Kansas Statutes

Chapter 40: Insurance

Article 35: Mortgage Guaranty Insurance Companies

Statutes:

• 40-3501: Title of act.
• 40-3502: Definitions.
• 40-3503: Capital and surplus requirements.
• 40-3504: Requirements prior to issuance of policies.
• 40-3505: Insuring of certain risks prohibited.
• 40-3506: Preparation of information and advertisements concerning real estate investments of financial institutions; prohibited conduct.
• 40-3507: Investments; prohibitions.
• 40-3508: Limiting coverage net of reinsurance or payment of indebtedness to insured and acquisition of title to security; election.
• 40-3509: Certificate of authority; eligibility for; time for compliance.
• 40-3510: Discrimination in issuing or extending insurance prohibited; requirements on lender by insurance company authorized; examination of borrower and appraisal report required prior to writing insurance.
• 40-3511: Issuance of insurance to lending institutions; extension of coverage to individual loans; consideration as group policies; owner-occupied, single-family dwelling, borrower not liable to company for deficiency arising from foreclosure sale.
• 40-3512: Limitation on outstanding liability.
• 40-3513: Payments or rebates as inducements or compensation for or in connection with placement of insurance prohibited; penalties for violations.
• 40-3514: Maintaining funds on deposit with insurance company's own insured prohibited; presumptions; other prohibited practices.
• 40-3515: Insurance company as member of holding company system; prohibited underwriting activities as condition of certificate of authority; other proscribed activities.
• 40-3516: Unearned premium reserve requirement.
• 40-3517: Case basis and other loss reserves requirements.
• 40-3518: Contingency reserve requirement; withdrawals.
• 40-3519: Reinsurance; establishment and maintenance of reserves in appropriate proportions by insurance company and reinsurer.
• 40-3520: Establishment of reserves in accord with law of another state where insurance company licensed.
• 40-3521: Rules and regulations.

• 40-3501: Title of act. This act may be cited as the "mortgage guaranty insurance act."

        History:   L. 1977, ch. 154, § 1; Jan. 1, 1978.

• 40-3502: Definitions. As used in this act the following terms shall have the meanings respectively ascribed to them herein:

        (a)   "Mortgage guaranty insurance company" means any corporation, company, association, reciprocal exchange, persons or partnerships writing contracts of mortgage guaranty insurance and shall be governed by the provisions of this act and the other provisions of chapter 40 of the Kansas Statutes Annotated applicable to companies organized or operating under the provisions of K.S.A. 40-1101 et seq., and amendments thereto, to the extent such other provisions are not inconsistent with the requirements of this act.

        (b)   "Mortgage guaranty insurance" means and includes: (1) Insurance against financial loss by reason of nonpayment of principal, interest or other sums agreed to be paid under the terms of any note or bond or other evidence of indebtedness secured by a mortgage, deed of trust, or other instrument constituting a lien or charge on real estate, when the improvement on such real estate is a residential building or a condominium or townhouse unit or buildings designed for occupancy by not more than four families;

        (2)   insurance against financial loss by reason of nonpayment of principal, interest or other sums agreed to be paid under the terms of any note or bond or other evidence of indebtedness secured by a mortgage, deed of trust or other instrument constituting a lien or charge on real estate, when the improvement on such real estate is a building or buildings designed for occupancy by five or more families or designed to be occupied for industrial or commercial purposes; or

        (3)   insurance against financial loss by reason of nonpayment of rent or other sums agreed to be paid under the terms of a written lease for the possession, use or occupancy of real estate, when the improvement on such real estate is a building or buildings designed to be occupied for industrial or commercial purposes.

        (c)   "Authorized real estate security" means an amortized note, bond or other evidence of indebtedness, not exceeding 105% of the fair market value of the real estate, secured by a mortgage, deed of trust, or other instrument which constitutes, or is equivalent to, a first lien or charge on real estate, when: (1) The real estate loan secured in such manner is one of a type which a bank, savings and loan association, or an insurance company, which is supervised and regulated by a department of this state or an agency of the federal government, is authorized to make, or would be authorized to make, disregarding any requirement applicable to such an institution that the amount of the loan not exceed a certain percentage of the value of the real estate;

        (2)   the improvement on such real estate is a building or buildings designed for occupancy as specified by paragraphs (1) or (2) of subsection (b); and

        (3)   the lien on such real estate may be subject to and subordinate to the following:

        (i)   The lien of any public bond, assessment or tax, when no installment, call or payment of or under such bond, assessment or tax is delinquent; and

        (ii)   outstanding mineral, oil, water or timber rights, rights-of-way, easements or rights-of-way of support, sewer rights, building restrictions or other restrictions or covenants, conditions or regulations of use, or outstanding leases upon such real property under which rents or profits are reserved to the owner thereof.

