28 Tex. Admin. Code § 6.408 - Letters of Credit
(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.
(b) A letter of
credit used for reinsurance purposes must meet the requirements of §
7.610 of this title (relating to
Letter of Credit Qualified under Insurance Code, Article 3.10, §(d)(3), or
Article 5.75-1, §(d)(3)).
Notes
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