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
Universal Citation: 10 CA Code of Regs 2522.9
Current through Register 2024 Notice Reg. No. 38, September 20, 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.
Disclaimer: These regulations may not be the most recent version. California may have more current or accurate information. We make no warranties or guarantees about the accuracy, completeness, or adequacy of the information contained on this site or the information linked to on the state site. Please check official sources.
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