Utah Admin. Code R590-173-13 - Letter of Credit Qualified Under R590-173-11

(1)

(a) A letter of credit shall be:

(i) clean;

(ii) irrevocable;

(iii) unconditional; and

(iv) issued or confirmed by a qualified United States financial institution.

(b) A letter of credit shall contain:

(i) an issue date;

(ii) an expiration date; and

(iii) statements that:

(A) to obtain funds, a beneficiary is required only to draw a sight draft under a letter of credit and present it; and

(B) the letter of credit is not subject to a condition or qualification not stated in it.

(c) A letter of credit may not refer to other agreements, documents, or entities, except as provided in Subsection (10).

(2) The heading of a letter of credit may include a boxed section containing the name of the applicant and other appropriate notations shall be clearly marked to indicate that the information is for internal identification purposes only.

(3) A letter of credit shall contain a statement that the issuing financial institution's obligation under the letter of credit is not contingent on reimbursement.

(4)

(a) The term of a letter of credit shall be for at least one year.

(b) A letter of credit shall contain an evergreen clause that:

(i) prevents the letter of credit from expiring without notice from the issuer; and

(ii) requires no less than 30 days' notice before the expiration date for nonrenewal.

(5)

(a) A letter of credit shall state whether it is subject to and governed by:

(i) the laws of this state;

(ii) the Uniform Customs and Practice for Documentary Credits of the International Chamber of Commerce Publication 600 (UCP 600);

(iii) International Standby Practices of the International Chamber of Commerce Publication 590 (ISP98); or

(iv) any successor publication to those named in Subsection (5)(a)(ii) or (5)(a)(iii).

(b) Drafts drawn under Subsection (5)(a) shall be presentable at an office in the United States of a qualified United States financial institution.

(6) A letter of credit under Subsections (5)(a)(ii) through (5)(a)(iv) 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 36 of UCP600 or any 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, the following requirements shall 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 shall provide for 30 days' notice before the expiration date for nonrenewal.

(8) Reinsurance agreement provisions.

(a) A reinsurance agreement obtained together with a letter of credit may:

(i) require the assuming insurer to provide letters of credit to the ceding insurer and specify what they cover; or

(ii) state 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:

(I) 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 such policies;

(II) 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

(III) any other amounts necessary to secure the credit or reduction from liability for reinsurance taken by the ceding insurer; and

(B) where the letter of credit will expire without renewal or be reduced or replaced by a letter of credit for a reduced amount and where the assuming insurer's entire obligations under the reinsurance agreement remain unliquidated and undischarged 10 days before 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, the assuming insurer shall deposit the amounts withdrawn 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 such uses and purposes specified in Subsection (8)(ii)(A) as may remain after withdrawal and for any period after the termination date.

(iii) The provisions of Subsection (8)(a) apply without diminution because of insolvency on the part of the ceding insurer or assuming insurer.

(b) Nothing in Subsection (8)(a) precludes the ceding insurer and assuming insurer from providing for:

(i) an interest payment, at a rate not in excess of the prime rate of interest, on the amounts held under Subsection (8)(b); or

(ii) 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

Utah Admin. Code R590-173-13

Adopted by Utah State Bulletin Number 2017-3, effective 1/10/2017 Adopted by Utah State Bulletin Number 2022-12, effective 6/7/2022