3 AAC 21.865 - Requirements for custodial agreements

(a) An agreement between an authorized insurer and a custodian must require that

(1) a security certificate held by the custodian for the insurer be held separate from other security certificates owned by the custodian or other customers of the custodian;

(2) a security held indirectly by the custodian or a security in a clearing corporation

(A) be separately identified on the custodian's official records as being owned by the insurer;

(B) have records identifying which security is held by the custodian or by its agent and which security is in a clearing corporation; and

(C) if the security is in a clearing corporation, have records that identify

(i) where the security is;

(ii) the name of the clearing corporation; and

(iii) if through an agent, the name of the agent;

(3) a custodied security that is registered

(A) be registered in the name of the insurer or its nominee;

(B) be registered in the name of the custodian or its nominee; or

(C) if in a clearing corporation, be registered in the name of the clearing corporation or its nominee;

(4) a custodied security be held subject to the instructions of the insurer and be withdrawable upon the demand of the insurer, except that a custodied security used to meet the deposit requirements of AS 21 that is under the control of the director may not be withdrawn by the insurer without the approval of the director under the requirements of AS 21.24;

(5) the custodian send or cause to be sent to the insurer an electronic or paper confirmation of each transfer of custodied securities to or from the account of the insurer;

(6) the custodian furnish the insurer no less than monthly electronic or paper reports of holdings of custodied securities containing information reasonably required by the insurer;

(7) the custodian's trust committee's electronic or paper annual reports of its review of the insurer's trust accounts be provided to the insurer;

(8) upon written instructions from an appropriate officer of the insurer, a representative of an appropriate regulatory body, an independent accountant selected by the insurer, or an officer or employee of the insurer be entitled to examine the custodian's records relating to custodied securities of the insurer on the premises of the custodian and during the custodian's regular business hours;

(9) the custodian and its agent send to the insurer

(A) reports received from a clearing corporation on their respective systems of internal accounting control; and

(B) reports that the insurer may reasonably request, prepared by outside auditors on the custodian's or its agent's internal accounting control over custodied securities;

(10) the custodian maintain records sufficient to determine and verify information relating to a custodied security that may be reported in the insurer's annual statement required under AS 21.09.200 and supporting schedules and information required in an examination or audit of the financial statements of the insurer;

(11) the custodian provide, upon written request from an appropriate officer of the insurer, the appropriate affidavits, substantially in the form under 3 AAC 21.875, 3 AAC 21.880, or 3 AAC 21.885 with respect to custodied securities;

(12) the custodian secure and maintain insurance protection in an adequate amount covering the duties and activities as a custodian for the insurer's assets and in an amount in compliance with the custodian's state or federal regulator;

(13) a custodian that is a broker-dealer secure and maintain insurance protection for each insurer's custodied securities in excess of that provided by the Securities Investor Protection Corporation and in an amount equal to or greater than the market value of each respective insurer's custodied securities;

(14) the custodian be obligated to indemnify the insurer for any loss of custodied securities by

(A) the negligence or dishonesty of the custodian's officers or employees;

(B) burglary;

(C) robbery;

(D) holdup;

(E) theft;

(F) mysterious disappearance;

(G) damage; or

(H) destruction; and

(15) if a loss of custodied securities occurs for which the custodian is obligated to indemnify the insurer, the custodian will replace promptly the

(A) securities or the value of the securities; and

(B) the value of any loss of rights or privileges resulting from the loss of securities.

(b) An agreement between an insurer and a custodian may provide that the custodian will not be liable for a failure to take an action required under the agreement if the taking of the action is prevented or delayed by

(1) war, whether declared or not, including existing wars;

(2) revolution, insurrection, riot, or civil commotion;

(3) an act of God;

(4) an accident, fire, or explosion;

(5) labor stoppages, strikes, or other differences with employees;

(6) laws, regulations, orders, or other acts of any governmental authority; or

(7) any other cause beyond the custodian's reasonable control.

(c) If the custodian gains entry in a clearing corporation through an agent, the custodian must have an agreement with the agent under which the agent will be subject to the same liability for loss of custodied securities as the custodian. This subsection does not apply if the agent is subject to regulation under the laws of a jurisdiction that are different from the laws that regulate the custodian, and the insurance regulatory official of the state of domicile of the insurer accepts a standard of liability applicable to the agent that is different from the standard of liability applicable to the custodian.

(d) The custodian shall provide written notification to the insurance regulatory official of the state of domicile of the insurer within three working days if the custodial agreement with the insurer has been terminated or if all the account assets in any one custody account have been withdrawn.

Notes

3 AAC 21.865

Eff. 8/31/2008, Register 187

Authority:AS 21.06.090

AS 21.21.410