Executive Summary / Key Takeaways

• MBIA Inc. ($MBI) is in a strategic run-off phase, focused on maximizing value from its legacy financial guarantee portfolios, primarily through National Public Finance Guarantee Corporation ("National"), and winding down MBIA Insurance Corporation ("MBIA Corp.").
• The resolution of National's Puerto Rico Electric Power Authority ("PREPA") exposure is the paramount catalyst for unlocking shareholder value, with recent actions like the sale of $374 million in PREPA custodial receipts significantly reducing uncertainty and improving loss reserving.
• Despite a consolidated GAAP net loss, National's U.S. public finance segment demonstrated a substantial loss and loss adjustment expense (LAE) benefit in Q3 2025, driven by favorable PREPA developments, contributing to improved income before taxes.
• The company's liquidity remains a key focus, with National serving as the primary source of dividends to the holding company, though further special dividends are contingent on PREPA resolution and regulatory approval.
• MBI's competitive positioning relies on its specialized U.S. public finance expertise and regulatory licenses, but its smaller scale and run-off strategy differentiate it from larger, actively underwriting rivals like Assured Guaranty (AGO) and Berkshire Hathaway (BRK.A).

The Enduring Narrative: From Guarantor to Value Manager

MBIA Inc., established in 1973, has evolved from a broad financial guarantor into a specialized entity primarily focused on managing and monetizing its existing insured portfolios. This strategic pivot, particularly pronounced since MBIA Corp. ceased writing meaningful new business around 2008, defines the company's current investment thesis. Its operations are segmented into U.S. public finance insurance through National, a corporate segment, and international and structured finance insurance via MBIA Corp. The overarching strategy is to maximize performance from these legacy portfolios, effectively manage investments, and systematically resolve complex, high-risk exposures.

The financial guarantee industry, while mature, continues to play a vital role in municipal and structured finance, providing credit enhancement that can lower borrowing costs for issuers. In the U.S. public finance market, economic activity is expanding at a moderate pace, with low unemployment and slowed job gains, though inflation remains elevated. These macroeconomic factors can influence the credit quality of municipal bonds, potentially impacting National's insured portfolio. Broader industry trends, such as the surging demand for U.S. power driven by AI and data centers, could indirectly create opportunities for infrastructure-related public finance projects, which fall within National's historical purview.

MBI's competitive landscape is characterized by a few key players. Direct competitors include Assured Guaranty Ltd. (AGO), Ambac Financial Group, Inc. (AMBC), and, at a broader level, Berkshire Hathaway Inc. (BRK.A) through its insurance subsidiaries. MBI differentiates itself through its specialized expertise in U.S. public finance, particularly in niche domestic markets such as health care and educational facilities, where its tailored risk assessment processes can provide a unique value proposition. This focus on localized regulatory navigation is a strength against the broader global reach of AGO or the diversified scale of BRK.A. However, MBI's run-off strategy means it lags in new business generation and overall market share growth compared to actively underwriting competitors. Its smaller scale also presents vulnerabilities in operational efficiency and strategic adaptability compared to larger rivals.

The PREPA Overhang: A Defining Challenge and Catalyst

The resolution of National's exposure to the Puerto Rico Electric Power Authority (PREPA) stands as the most critical determinant for MBIA's future value. PREPA has been embroiled in bankruptcy-like proceedings under Title III of PROMESA since May 2017. National initially entered a restructuring support agreement (PREPA RSA) in January 2023, but subsequent actions by the Oversight Board, including an intent to modify National's settlement following favorable court rulings for bondholders in June 2024, led National to terminate the RSA. This ongoing legal and political complexity has resulted in PREPA defaulting on scheduled debt service for National-insured bonds, with National paying gross claims of $13 million on January 1, 2025, and an additional $92 million on July 1, 2025. As of September 30, 2025, National's insured debt service outstanding related to PREPA was $565 million.

In a significant move to de-risk and enhance marketability, National transferred certain PREPA bankruptcy claims to a custodian in July 2025, receiving tradeable custodial receipts. In August 2025, National successfully sold approximately $374 million face amount of these receipts, representing about 47% of its then-current bond claims in the PREPA Title III case. This transaction not only reduced potential volatility and ongoing risk but also resulted in National recording a gain, as the sales price exceeded prior estimates. Management views this as a crucial step in reducing uncertainty, which is a prerequisite for a potential sale of the company. Further complicating the resolution, President Trump's termination of six Oversight Board members between August 1 and August 8, 2025, has led to litigation for reinstatement, creating a near-term delay. The Oversight Board currently has four members, but a minimum of five is required to approve a confirmation plan, indicating a "shorthanded" situation. Despite these delays, a combined group representing approximately 90% of PREPA's bondholders now opposes the proposed confirmation plan, suggesting a unified front in negotiations.

Operational Segments: Performance and Strategic Focus

MBIA's three operating segments each play a distinct role in the company's run-off strategy.

