SECTIONS 12100-12122 - California Statutes

INSURANCE CODE

SECTION 12100-12122

12100. As used in this article:
(a) (1) "Financial guaranty insurance" means a surety bond, an
insurance policy or, when issued by an insurer, an indemnity contract
and any guarantee similar to the foregoing types, under which loss
is payable upon proof of occurrence of financial loss to an insured
claimant, obligee, or indemnitee as a result of any of the following
events:
(A) Failure of any obligor on or issuer of any debt instrument or
other monetary obligation (including equity securities guaranteed
under a surety bond, insurance policy, or indemnity contract) to pay,
when due to be paid by the obligor or scheduled at the time insured
to be received by the holder of the obligation, principal, interest,
premium, dividend, purchase price of or on the instrument or
obligation, or other monetary payment when the failure is the result
of financial default or insolvency, or, provided that the payment
source is investment grade, any other failure of that payment source
to make payment, regardless of whether the obligation is incurred
directly or as guarantor by or on behalf of another obligor that has
also defaulted.
(B) Changes in the levels of interest rates, whether short or long
term, or the differential in interest rates between various markets
or products.
(C) Changes in the rate of exchange of currency.
(D) Changes in the value of financial or commodity indices, or
price levels in general.
(E) Other events that the commissioner determines by order,
regulation, or written consent are substantially similar to any of
the foregoing.
(2) Notwithstanding paragraph (1), "financial guaranty insurance"
shall not include any of the following:
(A) Insurance of any loss resulting from any event described in
paragraph (1), if the loss is payable only upon the occurrence of any
of the following, as specified in a surety bond, insurance policy,
or indemnity contract:
(i) A fortuitous physical event.
(ii) A failure of or deficiency in the operation of equipment.
(iii) An inability to extract or recover a natural resource.
(B) Title insurance authorized by Section 104 and as permitted to
be written by title insurers pursuant to Chapter 1 (commencing with
Section 12340) of Part 6 of this division.
(C) Surety insurance as authorized by Section 105.
(D) Credit unemployment insurance, meaning insurance on a debtor
in connection with a specific loan or other credit transaction, to
provide payments to a creditor in the event of unemployment of the
debtor for the installments or other periodic payments becoming due
while a debtor is unemployed.
(E) Credit insurance authorized by Section 113.
(F) Guaranteed investment contracts and funding agreements issued
by life insurance companies which provide that the life insurer
itself will make specified payments in exchange for specific premiums
or contributions.
(G) Mortgage insurance authorized by Section 117 and as permitted
to be written by mortgage insurers pursuant to Chapter 2 (commencing
with Section 12420) of Part 6 of this division.
(H) Mortgage guaranty insurance authorized by Section 119 and as
permitted to be written by a mortgage guaranty insurer pursuant to
Chapter 2A (commencing with Section 12640.01) of Part 6 of this
division.
(I) Indemnity contracts or similar guarantees, to the extent that
they are not otherwise limited or proscribed by this article, in
which a life insurer does any of the following:
(i) Guarantees its obligations or indebtedness or the obligations
or indebtedness of a subsidiary (as defined in Section 1215) other
than a financial guaranty insurance corporation; provided that:
(I) To the extent that any such obligations or indebtedness are
backed by specific assets, those assets shall at all times be owned
by the life insurer or the subsidiary.
(II) In the case of the guarantee of the obligations or
indebtedness of the subsidiary that are not backed by specific assets
of the life insurer, the guarantee terminates once the subsidiary
ceases to be a subsidiary.
(ii) Guarantees obligations or indebtedness (including the
obligation to substitute assets where appropriate) with respect to
specific assets acquired by a life insurer in the course of normal
investment activities and not for the purpose of resale with credit
enhancement, or guarantees obligations or indebtedness acquired by
its subsidiary, provided that the assets acquired pursuant to this
clause have been either of the following:
(I) Acquired by a special purpose entity, whose sole purpose is to
acquire specific assets of the life insurer or the subsidiary and
issue securities or participation certificates backed by the assets.
(II) Sold to an independent third party.
(iii) Guarantees obligations or indebtedness of an employee or
agent of the life insurer.
(J) Any cramdown bond or mortgage repurchase bond, as those
phrases are used by nationally recognized rating agencies in respect
of mortgage-backed securities.
(K) Residual value insurance.
(L) Any other form of insurance covering risks that the
commissioner determines by order, regulation, or written consent to
be substantially similar to any of the foregoing.
(b) "Affiliate" means a person that, directly or indirectly, owns
at least 10 but less than 50 percent of the financial guaranty
insurance corporation or that is at least 10 percent but less than 50
percent, directly or indirectly, owned by a financial guaranty
insurance corporation.
(c) "Asset-backed securities" means either of the following:
(1) Securities or other financial obligations of an issuer
provided that both of the following apply:
(A) The issuer is a special purpose corporation, trust, or other
entity, or, provided that the securities or other financial
obligations constitute an insurable risk, is a bank, trust company,
or other financial institution, deposits in which are insured by the
Bank Insurance Fund or the Savings Association Insurance Fund of the
Federal Deposit Insurance Corporation or any successors thereto.
(B) The securities or other financial obligations are related to a
pool of assets so that all of the following apply:
(i) The pool of assets has been conveyed, pledged, or otherwise
transferred to or is otherwise owned or acquired by the issuer.
(ii) The pool of assets backs the securities or other financial
obligations issued.
(iii) No asset in the pool, other than an asset directly payable
by, guaranteed by, or backed by the full faith and credit of the
United States government or that otherwise qualifies as collateral
under paragraph (1) or (2) of subdivision (e), has a value exceeding
20 percent of the aggregate value of the pool.
(2) A pool of credit default swaps or credit default swaps
referencing a pool of obligations, provided that each of the
following is true:
(A) The swap counterparty whose obligations are insured under the
credit default swap is a special purpose corporation, special purpose
trust, or other special purpose legal entity.
(B) No reference obligation in the pool, other than an obligation
directly payable by, guaranteed by, or backed by the full faith and
credit of the United States government, or that otherwise qualifies
as collateral under paragraph (2) of subdivision (e), has a notional
amount exceeding 10 percent of the pool's aggregate notional amount.
(C) The insurer has the benefit of a deductible or other first
loss credit protection against claims under its insurance policy.
(d) "Average annual debt service" means the amount of insured
unpaid principal and interest on an obligation multiplied by the
number of the insured obligations (assuming that each obligation
represents a $1,000 par value), divided by the amount equal to the
aggregate life of all of those obligations. This definition,
expressed as a formula in regard to bonds, is as follows:

Average Annual Total Debt Service X Number
Debt Service = of Bonds
Bond Years
Total Debt Insured Unpaid Principal +
Service = Interest
Number of Total Insured Principal
Bonds = $1,000
Bond Years = Number of Bonds X Term in Years
Term in Years = Term to maturity based on
scheduled amortization or, in the absence of a
scheduled amortization in the case of asset-
backed securities or other obligations lacking a
scheduled amortization, expected amortization, in
each case determined as of the date of issuance
of the insurance policy based upon the
amortization assumptions employed in pricing the
insured
obligations or otherwise used by the insurer to
determine aggregate
net
liability.

