S T A T E   O F   N E W   Y O R K
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                                  3905

                       2011-2012 Regular Sessions

                          I N  A S S E M B L Y

                            January 28, 2011
                               ___________

Introduced by M. of A. MORELLE, PRETLOW -- read once and referred to the
  Committee on Insurance

AN  ACT  to amend the insurance law, in relation to qualified trusts and
  qualified reserve credits;  and  providing  for  the  repeal  of  such
  provisions upon expiration thereof

  THE  PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM-
BLY, DO ENACT AS FOLLOWS:

  Section 1. Subsection (d) of section 6901 of  the  insurance  law,  as
added by chapter 48 of the laws of 1989, is amended to read as follows:
  (d)  "Aggregate  net  liability" means the aggregate amount of insured
unpaid principal, interest and other monetary payments, if any, of guar-
antied obligations insured  or  assumed,  less  reinsurance  ceded  [and
less], collateral AND QUALIFIED RESERVE CREDITS.
  S  2.  Section  6901 of the insurance law is amended by adding two new
subsections (t) and (u) to read as follows:
  (T) "QUALIFIED TRUST" MEANS A TRUST THAT IS ENGAGED  OR  ORGANIZED  TO
ENGAGE  EXCLUSIVELY  IN  THE  ACQUISITION  AND MANAGEMENT OF INVESTMENTS
AVAILABLE FIRST FOR THE PAYMENT OF LOSSES AND CLAIMS OF A SINGLE  FINAN-
CIAL GUARANTY INSURANCE CORPORATION.
  (U)  "QUALIFIED  RESERVE CREDIT" MEANS, WITH RESPECT TO INVESTMENTS IN
WHICH THE INTERESTS OF THE QUALIFIED TRUST  ARE  LIMITED  TO  RIGHTS  TO
PRINCIPAL, INTEREST OR OTHER PAYMENTS FROM SUCH INVESTMENTS, THE PRESENT
VALUE  OF  AMOUNTS  RECEIVABLE  BY  THE QUALIFIED TRUST FROM INVESTMENTS
GIVEN A DESIGNATION OF ONE BY THE SECURITIES  VALUATION  OFFICE  OF  THE
NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS.
  S  3. Section 6902 of the insurance law is amended by adding three new
subsections (c), (d) and (e) to read as follows:
  (C) IN DETERMINING THE FINANCIAL CONDITION OF A  DOMESTIC  OR  FOREIGN
FINANCIAL  GUARANTY INSURANCE CORPORATION FOR THE PURPOSES OF THIS CHAP-
TER, IN ADDITION TO THE ASSETS SET FORTH IN SECTION ONE  THOUSAND  THREE
HUNDRED ONE OF THIS CHAPTER, THERE SHALL BE ALLOWED AS AN ADMITTED ASSET

 EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                      [ ] is old law to be omitted.
                                                           LBD05170-01-1
              

