N.Y. ISC Law § 6903 — New York Code / Act ISC / Article 69 / Section 6903
Contingency, loss and unearned premium reserves
Status: in_force

§ 6903. Contingency, loss and unearned premium reserves. (a)\nContingency reserves. (1) A corporation shall establish and maintain\ncontingency reserves for the protection of insureds and claimants\nagainst the effects of excessive losses occurring during adverse\neconomic cycles.\n  (2) With respect to all financial guaranties written prior to and in\nforce as of the first day of the next calendar quarter commencing after\nthe date that the act enacting this article shall become law:\n  (A) the insurer shall establish and maintain a contingency reserve\nconsistent with the requirements applicable for municipal bond\nguaranties in effect prior to the effective date of this article equal\nto fifty percent of earned premiums on such policies; and\n  (B) to the extent that the insurer's contingency reserves maintained\nas of the first day of the next calendar quarter commencing after the\ndate that the act enacting this article shall become law are less than\nthose required for municipal bond guaranties, the insurer shall have\nthree years from such date to bring its contingency reserves into\ncompliance.\n  (3) With respect to financial guaranties of municipal obligation\nbonds, special revenue bonds, industrial development bonds and utility\nfirst mortgage obligations written on and after the first day of the\nnext calendar quarter commencing after the date that the act enacting\nthis article shall become law:\n  (A) the insurer shall establish and maintain a contingency reserve for\nall such insured issues in each calendar year for each category listed\nin subparagraph (B) of this paragraph;\n  (B) the total contingency reserve required shall be the greater of\nfifty percent of premiums written for each such category or the\nfollowing amount prescribed for each such category:\n  (i) municipal obligation bonds, 0.55 percent of principal guarantied;\n  (ii) special revenue bonds, and obligations demonstrated to the\nsatisfaction of the superintendent to be the functional equivalent\nthereof, 0.85 percent of principal guarantied;\n  (iii) investment grade industrial development bonds, secured by\ncollateral or having a term of seven years or less, and utility first\nmortgage obligations, 1.0 percent of principal guarantied;\n  (iv) other investment grade industrial development bonds, 1.5 percent\nof principal guarantied; and\n  (v) all other industrial development bonds, 2.5 percent of principal\nguarantied; and\n  (C) Contributions to the contingency reserve required by this\nparagraph, equal to one-eightieth of the total reserve required, shall\nbe made each quarter for twenty years, provided, however, that\ncontributions may be discontinued so long as the total reserve for all\ncategories listed in items (i) through (v) of subparagraph (B) of this\nparagraph exceeds the percentages contained in such items (i) through\n(v) when applied against unpaid principal.\n  (4) With respect to all other financial guaranties written on or after\nthe first day of the next calendar quarter commencing after the date\nthat the act enacting this article shall become law:\n  (A) the insurer shall establish and maintain a contingency reserve for\nall such insured issues in each calendar year for each such category\nlisted in subparagraph (B) of this paragraph;\n  (B) the total contingency reserve required shall be the greater of\nfifty percent of premiums written for each such category or the\nfollowing amount prescribed for each such category:\n  (i) investment grade obligations, secured by collateral or having a\nterm of seven years or less, 1.0 percent of principal guarantied;\n  (ii) other investment grade obligations, 1.5 percent of principal\nguarantied;\n  (iii) non-investment grade consumer debt obligations, 2.0 percent of\nprincipal guarantied;\n  (iv) non-investment grade asset-backed securities, 2.0 percent of\nprincipal guarantied;\n  (v) other non-investment grade obligations, 2.5 percent of principal\nguarantied; and\n  (C) Contributions to the contingency reserve required by this\nparagraph, equal to one-sixtieth of the total reserve required, shall be\nmade each quarter for fifteen years, provided, however, that\ncontributions may be discontinued so long as the total reserve for all\ncategories listed in items (i) through (v) of subparagraph (B) of this\nparagraph exceeds the percentages contained in such items (i) through\n(v) when applied against unpaid principal.