        (d)   "Contingency reserve" means an additional premium reserve established to protect policyholders against the effect of adverse economic cycles.

        (e)   "Single risk" means the insurance provided with respect to each separate loan or lease covered by an individual policy of mortgage guaranty insurance or an individual certificate issued pursuant to K.S.A. 40-3511, and amendments thereto.

        History:   L. 1977, ch. 154, § 2; L. 1994, ch. 87, § 3; L. 2000, ch. 170, § 31; L. 2002, ch. 40, § 1; July 1.

• 40-3503: Capital and surplus requirements. A mortgage guaranty insurance company shall not transact the business of mortgage guaranty insurance unless, if said company is a stock insurance company, it has paid-in capital of at least one million dollars ($1,000,000) and surplus of at least one million dollars ($1,000,000), or if said company is a mutual insurance company, it has a minimum surplus of two million dollars ($2,000,000).

        History:   L. 1977, ch. 154, § 3; Jan. 1, 1978.

• 40-3504: Requirements prior to issuance of policies. No mortgage guaranty insurance company may issue policies until it has obtained from the commissioner of insurance a certificate of authority and has complied with the other applicable provisions of chapter 40 of the Kansas Statutes Annotated.

        History:   L. 1977, ch. 154, § 4; Jan. 1, 1978.

• 40-3505: Insuring of certain risks prohibited. (a) A mortgage guaranty insurance company shall not insure loans secured by a single risk in excess of ten percent (10%) of its aggregate capital, surplus and contingency reserve.

        (b)   No mortgage guaranty insurance company shall have more than twenty percent (20%) of its total insurance in force in any one standard metropolitan statistical area ("SMSA"), as defined by the United States department of commerce. The provisions of this subsection shall not apply to a mortgage guaranty insurance company until it has possessed a certificate of authority in this state for three (3) years.

        History:   L. 1977, ch. 154, § 5; Jan. 1, 1978.

• 40-3506: Preparation of information and advertisements concerning real estate investments of financial institutions; prohibited conduct. No mortgage guaranty insurance company or any agent or representative of a mortgage guaranty insurance company shall prepare or distribute or assist in preparing or distributing any brochure, pamphlet, report or any form of advertising to the effect that the real estate investments of any financial institution are "insured investments," unless the brochure, pamphlet, report or advertising clearly states that the loans are insured by mortgage guaranty insurance companies possessing a certificate of authority to transact mortgage guaranty insurance in this state or are insured by an agency of the federal government, as the case may be.

        History:   L. 1977, ch. 154, § 6; Jan. 1, 1978.

• 40-3507: Investments; prohibitions. A mortgage guaranty insurance company shall not invest in notes or other evidences of indebtedness secured by mortgage or other lien upon real property. This section shall not apply to obligations secured by real property, which obligations or contracts of sale are acquired in the course of the good faith settlement of claims under policies of insurance issued by the mortgage guaranty insurance company, or in the good faith disposition of real property so acquired.

        History:   L. 1977, ch. 154, § 7; Jan. 1, 1978.

• 40-3508: Limiting coverage net of reinsurance or payment of indebtedness to insured and acquisition of title to security; election. A mortgage guaranty insurance company shall limit its coverage net of reinsurance ceded to a reinsurer to a maximum of twenty-five percent (25%) of the entire indebtedness to the insured or in lieu thereof, a mortgage guaranty insurance company may elect to pay the entire indebtedness to the insured and acquire title to the authorized real estate security.

        History:   L. 1977, ch. 154, § 8; Jan. 1, 1978.

• 40-3509: Certificate of authority; eligibility for; time for compliance. (a) A mortgage guaranty insurance company which anywhere transacts any class of insurance other than mortgage guaranty insurance is not eligible for the issuance of a certificate of authority to transact mortgage guaranty insurance in this state nor for the renewal thereof.

        (b)   A mortgage guaranty insurance company which anywhere transacts the classes of insurance defined in K.S.A. 40-3502(b)(2) or (3) is not eligible for a certificate of authority to transact in this state the class of mortgage guaranty insurance defined in K.S.A. 40-3502(b)(1) except a mortgage guaranty insurance company which transacts a class of insurance defined in K.S.A. 40-3502(b)(1) may write up to five percent (5%) of its insurance in force on residential property designed for occupancy by five (5) or more families.

        (c)   Any insurance company that is authorized to write mortgage guaranty insurance as defined in this act on January 1, 1977, shall have until May 1, 1983, to comply with the provisions of this section.

        History:   L. 1977, ch. 154, § 9; Jan. 1, 1978.

