Document ID: chunk:federal_register_of_legislation:F2024L00886:body:0:p10
Version: federal_register_of_legislation:F2024L00886
Segment Type: other
Provision Reference: 
Character Range: 24208–26907

or issuer of the letter of credit, rather than the underlying reinsurer. This paragraph applies only if:
(a)          the guarantor or issuer of the letter of credit is a bank (as defined in paragraph 25) with a counterparty grade of 1, 2 or 3 and is not the life company's parent entity or a related entity;
(b)          the guarantee or letter of credit is explicit, unconditional and irrevocable but may provide for the assignment of a claim under a reinsurance contract to the guarantor where a draw-down occurs under the guarantee or letter of credit in relation to the claim. The guarantor's assigned claim must be subordinate to the claims of the reinsurer's policyholders in the winding up of the reinsurer;
(c)          the guarantee or letter of credit (the instrument) must be effective for:
(i)            the period of the reinsurance asset; or
(ii)         where that is impractical a period of at least three years with the term of the letter of credit or guarantee being extended each year on the anniversary of its commencement (the extension date) for a further term of 12 months until such time as the issuer or the life company serves notice on the other party that the term of the letter of credit or guarantee will not be so extended for a further 12 month period (notice being required to be served on the other party at least 30 days before the extension date);
(d)          the guarantee or letter of credit must specify the circumstances, if any, under which the fee charged by the bank can be increased and the maximum fee that can be charged. No adjustment to the fee is to apply should the life company or reinsurer breach its registration conditions or an external manager be appointed to either the life company or the reinsurer;
(e)          the guarantor or issuer of the letter of credit is obliged to pay the statutory fund in Australia;
(f)           the guarantee or letter of credit must specify the reinsurance arrangements (the relevant reinsurance contracts) between the life company and the reinsurer to which the guarantee relates;
(g)          the guarantee or letter of credit must provide that in the event of the reinsurer being subject to external administration (including through the appointment of a liquidator, provisional liquidator, a judicial manager or a statutory manager), the guarantor or the issuer of the letter of credit must pay the life company an amount not less than the discounted present value of reinsurance claims incurred but not yet paid and unearned reinsurance premiums, but subject to a limit of the face amount of the guarantee or letter of credit (less any prior draw-downs);
(h)          the guarantee or letter of credit