§ 6502. Financial requirements. (a) A mortgage insurer shall not
transact business unless:

(1) if a stock insurance company, it has paid-in capital of at least
one million dollars and paid-in surplus of at least one million dollars
or, if a mutual insurance company, a minimum initial surplus of two
million dollars. A stock company shall at all times thereafter maintain
a minimum surplus of at least five hundred thousand dollars, a mutual
company shall at all times thereafter maintain a minimum surplus of at
least one million five hundred thousand dollars;

(2) it establishes a contingency reserve out of net premiums (gross
premiums less premiums returned to policyholders) remaining after
establishing the unearned premium reserve. The company shall contribute
to the contingency reserve an amount equal to fifty percent of such
remaining earned premiums. Contributions to the contingency reserve
made during each calendar year shall be maintained for a period of one
hundred and twenty months, except that withdrawals may be made by the
company with the prior approval of the superintendent in any year in
which the actual incurred losses exceed thirty-five percent of the
corresponding earned premiums. The unearned premium reserve shall be
computed as required by section one thousand three hundred five of this
chapter except that on policies covering a risk period of more than one
year it shall be computed in accordance with standards promulgated by
the superintendent; and

(3) in addition to the contingency reserve, the case basis method or
other method as may be prescribed by the superintendent shall be used to
determine the loss reserve in a manner consistent with section one
thousand three hundred three of this chapter. It shall include a reserve
for claims reported and unpaid and claims incurred but not reported,
including:

(A) estimated losses on insured loans which have resulted in the
conveyance of property which remains unsold;

(B) insured loans in the process of foreclosure; and

(C) insured loans in default for four or more months.

(b) A mortgage insurer shall not:

(1) have outstanding a total liability under its aggregate insurance
policies exceeding twenty-five times its policyholders' surplus,
computed on the basis of the company's liability under its election as
provided in subsection (c) of section six thousand five hundred three of
this article. Total liability shall be calculated net of applicable
reinsurance. No company which has outstanding total liability exceeding
twenty-five times its policyholders' surplus shall transact new business
until its total liability no longer exceeds twenty-five times its
policyholders' surplus;

(2) declare dividends except from undivided profits remaining on hand
above the aggregate of its paid-in capital, paid-in surplus and
contingency reserve or, if a mutual insurance company, its initial
surplus and contingency reserve; or

(3) invest its contingency reserve except in tax and loss bonds
purchased pursuant to § 832(e) of the Internal Revenue Code, to the
extent of the tax savings resulting from the deduction for federal
income tax purposes equal to the annual contributions to the contingency
reserve. The contingency reserve shall otherwise be held in cash or
invested only in the types of reserve investments specified in
paragraphs one and two of subsection (a) of section one thousand four
hundred four of this chapter.