(e) "Collateral" means any of the following:
(1) Cash.
(2) The cashflow from specific obligations which are not callable
and scheduled to be received based on expected prepayment speed on or
prior to the date of scheduled debt service (including scheduled
redemptions and prepayments) on the insured obligation, provided that
any of the following is true, as applicable:
(A) The specific obligations are directly payable by, guaranteed
by or backed by the full faith and credit of the United States
government.
(B) In the case of insured obligations denominated or payable in a
foreign currency as permitted under paragraph (3) of subdivision (b)
of Section 12112, the specific obligations are directly payable by,
guaranteed by, or backed by the full faith and credit of the foreign
government or the central bank thereof.
(C) The specific obligations are insured by the same insurer that
insures the obligations being collateralized, and the cashflows from
the specific obligations are sufficient to cover the insured
scheduled payments on the obligations being collateralized.
(3) The market value of investment grade obligations, other than
obligations evidencing an interest in the project or projects
financed with the proceeds of the insured obligations.
(4) The face amount of each letter of credit that meets all of the
following criteria:
(A) Is irrevocable.
(B) Provides for payment under the letter of credit in lieu of or
as reimbursement to the insurer for payment required under a
financial guaranty insurance policy.
(C) Is issued, presentable, and payable either:
(i) At an office of the letter of credit issuer in the United
States.
(ii) At an office of the letter of credit issuer located in the
jurisdiction in which the trustee or paying agent for the insured
obligation is located.
(D) Contains a statement that either:
(i) Identifies the financial guaranty insurance corporation, its
collateral agent, or any successor by operation of law, including any
liquidator, rehabilitator, receiver or conservator, as the
beneficiary.
(ii) Identifies the trustee or the paying agent for the insured
obligation as the beneficiary.
(E) Contains a statement to the effect that the obligation of the
letter of credit issuer under the letter of credit is an individual
obligation of that issuer and is in no way contingent upon
reimbursement with respect thereto.
(F) Contains an issue date and an expiration date.
(G) Does either of the following:
(i) Has a term at least as long as the shorter of the term of the
insured obligation or the term of the financial guaranty insurance
policy.
(ii) Provides that the letter of credit shall not expire without
30 days prior written notice to the beneficiary and allows for
drawing under the letter of credit in the event that, prior to
expiration, the letter of credit is not renewed or extended or a
substitute letter of credit or alternate collateral meeting the
requirements of subdivision (e) is not provided.
(H) If the letter of credit is governed by the 1983 revision of
the Uniform Customs and Practice for Documentary Credits of the
International Chamber of Commerce (Publication 400 or 500), or any
successor revision approved by the commissioner, it shall contain a
provision for an extension of time, of not less than 30 days after
resumption of business, to draw against the letter of credit in the
event that one or more of the occurrences described in Article 19 of
Publication 400 or 500 occurs.
(I) Is issued by a bank, trust company, or savings association
that meets all of the following criteria:
(i) Is organized and existing under the laws of the United States
or any state thereof or, in the case of a financial institution
organized under the laws of a foreign country, has a branch or agency
office licensed under the laws of the United States or any state
thereof and is domiciled in a member country of the Organization of
Economic Co-operation and Development having a sovereign rating in
one of the top two generic lettered rating classifications by a
securities rating agency acceptable to the commissioner.
(ii) Has (or is the principal operating subsidiary of a financial
institution holding company that has) a long-term debt rating of at
least investment grade.
(iii) Is not a parent, subsidiary or affiliate of the trustee or
paying agent, if any, with respect to the insured obligation if that
trustee or paying agent is the named beneficiary of the letter of
credit.
(5) The amount of credit protection available to the insurer (or
its nominee) under each credit default swap that satisfies each of
the following:
(A) May not be amended without the consent of the insurer and may
only be terminated in accordance with one of the following:
(i) At the option of the insurer.
(ii) At the option of the counterparty to the insurer (or its
nominee), if the credit default swap provides for the payment of a
termination amount equal to the replacement cost of the terminated
credit default swap determined with reference to standard
documentation of the International Swap and Derivatives Association,
Inc. or otherwise acceptable to the commissioner.
(iii) At the discretion of the commissioner acting as
rehabilitator, liquidator, or receiver of the insurer upon payment by
or on behalf of the insurer of any termination amount due from the
insurer.
(B) Provides for payment under all instances in which payment
under a financial guaranty insurance policy is required, except that
payment under the credit default swap may be on a first loss, excess
of loss, or other nonpro-rata basis and may apply on an aggregate
basis to more than one policy.
(C) Is provided by one of the following:
(i) A counterparty whose obligations under the credit default swap
are insured by a financial guaranty insurance corporation licensed
under this article or guaranteed by a financial institution referred
to in clauses (ii) and (iii) of this subparagraph.
(ii) A financial institution satisfying the requirements of
clauses (i) to (iii), inclusive, of subparagraph (I) of paragraph
(4), provided that obligations of the financial institution on parity
with its obligations under the credit default swap are rated as
investment grade, and further provided that, if the financial
institution is not organized under, or acting through a branch or
agency office licensed under, the laws of the United States or any
state thereof, then the financial institution is required to
collateralize the replacement cost of the credit default swap in the
event that it fails to maintain the investment grade rating.
(iii) Any other financial institution that the commissioner
determines to be substantially similar to any specified in clause (i)
or (ii).
(iv) The requirements of this subparagraph shall not be construed
as authority for an insurer domiciled in the United States to issue
credit default swaps unless the insurer has explicit authority to
issue credit default swaps.
Collateral shall be deposited with or held by the financial
guaranty insurance corporation, held by a trustee or agent for the
benefit of the financial guaranty insurance corporation in trust or
to perfect a security interest, or held in trust pursuant to the bond
indenture or other trust arrangement by a trustee or custodian for
the benefit of holders of the insured obligations in the form of
funds for payment of insured obligations, sinking funds, or other
reserves which may be used for the payment of insured obligations,
collateral agent fees and trustee fees, or reimbursement of the
financial guaranty insurance corporation on any obligation insured by
the corporation. Any such trustee, custodian, or agent shall be a
bank, savings association, depository institution, or other entity
acceptable to the commissioner, the deposits of which are insured by
the Bank Insurance Fund or the Savings Association Insurance Fund of
the Federal Deposit Insurance Corporation (or any successors
thereto), or in the case of banking organizations organized under the
laws of a foreign country in addition satisfies the requirements of
clauses (i) and (ii) of subparagraph (I) of paragraph (4) of
subdivision (e) of Section 12100, and, in each case which has a net
worth of at least twenty-five million dollars ($25,000,000). Any such
trustee or agent may also be an approved or qualified servicer or
originator of the kind of assets which comprise the collateral which
maintains in force at all times errors and omissions insurance
applicable to the trust or agency activities, including without
limitation, a servicer qualified under a federal or state insurance
or guaranty program to service loans or mortgage loans. The
commissioner may adopt regulations, bulletins, notices or orders to
limit the amount of collateral provided by obligations, letters of
credit, or credit default swaps, or to limit the amount of collateral
provided by any single issuer, bank, or counterparty as provided for
in this subdivision. The commissioner may also require additional
reporting as deemed necessary.
(f) "Commercial real estate" means income-producing real property
other than residential property consisting of less than five units.
