FORWARD-LOOKING AND CAUTIONARY STATEMENTS

This quarterly report of MBIA Inc. ("MBIA", the "Company" or "we") includes statements that are not historical or current facts and are "forward-looking statements" made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The words "believe," "anticipate," "project," "plan," "expect," "intend," "will likely result," "looking forward" or "will continue," and similar expressions identify forward-looking statements. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. MBIA cautions readers not to place undue reliance on any such forward-looking statements, which speak only to their respective dates. The Company undertakes no obligation to publicly correct or update any forward-looking statement if it 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:

• 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 residential mortgage-backed securities ("RMBS") and collateralized debt obligations ("CDOs");

• significant fluctuations in liquidity and asset values within the global credit markets;

• our ability to fully implement our Strategic Plan, including our ability to achieve our ratings targets for our ratings-sensitive businesses;

• further changes in the Company's credit ratings;

• further deterioration in the economic environment and financial markets in the United States or abroad, particularly with regard to credit spreads, interest rates and foreign currency levels;

• competitive conditions for bond insurance, including potential entry into the public finance market of a national insurer of municipal bonds;

• legislative, regulatory or political developments;

• technological developments;

• changes in tax laws;

• the effects of mergers, acquisitions and divestitures; and

• uncertainties that have not been identified at this time.

The above factors and other factors that could affect our financial performance and business are 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, 2008.

EXECUTIVE OVERVIEW

Business Description

MBIA operates the largest financial guarantee insurance business in the industry and is a provider of asset management advisory services. We also manage an asset/liability products program and a conduit program, which are in wind-down. Beginning in 2009, our business activities are managed through three principal operations: United States ("U.S.") public finance insurance, structured finance and international insurance, and investment management services. Corporate operations include revenues and expenses that arise from general corporate activities.

MBIA's financial guarantee business is currently operated through two subsidiaries, National Public Finance Guarantee Corporation ("National") and MBIA Insurance Corporation and its subsidiaries ("MBIA Corp."). In February 2009, after receiving the required regulatory approvals, MBIA established and capitalized National as a U.S. public finance-only financial guarantor. In connection with the establishment of National, MBIA Insurance Corporation paid dividends and returned capital to MBIA Inc. and entered into a reinsurance agreement and an assignment agreement with National, the latter of which was with respect to financial guarantee insurance policies that had been reinsured from Financial Guaranty Insurance Company ("FGIC").

The establishment of National as a separate U.S. public finance-only financial guarantee insurance company was a key step in achieving our strategic plan announced in February 2008. National provides MBIA with greater resilience and financial flexibility because we expect it will enable MBIA to resume writing financial guarantee insurance in the domestic public finance sector during the current market crisis. National's separate capitalization and operations respond to the substantial issuer and investor demand that MBIA has observed for bond insurance to be provided by a monoline bond insurer devoted exclusively to public finance transactions in the U.S. At the same time, by participating in the public finance bond insurance market, MBIA expects to provide lower-cost funds to public issuers and to assist in "unfreezing" the public finance and infrastructure markets. The establishment of National is expected to generate the writing of new business in the active U.S. public finance market once high stable ratings are achieved for the operating subsidiary, leading to increased profitability and additional sources of liquidity for MBIA Inc. to support its own operations or those of its other subsidiaries.

MBIA's new operating structure also facilitates transparency for investors through the establishment of distinct business operations and discrete financial reporting through a newly created reporting segment for the U.S. public finance business. This transparency between our distinct business lines permits issuers, investors, and rating agencies to separately assess each of our businesses. By establishing a new holding company for the U.S. public finance operation, we anticipate better access to investors with interest in the specific business risks and opportunities available in the U.S. public finance sector.

The transfer of capital to National did not have a material impact on our consolidated claims-paying resources, and was evaluated by us and the New York State Insurance Department ("NYSID") prior to the NYSID's approval of the transfer on February 17, 2009. The capitalization of National in February 2009 had the effect of reducing the claims-paying resources of MBIA Corp. from $15.0 billion to $8.8 billion, based on December 31, 2008 balances, and increasing the claims-paying resources of National. In connection with the capitalization of National, National reinsured from MBIA Corp. all of MBIA Corp's U.S. public finance exposure thereby reducing MBIA Corp.'s net insured debt service outstanding from $1,198.3 billion to $290.3 billion, based on December 31, 2008 balances, and the amount of claims-paying resources required to be maintained by MBIA Corp.

