Ill. Admin. Code tit. 50, § 1104.80 - Letters of Credit Qualified Under Section 1104.60
a) The letter of credit must be clean,
irrevocable and unconditional and issued or confirmed by a qualified U.S.
financial institution as defined in Section 173.1(3)(A) of the Code . The letter
of credit shall contain an issue date and date of expiration and shall
stipulate that the beneficiary need only draw a sight draft under the letter of
credit and present it to obtain funds and that no other document need be
presented. The letter of credit shall also indicate that it is not subject to
any condition or qualifications outside of the letter of credit. In addition,
the letter of credit itself shall not contain reference to any other
agreements, documents or entities, except as provided in subsection (i)(1). As
used in this Section, "beneficiary" means the domestic insurer for whose
benefit the letter of credit has been established and any successor of the
beneficiary by operation of law. If a court of law appoints a successor in
interest to the named beneficiary, then the named beneficiary includes and is
limited to the court appointed domiciliary receiver (including conservator,
rehabilitator or liquidator).
b)
The heading of the letter of credit may include a boxed section that contains
the name of the applicant and other appropriate notations to provide a
reference for the letter of credit. The boxed section shall be clearly marked
to indicate that the information is for internal identification purposes
only.
c) The letter of credit shall
contain a statement to the effect that the obligation of the qualified U.S.
financial institution under the letter of credit is in no way contingent upon
reimbursement of the letter of credit.
d) The term of the letter of credit shall be
for at least one year and shall contain an "evergreen clause" that prevents the
expiration of the letter of credit without due notice from the issuer. The
"evergreen clause" shall provide for a period of no less than 30 days' notice
prior to the expiration date or nonrenewal.
e) The letter of credit shall state whether
it is subject to and governed by the laws of this State or the "ICC Uniform
Customs and Practice for Documentary Credits" (ICC Publication No. 600, July
2007) (UCP 600) or the "International Standby Practices of the International
Chamber of Commerce" (ICC Publication No. 590, January 1999) (ISP98) (ICC
Publishing, Inc., 1212 Avenue of the Americas, New York NY 10036 (no later
amendments or editions)), and all drafts drawn under the letter of credit shall
be presentable at an office in the U.S. of a qualified U.S. financial
institution.
f) If the letter of
credit is made subject to the UCP 600 or ISP98, the letter of credit shall
specifically address and make provision for an extension of time to draw
against the letter of credit in the event that one or more of the occurrences
specified in Article 36 of UCP 600 occur.
g) The letter of credit shall be issued or
confirmed by a qualified U.S. financial institution authorized to issue letters
of credit, pursuant to Section 173.1(3)(A) of the Code .
h) If the letter of credit is issued by a
nonqualified financial institution and is confirmed by a qualified U.S.
financial institution as described in subsection (a), then the following
additional requirements shall be met:
1) The
issuing financial institution shall formally designate the confirming qualified
U.S. financial institution as its agent for the receipt and payment of the
drafts; and
2) The "evergreen
clause" shall provide for not less than 60 days' notice of nonrenewal prior to
the expiration date.
i)
Reinsurance Agreement Provisions
1) The
reinsurance agreement in conjunction with which the letter of credit is
obtained must contain provisions that:
A)
Require the assuming insurer to provide letters of credit to the ceding insurer
and specify what they are to cover.
B) Stipulate that the assuming insurer and
ceding insurer agree that the letter of credit provided by the assuming insurer
pursuant to the provisions of the reinsurance agreement may be drawn upon at
any time, notwithstanding any other provisions in the agreement, and be
utilized by the ceding insurer or its successors in interest only for one or
more of the following reasons:
i) To reimburse
the ceding insurer for the assuming insurer's share of premiums returned to the
owners of policies reinsured under the reinsurance agreement on account of
cancellations of those policies;
ii) To reimburse the ceding insurer for the
assuming insurer's share of surrenders and benefits or losses paid by the
ceding insurer under the terms and provisions of the policies reinsured under
the reinsurance agreement;
iii) To
fund an account with the ceding insurer in an amount at least equal to the
deduction, for reinsurance ceded, from the ceding insurer's liabilities for
policies ceded under the agreement. The amount shall include, but not be
limited to, amounts for policy reserves, claims and losses incurred (including
losses incurred but not reported) and unearned premium reserves;
iv) To pay any other amounts the ceding
insurer claims are due under the reinsurance agreement; and
v) To pay existing liabilities between the
insurer and the reinsurer upon commutation of one or more reinsurance
contracts.
C) All of the
foregoing provisions of this subsection (i)(1) should be applied without
diminution because of insolvency on the part of the ceding insurer or assuming
insurer.
2) Nothing
contained in subsection (i)(1) shall preclude the ceding insurer and assuming
insurer from providing for:
A) An interest
payment, at a rate not in excess of the prime rate of interest, on the amounts
held pursuant to subsection (i)(1)(B)(iii); and/or
B) The return of any amounts drawn down on
the letters of credit in excess of the actual amounts required under subsection
(i)(1) or, in the case of subsection (i)(1)(B)(iv), any amounts that are
subsequently determined not to be due.
3) When a letter of credit is obtained in
conjunction with a reinsurance agreement covering risks other than life,
annuities and accident and health, when it is customary practice to provide a
letter of credit for a specific purpose, then the reinsurance agreement may, in
lieu of subsection (i)(1)(B), require that the parties enter into a trust
agreement that may be incorporated into the reinsurance agreement or be a
separate document.
j) A
letter of credit may not be used to reduce any liability for reinsurance ceded
to an unauthorized assuming insurer in financial statements required to be
filed with the Department unless an acceptable letter of credit with the filing
ceding insurer as beneficiary has been issued on or before the date of filing
of the financial statement. Further, the reduction for the letter of credit may
be up to the amount available under the letter of credit but no greater than
the specific obligation under the reinsurance agreement that the letter of
credit was intended to secure.
Notes
Amended at 33 Ill. Reg. 9314, effective June 18, 2009
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