N.Y. Insurance Law § 6907: Transition provisions

§ 6907. Transition provisions. A licensed insurer writing financial

guaranty insurance prior to the effective date of this article, but

which is not authorized to write financial guaranty insurance in this

state, shall be subject to all the provisions of this article, except

section six thousand nine hundred two of this article, and:

(a) may, unless the superintendent determines after notice and an

opportunity to be heard that such activity poses a hazard to the

insurer, its policyholders or to the public, continue to write financial

guaranties (except guaranties of municipal bonds) of the types

authorized by subsection (b) of section six thousand nine hundred four

of this article applicable to financial guaranty insurance corporations,

subject to the following conditions:

(1) For a transition period not to exceed sixty months from the

effective date of this article, if the insurer has and maintains surplus

to policyholders of at least seventy-five million dollars (for the

purpose of this paragraph, if the insurer is a foreign insurer, its

surplus to policyholders shall be computed as if it were a domestic

insurer); provided that:

(A) during the sixty month transition period, the amount of surplus to

policyholders needed to meet the single and aggregate risk limitations

imposed by this article must be less than four percent of the insurer's

surplus to policyholders;

(B) within nine months of the effective date of this article, the

insurer shall file a reasonable plan of operation, acceptable to the

superintendent, which shall contain:

(i) a reasonable timetable and appropriate procedures to implement

that timetable to make a determination as to whether or not the insurer

will make application to organize a financial guaranty insurance

corporation during the aforesaid sixty month period;

(ii) the types and projected diversification of guaranties that will

be issued during the transition period;

(iii) the underwriting procedures that will be followed;

(iv) oversight methods;

(v) investment policies; and

(vi) such other matters as may be prescribed by the superintendent.

The plan of operation shall be deemed acceptable unless, within sixty

days of its filing, the superintendent notifies the insurer of any

specific objections to such plan. The plan shall be updated in the event

of a material change with respect to the foregoing and at least

annually;

(C) if the insurer has determined that it will not organize a

financial guaranty insurance corporation, within thirty days after that

determination it shall notify the superintendent, cease writing policies

of financial guaranty insurance and comply with the provisions of

paragraph four of this subsection; and

(D) the insurer shall file such additional statements or reports as

may be required by the superintendent.

(2) For a transition period not to exceed ninety-six months from the

effective date of this article, if the insurer has and maintains surplus

to policyholders of at least one hundred fifty million dollars (for the

purpose of this section, surplus to policyholders means the aggregate

surplus to policyholders of said insurer and other member companies of

an inter-company pool, and if the insurer is a foreign insurer its

surplus to policyholders shall be computed as if it were a domestic

insurer) and the aggregate financial guaranty written premium of said

insurer and other member companies of an inter-company pool shall have

been at least one million dollars in any one of the five years ending

December thirty-first, nineteen hundred eighty-eight, provided that:

(A) during the first sixty months of the transition period, the amount

of surplus to policyholders needed to meet the aggregate risk

limitations imposed by this article must be less than four percent of

the insurer's surplus to policyholders. After such sixty month period,

provided the insurer complies with subparagraph (D) of this paragraph,

the amount of surplus to policyholders needed to meet such aggregate

risk limitations must be less than five percent of the insurer's surplus

to policyholders for the succeeding twelve month period and less than

six percent for the next succeeding twenty-four month period;

(B) during the transition period, the amount of surplus to

policyholders needed to meet the single risk limitations imposed by

paragraphs two through five of subsection (d) of section six thousand

nine hundred four of this article must be less than twenty percent of

the insurer's surplus to policyholders, except that the single risk

limitation with respect to investment grade obligations under such

paragraph five shall be the lesser of eighty million dollars or seven

percent of the insurer's surplus to policyholders;

(C) during the transition period, notwithstanding the last sentence of

paragraph one of subsection (b) of section six thousand nine hundred

four, industrial development bonds shall not be included in the

investment grade requirements set forth in such sentence.

