MBIA (MBI) 10-K 2002 FY Annual report

Exhibit 99

MBIA INSURANCE CORPORATION
AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2002 and 2001
and for the years ended
December 31, 2002, 2001 and 2000

Report of Independent Accountants

To the Board of Directors and Shareholder of
MBIA Insurance Corporation:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income and changes in shareholder’s equity and cash flows present fairly, in all material respects, the financial position of MBIA Insurance Corporation and subsidiaries as of December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America.  These financial statements are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on our audits.  We conducted our audits in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 2 to the financial statements, effective January 1, 2002, MBIA Corp. changed its method of accounting for goodwill and for stock option compensation.  In addition, as discussed in Note 2 to the financial statements, effective January 1, 2001, MBIA Corp. changed its method of accounting for derivative instruments.

January 31, 2003

MBIA INSURANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

(dollars in thousands except per share amounts)

			December 31, 2002		December 31, 2001
Assets
Investments:
	Fixed-maturity securities held as available-for-sale at fair value (amortized cost $6,945,059 and $6,707,183)		$	7,446,035	$	6,839,389
	Fixed-maturity securities pledged as collateral  at fair value (amortized cost $485,124 and $465,670)			512,961		479,938
	Short-term investments, at amortized cost (which approximates fair value)			628,033		284,321
	Other investments			151,967		28,756
		Total investments		8,738,996		7,632,404
Cash and cash equivalents				17,538		24,404
Securities purchased under agreements to resell				492,280		559,751
Accrued investment income				116,354		110,264
Deferred acquisition costs				302,222		277,699
Prepaid reinsurance premiums				521,641		507,079
Reinsurance recoverable on unpaid losses				43,828		35,090
Goodwill				76,938		76,538
Property and equipment, at cost (less accumulated  depreciation of $63,926 and $53,618)				109,817		113,176
Receivable for investments sold				39,464		23,599
Derivative assets				96,733		65,897
Other assets				32,185		34,387
		Total assets	$	10,587,996	$	9,460,288
Liabilities and Shareholder’s Equity
Liabilities:
	Deferred premium revenue		$	2,755,046	$	2,565,096
	Loss and loss adjustment expense reserves			573,275		518,389
	Securities sold under agreements to repurchase			492,280		559,751
	Deferred income taxes			384,132		249,169
	Deferred fee revenue			19,739		23,987
	Payable for investments purchased			56,971		50,239
	Derivative liabilities			190,881		85,381
	Other liabilities			207,047		182,387
		Total liabilities		4,679,371		4,234,399
Shareholder’s Equity:
	Preferred stock, par value $1,000 per share; authorized shares - 4,000.08 and none, issued and outstanding - none			—		—
	Common stock, par value $150 per share; authorized, issued and outstanding - 100,000 shares			15,000		15,000
	Additional paid-in capital			1,610,574		1,567,478
	Retained earnings			3,943,341		3,572,397
	Accumulated other comprehensive income, net of deferred income tax provision of $185,706 and $51,300			339,710		71,014
		Total shareholder’s equity		5,908,625		5,225,889
		Total liabilities and shareholder’s equity	$	10,587,996	$	9,460,288

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

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME

(dollars in thousands)

			Years ended December 31
				2002			2001			2000
Revenues:
	Gross premiums written		$	951,931		$	865,226		$	687,408
	Ceded premiums			(198,526	)		(235,362	)		(189,316	)
		Net premiums written		753,405			629,864			498,092
	Increase in deferred premium revenue			(164,896	)		(105,994	)		(51,739	)
		Premiums earned (net of ceded premiums of  $189,332, $169,034 and $147,249)		588,509			523,870			446,353
	Net investment income			431,090			412,756			392,078
	Net realized gains			17,362			11,142			24,721
	Change in fair value of derivative instruments			(74,664	)		(2,435	)		—
	Advisory fees			46,577			35,468			24,027
	Other			549			12,151			1,564
		Total revenues		1,009,423			992,952			888,743
Expenses:
	Losses and loss adjustment			61,688			56,651			51,291
	Amortization of deferred acquisition costs			47,669			42,433			35,976
	Operating			86,045			78,574			80,376
		Total expenses		195,402			177,658			167,643
Income before income taxes				814,021			815,294			721,100
Provision for income taxes				212,477			210,951			190,474
Income before cumulative effect of accounting change				601,544			604,343			530,626
	Cumulative effect of accounting change			—			(11,082	)		—
Net income			$	601,544		$	593,261		$	530,626

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

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER’S EQUITY
For the years ended December 31, 2002, 2001, and 2000
(in thousands except per share amounts)

							Common Stock				Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Shareholder’s Equity
							Shares		Amount
Balance, January 1, 2000								100,000	$	15,000	$	1,514,014		$	2,858,210		$	(159,597	)	$	4,227,627
Comprehensive income:
		Net income						—		—		—			530,626			—			530,626
		Other comprehensive income:
				Change in unrealized appreciation of investments net of change in deferred income taxes of $121,852				—		—		—			—			226,480			226,480
				Change in foreign currency translation				—		—		—			—			(5,884	)		(5,884	)
						Other comprehensive income															220,596
Comprehensive income																					751,222
Dividends declared (per common share $1,973.00)								—		—		—			(197,300	)		—			(197,300	)
Tax reduction related to tax sharing agreement with MBIA Inc.								—		—		26,057			—			—			26,057
Balance, December 31, 2000								100,000		15,000		1,540,071			3,191,536			60,999			4,807,606
Comprehensive income:
	Net income							—		—		—			593,261			—			593,261
	Other comprehensive income:
			Change in unrealized appreciation of investments net of change in deferred income taxes of $7,390					—		—		—			—			13,694			13,694
			Change in foreign currency translation					—		—		—			—			(3,679	)		(3,679	)
					Other comprehensive income																10,015
Comprehensive income																					603,276
Dividends declared (per common share $2,124.00)								—		—		—			(212,400	)		—			(212,400	)
Tax reduction related to tax sharing agreement with MBIA Inc.								—		—		27,407			—			—			27,407
Balance, December 31, 2001								100,000		15,000		1,567,478			3,572,397			71,014			5,225,889
Comprehensive income:
	Net income							—		—		—			601,544			—			601,544
	Other comprehensive income:
			Change in unrealized appreciation of investments net of change in deferred income taxes of $134,406					—		—		—			—			250,289			250,289
			Change in foreign currency translation					—		—		—			—			18,407			18,407
					Other comprehensive income																268,696
Comprehensive income																					870,240
Dividends declared (per common share $2,306.00)								—		—		—			(230,600	)		—			(230,600	)
Tax reduction related to tax sharing agreement with MBIA Inc.								—		—		25,643			—			—			25,643
Stock-based compensation								—		—		20,227			—			—			20,227
Capital issuance costs								—		—		(2,774	)		—			—			(2,774	)
Balance, December 31, 2002								100,000	$	15,000	$	1,610,574		$	3,943,341		$	339,710		$	5,908,625

		2002			2001			2000
Disclosure of reclassification amount:
	Unrealized appreciation of investments arising during the period, net of taxes	$	256,284		$	23,290		$	228,513
	Reclassification adjustment, net of taxes		(5,995	)		(9,596	)		(2,033	)
	Net unrealized appreciation, net of taxes	$	250,289		$	13,694		$	226,480

