12640.03-12640.06
INSURANCE CODE
SECTION 12640.03-12640.06
12640.03. An insurer shall not transact the business of mortgage
guaranty insurance unless it has paid-in capital of at least one
million dollars ($1,000,000) and paid-in surplus of at least one
million dollars ($1,000,000).
12640.04. (a) In addition to the paid-in capital and surplus
provided in Section 12640.03, each mortgage guaranty insurer shall
establish a contingency reserve after establishment of the unearned
premium reserve. There shall be an annual calculation of and
contribution to the contingency reserve. The aggregate annual
contribution shall be the greater of either 50 percent of the net
earned premium or the policyholders surplus required to be
established under Section 12640.05 divided by 10. There shall be
provisional contributions, made on a quarterly basis, equal to 50
percent of the net earned premium for the preceding quarter.
(b) The contributions to the contingency reserve made during each
calendar year shall be maintained for a period of 120 months. That
portion of the contingency reserve established and maintained for
more than 120 months shall be released and shall no longer constitute
part of the contingency reserve.
(c) With the approval of the commissioner, withdrawals may be made
from the contingency reserve when incurred losses exceed 35 percent
of the total year-to-date net earned premium. Provisional withdrawals
may be made on a quarterly basis from the contingency reserve in an
amount not to exceed 75 percent of the withdrawal calculated in
accordance with this subdivision.
(d) With the approval of the commissioner, a mortgage guaranty
insurer may withdraw from the contingency reserve any amounts which
are in excess of the policyholders surplus required to be established
under Section 12640.05 as indicated on the most recent annual
statement filed pursuant to Section 923. In reviewing a request for
withdrawal, the commissioner may consider those records that may be
necessary to evaluate the request, including, but not limited to,
records relating to loss development and trends. If any portion of
the contingency reserve for which withdrawal is requested is
maintained by a reinsurer, the commissioner may also consider the
financial condition of the reinsurer. If any portion of the
contingency reserve for which withdrawal is requested is maintained
in a segregated account or segregated trust and withdrawal would
result in funds being removed from the segregated account or
segregated trust, the commissioner may also consider the financial
condition of the reinsurer.
(e) Releases and withdrawals from the contingency reserve shall be
accounted for on a first-in-first-out basis.
(f) The calculations to develop the contingency reserve shall be
made in the following sequence:
(1) The additions required by subdivision (a).
(2) The releases required by subdivision (b).
(3) The withdrawals permitted by subdivision (c).
(4) The withdrawals permitted by subdivision (d).
(g) The commissioner's review of a request for withdrawal under
subdivision (d) shall be conducted pursuant to his or her examination
authority under Section 730 and at the expense of the insurer
pursuant to Section 736. The commissioner shall make a finding, set
forth within the documents approving any withdrawal, that the
withdrawal, and any reduction in total assets that may follow the
withdrawal of which the commissioner is aware at the time of his or
her approval, will not reduce the cash or securities of the insurer
in a manner that will materially, adversely impair the ability of the
insurer to maintain its credit rating or meet future obligations.
12640.05. (a) A mortgage guaranty insurer shall maintain a
policyholders surplus in an amount not less than the amount required
by this section. The policyholders surplus shall be the calculated
net of reinsurance ceded, but shall include reinsurance assumed.
"Face amount of an insured mortgage" means the outstanding principal
balance computed without any reduction because of an insurer's option
limiting its coverage, but shall exclude the outstanding principal
balance of any loan that is in default and for which the insurer has
established a loss reserve, provided that the loss reserve
established for that loan is equal to or greater than the
policyholders surplus the insurer would otherwise be required to
establish with respect to that loan, pursuant to this section.
Nothing in this subdivision limits the commissioner's authority under
Section 12640.04.
(b) If a policy of mortgage guaranty insurance insures individual
loans with a percentage claim settlement option on such loans, the
insurer shall maintain a policyholders surplus based on each one
hundred dollars ($100) of the face amount of the mortgage, the
percentage coverage or claim settlement option, and the loan-to-value
category.
The required amount of policyholders surplus shall be calculated
in the following manner:
(1) If the total indebtedness is greater than 75 percent of the
value of the collateral property at the date of the insurance:
Policyholders Policyholders
Surplus per Surplus per
$100 $100
of the Face of the Face
Percent Amount of the Percent Amount of the
Coverage Mortgage Coverage Mortgage
5% $ .20 55% $1.50
10 .40 60 1.55
15 .60 65 1.60
20 .80 70 1.65
25 1.00 75 1.75
30 1.10 80 1.80
35 1.20 85 1.85
40 1.30 90 1.90
45 1.35 95 1.95
50 1.40 100 2.00
If the percent coverage is between any five-point increment, then
the factor for policyholders surplus per one hundred dollars ($100)
of the face amount of the mortgage shall be prorated.
