total adjustments to net income		(458,493)		(469,119)
Net cash used by operating activities	$	(209,433)	$	(193,294)

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

5

National Public Finance Guarantee Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 1: Business Developments, Risks and Uncertainties, and Liquidity

Summary

National Public Finance Guarantee Corporation is a wholly-owned subsidiary of MBIA Inc. through an intermediary holding company, National Public Finance Guarantee Holdings, Inc. (“National Holdings”). National Real Estate Holdings of Armonk, LLC is a wholly-owned subsidiary of National. National Public Finance Guarantee Corporation and its subsidiaries are referred to as National.

Through its reinsurance of United States (“U.S.”) public finance financial guarantees from MBIA Insurance Corporation and Financial Guaranty Insurance Company, National’s insurance portfolio consists of municipal bonds, including tax-exempt and taxable indebtedness of U.S. political subdivisions, as well as utility districts, airports, health care institutions, higher educational facilities, student loan issuers, housing authorities and other similar agencies and obligations issued by private entities that finance projects that serve a substantial public purpose. Municipal bonds and privately issued bonds used for the financing of public purpose projects generally are supported by taxes, assessments, user fees or tariffs related to the use of these projects, by lease payments or by other similar types of revenue streams.

Business Developments and Risks and Uncertainties

National has not written any meaningful amount of business since its formation in 2009, and does not expect to write significant new insurance business prior to an upgrade of its credit ratings. As of September 30, 2012, National was rated BBB with a developing outlook by Standard & Poor’s Financial Services LLC and Baa2 with a negative outlook by Moody’s Investors Service, Inc.

MBIA Inc. has put in place agreements that allocate liquidity resources among its entities in order to fund commutations and provide liquidity where needed. Such agreements between National and its affiliates have required the approval of the New York State Department of Financial Services (“NYSDFS”). National’s ability to continue to provide its affiliates with liquidity and capital support and to pay dividends to MBIA Inc. will, in most cases, require further approvals from the NYSDFS, and there can be no assurance that National will be able to obtain such approvals. In addition, in connection with providing such approvals, the NYSDFS may require National to agree to take, or refrain from taking, certain actions.

Litigation over the NYSDFS’ approval of National’s creation or additional hurdles to achieving high stable ratings may impede National’s ability to resume writing municipal bond insurance for some time, reducing its long-term ability to generate capital and cash from operations.

Municipal and state fiscal distress in the U.S. could adversely affect National’s operations if it results in larger-than-expected incurred insurance losses. Although National’s insurance loss reserves are estimates of expected losses based on all available information, there is a possibility that such losses could increase significantly as a result of unexpected future defaults on insured bonds.

As of September 30, 2012, National had $3.1 billion of statutory capital. Statutory capital, defined as policyholders’ surplus and contingency reserves, is a key measure of an insurance company’s financial condition under insurance laws and regulations. Failure to maintain adequate levels of statutory surplus and total statutory capital could lead to intervention by National’s insurance regulators in its operations and constitute an event of default under certain of National’s contracts, thereby materially and adversely affecting National’s financial condition and results of operations.

6

National Public Finance Guarantee Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 1: Business Developments, Risks and Uncertainties, and Liquidity (continued)

Key Lending Agreements with Affiliates

National has entered into agreements with affiliates, which provide resources to affiliates that are more liquidity constrained, as follows:

National Secured Loan

National provided a $1.1 billion secured loan to MBIA Insurance Corporation (“National Secured Loan”) in order to enable MBIA Insurance Corporation to fund settlements and commutations of its insurance policies. This loan was approved by the NYSDFS as well as by the boards of directors of MBIA Inc., MBIA Insurance Corporation and National. The National Secured Loan has a fixed annual interest rate of 7% and a maturity date of December 2016. MBIA Insurance Corporation has the option to defer payments of interest when due by capitalizing interest amounts to the loan balance, subject to the collateral value exceeding certain thresholds. MBIA Insurance Corporation has elected to defer the interest payments due under the loan. MBIA Insurance Corporation’s obligation to repay the loan is secured by a pledge of collateral having an estimated value in excess of the notional amount of the loan as of September 30, 2012, which collateral comprised the following future receivables of MBIA Insurance Corporation: (i) its right to receive put-back recoveries related to ineligible mortgage loans included in its insured second-lien residential mortgage-backed securities (“RMBS”) transactions; (ii) future recoveries on defaulted insured second-lien RMBS transactions resulting from expected excess spread generated by performing loans in such transactions; and (iii) future installment premiums. During the nine months ended September 30, 2012, MBIA Insurance Corporation borrowed an additional $443 million under the National Secured Loan with the approval of the NYSDFS at the same terms as the original loan to fund additional commutations of its insurance policies. As of September 30, 2012, the outstanding principal amount under this loan was $1.6 billion. MBIA Insurance Corporation may seek to borrow additional amounts under the loan in the future. Any such increase or other amendment to the terms of the loan would be subject to regulatory approval by the NYSDFS.

Asset Swap

National maintains simultaneous repurchase and reverse repurchase agreements (“Asset Swap”) with MBIA Inc. for up to $2.0 billion based on the fair value of securities borrowed. The Asset Swap provides MBIA Inc. with eligible assets to pledge under investment agreement and derivative contracts in MBIA Inc.’s asset/liability products business. As of September 30, 2012, the notional amount utilized under each of these agreements was $522 million and the fair value of collateral pledged by National and MBIA Inc. under these agreements was $535 million and $558 million, respectively. The net average interest rate on these transactions was 0.56% and 0.34% for the nine months ended September 30, 2012 and 2011, respectively. The NYSDFS approved the Asset Swap in connection with the re-domestication of National to New York. National has committed to the NYSDFS to use commercially reasonable efforts to reduce the amount of the Asset Swap over time.

Liquidity

Despite continued adverse macroeconomic conditions in the U.S., the incidence of default among National issuers remains extremely low and the liquidity position of National is sufficient to meet its cash requirements in the ordinary course of business.

National has utilized a liquidity risk management framework, the primary objectives of which are to monitor liquidity positions and projections in its business and guide the matching of liquidity resources to needs. National monitors its cash and liquid asset resources using stress-scenario testing. Members of MBIA Inc. and National’s senior management meet regularly to review liquidity metrics, discuss contingency plans and establish target liquidity cushions on an enterprise-wide basis.

National’s liquidity management efforts focus on the liquidity resources of National for which National has not observed material liquidity risk to date but which are exposed to unexpected loss payments on its insured transactions and potential negative cash flow, and liquidity support arrangements with its affiliates.

7

National Public Finance Guarantee Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 1: Business Developments, Risks and Uncertainties, and Liquidity (continued)

Liquidity risk arises in National’s operations primarily from the following:

• The insurance policies issued or reinsured by National provide unconditional and irrevocable guarantees of payments of the principal of, and interest or other amounts owed on insured obligations when due; or, in the event that the insurance company has the right, at its discretion, to accelerate insured obligations upon default or otherwise, upon the insurance company’s election to accelerate. In the event of a default in payment of principal, interest or other insured amounts by an issuer, National generally promises to make funds available in the insured amount within one to three business days following notification. In some cases, the amount due can be substantial, particularly if the default occurs on a transaction to which National has a large notional exposure or on a transaction structured with large, bullet-type principal maturities. The fact that National’s financial guarantee contracts generally cannot be accelerated by a party other than the insurer helps to mitigate liquidity risk.

• National has entered into certain transactions to support the liquidity needs of its affiliates. These transactions include the National Secured Loan to MBIA Insurance Corporation and the Asset Swap through which National provides liquid assets to MBIA Inc. As a result of these transactions, National is subject to repayment risk, which may adversely affect its liquidity. The repayment of the National Secured Loan will primarily be predicated on MBIA Insurance Corporation’s ability to successfully enforce its rights to have mortgage sellers/servicers cure, replace or repurchase ineligible mortgage loans from securitizations it insured. In addition, changes in the market value of securities sold to National under its Asset Swap with MBIA Inc. may adversely affect its liquidity position if MBIA Inc. were unable to pledge additional eligible assets in order to meet minimum required collateral amounts.

National held cash and short-term investments of $356 million as of September 30, 2012, of which $318 million was highly liquid and consisted predominantly of highly rated municipal, U.S. agency and corporate bonds. As of December 31, 2011, National held cash and short-term investments of $771 million, of which $703 million was highly liquid and consisted predominantly of highly rated municipal, U.S. agency and corporate bonds. With the exception of its loan to MBIA Insurance Corporation, most of National’s investments, including those encumbered by the Asset Swap, are liquid and highly rated.

Note 2: Significant Accounting Policies

National has disclosed its significant accounting policies in “Note 2: Significant Accounting Policies” in the Notes to Consolidated Financial Statements included in Exhibit 99.2 to MBIA Inc.’s Annual Report on Form 10-K for the year ended December 31, 2011. The following significant accounting policies provide an update to those included under the same captions in Exhibit 99.2 to MBIA Inc.’s Annual Report on Form 10-K.

Basis of Presentation

The accompanying consolidated financial statements are unaudited and include the accounts of National and its wholly-owned subsidiaries. The accompanying unaudited interim consolidated financial statements do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America (“GAAP”) for annual periods. These statements should be read in conjunction with National’s consolidated financial statements and notes thereto included in Exhibit 99.2 to MBIA Inc.’s Annual Report on Form 10-K for the year ended December 31, 2011. 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 (U.S.), but in the opinion of management such consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for the fair statement of National’s consolidated financial position and results of operations.

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. As additional information becomes available or actual amounts become determinable, the recorded estimates are revised and reflected in operating results.

The results of operations for the three and nine months ended September 30, 2012 may not be indicative of the results that may be expected for the year ending December 31, 2012. The December 31, 2011 consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by GAAP for annual periods. Certain amounts have been reclassified in prior years’ financial statements to conform to the current presentation. Such reclassifications had no impact on total revenues, expenses, assets, liabilities, or shareholder’s equity for all periods presented.

8

National Public Finance Guarantee Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 2: Significant Accounting Policies (continued)

Statements of Cash Flows

National previously reported the consolidated statements of cash flows on an indirect method. The indirect method uses accrual accounting information to present the cash flows from operations. Effective January 1, 2012, National elected to present consolidated statements of cash flows using the direct method. The direct method uses actual cash flow information from National’s operations, rather than using accrual accounting values. Under either the direct or indirect method, the cash flows from operations remain the same. The presentation of cash flows from investing and financing activities using either the direct or indirect method is identical. The change to the direct method of presenting cash flows from operations was implemented retroactively for all periods presented. Use of the direct method requires a reconciliation of net income to cash flows from operations. This reconciliation is provided as a supplement directly beneath the consolidated statements of cash flows.

Subsequent Events

National evaluated all subsequent events as of November 7, 2012, the date of issuance of the consolidated financial statements, for inclusion in National’s consolidated financial statements and/or accompanying notes.

Note 3: Recent Accounting Pronouncements

Recently Adopted Accounting Standards

Presentation of Comprehensive Income (ASU 2011-05)

In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-05, “Comprehensive Income (Topic 220)—Presentation of Comprehensive Income.” This amendment eliminates the current option to report other comprehensive income and its components only in the statement of changes in equity except for the presentation of reclassification adjustments for which adoption has been deferred by the FASB. The amendment does not change what currently constitutes net income and other comprehensive income. The new guidance is effective for National beginning January 1, 2012. In December 2011, the FASB issued ASU 2011-12 “Comprehensive Income (Topic 220)—Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05,” which defers certain aspects of ASU 2011-05 related to the presentation of reclassification adjustments. National adopted this standard as of January 1, 2012. As this standard only affects National’s presentation of comprehensive income, the adoption of this standard did not affect National’s consolidated balance sheets, results of operations, or cash flows. Refer to “Consolidated Statements of Comprehensive Income” and “Consolidated Statement of Changes in Shareholder’s Equity (Deficit)” for presentation of comprehensive income under the new standard.

Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (ASU 2011-04)

In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820)—Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” This amendment results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between GAAP and International Financial Reporting Standards. National adopted this standard as of January 1, 2012. As this standard only affects disclosures related to fair value, the adoption of this standard did not affect National’s consolidated balance sheets, results of operations, or cash flows. Refer to “Note 5: Fair Value of Financial Instruments” for these disclosures.

Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts (ASU 2010-26)

In October 2010, the FASB issued ASU 2010-26, “Financial Services – Insurance (Topic 944)—Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts.” This amendment specifies which costs incurred in the acquisition of new and renewal insurance contracts should be capitalized. National adopted this standard on a prospective basis effective January 1, 2012. As National is currently not writing any significant new business, the adoption of this standard did not have a material effect on National’s consolidated balance sheets, results of operations, or cash flows. The difference between the amount of acquisition costs capitalized during the first nine months of 2012 compared with the amount of acquisition costs that would have been capitalized during the period if National’s previous policy had been applied during that period is not material because National did not write any significant new insurance business during the first nine months of 2012.

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National Public Finance Guarantee Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 3: Recent Accounting Pronouncements (continued)

Recent Accounting Developments

Disclosures about Offsetting Assets and Liabilities (ASU 2011-11)

In December 2011, the FASB issued ASU 2011-11, “Balance Sheet (Topic 210)—Disclosures about Offsetting Assets and Liabilities.” ASU 2011-11 creates new disclosure requirements about the nature of National’s rights of setoff and related arrangements associated with its financial instruments and derivative instruments. This amendment does not change the existing offsetting eligibility criteria or the permitted balance sheet presentation for those instruments that meet the eligibility criteria. The disclosure requirements are effective for National beginning in the first quarter of 2013. This standard will only affect National’s disclosures and will not affect National’s consolidated balance sheets, results of operations, or cash flows.

Refer to the Notes to Consolidated Financial Statements of National included in Exhibit 99.2 to MBIA Inc.’s Annual Report on Form 10-K for the year ended December 31, 2011 for further information regarding the effects of recently adopted accounting standards on prior year financial statements.

Note 4: Loss and Loss Adjustment Expense Reserves

For the nine months ended September 30, 2012, National recognized $15 million of loss and loss adjustment expense (“LAE”).

Refer to “Note 5: Loss and Loss Adjustment Expense Reserves” in the Notes to Consolidated Financial Statements included in Exhibit 99.2 to MBIA Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011 for information about National’s monitoring of outstanding insured obligations and for additional information about its loss reserving process.

The following table provides information about the financial guarantees and related claim liability included in each of National’s surveillance categories as of September 30, 2012:

	Surveillance Categories
$ in millions	Caution List Low		Caution List Medium		Caution List High		Classified List		Total
Number of policies		20		9		7		51		87
Number of issues(1)		9		4		7		19		39
Remaining weighted average contract period (in years)		11.3		7.5		13.0		12.7		11.7
Gross insured contractual payments outstanding:(2)
Principal	$	817	$	193	$	122	$	916	$	2,048
Interest		1,164		93		80		1,040		2,377
Total	$	1,981	$	286	$	202	$	1,956	$	4,425
Gross claim liability	$	-	$	-	$	-	$	383	$	383
Less:
Gross potential recoveries		-		-		-		426		426
Discount, net		-		-		-		(4)		(4)
Net claim liability (recoverable)	$	-	$	-	$	-	$	(39)	$	(39)
Unearned premium revenue	$	13	$	4	$	2	$	20	$	39

(1) - An “issue” represents the aggregate of financial guarantee policies that share the same revenue source for purposes of making debt service payments.

(2) - Represents contractual principal and interest payments due by the issuer of the obligations insured by National.

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National Public Finance Guarantee Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 4: Loss and Loss Adjustment Expense Reserves (continued)

The following table provides information about the financial guarantees and related claim liability included in each of National’s surveillance categories as of December 31, 2011:

	Surveillance Categories
$ in millions	Caution List Low		Caution List Medium		Caution List High		Classified List		Total
Number of policies		21		13		8		42		84
Number of issues(1)		10		7		6		15		38
Remaining weighted average contract period (in years)		14.7		9.2		9.8		13.1		12.7
Gross insured contractual payments outstanding:(2)
Principal	$	655	$	337	$	152	$	802	$	1,946
Interest		1,195		162		76		977		2,410
Total	$	1,850	$	499	$	228	$	1,779	$	4,356
Gross claim liability	$	-	$	-	$	-	$	436	$	436
Less:
Gross potential recoveries		-		-		-		407		407
Discount, net		-		-		-		2		2
Net claim liability (recoverable)	$	-	$	-	$	-	$	27	$	27
Unearned premium revenue	$	14	$	7	$	1	$	21	$	43

(1) - An “issue” represents the aggregate of financial guarantee policies that share the same revenue source for purposes of making debt service payments.

(2) - Represents contractual principal and interest payments due by the issuer of the obligations insured by National.

National’s potential recoveries are typically based on either salvage rights, the rights conferred to National through the transactional documents (inclusive of the insurance agreement), or subrogation rights embedded within financial guarantee insurance policies. Expected salvage and subrogation recoveries, as well as recoveries from other remediation efforts, reduce National’s claim liability. Once a claim payment has been made, the claim liability has been satisfied and National’s right to recovery is no longer considered an offset to future expected claim payments, but it is recorded as a salvage asset. The amount of recoveries recorded by National is limited to paid claims plus the present value of projected future claim payments. As claim payments are made, the recorded amount of potential recoveries may exceed the remaining amount of claim liability for a given policy.

While National believes it will be successful in realizing recoveries from contractual and other claims, the ultimate amounts recovered may be materially different from those recorded by National given the inherent uncertainty in the manner of resolving the claims (e.g. litigation) and the assumptions used in the required estimation process for accounting purposes which are based, in part, on judgments and other information that are not easily corroborated by historical data or other relevant benchmarks.

The following table presents the components of National’s loss and LAE reserves and insurance loss recoverable as reported on National’s consolidated balance sheets as of September 30, 2012 and December 31, 2011 for insured obligations within National’s “Classified List.” The loss reserves (claim liability) and insurance claim loss recoverable included in the following table represent the present value of the probability-weighted future claim payments and recoveries reported in the preceding tables.

In millions	As of September 30, 2012		As of December 31, 2011
Loss reserves (claim liability)	$	154	$	159
LAE reserves		8		3
Loss and LAE reserves	$	162	$	162
Insurance claim loss recoverable	$	(197)	$	(136)
LAE insurance loss recoverable		(33)		(14)
Insurance loss recoverable	$	(230)	$	(150)

The following table presents changes in National’s loss and LAE reserves for the nine months ended September 30, 2012. Changes in the loss and LAE reserve attributable to the accretion of the claim liability discount, changes in discount rates, changes in the timing and amounts of estimated payments and recoveries, changes in assumptions and changes in LAE reserves are recorded in “Losses and loss adjustment” expenses in National’s consolidated statements of operations. LAE reserves are expected to be settled within a one-year period and are not discounted. The weighted average risk-free rate used to discount the claim liability was 1.38% as of September 30, 2012.

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National Public Finance Guarantee Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 4: Loss and Loss Adjustment Expense Reserves (continued)

In millions
Gross Loss and LAE Reserve as of December 31, 2011		Loss Payments for Cases with Reserves		Accretion of Claim Liability Discount		Changes in Discount Rates		Changes in Timing of Payments		Changes in Amount of Net Payments		Changes in Assumptions		Changes in Unearned Premium Revenue		Changes in LAE Reserves		Gross Loss and LAE Reserve as of September 30, 2012
$	162	$	(10)	$	1	$	1	$	-	$	3	$	-	$	-	$	5	$	162

The following table presents changes in National’s insurance loss recoverable for the nine months ended September 30, 2012. Changes in the insurance loss recoverable attributable to the accretion of the discount on the recoverable, changes in discount rates, changes in the timing and amounts of estimated collections, changes in assumptions and the changes in LAE recoverable are recorded in “Losses and loss adjustment” expenses in National’s consolidated statements of operations.

In millions
Insurance Loss Recoverable as of December 31, 2011		Collections for Cases with Recoverables		Accretion of Insurance Loss Recoverable		Changes in Discount Rates		Changes in Timing of Collections		Changes in Amounts of Collections		Changes in Assumptions		Changes in LAE Recoverable		Insurance Loss Recoverable as of September 30, 2012
$	150	$	(1)	$	-	$	-	$	-	$	1	$	61	$	19	$	230

The increase in insurance loss recoverable for the nine months ended September 30, 2012 primarily related to paid claims and LAE for which National expects to be fully reimbursed based on contractual rights and sources of recovery judged to be sufficient to provide National with full loss reimbursement.

Remediation actions may involve, among other things, waivers or renegotiations of financial covenants or triggers, waivers of contractual provisions, the granting of consents, transfer of servicing, consideration of restructuring plans, acceleration, security or collateral enforcement, actions in bankruptcy or receivership, litigation and similar actions. The types of remedial actions pursued are based on the insured obligation’s risk type and the nature and scope of the event giving rise to the remediation. As part of any such remedial actions, National seeks to improve its security position and to obtain concessions from the issuer of the insured obligation. From time to time, the issuer of a National insured obligation may, with the consent of National, restructure the insured obligation by extending the term, increasing or decreasing the par amount or decreasing the related interest rate, with National insuring the restructured obligation.

Costs associated with remediating insured obligations assigned to National’s “Caution List—Low,” “Caution List—Medium,” “Caution List—High” and “Classified List” are recorded as LAE. LAE is primarily recorded as part of National’s provision for its loss reserves and included in “Losses and loss adjustment” expense on National’s consolidated statements of operations. The following table provides information about the gross expenses related to remedial actions for insured obligations included in National’s surveillance categories:

	Nine Months Ended September 30,
In millions	2012		2011
LAE incurred, gross	$	10	$	2

Note 5: Fair Value of Financial Instruments

Fair value is a market-based measure considered from the perspective of a market participant. Therefore, even when market assumptions are not readily available, National’s own assumptions are set to reflect those which it believes market participants would use in pricing an asset or liability at the measurement date. The fair value measurements of financial instruments held or issued by National are determined through the use of observable market data when available. Market data is obtained from a variety of third-party sources, including dealer quotes. If dealer quotes are not available for an instrument that is infrequently traded, National uses alternate valuation methods, including either dealer quotes for similar instruments or modeling using market data inputs. The use of alternate valuation methods generally requires considerable judgment in the application of estimates and assumptions, and changes to such estimates and assumptions may produce materially different fair values.

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National Public Finance Guarantee Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 5: Fair Value of Financial Instruments (continued)

The accounting guidance for fair value measurement establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available and reliable. Observable inputs are those National believes that market participants would use in pricing an asset or liability based on available market data. Unobservable inputs are those that reflect National’s beliefs about the assumptions market participants would use in pricing an asset or liability based on the best information available. The fair value hierarchy is broken down into three levels based on the observability and reliability of inputs, as follows:

• Level 1—Valuations based on quoted prices in active markets for identical assets or liabilities that National can access. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail any degree of judgment.

• Level 2—Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly. Level 2 assets include debt securities with quoted prices that are traded less frequently than exchange-traded instruments, securities which are priced using observable inputs and derivative contracts whose values are determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data.

• Level 3—Valuations based on inputs that are unobservable and supported by little or no market activity and that are significant to the overall fair value measurement. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques where significant inputs are unobservable, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

The availability of observable inputs can vary from product to product and period to period and is affected by a wide variety of factors, including the type of product, whether the product is new and not yet established in the marketplace, and other characteristics particular to the product. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, National assigns the level in the fair value hierarchy for which the fair value measurement in its entirety falls, based on the least observable input that is significant to the fair value measurement.

1. Financial Instruments

Financial instruments held by National primarily consist of investments in debt securities. Substantially all of National’s investments are priced by independent third parties, including pricing services and brokers. Typically National receives one pricing service value or broker quote for each instrument, which represents a non-binding indication of value. National reviews the assumptions, inputs and methodologies used by pricing services to obtain reasonable assurance that the prices used in its valuations reflect fair value. When National believes a third-party quotation differs significantly from its internally developed expectation of fair value, whether higher or lower, National reviews its data or assumptions with the provider. This review includes comparing significant assumptions such as prepayment speeds, default ratios, forward yield curves, credit spreads and other significant quantitative inputs to internal assumptions, and working with the price provider to reconcile the differences. The price provider may subsequently provide an updated price. In the event that the price provider does not update their price, and National still does not agree with the price provided, National will try to obtain a price from another third-party provider, such as a broker, or use an internally developed price which it believes represents the fair value of the investment. The fair values of investments for which internal prices were used were not significant to the aggregate fair value of National’s investment portfolio as of September 30, 2012 or December 31, 2011. All challenges to third-party prices are reviewed by staff of National with relevant expertise to ensure reasonableness of assumptions.

In addition to challenging pricing assumptions, National obtains reports from the independent accountants for significant third-party pricing services attesting to the effectiveness of the controls over data provided to National. These reports are obtained annually and are reviewed by National to ensure key controls are applied by the pricing services, and that appropriate user controls are in place at National to ensure proper measurement of the fair values of its investments. In the event that any controls are identified by independent accountants in these reports as ineffective, National will take the necessary actions to ensure that internal user controls are in place to mitigate the control risks. No deficiencies were noted for significant third-party pricing services used.

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National Public Finance Guarantee Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 5: Fair Value of Financial Instruments (continued)

2. Internal Review Process

All significant financial instruments are reviewed by committees created by National to ensure compliance with National policies and risk procedures in the development of fair values of financial assets and liabilities. These valuation committees review, among other things, key assumptions used for internally developed prices, significant changes in sources and uses of inputs, including changes in model approaches, and any adjustments from third-party inputs or prices to internally developed inputs or prices. The committees also review any significant impairment or improvements in fair values of the financial instruments from prior periods. From time to time, these committees will reach out to National valuation experts to better understand key methods and assumptions used for the determination of fair value, including understanding significant changes in fair values. These committees are comprised of senior finance team members with the relevant experience in the financial assets their committee is responsible for. Each quarter, these committees document their agreement with the fair values developed by management of National as reported in the quarterly financial statements.

Valuation Techniques

Valuation techniques for financial instruments measured at fair value or disclosed at fair value are described below.

Fixed-Maturity Securities (including short-term investments) Held as Available-For-Sale, Investments Carried at Fair Value, Investments Pledged as Collateral, and Other Investments

Fixed-maturity securities (including short-term investments) held as available-for-sale, investments carried at fair value, investments pledged as collateral, and other investments include investments in U.S. Treasury and government agencies, foreign governments, corporate obligations, mortgage-backed and asset-backed securities (“ABS”) (including commercial mortgage-backed securities and collateralized debt obligations (“CDOs”)), state and municipal bonds and other investments (including perpetual preferred securities, loans receivables and money market mutual funds).

These investments are generally valued based on recently executed transaction prices or quoted market prices. When quoted market prices are not available, fair value is generally determined using quoted prices of similar investments or a valuation model based on observable inputs. Inputs vary depending on the type of investment. These inputs include interest rate yield curves, credit default swap (“CDS”) spreads, prepayment and volatility scores, diversity scores, cross-currency basis index spreads, and credit spreads for structures similar to the financial instrument in terms of issuer, maturity and seniority.

Investments based on quoted market prices of identical investments in active markets are classified as Level 1 of the fair value hierarchy. Level 1 investments generally consist of U.S. Treasury and government agency and money market securities. Quoted market prices of investments in less active markets, as well as investments which are valued based on other than quoted prices for which the inputs are observable, such as interest rate yield curves, are categorized in Level 2 of the fair value hierarchy. Investments that contain significant inputs that are not observable are categorized as Level 3.

Cash and Cash Equivalents, Receivable for Investments Sold, Accrued Investment Income and Payable for Investments Purchased

The carrying amounts of cash and cash equivalents, receivable for investments sold, accrued investment income and payable for investments purchased approximate their fair values due to the short maturities of these instruments.

Securities Purchased Under Agreements to Resell

The fair values of securities purchased under agreements to resell are determined based on the underlying securities posted as collateral for the resell agreements.

Secured Loan to an Affiliate

The fair value of the secured loan is determined as the net present value of expected cash flows from the loan. The discount rate is the yield to maturity of a comparable corporate bond index.

Securities Sold Under Agreements to Repurchase

The fair values of securities sold under agreements to repurchase are determined based on the underlying securities posted as collateral for the repurchase agreements.

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National Public Finance Guarantee Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 5: Fair Value of Financial Instruments (continued)

Derivative Liabilities

Derivative liabilities are valued using market-based inputs, including interest rate yield curves, foreign exchange rates, and credit spreads. Derivative liabilities are classified as Level 2 within the fair value hierarchy.

Financial Guarantees

Gross Financial Guarantees —The fair value of gross financial guarantees is determined using discounted cash flow techniques based on inputs that include (i) assumptions of expected losses on financial guarantee policies where loss reserves have not been recognized, (ii) amount of losses expected on financial guarantee policies where loss reserves have been established, net of expected recoveries, (iii) the cost of capital reserves required to support the financial guarantee liability, (iv) operating expenses, and (v) discount rates. The CDS spread and recovery rates of a similar municipal bond insurance company are used as the discount rate for National as National does not have a published CDS spread and recovery rate.

The carrying value of National’s gross financial guarantee liability consists of unearned premium revenue and loss and LAE reserves net of insurance loss recoverable as reported on National’s consolidated balance sheets.

Ceded Financial Guarantees —The fair value of ceded financial guarantees is determined by applying the percentage ceded to reinsurers to the related fair value of the gross financial guarantees. The carrying value of the ceded financial guarantee liability consists of prepaid reinsurance premiums as reported in “Other assets” on National’s consolidated balance sheets.

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National Public Finance Guarantee Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 5: Fair Value of Financial Instruments (continued)

Fair Value Measurements

The following fair value hierarchy tables present information about National’s assets (including short-term investments) and liabilities measured at fair value on a recurring basis as of September 30, 2012 and December 31, 2011:

	Fair Value Measurements at Reporting Date Using
In millions	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Balance as of September 30, 2012
Assets:
Investments:
Fixed-maturity investments:
Taxable bonds:
U.S. Treasury and government agency	$	338	$	4	$	-		$	342
Foreign governments		-		1		-			1
Corporate obligations		1		388		10	(1)		399
Mortgage-backed securities:
Residential mortgage-backed agency		-		1,016		-			1,016
Residential mortgage-backed non-agency		-		13		3	(1)		16
Commercial mortgage-backed		-		20		3	(1)		23
Asset-backed securities:
Collateralized debt obligations		-		8		4	(1)		12
Other asset-backed		-		59		11	(1)		70
State and municipal bonds		-		625		-			625
Total taxable bonds		339		2,134		31			2,504
Tax-exempt bonds:
State and municipal bonds		-		921		23	(1)		944
Total fixed maturity investments		339		3,055		54			3,448
Other investments:
Money market securities		140		-		-			140
Perpetual preferred securities		-		3		2	(1)		5
Total		479		3,058		56			3,593
Cash and cash equivalents		58		-		-			58
Total assets	$	537	$	3,058	$	56		$	3,651
Liabilities:
Derivative liabilities	$	-	$	8	$	-		$	8
Total liabilities	$	-	$	8	$	-		$	8

(1) - Unobservable inputs are either not developed by National or do not significantly impact the overall fair values of the aggregate financial assets and liabilities.

16

National Public Finance Guarantee Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 5: Fair Value of Financial Instruments (continued)

	Fair Value Measurements at Reporting Date Using
In millions	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of December 31, 2011
Assets:
Investments:
Fixed-maturity investments:
Taxable bonds:
U.S. Treasury and government agency	$	387	$	11	$	-	$	398
Foreign governments		-		1		-		1
Corporate obligations		1		292		-		293
Mortgage-backed securities:
Residential mortgage-backed agency		-		1,218		-		1,218
Residential mortgage-backed non-agency		-		10		5		15
Commercial mortgage-backed		-		22		2		24
Asset-backed securities:
Collateralized debt obligations		-		6		5		11
Other asset-backed		-		56		8		64
State and municipal bonds		-		565		-		565
Total taxable bonds		388		2,181		20		2,589
Tax-exempt bonds:
State and municipal bonds		-		1,136		28		1,164
Total fixed maturity investments		388		3,317		48		3,753
Other investments:
Money market securities		301		-		-		301
Perpetual preferred securities		-		4		1		5
Total		689		3,321		49		4,059
Cash and cash equivalents		137		-		-		137
Total assets	$	826	$	3,321	$	49	$	4,196
Liabilities:
Derivative liabilities	$	-	$	9	$	-	$	9
Total liabilities	$	-	$	9	$	-	$	9

Level 3 Analysis

Level 3 assets were $56 million and $49 million as of September 30, 2012 and December 31, 2011, respectively, and represented 1.5% and 1.2%, respectively, of total assets measured at fair value.

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National Public Finance Guarantee Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 5: Fair Value of Financial Instruments (continued)

The following fair value hierarchy tables present information about National’s assets and liabilities that are disclosed at fair value but not recorded at fair value on National’s consolidated balance sheets as of September 30, 2012 and December 31, 2011:

	Fair Value Measurements at Reporting Date Using
In millions	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value Balance as of September 30, 2012		Carry Value Balance as of September 30, 2012
Assets:
Securities purchased under agreements to resell	$	2	$	438	$	118	$	558	$	522
Secured loan to an affiliate		-		1,656		-		1,656		1,623
Receivable for investments sold		127		-		-		127		127
Accrued investment income		31		29		-		60		60
Other investments		-		-		9		9		9
Liabilities:
Securities sold under agreements to repurchase		77		458		-		535		522
Payable for investments purchased		150		-		-		150		150
Financial Guarantees:
Gross		-		-		1,926		1,926		1,994
Ceded		-		-		64		64		-
	Fair Value Measurements at Reporting Date Using
In millions	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other  Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value Balance as of December 31, 2011		Carry Value Balance as of December 31, 2011
Assets:
Securities purchased under agreements to resell	$	-	$	1,043	$	417	$	1,460	$	1,335
Secured loan to an affiliate		-		1,130		-		1,130		1,130
Receivable for investments sold		2		-		-		2		2
Accrued investment income		36		4		-		40		40
Other investments		-		-		9		9		9
Liabilities:
Securities sold under agreements to repurchase		92		1,334		-		1,426		1,335
Payable for investments purchased		3		-		-		3		3
Financial Guarantees:
Gross		-		-		1,815		1,815		2,455
Ceded		-		-		60		60		-

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National Public Finance Guarantee Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 5: Fair Value of Financial Instruments (continued)

The following table presents information about changes in Level 3 assets (including short-term investments) measured at fair value on a recurring basis for the three months ended September 30, 2012 and 2011:

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended September 30, 2012
In millions	Balance, Beginning of Period		Realized Gains / (Losses)		Unrealized Gains / (Losses) Included in Earnings		Unrealized Gains / (Losses) Included in OCI		Foreign Exchange Recognized in OCI or Earnings		Purchases		Issuances		Settlements		Sales		Transfers into Level 3  (1)		Transfers out of Level 3 (1)		Ending Balance		Change in Unrealized Gains (Losses) for the Period Included  in Earnings for Assets Still Held as of September 30, 2012
Assets:
Corporate obligations	$	1	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	9	$	-	$	10	$	-
Residential mortgage-backed agency		4		-		-		(1)		-		-		-		-		-		-		(3)		-		-
Residential mortgage-backed non-agency		4		-		-		-		-		-		-		-		(1)		1		(1)		3		-
Commercial mortgage-backed		1		-		-		-		-		1		-		-		-		1		-		3		-
Collateralized debt obligations		4		-		-		-		-		-		-		-		-		1		(1)		4		-
Other asset-backed		5		-		-		-		-		2		-		-		-		4		-		11		-
State and municipal tax-exempt bonds		25		-		-		-		-		-		-		(2)		-		-		-		23		-
Perpetual preferred securities		2		-		-		-		-		-		-		-		-		-		-		2		-
Total assets	$	46	$	-	$	-	$	(1)	$	-	$	3	$	-	$	(2)	$	(1)	$	16	$	(5)	$	56	$	-

(1) - Transferred in and out at the end of the period.

19

National Public Finance Guarantee Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 5: Fair Value of Financial Instruments (continued)

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended September 30, 2011
In millions	Balance, Beginning of Period		Realized Gains / (Losses)		Unrealized Gains / (Losses) Included in Earnings		Unrealized Gains / (Losses) Included in OCI		Foreign Exchange Recognized in OCI or Earnings		Purchases		Issuances		Settlements		Sales		Transfers into Level 3  (1)		Transfers out of Level 3 (1)		Ending Balance		Change in Unrealized Gains (Losses) for the Period Included in Earnings for Assets Still Held as of September 30, 2011
Assets:
Residential mortgage-backed agency	$	-	$	-	$	-	$	-	$	-	$	1	$	-	$	-	$	-	$	-	$	-	$	1	$	-
Residential mortgage-backed non-agency		8		-		-		-		-		1		-		(3)		-		-		(1)		5		-
Commercial mortgage-backed		8		-		-		-		-		-		-		-		-		-		-		8		-
Collateralized debt obligations		8		-		-		-		-		-		-		-		-		-		(3)		5		-
Other asset-backed		16		-		-		-		-		-		-		-		-		1		(7)		10		-
State and municipal tax-exempt bonds		32		-		-		-		-		-		-		(2)		-		-		-		30		-
Perpetual preferred securities		-		-		-		-		-		-		-		-		-		1		-		1		-
Total assets	$	72	$	-	$	-	$	-	$	-	$	2	$	-	$	(5)	$	-	$	2	$	(11)	$	60	$	-

(1) - Transferred in and out at the end of the period.

Transfers into and out of Level 3 were $16 million and $5 million, respectively, for the three months ended September 30, 2012. Transfers into and out of Level 2 were $5 million and $16 million, respectively, for the three months ended September 30, 2012. Transfers into Level 3 were principally for corporate obligations and other asset-backed securities where inputs, which are significant to their valuation, were unobservable during the quarter. These inputs include spreads, prepayment speeds, default speeds, default severities, yield curves observable at commonly quoted intervals, and market corroborated inputs. Transfers out of Level 3 were principally for residential mortgage-backed agency securities.

Transfers into and out of Level 3 were $2 million and $11 million, respectively, for the three months ended September 30, 2011. Transfers into and out of Level 2 were $11 million and $2 million, respectively, for the three months ended September 30, 2011. Transfers into Level 3 were principally for other asset-backed and perpetually preferred securities where inputs, which are significant to their valuation, became unobservable during the quarter. Transfers out of Level 3 were principally for other asset-backed securities and collateralized debt obligations. These Level 2 inputs included spreads, prepayment speeds, default speeds, default severities, yield curves observable at commonly quoted intervals, and market corroborated inputs.

20

National Public Finance Guarantee Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 5: Fair Value of Financial Instruments (continued)

The following table presents information about changes in Level 3 assets (including short-term investments) measured at fair value on a recurring basis for the nine months ended September 30, 2012 and 2011:

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Nine Months Ended September 30, 2012
																									Change in
																									Unrealized
																									Gains (Losses)
																									for the Period
																									Included in
					Unrealized		Unrealized		Foreign																Earnings for
					Gains /		Gains /		Exchange																Assets Still
	Balance,		Realized		(Losses)		(Losses)		Recognized										Transfers		Transfers				Held as of
	Beginning		Gains /		Included in		Included in		in OCI or										into		out of		Ending		September 30,
In millions	of Period		(Losses)		Earnings		OCI		Earnings		Purchases		Issuances		Settlements		Sales		Level 3 (1)		Level 3 (1)		Balance		2012
Assets:
Corporate obligations	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	10	$	-	$	10	$	-
Residential mortgage-backed agency		-		-		-		(1)		-		-		-		-		-		4		(3)		-		-
Residential mortgage-backed non-agency		5		-		-		-		-		-		-		-		(2)		1		(1)		3		-
Commercial mortgage-backed		2		-		-		-		-		1		-		-		-		1		(1)		3		-
Collateralized debt obligations		5		-		-		-		-		-		-		-		(2)		3		(2)		4		-
Other asset-backed		8		-		-		-		-		4		-		-		-		5		(6)		11		-
State and municipal tax-exempt bonds		28		-		-		-		-		-		-		(5)		-		-		-		23		-
Perpetual preferred securities		1		-		-		1		-		-		-		-		-		2		(2)		2		-
Total assets	$	49	$	-	$	-	$	-	$	-	$	5	$	-	$	(5)	$	(4)	$	26	$	(15)	$	56	$	-

(1) - Transferred in and out at the end of the period.

21

National Public Finance Guarantee Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 5: Fair Value of Financial Instruments (continued)

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Nine Months Ended September 30, 2011
																									Change in
																									Unrealized
																									Gains (Losses)
																									for the Period
																									Included in
					Unrealized		Unrealized		Foreign																Earnings for
					Gains /		Gains /		Exchange																Assets Still
	Balance,		Realized		(Losses)		(Losses)		Recognized										Transfers		Transfers				Held as of
	Beginning		Gains /		Included in		Included in		in OCI or										into		out of		Ending		September 30,
In millions	of Period		(Losses)		Earnings		OCI		Earnings		Purchases		Issuances		Settlements		Sales		Level 3 (1)		Level 3 (1)		Balance		2011
Assets:
Residential mortgage-backed agency	$	-	$	-	$	-	$	-	$	-	$	2	$	-	$	-	$	(1)	$	-	$	-	$	1	$	-
Residential mortgage-backed non-agency		-		-		-		-		-		7		-		(4)		-		3		(1)		5		-
Commercial mortgage-backed		-		-		-		-		-		8		-		-		-		-		-		8		-
Collateralized debt obligations		1		-		-		-		-		6		-		-		-		2		(4)		5		-
Other asset-backed		7		-		-		-		-		9		-		(1)		-		6		(11)		10		-
State and municipal tax-exempt bonds		35		-		-		-		-		2		-		(7)		-		-		-		30		-
Perpetual preferred securities		-		-		-		-		-		-		-		-		-		1		-		1		-
Total assets	$	43	$	-	$	-	$	-	$	-	$	34	$	-	$	(12)	$	(1)	$	12	$	(16)	$	60	$	-

(1) - Transferred in and out at the end of the period.

Transfers into and out of Level 3 were $26 million and $15 million, respectively, for the nine months ended September 30, 2012. Transfers into and out of Level 2 were $15 million and $26 million, respectively, for the nine months ended September 30, 2012. Transfers into Level 3 were principally for corporate obligations, other asset-backed securities, residential mortgage-backed agency securities, collateralized debt obligations and perpetual preferred securities where inputs, which are significant to their valuation, were unobservable during the quarter. These inputs include spreads, prepayment speeds, default speeds, default severities, yield curves observable at commonly quoted intervals, and market corroborated inputs. Transfers out of Level 3 were principally for other asset-backed securities, residential mortgage-backed agency securities, collateralized debt obligations and perpetual preferred securities.

Transfers into and out of Level 3 were $12 million and $16 million, respectively, for the nine months ended September 30, 2011. Transfers into and out of Level 2 were $16 million and $12 million, respectively, for the nine months ended September 30, 2011. Transfers into Level 3 were principally for other asset-backed securities and residential mortgage-backed non-agency securities where inputs, which are significant to their valuation, became unobservable during the quarter. Transfers out of Level 3 were principally for other asset-backed securities and collateralized debt obligations. These Level 2 inputs included spreads, yield curves observable at commonly quoted intervals, and market corroborated inputs.

There were no transfers in or out of Level 1 during the three and nine months ended September 30, 2012 and 2011. All fair value hierarchy designations are made at the end of each accounting period.

There were no changes and no balances in Level 3 liabilities measured at fair value on a recurring basis for the three and nine months ended September 30, 2012 and 2011.

22

National Public Finance Guarantee Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Investments

National’s fixed-maturity portfolio consists of high-quality (average rating Aa) taxable and tax-exempt investments with diversified maturities. Other investments comprise money market securities, preferred securities and loan receivables that bear interest.

The following tables present the amortized cost and fair value of fixed-maturity investments and other investments designated as available-for-sale included in the consolidated investment portfolio of National as of September 30, 2012 and December 31, 2011:

	September 30, 2012
	Amortized		Gross Unrealized		Gross Unrealized
In millions	Cost		Gains		Losses		Fair Value
Fixed-maturity investments:
Taxable bonds:
U.S. Treasury and government agency	$	318	$	2	$	-	$	320
Corporate obligations		287		18		-		305
Mortgage-backed securities:
Residential mortgage-backed agency		932		47		-		979
Residential mortgage-backed non-agency		15		2		(1)		16
Commercial mortgage-backed		15		1		-		16
Asset-backed securities:
Collateralized debt obligations		11		-		-		11
Other asset-backed		62		2		-		64
State and municipal bonds		577		47		(1)		623
Total taxable bonds		2,217		119		(2)		2,334
Tax-exempt bonds:
State and municipal bonds		882		60		-		942
Total fixed-maturity investments		3,099		179		(2)		3,276
Other investments:
Perpetual preferred securities		5		-		-		5
Money market securities		131		-		-		131
Total other investments		136		-		-		136
Total available-for-sale investments	$	3,235	$	179	$	(2)	$	3,412

	December 31, 2011
	Amortized		Gross Unrealized		Gross Unrealized
In millions	Cost		Gains		Losses		Fair Value
Fixed-maturity investments:
Taxable bonds:
U.S. Treasury and government agency	$	384	$	3	$	-	$	387
Corporate obligations		204		7		(4)		207
Mortgage-backed securities:
Residential mortgage-backed agency		1,132		47		-		1,179
Residential mortgage-backed non-agency		16		1		(2)		15
Commercial mortgage-backed		16		-		(1)		15
Asset-backed securities:
Collateralized debt obligations		10		-		-		10
Other asset-backed		55		1		-		56
State and municipal bonds		544		19		(2)		561
Total taxable bonds		2,361		78		(9)		2,430
Tax-exempt bonds:
State and municipal bonds		1,120		41		(1)		1,160
Total fixed-maturity investments		3,481		119		(10)		3,590
Other investments:
Perpetual preferred securities		6		-		(1)		5
Money market securities		300		-		-		300
Total other investments		306		-		(1)		305
Total available-for-sale investments	$	3,787	$	119	$	(11)	$	3,895

23

National Public Finance Guarantee Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Investments (continued)

Fixed-maturity investments carried at fair value of $6 million as of September 30, 2012 and December 31, 2011 were on deposit with various regulatory authorities. These deposits are required to comply with state insurance laws.

The following table presents the distribution by contractual maturity of available-for-sale fixed-maturity investments at amortized cost and fair value as of September 30, 2012. Contractual maturity may differ from expected maturity as borrowers may have the right to call or prepay obligations.

In millions	Amortized Cost		Fair Value
Due in one year or less	$	131	$	131
Due after one year through five years		318		324
Due after five years through ten years		334		355
Due after ten years through fifteen years		265		282
Due after fifteen years		1,016		1,098
Mortgage-backed		962		1,011
Asset-backed		73		75
Total fixed-maturity investments	$	3,099	$	3,276

The following tables present the gross unrealized losses included in accumulated other comprehensive income (loss) as of September 30, 2012 and December 31, 2011 related to available-for-sale fixed-maturity and other investments. These tables segregate investments that have been in a continuous unrealized loss position for less than twelve months from those that have been in a continuous unrealized loss position for twelve months or longer.

	September 30, 2012
	Less than 12 Months				12 Months or Longer				Total
			Unrealized				Unrealized				Unrealized
In millions	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Fixed-maturity investments:
Taxable bonds:
U.S. Treasury and government agency	$	44	$	-	$	-	$	-	$	44	$	-
Corporate obligations		7		-		2		-		9		-
Mortgage-backed securities:
Residential mortgage-backed agency		8		-		-		-		8		-
Residential mortgage-backed non-agency		-		-		3		(1)		3		(1)
Commercial mortgage-backed		3		-		-		-		3		-
Asset-backed securities:
Collateralized debt obligations		2		-		4		-		6		-
Other asset-backed		1		-		1		-		2		-
State and municipal bonds		-		-		21		(1)		21		(1)
Total taxable bonds		65		-		31		(2)		96		(2)
Tax-exempt bonds:
State and municipal bonds		1		-		22		-		23		-
Total fixed-maturity investments		66		-		53		(2)		119		(2)
Other investments:
Perpetual preferred securities		-		-		3		-		3		-
Total other investments		-		-		3		-		3		-
Total	$	66	$	-	$	56	$	(2)	$	122	$	(2)

24

National Public Finance Guarantee Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Investments (continued)

	December 31, 2011
	Less than 12 Months				12 Months or Longer				Total
			Unrealized				Unrealized				Unrealized
In millions	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Fixed-maturity investments:
Taxable bonds:
U.S. Treasury and government agency	$	200	$	-	$	-	$	-	$	200	$	-
Corporate obligations		71		(4)		-		-		71		(4)
Mortgage-backed securities:
Residential mortgage-backed agency		19		-		-		-		19		-
Residential mortgage-backed non-agency		7		(1)		2		(1)		9		(2)
Commercial mortgage-backed		8		(1)		-		-		8		(1)
Asset-backed securities:
Collateralized debt obligations		9		-		-		-		9		-
Other asset-backed		18		-		-		-		18		-
State and municipal bonds		149		(2)		21		-		170		(2)
Total taxable bonds		481		(8)		23		(1)		504		(9)
Tax-exempt bonds:
State and municipal bonds		14		-		75		(1)		89		(1)
Total fixed-maturity investments		495		(8)		98		(2)		593		(10)
Other investments:
Perpetual preferred securities		4		(1)		-		-		4		(1)
Total other investments		4		(1)		-		-		4		(1)
Total	$	499	$	(9)	$	98	$	(2)	$	597	$	(11)

The weighted average contractual maturity of securities in an unrealized loss position as of September 30, 2012 and December 31, 2011 was 14 years for both years. As of September 30, 2012, there were 34 securities that were in an unrealized loss position for a continuous twelve-month period or longer with aggregate unrealized losses of $2 million. Among these securities, the book value of 9 securities exceeded market value by more than 5%. As of December 31, 2011, there were 26 securities that were in an unrealized loss position for a continuous twelve-month period or longer with aggregate unrealized losses of $2 million. Among these securities, the book value of 5 securities exceeded market value by more than 5%.

National has evaluated on a security-by-security basis whether the unrealized losses in its investment portfolio were other-than-temporary considering the duration and severity of unrealized losses, the circumstances that gave rise to the unrealized losses, and whether National has the intent to sell the securities or more likely than not will be required to sell the securities before their anticipated recoveries. Based on its evaluation, National determined that the unrealized losses on these securities were temporary in nature because its impairment analysis, including projected discounted future cash flows, indicated that National would be able to recover the amortized cost of impaired assets. National also concluded that it does not have the intent to sell securities in an unrealized loss position and it is more likely than not that it will not have to sell these securities before recovery of their cost basis. In making this conclusion, National examined the cash flow projections for its investment portfolio, the potential sources and uses of cash in its businesses, and the cash resources available to its business other than sales of securities. It also considered the existence of any risk management or other plans as of September 30, 2012 that would require the sale of impaired securities. On a quarterly basis, National re-evaluates the unrealized losses in its investment portfolios to determine whether an impairment loss should be realized in current earnings based on adverse changes in its expectation of cash flows and changes in its intent to sell securities.

25

National Public Finance Guarantee Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 7: Investment Income and Gains and Losses

The following table presents National’s total investment income:

	Three Months Ended September 30,				Nine Months Ended September 30,
In millions	2012		2011		2012		2011
Fixed-maturity	$	29	$	53	$	93	$	165
Other investments		29		2		79		5
Gross investment income		58		55		172		170
Investment expenses		2		2		5		5
Net investment income		56		53		167		165
Fixed-maturity:
Gains		18		7		32		31
Losses		-		(1)		(1)		(7)
Net(1)		18		6		31		24
Total investment income	$	74	$	59	$	198	$	189

(1) - Included in the “Net gains (losses) on financial instruments at fair value and foreign exchange” line item on the consolidated statements of operations of National.

Net investment income is typically generated as a result of the ongoing management of National’s investment portfolio for the three and nine months ended September 30, 2012 and 2011.

Net unrealized gains (losses), including related deferred income taxes, reported in accumulated other comprehensive income (loss) within National shareholder’s equity consisted of:

	As of September 30,		As of December 31,
In millions	2012		2011
Fixed-maturity:
Gains	$	179	$	119
Losses		(2)		(10)
Net		177		109
Other investments:
Losses		-		(1)
Net		-		(1)
Total		177		108
Deferred income taxes provision (benefit)		62		38
Unrealized gains (losses), net	$	115	$	70

The change in net unrealized gains (losses), presented in the table above, consisted of:

	As of September 30,		As of December 31,
In millions	2012		2011
Fixed-maturity	$	68	$	175
Other investments		1		(1)
Total		69		174
Deferred income tax charged (credited)		24		61
Change in unrealized gains (losses), net	$	45	$	113

26

National Public Finance Guarantee Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 8: Income Taxes

National’s income taxes and the related effective tax rates for the three and nine months ended September 30, 2012 and 2011 are as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
In millions	2012			2011			2012			2011
Pre-tax income (loss)	$	160		$	132		$	352		$	384
Provision (benefit) for income taxes	$	46	28.8%	$	40	30.3%	$	103	29.3%	$	108	28.1%

National’s effective tax rate is lower than the statutory tax rate of 35% for the nine months ended September 30, 2012 and 2011 primarily due to tax-exempt interest income.

National adjusts its annual forecasted pre-tax income for fair value adjustments and capital gains and losses when projecting its 2012 annual effective tax rate. National has accounted for these discrete items at the federal applicable tax rate after applying the projected annual effective tax rate to its actual nine months ended results excluding discrete items.

Accounting for Uncertainty in Income Taxes

As of September 30, 2012 and 2011, National did not have any uncertain tax positions and corresponding interest or penalties related to income taxes. National is a member of MBIA Inc.’s consolidated U.S. tax group and its only income tax jurisdiction is the U.S. National also files premium and franchise taxes in various states. The Internal Revenue Service (“IRS”) has concluded its examination of MBIA Inc.’s consolidated income tax return for tax years 2004 through 2009. On January 12, 2012, the Joint Committee on Taxation notified MBIA Inc. that the results of the IRS field examination were reviewed and accepted.

Tax Sharing Arrangement

National files its U.S. Corporation Income Tax Return as a member of MBIA Inc.’s consolidated group. National participates in a tax sharing agreement with MBIA Inc. under which it is allocated its share of consolidated tax liability or tax benefit, determined on a separate company basis. In the nine months ended September 30, 2012, National has, under the tax sharing agreement, made tax payments totaling $106 million which included a true up of the 2010 and 2011 tax liabilities, as well as first, second, and third quarter 2012 estimated tax liabilities. All payments are being placed in escrow by MBIA Inc. and will remain in escrow until the expiration of a two-year carryback period which would allow National to carryback a separate company tax loss and recover all or a portion of the escrowed funds.

Note 9: Commitments and Contingencies

The following commitments and contingencies provide an update to those discussed in “Note 15: Commitments and Contingencies” in the Notes to Consolidated Financial Statements included in Exhibit 99.2 of MBIA Inc.’s Annual Report on Form 10-K for the year ended December 31, 2011 as filed with the Securities and Exchange Commission on February 29, 2012 and should be read in conjunction with the complete descriptions provided in the aforementioned note included in Exhibit 99.2 of Form 10-K. In the normal course of operating its business, National may be involved in various legal proceedings. Additionally, MBIA Inc. together with its subsidiaries (“MBIA”) may be involved in various legal proceedings that directly or indirectly impact National.

Corporate Litigation

In re MBIA Inc. Securities Litigation; Case No. 05 CV 03514(LLS) (S.D.N.Y.)

In May 2012, the parties reached a settlement agreement in principle pursuant to which the plaintiffs will receive a settlement payment in exchange for the dismissal with prejudice of the litigation. MBIA’s insurance carriers have agreed to cover in full the settlement payment. On September 13, 2012, the court entered an order preliminarily approving the settlement.

Ambac Bond Insurance Coverage Cases, Coordinated Proceeding Case No. JCCP 4555 (Super. Ct. of Cal., County of San Francisco)

On May 1, 2012, the court ruled in favor of the monoline defendants on their special motion to strike pursuant to California’s Anti-SLAPP statute. The parties will complete the briefing relating to Stage 2 of the Anti-SLAPP motion on February 22, 2013 and a hearing is scheduled for March 5, 2013.

27

National Public Finance Guarantee Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 9: Commitments and Contingencies (continued)

Tri-City Healthcare District v. Citibank. et al.; Case No. 30-2010-00359692 (Super. Ct. of Cal., County of Orange)

On July 20, 2012, the court granted the plaintiff’s motion to further amend its complaint. Briefing on the defendants’ motion to strike portions of the Fifth Amended Complaint was completed on October 19, 2012. MBIA’s portion of the motion has been resolved per stipulation.

City of Phoenix v. AMBAC et al., Case No. 2:10-cv-00555-TMB (D. Ariz.)

On October 5, 2012, the court granted the plaintiff’s motion to substitute its expert with certain limitations.

Transformation Litigation

Aurelius Capital Master, Ltd. et al. v. MBIA Inc. et al.; 09-cv-2242 (R.S.) (S.D.N.Y.)

On April 11, 2012, the Aurelius plaintiffs and MBIA filed a Stipulation of Dismissal resolving the litigation and the case has been closed on the court’s docket.

ABN AMRO Bank N.V. et al. v. Eric Dinallo et al.; Index no. 601846/09 (N.Y. Sup. Ct., N.Y. County)

The Article 78 hearing concluded on June 7, 2012. A decision is pending.

CQS ABS Master Fund Ltd., CQS Select ABS Master Fund Ltd., and CQS ABS Alpha Master Fund Ltd. v. MBIA Inc. et al; Civil Action No. 12-cv-6840 (R.S.) (S.D.N.Y.)

On September 10, 2012, CQS ABS Master Fund Ltd., CQS Select ABS Master Fund Ltd., and CQS ABS Alpha Master Fund Ltd. as holders of MBIA-insured residential mortgage-backed bonds filed suit against MBIA Inc., MBIA Insurance Corporation and National Public Finance Guarantee Corp. The complaint alleges that certain of the terms of the transactions entered into by MBIA Insurance Corporation, which were approved by the New York State Department of Insurance, constituted fraudulent conveyances under §§ 273, 274, 276 and 279(c) of New York Debtor and Creditor Law and a breach of the implied covenant of good faith and fair dealing under New York common law. MBIA answered on October 19, 2012.

MBIA and National are defending against the aforementioned actions and expect ultimately to prevail on the merits. There is no assurance, however, that they will prevail in these actions. Adverse rulings in these actions could have a material adverse effect on National’s ability to implement its strategy and on its business, results of operations, cash flows and financial condition. At this stage of the various litigations, there has not been a determination as to the amount, if any, of damages. Accordingly, National is not able to estimate any amount of loss or range of loss.

There are no other material lawsuits pending or, to the knowledge of National, threatened, to which National is a party.

Note 10: Subsequent Events

Refer to “Note 9: Commitments and Contingencies” for information about legal proceedings that developed after September 30, 2012.

28

EX-99.2

Exhibit 99.2

MBIA INSURANCE CORPORATION

AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2012 and December 31, 2011

and for the periods ended September 30, 2012 and 2011

MBIA INSURANCE CORPORATION AND SUBSIDIARIES

INDEX

	PAGE
Consolidated Balance Sheets as of September 30, 2012 and December 31, 2011 (Unaudited)		1
Consolidated Statements of Operations for the three and nine months ended September 30, 2012 and 2011 (Unaudited)		2
Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2012 and 2011 (Unaudited)		3
Consolidated Statement of Changes in Shareholders’ Equity (Deficit) for the nine months ended September 30, 2012 (Unaudited)		4
Consolidated Statements of Cash Flows for the nine months ended September 30, 2012 and 2011 (Unaudited)		5
Notes to Consolidated Financial Statements (Unaudited)		6

MBIA INSURANCE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Unaudited)

(In thousands except share and per share amounts)

	September 30, 2012		December 31, 2011
Assets
Investments:
Fixed-maturity securities held as available-for-sale, at fair value (amortized cost $621,981 and $1,110,605)	$	657,317	$	1,108,645
Investments carried at fair value		4,868		-
Short-term investments held as available-for-sale, at fair value (amortized cost $631,272 and $219,449)		631,193		219,526
Other investments (includes investments at fair value of $0 and $7,721)		27,401		35,546
Total investments		1,320,779		1,363,717
Cash and cash equivalents		59,646		136,361
Secured loan to Parent		-		300,000
Accrued investment income		9,250		12,501
Premiums receivable		1,280,202		1,359,568
Deferred acquisition costs		539,407		623,127
Prepaid reinsurance premiums		1,456,857		1,698,740
Insurance loss recoverable		3,316,397		3,045,987
Reinsurance recoverable on paid and unpaid losses		170,319		178,044
Property and equipment, at cost (less accumulated depreciation of $59,883 and $58,755)		1,901		2,510
Receivable for investments sold		304		15,820
Derivative assets		7,481		7,861
Deferred income taxes, net		1,498,346		1,711,442
Other assets		21,435		23,495
Assets of consolidated variable interest entities:
Cash		142,541		160,123
Investments held-to-maturity, at amortized cost (fair value of $2,684,518 and $2,469,285)		2,832,800		2,840,000
Fixed-maturity securities at fair value		1,753,519		2,884,265
Loans receivable at fair value		1,892,424		2,045,608
Loan repurchase commitments		1,050,927		1,076,765
Derivative assets		268		449,740
Total assets	$	17,354,803	$	19,935,674
Liabilities and Shareholders’ Equity (Deficit)
Liabilities:
Unearned premium revenue	$	2,627,403	$	2,953,389
Loss and loss adjustment expense reserves		938,049		836,331
Reinsurance premiums payable		331,669		351,732
Long-term debt		2,575,431		2,082,655
Deferred fee revenue		436,631		514,139
Payable for investments purchased		-		34
Derivative liabilities		3,331,043		4,807,647
Current income taxes		21,807		26,060
Other liabilities		377,893		276,695
Liabilities of consolidated variable interest entities:
Variable interest entity notes (includes financial instruments carried at fair value of $3,642,796 and $4,786,570)		6,475,596		7,626,570
Derivative liabilities		179,783		824,819
Total liabilities		17,295,305		20,300,071
Commitments and contingencies (See Note 11)
Shareholders’ equity (deficit):
Series A non-cumulative perpetual preferred stock, par value $1,000 per share, liquidation value $100,000 per share, authorized - 4,000, issued and outstanding - 2,759		27,598		27,598
Common stock, par value $220.80 per share; authorized, issued and outstanding - 67,936 shares		15,000		15,000
Additional paid-in capital		981,477		985,835
Retained earnings (deficit)		(1,001,615)		(1,396,905)
Accumulated other comprehensive income (loss), net of tax of $1,477 and $8,599		37,038		4,075
Total shareholders’ equity (deficit)		59,498		(364,397)
Total liabilities and shareholders’ equity (deficit)	$	17,354,803	$	19,935,674

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

1

MBIA INSURANCE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(In thousands)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Revenues:
Premiums earned:
Scheduled premiums earned	$	39,071	$	56,615	$	146,215	$	178,988
Refunding premiums earned		2,769		17,609		12,408		28,852
Premiums earned (net of ceded premiums of $80,175, $70,364, $226,526 and $187,867)		41,840		74,224		158,623		207,840
Net investment income		5,755		16,773		15,786		62,672
Fees and reimbursements		42,407		25,681		104,169		73,373
Change in fair value of insured derivatives:
Realized gains (losses) and other settlements on insured derivatives		11,549		(53,598)		(420,432)		(600,352)
Unrealized gains (losses) on insured derivatives		(32,823)		831,585		1,473,161		(675,124)
Net change in fair value of insured derivatives		(21,274)		777,987		1,052,729		(1,275,476)
Net gains (losses) on financial instruments at fair value and foreign exchange		15,200		(12,026)		20,809		21,256
Investment losses related to other-than-temporary impairments:
Investment losses related to other-than-temporary impairments		(2,625)		-		(5,830)		-
Other-than-temporary impairments recognized in accumulated other comprehensive income (loss)		-		-		(37,086)		-
Net investment losses related to other-than-temporary impairments		(2,625)		-		(42,916)		-
Other net realized gains (losses)		244		675		975		1,136
Revenues of consolidated variable interest entities:
Net investment income		13,091		12,719		40,208		39,084
Net gains (losses) on financial instruments at fair value and foreign exchange		42,278		30,379		(25,305)		102,543
Other net realized gains (losses)		-		6		-		6
Total revenues		136,916		926,418		1,325,078		(767,566)
Expenses:
Losses and loss adjustment		167,184		180,319		314,888		199,684
Amortization of deferred acquisition costs		23,611		31,286		81,571		104,381
Operating		28,426		31,848		109,213		96,668
Interest		62,153		33,524		174,797		100,576
Expenses of consolidated variable interest entities:
Operating		4,780		8,304		15,808		26,387
Interest		10,416		10,011		32,221		31,055
Total expenses		296,570		295,292		728,498		558,751
Income (loss) before income taxes		(159,654)		631,126		596,580		(1,326,317)
Provision (benefit) for income taxes		(79,811)		216,718		201,290		(484,493)
Equity in net income (loss) of affiliates		-		11		-		-
Net income (loss)	$	(79,843)	$	414,419	$	395,290	$	(841,824)

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

2

MBIA INSURANCE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(In thousands)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Net income (loss)	$	(79,843)	$	414,419	$	395,290	$	(841,824)
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on available-for-sale securities:
Unrealized holding gains (losses) arising during the period, net of tax of $713, $3,765, $220 and $9,477		22,582		1,884		34,089		56,867
Less: Reclassification adjustments for (gains) losses included in net income, net of tax of $35, $15,065, $2,663 and $24,223		64		(27,978)		(4,946)		(44,985)
Unrealized gains (losses) on available-for-sale securities, net		22,646		(26,094)		29,143		11,882
Other-than-temporary impairments on available-for-sale securities:
Other-than-temporary impairments arising during the period, net of tax of $0, $0, $0 and $0		-		-		-		-
Less: Reclassification adjustments for other-than-temporary impairments included in net income, net of tax of $0, $0, $12,980 and $0		-		-		24,106		-
Other-than-temporary impairments on available-for-sale securities, net		-		-		24,106		-
Foreign currency translation, net of tax of $3,715, $2,081, $2,975 and $1,369		(8,640)		4,074		(20,286)		(30,170)
Total other comprehensive income (loss), net of tax		14,006		(22,020)		32,963		(18,288)
Comprehensive income (loss)	$	(65,837)	$	392,399	$	428,253	$	(860,112)

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

3

MBIA INSURANCE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT) (Unaudited)

For The Nine Months Ended September 30, 2012

(In thousands except share amounts)

													Accumulated		Total
									Additional		Retained		Other		Shareholders’
	Preferred Stock				Common Stock				Paid-in		Earnings		Comprehensive		Equity
	Shares		Amount		Shares		Amount		Capital		(Deficit)		Income (Loss)		(Deficit)
Balance, December 31, 2011		2,759	$	27,598		67,936	$	15,000	$	985,835	$	(1,396,905)	$	4,075	$	(364,397)
Net Income (loss)		-		-		-		-		-		395,290		-		395,290
Other comprehensive income (loss)		-		-		-		-		-		-		32,963		32,963
Share-based compensation net of tax of $5,482		-		-		-		-		(4,358)		-		-		(4,358)
Balance, September 30, 2012		2,759	$	27,598		67,936	$	15,000	$	981,477	$	(1,001,615)	$	37,038	$	59,498

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

4

MBIA INSURANCE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)

	Nine Months Ended September 30,
	2012		2011
Cash flows from operating activities:
Premiums, fees and reimbursements received	$	203,721	$	238,387
Investment income received		275,139		247,644
Insured derivative losses and commutations paid		(463,652)		(682,966)
Financial guarantee losses and loss adjustment expenses paid		(518,000)		(666,859)
Proceeds from reinsurance and recoveries		123,863		142,199
Operating and employee related expenses paid		(91,282)		(102,391)
Interest paid		(264,169)		(314,250)
Income taxes (paid) received		(6,493)		8,304
Net cash used by operating activities		(740,873)		(1,129,932)
Cash flows from investing activities:
Purchase of fixed-maturity securities		(170,134)		(281,224)
Sale and redemption of fixed-maturity securities		819,324		1,037,525
Proceeds from paydowns on variable interest entity loans		202,726		222,989
Proceeds from paydowns on secured loan to Parent		300,000		375,000
(Purchase) sale of short-term investments, net		(158,871)		464,550
Sale (purchase) of other investments, net		8,995		(4,308)
Sale of an entity to an affiliate		-		147,079
(Payments) proceeds for derivative settlements		(66,483)		-
Consolidation/deconsolidation of variable interest entities, net		(50,901)		(10,666)
Capital expenditures		(520)		(651)
Disposal of fixed assets		-		428
Net cash provided by investing activities		884,136		1,950,722
Cash flows from financing activities:
Principal paydowns of variable interest entity notes		(680,560)		(807,676)
Proceeds from issuances of secured loans by an affiliate		443,000		-
Net cash used by financing activities		(237,560)		(807,676)
Net increase (decrease) in cash and cash equivalents		(94,297)		13,114
Cash and cash equivalents - beginning of period		296,484		992,842
Cash and cash equivalents - end of period	$	202,187	$	1,005,956
Reconciliation of net income (loss) to net cash used by operating activities:
Net income (loss)	$	395,290	$	(841,824)
Changes in:
Accrued investment income		3,251		6,702
Premiums receivable		99,843		175,719
Deferred acquisition costs		83,720		100,532
Unearned premium revenue		(346,336)		(386,429)
Prepaid reinsurance premiums		241,883		185,805
Reinsurance premiums payable		(20,063)		(24,066)
Loss and loss adjustment expense reserves		101,718		(197,554)
Reinsurance recoverable on paid and unpaid losses		8,700		28,897
Insurance loss recoverable		(270,606)		(236,946)
Receivable from affiliates		6,406		23,812
Payable to reinsurers on recoverables		81,501		80,407
Accrued interest payable		40,890		-
Accounts receivable		47		158
Accrued expenses		17,371		(1,422)
Deferred fee revenue		(77,509)		(63,935)
Current income taxes		(4,253)		23,678
Amortization (accretion) of bond premiums (discounts), net		5,902		(16,003)
Depreciation		383		1,962
Other net realized (gains) losses		(975)		(1,142)
Investment losses on other-than-temporary impaired investments		42,916		-
Unrealized (gains) losses on insured derivatives		(1,473,161)		675,124
Net (gains) losses on financial instruments at fair value and foreign exchange		4,496		(123,799)
Deferred income tax provision (benefit)		198,955		(500,078)
Share-based compensation		1,124		1,120
Other operating		117,634		(40,650)
Total adjustments to net income (loss)		(1,136,163)		(288,108)
Net cash used by operating activities	$	(740,873)	$	(1,129,932)

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

5

MBIA Insurance Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 1: Business Developments, Risks and Uncertainties, and Liquidity

Summary

MBIA Insurance Corporation is a wholly-owned subsidiary of MBIA Inc. (the “Parent” or “MBIA”). The guarantees of MBIA Insurance Corporation and its subsidiaries, (“MBIA Corp.”) insure structured finance and asset-backed obligations, privately issued bonds used for the financing of public purpose projects, which are primarily located outside of the United States (“U.S.”) and that include toll roads, bridges, airports, public transportation facilities, utilities and other types of infrastructure projects serving a substantial public purpose, and obligations of sovereign and sub-sovereign issuers. Structured finance and asset-backed securities (“ABS”) typically are securities repayable from expected cash flows generated by a specified pool of assets, such as residential and commercial mortgages, insurance policies, consumer loans, corporate loans and bonds, trade and export receivables, leases for equipment, aircraft and real property.

Business Developments

As a result of insured losses during the period from 2007 through September 30, 2012, MBIA Corp. has seen ratings downgrades, a near cessation of new insurance business written by MBIA Corp. and increasing liquidity pressure. MBIA Corp. has been unable to write meaningful amounts of new insurance business since 2008 and does not expect to write significant new insurance business prior to an upgrade of its credit ratings. As of September 30, 2012, MBIA Insurance Corporation was rated B with a negative outlook by Standard & Poor’s Financial Services LLC (“S&P”) and B3 with a review for a possible downgrade by Moody’s Investors Service, Inc. (“Moody’s”).

During the nine months ended September 30, 2012, MBIA Corp. continued to seek to reduce both the absolute amount and the volatility of its obligations and potential future claim payments through the execution of commutations of insurance policies. The combination of payments to reduce liabilities, claims payments and the failure of certain mortgage originators to honor contractual obligations to repurchase ineligible mortgage loans from securitizations MBIA Corp. insured has increased liquidity pressure on MBIA Corp. As of September 30, 2012 and December 31, 2011, cash and liquid assets were $386 million and $534 million, respectively. MBIA Corp. believes this liquidity position provides it with sufficient funds to cover expected obligations at least through the next twelve months.

During the nine months ended September 30, 2012, MBIA Corp. made $1.0 billion in gross claim payments, and commuted $13.0 billion of gross insured exposure primarily comprising structured commercial mortgage-backed securities (“CMBS”) pools, commercial real estate (“CRE”) collateralized debt obligations (“CDOs”), investment grade corporate CDOs, ABS CDOs, and subprime residential mortgage-backed securities (“RMBS”) transactions, of which $12.8 billion was previously disclosed in “Note 1: Business Developments, Risks and Uncertainties, and Liquidity” in the Notes to Consolidated Financial Statements included in Exhibit 99.3 to MBIA Inc.’s Annual Report on Form 10-K for the year ended December 31, 2011. Claims payments primarily resulted from the failure of certain mortgage-backed securities (“MBS”) sponsors to honor contractual obligations to repurchase ineligible mortgage loans. MBIA Corp.’s ability to commute insured transactions may be limited by available liquidity as determined based on management’s assessment. MBIA Corp. currently evaluates different methodologies to mitigate liquidity stress, including lending arrangements between affiliates.

The reference herein to “ineligible” mortgage loans refers to those mortgage loans that MBIA Corp. believes failed to comply with the representations and warranties made by the sellers/servicers of the securitizations to which those mortgage loans were sold (including mortgage loans that failed to comply with the related underwriting criteria), based on MBIA Corp.’s assessment of such mortgage loans’ compliance with such representations and warranties, which included information provided by third-party review firms. MBIA Corp.’s assessment of the ineligibility of individual mortgage loans could be challenged by the sellers/servicers of the securitizations in litigation and there is no assurance that MBIA Corp.’s determinations will prevail.

Risks and Uncertainties

MBIA Corp.’s consolidated financial statements include estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. The outcome of certain significant risks and uncertainties could cause MBIA Corp. to revise its estimates and assumptions or could cause actual results to differ from MBIA Corp.’s estimates. While MBIA Corp. believes it continues to have sufficient capital and liquidity to meet all of its expected obligations, if one or more possible adverse outcomes were to be realized, its statutory capital, financial position, results of operations and cash flows could be materially and adversely affected.

6

MBIA Insurance Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 1: Business Developments, Risks and Uncertainties, and Liquidity (continued)

Significant risks and uncertainties that could affect amounts reported in MBIA Corp.’s financial statements in future periods include, but are not limited to, the following:

• MBIA Corp.’s efforts to recover losses from the second-lien securitization originators could be delayed, settled at amounts below its contractual claims or potentially settled at amounts below those recorded on its balance sheets prepared under accounting principles generally accepted in the United States of America (“GAAP”) and statutory accounting principles (“U.S. STAT”). As of September 30, 2012 and December 31, 2011, MBIA Corp.’s estimated recoveries after income taxes calculated at the federal statutory rate of 35%, were $2.1 billion and $2.0 billion, respectively, which was 3,547% and negative 556% of the consolidated total shareholders’ equity and deficit, respectively. As of September 30, 2012 and December 31, 2011, the related measures calculated under U.S. STAT were 144% and 89%, respectively, of the statutory capital of MBIA Corp. In addition, contractual claims could become subject to bankruptcy proceedings of the originators. On May 14, 2012, Residential Capital, LLC (“ResCap”), and its wholly-owned subsidiary companies, Residential Funding Company, LLC (“RFC”) and GMAC Mortgage LLC (“GMAC”) each filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code. MBIA Corp. has recorded put-back claims associated with RFC and GMAC. Accordingly, MBIA Corp.’s put-back claims are now subject to the ResCap bankruptcy proceeding. Additional contractual claims not related to ResCap could become subject to bankruptcy proceedings of the originators. Refer to “Note 5: Loss and Loss Adjustment Expense Reserves” for information about MBIA Corp.’s second-lien RMBS loss recoveries.

• While MBIA Corp. has commuted most of its higher risk CMBS pool exposures, a single counterparty—Bank of America and its subsidiary Merrill Lynch—holds a significant amount of MBIA Corp.’s remaining CMBS pool exposures, including a substantial majority of MBIA Corp.’s CMBS pools originally insured in 2006 and 2007 primarily referencing BBB and lower rated collateral. MBIA Corp. has also recorded its largest put-back asset against Bank of America and certain of its subsidiaries including Countrywide Home Loans, Inc. (“Countrywide”). While MBIA Corp. has estimated credit impairments or recorded loss reserves for the CMBS exposures, no material claims have been made to date. Bank of America/Merrill Lynch is also one of the two remaining plaintiffs in the litigation challenging the establishment of National Public Finance Guarantee Corporation (“Transformation Litigation”) (for a discussion of the Transformation Litigation, see “Note 11: Commitments and Contingencies”). As a result, the amount MBIA Corp. may ultimately collect from Bank of America/Countrywide on their put-back obligations in any litigation settlement could be impacted by potential commutation payments on these CMBS exposures and developments in the Transformation Litigation. Likewise, MBIA Corp.’s ability to commute these CMBS exposures may be impacted by developments in the put-back litigation with these entities and the Transformation Litigation. There can be no assurance that any such settlement or commutation will occur or that any such settlement or commutation, if it occurred, would be consummated within the estimates of expected recoveries or loss payments associated with these exposures that are recorded in MBIA Corp.’s consolidated financial statements. In addition, due to the deterioration in MBIA Corp.’s CMBS exposures, primarily in those exposures held by Bank of America/Merrill Lynch, there is an increased likelihood that MBIA Corp. will experience claims on those exposures, which claims could be substantial. Depending on the amount of such claims and the amounts of claims on other policies issued by MBIA Corp., MBIA Corp. may not have sufficient liquid assets to pay such claims in the absence of a settlement with Bank of America/Merrill Lynch and the commutation of the CMBS exposures held by Bank of America/Merrill Lynch or in the absence of the collection of other substantial put-back recoverables.

• If commercial real estate servicer behavior does not continue to mitigate potential or actual credit losses in line with current trends, MBIA Corp. could incur substantial losses in that sector, primarily on the Bank of America/Merrill Lynch CMBS exposures described above. As of September 30, 2012, MBIA Corp. had CMBS pool and CRE CDO insured par exposure of approximately $15.7 billion and $2.2 billion, respectively, excluding approximately $2.8 billion of CRE loan pools, primarily comprising European assets. Since the end of 2007 through September 30, 2012, MBIA Corp.’s CMBS pool and CRE CDO gross par exposure has decreased by approximately $36.1 billion, of which $33.1 billion resulted from negotiated commutations and early settlements. Refer to “Note 5: Loss and Loss Adjustment Expense Reserves” for information about MBIA Corp.’s estimate of CMBS credit impairments.

• Incurred losses from insured RMBS have declined from their peaks. However, due to the large percentage of ineligible mortgage loans included within MBIA Corp.’s insured second-lien portfolio, performance remains difficult to predict and losses could ultimately be in excess of MBIA Corp.’s current estimated loss reserves. Refer to “Note 5: Loss and Loss Adjustment Expense Reserves” for information about MBIA Corp.’s RMBS loss reserves.

• While MBIA Corp. has settled a substantial portion of its insured ABS CDO exposure at levels, on average, within its previously established statutory loss reserves related to those exposures, further economic stress might cause increases in MBIA Corp.’s loss estimates on its remaining exposure. As of September 30, 2012, MBIA Corp.’s ABS CDO gross par outstanding was approximately $4.4 billion, and had decreased approximately $32.9 billion since 2007.

7

MBIA Insurance Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 1: Business Developments, Risks and Uncertainties, and Liquidity (continued)

• In recent years, key components of MBIA Corp.’s strategy have included commuting volatile insured exposures, purchasing instruments issued or guaranteed by MBIA Corp. in order to reduce future expected economic losses and managing its liquidity requirements and risk. In order to implement this strategy, MBIA Inc. put in place agreements that allocate liquidity resources between MBIA Corp. and its affiliates in order to fund commutations and provide liquidity, where needed. The agreements with affiliates have required the approval of the New York State Department of Financial Services (“NYSDFS”). MBIA Corp.’s ability to continue to draw on affiliate financing, obtain permission for contingency reserve releases, and its ability to pay dividends to MBIA Inc. will in most cases require further approvals from the NYSDFS, and there can be no assurance that MBIA Corp. will be able to obtain such approvals. In addition, in connection with providing such approvals, the NYSDFS may require MBIA Corp. to agree to take, or refrain from taking, certain actions.

• MBIA Corp.’s recent financial results have been volatile, which has impacted management’s ability to accurately project future taxable income. Insurance losses incurred beyond those currently projected may cause MBIA Corp. to record additional allowances against a portion or all of its deferred tax assets. Refer to “Note 10: Income Taxes” for information about MBIA Corp.’s deferred tax assets.

• The sovereign debt crisis in the Eurozone could have an adverse impact on insured European exposures and/or cause a global slowdown in growth, thereby adversely affecting U.S. insured exposures.

• In the event the economy and the markets to which MBIA Corp. is exposed do not improve, or decline, the unrealized losses on insured credit derivatives could increase, causing additional stress in MBIA Corp.’s reported financial results. In addition, volatility in the relationship between MBIA Corp.’s credit spreads and those on underlying collateral assets of insured credit derivatives can create significant unrealized gains and losses in MBIA Corp.’s reported results of operations. Refer to “Note 6: Fair Value of Financial Instruments” for information about MBIA Corp.’s valuation of insured credit derivatives.

As of September 30, 2012, MBIA Corp. had $1.5 billion of statutory capital. Statutory capital, defined as policyholders’ surplus and contingency reserves, is a key measure of an insurance company’s financial condition under insurance laws and regulations. Failure to maintain adequate levels of statutory surplus and total statutory capital could lead to intervention by MBIA Corp.’s insurance regulators in its operations and constitute an event of default under certain of MBIA Corp.’s contracts, thereby materially and adversely affecting MBIA Corp.’s financial condition and results of operations. Pursuant to approval granted by the NYSDFS in accordance with New York Insurance Law (“NYIL”), as of September 30, 2012, MBIA Corp. released to surplus an aggregate of $196 million of excessive contingency reserves. As of September 30, 2012, MBIA Corp. had a deficit of $97 million of qualifying assets required to support its contingency reserves. The deficit was caused by MBIA Corp.’s sale of liquid assets in order to make claim payments and the failure of certain mortgage originators, particularly Bank of America, to honor their contractual obligations to repurchase ineligible mortgage loans from securitizations MBIA Corp. insured. The deficit is expected to grow as additional commutation and claim payments are made in the future. MBIA Corp. has reported the deficit to the NYSDFS. MBIA Corp. has requested approval from the NYSDFS to release $97 million of contingency reserves as of September 30, 2012, but to date has not received approval. For risks associated with MBIA Corp.’s failure to meet its contingency reserve requirement, see Item 1A. “Risk Factors—Liquidity and Market Related Risk Factors—If the Company’s insurance subsidiaries fail to meet regulatory capital requirements they may become subject to regulatory action” in MBIA Inc.’s annual report on Form 10-K for the year ended December 31, 2011.

As of September 30, 2012, MBIA Corp. exceeded its aggregate risk limits under the NYIL by $47 million. MBIA Corp. will notify the NYSDFS of the overage and will submit a plan to achieve compliance with the limits in accordance with the NYIL. If MBIA Corp. is not in compliance with its aggregate risk limits, the NYSDFS may prevent MBIA Corp. from transacting any new financial guarantee insurance business until it no longer exceeds the limitations.

8

MBIA Insurance Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 1: Business Developments, Risks and Uncertainties, and Liquidity (continued)

Key Lending Agreements with Affiliates

MBIA Corp. has entered into agreements with affiliates as follows:

National Secured Loan

National Public Finance Guarantee Corporation provided a $1.1 billion secured loan to MBIA Insurance Corporation (“National Secured Loan”) in order to enable MBIA Insurance Corporation to fund settlements and commutations of its insurance policies. This loan was approved by the NYSDFS as well as by the boards of directors of MBIA Inc., MBIA Insurance Corporation and National Public Finance Guarantee Corporation. The National Secured Loan has a fixed annual interest rate of 7% and a maturity date of December 2016. MBIA Insurance Corporation has the option to defer payments of interest when due by capitalizing interest amounts to the loan balance, subject to the collateral value exceeding certain thresholds. MBIA Insurance Corporation has elected to defer the interest payments due under the loan. MBIA Insurance Corporation’s obligation to repay the loan is secured by a pledge of collateral having an estimated value in excess of the notional amount of the loan as of September 30, 2012, which collateral comprised the following future receivables of MBIA Corp.: (i) its right to receive put-back recoveries related to ineligible mortgage loans included in its insured second-lien RMBS transactions; (ii) future recoveries on defaulted insured second-lien RMBS transactions resulting from expected excess spread generated by performing loans in such transactions; and (iii) future installment premiums. During the nine months ended September 30, 2012, MBIA Insurance Corporation borrowed an additional $443 million under the National Secured Loan with the approval of the NYSDFS at the same terms as the original loan to fund additional commutations of its insurance policies. As of September 30, 2012, the outstanding principal amount under this loan was $1.6 billion. MBIA Insurance Corporation may seek to borrow additional amounts under the loan in the future. Any such increase or other amendment to the terms of the loan would be subject to regulatory approval by the NYSDFS.

MBIA Corp. Secured Loan

MBIA Corp., as lender, maintained a master repurchase agreement with MBIA Inc. (“MBIA Corp. Secured Loan”) for the benefit of MBIA Inc.’s asset/liability products business, which totaled $2.0 billion at inception and was scheduled to mature in May 2012, as amended. This loan was repaid in May 2012 and there have been no further draws. During 2012, the average interest rate on the MBIA Corp. Secured Loan was 2.51% through the repayment in May 2012. Also in May 2012, the NYSDFS approved the maturity extension of the MBIA Corp. Secured Loan to May 2013 with a maximum outstanding amount of $450 million, subject to MBIA Corp. obtaining prior regulatory approval from the NYSDFS for any draws under the facility.

Liquidity

As a financial services company, MBIA Corp. has been materially adversely affected by conditions in global financial markets. Current conditions and events in these markets, in addition to the failure by the originators of RMBS to repurchase the ineligible loans in securitizations MBIA Corp. has insured, have put substantial stress on MBIA Corp.’s liquidity resources.

MBIA Corp. utilizes a liquidity risk management framework, the primary objectives of which are to monitor liquidity positions and projections in its businesses and guide the matching of liquidity resources to needs. MBIA Corp. monitors its cash and liquid asset resources using stress-scenario testing. Members of MBIA Inc.’s and MBIA Corp.’s senior management meet regularly to review liquidity metrics, discuss contingency plans and establish target liquidity cushions on an enterprise-wide basis. As part of MBIA Corp.’s liquidity risk management framework, MBIA Corp. evaluates and manages liquidity on a legal entity basis to take into account the legal, regulatory and other limitations on available liquidity resources within MBIA Corp.

MBIA Corp.’s liquidity resources are subject to: an increased likelihood that MBIA Corp. will experience claims on its CMBS exposures, primarily in those exposures held by Bank of America/Merrill Lynch, due to the deterioration in such exposures; delays in the collection of recoveries related to ineligible mortgage loans in certain insured RMBS transactions; payments to counterparties in consideration for the commutation of insured transactions, and payments on insured exposures that in some cases may be large bullet payments. MBIA Corp. is currently subject to negative cash flow as a result of these payments and delays in collecting recoveries.

Liquidity available to MBIA Corp. is affected by its ability to collect on recoverables associated with loss payments, the payment of claims on insured exposures, payments made to commute insured exposures, the repayment of the National Secured Loan, a reduction in investment income, any unanticipated expenses, and the impairment or a significant decline in the fair value of invested assets. MBIA Corp. may also experience liquidity constraints as a result of NYIL requirements that MBIA Corp. maintain specified, high quality assets to back its reserves and surplus.

9

MBIA Insurance Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 1: Business Developments, Risks and Uncertainties, and Liquidity (continued)

MBIA Corp. believes its current liquidity position is adequate to make expected future claims payments and it expects to settle its insured CMBS exposures with no cash payments. However, its liquidity position has been stressed due to the failure of the sellers/servicers of RMBS transactions insured by MBIA Corp. to repurchase ineligible mortgage loans in certain insured transactions and payments to counterparties in consideration for the commutation of insured transactions, which have resulted in a substantial reduction of exposure and potential loss volatility. While MBIA Corp. has made and may in the future make payments to counterparties in consideration for the commutation of insured transactions, MBIA Corp.’s ability to commute insured transactions will depend on management’s assessment of available liquidity. In addition, due to the deterioration in MBIA Corp.’s CMBS exposures, primarily in those exposures held by Bank of America/Merrill Lynch, there is an increased likelihood that MBIA Corp. will experience claims on those exposures, which claims could be substantial. Depending on the amount of such claims and the amounts of claims on other policies issued by MBIA Corp., MBIA Corp. may not have sufficient liquid assets to pay such claims in the absence of a settlement with Bank of America/Merrill Lynch and the commutation of the CMBS exposures held by Bank of America/Merrill Lynch or in the absence of the collection of other substantial put-back recoverables.

Payment requirements for MBIA Corp.’s financial guarantee contracts fall into three categories: (i) timely interest and ultimate principal; (ii) ultimate principal only at final maturity; and (iii) payments upon settlement of individual collateral losses as they occur after any deductible or subordination has been exhausted, which payments are unscheduled and therefore more difficult to predict, and which category applies to most of the transactions on which MBIA Corp. has recorded loss reserves. Insured transactions that require payment in full of the principal insured at maturity could present liquidity risks for MBIA Corp. since payment of the principal is due at maturity but any salvage could be recovered over time after payment of the principal amount. MBIA Corp. is generally required to satisfy claims within one to three business days, and as a result seeks to identify potential claims in advance through MBIA Corp.’s monitoring process. While MBIA Corp.’s financial guarantee policies generally cannot be accelerated, thereby mitigating liquidity risk, the insurance of credit default swap (“CDS”) contracts may, in certain events, including the insolvency or payment default of the insurer or the issuer of the CDS, be subject to termination by the counterparty, triggering a claim for the fair value of the contract. In order to monitor liquidity risk and maintain appropriate liquidity resources, MBIA Corp. uses the same methodology as it uses to monitor credit quality and losses within its insured portfolio, including stress scenarios. Refer to “Note 5: Loss and Loss Adjustment Expense Reserves” in the Notes to Consolidated Financial Statements for a discussion of MBIA Corp.’s loss and loss adjustment expense (“LAE”) process.

MBIA Corp. also requires cash for the payment of operating expenses, as well as principal and interest related to its surplus notes. Pursuant to Section 1307 of the NYIL and the Fiscal Agency Agreement governing MBIA Corp.’s surplus notes, any payment on the notes may be made only with the prior approval of the Superintendent of the NYSDFS “whenever, in his judgment, the financial condition of [MBIA Corp.] warrants” and payment may be made only out of MBIA Corp.’s “free and divisible surplus”. If these conditions are not met, MBIA Corp. would not be obligated to make any applicable interest payment and no default or event of default would occur under the Fiscal Agency Agreement or any of MBIA Corp.’s other agreements. While the NYSDFS has approved the note interest payments in the past, its approval of the most recent note interest payment on July 16, 2012 was not received until after the date on which the Fiscal Agency Agreement required MBIA Corp. to notify the registered holders of the notes and the Fiscal Agent of the failure to obtain such approval, as MBIA Inc. disclosed on a Form 8-K filed on July 10, 2012. There can be no assurance that the NYSDFS will approve the next scheduled note interest payment on January 15, 2013 or any subsequent payments, or that it will approve any payment by the scheduled interest payment date or by the date on which the notice is required to be delivered to the registered holders and the Fiscal Agent, nor can there be any assurance that the NYSDFS will approve any optional redemption payment that MBIA Corp. may seek to make on or after January 15, 2013.

