Loss and Loss Adjustment Expense Reserves

12 Months Ended

Dec. 31, 2025

Loss and Loss Adjustment Expense Reserves

Note 6: Loss and Loss Adjustment Expense Reserves

The Company’s insured portfolio management groups within its U.S. public finance insurance and international and structured finance insurance businesses (collectively, “IPM”) monitor the Company’s outstanding insured obligations with the objective of minimizing losses. IPM meets this objective by identifying issuers that, because of deterioration in credit quality or changes in the economic, regulatory or political environment, are at a heightened risk of defaulting on debt service of obligations insured by the Company. In such cases, IPM works with the issuer, trustee, bond counsel, servicer, underwriter and other interested parties in an attempt to alleviate or remedy the problem and avoid defaults on debt service payments. The Company typically requires the issuer, servicer (if applicable) and the trustee of insured obligations to furnish periodic financial and asset-related information, including audited financial statements, to IPM for review. IPM also monitors publicly available information related to insured obligations. Potential problems uncovered through this review, such as poor financial results, low fund balances, covenant or trigger violations and trustee or servicer problems, or other events that could have an adverse impact on the insured obligation, could result in an immediate surveillance review and an evaluation of possible remedial actions. IPM also monitors and evaluates the impact on issuers of general economic conditions, current and proposed legislation and regulations, political developments, as well as sovereign, state and municipal finances and budget developments.

The frequency and extent of IPM’s monitoring is based on the criteria and categories described below. Insured obligations that are judged to merit more frequent and extensive monitoring or remediation activities due to a deterioration in the underlying credit quality of the insured obligation or the occurrence of adverse events related to the underlying credit of the issuer are assigned to a surveillance category (“Caution List—Low,” “Caution List—Medium,” “Caution List—High” or “Classified List”) depending on the extent of credit deterioration or the nature of the adverse events. IPM monitors insured obligations assigned to a surveillance category more frequently and, if needed, develops a remediation plan to address any credit deterioration.

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, the Company 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 insured obligation by the Company may, with the consent of the Company, restructure the insured obligation by extending the term, increasing or decreasing the par amount or decreasing the related interest rate, with the Company insuring the restructured obligation.

The Company does not establish any case basis reserves for insured obligations that are assigned to “Caution List—Low,” “Caution List—Medium” or “Caution List—High.” In the event MBIA expects to pay a claim with respect to an insured transaction, it places the insured transaction on its “Classified List” and establishes a case basis reserve. The following provides a description of each surveillance category:

“Caution List—Low”—Includes issuers where debt service protection is adequate under current and anticipated circumstances. However, debt service protection and other measures of credit support and stability may have declined since the transaction was underwritten and the issuer is less able to withstand further adverse events. Transactions in this category generally require more frequent monitoring than transactions that do not appear within a surveillance category. IPM subjects issuers in this category to heightened scrutiny.

“Caution List—Medium”—Includes issuers where debt service protection is adequate under current and anticipated circumstances, although adverse trends have developed and are more pronounced than for “Caution List – Low.” Issuers in this category may have breached one or more covenants or triggers. These issuers are more closely monitored by IPM but generally take remedial action on their own.

“Caution List—High”—Includes issuers where more proactive remedial action is needed but where no defaults on debt service payments are expected. Issuers in this category exhibit more significant weaknesses, such as low debt service coverage, reduced or insufficient collateral protection or inadequate liquidity, which could lead to debt service defaults in the future. Issuers in this category may have breached one or more covenants or triggers and have not taken conclusive remedial action. Therefore, IPM adopts a remediation plan and takes more proactive remedial actions.

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 6: Loss and Loss Adjustment Expense Reserves (continued)

“Classified List”—Includes all insured obligations where the Company has paid a claim or where a claim payment is expected. It also includes insured obligations where a significant LAE payment has been made, or is expected to be made, to mitigate a claim payment. This may include property improvements, bond purchases and commutation payments. Generally, IPM is actively remediating these credits where possible, including restructurings through legal proceedings, usually with the assistance of specialist counsel and advisors.

The establishment of the appropriate level of loss reserves is an inherently uncertain process involving numerous assumptions, estimates and subjective judgments by management that depend primarily on the nature of the underlying insured obligation. These variables include the nature and creditworthiness of the issuers of the insured obligations, expected recovery rates on unsecured obligations, the projected cash flow or market value of any assets pledged as collateral on secured obligations, and the expected rates of recovery, cash flow or market values on such obligations or other expected consideration. Factors that may affect the actual ultimate realized losses for any policy include economic conditions and trends, political developments, levels of interest rates, borrower behavior, the default rate and salvage values of specific collateral or other expected consideration, and the Company’s ability to enforce contractual rights through litigation and otherwise, including the collection of contractual interest on claim payments. The Company’s remediation strategy for an insured obligation that has defaulted or is expected to default may also have an impact on the Company’s loss reserves.

