Current through Register Vol. 48, No. 12, March 22, 2024
a) A
municipal bond insurer shall maintain an unearned premium reserve computed to
show gross premiums, without any deductions, received and receivable upon all
unexpired risks, net of reinsurance, on a monthly pro rata basis, except that
in the case of premiums paid more than one (1) year in advance, the premiums
shall be earned proportionally with the expiration of exposure, or by such
other method which will correlate the expiration of exposure with the premium
earned as the Director may prescribe or approve when the company's exposure to
loss does not correlate with the passage of time.
b) In addition to the contingency reserve, a
municipal bond insurer shall compute and maintain reserves for losses and loss
adjustment expenses for claims reported and unpaid determined by use of the
case basis method or, when the requirements of Section 378 of the Insurance
Code will not be met by the case basis method, such other methods as the
Director may prescribe or approve which produces the reserves required by
Section 378 of the Insurance Code. (Ill. Rev. Stat. 1985, ch. 73, par. 990).
1) Except as otherwise permitted by the
Director, no deduction shall be made for anticipated salvage in computing case
basis loss reserves unless such salvage is held by or under the control of the
insurer and would qualify as an admitted asset under Section 3.1 of the
Illinois Insurance Code (Ill. Rev. Stat. 1985, ch. 73, par. 615.1 ) or unless
such salvage constitutes or is secured by a clean, irrevocable letter of
credit.
2) A deduction from
reserves for losses shall be allowed for the time value of money by application
of a discount rate equal to the average rate of return on the admitted assets
of the insurer as of the date of the computation of any such reserve. The
discount rate shall be adjusted annually on the last day of each year. No
deduction from reserves for losses shall be otherwise allowed for the time
value of money unless the insurer can satisfy the Director that bonds, notes
and other fixed income investment, as authorized under Sections 124 through
125.24 a of the Illinois Insurance Code (Ill. Rev. Stat. 1985, ch. 73, pars.
736 through 737.24 a inclusive) sufficient to meet obligations for insured
unpaid principal and insured unpaid interest calculated to the redemption of
the defaulted issue have been deposited in trust for the purpose of meeting
such obligations.
3) If the insured
principal and interest on a defaulted issue of bonds due and payable over the
period of the next three years exceeds ten percent (10%) of the insurer's
policyholders' surplus plus its contingency reserve, and such default is a
default in payment of sums due, the insurer's reserve shall be supported by a
report from a qualified independent source if the reserve is set up for less
than the entire unpaid insured principal and unpaid insured interest to
redemption.
c) Treatment
of Contingency Reserve on Financial Statements
1) The contingency reserve required by
subsection
205.40(b)
shall be reported as a separate liability in all statutory financial
statements. Any increase or decrease in the contingency reserve for the period
shall be reported as a direct adjustment to surplus and shown separately in the
Capital and Surplus Account of the Underwriting and Investment
Exhibit.
2) For purposes of
determining whether a dividend or distribution is extraordinary pursuant to
Section
131.20 of the
Illinois Insurance Code (Ill. Rev. Stat. 1985, ch. 73, par.
743.20(3)
), the change in the contingency reserve shall be included as net income (loss)
for the period.