Since the fourth quarter of 2007 through September 30, 2012, MBIA Corp. has made $11.6 billion of cash payments, before reinsurance and collections and, excluding LAE, including payments made to debt holders of consolidated variable interest entities (“VIEs,”) associated with second-lien RMBS securitizations and with commutations and claim payments relating to CDS contracts. These cash payments include loss payments of $893 million made on behalf of MBIA Corp.’s consolidated VIEs. Of the $11.6 billion, MBIA Corp. has paid $6.6 billion of gross claims (before reinsurance and collections and, excluding LAE) on policies insuring second-lien RMBS securitizations, driven primarily by an extensive number of ineligible mortgage loans being placed in the securitizations in breach of the representations and warranties of the sellers/servicers. In addition, MBIA Corp. has paid $5.0 billion of gross settlement and claim payments (before reinsurance and collections and excluding LAE) on insured credit derivatives. In addition, since the fourth quarter of 2007 through September 30, 2012, MBIA Corp. has collected $185 million on excess spread before reinsurance.

10

MBIA Insurance Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 1: Business Developments, Risks and Uncertainties, and Liquidity (continued)

MBIA Corp. is seeking to enforce its rights to have mortgage sellers/servicers cure, replace or repurchase ineligible mortgage loans from securitizations and has recorded a total of $3.2 billion of related expected recoveries on its consolidated balance sheet as of September 30, 2012, including expected recoveries recorded in MBIA Corp.’s consolidated VIEs. MBIA Corp.’s put-back claims have been disputed by the loan sellers/servicers and are the subject of certain litigations discussed more fully in “Note 11: Commitments and Contingencies.” On May 14, 2012, ResCap and its wholly-owned subsidiary companies, RFC and GMAC each filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code. Additionally, there is some risk that the sellers/servicers or other responsible parties might not be able to fully satisfy any judgment MBIA Corp. secures in litigation and ResCap’s bankruptcy filing. Further, there can be no assurance that MBIA Corp. will be successful or that it will not be delayed in realizing these recoveries. Such risks are contemplated in the scenarios MBIA Corp. utilizes to calculate these recoveries, which are recognized on MBIA Corp.’s consolidated balance sheets. MBIA Corp. believes that it has adequate liquidity resources to provide for anticipated cash outflows; however, if MBIA Corp. does not realize or is delayed in realizing these expected recoveries, MBIA Corp. may not have adequate liquidity to fully execute its strategy to reduce future potential economic losses by commuting policies and purchasing instruments issued or guaranteed by MBIA Corp., or to repay any affiliate borrowings.

A portion of the commutation payments made since the fourth quarter of 2011 were financed through the National Secured Loan. MBIA Insurance Corporation’s ability to repay the loan and any accrued interest will be primarily predicated on its ability to collect on its recoveries in the future, including its ability to successfully enforce its rights to have mortgage sellers/servicers cure, replace or repurchase ineligible mortgage loans from insured securitizations.

MBIA Corp. also insures third-party holders of MBIA Inc.’s obligations. If MBIA Inc. was unable to meet payment or collateral requirements associated with these obligations, the holders thereof could make claims under the MBIA Corp. insurance policies.

As of September 30, 2012, MBIA Corp. held cash and available-for-sale investments of $1.4 billion, of which $386 million comprised cash and highly liquid assets. As of December 31, 2011, MBIA Corp. held cash and available-for-sale investments of $1.5 billion, of which $534 million comprised cash and highly liquid assets. MBIA Corp. believes that its liquidity resources, including expected cash inflows, will adequately provide for anticipated cash outflows. In the event of unexpected liquidity requirements, MBIA Corp. may have insufficient resources to meet its obligations or insufficient qualifying assets to support its surplus and reserves, and may seek to increase its cash holdings position by selling or financing assets, or raising external capital, and there can be no assurance that MBIA Corp. will be able to draw on these additional sources of liquidity.

Note 2: Significant Accounting Policies

MBIA Corp. has disclosed its significant accounting policies in “Note 2: Significant Accounting Policies” in the Notes to Consolidated Financial Statements included in Exhibit 99.3 to MBIA Inc.’s Annual Report on Form 10-K for the year ended December 31, 2011. The following significant accounting policies provide an update to those included under the same captions in Exhibit 99.3 to MBIA Inc.’s Annual Report on Form 10-K.

Basis of Presentation

The accompanying unaudited interim consolidated financial statements do not include all of the information and disclosures required by GAAP for annual periods. These statements should be read in conjunction with MBIA Corp.’s consolidated financial statements and notes thereto included in Exhibit 99.3 to MBIA Inc.’s Annual Report on Form 10-K for the year ended December 31, 2011. 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 (U.S.), but in the opinion of management such financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for the fair statement of MBIA Corp.’s consolidated financial position and results of operations. All material intercompany balances and transactions have been eliminated.

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. As additional information becomes available or actual amounts become determinable, the recorded estimates are revised and reflected in operating results.

The results of operations for the three and nine months ended September 30, 2012 may not be indicative of the results that may be expected for the year ending December 31, 2012. The December 31, 2011 consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by GAAP for annual periods. Certain amounts have been reclassified in prior years’ financial statements to conform to the current presentation. Such reclassifications had no impact on total revenues, expenses, assets, liabilities, or shareholders’ equity for all periods presented.

11

MBIA Insurance Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 2: Significant Accounting Policies (continued)

Consolidation

The consolidated financial statements include the accounts of MBIA Insurance Corp., its wholly-owned subsidiaries and all other entities in which MBIA Corp. has a controlling financial interest. All material intercompany balances and transactions have been eliminated.

Statements of Cash Flows

Previously, MBIA Corp. has reported its consolidated statements of cash flows using the indirect method. The indirect method uses accrual accounting information to present the cash flows from operations. Effective January 1, 2012, MBIA Corp. has elected to present the consolidated statements of cash flows using the direct method. The direct method uses actual cash flow information from MBIA Corp.’s operations, rather than using accrual accounting values. Using either the direct or indirect method, total cash flows from operations remain the same. In addition, the presentation of cash flows from investing and financing activities using either the direct or indirect method are also the same. The change to the direct method of calculating and presenting cash flows from operations was implemented retroactively for all statements of cash flows presented herein. Use of the direct method requires a reconciliation of net income to cash flows from operations. This reconciliation is provided as a supplement directly beneath the consolidated statements of cash flows.

Subsequent Events

MBIA Corp. has evaluated all subsequent events as of November 7, 2012, the date of issuance of the consolidated financial statements, for inclusion in MBIA Corp.’s consolidated financial statements and/or accompanying notes.

Note 3: Recent Accounting Pronouncements

Recently Adopted Accounting Standards

Presentation of Comprehensive Income (ASU 2011-05)

In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-05, “Comprehensive Income (Topic 220)—Presentation of Comprehensive Income.” This amendment eliminates the current option to report other comprehensive income (loss) and its components solely in the statements of changes in equity except for the presentation of reclassification adjustments for which compliance has been deferred by the FASB. The amendment does not change what currently constitutes net income and other comprehensive income (loss). The new guidance is effective for MBIA Corp. beginning January 1, 2012. In December 2011, the FASB issued ASU 2011-12 “Comprehensive Income (Topic 220)—Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05,” which defers certain aspects of ASU 2011-05 related to the presentation of reclassification adjustments. MBIA Corp. adopted this standard in the first quarter of 2012. The standard only affected MBIA Corp.’s presentation of comprehensive income, and did not affect MBIA Corp.’s consolidated balance sheets, results of operations, or cash flows. Refer to “Consolidated Statements of Comprehensive Income” and “Consolidated Statement of Changes in Shareholders’ Equity” for presentation of comprehensive income under the new standard.

Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (ASU 2011-04)

In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820)—Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” This amendment results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between GAAP and International Financial Reporting Standards (“IFRSs”). MBIA Corp. adopted this standard in the first quarter of 2012. This standard only affected MBIA Corp.’s disclosures related to fair value; therefore, the adoption of this standard did not affect MBIA Corp.’s consolidated balance sheets, results of operations, or cash flows. Refer to “Note 6: Fair Value of Financial Instruments” for these disclosures.

12

MBIA Insurance Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 3: Recent Accounting Pronouncements (continued)

Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts (ASU 2010-26)

In October 2010, the FASB issued ASU 2010-26, “Financial Services – Insurance (Topic 944)—Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts.” This amendment specifies which costs incurred in the acquisition of new and renewal insurance contracts should be capitalized. MBIA Corp. adopted this standard on a prospective basis effective January 1, 2012. As MBIA Corp. is currently not writing any significant new business, the adoption of this standard did not have a material effect on MBIA Corp.’s consolidated balance sheets, results of operations, or cash flows. The difference between the amount of acquisition costs capitalized during the first nine months of 2012 compared with the amount of acquisition costs that would have been capitalized during the period if MBIA Corp.’s previous policy had been applied during that period is not material because MBIA Corp. did not write any significant new insurance business during the first nine months of 2012.

Recent Accounting Developments

Disclosures about Offsetting Assets and Liabilities (ASU 2011-11)

In December 2011, the FASB issued ASU 2011-11, “Balance Sheet (Topic 210)—Disclosures about Offsetting Assets and Liabilities.” ASU 2011-11 creates new disclosure requirements about the nature of MBIA Corp.’s rights of setoff and related arrangements associated with its financial instruments and derivative instruments. This amendment does not change the existing offsetting eligibility criteria or the permitted balance sheet presentation for those instruments that meet the eligibility criteria. The disclosure requirements are effective for MBIA Corp. beginning in the first quarter of 2013. This standard will only affect MBIA Corp.’s disclosures and will not affect MBIA Corp.’s consolidated balance sheets, results of operations, or cash flows.

Refer to the Notes to Consolidated Financial Statements of MBIA Corp. included in Exhibit 99.3 to MBIA Inc.’s Annual Report on Form 10-K for the year ended December 31, 2011 for further information regarding the effects of recently adopted accounting standards on prior year financial statements.

Note 4: Variable Interest Entities

MBIA Corp. provides credit protection to issuers of obligations that may involve issuer-sponsored special purpose entities (“SPEs”). An SPE may be considered a VIE to the extent the SPE’s total equity at risk is not sufficient to permit the SPE to finance its activities without additional subordinated financial support or its equity investors lack any one of the following characteristics: (i) the power to direct the activities of the SPE that most significantly impact the entity’s economic performance or (ii) the obligation to absorb the expected losses of the entity or the right to receive the expected residual returns of the entity. A holder of a variable interest or interests in a VIE is required to assess whether it has a controlling financial interest, and thus is required to consolidate the entity as primary beneficiary. An assessment of a controlling financial interest identifies the primary beneficiary as the variable interest holder that has both of the following characteristics: (i) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance and (ii) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. The primary beneficiary is required to consolidate the VIE. An ongoing reassessment of controlling financial interest is required to be performed based on any substantive changes in facts and circumstances involving the VIE and its variable interests.

MBIA Corp. evaluates issuer-sponsored special purpose entities initially to determine if an entity is a VIE, and is required to reconsider its initial determination if certain events occur. For all entities determined to be VIEs, MBIA Corp. performs an ongoing reassessment to determine whether its guarantee to provide credit protection on obligations issued by VIEs provides MBIA Corp. with a controlling financial interest. Based on its ongoing reassessment of controlling financial interest, MBIA Corp. determines whether a VIE is required to be consolidated or deconsolidated.

MBIA Corp. makes its determination for consolidation based on a qualitative assessment of the purpose and design of a VIE, the terms and characteristics of variable interests of an entity, and the risks a VIE is designed to create and pass through to holders of variable interests. MBIA Corp. generally provides credit protection on obligations issued by VIEs, and holds certain contractual rights according to the purpose and design of a VIE. MBIA Corp. may have the ability to direct certain activities of a VIE depending on facts and circumstances, including the occurrence of certain contingent events, and these activities may be considered the activities of a VIE that most significantly impact the entity’s economic performance. MBIA Corp. generally considers its guarantee of principal and interest payments of insured obligations, given nonperformance by a VIE, to be an obligation to absorb losses of the entity that could potentially be significant to the VIE. At the time MBIA Corp. determines it has the ability to direct the activities of a VIE that most significantly impact the economic performance of the entity based on facts and circumstances, MBIA Corp. is deemed to have a controlling financial interest in the VIE and is required to consolidate the entity as primary beneficiary. MBIA Corp. performs an ongoing reassessment of controlling financial interest that may result in consolidation or deconsolidation of any VIE.

13

MBIA Insurance Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 4: Variable Interest Entities (continued)

Nonconsolidated VIEs

The following tables present the total assets of nonconsolidated VIEs in which MBIA Corp. holds a variable interest as of September 30, 2012 and December 31, 2011. The following tables also present MBIA Corp.’s maximum exposure to loss for nonconsolidated VIEs and carrying values of the assets and liabilities for its interests in these VIEs as of September 30, 2012 and December 31, 2011. MBIA Corp. has aggregated nonconsolidated VIEs based on the underlying credit exposure of the insured obligation. The nature of MBIA Corp.’s variable interests in nonconsolidated VIEs is related to financial guarantees, insured CDS contracts and any investments in obligations issued by nonconsolidated VIEs.

	September 30, 2012
					Carrying Value of Assets						Carrying Value of Liabilities
In millions	VIE Assets		Maximum Exposure to Loss		Investments(1)		Premiums Receivable(2)		Insurance  Loss Recoverable(3)		Unearned Premium Revenue(4)		Loss and Loss Adjustment Expense Reserves(5)		Derivative Liabilities(6)
Insurance:
Global structured finance:
Collateralized debt obligations	$	17,552	$	11,053	$	-	$	67	$	3	$	59	$	78	$	85
Mortgage-backed residential		36,464		13,578		9		75		2,967		73		485		4
Mortgage-backed commercial		4,751		2,456		-		2		-		2		-		-
Consumer asset-backed		6,372		3,390		11		20		-		20		16		-
Corporate asset-backed		22,006		11,261		-		144		21		159		-		1
Total global structured finance		87,145		41,738		20		308		2,991		313		579		90
Global public finance		46,795		21,578		-		216		-		268		-		-
Total insurance	$	133,940	$	63,316	$	20	$	524	$	2,991	$	581	$	579	$	90

(1) - Reported within “Investments” on MBIA Corp.’s consolidated balance sheets.

(2) - Reported within “Premiums receivable” on MBIA Corp.’s consolidated balance sheets.

(3) - Reported within “Insurance loss recoverable” on MBIA Corp.’s consolidated balance sheets.

(4) - Reported within “Unearned premium revenue” on MBIA Corp.’s consolidated balance sheets.

(5) - Reported within “Loss and loss adjustment expense reserves” on MBIA Corp.’s consolidated balance sheets.

(6) - Reported within “Derivative liabilities” on MBIA Corp.’s consolidated balance sheets.

	December 31, 2011
					Carrying Value of Assets						Carrying Value of Liabilities
In millions	VIE Assets		Maximum Exposure to Loss		Investments(1)		Premiums Receivable(2)		Insurance  Loss Recoverable(3)		Unearned Premium Revenue(4)		Loss and Loss Adjustment Expense Reserves(5)		Derivative Liabilities(6)
Insurance:
Global structured finance:
Collateralized debt obligations	$	26,507	$	15,466	$	42	$	67	$	-	$	58	$	3	$	113
Mortgage-backed residential		47,669		16,379		25		87		2,773		86		428		5
Mortgage-backed commercial		5,001		2,644		-		2		-		2		-		-
Consumer asset-backed		8,015		4,563		16		26		-		25		23		-
Corporate asset-backed		29,855		15,577		241		192		22		205		-		1
Total global structured finance		117,047		54,629		324		374		2,795		376		454		119
Global public finance		42,106		21,774		-		215		-		270		-		-
Total insurance	$	159,153	$	76,403	$	324	$	589	$	2,795	$	646	$	454	$	119

(1) - Reported within “Investments” on MBIA Corp.’s consolidated balance sheets.

(2) - Reported within “Premiums receivable” on MBIA Corp.’s consolidated balance sheets.

(3) - Reported within “Insurance loss recoverable” on MBIA Corp.’s consolidated balance sheets.

(4) - Reported within “Unearned premium revenue” on MBIA Corp.’s consolidated balance sheets.

(5) - Reported within “Loss and loss adjustment expense reserves” on MBIA Corp.’s consolidated balance sheets.

(6) - Reported within “Derivative liabilities” on MBIA Corp.’s consolidated balance sheets.

The maximum exposure to loss as a result of MBIA Corp.’s variable interests in VIEs is represented by insurance in force. Insurance in force is the maximum future payments of principal and interest, net of cessions to reinsurers, which may be required under commitments to make payments on insured obligations issued by nonconsolidated VIEs.

14

MBIA Insurance Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 4: Variable Interest Entities (continued)

Consolidated VIEs

The carrying amounts of assets and liabilities of consolidated VIEs were $7.7 billion and $6.7 billion, respectively, as of September 30, 2012, and $9.5 billion and $8.5 billion, respectively, as of December 31, 2011. The carrying amounts of assets and liabilities are presented separately in “Assets of consolidated variable interest entities” and “Liabilities of consolidated variable interest entities” on MBIA Corp.’s consolidated balance sheets. Additional VIEs are consolidated or deconsolidated based on an ongoing reassessment of controlling financial interest, when events occur or circumstances arise, and whether the ability to exercise rights that constitute power to direct activities of any VIEs are present according to the design and characteristics of these entities. No additional VIEs were consolidated during the nine months ended September 30, 2012 and 2011. No gains or losses were recognized on the VIEs that were deconsolidated during the nine months ended September 30, 2012 and net realized gains related to the deconsolidation of VIEs were immaterial for the nine months ended September 30, 2011.

Holders of insured obligations of issuer-sponsored VIEs related to MBIA Corp. do not have recourse to the general assets of MBIA Corp. except to the extent of the insurance provided. In the event of nonpayment of an insured obligation issued by a consolidated VIE, MBIA Corp. is obligated to pay principal and interest, when due, on the respective insured obligation only. MBIA Corp.’s exposure to consolidated VIEs is limited to the credit protection provided on insured obligations and any additional variable interests held by MBIA Corp.

Note 5: Loss and Loss Adjustment Expense Reserves

Loss and Loss Adjustment Expense Process

As of September 30, 2012, the majority of MBIA Corp.’s case basis reserves and insurance loss recoveries recorded in accordance with GAAP were related to insured second-lien and first-lien RMBS transactions. These reserves and recoveries do not include estimates for policies insuring credit derivatives. Policies insuring credit derivative contracts are accounted for as derivatives and carried at fair value under GAAP. The fair values of insured derivative contracts are influenced by a variety of market and transaction-specific factors that may be unrelated to potential future claim payments under MBIA Corp.’s insurance policies. In the absence of credit impairments on insured derivative contracts or the early termination of such contracts at a loss, the cumulative unrealized losses recorded from fair valuing these contracts should reverse before or at the maturity of the contracts.

Notwithstanding the difference in accounting under GAAP for financial guarantee policies and MBIA Corp.’s insured derivatives, insured derivatives have similar terms, conditions, risks, and economic profiles to financial guarantee insurance policies, and, therefore, are evaluated by MBIA Corp. for loss (referred to as credit impairment herein) and LAE periodically in a manner similar to the way that loss and LAE reserves are estimated for financial guarantee insurance policies. Credit impairments represent actual payments and collections plus the present value of estimated expected future claim payments, net of recoveries. MBIA Corp.’s expected future claim payments for insured derivatives were discounted using a rate of 5.59%, the same rate it used to calculate its statutory loss reserves as of September 30, 2012. These credit impairments, calculated in accordance with U.S. STAT, differ from the fair values recorded in MBIA Corp.’s consolidated financial statements. MBIA Corp. considers its credit impairment estimates as critical information for investors as it provides information about loss payments MBIA Corp. expects to make on insured derivative contracts. As a result, the following loss and LAE process discussion includes information about loss and LAE activity recorded in accordance with GAAP for financial guarantee insurance policies and credit impairments estimated in accordance with U.S. STAT for insured derivative contracts. Refer to “Note 6: Loss and Loss Adjustment Expense Reserves” in the Notes to Consolidated Financial Statements included in Exhibit 99.3 of MBIA Inc.’s Annual Report on Form 10-K for the year ended December 31, 2011 for information about MBIA Corp.’s monitoring of outstanding insured obligations and for additional information about its loss reserving process. Refer to “Note 6: Fair Value of Financial Instruments” included herein for additional information about MBIA Corp.’s insured credit derivative contracts.

RMBS Case Basis Reserves and Recoveries (Financial Guarantees)

MBIA Corp.’s RMBS reserves and recoveries relate to financial guarantee insurance policies. MBIA Corp. calculated RMBS case basis reserves as of September 30, 2012 for both second-lien and first-lien RMBS transactions using a process called the “Roll Rate Methodology.” The Roll Rate Methodology is a multi-step process using a database of loan level information, a proprietary internal cash flow model, and a commercially available model to estimate expected ultimate cumulative losses on insured bonds. “Roll Rate” is defined as the probability that current loans become delinquent and that loans in the delinquent pipeline are charged-off or liquidated. Generally, Roll Rates are calculated for the previous three months and averaged. The loss reserve estimates are based on a probability-weighted average of three scenarios of loan losses (base case, stress case, and an additional stress case).

15

MBIA Insurance Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 5: Loss and Loss Adjustment Expense Reserves (continued)

In calculating ultimate cumulative losses for RMBS, MBIA Corp. estimates the amount of loans that are expected to be charged-off (deemed uncollectible by servicers of the transactions) or liquidated in the future. MBIA Corp. assumes that charged-off loans have zero recovery values.

Second-lien RMBS Reserves

MBIA Corp.’s second-lien RMBS case basis reserves as of September 30, 2012 relate to RMBS backed by home equity lines of credit (“HELOC”) and closed-end second mortgages (“CES”).

The Roll Rates for 30-59 day delinquent loans and 60-89 day delinquent loans are calculated on a transaction-specific basis. MBIA Corp. assumes that the Roll Rate for 90+ day delinquent loans, excluding foreclosures, Real Estate Owned (“REO”) and bankruptcies, is 95%. The Roll Rates are applied to the amounts in the respective delinquency buckets based on delinquencies as of August 31, 2012 to estimate future losses from loans that are delinquent as of the current reporting period.

Roll Rates for loans that are current as of August 31, 2012 (“Current Roll to Loss”) are calculated on a transaction-specific basis. A proportion of loans reported current as of August 31, 2012 is assumed to become delinquent every month, at a Current Roll to Loss rate that persists at a high level for a time and subsequently starts to decline. A key assumption in the model is the period of time in which MBIA Corp. projects high levels of Current Roll to Loss to persist. In the base case, MBIA Corp. assumes that the Current Roll to Loss begins to decline immediately and continues to decline over the next six months to 25% of their levels as of August 31, 2012. In the stress case, the period of elevated delinquency and loss is extended by six months. In the additional stress case, MBIA Corp. assumes that the current trends in losses will remain through late 2013, after which time they will revert to the base case. For example, in the base case, as of August 31, 2012, if the amount of current loans which become 30-59 days delinquent is 10%, and recent performance suggests that 30% of those loans will be charged-off, the Current Roll to Loss for the transaction is 3%. In the base case, it is then assumed that the Current Roll to Loss will reduce linearly to 25% of its original value over the next six months (i.e., 3% will linearly reduce to 0.75% over the six months from September 2012 to February 2013). After that six-month period, MBIA Corp. further reduces the Current Roll to Loss to 0% by early 2014 with the expectation that the performing seasoned loans will eventually result in loan performance reverting to historically low levels of default. In the model, MBIA Corp. assumes that all current loans that are projected to become delinquent are charged-off.

In addition, in MBIA Corp.’s loss reserve models for transactions secured by HELOCs, MBIA Corp. considers borrower draw and prepayment rates, and factors that could affect the excess spread generated by current loans which offsets losses and reduces payments. For HELOCs, the current three-month average draw rate is generally used to project future draws on the line. For HELOCs and transactions secured by fixed-rate CES, the three-month average conditional prepayment rate is generally used to start the projection for trends in voluntary principal prepayments. Projected cash flows are also based on an assumed constant basis spread between floating rate assets and floating rate insured debt obligations (the difference between Prime and London Interbank Offered Rate (“LIBOR”) interest rates, minus any applicable fees). For all transactions, cash flow models consider allocations and other structural aspects of the transactions, including managed amortization periods, rapid amortization periods and claims against MBIA Corp.’s insurance policy consistent with such policy’s terms and conditions. In developing multiple loss scenarios, stress is applied by elongating the Current Roll to Loss rate for various periods, simulating a slower improvement in the transaction performance. The estimated net claims from the procedure above are then discounted using a risk-free rate to a net present value reflecting MBIA Corp.’s general obligation to pay claims over time and not on an accelerated basis. The above assumptions represent MBIA Corp.’s best estimates of how transactions will perform over time.

MBIA Corp. monitors portfolio performance on a monthly basis against projected performance, reviewing delinquencies, Roll Rates, and prepayment rates (including voluntary and involuntary). However, given the large percentage of mortgage loans that were not underwritten by the sellers/servicers in accordance with applicable underwriting guidelines, performance remains difficult to predict and losses may exceed expectations. In the event of a material deviation in actual performance from projected performance, MBIA Corp. would increase or decrease the case basis reserves accordingly. If actual performance were to remain at the peak levels MBIA Corp. is modeling for six months longer than in the probability-weighted outcome, the addition to MBIA Corp.’s second-lien RMBS case basis reserves before considering potential recoveries would be approximately $125 million.

16

MBIA Insurance Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 5: Loss and Loss Adjustment Expense Reserves (continued)

Second-lien RMBS Recoveries

As of September 30, 2012, MBIA Corp. recorded estimated recoveries of $3.2 billion, gross of income taxes, related to second-lien RMBS put-back claims on ineligible mortgage loans, consisting of $2.1 billion included in “Insurance loss recoverable” and $1.1 billion included in “Loan repurchase commitments” presented under the heading “Assets of consolidated variable interest entities” on MBIA Corp.’s consolidated balance sheets. As of September 30, 2012 and December 31, 2011, MBIA Corp.’s estimated recoveries after income taxes calculated at the federal statutory rate of 35%, were $2.1 billion and $2.0 billion, respectively, which was 3,547% and negative 556% of the consolidated total shareholders’ equity and deficit, respectively. The negative percentage as of December 31, 2011 was a result of shareholders’ deficit of $364 million recorded on MBIA Corp.’s consolidated balance sheets. These estimated recoveries relate to MBIA Corp.’s put-back claims of ineligible mortgage loans, which have been disputed by the loan sellers/servicers and are currently subject to litigation initiated by MBIA Corp. to pursue recoveries. While MBIA Corp. believes that it will prevail in enforcing its contractual rights, there is uncertainty with respect to the ultimate outcome. Furthermore, there is a risk that sellers/servicers or other responsible parties might not be able to satisfy their put-back obligations. Such risks are contemplated in the scenarios MBIA Corp. utilizes to calculate recoveries.

MBIA Corp. assesses the financial abilities of the sellers/servicers using external credit ratings and other factors. The impact of such factors on cash flows related to expected recoveries is incorporated into MBIA Corp.’s probability-weighted scenarios. Accordingly, MBIA Corp. has not recognized any recoveries related to its IndyMac Bank, F.S.B. insured exposures and has, subsequent to the ResCap bankruptcy filing, reviewed the indicative scenarios and related probabilities assigned to each scenario to develop a distribution of possible outcomes. MBIA Corp.’s expected recoveries may be discounted in the future based on additional reviews of the creditworthiness of other sellers/servicers.

On May 14, 2012, ResCap, and its wholly-owned subsidiary companies, RFC and GMAC, each filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code. MBIA Corp. believes that the claims against RFC and GMAC are stronger and better defined than most other unsecured creditor claims due to the following reasons:

• the direct contractual relationship between MBIA Corp., GMAC and RFC related to MBIA Corp.’s second-lien RMBS put-back claims on ineligible mortgage loans that were improperly included in the MBIA Corp.-insured transactions;

• MBIA Corp.’s legal claims against RFC and GMAC based on breach of contract and fraud have withstood motions to dismiss; and

• expert reports submitted in the RFC litigation which established a substantial breach rate in MBIA Corp.’s insured securitizations, and MBIA Corp.’s damages as a result thereof.

MBIA Corp. has modeled scenario-based recoveries which are founded upon the strength of these claims as well as a range of estimated assets available to unsecured creditors of the ResCap companies. These outcomes are based upon information that was available to MBIA Corp. as of the filing date.

MBIA Corp. continues to maintain the same probability-weighted scenarios for its non-GMAC and non-RFC exposures (non-ResCap exposures), which are primarily based on the percentage of incurred losses MBIA Corp. would collect. The non-ResCap recovery estimates incorporate five scenarios that include full recovery of its incurred losses and limited/reduced recoveries due to litigation delays and risks and/or potential financial distress of the sellers/servicers. Probabilities were assigned across these scenarios, with most of the probability weight on partial recovery scenarios. The sum of the probabilities assigned to all scenarios is 100%. Expected cash inflows from recoveries are discounted using the current risk-free discount rates associated with the underlying transaction’s cash flows, which ranged from 0.7% to 1.6%, depending upon the transaction’s expected average life. However, based on MBIA Corp.’s assessment of the strength of its contract claims, MBIA Corp. believes it is entitled to collect and/or assert a claim for the full amount of its incurred losses on these transactions, which totaled $5.0 billion through September 30, 2012.

MBIA Corp.’s potential recoveries are typically based on either salvage rights, the rights conferred to MBIA Corp. through the transactional documents (inclusive of the insurance agreement), or subrogation rights embedded within financial guarantee insurance policies. The second-lien RMBS transactions with respect to which MBIA Corp. has estimated put-back recoveries provide MBIA Corp. with such rights. Expected salvage and subrogation recoveries, as well as recoveries from other remediation efforts, reduce MBIA Corp.’s claim liability. Once a claim payment has been made, the claim liability has been satisfied and MBIA Corp.’s right to recovery is no longer considered an offset to future expected claim payments, but is recorded as a salvage asset. The amount of recoveries recorded by MBIA Corp. is limited to paid claims plus the present value of projected future claim payments. As claim payments are made, the recorded amount of potential recoveries may exceed the remaining amount of the claim liability for a given policy.

17

MBIA Insurance Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 5: Loss and Loss Adjustment Expense Reserves (continued)

To date, sellers/servicers have not substituted loans which MBIA Corp. has put-back, and the amount of loans repurchased has been insignificant. The unsatisfactory resolution of these put-backs led MBIA Corp. to initiate litigation against five of the sellers/servicers to enforce their obligations. MBIA Corp. has alleged several causes of action in its complaints, including breach of contract, fraudulent inducement and indemnification. MBIA Corp.’s aggregate $3.2 billion of estimated potential recoveries do not include damages from causes of action other than breach of contract. Irrespective of amounts recorded in its financial statements, MBIA Corp. is seeking to recover and/or assert claims for the full amount of its incurred losses and other damages on these transactions. MBIA Corp. has not collected any material amounts of cash related to these recoveries. Additional information on the status of these litigations can be found in the “Recovery Litigation” discussion within “Note 11: Commitments and Contingencies.”

MBIA Corp. has received five decisions with regard to the respective defendants’ motions to dismiss MBIA Corp.’s claims. In each instance, the respective court denied the motion, allowing MBIA Corp. to proceed on, at minimum, its fraud and breach of contract claims. In December 2011, MBIA Corp. reached an agreement with one of the five sellers/servicers with whom it had initiated litigation and that litigation has been dismissed.

MBIA Corp.’s assessment of the recovery outlook for insured second-lien RMBS issues is principally based on the following factors:

1. the strength of MBIA Corp.’s existing contract claims related to ineligible mortgage loan substitution/repurchase obligations;

2. the settlement of Assured Guaranty’s and Syncora’s put-back related claims with Bank of America;

3. the improvement in the financial strength of certain sellers/servicers due to mergers and acquisitions and/or government assistance, which should facilitate the ability of these sellers/servicers and their successors to comply with required loan repurchase/substitution obligations. MBIA Corp. is not aware of any provisions that explicitly preclude or limit successors’ obligations to honor the obligations of original sellers/servicers. MBIA Corp.’s assessment of any credit risk associated with sellers/servicers (or their successors) is reflected in MBIA Corp.’s probability-weighted potential recovery scenarios;

4. evidence of ineligible mortgage loan repurchase/substitution by sellers/servicers for put-back requests made by other harmed parties; this factor is further enhanced by (i) Bank of America’s disclosure that it has resolved $8.0 billion of repurchase requests in the fourth quarter of 2010; (ii) the Fannie Mae settlements with Ally Bank announced on December 23, 2010 and with Bank of America (which also involved Freddie Mac) announced on December 31, 2010, and (iii) MBIA Corp.’s settlement agreements entered into on July 16, 2010 and December 13, 2011 respectively, between MBIA Corp. and sponsors of certain MBIA Corp.-insured mortgage loan securitizations in which MBIA Corp. received consideration in exchange for a release relating to its representation and warranty claims against the sponsors. These settlements resolved all of MBIA Corp.’s representation and warranty claims against the sponsors on mutually beneficial terms and in aggregate were slightly more than the recoveries previously recorded by MBIA Corp. related to these exposures;

5. the defendants’ failure to win dismissals of MBIA Corp.’s put-back litigations discussed above, allowing MBIA Corp. to continue to pursue its contract and fraud claims;

6. Countrywide’s unsuccessful appeal of its failure to win dismissal of MBIA Corp.’s fraud claims in the Countrywide litigation, allowing MBIA Corp. to pursue its fraud claims;

7. MBIA Corp.’s successful motion in the Countrywide litigation allowing MBIA Corp. to present evidence of liability and damages through the introduction of statistically valid random samples of loans rather than on a loan-by-loan basis and subsequent decisions consistent with that ruling;

8. Bank of America’s failure to win dismissal of MBIA Corp.’s claims for successor liability in the Countrywide litigation, as well as on the completion of discovery relating to its successor liability claims against Bank of America;

9. MBIA Corp.’s successful motion regarding causation and the right to rescissory damages in the Countrywide litigation. This provides that MBIA Corp. is not required to establish a direct causal link between Countrywide’s misrepresentations and MBIA Corp.’s claims payments made pursuant to the insurance policies at issue, and that MBIA Corp. may seek damages equal to the amount that it has been and will be required to pay under the relevant policies, less premiums received;

10. Syncora’s and Assured’s successful motions regarding causation in their Federal court put-back litigations with J.P. Morgan Chase and Flagstar Bank, respectively, which support the ruling on causation in MBIA Corp.’s litigation against Countrywide; and

11. other loan repurchase reserves and/or settlements which have been publicly disclosed by certain sellers/servicers.

18

MBIA Insurance Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 5: Loss and Loss Adjustment Expense Reserves (continued)

MBIA Corp. continues to consider all relevant facts and circumstances, including the factors described above, in developing its assumptions on expected cash inflows, probability of potential recoveries (including the outcome of litigation) and recovery period. The estimated amount and likelihood of potential recoveries are expected to be revised and supplemented to the extent there are developments in the pending litigation, new litigation is initiated and/or changes to the financial condition of sellers/servicers occur. While MBIA Corp. believes it will be successful in realizing recoveries from contractual and other claims, the ultimate amounts recovered may be materially different from those recorded by MBIA Corp. given the inherent uncertainty of the manner of resolving the claims (e.g., litigation) and the assumptions used in the required estimation process for accounting purposes which are based, in part, on judgments and other information that are not easily corroborated by historical data or other relevant benchmarks.

All of MBIA Corp.’s policies insuring second-lien RMBS for which litigation has been initiated against sellers/servicers are in the form of financial guarantee insurance contracts. In accordance with U.S. GAAP, MBIA Corp. has not recorded a gain contingency with respect to pending litigation.

First-lien RMBS Reserves

MBIA Corp.’s first-lien RMBS case basis reserves as of September 30, 2012, which primarily relate to RMBS backed by alternative A-paper (“Alt-A”) and subprime mortgage loans were determined using the Roll Rate Methodology. MBIA Corp. assumes that the Roll Rate for loans in foreclosure, REO and bankruptcy are 90%, 90% and 75%, respectively. Roll Rates for current, 30-59 day delinquent loans, 60-89 day delinquent loans and 90+ day delinquent loans are calculated on a transaction-specific basis. The Current Roll to Loss stay at the August 31, 2012 level for two months before declining to 25% of this level over a 24-month period. Additionally, MBIA Corp. runs scenarios where the 90+ day roll rate to loss is set at 90%. The Roll Rates are applied to the amounts in the respective delinquency buckets based on delinquencies as of August 31, 2012 to estimate future losses from loans that are delinquent as of the current reporting period.

In calculating ultimate cumulative losses for first-lien RMBS, MBIA Corp. estimates the amount of loans that are expected to be liquidated through foreclosure or short sale. The time to liquidation for a defaulted loan is specific to the loan’s delinquency bucket with the latest three-month average loss severities generally used to calculate losses at loan liquidation. The loss severities are reduced over time to account for reduction in the amount of foreclosure inventory, anticipated future increases in home prices, principal amortization of the loan and government foreclosure moratoriums.

ABS CDOs (Financial Guarantees and Insured Derivatives)

MBIA Corp.’s insured ABS CDOs are transactions that include a variety of collateral ranging from corporate bonds to structured finance assets (which includes but are not limited to RMBS related collateral, ABS CDOs, corporate CDOs and collateralized loan obligations). These transactions were insured as either financial guarantee insurance policies or credit derivatives with the majority insured in the form of credit derivatives. Since the fourth quarter of 2007, MBIA Corp.’s insured par exposure within the ABS CDO portfolio has been substantially reduced through a combination of terminations and commutations. Accordingly, as of September 30, 2012, the insured par exposure of the ABS CDO financial guarantee insurance policies and credit derivatives portfolio has declined by approximately 88% of the insured amount as of December 31, 2007.

MBIA Corp.’s ABS CDOs originally benefited from two sources of credit enhancement. First, the subordination in the underlying securities collateralizing the transaction must be fully eroded and second, the subordination below the insured tranche in the CDO transaction must be fully eroded before the insured tranche is subject to a claim. MBIA Corp.’s payment obligations after a default vary by transaction and by insurance type.

The primary factor in estimating reserves on insured ABS CDO policies written as financial guarantee insurance policies and in estimating impairments on insured ABS CDO credit derivatives is the losses associated with the underlying collateral in the transactions. MBIA Corp.’s approach to establishing reserves or impairments in this portfolio employs a methodology which is similar to other structured finance asset classes insured by MBIA Corp. MBIA Corp. uses a total of four probability-weighted scenarios in order to estimate its reserves or impairments for ABS CDOs.

As of September 30, 2012, MBIA Corp. had loss and LAE reserves totaling $171 million related to ABS CDO financial guarantee insurance policies after the elimination of $242 million as a result of consolidating VIEs. For the nine months ended September 30, 2012, MBIA Corp. incurred $6 million of losses and LAE recorded in earnings related to ABS CDO financial guarantee insurance policies after the elimination of an $18 million benefit as a result of consolidating VIEs. In the event of further deteriorating performance of the collateral referenced or held in ABS CDO transactions, the amount of losses estimated by MBIA Corp. could increase materially.

19

MBIA Insurance Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 5: Loss and Loss Adjustment Expense Reserves (continued)

Credit Impairments Related to Structured CMBS Pools, CRE CDOs and CRE Loan Pools (Financial Guarantees and Insured Derivatives)

Most of the structured CMBS pools, CRE CDOs and CRE loan pools insured by MBIA Corp. are accounted for as insured credit derivatives and are carried at fair value in MBIA Corp.’s consolidated financial statements. Since MBIA Corp.’s insured credit derivatives have similar terms, conditions, risks, and economic profiles to its financial guarantee insurance policies, MBIA Corp. evaluates them for impairment in the same way that it estimates loss and LAE for its financial guarantee policies. The following discussion provides information about MBIA Corp.’s process for estimating credit impairments on these contracts using its statutory loss reserve methodology, determined as the present value of the probability-weighted potential future losses, net of estimated recoveries, across multiple scenarios, plus actual payments and collections.

MBIA Corp. has developed multiple scenarios to consider the range of potential outcomes in the CRE market and their impact on MBIA Corp. The approaches require substantial judgments about the future performance of the underlying loans, and include the following:

• The first approach considers the range of commutation agreements achieved and agreed to since 2010, which included 66 structured CMBS pools, CRE CDOs and CRE loan pool policies totaling $33.1 billion of gross insured exposure. MBIA Corp. considers the range of commutations achieved over the past several years with multiple counterparties. This approach results in an estimated price to commute the remaining policies with price estimates, based on this experience. It is customized by counterparty and is dependent on the level of dialogue with the counterparty and the credit quality and payment profile of the underlying exposure.

• The second approach considers current delinquency rates and uses current and projected net operating income (“NOI”) and capitalization rates (“Cap Rates”) to project losses under two scenarios. Loans are stratified by size with larger loans being valued utilizing lower Cap Rates than for smaller loans. These scenarios also assume that Cap Rates and NOIs remain flat for the near term and then begin to improve gradually. Additionally, in these scenarios, any loan with a balance greater than $75 million with a debt service coverage ratio (“DSCR”) less than 1.0x or that was reported as being in any stage of delinquency, was reviewed individually so that performance and loss severity could be more accurately determined. Specific loan level assumptions for this large loan subset were then incorporated into these scenarios, as well as specific assumptions regarding certain smaller loans when there appeared to be a material change in the asset’s financial or delinquency performance over the preceding six months. As MBIA Corp. continues to increase the level of granularity in its individual loan assessments, it analyzes and adjusts assumptions for loans with certain mitigating attributes, such as no lifetime delinquency, recent appraisals indicating sufficient value and large capital reserve levels. These scenarios project different levels of additional defaults with respect to loans that are current. This approach makes use of the most recent financial statements available at the property level.

• The third approach stratifies loans into buckets based on delinquency status (including a “current” bucket) and utilizes recent Roll Rates actually experienced within each of the commercial mortgage-backed index (“CMBX”) series in order to formulate an assumption to predict future delinquencies. Ultimately, this generates losses over a projected time horizon based on the assumption that loss severities will begin to decline from the high levels seen over the past two years. MBIA Corp. further examines those loans referenced in the CMBX indices which were categorized as 90+ days delinquent or in the process of foreclosure and determined the average monthly balance of such loans which were cured. MBIA Corp. then applies the most recent rolling six-month average balance of all such cured loans to all underperforming loans in the 90+ day delinquent bucket or in the foreclosure process (and those projected to roll into late stage delinquency from the current and lesser stage levels of delinquency) and assumes all other loans are liquidated. MBIA Corp. assumes all loans in the REO category liquidate over the next twelve months.

• The fourth approach is based on a proprietary model developed by reviewing performance data on over 80,000 securitized CRE loans originated between 1992 and 2011. The time period covered during the performance review includes the years 2006 through 2011. MBIA Corp. believes that these five years represent an appropriate time period in which to conduct a performance review because they encompass a period of extreme stress in the economy and the CRE market.

Based on a review of the data, MBIA Corp. found property type and the DSCR to be the most significant determinants of a loan’s default probability with other credit characteristics less influential. As a result, MBIA Corp. developed a model in which the loans were divided into 168 representative cohorts based on their DSCR and property type. For each of these cohorts, MBIA Corp. calculated the average annual probability of default, and then ran Monte Carlo simulations to estimate the timing of defaults. In addition, the model incorporated the following logic:

• NOI and Cap Rates were assumed to remain at current levels for loans in MBIA Corp.’s classified portfolio, resulting in no modifications or extensions under the model, other than as described in the next bullet point, to reflect the possibility that the U.S. economy and CRE market could experience no growth for the foreseeable future.

• Any valuation estimates obtained by special servicers since a loan’s origination as well as MBIA Corp.’s individual large loan level analysis for loans with balances greater than $75 million were incorporated as described in the second approach. However, in the fourth approach no adjustments were made for smaller loans lower than $75 million regardless of any mitigating factors.

20

MBIA Insurance Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 5: Loss and Loss Adjustment Expense Reserves (continued)

The loss severities projected by these scenarios vary widely, from moderate to substantial losses, with the majority of projected losses relating to a subset of transactions with a single counterparty. MBIA Corp. previously incorporated an additional actuarial based approach, which has been eliminated as it did not reflect the best current market observations. Actual losses will be a function of the proportion of loans in the pools that are foreclosed and liquidated and the loss severities associated with those liquidations. If the deductibles in MBIA Corp.’s insured transactions and underlying referenced CMBS transactions are fully eroded, additional property level losses upon foreclosures and liquidations could result in substantial losses for MBIA Corp. Since foreclosures and liquidations have only begun to take place during this economic cycle, particularly for larger properties, ultimate loss rates remain uncertain. Whether CMBS collateral is included in a structured pool or in a CRE CDO, MBIA Corp. believes the modeling related to the underlying bond should be the same. However, adjustments may be needed for structural or legal reasons. MBIA Corp. assigns a wide range of probabilities to these scenarios, with lower severity scenarios being weighted more heavily than higher severity scenarios. This reflects the view that liquidations will continue to be mitigated by loan extensions and modifications, and that property values and NOIs have bottomed for many sectors and markets in the U.S. The weightings are customized to each counterparty. If macroeconomic stress were to increase or the U.S. goes into a recession, higher delinquencies, liquidations and/or higher severities of loss upon liquidation may result and MBIA Corp. may incur substantial additional losses. The foreclosure and REO pipelines are still relatively robust, with several restructurings and liquidations yet to occur, so the range of possible outcomes is wider than those for MBIA Corp.’s exposures to ABS CDOs and second-lien RMBS.

In the CRE CDO portfolio, transaction-specific structures require managers to report reduced enhancement according to certain guidelines which often include downgrades even when the bond is still performing. As a result, as well as additional collateral defaults, reported enhancement has been reduced significantly in some CRE CDOs. Moreover, many of the CRE CDO positions are amortizing more quickly than originally expected as most or all interest proceeds that would have been allocated to more junior classes within the CDO have been diverted and redirected to pay down the senior most classes insured by MBIA Corp.

For the nine months ended September 30, 2012, MBIA Corp. incurred $87 million of losses and LAE recorded in earnings related to CRE CDO financial guarantee insurance policies. For the nine months ended September 30, 2012, additional credit impairments and LAE on structured CMBS pools, CRE CDOs and CRE loan pools were estimated to be $502 million as a result of additional delinquencies and loan level liquidations, as well as continued refinements of MBIA Corp.’s assessment of various commutation possibilities. The majority of the increase relates to a subset of transactions with a single counterparty. The cumulative credit impairments and LAE on structured CMBS pools, CRE CDOs and CRE loan pools were estimated to be $3.3 billion through September 30, 2012. Although the pace of increases in the delinquency rate has slowed and many loans are being modified, liquidations have taken place. Some loans were liquidated with minimal losses of 1% to 2%, others experienced near complete losses, and in some cases severities exceeded 100%. These liquidations have led to losses in the CMBS market, and in many cases, have resulted in reductions of enhancement to the individual CMBS bonds referenced by the insured structured CMBS pools. In certain insured transactions, these losses have resulted in deductible erosion. Bond level enhancement and pool level deductibles are structural features intended to mitigate losses to MBIA Corp. However, some of the transactions reference similar rated subordinate tranches of CMBS bonds. When there are broad-based declines in property performance, this leverage can result in rapid deterioration in pool performance.

21

MBIA Insurance Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 5: Loss and Loss Adjustment Expense Reserves (continued)

Loss and LAE Activity

Financial Guarantee Insurance Losses (Non-Derivative)

MBIA Corp.’s financial guarantee insurance losses and LAE for the nine months ended September 30, 2012 are presented in the following table:

Losses and LAE	Nine Months Ended September 30, 2012
	Second-lien
In millions	RMBS		Other(1)		Total
Losses and LAE related to actual and expected payments	$	180	$	254	$	434
Recoveries of actual and expected payments		(74)		(38)		(112)
Gross losses incurred		106		216		322
Reinsurance		-		(7)		(7)
Losses and LAE	$	106	$	209	$	315

(1) - Primarily first-lien RMBS and financial guarantee CMBS.

The second-lien RMBS losses and LAE related to actual and expected payments included in the preceding table comprise net increases of previously established reserves. The second-lien RMBS recoveries of actual and expected payments comprise $154 million in recoveries resulting from ineligible mortgage loans included in insured exposures that are subject to contractual obligations by sellers/servicers to repurchase or replace such mortgages, offset by an $80 million reduction in excess spread. Other losses and LAE expense primarily resulted from credit deterioration within first-lien RMBS and CMBS transactions.

The following table provides information about the financial guarantees and related claim liability included in each of MBIA Corp.’s surveillance categories as of September 30, 2012:

	Surveillance Categories
	Caution List		Caution List		Caution List		Classified
$ in millions	Low		Medium		High		List		Total
Number of policies		44		24		9		207		284
Number of issues(1)		25		14		8		136		183
Remaining weighted average contract period (in years)		8.8		4.6		6.1		9.4		8.7
Gross insured contractual payments outstanding:(2)
Principal	$	3,623	$	1,409	$	293	$	9,626	$	14,951
Interest		2,658		334		64		5,354		8,410
Total	$	6,281	$	1,743	$	357	$	14,980	$	23,361
Gross claim liability	$	-		-	$	-	$	1,651	$	1,651
Less:
Gross potential recoveries		-		-		-		3,825		3,825
Discount, net		-		-		-		182		182
Net claim liability (recoverable)	$	-	$	-	$	-	$	(2,356)	$	(2,356)
Unearned premium revenue	$	130	$	17	$	3	$	118	$	268

(1) - An “issue” represents the aggregate of financial guarantee policies that share the same revenue source for purposes of making debt service payments.

(2) - Represents contractual principal and interest payments due by the issuer of the obligations insured by MBIA Corp.

22

MBIA Insurance Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 5: Loss and Loss Adjustment Expense Reserves (continued)

The following table provides information about the financial guarantees and related claim liability included in each of MBIA Corp.’s surveillance categories as of December 31, 2011:

	Surveillance Categories
	Caution List		Caution List		Caution List		Classified
$ in millions	Low		Medium		High		List		Total
Number of policies		46		26		14		200		286
Number of issues(1)		28		16		11		130		185
Remaining weighted average contract period (in years)		8.0		5.5		6.0		9.6		8.7
Gross insured contractual payments outstanding:(2)
Principal	$	4,203	$	1,190	$	561	$	10,420	$	16,374
Interest		2,570		338		144		5,836		8,888
Total	$	6,773	$	1,528	$	705	$	16,256	$	25,262
Gross claim liability	$	-	$	-	$	-	$	1,812	$	1,812
Less:
Gross potential recoveries		-		-		-		3,813		3,813
Discount, net		-		-		-		177		177
Net claim liability (recoverable)	$	-	$	-	$	-	$	(2,178)	$	(2,178)
Unearned premium revenue	$	154	$	16	$	3	$	134	$	307

(1) - An “issue” represents the aggregate of financial guarantee policies that share the same revenue source for purposes of making debt service payments.

(2) - Represents contractual principal and interest payments due by the issuer of the obligations insured by MBIA Corp.

The gross claim liability as of September 30, 2012 and December 31, 2011 in the preceding tables represents MBIA Corp.’s estimate of undiscounted probability-weighted future claim payments, which principally relate to insured first-lien and second-lien RMBS transactions and U.S. public finance transactions. The gross potential recoveries represent MBIA Corp.’s estimate of undiscounted probability-weighted recoveries of actual claim payments and recoveries of estimated future claim payments, and principally relate to insured second-lien RMBS transactions. Both amounts reflect the elimination of claim liabilities and potential recoveries related to VIEs consolidated by MBIA Corp.

The following table presents the components of MBIA Corp.’s loss and LAE reserves and insurance loss recoverable as reported on MBIA Corp.’s consolidated balance sheets as of September 30, 2012 and December 31, 2011 for insured obligations within MBIA Corp.’s “Classified List.” The loss reserves (claim liability) and insurance claim loss recoverable included in the following table represent the present value of the probability-weighted future claim payments and recoveries reported in the preceding tables.

	As of September 30,		As of December 31,
In millions	2012		2011
Loss reserves (claim liability)	$	859	$	781
LAE reserves		79		55
Loss and LAE reserves	$	938	$	836
Insurance claim loss recoverable	$	(3,281)	$	(3,032)
LAE insurance loss recoverable		(35)		(14)
Insurance loss recoverable	$	(3,316)	$	(3,046)
Reinsurance recoverable on unpaid losses	$	164	$	174
Reinsurance recoverable on LAE reserves		4		3
Reinsurance recoverable on paid losses		2		1
Reinsurance recoverable on paid and unpaid losses	$	170	$	178

23

MBIA Insurance Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 5: Loss and Loss Adjustment Expense Reserves (continued)

As of September 30, 2012, loss and LAE reserves include $1.3 billion of reserves for expected future payments offset by expected recoveries of such future payments of $384 million. As of December 31, 2011, loss and LAE reserves included $1.4 billion of reserves for expected future payments offset by expected recoveries of such future payments of $562 million. As of September 30, 2012 and December 31, 2011, the insurance loss recoverable primarily related to estimated recoveries of payments made by MBIA Corp. resulting from ineligible mortgage loans in certain insured second-lien residential mortgage loan securitizations that are subject to a contractual obligation by the sellers/servicers to repurchase or replace the ineligible mortgage loans and expected future recoveries on second-lien RMBS transactions resulting from expected excess spread generated by performing loans in such transactions. MBIA Corp. expects to be reimbursed for the majority of its potential recoveries related to ineligible mortgage loans by the second quarter of 2013.

Total paid losses and LAE, net of reinsurance and collections, for the nine months ended September 30, 2012 was $394 million, including $330 million related to insured second-lien RMBS transactions. For the nine months ended September 30, 2012, the increase in insurance loss recoverable related to paid losses totaled $270 million, and primarily related to insured second-lien RMBS transactions.

The following table presents MBIA Corp.’s second-lien RMBS exposure, gross undiscounted claim liability and potential recoveries for amounts excluding consolidated VIEs and amounts related to consolidated VIEs, as of September 30, 2012. All insured transactions reviewed with potential recoveries are included within the “Classified List.”

Second-lien RMBS Exposure			Outstanding				Gross Undiscounted
			Gross		Gross		Claim		Potential
$ in billions	Issues		Principal		Interest		Liability		Recoveries
Excluding Consolidated VIEs:
Insured issues designated as “Classified List”		22	$	4.2	$	1.7	$	0.3	$	3.2
Insured issues reviewed with potential recoveries		15	$	3.9	$	1.6	$	0.2	$	3.1
Consolidated VIEs:
Insured issues designated as “Classified List”		12	$	2.3	$	0.9	$	0.1	$	1.4
Insured issues reviewed with potential recoveries		11	$	2.2	$	0.8	$	0.1	$	1.4

MBIA Corp. has performed reviews on 29 of the 34 total insured issues designated as “Classified List” and recorded potential recoveries on 26 of those 29 issues, primarily related to four issuers (Countrywide, RFC, GMAC and Credit Suisse). In addition, MBIA Corp. has received consideration on two transactions, including one Alt-A transaction, which have been excluded in the preceding table.

The following table presents changes in MBIA Corp.’s loss and LAE reserves for the nine months ended September 30, 2012. Changes in the loss and LAE reserves attributable to the accretion of the claim liability discount, changes in discount rates, changes in the timing and amounts of estimated payments and recoveries, changes in assumptions and changes in LAE reserves are recorded in “Losses and loss adjustment” expenses in MBIA Corp.’s consolidated statements of operations. As of September 30, 2012, the weighted average risk-free rate used to discount MBIA Corp.’s loss reserves (claim liability) was 1.25%. LAE reserves are expected to be settled within a one-year period and are not discounted.

In millions		Changes in Loss and LAE Reserves for the Nine Months Ended September 30, 2012
Gross Loss and LAE Reserves as of December 31, 2011		Loss Payments for Cases with Reserves		Accretion of Claim Liability Discount		Changes in Discount Rates		Changes in Timing of Payments		Changes in Amount of Net Payments		Changes in Assumptions		Changes in Unearned Premium Revenue		Changes  in LAE Reserves		Gross Loss and LAE Reserves as of September 30, 2012
$	836	$	(283)	$	9	$	26	$	52	$	3	$	264	$	7	$	24	$	938

The increase in MBIA Corp.’s gross loss and LAE reserves reflected in the preceding table was primarily due to changes in assumptions, timing of payments, and changes in LAE reserves, offset by decreases in reserves related to loss payments, on insured first-lien and second-lien RMBS issues outstanding as of December 31, 2011.

Current period changes in MBIA Corp.’s estimate of potential recoveries may be recorded as an insurance loss recoverable asset, netted against the gross loss and LAE reserve liability, or both. The following table presents changes in MBIA Corp.’s insurance loss recoverable and changes in recoveries on unpaid losses reported within MBIA Corp.’s claim liability for the nine months ended September 30, 2012. Changes in insurance loss recoverable attributable to the accretion of the discount on the recoverable, changes in discount rates, changes in the timing and amounts of estimated collections, changes in assumptions and changes in LAE recoveries are recorded in “Losses and loss adjustment” expenses in MBIA Corp.’s consolidated statements of operations.

24

MBIA Insurance Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 5: Loss and Loss Adjustment Expense Reserves (continued)

			Changes in Insurance Loss Recoverable and Recoveries on Unpaid Losses for  the
			Nine Months Ended September 30, 2012
	Gross		Collections														Gross
	Reserve as of		for Cases		Accretion		Changes in		Changes in		Changes in				Changes in		Reserve as of
	December 31,		with		of		Discount		Timing of		Amount of		Changes in		LAE		September 30,
In millions	2011		Recoveries		Recoveries		Rates		Collections		Collections		Assumptions		Recoveries		2012
Insurance loss recoverable	$	3,046	$	(6)	$	30	$	8	$	-	$	(149)	$	366	$	21	$	3,316
Recoveries on unpaid losses		562		-		5		19		-		-		(196)		(7)		383
Total	$	3,608	$	(6)	$	35	$	27	$	-	$	(149)	$	170	$	14	$	3,699

MBIA Corp.’s insurance loss recoverable increased during 2012 primarily due to changes in assumptions associated with issues outstanding as of December 31, 2011, which related to increases in excess spread and ineligible mortgage loans included in insured second-lien residential mortgage securitization exposures that are subject to contractual obligations by sellers/servicers to repurchase or replace such mortgages, partially offset by changes in the amount of collections. Recoveries on unpaid losses decreased primarily due to changes in assumptions as a result of a reduction of excess spread related to first-lien and second-lien RMBS transactions offset by changes in discount rates.

The following table presents MBIA Corp.’s total estimated recoveries from ineligible mortgage loans included in certain insured second-lien mortgage loan securitizations as of September 30, 2012. The total estimated recoveries from ineligible mortgage loans of $3.2 billion include $2.1 billion recorded as “Insurance loss recoverable” and $1.1 billion recorded as “Loan repurchase commitments” presented under the heading “Assets of consolidated variable interest entities” on MBIA Corp.’s consolidated balance sheets.

In millions
Total Estimated Recoveries from Ineligible Mortgage Loans as of December 31, 2011		Accretion of Future Collections		Changes in Discount Rates		Recoveries (Collections)		Changes in Amount of Collections		Changes in Assumptions		Total Estimated Recoveries from Ineligible Mortgage Loans as of September 30, 2012
$	3,119	$	34	$	2	$	-	$	-	$	92	$	3,247

MBIA Corp.’s total estimated recoveries from ineligible mortgage loans in the preceding table increased primarily as a result of the probability-weighted scenarios as described within the preceding “Second-lien RMBS Recoveries” section.

Remediation actions may involve, among other things, waivers or renegotiations of financial covenants or triggers, waivers of contractual provisions, the granting of consents, transfer of servicing, consideration of restructuring plans, acceleration, security or collateral enforcement, actions in bankruptcy or receivership, litigation and similar actions. The types of remedial actions pursued are based on the insured obligation’s risk type and the nature and scope of the event giving rise to the remediation. As part of any such remedial actions, MBIA Corp. seeks to improve its security position and to obtain concessions from the issuer of the insured obligation. From time to time, the issuer of an MBIA Corp.-insured obligation may, with the consent of MBIA Corp., restructure the insured obligation by extending the term, increasing or decreasing the par amount or decreasing the related interest rate, with MBIA Corp. insuring the restructured obligation.

Costs associated with remediating insured obligations assigned to MBIA Corp.’s “Caution List—Low,” “Caution List—Medium,” “Caution List—High” and “Classified List” are recorded as LAE. LAE is primarily recorded as part of MBIA Corp.’s provision for its loss reserves and included in “Losses and loss adjustment” on MBIA Corp.’s consolidated statements of operations. The following table presents the gross expenses related to remedial actions for insured obligations:

	Nine Months Ended September 30,
In millions	2012		2011
Loss adjustment expense incurred, gross	$	108	$	76

25

MBIA Insurance Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments

Fair Value Measurement

Fair value is a market-based measure considered from the perspective of a market participant. Therefore, even when market assumptions are not readily available, MBIA Corp.’s own assumptions are set to reflect those which it believes market participants would use in pricing an asset or liability at the measurement date. The fair value measurements of financial instruments held or issued by MBIA Corp. are determined through the use of observable market data when available. Market data is obtained from a variety of third-party sources, including dealer quotes. If dealer quotes are not available for an instrument that is infrequently traded, MBIA Corp. uses alternate valuation methods, including either dealer quotes for similar instruments or modeling using market data inputs. The use of alternate valuation methods generally requires considerable judgment in the application of estimates and assumptions, and changes to such estimates and assumptions may produce materially different fair values.

The accounting guidance for fair value measurement establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available and reliable. Observable inputs are those that MBIA Corp. believes that market participants would use in pricing an asset or liability based on available market data. Unobservable inputs are those that reflect MBIA Corp.’s beliefs about the assumptions market participants would use in pricing an asset or liability based on the best information available. The fair value hierarchy is broken down into three levels based on the observability and reliability of inputs, as follows:

• Level 1—Valuations based on quoted prices in active markets for identical assets or liabilities that MBIA Corp. can access. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail any degree of judgment.

• Level 2—Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly. Level 2 assets include debt securities with quoted prices that are traded less frequently than exchange-traded instruments, securities which are priced using observable inputs and derivative contracts whose values are determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data.

• Level 3—Valuations based on inputs that are unobservable and supported by little or no market activity and that are significant to the overall fair value measurement. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques where significant inputs are unobservable, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

The availability of observable inputs can vary from product to product and period to period and is affected by a wide variety of factors, including, for example, the type of product, whether the product is new and not yet established in the marketplace, and other characteristics particular to the product. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, MBIA Corp. assigns the level in the fair value hierarchy for which the fair value measurement in its entirety falls, based on the least observable input that is significant to the fair value measurement.

1. Financial Assets (excluding derivative assets)

Financial assets, excluding derivative assets, held by MBIA Corp. primarily consist of investments in debt securities. Substantially all of MBIA Corp.’s investments are priced by independent third parties, including pricing services and brokers. Typically MBIA Corp. receives one pricing service value or broker quote for each instrument, which represents a non-binding indication of value. MBIA Corp. reviews the assumptions, inputs and methodologies used by pricing services to obtain reasonable assurance that the prices used in its valuations reflect fair value. When MBIA Corp. believes a third-party quotation differs significantly from its internally developed expectation of fair value, whether higher or lower, MBIA Corp. reviews its data or assumptions with the provider. This review includes comparing significant assumptions such as prepayment speeds, default ratios, forward yield curves, credit spreads and other significant quantitative inputs to internal assumptions, and working with the price provider to reconcile the differences. The price provider may subsequently provide an updated price. In the event that the price provider does not update their price, and MBIA Corp. still does not agree with the price provided, MBIA Corp. will try to obtain a price from another third-party provider, such as a broker, or use an internally developed price which it believes represents the fair value of the investment. The fair values of investments for which internal prices were used were not significant to the aggregate fair value of MBIA Corp.’s investment portfolio as of September 30, 2012 or December 31, 2011. All challenges to third-party prices are reviewed by staff of MBIA Corp. with relevant expertise to ensure reasonableness of assumptions.

26

MBIA Insurance Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

In addition to challenging pricing assumptions, MBIA Corp. obtains reports from the independent accountants for significant third- party pricing services attesting to the effectiveness of the controls over data provided to MBIA Corp. These reports are obtained annually and are reviewed by MBIA Corp. to ensure key controls are applied by the pricing services, and that appropriate user controls are in place at MBIA Corp. to ensure proper measurement of the fair values of its investments. In the event that any controls in these reports are deemed ineffective by independent accountants, MBIA Corp. will take the necessary actions to ensure that internal user controls are in place to mitigate the control risks. No deficiencies were noted for significant third-party pricing services used.

2. Derivative Assets and Liabilities

MBIA Corp.’s derivative liabilities are primarily insured credit derivatives that reference structured pools of cash securities and CDSs. MBIA Corp. generally insured the most senior liabilities of such transactions, and at the inception of transactions its exposure generally had more subordination than needed to achieve triple-A ratings from credit rating agencies. The types of collateral underlying its insured derivatives consist of cash securities and CDSs referencing primarily corporate, asset-backed, residential mortgage-backed, commercial mortgage-backed, CRE loans, and CDO securities.

MBIA Corp.’s insured credit derivative contracts are non-traded structured credit derivative transactions. Since insured derivatives are highly customized and there is generally no observable market for these derivatives, MBIA Corp. estimates their fair values in a hypothetical market based on internal and third-party models simulating what a similar company would charge to assume MBIA Corp.’s position in the transaction at the measurement date. This pricing would be based on the expected loss of the exposure. MBIA Corp. reviews its valuation model results on a quarterly basis to assess the appropriateness of the assumptions and results in light of current market activity and conditions. This review is performed by internal staff with relevant expertise. If live market spreads or securities prices are observable for similar transactions, those spreads are an integral part of the analysis. New insured transactions that resemble existing (previously insured) transactions, if any, would be considered, as well as negotiated settlements of existing transactions.

MBIA Corp. may from time to time make changes in its valuation techniques if the change results in a measurement that it believes is equally or more representative of fair value under current circumstances.

3. Internal Review Process

All significant financial assets and liabilities, including derivative assets and liabilities, are reviewed by committees created by MBIA Corp. to ensure compliance with MBIA Corp. policies and risk procedures in the development of fair values of financial assets and liabilities. These valuation committees review, among other things, key assumptions used for internally developed prices, significant changes in sources and uses of inputs, including changes in model approaches, and any adjustments from third-party inputs or prices to internally developed inputs or prices. The committees also review any significant impairment or improvements in fair values of the financial instruments from prior periods. From time to time, these committees will reach out to MBIA Corp. valuation experts to better understand key methods and assumptions used for the determination of fair value, including understanding significant changes in fair values. These committees are comprised of senior finance team members with the relevant experience in the financial assets their committee is responsible for. Each quarter, these committees document their agreement with the fair values developed by management of MBIA Corp. as reported in the quarterly financial statements.

Valuation Techniques

Valuation techniques for financial instruments measured at fair value or disclosed at fair value and included in the tables that follow are described below.

Fixed-Maturity Securities (including short-term investments) Held as Available-For-Sale, Investments Carried at Fair Value, Other Investments, and Investments Held-to-Maturity, at Amortized Cost.

Fixed-maturity securities (including short-term investments) held as available-for-sale, investments carried at fair value, other investments, and investments held-to-maturity, at amortized cost include investments in U.S. Treasury and government agencies, foreign governments, corporate obligations, mortgage-backed and asset-backed securities (including CMBS and CDOs), state and municipal bonds, equity securities (including money market mutual funds), and loans receivable with an affiliate.

27

MBIA Insurance Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

These investments are generally valued based on recently executed transaction prices or quoted market prices. When quoted market prices are not available, fair value is generally determined using quoted prices of similar investments or a valuation model based on observable and unobservable inputs. Inputs vary depending on the type of investment. Observable inputs include contractual cash flows, interest rate yield curves, CDS spreads, prepayment and volatility scores, diversity scores, cross-currency basis index spreads, and credit spreads for structures similar to the financial instrument in terms of issuer, maturity and seniority. Unobservable inputs include cash flow projections and the value of any credit enhancement.

The fair value of the investments held-to-maturity is determined using discounted cash flow models. Key inputs include unobservable cash flows projected over the expected term of the investment discounted using observable interest rate yield curves of similar securities.

Investments based on quoted market prices of identical investments in active markets are classified as Level 1 of the fair value hierarchy. Level 1 investments generally consist of U.S. Treasury and foreign government and agency investments. Quoted market prices of investments in less active markets, as well as investments which are valued based on other than quoted prices for which the inputs are observable, such as interest rate yield curves, are categorized in Level 2 of the fair value hierarchy. Investments that contain significant inputs that are not observable are categorized as Level 3.

Cash and Cash Equivalents, Receivable for Investments Sold, Accrued Investment Income and Payable for Investments Purchased

The carrying amounts of cash and cash equivalents, receivable for investments sold, accrued investment income and payable for investments purchased approximate fair values due to the short-term nature and credit worthiness of these instruments.

Secured Loan to Parent

The fair value of the secured loan to Parent is determined based on the underlying securities pledged as collateral. The underlying securities are generally corporate bonds. The fair value of these corporate bonds is obtained using recently executed transactions or market price quotations where observable. When observable price quotations are not available, fair value is determined based on cash flow models with yield curves, bond or single name CDS spreads and diversity scores as key inputs.

Loans Receivable at Fair Value

Loans receivable at fair value are comprised of loans held by consolidated VIEs consisting of residential mortgage loans, commercial mortgage loans and other whole business loans. Fair values of residential mortgage loans are determined using quoted prices for MBS with similar characteristics and adjustments for the fair values of the financial guarantees provided by MBIA Corp. on the related MBS. Fair values of commercial mortgage loans and other whole business loans are valued based on quoted prices of similar collateralized MBS. Loans receivable at fair value are categorized in Level 3 of the fair value hierarchy.

Loan Repurchase Commitments

Loan repurchase commitments are obligations owed by the sellers/servicers of mortgage loans to either MBIA Corp. as reimbursement of paid claims or to the RMBS trusts as defined in the transaction documents. Loan repurchase commitments are assets of the consolidated VIEs. This asset represents the rights of MBIA Corp. against the sellers/servicers for breaches of representations and warranties that the securitized residential mortgage loans sold to the trust to comply with stated underwriting guidelines and for the sellers/servicers to cure, replace, or repurchase mortgage loans. Fair value measurements of loan repurchase commitments represent the amounts owed by the sellers/servicers to either MBIA Corp. as reimbursement of paid claims or to the RMBS trusts as defined in the transaction documents. Loan repurchase commitments are not securities and no quoted prices or comparable market transaction information are observable or available. Loan repurchase commitments at fair value are categorized in Level 3 of the fair value hierarchy. Fair values of loan repurchase commitments are determined using discounted cash flow techniques based on inputs including:

• breach rates representing the rate at which the sellers/servicers failed to comply with stated representations and warranties;

• recovery rates representing the estimates of future cash flows for the asset, including estimates about possible variations in the amount of cash flows expected to be collected;

• expectations about possible variations in the timing of collections of the cash flows; and

• time value of money, represented by the rate on risk-free monetary assets.

28

MBIA Insurance Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

Variable Interest Entity Notes

The fair values of VIE notes are determined based on recently executed transaction prices or quoted prices where observable. When position-specific quoted prices are not observable, fair values are based on quoted prices of similar securities. Fair values based on quoted prices of similar securities may be adjusted for factors unique to the securities, including any credit enhancement. When observable quoted prices are not available, fair value is determined based on discounted cash flow techniques of the underlying collateral using observable and unobservable inputs. Observable inputs include interest rate yield curves and bond spreads of similar securities. Unobservable inputs include the value of any credit enhancement. VIE notes are categorized in Level 2 or Level 3 of the fair value hierarchy based on the lowest level input that is significant to the fair value measurement in its entirety.

Long-term Debt

Long-term debt consists of surplus notes and a secured loan from an affiliate. The fair value of the surplus notes is estimated based on quoted market prices for identical or similar securities. The fair value of the secured loan is determined as the net present value of expected cash flows from the loan. The discount rate is the yield to maturity of a comparable corporate bond index. Long-term debt is categorized as Level 2 of the fair value hierarchy.

Insured Credit Derivatives

Derivative contracts of MBIA Corp. primarily consist of insured credit derivatives which cannot be legally traded and generally do not have observable market prices. MBIA Corp. determines the fair values of insured credit derivatives using valuation models.

Approximately 81% of the balance sheet fair value of insured credit derivatives as of September 30, 2012 was valued using the Binomial Expansion Technique (“BET”) Model. Approximately 19% of the balance sheet fair value of insured credit derivatives as of September 30, 2012 was valued using the internally developed Direct Price Model. An immaterial amount of insured credit derivatives were valued using the dual-default model. The valuation of insured derivatives includes the impact of its own credit standing. All of these derivatives are categorized as Level 3 of the fair value hierarchy as their fair value is derived using significant unobservable inputs.

A. Description of the BET Model

1. Valuation Model Overview

The BET Model estimates what a bond insurer would charge to guarantee a transaction at the measurement date, based on the market- implied default risk of the underlying collateral and the remaining structural protection in a deductible or subordination.

Inputs to the process of determining fair value for structured transactions using the BET Model include estimates of collateral loss, allocation of loss to separate tranches of the capital structure and calculation of the change in value.

• Estimates of aggregated collateral losses are calculated by reference to the following (described in further detail under “BET Model Inputs” below):

• credit spreads of underlying collateral based on actual spreads or spreads on similar collateral with similar ratings, or in some cases, are benchmarked; for collateral pools where the spread distribution is characterized by extremes, MBIA Corp. models each segment of the pool separately instead of using an overall pool average;

• diversity score of the collateral pool as an indication of correlation of collateral defaults; and

• recovery rate for all defaulted collateral.

• Allocation of losses to separate tranches of the capital structure according to priority of payments in a transaction.

• The inception-to-date unrealized gain or loss on a transaction is the difference between the original price of the risk (the original market-implied expected loss) and the current price of the risk based on the assumed market-implied expected losses derived from the model.

Additional structural assumptions of the BET Model are:

• Default probabilities are determined by three factors: credit spread, recovery rate after default and the time period under risk.

• Frequencies of defaults are modeled evenly over time.

• Collateral assets are generally considered on an average basis rather than being modeled on an individual basis.

• Collateral asset correlation is modeled using a diversity score, which is calculated based on industry or sector concentrations. Recovery rates are based on historical averages and updated based on market evidence.

29

MBIA Insurance Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

2. BET Model Inputs

a. Credit spreads

The average spread of collateral is a key input as MBIA Corp. assumes credit spreads reflect the market’s assessment of default probability for each piece of collateral. Spreads are obtained from market data sources published by third parties (e.g., dealer spread tables for assets most closely resembling collateral within MBIA Corp.’s transactions) as well as collateral-specific spreads on the underlying reference obligations provided by trustees or market sources. Also, when these sources are not available, MBIA Corp. benchmarks spreads for collateral against market spreads or prices. This data is reviewed on an ongoing basis for reasonableness and applicability to MBIA Corp.’s derivative portfolio. MBIA Corp. also calculates spreads based on quoted prices and on internal assumptions about expected life when pricing information is available and spread information is not.

MBIA Corp. uses the spread hierarchy listed below in determining which source of spread information to use, with the rule being to use CDS spreads where available and cash security spreads as the next alternative.

Spread Hierarchy:

• Collateral-specific credit spreads when observable.

• Sector-specific spread tables by asset class and rating.

• Corporate spreads, including Bloomberg spread tables based on rating.

• Benchmark from most relevant market source when corporate spreads are not directly relevant.

There were some transactions where MBIA Corp. incorporated multiple levels within the hierarchy, including using actual collateral-specific credit spreads in combination with a calculated spread based on an assumed relationship. In those cases, MBIA Corp. classified the transaction as being benchmarked from the most relevant spread source even though the majority of the average spread was from actual collateral-specific spreads. As of September 30, 2012, sector-specific spreads were used in 9% of the transactions valued using the BET Model. Corporate spreads were used in 46% of the transactions and spreads benchmarked from the most relevant spread source were used for 45% of the transactions. The spread source can also be identified by whether or not it is based on collateral weighted average rating factor (“WARF”). No collateral-specific spreads are based on WARF, sector-specific and corporate spreads are based on WARF, and some benchmarked spreads are based on WARF. WARF-sourced and/or ratings-sourced credit spreads were used for 77% of the transactions.

Over time, the data inputs change as new sources become available, existing sources are discontinued or are no longer considered to be reliable or the most appropriate. It is always MBIA Corp.’s objective to use more observable spread hierarchies defined above. However, MBIA Corp. may on occasion move to less observable spread inputs due to the discontinuation of data sources or due to MBIA Corp. considering certain spread inputs no longer representative of market spreads.

b. Diversity scores

Diversity scores are a means of estimating the diversification in a portfolio. The diversity score estimates the number of uncorrelated assets that are assumed to have the same loss distribution as the actual portfolio of correlated assets. While diversity score is a required input into the BET model, due to current high levels of default within the collateral of the structures, diversity score does not have a significant impact on valuation.

c. Recovery rate

Recovery rate represents the percentage of par expected to be recovered after an asset defaults, indicating the severity of a potential loss. MBIA Corp. generally uses rating agency recovery assumptions which may be adjusted to account for differences between the characteristics and performance of the collateral used by the rating agencies and the actual collateral in MBIA Corp.-insured transactions. MBIA Corp. may also adjust rating agency assumptions based on the performance of the collateral manager and on empirical market data.

30

MBIA Insurance Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

d. Nonperformance risk

MBIA Corp.’s valuation methodology for insured credit derivative liabilities incorporates MBIA Corp.’s own nonperformance risk. MBIA Corp. calculates the fair value by discounting the market value loss estimated through the BET Model at discount rates which include MBIA Corp.’s CDS spreads as of September 30, 2012. The CDS spreads assigned to each deal are based on the weighted average life of the deal. MBIA Corp. limits the nonperformance impact so that the derivative liability could not be lower than MBIA Corp.’s recovery derivative price multiplied by the unadjusted derivative liability.

B. Description of Direct Price Model

1. Valuation Model Overview

The Direct Price Model uses quoted market prices of financial assets correlated to the underlying collateral of the pool of assets backing the liabilities guaranteed by certain insured derivative liabilities. These quoted market prices are adjusted to reflect the unique characteristics of the liabilities of the entities backed by the correlated assets and unique terms of the insured derivative contracts.

2. Model Inputs

• Collateral prices

Fair value of collateral is based on quoted prices when available. When quoted prices are not available, a matrix pricing grid is used based on security type and rating to determine fair value of collateral, which applies an average based on securities with the same rating and security type categories.

• Interest rates

The present value of the market-implied potential losses was calculated assuming that MBIA Corp. deferred all principal losses to the legal final maturity. This was done through a cash flow model that calculated potential interest payments in each period and the potential principal loss at the legal final maturity. These cash flows were discounted using the LIBOR flat swap curve.

• Nonperformance risk

The methodology for calculating MBIA Corp.’s nonperformance risk is the same as used for the BET Model. Due to the current level of MBIA Corp. CDS spread rates and the long tenure of these transactions, the derivative recovery rate was used to estimate nonperformance risk for all transactions marked by this model.

Overall Model Results

As of September 30, 2012 and December 31, 2011, MBIA Corp.’s net insured derivative liability was $3.3 billion and $4.8 billion, respectively, and was primarily related to the fair values of insured credit derivatives based on the results of the aforementioned pricing models. In the current environment the most significant driver of changes in fair value is nonperformance risk. In aggregate, the nonperformance calculation resulted in a pre-tax net insured derivative liability that was $4.4 billion and $5.7 billion lower than the net liability that would have been estimated if MBIA Corp. excluded nonperformance risk in its valuation as of September 30, 2012 and December 31, 2011, respectively. Nonperformance risk is a fair value concept and does not contradict MBIA Corp.’s internal view, based on fundamental credit analysis of MBIA Corp.’s economic condition, that MBIA Corp. will be able to pay all claims when due.

Financial Guarantees

Gross Financial Guarantees —The fair value of gross financial guarantees is determined using discounted cash flow techniques based on inputs that include (i) assumptions of expected losses on financial guarantee policies where loss reserves have not been recognized, (ii) amount of losses expected on financial guarantee policies where loss reserves have been established, net of expected recoveries, (iii) the cost of capital reserves required to support the financial guarantee liability, (iv) operating expenses, and (v) discount rates. MBIA Corp.’s CDS spread and recovery rate are used as its discount rate.

The carrying value of MBIA Corp.’s gross financial guarantees consists of unearned premium revenue and loss and LAE reserves, net of the insurance loss recoverable as reported on MBIA Corp.’s consolidated balance sheets.

Ceded Financial Guarantees —The fair value of ceded financial guarantees is determined by applying the percentage ceded to reinsurers to the related fair value of the gross financial guarantees. The carrying value of ceded financial guarantees consists of prepaid reinsurance premiums and reinsurance recoverable on paid and unpaid losses as reported on MBIA Corp.’s consolidated balance sheets.

31

MBIA Insurance Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

Significant Unobservable Inputs

The following table provides quantitative information regarding the significant unobservable inputs used by MBIA Corp. for assets and liabilities measured at fair value on a recurring basis as of September 30, 2012. This table excludes inputs used to measure fair value that are not developed by MBIA Corp., such as broker prices and other third-party pricing service valuations.

In millions	Fair Value as of September 30, 2012		Valuation Techniques	Unobservable Input	Range (Weighted Average)
Assets of consolidated VIEs:
Loans receivable at fair value	$	1,892	Quoted market prices adjusted for financial guarantees provided to VIE obligations	Impact of financial guarantee	0% - 22% (4%)
Loan repurchase commitments		1,051	Discounted cash flow	Recovery rates	9% - 96% (43%)
				Breach rates	65% - 94% (78%)
Liabilities of consolidated VIEs:
Variable interest entity notes		1,902	Quoted market prices of VIE assets adjusted for financial guarantees provided	Impact of financial guarantee	0% - 20% (6%)
Credit derivative liabilities, net:
CMBS		1,533	BET Model	Recovery rates	20% - 90% (51%)
				Nonperformance risk	8% - 62% (57%)
				Weighted average life (in years)	0.3 - 5.9 (4.6)
				CMBS spreads	1% - 22% (12%)
Multi-sector CDO		628	Direct Price Model	Nonperformance risk	63% - 63% (63%)
Other		1,156	BET Model	Recovery rates	42% - 75% (47%)
				Nonperformance risk	8% - 63% (50%)
				Weighted average life (in years)	0.2 - 19.0 (3.1)

Sensitivity of Significant Unobservable Inputs

The significant unobservable input used in the fair value measurement of MBIA Corp.’s loans receivable at fair value of consolidated VIEs is the impact of the financial guarantee. The fair value of loans receivable is calculated by subtracting the value of the financial guarantee from the market value of VIE liabilities. The value of a financial guarantee is estimated by MBIA Corp. as the present value of expected cash payments under the policy. As expected cash payments provided by MBIA Corp. under the insurance policy increase, there is a lower expected cash flow on the underlying loans receivable of the VIE. This results in a lower fair value of the loans receivable in relation to the obligations of the VIE.

The significant unobservable inputs used in the fair value measurement of MBIA Corp.’s loan repurchase commitments of consolidated VIEs are the recovery rates and the breach rates. Recovery rates reflect the estimates of future cash flows reduced for litigation delays and risks and/or potential financial distress of the sellers/services. The estimated recoveries of the loan repurchase commitments may differ from the actual recoveries that may be received in the future. Breach rates represent the rate at which the mortgages fail to comply with stated representations and warranties of the sellers/servicers. Significant increases or decreases in the recovery rates and the breach rates would result in significantly higher or lower fair values of the loan repurchase commitments, respectively. Additionally, changes in the legal environment and the ability of the counterparties to pay would impact the recovery rate assumptions, which could significantly impact the fair value measurement. Any significant challenges by the counterparties to MBIA Corp.’s determination of breaches of representations and warranties could significantly adversely impact the fair value measurement. Recovery rates and breach rates are determined independently. Changes in one input will not necessarily have any impact on the other input.

The significant unobservable input used in the fair value measurement of MBIA Corp.’s variable interest entity notes of consolidated VIEs is the impact of the financial guarantee. The fair value of VIE notes is calculated by adding the value of the financial guarantee to the market value of VIE assets. The value of a financial guarantee is estimated by MBIA Corp. as the present value of expected cash payments under the policy. As the value of the guarantee provided by MBIA Corp. to the obligations issued by the VIE increases, the credit support adds value to the liabilities of the VIE. This results in an increase in the fair value of the liabilities of the VIE.

32

MBIA Insurance Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

The significant unobservable inputs used in the fair value measurement of MBIA Corp.’s CMBS credit derivatives, which are valued using the BET Model, are CMBS spreads, recovery rates, nonperformance risk and weighted average life. The CMBS spread is an indicator of credit risk of the collateral securities. The recovery rate represents the percentage of notional expected to be recovered after an asset defaults, indicating the severity of a potential loss. The nonperformance risk is an assumption of MBIA Corp.’s own ability to pay and whether MBIA Corp.’s will have the necessary resources to pay the obligations as they come due. Weighted average life is based on MBIA Corp.’s estimate of when the principal of the underlying collateral of the CMBS structure will be repaid. A significant increase or decrease in CMBS spreads or weighted average life would result in an increase or decrease in the fair value of the derivative liabilities, respectively. Any significant increase or decrease in recovery rates or MBIA Corp.’s nonperformance risk would result in a decrease or increase in the fair value of the derivative liabilities, respectively. CMBS spreads, recovery rates, nonperformance risk and weighted average lives are determined independently. Changes in one input will not necessarily have any impact on the other inputs.

The significant unobservable input used in the fair value measurement of MBIA Corp.’s multi-sector CDO credit derivatives, which are valued using the Direct Price Model, is nonperformance risk. The nonperformance risk is an assumption of MBIA Corp.’s own ability to pay and whether MBIA Corp.’s will have the necessary resources to pay the obligations as they come due. Any significant increase or decrease in MBIA Corp.’s nonperformance risk would result in a decrease or increase in the fair value of the derivative liabilities, respectively.

The significant unobservable inputs used in the fair value measurement of MBIA Corp.’s other credit derivatives, which are valued using the BET Model, are recovery rates, nonperformance risk and weighted average life. The recovery rate represents the percentage of notional expected to be recovered after an asset defaults, indicating the severity of a potential loss. The nonperformance risk is an assumption of MBIA Corp.’s own ability to pay and whether MBIA Corp. will have the necessary resources to pay the obligations as they come due. Weighted average life is based on MBIA Corp.’s estimate of when the principal of the underlying collateral will be repaid. Any significant increase or decrease in weighted average life would result in an increase or decrease in the fair value of the derivative liabilities, respectively. Any significant increase or decrease in recovery rates or MBIA Corp.’s nonperformance risk would result in a decrease or increase in the fair value of the derivative liabilities, respectively. Recovery rates, nonperformance risk and weighted average lives are determined independently. Changes in one input will not necessarily have any impact on the other inputs.

33

MBIA Insurance Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

The following tables present the fair value of MBIA Corp.’s assets (including short-term investments) and liabilities measured and reported at fair value on a recurring basis as of September 30, 2012 and December 31, 2011:

	Fair Value Measurements at Reporting Date Using
In millions	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Balance as of September 30, 2012
Assets:
Investments:
Fixed-maturity investments:
Taxable bonds:
U.S. Treasury and government agency	$	329	$	-	$	-		$	329
Foreign governments		257		70		12	(1)		339
Corporate obligations		-		414		2	(1)		416
Mortgage-backed securities:
Residential mortgage-backed agency		-		5		-			5
Residential mortgage-backed non-agency		-		29		3	(1)		32
Asset-backed securities:
Collateralized debt obligations		-		1		-			1
Other asset-backed		-		17		27	(1)		44
State and municipal bonds		-		22		-			22
Total fixed-maturity investments		586		558		44			1,188
Other investments:
Money market securities		100		-		-			100
Other		-		-		5	(1)		5
Total investments		686		558		49			1,293
Cash and cash equivalents		60		-		-			60
Derivative assets:
Credit derivatives		-		7		-			7
Total derivative assets		-		7		-			7

(1) - Unobservable inputs are either not developed by MBIA Corp. or do not significantly impact the overall fair values of the aggregate financial assets and liabilities.

34

MBIA Insurance Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

	Fair Value Measurements at Reporting Date Using
In millions	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Balance as of September 30, 2012
Assets of consolidated VIEs:
Cash		143		-		-			143
Fixed-maturity securities at fair value:
Corporate obligations		-		64		61	(1)		125
Mortgage-backed securities:
Residential mortgage-backed non-agency		-		765		8	(1)		773
Commercial mortgage-backed		-		409		13	(1)		422
Asset-backed securities:
Collateralized debt obligations		-		186		82	(1)		268
Other asset-backed		-		103		63	(1)		166
Total fixed-maturity securities at fair value		-		1,527		227			1,754
Loans receivable		-		-		1,892			1,892
Loan repurchase commitments		-		-		1,051			1,051
Total assets	$	889	$	2,092	$	3,219		$	6,200
Liabilities:
Derivative liabilities:
Credit derivatives	$	-	$	14	$	3,317		$	3,331
Total derivative liabilities		-		14		3,317			3,331
Liabilities of consolidated VIEs:
Variable interest entity notes		-		1,741		1,902			3,643
Derivative liabilities:
Interest rate derivatives		-		157		-			157
Currency rate derivatives		-		-		23	(1)		23
Total derivative liabilities		-		157		23			180
Total liabilities	$	-	$	1,912	$	5,242		$	7,154

(1) - Unobservable inputs are either not developed by MBIA Corp. or do not significantly impact the overall fair values of the aggregate financial assets and liabilities.

35

MBIA Insurance Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

	Fair Value Measurements at Reporting Date Using
In millions	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of December 31, 2011
Assets:
Investments:
Fixed-maturity investments:
Taxable bonds:
U.S. Treasury and government agency	$	485	$	-	$	-	$	485
Foreign governments		277		62		11		350
Corporate obligations		-		324		4		328
Mortgage-backed securities:
Residential mortgage-backed agency		-		6		-		6
Residential mortgage-backed non-agency		-		41		7		48
Commercial mortgage-backed		-		1		-		1
Asset-backed securities:
Collateralized debt obligations		-		2		-		2
Other asset-backed		-		17		42		59
State and municipal bonds		-		21		-		21
Total taxable bonds		762		474		64		1,300
Tax-exempt bonds:
State and municipal bonds		-		1		-		1
Total tax-exempt bonds		-		1		-		1
Total fixed-maturity investments		762		475		64		1,301
Other investments:
Money market securities		28		-		-		28
Other		7		-		-		7
Total investments		797		475		64		1,336
Cash and cash equivalents		136		-		-		136
Derivative assets:
Credit derivatives		-		8		-		8
Total derivative assets		-		8		-		8

36

MBIA Insurance Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

	Fair Value Measurements at Reporting Date Using
In millions	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Other Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of December 31, 2011
Assets of consolidated VIEs:
Cash		160		-		-		160
Fixed-maturity securities at fair value:
Corporate obligations		-		170		67		237
Mortgage-backed securities:
Residential mortgage-backed agency		-		3		-		3
Residential mortgage-backed non-agency		-		1,344		21		1,365
Commercial mortgage-backed		-		559		22		581
Asset-backed securities:
Collateralized debt obligations		-		286		149		435
Other asset-backed		-		196		67		263
Total fixed-maturity securities at fair value		-		2,558		326		2,884
Loans receivable		-		-		2,046		2,046
Loan repurchase commitments		-		-		1,077		1,077
Derivative assets:
Credit derivatives		-		-		447		447
Interest rate derivatives		-		3		-		3
Total derivative assets		-		3		447		450
Total assets	$	1,093	$	3,044	$	3,960	$	8,097
Liabilities:
Derivative liabilities:
Credit derivatives	$	-	$	18	$	4,790	$	4,808
Total derivative liabilities		-		18		4,790		4,808
Liabilities of consolidated VIEs:
Variable interest entity notes		-		1,865		2,922		4,787
Derivative liabilities:
Credit derivatives		-		-		527		527
Interest rate derivatives		-		281		-		281
Currency rate derivatives		-		-		17		17
Total derivative liabilities		-		281		544		825
Total liabilities	$	-	$	2,164	$	8,256	$	10,420

Level 3 Analysis

Level 3 assets at fair value, as of September 30, 2012 and December 31, 2011 represented approximately 52% and 49%, respectively, of total assets measured at fair value. Level 3 liabilities at fair value, as of September 30, 2012 and December 31, 2011, represented approximately 73% and 79%, respectively, of total liabilities measured at fair value.

