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      Nov 4, 2005 correspondence regarding BNL Financial 10K

    FRIDAY,
      ELDREDGE & CLARK

    November
      4, 2005

              Mr.
                Jeffrey P. Riedler, Assistant Director

               VIA
                EDGAR

              Division
                of Corporation Finance

              United
                States Securities & Exchange Comm.

              100
                F. Street, N.E.

              Washington,
                DC 20549

       Re:
       BNL
      Financial Corporation

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

    File
      Number 0-16880

    Dear
      Mr.
      Riedler:

    This
      letter is submitted on behalf of our client BNL Financial Corporation (“BNL” or
      the “Company”) in response to your letter dated October 12, 2005, addressed to
      Wayne E. Ahart, Chief Executive Officer of BNL.

    Some
      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.

        1

    General

    SEC
      Comment 1.

    In
      light
      of the changing litigation environment throughout the United States, the
      requested acknowledgment may result in unintended and even unforeseen adverse
      legal consequences to the Company. We would appreciate the opportunity to
      discuss our questions and concerns by telephone before we formulate any
      additional response to the request. Could you please provide the name and
      telephone number of the appropriate person for us to contact. Thank
      you.

    Management’s
      Discussion and Analysis

    Critical
      Accounting Policies, page 11

    SEC
      Comment 2.

    The
      additional individual dental contract reserve amount of $611,410 which was
      booked in 2004 was for the individual dental contracts then (2004) in force
      and,
      necessarily, included reserves for the individual dental contracts issued in
      2001, 2002 and 2003 which contract remained in force (not terminated) in 2004.
      The $611,410 also included reserves for individual dental policies issued in
      2004.

    In
      responding to your comment letter of September 2, 2005, the Company presented
      calculations showing reserves for the individual dental contracts for the years
      2001, 2002 and 2003 and the totals for those years: Cumulative Gross Benefit
      Reserve for the three years, $280,292; and the combined After-tax Charge for
      the
      three years, $181,699. The Company also presented data on annual income, equity
      and net income. The purpose of such presentation was to demonstrate the small
      amount of money involved in subject matter of individual dental insurance
      contracts for the years 2001, 2002 and 2003 and the newness of such business
      for
      the Company. As of the year ended December 31, 2003 the Company estimated that
      reserves for the individual dental contracts were not material to those
      years.

    In
      2004,
      the Company recorded reserves for individual dental contracts which included
      the
      portion attributable for individual dental contracts issued in 2001, 2002 and
      2003 which were still in force (not terminated) and the Company determined
      that
      such portions were changes in accounting estimates.

    Accordingly,
      Paragraph 31 of APB 20 provides that the effect of a change in accounting
      estimate should be accounted for in the period of change. Consequently, a
      determination of materiality is not a factor in recording a change in accounting
      estimate. In a similar vein, Paragraph 21 of SFAS 60 provides that, “Changes in
      the liability for future policy benefits that result from periodic estimates
      for
      financial reporting purposes should be recognized as income in the period in
      which the changes occur.”

        2

    On
      page
      15 of the Company’s 2004 10-K, the statement is made:

    “Beginning
      in 2004, new reserve rules prescribed by most state insurance departments
      require additional reserves to be established to more properly match premiums
      and benefits for this product (individual dental policies).” (parenthetical
      added)

        Footnote
      11
      to the Company’s financial statements in the same 10-K contain a similar
      statement:

    “The
      Company has marketed this product (individual dental policies) since 2001 and
      was notified by its actuary in the first quarter of 2004 that new reserve rules
      prescribed by most state insurance departments now require additional reserves
      be established to more properly match premiums and benefits for this product.”
      (parenthetical added)

    The
      background for both of these statements is the same. In January 2001, the
      National Association of Insurance Commissioners (“NAIC”) authorized a
      standardized method of statutory accounting which is commonly referred to as
      “Codification.” In January 2001, the Arkansas Insurance Commissioner/Department
      adopted Codification. By 2003, the industry practice regarding implementation
      of
      Codification included emphasis on the Health Reserve Guidance
      Manual.
      Before
      Codification, actuaries were given some latitude on determining reserves for
      individual dental policies. But, with the implementation of Codification,
      statutory reserves for individual dental policies were required to be more
      like
      those estimated for GAAP. The Company’s statements were trying to describe, in
      summary, the new requirements of Codification as pertaining to individual dental
      policies.

