Authorizes the superintendent of insurance to suspend the risk to capital requirement for writing new mortgage guaranty insurance risks

Title of bill

An act to amend the insurance law, in relation to mortgage guaranty insurance and reinsurance and policyholders' surplus

Purpose

To update the Insurance Law to more accurately reflect current mortgage guaranty insurance industry circumstances and practices, and to authorize the Superintendent of Insurance to suspend the risk to capital requirement for writing new mortgage guaranty insurance risks.

Summary of provisions

Section 1 of the bill amends paragraph (1) of subsection (b) of section 6502 of the insurance law to grant the Superintendent of Insurance the power to suspend the requirement for a mortgage guaranty insurer to maintain a minimum policyholder surplus in relation to its outstanding risk in order for the insurer to write new business. The temporary suspension is limited to two years per each exemption authorized. Pursuant to the bill, consecutive waivers are permitted for mortgage insurers whose policyholder surplus does not exceed the 25 to 1 liability ratio after the initial waiver period, but such waivers may not exceed a total of four years.

Section 2 of the bill provides for an immediate effective date.

Justification

Mortgage guaranty insurance companies are proscribed from writing business when the ratio of their total policy liability to their policyholder's surplus exceeds a ratio of 25 to 1. This standard was developed in the 1960s when the modern mortgage guaranty insurance industry was in its early stages and no risk-to-capital ratio requirement existed. Given the nascent state of the industry, the 25 to 1 rule was reasonable, but by its very nature was inflexible and not reflective of changing or special circumstances. In particular, a mortgage guaranty insurer is likely to reach the 25 to 1 standard in the midst of a high claims paying cycle (as the industry is currently experiencing), but may have more than enough capital to pay expected claims on its insurance in force. If mortgage guaranty insurers are compelled to cease writing new business as Section 6502 currently dictates, the ability of those insurers to remain viable commercial entities, and to write insurance after the end of this high claims-paying cycle, will be impaired.

Under the amendment to section 6502 (b) (1), the Superintendent is authorized to evaluate whether the risk to capital requirement should be suspended for a particular insurer and to determine the period of time and conditions under which the suspension of that requirement will apply. Permitting a mortgage guaranty insurer to operate above the 25 to 1 requirement for a limited period would allow the insurer to increase its capital base for paying claims and insuring loans in the future. Furthermore, if mortgage guaranty insurers are required to cease writing new business as triggered by the current risk to capital requirement, fewer loans will be insured in New York, further fueling pressures on the availability of mortgage finance credit. As a consequence, the housing recovery in New York (and elsewhere) will likely be impeded, with a concomitant adverse impact on the state's economic recovery.

Legislative history

New bill.

Fiscal implications

None.

Effective date

Immediate.