2023 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   nationally   recognized   statistical  rating
organization 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 or 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 three generic
lettered rating classifications by a nationally  recognized  statistical
rating organization 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   nationally   recognized   statistical  rating
organization acceptable to the superintendent;
(2) the obligation or parity obligation of the same  issuer  has  been
identified  in  writing by such nationally recognized statistical rating
organization 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  nationally recognized statistical rating
organization, 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   nationally   recognized   statistical  rating
organization 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.