                                 CODE OF VIRGINIA

LIMITATION OF RISKS GENERALLY (§ 38.2-208)

A. Except as otherwise provided in this title, no insurer transacting business
in this Commonwealth shall expose itself to any loss on any one risk or hazard
in an amount exceeding ten percent of its surplus to policyholders. Any risk or
portion of any risk reinsured by an insurer meeting standards of solvency equal
to those set forth in Article 3.1 (&#xA7; 38.2-1316.1 et seq.) of Chapter 13
shall be deducted in determining the limitation of risk prescribed in this
section.

B. For the purpose of this section, the surplus to policyholders shall be
determined from (i) the insurer&#8217;s last sworn statement filed with the
Commission or (ii) the Commission&#8217;s last report of examination, whichever
is more recent at the time the risk is assumed.

C. For the purpose of this section, any one risk or hazard (i) in the case of
municipal bond insurance shall mean average annual debt service of insured
obligations backed by a single revenue source, provided that the insurance
policy does not require any accelerated payment of principal by the insurer upon
the event of default and (ii) in the case of all other kinds of financial
guaranty insurance shall mean the insured unpaid principal with respect to
obligations for any one entity, except that any risk or hazard shall be defined
by revenue source, if the insured risk or hazard is payable from a specified
revenue source or adequately secured by loan obligations or other assets.

D. As used in subsection C above:
			&#8220;Municipal bond insurance&#8221; means a kind of financial guaranty
insurance providing insurance against loss by reason of nonpayment of principal,
interest or other payment obligations pursuant to the terms of municipal bonds.
			&#8220;Municipal bond&#8221; means any security, or other instrument under
which a payment obligation is created, issued by or on behalf of, or payable or
guaranteed by, the United States, Canada, a state, a province of Canada, a
municipality or political subdivision of any of the foregoing, or any public
agency or instrumentality thereof, or by any other entity provided that such
security is eligible for issuance by one of the foregoing.
			&#8220;Average annual debt service&#8221; means the amount of insured unpaid
principal and interest on an obligation multiplied by the number of such insured
obligations, assuming that each obligation represents a $1,000 par value,
divided by the amount equal to the aggregate life of all such obligations.
			&#8220;Financial guaranty insurance&#8221; means insurance against loss by
reason of the failure of any obligor on any debt instrument or other monetary
obligation, including common or preferred stock or capital leases, to pay when
due principal, interest, premium, dividend, or purchase price of or on such
instrument or obligation, or a fee in connection therewith, when such failure is
the result of a financial default or insolvency, regardless of whether such
obligation is incurred directly or as a guarantor by or on behalf of another
obligor that has also defaulted.
			For the purposes of subsection C of this section, the amount of insured
unpaid principal shall be reduced by the amount of deposit of (i) cash, or (ii)
the market value of obligations rated in the four highest major rating
categories by a securities rating agency recognized by the Commission, or (iii)
the stated amount of an unconditional, irrevocable letter of credit issued or
confirmed by a bank or trust company that (a) is a member of the federal reserve
system or chartered by any state or (b) is organized and existing under the laws
of a foreign country, has been licensed as a branch or agency by any state or
the federal government and is rated in the two highest major rating categories
by a securities ratings agency recognized by the Commission or (c) is otherwise
acceptable to the Commission or (iv) a conveyance or mortgage of real property,
or (v) the scheduled cash flow from obligations rated in the four highest major
rating categories by a securities rating agency recognized by the Commission if
scheduled to be received on or prior to the date of scheduled debt service on
the insured obligations. Such deposit shall be held by the insurer or held in
trust for the benefit of the insurer or held in trust for the benefit of holders
of the insured obligation whether in the form of debt service, sinking funds or
other reserves pursuant to the bond indenture by a trustee acceptable to the
Commission.
			For the purpose of subsection C of this section, an insurer&#8217;s surplus
to policyholders shall include the amount of any contingency or similar reserve
established and maintained by the insurer pursuant to applicable law for the
protection of insureds covered by financial guaranty insurance policies against
the effect of excessive losses usually occurring during adverse economic cycles.

E. The limitation of risk prescribed in this section for any alien insurer shall
apply only to the exposure to risk and the trusteed surplus of the alien
insurer&#8217;s policyholders.

F. This section shall not apply to (i) life insurance, (ii) annuities, (iii)
accident and sickness insurance, (iv) insurance of marine risks or marine
protection and indemnity risks, (v) workers&#8217; compensation or
employers&#8217; liability risks, or (vi) risks covered by title insurance.

HISTORY: Code 1950, §§ 38-167, 38-168; 1952, c. 317, § 38.1-32; 1986, c. 562;
1987, c. 353; 1988, c. 554.