(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 $100 | Surplus per $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 $100 | Surplus per $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).
(Amended by Stats. 2009, Ch. 574, Sec. 1. (SB 291) Effective January 1, 2010.)
Last modified: October 25, 2018