Section 26-A2808. LETTERS OF CREDIT QUALIFIED UNDER SECTION 2806

 

2808.1The letter of credit must be clean, irrevocable and unconditional and issued or confirmed by a qualified United States financial institution as defined in section 4(a) of the act, D.C. Code section 35-3303(a). 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 2808.9 below. 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).

 

2808.2The heading of the letter of credit may include a boxed section which 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 such information is for internal identification purposes only.

 

2808.3The 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.

 

2808.4The term of the letter of credit shall be for at least one year and shall contain an "evergreen clause" which 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 thirty (30) days' notice prior to expiration date or nonrenewal.

 

2808.5The letter of credit shall state whether it is subject to and governed by the laws of the District or the Uniform Customs and Practice for Documentary Credits of the International Chamber of Commerce (Publication 400), and all drafts drawn thereunder shall be presentable at an office in the United States of a qualified United States financial institution.

 

2808.6If the letter of credit is made subject to the Uniform Customs and Practice for Documentary Credits of the International Chamber of Commerce (Publication 400), then 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 19 of Publication 400 occur.

 

2808.7The letter of credit shall be issued or confirmed by a qualified United States financial institution authorized to issue letters of credit, pursuant to section 4(a) of the act, D.C. Code section.

 

2808.8If the letter of credit is issued by a qualified United States financial institution authorized to issue letters of credit, other than a qualified United States financial institution as described in 2810.7 of this section, then the following additional requirements shall be met:

 

(a)The issuing qualified United States 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 thirty (30) days' notice prior to expiration date for nonrenewal.

 

2808.9The reinsurance agreement in conjunction with which the letter of credit is obtained may contain provisions which:

 

(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 shall be utilized by the ceding insurer or its successors in interest 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 on account of cancellations of such 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 the terms and 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's liabilities for policies ceded under the agreement (such amount shall include, but not be limited to, amounts for policy reserves, claims and losses incurred and unearned premium reserves); and

 

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

 

(5)All of the foregoing provisions of Paragraph 2808.9 of this subsection should be applied without diminution because of insolvency on the part of the ceding insurer or assuming insurer.

 

(c)Nothing contained in Paragraph 2808.9 of this subsection shall preclude 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 2808.9(b)(3) of this subsection; and/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, in the case of Paragraph 2808.9(b)(4) of this subsection, any amounts that are subsequently determined not to be due.

 

(d)When a letter of credit is obtained in conjunction with a reinsurance agreement covering risks other than life, annuities and health, where it is customary practice to provide a letter of credit for a specific purpose, then the reinsurance agreement may, in lieu of Paragraph 2808.9(b)(4) of this subsection, require that the parties enter into a "Trust Agreement" which may be incorporated into the reinsurance agreement or be a separate document.

 

2808.10A 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 this 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 which the letter of credit was intended to secure.

 

source

Final Rulemaking published at 43 DCR 2318 (May 3, 1996).