In establishing case basis loss reserves, the Company calculates 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 the weighted average remaining life of the insurance contract as required by accounting principles for financial guarantee contracts. The Company applies yields on U.S. Treasury offerings to discount loss reserves. Significant changes in discount rates from period to period may have a material impact on the present value of the Company’s loss reserves and expected recoveries. In addition, if the Company were to apply different discount rates, its case basis reserves may have been higher or lower than those established as of December 31, 2025. For example, a higher discount rate applied to expected future payments 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. Similarly, a higher discount rate applied to the potential future recoveries would have decreased the amount of a loss recoverable established by the Company and a lower rate would have increased the amount of a loss recoverable established by the Company.

U.S. Public Finance Insurance

U.S. public finance insured transactions consist of municipal bonds, including tax-exempt and taxable indebtedness of U.S. political subdivisions, as well as utilities, airports, health care institutions, higher educational facilities, housing authorities and other similar agencies and obligations issued by private entities that finance projects that serve a substantial public purpose. The Company estimates future losses by using probability-weighted cash flow scenarios that are customized to each insured transaction. Future loss estimates consider debt service due for each insured transaction, which includes par outstanding and interest due, as well as recoveries for such payments, if any. Gross par outstanding for capital appreciation bonds represents the par amount at the time of issuance of the insurance policy.

PREPA

In formulating loss reserves and recoveries for PREPA, estimates in the Company’s probability-weighted scenarios include assumptions related to the nature, value, and timing of net cash flows considering the following: environmental, economic, and political developments on the island; litigation and ongoing discussions with creditors and obligors on the Title III proceedings; contractual debt service payments; any existing settlement agreements or proposals and deviations from these proposals; the remediation strategy for insured obligations that have defaulted or are expected to default; and values of other obligations of the issuer. Refer to “Note 1: Business Developments and Risks and Uncertainties” for further information on the Company’s PREPA exposure.

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 6: Loss and Loss Adjustment Expense Reserves (continued)

International and Structured Finance Insurance

The international and structured finance insurance segment’s case basis reserves and insurance loss recoveries recorded in accordance with GAAP do not include reserves and recoveries on consolidated VIEs, since they are eliminated in consolidation.

RMBS Case Basis Reserves (Financial Guarantees)

The Company’s RMBS case basis reserves primarily relate to RMBS backed by alternative A-paper and subprime mortgage loans. The Company calculated RMBS case basis reserves as of December 31, 2025 using a process called the Roll Rate Methodology (“Roll Rate Methodology”). The Roll Rate Methodology is a multi-step process using databases of loan level information, proprietary internal cash flow models, and commercially available models to estimate potential losses and recoveries on insured bonds. Roll Rate is defined as the probability that current loans become delinquent and subsequently default and loans in the delinquent pipeline are charged-off or liquidated. The loss reserve estimates are based on a probability-weighted average of potential scenarios of loan losses. Additional data used for both first and second-lien loans include historic averages of deal specific voluntary prepayment rates, forward projections of the Secured Overnight Financing Rate ("SOFR"), and historic averages of deal-specific loss severities. Where applicable, the Company factors in termination scenarios when clean up calls are imminent.

In calculating ultimate cumulative losses for RMBS, the Company estimates the amount of first-lien loans that are expected to be liquidated in the future through foreclosure or short sale, and estimates the amount of second-lien loans that are expected to be charged-off (deemed uncollectible by servicers of the transactions). The time to liquidation for a defaulted loan is specific to the loan’s delinquency bucket.

For all RMBS transactions, cash flow models consider allocations and other structural aspects and claims against MBIA Corp.’s insurance policy consistent with such policy’s terms and conditions. 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 Company monitors RMBS portfolio performance on a monthly basis against projected performance, reviewing delinquencies, roll rates, and prepayment rates (including voluntary and involuntary). However, loan 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 and re-evaluate its assumptions.

RMBS Recoveries

The Company’s RMBS recoveries relate to structural features within the trust structures that allow for the Company to be reimbursed for prior claims paid. These reimbursements for specific trusts include recoveries that are generated from the excess spread of the transactions. Excess spread within insured RMBS securitizations is the difference between interest inflows on mortgage loan collateral and interest outflows on the insured RMBS notes.

