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1 "§ 13. Minimum capital and surplus requirement

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"Every stock company authorized to do business in the

3 District shall have and shall at all times maintain a paid-up 4 capital stock of not less than $300,000, and a surplus of not 5 less than $300,000. Every domestic mutual company and 6 every domestic reciprocal company shall have and shall at 7 all times maintain a surplus of not less than $300,000, and 8 every foreign or alien mutual company and every foreign or 9 alien reciprocal company shall have and shall at all times 10 maintain a surplus of not less than $400,000.

11 "§ 14. Corporations heretofore formed

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"No company shall be exempt from the provisions of 13 this subsection by reason of its having been incorporated in 14 the District or elsewhere prior to the effective date of this 15 subsection, except that, in the case of companies authorized 16 in the District on the date of approval of this subsection and 17 continuously thereafter without any increase of authority, the 18 minimum capital and surplus required of a stock company, 19 and the minimum surplus required of a mutual or reciprocal 20 company, or of a Lloyd's organization by the laws of the 21 District heretofore applicable shall not be increased by this 22 subsection, and provided also that in the case of such con23 tinuously authorized companies the provisions of section 24 24 relating to the names of companies, and the provisions of sec25 tion 25 relating to the amount of surplus necessary to the

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1 issuance of policies having no provision for contingent liabil2 ity, shall not be applicable."

3 SEC. 402. Section 25 of chapter II of the Fire and 4 Casualty Act (D.C. Code, sec. 35-1329) is amended by 5 striking out "$300,000" and inserting in lieu thereof 6 "$600,000".

7 TITLE V-AMENDMENT OF AMOUNT OF CONTRACT WITH THE GOVERNMENT OF THE DIS

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TRICT OF COLUMBIA FOR WHICH A SURETY
BOND IS REQUIRED

SEC. 501. The first section of the Act entitled "An Act 12 in relation to contracts with the District of Columbia" ap13 proved June 28, 1906 (D.C. Code, sec. 1-805), and the 14 first section of the Act of August 3, 1968 (D.C. Code, sec. 1-804a) (relating to conrtacts with the District of Colum16 bia), are each amended by striking out "$2,000" wherever 17 it appears in each such first section and inserting in lieu 18 thereof "$10,000".

MEMORANDUM IN RE:

H.R. 4088 (Stuckey) and H.R. 5687 (Diggs).-To improve the laws relating to the regulation of insurance in the District of Columbia, and for other purposes. Purpose:

To amend certain existing insurance law in the District of Columbia 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; and to increase the amount of a contract with the District Government for which a bond is required.

Provisions and Precedents:

Title I.—Establishes a post-assessment insurance guaranty fund to be known as District of Columbia Insurance Guaranty Association. Association obligated, in event an insurance company becomes insolvent, to pay all covered claims of policyholders. Funds to be provided through annual assessments to be levied on each member insurance company; maximum assessment 2% of net direct written premiums in any one year. (Life, title, disability and mortgage guaranty companies excepted from this Title.) Additional responsibility includes aiding in the detection and prevention of insolvencies.

Title I based on model legislation prepared by National Association of Insurance Commissioners; adopted by 47 states, under active consideration in other three.

Title II.-Increases from $200,000 to $1,000,000 the amount of capital and surplus each domestic stock and mutual life insurance company is required to have in order to transact business in the District.

Forty-six states have higher requirements that the District has presently. Title III.-Increases amount of coverage available under group term life insurance to maximums of $100,000, or 300% of compensation, maximum; $30,000 minimum. (Presently limits are $40,000 or 12% compensation Maximum; $20,000 minimum.) An assignment of rights provision is included permitting an individual covered under a group life policy to obtain an exclusion under Federal estate laws.

Presently, 27 states have no limits on amounts of group term life coverage; 19 have higher limits than the District. Thirty-seven states have an assignment of rights provision.

Title IV.-Amends Fire and Casualty Act to increase the amount of capital and surplus required of all property and casualty 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. The increased requirements would apply only to new companies wishing to be licensed in the District.

Adjustments would bring District requirements in line with most states. Title V.-Increases from $2,000 to $10,000 the amount of a contract with the District Government for which a bond is required.

Need for Legislation:

Title I.-There is presently no protection for consumers against company insolvencies. The District's record is remarkable regarding insolvencies of companies domiciled here but it is imperative to plan for the possibility of insolvencies occurring in a company operating nationwide which has District policyholders.

Title II.-Provides greater protection to consumers and recognizes the effects of inflation on capitalization requirements. The capital and surplus requirements for life insurance companies were last revised in 1964 by PL 88-556. Title III.-These proposed amount limitations will make District requirements comparable to other state laws.

Title IV.-Acts as a safeguard against financially inadequate companies entering the local market. (The capital and surplus requirements under the Fire and Casualty Act were determined in 1940 and have not been revised since.) Title V.-An increase to $10,000 will be more in line with present costs and also will provide small contractors with a greater opportunity of deaing with the District Government without being required to be bonded in contracts involving less than $10,000.

Cost:

No cost to District or Federal Government.

History:

In the 92nd Congress, S. 2208, an identical bill to H.R. 4083, passed the Senate April 27, 1972. Hearings were held by the House District Subcommittee on Public Health, Welfare, Housing and Youth Affairs on September 11, 1972; S. 2208 passed the full Committee September 27, 1972. The measure did not get to the House floor in the rush to adjourn.

H.R. 4083 and H.R. 5687 are supported by the District Government; the Commissioner submitted the original draft legislation on June 1, 1971.

