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efficient protection to the public, both in terms of the amount in the fund and the method of paying out claims.
Title II of the proposed legislation would amend the Life Insurance Act to increase from $200,000 to $1,000,000 the amount of paid-up capital stock each domestic stock life insurance company is required to have in order to transact business in the District of Columbia. This amount would provide greater protection to consumers and would recognize the effects of inflation on capitalization requirements for insurance companies. The capital and surplus requirements for life insurance companies were last revised in 1964 by Public Law 88-556.
Title III would amend the Life Insurance Act to increase the amount of coverage that is available under group term life insurance to maximums of $30,000, $100,000, and 300 percent of compensation with the varying maximums based on compensation. These proposed amount limitations would make District requirements comparable to other State laws.
Title IV would amend the Fire and Casualty Act to increase the amount of paid-up capital stock and surplus required of all stock companies licensed under the Fire and Casualty Act from $300,000 to $600,000; to increase the surplus requirement for domestic mutual companies from $150,000 to $300,000; and to increase the amount for foreign mutuals from $200,000 to $400,000. Title IV would also increase the surplus requirement for mutual companies issuing nonassessable policies from $300,000 to $600,000. The increased requirements would apply only to new companies wishing to be licensed in the District and not to companies continuously transacting business here provided there is no change in the scope of their operations. The capital and surplus requirements under the Fire and Casualty Act were determined in 1940 and have not been revised since.
Adequacy of capital and surplus requirements is essential to the protection of policyholders. It is particularly important in the first few years of a company's operations when the company is most subject to the hazards of financial inexperience. The amendments proposed in titles II and IV of this draft legislation would act as a safeguard against financially inadequate companies entering the local market.
Title V would increase from $2,000 to $10,000 the amount of a contract with the District Government for which a bond is required. We have learned that the $2,000 requirement is unnecessarily low and that an increase to $10,000 would be more in line with present costs and also would provide small contractors with a greater opportunity of dealing with the District Government without being required to be bonded in contracts involving less than $10,000.
The above proposals represent some of the most immediate needs for revision or amendment of local insurance laws, and accordingly we urge enactment of the attached bill. Sincerely yours,
WALTER E. WASHINGTON.
STATEMENT OF THE HONORABLE W. S. (BILL) STUCKEY, JR., The purpose of the proposed legislation is to amend existing laws in the District of Columbia relating to insurance in order to provide a greater degree of protection to consumers from financial loss due to company insolvency; to increase the limitation on the amount of group term life insurance that can be issued in the District-expressly permitting the assignment of interest in a group life insurance policy; and to increase the amount of a contract with the District government for which a bond is required.
Specifically, the provisions of H.R. 4083, an omnibus bill originally requested by the Government of the District of Columbia, may be summarized as follows:
Title I: Establishes a post-assessment insurance guaranty fund to be known as the District of Columbia Insurance Guaranty Association, obligated, in the event an insurance company becomes insolvent, to pay all covered claims of policyholders.
Title II: Increases from $200,000 to $1,000,000 the amount of paid-up capital each domestic capital stock and mutual life insurance company is required to have in order to transact business in the District.
Title III: Increases amount of coverage available under group term life insurance to maximums of $100,000 or 300 per cent of compensation; $30,000 minimum. Permits assignment of group life insurance.
Title IV: Increases the amount of paid-up capital stock and surplus required of all stock companies licensed under the Fire and Casualty Act from $300,000 to $600,000; increases the surplus requirement for domestic mutual companies from $150,000 to $300,000; and increases the amount for foreign mutuals from $200,000 to $400,000.
Title V: Increases from $2,000 to $10,000 the amount of a contract with the District government for which a bond is required.
The high level of insurance regulation in the District of Columbia has served District residents well. H.R. 4083 will update the existing tools available to insure continuance of the excellent record the District now has.
Mr. STUCKEY. If there are no more witnesses and no more statements, let me thank all of you for being with us here today.
As I said before, we passed a bill like this last year, and I don't anticipate any trouble at this time.
Again, I thank all of you for being with us today.
[Whereupon the subcommittee proceeded to the consideration of other matters.]
HOLDING COMPANY SYSTEM REGULATORY ACT
MONDAY, JULY 16, 1973
SUBCOMMITTEE ON BUSINESS,
COMMERCE, AND TAXATION OF THE
Washington, D.C. The subcommittee met, pursuant to notice, at 10:15 a.m., in room 1310, Longworth House Office Building, Hon. W. S. Stuckey, Jr. (chairman of the subcommittee) presiding
Present: Representatives Stuckey (presiding) and Broyhill.
Also present : Robert B. Washington, Jr., chief counsel; Dale MacIver, counsel; James T. Clark, legal consultant; John E. Hogan, minority counsel; Jacques DePuy, Rebecca Moore, and Leonard 0. Hilder, professional staff members.
