NY State Assembly Bill 2009-A8855

Archive: Last Bill Status - In Assembly Committee

Introduced
- In Committee Assembly
- In Committee Senate
- On Floor Calendar Assembly
- On Floor Calendar Senate
- Passed Assembly
- Passed Senate
Delivered to Governor
Signed By Governor

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Actions

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	Assembly Actions - Lowercase Senate Actions - UPPERCASE
Jan 06, 2010	referred to insurance
Jun 11, 2009	referred to insurance

multi-Sponsors

2009-A8855 (ACTIVE) - Details

See Senate Version of this Bill:: S6001
Current Committee:: Assembly Insurance
Law Section:: Insurance Law
Laws Affected:: Amd §§6901, 6902, 6903, 6904, 6905, 6907 & 1108, rpld §6901 sub¶ (j-1), Ins L

2009-A8855 (ACTIVE) - Summary

Relates to the regulation of financial guaranty insurers.

2009-A8855 (ACTIVE) - Sponsor Memo

                                BILL NUMBER:A8855

TITLE  OF  BILL:    An  act  to  amend the insurance law, in relation to
enhancing the regulation of financial guaranty insurers; and  to  repeal
certain provisions of the insurance law relating thereto

Purpose:    This bill would amend the Insurance Law to enhance the regu-
lation of financial guaranty insurance corporations.

Summary of Provisions:  Section 1 of the bill would amend the definition
of  "financial  guaranty  insurance"  set  forth  in  Insurance  Law
6901(a)(1)  to  state  that  the  term means a surety bond, an insurance
policy or other contract, and any similar guaranty, payable upon  occur-
rence  of  financial  loss as a result of certain events. This amendment
clarifies when a transaction constitutes insurance in a manner  consist-
ent  with Insurance Law § 1101,- which defines the doing of an insurance
business. Section 1 of  the  bill  would  also  amend  Insurance  Law
6901(a)(I)(A)  to  conform  language  in  this  subparagraph  to uniform
language used' throughout Article 69 of the Insurance Law.  The language
is amended pursuant to the  following  grammatical  rules:    "guaranty"
(plural  "guaranties")  is  the  noun  that describes the contract under
which a financial guaranty insurer provides protection; and  "guarantee"
("guarantees,"   "guaranteed")  is  the  verb  that  describes  the  act
performed by the insurer.  In  addition,  "financial  guaranty  insurer"
replaces "corporation" to refer to a financial guaranty insurance corpo-
ration.  Finally, "special purpose corporation, special purpose trust or

other special purpose legal entity"  is  consistently  used  as  a  term
throughout Article 69.

Section 2 of the bill would amend Insurance Law § 6901(a)(2)(H), (I) and
(J)  to conform the language in these subparagraphs to that set forth in
Section 1.

Section 3 of the bill would amend Insurance Law § 6901(b), (c)  and  (d)
to  conform  the  language  in  these subsections as described under the
summary of Section 1.

Section 4 of the bill would amend Insurance Law § 6901(e) by repealing a
2004 amendment to that provision, which defined asset backed  securities
to  include  a  pool  of  credit  default swaps or a credit default swap
referencing a pool of obligations. Section 4  of  the  bill  also  would
amend  Insurance  Law § 6901(e)(I)(B) (renumbered as section 6901(e)(2))
to require that a pool of assets be expected  to  generate  either  cash
flow or cash proceeds.

Section  5  of  the  bill  would amend Insurance Law § 6901(g) to remove
credit default swaps from the definition of collateral.

Section 6 of the bill would repeal  Insurance  Law  §  6901(j-1),  which
defines "credit default swaps."

Section 7 of the bill would amend Insurance Law § 6901(n), which defines
"investment  grade,"  to  recognize  the use of designations made by the
Securities Valuation Office  ("SVO")  of  the  National  Association  of
Insurance  Commissioners ("NAIC") as an alternative to the ratings given
by  security rating agencies acceptable to the Superintendent. Section 7
of the bill would further replace "rating"  in  subsection  (n)(3)  with
"designation" to correspond to the terminology used by the SVO.

Section 8 of the bill would amend Insurance Law § 6902(a) to conform the
language  in  this subsection to that set forth in Section 1 and repeals
language expressly permitting a financial guaranty insurer to effect and
maintain transactions in credit default swaps.

Section 9 of the bill would amend Insurance Law § 6902(b)(1)  by  relet-
tering  the provision as section 6902(b)(1)(A) and increasing the amount
of paid-in capital and paid-in surplus that a financial guaranty insurer
must have to transact business from at  least  $2,500,000  to  at  least
$15,000,000,  and  from  at  least $72,500,000 to at least $165,000,000,
respectively. Section 9 of the bill also would increase  the  amount  of
minimum  surplus to policyholders that a financial guaranty insurer must
maintain from at least $65,000,000 to at least $150,000,000.  Section  9
of the bill would further add a new Insurance Law § 6902(b)(1)(B), which
would  require  an  insurer  to report to the Superintendent within five
days if: policyholder surplus declines more than five percent  from  the
level  held  at  the end of the previous quarter if surplus is less than
$500,000,000; policyholder surplus declines  more  than  twenty  percent
from  the  level  held  at the end of the previous quarter if surplus is
$500,000,000 or more; or the minimum surplus specified in new  Insurance
Law § 6902(b)(1)(A) falls below $750,000,000.

Section  9 of the bill would further amend Insurance Law § 6902(b)(2) by
repealing an obsolete transition rule,  and  adding  new  language  that
requires  a financial guaranty insurer to maintain: sufficient liquidity
to pay claims in adversity, including extreme stress  scenarios;  appro-
priate  risk  underwriting policies, criteria, and procedures to protect
against losses that might erode  the  insurer's  capital  strength;  and
sufficient  control  and  remediation  rights  to mitigate the potential
severity of any loss.

Section 9 of the bill also would add a new Insurance Law  §  6902(b)(3),
which  would  require  that  any  report submitted to the Superintendent
pursuant to Insurance Law § 6902 and any  underwriting  guidelines  made
available  to  the  Superintendent upon the Superintendent's request, be
kept confidential, not be subject  to  subpoena  and  not  made  public,
unless  the  Superintendent determines, after notice and a hearing, that
publication of the material will best serve the interests of policyhold-
ers, stockholders or the public.

Section 10 of the bill would amend Insurance Law § 6902  by  adding  new
subsections  (c),  (d)  and  (e).  Subsection  (c)  would  move, without
substantive changes, requirements governing the  deposit  of  collateral
previously set forth in the flush language at the end of Insurance Law

6901(g). Subsection (d) would specifically authorize the Superintendent,
by  regulation, to limit the amount of collateral provided by any single
issuer or bank. Subsection (e) would  authorize  the  Superintendent  to
require any financial guaranty insurer to submit any obligations that it
insures  to  the  SVO of the NAIC or to another institution specified by
regulation, for designation as to investment quality, if the Superinten-
dent determines that the interests of financial guaranty insurers, poli-
cyholders, claimants, obligees or indemnitees or the people of New  York
State  so  require.  A  financial  guaranty  insurer  must  bear all the
expenses of any evaluation.

Section 11 of the bill would amend Insurance Law §  6903(a)  to  conform
the language set forth in this subsection as described under the summary
of Section 1.

Section 12 of the bill would amend Insurance Law § 6903(b)(1) to clarify
that the discount rate to be applied to loss reserves by financial guar-
anty  insurers  shall be the zero-coupon yield of United States Treasury
obligations over the prior calendar year or such  other  period  as  the
Superintendent  determines  to be appropriate as of the date of computa-
tion.

Section 13 of the bill would amend Insurance Law § 6904(b)(1) to  define
the  asset-backed securities that may be either insured or guaranteed by
a financial guaranty insurer. An example of asset-backed securities is a
group of credit card receivables that have been placed in a single  pool
so  that  the debt can be securitized. Less frequently, a pool of asset-
backed securities may itself contain parts or all of another  pool.  For
example,  a  pool  might  contain  tranches (specified portions of other
pools that bear a particular investment  quality  rating)  from  several
pools  in  an  effort  to produce a higher degree of diversification. In
practice, however, the grouping of part or  all  of  several  pools  has
intensified rather than reducing risk. Accordingly, the new subparagraph
specifies  that,  with  respect to any asset-backed securities backed by
another pool of asset-backed securities (a pool of  pools),  the  condi-
tions set forth in Insurance Law § 6904(b)(5)(B) must be met.

Section 13 of the bill would also permit a financial guaranty insurer to
insure  investment grade obligations issued by the government of a coun-
try, municipality, or a political subdivision of either of  the  forego-
ing, or any public agency or instrumentality thereof, if the entity does
not  qualify as a governmental unit. This failure to qualify will gener-
ally occur because the government is not a member country of the  Organ-
ization  for  Economic  Co-operation  and Development having a sovereign
rating in one of the two generic lettered rating  classifications  by  a
security rating agency acceptable to the Superintendent.

Section  14  of  the  bill  would  amend  Insurance Law § 6904(b)(2), to
require the obligations insured by financial guaranty insurers to be  at
least  ninety-five  percent  investment grade. The law currently applies
that limitation only to the categories of permissible guaranties  speci-
fied in Insurance Law § 6904(b)(1)(A), (B) and (C).  The amendment would

apply  the  ninety-five percent investment grade floor to all categories
of permissible guaranties.

New  subparagraph  (B)  of  Insurance  Law  § 6904(b)(2) would allow the
Superintendent, upon application by a  financial  guaranty  insurer,  to
establish  a  lower  minimum  investment grade requirement if the Super-
intendent determines that there is no undue risk  to  the  insurer,  its
policyholders,  or  the people of New York State. In making the determi-
nation, the Superintendent must take  into  consideration,  among  other
factors,  the  financial  guaranty  insurer's outstanding liabilities on
non-investment grade obligations  in  relation  to  the  amount  of  its
surplus  to  policyholders,  and  contingency  reserves.    Further, new
subparagraph (C) would require  any  financial  guaranty  insurer  whose
non-investment  obligation liabilities continuously exceed the permitted
amount by more than twenty percent for thirty calendar days,  to  notify
and  provide the Superintendent with a plan for corrective action within
five calendar days after  the  conclusion  of  that  thirty-day  period.
Insurers  that  obtain  the  Superintendent's  approval  to maintain net
liabilities more than five percent of which  are  not  investment  grade
will  be  able to offer a valuable service to certain municipalities and
other governmental entities that may not be able to pay for the  quality
of guaranty available from an insurer with a ninety-five percent floor.

Section  14 of the bill also would add a new Insurance Law § 6904(b)(5),
which would 'substantially restrict a financial guaranty insurer's abil-
ity to insure or guarantee pools of  assets  comprised  of  portions  of
other  pools. The insurance or guaranty may be provided only if: (1) the
pool of asset-backed securities is comprised of asset-backed  securities
having a right to payment and rights in insolvency that are not subordi-
nated  to  any  other  security of the issuer, in the event of a payment
default by, or rehabilitation or insolvency  of,  the  issuer;  (2)  the
insurer  possesses  control and remediation rights substantially similar
to those held by the most senior class of securities of  the  issuer  of
the  insured  obligations  backed by the same pool of assets; (3) all of
the assets are issued or guaranteed by a governmental unit, the  Federal
National  Mortgage  Association,  the  Federal Home Loan Mortgage Corpo-
ration, the Federal Home Loan Bank, the  Federal  Agricultural  Mortgage
Corporation,  or  the Federal Farm Credit System Banks as a consolidated
debt obligation or a system-wide debt obligation to the extent that  the
obligations  are  covered  by  the  Farm  Credit Insurance Fund; (4) the
combination does not increase or affect the quantity or investment qual-
ity of obligations insured  by  that  insurer;  (5)  the  pool  consists
entirely  of  asset-backed  securities insured by the financial guaranty
insurer; or (6) the Superintendent determines, upon application  of  the
insurer,  that  the  combination  would  not result in undue risk to the
insurer, its policyholders or the people of New York State.

Section 15 of the bill would amend Insurance Law §  6904(c)  to  conform
the  language  set forth in this subsection to that set forth in Section
1.

Section 16 of the bill would amend Insurance Law § 6904(d)(2) by  relet-
tering  certain  portions  of paragraph (2) as subparagraphs (A) (C) and
(D), and adding new subparagraphs (B), (C), (F) and (G).    Subparagraph
(A)  would  limit  the  risk  that  may be assumed by the insurer to ten
percent  of  aggregate surplus to policyholders and contingency reserves
with respect to each type of asset described in subparagraph (E)  issued
by  a  single entity. New subparagraph (B) would state that if an asset-
backed security is subordinate with respect to the right of  payment  to
any  other  securities  of the entity backed by the same pool of assets,
then the insured average annual debt service and insured unpaid  princi-
pal  shall be deemed the lesser of: three hundred percent of the insured
average annual debt service or insured unpaid principal respectively, or
the insured average annual debt service or insured unpaid principal  for
both the insured security and all securities senior to the insured secu-
rity  that are backed by the same pool of assets, but not insured by the
same financial guaranty insurer.

