1. A. An association licensed pursuant to the Service Warranty Insurance Act shall maintain a funded, unearned premium reserve account, consisting of unencumbered assets, equal to a minimum of twenty-five percent (25%) of the gross written premiums received on all warranty contracts in force, wherever written. In the case of multiyear contracts which are offered by associations having net assets of less than Five Hundred Thousand Dollars ($500,000.00) for which premiums are collected in advance for coverage in a subsequent year, one hundred percent (100%) of the premiums for such subsequent years shall be placed in the funded, unearned premium reserve account.

2. B. An association shall not be required to establish an unearned premium reserve if it has purchased contractual liability insurance which demonstrates to the satisfaction of the Insurance Commissioner that one hundred percent (100%) of its claim exposure is covered by such policy. The contractual liability insurance shall be obtained from an insurer that holds a certificate of authority to do business within the state or from an insurer approved by the Commissioner as financially capable of meeting the obligations incurred pursuant to the policy. For the purposes of this subsection, the contractual liability policy shall contain the following provisions:

   1. 1. In the event that the service warranty association is unable to fulfill its obligation under contracts issued in this state for any reason, including insolvency, bankruptcy, or dissolution, the contract liability insurer will pay losses and unearned premiums under such plans directly to the person making a claim under the contract;
   2. 2. The insurer issuing the contractual liability policy shall assume full responsibility for the administration of claims in the event of the inability of the association to do so; and
   3. 3. The policy may not be canceled or not renewed by either the insurer or the association unless sixty (60) days' written notice thereof has been given to the Commissioner by the insurer before the date of such cancellation or nonrenewal.
3. C. No warrantor shall allow its gross written premiums to exceed seven to one ratio to net assets.
4. D. No warranty seller shall allow its gross written premiums to exceed a five to one ratio to net assets.

5. E. If the gross written premiums of a warrantor or a warranty seller exceed the required net asset ratios, the Commissioner may require, in addition to other measures as the Commissioner deems necessary, any one or more of the following:

   1. 1. A complete review of financial condition;
   2. 2. An increase in deposit;
   3. 3. A suspension of any new writings; or
   4. 4. Capital infusion into the business.

Added by Laws 1993, HB 1001, c.108, § 7, eff. September 1, 1993.