U.S. Public Finance Insurance (National)

National Public Finance Guarantee Corporation is the cornerstone of MBIA's ongoing operations, focused on maximizing the performance of its existing U.S. public finance portfolio through active surveillance and remediation. For the three months ended September 30, 2025, National reported total revenues of $21 million, down from $27 million in the prior year period. However, the segment recorded a significant losses and loss adjustment expense (LAE) benefit of $54 million, a stark contrast to the $2 million expense in Q3 2024. This favorable shift was primarily driven by the sale of PREPA Custodial Receipts at a price above prior estimates and updated scenarios for potential PREPA settlement outcomes, partially offset by an estimated extended timeline for a PREPA settlement. This led to a substantial increase in income from continuing operations before income taxes, reaching $65 million for Q3 2025 compared to $14 million in Q3 2024.

For the nine months ended September 30, 2025, National's total revenues were $61 million, down from $76 million in the prior year. The segment reported a $45 million LAE benefit for the nine-month period, a significant improvement from the $165 million expense in 9M 2024, contributing to income before taxes of $72 million, compared to $125 million in the prior year. The gross par amount outstanding for National's insured portfolio has steadily declined by approximately $2.1 billion from year-end 2024, reaching about $23.2 billion at September 30, 2025. National's statutory capital stood at $994 million as of September 30, 2025, an increase of $82 million from December 31, 2024, driven by its year-to-date net income. Its policyholders surplus was $708 million. National's liquidity is robust, with $1.30 billion in cash and investments, including $261 million in highly liquid assets. While National is in compliance with aggregate risk limits, it does not comply with certain single risk limits under New York Insurance Law, which could prevent it from writing new financial guarantee insurance business.

International and Structured Finance Insurance (MBIA Corp.)

MBIA Corp. is primarily in run-off, with its objectives centered on satisfying policyholder claims and maximizing recoveries for its surplus noteholders and preferred stockholders. The segment has not written any meaningful new business since 2008. For the three months ended September 30, 2025, MBIA Corp. reported total revenues of $10 million, compared to $11 million in the prior year period. Losses and LAE for Q3 2025 were an expense of $4 million, an improvement from the $9 million expense in Q3 2024. For the nine months ended September 30, 2025, total revenues were a negative $74 million, compared to a negative $100 million in 9M 2024. Losses and LAE for the nine-month period were an expense of $11 million, an increase from the $6 million expense in 9M 2024. These losses were primarily due to a decrease in risk-free rates used to discount loss reserves, which increased the present value of loss reserves, net of recoveries, partially offset by credit improvements on certain residential mortgage-backed securities (RMBS) transactions.

MBIA Corp.'s insured gross par outstanding was $2.1 billion as of September 30, 2025, down from $2.3 billion at year-end 2024. The segment's statutory capital was $79 million as of September 30, 2025, a decrease of $9 million from year-end 2024, largely due to its year-to-date net loss. Its negative unassigned surplus stood at $2 billion. MBIA Corp. held $209 million in cash and investments, with $22 million immediately available. A notable development was the substantially complete liquidation of MBIA México, S.A. de C.V., which returned approximately $12 million of capital to MBIA Corp. during the nine months ended September 30, 2025. Due to its capital structure and business prospects, MBIA Corp.'s financial performance is not expected to have a material economic impact on MBIA Inc.

Corporate Segment

The Corporate segment manages general corporate activities, including support services to subsidiaries and asset and capital management. For the three months ended September 30, 2025, total revenues were $22 million, a significant increase from $11 million in Q3 2024. Income from continuing operations before income taxes was $13 million, down from $21 million in the prior year period. For the nine months ended September 30, 2025, total revenues were $52 million, compared to $69 million in 9M 2024, with income before taxes of $48 million, up from $34 million in 9M 2024. Unencumbered cash and liquid assets held by MBIA Inc. totaled $354 million as of September 30, 2025, a decrease from $380 million at December 31, 2024, primarily due to payments of principal and interest on the corporate segment's debt.

Financial Performance and Liquidity: A Snapshot of Transition

MBIA Inc. reported a consolidated GAAP net loss of $8 million, or negative $0.17 per share, for the third quarter of 2025, a notable improvement from the $56 million net loss, or negative $1.18 per share, in Q3 2024. For the nine months ended September 30, 2025, the consolidated GAAP net loss was $126 million, or negative $2.57 per share, significantly lower than the $393 million net loss, or negative $8.37 per share, in the comparable 2024 period. This improved performance was largely driven by the favorable LAE benefit at National, particularly related to PREPA, and favorable changes in revenues from consolidated variable interest entities.

The company's adjusted net income, a non-GAAP measure, was $51 million, or $1.03 per share, for Q3 2025, a substantial turnaround from an adjusted net loss of $0.17 million in Q3 2024. For the nine-month period, adjusted net loss was $35 million, or negative $0.70 per share, compared to an adjusted net income of $162 million, or $3.43 per share, in 9M 2024. MBIA Inc.'s consolidated book value per share remained negative at $43.17 as of September 30, 2025, primarily due to MBIA Corp.'s negative book value per share of $52.64.