New subparagraph (C) would state that for  all  issues  of  asset-backed
securities (1) originated by the same originator, serviced on the effec-
tive date of the related insurance policy by the same servicer, or both,
and (2) backed by the same type of asset and issued in the same calendar
year,  the  lesser of five times the insured average annual debt service
or insured unpaid principal (reduced  by  certain  factors)  divided  by
nine,  cannot  exceed  fifty  percent  of the aggregate of the financial
guaranty insurer's surplus to policyholders  and  contingency  reserves.
New  subparagraph  (D)  would state that an asset in the pool supporting
the  asset-backed  securities  cannot  exceed  the  single  risk  limits
prescribed in new subparagraph (A) if directly guaranteed.

New  subparagraph  (F)  would  allow  for the continued consolidation of
financial institutions by disregarding mergers, acquisitions or loss  of
corporate  identity  for purposes of the single risk limits of Insurance
Law § 6904(d), whereas new subparagraph (G) would define  the  types  of
assets  to  be  taken  into  account  in  the computation of single risk
limits. Section 16  of  the  bill  would  also  amend  Insurance  Law
6409(d)(2),  (4)  and (5) to conform the language in these paragraphs to
that set forth in Section 1.

Section 17 of the bill would amend Insurance Law  §  6904(f)  by  making
technical  amendments  and  removing language stating that if an insurer
was not in compliance with the single risk limit in effect in  New  York
at  the  time  that  the insurer issued the financial guaranty insurance
policy, then the financial guaranty insurance must comply with the limi-
tations prescribed by Insurance Law § 6904(d) within three  years  after
Article 69's effective date.

Section  17  of the bill would also amend Insurance Law § 6904 by adding
new subsections (It), (i), (j), (k), (1) and  (m).  New  subsection  (h)
would  state  that  all  policies issued by a financial guaranty insurer
shall be aggregated for the purposes of determining whether any  limita-
tion  prescribed by Insurance Law § 6904(d) has been exceeded.  This new
subsection would clarify that the revised  limits  and  other  rules  of

Insurance  Law  §  6904  apply not only to policies or guaranties issued
after the effective date of this bill, but to all insurance  or  guaran-
ties of an insurer.

New  subsection  (i)  would  impose a quarterly notification requirement
upon a financial guaranty insurer if the notional value of its aggregate
liabilities on certain government issues, gross of  liabilities  assumed
and  net  of  liabilities  reinsured,  is  equal  to or greater than one
hundred times policyholder surplus plus contingency  reserves.  For  all
other  aggregate  liabilities,  gross  of liabilities assumed and net of
liabilities reinsured, notice is required for  all  other  insurance  or
guaranties  if  the  liability  is  equal to or greater than two hundred
times policyholder surplus plus contingency reserves.

New subsection (j) would require a financial guaranty insurer to  submit
to  the  Superintendent on a quarterly basis, a listing of its aggregate
liabilities, including the fair value of each, and identification of all
guaranteed obligations in a form and manner  acceptable  to  the  Super-
intendent,  identifying  the obligation for its proper evaluation by the
Superintendent for degree of risk. Further,  new  subsection  (k)  would
specify  the  type  of  information  that an insurer must provide to the
Superintendent in a report required by Insurance Law  §  6904,  and  new
subsection  (I)  would allow the Superintendent, pursuant to regulation,
to prohibit the writing of financial guaranty insurance or impose  limi-
tations  with  respect  to  the writing of financial guaranty insurance,
with respect to any instrument or other monetary obligation that is  not
investment  grade, if the Superintendent determines that the prohibition
or imposition of limitations is necessary to protect  the  interests  of
financial  guaranty  insurers,  policyholders,  claimants,  obligees  or
indemnitees, or the people of New York State. New subsection  (m)  would
require  that  any  report submitted pursuant to Insurance Law § 6904 be
kept confidential, and not be  made  public  unless  the  Superintendent
determines,  after  notice  and a hearing, that the interests of policy-
holders, stockholders or the public will be served by publication of the
report.

Section 18 of the bill would amend Insurance Law § 6905  by  relettering
subsections  (b)  and  (c)  as  subsections  (f)  and  (g),  and add new
subsections (b), (c), (d) and (e). New subsection  (b)  would  grant  .a
financial  guaranty  insurer  the  sole right of acceleration of payment
obligations, whereas new subsection (c) would prohibit a financial guar-
anty insurance policy from providing for acceleration upon the commence-
ment of rehabilitation, liquidation or conservatorship proceedings  with
respect to a financial guaranty insurer or the insured, absent a payment
default  by  the  obligor  or insurer. However, new subsection (d) would
permit either the financial guaranty insurer or the insured to terminate
the policy as a  consequence  of  the  commencement  of  rehabilitation,
liquidation  or  conservatorship proceedings if the termination does not
accelerate or otherwise increase the obligation of the insurer  to  make
scheduled  payments  when  due under the policy and does not require the
insurer to make any additional payment to the insured by reason  of  the
termination.

Further,  new  subsection (e) would allow the Superintendent to require,
by regulation, other policy provisions as may be necessary or  appropri-
ate  to  protect  financial guaranty insurers, policyholders, claimants,
obligees or indemnities, or the people of New York State.

Section  19  of  the  bill would amend Insurance Law § 6907 by repealing
obsolete language in subsection (a), renumbering subsections (b) and (c)
as (a)(1) and (a)(2), respectively, and adding new subsections  (b)  and
(c).  New  subsection (b) would allow for amendments to, or replacements
of, insurance policies issued before  August  1,  2009,  without  conse-
quence,  if  the insurer executes the amendment or replacement solely to
mitigate accumulated losses and reduce exposure to future  losses  under
the  unmodified  policy.  New  subsection (c) would provide a transition
rule for insurers whose business mix will produce air  immediate  excess
over the risk limits effective on August 1, 2009.

Section  20  of  the  bill would amend Insurance Law § 1108 to add a new
subsection (j) to exclude a writer of  a  credit  default  swap  or  any
agent,  broker  or  other person acting in connection with the making of
the credit default swap, from licensing  and  other  provisions  of  the
Insurance  Law  (except  Article 74) if the Superintendent determines by
regulation that the issuance of the credit default swap  is  effectively
and  comprehensively  regulated  in a manner that protects the people of
New York State, including the maintenance of adequate capital, the post-
ing of sufficient trading margins to minimize counterparty risk, and the
collection and availability of comprehensive market data. Absent such  a
determination,  makers or issuers of credit default swaps may be subject
to the requirements, restrictions and rules of the  New  York  Insurance
Law.

Section 21 of the bill sets forth an effective date of August 1, 2009.

Existing Law:  Article 69 of the Insurance Law governs the operations of
financial  guaranty  insurers  and  the  issuance  of financial guaranty
insurance, as defined in section  6901(a)  thereof.  Financial  guaranty
insurance is broadly defined, irrespective of whether written as a sure-
ty  bond,  insurance policy, indemnity contract, or any similar guaranty
covering financial obligations, but  only  certain  types  of  financial
guaranty  insurance  are  permissible. Article 69 specifies the types of
guaranties that an insurer may write and also sets forth limitations  on
permissible  guaranties,  specifying  the  aggregate risk limits, single
risk limits, and other constraints.

Article 69 also sets forth organizational and financial requirements for
financial guaranty insurers, as well as required contingency, loss,  and
unearned  premium reserves necessary to pay claims and support the issu-
ance of additional financial  guaranty  insurance  policies.  Provisions
governing  policy forms and rates and the terms for reinsurance are also
set  forth  in  the  article.  Furthermore,  the  laws   pertaining   to
property/casualty  insurers apply to the extent that they are consistent
with Article 69. Finally, Article 69 expressly excludes financial  guar-

anty insurance policies from coverage under the property/casualty insur-
ance security fund.

Prior Legislative History: This is a new bill.

Statement  in Support:  Financial guaranty insurers, through their guar-
anties, have long been an integral part of the financial system for  the
purchase  and transfer of governmental and non-governmental obligations.
In the late 1980s, however, it was recognized that financial  guaranties
imposed  too  much  of  a risk on other insureds in multi-line insurers.
Hence, in 1989, Article  69  was  enacted,  carving  financial  guaranty
insurance out of surety and credit insurance and broadening the kinds of
risks  that  were  deemed  to  be  financial guaranty insurance. The law
required financial guaranty insurers  to  be  essentially  monoline  and
therefore  they were prohibited from engaging in both financial guaranty
insurance as well as general property/casualty insurance.

Generally speaking, the minimum  capital  requirements  of  Article  69,
while  fixed  and somewhat arbitrary, were seen as sufficient to support
the issuance of guaranties on obligations with a low risk of default.  A
purchaser  of a small municipality's bond issue could buy the debt based
on the creditworthiness of the insurer without researching  the  details
of the city or town's finances. These guaranties have supported a liquid
and  high-quality  market for obligations used to fund essential govern-
mental operations at minimal cost to the issuers.

However, financial guaranty insurers have also participated in the secu-
ritization of asset-backed  securities,  particularly  residential  real
estate  mortgages. Beginning in 2005, the underwriting applied by origi-
nators to the subprime, alt-A (low documentation), home-equity lines  of
credit deteriorated. This lower-quality debt was packaged into collater-
alized  debt obligations ("CDOs"), which were then divided into marketa-
ble pieces ("tranches") and often combined, split, and otherwise "sliced
and diced" into securities such as "CDOs squared" which  these  insurers
sometimes  guaranteed.  Under  these circumstances, experience has shown
that neither the market nor the insurers were able to adequately  deter-
mine the quality of the underlying debt.

Following  adverse  developments in the real estate market, rating agen-
cies questioned the merits of the debt underlying the CDOs. These  agen-
cies  concluded that high default rates expected in the future warranted
current exceptional additions of capital to the surplus of  insurers  in
order  to  maintain  the  insurers' AAA ratings. A destructive cycle has
ensued with deteriorating credit markets requiring  additional  capital.
Liquidity  has  been  reduced  and  the issuance of CDOs of asset-backed
securities has largely ceased.

The Department has endeavored to bring new capital and insurance capaci-
ty into New York and has worked extensively with  insurers  to  minimize
stress  on  the market. This bill would establish necessary restrictions
and limitations on financial  guaranty  insurance,  and  strengthen  the

tools  available to the Superintendent to ensure the continued viability
of the financial guaranty market.

This  bill  would  take  a multi-pronged approach to enhancing the regu-
lation of financial guaranty insurance by:

* Restricting guarantees of CDOs of asset-backed securities;

* Deleting the capacity of  financial  guaranty  insurers  to  guarantee
credit default swaps;

* Allowing the Superintendent to respond promptly to market changes;

* Limiting concentration of risk;

* Limiting non-investment grade credit risk;

*  Improving  oversight  of underwriting and risk management by applying
principles-based standards;

* Permitting the insurance of lower quality (yet still investment-grade)
government issues with commensurate reserves;

* Increasing minimum surplus and capital requirements;

* Requiring increased capital  for  insurance  that  includes  operating
leverage; and

* Requiring insurers to address credit deterioration of book of business

The  bill  would  provide  a  comprehensive  reform of Article 69 of the
Insurance Law to restrict the ability of financial guaranty insurers  to
engage  in  guaranties  of business that could potentially unduly stress
their ability to support governmental  functions  while  preserving  the
critical  role  that  financial  guaranty insurers play in the financial
markets, particularly in the public finance area.    Although  the  bill
focuses  on  remedying  certain  problematic structures (such as CDOs of
asset-backed securities and credit default swaps), the bill  also  would
grant  the  Superintendent  the  authority to address future problems as
they arise.

The bill would not specify by label or form the type of  debt  or  obli-
gation  that  may  be insured, or the structures to be used. Rather, the
bill would require insurers to more  adequately  diversify  their  risks
among  issuers, pools, originators, and vintages to minimize correlation
across the portfolio. Additional criteria for operations  would  be  set
forth  as well. Insurers also would be allowed to participate in certain
underserved portions of the governmental market.

Although financial guaranty insurers have traditionally been thought  to
bear  little risk of insolvency, the nature of their business - increas-
ing the credit quality of the obligations insured - requires maintenance

of a high level of capital in order to write new business.  Accordingly,
the  bill  would not only increase capital and surplus requirements, but
also would provide alternative methods of evaluating the obligations  to
be insured, and grant the Department additional regulatory oversight.

The  bill  also  would  address  credit  default swaps ("CDS"). CDS is a
generic term for a transaction under which credit  risk  is  transferred
from  a  counterparty ("protection buyer") to another party ("protection
seller"). The common standard in the capital markets is to reference the
International Swaps and Derivatives Association,  Inc.  ("ISDA")  Master
Agreement (2003), which defines terms and thereby establishes uniformity
for  the  capital markets. CDS have been virtually unregulated, but have
been a significant factor contributing to the financial crisis affecting
the markets today. On September  22,  2008,  the  Superintendent  issued
Circular  Letter 19 (2008), which concluded that the making of CDS under
certain circumstances may constitute "the doing of  an  insurance  busi-
ness" within the meaning of Insurance Law § 1101.

On  November 20, 2008, the Superintendent issued the First Supplement to
Circular Letter 19, noting that

On November 14, 2008, the President's Working Group on Financial Markets
announced a series of initiatives to strengthen oversight and  transpar-
ency and to create a centralized market infrastructure for the over-the-
counter  derivatives market, including credit default swaps ("CDS"). The
initiatives include the development of CDS central counterparties,  some
of which are expected to begin operations before the end of 2008.

