N.Y. Insurance Law § 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.