Michigan Administrative Code › Department - Insurance and Financial Services › Insurance › Credit for Reinsurance › Section R. 500.1124 - Letters of credit under section 1105 of the code, MCL 500.1105

Current through Vol. 24-12, July 15, 2024
Rule 4.
(1) A letter
				of credit used to reduce any liability for reinsurance ceded to an unauthorized
				reinsurer under section 1105 of the code, MCL 500.1105, must be clean,
				irrevocable, unconditional, and issued or confirmed by a qualified United
				States financial institution. The letter of credit must contain an issue date
				and date of expiration 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 needs to 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 must not contain
				reference to any other agreements, documents, or entities, except as provided
				in
				R
				500.1125(1).
(2) The heading of the letter of credit may
				include a boxed section that contains 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 not contingent upon
				reimbursement with respect thereto.
(4) The term of the letter of credit must be
				for at least 1 year and 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 not less than 30 days' notice
				before the expiration date or nonrenewal of the letter of credit.
(5) The letter of credit must state whether
				it is subject to and governed by the laws of this state, publication 600 of the
				International Chamber of Commerce entitled the Uniform Customs and Practice for
				Documentary Credits (UCP 600), or publication 590 of the International Chamber
				of Commerce entitled International Standby Practices (ISP 98), or any successor
				publication, 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 publication 600 of the International Chamber of
				Commerce entitled the Uniform Customs and Practice for Documentary Credits (UCP
				600), or publication 590 of the International Chamber of Commerce entitled
				International Standby Practices (ISP 98), or any successor publication, then
				the letter of credit must specifically address and make provision for an
				extension of time to draw against the letter of credit if 1 or more of the
				occurrences specified in article 36 of publication 600, 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
				as described in subrule (1) of this rule, then both of 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.
(b) The "evergreen clause"
				must provide for 30 days' notice before the expiration date or nonrenewal of
				the letter of credit.