Recognizing  the rapidly changing landscape and uncertainty with respect
to CDS, this bill would remove all references to CDS in Article 69,  and
authorize  the  Superintendent  to  exempt  them  from the Insurance law
requirements, provided certain conditions are  met,  including  that-the
Superintendent  is  satisfied  that CDS are subject to comprehensive and
effective regulation sufficient to protect New York. In this manner, the
bill would permit the Superintendent to quickly address changes  in  the
CDS marketplace, while maintaining necessary safeguards.

Budget  Implications:    This  bill  will  not  have  an impact on State
finances, as the requirements of  this  bill  can  be  performed  within
existing resources.

Effective Date:  This bill would take effect on August 1, 2009.

2009-A8855 (ACTIVE) - Bill Text download pdf

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

                                  8855

                       2009-2010 Regular Sessions

                          I N  A S S E M B L Y

                              June 11, 2009
                               ___________

Introduced  by  M. of A. MORELLE -- (at request of the Governor) -- read
  once and referred to the Committee on Insurance

AN ACT to amend the insurance law, in relation to  enhancing  the  regu-
  lation   of   financial  guaranty  insurers;  and  to  repeal  certain
  provisions of the insurance law relating thereto

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

  Section 1. Paragraph 1 of subsection (a) of section 6901 of the insur-
ance  law, as added by chapter 48 of the laws of 1989, the opening para-
graph as amended by chapter 605 of the laws of  2004,  and  subparagraph
(A) as amended by chapter 529 of the laws of 1996, is amended to read as
follows:
  (1)  "Financial  guaranty insurance" means a surety bond, an insurance
policy or[, when issued by an insurer or any person doing  an  insurance
business  as  defined  in paragraph one of subsection (b) of section one
thousand one hundred one of this chapter, an indemnity] OTHER  contract,
and any guaranty similar to the foregoing types, [under] which [loss] is
payable,  upon  [proof  of] occurrence of financial loss, [to an insured
claimant, obligee or indemnitee] as a result of  any  of  the  following
events:
  (A)  failure  of  any  obligor  on or issuer of any debt instrument or
other monetary  obligation  (including  equity  securities  [guarantied]
GUARANTEED  under a surety bond, insurance policy or indemnity contract)
to pay when due to be paid by the  obligor  or  scheduled  at  the  time
insured  to  be  received  by  the  holder of the obligation, principal,
interest, premium, dividend or purchase price of or on, or other amounts
due or payable with respect to, such instrument or obligation, when such
failure is the result of a financial default or insolvency or,  provided
that  such payment source is investment grade, any other failure to make
payment, regardless of whether such obligation is incurred  directly  or
as guarantor by or on behalf of another obligor that has also defaulted;

 EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                      [ ] is old law to be omitted.
                                                           LBD12018-03-9

A. 8855                             2

  (B)  changes  in  the  levels of interest rates, whether short or long
term or the differential in interest rates between  various  markets  or
products;
  (C) changes in the rate of exchange of currency;
  (D)  changes in the value of specific assets or commodities, financial
or commodity indices, or price levels in general; or
  (E) other  events  [which]  THAT  the  superintendent  determines  are
substantially similar to any of the foregoing.
  S  2. Subparagraphs (H), (I), and (J) of paragraph 2 of subsection (a)
of section 6901 of the insurance law, subparagraph (H) as added by chap-
ter 48 of the laws of 1989, subparagraph (I) as amended and subparagraph
(J) as added by chapter 605 of the laws of 2004, are amended to read  as
follows:
  (H) indemnity contracts or similar guaranties, to the extent that they
are not otherwise limited or proscribed by this chapter:
  (i)  in  which  a life insurer or an insurer subject to article forty-
three of this chapter [guaranties] GUARANTEES its obligations or indebt-
edness or the obligations or indebtedness of a subsidiary (as defined in
paragraph forty of subsection (a) of section one hundred seven  of  this
chapter), other than a financial guaranty [insurance corporation] INSUR-
ER, provided that:
  (I) to the extent that any such obligations or indebtedness are backed
by specific assets, such assets must at all times be owned by the insur-
er or the subsidiary; and
  (II) in the case of the guaranty of the obligations or indebtedness of
the  subsidiary  that are not backed by specific assets of such insurer,
such guaranty terminates once the subsidiary ceases to be a  subsidiary;
or
  (ii)  in  which  a life insurer [guaranties] GUARANTEES obligations or
indebtedness (including the obligation to substitute assets where appro-
priate) with respect to specific assets acquired by such life insurer in
the course of its normal investment activities and not for  the  purpose
of  resale  with  credit  enhancement,  or [guaranties] GUARANTEES obli-
gations or indebtedness acquired by its subsidiary,  provided  that  the
assets acquired pursuant to this item (ii) have been:
  (I)  acquired  by a special purpose CORPORATION, SPECIAL PURPOSE TRUST
OR OTHER SPECIAL PURPOSE LEGAL entity, whose sole purpose is to  acquire
specific assets of such life insurer or its subsidiary and issue securi-
ties or participation certificates backed by such assets; or
  (II) sold to an independent third party; or
  (iii)  in  which a life insurer [guaranties] GUARANTEES obligations or
indebtedness of an employee or insurance agent of such life insurer; or
  (I) [guarantees] GUARANTIES of higher education loans, unless  written
by a financial guaranty [insurance corporation] INSURER;
  (J) [guarantees] GUARANTIES of insurance contracts, except for:
  (i)  [guarantees]  GUARANTIES authorized pursuant to section one thou-
sand one hundred fourteen of this chapter; OR
  (ii) financial guaranty insurance policies insuring guaranteed invest-
ment contracts issued by life insurers, provided that:
  (I) the obligations under such contracts  are  not  dependent  on  the
continuance of human life;
  (II)  the  financial guaranty insurance policies do not guaranty death
benefits provided by such contracts;
  (III) the obligations insured  by  the  financial  guaranty  insurance
policies  are  investment grade based on the rating of the life insurers

A. 8855                             3

or, in the case of separate  account  guaranteed  investment  contracts,
based on the ratings of such separate accounts;
  (IV)  the financial guaranty insurance policies shall not condition or
delay payment of a claim with respect to such contracts upon the insured
or beneficiary making a claim on the contracts with any insurance  guar-
anty fund under this chapter or of any other jurisdiction; and
  (V)  the  financial guaranty insurance policies provide that if, prior
to payment by the insurer under the financial guaranty  insurance  poli-
cies,  the  guaranty  fund  has paid a claim under such contracts for an
amount that, when added to the amount payable under the financial  guar-
anty  insurance  policies,  would  exceed  the  amount  owed  under such
contracts, then the financial guaranty insurer shall pay the portion  of
the  amount  payable  in  excess of the contract amounts to the guaranty
fund instead of to the beneficiary under such contracts; or
  S 3. Subsections (b), (c), and (d) of section 6901  of  the  insurance
law, subsections (b) and (d) as added by chapter 48 of the laws of 1989,
subsection  (c)  as  amended  by  chapter  529  of the laws of 1996, are
amended to read as follows:
  (b) "Financial  guaranty  insurance  corporation"  or  ["corporation"]
"FINANCIAL  GUARANTY  INSURER" means an insurer licensed to transact the
business of financial guaranty insurance in this state.
  (c) "Affiliate" means a person which, directly or indirectly, owns  at
least  ten percent but less than fifty percent of the financial guaranty
[insurance corporation] INSURER or which is at  least  ten  percent  but
less  than  fifty  percent, directly or indirectly, owned by a financial
guaranty [insurance corporation] INSURER.
  (d) "Aggregate net liability" means the aggregate  amount  of  insured
unpaid  principal,  interest  and  other  monetary  payments, if any, of
[guarantied] GUARANTEED obligations insured or assumed, less reinsurance
ceded and less collateral.
  S 4. Subsection (e) of section 6901 of the insurance law,  as  amended
by chapter 605 of the laws of 2004, is amended to read as follows:
  (e) "Asset-backed securities" mean[:
  (1)]  securities or other financial obligations of an issuer, provided
that:
  [(A)] (1) the issuer is a special purpose corporation, trust or  other
entity,  or (provided that the securities or other financial obligations
constitute an insurable risk) is a bank, trust company or  other  finan-
cial  institution,  deposits  in which are insured by the Bank Insurance
Fund or the Savings Insurance Fund (or any successor thereto); and
  [(B)] (2) THE SECURITIES OR OTHER FINANCIAL OBLIGATIONS ARE HELD IN  a
pool of assets EXPECTED TO GENERATE EITHER CASH FLOW OR CASH PROCEEDS BY
THE  TERMS OF THE SECURITIES OR OTHER FINANCIAL OBLIGATIONS, OR PURSUANT
TO LEASES OR OTHER CONTRACTUAL RIGHTS, INCLUDING ANY EXPECTED EXTENSIONS
OR RENEWALS THEREOF, OR THROUGH A SALE IN A PUBLIC OR PRIVATE MARKET FOR
PROCEEDS SUFFICIENT TO PAY THE INSURED OBLIGATIONS:
  [(i)] (A) [has] HAVE been conveyed, pledged or  otherwise  transferred
to or [is] ARE otherwise owned or acquired by the issuer;
  [(ii)] (B) such pool of assets backs the securities or other financial
obligations issued; and
  [(iii)]  (C) no asset in such pool, other than an asset directly paya-
ble by, guaranteed by or backed by the full  faith  and  credit  of  the
United States government or that otherwise qualifies as collateral under
paragraph  one  or  two  of  subsection (g) of this section, has a value
exceeding twenty percent of the pool's aggregate value[; or

A. 8855                             4

  (2) a pool of credit default swaps or credit default swaps referencing
a pool of obligations, provided that:
  (A)  the  swap  counterparty  whose  obligations are insured under the
credit default swap is a special purpose  corporation,  special  purpose
trust or other special purpose legal entity;
  (B)  no  reference  obligation  in such pool, other than an obligation
directly payable by, guaranteed by or backed by the full faith and cred-
it of the United States government or that otherwise qualifies as colla-
teral under paragraph two of subsection  (g)  of  this  section,  has  a
notional  amount  exceeding ten percent of the pool's aggregate notional
amount; and
  (C) the insurer has the benefit of a deductible or  other  first  loss
credit protection against claims under its insurance policy].
  S  5.  Subsection (g) of section 6901 of the insurance law, as amended
by chapter 605 of the laws of 2004, subparagraph (I) of paragraph  4  as
amended  by  chapter  672  of  the  laws  of 2005, is amended to read as
follows:
  (g) "Collateral" means:
  (1) cash;
  (2) the cash flow from specific obligations which are not callable and
scheduled to be received based on expected prepayment speed on or  prior
to  the  date of scheduled debt service (including scheduled redemptions
or prepayments) on the insured obligation provided that (i) such specif-
ic obligations are directly payable by, guaranteed by or backed  by  the
full  faith and credit of the United States government, (ii) in the case
of insured obligations denominated or payable  in  foreign  currency  as
permitted under paragraph four of subsection (b) of section six thousand
nine hundred four of this article, such specific obligations are direct-
ly  payable  by, guaranteed by or backed by the full faith and credit of
such foreign government or the  central  bank  thereof,  or  (iii)  such
specific  obligations  are  insured by the same insurer that insures the
obligations being collateralized, and the cash flows from such  specific
obligations  are  sufficient  to cover the insured scheduled payments on
the obligations being collateralized;
  (3) the market value of investment grade obligations, other than obli-
gations evidencing an interest in the project or projects financed  with
the proceeds of the insured obligations; OR
  (4) the face amount of each letter of credit that:
  (A) is irrevocable;
  (B)  provides  for payment under the letter of credit in lieu of or as
reimbursement to the insurer for  payment  required  under  a  financial
guaranty insurance policy;
  (C) is issued, presentable and payable either:
  (i)  at an office of the letter of credit issuer in the United States;
or
  (ii) at an office of the letter of credit issuer located in the juris-
diction in which the trustee or paying agent for the insured  obligation
is located;
  (D) contains a statement that either:
  (i)  identifies  the  insurer  and  any successor by operation of law,
including any liquidator, rehabilitator, receiver or conservator, as the
beneficiary; or
  (ii) identifies the trustee or the paying agent for the insured  obli-
gation as the beneficiary;
  (E)  contains  a  statement  to  the effect that the obligation of the
letter of credit issuer under the letter  of  credit  is  an  individual

