Section 6901. Definitions

As  used  in  this article: (a) (1) "Financial
  guaranty insurance" means a surety bond, an insurance  policy  or,  when
  issued  by  an  insurer  or  any  person  doing an insurance business as
  defined in paragraph one of subsection (b) of section one  thousand  one
  hundred  one  of  this  chapter, an indemnity contract, and any guaranty
  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 guarantied 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  or  purchase  price  of or on, or other amounts due or payable
  with respect to, such instrument or obligation, when such failure is the
  result of a financial default  or  insolvency  or,  provided  that  such
  payment  source  is investment grade, any other failure to make payment,
  regardless of  whether  such  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 specific assets or commodities, financial
  or commodity indices, or price levels in general; or
    (E) other events which the superintendent determines are substantially
  similar to any of the foregoing.
    (2) Notwithstanding  paragraph  one  of  this  subsection,  "financial
  guaranty insurance" shall not include:
    (A)  insurance  of  any  loss  resulting  from  any event described in
  paragraph one of this subsection 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) failure of or deficiency in the operation of equipment; or
    (iii) an inability to extract or recover a natural resource;
    (B) fidelity and surety insurance as defined in paragraph  sixteen  of
  subsection  (a)  of  section  one  thousand one hundred thirteen of this
  chapter;
    (C) credit insurance as defined in paragraph seventeen  of  subsection
  (a) of section one thousand one hundred thirteen of this chapter;
    (D)  credit unemployment insurance as defined in paragraph twenty-four
  of subsection (a) of section one thousand one hundred thirteen  of  this
  chapter;
    (E)  residual  value  insurance  as defined in paragraph twenty-two of
  subsection (a) of section one thousand  one  hundred  thirteen  of  this
  chapter;
    (F)  mortgage  guaranty insurance as defined in paragraph twenty-three
  of subsection (a) of section one thousand one hundred thirteen  of  this
  chapter  and  as  permitted to be written by a mortgage guaranty insurer
  under article sixty-five of this chapter;
    (G) guaranteed investment contracts issued by life insurance companies
  which provide that the life insurer itself will make specified  payments
  in exchange for specific premiums or contributions;
    (H) indemnity contracts or similar guaranties, to the extent that they
  are not otherwise limited or proscribed by this chapter:
    (i)  in  which  a  life  insurer  or  an  insurer  subject  to article
  forty-three of this chapter guaranties its obligations  or  indebtedness

  or  the  obligations  or  indebtedness  of  a  subsidiary (as defined in
  paragraph forty of subsection (a) of section one hundred seven  of  this
  chapter),   other  than  a  financial  guaranty  insurance  corporation,
  provided that:
    (I) to the extent that any such obligations or indebtedness are backed
  by  specific  assets,  such  assets  must  at  all times be owned by the
  insurer or the subsidiary; and
    (II) in the case of the guaranty of the obligations or indebtedness of
  the subsidiary that are not backed by specific assets of  such  insurer,
  such  guaranty terminates once the subsidiary ceases to be a subsidiary;
  or
    (ii) in which a life insurer guaranties  obligations  or  indebtedness
  (including  the  obligation to substitute assets where appropriate) with
  respect to specific assets acquired by such life insurer in  the  course
  of  its  normal  investment activities and not for the purpose of resale
  with credit  enhancement,  or  guaranties  obligations  or  indebtedness
  acquired  by  its subsidiary, provided that the assets acquired pursuant
  to this item (ii) have been:
    (I) acquired by a special purpose entity, whose  sole  purpose  is  to
  acquire specific assets of such life insurer or its subsidiary and issue
  securities or participation certificates backed by such assets; or
    (II) sold to an independent third party; or
    (iii)  in  which a life insurer guaranties obligations or indebtedness
  of an employee or insurance agent of such life insurer; or
    (I)  guarantees  of  higher  education  loans,  unless  written  by  a
  financial guaranty insurance corporation;
    (J) guarantees of insurance contracts, except for:
    (i) guarantees authorized pursuant to section one thousand one hundred
  fourteen of this chapter;
    (ii)   financial   guaranty  insurance  policies  insuring  guaranteed
  investment contracts issued by life insurers, provided that:
    (I) the obligations under such contracts  are  not  dependent  on  the
  continuance of human life;
    (II)  the  financial guaranty insurance policies do not guaranty death
  benefits provided by such contracts;
    (III) the obligations insured  by  the  financial  guaranty  insurance
  policies  are  investment grade based on the rating of the life insurers
  or, in the case of separate  account  guaranteed  investment  contracts,
  based on the ratings of such separate accounts;
    (IV)  the financial guaranty insurance policies shall not condition or
  delay payment of a claim with respect to such contracts upon the insured
  or beneficiary making a  claim  on  the  contracts  with  any  insurance
  guaranty fund under this chapter or of any other jurisdiction; and
    (V)  the  financial guaranty insurance policies provide that if, prior
  to payment  by  the  insurer  under  the  financial  guaranty  insurance
  policies, the guaranty fund has paid a claim under such contracts for an
  amount  that,  when  added  to  the  amount  payable under the financial
  guaranty insurance policies, would exceed the  amount  owed  under  such
  contracts,  then the financial guaranty insurer shall pay the portion of
  the amount payable in excess of the contract  amounts  to  the  guaranty
  fund instead of to the beneficiary under such contracts; or
    (K)   any   other   form   of   insurance  covering  risks  which  the
  superintendent determines to be substantially  similar  to  any  of  the
  foregoing.
    (b)  "Financial guaranty insurance corporation" or "corporation" means
  an insurer licensed to  transact  the  business  of  financial  guaranty
  insurance in this state.