37

MBIA Insurance Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

The following tables present the fair values and carrying values of MBIA Corp.’s assets and liabilities that are disclosed at fair value but not reported at fair value on MBIA Corp.’s consolidated balance sheets as of September 30, 2012 and December 31, 2011:

	Fair Value Measurements at Reporting Date Using
In millions	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value Balance as of September 30, 2012		Carry Value Balance as of September 30, 2012
Assets:
Other investments	$	-	$	-	$	27	$	27	$	27
Accrued investment income		9		-		-		9		9
Assets of consolidated VIEs:
Investments held-to-maturity		-		-		2,685		2,685		2,833
Total assets		9		-		2,712		2,721		2,869
Liabilities:
Long-term debt		-		2,142		-		2,142		2,575
Liabilities of consolidated VIEs:
Variable interest entity notes		-		-		2,685		2,685		2,833
Total liabilities		-		2,142		2,685		4,827		5,408
Financial Guarantees:
Gross		-		-		866		866		249
Ceded		-		-		1,950		1,950		1,627

	Fair Value Measurements at Reporting Date Using
In millions	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value Balance as of December 31, 2011		Carry Value Balance as of December 31, 2011
Assets:
Other investments	$	-	$	-	$	28	$	28	$	28
Secured loan to Parent		-		-		168		168		300
Accrued investment income		13		-		-		13		13
Receivable for investments sold		16		-		-		16		16
Assets of consolidated VIEs:
Investments held-to-maturity		-		-		2,469		2,469		2,840
Total assets		29		-		2,665		2,694		3,197
Liabilities:
Long-term debt		-		1,663		-		1,663		2,083
Liabilities of consolidated VIEs:
Variable interest entity notes		-		-		2,469		2,469		2,840
Total liabilities		-		1,663		2,469		4,132		4,923
Financial Guarantees:
Gross		-		-		1,451		1,451		744
Ceded		-		-		1,849		1,849		1,877

38

MBIA Insurance Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

The following tables present information about changes in Level 3 assets (including short-term investments) and liabilities measured at fair value on a recurring basis for the three months ended September 30, 2012 and 2011:

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended September 30, 2012
In millions	Balance, Beginning of Period		Realized Gains / (Losses)		Unrealized Gains / (Losses) Included in Earnings		Unrealized Gains / (Losses) Included in OCI		Foreign Exchange Recognized in OCI or Earnings		Purchases		Issuances		Settlements		Sales		Transfers into Level 3 (1)		Transfers out of Level 3 (1)		Ending Balance		Change in Unrealized Gains (Losses) for the Period Included in Earnings for Assets Still Held as of September 30, 2012
Assets:
Foreign governments	$	12	$	-	$	-	$	-	$	1	$	8	$	-	$	(9)	$	-	$	-	$	-	$	12	$	-
Corporate obligations		22		-		-		-		-		-		-		(12)		-		-		(8)		2		-
Residential mortgage-backed non-agency		4		-		-		-		-		-		-		(1)		-		-		-		3		-
Other asset-backed		31		(2)		-		-		-		-		-		(2)		-		-		-		27		-
Other investments		2		-		3		-		-		-		-		-		-		-		-		5		-
Assets of consolidated VIEs:
Corporate obligations		72		-		(10)		-		-		-		-		(1)		-		3		(3)		61		1
Residential mortgage-backed non-agency		10		-		-		-		-		-		-		(1)		-		2		(3)		8		-
Commercial mortgage-backed		12		-		1		-		-		-		-		-		-		-		-		13		1
Collateralized debt obligations		84		-		(5)		-		-		-		-		-		-		3		-		82		(2)
Other asset-backed		38		-		(1)		-		-		-		-		(4)		-		30		-		63		1
Loans receivable		1,903		-		61		-		-		-		-		(72)		-		-		-		1,892		61
Loan repurchase commitments		1,032		-		19		-		-		-		-		-		-		-		-		1,051		19
Total assets	$	3,222	$	(2)	$	68	$	-	$	1	$	8	$	-	$	(102)	$	-	$	38	$	(14)	$	3,219	$	81

In millions	Balance, Beginning of Period		Realized (Gains) / Losses		Unrealized (Gains) / Losses Included in Earnings		Unrealized (Gains) / Losses Included in OCI		Foreign Exchange Recognized in OCI or Earnings		Purchases		Issuances		Settlements		Sales		Transfers into Level 3  (1)		Transfers out of Level 3 (1)		Ending Balance		Change in Unrealized (Gains) Losses for the Period Included in Earnings for Assets Still Held as of September 30, 2012
Liabilities:
Credit derivative, net	$	3,285	$	-	$	32	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	3,317	$	33
Liabilities of consolidated VIEs:
VIE notes		1,883		-		128		-		-		-		-		(109)		-		-		-		1,902		128
Currency derivative, net		21		-		2		-		-		-		-		-		-		-		-		23		2
Total liabilities	$	5,189	$	-	$	162	$	-	$	-	$	-	$	-	$	(109)	$	-	$	-	$	-	$	5,242	$	163

(1) - Transferred in and out at the end of the period.

39

MBIA Insurance Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended September 30, 2011
In millions	Balance, Beginning of Period		Realized Gains / (Losses)		Unrealized Gains / (Losses) Included in Earnings		Unrealized Gains / (Losses) Included in OCI		Foreign Exchange Recognized in OCI or Earnings		Purchases		Issuances		Settlements		Sales		Transfers into Level 3  (1)		Transfers out of Level 3 (1)		Ending Balance		Change in Unrealized Gains (Losses) for the Period Included in Earnings for Assets Still Held as of September 30, 2011
Assets:
Foreign governments	$	13	$	-	$	-	$	-	$	(2)	$	3	$	-	$	(3)	$	-	$	-	$	-	$	11	$	-
Corporate obligations		67		(1)		-		(1)		(4)		-		-		(29)		-		115		-		147		-
Residential mortgage-backed non-agency		7		-		-		-		-		2		-		(1)		-		-		(1)		7		-
Other asset-backed		53		-		-		(21)		-		-		-		4		-		-		-		36		-
State and municipal taxable bonds		13		1		-		1		-		-		-		(15)		-		-		-		-		-
Assets of consolidated VIEs:
Corporate obligations		60		-		(5)		-		-		-		-		(1)		-		7		-		61		(2)
Residential mortgage-backed non-agency		17		-		3		-		-		-		-		(1)		(6)		2		-		15		1
Commercial mortgage-backed		27		-		(1)		-		-		-		-		-		(11)		2		-		17		(2)
Collateralized debt obligations		179		-		(17)		-		-		-		-		(1)		(21)		4		-		144		(14)
Other asset-backed		73		-		5		-		-		-		-		-		(6)		-		(1)		71		5
Loans receivable		2,320		-		(36)		-		-		-		-		(66)		-		-		-		2,218		(36)
Loan repurchase commitments		905		-		33		-		-		-		-		-		-		-		-		938		33
Total assets	$	3,734	$	-	$	(18)	$	(21)	$	(6)	$	5	$	-	$	(113)	$	(44)	$	130	$	(2)	$	3,665	$	(15)

In millions	Balance, Beginning of Period		Realized (Gains) / Losses		Unrealized (Gains) / Losses Included in Earnings		Unrealized (Gains) / Losses Beginning OCI		Foreign Exchange Recognized in OCI or Earnings		Purchases		Issuances		Settlements		Sales		Transfers into Level 3  (1)		Transfers out of Level 3 (1)		Ending Balance		Change in Unrealized (Gains) Losses for the Period Included in Earnings for Assets Still Held as of September 30, 2011
Liabilities:
Credit derivative, net	$	5,983	$	79	$	(832)	$	-	$	-	$	-	$	-	$	(79)	$	-	$	-		-	$	5,151	$	(443)
Liabilities of consolidated VIEs:
VIE notes		4,553		-		(197)		-		-		-		-		(207)		(981)		-		-		3,168		(197)
Credit derivative, net		593		-		(99)		-		-		-		-		-		-		-		-		494		(99)
Currency derivative, net		16		-		2		-		-		-		-		-		-		-		-		18		2
Total liabilities	$	11,145	$	79	$	(1,126)	$	-	$	-	$	-	$	-	$	(286)	$	(981)	$	-	$	-	$	8,831	$	(737)

(1) - Transferred in and out at the end of the period.

Transfers into and out of Level 3 were $38 million and $14 million, respectively, for the three months ended September 30, 2012. Transfers into and out of Level 2 were $14 million and $38 million, respectively, for the three months ended September 30, 2012. Transfers into Level 3 were principally for other asset-backed securities where inputs, which are significant to their valuation, became unobservable. Transfers out of Level 3 were principally corporate obligations and residential mortgage-backed non-agency. There were no transfers into or out of Level 1.

40

MBIA Insurance Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

Transfers into and out of Level 3 were $130 million and $2 million, respectively, for the three months ended September 30, 2011. Transfers into and out of Level 2 were $2 million and $130 million, respectively, for the three months ended September 30, 2011. Transfers into Level 3 were principally for corporate obligations where inputs, which are significant to their valuation, became unobservable during the quarter. Transfers out of Level 3 were principally for residential mortgage-backed non-agency and other asset-backed securities. These Level 2 inputs included spreads, prepayment speeds, default speeds, default severities, yield curves observable at commonly quoted intervals, and market corroborated inputs. There were no transfers into or out of Level 1.

All Level 1, 2 and 3 designations are made at the end of each accounting period.

The following tables present information about changes in Level 3 assets (including short-term investments) and liabilities measured at fair value on a recurring basis for the nine months ended September 30, 2012 and 2011:

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Nine Months Ended September 30, 2012
In millions	Balance, Beginning of Year		Realized Gains / (Losses)		Unrealized Gains / (Losses) Included in Earnings		Unrealized Gains / (Losses) Included in OCI		Foreign Exchange Recognized in OCI or Earnings		Purchases		Issuances		Settlements		Sales		Transfers into Level 3 (1)		Transfers out of Level 3 (1)		Ending Balance		Change in Unrealized Gains (Losses) for the Period Included in Earnings for Assets Still Held as of September 30, 2012
Assets:
Foreign governments	$	11	$	-	$	-	$	-	$	1	$	21	$	-	$	(18)	$	(3)	$	-	$	-	$	12	$	-
Corporate obligations		4		-		-		-		(1)		8		-		(14)		-		13		(8)		2		-
Residential mortgage-backed non-agency		7		-		-		-		-		-		-		(2)		-		-		(2)		3		-
Other asset-backed		42		(43)		-		38		-		-		-		(4)		(6)		-		-		27		-
Other investments		-		-		5		-		-		-		-		-		-		-		-		5		-
Assets of consolidated VIEs:
Corporate obligations		67		-		(15)		-		-		-		-		(3)		-		15		(3)		61		3
Residential mortgage-backed non-agency		21		-		6		-		-		-		-		(5)		(15)		5		(4)		8		3
Commercial mortgage-backed		22		-		3		-		-		-		-		(3)		(8)		5		(6)		13		2
Collateralized debt obligations		149		-		(5)		-		-		-		-		(1)		(74)		13		-		82		5
Other asset-backed		67		-		4		-		-		-		-		(7)		(35)		34		-		63		5
Loans receivable		2,046		-		52		-		-		-		-		(204)		(2)		-		-		1,892		52
Loan repurchase commitments		1,077		-		(26)		-		-		-		-		-		-		-		-		1,051		(26)
Total assets	$	3,513	$	(43)	$	24	$	38	$	-	$	29	$	-	$	(261)	$	(143)	$	85	$	(23)	$	3,219	$	44
In millions	Balance, Beginning of Year		Realized (Gains) / Losses		Unrealized (Gains) / Losses Included in Earnings		Unrealized (Gains) / Losses Included in OCI		Foreign Exchange Recognized in OCI or Earnings		Purchases		Issuances		Settlements		Sales		Transfers into Level 3 (1)		Transfers out of Level 3 (1)		Ending Balance		Change in Unrealized (Gains) Losses for the Period Included in Earnings for Assets Still Held as of September 30, 2012
Liabilities:
Credit derivative, net	$	4,790	$	463	$	(1,473)	$	-	$	-	$	-	$	-	$	(463)	$	-	$	-	$	-	$	3,317	$	(538)
Liabilities of consolidated VIEs:
VIE notes		2,922		-		332		-		-		-		-		(369)		(983)		-		-		1,902		293
Credit derivative, net		80		-		2		-		-		-		-		-		(82)		-		-		-		-
Currency derivative, net		17		-		6		-		-		-		-		-		-		-		-		23		6
Total liabilities	$	7,809	$	463	$	(1,133)	$	-	$	-	$	-	$	-	$	(832)	$	(1,065)	$	-	$	-	$	5,242	$	(239)

(1) - Transferred in and out at the end of the period.

41

MBIA Insurance Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Nine Months Ended September 30, 2011
In millions	Balance, Beginning of Year		Realized Gains / (Losses)		Unrealized Gains / (Losses) Included in Earnings		Unrealized Gains / (Losses) Included in OCI		Foreign Exchange Recognized in OCI or Earnings		Purchases		Issuances		Settlements		Sales		Transfers into Level  3 (1)		Transfers out of Level 3 (1)		Ending Balance		Change in Unrealized Gains (Losses) for the Period Included in Earnings for Assets Still Held as of September 30, 2011
Assets:
Foreign governments	$	11	$	-	$	-	$	-	$	(1)	$	9	$	-	$	(8)	$	-	$	7	$	(7)	$	11	$	-
Corporate obligations		4		(1)		-		(1)		(4)		12		-		(30)		(12)		179		-		147		-
Residential mortgage-backed non-agency		5		-		-		-		(1)		7		-		-		(4)		1		(1)		7		-
Commercial mortgage-backed		3		-		-		(1)		-		-		-		-		(1)		-		(1)		-		-
Collateralized debt obligations		13		1		-		(1)		-		2		-		(10)		(5)		1		(1)		-		-
Other asset-backed		70		-		-		(36)		-		-		-		10		(2)		-		(6)		36		-
State and municipal taxable bonds		14		1		-		-		-		-		-		(15)		-		-		-		-		-
State and municipal tax-exempt bonds		1		-		-		-		-		-		-		-		(1)		-		-		-		-
Assets of consolidated VIEs:
Corporate obligations		80		-		(18)		-		-		-		-		(5)		-		11		(7)		61		(2)
Residential mortgage-backed non-agency		22		-		2		-		-		-		-		(5)		(6)		2		-		15		2
Commercial mortgage-backed		23		-		6		-		-		-		-		(2)		(12)		2		-		17		3
Collateralized debt obligations		189		-		(27)		-		-		-		-		(4)		(21)		18		(11)		144		1
Other asset-backed		81		-		(3)		-		-		-		-		(2)		(6)		2		(1)		71		2
Loans receivable		2,183		-		260		-		-		-		-		(223)		(2)		-		-		2,218		260
Loan repurchase commitments		835		-		91		-		-		-		12		-		-		-		-		938		91
Total assets	$	3,534	$	1	$	311	$	(39)	$	(6)	$	30	$	12	$	(294)	$	(72)	$	223	$	(35)	$	3,665	$	357
In millions	Balance, Beginning of Year		Realized (Gains) / Losses		Unrealized (Gains) / Losses Included in Earnings		Unrealized (Gains) / Losses Beginning OCI		Foreign Exchange Recognized in OCI or Earnings		Purchases		Issuances		Settlements		Sales		Transfers into Level 3 (1)		Transfers out of Level 3 (1)		Ending Balance		Change in Unrealized (Gains) Losses for the Period Included in Earnings for Assets Still Held as of September 30, 2011
Liabilities:
Credit derivative, net	$	4,476	$	683	$	675	$	-	$	-	$	-	$	-	$	(683)	$	-	$	-		-	$	5,151	$	2,305
Liabilities of consolidated VIEs:
VIE notes		4,698		-		87		-		-		-		-		(456)		(1,161)		-		-		3,168		87
Credit derivative, net		638		-		(144)		-		-		-		-		-		-		-		-		494		(144)
Currency derivative, net		14		-		4		-		-		-		-		-		-		-		-		18		4
Total liabilities	$	9,826	$	683	$	622	$	-	$	-	$	-	$	-	$	(1,139)	$	(1,161)	$	-	$	-	$	8,831	$	2,252

(1) - Transferred in and out at the end of the period.

42

MBIA Insurance Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

Transfers into and out of Level 3 were $85 million and $23 million, respectively, for the nine months ended September 30, 2012. Transfers into and out of Level 2 were $23 million and $85 million, respectively, for the nine months ended September 30, 2012. Transfers into Level 3 were principally for other asset-backed securities, corporate obligations and CDOs where inputs, which are significant to their valuation, became unobservable. Transfers out of Level 3 were principally for corporate obligation, CMBS and residential mortgage-backed non-agency. These Level 2 inputs included spreads, prepayment speeds, default speeds, default severities, yield curves observable at commonly quoted intervals, and market corroborated inputs. There were no transfers into or out of Level 1.

Transfers into and out of Level 3 were $223 million and $35 million, respectively, for the nine months ended September 30, 2011. Transfers into and out of Level 2 were $35 million and $223 million, respectively, for the nine months ended September 30, 2011. Transfers into Level 3 were principally for corporate obligations and collateralized debt obligations where inputs, which are significant to their valuation, became unobservable during the quarter. Transfers out of Level 3 were principally for collateralized debt obligations, corporate obligations, foreign governments and other asset-backed securities. These Level 2 inputs included spreads, prepayment speeds, default speeds, default severities, yield curves observable at commonly quoted intervals, and market corroborated inputs. There were no transfers into or out of Level 1.

All Level 1, 2 and 3 designations are made at the end of each accounting period.

Gains and losses (realized and unrealized) included in earnings relating to Level 3 assets and liabilities for the three and nine months ended September 30, 2012 and 2011 are reported on MBIA Corp.’s consolidated statements of operations as follows:

	Three Months Ended September 30, 2012
							Consolidated VIEs
In millions	Unrealized Gains (Losses) on Insured Derivatives		Net Realized Gains (Losses)		Net Gains (Losses) on Financial Instruments at Fair Value and Foreign Exchange		Net Gains (Losses) on Financial Instruments at Fair Value and Foreign Exchange
Total gains (losses) included in earnings	$	(32)	$	(2)	$	3	$	(65)
Change in unrealized gains (losses) for the period included in earnings for assets and liabilities still held as of September 30, 2012	$	(33)	$	-	$	-	$	(49)
	Three Months Ended September 30, 2011
							Consolidated VIEs
In millions	Unrealized Gains (Losses) on Insured Derivatives		Net Realized Gains (Losses)		Net Gains (Losses) on Financial Instruments at Fair Value and Foreign Exchange		Net Gains (Losses) on Financial Instruments at Fair Value and Foreign Exchange
Total gains (losses) included in earnings	$	832	$	(79)	$	-	$	276
Change in unrealized gains (losses) for the period included in earnings for assets and liabilities still held as of September 30, 2011	$	443	$	-	$	-	$	279

43

MBIA Insurance Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

	Nine Months Ended September 30, 2012
							Consolidated VIEs
In millions	Unrealized Gains (Losses) on Insured Derivatives		Net Realized Gains (Losses)		Net Gains (Losses) on Financial Instruments at Fair Value and Foreign Exchange		Net Gains (Losses) on Financial Instruments at Fair Value and Foreign Exchange
Total gains (losses) included in earnings	$	1,473	$	(506)	$	5	$	(321)
Change in unrealized gains (losses) for the period included in earnings for assets and liabilities still held as of September 30, 2012	$	538	$	-	$	-	$	(255)

	Nine Months Ended September 30, 2011
							Consolidated VIEs
In millions	Unrealized Gains (Losses) on Insured Derivatives		Net Realized Gains (Losses)		Net Gains (Losses) on Financial Instruments at Fair Value and Foreign Exchange		Net Gains (Losses) on Financial Instruments at Fair Value and Foreign Exchange
Total gains (losses) included in earnings	$	(675)	$	(683)	$	1	$	364
Change in unrealized gains (losses) for the period included in earnings for assets and liabilities still held as of September 30, 2011	$	(2,305)	$	-	$	-	$	410

Fair Value Option

MBIA Corp. elected to record at fair value certain financial instruments of VIEs that have been consolidated in connection with the adoption of the accounting guidance for consolidation of VIEs, among others.

The following table presents the changes in fair value included in MBIA Corp.’s consolidated statements of operations for the three and nine months ended September 30, 2012 and 2011, for all financial instruments for which the fair value option was elected:

	Net Gains (Losses) on Financial Instruments at Fair Value  and Foreign Exchange
	Three Months Ended September 30,				Nine Months Ended September 30,
In millions	2012		2011		2012		2011
Fixed-maturity securities held at fair value	$	21	$	(286)	$	(36)	$	(193)
Loans receivable at fair value:
Residential mortgage loans		(4)		(65)		(103)		65
Other loans		(7)		(37)		(48)		(30)
Loan repurchase commitments		19		33		62		103
Other assets		-		(162)		-		(184)
Long-term debt		12		425		140		335

44

MBIA Insurance Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 6: Fair Value of Financial Instruments (continued)

The following table reflects the difference between the aggregate fair value and the aggregate remaining contractual principal balance outstanding as of September 30, 2012 and December 31, 2011, for loans and VIE notes for which the fair value option was elected:

	As of September 30, 2012						As of December 31, 2011
In millions	Contractual Principal Outstanding		Fair Value		Difference		Contractual Principal Outstanding		Fair Value		Difference
Loans receivable at fair value:
Residential mortgage loans	$	2,430	$	1,746	$	684	$	2,769	$	1,895	$	874
Residential mortgage loans (90 days or more past due)		241		46		195		259		-		259
Other loans		39		16		23		129		43		86
Other loans (90 days or more past due)		206		84		122		324		108		216
Total loans receivable at fair value	$	2,916	$	1,892	$	1,024	$	3,481	$	2,046	$	1,435
Variable interest entity notes	$	9,075	$	3,643	$	5,432	$	13,684	$	4,787	$	8,897

Substantially all gains and losses included in earnings during the periods ended September 30, 2012 and December 31, 2011 on loans receivable and VIE notes are attributable to credit risk. This is primarily due to the high rate of defaults on loans and the collateral supporting the VIE notes, resulting in depressed pricing of the financial instruments.

Note 7: Investments

MBIA Corp.’s fixed-maturity portfolio consists of high-quality (average rating Aa) taxable and tax-exempt investments of diversified maturities. Other investments primarily comprise equity investments and loans receivable due from an affiliate.

The following tables present the amortized cost, fair value and other-than-temporary impairments of fixed-maturity investments and other investments designated as available-for-sale in the consolidated investment portfolio of MBIA Corp. as of September 30, 2012 and December 31, 2011:

	September 30, 2012
In millions	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Fixed-maturity investments:
Taxable bonds:
U.S. Treasury and government agency	$	328	$	1	$	-	$	329
Foreign governments		318		22		-		340
Corporate obligations		406		10		-		416
Mortgage-backed securities:
Residential mortgage-backed agency		5		-		-		5
Residential mortgage-backed non-agency		32		1		(1)		32
Commercial mortgage-backed		1		-		(1)		-
Asset-backed securities:
Collateralized debt obligations		1		-		-		1
Other asset-backed		43		1		-		44
State and municipal		19		3		-		22
Total fixed-maturity investments		1,153		38		(2)		1,189
Other investments:
Money market securities		100		-		-		100
Total other investments		100		-		-		100
Total available-for-sale investments	$	1,253	$	38	$	(2)	$	1,289

45

MBIA Insurance Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 7: Investments (continued)

	December 31, 2011
In millions	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Other-Than- Temporary Impairments(1)
Fixed-maturity investments:
Taxable bonds:
U.S. Treasury and government agency	$	484	$	1	$	-	$	485	$	-
Foreign governments		327		23		-		350		-
Corporate obligations		325		4		(1)		328		-
Mortgage-backed securities:
Residential mortgage-backed agency		6		-		-		6		-
Residential mortgage-backed non-agency		41		8		(1)		48		-
Commercial mortgage-backed		2		-		(1)		1		-
Asset-backed securities:
Collateralized debt obligations		2		-		-		2		-
Other asset-backed		97		-		(38)		59		(37)
State and municipal		19		2		-		21		-
Total taxable bonds		1,303		38		(41)		1,300		(37)
Tax-exempt bonds:
State and municipal		1		-		-		1		-
Total tax-exempt bonds		1		-		-		1		-
Total fixed-maturity investments		1,304		38		(41)		1,301		(37)
Other investments:
Other investments		6		1		-		7		-
Money market securities		28		-		-		28		-
Total other investments		34		1		-		35		-
Total available-for-sale investments	$	1,338	$	39	$	(41)	$	1,336	$	(37)

(1) - Represents the amount of other-than-temporary losses recognized in accumulated other comprehensive income (loss).

The fair value of securities on deposit with various regulatory authorities was $5 million as of September 30, 2012 and December 31, 2011. These deposits are required to comply with state insurance laws.

The following table presents the distribution by contractual maturity of available-for-sale fixed-maturity investments at amortized cost and fair value as of September 30, 2012. Contractual maturity may differ from expected maturity as borrowers may have the right to call or prepay obligations.

In millions	Amortized Cost		Fair Value
Due in one year or less	$	528	$	529
Due after one year through five years		433		451
Due after five years through ten years		87		99
Due after ten years through fifteen years		12		15
Due after fifteen years		11		13
Mortgage-backed		38		37
Asset-backed		44		45
Total fixed-maturity investments	$	1,153	$	1,189

Investments that are held-to-maturity are reported on MBIA Corp.’s consolidated balance sheets at amortized cost. These investments, which primarily relate to MBIA Corp.’s consolidated VIEs, primarily consist of ABS and other fixed-income debt obligations issued by major national and international corporations and other structured finance clients. As of September 30, 2012, unrecognized gross gains were $20 million and unrealized gross losses were $168 million. As of December 31, 2011, there were no unrecognized gross gains and unrealized gross losses were $371 million.

46

MBIA Insurance Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 7: Investments (continued)

The following table presents the distribution of held-to-maturity investments by contractual maturity at amortized cost and fair value as of September 30, 2012:

					Consolidated VIEs
In millions	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	-	$	-	$	-	$	-
Due after one year through five years(1)		1		1		-		-
Due after five years through ten years		-		-		-		-
Due after ten years through fifteen years		-		-		-		-
Due after fifteen years		-		-		-		-
Mortgage-backed		-		-		-		-
Asset-backed		-		-		2,833		2,685
Total held-to-maturity investments	$	1	$	1	$	2,833	$	2,685

(1) - Relates to a tax credit investment reported in “Other investments” on MBIA Corp.’s consolidated balance sheets.

47

MBIA Insurance Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 7: Investments (continued)

The following tables present the gross unrealized losses included in accumulated other comprehensive income (loss) as of September 30, 2012 and December 31, 2011 related to available-for-sale fixed-maturity and other investments. These tables segregate investments that have been in a continuous unrealized loss position for less than twelve months from those that have been in a continuous unrealized loss position for twelve months or longer.

	September 30, 2012
	Less than 12 Months				12 Months or Longer				Total
In millions	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Fixed-maturity investments:
Taxable bonds:
U.S. Treasury and government agency	$	100	$	-	$	-	$	-	$	100	$	-
Foreign governments		24		-		-		-		24		-
Corporate obligations		48		-		-		-		48		-
Mortgage-backed securities:
Residential mortgage-backed non-agency		-		-		10		(1)		10		(1)
Commercial mortgage-backed		-		-		-		(1)		-		(1)
Asset-backed securities:
Other asset-backed		-		-		11		-		11		-
Total	$	172	$	-	$	21	$	(2)	$	193	$	(2)

	December 31, 2011
	Less than 12 Months				12 Months or Longer				Total
In millions	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Fixed-maturity investments:
Taxable bonds:
Foreign governments	$	20	$	-	$	-	$	-	$	20	$	-
Corporate obligations		90		(1)		10		-		100		(1)
Mortgage-backed securities:
Residential mortgage-backed agency		1		-		-		-		1		-
Residential mortgage-backed non-agency		24		(1)		10		-		34		(1)
Commercial mortgage-backed		-		(1)		-		-		-		(1)
Asset-backed securities:
Other asset-backed		-		-		40		(38)		40		(38)
Total taxable bonds		135		(3)		60		(38)		195		(41)
Tax-exempt bonds:
State and municipal		1		-		-		-		1		-
Total tax-exempt bonds		1		-		-		-		1		-
Total	$	136	$	(3)	$	60	$	(38)	$	196	$	(41)

48

MBIA Insurance Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 7: Investments (continued)

The following tables present the gross unrealized losses of held-to-maturity investments as of September 30, 2012 and December 31, 2011. Held-to-maturity investments are reported at amortized cost on MBIA Corp.’s consolidated balance sheets. These tables segregate investments that have been in a continuous unrealized loss position for less than twelve months from those that have been in a continuous unrealized loss position for twelve months or longer.

	September 30, 2012
	Less than 12 Months				12 Months or Longer				Total
In millions	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Assets of consolidated VIEs:
Other asset-backed	$	-	$	-	$	2,350	$	(168)	$	2,350	$	(168)
Total	$	-	$	-	$	2,350	$	(168)	$	2,350	$	(168)

	December 31, 2011
	Less than 12 Months				12 Months or Longer				Total
In millions	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Assets of consolidated VIEs:
Other asset-backed	$	284	$	(31)	$	2,185	$	(340)	$	2,469	$	(371)
Total	$	284	$	(31)	$	2,185	$	(340)	$	2,469	$	(371)

As of September 30, 2012 and December 31, 2011, MBIA Corp.’s available-for-sale fixed-maturity investment, other investment and held-to-maturity investment portfolios’ gross unrealized losses totaled $170 million and $412 million, respectively. The weighted average contractual maturity of securities in an unrealized loss position as of September 30, 2012 and December 31, 2011 was 23 and 26 years, respectively. As of September 30, 2012, there were 38 securities that were in an unrealized loss position for a continuous twelve-month period or longer with aggregate unrealized losses of $170 million. Within these securities, the book value of 8 securities exceeded market value by more than 5%. As of December 31, 2011, there were 43 securities that were in an unrealized loss position for a continuous twelve-month period or longer with aggregate unrealized losses of $378 million. Within these securities, the book value of 14 securities exceeded market value by more than 5%.

MBIA Corp. has evaluated on a security-by-security basis whether the unrealized losses in its investment portfolios were other-than- temporary considering duration and severity of unrealized losses, the circumstances that gave rise to the unrealized losses, and whether MBIA Corp. has the intent to sell the securities or more likely than not will be required to sell the securities before their anticipated recovery. Based on its evaluation, MBIA Corp. determined that the unrealized losses on the remaining securities were temporary in nature because its impairment analysis, including projected future cash flows, indicated that MBIA Corp. would be able to recover the amortized cost of impaired assets. MBIA Corp. also concluded that it does not have the intent to sell securities in an unrealized loss position and it is more likely than not that it will not have to sell these securities before recovery of their cost basis. In making this conclusion, MBIA Corp. examined the cash flow projections for its investment portfolios, the potential sources and uses of cash in its businesses, and the cash resources available to its business other than sales of securities. It also considered the existence of any risk management or other plans as of September 30, 2012 that would require the sale of impaired securities. On a quarterly basis, MBIA Corp. re-evaluates the unrealized losses in its investment portfolios to determine whether an impairment loss should be realized in current earnings. Impaired securities that MBIA Corp. intends to sell before the expected recovery of such securities’ fair values have been written down to their fair values.

Refer to “Note 8: Investment Income and Gains and Losses” for information on realized losses due to other-than-temporary impairments.

49

MBIA Insurance Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 8: Investment Income and Gains and Losses

The following table includes MBIA Corp.’s total investment income:

	Three Months Ended September 30,				Nine Months Ended September 30,
In millions	2012		2011		2012		2011
Gross investment income:
Fixed-maturity	$	6	$	14	$	13	$	52
Short-term investments		1		1		4		5
Other investments		-		3		3		12
Consolidated VIEs		13		13		40		39
Gross investment income		20		31		60		108
Investment expenses		1		2		4		6
Net investment income		19		29		56		102
Realized gains and losses:
Fixed-maturity:
Gains		-		5		10		34
Losses		(3)		(1)		(44)		(6)
Net		(3)		4		(34)		28
Other investments:
Gains		-		-		1		-
Losses		(1)		-		(1)		-
Net		(1)		-		-		-
Total net realized gains (losses)(1)		(4)		4		(34)		28
Total investment income	$	15	$	33	$	22	$	130

(1) - These balances are included in the “Net gains (losses) on financial instruments at fair value and foreign exchange” and “Net investment losses related to other-than-temporary impairments” line items on MBIA Corp.’s consolidated statements of operations.

Net investment income is generated as a result of the ongoing management of all of MBIA Corp.’s investment portfolios in 2012 and 2011.

Net realized losses were $34 million for the nine months ended September 30, 2012, compared to net realized gains of $28 million for the same period of 2011, resulting in a decrease of $62 million. The decrease was primarily due to an other-than-temporary impairment loss recognized on a security impaired to fair value as a result of MBIA Corp.’s intent to sell the security, and lower gains on sales of investments.

The portion of certain other-than-temporary impairment losses on fixed-maturity securities that does not represent credit losses is recognized in accumulated other comprehensive income (loss). For these impairments, the net amount recognized in earnings represents the difference between the amortized cost of the security and the net present value of its projected future discounted cash flows prior to impairment. Any remaining difference between the fair value and amortized cost is recognized in accumulated other comprehensive income (loss).

The following table presents the amount of credit loss impairments recognized in earnings on fixed-maturity securities held by MBIA Corp. as of the dates indicated, for which a portion of the other-than-temporary impairment losses was recognized in accumulated other comprehensive income (loss), and the corresponding changes in such amounts. There were no other-than-temporary impairment losses for which a portion was recognized in accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2012 and 2011, respectively.

50

MBIA Insurance Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 8: Investment Income and Gains and Losses (continued)

In millions	Nine Months Ended September 30,
Credit Losses Recognized in Earnings Related to Other-Than-Temporary Impairments	2012
Beginning balance	$	57
Reductions for credit loss impairments previously recognized on securities impaired to fair value during the period(1)		(57)
Ending balance	$	-

(1) - Represents circumstances where MBIA Corp. determined in the current period that it intends to sell the security or it is more likely than not that it will be required to sell the security before recovery of the security’s amortized cost.

Net unrealized gains (losses), including related deferred income taxes, reported in accumulated other comprehensive income (loss) within shareholders’ equity consisted of:

In millions	As of September 30, 2012		As of December 31, 2011
Fixed-maturity:
Gains	$	38	$	38
Losses		(2)		(41)
Foreign exchange		16		(9)
Net		52		(12)
Other investments:
Gains		-		1
Net		-		1
Total		52		(11)
Deferred income tax (benefit) provision		(3)		(13)
Unrealized gains (losses), net	$	55	$	2

The change in net unrealized gains (losses), including the portion of other-than-temporary impairments presented in the table above, consisted of:

In millions	As of September 30, 2012		As of December 31, 2011
Fixed-maturity	$	64	$	8
Other investments		(1)		-
Total		63		8
Deferred income tax charged (credited)		10		(8)
Change in unrealized gains (losses), net	$	53	$	16

Note 9: Derivative Instruments

MBIA Corp. accounts for derivative transactions in accordance with the accounting principles for derivative and hedging activities, which requires that all such transactions be recorded on MBIA Corp.’s consolidated balance sheets at fair value. Refer to “Note 6: Fair Value of Financial Instruments” for the definition of fair value of derivative instruments.

Changes in the fair value of derivatives, excluding insured derivatives, are recorded each period in current earnings within “Net gains (losses) on financial instruments at fair value and foreign exchange.” Changes in the fair value of insured derivatives are recorded each period in current earnings within “Net change in fair value of insured derivatives.” The net change in the fair value of MBIA Corp.’s insured derivatives has two primary components: (i) realized gains (losses) and other settlements on insured derivatives and (ii) unrealized gains (losses) on insured derivatives. “Realized gains (losses) and other settlements on insured derivatives” include (i) premiums received and receivable on written CDS contracts, (ii) premiums paid and payable to reinsurers in respect to CDS contracts, (iii) net amounts received or paid on reinsurance commutations, (iv) losses paid and payable to CDS contract counterparties due to the occurrence of a credit event or settlement agreement, (v) losses recovered and recoverable on purchased CDS contracts due to the occurrence of a credit event or settlement agreement and (vi) fees relating to CDS contracts. The “Unrealized gains (losses) on insured derivatives” include all other changes in fair value of the insured derivative contracts.

51

MBIA Insurance Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 9: Derivative Instruments (continued)

MBIA Corp. has entered into derivative transactions that it viewed as an extension of its core financial guarantee business but which do not qualify for the financial guarantee scope exception and, therefore, must be recorded at fair value in MBIA Corp.’s consolidated balance sheets. MBIA Corp. insures CDS contracts, primarily referencing corporate, asset-backed, residential mortgage-backed, commercial mortgage-backed, CRE loans, and CDO securities that MBIA Corp. intends to hold for the entire term of the contract absent a negotiated settlement with the counterparty.

Variable Interest Entities

VIEs consolidated by MBIA Corp. have entered into derivative transactions primarily consisting of interest rate swaps. Interest rate swaps are entered into to hedge the risks associated with fluctuations in interest rates or fair values of certain contracts.

Credit Derivatives Sold

The following table presents information about credit derivatives sold by MBIA Corp. that were outstanding as of September 30, 2012. Credit ratings represent the lower of underlying ratings currently assigned by Moody’s, S&P or MBIA.

In millions			Notional Value
Credit Derivatives Sold	Weighted Average Remaining Expected Maturity		AAA		AA		A		BBB		Below Investment Grade		Total Notional		Fair Value Asset (Liability)
Insured credit default swaps		5.3 Years	$	10,456	$	7,519	$	5,196	$	11,811	$	13,870	$	48,852	$	(3,243)
Insured swaps		21.2 Years		-		156		2,650		1,642		71		4,519		(8)
All others		2.1 Years		-		-		-		-		195		195		(80)
Total notional			$	10,456	$	7,675	$	7,846	$	13,453	$	14,136	$	53,566
Total fair value			$	(16)	$	(81)	$	(148)	$	(1,001)	$	(2,085)			$	(3,331)

The following table presents information about credit derivatives sold by MBIA Corp. that were outstanding as of December 31, 2011. Credit ratings represent the lower of underlying ratings currently assigned by Moody’s, S&P or MBIA.

In millions			Notional Value
Credit Derivatives Sold	Weighted Average Remaining Expected Maturity		AAA		AA		A		BBB		Below Investment Grade		Total Notional		Fair Value Asset (Liability)
Insured credit default swaps		5.6 Years	$	15,475	$	12,065	$	6,336	$	14,042	$	17,639	$	65,557	$	(4,716)
Non-insured credit default swaps-VIE		3.6 Years		-		-		-		-		643		643		(527)
Insured swaps		20.6 Years		-		133		3,140		2,227		133		5,633		(9)
All others		2.8 Years		-		-		-		-		195		195		(91)
Total notional			$	15,475	$	12,198	$	9,476	$	16,269	$	18,610	$	72,028
Total fair value			$	(114)	$	(116)	$	(205)	$	(1,355)	$	(3,553)			$	(5,343)

Referenced credit ratings assigned by MBIA Corp. to insured credit derivatives are derived by MBIA Corp.’s surveillance group. In assigning an internal rating, current status reports from issuers and trustees, as well as publicly available transaction-specific information, are reviewed. Also, where appropriate, cash flow analyses and collateral valuations are considered. The maximum potential amount of future payments (undiscounted) on CDS contracts are estimated as the notional value plus any additional debt service costs, such as interest or other amounts owed on CDS contracts. The maximum amount of future payments that MBIA Corp. may be required to make under these guarantees is $53.1 billion. This amount is net of $393 million of insured derivatives ceded under reinsurance agreements in which MBIA Corp. economically hedges a portion of the credit and market risk associated with its insured derivatives and offsetting agreements with a counterparty. The maximum potential amount of future payments (undiscounted) on insured swaps are estimated as the notional value of such contracts.

52

MBIA Insurance Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 9: Derivative Instruments (continued)

MBIA Corp. may hold recourse provisions with third parties in derivative transactions through both reinsurance and subrogation rights. MBIA Corp.’s reinsurance arrangements provide that in the event MBIA Corp. pays a claim under a guarantee of a derivative contract, MBIA Corp. has the right to collect amounts from any reinsurers that have reinsured the guarantee on either a proportional or non-proportional basis, depending upon the underlying reinsurance agreement. MBIA Corp. may also have recourse through subrogation rights whereby if MBIA Corp. makes a claim payment, it is entitled to any rights of the insured counterparty, including the right to any assets held as collateral.

Financial Statement Impact

As of September 30, 2012 and December 31, 2011, MBIA Corp. reported derivative assets of $7 million and $458 million, respectively, and derivative liabilities of $3.5 billion and $5.6 billion, respectively, which are shown separately on the consolidated balance sheets. The following table presents the total fair value of MBIA Corp.’s derivative assets and liabilities by instrument and balance sheet location as of September 30, 2012:

In millions	Notional Amount		Derivative Assets			Derivative Liabilities
Derivative Instruments	Outstanding		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Not designated as hedging instruments:
Insured credit default swaps	$	49,171	Derivative assets	$	-	Derivative liabilities	$	(3,243)
Insured swaps		8,223	Derivative assets		7	Derivative liabilities		(8)
Interest rate swaps -VIE		2,992	Derivative assets-VIE		-	Derivative liabilities-VIE		(157)
Cross currency swaps -VIE		113	Derivative assets-VIE		-	Derivative liabilities-VIE		(23)
All other		195	Derivative assets		-	Derivative liabilities		(80)
All other-VIE		280	Derivative assets-VIE		-	Derivative liabilities-VIE		-
Total derivatives	$	60,974		$	7		$	(3,511)

The following table presents the total fair value of MBIA Corp.’s derivative assets and liabilities by instrument and balance sheet location as of December 31, 2011:

In millions	Notional Amount		Derivative Assets			Derivative Liabilities
Derivative Instruments	Outstanding		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Not designated as hedging instruments:
Insured credit default swaps	$	66,851	Derivative assets	$	-	Derivative liabilities	$	(4,708)
Non-insured credit default swaps-VIE		1,272	Derivative assets-VIE		447	Derivative liabilities-VIE		(527)
Insured swaps		9,811	Derivative assets		8	Derivative liabilities		(9)
Interest rate swaps -VIE		4,878	Derivative assets-VIE		-	Derivative liabilities-VIE		(281)
Cross currency swaps -VIE		123	Derivative assets-VIE		-	Derivative liabilities-VIE		(17)
All other		195	Derivative assets		-	Derivative liabilities		(91)
All other-VIE		472	Derivative assets-VIE		3	Derivative liabilities-VIE		-
Total derivatives	$	83,602		$	458		$	(5,633)

53

MBIA Insurance Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 9: Derivative Instruments (continued)

The following table shows the effect of derivative instruments on the consolidated statements of operations for the three months ended September 30, 2012:

In millions		Net Gain (Loss) Recognized in Income
Derivatives Not Designated as Hedging Instruments
	Location of Gain (Loss) Recognized in Income on Derivative
Insured credit default swaps	Unrealized gains (losses) on insured derivatives	$	(40)
Insured credit default swaps	Realized gains (losses) and other settlements on insured derivatives		12
Interest rate swaps-VIE	Net gains (losses) on financial instruments at fair value and foreign  exchange-VIE		8
Currency swaps-VIE	Net gains (losses) on financial instruments at fair value and foreign  exchange-VIE		(2)
All other	Unrealized gains (losses) on insured derivatives		7
Total		$	(15)

The following table shows the effect of derivative instruments on the consolidated statements of operations for the three months ended September 30, 2011:

In millions		Net Gain (Loss) Recognized in Income
Derivatives Not Designated as Hedging Instruments
	Location of Gain (Loss) Recognized in Income on Derivative
Insured credit default swaps	Unrealized gains (losses) on insured derivatives	$	812
Insured credit default swaps	Realized gains (losses) and other settlements on insured derivatives		(54)
Non-insured credit default swaps-VIE	Net gains (losses) on financial instruments at fair value and foreign  exchange-VIE		98
Interest rate swaps-VIE	Net gains (losses) on financial instruments at fair value and foreign  exchange-VIE		(25)
Currency swaps-VIE	Net gains (losses) on financial instruments at fair value and foreign  exchange-VIE		(2)
All other	Unrealized gains (losses) on insured derivatives		20
All other-VIE	Net gains (losses) on financial instruments at fair value and foreign  exchange-VIE		(5)
Total		$	844

54

MBIA Insurance Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 9: Derivative Instruments (continued)

The following table shows the effect of derivative instruments on the consolidated statements of operations for the nine months ended September 30, 2012:

In millions		Net Gain (Loss) Recognized in Income
Derivatives Not Designated as Hedging Instruments
	Location of Gain (Loss) Recognized in Income on Derivative
Insured credit default swaps	Unrealized gains (losses) on insured derivatives	$	1,463
Insured credit default swaps	Realized gains (losses) and other settlements on insured derivatives		(420)
Non-insured credit default swaps-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		(1)
Interest rate swaps-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		39
Currency swaps-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		(6)
All other	Unrealized gains (losses) on insured derivatives		10
All other-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		(2)
Total		$	1,083

The following table shows the effect of derivative instruments on the consolidated statements of operations for the nine months ended September 30, 2011:

In millions		Net Gain (Loss) Recognized in Income
Derivatives Not Designated as Hedging Instruments
	Location of Gain (Loss) Recognized in Income on Derivative
Insured credit default swaps	Unrealized gains (losses) on insured derivatives	$	(658)
Insured credit default swaps	Realized gains (losses) and other settlements on insured derivatives		(601)
Non-insured credit default swaps-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		144
Interest rate swaps-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		23
Currency swaps-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		(4)
All other	Unrealized gains (losses) on insured derivatives		(17)
All other-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		(6)
Total		$	(1,119)

Note 10: Income Taxes

MBIA Corp.’s income taxes and the related effective tax rates for the three and nine months ended September 30, 2012 and 2011 are as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
In millions	2012			2011			2012			2011
Income (loss) before income taxes	$	(160)		$	631		$	597		$	(1,326)
Provision (benefit) for income taxes	$	(80)	50.0%	$	217	34.4%	$	201	33.7%	$	(484)	36.5%

For the nine months ended September 30, 2012, MBIA Corp.’s effective tax rate applied to its income before income taxes was lower than the U.S. statutory tax rate primarily as a result of a decrease in the valuation allowance. MBIA Corp.’s effective tax rate on its pre-tax loss for the nine months ended September 30, 2011 was higher than the U.S. statutory tax rate primarily due to tax-exempt interest income from investments, income earned in non-U.S. jurisdictions, which is being taxed at less than 35%, and a reduction in the valuation allowance.

MBIA Corp. adjusts annual forecasted pre-tax income for mark-to-market income, fair value adjustments, capital gains/losses, and other tax adjustments when projecting its full year 2012 effective tax rate. MBIA Corp. accounted for the discrete items at the federal applicable tax rate after applying the projected full year effective tax rate to its actual nine-month results excluding discrete items.

55

MBIA Insurance Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 10: Income Taxes (continued)

Deferred Tax Asset, Net of Valuation Allowance

MBIA Corp. recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on tax assets and liabilities is recognized in income in the period that includes the enactment date.

MBIA Corp. establishes a valuation allowance against its deferred tax asset when it is more likely than not that all or a portion of the deferred tax asset will not be realized. All evidence, both positive and negative, needs to be identified and considered in making the determination. Future realization of the existing deferred tax asset ultimately depends, in part, on the existence of sufficient taxable income of appropriate character (for example, ordinary income versus capital gains) within the carryforward period available under the tax law.

As of September 30, 2012, MBIA Corp. reported a net deferred tax asset of $1.5 billion. The $1.5 billion deferred tax asset is net of a $46 million valuation allowance. As of September 30, 2012, MBIA Corp. has a valuation allowance against a portion of the deferred tax asset related to losses from asset impairments as these losses are considered capital losses, have a five-year carryforward period once recognized, and can only be used to offset capital gain income.

MBIA Corp. has concluded that it is more likely than not that its net deferred tax asset will be realized. In its conclusion, MBIA Corp. relied on the assurance by its parent, MBIA Inc., that it was MBIA Inc.’s intention that no net operating loss generated by MBIA Corp., to the extent used in consolidation, would be allowed to expire without compensation.

Accounting for Uncertainty in Income Taxes

It is MBIA Corp.’s policy to record and disclose any change in unrecognized tax benefits (“UTB”) and related interest and penalties to income tax in the consolidated statements of operations.

In millions
Unrecognized tax benefit as of December 31, 2011	$	1
The gross amount of the increases (decreases) in the UTB as a result of tax positions taken during prior year		-
Decrease in the UTB related to settlements with taxing authorities		(1)
Unrecognized tax benefit as of September 30, 2012	$	-

In the first nine months of 2012, the total amount of UTB decreased as a result of settling the 2004-2009 Internal Revenue Service (“IRS”) examination.

MBIA Corp.’s significant major tax jurisdictions include the U.S. and the United Kingdom (“U.K.”).

MBIA and its U.S. subsidiaries file a U.S. consolidated federal income tax return. The IRS has concluded its field work with respect to the examination of tax years 2004 through 2009 and on January 12, 2012, the Joint Committee on Taxation notified MBIA that the results of the IRS field examination were reviewed and accepted.

The U.K. tax authorities are currently auditing tax years 2005 through 2009.

Tax Sharing Arrangement

MBIA Corp. files its U.S. Corporation Income Tax Return as a member of the MBIA Inc. consolidated group and participates in a tax sharing agreement between MBIA Corp. and MBIA Inc. under which MBIA Corp. is allocated its share of consolidated tax liability or tax benefit as determined on a standalone basis under the tax sharing agreement.

As of September 30, 2012, MBIA Corp. has not made tax payments under this tax sharing agreement for 2012 and 2011. If tax payments had been made, all funds would be placed in escrow by MBIA Inc. and would remain in escrow until the expiration of a two-year carryback period which would allow MBIA Corp. to carryback a separate company tax loss and recover all or a portion of the escrowed funds.

56

MBIA Insurance Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 10: Income Taxes (continued)

As of September 30, 2012, MBIA Corp. has not received any payment with respect to tax losses contributed to the consolidated group. MBIA Corp. will receive benefits of its losses as it is able to earn out those losses in the future. However, it is MBIA Inc.’s intention not to allow any loss generated by MBIA Corp., to the extent used in consolidation, to expire without compensation.

Note 11: Commitments and Contingencies

The following commitments and contingencies provide an update to those discussed in “Note 19: Commitments and Contingencies” in the Notes to Consolidated Financial Statements included in Exhibit 99.3 of MBIA Inc.’s Annual Report on Form 10-K for the year ended December 31, 2011 as filed with the Securities and Exchange Commission on February 29, 2012, and should be read in conjunction with the complete descriptions provided in the aforementioned note included in Exhibit 99.3 of Form 10-K. In the normal course of operating its business, MBIA Corp. may be involved in various legal proceedings. Additionally, MBIA may be involved in various legal proceedings that directly or indirectly impact MBIA Corp.

Corporate Litigation

Ambac Bond Insurance Coverage Cases, Coordinated Proceeding Case No. JCCP 4555 (Super. Ct. of Cal., County of San Francisco)

On May 1, 2012, the court ruled in favor of the monoline defendants on their special motion to strike pursuant to California’s Anti-SLAPP statute. The parties will complete the briefing relating to Stage 2 of the Anti-SLAPP motion on February 22, 2013 and a hearing is scheduled for March 5, 2013.

Tri-City Healthcare District v. Citibank.et al.; Case No. 30-2010-00359692 (Super. Ct. of Cal., County of Orange)

On July 20, 2012, the court granted the plaintiff’s motion to further amend its complaint. Briefing on the defendants’ motion to strike portions of the Fifth Amended Complaint was completed on October 19, 2012. MBIA’s portion of the motion has been resolved per stipulation.

City of Phoenix v. AMBAC et al., Case No. 2:10-cv-00555-TMB (D. Ariz.)

On October 5, 2012, the court granted the plaintiff’s motion to substitute its expert with certain limitations.

Recovery Litigation

MBIA Insurance Corp. v. Countrywide Home Loans, Inc., et al.; Index No. 602825/08 (N.Y. Sup. Ct., N.Y. County)

Expert discovery was completed as of September 20, 2012. On September 19, 2012, MBIA and Countrywide filed respective motions for summary judgment regarding Countrywide’s primary liability. Argument is scheduled for December 5 to 6, 2012. On September 28, 2012, MBIA and Bank of America filed motions for summary judgment regarding Bank of America’s successor liability. Argument is scheduled for December 12 to 13, 2012. The Appellate Division of the New York State Supreme Court, First Department (the “Appellate Division”), has ordered Countrywide to file its opening appellate brief with respect to the trial court’s decision on partial summary judgment regarding causation by November 5, 2012. The appeal is scheduled for the January 2013 term of the Appellate Division.

MBIA Insurance Corp. v. Residential Funding Company, LLC; Index No. 603552/2008 (N.Y. Sup. Ct., N.Y. County)

The case is currently stayed as a result of the Chapter 11 filing of ResCap on May 14, 2012 in the United States Bankruptcy Court for the Southern District of New York.

MBIA Insurance Corp. v. GMAC Mortgage, LLC (f/k/a GMAC Mortgage Corporation); Index No. 600837/2010 (N.Y. Sup. Ct., N.Y. County)

The case is currently stayed as a result of the Chapter 11 filing of ResCap on May 14, 2012 in the United States Bankruptcy Court for the Southern District of New York.

MBIA Insurance Corp. v. Federal Deposit Insurance Corporation (in its corporate capacity and as conservator and receiver for IndyMac Federal Bank, F.S.B.); Civil Action No. 09-01011 (ABJ) (D.C. Dist.)

On September 12, 2012, the briefing before the Court of Appeals for the District of Columbia was completed. Oral argument is scheduled for November 14, 2012.

57

MBIA Insurance Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 11: Commitments and Contingencies (continued)

MBIA Insurance Corp. v. J.P. Morgan Securities LLC (f/k/a Bear, Stearns & Co. Inc); Index No. 64676/2012 (N.Y. Sup. Ct., County of Westchester)

On September 14, 2012, MBIA Insurance Corporation filed a complaint alleging fraud against J.P. Morgan Securities LLC (f/k/a Bear, Stearns & Co. Inc) relating to Bear, Stearns & Co. Inc.’s role as lead securities underwriter on the GMAC Mortgage Corporation Home Equity Loan Trust 2006-HE4. On October 18, 2012, the defendant filed its motion to dismiss.

MBIA Insurance Corp. v. Ally Financial Inc. (f/k/a GMAC, LLC) et al., 12-cv-02563 SRN/TNL (D. Minn.)

On September 17, 2012, MBIA Insurance Corporation filed a complaint in Minnesota state court for aiding and abetting fraud and breach of contract against certain Ally Bank companies relating to seven MBIA-insured mortgage-backed securitizations sponsored by Residential Funding Company LLC and GMAC Mortgage LLC during 2006-2007. The defendants removed to the United States District Court for the District of Minnesota on October 5, 2012, and filed a notice of motion to dismiss on October 12, 2012.

Transformation Litigation

Aurelius Capital Master, Ltd. et al. v. MBIA Inc. et al.; 09-cv-2242 (R.S.) (S.D.N.Y.)

On April 11, 2012, the Aurelius plaintiffs and MBIA filed a Stipulation of Dismissal resolving the litigation and the case has been closed on the court’s docket.

ABN AMRO Bank N.V. et al. v. Eric Dinallo et al.; Index no. 601846/09 (N.Y. Sup. Ct., N.Y. County)

The Article 78 hearing concluded on June 7, 2012. A decision is pending.

CQS ABS Master Fund Ltd., CQS Select ABS Master Fund Ltd., and CQS ABS Alpha Master Fund Ltd. v. MBIA Inc. et al; Civil Action No. 12-cv-6840 (R.S.) (S.D.N.Y.)

On September 10, 2012, CQS ABS Master Fund Ltd., CQS Select ABS Master Fund Ltd., and CQS ABS Alpha Master Fund Ltd. as holders of MBIA-insured residential mortgage-backed bonds filed suit against MBIA Inc., MBIA Insurance Corporation and National Public Finance Guarantee Corp. The complaint alleges that certain of the terms of the transactions entered into by MBIA Insurance Corporation, which were approved by the New York State Department of Insurance, constituted fraudulent conveyances under § 273, 274, 276 and 279(c) of New York Debtor and Creditor Law and a breach of the implied covenant of good faith and fair dealing under New York common law. MBIA answered on October 19, 2012.

MBIA and MBIA Corp. are defending against the aforementioned actions in which they are a defendant and expect ultimately to prevail on the merits. There is no assurance, however, that they will prevail in these actions. Adverse rulings in these actions could have a material adverse effect on MBIA Corp.’s ability to implement its strategy and on its business, results of operations, cash flows and financial condition. At this stage of the various litigations, there has not been a determination as to the amount, if any, of damages. Accordingly, MBIA Corp. is not able to estimate any amount of loss or range of loss.

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

Note 12: Subsequent Events

Refer to “Note 11: Commitments and Contingencies” for information about legal proceedings that developed after September 30, 2012.

58

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	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011
Variable Interest Entity [Line Items]
Carrying amounts of assets	$ 22,132	$ 26,873	$ 29,370
Carrying amounts of liabilities	19,545	25,150
Net realized gains or losses related to deconsolidation	0
Variable Interest Entity [Member]
Variable Interest Entity [Line Items]
Carrying amounts of assets	8,200	10,900
Carrying amounts of liabilities	$ 7,200	$ 9,900

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Accounts, Notes, Loans and Financing Receivable [Line Items]
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Money Market Securities [Member]
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Accounts, Notes, Loans and Financing Receivable [Line Items]
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Accounts, Notes, Loans and Financing Receivable [Line Items]
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Fixed-Maturity Investments [Member] | Taxable Bonds [Member] | Commercial Mortgage-Backed [Member] | Mortgage-Backed Securities [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
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Accounts, Notes, Loans and Financing Receivable [Line Items]
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Accounts, Notes, Loans and Financing Receivable [Line Items]
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Accounts, Notes, Loans and Financing Receivable [Line Items]
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Accounts, Notes, Loans and Financing Receivable [Line Items]
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Derivative Assets [Member]
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Accounts, Notes, Loans and Financing Receivable [Line Items]
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Derivative Assets [Member] | Interest Rate Derivatives [Member] | Non-Insured Derivatives [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
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Accounts, Notes, Loans and Financing Receivable [Line Items]
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Accounts, Notes, Loans and Financing Receivable [Line Items]
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Accounts, Notes, Loans and Financing Receivable [Line Items]
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Quoted Prices In Active Markets for Identical Assets (Level 1) [Member] | Variable Interest Entity [Member] | Cash [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
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Accounts, Notes, Loans and Financing Receivable [Line Items]
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Accounts, Notes, Loans and Financing Receivable [Line Items]
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Quoted Prices In Active Markets for Identical Assets (Level 1) [Member] | Fixed-Maturity Investments [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
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Accounts, Notes, Loans and Financing Receivable [Line Items]
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Accounts, Notes, Loans and Financing Receivable [Line Items]
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Accounts, Notes, Loans and Financing Receivable [Line Items]
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Accounts, Notes, Loans and Financing Receivable [Line Items]
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Accounts, Notes, Loans and Financing Receivable [Line Items]
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Quoted Prices In Active Markets for Identical Assets (Level 1) [Member] | Fixed-Maturity Investments [Member] | Taxable Bonds [Member] | Corporate Obligations [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
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Accounts, Notes, Loans and Financing Receivable [Line Items]
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Accounts, Notes, Loans and Financing Receivable [Line Items]
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Accounts, Notes, Loans and Financing Receivable [Line Items]
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Accounts, Notes, Loans and Financing Receivable [Line Items]
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Accounts, Notes, Loans and Financing Receivable [Line Items]
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Accounts, Notes, Loans and Financing Receivable [Line Items]
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Accounts, Notes, Loans and Financing Receivable [Line Items]
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Significant Other Observable Inputs (Level 2) [Member] | Fixed-Maturity Investments [Member] | Corporate Obligations [Member] | Variable Interest Entity [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
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Significant Other Observable Inputs (Level 2) [Member] | Fixed-Maturity Investments [Member] | Residential Mortgage-Backed Agency [Member] | Mortgage-Backed Securities [Member] | Variable Interest Entity [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
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Accounts, Notes, Loans and Financing Receivable [Line Items]
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Significant Other Observable Inputs (Level 2) [Member] | Fixed-Maturity Investments [Member] | Commercial Mortgage-Backed [Member] | Mortgage-Backed Securities [Member] | Variable Interest Entity [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
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Significant Other Observable Inputs (Level 2) [Member] | Fixed-Maturity Investments [Member] | Collateralized Debt Obligations [Member] | Asset-Backed Securities [Member] | Variable Interest Entity [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
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Significant Other Observable Inputs (Level 2) [Member] | Fixed-Maturity Investments [Member] | Other Asset-Backed [Member] | Asset-Backed Securities [Member] | Variable Interest Entity [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
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Accounts, Notes, Loans and Financing Receivable [Line Items]
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Significant Other Observable Inputs (Level 2) [Member] | Fixed-Maturity Investments [Member] | Taxable Bonds [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
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Accounts, Notes, Loans and Financing Receivable [Line Items]
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Accounts, Notes, Loans and Financing Receivable [Line Items]
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Significant Other Observable Inputs (Level 2) [Member] | Fixed-Maturity Investments [Member] | Taxable Bonds [Member] | Corporate Obligations [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
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Accounts, Notes, Loans and Financing Receivable [Line Items]
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Accounts, Notes, Loans and Financing Receivable [Line Items]
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Significant Other Observable Inputs (Level 2) [Member] | Fixed-Maturity Investments [Member] | Taxable Bonds [Member] | Commercial Mortgage-Backed [Member] | Mortgage-Backed Securities [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
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Significant Other Observable Inputs (Level 2) [Member] | Fixed-Maturity Investments [Member] | Taxable Bonds [Member] | Collateralized Debt Obligations [Member] | Asset-Backed Securities [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
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Significant Other Observable Inputs (Level 2) [Member] | Fixed-Maturity Investments [Member] | Taxable Bonds [Member] | Other Asset-Backed [Member] | Asset-Backed Securities [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
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Significant Other Observable Inputs (Level 2) [Member] | Fixed-Maturity Investments [Member] | Taxable Bonds [Member] | State And Municipal Bonds [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
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Significant Other Observable Inputs (Level 2) [Member] | Fixed-Maturity Investments [Member] | Tax-Exempt Bonds [Member] | State And Municipal Bonds [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
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Accounts, Notes, Loans and Financing Receivable [Line Items]
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Significant Other Observable Inputs (Level 2) [Member] | Derivative Assets [Member] | Credit Derivatives [Member] | Non-Insured Derivatives [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial assets measured on recurring basis				1
Significant Other Observable Inputs (Level 2) [Member] | Derivative Assets [Member] | Interest Rate Derivatives [Member] | Non-Insured Derivatives [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial assets measured on recurring basis	95			91
Significant Other Observable Inputs (Level 2) [Member] | Derivative Assets [Member] | Interest Rate Derivatives [Member] | Variable Interest Entity [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial assets measured on recurring basis				3
Significant Other Observable Inputs (Level 2) [Member] | Derivative Liabilities [Member] | Credit Derivatives [Member] | Insured Derivatives [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial liabilities measured on recurring basis	14			18
Significant Other Observable Inputs (Level 2) [Member] | Derivative Liabilities [Member] | Interest Rate Derivatives [Member] | Non-Insured Derivatives [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial liabilities measured on recurring basis	305			445
Significant Other Observable Inputs (Level 2) [Member] | Derivative Liabilities [Member] | Interest Rate Derivatives [Member] | Variable Interest Entity [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial liabilities measured on recurring basis	157			281
Significant Other Observable Inputs (Level 2) [Member] | Derivative Liabilities [Member] | Currency Derivatives [Member] | Non-Insured Derivatives [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial liabilities measured on recurring basis	1			4
Significant Other Observable Inputs (Level 2) [Member] | Other Liabilities [Member] | Warrants [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial liabilities measured on recurring basis	18			38
Significant Other Observable Inputs (Level 2) [Member] | Variable Interest Entity Notes [Member] | Variable Interest Entity [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial liabilities measured on recurring basis	1,741			1,865
Significant Unobservable Inputs (Level 3) [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial assets measured on recurring basis	3,642			4,638
Fair value financial assets measured on recurring basis	3,637		3,544	4,188	4,309	4,528	4,467
Fair value financial liabilities measured on recurring basis	5,399			8,388
Significant Unobservable Inputs (Level 3) [Member] | Variable Interest Entity [Member] | Loans Receivable [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial assets measured on recurring basis	1,892			2,046
Fair value financial assets measured on recurring basis	1,892		1,903	2,046	2,218	2,320	2,183
Significant Unobservable Inputs (Level 3) [Member] | Variable Interest Entity [Member] | Loan Repurchase Commitments [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial assets measured on recurring basis	1,051			1,077
Fair value financial assets measured on recurring basis	1,051		1,032	1,077	938	905	835
Significant Unobservable Inputs (Level 3) [Member] | Foreign Governments [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial assets measured on recurring basis	12		12	11	11	13	11
Significant Unobservable Inputs (Level 3) [Member] | Corporate Obligations [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial assets measured on recurring basis	91		98	207	342	294	246
Significant Unobservable Inputs (Level 3) [Member] | Corporate Obligations [Member] | Variable Interest Entity [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial assets measured on recurring basis	83		95	69	63	62	82
Significant Unobservable Inputs (Level 3) [Member] | Residential Mortgage-Backed Agency [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial assets measured on recurring basis			4	8	1		41
Significant Unobservable Inputs (Level 3) [Member] | Residential Mortgage-Backed Non-Agency [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial assets measured on recurring basis	7		33	17	27	28	48
Significant Unobservable Inputs (Level 3) [Member] | Residential Mortgage-Backed Non-Agency [Member] | Variable Interest Entity [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial assets measured on recurring basis	8		10	21	15	17	40
Significant Unobservable Inputs (Level 3) [Member] | Commercial Mortgage-Backed [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial assets measured on recurring basis	30		27	24	32	50	41
Significant Unobservable Inputs (Level 3) [Member] | Commercial Mortgage-Backed [Member] | Variable Interest Entity [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial assets measured on recurring basis	13		12	22	17	27	23
Significant Unobservable Inputs (Level 3) [Member] | Collateralized Debt Obligations [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial assets measured on recurring basis	30		29	60	67	162	192
Significant Unobservable Inputs (Level 3) [Member] | Collateralized Debt Obligations [Member] | Variable Interest Entity [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial assets measured on recurring basis	173		140	203	206	201	245
Significant Unobservable Inputs (Level 3) [Member] | Other Asset-Backed [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial assets measured on recurring basis	73		69	317	270	331	349
Significant Unobservable Inputs (Level 3) [Member] | Other Asset-Backed [Member] | Variable Interest Entity [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial assets measured on recurring basis	66		42	67	71	73	81
Significant Unobservable Inputs (Level 3) [Member] | Perpetual Preferred Securities [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial assets measured on recurring basis	3	[1]		1
Fair value financial assets measured on recurring basis	3		3	1	1
Significant Unobservable Inputs (Level 3) [Member] | Medium-Term Notes [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial liabilities measured on recurring basis	168	[1]		165
Significant Unobservable Inputs (Level 3) [Member] | Total Investments [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial assets measured on recurring basis	351			683
Significant Unobservable Inputs (Level 3) [Member] | Fixed-Maturity Investments [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial assets measured on recurring basis	337			672
Significant Unobservable Inputs (Level 3) [Member] | Fixed-Maturity Investments [Member] | Variable Interest Entity [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial assets measured on recurring basis	343			382
Significant Unobservable Inputs (Level 3) [Member] | Fixed-Maturity Investments [Member] | Corporate Obligations [Member] | Variable Interest Entity [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial assets measured on recurring basis	83	[1]		69
Significant Unobservable Inputs (Level 3) [Member] | Fixed-Maturity Investments [Member] | Residential Mortgage-Backed Non-Agency [Member] | Mortgage-Backed Securities [Member] | Variable Interest Entity [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial assets measured on recurring basis	8	[1]		21
Significant Unobservable Inputs (Level 3) [Member] | Fixed-Maturity Investments [Member] | Commercial Mortgage-Backed [Member] | Mortgage-Backed Securities [Member] | Variable Interest Entity [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial assets measured on recurring basis	13	[1]		22
Significant Unobservable Inputs (Level 3) [Member] | Fixed-Maturity Investments [Member] | Collateralized Debt Obligations [Member] | Asset-Backed Securities [Member] | Variable Interest Entity [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial assets measured on recurring basis	173	[1]		203
Significant Unobservable Inputs (Level 3) [Member] | Fixed-Maturity Investments [Member] | Other Asset-Backed [Member] | Asset-Backed Securities [Member] | Variable Interest Entity [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial assets measured on recurring basis	66	[1]		67
Significant Unobservable Inputs (Level 3) [Member] | Fixed-Maturity Investments [Member] | Taxable Bonds [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial assets measured on recurring basis	314			644
Significant Unobservable Inputs (Level 3) [Member] | Fixed-Maturity Investments [Member] | Taxable Bonds [Member] | Foreign Governments [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial assets measured on recurring basis	12	[1]		11
Significant Unobservable Inputs (Level 3) [Member] | Fixed-Maturity Investments [Member] | Taxable Bonds [Member] | Corporate Obligations [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial assets measured on recurring basis	91	[1]		207
Significant Unobservable Inputs (Level 3) [Member] | Fixed-Maturity Investments [Member] | Taxable Bonds [Member] | Residential Mortgage-Backed Agency [Member] | Mortgage-Backed Securities [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial assets measured on recurring basis				8
Significant Unobservable Inputs (Level 3) [Member] | Fixed-Maturity Investments [Member] | Taxable Bonds [Member] | Residential Mortgage-Backed Non-Agency [Member] | Mortgage-Backed Securities [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial assets measured on recurring basis	7	[1]		17
Significant Unobservable Inputs (Level 3) [Member] | Fixed-Maturity Investments [Member] | Taxable Bonds [Member] | Commercial Mortgage-Backed [Member] | Mortgage-Backed Securities [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial assets measured on recurring basis	30	[1]		24
Significant Unobservable Inputs (Level 3) [Member] | Fixed-Maturity Investments [Member] | Taxable Bonds [Member] | Collateralized Debt Obligations [Member] | Asset-Backed Securities [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial assets measured on recurring basis	30	[1]		60
Significant Unobservable Inputs (Level 3) [Member] | Fixed-Maturity Investments [Member] | Taxable Bonds [Member] | Other Asset-Backed [Member] | Asset-Backed Securities [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial assets measured on recurring basis	73	[1]		317
Significant Unobservable Inputs (Level 3) [Member] | Fixed-Maturity Investments [Member] | Taxable Bonds [Member] | State And Municipal Bonds [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial assets measured on recurring basis	71	[1]
Significant Unobservable Inputs (Level 3) [Member] | Fixed-Maturity Investments [Member] | Tax-Exempt Bonds [Member] | State And Municipal Bonds [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial assets measured on recurring basis	23	[1]		28
Significant Unobservable Inputs (Level 3) [Member] | Other Investments [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial assets measured on recurring basis	11	[1]
Fair value financial assets measured on recurring basis				10
Significant Unobservable Inputs (Level 3) [Member] | Derivative Assets [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial assets measured on recurring basis	5			3
Significant Unobservable Inputs (Level 3) [Member] | Derivative Assets [Member] | Credit Derivatives [Member] | Insured Derivatives [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial assets measured on recurring basis	1
Significant Unobservable Inputs (Level 3) [Member] | Derivative Assets [Member] | Credit Derivatives [Member] | Variable Interest Entity [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial assets measured on recurring basis				447
Significant Unobservable Inputs (Level 3) [Member] | Derivative Assets [Member] | Interest Rate Derivatives [Member] | Non-Insured Derivatives [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial assets measured on recurring basis	4	[1]		3
Significant Unobservable Inputs (Level 3) [Member] | Derivative Liabilities [Member] | Credit Derivatives [Member] | Insured Derivatives [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial liabilities measured on recurring basis	3,318			4,790
Significant Unobservable Inputs (Level 3) [Member] | Derivative Liabilities [Member] | Credit Derivatives [Member] | Variable Interest Entity [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial liabilities measured on recurring basis				527
Significant Unobservable Inputs (Level 3) [Member] | Derivative Liabilities [Member] | Interest Rate Derivatives [Member] | Non-Insured Derivatives [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial liabilities measured on recurring basis	4	[1]
Significant Unobservable Inputs (Level 3) [Member] | Derivative Liabilities [Member] | Currency Derivatives [Member] | Non-Insured Derivatives [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial liabilities measured on recurring basis	1	[1]
Significant Unobservable Inputs (Level 3) [Member] | Derivative Liabilities [Member] | Currency Derivatives [Member] | Variable Interest Entity [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial liabilities measured on recurring basis	23	[1]		17
Significant Unobservable Inputs (Level 3) [Member] | Variable Interest Entity Notes [Member] | Variable Interest Entity [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial liabilities measured on recurring basis	1,885			2,889
Counterparty and Cash Collateral Netting [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial assets measured on recurring basis	(96)			(93)
Fair value financial liabilities measured on recurring basis	(311)			(93)
Counterparty and Cash Collateral Netting [Member] | Derivative Assets [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial assets measured on recurring basis	(96)			(93)
Counterparty and Cash Collateral Netting [Member] | Derivative Assets [Member] | Interest Rate Derivatives [Member] | Non-Insured Derivatives [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial assets measured on recurring basis	(96)
Counterparty and Cash Collateral Netting [Member] | Derivative Assets [Member] | Other [Member] | Non-Insured Derivatives [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial assets measured on recurring basis				(93)
Counterparty and Cash Collateral Netting [Member] | Derivative Liabilities [Member] | Interest Rate Derivatives [Member] | Non-Insured Derivatives [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial liabilities measured on recurring basis	(311)
Counterparty and Cash Collateral Netting [Member] | Derivative Liabilities [Member] | Other [Member] | Non-Insured Derivatives [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value financial liabilities measured on recurring basis				$ (93)

[1] Unobservable inputs are either not developed by the Company or do not significantly impact the overall fair values of the aggregate financial assets and liabilities.

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Loss And Loss Adjustment Expense Reserves (Schedule Of Loss And Loss Adjustment Expenses Reserves) (Detail) (USD $) In Millions, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Loss And Loss Adjustment Expense Reserves [Line Items]
Changes in Unearned Premium Revenue	$ 443	$ 495
Changes in LAE Reserves	109	(198)
Loss And LAE Reserves [Member]
Loss And Loss Adjustment Expense Reserves [Line Items]
Gross Loss and LAE Reserves as of December 31, 2011	836
Loss Payments for Cases with Reserves	(283)
Accretion of Claim Liability Discount	9
Changes in Discount Rates	26
Changes in Timing of Payments	52
Changes in Amount of Net Payments	3
Changes in Assumptions	267
Changes in Unearned Premium Revenue	7
Changes in LAE Reserves	28
Gross Loss and LAE Reserves as of September 30, 2012	$ 945

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Investments (Securities Held In Unrealized Loss Position and Insured By Financial Guarantor and the Related Insurance Loss Reserve On Company Insured Investments) (Detail) (USD $) In Millions, unless otherwise specified	Sep. 30, 2012		Dec. 31, 2011
Schedule of Investments [Line Items]
Total, Fair Value	$ 1,025		$ 2,387
Total, Unrealized Losses	(191)		(478)
Wrapped Securities [Member]
Schedule of Investments [Line Items]
Total, Fair Value	458
Total, Unrealized Losses	(137)
Loss and Loss Adjustment Expense Reserves	18	[1]
Asset-Backed Securities [Member]
Schedule of Investments [Line Items]
Total, Fair Value	273
Total, Unrealized Losses	(99)
Asset-Backed Securities [Member] | Wrapped Securities [Member]
Schedule of Investments [Line Items]
Total, Fair Value	175
Total, Unrealized Losses	(70)
Loss and Loss Adjustment Expense Reserves	18	[1]
Asset-Backed Securities [Member] | Wrapped Securities [Member] | Other Insurers [Member]
Schedule of Investments [Line Items]
Total, Fair Value	27
Total, Unrealized Losses	(7)
Asset-Backed Securities [Member] | Wrapped Securities [Member] | MBIA Corp and National [Member]
Schedule of Investments [Line Items]
Total, Fair Value	148	[2]
Total, Unrealized Losses	(63)	[2]
Loss and Loss Adjustment Expense Reserves	18	[1],[2]
Mortgage-Backed Securities [Member]
Schedule of Investments [Line Items]
Total, Fair Value	270
Total, Unrealized Losses	(52)
Mortgage-Backed Securities [Member] | Wrapped Securities [Member]
Schedule of Investments [Line Items]
Total, Fair Value	194
Total, Unrealized Losses	(44)
Mortgage-Backed Securities [Member] | Wrapped Securities [Member] | Other Insurers [Member]
Schedule of Investments [Line Items]
Total, Fair Value	184
Total, Unrealized Losses	(43)
Mortgage-Backed Securities [Member] | Wrapped Securities [Member] | MBIA Corp and National [Member]
Schedule of Investments [Line Items]
Total, Fair Value	10	[2]
Total, Unrealized Losses	(1)	[2]
Corporate Obligations [Member]
Schedule of Investments [Line Items]
Total, Fair Value	163
Total, Unrealized Losses	(28)
Corporate Obligations [Member] | Wrapped Securities [Member]
Schedule of Investments [Line Items]
Total, Fair Value	9
Total, Unrealized Losses	(12)
Corporate Obligations [Member] | Wrapped Securities [Member] | Other Insurers [Member]
Schedule of Investments [Line Items]
Total, Fair Value	9
Total, Unrealized Losses	(12)
Other Investments [Member] | Wrapped Securities [Member]
Schedule of Investments [Line Items]
Total, Fair Value	80
Total, Unrealized Losses	(11)
Other Investments [Member] | Wrapped Securities [Member] | Other Insurers [Member]
Schedule of Investments [Line Items]
Total, Fair Value	8
Other Investments [Member] | Wrapped Securities [Member] | MBIA Corp and National [Member]
Schedule of Investments [Line Items]
Total, Fair Value	72	[2]
Total, Unrealized Losses	$ (11)	[2]

[1] Insurance loss reserve estimates are based on the proportion of par value owned to the total amount of par value insured.

[2] Includes investments insured by MBIA Corp. and National.

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Fair Value Of Financial Instruments (Fair Value And Carrying Value Of Assets And Liabilities That Are Disclosed At Fair Value But Not Reported At Fair Value On Company's Consolidated Balance Sheets) (Detail) (USD $) In Millions, unless otherwise specified	Sep. 30, 2012		Dec. 31, 2011
Variable Interest Entity [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Variable interest entity notes	$ 7,094		$ 8,697
Long-term debt			360
Value Disclosed At Fair Value Not Recorded At Fair Value [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Other investments	9		11
Accrued investment income	51	[1]	63	[1]
Receivable for investments sold	159	[1]	32	[1]
Total assets	3,086		3,595
Investment agreements	1,254		1,853
Medium-term notes	1,068		1,187
Securities sold under agreements to repurchase			286
Long-term debt	1,109		1,117
Payable for investments purchased	150	[2]	3	[2]
Total liabilities	6,747		8,111
Gross	866		1,451
Ceded	88		94
Value Disclosed At Fair Value Not Recorded At Fair Value [Member] | Variable Interest Entity [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Variable interest entity notes	3,166		3,297
Investments held-to-maturity	2,867		3,489
Long-term debt			368
Value Disclosed At Fair Value Not Recorded At Fair Value [Member] | Quoted Prices In Active Markets for Identical Assets (Level 1) [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Accrued investment income	51	[1]	63	[1]
Receivable for investments sold	159	[1]	32	[1]
Total assets	210		95
Payable for investments purchased	150	[2]	3	[2]
Total liabilities	150		3
Value Disclosed At Fair Value Not Recorded At Fair Value [Member] | Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Securities sold under agreements to repurchase			286
Long-term debt	1,109		1,117
Total liabilities	1,109		1,403
Value Disclosed At Fair Value Not Recorded At Fair Value [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Other investments	9		11
Total assets	2,876		3,500
Investment agreements	1,254		1,853
Medium-term notes	1,068		1,187
Total liabilities	5,488		6,705
Gross	866		1,451
Ceded	88		94
Value Disclosed At Fair Value Not Recorded At Fair Value [Member] | Significant Unobservable Inputs (Level 3) [Member] | Variable Interest Entity [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Variable interest entity notes	3,166		3,297
Investments held-to-maturity	2,867		3,489
Long-term debt			368
Carrying Value [Member] | Value Disclosed At Fair Value Not Recorded At Fair Value [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Other investments	9		11
Accrued investment income	51	[1]	63	[1]
Receivable for investments sold	159	[1]	32	[1]
Total assets	3,234		3,949
Investment agreements	993		1,578
Medium-term notes	1,438		1,491
Securities sold under agreements to repurchase			287
Long-term debt	1,836		1,840
Payable for investments purchased	150	[2]	3	[2]
Total liabilities	7,885		9,502
Gross	720		1,305
Ceded	94		104
Carrying Value [Member] | Value Disclosed At Fair Value Not Recorded At Fair Value [Member] | Variable Interest Entity [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Variable interest entity notes	3,468		3,943
Investments held-to-maturity	3,015		3,843
Long-term debt			$ 360

[1] Reported within "Other assets" on MBIA's consolidated balance sheets.

[2] Reported within "Other liabilities" on MBIA's consolidated balance sheets.

XML

Derivative Instruments (Total Fair Value Of Company's Derivative Assets And Liabilities By Instrument And Balance Sheet Location, Before Counterparty Netting) (Detail) (USD $) In Millions, unless otherwise specified	Sep. 30, 2012		Dec. 31, 2011
Derivative [Line Items]
Derivative Instruments, Designated as hedging instruments	$ 65		$ 241
Derivative Instruments, Not designated as hedging instruments	60,979		87,616
Notional Amount Outstanding, Total derivatives	61,044		87,857
Derivative Assets, Designated, Fair Value			10	[1]
Derivative assets, Total derivatives	108		552
Derivative liabilities, Total derivatives	(3,900)		(6,108)
Derivative Liabilities [Member]
Derivative [Line Items]
Derivative Liabilities, Designated, Fair Value	(8)	[1]	(44)	[1]
Derivative Liabilities, Not designated, Fair Value	(3,845)	[1]	(6,064)	[1]
Derivative liabilities, Total derivatives	(3,853)	[1]	(6,108)	[1]
Derivative Assets [Member]
Derivative [Line Items]
Derivative Assets, Not designated, Fair Value	108	[1]	542	[1]
Derivative assets, Total derivatives	108	[1]	552	[1]
Interest Rate Swaps [Member]
Derivative [Line Items]
Derivative Instruments, Designated as hedging instruments	65		241
Derivative Instruments, Not designated as hedging instruments	1,666		2,706
Interest Rate Swaps [Member] | Derivative Liabilities [Member]
Derivative [Line Items]
Derivative Liabilities, Designated, Fair Value	(8)	[1]	(44)	[1]
Derivative Liabilities, Not designated, Fair Value	(301)	[1]	(401)	[1]
Interest Rate Swaps [Member] | Other Assets [Member]
Derivative [Line Items]
Derivative Assets, Designated, Fair Value			10	[1]
Derivative Assets, Not designated, Fair Value	99	[1]	84	[1]
Insured Credit Default Swaps [Member]
Derivative [Line Items]
Derivative Instruments, Not designated as hedging instruments	49,171		66,851
Insured Credit Default Swaps [Member] | Derivative Liabilities [Member]
Derivative [Line Items]
Derivative Liabilities, Not designated, Fair Value	(3,243)	[1]	(4,708)	[1]
Insured Credit Default Swaps [Member] | Other Assets [Member]
Derivative [Line Items]
Derivative Assets, Not designated, Fair Value	1	[1]
Insured Swaps [Member]
Derivative [Line Items]
Derivative Instruments, Not designated as hedging instruments	6,017		7,156
Insured Swaps [Member] | Derivative Liabilities [Member]
Derivative [Line Items]
Derivative Liabilities, Not designated, Fair Value	(9)	[1]	(9)	[1]
Non-Insured Credit Default Swaps [Member]
Derivative [Line Items]
Derivative Instruments, Not designated as hedging instruments	10		30
Non-Insured Credit Default Swaps [Member] | Other Assets [Member]
Derivative [Line Items]
Derivative Assets, Not designated, Fair Value			1	[1]
Interest Rate Swaps-VIE [Member]
Derivative [Line Items]
Derivative Instruments, Not designated as hedging instruments	2,992		4,878
Interest Rate Swaps-VIE [Member] | Derivative Liabilities-VIE [Member]
Derivative [Line Items]
Derivative Liabilities, Not designated, Fair Value	(157)	[1]	(281)	[1]
Interest Rate Swaps-Embedded [Member]
Derivative [Line Items]
Derivative Instruments, Not designated as hedging instruments	476		480
Interest Rate Swaps-Embedded [Member] | Medium-Term Notes [Member]
Derivative [Line Items]
Derivative Assets, Not designated, Fair Value	8	[1]	7	[1]
Derivative Liabilities, Not designated, Fair Value	(29)	[1]	(14)	[1]
Currency Swap [Member]
Derivative [Line Items]
Derivative Instruments, Not designated as hedging instruments	39		62
Currency Swap [Member] | Derivative Liabilities [Member]
Derivative [Line Items]
Derivative Liabilities, Not designated, Fair Value	(2)	[1]	(4)	[1]
Currency Swaps-VIE [Member]
Derivative [Line Items]
Derivative Instruments, Not designated as hedging instruments	113		123
Currency Swaps-VIE [Member] | Derivative Liabilities-VIE [Member]
Derivative [Line Items]
Derivative Liabilities, Not designated, Fair Value	(23)	[1]	(17)	[1]
All Other [Member]
Derivative [Line Items]
Derivative Instruments, Not designated as hedging instruments	195		3,465
All Other [Member] | Derivative Liabilities [Member]
Derivative [Line Items]
Derivative Liabilities, Not designated, Fair Value	(80)	[1]	(91)	[1]
All Other-VIE [Member]
Derivative [Line Items]
Derivative Instruments, Not designated as hedging instruments	280		472
All Other-VIE [Member] | Derivative Assets-VIE [Member]
Derivative [Line Items]
Derivative Assets, Not designated, Fair Value			3	[1]
All Other-Embedded [Member]
Derivative [Line Items]
Derivative Instruments, Not designated as hedging instruments	20		121
All Other-Embedded [Member] | Derivative Liabilities, Other Investments [Member]
Derivative [Line Items]
Derivative Liabilities, Not designated, Fair Value	(1)	[1]	(12)	[1]
Non-Insured Credit Default Swaps-VIE [Member]
Derivative [Line Items]
Derivative Instruments, Not designated as hedging instruments			1,272
Non-Insured Credit Default Swaps-VIE [Member] | Derivative Liabilities-VIE [Member]
Derivative [Line Items]
Derivative Liabilities, Not designated, Fair Value			(527)	[1]
Non-Insured Credit Default Swaps-VIE [Member] | Derivative Assets-VIE [Member]
Derivative [Line Items]
Derivative Assets, Not designated, Fair Value			$ 447	[1]

[1] In accordance with the accounting guidance for derivative instruments and hedging activities, the balance sheet location of the Company's embedded derivative instruments is determined by the location of the related host contract.

