BILL NUMBER: S8404

SPONSOR: BRESLIN
 
TITLE OF BILL:

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

 
PURPOSE:

To give the Commissioner of the NYS Department of Financial Services
(DFS) the authority to adjust contingency reserve requirements for mort-
gage guaranty insurers as appropriate.

 
SUMMARY OF PROVISIONS:

This bill would add language to the section of the Insurance Law govern-
ing contingency reserve requirements for mortgage guaranty insurers to
provide the Commissioner of the Department of Financial Services the
ability to adjust such reserve requirements on a case-by-case basis as
appropriate.

              

 
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.

In 1984, New York State enacted a law stating that mortgage guaranty
insurance companies must contribute to their contingency reserves an
amount equal to 50% of their net 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% of the corresponding earned premi-
ums. 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 would provide the DFS Superintendent with the discre-
tionary authority to release contingency reserves if, in the Superinten-
dent'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 requirement to maintain contingency
reserves. New York is the only state with a contingency reserve require-
ment that does not defer to the domiciliary state or provide discretion
to state regulators.
 
LEGISLATIVE HISTORY:

New bill.

 
FISCAL IMPLICATIONS:

None.

 
EFFECTIVE DATE:
Immediately