# Title 45 — Insurance, Commissioner of

## Article 45-03 — Regulation of Insurance Companies

## Chapter 45-03-23 — Custodial Agreements and the Use of Clearing Corporations

### § 45-03-23-01. Definitions.

As used in this chapter, unless the context requires otherwise, the term:
1. "Agent" means a national bank, state bank, trust company, or broker-dealer which maintains
an account in its name in a clearing corporation or which is a member of the federal reserve
system and through which a custodian participates in a clearing corporation, including the
treasury/reserve automated debt entry securities system (TRADES) or treasury direct systems
except that with respect to securities issued by institutions organized or existing under the
laws of any foreign country or securities used to meet the deposit requirements pursuant to
the laws of a foreign country as a condition of doing business therein, "agent" may include a
corporation which is organized or existing under the laws of any foreign country and which is
legally qualified under those laws to accept custody of securities.
2. "Clearing corporation" means a corporation as defined in subsection 1 of North Dakota
Century Code section 41-08-02 which is organized for the purpose of effecting transactions in
securities by computerized book-entry; except that with respect to securities issued by
institutions organized or existing under the laws of any foreign country or securities used to
meet the deposit requirements pursuant to the laws of a foreign country as a condition of
doing business therein, "clearing corporation" may include a corporation that is organized or
existing under the laws of any foreign country and which is legally qualified under those laws
to effect transactions in securities by computerized book-entry. Clearing corporation also
includes “treasury/reserve automated debt entry securities system” and “treasury direct”
book-entry securities systems established under 31 U.S.C. 3100 et seq., 12 U.S.C. pt. 391,
and 5 U.S.C. pt. 301.
3. "Custodian" means:
a. A national bank, state bank, or trust company that must at all times during which it acts
as a custodian under this chapter be no less than adequately capitalized as determined
by the standards adopted by United States banking regulators and which is regulated by
either state banking laws or is a member of the federal reserve system and which is
legally qualified to accept custody of securities in accordance with the standards set forth
below; except that with respect to securities issued by institutions organized or existing
under the laws of any foreign country, or securities used to meet the deposit
requirements pursuant to the laws of a foreign country as a condition of doing business
therein, "custodian" may include a bank or trust company incorporated or organized
under the laws of a country other than the United States that is regulated as such by that
country’s government or an agency of that country that must be at all times during which
it acts as a custodian pursuant to this chapter be no less than adequately capitalized as
determined by the standards adopted by international banking authorities and which is
legally qualified to accept custody of securities; or
b. A broker-dealer that shall be registered with and subject to jurisdiction of the securities
and exchange commission, maintains membership in the securities investor protection
corporation, and has a tangible net worth equal to or greater than two hundred fifty
million dollars.

4. "Custodied securities" means securities held by the custodian or its agent or in a clearing
corporation, including the treasury/reserve automated debt equity securities system or
treasury direct systems.
5. "Securities" means certificated securities and uncertificated securities as defined in
subdivisions d and r of subsection 1 of North Dakota Century Code section 41-08-02.
6. "Securities certificate" means a certificate as defined in subdivision p of subsection 1 of North
Dakota Century Code section 41-08-02.
7. "Tangible net worth" means shareholders' equity, less intangible assets, as reported in the
broker-dealer’s most recent annual or transition report under section 13 or 15(d) of the
Securities Exchange Act of 1934 (SEC form 10-K) filed with the securities and exchange
commission.
8. "Treasury/reserve automated debt entry securities system" ("TRADES") and “treasury direct”
mean the book-entry securities systems established under 31 U.S.C. 3100 et seq.,
12 U.S.C. pt. 391 and 5 U.S.C. pt. 301. The operation of TRADES and treasury direct systems
are subject to 31 C.F.R. pt. 357, et seq.
History: Effective March 1, 2004; amended effective April 1, 2010.
General Authority: NDCC 28-32-02
Law Implemented: NDCC 26.1-05-35
### § 45-03-23-02. Custody of agreement - Requirements.

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.
l. 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.
History: Effective March 1, 2004; amended effective April 1, 2010; July 1, 2012.
General Authority: NDCC 28-32-02
Law Implemented: NDCC 26.1-05-35
### § 45-03-23-03. Deposit with affiliates - Requirements.

