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(a) If a reinsurance agreement between a ceding insurer and an unauthorized assuming insurer is secured by a letter of credit, the reinsurance agreement, to the extent allowable by law, may provide that the ceding insurer may draw upon the letter of credit under the terms of the reinsurance agreement at any time. The ceding insurer or its successors in interest, without diminution because of insolvency on the part of the ceding insurer or unauthorized assuming insurer, may use a draw on the letter of credit only for
(1) reimbursing the ceding insurer for the unauthorized assuming insurer's share of premiums returned because of cancellation to the owners of policies reinsured under the reinsurance agreement;
(2) reimbursing the ceding insurer for the unauthorized assuming insurer's share of surrenders paid by the ceding insurer under the terms and provisions of the policies reinsured under the reinsurance agreement;
(3) reimbursing the ceding insurer for the unauthorized assuming insurer's share of benefits or losses paid by the ceding insurer under the terms and provisions of the policies reinsured under the reinsurance agreement; or
(4) paying other amounts necessary to secure the credit or reduction from liability taken by the ceding insurer under the reinsurance agreement.
(b) if a letter of credit is to expire without renewal or will be replaced by a letter of credit for a reduced amount and if the unauthorized assuming insurer's entire obligation under the specific reinsurance agreement remains unliquidated 10 days before the termination date, the ceding insurer may withdraw amounts equal to the unauthorized assuming insurer's share of liabilities, to the extent that the liabilities have not yet been paid by the unauthorized assuming insurer and exceed the amount of any replacement letter of credit. The ceding insurer may deposit those amounts in a separate account in the name of the ceding insurer in any qualified United States financial institution if they are held apart from the ceding insurer's general assets and in trust for the uses and purposes specified in (a) of this section, as exist after withdrawal and for any period after the termination date.
(c) Nothing in (a) or (b) of this section precludes the ceding insurer and unauthorized assuming insurer from providing for
(1) interest payment at a rate not to exceed the prime rate of interest on the amounts held under (a) or (b) of this section; or
(2) the return of any amounts drawn down on the letters of credit in excess of the actual amounts required under a reinsurance agreement and any amounts that are subsequently determined not to be due.
History: Eff. 11/25/94, Register 132; am 11/21/2004, Register 172
Authority: AS 21.06.090
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Last modified 7/05/2006