MBIA, Inc. Q4 2007 Earnings Call Transcript

Feb. 4.08 | About: MBIA Inc. (MBI)

MBIA Inc. (NYSE:MBI)

Q4 FY07 Earnings Call

January 31, 2008, 11:00 AM ET

Executives

Gregory R. Diamond - Director, IR

Gary C. Dunton - Chairman, CEO, and President

C. Edward Chaplin - Vice Chairman and CFO

Clifford D. Corso - VP and Chief Investment Officer

Mitchell I. Sonkin - Head, Insured Portfolio Management

Analysts

Operator

Good morning and welcome to MBIA’s Conference Call and Web Cast to discuss its Fourth Quarter and Year 2007 Earnings and Other Topics. During today’s entire event all callers will be placed in a listen-only mode. After the Company’s prepared remarks, there will be a question-and-answer session. You may submit questions to conferencecallquestions@mbia.com all one word or if you are on the web cast through the question box on the event console. Questions may be submitted any time during today’s broadcast.

It’s now my pleasure to turn the floor over to your host Mr. Greg Diamond, Director of Investor Relations for MBIA. Sir you may begin.

Gregory R. Diamond - Director, Investor Relations

Thank you very much Melissa. Welcome to MBIA’s web cast and conference call on our 2007 earnings and other topics. The presentation for this web cast titled 2007 fourth quarter earnings conference call presentation. It is available on MBIA’s web site as well as by the webcast… website. We will be turning the pages for those of you participating by the web cast but we will refer to page numbers so that everyone will be better able to follow along. The information for the recorded replay of this event is available on MBIA’s web site in the fourth earnings release that we distributed earlier today. As Melissa mentioned the question for today’s event should be submitted in writing and we will be accepting your questions during this broadcast

At this time we’ve already received well over 200 questions in advance. I will provide more commentary about the question-and-answer segment when we get to that session. However, I’ll make one final comment about it upfront. Our intension is to address as many questions as possible we’ve compiled all the questions and those questions where our prepared remarks and earnings release disclosures are responsive will not be used in the Q&A session. We’ve also consolidated alike questions into single questions. In other words we wont be responding to each of the 200 plus questions one at a time. Many or all of them will be addressed today. As such, this will be a rather extended event, please sit back and enjoy.

The MBIA team is assembled for today’s event and each are named on the cover of the presentation they are: Gary Dunton, Chairman, CEO and President; Chuck Chaplin, Vice-Chairman and CFO; Cliff Corso, Chief Investment Officer; Mitch Sonkin, Head of our Insured Portfolio Management. This same team will be responding to the questions later in the broadcast. I’m not going to read our safe harbor disclosures statement but I will ask you to do so, please. We’ll lead it up… we’ll leave it up during Gary’s opening remarks, with that, Gary, please begin.

Gary C. Dunton - Chairman, President and Chief Executive Officer

Thanks Greg. Good morning everyone, thank you for joining us on the call. I want to begin by stating what you already painfully know. That these have been truly extraordinary times for MBIA and for the monoline industry. Which started out in July as a modest tremor in the residential mortgage markets by November erupted into a full-blown seismic upheaval and we spent November and December assessing the damage in our portfolio and taking aggressive steps to recover and rebuild in terms of our capital base. Believe it or not, I can’t help but think of something that journalist Edgar Watson Howe one said which was; a good scare is worth more to a man than good advice.

I think all of us around the table here today would have to agree with him. As a few of our underlying decisions for the past couple of years have tested the Richter Scale in a formally unshakable world of the financial guarantee industry. And now we’re paying for these mistakes, all of them are aligned to paying for their mistakes; and I just don’t mean economic terms. But also in terms of the wholesale challenge to the value proposition, credibility, even the integrity of our industry. As CEO of MBIA the leading monoline for over three decades, I can tell you that it is very difficult seeing the reputation of the Company that you loved come under fire.

You have to remember that MBIA is a Company full of fiercely loyal and dedicated employees, who believe in their work, who can see its benefits in their communities and in the market, and who have great pride in our franchise. They are privileged to lead. We have a great history and great traditions; we were the first monoline to receive financial strength ratings AAA. Prior to this quarter, we build shareholder value so successfully that we were one of only a handful of financial service companies in the S&P 500 and had 20 uninterrupted years of steadily increasing dividends since we went Public in 1987.

Over the years we have innovated many industry firsts, from securitizing shipping containers, securitizing intellectual property, MBIA insured bonds, have build infrastructure in communities all around the world saying tax-payers many billions of dollars in interest costs with our guarantee on their bonds. The very first deal that we insured back in 1974 was an $8 million Water and Sewer Bond for Carbondale, Illinois. That was a massive deal, back in those days and we were so proud. Well a lot of euphoria has passed through the pipes since then. But what has remained constant all these years is our AAA rating and our commitment to protect it.

So, when the residential mortgage market imploded, we moved quickly and aggressively to get back on sound footing. The decline in the market was so dramatic and sudden that essentially all of the market participants: the monolines, investment banks, commercial banks, the regulators, rating agencies in the mortgage industry itself, scrambled to keep up the rising default in loss expectations. Even before the Rating Agencies provided their capital requirements, we identified the problem credits in our portfolio and in some cases ahead of the markets and we moved to improve our capital position by over $2 billion in five weeks. Our overall capital plan currently exceeds all stated rating agency requirements. Our anticipation of and in response to, return in the market has been singular among the monoline insurers, putting us in the best position to maintain our AAA ratings among the large club of companies.

While we will have had some real losses, significant losses there is nothing that we can identify that justifies the 80% drop in our stock price since last year. No serious analyst expects that we will have $7 billion of economic losses on our portfolio. So our only conclusion is that the market has over reacted to the real and obvious problems that we’ve had, as well as to the fear mongering and the intentional distortions of facts about our business that have been pumped into the market by self-interested parties. Pricing on our credit defaults whilst recently suggested a 70% risk of default within five years. We are scratching our heads over this, because we have over $16 billion of claim-paying resources and the Holding Company has liquidity resources covering interest for more than five years.

Disclosures under scrutiny at the rating agencies drive about $3 billion in additional worse case losses in their model. So, even if you think that the rating agencies are wrong, are they $3 billion worth of wrong? The rating agencies have been just as stumped by the rapid turn in the housing market as all the other market participants. At this point the capital requirement should not be seen as static stakes in the ground. So far we don’t disagree with the capital estimates they’ve published on us. But at some point it is possible that they will post requirements that are uneconomic.

Wherever they wind up, the market will enforce it’s own tiering on a field of Bond Insurers rewarding those that manage their business concretively into a proactive way of dealing with problems with profitable executions, unwrapped transactions. Well will that compared to sales look like going forward? We’ve got a lot of questions about what the new entrants into our market will take so much share as the traditional bond Insurers could lose their market positions. First let me say that we believe new investments by smart players like Warburg Pincus and Warren Buffett speak volumes about the viability of our business model and our market.

As for competition from market share. Competition is healthy in any business and we are confident that our origination in servicing infrastructure, our experience our capital base and ratings position will keep us in a leading position. As market entrants in the last few years have found, it takes years to become established and earn the highest ratings. I don’t know anyone who thinks it will become easier to get AAA ratings in the future. EBIT in the established monolines a solid capital base a AAA ratings do not guarantee shareholder value as we have seen last year.

My job is to deliver at least market returns to shareholders, over time while maintaining the highest levels of integrity in claim-paying ability for our bondholders. We did not do very well on the form of this past year though we absolutely have not taken our eyes off the ladder. The quick reaction we took to strengthen our capital has allowed us to meet or exceed all stated AAA requirements. I want to spend a minute on our capital plan. As you know, we put together a comprehensive plan to raise over $2 billion. The plan consists of $1 billion investment commitment from Warburg Pincus. This commitment has two parts; the first part is a $500 million investment in MBIA common equity at $31 per share. The second part is a commitment to back stock a $500 million rise offering and we are considering this and other steps to raise equity.

Other component parts of our capital planning include a $1 billion surplus notes offering, the net release of capital, that’s of course amortizing, inventory, transactions, a dividend reduction and some reinsurance. Yesterday, I am very happy to report, that we close on the first leg of the Warburg Pincus commitment bringing $500 million of fresh equity capital on to the balance sheet. In Warburg we have an energetic and creative partner who will be a great asset for us going forward. We look forward to closing the second part before the end of the first quarter. And we are thrilled to have David Coulter and Kewsong Lee, both from Warburg, join our Board.

Their strategic advice and tactical experience have been invaluable in these few weeks of our partnership and we look forward to a long and prosperous relationship. Our $1 billion debt offering closed successfully two weeks ago. While we did pay more for the surplus notes than we had hoped, we view it as a very cost-effective surplus in our insurance company with a net cost of about 5.5% after tax and of course investment income on the proceeds. With the other steps we have taken such as preserving capital, through this net release amortizing inventory transactions, high dividend cut and re-insurance, we have already seen a restoration of a stable outlook on our rating from the first of the three rating agencies.

That tells me we are on a positive path. What a trip its been, along the way we have learnt some important lessons and we are working to apply them just as aggressively as we implemented our capital plans. Lessons about underwriting and risk management. The need to be more assertive in countering misinformation about our business, and to be more open and transparent to the market ourselves. We are committed to the highest standards of disclosure as we virtually build our creditability with issuers, fixed income investors and shareholders. I know that when the smoke clears on 2007, it will be a miracle if anyone remembers the year for anything than the losses we recorded.

But there was much more of the year than just the fourth quarter. We established a new Company in Mexico; the first AAA rated monoline and began writing some excellent business there. New business was robust, and we reached $1 trillion in net insurance debt service. We had a number of very successful mediations on exposure such as the Euro Tunnel, Loyal, Northwest and Delta Airlines. And internally we reorganized and streamlined our Senior Management Team, to better position ourselves to the exceptional business opportunities in this market environment.

When I evaluate the quantitative and qualitative measures of our performance in 2007 against an extremely challenging environment, I conclude that it was a year where we persevered against unprecedented challenges and successfully defended and maintained our AAA rating. So, just as I would ask you not to judge a year by the events of the fourth quarter, I will also ask you not to judge the Company itself by these events. We are greater than the sum of our parts and our value should nor be underestimated by market turbulence that we have carefully and deliberately structured our business to withstand.

It has traditionally been true that our business grows and thrives when there is turmoil and when there is uncertainty in the markets. After our credit protection appears to be a better value and the investors are worried that the sky is falling. Disruptions in the market have reinforced the value of credit protection and it’s not just protection from losses, there are also a lot of investors out there with bonds that haven’t been downgraded thanks to Bond Insurance.

Now the need for financing in the public financing in the global infrastructure markets has never been stronger. The structured finance market will certainly undergo a period of reassessment, but it is unlikely that the banks will re-intermediate markets that they exited over 20 years ago. The securitization of assets like credit card receivables, car rental fleets and others will most certainly continue. The technology may be different, and probably much simpler, but continue, it will. The general market conditions that we see today are generally favorable for the industry. In the last 6 months, in certain U.S. public finance deals, premiums have been increased by 60% or more. The current dislocations will likely result in a smaller and more pricing disciplined bond insurance industry in the future. The combination of these effects we believe will create over time, not right away, an opportunity to write business very selectively and achieve risk-adjusted pricing that is very attractive.

Before I close I want to say a bit about where I think the industry is headed, especially in light of recent events. And again I’m reminded of the words of another great philosopher Yogi Bear. When he said, a guy ought to be very careful of making predictions, especially about the future. So I will take my chances here anyway, and suggest the transformation of our industry is already under way. The first phase was the sorting out what exactly the exposures are for each company and the determination of what is required for each company to maintain its market position.

The second phase is the execution of capital plans, a shift in the structure of the industry and the emergence of winners and losers. It will be a return to a more stable and consolidated marketplace as the last element. I can’t say when the third phase will begin with our capital plan fully implemented MBIA stands firmly in the second phase and we have every intension of retaining a leadership position in the third phase as well. I am confident that MBIA’s place in this future scenario is sound. We will need to manage through the difficult current environment with our brand value, our employees, our capital base, market position capabilities, balance sheet and reservoir our future earnings give us a solid platform for future growth that few others enjoy.

And finally I want to express my appreciation to the large number of shareholders who reached out to me and others in our Company, over the past several weeks to share their support and confidence. These gestures have meant a great deal to all of us and I can assure you that we will continue to do all that we can to merit and trust, to merit the trust and confidence you placed in us.

With that I’ll turn the call over to our CFO Chuck Chaplin, Chuck you still awake?

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

Thank you Gary. For this quarter we’ve included a lot of detail on the income statement, in our Press Release. So, I’m going to keep my remarks about the income statement relatively brief and get on to a number of other current topics. But first on production, in the insurance business, while the fourth quarter production numbers look reasonable; there is a story behind them. October was robust, and then as concerns over our exposures to the housing market grew, with the ratings agencies announcements that they would be rethinking capital requirements, production dropped in November and then dropped further in December, along with issuance into the insurance market.

Although we had some slippage in our market share we were still 22% of the domestic public insured market in December. Our quarterly production in domestic public finance was higher than last year, driven by continued success in the military housing sector. That said, the last two weeks of December were quite slow. Going over into the first three weeks of January 2008, we did wrap $700 million of Bonds for $4 million in adjusted direct premium where ADP. This week, we did two hospital deals that more than doubled that production. Even in this environment there continues to be demand for the MBIA wrap.

Our international public finance production was also down in the fourth quarter due to investor’s concern over the U.S. mortgage market. Global structured finance business was off significantly also in the fourth quarter due to the dislocations in much of that sector which continues today although we expect overall production to be low this year, with the somewhat stronger pipeline internationally, than we do here in the U.S.

Now turning to the income statement, I’ll make a few comments on the quarter as our release really focuses on the full year results. Insurance revenues were level, and scheduled premiums, scheduled premiums earned increased by 13% the fourth quarter of the sequential increases. The strong production of the last several quarters will help maintain the flow of our revenue, as we head into a lower production period. The funding income was down 50% in the quarter, and invested income was basically level. Our operating expenses were down 24% on a GAAP basis and gross insurance expenses were down about 19%. About half of the decline in gross expenses is due to the adoption of our retirement plan last year that caused an acceleration of recognition of long-term compensation and about a third was due to lower loss prevention expenses.

In last year’s fourth quarter we still had meaningful expenses related to Euro Tunnel. The big story in the insurance segment of course is the loss and LAE expense that we recorded. The total was $737 million, of which $23 million is formulated. The balance or $714 million is due to our exposures in the prime second lien portfolio. $614 million of that is associated with case reserves on 14 deals with $7.6 billion at par, on which we are paying claims or expected to pay claims in the near-term. As of year-end, we paid out about $44 million in cash net of re-insurance on those cases and we would expect that the payments will extend over the next two or three years.

Mitch Sonkin, is going to speak in a few minutes about the analysis that drives our estimate but it is important to note at this point that the cash impact plays out over a longer period of time, a few years, and doesn’t cause a material liquidity issue for the Company. In addition to the cases, we recognized that the characteristics of the deals that we have not reserved are not materially different than those, for which we have. They simply haven’t exhibited the elevated delinquency of those first fourteen. Therefore we are boosting our unallocated reserves to account for probable losses in the balance of the portfolio.

So, those losses produced the negative insurance income that you see here. Our investment management segments income continues to grow. At year-end we had assets under Management, which were even with 2006’s fourth quarter, but we enjoyed somewhat wider spreads on asset liability positions that we entered in the third and fourth quarters. The corporate loss is static but this year’s results included an impairment of an alternative investment, which was about $3.5 million. At this point we have no third party managed, no third party managed alternative assets, we do have $25 million investment in a fixed income fund that MBIA assets management is starting.

Gains and losses include $24 million of unrealized gains, which contained two impairments totaling $20 million in the act of liability portfolio. It also includes a $270 million positive mark-to-market on total return swaps that we used for economic hedging purposes also in the acts of liability portfolio. The big story here though is our $3.4 billion mark-to-market on insured credit derivatives and I’ll returned to this subject in a few minutes. Operating income excludes the impact of the mark-to-market but includes the $200 million pre-tax impairment of 3 CDO squared which we regarded as operating items just like the loss reserves on the second lien portfolio. Mitch will also touch on the derivation of that $200 million loss.

Moving to the full year the drivers and the key items are virtually the same. The first three quarters of 2007 were normal ones where after-tax operating income totaled $601 million and then a fourth quarter reduced the total to $193 million as a result of the case loss and impairment activities that I just referred to. So, our mark-to-market, The fourth quarter mark-to-market with $3.4 billion. Now I’ll get into the number in a minute, but I do want to go over some background, which may serve to put the change in fair value of our contracts in proper context. We write credit protection on CDOs and CMBS pools in derivative form, in credit default swaps. These credit default swaps had very different terms than the CDS that are trading between other capital markets participants.

Terms which protect us from liquidity risk. We do not post collateral and the instrument cannot be accelerated except at our options. We have been criticized because our mark-to-market don’t reference traded CDS. That’s because our contracts don’t trade and the differences between financial guarantee type and CDS and other tradable CDS are so great. The other question that we get is based on a comparison of our mark-to-market and those taken by companies with outright ownership of portfolios with CDO tranches. This comparison we believe is inappropriate as well. Since we don’t know the makeup of the portfolios of CDO tranches our marks are being compared to.

We should keep in mind that when a financial institutions owns a AAA tranche and insures it with us. They retain a deductible amount and the mark on that deductible will be much more volatile than the mark-to-market on a liquidity protected senior position. And it’s probably true that the swaps would then be IA on the books of those institutions largely offset their marks on our reference interest. So, the remaining marks that they report almost must be on trades other than those hedged with MBIA. So, it shouldn’t come as any surprise if there’s not much of a relationship between our marks and theirs, we are marking fundamentally different positions.

Since there aren’t good market observations for our exposures, we use the model to estimate the fair value of our position. The model simulates what a bond insurer would charge to wrap the transactions that we're in today based on the default risk of the underlying collateral. The default risk is estimated by referencing market spreads on the collateral. Our model then estimates an implied insurance premium and the present value of the difference between the implied premium and the actual premium is the fair value. Our market as I said is driven by changes in market spreads and here we see the cash spreads on CMBS and RMBS, which rose dramatically in the fourth quarter. These are reasonable proxies for the spreads that cover most of our transactions that are subject to FAS133. And there’s kind of a double whammy effect.

Our model implied a non-linear relationship between fair values and spreads on collateral. This shows the relationship for a sample CDO as the spread on the collateral gets larger, the implied insurance premium and therefore the mark-to-market grows more than proportionately. In the fourth quarter spreads were already wide so we're on the right hand side of this graph and then they got wider. So, the impact on our mark was quite substantial and you could see the quantification of that here in the first column of numbers on the left you can see that $2 billion roughly of the mark was due to spread widening. In this quarter also, though, the rating agencies downgraded thousands RMBS issues including many, which were collateral on our deals. The impact of the downgrades contribute nearly one-third of the mark-to-market or $1 billion.

