NY Ins L § 6901 (2021)
2021 New York Laws ISC - Insurance Article 69 - Financial Guaranty Insurance Corporations 6901 - Definitions.

§  6901.  Definitions.  As  used  in  this article: (a) (1) "Financial guaranty insurance" means a surety bond, an insurance  policy  or,  when issued  by  an  insurer  or  any  person  doing an insurance business as defined in paragraph one of subsection (b) of section one  thousand  one hundred  one  of  this  chapter, an indemnity contract, and any guaranty similar to the foregoing types, under which loss is payable, upon  proof of  occurrence  of  financial  loss,  to an insured claimant, obligee or indemnitee as a result of any of the following events:  (A) failure of any obligor on or issuer  of  any  debt  instrument  or other  monetary obligation (including equity securities guarantied under a surety bond, insurance policy or indemnity contract) to pay  when  due to  be  paid  by  the  obligor  or  scheduled  at the time insured to be received by the holder of the obligation, principal, interest,  premium, dividend  or  purchase  price  of or on, or other amounts due or payable with respect to, such instrument or obligation, when such failure is the result of a financial default  or  insolvency  or,  provided  that  such payment  source  is investment grade, any other failure to make payment, regardless of  whether  such  obligation  is  incurred  directly  or  as guarantor by or on behalf of another obligor that has also defaulted;  (B)  changes  in  the  levels of interest rates, whether short or long term or the differential in interest rates between  various  markets  or products;  (C) changes in the rate of exchange of currency;  (D)  changes in the value of specific assets or commodities, financial or commodity indices, or price levels in general; or  (E) other events which the superintendent determines are substantially similar to any of the foregoing.  (2) Notwithstanding  paragraph  one  of  this  subsection,  "financial guaranty insurance" shall not include:  (A)  insurance  of  any  loss  resulting  from  any event described in paragraph one of this subsection if the loss is payable  only  upon  the occurrence  of  any  of  the  following,  as specified in a surety bond, insurance policy or indemnity contract:  (i) a fortuitous physical event;  (ii) failure of or deficiency in the operation of equipment; or  (iii) an inability to extract or recover a natural resource;  (B) fidelity and surety insurance as defined in paragraph  sixteen  of subsection  (a)  of  section  one  thousand one hundred thirteen of this chapter;  (C) credit insurance as defined in paragraph seventeen  of  subsection (a) of section one thousand one hundred thirteen of this chapter;  (D)  credit unemployment insurance as defined in paragraph twenty-four of subsection (a) of section one thousand one hundred thirteen  of  this chapter;  (E)  residual  value  insurance  as defined in paragraph twenty-two of subsection (a) of section one thousand  one  hundred  thirteen  of  this chapter;  (F)  mortgage  guaranty insurance as defined in paragraph twenty-three of subsection (a) of section one thousand one hundred thirteen  of  this chapter  and  as  permitted to be written by a mortgage guaranty insurer under article sixty-five of this chapter;  (G) guaranteed investment contracts issued by life insurance companies which provide that the life insurer itself will make specified  payments in exchange for specific premiums or contributions;  (H) indemnity contracts or similar guaranties, to the extent that they are not otherwise limited or proscribed by this chapter:  (i)  in  which  a  life  insurer  or  an  insurer  subject  to article forty-three of this chapter guaranties its obligations  or  indebtedness  or  the  obligations  or  indebtedness  of  a  subsidiary (as defined in paragraph forty of subsection (a) of section one hundred seven  of  this chapter),   other  than  a  financial  guaranty  insurance  corporation, provided that:  (I) to the extent that any such obligations or indebtedness are backed by  specific  assets,  such  assets  must  at  all times be owned by the insurer or the subsidiary; and  (II) in the case of the guaranty of the obligations or indebtedness of the subsidiary that are not backed by specific assets of  such  insurer, such  guaranty terminates once the subsidiary ceases to be a subsidiary; or  (ii) in which a life insurer guaranties  obligations  or  indebtedness (including  the  obligation to substitute assets where appropriate) with respect to specific assets acquired by such life insurer in  the  course of  its  normal  investment activities and not for the purpose of resale with credit  enhancement,  or  guaranties  obligations  or  indebtedness acquired  by  its subsidiary, provided that the assets acquired pursuant to this item (ii) have been:  (I) acquired by a special purpose entity, whose  sole  purpose  is  to acquire specific assets of such life insurer or its subsidiary and issue securities or participation certificates backed by such assets; or  (II) sold to an independent third party; or  (iii)  in  which a life insurer guaranties obligations or indebtedness of an employee or insurance agent of such life insurer; or  (I)  guarantees  of  higher  education  loans,  unless  written  by  a financial guaranty insurance corporation;  (J) guarantees of insurance contracts, except for:  (i) guarantees authorized pursuant to section one