A. 8855                             5

obligation of such issuer and is in no way contingent upon reimbursement
with respect thereto;
  (F) contains an issue date and a date of expiration;
  (G) either:
  (i)  has  a  term  at  least as long as the shorter of the term of the
insured obligation or the term of the financial guaranty policy; or
  (ii) provides that the letter of credit shall not expire without thir-
ty days prior written notice to the beneficiary and allows  for  drawing
under  the  letter of credit in the event that, prior to expiration, the
letter of credit is not renewed or extended or a  substitute  letter  of
credit   or  alternate  collateral  meeting  the  requirements  of  this
subsection is not provided;
  (H) states that it is governed by the laws of the state of New York or
by the 1983 or 1993 Revision of the Uniform  Customs  and  Practice  for
Documentary  Credits  of the International Chamber of Commerce (Publica-
tion 400 or 500) or any successor Revision if  approved  by  the  super-
intendent,  and  contains  a  provision for an extension of time, of not
less than thirty days after resumption of business, to draw against  the
letter  of  credit  in  the  event  that  one or more of the occurrences
described in Article 19 of Publication 400 or 500 occurs; and
  (I) is issued by a bank, trust company, or savings  and  loan  associ-
ation that:
  (i)  is  organized and existing under the laws of the United States or
any state thereof or, in the case of a non-domestic  financial  institu-
tion,  has  a  branch  or  agency  office licensed under the laws of the
United States or any state thereof and is domiciled in a member  country
of  the  Organisation for Economic Co-operation and Development having a
sovereign rating in one of the top two generic lettered  rating  classi-
fications  by  a  securities rating agency acceptable to the superinten-
dent;
  (ii) has (or is the principal  operating  subsidiary  of  a  financial
institution  holding  company  that  has)  a long-term debt rating of at
least investment grade; and
  (iii) is not a parent, subsidiary  or  affiliate  of  the  trustee  or
paying  agent,  if  any,  with respect to the insured obligation if such
trustee [of] OR paying agent is the named beneficiary of the  letter  of
credit[; or
  (5)  the  amount of credit protection available to the insurer (or its
nominee) under each credit default swap that:
  (A) may not be amended without the consent of the insurer and may only
be terminated: (i) at the option of the insurer; (ii) at the  option  of
the  counterparty to the insurer (or its nominee), if the credit default
swap provides for the payment of  a  termination  amount  equal  to  the
replacement  cost  of the terminated credit default swap determined with
reference to standard documentation of the International Swap and Deriv-
atives Association, Inc. or otherwise acceptable to the  superintendent;
or (iii) at the discretion of the superintendent acting as a rehabilita-
tor,  liquidator or receiver of the insurer upon payment by or on behalf
of the insurer of any termination amount due from the insurer;
  (B) provides for payment under all instances in which payment under  a
financial  guaranty  insurance  policy  is required, except that payment
under the credit default swap may be on a first loss, excess of loss  or
other  non-pro-rata  basis  and  may apply on an aggregate basis to more
than one policy;
  (C) is provided by:

A. 8855                             6

  (i) a counterparty whose obligations under the credit default swap are
insured by a financial guaranty  insurance  corporation  licensed  under
this  article  or  guaranteed  by a financial institution referred to in
items (ii) and (iii) of this subparagraph;
  (ii)  a financial institution satisfying the requirements of items (i)
through (iii) of subparagraph (I) of paragraph four of this  subsection;
provided  that  (A)  obligations of such financial institution on parity
with its obligations under the credit default swap are investment  grade
and  (B) if such financial institution is not organized under, or acting
through a branch or agency office licensed under, the laws of the United
States or any state thereof, then such financial institution is required
to collateralize the replacement cost of the credit default swap in  the
event that it shall fail to maintain such rating; or
  (iii)  any  other financial institution that the superintendent deter-
mines to be substantially similar to any of the foregoing.
  Collateral must be deposited with the insurer;  held  in  trust  by  a
trustee or custodian acceptable to the superintendent for the benefit of
the  insurer;  or  held in trust pursuant to the bond indenture or other
trust arrangement, for the benefit of security holders in  the  form  of
funds  for  the  payment  of insured obligations, sinking funds or other
reserves which may be used for the payment of  insured  obligations  and
trustee  and  other administrative fees on a first priority basis estab-
lished and continually maintained pursuant  to  the  bond  indenture  or
other  trust  arrangement by a trustee acceptable to the superintendent.
The superintendent may promulgate regulations to  limit  the  amount  of
collateral  provided by obligations, letters of credit or credit default
swaps or to limit the  amount  of  collateral  provided  by  any  single
issuer, bank or counterparty as provided for in this subsection].
  S  6.  Subsection  (j-1)  of  section  6901  of  the  insurance law is
REPEALED.
  S 7. Subsection (n) of section 6901 of the insurance law,  as  amended
by chapter 529 of the laws of 1996, is amended to read as follows:
  (n) "Investment grade" means that:
  (1)  the  obligation  or parity obligation of the same issuer has been
determined to be in one of the top four generic lettered rating  classi-
fications by a securities rating agency acceptable to the superintendent
OR THE SECURITIES VALUATION OFFICE OF THE NATIONAL ASSOCIATION OF INSUR-
ANCE COMMISSIONERS DESIGNATES THE OBLIGATION CATEGORY 1 OR 2;
  (2)  the  obligation  or parity obligation of the same issuer has been
identified in writing by such rating agency to be  of  investment  grade
quality  OR  THE SECURITIES VALUATION OFFICE OF THE NATIONAL ASSOCIATION
OF INSURANCE COMMISSIONERS DESIGNATES THE OBLIGATION CATEGORY 1 OR 2; or
  (3) if the obligation or parity obligation of the same issuer has  not
been  submitted  to any such rating agency, the obligation is determined
to be investment grade (as indicated by a [rating] DESIGNATION in  cate-
gory  1 or 2) by the Securities Valuation Office of the National Associ-
ation of Insurance Commissioners.
  S 8. Subsection (a) of section 6902 of the insurance law, as added  by
chapter 48 of the laws of 1989, paragraph 1 as amended by chapter 672 of
the  laws  of  2005, paragraphs 4 and 5 as amended by chapter 605 of the
laws of 2004, is amended to read as follows:
  (a) A financial guaranty [insurance corporation] INSURER may be organ-
ized and licensed in the manner prescribed in section one  thousand  two
hundred  one  of this chapter and a foreign insurer may be licensed AS A
FINANCIAL GUARANTY INSURER in the manner prescribed in section one thou-

A. 8855                             7

sand one hundred six of this chapter, except as modified by the  follow-
ing provisions:
  (1)  a  corporation organized for the purpose of transacting financial
guaranty insurance may, subject to all the applicable provisions of this
chapter, be licensed to transact only the following additional kinds  of
insurance:
  (A)  residual  value  insurance, as defined in paragraph twenty-two of
subsection (a) of section one thousand  one  hundred  thirteen  of  this
chapter;
  (B)  surety insurance, as defined in subparagraphs (C), (D), (E), (F),
(G), (H) and (I) of paragraph sixteen of subsection (a) of  section  one
thousand one hundred thirteen of this chapter; and
  (C)  credit  insurance,  as  defined  in subparagraph (A) of paragraph
seventeen of subsection (a) of section one thousand one hundred thirteen
of this chapter;
  (2) a financial guaranty  [insurance  corporation]  INSURER  may  only
assume those kinds of insurance for which it is licensed to write direct
business;
  (3) prior to the issuance of a license, unless a plan of operation has
been  previously  approved  by  the  superintendent,  [a corporation] AN
INSURER shall submit for the approval of the superintendent  a  plan  of
operation,  detailing the types and projected diversification of guaran-
ties that will be issued,  the  underwriting  procedures  that  will  be
followed,  managerial  oversight  methods, investment policies, and such
other matters as may be prescribed by the superintendent; and
  (4) a financial guaranty [insurance corporation's]  INSURER'S  invest-
ments  in any one entity insured by that [corporation] INSURER shall not
exceed four percent of its admitted assets at last year-end, except that
this limit shall not apply to investments payable  or  guaranteed  by  a
United  States  governmental  unit or New York state if such investments
payable or guaranteed by the United States governmental unit or New York
state shall be rated in one of the top two generic lettered rating clas-
sifications by a securities rating agency acceptable to the  superinten-
dent.
  (5)  in  addition  to  any  transaction  that  an  insurer meeting the
requirements of subsection (c) of  section  one  thousand  four  hundred
three  of this chapter may effect and maintain under any other provision
of this chapter, a financial guaranty  [insurance  corporation]  INSURER
may  effect  and  maintain  transactions in (A) contracts for the future
delivery or receipt of the currency of a foreign country,  (B)  interest
rate  options,  AND (C) [credit default swaps under which the insurer is
acquiring credit protection and (D)] other products included in the plan
referred to in [clause] ITEM (vii) of this subparagraph,  in  each  case
meeting the following requirements:
  (i)  the  transaction is used for the purpose of limiting risk of loss
under financial guaranty insurance  policies  or  reinsurance  contracts
covering such policies due to fluctuations in interest rates or currency
exchange  rates  or,  in  the  case  of  credit default swaps, financial
default, insolvency or other credit events;
  (ii) the transaction shall not exceed  a  duration  of  twelve  months
beyond the term of such policies or reinsurance contracts;
  (iii) the amount of foreign currencies to be purchased under the tran-
saction  shall  not  exceed the amount guaranteed under such policies or
reinsurance contracts that is denominated in foreign currency;

A. 8855                             8

  (iv) the amount that is subject to interest rate hedging  transactions
does not exceed the amount guaranteed under such policies or reinsurance
contracts that is subject to the risk of interest rate fluctuations;
  (v)  the  counterparty  to  such  transaction has (or is the principal
operating subsidiary of a holding company that has) a  long  term  unse-
cured  debt  rating  or  claims-paying  ability  rating that is at least
investment grade;
  (vi) the transaction is not conducted for arbitrage purposes; and
  (vii) the transaction is entered into pursuant to a plan that has been
approved by the board of directors of the financial guaranty  [insurance
corporation] INSURER and filed with and approved by the superintendent.
  S  9.  Subsection (b) of section 6902 of the insurance law, as amended
by chapter 89 of the laws of 1989, paragraph 3 as amended by chapter 529
of the laws of 1996, is amended to read as follows:
  (b) (1) (A) A financial guaranty [insurance corporation] INSURER shall
not transact business unless it has paid-in capital of  at  least  [two]
FIFTEEN  million  [five hundred thousand] dollars and paid-in surplus of
at least [seventy-two] ONE  HUNDRED  SIXTY-FIVE  million  [five  hundred
thousand]  dollars, and shall at all times thereafter maintain a minimum
surplus to policyholders of at  least  [sixty-five]  ONE  HUNDRED  FIFTY
million dollars.
  (B)  A  FINANCIAL  GUARANTY INSURER SHALL REPORT TO THE SUPERINTENDENT
WITHIN FIVE  DAYS  IF  THE  FINANCIAL  GUARANTY  INSURER'S  POLICYHOLDER
SURPLUS DECREASES AS FOLLOWS:
  (I)  FOR  A  FINANCIAL  GUARANTY  INSURER  WITH LESS THAN FIVE HUNDRED
MILLION DOLLARS OF POLICYHOLDER SURPLUS, A DECREASE IN  EXCESS  OF  FIVE
PERCENT  FROM  THE  AMOUNT  OF  POLICYHOLDER  SURPLUS  AT THE END OF THE
PRECEDING QUARTER;
  (II) FOR A  FINANCIAL  GUARANTY  INSURER  WITH  FIVE  HUNDRED  MILLION
DOLLARS  OR MORE OF POLICYHOLDER SURPLUS, A DECREASE IN EXCESS OF TWENTY
PERCENT FROM THE AMOUNT OF  POLICYHOLDER  SURPLUS  AT  THE  END  OF  THE
PRECEDING QUARTER; OR
  (III)  THE  MINIMUM SURPLUS SPECIFIED IN SUBPARAGRAPH (A) OF PARAGRAPH
ONE OF THIS SUBSECTION FALLS BELOW SEVEN HUNDRED FIFTY MILLION DOLLARS.
  (2) [An insurer transacting only financial guaranty insurance prior to
the effective date of this article which has a  paid-in  capital  of  at
least two million five hundred thousand dollars and maintains surplus to
policyholders  of at least forty-five million dollars shall have thirty-
six months from the effective date of this article to fully comply  with
the surplus requirements set forth in paragraph one of this subsection.
  (3)]   A FINANCIAL GUARANTY INSURER SHALL MAINTAIN, AND MAKE AVAILABLE
FOR INSPECTION BY THE SUPERINTENDENT UPON REQUEST,  UNDERWRITING  GUIDE-
LINES REQUIRING:
  (A) SUFFICIENT LIQUIDITY TO PAY CLAIMS IN ADVERSITY, INCLUDING EXTREME
STRESS SCENARIOS;
  (B)  APPROPRIATE  RISK UNDERWRITING POLICIES, CRITERIA, AND PROCEDURES
TO ENSURE THAT ANY TRANSACTION  UNDERWRITTEN  DEMONSTRATES  SUFFICIENTLY
LOW  LEVELS  OF  RISK  OF  DEFAULT OR SEVERITY OF LOSS, SUCH THAT ACTUAL
LOSSES ON, OR RATINGS DOWNGRADES OF, TRANSACTIONS OR SECTORS WITHIN  THE
FINANCIAL  GUARANTY  INSURER'S PORTFOLIOS UNDER EXTREME STRESS SCENARIOS
ARE NOT EXPECTED TO SIGNIFICANTLY ERODE CAPITAL STRENGTH; AND
  (C) CONTROL AND REMEDIATION RIGHTS TO MITIGATE THE POTENTIAL  SEVERITY
OF  ANY  LOSS APPROPRIATE FOR THE TYPE, INVESTMENT QUALITY AND AMOUNT OF
OBLIGATIONS INSURED.
  (3) ANY REPORT SUBMITTED PURSUANT TO THIS SECTION AND ANY UNDERWRITING
GUIDELINES MADE AVAILABLE TO THE SUPERINTENDENT UPON REQUEST PURSUANT TO

