Michigan Administrative Code
Department - Insurance and Financial Services
Insurance
Credit for Reinsurance
Section R. 500.1125 - Conditions applicable to reinsurance agreement in conjunction with letter of credit under section 1105 of the code, MCL 500.1105
Universal Citation: MI Admin Code R. 500.1125
Current through Vol. 24-04, March 15, 2024
Rule 5.
(1) A reinsurance agreement in conjunction with which a letter of credit is obtained under section 1105 of the code, MCL 500.1105, may contain any of the following provisions:
(a) A requirement that the
assuming insurer provide letters of credit to the ceding insurer and specify
what they are to cover.
(b) A
stipulation 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 must be utilized by the ceding insurer or its
successors in interest only for 1 or more of the following reasons:
(i) To pay or reimburse the ceding insurer
for the assuming insurer's share under the specific reinsurance agreement, of
premiums returned, but not yet recovered from the assuming insurers, to the
owners of policies reinsured under the reinsurance agreement on account of
cancellations of the policies.
(ii)
To pay or reimburse the ceding insurer for the assuming insurer's share, under
the specific reinsurance agreement, of surrenders and benefits or losses paid
by the ceding insurer, but not yet recovered from the assuming insurers, under
the terms and provisions of the policies reinsured under the reinsurance
agreement.
(iii) To pay or
reimburse the ceding insurer in an amount necessary to secure the credit or
reduction from liability for reinsurance taken by the ceding insurer.
(iv) Where the letter of credit will expire
without renewal or be reduced or replaced by a letter of credit for a reduced
amount and where the assuming insurer's entire obligations under the
reinsurance agreement remain unliquidated and undischarged 10 days before the
termination date, to withdraw amounts equal to the assuming insurer's share of
the liabilities, to the extent that the liabilities have not yet been funded by
the assuming insurer and exceed the amount of any reduced or replacement letter
of credit, and deposit those amounts in a separate account in the name of the
ceding insurer in a qualified United States financial institution apart from
its general assets, in trust for those uses and purposes specified in
paragraphs (i) to (iii) of this subdivision as may remain after withdrawal and
for any period after the termination date.
(c) A requirement that all of the provisions
of this subrule must be applied without diminution because of insolvency on the
part of the ceding insurer or assuming insurer.
(2) Nothing contained in subrule (1) of this rule precludes the ceding insurer and assuming insurer from providing for either or both of the following:
(a) An
interest payment, at a rate not more than the prime rate of interest, on the
amounts held pursuant to subrule (1)(b) of this rule.
(b) The return of any amounts drawn down on
the letters of credit in excess of the actual amounts required for subrule
(1)(b) of this rule, or any amounts that are subsequently determined not to be
due.
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