Wis. Admin. Code Office of the Commissioner of Insurance § Ins 52.06 - Letters of credit

(1) In this section "beneficiary" means the insurer for whose benefit the letter of credit has been established and any successor of the beneficiary by operation of law, including, but not limited to, a court-appointed domiciliary receiver, including, but not limited to, a conservator, rehabilitator or liquidator.

(2) A ceding insurer may take credit under s. Ins 52.04(4) only if the letter of credit complies with all of the following:

(a) The letter of credit is clean, irrevocable and unconditional.

(b) The letter of credit contains an issue date and date of expiration and stipulates 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.

(c) The letter of credit states that it is not subject to any condition or qualifications outside of the letter of credit.

(d) The letter of credit itself shall not contain reference to any other agreements, documents or entities, except as provided in sub. (3) (a) and (b).

(e) If the heading of the letter of credit includes a section which includes notations to provide a reference for the letter of credit, the section shall be boxed section and clearly marked to indicate that the information is for internal identification purposes only.

(f) The letter of credit states that the obligation of the qualified United States financial institution under the letter of credit is in no way contingent upon reimbursement.

(g) The term of the letter of credit is for at least one year and the letter of credit contains a clause which prevents the expiration of the letter of credit unless the issuer gives written notice to the ceding insurer. The "evergreen clause" shall provide for a period of no less than 30 days' notice to the ceding insurer prior to the expiration date for nonrenewal.

(h) The letter of credit states 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) and that all drafts drawn under the letter of credit are presentable at an office in the United States of a qualified United States financial institution.

(i) 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), the letter of credit specifically addresses and makes provision for an extension of time to draw against the letter of credit if any of the occurrences specified in Article 36 of Publication 600 occur.

(j) The letter of credit is issued or confirmed by a qualified United States financial institution authorized to issue letters of credit.

(k) If the letter of credit is issued by a financial institution which is not a qualified United States financial institution:

1. The issuing financial institution formally designates the confirming qualified United States financial institution as its agent for the receipt and payment of the drafts; and

2. The letter of credit "evergreen clause" under par. (g) requires the confirming qualified United States financial institution to give written notice to the ceding insurer at least 30 days prior to expiration date for nonrenewal.

(3) A ceding insurer may take credit under s. Ins 52.04(4) only if there is a written reinsurance agreement in conjunction with the letter of credit and the reinsurance agreement:

(a) Requires the assuming insurer to provide letters of credit to the ceding insurer, specifies what the letters of credit are to cover, and provides that the provisions required under this paragraph and par. (b) apply without diminution because of insolvency by either the ceding or assuming insurer.

(b) Except as permitted under par. (d), stipulates that the assuming insurer and ceding insurer agree that the letter of credit provided by the assuming insurer under the reinsurance agreement may be drawn upon at any time, notwithstanding any other provisions in the agreement, and may be utilized by the ceding insurer or its successors in interest including, but not limited to, by any liquidator, rehabilitator, receiver or conservator of the ceding insurer, without diminution because of insolvency on the part of the ceding insurer or the assuming insurer, only for one or more of the following reasons:

1. To reimburse the ceding insurer for the assuming insurer's share of premiums returned to the owners of policies reinsured under the reinsurance agreement because of cancellations of the policies;

2. To reimburse the ceding insurer for the assuming insurer's share of surrenders and benefits or losses paid by the ceding insurer under provisions of the policies reinsured under the reinsurance agreement;

3. To fund an account with the ceding insurer in an amount at least equal to the deduction, for reinsurance ceded, from the ceding insurer liabilities for policies ceded under the agreement. The account shall include, but not be limited to, amounts for policy reserves, claims and losses incurred (including losses incurred but not reported), loss adjustment expenses and unearned premium reserves; and

4. To pay any other amounts the ceding insurer claims are due under the reinsurance agreement.

(c) Does not require the return of amounts drawn under the letter of credit except the reinsurance agreement may require the ceding insurer to return:

1. Any amount withdrawn in excess of the actual amounts required for par. (b) 1., 2., or 3., or in the case of par. (b) 4., any amounts that are subsequently determined not to be due; and

2. Interest payments, at a rate not in excess of the prime rate of interest, on the amounts held under par. (b) 3.

(d) Requires a trust agreement to accomplish to the purpose of par. (b), instead of including that provision in the reinsurance agreement, and the trust agreement is incorporated in the reinsurance agreement or separately executed except a trust agreement may be used only if the reinsurance agreement covers risks other than life, annuities and health and if it is customary practice to provide a letter of credit for a specific purpose.

Notes

Wis. Admin. Code Office of the Commissioner of Insurance § Ins 52.06

Cr. Register, July, 1993, No. 451, eff. 8-1-93. Amended by, CR 17-004: am. (2) (h), (i) Register December 2017 No. 744, eff. 1/1/2018