2010 New York Code
ISC - Insurance
Article 69 - (6901 - 6909) FINANCIAL GUARANTY INSURANCE CORPORATIONS
6904 - Limitations.

§   6904.   Limitations.  (a)  Financial  guaranty  insurance  may  be
  transacted in this state only by a corporation licensed for such purpose
  pursuant to section six thousand nine hundred two of this article.
    (b) Permissible guarantees. (1) The superintendent  shall  not  permit
  the  writing  of  financial  guaranty  insurance  except  as  defined in
  subparagraph (A) of paragraph one  of  subsection  (a)  of  section  six
  thousand  nine hundred one of this article, and a corporation may insure
  the timely payment of United States dollar debt  instruments,  or  other
  monetary obligations, only in the following categories:
    (A) municipal obligation bonds;
    (B) special revenue bonds;
    (C) industrial development bonds;
    (D)  obligations  of  corporations,  trusts  or other similar entities
  established under applicable law;
    (E) partnership obligations;
    (F) asset-backed securities, trust certificates and trust  obligations
  other than mortgage-backed securities secured by first mortgages on real
  property  which  are insurable by a mortgage guaranty insurer authorized
  under paragraph twenty-three of subsection (a) of section  one  thousand
  one hundred thirteen of this chapter, unless:
    (i)  such  mortgages  with  loan-to-value  ratios  in excess of eighty
  percent are:
    (I) in the case of mortgages on property located in the state  of  New
  York,  insured  by mortgage guaranty insurers authorized under paragraph
  twenty-three of subsection (a)  of  section  one  thousand  one  hundred
  thirteen of this chapter;
    (II)  in  the  case  of mortgages on property located in a state other
  than the state of  New  York,  insured  by  mortgage  guaranty  insurers
  authorized to do business in such other state; or
    (III)  in  an  aggregate  principal  amount  less than the single risk
  limits prescribed in paragraph five of subsection (d) of  this  section;
  or
    (ii)  additional  mortgages  with principal balances, other collateral
  with a market value, or (provided the insured risk is investment  grade)
  excess  spread  in  an  amount,  in  each instance at least equal to the
  coverage that would otherwise be  provided  by  such  mortgage  guaranty
  insurers in accordance with item (i) of this subparagraph are pledged as
  additional security for the asset-backed securities;
    (G) installment purchase agreements executed as a condition of sale;
    (H) consumer debt obligations;
    (I) utility first mortgage obligations; and
    (J)  any  other  debt  instrument  or  financial  obligation  that the
  superintendent determines to be substantially  similar  to  any  of  the
  foregoing or shall otherwise be approved by the superintendent.
    (2) An insurer may insure obligations enumerated in subparagraphs (A),
  (B), and (C) of paragraph one of this subsection that are not investment
  grade so long as at least ninety-five percent of the insurer's aggregate
  net  liability  on  the kinds of obligations enumerated in subparagraphs
  (A), (B) and (C) of paragraph one of this subsection shall be investment
  grade.
    (3)  A  corporation  may  insure  the  timely  payment   of   monetary
  obligations    in   any   category   designated   in   this   subsection
  notwithstanding that such obligation  may  be  insured  by  a  financial
  guaranty  insurance  policy issued by another insurer. In the event that
  any obligation is insured by more than one financial guaranty  insurance
  policy,  then  each  such  insurance policy may by its terms specify its
  priority of payment in the event  of  a  default  under  the  obligation
  insured or any other insurance policy; provided that an insurer shall be

entitled to take into account payment under another policy insuring such
  obligation  for  purposes  of establishing and maintaining loss reserves
  only to the extent that the policy issued by such insurer  provides  for
  payment  only in the event of payment default under both such obligation
  and the other policy.
