Contingency reserve.

(1) Each mortgage guaranty insurer shall establish and maintain as a liability a contingency reserve out of earned premiums remaining after establishment of the unearned premium reserve. The insurer shall contribute an amount equal to 50 percent of the earned premiums into the contingency reserve.

(2) Subject to approval by the insurance department of the insurer’s state of domicile and upon 30 days’ prior notice to the office, the contingency reserve shall be available for loss payments only when the insurer’s incurred losses in any one calendar year exceed 35 percent of the corresponding earned premiums.

(3) In the event of the release of the contingency reserve for payment of losses, as approved by the state regulating agency in the insurer’s state of domicile, the contributions required under subsection (1) shall be treated on a first-in-first-out basis.

(4) The contribution made during each calendar year to the contingency reserve pertaining to a particular insurance policy shall be maintained (subject to prior payment of losses therefrom as provided in subsection (3)) for a period of 120 months.