(g) "Contingency reserve" means an additional liability reserve
established to protect policyholders against the effects of adverse
economic cycles or other unforeseen circumstances.
(h) "Credit default swap" means an agreement referencing credit
derivative definitions published from time to time by the
International Swap and Derivatives Association, Inc., or otherwise
acceptable to the commissioner, pursuant to which a party agrees to
compensate another party in the event of a payment default by,
insolvency of, or other adverse credit event in respect of, an issuer
of a specified security or other obligation; provided that the
agreement does not constitute an insurance contract and the making of
the credit default swap does not constitute the transaction of
insurance.
(i) "Excess spread" means, with respect to any insured issue of
asset-backed securities, the excess of (A) the scheduled cashflow on
the underlying assets that is reasonably projected to be available,
over the term of the insured securities after payment of the expenses
associated with the insured issue, to make debt service payments on
the insured securities over (B) the scheduled debt service
requirements on the insured securities, provided that this excess is
held in the same manner as collateral is required to be held under
subdivision (e).
(j) "Financial guaranty insurance corporation" means an insurer
transacting financial guaranty insurance.
(k) "Governmental unit" means a state, territory, or possession of
the United States of America, the District of Columbia, the country
of Canada, a province of Canada, the United Kingdom, a public
authority of the United Kingdom, a member country of the Organization
for Economic Co-operation and Development having a sovereign rating
in one of the top two generic lettered rating classifications by a
securities rating agency acceptable to the commissioner, a
municipality, or a political subdivision of any of the foregoing, or
any public agency or instrumentality thereof.
(l) "Guarantees of consumer debt obligations" means insurance
policies indemnifying a purchaser or lender against loss or damage
resulting from defaults on a pool of debts owed for extensions of
credit (including in respect of installment purchase agreements and
leases) to individuals provided in the normal course of the purchaser'
s or lender's business, provided that the pool meets the requirements
of paragraph (2) of subdivision (c) and that the pool has been
determined to be investment grade. Policies providing that coverage
shall contain a provision that all liability terminates upon sale or
transfer of the underlying obligation to any transferee that is not
an insured of the financial guaranty insurance corporation under a
similar policy.
(m) "Industrial development bond" means any security, or other
instrument under which a payment obligation is created, issued by or
on behalf of a governmental unit to finance a project serving a
private industrial, commercial, or manufacturing purpose and not
guaranteed by a governmental unit.
(n) "Insurable risk" means that the obligation on an uninsured
basis has been determined to be not less than investment grade. With
respect to asset-backed securities as defined in subdivision (c), the
determination shall be, based solely on the pool of assets backing
the insured obligation or securing the financial guaranty insurance
corporation, without consideration of the creditworthiness of the
issuer.
(o) "Investment grade" means that the obligation or parity
obligation of the same issuer is rated in one of the top four generic
lettered rating classifications by a securities rating agency
acceptable to the commissioner, that the obligation or parity
obligation of the same issuer, without regard to financial guaranty
insurance, has been identified in writing by that rating agency as an
insurable risk deemed to be of investment grade quality, or that the
obligation or parity obligation of the same issuer has been
determined to be investment grade (as indicated by a category 1 or 2
rating) by the Securities Valuation Office of the National
Association of Insurance Commissioners.
(p) "Municipal bonds" means municipal obligation bonds and special
revenue bonds.
(q) (1) "Municipal obligation bond" means any security, or other
instrument, including a lease payable or guaranteed by the United
States or another national government that qualifies as a
governmental unit, or any agency, department, or instrumentality
thereof, or by a state or an equivalent subdivision of another
national government that qualifies as a governmental unit, but not a
lease of any other governmental unit, under which a payment
obligation is created, issued by or on behalf of a governmental unit
or issued by a special purpose corporation, special purpose trust, or
other special purpose legal entity to finance a project or
undertaking serving a substantial public purpose, and which is one or
more of the following:
(A) Payable from tax revenues, but not tax allocations, within the
jurisdiction of the governmental unit.
(B) Payable or guaranteed by the United States of America or
another national government that qualifies as a governmental unit, or
any agency, department, or instrumentality thereof, or by a housing
agency of a state or an equivalent political subdivision of another
national government that qualifies as a governmental unit.
(C) Payable from rates or charges (but not tolls) levied or
collected in respect of a nonnuclear utility project, public
transportation facility (other than an airport facility) or public
higher education facility.
(D) With respect to lease obligations, payable from past, present,
or future appropriations.
(2) Notwithstanding paragraph (1), obligations of a special
purpose corporation, special purpose trust, or other special purpose
legal entity shall not be considered municipal obligation bonds
unless the obligations are investment grade at the time of issuance,
the obligations are payable from sources enumerated in subparagraphs
(A) to (D), inclusive, and the project being financed or the tolls,
tariffs, usage fees, or other similar rates or charges for its use
are subject to regulation or oversight by a governmental entity.
(r) "Parent" means a person that, directly or indirectly, owns at
least 50 percent of a financial guaranty insurance corporation.
(s) "Reinsurance" means cessions qualifying for credit under
Section 12121.
(t) "Security" or "secured" means any of the following:
(1) A deposit at least equal to the full amount of the outstanding
principal of the insured obligation.
(2) Collateral, as defined by subdivision (e), at least equal to
the full amount of the outstanding principal of the insured
obligation or that has a market value or scheduled cashflow which is
equal to or greater than the scheduled debt service on the insured
obligation.
(3) Property, provided the financial guaranty insurance
corporation or the trustee has possession of evidence of the right,
title, or authority to claim or foreclose thereon or otherwise
dispose of the property for value, the scheduled cashflow from which,
or market value thereof, is at least equal to the scheduled debt
service on the insured obligation.
(u) "Special revenue bond" means any security or other instrument
under which a payment obligation is created, issued by or on behalf
of, or payable or guaranteed by, a governmental unit to finance a
project or undertaking serving a substantial public purpose and not
payable from the sources enumerated in subdivision (q) or securities
which are substantially similar to the foregoing issued by any of the
following:
(1) A not-for-profit corporation.
(2) A special purpose corporation, special purpose trust or other
special purpose legal entity, provided that the obligations are
investment grade at the time of issuance, the obligations are not
payable from the sources enumerated in subparagraphs (A) to (D),
inclusive, of paragraph (1) of subdivision (q), and the project being
financed or the tolls, tariffs, usage fees, or other similar rates
or charges for its use are subject to regulation or oversight by a
governmental entity.
(v) "Subsidiary" means a person that, directly or indirectly, is
at least 50 percent owned by a financial guaranty insurance
corporation.
(w) "Total net liability" of a financial guaranty insurance
corporation means the aggregate amount of insured unpaid principal,
interest, and other monetary payments, if any, of guaranteed
obligations insured or assumed, less reinsurance and less collateral.
(x) "Utility first mortgage obligation" means an obligation of an
issuer secured by a first priority mortgage on property owned or
leased by an investor-owned or cooperative-owned utility company and
located in the United States, Canada, or a member country of the
Organization for Economic Co-operation and Development having a
sovereign rating in one of the top two generic lettered rating
classifications by a securities rating agency acceptable to the
commissioner, provided that the utility or utility property or the
usage fees or other similar utility rates or charges are subject to
regulation or oversight by a governmental entity.