(2) If the total indebtedness is at least 50 percent and not more
than 75 percent of the value of the collateral property at the date
of insurance, the required amount of policyholders surplus shall be
50 percent of the amount required by paragraph (1) of subdivision
(b).
(3) If the total indebtedness is less than 50 percent of the value
of the collateral property at the date of insurance, the required
amount of policyholders surplus shall be 25 percent of the amount
required by paragraph (1) of subdivision (b).
(c) If a policy of mortgage guaranty insurance provides coverage
on a group of loans subject to an aggregate loss limit, the
policyholders surplus shall be:
(1) If the equity is not more than 50 percent and is at least 20
percent, or equity plus prior insurance or a deductible equals 25
percent of the value of the collateral property at the date of
insurance, the required amount of policyholders surplus shall be
calculated as follows:
Policyholders Policyholders
Surplus per Surplus per
$100 $100
of the Face of the Face
Percent Amount of the Percent Amount of the
Coverage Mortgage Coverage Mortgage
1% $ .30 50% $ .825
5 .50 60 .85
10 .60 70 .875
15 .65 75 .90
20 .70 80 .925
25 .75 90 .95
30 .775 100 1.00
40 .80
If the percent coverage is between any specified increment, then
the factor for policyholders surplus per one hundred dollars ($100)
of the face amount of the mortgage shall be prorated.
(2) If the equity is less than 20 percent or the equity plus prior
insurance or a deductible is less than 25 percent of the value of
the collateral property at the date of insurance, the required amount
of policyholders surplus shall be 200 percent of the amount required
by paragraph (1) of subdivision (c).
(3) If the equity is more than 50 percent or the equity plus prior
insurance or a deductible is more than 55 percent of the value of
the collateral property at the date of insurance, the required amount
of policyholders surplus shall be 50 percent of the amount of
policyholders surplus required by paragraph (1) of subdivision (c).
(d) If a policy of mortgage guaranty insurance provides for layers
of coverage, deductibles or excess reinsurance, the required amount
of policyholders surplus may be computed by subtraction of the
required policyholders surplus for the lower percentage coverage
limits from the required policyholders surplus for the upper or
greater coverage limit.
(e) If a policy of mortgage guaranty insurance provides for
coverage on loans secured by second liens, the policyholders surplus
shall be:
(1) If the policy provides coverage on individual loans, the
required amount of policyholders surplus shall be calculated
according to subdivision (b) after the percent of coverage and the
loan-to-value ratios have been determined as follows:
(A) Divide the insured portion of the second loan by the entire
loan indebtedness on the collateral property to determine the percent
coverage.
(B) Divide the entire loan indebtedness on the property by the
value of the collateral property at the date of insurance to
determine loan-to-value percent.
(C) The face amount of insured mortgage shall mean the entire loan
indebtedness on the property.
(D) Equity shall mean the complement of the loan-to-value percent.
(2) If the policy provides coverage on a group of loans subject to
an aggregate loss limit, the policyholders surplus shall be
calculated according to subdivision (c) after the percent of coverage
and the loan-to-value ratios have been determined in accordance with
paragraph (1).
(f) If a policy of mortgage guaranty insurance provides for
coverage on leases, the policyholders surplus shall be four dollars
($4) for each one hundred dollars ($100) of the insured amount of the
lease.
(g) (1) If a mortgage guaranty insurer will not have the amount of
policyholders surplus required by this section, it shall cease
transacting new business until such time that its policyholders
surplus is in compliance with this section. At least 60 days prior to
the time the policyholders surplus is estimated to fall below the
amount required by this section, the insurer shall notify the
commissioner and may request a waiver of the requirements of this
subdivision. If the commissioner fails to issue an order in response
to the waiver request within 60 days after the insurer requests a
waiver, the insurer may continue transacting new business in
California until the commissioner issues an order. The commissioner
may retain consultants, including accountants, actuaries, or other
experts, to assist the commissioner in the review of the information
reasonably necessary to evaluate the waiver request made pursuant to
this subdivision, and the insurer shall bear the commissioner's cost
of retaining those consultants. The insurer shall reimburse the
commissioner for the cost of a hearing held pursuant to this
subdivision unless the insurer has expressly waived the right to a
hearing. Nothing in this subdivision is intended to limit the
commissioner's authority under any other provision of this code.
(2) An insurer who notifies the commissioner within 10 business
days following the effective date of this section that its
policyholders surplus is estimated to fall below the amount required
by this section shall be deemed to have complied with the 60-day
notice required by subdivision (1).
12640.06. A mortgage guaranty insurer shall not declare any
dividends except from undivided profits remaining on hand over and
above the aggregate of its paid-in capital, paid-in surplus and
contingency reserve.