A. 8855                             9

PARAGRAPH TWO OF THIS SUBSECTION SHALL BE KEPT  CONFIDENTIAL  AND  SHALL
NOT  BE MADE PUBLIC UNLESS, AFTER NOTICE AND AN OPPORTUNITY TO BE HEARD,
THE SUPERINTENDENT  DETERMINES  THAT  THE  INTERESTS  OF  POLICYHOLDERS,
STOCKHOLDERS OR THE PUBLIC WILL BE SERVED BY THE PUBLICATION THEREOF.
  (4)  A  financial guaranty [insurance company] INSURER shall be deemed
to be in compliance with paragraphs one and two  of  subsection  (b)  of
section  one  thousand four hundred two of this chapter if not less than
sixty percent of the amount of the required minimum capital  or  minimum
surplus to policyholder investments shall consist of the types specified
in paragraphs one and two of subsection (b) of section one thousand four
hundred  two  of  this  chapter and direct government obligations of any
state of the United States or of any county,  district  or  municipality
thereof,  provided such government obligations have been given the high-
est quality designation  of  the  Securities  Valuation  Office  of  the
National  Association  of  Insurance Commissioners. Before investing any
part of the required minimum capital or  surplus  in  direct  government
obligations  of  any  other state of the United States or of any county,
district or municipality thereof,  such  financial  guaranty  [insurance
company]  INSURER  shall  have  invested  at  least  ten percent of such
required minimum in government obligations of New York state or  of  any
county,  district  or municipality thereof. Only for purposes of meeting
the required investment in government obligations of New York state, the
FINANCIAL GUARANTY insurer may count investments in any government obli-
gation of New York state, whether direct or otherwise.
  S 10. Section 6902 of the insurance law is amended by adding three new
subsections (c), (d) and (e) to read as follows:
  (C) COLLATERAL SHALL BE DEPOSITED WITH THE INSURER; HELD IN TRUST BY A
TRUSTEE OR CUSTODIAN ACCEPTABLE TO THE SUPERINTENDENT FOR THE BENEFIT OF
THE INSURER; OR HELD IN TRUST PURSUANT TO THE BOND  INDENTURE  OR  OTHER
TRUST  ARRANGEMENT  FOR  THE  BENEFIT OF SECURITY HOLDERS IN THE FORM OF
FUNDS FOR THE PAYMENT OF INSURED OBLIGATIONS,  SINKING  FUNDS  OR  OTHER
RESERVES,  WHICH  MAY BE USED FOR THE PAYMENT OF INSURED OBLIGATIONS AND
TRUSTEE AND OTHER ADMINISTRATIVE FEES ON A FIRST PRIORITY  BASIS  ESTAB-
LISHED  AND  CONTINUALLY  MAINTAINED  PURSUANT  TO THE BOND INDENTURE OR
OTHER TRUST ARRANGEMENT BY A TRUSTEE ACCEPTABLE TO THE SUPERINTENDENT.
  (D) THE SUPERINTENDENT MAY PROMULGATE REGULATIONS TO LIMIT THE  AMOUNT
OF  COLLATERAL  PROVIDED BY OBLIGATIONS OR LETTERS OF CREDIT OR TO LIMIT
THE AMOUNT OF COLLATERAL PROVIDED BY  ANY  SINGLE  ISSUER,  OR  BANK  AS
PROVIDED FOR IN THIS SUBSECTION.
  (E)  NOTWITHSTANDING  ANY  PROVISION CONTAINED IN THIS CHAPTER, IF THE
SUPERINTENDENT FINDS THAT THE INTERESTS OF FINANCIAL GUARANTY  INSURERS,
POLICYHOLDERS,  CLAIMANTS, OBLIGEES OR INDEMNITEES, OR THE PEOPLE OF THE
STATE SO REQUIRE, THEN THE  SUPERINTENDENT  MAY  REQUIRE  ANY  FINANCIAL
GUARANTY INSURER TO SUBMIT ONE OR MORE OBLIGATIONS THAT IT GUARANTEES TO
THE SECURITIES VALUATION OFFICE OF THE NATIONAL ASSOCIATION OF INSURANCE
COMMISSIONERS  FOR DESIGNATION AS TO INVESTMENT QUALITY OR TO SUCH OTHER
INSTITUTION FOR EVALUATION  AS  MAY  BE  SPECIFIED  BY  REGULATION.  ALL
EXPENSES OF ANY SUCH EVALUATION SHALL BE BORNE BY THE FINANCIAL GUARANTY
INSURER.
  S 11. Subsection (a) of section 6903 of the insurance law, as added by
chapter  48  of  the  laws  of 1989, clause (iii) of subparagraph (B) of
paragraph 3 and paragraph 7 as amended by chapter  89  of  the  laws  of
1989,  paragraph  5  as  amended  by chapter 605 of the laws of 2004, is
amended to read as follows:
  (a) Contingency  reserves.  (1)  A  [corporation]  FINANCIAL  GUARANTY
INSURER  shall  establish  and  maintain  contingency  reserves  for the

A. 8855                            10

protection of insureds and claimants against the  effects  of  excessive
losses occurring during adverse economic cycles.
  (2)  With  respect to all financial guaranties written prior to and in
force as of the first day of the next calendar quarter commencing  after
the date that the act enacting this article shall become law:
  (A)  the  insurer  shall  establish and maintain a contingency reserve
consistent with the requirements applicable for municipal  bond  guaran-
ties  in  effect  prior  to  the effective date of this article equal to
fifty percent of earned premiums on such policies; and
  (B) to the extent that the insurer's contingency  reserves  maintained
as  of  the  first day of the next calendar quarter commencing after the
date that the act enacting this article shall become law are  less  than
those  required  for  municipal  bond guaranties, the insurer shall have
three years from such  date  to  bring  its  contingency  reserves  into
compliance.
  (3)  With  respect  to  financial  guaranties  of municipal obligation
bonds, special revenue bonds, industrial development bonds  and  utility
first  mortgage  obligations  written  on and after the first day of the
next calendar quarter commencing after the date that  the  act  enacting
this article shall become law:
  (A) the insurer shall establish and maintain a contingency reserve for
all  such  insured issues in each calendar year for each category listed
in subparagraph (B) of this paragraph;
  (B) the total contingency reserve required shall  be  the  greater  of
fifty  percent of premiums written for each such category or the follow-
ing amount prescribed for each such category:
  (i) municipal obligation bonds, 0.55 percent of principal [guarantied]
GUARANTEED;
  (ii) special revenue bonds, and obligations demonstrated to the satis-
faction of the superintendent to be the functional  equivalent  thereof,
0.85 percent of principal [guarantied] GUARANTEED;
  (iii) investment grade industrial development bonds, secured by colla-
teral  or  having a term of seven years or less, and utility first mort-
gage obligations, 1.0 percent of principal [guarantied] GUARANTEED;
  (iv) other investment grade industrial development bonds, 1.5  percent
of principal [guarantied] GUARANTEED; and
  (v)  all  other industrial development bonds, 2.5 percent of principal
[guarantied] GUARANTEED; and
  (C) Contributions to the contingency reserve required  by  this  para-
graph,  equal  to  one-eightieth of the total reserve required, shall be
made each quarter for twenty years,  provided,  however,  that  contrib-
utions  may be discontinued so long as the total reserve for all catego-
ries listed in items (i) through (v) of subparagraph (B) of  this  para-
graph  exceeds  the  percentages contained in such items (i) through (v)
when applied against unpaid principal.
  (4) With respect to all other financial guaranties written on or after
the first day of the next calendar quarter  commencing  after  the  date
that the act enacting this article shall become law:
  (A) the insurer shall establish and maintain a contingency reserve for
all  such  insured  issues  in each calendar year for each such category
listed in subparagraph (B) of this paragraph;
  (B) the total contingency reserve required shall  be  the  greater  of
fifty  percent of premiums written for each such category or the follow-
ing amount prescribed for each such category:

A. 8855                            11

  (i) investment grade obligations, secured by collateral  or  having  a
term of seven years or less, 1.0 percent of principal [guarantied] GUAR-
ANTEED;
  (ii)  other  investment  grade  obligations,  1.5 percent of principal
[guarantied] GUARANTEED;
  (iii) non-investment grade consumer debt obligations, 2.0  percent  of
principal [guarantied] GUARANTEED;
  (iv)  non-investment  grade  asset-backed  securities,  2.0 percent of
principal [guarantied] GUARANTEED;
  (v) other non-investment grade obligations, 2.5 percent  of  principal
[guarantied] GUARANTEED; and
  (C)  Contributions  to  the contingency reserve required by this para-
graph, equal to one-sixtieth of the total  reserve  required,  shall  be
made  each  quarter  for fifteen years, provided, however, that contrib-
utions may be discontinued so long as the total reserve for all  catego-
ries  listed  in items (i) through (v) of subparagraph (B) of this para-
graph exceeds the percentages contained in such items  (i)  through  (v)
when applied against unpaid principal.
  (5) Contingency reserves required in paragraphs two, three and four of
this  subsection may be established and maintained net of collateral and
reinsurance, 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 refi-
nancings to the extent the refunded or refinanced issue is paid  off  or
secured  by obligations which are directly payable or [guarantied] GUAR-
ANTEED 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.
  (6)  The  contingency  reserves may be released thereafter in the same
manner in which they were established and withdrawals therefrom, to  the
extent  of  any  excess,  may be made from the earliest contributions to
such reserves remaining therein:
  (A) with the prior written approval of the superintendent:
  (i) if the actual incurred losses for the year, in  the  case  of  the
categories  of  guaranties subject to paragraph three of this subsection
exceeds thirty-five percent of earned premiums, or in the  case  of  the
categories  of  guaranties  subject to paragraph four of this subsection
exceed sixty-five percent of earned premiums; or
  (ii) if the contingency reserve applicable to the categories of  guar-
anties  subject to paragraph three of this subsection has been in exist-
ence for less than forty quarters, or for less than thirty quarters  for
the   categories  of  guaranties  subject  to  paragraph  four  of  this
subsection, upon a demonstration satisfactory to the superintendent that
the amount carried is excessive in relation to the insurer's outstanding
obligations under its financial guaranties.
  (B) upon thirty days  prior  written  notice  to  the  superintendent,
provided  that  the  contingency reserve applicable to the categories of
guaranties subject to paragraph three of this  subsection  has  been  in
existence for forty quarters, or thirty quarters for categories of guar-
anties  subject  to  paragraph  four  of  this subsection, upon a demon-
stration satisfactory to the superintendent that the amount  carried  is
excessive in relation to the insurer's outstanding obligations under its
financial guaranties.

A. 8855                            12

  (7)  An  insurer providing financial guaranty insurance may invest the
contingency reserve in  tax  and  loss  bonds  (or  similar  securities)
purchased  pursuant  to  section 832(e) of the Internal Revenue Code (or
any successor provision), only to the extent of the tax savings  result-
ing from the deduction for federal income tax purposes of a sum equal to
the  annual  contributions  to  the contingency reserve. The contingency
reserve shall otherwise be invested only in  classes  of  securities  or
types  of  investments  specified  in  paragraphs  one  through three of
subsection (b) of section one thousand four hundred two of this  chapter
and  paragraphs one through three of subsection (a) of section one thou-
sand four hundred four of this chapter.
  S 12. Paragraph 1 of subsection (b) of section 6903 of  the  insurance
law,  as  added by chapter 48 of the laws of 1989, is amended to read as
follows:
  (1) The case basis method or such other method as may be prescribed by
the  superintendent  shall  be  used  to  establish  and  maintain  loss
reserves, net of collateral, for claims reported and unpaid, in a manner
consistent  with  section  four  thousand  one hundred seventeen of this
chapter. A deduction from loss reserves shall be allowed  for  the  time
value  of  money  by application of a discount rate, AS OF THE STATEMENT
DATE AND CORRESPONDING TO THE EXPECTED TIME OF CLAIM PAYMENT,  equal  to
the  [average rate of return on the admitted assets of the insurer as of
the date of the computation of  any  such  reserves]  ZERO-COUPON  YIELD
IMPLIED  BY  THE  PRICE  OF  A REPRESENTATIVE SAMPLING OF COUPON BEARING
NONCALLABLE UNITED STATES TREASURY OBLIGATIONS,  IN  ACCORDANCE  WITH  A
METHOD  OR  FORMULA  ACCEPTABLE TO THE SUPERINTENDENT. The discount rate
shall be adjusted at the end of each calendar  [year]  QUARTER  OR  SUCH
OTHER PERIOD AS THE SUPERINTENDENT DETERMINES.
  S  13.  The  subsection  heading  and paragraph 1 of subsection (b) of
section 6904 of the insurance law, as amended by chapter 605 of the laws
of 2004, is amended to read as follows:
  Permissible [guarantees] GUARANTIES.  (1) The superintendent shall not
permit the writing of financial guaranty insurance except as defined  in
subparagraph (A) of paragraph one of subsection (a) of section six thou-
sand  nine  hundred  one  of this article, and a [corporation] FINANCIAL
GUARANTY INSURER may insure the timely payment of United  States  dollar
debt  instruments,  or other monetary obligations, only in the following
categories:
  (A) municipal obligation bonds;
  (B) special revenue bonds;
  (C) industrial development bonds;
  (D) obligations of corporations,  trusts  or  other  similar  entities
established under applicable law;
  (E) partnership obligations;
  (F)  asset-backed securities, trust certificates and trust obligations
[other than]; PROVIDED THAT:
  (I) WITH RESPECT TO mortgage-backed securities secured by first  mort-
gages on real property which are insurable by a mortgage guaranty insur-
er  authorized under paragraph twenty-three of subsection (a) of section
one thousand one hundred thirteen of this chapter[, unless]:
  [(i)] (I) such mortgages with loan-to-value ratios in excess of eighty
percent are:
  [(I)] (AA) in the case of mortgages on property located in  the  state
of  New  York,  insured  by  mortgage guaranty insurers authorized under
paragraph twenty-three of subsection (a) of  section  one  thousand  one
hundred thirteen of this chapter;