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Loss And Loss Adjustment Expense Reserves (Present Value Of Probability-Weighted Future Claim Payments And Recoveries) (Detail) (USD $) In Millions, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Loss And Loss Adjustment Expense Reserves [Line Items]
Insurance loss recoverable	$ (3,316)	$ (3,046)
Loss Reserves (Claim Liability) [Member] | Classified [Member]
Loss And Loss Adjustment Expense Reserves [Line Items]
Loss and Loss Adjustment Expense Reserves	862	781
LAE Reserves [Member] | Classified [Member]
Loss And Loss Adjustment Expense Reserves [Line Items]
Loss and Loss Adjustment Expense Reserves	83	55
Loss And LAE Reserves [Member]
Loss And Loss Adjustment Expense Reserves [Line Items]
Loss and Loss Adjustment Expense Reserves	945	836
Loss And LAE Reserves [Member] | Classified [Member]
Loss And Loss Adjustment Expense Reserves [Line Items]
Loss and Loss Adjustment Expense Reserves	945	836
Insurance Claim Loss Recoverable [Member] | Classified [Member]
Loss And Loss Adjustment Expense Reserves [Line Items]
Insurance claim loss recoverable	(3,281)	(3,032)
LAE insurance loss recoverable	(35)	(14)
Insurance loss recoverable	(3,316)	(3,046)
Reinsurance recoverable on unpaid losses	13	15
Reinsurance recoverable on paid losses	2	1
Reinsurance recoverable on paid and unpaid losses	$ 15	$ 16

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Income Taxes (Tables)

9 Months Ended

Sep. 30, 2012

Income Taxes And Related Effective Tax Rates

	Three Months Ended September 30,				Nine Months Ended September 30,
In millions	2012		2011		2012		2011
Income (loss) before income taxes	$	(57)	$	745	$	759	$	(1,165)
Provision (benefit) for income taxes	$	(64)	$	301	$	161	$	(472)
Effective tax rate		112.3%		40.4%		21.2%		40.5%

Change In Unrecognized Tax Benefits ("UTB") And Related Interest And Penalties To Income Tax

In millions
Unrecognized tax benefit as of December 31, 2011	$	47
The gross amount of the increase/(decrease) in the UTB as a result of tax positions taken:
During a prior year		-
During the current year		18
The amounts of decreases in the UTB related to settlements with taxing authorities		(25)
The reduction in the UTB as a result of the applicable statute of limitations		-
Unrecognized tax benefit as of September 30, 2012	$	40

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Derivative Instruments (Effect Of Derivative Instruments On Consolidated Statements Of Operations) (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Not Designated As Hedging Instrument [Member]
Derivative [Line Items]
Net Gain (Loss) Recognized in Income	$ (40)	$ 715	$ 1,019	$ (1,301)
Fair Value Hedging [Member]
Derivative [Line Items]
Gain (Loss) Recognized in Income on Derivative		(8)	25	(4)
Gain (Loss) Recognized in Income on Hedged Item		8	(25)	4
Net Gain (Loss) Recognized in Income		(2)	(3)	(7)
Interest Rate Swaps [Member] | Fair Value Hedging [Member]
Derivative [Line Items]
Gain (Loss) Recognized in Income on Derivative	(12)	(8)	25	(6)
Gain (Loss) Recognized in Income on Hedged Item	12	8	(25)	6
Currency Swap [Member] | Fair Value Hedging [Member]
Derivative [Line Items]
Gain (Loss) Recognized in Income on Derivative				2
Gain (Loss) Recognized in Income on Hedged Item				(2)
Unrealized Gains (Losses) On Insured Derivatives [Member] | Insured Credit Default Swaps [Member] | Not Designated As Hedging Instrument [Member]
Derivative [Line Items]
Net Gain (Loss) Recognized in Income	(40)	756	1,463	(516)
Unrealized Gains (Losses) On Insured Derivatives [Member] | All Other [Member] | Not Designated As Hedging Instrument [Member]
Derivative [Line Items]
Net Gain (Loss) Recognized in Income	7	20	10	(15)
Realized Gains (Losses) And Other Settlements On Insured Derivatives [Member] | Insured Credit Default Swaps [Member] | Not Designated As Hedging Instrument [Member]
Derivative [Line Items]
Net Gain (Loss) Recognized in Income	12	(53)	(420)	(599)
Foreign Exchange and Other Derivative Financial Instruments [Member] | Interest Rate Swaps [Member] | Not Designated As Hedging Instrument [Member]
Derivative [Line Items]
Net Gain (Loss) Recognized in Income	(26)	(128)	(76)	(178)
Foreign Exchange and Other Derivative Financial Instruments [Member] | Currency Swap [Member] | Not Designated As Hedging Instrument [Member]
Derivative [Line Items]
Net Gain (Loss) Recognized in Income	1	4	1	(3)
Foreign Exchange and Other Derivative Financial Instruments [Member] | All Other [Member] | Not Designated As Hedging Instrument [Member]
Derivative [Line Items]
Net Gain (Loss) Recognized in Income		(6)	11	(7)
Foreign Exchange and Other Derivative Financial Instruments [Member] | Non-Insured Credit Default Swaps [Member] | Not Designated As Hedging Instrument [Member]
Derivative [Line Items]
Net Gain (Loss) Recognized in Income			(1)	(1)
Net Gains (Losses) On Financial Instruments At Fair Value And Foreign Exchange-VIE [Member] | Interest Rate Swaps-VIE [Member] | Not Designated As Hedging Instrument [Member]
Derivative [Line Items]
Net Gain (Loss) Recognized in Income	8	(25)	39	24
Net Gains (Losses) On Financial Instruments At Fair Value And Foreign Exchange-VIE [Member] | Currency Swaps-VIE [Member] | Not Designated As Hedging Instrument [Member]
Derivative [Line Items]
Net Gain (Loss) Recognized in Income	(2)	(2)	(5)	(4)
Net Gains (Losses) On Financial Instruments At Fair Value And Foreign Exchange-VIE [Member] | Non-Insured Credit Default Swaps-VIE [Member] | Not Designated As Hedging Instrument [Member]
Derivative [Line Items]
Net Gain (Loss) Recognized in Income		154	(1)	4
Net Gains (Losses) On Financial Instruments At Fair Value And Foreign Exchange-VIE [Member] | All Other-VIE [Member] | Not Designated As Hedging Instrument [Member]
Derivative [Line Items]
Net Gain (Loss) Recognized in Income		(5)	(2)	(6)
Interest Income (Expense) [Member] | Interest Rate Swaps [Member] | Fair Value Hedging [Member]
Derivative [Line Items]
Net Gain (Loss) Recognized in Income		$ (2)	$ (3)	$ (7)

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Investment Income And Gains And Losses (Significant Inputs Used In Schedule Of Measurement Of Credit Loss Component Recognized In Earnings For Each Significant Class Of ABS) (Detail)	9 Months Ended
	Sep. 30, 2012		Sep. 30, 2011
Other than Temporary Impairment, Credit Losses Recognized in Earnings [Line Items]
Expected size of losses, Weighted average	88.48%	[1],[2]	64.58%	[1],[2]
Current subordination levels, Weighted average	0.00%	[2],[3]	0.00%	[2],[3]
Prepayment speed (annual constant prepayment rate), Weighted average	12.16%	[2],[4]	15.62%	[2],[4]
Minimum [Member]
Other than Temporary Impairment, Credit Losses Recognized in Earnings [Line Items]
Expected size of losses, Range	12.13%	[1],[5]	1.59%	[1],[5]
Current subordination levels, Range	0.00%	[3],[5]	0.00%	[3],[5]
Prepayment speed (annual constant prepayment rate), Range	0.00%	[4],[5]	0.00%	[4],[5]
Maximum [Member]
Other than Temporary Impairment, Credit Losses Recognized in Earnings [Line Items]
Expected size of losses, Range	97.70%	[1],[5]	100.00%	[1],[5]
Current subordination levels, Range	0.00%	[3],[5]	29.46%	[3],[5]
Prepayment speed (annual constant prepayment rate), Range	30.91%	[4],[5]	100.00%	[4],[5]

[1] Represents future expected credit losses on impaired assets expressed as a percentage of total outstanding balance.

[2] Calculated by weighting the relevant input/assumption for each individual security by the outstanding notional of the security.

[3] Represents current level of credit protection (subordination) for the securities, expressed as a percentage of the balance of the collateral group backing the bond.

[4] Values represent high and low points of lifetime vectors of constant prepayment rates.

[5] Represents the range of inputs/assumptions based upon the individual securities within each category.

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Fair Value Of Financial Instruments (Gains And Losses (Realized And Unrealized) Included In Earnings Relating To Level 3 Assets And Liabilities) (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Unrealized gains (losses) on insured derivatives			$ (1,473)	$ 531
Significant Unobservable Inputs (Level 3) [Member] | Total Gains (Losses) Included In Earnings [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Unrealized gains (losses) on insured derivatives	(32)	777	1,473	(530)
Net Realized Gains (Losses)	(7)	(83)	(546)	(691)
Net gains (losses) on financial instruments at fair value and foreign exchange	(9)	68	8	(10)
Significant Unobservable Inputs (Level 3) [Member] | Change In Unrealized Gains (Losses) For The Period Included In Earnings For Assets And Liabilities Still Held [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Unrealized gains (losses) on insured derivatives	(33)	388	538	(2,160)
Net gains (losses) on financial instruments at fair value and foreign exchange	(16)	64	(8)	(15)
Variable Interest Entity [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Net gains (losses) on financial instruments at fair value and foreign exchange	44	88	(17)	3
Variable Interest Entity [Member] | Significant Unobservable Inputs (Level 3) [Member] | Total Gains (Losses) Included In Earnings [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Net gains (losses) on financial instruments at fair value and foreign exchange	(65)	328	(337)	235
Variable Interest Entity [Member] | Significant Unobservable Inputs (Level 3) [Member] | Change In Unrealized Gains (Losses) For The Period Included In Earnings For Assets And Liabilities Still Held [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Net gains (losses) on financial instruments at fair value and foreign exchange	$ (49)	$ 331	$ (254)	$ 281

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Derivative Instruments (Credit Derivatives Sold) (Detail) (Insurance Operations [Member], USD $) In Millions, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Derivative [Line Items]
Total Notional Value of Credit Derivatives	$ 55,064	$ 73,551
Total Fair Value of Credit Derivatives	(3,332)	(5,343)
Insured Credit Default Swaps [Member]
Derivative [Line Items]
Weighted Average Remaining Expected Maturity	5.3 Years	5.6 Years
Total Notional Value of Credit Derivatives	48,852	65,557
Total Fair Value of Credit Derivatives	(3,243)	(4,716)
Insured Swaps [Member]
Derivative [Line Items]
Weighted Average Remaining Expected Maturity	19.8 Years	19.7 Years
Total Notional Value of Credit Derivatives	6,017	7,156
Total Fair Value of Credit Derivatives	(9)	(9)
All Other [Member]
Derivative [Line Items]
Weighted Average Remaining Expected Maturity	2.1 Years	2.8 Years
Total Notional Value of Credit Derivatives	195	195
Total Fair Value of Credit Derivatives	(80)	(91)
Non-Insured Credit Default Swaps-VIE [Member]
Derivative [Line Items]
Weighted Average Remaining Expected Maturity		3.6 Years
Total Notional Value of Credit Derivatives		643
Total Fair Value of Credit Derivatives		(527)
AAA [Member]
Derivative [Line Items]
Total Notional Value of Credit Derivatives	10,456	15,475
Total Fair Value of Credit Derivatives	(16)	(114)
AAA [Member] | Insured Credit Default Swaps [Member]
Derivative [Line Items]
Total Notional Value of Credit Derivatives	10,456	15,475
AA [Member]
Derivative [Line Items]
Total Notional Value of Credit Derivatives	7,706	12,229
Total Fair Value of Credit Derivatives	(81)	(116)
AA [Member] | Insured Credit Default Swaps [Member]
Derivative [Line Items]
Total Notional Value of Credit Derivatives	7,519	12,065
AA [Member] | Insured Swaps [Member]
Derivative [Line Items]
Total Notional Value of Credit Derivatives	187	164
A [Member]
Derivative [Line Items]
Total Notional Value of Credit Derivatives	8,958	10,606
Total Fair Value of Credit Derivatives	(148)	(205)
A [Member] | Insured Credit Default Swaps [Member]
Derivative [Line Items]
Total Notional Value of Credit Derivatives	5,196	6,336
A [Member] | Insured Swaps [Member]
Derivative [Line Items]
Total Notional Value of Credit Derivatives	3,762	4,270
BBB [Member]
Derivative [Line Items]
Total Notional Value of Credit Derivatives	13,808	16,631
Total Fair Value of Credit Derivatives	(1,001)	(1,355)
BBB [Member] | Insured Credit Default Swaps [Member]
Derivative [Line Items]
Total Notional Value of Credit Derivatives	11,811	14,042
BBB [Member] | Insured Swaps [Member]
Derivative [Line Items]
Total Notional Value of Credit Derivatives	1,997	2,589
Below Investment Grade [Member]
Derivative [Line Items]
Total Notional Value of Credit Derivatives	14,136	18,610
Total Fair Value of Credit Derivatives	(2,086)	(3,553)
Below Investment Grade [Member] | Insured Credit Default Swaps [Member]
Derivative [Line Items]
Total Notional Value of Credit Derivatives	13,870	17,639
Below Investment Grade [Member] | Insured Swaps [Member]
Derivative [Line Items]
Total Notional Value of Credit Derivatives	71	133
Below Investment Grade [Member] | All Other [Member]
Derivative [Line Items]
Total Notional Value of Credit Derivatives	195	195
Below Investment Grade [Member] | Non-Insured Credit Default Swaps-VIE [Member]
Derivative [Line Items]
Total Notional Value of Credit Derivatives		$ 643

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Earnings Per Share (Schedule Of Basic And Diluted Earnings Per Share) (Detail) (USD $) In Millions, except Share data, unless otherwise specified	3 Months Ended				9 Months Ended
	Sep. 30, 2012		Sep. 30, 2011		Sep. 30, 2012		Sep. 30, 2011
Antidilutive stock options outstanding	3,404,672		3,783,574		3,457,769		3,804,671
Net income (loss)	$ 7		$ 444		$ 598		$ (693)
Basic weighted average shares	193,879,994	[1]	195,612,615	[1]	193,760,654	[1]	198,262,715	[1]
Stock options	1,097,648		734,887		1,074,883
Diluted weighted average shares	194,977,642		196,347,502		194,835,537		198,262,715
Basic	$ 0.04		$ 2.27		$ 3.09		$ (3.50)
Diluted	$ 0.04		$ 2.26		$ 3.07		$ (3.50)
Unvested restricted stock and units that receive nonforfeitable dividends or dividend equivalents	5,524,396		5,038,788		5,442,143		5,085,256

[1] Includes 5,524,396 and 5,038,788 of unvested restricted stock and units that receive nonforfeitable dividends or dividend equivalents for the three months ended September 30, 2012 and 2011, respectively. Includes 5,442,143 and 5,085,256 of unvested restricted stock and units that receive nonforfeitable dividends or dividend equivalents for the nine months ended September 30, 2012 and 2011, respectively.

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Income Taxes (Narrative) (Detail) (USD $)	9 Months Ended		12 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Non-Variable Interest Entities [Line Items]
Federal statutory rate	35.00%	35.00%	35.00%
Net deferred tax asset	$ 1,400,000,000
Capital losses carryforward period in years	5 years
Taxable income projections, years	15 years
Maximum taxable income projections, years	20 years
Total deferred tax assets	1,400,000,000
Capital loss carryforward			153,000,000
NOL carryforward			1,300,000,000
Minimum tax credit carryforward			22,000,000
Non Variable Interest Entities [Member]
Non-Variable Interest Entities [Line Items]
Net deferred tax asset	1,446,000,000		1,745,000,000
Valuation allowance	167,000,000		236,000,000
Valuation allowance decrease	$ 69,000,000

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Commitments And Contingencies (Detail)	1 Months Ended
	Sep. 17, 2012 Security
Commitments And Contingencies [Line Items]
Number of insured mortgage-backed securitizations	7

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Derivative Instruments (Narrative) (Detail) (USD $)	Sep. 30, 2012		Dec. 31, 2011
Derivative [Line Items]
Maximum amount of future guarantee payments	$ 53,100,000,000
Insured derivatives ceded under reinsurance agreements	393,000,000
Derivative assets, after counterparty netting	12,000,000		459,000,000
Other Assets and Derivative Assets - VIEs, after counterparty netting and embedded reclass	4,000,000		452,000,000
Derivative liabilities, after counterparty netting	3,500,000,000		6,000,000,000
Fair value of derivative assets, before counterparty netting	108,000,000		552,000,000
Derivative liabilities, before counterparty netting and posting of cash collateral	3,900,000,000		6,108,000,000
Cash collateral posted derivative counterparties	298,000,000
Fair value of securities, posted to derivative counterparties			470,000,000
Fair value of Credit Support Annex	3,000,000		2,000,000
Derivative Liabilities [Member]
Derivative [Line Items]
Derivative liabilities, before counterparty netting and posting of cash collateral	3,853,000,000	[1]	6,108,000,000	[1]
Cash collateral posted derivative counterparties	215,000,000
Other Liabilities [Member]
Derivative [Line Items]
Cash collateral posted derivative counterparties	17,000,000
Other Assets [Member]
Derivative [Line Items]
Cash collateral posted derivative counterparties	$ 66,000,000

[1] In accordance with the accounting guidance for derivative instruments and hedging activities, the balance sheet location of the Company's embedded derivative instruments is determined by the location of the related host contract.

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Investment Income And Gains And Losses (Total Investment Income From All Operations) (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended				9 Months Ended
	Sep. 30, 2012		Sep. 30, 2011		Sep. 30, 2012		Sep. 30, 2011
Schedule of Investment Income, Reported Amounts, by Category [Line Items]
Net investment income	$ 67		$ 109		$ 223		$ 352
Total net realized gains (losses)	28	[1]	(11)	[1]	(106)	[1]	(8)	[1]
Total investment income	95		98		117		344
Fixed-Maturity Investments [Member]
Schedule of Investment Income, Reported Amounts, by Category [Line Items]
Net investment income	47		88		160		284
Gains	42		46		94		117
Losses	(12)		(56)		(190)		(133)
Total net realized gains (losses)	30		(10)		(96)		(16)
Short-Term Investments [Member]
Schedule of Investment Income, Reported Amounts, by Category [Line Items]
Net investment income	1		1		5		5
Other Investments [Member]
Schedule of Investment Income, Reported Amounts, by Category [Line Items]
Net investment income	2		3		7		10
Gains					6		9
Losses	(2)		(1)		(16)		(1)
Total net realized gains (losses)	(2)		(1)		(10)		8
Variable Interest Entity [Member]
Schedule of Investment Income, Reported Amounts, by Category [Line Items]
Net investment income	$ 17		$ 17		$ 51		$ 53

[1] These balances are included in the "Net gains (losses) on financial instruments at fair value and foreign exchange" and "Net investment losses related to other-than-temporary impairments" line items on the Company's consolidated statements of operations.

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Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2012

Basis Of Presentation

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X and, accordingly, do not include all of the information and disclosures required by GAAP for annual periods. These statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2011. 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 (U.S.), but in the opinion of management such financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for the fair statement of the Company’s consolidated financial position and results of operations. All material intercompany balances and transactions have been eliminated.

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. As additional information becomes available or actual amounts become determinable, the recorded estimates are revised and reflected in operating results.

The results of operations for the three and nine months ended September 30, 2012 may not be indicative of the results that may be expected for the year ending December 31, 2012. The December 31, 2011 consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by GAAP for annual periods. Certain amounts have been reclassified in comparison to prior years’ financial statements to conform to the current presentation. Such reclassifications had no impact on total revenues, expenses, assets, liabilities, or shareholders’ equity for all periods presented.

Statements Of Cash Flows

Statements of Cash Flows

Previously, the Company reported its consolidated statements of cash flows using the indirect method. The indirect method uses accrual accounting information to present the cash flows from operations. Effective January 1, 2012, the Company elected to present its consolidated statements of cash flows using the direct method. The direct method uses actual cash flow information from the Company’s operations, rather than using accrual accounting values. Using either the direct or indirect method, total cash flows from operations are consistent. In addition, the presentation of cash flows from investing and financing activities using either the direct or indirect method are consistent. The change to the direct method for calculating and presenting cash flows from operations was implemented retroactively for all statements of cash flows presented herein. Use of the direct method requires a reconciliation of net income to cash flows from operations. This reconciliation is provided as a supplement directly beneath the statements of cash flows.

Recently Adopted Accounting Standards

Recently Adopted Accounting Standards

Presentation of Comprehensive Income (ASU 2011-05)

In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-05, “Comprehensive Income (Topic 220)—Presentation of Comprehensive Income.” This amendment eliminates the current option to report other comprehensive income and its components in the statements of changes in equity except for the presentation of reclassification adjustments for which adoption has been deferred by the FASB. The amendment does not change what currently constitutes net income and other comprehensive income. The new guidance is effective for the Company beginning January 1, 2012. In December 2011, the FASB issued ASU 2011-12 “Comprehensive Income (Topic 220)—Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05,” which defers certain aspects of ASU 2011-05 related to the presentation of reclassification adjustments. The Company adopted this standard effective January 1, 2012. The standard only affected the Company’s presentation of comprehensive income and did not affect the Company’s consolidated balance sheets, results of operations, or cash flows.

Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (ASU 2011-04)

In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820)—Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” This amendment results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between GAAP and International Financial Reporting Standards. The Company adopted this standard effective January 1, 2012. This standard only affected the Company’s disclosures related to fair value; therefore, the adoption of this standard did not affect the Company’s consolidated balance sheets, results of operations, or cash flows.

Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts (ASU 2010-26)

In October 2010, the FASB issued ASU 2010-26, “Financial Services—Insurance (Topic 944)—Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts.” This amendment specifies which costs incurred in the acquisition of new and renewal insurance contracts should be capitalized. The Company adopted this standard on a prospective basis effective January 1, 2012. As the Company is currently not writing any significant new business, the adoption of this standard did not have a material effect on the Company’s consolidated balance sheets, results of operations, or cash flows. The difference between the amount of acquisition costs capitalized during the first nine months of 2012 compared with the amount of acquisition costs that would have been capitalized during the period if the Company’s previous policy had been applied during that period is not material because the Company did not write any significant new insurance business during the first nine months of 2012.

Recent Accounting Developments

Disclosures about Offsetting Assets and Liabilities (ASU 2011-11)

In December 2011, the FASB issued ASU 2011-11, “Balance Sheet (Topic 210)—Disclosures about Offsetting Assets and Liabilities.” ASU 2011-11 creates new disclosure requirements about the nature of the Company’s rights of setoff and related arrangements associated with its financial instruments and derivative instruments. This amendment does not change the existing offsetting eligibility criteria or the permitted balance sheet presentation for those instruments that meet the eligibility criteria. The disclosure requirements are effective for the Company beginning in the first quarter of 2013. This standard will only affect the Company’s disclosures and will not affect the Company’s consolidated balance sheets, results of operations, or cash flows.

Refer to the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 for further information regarding the effects of recently adopted accounting standards on prior year financial statements.

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Loss And Loss Adjustment Expense Reserves (Schedule Of Total Estimated Recoveries From Ineligible Second-Lien Mortgage Loans) (Detail) (Ineligible Mortgage Loans [Member], USD $) In Millions, unless otherwise specified	9 Months Ended
	Sep. 30, 2012
Ineligible Mortgage Loans [Member]
Loss And Loss Adjustment Expense Reserves [Line Items]
Total Estimated Recoveries from Ineligible Mortgage Loans as of December 31, 2011	$ 3,119
Accretion of Future Collections	34
Changes in Discount Rates	2
Recoveries (Collections)
Changes in Amount of Collections
Changes in Assumptions	92
Total Estimated Recoveries from Ineligible Mortgage Loans as of September 30, 2012	$ 3,247

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Loss And Loss Adjustment Expense Reserves (RMBS Recoveries) (Narrative) (Detail) (USD $)	9 Months Ended		12 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011	Dec. 31, 2010
Loss And Loss Adjustment Expense Reserves [Line Items]
Insurance Loss Recoverable from ineligible loans	$ 3,316,000,000		$ 3,046,000,000
Federal statutory rate	35.00%	35.00%	35.00%
Estimated insurance recoveries, after income taxes	2,100,000,000		2,000,000,000
Percentage of recognized estimated recoveries in relationship to consolidated total shareholder's equity	82.00%		119.00%
Aggregate of estimated potential recoveries on put-back claims, gross of income taxes	3,200,000,000
Bank of America repurchase requests resolved				8,000,000,000
Second-Lien RMBS Reserves [Member]
Loss And Loss Adjustment Expense Reserves [Line Items]
Total estimated recoveries from ineligible loans	3,200,000,000
Insurance Loss Recoverable from ineligible loans	2,100,000,000
Loan repurchase commitments	1,100,000,000
RMBS And HELOC And CES [Member]
Loss And Loss Adjustment Expense Reserves [Line Items]
Sum of probabilities assigned to all scenarios	100.00%
Current risk-free rate associated with underlying transaction, range, minimum	0.70%
Current risk-free rate associated with underlying transaction, range, maximum	1.60%
Contract claims on ineligible mortgage loans, incurred loss on transactions	$ 5,000,000,000

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Investment Income And Gains And Losses (Change In Net Unrealized Gains/Losses) (Detail) (USD $) In Millions, unless otherwise specified	9 Months Ended	12 Months Ended
	Sep. 30, 2012	Dec. 31, 2011
Change in Net Unrealized Gains Losses [Line Items]
Total	$ 383	$ 380
Deferred income tax charged (credited)	121	122
Change in unrealized gains (losses), net	262	258
Fixed-Maturity Investments [Member]
Change in Net Unrealized Gains Losses [Line Items]
Total	365	386
Other Investments [Member]
Change in Net Unrealized Gains Losses [Line Items]
Total	$ 18	$ (6)

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Business Developments, Risks And Uncertainties, And Liquidity (Change In Credit Spreads (Asset/Liability Products Business) (Detail) (USD $) In Millions, unless otherwise specified	Sep. 30, 2012
200 Basis Point Decrease [Member]
Business Acquisition [Line Items]
Estimated change in fair value	$ 149
50 Basis Point Decrease [Member]
Business Acquisition [Line Items]
Estimated change in fair value	41
50 Basis Point Increase [Member]
Business Acquisition [Line Items]
Estimated change in fair value	(37)
200 Basis Point Increase [Member]
Business Acquisition [Line Items]
Estimated change in fair value	$ (130)

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Fair Value Of Financial Instruments (Narrative) (Detail) (USD $)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Net insured derivative liability	$ 3,300,000,000		$ 3,300,000,000		$ 4,800,000,000
Impact of excluding the nonperformance risk in valuation of pre-tax net insured derivative liability	4,400,000,000		4,400,000,000		5,700,000,000
Percentage of level 3 assets at fair in total assets measured at fair value			30.00%		29.00%
Percentage of level 3 liabilities at fair value in total liabilities measured at fair value			74.00%		77.00%
Transfers into Level 3	168,000,000	144,000,000	270,000,000	350,000,000
Transfers out of Level 3	44,000,000	77,000,000	99,000,000	354,000,000
Transfers into Level 2	44,000,000	77,000,000	99,000,000	354,000,000
Transfers out of Level 2	168,000,000	144,000,000	270,000,000	350,000,000
Transfers into or out of Level 1	$ 0	$ 0	$ 0	$ 0
Binomial Expansion Technique [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Percentage of insured credit derivatives	81.00%		81.00%
Percentage of sector specific transactions	9.00%		9.00%
Direct Price Model [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Percentage of insured credit derivatives	19.00%		19.00%
Corporate Spreads [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Percentage of sector specific transactions	46.00%		46.00%
Spreads Benchmarked Relevant Spread Source [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Percentage of sector specific transactions	45.00%		45.00%
WARF Sourced [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Percentage of sector specific transactions	77.00%		77.00%

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Investments (Fair Values And Gross Unrealized Losses By Credit Rating Category Of Corporate Obligations) (Detail) (USD $) In Millions, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Schedule of Available-for-sale Securities [Line Items]
Total Fair Value	$ 1,025	$ 2,387
Total Unrealized Loss	(191)	(478)
Corporate Obligations [Member]
Schedule of Available-for-sale Securities [Line Items]
Total Fair Value	163
Total Unrealized Loss	(28)
Aa [Member] | Corporate Obligations [Member]
Schedule of Available-for-sale Securities [Line Items]
Total Fair Value	4
A [Member] | Corporate Obligations [Member]
Schedule of Available-for-sale Securities [Line Items]
Total Fair Value	74
Total Unrealized Loss	(6)
Baa [Member] | Corporate Obligations [Member]
Schedule of Available-for-sale Securities [Line Items]
Total Fair Value	59
Total Unrealized Loss	(7)
Below Investment Grade [Member] | Corporate Obligations [Member]
Schedule of Available-for-sale Securities [Line Items]
Total Fair Value	14
Total Unrealized Loss	(3)
Not Rated [Member] | Corporate Obligations [Member]
Schedule of Available-for-sale Securities [Line Items]
Total Fair Value	12
Total Unrealized Loss	$ (12)

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Investments (Narrative) (Detail) (USD $) In Millions, unless otherwise specified	Sep. 30, 2012 Y	Dec. 31, 2011 Y
Schedule of Investments [Line Items]
Fair value of securities on deposit with various regulatory authorities	$ 10	$ 11
Fair value of securities pledged as collateral	885.0	1,900.0
Cash pledged as collateral under investment agreements	126	224
Fair value	1,025	2,387
Gross unrealized losses	191	478
Gross unrealized losses, Investment portfolio	359	849
Weighted average contractual maturity period in years for securities in an unrealized loss position	21	21
Number of securities, unrealized loss position for continuous twelve-month period or longer	193	290
12 months or longer, unrealized losses	358	782
Rate of book value securities exceeded market value	5.00%	5.00%
Held-To-Maturity [Member]
Schedule of Investments [Line Items]
Unrecognized gross losses	168	371
Unrecognized gross gains	20	17
Asset-Backed Securities [Member]
Schedule of Investments [Line Items]
Fair value	273
Gross unrealized losses	99
Asset-Backed Securities [Member] | Securities In An Unrealized Loss Position [Member]
Schedule of Investments [Line Items]
Investments rated AAA	17.00%
Percentage of investments rated investment grade	44.00%
Fair value of securities rated below investment grade without giving effect to the benefit of guarantees provided by financial guarantors	135
Percentage of securities rated below investment grade without giving effect to the benefit of guarantees provided by financial guarantors	49.00%
Asset-Backed Securities [Member] | Securities In An Unrealized Loss Position [Member] | 3rd Party Guarantors [Member]
Schedule of Investments [Line Items]
Fair value of securities that include the benefit of guarantees provided by financial guarantors	27
Asset-Backed Securities [Member] | Securities In An Unrealized Loss Position [Member] | MBIA Corp [Member]
Schedule of Investments [Line Items]
Fair value of securities that include the benefit of guarantees provided by financial guarantors	148
Asset-Backed Securities [Member] | Securities In An Unrealized Loss Position [Member] | Asset / Liability Products [Member]
Schedule of Investments [Line Items]
Fair value	57
Gross unrealized losses	52
Mortgage-Backed Securities [Member]
Schedule of Investments [Line Items]
Fair value	270
Gross unrealized losses	52
Mortgage-Backed Securities [Member] | Securities In An Unrealized Loss Position [Member]
Schedule of Investments [Line Items]
Investments rated AAA	18.00%
Percentage of investments rated investment grade	62.00%
Fair value of securities rated below investment grade without giving effect to the benefit of guarantees provided by financial guarantors	197
Percentage of securities rated below investment grade without giving effect to the benefit of guarantees provided by financial guarantors	73.00%
Mortgage-Backed Securities [Member] | Securities In An Unrealized Loss Position [Member] | 3rd Party Guarantors [Member]
Schedule of Investments [Line Items]
Fair value of securities that include the benefit of guarantees provided by financial guarantors	184
Mortgage-Backed Securities [Member] | Securities In An Unrealized Loss Position [Member] | MBIA Corp [Member]
Schedule of Investments [Line Items]
Fair value of securities that include the benefit of guarantees provided by financial guarantors	10
Corporate Obligations [Member]
Schedule of Investments [Line Items]
Fair value	163
Gross unrealized losses	28
Corporate Obligations [Member] | Securities In An Unrealized Loss Position [Member]
Schedule of Investments [Line Items]
Percentage of investments rated investment grade	84.00%
Fair value of securities rated below investment grade without giving effect to the benefit of guarantees provided by financial guarantors	14
Percentage of securities rated below investment grade without giving effect to the benefit of guarantees provided by financial guarantors	9.00%
Corporate Obligations [Member] | Securities In An Unrealized Loss Position [Member] | 3rd Party Guarantors [Member]
Schedule of Investments [Line Items]
Fair value of securities that include the benefit of guarantees provided by financial guarantors	$ 9
Book Value Greater Than Market Value By More Than 5% [Member]
Schedule of Investments [Line Items]
Number of securities, unrealized loss position for continuous twelve-month period or longer	118	218

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Loss And Loss Adjustment Expense Reserves (Schedule Of Company's Second-Lien RMBS Exposure, Gross Undiscounted Claim Liability And Potential Recoveries, Excluding Amounts Related To Consolidated VIE's) (Detail) (USD $) In Millions, unless otherwise specified	Sep. 30, 2012		Dec. 31, 2011
Loss And Loss Adjustment Expense Reserves [Line Items]
Outstanding, Gross Principal	$ 15,187	[1]	$ 16,504	[1]
Outstanding, Gross Interest	8,526	[1]	8,984	[1]
Gross Undiscounted, Claim Liability	1,670		1,812
Gross Undiscounted, Potential Recoveries	3,844		3,813
Excluding Consolidated VIEs [Member] | Insured Issues Designated As "Classified List" [Member]
Loss And Loss Adjustment Expense Reserves [Line Items]
Issues	22
Outstanding, Gross Principal	4,200
Outstanding, Gross Interest	1,700
Gross Undiscounted, Claim Liability	300
Gross Undiscounted, Potential Recoveries	3,200
Excluding Consolidated VIEs [Member] | Insured Issues Reviewed With Potential Recoveries [Member]
Loss And Loss Adjustment Expense Reserves [Line Items]
Issues	15
Outstanding, Gross Principal	3,900
Outstanding, Gross Interest	1,600
Gross Undiscounted, Claim Liability	200
Gross Undiscounted, Potential Recoveries	3,100
Consolidated VIEs [Member] | Insured Issues Designated As "Classified List" [Member]
Loss And Loss Adjustment Expense Reserves [Line Items]
Issues	12
Outstanding, Gross Principal	2,300
Outstanding, Gross Interest	900
Gross Undiscounted, Claim Liability	100
Gross Undiscounted, Potential Recoveries	1,400
Consolidated VIEs [Member] | Insured Issues Reviewed With Potential Recoveries [Member]
Loss And Loss Adjustment Expense Reserves [Line Items]
Issues	11
Outstanding, Gross Principal	2,200
Outstanding, Gross Interest	800
Gross Undiscounted, Claim Liability	100
Gross Undiscounted, Potential Recoveries	$ 1,400

[1] Represents contractual principal and interest payments due by the issuer of the obligations insured by MBIA.

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Consolidated Statement Of Changes In Shareholders' Equity (Parenthetical) (Total Shareholders' Equity Of MBIA Inc. [Member], USD $) In Millions, unless otherwise specified	9 Months Ended
	Sep. 30, 2012
Total Shareholders' Equity Of MBIA Inc. [Member]
Share-based compensation, tax	$ 6

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Investments (Distribution Of Contractual Maturity Available-For-Sale) (Detail) (USD $) In Millions, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Schedule of Available-for-sale Securities [Line Items]
Fair Value	$ 6,875	$ 8,810
Amortized Cost	6,729	9,025
Fixed-Maturity Investments [Member]
Schedule of Available-for-sale Securities [Line Items]
Due in one year or less, Fair Value	830
Due after one year through five years, Fair Value	872
Due after five years through ten years, Fair Value	635
Due after ten years through fifteen years, Fair Value	468
Due after fifteen years, Fair Value	1,483
Fair Value	5,809	7,336
Due in one year or less, Amortized Cost	828
Due after one year through five years, Amortized Cost	844
Due after five years through ten years, Amortized Cost	591
Due after ten years through fifteen years, Amortized Cost	437
Due after fifteen years, Amortized Cost	1,363
Amortized Cost	5,644	7,492
Fixed-Maturity Investments [Member] | Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Fair Value	1,246
Amortized Cost	1,221
Fixed-Maturity Investments [Member] | Asset-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Fair Value	275
Amortized Cost	360
Variable Interest Entity [Member] | Fixed-Maturity Investments [Member]
Schedule of Available-for-sale Securities [Line Items]
Due in one year or less, Fair Value	7
Due after one year through five years, Fair Value	132
Due after five years through ten years, Fair Value
Due after ten years through fifteen years, Fair Value	78
Due after fifteen years, Fair Value
Fair Value	427
Due in one year or less, Amortized Cost	7
Due after one year through five years, Amortized Cost	123
Due after five years through ten years, Amortized Cost
Due after ten years through fifteen years, Amortized Cost	84
Due after fifteen years, Amortized Cost
Amortized Cost	446
Variable Interest Entity [Member] | Fixed-Maturity Investments [Member] | Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Fair Value	87
Amortized Cost	99
Variable Interest Entity [Member] | Fixed-Maturity Investments [Member] | Asset-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Fair Value	123
Amortized Cost	$ 133

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Loss And Loss Adjustment Expense Reserves (Loss And LAE Activity)(Narrative) (Detail) (USD $)	9 Months Ended		9 Months Ended	57 Months Ended	9 Months Ended							9 Months Ended
	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2012 ABS CDO Portfolio [Member]	Sep. 30, 2012 ABS CDO Portfolio [Member]	Sep. 30, 2012 RMBS And HELOC And CES [Member]	Sep. 30, 2012 RMBS And HELOC And CES [Member] Classified [Member] Reviewed [Member]	Sep. 30, 2012 RMBS And HELOC And CES [Member] Insured Issues Designated As "Classified List" [Member]	Sep. 30, 2012 Financial Guarantee [Member]	Sep. 30, 2012 Financial Guarantee [Member] Variable Interest Entity [Member]	Sep. 30, 2012 Loss And LAE Reserves [Member]	Dec. 31, 2011 Loss And LAE Reserves [Member]	Sep. 30, 2012 Second-Lien RMBS Reserves [Member]	Sep. 30, 2012 Recorded Recoveries [Member] RMBS And HELOC And CES [Member] Classified [Member] Reviewed [Member]
Loss And Loss Adjustment Expense Reserves [Line Items]
ABS CDO exposure decrease since December 31,2007				88.00%
Aggregate ABS CDO Loss And LAE Reserves								$ 171,000,000	$ 242,000,000
Policy holder Benefits And Claims Incurred Net	330,000,000		6,000,000
Elimination of loss and LAE expense as result of consolidating VIE			18,000,000
Excess interest cash flows from securitizations	185,000,000				80,000,000
Reserves for expected future claim payments										1,300,000,000	1,400,000,000
Expected recoveries of future payments	395,000,000	562,000,000								395,000,000	562,000,000
Paid losses and LAE, net of reinsurance and collections	489,000,000											330,000,000
Increase in insurance loss recoverable related to paid losses												$ 270,000,000
Number of insured issues reviewed						29	34
Number of insured issues reviewed with recorded recoveries													26
Number of transactions received consideration and excluded from loan files reviewed with potential recoveries	2
Weighted average risk-free rate used to discount claim liability	1.26%

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Fair Value Of Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2012

Quantitative Information Regarding Significant Unobservable Inputs For Certain Assets And Liabilities Measured At Fair Value On Recurring Basis

In millions	Fair Value as of September 30, 2012		Valuation Techniques	Unobservable Input	Range (Weighted Average)
Assets of consolidated VIEs:
Loans receivable at fair value	$	1,892	Quoted market prices adjusted for financial guarantees provided to VIE obligations	Impact of financial guarantee		0% - 22% (4%)
Loan repurchase commitments		1,051	Discounted cash flow	Recovery rates		9% - 96% (43%)
				Breach rates		65% - 94% (78%)
Liabilities of consolidated VIEs:
Variable interest entity notes		1,885	Quoted market prices of VIE assets adjusted for financial guarantees provided	Impact of financial guarantee		0% - 20% (6%)
Credit derivative liabilities, net:
CMBS		1,533	BET Model	Recovery rates		20% - 90% (51%)
				Nonperformance risk		8% - 62% (57%)
				Weighted average life (in years)		0.3 - 5.9 (4.6)
				CMBS spreads		1% - 22% (12%)
Multi-sector CDO		628	Direct Price Model	Nonperformance risk		63% - 63% (63%)
Other		1,156	BET Model	Recovery rates		42% - 75% (47%)
				Nonperformance risk		8% - 63% (50%)
				Weighted average life (in years)		0.2 - 19.0 (3.1)

Company's Assets And Liabilities Measured At Fair Value On Recurring Basis

	Fair Value Measurements at Reporting Date Using
In millions	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Counterparty and Cash Collateral Netting		Balance as of September 30, 2012
Assets:
Investments:
Fixed-maturity investments:
Taxable bonds:
U.S. Treasury and government agency	$	860	$	101	$	-		$	-	$	961
Foreign governments		257		72		12	(1)		-		341
Corporate obligations		1		1,136		91	(1)		-		1,228
Mortgage-backed securities:
Residential mortgage-backed agency		-		1,073		-			-		1,073
Residential mortgage-backed non-agency		-		169		7	(1)		-		176
Commercial mortgage-backed		-		19		30	(1)		-		49
Asset-backed securities:
Collateralized debt obligations		-		64		30	(1)		-		94
Other asset-backed		-		116		73	(1)		-		189
State and municipal bonds		-		888		71	(1)		-		959
Total taxable bonds		1,118		3,638		314			-		5,070
Tax-exempt bonds:
State and municipal bonds		-		925		23	(1)		-		948
Other fixed-maturity investments		-		10		-			-		10
Total fixed-maturity investments		1,118		4,573		337			-		6,028
Money market securities		593		-		-			-		593
Perpetual preferred securities		-		28		3	(1)		-		31
Other		20		-		11	(1)		-		31
Total investments		1,731		4,601		351			-		6,683
Cash and cash equivalents		298		-		-			-		298
Derivative assets:
Insured derivative assets:
Credit derivatives		-		-		1			-		1
Non-insured derivative assets:
Interest rate derivatives		-		95		4	(1)		(96)		3
Total derivative assets		-		95		5			(96)		4

	Fair Value Measurements at Reporting Date Using
In millions	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Counterparty and Cash Collateral Netting		Balance as of September 30, 2012
Assets of consolidated VIEs:
Fixed-maturity investments:
Corporate obligations		-		219		83	(1)		-		302
Mortgage-backed securities:
Residential mortgage-backed non-agency		-		852		8	(1)		-		860
Commercial mortgage-backed		-		409		13	(1)		-		422
Asset-backed securities:
Collateralized debt obligations		-		191		173	(1)		-		364
Other asset-backed		-		126		66	(1)		-		192
State and municipal taxable bonds		-		41		-			-		41
Money market securities		15		-		-			-		15
Total fixed-maturity investments		15		1,838		343			-		2,196
Cash		143		-		-			-		143
Loans receivable		-		-		1,892			-		1,892
Loan repurchase commitments		-		-		1,051			-		1,051
Total assets	$	2,187	$	6,534	$	3,642		$	(96)	$	12,267
Liabilities:
Medium-term notes	$	-	$	-	$	168	(1)	$	-	$	168
Derivative liabilities:
Insured derivatives:
Credit derivatives		-		14		3,318			-		3,332
Non-insured derivatives:
Interest rate derivatives		-		305		4	(1)		(311)		(2)
Currency derivatives		-		1		1	(1)		-		2
Other liabilities:
Warrants		-		18		-			-		18
Liabilities of consolidated VIEs:
Variable interest entity notes		-		1,741		1,885			-		3,626
Derivative liabilities:
Interest rate derivatives		-		157		-			-		157
Currency derivatives		-		-		23	(1)		-		23
Total liabilities	$	-	$	2,236	$	5,399		$	(311)	$	7,324

(1) - Unobservable inputs are either not developed by the Company or do not significantly impact the overall fair values of the aggregate financial assets and liabilities.

	Fair Value Measurements at Reporting Date Using
In millions	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Counterparty and Cash Collateral Netting		Balance as of December 31, 2011
Assets:
Investments:
Fixed-maturity investments:
Taxable bonds:
U.S. Treasury and government agency	$	1,038	$	103	$	-	$	-	$	1,141
Foreign governments		277		62		11		-		350
Corporate obligations		1		1,531		207		-		1,739
Mortgage-backed securities:
Residential mortgage-backed agency		-		1,276		8		-		1,284
Residential mortgage-backed non-agency		-		350		17		-		367
Commercial mortgage-backed		-		34		24		-		58
Asset-backed securities:
Collateralized debt obligations		-		78		60		-		138
Other asset-backed		-		130		317		-		447
State and municipal bonds		-		924		-		-		924
Total taxable bonds		1,316		4,488		644		-		6,448
Tax-exempt bonds:
State and municipal bonds		-		1,137		28		-		1,165
Other fixed-maturity investments		-		15		-		-		15
Total fixed-maturity investments		1,316		5,640		672		-		7,628
Money market securities		912		-		-		-		912
Perpetual preferred securities		-		106		1		-		107
Other		25		-		10		-		35
Total investments		2,253		5,746		683		-		8,682
Cash and cash equivalents		473		-		-		-		473
Derivative assets:
Non-insured derivative assets:
Credit derivatives		-		1		-		-		1
Interest rate derivatives		-		91		3		-		94
Other		-		-		-		(93)		(93)
Total derivative assets		-		92		3		(93)		2

	Fair Value Measurements at Reporting Date Using
In millions	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Counterparty and Cash Collateral Netting		Balance as of December 31, 2011
Assets of consolidated VIEs:
Fixed-maturity investments:
Corporate obligations		-		170		69		-		239
Mortgage-backed securities:
Residential mortgage-backed agency		-		3		-		-		3
Residential mortgage-backed non-agency		-		1,437		21		-		1,458
Commercial mortgage-backed		-		559		22		-		581
Asset-backed securities:
Collateralized debt obligations		-		330		203		-		533
Other asset-backed		-		236		67		-		303
Money market securities		199		-		-		-		199
Total fixed-maturity investments		199		2,735		382		-		3,316
Cash		160		-		-		-		160
Loans receivable		-		-		2,046		-		2,046
Loan repurchase commitments		-		-		1,077		-		1,077
Derivative assets:
Credit derivatives		-		-		447		-		447
Interest rate derivatives		-		3		-		-		3
Total assets	$	3,085	$	8,576	$	4,638	$	(93)	$	16,206
Liabilities:
Medium-term notes	$	-	$	-	$	165	$	-	$	165
Derivative liabilities:
Insured derivatives:
Credit derivatives		-		18		4,790		-		4,808
Non-insured derivatives:
Interest rate derivatives		-		445		-		-		445
Currency derivatives		-		4		-		-		4
Other		-		-		-		(93)		(93)
Other liabilities:
Warrants		-		38		-		-		38
Liabilities of consolidated VIEs:
Variable interest entity notes		-		1,865		2,889		-		4,754
Derivative liabilities:
Credit derivatives		-		-		527		-		527
Interest rate derivatives		-		281		-		-		281
Currency derivatives		-		-		17		-		17
Total liabilities	$	-	$	2,651	$	8,388	$	(93)	$	10,946

Fair Value And Carrying Value Of Assets And Liabilities That Are Disclosed At Fair Value But Not Reported At Fair Value On Company's Consolidated Balance Sheets

	Fair Value Measurements at Reporting Date Using
In millions	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable  Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value Balance as of September 30, 2012		Carry Value Balance as of September 30, 2012
Assets:
Other investments	$	-	$	-	$	9	$	9	$	9
Accrued investment income(1)		51		-		-		51		51
Receivable for investments sold(1)		159		-		-		159		159
Assets of consolidated VIEs:
Investments held-to-maturity		-		-		2,867		2,867		3,015
Total assets	$	210	$	-	$	2,876	$	3,086	$	3,234
Liabilities:
Investment agreements	$	-	$	-	$	1,254	$	1,254	$	993
Medium-term notes		-		-		1,068		1,068		1,438
Long-term debt		-		1,109		-		1,109		1,836
Payable for investments purchased(2)		150		-		-		150		150
Liabilities of consolidated VIEs:
Variable interest entity notes		-		-		3,166		3,166		3,468
Total liabilities	$	150	$	1,109	$	5,488	$	6,747	$	7,885
Financial Guarantees:
Gross	$	-	$	-	$	866	$	866	$	720
Ceded		-		-		88		88		94

(1) - Reported within “Other assets” on MBIA’s consolidated balance sheets.

(2) - Reported within “Other liabilities” on MBIA’s consolidated balance sheets.

	Fair Value Measurements at Reporting Date Using						Fair Value Balance as of December 31, 2011		Carry Value Balance as of December 31, 2011
In millions	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Other investments	$	-	$	-	$	11	$	11	$	11
Accrued investment income(1)		63		-		-		63		63
Receivable for investments sold(1)		32		-		-		32		32
Assets of consolidated VIEs:
Investments held-to-maturity		-		-		3,489		3,489		3,843
Total assets	$	95	$	-	$	3,500	$	3,595	$	3,949
Liabilities:
Investment agreements	$	-	$	-	$	1,853	$	1,853	$	1,578
Medium-term notes		-		-		1,187		1,187		1,491
Securities sold under agreements to repurchase		-		286		-		286		287
Long-term debt		-		1,117		-		1,117		1,840
Payable for investments purchased(2)		3		-		-		3		3
Liabilities of consolidated VIEs:
Variable interest entity notes		-		-		3,297		3,297		3,943
Long-term debt		-		-		368		368		360
Total liabilities	$	3	$	1,403	$	6,705	$	8,111	$	9,502
Financial Guarantees:
Gross	$	-	$	-	$	1,451	$	1,451	$	1,305
Ceded		-		-		94		94		104

(1) - Reported within “Other assets” on MBIA’s consolidated balance sheets.

(2) - Reported within “Other liabilities” on MBIA’s consolidated balance sheets.

Changes In Level 3 Assets And Liabilities Measured At Fair Value On Recurring Basis

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended September 30, 2012

In millions	Balance, Beginning of Period		Realized Gains / (Losses)		Unrealized Gains / (Losses) Included in Earnings		Unrealized Gains / (Losses) Included in OCI		Foreign Exchange Recognized in OCI or Earnings		Purchases		Issuances		Settlements		Sales		Transfers into Level 3(1)		Transfers out of Level 3(1)		Ending Balance		Change in Unrealized Gains (Losses) for the Period Included in Earnings for Assets still held as of September 30, 2012
Assets:
Foreign governments	$	12	$	-	$	-	$	-	$	1	$	9	$	-	$	(10)	$	-	$	-	$	-	$	12	$	-
Corporate obligations		98		-		4		(2)		-		2		-		(13)		-		10		(8)		91		3
Residential mortgage- backed agency		4		-		-		-		-		-		-		(1)		-		-		(3)		-		-
Residential mortgage- backed non-agency		33		(1)		-		2		-		-		-		(5)		-		1		(23)		7		-
Commercial mortgage-backed		27		-		-		1		-		1		-		-		-		1		-		30		-
Collateralized debt obligations		29		(4)		-		9		-		-		-		(4)		-		4		(4)		30		-
Other asset-backed		69		(2)		-		2		-		1		-		(1)		-		4		-		73		-
State and municipal taxable bonds		-		-		-		-		-		-		-		-		-		71		-		71		-
State and municipal tax-exempt bonds		25		-		-		-		-		-		-		(2)		-		-		-		23		-
Perpetual preferred securities		3		-		-		-		-		-		-		-		-		-		-		3		-
Other investments		10		-		1		-		-		-		-		-		-		-		-		11		-
Assets of consolidated VIEs:
Corporate obligations		95		-		(10)		-		-		-		-		(2)		-		3		(3)		83		1
Residential mortgage- backed non-agency		10		-		-		-		-		-		-		(1)		-		2		(3)		8		-
Commercial mortgage-backed		12		-		1		-		-		-		-		-		-		-		-		13		1
Collateralized debt obligations		140		-		(5)		2		-		-		-		(1)		-		37		-		173		(2)
Other asset-backed		42		-		(1)		-		-		-		-		(5)		-		30		-		66		1
Loans receivable		1,903		-		61		-		-		-		-		(72)		-		-		-		1,892		61
Loan repurchase commitments		1,032		-		19		-		-		-		-		-		-		-		-		1,051		19
Total assets	$	3,544	$	(7)	$	70	$	14	$	1	$	13	$	-	$	(117)	$	-	$	163	$	(44)	$	3,637	$	84

In millions	Balance, Beginning of Period		Realized (Gains) / Losses		Unrealized (Gains) / Losses Included in Earnings		Unrealized (Gains) / Losses Included in OCI		Foreign Exchange Recognized in OCI or Earnings		Purchases		Issuances		Settlements		Sales		Transfers into Level 3(1)		Transfers out of Level 3(1)		Ending Balance		Change in Unrealized (Gains) Losses for the Period Included in Earnings for Liabilities still held as of September 30, 2012
Liabilities:
Medium-term notes	$	151	$	-	$	14	$	-	$	3	$	-	$	-	$	-	$	-	$	-	$	-	$	168	$	14
Credit derivatives, net		3,285		-		32		-		-		-		-		-		-		-		-		3,317		33
Interest rate derivatives, net		(4)		-		-		-		-		-		-		-		-		4		-		-		5
Currency derivatives, net		-		-		-		-		-		-		-		-		-		1		-		1		-
Liabilities of consolidated VIEs:
VIE notes		1,867		-		128		-		-		-		-		(110)		-		-		-		1,885		128
Currency derivatives, net		21		-		2		-		-		-		-		-		-		-		-		23		2
Total liabilities	$	5,320	$	-	$	176	$	-	$	3	$	-	$	-	$	(110)	$	-	$	5	$	-	$	5,394	$	182

(1) - Transferred in and out at the end of the period.

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended September 30, 2011

In millions	Balance, Beginning of Period		Realized Gains / (Losses)		Unrealized Gains / (Losses) Included in Earnings		Unrealized Gains / (Losses) Included in OCI		Foreign Exchange Recognized in OCI or Earnings		Purchases		Issuances		Settlements		Sales		Transfers into Level 3(1)		Transfers out of Level 3(1)		Ending Balance		Change in Unrealized Gains (Losses) for the Period Included in Earnings for Assets still held as of September 30, 2011
Assets:
Foreign governments	$	13	$	-	$	-	$	-	$	(2)	$	3	$	-	$	(3)	$	-	$	-	$	-	$	11	$	-
Corporate obligations		294		(1)		-		(10)		(5)		19		-		(32)		(38)		115		-		342		-
Residential mortgage- backed agency		-		-		-		-		-		1		-		-		-		-		-		1		-
Residential mortgage- backed non-agency		28		(1)		-		1		-		4		-		(4)		-		1		(2)		27		-
Commercial mortgage-backed		50		(2)		-		-		-		-		-		(3)		(13)		-		-		32		-
Collateralized debt obligations		162		(2)		-		(3)		-		39		2		(79)		(28)		1		(25)		67		-
Other asset-backed		331		-		-		(27)		-		-		-		(9)		-		3		(28)		270		-
State and municipal taxable bonds		13		1		-		1		-		-		-		(15)		-		-		-		-		-
State and municipal tax-exempt bonds		32		-		-		-		-		-		-		(2)		-		-		-		30		-
Perpetual preferred securities		-		-		-		-		-		-		-		-		-		1		-		1		-
Assets of consolidated VIEs:
Corporate obligations		62		-		(5)		-		-		-		-		(1)		-		7		-		63		(2)
Residential mortgage- backed non-agency		17		-		3		-		-		-		-		(1)		(6)		2		-		15		1
Commercial mortgage-backed		27		-		(1)		-		-		-		-		-		(11)		2		-		17		(2)
Collateralized debt obligations		201		-		(17)		(7)		-		60		-		(1)		(21)		12		(21)		206		(14)
Other asset-backed		73		-		5		-		-		-		-		-		(6)		-		(1)		71		5
Loans receivable		2,320		-		(36)		-		-		-		-		(66)		-		-		-		2,218		(36)
Loan repurchase commitments		905		-		33		-		-		-		-		-		-		-		-		938		33
Total assets	$	4,528	$	(5)	$	(18)	$	(45)	$	(7)	$	126	$	2	$	(216)	$	(123)	$	144	$	(77)	$	4,309	$	(15)

In millions	Balance, Beginning of Period		Realized (Gains) / Losses		Unrealized (Gains) / Losses Included in Earnings		Unrealized (Gains) / Losses Included in OCI		Foreign Exchange Recognized in OCI or Earnings		Purchases		Issuances		Settlements		Sales		Transfers into Level 3(1)		Transfers out of Level 3(1)		Ending Balance		Change in Unrealized (Gains) Losses for the Period Included in Earnings for Liabilities still held as of September 30, 2011
Liabilities:
Medium-term notes	$	206	$	-	$	(69)	$	-	$	(9)	$	-	$	-	$	-	$	-	$	-	$	-	$	128	$	(69)
Credit derivatives, net		5,657		78		(777)		-		-		-		-		(78)		-		-		-		4,880		(388)
Interest rate derivatives, net		(4)		-		1		-		-		-		-		-		-		-		-		(3)		5
Liabilities of consolidated VIEs:
VIE notes		4,513		-		(194)		-		-		-		-		(207)		(981)		-		-		3,131		(194)
Credit derivatives, net		920		-		(154)		-		-		-		-		(1)		-		-		-		765		(154)
Currency derivatives, net		16		-		2		-		-		-		-		-		-		-		-		18		2
Total liabilities	$	11,308	$	78	$	(1,191)	$	-	$	(9)	$	-	$	-	$	(286)	$	(981)	$	-	$	-	$	8,919	$	(798)

(1) - Transferred in and out at the end of the period.

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Nine Months Ended September 30, 2012

In millions	Balance, Beginning of Year		Realized Gains / (Losses)		Unrealized Gains / (Losses) Included in Earnings		Unrealized Gains / (Losses) Included in OCI		Foreign Exchange Recognized in OCI or Earnings		Purchases		Issuances		Settlements		Sales		Transfers into Level 3(1)		Transfers out of Level 3(1)		Ending Balance		Change in Unrealized Gains (Losses) for the Period Included in Earnings for Assets still held as of September 30, 2012
Assets:
Foreign governments	$	11	$	-	$	-	$	-	$	1	$	22	$	-	$	(19)	$	(3)	$	-	$	-	$	12	$	-
Corporate obligations		207		(15)		9		24		-		18		-		(29)		(140)		25		(8)		91		8
Residential mortgage- backed agency		8		-		-		1		-		-		-		(1)		-		4		(12)		-		-
Residential mortgage- backed non-agency		17		(1)		-		(1)		-		-		-		(11)		(3)		31		(25)		7		-
Commercial mortgage-backed		24		-		-		5		-		1		-		-		-		1		(1)		30		-
Collateralized debt obligations		60		(9)		-		18		-		-		-		(12)		(10)		14		(31)		30		-
Other asset-backed		317		(58)		-		71		-		5		-		(11)		(250)		5		(6)		73		-
State and municipal taxable bonds		-		-		-		-		-		-		-		-		-		71		-		71		-
State and municipal tax-exempt bonds		28		-		-		-		-		-		-		(5)		-		-		-		23		-
Perpetual preferred securities		1		-		-		1		-		-		-		-		-		4		(3)		3		-
Other investments		10		-		1		-		-		-		-		-		-		-		-		11		-
Assets of consolidated VIEs:
Corporate obligations		69		-		(15)		(6)		-		28		-		(5)		-		15		(3)		83		3
Residential mortgage- backed non-agency		21		-		6		-		-		-		-		(5)		(15)		5		(4)		8		3
Commercial mortgage-backed		22		-		3		-		-		-		-		(3)		(8)		5		(6)		13		2
Collateralized debt obligations		203		-		(5)		(1)		-		-		-		(1)		(74)		51		-		173		5
Other asset-backed		67		-		4		-		-		4		-		(8)		(35)		34		-		66		5
Loans receivable		2,046		-		52		-		-		-		-		(204)		(2)		-		-		1,892		52
Loan repurchase commitments		1,077		-		(26)		-		-		-		-		-		-		-		-		1,051		(26)
Total assets	$	4,188	$	(83)	$	29	$	112	$	1	$	78	$	-	$	(314)	$	(540)	$	265	$	(99)	$	3,637	$	52

In millions	Balance, Beginning of Year		Realized (Gains) / Losses		Unrealized (Gains) / Losses Included in Earnings		Unrealized (Gains) / Losses Included in OCI		Foreign Exchange Recognized in OCI or Earnings		Purchases		Issuances		Settlements		Sales		Transfers into Level 3(1)		Transfers out of Level 3(1)		Ending Balance		Change in Unrealized (Gains) Losses for the Period Included in Earnings for Liabilities still held as of September 30, 2012
Liabilities:
Medium-term notes	$	165	$	-	$	3	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	168	$	4
Credit derivatives, net		4,790		463		(1,473)		-		-		-		-		(463)		-		-		-		3,317		(538)
Interest rate derivatives, net		(3)		-		(1)		-		-		-		-		-		-		4		-		-		12
Interest rate derivatives, net		-		-		-		-		-		-		-		-		-		1		-		1		-
Liabilities of consolidated VIEs:
VIE notes		2,889		-		348		-		-		-		-		(369)		(983)		-		-		1,885		292
Credit derivatives, net		80		-		2		-		-		-		-		-		(82)		-		-		-		-
Currency derivatives, net		17		-		6		-		-		-		-		-		-		-		-		23		6
Total liabilities	$	7,938	$	463	$	(1,115)	$	-	$	-	$	-	$	-	$	(832)	$	(1,065)	$	5	$	-	$	5,394	$	(224)

(1) - Transferred in and out at the end of the period.

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Nine Months Ended September 30, 2011

In millions	Balance, Beginning of Year		Realized Gains / (Losses)		Unrealized Gains / (Losses) Included in Earnings		Unrealized Gains / (Losses) Included in OCI		Foreign Exchange Recognized in OCI or Earnings		Purchases		Issuances		Settlements		Sales		Transfers into Level 3(1)		Transfers out of Level 3(1)		Ending Balance		Change in Unrealized Gains (Losses) for the Period Included in Earnings for Assets still held as of September 30, 2011
Assets:
Foreign governments	$	11	$	-	$	-	$	-	$	(1)	$	9	$	-	$	(8)	$	-	$	7	$	(7)	$	11	$	-
Corporate obligations		246		(1)		-		(3)		(2)		30		-		(65)		(50)		202		(15)		342		-
Residential mortgage- backed agency		41		-		-		1		-		2		-		(1)		(1)		-		(41)		1		-
Residential mortgage- backed non-agency		48		(2)		-		11		(1)		15		-		(14)		(19)		9		(20)		27		-
Commercial mortgage-backed		41		(2)		-		2		1		8		-		(3)		(14)		-		(1)		32		-
Collateralized debt obligations		192		(4)		-		25		-		46		3		(112)		(36)		49		(96)		67		-
Other asset-backed		349		-		-		(26)		-		10		-		(20)		(2)		16		(57)		270		-
State and municipal taxable bonds		14		1		-		-		-		-		-		(15)		-		-		-		-		-
State and municipal tax-exempt bonds		36		-		-		-		-		2		-		(7)		(1)		-		-		30		-
Perpetual preferred securities		-		-		-		-		-		-		-		-		-		1		-		1		-
Assets of consolidated VIEs:
Corporate obligations		82		-		(18)		-		-		-		-		(5)		-		11		(7)		63		(2)
Residential mortgage- backed non-agency		40		-		2		3		-		-		-		(6)		(6)		2		(20)		15		2
Commercial mortgage-backed		23		-		6		-		-		-		-		(2)		(12)		2		-		17		3
Collateralized debt obligations		245		-		(27)		(7)		-		60		-		(3)		(21)		48		(89)		206		1
Other asset-backed		81		-		(3)		-		-		-		-		(2)		(6)		2		(1)		71		2
Loans receivable		2,183		-		260		-		-		-		-		(223)		(2)		-		-		2,218		260
Loan repurchase commitments		835		-		91		-		-		-		12		-		-		-		-		938		91
Total assets	$	4,467	$	(8)	$	311	$	6	$	(3)	$	182	$	15	$	(486)	$	(170)	$	349	$	(354)	$	4,309	$	357

In millions	Balance, Beginning of Year		Realized (Gains) / Losses		Unrealized (Gains) / Losses Included in Earnings		Unrealized (Gains) / Losses Included in OCI		Foreign Exchange Recognized in OCI or Earnings		Purchases		Issuances		Settlements		Sales		Transfers into Level 3(1)		Transfers out of Level 3(1)		Ending Balance		Change in Unrealized (Gains) Losses for the Period Included In Earnings for Liabilities still held as of September 30, 2011
Liabilities:
Medium-term notes	$	116	$	-	$	9	$	-	$	3	$	-	$	-	$	-	$	-	$	-	$	-	$	128	$	9
Credit derivatives, net		4,350		683		530		-		-		-		-		(683)		-		-		-		4,880		2,160
Interest rate derivatives, net		(5)		-		1		-		-		-		-		-		-		1		-		(3)		6
Liabilities of consolidated VIEs:
VIE notes		4,673		-		75		-		-		-		-		(456)		(1,161)		-		-		3,131		75
Credit derivatives, net		768		-		(3)		-		-		-		-		-		-		-		-		765		(3)
Currency derivatives, net		14		-		4		-		-		-		-		-		-		-		-		18		4
Total liabilities	$	9,916	$	683	$	616	$	-	$	3	$	-	$	-	$	(1,139)	$	(1,161)	$	1	$	-	$	8,919	$	2,251

(1) - Transferred in and out at the end of the period.

Gains And Losses (Realized And Unrealized) Included In Earnings Relating To Level 3 Assets And Liabilities

	Three Months Ended September 30, 2012
							Consolidated VIEs
In millions	Unrealized Gains (Losses) on Insured Derivatives		Net Realized Gains (Losses)		Net Gains (Losses) on Financial Instruments at Fair Value and Foreign Exchange		Net Gains (Losses) on Financial Instruments at Fair Value and Foreign Exchange
Total gains (losses) included in earnings	$	(32)	$	(7)	$	(9)	$	(65)
Change in unrealized gains (losses) for the period included in earnings for assets and liabilities still held as of September 30, 2012	$	(33)	$	-	$	(16)	$	(49)

	Three Months Ended September 30, 2011
							Consolidated VIEs
In millions	Unrealized Gains (Losses) on Insured Derivatives		Net Realized Gains (Losses)		Net Gains (Losses) on Financial Instruments at Fair Value and Foreign Exchange		Net Gains (Losses) on Financial Instruments at Fair Value and Foreign Exchange
Total gains (losses) included in earnings	$	777	$	(83)	$	68	$	328
Change in unrealized gains (losses) for the period included in earnings for assets and liabilities still held as of September 30, 2011	$	388	$	-	$	64	$	331

	Nine Months Ended September 30, 2012
							Consolidated VIEs
In millions	Unrealized Gains (Losses) on Insured Derivatives		Net Realized Gains (Losses)		Net Gains (Losses) on Financial Instruments at Fair Value and Foreign Exchange		Net Gains (Losses) on Financial Instruments at Fair Value and Foreign Exchange
Total gains (losses) included in earnings	$	1,473	$	(546)	$	8	$	(337)
Change in unrealized gains (losses) for the period included in earnings for assets and liabilities still held as of September 30, 2012	$	538	$	-	$	(8)	$	(254)

	Nine Months Ended September 30, 2011
							Consolidated VIEs
In millions	Unrealized Gains (Losses) on Insured Derivatives		Net Realized Gains (Losses)		Net Gains (Losses) on Financial Instruments at Fair Value and Foreign Exchange		Net Gains (Losses) on Financial Instruments at Fair Value and Foreign Exchange
Total gains (losses) included in earnings	$	(530)	$	(691)	$	(10)	$	235
Change in unrealized gains (losses) for the period included in earnings for assets and liabilities still held as of September 30, 2011	$	(2,160)	$	-	$	(15)	$	281

Changes In Fair Value Included In Company's Consolidated Statements Of Operations

	Net Gains (Losses) on Financial Instruments at Fair Value and Foreign Exchange
	Three Months Ended September 30,				Nine Months Ended September 30,
In millions	2012		2011		2012		2011
Fixed-maturity securities held at fair value	$	21	$	(286)	$	(36)	$	(338)
Loans receivable at fair value:
Residential mortgage loans		(4)		(65)		(103)		65
Other loans		(7)		(37)		(48)		(30)
Loan repurchase commitments		19		33		62		103
Other assets		-		(162)		-		(184)
Long-term debt		12		481		140		367

Difference Between Aggregate Fair Value And Aggregate Remaining Contractual Principal Balance Outstanding

	As of September 30, 2012						As of December 31, 2011
In millions	Contractual Outstanding Principal		Fair Value		Difference		Contractual Outstanding Principal		Fair Value		Difference
Loans receivable at fair value:
Residential mortgage loans	$	2,430	$	1,746	$	684	$	2,769	$	1,895	$	874
Residential mortgage loans (90 days or more past due)		241		46		195		259		-		259
Other loans		39		16		23		129		43		86
Other loans (90 days or more past due)		206		84		122		324		108		216
Total loans receivable at fair value	$	2,916	$	1,892	$	1,024	$	3,481	$	2,046	$	1,435
Variable interest entity notes	$	9,015	$	3,626	$	5,389	$	13,583	$	4,754	$	8,829

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Loss And Loss Adjustment Expense Reserves (Tables)

9 Months Ended

Sep. 30, 2012

Schedule Of Losses And Loss Adjustment Expenses

Losses and LAE
	Nine Months Ended September 30, 2012
In millions	Second-lien RMBS		Other(1)		Total
Losses and LAE related to actual and expected payments	$	180	$	273	$	453
Recoveries of actual and expected payments		(74)		(49)		(123)
Gross losses incurred		106		224		330
Reinsurance		-		-		-
Losses and LAE	$	106	$	224	$	330

(1) - Primarily first-lien RMBS and financial guarantee CMBS.

Schedule Of Financial Guarantees And Related Claim Liability

	Surveillance Categories
$ in millions	Caution List Low		Caution List Medium		Caution List High		Classified List		Total
Number of policies		49		24		11		209		293
Number of issues(1)		27		14		10		137		188
Remaining weighted average contract period (in years)		8.7		4.6		7.8		9.4		8.7
Gross insured contractual payments outstanding(2):
Principal	$	3,747	$	1,409	$	360	$	9,671	$	15,187
Interest		2,690		334		115		5,387		8,526
Total	$	6,437	$	1,743	$	475	$	15,058	$	23,713
Gross claim liability	$	-	$	-	$	-	$	1,670	$	1,670
Less:
Gross potential recoveries		-		-		-		3,844		3,844
Discount, net		-		-		-		178		178
Net claim liability (recoverable)	$	-	$	-	$	-	$	(2,352)	$	(2,352)
Unearned premium revenue	$	130	$	17	$	3	$	119	$	269

(1) - An “issue” represents the aggregate of financial guarantee policies that share the same revenue source for purposes of making debt service payments.

(2) - Represents contractual principal and interest payments due by the issuer of the obligations insured by MBIA.

	Surveillance Categories
$ in millions	Caution List Low		Caution List Medium		Caution List High		Classified List		Total
Number of policies		54		28		14		200		296
Number of issues(1)		32		18		11		130		191
Remaining weighted average contract period (in years)		8.2		5.6		6.0		9.6		8.8
Gross insured contractual payments outstanding(2):
Principal	$	4,310	$	1,213	$	561	$	10,420	$	16,504
Interest		2,653		351		144		5,836		8,984
Total	$	6,963	$	1,564	$	705	$	16,256	$	25,488
Gross claim liability	$	-	$	-	$	-	$	1,812	$	1,812
Less:
Gross potential recoveries		-		-		-		3,813		3,813
Discount, net		-		-		-		177		177
Net claim liability (recoverable)	$	-	$	-	$	-	$	(2,178)	$	(2,178)
Unearned premium revenue	$	155	$	16	$	3	$	134	$	308

(1) - An “issue” represents the aggregate of financial guarantee policies that share the same revenue source for purposes of making debt service payments.

(2) - Represents contractual principal and interest payments due by the issuer of the obligations insured by MBIA.

Present Value Of Probability-Weighted Future Claim Payments And Recoveries

In millions	As of September 30, 2012		As of December 31, 2011
Loss reserves (claim liability)	$	862	$	781
LAE reserves		83		55
Loss and LAE reserves	$	945	$	836
Insurance claim loss recoverable	$	(3,281)	$	(3,032)
LAE insurance loss recoverable		(35)		(14)
Insurance loss recoverable	$	(3,316)	$	(3,046)
Reinsurance recoverable on unpaid losses	$	13	$	15
Reinsurance recoverable on paid losses		2		1
Reinsurance recoverable on paid and unpaid losses	$	15	$	16

Schedule Of Company's Second-Lien RMBS Exposure, Gross Undiscounted Claim Liability And Potential Recoveries, Excluding Amounts Related To Consolidated VIE's

Second-lien RMBS Exposure			Outstanding				Gross Undiscounted
$ in billions	Issues		Gross Principal		Gross Interest		Claim Liability		Potential Recoveries
Excluding Consolidated VIEs:
Insured issues designated as “Classified List”		22	$	4.2	$	1.7	$	0.3	$	3.2
Insured issues reviewed with potential recoveries		15	$	3.9	$	1.6	$	0.2	$	3.1
Consolidated VIEs:
Insured issues designated as “Classified List”		12	$	2.3	$	0.9	$	0.1	$	1.4
Insured issues reviewed with potential recoveries		11	$	2.2	$	0.8	$	0.1	$	1.4

Schedule Of Loss And Loss Adjustment Expenses Reserves

In millions		Changes in Loss and LAE Reserves for the Nine Months Ended September 30, 2012
Gross Loss and LAE Reserves as of December 31, 2011		Loss Payments for Cases with Reserves		Accretion of Claim Liability Discount		Changes in Discount Rates		Changes in Timing of Payments		Changes in Amount of Net Payments		Changes in Assumptions		Changes in Unearned Premium Revenue		Changes in LAE Reserves		Gross Loss and LAE Reserves as of September 30, 2012
$	836	$	(283)	$	9	$	26	$	52	$	3	$	267	$	7	$	28	$	945

Schedule Of Insurance Loss Recoverable And Changes In Recoveries On Unpaid Losses

			Changes in Insurance Loss Recoverable and Recoveries on Unpaid Losses for the Nine Months Ended September 30, 2012
In millions	Gross Reserve as of December 31, 2011		Collections for Cases with Recoveries		Accretion of Recoveries		Changes in Discount Rates		Changes in Timing of Collections		Changes in Amount of Collections		Changes in Assumptions		Changes in LAE Recoveries		Gross Reserve as of September 30, 2012
Insurance loss recoverable	$	3,046	$	(6)	$	30	$	8	$	-	$	(149)	$	366	$	21	$	3,316
Recoveries on unpaid losses		562		-		6		19		-		-		(185)		(7)		395
Total	$	3,608	$	(6)	$	36	$	27	$	-	$	(149)	$	181	$	14	$	3,711

Schedule Of Total Estimated Recoveries From Ineligible Second-Lien Mortgage Loans

In millions
Total Estimated Recoveries from Ineligible Mortgage Loans as of December 31, 2011		Accretion of Future Collections		Changes in Discount Rates		Recoveries (Collections)		Changes in Amount of Collections		Changes in Assumptions		Total Estimated Recoveries  from Ineligible Mortgage Loans as of September  30, 2012
$	3,119	$	34	$	2	$	-	$	-	$	92	$	3,247

Schedule Of Expenses Related To Remedial Actions For Insured Obligations

	Nine Months Ended September 30,
In millions	2012		2011
Loss adjustment expense incurred, gross	$	113	$	76

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Fair Value Of Financial Instruments (Changes In Level 3 Assets And Liabilities Measured At Fair Value On Recurring Basis) (Detail) (USD $) In Millions, unless otherwise specified			3 Months Ended				9 Months Ended				3 Months Ended		9 Months Ended		3 Months Ended		9 Months Ended		3 Months Ended		9 Months Ended			3 Months Ended				9 Months Ended				3 Months Ended				9 Months Ended				3 Months Ended			9 Months Ended				3 Months Ended				9 Months Ended				3 Months Ended				9 Months Ended				3 Months Ended			9 Months Ended				3 Months Ended			9 Months Ended				3 Months Ended				9 Months Ended				3 Months Ended				9 Months Ended				3 Months Ended				9 Months Ended				3 Months Ended				9 Months Ended				3 Months Ended			9 Months Ended			3 Months Ended		9 Months Ended		3 Months Ended		9 Months Ended					3 Months Ended	9 Months Ended	3 Months Ended				9 Months Ended				3 Months Ended				9 Months Ended				3 Months Ended		9 Months Ended				3 Months Ended				9 Months Ended				3 Months Ended						9 Months Ended				3 Months Ended				9 Months Ended
	Sep. 30, 2012 Variable Interest Entity [Member] Loans Receivable [Member]	Sep. 30, 2012 Variable Interest Entity [Member] Loan Repurchase Commitments [Member]	Sep. 30, 2012 Significant Unobservable Inputs (Level 3) [Member]		Sep. 30, 2011 Significant Unobservable Inputs (Level 3) [Member]		Sep. 30, 2012 Significant Unobservable Inputs (Level 3) [Member]		Sep. 30, 2011 Significant Unobservable Inputs (Level 3) [Member]		Sep. 30, 2012 Significant Unobservable Inputs (Level 3) [Member] Variable Interest Entity [Member] Loans Receivable [Member]	Sep. 30, 2011 Significant Unobservable Inputs (Level 3) [Member] Variable Interest Entity [Member] Loans Receivable [Member]	Sep. 30, 2012 Significant Unobservable Inputs (Level 3) [Member] Variable Interest Entity [Member] Loans Receivable [Member]	Sep. 30, 2011 Significant Unobservable Inputs (Level 3) [Member] Variable Interest Entity [Member] Loans Receivable [Member]	Sep. 30, 2012 Significant Unobservable Inputs (Level 3) [Member] Variable Interest Entity [Member] Loan Repurchase Commitments [Member]	Sep. 30, 2011 Significant Unobservable Inputs (Level 3) [Member] Variable Interest Entity [Member] Loan Repurchase Commitments [Member]	Sep. 30, 2012 Significant Unobservable Inputs (Level 3) [Member] Variable Interest Entity [Member] Loan Repurchase Commitments [Member]	Sep. 30, 2011 Significant Unobservable Inputs (Level 3) [Member] Variable Interest Entity [Member] Loan Repurchase Commitments [Member]	Sep. 30, 2012 Significant Unobservable Inputs (Level 3) [Member] Foreign Governments [Member]	Sep. 30, 2011 Significant Unobservable Inputs (Level 3) [Member] Foreign Governments [Member]	Sep. 30, 2012 Significant Unobservable Inputs (Level 3) [Member] Foreign Governments [Member]	Sep. 30, 2011 Significant Unobservable Inputs (Level 3) [Member] Foreign Governments [Member]		Sep. 30, 2012 Significant Unobservable Inputs (Level 3) [Member] Corporate Obligations [Member]		Sep. 30, 2011 Significant Unobservable Inputs (Level 3) [Member] Corporate Obligations [Member]		Sep. 30, 2012 Significant Unobservable Inputs (Level 3) [Member] Corporate Obligations [Member]		Sep. 30, 2011 Significant Unobservable Inputs (Level 3) [Member] Corporate Obligations [Member]		Sep. 30, 2012 Significant Unobservable Inputs (Level 3) [Member] Corporate Obligations [Member] Variable Interest Entity [Member]		Sep. 30, 2011 Significant Unobservable Inputs (Level 3) [Member] Corporate Obligations [Member] Variable Interest Entity [Member]		Sep. 30, 2012 Significant Unobservable Inputs (Level 3) [Member] Corporate Obligations [Member] Variable Interest Entity [Member]		Sep. 30, 2011 Significant Unobservable Inputs (Level 3) [Member] Corporate Obligations [Member] Variable Interest Entity [Member]		Sep. 30, 2012 Significant Unobservable Inputs (Level 3) [Member] Residential Mortgage-Backed Agency [Member]		Sep. 30, 2011 Significant Unobservable Inputs (Level 3) [Member] Residential Mortgage-Backed Agency [Member]	Sep. 30, 2012 Significant Unobservable Inputs (Level 3) [Member] Residential Mortgage-Backed Agency [Member]		Sep. 30, 2011 Significant Unobservable Inputs (Level 3) [Member] Residential Mortgage-Backed Agency [Member]		Sep. 30, 2012 Significant Unobservable Inputs (Level 3) [Member] Residential Mortgage-Backed Non-Agency [Member]		Sep. 30, 2011 Significant Unobservable Inputs (Level 3) [Member] Residential Mortgage-Backed Non-Agency [Member]		Sep. 30, 2012 Significant Unobservable Inputs (Level 3) [Member] Residential Mortgage-Backed Non-Agency [Member]		Sep. 30, 2011 Significant Unobservable Inputs (Level 3) [Member] Residential Mortgage-Backed Non-Agency [Member]		Sep. 30, 2012 Significant Unobservable Inputs (Level 3) [Member] Residential Mortgage-Backed Non-Agency [Member] Variable Interest Entity [Member]		Sep. 30, 2011 Significant Unobservable Inputs (Level 3) [Member] Residential Mortgage-Backed Non-Agency [Member] Variable Interest Entity [Member]		Sep. 30, 2012 Significant Unobservable Inputs (Level 3) [Member] Residential Mortgage-Backed Non-Agency [Member] Variable Interest Entity [Member]		Sep. 30, 2011 Significant Unobservable Inputs (Level 3) [Member] Residential Mortgage-Backed Non-Agency [Member] Variable Interest Entity [Member]		Sep. 30, 2012 Significant Unobservable Inputs (Level 3) [Member] Commercial Mortgage-Backed [Member]		Sep. 30, 2011 Significant Unobservable Inputs (Level 3) [Member] Commercial Mortgage-Backed [Member]	Sep. 30, 2012 Significant Unobservable Inputs (Level 3) [Member] Commercial Mortgage-Backed [Member]		Sep. 30, 2011 Significant Unobservable Inputs (Level 3) [Member] Commercial Mortgage-Backed [Member]		Sep. 30, 2012 Significant Unobservable Inputs (Level 3) [Member] Commercial Mortgage-Backed [Member] Variable Interest Entity [Member]	Sep. 30, 2011 Significant Unobservable Inputs (Level 3) [Member] Commercial Mortgage-Backed [Member] Variable Interest Entity [Member]		Sep. 30, 2012 Significant Unobservable Inputs (Level 3) [Member] Commercial Mortgage-Backed [Member] Variable Interest Entity [Member]		Sep. 30, 2011 Significant Unobservable Inputs (Level 3) [Member] Commercial Mortgage-Backed [Member] Variable Interest Entity [Member]		Sep. 30, 2012 Significant Unobservable Inputs (Level 3) [Member] Collateralized Debt Obligations [Member]		Sep. 30, 2011 Significant Unobservable Inputs (Level 3) [Member] Collateralized Debt Obligations [Member]		Sep. 30, 2012 Significant Unobservable Inputs (Level 3) [Member] Collateralized Debt Obligations [Member]		Sep. 30, 2011 Significant Unobservable Inputs (Level 3) [Member] Collateralized Debt Obligations [Member]		Sep. 30, 2012 Significant Unobservable Inputs (Level 3) [Member] Collateralized Debt Obligations [Member] Variable Interest Entity [Member]		Sep. 30, 2011 Significant Unobservable Inputs (Level 3) [Member] Collateralized Debt Obligations [Member] Variable Interest Entity [Member]		Sep. 30, 2012 Significant Unobservable Inputs (Level 3) [Member] Collateralized Debt Obligations [Member] Variable Interest Entity [Member]		Sep. 30, 2011 Significant Unobservable Inputs (Level 3) [Member] Collateralized Debt Obligations [Member] Variable Interest Entity [Member]		Sep. 30, 2012 Significant Unobservable Inputs (Level 3) [Member] Other Asset-Backed [Member]		Sep. 30, 2011 Significant Unobservable Inputs (Level 3) [Member] Other Asset-Backed [Member]		Sep. 30, 2012 Significant Unobservable Inputs (Level 3) [Member] Other Asset-Backed [Member]		Sep. 30, 2011 Significant Unobservable Inputs (Level 3) [Member] Other Asset-Backed [Member]		Sep. 30, 2012 Significant Unobservable Inputs (Level 3) [Member] Other Asset-Backed [Member] Variable Interest Entity [Member]		Sep. 30, 2011 Significant Unobservable Inputs (Level 3) [Member] Other Asset-Backed [Member] Variable Interest Entity [Member]		Sep. 30, 2012 Significant Unobservable Inputs (Level 3) [Member] Other Asset-Backed [Member] Variable Interest Entity [Member]		Sep. 30, 2011 Significant Unobservable Inputs (Level 3) [Member] Other Asset-Backed [Member] Variable Interest Entity [Member]		Sep. 30, 2012 Significant Unobservable Inputs (Level 3) [Member] State And Municipal Taxable Bonds [Member]		Sep. 30, 2011 Significant Unobservable Inputs (Level 3) [Member] State And Municipal Taxable Bonds [Member]	Sep. 30, 2012 Significant Unobservable Inputs (Level 3) [Member] State And Municipal Taxable Bonds [Member]		Sep. 30, 2011 Significant Unobservable Inputs (Level 3) [Member] State And Municipal Taxable Bonds [Member]	Sep. 30, 2012 Significant Unobservable Inputs (Level 3) [Member] State And Municipal Tax-Exempt Bonds [Member]	Sep. 30, 2011 Significant Unobservable Inputs (Level 3) [Member] State And Municipal Tax-Exempt Bonds [Member]	Sep. 30, 2012 Significant Unobservable Inputs (Level 3) [Member] State And Municipal Tax-Exempt Bonds [Member]	Sep. 30, 2011 Significant Unobservable Inputs (Level 3) [Member] State And Municipal Tax-Exempt Bonds [Member]	Sep. 30, 2011 Significant Unobservable Inputs (Level 3) [Member] Perpetual Preferred Securities [Member]		Sep. 30, 2012 Significant Unobservable Inputs (Level 3) [Member] Perpetual Preferred Securities [Member]		Sep. 30, 2011 Significant Unobservable Inputs (Level 3) [Member] Perpetual Preferred Securities [Member]		Jun. 30, 2012 Significant Unobservable Inputs (Level 3) [Member] Perpetual Preferred Securities [Member]	Sep. 30, 2012 Significant Unobservable Inputs (Level 3) [Member] Other Investments [Member]	Sep. 30, 2012 Significant Unobservable Inputs (Level 3) [Member] Other Investments [Member]	Sep. 30, 2012 Significant Unobservable Inputs (Level 3) [Member] Medium-Term Notes [Member]		Sep. 30, 2011 Significant Unobservable Inputs (Level 3) [Member] Medium-Term Notes [Member]		Sep. 30, 2012 Significant Unobservable Inputs (Level 3) [Member] Medium-Term Notes [Member]		Sep. 30, 2011 Significant Unobservable Inputs (Level 3) [Member] Medium-Term Notes [Member]		Sep. 30, 2012 Significant Unobservable Inputs (Level 3) [Member] Credit Derivatives [Member]		Sep. 30, 2011 Significant Unobservable Inputs (Level 3) [Member] Credit Derivatives [Member]		Sep. 30, 2012 Significant Unobservable Inputs (Level 3) [Member] Credit Derivatives [Member]		Sep. 30, 2011 Significant Unobservable Inputs (Level 3) [Member] Credit Derivatives [Member]		Sep. 30, 2011 Significant Unobservable Inputs (Level 3) [Member] Credit Derivatives [Member] Liabilities Of Consolidated VIEs [Member]		Sep. 30, 2012 Significant Unobservable Inputs (Level 3) [Member] Credit Derivatives [Member] Liabilities Of Consolidated VIEs [Member]		Sep. 30, 2011 Significant Unobservable Inputs (Level 3) [Member] Credit Derivatives [Member] Liabilities Of Consolidated VIEs [Member]		Sep. 30, 2012 Significant Unobservable Inputs (Level 3) [Member] Interest Rate Derivatives [Member]		Sep. 30, 2011 Significant Unobservable Inputs (Level 3) [Member] Interest Rate Derivatives [Member]		Sep. 30, 2012 Significant Unobservable Inputs (Level 3) [Member] Interest Rate Derivatives [Member]		Sep. 30, 2011 Significant Unobservable Inputs (Level 3) [Member] Interest Rate Derivatives [Member]		Sep. 30, 2012 Significant Unobservable Inputs (Level 3) [Member] Currency Derivatives [Member]		Sep. 30, 2012 Significant Unobservable Inputs (Level 3) [Member] Currency Derivatives [Member] Liabilities Of Consolidated VIEs [Member]		Sep. 30, 2011 Significant Unobservable Inputs (Level 3) [Member] Currency Derivatives [Member] Liabilities Of Consolidated VIEs [Member]		Sep. 30, 2012 Significant Unobservable Inputs (Level 3) [Member] Currency Derivatives [Member] Liabilities Of Consolidated VIEs [Member]		Sep. 30, 2011 Significant Unobservable Inputs (Level 3) [Member] Currency Derivatives [Member] Liabilities Of Consolidated VIEs [Member]		Sep. 30, 2012 Significant Unobservable Inputs (Level 3) [Member] Variable Interest Entity Notes [Member] Liabilities Of Consolidated VIEs [Member]		Sep. 30, 2011 Significant Unobservable Inputs (Level 3) [Member] Variable Interest Entity Notes [Member] Liabilities Of Consolidated VIEs [Member]		Sep. 30, 2012 Significant Unobservable Inputs (Level 3) [Member] Variable Interest Entity Notes [Member] Liabilities Of Consolidated VIEs [Member]		Sep. 30, 2011 Significant Unobservable Inputs (Level 3) [Member] Variable Interest Entity Notes [Member] Liabilities Of Consolidated VIEs [Member]		Sep. 30, 2012 Significant Unobservable Inputs (Level 3) [Member] Interest Rate Derivative [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Beginning Balance, Fair Value Assets	$ 1,892	$ 1,051	$ 3,544		$ 4,528		$ 4,188		$ 4,467		$ 1,903	$ 2,320	$ 2,046	$ 2,183	$ 1,032	$ 905	$ 1,077	$ 835	$ 12	$ 13	$ 11	$ 11		$ 98		$ 294		$ 207		$ 246		$ 95		$ 62		$ 69		$ 82		$ 4			$ 8		$ 41		$ 33		$ 28		$ 17		$ 48		$ 10		$ 17		$ 21		$ 40		$ 27		$ 50	$ 24		$ 41		$ 12	$ 27		$ 22		$ 23		$ 29		$ 162		$ 60		$ 192		$ 140		$ 201		$ 203		$ 245		$ 69		$ 331		$ 317		$ 349		$ 42		$ 73		$ 67		$ 81				$ 13			$ 14	$ 25	$ 32	$ 28	$ 36			$ 1				$ 3	$ 10	$ 10
Realized Gains / (Losses), Assets			(7)		(5)		(83)		(8)																	(1)		(15)		(1)																	(1)		(1)		(1)		(2)												(2)			(2)									(4)		(2)		(9)		(4)										(2)				(58)														1			1
Unrealized Gains / (Losses) Included in Earnings, Assets			70		(18)		29		311		61	(36)	52	260	19	33	(26)	91						4				9				(10)		(5)		(15)		(18)																			3		6		2									1	(1)		3		6										(5)		(17)		(5)		(27)										(1)		5		4		(3)																			1	1
Unrealized Gains / (Losses) Included in OCI, Assets			14		(45)		112		6															(2)		(10)		24		(3)						(6)							1		1		2		1		(1)		11								3		1			5		2									9		(3)		18		25		2		(7)		(1)		(7)		2		(27)		71		(26)												1										1
Foreign Exchange Recognized in OCI or Earnings, Assets			1		(7)		1		(3)										1	(2)	1	(1)				(5)				(2)																							(1)															1
Purchases, Assets			13		126		78		182										9	3	22	9		2		19		18		30						28						1			2				4				15										1			1		8											39				46				60				60		1				5		10						4													2
Issuances, Assets					2				15									12																																																													2				3
Settlements, Assets			(117)		(216)		(314)		(486)		(72)	(66)	(204)	(223)					(10)	(3)	(19)	(8)		(13)		(32)		(29)		(65)		(2)		(1)		(5)		(5)		(1)			(1)		(1)		(5)		(4)		(11)		(14)		(1)		(1)		(5)		(6)				(3)			(3)					(3)		(2)		(4)		(79)		(12)		(112)		(1)		(1)		(1)		(3)		(1)		(9)		(11)		(20)		(5)				(8)		(2)				(15)			(15)	(2)	(2)	(5)	(7)
Sales, Assets					(123)		(540)		(170)				(2)	(2)							(3)					(38)		(140)		(50)															(1)						(3)		(19)				(6)		(15)		(6)				(13)			(14)			(11)		(8)		(12)				(28)		(10)		(36)				(21)		(74)		(21)						(250)		(2)				(6)		(35)		(6)											(1)
Transfers into Level 3, Assets			163	[1]	144	[1]	265	[1]	349	[1]												7	[1]	10	[1]	115	[1]	25	[1]	202	[1]	3	[1]	7	[1]	15	[1]	11	[1]				4	[1]			1	[1]	1	[1]	31	[1]	9	[1]	2	[1]	2	[1]	5	[1]	2	[1]	1	[1]		1	[1]				2	[1]	5	[1]	2	[1]	4	[1]	1	[1]	14	[1]	49	[1]	37	[1]	12	[1]	51	[1]	48	[1]	4	[1]	3	[1]	5	[1]	16	[1]	30	[1]			34	[1]	2	[1]	71	[1]		71	[1]						1	[1]	4	[1]	1	[1]
Transfers out of Level 3, Assets			(44)	[1]	(77)	[1]	(99)	[1]	(354)	[1]												(7)	[1]	(8)	[1]			(8)	[1]	(15)	[1]	(3)	[1]			(3)	[1]	(7)	[1]	(3)	[1]		(12)	[1]	(41)	[1]	(23)	[1]	(2)	[1]	(25)	[1]	(20)	[1]	(3)	[1]			(4)	[1]	(20)	[1]				(1)	[1]	(1)	[1]				(6)	[1]			(4)	[1]	(25)	[1]	(31)	[1]	(96)	[1]			(21)	[1]			(89)	[1]			(28)	[1]	(6)	[1]	(57)	[1]			(1)	[1]			(1)	[1]													(3)	[1]
Ending Balance, Fair Value Assets	1,892	1,051	3,637		4,309		3,637		4,309		1,892	2,218	1,892	2,218	1,051	938	1,051	938	12	11	12	11		91		342		91		342		83		63		83		63				1			1		7		27		7		27		8		15		8		15		30		32	30		32		13	17		13		17		30		67		30		67		173		206		173		206		73		270		73		270		66		71		66		71		71			71			23	30	23	30	1		3		1		3	11	11
Change in Unrealized Gains (Losses) for the Period Included in Earnings for Assets still held, Assets			84		(15)		52		357		61	(36)	52	260	19	33	(26)	91						3				8				1		(2)		3		(2)																			1		3		2									1	(2)		2		3										(2)		(14)		5		1										1		5		5		2
Beginning Balance, Fair Value Liabilities			5,320		11,308		7,938		9,916																																																																																																																							151		206		165		116		3,285		5,657		4,790		4,350		920		80		768		(4)		(4)		(3)		(5)				21		16		17		14		1,867		4,513		2,889		4,673
Realized Gains / (Losses), Liabilities					78		463		683																																																																																																																																	78		463		683
Unrealized Gains / (Losses) Included in Earnings, Liabilities			176		(1,191)		(1,115)		616																																																																																																																							14		(69)		3		9		32		(777)		(1,473)		530		(154)		2		(3)				1		(1)		1				2		2		6		4		128		(194)		348		75
Unrealized Gains / (Losses) Included in OCI, Liabilities
Foreign Exchange Recognized in OCI or Earnings, Liabilities			3		(9)				3																																																																																																																							3		(9)				3
Purchases, Liabilities
Issuances, Liabilities
Settlements, Liabilities			(110)		(286)		(832)		(1,139)																																																																																																																																	(78)		(463)		(683)		(1)																								(110)		(207)		(369)		(456)
Sales, Liabilities					(981)		(1,065)		(1,161)																																																																																																																																									(82)																								(981)		(983)		(1,161)
Transfers into Level 3, Liabilities			5	[1]			5	[1]	1	[1]																																																																																																																																												4	[1]			4	[1]	1	[1]	1	[1]																	1	[1]
Transfers out of Level 3, Liabilities				[1]		[1]		[1]		[1]																																																																																																																							[1]		[1]		[1]		[1]		[1]		[1]		[1]		[1]		[1]		[1]		[1]		[1]		[1]		[1]		[1]		[1]		[1]		[1]		[1]		[1]		[1]		[1]		[1]		[1]		[1]
Ending Balance, Fair Value Liabilities			5,394		8,919		5,394		8,919																																																																																																																							168		128		168		128		3,317		4,880		3,317		4,880		765				765				(3)				(3)		1		23		18		23		18		1,885		3,131		1,885		3,131		1
Change in Unrealized Gains (Losses) for the Period Included in Earnings for Liabilities still held, Liabilities			$ 182		$ (798)		$ (224)		$ 2,251																																																																																																																							$ 14		$ (69)		$ 4		$ 9		$ 33		$ (388)		$ (538)		$ 2,160		$ (154)				$ (3)		$ 5		$ 5		$ 12		$ 6				$ 2		$ 2		$ 6		$ 4		$ 128		$ (194)		$ 292		$ 75

[1] Transferred in and out at the end of the period.