12101. An insurer may be organized and admitted to transact
financial guaranty insurance in the manner prescribed for stock
property and casualty insurers by the laws of this state. Except as
provided in Section 12118, an insurer shall be required to be
licensed to transact financial guaranty insurance in California
before it transacts that insurance in this state. An insurer shall
become admitted to transact financial guaranty insurance upon making
application and complying with all the requirements of the law.

12102. (a) An insurer with a certificate of authority to transact
the business of financial guaranty insurance as defined in Section
12100 may also transact the business of surety insurance as defined
in Section 105.
(b) An insurer licensed in this state to transact financial
guaranty insurance may not transact any other classes of insurance in
this state except surety insurance.
(c) An insurer that anywhere transacts or is licensed for any
classes other than financial guaranty insurance, surety insurance,
and credit insurance shall not be eligible for a certificate of
authority for the class of financial guaranty insurance in this
state.
(d) A financial guaranty insurance corporation may only assume in
this state those lines of insurance it is admitted to transact in
this state.
(e) In other states, an insurer may assume financial guaranty,
surety, and credit lines of insurance if it is authorized to transact
those lines of insurance in other states.
(f) After licensure the holder shall continue to comply with the
requirements of this section.

12103. Prior to the issuance of a certificate of authority to
transact financial guaranty insurance, an insurer shall submit for
the approval of the commissioner a plan of operation detailing the
types and projected diversification of guaranties that will be
issued, the underwriting procedures that will be followed, managerial
oversight methods, investment policies, and other matters prescribed
by the commissioner including, but not limited to, those necessary
to allow the commissioner to make a finding for the purposes of
Section 717.

12104. An admitted financial guaranty insurance corporation shall
be subject to all of the provisions of this code applicable to
property and casualty insurers to the extent that the provisions are
not inconsistent with the provisions of this article.

12105. The filing fee for a certificate of authority or amended
certificate of authority to transact financial guaranty insurance
shall be five thousand dollars ($5,000).

12106. (a) An admitted financial guaranty insurance corporation's
investments in any one entity insured by that corporation shall not
exceed 4 percent of its admitted assets as of the end of the prior
calendar year, except that this limit shall not apply to investments
payable or guarantied by a United States governmental unit or agency
or the State of California if the investments payable or guarantied
by the United States governmental unit or agency or the State of
California shall be rated in one of the top two generic lettered
rating classifications by a securities rating agency acceptable to
the commissioner.
(b) In addition to any transaction that an insurer meeting the
requirements of Section 1211 may effect and maintain under any other
provision of this code, a financial guaranty insurance corporation
may effect and maintain a transaction in contracts for the future
delivery or receipt of the currency of a foreign country, interest
rate options, credit default swaps under which the insurer is
acquiring credit protection, and any other products included in the
plan referred to in paragraph (7), if the following conditions are
satisfied:
(1) The transaction is used for the purpose of limiting risk of
loss under financial guaranty insurance policies or reinsurance
contracts covering those policies due to fluctuations in interest
rates or currency exchange rates or, in the case of credit default
swaps, financial default, insolvency, or other credit events.
(2) The transaction does not exceed a duration of 12 months beyond
the term of those policies or reinsurance contracts.
(3) The amount of foreign currencies to be purchased under the
transaction does not exceed the amount guarantied under those
policies or reinsurance contracts that is denominated in foreign
currency.
(4) The amount that is subject to interest rate hedging
transactions does not exceed the amount guarantied under those
policies or reinsurance contracts that is subject to the risk of
interest rate fluctuations.
(5) The counterparty to the transaction has, or is the principal
operating subsidiary of a holding company that has, a long-term
unsecured debt rating or claims-paying ability rating that is at
least investment grade.
(6) The transaction is not conducted for arbitrage purposes.
(7) The transaction is entered into pursuant to a plan that has
been approved by the board of directors of the financial guaranty
insurance corporation and filed with and approved by the insurance
department of the state of domicile of the financial guaranty
insurance corporation.
(c) A transaction entered into pursuant to subdivision (b) shall
be governed by the terms of this section and shall not be subject to
Section 1211.

12107. (a) No insurer shall be issued a license to transact
financial guaranty insurance unless it has paid-in capital of at
least fifteen million dollars ($15,000,000) and surplus of at least
eighty-five million dollars ($85,000,000), and shall at all times
thereafter maintain a minimum paid-in capital of fifteen million
dollars ($15,000,000) and a minimum surplus of sixty million dollars
($60,000,000).
(b) An insurer licensed in this state and issuing or reinsuring
financial guaranty insurance policies in this state prior to January
1, 1991, shall, notwithstanding the provisions of subdivision (a), be
deemed to meet the combined paid-in capital and surplus requirements
for transacting the financial guaranty insurance business during the
period between January 1, 1991, and January 1, 1993, if it has
combined capital and surplus of forty-five million dollars
($45,000,000), which includes paid-in capital of at least two million
five hundred thousand dollars ($2,500,000).
(c) On and after January 1, 1993, every financial guaranty
insurance corporation must fully comply with the condition in
subdivision (a) that a minimum paid-in capital of fifteen million
dollars ($15,000,000) be held and maintained.

12108. (a) An admitted financial guaranty insurance corporation
shall establish and maintain a contingency reserve.
(b) With respect to all financial guaranties written prior to and
in force as of July 1, 1989:
(1) The financial guaranty insurance corporation shall establish
and maintain a contingency reserve consistent with the requirements
applicable for municipal bond insurance policies which were in effect
prior to July 1, 1989, in an amount equal to 50 percent of earned
premiums on those policies.
(2) To the extent that the financial guaranty insurance
corporation's contingency reserves maintained as of July 1, 1989, are
less than those required for municipal bond insurance policies
pursuant to paragraph (1), the corporation shall have until January
1, 1994, to bring its reserves into compliance.
(c) With respect to financial guaranties of municipal obligation
bonds, special revenue bonds and investment grade industrial
development bonds written after July 1, 1989:
(1) The financial guaranty insurance corporation shall establish
and maintain a contingency reserve in accordance with paragraph (3)
of subdivision (d) for all those insured issues in each calendar year
for each category listed in paragraph (2) of this subdivision.
(2) The total contingency reserve required shall be the greater of
50 percent of premiums written for each such category or the
following amount prescribed for each such category:
(A) Municipal obligation bonds, 0.8 percent of principal
outstanding.
(B) Special revenue bonds, 1.2 percent of principal outstanding.
(C) Investment grade industrial development bonds secured by
collateral or with a remaining term at the date of insurance of seven
years or less and utility first mortgage obligations, 1.4 percent of
principal outstanding.
(D) All other investment grade industrial development bonds, 1.6
percent of principal outstanding.
(3) Contributions to the contingency reserve required by this
paragraph, equal to one-eightieth of the total reserve required,
shall be made each quarter for 20 years, provided, however, that
contributions may be discontinued so long as the total reserve for
all categories listed in items (A) through (D) of subparagraph (2)
exceeds the percentages contained in items (A) through (D) when
applied against unpaid principal.
(d) With respect to all other financial guaranties written on or
after July 1, 1989:
(1) The financial guaranty insurance corporation shall establish
and maintain a contingency reserve in accordance with paragraph (3)
for all those insured issues in each calendar year for each such
category listed in paragraph (2).
(2) The total contingency reserve required shall be the greater of
50 percent of premiums written for each such category or the
following amount prescribed for each such category:
(A) Investment grade obligations, secured by collateral, or with a
remaining term at the date of insurance of seven years or less, 1.2
percent of principal outstanding.
(B) Other investment grade obligations, 1.7 percent of principal
outstanding.
(C) Noninvestment grade obligations secured by collateral, 2.5
percent of principal outstanding.
(D) Other noninvestment grade obligations, 3.0 percent of
principal outstanding.
(3) Contributions to the contingency reserve required by
subparagraphs (A) and (B) of paragraph (2), equal to one-sixtieth of
the total reserve required, shall be made each quarter for 15 years,
and contributions to the contingency reserve required by
subparagraphs (C) and (D) of paragraph (2), equal to one-fortieth of
the total reserve required, shall be made each quarter for 10 years
provided, however, that contributions may be discontinued so long as
the total reserve for all categories listed in subparagraphs (A)
through (D) of paragraph (2) exceeds the percentages contained in
subparagraphs (A) through (D) when applied against unpaid principal.
(e) Contingency reserves required in subdivisions (b), (c), and
(d) may be established and maintained net of collateral and
reinsurance, provided that, in the case of reinsurance, the
reinsurance agreement requires that the reinsurer shall, on or after
the effective date of the reinsurance, establish and maintain a
reserve in an amount equal to the amount by which the financial
guaranty insurance corporation reduces its contingency reserve. In
addition, contingency reserves required in subdivisions (c) and (d)
may be maintained net of refundings and refinancings to the extent
the refunded or refinanced issue is paid off or secured by
obligations that are directly payable or guarantied by the United
States government, and net of insured securities in a unit investment
trust or mutual fund that have been sold from the trust or fund
without insurance.
(f) The contingency reserves may be released thereafter in the
same manner in which they were established and withdrawals therefrom,
to the extent of any excess, may be made from the earliest
contributions to such reserves remaining therein:
(1) With the prior written approval of the commissioner, if the
actual incurred losses for the year, in the case of the categories of
guaranties subject to subdivision (c) exceeds 35 percent of earned
premiums, or in the case of the categories of guaranties subject to
subdivision (d) exceed 65 percent of earned premiums.
(2) Upon 30 days prior written notice to the commissioner,
provided that the contingency reserve has been in existence for 40
quarters, for reserves subject to subdivision (c), and 30 quarters,
for reserves subject to subdivision (d), upon demonstration that the
amount carried is in excess of required amounts or excessive in
relation to the financial guaranty insurance corporation's
outstanding obligations.
(3) A financial guaranty insurance corporation may invest the
contingency reserve in tax and loss bonds or similar securities
purchased pursuant to Section 832(e) of the Internal Revenue Code (or
any successor provision), only to the extent of the tax savings
resulting from the deduction for federal income tax purposes of a sum
equal to the annual contributions to the contingency reserve. The
contingency reserve shall otherwise be invested only in classes of
securities or types of investments specified in Article 3 (commencing
with Section 1170) of Chapter 2 of Part 2 of Division 1 and Article
4 (commencing with Section 1190) of Chapter 2 of Part 2 of Division
1.

