N.Y. Comp. Codes R. & Regs. tit. 11, § 390.10 – Funded reserve account and financial security deposit.

(a) A service contract provider that elects to meet the requirements of section 7903(c)(2) of the Insurance Law as the means to assure the faithful performance of its obligations under service contracts outstanding in this State shall, in accordance with the provisions of this section:
1. (1) establish and maintain a funded reserve account;
2. (2) place in trust a financial security deposit with the superintendent; and
3. (3) file audited financial statements with the superintendent.
  (b) Funded reserve account.
  The funded reserve account established in accordance with section 7903(c)(2)(A) of the Insurance Law shall comply with the following:
4. (1) The account shall be appropriately identified as a New York funded reserve account and shall be maintained in:
  1. (i) a qualified United States financial institution; or
  2. (ii) a broker or dealer registered under the Securities Exchange Act of 1934, or any act adopted in amendment thereof, with the Securities and Exchange Commission, provided the registration remains in good standing.
5. (2) The funds in the account shall at all times be not less than 40 percent of the gross consideration received upon the sale of, less claims paid under, all its service contracts then in force, but not less than zero.
6. (3) The account shall be funded with cash or investments of the types, and subject to the limitations, applicable to property/casualty insurance companies, specified in section 1404(a) of the Insurance Law.
7. (4) Cash and securities in the account shall not be commingled with other property or cash.
8. (5) Withdrawals from the account are permitted for the payment of claims resulting from covered losses under service contracts and for the return of unearned provider fees on the contract. Other withdrawals are permitted if the balance remaining in the account after the withdrawal is sufficient to meet the reserve requirements of this Part and article 79.
9. (6) More than one account may be maintained if, in the aggregate, the accounts comply with the provisions of this section.
  (c) Financial security deposit.
  The financial security deposit established in accordance with section 7903(c)(2)(B) of the Insurance Law shall at all times be at least equivalent to the amount required and comply with the following:
10. (1) The surety bond allowed for placement in trust with the superintendent in accordance with section 7903(c)(2)(B)(i) of the Insurance Law shall be issued by an insurer licensed in this State to write fidelity and surety insurance under section 1113(a)(16) of the Insurance Law.
  1. (i) The securities allowed for placement in trust with the superintendent in accordance with section 7903(c)(2)(B)(ii) of the Insurance Law shall consist of securities specified in section 1402(b)(1) and (2) of the Insurance Law, estimated at an amount not exceeding their current market value, but their total par value shall not be less than the amount required.
  2. (ii) If the service contract provider is incorporated or principally headquartered in another state, the securities allowed for placement in the trust may consist of direct obligations of that state.
  3. (iii) If the aggregate market value of the securities in trust shall fall below the required amount, the superintendent may require the service contract provider to deposit additional securities of like character.
  (2)
11. (3) The letter of credit allowed for placement in trust with the superintendent in accordance with section 7903(c)(2)(B)(iv) of the Insurance Law shall comply with the requirements of sections 79.1, 79.2, 79.3, 79.4, and 79.9 of Part 79 of this Title (Regulation 133). In applying such sections to this Part, the term "service contract provider" shall be substituted for the term "insurer" when referring to a beneficiary.
  (d) Audited financial statements.
12. (1) On or before June 30th of each year, or 180 days after the end of the service contract provider's fiscal year, whichever is later, the provider shall file its audited financial statements for the prior calendar year with the superintendent. The statements shall include an opinion of an independent certified public accountant. The statements and opinion shall be mailed or delivered to the superintendent at the following address:
  New York State Department of Financial Services Property Bureau—Service Contract Providers One State Street New York, NY 10004-2319
13. (2) The notes to the audited financial statements shall show how the service contract provider meets the reserve and trust requirements set forth in section 7903(c)(2)(A) of the Insurance Law and in this Part and how the assets in the account and trust meet the requirements set forth in subdivisions (b) and (c) of this section.
14. (3) If, at any time, the certified public accountant or the service contract provider determines that the provider has materially misstated its financial condition as reported to the superintendent or that the provider's funded reserve account does not meet the reserve requirements set forth in the Insurance Law and this Part, the provider shall submit the determination to the superintendent, in writing within 15 days following the determination.
(e) If the service contract provider's registration is suspended for more than 60 days, revoked, or otherwise terminated for any reason, and it has service contracts that have been issued and are outstanding in this State, the provider shall immediately transfer to the superintendent the funded reserve account, in an amount equal to the minimum required by paragraph (b)(2) of this section, for safekeeping and for the use and protection of contract holders and administration of claims. The contract provider shall submit a written affirmation to the superintendent at the time of registration that it shall so transfer the funds.