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Loss And Loss Adjustment Expense Reserves (Schedule Of Losses And Loss Adjustment Expenses) (Detail) (USD $) In Millions, unless otherwise specified	9 Months Ended
	Sep. 30, 2012
Loss And Loss Adjustment Expense Reserves [Line Items]
Losses and LAE related to actual and expected payments	$ 453
Recoveries of actual and expected payments	(123)
Gross losses incurred	330
Reinsurance
Losses and LAE	330
Second-Lien RMBS Reserves [Member]
Loss And Loss Adjustment Expense Reserves [Line Items]
Losses and LAE related to actual and expected payments	180
Recoveries of actual and expected payments	(74)
Gross losses incurred	106
Reinsurance
Losses and LAE	106
Other [Member]
Loss And Loss Adjustment Expense Reserves [Line Items]
Losses and LAE related to actual and expected payments	273	[1]
Recoveries of actual and expected payments	(49)	[1]
Gross losses incurred	224	[1]
Reinsurance		[1]
Losses and LAE	$ 224	[1]

[1] Primarily first-lien RMBS and financial guarantee CMBS.

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Investments (Tables)

9 Months Ended

Sep. 30, 2012

Available-For-Sale In Consolidated Investment Portfolio

	September 30, 2012
In millions	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Other-Than- Temporary Impairments(1)
Fixed-maturity investments:
Taxable bonds:
U.S. Treasury and government agency	$	896	$	44	$	(1)	$	939	$	-
Foreign governments		318		22		-		340		-
Corporate obligations		1,068		59		(21)		1,106		3
Mortgage-backed securities:
Residential mortgage-backed agency		988		48		-		1,036		-
Residential mortgage-backed non-agency		187		16		(36)		167		(24)
Commercial mortgage-backed		46		1		(4)		43		-
Asset-backed securities:
Collateralized debt obligations		165		-		(74)		91		(26)
Other asset-backed		195		3		(14)		184		-
State and municipal bonds		895		73		(11)		957		-
Total taxable bonds		4,758		266		(161)		4,863		(47)
Tax-exempt bonds:
State and municipal bonds		886		60		-		946		-
Total fixed-maturity investments		5,644		326		(161)		5,809		(47)
Other investments:
Perpetual preferred securities		31		-		-		31		-
Other investments		10		-		-		10		-
Money market securities		583		-		-		583		-
Total other investments		624		-		-		624		-
Assets of consolidated VIEs:
Corporate obligations		177		7		(7)		177		-
Mortgage-backed securities:
Residential mortgage-backed non-agency		99		-		(12)		87		-
Asset-backed securities:
Collateralized debt obligations		108		-		(11)		97		-
Other asset-backed		25		1		-		26		-
State and municipal bonds		37		3		-		40		-
Other investments:
Money market securities		15		-		-		15		-
Total available-for-sale investments	$	6,729	$	337	$	(191)	$	6,875	$	(47)

(1) - Represents unrealized gains or losses on other than temporarily impaired securities recognized in accumulated other comprehensive income (loss), which includes the non-credit component of impairments, as well as all subsequent changes in fair value of such impaired securities.

	December 31, 2011
In millions	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Other-Than- Temporary Impairments(1)
Fixed-maturity investments:
Taxable bonds:
U.S. Treasury and government agency	$	1,091	$	39	$	-	$	1,130	$	-
Foreign governments		326		23		-		349		-
Corporate obligations		1,698		43		(106)		1,635		(2)
Mortgage-backed securities:
Residential mortgage-backed agency		1,198		47		-		1,245		-
Residential mortgage-backed non-agency		325		31		(83)		273		(57)
Commercial mortgage-backed		58		1		(10)		49		-
Asset-backed securities:
Collateralized debt obligations		251		-		(118)		133		(43)
Other asset-backed		520		2		(82)		440		(37)
State and municipal bonds		903		35		(17)		921		-
Total taxable bonds		6,370		221		(416)		6,175		(139)
Tax-exempt bonds:
State and municipal bonds		1,122		41		(2)		1,161		-
Total fixed-maturity investments		7,492		262		(418)		7,336		(139)
Other investments:
Perpetual preferred securities		127		-		(19)		108		-
Other investments		22		1		-		23		-
Money market securities		911		-		-		911		-
Total other investments		1,060		1		(19)		1,042		-
Assets of consolidated VIEs:
Corporate obligations		2		-		-		2		-
Mortgage-backed securities:
Residential mortgage-backed non-agency		119		-		(26)		93		-
Asset-backed securities:
Collateralized debt obligations		112		-		(15)		97		-
Other asset-backed		41		-		-		41		-
Other investments:
Money market securities		199		-		-		199		-
Total available-for-sale investments	$	9,025	$	263	$	(478)	$	8,810	$	(139)

(1)  - Represents unrealized gains or losses on other than temporarily impaired securities recognized in accumulated other comprehensive income (loss), which includes the non-credit component of impairments, as well as all subsequent changes in fair value of such impaired securities.

Available-For-Sale Securities In Continuous Unrealized Loss Position

	September 30, 2012
	Less than 12 Months				12 Months or Longer				Total
In millions	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Fixed-maturity investments:
Taxable bonds:
U.S. Treasury and government agency	$	197	$	(1)	$	-	$	-	$	197	$	(1)
Foreign governments		24		-		-		-		24		-
Corporate obligations		60		-		49		(21)		109		(21)
Mortgage-backed securities:
Residential mortgage-backed agency		8		-		41		-		49		-
Residential mortgage-backed non-agency		2		-		102		(36)		104		(36)
Commercial mortgage-backed		3		-		27		(4)		30		(4)
Asset-backed securities:
Collateralized debt obligations		2		-		83		(74)		85		(74)
Other asset-backed		1		-		88		(14)		89		(14)
State and municipal bonds		6		-		66		(11)		72		(11)
Total taxable bonds		303		(1)		456		(160)		759		(161)
Tax-exempt bonds:
State and municipal bonds		1		-		22		-		23		-
Total fixed-maturity investments		304		(1)		478		(160)		782		(161)
Other investments:
Perpetual preferred securities		-		-		3		-		3		-
Assets of consolidated VIEs:
Corporate obligations		-		-		54		(7)		54		(7)
Mortgage-backed securities:
Residential mortgage-backed non-agency		-		-		87		(12)		87		(12)
Asset-backed securities:
Collateralized debt obligations		-		-		96		(11)		96		(11)
Other asset-backed		-		-		3		-		3		-
Total	$	304	$	(1)	$	721	$	(190)	$	1,025	$	(191)

	December 31, 2011
	Less than 12 Months				12 Months or Longer				Total
In millions	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Fixed-maturity investments:
Taxable bonds:
U.S. Treasury and government agency	$	200	$	-	$	-	$	-	$	200	$	-
Foreign governments		20		-		-		-		20		-
Corporate obligations		297		(15)		418		(91)		715		(106)
Mortgage-backed securities:
Residential mortgage-backed agency		20		-		49		-		69		-
Residential mortgage-backed non-agency		34		(5)		167		(78)		201		(83)
Commercial mortgage-backed		17		(2)		22		(8)		39		(10)
Asset-backed securities:
Collateralized debt obligations		13		(2)		117		(116)		130		(118)
Other asset-backed		53		(7)		328		(75)		381		(82)
State and municipal bonds		152		(2)		76		(15)		228		(17)
Total taxable bonds		806		(33)		1,177		(383)		1,983		(416)
Tax-exempt bonds:
State and municipal bonds		14		-		75		(2)		89		(2)
Total fixed-maturity investments		820		(33)		1,252		(385)		2,072		(418)
Other investments:
Perpetual preferred securities		47		(3)		45		(16)		92		(19)
Assets of consolidated VIEs:
Corporate obligations		2		-		-		-		2		-
Mortgage-backed securities:
Residential mortgage-backed non-agency		3		-		90		(26)		93		(26)
Asset-backed securities:
Collateralized debt obligations		9		-		88		(15)		97		(15)
Other asset-backed		31		-		-		-		31		-
Total	$	912	$	(36)	$	1,475	$	(442)	$	2,387	$	(478)

Fair Values And Gross Unrealized Losses By Credit Rating Category Of Asset Backed Securities

																	Below
In millions	Aaa				Aa				A				Baa				Investment Grade				Not Rated				Total
Asset- backed Sector	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
ABS CDO	$	9	$	-	$	-	$	-	$	4	$	-	$	-	$	-	$	17	$	(51)	$	-	$	-	$	30	$	(51)
Corporate CDO		29		(2)		64		(9)		-		-		-		-		91		(30)		19		(2)		203		(43)
Small business/ student loans		5		-		-		-		-		-		-		-		10		-		-		-		15		-
Other ABS		3		-		1		-		3		-		1		-		10		(2)		7		(3)		25		(5)
Total	$	46	$	(2)	$	65	$	(9)	$	7	$	-	$	1	$	-	$	128	$	(83)	$	26	$	(5)	$	273	$	(99)

Fair Values And Gross Unrealized Losses By Credit Rating Category Of Mortgage Backed Securities

																	Below
In millions	Aaa				Aa				A				Baa				Investment Grade				Not Rated				Total
Mortgage- backed Securities	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
RMBS:
Collateralized	$	41	$	-	$	24	$	-	$	-	$	-	$	-	$	-	$	30	$	(5)	$	14	$	(7)	$	109	$	(12)
Home equity		-		-		57		(10)		-		-		3		(1)		56		(21)		-		-		116		(32)
Pass-through securities		8		-		-		-		-		-		-		-		-		-		-		-		8		-
Other		-		-		8		(3)		-		-		-		-		-		-		-		-		8		(3)
CMBS		-		-		-		-		-		-		27		(4)		2		(1)		-		-		29		(5)
Total	$	49	$	-	$	89	$	(13)	$	-	$	-	$	30	$	(5)	$	88	$	(27)	$	14	$	(7)	$	270	$	(52)

Fair Values And Gross Unrealized Losses By Credit Rating Category Of Corporate Obligations

In millions	Aaa				Aa				A				Baa				Below Investment Grade				Not Rated				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Corporate Obligations	$	-	$	-	$	4	$	-	$	74	$	(6)	$	59	$	(7)	$	14	$	(3)	$	12	$	(12)	$	163	$	(28)

Held To Maturity Securities In a Continuous Unrealized Loss Position

	September 30, 2012
	Less than 12 Months				12 Months or Longer				Total
In millions	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Assets of consolidated VIEs:
Other asset-backed securities	$	-	$	-	$	2,350	$	(168)	$	2,350	$	(168)
	December 31, 2011
	Less than 12 Months				12 Months or Longer				Total
In millions	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Assets of consolidated VIEs:
Other asset-backed securities	$	284	$	(31)	$	2,185	$	(340)	$	2,469	$	(371)

Investment Securities Whose Book Value Exceeded Market Value By More Than 5%

Percentage Book Value Exceeded Market Value	Number of Securities		Book Value (in millions)		Fair Value (in millions)
Greater than 5% to less than 16%		35	$	279	$	250
16% to less than 26%		23		791		621
26% to 50%		34		120		75
Greater than 50%		26		87		18
Total		118	$	1,277	$	964

Securities Held In Unrealized Loss Position and Insured By Financial Guarantor And The Related Insurance Loss Reserve On Company Insured Investments

In millions	Fair Value		Unrealized Loss		Insurance Loss Reserve(2)
Asset-backed:
MBIA(1)	$	148	$	(63)	$	18
Other		27		(7)		-
Total asset-backed		175		(70)		18
Mortgage-backed:
MBIA(1)		10		(1)		-
Other		184		(43)		-
Total mortgage-backed		194		(44)		-
Corporate obligations:
Other		9		(12)		-
Total corporate obligations		9		(12)		-
Other:
MBIA(1)		72		(11)		-
Other		8		-		-
Total other		80		(11)		-
Total	$	458	$	(137)	$	18

(1) - Includes investments insured by MBIA Corp. and National.

(2) - Insurance loss reserve estimates are based on the proportion of par value owned to the total amount of par value insured.

Available-For-Sale [Member]

Distribution Of Investments By Contractual Maturity

					Consolidated VIEs
In millions	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	828	$	830	$	7	$	7
Due after one year through five years		844		872		123		132
Due after five years through ten years		591		635		-		-
Due after ten years through fifteen years		437		468		84		78
Due after fifteen years		1,363		1,483		-		-
Mortgage-backed		1,221		1,246		99		87
Asset-backed		360		275		133		123
Total fixed-maturity investments	$	5,644	$	5,809	$	446	$	427

Held-To-Maturity [Member]

Distribution Of Investments By Contractual Maturity

					Consolidated VIEs
In millions	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	-	$	-	$	-	$	-
Due after one year through five years(1)		1		1		-		-
Due after five years through ten years		-		-		-		-
Due after ten years through fifteen years		-		-		-		-
Due after fifteen years		-		-		-		-
Mortgage-backed		-		-		-		-
Asset-backed		-		-		3,015		2,867
Total held-to-maturity investments	$	1	$	1	$	3,015	$	2,867

(1)  - Relates to tax credit investments reported in “Other investments” on the Company’s consolidated balance sheets.

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Investment Income And Gains And Losses (Tables)

9 Months Ended

Sep. 30, 2012

Total Investment Income From All Operations

	Three Months Ended September 30,				Nine Months Ended September 30,
In millions	2012		2011		2012		2011
Net investment income:
Fixed-maturity	$	47	$	88	$	160	$	284
Short-term investments		1		1		5		5
Other investments		2		3		7		10
Consolidated VIEs		17		17		51		53
Net investment income		67		109		223		352
Realized gains and losses:
Fixed-maturity:
Gains		42		46		94		117
Losses		(12)		(56)		(190)		(133)
Net		30		(10)		(96)		(16)
Other investments:
Gains		-		-		6		9
Losses		(2)		(1)		(16)		(1)
Net		(2)		(1)		(10)		8
Total net realized gains (losses)(1)		28		(11)		(106)		(8)
Total investment income	$	95	$	98	$	117	$	344

(1) - These balances are included in the “Net gains (losses) on financial instruments at fair value and foreign exchange” and “Net investment losses related to other-than-temporary impairments” line items on the Company’s consolidated statements of operations.

Credit Losses Recognized In Earnings Related To OTTI Losses Recognized In Accumulated Other Comprehensive Income (Loss)

In millions	Three Months Ended September 30,						Nine Months Ended September 30,
Credit Losses Recognized in Earnings Related to Other-Than-Temporary Impairments	2012			2011			2012			2011
Beginning balance	$	269		$	283		$	341		$	262
Additions for credit loss impairments recognized in the current period on securities not previously impaired		-			5			-			5
Additions for credit loss impairments recognized in the current period on securities previously impaired		5			6			8			32
Reductions for credit loss impairments previously recognized on securities sold during the period		(2	)		(5	)		(18	)		(10	)
Reductions for credit loss impairments previously recognized on securities impaired to fair value during the period(1)		(52	)		-			(111	)		-
Ending balance	$	220		$	289		$	220		$	289

(1) - Represents circumstances where the Company determined in the current period that it intends to sell the security or it is more likely than not that it will be required to sell the security before recovery of the security’s amortized cost.

Significant Inputs Used In Schedule Of Measurement Of Credit Loss Component Recognized In Earnings For Each Significant Class Of ABS

	Nine Months Ended September 30,
Asset-backed Securities	2012		2011
Expected size of losses(1):
Range(2)		12.13% to 97.70%		1.59% to 100.00%
Weighted average(3)		88.48%		64.58%
Current subordination levels(4):
Range(2)		0.00% to 0.00%		0.00% to 29.46%
Weighted average(3)		0.00%		0.00%
Prepayment speed (annual constant prepayment rate)(5):
Range(2)		0.00% to 30.91%		0.00% to 100.00%
Weighted average(3)		12.16%		15.62%

(1) - Represents future expected credit losses on impaired assets expressed as a percentage of total outstanding balance.

(2) - Represents the range of inputs/assumptions based upon the individual securities within each category.

(3) - Calculated by weighting the relevant input/assumption for each individual security by the outstanding notional of the security.

(4) - Represents current level of credit protection (subordination) for the securities, expressed as a percentage of the balance of the collateral group backing the bond.

(5) - Values represent high and low points of lifetime vectors of constant prepayment rates.

Net Unrealized Gains (Losses), Including Portion Of Other-Than-Temporary Impairments Included In Accumulated Other Comprehensive Income (Loss)

In millions	As of September 30, 2012		As of December 31, 2011
Fixed-maturity:
Gains	$	337	$	262
Losses		(191)		(459)
Foreign exchange		17		(5)
Net		163		(202)
Other investments:
Gains		-		1
Losses		-		(19)
Net		-		(18)
Total		163		(220)
Deferred income tax provision (benefit)		35		(86)
Unrealized gains (losses), net	$	128	$	(134)

Change In Net Unrealized Gains/Losses

In millions	As of September 30, 2012		As of December 31, 2011
Fixed-maturity	$	365	$	386
Other investments		18		(6)
Total		383		380
Deferred income tax charged (credited)		121		122
Change in unrealized gains (losses), net	$	262	$	258

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Consolidated Statement Of Changes In Shareholders' Equity (USD $) In Millions, except Share data	Total	Common Stock [Member]	Additional Paid-In Capital [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Treasury Stock [Member]	Total Shareholders' Equity Of MBIA Inc. [Member]	Preferred Stock Of Subsidiary And Noncontrolling Interest [Member]
Beginning Balance at Dec. 31, 2011	$ 1,723	$ 275	$ 3,072	$ 805	$ (176)	$ (2,276)	$ 1,700	$ 23
Beginning Balance (in shares) at Dec. 31, 2011		274,896,162				(81,752,966)		1,315
Net income	598			598			598
Other comprehensive income (loss)	266				266		266
Share-based compensation net of tax of $0 (In Shares)		558,937				23,174
Share-based compensation net of tax of $0	1					1	1
Change in noncontrolling interest in subsidiary	(1)							(1)
Ending Balance at Sep. 30, 2012	$ 2,587	$ 275	$ 3,072	$ 1,403	$ 90	$ (2,275)	$ 2,565	$ 22
Ending Balance (in shares) at Sep. 30, 2012		275,455,099				(81,729,792)		1,315

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Derivative Instruments (Tables)

9 Months Ended

Sep. 30, 2012

Credit Derivatives Sold

In millions			Notional Value
Credit Derivatives Sold	Weighted Average Remaining Expected Maturity		AAA		AA		A		BBB		Below Investment Grade		Total Notional		Fair Value Asset (Liability)
Insured credit default swaps		5.3 Years	$	10,456	$	7,519	$	5,196	$	11,811	$	13,870	$	48,852	$	(3,243)
Insured swaps		19.8 Years		-		187		3,762		1,997		71		6,017		(9)
All others		2.1 Years		-		-		-		-		195		195		(80)
Total notional			$	10,456	$	7,706	$	8,958	$	13,808	$	14,136	$	55,064
Total fair value			$	(16)	$	(81)	$	(148)	$	(1,001)	$	(2,086)			$	(3,332)

In millions			Notional Value
Credit Derivatives Sold	Weighted Average Remaining Expected Maturity		AAA		AA		A		BBB		Below Investment Grade		Total Notional		Fair Value Asset (Liability)
Insured credit default swaps		5.6 Years	$	15,475	$	12,065	$	6,336	$	14,042	$	17,639	$	65,557	$	(4,716)
Non-insured credit default swaps-VIE		3.6 Years		-		-		-		-		643		643		(527)
Insured swaps		19.7 Years		-		164		4,270		2,589		133		7,156		(9)
All others		2.8 Years		-		-		-		-		195		195		(91)
Total notional			$	15,475	$	12,229	$	10,606	$	16,631	$	18,610	$	73,551
Total fair value			$	(114)	$	(116)	$	(205)	$	(1,355)	$	(3,553)			$	(5,343)

Total Fair Value Of Company's Derivative Assets And Liabilities By Instrument And Balance Sheet Location, Before Counterparty Netting

In millions			Derivative Assets(1)			Derivative Liabilities(1)
Derivative Instruments	Notional Amount Outstanding		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Designated as hedging instruments:
Interest rate swaps	$	65	Other assets	$	-	Derivative liabilities	$	(8)
Total designated	$	65		$	-		$	(8)
Not designated as hedging instruments:
Insured credit default swaps	$	49,171	Other assets	$	1	Derivative liabilities	$	(3,243)
Insured swaps		6,017	Other assets		-	Derivative liabilities		(9)
Non-insured credit default swaps		10	Other assets		-	Derivative liabilities		-
Interest rate swaps		1,666	Other assets		99	Derivative liabilities		(301)
Interest rate swaps-VIE		2,992	Derivative assets-VIE		-	Derivative liabilities-VIE		(157)
Interest rate swaps-embedded		476	Medium-term notes		8	Medium-term notes		(29)
Currency swaps		39	Other assets		-	Derivative liabilities		(2)
Currency swaps-VIE		113	Derivative assets-VIE		-	Derivative liabilities-VIE		(23)
All other		195	Other assets		-	Derivative liabilities		(80)
All other-VIE		280	Derivative assets-VIE		-	Derivative liabilities-VIE		-
All other-embedded		20	Other investments		-	Other investments		(1)
Total non-designated	$	60,979		$	108		$	(3,845)
Total derivatives	$	61,044		$	108		$	(3,853)

(1) - In accordance with the accounting guidance for derivative instruments and hedging activities, the balance sheet location of the Company’s embedded derivative instruments is determined by the location of the related host contract.

In millions			Derivative Assets(1)			Derivative Liabilities(1)
Derivative Instruments	Notional Amount Outstanding		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Designated as hedging instruments:
Interest rate swaps	$	241	Other assets	$	10	Derivative liabilities	$	(44)
Total designated	$	241		$	10		$	(44)
Not designated as hedging instruments:
Insured credit default swaps	$	66,851	Other assets	$	-	Derivative liabilities	$	(4,708)
Insured swaps		7,156	Other assets		-	Derivative liabilities		(9)
Non-insured credit default swaps		30	Other assets		1	Derivative liabilities		-
Non-insured credit default swaps-VIE		1,272	Derivative assets-VIE		447	Derivative liabilities-VIE		(527)
Interest rate swaps		2,706	Other assets		84	Derivative liabilities		(401)
Interest rate swaps-VIE		4,878	Derivative assets-VIE		-	Derivative liabilities-VIE		(281)
Interest rate swaps-embedded		480	Medium-term notes		7	Medium-term notes		(14)
Currency swaps		62	Other assets		-	Derivative liabilities		(4)
Currency swaps-VIE		123	Derivative assets-VIE		-	Derivative liabilities-VIE		(17)
All other		3,465	Other assets		-	Derivative liabilities		(91)
All other-VIE		472	Derivative assets-VIE		3	Derivative liabilities-VIE		-
All other-embedded		121	Other investments		-	Other investments		(12)
Total non-designated	$	87,616		$	542		$	(6,064)
Total derivatives	$	87,857		$	552		$	(6,108)

(1) - In accordance with the accounting guidance for derivative instruments and hedging activities, the balance sheet location of the Company’s embedded derivative instruments is determined by the location of the related host contract.

Effect Of Derivative Instruments On Consolidated Statements Of Operations

In millions
Derivatives in Fair Value Hedging Relationships	Location of Gain (Loss) Recognized in Income on Derivative	Gain (Loss) Recognized in Income on Derivative			Gain (Loss) Recognized in Income on Hedged Item		Net Gain (Loss) Recognized in Income
Interest rate swaps	Net gains (losses) on financial instruments at fair value and foreign exchange	$	(12	)	$	12	$	-

In millions
Derivatives Not Designated as Hedging Instruments	Location of Gain (Loss) Recognized in Income on Derivative	Net Gain (Loss) Recognized in Income
Insured credit default swaps	Unrealized gains (losses) on insured derivatives	$	(40)
Insured credit default swaps	Realized gains (losses) and other settlements on insured derivatives		12
Interest rate swaps	Net gains (losses) on financial instruments at fair value and foreign exchange		(26)
Interest rate swaps-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		8
Currency swaps	Net gains (losses) on financial instruments at fair value and foreign exchange		1
Currency swaps-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		(2)
All other	Unrealized gains (losses) on insured derivatives		7
Total		$	(40)

In millions
Derivatives in Fair Value Hedging Relationships	Location of Gain (Loss) Recognized in Income on Derivative	Gain (Loss) Recognized in Income on Derivative		Gain (Loss) Recognized in Income on Hedged Item		Net Gain (Loss) Recognized in Income
Interest rate swaps	Net gains (losses) on financial instruments at fair value and foreign exchange	$	(8)	$	8	$	-
Interest rate swaps	Interest income (expense)		-		-		(2)
Total		$	(8)	$	8	$	(2)

In millions
Derivatives Not Designated as Hedging Instruments	Location of Gain (Loss) Recognized in Income on Derivative	Net Gain (Loss) Recognized in Income
Insured credit default swaps	Unrealized gains (losses) on insured derivatives	$	756
Insured credit default swaps	Realized gains (losses) and other settlements on insured derivatives		(53)
Non-insured credit default swaps-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		154
Interest rate swaps	Net gains (losses) on financial instruments at fair value and foreign exchange		(128)
Interest rate swaps-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		(25)
Currency swaps	Net gains (losses) on financial instruments at fair value and foreign exchange		4
Currency swaps-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		(2)
All other	Unrealized gains (losses) on insured derivatives		20
All other	Net gains (losses) on financial instruments at fair value and foreign exchange		(6)
All other-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		(5)
Total		$	715

In millions
Derivatives in Fair Value Hedging Relationships	Location of Gain (Loss) Recognized in Income on Derivative	Gain (Loss) Recognized in Income on Derivative		Gain (Loss) Recognized in Income on Hedged Item		Net Gain (Loss) Recognized in Income
Interest rate swaps	Net gains (losses) on financial instruments at fair value and foreign exchange	$	25	$	(25)	$	-
Interest rate swaps	Interest income (expense)		-		-		(3)
Total		$	25	$	(25)	$	(3)

In millions
Derivatives Not Designated as Hedging Instruments	Location of Gain (Loss) Recognized in Income on Derivative	Net Gain (Loss) Recognized in Income
Insured credit default swaps	Unrealized gains (losses) on insured derivatives	$	1,463
Insured credit default swaps	Realized gains (losses) and other settlements on insured derivatives		(420)
Non-insured credit default swaps	Net gains (losses) on financial instruments at fair value and foreign exchange		(1)
Non-insured credit default swaps-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		(1)
Interest rate swaps	Net gains (losses) on financial instruments at fair value and foreign exchange		(76)
Interest rate swaps-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		39
Currency swaps	Net gains (losses) on financial instruments at fair value and foreign exchange		1
Currency swaps-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		(5)
All other	Unrealized gains (losses) on insured derivatives		10
All other	Net gains (losses) on financial instruments at fair value and foreign exchange		11
All other-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		(2)
Total		$	1,019

In millions
Derivatives in Fair Value Hedging Relationships	Location of Gain (Loss) Recognized in Income on Derivative	Gain (Loss) Recognized in Income on Derivative		Gain (Loss) Recognized in Income on Hedged Item		Net Gain (Loss) Recognized in Income
Interest rate swaps	Net gains (losses) on financial instruments at fair value and foreign exchange	$	(6)	$	6	$	-
Interest rate swaps	Interest income (expense)		-		-		(7)
Currency swaps	Net gains (losses) on financial instruments at fair value and foreign exchange		2		(2)		-
Total		$	(4)	$	4	$	(7)

In millions
Derivatives Not Designated as Hedging Instruments	Location of Gain (Loss) Recognized in Income on Derivative	Net Gain (Loss) Recognized in Income
Insured credit default swaps	Unrealized gains (losses) on insured derivatives	$	(516)
Insured credit default swaps	Realized gains (losses) and other settlements on insured derivatives		(599)
Non-insured credit default swaps	Net gains (losses) on financial instruments at fair value and foreign exchange		(1)
Non-insured credit default swaps-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		4
Interest rate swaps	Net gains (losses) on financial instruments at fair value and foreign exchange		(178)
Interest rate swaps-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		24
Currency swaps	Net gains (losses) on financial instruments at fair value and foreign exchange		(3)
Currency swaps-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		(4)
All other	Unrealized gains (losses) on insured derivatives		(15)
All other	Net gains (losses) on financial instruments at fair value and foreign exchange		(7)
All other-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		(6)
Total		$	(1,301)

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Business Segments (Summary Of Company's Segment Results) (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended				9 Months Ended
	Sep. 30, 2012		Sep. 30, 2011		Sep. 30, 2012		Sep. 30, 2011		Dec. 31, 2011
Segment Reporting Information [Line Items]
Total revenues	$ 281		$ 1,120		$ 1,703		$ (390)
Total expenses	338		375		944		775
Income (loss) before income taxes	(57)		745		759		(1,165)
Identifiable assets	22,132		29,370		22,132		29,370		26,873
Unrealized gains (losses) on insured derivatives					(1,473)		531
Losses and loss adjustment					330
U.S. Public Finance Insurance [Member]
Segment Reporting Information [Line Items]
Inter-segment revenues	43	[1]	21	[1]	123	[1]	56	[1]
Total revenues	214		208		585		537
Inter-segment expenses	32	[1]	31	[1]	91	[1]	84	[1]
Total expenses	50		51		218		124
Income (loss) before income taxes	164		157		367		413
Identifiable assets	7,134		8,015		7,134		8,015
Structured Finance And International Insurance [Member]
Segment Reporting Information [Line Items]
Inter-segment revenues	29	[1]	25	[1]	10	[1]	55	[1]
Total revenues	134		914		1,316		(766)
Inter-segment expenses	54	[1]	33	[1]	154	[1]	91	[1]
Total expenses	298		301		734		568
Income (loss) before income taxes	(164)		613		582		(1,334)
Identifiable assets	17,399		21,251		17,399		21,251
Advisory Services [Member]
Segment Reporting Information [Line Items]
Inter-segment revenues	8	[1]	5	[1]	26	[1]	24	[1]
Total revenues	13		14		42		46
Inter-segment expenses	3	[1]	1	[1]	10	[1]	4	[1]
Total expenses	15		15		48		52
Income (loss) before income taxes	(2)		(1)		(6)		(6)
Identifiable assets	53		53		53		53
Corporate [Member]
Segment Reporting Information [Line Items]
Inter-segment revenues	53	[1]	22	[1]	132	[1]	66	[1]
Total revenues	64		21		163		105
Inter-segment expenses	4	[1]	4	[1]	10	[1]	11	[1]
Total expenses	42		42		122		122
Income (loss) before income taxes	22		(21)		41		(17)
Identifiable assets	843		652		843		652
Wind-Down Operations [Member]
Segment Reporting Information [Line Items]
Inter-segment revenues	(1)	[1],[2]	(4)	[1],[2]	(19)	[1],[2]	(12)	[1],[2]
Total revenues	(12)		32		(131)		(125)
Inter-segment expenses	39	[1],[2]	6	[1],[2]	87	[1],[2]	24	[1],[2]
Total expenses	65		41		174		123
Income (loss) before income taxes	(77)		(9)		(305)		(248)
Identifiable assets	2,861		5,556		2,861		5,556
Eliminations [Member]
Segment Reporting Information [Line Items]
Inter-segment revenues	(132)	[1]	(69)	[1]	(272)	[1]	(189)	[1]
Total revenues	(132)		(69)		(272)		(187)
Inter-segment expenses	(132)	[1]	(75)	[1]	(352)	[1]	(214)	[1]
Total expenses	(132)		(75)		(352)		(214)
Income (loss) before income taxes			6		80		27
Identifiable assets	(6,158)	[3]	(6,157)	[3]	(6,158)	[3]	(6,157)	[3]
Non Variable Interest Entities [Member]
Segment Reporting Information [Line Items]
Revenues	225	[4]	284	[4]	683	[4]	802	[4]
Realized gains (losses) and other settlements on insured derivatives	12		(53)		(420)		(599)
Unrealized gains (losses) on insured derivatives	(33)		776		1,473		(531)
Net gains (losses) on financial instruments at fair value and foreign exchange	7		13		(18)		(114)
Net investment losses related to other-than-temporary impairments	(8)		(11)		(105)		(44)
Net gains (losses) on extinguishment of debt							26
Other net realized gains (losses)	1		1		7		6
Losses and loss adjustment	171		190		330		204
Operating	80		88		343		277
Interest	69		75		214		225
Non Variable Interest Entities [Member] | U.S. Public Finance Insurance [Member]
Segment Reporting Information [Line Items]
Revenues	149	[4]	181	[4]	419	[4]	455	[4]
Realized gains (losses) and other settlements on insured derivatives							2
Net gains (losses) on financial instruments at fair value and foreign exchange	22		6		43		24
Losses and loss adjustment	4		10		15		4
Operating	14		10		112		36
Non Variable Interest Entities [Member] | Structured Finance And International Insurance [Member]
Segment Reporting Information [Line Items]
Revenues	59	[4]	72	[4]	194	[4]	253	[4]
Realized gains (losses) and other settlements on insured derivatives	12		(53)		(420)		(601)
Unrealized gains (losses) on insured derivatives	(33)		776		1,473		(531)
Net gains (losses) on financial instruments at fair value and foreign exchange	14		(12)		80		21
Net investment losses related to other-than-temporary impairments	(4)				(45)		(4)
Other net realized gains (losses)			1		1		2
Losses and loss adjustment	167		180		315		200
Operating	29		38		120		124
Interest	33		33		99		99
Non Variable Interest Entities [Member] | Advisory Services [Member]
Segment Reporting Information [Line Items]
Revenues	5	[4]	9	[4]	16	[4]	22	[4]
Operating	12		14		38		48
Non Variable Interest Entities [Member] | Corporate [Member]
Segment Reporting Information [Line Items]
Revenues	3	[4]	1	[4]	10	[4]	2	[4]
Net gains (losses) on financial instruments at fair value and foreign exchange	11		8		19		47
Net investment losses related to other-than-temporary impairments	(4)		(10)		(4)		(10)
Other net realized gains (losses)	1				6
Operating	24		24		69		67
Interest	14		14		43		44
Non Variable Interest Entities [Member] | Wind-Down Operations [Member]
Segment Reporting Information [Line Items]
Revenues	9	[4],[5]	21	[4],[5]	44	[4],[5]	70	[4],[5]
Net gains (losses) on financial instruments at fair value and foreign exchange	(40)		11		(160)		(206)
Net investment losses related to other-than-temporary impairments			(1)		(56)		(30)
Net gains (losses) on extinguishment of debt							24
Other net realized gains (losses)							4
Operating	1		2		4		2
Interest	22		28		72		82
Non Variable Interest Entities [Member] | Eliminations [Member]
Segment Reporting Information [Line Items]
Net gains (losses) on extinguishment of debt							2
Variable Interest Entity [Member]
Segment Reporting Information [Line Items]
Identifiable assets	8,200				8,200				10,900
Net gains (losses) on financial instruments at fair value and foreign exchange	44		88		(17)		3
Net gains (losses) on extinguishment of debt	16				49
Other net realized gains (losses)			5				8
Revenues of consolidated VIEs	77		110		83		64
Interest	13		15		43		45
Expenses of consolidated VIEs	18		22		57		69
Variable Interest Entity [Member] | Structured Finance And International Insurance [Member]
Segment Reporting Information [Line Items]
Revenues of consolidated VIEs	57		105		23		39
Expenses of consolidated VIEs	15		17		46		54
Variable Interest Entity [Member] | Wind-Down Operations [Member]
Segment Reporting Information [Line Items]
Revenues of consolidated VIEs	20		5		60		25
Expenses of consolidated VIEs	$ 3		$ 5		$ 11		$ 15

[1] Represents intercompany premium income and expense, intercompany asset management fees and expenses, and intercompany interest income and expense pertaining to intercompany receivables and payables.

[2] Represents intercompany asset management fees and expenses plus intercompany interest income and expense pertaining to intercompany debt.

[3] Consists of intercompany reinsurance balances, repurchase agreements and loans.

[4] Represents the sum of third-party financial guarantee net premiums earned, net investment income, insurance-related fees and reimbursements, investment management fees and other fees.

[5] Represents the sum of third-party interest income, investment management services fees and other fees.

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Loss And Loss Adjustment Expense Reserves (Summary Of Credit Impairments Related To Derivatives) (Narrative) (Detail) (USD $)	9 Months Ended	33 Months Ended
	Sep. 30, 2012 SecurityLoan	Sep. 30, 2012 SecurityLoan
Loss And Loss Adjustment Expense Reserves [Line Items]
Discount rate of credit impairments	5.59%
Number of structured CMBS commutations		66
Gross exposure commuted on CMBS insured derivatives		$ 33,100,000,000
Loan balance greater than with debt service coverage ratio	75,000,000
Debt service coverage ratio	1.0
Proprietary performance data on CRE loans, amount	80,000	80,000
Representative Cohorts based on DSCR and property type	168
Losses and LAE	330,000,000
Additional estimated credit impairments on CMBS derivatives	502,000,000
Aggregate ITD credit impairment on CMBS derivatives		3,300,000,000
CMBS severities exceeded complete loss in certain instances	100.00%
CRE CDO [Member]
Loss And Loss Adjustment Expense Reserves [Line Items]
Losses and LAE	$ 87,000,000
Maximum [Member]
Loss And Loss Adjustment Expense Reserves [Line Items]
Percentage of loss on liquidation	2.00%
Minimum [Member]
Loss And Loss Adjustment Expense Reserves [Line Items]
Percentage of loss on liquidation	1.00%

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Fair Value Of Financial Instruments (Quantitative Information Regarding Significant Unobservable Inputs For Assets And Liabilities Measured At Fair Value On Recurring Basis) (Detail) (USD $) In Millions, unless otherwise specified	9 Months Ended
	Sep. 30, 2012
Commercial Mortgage-Backed [Member] | Recovery Rates [Member] | Minimum [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Range Percentage	20.00%
Commercial Mortgage-Backed [Member] | Recovery Rates [Member] | Maximum [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Range Percentage	90.00%
Commercial Mortgage-Backed [Member] | Recovery Rates [Member] | Weighted Average [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Range Percentage	51.00%
Commercial Mortgage-Backed [Member] | Nonperformance Risk [Member] | Minimum [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Range Percentage	8.00%
Commercial Mortgage-Backed [Member] | Nonperformance Risk [Member] | Maximum [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Range Percentage	62.00%
Commercial Mortgage-Backed [Member] | Nonperformance Risk [Member] | Weighted Average [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Range Percentage	57.00%
Commercial Mortgage-Backed [Member] | Weighted Average Life [Member] | Minimum [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Range (in years)	0.3
Commercial Mortgage-Backed [Member] | Weighted Average Life [Member] | Maximum [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Range (in years)	5.9
Commercial Mortgage-Backed [Member] | Weighted Average Life [Member] | Weighted Average [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Range (in years)	4.6
Commercial Mortgage-Backed [Member] | CMBS Spreads [Member] | Minimum [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Range Percentage	1.00%
Commercial Mortgage-Backed [Member] | CMBS Spreads [Member] | Maximum [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Range Percentage	22.00%
Commercial Mortgage-Backed [Member] | CMBS Spreads [Member] | Weighted Average [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Range Percentage	12.00%
Multi-Sector CDO [Member] | Nonperformance Risk [Member] | Minimum [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Range Percentage	63.00%
Multi-Sector CDO [Member] | Nonperformance Risk [Member] | Maximum [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Range Percentage	63.00%
Multi-Sector CDO [Member] | Nonperformance Risk [Member] | Weighted Average [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Range Percentage	63.00%
Other [Member] | Recovery Rates [Member] | Minimum [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Range Percentage	42.00%
Other [Member] | Recovery Rates [Member] | Maximum [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Range Percentage	75.00%
Other [Member] | Recovery Rates [Member] | Weighted Average [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Range Percentage	47.00%
Other [Member] | Nonperformance Risk [Member] | Minimum [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Range Percentage	8.00%
Other [Member] | Nonperformance Risk [Member] | Maximum [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Range Percentage	63.00%
Other [Member] | Nonperformance Risk [Member] | Weighted Average [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Range Percentage	50.00%
Other [Member] | Weighted Average Life [Member] | Minimum [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Range (in years)	0.2
Other [Member] | Weighted Average Life [Member] | Maximum [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Range (in years)	19
Other [Member] | Weighted Average Life [Member] | Weighted Average [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Range (in years)	3.1
Credit Derivatives [Member] | Commercial Mortgage-Backed [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Valuation Techniques	BET Model
Fair Value	$ 1,533
Credit Derivatives [Member] | Multi-Sector CDO [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Valuation Techniques	Direct Price Model
Fair Value	628
Credit Derivatives [Member] | Other [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Valuation Techniques	BET Model
Fair Value	1,156
Loans Receivable [Member] | Variable Interest Entity [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Valuation Techniques	Quoted market prices adjusted for financial guarantees provided to VIE obligations
Fair Value	1,892
Loans Receivable [Member] | Variable Interest Entity [Member] | Impact Of Financial Guarantee [Member] | Minimum [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Range Percentage	0.00%
Loans Receivable [Member] | Variable Interest Entity [Member] | Impact Of Financial Guarantee [Member] | Maximum [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Range Percentage	22.00%
Loans Receivable [Member] | Variable Interest Entity [Member] | Impact Of Financial Guarantee [Member] | Weighted Average [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Range Percentage	4.00%
Loan Repurchase Commitments [Member] | Variable Interest Entity [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Valuation Techniques	Discounted cash flow
Fair Value	1,051
Loan Repurchase Commitments [Member] | Variable Interest Entity [Member] | Recovery Rates [Member] | Minimum [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Range Percentage	9.00%
Loan Repurchase Commitments [Member] | Variable Interest Entity [Member] | Recovery Rates [Member] | Maximum [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Range Percentage	96.00%
Loan Repurchase Commitments [Member] | Variable Interest Entity [Member] | Recovery Rates [Member] | Weighted Average [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Range Percentage	43.00%
Loan Repurchase Commitments [Member] | Variable Interest Entity [Member] | Breach Rates [Member] | Minimum [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Range Percentage	65.00%
Loan Repurchase Commitments [Member] | Variable Interest Entity [Member] | Breach Rates [Member] | Maximum [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Range Percentage	94.00%
Loan Repurchase Commitments [Member] | Variable Interest Entity [Member] | Breach Rates [Member] | Weighted Average [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Range Percentage	78.00%
Variable Interest Entity Notes [Member] | Variable Interest Entity [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Valuation Techniques	Quoted market prices of VIE assets adjusted for financial guarantees provided
Fair Value, liabilities	$ 1,885
Variable Interest Entity Notes [Member] | Variable Interest Entity [Member] | Impact Of Financial Guarantee [Member] | Minimum [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Range Percentage	0.00%
Variable Interest Entity Notes [Member] | Variable Interest Entity [Member] | Impact Of Financial Guarantee [Member] | Maximum [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Range Percentage	20.00%
Variable Interest Entity Notes [Member] | Variable Interest Entity [Member] | Impact Of Financial Guarantee [Member] | Weighted Average [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Range Percentage	6.00%

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Investment Income And Gains And Losses (Credit Losses Recognized In Earnings Related To OTTI Losses Recognized In Accumulated Other Comprehensive Income (Loss)) (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended			9 Months Ended
	Sep. 30, 2012		Sep. 30, 2011	Sep. 30, 2012		Sep. 30, 2011
Beginning balance	$ 269		$ 283	$ 341		$ 262
Additions for credit loss impairments recognized in the current period on securities not previously impaired			5			5
Additions for credit loss impairments recognized in the current period on securities previously impaired	5		6	8		32
Reductions for credit loss impairments previously recognized on securities sold during the period	(2)		(5)	(18)		(10)
Reductions for credit loss impairments previously recognized on securities impaired to fair value during the period	(52)	[1]		(111)	[1]
Ending balance	$ 220		$ 289	$ 220		$ 289

[1] Represents circumstances where the Company determined in the current period that it intends to sell the security or it is more likely than not that it will be required to sell the security before recovery of the security's amortized cost.

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Consolidated Balance Sheets (USD $) In Millions, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Assets
Cash and cash equivalents	$ 441	$ 633
Insurance Loss Recoverable	3,316	3,046
Deferred income taxes, net	1,400
Total assets	22,132	26,873
Liabilities:
Total liabilities	19,545	25,150
Commitments and contingencies (See Note 13)
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-275,455,099 and 274,896,162	275	275
Additional paid-in capital	3,072	3,072
Retained earnings	1,403	805
Accumulated other comprehensive income (loss), net of deferred tax of $24 and $105	90	(176)
Treasury stock, at cost-81,729,792 and 81,752,966 shares	(2,275)	(2,276)
Total shareholders' equity of MBIA Inc.	2,565	1,700
Preferred stock of subsidiary and noncontrolling interest	22	23
Total equity	2,587	1,723
Total liabilities and equity	22,132	26,873
Non Variable Interest Entities [Member]
Assets
Fixed-maturity securities held as available-for-sale, at fair value	4,634	6,177
Fixed-maturity securities at fair value	237	295
Investments pledged as collateral, at fair value (amortized cost $424 and $642)	350	543
Short-term investments held as available-for-sale, at fair value (amortized cost $1,440 and $1,577)	1,445	1,571
Other investments (includes investments at fair value of $16 and $96)	27	107
Total investments	6,693	8,693
Cash and cash equivalents	298	473
Premiums receivable	1,280	1,360
Deferred acquisition costs	317	351
Insurance Loss Recoverable	3,316	3,046
Property and equipment, at cost (less accumulated depreciation of $144 and $139)	69	69
Deferred income taxes, net	1,446	1,745
Other assets	414	243
Liabilities:
Unearned premium revenue	3,091	3,515
Loss and Loss Adjustment Expense Reserves	945	836
Investment agreements	993	1,578
Medium-term notes (includes financial instruments carried at fair value of $168 and $165)	1,606	1,656
Securities sold under agreements to repurchase		287
Long-term debt	1,836	1,840
Derivative liabilities	3,332	5,164
Other liabilities	467	391
Variable Interest Entity [Member]
Assets
Cash	143	160
Investments held-to-maturity, at amortized cost (fair value $2,867 and $3,489)	3,015	3,843
Fixed-maturity securities held as available-for-sale, at fair value	442	432
Fixed-maturity securities at fair value	1,754	2,884
Loans receivable at fair value	1,892	2,046
Loan repurchase commitments	1,051	1,077
Derivative assets		450
Other assets	2	1
Total assets	8,200	10,900
Liabilities:
Variable interest entity notes (includes financial instruments carried at fair value of $3,626 and $4,754)	7,094	8,697
Long-term debt		360
Derivative liabilities	180	825
Other liabilities	1	1
Total liabilities	$ 7,200	$ 9,900

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Loss And Loss Adjustment Expense Reserves (Schedule Of Financial Guarantees And Related Claim Liability) (Detail) (USD $) In Millions, unless otherwise specified	9 Months Ended		12 Months Ended
	Sep. 30, 2012 Policies Issues		Dec. 31, 2011 Issues Policies
Loss And Loss Adjustment Expense Reserves [Line Items]
Number of policies	293		296
Number of issues	188	[1]	191	[1]
Gross insured contractual payments outstanding, Principal	$ 15,187	[2]	$ 16,504	[2]
Gross insured contractual payments outstanding, Interest	8,526	[2]	8,984	[2]
Gross insured contractual payments outstanding, Total	23,713	[2]	25,488	[2]
Gross claim liability	1,670		1,812
Less: Gross potential recoveries	3,844		3,813
Less: Discount, net	178		177
Net claim liability (recoverable)	(2,352)		(2,178)
Unearned premium revenue	269		308
Remaining weighted average contract period (in years)	8 years 8 months 12 days		8 years 9 months 18 days
Caution List Low [Member]
Loss And Loss Adjustment Expense Reserves [Line Items]
Number of policies	49		54
Number of issues	27	[1]	32	[1]
Gross insured contractual payments outstanding, Principal	3,747	[2]	4,310	[2]
Gross insured contractual payments outstanding, Interest	2,690	[2]	2,653	[2]
Gross insured contractual payments outstanding, Total	6,437	[2]	6,963	[2]
Unearned premium revenue	130		155
Remaining weighted average contract period (in years)	8 years 8 months 12 days		8 years 2 months 12 days
Caution List Medium [Member]
Loss And Loss Adjustment Expense Reserves [Line Items]
Number of policies	24		28
Number of issues	14	[1]	18	[1]
Gross insured contractual payments outstanding, Principal	1,409	[2]	1,213	[2]
Gross insured contractual payments outstanding, Interest	334	[2]	351	[2]
Gross insured contractual payments outstanding, Total	1,743	[2]	1,564	[2]
Unearned premium revenue	17		16
Remaining weighted average contract period (in years)	4 years 7 months 6 days		5 years 7 months 6 days
Caution List High [Member]
Loss And Loss Adjustment Expense Reserves [Line Items]
Number of policies	11		14
Number of issues	10	[1]	11	[1]
Gross insured contractual payments outstanding, Principal	360	[2]	561	[2]
Gross insured contractual payments outstanding, Interest	115	[2]	144	[2]
Gross insured contractual payments outstanding, Total	475	[2]	705	[2]
Unearned premium revenue	3		3
Remaining weighted average contract period (in years)	7 years 9 months 18 days		6 years
Classified List [Member]
Loss And Loss Adjustment Expense Reserves [Line Items]
Number of policies	209		200
Number of issues	137	[1]	130	[1]
Gross insured contractual payments outstanding, Principal	9,671	[2]	10,420	[2]
Gross insured contractual payments outstanding, Interest	5,387	[2]	5,836	[2]
Gross insured contractual payments outstanding, Total	15,058	[2]	16,256	[2]
Gross claim liability	1,670		1,812
Less: Gross potential recoveries	3,844		3,813
Less: Discount, net	178		177
Net claim liability (recoverable)	(2,352)		(2,178)
Unearned premium revenue	$ 119		$ 134
Remaining weighted average contract period (in years)	9 years 4 months 24 days		9 years 7 months 6 days

[1] An "issue" represents the aggregate of financial guarantee policies that share the same revenue source for purposes of making debt service payments.

[2] Represents contractual principal and interest payments due by the issuer of the obligations insured by MBIA.

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Consolidated Statements Of Comprehensive Income (Loss) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Net income (loss)	$ 7	$ 444	$ 598	$ (693)
Unrealized gains (losses) arising during the period, net of tax of $17, $39, $69 and $131	55	70	164	285
Less: Reclassification adjustments for (gains) losses included in net income (loss), net of tax of $3, $14, $20 and $19	(6)	(26)	38	(36)
Unrealized gains (losses) on available-for-sale securities, net	49	44	202	249
Other-than-temporary impairments arising during the period, net of tax of $1, $2, $14 and $10	1	(3)	26	18
Less: Reclassification adjustments for other-than-temporary impairments included in net income (loss), net of tax of $2, $3, $18 and $10	4	4	34	19
Other-than-temporary impairments on available-for-sale securities, net	5	1	60	37
Unrealized gains (losses) on derivative instruments arising during the period, net of tax of $1, $4, $1 and $1	2	(7)	2	(3)
Less: Reclassification adjustments for (gains) losses included in net income (loss), net of tax of $0, $3, $9 and $4	1	6	17	8
Unrealized gains (losses) on derivative instruments, net	3	(1)	19	5
Foreign currency translation, net of tax of $4, $3, $3 and $0	(3)	3	(15)	(33)
Total other comprehensive income (loss)	54	47	266	258
Comprehensive income (loss)	$ 61	$ 491	$ 864	$ (435)

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Fair Value Of Financial Instruments (Difference Between Aggregate Fair Value And Aggregate Remaining Contractual Principal Balance Outstanding) (Detail) (USD $) In Millions, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Schedule of Fair Value of Separate Accounts by Major Category of Investment [Line Items]
Loans receivable, Contractual Outstanding Principal	$ 2,916	$ 3,481
Variable interest entity notes, Contractual Outstanding Principal	9,015	13,583
Loans receivable, Fair Value	1,892	2,046
Variable interest entity notes, Fair Value	3,626	4,754
Loans receivable, Difference	1,024	1,435
Variable interest entity notes, Difference	5,389	8,829
Residential Mortgage Loans [Member]
Schedule of Fair Value of Separate Accounts by Major Category of Investment [Line Items]
Loans receivable, Contractual Outstanding Principal	2,430	2,769
Loans receivable, 90 days or more past due, Contractual Outstanding Principal	241	259
Loans receivable, Fair Value	1,746	1,895
Loans receivable, 90 days or more past due, Fair Value	46
Loans receivable, Difference	684	874
Loans receivable, 90 days or more past due, Difference	195	259
Other Loans [Member]
Schedule of Fair Value of Separate Accounts by Major Category of Investment [Line Items]
Loans receivable, Contractual Outstanding Principal	39	129
Loans receivable, 90 days or more past due, Contractual Outstanding Principal	206	324
Loans receivable, Fair Value	16	43
Loans receivable, 90 days or more past due, Fair Value	84	108
Loans receivable, Difference	23	86
Loans receivable, 90 days or more past due, Difference	$ 122	$ 216

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Earnings Per Share (Tables)

9 Months Ended

Sep. 30, 2012

Schedule Of Basic And Diluted Earnings Per Share

	Three Months Ended September 30,				Nine Months Ended September 30,
$ in millions except share and per share amounts	2012		2011		2012		2011
Net income (loss)	$	7	$	444	$	598	$	(693)
Basic weighted average shares(1)		193,879,994		195,612,615		193,760,654		198,262,715
Effect of common stock equivalents:
Stock options		1,097,648		734,887		1,074,883		-
Diluted weighted average shares		194,977,642		196,347,502		194,835,537		198,262,715
Net income (loss) per common share:
Basic	$	0.04	$	2.27	$	3.09	$	(3.50)
Diluted	$	0.04	$	2.26	$	3.07	$	(3.50)

(1) - Includes 5,524,396 and 5,038,788 of unvested restricted stock and units that receive nonforfeitable dividends or dividend equivalents for the three months ended September 30, 2012 and 2011, respectively. Includes 5,442,143 and 5,085,256 of unvested restricted stock and units that receive nonforfeitable dividends or dividend equivalents for the nine months ended September 30, 2012 and 2011, respectively.

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Investments (Fair Values And Gross Unrealized Losses By Credit Rating Category Of Asset Backed Securities) (Detail) (USD $) In Millions, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Schedule of Available-for-sale Securities [Line Items]
Total, Fair Value	$ 1,025	$ 2,387
Total, Unrealized Losses	(191)	(478)
Asset-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Total, Fair Value	273
Total, Unrealized Losses	(99)
Asset-Backed Securities [Member] | ABS CDO [Member]
Schedule of Available-for-sale Securities [Line Items]
Total, Fair Value	30
Total, Unrealized Losses	(51)
Asset-Backed Securities [Member] | Corporate CDO [Member]
Schedule of Available-for-sale Securities [Line Items]
Total, Fair Value	203
Total, Unrealized Losses	(43)
Asset-Backed Securities [Member] | Small Business/ Student Loans [Member]
Schedule of Available-for-sale Securities [Line Items]
Total, Fair Value	15
Asset-Backed Securities [Member] | Other Asset-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Total, Fair Value	25
Total, Unrealized Losses	(5)
Aaa [Member] | Asset-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Total, Fair Value	46
Total, Unrealized Losses	(2)
Aaa [Member] | Asset-Backed Securities [Member] | ABS CDO [Member]
Schedule of Available-for-sale Securities [Line Items]
Total, Fair Value	9
Aaa [Member] | Asset-Backed Securities [Member] | Corporate CDO [Member]
Schedule of Available-for-sale Securities [Line Items]
Total, Fair Value	29
Total, Unrealized Losses	(2)
Aaa [Member] | Asset-Backed Securities [Member] | Small Business/ Student Loans [Member]
Schedule of Available-for-sale Securities [Line Items]
Total, Fair Value	5
Aaa [Member] | Asset-Backed Securities [Member] | Other Asset-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Total, Fair Value	3
Aa [Member] | Asset-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Total, Fair Value	65
Total, Unrealized Losses	(9)
Aa [Member] | Asset-Backed Securities [Member] | Corporate CDO [Member]
Schedule of Available-for-sale Securities [Line Items]
Total, Fair Value	64
Total, Unrealized Losses	(9)
Aa [Member] | Asset-Backed Securities [Member] | Other Asset-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Total, Fair Value	1
A [Member] | Asset-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Total, Fair Value	7
A [Member] | Asset-Backed Securities [Member] | ABS CDO [Member]
Schedule of Available-for-sale Securities [Line Items]
Total, Fair Value	4
A [Member] | Asset-Backed Securities [Member] | Other Asset-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Total, Fair Value	3
Baa [Member] | Asset-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Total, Fair Value	1
Baa [Member] | Asset-Backed Securities [Member] | Other Asset-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Total, Fair Value	1
Below Investment Grade [Member] | Asset-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Total, Fair Value	128
Total, Unrealized Losses	(83)
Below Investment Grade [Member] | Asset-Backed Securities [Member] | ABS CDO [Member]
Schedule of Available-for-sale Securities [Line Items]
Total, Fair Value	17
Total, Unrealized Losses	(51)
Below Investment Grade [Member] | Asset-Backed Securities [Member] | Corporate CDO [Member]
Schedule of Available-for-sale Securities [Line Items]
Total, Fair Value	91
Total, Unrealized Losses	(30)
Below Investment Grade [Member] | Asset-Backed Securities [Member] | Small Business/ Student Loans [Member]
Schedule of Available-for-sale Securities [Line Items]
Total, Fair Value	10
Below Investment Grade [Member] | Asset-Backed Securities [Member] | Other Asset-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Total, Fair Value	10
Total, Unrealized Losses	(2)
Not Rated [Member] | Asset-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Total, Fair Value	26
Total, Unrealized Losses	(5)
Not Rated [Member] | Asset-Backed Securities [Member] | Corporate CDO [Member]
Schedule of Available-for-sale Securities [Line Items]
Total, Fair Value	19
Total, Unrealized Losses	(2)
Not Rated [Member] | Asset-Backed Securities [Member] | Other Asset-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Total, Fair Value	7
Total, Unrealized Losses	$ (3)

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Earnings Per Share

9 Months Ended

Sep. 30, 2012

Earnings Per Share

Note 12: Earnings Per Share

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 reflects 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 September 30, 2012 and 2011, there were 3,404,672 and 3,783,574, respectively, of stock options outstanding that were not included in the diluted earnings per share calculation because they were antidilutive. For the nine months ended September 30, 2012 and 2011, there were 3,457,769 and 3,804,671, respectively, of stock options outstanding that were not included in the diluted earnings per share calculation because they were antidilutive.

The following table presents the computation of basic and diluted earnings per share for the three and nine months ended September 30, 2012 and 2011:

	Three Months Ended September 30,				Nine Months Ended September 30,
$ in millions except share and per share amounts	2012		2011		2012		2011
Net income (loss)	$	7	$	444	$	598	$	(693)
Basic weighted average shares(1)		193,879,994		195,612,615		193,760,654		198,262,715
Effect of common stock equivalents:
Stock options		1,097,648		734,887		1,074,883		-
Diluted weighted average shares		194,977,642		196,347,502		194,835,537		198,262,715
Net income (loss) per common share:
Basic	$	0.04	$	2.27	$	3.09	$	(3.50)
Diluted	$	0.04	$	2.26	$	3.07	$	(3.50)

(1) - Includes 5,524,396 and 5,038,788 of unvested restricted stock and units that receive nonforfeitable dividends or dividend equivalents for the three months ended September 30, 2012 and 2011, respectively. Includes 5,442,143 and 5,085,256 of unvested restricted stock and units that receive nonforfeitable dividends or dividend equivalents for the nine months ended September 30, 2012 and 2011, respectively.

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Business Developments, Risks And Uncertainties, And Liquidity (Narrative) (Detail) (USD $)	1 Months Ended	9 Months Ended		12 Months Ended	6 Months Ended	9 Months Ended		9 Months Ended	12 Months Ended								9 Months Ended															9 Months Ended							9 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011	Jun. 30, 2012 MBIA Corp [Member]	Sep. 30, 2012 MBIA Corp [Member]	Dec. 31, 2011 MBIA Corp [Member]	Sep. 30, 2012 National [Member]	Dec. 31, 2011 National [Member]	Dec. 31, 2010 National [Member]	Sep. 30, 2012 MBIA Inc. [Member]	Dec. 31, 2011 MBIA Inc. [Member]	Sep. 30, 2012 MBIA Inc General Corporate Purposes [Member]	Dec. 31, 2011 MBIA Inc General Corporate Purposes [Member]	Sep. 30, 2012 MBIA Inc Total [Member]	Dec. 31, 2011 MBIA Inc Total [Member]	Sep. 30, 2012 Maximum Amount [Member]	Sep. 30, 2012 Utilized Amount [Member] MBIA Inc. [Member]	Sep. 30, 2012 October One Two Thousand And Seven To September Thirty Two Thousand And Twelve [Member]	Sep. 30, 2012 October One Two Thousand And Seven To September Thirty Two Thousand And Twelve [Member] MBIA Corp [Member]	Sep. 30, 2012 Asset Swap [Member] MBIA Inc. [Member]	Sep. 30, 2012 Asset/Liability Products [Member]	Dec. 31, 2011 Asset/Liability Products [Member]	Sep. 30, 2012 Asset/Liability Products [Member] MBIA Inc. [Member]	Dec. 31, 2011 Asset/Liability Products [Member] MBIA Inc. [Member]	Sep. 30, 2012 CMBS Pool Insured Gross Par [Member]	Sep. 30, 2012 CRE CDO [Member]	Sep. 30, 2012 CRE Loan Pools [Member]	Sep. 30, 2012 CMBS Pool And CRE CDO Gross Par Exposure Decrease Since 2007 [Member]	Sep. 30, 2012 ABS CDO [Member]	Sep. 30, 2012 ABS CDO Gross Par Exposure Decrease Since 2007 [Member]	Sep. 30, 2012 Fair Value Of The Collateral Pledged By MBIA Inc [Member]	Sep. 30, 2012 Net Average Interest Rate [Member]	Sep. 30, 2011 Net Average Interest Rate [Member]	Sep. 30, 2012 Fair Value Of Collateral Pledged By National [Member] Asset Swap [Member]	Sep. 30, 2012 Notional Amount Utilized [Member]	Dec. 31, 2008 Maximum Amount At Inception [Member]	Sep. 30, 2012 Maximum Amount At Inception [Member] MBIA Corp [Member]	Sep. 30, 2012 Interest Rate [Member] MBIA Corp [Member]	Sep. 30, 2012 Borrowing Limit [Member]	Sep. 30, 2012 Consolidated VIEs [Member] October One Two Thousand And Seven To September Thirty Two Thousand And Twelve [Member] MBIA Corp [Member]	Sep. 30, 2012 Second-Lien RMBS Securitizations [Member] October One Two Thousand And Seven To September Thirty Two Thousand And Twelve [Member]
Business Acquisition [Line Items]
Liquid asset						$ 386,000,000	$ 534,000,000	$ 318,000,000	$ 703,000,000		$ 432,000,000	$ 386,000,000	$ 335,000,000	$ 226,000,000	$ 432,000,000	$ 386,000,000						$ 97,000,000	$ 160,000,000	$ 97,000,000	$ 160,000,000
Claims payments						1,000,000,000
Commuted gross insured exposure					12,800,000,000	13,000,000,000
Percentage of recognized estimated recoveries in relationship to consolidated total shareholders equity	82.00%	82.00%		119.00%
Federal statutory rate		35.00%	35.00%	35.00%
Percentage of ineligible mortgage loan recoveries of statutory capital	144.00%	144.00%		89.00%
Estimated insurance recoveries, after income taxes	2,100,000,000	2,100,000,000		2,000,000,000
Insurance par exposure	33,100,000,000	33,100,000,000																								15,700,000,000	2,200,000,000	2,800,000,000	36,100,000,000	4,400,000,000	32,900,000,000
Shareholders equity	2,565,000,000	2,565,000,000		1,700,000,000
Statutory capital						1,500,000,000		3,100,000,000
Contingency reserve release to surplus	196,000,000	196,000,000
Qualifying asset shortfall	97,000,000	97,000,000
Aggregate risk limits exceeded under NYIL		47,000,000
National Secured Loan								1,100,000,000
MBIA Secured Loan, average interest rate								7.00%																															2.51%
MBIA Corp Secured Loan								1,600,000,000																														2,000,000,000
Additional borrowing under National Secured Loan								443,000,000
Fair value of collateral pledged																					558,000,000														535,000,000
National Asset Swap											2,000,000,000																									522,000,000
National asset swap, percentage																																	0.56%	0.34%
Secured loan balance																																					2,000,000,000
Approved secured loan maximum outstanding amount	450,000,000	450,000,000																																						450,000,000
Conduit Repurchase Agreement																	1,000,000,000	51,000,000														63,000,000
Conduit Repurchase Agreement, percentage																																	2.48%
Payment on tax agreement related to estimated taxes		95,000,000							11,000,000	1,000,000
Escrow through tax years	365,000,000	365,000,000
Invested assets at amortized cost to liabilities at amortized cost issued to third-parties and affiliates at amortized cost	980,000,000	980,000,000		591,000,000
Description of sensitivity range	The table presents hypothetical increases and decreases in credit spreads of 50 and 200 basis points
Cash payments for second lien RMBS securitizations and CDS contracts																				11,600,000,000																					893,000,000
Cash payments for second lien RMBS securitization																																										6,600,000,000
Gross settlement and claim payments																			5,000,000,000
Excess interest cash flows from securitizations		185,000,000
Ineligible mortgage loans from securitizations, related expected recoveries	3,200,000,000	3,200,000,000
Held cash and available-for-sale investments						1,400,000,000	1,500,000,000
Cash and short-term investments								$ 356,000,000	$ 771,000,000

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Subsequent Events

9 Months Ended

Sep. 30, 2012

Subsequent Events

Note 14: Subsequent Events

Refer to “Note 13: Commitments and Contingencies” for information about legal proceedings that occurred after September 30, 2012.

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Investments (Held-To-Maturity Securities Continuous Unrealized Loss Position) (Detail) (Variable Interest Entity [Member], Mortgage And Other Asset-Backed Securities [Member], USD $) In Millions, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Variable Interest Entity [Member] | Mortgage And Other Asset-Backed Securities [Member]
Variable Interest Entity [Line Items]
Less than 12 Months, Fair Value		$ 284
Less than 12 Months, Unrealized Losses		(31)
12 Months or Longer, Fair Value	2,350	2,185
12 Months or Longer, Unrealized Losses	(168)	(340)
Total, Fair Value	2,350	2,469
Total, Unrealized Loss	$ (168)	$ (371)

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Consolidated Statements Of Comprehensive Income (Loss) (Parenthetical) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Unrealized gains (losses), tax	$ 17	$ 39	$ 69	$ 131
Reclassification adjustments for (gains) losses, tax	3	14	20	19
Other-than-temporary impairment, tax	1	2	14	10
Reclassification adjustments for other-than-temporary impairments, tax	2	3	18	10
Unrealized gains (losses) on derivative instruments, tax	1	4	1	1
Reclassification adjustments for (gains) losses, tax	0	3	9	4
Foreign currency translation, tax	$ 4	$ 3	$ 3	$ 0

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Consolidated Balance Sheets (Parenthetical) (USD $) In Millions, except Share data, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Short-term investments held as available-for-sale, amortized cost	$ 6,729	$ 9,025
Preferred stock, par value	$ 1	$ 1
Preferred stock, authorized shares	10,000,000	10,000,000
Preferred stock, issued	0	0
Preferred stock, outstanding	0	0
Common stock, par value	$ 1	$ 1
Common stock, authorized shares	400,000,000	400,000,000
Common stock, issued shares	275,455,099	274,896,162
Accumulated other comprehensive income (loss), net of deferred tax	24	105
Treasury stock, shares	81,729,792	81,752,966
Non Variable Interest Entities [Member]
Fixed-maturity securities held as available-for-sale, amortized cost	4,412	6,259
Investments pledged as collateral, amortized cost	424	642
Short-term investments held as available-for-sale, amortized cost	1,440	1,577
Other investments, fair value	16	96
Property and equipment, accumulated depreciation	144	139
Medium-term notes, financial instruments carried at fair value	168	165
Variable Interest Entity [Member]
Investments held-to-maturity, fair value	2,867	3,489
Fixed-maturity securities held as available-for-sale, amortized cost	461	473
Variable interest entity notes, financial instruments carried at fair value	$ 3,626	$ 4,754

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Investments

9 Months Ended

Sep. 30, 2012

Investments

Note 7: Investments

The Company’s fixed-maturity portfolio consists of high-quality (average rating Aa) taxable and tax-exempt investments of diversified maturities. Other investments primarily comprise equity investments, including those accounted for under the equity method, highly rated perpetual securities and loan receivables that bear interest.

The following tables present the amortized cost, fair value and other-than-temporary impairments of fixed-maturity investments and other investments designated as available-for-sale in the consolidated investment portfolio of the Company as of September 30, 2012 and December 31, 2011:

	September 30, 2012
In millions	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Other-Than- Temporary Impairments(1)
Fixed-maturity investments:
Taxable bonds:
U.S. Treasury and government agency	$	896	$	44	$	(1)	$	939	$	-
Foreign governments		318		22		-		340		-
Corporate obligations		1,068		59		(21)		1,106		3
Mortgage-backed securities:
Residential mortgage-backed agency		988		48		-		1,036		-
Residential mortgage-backed non-agency		187		16		(36)		167		(24)
Commercial mortgage-backed		46		1		(4)		43		-
Asset-backed securities:
Collateralized debt obligations		165		-		(74)		91		(26)
Other asset-backed		195		3		(14)		184		-
State and municipal bonds		895		73		(11)		957		-
Total taxable bonds		4,758		266		(161)		4,863		(47)
Tax-exempt bonds:
State and municipal bonds		886		60		-		946		-
Total fixed-maturity investments		5,644		326		(161)		5,809		(47)
Other investments:
Perpetual preferred securities		31		-		-		31		-
Other investments		10		-		-		10		-
Money market securities		583		-		-		583		-
Total other investments		624		-		-		624		-
Assets of consolidated VIEs:
Corporate obligations		177		7		(7)		177		-
Mortgage-backed securities:
Residential mortgage-backed non-agency		99		-		(12)		87		-
Asset-backed securities:
Collateralized debt obligations		108		-		(11)		97		-
Other asset-backed		25		1		-		26		-
State and municipal bonds		37		3		-		40		-
Other investments:
Money market securities		15		-		-		15		-
Total available-for-sale investments	$	6,729	$	337	$	(191)	$	6,875	$	(47)

(1) - Represents unrealized gains or losses on other than temporarily impaired securities recognized in accumulated other comprehensive income (loss), which includes the non-credit component of impairments, as well as all subsequent changes in fair value of such impaired securities.

	December 31, 2011
In millions	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Other-Than- Temporary Impairments(1)
Fixed-maturity investments:
Taxable bonds:
U.S. Treasury and government agency	$	1,091	$	39	$	-	$	1,130	$	-
Foreign governments		326		23		-		349		-
Corporate obligations		1,698		43		(106)		1,635		(2)
Mortgage-backed securities:
Residential mortgage-backed agency		1,198		47		-		1,245		-
Residential mortgage-backed non-agency		325		31		(83)		273		(57)
Commercial mortgage-backed		58		1		(10)		49		-
Asset-backed securities:
Collateralized debt obligations		251		-		(118)		133		(43)
Other asset-backed		520		2		(82)		440		(37)
State and municipal bonds		903		35		(17)		921		-
Total taxable bonds		6,370		221		(416)		6,175		(139)
Tax-exempt bonds:
State and municipal bonds		1,122		41		(2)		1,161		-
Total fixed-maturity investments		7,492		262		(418)		7,336		(139)
Other investments:
Perpetual preferred securities		127		-		(19)		108		-
Other investments		22		1		-		23		-
Money market securities		911		-		-		911		-
Total other investments		1,060		1		(19)		1,042		-
Assets of consolidated VIEs:
Corporate obligations		2		-		-		2		-
Mortgage-backed securities:
Residential mortgage-backed non-agency		119		-		(26)		93		-
Asset-backed securities:
Collateralized debt obligations		112		-		(15)		97		-
Other asset-backed		41		-		-		41		-
Other investments:
Money market securities		199		-		-		199		-
Total available-for-sale investments	$	9,025	$	263	$	(478)	$	8,810	$	(139)

(1)  - Represents unrealized gains or losses on other than temporarily impaired securities recognized in accumulated other comprehensive income (loss), which includes the non-credit component of impairments, as well as all subsequent changes in fair value of such impaired securities.

The fair value of securities on deposit with various regulatory authorities was $10 million and $11 million as of September 30, 2012 and December 31, 2011, respectively. These deposits are required to comply with state insurance laws.

Substantially all of the obligations under investment agreements require the Company to pledge securities as collateral. As of September 30, 2012 and December 31, 2011, the fair value of securities pledged as collateral with respect to these investment agreements approximated $885 million and $1.9 billion, respectively. The Company’s collateral as of September 30, 2012 consisted principally of RMBS, U.S. Treasury and government agency bonds and state and municipal bonds, and was primarily held with major U.S. banks. Additionally, the Company pledged cash and money market securities as collateral under investment agreements in the amount of $126 million and $224 million as of September 30, 2012 and December 31, 2011, respectively.

The following table presents the distribution by contractual maturity of available-for-sale fixed-maturity investments at amortized cost and fair value as of September 30, 2012. Contractual maturity may differ from expected maturity as borrowers may have the right to call or prepay obligations.

					Consolidated VIEs
In millions	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	828	$	830	$	7	$	7
Due after one year through five years		844		872		123		132
Due after five years through ten years		591		635		-		-
Due after ten years through fifteen years		437		468		84		78
Due after fifteen years		1,363		1,483		-		-
Mortgage-backed		1,221		1,246		99		87
Asset-backed		360		275		133		123
Total fixed-maturity investments	$	5,644	$	5,809	$	446	$	427

Investments that are held-to-maturity are reported on the Company’s consolidated balance sheets at amortized cost. These investments, which primarily relate to the Company’s consolidated VIEs, principally consist of ABS and other fixed-income debt obligations issued by major national and international corporations and other structured finance clients. As of September 30, 2012, unrecognized gross gains were $20 million and unrecognized gross losses were $168 million. As of December 31, 2011, unrecognized gross gains were $17 million and unrecognized gross losses were $371 million. The following table presents the distribution of held-to-maturity investments by contractual maturity at amortized cost and fair value as of September 30, 2012:

					Consolidated VIEs
In millions	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	-	$	-	$	-	$	-
Due after one year through five years(1)		1		1		-		-
Due after five years through ten years		-		-		-		-
Due after ten years through fifteen years		-		-		-		-
Due after fifteen years		-		-		-		-
Mortgage-backed		-		-		-		-
Asset-backed		-		-		3,015		2,867
Total held-to-maturity investments	$	1	$	1	$	3,015	$	2,867

(1)  - Relates to tax credit investments reported in “Other investments” on the Company’s consolidated balance sheets.

Impaired Investments

The following tables present the gross unrealized losses included in accumulated other comprehensive income (loss) as of September 30, 2012 and December 31, 2011 related to available-for-sale fixed-maturity and other investments. These tables segregate investments that have been in a continuous unrealized loss position for less than twelve months from those that have been in a continuous unrealized loss position for twelve months or longer.

	September 30, 2012
	Less than 12 Months				12 Months or Longer				Total
In millions	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Fixed-maturity investments:
Taxable bonds:
U.S. Treasury and government agency	$	197	$	(1)	$	-	$	-	$	197	$	(1)
Foreign governments		24		-		-		-		24		-
Corporate obligations		60		-		49		(21)		109		(21)
Mortgage-backed securities:
Residential mortgage-backed agency		8		-		41		-		49		-
Residential mortgage-backed non-agency		2		-		102		(36)		104		(36)
Commercial mortgage-backed		3		-		27		(4)		30		(4)
Asset-backed securities:
Collateralized debt obligations		2		-		83		(74)		85		(74)
Other asset-backed		1		-		88		(14)		89		(14)
State and municipal bonds		6		-		66		(11)		72		(11)
Total taxable bonds		303		(1)		456		(160)		759		(161)
Tax-exempt bonds:
State and municipal bonds		1		-		22		-		23		-
Total fixed-maturity investments		304		(1)		478		(160)		782		(161)
Other investments:
Perpetual preferred securities		-		-		3		-		3		-
Assets of consolidated VIEs:
Corporate obligations		-		-		54		(7)		54		(7)
Mortgage-backed securities:
Residential mortgage-backed non-agency		-		-		87		(12)		87		(12)
Asset-backed securities:
Collateralized debt obligations		-		-		96		(11)		96		(11)
Other asset-backed		-		-		3		-		3		-
Total	$	304	$	(1)	$	721	$	(190)	$	1,025	$	(191)

	December 31, 2011
	Less than 12 Months				12 Months or Longer				Total
In millions	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Fixed-maturity investments:
Taxable bonds:
U.S. Treasury and government agency	$	200	$	-	$	-	$	-	$	200	$	-
Foreign governments		20		-		-		-		20		-
Corporate obligations		297		(15)		418		(91)		715		(106)
Mortgage-backed securities:
Residential mortgage-backed agency		20		-		49		-		69		-
Residential mortgage-backed non-agency		34		(5)		167		(78)		201		(83)
Commercial mortgage-backed		17		(2)		22		(8)		39		(10)
Asset-backed securities:
Collateralized debt obligations		13		(2)		117		(116)		130		(118)
Other asset-backed		53		(7)		328		(75)		381		(82)
State and municipal bonds		152		(2)		76		(15)		228		(17)
Total taxable bonds		806		(33)		1,177		(383)		1,983		(416)
Tax-exempt bonds:
State and municipal bonds		14		-		75		(2)		89		(2)
Total fixed-maturity investments		820		(33)		1,252		(385)		2,072		(418)
Other investments:
Perpetual preferred securities		47		(3)		45		(16)		92		(19)
Assets of consolidated VIEs:
Corporate obligations		2		-		-		-		2		-
Mortgage-backed securities:
Residential mortgage-backed non-agency		3		-		90		(26)		93		(26)
Asset-backed securities:
Collateralized debt obligations		9		-		88		(15)		97		(15)
Other asset-backed		31		-		-		-		31		-
Total	$	912	$	(36)	$	1,475	$	(442)	$	2,387	$	(478)

Gross unrealized losses on available-for-sale securities presented in the preceding tables decreased as of September 30, 2012 compared with December 31, 2011 primarily due to the sale of several impaired securities included in the Company’s asset/liability products investment portfolio and the other-than-temporary impairment to fair value of several other impaired securities since there was an intent to sell them. Investments with unrealized losses that met the criteria described in the “Other-Than-Temporary Impairments” section below were tested for other-than-temporary impairments and principally related to ABS, MBS, and corporate obligations.

The following table presents the fair values and gross unrealized losses by credit rating category of ABS included in the Company’s consolidated investment portfolio as of September 30, 2012 for which fair value was less than amortized cost. Of the total fair value and unrealized losses of ABS, $57 million of fair value and $52 million of unrealized losses are included in the Company’s asset/liability products investment portfolio. Fair values include the benefit of guarantees provided by financial guarantors, including MBIA. The credit ratings are based on ratings from Moody’s as of September 30, 2012 or an alternate ratings source, such as S&P, when a security is not rated by Moody’s. For investments that are insured by various third-party guarantee insurers, the credit rating reflects the higher of the insurer’s rating or the underlying bond’s rating.

																	Below
In millions	Aaa				Aa				A				Baa				Investment Grade				Not Rated				Total
Asset- backed Sector	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
ABS CDO	$	9	$	-	$	-	$	-	$	4	$	-	$	-	$	-	$	17	$	(51)	$	-	$	-	$	30	$	(51)
Corporate CDO		29		(2)		64		(9)		-		-		-		-		91		(30)		19		(2)		203		(43)
Small business/ student loans		5		-		-		-		-		-		-		-		10		-		-		-		15		-
Other ABS		3		-		1		-		3		-		1		-		10		(2)		7		(3)		25		(5)
Total	$	46	$	(2)	$	65	$	(9)	$	7	$	-	$	1	$	-	$	128	$	(83)	$	26	$	(5)	$	273	$	(99)

The Company’s investments in ABS reported in the preceding table included 44% rated investment grade and 17% rated Aaa. Of the total ABS investments reported in the preceding table, $148 million include the benefit of guarantees provided by MBIA Corp. and $27 million include the benefit of guarantees provided by third-party financial guarantors. The average credit rating of all guaranteed ABS investments using the higher of the guarantors’ ratings or the underlying bond ratings was below investment grade and the average underlying credit rating of guaranteed ABS investments, without giving effect to the guarantees, was below investment grade. Without giving effect to the benefit of guarantees provided by financial guarantors, including MBIA Corp., $135 million or 49% of the securities included in the preceding table were rated below investment grade.

The following table presents the fair values and gross unrealized losses by credit rating category of MBS included in the Company’s consolidated investment portfolio as of September 30, 2012 for which fair value was less than amortized cost. Fair values include the benefit of guarantees provided by financial guarantors, including MBIA. The credit ratings are based on ratings from Moody’s as of September 30, 2012 or an alternate ratings source, such as S&P, when a security is not rated by Moody’s. For investments that are insured by various third-party guarantee insurers, the credit rating reflects the higher of the insurer’s rating or the underlying bond’s rating.

																	Below
In millions	Aaa				Aa				A				Baa				Investment Grade				Not Rated				Total
Mortgage- backed Securities	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
RMBS:
Collateralized	$	41	$	-	$	24	$	-	$	-	$	-	$	-	$	-	$	30	$	(5)	$	14	$	(7)	$	109	$	(12)
Home equity		-		-		57		(10)		-		-		3		(1)		56		(21)		-		-		116		(32)
Pass-through securities		8		-		-		-		-		-		-		-		-		-		-		-		8		-
Other		-		-		8		(3)		-		-		-		-		-		-		-		-		8		(3)
CMBS		-		-		-		-		-		-		27		(4)		2		(1)		-		-		29		(5)
Total	$	49	$	-	$	89	$	(13)	$	-	$	-	$	30	$	(5)	$	88	$	(27)	$	14	$	(7)	$	270	$	(52)

The Company’s investments in MBS reported in the preceding table included 62% rated investment grade and 18% rated Aaa. Of the total MBS investments reported in the preceding table, $10 million include the benefit of guarantees provided by MBIA Corp. and $184 million include the benefit of guarantees provided by third-party financial guarantors. The average credit rating of all guaranteed MBS investments using the higher of the guarantors’ ratings or the underlying bond ratings was below investment grade and the average underlying credit rating of guaranteed MBS investments, without giving effect to the guarantees, was below investment grade. Without giving effect to the benefit of guarantees provided by financial guarantors, including MBIA Corp., $197 million or 73% of the securities included in the preceding table were rated below investment grade.

The following table presents the fair values and gross unrealized losses by credit rating category of direct corporate obligations included in the Company’s consolidated investment portfolio as of September 30, 2012 for which fair value was less than amortized cost. Fair values include the benefit of guarantees provided by financial guarantors, including MBIA. The credit ratings are based on ratings from Moody’s as of September 30, 2012 or an alternate ratings source, such as S&P, when a security is not rated by Moody’s. For investments that are insured by various third-party guarantee insurers, the credit rating reflects the higher of the insurer’s rating or the underlying bond’s rating.

In millions	Aaa				Aa				A				Baa				Below Investment Grade				Not Rated				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Corporate Obligations	$	-	$	-	$	4	$	-	$	74	$	(6)	$	59	$	(7)	$	14	$	(3)	$	12	$	(12)	$	163	$	(28)

The Company’s investments in corporate obligations reported in the preceding table included 84% rated investment grade. Of the total corporate obligations reported in the preceding table, $9 million include the benefit of guarantees provided by third-party financial guarantors. The average credit rating of all guaranteed corporate obligations included in the preceding table using the higher of the guarantors’ ratings or the underlying bond ratings was Baa and the average underlying credit rating of these guaranteed corporate obligations without giving effect to the guarantees was Baa. Without giving effect to the benefit of guarantees provided by financial guarantors, $14 million or 9% of the securities included in the preceding table were rated below investment grade.

The following tables present the gross unrealized losses of held-to-maturity investments as of September 30, 2012 and December 31, 2011. Held-to-maturity investments are reported at amortized cost on the Company’s consolidated balance sheets. The tables segregate investments that have been in a continuous unrealized loss position for less than twelve months from those that have been in a continuous unrealized loss position for twelve months or longer.

	September 30, 2012
	Less than 12 Months				12 Months or Longer				Total
In millions	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Assets of consolidated VIEs:
Other asset-backed securities	$	-	$	-	$	2,350	$	(168)	$	2,350	$	(168)
	December 31, 2011
	Less than 12 Months				12 Months or Longer				Total
In millions	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Assets of consolidated VIEs:
Other asset-backed securities	$	284	$	(31)	$	2,185	$	(340)	$	2,469	$	(371)

As of September 30, 2012 and December 31, 2011, the Company’s available-for-sale fixed-maturity investment, other investment and held-to-maturity investment portfolios’ gross unrealized losses totaled $359 million and $849 million, respectively. The weighted average contractual maturity of securities in an unrealized loss position as of September 30, 2012 and December 31, 2011 was 21 years. As of September 30, 2012, there were 193 securities that were in an unrealized loss position for a continuous twelve-month period or longer with aggregate unrealized losses of $358 million. Within these securities, the book value of 118 securities exceeded market value by more than 5% as presented in the following table:

Percentage Book Value Exceeded Market Value	Number of Securities		Book Value (in millions)		Fair Value (in millions)
Greater than 5% to less than 16%		35	$	279	$	250
16% to less than 26%		23		791		621
26% to 50%		34		120		75
Greater than 50%		26		87		18
Total		118	$	1,277	$	964

As of December 31, 2011, there were 290 securities that were in an unrealized loss position for a continuous twelve-month period or longer with aggregate unrealized losses of $782 million. Within these securities, the book value of 218 securities exceeded market value by more than 5%. The decrease in the number of securities in an unrealized loss position as of September 30, 2012 compared with December 31, 2011 resulted from the sales and impairments of securities during the first nine months of 2012.

Other-Than-Temporary Impairments

The Company has an ongoing review process for all securities in its investment portfolio, including a quarterly assessment of other-than-temporary impairments. This evaluation includes both qualitative and quantitative considerations. In assessing whether a decline in value is related to a credit loss, the Company considers several factors, including but not limited to (i) the magnitude and duration of declines in fair value; (ii) the reasons for the declines in fair value, such as general credit spread movements in each asset-backed sector, transaction-specific changes in credit spreads, credit rating downgrades, modeled defaults, and principal and interest payment priorities within each investment structure; and (iii) any guarantees associated with a security such as those provided by financial guarantee insurance companies, including MBIA Corp. and National.

In calculating credit-related losses, the Company utilizes cash flow modeling based on the type of security. The Company’s cash flow analysis considers all sources of cash, including credit enhancement, that support the payment of amounts owed by an issuer of a security. This includes the consideration of cash expected to be provided by financial guarantors, including MBIA Corp., resulting from an actual or potential insurance policy claim. In general, any change in the amount and/or timing of cash flows received or expected to be received, whether or not such cash flows are contractually defined, is reflected in the Company’s cash flow analysis for purposes of assessing an other-than-temporary impairment loss on an impaired security.

ABS investments are evaluated for other-than-temporary impairments using historical collateral performance, deal waterfall and structural protections, credit ratings, and forward looking projections of collateral performance based on business and economic conditions specific to each collateral type and risk. The underlying collateral is evaluated to identify any specific performance concerns, and stress scenarios are considered in forecasting ultimate returns of principal. Based on this evaluation, if a principal default is projected for a security, estimated future cash flows are discounted at the security’s purchase yield. If the present value of cash flows is less than the Company’s amortized cost for the security, the difference is recorded as an other-than-temporary impairment loss.

RMBS investments are evaluated for other-than-temporary impairments using industry-standard quantitative tools. Loan level data is obtained and analyzed in a model that produces prepayment, default, and severity vectors. The model utilizes macro inputs, including housing price assumptions and interest rates, which are consistent with industry views. The vector outputs are used as inputs to a third-party cash flow model, which considers deal waterfall dynamics and structural features, to generate cash flows for an RMBS investment. These cash flows are then discounted at the security’s purchase yield. If the present value of the cash flows is less than the Company’s amortized cost for the investment, the difference is recorded as an other-than-temporary impairment loss. For CDO investments, the Company utilizes the same tools as for RMBS securities, aggregating the bond level cash flows to the CDO investment level.

Corporate obligation investments are evaluated for other-than-temporary impairments using industry-standard credit analysis techniques. The Company’s analysis includes a detailed review of a number of quantitative and qualitative factors impacting the value of an individual security. These factors include the interest rate of the security (fixed or floating), the security’s current market spread, any collateral supporting the security, the security’s position in the issuer’s capital structure, and credit rating upgrades or downgrades. Additionally, these factors include an assessment of various issuer-related credit metrics including market capitalization, earnings, cash flow, capitalization, interest coverage, leverage, liquidity, management and a third-party quantitative default probability model. The Company’s analysis is augmented by comparing market prices for similar securities of other issuers in the same sector, as well as any recent corporate or government actions that may impact the ultimate return of principal. If the Company determines that, after considering these factors, a principal default is projected, a recovery analysis is performed using the above data. If the Company’s estimated recovery value for the security is less than its amortized cost, the difference is recorded as an other-than-temporary impairment loss.

The Company does not record other-than-temporary impairments related to credit concerns about issuers of securities insured by MBIA Corp. and National since investors in these securities, including MBIA, are guaranteed payment of principal and interest when due by MBIA. Securities insured by the Company, whether or not owned by the Company, are evaluated for impairment as part of its insurance surveillance process and, therefore, losses on securities insured by the Company are recorded in accordance with its loss reserving policy. Refer to “Note 2: Significant Accounting Policies” in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 for information about the Company’s loss reserving policy and “Note 5: Loss and Loss Adjustment Expense Reserves” for information about loss reserves.

In considering cash expected to be provided from other third-party financial guarantors, the Company assesses the financial guarantor’s ability to make claim payments under a variety of scenarios that test the guarantor’s ultimate claims paying ability. The weighted average outcome of these scenarios, combined with the cash flows provided by the insured security, are used to determine the recoverability of the Company’s amortized cost.

The following table provides information about securities held by the Company as of September 30, 2012 that were in an unrealized loss position and insured by a financial guarantor, along with the amount of insurance loss reserves corresponding to the par amount owned by the Company:

In millions	Fair Value		Unrealized Loss		Insurance Loss Reserve(2)
Asset-backed:
MBIA(1)	$	148	$	(63)	$	18
Other		27		(7)		-
Total asset-backed		175		(70)		18
Mortgage-backed:
MBIA(1)		10		(1)		-
Other		184		(43)		-
Total mortgage-backed		194		(44)		-
Corporate obligations:
Other		9		(12)		-
Total corporate obligations		9		(12)		-
Other:
MBIA(1)		72		(11)		-
Other		8		-		-
Total other		80		(11)		-
Total	$	458	$	(137)	$	18

(1) - Includes investments insured by MBIA Corp. and National.

(2) - Insurance loss reserve estimates are based on the proportion of par value owned to the total amount of par value insured.

The Company concluded that it does not have the intent to sell securities in an unrealized loss position and it is more likely than not, that it will not have to sell these securities before recovery of their cost basis. In making this conclusion, the Company examined the cash flow projections for its investment portfolios, the potential sources and uses of cash in its businesses, and the cash resources available to its business other than sales of securities. It also considered the existence of any risk management or other plans as of September 30, 2012 that would require the sale of impaired securities. Impaired securities that the Company intends to sell before the expected recovery of such securities’ fair values have been written down to their fair values.

Each quarter, an internal committee, comprising staff that is independent of the Company’s evaluation process for determining other-than-temporary impairments of securities, reviews and approves the valuation of investments. Among other responsibilities, this committee ensures that the Company’s process for identifying and calculating other-than-temporary impairments, including the use of models and assumptions, is reasonable and complies with the Company’s internal policy.

Refer to “Note 8: Investment Income and Gains and Losses” for information on realized losses due to other-than-temporary impairments.

XML

Document and Entity Information	9 Months Ended
	Sep. 30, 2012	Nov. 01, 2012
Entity Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2012
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q3
Trading Symbol	MBI
Entity Registrant Name	MBIA INC
Entity Central Index Key	0000814585
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		193,731,768

XML

Investment Income And Gains And Losses

9 Months Ended

Sep. 30, 2012

Investment Income And Gains And Losses

Note 8: Investment Income and Gains and Losses

The following table includes total investment income from all operations:

	Three Months Ended September 30,				Nine Months Ended September 30,
In millions	2012		2011		2012		2011
Net investment income:
Fixed-maturity	$	47	$	88	$	160	$	284
Short-term investments		1		1		5		5
Other investments		2		3		7		10
Consolidated VIEs		17		17		51		53
Net investment income		67		109		223		352
Realized gains and losses:
Fixed-maturity:
Gains		42		46		94		117
Losses		(12)		(56)		(190)		(133)
Net		30		(10)		(96)		(16)
Other investments:
Gains		-		-		6		9
Losses		(2)		(1)		(16)		(1)
Net		(2)		(1)		(10)		8
Total net realized gains (losses)(1)		28		(11)		(106)		(8)
Total investment income	$	95	$	98	$	117	$	344

(1) - These balances are included in the “Net gains (losses) on financial instruments at fair value and foreign exchange” and “Net investment losses related to other-than-temporary impairments” line items on the Company’s consolidated statements of operations.

Net investment income is generated as a result of the ongoing management of the Company’s investment portfolios. For the three and nine months ended September 30, 2012, net investment income decreased compared to the same periods of 2011 due to a lower asset base in 2012.

Total net realized gains (losses) for the three months ended September 30, 2012 increased compared to the same period of 2011 primarily due to lower other-than-temporary impairment losses. For the nine months ended September 30, 2012, total net realized losses increased compared to the same period of 2011 primarily due to other-than-temporary impairment losses that were recognized on securities impaired to fair value due to the Company’s intent to sell these securities and losses on sales of securities in the Company’s asset/liability products investment portfolio.

The portion of certain other-than-temporary impairment losses on fixed-maturity securities that does not represent credit losses is recognized in accumulated other comprehensive income (loss). For these impairments, the net amount recognized in earnings represents the difference between the amortized cost of the security and the net present value of its projected future discounted cash flows prior to impairment. Any remaining difference between the fair value and amortized cost is recognized in accumulated other comprehensive income (loss). The following table presents the amount of credit loss impairments recognized in earnings on fixed-maturity securities held by MBIA as of the dates indicated, for which a portion of the other-than-temporary impairment losses was recognized in accumulated other comprehensive income (loss), and the corresponding changes in such amounts:

In millions	Three Months Ended September 30,						Nine Months Ended September 30,
Credit Losses Recognized in Earnings Related to Other-Than-Temporary Impairments	2012			2011			2012			2011
Beginning balance	$	269		$	283		$	341		$	262
Additions for credit loss impairments recognized in the current period on securities not previously impaired		-			5			-			5
Additions for credit loss impairments recognized in the current period on securities previously impaired		5			6			8			32
Reductions for credit loss impairments previously recognized on securities sold during the period		(2	)		(5	)		(18	)		(10	)
Reductions for credit loss impairments previously recognized on securities impaired to fair value during the period(1)		(52	)		-			(111	)		-
Ending balance	$	220		$	289		$	220		$	289

(1) - Represents circumstances where the Company determined in the current period that it intends to sell the security or it is more likely than not that it will be required to sell the security before recovery of the security’s amortized cost.

For ABS (e.g., RMBS and CDOs), the Company estimated expected future cash flows of each security by estimating the expected future cash flows of the underlying collateral and applying those collateral cash flows, together with any credit enhancements such as subordination interests owned by third parties, to the security. The expected future cash flows of the underlying collateral are determined using the remaining contractual cash flows adjusted for future expected credit losses (which consider current delinquencies and nonperforming assets, future expected default rates and collateral value by vintage and geographic region) and prepayments. The expected cash flows of the security are then discounted at the interest rate used to recognize interest income on the security to arrive at a present value amount. The following table presents a summary of the significant inputs considered in determining the measurement of the credit loss component recognized in earnings for each significant class of ABS for the nine months ended September 30, 2012 and 2011:

	Nine Months Ended September 30,
Asset-backed Securities	2012		2011
Expected size of losses(1):
Range(2)		12.13% to 97.70%		1.59% to 100.00%
Weighted average(3)		88.48%		64.58%
Current subordination levels(4):
Range(2)		0.00% to 0.00%		0.00% to 29.46%
Weighted average(3)		0.00%		0.00%
Prepayment speed (annual constant prepayment rate)(5):
Range(2)		0.00% to 30.91%		0.00% to 100.00%
Weighted average(3)		12.16%		15.62%

(1) - Represents future expected credit losses on impaired assets expressed as a percentage of total outstanding balance.

(2) - Represents the range of inputs/assumptions based upon the individual securities within each category.

(3) - Calculated by weighting the relevant input/assumption for each individual security by the outstanding notional of the security.

(4) - Represents current level of credit protection (subordination) for the securities, expressed as a percentage of the balance of the collateral group backing the bond.

(5) - Values represent high and low points of lifetime vectors of constant prepayment rates.

Net unrealized gains (losses), including the portion of other-than-temporary impairments included in accumulated other comprehensive income (loss), reported within shareholders’ equity consisted of:

In millions	As of September 30, 2012		As of December 31, 2011
Fixed-maturity:
Gains	$	337	$	262
Losses		(191)		(459)
Foreign exchange		17		(5)
Net		163		(202)
Other investments:
Gains		-		1
Losses		-		(19)
Net		-		(18)
Total		163		(220)
Deferred income tax provision (benefit)		35		(86)
Unrealized gains (losses), net	$	128	$	(134)

The change in net unrealized gains (losses), including the portion of other-than-temporary impairments, presented in the table above consisted of:

In millions	As of September 30, 2012		As of December 31, 2011
Fixed-maturity	$	365	$	386
Other investments		18		(6)
Total		383		380
Deferred income tax charged (credited)		121		122
Change in unrealized gains (losses), net	$	262	$	258

XML

Income Taxes (Income Taxes And Related Effective Tax Rates) (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Income (loss) before income taxes	$ (57)	$ 745	$ 759	$ (1,165)
Provision (benefit) for income taxes	$ (64)	$ 301	$ 161	$ (472)
Effective tax rate	112.30%	40.40%	21.20%	40.50%

XML

Consolidated Statements Of Operations (USD $) In Millions, except Share data, unless otherwise specified	3 Months Ended				9 Months Ended
	Sep. 30, 2012		Sep. 30, 2011		Sep. 30, 2012		Sep. 30, 2011
Change in fair value of insured derivatives:
Unrealized gains (losses) on insured derivatives					$ (1,473)		$ 531
Investment losses related to other-than-temporary impairments:
Total revenues	281		1,120		1,703		(390)
Expenses:
Losses and loss adjustment					330
Total expenses	338		375		944		775
Income (loss) before income taxes	(57)		745		759		(1,165)
Provision (benefit) for income taxes	(64)		301		161		(472)
Net income (loss)	7		444		598		(693)
Net income (loss) per common share:
Basic	$ 0.04		$ 2.27		$ 3.09		$ (3.50)
Diluted	$ 0.04		$ 2.26		$ 3.07		$ (3.50)
Weighted average number of common shares outstanding:
Basic	193,879,994	[1]	195,612,615	[1]	193,760,654	[1]	198,262,715	[1]
Diluted	194,977,642		196,347,502		194,835,537		198,262,715
Non Variable Interest Entities [Member]
Premiums earned:
Scheduled premiums earned	85		111		291		354
Refunding premiums earned	70		65		173		108
Premiums earned (net of ceded premiums of $3, $3, $12 and $9)	155		176		464		462
Net investment income	50		92		172		299
Fees and reimbursements	20		16		47		41
Change in fair value of insured derivatives:
Realized gains (losses) and other settlements on insured derivatives	12		(53)		(420)		(599)
Unrealized gains (losses) on insured derivatives	(33)		776		1,473		(531)
Net change in fair value of insured derivatives	(21)		723		1,053		(1,130)
Net gains (losses) on financial instruments at fair value and foreign exchange	7		13		(18)		(114)
Investment losses related to other-than-temporary impairments:
Investment losses related to other-than-temporary impairments	(3)		(12)		(58)		(25)
Other-than-temporary impairments recognized in accumulated other comprehensive income (loss)	(5)		1		(47)		(19)
Net investment losses related to other-than-temporary impairments	(8)		(11)		(105)		(44)
Net gains (losses) on extinguishment of debt							26
Other net realized gains (losses)	1		1		7		6
Expenses:
Losses and loss adjustment	171		190		330		204
Amortization of deferred acquisition costs	8		12		36		51
Operating	72		76		307		226
Interest	69		75		214		225
Variable Interest Entity [Member]
Premiums earned:
Net investment income	17		17		51		53
Change in fair value of insured derivatives:
Net gains (losses) on financial instruments at fair value and foreign exchange	44		88		(17)		3
Investment losses related to other-than-temporary impairments:
Net gains (losses) on extinguishment of debt	16				49
Other net realized gains (losses)			5				8
Expenses:
Operating	5		7		14		24
Interest	$ 13		$ 15		$ 43		$ 45

[1] Includes 5,524,396 and 5,038,788 of unvested restricted stock and units that receive nonforfeitable dividends or dividend equivalents for the three months ended September 30, 2012 and 2011, respectively. Includes 5,442,143 and 5,085,256 of unvested restricted stock and units that receive nonforfeitable dividends or dividend equivalents for the nine months ended September 30, 2012 and 2011, respectively.

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Significant Accounting Policies

9 Months Ended

Sep. 30, 2012

Significant Accounting Policies

Note 2: Significant Accounting Policies

The Company has disclosed its significant accounting policies in “Note 2: Significant Accounting Policies” in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. The following significant accounting policies provide an update to those included in the Company’s Annual Report on Form 10-K.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X and, accordingly, do not include all of the information and disclosures required by GAAP for annual periods. These statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2011. 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 (U.S.), but in the opinion of management such financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for the fair statement of the Company’s consolidated financial position and results of operations. All material intercompany balances and transactions have been eliminated.

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. As additional information becomes available or actual amounts become determinable, the recorded estimates are revised and reflected in operating results.

The results of operations for the three and nine months ended September 30, 2012 may not be indicative of the results that may be expected for the year ending December 31, 2012. The December 31, 2011 consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by GAAP for annual periods. Certain amounts have been reclassified in comparison to prior years’ financial statements to conform to the current presentation. Such reclassifications had no impact on total revenues, expenses, assets, liabilities, or shareholders’ equity for all periods presented.

Statements of Cash Flows

Previously, the Company reported its consolidated statements of cash flows using the indirect method. The indirect method uses accrual accounting information to present the cash flows from operations. Effective January 1, 2012, the Company elected to present its consolidated statements of cash flows using the direct method. The direct method uses actual cash flow information from the Company’s operations, rather than using accrual accounting values. Using either the direct or indirect method, total cash flows from operations are consistent. In addition, the presentation of cash flows from investing and financing activities using either the direct or indirect method are consistent. The change to the direct method for calculating and presenting cash flows from operations was implemented retroactively for all statements of cash flows presented herein. Use of the direct method requires a reconciliation of net income to cash flows from operations. This reconciliation is provided as a supplement directly beneath the statements of cash flows.

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Business Developments, Risks And Uncertainties, And Liquidity

9 Months Ended

Sep. 30, 2012

Business Developments, Risks And Uncertainties, And Liquidity

Note 1: Business Developments, Risks and Uncertainties, and Liquidity

Summary

MBIA Inc., together with its consolidated subsidiaries, (collectively, “MBIA” or the “Company”) operates one of the largest financial guarantee insurance businesses in the industry and is a provider of asset management advisory services. These activities are managed through three business segments: United States (“U.S.”) public finance insurance, structured finance and international insurance, and advisory services. The Company’s U.S. public finance insurance business is primarily operated through National Public Finance Guarantee Corporation and its subsidiaries (“National”), its structured finance and international insurance business is primarily operated through MBIA Insurance Corporation and its subsidiaries (“MBIA Corp.”), and its asset management advisory services business is primarily operated through Cutwater Holdings, LLC and its subsidiaries (“Cutwater”). The holding company, MBIA Inc., and certain of its subsidiaries also manage certain other business activities, the results of which are reported in its corporate, asset/liability products, and conduit segments. The corporate segment includes revenues and expenses that arise from general corporate activities. While the asset/liability products and conduit businesses represent separate business segments, they may be referred to collectively as “wind-down operations” as the funding programs managed through those businesses are in wind-down. Refer to “Note 11: Business Segments” for further information about the Company’s reporting segments.

Business Developments

As a result of insured losses and realized investment losses during the period from 2007 through September 30, 2012, the Company has seen ratings downgrades, a near cessation of new insurance business written by the Company, and increasing liquidity pressure. The Company has been unable to write meaningful amounts of new insurance business since 2008 and does not expect to write significant new insurance business prior to an upgrade of the credit ratings of its insurance subsidiaries. As of September 30, 2012, National was rated BBB with a developing outlook by Standard & Poor’s Financial Services LLC (“S&P”) and Baa2 with a negative outlook by Moody’s Investors Service, Inc. (“Moody’s”). As of September 30, 2012, MBIA Insurance Corporation was rated B with a negative outlook by S&P and B3 with a review for a possible downgrade by Moody’s.

As of September 30, 2012, the liquidity position of MBIA Inc., which consists of the liquidity positions of its corporate and asset/liability products activities, was $432 million and comprised cash and liquid assets of $335 million available for general corporate liquidity purposes, excluding the amounts held in escrow under its tax sharing agreement, and $97 million not pledged directly as collateral for its asset/liability products activities. As of December 31, 2011, MBIA Inc. had $386 million of cash and liquid assets comprising $226 million available for general corporate liquidity purposes, excluding the amounts held in escrow under its tax sharing agreement, and $160 million not pledged directly as collateral for its asset/liability products activities. The Company believes this liquidity position provides MBIA Inc. with sufficient funds to cover expected obligations at least through the next twelve months.

During the nine months ended September 30, 2012, MBIA Corp. continued to seek to reduce both the absolute amount and the volatility of its obligations and potential future claim payments through the execution of commutations of insurance policies. The combination of payments to reduce liabilities, claims payments and the failure of certain mortgage originators to honor contractual obligations to repurchase ineligible mortgage loans from securitizations the Company insured has increased liquidity pressure on MBIA Corp. As of September 30, 2012 and December 31, 2011, MBIA Corp.’s cash and liquid assets were $386 million and $534 million, respectively. During the nine months ended September 30, 2012, MBIA Corp. made $1.0 billion in gross claim payments, and commuted $13.0 billion of gross insured exposure, primarily comprising structured commercial mortgage-backed securities (“CMBS”) pools, commercial real estate (“CRE”) collateralized debt obligations (“CDOs”), investment grade corporate CDOs, asset-backed securities (“ABS”) CDOs, and subprime residential mortgage-backed securities (“RMBS”) transactions, of which $12.8 billion was previously disclosed in earlier MBIA Inc.’s Securities and Exchange Commission (“SEC”) filings. Claims payments primarily resulted from the failure of certain mortgage-backed securities (“MBS”) sponsors to honor contractual obligations to repurchase ineligible mortgage loans. The Company’s ability to commute insured transactions may be limited by available liquidity as determined based on management’s assessment. The Company currently evaluates different methodologies to mitigate liquidity stress, including intercompany lending arrangements and the monetization of illiquid assets.

The reference herein to “ineligible” mortgage loans refers to those mortgage loans that the Company believes failed to comply with the representations and warranties made by the sellers/servicers of the securitizations to which those mortgage loans were sold (including mortgage loans that failed to comply with the related underwriting criteria), based on the Company’s assessment of such mortgage loans’ compliance with such representations and warranties, which included information provided by third-party review firms. The Company’s assessment of the ineligibility of individual mortgage loans could be challenged by the sellers/servicers of the securitizations in litigation and there is no assurance that the Company’s determinations will prevail.

Risks and Uncertainties

The Company’s financial statements include estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. The outcome of certain significant risks and uncertainties could cause the Company to revise its estimates and assumptions or could cause actual results to differ from the Company’s estimates. While the Company believes it continues to have sufficient capital and liquidity to meet all of its expected obligations, if one or more possible adverse outcomes were to be realized, its statutory capital, financial position, results of operations and cash flows could be materially and adversely affected.

Significant risks and uncertainties that could affect amounts reported in the Company’s financial statements in future periods include, but are not limited to, the following:

• MBIA Corp.’s efforts to recover losses from the second-lien securitization originators could be delayed, settled at amounts below its contractual claims or potentially settled at amounts below those recorded on its balance sheets prepared under accounting principles generally accepted in the United States of America (“GAAP”) and statutory accounting principles (“U.S. STAT”). As of September 30, 2012 and December 31, 2011, the Company’s estimated recoveries after income taxes calculated at the federal statutory rate of 35%, were $2.1 billion and $2.0 billion, respectively, which was 82% and 119% of the consolidated total shareholders’ equity of MBIA, excluding preferred stock of subsidiaries and noncontrolling interests. As of September 30, 2012 and December 31, 2011, the related measures calculated under U.S. STAT were 144% and 89%, respectively, of the statutory capital of MBIA Corp. On May 14, 2012, Residential Capital, LLC (“ResCap”), and its wholly-owned subsidiary companies, Residential Funding Company, LLC (“RFC”) and GMAC Mortgage LLC (“GMAC”) each filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code. MBIA has recorded put-back claims associated with RFC and GMAC. Accordingly, MBIA’s put-back claims are now subject to the ResCap bankruptcy proceeding. Refer to “Note 5: Loss and Loss Adjustment Expense Reserves” for information about the Company’s second-lien RMBS loss recoveries.

• MBIA Inc. may not have sufficient liquidity to make all payments due on its liabilities and to meet other financial requirements, such as posting collateral, primarily as a result of a deficit of invested assets to debt issued to third parties and affiliates and the lack of dividends from its principal operating subsidiaries. During the nine months ended September 30, 2012, MBIA Inc.’s deficit increased as it realized losses from the sale and impairment of invested assets. In addition, it does not expect to receive dividends from its regulated insurance subsidiaries in the near term. If MBIA Inc. were required to continue to sell invested assets at their current market values in order to settle liabilities or to meet minimum required collateral amounts against liabilities, the deficit would increase further. In order to meet liquidity requirements, MBIA Inc. may also finance unencumbered assets through intercompany or third-party facilities, or use free cash or other assets, in some cases with New York State Department of Financial Services (“NYSDFS”) approval, although there can be no assurance that these strategies will be available or adequate. A failure by MBIA Inc. to settle liabilities that are also insured by MBIA Corp. could result in claims on MBIA Corp. The Company’s ability to resolve the deficit will depend on its ability to receive distributions from its operating subsidiaries and/or raise third-party capital, and there can be no assurance that the Company will be successful in eliminating the deficit through these means, or that they will provide adequate liquidity. Refer to the following “Liquidity” section for additional information about MBIA Inc.’s liquidity position.

• While MBIA Corp. has commuted most of its higher risk CMBS pool exposures, a single counterparty—Bank of America and its subsidiary Merrill Lynch—holds a significant amount of MBIA Corp.’s remaining CMBS pool exposures, including a substantial majority of MBIA Corp.’s CMBS pools originally insured in 2006 and 2007 primarily referencing BBB and lower rated collateral. MBIA Corp. has also recorded its largest put-back asset against Bank of America and certain of its subsidiaries, including Countrywide Home Loans, Inc. (“Countrywide”). While MBIA Corp. has estimated credit impairments or recorded loss reserves for the CMBS exposures, no material claims have been made to date. Bank of America/Merrill Lynch is also one of the two remaining plaintiffs in the litigation challenging the establishment of National (“Transformation Litigation”) (for a discussion of the Transformation Litigation, see “Note 13: Commitments and Contingencies”). As a result, the amount MBIA Corp. may ultimately collect from Bank of America/Countrywide on their put-back obligations in any litigation settlement could be impacted by potential commutation payments on these CMBS exposures and developments in the Transformation Litigation. Likewise, MBIA Corp.’s ability to commute these CMBS exposures may be impacted by developments in the put-back litigation with these entities and the Transformation Litigation. There can be no assurance that any such settlement or commutation will occur or that any such settlement or commutation, if it occurred, would be consummated within the estimates of expected recoveries or loss payments associated with these exposures that are recorded in the Company’s consolidated financial statements. In addition, due to the deterioration in MBIA Corp.’s CMBS exposures, primarily in those exposures held by Bank of America/Merrill Lynch, there is an increased likelihood that MBIA Corp. will experience claims on those exposures, which could be substantial. Depending on the amount of such claims and the amounts of claims on other policies issued by MBIA Corp., MBIA Corp. may not have sufficient liquid assets to pay such claims in the absence of a settlement with Bank of America/Merrill Lynch and the commutation of the CMBS exposures held by Bank of America/Merrill Lynch or in the absence of the collection of other substantial put-back recoverables.

• If commercial real estate servicer behavior does not continue to mitigate potential or actual credit losses in line with current trends, MBIA Corp. could incur substantial losses in that sector, primarily on the Bank of America/Merrill Lynch CMBS exposures described above. As of September 30, 2012, MBIA Corp. had CMBS pool and CRE CDO insured par exposure of approximately $15.7 billion and $2.2 billion, respectively, excluding approximately $2.8 billion of CRE loan pools, primarily comprising European assets. Since the end of 2007 through September 30, 2012, MBIA Corp.’s CMBS pool and CRE CDO gross par exposure has decreased by approximately $36.1 billion, of which $33.1 billion resulted from negotiated commutations and early settlements. Refer to “Note 5: Loss and Loss Adjustment Expense Reserves” for information about the Company’s estimate of CMBS credit impairments.

• Incurred losses from insured RMBS have declined from their peaks. However, due to the large percentage of ineligible mortgage loans included within MBIA Corp.’s insured second-lien portfolio, performance remains difficult to predict and losses could ultimately be in excess of MBIA Corp.’s current estimated loss reserves. Refer to “Note 5: Loss and Loss Adjustment Expense Reserves” for information about MBIA Corp.’s RMBS loss reserves.

• While MBIA Corp. has settled a substantial portion of its insured ABS CDO exposure at levels, on average, within MBIA Corp.’s previously established statutory loss reserves related to those exposures, further economic stress might cause increases in MBIA Corp.’s loss estimates on its remaining exposure. As of September 30, 2012, MBIA Corp.’s ABS CDO gross par outstanding was approximately $4.4 billion, and had decreased approximately $32.9 billion since 2007.

• In recent years, key components of the Company’s strategy have included commuting volatile insured exposures, purchasing instruments issued or guaranteed by the Company in order to reduce future expected economic losses and managing the liquidity requirements and risk in MBIA Inc. In order to implement this strategy, the Company put in place intercompany agreements that allocate liquidity resources among its entities in order to fund commutations and provide liquidity, where needed. The intercompany agreements with the Company’s insurance subsidiaries have required the approval of the NYSDFS. The Company’s ability to continue to draw on intercompany financing, provide other intercompany liquidity and capital support, obtain permission for contingency reserve releases, and the ability of its insurance subsidiaries to pay dividends to MBIA Inc. will in most cases require further approvals from the NYSDFS, and there can be no assurance that the Company will be able to obtain such approvals. In addition, in connection with providing such approvals, the NYSDFS may require the Company or its insurance subsidiaries to agree to take, or refrain from taking, certain actions.

• The Company’s recent financial results have been volatile, which has impacted management’s ability to accurately project future taxable income. Insurance losses incurred beyond those currently projected may cause the Company to record additional allowances against a portion or all of its deferred tax assets. Refer to “Note 10: Income Taxes” for information about the Company’s deferred tax assets.

• Litigation over the NYSDFS approval of National’s creation or additional hurdles to achieving high stable ratings may impede National’s ability to resume writing municipal bond insurance for some time, reducing its long-term ability to generate capital and cash from operations.

• Municipal and state fiscal distress in the U.S. could adversely affect the Company’s operations if it results in larger-than-expected incurred insurance losses. Additionally, the sovereign debt crisis in the Eurozone could have an adverse impact on insured European exposures and/or cause a global slowdown in growth, thereby adversely affecting U.S. insured exposures.

• In the event the economy and the markets to which MBIA is exposed do not improve, or decline, the unrealized losses on insured credit derivatives could increase, causing additional stress in the Company’s reported financial results. In addition, volatility in the relationship between MBIA’s credit spreads and those on underlying collateral assets of insured credit derivatives can create significant unrealized gains and losses in the Company’s reported results of operations. Refer to “Note 6: Fair Value of Financial Instruments” for information about the Company’s valuation of insured credit derivatives.

As of September 30, 2012, the Company had $2.6 billion of shareholders’ equity and MBIA Insurance Corporation and National had $1.5 billion and $3.1 billion, respectively, of statutory capital. Statutory capital, defined as policyholders’ surplus and contingency reserves, is a key measure of an insurance company’s financial condition under insurance laws and regulations. Failure to maintain adequate levels of statutory surplus and total statutory capital could lead to intervention by the Company’s insurance regulators in its operations and constitute an event of default under certain of the Company’s contracts, thereby materially and adversely affecting the Company’s financial condition and results of operations. Pursuant to approval granted by the NYSDFS in accordance with New York Insurance Law (“NYIL”), as of September 30, 2012, MBIA Insurance Corporation released to surplus an aggregate of $196 million of excessive contingency reserves. As of September 30, 2012, MBIA Insurance Corporation had a deficit of $97 million of qualifying assets required to support its contingency reserves. The deficit was caused by MBIA Insurance Corporation’s sale of liquid assets in order to make claim payments and the failure of certain mortgage originators, particularly Bank of America, to honor their contractual obligations to repurchase ineligible mortgage loans from securitizations the Company insured. The deficit is expected to grow as additional commutation and claim payments are made in the future. The Company has reported the deficit to the NYSDFS. MBIA Insurance Corporation has requested approval from the NYSDFS to release $97 million of contingency reserves as of September 30, 2012, but to date has not received approval. For risks associated with MBIA Insurance Corporation’s failure to meet its contingency reserve requirement, see Item 1A. “Risk Factors—Liquidity and Market Related Risk Factors—If the Company’s insurance subsidiaries fail to meet regulatory capital requirements they may become subject to regulatory action” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

As of September 30, 2012, MBIA Insurance Corporation exceeded its aggregate risk limits under the NYIL by $47 million. MBIA Insurance Corporation will notify the NYSDFS of the overage and will submit a plan to achieve compliance with the limits in accordance with the NYIL. If MBIA Insurance Corporation is not in compliance with its aggregate risk limits, the NYSDFS may prevent MBIA Insurance Corporation from transacting any new financial guarantee insurance business until it no longer exceeds the limitations.

Liquidity

As a financial services company, MBIA has been materially adversely affected by conditions in global financial markets. Current conditions and events in these markets, in addition to the failure by the originators of RMBS to repurchase the ineligible mortgage loans in securitizations that the Company has insured, have put substantial stress on the Company’s liquidity resources.

The Company has utilized a liquidity risk management framework, the primary objectives of which are to monitor liquidity positions and projections in its legal entities and guide the matching of liquidity resources to needs. The Company monitors its cash and liquid asset resources using stress-scenario testing. Members of MBIA’s senior management meet regularly to review liquidity metrics, discuss contingency plans and establish target liquidity cushions on an enterprise-wide basis. As part of the Company’s liquidity risk management framework, the Company evaluates and manages liquidity on a legal-entity basis to take into account the legal, regulatory and other limitations on available liquidity resources within the enterprise.

The majority of the Company’s liquidity management efforts focus on:

• The liquidity resources of MBIA Inc., which are subject to: uncertainty in the timing and amount of cash inflows from dividends paid by National and MBIA Corp.; the necessity of having to support the liquidity needs of the asset/liability products business; and potential cross-defaults of holding company debt with other obligations in the consolidated group. The asset/liability products business of MBIA Inc. is subject to ongoing negative cash flow and has a deficit of invested assets to liabilities. In addition, the liquidity resources of MBIA Inc. are subject to collateralization requirements in connection with the liabilities it has issued to third parties and affiliates and in connection with third-party derivative contracts.

• The liquidity resources of MBIA Corp. which are subject to: an increased likelihood that MBIA Corp. will experience claims on its CMBS exposures, primarily in those exposures held by Bank of America/Merrill Lynch, due to the deterioration in such exposures; delays in the collection of recoveries related to ineligible mortgage loans in certain insured RMBS transactions; payments to counterparties in consideration for the commutation of insured transactions; and payments on insured exposures that in some cases may be large bullet payments. MBIA Corp. is currently subject to negative cash flow as a result of these payments and delays in collecting recoveries.

In order to address these liquidity risks and efficiently manage liquidity across the entire enterprise, certain of the Company’s subsidiaries which are less liquidity constrained have entered into intercompany agreements that provide resources to subsidiaries that are more liquidity constrained. These resources include intercompany agreements described further below between the Company’s primary insurance subsidiaries and between these insurance subsidiaries and the asset/liability products business (through MBIA Inc.), which in each case were approved by the NYSDFS and are subject to ongoing monitoring by the NYSDFS. The Company monitors the liquidity resources of National, for which the Company has not observed material liquidity risk to date, in order to ensure it maintains sufficient liquidity to pay claims and satisfy its other obligations. National’s liquidity resources are subject to unexpected loss payments on its insured transactions, negative cash flow, and liquidity support arrangements with its affiliates.

Key Intercompany Lending Agreements

National Secured Loan

National provided a $1.1 billion secured loan to MBIA Insurance Corporation (“National Secured Loan”) in order to enable MBIA Insurance Corporation to fund settlements and commutations of its insurance policies. This loan was approved by the NYSDFS as well as by the boards of directors of MBIA Inc., MBIA Insurance Corporation and National. The National Secured Loan has a fixed annual interest rate of 7% and a maturity date of December 2016. MBIA Insurance Corporation has the option to defer payments of interest when due by capitalizing interest amounts to the loan balance, subject to the collateral value exceeding certain thresholds. MBIA Insurance Corporation has elected to defer the interest payments due under the loan. MBIA Insurance Corporation’s obligation to repay the loan is secured by a pledge of collateral having an estimated value in excess of the notional amount of the loan as of September 30, 2012, which collateral comprised the following future receivables of MBIA Corp.: (i) its right to receive put-back recoveries related to ineligible mortgage loans included in its insured second-lien RMBS transactions; (ii) future recoveries on defaulted insured second-lien RMBS transactions resulting from expected excess spread generated by performing loans in such transactions; and (iii) future installment premiums. During the nine months ended September 30, 2012, MBIA Insurance Corporation borrowed an additional $443 million under the National Secured Loan with the approval of the NYSDFS at the same terms as the original loan to fund additional commutations of its insurance policies. As of September 30, 2012, the outstanding principal amount under this loan was $1.6 billion. MBIA Insurance Corporation may seek to borrow additional amounts under the loan in the future. Any such increase or other amendment to the terms of the loan would be subject to regulatory approval by the NYSDFS.

Asset Swap

National maintained simultaneous repurchase and reverse repurchase agreements (“Asset Swap”) with MBIA Inc. for up to $2.0 billion based on the fair value of securities borrowed. The Asset Swap provides MBIA Inc. with eligible assets to pledge under investment agreements and derivative contracts in the asset/liability products business. As of September 30, 2012, the notional amount utilized under each of these agreements was $522 million and the fair value of collateral pledged by National and MBIA Inc. under these agreements was $535 million and $558 million, respectively. The net average interest rate on these transactions was 0.56% and 0.34% for the nine months ended September 30, 2012 and 2011, respectively. The NYSDFS approved the Asset Swap in connection with the re-domestication of National to New York. National has committed to the NYSDFS to use commercially reasonable efforts to reduce the amount of the Asset Swap over time.

MBIA Corp. Secured Loan

MBIA Corp., as lender, maintained a master repurchase agreement with MBIA Inc. (“MBIA Corp. Secured Loan”) for the benefit of MBIA Inc.’s asset/liability products business, which totaled $2.0 billion at inception and was scheduled to mature in May 2012, as amended. This loan was repaid in May 2012 and there have been no further draws. During 2012, the average interest rate on the MBIA Corp. Secured Loan was 2.51% through the repayment in May 2012. Also in May 2012, the NYSDFS approved the maturity extension of the MBIA Corp. Secured Loan to May 2013 with a maximum outstanding amount of $450 million, subject to MBIA Corp. obtaining prior regulatory approval from the NYSDFS for any draws under the facility.

Conduit Repurchase Agreement

MBIA Inc. maintained a repurchase agreement with Meridian Funding Company, LLC (“Conduit Repurchase Agreement”), with a maximum funded amount of $1.0 billion, subject to a pledge of collateral. The Conduit Repurchase Agreement had an average interest rate during the nine months ended September 30, 2012 of 2.48%. As of September 30, 2012, the amount drawn by MBIA Inc. under this agreement and the fair value of the collateral pledged by MBIA Inc. was $51 million and $63 million, respectively.

MBIA Inc. Liquidity

MBIA Inc.’s liquidity resources support the Company’s corporate and asset/liability products segments. The activities of MBIA Inc. consist of holding and managing investments, servicing outstanding corporate debt instruments, investment agreements and medium-term notes (“MTNs”) issued by the asset/liability products and conduit segments, posting collateral under financing and hedging arrangements and investment agreements, making payments and collateral postings related to interest rate and foreign exchange swaps, and paying operating expenses. The primary sources of cash within MBIA Inc. used to meet its liquidity needs include available cash and liquid assets not subject to collateral posting requirements, scheduled principal and interest on assets held in its investment portfolio, dividends from subsidiaries, payments under tax sharing agreements with these subsidiaries (once the payments become unrestricted) and the ability to issue debt and equity. There can be no assurance as to the amount and timing of any such dividends or payments under the tax sharing agreements. MBIA Inc.’s corporate debt, investment agreements, MTNs, and derivatives may be accelerated by the holders of such instruments upon the occurrence of certain events, such as a breach of covenant or representation, a bankruptcy of MBIA Inc. or the filing of an insolvency proceeding with respect to MBIA Corp. MBIA Inc.’s obligations under its loans from MBIA Global Funding, LLC (“GFL”) may be accelerated only upon the occurrence of a bankruptcy or liquidation of MBIA Inc. Refer to “Note 11: Business Segments” for a description of the GFL loans. In the event of any acceleration of the Company’s obligations, including under its corporate debt, investment agreements, MTNs, or derivatives, the Company likely would not have sufficient liquid resources to pay amounts due with respect to its corporate debt and other obligations.

During the nine months ended September 30, 2012, pursuant to the tax sharing agreement, National settled with MBIA Inc. its taxes related to the 2010 and 2011 tax years of $1 million and $11 million, respectively. In addition, National paid to MBIA Inc. estimated 2012 taxes of $95 million. Consistent with the tax sharing agreement, these amounts were placed in an escrow account until the expiration of National’s two-year net operating loss (“NOL”) carry-back period under U.S. tax rules. At the expiration of National’s carry-back period, any funds remaining after any reimbursement to National in respect of any NOL carry-backs would be available for general corporate purposes, including to satisfy any other obligations under the tax sharing agreement. As of September 30, 2012, $365 million remained in escrow for the 2010 through 2012 tax years.

MBIA Inc. is subject to material liquidity risks and uncertainties. To mitigate these risks, the Company seeks to maintain cash and liquidity resources that are expected to be sufficient to make all payments due on its obligations and to meet other financial requirements, such as posting collateral, at least through the next twelve months.

Liquidity risk within MBIA Inc. is primarily a result of the following factors:

• MBIA Inc.’s asset/liability products segment had a deficit of invested assets to liabilities issued to third parties and affiliates of $980 million as of September 30, 2012, which increased from $591 million as of December 31, 2011. This deficit is a result of selling investments and terminating interest rate swaps at losses, and may further increase as a result of selling investments and terminating interest rates swaps at losses in the future. In addition, this deficit is expected to increase as a result of ongoing expected operating losses. This deficit will need to be reversed prior to the maturity of the liabilities in order to ensure that there are sufficient funds available to fully retire the liabilities. The Company expects that MBIA Inc. will be able to eliminate the deficit prior to the maturity of the related liabilities from distributions from its operating subsidiaries and by raising third-party capital, although there can be no assurance that MBIA Inc. will be able to eliminate the deficit through such means.

• Uncertainty of the timing and amount of cash inflows from dividends paid by MBIA’s principal operating subsidiaries.

• Currently, the majority of the cash and securities of MBIA Inc. is pledged against investment agreement liabilities, intercompany financing arrangements and derivatives, which limit its ability to raise liquidity through asset sales. In addition, if the market value or rating eligibility of the assets which are pledged against these obligations were to decline, the Company would be required to pledge additional eligible assets in order to meet minimum required collateral amounts against these liabilities. In such event, the Company may sell additional assets, potentially with substantial losses, finance unencumbered assets through intercompany facilities, or use free cash or other assets, in some cases with NYSDFS approval, although there can be no assurance that these strategies will be available or adequate to meet liquidity requirements.

Because the majority of MBIA Inc.’s assets is pledged against the obligations described above, the widening of credit spreads would have an adverse impact on the market value of these assets and increase collateralization requirements for the portfolio. The following table presents the estimated pre-tax change in fair value of the asset/liability products business’ assets as of September 30, 2012 from instantaneous shifts in credit spread curves. This table assumes that all credit spreads move by the same amount; however, it is more likely that the actual changes in credit spreads will vary by investment sector and individual security. The table presents hypothetical increases and decreases in credit spreads of 50 and 200 basis points. Because downward movements of these amounts in some cases would result in negative spreads, a floor was assumed for minimum spreads.

	Change in Credit Spreads (Asset/Liability Products Business)
In millions	200 Basis Point Decrease		50 Basis Point Decrease		50 Basis Point Increase		200 Basis Point Increase
Estimated change in fair value	$	149	$	41	$	(37)	$	(130)

During the nine months ended September 30, 2012, MBIA Inc. maintained three intercompany financing facilities to provide it with additional resources to meet its liquidity requirements within the asset/liability products business: the Asset Swap, the MBIA Corp. Secured Loan and the Conduit Repurchase Agreement. Refer to the preceding “Key Intercompany Lending Agreements” section for a description of these facilities.

Stressed credit market conditions could cause MBIA Inc. to have insufficient resources to cover collateral and/or other liquidity requirements. Management has identified certain actions to mitigate this risk. These contingent actions include: (1) additional sales of other invested assets exposed to credit spread stress risk, which may occur at losses and increase the deficit of invested assets to liabilities; (2) termination and settlement of interest rate swap agreements; and (3) other available advances from subsidiaries. These actions, if taken, are expected to result in either additional liquidity or reduced exposure to adverse credit spread movements. There can be no assurance that these actions will be sufficient to fully mitigate this risk. In the event that the Company cannot implement the contingent actions identified above to raise liquidity, or eliminate the deficit, it may have insufficient assets to make all payments on its obligations as they come due, which could result in a default by MBIA Inc. on its obligations and the potential for MBIA Corp., as guarantor of the investment agreements and GFL MTNs, to be called upon to satisfy obligations on those instruments as they come due.

As of September 30, 2012, the liquidity position of MBIA Inc., which consists of the liquidity positions of its corporate and asset/liability products activities, was $432 million and comprised cash and liquid assets of $335 million available for general corporate liquidity purposes, excluding the amounts held in escrow under its tax sharing agreement, and $97 million not pledged directly as collateral for its asset/liability products activities. As of December 31, 2011, MBIA Inc. had $386 million of cash and liquid assets comprising $226 million available for general corporate liquidity purposes, excluding the amounts held in escrow under its tax sharing agreement, and $160 million not pledged directly as collateral for its asset/liability products activities. This liquidity position provides MBIA Inc. with sufficient funds to cover expected obligations at least through the next twelve months.

MBIA Corp. Liquidity

Liquidity available in the structured finance and international insurance segment is affected by the Company’s ability to collect on receivables associated with loss payments, the payment of claims on insured exposures, payments made to commute insured exposures, the repayment of the National Secured Loan, a reduction in investment income, any unanticipated expenses, or the impairment or a significant decline in the fair value of invested assets. The Company may also experience liquidity constraints as a result of NYIL requirements that the Company maintain specified, high quality assets to back the Company’s reserves and surplus.

The Company’s current liquidity position of MBIA Corp. is adequate to make expected future claims payments and it expects to settle its insured CMBS exposures with no cash payments. However, the liquidity position of MBIA Corp. has been stressed due to the failure of the sellers/servicers of RMBS transactions insured by MBIA Corp. to repurchase ineligible mortgage loans in certain insured transactions and payments to counterparties in consideration for the commutation of insured transactions, which have resulted in a substantial reduction of exposure and potential loss volatility. While MBIA Corp. has made and may in the future make payments to counterparties in consideration for the commutation of insured transactions, MBIA Corp.’s ability to commute insured transactions will depend on management’s assessment of available liquidity. In addition, due to the deterioration in MBIA Corp.’s CMBS exposures, primarily in those exposures held by Bank of America/Merrill Lynch, there is an increased likelihood that MBIA Corp. will experience claims on those exposures, which claims could be substantial. Depending on the amount of such claims and the amounts of claims on other policies issued by MBIA Corp., MBIA Corp. may not have sufficient liquid assets to pay such claims in the absence of a settlement with Bank of America/Merrill Lynch and the commutation of the CMBS exposures held by Bank of America/Merrill Lynch or in the absence of the collection of other substantial put-back recoverables.

Payment requirements for the structured finance and international financial guarantee contracts fall into three categories: (i) timely interest and ultimate principal; (ii) ultimate principal only at final maturity; and (iii) payments upon settlement of individual collateral losses as they occur after any deductible or subordination has been exhausted, which payments are unscheduled and therefore more difficult to predict, and which category applies to most of the transactions on which the Company has recorded loss reserves. Insured transactions that require payment in full of the principal insured at maturity could present liquidity risks for MBIA Corp. since payment of the principal is due at maturity but any salvage could be recovered over time after payment of the principal amount. MBIA Corp. is generally required to satisfy claims within one to three business days, and as a result seeks to identify potential claims in advance through the Company’s monitoring process. While MBIA Corp.’s financial guarantee policies generally cannot be accelerated, thereby mitigating liquidity risk, the insurance of credit default swap (“CDS”) contracts may, in certain events, including the insolvency or payment default of the insurer or the issuer of the CDS, be subject to termination by the counterparty, triggering a claim for the fair value of the contract. In order to monitor liquidity risk and maintain appropriate liquidity resources, the Company uses the same methodology as it uses to monitor credit quality and losses within its insured portfolio, including stress scenarios. Refer to “Note 5: Loss and Loss Adjustment Expense Reserves” for a discussion of the Company’s loss and loss adjustment expense (“LAE”) process.

The Company’s structured finance and international insurance segment also requires cash for the payment of operating expenses, as well as principal and interest related to its surplus notes. Pursuant to Section 1307 of the NYIL and the Fiscal Agency Agreement governing MBIA Corp.’s surplus notes, any payment on the notes may be made only with the prior approval of the Superintendent of the NYSDFS “whenever, in his judgment, the financial condition of [MBIA Corp.] warrants” and payment may be made only out of MBIA Corp.’s “free and divisible surplus”. If these conditions are not met, MBIA Corp. would not be obligated to make any applicable interest payment and no default or event of default would occur under the Fiscal Agency Agreement or any of the Company’s other agreements. While the NYSDFS has approved the note interest payments in the past, its approval of the most recent note interest payment on July 16, 2012 was not received until after the date on which the Fiscal Agency Agreement required MBIA Corp. to notify the registered holders of the notes and the Fiscal Agent of the failure to obtain such approval, as the Company disclosed on a Form 8-K filed on July 10, 2012. There can be no assurance that the NYSDFS will approve the next scheduled note interest payment on January 15, 2013 or any subsequent payments, or that it will approve any payment by the scheduled interest payment date or by the date on which the notice is required to be delivered to the registered holders and the Fiscal Agent, nor can there be any assurance that the NYSDFS will approve any optional redemption payment that MBIA Corp. may seek to make on or after January 15, 2013.

Since the fourth quarter of 2007 through September 30, 2012, MBIA Corp. has made $11.6 billion of cash payments, before reinsurance and collections and excluding LAE (including payments made to debt holders of consolidated variable interest entities (“VIEs”)), associated with second-lien RMBS securitizations and with commutations and claim payments relating to CDS contracts. These cash payments include loss payments of $893 million made on behalf of MBIA Corp.’s consolidated VIEs. Of the $11.6 billion, MBIA Corp. has paid $6.6 billion of gross claims (before reinsurance and collections and excluding LAE) on policies insuring second-lien RMBS securitizations, driven primarily by an extensive number of ineligible mortgage loans being placed in the securitizations in breach of the representations and warranties of the sellers/servicers. In addition, MBIA Corp. has paid $5.0 billion of gross settlement and claim payments (before reinsurance and collections and excluding LAE) on insured credit derivatives. Also, since the fourth quarter of 2007 through September 30, 2012, MBIA Corp. has collected $185 million on excess spread before reinsurance.

MBIA Corp. is seeking to enforce its rights to have mortgage sellers/servicers cure, replace or repurchase ineligible mortgage loans from securitizations and has recorded a total of $3.2 billion of related expected recoveries on its consolidated balance sheets as of September 30, 2012, including expected recoveries recorded in the Company’s consolidated VIEs. These put-back claims have been disputed by the loan sellers/servicers and are the subject of certain litigations discussed more fully in “Note 13: Commitments and Contingencies.” On May 14, 2012, ResCap and its wholly-owned subsidiary companies, RFC and GMAC each filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code. Additionally, there is some risk that the sellers/servicers or other responsible parties might not be able to fully satisfy any judgment the Company secures in litigation and ResCap’s bankruptcy filing. Further, there can be no assurance that the Company will be successful or that the Company will not be delayed in realizing these recoveries. Such risks are contemplated in the scenarios the Company utilizes to calculate these recoveries, which are recognized on the Company’s consolidated balance sheets. The Company believes that it has adequate liquidity resources to provide for anticipated cash outflows; however, if the Company does not realize or is delayed in realizing these expected recoveries, the Company may not have adequate liquidity to fully execute the strategy to reduce future potential economic losses by commuting policies and purchasing instruments issued or guaranteed by the Company, or to repay any intercompany borrowings.

A portion of the commutation payments made since the fourth quarter of 2011 were financed through the National Secured Loan. MBIA Insurance Corporation’s ability to repay the loan and any accrued interest will be primarily predicated on MBIA Corp.’s ability to collect on its future receivables, including its ability to successfully enforce its rights to have the mortgage sellers/servicers cure, replace or repurchase ineligible mortgage loans from insured securitizations.

MBIA Corp. also insures third-party holders of the Company’s asset/liability products segment’s obligations. If the Company was unable to meet payment or collateral requirements associated with these obligations, the holders thereof could make claims under the MBIA Corp. insurance policies. In 2008, to provide additional liquidity to the asset/liability products business, MBIA Corp. lent $2.0 billion to the segment on a secured basis under the MBIA Corp. Secured Loan. As of September 30, 2012, the outstanding balance of the MBIA Corp. Secured Loan was repaid in full. In May 2012, the NYSDFS approved the maturity extension of the MBIA Corp. Secured Loan to May 2013 with a maximum outstanding amount of $450 million, subject to MBIA Corp. obtaining prior regulatory approval from the NYSDFS for any draws under the facility.

As of September 30, 2012, MBIA Corp. held cash and available-for-sale investments of $1.4 billion, of which $386 million comprised cash and highly liquid assets. As of December 31, 2011, MBIA Corp. held cash and available-for-sale investments of $1.5 billion, of which $534 million comprised cash and highly liquid assets. The Company believes that MBIA Corp.’s liquidity resources, including expected cash inflows, will adequately provide for anticipated cash outflows. In the event of unexpected liquidity requirements, the Company may have insufficient resources to meet its obligations or insufficient qualifying assets to support its surplus and reserves, and may seek to increase its cash holdings position by selling or financing assets, or raising external capital, and there can be no assurance that the Company will be able to draw on these additional sources of liquidity.

National Liquidity

Despite continued adverse macroeconomic conditions in the U.S., the incidence of default among U.S. public finance issuers remains extremely low and the Company believes that the liquidity position of its U.S. public finance insurance segment is sufficient to meet cash requirements in the ordinary course of business.

Liquidity risk arises in the Company’s U.S. public finance insurance segment primarily from the following:

• The insurance policies issued or reinsured by National, the entity from which the Company conducts its U.S. public finance insurance business, provide unconditional and irrevocable guarantees of payments of the principal of, and interest or other amounts owing on, insured obligations when due or, in the event that the insurance company has the right, at its discretion, to accelerate insured obligations upon default or otherwise, upon the insurance company’s election to accelerate. In the event of a default in payment of principal, interest or other insured amounts by an issuer, National generally promises to make funds available in the insured amount within one to three business days following notification. In some cases, the amount due can be substantial, particularly if the default occurs on a transaction to which National has a large notional exposure or on a transaction structured with large, bullet-type principal maturities. The fact that the U.S. public finance insurance segment’s financial guarantee contracts generally cannot be accelerated by a party other than the insurer helps to mitigate liquidity risk in this segment.

• National has entered into certain intercompany transactions to support the liquidity needs of its affiliates. These transactions include the National Secured Loan to MBIA Insurance Corporation and the Asset Swap through which National provides liquid assets to the Company’s asset/liability products business. As a result of these transactions, National is subject to repayment risk, which may adversely affect its liquidity. The repayment of the National Secured Loan will primarily be predicated on MBIA Corp.’s ability to successfully enforce its rights to have mortgage sellers/servicers cure, replace or repurchase ineligible mortgage loans from securitizations it insured. In addition, changes in the market value of securities sold to National under its Asset Swap with the asset/liability products business may adversely affect its liquidity position if the asset/liability business were unable to pledge additional eligible assets in order to meet minimum required collateral amounts.

National held cash and short-term investments of $356 million as of September 30, 2012, of which $318 million was highly liquid and consisted predominantly of highly rated municipal, U.S. agency and corporate bonds. As of December 31, 2011, National held cash and short-term investments of $771 million, of which $703 million was highly liquid and consisted predominantly of highly rated municipal, U.S. agency and corporate bonds. With the exception of its loan to MBIA Insurance Corporation, most of National’s investments, including those encumbered by the Asset Swap, are liquid and highly rated.

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Commitments And Contingencies

9 Months Ended

Sep. 30, 2012

Commitments And Contingencies

Note 13: Commitments and Contingencies

The following commitments and contingencies provide an update of those discussed in “Note 23: Commitments and Contingencies” in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, and should be read in conjunction with the complete descriptions provided in the aforementioned Form 10-K.

Corporate Litigation

In re MBIA Inc. Securities Litigation; Case No. 05 cv 03514(LLS) (S.D.N.Y.)

In May 2012, the parties reached a settlement agreement in principle pursuant to which the plaintiffs will receive a settlement payment in exchange for the dismissal with prejudice of the litigation. The Company’s insurance carriers have agreed to cover in full the settlement payment. On September 13, 2012, the court entered an order preliminarily approving the settlement.

Trustees of the Police and Fire Retirement System of the City of Detroit v. Clapp et al.; No. 08-cv-1515 (S.D.N.Y.)

On July 16, 2012, all parties and the Company’s insurance carriers accepted a mediator’s proposal to settle the federal and state CDO-squared related derivative actions. On October 15, 2012, the plaintiff filed a motion with the court seeking preliminary approval of the settlement.

Ambac Bond Insurance Coverage Cases, Coordinated Proceeding Case No. JCCP 4555 (Super. Ct. of Cal., County of San Francisco)

On May 1, 2012, the court ruled in favor of the monoline defendants on their special motion to strike pursuant to California’s Anti-SLAPP statute. The parties will complete the briefing relating to Stage 2 of the Anti-SLAPP motion on February 22, 2013 and a hearing is scheduled for March 5, 2013.

Tri-City Healthcare District v. Citibank. et al.; Case No. 30-2010-00359692 (Super. Ct. of Cal., County of Orange)

On July 20, 2012, the court granted the plaintiff’s motion to further amend its complaint. Briefing on the defendants’ motion to strike portions of the Fifth Amended Complaint was completed on October 19, 2012. MBIA’s portion of the motion has been resolved per stipulation.

City of Phoenix v. AMBAC et al.; Case No. 2:10-cv-00555-TMB (D. Ariz.)

On October 5, 2012, the court granted the plaintiff’s motion to substitute its expert with certain limitations.

Recovery Litigation

MBIA Insurance Corp. v. Countrywide Home Loans, Inc., et al.; Index No. 602825/08 (N.Y. Sup. Ct., N.Y. County)

Expert discovery was completed as of September 20, 2012. On September 19, 2012, MBIA and Countrywide filed respective motions for summary judgment regarding Countrywide’s primary liability. Argument is scheduled for December 5 to 6, 2012. On September 28, 2012, MBIA and Bank of America filed motions for summary judgment regarding Bank of America’s successor liability. Argument is scheduled for December 12 to 13, 2012. The Appellate Division of the New York State Supreme Court, First Department (the “Appellate Division”), has ordered Countrywide to file its opening appellate brief with respect to the trial court’s decision on partial summary judgment regarding causation by November 5, 2012. The appeal is scheduled for the January 2013 term of the Appellate Division.

MBIA Insurance Corp. v. Residential Funding Company, LLC; Index No. 603552/2008 (N.Y. Sup. Ct., N.Y. County)

The case is currently stayed as a result of the Chapter 11 filing of ResCap on May 14, 2012 in the United States Bankruptcy Court for the Southern District of New York.

MBIA Insurance Corp. v. GMAC Mortgage, LLC (f/k/a GMAC Mortgage Corporation); Index No. 600837/2010 (N.Y. Sup. Ct., N.Y. County)

The case is currently stayed as a result of the Chapter 11 filing of ResCap on May 14, 2012 in the United States Bankruptcy Court for the Southern District of New York.

MBIA Insurance Corp. v. Federal Deposit Insurance Corporation (in its corporate capacity and as conservator and receiver for IndyMac Federal Bank, F.S.B.); Civil Action No. 09-01011 (ABJ) (D.D.C.)

On September 12, 2012, the briefing before the Court of Appeals for the District of Columbia was completed. Oral argument is scheduled for November 14, 2012.

MBIA Insurance Corp. v. J.P. Morgan Securities LLC (f/k/a Bear, Stearns & Co. Inc); Index No. 64676/2012 (N.Y. Sup. Ct., County of Westchester)

On September 14, 2012, MBIA Insurance Corporation filed a complaint alleging fraud against J.P. Morgan Securities LLC (f/k/a Bear, Stearns & Co. Inc) relating to Bear, Stearns & Co. Inc.’s role as lead securities underwriter on the GMAC Mortgage Corporation Home Equity Loan Trust 2006-HE4. On October 18, 2012, the defendant filed its motion to dismiss.

MBIA Insurance Corp. v. Ally Financial Inc. (f/k/a GMAC, LLC) et al.; 12-cv-02563 SRN/TNL (D. Minn.)

On September 17, 2012, MBIA Insurance Corporation filed a complaint in Minnesota state court for aiding and abetting fraud and breach of contract against certain Ally Bank companies relating to seven MBIA-insured mortgage-backed securitizations sponsored by RFC and GMAC during 2006-2007. The defendants removed to the United States District Court for the District of Minnesota on October 5, 2012, and filed a notice of motion to dismiss on October 12, 2012.

Transformation Litigation

Aurelius Capital Master, Ltd. et al. v. MBIA Inc. et al.; 09-cv-2242 (R.S.) (S.D.N.Y.)

On April 11, 2012, the Aurelius plaintiffs and MBIA filed a Stipulation of Dismissal resolving the litigation and the case has been closed on the court’s docket.

ABN AMRO Bank N.V. et al. v. Eric Dinallo et al.; Index no. 601846/09 (N.Y. Sup. Ct., N.Y. County)

The Article 78 hearing concluded on June 7, 2012. A decision is pending.

CQS ABS Master Fund Ltd., CQS Select ABS Master Fund Ltd., and CQS ABS Alpha Master Fund Ltd. v. MBIA Inc. et al.; Civil Action No. 12-cv-6840 (R.S.) (S.D.N.Y.)

On September 10, 2012, CQS ABS Master Fund Ltd., CQS Select ABS Master Fund Ltd., and CQS ABS Alpha Master Fund Ltd. as holders of MBIA-insured residential mortgage-backed bonds filed suit against MBIA Inc., MBIA Insurance Corporation and National Public Finance Guarantee Corp. The complaint alleges that certain of the terms of the transactions entered into by MBIA Insurance Corporation, which were approved by the New York State Department of Insurance, constituted fraudulent conveyances under § 273, 274, 276 and 279(c) of New York Debtor and Creditor Law and a breach of the implied covenant of good faith and fair dealing under New York common law. The Company answered on October 19, 2012.

The Company is defending against the aforementioned actions in which it is a defendant and expects ultimately to prevail on the merits. There is no assurance, however, that the Company will prevail in these actions. Adverse rulings in these actions could have a material adverse effect on the Company’s ability to implement its strategy and on its business, results of operations, cash flows and financial condition. At this stage of the litigation, there has not been a determination as to the amount, if any, of damages. Accordingly, the Company is not able to estimate any amount of loss or range of loss.

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.

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Derivative Instruments

9 Months Ended

Sep. 30, 2012

Derivative Instruments

Note 9: Derivative Instruments

Overview

MBIA has entered into derivative transactions through its financial guarantee of CDS and for purposes of hedging risks associated with existing assets and liabilities and forecasted transactions. CDS are also entered into in the asset/liability products business to replicate investments in cash assets consistent with the Company’s risk objectives and credit guidelines for its asset management business. The Company accounts for derivative transactions in accordance with the accounting principles for derivative and hedging activities, which requires that all such transactions be recorded on the balance sheet at fair value. Refer to “Note 6: Fair Value of Financial Instruments” for the definition of fair value of derivative instruments.

Changes in the fair value of derivatives, excluding insured derivatives, are recorded each period in current earnings within “Net gains (losses) on financial instruments at fair value and foreign exchange.” Changes in the fair value of insured derivatives are recorded each period in current earnings within “Net change in fair value of insured derivatives.” The net change in the fair value of the Company’s insured derivatives has two primary components: (i) realized gains (losses) and other settlements on insured derivatives and (ii) unrealized gains (losses) on insured derivatives. “Realized gains (losses) and other settlements on insured derivatives” include (i) premiums received and receivable on written CDS contracts, (ii) premiums paid and payable to reinsurers in respect to CDS contracts, (iii) net amounts received or paid on reinsurance commutations, (iv) losses paid and payable to CDS contract counterparties due to the occurrence of a credit event or settlement agreement, (v) losses recovered and recoverable on purchased CDS contracts due to the occurrence of a credit event or settlement agreement and (vi) fees relating to CDS contracts. The “Unrealized gains (losses) on insured derivatives” include all other changes in fair value of the insured derivative contracts.

U.S. Public Finance Insurance

The Company’s derivative exposure within its U.S. public finance insurance operations primarily consists of insured interest rate and inflation-linked swaps related to insured U.S. public finance debt issues. These derivatives do not qualify for the financial guarantee scope exception. The Company has also purchased certain investments containing embedded derivatives. All derivatives are recorded at fair value on the Company’s consolidated balance sheets with the changes in fair value recorded on the Company’s consolidated statements of operations within “Unrealized gains (losses) on insured derivatives,” for the insured derivatives, or “Net gains (losses) on financial instruments at fair value and foreign exchange” for the embedded derivatives.

Structured Finance and International Insurance

The Company entered into derivative transactions that it viewed as an extension of its core financial guarantee business but which do not qualify for the financial guarantee scope exception and, therefore, must be recorded at fair value on the balance sheet. The Company’s structured finance and international insurance operations, which insured the majority of the Company’s notional derivative exposure, have insured CDS contracts, primarily referencing corporate, asset-backed, residential mortgage-backed, commercial mortgage-backed, CRE loans, and CDO securities that the Company intends to hold for the entire term of the contract absent a negotiated settlement with the counterparty.

Variable Interest Entities

VIEs consolidated by the Company have entered into derivative transactions primarily consisting of interest rate swaps. Interest rate swaps are entered into to hedge the risks associated with fluctuations in interest rates or fair values of certain contracts.

Asset/Liability Products

The Company’s asset/liability products business has entered into derivative transactions primarily consisting of interest rate swaps, cross currency swaps, and CDS contracts. Interest rate swaps are entered into to hedge the risks associated with fluctuations in interest rates or fair values of certain contracts. Cross currency swaps are entered into to hedge the variability in cash flows resulting from fluctuations in foreign currency rates. CDS contracts are entered into to hedge credit risk or to replicate investments in cash assets consistent with the Company’s risk objectives and credit guidelines for its asset management business.

Certain interest rate swaps qualify as fair value hedges. The fair value hedges are used to protect against changes in the market value of the hedged assets or liabilities. The gains and losses relating to the fair value hedges are recorded directly in earnings. Fair value hedges are hedging existing assets, liabilities or forecasted transactions.

Credit Derivatives Sold

The following table presents information about credit derivatives sold by the Company’s insurance operations that were outstanding as of September 30, 2012. Credit ratings represent the lower of underlying ratings currently assigned by Moody’s, S&P or MBIA.

In millions			Notional Value
Credit Derivatives Sold	Weighted Average Remaining Expected Maturity		AAA		AA		A		BBB		Below Investment Grade		Total Notional		Fair Value Asset (Liability)
Insured credit default swaps		5.3 Years	$	10,456	$	7,519	$	5,196	$	11,811	$	13,870	$	48,852	$	(3,243)
Insured swaps		19.8 Years		-		187		3,762		1,997		71		6,017		(9)
All others		2.1 Years		-		-		-		-		195		195		(80)
Total notional			$	10,456	$	7,706	$	8,958	$	13,808	$	14,136	$	55,064
Total fair value			$	(16)	$	(81)	$	(148)	$	(1,001)	$	(2,086)			$	(3,332)

The following table presents information about credit derivatives sold by the Company’s insurance operations that were outstanding as of December 31, 2011. Credit ratings represent the lower of underlying ratings currently assigned by Moody’s, S&P or MBIA.

In millions			Notional Value
Credit Derivatives Sold	Weighted Average Remaining Expected Maturity		AAA		AA		A		BBB		Below Investment Grade		Total Notional		Fair Value Asset (Liability)
Insured credit default swaps		5.6 Years	$	15,475	$	12,065	$	6,336	$	14,042	$	17,639	$	65,557	$	(4,716)
Non-insured credit default swaps-VIE		3.6 Years		-		-		-		-		643		643		(527)
Insured swaps		19.7 Years		-		164		4,270		2,589		133		7,156		(9)
All others		2.8 Years		-		-		-		-		195		195		(91)
Total notional			$	15,475	$	12,229	$	10,606	$	16,631	$	18,610	$	73,551
Total fair value			$	(114)	$	(116)	$	(205)	$	(1,355)	$	(3,553)			$	(5,343)

Referenced credit ratings assigned by MBIA to insured credit derivatives are derived by the Company’s surveillance group. In assigning an internal rating, current status reports from issuers and trustees, as well as publicly available transaction-specific information, are reviewed. Also, where appropriate, cash flow analyses and collateral valuations are considered. The maximum potential amount of future payments (undiscounted) on CDS contracts are estimated as the notional value plus any additional debt service costs, such as interest or other amounts owing on CDS contracts. The maximum amount of future payments that MBIA may be required to make under these guarantees is $53.1 billion. This amount is net of $393 million of insured derivatives ceded under reinsurance agreements in which MBIA economically hedges a portion of the credit and market risk associated with its insured derivatives and offsetting agreements with a counterparty. The maximum potential amount of future payments (undiscounted) on insured swaps are estimated as the notional value of such contracts.

MBIA may hold recourse provisions with third parties in derivative transactions through both reinsurance and subrogation rights. MBIA’s reinsurance arrangements provide that in the event MBIA pays a claim under a guarantee of a derivative contract, MBIA has the right to collect amounts from any reinsurers that have reinsured the guarantee on either a proportional or non-proportional basis, depending upon the underlying reinsurance agreement. MBIA may also have recourse through subrogation rights whereby if MBIA makes a claim payment, it is entitled to any rights of the insured counterparty, including the right to any assets held as collateral.

Financial Statement Impact

The fair value of amounts recognized for eligible derivative contracts executed with the same counterparty under a master netting agreement, including any cash collateral that may have been received or posted by the Company, is presented on a net basis in accordance with accounting guidance for the offsetting of fair value amounts related to derivative instruments.

As of September 30, 2012, the total fair value of the Company’s derivative assets, after counterparty netting, was $12 million, of which $4 million was reported within “Other assets” and “Derivative assets-VIEs” on the Company’s consolidated balance sheets, and the total fair value of the Company’s derivative liabilities, after counterparty netting and posting of cash collateral, was $3.5 billion, which was reported within “Derivative liabilities” and “Derivative liabilities-VIEs” on the Company’s consolidated balance sheets.

As of September 30, 2012, the total fair value of the Company’s derivative assets, before counterparty netting, was $108 million and the total fair value of the Company’s derivative liabilities, before counterparty netting and posting of cash collateral, was $3.9 billion. The following table presents the total fair value of the Company’s derivative assets and liabilities by instrument and balance sheet location, before counterparty netting and posting of cash collateral, as of September 30, 2012:

In millions			Derivative Assets(1)			Derivative Liabilities(1)
Derivative Instruments	Notional Amount Outstanding		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Designated as hedging instruments:
Interest rate swaps	$	65	Other assets	$	-	Derivative liabilities	$	(8)
Total designated	$	65		$	-		$	(8)
Not designated as hedging instruments:
Insured credit default swaps	$	49,171	Other assets	$	1	Derivative liabilities	$	(3,243)
Insured swaps		6,017	Other assets		-	Derivative liabilities		(9)
Non-insured credit default swaps		10	Other assets		-	Derivative liabilities		-
Interest rate swaps		1,666	Other assets		99	Derivative liabilities		(301)
Interest rate swaps-VIE		2,992	Derivative assets-VIE		-	Derivative liabilities-VIE		(157)
Interest rate swaps-embedded		476	Medium-term notes		8	Medium-term notes		(29)
Currency swaps		39	Other assets		-	Derivative liabilities		(2)
Currency swaps-VIE		113	Derivative assets-VIE		-	Derivative liabilities-VIE		(23)
All other		195	Other assets		-	Derivative liabilities		(80)
All other-VIE		280	Derivative assets-VIE		-	Derivative liabilities-VIE		-
All other-embedded		20	Other investments		-	Other investments		(1)
Total non-designated	$	60,979		$	108		$	(3,845)
Total derivatives	$	61,044		$	108		$	(3,853)

(1) - In accordance with the accounting guidance for derivative instruments and hedging activities, the balance sheet location of the Company’s embedded derivative instruments is determined by the location of the related host contract.

As of December 31, 2011, the total fair value of the Company’s derivative assets, after counterparty netting, was $459 million, of which $452 million was reported within “Other assets” and “Derivative assets-VIEs” on the Company’s consolidated balance sheets, and the total fair value of the Company’s derivative liabilities, after counterparty netting, was $6.0 billion which was reported within “Derivative liabilities” and “Derivative liabilities-VIEs” on the Company’s consolidated balance sheets.

As of December 31, 2011, the total fair value of the Company’s derivative assets, before counterparty netting, was $552 million and the total fair value of the Company’s derivative liabilities, before counterparty netting, was $6.1 billion. The following table presents the total fair value of the Company’s derivative assets and liabilities by instrument and balance sheet location, before counterparty netting, as of December 31, 2011:

In millions			Derivative Assets(1)			Derivative Liabilities(1)
Derivative Instruments	Notional Amount Outstanding		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Designated as hedging instruments:
Interest rate swaps	$	241	Other assets	$	10	Derivative liabilities	$	(44)
Total designated	$	241		$	10		$	(44)
Not designated as hedging instruments:
Insured credit default swaps	$	66,851	Other assets	$	-	Derivative liabilities	$	(4,708)
Insured swaps		7,156	Other assets		-	Derivative liabilities		(9)
Non-insured credit default swaps		30	Other assets		1	Derivative liabilities		-
Non-insured credit default swaps-VIE		1,272	Derivative assets-VIE		447	Derivative liabilities-VIE		(527)
Interest rate swaps		2,706	Other assets		84	Derivative liabilities		(401)
Interest rate swaps-VIE		4,878	Derivative assets-VIE		-	Derivative liabilities-VIE		(281)
Interest rate swaps-embedded		480	Medium-term notes		7	Medium-term notes		(14)
Currency swaps		62	Other assets		-	Derivative liabilities		(4)
Currency swaps-VIE		123	Derivative assets-VIE		-	Derivative liabilities-VIE		(17)
All other		3,465	Other assets		-	Derivative liabilities		(91)
All other-VIE		472	Derivative assets-VIE		3	Derivative liabilities-VIE		-
All other-embedded		121	Other investments		-	Other investments		(12)
Total non-designated	$	87,616		$	542		$	(6,064)
Total derivatives	$	87,857		$	552		$	(6,108)

(1) - In accordance with the accounting guidance for derivative instruments and hedging activities, the balance sheet location of the Company’s embedded derivative instruments is determined by the location of the related host contract.

The following tables present the effect of derivative instruments on the consolidated statements of operations for the three months ended September 30, 2012:

In millions
Derivatives in Fair Value Hedging Relationships	Location of Gain (Loss) Recognized in Income on Derivative	Gain (Loss) Recognized in Income on Derivative			Gain (Loss) Recognized in Income on Hedged Item		Net Gain (Loss) Recognized in Income
Interest rate swaps	Net gains (losses) on financial instruments at fair value and foreign exchange	$	(12	)	$	12	$	-

In millions
Derivatives Not Designated as Hedging Instruments	Location of Gain (Loss) Recognized in Income on Derivative	Net Gain (Loss) Recognized in Income
Insured credit default swaps	Unrealized gains (losses) on insured derivatives	$	(40)
Insured credit default swaps	Realized gains (losses) and other settlements on insured derivatives		12
Interest rate swaps	Net gains (losses) on financial instruments at fair value and foreign exchange		(26)
Interest rate swaps-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		8
Currency swaps	Net gains (losses) on financial instruments at fair value and foreign exchange		1
Currency swaps-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		(2)
All other	Unrealized gains (losses) on insured derivatives		7
Total		$	(40)

The following tables present the effect of derivative instruments on the consolidated statements of operations for the three months ended September 30, 2011:

In millions
Derivatives in Fair Value Hedging Relationships	Location of Gain (Loss) Recognized in Income on Derivative	Gain (Loss) Recognized in Income on Derivative		Gain (Loss) Recognized in Income on Hedged Item		Net Gain (Loss) Recognized in Income
Interest rate swaps	Net gains (losses) on financial instruments at fair value and foreign exchange	$	(8)	$	8	$	-
Interest rate swaps	Interest income (expense)		-		-		(2)
Total		$	(8)	$	8	$	(2)

In millions
Derivatives Not Designated as Hedging Instruments	Location of Gain (Loss) Recognized in Income on Derivative	Net Gain (Loss) Recognized in Income
Insured credit default swaps	Unrealized gains (losses) on insured derivatives	$	756
Insured credit default swaps	Realized gains (losses) and other settlements on insured derivatives		(53)
Non-insured credit default swaps-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		154
Interest rate swaps	Net gains (losses) on financial instruments at fair value and foreign exchange		(128)
Interest rate swaps-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		(25)
Currency swaps	Net gains (losses) on financial instruments at fair value and foreign exchange		4
Currency swaps-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		(2)
All other	Unrealized gains (losses) on insured derivatives		20
All other	Net gains (losses) on financial instruments at fair value and foreign exchange		(6)
All other-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		(5)
Total		$	715

The following tables present the effect of derivative instruments on the consolidated statements of operations for the nine months ended September 30, 2012:

In millions
Derivatives in Fair Value Hedging Relationships	Location of Gain (Loss) Recognized in Income on Derivative	Gain (Loss) Recognized in Income on Derivative		Gain (Loss) Recognized in Income on Hedged Item		Net Gain (Loss) Recognized in Income
Interest rate swaps	Net gains (losses) on financial instruments at fair value and foreign exchange	$	25	$	(25)	$	-
Interest rate swaps	Interest income (expense)		-		-		(3)
Total		$	25	$	(25)	$	(3)

In millions
Derivatives Not Designated as Hedging Instruments	Location of Gain (Loss) Recognized in Income on Derivative	Net Gain (Loss) Recognized in Income
Insured credit default swaps	Unrealized gains (losses) on insured derivatives	$	1,463
Insured credit default swaps	Realized gains (losses) and other settlements on insured derivatives		(420)
Non-insured credit default swaps	Net gains (losses) on financial instruments at fair value and foreign exchange		(1)
Non-insured credit default swaps-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		(1)
Interest rate swaps	Net gains (losses) on financial instruments at fair value and foreign exchange		(76)
Interest rate swaps-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		39
Currency swaps	Net gains (losses) on financial instruments at fair value and foreign exchange		1
Currency swaps-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		(5)
All other	Unrealized gains (losses) on insured derivatives		10
All other	Net gains (losses) on financial instruments at fair value and foreign exchange		11
All other-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		(2)
Total		$	1,019

The following tables present the effect of derivative instruments on the consolidated statements of operations for the nine months ended September 30, 2011:

In millions
Derivatives in Fair Value Hedging Relationships	Location of Gain (Loss) Recognized in Income on Derivative	Gain (Loss) Recognized in Income on Derivative		Gain (Loss) Recognized in Income on Hedged Item		Net Gain (Loss) Recognized in Income
Interest rate swaps	Net gains (losses) on financial instruments at fair value and foreign exchange	$	(6)	$	6	$	-
Interest rate swaps	Interest income (expense)		-		-		(7)
Currency swaps	Net gains (losses) on financial instruments at fair value and foreign exchange		2		(2)		-
Total		$	(4)	$	4	$	(7)

In millions
Derivatives Not Designated as Hedging Instruments	Location of Gain (Loss) Recognized in Income on Derivative	Net Gain (Loss) Recognized in Income
Insured credit default swaps	Unrealized gains (losses) on insured derivatives	$	(516)
Insured credit default swaps	Realized gains (losses) and other settlements on insured derivatives		(599)
Non-insured credit default swaps	Net gains (losses) on financial instruments at fair value and foreign exchange		(1)
Non-insured credit default swaps-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		4
Interest rate swaps	Net gains (losses) on financial instruments at fair value and foreign exchange		(178)
Interest rate swaps-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		24
Currency swaps	Net gains (losses) on financial instruments at fair value and foreign exchange		(3)
Currency swaps-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		(4)
All other	Unrealized gains (losses) on insured derivatives		(15)
All other	Net gains (losses) on financial instruments at fair value and foreign exchange		(7)
All other-VIE	Net gains (losses) on financial instruments at fair value and foreign exchange-VIE		(6)
Total		$	(1,301)

Counterparty Credit Risk

The Company manages counterparty credit risk on an individual counterparty basis through master netting agreements covering derivative transactions in the asset/liability products segment. These agreements allow the Company to contractually net amounts due from a counterparty with those amounts due to such counterparty when certain triggering events occur. The Company only executes swaps under master netting agreements, which typically contain mutual credit downgrade provisions that generally provide the ability to require assignment or termination in the event either MBIA or the counterparty is downgraded below a specified credit rating.

Under these arrangements, the Company may receive or provide U.S. Treasury and other highly rated securities or cash to secure counterparties’ exposure to the Company or its exposure to counterparties, respectively. Such collateral is available to the holder to pay for replacing the counterparty in the event that the counterparty defaults. As of September 30, 2012, the Company did not hold cash collateral to derivative counterparties but posted cash collateral to derivative counterparties of $298 million. Of this amount, $215 million is netted within “Derivative liabilities”, $17 million is netted within “Other liabilities” and $66 million is included in “Other assets” on the Company’s consolidated balance sheets. As of December 31, 2011, the Company did not hold or post cash collateral to derivative counterparties. As of September 30, 2012, the Company did not post securities to derivative counterparties. As of December 31, 2011, the Company had securities with a fair value of $470 million posted to derivative counterparties.

As of September 30, 2012, the fair value on one positive Credit Support Annex (“CSA”) was $3 million. This CSA governs collateral posting requirements between MBIA and its derivative counterparties. The Company did not receive collateral due to the Company’s credit rating, which was below the CSA minimum credit ratings level for holding counterparty collateral. As of September 30, 2012, the counterparty was rated A2 by Moody’s and A by S&P.

As of December 31, 2011, the fair value was positive on one CSA which governs collateral posting requirements between MBIA and its derivative counterparties. The positive fair value for this CSA was $2 million for which the Company did not receive collateral because the Company’s credit rating was below the CSA minimum credit ratings level for holding counterparty collateral. The counterparty was rated Aa3 by Moody’s and A+ by S&P.

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Business Segments (Summary Of Premiums Earned On Financial Guarantees And Insured Derivatives By Geographic Location Of Risk) (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Segment Reporting Information [Line Items]
Total premiums earned	$ 168	$ 199	$ 506	$ 544
United States [Member]
Segment Reporting Information [Line Items]
Total premiums earned	141	161	402	413
United Kingdom [Member]
Segment Reporting Information [Line Items]
Total premiums earned	9	10	27	27
Europe (Excluding United Kingdom) [Member]
Segment Reporting Information [Line Items]
Total premiums earned	3	4	12	25
Internationally Diversified [Member]
Segment Reporting Information [Line Items]
Total premiums earned	3	9	13	27
Central And South America [Member]
Segment Reporting Information [Line Items]
Total premiums earned	8	9	40	28
Asia [Member]
Segment Reporting Information [Line Items]
Total premiums earned	2	2	4	14
Other [Member]
Segment Reporting Information [Line Items]
Total premiums earned	$ 2	$ 4	$ 8	$ 10

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Loss And Loss Adjustment Expense Reserves

9 Months Ended

Sep. 30, 2012

Loss And Loss Adjustment Expense Reserves

Note 5: Loss and Loss Adjustment Expense Reserves

Loss and Loss Adjustment Expense Process

As of September 30, 2012, the majority of the Company’s case basis reserves and insurance loss recoveries recorded in accordance with GAAP were related to insured second-lien and first-lien RMBS transactions. These reserves and recoveries do not include estimates for policies insuring credit derivatives. Policies insuring credit derivative contracts are accounted for as derivatives and carried at fair value under GAAP. The fair values of insured derivative contracts are influenced by a variety of market and transaction-specific factors that may be unrelated to potential future claim payments under the Company’s insurance policies. In the absence of credit impairments on insured derivative contracts or the early termination of such contracts at a loss, the cumulative unrealized losses recorded from fair valuing these contracts should reverse before or at the maturity of the contracts.

Notwithstanding the difference in accounting under GAAP for financial guarantee policies and the Company’s insured derivatives, insured derivatives have similar terms, conditions, risks, and economic profiles to financial guarantee insurance policies, and, therefore, are evaluated by the Company for loss (referred to as credit impairment herein) and LAE periodically in a manner similar to the way that loss and LAE reserves are estimated for financial guarantee insurance policies. Credit impairments represent actual payments and collections plus the present value of estimated expected future claim payments, net of recoveries. MBIA Insurance Corporation’s expected future claim payments for insured derivatives were discounted using a rate of 5.59%, the same rate it used to calculate its statutory loss reserves as of September 30, 2012. These credit impairments, calculated in accordance with U.S. STAT, differ from the fair values recorded in the Company’s consolidated financial statements. The Company considers its credit impairment estimates as critical information for investors as it provides information about loss payments the Company expects to make on insured derivative contracts. As a result, the following loss and LAE process discussion includes information about loss and LAE activity recorded in accordance with GAAP for financial guarantee insurance policies and credit impairments estimated in accordance with U.S. STAT for insured derivative contracts. Refer to “Note 6: Loss and Loss Adjustment Expense Reserves” in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 for information about the Company’s monitoring of outstanding insured obligations and for additional information about its loss reserving process. Refer to “Note 6: Fair Value of Financial Instruments” included herein for additional information about the Company’s insured credit derivative contracts.

RMBS Case Basis Reserves and Recoveries (Financial Guarantees)

The Company’s RMBS reserves and recoveries relate to financial guarantee insurance policies. The Company calculated RMBS case basis reserves as of September 30, 2012 for both second-lien and first-lien RMBS transactions using a process called the “Roll Rate Methodology.” The Roll Rate Methodology is a multi-step process using a database of loan level information, a proprietary internal cash flow model, and a commercially available model to estimate expected ultimate cumulative losses on insured bonds. “Roll Rate” is defined as the probability that current loans become delinquent and that loans in the delinquent pipeline are charged-off or liquidated. Generally, Roll Rates are calculated for the previous three months and averaged. The loss reserve estimates are based on a probability-weighted average of three scenarios of loan losses (base case, stress case, and an additional stress case).

In calculating ultimate cumulative losses for RMBS, the Company estimates the amount of loans that are expected to be charged-off (deemed uncollectible by servicers of the transactions) or liquidated in the future. The Company assumes that charged-off loans have zero recovery values.

Second-lien RMBS Reserves

The Company’s second-lien RMBS case basis reserves as of September 30, 2012 relate to RMBS backed by home equity lines of credit (“HELOC”) and closed-end second mortgages (“CES”).

The Roll Rates for 30-59 day delinquent loans and 60-89 day delinquent loans are calculated on a transaction-specific basis. The Company assumes that the Roll Rate for 90+ day delinquent loans, excluding foreclosures, Real Estate Owned (“REO”) and bankruptcies, is 95%. The Roll Rates are applied to the amounts in the respective delinquency buckets based on delinquencies as of August 31, 2012 to estimate future losses from loans that are delinquent as of the current reporting period.

Roll Rates for loans that are current as of August 31, 2012 (“Current Roll to Loss”) are calculated on a transaction-specific basis. A proportion of loans reported current as of August 31, 2012 is assumed to become delinquent every month, at a Current Roll to Loss rate that persists at a high level for a time and subsequently starts to decline. A key assumption in the model is the period of time in which the Company projects high levels of Current Roll to Loss to persist. In the Company’s base case, the Company assumes that the Current Roll to Loss begins to decline immediately and continues to decline over the next six months to 25% of their levels as of August 31, 2012. In the stress case, the period of elevated delinquency and loss is extended by six months. In the additional stress case, the Company assumes that the current trends in losses will remain through late 2013, after which time they will revert to the base case. For example, in the base case, as of August 31, 2012, if the amount of current loans which become 30-59 days delinquent is 10%, and recent performance suggests that 30% of those loans will be charged-off, the Current Roll to Loss for the transaction is 3%. In the base case, it is then assumed that the Current Roll to Loss will reduce linearly to 25% of its original value over the next six months (i.e., 3% will linearly reduce to 0.75% over the six months from September 2012 to February 2013). After that six-month period, the Company further reduces the Current Roll to Loss to 0% by early 2014 with the expectation that the performing seasoned loans will eventually result in loan performance reverting to historically low levels of default. In the model, the Company assumes that all current loans that are projected to become delinquent are charged-off.

In addition, in the Company’s loss reserve models for transactions secured by HELOCs, the Company considers borrower draw and prepayment rates and factors that could affect the excess spread generated by current loans which offsets losses and reduces payments. For HELOCs, the current three-month average draw rate is generally used to project future draws on the line. For HELOCs and transactions secured by fixed-rate CES, the three-month average conditional prepayment rate is generally used to start the projection for trends in voluntary principal prepayments. Projected cash flows are also based on an assumed constant basis spread between floating rate assets and floating rate insured debt obligations (the difference between Prime and London Interbank Offered Rate (“LIBOR”) interest rates, minus any applicable fees). For all transactions, cash flow models consider allocations and other structural aspects of the transactions, including managed amortization periods, rapid amortization periods and claims against MBIA Corp.’s insurance policy consistent with such policy’s terms and conditions. In developing multiple loss scenarios, stress is applied by elongating the Current Roll to Loss rate for various periods, simulating a slower improvement in the transaction performance. The estimated net claims from the procedure above are then discounted using a risk-free rate to a net present value reflecting MBIA’s general obligation to pay claims over time and not on an accelerated basis. The above assumptions represent MBIA’s best estimates of how transactions will perform over time.

The Company monitors portfolio performance on a monthly basis against projected performance, reviewing delinquencies, Roll Rates, and prepayment rates (including voluntary and involuntary). However, given the large percentage of mortgage loans that were not underwritten by the sellers/servicers in accordance with applicable underwriting guidelines, performance remains difficult to predict and losses may exceed expectations. In the event of a material deviation in actual performance from projected performance, the Company would increase or decrease the case basis reserves accordingly. If actual performance were to remain at the peak levels the Company is modeling for six months longer than in the probability-weighted outcome, the addition to the Company’s second-lien RMBS case basis reserves before considering potential recoveries would be approximately $125 million.

Second-lien RMBS Recoveries

As of September 30, 2012, the Company recorded estimated recoveries of $3.2 billion, gross of income taxes, related to second-lien RMBS put-back claims on ineligible mortgage loans, consisting of $2.1 billion included in “Insurance loss recoverable” and $1.1 billion included in “Loan repurchase commitments” presented under the heading “Assets of consolidated variable interest entities” on the Company’s consolidated balance sheets. As of September 30, 2012 and December 31, 2011, the Company’s estimated recoveries after income taxes calculated at the federal statutory rate of 35%, were $2.1 billion and $2.0 billion, respectively, which was 82% and 119% of the consolidated total shareholders’ equity of MBIA, excluding preferred stock of subsidiaries and noncontrolling interests. These estimated recoveries relate to the Company’s put-back claims of ineligible mortgage loans, which have been disputed by the loan sellers/servicers and are currently subject to litigation initiated by the Company to pursue recoveries. While the Company believes that it will prevail in enforcing its contractual rights, there is uncertainty with respect to the ultimate outcome. Furthermore, there is a risk that sellers/servicers or other responsible parties might not be able to satisfy their put-back obligations. Such risks are contemplated in the scenarios the Company utilizes to calculate recoveries.

The Company assesses the financial abilities of the sellers/servicers using external credit ratings and other factors. The impact of such factors on cash flows related to expected recoveries is incorporated into the Company’s probability-weighted scenarios. Accordingly, the Company has not recognized any recoveries related to its IndyMac Bank, F.S.B. insured exposures and has subsequent to the ResCap bankruptcy filing reviewed the indicative scenarios and related probabilities assigned to each scenario to develop a distribution of possible outcomes. The Company’s expected recoveries may be discounted in the future based on additional reviews of the creditworthiness of other sellers/servicers.

On May 14, 2012, ResCap, and its wholly-owned subsidiary companies, RFC and GMAC, each filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code. The Company believes that the claims against RFC and GMAC are stronger and better defined than most other unsecured creditor claims due to the following reasons:

• the direct contractual relationship between MBIA, GMAC and RFC related to the Company’s second-lien RMBS put-back claims on ineligible mortgage loans that were improperly included in the MBIA-insured transactions;

• MBIA’s legal claims against RFC and GMAC based on breach of contract and fraud have withstood motions to dismiss; and

• expert reports submitted in the RFC litigation which established a substantial breach rate in MBIA insured securitizations, and MBIA’s damages as a result thereof.

The Company has modeled scenario-based recoveries which are founded upon the strength of these claims as well as a range of estimated assets available to unsecured creditors of the ResCap companies. These outcomes are based upon information that was available to the Company as of the filing date.

The Company continues to maintain the same probability-weighted scenarios for its non-GMAC and non-RFC exposures (non-ResCap exposures), which are primarily based on the percentage of incurred losses the Company would collect. The non-ResCap recovery estimates incorporate five scenarios that include full recovery of its incurred losses and limited/reduced recoveries due to litigation delays and risks and/or potential financial distress of the sellers/servicers. Probabilities were assigned across these scenarios, with most of the probability weight on partial recovery scenarios. The sum of the probabilities assigned to all scenarios is 100%. Expected cash inflows from recoveries are discounted using the current risk-free discount rates associated with the underlying transaction’s cash flows, which ranged from 0.7% to 1.6%, depending upon the transaction’s expected average life. However, based on the Company’s assessment of the strength of its contract claims, the Company believes it is entitled to collect and/or assert a claim for the full amount of its incurred losses on these transactions, which totaled $5.0 billion through September 30, 2012.

The Company’s potential recoveries are typically based on either salvage rights, the rights conferred to MBIA through the transactional documents (inclusive of the insurance agreement), or subrogation rights embedded within financial guarantee insurance policies. The second-lien RMBS transactions with respect to which MBIA has estimated put-back recoveries provide the Company with such rights. Expected salvage and subrogation recoveries, as well as recoveries from other remediation efforts, reduce the Company’s claim liability. Once a claim payment has been made, the claim liability has been satisfied and MBIA’s right to recovery is no longer considered an offset to future expected claim payments, and is recorded as a salvage asset. The amount of recoveries recorded by the Company is limited to paid claims plus the present value of projected future claim payments. As claim payments are made, the recorded amount of potential recoveries may exceed the remaining amount of the claim liability for a given policy.