    SEC
      Comment 3.

    The
      following presents a draft of a revised, preliminary statement in a
“disclosure-type format” which the Company is considering for use in future 10-K
      filings as part of Management’s Discussion:

    DISCUSSION
      OF CLAIM RESERVE METHODOLOGY

    (PRELIMINARY)

    The
      Company, through its wholly owned subsidiary, BNLAC, has a single line of
      business which is life and accident and health insurance. The Company’s SIC code
      is 6311 which is a standard industrial classification used by the United States
      Securities and Exchange Commission (“SEC”). Using such SIC code, an interested
      person can research the internet website of the SEC, www.sec.gov,
      to find
      and review business and financial information of other companies which are
      in
      the same line of business.

        3

    The
      following is a summary description of the Company’s methodology for estimating
      its reserve liabilities for its insurance policies. The Company and management
      believe that this discussion constitutes forward looking statements and,
      therefore, this discussion is given full safe-harbor.

    It
      should
      also be fully understood that there is absolutely no assurance that anything
      which the Company and its management have done in the past regarding its claim
      reserve methodology will be done in the future. The Company and its management
      are afforded full and complete authority and judgment in determining and
      implementing its claim reserve methodology which includes any and all changes
      which may be made from time to time.

    The
      Company’s significant insurance product types are presently dental (group and
      individual), life (group and individual), and annuities.

    In
      the
      life and accident and health insurance industry, the liabilities for claims
      and
      the related expensing of those liabilities are evaluated and recorded using
      estimates of claim reserves. BNLAC estimates its claim reserves using the
      general methodology described herein.

    The
      liability for claim reserves generally consists of the following: (1) due and
      unpaid claims, (2) claims in the course of settlement, and (3) claims incurred
      but unreported. BNLAC records the actual liability for all claims that are
      due
      but unpaid, Item (1). But, with regard to the last Items (2) and (3), BNLAC
      must
      make estimates. The estimates are based on actuarial principles. BNLAC’s
      independent consulting actuary works with Company management in determining
      the
      estimates and the independent consulting actuary annually gives BNLAC a
      certification as to the amounts of the reserves.

    BNLAC
      calculates and maintains claim reserves for the estimated future payments on
      claims incurred before the statement date. These calculations are based on
      actuarial principles in accordance with industry standards and applicable GAAP
      requirements. Development of such reserves is done with company management
      working with its independent consulting actuary. These reserves involve many
      considerations including but not limited to economic and social conditions,
      inflation, and healthcare costs. The claim reserves developed include
      significant estimates and assumptions based on management’s review of historical
      experience in consultation with its independent actuary. The extent to which
      future payments match the claims reserves is dependent on how well actual future
      experience matches the assumptions management makes regarding the future
      experience. These reserves are estimates, require significant judgment and,
      therefore, are inherently uncertain.

    It
      is
      common in the life and accident and health insurance industry for a consulting
      actuary to give either (A) a reserve certification where the reserves are
      expressed as a range of numbers for each relevant reserve (the “Range
      Estimate”), or (B) a reserve certification where the reserves are expressed as a
      single number for each relevant reserve (the “Single Point Estimate”).

        4

    Where
      the
      Range Estimate method is used, the management of the insurance company makes
      its
      own choice to reserve an amount within the range. BNLAC does not use the Range
      Estimate for any of its insurance products.

    Instead,
      for all of its insurance products, BNLAC uses the Single Point
      Estimate.