    (c)  "Affiliate" means a person which, directly or indirectly, owns at
  least ten percent but less than fifty percent of the financial  guaranty
  insurance  corporation  or  which  is at least ten percent but less than
  fifty percent, directly or indirectly, owned  by  a  financial  guaranty
  insurance corporation.
    (d)  "Aggregate  net  liability" means the aggregate amount of insured
  unpaid principal, interest and  other  monetary  payments,  if  any,  of
  guarantied  obligations  insured  or assumed, less reinsurance ceded and
  less collateral.
    (e) "Asset-backed securities" mean:
    (1) securities or other financial obligations of  an  issuer  provided
  that:
    (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 Insurance Fund (or any successor thereto);
  and
    (B) a pool of assets:
    (i)  has  been  conveyed,  pledged  or  otherwise transferred to or is
  otherwise owned or acquired by the issuer;
    (ii) such pool of assets  backs  the  securities  or  other  financial
  obligations issued; and
    (iii)  no asset in such 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 one or two of subsection (g) of  this  section,  has  a  value
  exceeding twenty percent of the pool's aggregate value; or
    (2) a pool of credit default swaps or credit default swaps referencing
  a pool of obligations, provided that:
    (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 such 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 two of subsection (g) of this section, has  a
  notional  amount  exceeding ten percent of the pool's aggregate notional
  amount; and
    (C) the insurer has the benefit of a deductible or  other  first  loss
  credit protection against claims under its insurance policy.
    (f)  "Average  annual debt service" means the amount of insured unpaid
  principal and interest on an obligation, multiplied  by  the  number  of
  such  insured  obligations  (assuming  each  obligation  represents  one
  thousand dollars  par  value),  divided  by  the  amount  equal  to  the
  aggregate  life  of  all  such  obligations  (assuming  each  obligation
  represents one thousand dollars par value). This  definition,  expressed
  as a formula in regard to bonds, is as follows:
 
      Average Annual Debt Service = Total Debt Service x No. of Bonds
                                    _________________________________
                                                Bond Years
          Total Debt Service = Insured Unpaid Principal + Interest
 
