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
Universal Citation: ND Admin Code ยง 45-03-23-02
Current through Supplement No. 394, October, 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of the insurance commissioner and must not be withdrawn by the insurance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.
3. An insurer having direct written and assumed premiums of less than three million dollars in any calendar year may request an exemption from the requirements of this section. The insurer must file with the commissioner a written statement explaining the reasons why the insurer should be exempt. The commissioner may grant an exemption if the commissioner finds that compliance with this section would constitute a financial or organizational hardship upon the insurer.
General Authority: NDCC 28-32-02
Law Implemented: NDCC 26.1-05-35
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