    For
      BNLAC’s group and individual dental insurance, BNLAC’s financial personnel
      develops and makes a Single Point Estimate for the reserves which work results
      in BNLAC’s Single Point Estimate for the end of each fiscal quarter and year
      end. BNLAC’s independent consulting actuary develops and makes its separate
      Single Point Estimate for such reserves. BNLAC’s financial personnel and
      independent consulting actuary compare their Single Point Estimates, reconcile
      any differences and agree on a Single Point Estimate for such reserves.
      Annually, the Company’s independent consulting actuary gives a Single Point
      Estimate reserve certification to BNLAC with the agreed amount and BNLAC uses
      such certified amount without change.

    For
      BNLAC’s group and individual life and annuity insurance, BNLAC’s financial
      personnel make the Single Point Estimate for each such reserve. Annually,
      BNLAC’s consulting actuary independently reviews the Single Point Estimates. If
      the independent consulting actuary agrees with the Single Point Estimates,
      he
      gives a reserve certification to the Company.

    While
      claim reserves are estimated as an inherent part of the insurance industry,
      management of the Company believes that it follows standard industry practices
      in estimating claim reserves.

    The
      following discussions of reserve methodology are separated by BNLAC’s product
      types as indicated by the section headings.

    Dental
      Insurance - Group and Individual

    For
      BNLAC’s group and individual dental insurance policies, BNLAC and its
      independent consulting actuary use a completion factor approach (sometimes
      referred to as the development method) which provides best estimates of the
      factors to determine claim reserves.

    In
      implementing the completion factor approach, a review of payment history
      develops the completion factors. These completion factors relate what percentage
      of an ultimate claim is paid based upon its duration from date of service.
      Such
      completion factors are monitored over time and have been relatively stable.

    However,
      with respect to claims incurred in the most recent months, the completion
      factors are not fully credible. So, as is common in the industry, a review
      is
      made of developing claims per insured by month and loss ratios by month. The
      BNLAC management and BNLAC’s independent consulting actuary make a Single Point
      estimate based upon their determination of the loss ratios and claims per
      insured for the current month.

        5

    Of
      all
      the assumptions made by BNLAC’s management and BNLAC’s independent consulting
      actuary, the loss ratio and the claims per insured per month for the most
      current month are the most sensitive ones for reserve setting. If the loss
      ratios and claims per insured per month increase, claim reserves will likely
      increase by some amount. If the loss ratios and claims per insured per month
      decrease, claim reserves will likely decrease by some amount.

    In
      calculating reserves, management does not explicitly use claims frequency and
      severity.

    Management
      reviews any trends in loss ratios and claims per insured per month in
      determining its estimate for the most recent month.

    Life
      Insurance - Group and Individual - and Annuities

    BNLAC
      reinsures a substantial portion of its life insurance and the associated risks
      and liabilities. See Item 1, Business, Reinsurance; and Note 8, Reinsurance,
      to
      the Company’s financial statements.

    BNLAC
      determines its life insurance claim reserves by recording three items: (1)
      actual claims due and unpaid; (2) the claims received during the thirty (30)
      day
      period following year end (this is done by taking an inventory of claims
      received during the thirty day period); and (3) estimating a liability amount
      for claims which have been incurred but not yet reported by the end of the
      thirty day period.

    BNLAC’s
      annuity policies are simple deferred annuities. The Company does not explicitly
      establish a claim reserve for its annuities since the liability is already
      held
      in the annuity deposit liability.

    Trends
      in Loss Ratio and Claims Per Insured Per Month

    The
      Company maintains monthly data on the total dollar amount of claims incurred
      as
      compared to the dollar amount of premiums earned for that same month for its
      major product type -- group dental insurance. This comparison, expressed in
      a
      percentage, is referred to as the “Loss Ratio.” As an example, if the Company’s
      gross dollar premiums earned for a month for group dental insurance was
      $1,500,000 and the dollar amount of claims incurred for that same month for
      group dent