                 Number of Bonds = Total Insured Principal
                                   _______________________
                                           $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.
    (g) "Collateral" means:
    (1) cash;
    (2) the cash flow 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
  or prepayments)  on  the  insured  obligation  provided  that  (i)  such
  specific obligations are directly payable by, guaranteed by or backed by
  the  full  faith and credit of the United States government, (ii) in the
  case of insured obligations denominated or payable in  foreign  currency
  as  permitted  under  paragraph  four  of  subsection (b) of section six
  thousand nine hundred four of this article,  such  specific  obligations
  are  directly  payable by, guaranteed by or backed by the full faith and
  credit of such foreign government or the central bank thereof, or  (iii)
  such  specific  obligations are insured by the same insurer that insures
  the obligations being collateralized,  and  the  cash  flows  from  such
  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:
    (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;
  or
    (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  insurer  and  any successor by operation of law,
  including any liquidator, rehabilitator, receiver or conservator, as the
  beneficiary; or
    (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 such issuer and is in no way contingent upon reimbursement
  with respect thereto;
    (F) contains an issue date and a date of expiration;
    (G) either:
    (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 policy; or
    (ii) provides that the letter  of  credit  shall  not  expire  without
  thirty  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 this subsection is not provided;

    (H) states that it is governed by the laws of the state of New York or
  by  the  1983  or  1993 Revision of the Uniform Customs and Practice for
  Documentary  Credits  of   the   International   Chamber   of   Commerce
  (Publication  400  or  500) or any successor Revision if approved by the
  superintendent,  and  contains  a provision for an extension of time, of
  not less than thirty 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; and
    (I)  is  issued  by  a  bank,  trust  company,  or  savings  and  loan
  association that:
    (i)  is  organized and existing under the laws of the United States or
  any  state  thereof  or,  in  the  case  of  a  non-domestic   financial
  institution,  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  Organisation 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
  superintendent;
    (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; and
    (iii) is not a parent, subsidiary  or  affiliate  of  the  trustee  or
  paying  agent,  if  any,  with respect to the insured obligation if such
  trustee of paying agent is  the  named  beneficiary  of  the  letter  of
  credit; or
    (5)  the  amount of credit protection available to the insurer (or its
  nominee) under each credit default swap that:
    (A) may not be amended without the consent of the insurer and may only
  be terminated: (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
  superintendent; or (iii) at the discretion of the superintendent  acting
  as  a  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 non-pro-rata basis and may apply on an  aggregate  basis  to  more
  than one policy;
    (C) is provided by:
    (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
  items (ii) and (iii) of this subparagraph;
    (ii)  a financial institution satisfying the requirements of items (i)
  through (iii) of subparagraph (I) of paragraph four of this  subsection;
  provided  that  (A)  obligations of such financial institution on parity
  with its obligations under the credit default swap are investment  grade
  and  (B) if such 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 such financial institution is required
  to collateralize the replacement cost of the credit default swap in  the
  event that it shall fail to maintain such rating; or

    (iii)   any   other  financial  institution  that  the  superintendent
  determines to be substantially similar to any of the foregoing.
    Collateral  must  be  deposited  with  the insurer; held in trust by a
  trustee or custodian acceptable to the superintendent for the benefit of
  the insurer; or held in trust pursuant to the bond  indenture  or  other
  trust  arrangement,  for  the benefit of security holders in the form of
  funds for the payment of insured obligations,  sinking  funds  or  other
  reserves  which  may  be used for the payment of insured obligations and
  trustee  and  other  administrative  fees  on  a  first  priority  basis
  established and continually maintained pursuant to the bond indenture or
  other  trust  arrangement by a trustee acceptable to the superintendent.
  The superintendent may promulgate regulations 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 subsection.
    (h)  "Commercial  real  estate"  means  income producing real property
  other than residential property consisting of less than five units.
    (i)  (1)  "Consumer  debt  obligations"  guaranties  means   financial
  guaranty  insurance  that indemnifies 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 (A) such pool meets the requirements
  of paragraph two of subsection (e) of this section and (B) such pool has
  been determined to be investment grade.
    (2)  Consumer  debt  obligations  guaranty  policies  shall  contain a
  provision that all coverage under the policies terminates upon  sale  or
  transfer  of  the  underlying consumer debt obligation to any transferee
  not insured by the same insurer under a similar policy.
    (j)  "Contingency  reserve"  means  an  additional  liability  reserve
  established  to  protect  policyholders  against  the effects of adverse
  economic developments or cycles or other unforeseen circumstances.
    (j-1) "Credit default swap" means an agreement referencing the  credit
  derivative  definitions published from time to time by the International
  Swap and Derivatives Association, Inc. or otherwise  acceptable  to  the
  superintendent,  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 such agreement does not constitute an
  insurance contract and the making of such credit default swap  does  not
  constitute the doing of an insurance business.
    (k)  "Governmental unit" means the United States of America, Canada, a
  member  country  of  the  Organisation  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 superintendent, a state, territory or possession  of  the  United
  States  of  America,  the  District of Columbia, a province of Canada, a
  municipality, or a political subdivision of any of the foregoing, or any
  public agency or instrumentality thereof.
    (k-1) "Excess spread" means, with respect  to  any  insured  issue  of
  asset-backed  securities,  the  excess of (A) the scheduled cash flow 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 such excess is held in the same
  manner as collateral is required to be held under subsection (g) of this
  section.