The Company believes that after the capitalization of National, MBIA Corp. continues to be able to meet its expected obligations. Additionally, the NYSID found that MBIA Corp. retained sufficient surplus to support its obligations and writings following the payment of the dividend by MBIA Corp. and that the return of capital by MBIA Corp. was reasonable and equitable to MBIA Corp. The NYSID also found that the reinsurance transaction with National was fair and equitable. Claims-paying resources are calculated using statutory capital and reserves. As of March 31, 2009, the quarter end following the capitalization of National, MBIA Corp. had total claims-paying resources of $8.0 billion while statutory loss and loss adjustment expense ("LAE") reserves for future claim payments were $1.7 billion. Similarly, as of March 31, 2009, National had total claims-paying resources of $5.5 billion while statutory LAE expense reserves for future claim payments were $0.2 billion.

Several lawsuits have been filed against the Company relating to the above transactions, which are discussed in "Note 16: Commitments and Contingencies" in the Notes to Consolidated Financial Statements. These lawsuits have impeded our ability to achieve higher insurance financial strength ratings for our insurance companies and, therefore, our ability to write new insurance business.

Refer to MBIA Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 2008 for further information about changes to our operating and legal entity structure.

U.S. Public Finance Insurance Operations

As described above, since February 2009, our U.S. public finance insurance business has been 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 the right at its discretion to accelerate insured obligations upon default or otherwise, upon National's acceleration. National's guarantees insure 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's insurance portfolio principally comprises exposure assumed by National under the quota share reinsurance agreement it entered into with MBIA Insurance Corporation effective January 1, 2009 pursuant to which MBIA Insurance Corporation ceded all of its U.S. public finance exposure to National and under the assignment by MBIA Insurance Corporation of its rights and obligations with respect to the U.S. public finance business that MBIA Insurance Corporation assumed from FGIC.

Structured Finance and International Insurance Operations

MBIA's structured finance and international insurance operations have been principally conducted through MBIA Corp. The financial guarantees issued by MBIA Corp. 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 investment agreement 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. Additionally, insurance policies include payments due under credit and other derivatives, including termination payments that may become due upon certain events including the insolvency or payment default of MBIA Corp.

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 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 ("ABSs") 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, and infrastructure projects.

In certain cases, the Company may be required to consolidate entities established as part of securitizations when it insures the assets or liabilities of those entities and in connection with remediations or renegotiations of policies. These entities typically meet the definition of a variable interest entity ("VIE") under Financial Accounting Standards Board ("FASB") Interpretation No. ("FIN") 46(R), "Consolidation of Variable Interest Entities-an interpretation of ARB No. 51." 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 the Company. Additional information relating to VIEs is contained in the "Variable Interest Entities" section included herein.

Investment Management Services Operations

MBIA's investment management services operations consist of an asset management advisory business, which provides cash management, discretionary asset management and structured products to the public, not-for-profit, corporate and financial sectors. We also have an asset/liability products business in which we have issued debt and investment agreements, which are insured by MBIA Corp., to capital markets and municipal investors and then initially purchased assets that largely matched the duration of those liabilities, and a conduit business in which we have funded MBIA-insured transactions by issuing debt, which is insured by MBIA Corp. The ratings downgrades of MBIA Corp. have resulted in the termination and collateralization of certain investment agreements and, together with the rising cost and declining availability of funding and illiquidity of many asset classes, have caused the Company to begin winding down its asset/liability products and conduit businesses. Since the downgrades of MBIA Corp., we have not issued debt in connection with either business and we believe the outstanding liability balances and corresponding asset balances will continue to decline over time as liabilities mature, terminate, or are repurchased by the Company.

Credit Ratings

The current financial strength ratings of National, MBIA Insurance Corporation
and MBIA Inc. are summarized below:



Agency                                              Rating/Outlook

                                                  MBIA Insurance
                               National             Corporation             MBIA Inc.
S&P                         A / Developing        BBB / Negative
                                outlook               outlook          BB/ Negative outlook
Moody's                    Baa1 / Developing       B3 / Negative
                                outlook               outlook         Ba3 / Negative outlook
Fitch                          Withdrawn             Withdrawn              Withdrawn

On June 5, 2009, S&P downgraded National's insurance financial strength rating to A with a developing outlook from AA- with credit watch developing. Also on June 5, 2009, S&P downgraded MBIA Insurance Corporation's insurance financial strength rating to BBB with a negative outlook from BBB+ with a negative outlook.

On June 25, 2009, Moody's confirmed National's insurance financial strength rating at Baa1 but changed its outlook to developing from review for upgrade and Moody's confirmed MBIA Insurance Corporation's insurance financial strength rating at B3 but changed its outlook to negative from developing. Also on June 25, 2009, Moody's downgraded MBIA Inc.'s financial strength rating to Ba3 with a negative outlook from Ba1 with a developing outlook.

