Texas Administrative Code › Title 28 - INSURANCE › Part 1 - TEXAS DEPARTMENT OF INSURANCE › Chapter 6 - CAPTIVE INSURANCE › Subchapter E - FINANCIAL INFORMATION AND REPORTING › Section 6.408 - Letters of Credit

Current through Reg. 49, No. 28; July 12, 2024
(a) A letter of
				  credit must comply with this subsection to be reported as an asset of the
				  captive insurance company.
(1) The letter of
				  credit cannot be supported or collateralized by a guaranty of an
				  affiliate.
(2) The beneficiary of
				  the letter of credit must be the commissioner as beneficiary for the security
				  of the captive insurance company's policyholders.
(3) The letter of credit must:
(A) be clean, irrevocable, and unconditional,
				  and issued by a qualified United States financial institution;
(B) contain an issue date and stipulate that
				  the beneficiary (the commissioner) need only draw a draft under the letter of
				  credit and present it to obtain funds and that no other document need be
				  presented;
(C) show only one amount
				  on the letter of credit;
(D) be
				  readily available for viewing by the department on request, including at any
				  time to the department in conducting an examination under Insurance Code
				  Chapter 401;
(E) indicate that it
				  is not subject to any condition or qualifications outside of the letter of
				  credit. In addition, the letter of credit itself must not contain reference to
				  any other agreements, documents, or entities;
(F) contain a statement to the effect that
				  the obligation of the qualified United States financial institution under the
				  letter of credit is in no way contingent on reimbursement; and
(G) state that it is subject to and governed
				  by either the laws of the State of Texas, or the laws of the state of domicile
				  of the issuing bank, and in the event of any conflict must specify whether the
				  laws of Texas or the laws of the state in which the issuing bank is domiciled
				  will apply, and all drafts drawn on the letter of credit will be presentable at
				  an office in the United States of a qualified United States financial
				  institution;
(4) The
				  letter of credit must not:
(A) have a
				  schedule of periodic payments;
(B)
				  name any beneficiary other than the commissioner; and
(C) in aggregate of all letters of credit
				  issued to any one captive insurer by one financial institution, exceed 10% of
				  the financial institution's total equity capital, as shown in its most recent
				  report of condition as filed with the appropriate federal or state financial
				  institution regulatory agency.
(5) The term of the letter of credit must be
				  for at least one year and must contain an evergreen clause that prevents the
				  expiration of the letter of credit without written notice from the issuer. The
				  evergreen clause will provide for a period of no less than 30 days' written
				  notice to the commissioner prior to expiry date or nonrenewal.
(6) In the event a letter of credit is not
				  renewed or replaced, the commissioner must not be prevented from withdrawing
				  the balance of the letter of credit and placing such sums in trust to secure
				  continuing obligations until a renewal letter of credit or a substitution in
				  lieu thereof has been received.
(7)
				  In the event that a letter of credit is not renewed, replaced, or is suspended,
				  the captive insurance company and the issuing bank must give immediate notice
				  to the commissioner of such nonrenewal, replacement, or inactive
				  status.