1. (a) A provider that uses a funded reserve account and security deposit to comply with the financial security requirements of Texas Occupations Code §1304.151, will not be allowed to obtain or renew a registration unless the provider:

   1. (1) maintains the funded reserve account and the security deposit at or above the financial levels required under Texas Occupations Code §1304.151(b); and
   2. (2) meets the requirements under this section.

2. (b) The funded reserve account maintained by the provider must:

   1. (1) be kept separate from the provider's operating accounts;
   2. (2) be clearly identified as the "{Provider's Name} Texas Service Contracts Funded Reserve Account"; and
   3. (3) not be used for any purpose other than to cover the provider's obligations under its service contracts that are issued and outstanding in this state.

3. (c) In addition to maintaining the funded reserve account, the provider must submit one of the following forms of security deposit:

   1. (1) A surety bond that:

      1. (A) is issued by a surety company authorized to do business in the State of Texas;
      2. (B) conforms to the Texas Insurance Code;
      3. (C) is on the form prescribed by the department; and
      4. (D) is payable to the executive director for the satisfaction of eligible service contract holder claims;
   2. (2) A certificate of deposit that is assigned to the executive director and for the benefit of the department;
   3. (3) Securities of the type eligible for deposit by an authorized insurer in Texas;
   4. (4) A deposit of cash or cash equivalents; or

   5. (5) An original letter of credit that:

      1. (A) is irrevocable;
      2. (B) is issued by a qualified financial institution which is financially responsible in the amount of the letter of credit;
      3. (C) does not require examination of the performance of the underlying transaction between the department and the provider;
      4. (D) is payable to the department on demand or within a reasonably brief period of time after presentation of all required documents; and
      5. (E) does not include any condition that makes payment to the department contingent upon the consent of or other action by the provider or other party.

Source Note:The provisions of this §77.42 adopted to be effective November 16, 2009, 34 TexReg 7791; amended to be effective October 15, 2010, 35 TexReg 9083.