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

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

			Years ended December 31
			2002			2001			2000
Cash flows from operating activities:
	Net income		$	601,544		$	593,261		$	530,626
	Adjustments to reconcile net income to net cash provided by operating activities:
		Increase in accrued investment income		(6,090	)		(3,442	)		(13,310	)
		Increase in deferred acquisition costs		(24,523	)		(3,344	)		(22,433	)
		Increase in prepaid reinsurance premiums		(14,562	)		(64,457	)		(39,412	)
		Increase in deferred premium revenue		179,459			170,452			91,151
		Increase in loss and loss adjustment expense reserves, net		46,148			15,434			31,405
		Depreciation		10,307			10,540			7,205
		Goodwill		—			4,658			4,879
		Amortization of bond discount, net		(10,687	)		(8,184	)		(16,756	)
		Net realized gains on sale of investments		(17,362	)		(11,142	)		(24,721	)
		Deferred income tax provision (benefit)		259			(11,491	)		51,597
		Fair value of derivative instruments		74,664			2,435			—
		Cumulative effect of accounting change, net		—			11,082			—
		Other, net		56,496			145,083			94,282
		Total adjustments to net income		294,109			257,624			163,887
		Net cash provided by operating activities		895,653			850,885			694,513
Cash flows from investing activities:
	Purchase of fixed-maturity securities, net of payable for investments purchased			(2,788,599	)		(3,621,172	)		(2,984,404	)
	Sale of fixed-maturity securities, net of receivable for investments sold			2,006,228			2,602,967			2,183,222
	Redemption of fixed-maturity securities, net of receivable for investments redeemed			529,065			431,275			282,541
	(Purchase) sale of short-term investments, net			(328,651	)		(14,423	)		12,947
	(Purchase) sale of other investments, net			(82,024	)		(18,742	)		331
	Capital expenditures			(8,144	)		(7,736	)		(14,756	)
	Disposals of capital assets			206			1,209			1,745
		Net cash used by investing activities		(671,919	)		(626,622	)		(518,374	)
Cash flows from financing activities:
	Dividends paid			(230,600	)		(212,400	)		(197,300	)
		Net cash used by financing activities		(230,600	)		(212,400	)		(197,300	)
Net (decrease) increase in cash and cash equivalents				(6,866	)		11,863			(21,161	)
Cash and cash equivalents - beginning of year				24,404			12,541			33,702
Cash and cash equivalents - end of year			$	17,538		$	24,404		$	12,541
Supplemental cash flow disclosures:
	Income taxes paid		$	192,398		$	158,862		$	83,020

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

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  Business and Organization

MBIA Insurance Corporation (MBIA Corp.) is a wholly owned subsidiary of MBIA Inc.  MBIA Inc. was incorporated in Connecticut on November 12, 1986 as a licensed insurer and, through a series of transactions during December 1986, became the successor to the business of the Municipal Bond Insurance Association (the Association), a voluntary unincorporated association of insurers writing municipal bond and note insurance as agent for the member insurance companies.

          MBIA Corp. operates through one business segment, the financial guarantee insurance segment, which provides an unconditional and irrevocable guarantee of the payment of principal and interest on insured obligations when due.  MBIA Corp. writes business both in the United States and outside of the United States.  Business outside of the United States is generally written through MBIA Assurance, S.A. (MBIA Assurance), a wholly owned French subsidiary that provides insurance for public infrastructure financings, structured finance transactions and certain obligations of financial institutions.  Pursuant to a reinsurance agreement with MBIA Corp., a substantial amount of the risks insured by MBIA Assurance is reinsured by MBIA Corp. 

          MBIA Corp. also manages books of business through two other subsidiaries, MBIA Insurance Corp. of Illinois (MBIA Illinois), acquired in December 1989, and Capital Markets Assurance Corporation (CMAC), acquired in February 1998 when MBIA Inc. merged with CapMAC Holdings, Inc. (CapMAC).  The net book of business of these two subsidiaries is 100% reinsured by MBIA Corp.

          In addition, MBIA Corp. insures outstanding investment agreement liabilities for MBIA Investment Management Corp. (IMC), a wholly owned subsidiary of MBIA Inc., which provides customized investment agreements for bond proceeds and other public funds, as well as for funds which are invested as part of asset-backed or structured product issuance.

          MBIA Corp.’s investment portfolio is managed by MBIA Capital Management Corp. (CMC), a wholly owned subsidiary of MBIA, Inc., which provides fixed-income investment management services for MBIA Inc. and its affiliates and third party institutional clients.  CMC charges a fee to MBIA Corp. based on the performance of its investment portfolio.

2.  Significant Accounting Policies

The consolidated financial statements have been prepared on the basis of accounting principles generally accepted in the United States of America (GAAP).  The preparation of financial statements in conformity with GAAP

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Consolidation
The consolidated financial statements include the accounts of MBIA Corp. and its wholly owned subsidiaries.  All significant intercompany balances have been eliminated.  Certain amounts have been reclassified in prior years’ financial statements to conform to the current presentation.

Investments
MBIA Corp.’s investment portfolio is considered available-for-sale and is reported in the financial statements at fair value, with unrealized gains and losses, net of deferred taxes, reflected in accumulated other comprehensive income in shareholder’s equity.

          Bond discounts and premiums are amortized using the effective-yield method over the remaining term of the securities.  For pre-refunded bonds the remaining term is determined based on the contractual refunding date.  Short-term investments are carried at amortized cost, which approximates fair value, and include all fixed-maturity securities with a remaining effective term to maturity of less than one year.  Investment income is recorded as earned.  Realized gains or losses on the sale of investments are determined by specific identification and are included as a separate component of revenues.

          Other investments include MBIA Corp.’s interest in equity-oriented and equity-method investments, and MBIA Corp. records its share of the unrealized gains and losses on these equity-oriented investments, net of applicable deferred income taxes, in accumulated other comprehensive income in shareholder’s equity.

Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and demand deposits with banks.

Securities Purchased Under Agreements to Resell and Securities Sold Under Agreements to Repurchase

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Securities purchased under agreements to resell and securities sold under agreements to repurchase are accounted for as collateralized transactions and are recorded at contract value plus accrued interest, subject to the provisions of Statement of Financial Accounting Standards No. (SFAS) 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.”  SFAS 140 also requires MBIA Corp. to reclassify financial assets pledged as collateral under certain agreements and to report those assets at fair value as a separate line item on the balance sheet with a corresponding adjustment to other comprehensive income.  As of year-end 2002, the Company had $513 million in financial assets pledged as collateral. 

          These transactions are entered into with IMC in connection with IMC’s collateralized municipal investment and repurchase agreement activity.  It is MBIA Corp’s policy to take possession of securities used to collateralize such transactions. 

Policy Acquisition Costs
Policy acquisition costs include only those expenses that relate primarily to, and vary with, premium production.  MBIA Corp. periodically conducts a study to determine which operating costs vary with and are primarily related to the acquisition of new insurance business and qualify for deferral.  For business produced directly by MBIA Corp., such costs include compensation of employees involved in underwriting and policy issuance functions, certain rating agency fees, state premium taxes and certain other underwriting expenses, reduced by ceding commission income on premiums ceded to reinsurers.  Policy acquisition costs are deferred and amortized over the period in which the related premiums are earned.

Premium Revenue Recognition
Upfront premiums are earned in proportion to the expiration of the related risk.  Therefore, premium earnings are greater in the earlier periods of an upfront transaction when there is a higher amount of exposure outstanding.  The premiums are apportioned to individual sinking fund payments of a bond issue according to an amortization schedule.  After the premiums are allocated to each scheduled sinking fund payment, they are earned on a straight-line basis over the period of that sinking fund payment. When an insured issue is retired early, is called by the issuer, or is in substance paid in advance through a refunding accomplished by placing U.S. Government securities in escrow, the remaining deferred premium revenue is earned at that time, since there is no longer risk to MBIA Corp.  Accordingly, deferred premium revenue represents the portion of premiums written that is applicable to the unexpired risk of insured bonds and notes. Installment

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

premiums are earned over each installment period, generally one year or less.

Advisory Fee Revenue Recognition
MBIA Corp. collects various advisory fees in connection with certain transactions and also earns advisory fees in connection with its administration of certain third-party-owned special purpose vehicles.  Depending upon the type of fee received, the fee is either earned when it is due or deferred and earned over the life of the related transaction.    Work, waiver and consent, termination, administrative and management fees are earned when due.   Structuring and commitment fees are earned on a straight-line basis over the life of the related insured transaction.

Goodwill
Goodwill represents the excess of the cost of acquisitions over the fair value of the net assets acquired.  Prior to 2002, goodwill attributed to the acquisition of MBIA Corp. was amortized using the straight-line method over 25 years.  Goodwill attributed to the acquisition of MBIA Illinois was amortized according to the recognition of future profits from its deferred premium revenue and installment premiums, except for a minor portion attributed to state licenses, which is amortized by the straight-line method over 25 years.

          Effective January 1, 2002 MBIA Corp. adopted SFAS 142, “Goodwill and Other Intangible Assets.”  Under SFAS 142 goodwill is no longer amortized but rather is tested for impairment at least annually.  See Note 3 for an explanation of the impact of adoption of this Statement on MBIA Corp.’s financial statements.