Because we haven’t seen much in the way of actual losses in the portfolio. The impact of collateral erosion is still small and of course for the first time and you can see this on the far right, we have credit impairments that are embedded in the mark. Please note that the impairments are estimated using the bottom-up process that Mitch Sonkin runs, that relies on detailed analysis of the collateral and the deal structures. The mark-to-market are the result of more top-down analysis. Not that you should covary and it does make sense, that the sector that saw substantial credit migration is also where we saw some impairment.

The CMBS portfolio is one where we have seen dramatic spread widening which doesn’t appear to have much credit migrationary erosion content, because credit fundamentals in that sector continue to be quite strong. Technicals effecting the trading in the CMBS indices maybe driving the mark here.

Now moving to Slide 10. I’d like to drill down a bit on our capital plan Gary already gave you the punch line, which is that we intend to capitalize our business to withstand worst case potential experience to ensure that MBIA remains a strong and stable franchise for the longhaul. Let me review a bit of ancient history. At mid-year 2007 we and the market began to have some concern about subprime mortgages as analysts began to forecast 8% to 10% cumulative losses on some subprime securitization, at those cum loss levels there wouldn’t have been much impact on our subprime exposures either direct or in CDOs but the deterioration in the mortgage market generally began to affect our prime second lien portfolio.

Due to the uncertainties we switched at that point to a capital conservation strategy shutting down our share buyback activity. As the fall wore on an estimate of subprime losses were recalibrated into the 18% to 20%, this calls into question not just lower rated RMBS but also high grade subprime collateral in our CDOs. We recognized in November that we had the possibility of requiring additional capital to maintain our AAA ratings and commence the process of building our capital enhancement plan. By the time the rating agencies gave us their feedback in mid-December we had already raised $1 billion and had a plan in place that would ultimately raise an additional $1 billion. So let’s pick up the story from there on the slide.

Here is the current state of play with the rating agencies. In December Moody’s affirmed our AAA with a negative outlook only to move it to a review for a downgrade status four weeks later. This action caught us a bit by surprise but we still anticipate that the results of our capital plan will be that we need to exceed Moody’s requirements and that the rating will be returned to AAA stable. Moody’s indicated that they will undertake an industry level review focusing on the long-term demand for bond insurance. We believe that there is ample evidence of demand for our products and that demand is more likely to grow than shrink in the future. We don’t believe that bond insurance will go the way the buggy-whip but the industry does have some work to do to rebuild its credibility including recapitalizing and getting to a stable ratings outlook.

S&P has confirmed that our capital plan more than meets their targets for AAA ratings and that they will keep the companies that are exposed to the housing market on negative outlook status and so S&P believes that the coast is clear with respect to the mortgage markets. Their press release of two weeks ago shows that actual subprime losses through December were somewhat less severe than their model would have predicted but they said that the expectation of a prolonged period of house price depreciation generates a higher expected cumulative loss. Even after that adjustment to their model MBIA has more than enough capital to meet their standards. S&P announced yesterday that they would downgrade 8,000, 6, 2006 subprime RMBS securitizations and CDO tranches. While we have not been able to assess the total impact of this as of yet, it appears that S&P is reflecting in security ratings the changes in outlook on the subprime market that they articulated in their January 15, release and that they have already tested against the monoline companies. Fitch affirmed our AAA rating with a stable outlook two weeks ago upon the successful completion of our surplus built offering as Gary had said.

Now moving on, on the left side of the next chart we are comparing the expected cash losses that we have recognized or will recognize on our financial reports as of year-end. With the unexpected or stress case losses that the agencies are requiring that we capitalize to. Our expected losses stem from a bottom-up analyses of each credit in the portfolio while rating agency analyses are necessarily more top down and are attempts to estimate worse case losses. While each agency approached this challenge somewhat differently the range of impact from capital among them is relatively tight. We did have and we show this on the right. That capital shortfall, that ranges from $1.75 billion to $2 billion, that’s including all the updates to capital requirements that have been reported out to us by the agencies thus far and that is shown here.

The elements of our capital plan at this point has been well publicized. I should add that given both the volume and mix of new business, so far in the first quarter of 2008 I’d expect another hefty addition to capital in the quarter even if we take no additional actions. Let me give you a couple of updates. We raised $500 million in equity yesterday and we have Warburg Pincus commitment to backstop an additional $500, although we originally concede this as a rights offering we also considered… and we are also considering alternatives, which preserve the idea of a backstopped equity offering. Unfortunately I cannot go beyond that at this time. We are in the process of finalizing the estimate of capital formation from operations in Q4 and we are negotiating reinsurance agreements. While these numbers, the value of the roll off and reinsurance benefits, they move around a bit. We are confident that together they will have at least this much impact on our capitalization.

Obviously, we don’t know where the housing market will go. We are pretty deep in uncharted terrain today and we are also uncertain about how the rating agencies will sort things out but our course of action is certain. We are going to work to capitalize the company to the point where there are no questions in the market from serious analysts, investors or customers about our capital position or our intent. Here, we show our capital position relative to requirements on a pro forma year-end 2007 basis. We will have an estimated access over rating agency’s stated requirement of $750 million to $1 billion including the fourth quarter’s statutory earnings. By the end of the first quarter that excess will likely be another $200 million or so higher. While it is possible that we will have additional capital requirements due to downgrades of reinsurers or financial guarantors, rating agency recalibrations of models and the like, we believe that they are manageable in the context of this very strong position.

Now moving on another topic. Now that our entire sector is experiencing some stress, we are receiving more investor calls and questions about our exposure to the other monolines and in financial guarantee reinsurers and we think that some of the concerns that we have, that have been addressed to us has been somewhat out of proportion so, let me provide some context and some facts behind this. We have two types of exposure in the insurance portfolio. Reinsure counter party risk and a small amount of exposure through guarantees on top of other monolines insurance policies. On the left, we show that we have ceded roughly $84 billion of parts who are reinsurers.

Channel Re is the largest participant with about $43 million… $43 billion. Ram Re and Assured are the next largest at $11 billion and $9 billion respectively and the others are much more minor. The total amount of capital credit that we get for reinsurance ranges from $1 billion to nearly $2 billion depending on which rating agency model you are looking at. On the wrapped overs on the right here are exposures small and the capital impact is trivial because of this tool default probability associated with the underlying exposure.

Now I would like to spend a few minutes on Channel Re, it’s obviously a special case. MBIA is a 17.4% owner of Channel Re so from an accounting and disclosures standpoint it is a related party. But don’t take that to mean that we control Channel in some way or that it is a captive reinsurer. The 83% owners are PartnerRe, RenaissanceRe and Coke Industries and they are not in this business to be taken advantage of by MBIA. Channel is an attractive investment for them, the returns on which benefit from the Bermuda tax advantage. It has a full staff and makes its own underwriting decisions on facultative sessions, which is most of the business that we send them. There are absolutely deals that we wish to cede the Channel that they have turned down, usually for capacity constraint reasons but sometimes also because of underwriting differences of opinion. While Channel’s portfolio does have more structured finance than MBIA, it has much less of the second lien RMBS that we have taken large provisions on.

Bottom line, Channels’ an independent reinsurer that we happen to have an investment in. Because it does have CDO exposure the rating agencies were at some point complete a review of Channel just as they have for MBIA and Channel maybe have a need for additional capital just as we did… The owners of Channel are strong, well capitalized company who are fully capable of adding capital to the business to maintain its AAA ratings but obviously, from a risk perspective we need to consider the impact of a downgrade. The capital credit that we get for Channel is about $700 million to $1 billion depending again on which rating agency model you are looking at. That credit is backed by nearly $500 million in cash collateral in two trusts. We think that we are very well protected. In the event however, of a downgrade to AA we think the worst case capital impact to us is $100 million to $200 million but the cash collateral may mitigate that. Ultimately we could take back the exposure or leave the coverage in place and increase the ceding commission.

Now we have identified an error that’s in our press release of last night, we said that Channel Re was on review for downgrade with both S&P and Moody’s and that is incorrect. A Channel is only under review with Moody’s. Another event that took place at Channel Re is that we have ceded it, transactions that are subject to FAS133. In the fourth quarter as MBIA has its own $3.4 billion mark to market loss a portion of which is ceded to Channel which brings Channel’s book equity below zero. The investors who pick up the earnings of Channel to the equity method including MBIA will effectively adjust the carrying value of their investments to zero. Just as with the primary companies though this is a non-cash charge that we expect to reverse over time expect for any present or future credit impairments. We do not regard Channel Re as permanently impaired, we are still expecting solid returns on our investment in this company over the long haul. And we also have a $37.6 billion portfolio proprietary fixed income assets in the insurance and asset liability management portfolios.

As a major pool of fixed income capital it makes sense that we would own some wrapped bonds as insured paper has a significant of the high grade fixed income market. While we buy wrapped paper for investment, we do an analysis of the underlying assets for credit and quality so they end up being high quality underlying. The average ratings of the portfolios excluding the impact of all wraps dropped one or two notches in insurance and asset liability respectively but remain within the AA range. Now 6% to 7% of the portfolios insured by MBIA, that’s been suggested that the rating agencies should charge capital for the underlying rating in the investment portfolios. The fact is we are already being charged capital for that underlying in the insurance company. In the event that that underlying were to default the insurer would pay on the policy and all bondholders including MBIA itself will benefit. There is no way that we can lose twice from a single default so it doesn’t make any sense to consider doubling up on the capital charge.

Next topic, our holding company activities. Lately we talked to a lot of people about our holding companies and as result some analysts are suggesting that we have substantial liquidity risk. It’s even been suggested that that we might be unable to service interest on the holding company’s debt as early as well, as early as tomorrow. Nothing could be further from the truth. MBIA does not take material liquidity risk in any area of its business and we will walk you through the issues affecting the holding company in the asset management activities. But just one minute on the insurance company itself. We periodically perform a statistic test of one-year liquidity comparing stress liquid assets to one in 10,000 event claims experience and generally the ratio ranges over 5:1. We also look at the one week with the three largest debt service payments on wrapped bonds assuming that it is three large transactions default at the same time. This ratio also shows typically a 5:1 type ratio.

Today we have a live stress case; we now expect to pay out $814 million in cash claims on our RMBS and our CDO squared. In the near-term we expect to pay out the $614 million that we have reserved on the RMBS over the next 24 to 36 months. These net out flows will be easily handled by our cash flow from operations, which aside from losses runs to $900 million to $1 billion per year. Now the holding company MBIA Inc. engages in two main activities. First, there are your typical corporate level activities of making investments and such, accessing the capital markets for debt and equity covering the cost of the board of directors and other public company type costs. Then we have our asset management activities, a majority of which is the asset liability business, where we issue liabilities guaranteed by MBIA Corp. and then purchase high grade fixed income instruments that enjoy this red income. To get a clear picture of our liquidity profile, it is important to look at these two activities separately. So I will talk for a couple of minutes about holding company activities and then bring it over to Cliff Corso to review our asset liability management business.

The bottom line is that our holding company assets and bank lines provide a substantial coverage of actual expenses at MBIA Inc. in the holding company activity. We go into that a little more detail in the next page. In our holding company activities, we have a 12/31/07 cash balance of $434 million. Of course, we also have a revolving line of credit at the holding company which I will come back to. The maximum regular cash flows at the holding company could expect in the year includes the statutorily permitted insurance company dividend and the net income of the asset management business if it were to stop growing the ALM business. And that totals about $639 million. I don’t expect that we will bring that much in cash to the holding company this year, we expect to grow ALM activities and the insurer made dividend less than the maximum amount and as you will see we don’t need it.

The uses are about $117 million of interest and expenses and then we have a discretionary charge shareholder dividend. The $112 million that’s shown here reflects the closing of the Warburg Pincus investment but not the rights offering. So actual annual cost will be more than $229 million here by the time we complete our capital plan. So lets just say that they are about $250 million. The cash on the balance sheet then gives us almost two years worth of coverage. Maximum insurance company dividends add another two years of coverage, the bank’s facility add another two years of coverage. So that’s six years in total and of course we haven’t considered changing the dividend rates, which we have shown that we will do to the extent that the company comes under stress. Bottom line is rumors that the holding company would be insolvent in the near-term we believe are without merit.

Just a word on our revolver, this facility has eleven bank participants and expires in 2011. When we began to contemplate a surplus note issue we were able to get our banks to agree that the surplus notes will be an equity item for the purpose of calculating the covenant and we made disclosure of that fact. Even with the substantial losses that we had in the fourth quarter we don’t strip either of the covenants in the deal so our revolver continues to be available to us in the ordinary course. Now with that I would like to turn the agenda over to our Chief Investments Officer, Cliff Corso.

Clifford D. Corso - Vice President and Chief Investment Officer

Thanks Chuck and good morning to everybody. Today I would like to cover three areas of interest regarding the asset management businesses, principally as they relate to the balance sheet of MBIA. First, I would like to review MBIA’s insurance investment portfolio. I will follow that by commentary on our AL products statement and finally I will wrap it up with some comments on our conduit segment. Together these three segments sit on the balance sheet of MBIA and comprises the significant components of roughly $41 billion of the overall footings of the company’s consolidated balance sheet.

Let’s start with slide 28, the MBIA’s investments insurance portfolio. The key take away on this slide is that it is a solid conservatively managed portfolio. It represents the capital account for MBIA and so it’s here to back the insurance guarantees, it sits at about $10.3 billion as of December 31, but it is now growing and it is growing primarily due to the proceeds from the surplus note issuance as well as capital investments that Chuck mentioned. Chuck covered a little bit about this portfolio with regard to the wraps but I just think it appropriate to highlight a couple of the statistics here. It is a very high quality, currently AA plus, AA 1 rating. Chuck talked about the cut through without the wraps, you can see it is still a mid AA portfolio even without affect to the wrap component of the portfolio. Additionally we have diversified the portfolio greatly, very granular, on average the position cycles are less than 25 basis points or a 0.25%, a little bit under $20 million for credits.

As a tax payer municipal bonds of course play a part within the portfolio. You can see that the municipal component is about 57% of the portfolio. Basically what we are after here is the best after tax return that we can get per a unit of investment dollar and I just say munis by the way as perhaps you are reading in the paper during that volatility in the market is becoming incredibly attractive and cheap by the way of historic metrics. Munis are currently about a 100% of treasuries that represents pretty good opportunity for us to deploy some of the proceeds that we have been talking about to that sector. In terms of the sector allocation, we have also been very conservative. Do note, there is no CDO exposures, no securities below investment grade, but it’s been a 0.25% BBB indeed 73% of that portfolio is rated AAA, which includes our cash in government securities and 94% plus of this portfolio is rated AA or higher. There is no credit bar billing going on, it is a very high quality portfolio. That’s the bottom line.

The next segment I want to touch upon in the following slide is our AL product segment, our asset liabilities, our business that Chuck referred to. This segment is also on balance sheet, we had approximately $27 billion in outstandings as of year-end. This is structured much like other large insurance company ALM programs; indeed one of the strengths of the program is the liability funding strategy, which I will talk you though. We utilize a diverse funding platform to purchase a high quality fixed income investment portfolio and then we neutralize interest rate and currency risk through matching and hedging and earn the credit spread between the assets and liabilities so as Chuck mentioned we are enjoying those spreads between the borrowing cost and the return on the assets. It is not a trading business; it is a spread business where we take a very long-term approach to managing those assets and liabilities.

Just a moment on the diversity of funding. We have three primary sources of funding that we utilize, investments agreements or IAs which are issued through MBIA Inc., and guaranteed by MBI Insurance Corp and representing about $16.1 billion over the outstandings, medium-term notes or MTNs are issued by MBIA Global Funding, also guaranteed by MBIA Insurance Corp, asset $9.4 billion and term rebound which is entered into with high quality global banks at $1.2 billion. A key point here is that these aren’t separate programs; they’re just different sources of funding that we use for our unified AL products segment.

The diversity of the funding platform allows us to access different investor bases at different points on the yield curve and results in an optimized liability profile. We operate with a tight match between the assets and liabilities that what we will discuss later. The bottom line is a very, very solid business as Chuck mentioned in the second half, has been robust, third and fourth quarter had record volumes and we took advantage, we were taking advantage of the widespread offered in the market within that business. But over a longer haul this is a business that we have been operating successfully for over 15 years, through the numerous economic cycles and dislocations that we have all experienced. Supporting the liabilities of the high quality asset portfolio, which is displayed on the next slide.

Let’s talk a little bit about this slide. We take a look at the sectors as depicted in the pie chart. I draw your attention to the more topical sectors are being discussed today. That would be non-agency RMBS in the ABS CDOs, which we believe we have managerial exposure to. You will see within that chart some backs data. Let me talk about each of these sectors. Within the non-agency RMBS, 8.1% of the portfolio or $2.4 billion in that category, virtually all AAA rated with 53% of that portfolio being wrapped. Small component 1.35% or $411 million of that portfolio is direct subprime RMBS, which itself is all AAA rated and sits at the top of the capital structure in terms of our investments, we are very comfortable with that portfolio. Then the ABS CDO portfolio represents about 6% of the overall portfolio of $1.789 billion. So 100% AAA rated by Moody’s and S&P, 65% of that portfolio is wrapped.

We have modest allocations to high grade at $864 million, mezzanine approximately $872 million and minimal exposure to CDO squared at about $54 million. Of course we recognize the likelihood for ratings migration given the actions that we have seen in the market and that Chuck mentioned, but we do believe it to be manageable within the context of the overall portfolio. Why? The granular segment of our portfolio represents 35 separate deals, 95% of these transactions attached to the senior or super senior levels and indeed we have it diversified by vintage and manager.

Even taking into consideration that potential for rating migration that inevitably occurs during down market cycles, and a small segment of the portfolio that we are talking about, we do feel comfortable with the overall portfolio. Again it’s a AA, high AA average quality for both Moody’s and S&P cutting through and looking through without the RAS that remains AA, AA through AA minus. Less than 1% of this portfolio is BBB and we have de minimis, low investment grade exposure, a little less than $6 million. Additionally it is also very diverse, it is invested in over 60 different sub sectors and with an average size holding of $20 million. So, it’s a good solid portfolio, continues to perform well actually throughout this market volatility.

Moving on to the next slide. Talk to you about the funding platform, the asset portfolio. Now lets talk about how they come together in our ALM approach and strategies. In essence how do we manage the ALM book. One of the key abjections of this book is to remain duration neutral. So, therefore, duration is closely matched in the portfolio and not only on average but throughout the entire yield curve, that’s what we mean by partial duration match. We also apply interest rates stresses to ensure a durable match using varied yield curve, shapes, levels and stresses. Bottom line is that there is not a lot of movements between the assets and liability cash flows by design.

Another reason why that match is tight is because we have a very laddered, asset and liability portfolios. I think it is worth noting that the weighted average life of the liability portfolio is over five years and that over $13.5 billion of the $26.7 billion of liabilities are matured and it’s been stretched out from five years all the way out to 40 years. I think it is also worth reemphasizing that we maintain a diversified funding source, again investment agreements, MTNs, repo over various products, various maturities, various markets. We combine this with our investment portfolio that puts us in a very strong and flexible financial position.

