INVESTOR PROTECTION

THURSDAY, JANUARY 23, 1964

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON COMMERCE AND FINANCE

OF THE COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE,

Washington, D.C. The subcommittee met at 10 a.m., pursuant to recess, in room 1334, Longworth Building, Hon. Oren Harris (chairman of the committee) presiding.

Mr. HARRIS. The committee will come to order.

This morning we have a panel that has been arranged, I understand, by the Honorable Peyton Ford in order to discuss from the standpoint of life insurance companies the proposal with reference to H.R. 6789 and S. 1642.

Mr. Ford, if you will bring your panelists around and we can get them lined up in a manner to have them identified and proceed I think we can expedite this matter this morning. Let these gentlemen have their seats and, Mr. Clerk, if they don't have enough chairs there put some more chairs around.

I would like to recognize at this time the Honorable Peyton Ford, counsel, National Association of Life Companies, Inc., 1000 Connecticut Avenue, Washington.

Mr. Ford, if you will first identify each of the members of the panel for the record, including their names, whom they represent, and address, we will get this part of the record to start with.

STATEMENT OF PEYTON FORD, COUNSEL, NATIONAL ASSOCIATION OF LIFE COMPANIES, INC.; DeWITT ROBERTS, EXECUTIVE SECRETARY, NATIONAL ASSOCIATION OF LIFE COMPANIES, INC., ATLANTA, GA.; WILLIAM E. LONG, FIRST UNITED LIFE INSURANCE CO.; C. C. YOST, VICE PRESIDENT AND CHAIRMAN OF THE EXECUTIVE COMMITTEE; LEONARD ROSENBERG, CHESAPEAKE LIFE INSURANCE CO.; D. J. HUNDAHL, JR., NATIONAL SECURITY LIFE & ACCIDENT CO.; AND FRED DEERING, SECURITY LIFE & ACCIDENT CO.

Mr. FORD. First is Mr. DeWitt Roberts.

Mr. HARRIS. I wish you gentlemen would identify yourselves by holding up your hand or something. Your name is Mr. DeWitt

Roberts?

Mr. ROBERTS. Yes.

Mr. FORD. He is the executive secretary of the National Association of Life Companies, Atlanta, Ga.

Next is Mr. William E. Long of Gary, Ind. He is a director of the National Association of Life Companies and president of the First United Life Insurance Co. of Gary, Ind.

Next is Mr. C. C. Yost, who is vice president of executive committee of the National Association of Life Companies and is with the Union Bankers Life Insurance Co., Dallas, Tex.

Next is Mr. Rosenberg, who is president of the Chesapeake Life Insurance Co. of Maryland.

Next is Mr. D. J. Hundahl, Jr., who is a representative of the Texas Legal Reserve Association, of which I am also counsel.

Mr. HARRIS. I have here he is with the National Security Life & Accident Co.

Mr. FORD. That is right. That is his company, but he is appearing on behalf of the Texas Legal Reserve Association too.

Mr. HARRIS. All right.

Mr. FORD. Next is Mr. Fred A. Deering, of Denver, Colo. He is vice president and general counsel of the Security Life & Accident Co. Mr. HARRIS. He is also representing a Colorado association? Mr. DEERING. That is correct.

Mr. HARRIS. What association?

Mr. DEERING. The Colorado Life Convention.

Mr. HARRIS. All right. Very well. Mr. Ford, you may proceed. You may be seated if you like, if it will help out.

Mr. FORD. I just have a brief statement and I will be through. These gentlemen will testify as to the adequacy of State regulations, the effect of the merger provisions of the bill under consideration, the adequacy of reports to stockholders, the cost that might result from enactment of this legislation, the number of companies involved, and the situation of the mutual companies with reference to this legislation. I will let Mr. Roberts at this point make his statement.

Mr. HARRIS. Very, well, Mr. Roberts, you may proceed.

Mr. ROBERTS. Thank you, Mr. Chairman, this statement is made on behalf of the National Association of Life Companies, a trade association with members in 32 States. A list of the members is attached to this statement, marked "Exhibit A." All the member companies of this association, whether mutual or stock, are legal reserve life insurance companies, domiciled in one of the 50 States.

This appearance, directed by the association, is for the purpose of urging that the Congress shall exempt insurance companies from the application of this pending legislation.

The life insurance industry is the only financial group that would be made subject to his bill. Although it is the most closely supervised and regulated enterprise in the United States, it has been singled out for treatment that is both unusual and seriously detrimental.

Over half of the citizens of the United States are insured in life insurance companies. Eight out of ten married men and six out of ten married women are covered by life insurance. Of $730 billion life insurance in force, $676 billion is with legal reserve companies: $80 billion of life insurance was bought in 1962, nearly seven times as much as 20 years ago. One million one hundred and forty-two thousand are employed in this industry.

