Section 500.1124. Requirements for letters of credit.

(1) A letter of credit used to reduce any liability for reinsurance ceded to an unauthorized reinsurer under section 1105 of 1956 PA 218, MCL 500.1105, shall be clean, irrevocable, unconditional, and issued or confirmed by a qualified United States financial institution which is not affiliated with either the ceding insurer or the assuming insurer. 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. 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 subrule (9)(a) of this rule. As used in this rule, "beneficiary" means the insurer for whose benefit the letter of credit has been established and any successor of the named beneficiary by operation of law, including, without   limitation, any receiver, conservator, rehabilitator, or liquidator.

(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 shall be clearly marked to indicate that the information is for internal identification purposes only.

(3)   The 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 not contingent upon reimbursement with respect thereto.

(4)  The term of the letter of credit shall be for at least 1 year and shall contain an "evergreen clause" that prevents the expiration of the letter of credit without due notice from the issuer. The evergreen clause shall 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 shall state whether it is subject to and governed by the laws of this state, publication 600 of the uniform customs and practice for documentary credits of the international  chamber  of  commerce,   or  the  international  standby    practices    98    of    the

international  chamber   of commerce; and all drafts drawn thereunder shall 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 the uniform customs and practice for documentary credits of the international chamber of  commerce (publication 600), then the letter of credit shall 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 occur.

(7)   The letter of credit shall be issued or confirmed by a qualified United States financial institution authorized to issue letters of credit pursuant to section 1101 1956 PA 218, MCL 500.1101.

(8)   If 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 subrule (7) of this rule, then both of 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.

(b)   An evergreen clause shall provide for 30 days' notice before the expiration date or nonrenewal of the letter of credit.

History: 1996 AC; 2011 AACS.