MBIA Inc. (NYSE: MBI) today commented on the decision by Moody’s Investors Service to place the insurance financial strength rating of MBIA Insurance Corporation on review for possible downgrade.

Moody’s mortgage research group published a special report today titled “Subprime RMBS Loss Projection Update: September 2008” that suggests an increase in expected losses on subprime first mortgages originated in 2006 from a range of 14-18% to an average of 22%. The report acknowledges that there is uncertainty in the assumptions and that the estimates may be too high. The financial guarantors’ group, when rating MBIA in June 2008, assumed that stress losses on these securities would average 21%. We have believed for some time that the currently expected mortgage performance is the very definition of “stress.” The Moody’s press release suggests that one should take the losses they expect and add significant stress factors to it, even though this is the worst stress environment that any of us have experienced.

While Moody’s may conclude that capital requirements for this part of our portfolio should be higher, we believe that any rating impact of any increased capital requirements should be offset by the following:

• Capitalization has steadily increased over the course of 2008. We raised $2.6 billion in the first quarter in new capital, and we estimate that the portfolio’s capital requirements, before any increase resulting from the new estimates, will have declined by over $1.5 billion through September. At our current rating level, we have a capital “cushion” of over $3 billion.
• We generated substantial liquidity in our Asset/Liability Management (ALM) portfolio as a result of portfolio rebalancing in the second and third quarters. As a result, we have sufficient cash and highly liquid securities to meet termination requirements triggered by any further ratings downgrades.
• Holding company liquidity has been bolstered by discounted debt buybacks.