To date, sellers/servicers have not substituted loans which MBIA has put-back, and the amount of loans repurchased has been insignificant. The unsatisfactory resolution of these put-backs led MBIA to initiate litigation against five of the sellers/servicers to enforce their obligations. The Company has alleged several causes of action in its complaints, including breach of contract, fraudulent inducement and indemnification. MBIA’s aggregate $3.2 billion of estimated potential recoveries do not include damages from causes of action other than breach of contract. Irrespective of amounts recorded in its financial statements, MBIA is seeking to recover and/or assert claims for the full amount of its incurred losses and other damages on these transactions. MBIA has not collected any material amounts of cash related to these recoveries. Additional information on the status of these litigations can be found in the “Recovery Litigation” discussion within “Note 13: Commitments and Contingencies.”

MBIA has received five decisions with regard to the respective defendants’ motions to dismiss the Company’s claims. In each instance, the respective court denied the motion, allowing MBIA to proceed on, at minimum, its fraud and breach of contract claims. In December 2011, MBIA reached an agreement with one of the five sellers/servicers with whom it had initiated litigation and that litigation has been dismissed.

The Company’s assessment of the recovery outlook for insured second-lien RMBS issues is principally based on the following factors:

1. the strength of the Company’s existing contract claims related to ineligible mortgage loan substitution/repurchase obligations;

2. the settlement of Assured Guaranty’s and Syncora’s put-back related claims with Bank of America;

3. the improvement in the financial strength of certain sellers/servicers due to mergers and acquisitions and/or government assistance, which should facilitate the ability of these sellers/servicers and their successors to comply with required loan repurchase/substitution obligations. The Company is not aware of any provisions that explicitly preclude or limit successors’ obligations to honor the obligations of original sellers/servicers. The Company’s assessment of any credit risk associated with sellers/servicers (or their successors) is reflected in the Company’s probability-weighted potential recovery scenarios;

4. evidence of ineligible mortgage loan repurchase/substitution by sellers/servicers for put-back requests made by other harmed parties; this factor is further enhanced by (i) Bank of America’s disclosure that it has resolved $8.0 billion of repurchase requests in the fourth quarter of 2010; (ii) the Fannie Mae settlements with Ally Bank announced on December 23, 2010 and with Bank of America (which also involved Freddie Mac) announced on December 31, 2010, and (iii) the Company’s settlement agreements entered into on July 16, 2010 and December 13, 2011 respectively, between MBIA Corp. and sponsors of certain MBIA Corp.-insured mortgage loan securitizations in which the Company received consideration in exchange for a release relating to its representation and warranty claims against the sponsors. These settlements resolved all of MBIA’s representation and warranty claims against the sponsors on mutually beneficial terms and in aggregate were slightly more than the recoveries previously recorded by the Company related to these exposures;

5. the defendants’ failure to win dismissals of MBIA’s put-back litigations discussed above, allowing MBIA to continue to pursue its contract and fraud claims;

6. Countrywide’s unsuccessful appeal of its failure to win dismissal of MBIA’s fraud claims in the Countrywide litigation, allowing MBIA to pursue its fraud claims;

7. MBIA’s successful motion in the Countrywide litigation allowing MBIA to present evidence of liability and damages through the introduction of statistically valid random samples of loans rather than on a loan-by-loan basis and subsequent decisions consistent with that ruling;

8. Bank of America’s failure to win dismissal of MBIA’s claims for successor liability in the Countrywide litigation, as well as the completion of discovery relating to MBIA’s successor liability claims against Bank of America;

9. MBIA’s successful motion regarding causation and the right to rescissory damages in the Countrywide litigation, which provides that MBIA is not required to establish a direct causal link between Countrywide’s misrepresentations and MBIA’s claims payments made pursuant to the insurance policies at issue, and that MBIA may seek damages equal to the amount that it has been and will be required to pay under the relevant policies, less premiums received;

10. Syncora’s and Assured Guaranty’s successful motions regarding causation in their Federal court put-back litigations with JP Morgan Chase and Flagstar Bank, respectively, which support the ruling on causation in MBIA’s litigation against Countrywide; and

11. other loan repurchase reserves and/or settlements which have been publicly disclosed by certain sellers/servicers.

The Company continues to consider all relevant facts and circumstances, including the factors described above, in developing its assumptions on expected cash inflows, probability of potential recoveries (including the outcome of litigation) and recovery period. The estimated amount and likelihood of potential recoveries are expected to be revised and supplemented to the extent there are developments in the pending litigation, new litigation is initiated and/or changes to the financial condition of sellers/servicers occur. While the Company believes it will be successful in realizing recoveries from contractual and other claims, the ultimate amounts recovered may be materially different from those recorded by the Company given the inherent uncertainty of the manner of resolving the claims (e.g., litigation) and the assumptions used in the required estimation process for accounting purposes which are based, in part, on judgments and other information that are not easily corroborated by historical data or other relevant benchmarks.

All of the Company’s policies insuring second-lien RMBS for which litigation has been initiated against sellers/servicers are in the form of financial guarantee insurance contracts. In accordance with U.S. GAAP, the Company has not recorded a gain contingency with respect to pending litigation.

First-lien RMBS Reserves

The Company’s first-lien RMBS case basis reserves as of September 30, 2012, which primarily relate to RMBS backed by alternative A-paper (“Alt-A”) and subprime mortgage loans were determined using the Roll Rate Methodology. The Company assumes that the Roll Rate for loans in foreclosure, REO and bankruptcy are 90%, 90% and 75%, respectively. Roll Rates for current, 30-59 day delinquent loans, 60-89 day delinquent loans and 90+ day delinquent loans are calculated on a transaction-specific basis. The Current Roll to Loss stay at the August 31, 2012 level for two months before declining to 25% of this level over a 24-month period. Additionally, the Company runs scenarios where the 90+ day roll rate to loss is set at 90%. The Roll Rates are applied to the amounts in the respective delinquency buckets based on delinquencies as of August 31, 2012 to estimate future losses from loans that are delinquent as of the current reporting period.

In calculating ultimate cumulative losses for first-lien RMBS, the Company estimates the amount of loans that are expected to be liquidated through foreclosure or short sale. The time to liquidation for a defaulted loan is specific to the loan’s delinquency bucket with the latest three-month average loss severities generally used to calculate losses at loan liquidation. The loss severities are reduced over time to account for reduction in the amount of foreclosure inventory, anticipated future increases in home prices, principal amortization of the loan and government foreclosure moratoriums.

ABS CDOs (Financial Guarantees and Insured Derivatives)

MBIA’s insured ABS CDOs are transactions that include a variety of collateral ranging from corporate bonds to structured finance assets (which includes but are not limited to RMBS related collateral, ABS CDOs, corporate CDOs and collateralized loan obligations). These transactions were insured as either financial guarantee insurance policies or credit derivatives with the majority insured in the form of credit derivatives. Since the fourth quarter of 2007, MBIA’s insured par exposure within the ABS CDO portfolio has been substantially reduced through a combination of terminations and commutations. Accordingly, as of September 30, 2012, the insured par exposure of the ABS CDO financial guarantee insurance policies and credit derivatives portfolio has declined by approximately 88% of the insured amount as of December 31, 2007.

The Company’s ABS CDOs originally benefited from two sources of credit enhancement. First, the subordination in the underlying securities collateralizing the transaction must be fully eroded and second, the subordination below the insured tranche in the CDO transaction must be fully eroded before the insured tranche is subject to a claim. The Company’s payment obligations after a default vary by transaction and by insurance type.

The primary factor in estimating reserves on insured ABS CDO policies written as financial guarantee insurance policies and in estimating impairments on insured ABS CDO credit derivatives is the losses associated with the underlying collateral in the transactions. MBIA’s approach to establishing reserves or impairments in this portfolio employs a methodology which is similar to other structured finance asset classes insured by MBIA. The Company uses a total of four probability-weighted scenarios in order to estimate its reserves or impairments for ABS CDOs.

As of September 30, 2012, the Company had loss and LAE reserves totaling $171 million related to ABS CDO financial guarantee insurance policies after the elimination of $242 million as a result of consolidating VIEs. For the nine months ended September 30, 2012, the Company incurred $6 million of losses and LAE recorded in earnings related to ABS CDO financial guarantee insurance policies after the elimination of an $18 million benefit as a result of consolidating VIEs. In the event of further deteriorating performance of the collateral referenced or held in ABS CDO transactions, the amount of losses estimated by the Company could increase materially.

Credit Impairments Related to Structured CMBS Pools, CRE CDOs and CRE Loan Pools (Financial Guarantees and Insured Derivatives)

Most of the structured CMBS pools, CRE CDOs and CRE loan pools insured by MBIA are accounted for as insured credit derivatives and are carried at fair value in the Company’s consolidated financial statements. Since the Company’s insured credit derivatives have similar terms, conditions, risks, and economic profiles to its financial guarantee insurance policies, the Company evaluates them for impairment in the same way that it estimates loss and LAE for its financial guarantee policies. The following discussion provides information about the Company’s process for estimating credit impairments on these contracts using its statutory loss reserve methodology, determined as the present value of the probability-weighted potential future losses, net of estimated recoveries, across multiple scenarios, plus actual payments and collections.

The Company has developed multiple scenarios to consider the range of potential outcomes in the CRE market and their impact on MBIA. The approaches require substantial judgments about the future performance of the underlying loans, and include the following:

• The first approach considers the range of commutation agreements achieved and agreed to since 2010, which included 66 structured CMBS pools, CRE CDOs and CRE loan pool policies totaling $33.1 billion of gross insured exposure. The Company considers the range of commutations achieved over the past several years with multiple counterparties. This approach results in an estimated price to commute the remaining policies with price estimates, based on this experience. It is customized by counterparty and is dependent on the level of dialogue with the counterparty and the credit quality and payment profile of the underlying exposure.

• The second approach considers current delinquency rates and uses current and projected net operating income (“NOI”) and capitalization rates (“Cap Rates”) to project losses under two scenarios. Loans are stratified by size with larger loans being valued utilizing lower Cap Rates than for smaller loans. These scenarios also assume that Cap Rates and NOIs remain flat for the near term and then begin to improve gradually. Additionally, in these scenarios, any loan with a balance greater than $75 million with a debt service coverage ratio (“DSCR”) less than 1.0x or that was reported as being in any stage of delinquency, was reviewed individually so that performance and loss severity could be more accurately determined. Specific loan level assumptions for this large loan subset were then incorporated into these scenarios, as well as specific assumptions regarding certain smaller loans when there appeared to be a material change in the asset’s financial or delinquency performance over the preceding six months. As the Company continues to increase the level of granularity in its individual loan assessments, it analyzes and adjusts assumptions for loans with certain mitigating attributes, such as no lifetime delinquency, recent appraisals indicating sufficient value and large capital reserve levels. These scenarios project different levels of additional defaults with respect to loans that are current. This approach makes use of the most recent financial statements available at the property level.

• The third approach stratifies loans into buckets based on delinquency status (including a “current” bucket) and utilizes recent Roll Rates actually experienced within each of the commercial mortgage-backed index (“CMBX”) series in order to formulate an assumption to predict future delinquencies. Ultimately, this generates losses over a projected time horizon based on the assumption that loss severities will begin to decline from the high levels seen over the past two years. The Company further examines those loans referenced in the CMBX indices which were categorized as 90+ days delinquent or in the process of foreclosure and determined the average monthly balance of such loans which were cured. The Company then applies the most recent rolling six-month average balance of all such cured loans to all underperforming loans in the 90+ day delinquent bucket or in the foreclosure process (and those projected to roll into late stage delinquency from the current and lesser stage levels of delinquency) and assumes all other loans are liquidated. The Company assumes all loans in the REO category liquidate over the next twelve months.

• The fourth approach is based on a proprietary model developed by reviewing performance data on over 80,000 securitized CRE loans originated between 1992 and 2011. The time period covered during the performance review includes the years 2006 through 2011. The Company believes that these five years represent an appropriate time period in which to conduct a performance review because they encompass a period of extreme stress in the economy and the CRE market.

Based on a review of the data, the Company found property type and the DSCR to be the most significant determinants of a loan’s default probability, with other credit characteristics less influential. As a result, the Company developed a model in which the loans were divided into 168 representative cohorts based on their DSCR and property type. For each of these cohorts, the Company calculated the average annual probability of default, and then ran Monte Carlo simulations to estimate the timing of defaults. In addition, the model incorporated the following logic:

• NOI and Cap Rates were assumed to remain at current levels for loans in the Company’s classified portfolio, resulting in no modifications or extensions under the model, other than as described in the next bullet point, to reflect the possibility that the U.S. economy and CRE market could experience no growth for the foreseeable future.

• Any valuation estimates obtained by special servicers since a loan’s origination as well as the Company’s individual large loan level analysis for loans with balances greater than $75 million were incorporated as described in the second approach. However, in the fourth approach no adjustments were made for loans lower than $75 million regardless of any mitigating factors.

The loss severities projected by these scenarios vary widely, from moderate to substantial losses, with the majority of projected losses relating to a subset of transactions with a single counterparty. The Company previously incorporated an additional actuarial based approach, which has been eliminated as it did not reflect the best current market observations. Actual losses will be a function of the proportion of loans in the pools that are foreclosed and liquidated and the loss severities associated with those liquidations. If the deductibles in the Company’s insured transactions and underlying referenced CMBS transactions are fully eroded, additional property level losses upon foreclosures and liquidations could result in substantial losses for MBIA. Since foreclosures and liquidations have only begun to take place during this economic cycle, particularly for larger properties, ultimate loss rates remain uncertain. Whether CMBS collateral is included in a structured pool or in a CRE CDO, the Company believes the modeling related to the underlying bond should be the same. However, adjustments may be needed for structural or legal reasons. The Company assigns a wide range of probabilities to these scenarios, with lower severity scenarios being weighted more heavily than higher severity scenarios. This reflects the view that liquidations will continue to be mitigated by loan extensions and modifications, and that property values and NOIs have bottomed for many sectors and markets in the U.S. The weightings are customized to each counterparty. If macroeconomic stress were to increase or the U.S. goes into a recession, higher delinquencies, liquidations and/or higher severities of loss upon liquidation may result and the Company may incur substantial additional losses. The foreclosure and REO pipelines are still relatively robust, with several restructurings and liquidations yet to occur, so the range of possible outcomes is wider than those for the Company’s exposures to ABS CDOs and second-lien RMBS.

In the CRE CDO portfolio, transaction-specific structures require managers to report reduced enhancement according to certain guidelines which often include downgrades even when the bond is still performing. As a result, as well as additional collateral defaults, reported enhancement has been reduced significantly in some CRE CDOs. Moreover, many of the CRE CDO positions are amortizing more quickly than originally expected as most or all interest proceeds that would have been allocated to more junior classes within the CDO have been diverted and redirected to pay down the senior most classes insured by MBIA.

For the nine months ended September 30, 2012, the Company incurred $87 million of losses and LAE recorded in earnings related to CRE CDO financial guarantee insurance policies. For the nine months ended September 30, 2012, additional credit impairments and LAE on structured CMBS pools, CRE CDOs and CRE loan pools were estimated to be $502 million as a result of additional delinquencies and loan level liquidations, as well as continued refinements of MBIA’s assessment of various commutation possibilities. The majority of the increase relates to a subset of transactions with a single counterparty. The cumulative credit impairments and LAE on structured CMBS pools, CRE CDOs and CRE loan pools were estimated to be $3.3 billion through September 30, 2012. Although the pace of increases in the delinquency rate has slowed and many loans are being modified, liquidations have taken place. Some loans were liquidated with minimal losses of 1% to 2%, others experienced near complete losses, and in some cases severities exceeded 100%. These liquidations have led to losses in the CMBS market, and in many cases, have resulted in reductions of enhancement to the individual CMBS bonds referenced by the insured structured CMBS pools. In certain insured transactions, these losses have resulted in deductible erosion. Bond level enhancement and pool level deductibles are structural features intended to mitigate losses to the Company. However, some of the transactions reference similar rated subordinate tranches of CMBS bonds. When there are broad-based declines in property performance, this leverage can result in rapid deterioration in pool performance.

Loss and LAE Activity

Financial Guarantee Insurance Losses (Non-Derivative)

The Company’s financial guarantee insurance losses and LAE for the nine months ended September 30, 2012 are presented in the following table:

Losses and LAE
	Nine Months Ended September 30, 2012
In millions	Second-lien RMBS		Other(1)		Total
Losses and LAE related to actual and expected payments	$	180	$	273	$	453
Recoveries of actual and expected payments		(74)		(49)		(123)
Gross losses incurred		106		224		330
Reinsurance		-		-		-
Losses and LAE	$	106	$	224	$	330

(1) - Primarily first-lien RMBS and financial guarantee CMBS.

The second-lien RMBS losses and LAE related to actual and expected payments included in the preceding table comprise net increases of previously established reserves. The second-lien RMBS recoveries of actual and expected payments comprise $154 million in recoveries resulting from ineligible mortgage loans included in insured exposures that are subject to contractual obligations by sellers/servicers to repurchase or replace such mortgages, offset by an $80 million reduction in excess spread. Other losses and LAE expense primarily resulted from credit deterioration within first-lien RMBS and CMBS transactions.

The following table provides information about the financial guarantees and related claim liability included in each of MBIA’s surveillance categories as of September 30, 2012:

	Surveillance Categories
$ in millions	Caution List Low		Caution List Medium		Caution List High		Classified List		Total
Number of policies		49		24		11		209		293
Number of issues(1)		27		14		10		137		188
Remaining weighted average contract period (in years)		8.7		4.6		7.8		9.4		8.7
Gross insured contractual payments outstanding(2):
Principal	$	3,747	$	1,409	$	360	$	9,671	$	15,187
Interest		2,690		334		115		5,387		8,526
Total	$	6,437	$	1,743	$	475	$	15,058	$	23,713
Gross claim liability	$	-	$	-	$	-	$	1,670	$	1,670
Less:
Gross potential recoveries		-		-		-		3,844		3,844
Discount, net		-		-		-		178		178
Net claim liability (recoverable)	$	-	$	-	$	-	$	(2,352)	$	(2,352)
Unearned premium revenue	$	130	$	17	$	3	$	119	$	269

(1) - An “issue” represents the aggregate of financial guarantee policies that share the same revenue source for purposes of making debt service payments.

(2) - Represents contractual principal and interest payments due by the issuer of the obligations insured by MBIA.

The following table provides information about the financial guarantees and related claim liability included in each of MBIA’s surveillance categories as of December 31, 2011:

	Surveillance Categories
$ in millions	Caution List Low		Caution List Medium		Caution List High		Classified List		Total
Number of policies		54		28		14		200		296
Number of issues(1)		32		18		11		130		191
Remaining weighted average contract period (in years)		8.2		5.6		6.0		9.6		8.8
Gross insured contractual payments outstanding(2):
Principal	$	4,310	$	1,213	$	561	$	10,420	$	16,504
Interest		2,653		351		144		5,836		8,984
Total	$	6,963	$	1,564	$	705	$	16,256	$	25,488
Gross claim liability	$	-	$	-	$	-	$	1,812	$	1,812
Less:
Gross potential recoveries		-		-		-		3,813		3,813
Discount, net		-		-		-		177		177
Net claim liability (recoverable)	$	-	$	-	$	-	$	(2,178)	$	(2,178)
Unearned premium revenue	$	155	$	16	$	3	$	134	$	308

(1) - An “issue” represents the aggregate of financial guarantee policies that share the same revenue source for purposes of making debt service payments.

(2) - Represents contractual principal and interest payments due by the issuer of the obligations insured by MBIA.

The gross claim liability as of September 30, 2012 and December 31, 2011 in the preceding tables represents the Company’s estimate of undiscounted probability-weighted future claim payments, which principally relate to insured first-lien and second-lien RMBS transactions and U.S. public finance transactions. The gross potential recoveries represent the Company’s estimate of undiscounted probability-weighted recoveries of actual claim payments and recoveries of estimated future claim payments, and principally relate to insured second-lien RMBS transactions. Both amounts reflect the elimination of claim liabilities and potential recoveries related to VIEs consolidated by the Company.

The following table presents the components of the Company’s loss and LAE reserves and insurance loss recoverable as reported on the Company’s consolidated balance sheets as of September 30, 2012 and December 31, 2011 for insured obligations within MBIA’s “Classified List.” The loss reserves (claim liability) and insurance claim loss recoverable included in the following table represent the present value of the probability-weighted future claim payments and recoveries reported in the preceding tables.

In millions	As of September 30, 2012		As of December 31, 2011
Loss reserves (claim liability)	$	862	$	781
LAE reserves		83		55
Loss and LAE reserves	$	945	$	836
Insurance claim loss recoverable	$	(3,281)	$	(3,032)
LAE insurance loss recoverable		(35)		(14)
Insurance loss recoverable	$	(3,316)	$	(3,046)
Reinsurance recoverable on unpaid losses	$	13	$	15
Reinsurance recoverable on paid losses		2		1
Reinsurance recoverable on paid and unpaid losses	$	15	$	16

As of September 30, 2012, loss and LAE reserves include $1.3 billion of reserves for expected future payments offset by expected recoveries of such future payments of $395 million. As of December 31, 2011, loss and LAE reserves included $1.4 billion of reserves for expected future payments offset by expected recoveries of such future payments of $562 million. As of September 30, 2012 and December 31, 2011, the insurance loss recoverable primarily related to estimated recoveries of payments made by the Company resulting from ineligible mortgage loans in certain insured second-lien residential mortgage loan securitizations that are subject to a contractual obligation by the sellers/servicers to repurchase or replace the ineligible mortgage loans and expected future recoveries on second-lien RMBS transactions resulting from expected excess spread generated by performing loans in such transactions. The Company expects to be reimbursed for the majority of its potential recoveries related to ineligible mortgage loans by the second quarter of 2013.

Total paid losses and LAE, net of reinsurance and collections, for the nine months ended September 30, 2012 was $489 million, including $330 million related to insured second-lien RMBS transactions. For the nine months ended September 30, 2012, the increase in insurance loss recoverable related to paid losses totaled $270 million, and primarily related to insured second-lien RMBS transactions.

The following table presents the Company’s second-lien RMBS exposure, gross undiscounted claim liability and potential recoveries for amounts excluding consolidated VIEs and amounts related to consolidated VIEs, as of September 30, 2012. All insured transactions with potential recoveries are included within the “Classified List.”

Second-lien RMBS Exposure			Outstanding				Gross Undiscounted
$ in billions	Issues		Gross Principal		Gross Interest		Claim Liability		Potential Recoveries
Excluding Consolidated VIEs:
Insured issues designated as “Classified List”		22	$	4.2	$	1.7	$	0.3	$	3.2
Insured issues reviewed with potential recoveries		15	$	3.9	$	1.6	$	0.2	$	3.1
Consolidated VIEs:
Insured issues designated as “Classified List”		12	$	2.3	$	0.9	$	0.1	$	1.4
Insured issues reviewed with potential recoveries		11	$	2.2	$	0.8	$	0.1	$	1.4

The Company has performed reviews on 29 of the 34 total insured issues designated as “Classified List” and recorded potential recoveries on 26 of those 29 issues, primarily related to four issuers (Countrywide, RFC, GMAC and Credit Suisse). In addition, the Company has received consideration on two transactions, including one Alt-A transaction, which have been excluded in the preceding table.

The following table presents changes in the Company’s loss and LAE reserves for the nine months ended September 30, 2012. Changes in the loss and LAE reserves attributable to the accretion of the claim liability discount, changes in discount rates, changes in the timing and amounts of estimated payments and recoveries, changes in assumptions and changes in LAE reserves are recorded in “Losses and loss adjustment” expenses in the Company’s consolidated statements of operations. As of September 30, 2012, the weighted average risk-free rate used to discount the Company’s loss reserves (claim liability) was 1.26%. LAE reserves are expected to be settled within a one-year period and are not discounted.

In millions		Changes in Loss and LAE Reserves for the Nine Months Ended September 30, 2012
Gross Loss and LAE Reserves as of December 31, 2011		Loss Payments for Cases with Reserves		Accretion of Claim Liability Discount		Changes in Discount Rates		Changes in Timing of Payments		Changes in Amount of Net Payments		Changes in Assumptions		Changes in Unearned Premium Revenue		Changes in LAE Reserves		Gross Loss and LAE Reserves as of September 30, 2012
$	836	$	(283)	$	9	$	26	$	52	$	3	$	267	$	7	$	28	$	945

The increase in the Company’s gross loss and LAE reserves reflected in the preceding table was primarily due to changes in assumptions, timing of payments, and changes in LAE reserves, offset by decreases in reserves related to loss payments on insured first-lien and second-lien RMBS issues outstanding as of December 31, 2011.

Current period changes in the Company’s estimate of potential recoveries may be recorded as an insurance loss recoverable asset, netted against the gross loss and LAE reserve liability, or both. The following table presents changes in the Company’s insurance loss recoverable and changes in recoveries on unpaid losses reported within the Company’s claim liability for the nine months ended September 30, 2012. Changes in insurance loss recoverable attributable to the accretion of the discount on the recoverable, changes in discount rates, changes in the timing and amounts of estimated collections, changes in assumptions and changes in LAE recoveries are recorded in “Losses and loss adjustment” expenses in the Company’s consolidated statements of operations.

			Changes in Insurance Loss Recoverable and Recoveries on Unpaid Losses for the Nine Months Ended September 30, 2012
In millions	Gross Reserve as of December 31, 2011		Collections for Cases with Recoveries		Accretion of Recoveries		Changes in Discount Rates		Changes in Timing of Collections		Changes in Amount of Collections		Changes in Assumptions		Changes in LAE Recoveries		Gross Reserve as of September 30, 2012
Insurance loss recoverable	$	3,046	$	(6)	$	30	$	8	$	-	$	(149)	$	366	$	21	$	3,316
Recoveries on unpaid losses		562		-		6		19		-		-		(185)		(7)		395
Total	$	3,608	$	(6)	$	36	$	27	$	-	$	(149)	$	181	$	14	$	3,711

The Company’s insurance loss recoverable increased during 2012 primarily due to changes in assumptions associated with issues outstanding as of December 31, 2011, which related to increases in excess spread and ineligible mortgage loans included in insured second-lien residential mortgage securitization exposures that are subject to contractual obligations by sellers/servicers to repurchase or replace such mortgages, partially offset by changes in the amount of collections. Recoveries on unpaid losses decreased primarily due to changes in assumptions as a result of a reduction of excess spread related to first-lien and second-lien RMBS transactions offset by changes in discount rates.

The following table presents the Company’s total estimated recoveries from ineligible mortgage loans included in certain insured second-lien mortgage loan securitizations as of September 30, 2012. The total estimated recoveries from ineligible mortgage loans of $3.2 billion include $2.1 billion recorded as “Insurance loss recoverable” and $1.1 billion recorded as “Loan repurchase commitments” presented under the heading “Assets of consolidated variable interest entities” on the Company’s consolidated balance sheets.

In millions
Total Estimated Recoveries from Ineligible Mortgage Loans as of December 31, 2011		Accretion of Future Collections		Changes in Discount Rates		Recoveries (Collections)		Changes in Amount of Collections		Changes in Assumptions		Total Estimated Recoveries  from Ineligible Mortgage Loans as of September  30, 2012
$	3,119	$	34	$	2	$	-	$	-	$	92	$	3,247

The Company’s total estimated recoveries from ineligible mortgage loans in the preceding table increased primarily as a result of the probability-weighted scenarios as described within the preceding “Second-lien RMBS Recoveries” section.

Remediation actions may involve, among other things, waivers or renegotiations of financial covenants or triggers, waivers of contractual provisions, the granting of consents, transfer of servicing, consideration of restructuring plans, acceleration, security or collateral enforcement, actions in bankruptcy or receivership, litigation and similar actions. The types of remedial actions pursued are based on the insured obligation’s risk type and the nature and scope of the event giving rise to the remediation. As part of any such remedial actions, MBIA seeks to improve its security position and to obtain concessions from the issuer of the insured obligation. From time to time, the issuer of 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.

Costs associated with remediating insured obligations assigned to the Company’s “Caution List—Low,” “Caution List—Medium,” “Caution List—High” and “Classified List” are recorded as LAE. LAE is primarily recorded as part of the Company’s provision for its loss reserves and included in “Losses and loss adjustment” on the Company’s consolidated statements of operations. The following table presents the gross expenses related to remedial actions for insured obligations:

	Nine Months Ended September 30,
In millions	2012		2011
Loss adjustment expense incurred, gross	$	113	$	76

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Investments (Available-For-Sale In Consolidated Investment Portfolio) (Detail) (USD $) In Millions, unless otherwise specified	Sep. 30, 2012		Dec. 31, 2011
Schedule of Investments [Line Items]
Amortized Cost	$ 6,729		$ 9,025
Gross Unrealized Gains	337		263
Gross Unrealized Losses	(191)		(478)
Fair Value	6,875		8,810
Other-Than-Temporary Impairments	(47)	[1]	(139)	[1]
Other Investments [Member]
Schedule of Investments [Line Items]
Amortized Cost	624		1,060
Gross Unrealized Gains			1
Gross Unrealized Losses			(19)
Fair Value	624		1,042
Fixed-Maturity Investments [Member]
Schedule of Investments [Line Items]
Amortized Cost	5,644		7,492
Gross Unrealized Gains	326		262
Gross Unrealized Losses	(161)		(418)
Fair Value	5,809		7,336
Other-Than-Temporary Impairments	(47)	[1]	(139)	[1]
Fixed-Maturity Investments [Member] | Variable Interest Entity [Member]
Schedule of Investments [Line Items]
Amortized Cost	446
Fair Value	427
Fixed-Maturity Investments [Member] | Mortgage-Backed Securities [Member]
Schedule of Investments [Line Items]
Amortized Cost	1,221
Fair Value	1,246
Fixed-Maturity Investments [Member] | Mortgage-Backed Securities [Member] | Variable Interest Entity [Member]
Schedule of Investments [Line Items]
Amortized Cost	99
Fair Value	87
Fixed-Maturity Investments [Member] | Asset-Backed Securities [Member]
Schedule of Investments [Line Items]
Amortized Cost	360
Fair Value	275
Fixed-Maturity Investments [Member] | Asset-Backed Securities [Member] | Variable Interest Entity [Member]
Schedule of Investments [Line Items]
Amortized Cost	133
Fair Value	123
Corporate Obligations [Member] | Variable Interest Entity [Member]
Schedule of Investments [Line Items]
Amortized Cost	177		2
Gross Unrealized Gains	7
Gross Unrealized Losses	(7)
Fair Value	177		2
Residential Mortgage-Backed Non-Agency [Member] | Mortgage-Backed Securities [Member] | Variable Interest Entity [Member]
Schedule of Investments [Line Items]
Amortized Cost	99		119
Gross Unrealized Losses	(12)		(26)
Fair Value	87		93
Collateralized Debt Obligations [Member] | Asset-Backed Securities [Member] | Variable Interest Entity [Member]
Schedule of Investments [Line Items]
Amortized Cost	108		112
Gross Unrealized Losses	(11)		(15)
Fair Value	97		97
Other Asset-Backed [Member] | Asset-Backed Securities [Member] | Variable Interest Entity [Member]
Schedule of Investments [Line Items]
Amortized Cost	25		41
Gross Unrealized Gains	1
Fair Value	26		41
State And Municipal Bonds [Member] | Asset-Backed Securities [Member] | Variable Interest Entity [Member]
Schedule of Investments [Line Items]
Amortized Cost	37
Gross Unrealized Gains	3
Fair Value	40
Perpetual Preferred Securities [Member] | Other Investments [Member]
Schedule of Investments [Line Items]
Amortized Cost	31		127
Gross Unrealized Losses			(19)
Fair Value	31		108
Other Investment Securities [Member] | Other Investments [Member]
Schedule of Investments [Line Items]
Amortized Cost	10		22
Gross Unrealized Gains			1
Fair Value	10		23
Money Market Securities [Member] | Other Investments [Member]
Schedule of Investments [Line Items]
Amortized Cost	583		911
Fair Value	583		911
Money Market Securities [Member] | Other Investments [Member] | Variable Interest Entity [Member]
Schedule of Investments [Line Items]
Amortized Cost	15		199
Fair Value	15		199
Taxable Bonds [Member] | Fixed-Maturity Investments [Member]
Schedule of Investments [Line Items]
Amortized Cost	4,758		6,370
Gross Unrealized Gains	266		221
Gross Unrealized Losses	(161)		(416)
Fair Value	4,863		6,175
Other-Than-Temporary Impairments	(47)	[1]	(139)	[1]
Taxable Bonds [Member] | U.S. Treasury And Government Agency [Member] | Fixed-Maturity Investments [Member]
Schedule of Investments [Line Items]
Amortized Cost	896		1,091
Gross Unrealized Gains	44		39
Gross Unrealized Losses	(1)
Fair Value	939		1,130
Taxable Bonds [Member] | Foreign Governments [Member] | Fixed-Maturity Investments [Member]
Schedule of Investments [Line Items]
Amortized Cost	318		326
Gross Unrealized Gains	22		23
Fair Value	340		349
Taxable Bonds [Member] | Corporate Obligations [Member] | Fixed-Maturity Investments [Member]
Schedule of Investments [Line Items]
Amortized Cost	1,068		1,698
Gross Unrealized Gains	59		43
Gross Unrealized Losses	(21)		(106)
Fair Value	1,106		1,635
Other-Than-Temporary Impairments	3	[1]	(2)	[1]
Taxable Bonds [Member] | Residential Mortgage-Backed Agency [Member] | Fixed-Maturity Investments [Member] | Mortgage-Backed Securities [Member]
Schedule of Investments [Line Items]
Amortized Cost	988		1,198
Gross Unrealized Gains	48		47
Fair Value	1,036		1,245
Taxable Bonds [Member] | Residential Mortgage-Backed Non-Agency [Member] | Fixed-Maturity Investments [Member] | Mortgage-Backed Securities [Member]
Schedule of Investments [Line Items]
Amortized Cost	187		325
Gross Unrealized Gains	16		31
Gross Unrealized Losses	(36)		(83)
Fair Value	167		273
Other-Than-Temporary Impairments	(24)	[1]	(57)	[1]
Taxable Bonds [Member] | Commercial Mortgage-Backed [Member] | Fixed-Maturity Investments [Member] | Mortgage-Backed Securities [Member]
Schedule of Investments [Line Items]
Amortized Cost	46		58
Gross Unrealized Gains	1		1
Gross Unrealized Losses	(4)		(10)
Fair Value	43		49
Taxable Bonds [Member] | Collateralized Debt Obligations [Member] | Fixed-Maturity Investments [Member] | Asset-Backed Securities [Member]
Schedule of Investments [Line Items]
Amortized Cost	165		251
Gross Unrealized Losses	(74)		(118)
Fair Value	91		133
Other-Than-Temporary Impairments	(26)	[1]	(43)	[1]
Taxable Bonds [Member] | Other Asset-Backed [Member] | Fixed-Maturity Investments [Member] | Asset-Backed Securities [Member]
Schedule of Investments [Line Items]
Amortized Cost	195		520
Gross Unrealized Gains	3		2
Gross Unrealized Losses	(14)		(82)
Fair Value	184		440
Other-Than-Temporary Impairments			(37)	[1]
Taxable Bonds [Member] | State And Municipal Bonds [Member] | Fixed-Maturity Investments [Member]
Schedule of Investments [Line Items]
Amortized Cost	895		903
Gross Unrealized Gains	73		35
Gross Unrealized Losses	(11)		(17)
Fair Value	957		921
Tax-Exempt Bonds [Member] | State And Municipal Bonds [Member] | Fixed-Maturity Investments [Member]
Schedule of Investments [Line Items]
Amortized Cost	886		1,122
Gross Unrealized Gains	60		41
Gross Unrealized Losses			(2)
Fair Value	$ 946		$ 1,161

[1] Represents unrealized gains or losses on other than temporarily impaired securities recognized in accumulated other comprehensive income (loss), which includes the non-credit component of impairments, as well as all subsequent changes in fair value of such impaired securities.

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Recent Accounting Pronouncements

9 Months Ended

Sep. 30, 2012

Recent Accounting Pronouncements

Note 3: Recent Accounting Pronouncements

Recently Adopted Accounting Standards

Presentation of Comprehensive Income (ASU 2011-05)

In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-05, “Comprehensive Income (Topic 220)—Presentation of Comprehensive Income.” This amendment eliminates the current option to report other comprehensive income and its components in the statements of changes in equity except for the presentation of reclassification adjustments for which adoption has been deferred by the FASB. The amendment does not change what currently constitutes net income and other comprehensive income. The new guidance is effective for the Company beginning January 1, 2012. In December 2011, the FASB issued ASU 2011-12 “Comprehensive Income (Topic 220)—Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05,” which defers certain aspects of ASU 2011-05 related to the presentation of reclassification adjustments. The Company adopted this standard effective January 1, 2012. The standard only affected the Company’s presentation of comprehensive income and did not affect the Company’s consolidated balance sheets, results of operations, or cash flows.

Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (ASU 2011-04)

In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820)—Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” This amendment results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between GAAP and International Financial Reporting Standards. The Company adopted this standard effective January 1, 2012. This standard only affected the Company’s disclosures related to fair value; therefore, the adoption of this standard did not affect the Company’s consolidated balance sheets, results of operations, or cash flows.

Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts (ASU 2010-26)

In October 2010, the FASB issued ASU 2010-26, “Financial Services—Insurance (Topic 944)—Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts.” This amendment specifies which costs incurred in the acquisition of new and renewal insurance contracts should be capitalized. The Company adopted this standard on a prospective basis effective January 1, 2012. As the Company is currently not writing any significant new business, the adoption of this standard did not have a material effect on the Company’s consolidated balance sheets, results of operations, or cash flows. The difference between the amount of acquisition costs capitalized during the first nine months of 2012 compared with the amount of acquisition costs that would have been capitalized during the period if the Company’s previous policy had been applied during that period is not material because the Company did not write any significant new insurance business during the first nine months of 2012.

Recent Accounting Developments

Disclosures about Offsetting Assets and Liabilities (ASU 2011-11)

In December 2011, the FASB issued ASU 2011-11, “Balance Sheet (Topic 210)—Disclosures about Offsetting Assets and Liabilities.” ASU 2011-11 creates new disclosure requirements about the nature of the Company’s rights of setoff and related arrangements associated with its financial instruments and derivative instruments. This amendment does not change the existing offsetting eligibility criteria or the permitted balance sheet presentation for those instruments that meet the eligibility criteria. The disclosure requirements are effective for the Company beginning in the first quarter of 2013. This standard will only affect the Company’s disclosures and will not affect the Company’s consolidated balance sheets, results of operations, or cash flows.

Refer to the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 for further information regarding the effects of recently adopted accounting standards on prior year financial statements.

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Variable Interest Entities

9 Months Ended

Sep. 30, 2012

Variable Interest Entities

Note 4: Variable Interest Entities

Structured Finance and International Insurance

Through MBIA’s structured finance and international insurance segment, the Company provides credit protection to issuers of obligations that may involve issuer-sponsored special purpose entities (“SPEs”). An SPE may be considered a VIE to the extent the SPE’s total equity at risk is not sufficient to permit the SPE to finance its activities without additional subordinated financial support or its equity investors lack any one of the following characteristics (i) the power to direct the activities of the SPE that most significantly impact the entity’s economic performance or (ii) the obligation to absorb the expected losses of the entity or the right to receive the expected residual returns of the entity. A holder of a variable interest or interests in a VIE is required to assess whether it has a controlling financial interest, and thus is required to consolidate the entity as primary beneficiary. An assessment of a controlling financial interest identifies the primary beneficiary as the variable interest holder that has both of the following characteristics (i) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance and (ii) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. The primary beneficiary is required to consolidate the VIE. An ongoing reassessment of controlling financial interest is required to be performed based on any substantive changes in facts and circumstances involving the VIE and its variable interests.

The Company evaluates issuer-sponsored SPEs initially to determine if an entity is a VIE, and is required to reconsider its initial determination if certain events occur. For all entities determined to be VIEs, MBIA performs an ongoing reassessment to determine whether its guarantee to provide credit protection on obligations issued by VIEs provides the Company with a controlling financial interest. Based on its ongoing reassessment of controlling financial interest, the Company determines whether a VIE is required to be consolidated or deconsolidated.

The Company makes its determination for consolidation based on a qualitative assessment of the purpose and design of a VIE, the terms and characteristics of variable interests of an entity, and the risks a VIE is designed to create and pass through to holders of variable interests. The Company generally provides credit protection on obligations issued by VIEs, and holds certain contractual rights according to the purpose and design of a VIE. The Company may have the ability to direct certain activities of a VIE depending on facts and circumstances, including the occurrence of certain contingent events, and these activities may be considered the activities of a VIE that most significantly impact the entity’s economic performance. The Company generally considers its guarantee of principal and interest payments of insured obligations, given nonperformance by a VIE, to be an obligation to absorb losses of the entity that could potentially be significant to the VIE. At the time the Company determines it has the ability to direct the activities of a VIE that most significantly impact the economic performance of the entity based on facts and circumstances, MBIA is deemed to have a controlling financial interest in the VIE and is required to consolidate the entity as primary beneficiary. The Company performs an ongoing reassessment of controlling financial interest that may result in consolidation or deconsolidation of any VIE.

Wind-down Operations

In its asset/liability products segment, the Company invests in obligations issued by issuer-sponsored SPEs which are included in fixed-maturity securities held as available-for-sale. The Company evaluates issuer-sponsored SPEs to determine if the entity is a VIE. For all entities determined to be VIEs, the Company evaluates whether its investment is determined to have both of the characteristics of a controlling financial interest in the VIE. The Company performs an ongoing reassessment of controlling financial interests in issuer-sponsored VIEs based on investments held. MBIA’s wind-down operations do not have a controlling financial interest in any issuer-sponsored VIEs and are not the primary beneficiary of any issuer-sponsored VIEs.

In the conduit segment, the Company has managed and administered two conduits that invested primarily in debt securities and were funded through the issuance of VIE notes and long-term debt. MBIA Corp. insures the debt obligations of the conduits, and provides credit protection on certain assets held by the conduits. The conduits are VIEs and are consolidated by the Company as primary beneficiary. In 2012, all debt securities held by one of the conduits were entirely repaid, and the proceeds were used to repay all outstanding long-term debt of this conduit. The Company subsequently dissolved this conduit, and no longer provides any related credit protection.

Nonconsolidated VIEs

The following tables present the total assets of nonconsolidated VIEs in which the Company holds a variable interest as of September 30, 2012 and December 31, 2011. The following tables also present the Company’s maximum exposure to loss for nonconsolidated VIEs and carrying values of the assets and liabilities for its interests in these VIEs as of September 30, 2012 and December 31, 2011. The Company has aggregated nonconsolidated VIEs based on the underlying credit exposure of the insured obligation. The nature of the Company’s variable interests in nonconsolidated VIEs is related to financial guarantees, insured CDS contracts and any investments in obligations issued by nonconsolidated VIEs.

	September 30, 2012
					Carrying Value of Assets						Carrying Value of Liabilities
In millions	VIE Assets		Maximum Exposure to Loss		Investments(1)		Premiums Receivable(2)		Insurance Loss Recoverable(3)		Unearned Premium Revenue(4)		Loss and Loss Adjustment Expense Reserves(5)		Derivative Liabilities(6)
Insurance:
Global structured finance:
Collateralized debt obligations	$	17,552	$	11,053	$	-	$	67	$	3	$	59	$	78	$	85
Mortgage-backed residential		36,464		13,578		9		75		2,967		73		485		4
Mortgage-backed commercial		4,751		2,456		-		2		-		2		-		-
Consumer asset-backed		6,372		3,390		11		20		-		20		16		-
Corporate asset-backed		22,006		11,261		-		144		21		159		-		1
Total global structured finance		87,145		41,738		20		308		2,991		313		579		90
Global public finance		46,795		21,578		-		216		-		268		-		-
Total insurance	$	133,940	$	63,316	$	20	$	524	$	2,991	$	581	$	579	$	90

(1) - Reported within “Investments” on MBIA’s consolidated balance sheets.

(2) - Reported within “Premiums receivable” on MBIA’s consolidated balance sheets.

(3) - Reported within “Insurance loss recoverable” on MBIA’s consolidated balance sheets.

(4) - Reported within “Unearned premium revenue” on MBIA’s consolidated balance sheets.

(5) - Reported within “Loss and loss adjustment expense reserves” on MBIA’s consolidated balance sheets.

(6) - Reported within “Derivative liabilities” on MBIA’s consolidated balance sheets.

	December 31, 2011
					Carrying Value of Assets						Carrying Value of Liabilities
In millions	VIE Assets		Maximum Exposure to Loss		Investments(1)		Premiums Receivable(2)		Insurance Loss Recoverable(3)		Unearned Premium Revenue(4)		Loss and Loss Adjustment Expense Reserves(5)		Derivative Liabilities(6)
Insurance:
Global structured finance:
Collateralized debt obligations	$	26,507	$	15,466	$	42	$	67	$	-	$	58	$	3	$	113
Mortgage-backed residential		47,669		16,379		25		87		2,773		86		428		5
Mortgage-backed commercial		5,001		2,644		-		2		-		2		-		-
Consumer asset-backed		8,015		4,563		16		26		-		25		23		-
Corporate asset-backed		29,855		15,577		241		192		22		205		-		1
Total global structured finance		117,047		54,629		324		374		2,795		376		454		119
Global public finance		42,106		21,774		-		215		-		270		-		-
Total insurance	$	159,153	$	76,403	$	324	$	589	$	2,795	$	646	$	454	$	119

(1) - Reported within “Investments” on MBIA’s consolidated balance sheets.

(2) - Reported within “Premiums receivable” on MBIA’s consolidated balance sheets.

(3) - Reported within “Insurance loss recoverable” on MBIA’s consolidated balance sheets.

(4) - Reported within “Unearned premium revenue” on MBIA’s consolidated balance sheets.

(5) - Reported within “Loss and loss adjustment expense reserves” on MBIA’s consolidated balance sheets.

(6) - Reported within “Derivative liabilities” on MBIA’s consolidated balance sheets.

The maximum exposure to loss as a result of MBIA’s variable interests in VIEs is represented by insurance in force. Insurance in force is the maximum future payments of principal and interest, net of cessions to reinsurers, which may be required under commitments to make payments on insured obligations issued by nonconsolidated VIEs.

Consolidated VIEs

The carrying amounts of assets and liabilities of consolidated VIEs were $8.2 billion and $7.2 billion, respectively, as of September 30, 2012, and $10.9 billion and $9.9 billion, respectively, as of December 31, 2011. The carrying amounts of assets and liabilities are presented separately in “Assets of consolidated variable interest entities” and “Liabilities of consolidated variable interest entities” on the Company’s consolidated balance sheets. Additional VIEs are consolidated or deconsolidated based on an ongoing reassessment of controlling financial interest, when events occur or circumstances arise, and whether the ability to exercise rights that constitute power to direct activities of any VIEs are present according to the design and characteristics of these entities. No additional VIEs were consolidated during the nine months ended September 30, 2012 and 2011. No gains or losses were recognized on the VIEs that were deconsolidated during the nine months ended September 30, 2012 and net realized gains related to the deconsolidation of VIEs were immaterial for the nine months ended September 30, 2011.

Holders of insured obligations of issuer-sponsored VIEs related to the Company’s structured finance and international insurance segment do not have recourse to the general assets of MBIA. In the event of nonpayment of an insured obligation issued by a consolidated VIE, the Company is obligated to pay principal and interest, when due, on the respective insured obligation only. The Company’s exposure to consolidated VIEs is limited to the credit protection provided on insured obligations and any additional variable interests held by MBIA. Creditors of the conduits do not have recourse to the general assets of MBIA apart from the financial guarantee insurance policies provided by MBIA Corp. on insured obligations issued by the conduits.

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Fair Value Of Financial Instruments

9 Months Ended

Sep. 30, 2012

Fair Value Of Financial Instruments

Note 6: Fair Value of Financial Instruments

Fair Value Measurement

Fair value is a market-based measure considered from the perspective of a market participant. Therefore, even when market assumptions are not readily available, the Company’s own assumptions are set to reflect those which it believes market participants would use in pricing an asset or liability at the measurement date. The fair value measurements of financial instruments held or issued by the Company are determined through the use of observable market data when available. Market data is obtained from a variety of third-party sources, including dealer quotes. If dealer quotes are not available for an instrument that is infrequently traded, the Company uses alternate valuation methods, including either dealer quotes for similar instruments or modeling using market data inputs. The use of alternate valuation methods generally requires considerable judgment in the application of estimates and assumptions, and changes to such estimates and assumptions may produce materially different fair values.

The accounting guidance for fair value measurement establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available and reliable. Observable inputs are those the Company believes that market participants would use in pricing an asset or liability based on available market data. Unobservable inputs are those that reflect the Company’s beliefs about the assumptions market participants would use in pricing an asset or liability based on the best information available. The fair value hierarchy is broken down into three levels based on the observability and reliability of inputs, as follows:

• Level 1—Valuations based on quoted prices in active markets for identical assets or liabilities that the Company can access. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail any degree of judgment.

• Level 2—Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly. Level 2 assets include debt securities with quoted prices that are traded less frequently than exchange-traded instruments, securities which are priced using observable inputs and derivative contracts whose values are determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data.

• Level 3—Valuations based on inputs that are unobservable and supported by little or no market activity and that are significant to the overall fair value measurement. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques where significant inputs are unobservable, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

The availability of observable inputs can vary from product to product and period to period and is affected by a wide variety of factors, including, for example, the type of product, whether the product is new and not yet established in the marketplace, and other characteristics particular to the product. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the Company assigns the level in the fair value hierarchy for which the fair value measurement in its entirety falls, based on the least observable input that is significant to the fair value measurement.

1. Financial Assets (excluding derivative assets)

Financial assets, excluding derivative assets, held by the Company primarily consist of investments in debt securities. Substantially all of the Company’s investments are priced by independent third parties, including pricing services and brokers. Typically the Company receives one pricing service value or broker quote for each instrument, which represents a non-binding indication of value. The Company reviews the assumptions, inputs and methodologies used by pricing services to obtain reasonable assurance that the prices used in its valuations reflect fair value. When the Company believes a third-party quotation differs significantly from its internally developed expectation of fair value, whether higher or lower, the Company reviews its data or assumptions with the provider. This review includes comparing significant assumptions such as prepayment speeds, default ratios, forward yield curves, credit spreads and other significant quantitative inputs to internal assumptions, and working with the price provider to reconcile the differences. The price provider may subsequently provide an updated price. In the event that the price provider does not update their price, and the Company still does not agree with the price provided, the Company will try to obtain a price from another third-party provider, such as a broker, or use an internally developed price which it believes represents the fair value of the investment. The fair values of investments for which internal prices were used were not significant to the aggregate fair value of the Company’s investment portfolio as of September 30, 2012 or December 31, 2011. All challenges to third-party prices are reviewed by staff of the Company with relevant expertise to ensure reasonableness of assumptions.

In addition to challenging pricing assumptions, the Company obtains reports from the independent accountants for significant third-party pricing services attesting to the effectiveness of the controls over data provided to the Company. These reports are obtained annually and are reviewed by the Company to ensure key controls are applied by the pricing services, and that appropriate user controls are in place at the Company to ensure proper measurement of the fair values of its investments. In the event that any controls in these reports are deemed as ineffective by independent accountants, the Company will take the necessary actions to ensure that internal user controls are in place to mitigate the control risks. No deficiencies were noted for significant third-party pricing services used.

2. Financial Liabilities (excluding derivative liabilities)

Financial liabilities, excluding derivative liabilities, issued by the Company primarily consist of investment agreements and MTNs within its wind-down operations, and debt issued for general corporate purposes. Investment agreements, MTNs, and corporate debt are typically recorded at face value adjusted for premiums or discounts. Financial liabilities that the Company has elected to fair value or that require fair value reporting or disclosures are valued based on the estimated value of the underlying collateral, the Company’s or a third-party’s estimate of discounted cash flow model estimates, or quoted market values for similar products. These valuations include adjustments for expected nonperformance risk of the Company.

3. Derivative Assets and Liabilities

The Company’s derivative liabilities are primarily insured credit derivatives that reference structured pools of cash securities and CDSs. The Company generally insured the most senior liabilities of such transactions, and at the inception of transactions its exposure generally had more subordination than needed to achieve triple-A ratings from credit rating agencies. The types of collateral underlying its insured derivatives consist of cash securities and CDSs referencing primarily corporate, asset-backed, residential mortgage-backed, commercial mortgage-backed, CRE loans, and CDO securities.

The Company’s insured credit derivative contracts are non-traded structured credit derivative transactions. Since insured derivatives are highly customized and there is generally no observable market for these derivatives, the Company estimates their fair values in a hypothetical market based on internal and third-party models simulating what a similar company would charge to assume the Company’s position in the transaction at the measurement date. This pricing would be based on the expected loss of the exposure. The Company reviews its valuation model results on a quarterly basis to assess the appropriateness of the assumptions and results in light of current market activity and conditions. This review is performed by internal staff with relevant expertise. If live market spreads or securities prices are observable for similar transactions, those spreads are an integral part of the analysis. New insured transactions that resemble existing (previously insured) transactions, if any, would be considered, as well as negotiated settlements of existing transactions.

The Company may from time to time make changes in its valuation techniques if the change results in a measurement that it believes is equally or more representative of fair value under current circumstances.

4. Internal Review Process

All significant financial assets and liabilities, including derivative assets and liabilities, are reviewed by committees created by the Company to ensure compliance with the Company’s policies and risk procedures in the development of fair values of financial assets and liabilities. These valuation committees review, among other things, key assumptions used for internally developed prices, significant changes in sources and uses of inputs, including changes in model approaches, and any adjustments from third-party inputs or prices to internally developed inputs or prices. The committees also review any significant impairment or improvements in fair values of the financial instruments from prior periods. From time to time, these committees will reach out to the Company valuation experts to better understand key methods and assumptions used for the determination of fair value, including understanding significant changes in fair values. These committees are comprised of senior finance team members with the relevant experience in the financial assets their committee is responsible for. For each quarter, these committees document their agreement with the fair values developed by management of the Company as reported in the quarterly financial statements.

Valuation Techniques

Valuation techniques for financial instruments measured at fair value and included in the tables that follow are described below.

Fixed-Maturity Securities (including short-term investments) Held as Available-For-Sale, Fixed-Maturity Securities at Fair Value, Investments Pledged as Collateral, Investments Held-to-Maturity, and Other Investments

Fixed-maturity securities (including short-term investments) held as available-for-sale, fixed-maturity securities at fair value, investments pledged as collateral, and other investments include investments in U.S. Treasury and government agencies, foreign governments, corporate obligations, MBS and ABS (including CMBS and CDOs), state and municipal bonds and equity securities (including perpetual preferred securities and money market mutual funds).

These investments are generally valued based on recently executed transaction prices or quoted market prices. When quoted market prices are not available, fair value is generally determined using quoted prices of similar investments or a valuation model based on observable and unobservable inputs. Inputs vary depending on the type of investment. Observable inputs include contractual cash flows, interest rate yield curves, CDS spreads, prepayment and volatility scores, diversity scores, cross-currency basis index spreads, and credit spreads for structures similar to the financial instrument in terms of issuer, maturity and seniority. Unobservable inputs include cash flow projections and the value of any credit enhancement.

The fair value of the investments held-to-maturity is determined using discounted cash flow models. Key inputs include unobservable cash flows projected over the expected term of the investment discounted using observable interest rate yield curves of similar securities.

Investments based on quoted market prices of identical investments in active markets are classified as Level 1 of the fair value hierarchy. Level 1 investments generally consist of U.S. Treasury and foreign government and agency investments. Quoted market prices of investments in less active markets, as well as investments which are valued based on other than quoted prices for which the inputs are observable, such as interest rate yield curves, are categorized in Level 2 of the fair value hierarchy. Investments that contain significant inputs that are not observable are categorized as Level 3.

Cash and Cash Equivalents, Receivable for Investments Sold, and Accrued Investment Income

The carrying amounts of cash and cash equivalents, receivable for investments sold, and accrued investment income approximate fair values due to the short-term nature and credit worthiness of these instruments.

Loans Receivable at Fair Value

Loans receivable at fair value are comprised of loans held by consolidated VIEs consisting of residential mortgage loans, commercial mortgage loans and other whole business loans. Fair values of residential mortgage loans are determined using quoted prices for MBS with similar characteristics and adjustments for the fair values of the financial guarantees provided by MBIA Corp. on the related MBS. Fair values of commercial mortgage loans and other whole business loans are valued based on quoted prices of similar collateralized MBS. Loans receivable at fair value are categorized in Level 3 of the fair value hierarchy.

Loan Repurchase Commitments

Loan repurchase commitments are obligations owed by the sellers/servicers of mortgage loans to either MBIA as reimbursement of paid claims or to the RMBS trusts as defined in the transaction documents. Loan repurchase commitments are assets of the consolidated VIEs. This asset represents the rights of MBIA against the sellers/servicers for breaches of representations and warranties that the securitized residential mortgage loans sold to the trust to comply with stated underwriting guidelines and for the sellers/servicers to cure, replace, or repurchase mortgage loans. Fair value measurements of loan repurchase commitments represent the amounts owed by the sellers/servicers to either MBIA as reimbursement of paid claims or to the RMBS trusts as defined in the transaction documents. Loan repurchase commitments are not securities and no quoted prices or comparable market transaction information are observable or available. Loan repurchase commitments at fair value are categorized in Level 3 of the fair value hierarchy. Fair values of loan repurchase commitments are determined using discounted cash flow techniques based on inputs including:

• breach rates representing the rate at which the sellers/servicers failed to comply with stated representations and warranties;

• recovery rates representing the estimates of future cash flows for the asset, including estimates about possible variations in the amount of cash flows expected to be collected;

• expectations about possible variations in the timing of collections of the cash flows; and

• time value of money, represented by the rate on risk-free monetary assets.

Investment Agreements

The fair values of investment agreements are determined using discounted cash flow techniques based on contractual cash flows and observable interest rates currently being offered for similar agreements with comparable maturity dates. Investment agreements contain collateralization and termination agreements that substantially mitigate the nonperformance risk of the Company. As the terms of the notes are private, and the contract cash flows are not observable, these investment agreements are categorized as Level 3 of the fair value hierarchy.

Medium-Term Notes

The fair values of MTNs are based on quoted market prices provided by third-party sources, where available. When quoted market prices are not available, the Company applies a matrix pricing grid based on the quoted market prices received and the MTNs’ stated maturity and interest rate to determine fair value. Nonperformance risk is included in the quoted market prices and the matrix pricing grid.

The Company has elected to record three MTNs at fair value as they contain embedded derivatives which cannot accurately be separated from the host debt instrument and fair valued separately, therefore, these three MTNs are carried at fair value with changes in fair value reflected in earnings. The remaining MTNs, which are not carried at fair value, do not contain embedded derivatives.

As these MTNs are illiquid and the prices reflect significant unobservable inputs, they are categorized as Level 3 of the fair value hierarchy.

Variable Interest Entity Notes

The fair values of VIE notes are determined based on recently executed transaction prices or quoted prices where observable. When position-specific quoted prices are not observable, fair values are based on quoted prices of similar securities. Fair values based on quoted prices of similar securities may be adjusted for factors unique to the securities, including any credit enhancement. When observable quoted prices are not available, fair value is determined based on discounted cash flow techniques of the underlying collateral using observable and unobservable inputs. Observable inputs include interest rate yield curves and bond spreads of similar securities. Unobservable inputs include the value of any credit enhancement. VIE notes are categorized in Level 2 or Level 3 of the fair value hierarchy based on the lowest level input that is significant to the fair value measurement in its entirety.

Long-term Debt

Long-term debt consists of notes, debentures, surplus notes and floating rate liquidity loans. The fair value of long-term notes, debentures and surplus notes are estimated based on quoted prices for the identical or similar securities. The fair value for floating rate liquidity loans are determined using discounted cash flow techniques of the underlying collateral pledged to the specific loans, as these loans are non-recourse and fully backed by a pool of underlying assets. Long-term debt is categorized as Level 2 of the fair value hierarchy.

Derivatives—Asset/Liability Products

The asset/liability products business has entered into derivative transactions primarily consisting of interest rate swaps, cross currency swaps, and CDS contracts. Fair values of over-the-counter derivatives are determined using valuation models based on observable inputs, nonperformance risk of the Company’s own credit and nonperformance risk of the counterparties. Observable and market-based inputs include interest rate yields, credit spreads and volatilities. These derivatives are categorized in Level 2 or Level 3 of the fair value hierarchy based on the input that is significant to the fair value measurement in its entirety.

The Company has policies and procedures in place regarding counterparties, including review and approval of the counterparty and the Company’s exposure limit, collateral posting requirements, collateral monitoring and margin calls on collateral. The Company manages counterparty credit risk on an individual counterparty basis through master netting arrangements covering derivative transactions in the asset/liability products and corporate segments. These agreements allow the Company to contractually net amounts due from a counterparty with those amounts due to such counterparty when certain triggering events occur. The Company only executes swaps under master netting agreements, which typically contain mutual credit downgrade provisions that generally provide the ability to require assignment or termination in the event either the Company or the counterparty is downgraded below a specified credit rating. The netting agreements minimize the potential for losses related to credit exposure and thus serve to mitigate the Company’s nonperformance risk under these derivatives.

In certain cases, the Company also manages credit risk through collateral agreements that give the Company the right to hold or the obligation to provide collateral when the current market value of derivative contracts exceeds an exposure threshold. Under these arrangements, the Company may provide U.S. Treasury and other highly rated securities or cash to secure the derivative. The delivery of high-quality collateral can minimize credit exposure and mitigate the potential for nonperformance risk impacting the fair values of the derivatives.

Derivatives—Insurance

The derivative contracts insured by the Company cannot be legally traded and generally do not have observable market prices. The Company determines the fair values of insured credit derivatives using valuation models.

Approximately 81% of the balance sheet fair value of insured credit derivatives as of September 30, 2012 was valued using the Binomial Expansion Technique (“BET”) Model. Approximately 19% of the balance sheet fair value of insured credit derivatives as of September 30, 2012 was valued using the internally developed Direct Price Model. An immaterial amount of insured credit derivatives were valued using the dual-default model. The valuation of insured derivatives includes the impact of its own credit standing. All of these derivatives are categorized as Level 3 of the fair value hierarchy as their fair value is derived using significant unobservable inputs.

A. Description of the BET Model

1. Valuation Model Overview

The BET Model estimates what a bond insurer would charge to guarantee a transaction at the measurement date, based on the market-implied default risk of the underlying collateral and the remaining structural protection in a deductible or subordination.

Inputs to the process of determining fair value for structured transactions using the BET Model include estimates of collateral loss, allocation of loss to separate tranches of the capital structure, and calculation of the change in value.

• Estimates of aggregated collateral losses are calculated by reference to the following (described in further detail under “BET Model Inputs” below):

• credit spreads of underlying collateral based on actual spreads or spreads on similar collateral with similar ratings, or in some cases, are benchmarked; for collateral pools where the spread distribution is characterized by extremes, each segment of the pool is modeled separately instead of using an overall pool average;

• diversity score of the collateral pool as an indication of correlation of collateral defaults; and

• recovery rate for all defaulted collateral.

• Allocation of losses to separate tranches of the capital structure according to priority of payments in a transaction.

• The inception-to-date unrealized gain or loss on a transaction is the difference between the original price of the risk (the original market-implied expected loss) and the current price of the risk based on the assumed market-implied expected losses derived from the model.

Additional structural assumptions of the BET Model are:

• Default probabilities are determined by three factors: credit spread, recovery rate after default, and the time period under risk.

• Frequencies of defaults are modeled evenly over time.

• Collateral assets are generally considered on an average basis rather than being modeled on an individual basis.

• Collateral asset correlation is modeled using a diversity score which is calculated based on industry or sector concentrations. Recovery rates are based on historical averages and updated based on market evidence.

2. BET Model Inputs

a. Credit spreads

The average spread of collateral is a key input as the Company assumes credit spreads reflect the market’s assessment of default probability for each piece of collateral. Spreads are obtained from market data sources published by third parties (e.g., dealer spread tables for assets most closely resembling collateral within the Company’s transactions) as well as collateral-specific spreads on the underlying reference obligations provided by trustees or market sources. Also, when these sources are not available, the Company benchmarks spreads for collateral against market spreads or prices. This data is reviewed on an ongoing basis for reasonableness and applicability to the Company’s derivative portfolio. The Company also calculates spreads based on quoted prices and on internal assumptions about expected life, when pricing information is available and spread information is not.

The Company uses the spread hierarchy listed below in determining which source of spread information to use, with the rule being to use CDS spreads where available and cash security spreads as the next alternative.

Spread Hierarchy:

• Collateral-specific credit spreads when observable.

• Sector-specific spread tables by asset class and rating.

• Corporate spreads, including Bloomberg spread tables based on rating.

• Benchmark from most relevant market source when corporate spreads are not directly relevant.

There were some transactions where the Company incorporated multiple levels within the hierarchy, including using actual collateral-specific credit spreads in combination with a calculated spread based on an assumed relationship. In those cases, MBIA classified the transaction as being benchmarked from the most relevant spread source even though the majority of the average spread was from actual collateral-specific spreads. As of September 30, 2012, sector-specific spreads were used in 9% of the transactions valued using the BET Model. Corporate spreads were used in 46% of the transactions and spreads benchmarked from the most relevant spread source were used for 45% of the transactions. The spread source can also be identified by whether or not it is based on collateral weighted average rating factor (“WARF”). No collateral-specific spreads are based on WARF, sector-specific and corporate spreads are based on WARF, and some benchmarked spreads are based on WARF. WARF-sourced and/or ratings-sourced credit spreads were used for 77% of the transactions.

Over time, the data inputs change as new sources become available, existing sources are discontinued or are no longer considered to be reliable or the most appropriate. It is always the Company’s objective to use more observable spread hierarchies defined above. However, the Company may on occasion move to less observable spread inputs due to the discontinuation of data sources or due to the Company considering certain spread inputs no longer representative of market spreads.

b. Diversity Scores

Diversity scores are a means of estimating the diversification in a portfolio. The diversity score estimates the number of uncorrelated assets that are assumed to have the same loss distribution as the actual portfolio of correlated assets. While diversity score is a required input into the BET model, due to current high levels of default within the collateral of the structures, diversity score does not have a significant impact on valuation.

c. Recovery Rate

The recovery rate represents the percentage of par expected to be recovered after an asset defaults, indicating the severity of a potential loss. MBIA generally uses rating agency recovery assumptions which may be adjusted to account for differences between the characteristics and performance of the collateral used by the rating agencies and the actual collateral in MBIA-insured transactions. The Company may also adjust rating agency assumptions based on the performance of the collateral manager and on empirical market data.

d. Nonperformance Risk

The Company’s valuation methodology for insured credit derivative liabilities incorporates the Company’s own nonperformance risk. The Company calculates the fair value by discounting the market value loss estimated through the BET Model at discount rates which include MBIA CDS spreads as of September 30, 2012. The CDS spreads assigned to each deal are based on the weighted average life of the deal. The Company limits the nonperformance impact so that the derivative liability could not be lower than the Company’s recovery derivative price multiplied by the unadjusted derivative liability.

B. Description of Direct Price Model

1. Valuation Model Overview

The Direct Price Model uses quoted market prices of financial assets correlated to the underlying collateral of the pool of assets backing the liabilities guaranteed by certain insured derivative liabilities. These quoted market prices are adjusted to reflect the unique characteristics of the liabilities of the entities backed by the correlated assets and unique terms of the insured derivative contracts.

2. Model Inputs

• Collateral prices

Fair value of collateral is based on quoted prices when available. When quoted prices are not available, a matrix pricing grid is used based on security type and rating to determine fair value of collateral which applies an average based on securities with the same rating and security type categories.

• Interest rates

The present value of the market-implied potential losses was calculated assuming that MBIA deferred all principal losses to the legal final maturity. This was done through a cash flow model that calculated potential interest payments in each period and the potential principal loss at the legal final maturity. These cash flows were discounted using the LIBOR flat swap curve.

• Nonperformance risk

The methodology for calculating MBIA’s nonperformance risk is the same as used for the BET Model. Due to the current level of MBIA CDS spread rates and the long tenure of these transactions, the derivative recovery rate was used to estimate nonperformance risk for all transactions marked by this model.

Overall Model Results

As of September 30, 2012 and December 31, 2011, the Company’s net insured derivative liability was $3.3 billion and $4.8 billion, respectively, and was primarily related to the fair values of insured credit derivatives, based on the results of the aforementioned pricing models. In the current environment, the most significant driver of changes in fair value is nonperformance risk. In aggregate, the nonperformance calculation resulted in a pre-tax net insured derivative liability that was $4.4 billion and $5.7 billion lower than the net liability that would have been estimated if the Company excluded nonperformance risk in its valuation as of September 30, 2012 and December 31, 2011, respectively. Nonperformance risk is a fair value concept and does not contradict the Company’s internal view, based on fundamental credit analysis of the Company’s economic condition, that the Company will be able to pay all claims when due.

Warrants

Stock warrants issued by the Company are recorded at fair value based on a modified Black-Scholes model. Inputs into the warrant valuation include interest rates, stock volatilities and dividend data. As all significant inputs are market-based and observable, warrants are categorized in Level 2 of the fair value hierarchy.

Financial Guarantees

Gross Financial Guarantees—The fair value of gross financial guarantees is determined using discounted cash flow techniques based on inputs that include (i) assumptions of expected losses on financial guarantee policies where loss reserves have not been recognized, (ii) amount of losses expected on financial guarantee policies where loss reserves have been established, net of expected recoveries, (iii) the cost of capital reserves required to support the financial guarantee liability, (iv) operating expenses, and (v) discount rates. The MBIA Corp. CDS spread and recovery rate are used as the discount rate for MBIA Corp., while the CDS spread and recovery rate of a similar municipal insurance company are used as the discount rate for National, as National does not have a published CDS spread and recovery rate.

The carrying value of the Company’s gross financial guarantees consists of unearned premium revenue and loss and LAE reserves, net of the insurance loss recoverable as reported on MBIA’s consolidated balance sheets.

Ceded Financial Guarantees—The fair value of ceded financial guarantees is determined by applying the percentage ceded to reinsurers to the related fair value of the gross financial guarantees. The carrying value of ceded financial guarantees consists of prepaid reinsurance premiums and reinsurance recoverable on paid and unpaid losses as reported within “Other assets” on the Company’s consolidated balance sheets.

Significant Unobservable Inputs

The following table provides quantitative information regarding the significant unobservable inputs used by the Company for assets and liabilities measured at fair value on a recurring basis as of September 30, 2012. This table excludes inputs used to measure fair value that are not developed by the Company, such as broker prices and other third-party pricing service valuations.

In millions	Fair Value as of September 30, 2012		Valuation Techniques	Unobservable Input	Range (Weighted Average)
Assets of consolidated VIEs:
Loans receivable at fair value	$	1,892	Quoted market prices adjusted for financial guarantees provided to VIE obligations	Impact of financial guarantee		0% - 22% (4%)
Loan repurchase commitments		1,051	Discounted cash flow	Recovery rates		9% - 96% (43%)
				Breach rates		65% - 94% (78%)
Liabilities of consolidated VIEs:
Variable interest entity notes		1,885	Quoted market prices of VIE assets adjusted for financial guarantees provided	Impact of financial guarantee		0% - 20% (6%)
Credit derivative liabilities, net:
CMBS		1,533	BET Model	Recovery rates		20% - 90% (51%)
				Nonperformance risk		8% - 62% (57%)
				Weighted average life (in years)		0.3 - 5.9 (4.6)
				CMBS spreads		1% - 22% (12%)
Multi-sector CDO		628	Direct Price Model	Nonperformance risk		63% - 63% (63%)
Other		1,156	BET Model	Recovery rates		42% - 75% (47%)
				Nonperformance risk		8% - 63% (50%)
				Weighted average life (in years)		0.2 - 19.0 (3.1)

Sensitivity of Significant Unobservable Inputs

The significant unobservable input used in the fair value measurement of the Company’s loans receivable at fair value of consolidated VIEs is the impact of the financial guarantee. The fair value of loans receivable is calculated by subtracting the value of the financial guarantee from the market value of VIE liabilities. The value of a financial guarantee is estimated by the Company as the present value of expected cash payments under the policy. As expected cash payments provided by the Company under the insurance policy increase, there is a lower expected cash flow on the underlying loans receivable of the VIE. This results in a lower fair value of the loans receivable in relation to the obligations of the VIE.

The significant unobservable inputs used in the fair value measurement of the Company’s loan repurchase commitments of consolidated VIEs are the recovery rates and the breach rates. Recovery rates reflect the estimates of future cash flows reduced for litigation delays and risks and/or potential financial distress of the sellers/services. The estimated recoveries of the loan repurchase commitments may differ from the actual recoveries that may be received in the future. Breach rates represent the rate at which the mortgages fail to comply with stated representations and warranties of the sellers/servicers. Significant increases or decreases in the recovery rates and the breach rates would result in significantly higher or lower fair values of the loan repurchase commitments, respectively. Additionally, changes in the legal environment and the ability of the counterparties to pay would impact the recovery rate assumptions, which could significantly impact the fair value measurement. Any significant challenges by the counterparties to the Company’s determination of breaches of representations and warranties could significantly adversely impact the fair value measurement. Recovery rates and breach rates are determined independently. Changes in one input will not necessarily have any impact on the other input.

The significant unobservable input used in the fair value measurement of the Company’s variable interest entity notes of consolidated VIEs is the impact of the financial guarantee. The fair value of VIE notes is calculated by adding the value of the financial guarantee to the market value of VIE assets. The value of a financial guarantee is estimated by the Company as the present value of expected cash payments under the policy. As the value of the guarantee provided by the Company to the obligations issued by the VIE increases, the credit support adds value to the liabilities of the VIE. This results in an increase in the fair value of the liabilities of the VIE.

The significant unobservable inputs used in the fair value measurement of the Company’s CMBS credit derivatives, which are valued using the BET Model, are CMBS spreads, recovery rates, nonperformance risk and weighted average life. The CMBS spread is an indicator of credit risk of the collateral securities. The recovery rate represents the percentage of notional expected to be recovered after an asset defaults, indicating the severity of a potential loss. The nonperformance risk is an assumption of the Company’s own ability to pay and whether the Company will have the necessary resources to pay the obligations as they come due. Weighted average life is based on the Company’s estimate of when the principal of the underlying collateral of the CMBS structure will be repaid. A significant increase or decrease in CMBS spreads or weighted average life would result in an increase or decrease in the fair value of the derivative liabilities, respectively. Any significant increase or decrease in recovery rates or the Company’s nonperformance risk would result in a decrease or increase in the fair value of the derivative liabilities, respectively. CMBS spreads, recovery rates, nonperformance risk and weighted average lives are determined independently. Changes in one input will not necessarily have any impact on the other inputs.

The significant unobservable input used in the fair value measurement of the Company’s multi-sector CDO credit derivatives, which are valued using the Direct Price Model, is nonperformance risk. The nonperformance risk is an assumption of the Company’s own ability to pay and whether the Company will have the necessary resources to pay the obligations as they come due. Any significant increase or decrease in the Company’s nonperformance risk would result in a decrease or increase in the fair value of the derivative liabilities, respectively.

The significant unobservable inputs used in the fair value measurement of the Company’s other credit derivatives, which are valued using the BET Model, are recovery rates, nonperformance risk and weighted average life. The recovery rate represents the percentage of notional expected to be recovered after an asset defaults, indicating the severity of a potential loss. The nonperformance risk is an assumption of the Company’s own ability to pay and whether the Company will have the necessary resources to pay the obligations as they come due. Weighted average life is based on the Company’s estimate of when the principal of the underlying collateral will be repaid. Any significant increase or decrease in weighted average life would result in an increase or decrease in the fair value of the derivative liabilities, respectively. Any significant increase or decrease in recovery rates or the Company’s nonperformance risk would result in a decrease or increase in the fair value of the derivative liabilities, respectively. Recovery rates, nonperformance risk and weighted average lives are determined independently. Changes in one input will not necessarily have any impact on the other inputs.

Fair Value Measurements

The following tables present the fair value of the Company’s assets (including short-term investments) and liabilities measured and reported at fair value on a recurring basis as of September 30, 2012 and December 31, 2011:

	Fair Value Measurements at Reporting Date Using
In millions	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Counterparty and Cash Collateral Netting		Balance as of September 30, 2012
Assets:
Investments:
Fixed-maturity investments:
Taxable bonds:
U.S. Treasury and government agency	$	860	$	101	$	-		$	-	$	961
Foreign governments		257		72		12	(1)		-		341
Corporate obligations		1		1,136		91	(1)		-		1,228
Mortgage-backed securities:
Residential mortgage-backed agency		-		1,073		-			-		1,073
Residential mortgage-backed non-agency		-		169		7	(1)		-		176
Commercial mortgage-backed		-		19		30	(1)		-		49
Asset-backed securities:
Collateralized debt obligations		-		64		30	(1)		-		94
Other asset-backed		-		116		73	(1)		-		189
State and municipal bonds		-		888		71	(1)		-		959
Total taxable bonds		1,118		3,638		314			-		5,070
Tax-exempt bonds:
State and municipal bonds		-		925		23	(1)		-		948
Other fixed-maturity investments		-		10		-			-		10
Total fixed-maturity investments		1,118		4,573		337			-		6,028
Money market securities		593		-		-			-		593
Perpetual preferred securities		-		28		3	(1)		-		31
Other		20		-		11	(1)		-		31
Total investments		1,731		4,601		351			-		6,683
Cash and cash equivalents		298		-		-			-		298
Derivative assets:
Insured derivative assets:
Credit derivatives		-		-		1			-		1
Non-insured derivative assets:
Interest rate derivatives		-		95		4	(1)		(96)		3
Total derivative assets		-		95		5			(96)		4

	Fair Value Measurements at Reporting Date Using
In millions	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Counterparty and Cash Collateral Netting		Balance as of September 30, 2012
Assets of consolidated VIEs:
Fixed-maturity investments:
Corporate obligations		-		219		83	(1)		-		302
Mortgage-backed securities:
Residential mortgage-backed non-agency		-		852		8	(1)		-		860
Commercial mortgage-backed		-		409		13	(1)		-		422
Asset-backed securities:
Collateralized debt obligations		-		191		173	(1)		-		364
Other asset-backed		-		126		66	(1)		-		192
State and municipal taxable bonds		-		41		-			-		41
Money market securities		15		-		-			-		15
Total fixed-maturity investments		15		1,838		343			-		2,196
Cash		143		-		-			-		143
Loans receivable		-		-		1,892			-		1,892
Loan repurchase commitments		-		-		1,051			-		1,051
Total assets	$	2,187	$	6,534	$	3,642		$	(96)	$	12,267
Liabilities:
Medium-term notes	$	-	$	-	$	168	(1)	$	-	$	168
Derivative liabilities:
Insured derivatives:
Credit derivatives		-		14		3,318			-		3,332
Non-insured derivatives:
Interest rate derivatives		-		305		4	(1)		(311)		(2)
Currency derivatives		-		1		1	(1)		-		2
Other liabilities:
Warrants		-		18		-			-		18
Liabilities of consolidated VIEs:
Variable interest entity notes		-		1,741		1,885			-		3,626
Derivative liabilities:
Interest rate derivatives		-		157		-			-		157
Currency derivatives		-		-		23	(1)		-		23
Total liabilities	$	-	$	2,236	$	5,399		$	(311)	$	7,324

(1) - Unobservable inputs are either not developed by the Company or do not significantly impact the overall fair values of the aggregate financial assets and liabilities.

	Fair Value Measurements at Reporting Date Using
In millions	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Counterparty and Cash Collateral Netting		Balance as of December 31, 2011
Assets:
Investments:
Fixed-maturity investments:
Taxable bonds:
U.S. Treasury and government agency	$	1,038	$	103	$	-	$	-	$	1,141
Foreign governments		277		62		11		-		350
Corporate obligations		1		1,531		207		-		1,739
Mortgage-backed securities:
Residential mortgage-backed agency		-		1,276		8		-		1,284
Residential mortgage-backed non-agency		-		350		17		-		367
Commercial mortgage-backed		-		34		24		-		58
Asset-backed securities:
Collateralized debt obligations		-		78		60		-		138
Other asset-backed		-		130		317		-		447
State and municipal bonds		-		924		-		-		924
Total taxable bonds		1,316		4,488		644		-		6,448
Tax-exempt bonds:
State and municipal bonds		-		1,137		28		-		1,165
Other fixed-maturity investments		-		15		-		-		15
Total fixed-maturity investments		1,316		5,640		672		-		7,628
Money market securities		912		-		-		-		912
Perpetual preferred securities		-		106		1		-		107
Other		25		-		10		-		35
Total investments		2,253		5,746		683		-		8,682
Cash and cash equivalents		473		-		-		-		473
Derivative assets:
Non-insured derivative assets:
Credit derivatives		-		1		-		-		1
Interest rate derivatives		-		91		3		-		94
Other		-		-		-		(93)		(93)
Total derivative assets		-		92		3		(93)		2

	Fair Value Measurements at Reporting Date Using
In millions	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Counterparty and Cash Collateral Netting		Balance as of December 31, 2011
Assets of consolidated VIEs:
Fixed-maturity investments:
Corporate obligations		-		170		69		-		239
Mortgage-backed securities:
Residential mortgage-backed agency		-		3		-		-		3
Residential mortgage-backed non-agency		-		1,437		21		-		1,458
Commercial mortgage-backed		-		559		22		-		581
Asset-backed securities:
Collateralized debt obligations		-		330		203		-		533
Other asset-backed		-		236		67		-		303
Money market securities		199		-		-		-		199
Total fixed-maturity investments		199		2,735		382		-		3,316
Cash		160		-		-		-		160
Loans receivable		-		-		2,046		-		2,046
Loan repurchase commitments		-		-		1,077		-		1,077
Derivative assets:
Credit derivatives		-		-		447		-		447
Interest rate derivatives		-		3		-		-		3
Total assets	$	3,085	$	8,576	$	4,638	$	(93)	$	16,206
Liabilities:
Medium-term notes	$	-	$	-	$	165	$	-	$	165
Derivative liabilities:
Insured derivatives:
Credit derivatives		-		18		4,790		-		4,808
Non-insured derivatives:
Interest rate derivatives		-		445		-		-		445
Currency derivatives		-		4		-		-		4
Other		-		-		-		(93)		(93)
Other liabilities:
Warrants		-		38		-		-		38
Liabilities of consolidated VIEs:
Variable interest entity notes		-		1,865		2,889		-		4,754
Derivative liabilities:
Credit derivatives		-		-		527		-		527
Interest rate derivatives		-		281		-		-		281
Currency derivatives		-		-		17		-		17
Total liabilities	$	-	$	2,651	$	8,388	$	(93)	$	10,946

Level 3 assets at fair value, as of September 30, 2012 and December 31, 2011 represented approximately 30% and 29%, respectively, of total assets measured at fair value. Level 3 liabilities at fair value, as of September 30, 2012 and December 31, 2011 represented approximately 74% and 77%, respectively, of total liabilities measured at fair value.

The following tables present the fair values and carrying values of the Company’s assets and liabilities that are disclosed at fair value but not reported at fair value on the Company’s consolidated balance sheets as of September 30, 2012 and December 31, 2011:

	Fair Value Measurements at Reporting Date Using
In millions	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable  Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value Balance as of September 30, 2012		Carry Value Balance as of September 30, 2012
Assets:
Other investments	$	-	$	-	$	9	$	9	$	9
Accrued investment income(1)		51		-		-		51		51
Receivable for investments sold(1)		159		-		-		159		159
Assets of consolidated VIEs:
Investments held-to-maturity		-		-		2,867		2,867		3,015
Total assets	$	210	$	-	$	2,876	$	3,086	$	3,234
Liabilities:
Investment agreements	$	-	$	-	$	1,254	$	1,254	$	993
Medium-term notes		-		-		1,068		1,068		1,438
Long-term debt		-		1,109		-		1,109		1,836
Payable for investments purchased(2)		150		-		-		150		150
Liabilities of consolidated VIEs:
Variable interest entity notes		-		-		3,166		3,166		3,468
Total liabilities	$	150	$	1,109	$	5,488	$	6,747	$	7,885
Financial Guarantees:
Gross	$	-	$	-	$	866	$	866	$	720
Ceded		-		-		88		88		94

(1) - Reported within “Other assets” on MBIA’s consolidated balance sheets.

(2) - Reported within “Other liabilities” on MBIA’s consolidated balance sheets.

	Fair Value Measurements at Reporting Date Using						Fair Value Balance as of December 31, 2011		Carry Value Balance as of December 31, 2011
In millions	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Other investments	$	-	$	-	$	11	$	11	$	11
Accrued investment income(1)		63		-		-		63		63
Receivable for investments sold(1)		32		-		-		32		32
Assets of consolidated VIEs:
Investments held-to-maturity		-		-		3,489		3,489		3,843
Total assets	$	95	$	-	$	3,500	$	3,595	$	3,949
Liabilities:
Investment agreements	$	-	$	-	$	1,853	$	1,853	$	1,578
Medium-term notes		-		-		1,187		1,187		1,491
Securities sold under agreements to repurchase		-		286		-		286		287
Long-term debt		-		1,117		-		1,117		1,840
Payable for investments purchased(2)		3		-		-		3		3
Liabilities of consolidated VIEs:
Variable interest entity notes		-		-		3,297		3,297		3,943
Long-term debt		-		-		368		368		360
Total liabilities	$	3	$	1,403	$	6,705	$	8,111	$	9,502
Financial Guarantees:
Gross	$	-	$	-	$	1,451	$	1,451	$	1,305
Ceded		-		-		94		94		104

(1) - Reported within “Other assets” on MBIA’s consolidated balance sheets.

(2) - Reported within “Other liabilities” on MBIA’s consolidated balance sheets.

The following tables present information about changes in Level 3 assets (including short-term investments) and liabilities measured at fair value on a recurring basis for the three months ended September 30, 2012 and 2011:

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended September 30, 2012

In millions	Balance, Beginning of Period		Realized Gains / (Losses)		Unrealized Gains / (Losses) Included in Earnings		Unrealized Gains / (Losses) Included in OCI		Foreign Exchange Recognized in OCI or Earnings		Purchases		Issuances		Settlements		Sales		Transfers into Level 3(1)		Transfers out of Level 3(1)		Ending Balance		Change in Unrealized Gains (Losses) for the Period Included in Earnings for Assets still held as of September 30, 2012
Assets:
Foreign governments	$	12	$	-	$	-	$	-	$	1	$	9	$	-	$	(10)	$	-	$	-	$	-	$	12	$	-
Corporate obligations		98		-		4		(2)		-		2		-		(13)		-		10		(8)		91		3
Residential mortgage- backed agency		4		-		-		-		-		-		-		(1)		-		-		(3)		-		-
Residential mortgage- backed non-agency		33		(1)		-		2		-		-		-		(5)		-		1		(23)		7		-
Commercial mortgage-backed		27		-		-		1		-		1		-		-		-		1		-		30		-
Collateralized debt obligations		29		(4)		-		9		-		-		-		(4)		-		4		(4)		30		-
Other asset-backed		69		(2)		-		2		-		1		-		(1)		-		4		-		73		-
State and municipal taxable bonds		-		-		-		-		-		-		-		-		-		71		-		71		-
State and municipal tax-exempt bonds		25		-		-		-		-		-		-		(2)		-		-		-		23		-
Perpetual preferred securities		3		-		-		-		-		-		-		-		-		-		-		3		-
Other investments		10		-		1		-		-		-		-		-		-		-		-		11		-
Assets of consolidated VIEs:
Corporate obligations		95		-		(10)		-		-		-		-		(2)		-		3		(3)		83		1
Residential mortgage- backed non-agency		10		-		-		-		-		-		-		(1)		-		2		(3)		8		-
Commercial mortgage-backed		12		-		1		-		-		-		-		-		-		-		-		13		1
Collateralized debt obligations		140		-		(5)		2		-		-		-		(1)		-		37		-		173		(2)
Other asset-backed		42		-		(1)		-		-		-		-		(5)		-		30		-		66		1
Loans receivable		1,903		-		61		-		-		-		-		(72)		-		-		-		1,892		61
Loan repurchase commitments		1,032		-		19		-		-		-		-		-		-		-		-		1,051		19
Total assets	$	3,544	$	(7)	$	70	$	14	$	1	$	13	$	-	$	(117)	$	-	$	163	$	(44)	$	3,637	$	84

In millions	Balance, Beginning of Period		Realized (Gains) / Losses		Unrealized (Gains) / Losses Included in Earnings		Unrealized (Gains) / Losses Included in OCI		Foreign Exchange Recognized in OCI or Earnings		Purchases		Issuances		Settlements		Sales		Transfers into Level 3(1)		Transfers out of Level 3(1)		Ending Balance		Change in Unrealized (Gains) Losses for the Period Included in Earnings for Liabilities still held as of September 30, 2012
Liabilities:
Medium-term notes	$	151	$	-	$	14	$	-	$	3	$	-	$	-	$	-	$	-	$	-	$	-	$	168	$	14
Credit derivatives, net		3,285		-		32		-		-		-		-		-		-		-		-		3,317		33
Interest rate derivatives, net		(4)		-		-		-		-		-		-		-		-		4		-		-		5
Currency derivatives, net		-		-		-		-		-		-		-		-		-		1		-		1		-
Liabilities of consolidated VIEs:
VIE notes		1,867		-		128		-		-		-		-		(110)		-		-		-		1,885		128
Currency derivatives, net		21		-		2		-		-		-		-		-		-		-		-		23		2
Total liabilities	$	5,320	$	-	$	176	$	-	$	3	$	-	$	-	$	(110)	$	-	$	5	$	-	$	5,394	$	182

(1) - Transferred in and out at the end of the period.

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended September 30, 2011

In millions	Balance, Beginning of Period		Realized Gains / (Losses)		Unrealized Gains / (Losses) Included in Earnings		Unrealized Gains / (Losses) Included in OCI		Foreign Exchange Recognized in OCI or Earnings		Purchases		Issuances		Settlements		Sales		Transfers into Level 3(1)		Transfers out of Level 3(1)		Ending Balance		Change in Unrealized Gains (Losses) for the Period Included in Earnings for Assets still held as of September 30, 2011
Assets:
Foreign governments	$	13	$	-	$	-	$	-	$	(2)	$	3	$	-	$	(3)	$	-	$	-	$	-	$	11	$	-
Corporate obligations		294		(1)		-		(10)		(5)		19		-		(32)		(38)		115		-		342		-
Residential mortgage- backed agency		-		-		-		-		-		1		-		-		-		-		-		1		-
Residential mortgage- backed non-agency		28		(1)		-		1		-		4		-		(4)		-		1		(2)		27		-
Commercial mortgage-backed		50		(2)		-		-		-		-		-		(3)		(13)		-		-		32		-
Collateralized debt obligations		162		(2)		-		(3)		-		39		2		(79)		(28)		1		(25)		67		-
Other asset-backed		331		-		-		(27)		-		-		-		(9)		-		3		(28)		270		-
State and municipal taxable bonds		13		1		-		1		-		-		-		(15)		-		-		-		-		-
State and municipal tax-exempt bonds		32		-		-		-		-		-		-		(2)		-		-		-		30		-
Perpetual preferred securities		-		-		-		-		-		-		-		-		-		1		-		1		-
Assets of consolidated VIEs:
Corporate obligations		62		-		(5)		-		-		-		-		(1)		-		7		-		63		(2)
Residential mortgage- backed non-agency		17		-		3		-		-		-		-		(1)		(6)		2		-		15		1
Commercial mortgage-backed		27		-		(1)		-		-		-		-		-		(11)		2		-		17		(2)
Collateralized debt obligations		201		-		(17)		(7)		-		60		-		(1)		(21)		12		(21)		206		(14)
Other asset-backed		73		-		5		-		-		-		-		-		(6)		-		(1)		71		5
Loans receivable		2,320		-		(36)		-		-		-		-		(66)		-		-		-		2,218		(36)
Loan repurchase commitments		905		-		33		-		-		-		-		-		-		-		-		938		33
Total assets	$	4,528	$	(5)	$	(18)	$	(45)	$	(7)	$	126	$	2	$	(216)	$	(123)	$	144	$	(77)	$	4,309	$	(15)

In millions	Balance, Beginning of Period		Realized (Gains) / Losses		Unrealized (Gains) / Losses Included in Earnings		Unrealized (Gains) / Losses Included in OCI		Foreign Exchange Recognized in OCI or Earnings		Purchases		Issuances		Settlements		Sales		Transfers into Level 3(1)		Transfers out of Level 3(1)		Ending Balance		Change in Unrealized (Gains) Losses for the Period Included in Earnings for Liabilities still held as of September 30, 2011
Liabilities:
Medium-term notes	$	206	$	-	$	(69)	$	-	$	(9)	$	-	$	-	$	-	$	-	$	-	$	-	$	128	$	(69)
Credit derivatives, net		5,657		78		(777)		-		-		-		-		(78)		-		-		-		4,880		(388)
Interest rate derivatives, net		(4)		-		1		-		-		-		-		-		-		-		-		(3)		5
Liabilities of consolidated VIEs:
VIE notes		4,513		-		(194)		-		-		-		-		(207)		(981)		-		-		3,131		(194)
Credit derivatives, net		920		-		(154)		-		-		-		-		(1)		-		-		-		765		(154)
Currency derivatives, net		16		-		2		-		-		-		-		-		-		-		-		18		2
Total liabilities	$	11,308	$	78	$	(1,191)	$	-	$	(9)	$	-	$	-	$	(286)	$	(981)	$	-	$	-	$	8,919	$	(798)

(1) - Transferred in and out at the end of the period.