• 40-3510: Discrimination in issuing or extending insurance prohibited; requirements on lender by insurance company authorized; examination of borrower and appraisal report required prior to writing insurance. (a) No mortgage guaranty insurance company may discriminate in the issuance or extension of mortgage guaranty insurance on the basis of the applicant's sex, marital status, race, color, creed or national origin.

        (b)   Nothing in this act shall be construed as limiting the right of any mortgage guaranty insurance company to impose reasonable requirements upon the lender with regard to the terms of any note or bond or other evidence of indebtedness secured by a mortgage or deed of trust, such as requiring a stipulated down payment by the borrower.

        (c)   No policy of mortgage guaranty insurance excluding policies of reinsurance, shall be written unless and until the insurer or the lender, in compliance with underwriting directives from the insurer and subject to periodic underwriting audits by the insurer shall have conducted a reasonable and thorough examination of: (1) The evidence supporting credit worthiness of the borrower; and (2) the appraisal report reflecting market evaluation of the property and shall have determined that prudent underwriting standards have been met.

        History:   L. 1977, ch. 154, § 10; L. 1995, ch. 55, § 1; July 1.

• 40-3511: Issuance of insurance to lending institutions; extension of coverage to individual loans; consideration as group policies; owner-occupied, single-family dwelling, borrower not liable to company for deficiency arising from foreclosure sale. Policies of mortgage guaranty insurance may be issued to lending institutions, with such lending institutions as the named insured. Coverage under such policies may be extended to individual loans by certificates of insurance. Such policies shall be considered as group policies for the purpose of complying with K.S.A. 40-214 and such policies and certificates of insurance shall be filed with the commissioner of insurance in the manner prescribed by K.S.A. 40-216. With respect to owner-occupied, single-family dwellings, the mortgage guaranty insurance policy shall provide that the borrower shall not be liable to the insurance company for any deficiency arising from a foreclosure sale.

        History:   L. 1977, ch. 154, § 11; Jan. 1, 1978.

• 40-3512: Limitation on outstanding liability. A mortgage guaranty insurance company shall not at any time have outstanding a total liability, net of reinsurance, under its aggregate mortgage guaranty insurance policies exceeding twenty-five (25) times its capital, surplus and contingency reserve. In the event that any mortgage guaranty insurance company has outstanding total liability exceeding twenty-five (25) times its capital, surplus and contingency reserve, it shall cease transacting new mortgage guaranty business until such time as its total liability no longer exceeds twenty-five (25) times its capital, surplus and contingency reserve. Total outstanding liability shall also be calculated on a consolidated basis for all mortgage guaranty insurance companies which are part of a holding company system as defined in K.S.A. 40-3302.

        History:   L. 1977, ch. 154, § 12; Jan. 1, 1978.

• 40-3513: Payments or rebates as inducements or compensation for or in connection with placement of insurance prohibited; penalties for violations. (a) A mortgage guaranty insurance company shall not pay or cause to be paid either directly or indirectly, to any owner, purchaser, lessor, lessee, mortgagee or prospective mortgagee of the real property which secures the authorized real estate security or which is the fee of an insured lease, or any interest therein, or any person who is acting as an agent, representative, attorney or employee of such owner, purchaser or mortgagee, any commission, or any part of its premium charges or any other consideration as an inducement for or as compensation on any mortgage guaranty insurance business.

        (b)   In connection with the placement of any mortgage guaranty insurance, a mortgage guaranty insurance company shall not cause or permit any commission, fee, remuneration, or other compensation to be paid to, or received by any insured lender or lessor; any subsidiary or affiliate of any insured; any officer, director or employee of any insured or any member of their immediate family; any corporation, partnership, trust, trade association in which any insured is a member, or other entity in which any insured or any such officer, director, or employee or any member of their immediate family has a financial interest; or any designee, trustee, nominee, or other agent or representative of any of the foregoing.

        (c)   Any mortgage guaranty insurance company which pays any commission or makes any unlawful rebate in violation of the provisions of this article shall be subject to the penalties prescribed in K.S.A. 40-2407 and 40-2411.

        History:   L. 1977, ch. 154, § 13; Jan. 1, 1978.

• 40-3514: Maintaining funds on deposit with insurance company's own insured prohibited; presumptions; other prohibited practices. (a) Except for commercial checking accounts and normal deposits in support of an active bank line of credit, a mortgage guaranty insurance company, the holding company or any affiliate thereof is prohibited from maintaining funds on deposit with the lender for which the mortgage guaranty insurance company has insured loans.