Cash flow from operating activities for the nine months ended September 30, 2025, was $48 million, a decrease from $179 million in the prior year. This change was principally due to proceeds from the sale of PREPA Custodial Receipts and lower losses and LAE and interest expense paid, partially offset by increased payments to a non-qualified deferred compensation plan and less investment income received. The company's investment portfolio, excluding consolidated VIEs, totaled $1.73 billion as of September 30, 2025, with a weighted average credit quality rating of 'Aa' for its available-for-sale fixed-maturity investments.

MBIA's dividend strategy involves annual "as-of-right" dividends from National to the holding company. Special dividends, such as the $550 million paid in 2023, require approval from the New York State Department of Financial Services (NYSDFS). Management indicates that while more frequent, smaller special capital releases are possible, they would likely seek greater certainty around PREPA's resolution before pursuing another special dividend from the regulator. The company maintains sufficient liquidity at the holding company to meet its debt service obligations.

Competitive Landscape and Strategic Positioning

MBIA operates within a highly regulated and capital-intensive financial guarantee insurance industry. Its competitive advantages stem from its specialized expertise in U.S. public finance insurance, which translates into strong customer loyalty and efficient risk assessment for municipal bonds and infrastructure projects. The company's established regulatory licenses also act as a significant barrier to entry, defending its market position.

However, MBI faces formidable competitors. Assured Guaranty Ltd. (AGO) is a leading player with a broader global reach and diversified portfolio, often exhibiting stronger financial performance trends, including consistent revenue growth and profitability. Ambac Financial Group, Inc. (AMBC) competes directly in municipal and structured finance, demonstrating agility in structured finance product innovation and a focus on rebuilding its portfolio. Berkshire Hathaway Inc. (BRK.A), through its insurance subsidiaries, possesses immense scale and financial resources, allowing for superior cash flow generation and broader strategic adaptability.

MBI's run-off strategy inherently limits its growth trajectory compared to these actively underwriting rivals. While MBI's niche focus provides a unique value proposition in specific domestic markets, it lags in overall scale, global expansion capabilities, and potentially in R&D investment for new product development. The company's financial health, particularly its profitability and cash flow generation, appears to trail that of AGO and BRK.A, making it less competitive in large, high-stakes deals. MBI's operational "technology" primarily involves sophisticated internal credit rating systems and proprietary cash flow models used for loss reserving and portfolio surveillance. These analytical tools are foundational to its risk management and remediation strategy, enabling efficient assessment of complex legacy portfolios and accurate projections of liabilities and recoveries. This analytical rigor is crucial for managing its existing exposures and is a key operational differentiator in its run-off phase.

Risks and Challenges

The primary risk confronting MBIA remains the uncertain path and timing of the PREPA resolution. Delays in court proceedings, changes in the composition or stance of the Oversight Board, or an unfavorable settlement could materially impact National's loss reserves and recoveries. Beyond PREPA, National's insured portfolio is exposed to fiscal stress in other state and local governments, which could lead to increased defaults. MBIA Corp. faces risks from potential deterioration of its insured portfolio, particularly RMBS, and its ability to collect expected recoveries, which is crucial for meeting policyholder obligations. The NYSDFS holds significant regulatory power, including the potential to place MBIA Corp. into rehabilitation or liquidation if it deems the insurer unable to pay claims, though MBIA Inc. believes this would not materially impact its liquidity due to legal separation. Furthermore, National's non-compliance with certain single risk limits under NYIL could restrict its ability to transact new business. Market risks, including changes in interest rates, foreign exchange rates, and credit spreads, can affect the fair value of MBIA's financial instruments and investment portfolio. The company also carries a full valuation allowance against its net deferred tax asset, with no assurance of future reversal.

Conclusion

MBIA Inc. is at a pivotal juncture, with its investment thesis firmly rooted in the successful resolution and monetization of its legacy financial guarantee exposures. The ongoing PREPA situation, while a significant overhang, also represents the primary catalyst for unlocking substantial shareholder value. Recent actions, such as the strategic sale of PREPA custodial receipts, demonstrate management's proactive approach to de-risking and enhancing marketability. The improved financial performance in Q3 2025, driven by favorable PREPA developments, underscores the potential for positive shifts as these complex issues move towards resolution.

While MBI operates in a competitive landscape dominated by larger, actively underwriting players, its specialized expertise in U.S. public finance and robust analytical tools provide a distinct operational advantage in managing its run-off portfolios. The company's ability to navigate the intricacies of the PREPA litigation and effectively manage its capital, including the potential for future special dividends from National, will be critical. Investors should closely monitor developments in the PREPA case, particularly regarding the reconstitution of the Oversight Board and progress towards a consensual plan, as these factors will directly influence MBI's capacity to return capital and pursue its ultimate strategic objectives.