Moving to the liquidity perspective, also to ensure we have adequate resources to cover liquidity needs even under severely stressed scenarios as Chuck mentioned earlier. At the end of the day it is funded business, its backed by a high quality portfolio generating predictable cash flow but additional access to liquidity from cash on hand repo and/or sale of securities.

Moving on to the next slide, we have taken very careful consideration to the liability characteristics. As we built the ALM business we were carefully paying attention to the impacts of down grade triggers and the flexibility of the liabilities and the withdrawals of those liabilities that are present in some of the investment agreements. That’s the key reason why we built the first funding platform, that contains both MTNs and term repo which represent about 40% of that liability stream. Those are not subject to flexible withdrawals or down grade provisions. About 75% of our investment agreements do contain flexible withdrawal features, which is typical with these types of contracts but the flexibility is only with regard to specific instruction or debt service payments. When needed, they do not allow for discretionary withdrawals.

All right, let’s move on to down grade risk. And here we are talking about the down grade of the insurance, of course AAA ratings and here I would go to the chart, the box in the chart. What we laid out here was various credit gradations that we are looking at for the business from AAA down to BBB, in the middle we have the liability book value which of course starts at that 26.7 and in the right hand column we have a title, almost free collateral, that is collateral that exists on the balance sheet that is unpledged therefore free, occupies a cell, $19.3 billion. And so just by subtracting those two numbers you can see that we start out with some of our deals about $7.4 billion worth already collateralized. Now what happens as it migrates, as it migrates to the AA level?

There’s really no material impact at all. You can see that in the first column I have, Millicom liability book value, it shrinks by $100 million, there is a $100 million termination and there is a small amount of additional collateral postings that are needed as you can see by collateral number going to $18.6 million. So, not a lot of impact at the AA level. As we move down to the A level, you can see here that we do have some terminations, a little north of $2.5 billion and we do have additional collateral drafts. Putting that free collateral section, you can see that we have ample collateral to handle even at the Single A level the requirements that would occur in the unlikely event that a Single A was hit.

The final line here is the BBB category. And here with regards to terminations you can see that a large component of the investment agreements do terminate. We dropped from 24.1 to 11.6. But even in that event we are still left with 11.6 liability stream with free collateral of $9.4 billion. Again, the point here is that there is ample collateral to handle credit migration and that was purposeful, and we paid attention to that when we were constructing this business.

I don’t have a slide, but I do want to… I did want to spend a minute or two on the conduits. There is a lot of information available on the conduits in our FAQs and Q&As, but some of you had asked additional questions around it. So, let me respond to those. Our conduit segment which is also on the balance sheet consist two separate programs, AAA one, that’s our CP program rated A1 P1 by S&P and Moody’s, that’s about $855 million of outstandings. In our medium term note program Meridian Funding, which is rated AAA, AAA by both Moody’s and S&P, oustandings of about $3.4 billion. The purpose of these vehicles is to provide funding for MBIA insured client transactions. Each asset within the vehicles guaranteed by MBIA Insurance Corp, and therefore, these assets go to the exact same underwriting and approval process as any other issue insured by the Company.

Performance on both of these vehicles has been strong, all current transactions remain investment grade and there has never been a loss on any transaction funded through the conduits. With regard to liquidity exposures, the punch line is MBIA does not have liquidity exposure in either of these programs. Why? AAA one is 100% supported by liquidity facilities provided by a number of highly rated global banks. MBIA is not required to and has no obligations to fund these assets. The Meridian MTN program is a matched program in terms of its assets and liabilities. Each asset within the vehicle has a corresponding MTN that matches the cash flows exactly so that no payments would be required on the MTN without Meridian having received corresponding asset cash flow. And again, just a reminder of this series of two Q&As on the website which discuss these programs in detail, but the key takeaway is that neither program exposes MBIA to liquidity risk.

So, those were the topics that I wanted to cover before I turn it over to Mitch Sonkin, I would just like to bring it back to a couple of the key takeaways for the asset management segment. First and foremost the balance sheet is strong. Each of these segments is acted by a diverse and high quality pool of assets. In addition, the ALM business carefully manage the liability profile of a variety of funding sources and that gives us flexibility in managing this business. And throughout the life of all these segments, the asset management process, program guidelines have considered and provided for the potential significant strength [Technical Difficulty] as a result our business has remained both strong and durable.

With that I would like to talk… toss over to Mitch.

Mitchell I. Sonkin - Head, Insured Portfolio Management

Thank you Cliff. Good afternoon everyone, I am Mitch Sonkin. I am Head of Insured Portfolio Management.

Please join me in new page 34 in the presentation which is an outline of what I will cover today. First, we will begin with a brief update of where our backlog of business stands today then spend the bulk of our time on the two sectors that have experienced stress in the last quarter and have been the focus of most interest and questions. U.S. residential mortgage backed securities, specifically our prime second lien book and our multi sector CDO book.

Before I get into those areas please turn to page 35 for a few comments on our overall portfolio and where it stood at the end of the fourth quarter apart from the high stress areas. This is to place those sectors in context against our total $678 billion net part outstanding. Going into the fourth quarter, MBIA’s overall book was well positioned as we entered the downturn in the credit cycle. We maintain a strong and diverse portfolio, 82.5% is rated A or better and you can find more information on this on page 25 in the fourth quarter operating supplement. We have a highly diverse portfolio based on asset class, issuer, servicer, geography and vintage. Our largest exposure concentrations are the highly rated stable sectors, general obligations and utilities, and to CDOs supported by granular collateral pools.

We have achieved successful completion of several high profile remediations in 2007 as notably Eurotunnel and the EETCs and the legacy airline bankruptcies of Northwest and Delta Airlines. Our field structures, control rights, and experience enable us to optimize our position remediating these complex deals. We also have continued to see a positive trend in our below investment grades exposure as of December 31, 2007, that only 1.4% of MBIA’s net par outstanding was rated the low investment on an S&P priority basis at December 31 comparing with 1.9% on an S&P priority basis at 12/31/06. At December 31, ’07 our portfolio was 2.1% on an MBIA rating basis taking into account that our ratings have already been adjusted for some of the deals in the RMBS sectors which were getting downgrades from the rating agencies on.

Our portfolio stress generally concentrates in the U.S. RMBS related sectors both direct and indirectly through CDO exposures. But we are closely watching sectors which could potentially be impacted by the subprime mortgage fallout namely consumer credit areas, would be credit cards and autos, and of course, commercial real estate, CMBS which are both currently performing acceptably and as expected. We have a deep and experienced and strong surveillance teams and workout teams to help steer us through these troubled times in credits. While none of us can predict with precision how the economy will perform in the months ahead, we believe we have the team to handle those eventualities.

I would like to start our review of MBIA’s back book-of-business and invite you to join me on slide 36. Here we will talk about our direct MBIA RMBS portfolio and please note that the discussion of the mortgage book which I am going to have with you does not include manufactured housing, home improvement loans, and high LTV loans simply because these are older credits and runoff and comprise a small percentage of the overall mortgage portfolio. The credits I am discussing are individual investment grade mortgage backed securitizations, do not include any RMBS collateral within our CDO book-of-business which I will be describing later.

If you look at slide 36, you will see that there are two separate types of RMBS related deals we insure. The first of the prime business which has been our main focus and the second is subprime. MBIA’s prime business which is comprised of first and second lien mortgages to high quality borrowers with unblemished credit records concentrates on two areas. First, international capital release and covered bond transactions which are supported by AAA underlying collateral and are conservatively structured and solid performers. Second, prime home equity lines of credit enclosed in seconds. Both are what we refer to generally as second lien products. HELOCs are floating rate loans which generally require interest only repayment through a period of time before amortizing and closed in seconds are fixed rate second mortgages which generally amortize principal and interest from the outset. To reserve, we have announced in the fourth quarter directly pertains to the second lien portfolio and accordingly will be the focus of my discussion today. In subprime businesses, MBIA has exclusively read only AAA underlying securities in the secondary markets. Our exposures per deal are focused on first lien products and are very granular usually under $100 million. And this book is not showing any material sciences stress at this time.

Now, let’s go to the next slide which gives a dollar breakdown on the two areas I have been discussing. Looking at slide 37, our $43.4 billion direct RMBS book. $21.9 billion of that book of total net par outstanding represented by the prime and subprime book is not of concern to us at this time due to deal structures, performance, and attachment points which have significant subordination to protect MBIA’s position. MBIA’s prime exposure is at 12/31/2007, $17.5 billion which includes international, which I referred to a moment ago and the Alt-A deals. As you can see most of this exposure over $13 billion is international capital relief and covered bond deals in short at the AAA level with ample cross protection. These exposures are almost entirely AAA and performing adequately. I am going to skip the prime HELOC and closed end second categories for a moment and discuss MBIA’s subprime exposure and some key characteristics.

Our total direct subprime net par outstanding at year-end 2007 was $4.34 billion. These deals are able to absorb 20% to 35% losses prior to paying claims. We remain optimistic that industry projected loss rates will not materially impact MBIA wrapped tranches of these deals. In response to the weak aggressive underwriting trends that we observed during the housing boom after 2002, MBIA enacted a conservative strategy towards subprime RMBS collateral and issuers given material market growth and the potential fragility of the business models of second and third tier issuers. MBIA provided insurance on first lien products only at the AAA class of subprime deal structures since the beginning of 2004. We focused on top tier players. We have minimal indirect exposure to monoline subprime issuers over 200 of which have experienced solvency issues in the current marketplace. MBIA’s subprime portfolio has been thoroughly vetted by the rating agencies and potential equity partners with the universal view that MBIA’s portfolio presents minimal risk loss to the franchise. So, due to substantial subordination and deal loss protection on these deals and the selective strategy we took towards direct subprime exposure, we consider risk of material loss to be minimal at this time.

Now returning our HELOC closed end second deals. This is the area where are experiencing stress in our RMBS portfolio. As you will recall MBIA announced a reserve of $614 million in the quarter ended December 2007. The reserve directly relates to 14 closed end second and HELOC transactions with a net par of approximately $7.5 billion on deals which were issued from 2005 to 2007. The product composition of the reserve deals are 12 HELOC and two closed end second transactions. Let’s walk through those segments now and please turn to the next slide.

It’s page or slide 38. MBIA is focusing its attention on the prime HELOC and closed end second portfolios because of the stresses we are experiencing and projecting to experience in these portfolios over the next few years. As shown on the prior slide, our net par outstanding exposure for HELOC and closed end second was $21.5 billion as at December 31, ’07 which is split nearly evenly between the two products. The majority of these deals have been originated over the last two years. MBIA wrapped these deals on a primary basis and attached at a BBB or BBB minus level. The corresponding rating on these transactions is and remains AAA.

MBIA only wrapped prime quality HELOC and closed end second deals. The weighted average FICO scores for HELOC and closed end second deals in 2006 was 706 and 719 respectively and the weighted average FICO scores in 2007 were 702 million and 710 respectively. Generally, credit enhancement consisted of over collateralization and excess spread. MBIA’s top exposures for closed end second and HELOCs represented our strategy of maintaining relationships with top tier issuers. As evidenced by the concentration in net par outstanding to Countrywide of $10.8 billion and ResCap at $5.2 billion. We did focus on these sectors, why did we focus on these sectors for new business in the past two years is a question we have frequently been asked. Historically, MBIA had a successful track record with the second lien product, experiencing solid returns and performance for a number of years. And historically, the nature of HELOC were high quality, very low default with predictable performance. Given changing market conditions, the decision to focus on 700 or higher FICO bars within these products or remaining cautious on subprime was a tested strategy.

Let’s go to the next slide and join me on slide 39 please. So, one may asked was changed. We are going to pause on this slide for a few minutes, so I can explain some key points on current conditions. During last summer, we began to notice elevated delinquency levels on several 2005 and 2006 vintage HELOC transactions. Following the virtual shutdown of the U.S. mortgage refinancing markets as well as the decline in housing prices, MBIA’s analyses indicated that certain 2005, 2006, and 2007 HELOC deals were experiencing the following performance characteristics. First, a rapid increase in delinquencies. Second, inability of excess spread which is interest from loans minus fees and interest owed on notes to add base loan charge-offs. Third, the failure of certain deals to either build or maintain the required over collateralization, yield protection cushion targets I discussed a moment ago. Although, we had seen increased delinquency levels, they still remained adequate credit protection relative to those delinquencies.

Some of you will recall that MBIA presented our initial concerns on the second lien HELOC portfolio on our August 2, 2007 Investor Call on subprime RMBS and CDO exposure flagging to the markets our heightened concerns about these products though the markets at that time were focused primarily on subprime. In October, we identified additional deals demonstrating similar delinquency patterns. The two additional months of issuer data highlighted borrowers who by their credit scores would have appeared to have been prime borrowers becoming delinquent and subsequently defaulting in such a rapid fashion not previously noted for borrowers deemed prime. Our observation which was confirmed in subsequent conversations with issuers and certain about loan characteristics including income, documentation, loan purchase, purchase versus cash out and increased CLTVs, suggested high levels of speculation and potential fraud among borrowers.

We discussed some of the HELOC issues on the third quarter earnings call and as noted in our September 30, 2007 10-Q, MBIA paid small claims on two HELOC deals in late October of approximately $2.5 million. Claims payments occurred sooner than expected clearly. Increased delinquencies and low recovery levels had to be expected given it is a junior lien products have resulted in increased losses. However, at that time, the behavior pattern we have started to see was still in its infancy and we certainly did not expect defaults to increase as rapidly as we did during the fourth quarter. In November and December, we used the emerging trend data driven by layered risk defaults and developed the modeling strategy to size potential loss ranges to the second lien portfolio. We will walk through our general modeling assumptions in a minute, but in summary, deals that had been building over collateralization and had been… and had what we believed for several months for protection were eroding much quicker than expected due to the levels of default rolling through the pipelines.

In early December when we announced the Warburg deal, we also stated that the initial results from modeling strategy I just mentioned resulted in MBIA announcing that it would likely take $500 million to $800 million in loss reserves related to the second lien portfolio in the fourth quarter. The range was based on the data we had at the time and our modeling gave us this indicative range. And recently using additional data MBIA finalized loss reserves within the previously announced range of $500 million to $800 million by setting case reserves of $614 million across 14 deals. Of the net par outstanding related to the 14 deals from which reserves were taken, $7.5 billion for those deal, $6.9 billion were net par outstanding of HELOC deals and $600 million were closed end second deals. We get the question, what is the difference between the deals we have taken, the reserves against versus those we have not on the balance of the second lien booked for $14 billion and what is the worst case scenario. First, it happens to be that the vast majorities of the deals we have reserved against are HELOC deals. Why it is hard to say, but it appears that the HELOC transactions consisted of increased levels of borrowers that were more prone to speculative purchases. The speculative nature of the borrower was attracted to an interest only product.

Additionally loosened underwriting guidelines which permitted the layering of risks more specifically non-owner occupied investor properties, lower documentation and higher CLTV loans resulted in a witches brew, which ultimately resulted in claims against our policies. The closed end second deals are generally younger and they are also a fixed rate product. They may well have more primary residence borrowers and lower level of investor properties in them, so we are keeping a watchful eye, even though their performance has been better, given the market overall. The deals we have taken reserve against generally exhibit high delinquencies in the fault rates, and as you would expect our not achieving over collateralization part of the levels. Accumulative collateral cost rates can range from 15% to 25% for some of our more troubled deals. The deals that we have not reserved began simply are not showing the same levels of elevated delinquencies and do not produce losses on distress scenarios at this time.

Additionally if a worse case scenario as predicted by the rating agencies were to occur, MBIA certainly have the capital to cover those loses, because the rating agency capital requirements are sized to cover the worst case loss scenario. Ultimately, as Chuck mentioned earlier, we were holding capital to protect against losses, that can range from 20% to 40% depending upon the product. The bottom line is that we are holding material amounts of capital against our entire second lien book and therefore we expect to be able to handle capital requirements, should poor performance permeate the rest of the portfolio.

Let’s go to the next slide number 40. Here I want to discuss another key question that I am asked, how did we come towards $614 million reserve number. In order to determine reserves, we targeted transactions, we have employed a multi step process using various collateral performance scenarios to project losses. HPA was indeed a challenge to address and secondly deal investors do not gain access to complete underlying per swing data. So, assumptions were made to determine the length of the housing market downturn and recoveries. And we did not give any credit at all for recent interest rate cuts increased Freddie and Fannie limits and proposed economic stimulus with legislation. Loss reserves were calculated as follows. The first step was to analyze the existing performance trends. To account the loan, there were at least 30 days delinquent, we used aggressive roll rates to force losses, essentially to create a CDR conditional default rate. We assumed a 100%, loss severity which will eliminate any recovery because of the housing price appreciation as well as address any decline in housing prices. This essentially covered the first six months of the deals as existing delinquencies were then rolled into faults and flushed through the transactions.

Step two was analyzing future performance. Here, for losses on loans, that are current on a go forward basis, we calculated losses on the following basis. We took the current three month average conditional default rate, project defaults on a go forward basis for months seven to the end of the deal. 2007 vintage transactions were subject to the greater of the conditional default rate calculated in step one, or the three month conditional default rate. To consider how to treat a HPA stress, we applied a 100% loss severity and we used a CDR burnout factor, which means how long it takes for the deal to return to a more normalized default rate, was employed by us over the next 12 months. Effectively then, the CDR calculated in month seven, this held constant for a 12 month period, and then burns out over the subsequent 12 month period. The effect of using this scenario is impaired deal performance for 24 months. The above referenced assumptions result in cumulative forecasted collateral loss, which was then added to the existing cumulative losses to date. And the resulting net claims after payments if any, on the MBIA insurance policy is then adjusted for reinsurance. And discounted to an MTV, to address the fact that MBIA will recognize losses over time and not in a single period as is previously been described. So, why are we comfortable with these results. Well we assumed a longer term stress period, despite the fact that the behavior we are seeing is currently appearing to be more idiosyncratic. From a main housing price and recovery standpoint, we are looking at a multi year down market, with elevated defaults throughout this period. We performed extremely detailed analysis on each deal and utilized third parties with verification of certain key assumptions as well as loss projections. We are also more conservative than the actual loss expectations provided to us by issuers.

Now let’s turn to the other sector concerns CDOs and let’s start by reviewing our CDO portfolio, please join me on slide 41. MBIA’s $130.6 billion CDO portfolio is highly rated. 87% AAA, and 96% A or better, with only 3% rated below investment grade. Exposure is primarily classified into 5 collateral types only one of which is experiencing stress related to the U.S. subprime mortgage crisis, the multi sector CDO portfolio of $30.1 billion. Let me first describe the four collateral type portfolios. Investment grade corporate portfolio of $43 billion has performed as expected and 97% of this exposure is currently rated AAA, and a vast majority is at the super senior level. In other words MBIA risk attaches at some multiple of the AAA subordination level. And we do not currently expect any material credit deterioration to this book. Second, the high yield portfolio, $13.9 billion is largely comprised of low leverage middle market special opportunity corporate loan obligations, broadly syndicated CLOs, and older vintage corporate high yield bonds. Fields in this category are diversified well by vintage geography, approximately 71% is rated AAA and 98% is rated AA or better. Likewise we do not currently expect any material credit deterioration to this book. The commercial real estate where CNBS portfolio of $3.2 billion is a diversified global portfolio of high quality and highly rated structured deals in the global and commercial real estate sector. $32.6 billion of our net exposure in this sector is de-structured CNBS pools that match with the CDOs. Almost all of this exposure 99.9 in fact is rated AAA currently. And we do not expect any material credit deterioration in this one. For the multi sector CDO portfolio, is where we experienced stress related to the U.S. subprime mortgage crisis.

