Alabama Administrative Code › Title 482 - ALABAMA DEPARTMENT OF INSURANCE › Chapter 482-1-077 - CUSTODIAL AGREEMENTS AND USE OF CLEARING CORPORATIONS BY DOMESTIC INSURANCE COMPANIES › Section 482-1-077-.04 - Custody Agreement; Requirements

Current through Register Vol. 42, No. 9, June 28, 2024
(1) An insurance company may, by written
			 agreement with a custodian, provide for the custody of its securities with a
			 custodian. The securities that are the subject to the agreement may be held by
			 the custodian or its agent or in a clearing corporation.
(2) The agreement shall be in writing and
			 shall be authorized by a resolution of the board of directors of the insurance
			 company or of an authorized committee of the board. The terms of the agreement
			 shall comply with all of the following:
(a)
			 Securities' certificates held by the custodian shall be held separate from the
			 securities' certificates of the custodian and of all of its other
			 customers.
(b) Securities held
			 indirectly by the custodian and securities in a clearing corporation shall be
			 separately identified on the custodian's official records as being owned by the
			 insurance company. The records shall identify which securities are held by the
			 custodian or by its agent and which securities are in a clearing corporation.
			 If the securities are in a clearing corporation, the records shall also
			 identify where the securities are and, if in a clearing corporation, the name
			 of the clearing corporation and, if through an agent, the name of the
			 agent.
(c) All custodied securities
			 that are registered shall be registered in the name of the company or in the
			 name of a nominee of the company or in the name of the custodian or its nominee
			 or, if in a clearing corporation in the name of the clearing corporation, or
			 its nominee.
(d) Custodied
			 securities shall be held subject to the instructions of the insurance company
			 and shall be withdrawable upon the demand of the insurance company, except that
			 custodied securities used to meet the deposit requirements set forth in
Code of Ala. 1975
, §§
									27-3-11,
			 27-3-12,
			 27-3-13,
			 27-3-14,
			 27-3-15,
			 27-3-16,
			 27-21A-12, and
			 27-30-18 shall, to the extent
			 required by those sections, be under the control of the Commissioner of
			 Insurance and shall not be withdrawn by the insurance company without the
			 approval of the Commissioner of Insurance.
(e) The custodian shall agree in writing to
			 submit to the jurisdiction of the courts of the State of Alabama upon a
			 declaration of insolvency of the company, and the custodied securities shall be
			 subject to the instructions of the Commissioner of Insurance for the benefit of
			 policyholders and shall be withdrawn only upon the demand of the Commissioner
			 of Insurance.
(f) The custodian
			 shall be required to send or cause to be sent to the insurance company a
			 confirmation of all transfers of custodied securities to or from the account of
			 the insurance company. In addition, the custodian shall be required to furnish
			 no less than monthly the insurance company with reports of holdings of
			 custodied securities at times and containing information reasonably requested
			 by the insurance company. The custodian's trust committee's annual reports of
			 its review of the insurer's trust accounts shall also be provided to the
			 insurer. Reports and verifications may be transmitted in electronic or paper
			 form.
(g) During the course of the
			 custodian's regular business hours, an officer or employee of the insurance
			 company, an independent accountant selected by the insurance company, and a
			 representative of an appropriate regulatory body shall be entitled to examine,
			 on the premises of the custodian, the custodian's records relating to custodied
			 securities, but only upon furnishing the custodian with written instructions to
			 that effect from an appropriate officer of the insurance company.
(h) The custodian and its agents shall be
			 required to send to the insurance company both of the following:
1. All reports which they received from a
			 clearing corporation on their respective systems of internal accounting
			 control.
2. Reports prepared by
			 outside auditors on the custodians or its agent's internal accounting control
			 of custodied securities that the insurance company may reasonably
			 request.
(i) The
			 custodian shall maintain records sufficient to determine and verify information
			 relating to custodied securities that may be reported in the insurance
			 company's annual statement and supporting schedules and information required in
			 an audit of the financial statements of the insurance company.
(j) The custodian shall provide, upon written
			 request from an appropriate officer of the insurance company, the appropriate
			 affidavits, substantially in the form set forth at the end of this chapter,
			 with respect to custodied securities.
(k) A national bank, state bank, federal home
			 loan bank, or trust company shall secure and maintain insurance protection in
			 an adequate amount covering the bank's or trust company's duties and activities
			 as custodian for the insurer's assets, and shall state in the custody agreement
			 that protection is in compliance with the requirements of the custodian's
			 banking regulator. A broker/dealer shall secure and maintain insurance
			 protection for each insurance company's custodied securities in excess of that
			 provided by the Securities Investor Protection Corporation in an amount equal
			 to or greater than the market value of each respective insurance company's
			 custodied securities. The commissioner may determine whether the type of
			 insurance is appropriate and the amount of coverage is adequate.
(l) The custodian shall be obligated to
			 indemnify the insurance company for any loss of custodied securities, except
			 that the custodian shall not be so obligated to the extent that the loss was
			 caused by other than the negligence or dishonesty of the custodian.
(m) The custodian shall be obligated to
			 indemnify the insurance company for any loss of custodied securities occasioned
			 by the negligence or dishonesty of the custodian's officers or employees, or
			 burglary, robbery, holdup, theft, or mysterious disappearance, including loss
			 by damage or destruction.
(n) In
			 the event there is a loss of custodied securities for which the custodian shall
			 be obligated to indemnify the insurance company as provided in Subparagraph (k)
			 above, the custodian shall promptly replace the securities or the value thereof
			 and the value of any loss of rights or privileges resulting from the loss of
			 securities.
(o) The agreement may
			 provide that the custodian will not be liable for a failure to take an action
			 required under the agreement in the event and to the extent that the taking of
			 the action is prevented or delayed by war (whether declared or not and
			 including existing wars), revolution, insurrection, riot, civil commotion, act
			 of God, accident, fire, explosion, stoppage of labor, strikes or other
			 differences with employees, laws, regulations, orders or other acts of any
			 governmental authority, or any other cause whatever beyond its reasonable
			 control.
(p) In the event the
			 custodian gains entry in a clearing corporation through an agent, there shall
			 be an agreement between the custodian and the agent under which the agent shall
			 be subject to the same liability for loss of custodied securities as the
			 custodian. However, if the agent shall be subject to regulation under the laws
			 of a jurisdiction that is different from the jurisdiction the laws of which
			 regulate the custodian, the Commissioner of Insurance of the state of domicile
			 of the insurance company may accept a standard of liability applicable to the
			 agent that is different from the standard of liability applicable to the
			 custodian.
(q) The custody
			 agreement is of no force and effect until the Commissioner approves, in
			 writing, the custody agreement.
(r)
			 The custodian shall provide written notification to the insurer's domiciliary
			 commissioner if the custodial agreement with the insurer has been terminated or
			 if 100% of the account assets in any one custody account have been withdrawn.
			 This notification shall be remitted to the insurance commissioner within three
			 (3) business day of the receipt by the custodian of the insurer's written
			 notice of termination or within three (3) business days of the withdrawal of
			 100% of the account assets.