    (l)  "Industrial  development  bond"  means  any  security  or   other
  instrument,  other than a utility first mortgage obligation, 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 payable or guarantied by a
  governmental unit.
    (m) "Insurable risk" means, with respect to  asset-backed  securities,
  as defined in subsection (e) of this section, that such obligation on an
  uninsured basis has been determined to be not less than investment grade
  based  solely  on  the  pool of assets backing the insured obligation or
  securing the insurer, without consideration of the  creditworthiness  of
  the issuer.
    (n) "Investment grade" means that:
    (1)  the  obligation  or parity obligation of the same issuer has been
  determined to be  in  one  of  the  top  four  generic  lettered  rating
  classifications   by  a  securities  rating  agency  acceptable  to  the
  superintendent;
    (2) the obligation or parity obligation of the same  issuer  has  been
  identified  in  writing  by such rating agency to be of investment grade
  quality; or
    (3) if the obligation or parity obligation of the same issuer has  not
  been  submitted  to any such rating agency, the obligation is determined
  to be investment grade (as indicated by a rating in category 1 or 2)  by
  the Securities Valuation Office of the National Association of Insurance
  Commissioners.
    (o)  "Municipal  bonds"  means  municipal obligation bonds and special
  revenue bonds.
    (p)  "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  political  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 or payable or guaranteed by a  governmental  unit  or
  issued  by a special purpose corporation, special purpose trust or other
  special purpose legal entity to finance a project serving a  substantial
  public purpose, and which is:
    (1) (A) payable from tax revenues, but not tax allocations, within the
  jurisdiction of such governmental unit;
    (B)  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 housing agency of a state
  or  an  equivalent  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  non-nuclear  utility  project, public transportation
  facility (other than an airport), or public higher  education  facility;
  or
    (D)   with   respect   to   lease  obligations,  payable  from  future
  appropriations; and
    (2) provided that, in the case of obligations  of  a  special  purpose
  corporation,  special  purpose  trust  or  other  special  purpose legal
  entity, (A) such  obligations  are  investment  grade  at  the  time  of
  issuance;  (B)  such  obligations are payable from sources enumerated in
  subparagraph (A), (B), (C) or (D) of paragraph one of  this  subsection;
  and  (C) 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 unit.
    (q)  "Reinsurance"  means cessions qualifying for credit under section
  six thousand nine hundred six of this article.
    (r) "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
  serving  a  substantial  public purpose, and not payable from any of the
  sources enumerated in subsection (p)  of  this  section;  or  securities
  which  are  the  functional  equivalent  of  the  foregoing  issued by a
  not-for-profit corporation or a  special  purpose  corporation,  special
  purpose  trust  or other special purpose legal entity; provided that, in
  the case of  obligations  of  a  special  purpose  corporation,  special
  purpose   trust   or  other  special  purpose  legal  entity,  (1)  such
  obligations are investment grade at  the  time  of  issuance;  (2)  such
  obligations  are not payable from the sources enumerated in subparagraph
  (A), (B), (C) or (D) of paragraph one of subsection (p) of this section;
  and (3) 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 unit.
    (s) "Utility first mortgage obligation" means  any  obligation  of  an
  issuer secured by a first priority mortgage on utility property owned by
  or  leased to an investor-owned or cooperative-owned utility company and
  located in the  United  States,  Canada  or  a  member  country  of  the
  Organisation   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
  superintendent; 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 unit.