At December 31, 2007, MBIA recorded $200 million in impairment charges related to three diversified CDOs of high grade CDOs, sometimes referred to as CDO square deals, that possessed the largest buckets, by that we mean 20% to 38% of inter CDOs of ABS collateral with a 2006 to 2007 vintage. More details on the multi sector portfolio will be provided to you by me shortly, but first let’s turn to slide 42 for key policy attributes on our CDOs.

MBIA is the control party of the CDOs we ensure. We generally ensure at levels well above the natural AAA. We cannot be accelerated against and deal liquidation can be executed by no party other than us. There are three primary types of MBIA policy payment requirements. First, timely interest and ultimate principle. Second, ultimate principle only and final maturity. And third, payments upon settlement of individual collateral loses as they occur upon a provision of deal deductibles. The policies are structured to prevent large one time claims and to allow for payment over time for final maturity. So, here the key points to keep in mind. MBIA’s payment obligation varies by deal and by insurance type. Negative basis credit default swaps were designed to mimic the financial guarantee policy that is timely interest ultimate principal no acceleration. The majority of our multi sector CDO exposure is executed in this form.

Second, synthetic balance sheet transactions are protections on assets and their deductible base. Credit events are limited to failure to pay and bankruptcy. Credit events are settled where net loss is determined typically over 12 to 15 months. After the deductible is eroded, MBIA will pay once the net loss is determined. We typically have walk away rights upon counter party failure to pay premium. And we ensure approximately 8.4 billion of multi sector exposure in this form. MBIA’s obligation to pay is after the specified deductible is fully eroded as I mentioned a moment ago. Once the loss deductible is eroded where a loss threshold is breached, it is only then that MBIA settles the loss amount associated with each successive credit event and not the full super senior notional. MBIA’s exposure within this category reveals, is supported by collateral, diversified by both vintage and asset type.

And of course, last the hybrid, where MBIA’s payment obligation guarantee’s only ultimate principle at final maturity where it picks Cap and not interest short falls. The more recent high grade and mezzanine CDOs are executed in this form in the final maturity is 40 and sometimes more than 40 years away.

Now let’s turn to slide 43 in the CDO sector of most concerned the multi sector CDOs. Multi sector CDOs are deals that are diversified by possessing a variety of structured finance asset classes, vintages, issuers and servicers in the collateral pool. First note that the multi sector CDOs of $30.1 billion comprised less than 5% of MBIA’s total insured net power of $678 billion in 23% of MBIA’s $130 billion CDO portfolio as at December 31. Collateral in MBIA’s multi sector CDOs includes asset back securities, the securitizations for example of auto receivables and credit cards, commercial mortgage tax securities, other CDOs and various types of RNBS including prime and subprimes RNBS.

The range of asset classes is found throughout the entire $30 billion multi sector CDO portfolio, which is comprised of deals that rely on underlying collateral originally rated single A or above high grade CDOs. And deals that rely on collateral primarily originated, primarily rated originally BBB. In all cases MBIA cannot be accelerated against, and maintains the right as controlling party within our deals to accelerate our sole discretion. Acceleration is an additional cash diversion remedy which re-directs cash away from subordinate tranches and funnels it, to accelerate amortization of our senior exposure. And note that acceleration is distinct from liquidation of the collateral pool which MBIA also directs or can direct upon certain events of the fall as sole controlling party within our deals. And note further, that the $8.7 billion of CDO squared exposure included in our $30.1 billion multi sector CDO book represents the total pre and post 2004 outstanding exposure for MBIA. In the past we have focused on 2004 to the present. Unless there be any confusion as of September 30th, our total CDO squared exposure was $9 billion, but the portfolio has amortized by approximately $300 million during the fourth quarter to bring us to the $8.7 billion level.

Now let’s go to slide 44 to review subprime mortgage performance issues affecting the multi sector CDO book. MBIA’s multi sector CDO book have performed as expected through September 2007. U.S. residential mortgage market downturn began to directly impact the multi sector book in the fall of 2007 as the rating agencies downgraded thousands of investments grade RNBS deals due to deteriorating performance. Market illiquidity and a large number of agency downgrades resulted in deals preaching triggers and as a result actively managed deals became static and triggered rating tests so that the cash normally distributed to junior note holders was now being diverted to amortized senior note holders, including MBIA as the senior note guarantees, so this was to our advantage. To date the majority of MBIA wrapped multi sectors CDOs and the underlying collateral remained investment grade rated. But further deterioration is to be anticipated based upon projected U.S. housing mortgage trends in 2008, NB-6, MBIA insured tranches have been down graded by one or more of the rating agencies. We will continue to monitor and reevaluate the collateral, mindful that we may well see additional rating agency down grades.

Now let’s turn to slide 45, where here we discuss our CDO squared deals of $8.7 billion. MBIA’s CDOs have high grade CDOs or CDO squares are diversified transactions generally anchored by CLOs, which are collateralized loan obligations consisting of investment grade corporate debt. And they contain buckets of other collateral which may include highly rated tranches of CDOs of ABS collateral. No one transaction contains more than 38% of CDOs of ABS collateral as a percentage of the total collateral base. The deals are diversified by collateral and vintage with 47% originated from 2005 and prior 30% in 2006, 23% in 2007. The underlying collateral ratings as of December remains strong with approximately 70% of the collateral rated AAA, 17% AA, 8% A, 3% BBB, and only 2% rated below investment grade again as of December 10, ’07. As of December, there has not been any material rating agency action in this portfolio segment. However, as we will discuss our own analysis as determined, that three deals within this segment will be impaired which we quantify to be $200 million.

As I mentioned before, we are continuously reviewing any new rating agency actions including downgrades that may occur. And most of these deals, asset performance is guaranteed versus the normal MBIA guarantee of liabilities. In other words these are deductible deals. In these deals are obligations to pay net losses, is only after the deductible is fully eroded.

I refer to these types of deals in slide 42 where I describe, our policy payment requirements. Please turn to slide 46 and let’s take a deeper dive on the CDO squared deals and how we determined impairment. As we announced and as I mentioned, we recorded $200 million impairment across 3 CDO squared deals as of December 31. The analysis entailed however, looking at every ABS, CDO, within the CDO squared structures. We determined what tranche was referenced as collateral, meaning, were we in a AAA, AA or a tranche. If the collateral was not at the top of the capital structure and or it had minimal subordination below us, even the subprime mortgage lost estimates we took a conservative stance and concluded that the deals tranche was likely to have it’s cash flow diverted and subordinated to the tranches above us. Simply with that fact, one missed interest payment could constitute a credit event, and therefore the clock starts for a period of times, say 15 months. Settle that piece of collateral and at the end of that period whatever the value is below 100% reduces our revealed subordination. So, this process was followed for each piece of collateral in every deal upon a credit event.

If enough credit events occur, with below a 100% recoveries, eventually the deal deductible will be fierce and MBIA would start end claims at the end of each 15 month settlement period. Unless we buy the collateral ourselves, we would never benefit from any future recoveries. We also assume conservative recoveries for the collateral, redeemed likely to hit the credit events I was mentioning. In fact, we usually ascribe a zero value to that recovery. And the indentures of the inner CDOs of the ABS were reviewed to fully determine the impact of triggers on the deals cash flow. Upon realization that impairment was probable and estimable, MBIA set loss reserves on these three deals that we have not paid claims on these deals and may not release the next few years. So what do we see ahead for the multi sector CDO book and what are the takeaways?

Let’s go to slide 47. Really we expect stress on the book. We are however the control party and all our insured deals governing acceleration, liquidation and manager removal rights. As of year end, the CDO multi sector CDOs were beginning to incur events of default as I had mentioned, and we expect further trigger breaches in select deals to the rating agency down grades in under lying collateral defaults. The effect of these downgrades on the portfolio, is as follows, as you can see. As a result of the downgrades, the average rating factors will increase and as the percentage of BBB and lower collateral increases structurally designed collateral haircuts will result in deals, dealing as a coverage test. Failure of such a test would cause cash flow to be redirected and amortized to senior notes instead of paying interest to certain classes of subordinated note holders causing an accelerated amortization of the senior notes and benefiting our insured tranches and manager removal triggers would also be breached. When tracking performance of inter CDO and ABS buckets in deals vis-à-vis control party actions and we know the sub prime RNBS collateral is a risk of future performance, but given high grade attachments point of date, most downgrades remain investment grade.

A few takeaways on the multi sector buckets, we’ll wrap up that piece. First MBIA has set the impairments of $200 million against 3 CDO squared transactions, although claims will not likely be paid on these deals for at least two years. Next in event of a fault in respect of one of MBIA’s insured deals, resulting from ratings impacts would be beneficial to us, as all cash would be diverted to our senior insured class that we wrapped. This cash trapping serves potentially de-lever the insured notes even faster. Our current capital raising efforts assume further material stress on the multi sector CDO book. Implied stress loss rates on underlying subprime mortgage collateral by us and using our internal assessment and rating agency models are well in access of currently expected losses at this time and we do not face liquidity or acceleration risk in the CDO portfolio and expected or eventual claims do not pose as a liquidity issue. We are sometimes asked would we ever accelerate for a liquidated deal. If we were able to exit a position at par, we are engaging a creative solution that would maximize recoveries, we would certainly consider it. But the point is, that the choice to accelerate or liquidate is ours.

Now let’s turn to slide 48. And provide a quick look of the commercial real estate portfolio overview. I am going to be brief at this point, essentially because we were quite comfortable with this portfolio. As of December 31st 2007, MBIA’s combined net par de-structured CNBS pools and CRE CDOs of the first two categories on the slide, totaled $43.2 billion. The CNBS pools are included in our total CDO exposure set out on slide 41. Although they are in fact structured pools not subject to CDO structures. The third category, commercial real estate loans comprised $6 billion. All three segments totaled $49.2 billion for about 7% of MBIA’s total net per outstanding insured portfolio. Now allow me to describe key points for these segments a bit further. The CNBS portfolio is a diversified global portfolio of high quality in highly rated structures, in the commercial real estate sector. This portfolio includes structured commercial mortgage backed securities and commercial real estate CDOs. Structured CNBS pools are pools of CNBS securities that are structured with a personal loss deductible sized to a AAA or multiple AAA level of credit protection, before consideration is given to the wrap provided by MBIA.

The CNBS securities in the pool are either cash assets or more typically referenced synthetically. Each pool consists of CNBS securities to run from 27 to 80 different CNBS securitization. And each securitization from which the CNBS are drawn is backed by a pool of approximately 250 loans, secured by approximately 300 different commercial real estate properties diversified by property location and borrower. The CNBS collateral is virtually all tenure fixed rate first mortgage loans and as such is well insulated from any near term refinancing risks. And the structured CNBS pools are static, meaning the pool of origination cannot be changed. CRE CDOs are managed pools of CNBS, CRE whole loans, key notes, mezzanine loans and REIT debt that allow for reinvestment during the fine time period. The structure’s benefit from typical CDO structural protection such as cash diversion triggers and collateral quality tests, and manager replacement provisions. Although the assets within CRE CDOs can be a shorter term floating rate loans, these loans are underwritten to high stressed scenarios, are made to very strong sponsors and comprise less than 15% of the collateral in our commercial real estate CDOs. Almost all of this exposure is currently rated AAA, and at the current time, we do not expect any material credit deterioration to this book.

Now let’s turn to slide 49 to address the question of the current state of the commercial real estate market. MBIA’s commercial real estate portfolio is well positioned for any market downturn. Current commercial real estate fundamentals remain strong overall, with near record below delinquencies and even seasoned delinquencies being low. Favorable supply and demand equilibrium yield a strong market, going into recession in the history of CNBS. New supply has been very moderate with very few markets exposed to speculative construction unlike what we saw in the 1986 to 1992 and 1999 to 2001 time periods. The urban office sectors are strong with falling vacancies, and increasing lease rates in 2007. The strong demand for multi family has echo boomed in weak single family markets stir that sector.

Retail has held up well despite consumer weakness, although we would expect some future softness here. And hotel travel is still strong, but again we would expect to see some increase in defaults in light of an economic downturn. While the market expects delinquencies to increase as the economy weakens, defaults are not expected to exceed historical levels of 0.90%.

A quick word on CNBS REITS and corporate spreads. Massive spread widening is occurring at all levels since August of ’07 which Chuck mentioned has impacted our fourth quarter mark-to-market. The spread widening has been caused by subprime contagion and the use by the shorts as a proxy to macro economy, Natural long investors in commercial real estate do not play in the CNBX market and thus there are few long players against a determined short selling by hedge funds. The CNBX indices widen at all rating levels despite strong fundamentals.

In order to sum up let’s turn to slide 50 for some key takeaways. The overall question is why is MBIA comfortable with our commercial real estate exposure? As you can see, CNBS is not subprime. There is no finance company risk related to insolvency in servicing. The property level due diligence is up front. If that sophisticated third party residual buyers with strong credit perspectives performing in depth due diligence before they purchase. Standardized servicing and reporting with multiple IT sources are available to track property performance sub market lease rates, vacancies and new supply trends. Underlying loans generally ten year fixed rate loans with amortization. Typical CNBS borrowers are well capitalized REITS or property investors with sophisticated property management skills. And CNBS is a cash flow lending business as opposed to a property evaluation play. During the course of 2007, rating agencies pro actively increased rating standards and enhancement levels on these deals.

This concludes my portion of our presentation. We designed this presentation, to try to broadly answer as many questions as we received relating to the RNBS and CDO book. It is important to remember that we survey and analyze our deals, deal by deal constantly. We look at a variety of factors, we work with servicers, trustees, and we prepare analysis accordingly. This is not a one size fits all analysis as some would have us believe. It is granular. And while we are living in extraordinary times, with circumstances changing rapidly, with new pronouncements of supposed expert analysis appearing regularly, we have a talented and experienced surveillance team dedicated to these deals and the noted deals in the sectors. Our crystal ball maybe no better than others, but it’s at least this good. Thank you.

C. Edward Chaplin - Vice Chairman and Chief Financial Officer

Well, thank you Mitch. The analysis that Mitch just got finished describing really underlies both the analysis that MBIA have lost reserves and impairments but also our analysis of the capital requirements that we have got from the rating agencies. We are confident at this point that the reserves in the impairments that we are recording in the fourth quarter capture the current expected loss, but I just want to be clear, and I know Mitch touched on this a number of times about the level of uncertainty in the environment. We believe that it’s really the capital position that we are building that covers up against the potential unexpected loss and it is important to reflect on both of those elements of our plan. We are monitoring our portfolio, we are monitoring the general housing market, and we are monitoring the rating agencies quite carefully to try to understand where new capital requirements may come from. It is our expectation that our position will continue to meet all requirements and will continue to help us to rebuild the credibility with investors and the rating agencies and our customers.

So, with that I would like to turn to Gary for the wrap up.

Gary C. Dunton - Chairman, President and Chief Executive Officer

Okay. Thanks Chuck. I know we have given you a lot to digest today and two short hours and we certainly appreciate your attention and interest. We have attempted to address as many questions as we could and the presentation that we received over the last day or two. I think to sum up I simply say that MBIA has the experience and the resources to manage through this crisis. If you will allow me to get more mileage out of my earthquake metaphor, the ground has literally opened up below us on the industry. But our house was built on a solid foundation, of sound strategies, substantial financial resources and talent based unparalleled in the industry. We have led the industry for over 30 years because we know how to balance risk prudently to moderate the impact of all our credit cycles. Our substantial base of previously originated insurance and investment income is a stable source of future revenues in capital formation. And this will protect us during the down cycle. In fact, it’s during times like these, that the uncertainty about the housing market in the economy that our product is even more desirable, especially when ratings stability is achieved. We know there are very substantial and very profitable business opportunities out there and we are poised to take advantage of them. We are armed with not only with strong business fundamentals, but also with a solid belief in our Company. Combined, these two qualities will ensure our success going forward.

So, thank you again and now I would like to turn it back to Greg for the Q&A portion of this morning and now this afternoon session.

Gregory R. Diamond - Director, Investor Relations

All right. Here we go. Yes, as Gary said a lot of the questions have been responded to, before we get into the specific questions, let me just read the Safe Harbor Disclosure, even though it was provided earlier in the slide book, realize some folks don’t have a slide book available if they participate on the phone.

This presentation and remarks may contain forward-looking statements, important factors such as general market conditions and the competitive environment could cause actual results to differ materially from those projected in these forward-looking statements. Risk factors are detailed at our 10-K, which is available on our website at www.mbia.com. The Company undertakes no obligation to revise or update any forward-looking statements to reflect changes and events or expectations. In addition the definitions of the non-GAAP terms that we have included in these remarks maybe found on our website at www.mbia.com.

Question and Answer

Gregory R. Diamond - Director, Investor Relations

Now we will kick off the Q&A session. The format of the question-and-answer session for today’s call is very similar to the one that we used during our August 2, 2007 web cast in conference call on our subprime RNBS and related CDO exposures. We received a very significant amount of very favorable feedback from that event and specifically from the Q&A session. As we have several respondents involved in today’s event, submitting questions in advance provides us the opportunity to better organize for providing responses. It also provides us with the opportunity to be more responsive to more detailed questions that are more difficult to address during our typical earnings conference calls. As already mentioned we intend to respond to as many questions as possible and we will be here for a fair amount longer to do so. In fact we already know that we will be providing responses to a far greater number of questions than we have ever received in any of our prior conference calls over the last several years. To demonstrate the power of the democratic process, we have organized these questions by popularity or commonness. In other words, we will be starting with the most often asked question first.

One last comment on the format for today’s Q&A session. I would be remiss if I didn’t acknowledge one other side benefit from our decision to accept questions only in writing. We clearly acknowledge we are taking the microphone as it were out of the hands of those inclined to ask questions of us. In the recent past, several such people have abused the privilege and used it as a soap box to raise criticisms, complaints, ramped or failed to ask coherent questions. Many of these people have effectively become adversaries of our Company, our employees, our clients and our business relationships. Many of them have demonstrated no problems finding media outlets to proselytize their messages against our Company. We see no reason to provide them with another forum to do so.

Here are a few summary facts about the questions that we have received so far. We are now up to over 282 questions, many of those have been responded to in the earlier remarks. We have over 60 questions which we will now individually cover one by one. Chuck, most of the questions in the beginning are going to be for you given the popularity contest that we use. So let’s start off. We will provide attribution where our permission has been granted for us to do so. So, the first question again is for Chuck. It was submitted by the likes of Bill Ackeman at Persing Square as well as Jeff Dodd at KBW. The specific question we are using is what is the current cash balance at the parent Company and what is the annual debt service amount per year over the next five years.

