Naic Model Regulation on Custodial Agreements

The National Association of Insurance Commissioners (NAIC) recently released a model regulation on custodial agreements that aims to set a standard for the safekeeping of assets in insurance company portfolios. This new regulation comes at a time when the insurance industry is experiencing significant growth and evolving customer needs, making it essential to review and update regulatory measures.

Custodial agreements refer to the agreements made between an insurance company and its asset custodian to ensure the safekeeping of assets. The model regulation seeks to introduce a framework for such agreements` terms and conditions and protect policyholders` interests. The regulation also provides a set of minimum guidelines that all insurers must follow when it comes to custodial agreements.

The provisions of the regulation would ensure that the assets held in custody are adequately protected from loss or theft. The regulation provides that the custodian must maintain adequate insurance and have a plan in place for disaster recovery. Additionally, the custodian must ensure that all the assets held in custody are appropriately identified, segregated, and not commingled with the custodian`s assets.

Another important provision of the model regulation is the requirement that custodians must meet specific minimum financial requirements. These requirements ensure that the custodian is financially stable and can fulfil its obligations under the custodial agreement in the event of a bankruptcy.

The model regulation requires that the insurance companies must monitor the custodian`s performance and ensure that all the terms and conditions of the custodial agreement are being followed. The insurers must maintain records of all custodial agreements, including the terms and conditions, and the custodian`s performance records.

The NAIC model regulation on custodial agreements is a significant development in the insurance industry. It is a step towards ensuring that insurers comply with recommended best practices in the safekeeping of assets. It provides a minimum standard for custodial agreements that all insurers must adhere to, protecting policyholders` interests.

In conclusion, the NAIC model regulation on custodial agreements is a much-needed regulation in the insurance industry. It provides a set of minimum guidelines that all insurers must follow to ensure that assets held in custody are appropriately protected. The regulation is a positive step towards building greater trust and confidence in the insurance industry and protecting policyholders` interests.


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