A. 8855                            13

  [(II)]  (BB)  in  the case of mortgages on property located in a state
other than the state of New York, insured by mortgage guaranty  insurers
authorized to do business in such other state; or
  [(III)]  (CC)  in  an  aggregate principal amount less than the single
risk limits prescribed in paragraph  five  of  subsection  (d)  of  this
section; or
  [(ii)]  (II)  WITH  RESPECT  TO  additional  mortgages  with principal
balances, other collateral with a market value, or (provided the insured
risk is investment grade) excess spread in an amount, in  each  instance
at  least equal to the coverage that would otherwise be provided by such
mortgage guaranty insurers in accordance with [item (i)] CLAUSE  (I)  of
this  [subparagraph]  ITEM  are  pledged  as additional security for the
asset-backed securities; OR
  (II) WITH RESPECT TO ANY ASSET-BACKED  SECURITIES  BACKED  BY  ANOTHER
POOL  OF  ASSET-BACKED  SECURITIES, THE CONDITIONS SET FORTH IN SUBPARA-
GRAPH (B) OF PARAGRAPH FIVE OF THIS SUBSECTION ARE MET;
  (G) installment purchase agreements executed as a condition of sale;
  (H) consumer debt obligations;
  (I) utility first mortgage obligations; [and]
  (J) INVESTMENT GRADE OBLIGATIONS OF THE GOVERNMENT OF A COUNTRY, MUNI-
CIPALITY, OR A POLITICAL SUBDIVISION OF ANY OF  THE  FOREGOING,  OR  ANY
PUBLIC  AGENCY  OR  INSTRUMENTALITY THEREOF IF THAT ENTITY DOES NOT MEET
THE DEFINITION OF A GOVERNMENTAL UNIT; AND
  (K) any other debt instrument or financial obligation that the  super-
intendent determines to be substantially similar to any of the foregoing
or THAT shall otherwise be approved by the superintendent.
  S  14.  Paragraph 2 of subsection (b) of section 6904 of the insurance
law, as amended by chapter 605 of the laws of 2004, is amended and a new
paragraph 5 is added to read as follows:
  (2) [An] (A) A  FINANCIAL  GUARANTY  insurer  may  insure  obligations
[enumerated  in subparagraphs (A), (B), and (C) of paragraph one of this
subsection] that are not investment grade so long as  at  least  ninety-
five  percent  of the insurer's aggregate net liability [on the kinds of
obligations enumerated in subparagraphs (A), (B) and  (C)  of  paragraph
one of this subsection] shall be investment grade.
  (B)  UPON  APPLICATION  BY  THE FINANCIAL GUARANTY INSURER, THE SUPER-
INTENDENT MAY ESTABLISH A LOWER PERCENTAGE  OF  THE  FINANCIAL  GUARANTY
INSURER'S  AGGREGATE  NET  LIABILITY  THAT  IS REQUIRED TO BE INVESTMENT
GRADE IF THE SUPERINTENDENT DETERMINES THAT THERE IS NO  UNDUE  RISK  TO
THE  INSURER,  OR  ITS  POLICYHOLDERS  OR THE PEOPLE OF THIS STATE.   IN
MAKING THE DETERMINATION, THE SUPERINTENDENT SHALL TAKE  INTO  CONSIDER-
ATION, AMONG OTHER FACTORS, THE FINANCIAL GUARANTY INSURER'S OUTSTANDING
LIABILITIES  ON  NON-INVESTMENT  GRADE  OBLIGATIONS  IN  RELATION TO THE
AMOUNT OF ITS SURPLUS TO POLICYHOLDERS AND CONTINGENCY RESERVES.
  (C) A FINANCIAL GUARANTY INSURER SHALL NOTIFY THE  SUPERINTENDENT  AND
PROVIDE A PLAN FOR CORRECTIVE ACTION WITHIN FIVE CALENDAR DAYS AFTER THE
CONCLUSION  OF  ANY  THIRTY-DAY  CALENDAR  PERIOD IN WHICH THE FINANCIAL
GUARANTY INSURER'S NON-INVESTMENT GRADE OBLIGATIONS CONTINUOUSLY  EXCEED
THE PERMITTED AMOUNT BY MORE THAN TWENTY PERCENT.
  (5)  (A) A FINANCIAL GUARANTY POLICY SHALL NOT INSURE A POOL OF ASSETS
THAT INCLUDES ANY PART OF ONE OR MORE OTHER POOLS OF ASSETS,  EXCEPT  AS
PROVIDED IN PARAGRAPH TWO OF THIS SUBSECTION.
  (B)  A  POOL  OF ASSETS MAY INCLUDE A PART, OR THE ENTIRETY, OF ONE OR
MORE POOLS OF ASSETS, PROVIDED THAT:
  (I)  THE  POOL  OF  ASSET-BACKED  SECURITIES  SHALL  BE  COMPRISED  OF
ASSET-BACKED  SECURITIES  HAVING A RIGHT TO PAYMENT AND RIGHTS IN INSOL-

A. 8855                            14

VENCY THAT ARE NOT SUBORDINATED TO ANY OTHER SECURITY OF THE ISSUER,  IN
THE  EVENT  OF A PAYMENT DEFAULT BY, OR REHABILITATION OR INSOLVENCY OF,
THE ISSUER AND ALL POSITIONS GUARANTEED BY THAT INSURER HAVE BEEN DETER-
MINED TO BE INVESTMENT GRADE;
  (II)  THE FINANCIAL GUARANTY INSURER SHALL POSSESS CONTROL AND REMEDI-
ATION RIGHTS SUBSTANTIALLY SIMILAR TO THOSE  HELD  BY  THE  MOST  SENIOR
CLASS  OF  SECURITIES OF THE ISSUER OF THE INSURED OBLIGATIONS BACKED BY
THE SAME POOL OF ASSETS;
  (III) THE POOL, A PORTION OR ALL OF WHICH IS CONTAINED WITHIN THE POOL
OF ASSETS, CONSISTS SOLELY OF ASSET-BACKED SECURITIES THAT ARE ISSUED OR
GUARANTEED BY A GOVERNMENTAL UNIT,  FEDERAL  NATIONAL  MORTGAGE  ASSOCI-
ATION,  FEDERAL  HOME LOAN MORTGAGE CORPORATION, FEDERAL HOME LOAN BANK,
THE FEDERAL AGRICULTURAL MORTGAGE CORPORATION, OR THE FEDERAL FARM CRED-
IT SYSTEM BANKS AS A CONSOLIDATED DEBT OBLIGATION OR A SYSTEM WIDE  DEBT
OBLIGATION  TO  THE  EXTENT THAT THE OBLIGATIONS ARE COVERED BY THE FARM
CREDIT INSURANCE FUND;
  (IV) THE COMBINATION OF A PORTION OR ALL  OF  TWO  OR  MORE  POOLS  OF
ASSET-BACKED  SECURITIES DOES NOT INCREASE OR AFFECT EITHER THE QUANTITY
OR INVESTMENT QUALITY OF OBLIGATIONS GUARANTEED BY THAT INSURER;
  (V) THE POOL CONSISTS ENTIRELY OF ASSET-BACKED SECURITIES  INSURED  BY
THE FINANCIAL GUARANTY INSURER; OR
  (VI)  THE  SUPERINTENDENT DETERMINES, UPON APPLICATION BY THE INSURER,
THAT INCLUSION OF A PORTION OR ALL OF THE POOL WITHIN THE POOL OF ASSETS
INSURED BY THE FINANCIAL GUARANTY INSURER DOES NOT RESULT IN UNDUE  RISK
TO THE INSURER, ITS POLICYHOLDERS, OR THE PEOPLE OF THIS STATE.
  S 15. Subsection (c) of section 6904 of the insurance law, as added by
chapter 48 of the laws of 1989, is amended to read as follows:
  (c) Aggregate risk limits. The [corporation] FINANCIAL GUARANTY INSUR-
ER  must  at all times maintain surplus to policyholders and contingency
reserves in the aggregate no less than the sum of:
  (1)(A) 0.3333 percent or 1/300th of the aggregate net liability  under
guaranties  of municipal bonds including obligations demonstrated to the
satisfaction of the superintendent to be the functional equivalent ther-
eof and investment grade utility first mortgage obligations; plus
  (B) 0.6666 percent or 1/150th of the  aggregate  net  liability  under
guaranties of investment grade asset-backed securities; plus
  (C)  1.0 percent or 1/100th of the aggregate net liability under guar-
anties, secured by collateral or having a term of seven years  or  less,
of:
  (i) investment grade industrial development bonds, AND
  (ii) other investment grade obligations; plus
  (D)  1.5  percent  or  1/66.67th  of the aggregate net liability under
guaranties of other investment grade obligations; plus
  (E) 2.0 percent or 1/50th of the aggregate net liability under guaran-
ties of:
  (i) non-investment grade consumer debt obligations, and
  (ii) non-investment grade asset-backed securities; plus
  (F) 2.5 percent or 1/40th of the aggregate net liability under guaran-
ties of non-investment grade obligations secured by first  mortgages  on
commercial real estate and having loan-to-value ratios of eighty percent
or less; plus
  (G) 4.0 percent or 1/25th of the aggregate net liability under guaran-
ties of other non-investment grade obligations; and
  (H)  if  the amount of collateral required by subparagraph (C) of this
paragraph is no longer maintained, that  proportion  of  the  obligation

A. 8855                            15

insured which is not so collateralized shall be subject to the aggregate
RISK limits specified in subparagraph (D) of this paragraph; and
  (2)  surplus  to  policyholders determined by the superintendent to be
adequate to support the writing  of  residual  value  insurance,  surety
insurance  and credit insurance, if the [corporation] FINANCIAL GUARANTY
INSURER has elected to transact such  kinds  of  insurance  pursuant  to
subsection (a) of section six thousand nine hundred two of this article.
  S  16.  Paragraphs 2, 4 and 5 of subsection (d) of section 6904 of the
insurance law, as amended by chapter  605  of  the  laws  of  2004,  are
amended to read as follows:
  (2)  (A)  for each issue of asset-backed securities BACKED BY THE SAME
POOL OF ASSETS OR issued by a single entity [and], for [each  pool]  ALL
POOLS  of  consumer  debt obligations AND ASSET-BACKED SECURITIES ORIGI-
NATED BY THE SAME ORIGINATOR, SERVICED BY THE SAME SERVICER  AS  OF  THE
EFFECTIVE  DATE OF THE POLICY, OR ISSUED IN THE SAME YEAR, FURTHER CATE-
GORIZED BY THE TYPE OF ASSETS SPECIFIED  IN  SUBPARAGRAPH  (E)  OF  THIS
PARAGRAPH, the lesser of:
  [(A)] (I) insured average annual debt service; or
  [(B)]  (II)  insured  unpaid principal (reduced by the extent to which
the unpaid principal of the supporting assets and, provided the  insured
risk  is investment grade, excess spread exceed the insured unpaid prin-
cipal) divided by nine[;]
shall not exceed ten percent of the aggregate of the FINANCIAL  GUARANTY
insurer's  surplus  to  policyholders and contingency reserve[, provided
that no].
  (B) IF AN ASSET-BACKED SECURITY IS SUBORDINATE  WITH  RESPECT  TO  THE
RIGHT  OF  PAYMENT  TO  ANY OTHER SECURITIES OF THE ENTITY BACKED BY THE
SAME POOL OF ASSETS, THEN THE INSURED AVERAGE ANNUAL  DEBT  SERVICE  AND
INSURED UNPAID PRINCIPAL SHALL BE DEEMED TO BE THE LESSER OF:
  (I)  THREE  HUNDRED PERCENT OF THE INSURED AVERAGE ANNUAL DEBT SERVICE
OR INSURED UNPAID PRINCIPAL RESPECTIVELY; OR
  (II) THE INSURED AVERAGE ANNUAL DEBT SERVICE OR INSURED UNPAID PRINCI-
PAL FOR BOTH THE INSURED SECURITY  AND  ALL  SECURITIES  SENIOR  TO  THE
INSURED  SECURITY  THAT  ARE  BACKED  BY THE SAME POOL OF ASSETS BUT NOT
INSURED BY THE SAME FINANCIAL GUARANTY INSURER.
  (C) FOR ALL ISSUES OF ASSET-BACKED SECURITIES ORIGINATED BY  THE  SAME
ORIGINATOR,  SERVICED  ON  THE  EFFECTIVE  DATE OF THE RELATED INSURANCE
POLICY BY THE SAME SERVICER, OR BOTH, BACKED BY THE SAME TYPE  OF  ASSET
AND ISSUED IN THE SAME CALENDAR YEAR, THE LESSER OF FIVE TIMES THE:
  (I) INSURED AVERAGE ANNUAL DEBT SERVICE; OR
  (II)  INSURED  UNPAID  PRINCIPAL  (REDUCED  BY THE EXTENT TO WHICH THE
UNPAID PRINCIPAL OF THE SUPPORTING ASSETS AND, PROVIDED THE INSURED RISK
IS INVESTMENT GRADE, EXCESS SPREAD EXCEED THE INSURED UNPAID  PRINCIPAL)
DIVIDED  BY  NINE SHALL NOT EXCEED FIFTY PERCENT OF THE AGGREGATE OF THE
FINANCIAL GUARANTY INSURER'S SURPLUS TO  POLICYHOLDERS  AND  CONTINGENCY
RESERVE.
  (D)  AN  asset  in  the  pool  supporting  the asset-backed securities
[exceeds] SHALL NOT EXCEED the single risk limits prescribed  in  [para-
graph five] SUBPARAGRAPH (A) of this [subsection] PARAGRAPH, if directly
guaranteed[; and provided further that, if].
  (E)  IF  the  issuer  of [such] THE insured asset-backed securities AS
DESCRIBED IN SUBPARAGRAPH (A) OF THIS PARAGRAPH  is  a  special  purpose
corporation, SPECIAL PURPOSE trust or other SPECIAL PURPOSE LEGAL entity
and  [such]  THE issuer shall have indebtedness outstanding with respect
to any other pool of assets, THEN either such other  indebtedness  shall

