Section 807.10  Purpose 

 

The purpose of this Part is to set standards for the requirements of custodians of securities in accordance with Article IX of the Illinois Insurance Code [215 ILCS 5/Art. IX].

 

Section 807.20  Applicability 

 

This Part shall be applicable to custodial arrangements of all domestic insurers and United States branches of alien insurers entered through this State.

 

Section 807.30  Definitions

 

Agent means a national bank, state bank or trust company that maintains an account in its name in a clearing corporation or that 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 in that country, "agent" may include a corporation organized or existing under the laws of any foreign country and legally qualified under those laws to accept custody of securities.

 

Clearing Corporation means a corporation as defined in Section 8-102(a)(5) of the Uniform Commercial Code [810 ILCS 5/8-102(a)(5)], 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 within that country, "clearing corporation" may include a corporation organized or existing under the laws of any foreign country and legally qualified under such laws to effect transactions in securities by computerized book-entry.  Clearing corporation also includes the Treasury/Reserve Automated Debt Entry Securities System and the Treasury Direct book-entry securities systems described in 31 CFR 357 (2007, no later editions or amendments are included).

 

Code means the Illinois Insurance Code [215 ILCS 5].

 

Custodian means a national bank, state bank or trust company that shall, at all times during which it acts as a custodian pursuant to this Part, be no less than adequately capitalized as determined by the standards adopted by United States banking regulators and that is regulated by either state banking laws or is a member of the Federal Reserve System and that is legally qualified to accept custody of securities in accordance with the standards set forth in this Part, except that, with respect to securities issued by institutions organized or existing under the laws of a foreign country, or securities used to meet the deposit requirements pursuant to the laws of a foreign country as a condition of doing business within that country, "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 government that shall, at all times during which it acts as a custodian pursuant to this Part, be no less than adequately capitalized as determined by the standards adopted by international banking authorities and that is legally qualified to accept custody of securities.

 

Custody Agreement means a written agreement between an insurance company and a custodian that meets the standards for custody agreements of the National Association of Insurance Commissioners' (NAIC) Financial Condition Examiners Handbook (2301 McGee Street, Suite 800, Kansas City MO 64108-2662) (as adopted by the NAIC as of December 2006, no later editions or amendments are included).

 

Department means the Department of Insurance.

 

Director means the Director of the Illinois Department of Insurance.

 

Security has the same meaning as prescribed in Section 8-102(a)(15) of the Uniform Commercial Code.

 

Securities' Certificate has the same meaning as prescribed in Section 8-102(a)(16) of the Uniform Commercial Code.

 

Section 807.40  Custody Agreement Requirements

 

a)         Every domestic company may, by written agreement with a custodian qualified to administer trusts in this State under the Corporate Fiduciary Act [205 ILCS 620], and that has an office in this State at which the account is maintained, provide for the custody of its securities with that custodian. The securities that are the subject of the agreement may be held by the custodian or its agent or in a clearing corporation.

 

b)         The agreement shall be in writing and shall be authorized by a resolution of the board of directors of the insurance company or of an authorized committee of the board.  The terms of the agreement shall comply with the following:

 

1)         Securities' certificates held by the custodian shall be held separate from the securities' certificates of the custodian and of all of its other customers.

 

2)         Securities held indirectly by the custodian and securities in a clearing corporation shall be separately identified on the custodian's official records as being owned by the insurance company.  The records shall 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 shall 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.

 

3)         To the extent not inconsistent with the provisions of this Part, the custody agreement shall conform to the guidelines and procedures set forth in the Financial Condition Examiners Handbook.

 

4)         If the securities are not located in Illinois, the company's board of directors shall adopt a custodial plan and file it for approval by the Director.  If there is a committee or an officer with evidence of the authority from the board to act on this matter, approval by the committee or officer will be sufficient.  The custodial plan shall acknowledge that the company and custodian have entered into a custody agreement that contains the following provisions:

 

A)       Address of custodian's Illinois office and that of its main office if outside of Illinois.

 

B)        Acknowledgment by the custodian that is authorized to administer trusts in Illinois pursuant to the provisions of the Illinois Corporate Fiduciary Act [205 ILCS 620].

 

C)        Confirmation that the Department and the courts of the State of Illinois have in rem jurisdiction over the securities, and that the custodian will make the records of the custodial account readily available to the Department during normal business hours.

 

D)        Confirmation that the custodian submits to the jurisdiction of the Department, and to the jurisdiction of any State or federal court located in the State of Illinois.

 

E)        Designation of the custodian's Illinois office as its agent for service of process.

 

F)         Designation that the rights and obligations of the parties under the agreement shall be construed and enforced in accordance with Illinois law.