Under the method employed by the Company since 2002, unallocated loss reserves are adjusted on a quarterly basis by using a formula that applies a “loss factor” (determined as set forth below) to the Company’s scheduled earned premiums for such quarter. Annually, the Loss Reserve Committee determines the appropriate loss factor for the year based on (i) a loss reserving study that assesses the mix of the Company’s insured portfolio and the latest industry data, including historical default and recovery
The Company’s financial instruments categorized as liabilities primarily consist of obligations related to its investment agreement, medium-term note and commercial paper programs and debt issued for general corporate purposes. The fair values of such instruments are generally not reported within the Company’s financial statements, but rather in the accompanying notes. However, financial liabilities that qualify as part of hedging arrangements under SFAS 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended, are recorded at their fair values in the Company’s balance sheet. MBIA has instituted cash flow modeling techniques to estimate the value of its liabilities that qualify as hedged obligations under SFAS 133 based on current market data. Other financial liabilities that require fair value reporting or disclosures within the Company’s financial notes are valued based on underlying collateral, the Company’s estimate of discounted cash flows or quoted market values for similar transactions.
MBIA conduit administration fees represented approximately 9% of total advisory fee revenues in 2003 compared with 24% in 2002 and 28% in 2001. This decreasing trend is the result of growth in work and waiver and consent fees and the elimination of conduit fees from the date the Company purchased the Conduits.
On September 30, 2003, MBIA purchased the equity and acquired all controlling interests of the conduits it administers, Triple-A, Meridian and Polaris. These entities are now reflected in the consolidated financial statements of the Company.
MBIA Corp. has a $700 million standby line of credit facility with a group of major Triple-A rated banks to provide funds for the payment of claims in excess of the greater of $900 million or 5% of average annual debt service with respect to public finance transactions. The agreement is for a seven-year term, which expires on October 31, 2010.
gain or loss on the translation to U.S. dollars of the hedged item. During 2003, the amount of ineffectiveness recorded in the income statement was $4.0 million (net of tax). This was offset by gains of $4.4 million (net of tax) on economic hedges that did not qualify for hedge accounting treatment under SFAS 133.
As part of its structured financing program, TRS accesses the capital markets for short-term asset-backed funding through the use of Triple-A, an MBIA Conduit. TRS had no outstanding debt at December 31, 2003 and December 31, 2002 and $44 million at December 31, 2001. In October 2002, all
• Trusts for the benefit of employees, such as pension and profit-sharing trusts, that are managed by or under the trusteeship of management.
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 on a diluted per share basis: