California Insurance Code 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.
