California Code of Regulations › Title 10 - Investment › Chapter 5 - Insurance Commissioner › Subchapter 3 - Insurers › Article 10.1 - Investment Annuities › Section 2522.9 - Custodian Account Agreements

Current through Register 2024 Notice Reg. No. 28, July 12, 2024
(a) A custodian account agreement to be used
				  in conjunction with an investment annuity policy shall be filed by the insurer
				  with the Commissioner for approval and shall be attached to and made a part of
				  the policy. If the policy is a group policy, a copy of the custodian account
				  agreement shall be delivered to the annuitant with the group certificate. A
				  custodian agreement shall not relieve the insurer from any responsibilities or
				  obligations imposed upon the operations of its investment annuities by any law
				  or regulation.
(b) Until
				  transmitted to the insurer as premium payments, the assets supporting the
				  benefits provided to each annuitant shall be maintained in a segregated
				  custodian account with an independent bank or trust company having authority to
				  act in a fiduciary capacity and not affiliated with the insurer or any of the
				  affiliates of the insurer.
(c) The
				  choice of the custodian is to be made by the policyowner subject to the
				  approval of the insurer; however, the insurer may recommend one or more of its
				  approved custodians, or it may, for reasonable and just cause, refuse to
				  approve a proposed custodian selected by the policyowner, or as provided in
				  paragraph (26) of subsection (d) of this Section, the insurer may give written
				  notice to the policyowner requiring the appointment of a successor custodian.
				  The reason of the insurer for any such action shall be neither arbitrary nor
				  capricious.
(d) A custodian account
				  agreement shall clearly identify the custodian and either the custodian
				  agreement or the policy (except where otherwise herein stated) shall contain
				  provisions relating to the authority, responsibility and duties of the
				  custodian and shall comply with the following requirements and contain the
				  following provisions.
(1) The policyowner, or
				  the policyowner's chosen investment manager, and not the insurer, shall direct
				  the custodian as to the investment of the assets in the account from time to
				  time during the time the annuity policy remains in force. This requirement must
				  be stated in the custodian account agreement.
(2) A provision in the agreement that all
				  assets in an account including dividends, interest and other income or
				  distributions from the assets, shall be irrevocably committed to the payment of
				  premiums under the annuity policy, the payment of charges of the custodian,
				  investment expenses such as broker's commissions and the remittance to the
				  insurer of such amounts necessary for any state or federal tax applicable to
				  the account and any other necessary and proper charges, and the custodian may
				  be authorized to apply cash and other assets held in the account to the payment
				  thereof or to reimburse itself therefrom.
(3) A provision providing for access to the
				  records of the custodian by the insurer or its designee during reasonable
				  business hours for the purpose of verifying all matters relating to the
				  segregated accounts.
(4) The
				  custodian agreement shall contain a provision providing that in the event of a
				  change of custodian, the custodian shall continue to hold and administer the
				  custodian account until the successor custodian has been appointed, approved by
				  the insurer, and the successor has accepted the transfer of the account and the
				  assets therein.
(5) A provision
				  that in the event the custodian resigns, the custodian shall give not less than
				  ninety (90) days notice, and, if the custodian resigns, or the insurer removes
				  the custodian, either the custodian or the insurer shall bear the expenses
				  resulting from such change of custodian. If the policyowner removes the
				  custodian, the agreement shall specify who shall bear the expenses and it may
				  provide that the custodian account shall bear the expenses resulting from such
				  change of custodian. If the custodian is removed, the policyowner shall appoint
				  a successor custodian acceptable to the insurer within forty-five (45) days. If
				  the custodian resigns, the policyowner shall appoint a successor custodian
				  acceptable to the insurer within ninety (90) days from the date of the
				  resignation notice. If the policyowner fails to appoint such a successor
				  custodian within the respective number of days set forth herein in the case of
				  removal or resignation, the insurer may appoint a successor
				  custodian.