Employee Stock Compensation
MBIA Corp. participates in MBIA Inc.’s Stock Option Plan.  Prior to 2002, MBIA Inc. elected to follow Accounting Principles Board Opinion No. (APB) 25, “Accounting for Stock Issued to Employees” and related interpretations in accounting for its employee stock options.  No stock-based employee compensation cost for stock options is reflected in net income prior to 2002 as all options granted had an exercise price equal to the market value of the underlying common stock on the date of grant. Effective January, 1, 2002 MBIA Inc. adopted the fair value recognition provisions of SFAS 123, “Accounting for Stock-Based Compensation.”  Under the modified prospective transition method selected by the Company under the provisions of SFAS 148, “Accounting for Stock-Based Compensation – Transition and Disclosure,” compensation cost recognized in 2002 is the same as that which would have been recognized had the recognition provisions of SFAS 123 been applied from its original effective date.

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Property and Equipment
Property and equipment consists of land and buildings, furniture and fixtures, computer equipment and software, and leasehold improvements.  All property and equipment is recorded at cost and depreciated over the appropriate useful life of the asset using the straight-line method.  The useful lives of each class of assets are as follows:

Buildings and site improvements	15-31 years
Furniture and fixtures	8 years
Computer equipment and software	3-5 years

Leasehold improvements are depreciated over the life of the underlying lease agreement, generally seven to ten years.  Maintenance and repairs are charged to current earnings as incurred.

Losses and Loss Adjustment Expenses
Loss and loss adjustment expense (LAE) reserves are established in an amount equal to MBIA Corp.’s estimate of identified or case basis reserves and unallocated losses, including costs of settlement, on the obligations it has insured.

          Beginning in 2002, MBIA Corp. made a modification to the methodology it uses to record the amount of loss charged to earnings each period (losses incurred).  MBIA Corp. began recording losses incurred based upon a percentage of scheduled net earned premiums instead of a percentage of net debt service written.  The reason for the change in methodology is that during the quarter the premiums are written, losses incurred were being recognized in advance of the related earned premium since the premium is essentially all deferred in the quarter that it is written.  The intent of the change is to better match the recognition of incurred losses with the related premium revenue.  In 2002, 2001 and 2000, the differences between losses incurred calculated under the new and old methodologies are immaterial.

          Case basis reserves are established when specific insured issues are identified as currently or likely to be in default and the amount of the ultimate net loss can be reasonably estimated.  Such a reserve is based on the present value of the expected loss and LAE payments, net of expected recoveries under salvage and subrogation rights and reinsurance based on a

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

discount rate of 5.68% which is updated quarterly.  The discount rate is based on the estimated yield of MBIA Corp.’s fixed-income investment portfolio.

          MBIA Corp.’s procedure for establishing its loss and LAE reserves is a continuous process.  Each quarter losses incurred increase the unallocated reserve based on the methodology described above. Throughout the year, MBIA Corp. continuously monitors its insured portfolio, and case reserves are established when identified.  When a case basis reserve is recorded, a corresponding reduction is made to the unallocated reserve.  On an annual basis MBIA Corp. reviews the loss reserving methodology to assess the adequacy of the reserving factors.

          Management believes that the reserves are adequate to cover the ultimate net cost of claims.  However, because the reserves are based on estimates, there can be no assurance that the ultimate liability will not exceed such estimates.

Derivatives
The Financial Accounting Standards Board (FASB) issued, then subsequently amended, SFAS 133, “Accounting for Derivative Instruments and Hedging Activities,” which became effective for MBIA Corp. on January 1, 2001. Under SFAS 133, as amended, all derivative instruments are recognized on the balance sheet at their fair values and changes in fair value are recognized immediately in earnings, unless the derivatives qualify as hedges. If the derivatives qualify as hedges, depending on the nature of the hedge, changes in the fair value of the derivatives are either offset against the change in fair value of assets, liabilities, or firm commitments through earnings or recognized in accumulated other comprehensive income until the hedged item is recognized in earnings. Any ineffective portion of a derivative’s change in fair value is recognized immediately in earnings.

          The nature of MBIA Corp.’s business activities requires the management of various financial and market risks, including those related to changes in interest rates and currency exchange rates. As discussed more fully in Note 4, MBIA Corp. uses derivative financial instruments to mitigate or eliminate certain of those risks.  See Note 4 for further discussion of the impact of the adoption of this statement on the financial statement estimates.

Income Taxes
MBIA Corp. is included in the consolidated tax return of MBIA Inc.  The tax provision for MBIA Corp. for financial reporting purposes is determined on a stand-alone basis.  Any benefit derived by MBIA Corp. as a result of the tax

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

sharing agreement with MBIA Inc. and its subsidiaries is reflected directly in shareholder’s equity for financial reporting purposes.

          Deferred income taxes are provided with respect to the temporary differences between the tax bases of assets and liabilities and the reported amounts in the financial statements that will result in deductible or taxable amounts in future years when the reported amount of the asset or liability is recovered or settled.  Such temporary differences relate principally to premium revenue recognition, deferred acquisition costs, unrealized appreciation or depreciation of investments and the contingency reserve.

          The Internal Revenue Code permits companies writing financial guarantee insurance to deduct from taxable income amounts added to the statutory contingency reserve, subject to certain limitations.  The tax benefits obtained from such deductions must be invested in non-interest-bearing U.S. Government tax and loss bonds.  MBIA Corp. records purchases of tax and loss bonds as payments of federal income taxes.  The amounts deducted must be restored to taxable income when the contingency reserve is released, at which time MBIA Corp. may present the tax and loss bonds for redemption to satisfy the additional tax liability.

Foreign Currency Translation
Assets and liabilities denominated in foreign currencies are translated at year-end exchange rates.  Operating results are translated at average rates of exchange prevailing during the year.  Unrealized gains or losses resulting from translation are included in accumulated other comprehensive income in shareholder’s equity.  Gains and losses resulting from transactions in foreign currencies are recorded in current income.

3.  New Accounting Pronouncements

Effective January 1, 2002 MBIA Corp. adopted Statement of Financial Accounting Standards No. (“SFAS”) 141, “Business Combinations” and SFAS 142, “Goodwill and Other Intangible Assets.”  SFAS 141, which supercedes Accounting Principles Board Opinion No. (“APB”) 16, “Business Combinations,” requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001 and provides specific criteria for initial recognition of intangible assets apart from goodwill.  SFAS 142 supercedes APB 17, “Intangible Assets,” and requires that goodwill and intangible assets with indefinite lives no longer be amortized but be subject to annual impairment tests in accordance with the Statement.  The Statement includes a two-step process aimed at determining the amount, if any, by which the carrying value of a reporting unit exceeds its fair value.  Other intangible assets are to be amortized over their useful lives.

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

          The following table contains a reconciliation of reported net income to net income adjusted for the effect of goodwill amortization for the years ended December 31, 2002, 2001 and 2000:

	Years Ended December 31,
	2002		2001		2000
Net income (in millions):
As reported	$	602	$	593	$	531
Amortization of goodwill		—		5		5
Adjusted net income	$	602	$	598	$	536

          MBIA Corp. completed its transitional impairment testing on its existing goodwill as of January 1, 2002 in accordance with SFAS 142.

          As of January 1, 2002, goodwill totaled $76.9 million.  SFAS 142 requires a two step approach in determining any impairment in goodwill.  Step one entails evaluating whether the fair value of a reporting segment exceeds its carrying value.  In performing this evaluation MBIA Corp. determined that the best measure of the fair value of the insurance reporting segment is its book value adjusted for deferred premium revenue, prepaid reinsurance premiums, deferred acquisition costs and the present value of installments to arrive at adjusted book value.  As of January 1, 2002, the adjusted book value exceeded its carrying value, and thus there was no impairment of its existing goodwill.

          On December 31, 2002 the FASB issued SFAS 148 “Accounting for Stock-Based Compensation – Transition and Disclosure” which is effective for companies with fiscal years ending after December 15, 2002 and was adopted by MBIA Corp. as of January 1, 2002.  This statement amends SFAS 123, “Accounting for Stock-Based Compensation.”  SFAS 148 provides three alternative methods of transition to SFAS 123’s fair value method of accounting for stock-based compensation.  The Prospective Method, originally required under SFAS 123, requires that expense be recognized in the year of adoption only for grants made in that year. In subsequent years, expense is recognized for the current year’s grant and for grants made in the years since adoption.  Years prior to adoption are not restated.  The Modified Prospective Method requires that stock options be expensed as if SFAS 123 had been adopted as of January 1, 1995.  Thus, the fair value of any options vesting in

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

the current year that were granted subsequent to January 1, 1995 will be included in expense.  However, restatement of prior years is not required.  The Retroactive Restatement Method is identical to the Modified Prospective Method in that the fair value of all options vesting in the current year for grants made after January 1, 1995 is included in expense.  However, this method also requires that all periods presented in the financial statements be restated to reflect stock option expense.  Restatement of periods prior to those presented is permitted but not required.