A. 8855                            16

be  entitled  to the benefits of a financial guaranty policy of the same
insurer, or such other indebtedness shall:
  (i)  be fully subordinated to the insured obligation, with respect to,
or be non-recourse with respect to, the pool of assets that supports the
insured obligation,
  (ii) be non-recourse to the issuer other  than  with  respect  to  the
asset  pool  securing  such other indebtedness and proceeds in excess of
the  proceeds  necessary  to  pay  the   insured   obligation   ("excess
proceeds"); and
  (iii) not constitute a claim against the issuer to the extent that the
asset  pool  securing  such  other  indebtedness  or excess proceeds are
insufficient to pay such other indebtedness[;].
  (F) IF A SINGLE ORIGINATOR OR SERVICER MERGES  OR  CONSOLIDATES  WITH,
ACQUIRES OR IS ACQUIRED BY, OR BECOMES A PARENT, SUBSIDIARY OR AFFILIATE
OF  ANOTHER  ORIGINATOR  OR  SERVICER  ON OR AFTER THE ISSUE DATE OF ANY
POLICY, THEN THE RISK LIMITS SET FORTH IN SUBSECTION (C) OF THIS SECTION
AND THIS SUBSECTION SHALL CONTINUE TO BE COMPUTED WITHOUT REGARD TO  THE
STATUS CHANGE WITH RESPECT TO POLICIES ISSUED BEFORE THE STATUS CHANGE.
  (G) FOR THE PURPOSE OF THIS PARAGRAPH:
  (I)  AN  ORIGINATOR  OR  SERVICER  INCLUDES  ANY  PARENT, AFFILIATE OR
SUBSIDIARY OF THE ORIGINATOR OR SERVICER; AND
  (II) "TYPES OF ASSETS" MEANS:
  (I) MUNICIPAL OBLIGATIONS (INCLUDING STATE, COUNTY, CITY OR ANY  OTHER
POLITICAL SUBDIVISION);
  (II) SPECIAL REVENUE BONDS;
  (III) INDUSTRIAL DEVELOPMENT BONDS;
  (IV)  CORPORATE  OBLIGATIONS (TYPES I, II OR III, AS DESCRIBED BY EACH
YEAR'S PROPERTY/CASUALTY ANNUAL STATEMENT INSTRUCTIONS);
  (V) CONSUMER DEBT OBLIGATIONS (INCLUDING CREDIT CARD  RECEIVABLES  AND
AUTOMOBILE LOANS);
  (VI)  OBLIGATIONS  SECURED  BY  RESIDENTIAL  REAL ESTATE (SUCH AS HOME
EQUITY LINES OF CREDIT, SECOND MORTGAGES, AND SUBPRIME MORTGAGES);
  (VII) OBLIGATIONS SECURED BY COMMERCIAL REAL ESTATE, INCLUDING  OFFICE
BUILDINGS AND MULTI-FAMILY DWELLINGS WITH MORE THAN FOUR RESIDENCES;
  (VIII) NON-INVESTMENT GRADE OBLIGATIONS AND ALL OTHER GUARANTEES; OR
  (IX)  OTHER TYPES OF ASSETS AS THE SUPERINTENDENT MAY SPECIFY IN REGU-
LATIONS;
  (4) for utility first mortgage obligations, the insured average annual
debt service shall not exceed ten percent of the aggregate of the FINAN-
CIAL  GUARANTY  insurer's  surplus  to  policyholders  and   contingency
reserve; and
  (5)  for  all  other  policies  providing financial guaranty insurance
[with respect to] ON obligations issued by  a  single  entity  [and]  OR
backed  by  a  single revenue source, the insured unpaid principal shall
not exceed ten percent of the aggregate of the FINANCIAL GUARANTY insur-
er's surplus to policyholders and contingency reserve.
  S 17. Subsection (f) of section 6904 of the insurance law, as  amended
by  chapter  89  of the laws of 1989, is amended and six new subsections
(h), (i), (j), (k), (l), and (m) are added to read as follows:
  (f) An insurer shall not be deemed  in  violation  of  any  limitation
prescribed  by  [subsection (d)] ANY PROVISION of this [section] ARTICLE
with respect to any financial guaranty insurance  outstanding  prior  to
the  effective  date of [this article] THE PROVISION, if the insurer was
in compliance with the applicable [single risk limit] PROVISION OF  THIS
ARTICLE  in effect in this state at the time that the financial guaranty
insurance policy was issued. [If the insurer was not so  in  compliance,

A. 8855                            17

such  financial  guaranty  insurance  shall  comply with the limitations
prescribed by subsection (d) of this section no later than  three  years
after the effective date of this article.]
  (H)  ALL  POLICIES  ISSUED  BY  A  FINANCIAL GUARANTY INSURER SHALL BE
AGGREGATED FOR PURPOSES OF DETERMINING WHETHER ANY LIMITATION PRESCRIBED
BY SUBSECTION (D) OF THIS SECTION HAVE BEEN EXCEEDED.
  (I) A FINANCIAL GUARANTY INSURER SHALL REPORT  TO  THE  SUPERINTENDENT
WITHIN  TEN  DAYS OF THE END OF A CALENDAR QUARTER, ON A FORM PRESCRIBED
BY THE SUPERINTENDENT, IF:
  (1) THE NOTIONAL VALUE OF THE INSURER'S AGGREGATE LIABILITIES  ON  ALL
GUARANTEED MUNICIPAL OBLIGATION BONDS, SPECIAL REVENUE BONDS, AND INDUS-
TRIAL DEVELOPMENT BONDS, GROSS OF LIABILITIES ASSUMED AND NET OF LIABIL-
ITIES  REINSURED,  IS EQUAL TO OR GREATER THAN ONE HUNDRED TIMES POLICY-
HOLDER SURPLUS PLUS CONTINGENCY RESERVES;
  (2) THE NOTIONAL VALUE OF THE INSURER'S AGGREGATE LIABILITIES  ON  ALL
GUARANTEED MUNICIPAL OBLIGATION BONDS, SPECIAL REVENUE BONDS, AND INDUS-
TRIAL  DEVELOPMENT BONDS, GROSS OF LIABILITIES ASSUMED, BUT DISREGARDING
LIABILITIES REINSURED, IS EQUAL TO OR GREATER  THAN  TWO  HUNDRED  TIMES
POLICYHOLDER SURPLUS PLUS CONTINGENCY RESERVES;
  (3)  THE  NOTIONAL VALUE OF THE INSURER'S AGGREGATE LIABILITIES ON ALL
GUARANTEED OBLIGATIONS OTHER THAN MUNICIPAL  OBLIGATION  BONDS,  SPECIAL
REVENUE  BONDS,  AND  INDUSTRIAL DEVELOPMENT BONDS, GROSS OF LIABILITIES
ASSUMED AND NET OF LIABILITIES REINSURED IS EQUAL TO OR GREATER THAN TEN
TIMES POLICYHOLDER SURPLUS PLUS CONTINGENCY RESERVES; OR
  (4) THE NOTIONAL VALUE OF THE INSURER'S AGGREGATE LIABILITIES  ON  ALL
GUARANTEED  OBLIGATIONS  OTHER  THAN MUNICIPAL OBLIGATION BONDS, SPECIAL
REVENUE BONDS, AND INDUSTRIAL DEVELOPMENT BONDS,  GROSS  OF  LIABILITIES
ASSUMED,  BUT DISREGARDING LIABILITIES REINSURED, IS EQUAL TO OR GREATER
THAN FIFTEEN TIMES POLICYHOLDER SURPLUS PLUS CONTINGENCY RESERVES.
  (J) A FINANCIAL GUARANTY INSURER SHALL SUBMIT TO  THE  SUPERINTENDENT,
WITHIN  FORTY-FIVE  DAYS  AFTER  THE  END  OF EACH CALENDAR QUARTER, THE
FOLLOWING INFORMATION:
  (1) A LISTING OF THE INSURER'S AGGREGATE LIABILITIES,  INCLUDING  EACH
LIABILITY'S FAIR VALUE, FOR ALL GUARANTEED OBLIGATIONS, GROSS OF LIABIL-
ITIES  ASSUMED  AND  BOTH NET OF AND WITHOUT REGARD TO LIABILITIES REIN-
SURED; AND
  (2) IDENTIFICATION OF ALL GUARANTEED OBLIGATIONS (INCLUDING EACH OBLI-
GATION'S FAIR VALUE), IN A FORM AND MANNER ACCEPTABLE TO THE SUPERINTEN-
DENT, IDENTIFYING THE OBLIGATION FOR ITS PROPER EVALUATION BY THE SUPER-
INTENDENT FOR DEGREE OF RISK.
  (K) A REPORT PROVIDED TO THE SUPERINTENDENT PURSUANT TO  THIS  SECTION
SHALL INCLUDE:
  (1)  ALL  RELEVANT  SPECIFIC  DETAIL  (INCLUDING ANY APPLICABLE DOLLAR
AMOUNTS, PERCENTAGES, AND/OR RATIOS);
  (2) AN EXPLANATION OF ANY RELEVANT FACTS AND  CIRCUMSTANCES  RESULTING
IN ANY DISCREPANCIES OR MATERIAL CHANGES FROM ANY PREVIOUS REPORT; AND
  (3)  A  STATEMENT  AS TO ANY ACTIONS THE INSURER MAY INTEND TO TAKE TO
AFFECT THE PROVIDED INFORMATION.
  (L) NOTWITHSTANDING ANY OTHER PROVISION OF THIS  CHAPTER,  THE  SUPER-
INTENDENT MAY, PURSUANT TO REGULATION, PROHIBIT THE WRITING OF FINANCIAL
GUARANTY INSURANCE, OR IMPOSE LIMITATIONS WITH RESPECT TO THE WRITING OF
FINANCIAL  GUARANTY  INSURANCE,  WITH RESPECT TO ANY INSTRUMENT OR OTHER
MONETARY OBLIGATION THAT IS NOT INVESTMENT GRADE, UPON  A  DETERMINATION
THAT  THE  PROHIBITION  OR  IMPOSITION  OF  LIMITATIONS  IS NECESSARY TO
PROTECT THE INTERESTS OF  FINANCIAL  GUARANTY  INSURERS,  POLICYHOLDERS,
CLAIMANTS, OBLIGEES OR INDEMNITEES, OR THE PEOPLE OF THIS STATE.