12109. (a) In addition to the contingency reserve, the case basis
method or other method as may be prescribed by the commissioner shall
be used to determine loss reserves, which shall include a reserve
for claims reported and unpaid net of collateral. A deduction from
loss reserves shall be allowed for the time value of money by
application of a discount rate equal to the average rate of return on
the admitted assets of the financial guaranty insurance corporation
as of the date of the computation of that reserve. The discount rate
shall be adjusted at the end of each calendar year.
In addition a reserve component for incurred but not reported
claims shall be reasonably estimated if deemed necessary by the
financial guaranty insurance corporation, or following an examination
or actuarial analysis, by the commissioner.
(b) Except as otherwise permitted by the commissioner, no
deduction shall be made for anticipated salvage in computing case
basis loss reserves, unless that salvage is held by or under the
control of the financial guaranty insurance corporation and would
qualify as an admitted asset under Section 1100 and Article 3
(commencing with Section 1170) of Chapter 2 of Part 2 of Division 1
and Article 4 (commencing with Section 1190) of Chapter 2 of Part 2
of Division 1, or unless that salvage constitutes or is secured by a
clean, irrevocable letter of credit which is approved by the
commissioner or complies with the definition of a letter of credit
provided in subdivision (e) of Section 12100.
(c) If the insured principal and interest on a defaulted issue of
obligations exceed 10 percent of the financial guaranty insurance
corporation's capital, surplus, and contingency reserves, its reserve
so established shall be supported by a report from an independent
source acceptable to the commissioner.

12110. An unearned premium reserve shall be established and
maintained net of reinsurance and collateral with respect to all
financial guaranty premiums. Where financial guaranty insurance
premiums are paid on an installment basis, an unearned premium
reserve shall be established and maintained, net of reinsurance,
computed on a daily or monthly pro rata basis. All other financial
guaranty insurance premiums written shall be earned in proportion
with the expiration of exposure, or by such other method as may be
prescribed or approved by the commissioner.

12111. An admitted financial guaranty insurance corporation shall
adopt procedures reasonably calculated to ensure, to the extent it is
commercially feasible for the financial guaranty insurance
corporation, that any prospectus which discloses that a policy of
financial guaranty insurance has been issued also discloses that in
the event the financial guaranty insurance corporation were to become
insolvent, any claims arising under the policies of financial
guarantee insurance are excluded from coverage by the California
Insurance Guaranty Association, established pursuant to Article 15.2
(commencing with Section 1063) of Chapter 1 of Part 2 of Division 1.

12112. (a) Except as provided in Section 12118, financial guaranty
insurance may be transacted in this state only by an insurer admitted
to transact financial guaranty insurance.
(b) The following guaranties are permissible:
(1) Financial guaranty insurance shall be written only to insure
timely payment of contractual obligations, including principal and
interest, purchase obligations, dividends, or any other payment
obligation, however characterized of the following:
(A) Municipal obligation bonds.
(B) Special revenue bonds.
(C) Industrial development bonds.
(D) Obligations of corporations, trusts, or 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 Chapter 2A (commencing with Section
12640.01) of Part 6 of Division 2, unless one of the following
applies:
(i) The mortgages with loan-to-value ratios in excess of 80
percent are insured by mortgage guaranty insurers authorized under
Chapter 2A (commencing with Section 12640.01) of Part 6 of Division
2, are insured by mortgage guaranty insurers licensed under the laws
of any other state if that insurer has a claims paying rating of
investment grade from a securities rating agency acceptable to the
commissioner, or are in an aggregate principal amount less than the
single risk limits prescribed in subdivision (e) of Section 12115.
(ii) Additional mortgages with principal balances, other
collateral with a market value, or, provided the insured risk is
investment grade, excess spread, in each instance in an amount at
least equal to the coverage that would otherwise be provided by those
mortgage guaranty insurers in accordance with item (i) of this
subparagraph are pledged as additional support for the asset-backed
securities.
(G) Installment purchase agreements executed as a condition of
sale.
(H) Consumer debt obligations.
(I) Utility first mortgage obligations.
(J) Any other debt instrument or monetary obligation that the
commissioner determines by order, regulation, or written consent to
be substantially similar to any of the foregoing.
(2) A corporation may insure the timely payment of monetary
obligations in any category designated in paragraph (1),
notwithstanding that the 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 of the insurance policies may by its
terms specify its priority of payment in the event of a default under
the obligation insured or under any other insurance policy, provided
that an insurer shall be entitled to take into account payment under
another policy insuring the obligation for purposes of establishing
and maintaining loss reserves only to the extent that the policy
issued by the insurer provides for payment only in the event of
payment default under both the obligation and the other policy.
(3) A corporation may also write financial guaranty insurance, as
defined in subparagraph (A) of paragraph (1) of subdivision (a) of
Section 12100 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) to (J), inclusive, of paragraph (1), provided that
each of the following conditions is satisfied:
(A) The currency is that of an Organisation for Economic
Co-operation and Development country or another country whose
sovereign rating is investment grade, or the country is not
disapproved by the commissioner within 30 days following receipt of
written notification. The commissioner shall not disapprove the
country if it is demonstrated that there is no undue risk associated
with insuring the timely payment of the instruments or obligations.
In making such a determination, the commissioner shall take into
consideration the corporation's outstanding liabilities on
noninvestment grade instruments and obligations in relation to its
outstanding liabilities on all instruments and obligations and in
relation to the amount of surplus to policyholders.
(B) Reserves required pursuant to Sections 12108, 12109, and 12110
in regard to the obligations are established and adjusted quarterly
based upon the then current foreign exchange rates.
(C) The obligations do not exceed 25 percent of an insurer's
aggregate net liability.
(D) The aggregate and single risk limitations prescribed by
Section 12106 and 12115 are determined by applying the then current
foreign exchange rates.

