R590-114-4. Rule

A. Letter of Credit requirements. A letter of credit issued to comply with Section 31A-17-404(3)(c)(iii), shall meet the following requirements. Full compliance with this rule shall be accomplished if the letter of credit takes the form of the "Model Letter of Credit", which is available from the Insurance Department. Letters of credit:

1. Shall be issued by a bank or trust company which is a member of the Federal Reserve system;

2. Shall name the ceding insurer as the sole beneficiary;

3. Shall be "clean", as defined;

4. Shall be unconditional and not subject to any qualifications outside the letter of credit;

5. May not contain references to any other agreements, documents or entities;

6. Shall be irrevocable, and may not be reduced or revoked without the written consent of the beneficiary;

7. Shall contain an "evergreen clause", as defined;

8. Shall have a term of not less than one year and shall be automatically extended for not less than one additional year unless the issuer, not less than 30 days prior to expiration, notifies both the ceding insurer and the reinsurer that the letter will not be renewed;

9. Shall state that the obligation of the bank is not contingent upon reimbursement;

10. Shall state whether it is subject to the laws of this state;

11. Shall provide that all drafts drawn be presentable at a bank office in the United States;

12. May contain a boxed reference section with the name of the applicant and other appropriate information for internal identification only, not to affect the terms of the letter or the obligations of the bank.

B. Nonrenewal or withdrawal of a letter of credit. In the event of nonrenewal or withdrawal of a letter of credit, the ceding insurer shall be able to withdraw the balance of the letter of credit and place the resulting sums in trust to secure continuing obligations under the reinsurance contract until it receives a renewal letter of credit or an alternative form of security which meets the standards of this rule or the Insurance Code.

C. Inspection. A letter of credit used as security under this rule shall be readily available for inspection by the commissioner or his designee upon request.