(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)).     
     Source Note:        The provisions of this §6.408 adopted to be effective April 27, 2014, 39 TexReg 3232