Limitations.

(1) Financial guaranty insurance shall be transacted in this state only by a corporation licensed for such purpose, except that a property and casualty insurer transacting business pursuant to the provisions of this code may transact financial guaranty insurance in this state if the following conditions are met:

(a) Total policyholders’ surplus exceeds $100 million;

(b) Not more than 20 percent of total net premiums written are applicable to or for financial guaranty insurance;

(c) The provisions of this part are applied to the insurer’s financial guaranty insurance business;

(d) Not more than 20 percent of the insurer’s total policyholder’s surplus is applied toward meeting the provisions of this part;

(e) The policyholders’ surplus once utilized to meet the requirements of this part shall not be available for meeting any policyholders’ surplus requirements for any other type of insurance;

(f) The insurer is licensed to write financial guaranty insurance; and

(g) Unless the insurer is transacting financial guaranty insurance prior to July 1, 1988, and otherwise meets the requirements of this section, prior to the issuance of a license, the insurer must submit to the office for approval, a plan of operation complying with s. 627.972(1)(b).

(2) Financial guaranty insurance shall be written only to insure obligations defined in s. 627.971(1)(a)1., except that obligations defined in s. 627.971(1)(a)2., 3., 4., and 5. may be written with the prior written approval of the office pursuant to limitations and restrictions promulgated by rule that the commission deems appropriate and necessary to protect the policyholders of the insurer.

(3) At least 95 percent of the outstanding total liability on municipal obligation bonds of an insurer transacting financial guaranty insurance must be investment grade.

(4) An insurer transacting financial guaranty insurance must at all times maintain capital, surplus, and contingency reserves, subject to the restrictions in paragraph (1)(d) if applicable, in the aggregate no less than the sum of:

(a) One-third of one percent of the total liabilities outstanding under guaranties of municipal obligation bonds;

(b) One percent of the total liabilities outstanding under guaranties of investment grade obligations, including industrial development bonds and investment grade consumer debt obligations;

(c) One and one-third percent of the total liabilities outstanding under guaranties of noninvestment grade consumer debt obligations;

(d) Two percent of the total liabilities outstanding under guaranties of other obligations not of investment grade, other than consumer debt obligations; and

(e) Surplus determined by the office to be adequate to support the writing of residual value insurance, surety insurance, and credit insurance, if the corporation has elected to transact these kinds of insurance pursuant to s. 627.972(1).

(5) An insurer transacting financial guaranty insurance must limit its exposure to loss, net of collateral and reinsurance, as follows:

(a) For municipal 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 corporation’s capital, surplus, and contingency reserves, subject to the restrictions of paragraph (1)(d) if applicable; and

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 corporation’s capital, surplus, and contingency reserves, subject to the restrictions in paragraph (1)(d) if applicable; and

(b) For all other financial guaranties, the insured unpaid principal for any one risk may not exceed 10 percent of the aggregate of the corporation’s capital, surplus, and contingency reserves, subject to the restrictions in paragraph (1)(d) if applicable. Single risk liability shall be defined with respect to any one issuer, except that, if the risk is payable from a specified revenue source or adequately secured by loan obligations or other assets, such risk shall be defined by the revenue source.

(6) If the exposure to loss of an insurer transacting financial guaranty insurance exceeds the limitations in subsection (4), it may not transact any new financial guaranty insurance business until its exposure to loss no longer exceeds those limitations.

(7) An insurer which wrote financial guaranty insurance in this state during the 12-month period immediately preceding July 1, 1988, but which does not meet the requirements of subsection (1) or of s. 627.972(2), may, nevertheless, continue to write financial guaranty insurance as authorized by subsection (2) after July 1, 1988, subject to all other provisions of this part, provided:

(a) Within 45 days after such date the insurer files with the office a statement of its intentions to limit its writings to financial guaranty, surety, and fidelity insurance. Effective upon such filing, the insurer shall be subject to the requirements of this part except that the surplus to policyholders requirement of s. 627.972(2) shall not apply to such insurer until July 1, 1998, at which time such insurer shall have and thereafter maintain the minimum surplus requirement of at least $35 million. Failure of the insurer to meet the conditions of such statement of intent filed with the office, until such time as it meets the requirements of subsection (1), shall be grounds to subject the insurer to the penalties provided under this code, including immediate suspension or revocation of its certificate of authority. If the insurer does not file such statement of intent, it shall cease writing any new financial guaranty insurance business within 6 months after the effective date of this act. The insurer may:

1. Reinsure its net in-force business with a licensed financial guaranty insurance corporation or an insurer exempt under subsection (1);

2. Subject to the prior approval of its domiciliary insurance commissioner, reinsure all or part of its net in-force business pursuant to s. 627.975(1)(b), except that subparagraphs 2. and 4. do not apply. The assuming insurer must maintain reserves for the reinsured business in the manner applicable to the ceding insurer under paragraph (b); or

3. May continue the risks in force and, with 30 days prior written notice to its domiciliary insurance commissioner, write new financial guaranty policies if the writing of those policies is reasonably prudent to mitigate either the amount of or possibility of loss in connection with business written prior to July 1, 1988. However, an insurer must receive the prior approval of its domiciliary insurance commissioner before writing any new financial guaranty insurance policies that would increase its risk of loss.

(b) Must, for all guaranties in force prior to July 1, 1988, including those which fall under the definition of financial guaranty insurance, maintain the reserves applicable for municipal bond guaranties in effect prior to July 1, 1988. If the insurer’s contingency reserves maintained as of July 1, 1988, are less than those required for municipal bond guaranties, the insurer has 3 years to bring its reserves into compliance, except that a part of the reserve may be released proportional to the reduction in net total liabilities resulting from reinsurance if the reinsurer, on the effective date of the reinsurance, establishes a reserve in an amount equal to the amount released and except that a part of the reserve may be released with office approval, upon demonstration that the amount carried is excessive in relation to the corporation’s outstanding obligations.

(c) Shall be subject to the reserve requirements applicable to financial guaranty insurance corporations, for business written on or after July 1, 1988.

(d) This subsection shall not apply to insurers permitted to write financial guaranty insurance pursuant to the exception set forth in subsection (1) and such insurers may write financial guaranty insurance subject to the requirements of the Florida Insurance Code.