2023 New York Laws › ISC - Insurance › Article 69 - 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 the following percent of the
aggregate  of  the  insurer's  surplus  to policyholders and contingency
reserve  based  on  the  highest  sovereign  rating,  by  a   nationally
recognized   statistical   rating   organization   acceptable   to   the
superintendent, of the country of the applicable governmental unit:
(i) seventy-five percent: any rating in one of  the  top  two  generic
lettered rating classifications;
(ii)  fifty-nine  percent:  an  A+,  A1,  or  equivalent rating at the
highest grade of the third generic lettered rating classification;
(iii) forty-three percent: an A,  A2,  or  equivalent  rating  at  the
middle grade of the third generic lettered rating classification; and
(iv) twenty-six percent: an A-, A3, or equivalent rating at the lowest
grade of the third generic lettered rating classification;
(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  paragraph  two  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 paragraph two 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.