A. 3905                             2

OF  SUCH  FINANCIAL  GUARANTY  INSURANCE CORPORATION THE NET EQUITY OF A
QUALIFIED TRUST. THE ASSETS OF SUCH QUALIFIED TRUST CONSIDERED IN DETER-
MINING ITS NET EQUITY SHALL BE LIMITED TO CASH, INCLUDING  LEGAL  TENDER
OR  THE EQUIVALENT IN ANY OFFICE OF SUCH COMPANY OR IN TRANSIT UNDER ITS
CONTROL AND THE TRUE BALANCE OF ANY DEPOSIT IN  A  SOLVENT  BANK,  TRUST
COMPANY  OR THRIFT INSTITUTION, AND OBLIGATIONS WHICH ARE NOT IN DEFAULT
AS TO PRINCIPAL OR INTEREST, WHICH ARE VALID AND LEGALLY AUTHORIZED, AND
WHICH ARE ISSUED, ASSUMED, GUARANTEED OR INSURED BY THE UNITED STATES OR
BY ANY AGENCY OR INSTRUMENTALITY THEREOF. THE RIGHTS AND OBLIGATIONS  OF
THE  FINANCIAL GUARANTY INSURANCE CORPORATION WITH RESPECT TO A QUALIFY-
ING TRUST SHALL BE DETERMINED BY THE TERMS AND CONDITIONS OF THE  QUALI-
FYING TRUST, PROVIDED HOWEVER THAT THE RIGHTS OF ALL OTHER PARTIES SHALL
BE SUBORDINATE TO THE RIGHTS OF SUCH FINANCIAL GUARANTY INSURANCE CORPO-
RATION. THE FINANCIAL GUARANTY INSURANCE CORPORATION SHALL ESTABLISH THE
TERMS AND CONDITIONS OF THE QUALIFYING TRUST, WHICH SHALL INCLUDE, WITH-
OUT  LIMITATION,  THE REQUIREMENT THAT THE TRUSTEE'S AUTHORITY TO INVEST
AND ACCEPT SUBSTITUTIONS THEREOF SHALL BE SUBJECT TO THE PRIOR  APPROVAL
OF  SUCH  FINANCIAL  GUARANTY  INSURANCE  CORPORATION  UNLESS  THE TRUST
INSTRUMENT OR AGREEMENT OF THE QUALIFYING TRUST SETS FORTH  THE  INVEST-
MENTS  ACCEPTABLE  TO SUCH FINANCIAL GUARANTY INSURANCE CORPORATION. THE
TERMS AND CONDITIONS OF A QUALIFYING TRUST FORMED BY A  DOMESTIC  FINAN-
CIAL  GUARANTY  INSURANCE CORPORATION AND ANY AMENDMENT THERETO SHALL BE
SUBJECT TO THE SUPERINTENDENT'S APPROVAL. NO PAYMENT IN COMPLIANCE  WITH
THE  TERMS  AND CONDITIONS OF A QUALIFYING TRUST SHALL BE SUBJECT TO, OR
INCLUDED IN CONNECTION WITH THE APPLICATION OF,  SECTION  FOUR  THOUSAND
ONE HUNDRED FIVE OF THIS CHAPTER. SECTION ONE THOUSAND FOUR HUNDRED NINE
OF  THIS  CHAPTER  SHALL  NOT  APPLY TO QUALIFYING TRUSTS OR A FINANCIAL
GUARANTY INSURANCE CORPORATION'S INTEREST IN A QUALIFIED TRUST.
  (D) IF THE REQUIREMENTS OF SECTION ONE THOUSAND FOUR  HUNDRED  TWO  OF
THIS  CHAPTER  AND  PARAGRAPH  ONE OF SUBSECTION (B) OF THIS SECTION ARE
MET, A FINANCIAL GUARANTY INSURANCE  CORPORATION,  MAY,  EXCEPT  AS  SET
FORTH  BELOW,  INVEST  ITS FUNDS IN, OR OTHERWISE ACQUIRE, OR LOAN UPON,
ONLY THE TYPES OF INVESTMENTS SPECIFIED IN  SECTION  ONE  THOUSAND  FOUR
HUNDRED  TWO OF THIS CHAPTER, SECTION ONE THOUSAND FOUR HUNDRED THREE OF
THIS CHAPTER AND SUBSECTION (A) OF SECTION  ONE  THOUSAND  FOUR  HUNDRED
FOUR  OF THIS CHAPTER (EXCEPT PARAGRAPHS EIGHT AND TEN OF SUBSECTION (A)
OF SUCH SECTION); PROVIDED THAT ANY SUCH CORPORATION MAY ALSO INVEST ITS
FUNDS IN, OR OTHERWISE ACQUIRE OR LOAN UPON INVESTMENTS PERMITTED  UNDER
SECTIONS  ONE  THOUSAND  FOUR  HUNDRED  SEVEN OF THIS CHAPTER (INCLUDING
INVESTMENTS OF THE CLASSES DESCRIBED IN  PARAGRAPHS  EIGHT  AND  TEN  OF
SUBSECTION  (A)  OF SECTION ONE THOUSAND FOUR HUNDRED FOUR OF THIS CHAP-
TER), SECTION ONE THOUSAND FOUR HUNDRED EIGHT OF THIS CHAPTER AND  ARTI-
CLE  SIXTEEN  OF THIS CHAPTER, SO LONG AS IT MAINTAINS CASH, INVESTMENTS
REQUIRED BY SECTION ONE THOUSAND FOUR HUNDRED TWO  OF  THIS  CHAPTER  OR
PARAGRAPH  THREE  OF SUBSECTION (B) OF THIS SECTION, RESERVE INVESTMENTS
UNDER SUBSECTION (A) OF SECTION ONE THOUSAND FOUR HUNDRED FOUR  OF  THIS
CHAPTER  AND  INTERESTS  IN  A  QUALIFIED  TRUST,  FREE FROM ANY LIEN OR
PLEDGE, WHICH, WHEN VALUED IN ACCORDANCE WITH  THE  PROVISIONS  OF  THIS
CHAPTER,  SHALL  AT LEAST EQUAL FIFTY PERCENT OF THE AGGREGATE AMOUNT OF
ITS UNEARNED PREMIUM, LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES AS SHOWN
BY ITS LAST SWORN STATEMENT, ANNUAL  OR  QUARTERLY,  ON  FILE  WITH  THE
SUPERINTENDENT.  IF A FINANCIAL GUARANTY INSURANCE CORPORATION MAINTAINS
CASH, INVESTMENTS REQUIRED BY SECTION ONE THOUSAND FOUR HUNDRED  TWO  OF
THIS  ARTICLE  OR  PARAGRAPH  THREE  OF  SUBSECTION (B) OF THIS SECTION,
RESERVE INVESTMENTS UNDER SUBSECTION (A) OF SECTION  ONE  THOUSAND  FOUR
HUNDRED  FOUR  OF  THIS CHAPTER AND INTERESTS IN A QUALIFIED TRUST, FREE

