New Jersey Administrative Code › Title 11 - INSURANCE › Chapter 7 - INSURANCE OF MUNICIPAL BONDS, ASSET-BACKED SECURITIES AND CONSUMER DEBT OBLIGATIONS › Subchapter 1 - GENERAL PROVISIONS › Section 11:7-1.2 - Definitions

Current through Register Vol. 56, No. 14, July 15, 2024
The following words and terms, when used in this subchapter, shall have the following meanings, unless the context clearly indicates otherwise.
"Affiliate" shall have the same meaning as in N.J.S.A. 17:27A-1.
"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 $ 1,000 par value), divided by the amount equal to the aggregate life of all such obligations (assuming each obligation represents $ 1,000 par value). This definition, expressed as a formula in regard to bonds, is as follows:
Average Annual Debt Service = (Total Debt Service x Number of Bonds)/Bond Years
Total Debt Service = Insured Unpaid Principal + Interest
Number of Bonds = (Total Principal Insured)/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.
"Consumer debt obligations guaranties" means 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.
"Contingency reserve" means an additional premium reserve established for the protection of policyholders covered by policies insuring municipal bonds, asset-backed securities or consumer debt obligations against the effect of excessive losses usually occurring during adverse economic cycles.
"Credit default swap" means an agreement on forms of agreement published from time to time by the International Swap s and Derivatives Association, Inc. ( 10 E. 53rd Street, 9th Floor, New York, NY 10022, Phone: (212) 901-6000 ) or otherwise acceptable to the Commissioner, 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.
"Excess spread" means, with respect to any insured issue of asset-backed securities, the excess of the scheduled cash flow on the underlying assets that is reasonably projected to be available to make debt service payments on the insured securities over the term of the insured securities after payment of the expenses associated with the insured issue, over 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 as defined below in N.J.A.C. 11:7-1.5.
"Insurable risk" means, with respect to asset-backed securities, 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.
"Insurance of municipal bonds" means insurance against financial loss by reason of nonpayment of principal and interest obligations pursuant to the terms of municipal bonds as defined in "municipal bonds" below.
"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 designated as a Nationally Recognized Statistical Rating Organization by the Securities and Exchange Commission, or in the case of obligations or parity obligations issued outside of the United States, by an affiliate of such a designated securities rating agency;
2. The obligation or parity obligation of the same issuer has been identified in writing by any rating agency set forth in paragraph 1 above to be of investment grade quality; or
3. If the obligation or parity obligation of the same issuer has not been submitted to any rating agency, set forth in paragraph 1 above, the obligation or parity obligation has been 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.
"Municipal bonds" means obligations issued by a state, territory or possession of the United States of America, or by any municipality, political subdivision (including but not limited to cities, counties, towns, villages, school districts and special districts for fire prevention, water, sewer, irrigation and other municipal public purposes provided for by law) or by any public agency or instrumentality (such as an authority or commission) of one or more of the foregoing, or obligations issued by any other national government or any state, province, city, town or other political subdivision thereof or any public agency or instrumentality of one or more of the foregoing.
"Reinsurance" means reinsurance in a company that satisfies the criteria under the New Jersey credit for reinsurance requirements set forth in N.J.S.A. 17:51B-1 et seq. and N.J.A.C. 11:2-28, or as to which credit for reinsurance is allowed pursuant to the credit for reinsurance law of the ceding insurer's state or country of domicile, which law is substantially similar to the New Jersey credit for reinsurance requirements.