          SFAS 148 also requires additional disclosure in the “Summary of Significant Accounting Policies” footnote of both annual and interim financial statements.  MBIA Corp. has chosen to report its stock option expense under the Modified Prospective Method.  See Note 2 for disclosures required by SFAS 148 and Note 14 for further information about the effect of adoption on the Company’s financial statements.

          In November 2002, the FASB issued FASB Interpretation No. (FIN) 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees Including Indirect Guarantees of Indebtedness of Others.”  FIN 45 outlines certain accounting guidelines, effective for fiscal years beginning after December 15, 2002, from which MBIA Corp.’s insurance transactions and derivative contracts are excluded.  In addition, FIN 45 expands the disclosures required by a guarantor in its interim and annual financial statements regarding obligations under certain guarantees.  These disclosure requirements are effective for the year ended December 31, 2002.  See Note 12 for additional disclosures.  MBIA Corp. did not incur any changes to the financial statements under this new rule.

4.  Derivative Instruments

Effective January 1, 2001 the MBIA Corp. adopted SFAS 133, “Accounting for Derivative Instruments and Hedging Activities.”  SFAS 133 requires that all derivative instruments are recorded on the balance sheet at their fair value.  Changes in the fair value of derivatives are recorded each period in current earnings or accumulated other comprehensive income, depending on whether a derivative is designated as a hedge, and if so designated, the type of hedge.

          MBIA Corp. has entered into derivative transactions that it views as an extension of its core financial guarantee business but which do not qualify for the financial guarantee scope exception under SFAS 133 and, therefore, must be stated at fair value.  MBIA Corp has insured derivatives primarily consisting of pools of credit default swaps, which it intends to hold for the entire term of the contract.  Mark-to-market values for these transactions are

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

recorded through the income statement as the change in fair value of derivative instruments.

          As of December 31, 2002 and 2001, the notional values of the credit default swaps were $47.8 billion and $17.5 billion respectively.  Notional values of the total return swaps were $157.0 million and $96.0 million respectively for years 2002 and 2001.  In addition, MBIA Corp. held other derivative instruments with notional values totaling $6.0 million in 2002 and $10.0 million in 2001.

          As of December 31, 2002 and 2001 MBIA Corp. held derivative assets of $96.7 million and $65.9 million respectively, and derivative liabilities of $190.9 million and $85.4 million respectively.

          The impact for all derivative transactions for the year ended December 31, 2002 and 2001 was an after-tax reduction in net income of $37.5 million and $9.4 million respectively.  December 31, 2001 included an $11.1 million cumulative reduction resulting from the adoption of SFAS 133.

          The following table displays the impact on the income statement for all derivative transactions related to MBIA Corp.  The income statement impact of derivative activity is broken down into revenues, expenses, net realized gains (losses) and change in fair value of derivative instruments.

In millions			December 31, 2002			December 31, 2001
Revenues*		$	19.1		$	10.9
Expenses*			(2.2	)		(2.9	)
Operating income			16.9			8.0
Gains and losses
	Net realized losses		(.3	)		(3.0	)
	Change in fair value of derivative instruments		(74.3	)		(2.4	)
Income before income taxes			(57.7	)		2.6
Tax provision			20.2			(0.9	)
Income before cumulative effect of accounting change			(37.5	)		1.7
	Cumulative effect of accounting change		(0.0	)		(11.1	)
Net loss		$	(37.5	)	$	(9.4	)

*  Includes premiums earned and formula provision for losses.

5.  Statutory Accounting Practices

The financial statements have been prepared on the basis of GAAP, which differs in certain respects from the statutory accounting practices prescribed or permitted by the insurance regulatory authorities.  Statutory accounting practices differ from GAAP in the following respects:

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

• upfront premiums are earned on a basis proportionate to the scheduled periodic maturity of principal and payment of interest (“debt service”) to the original total principal and interest insured;

• acquisition costs are charged to operations as incurred, rather than deferred and amortized as the related premiums are earned;

• fixed-maturity securities are reported at amortized cost rather than fair value;

• a contingency reserve is computed on the basis of statutory requirements, and reserves for case basis losses and LAE are established, at present value, for specific insured issues that are identified as currently or likely to be in default.  Under GAAP, reserves are established based on MBIA Corp.’s reasonable estimate of the identified and unallocated losses and LAE on the insured obligations it has written;

• federal income taxes are only provided on taxable income for which income taxes are currently payable, while under GAAP, deferred income taxes are provided with respect to temporary differences;

• tax and loss bonds purchased are reflected as admitted assets as well as payments of income taxes; and

• goodwill under GAAP represents the excess of the cost of acquisitions over the fair value of the net assets acquired, while on a statutory basis, acquisitions of MBIA Corp. and MBIA Illinois were recorded at statutory book value thus no goodwill was recorded;

• derivative assets and liabilities exclude insurance guarantees, while under GAAP, guarantees that do not quality for the financial guarantee scope exception under SFAS 133 are recorded at fair value; and

• certain assets designated as non-admitted assets are charged directly against surplus but are reflected as assets under GAAP.

          Aggregate net income of MBIA Corp. and its subsidiaries determined in accordance with statutory accounting practices for the years ended December 31, 2002, 2001 and 2000 was $617.9 million, $571.0 million and $543.9 million, respectively.

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

          The following is a reconciliation of consolidated shareholder’s equity presented on a GAAP basis to statutory capital and surplus for MBIA Corp. and its subsidiaries:

	As of December 31
In thousands	2002			2001
GAAP shareholder’s equity	$	5,908,625		$	5,225,889
Premium revenue recognition		(608,152	)		(574,047	)
Deferral of acquisition costs		(302,222	)		(277,699	)
Unrealized gains		(528,268	)		(146,612	)
Contingency reserve		(2,276,834	)		(2,082,103	)
Loss and LAE reserves		284,547			272,354
Deferred income taxes		371,686			255,988
Tax and loss bonds		304,695			254,695
Goodwill		(76,938	)		(76,538	)
Derivative assets and liabilities		94,148			19,484
Non-admitted assets and other items		(13,278	)		(13,972	)
Statutory capital and surplus	$	3,158,009		$	2,857,439

          In 1998, the National Association of Insurance Commissioners (NAIC) adopted the Codification of Statutory Accounting Principles guidance, which replaces the current Accounting Practices and Procedures manuals as the NAIC’s primary guidance on statutory accounting effective as of January 1, 2001.  The Codification provides guidance in areas where statutory accounting has been silent and changes current statutory accounting in some areas.

          The New York State Insurance Department adopted the Codification guidance, effective January 1, 2001.  The New York State Insurance Department did not adopt the Codification rules on deferred income taxes until December 31, 2002.  The deferred tax effect on the statutory surplus of MBIA Corp. and subsidiaries was to reduce surplus by $10.8 million.

6.  Premiums Earned from Refunded and Called Bonds

Premiums earned include $74.4 million, $54.6 million and $34.0 million for 2002, 2001 and 2000, respectively, related to refunded and called bonds.

7.  Investments

MBIA Corp.’s investment objective is to optimize long-term, after-tax returns while emphasizing the preservation of capital through maintenance of high-quality investments with adequate liquidity. MBIA Corp.’s investment policies limit the amount of credit exposure to any one issuer.  The fixed-maturity

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

portfolio is comprised of high-quality (average rating Double-A) taxable and tax-exempt investments of diversified maturity.

          The following tables set forth the amortized cost and fair value of the fixed-maturity and short-term investments included in the consolidated investment portfolio of MBIA Corp. as of December 31, 2002 and 2001:

In thousands		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
As of December 31, 2002
Taxable bonds:
	United States Treasury and government agency	$	90,466	$	4,731	$	—		$	95,197
	Corporate and other obligations		2,558,375		162,144		(15,409	)		2,705,110
	Mortgage-backed		972,697		46,750		(3	)		1,019,444
Tax-exempt bonds:
	State and municipal obligations		4,436,678		331,086		(486	)		4,767,278
Total		$	8,058,216	$	544,711	$	(15,898	)	$	8,587,029

In thousands		Amortized Cost		Gross  Unrealized Gains		Gross Unrealized Losses			Fair Value
As of December 31, 2001
Taxable bonds:
	United States Treasury  and government agency	$	390,098	$	4,065	$	(326	)	$	393,837
	Corporate and other obligations		2,045,662		66,837		(11,659	)		2,100,840
	Mortgage-backed		682,073		22,400		(657	)		703,816
Tax-exempt bonds:
	State and municipal obligations		4,339,341		102,702		(36,888	)		4,405,155
Total		$	7,457,174	$	196,004	$	(49,530	)	$	7,603,648

          Fixed-maturity investments carried at fair value of $13.7 million and $12.7 million as of December 31, 2002 and 2001, respectively, were on deposit with various regulatory authorities to comply with insurance laws.

