§ 6904. Limitations. (a) Financial guaranty insurance may be
transacted in this state only by a corporation licensed for such purpose
pursuant to section six thousand nine hundred two of this article.

(b) Permissible guarantees. (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
thousand nine hundred one of this article, and a corporation 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 mortgage-backed securities secured by first mortgages on real
property which are insurable by a mortgage guaranty insurer authorized
under paragraph twenty-three of subsection (a) of section one thousand
one hundred thirteen of this chapter, unless:

(i) such mortgages with loan-to-value ratios in excess of eighty
percent are:

(I) 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;

(II) 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) in an aggregate principal amount less than the single risk
limits prescribed in paragraph five of subsection (d) of this section;
or

(ii) 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) of this subparagraph are pledged as
additional security for the asset-backed securities;

(G) installment purchase agreements executed as a condition of sale;

(H) consumer debt obligations;

(I) utility first mortgage obligations; and

(J) any other debt instrument or financial obligation that the
superintendent determines to be substantially similar to any of the
foregoing or shall otherwise be approved by the superintendent.

(2) An 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.

(3) A corporation may insure the timely payment of monetary
obligations in any category designated in this subsection
notwithstanding that such obligation may be insured by a financial
guaranty insurance policy issued by another insurer. In the event that
any obligation is insured by more than one financial guaranty insurance
policy, then each such insurance policy may by its terms specify its
priority of payment in the event of a default under the obligation
insured or any other insurance policy; provided that an insurer shall be
entitled to take into account payment under another policy insuring such
obligation for purposes of establishing and maintaining loss reserves
only to the extent that the policy issued by such insurer provides for
payment only in the event of payment default under both such obligation
and the other policy.

(4) A corporation may also write financial guaranty insurance as
defined in subparagraph (A) of paragraph one of subsection (a) of
section six thousand nine hundred one of this article to insure the
timely payment of non-United States dollar debt instruments or other
monetary obligations denominated or payable in foreign currency, only
for the categories listed in subparagraphs (A) through (J) of paragraph
one of this subsection, provided that:

(A) such currency is that of an Organisation for Economic Co-operation
and Development country or such other country (i) whose sovereign rating
is investment grade or (ii) as shall not otherwise be disapproved by the
superintendent within thirty days following receipt of written
notification. The superintendent shall not disapprove such notification
upon demonstration that there is no undue risk associated with insuring
the timely payment of such instruments or obligations. In making such a
determination the superintendent shall take into consideration the
corporation's outstanding liabilities on non-investment grade
instruments and obligations in relation to its outstanding liabilities
on all instruments and obligations and in relation to the amount of its
surplus to policyholders;

(B) reserves required pursuant to section six thousand nine hundred
three of this article in regard to such obligations shall be established
and adjusted quarterly based upon the then current foreign exchange
rates;

(C) such obligations shall not exceed twenty-five percent of an
insurer's aggregate net liability; and

(D) the aggregate and single risk limitations prescribed by
subsections (c) and (d) of this section shall be determined by applying
the then current foreign exchange rates.

(c) Aggregate risk limits. The corporation 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
thereof 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
guaranties, secured by collateral or having a term of seven years or
less, of:

(i) investment grade industrial development bonds,

(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
guaranties 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
guaranties 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
guaranties 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
insured which is not so collateralized shall be subject to the aggregate
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 has elected to
transact such kinds of insurance pursuant to subsection (a) of section
six thousand nine hundred two of this article.

(d) Single risk limits. A financial guaranty insurance corporation
shall limit its exposure to loss on any one risk insured by policies
providing financial guaranty insurance, net of collateral and
reinsurance, as follows:

(1) for municipal obligation bonds, special revenue bonds, and
obligations demonstrated to the satisfaction of the superintendent to be
the functional equivalent thereof:

(A) the insured average annual debt service with respect to a single
entity and backed by a single revenue source shall not exceed ten
percent of the aggregate of the insurer's surplus to policyholders and
contingency reserve; and

(B) the insured unpaid principal issued by a single entity and backed
by a single revenue source shall not exceed the following percent of the
aggregate of the insurer's surplus to policyholders and contingency
reserve based on the highest sovereign rating, by a nationally
recognized statistical rating organization acceptable to the
superintendent, of the country of the applicable governmental unit:

(i) seventy-five percent: any rating in one of the top two generic
lettered rating classifications;

(ii) fifty-nine percent: an A+, A1, or equivalent rating at the
highest grade of the third generic lettered rating classification;

(iii) forty-three percent: an A, A2, or equivalent rating at the
middle grade of the third generic lettered rating classification; and

(iv) twenty-six percent: an A-, A3, or equivalent rating at the lowest
grade of the third generic lettered rating classification;

(2) for each issue of asset-backed securities issued by a single
entity and for each pool of consumer debt obligations, the lesser of:

(A) insured average annual debt service; or

(B) 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 ten percent of the aggregate of the insurer's surplus
to policyholders and contingency reserve, provided that no asset in the
pool supporting the asset-backed securities exceeds the single risk
limits prescribed in paragraph five of this subsection, if directly
guaranteed; and provided further that, if the issuer of such insured
asset-backed securities is a special purpose corporation, trust or other
entity and such issuer shall have indebtedness outstanding with respect
to any other pool of assets, either such other indebtedness shall 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;

(3) for obligations issued by a single entity and secured by
commercial real estate, and not meeting the definition of asset-backed
securities, the insured unpaid principal less fifty percent of the
appraised value of the underlying real estate shall not exceed ten
percent of the aggregate of the insurer's surplus to policyholders and
contingency reserve;

(4) for utility first mortgage obligations, the insured average annual
debt service shall not exceed ten percent of the aggregate of the
insurer's surplus to policyholders and contingency reserve; and

(5) for all other policies providing financial guaranty insurance with
respect to obligations issued by a single entity and backed by a single
revenue source, the insured unpaid principal shall not exceed ten
percent of the aggregate of the insurer's surplus to policyholders and
contingency reserve.

(e) Except as provided in subsection (f) of this section, if an
insurer at any time exceeds any limitation prescribed by subsection (c)
or (d) of this section or paragraph two of subsection (b) of this
section, the insurer shall within thirty days after the limitations are
breached, submit a written plan to the superintendent detailing the
steps that it will take or has taken to reduce its exposure to loss to
no more than the permitted amounts, and if after notice and hearing the
superintendent determines that an insurer has exceeded any limitation
prescribed by this section, he may order such insurer to cease
transacting any new financial guaranty insurance business until its
exposure to loss no longer exceeds said limitations or with respect to
the limitations prescribed in paragraph two of subsection (b) of this
section, may order such insurer to limit its writing of the types of
guaranties permitted under subparagraphs (A), (B) and (C) of paragraph
one of subsection (b) of this section to investment grade obligations
until such time as it shall be in compliance with such limitations.

(f) An insurer shall not be deemed in violation of any limitation
prescribed by subsection (d) of this section with respect to any
financial guaranty insurance outstanding prior to the effective date of
this article, if the insurer was in compliance with the applicable
single risk limit in effect in this state at the time that the financial
guaranty insurance policy was issued. If the insurer was not so in
compliance, 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.

(g) No insurer authorized to transact the business of financial
guaranty insurance shall pay any commission or make any gift of money,
property or other valuable thing to any employee, agent or
representative of any potential purchaser of a financial guaranty
insurance policy, as an inducement to the purchase of such a policy, and
no such employee, agent or representative of such potential purchaser
shall receive any such payment or gift. Violation of the provisions of
this section shall not, however, have the effect of rendering void the
insurance policy issued by the insurer.