North Dakota Administrative Code › Title 45 - Insurance, Commissioner of › Article 45-03 - Regulation of Insurance Companies › Chapter 45-03-23 - Regulation on the Use of Clearing Corporations and Federal Reserve Book-Entry System by Insurance Companies › Section 45-03-23-02 - Custody of agreement - Requirements

Current through Supplement No. 393, July, 2024
1.
				An insurance company may provide, by written agreement with a custodian, for
				the custody of its securities with a custodian. The securities that are the
				subject of the agreement may be held by the custodian or its agent or in a
				clearing corporation.
2. The
				agreement must be in writing and must be authorized by the resolution of the
				board of directors of the insurance company or of an authorized committee of
				the board. The terms of the agreement must comply with the following:
a. Securities certificates held by the
				custodian must be held separate from the securities of the custodian and of all
				of its other customers.
b.
				Securities held indirectly by the custodian and securities in a clearing
				corporation must be separately identified on the custodian's official records
				as being owned by the insurance company. The records must 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 must 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 must 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 North Dakota Century Code section
				26.1-05-23 must, to the extent required by that section, be under the control
				of the insurance commissioner and must not be withdrawn by the insurance
				company without the commissioner's approval.
e. 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 such
				times and containing information as may be 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.
f. During the course of the
				custodian's regular business hours, any officer or employee of the insurance
				company, any independent accountant selected by the insurance company, and any
				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.
g. The custodian and its agents shall be
				required to send to the insurance company:
(1) All reports which they receive from a
				clearing corporation on their respective systems of internal accounting
				control; and
(2) Any 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.
h.
				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 any audit of the financial statements of the insurance company.
i. The custodian shall provide,
				upon written request from an appropriate officer of the insurance company, the
				appropriate affidavits, substantially in the form described in the appendices
				to this chapter, with respect to custodied securities.
j. A national bank, state 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.
k.
				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.
I.
				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.
m. In the event that there is a loss of
				custodied securities for which the custodian shall be obligated to indemnify
				the insurance company, the custodian shall promptly replace the securities or
				their value thereof and the value of any loss of rights or privileges resulting
				from the loss of securities.
n.
				The agreement may provide that the custodian will not be liable for any failure
				to take any action required to be taken under the agreement in the event and to
				the extent that the taking of such 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, rules,
				orders, or other acts of any governmental authority, or any other cause
				whatever beyond its reasonable control.
o. in the event that 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; provided,
				however, that if the agent shall be subject to regulation under the laws of a
				jurisdiction which is different from the jurisdiction the laws of which
				regulate the custodian, the insurance commissioner of the state of domicile of
				the insurance company may accept a standard of liability applicable to the
				agent which is different from the standard of liability applicable to the
				custodian.
p. The custodian shall
				provide written notification to the insurer's domiciliary commissioner if the
				custodial agreement with the insurer has been terminated or if one hundred
				percent of the account assets in any one custody account have been withdrawn.
				This notification shall be remitted to the insurance commissioner within three
				business days of the receipt by the custodian of the insurer's written notice
				of termination or within three business days of the withdrawal of one hundred
				percent of the account assets.