    (4) A corporation may  also  write  financial  guaranty  insurance  as
  defined  in  subparagraph  (A)  of  paragraph  one  of subsection (a) of
  section six thousand nine hundred one of  this  article  to  insure  the
  timely  payment  of  non-United  States dollar debt instruments or other
  monetary obligations denominated or payable in  foreign  currency,  only
  for  the categories listed in subparagraphs (A) through (J) of paragraph
  one of this subsection, provided that:
    (A) such currency is that of an Organisation for Economic Co-operation
  and Development country or such other country (i) whose sovereign rating
  is investment grade or (ii) as shall not otherwise be disapproved by the
  superintendent  within  thirty  days  following   receipt   of   written
  notification.  The superintendent shall not disapprove such notification
  upon demonstration that there is no undue risk associated with  insuring
  the  timely payment of such instruments or obligations. In making such a
  determination the  superintendent  shall  take  into  consideration  the
  corporation's    outstanding   liabilities   on   non-investment   grade
  instruments and obligations in relation to its  outstanding  liabilities
  on  all instruments and obligations and in relation to the amount of its
  surplus to policyholders;
    (B) reserves required pursuant to section six  thousand  nine  hundred
  three of this article in regard to such obligations shall be established
  and  adjusted  quarterly  based  upon  the then current foreign exchange
  rates;
    (C) such obligations  shall  not  exceed  twenty-five  percent  of  an
  insurer's aggregate net liability; and
    (D)   the   aggregate   and  single  risk  limitations  prescribed  by
  subsections (c) and (d) of this section shall be determined by  applying
  the then current foreign exchange rates.
    (c)  Aggregate risk limits. The corporation must at all times maintain
  surplus to policyholders and contingency reserves in  the  aggregate  no
  less than the sum of:
    (1)(A)  0.3333 percent or 1/300th of the aggregate net liability under
  guaranties of municipal bonds including obligations demonstrated to  the
  satisfaction  of  the  superintendent  to  be  the functional equivalent
  thereof and investment grade utility first mortgage obligations; plus
    (B) 0.6666 percent or 1/150th of the  aggregate  net  liability  under
  guaranties of investment grade asset-backed securities; plus
    (C)  1.0  percent  or  1/100th  of  the  aggregate net liability under
  guaranties, secured by collateral or having a term  of  seven  years  or
  less, of:
    (i) investment grade industrial development bonds,
    (ii) other investment grade obligations; plus
    (D)  1.5  percent  or  1/66.67th  of the aggregate net liability under
  guaranties of other investment grade obligations; plus
    (E) 2.0 percent  or  1/50th  of  the  aggregate  net  liability  under
  guaranties of:
    (i) non-investment grade consumer debt obligations, and
    (ii) non-investment grade asset-backed securities; plus
    (F)  2.5  percent  or  1/40th  of  the  aggregate  net liability under
  guaranties  of  non-investment  grade  obligations  secured   by   first
  mortgages  on  commercial real estate and having loan-to-value ratios of
  eighty percent or less; plus

(G) 4.0 percent  or  1/25th  of  the  aggregate  net  liability  under
  guaranties of other non-investment grade obligations; and
    (H)  if  the amount of collateral required by subparagraph (C) of this
  paragraph is no longer maintained, that  proportion  of  the  obligation
  insured which is not so collateralized shall be subject to the aggregate
  limits specified in subparagraph (D) of this paragraph; and
    (2)  surplus  to  policyholders determined by the superintendent to be
  adequate to support the writing  of  residual  value  insurance,  surety
  insurance  and  credit  insurance,  if  the  corporation  has elected to
  transact such kinds of insurance pursuant to subsection (a)  of  section
  six thousand nine hundred two of this article.