1. Nothing prevents an insurance company from depositing securities with another insurance
company with which the depositing insurance company is affiliated, provided that the
securities are deposited pursuant to a written agreement authorized by the board of directors
of the depositing insurance company or an authorized committee of the board and that the
receiving insurance company is organized under the laws of one of the states of the United
States or of the District of Columbia. If the respective states of domicile of the depositing and
receiving insurance companies are not the same, the depositing insurance company shall
have given notice of such deposit to the insurance commissioner in the state of its domicile
and the commissioner shall not have objected to it within thirty days of the receipt of the
notice.
2. The terms of the agreement must comply with the following:
a. The insurance company receiving the deposit shall maintain records adequate to identify
and verify the securities belonging to the depositing insurance company.

b. The receiving insurance company shall allow representatives of any appropriate
regulatory body to examine records relating to securities held subject to the agreement.
c. The depositing insurance company may authorize the receiving insurance company:
(1) To hold the securities of the depositing insurance company in bulk, in certificates
issued in the name of the receiving insurance company or its nominee, and to
commingle them with securities owned by other affiliates of the receiving insurance
company; and
(2) To provide for such securities to be held by a custodian, including the custodian of
securities of the receiving insurance company or in a clearing corporation.
History: Effective March 1, 2004; amended effective April 1, 2010.
General Authority: NDCC 28-32-02
Law Implemented: NDCC 26.1-05-35

(For use by a custodian where securities entrusted to its care have not been redeposited elsewhere)
) ss.
____________________, being duly sworn deposes and says that he or she is ___________ of
______________, a corporation organized under and pursuant to the laws of the __________ with the
principal place of business at __________________ ("corporation"):
That his or her duties involve supervision of activities of the corporation as custodian and records
relating to the corporation;
That the corporation is custodian for certain securities of ______________________ having a place of
business at __________________________ ("insurance company") pursuant to an agreement
between the corporation and the insurance company;
That the schedule attached is a true and complete statement of securities (other than those caused to
be deposited with The Depository Trust Company or like entity or a Federal Reserve Bank under the
TRADES or Treasury Direct systems) which were in the custody of the corporation for the account of
the insurance company as of the close of business on _____________________; that, unless
otherwise indicated on the schedule the next maturing and all subsequent coupons were then either
attached to coupon bonds or in the process of collection; and that, unless otherwise shown on the
schedule, all such securities were in bearer form or in registered form in the name of the insurance
company or its nominee, or of the corporation or its nominee, or were in the process of being registered
in such form;
That the corporation as custodian has the responsibility for the safekeeping of the securities as that
responsibility is specifically set forth in the agreement between the corporation as custodian and the
insurance company; and
That, to the best of his or her knowledge and belief, unless otherwise shown on the schedule, the
securities were the property of the insurance company and were free of all liens, claims, or
encumbrances whatsoever.
Subscribed and sworn to before me this
_______ day of _______, 20___.
Vice President (or other
authorized officer)

(For use in instances where a custodian corporation maintains securities on deposit with The
Depository Trust Company or like entity)
) ss.
____________________, being duly sworn deposes and says that he or she is ___________ of
______________, a corporation organized under and pursuant to the laws of the __________ with the
principal place of business at __________________ ("corporation"):
That his or her duties involve supervision of activities of the corporation as custodian and records
relating thereto;
That the corporation is custodian for certain securities of ______________________ having a place of
business at __________________________ ("insurance company") pursuant to an agreement
between the corporation and the insurance company;
That the corporation has caused certain of the securities to be deposited with _______________ and
that the schedule attached hereto is a true and complete statement of the securities of the insurance
company of which the custodian was custodian as of the close of business on
______________________, and which were so deposited on such date;
That the corporation as custodian has the responsibility for the safekeeping of the securities both in the
possession of the corporation or deposited with ___________________________ as is specifically set
forth in the agreement between the corporation as custodian and the insurance company; and
That, to the best of his or her knowledge and belief, unless otherwise shown on the schedule, the
securities were the property of the insurance company and were free of all liens, claims, or
encumbrances whatsoever.
Subscribed and sworn to before me this
_______ day of _______, 20___.
Vice President (or other
authorized officer)

(For use where ownership is evidenced by book-entry at a Federal Reserve Bank)
) ss.
____________________, being duly sworn deposes and says that he or she is ___________ of
______________, a corporation organized under and pursuant to the laws of the __________ with the
principal place of business at __________________ ("corporation"):
That his or her duties involve supervision of activities of the corporation as custodian and records
relating to the corporation;
That the corporation is custodian for certain securities of ______________________ ("insurance
company") with a place of business at __________________________ pursuant to an agreement
between the corporation and the insurance company;
That it has caused certain securities to be credited to its book-entry account with the Federal Reserve
Bank of ________________________ under the TRADES or Treasury Direct systems; and that the
schedule attached is a true and complete statement of the securities of the insurance company of
which the corporation was custodian as of the close of business on ____________________ which
were in a "General" book-entry account maintained in the name of the corporation on the books and
records of the Federal Reserve Bank of _______________ at such date;
That the corporation has the responsibility for the safekeeping of the securities both in the possession
of the corporation or in the general book-entry account as is specifically set forth in the agreement
between the corporation as custodian and the insurance company; and
That, to the best of his or her knowledge and belief, unless otherwise shown on the schedule, the
securities were the property of the insurance company and were free of all liens, claims, or
encumbrances whatsoever.
Subscribed and sworn to before me this
_______ day of _______, 20___.
Vice President (or other
authorized officer)