A. 3905                             3

FROM ANY LIEN OR PLEDGE, WHICH,  WHEN  VALUED  IN  ACCORDANCE  WITH  THE
PROVISIONS OF THIS CHAPTER, SHALL AT LEAST EQUAL THE AGGREGATE OF SEVEN-
TY  PERCENT  OF  ITS LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES AND FIFTY
PERCENT  OF  ITS  UNEARNED  PREMIUM  RESERVES AS SHOWN BY ITS LAST SWORN
STATEMENT, ANNUAL OR QUARTERLY, ON FILE WITH  THE  SUPERINTENDENT,  THEN
SUCH  CORPORATION  MAY  IN ADDITION ENTER INTO THE TYPES OF TRANSACTIONS
SET FORTH IN SECTION ONE THOUSAND FOUR  HUNDRED  TEN  OF  THIS  CHAPTER,
SUBJECT  TO THE LIMITATIONS SET FORTH IN SUCH SECTION. THE TERM "LIEN OR
PLEDGE" AS USED IN THIS SUBSECTION SHALL  NOT  INCLUDE  ANY  DEPOSIT  OF
SECURITIES  OR  CASH  WITH  ANY  GOVERNMENT, NOR TRUSTED ASSETS, HELD IN
TRUST FOR THE BENEFIT OR PROTECTION OF ALL OR ANY CLASS OF  THE  POLICY-
HOLDERS, OR POLICYHOLDERS AND CREDITORS, OF SUCH CORPORATION.
  (E)  FOR  PURPOSES  OF  DETERMINING  QUALIFIED  RESERVE  CREDITS,  THE
DISCOUNT RATE USED TO DETERMINE PRESENT VALUE SHALL BE THE AVERAGE  RATE
OF  RETURN  ON  THE  ADMITTED ASSETS OF THE FINANCIAL GUARANTY INSURANCE
CORPORATION AS OF THE DATE OF THE COMPUTATION OF THE APPLICABLE  RESERVE
UNDER  THIS  CHAPTER.  THE DISCOUNT RATE SHALL BE ADJUSTED AT THE END OF
EACH CALENDAR YEAR.
  S 4. Paragraph 5 of subsection (a) of section 6903  of  the  insurance
law,  as  amended by chapter 605 of the laws of 2004, is amended to read
as follows:
  (5) Contingency reserves required in paragraphs two, three and four of
this subsection may be established  and  maintained  net  of  collateral
[and],  reinsurance AND QUALIFIED RESERVE CREDITS, provided that, in the
case  of  reinsurance,  the  reinsurance  agreement  requires  that  the
reinsurer  shall,  on  or  after  the effective date of the reinsurance,
establish and maintain a reserve in an amount equal  to  the  amount  by
which  the  insurer  reduces  its  contingency  reserve, and contingency
reserves required in paragraphs three and four of this subsection may be
maintained (A) net of refundings and  refinancings  to  the  extent  the
refunded or refinanced issue is paid off or secured by obligations which
are  directly  payable or guarantied by the United States government and
(B) net of insured securities in a unit investment trust or mutual  fund
that have been sold from the trust or fund without insurance.
  S  5.  This  act shall take effect immediately and shall expire and be
deemed repealed 5 years after such date.