          The following table sets forth the distribution by expected maturity of the fixed-maturity and short-term investments at amortized cost and fair value at December 31, 2002.  Expected maturity may differ from contractual maturity because borrowers may have the right to call or prepay obligations.

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In thousands	Amortized Cost		Fair Value
Within 1 year	$	627,328	$	627,328
Beyond 1 year but within 5 years		733,672		788,578
Beyond 5 years but within 10 years		1,508,261		1,662,946
Beyond 10 years but within 15 years		1,802,367		1,932,761
Beyond 15 years but within 20 years		846,837		894,119
Beyond 20 years		1,567,054		1,661,853
		7,085,519		7,567,585
Mortgage-backed		972,697		1,019,444
Total fixed-maturity and short-term investments	$	8,058,216	$	8,587,029

8.  Investment Income and Gains and Losses

Investment income consists of:

				Years ended December 31
In thousands				2002			2001			2000
Fixed-maturity				$	431,715		$	408,981		$	388,134
Short-term investments					8,495			10,536			10,410
Other investments					(1,111	)		715			(80	)
		Gross investment income			439,099			420,232			398,464
Investment expenses					8,009			7,476			6,386
		Net investment income			431,090			412,756			392,078
Net realized gains (losses):
		Fixed-maturity:
			Gains		39,562			42,694			42,765
			Losses		(21,487	)		(31,552	)		(19,516	)
			Net		18,075			11,142			23,249
		Other investments:
			Gains		—			—			1,852
			Losses		(713	)		—			(380	)
			Net		(713	)		—			1,472
	Total net realized gains				17,362			11,142			24,721
Total investment income				$	448,452		$	423,898		$	416,799

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Net unrealized gains consist of:

		As of December 31
In thousands			2002			2001
Fixed-maturity:
	Gains	$	543,777		$	196,004
	Losses		(15,899	)		(49,530	)
	Net		527,878			146,474
Other investments:
	Gains		3,791			139
	Losses		(361	)		—
	Net		3,430			139
Total			531,308			146,613
Deferred income tax provision			185,706			51,300
Unrealized gains, net		$	345,602		$	95,313

          The deferred income tax provision relates primarily to unrealized gains and losses on MBIA Corp.’s fixed-maturity investments, which are reflected in other accumulated comprehensive income in shareholder’s equity.

The change in net unrealized gains consists of:

	Years ended December 31
In thousands	2002		2001		2000
Fixed-maturity	$	381,404	$	20,832	$	348,169
Other investments		3,291		252		163
Total		384,695		21,084		348,332
Deferred income taxes		134,406		7,390		121,852
Unrealized gains, net	$	250,289	$	13,694	$	226,480

9.  Income Taxes

The provision for income taxes is composed of:

	Years ended December 31
In thousands		2002		2001			2000
Current	$	212,218	$	216,475		$	138,877
Deferred		259		(5,524	)		51,597
Income tax provision		212,477		210,951			190,474
Deferred SFAS 133 transition		—		(5,967	)		—
Total	$	212,477	$	204,984		$	190,474

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

          The provision for income taxes gives effect to permanent differences between financial and taxable income.  Accordingly, MBIA Corp.’s effective income tax rate differs from the statutory rate on ordinary income.  The reasons for MBIA Corp.’s lower effective tax rates are as follows:

		Years ended December 31
		2002			2001			2000
Income taxes computed on pre-tax financial income at statutory rates			35.0	%		35.0	%		35.0	%
Increase (reduction) in taxes resulting from:
	Tax-exempt interest		(8.9	)		(8.1	)		(8.5	)
	Amortization of goodwill		—			0.2			0.2
	Other		—			(1.2	)		(0.3	)
Provision for income taxes			26.1	%		25.9	%		26.4	%

          MBIA Corp. recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns.  Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.  The effect on tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

          The tax effects of temporary differences that give rise to deferred tax assets and liabilities at December 31, 2002 and 2001 are presented below:

In thousands		2002		2001
Deferred tax assets:
	Tax and loss bonds	$	309,429	$	256,171
	Alternative minimum tax credit carry-forward		—		11,286
	Loss and loss adjustment expense reserves		97,441		93,173
	Other		87,574		47,781
Total gross deferred tax assets			494,444		408,411
Deferred tax liabilities:
	Contingency reserve		417,530		363,479
	Deferred premium revenue		110,726		114,019
	Deferred acquisition costs		101,317		97,195
	Unrealized gains		185,706		78,372
	Contingent commissions		552		620
	Other		62,745		3,895
Total gross deferred tax liabilities			878,576		657,580
Net deferred tax liability		$	384,132	$	249,169

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

          MBIA Corp. believes that a valuation allowance is unnecessary in connection with the deferred tax assets.

10.  Dividends and Capital Requirements

Under New York State insurance law, without prior approval of the superintendent of the state insurance department, financial guarantee insurance companies can pay dividends from earned surplus subject to retaining a minimum capital requirement.  In MBIA Corp. and CMAC’s case, dividends in any 12-month period cannot be greater than 10% of policyholders’ surplus as shown on MBIA Corp.’s latest filed statutory financial statements.  In 2002, MBIA Corp. declared and paid dividends of $230.6 million and based upon the filing of its year-end 2002 statutory financial statements has dividend capacity of $85.2 million for the first quarter of 2003 without special regulatory approval. During 2003, a similar calculation will be performed each quarter to determine the amount of dividend capacity for MBIA Corp.  CMAC did not declare or pay any dividends in 2002.  CMAC had dividend capacity of $5.4 million as of December 31, 2002.

          Under Illinois Insurance Law, MBIA Illinois may pay a dividend from unassigned surplus, and the dividends in any 12-month period may not exceed the greater of 10% of policyholders’ surplus (total capital and surplus) at the end of the preceding calendar year, or the net income of the preceding calendar year without the approval of the Illinois State Insurance Department.

          In accordance with such restrictions on the amount of dividends that can be paid in any 12-month period, MBIA Illinois had $0.04 million available for the payment of dividends as of December 31, 2002.  During 2002, MBIA Illinois declared and paid dividends in the amount of $17 million.

          The insurance departments of New York State and certain other statutory insurance regulatory authorities, and the agencies that rate the bonds insured by MBIA Corp. and its subsidiaries, have various requirements relating to the maintenance of certain minimum ratios of statutory capital and reserves to net insurance in force.  MBIA Corp. and its subsidiaries were in compliance with these requirements as of December 31, 2002 and 2001.

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11.  Lines of Credit

MBIA Corp. has a standby line of credit commitment in the amount of $700 million with a group of major Triple-A-rated banks to provide loans to MBIA Corp.  This facility can be drawn upon if MBIA Corp. incurs cumulative losses (net of expected recoveries) on the covered portfolio (which is comprised of the Company’s insured public finance obligations, with certain adjustments) from December 23, 2002 in excess of the greater of $900 million or 5.0% of average annual debt service. The obligation to repay loans made under this agreement is a limited recourse obligation payable solely from, and collateralized by, a pledge of recoveries realized on defaulted insured obligations including certain installment premiums and other collateral. This commitment has a seven-year term expiring on October 31, 2009.

          MBIA Corp. also maintains $211 million of stop loss reinsurance coverage with a group of highly-rated reinsurers.  This facility covers losses, relating to the global structured finance portfolio in-force as of December, 31, 2002, that are in excess of $1.01 billion and were incurred during a seven year period beginning January 1, 2002.  In addition, MBIA Inc. maintains two 10 year facilities maturing in 2011 and 2012 for $100 million and $50 million, respectively.  These facilities, with two highly rated reinsurers, allow it to issue subordinated securities that can be drawn upon if MBIA Corp. incurs cumulative losses (net of any recoveries) above an annually adjusted attachment point.  This attachment point was $1.65 billion in 2002 and will be $1.76 billion in 2003.