        (b)   Any deposit account bearing interest at rates less than what is currently being paid other depositors on similar deposits or any deposit in excess of amounts insured by an agency of the federal government shall be presumed to be an account in violation of this section. Furthermore, a mortgage guaranty insurance company shall not use compensating balances, special deposit accounts or engage in any practice which unduly delays its receipt of moneys due or which involves the use of its financial resources for the benefit of any owner, mortgagee of the real property or any interest therein or any person who is acting as agent, representative, attorney or employee of such owner, purchaser or mortgagee as a means of circumventing any part of this section.

        History:   L. 1977, ch. 154, § 14; Jan. 1, 1978.

• 40-3515: Insurance company as member of holding company system; prohibited underwriting activities as condition of certificate of authority; other proscribed activities. (a) If it is a member of a holding company system as defined in K.S.A. 40-3302, a mortgage guaranty insurance company licensed to transact business in this state shall not, as a condition of its certificate of authority, knowingly underwrite mortgage guaranty insurance on mortgages originated by the holding company system or an affiliate or on mortgages originated by any mortgage lender to which credit is extended, directly or indirectly, by the holding company system or any affiliate.

        (b)   A mortgage guaranty insurance company, the holding company system of which it is a part or any affiliate shall not as a condition of the mortgage guaranty insurance company's certificate of authority, pay any commissions, remuneration, rebates or engage in activities proscribed in K.S.A. 40-3513 and 40-3514.

        History:   L. 1977, ch. 154, § 15; Jan. 1, 1978.

• 40-3516: Unearned premium reserve requirement. A mortgage guaranty insurance company shall compute and maintain an unearned premium reserve as set forth by regulation adopted by the commissioner of insurance.

        History:   L. 1977, ch. 154, § 16; Jan. 1, 1978.

• 40-3517: Case basis and other loss reserves requirements. A mortgage guaranty insurance company shall compute and maintain adequate case basis and other loss reserves which accurately reflect loss frequency and loss severity and shall include components for claims reported and unpaid, and for claims incurred but not reported, including estimated losses on:

        (a)   Insured loans which have resulted in the conveyance of property which remains unsold;

        (b)   Insured loans in the process of foreclosure;

        (c)   Insured loans in default for four (4) months or for any lesser period which is defined as default for such purposes in the policy provisions; and

        (d)   Insured leases in default for four (4) months or for any lesser period which is defined as default for such purposes in policy provisions.

        History:   L. 1977, ch. 154, § 17; Jan. 1, 1978.

• 40-3518: Contingency reserve requirement; withdrawals. Each mortgage guaranty insurance company shall establish a contingency reserve out of net premiums remaining (gross premiums less premiums returned to policyholders net of reinsurance) after establishment of the unearned premium reserve. The mortgage guaranty insurance company shall contribute to the contingency reserve an amount equal to fifty percent (50%) of such remaining earned premiums. Contributions to the contingency reserve made during each calendar year shall be maintained for a period of one hundred twenty (120) months, except that withdrawals may be made by the company in any year in which the actual incurred losses exceed thirty-five percent (35%) of the corresponding earned premiums, and no such releases shall be made without prior approval by the commissioner of the mortgage guaranty insurance company's state of domicile.

        History:   L. 1977, ch. 154, § 18; Jan. 1, 1978.

• 40-3519: Reinsurance; establishment and maintenance of reserves in appropriate proportions by insurance company and reinsurer. Whenever a mortgage guaranty insurance company obtains reinsurance from an insurance company which is properly licensed to provide reinsurance or from an appropriate governmental agency, the mortgage guaranty insurer and the reinsurer shall establish and maintain the reserves required in this act in appropriate proportions in relation to the risk retained by the original insurer and ceded to the assuming reinsurer so that the total reserves established shall not be less than the reserves required by this act.

        History:   L. 1977, ch. 154, § 19; Jan. 1, 1978.

• 40-3520: Establishment of reserves in accord with law of another state where insurance company licensed. (a) Whenever the laws of any other jurisdiction in which a mortgage guaranty insurance company subject to the requirement of this act is also licensed to transact mortgage guaranty insurance require a larger unearned premium reserve or contingency reserve in the aggregate than that set forth herein, the establishment of such larger unearned premium reserve or contingency reserve in the aggregate shall be deemed to be in compliance with this act.

        (b)   Unearned premium reserves and contingency reserves shall be computed and maintained on risks insured after the effective date of this act as required by K.S.A. 40-3516 and 40-3518. Unearned premium reserves and contingency reserves on risks insured before the effective date of this act may be computed and maintained as required previously.

        History:   L. 1977, ch. 154, § 20; Jan. 1, 1978.

• 40-3521: Rules and regulations. The commissioner shall prescribe such rules and regulations as may be deemed necessary to carry out the purposes of this act.

        History:   L. 1977, ch. 154, § 21; Jan. 1, 1978.