Transfers into and out of Level 3 were $168 million and $44 million, respectively, for the three months ended September 30, 2012. Transfers into and out of Level 2 were $44 million and $168 million, respectively, for the three months ended September 30, 2012. Transfers into Level 3 were principally for state and municipal taxable bonds, CDOs, other asset-backed and corporate obligations where inputs, which are significant to their valuation, became unobservable during the year. These inputs included spreads, prepayment speeds, default speeds, default severities, yield curves observable at commonly quoted intervals, and market corroborated inputs. Residential mortgage-backed non-agency and corporate obligations comprised the majority of the transferred instruments out of Level 3. There were no transfers into or out of Level 1.

Transfers into and out of Level 3 were $144 million and $77 million, respectively, for the three months ended September 30, 2011. Transfers into and out of Level 2 were $77 million and $144 million, respectively, for the three months ended September 30, 2011. These transfers were principally for available-for-sale securities where inputs, which are significant to their valuation, became observable or unobservable during the quarter. These inputs included spreads, prepayment speeds, default speeds, default severities, yield curves observable at commonly quoted intervals, and market corroborated inputs. Corporate obligations, CDOs and other asset-backed comprised the majority of the transferred instruments. There were no transfers into or out of Level 1.

All Level 1, 2 and 3 designations are made at the end of each accounting period.

The following tables present information about changes in Level 3 assets (including short-term investments) and liabilities measured at fair value on a recurring basis for the nine months ended September 30, 2012 and 2011:

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Nine Months Ended September 30, 2012

In millions	Balance, Beginning of Year		Realized Gains / (Losses)		Unrealized Gains / (Losses) Included in Earnings		Unrealized Gains / (Losses) Included in OCI		Foreign Exchange Recognized in OCI or Earnings		Purchases		Issuances		Settlements		Sales		Transfers into Level 3(1)		Transfers out of Level 3(1)		Ending Balance		Change in Unrealized Gains (Losses) for the Period Included in Earnings for Assets still held as of September 30, 2012
Assets:
Foreign governments	$	11	$	-	$	-	$	-	$	1	$	22	$	-	$	(19)	$	(3)	$	-	$	-	$	12	$	-
Corporate obligations		207		(15)		9		24		-		18		-		(29)		(140)		25		(8)		91		8
Residential mortgage- backed agency		8		-		-		1		-		-		-		(1)		-		4		(12)		-		-
Residential mortgage- backed non-agency		17		(1)		-		(1)		-		-		-		(11)		(3)		31		(25)		7		-
Commercial mortgage-backed		24		-		-		5		-		1		-		-		-		1		(1)		30		-
Collateralized debt obligations		60		(9)		-		18		-		-		-		(12)		(10)		14		(31)		30		-
Other asset-backed		317		(58)		-		71		-		5		-		(11)		(250)		5		(6)		73		-
State and municipal taxable bonds		-		-		-		-		-		-		-		-		-		71		-		71		-
State and municipal tax-exempt bonds		28		-		-		-		-		-		-		(5)		-		-		-		23		-
Perpetual preferred securities		1		-		-		1		-		-		-		-		-		4		(3)		3		-
Other investments		10		-		1		-		-		-		-		-		-		-		-		11		-
Assets of consolidated VIEs:
Corporate obligations		69		-		(15)		(6)		-		28		-		(5)		-		15		(3)		83		3
Residential mortgage- backed non-agency		21		-		6		-		-		-		-		(5)		(15)		5		(4)		8		3
Commercial mortgage-backed		22		-		3		-		-		-		-		(3)		(8)		5		(6)		13		2
Collateralized debt obligations		203		-		(5)		(1)		-		-		-		(1)		(74)		51		-		173		5
Other asset-backed		67		-		4		-		-		4		-		(8)		(35)		34		-		66		5
Loans receivable		2,046		-		52		-		-		-		-		(204)		(2)		-		-		1,892		52
Loan repurchase commitments		1,077		-		(26)		-		-		-		-		-		-		-		-		1,051		(26)
Total assets	$	4,188	$	(83)	$	29	$	112	$	1	$	78	$	-	$	(314)	$	(540)	$	265	$	(99)	$	3,637	$	52

In millions	Balance, Beginning of Year		Realized (Gains) / Losses		Unrealized (Gains) / Losses Included in Earnings		Unrealized (Gains) / Losses Included in OCI		Foreign Exchange Recognized in OCI or Earnings		Purchases		Issuances		Settlements		Sales		Transfers into Level 3(1)		Transfers out of Level 3(1)		Ending Balance		Change in Unrealized (Gains) Losses for the Period Included in Earnings for Liabilities still held as of September 30, 2012
Liabilities:
Medium-term notes	$	165	$	-	$	3	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	168	$	4
Credit derivatives, net		4,790		463		(1,473)		-		-		-		-		(463)		-		-		-		3,317		(538)
Interest rate derivatives, net		(3)		-		(1)		-		-		-		-		-		-		4		-		-		12
Interest rate derivatives, net		-		-		-		-		-		-		-		-		-		1		-		1		-
Liabilities of consolidated VIEs:
VIE notes		2,889		-		348		-		-		-		-		(369)		(983)		-		-		1,885		292
Credit derivatives, net		80		-		2		-		-		-		-		-		(82)		-		-		-		-
Currency derivatives, net		17		-		6		-		-		-		-		-		-		-		-		23		6
Total liabilities	$	7,938	$	463	$	(1,115)	$	-	$	-	$	-	$	-	$	(832)	$	(1,065)	$	5	$	-	$	5,394	$	(224)

(1) - Transferred in and out at the end of the period.

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Nine Months Ended September 30, 2011

In millions	Balance, Beginning of Year		Realized Gains / (Losses)		Unrealized Gains / (Losses) Included in Earnings		Unrealized Gains / (Losses) Included in OCI		Foreign Exchange Recognized in OCI or Earnings		Purchases		Issuances		Settlements		Sales		Transfers into Level 3(1)		Transfers out of Level 3(1)		Ending Balance		Change in Unrealized Gains (Losses) for the Period Included in Earnings for Assets still held as of September 30, 2011
Assets:
Foreign governments	$	11	$	-	$	-	$	-	$	(1)	$	9	$	-	$	(8)	$	-	$	7	$	(7)	$	11	$	-
Corporate obligations		246		(1)		-		(3)		(2)		30		-		(65)		(50)		202		(15)		342		-
Residential mortgage- backed agency		41		-		-		1		-		2		-		(1)		(1)		-		(41)		1		-
Residential mortgage- backed non-agency		48		(2)		-		11		(1)		15		-		(14)		(19)		9		(20)		27		-
Commercial mortgage-backed		41		(2)		-		2		1		8		-		(3)		(14)		-		(1)		32		-
Collateralized debt obligations		192		(4)		-		25		-		46		3		(112)		(36)		49		(96)		67		-
Other asset-backed		349		-		-		(26)		-		10		-		(20)		(2)		16		(57)		270		-
State and municipal taxable bonds		14		1		-		-		-		-		-		(15)		-		-		-		-		-
State and municipal tax-exempt bonds		36		-		-		-		-		2		-		(7)		(1)		-		-		30		-
Perpetual preferred securities		-		-		-		-		-		-		-		-		-		1		-		1		-
Assets of consolidated VIEs:
Corporate obligations		82		-		(18)		-		-		-		-		(5)		-		11		(7)		63		(2)
Residential mortgage- backed non-agency		40		-		2		3		-		-		-		(6)		(6)		2		(20)		15		2
Commercial mortgage-backed		23		-		6		-		-		-		-		(2)		(12)		2		-		17		3
Collateralized debt obligations		245		-		(27)		(7)		-		60		-		(3)		(21)		48		(89)		206		1
Other asset-backed		81		-		(3)		-		-		-		-		(2)		(6)		2		(1)		71		2
Loans receivable		2,183		-		260		-		-		-		-		(223)		(2)		-		-		2,218		260
Loan repurchase commitments		835		-		91		-		-		-		12		-		-		-		-		938		91
Total assets	$	4,467	$	(8)	$	311	$	6	$	(3)	$	182	$	15	$	(486)	$	(170)	$	349	$	(354)	$	4,309	$	357

In millions	Balance, Beginning of Year		Realized (Gains) / Losses		Unrealized (Gains) / Losses Included in Earnings		Unrealized (Gains) / Losses Included in OCI		Foreign Exchange Recognized in OCI or Earnings		Purchases		Issuances		Settlements		Sales		Transfers into Level 3(1)		Transfers out of Level 3(1)		Ending Balance		Change in Unrealized (Gains) Losses for the Period Included In Earnings for Liabilities still held as of September 30, 2011
Liabilities:
Medium-term notes	$	116	$	-	$	9	$	-	$	3	$	-	$	-	$	-	$	-	$	-	$	-	$	128	$	9
Credit derivatives, net		4,350		683		530		-		-		-		-		(683)		-		-		-		4,880		2,160
Interest rate derivatives, net		(5)		-		1		-		-		-		-		-		-		1		-		(3)		6
Liabilities of consolidated VIEs:
VIE notes		4,673		-		75		-		-		-		-		(456)		(1,161)		-		-		3,131		75
Credit derivatives, net		768		-		(3)		-		-		-		-		-		-		-		-		765		(3)
Currency derivatives, net		14		-		4		-		-		-		-		-		-		-		-		18		4
Total liabilities	$	9,916	$	683	$	616	$	-	$	3	$	-	$	-	$	(1,139)	$	(1,161)	$	1	$	-	$	8,919	$	2,251

(1) - Transferred in and out at the end of the period.

Transfers into and out of Level 3 were $270 million and $99 million, respectively, for the nine months ended September 30, 2012. Transfers into and out of Level 2 were $99 million and $270 million, respectively, for the nine months ended September 30, 2012. Transfers into Level 3 were principally related to state and municipal taxable bonds, CDOs, other asset-backed, residential mortgage-backed non-agency and corporate obligations where inputs, which are significant to their valuation, became unobservable during the year. These inputs included spreads, prepayment speeds, default speeds, default severities, yield curves observable at commonly quoted intervals, and market corroborated inputs. CDOs, residential mortgage-backed non-agency, residential mortgage-backed agency and corporate obligations comprised the majority of the transferred instruments out of Level 3. There were no transfers into or out of Level 1.

Transfers into and out of Level 3 were $350 million and $354 million, respectively, for the nine months ended September 30, 2011. Transfers into and out of Level 2 were $354 million and $350 million, respectively, for the nine months ended September 30, 2011. These transfers were principally related to available-for-sale securities where inputs, which are significant to their valuation, became observable or unobservable during the quarter. These inputs included spreads, prepayment speeds, default speeds, default severities, yield curves observable at commonly quoted intervals, and market corroborated inputs. Corporate obligations, CDOs, residential mortgage-backed non-agency and other asset-backed comprised the majority of the transferred instruments. There were no transfers into or out of Level 1.

All Level 1, 2 and 3 designations are made at the end of each accounting period.

Gains and losses (realized and unrealized) included in earnings relating to Level 3 assets and liabilities for the three months ended September 30, 2012 and 2011 are reported on the Company’s consolidated statements of operations as follows:

	Three Months Ended September 30, 2012
							Consolidated VIEs
In millions	Unrealized Gains (Losses) on Insured Derivatives		Net Realized Gains (Losses)		Net Gains (Losses) on Financial Instruments at Fair Value and Foreign Exchange		Net Gains (Losses) on Financial Instruments at Fair Value and Foreign Exchange
Total gains (losses) included in earnings	$	(32)	$	(7)	$	(9)	$	(65)
Change in unrealized gains (losses) for the period included in earnings for assets and liabilities still held as of September 30, 2012	$	(33)	$	-	$	(16)	$	(49)

	Three Months Ended September 30, 2011
							Consolidated VIEs
In millions	Unrealized Gains (Losses) on Insured Derivatives		Net Realized Gains (Losses)		Net Gains (Losses) on Financial Instruments at Fair Value and Foreign Exchange		Net Gains (Losses) on Financial Instruments at Fair Value and Foreign Exchange
Total gains (losses) included in earnings	$	777	$	(83)	$	68	$	328
Change in unrealized gains (losses) for the period included in earnings for assets and liabilities still held as of September 30, 2011	$	388	$	-	$	64	$	331

Gains and losses (realized and unrealized) included in earnings relating to Level 3 assets and liabilities for the nine months ended September 30, 2012 and 2011 are reported on the Company’s consolidated statements of operations as follows:

	Nine Months Ended September 30, 2012
							Consolidated VIEs
In millions	Unrealized Gains (Losses) on Insured Derivatives		Net Realized Gains (Losses)		Net Gains (Losses) on Financial Instruments at Fair Value and Foreign Exchange		Net Gains (Losses) on Financial Instruments at Fair Value and Foreign Exchange
Total gains (losses) included in earnings	$	1,473	$	(546)	$	8	$	(337)
Change in unrealized gains (losses) for the period included in earnings for assets and liabilities still held as of September 30, 2012	$	538	$	-	$	(8)	$	(254)

	Nine Months Ended September 30, 2011
							Consolidated VIEs
In millions	Unrealized Gains (Losses) on Insured Derivatives		Net Realized Gains (Losses)		Net Gains (Losses) on Financial Instruments at Fair Value and Foreign Exchange		Net Gains (Losses) on Financial Instruments at Fair Value and Foreign Exchange
Total gains (losses) included in earnings	$	(530)	$	(691)	$	(10)	$	235
Change in unrealized gains (losses) for the period included in earnings for assets and liabilities still held as of September 30, 2011	$	(2,160)	$	-	$	(15)	$	281

Fair Value Option

The Company elected to record at fair value certain financial instruments of VIEs that have been consolidated in connection with the adoption of the accounting guidance for consolidation of VIEs, among others.

The following table presents the changes in fair value included in the Company’s consolidated statements of operations for the three and nine months ended September 30, 2012 and 2011 for all financial instruments for which the fair value option was elected:

	Net Gains (Losses) on Financial Instruments at Fair Value and Foreign Exchange
	Three Months Ended September 30,				Nine Months Ended September 30,
In millions	2012		2011		2012		2011
Fixed-maturity securities held at fair value	$	21	$	(286)	$	(36)	$	(338)
Loans receivable at fair value:
Residential mortgage loans		(4)		(65)		(103)		65
Other loans		(7)		(37)		(48)		(30)
Loan repurchase commitments		19		33		62		103
Other assets		-		(162)		-		(184)
Long-term debt		12		481		140		367

Substantially all gains and losses included in earnings during the nine months ended September 30, 2012 on loans receivable and VIE notes reported in the preceding table are attributable to credit risk. This is primarily due to the high rate of defaults on loans and the collateral supporting the VIE notes, resulting in depressed pricing of the financial instruments.

The following table reflects the difference between the aggregate fair value and the aggregate remaining contractual principal balance outstanding as of September 30, 2012 and December 31, 2011 for loans and VIE notes for which the fair value option was elected:

	As of September 30, 2012						As of December 31, 2011
In millions	Contractual Outstanding Principal		Fair Value		Difference		Contractual Outstanding Principal		Fair Value		Difference
Loans receivable at fair value:
Residential mortgage loans	$	2,430	$	1,746	$	684	$	2,769	$	1,895	$	874
Residential mortgage loans (90 days or more past due)		241		46		195		259		-		259
Other loans		39		16		23		129		43		86
Other loans (90 days or more past due)		206		84		122		324		108		216
Total loans receivable at fair value	$	2,916	$	1,892	$	1,024	$	3,481	$	2,046	$	1,435
Variable interest entity notes	$	9,015	$	3,626	$	5,389	$	13,583	$	4,754	$	8,829

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Investments (Available-For-Sale Securities Continuous Unrealized Loss Position) (Detail) (USD $) In Millions, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Schedule of Available-for-sale Securities [Line Items]
Less than 12 Months, Fair Value	$ 304	$ 912
Less than 12 Months, Unrealized Losses	(1)	(36)
12 Months or Longer, Fair Value	721	1,475
12 Months or Longer, Unrealized Losses	(190)	(442)
Total, Fair Value	1,025	2,387
Total, Unrealized Losses	(191)	(478)
Fixed-Maturity Investments [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 Months, Fair Value	304	820
Less than 12 Months, Unrealized Losses	(1)	(33)
12 Months or Longer, Fair Value	478	1,252
12 Months or Longer, Unrealized Losses	(160)	(385)
Total, Fair Value	782	2,072
Total, Unrealized Losses	(161)	(418)
Perpetual Preferred Securities [Member] | Other Investments [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 Months, Fair Value		47
Less than 12 Months, Unrealized Losses		(3)
12 Months or Longer, Fair Value	3	45
12 Months or Longer, Unrealized Losses		(16)
Total, Fair Value	3	92
Total, Unrealized Losses		(19)
Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Total, Fair Value	270
Total, Unrealized Losses	(52)
Asset-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Total, Fair Value	273
Total, Unrealized Losses	(99)
Taxable Bonds [Member] | Fixed-Maturity Investments [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 Months, Fair Value	303	806
Less than 12 Months, Unrealized Losses	(1)	(33)
12 Months or Longer, Fair Value	456	1,177
12 Months or Longer, Unrealized Losses	(160)	(383)
Total, Fair Value	759	1,983
Total, Unrealized Losses	(161)	(416)
Taxable Bonds [Member] | U.S. Treasury And Government Agency [Member] | Fixed-Maturity Investments [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 Months, Fair Value	197	200
Less than 12 Months, Unrealized Losses	(1)
12 Months or Longer, Fair Value
12 Months or Longer, Unrealized Losses
Total, Fair Value	197	200
Total, Unrealized Losses	(1)
Taxable Bonds [Member] | Foreign Governments [Member] | Fixed-Maturity Investments [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 Months, Fair Value	24	20
Less than 12 Months, Unrealized Losses
12 Months or Longer, Fair Value
12 Months or Longer, Unrealized Losses
Total, Fair Value	24	20
Total, Unrealized Losses
Taxable Bonds [Member] | Corporate Obligations [Member] | Fixed-Maturity Investments [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 Months, Fair Value	60	297
Less than 12 Months, Unrealized Losses		(15)
12 Months or Longer, Fair Value	49	418
12 Months or Longer, Unrealized Losses	(21)	(91)
Total, Fair Value	109	715
Total, Unrealized Losses	(21)	(106)
Taxable Bonds [Member] | State And Municipal Bonds [Member] | Fixed-Maturity Investments [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 Months, Fair Value	6	152
Less than 12 Months, Unrealized Losses		(2)
12 Months or Longer, Fair Value	66	76
12 Months or Longer, Unrealized Losses	(11)	(15)
Total, Fair Value	72	228
Total, Unrealized Losses	(11)	(17)
Taxable Bonds [Member] | Mortgage-Backed Securities [Member] | Residential Mortgage-Backed Agency [Member] | Fixed-Maturity Investments [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 Months, Fair Value	8	20
Less than 12 Months, Unrealized Losses
12 Months or Longer, Fair Value	41	49
12 Months or Longer, Unrealized Losses
Total, Fair Value	49	69
Total, Unrealized Losses
Taxable Bonds [Member] | Mortgage-Backed Securities [Member] | Residential Mortgage-Backed Non-Agency [Member] | Fixed-Maturity Investments [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 Months, Fair Value	2	34
Less than 12 Months, Unrealized Losses		(5)
12 Months or Longer, Fair Value	102	167
12 Months or Longer, Unrealized Losses	(36)	(78)
Total, Fair Value	104	201
Total, Unrealized Losses	(36)	(83)
Taxable Bonds [Member] | Mortgage-Backed Securities [Member] | Commercial Mortgage-Backed [Member] | Fixed-Maturity Investments [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 Months, Fair Value	3	17
Less than 12 Months, Unrealized Losses		(2)
12 Months or Longer, Fair Value	27	22
12 Months or Longer, Unrealized Losses	(4)	(8)
Total, Fair Value	30	39
Total, Unrealized Losses	(4)	(10)
Taxable Bonds [Member] | Asset-Backed Securities [Member] | Collateralized Debt Obligations [Member] | Fixed-Maturity Investments [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 Months, Fair Value	2	13
Less than 12 Months, Unrealized Losses		(2)
12 Months or Longer, Fair Value	83	117
12 Months or Longer, Unrealized Losses	(74)	(116)
Total, Fair Value	85	130
Total, Unrealized Losses	(74)	(118)
Taxable Bonds [Member] | Asset-Backed Securities [Member] | Other Asset-Backed [Member] | Fixed-Maturity Investments [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 Months, Fair Value	1	53
Less than 12 Months, Unrealized Losses		(7)
12 Months or Longer, Fair Value	88	328
12 Months or Longer, Unrealized Losses	(14)	(75)
Total, Fair Value	89	381
Total, Unrealized Losses	(14)	(82)
Tax-Exempt Bonds [Member] | State And Municipal Bonds [Member] | Fixed-Maturity Investments [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 Months, Fair Value	1	14
Less than 12 Months, Unrealized Losses
12 Months or Longer, Fair Value	22	75
12 Months or Longer, Unrealized Losses		(2)
Total, Fair Value	23	89
Total, Unrealized Losses		(2)
Variable Interest Entity [Member] | Corporate Obligations [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 Months, Fair Value		2
Less than 12 Months, Unrealized Losses
12 Months or Longer, Fair Value	54
12 Months or Longer, Unrealized Losses	(7)
Total, Fair Value	54	2
Total, Unrealized Losses	(7)
Variable Interest Entity [Member] | Mortgage-Backed Securities [Member] | Residential Mortgage-Backed Non-Agency [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 Months, Fair Value		3
Less than 12 Months, Unrealized Losses
12 Months or Longer, Fair Value	87	90
12 Months or Longer, Unrealized Losses	(12)	(26)
Total, Fair Value	87	93
Total, Unrealized Losses	(12)	(26)
Variable Interest Entity [Member] | Asset-Backed Securities [Member] | Collateralized Debt Obligations [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 Months, Fair Value		9
Less than 12 Months, Unrealized Losses
12 Months or Longer, Fair Value	96	88
12 Months or Longer, Unrealized Losses	(11)	(15)
Total, Fair Value	96	97
Total, Unrealized Losses	(11)	(15)
Variable Interest Entity [Member] | Asset-Backed Securities [Member] | Other Asset-Backed [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 Months, Fair Value		31
Less than 12 Months, Unrealized Losses
12 Months or Longer, Fair Value	3
12 Months or Longer, Unrealized Losses
Total, Fair Value	3	31
Total, Unrealized Losses

XML

Business Segments (Summary Of Segments Within Wind-Down Operations) (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended				9 Months Ended
	Sep. 30, 2012		Sep. 30, 2011		Sep. 30, 2012		Sep. 30, 2011		Dec. 31, 2011
Segment Reporting Information [Line Items]
Total revenues	$ 281		$ 1,120		$ 1,703		$ (390)
Total expenses	338		375		944		775
Income (loss) before income taxes	(57)		745		759		(1,165)
Identifiable assets	22,132		29,370		22,132		29,370		26,873
Non Variable Interest Entities [Member]
Segment Reporting Information [Line Items]
Revenues	225	[1]	284	[1]	683	[1]	802	[1]
Net gains (losses) on financial instruments at fair value and foreign exchange	7		13		(18)		(114)
Net investment losses related to other-than-temporary impairments	(8)		(11)		(105)		(44)
Net gains (losses) on extinguishment of debt							26
Operating	80		88		343		277
Other net realized gains (losses)	1		1		7		6
Interest	69		75		214		225
Variable Interest Entity [Member]
Segment Reporting Information [Line Items]
Identifiable assets	8,200				8,200				10,900
Net gains (losses) on financial instruments at fair value and foreign exchange	44		88		(17)		3
Revenues of consolidated VIEs	77		110		83		64
Net gains (losses) on extinguishment of debt	16				49
Other net realized gains (losses)			5				8
Interest	13		15		43		45
Expenses of consolidated VIEs	18		22		57		69
Asset / Liability Products [Member]
Segment Reporting Information [Line Items]
Inter-segment revenues	(1)	[2]	(3)	[2]	(15)	[2]	(9)	[2]
Total revenues	(32)		28		(187)		(137)
Inter-segment expenses	3	[2]	9	[2]	16	[2]	25	[2]
Total expenses	26		36		92		109
Income (loss) before income taxes	(58)		(8)		(279)		(246)
Identifiable assets	2,219		3,982		2,219		3,982
Asset / Liability Products [Member] | Non Variable Interest Entities [Member]
Segment Reporting Information [Line Items]
Revenues	9	[3]	23	[3]	44	[3]	70	[3]
Net gains (losses) on financial instruments at fair value and foreign exchange	(40)		11		(160)		(206)
Net investment losses related to other-than-temporary impairments			(1)		(56)		(30)
Net gains (losses) on extinguishment of debt							24
Operating	1				4		2
Other net realized gains (losses)							4
Interest	22		27		72		82
Asset / Liability Products [Member] | Variable Interest Entity [Member]
Segment Reporting Information [Line Items]
Revenues of consolidated VIEs			(2)				10
Conduits [Member]
Segment Reporting Information [Line Items]
Inter-segment revenues			(1)	[2]	(2)	[2]	(3)	[2]
Total revenues	20		4		58		12
Inter-segment expenses	36	[2]	(3)	[2]	71	[2]	(1)	[2]
Total expenses	39		5		82		14
Income (loss) before income taxes	(19)		(1)		(24)		(2)
Identifiable assets	693		1,574		693		1,574
Conduits [Member] | Non Variable Interest Entities [Member]
Segment Reporting Information [Line Items]
Revenues			(2)	[3]
Operating			2
Interest			1
Conduits [Member] | Variable Interest Entity [Member]
Segment Reporting Information [Line Items]
Revenues of consolidated VIEs	20		7		60		15
Expenses of consolidated VIEs	3		5		11		15
Eliminations [Member]
Segment Reporting Information [Line Items]
Inter-segment revenues					(2)	[2]
Total revenues					(2)
Income (loss) before income taxes					(2)
Identifiable assets	(51)				(51)
Wind-Down Operations [Member]
Segment Reporting Information [Line Items]
Inter-segment revenues	(1)	[2],[4]	(4)	[2],[4]	(19)	[2],[4]	(12)	[2],[4]
Total revenues	(12)		32		(131)		(125)
Inter-segment expenses	39	[2],[4]	6	[2],[4]	87	[2],[4]	24	[2],[4]
Total expenses	65		41		174		123
Income (loss) before income taxes	(77)		(9)		(305)		(248)
Identifiable assets	2,861		5,556		2,861		5,556
Wind-Down Operations [Member] | Non Variable Interest Entities [Member]
Segment Reporting Information [Line Items]
Revenues	9	[1],[3]	21	[1],[3]	44	[1],[3]	70	[1],[3]
Net gains (losses) on financial instruments at fair value and foreign exchange	(40)		11		(160)		(206)
Net investment losses related to other-than-temporary impairments			(1)		(56)		(30)
Net gains (losses) on extinguishment of debt							24
Operating	1		2		4		2
Other net realized gains (losses)							4
Interest	22		28		72		82
Wind-Down Operations [Member] | Variable Interest Entity [Member]
Segment Reporting Information [Line Items]
Revenues of consolidated VIEs	20		5		60		25
Expenses of consolidated VIEs	$ 3		$ 5		$ 11		$ 15

[1] Represents the sum of third-party financial guarantee net premiums earned, net investment income, insurance-related fees and reimbursements, investment management fees and other fees.

[2] Represents intercompany asset management fees and expenses plus intercompany interest income and expense pertaining to intercompany debt.

[3] Represents the sum of third-party interest income, investment management services fees and other fees.

[4] Represents intercompany premium income and expense, intercompany asset management fees and expenses, and intercompany interest income and expense pertaining to intercompany receivables and payables.

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Investments (Fair Values And Gross Unrealized Losses By Credit Rating Category Of Mortgage Backed Securities) (Detail) (USD $) In Millions, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Schedule of Available-for-sale Securities [Line Items]
Total, Fair Value	$ 1,025	$ 2,387
Total, Unrealized Losses	(191)	(478)
Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Total, Fair Value	270
Total, Unrealized Losses	(52)
Mortgage-Backed Securities [Member] | Commercial Mortgage-Backed [Member]
Schedule of Available-for-sale Securities [Line Items]
Total, Fair Value	29
Total, Unrealized Losses	(5)
Collateralized [Member] | Mortgage-Backed Securities [Member] | Residential Mortgage-Backed Agency [Member]
Schedule of Available-for-sale Securities [Line Items]
Total, Fair Value	109
Total, Unrealized Losses	(12)
Home Equity [Member] | Mortgage-Backed Securities [Member] | Residential Mortgage-Backed Agency [Member]
Schedule of Available-for-sale Securities [Line Items]
Total, Fair Value	116
Total, Unrealized Losses	(32)
Pass-Through Securities [Member] | Mortgage-Backed Securities [Member] | Residential Mortgage-Backed Agency [Member]
Schedule of Available-for-sale Securities [Line Items]
Total, Fair Value	8
Other RMBS [Member] | Mortgage-Backed Securities [Member] | Residential Mortgage-Backed Agency [Member]
Schedule of Available-for-sale Securities [Line Items]
Total, Fair Value	8
Total, Unrealized Losses	(3)
Aaa [Member] | Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Total, Fair Value	49
Aaa [Member] | Collateralized [Member] | Mortgage-Backed Securities [Member] | Residential Mortgage-Backed Agency [Member]
Schedule of Available-for-sale Securities [Line Items]
Total, Fair Value	41
Aaa [Member] | Pass-Through Securities [Member] | Mortgage-Backed Securities [Member] | Residential Mortgage-Backed Agency [Member]
Schedule of Available-for-sale Securities [Line Items]
Total, Fair Value	8
Aa [Member] | Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Total, Fair Value	89
Total, Unrealized Losses	(13)
Aa [Member] | Collateralized [Member] | Mortgage-Backed Securities [Member] | Residential Mortgage-Backed Agency [Member]
Schedule of Available-for-sale Securities [Line Items]
Total, Fair Value	24
Aa [Member] | Home Equity [Member] | Mortgage-Backed Securities [Member] | Residential Mortgage-Backed Agency [Member]
Schedule of Available-for-sale Securities [Line Items]
Total, Fair Value	57
Total, Unrealized Losses	(10)
Aa [Member] | Other RMBS [Member] | Mortgage-Backed Securities [Member] | Residential Mortgage-Backed Agency [Member]
Schedule of Available-for-sale Securities [Line Items]
Total, Fair Value	8
Total, Unrealized Losses	(3)
Baa [Member] | Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Total, Fair Value	30
Total, Unrealized Losses	(5)
Baa [Member] | Mortgage-Backed Securities [Member] | Commercial Mortgage-Backed [Member]
Schedule of Available-for-sale Securities [Line Items]
Total, Fair Value	27
Total, Unrealized Losses	(4)
Baa [Member] | Home Equity [Member] | Mortgage-Backed Securities [Member] | Residential Mortgage-Backed Agency [Member]
Schedule of Available-for-sale Securities [Line Items]
Total, Fair Value	3
Total, Unrealized Losses	(1)
Below Investment Grade [Member] | Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Total, Fair Value	88
Total, Unrealized Losses	(27)
Below Investment Grade [Member] | Mortgage-Backed Securities [Member] | Commercial Mortgage-Backed [Member]
Schedule of Available-for-sale Securities [Line Items]
Total, Fair Value	2
Total, Unrealized Losses	(1)
Below Investment Grade [Member] | Collateralized [Member] | Mortgage-Backed Securities [Member] | Residential Mortgage-Backed Agency [Member]
Schedule of Available-for-sale Securities [Line Items]
Total, Fair Value	30
Total, Unrealized Losses	(5)
Below Investment Grade [Member] | Home Equity [Member] | Mortgage-Backed Securities [Member] | Residential Mortgage-Backed Agency [Member]
Schedule of Available-for-sale Securities [Line Items]
Total, Fair Value	56
Total, Unrealized Losses	(21)
Not Rated [Member] | Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Total, Fair Value	14
Total, Unrealized Losses	(7)
Not Rated [Member] | Collateralized [Member] | Mortgage-Backed Securities [Member] | Residential Mortgage-Backed Agency [Member]
Schedule of Available-for-sale Securities [Line Items]
Total, Fair Value	14
Total, Unrealized Losses	$ (7)

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Investments (Distribution Of Held-To-Maturity Investments By Contractual Maturity) (Detail) (USD $) In Millions, unless otherwise specified	Sep. 30, 2012		Dec. 31, 2011
Held-To-Maturity [Member]
Schedule of Held-to-maturity Securities [Line Items]
Due in one year or less, Fair Value
Due after one year through five years, Fair Value	1	[1]
Due after five years through ten years, Fair Value
Due after ten years through fifteen years, Fair Value
Due after fifteen years, Fair Value
Total held-to-maturity investments, Fair Value	1
Due in one year or less, Amortized Cost
Due after one year through five years, Amortized Cost	1	[1]
Due after five years through ten years, Amortized Cost
Due after ten years through fifteen years, Amortized Cost
Due after fifteen years, Amortized Cost
Total held-to-maturity investments, Amortized Cost	1
Variable Interest Entity [Member]
Schedule of Held-to-maturity Securities [Line Items]
Total held-to-maturity investments, Fair Value	2,867		3,489
Variable Interest Entity [Member] | Held-To-Maturity [Member]
Schedule of Held-to-maturity Securities [Line Items]
Due in one year or less, Fair Value
Due after five years through ten years, Fair Value
Due after ten years through fifteen years, Fair Value
Due after fifteen years, Fair Value
Total held-to-maturity investments, Fair Value	2,867
Due in one year or less, Amortized Cost
Due after five years through ten years, Amortized Cost
Due after ten years through fifteen years, Amortized Cost
Due after fifteen years, Amortized Cost
Total held-to-maturity investments, Amortized Cost	3,015
Variable Interest Entity [Member] | Asset-Backed Securities [Member] | Held-To-Maturity [Member]
Schedule of Held-to-maturity Securities [Line Items]
Total held-to-maturity investments, Fair Value	2,867
Total held-to-maturity investments, Amortized Cost	$ 3,015

[1] Relates to tax credit investments reported in "Other investments" on the Company's consolidated balance sheets.

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Business Segments (Tables)

9 Months Ended

Sep. 30, 2012

Summary Of Company's Segment Results

	Three Months Ended September 30, 2012
In millions	U.S. Public Finance Insurance		Structured Finance and International Insurance		Advisory Services		Corporate		Wind-down Operations		Eliminations			Consolidated
Revenues(1)	$	149	$	59	$	5	$	3	$	9	$	-		$	225
Realized gains (losses) and other settlements on insured derivatives		-		12		-		-		-		-			12
Unrealized gains (losses) on insured derivatives		-		(33)		-		-		-		-			(33)
Net gains (losses) on financial instruments at fair value and foreign exchange		22		14		-		11		(40)		-			7
Net investment losses related to other-than-temporary impairments		-		(4)		-		(4)		-		-			(8)
Other net realized gains (losses)		-		-		-		1		-		-			1
Revenues of consolidated VIEs		-		57		-		-		20		-			77
Inter-segment revenues(2)		43		29		8		53		(1)		(132)			-
Total revenues		214		134		13		64		(12)		(132)			281
Losses and loss adjustment		4		167		-		-		-		-			171
Operating		14		29		12		24		1		-			80
Interest		-		33		-		14		22		-			69
Expenses of consolidated VIEs		-		15		-		-		3		-			18
Inter-segment expenses(2)		32		54		3		4		39		(132)			-
Total expenses		50		298		15		42		65		(132)			338
Income (loss) before income taxes	$	164	$	(164)	$	(2)	$	22	$	(77)	$	-		$	(57)
Identifiable assets	$	7,134	$	17,399	$	53	$	843	$	2,861	$	(6,158)	(3)	$	22,132

(1) - Represents the sum of third-party financial guarantee net premiums earned, net investment income, insurance-related fees and reimbursements, investment management fees and other fees.

(2) - Represents intercompany premium income and expense, intercompany asset management fees and expenses, and intercompany interest income and expense pertaining to intercompany receivables and payables.

(3) - Consists of intercompany reinsurance balances, repurchase agreements and loans.

	Three Months Ended September 30, 2011
In millions	U.S. Public Finance Insurance		Structured Finance and International Insurance		Advisory Services		Corporate		Wind-down Operations		Eliminations			Consolidated
Revenues(1)	$	181	$	72	$	9	$	1	$	21	$	-		$	284
Realized gains (losses) and other settlements on insured derivatives		-		(53)		-		-		-		-			(53)
Unrealized gains (losses) on insured derivatives		-		776		-		-		-		-			776
Net gains (losses) on financial instruments at fair value and foreign exchange		6		(12)		-		8		11		-			13
Net investment losses related to other-than-temporary impairments		-		-		-		(10)		(1)		-			(11)
Other net realized gains (losses)		-		1		-		-		-		-			1
Revenues of consolidated VIEs		-		105		-		-		5		-			110
Inter-segment revenues(2)		21		25		5		22		(4)		(69)			-
Total revenues		208		914		14		21		32		(69)			1,120
Losses and loss adjustment		10		180		-		-		-		-			190
Operating		10		38		14		24		2		-			88
Interest		-		33		-		14		28		-			75
Expenses of consolidated VIEs		-		17		-		-		5		-			22
Inter-segment expenses(2)		31		33		1		4		6		(75)			-
Total expenses		51		301		15		42		41		(75)			375
Income (loss) before income taxes	$	157	$	613	$	(1)	$	(21)	$	(9)	$	6		$	745
Identifiable assets	$	8,015	$	21,251	$	53	$	652	$	5,556	$	(6,157)	(3)	$	29,370

(1) - Represents the sum of third-party financial guarantee net premiums earned, net investment income, insurance-related fees and reimbursements, investment management fees and other fees.

(2) - Represents intercompany premium income and expense, intercompany asset management fees and expenses, and intercompany interest income and expense pertaining to intercompany receivables and payables.

(3) - Consists of intercompany reinsurance balances, repurchase agreements and loans.

	Nine Months Ended September 30, 2012
In millions	U.S. Public Finance Insurance		Structured Finance and International Insurance		Advisory Services		Corporate		Wind-down Operations		Eliminations			Consolidated
Revenues(1)	$	419	$	194	$	16	$	10	$	44	$	-		$	683
Realized gains (losses) and other settlements on insured derivatives		-		(420)		-		-		-		-			(420)
Unrealized gains (losses) on insured derivatives		-		1,473		-		-		-		-			1,473
Net gains (losses) on financial instruments at fair value and foreign exchange		43		80		-		19		(160)		-			(18)
Net investment losses related to other-than-temporary impairments		-		(45)		-		(4)		(56)		-			(105)
Net gains (losses) on
Other net realized gains (losses)		-		1		-		6		-		-			7
Revenues of consolidated VIEs		-		23		-		-		60		-			83
Inter-segment revenues(2)		123		10		26		132		(19)		(272)			-
Total revenues		585		1,316		42		163		(131)		(272)			1,703
Losses and loss adjustment		15		315		-		-		-		-			330
Operating		112		120		38		69		4		-			343
Interest		-		99		-		43		72		-			214
Expenses of consolidated VIEs		-		46		-		-		11		-			57
Inter-segment expenses(2)		91		154		10		10		87		(352)			-
Total expenses		218		734		48		122		174		(352)			944
Income (loss) before income taxes	$	367	$	582	$	(6)	$	41	$	(305)	$	80		$	759
Identifiable assets	$	7,134	$	17,399	$	53	$	843	$	2,861	$	(6,158)	(3)	$	22,132

(1) - Represents the sum of third-party financial guarantee net premiums earned, net investment income, insurance-related fees and reimbursements, investment management fees and other fees.

(2) - Represents intercompany premium income and expense, intercompany asset management fees and expenses, and intercompany interest income and expense pertaining to intercompany receivables and payables.

(3) - Consists of intercompany reinsurance balances, repurchase agreements and loans.

	Nine Months Ended September 30, 2011
In millions	U.S. Public Finance Insurance		Structured Finance and International Insurance		Advisory Services		Corporate		Wind-down Operations		Eliminations			Consolidated
Revenues(1)	$	455	$	253	$	22	$	2	$	70	$	-		$	802
Realized gains (losses) and other settlements on insured derivatives		2		(601)		-		-		-		-			(599)
Unrealized gains (losses) on insured derivatives		-		(531)		-		-		-		-			(531)
Net gains (losses) on financial instruments at fair value and foreign exchange		24		21		-		47		(206)		-			(114)
Net investment losses related to other-than-temporary impairments		-		(4)		-		(10)		(30)		-			(44)
Net gains (losses) on extinguishment of debt		-		-		-		-		24		2			26
Other net realized gains (losses)		-		2		-		-		4		-			6
Revenues of consolidated VIEs		-		39		-		-		25		-			64
Inter-segment revenues(2)		56		55		24		66		(12)		(189)			-
Total revenues		537		(766)		46		105		(125)		(187)			(390)
Losses and loss adjustment		4		200		-		-		-		-			204
Operating		36		124		48		67		2		-			277
Interest		-		99		-		44		82		-			225
Expenses of consolidated VIEs		-		54		-		-		15		-			69
Inter-segment expenses(2)		84		91		4		11		24		(214)			-
Total expenses		124		568		52		122		123		(214)			775
Income (loss) before income taxes	$	413	$	(1,334)	$	(6)	$	(17)	$	(248)	$	27		$	(1,165)
Identifiable assets	$	8,015	$	21,251	$	53	$	652	$	5,556	$	(6,157)	(3)	$	29,370

(1) - Represents the sum of third-party financial guarantee net premiums earned, net investment income, insurance-related fees and reimbursements, investment management fees and other fees.

(2) - Represents intercompany premium income and expense, intercompany asset management fees and expenses, and intercompany interest income and expense pertaining to intercompany receivables and payables.

(3) - Consists of intercompany reinsurance balances, repurchase agreements and loans.

Summary Of Premiums Earned On Financial Guarantees And Insured Derivatives By Geographic Location Of Risk

	Three Months Ended September 30,				Nine Months Ended September 30,
In millions	2012		2011		2012		2011
Total premiums earned:
United States	$	141	$	161	$	402	$	413
United Kingdom		9		10		27		27
Europe (excluding United Kingdom)		3		4		12		25
Internationally diversified		3		9		13		27
Central and South America		8		9		40		28
Asia		2		2		4		14
Other		2		4		8		10
Total	$	168	$	199	$	506	$	544

Summary Of Segments Within Wind-Down Operations

	Three Months Ended September 30, 2012
In millions	Asset / Liability Products		Conduits		Eliminations		Total Wind- down Operations
Revenues(1)	$	9	$	-	$	-	$	9
Net gains (losses) on financial instruments at fair value and foreign exchange		(40)		-		-		(40)
Revenues of consolidated VIEs		-		20		-		20
Inter-segment revenues(2)		(1)		-		-		(1)
Total revenues		(32)		20		-		(12)
Operating		1		-		-		1
Interest		22		-		-		22
Expenses of consolidated VIEs		-		3		-		3
Inter-segment expenses(2)		3		36		-		39
Total expenses		26		39		-		65
Income (loss) before income taxes	$	(58)	$	(19)	$	-	$	(77)
Identifiable assets	$	2,219	$	693	$	(51)	$	2,861

(1) - Represents the sum of third-party interest income, investment management services fees and other fees.

(2) - Represents intercompany asset management fees and expenses plus intercompany interest income and expense pertaining to intercompany debt.

	Three Months Ended September 30, 2011
In millions	Asset / Liability Products		Conduits		Eliminations		Total Wind- down Operations
Revenues(1)	$	23	$	(2)	$	-	$	21
Net gains (losses) on financial instruments at fair value and foreign exchange		11		-		-		11
Net investment losses related to other-than-temporary impairments		(1)		-		-		(1)
Revenues of consolidated VIEs		(2)		7		-		5
Inter-segment revenues(2)		(3)		(1)		-		(4)
Total revenues		28		4		-		32
Operating		-		2		-		2
Interest		27		1		-		28
Expenses of consolidated VIEs		-		5		-		5
Inter-segment expenses(2)		9		(3)		-		6
Total expenses		36		5		-		41
Income (loss) before income taxes	$	(8)	$	(1)	$	-	$	(9)
Identifiable assets	$	3,982	$	1,574	$	-	$	5,556

(1) - Represents the sum of third-party interest income, investment management services fees and other fees.

(2) - Represents intercompany asset management fees and expenses plus intercompany interest income and expense pertaining to intercompany debt.

	Nine Months Ended September 30, 2012
In millions	Asset / Liability Products		Conduits		Eliminations		Total Wind- down Operations
Revenues(1)	$	44	$	-	$	-	$	44
Net gains (losses) on financial instruments at fair value and foreign exchange		(160)		-		-		(160)
Net investment losses related to other-than-temporary impairments		(56)		-		-		(56)
Revenues of consolidated VIEs		-		60		-		60
Inter-segment revenues(2)		(15)		(2)		(2)		(19)
Total revenues		(187)		58		(2)		(131)
Operating		4		-		-		4
Interest		72		-		-		72
Expenses of consolidated VIEs		-		11		-		11
Inter-segment expenses(2)		16		71		-		87
Total expenses		92		82		-		174
Income (loss) before income taxes	$	(279)	$	(24)	$	(2)	$	(305)
Identifiable assets	$	2,219	$	693	$	(51)	$	2,861

(1) - Represents the sum of third-party interest income, investment management services fees and other fees.

(2) - Represents intercompany asset management fees and expenses plus intercompany interest income and expense pertaining to intercompany debt.

	Nine Months Ended September 30, 2011
In millions	Asset / Liability Products		Conduits		Eliminations		Total Wind- down Operations
Revenues(1)	$	70	$	-	$	-	$	70
Net gains (losses) on financial instruments at fair value and foreign exchange		(206)		-		-		(206)
Net investment losses related to other-than-temporary impairments		(30)		-		-		(30)
Net gains (losses) on extinguishment of debt		24		-		-		24
Other net realized gains (losses)		4		-		-		4
Revenues of consolidated VIEs		10		15		-		25
Inter-segment revenues(2)		(9)		(3)		-		(12)
Total revenues		(137)		12		-		(125)
Operating		2		-		-		2
Interest		82		-		-		82
Expenses of consolidated VIEs		-		15		-		15
Inter-segment expenses(2)		25		(1)		-		24
Total expenses		109		14		-		123
Income (loss) before income taxes	$	(246)	$	(2)	$	-	$	(248)
Identifiable assets	$	3,982	$	1,574	$	-	$	5,556

(1) - Represents the sum of third-party interest income, investment management services fees and other fees.

(2) - Represents intercompany asset management fees and expenses plus intercompany interest income and expense pertaining to intercompany debt.

XML

Loss And Loss Adjustment Expense Reserves (Schedule Of Expenses Related To Remedial Actions For Insured Obligations) (Detail) (Remedial Actions For Insured Obligations [Member], USD $) In Millions, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Remedial Actions For Insured Obligations [Member]
Loss And Loss Adjustment Expense Reserves [Line Items]
Loss adjustment expense incurred, gross	$ 113	$ 76

XML

Business Segments

9 Months Ended

Sep. 30, 2012

Business Segments

Note 11: Business Segments

MBIA manages its activities through three principal business operations: U.S. public finance insurance, structured finance and international insurance, and advisory services. The Company’s U.S. public finance insurance business is operated through National, its structured finance and international insurance business is operated through MBIA Corp., and its advisory services business is operated through Cutwater. MBIA Inc. and certain of its subsidiaries also manage certain other business activities, the results of which are reported in its corporate, asset/liability products, and conduit segments. The corporate segment includes revenues and expenses that arise from general corporate activities. While the asset/liability products and conduit businesses represent separate business segments, they may be referred to collectively as “wind-down operations” as the funding programs managed through those businesses are in wind-down.

The following sections provide a description of each of the Company’s reportable operating segments:

U.S. Public Finance Insurance

The Company’s U.S. public finance insurance segment is principally conducted through National. The financial guarantees issued by National provide unconditional and irrevocable guarantees of the payment of principal of, and interest or other amounts owing on, U.S. public finance insured obligations when due. The obligations are generally not subject to acceleration, except that National may have the right, at its discretion, to accelerate insured obligations upon default or otherwise. National issues financial guarantees for municipal bonds, including tax-exempt and taxable indebtedness of U.S. political subdivisions, as well as utility districts, airports, health care institutions, higher educational facilities, student loan issuers, housing authorities and other similar agencies and obligations issued by private entities that finance projects that serve a substantial public purpose. Municipal bonds and privately issued bonds used for the financing of public purpose projects are generally supported by taxes, assessments, fees or tariffs related to the use of these projects, lease payments or other similar types of revenue streams. National has not written any meaningful amount of business since its formation in 2009.

Structured Finance and International Insurance

The Company’s structured finance and international insurance segment is principally conducted through MBIA Corp. The financial guarantees issued by MBIA Corp. generally provide unconditional and irrevocable guarantees of the payment of principal of, and interest or other amounts owing on, global structured finance and non-U.S. public finance insured obligations when due, or in the event MBIA Corp. has the right, at its discretion, to accelerate insured obligations upon default or otherwise, upon MBIA Corp.’s acceleration. Certain guaranteed investment contracts written by MBIA Inc. are insured by MBIA Corp., and if MBIA Inc. were to have insufficient assets to pay amounts due upon maturity or termination, MBIA Corp. would make such payments. MBIA Corp. also insures debt obligations of the following affiliates:

• MBIA Inc.;

• GFL;

• Meridian Funding Company, LLC;

• LaCrosse Financial Products, LLC (“LaCrosse”), a wholly-owned affiliate, in which MBIA Corp. has written insurance policies guaranteeing the obligations under CDS, including termination payments that may become due upon certain events including the insolvency or payment default by MBIA Corp. or LaCrosse.

MBIA Corp.’s guarantees insure structured finance and asset-backed obligations, privately issued bonds used for the financing of public purpose projects, which are primarily located outside of the U.S. and that include toll roads, bridges, airports, public transportation facilities, utilities and other types of infrastructure projects serving a substantial public purpose, and obligations of sovereign-related and sub-sovereign issuers. Structured finance and ABS typically are securities repayable from expected cash flows generated by a specified pool of assets, such as residential and commercial mortgages, insurance policies, consumer loans, corporate loans and bonds, trade and export receivables, leases for equipment, aircraft and real property. The Company is no longer insuring new credit derivative contracts except for transactions related to the reduction of existing derivative exposure. MBIA Corp. has not written any meaningful amount of business since 2008.

Advisory Services

The advisory services segment primarily consists of the operations of Cutwater Investor Services Corp. (“Cutwater-ISC”), Cutwater Asset Management Corp. (“Cutwater-AMC”), and Trifinium Advisors U.K. Limited (“Trifinium”). Cutwater-ISC and Cutwater-AMC offers advisory services, including cash management, discretionary asset management and structured products on a fee-for-service basis. Cutwater offers these services to public, not-for-profit, corporate and financial services clients, including MBIA Inc. and its subsidiaries, as well as portfolio accounting and reporting services. Cutwater-ISC and Cutwater-AMC are SEC registered investment advisers. Cutwater-AMC is also a Financial Industry Regulatory Authority member firm. Trifinium provides fee-based asset management services to the Company’s foreign insurance affiliate and to third-party institutional clients and investment structures. Trifinium is registered with the Financial Services Authority in the U.K.

Corporate

The Company’s corporate segment is a reportable segment and includes revenues and expenses that arise from general corporate activities, such as fees, net investment income, net gains and losses, interest expense on MBIA Inc. debt and general corporate expenses.

Wind-down Operations

The Company’s wind-down operations consist of the asset/liability products and conduit segments. The asset/liability products segment principally consists of the activities of MBIA Inc., MBIA Investment Management Corp. (“IMC”), GFL and Euro Asset Acquisition Limited (“EAAL”). IMC, along with MBIA Inc., provided customized investment agreements, guaranteed by MBIA Corp., for bond proceeds and other public funds for such purposes as construction, loan origination, escrow and debt service or other reserve fund requirements. It has also provided customized products for funds that are invested as part of asset-backed or structured product transactions. GFL raises funds through the issuance of MTNs with varying maturities, which are, in turn, guaranteed by MBIA Corp. GFL lends the proceeds of these MTN issuances to MBIA Inc. (“GFL Loans”). MBIA Inc. invests the proceeds of investment agreements and GFL Loans in eligible investments, which consisted of investment grade securities at the time of purchase with a minimum average double-A credit quality rating. MBIA Inc. primarily purchases domestic securities, which are pledged to MBIA Corp. as security for its guarantees on investment agreements and MTNs. Additionally, MBIA Inc. loans a portion of the proceeds from investment agreements and MTNs to EAAL. EAAL primarily purchases foreign assets as permitted under the Company’s investment guidelines.

The Company’s conduit segment administers one conduit through MBIA Asset Finance, LLC. Assets financed by this conduit are currently funded by MTNs.

The ratings downgrades of MBIA Corp. have resulted in a substantial reduction of funding activities and the termination and collateralization of certain investment agreements, as well as winding down of existing asset/liability products and conduit obligations.

Segments Results

The following tables provide the Company’s segment results for the three months ended September 30, 2012 and 2011:

	Three Months Ended September 30, 2012
In millions	U.S. Public Finance Insurance		Structured Finance and International Insurance		Advisory Services		Corporate		Wind-down Operations		Eliminations			Consolidated
Revenues(1)	$	149	$	59	$	5	$	3	$	9	$	-		$	225
Realized gains (losses) and other settlements on insured derivatives		-		12		-		-		-		-			12
Unrealized gains (losses) on insured derivatives		-		(33)		-		-		-		-			(33)
Net gains (losses) on financial instruments at fair value and foreign exchange		22		14		-		11		(40)		-			7
Net investment losses related to other-than-temporary impairments		-		(4)		-		(4)		-		-			(8)
Other net realized gains (losses)		-		-		-		1		-		-			1
Revenues of consolidated VIEs		-		57		-		-		20		-			77
Inter-segment revenues(2)		43		29		8		53		(1)		(132)			-
Total revenues		214		134		13		64		(12)		(132)			281
Losses and loss adjustment		4		167		-		-		-		-			171
Operating		14		29		12		24		1		-			80
Interest		-		33		-		14		22		-			69
Expenses of consolidated VIEs		-		15		-		-		3		-			18
Inter-segment expenses(2)		32		54		3		4		39		(132)			-
Total expenses		50		298		15		42		65		(132)			338
Income (loss) before income taxes	$	164	$	(164)	$	(2)	$	22	$	(77)	$	-		$	(57)
Identifiable assets	$	7,134	$	17,399	$	53	$	843	$	2,861	$	(6,158)	(3)	$	22,132

(1) - Represents the sum of third-party financial guarantee net premiums earned, net investment income, insurance-related fees and reimbursements, investment management fees and other fees.

(2) - Represents intercompany premium income and expense, intercompany asset management fees and expenses, and intercompany interest income and expense pertaining to intercompany receivables and payables.

(3) - Consists of intercompany reinsurance balances, repurchase agreements and loans.

	Three Months Ended September 30, 2011
In millions	U.S. Public Finance Insurance		Structured Finance and International Insurance		Advisory Services		Corporate		Wind-down Operations		Eliminations			Consolidated
Revenues(1)	$	181	$	72	$	9	$	1	$	21	$	-		$	284
Realized gains (losses) and other settlements on insured derivatives		-		(53)		-		-		-		-			(53)
Unrealized gains (losses) on insured derivatives		-		776		-		-		-		-			776
Net gains (losses) on financial instruments at fair value and foreign exchange		6		(12)		-		8		11		-			13
Net investment losses related to other-than-temporary impairments		-		-		-		(10)		(1)		-			(11)
Other net realized gains (losses)		-		1		-		-		-		-			1
Revenues of consolidated VIEs		-		105		-		-		5		-			110
Inter-segment revenues(2)		21		25		5		22		(4)		(69)			-
Total revenues		208		914		14		21		32		(69)			1,120
Losses and loss adjustment		10		180		-		-		-		-			190
Operating		10		38		14		24		2		-			88
Interest		-		33		-		14		28		-			75
Expenses of consolidated VIEs		-		17		-		-		5		-			22
Inter-segment expenses(2)		31		33		1		4		6		(75)			-
Total expenses		51		301		15		42		41		(75)			375
Income (loss) before income taxes	$	157	$	613	$	(1)	$	(21)	$	(9)	$	6		$	745
Identifiable assets	$	8,015	$	21,251	$	53	$	652	$	5,556	$	(6,157)	(3)	$	29,370

(1) - Represents the sum of third-party financial guarantee net premiums earned, net investment income, insurance-related fees and reimbursements, investment management fees and other fees.

(2) - Represents intercompany premium income and expense, intercompany asset management fees and expenses, and intercompany interest income and expense pertaining to intercompany receivables and payables.

(3) - Consists of intercompany reinsurance balances, repurchase agreements and loans.

The following tables provide the Company’s segment results for the nine months ended September 30, 2012 and 2011:

	Nine Months Ended September 30, 2012
In millions	U.S. Public Finance Insurance		Structured Finance and International Insurance		Advisory Services		Corporate		Wind-down Operations		Eliminations			Consolidated
Revenues(1)	$	419	$	194	$	16	$	10	$	44	$	-		$	683
Realized gains (losses) and other settlements on insured derivatives		-		(420)		-		-		-		-			(420)
Unrealized gains (losses) on insured derivatives		-		1,473		-		-		-		-			1,473
Net gains (losses) on financial instruments at fair value and foreign exchange		43		80		-		19		(160)		-			(18)
Net investment losses related to other-than-temporary impairments		-		(45)		-		(4)		(56)		-			(105)
Net gains (losses) on
Other net realized gains (losses)		-		1		-		6		-		-			7
Revenues of consolidated VIEs		-		23		-		-		60		-			83
Inter-segment revenues(2)		123		10		26		132		(19)		(272)			-
Total revenues		585		1,316		42		163		(131)		(272)			1,703
Losses and loss adjustment		15		315		-		-		-		-			330
Operating		112		120		38		69		4		-			343
Interest		-		99		-		43		72		-			214
Expenses of consolidated VIEs		-		46		-		-		11		-			57
Inter-segment expenses(2)		91		154		10		10		87		(352)			-
Total expenses		218		734		48		122		174		(352)			944
Income (loss) before income taxes	$	367	$	582	$	(6)	$	41	$	(305)	$	80		$	759
Identifiable assets	$	7,134	$	17,399	$	53	$	843	$	2,861	$	(6,158)	(3)	$	22,132

(1) - Represents the sum of third-party financial guarantee net premiums earned, net investment income, insurance-related fees and reimbursements, investment management fees and other fees.

(2) - Represents intercompany premium income and expense, intercompany asset management fees and expenses, and intercompany interest income and expense pertaining to intercompany receivables and payables.

(3) - Consists of intercompany reinsurance balances, repurchase agreements and loans.

	Nine Months Ended September 30, 2011
In millions	U.S. Public Finance Insurance		Structured Finance and International Insurance		Advisory Services		Corporate		Wind-down Operations		Eliminations			Consolidated
Revenues(1)	$	455	$	253	$	22	$	2	$	70	$	-		$	802
Realized gains (losses) and other settlements on insured derivatives		2		(601)		-		-		-		-			(599)
Unrealized gains (losses) on insured derivatives		-		(531)		-		-		-		-			(531)
Net gains (losses) on financial instruments at fair value and foreign exchange		24		21		-		47		(206)		-			(114)
Net investment losses related to other-than-temporary impairments		-		(4)		-		(10)		(30)		-			(44)
Net gains (losses) on extinguishment of debt		-		-		-		-		24		2			26
Other net realized gains (losses)		-		2		-		-		4		-			6
Revenues of consolidated VIEs		-		39		-		-		25		-			64
Inter-segment revenues(2)		56		55		24		66		(12)		(189)			-
Total revenues		537		(766)		46		105		(125)		(187)			(390)
Losses and loss adjustment		4		200		-		-		-		-			204
Operating		36		124		48		67		2		-			277
Interest		-		99		-		44		82		-			225
Expenses of consolidated VIEs		-		54		-		-		15		-			69
Inter-segment expenses(2)		84		91		4		11		24		(214)			-
Total expenses		124		568		52		122		123		(214)			775
Income (loss) before income taxes	$	413	$	(1,334)	$	(6)	$	(17)	$	(248)	$	27		$	(1,165)
Identifiable assets	$	8,015	$	21,251	$	53	$	652	$	5,556	$	(6,157)	(3)	$	29,370

(1) - Represents the sum of third-party financial guarantee net premiums earned, net investment income, insurance-related fees and reimbursements, investment management fees and other fees.

(2) - Represents intercompany premium income and expense, intercompany asset management fees and expenses, and intercompany interest income and expense pertaining to intercompany receivables and payables.

(3) - Consists of intercompany reinsurance balances, repurchase agreements and loans.

Premiums on financial guarantees and insured derivatives reported within the Company’s insurance segments are generated within and outside the U.S. The following table summarizes premiums earned on financial guarantees and insured derivatives by geographic location of risk for the three and nine months ended September 30, 2012 and 2011:

	Three Months Ended September 30,				Nine Months Ended September 30,
In millions	2012		2011		2012		2011
Total premiums earned:
United States	$	141	$	161	$	402	$	413
United Kingdom		9		10		27		27
Europe (excluding United Kingdom)		3		4		12		25
Internationally diversified		3		9		13		27
Central and South America		8		9		40		28
Asia		2		2		4		14
Other		2		4		8		10
Total	$	168	$	199	$	506	$	544

The following tables provide the results of the segments within the wind-down operations for the three months ended September 30, 2012 and 2011:

	Three Months Ended September 30, 2012
In millions	Asset / Liability Products		Conduits		Eliminations		Total Wind- down Operations
Revenues(1)	$	9	$	-	$	-	$	9
Net gains (losses) on financial instruments at fair value and foreign exchange		(40)		-		-		(40)
Revenues of consolidated VIEs		-		20		-		20
Inter-segment revenues(2)		(1)		-		-		(1)
Total revenues		(32)		20		-		(12)
Operating		1		-		-		1
Interest		22		-		-		22
Expenses of consolidated VIEs		-		3		-		3
Inter-segment expenses(2)		3		36		-		39
Total expenses		26		39		-		65
Income (loss) before income taxes	$	(58)	$	(19)	$	-	$	(77)
Identifiable assets	$	2,219	$	693	$	(51)	$	2,861

(1) - Represents the sum of third-party interest income, investment management services fees and other fees.

(2) - Represents intercompany asset management fees and expenses plus intercompany interest income and expense pertaining to intercompany debt.

	Three Months Ended September 30, 2011
In millions	Asset / Liability Products		Conduits		Eliminations		Total Wind- down Operations
Revenues(1)	$	23	$	(2)	$	-	$	21
Net gains (losses) on financial instruments at fair value and foreign exchange		11		-		-		11
Net investment losses related to other-than-temporary impairments		(1)		-		-		(1)
Revenues of consolidated VIEs		(2)		7		-		5
Inter-segment revenues(2)		(3)		(1)		-		(4)
Total revenues		28		4		-		32
Operating		-		2		-		2
Interest		27		1		-		28
Expenses of consolidated VIEs		-		5		-		5
Inter-segment expenses(2)		9		(3)		-		6
Total expenses		36		5		-		41
Income (loss) before income taxes	$	(8)	$	(1)	$	-	$	(9)
Identifiable assets	$	3,982	$	1,574	$	-	$	5,556

(1) - Represents the sum of third-party interest income, investment management services fees and other fees.

(2) - Represents intercompany asset management fees and expenses plus intercompany interest income and expense pertaining to intercompany debt.

The following tables provide the results of the segments within the wind-down operations for the nine months ended September 30, 2012 and 2011:

	Nine Months Ended September 30, 2012
In millions	Asset / Liability Products		Conduits		Eliminations		Total Wind- down Operations
Revenues(1)	$	44	$	-	$	-	$	44
Net gains (losses) on financial instruments at fair value and foreign exchange		(160)		-		-		(160)
Net investment losses related to other-than-temporary impairments		(56)		-		-		(56)
Revenues of consolidated VIEs		-		60		-		60
Inter-segment revenues(2)		(15)		(2)		(2)		(19)
Total revenues		(187)		58		(2)		(131)
Operating		4		-		-		4
Interest		72		-		-		72
Expenses of consolidated VIEs		-		11		-		11
Inter-segment expenses(2)		16		71		-		87
Total expenses		92		82		-		174
Income (loss) before income taxes	$	(279)	$	(24)	$	(2)	$	(305)
Identifiable assets	$	2,219	$	693	$	(51)	$	2,861

(1) - Represents the sum of third-party interest income, investment management services fees and other fees.

(2) - Represents intercompany asset management fees and expenses plus intercompany interest income and expense pertaining to intercompany debt.

	Nine Months Ended September 30, 2011
In millions	Asset / Liability Products		Conduits		Eliminations		Total Wind- down Operations
Revenues(1)	$	70	$	-	$	-	$	70
Net gains (losses) on financial instruments at fair value and foreign exchange		(206)		-		-		(206)
Net investment losses related to other-than-temporary impairments		(30)		-		-		(30)
Net gains (losses) on extinguishment of debt		24		-		-		24
Other net realized gains (losses)		4		-		-		4
Revenues of consolidated VIEs		10		15		-		25
Inter-segment revenues(2)		(9)		(3)		-		(12)
Total revenues		(137)		12		-		(125)
Operating		2		-		-		2
Interest		82		-		-		82
Expenses of consolidated VIEs		-		15		-		15
Inter-segment expenses(2)		25		(1)		-		24
Total expenses		109		14		-		123
Income (loss) before income taxes	$	(246)	$	(2)	$	-	$	(248)
Identifiable assets	$	3,982	$	1,574	$	-	$	5,556

(1) - Represents the sum of third-party interest income, investment management services fees and other fees.

(2) - Represents intercompany asset management fees and expenses plus intercompany interest income and expense pertaining to intercompany debt.

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Business Developments, Risks And Uncertainties, And Liquidity (Tables)

9 Months Ended

Sep. 30, 2012

Change In Credit Spreads (Asset/Liability Products Business)

	Change in Credit Spreads (Asset/Liability Products Business)
In millions	200 Basis Point Decrease		50 Basis Point Decrease		50 Basis Point Increase		200 Basis Point Increase
Estimated change in fair value	$	149	$	41	$	(37)	$	(130)

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Loss And Loss Adjustment Expense Reserves (Schedule Of Insurance Loss Recoverable And Changes In Recoveries On Unpaid Losses) (Detail) (USD $) In Millions, unless otherwise specified			9 Months Ended
	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2012 Insurance Loss Recoverable And Changes In Recoveries On Unpaid Losses [Member]	Sep. 30, 2012 Insurance Loss Recoverable And Changes In Recoveries On Unpaid Losses [Member] Insurance Claim Loss Recoverable [Member]	Sep. 30, 2012 Insurance Loss Recoverable And Changes In Recoveries On Unpaid Losses [Member] Recorded Recoveries [Member]
Loss And Loss Adjustment Expense Reserves [Line Items]
Collections for Cases with Recoveries			$ (6)	$ (6)
Accretion of Recoveries			36	30	6
Changes in Discount Rates			27	8	19
Changes in Timing of Collections
Changes in Amount of Collections			(149)	(149)
Changes in Assumptions			181	366	(185)
Changes in LAE Recoveries			14	21	(7)
Gross Reserve beginning balance, Insurance loss recoverable	3,316	3,046
Gross Reserve beginning balance, Recoveries on unpaid losses	395	562
Gross Reserve beginning balance, Total	3,711	3,608
Gross Reserve ending balance, Insurance loss recoverable	3,316	3,046
Gross Reserve ending balance, Recoveries on unpaid losses	395	562
Gross Reserve ending balance, Total	$ 3,711	$ 3,608

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Loss And Loss Adjustment Expense Reserves (RMBS Reserves) (Narrative) (Detail) (USD $)	1 Months Ended					9 Months Ended
	Aug. 31, 2012	Sep. 30, 2012	Sep. 30, 2012 September 2012 to February 2013 [Member] Scenario, Forecast [Member]	Sep. 30, 2012 September 2012 to February 2013 [Member] Linear reduction in original value [Member] Scenario, Forecast [Member]	Sep. 30, 2012 November 2012 To March 31,2014 [Member]	Sep. 30, 2012 RMBS And HELOC And CES [Member]	Sep. 30, 2012 RMBS And HELOC And CES [Member] September 2012 to March 2013 [Member] M	Sep. 30, 2012 RMBS And HELOC And CES [Member] September 2012 to February 2013 [Member] Scenario, Forecast [Member] M	Sep. 30, 2012 First-Lien RMBS Reserves [Member] D	Sep. 30, 2012 First-Lien RMBS Reserves [Member] Alt-A [Member]	Sep. 30, 2012 First-Lien RMBS Reserves [Member] Foreclosure [Member]	Sep. 30, 2012 First-Lien RMBS Reserves [Member] Real Estate Owned [Member]	Sep. 30, 2012 First-Lien RMBS Reserves [Member] Bankruptcy [Member]	Sep. 30, 2012 First-Lien RMBS Reserves [Member] September 2012 to February 2013 [Member] Scenario, Forecast [Member]
Loss And Loss Adjustment Expense Reserves [Line Items]
Charged-off loans recovery values		$ 0
Assumed roll rate for ninety plus day delinquent loans						95.00%
Period of elevated delinquency and loss, beginning, months							6
Percentage of loans in 30-59 days delinquent bucket	10.00%
Percentage of loans charged-off	30.00%
Percentage of Current Roll to Loss for the transaction	3.00%
Decrease in percentage of Current Roll to Loss for transaction			25.00%	0.75%										25.00%
Current Roll to Loss					0.00%
Period of elevated delinquency and loss for stress case, additional months								6
Addition to case basis reserves before considering potential recoveries						125,000,000
Delinquency period charged off on transaction specific basis, days									90
Assumed roll rate for loans											90.00%	90.00%	75.00%
90+ day roll rate to loss set									90.00%
Percentage of loss after declining over a 24-month period										25.00%
Change in recoveries of actual and expected payments related to ineligible mortgages						$ 154,000,000

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Consolidated Statements Of Operations (Parenthetical) (Non Variable Interest Entities [Member], USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Non Variable Interest Entities [Member]
Premiums earned, ceded premiums	$ 3	$ 3	$ 12	$ 9

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Consolidated Statements Of Cash Flows (USD $) In Millions, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Cash flows from operating activities:
Premiums, fees and reimbursements received	$ 223	$ 278
Investment income received	459	499
Insured derivative losses and commutations paid	(463)	(683)
Financial guarantee losses and loss adjustment expenses paid	(620)	(778)
Proceeds from reinsurance and recoveries	131	144
Operating and employee related expenses paid	(300)	(244)
Interest paid	(377)	(470)
Income taxes (paid) received	(8)	54
Net cash provided (used) by operating activities	(955)	(1,200)
Cash flows from investing activities:
Purchase of fixed-maturity securities	(2,032)	(5,590)
Sale and redemption of fixed-maturity securities	4,283	7,096
Proceeds from paydowns on variable interest entity loans	203	223
Redemptions of held-to-maturity investments	828	153
Sale (purchase) of short-term investments, net	335	968
Sale (purchase) of other investments, net	109	26
Consolidation (deconsolidation) of variable interest entities, net	(51)	(16)
(Payments) proceeds for derivative settlements	(266)	(66)
Collateral (to) from swap counterparty	(298)
Capital expenditures	(5)	(3)
Net cash provided (used) by investing activities	3,106	2,791
Cash flows from financing activities:
Proceeds from issuance of investment agreements	52	89
Payments for drawdowns of investment agreements	(629)	(453)
Issuance of medium-term notes	18	17
Principal paydowns of medium-term notes	(74)	(107)
Principal paydowns of variable interest entity notes	(1,059)	(829)
Payments for securities sold under agreements to repurchase	(287)	(84)
Payments for retirement of debt	(364)	(72)
Purchase of treasury stock		(50)
Contribution from noncontrolling interest and redemption of subsidiary preferred stock, net	(1)	9
Restricted stock awards settlements, net	1	(2)
Net cash provided (used) by financing activities	(2,343)	(1,482)
Net increase (decrease) in cash and cash equivalents	(192)	109
Cash and cash equivalents-beginning of period	633	1,130
Cash and cash equivalents-end of period	441	1,239
Reconciliation of net income (loss) to net cash provided (used) by operating activities:
Net income (loss)	598	(693)
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:
Premiums receivable	98	182
Deferred acquisition costs	35	48
Unearned premium revenue	(443)	(495)
Loss and loss adjustment expense reserves	109	(198)
Insurance loss recoverable	(270)	(239)
Current income taxes	(11)	74
Net investment losses related to other-than-temporary impairments	105	44
Unrealized (gains) losses on insured derivatives	(1,473)	531
Net (gains) losses on financial instruments at fair value and foreign exchange	35	111
Deferred income tax provision (benefit)	163	(497)
(Gains) losses on extinguishment of debt	(49)	(26)
Other operating	148	(42)
Total adjustments to net income (loss)	(1,553)	(507)
Net cash provided (used) by operating activities	$ (955)	$ (1,200)

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Fair Value Of Financial Instruments (Changes In Fair Value Included In Company's Consolidated Statements Of Operations) (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Loan Repurchase Commitments [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Net gains (losses) on financial instruments at fair value and foreign exchange	$ 19	$ 33	$ 62	$ 103
Fixed-Maturity Securities Held At Fair Value [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Net gains (losses) on financial instruments at fair value and foreign exchange	21	(286)	(36)	(338)
Residential Mortgage Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Net gains (losses) on financial instruments at fair value and foreign exchange	(4)	(65)	(103)	65
Other Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Net gains (losses) on financial instruments at fair value and foreign exchange	(7)	(37)	(48)	(30)
Other Assets [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Net gains (losses) on financial instruments at fair value and foreign exchange		(162)		(184)
Long-term Debt [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Net gains (losses) on financial instruments at fair value and foreign exchange	$ 12	$ 481	$ 140	$ 367

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Income Taxes (Change In Unrecognized Tax Benefits ("UTB") And Related Interest And Penalties To Income Tax) (Detail) (USD $) In Millions, unless otherwise specified	9 Months Ended
	Sep. 30, 2012
Unrecognized tax benefit, Beginning balance	$ 47
The gross amount of the increase/(decrease) in the UTB as a result of tax positions taken: During a prior year
The gross amount of the increase/(decrease) in the UTB as a result of tax positions taken: During the current year	18
The amounts of decreases in the UTB related to settlements with taxing authorities	(25)
The reduction in the UTB as a result of the applicable statute of limitations
Unrecognized tax benefit, Ending balance	$ 40

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Investments (Investment Securities Whose Book Value Exceeded Market Value By More Than 5%) (Detail) (USD $) In Millions, unless otherwise specified	Sep. 30, 2012 Security
Five Percent To Less Than Sixteen Percent [Member]
Schedule of Investments [Line Items]
Number of Securities	35
Book Value	$ 279
Fair Value	250
Percentage Book Value Exceeded Market Value, Minimum	5.00%
Percentage Book Value Exceeded Market Value, Maximum	16.00%
Sixteen Percent To Less Than Twenty Six Percent [Member]
Schedule of Investments [Line Items]
Number of Securities	23
Book Value	791
Fair Value	621
Percentage Book Value Exceeded Market Value, Minimum	16.00%
Percentage Book Value Exceeded Market Value, Maximum	26.00%
26% To 50% [Member]
Schedule of Investments [Line Items]
Number of Securities	34
Book Value	120
Fair Value	75
Percentage Book Value Exceeded Market Value, Minimum	26.00%
Percentage Book Value Exceeded Market Value, Maximum	50.00%
Greater Than 50% [Member]
Schedule of Investments [Line Items]
Number of Securities	26
Book Value	87
Fair Value	18
Percentage Book Value Exceeded Market Value, Maximum	50.00%
Greater Than 5% [Member]
Schedule of Investments [Line Items]
Number of Securities	118
Book Value	1,277
Fair Value	$ 964

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Variable Interest Entities (Tables)

9 Months Ended

Sep. 30, 2012

Summary Of Nonconsolidated VIEs Assets And Liabilities

	September 30, 2012
					Carrying Value of Assets						Carrying Value of Liabilities
In millions	VIE Assets		Maximum Exposure to Loss		Investments(1)		Premiums Receivable(2)		Insurance Loss Recoverable(3)		Unearned Premium Revenue(4)		Loss and Loss Adjustment Expense Reserves(5)		Derivative Liabilities(6)
Insurance:
Global structured finance:
Collateralized debt obligations	$	17,552	$	11,053	$	-	$	67	$	3	$	59	$	78	$	85
Mortgage-backed residential		36,464		13,578		9		75		2,967		73		485		4
Mortgage-backed commercial		4,751		2,456		-		2		-		2		-		-
Consumer asset-backed		6,372		3,390		11		20		-		20		16		-
Corporate asset-backed		22,006		11,261		-		144		21		159		-		1
Total global structured finance		87,145		41,738		20		308		2,991		313		579		90
Global public finance		46,795		21,578		-		216		-		268		-		-
Total insurance	$	133,940	$	63,316	$	20	$	524	$	2,991	$	581	$	579	$	90

(1) - Reported within “Investments” on MBIA’s consolidated balance sheets.

(2) - Reported within “Premiums receivable” on MBIA’s consolidated balance sheets.

(3) - Reported within “Insurance loss recoverable” on MBIA’s consolidated balance sheets.

(4) - Reported within “Unearned premium revenue” on MBIA’s consolidated balance sheets.

(5) - Reported within “Loss and loss adjustment expense reserves” on MBIA’s consolidated balance sheets.

(6) - Reported within “Derivative liabilities” on MBIA’s consolidated balance sheets.

	December 31, 2011
					Carrying Value of Assets						Carrying Value of Liabilities
In millions	VIE Assets		Maximum Exposure to Loss		Investments(1)		Premiums Receivable(2)		Insurance Loss Recoverable(3)		Unearned Premium Revenue(4)		Loss and Loss Adjustment Expense Reserves(5)		Derivative Liabilities(6)
Insurance:
Global structured finance:
Collateralized debt obligations	$	26,507	$	15,466	$	42	$	67	$	-	$	58	$	3	$	113
Mortgage-backed residential		47,669		16,379		25		87		2,773		86		428		5
Mortgage-backed commercial		5,001		2,644		-		2		-		2		-		-
Consumer asset-backed		8,015		4,563		16		26		-		25		23		-
Corporate asset-backed		29,855		15,577		241		192		22		205		-		1
Total global structured finance		117,047		54,629		324		374		2,795		376		454		119
Global public finance		42,106		21,774		-		215		-		270		-		-
Total insurance	$	159,153	$	76,403	$	324	$	589	$	2,795	$	646	$	454	$	119

(1) - Reported within “Investments” on MBIA’s consolidated balance sheets.

(2) - Reported within “Premiums receivable” on MBIA’s consolidated balance sheets.

(3) - Reported within “Insurance loss recoverable” on MBIA’s consolidated balance sheets.

(4) - Reported within “Unearned premium revenue” on MBIA’s consolidated balance sheets.

(5) - Reported within “Loss and loss adjustment expense reserves” on MBIA’s consolidated balance sheets.

(6) - Reported within “Derivative liabilities” on MBIA’s consolidated balance sheets.

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Investment Income And Gains And Losses (Net Unrealized Gains (Losses), Including Portion Of Other-Than-Temporary Impairments Included In Accumulated Other Comprehensive Income (Loss), Reported Within Shareholders Equity) (Detail) (USD $) In Millions, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Schedule of Investments [Line Items]
Total	$ 163	$ (220)
Deferred income tax provision (benefit)	35	(86)
Unrealized gains (losses), net	128	(134)
Fixed-Maturity Investments [Member]
Schedule of Investments [Line Items]
Gains	337	262
Losses	(191)	(459)
Foreign exchange	17	(5)
Net	163	(202)
Other Investments [Member]
Schedule of Investments [Line Items]
Gains		1
Losses		(19)
Net		$ (18)

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Variable Interest Entities (Summary Of Nonconsolidated VIEs Assets And Liabilities) (Detail) (USD $) In Millions, unless otherwise specified	Sep. 30, 2012		Dec. 31, 2011
Variable Interest Entity [Line Items]
Insurance Loss Recoverable	$ 3,316		$ 3,046
Collateralized Debt Obligations [Member]
Variable Interest Entity [Line Items]
VIE Assets	17,552		26,507
Maximum Exposure to Loss	11,053		15,466
Investments			42	[1]
Premiums receivable	67	[2]	67	[2]
Insurance Loss Recoverable	3	[3]
Unearned premium revenue	59	[4]	58	[4]
Loss and Loss Adjustment Expense Reserves	78	[5]	3	[5]
Derivative liabilities	85	[6]	113	[6]
Residential Mortgage-Backed Agency [Member]
Variable Interest Entity [Line Items]
VIE Assets	36,464		47,669
Maximum Exposure to Loss	13,578		16,379
Investments	9	[1]	25	[1]
Premiums receivable	75	[2]	87	[2]
Insurance Loss Recoverable	2,967	[3]	2,773	[3]
Unearned premium revenue	73	[4]	86	[4]
Loss and Loss Adjustment Expense Reserves	485	[5]	428	[5]
Derivative liabilities	4	[6]	5	[6]
Commercial Mortgage-Backed [Member]
Variable Interest Entity [Line Items]
VIE Assets	4,751		5,001
Maximum Exposure to Loss	2,456		2,644
Premiums receivable	2	[2]	2	[2]
Unearned premium revenue	2	[4]	2	[4]
Consumer Asset-Backed [Member]
Variable Interest Entity [Line Items]
VIE Assets	6,372		8,015
Maximum Exposure to Loss	3,390		4,563
Investments	11	[1]	16	[1]
Premiums receivable	20	[2]	26	[2]
Unearned premium revenue	20	[4]	25	[4]
Loss and Loss Adjustment Expense Reserves	16	[5]	23	[5]
Corporate Asset-Backed [Member]
Variable Interest Entity [Line Items]
VIE Assets	22,006		29,855
Maximum Exposure to Loss	11,261		15,577
Investments			241	[1]
Premiums receivable	144	[2]	192	[2]
Insurance Loss Recoverable	21	[3]	22	[3]
Unearned premium revenue	159	[4]	205	[4]
Derivative liabilities	1	[6]	1	[6]
Total Global Structured Finance [Member]
Variable Interest Entity [Line Items]
VIE Assets	87,145		117,047
Maximum Exposure to Loss	41,738		54,629
Investments	20	[1]	324	[1]
Premiums receivable	308	[2]	374	[2]
Insurance Loss Recoverable	2,991	[3]	2,795	[3]
Unearned premium revenue	313	[4]	376	[4]
Loss and Loss Adjustment Expense Reserves	579	[5]	454	[5]
Derivative liabilities	90	[6]	119	[6]
Global Public Finance [Member]
Variable Interest Entity [Line Items]
VIE Assets	46,795		42,106
Maximum Exposure to Loss	21,578		21,774
Premiums receivable	216	[2]	215	[2]
Unearned premium revenue	268	[4]	270	[4]
Total Insurance [Member]
Variable Interest Entity [Line Items]
VIE Assets	133,940		159,153
Maximum Exposure to Loss	63,316		76,403
Investments	20	[1]	324	[1]
Premiums receivable	524	[2]	589	[2]
Insurance Loss Recoverable	2,991	[3]	2,795	[3]
Unearned premium revenue	581	[4]	646	[4]
Loss and Loss Adjustment Expense Reserves	579	[5]	454	[5]
Derivative liabilities	$ 90	[6]	$ 119	[6]

[1] Reported within "Investments" on MBIA's consolidated balance sheets.

[2] Reported within "Premiums receivable" on MBIA's consolidated balance sheets.

[3] Reported within "Insurance loss recoverable" on MBIA's consolidated balance sheets.

[4] Reported within "Unearned premium revenue" on MBIA's consolidated balance sheets.

[5] Reported within "Loss and loss adjustment expense reserves" on MBIA's consolidated balance sheets.

[6] Reported within "Derivative liabilities" on MBIA's consolidated balance sheets.

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Income Taxes

9 Months Ended

Sep. 30, 2012

Income Taxes

Note 10: Income Taxes

The Company’s income taxes and the related effective tax rates for the three and nine months ended September 30, 2012 and 2011 are as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
In millions	2012		2011		2012		2011
Income (loss) before income taxes	$	(57)	$	745	$	759	$	(1,165)
Provision (benefit) for income taxes	$	(64)	$	301	$	161	$	(472)
Effective tax rate		112.3%		40.4%		21.2%		40.5%

For the nine months ended September 30, 2012, the Company’s effective tax rate applied to its income before income taxes was lower than the U.S. statutory tax rate primarily as a result of the decrease in the valuation allowance, the release of a portion of the reserve for uncertain tax benefits and the benefit of tax-exempt interest income from investments. For the nine months ended September 30, 2011, the Company’s effective tax rate applied to its loss before income taxes was higher than the U.S. statutory tax rate as a result of the Company’s tax-exempt interest income from investments, income earned in non-U.S. jurisdictions, which is being taxed at less than 35%, and a reduction in the valuation allowance.

For interim reporting purposes, the Company has calculated its effective tax rate for the full year of 2012 by adjusting annual forecasted pre-tax income for mark-to-market income, fair value adjustments, capital gains/losses, and other adjustments, when projecting its full year effective tax rate. The Company has accounted for these items at the federal applicable tax rate after applying the projected full year effective tax rate to actual nine-month results before discrete items.

Deferred Tax Asset, Net of Valuation Allowance

The Company establishes a valuation allowance against its deferred tax asset when it is more likely than not that all or a portion of the deferred tax asset will not be realized. All evidence, both positive and negative, needs to be identified and considered in making the determination. Future realization of the existing deferred tax asset ultimately depends, in part, on the existence of sufficient taxable income of appropriate character (for example, ordinary income versus capital gains) within the carryforward period available under the tax law.

As of September 30, 2012, the Company reported a net deferred tax asset of $1.4 billion. The $1.4 billion net deferred tax asset is net of a $167 million valuation allowance. As of September 30, 2012, the Company had a valuation allowance against a portion of the deferred tax asset related to losses from asset impairments as these losses are considered capital losses, have a five-year carryforward period, once recognized, can only offset capital gain income. The September 30, 2012 valuation allowance reflects a decrease of $69 million from the December 31, 2011 valuation allowance of $236 million. The decrease in the valuation allowance for the nine months ended September 30, 2012 was primarily due to the generation of capital gain income and the use of a tax planning strategy.

The Company has concluded that it is more likely than not that its net deferred tax asset will be realized. In its conclusion, the Company considered the following evidence (both positive and negative):

• Due to the long-tail nature of the financial guarantee business, MBIA Inc.’s insurance subsidiaries, without regard to any new business, will have a steady stream of scheduled premium earnings with respect to the existing insured portfolio. Additionally, MBIA Corp.’s announcement in February 2008 of a temporary suspension in writing new structured finance transactions and a permanent cessation with respect to insuring new CDS contracts, except in transactions related to the reduction of existing derivative exposure, would not have an impact on the expected earnings related to the existing insured portfolio.

• The Company performed taxable income projections over a fifteen and twenty year period to determine whether it will have sufficient income to offset its deferred tax asset that will generate future ordinary deductions. In this analysis, the Company concluded that premium earnings, even without regard to any new business, combined with investment income, less deductible expenses, will be sufficient to recover its net deferred tax asset. The Company’s taxable income projections used to assess the recoverability of its deferred tax asset include an estimate of future loss and LAE equal to the present value discount of loss reserves already recognized on the balance sheet and an estimate of LAE which is generally insignificant. The Company does not assume additional losses, with the exception of the accretion of its existing present value loss reserves, because the Company establishes case basis reserves on a present value basis based on an estimate of probable losses on specifically identified credits that have defaulted or are expected to default.

• While the ratings downgrades by the rating agencies have significantly adversely impacted the Company’s ability to write new insurance business, the downgrades did not have a material impact on earnings from the existing insured portfolio, which the Company believes will be sufficient to absorb losses in the event that the cumulative unrealized losses become fully impaired.

• With respect to installment policies, the Company generally does not have an automatic cancellation provision solely in connection with ratings downgrades. For purposes of projecting future taxable income, the Company has applied a discount to adjust for the possible cancellation of future installment premiums based on recent data. With regard to upfront policies, to the extent that the issuer chooses to terminate a policy, any unearned premium reserve with respect to that policy will be accelerated into earnings (i.e. refundings).

After reviewing all of the evidence available, both positive and negative, MBIA believes that it has appropriately valued the recoverability of its deferred tax assets, net of the valuation allowance, as of September 30, 2012. The Company continues to assess the adequacy of its valuation allowance as additional evidence becomes available. The Company’s recent financial results have been volatile which has impacted management’s ability to accurately project future taxable income. Continued volatility or losses beyond those projected may cause the Company to conclude that certain of the deferred tax assets within the total deferred tax assets of $1.4 billion as of September 30, 2012 may not be realizable. The Company performs an analysis every quarter to review its conclusion as to the ability to realize the deferred tax asset.

Accounting for Uncertainty in Income Taxes

It is the Company’s policy to record and disclose any change in unrecognized tax benefits (“UTB”) and related interest and penalties to income tax in the consolidated statements of operations. In the first nine months of 2012, the total amount of UTB decreased as a result of settling the 2004-2009 Internal Revenue Service (“IRS”) examination and the 2005-2007 New York State examination, partially offset by a reserve for current year tax positions.

In millions
Unrecognized tax benefit as of December 31, 2011	$	47
The gross amount of the increase/(decrease) in the UTB as a result of tax positions taken:
During a prior year		-
During the current year		18
The amounts of decreases in the UTB related to settlements with taxing authorities		(25)
The reduction in the UTB as a result of the applicable statute of limitations		-
Unrecognized tax benefit as of September 30, 2012	$	40

MBIA’s major tax jurisdictions include the U.S. and the United Kingdom (“U.K.”). MBIA and its U.S. subsidiaries file a U.S. consolidated federal income tax return. The IRS has concluded its field work with respect to the examination of tax years 2004 through 2009 and on January 12, 2012, the Joint Committee on Taxation notified the Company that the results of the IRS field examination were reviewed and accepted.

The U.K. tax authorities are currently auditing tax years 2005 through 2009.

After filing the 2011 federal income tax return, the Company had a 2008 capital loss carryforward of $153 million which will expire in 2013, a NOL carryforward of $1.3 billion, which will expire from tax years 2029 through 2031, and a minimum tax credit carryforward of $22 million, which has an unlimited carryforward period.