          In December 2002, $200 million of Money Market Committed Preferred Custodial Trust securities (CPS securities) were issued by four Trusts, each issuing $50 million in perpetual CPS securities.  The Trusts were created for the primary purpose of issuing CPS securities, investing the proceeds in high quality commercial paper and providing MBIA Corp. with a put option for selling to the Trusts the perpetual preferred stock of MBIA Corp.  MBIA Corp. has the option to sell such securities to the Trusts on a periodic basis every 28 days.  If MBIA Corp. chooses to exercise its put option, the Trusts transfer such proceeds to MBIA Corp. in exchange for the MBIA Corp. preferred stock.  The Trusts will hold on to the preferred stock and distribute the preferred dividend to their holders.  MBIA Corp. has the right to redeem the preferred, and then put the preferred stock back to the Trust again, indefinitely.  Any preferred stock issued by MBIA Corp. would be non-cumulative unless MBIA Corp. pays dividends on its common stock, during which time the dividends on its preferred stock would be cumulative. Preferred stockholders would have rights that are subordinated to insurance

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

claims, as well as to the general unsecured creditors, but senior to any common stockholders of MBIA Corp.

          The trusts were created as a vehicle for providing capital support to MBIA Corp. by allowing it to obtain immediate access to new capital at its sole discretion at any time through the exercise of the put options.  Standard & Poor’s and Moody’s rate the trusts AA/aa2, respectively.

          MBIA Corp. and MBIA Inc. maintain bank liquidity facilities totaling $675 million. As of December 31, 2002, there were no borrowings outstanding under these agreements.

12.  Net Insurance In Force

MBIA Corp. guarantees the timely payment of principal and interest on municipal, asset-/mortgage-backed and other non-municipal securities.  MBIA Corp.’s ultimate exposure to credit loss in the event of nonperformance by the insured is represented by the insurance in force as set forth below.

          The insurance policies issued by MBIA Corp. are unconditional commitments to guarantee timely payment on the bonds and notes to bondholders.  The creditworthiness of each insured issue is evaluated prior to the issuance of insurance and each insured issue must comply with MBIA Corp.’s underwriting guidelines.  Further, the payments to be made by the issuer on the bonds or notes may be backed by a pledge of revenues, reserve funds, letters of credit, investment contracts or collateral in the form of mortgages or other assets.  The right to such money or collateral would typically become MBIA Corp.’s upon the payment of a claim by MBIA Corp.

          MBIA Corp. maintains underwriting guidelines based on those aspects of credit quality that it deems important for each category of obligation considered for insurance.  For global public finance transactions these include economic and social trends, debt and financial management, adequacy of anticipated cash flow, satisfactory legal structure and other security provisions, viable tax and economic bases, adequacy of loss coverage and project feasibility.  For global structured finance transactions, MBIA Corp.’s underwriting guidelines, analysis, and due diligence focus on seller/servicer credit and operational quality.  MBIA also analyzes the quality of the asset pool as well as its historical and projected performance.  The strength of the structure, including legal segregation of the assets, cash flow analysis, the size and source of first loss protection, asset performance triggers and financial covenants is also reviewed.  Such guidelines are subject to periodic review by management, who are responsible for establishing and

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

maintaining underwriting standards and criteria for maintaining underwriting standards in our insurance operations.

          As of December 31, 2002, insurance in force, net of cessions to reinsurers, had a range of maturity of 1-50 years among 32,588 outstanding policies. The distribution of net insurance in force by geographic location, including $8.0 billion and $6.7 billion relating to transactions guaranteed by MBIA Corp. on behalf of various investment management services affiliated companies in 2002 and 2001, respectively, is set forth in the following table:

			As of December 31
In billions			2002					2001
Geographic Location			Net Insurance In Force		% of Net Insurance In Force			Net Insurance In Force		% of Net Insurance In Force
	California		$	94.1		11.9	%	$	86.0		11.8	%
	New York			76.6		9.7			75.3		10.3
	Florida			36.1		4.6			36.1		5.0
	Illinois			31.9		4.1			23.9		3.3
	Texas			31.1		3.9			30.1		4.1
	New Jersey			28.5		3.6			26.9		3.7
	Massachusetts			23.1		2.9			21.8		3.0
	Pennsylvania			22.1		2.8			23.0		3.1
	Michigan			16.0		2.0			16.0		2.2
	Washington			15.1		1.9			12.9		1.8
		Subtotal		374.6		47.4			352.0		48.3
	Nationally Diversified			139.0		17.6			128.2		17.6
	Other states			197.4		25.0			191.1		26.2
		Total United States		711.0		90.0			671.3		92.1
Internationally diversified				39.6		5.0			25.2		3.4
Country specific				39.0		5.0			32.6		4.5
		Total Non-United States		78.6		10.0			57.8		7.9
Total			$	789.6		100.0	%	$	729.1		100.0	%

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

          The distribution of net insurance in force by type of bond is set forth in the following table:

					As of December 31
In billions					2002					2001
Bond Type					Net Insurance In Force		% of Net Insurance In Force			Net Insurance In Force		% of Net Insurance In Force
Global Public Finance:
	United States
		General obligation			$	185.7		23.5	%	$	165.3		22.7	%
		Utilities				89.9		11.4			84.2		11.5
		Special revenue				77.1		9.7			67.0		9.2
		Healthcare				62.3		7.9			64.7		8.9
		Transportation				49.7		6.3			47.4		6.5
		Investor-owned utilities				34.4		4.3			36.9		5.1
		Higher education				33.0		4.2			31.3		4.3
		Housing				28.2		3.6			27.7		3.8
			Total United States			560.3		70.9			524.5		72.0
	Non-United States
		Investor-owned utilities				5.1		0.6			3.8		0.5
		Transportation				4.4		0.6			2.4		0.3
		Sovereign				4.1		0.5			3.1		0.4
		Utilities				3.6		0.5			3.5		0.5
		Healthcare				2.6		0.3			0.8		0.1
		Sub-sovereign				1.4		0.2			1.1		0.2
		Housing				0.7		0.1			0.6		0.1
		Higher education				0.1		—			0.1		—
			Total Non-United States			22.0		2.8			15.4		2.1
				Total Global Public Finance		582.3		73.7			539.9		74.1
Global Structured Finance:
	United States
		Asset-backed:
			Auto			16.0		2.0			18.1		2.5
			Credit Cards			14.1		1.8			18.7		2.5
			Other			8.3		1.1			7.5		1.0
			Leasing			4.4		0.6			7.0		1.0
		Mortgage-backed:
			Home Equity			22.1		2.8			29.6		4.1
			Other			12.0		1.5			13.0		1.8
			First Mortgage			6.7		0.8			9.0		1.2
			CDO, CLO, and CBO			38.8		4.9			21.1		2.9
		Pooled Corp. obligations & other				23.7		3.0			18.3		2.5
		Financial risk				4.6		0.6			4.5		0.6
			Total United States			150.7		19.1			146.8		20.1
	Non-United States
		Corporate debt obligations				33.6		4.3			22.9		3.1
		Pooled Corp. obligations & other				8.9		1.1			9.1		1.3
		Mortgage-backed:
			First Mortgage			5.7		0.7			4.6		0.6
			Other			2.9		0.4			0.7		0.1
			Home equity			—		—			0.5		0.1
		Financial risk				2.9		0.4			3.1		0.4
		Asset-backed				2.6		0.3			1.5		0.2
			Total Non-United States			56.6		7.2			42.4		5.8
				Total Global Structured Finance		207.3		26.3			189.2		25.9
Total					$	789.6		100.0	%	$	729.1		100.0	%

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

          In addition to the guarantees in the preceding tables, MBIA Corp. has entered into certain guarantees of derivative contracts that do not qualify for the financial guarantee scope exception under SFAS 133.  The maximum amount of future payments that MBIA Corp. may be required to make under these guarantees, should a full default occur, is $48.0 billion. This amount is net of cessions to reinsurers of $11.2 billion.  The guarantees have a maximum range of maturity of 1- 75 years.  In accordance with SFAS 133, the fair values of these guarantees at December 31, 2002 are recorded on the balance sheet as assets and liabilities of $96.7 million and $190.9 million, respectively.

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

          MBIA Corp. has also issued guarantees of certain obligations issued by its investment management affiliates that are included in the previous tables. These guarantees take the form of insurance policies issued by MBIA Corp. on behalf of the investment management affiliates.  Should one of these affiliates default on their insured obligations, MBIA Corp. will be required to pay all scheduled principal and interest amounts outstanding.  As of December 31, 2002, the maximum amount of future payments that MBIA Corp. could be required to make under these guarantees, should a full default occur, is $8.0 billion. These guarantees have a maximum range of maturity of 1- 40 years. These guarantees were entered into on an arm’s length basis and are fully collateralized by marketable securities. MBIA Corp. has both direct

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

recourse provisions and subrogation rights in these transactions. If MBIA Corp. is required to make a payment under any of these affiliate guarantees, it would have the right to seek reimbursement from such affiliate and to liquidate any collateral to recover all or a portion of the amounts paid under the guarantee.

