BILL NUMBER: S3592REVISED 3/21/23

SPONSOR: BRESLIN
 
TITLE OF BILL:

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

 
PURPOSE:

To give the Superintendent of the NYS 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 would add language to the section of the Insurance Law govern-
ing contingency reserve requirements for mortgage guaranty insurers to
provide the Superintendent of the Department of Financial Services 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 withdrawal would not be harmful to poli-
cyholders

 
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 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 would provid the
DES Superintendent with the discretionary authority to release contin-
gency 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 stat-
ute's requirement 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:

2021-2022: S.8404

 
FISCAL IMPLICATIONS:

None.

 
EFFECTIVE DATE:
Immediately