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

Thanks Greg, this is Chuck. Again the cash balance as of year end was $434 million and the annual debt service at this point is about $80 million per year on the outstanding debt of the parents about $1.2 billion. We do have two maturities that are coming in 2010 and 2011. Each of them are about a $100 million. So there would be a reduction in debt service thereafter. But that is still again current balance $434 million as of year end.

Gregory R. Diamond - Director, Investor Relations

Okay. A follow up question, what size capital fusion would be necessary to maintain the holding company’s operations.

C. Edward Chaplin - Vice Chairman and Chief Financial Officer

The holding company operations really consists of nothing other than paying the interest on our debt, there are some miscellaneous holding company expenses, the total of them is about $117 million per year of interest and expenses. I know we have shareholder dividends, and shareholder dividends obviously are a charge that can be variable at the holding company level. There isn’t any, when we can say capital infusion, it’s not quite clear where we are going. The holding company does receive cash from the insurance company, and it can receive cash from the Asset management company, and what we have been doing is using the earnings and the asset management company to add to the asset management capital base so that we can grow it, so that most of the cash in the holding company has either been from interest earnings on the cash holdings there or dividends from the insurance company. So, there isn’t any circumstance in which a capital infusion per se is required.

Gregory R. Diamond - Director, Investor Relations

Okay, one more for you Chuck. This one was also submitted among others by Bill Ackman at Persings Square. Of the $433 million of cash and investments at the holding company, how much is unrestricted cash which is available to pay debt service operating expenses and or dividends. What is the breakdown of cash and investments at January 31st 2008, reflecting funding obligations since year end including dividends, interest payments and any other expenses, excluding any funds received from Warburg Pincus.

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

Got it. It’s the… I think the question is any part of the cash investments at the holding company pledged to any third party, the answer to that is no. They are, it’s made up of liquid assets and all of the $434 million is available to pay expenses and debt service, at the holding company level. The portfolio is about 60%, treasury is now their money market securities, and about 40% high grade corporate bonds. With respect to the cash balance after 1231, we have not actually, we haven’t stricken a balance sheet as of today… to date, but I can tell you that in January we do have… we did pay shareholder dividends that are approximately $43 million, and there was interest expense in the month that’s about $6 million or $7 million.

Gregory R. Diamond - Director, Investor Relations

Okay. And this the next cluster is going to be for you. But before I ask the first one, I forgot to mention, that the webcast portal for submitting questions were told by our vendor service, it’s not functioning properly, we have received lots of questions by the e-mail accounts. So, please if you have questions, submit them through e-mail and we will try to get them in as well. Mitch again, Jeff Don was among the people who had this following question for you. Can you please define what a credit event is and its impact on MBIA CDO portfolio.

Mitchell I. Sonkin - Head, Insured Portfolio Management

Sure Greg. I went over this presentation, but let me try to go back over it. MBIA generally covers 2 different types of credit events, failure to pay or bankruptcy. The multi sector space, the ABS and CDO securities are bankruptcy remote, therefore they cannot declare bankruptcy. So, this limits the credit events to failure to pay interest or failure to pay principle. If a pickable charge experiences an interest short fall, that would be considered a credit event. This credit event, would erode subordination when settled, if the 100% recovery was not achieved on that piece of collateral. As I mentioned credit events are settled in any net loss is determined typically over 12 to 15 months. So if the deductible is eroded, MBIA will pay claims once the net loss is determined by an individual credit events if there are less than a 100% recoveries. We typically have walk away rights upon counter party failure to pay premium. As I also stated, we determine that three CDO squared deals would pacen up credit events with low recoveries. To move into impairment and therefore, we took the $200 million charge in the quarter.

Gregory R. Diamond - Director, Investor Relations

Okay. The next question was among those asking it were Mark Lane of William Blair and Company. What is MBIA’s breakout of interest in principle and principle only guarantees, and can you please define what ultimate principle means.

Mitchell I. Sonkin - Head, Insured Portfolio Management

Sure. Let me try to do that. In our CDO book we typically issue a P&I policy or CDS that mimics, the P&I policy. P&I policies cover timely interest and ultimate principle. Our payment obligation varies by yield and by insurance type. Negative basis credit default swabs are designed to mimic a financial guarantee policy which is timely interest ultimate principle, no acceleration. The majority of our multi sector CDO exposure is executed in this form. Synthetic balance sheet transactions provide protection on assets and our deductible base as we previously stated credit events are limited to failure to pay and bankruptcy. Credit events are settled and any net loss is determined typically over 12 to 15 months. After that deductible is eroded, MBIA will pay once the net loss is determined on that event. We insure approximately $8.4 billion, $8.7 is the entire CDO square population, but two of the three older CDO squared our cash flow cannot. So, it’s $8.4 billion of multi sector exposure in this form. Our exposure within this category would be also supported by collateral diversified by both vintage and asset type. And the payment obligation may just guarantee all the ultimate principle at final maturity, where fixed cap with no interest coverage at all. The more recent high grade in mezzanine multi sector CDO’s are executed in this form and the final maturity is 40 years plus away. Looking at the payment types in the CDO book, timely interest in ultimate principle typically applies to most of our multi sector CDOs, CRE CDOs, high yield corporate CDOs and CLOs. Ultimate principle only at final maturity on these deals, to certain multi sector deals. Payments upon settlement of individual collateral losses as they occur upon erosion of deal deductibles applies to the multi sector CDO squares corporate pools and CNBS pools. Greg.

Gregory R. Diamond - Director, Investor Relations

Okay. Maltime Mather [ph] was a Pelitime Partners [ph], among those who provided the following comprehensive question. With regards to your sub prime RNBS CDO exposure for securitizations that contain loans that clearly should not have been in those structures. Particularly in the 2006 and 2007 vintages, what is the quality of the reps and warranties that you received from the originators and do you have any legal remedies against the originators of these deals, that you subsequently route. And then a follow up, are you seeing any evidence of frauds on a loan that violate the terms of Russian warranties that you were provided with.

Mitchell I. Sonkin - Head, Insured Portfolio Management

Okay. Good and interesting questions. Most RNBS securities are of course issued with reps and warranties. The deals to also typically allow more put backs those are required buybacks of certain loans that breach the reps and warranties. Unlike in the case of our primary RNBS rap deals, where would drive the process of insuring reps and warranties were increased. In CDOs, we are one step removed and would rely on the collateral manager to ensure that the loans going into the trust were appropriate and would take appropriate actions if that were not the case. In our direct look, however, there are reps and warranties related to both origination and ongoing servicing, and we are endeavoring as we speak to ensure adherence to those reps and warranties with the issuers we route. We will conduct reviews, and we will determine whether or not there has been and will continue to be on an ongoing basis compliance with the reps and warranties.

Gregory R. Diamond - Director, Investor Relations

Next question, when is the usual maturities schedule of securitizations, example RNBS, CDO and CNBS. Does each charge have its own maturity. Ultimately in the event of the claim, when would the principle payments be paid for each of the respective types of securitizations and tranches if applicable.

Mitchell I. Sonkin - Head, Insured Portfolio Management

Okay, let me try to take these. The maturity of our ABS CDOs is typically tagged to a legal final maturity of the transaction. The maturity dates on ABS CDOs must be beyond the legal final of the longest dated individual piece of collateral. However we would expect that the insured senior notes will amortize prior to legal final as cash is trapped from the waterfall to pay down the notes in sequential order. Benefit of that provision. Our principle and interest policies would pay timely interest in ultimate principle at final maturity. In respect to RNBS, although, most deals have a illegal final date approximately 30 years from the date of closing, the majority of these deals have historically paid down to 50% or less of their closing downs within four years of the closing date. However as you would expect, given the current economic environment, where we are seeing the depressed housing prices and currently a lack of refinancing options, we expect this time frame to lengthen somewhat.

Mitchell I. Sonkin - Head, Insured Portfolio Management

Okay, is it possible to gain recoveries on paid claims of your RNBS deals.

Mitchell I. Sonkin - Head, Insured Portfolio Management

Yes. It is possible, the modeling assumes that during certain periods of deals, they are going to generate enough cash, enough excess spread to reimburse us for previous draws on our policies. So, the losses that we incur are lower than cumulative deal losses. In the current modeling that we are doing, is the fault in the losses are realized earlier in the deal’s light, given current trends. And when those heightened default levels begin to burn out over time, eventually excess spread can provide some level of recoveries.

Mitchell I. Sonkin - Head, Insured Portfolio Management

Okay. This one is very similar to the one you answered a couple of questions ago. How does the repurchase mechanism work for RNBS deals under the rep and warranty clause?

Gregory R. Diamond - Director, Investor Relations

Okay. We can’t specifically force the originator to repurchase the loan, unless the loan reaches a specific refer warranty. And those reps and warranty’s would typically include, but the boys want me to say are not limited to… references to loan characteristics and documentation requirements. But an example of a rep would be as follows. At the closing date, with respect to the loans, the mortgage file for each mortgage loan contains, each of the documents specified to be included in it. Or as of the closing date, with respect to the loans, each mortgage loan was originated in accordance with the company’s underwriting guidelines. Those would give us some guidance for the reps and warrantees that we can then go back and measure against compliance.

Okay. Thank you Mitch. Chuck, the next several are for you. It was disconcerting for Moody’s to take it’s action after all the actions that MBIA was able to effectuate, what are your next steps. Did you have excess capital with Moody’s, earlier capital requirement, and if so how much.

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

Great. Thanks Greg. We are going to continue to work with Moody’s to try to get them and our ratings back to AAA stable, we believe that is where this is going to go ultimately. With respect to the capital requirement, actually in my prepared comments, I talked about the excess capital position that we have and showed that as of year end, pro forma for our capital plan, it would have about $750 million to $1 billion of excess capital on the rating agency models. And the Moody’s, the excess that we would have against the Moody’s model would be within that range.

Gregory R. Diamond - Director, Investor Relations

Okay. Here is a related follow on. When is Moody expected to complete its review? Has MBIA been told anything by Moody’s, since their rating action on January 17th 2008. And when could it possibly be resolved.

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

Moody’s has not stated a time frame on which they would wish to complete their review. Typically review status will last 60 to 90 days. Again we are working with Moody’s pretty assertively and everyday to try to get to and answer as quickly as possible. I mentioned earlier that they are considering, that they are doing an industry level review. And it’s hard to believe that they will actually come to a rating conclusion on us, until they get done. That industry level review but again, to the extent that they are focused on the long term demand for the financial guarantee product, we think that the outcome of that will be affirmative, but I understand and respect their need to actually go through that process in a deliberative manner.

Gregory R. Diamond - Director, Investor Relations

Okay. Building on the Moody’s theme, regarding Moody’s latest action, what if anything can you do, if Moody’s requires you to raise additional capital?

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

Good question. We think that with the capital base that we have established again referring to the excess of overall rating agency requirements of $750 to $1 billion, which grows over time given the business production that we have seen and expect in the first quarter of 2008. We would anticipate a pretty meaningful increase to the cushion that we are showing at year-end. So, to the extent that there are additional requirements from the rating agencies, we think that we are in a pretty good position to fill them. You might notice that F&T, revised a part of its analysis of subprime content of our CDOs. I have a couple of weeks to go. They made an adjustment. Our capital still shows an excess to their requirements is quite substantial. We think that we have established, a robust capital position of one that is able to withstand, things that go bump in the night in the portfolio.

Gregory R. Diamond - Director, Investor Relations

Okay. Given Moody’s latest action on Channel Re, this is a sort of a transition question. It was provided by among others. Jerry Solomon of Bear Stearns and Scott Frost of HSBC.

What would happen if you had to take the Channel Re book of business back? Would you have an additional capital requirement if you took back the Channel Re reinsurance?

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

Well, what would happen if we took the book back of course that are the capital requirement would go up. And as I said the… the amount of capital benefit that we get from Channel is $700 million to $1 billion. Of course, we would recapture also the… the premium associated with that business. The… I think that the… that it’s not… it’s unlikely that that will occur, because again Channel is on, on review for downgrade with Moody’s. We don’t anticipate that all that… that there is any risk that Channel Re would be downgraded to the point where we would get no capital credit for the reinsurance.

So, again, we don’t think that’s in the cards. But, of course, to the extent that we took the business back there would be an increased capital requirement associated with it. I should mention again that part of reinsuring to Channel Re is that we get the benefit of cash collateral in two trusts that support the capital benefit. And we would expect that to the extent that Channel Re were to be downgraded that the portion of our exposure that would be most impacted might be that which is not covered by the cash collateral. And that is not crystal clear in all of the rating agencies guidelines, but it’s a discussion that we would have with them.

Gregory R. Diamond - Director, Investor Relations

Okay. Jeff Dunn was among the people who asked the following question. Is Ackerman number correct for Channels… Channel Re’s CDO exposure from MBIA?

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

With respect to exposure, now I don’t… don’t have the Ackerman report in front of me, but again our… we ceded about $43 billion of exposure to Channel Re. And that’s about half of our total reinsurance program. So, so to the extent that that’s the number they’ve got in this report. I think that quote, then that is correct.

Gregory R. Diamond - Director, Investor Relations

Tim Barne from JP Morgan asks given your conversations with Channel Re and with the rating agencies. What do you currently project as a worse case scenario given your large reinsurance exposure with the company? Will there be a haircut of the reinsurance exposure to 70%, 50% or more?

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

I think that you know with respect to Channel Re you got to focus on two things. Their is the AAA rated company that at least with respect to the type exposures that MBIA is having the most problems with in our fund second lien portfolio, Channel actually has relatively little of that. So, from an economic perspective, their exposures are really not… are not all that great. However, the rating agencies are going through this analysis of the Channel Re CDO portfolio just as they did with MBIA’s, the other primary’s.

And there is the… there is the potential anyway for Channel to have an additional capital requirement. To the extent that Channel has an additional capital requirement, it has strong well capitalized owners that would be in a position to make additional capital contributions to Channel Re.

So, I mean there’s a lot that has to happen in order for Channel Re to be downgraded and then to the extent that Channel is downgraded; we expect that the cash collateral mitigates the impact of any increase in capital requirements that might flow through the agency models. And then even… and then even beyond that it’s our expectation that what we’re talking about is the potential really for downgrade from AAA into the AA range, not to the level where… where we would lose all capital credit for those exposures.

Gregory R. Diamond - Director, Investor Relations

Okay. Last one for you Chuck in this, in this stretch. Ackerman raises some interesting comments on Channel Re. What’s the exposure there, especially with the right downs by Partner Re and Ren Re?

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

Yes, the exposure is that MBIA like Partner Re and Ren Re and Coke industries. All of the owners of Channel Re will have the issue of the mark-to-market on Channel’s exposures, which will bring the GAAP book value of Channel to below zero, and those companies, will all no doubt reflect a write down in the carrying value of their investment in Channel Re to zero. This is based on a mark-to-market that does not at this point reflect material cash losses, does not impact on claims paying, ability except to the extent of impairment and is expected overtime to reverse.

So, as that mark-to-market reverses then Channel Re’s GAAP book value will increase, become positive again and the investors will then start to reflect positive investment value on a book basis, in their own books and records. So, from an economic perspective, sort of nothing has changed other than Channel Re has a small allocation of the impairment that MBIA took in the fourth quarter. The mark-to-market, other than that doesn’t really impact on our evaluation of our investments. And we would think on the other owners of Channel Re’s evaluations of their investment by this.

Gregory R. Diamond - Director, Investor Relations

Okay. Mitch, this one’s for you. It’s from Mark Holdwell [ph] at Vanguard. Can you discuss the potential of quarterly demands for the CDO square transactions that are subject to deductibles? Can you provide a better sense of how impairment charges in the quarterly payments would go up, if cumulative loss rates and the underlying subprime collateral were to increase to 10%, 15%, 20% and 25%? What loss rates are reflected in current impairment charges?

Mitchell I. Sonkin - Head, Insured Portfolio Management

Okay. Given that these deals are asset coverage deals, which means MBIA pays claims once accumulated losses on the individual assets reach above or deductible for the level of subordination. Once at that level, as I mentioned in my presentation after a specified evaluation period. You cover losses on each successive asset credit event. So, we would expect payments on these deals to begin in 12 to 18 months and last for a period of several years.

CDO’s squared analysis to date has really focused on what we believe will be the most volatile collateral in those deals which is the ABS CDO bucket. Given the nature of these positions, it’s equally, if not more important to analyze the deal structures through an in-depth analysis of the transaction legal documents, as it is to analyze their underlying collateral performance. Items such as over collateralization triggers have entered the flow of language. Control rates over enforcement and liquidation of the collateral were all fully analyzed to determine the likelihood of the credit event for each piece of collateral. And the credit event as I said before, is defined as a failure to pay interest and principle when due.

Severities upon the fault were assumed to be almost a 100%. Given the rapidly evolving nature of the market with increasing liquidations of CDO’s, we are going to continue to monitor the performance and adjust assumptions as needed.

Gregory R. Diamond - Director, Investor Relations

Okay, Chuck one more for you here. This is from Michelle Lee of TIA Kraft [ph]. What are MBIA’s debt service requirements on an annual basis? What is the debt maturity schedule?

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

It’s great. Again, I am glad that we returned to this question. The… our current interest expense is about $80 million, and we do have two maturities coming up in 2010 and 2011. The one is 2010 is about $143 million. I previously said roughly a $100 million; it is a $143 million. And then the one in 2011 is a $100 million.

Gregory R. Diamond - Director, Investor Relations

Okay. Gary a couple for you. This one is from Gary Ransom at Fox-Pitt. You say the pipeline for international for international structured finance is heavier than for the U.S. What is the nature of the deals in the pipeline? In particular, are there… are they in some way more immune from the credit concerns in the U.S.?

Gary C. Dunton - Chairman, President and Chief Executive Officer

Sure. Thanks. The deals that we are looking at on the international side are largely leftovers from last year. They include a couple of auto rental fleet transactions and a trucking fleet transaction. And there is little more inquiry going on over there than it is here, but as we’ve all learnt the world’s a very small place, and when it affects one area quickly, contagious to another area. So, it’s a marginal thing as opposed to a black and white dichotomy.

Gregory R. Diamond - Director, Investor Relations

Okay, another question. Can you please comment on Warren Buffett’s entry into the mono line industry?

Gary C. Dunton - Chairman, President and Chief Executive Officer

Well, there is good news and there is bad news there, isn’t there? I mean the good news is that, he thinks that this is a vital and potentially profitable business for him. The bad news is that he thinks that this is a vital and potentially profitable business for him. We like the endorsement, we wish him luck, we realize that there’s a distance between here and there in announcing something and actually getting a stab and the licenses, notwithstanding the accelerated pace he is on. We welcome him. He’s going to be a very disciplined player in the marketplace, just like he is in his other insurance lines of business. He’s going to be a careful underwriter, I’m sure he’ll be a very careful pricer. And, and to the extent that they go after capacity constraint names where there is the most low hanging fruit, that will be a good thing for the whole industry.

Gregory R. Diamond - Director, Investor Relations

Okay, Mitch this one is for you. It’s from Phil Cunningham at Lowes. Will you still insure mezzanine CDOs, HELOCs and second mortgages?