13.  Reinsurance

MBIA Corp. reinsures exposure with other insurance companies under various treaty and facultative reinsurance contracts, both on a pro rata and non-proportional basis.  In the event that any or all of the reinsurers were unable to meet their obligations, MBIA Corp. would be liable for such defaulted amounts.

          Amounts deducted from gross insurance in force for reinsurance ceded by MBIA Corp. and its subsidiaries were $171.0 billion and $153.9 billion, at December 31, 2002 and 2001, respectively.  The distribution of ceded insurance in force by geographic location is set forth in the following table:

			As of December 31
			2002					2001
In billions Geographic Location			Ceded Insurance In Force		% of Ceded Insurance In Force				Ceded Insurance In Force	% of Ceded Insurance In Force
	California		$	18.8		11.0	%	$	18.3	11.9	%
	New York			11.1		6.5			12.8	8.3
	New Jersey			6.9		4.0			6.7	4.3
	Texas			6.5		3.8			5.8	3.8
	Massachusetts			5.2		3.0			4.8	3.1
	Florida			4.9		2.9			4.8	3.1
	Illinois			4.7		2.7			4.0	2.6
	Puerto Rico			4.2		2.5			4.2	2.7
	Colorado			4.0		2.3			4.0	2.6
	Pennsylvania			3.4		2.0			3.8	2.5
		Subtotal		69.7		40.7			69.2	44.9
	Nationally diversified			34.6		20.2			26.0	16.9
	Other states			30.9		18.1			30.4	19.8
		Total United States		135.2		79.0			125.6	81.6
Internationally diversified				11.8		6.9			8.3	5.4
Country specific				24.0		14.1			20.0	13.0
		Total Non-United States		35.8		21.0			28.3	18.4
Total			$	171.0		100.0	%	$	153.9	100.0	%

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

          The distribution of ceded insurance in force by type of bond is set forth in the following table:

					As of December 31
					2002					2001
In billions Type of Bond					Ceded Insurance In Force		% of Ceded Insurance In Force			Ceded Insurance In Force		% of Ceded Insurance In Force
Global Public Finance:
	United States
		General obligation			$	23.7		13.9	%	$	21.8		14.1	%
		Utilities				18.5		10.9			17.9		11.7
		Transportation				18.5		10.8			18.3		11.9
		Health care				14.3		8.4			15.1		9.8
		Special revenue				12.8		7.5			9.4		6.1
		Investor-owned utilities				5.5		3.2			6.0		3.9
		Higher education				3.3		1.9			4.1		2.7
		Housing				2.8		1.6			3.1		2.0
			Total United States			99.4		58.2			95.7		62.2
	Non-United States
Transportation						5.6		3.3			3.0		1.9
		Investor-owned utilities				4.1		2.4			2.1		1.4
		Utilities				2.5		1.5			2.5		1.6
		Sovereign				1.3		0.8			1.1		0.8
		Sub-sovereign				0.9		0.5			0.9		0.6
		Health care				0.6		0.3			0.4		0.2
		Housing				0.1		—			0.1		—
			Total Non-United States			15.1		8.8			10.1		6.5
				Total Global Public Finance		114.5		67.0			105.8		68.7
Global Structured Finance:
	United States
		Asset-backed:
			Auto			6.2		3.6			4.0		2.6
			Credit cards			4.4		2.6			3.9		2.5
			Leasing			1.8		1.1			3.0		2.0
			Other			0.8		0.5			0.6		0.4
		Mortgage-backed:
			Home equity			6.6		3.8			6.9		4.5
			Other			2.2		1.3			2.3		1.5
			First mortgage			0.7		0.4			1.0		0.6
		Pooled Corp. obligations & other				6.7		3.9			5.5		3.5
		CDO, CLO, and CBO				6.0		3.5			2.3		1.5
		Financial risk				0.3		0.2			0.4		0.3
			Total United States			35.7		20.9			29.9		19.4
	Non-United States
		CDO, CLO, and CBO				9.8		5.7			6.6		4.3
		Pooled Corp. obligations & other				5.2		3.1			5.6		3.6
		Financial risk				2.5		1.4			2.7		1.8
		Asset-backed				1.1		0.6			1.7		1.1
		Mortgage-backed:
			First mortgage			1.2		0.7			1.0		0.7
			Home equity			—		—			0.4		0.3
			Other			1.0		0.6			0.2		0.1
			Total Non-United States			20.8		12.1			18.2		11.9
				Total Global Structured Finance		56.5		33.0			48.1		31.3
Total					$	171.0		100.0	%	$	153.9		100.0	%

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

          As part of MBIA Corp’s reinsurance activity in 1998, MBIA Corp. entered into reinsurance agreements with highly rated reinsurers that obligate it to cede future premiums to the reinsurers through October 1, 2004.

          Components of premiums written including reinsurance assumed from and ceded to other companies is set forth in the following table:

	Years ended December 31
In thousands	2002			2001			2000
Direct	$	932,204		$	839,386		$	641,452
Assumed		19,727			25,840			45,956
Gross		951,931			865,226			687,408
Ceded		(198,526	)		(235,362	)		(189,316	)
Net	$	753,405		$	629,864		$	498,092

          Ceding commissions received from reinsurers before deferrals were $49.9 million, $55.2 million, and $37.3 million in 2002, 2001 and 2000, respectively.

14.  Employee Benefits

MBIA Corp. participates in MBIA Inc.’s pension plan, which covers substantially all employees.  The pension plan is a non-contributory, defined contribution pension plan to which MBIA Inc. contributes 10% of each eligible employee’s annual total compensation. Pension benefits vest over a five-year period with 60% vesting after three years and 20% in years four and five.  Pension expense for the years ended December 31, 2002, 2001 and 2000, was $7.5 million, $4.9 million and $4.9 million, respectively.

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

          MBIA Inc. also has a profit-sharing/401(k) plan in which MBIA Corp. participates.  The plan is a voluntary contributory plan that allows eligible employees to defer compensation for federal income tax purposes under Section 401(k) of the Internal Revenue Code of 1986, as amended.  Employees may contribute through payroll deductions up to 10% of eligible compensation. MBIA Corp. matches employee contributions up to the first 5% of total compensation with MBIA, Inc. common stock. The benefit of MBIA Corp.’s contributions vest over five years with 60% vesting after three years and then 20% in years four and five.  Generally, a participating employee is entitled to distributions from the plan upon termination of employment, retirement, death or disability.  Participants who qualify for distribution may receive a single lump sum, transfer the assets to another qualified plan or individual retirement account, or receive a series of specified installment payments.  MBIA Corp. contributions to the profit-sharing/401(k) plan aggregated $2.2 million, $1.9 million and $1.9 million for the years ended December 31, 2002, 2001 and 2000, respectively.

          Amounts relating to the above plans that exceed limitations established by federal regulations are contributed to a non-qualified deferred compensation plan. The non-qualified contributions included in the pension plan were $3.9 million, $3.0 million and $2.6 million for the years ending December 31, 2002, 2001 and 2000, respectively.  The non-qualified contributions for the profit-sharing 401(k) plan were $0.9 million, $1.0 million and $0.9 million for the years ending December 31, 2002, 2001 and 2000, respectively.

          MBIA Corp. participates in the “MBIA Long-Term Incentive Program” (the incentive program). The incentive program includes a stock option component and a compensation component linked to the growth in book value per share, including certain adjustments, of MBIA Inc.’s stock (modified book value) over a three-year period following the grant date. Target levels for the incentive program awards are established as a percentage of total salary and bonus, based upon the recipient’s position. Awards under the incentive program typically are granted from the vice president level up to and including the Chairman and Chief Executive Officer.  Actual amounts to be paid are adjusted upward or downward depending on the growth of modified book value versus a baseline target, with a minimum growth of 8% necessary to receive any payment and an 18% growth necessary to receive the maximum payment.  Awards under the incentive program are divided equally between the two components, with 50% of the award to be given in stock options and 50% of the award to be paid in cash or shares of MBIA Inc. stock.  Payments are made at the end of each three-year measurement

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

period.  During 2002, 2001 and 2000, $16.8 million, $14.6 million and $11.6 million, respectively, were recorded as a charge related to these awards.

