(1) Certificated securities held by the custodian shall be held either separate from the securities of the custodian and of all of its other customers or in a fungible bulk of securities as part of a Filing of Securities by Issue (FOSBI) arrangement.

(2) Securities held in a fungible bulk by the custodian and securities in a clearing corporation or in the Federal Reserve book-entry system shall be separately identified on the custodian's official records as being owned by the insurer. Said records shall identify which custodied securities are held by the custodian or by its agent and which securities are in a clearing corporation or in the Federal Reserve book-entry system. If the securities are in a clearing corporation or in the Federal Reserve book-entry system, said records shall also identify where the securities are and the name of the agent.

(3) All securities and property shall be deposited promptly by the custodian into such accounts of the insurer as may be designated by the insurer from time to time in writing. Absent such written designation, the custodian shall promptly deposit such income in the custody account established at the securities firm for the insurer that is entitled to such Income. Each such deposit of Income shall identify the securities and property upon which the Income was distributed.

(4) The securities firm shall not use any of the insurer's securities and property for the securities firm's benefit, and none of the insurer's securities and property shall be loaned, pledged, or hypothecated to any person or organization.

(3) All custodied securities that are registered shall be registered in the name of the insurer or in the name of a nominee of the insurer 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.

(4) Custodied securities shall be held subject to the instructions of the insurer and shall be withdrawable upon the demand of the insurer, except that custodied securities used to meet the deposit requirements set forth in Ark. Stat. Ann. § 23-63-206 shall, to the extent required by that statute, be under the control of the Commissioner and shall not be withdrawn by the insurer without the approval of the Commissioner.

(5) The custodian shall be required to send or cause to be sent to the insurer a confirmation of all transfers of custodied securities to or from the account of the insurer. In addition, the custodian shall be required to furnish the insurer with reports of holdings of custodied securities at such times and containing such information as may be reasonably requested by the insurer.

(6) During the course of the custodian's regular business hours, the Commissioner, or his representative, shall be entitled to examine on demand, on the premises of the custodian, the custodian's records relating to custodied securities. Any officer or employee of the insurer shall be similarly entitled, but only upon furnishing the custodian with written instructions to that effect from an appropriate officer of the insurer.

(7) The custodian and its agents shall be required to send to the insurer (A) all reports which they receive from a clearing corporation or the Federal Reserve book-entry system on their respective systems of internal accounting control and (B) any reports prepared by outside auditors on the custodians or its agent's internal accounting control of custodied securities that the insurer may reasonably request.

(8) The custodian shall maintain records sufficient to determine and verify information relating to custodied securities that may be reported in the insurer's Annual Statement or other Financial Statement filed with the Commissioner and supporting Schedules and information required in any audit of the financial statements of the insurer.

(9) The custodian shall agree to exercise the same due care with the securities and property of the insurer which is expected of a fiduciary with the responsibility for the safeguarding of the insurer's securities and property and for compliance with all provisions of the custodial agreement, whether the insurer's securities and property are in the custodian's possession or have been deposited or redeposited by the securities firm with a subcustodian.

(10) The securities firm shall deliver promptly to the insurer all proxies, proxy statements, authorizations, notices and stockholder reports which the securities firm receives with respect to the securities and Property, and if the securities to which such proxies or other authorization relate are registered in the name of the securities firm or its nominee, such proxies or other authorizations when so delivered to the insurer shall be duly executed in blank by securities firm or its nominee, as the case may be.

(11) The securities firm shall furnish, upon request by the insurer, or by the Commissioner, a confirmation of all purchases, sales or transfers of securities and property to or from the account of the insurer, and reports of securities and property sufficient to verify information reported in the insurer's annual statement filed with the Department, as well as supporting schedules and information required in any audit of the insurer's financial statement.

(12) The bank custodian shall provide the appropriate affidavits, substantially in the form attached hereto as Exhibits A, B, C, and D to the insurer or the Commissioner.

(13) The custodian shall be obligated to indemnify the insurer 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.

(14) In the event that there is a loss of custodied securities for which the custodian shall be obligated to indemnify the insurer as provided in subsection (10) above, the custodian shall notify the Commissioner in writing and shall promptly replace the securities or the value thereof and the value of any loss of rights or privileges resulting from said loss of securities.

(15) 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, regulations, orders or other acts of any governmental authority.

(16) In the event that the custodian gains entry in a clearing corporation or in the Federal Reserve book-entry system 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 Commissioner of Insurance of the state of domicile of the insurer may accept a standard of liability applicable to the agent which is different from the standard of liability applicable to the custodian.

(17) If a custodian is a bank or trust company that is a member of a bank holding company and the custodian has an indemnification letter or guarantee agreement from the holding company which is approved by the Commissioner, the custodian shall provide in its custodial agreement, information advising the insurer that the custodian is indemnified by their parent corporation.

(18) The Commissioner may terminate an agreement in his discretion following fifteen (15) days notice in writing to the custodian, whenever it appears to the Commissioner that any person or company or agents thereof, subject to this agreement, has impaired the financial condition of the insurer so as to threaten its solvency or makes the further transaction of business by it hazardous to policyholders, creditors, shareholders or to the public. Upon termination of the agreement by the Commissioner, all custodied securities of the insurer subject to the agreement shall be transferred to the insurer within fifteen (15) days after the securities firm receives written notice from the Commissioner terminating the agreement.

(19) The securities firm and insurer understand that the agreement is permitted in the discretion of the Arkansas Insurance Commissioner (“Commissioner”) under Ark. Code Ann. § 23-69-134 and that the parties are aware that the agreement may be terminated by the Commissioner at any time upon the breach or failure of the securities firm or insurer to abide by any provision of their agreement or Ark. Code Ann. § 23-69-134, or other applicable insurance laws or rules.

(20) The agreement shall be governed by, and construed under, the laws of the State of Arkansas.