Section 205.60 Financial Statements

Section 205

Section 205.60  Financial

Statements

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

stitutes

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 125.24a of the Illinois Insurance Code (Ill. Rev.

Stat. 1985, ch. 73, pars. 736 through 737.24a 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

serve 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.