          MBIA Corp. also participates in MBIA Inc.’s restricted stock program whereby key executive officers are granted restricted shares of MBIA Inc.’s common stock. These stock awards may only be sold three, four or five years from the date of grant, at which time the awards fully vest. Compensation expense related to the restricted stock was $4.2 million, $3.3 million, and $2.2 million for the years ended December 31, 2002, 2001 and 2000, respectively.

          MBIA Corp. also participates in MBIA Inc.’s Stock Option Plan.  Effective January 1, 2002 MBIA Inc. adopted the expense recognition provisions of SFAS 123, “Accounting for Stock-Based Compensation.”  Under the modified prospective method of adoption selected by MBIA Inc. under the provisions of SFAS 148, “Accounting for Stock-Based Compensation-Transition and Disclosure,” compensation cost recognized in 2002 is the same as that which would have been recognized had the recognition provisions of SFAS 123 been applied from its original effective date.  Results for prior years have not been restated.  Employee stock compensation for the year ended December 31, 2002 totaled $20.2 million.

          In accordance with SFAS 123 the Company valued all stock options granted in 2002 using an option-pricing model.  The value is recognized as an expense over the period in which the options vest.  The Company believes that recognizing the expense associated with stock option grants is preferable to the prior method of accounting for stock options under Accounting Principles Board Opinion 25, “Accounting for Stock Issued to Employees” because it produces a complete picture of compensation expenses within the Company’s statement of income. 

          Due to the adoption of SFAS 148’s modified prospective transition method, the first three quarters of 2002 have been restated.  The following is a reconciliation of the previously reported amounts to the restated amounts:

	Years Ended December 31,
	2002			2001		2000
Net income (in thousands):
Net income before stock option expense	$	606,411		$	593,261	$	530,626
After-tax stock option expense		(4,867	)		—		—
As reported	$	601,544		$	593,261	$	530,626

		1st Quarter 2002
(in thousands)	As Reported			Stock Option Expense		Restated
Insurance operating expense	$		18,363	$	1,849	$	20,212
Net income	$		162,218	$	1,201	$	161,017

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

	2nd Quarter 2002
(in thousands)	As Reported		Stock Option Expense		Restated
Insurance operating expense	$	20,597	$	1,483	$	22,080
Net income	$	152,533	$	964	$	151,569

	3rd Quarter 2002
(in thousands)	As Reported		Stock Option Expense		Restated
Insurance operating expense	$	20,315	$	1,485	$	21,800
Net income	$	175,434	$	965	$	174,469

15.  Related Party Transactions

Related parties are defined as the following:

• Affiliates of MBIA Corp.:  An affiliate is a party that directly or indirectly controls, is controlled by or is under common control with MBIA Corp.  Control is defined as having, either directly or indirectly, the power to direct the management and policies of MBIA Corp. through ownership, by contract or otherwise.

• Entities for which investments are accounted for by the equity method by MBIA Corp.

• Trusts for the benefit of employees, such as pension and profit-sharing trusts, that are managed by or under the trusteeship of management.

• Principal owners of MBIA Corp. defined as owners of record or known beneficial owners of more than 10 percent of the voting interests of MBIA Corp.

• Management of MBIA Corp. which includes persons who are responsible for achieving the objectives of MBIA Corp. and who have the authority to establish policies and make decisions by which those objectives are to be pursued.  Management normally includes members of the board of directors, the chief executive officer, chief operating officer, vice president in charge of principal business functions and other persons who perform similar policymaking functions.

• Members of the immediate families of principal owners of MBIA Corp. and its management.  This includes family members whom a principal owner or a member of management might control or influence or by whom they may be controlled or influenced because of the family relationship.

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

• Other parties with which MBIA Corp. may deal if one party controls or can significantly influence the management or policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests.

• Other parties that can significantly influence the management or policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to the extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.

          From time to time MBIA Corp. may enter into transactions with related parties which MBIA Corp. deems immaterial or which occur in the normal course of business and which are transacted at “arms length.”  Since 1989, MBIA Corp. has executed five surety bonds to guarantee the payment obligations of the members of the Association who had their Standard & Poor’s Corporation claims-paying rating downgraded from Triple-A on their previously issued Association policies.  In the event that they do not meet their Association policy payment obligations, MBIA Corp. will pay the required amounts directly to the paying agent.  The aggregate outstanding exposure on these surety bonds as of December 31, 2002 is $340 million.

          Included in other assets at December 31, 2002 were $0.8 million of net receivables from MBIA Inc. and other subsidiaries.  Included in other liabilities at December 31, 2001 were $0.3 million of net payables to MBIA Inc. and other subsidiaries.

          MBIA Corp. entered into an agreement with MBIA Inc. and IMC whereby MBIA Corp. held securities subject to agreements to resell of $492.3 million and $559.8 million as of December 31, 2002 and 2001, respectively.  MBIA Corp. also transferred securities subject to agreements to repurchase of $492.3 million and $559.8 million as of December 31, 2002 and 2001.  These agreements have a term of less than one year.  The interest expense relating to these agreements was $7.6 million and $16.8 million, respectively, for the years ended December 31, 2002 and 2001.  The interest income relating to these agreements was $7.8 million and $17.4 million, respectively, for the years ended December 31, 2002 and 2001.

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

16.  Fair Value of Financial Instruments

The estimated fair value amounts of financial instruments shown in the following table have been determined by MBIA Corp. using available market information and appropriate valuation methodologies.  However, in certain cases considerable judgment is necessarily required to interpret market data to develop estimates of fair value.  Accordingly, the estimates presented herein are not necessarily indicative of the amount MBIA Corp. could realize in a current market exchange.  The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

Fixed-maturity securities -The fair value of fixed-maturity securities available-for-sale is based upon quoted market price, if available.  If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.

Short-term investments - Short-term investments are carried at amortized cost, which approximates fair value.

Other investments -  Other investments include MBIA Corp.’s interest in equity-oriented and equity-method investments. The fair value of these investments is based on quoted market prices.

Cash and cash equivalents, receivable for investments sold and payable for investments purchased - The carrying amounts of these items are a reasonable estimate of their fair value.

Securities purchased under agreements to resell - The fair value is estimated based upon the quoted market prices of the transactions’ underlying collateral.

Prepaid reinsurance premiums - The fair value of MBIA Corp.’s prepaid reinsurance premiums is based on the estimated cost of entering into an assumption of the entire portfolio with third party reinsurers under current market conditions.

Deferred premium revenue - The fair value of MBIA Corp.’s deferred premium revenue is based on the estimated cost of entering into a cession of the entire portfolio with third-party reinsurers under current market conditions.

Loss and loss adjustment expense reserves -The carrying amount is composed of the present value of the expected cash flows for specifically identified claims combined with an estimate for unidentified claims.

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Therefore, the carrying amount is a reasonable estimate of the fair value of the reserve.

Securities sold under agreements to repurchase - The fair value is estimated based upon the quoted market prices of the transactions’ underlying collateral.

Installment premiums - The fair value is derived by calculating the present value of the estimated future cash flow stream discounted at 9%.

Derivatives - The fair value derived from market information and appropriate valuation methodologies reflects the estimated amounts that the MBIA Corp. would receive or pay to terminate the transaction at the reporting date.

	As of December 31, 2002				As of December 31, 2001
In thousands	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Assets:
Fixed-maturity securities	$	7,958,996	$	7,958,996	$	7,319,327	$	7,319,327
Short-term investments		628,033		628,033		284,321		284,321
Other investments		151,967		151,967		28,756		28,756
Cash and cash equivalents		17,538		17,538		24,404		24,404
Securities purchased under agreements to resell		492,280		492,280		559,751		559,751
Prepaid reinsurance premiums		521,641		435,818		507,079		435,947
Reinsurance recoverable on unpaid losses		43,828		43,828		35,090		35,090
Receivable for investments sold		39,464		39,464		23,599		23,599
Derivatives assets		96,733		96,733		65,897		65,897
Liabilities:
Deferred premium revenue		2,755,046		2,339,661		2,565,096		2,278,391
Loss and loss adjustment expense reserves		573,275		573,275		518,389		518,389
Securities sold under agreements to repurchase		492,280		492,280		559,751		559,751
Payable for investments purchased		56,971		56,971		50,239		50,239
Derivatives liabilities		190,881		190,881		85,381		85,381
Off-balance sheet instruments:
Installment premiums		—		1,300,107		—		1,068,391

-36-