thousand one hundred fourteen of this chapter;  (ii)   financial   guaranty  insurance  policies  insuring  guaranteed investment contracts issued by life insurers, provided that:  (I) the obligations under such contracts  are  not  dependent  on  the continuance of human life;  (II)  the  financial guaranty insurance policies do not guaranty death benefits provided by such contracts;  (III) the obligations insured  by  the  financial  guaranty  insurance policies  are  investment grade based on the rating of the life insurers or, in the case of separate  account  guaranteed  investment  contracts, based on the ratings of such separate accounts;  (IV)  the financial guaranty insurance policies shall not condition or delay payment of a claim with respect to such contracts upon the insured or beneficiary making a  claim  on  the  contracts  with  any  insurance guaranty fund under this chapter or of any other jurisdiction; and  (V)  the  financial guaranty insurance policies provide that if, prior to payment  by  the  insurer  under  the  financial  guaranty  insurance policies, the guaranty fund has paid a claim under such contracts for an amount  that,  when  added  to  the  amount  payable under the financial guaranty insurance policies, would exceed the  amount  owed  under  such contracts,  then the financial guaranty insurer shall pay the portion of the amount payable in excess of the contract  amounts  to  the  guaranty fund instead of to the beneficiary under such contracts; or  (K)   any   other   form   of   insurance  covering  risks  which  the superintendent determines to be substantially  similar  to  any  of  the foregoing.  (b)  "Financial guaranty insurance corporation" or "corporation" means an insurer licensed to  transact  the  business  of  financial  guaranty insurance in this state.  (c)  "Affiliate" means a person which, directly or indirectly, owns at least ten percent but less than fifty percent of the financial  guaranty insurance  corporation  or  which  is at least ten percent but less than fifty percent, directly or indirectly, owned  by  a  financial  guaranty insurance corporation.  (d)  "Aggregate  net  liability" means the aggregate amount of insured unpaid principal, interest and  other  monetary  payments,  if  any,  of guarantied  obligations  insured  or assumed, less reinsurance ceded and less collateral.  (e) "Asset-backed securities" mean:  (1) securities or other financial obligations of  an  issuer  provided that:  (A)  the  issuer  is  a  special  purpose  corporation, trust or other entity, or (provided that the securities or other financial  obligations constitute  an  insurable  risk)  is  a  bank,  trust  company  or other financial institution,  deposits  in  which  are  insured  by  the  Bank Insurance Fund or the Savings Insurance Fund (or any successor thereto); and  (B) a pool of assets:  (i)  has  been  conveyed,  pledged  or  otherwise transferred to or is otherwise owned or acquired by the issuer;  (ii) such pool of assets  backs  the  securities  or  other  financial obligations issued; and  (iii)  no asset in such pool, other than an asset directly payable by, guaranteed by or backed by the full  faith  and  credit  of  the  United States  government  or  that  otherwise  qualifies  as  collateral under paragraph one or two of subsection (g) of  this  section,  has  a  value exceeding twenty percent of the pool's aggregate value; or  (2) a pool of credit default swaps or credit default swaps referencing a pool of obligations, provided that:  (A)  the  swap  counterparty  whose  obligations are insured under the credit default swap is a special purpose  corporation,  special  purpose trust or other special purpose legal entity;  (B)  no  reference  obligation  in such pool, other than an obligation directly payable by, guaranteed by or  backed  by  the  full  faith  and credit  of  the  United States government or that otherwise qualifies as collateral under paragraph two of subsection (g) of this section, has  a notional  amount  exceeding ten percent of the pool's aggregate notional amount; and  (C) the insurer has the benefit of a deductible or  other  first  loss credit protection against claims under its insurance policy.  (f)  "Average  annual debt service" means the amount of insured unpaid principal and interest on an obligation, multiplied  by  the  number  of such  insured  obligations  (assuming  each  obligation  represents  one thousand dollars  par  value),  divided  by  the  amount  equal  to  the aggregate  life  of  all  such  obligations  (assuming  each  obligation represents one thousand dollars par value). This  definition,  expressed as a formula in regard to bonds, is as follows:      Average Annual Debt Service = Total Debt Service x No. of Bonds                                   _________________________________                                               Bond Years         Total Debt Service = Insured Unpaid Principal + Interest                 Number of Bonds = Total Insured Principal                                  _______________________                                          $1,000              Bond Years =  Number of Bonds x Term in Years  Term  in Years = Term to maturity based on scheduled amortization or, in the absence of a scheduled amortization  in  the  case  of  asset-backed securities  or  other  obligations  lacking  a  scheduled  amortization, expected amortization, in  each  case  determined  as  of  the  date  of issuance of the insurance policy based upon the amortization assumptions employed  in  pricing  the insured obligations or  otherwise used by the insurer to determine aggregate net liability.  (g) "Collateral" means:  (1) cash;  (2) the cash flow from specific obligations which are not callable and scheduled to be received based on expected prepayment speed on or  prior to  the  date of scheduled debt service (including scheduled redemptions or prepayments)  on  the  insured  obligation  provided  that  (i)  such specific obligations are directly payable by, guaranteed by or backed by the  full  faith and credit of the United States government, (ii) in the case of insured obligations denominated or payable in  foreign  currency as  permitted  under  paragraph  four  of  subsection (b) of section six thousand nine hundred four of this article,  such  specific  obligations are  directly  payable by, guaranteed by or backed by the full faith and credit of such foreign government or the central bank thereof, or  (iii) such  specific  obligations are insured by the same insurer that insures the obligations being collateralized,  and  the  cash  flows  from  such specific  obligations  are  sufficient  to  cover  the insured scheduled payments on the obligations being collateralized;  (3) the market value  of  investment  grade  obligations,  other  than obligations  evidencing  an interest in the project or projects financed with the proceeds of the insured obligations;  (4) the face amount of each letter of credit that:  (A) is irrevocable;  (B) provides for payment under the letter of credit in lieu of  or  as reimbursement  to  the  insurer  for  payment required under a financial guaranty insurance policy;  (C) is issued, presentable and payable either:  (i) at an office of the letter of credit issuer in the United  States; or  (ii)  at  an  office  of  the  letter  of credit issuer located in the jurisdiction in which the  trustee  or  paying  agent  for  the  insured obligation is located;  (D) contains a statement that either:  (i)  identifies  the  insurer  and  any successor by operation of law, including any liquidator, rehabilitator, receiver or conservator, as the beneficiary; or  (ii) identifies the trustee  or  the  paying  agent  for  the  insured obligation as the beneficiary;  (E)  contains  a  statement  to  the effect that the obligation of the letter of credit issuer under the letter  of  credit  is  an  individual obligation of such issuer and is in no way contingent upon reimbursement with respect thereto;  (F) contains an issue date and a date of expiration;  (G) either:  (i)  has  a  term  at  least as long as the shorter of the term of the insured obligation or the term of the financial guaranty policy; or  (ii) provides that the letter  of  credit  shall  not  expire  without thirty  days  prior  written  notice  to  the beneficiary and allows for drawing under  the  letter  of  credit  in  the  event  that,  prior  to expiration,  the  letter  of  credit  is  not  renewed  or extended or a substitute  letter  of  credit  or  alternate  collateral  meeting   the requirements of this subsection is not provided;  (H) states that it is governed by the laws of the state of New York or by  the  1983  or  1993 Revision of the Uniform Customs and Practice for Documentary  Credits  of   the   International   Chamber   of   Commerce (Publication  400  or  500) or any successor Revision if approved by the superintendent,  and  contains  a provision for an extension of time, of not less than thirty days after resumption of business, to draw  against the  letter  of  credit in the event that one or more of the occurrences described in Article 19 of Publication 400 or 500 occurs; and  (I)  is  issued  by  a  bank,  trust  company,  or  savings  and  loan association that:  (i)  is  organized and existing under the laws of the United States or any  state  thereof  or,  in  the  case  of  a  non-domestic   financial institution,  has  a  branch or agency office licensed under the laws of the United States or any state thereof and  is  domiciled  in  a  member country  of  the  Organisation for Economic Co-operation and Development having a sovereign rating in one of the top two generic lettered  rating classifications   by  a  securities  rating  agency  acceptable  to  the superintendent;  (ii) has (or is the principal  operating  subsidiary  of  a  financial institution  holding  company  that  has)  a long-term debt rating of at least investment grade; and  (iii) is not a parent, subsidiary  or  affiliate  of  the  trustee  or paying  agent,  if  any,  with respect to the insured obligation if such trustee of paying agent is  the  named  beneficiary  of  the  letter  of credit; or  (5)  the  amount of credit protection available to the insurer (or its nominee) under each credit default swap that:  (A) may not be amended without the consent of the insurer and may only be terminated: (i) at the option of the insurer; (ii) at the  option  of the  counterparty to the insurer (or its nominee), if the credit default swap provides for the payment of  a  termination  amount  equal  to  the replacement  cost  of the terminated credit default swap determined with reference to  standard  documentation  of  the  International  Swap  and Derivatives   Association,   Inc.   or   otherwise   acceptable  to  the superintendent; or (iii) at the discretion of the superintendent  acting