A. 8855                            18

  (M) ANY REPORT SUBMITTED PURSUANT TO THIS SECTION SHALL BE KEPT CONFI-
DENTIAL  AND  NOT BE MADE PUBLIC UNLESS, AFTER NOTICE AND AN OPPORTUNITY
TO BE HEARD, THE SUPERINTENDENT DETERMINES THAT THE INTERESTS OF POLICY-
HOLDERS, STOCKHOLDERS OR THE PUBLIC WILL BE SERVED  BY  THE  PUBLICATION
THEREOF.
  S 18. Section 6905 of the insurance law, as added by chapter 48 of the
laws  of  1989,  subsection (a) as amended by chapter 672 of the laws of
2005, is amended to read as follows:
  S 6905. Policy forms and rates. (a) Policy forms and any amendments OR
ENDORSEMENTS thereto shall be filed with the superintendent within thir-
ty days of their use by the FINANCIAL GUARANTY insurer if not  otherwise
filed prior to the effective date of this article.
  (B)  Every [such] FINANCIAL GUARANTY policy shall provide that, in the
event of a payment default by or insolvency of the obligor, there  shall
be  no acceleration of the payment required to be made under such policy
unless [such] acceleration is [at the sole option  of  the  corporation;
provided  that  (1)  policies  may insure amounts payable under a credit
default swap or interest rate, currency or  other  swap  upon  a  credit
event or termination event if the expected amount payable on an acceler-
ated basis in respect of any individual obligation referenced by a cred-
it  default swap or in the aggregate under an interest rate, currency or
other swap does not exceed the single risk limits  prescribed  in  para-
graph  five  of subsection (d) of section six thousand nine hundred four
of this article and (2) policies insuring credit default swaps referenc-
ing an obligation shall be  treated  as  if  the  insurer  had  directly
insured  the  referenced obligation for all other purposes of this arti-
cle, except that the currency of amounts owed under the  credit  default
swap,  rather  than  the  currency  of the obligations referenced by the
credit default swap, shall apply for purposes of determining whether the
obligation is a permissible guaranty under subsection (b) of section six
thousand nine hundred four of this article PERMITTED  BY  THE  FINANCIAL
GUARANTY  INSURER  AT  ITS  SOLE  OPTION,  EXERCISED  AT THE TIME OF THE
PAYMENT.
  (C) A FINANCIAL GUARANTY POLICY SHALL NOT PROVIDE THAT COMMENCEMENT OF
REHABILITATION, LIQUIDATION OR CONSERVATORSHIP PROCEEDINGS UNDER ARTICLE
SEVENTY-FOUR  OF  THIS  CHAPTER,  BANKRUPTCY  OR   ANY   OTHER   SIMILAR
PROCEEDINGS  WHETHER UNDER THE LAWS OF THIS STATE OR ANOTHER STATE, WITH
RESPECT TO A FINANCIAL GUARANTY INSURER OR THE INSURED  ACCELERATES  ANY
PAYMENT  REQUIRED  TO BE MADE UNDER THE POLICY, ABSENT A PAYMENT DEFAULT
BY THE OBLIGOR OR THE INSURER.
  (D) A FINANCIAL GUARANTY POLICY MAY PROVIDE THAT EITHER THE  FINANCIAL
GUARANTY  INSURER  OR  THE  INSURED MAY TERMINATE THE POLICY AS A CONSE-
QUENCE OF THE COMMENCEMENT OF REHABILITATION, LIQUIDATION  OR  CONSERVA-
TORSHIP  PROCEEDINGS  UNDER  ARTICLE SEVENTY-FOUR OF THIS CHAPTER, BANK-
RUPTCY OR ANY OTHER SIMILAR PROCEEDINGS, WHETHER UNDER THE LAWS OF  THIS
STATE  OR ANOTHER STATE, WITH RESPECT TO A FINANCIAL GUARANTY INSURER OR
THE INSURED, PROVIDED THAT THE TERMINATION:
  (1) DOES NOT ACCELERATE OR OTHERWISE INCREASE THE  OBLIGATION  OF  THE
FINANCIAL GUARANTY INSURER TO MAKE SCHEDULED PAYMENTS WHEN DUE UNDER THE
POLICY; AND
  (2) DOES NOT REQUIRE THE INSURER TO MAKE ANY ADDITIONAL PAYMENT TO THE
INSURED BY REASON OF THE TERMINATION.
  (E)  The  superintendent  BY  REGULATION  may prescribe minimum policy
provisions determined by the superintendent to be necessary or appropri-
ate to protect FINANCIAL GUARANTY  INSURERS,  policyholders,  claimants,
obligees or indemnitees OR THE PEOPLE OF THIS STATE.

A. 8855                            19

  [(b)] (F) Rates shall not be excessive, inadequate, unfairly discrimi-
natory,  destructive  of competition, detrimental to the solvency of the
insurer, or otherwise unreasonable. In determining whether rates  comply
with  the  foregoing  standards,  the  superintendent  shall include all
income  earned  by  such  insurer.  Criteria  and guidelines utilized by
insurers in establishing rating categories and ranges  of  rates  to  be
utilized shall be filed with the superintendent for information prior to
their  use  by the insurer if not otherwise filed prior to the effective
date of this article.
  [(c)] (G) All such filings shall be available for public inspection at
the insurance department.
  S 19. Section 6907 of the insurance law, as added by chapter 48 of the
laws of 1989, subparagraph (C) of  paragraph  1  of  subsection  (a)  as
amended  by  chapter  324  of  the  laws  of 1992, is amended to read as
follows:
  S 6907. Transition provisions. (A) A licensed insurer  writing  finan-
cial 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 SHALL:
  [(a)  may,  unless  the  superintendent determines after notice and an
opportunity to be heard that such activity poses a hazard to the  insur-
er,  its  policyholders  or  to  the public, continue to write financial
guaranties (except guaranties of municipal bonds) of the  types  author-
ized 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 effec-
tive  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 corpo-
ration 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  annual-
ly;

A. 8855                            20

  (C)  if  the insurer has determined that it will not organize a finan-
cial 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 para-
graph 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 limita-
tions 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 policyhold-
ers 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  insur-
er'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  invest-
ment grade requirements set forth in such sentence.
  (D) during the transition period, reinsurance in the form of intercom-
pany 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  agree-
ments 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  agree-
ment  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 arti-
cle;
  (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:

A. 8855                            21

  (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  corpo-
ration 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 annual-
ly;
  (F) if the insurer has determined that it will not organize  a  finan-
cial  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  para-
graph 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 insur-
ance  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 trans-
act 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 other-
wise 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 guar-
anty 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 finan-
cial 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

A. 8855                            22

of  this  article.  Provided, however, an insurer must receive the prior
approval of its domiciliary commissioner before issuing any  new  finan-
cial  guaranty insurance policies that would have the effect of increas-
ing its risk of loss;
  (b)  shall,]  (1)  for  all guaranties in force prior to the effective
date of this article, including those [which] THAT fall under the  defi-
nition  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
FINANCIAL GUARANTY insurer's contingency reserves maintained as  of  the
effective  date of this article are less than those required for munici-
pal 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]
FINANCIAL GUARANTY INSURER'S outstanding obligations; and
  [(c)  shall]  (2)  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.
  (B) A POLICY ISSUED BY A FINANCIAL GUARANTY INSURER ON OR AFTER AUGUST
FIRST, TWO THOUSAND NINE, WHICH  AMENDS  OR  REPLACES  A  POLICY  ISSUED
BEFORE  AUGUST FIRST, TWO THOUSAND NINE, SHALL BE GOVERNED BY THIS ARTI-
CLE AS IN EFFECT ON THE DATE THE ORIGINAL POLICY WAS FIRST ISSUED OR, IF
AMENDED, THE DATE THAT THE ORIGINAL POLICY WAS  LAST  AMENDED  PRIOR  TO
AUGUST FIRST, TWO THOUSAND NINE, PROVIDED THAT THE AMENDMENT OR REPLACE-
MENT  OF  THE  ORIGINAL  INSURANCE POLICY IS EXECUTED SOLELY TO MITIGATE
ACCUMULATED LOSSES AND REDUCE EXPOSURE TO FUTURE LOSSES UNDER THE  POLI-
CY.
  (C) IF A FINANCIAL GUARANTY INSURER'S EXPOSURE TO LOSS ON ANY ONE RISK
INSURED  BY  POLICIES  PROVIDING  FINANCIAL  GUARANTY  INSURANCE, NET OF
COLLATERAL AND REINSURANCE, EXCEEDS THE SINGLE RISK LIMITS IN SUBSECTION
(D) OF SECTION SIX THOUSAND NINE HUNDRED FOUR  OF  THIS  ARTICLE  AS  OF
AUGUST  FIRST, TWO THOUSAND NINE, THE FINANCIAL GUARANTY INSURER'S EXPO-
SURE TO LOSS SHALL NONETHELESS BE DEEMED TO SATISFY THE REQUIREMENTS  OF
SUCH SUBSECTION PROVIDED THAT:
  (1)  THE  FINANCIAL  GUARANTY INSURER'S EXPOSURE TO LOSS ON ANY SINGLE
RISK DOES NOT EXCEED THE EXPOSURES ON THAT RISK AS OF AUGUST FIRST,  TWO
THOUSAND NINE;
  (2)  THE  FINANCIAL  GUARANTY  INSURER SHALL NOT ISSUE A POLICY ADDING
ADDITIONAL EXPOSURE TO LOSS WITH RESPECT TO THAT SINGLE RISK;
  (3) THE FINANCIAL GUARANTY  INSURER'S  EXPOSURE  TO  LOSS  UNDER  THIS
SUBSECTION  SHALL  BE  REDUCED  TO  REFLECT  PREPAYMENTS,  AMORTIZATION,
INCREASED CAPITAL, REINSURANCE AND ANY  OTHER  EVENT  THAT  REDUCES  THE
AMOUNT OF THE INSURER'S EXPOSURE TO LOSS FOR THE SPECIFIC SINGLE RISK;
  (4)  THE FINANCIAL GUARANTY INSURER'S EXPOSURE TO LOSS, AS ADJUSTED BY
PARAGRAPH THREE OF THIS SUBSECTION, FOR A  SPECIFIC  SINGLE  RISK  SHALL
QUARTERLY BE COMPARED TO THE SINGLE RISK LIMIT COMPUTED UNDER SUBSECTION
(D)  OF  SECTION  SIX  THOUSAND  NINE  HUNDRED  FOUR OF THIS ARTICLE, AS
AMENDED EFFECTIVE AUGUST FIRST, TWO THOUSAND NINE; AND

A. 8855                            23

  (5) THE SUBSECTION SHALL NO LONGER APPLY AS OF THE DATE UPON WHICH THE
INSURER'S EXPOSURE TO LOSS FOR THE SPECIFIC SINGLE RISK IS EQUAL  TO  OR
LESS  THAN  THE  SINGLE  RISK  LIMITS  COMPUTED  UNDER SUBSECTION (D) OF
SECTION SIX THOUSAND NINE HUNDRED  FOUR  OF  THIS  ARTICLE,  AS  AMENDED
EFFECTIVE ON AUGUST FIRST, TWO THOUSAND NINE.
  S  20.  Section 1108 of the insurance law is amended by a adding a new
subsection (j) to read as follows:
  (J)(1) A WRITER OF A CREDIT DEFAULT SWAP OR ANY AGENT, BROKER OR OTHER
PERSON ACTING IN CONNECTION WITH THE MAKING OF THE CREDIT DEFAULT  SWAP,
FROM  THIS  CHAPTER  OR  ANY PART THEREOF, TO THE EXTENT THAT THE SUPER-
INTENDENT IN A REGULATION HAS DETERMINED THAT THE ISSUANCE OF THE CREDIT
DEFAULT SWAP IS EFFECTIVELY AND COMPREHENSIVELY REGULATED  IN  A  MANNER
THAT PROTECTS THE INTERESTS OF THE PEOPLE OF THIS STATE, INCLUDING THAT:
  (A) THE CREDIT DEFAULT SWAP WRITER SHALL MAINTAIN ADEQUATE CAPITAL AND
POST SUFFICIENT TRADING MARGINS TO MINIMIZE COUNTERPARTY RISK; AND
  (B)  COMPREHENSIVE  MARKET DATA IS COLLECTED AND TIMELY MADE AVAILABLE
TO ALL APPROPRIATE REGULATORY AUTHORITIES.
  (2) FOR PURPOSES OF THIS SUBSECTION, "CREDIT DEFAULT  SWAP"  MEANS  AN
AGREEMENT  REFERENCING  THE CREDIT DERIVATIVE DEFINITIONS PUBLISHED FROM
TIME TO TIME BY THE INTERNATIONAL SWAP AND DERIVATIVES ASSOCIATION, INC.
OR OTHERWISE ACCEPTABLE TO THE SUPERINTENDENT, PURSUANT TO WHICH A PARTY
AGREES TO COMPENSATE ANOTHER PARTY IN THE EVENT OF A PAYMENT DEFAULT BY,
INSOLVENCY OF, OR OTHER ADVERSE CREDIT EVENT IN RESPECT OF, AN ISSUER OF
A SPECIFIED SECURITY OR OTHER OBLIGATION.
  S 21. This act shall take effect August 1, 2009.

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Assembly Bill A8855

Sponsored By

Archive: Last Bill Status - In Assembly Committee

multi-Sponsors

2009-A8855 (ACTIVE) - Details

2009-A8855 (ACTIVE) - Summary

2009-A8855 (ACTIVE) - Sponsor Memo

2009-A8855 (ACTIVE) - Bill Text download pdf

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Assembly Bill A8855

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Sponsored By

MORELLE

Archive: Last Bill Status - In Assembly Committee

multi-Sponsors

James F. Brennan

2009-A8855 (ACTIVE) - Details

2009-A8855 (ACTIVE) - Summary

2009-A8855 (ACTIVE) - Sponsor Memo

2009-A8855 (ACTIVE) - Bill Text download pdf

Comments