Mitchell I. Sonkin - Head, Insured Portfolio Management

Well MBIA only insured one U.S. mezzanine CDO ABS between 2005 and 2007 and given the current state of the market we don’t see this as a large part of our business going forward. Starting in 2004, MBIA elected to insure mezzanine ABS CDOs only on a more selective basis due to concerns regarding structural provisions as well as concerns we had over the underlying collateral and weak pricing. We had been much more of an active player in the high grade space where yields were characterized by much stronger collateral, better structural provisions and more attractive risk adjusted pricing. We typically guarantee multi sector CDOs transacted at the super AAA credit support level which often means one and a half times to two and a half times the credit support level of the AAA supported tranches that are subordinated to the tranche that MBIA guarantees.

Regarding the second lien product, we could consider wrapping new business adhering to the lessons learnt in the current market under the right circumstances only. And specifically we would be vigilant to ensure that the underlying loans were to be fully documented, if you have high quality borrowers, conservative, CLTVs, deals potentially structured not solely reliant in excess spreads low protection. And we would need much better information on the under outlying first lien loans and only then might we consider it.

Gregory R. Diamond - Director, Investor Relations

Okay, Chuck the next ones for you. It’s from David Robert of Angelo Gordon Company. Can you differentiate between the S&P stressed losses and the one 10,000 year loss scenario used by the rating agencies to test for the AAA rating?

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

First let me defend S&P. They are a rating agency and then there really is no difference conceptually. Now what they both after is to try to identify what losses would be and it’s a really stressed environment. S&P’s model is a deterministic one that runs the portfolio through kind of a series of depression error assumptions, where the Fitch and Moody’s models are both stochastic processes that run many, many observations in order to determine a distribution of potential losses, then pick a spot in the tail at the so called 1 in 10,000 year loss level. Conceptually, though they are after exactly the same thing. And if you look at the increased capital requirements that we got from the three agencies, even though they have very different approaches and very different assumptions about some of the underlying collateral behavior, there… there’s not a huge range of outcomes that we have seen. So they are estimating kind of the same thing.

Gregory R. Diamond - Director, Investor Relations

Okay. Couple more for you Gary. First one is, what is the status of the New York state insurance department bailout? And could the NYSID take over MBIA?

Gary C. Dunton - Chairman, President and Chief Executive Officer

Easy ones. MBIA is, is really not in a position to comment upon the status of the New York insurance departments’ activities. The department has provided couple of comments that we would not address any further rumors about its efforts to bolster the stability and confidence of the bond insurance companies.

And the second half of that question about the takeover of MBIA. Based on existing statutes of New York State, MBIA would need to be deemed insolvent under regulatory or statutory accounting standards in order for the New York state insurance department to undertake a supervisory administration of the Company. Our year end 12/31/07 stat financials are not fully addressed yet, but I can assure you that we will be showing a substantial… in the billions of dollars of our statutory capital beyond requirements for the New York state insurance department.

Gregory R. Diamond - Director, Investor Relations

Okay, Mitch this one’s from Darren Reiter, Deutsche Bank. Has MBIA identified any specific differences between the HELOC Closed End Seconds that are suffering from higher delinquencies, than the HELOC Closed End Seconds that are performing within expectations?

Mitchell I. Sonkin - Head, Insured Portfolio Management

Good. Good question. Interestingly the underwriting guidelines do not vary considerably between the HELOCs and the closed end Second loans. However we have seen a pattern emerge or emerging. Most borrowers and many within the industry felt that housing crisis will continue to increase though at reduced levels and that led many borrowers to over leverage themselves for home improvement and speculation. We think that there is a lot of speculation out there, because the thought patterns was that if payments got too difficult to handle, the borrower could sell, many borrowers had covered themselves with local mortgages. The originators either did not verify income, asked the borrower to state their income or in many cases limited verification to something less than 24 months. Additionally the mortgage companies, because they were originating reduced documentation loans did not pay attention to borrowers’ debt levels and generously offered mortgages that allowed the borrower to put little or no equity into the property. So, reality hit when housing crisis started to decline precipitously in some MSAs. We feel that because the HELOC product offered borrowers the option of paying interest only for a five or ten year period, that encouraged speculative borrowers to prefer HELOCs over closed and second loans and you will recall from my comments some of the characteristics on the closed end second loans that include we think a different type of borrower attracted to and more stable fixed interest rate and fixed payments environment as opposed to the interest only HELOC deals that we insured.

Gregory R. Diamond - Director, Investor Relations

Okay. Chuck, here is a question on disclosure. You need to start putting out more details… yes there is a question there. Need to start putting out more details on your exposure, especially a listing of your HELOC Closed-End Second deals, including pay offs, performance et cetera. Similar inter CDO detail on your ABS CDO’s that you provided on your CDO square deals, such activities et cetera. Why haven’t you done so?

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

Thank you for that question. We’ve been getting it a lot. I’ve talked to a lot… a lot of you about this… over the recent past. We hear the feedback. We are planning now to enhance disclosures on our website, particularly with respect to our CDO portfolio and our other structured finance exposures just in response to the voluminous number of requests that we have received.

We’ll show all of the collateral make up for all of our CDO’s, including those that are outside of the multi-sector CDO book of business. In, in… when you… in fact when you look at those transactions outside the multi-sector portfolio see things like the transactions that are investment grade corporate portfolio that had allocations of RMBS and ABS CDO, collateral fully disclosed that we have refined the mark-to-market process with respect to them, as well as the amounts of RMBS that are resident in other transaction, including in some of the CMBS.

So we are intending to provide more detail on all of these exposures than we have to-date and you should expect to see us do so in the near future.

Gregory R. Diamond - Director, Investor Relations

Okay, Mitch back to you. Could you please provide additional commentary on your prime second lien exposure and a $100 million special addition to the unallocated loss reserves? Specifically, what is the total size of the insured prime second lien book… I think that is. What is the vintage breakdown of this book and what is your internal credit rating of this exposure? What is the breakdown of fixed versus floating rate?

Mitchell I. Sonkin - Head, Insured Portfolio Management

Okay. Some of that is in the… in the deck and are covered, but essentially our second lien exposure consists of Closed-End Seconds with a net prime exposure of approximately $10.5 billion as of December 31st. And the net whole HELOC exposure of approximately $11 billion. On a combined basis 40% were issued insured in 2007, 37.7% in 2006, 11.9% in 2005, 6% in 2004 and 4.4% in 2003 and prior. Please note also that we did not insure any closed-end second transactions in 2005.

Now, generally speaking the attachment flowing through these transactions are of the BBB level and our internal ratings would be similar to those of the rating agencies, with the exceptions of the deals that we took a reserve on. The home equity transactions contain variable rate tranches of one or two, or for one month LIBOR, but the closed-end second deals vary. All transactions have a net funds cap, and the rating agencies do not contemplate, faceless risk in their ratings. Moreover the policies do not cover basis risk shortfalls.

We are continuing to actively monitor the portfolio, and as a result of our monitoring we are able to arrive at and take the reserves of $614 million to 14 transactions. We noticed similar trends amongst other deals, but they are too new at this stage and where a loss is probable and estimable we are continuing to vigilantly monitor them. And the unallocated reserve that was referred to in the questions is for potential issues related to these deals. But note that the $100 million is an addition to the unallocated reserves. Those reserves by their nature would be utilized for whatever deals and any sector would require, but obviously given the mortgage market, it could be utilized there if further deterioration occurred there when we have that in mind.

Gregory R. Diamond - Director, Investor Relations

Okay, Chuck. Can MBIA be forced into bankruptcy?

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

A short answer to that is… is no. Insurance companies that become insolvent actually go into a status called the… I think in New York rehabilitation in which case the operations of the company are taken over by the superintendent of insurance. So, from a strictly legal perspective, I mean that’s what we’re… that’s what an insolvent insurer would be dealing with. From an economic perspective, I think the answer there is, there is no event on the horizon that anyone can foresee that would result in MBIA being insolvent. Either the highly liquid and capital adequate insurance company or at the holding company which has substantial liquid assets against its obligation.

So, it is virtually impossible to imagine a circumstance in which MBIA would become insolvent and then go into a rehabilitation status in New York.

Gregory R. Diamond - Director, Investor Relations

Okay, Cliff you haven’t gone overlooked completely? Can the insurance company seize any of the assets affiliated with the asset liability management programs, if the insurance company needs to meet liquidity demands?

Clifford D. Corso - Vice President and Chief Investment Officer

Sure. Thanks Greg. As I mentioned earlier the asset liability business… businesses are held at the holding company level and so the assets are held by the whole council. But those assets are actually pledged to the insurance company against the obligations that it’s insuring for the investment agreements and the global funding the MTM’s. So, if the insurance company needed to pay a claim on the insured MTM’s or the investment agreements, it could sell those assets, use those proceeds to satisfy the claims for those… for those obligations.

Gregory R. Diamond - Director, Investor Relations

Okay, Mitch. How does MBIA review the open source model published yesterday, indicating $12 billion U.S. in losses expected from MBIA? And how this backlog compared to the Company’s own loss estimates? What are the key differences?

Mitchell I. Sonkin - Head, Insured Portfolio Management

Let me, let me respond to that and Chuck you may want to add something as well. Pershing states in their model that is meant to apply greater transparency to the market. In fact, the model is more or less a black box driven by undisclosed loss assumptions derived from an anonymous local banks, proprietary trading desks. The extreme assumptions in the model produced the desired effect of a sensational headline loss number for the firms evaluated.

They also state that the model is detailed collateral analysis and while it actually uses averages in simplified macro loss assumptions, that certain product types and vintages. This is distinctly in contrast to our approach, which has been a detailed loan logo modeling exercise, which we feel more accurately looks at the characteristics of each individual piece of RMBS. And the law the individual learns backing them.

The model is reported to be more accurate representation of the risks, but in fact the model does not factor in the actual deal structures for any of the ABS CDO and HELOC Closed-End Second exposures. And so for example, on the ABS CDO modeling side, the Pershing model was a global bank model, as the case maybe. It does not accurately account to the actual cash diversion mechanisms within the deals but the type and timing of required payments. Both of those will have a… or could have a material impact on projected performance.

Gregory R. Diamond - Director, Investor Relations

Chuck you want to add to that?

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

Only that this is a letter that was distributed yesterday, we’ve not completed our detailed review of it. But it’s important to point out that it is a letter demanding transparency, where all of the analytical work was done by an anonymous… so called global bank that, that doesn’t wish to be identified with the work. And the work which is disclaimed by the author, who says that that… that he can’t vouch for the accuracy or the completeness of the analysis. So, I mean, we’re going to go through it and determine the extent to which they are reasonable points to… to discuss in it. But there are I think some, some flaws in the way that it’s been presented.

Gregory R. Diamond - Director, Investor Relations

Okay. Back to you Cliff. Regarding Ackerman’s comments about your gift spreads being too wide for safe investments. Don’t you also need to consider MBIA’s cost of funds for the gift contract rate as well?

Clifford D. Corso - Vice President and Chief Investment Officer

Sure. I think those mathematics certainly were little bit of a stretch. That’s exactly right. You have to consider manually the asset spread that we are buying on behalf of the portfolios. But also liability spread, because that’s how you get your net spread in terms of the calculation. Without getting too far back to where we were earlier today, we try to optimize that liability cost. Historically, we’ve been a sub LIBOR funded. So we start with positive spread in any asset we buy at LIBOR or above LIBOR. That’s certainly a big part of it.

And the other piece missing is that we also include the investment return on the capital that we hold within the business. Then that’s the full coupon. There is no spread there, that’s our capital account and that generates earnings. That goes into the income statement as well. And then third, you have to consider the time comparisons. I believe, this comparison that given was a for some generic index spread. It was a double index spread at some snapshot in time.

Our book has been built over the last 15 years, and it includes assets that’s been bought at tight spread times, average spread times and wide spread times. And so, it’s just not accurate to compare this book, the book yield of this book to that snap short in time. So, for those three reasons, that analysis just doesn’t work.

Gregory R. Diamond - Director, Investor Relations

Okay, Chuck, Manoc Maeta [ph] of Telecon Partners asks. Based on MBIA’s current CDO spread, the credit markets are pricing in liquidity event for regulator interventions. That’s going to cause an imminent default. Can you please very clearly and concisely state your position on this? Under what scenario would MBIA file for bankruptcy?

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

There is no scenario that we can identify that would result in MBIA becoming insolvent, having a liquidity event or being a… intervened with by the regulator and experiencing a default of any kind.

Gregory R. Diamond - Director, Investor Relations

Okay, Mitch. What about your risk profile on the CDO’s? It isn’t that more problematic for you?

Mitchell I. Sonkin - Head, Insured Portfolio Management

Our overall business strategy is to participate in the most senior way or… of the CDO capital structure while creating a balanced book of business, across multiple underlying asset classes, including investment grade corporates, high yield loans, ABS, RMBS, CMBS and emerging markets. Post ’99, 1999 MBIA focused on ensuring first funded CDO’s having minimum double rate shadow ratings, by both Moody’s and S&P, although\ most… all funded CDO’s done by MBIA in the last five years have been in a minimum AAA level.

And second, synthetic CDO’s at the super AAA by virtue of a rated AAA tranche, subordinate MBIA, or by virtue of an attachment point. That is a multiple of the AAA requirement imposed by the rating agencies. In all cases, MBIA cannot be accelerated against and we maintain the right, as I said before as controlling party with the ideals to accelerate at our sole discretion. Acceleration is an additional test diversion remedy for us, which redirects cash away from the subordinate tranches and funnels it to accelerate amortization for our senior exposure.

And again, acceleration is distinct from liquidation of the collateral pool, which we also direct upon certain events of default, as sole controlling party within our deals. The risk is in the performance and the market, but not in our positions.

Gregory R. Diamond - Director, Investor Relations

Okay. Loss… I’m sorry this question is on loss coverage. What is your loss coverage on the HELOCs and Closed-End Seconds?

Mitchell I. Sonkin - Head, Insured Portfolio Management

The loss coverage varied across the transactions, but we can generally say that the transactions were sized to cover losses in the 5% to 11% range, weighted average FICO scores in our ’06 and ’07 HELOC was 706, 702 respectively. Our weighted average FICO for our closed end second borrowers in ’06 and ’07 were 719 and 710 respectively. Clearly, very prime in appearance and with regard to our closed and second portfolio, not one would expect… now one would expect through a CDO’s transaction.

Our current reserve list, it’s comprised of 12 HELOCs and two Closed-End Second deals. The common thing seen amongst those transactions are high initial delinquencies were only a small percentage of the loans rolled back to current status. The high rolled rates to this severely delinquent buckets and ultimate charges by the issuer has severely restricted the ability of the credit enhancement mechanism in these deals to cover current period losses.

Accordingly we are seeing a frontloaded loss curve. It would be a hockey stick in appearance that eliminates current enhancement levels. Our estimates that these levels will eventually subside but the timing will vary and could be as long as 24 months to return to a state that’s closer to expected.

Gregory R. Diamond - Director, Investor Relations

Thank you Mitch. We have several questions that deal with more specific requests about details of exposure on our deals. Chuck could you… rather than read them out specifically, could you just remind everybody what our intention is for prospective disclosure on our portfolio?

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

Sure. Just to reiterate the comment that I made a few minutes ago. We are intending to provide enhanced disclosure with respect to our structured finance portfolio, particularly around CDO’s. We are going to provide the… the content, the collateral content of the CDO portfolio in more detail than we have provided on the website today. With respect to the multi-sector portfolio, we are also going to provide collateral information about the transactions that are not in the multi-sector portfolio.

Again, multi-sector is $30 billion of our $130 billion CMBS pool and CDO portfolio that we talk about in our supplement. And we are going to try to provide the same level of detail with respect to all of them, so that it’s quite clear what their collateral makeup’s are. I talked about them with our council and you know they’ve… they’ve asked that we make sure to note that there are RMBS securities in transaction that are outside of the multi-sector CDO portfolio. You know U.S. RMBS is one the biggest capital markets in the world. There aren’t very many fixed income pools of anything that don’t contain some allocation of this asset class. And we are going to provide full detail of that on our website, so that you can see where it resides in every transaction.

Gregory R. Diamond - Director, Investor Relations

Okay, we are going to stick with you Chuck for a few more questions. How would you characterize the developments with the rating agencies over the last two to three weeks?

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

I don’t know about the last two to three weeks, but we’re… my own view, now yes for my characterization is that the rating agencies over the last six or seven months have been struggling to keep up with the dynamic changes that they observed in the housing and mortgage markets and those facts on the securities that they rated and, and the bond insurance companies that they have rated. And in that regard, the rating agencies are in the same boat of embarrassment with the mono lines, the banks, the investment banks, the regulators, the Fed, the treasury, anyone else that you would name. There are very few market participants of any kind who correctly understood and identified that losses on the subprime collateral that we’re focused on today would go from kind of 8% to 10% at midyear to 18% to 20% at year-end. And call into question, transaction structures that easily surmount the kinds of stress that we were forecasting earlier in the year.

So, the agencies have been really, really struggling to catch up and to stay on top of this sort of moving… this moving target. Now, in the last, two to three weeks we have seen quite a few rating agency actions. Fitch has been quite clear from day one or from December 17th. It seems like day one that their focus was on assessing the capital requirement associated with these companies’ portfolios and having them meet or not meet the capital requirements.

The companies that met the capital requirements, including MBIA are… are seeing the results that their ratings are firmed and stable. Those companies that have not met the capital requirement are now capitalized at a level in Fitches eyes; below AAA or having their ratings adjusted. S&P also has been pretty clear and that they said from day one that the… they kind of expect these AAA rated companies to respond to the capital challenge by… by producing adequate capitalization of AAA level, which MBIA has done but that their concern, their negative outlook on the companies that have exposure to housing and mortgage market is more related to, sort of how, how bad could the housing and mortgage markets get. And they’ve been pretty clear in that and we kind of expect that that is a multi months process before the companies are able to resolve to… to resolve those ratings.

With respect to Moody’s… Moody’s frankly has been less… has been less transparent with the market, about what the capital requirements were. And who knows maybe that’s appropriate, because we all recognize that the little bit of… of a moving target. And I could tell you that’s caused some frustration on the part of many participants.

At this point, we are committed to working with Moody’s through both the reassessment of capital charges that they are thinking about now, as well as the industry wide review that they have embarked upon, where they are looking at the long term health of the bond insurance industry. And we are expecting, that the end of that process that MBIA is restored to AAA affirmed and stable position. I don’t see how anyone could mistake the actions that MBIA has taken over the past two months. This is a Company that is determined to maintain a differentiated position relative to capital and credit quality in this industry, regardless of how the rating agencies ultimately sort out.

Gregory R. Diamond - Director, Investor Relations

Very closely related to that is another question here. There’s a lot of confusion being created by the rating agencies, especially Moody’s the other day. S&P has been now simply have been good about providing numbers. Moody’s throws you into the same backwaters as Ambac and they have organizational and capital problems. We see a sharp contrast between you and Ambac. Is there anything more that you’d like to add to that?