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 6: Loss and Loss Adjustment Expense Reserves (continued)

Summary of Loss and LAE Reserves and Recoveries

The following table summarizes the Company’s loss and LAE reserves and recoveries before consolidated VIE eliminations, along with amounts that were eliminated as a result of consolidating VIEs:


			As of December 31, 2025				As of December 31, 2024
In millions			Balance Sheet Line Item				Balance Sheet Line Item
			Insurance loss recoverable		Loss and LAE reserves (1)		Insurance loss recoverable			Loss and LAE reserves (1)
U.S. Public Finance Insurance			$	22	$	219	$	165		$	299
International and Structured Finance Insurance:
	Before VIE eliminations			21		229		23			238
	VIE eliminations			-		6		(3	)		(11	)
		Total international and structured finance insurance		21		235		20			227
	Total		$	43	$	454	$	185		$	526

(1) - Amounts are net of estimated recoveries of expected future claims.

Changes in Loss and LAE Reserves

Loss and LAE reserves represent the Company’s estimate of future claims and LAE payments, net of any future recoveries of such payments. The following tables present changes in the Company’s loss and LAE reserves for the years ended December 31, 2025 and 2024. Changes in loss and LAE reserves, with the exception of loss and LAE payments, are recorded within “Losses and loss adjustment” expenses in the Company’s consolidated statements of operations. As of December 31, 2025 and 2024, the weighted average risk-free rate used to discount the Company’s loss reserves (claim liability) was 3.79% and 4.50%, respectively. LAE reserves are generally expected to be settled within a one-year period and are not discounted. As of December 31, 2025 and 2024, the Company’s gross loss and LAE reserves included $15 million and $19 million, respectively, related to LAE.

         In millions

         Changes in Loss and LAE Reserves for the Year Ended December 31, 2025

         Gross Loss

         Gross Loss

         and LAE

         Accretion

         Changes in

         and LAE

         Reserves as of

         Loss

         of Claim

         Changes in

         Unearned

         Reserves as of

         December 31,

         and LAE

         Liability

         Discount

         Changes in

         Premium

         December 31,

         2024

         Payments

         Discount

         Rates

         Assumptions (1)

         Revenue

         2025

526

(145

)

19

12

41

1

454

(1) - Includes changes in amount and timing of estimated payments and recoveries.


In millions		Changes in Loss and LAE Reserves for the Year Ended December 31, 2024
Gross Loss															Gross Loss
and LAE					Accretion							Changes in			and LAE
Reserves as of		Loss			of Claim		Changes in					Unearned			Reserves as of
December 31,		and LAE			Liability		Discount			Changes in		Premium			December 31,
2023		Payments			Discount		Rates			Assumptions (1)		Revenue			2024
$	473	$	(157	)	$	19	$	(19	)	$	212	$	(2	)	$	526

(1) - Includes changes in amount and timing of estimated payments and recoveries.

The decrease in the Company's loss and LAE reserves during 2025 was primarily due to claim payments on PREPA and a U.S. public finance lease-backed transaction, as well as updated PREPA loss reserve scenarios and weightings for possible settlement outcomes. This decrease was partially offset by the reclassification of expected recoveries related to paid claims and extending the estimated timing of a PREPA settlement. Refer to "Note 1: Business Developments and Risks and Uncertainties" for further information on PREPA.

The increase in the Company’s loss and LAE reserves during 2024 was primarily due to assumption changes for National's PREPA reserves, partially offset by claim payments on PREPA. In addition, National established reserves on a U.S. public finance lease-backed transaction.

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 6: Loss and Loss Adjustment Expense Reserves (continued)

Changes in Insurance Loss Recoverable

Insurance loss recoverable represents the Company’s estimate of expected recoveries on paid claims and LAE. The Company recognizes potential recoveries on paid claims based on the probability-weighted net cash inflows present valued at applicable risk-free rates as of the measurement date. The following tables present changes in the Company’s insurance loss recoverable for the years ended December 31, 2025 and 2024. Changes in insurance loss recoverable with the exception of collections, are recorded within “Losses and loss adjustment” expenses in the Company’s consolidated statements of operations.


			Changes in Insurance Loss Recoverable
			for the Year Ended December 31, 2025
	Gross											Gross
	Recoverable											Recoverable
	as of					Accretion		Changes in				as of
	December 31,		Collections			of		Discount		Changes in		December 31,
In millions	2024		for Cases			Recoveries		Rates		Assumptions		2025
Insurance loss recoverable	$	185	$	(235	)	$	6	$	2	$	85	$	43


				Changes in Insurance Loss Recoverable
				for the Year Ended December 31, 2024
	Gross												Gross
	Recoverable												Recoverable
	as of						Accretion		Changes in				as of
	December 31,		Collections				of		Discount		Changes in		December 31,
In millions	2023		for Cases				Recoveries		Rates		Assumptions		2024

Insurance loss recoverable	$	183	$		(16	)	$	7	$	-	$	11	$	185

The decrease in the Company’s insurance loss recoverable during 2025 was primarily from the sale of PREPA Custodial Receipts associated with the transfer of certain of National's PREPA-related bankruptcy claims and unwrapped PREPA bonds received via subrogation for fully paid secondary insured claims. This decrease was partially offset by the reclassification from loss and LAE of expected recoveries related to paid claims for PREPA, and a U.S. public finance lease-backed transaction.