Of the savings of American citizens, $141 billion, approximately one-third, is entrusted with safety to the care of these companies. Last year alone legal reserve companies paid almost $4 billion in death benefits to the widows and orphans of policyholders and over $512 billion to living annuitants and policyholders, as well as $34 billion in accident and sickness benefits.

These figures are given you, not to attempt to impress you with the size of the industry, with its dimensions, with its impact upon our economy, but simply to attest the confidence that the American people have in the insurance industry. And so you will see why in the past Congress has always treated the life insurance industry as a separate entity because of its peculiarity, as to why we have always had, or at least since 1920, a special tax provision for life insurance companies, and why it is a little different from a corporation engaged in manufacturing or trade.

Singled out by the SEC as the only financial group in America to require their supervision, the insurance industry points, if not with pride, certainly without shame, to its record in the hazardous depression years. Life insurance companies may not have a good name with SEC, but in 1932, and 1933, and 1934, they were about the only institutions in the United States that did have a good name with the people of this country.

Compare the losses, which were almost negligible to policyholders in the depression, with the losses in any other kind of business. Compare the eventual losses of stockholders in life insurance companies and determine whether they were well run in those dubious years. Remember that the life insurance companies did not have to come to the Federal Government to be bailed out.

I do not wish to be offensive even to those who think that this industry needs one more pair of eyes looking over its shoulder, but I remind this committee that when the Federal Government was looking for a name with which to bolster up public confidence in other financial institutions, it did not select the word "guarantee," but twisted semantics to the breaking point to borrow the name of our industry and refer to savings and loan insurance, and bank insurance, and mortgage insurance, because the people of the United States knew that the one thing they could rely on was the sheet of paper bearing the name of a legal reserve life insurance company.

The Securities and Exchange Commission rests its entire case for its supervision of the life insurance industry upon five points:

(1) It asserts that inadequate reports are supplied to stockholders. We shall fully refute that statement.

(2) It charges there is insufficient information available to the general investor. We shall fully refute that statement.

(3) It is asserted that there is wholly inadequate notice of merger procedures and inadequate information to stockholders about mergers. We shall fully refute that statement.

(4) It is complained that there has been too rapid a recent growth of the life insurance industry in the southcentral, southwestern and southeastern parts of the country. We shall represent that this growth is both necessary and desirable and that it is not the province of the Securities and Exchange Commission to seek to preclude the development of these areas.

28-738-64-pt. 2-20

(5) It is stated that there is inadequate reports upon stock purchases and sales by officers and/or directors of life insurance companies. This statement is quite probably correct and the National Association of Insurance Commissioners, through its spokesmen, have assured that this matter will be given prompt attention and quick solution, pointing out that this is the first time that this problem has been drawn to their attention or regarded by anyone as of serious

consequence.

We are informed that the National Association of Insurance Commissioners has taken complete, adequate, and full steps to see that such reports are available.

The National Association of Life Companies represents in general the medium sized and smaller companies, which would be most seriously jeopardized by this bill. They therefore examined, not merely what the spokesmen for the Securities and Exchange Commission and others favoring this bill have said, but what they did not say. On three matters silence speaks with great clarity and force:

(1) They make no claim that there has been general damage to the investing public.

(2) They make no claim that there is a lack of general and meticulous supervision of the industry.

(3) They make no claim and cite not a single instance, because they would be hard pushed to find a single instance, of conflict of interest in the operation of a stock life insurance company.

This association shall set out four major objections to the inclusion. of life insurance companies within the scope of this bill :

(1) It will effectively impair, thwart, and hamper existing State regulation.

(2) It will be intolerably expensive to small companies.

(3) It will reverse policies established by Congress 50 years ago and reiterated as recently as last October in the passage by the House of the District of Columbia Act (H.R. 8355) and the statements of the Senate Judiciary Committe with reference to the Dodd bill.

(4) It will disrupt the equilibrium of the industry, to establish which the Congress made a substantial contribution in 1921. To disrupt the existing relationship between stock and mutual life insurance companies can only hazard the welfare of the entire industry and lead to confusion that would impair its service to the public.

While this is intended as a discussion of the measure itself, the first portion of this statement will be directed to answering the issues raised in a letter to the Honorable Oren Harris, chairman of the House Interstate and Foreign Commerce Committee, by the Honorable William L. Carey, Chairman, Securities and Exchange Commission, dated August 30, 1963, and in response to Mr. Harris' letter of August 14.

S. 1642 was introduced June 4, 1963. Hearings were speedily conducted by a subcommittee and the report of the full committee (Banking and Currency) was printed July 24, 1963. Very little legislation of such impact, except of an intensely emergency nature, has ever moved so rapidly through either branch of Congress.

For convenience, in this communication, the pending legislation will be designated as S. 1642.

The first five subdivisions refer expressly to similarly numbered segments of Mr. Cary's letter of August 30, 1963.