NAC681A.350. Acceptable provisions of reinsurance agreement.

     1. A reinsurance agreement, in conjunction with which a letter of credit is obtained, may contain provisions which:

     (a) Require the assuming insurer to provide letters of credit to the ceding insurer and specify what they are to cover; and

     (b) Stipulate 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 to the contrary, and may be used by the ceding insurer or its successors in interest, without diminution because of insolvency on the part of the ceding insurer or the assuming insurer, only:

          (1) To reimburse the ceding insurer for the assuming insurer’s share of premiums returned to the owners of policies reinsured under the reinsurance agreement because of cancellations of such policies;

          (2) To reimburse the ceding insurer for the assuming insurer’s share of surrenders and benefits or losses paid by the ceding insurer under the terms and provisions of the policies reinsured under the reinsurance agreement;

          (3) To fund an account with the ceding insurer in an amount at least equal to the deduction, for reinsurance ceded, from the ceding insurer’s liabilities for policies ceded under the agreement. The account must include, but is not limited to, amounts for policy reserves, claims and losses incurred and unearned premium reserves; and

          (4) To pay any other amounts the ceding insurer claims are due under the reinsurance agreement.

     2. This section does not prohibit the ceding insurer and assuming insurer from providing for:

     (a) An interest payment, at a rate not in excess of the prime rate of interest at the time of withdrawal, on the amounts held pursuant to subparagraph (3) of paragraph (b) of subsection 1.

     (b) The return of any amounts drawn down on the letters of credit in excess of the actual amounts required or, in the case of subparagraph (4) of paragraph (b) of subsection 1, any amounts that are subsequently determined not to be due.

     (Added to NAC by Comm’r of Insurance, eff. 6-28-96)