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

Again, MBIA has been we believe more proactive than… than any participant in this industry in identifying and… and rectifying the capital issues that arose from the fact that we and many of us had exposures to the housing and mortgage market that we are going to be need to be reassessed. So, frankly, we, we think that there is a differentiation between MBIA and most of our industry in that regard that we have been proactive about managing capital in a… in a conservative way, because of our desire to differentiate ourselves in terms of capital position, conservatism going forward.

Gregory R. Diamond - Director, Investor Relations

Okay. One more for you Chuck. What’s the difference between Fitch and Moody’s current capital requirements?

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

Again Fitch, has actually published its capital requirements back in… in December and Moody’s has not, and so I… I can’t comment on that.

Gregory R. Diamond - Director, Investor Relations

Okay. Cliff, we have one for you. Does the insurance policy and the Global Funding program have the same status as the other insurance contracts issued by MBIA Insurance Corp.? And does MBIA Inc. the sole owner of MBIA Asset Management LLC?

Clifford D. Corso - Vice President and Chief Investment Officer

Sure. Actually there are several questions asked about the MBIA Global Funding structure. So, here is a very good chance to clear that up. The basic structure is such that MBIA global fund issues debt and lends those proceeds to MBIA Inc. that’s where those proceeds are invested and assets for the asset liability product is the same as. These assets are pledged to the insurance Corp., as I mentioned before. In case of an MBIA Inc. default on an investment agreement on MTM debt… debt service payment.

The treatment for Global Funding debt holder is somewhere impaired but similar to every other policy not issued. That is the GSL or Global Funding debt holder doesn’t have a secured interest in the assets. However, it would be treated pari passu, again with the other insurance Corp policyholders.

The second part of that question. Yes, MBIA Inc. is the sole owner of MBIA Asset Management LLC.

Gregory R. Diamond - Director, Investor Relations

Okay, Chuck. Let’s see, would the ratings of MBIA insured paper need to be reset at the lower rating levels of MBIA, if MBIA is downgraded?

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

If MBIA is downgraded, it’s likely that bonds that we wrap that are rated lower than we are, are downgraded. Bonds that are rated at the… that are rated AAA on their own are nor quite a number of them in our portfolio. Probably would not be downgraded, it’s my… would be my expectation. But the others are mostly likely would be downgraded.

Gregory R. Diamond - Director, Investor Relations

Okay, another one for you Cliff. Does MBIA Insurance corp. have access to pledge funds under the Global Funding program?

Clifford D. Corso - Vice President and Chief Investment Officer

Sure. I think, Greg, I covered that couple of questions back. Those assets are… just to restate, those assets are pledged with the insurance company against those obligations for the investment agreements and the MTMs. And again, if the insurance company needed to pay the claims for global funding or the investment agreements, it could take those assets although it’s as against to pay the claims on the IIA’s and the MTM’s.

Gregory R. Diamond - Director, Investor Relations

Okay, Chuck a few more for you. What’s the status of the reinsurance transaction that you referenced back on January 9th, 2008? Is there still reinsurance capacity available to you?

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

Yes there is. We are continuing to work on developing the reinsurance transaction that has the characteristics that we talked about in the context of the capital plan. One that would cover a diversified portfolio of transactions that are in our book, both those that are low capital attracting transactions as well as those that have more substantial capital associated with them. And the object is to try to come up with a… a deal that we think is, that we think is cost effective.

Frankly, the fact that we don’t need the reinsurance transaction to meet or exceed the rating agencies stated requirements of AAA, should help us in terms of getting good pricing on them. You look at… as we talk about reinsurance back in November, December timeframe, we were looking at providing ceding business that was very, very safe and paying equity like rates for it. And that is… it’s something that I think was not in the cards. So we’re getting closer.

Gregory R. Diamond - Director, Investor Relations

Okay. How much of MBIA’s insured power and deferred revenues are from providing reinsurance to other primary financial guarantors?

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

Good question. The, the primary, primary financial guarantors and then we provide a reinsurance with Ambac, and the amount of par involved is about $5 billion or $6 billion. I don’t actually have the… the amount of deferred revenue that’s associated with… those… those are older transactions. We also have a really a tiny amount of reinsurance with Assured, but the… the dollar amounts are not material.

Gregory R. Diamond - Director, Investor Relations

Okay. David Roberts of Angelo Gordon and Company asks, can you disclose how your internal estimates of loss as compared to the latest S&P stressed after tax losses of $3.520 billion?

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

We have done our own internal estimates of stress loss for the purpose of… obviously for insuring that we have had adequate capital to cover those stress losses, but also to validate the work that the rating agencies have done. The results of our internal stress would suggest that when we raise capital to meet the rating agency requirements, that we have more than accurately met all economic requirements.

Gregory R. Diamond - Director, Investor Relations

Okay, Cliff. For AAA1 liquidity will not be an issue, because of the back stop liquidity facility. For Meridian and Global Funding should either units be unable to sell certain positions at desirable prices due to current dislocation of the credit markets. What other methods would be available for you to meet these obligations?

Clifford D. Corso - Vice President and Chief Investment Officer

Sure. And AAA1 is right, liquidity backed stop as I mentioned earlier. For Meridian as I mentioned earlier, it’s actually a match funded program and so there is no need as in where to sell assets to satisfy the liabilities of the industry’s past restructure. And then, in terms of the asset liability product segment, I went through it earlier that is actually run on a programmatic basis. There’s multiple sources of liquidity available to the ALM programs. I mentioned some of them; cash flows from the assets, that’s written; now we see the primary driver. But it’s a highly liquid portfolio, its revolval, certainly salable. So, there are multiple ways to generate liquidity out of the LML.

Gregory R. Diamond - Director, Investor Relations

Okay, another one for you Cliff. This one’s from Jeff Dunn at KBW. How are the expenses of the investment management business paid? Are they paid by the Asset Management subsidiary or the holding company?

Clifford D. Corso - Vice President and Chief Investment Officer

Sure. Basically the assessment businesses are held by Inc. and so although, there are subsidiaries under, underneath, again they are all held by Inc. so each subsidiary is responsible for its own expenses, but it also it’s generating it’s earnings. But… and you can see that in the segment reporting, the Q’s and the K’s. But at the end of the day it’s all under that Inc. umbrella, but driven by the asset liabilities and sub… sub companies underneath the holding company.

Gregory R. Diamond - Director, Investor Relations

Okay, Cliff, we are going to stick with you. This one from Bill Ackman of Pershing Square. We understand that MBIA has been redeeming investors in Global Funding who have requested early redemptions at a discount. What is the total amount of such redemption requests MBIA has received? Did MBIA book any gains on these transactions?

Clifford D. Corso - Vice President and Chief Investment Officer

Sure. We do provide a little bit of liquidity outside the market for… for those purposes, but it’s been pretty small. I think the number has been somewhere around $150 million, $160 million through the second half of 2007. And the gain triggers somewhere on the order of like $12 million, which we recorded in to the income statement of the investment management segment.

Gregory R. Diamond - Director, Investor Relations

And Bill Ackman has another one for you. What is the total amount of redemption requests received by MBIA relating to its municipal or non-municipal GIC business? How much of the GIC business relates to structured finance or CDOs including credit enhancement to credit linked notes, ABS, CDO and or other structures.

Clifford D. Corso - Vice President and Chief Investment Officer

Sure. There is no outs on the GIC with the investment agreement business. So there have been no redemptions within that business. In terms of the other components of the ABS, CDO market, there is a market for GICs within the ABS CDO arena. We have chosen to play that very, very carefully. We have about 3% of the overall liability, portfolio in that segment, I think somewhere in the order of about $500 million attaching at the investment created, typically very high investment grade rates and floating rate.

Gregory R. Diamond - Director, Investor Relations

Okay. Chuck back to you. This one is again from Almeida [ph] of Paliton Partners [ph]. Egan Jones has estimated that it would cost upwards of $200 billion to recapitalize the monoline insurance industry to maintain AAA ratings. Then all those plans call for $15 billion. Both of these numbers seem extremely high relative to the size of losses that you ultimately expect. Where do these numbers come from and who is defending the industry’s position in these discussions? If you believe in your position, obviously you guys need to do better PR as the public debate has got out of hand from this prêt stand point?

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

Well there is a lot of material there. I would just try to take them one at a time. With respect to Egan Jones, they have not shared with us the analysis that they have done that leads to their $200 billion number. There is… as you point out there is… absolutely nothing that we have seen that would suggest that anything like that is required, at the industry level. Of course we can speak most appropriately and most directly about MBIA and we talked about that a bit today. So, we think that the capital rates that we are doing which is North of $2 billion is adequate for us to maintain AAA ratings based on our current outlook on the economy. Now, could that change? It sure could because the economy could be worse than anybody expects, on the other hand it could also be better than anybody expects. So, I just don’t… we don’t have any basis for coming up with any number other than that which we have been working with and have discussed and capitalize against with the rating agencies. But, with respect to New York state, Gary said it earlier that we can’t speculate us as to how the state is coming up with it’s estimates of need nor it’s negotiations with counter parts to participate in industry’s dilution. Some of the concepts that people have talked about are excess of loss, type, contracts as opposed to direct equity infusion and it’s a little hard to calibrate the capital need that comes from direct download of capital into the entity versus excess of loss type coverage. So, maybe that has something to do with this. We are… MBIA is taking our position with respect to our franchise, our capital plans, the risks in our book of business, to all constituents, to you, to the regulators, to the rating agencies, to the press. Frankly, a year or so ago, we would have been very reluctant to be at the sort of this… we have been in respect to communications. That has changed. And we kind of agree with the comment that we do need to have a sort of stance with respect to making sure that misperceptions about our Company are rebutted effectively and timely. And that we get the affirmative message about our business model and our business prospects out into the public. So, you… this is the part of doing that.

Gregory R. Diamond - Director, Investor Relations

Okay. Gary, this is… some questions for you from Gary Ransom at Fox Pitt. A series of questions… there are a series of questions on US mini bond business. When you say in your press release, I presume, reduced demand for the product in the second half of December for US public finance, can you elaborate on that. Was this just broad concerns across the market, was the spread benefit available from MBIA too small. I understand from bond traders that wrapped muni bonds and the market currently give little or no value to the wrap, i.e. they already trade at the underlying credit rating. Does this mean financial benefit to the issue has been diminishing from our wrap? If so can other competitors, FSA, AGO, potentially Berkshire offer more value. When do you think that might change.

Gary C. Dunton - Chairman, President and Chief Executive Officer

Wow. I will say it is a series of questions. Reduced demand for the product in the second half of December coincided with the rating agencies actions in terms of negative outlook and credit watch. Negative and the uncertainties associated with that, magnified by the press if you will. And so a lot of issuers postponed their issuance into the new year rather than go into a market that was a bit unstable. And I don’t have the penetration numbers in front of me, but typical insurance penetration number would be in the 50% range and I think the last half of December was probably in the 30% range. And so, you can see that’s fallen off. In the new year, I guess I would say that there is tearing of the monolines. There were those that are in the main house, there were those that were in the dog house and there were those that have a non-house, and the ones that are in the main house are getting more than their fair share of the business because they don’t have the taint or the immediate worry of being downgraded by the rating agencies. We believe we are in the dog house where we are earning our way back and we are recapitalizing ourselves, we are maintaining our franchise value. We are doing a modest amount of business as alluded to earlier in this conversation. And then there maybe others whose name I won’t mention of course. Who are in the out house who may have had downgrades recently and so that’s playing into competitive spreads and the ability to win business. This is why our capital management program, our capital raising program is so important to us, the sooner we can get it finished, the sooner that we can build redundant capital, capital cushion, the sooner that we can move back into the main house if you will and compete with those who are untainted.

Gregory R. Diamond - Director, Investor Relations

One we just want to go back and clarify earlier statement that we made with respect to the New York state insurance department, their ability to take over MBIA. The insurance department can put companies into rehabilitation even if a company is not insolvent for various reasons including if the company is found to violated law or regulatory orders, or if they are concerned about the company’s ability to pay it’s claims. Now back to the questions. Please comment on yesterday’s, Ackman Letter specifically with respect to whether, current SEC disclosure requirements would permit a rights offering, given alleged undisclosed losses in the company’s portfolio.

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

Greg, thanks. There… what the SEC requires is that we make a full disclosure of all material information needed to make an investment decision, in an offering and that is exactly what we would intend to do, there are no undisclosed losses, in our portfolio. We have discussed today our expectation with respect to loss in our RMBS portfolio as well as in a handful of CDO squares. Those are the expected losses in our book of business today.

Gregory R. Diamond - Director, Investor Relations

One more for you Chuck, regarding your MTM hits, how much runs off from the deals contributing to the mark?

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

It doesn’t have a detailed run off analysis of those transactions, but the average life of the deals that are subject to FAS 133 is about between six and eight years, and they run off pretty much in a straight line fashion. So, you could say that if nothing else changed, our mark-to-market would reverse over six or seven years. However, everything is going to change. And yesterday we did see some downgrade action on S&P’s part, that will likely have an impact on the mark. And then spreads are going to change. I don’t know if they will be higher or lower, but they will be different. And as a result it’s very difficult for us to make any kind of a forecast with respect to the mark, but just with respect to average life, you are talking about six to eight years.

Gregory R. Diamond - Director, Investor Relations

Okay Mitch. Jay called me from the Danic [ph]. How many municipal bond defaults have actually forced the company to pay some or all of interest and or principal?

Mitchell I. Sonkin - Head, Insured Portfolio Management

Not many. I think we also need to distinguish between, paying versus loss. There maybe instances which will still be fairly rare given the size of the Muni book, historically, even currently where on a new term basis, you may have a liquidity claim that has to be paid in example with the… after a significant event like Hurricane Katrina, where we actually had to pay a small amount of claims, because of… through the disruptions to the banking system that took place in Louisiana and specifically New Orleans after Katrina, however all of those were reimbursed to us. So, we then have to separate out those where you get reimbursements from those where you actually may pay claims and suffer loss, and in the Muni side, that’s a very small number, probably under a dozen where net of reimbursement and net of reinsurance you actually wind up with a loss.

Gregory R. Diamond - Director, Investor Relations

Okay. Gary. A couple of questions for you… excuse me. To what extent has MBIA been involved in discussions with the New York state insurance department on the capital plan with the banks?

Gary C. Dunton - Chairman, President and Chief Executive Officer

Well, MBIA has maintained frequent communications with the department. But, we have not been party to the discussions that the departments have with the banks.

Gregory R. Diamond - Director, Investor Relations

Okay. Another one for you Gary. I am surprised that there hasn’t been more share repurchasing from MBIA Insiders. Why not?

Gary C. Dunton - Chairman, President and Chief Executive Officer

Well in conjunction with the Warburg Pincus investment agreement, the MBIA senior management team has committed to purchase $2 million collectively worth of MBIA stock at a price of $31 a share. But, to get a full lay of the land, the senior team gets at least half and in many cases more than half of their total compensation in every given year in stock, and stock options or performance based restricted stock. And they have since I have been here with the Company for 10 years, and so they have built up a huge amount of equity in the Company, if you will almost all of which not… I think not almost all of… all of which is underwater. So, they have clearly watched their fortunes rise and fall, hopefully rise again with the Company, and so we feel that the shareholder interests are very much in line with management’s interests, and at this point in the cycle, to make them buy more with years and years of equity participation underwater would not be appropriate.

Gregory R. Diamond - Director, Investor Relations

Okay. Chuck, how does MBIA plan to balance, trying to grow, versus generating more excess capital protect against additional adverse rating agency movements.

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

Unfortunately at that moment, that is not a dilemma that we face. Our business is actually growing slowly at this time. And the amount of business that we have been able to do in the past several weeks has not been satisfying relative to the potential of our business model. And so, what we are doing right now is generating capital from operations and generating it in a rather robust manner. Longer term, our expectation is that we have such a strong capital cushion that we differentiate MBIA in the minds of investors and issuers that we resolve some of the credibility issues that affect MBIA and the industry generally, and then we do start to write business more robustly in an environment in which the pricing for financial guarantee is quite attractive. So, we are expecting and hoping that over time we have to work harder to achieve that balance. It too quite frankly is not a problem for us at the moment.

Gregory R. Diamond - Director, Investor Relations

There is another one for you Chuck, one of the ideas that have been theorized is that the regulator will insist on splitting your municipal bond and structure finance businesses and will do so using a good bank bad bank structure. The bad bank i.e. structure credit will be put into runoff in the municipal bond business would continue as a going concern. I know you don’t view structure credit as bad, but given the political hoopla around house structure finance is taint to the good municipal bond business, the regulator might try to pursue this route. What avenue would you… what avenue would he be able to pursue to create a good bank bad banks structure, how would this affect shareholders?

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

Well, those are really good questions. There are a lot of hurdles to creating a good bank, bad bank structure with a regulated and highly rate insurer, and I know that some of the solutions that have been discussed that people are sort of kicking around in the public, actually would not meet the rating agencies’ approval in terms of preserving the ratings even of the ongoing entity. So, it is one about which you have got to be quite careful. It is possible and it has been done that there have been insurance securitization that result in the ring fencing of part of a business, that isolated to some extent from an ongoing business. But I think it would be frankly quite challenging in this environment. We are very interested in having that dialogue with the state as any other market participant, because we don’t want to turn any potentially valuable idea away. But it is one that has a lot of hair on it.

Gary C. Dunton - Chairman, President and Chief Executive Officer

And just to pipe in for a minute. There are at least theoretically other alternatives that we have been brainstorming ourselves that would achieve the goal without the cost, the time and the expense and the uncertainty associated with the good bank, bad bank. And so, we do look forward to dialoguing with the department and it’s advises in the near future.

Gregory R. Diamond - Director, Investor Relations

Chuck I know you addressed this earlier, but with some requests and clarification, if you could just reiterate the comment. Please provide general guidance on the other steps to raise equity as referenced in the section entitled Capital Plan in your press release.

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

Yes, again, we have a Warburg Pincus' commitment to back stop a rights offering. We are considering alternatives that would also involve back stop, equity, raises. But frankly beyond that I can not go at this time.

Gregory R. Diamond - Director, Investor Relations

Okay. We will stick with you Chuck. Can you comment on the latest S&P 500 ratings review on RMBS deals and if S&P have advised if this will trigger another round of FG rating reviews?

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

Right. On January 15, S&P announced that it was revising its assumptions for their recent vintage RMBS and CDOs back by RMBS. And in particular, they increased their assumption for accumulate of loss on the 2006 vintage subprime to about 19% from 14%. Now, after that announcement, they reran the financial guarantors through their subprime stress model, that included the impact of these assumptions and concluded and issued a press release of this affect. And even with the increased assumptions, MBIA’s previously capital plan is sufficient to absorb the additional requirement. And by the way, all of the data that I presented today by capital cushions and such due to reflect S&P’s revised view of those RMBS. So, we believe that yesterday’s rating changes on the reference securities are just the securities level implementation of the change in outlook that has already been implemented with respect to the monoline capital model.

Gregory R. Diamond - Director, Investor Relations

Okay. And Scott Cross from HSBC asks, have you obtained a waiver or amendment of your network coveted from the bank group. You mentioned you were seeking to obtain one in your pre-release.

