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      10-3-05 Letter to SEC

    October
      3, 2005

    Mr.
      Jeffrey P. Riedler

    Assistant
      Director

    Division
      of Corporation Finance

    United
      States Securities & Exchange Commission

    100
      F
      Street, N.E.

    Washington,
      D.C. 20549

    Re: BNL
      Financial Corporation

    Form
      10-K
      for Fiscal Year Ended December 31, 2004

    File
      Number 0-16880

    Dear
      Mr.
      Riedler:

    This
      letter and attachments are submitted on behalf of our client BNL Financial
      Corporation (“BNL” or the “Company”) in response to your letter dated September
      2, 2005, addressed to Wayne E. Ahart, Chief Executive Officer of
      BNL.

    Most
      of
      subjects for which comments were presented in your letter are relevant to the
      business or operations of BNL’s wholly owned subsidiary Brokers National Life
      Assurance Company (“BNLAC”).

    Various
      persons assisted in preparing portions of the content of this letter and
      attachments including BNL’s employees under the supervision of Barry N. Shamas,
      Executive Vice President and Chief Financial Officer; BNL’s independent
      certified public accountants, Smith, Carney & Co., P.C., Oklahoma City,
      Oklahoma; and consulting actuaries, G. P. Monnin Consulting, Inc., Austin,
      Texas.

      Form
        10-K

      Reinsurance,
        page 4

      SEC
        Comment 1.

      BNLAC
        does not have any reinsurance arrangements concerning its dental
        insurance.

      As
        reported in the Company’s Form 10-KSB for the year ended December 31, 1996,
        BNLAC terminated its reinsurance agreements on its group dental business
        and, on
        November 1, 1995, began retaining 100% of the risk on that business. There
        have
        been no changes since this disclosure.

    BNLAC
      reinsures two of its health insurance policies as disclosed in the top two
      paragraphs on page 5, 10-K for 2004: (a) Accidental death and dismemberment
      policies, and (b) Short term disability policies.

    Personnel,
      page 8

    SEC
      Comment 2.

    On
      July
      25, 2001 (third quarter of 2001), BNL entered into a long term convertible
      debenture loan agreement (“Convertible Debenture”) with EPSI Benefits, Inc.
      (“EBI”), a Texas corporation. The Convertible Debenture, which had an
      outstanding principal balance of $1,357,407 at December 31, 2004, provides
      for
      monthly interest payments from inception and for principal payments beginning
      on
      September 15, 2008, and has a maturity date of August 15, 2015. To protect
      its
      interest, BNL may convert the Convertible Debenture into 51% of the outstanding
      common stock of EBI, subject to regulatory approval. The Convertible Debenture
      investment was described in the Company’s 10-Q for the third quarter of 2001 and
      has been continually disclosed since then. Please see Note 4, Investments,
      to
      the Company’s financial statements.

    EBI’s
      wholly owned subsidiary Employer Plan Services, Inc. (“EPSI”), a third party
      administrator, provides substantially all of the services for BNLAC’s claims
      processing and adjudication for individual and group dental insurance. BNLAC
      has
      a servicing agreement (“Servicing Agreement”) with EPSI to provide such claims
      processing and adjudication. See, Note 4, Investments, to the Company’s
      financial statements; Personnel, page 8 of 10-K; Item 7, Management’s Discussion
      and Analysis of Financial Condition and Results of Operations, pages 13, 14
      of
      10-K.

        2

      The
        Company also has a marketing agreement (“Marketing Agreement”) with EBI-EPSI
        whereby the Company receives a marketing fee. In connection with the Marketing
        Agreement, the Company has other financial commitments totaling approximately
        $545,000 including (a) guaranteed a $100,000 note payable of EBI/EPSI to
        Wells
        Fargo Bank; (b) a commitment to infuse capital into EPSI in an amount up
        to
        $200,000 if required by the Georgia Insurance Department; and (c) guaranty
        of
        various indemnity bonds with some State Insurance Departments for the guaranty
        of performance by EPSI. See, Note 4, Investments, and Note 6, Commitments
        and
        Contingencies and Supplemental Cash Flow Information, to the Company’s financial
        statements.