12113. An admitted financial guaranty insurance corporation shall
keep copies of all relevant materials prepared by the insurer or used
in the initial underwriting or ongoing monitoring of insured risk;
all relevant documents pertaining to changes in the credit risk or
performance of the insured on the obligation, and all materials
pertaining to the examination of the condition of collateral, assets,
or other security; and any other materials requested by the
commissioner. All those materials shall be maintained for the entire
period during which the insurance is in force and shall be available
for examination upon request of the commissioner by the commissioner
or by any rating agency approved by the commissioner.

12114. (a) An insurer may insure obligations enumerated in
subparagraphs (A), (B), and (C) of paragraph (1) of subdivision (b)
of Section 12112 that are not investment grade so long as at least 95
percent of the insurer's total net liability on the kinds of
obligations enumerated in those subparagraphs is investment grade.
(b) The financial guaranty insurance corporation shall at all
times maintain capital, surplus, and contingency reserve in the
aggregate no less than the sum of the following:
(1) 0.3333 percent of the total net liability under guaranties of
municipal bonds and utility first mortgage obligations.
(2) 0.6666 percent of the total net liability under guaranties of
investment grade asset-backed securities.
(3) 1.0 percent of the total net liability under guaranties,
secured by collateral or having a term of seven years or less of:
(A) Investment grade industrial development bonds, and
(B) Other investment grade obligations.
(4) 1.5 percent of the total net liability under guaranties of
other investment grade obligations.
(5) 2.0 percent of the total net liability under guaranties of:
(A) Noninvestment grade consumer debt obligations, and
(B) Noninvestment grade asset-backed securities.
(6) 3.0 percent of the total net liability under guaranties of
noninvestment grade obligations secured by first mortgages on
commercial real estate and having loan-to-value ratios of 80 percent
or less.
(7) 5.0 percent of the total net liability under guaranties of
other noninvestment grade obligations.
(8) If the amount of collateral required by paragraph (3) of
subdivision (b) is no longer maintained, that proportion of the
obligation insured which is not so collateralized shall be subject to
the aggregate limits specified in paragraph (4) of subdivision (b).
(9) Additional surplus determined by the commissioner to be
adequate to support the writing of surety insurance and credit
insurance if the financial guaranty insurance corporation has been
authorized to transact surety insurance and credit insurance as
authorized by Section 12102.
(c) Whenever the reserves for outstanding credit insurance losses
or loss expenses or any insurer licensed in this state to transact
financial guaranty insurance are determined by the commissioner to be
inadequate, he or she shall require the insurer to maintain
additional reserves.

12115. A financial guaranty insurance corporation admitted to
transact financial guaranty insurance in this state shall limit its
exposure to loss, net of collateral and reinsurance, as follows:
(a) For municipal obligation bonds and special revenue bonds:
(1) The insured average annual debt service with respect to any
one entity and backed by a single revenue source may not exceed 10
percent of the aggregate of the financial guaranty insurance
corporation's capital, surplus, and contingency reserve.
(2) The insured unpaid principal issued by a single entity and
backed by a single revenue source may not exceed 75 percent of the
aggregate of the financial guaranty insurance corporation's capital,
surplus, and contingency reserve.
(b) For each issue of asset-backed securities issued by a single
entity, and for each pool of consumer debt obligations, the lesser
of:
(1) Insured average annual debt service; or
(2) 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 10 percent of the
aggregate of the financial guaranty insurance corporation's capital,
surplus, and contingency reserve, provided that no asset in the pool
supporting the asset-backed securities exceeds the single risk limits
prescribed in subdivision (e) of Section 12115 if directly
guarantied; and provided further that, if the issuer of such insured
asset-backed securities is a special purpose corporation, trust or
other entity and that 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 financial guaranty insurance corporation, or such other
indebtedness shall (A) be fully subordinated to the insured
obligation, with respect to, or be nonrecourse with respect to, the
pool of assets that supports the insured obligation, (B) be
nonrecourse 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 (C) 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.
(c) 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 50 percent
of the appraised value of the underlying real estate shall not
exceed 10 percent of the aggregate of the financial guaranty
insurance corporation's capital, surplus, and contingency reserve.
(d) For utility first mortgage obligations, the insured average
annual debt service shall not exceed 10 percent of the aggregate of
the financial guaranty insurance corporation's capital, surplus, and
contingency reserve.
(e) For all other financial guaranties, the insured unpaid
principal for any one entity and backed by a single revenue source
may not exceed 10 percent of the aggregate of the financial guaranty
insurance corporation's capital, surplus, and contingency reserve.

12115.5. (a) If an admitted financial guaranty insurance
corporation fails to maintain a rating in any of the top three
generic rating classifications by any securities rating agency
acceptable to the commissioner, it shall immediately send written
notification of this failure to both the commissioner and the
insurance regulatory authority in its state of domicile.
(b) (1) If an admitted financial guaranty insurance corporation
fails to maintain a rating at least equal to the highest notch in the
fourth generic rating classification by any securities rating agency
acceptable to the commissioner, the insurer shall prepare and file
with the commissioner a two-year business plan, in reasonable detail,
together with other information that the commissioner requires. The
plan shall be filed within 45 days of the date when the insurer fails
to maintain that rating.
(2) In response to that failure, the commissioner may conduct any
examination or analysis of the insurer's assets, liabilities, and
operations, including its pricing, that he or she deems necessary.
(3) After reviewing the business plan and conducting any
examination or analysis, the commissioner may issue a corrective
order specifying the corrective measures that he or she determines to
be required, and the insurer shall implement those measures. In
determining corrective measures, the commissioner may take into
account the factors that he or she deems relevant with respect to the
insurer, including the results of the examination or analysis.
(c) If an admitted financial guaranty insurance corporation fails
to maintain an investment grade rating by any securities rating
agency acceptable to the commissioner, it shall not do either of the
following without the commissioner's specific prior written approval:
(1) If domiciled in this state, accept additional risks or issue
new policies anywhere.
(2) If domiciled in another state, accept additional risks in this
state or issue new policies insuring risks in this state.