as  a  rehabilitator, liquidator or receiver of the insurer upon payment by or on behalf of the insurer of any termination amount  due  from  the insurer;  (B)  provides for payment under all instances in which payment under a financial guaranty insurance policy is  required,  except  that  payment under  the credit default swap may be on a first loss, excess of loss or other non-pro-rata basis and may apply on an  aggregate  basis  to  more than one policy;  (C) is provided by:  (i) a counterparty whose obligations under the credit default swap are insured  by  a  financial  guaranty insurance corporation licensed under this article or guaranteed by a financial  institution  referred  to  in items (ii) and (iii) of this subparagraph;  (ii)  a financial institution satisfying the requirements of items (i) through (iii) of subparagraph (I) of paragraph four of this  subsection; provided  that  (A)  obligations of such financial institution on parity with its obligations under the credit default swap are investment  grade and  (B) if such financial institution is not organized under, or acting through a branch or agency office licensed under, the laws of the United States or any state thereof, then such financial institution is required to collateralize the replacement cost of the credit default swap in  the event that it shall fail to maintain such rating; or  (iii)   any   other  financial  institution  that  the  superintendent determines to be substantially similar to any of the foregoing.   Collateral  must  be  deposited  with  the insurer; held in trust by a trustee or custodian acceptable to the superintendent for the benefit of the insurer; or held in trust pursuant to the bond  indenture  or  other trust  arrangement,  for  the benefit of security holders in the form of funds for the payment of insured obligations,  sinking  funds  or  other reserves  which  may  be used for the payment of insured obligations and trustee  and  other  administrative  fees  on  a  first  priority  basis established and continually maintained pursuant to the bond indenture or other  trust  arrangement by a trustee acceptable to the superintendent. The superintendent may promulgate regulations to  limit  the  amount  of collateral  provided by obligations, letters of credit or credit default swaps or to limit the  amount  of  collateral  provided  by  any  single issuer, bank or counterparty as provided for in this subsection.  (h)  "Commercial  real  estate"  means  income producing real property other than residential property consisting of less than five units.  (i)  (1)  "Consumer  debt  obligations"  guaranties  means   financial guaranty  insurance  that indemnifies a purchaser or lender against loss or damage resulting from defaults on a pool of debts owed for extensions of credit (including in respect of installment purchase  agreements  and leases) to individuals, provided in the normal course of the purchaser's or lender's business, provided that (A) such pool meets the requirements of paragraph two of subsection (e) of this section and (B) such pool has been determined to be investment grade.  (2)  Consumer  debt  obligations  guaranty  policies  shall  contain a provision that all coverage under the policies terminates upon  sale  or transfer  of  the  underlying consumer debt obligation to any transferee not insured by the same insurer under a similar policy.  (j)  "Contingency  reserve"  means  an  additional  liability  reserve established  to  protect  policyholders  against  the effects of adverse economic developments or cycles or other unforeseen circumstances.  (j-1) "Credit default swap" means an agreement referencing the  credit derivative  definitions published from time to time by the International Swap and Derivatives Association, Inc. or otherwise  acceptable  to  the superintendent,  pursuant  to which a party agrees to compensate another party in the event of a payment default  by,  insolvency  of,  or  other adverse credit event in respect of, an issuer of a specified security or other  obligation;  provided  that such agreement does not constitute an insurance contract and the making of such credit default swap  does  not constitute the doing of an insurance business.  (k)  "Governmental unit" means the United States of America, Canada, a member  country  of  the  Organisation  for  Economic  Co-operation  and Development  having  a  sovereign  rating  in one of the top two generic lettered rating classifications by a securities rating agency acceptable to the superintendent, a state, territory or possession  of  the  United States  of  America,  the  District of Columbia, a province of Canada, a municipality, or a political subdivision of any of the foregoing, or any public agency or instrumentality thereof.  (k-1) "Excess spread" means, with respect  to  any  insured  issue  of asset-backed  securities,  the  excess of (A) the scheduled cash flow on the underlying assets that is reasonably projected to be available, over the term of  the  insured  securities  after  payment  of  the  expenses associated  with the insured issue, to make debt service payments on the insured securities over (B) the scheduled debt service  requirements  on the  insured  securities,  provided that such excess is held in the same manner as collateral is required to be held under subsection (g) of this section.  (l)  "Industrial  development  bond"  means  any  security  or   other instrument,  other than a utility first mortgage obligation, under which a  payment  obligation  is  created,  issued  by  or  on  behalf  of   a governmental  unit,  to  finance a project serving a private industrial, commercial  or manufacturing purpose, and not payable or guarantied by a governmental unit.  (m) "Insurable risk" means, with respect to  asset-backed  securities, as defined in subsection (e) of this section, that such obligation on an uninsured basis has been determined to be not less than investment grade based  solely  on  the  pool of assets backing the insured obligation or securing the insurer, without consideration of the  creditworthiness  of the issuer.  (n) "Investment grade" means that:  (1)  the  obligation  or parity obligation of the same issuer has been determined to be  in  one  of  the  top  four  generic  lettered  rating classifications   by  a  securities  rating  agency  acceptable  to  the superintendent;  (2) the obligation or parity obligation of the same  issuer  has  been identified  in  writing  by such rating agency to be of investment grade quality; or  (3) if the obligation or parity obligation of the same issuer has  not been  submitted  to any such rating agency, the obligation is determined to be investment grade (as indicated by a rating in category 1 or 2)  by the Securities Valuation Office of the National Association of Insurance Commissioners.  (o)  "Municipal  bonds"  means  municipal obligation bonds and special revenue bonds.  (p)  "Municipal  obligation  bond"  means  any   security   or   other instrument, including a lease payable or guaranteed by the United States or  another national government that qualifies as a governmental unit or any agency, department or instrumentality thereof, or by a state  or  an equivalent  political  subdivision  of  another national government that qualifies as  a  governmental  unit,  but  not  a  lease  of  any  other governmental  unit,  under which a payment obligation is created, issued by or on behalf of or payable or guaranteed by a  governmental  unit  or issued  by a special purpose corporation, special purpose trust or other special purpose legal entity to finance a project serving a  substantial public purpose, and which is:  (1) (A) payable from tax revenues, but not tax allocations, within the jurisdiction of such governmental unit;  (B)  payable  or  guaranteed  by the United States or another national government that  qualifies  as  a  governmental  unit,  or  any  agency, department or instrumentality thereof, or by a housing agency of a state or  an  equivalent  subdivision  of  another  national  government  that qualifies as a governmental unit;  (C) payable from rates or charges (but not tolls) levied or  collected in  respect  of  a  non-nuclear  utility  project, public transportation facility (other than an airport), or public higher  education  facility; or  (D)   with   respect   to   lease  obligations,  payable  from  future appropriations; and  (2) provided that, in the case of obligations  of  a  special  purpose corporation,  special  purpose  trust  or  other  special  purpose legal entity, (A) such  obligations  are  investment  grade  at  the  time  of issuance;  (B)  such  obligations are payable from sources enumerated in subparagraph (A), (B), (C) or (D) of paragraph one of  this  subsection; and  (C) the project being financed or the tolls, tariffs, usage fees or  other similar rates or charges for its use are subject to regulation  or oversight by a governmental unit.  (q)  "Reinsurance"  means cessions qualifying for credit under section six thousand nine hundred six of this article.  (r) "Special revenue bond" means any  security  or  other  instrument, under  which  a payment obligation is created, issued by or on behalf of or payable or guaranteed by a governmental unit  to  finance  a  project serving  a  substantial  public purpose, and not payable from any of the sources enumerated in subsection (p)  of  this  section;  or  securities which  are  the  functional  equivalent  of  the  foregoing  issued by a not-for-profit corporation or a  special  purpose  corporation,  special purpose  trust  or other special purpose legal entity; provided that, in the case of  obligations  of  a  special  purpose  corporation,  special purpose   trust   or  other  special  purpose  legal  entity,  (1)  such obligations are investment grade at  the  time  of  issuance;  (2)  such obligations  are not payable from the sources enumerated in subparagraph (A), (B), (C) or (D) of paragraph one of subsection (p) of this section; and (3) the project being financed or the tolls, tariffs, usage fees  or other  similar rates or charges for its use are subject to regulation or oversight by a governmental unit.  (s) "Utility first mortgage obligation" means  any  obligation  of  an issuer secured by a first priority mortgage on utility property owned by or  leased to an investor-owned or cooperative-owned utility company and located in the  United  States,  Canada  or  a  member  country  of  the Organisation   for   Economic  Co-operation  and  Development  having  a sovereign  rating  in  one  of  the  top  two  generic  lettered  rating classifications   by  a  securities  rating  agency  acceptable  to  the superintendent; provided that the utility or  utility  property  or  the usage  fees  or  other  similar  utility rates or charges are subject to regulation or oversight by a governmental unit.