Section 6502. Financial requirements

(a)  A  mortgage insurer shall not
  transact business unless:
    (1) if a stock insurance company, it has paid-in capital of  at  least
  one  million dollars and paid-in surplus of at least one million dollars
  or, if a mutual insurance company, a  minimum  initial  surplus  of  two
  million  dollars. A stock company shall at all times thereafter maintain
  a minimum surplus of at least five hundred thousand  dollars,  a  mutual
  company  shall  at all times thereafter maintain a minimum surplus of at
  least one million five hundred thousand dollars;
    (2) it establishes a contingency reserve out of  net  premiums  (gross
  premiums  less  premiums  returned  to  policyholders)  remaining  after
  establishing the unearned premium reserve. The company shall  contribute
  to  the  contingency  reserve  an  amount equal to fifty percent of such
  remaining earned premiums.   Contributions to  the  contingency  reserve
  made  during  each calendar year shall be maintained for a period of one
  hundred and twenty months, except that withdrawals may be  made  by  the
  company  with  the  prior  approval of the superintendent in any year in
  which the actual incurred  losses  exceed  thirty-five  percent  of  the
  corresponding  earned  premiums.  The  unearned premium reserve shall be
  computed as required by section one thousand three hundred five of  this
  chapter  except that on policies covering a risk period of more than one
  year it shall be computed in accordance with  standards  promulgated  by
  the superintendent; and
    (3)  in  addition to the contingency reserve, the case basis method or
  other method as may be prescribed by the superintendent shall be used to
  determine the loss reserve in  a  manner  consistent  with  section  one
  thousand three hundred three of this chapter. It shall include a reserve
  for  claims  reported  and  unpaid and claims incurred but not reported,
  including:
    (A) estimated losses on insured  loans  which  have  resulted  in  the
  conveyance of property which remains unsold;
    (B) insured loans in the process of foreclosure; and
    (C) insured loans in default for four or more months.
    (b) A mortgage insurer shall not:
    (1)  have  outstanding a total liability under its aggregate insurance
  policies  exceeding  twenty-five  times  its   policyholders'   surplus,
  computed  on  the basis of the company's liability under its election as
  provided in subsection (c) of section six thousand five hundred three of
  this article. Total liability shall  be  calculated  net  of  applicable
  reinsurance.  No company which has outstanding total liability exceeding
  twenty-five times its policyholders' surplus shall transact new business
  until its total  liability  no  longer  exceeds  twenty-five  times  its
  policyholders' surplus;
    (2)  declare dividends except from undivided profits remaining on hand
  above  the  aggregate  of  its  paid-in  capital,  paid-in  surplus  and
  contingency  reserve  or,  if  a  mutual  insurance company, its initial
  surplus and contingency reserve; or
    (3) invest its contingency  reserve  except  in  tax  and  loss  bonds
  purchased  pursuant  to  §  832(e)  of the Internal Revenue Code, to the
  extent of the tax savings  resulting  from  the  deduction  for  federal
  income tax purposes equal to the annual contributions to the contingency
  reserve.  The  contingency  reserve  shall  otherwise be held in cash or
  invested  only  in  the  types  of  reserve  investments  specified   in
  paragraphs  one  and  two of subsection (a) of section one thousand four
  hundred four of this chapter.