§ 6502 — Financial requirements

§ 6502. Financial requirements. (a) A mortgage insurer shall not\ntransact business unless:\n (1) if a stock insurance company, it has paid-in capital of at least\none million dollars and paid-in surplus of at least one million dollars\nor, if a mutual insurance company, a minimum initial surplus of two\nmillion dollars. A stock company shall at all times thereafter maintain\na minimum surplus of at least five hundred thousand dollars, a mutual\ncompany shall at all times thereafter maintain a minimum surplus of at\nleast one million five hundred thousand dollars;\n (2) it establishes a contingency reserve out of net premiums (gross\npremiums less premiums returned to policyholders) remaining after\nestablishing the unearned premium reserve. The company shall contribute\nto the contingency reserve an amount equal to fifty percent of such\nremaining earned premiums. Contributions to the contingency reserve\nmade during each calendar year shall be maintained for a period of one\nhundred and twenty months, except that withdrawals may be made by the\ncompany with the prior approval of the superintendent in any year in\nwhich the actual incurred losses exceed thirty-five percent of the\ncorresponding earned premiums. The unearned premium reserve shall be\ncomputed as required by section one thousand three hundred five of this\nchapter except that on policies covering a risk period of more than one\nyear it shall be computed in accordance with standards promulgated by\nthe superintendent; and\n (3) in addition to the contingency reserve, the case basis method or\nother method as may be prescribed by the superintendent shall be used to\ndetermine the loss reserve in a manner consistent with section one\nthousand three hundred three of this chapter. It shall include a reserve\nfor claims reported and unpaid and claims incurred but not reported,\nincluding:\n (A) estimated losses on insured loans which have resulted in the\nconveyance of property which remains unsold;\n (B) insured loans in the process of foreclosure; and\n (C) insured loans in default for four or more months.\n (b) A mortgage insurer shall not:\n (1) have outstanding a total liability under its aggregate insurance\npolicies exceeding twenty-five times its policyholders' surplus,\ncomputed on the basis of the company's liability under its election as\nprovided in subsection (c) of section six thousand five hundred three of\nthis article. Total liability shall be calculated net of applicable\nreinsurance. No company which has outstanding total liability exceeding\ntwenty-five times its policyholders' surplus shall transact new business\nuntil its total liability no longer exceeds twenty-five times its\npolicyholders' surplus;\n (2) declare dividends except from undivided profits remaining on hand\nabove the aggregate of its paid-in capital, paid-in surplus and\ncontingency reserve or, if a mutual insurance company, its initial\nsurplus and contingency reserve; or\n (3) invest its contingency reserve except in tax and loss bonds\npurchased pursuant to § 832(e) of the Internal Revenue Code, to the\nextent of the tax savings resulting from the deduction for federal\nincome tax purposes equal to the annual contributions to the contingency\nreserve. The contingency reserve shall otherwise be held in cash or\ninvested only in the types of reserve investments specified in\nparagraphs one and two of subsection (a) of section one thousand four\nhundred four of this chapter.\n