Opinion ID: 6261810
Heading Depth: 2
Heading Rank: 1

Heading: unearned premium reserves ■

Text: The first issue we will discuss is whether Safeguard is required to maintain an unearned premium reserve as a liability. When an insurer collects a premium on a policy before its expiration, part of the premium is unearned, i. e., the part collected for that period of time that has not elapsed. If a policy is cancelled before expiration, the insurer must refund the unearned premium. The purpose of an unearned premium reserve is to guarantee that money will be available for any such required refund. The Insurance Department Act requires the maintenance of such a reserve, 40 P.S. § 91, but exempts certain companies, 40 P.S. § 917. The exemption section states in relevant part as follows: “. . . Except when cash premiums are payable in advance, the provisions relating to unearned premium reserve shall not apply to policies issued by a domestic mutual fire insurance company which policies set forth therein, or in the promissory note attached thereto, a limited or unlimited liability to assessment.” (Emphasis added.) It is not disputed that Safeguard is a domestic mutual fire insurance company. The record shows that its policies are now subject to assessment. It also shows that Safeguard’s premiums were not payable in advance. An examiner for the Department testified that he had examined Safeguard’s books and found that it did not receive premiums in advance. We find that Safeguard meets the requirements for exemption and it need not maintain an unearned premium reserve. Safeguard’s exemption is not defeated by either of two provisions of the act cited by the Department. The Department argues that because Safeguard sells casualty insurance in addition to fire insurance, it is required to maintain an unearned premium reserve under 40 P.S. § 382(f), which allows domestic mutual fire insurers to handle casualty insurance “upon compliance with all of the financial and other requirements . . . [of] the laws of this Commonwealth for . . . casualty insurance companies transacting such . . . insurance.” The requirements imposed on Safeguard by this section do not include maintenance of an unearned premium reserve. In Bunker Hill Mut. Ins. Co. v. Leslie, 382 Pa. 356, 115 A.2d 378 (1955), we found that the act required a mutual insurer to maintain reserves on nonassessable policies. All Safeguard’s policies now being assessable, it need not maintain an unearned premium reserve. We also reject the Department’s claim that the Commissioner may require reserves at his discretion under 40 P.S. § 115. That section gives the Commissioner the power to require liability or compensation loss reserves at his discretion when he deems it necessary to cover claims. It does not apply to unearned premium reserves, which the Commissioner has no statutory discretion to require.