(1) A sponsor of a sponsored captive insurance company shall be:

1. (a) an insurer authorized or approved under the laws of a state;
2. (b) a reinsurer authorized or approved under the laws of a state;
3. (c) a captive insurance company holding a certificate of authority under this chapter;

4. (d) an insurance holding company that:

   1. (i) controls an insurer licensed pursuant to the laws of a state; and
   2. (ii) is subject to registration pursuant to the holding company system of laws of the state of domicile of the insurer described in Subsection (1)(d)(i); or
5. (e) another person approved by the commissioner after finding that the approval of the person as a sponsor is not inconsistent with the purposes of this chapter.

(2)

1. (a) The business written by a sponsored captive insurance company with respect to a protected cell shall be fronted by an insurer that is:

   1. (i) authorized or approved:

      1. (A) under the laws of a state; or
      2. (B) under any jurisdiction if the insurance company is a wholly owned subsidiary of an insurance company licensed pursuant to the laws of a state;
   2. (ii) reinsured by a reinsurer authorized or approved by this state; or

   3. (iii) subject to Subsection (2)(b), secured by a trust fund:

      1. (A) in the United States;
      2. (B) for the benefit of policyholders and claimants; and
      3. (C) funded by an irrevocable letter of credit or other asset acceptable to the commissioner.

2. (b)

   1. (i) The amount of security provided by the trust fund described in Subsection (2)(a)(iii) may not be less than the reserves associated with the liabilities of the trust fund, including:

      1. (A) reserves for losses;
      2. (B) allocated loss adjustment expenses;
      3. (C) incurred but unreported losses; and
      4. (D) unearned premiums for business written through the participant's protected cell.
   2. (ii) The commissioner may require the sponsored captive insurance company to increase the funding of a trust established pursuant to this Subsection (2).

   3. (iii) If the form of security in the trust described in Subsection (2)(a)(iii) is a letter of credit, the letter of credit shall be established, issued, or confirmed by a bank that is:

      1. (A) chartered in this state;
      2. (B) a member of the federal reserve system; or
      3. (C) chartered by another state if that state-chartered bank is acceptable to the commissioner.
   4. (iv) A trust and trust instrument maintained pursuant to this Subsection (2) shall be in a form and upon terms approved by the commissioner.