12116. (a) If an admitted financial guaranty insurance corporation
at any time exceeds any limitation prescribed by subdivision (a) or
(b) of Section 12114 or Section 12115, the corporation shall
immediately notify the commissioner in writing. Upon receipt of the
written notification, or independent of its receipt, the commissioner
may issue an order to show cause why the financial guaranty
insurance corporation should not cease transacting financial guaranty
insurance business. If the commissioner issues such an order, the
commissioner shall serve notice of hearing with the order to the
financial guaranty insurance corporation stating the time and place
therefor, and the conduct, condition or grounds upon which the
commissioner has made the order. The hearing shall occur not less
than 20 nor more than 30 days after notice is served. At the hearing,
the burden to show cause why the financial guaranty insurance
corporation should not cease transacting new financial guaranty
insurance shall be borne solely by the financial guaranty insurance
corporation.
(b) If the commissioner does not issue an order pursuant to
subdivision (a) upon receiving written notice, the financial guaranty
insurance corporation shall, within 30 days after the limitations
are breached, submit a written plan to the commissioner detailing the
steps that it will take or has taken to reduce its exposure to loss
to no more than the amounts permitted by subdivisions (a) and (b) of
Section 12114 and Section 12115. If, after review of the written
plan, the commissioner determines that the corporation has not
presented reasonable steps to reduce its exposure to loss to not more
than the permitted amounts, the commissioner may issue an order to
show cause following the same procedures as prescribed in subdivision
(a).
(c) If, after notice and hearing pursuant to subdivision (a) or
(b), the commissioner determines that the financial guaranty
insurance corporation has exceeded any limitation prescribed by
subdivision (a) or (b) of Section 12114 or Section 12115, the
commissioner may order the corporation to cease transacting any new
financial guaranty insurance business until its exposure to loss no
longer exceeds these limitations.
(d) The provisions of this section and Section 12115.5 shall in no
way limit the stop order power of the commissioner under any other
section.

12116.5. (a) The commissioner may, for good cause, implement by
regulation, order, or written consent, reasonable conditions or
limitations under which any or all admitted financial guaranty
insurance corporations may insure the type of business described in
paragraph (2) of subdivision (c) of Section 12100 or subdivision (a)
of Section 12119, reduce reserves in respect of collateral described
in paragraph (2) or (5) of subdivision (e) of Section 12100, or
engage in the transactions described in subdivision (b) of Section
12106, when, in the judgment of the commissioner, those conditions or
limitations are necessary and appropriate to safeguard insurer
solvency.
(b) Whenever the reserves for outstanding liabilities for
obligations insured under subdivision (c) of Section 12100 are
determined by the commissioner to be inadequate, he or she shall
require the insurer to maintain additional reserves.
(c) The commissioner may disallow, for purposes of any financial
statements or reports required or permitted to be filed under this
code, the recognition of collateral authorized by paragraph (2) or
(5) of subdivision (e) of Section 12100 if the commissioner finds
after inquiry and review that the collateral fails to legally secure
the obligations to which it relates, the collateral is inaccurately
valued, the value of the collateral is insufficient in relation to
the obligations secured, or the legality or value of the collateral
cannot readily be ascertained based on information provided.
(d) The commissioner may require restatement or other relevant
revision of any admitted financial guaranty insurer's annual or other
financial statement or report required or permitted to be filed
under this code if the commissioner finds after inquiry and review
that any transaction entered into under subdivision (b) of Section
12106 has the effect of distorting, misrepresenting, or otherwise
rendering inaccurate, misleading, or incomplete the financial
condition of the insurer in any material respect.
(e) No credit default swap authorized or permitted to be insured,
acquired, or otherwise used for any purpose by any admitted financial
guaranty insurance corporation under any provision of this code
shall be used in any manner for more than one purpose, or under more
than one statutory authorization, unless authorized by this code.

12117. A financial guaranty insurance corporation shall not be
deemed in violation of any limitation prescribed by Section 12115
with respect to any financial guaranty insurance outstanding prior to
January 1, 1991, if the financial guaranty insurance corporation 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 financial guaranty insurance corporation was not
so in compliance, it shall comply with the limitations prescribed by
Section 12115 no later than January 1, 1994.

12118. An admitted insurer transacting financial guaranty insurance
in this state but which is not admitted to transact, financial
guaranty insurance in this state shall be subject to all the
provisions of this article and:
(a) May continue to write financial guaranties of the type
authorized by subdivision (b) of Section 12112 as follows:
(1) For a period not to exceed five years from January 1, 1991,
provided that by July 1, 1991, application shall be made to the
commissioner to organize or admit a financial guaranty insurance
corporation, controlled by or under common control with that insurer,
which financial guaranty insurance corporation, once admitted, shall
immediately assume all of the financial guaranty insurance in force
on the books of the insurer which was written on or after January 1,
1991.
(2) In the case of an insurer transacting only financial guaranty
insurance prior to January 1, 1991, which would comply with all of
the requirements for admission as a financial guaranty insurance
corporation under this article and which has made application, and
has paid the filing fee of five thousand dollars ($5,000) required by
Section 12105 to amend its current certificate of authority to
financial guaranty insurance by no later than March 1, 1991, the
insurer may continue to write financial guaranty insurance until the
time that the commissioner issues or denies the amended certificate
of authority or the application is otherwise terminated.
(b) Shall, if it does not make application for an amended
certificate of authority to transact the business of financial
guaranty insurance pursuant to paragraph (1) of subdivision (a),
cease writing any new financial guaranty insurance by no later than
July 1, 1991. An insurer subject to this paragraph may do one or more
of the following:
(1) Reinsure its net in-force business with an admitted financial
guaranty insurance corporation.
(2) Subject to the prior approval of its domiciliary commissioner
and the commissioner of this state, reinsure all or part of its net
in-force business with an insurer meeting the requirements of
subdivision (b) of Section 12121, except that, in the case of an
admitted surety insurer or a nonadmitted insurer that transacts
financial guaranty insurance and insurance other than financial
guaranty insurance, the insurer's combined capital and surplus shall
be at least one hundred million dollars ($100,000,000) and
subparagraphs (A) to (F), inclusive, of paragraph (3) of subdivision
(b) of Section 12121 shall not be applicable. The assuming insurer
shall maintain reserves for the reinsured business in the manner
applicable to the ceding insurer under paragraph (2) of subdivision
(a) of Section 12121.
(3) Thereafter continue the risks then in force and, with 30 days
prior written notice to its domiciliary commissioner, write new
financial guaranty policies provided the writing of the policies is
reasonably prudent to mitigate either the amount of or possibility of
loss in connection with business written prior to January 1, 1991.
However, an insurer shall receive the prior approval of its
domiciliary commissioner and the commissioner of