BILL NUMBER:A10712

TITLE  OF BILL:  An act to amend the insurance law, in relation to mort-
gage guaranty insurance and reinsurance and policyholders' surplus

PURPOSE:  To update the Insurance Law to more accurately reflect current
mortgage guaranty insurance industry circumstances and practices, and to
authorize the Superintendent of Insurance to suspend the risk to capital
requirement for writing new mortgage guaranty insurance risks.

SUMMARY OF PROVISIONS:  Section 1 of the bill amends  paragraph  (1)  of
subsection  (b) of section 6502 of the insurance law to grant the Super-
intendent of Insurance the power to suspend the requirement for a  mort-
gage  guaranty  insurer  to  maintain  a minimum policyholder surplus in
relation to its outstanding risk in order for the insurer to  write  new
business.  The  temporary  suspension  is  limited to two years per each
exemption authorized. Pursuant to  the  bill,  consecutive  waivers  are
permitted  for  mortgage  insurers  whose  policyholder surplus does not
exceed the 25 to 1 liability ratio after the initial waiver period,  but
such waivers may not exceed a total of four years.

Section 2 of the bill provides, for an immediate effective date.

JUSTIFICATION:    Mortgage  guaranty  insurance companies are proscribed
from writing business when the ratio of.their total policy liability  to
their  policyholder's  surplus exceeds a ratio of 25 to 1. This standard
              

was developed in the 1960s when the modern mortgage  guaranty  insurance
industry  was  in its early stages and no risk-to-capital ratio require-
ment existed. Given, the nascent state of the industry, the 25 to 1 rule
was reasonable, but by its very nature was inflexible and not reflective
of changing or special circumstances. In particular, a mortgage guaranty
insurer is likely to reach the 25 to 1 standard in the midst of  a  high
claims paying cycle (as the industry is currently experiencing), but may
have more than enough capital to pay expected claims on its insurance in
force.  If mortgage guaranty insurers are compelled to cease writing new
business as Section 6502 currently dictates, the ability of those insur-
ers to remain viable commercial entities, and to write  insurance  after
the end of this high claims-paying cycle, will be impaired.

Under  the  amendment  to  section  6502  (b) (1), the Superintendent is
authorized to evaluate whether the risk to capital requirement should be
suspended for a particular insurer and to determine the period  of  time
and  conditions  under  which  the  suspension  of that requirement will
apply. Permitting a mortgage guaranty insurer to operate above the 25 to
1 requirement for a limited period would allow the insurer  to  increase
its  capital  base  for  paying claims and insuring loans in the future.
Furthermore, if mortgage guaranty insurers are required to cease writing
new business as triggered by the current risk  to  capital  requirement,
fewer  loans  will  be insured in New York, further fueling pressures on
the availability of mortgage finance credit. As a consequence, the hous-
ing recovery in New York (and elsewhere) will likely be impeded, with  a
concomitant adverse impact on the state's economic recovery.

LEGISLATIVE HISTORY:  New bill.

FISCAL IMPLICATIONS: None.

EFFECTIVE DATE: Immediate.