STATEMENT OF EDWARD P. LOMBARD, SUPERINTENDENT OF INSURANCE, GOVERNMENT OF THE DISTRICT OF COLUMBIA

Mr. LOMBARD. The five Titles in this insurance bill as you say and the statements are all in support of the five Titles. The first one, the State Post Assessment and Sovereignty Bill is of vital interest to individuals out there in the District of Columbia, who could be hurt on any day of this week or next month, and they could lose their home or their property if an insurance company failed to live up to its insurance contract.

Under this bill the insurance industry would move in and prorate the cost among them and prevent this happening to any individual in the city or any businessman. So the public interest is extremely well served by having this as one of the first items of District legislation.

I certainly hope personally that it is passed as soon as possible to protect the people in the city.

Mr. STUCKEY. Excuse me, Mr. Lombard, I was conferring on some good questions that we had come up with. If you like we will make your whole statement as part of the record and any other statement that any of the Members have. As I said earlier, I am sure you are aware that this is the same bill that was passed by the Senate last year, and their amendments were incorporated in the House bill. Mr. LOMBARD. That is correct, sir.

[The prepared statements of Mr. Lombard, Mr. Stringer and Mr. Nangle follow:]

STATEMENT OF EDWARD P. LOMBARD, SUPERINTENDENT OF INSURANCE OF THE GOVERNMENT OF THE DISTRICT OF COLUMBIA

Mr. Chairman and Members of the Sub-Committee: I appreciate the opportunity to testify in support of HR 4083, a bill designed to insure full performance of insurance contracts sold in the District of Columbia and to otherwise update certain of the insurance laws.

Your Committee on September 11, 1972 conducted a public hearing on a similar bill, namely S 2208 (92nd Congress), after the Senate had passed this bill on April 25, 1972, and a favorable report was issued on October 3, 1972. Time did not permit for action to be completed by the 92nd Congress.

HR 4083 is based on recommendations by the Commissioner of the District of Columbia, the D.C. Bar Association, and other testimony which led to improvements of last year's bill. HR 4083 contains all improvements resulting from the legislative process of hearing all interested parties.

It is hoped that the record established last year and the enclosed Title by Title, and in some instances even Section by Section, analysis of the bill will expedite the hearing process and be helpful to your favorable consideration. The enactment of all of the Titles is considered to be necessary to improve the protection of the residents of the District of Columbia.

The purposes of HR 4083 are as follows:

Title I. To estabilsh a post-assessment insurance guaranty fund to be administered by a nonprofit unincorporated legal entity known as the District of Columbia Insurance Guaranty Association.

Title II. To increase from $200,000 to $1,000,000 the amount of paid-in capital stock each domestic capital stock life insurance company is required to have and from $150,000 to $1,500,000 the surplus each domestic mutual life insurance company is required to have in order to transact business in the District of Columbia.

Title III. To increase the amount of coverage that is available under group term life insurance to a maximum of $30,000 unless 300 per centum of the annual compensation exceeds this amount the maximum shall not exceed the lesser of $100,000 and 300 per centum.

To remove uncertaintly as to interpretations of the Revenue Ruling 69–54, 1969-1 C.B. 221 by the United States Internal Revenue Service an amendment to provide statutory provisions for the assignment of interests in group life insurance is added.

Title IV. To increase the amount of paid-up capital stock and surplus required of all stock companies and the amount of surplus for all non-assessable mutual 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; and

Title V. To increase from $2,000 to $10,000 the amount of a contract with the District government for which a bond is required.

TITLE I-DISTRICT OF COLUMBIA POST ASSESSMENT INSURANCE GUARANTY ASSOCIATION ACT

The provisions of this title closely follow the National Association of Insurance Commissioners (NAIC) Model Bill now enacted by forty-six states. Presently if a company licensed by one of 46 states becomes insolvent, its policyholders in all those states (including those surrounding the District of Columbia) are protected but policyholders of the District have no protection. A few people could be involved or thousands.

The purpose of this title is to protect residents of the District of Columbia from insolvencies of casualty companies authorized to do business in the District of Columbia.

The provisions shall apply to the kinds of direct insurance specified. (section 103) It is understood that the term "life insurance" enumerated as one of the excepted types of insurance, includes endowment and accidental death insurance and annuities, and that the term "Disability" insurance includes health and accidental dismemberment insurance. The reason for the exemption is due to the fact that failures have occurred primarily among companies in the property and liability field of insurance. (So far nine states have enacted bills dealing with life and accident and health insurance. These bills were enacted separately because the problems are somewhat different).

Otherwise the definitions of the terms are self-explanatory, nevertheless it should be pointed out that the term "claims" is used in a broad sense to include (as stated) unearned premiums in order to give full protection not only to the persons who have suffered a loss but also to persons who have not suffered an actual loss but who have paid premiums which are payable in advance (section 104).

The District of Columbia Insurance Guaranty Association is created as a nonprofit unincorporated legal entity to administer the plan, with rights, duties and obligations similar to those of a company as regards the adjusting and settling of claims. (section 105)

The obligation of the Association is limited to covered claims unpaid prior to insolvency, and to claims arising within 30 days after insolvency, or until the policy is canceled or replaced by the insured, or expires, whichever is earlier. The basic principle is to permit policyholders to make an orderly transition to other companies. (section 107)

There are no reasons for the Association to become in effect an insurer in competition with member insurers. Furthermore control of policies is to properly remain in the hands of the liquidator. (section 107)

The funding is to be accomplished by assessments levied on each member insurer, to be computed in proportion to the insurance each member insurer writes

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