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

Yes. We did, and I think I addressed this earlier. We did get our agreement with our banks to modify the covenant calculation so that these surplus notes are treated as debt rather than equity that ensures that we remain in compliance with that covenant through the issuance of surplus notes and we have full access to that facility at this point.

Gary C. Dunton - Chairman, President and Chief Executive Officer

I think that’s debt that rather than equity.

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

I am sorry, forgive me. Right. The purpose of the amendment was to achieve the surplus notes as equity rather than debt. Forgive me.

Gregory R. Diamond - Director, Investor Relations

Okay. When will MBIA utilize it’s put to the funded trust to raise up to $400 million in cash in return for preferred stock. Talking about the ARPS facility.

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

There is no need for us to do that, and so there is no scenario in which we would expect to exercise the put. That facility, because of the fact that it’s funded, receives a 100% capital credit in the rating agency capital models. So, exercising the put really is a liquidity management tool, as opposed to a capital management tool. The capital management tool we have already exercised.

Gregory R. Diamond - Director, Investor Relations

Okay. Is additional collateral posting reduce your statutory surplus in anyway.

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

Let’s see we don’t have any collateral posting requirement with respect to the liability that we write in the insurance company that would affect statutory surplus. So, the collateral posting requirement that we talked about earlier that actually Cliff talked about are in the active liability management portfolio, the asset and the liabilities are sitting at the holding company. So, there is no impact on statutory surplus of posting collateral.

Gregory R. Diamond - Director, Investor Relations

Okay. Geoff Power of Bedrock Capital Management [ph] asks. Can you tell me why MBI is looking at new ways to raise equity in addition to the $2 billion plus already raised. Is this primarily for rating i.e. Moody’s satisfaction, or is there more fear of future claims from MBIA.

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

There is actually nothing that we can identify now that requires that we do anything in addition to what we have discussed. Again, we are going to have pro forma year’07. $752 billion of excess capital relative to rating agencies state of requirements because of what I said a few minutes ago that does grow each quarter, so we think that we actually have pretty good running room. And again, we are, in fact, considering alternatives to the rights offering that we have discussed. But I have already said everything that I can say about.

Gregory R. Diamond - Director, Investor Relations

Okay. Gary Ransom of Fox Pitt asks, how do you think the downgrade by Fitch of summer viewer competitors will affect the market.

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

I think any downgrade of the most significant companies in are industry is going to have an impact on the entire industry and just another part of the process that the industry has got to go through to rebuild not only its capital base but also its credibility with investors and the leading companies have got to return to AAA a firm stable. So, the point is that the downgrade by Fitch some of the major companies makes that job harder.

Gregory R. Diamond - Director, Investor Relations

Okay. Gary has another question. The statement in the press release regarding Warburg, we are considering the write offer and other option just to make it sound like the writes offering could be replaced by something else. Am I reading too much into that.

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

Yes, unfortunately I can’t say anything about the equity. Other than what I have already said.

Gregory R. Diamond - Director, Investor Relations

Great. One more from Gary Ransom. What brought you to change the income statement format, do you expect to eliminate the old version eventually. So, we should change our models now.

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

The answer to that is we are changing the income statements because it is closer to… it is best practices from the standpoint of compliance with GAAP requirements for consolidated financials, that your income statements be presented on a consolidated basis. That doesn’t mean that we are not going to provide segment information, because that is quite important. There actually is a requirement in the literature for segment basis financial information which we do provide in a segment footnote. And I would expect that we are going to continue to provide the same kind of segment information that we provide today. It’s just that the phase of the income statement that you see when you open up the 10-K will present the consolidated view for us.

Gregory R. Diamond - Director, Investor Relations

Okay. This one… it looks like we have touched on before. Geoff Dunn asks from KBW. Do you have any covenants that pose any additional liquidity or operating risk to the Company? Should you be downgraded by the rating agencies? Under what circumstances might your debt covenants interfere with your ability to conduct business and or satisfy any of your payment obligations?

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

Other than the debt covenant that I covered in my prepared remarks in our banks facility. We don’t have any other debt covenant in corporate obligation. Cliff covered earlier the impact of downgrades on our investment agreement business where there are collateral requirements and ultimately termination rights on the parts of the counterparts that we have we believe more than adequate assets to cover those obligations.

Gregory R. Diamond - Director, Investor Relations

Okay. Please describe the holding company investments in the $433 million figure in detail. Are these investments in publicly traded securities or are they private investments in subsidiaries, affiliates, affiliates and other. And this is a question from Bill Ackman of Pershing Square?

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

Yes. The holding company assets $434 million at year-end consists of a 60% treasuries and money market securities and about 40% are public high grade corporate bonds.

Gregory R. Diamond - Director, Investor Relations

Okay. Another question from Bill Ackman at Pershing Square. The rating agencies have assumed in their models that the full $1 billion from Warburg Pincus’ will be downstreamed to the insurance subsidiary. Have you committed to this?

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

In fact we received $500 million yesterday from Warburg Pincus in at the closing of the first leg of their commitment and that $500 million is in the insurance company. The purpose of the equity raise is to provide a surplus to the insurance companies so you should expect that all of the proceeds end up there as they are received.

Gregory R. Diamond - Director, Investor Relations

Okay. Tim Mullen from VNB Trust asks: Would it be possible to set up something along the lines of a good bank, bad bank separation? We have answered this before. Let me just see. We've covered that question too.

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

Possible but very difficult.

Gregory R. Diamond - Director, Investor Relations

Right. We will go to another one. Mitch, this one’s for you from Bill Ackman. Please describe in detail all of your below investment grade exposure by name of obligor, gross and net exposure and outstanding S&P Fitch, Moody’s and they are internally rate globally, et cetera and default breach of covenant et cetera?

Mitchell I. Sonkin - Head, Insured Portfolio Management

Well. First thing I would do is I would say that the operating supplement is a good place to start. In that list the top 10, low investment grade credit and provides some good detail on that. And that’s on S&P priority basis, so we have an understanding of how exactly that works. We don’t provide the details on the balance of the below investment grade exposures nor on other exposures related to the question of classified lists for a variety of reasons some of which are confidentialities related to the credit that are involved.

Gregory R. Diamond - Director, Investor Relations

Okay. The next question, it’s the same question but for the classified lists distinguishing from the drawback

Mitchell I. Sonkin - Head, Insured Portfolio Management

I know

Gregory R. Diamond - Director, Investor Relations

Same answer, right.

Mitchell I. Sonkin - Head, Insured Portfolio Management

Same answer.

Gregory R. Diamond - Director, Investor Relations

From the operating supplement one can determine that $33 billion of CDOs has been reinsured as of 12/31/07. Please identify these CDOs and describe them in detail. Please identify the reinsurers who have reinsured these exposures?

Mitchell I. Sonkin - Head, Insured Portfolio Management

And as we said earlier… Chuck said earlier that we would be putting out a listing of all of our CDO details, so that’s been covered as well.

Gregory R. Diamond - Director, Investor Relations

Mike Grasher from Piper Jaffray asks. Given the triggers protections you have in place on your RMBS and CDO deals. Can you quantify your own maximum loss expectation? It is understood your maximum loss is your exposure but realistically making some dire assumptions what could we expect? I suppose if we take the shorts analysis it would look like expectations are $6.6 billion and $30 billion of exposure?

Mitchell I. Sonkin - Head, Insured Portfolio Management

Yes. Here I think we have to understand that the best we can do is to take the loss reserving numbers that we have, where we have been able to really stress the book, where we have been able to run, run the models with a variety of assumptions, some of which are mentioned during the presentation and come up with numbers that base number we are seeing right now where we are comfortable with. As we all know any model is as good or is as bad as the assumptions that are in it and while it is very easy to take broad based numbers and put them on to entire portfolios, the methodology that we use because we are close to the deals, because we are consistent with getting information from issuers, servicesers and trustees, permits us to have a very granular approach to the deals and therefore, we don’t take a overall by sector book view, but a deal by deal view. So, I would say that the best we can do right now and I think it is a very approach has been what we have done, which is to take the books where we are seeing stress, we talk about those earlier, what they are and we have come up with the numbers that we think represent a probable and estimable loss on a go forward basis, based on the economic conditions we see and based on the performance of the book. Could some of those change as time goes on? Yes. If someone can have a clear crystal ball as to exactly what the economy is going to do and what precisely will happen with HPA and otherwise, so that’s fine. What we have done is we have taken very conservative assumptions. We have not given any credit to our recent rate cuts, economic stimulus packaging, increases in Freddie and Fannie Mae limits. We haven’t taken any of that into account and all I have got but we have assumed a depressed real estate market going out for at least to the next two years. So, we are comfortable with what we have and we will update them as we go forward but we believe that’s the right approach to take.

Gregory R. Diamond - Director, Investor Relations

Okay. Another one for you Mitch. What are the major reasons for the variation of your CDO loss, estimates compared to Ackman’s? We asked that… we already answered that one. These are ones that have just come in during the broadcast so it’s going to be a little trickier to keep track of these. MBI should purchase reinsurance on its municipal book of business, this has been reported as an avenue of potential capital relief, can you give me a sense of the economic effects of reinsuring this book of business?

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

Sure. This is Chuck and it has been discussed. We actually think that you don’t get much capital relief, bang for the reinsurance book by going this direction it’s the reason that we are looking at doing a transaction that is more of a diversified pool of deals in our portfolio.

Gregory R. Diamond - Director, Investor Relations

Is the derivative asset the amount of mark-to-market losses recoverable from reinsurance?

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

The derivative asset on the balance sheet just represents the positive mark-to-market on all derivatives where we are a net receiver and largely would not be the insured credit derivative.

Gregory R. Diamond - Director, Investor Relations

Okay. What portion of the derivative asset is associated with reinsurance from companies that are watched to be down graded below AAA?

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

And again, no portion of a derivative asset is associated with reinsurance. So, I am not sure how to answer that. We talked about our reinsurers and the amount of the portfolio that they cover and while we haven’t gone through a detail on their rating status I think that we have acknowledged that Channel Re our largest reinsurer is on review for downgrade at Moody’s. Our next largest reinsurer is probably Ram Re, the negative outlook from S&P but it’s stable with Moody’s and as for these smaller ones I am, I just don’t have a good read at this point.

Gregory R. Diamond - Director, Investor Relations

Okay. Here’s a question that we have asked, we have answered many, many times, both here today and on prior occasions but since it’s being asked again. We will answer it again. Do any insurance contracts structured or CDS or otherwise that you have written required to post collateral in the event of downgrades?

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

No.

Gregory R. Diamond - Director, Investor Relations

Thank you. Based on your current expectations for ADP in 2008, how much incremental capital do you expect to be freed up during 2008, assuming no further capital charges on the CDO or direct RMBS portfolios beyond that currently assumed by the rating agencies?

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

And if we wrote no business we would free up a little over a $1 billion in capital per year. And to be frank we have not finalized a plan for 2008 at this juncture because of the fact that the market has just been so uncertain and then frankly if we did we might not provide disclosure of it, but we normally don’t talk about plans. But suffice it to say that given where we are right now in the first quarter, I do anticipate that there is a meaningful increment to our capital position from capital requirement that rolls off in Q1.

Gregory R. Diamond - Director, Investor Relations

Okay. If for some reason a proxy for the rights offering was not approved in a timely fashion, thus preventing the company from completing the rights offering prior to March 31, 2008 does Warburg retain the right to walk away and return of its $500 million equity capital infusion? Are the monies currently escrowed in a separate account?

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

I would just point out that the… that our agreement with Warburg Pincus is filed and is a matter of public records, I mean, you could probably look some of this up, but there is no proxy that’s required for rights offering, just a prospective and MBIA currently has a shelf registration that can be used for that offering. So, we don’t think that there is any real problem of launching and completing a rights offering before March 31, 2008 and even if not, there is no obligation to return Warburg’s $500 million capital infusion if the rights offering is not completed. There is no need for those funds to be escrowed; they are now part of the surplus in the insurance company.

Gregory R. Diamond - Director, Investor Relations

Okay. Jonathan Adams of Oppenheimer Capital asks what steps are you taking to reduce operating costs in light of the likely prolonged downturn in new business?

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

Again this is kind of a plan issue that frankly it’s too soon to say, we are doing some redeployment of people within the company from the production side to the insured portfolio management, risk management areas and so we are trying to flex that we can but the dust hasn’t settled yet and so its too soon to say.

Gregory R. Diamond - Director, Investor Relations

Okay. Let’s see. This person is looking for a clarification on the pie chart, entitled MBIA wrap over monoline net par $3 billion, wanting to have it explained? Unfortunately didn’t provide which pie chart that is.

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

The answer is I mean we have a pie chart that’s in the deck that just shows cases where there is an existing bond, the bond is insured by one or the other monolines and MBIA has provided a wrap over that monoline so it is the case that it was responsive to the question, what would happen to MBIA if any of the other monolines were downgraded to the extent that any of them were downgraded, there is a potential anyway for those transactions to attract more capital. However, because of the fact that the total volume is so small at $3 billion it doesn’t really amount to much from a capital requirement and of course we don’t think that there is any material risk of loss their investment grade underlying that are already wrapped by investment grade monoline insurers.

Gregory R. Diamond - Director, Investor Relations

Okay. Steve Stelmach of Friedman, Billings, Ramsey asks, you mentioned that 53% of non-agency RMBS is wrapped. This is for Cliff. I’m sorry. And 65% of ABS CDO is wrapped, what is the average rating of the underlying exposures without the wrap?

Clifford Dean Corso - Vice President and Chief Investment Officer

Sure. In the earlier slide I gave a cut through for the overall portfolio without giving effects to any of the wraps and that was still in the AA category. We haven’t disclosed the sub sector cut throughs specifically but I think generally I can say that for those categories you are highlighting the average ratings under those categories on the cut through would be investment grade.

Gregory R. Diamond - Director, Investor Relations

Okay. Mitch, Geoff Power, BMC asks, I see your CDO square transactions are CDOs or high grade tranche CDOs. How high? Can you give any color on that?

Mitchell I. Sonkin - Head of Insured Portfolio Management

We can… I tried to cover this somewhat before and I want to go back again. The CDOs of high grade CDOs are diversified transactions and they are generally anchored by CLOs which are collateralized loan obligations consisting of investment grade corporate debts and containing buckets of other collateral which may include highly rated tranches of CDOs of ABS collateral and by that we mean they can go AA, they can be AAA as well. No one transaction contends within as I mentioned before 38% of CDOs of ABS collateral as a percentage of the total collateral base, deals are diversified by the collateral and the vintage and the underlying collateral ratings as of mid December remains strong with 70% of the underlying collateral, AAA 17% AA, 8% A, 3% rated BBB and only 2% below investment grade.

Gregory R. Diamond - Director, Investor Relations

Okay. Chuck, Brad Davis of Colonial Asset Management, are there any contingencies in guaranteed exposures, if so, can you please quantify how many in which exposures have contingencies?

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

I think here that, what you are getting at is contingencies other than the financial guarantee of our insurance policies, right? So, the place where we would have contingencies would be in the asset liability management portfolio and I think, Cliff went through this pretty well earlier and I would just direct the questioner to the slide that shows the collateral and termination numbers back in the presentation.

Gregory R. Diamond - Director, Investor Relations

Okay. Also is the net power outstanding adjustment for previous mark-to-market write downs. Can you also clarify the percent of MTM write downs on multi sector CDOs as a percent of your total insured amount?

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

Well, let’s see, the net par outstanding adjusted from mark-to-market. We have write downs…

Gregory R. Diamond - Director, Investor Relations

We have previous write downs.

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

Yes. The mark-to-market is a GAAP concept and you have actually seen net par outstanding any where in the financial statements. So, there is no adjustment in that sense, the par outstanding that we report in terms of our exposure is also not adjusted for mark-to-market, now with respect to multi sector CDO, total mark and this is in the presentation that’s total marks for the quarter is $1.8 billion, that sector had a mark also in the third quarter, but it was not the whole $340 million, it’s probably, it maybe half of it. So, when you think about the total mark that we have taken this is going to be a little over $2 billion or right around $2 billion on that portfolio and the par outstanding for that portfolio is about $30 billion.

Gregory R. Diamond - Director, Investor Relations

Okay. Please also comment on any ongoing or current litigation investigations and subpoenas?

C. Edward Chaplin - Vice-Chairman and Chief Financial Officer

I will take that Greg. As we disclosed in our 8K on January the 9, of this year MBIA has responded to informal inquiries from the SEC as in New York State Insurance Department and we may receive additional inquiries. We have provided the information requested by the SEC. Situation has not changed and we are not aware of being a target on any SEC probes as reported in one of the various articles the other day. MBIA did also receive a subpoena from Connecticut Attorney General on or about the 14, of January of this year expects their investigation into possible violations of state antitrust laws. The subpoena generally seeks the information regarding rating agencies methodologies and rating scales for rating municipal debt versus corporate debt and other information related to ensure municipal debt and the rating agency’s rationale underlying their policies and methodologies used in rating different municipal debt. We are obviously cooperating with that investigation and then also as we disclosed in our AK filing on January 24, MBIA received a subpoena from the Securities Division of the secretary of the Commonwealth of Massachusetts that seeks information about disclosures that MBIA made to underwriters and issuers in connection with public finance transactions and MBIA insured for the state of Massachusetts and any of its agencies or subdivisions and we are also cooperating with that.

Gregory R. Diamond - Director, Investor Relations

Okay. Mitch, additional please comment on the massive jumps in below investment grade exposure. What drove the change other than the $10.6 billion of still investment grade HELOCs?

Mitchell I. Sonkin - Head, Insured Portfolio Management

Okay. First of all I think we need to distinguish. When you look at the low investment grade exposure on a S&P priority basis, the fact is the exposure was stable maybe in the fourth quarter as I mentioned during my presentation. You can take a look at the MBIA priority below investment grade, that’s where you will see that the number has jumped up significantly, that is because even though the rating agencies have not yet taken the deals that we have reserved again and down graded them to below investment grade as is our practice because we are close to the deals, we are at ahead of it and our below investment grade list already includes the deals for which we have reserved again so the answer is the second lien deals as well as the CDO squares which we took the impairments on are what are responsible for the growth in the below investment grade on an MBIA rating basis as opposed to the flat S&P priority basis of 1.4%.

Gregory R. Diamond - Director, Investor Relations

Okay. We have literally just a few questions that go unanswered at this point but we are going to pull the plug on the 3:00 o’clock hour, four hours into the call. I think we have demonstrated our willingness and ability to answer many of the questions. In fact they will let you know that none of the remaining questions are Bill Ackman questions. We have responded to all of those, we just provided that we are not redundant with other people’s questions, even where redundant, we tried to demonstrate that he ask those questions as well.

We thank you for your participation in today’s call. The replay will be available on the website at www.mbia.com and we please urge you to go to the website as well for additional information on our company. As Chuck mentioned we will be posting information over the next period of time that we will be updating our outstanding disclosures on our structured finance book. Thank you very much. Good day and good-bye.

Operator

Thank you. This does conclude today’s MBIA’s conference call and webcast to discuss its fourth quarter and year 2007 earnings and other topics conference call. You may now disconnect.

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