N.Y. Insurance Law § 6902: Organization; financial requirements

§ 6902. Organization; financial requirements. (a) A financial guaranty

insurance corporation may be organized and licensed in the manner

prescribed in section one thousand two hundred one of this chapter and a

foreign insurer may be licensed in the manner prescribed in section one

thousand one hundred six of this chapter, except as modified by the

following provisions:

(1) a corporation organized for the purpose of transacting financial

guaranty insurance may, subject to all the applicable provisions of this

chapter, be licensed to transact only the following additional kinds of

insurance:

(A) residual value insurance, as defined in paragraph twenty-two of

subsection (a) of section one thousand one hundred thirteen of this

chapter;

(B) surety insurance, as defined in subparagraphs (C), (D), (E), (F),

(G), (H) and (I) of paragraph sixteen of subsection (a) of section one

thousand one hundred thirteen of this chapter; and

(C) credit insurance, as defined in subparagraph (A) of paragraph

seventeen of subsection (a) of section one thousand one hundred thirteen

of this chapter;

(2) a financial guaranty insurance corporation may only assume those

kinds of insurance for which it is licensed to write direct business;

(3) prior to the issuance of a license, unless a plan of operation has

been previously approved by the superintendent, a corporation shall

submit for the approval of the superintendent a plan of operation,

detailing the types and projected diversification of guaranties that

will be issued, the underwriting procedures that will be followed,

managerial oversight methods, investment policies, and such other

matters as may be prescribed by the superintendent; and

(4) a financial guaranty insurance corporation's investments in any

one entity insured by that corporation shall not exceed four percent of

its admitted assets at last year-end, except that this limit shall not

apply to investments payable or guaranteed by a United States

governmental unit or New York state if such investments payable or

guaranteed by the United States governmental unit or New York state

shall be rated in one of the top two generic lettered rating

classifications by a nationally recognized statistical rating

organization acceptable to the superintendent.

(5) in addition to any transaction that an insurer meeting the

requirements of subsection (c) of section one thousand four hundred

three of this chapter may effect and maintain under any other provision

of this chapter, a financial guaranty insurance corporation may effect

and maintain transactions in (A) contracts for the future delivery or

receipt of the currency of a foreign country, (B) interest rate options,

(C) credit default swaps under which the insurer is acquiring credit

protection and (D) other products included in the plan referred to in

clause (vii) of this subparagraph, in each case meeting the following

requirements:

(i) the transaction is used for the purpose of limiting risk of loss

under financial guaranty insurance policies or reinsurance contracts

covering such policies due to fluctuations in interest rates or currency

exchange rates or, in the case of credit default swaps, financial

default, insolvency or other credit events;

(ii) the transaction shall not exceed a duration of twelve months

beyond the term of such policies or reinsurance contracts;

(iii) the amount of foreign currencies to be purchased under the

transaction shall not exceed the amount guaranteed under such policies

or reinsurance contracts that is denominated in foreign currency;

(iv) the amount that is subject to interest rate hedging transactions

does not exceed the amount guaranteed under such policies or reinsurance

contracts that is subject to the risk of interest rate fluctuations;

(v) the counterparty to such transaction has (or is the principal

operating subsidiary of a holding company that has) a long term

unsecured debt rating or claims-paying ability rating that is at least

investment grade;

(vi) the transaction is not conducted for arbitrage purposes; and

(vii) the transaction is entered into pursuant to a plan that has been

approved by the board of directors of the financial guaranty insurance

corporation and filed with and approved by the superintendent.

(b) (1) A financial guaranty insurance corporation shall not transact

business unless it has paid-in capital of at least two million five

hundred thousand dollars and paid-in surplus of at least seventy-two

million five hundred thousand dollars, and shall at all times thereafter

maintain a minimum surplus to policyholders of at least sixty-five

million dollars.

(2) An insurer transacting only financial guaranty insurance prior to

the effective date of this article which has a paid-in capital of at

least two million five hundred thousand dollars and maintains surplus to

policyholders of at least forty-five million dollars shall have

thirty-six months from the effective date of this article to fully

comply with the surplus requirements set forth in paragraph one of this

subsection.

(3) A financial guaranty insurance company shall be deemed to be in

compliance with paragraphs one and two of subsection (b) of section one

thousand four hundred two of this chapter if not less than sixty percent

of the amount of the required minimum capital or minimum surplus to

policyholder investments shall consist of the types specified in

paragraphs one and two of subsection (b) of section one thousand four

hundred two of this chapter and direct government obligations of any

state of the United States or of any county, district or municipality

thereof, provided such government obligations have been given the

highest quality designation of the Securities Valuation Office of the

National Association of Insurance Commissioners. Before investing any

part of the required minimum capital or surplus in direct government

obligations of any other state of the United States or of any county,

district or municipality thereof, such financial guaranty insurance

company shall have invested at least ten percent of such required

minimum in government obligations of New York state or of any county,

district or municipality thereof. Only for purposes of meeting the

required investment in government obligations of New York state, the

insurer may count investments in any government obligation of New York

state, whether direct or otherwise.