(6) A provision in the
				  agreement that it shall be the responsibility of the custodian to value the
				  assets in the account at the end of each calendar year and at such other times
				  as contractually required to carry out the provisions of the policy. Such
				  valuation shall be based on the fair market value of such assets on the date of
				  valuation. The custodian shall remit promptly to the insurer the premiums due
				  under the terms of the policy; provided, however, that the agreement may
				  provide that the custodian may rely upon written statements of the insurer as
				  to premiums due or any other amounts due to the insurer.
(7) A provision in the agreement that within
				  thirty (30) days after the receipt of notice from the insurer that a premium is
				  due and payable by reason of the death of the annuitant or the annuitant having
				  attained a predetermined age or date, the custodian shall furnish the insurer
				  and the insurer shall furnish the annuitant or whoever then shall have
				  succeeded to the annuitant's rights and obligations under the custodian account
				  agreement:
(A) A statement listing all the
				  assets in the account, the fair market value of each asset and the aggregate
				  fair market value of all assets in the account, all as of the premium due date;
				  and
(B) A statement setting forth
				  the premiums due and related benefit payments.
(8) A provision in the agreement stating the
				  usual and customary charges made by the custodian for the various types of
				  transactions. Such statement shall provide that the custodian shall not
				  increase the schedule of charges more often than once every twelve (12) months.
				  The statement of charges of the selected custodian shall be either in the
				  custodian account agreement or in a rider attached thereto.
(9) Provide for the safekeeping and custody
				  of the securities and other assets in the custodian account.
(10) Provide for the execution of all
				  declarations, affidavits, certificates of ownership and other necessary
				  documents required in collecting principal and income payments.
(11) Provide for collection of the annuity
				  purchase contributions, the recording of dividends, interest, proceeds of
				  maturing or called securities and other income to be credited to the segregated
				  custodian account in accordance with the agreement.
(12) Provide for exchanging temporary
				  securities certificates for permanent certificates.
(13) Provide for selling all stock rights and
				  warrants, as these occur.
(14)
				  Provide for notifying the annuitant with respect to requests for tender of
				  assets and offers to exchange assets as they occur.
(15) Provide for the registration of assets
				  by the custodian and that any re-registration, transfer or deposit shall not
				  relieve the custodian of any of its duties or obligations under the
				  agreement.
(16) Provide that the
				  custodian shall execute orders for purchase, sale or exchange of assets and
				  make settlement in accordance with the normal rules applicable to such
				  commercial transactions.
(17)
				  Provide for maintaining a complete record of all transactions with respect to
				  the account.
(18) Provide for
				  determining the fair market value of the first annuity purchase contribution as
				  of the effective date of the agreement, any subsequent annuity purchase
				  contribution or contributions as of the date when deposited in the account, and
				  the assets held in the account at the end of each calendar year as provided
				  above.
(19) Provide that the
				  custodian will determine, based on the information received from the insurer,
				  the premiums due, as provided above in paragraph 6, and the applicable annual
				  annuity as contemplated by the policy.
(20) Provide that the custodian shall be
				  required to carry out investment instructions received in writing from the
				  policyowner or his authorized investment manager, in a timely and responsible
				  manner, unless such instructions are not in accordance with the terms of the
				  agreement. The custodian shall issue a quarterly written report to the
				  policyowner or investment manager not more than thirty (30) days after the end
				  of the quarter confirming that the investment instructions received within
				  thirty (30) days prior to the end of the quarter have been executed and
				  performed.
(21) Provide that the
				  custodian shall agree to sell, purchase or exchange for the benefit of the
				  account, assets held in the account pursuant to instructions received from the
				  policyowner and in the compliance with the agreement.
(22) Provide for making available the listing
				  of accepted assets in generic form which may be held in the custodian account
				  by the policyowner and specifying any limitations on the investing power of the
				  policyowner. The agreement shall contain or have attached to it the Accepted
				  Assets List and provide that, if the Accepted Assets List is amended by the
				  insurer, the amendments will be furnished to the person who has the investment
				  discretion.
