Or. Admin. R. 410-141-5065 - FINANCIAL SOLVENCY REGULATION: Letters of Credit; Other Security

Current through Register Vol. 60, No. 12, December 1, 2021

(1) A letter of credit for purposes of OAR 410-141-5055 must be clean, irrevocable, unconditional and issued or confirmed by a Qualified United States Financial Institution. 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.
(2) 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.
(3) As used in this section, "beneficiary" means the CCO 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).
(4) 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 shall be clearly marked to indicate that such information is for internal identification purposes only.
(5) The letter of credit shall 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.
(6) 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 not less than 30 days' notice prior to expiration date or nonrenewal.
(7) The letter of credit shall 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 500), or any successor publication, and all drafts drawn thereunder shall be presentable at an office in the United States of a Qualified United States Financial Institution.
(8) If the letter of credit is made subject to the Uniform Customs and Practice for Documentary Credits of the International Chamber of Commerce (Publication 500), or any successor publication, the letter of credit shall 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 17 of Publication 500, or any successor publication, occur.
(9) The letter of credit shall be issued or confirmed by a Qualified United States Financial Institution authorized to issue letters of credit.
(10) The following apply to reinsurance agreement provisions:
(a) The reinsurance agreement in conjunction with which the letter of credit is obtained may contain provisions described in this subsection. All of the provisions of this subsection must be applied without diminution because of insolvency on the part of the cedent CCO or reinsurer. The provisions are as follows:
(A) A provision requiring the reinsurer to provide letters of credit to the cedent CCO and specify what they are to cover.
(B) A provision stipulating that the reinsurer and cedent CCO agree that the letter of credit provided by the reinsurer pursuant to the provisions of the reinsurance agreement may be drawn upon at any time, notwithstanding any other provisions in the agreement, and must be used by the cedent CCO or its successors in interest only for one or more of the following reasons:
(i) To pay or reimburse the cedent CCO for:
(I) The reinsurer's share under the specific reinsurance agreement of unearned capitated revenue returned, but not yet recovered from the reinsurers;
(II) The reinsurer's share, under the specific reinsurance agreement, of benefits or losses paid by the cedent CCO, but not yet recovered from the reinsurers, under the terms and provisions of the Member Contracts reinsured under the reinsurance agreement; and
(III) Any other amounts necessary to secure the credit or reduction from liability for reinsurance taken by the cedent CCO.
(ii) When the letter of credit will expire without renewal or be reduced or replaced by a letter of credit for a reduced amount and when the reinsurer's entire obligations under the specific reinsurance remain unliquidated and undischarged ten days prior to the termination date, to withdraw amounts equal to the reinsurer's share of the liabilities, to the extent that the liabilities have not yet been funded by the reinsurer and exceed the amount of any reduced or replacement letter of credit, and deposit those amount in a separate account in the name of the cedent CCO in a Qualified United States Financial Institution apart from its general assets, in trust for such uses and purposes specified in subparagraph (i) of this paragraph as may remain after withdrawal and for any period after the termination date.
(b) Nothing contained in subsection (10)(a) shall preclude the cedent CCO and reinsurer 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 (10)(a)(B); or
(B) 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.
(11) A cedent CCO may take credit for unencumbered funds withheld by the cedent CCO in the United States subject to withdrawal solely by the cedent CCO and under its exclusive control.

Notes

Or. Admin. R. 410-141-5065
DMAP 58-2019, adopt filed 12/18/2019, effective 1/1/2020

Statutory/Other Authority: ORS 413.042, 414.615, 414.625, 414.635 & 414.651

Statutes/Other Implemented: ORS 414.610 - 414.685

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