Mr. STUCKEY. The Subcommittee on Business, Commerce, and Taxation will come to order.
This morning our first bill is H.R. 7218, introduced by Chairman Diggs at the request of the District of Columbia government. It is the Holding Company System Regulatory Act of the District of Columbia government and its intent is to provide controls, to be exercised by the Commissioner of the District of Columbia, over presently unregulated merger or acquisition of domestic insurance companies with or by noninsurance interests. [T'he bill, H.R. 7218, follows:]
[H.R. 7218, 98d Cong., 1st sess. by Mr. Diggs on April 19, 1973] A BILL To improve the laws relating to the regulation of insurance companies in the
District of Columbia Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That this Act may be cited as the "Holding Company System Regulatory Act”.
Sec. 2. DEFINITIONS.-As used in this Act, unless the context otherwise requires
(a) "affiliate” (an "affiliate" of, or person "affiliated" with a specific person), means a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by or is under common control with, the person specified ;
(b) "commissioner" means the Commissioner of the District of Columbia or his designated agent;
(c) "control" (including the terms "controlling", "controlled by" and "under common control with") means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract other than a commercial contract for goods or nonmanagement services, or otherwise, unless the power is the result of an official position with or cor
porate office held by the person. Control shall be presumed to exist if any person, directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing 10 per centum or more of the voting securities of any other person;
(a) “District” means the District of Columbia ;
(e) "insurance holding company system" consists of two or more affiliated persons, one or more of which is an insurer;
(f) "insurer” includes any company defined by section 2, chapter I, of the Life Insurance Act (D.C. Code, sec. 35–302) and by section 3, chapter I, of the Fire and Casualty Act (D.C. Code, sec. 35–1303), authorized to do the business of insurance in the District, except that it shall not include agencies, authorities, or instrumentalities of the United States, its possessions and territories, the Commonwealth of Puerto Rico, the District of Columbia, or a State or political subdivision of a State;
(g) "person" is an individual, a corporation, a partnership, an association, a joint stock company, a trust, an unincorporated organization, any similar entity, or any combination of the foregoing acting in concert, but shall not include any securities broker performing no more than the usual and customary broker's function.
(h) "security holder" of a specified person is one who owns any security of such person, including common stock, preferred stock, debt obligations, and any other security convertible into or evidencing the right to acquire any of the foregoing;
(i) "subsidiary" of a specified person is an affiliate controlled by such person directly, or indirectly through one or more intermediaries;
(j) "voting security” includes any security convertible into or evidencing a right to acquire a voting security.
SUBSIDIARIES OF INSURERS SEC. 3. (a) AUTHORIZATION.—Any domestic insurer, either by itself or in cooperation with one or more persons, may, subject to the limitation stated in subsection (b) of this section, organize or acquire one or more subsidiaries. Such subsidiaries may conduct any kind of business or businesses and their authority to do so shall not be limited by reason of the fact that they are subsidiaries of a domestic insurer.
(b) LIMITED ADDITIONAL INVESTMENT AUTHORITY.-(1) The total amount which a domestic insurer may invest in the common stock, preferred stock, webt obligations, and other securities of the subsidiaries referred to in subsection (a) of this section shall not exceed the lesser of (A) 5 per centum of such instver's assets, or (B) in the case of a capital stock company, 50 per centum of the excess of its capital, surplus, and contingency reserves over the then required statutory minimum capital and surplus, or, in the case of a mutual company, 50 per centum of the excess of its surplus and contingency reserves over the then required statutory minimum surplus.
(2) In calculating the amount of such investments, there shall be included (A) total net moneys or other consideration expended and obligations assumed in the acquisition or formation of a subsidiary, including all organizational expenses and contributions to capital and surplus of such subsidiary, whether or not represented by the purchase of capital stock or issuance of other securities, and (B) all amounts expended in acquiring additional common stock, preferred stock, debt obligations, and other securities, and all contributions to the capital or surplus of a subsidiary subsequent to its acquisition or formation.
(c) EXEMPTIONS FROM INVESTMENT RESTRICTIONS.—The investments permitted under this section shall be in addition to the investments in common stock, preferred stock, debt obligations, and other securities permitted under sections 35 and 41 of chapter III of the Life Insurance Act (D.C. Code, secs. 35–535 and 35-541) and section 18, chapter II, of the Fire and Casualty Act (D.C. Code, sec. 35–1321), and the investments under this section shall not be subject to any of the otherwise applicable restrictions or prohibitions contained in the aforesaid sections of law applicable to such investments of insurers.
(d) QUALIFICATION OF INVESTMENT: WHEN DETERMINED. Whether any investment pursuant to this section meets the applicable requirements thereof is to be determined immediately after such investment is made, taking into account the then outstanding principal balance of all previous investments and debt obliga