    (d)  Single  risk  limits.  A financial guaranty insurance corporation
  shall limit its exposure to loss on any one  risk  insured  by  policies
  providing   financial   guaranty   insurance,   net  of  collateral  and
  reinsurance, as follows:
    (1)  for  municipal  obligation  bonds,  special  revenue  bonds,  and
  obligations demonstrated to the satisfaction of the superintendent to be
  the functional equivalent thereof:
    (A)  the  insured average annual debt service with respect to a single
  entity and backed by a  single  revenue  source  shall  not  exceed  ten
  percent  of  the aggregate of the insurer's surplus to policyholders and
  contingency reserve; and
    (B) the insured unpaid principal issued by a single entity and  backed
  by  a single revenue source shall not exceed seventy-five percent of the
  aggregate of the insurer's  surplus  to  policyholders  and  contingency
  reserve;
    (2)  for  each  issue  of  asset-backed  securities issued by a single
  entity and for each pool of consumer debt obligations, the lesser of:
    (A) insured average annual debt service; or
    (B) insured unpaid principal (reduced  by  the  extent  to  which  the
  unpaid principal of the supporting assets and, provided the insured risk
  is  investment grade, excess spread exceed the insured unpaid principal)
  divided by nine;
  shall not exceed ten percent of the aggregate of the  insurer's  surplus
  to  policyholders and contingency reserve, provided that no asset in the
  pool supporting the asset-backed  securities  exceeds  the  single  risk
  limits  prescribed  in  paragraph  five  of this subsection, if directly
  guaranteed; and provided further that, if the  issuer  of  such  insured
  asset-backed securities is a special purpose corporation, trust or other
  entity  and such issuer shall have indebtedness outstanding with respect
  to any other pool of assets, either such  other  indebtedness  shall  be
  entitled  to  the  benefits  of  a financial guaranty policy of the same
  insurer, or such other indebtedness shall: (i) be fully subordinated  to
  the insured obligation, with respect to, or be non-recourse with respect
  to,  the  pool  of  assets that supports the insured obligation, (ii) be
  non-recourse to the issuer other than with respect  to  the  asset  pool
  securing  such other indebtedness and proceeds in excess of the proceeds
  necessary to pay the insured obligation ("excess  proceeds")  and  (iii)
  not  constitute  a claim against the issuer to the extent that the asset
  pool  securing  such  other  indebtedness   or   excess   proceeds   are
  insufficient to pay such other indebtedness;
    (3)  for  obligations  issued  by  a  single  entity  and  secured  by
  commercial real estate, and not meeting the definition  of  asset-backed
  securities,  the  insured  unpaid  principal  less  fifty percent of the
  appraised value of the underlying  real  estate  shall  not  exceed  ten
  percent  of  the aggregate of the insurer's surplus to policyholders and
  contingency reserve;

(4) for utility first mortgage obligations, the insured average annual
  debt service shall not exceed  ten  percent  of  the  aggregate  of  the
  insurer's surplus to policyholders and contingency reserve; and
    (5) for all other policies providing financial guaranty insurance with
  respect  to obligations issued by a single entity and backed by a single
  revenue source, the  insured  unpaid  principal  shall  not  exceed  ten
  percent  of  the aggregate of the insurer's surplus to policyholders and
  contingency reserve.
    (e) Except as provided in  subsection  (f)  of  this  section,  if  an
  insurer  at any time exceeds any limitation prescribed by subsection (c)
  or (d) of this  section  or  the  last  sentence  of  paragraph  one  of
  subsection  (b)  of  this  section, the insurer shall within thirty days
  after the limitations  are  breached,  submit  a  written  plan  to  the
  superintendent  detailing  the  steps  that it will take or has taken to
  reduce its exposure to loss to no more than the permitted  amounts,  and
  if  after  notice  and  hearing  the  superintendent  determines that an
  insurer has exceeded any limitation prescribed by this section,  he  may
  order  such  insurer  to  cease  transacting  any new financial guaranty
  insurance business until its exposure to loss  no  longer  exceeds  said
  limitations  or  with  respect to the limitations prescribed in the last
  sentence of paragraph one of subsection (b) of this section,  may  order
  such  insurer  to limit its writing of the types of guaranties permitted
  under subparagraphs (A), (B) and (C) of paragraph one of subsection  (b)
  of  this  section  to investment grade obligations until such time as it
  shall be in compliance with such limitations.
    (f) An insurer shall not be deemed  in  violation  of  any  limitation
  prescribed  by  subsection  (d)  of  this  section  with  respect to any
  financial guaranty insurance outstanding prior to the effective date  of
  this  article,  if  the  insurer  was  in compliance with the applicable
  single risk limit in effect in this state at the time that the financial
  guaranty insurance policy was issued. If  the  insurer  was  not  so  in
  compliance,  such  financial  guaranty  insurance  shall comply with the
  limitations prescribed by subsection (d) of this section no  later  than
  three years after the effective date of this article.
    (g)  No  insurer  authorized  to  transact  the  business of financial
  guaranty insurance shall pay any commission or make any gift  of  money,
  property   or   other   valuable   thing   to  any  employee,  agent  or
  representative of  any  potential  purchaser  of  a  financial  guaranty
  insurance policy, as an inducement to the purchase of such a policy, and
  no  such  employee,  agent or representative of such potential purchaser
  shall receive any such payment or gift. Violation of the  provisions  of
  this  section  shall not, however, have the effect of rendering void the
  insurance policy issued by the insurer.