(D) during the transition period, reinsurance in the form of

intercompany pooling agreements, shall not be subject to subparagraphs

(C), (D), (E) and (F) of paragraph two of subsection (a) of section six

thousand nine hundred six of this article, if such intercompany pooling

agreements were in effect on January first, nineteen hundred

eighty-nine, and reinsurance placed with insurers which are subject to

the provisions of paragraph two of subsection (a) of section six

thousand nine hundred six and are not members of the ceding company's

intercompany pooling agreement may not exceed sixty percent of the total

exposures insured net of collateral remaining after deducting any

reinsurance placed with another financial guaranty insurance corporation

or an insurer writing only financial guaranty insurance as is or would

be permitted by this article;

(E) within sixty months of the effective date of this article, the

insurer shall file a reasonable plan of operation, acceptable to the

superintendent, which shall contain:

(i) a reasonable timetable and appropriate procedures to implement

that timetable to make a determination as to whether or not the insurer

will make application to organize a financial guaranty insurance

corporation during the aforesaid ninety-six month period;

(ii) the types and projected diversification of guaranties that will

be issued during the transition period;

(iii) the underwriting procedures that will be followed;

(iv) oversight methods;

(v) investment policies; and

(vi) such other matters as may be prescribed by the superintendent.

The plan of operation shall be deemed acceptable unless, within sixty

days of its filing, the superintendent notifies the insurer of any

specific objections to such plan. The plan shall be updated in the event

of a material change with respect to the foregoing and at least

annually;

(F) if the insurer has determined that it will not organize a

financial guaranty insurance corporation, within thirty days after that

determination it shall notify the superintendent, cease writing policies

of financial guaranty insurance and comply with the provisions of

paragraph four of this subsection; and

(G) the insurer shall file such additional statements or reports as

may be required by the superintendent.

(3) For a transition period not to exceed twelve months from the

effective date of this article, in the case of an insurer transacting

only financial guaranty insurance prior to the effective date of this

article and which qualifies for licensing as a financial guaranty

insurance corporation under section six thousand nine hundred two of

this article, provided that it makes application to amend its current

license to that of a financial guaranty insurance corporation licensed

to transact only those kinds of insurance permitted pursuant to section

six thousand nine hundred two of this article within sixty days of the

effective date of this article, and provided that, for purposes of this

paragraph, an insurer shall be deemed to be transacting only financial

guaranty insurance prior to the effective date of this article if, with

the approval of the superintendent, it has reinsured all of any other

insurance liabilities with one or more authorized insurers or has

otherwise made provision for such liabilities.

(4) For a transition period not to exceed nine months, in the case of

an insurer that does not qualify under either paragraph one, two or

three of this subsection or does not file a plan of operation pursuant

to paragraph one or two of this subsection, such insurer shall cease

writing any new financial guaranty insurance business and may:

(A) reinsure its net in force business with a licensed financial

guaranty insurance corporation; or

(B) subject to the prior approval of its domiciliary commissioner,

reinsure all or part of its net in force business in accordance with the

requirements of paragraph two of subsection (a) of section six thousand

nine hundred six of this article, except that subparagraphs (D), (E) and

(F) of paragraph two of such subsection shall not be applicable. The

assuming insurer shall maintain reserves of such reinsured business in

the manner applicable to the ceding insurer under this paragraph; or

(C) thereafter continue the risks then in force and, with thirty days

prior written notice to its domiciliary commissioner, issue new

financial guaranty policies, provided that the issuing of such policies

is reasonably prudent to mitigate either the amount of or possibility of

loss in connection with business transacted prior to the effective date

of this article. Provided, however, an insurer must receive the prior

approval of its domiciliary commissioner before issuing any new

financial guaranty insurance policies that would have the effect of

increasing its risk of loss;

(b) shall, for all guaranties in force prior to the effective date of

this article, including those which fall under the definition of

financial guaranty insurance contained in subsection (a) of section six

thousand nine hundred one of this article, be subject to the reserve

requirements applicable for municipal bond guaranties in effect prior to

the effective date of this article. To the extent that the insurer's

contingency reserves maintained as of the effective date of this article

are less than those required for municipal bond guaranties, the insurer

shall have three years to bring its reserves into compliance, except

that a part of the reserve may be released proportional to the reduction

in aggregate net liability resulting from reinsurance, provided that the

reinsurer shall, on the effective date of the reinsurance, establish a

reserve in an amount equal to the amount released and, in addition, a

part of the reserve may be released with the approval of the

superintendent upon demonstration that the amount carried is excessive

in relation to the corporation's outstanding obligations; and

(c) shall be subject to the reserve requirements specified in section

six thousand nine hundred three of this article for all policies of

financial guaranty insurance issued on or after the effective date of

this article.