\n  (5) Contingency reserves required in paragraphs two, three and four of\nthis subsection may be established and maintained net of collateral and\nreinsurance, provided that, in the case of reinsurance, the reinsurance\nagreement requires that the reinsurer shall, on or after the effective\ndate of the reinsurance, establish and maintain a reserve in an amount\nequal to the amount by which the insurer reduces its contingency\nreserve, and contingency reserves required in paragraphs three and four\nof this subsection may be maintained (A) net of refundings and\nrefinancings to the extent the refunded or refinanced issue is paid off\nor secured by obligations which are directly payable or guarantied by\nthe United States government and (B) net of insured securities in a unit\ninvestment trust or mutual fund that have been sold from the trust or\nfund without insurance.\n  (6) The contingency reserves may be released thereafter in the same\nmanner in which they were established and withdrawals therefrom, to the\nextent of any excess, may be made from the earliest contributions to\nsuch reserves remaining therein:\n  (A) with the prior written approval of the superintendent:\n  (i) if the actual incurred losses for the year, in the case of the\ncategories of guaranties subject to paragraph three of this subsection\nexceeds thirty-five percent of earned premiums, or in the case of the\ncategories of guaranties subject to paragraph four of this subsection\nexceed sixty-five percent of earned premiums; or\n  (ii) if the contingency reserve applicable to the categories of\nguaranties subject to paragraph three of this subsection has been in\nexistence for less than forty quarters, or for less than thirty quarters\nfor the categories of guaranties subject to paragraph four of this\nsubsection, upon a demonstration satisfactory to the superintendent that\nthe amount carried is excessive in relation to the insurer's outstanding\nobligations under its financial guaranties.\n  (B) upon thirty days prior written notice to the superintendent,\nprovided that the contingency reserve applicable to the categories of\nguaranties subject to paragraph three of this subsection has been in\nexistence for forty quarters, or thirty quarters for categories of\nguaranties subject to paragraph four of this subsection, upon a\ndemonstration satisfactory to the superintendent that the amount carried\nis excessive in relation to the insurer's outstanding obligations under\nits financial guaranties.\n  (7) An insurer providing financial guaranty insurance may invest the\ncontingency reserve in tax and loss bonds (or similar securities)\npurchased pursuant to section 832(e) of the Internal Revenue Code (or\nany successor provision), only to the extent of the tax savings\nresulting from the deduction for federal income tax purposes of a sum\nequal to the annual contributions to the contingency reserve. The\ncontingency reserve shall otherwise be invested only in classes of\nsecurities or types of investments specified in paragraphs one through\nthree of subsection (b) of section one thousand four hundred two of this\nchapter and paragraphs one through three of subsection (a) of section\none thousand four hundred four of this chapter.\n  (b) Loss reserves. (1) The case basis method or such other method as\nmay be prescribed by the superintendent shall be used to establish and\nmaintain loss reserves, net of collateral, for claims reported and\nunpaid, in a manner consistent with section four thousand one hundred\nseventeen of this chapter. A deduction from loss reserves shall be\nallowed for the time value of money by application of a discount rate\nequal to the average rate of return on the admitted assets of the\ninsurer as of the date of the computation of any such reserves. The\ndiscount rate shall be adjusted at the end of each calendar year.\n  (2) If the insured principal and interest on a defaulted issue of\nobligations due and payable during any three years following the date of\ndefault exceeds ten percent of the insurer's surplus to policyholders\nand contingency reserves, its reserve so established shall be supported\nby a report from an independent source acceptable to the superintendent.\n  (c) Unearned premium reserve. An unearned premium reserve shall be\nestablished and maintained net of reinsurance and collateral with\nrespect to all financial guaranty premiums. Where financial guaranty\ninsurance premiums are paid on an installment basis, an unearned premium\nreserve shall be established and maintained, net of reinsurance and\ncollateral, computed on a daily or monthly pro rata basis. All other\nfinancial guaranty insurance premiums written shall be earned in\nproportion with the expiration of exposure, or by such other method as\nmay be prescribed by the superintendent.\n