      On
        October 15, 2003, BNLAC and EPSI entered into a loan agreement for BNLAC
        to
        provide a $200,000 line of credit (“Line of Credit”) maturing on October 15,
        2004. The Line of Credit was renewed and extended monthly interest payments
        until August 1, 2005, and monthly and principal interest payments thereafter.
        See, Note 4, Investments, to the Company’s financial statements.

      The
        Company has no objection to filing its Convertible Debenture, Servicing
        Agreement, Marketing Agreement, or Line of Credit as
        exhibits.

    Management’s
      Discussion and Analysis

    Critical
      Accounting Policies, page 11

    SEC
      Comment 3.

    The
      Company’s response to this comment will address two different types of dental
      insurance contracts: group dental contracts and individual dental
      contracts.

    Group
      Dental Insurance Contracts

    In
      years
      prior to 2004, the Company’s audited financial statements, Note 1, Summary of
      Significant Accounting Policies, stated that the Company’s accident and health
      insurance policies were treated as short duration contracts. During those
      previous time periods, substantially all of the Company’s accident and health
      insurance policies were comprised of group dental insurance contracts. Such
      short term duration accounting treatment of the group dental insurance contracts
      was proper under Paragraph 7(a) of SFAS 60 as BNLAC has the legal right to
      cancel or re-price group contracts annually.

    BNLAC
      has
      consistently accounted for its group dental insurance contracts as short
      duration contracts.

        3

    Individual
      Dental Insurance Contracts

    BNLAC
      also has a small block of business consisting of individual dental insurance
      contracts. In accordance with SFAS 60, BNLAC’s individual dental insurance
      contracts are long duration contracts because they may be canceled only by
      class
      (by State) or re-priced only by class (by State) with state insurance regulatory
      approval. This is described in Paragraph 8, SFAS 60, i.e., individual contracts
      within a class are not cancelable.

    Summary

    The
      portion of Note 1 to the Company’s Financial Statements for the year ended
      December 31, 2004, inadvertently described long duration treatment on all of
      BNLAC’s accident and health insurance business. Note 1 will be altered in the
      future to clearly indicate the short duration classification of group dental
      contracts and the long duration classification of the individual dental
      contracts.

    SEC
      Comment 4.

    Please
      note that the increase of liability for future policy benefits in the amount
      of
      $611,410 (which, after offsetting deferred acquisition costs and federal income
      taxes, netted down to $378,497) pertained only to individual dental insurance.
      Comment 4 appears to be limited to the $611,410 increase. Therefore, the
      responses herein to Comment 4 pertain only to individual dental insurance.

    BNLAC
      began issuing an individual dental product in 2001. The data presented in the
      charts below show the small, but increasing amount of premium income from
      individual dental insurance contracts for the years 2001, 2002 and 2003.

    At
      year
      end 2003, BNLAC determined that setting up a benefit reserve was appropriate
      on
      the long duration individual dental product. But, for the year ended December
      31, 2003, BNLAC concluded that the benefit reserve for individual dental
      contracts would not be material.

        4

    During
      2004, at BNLAC’s request, BNLAC’s consulting actuary, G. P. Monnin Consulting,
      Inc., calculated the individual dental contract benefit reserve. BNLAC then
      evaluated and recorded such reserve as reflected in the following cumulative
      data recorded through December 31, 2004:

    Gross
      Benefit Reserve
      (611,410)

      Deferred
        Acquisition Costs            155,410

      Cumulative
        Income Tax
        Benefit
        103,923

      Deferred
        Tax
        Liability
        (28,420)

        Net
          Reduction in Shareholder Equity

           (378,497)

                Annual
                  Income

                Net
                  After-tax Benefit Reserve

                Annual

                Compared
                  to:

                Net

                Compared
                  to:

                Individual

                BNL

                Benefit

                BNL

                BNL

                Dental

                Total

                Reserve

                Total

                Net

                Year

                Income

                Income

                Increase

                Equity

                Income

                2003

                886,556

                42,505,179

                129,224

                10,690,735

                2,736,355

                2002

                337,402

                42,367,834

                45,459

                8,310,767

                2,500,727

                2001

                92,132

                39,569,741

                7,016

                5,674,309

                1,283,478

                181,699

                10,690,735

                6,520,560

                Cumulative
                  Amounts

                Gross

                Benefit

                Related

                Annual

                Reserve

                DAC

                Net
                  Benefit Reserve

                After-tax

                Year

                Liability

                Asset

                Pre-tax

                FIT

                After-tax

                Charge

                2003

                280,292

                61,378

                218,914

                37,215

                181,699

                129,224

                2002

                81,481

                18,258

                63,223

                10,748

                52,475

                45,459

                2001

                10,933

                2,480

                8,453

                1,437

                7,016

                7,016

                181,699

          5

      The
        individual dental contract benefit reserve recorded cumulatively through
        December 31, 2004, included the reserve amounts for prior periods which were
        accounted for as changes in estimates since the reserve liabilities are
        inherently estimated amounts.1

      In
        light
        of the foregoing described events and information, each of the bullet points
        of
        Comment 4 will be addressed separately, as follows. See, above descriptions,
        data and charts.

      SEC
        Comment 4, Bullet Point One.

      BNLAC
        did
        not conclude that statutory benefit reserves for the individual dental insurance
        contracts could be used for GAAP reporting purposes with respect to liabilities
        for future policy benefits. BNLAC determined that any such liability at December
        31, 2003, would not be material and did not book such a liability. See, above
        data on immateriality and change of estimate for prior years.

      SEC
        Comment 4, Bullet Point Two.

      In
        years
        prior to 2004, the individual dental insurance contract benefits and premiums
        were matched as follows: Benefits were recognized on an incurred basis through
        establishment of the claims reserve liability and premiums were recognized
        as
        earned when due.

      The
        claims payable and IBNR were developed through detail analysis of the claims
        payment lag study and were verified by BNLAC’s independent actuary. This
        analysis includes trend analysis of completion factors, loss ratios, claims
        per
        certificate holder, and claims processing backlog.

      Premiums
        were recognized as earned when due as required by Paragraph 10, SFAS 60.
        Unearned, advanced and unallocated premiums were recorded as liabilities.
        Management believes these methods result in appropriate matching of premiums
        and
        benefits. The additional reserves on the individual dental contracts established
        in 2004 were immaterial in prior periods as more fully described above.

      In
        reviewing the information and events, BNLAC has concluded now, as it did
        for the
        year end 2003, that benefit reserve liabilities should be established for
        its
        individual dental insurance contracts. BNLAC concluded that the value of
        the
        individual dental insurance benefit reserves for the year ended December
        31,
        2003, was not material. 2

      1
        On
        September 30, 2005, the PCAOB concluded the field work on its regular inspection
        of BNL’s auditors. During the work, the inspector commented that the auditor did
        not perform procedures to address the prior year unrecorded reserves as a
        correction of an error (as compared to a change in estimate). The audit firm
        will be responding to the comment.

      2
        As to
        the group dental insurance contracts, which are short duration contracts,
        BNLAC
        has consistently and properly recorded the appropriate matching of revenues
        and
        claims.

          6

      SEC
        Comment 4, Bullet Point Three.

      Based
        upon the relatively small size of the benefit reserve for the individual
        dental
        insurance contracts during the years 2001, 2002 and 2003, if BNLAC had recorded
        such a benefit reserve for such time periods, there would be no material
        difference in the Company’s earnings presentation, as indicated in the tables
        above.

      SEC
        Comment 4, Bullet Point Four.

      The
        individual dental insurance product is a long duration contract with increasing
        benefits. Paragraph 21 of SFAS 60 states, “A liability for future policy
        benefits relating to long duration contracts . . . shall be accrued when
        premium
        revenue is recognized.” The formula for such accrual relates the present value
        of benefits with the present value of premiums. See Paragraph 21, SFAS
        60.

      BNLAC’s
        individual dental insurance contracts have a benefit structure which increases
        with duration. Accordingly, the benefit reserve is calculated and recorded
        early
        in the life of the individual dental insurance contracts and then released
        over
        time. BNLAC’s revenues for the individual dental insurance contracts are
        recorded as earned when due. The net result is that the incurred claims adjusted
        for the change in the benefit reserve is a proper matching of claims and
        revenue
        as prescribed by SFAS 60.

      SEC
        Comment 4, Bullet Point Five.

      As
        explained above, BNLA