Senate Bill S5311

                                 
BILL NUMBER: S5311

SPONSOR: BAILEY
 
TITLE OF BILL:

An act to amend the insurance law, in relation to mortgage guaranty
insurance

 
PURPOSE:

To give the Superintendent of the New York State Department of Financial
Services (DFS) the flexibility to allow mortgage guaranty insurance
companies to make early withdrawals from their statutorily-mandated
contingency reserve accounts if the Superintendent determines that such
withdrawal would not be harmful to policyholders.

 
SUMMARY OF PROVISIONS:

This bill adds language to the section of the Insurance Law governing
contingency reserve requirements for mortgage guaranty insurers to
provide the DFS Superintendent the ability to allow mortgage guaranty
insurance companies to make early withdrawals from their contingency
              

reserve accounts on a case-by-case basis upon a finding that such with-
drawal would not be harmful to policyholders.

 
JUSTIFICATION:

Mortgage guaranty insurance is a type of insurance coverage that
protects banks and other lenders from losses if borrowers default on
their residential home loans. Contingency reserves are special reserves
that mortgage guaranty insurance companies are required to maintain by
statute that are designed to protect policyholders against the effect of
losses resulting from adverse economic cycles.  insurance companies must
contribute to their contingency reserves an amount equal to 50 percent
of their het earned premiums (defined as gross premiums minus premiums
returned to policyholders). The law also states that withdrawals may be
made by mortgage guaranty insurance companies with the prior approval of
the DFS Superintendent in any year in which the actual incurred losses
exceed 35 percent of the corresponding earned premiums. However, this is
the only exception the statute makes that allows for withdrawals from
contingency reserves.

In recent years, the mortgage guaranty insurance industry has experi-
enced a significant and redundant buildup of regulatory capital due to
contingency reserve increases. Mortgage guaranty insurance companies are
much more resilient to stress scenarios than they were prior to the 2008
financial crisis due to much more stringent underwriting standards,
compliance with Federal Private Mortgage Insurer Eligibility Require-
ments (PMIERs) and substantial reinsurance including fully collateral-
ized mortgage insurance linked notes. This legislation provides the DFS
Superintendent with the discretionary authority to release contingency
reserves if, in the Superintendent's sole determination, the financial
condition of the requesting insurer would warrant such a release.
Passage of this legislation will have no negative effect on consumers or
the insured lenders and would maintain the existing statute's require-
ment to maintain contingency reserves. New York is the only state with a
contingency reserve requirement that does not defer to the domiciliary
state or provide discretion to state regulators.

 
LEGISLATIVE HISTORY:

2023-24: S3592 - Passed Senate

2021-22: S8404 - Passed Senate

 
FISCAL IMPLICATIONS:

None.

 
EFFECTIVE DATE:
Immediately.