Financial Highlights

For the three months ended June 30, 2009, we recorded consolidated net income of $895 million or $4.30 per share, after adjusting for preferred stock dividends of MBIA Insurance Corporation, compared with net income of $1.7 billion or $7.14 per share for the same period of 2008.

Consolidated revenues for the three months ended June 30, 2009 decreased 70% to $992 million from $3.4 billion for the same period of 2008. The decrease in our consolidated revenues reflects a reduction in unrealized gains on insured credit derivatives and a reduction in net investment income. These reductions were partially offset by net gains on securities sales and fewer losses from the write-down of impaired securities in the three months ended June 30, 2009 compared with the same period of 2008. Consolidated expenses for the three months ended June 30, 2009 were a negative expense of $511 million compared with expense of $420 million for the same period of 2008. The negative expense in 2009 reflects a net benefit of $729 million in losses and LAE as a result of recognizing the present value of expected net cash inflows from recoveries on our residential mortgage-backed insured exposure, which exceeded gross losses and LAE recognized for financial guarantee insurance contracts in the quarter.

For the six months ended June 30, 2009, we recorded consolidated net income of $1.6 billion or $7.64 per share, after adjusting for preferred stock dividends of MBIA Insurance Corporation, as compared with a net loss of $706 million or $3.33 per share for the same period of 2008.

Consolidated revenues for the six months ended June 30, 2009 were $2.9 billion compared with $412 million for the same period of 2008. The increase in our consolidated revenues reflects an unrealized gain on insured credit derivatives within our insurance operations in 2009 compared with an unrealized loss in 2008. Additionally, net realized losses from securities sales and losses from the write-down of impaired securities decreased, partially offset by a decrease in net investment income, in 2009 compared with 2008. Consolidated expenses for the six months ended June 30, 2009 were $433 million compared with $1.2 billion for the same period of 2008. The decrease in our consolidated expenses resulted from a decrease in interest expense due to the decline in outstanding debt within our investment management services operations over the last several quarters and recoveries on our residential mortgage-backed insured exposures recorded in loss and LAE in the second quarter of 2009.

Our consolidated book value (total shareholders' equity) was $2.8 billion as of June 30, 2009, increasing from $1.0 billion as of December 31, 2008. Our consolidated book value per share as of June 30, 2009 was $13.38 reflecting an increase from $4.92 as of December 31, 2008.

Effective January 1, 2009, the Company adopted Statement of Financial Accounting Standards No. ("SFAS") 163, "Accounting for Financial Guarantee Insurance Contracts." Upon the adoption of SFAS 163, the Company recorded a cumulative transition adjustment of $55 million, net of tax, as an increase to its beginning retained earnings balance as of January 1, 2009. The cumulative transition adjustment resulted from changes in the manner in which the Company records financial guarantee insurance premiums and losses, as prescribed by SFAS
163. Refer to the "Recent Accounting Pronouncement" section included herein for further information about the effects of adopting SFAS 163 on our financial statements.

The Company also adopted FSP FAS 115-2 and FAS 124-2, "Recognition and Presentation of Other-Than-Temporary Impairments," which amends SFAS 115 and SFAS 124, "Accounting for Certain Investments Held by Not-for-Profit Organizations" as of the second quarter of 2009. Upon the adoption of FAS 115-2, the Company recorded a cumulative-effect adjustment to reclassify the non-credit component of a previously recognized other-than-temporary impairment from retained earnings to accumulated other comprehensive income. The cumulative effect adjustment resulted in an increase in retained earnings of $86 million and an increase in accumulated other comprehensive loss of $56 million, net of deferred taxes of $30 million. Refer to "Note 7: Investment Income and Gains and Losses" for further information on the Company's investment securities and other-than-temporary impairments.

A further discussion of our financial results is presented within the "Results of Operations" section included herein.

CRITICAL ACCOUNTING ESTIMATES

The Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of America ("GAAP"), which requires the use of estimates and assumptions. The following accounting estimates are viewed by management to be critical because they require significant judgment on the part of management. Management has discussed and reviewed the development, selection and disclosure of the critical accounting estimates with the Company's Audit Committee. Financial results could be materially different if alternate methodologies were used or if management modified its assumptions.

Loss and Loss Adjustment Expenses

Loss and LAE reserves are established by National's and MBIA Corp.'s respective Loss Reserve Committee and reviewed by our executive Loss Reserve Committee, which consists of members of senior management. This estimate requires the use of judgment and estimates with respect to the occurrence, timing and amount of a loss on an insured obligation. Loss and LAE reserves relate only to MBIA's non-derivative financial guarantees.

