§ 6902 — Organization; financial requirements

§ 6902. Organization; financial requirements. (a) A financial guaranty\ninsurance corporation may be organized and licensed in the manner\nprescribed in section one thousand two hundred one of this chapter and a\nforeign insurer may be licensed in the manner prescribed in section one\nthousand one hundred six of this chapter, except as modified by the\nfollowing provisions:\n (1) a corporation organized for the purpose of transacting financial\nguaranty insurance may, subject to all the applicable provisions of this\nchapter, be licensed to transact only the following additional kinds of\ninsurance:\n (A) residual value insurance, as defined in paragraph twenty-two of\nsubsection (a) of section one thousand one hundred thirteen of this\nchapter;\n (B) surety insurance, as defined in subparagraphs (C), (D), (E), (F),\n(G), (H) and (I) of paragraph sixteen of subsection (a) of section one\nthousand one hundred thirteen of this chapter; and\n (C) credit insurance, as defined in subparagraph (A) of paragraph\nseventeen of subsection (a) of section one thousand one hundred thirteen\nof this chapter;\n (2) a financial guaranty insurance corporation may only assume those\nkinds of insurance for which it is licensed to write direct business;\n (3) prior to the issuance of a license, unless a plan of operation has\nbeen previously approved by the superintendent, a corporation shall\nsubmit for the approval of the superintendent a plan of operation,\ndetailing the types and projected diversification of guaranties that\nwill be issued, the underwriting procedures that will be followed,\nmanagerial oversight methods, investment policies, and such other\nmatters as may be prescribed by the superintendent; and\n (4) a financial guaranty insurance corporation's investments in any\none entity insured by that corporation shall not exceed four percent of\nits admitted assets at last year-end, except that this limit shall not\napply to investments payable or guaranteed by a United States\ngovernmental unit or New York state if such investments payable or\nguaranteed by the United States governmental unit or New York state\nshall be rated in one of the top two generic lettered rating\nclassifications by a nationally recognized statistical rating\norganization acceptable to the superintendent.\n (5) in addition to any transaction that an insurer meeting the\nrequirements of subsection (c) of section one thousand four hundred\nthree of this chapter may effect and maintain under any other provision\nof this chapter, a financial guaranty insurance corporation may effect\nand maintain transactions in (A) contracts for the future delivery or\nreceipt of the currency of a foreign country, (B) interest rate options,\n(C) credit default swaps under which the insurer is acquiring credit\nprotection and (D) other products included in the plan referred to in\nclause (vii) of this subparagraph, in each case meeting the following\nrequirements:\n (i) the transaction is used for the purpose of limiting risk of loss\nunder financial guaranty insurance policies or reinsurance contracts\ncovering such policies due to fluctuations in interest rates or currency\nexchange rates or, in the case of credit default swaps, financial\ndefault, insolvency or other credit events;\n (ii) the transaction shall not exceed a duration of twelve months\nbeyond the term of such policies or reinsurance contracts;\n (iii) the amount of foreign currencies to be purchased under the\ntransaction shall not exceed the amount guaranteed under such policies\nor reinsurance contracts that is denominated in foreign currency;\n (iv) the amount that is subject to interest rate hedging transactions\ndoes not exceed the amount guaranteed under such policies or reinsurance\ncontracts that is subject to the risk of interest rate fluctuations;\n (v) the counterparty to such transaction has (or is the principal\noperating subsidiary of a holding company that has) a long term\nunsecured debt rating or claims-paying ability rating that is at least\ninvestment grade;\n (vi) the transaction is not conducted for arbitrage purposes; and\n (vii) the transaction is entered into pursuant to a plan that has been\napproved by the board of directors of the financial guaranty insurance\ncorporation and filed with and approved by the superintendent.\n (b) (1) A financial guaranty insurance corporation shall not transact\nbusiness unless it has paid-in capital of at least two million five\nhundred thousand dollars and paid-in surplus of at least seventy-two\nmillion five hundred thousand dollars, and shall at all times thereafter\nmaintain a minimum surplus to policyholders of at least sixty-five\nmillion dollars.\n (2) An insurer transacting only financial guaranty insurance prior to\nthe effective date of this article which has a paid-in capital of at\nleast two million five hundred thousand dollars and maintains surplus to\npolicyholders of at least forty-five million dollars shall have\nthirty-six months from the effective date of this article to fully\ncomply with the surplus requirements set forth in paragraph one of this\nsubsection.\n (3) A financial guaranty insurance company shall be deemed to be in\ncompliance with paragraphs one and two of subsection (b) of section one\nthousand four hundred two of this chapter if not less than sixty percent\nof the amount of the required minimum capital or minimum surplus to\npolicyholder investments shall consist of the types specified in\nparagraphs one and two of subsection (b) of section one thousand four\nhundred two of this chapter and direct government obligations of any\nstate of the United States or of any county, district or municipality\nthereof, provided such government obligations have been given the\nhighest quality designation of the Securities Valuation Office of the\nNational Association of Insurance Commissioners. Before investing any\npart of the required minimum capital or surplus in direct government\nobligations of any other state of the United States or of any county,\ndistrict or municipality thereof, such financial guaranty insurance\ncompany shall have invested at least ten percent of such required\nminimum in government obligations of New York state or of any county,\ndistrict or municipality thereof. Only for purposes of meeting the\nrequired investment in government obligations of New York state, the\ninsurer may count investments in any government obligation of New York\nstate, whether direct or otherwise.\n