N.D. Admin Code 45-03-07.1-08 - Letters of credit qualified under section 45-03-07.1-06
1. The letter of
credit must be clean, irrevocable, unconditional, and issued or confirmed by a
qualified United States financial institution as defined in subsection 1 of
North Dakota Century Code section 26.1-31.2-03. The letter of credit must
contain an issue date and expiration date and 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
must 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 may
not contain reference to any other agreements, documents, or entities, except
as provided in subdivision a of subsection 9. 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.
2. The heading of the
letter of credit may include a boxed section containing the name of the
applicant and other appropriate notations to provide a reference for the letter
of credit. The boxed section must be clearly marked to indicate that the
information is for internal identification purposes only.
3. The letter of credit must contain a
statement to the effect that the obligation of the qualified United States
financial institution under the letter of credit is in no way contingent upon
reimbursement with respect thereto.
4. The term of the letter of credit must be
for at least one year and must contain an "evergreen clause" that prevents the
expiration of the letter of credit without due notice from the issuer. The
"evergreen clause" must provide for a period of no less than thirty days'
notice prior to the expiration date or nonrenewal.
5. The letter of credit must state whether it
is subject to and governed by the laws of this state or the uniform customs and
practice for documentary credits of the international chamber of commerce,
publication 600 (UCP 600) or international standby practices of the
international chamber of commerce publication 590 (ISP98), and all drafts drawn
thereunder must be presentable at an office in the United States of a qualified
United States financial institution.
6. If the letter of credit is made subject to
the uniform customs and practice for documentary credits of the international
chamber of commerce, publication 600 (UCP 600) or international standby
practices of the international chamber of commerce publication 590 (ISP98), or
any successor publication, then the letter of credit must specifically address
and provide 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
publication 600 or any other successor publication occur.
7. If the letter of credit is issued by a
financial institution authorized to issue letters of credit, other than a
qualified United States financial institution as described in subsection 1,
then the following additional requirements must be met:
a. The issuing financial institution shall
formally designate the confirming qualified United States financial institution
as its agent for the receipt and payment of the drafts; and
b. The "evergreen clause" must provide for
thirty days' notice prior to the expiration date for nonrenewal.
8. Reinsurance agreement
provisions.
a. The reinsurance agreement in
conjunction with which the letter of credit is obtained may contain provisions
that:
(1) Require the assuming insurer to
provide letters of credit to the ceding insurer and specify what they are to
cover.
(2) 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 shall be utilized by the ceding insurer or its successors in
interest only for one or more of the following reasons:
(a) To pay or reimburse the ceding insurer
for:
[1] The assuming insurer's share under
the specific reinsurance agreement of premiums returned, but not yet recovered
from the assuming insurers, to the owners of policies reinsured under the
reinsurance agreement on account of cancellations of the policies;
[2] The assuming insurer's share, under the
specific reinsurance agreement, of surrenders and benefits or losses paid by
the ceding insurer, but not yet recovered from the assuming insurers, under the
terms and provisions of the policies reinsured under the reinsurance agreement;
and
[3] Any other amounts necessary
to secure the credit or reduction from liability for reinsurance taken by the
ceding insurer.
(b) If
the letter of credit will expire without renewal or be reduced or replaced by a
letter of credit for a reduced amount and if the assuming insurer's entire
obligations under the specific reinsurance agreement remain unliquidated and
undischarged ten days prior to the termination date, to withdraw amounts equal
to the assuming insurer's share of the liabilities, to the extent that the
liabilities have not yet been funded by the assuming insurer and exceed the
amount of any reduced or replacement letter of credit, and deposit those
amounts in a separate account in the name of the ceding insurer in a qualified
United States financial institution apart from its general assets, in trust for
the uses and purposes specified in paragraph 2 of subdivision a as may remain
after withdrawal and for any period after the termination date.
(3) All of the provisions of this
subdivision must be applied without diminution because of insolvency on the
part of the ceding insurer or assuming insurer.
b. Nothing contained in subdivision a
precludes the ceding insurer and assuming insurer from providing for:
(1) An interest payment, at a rate not in
excess of the prime rate of interest, on the amounts held pursuant to paragraph
2 of subdivision a; or
(2) The
return of any amounts drawn down on the letters of credit in excess of the
actual amounts required for the above or any amounts that are subsequently
determined not to be due.
Notes
General Authority: NDCC 26.1-31.2-04
Law Implemented: NDCC 26.1-31.2
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