Effective with the adoption of SFAS 163 beginning January 1, 2009, the Company no longer recognizes an unallocated loss reserve for losses that have occurred or are probable to occur as a result of credit deterioration in the Company's insured portfolio but which have not yet been specifically identified and applied to specific insured obligations. Therefore, the Company's loss and LAE reserves as of June 30, 2009 only represent case basis reserves established in accordance with SFAS 163 and accruals for LAE incurred. Case basis reserves represent the Company's estimate of expected losses to be paid under an insurance contract, net of potential recoveries and discounted using a current risk-free interest rate, on insured obligations that have defaulted or are expected to default when this amount exceeds unearned premium revenue. Refer to "Note 2: Significant Accounting Policies" and "Note 3: Recent Accounting Pronouncements" in the Notes to Consolidated Financial Statements for a description of the Company's accounting for insurance losses under SFAS 163 and the impact of the adoption of SFAS 163 on the Company's financial statements.

In the initial application of SFAS 163, a cumulative-effect adjustment was recognized to beginning retained earnings as of January 1, 2009, which included reducing our unallocated loss reserve of $232 million as of December 31, 2008 to zero or $151 million on an after-tax basis. As of June 30, 2009, the Company reported total loss and LAE reserves, net of reinsurance, of $1.2 billion, representing 0.12% of its outstanding non-derivative net debt service insured of $1.0 trillion. We believe that these reserves are adequate to cover ultimate net losses. Given that the reserves are based on estimates and assumptions, there can be no assurance that ultimate losses will not exceed such estimates resulting in the Company recognizing additional loss and LAE in earnings.

Case Basis Reserves

A number of variables are taken into account in establishing specific case basis reserves for individual policies that depend primarily on the nature of the underlying insured obligation. These variables include the nature and creditworthiness of the underlying issuer of the insured obligation, whether the obligation is secured or unsecured and the expected recovery rates on the insured obligation, the projected cash flow or market value of any assets that support the insured obligation, and the historical and projected loss rates on such assets. Factors that may affect the actual ultimate realized losses for any policy include economic conditions and trends, changes in interest rates, rates of inflation, changes in borrower behavior, and the default rate and salvage values of specific collateral.

In establishing case basis loss reserves, we calculate the present value of probability-weighted estimated loss payments, net of estimated recoveries, using a discount rate equal to the risk-free rate applicable to the currency and expected term of such net payments. Yields on U.S. Treasury offerings are used to discount loss reserves denominated in U.S. dollars, which represent the majority of our loss reserves. Similarly, yields on foreign government offerings are used to discount loss reserves denominated in currencies other than the U.S. dollar. If the Company were to apply different discount rates, its case basis reserves may have been higher or lower than those established as of June 30, 2009. For example, a higher discount rate would have decreased the amount of a case basis reserve established by the Company and a lower rate would have increased the amount of a reserve established by the Company. However, we believe that the discount rates used represent the most appropriate risk-free rates for present valuing our case basis loss reserves, as these rates are commonly used throughout financial markets.

In the first six months of 2009, additions to case basis reserves, net of reinsurance, totaled $1.3 billion, inclusive of $1.2 billion related to our RMBS exposure. Additions to case basis reserves of $1.3 billion were offset by $1.3 billion of insurance loss recoveries recognized on our RMBS exposure, which principally relate to estimates of potential recoveries resulting from ineligible mortgages included in insured second-lien residential mortgage securitization exposures that are subject to a contractual obligation by sellers/servicers to remove or replace such mortgages. Refer to "Loss and Loss Adjustment Expenses" included in the Results of Operations section herein for further information regarding case basis reserve activity.

RMBS Reserves

In determining the RMBS case basis reserves recorded as of June 30, 2009, which relate to RMBS backed by home equity lines of credit ("HELOCs") and closed-end second mortgages ("CES"), the Company employed a multi-step process using a database of loan level information which allowed the Company to determine borrower payment status, including delinquencies and charge-offs. The Company relied upon this database to determine the likelihood of a delinquent loan being charged off. The information was then used in conjunction with a proprietary internal cash flow model and a commercially available model to estimate expected ultimate cumulative losses to our insured bonds. The "Current Roll to Loss" approach, described below, was used for estimating expected future defaults for loans that are current (not delinquent).

The following are the principal assumptions used with respect to the underlying loans to determine the expected losses on our insured RMBS transactions:

• We assumed that loans reported as delinquent as of May 31, 2009 would default during the following six months at an assumed default rate based on the number of days that the loan was delinquent at such time (the "Roll Rate Default Methodology").

. . .