The New York Attorney General Thursday challenged a $175 million surety bond posted by Donald Trump in a civil fraud case.

The “notice of exception” filed by New York Attorney General Letitia James calls into question the financial ability of the insurer to perform under the bond and the collateral behind the deal.

Knight Specialty Insurance Co., a Delaware-domiciled excess and surplus lines unit of Knight Insurance Group, confirmed earlier this week that it had provided the bond to Mr. Trump, preventing the Attorney General from seizing Mr. Trump’s assets. Knight Specialty is part of the Hankey Group of Cos., a Los Angeles-based financial services group.

Mr. Trump originally needed to post a bond for $454 million but a state appeals court on March 25 stayed enforcement of Justice Arthur Engoron’s judgment on condition that Mr. Trump post the smaller $175 million bond within 10 days.

On Feb. 16, Justice Engoron found Mr. Trump had engaged in fraud by overstating his net worth by billions of dollars to secure better loan and insurance terms. Mr. Trump has denied wrongdoing in the case.

The filing in a New York trial court says the state “hereby takes exception to the sufficiency of the surety” and notes that Knight Specialty is operating “without a certificate of qualification” required by New York insurance law section 1111.

It calls on Mr. Trump or Knight Specialty to file a motion to “justify the surety” within 10 days, or the bond will not be in effect except that the surety “shall remain liable on the Bond until a new undertaking is given and allowed,” according to the notice.

As a nonadmitted insurer, Knight Specialty is not regulated by New York state and is not required under insurance law to be licensed by the New York Department of Financial Services to write in the E&S market. Therefore, it is unable to request the certificate of qualification from the New York regulator.

In a separate filing Thursday, Mr. Trump’s lawyers posted financial information about Knight Specialty and Knight Specialty Insurance Co. Ltd., a Cayman Islands-licensed reinsurer also owned by Hankey Group.

Knight Specialty had $138.4 million in surplus and total admitted assets of $539.3 million on Dec. 31, 2023, according to the filing. The filing also states that Knight Specialty has a financial strength rating of A- from A.M. Best Co. Inc. In 2022, Best described the Knight companies’ balance sheet strength as “very strong.”

Knight Specialty did not return a call for comment. The New York Attorney General’s office declined to comment.

The Excess Line Association of New York said in an email that in New York, a foreign or out-of-state insurer must maintain a minimum policyholder surplus of $48 million and be licensed in their state of domicile for the lines of business they plan to write as excess line risks in New York.

The association said it maintains a voluntary list of excess line insurers and conducts a thorough financial exam of every foreign insurer listed.

“This list does not reflect all insurers that are legally eligible to write excess line insurance in New York. Knight Specialty Insurance Co. is not on the ELANY voluntary list,” a spokesman for the association said in an email.

According to news reports, under a New York law known as CPLR 2502, unless the court orders otherwise for court bonds a surety shall be a “insurance company authorized to execute the undertaking within the state”

Justice Engoron has set a hearing on the surety bond for April 22.