20 : 06 : 31 : 21 . Reinsurance agreements in conjunction with letters of credit. The reinsurance agreement in conjunction with which the letter of credit is obtained may contain provisions that:

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

2. (2) 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, and shall be utilized by the ceding insurer or its successors in interest only for one or more of the following reasons:

   1. (a) To pay or reimburse the ceding insurer for:

      1. (i) 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 such policies;
      2. (ii) 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; and
      3. (iii) Any other amounts necessary to secure the credit or reduction from liability for reinsurance taken by the ceding insurer;

   2. (b) 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 ten days prior to 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 U.S. financial institution apart from its general assets, in trust for such uses and purposes specified in subdivision (2)(a)(i) of this section as may remain after withdrawal and for any period after the termination date.

      All of the provisions of this section shall be applied without diminution because of insolvency on the part of the ceding insurer or assuming insurer.

Source: 44 SDR 71, effective October 23, 2017.

General Authority: SDCL 58-14-17.

Law Implemented: SDCL 58-14-16, 58-14-17 .