(a) Except as provided in Section 12118, financial guaranty insurance may be transacted in this state only by an insurer admitted to transact financial guaranty insurance.

(b) The following guaranties are permissible:

(1) Financial guaranty insurance shall be written only to insure timely payment of contractual obligations, including principal and interest, purchase obligations, dividends, or any other payment obligation, however characterized of the following:

(A) Municipal obligation bonds.

(B) Special revenue bonds.

(C) Industrial development bonds.

(D) Obligations of corporations, trusts, or similar entities established under applicable law.

(E) Partnership obligations.

(F) Asset-backed securities, trust certificates and trust obligations other than mortgage-backed securities secured by first mortgages on real property which are insurable by a mortgage guaranty insurer authorized under Chapter 2A (commencing with Section 12640.01) of Part 6 of Division 2, unless one of the following applies:

(i) The mortgages with loan-to-value ratios in excess of 80 percent are insured by mortgage guaranty insurers authorized under Chapter 2A (commencing with Section 12640.01) of Part 6 of Division 2, are insured by mortgage guaranty insurers licensed under the laws of any other state if that insurer has a claims paying rating of investment grade from a securities rating agency acceptable to the commissioner, or are in an aggregate principal amount less than the single risk limits prescribed in subdivision (e) of Section 12115.

(ii) Additional mortgages with principal balances, other collateral with a market value, or, provided the insured risk is investment grade, excess spread, in each instance in an amount at least equal to the coverage that would otherwise be provided by those mortgage guaranty insurers in accordance with item (i) of this subparagraph are pledged as additional support for the asset-backed securities.

(G) Installment purchase agreements executed as a condition of sale.

(H) Consumer debt obligations.

(I) Utility first mortgage obligations.

(J) Any other debt instrument or monetary obligation that the commissioner determines by order, regulation, or written consent to be substantially similar to any of the foregoing.

(2) A corporation may insure the timely payment of monetary obligations in any category designated in paragraph (1), notwithstanding that the obligation may be insured by a financial guaranty insurance policy issued by another insurer. In the event that any obligation is insured by more than one financial guaranty insurance policy, then each of the insurance policies may by its terms specify its priority of payment in the event of a default under the obligation insured or under any other insurance policy, provided that an insurer shall be entitled to take into account payment under another policy insuring the obligation for purposes of establishing and maintaining loss reserves only to the extent that the policy issued by the insurer provides for payment only in the event of payment default under both the obligation and the other policy.

(3) A corporation may also write financial guaranty insurance, as defined in subparagraph (A) of paragraph (1) of subdivision (a) of Section 12100 to insure the timely payment of non-United States dollar debt instruments or other monetary obligations denominated or payable in foreign currency, only for the categories listed in subparagraphs (A) to (J), inclusive, of paragraph (1), provided that each of the following conditions is satisfied:

(A) The currency is that of an Organisation for Economic Co-operation and Development country or another country whose sovereign rating is investment grade, or the country is not disapproved by the commissioner within 30 days following receipt of written notification. The commissioner shall not disapprove the country if it is demonstrated that there is no undue risk associated with insuring the timely payment of the instruments or obligations. In making such a determination, the commissioner shall take into consideration the corporation’s outstanding liabilities on noninvestment grade instruments and obligations in relation to its outstanding liabilities on all instruments and obligations and in relation to the amount of surplus to policyholders.

(B) Reserves required pursuant to Sections 12108, 12109, and 12110 in regard to the obligations are established and adjusted quarterly based upon the then current foreign exchange rates.

(C) The obligations do not exceed 25 percent of an insurer’s aggregate net liability.

(D) The aggregate and single risk limitations prescribed by Section 12106 and 12115 are determined by applying the then current foreign exchange rates.

(Amended by Stats. 2005, Ch. 412, Sec. 6. Effective January 1, 2006.)