(23) Specify the
				  grounds upon which an asset may be removed from the Accepted Assets List of the
				  insurer, including the time to be given to the policyowner to direct sale of
				  such asset after notice from the insurer to both the annuitant and the
				  custodian to remove the asset and the action, if any, that the custodian will
				  take if the asset is not sold within the specified time. (Limitations may be
				  based upon the compatibility of the insurer and the custodian's administrative
				  procedures for investing and accounting, and upon the asset having a reasonably
				  ascertainable market price available from regular market activity as specified
				  in Section
				  2522.10(a) of the
				  Article.)
(24) Provide that, in
				  connection with the voting of shares, it shall be provided that, if the
				  custodian reserves the right to execute proxies to vote shares, it must be
				  pursuant to the annuitant's or, when the policyowner has the investment
				  discretion as to the account, the policyowner's right at any time to give
				  instructions regarding the execution of proxies.
(25) Provide that, in connection with
				  premiums and disbursements, the custodian shall agree to promptly remit
				  premiums, taxes and assessments from the account in cash to the insurer as
				  provided in the policy. The assets held in the account and the dividends,
				  income and distributions on such assets shall be applied only to the payment of
				  the annuity premiums to the insurer under the policy, the charges of the
				  custodian and other charges as may be specifically set forth in the agreement.
				  It shall be clearly set forth that none of the assets, dividends, interest,
				  income and distributions thereon shall be distributed or distributable by the
				  custodian to any owner, annuitant, joint annuitant (or their respective heirs,
				  executors, administrators or personal representatives) or to any beneficiary or
				  assignee. When cash funds are required for any purpose provided in the
				  agreement and such funds are not currently available out of annuity purchase
				  contributions and out of dividends, interest, income and distribution, and the
				  custodian has not received specific selling instructions from the annuitant as
				  to particular assets, the custodian must sell assets pursuant to a fair, just,
				  equitable and objective standard which shall be set forth in the agreement, and
				  the agreement may provide for the custodian to sell the most recently acquired
				  asset.
(26) Provide that the
				  insurer retains the right to give written notice to the policyowner that it no
				  longer approves of the custodian and that the insurer may require the removal
				  of the custodian for any reason which is not arbitrary or capricious, including
				  the following reasons:
(A) Failure of the
				  custodian to provide all necessary information to the insurer or the
				  policyowner or the annuitant in a timely and accurate manner;
(B) Failure of the custodian to remit any and
				  all charges, premiums, annuity purchase contributions, assessments, taxes and
				  similar items;
(C) The occurrence
				  of any event that would have a material affect upon the financial condition or
				  business reputation of the custodian including, but not necessarily limited to,
				  its bankruptcy, material litigation against the custodian, state or federal
				  regulatory action against the custodian, and
(D) Any other reasonable, just or good
				  cause.
(27) Except as to
				  amounts due to the insurer, provide that the assets held in the account shall
				  not be sold, assigned, discounted or pledged as collateral for any purpose nor
				  shall they be subject to any legal process to levy upon or cash the same for
				  payment of any claims against the policyowner, the annuitant, the joint
				  annuitant, if any, beneficiary or other person entitled thereto except as to
				  the extent permitted by law.
(28)
				  Provide that the agreement shall be binding upon the assignees, executors,
				  administrators, personal representative and heirs of the policyowner,
				  annuitant, the joint annuitants, if any, any beneficiary and any other person
				  or persons entitled thereto.
(29)
				  The agreement shall provide with respect to policy ownership and assignment
				  that:
(A) If the annuity policy, when issued,
				  is owned by a person other than the annuitant, all rights, titles, interest and
				  obligations under the agreement with respect to such annuitant shall vest in
				  the owner, and
(B) Any and all
				  rights, title and interest may be assigned and the assignment shall be
				  effective when notice of such assignment is received at the home office of the
				  insurer.
(30) The
				  agreement shall provide that it is to be construed and governed in accordance
				  with the laws of the state where the policy is delivered.
(31) The agreement shall provide that the
				  custodian shall perform all other duties and services consistent with the
				  purposes and intent of the agreement.
(32) The custodian account agreement shall
				  contain all of the applicable provisions provided in this Article, but is not
				  necessarily limited thereto, and may contain other provisions or contractual
				  requirements.