The increase in the Company’s insurance loss recoverable during 2024 was primarily due to reclassifying expected PREPA recoveries from loss and LAE reserves on paid claims, partially offset by assumption changes related to PREPA reserves and from collections of recoveries.

Loss and LAE Activity

For 2025, the incurred benefit was primarily related to the sale of PREPA Custodial Receipts at a price above prior estimates and updated scenarios and weightings for potential PREPA settlement outcomes. This benefit was partially offset by extending the estimated timing of a PREPA settlement, accretion of loss reserves, and a decline in risk-free rates, which caused future liabilities, net of recoveries to increase, primarily related to the Company's insured RMBS transactions.

For 2024, the incurred loss primarily related to updated PREPA scenarios to reflect developments in the then PREPA remediation and extending the timing of resolution. In addition, the incurred loss related to reserves on a U.S. public finance lease-backed transaction.

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 6: Loss and Loss Adjustment Expense Reserves (continued)

For 2023, the incurred loss primarily related to updated PREPA scenarios to reflect the then PSA, which resulted in lower net expected recoveries. Changes in scenario assumptions also included extending the effective date of a settlement until 2024. In addition, for 2023, the incurred loss included the termination of a first-lien RMBS insured transaction.

Costs associated with remediating insured obligations assigned to the Company’s surveillance categories are recorded as LAE and are included in “Losses and loss adjustment” expenses on the Company’s consolidated statements of operations. For 2025, 2024 and 2023, LAE related to remediating insured obligations were $5 million, $17 million and $6 million, respectively.

Surveillance Categories

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, 2025:


				Surveillance Categories
				Caution		Caution		Caution
				List		List		List		Classified
$ in millions				Low		Medium		High		List		Total
Number of policies					20		-		-		87		107
Number of issues (1)					7		-		-		76		83
Remaining weighted average contract period (in years)					3.5		-		-		6.1		5.6
Gross insured contractual payments outstanding: (2)
		Principal		$	356	$	-	$	-	$	1,329	$	1,685
		Interest			1,054		-		-		478		1,532
			Total	$	1,410	$	-	$	-	$	1,807	$	3,217
Gross Claim Liability (3)				$	-	$	-	$	-	$	786	$	786
Less:
	Gross Potential Recoveries (4)				-		-		-		281		281
	Discount, net (5)				-		-		-		101		101
Net claim liability (recoverable)				$	-	$	-	$	-	$	404	$	404
Unearned premium revenue				$	1	$	-	$	-	$	8	$	9
Reinsurance recoverable on paid and unpaid losses (6)												$	14

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

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

(3) - The gross claim liability with respect to Puerto Rico exposures are net of expected recoveries for policies in a net payable position.

(4) - Gross potential recoveries with respect to certain Puerto Rico exposures are net of the claim liability for policies in a net recoverable position.

(5) - Represents discount related to Gross Claim Liability and Gross Potential Recoveries.

(6) - Included in "Other assets" on the Company's consolidated balance sheets.

MBIA Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 6: 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, 2024:


				Surveillance Categories
				Caution		Caution		Caution
				List		List		List		Classified
$ in millions				Low		Medium		High		List		Total
Number of policies					29		-		-		90		119
Number of issues (1)					10		-		-		76		86
	Remaining weighted average contract period (in years)				5.7		-		-		6.4		6.2
Gross insured contractual payments outstanding: (2)
		Principal		$	717	$	-	$	-	$	1,509	$	2,226
		Interest			1,307		-		-		569		1,876
			Total	$	2,024	$	-	$	-	$	2,078	$	4,102
Gross Claim Liability (3)				$	-	$	-	$	-	$	906	$	906
Less:
	Gross Potential Recoveries (4)				-		-		-		467		467
	Discount, net (5)				-		-		-		107		107
Net claim liability (recoverable)				$	-	$	-	$	-	$	332	$	332
Unearned premium revenue				$	4	$	-	$	-	$	9	$	13
Reinsurance recoverable on paid and unpaid losses (6)												$	16

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

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

(3) - The gross claim liability with respect to Puerto Rico exposures are net of expected recoveries for policies in a net payable position.

(4) - Gross potential recoveries with respect to certain Puerto Rico exposures are net of the claim liability for policies in a net recoverable position.

(5) - Represents discount related to Gross Claim Liability and Gross Potential Recoveries.

(6) - Included in "Other assets" on the Company's consolidated balance sheets.

MBIA INC 10-K