Imágenes de páginas


Mr. STUCKEY. Would the terms of this bill apply to the insurers of a parent company and establish a holding company?

Mr. WALLACH. There are different types of systems. One system is a downstream holding company system, where the controlling company is the noninsurer. And in that system are one or more insurance companies. The act will apply to both.

In other words, it will apply whenever an insurer anyplace along the line is involved in a holding company system.

Mr. STUCKEY. Do you feel provisions of the bill will adequately meet the needs to perceive as a Commissioner?

Mr. LOMBARD. Yes. This is basically a model bill, meaning that there have been tremendous processes at work to produce this. The Commissioners from 50 States, including a great number of elected Commissioners, working over a period of time with industry committees, and I think the end product, a medel bill from the National Association of Insurance Commissioners, has retained consideration for all of the various interests, and is in the public interest or it would not be a model NAIC.

Mr. STUCKEY. Thank you very much. We appreciate your testimony, sir.

[Memorandum from the Department of Insurance filed for the record follows:]



Insurers are regulated by the states and the District of Columbia in some instances for over one hundred years. Model legislation is often developed by the National Association of Insurance Commissioners (NAIC) of which the D.C. Insurance Department is a statutory member.

The primary goal of state insurance regulation is to provide for continued solvency of insurers. In addition, of course, regulation is to assure the fair treatment of policyholders and availability of insurance among others.

Conservative investments by insurers in part required by statute and in part pursued by insurers on a voluntary basis, have led to quality investments and economic survival in years of depressions in the past.

In more recent years diversifications has led to reorganizations whereby additional related services have been provided by corporations affiliated with the insurer. In some instances, the insurer established one or more subsidiaries, at other times “outside” corporations have acquired control of one or more affiliated insurers.

After considerable studies the NAIC in 1969 developed model legislation known as “The Holding Company System Regulatory Act” to provide proper procedures for mergers and acquisitions granting the Insurance Commissioner additional statutory authority as well as charging him with the responsibility to protect policyholders, so that financial and/or managerial erosion of their acquired rights are avoided.

In the 92nd Congress S-3298 was introduced, and in this the 93rd Congress H.R. 7218 was introduced on April 19, 1973, to confer statutory authority on the Commissioner in the area of regulating insurance holding companies in a similar way as is now being done in at least 37 states.

H.R. 7218 closely follows the NAIC model.


Recognizing the need for diversification, investment liberalizations, as applicable to subsidiaries, have been provided subject to quantitative tests contained in section 3 of the bill.


A filing requirement in case of acquisiitons or mergers, is established in section 4 of the bill providing for disclosures to the Commissioner and shareholders. Financial information as well as plans for material changes of the business, corporate structure or management are to be revealed.

Material is to be filed for the purpose of protecting policyholders, security holders or when in the public interest.

The hearing procedure is utilized to establish a record of facts as a basis for the Commissioner's approval, or disapproval, if stated criteria are not met. Broad notification is to be made by required mailings.

Reasonable exemptions are provided to accomplish flexibility.


By means of registration required by section 5 and procedural requirements to accomplish such registration data are to be made available to the Commissioner to reveal intra corporate transactions and existance of a control relationship.


In addition to the disclosure contained in the registration, section 6 contains standards which should govern transactions between affiliates, monitor


the insurer's adequacy of surplus, and prohibit extra ordinary dividends or other distributions without prior approval by the Commissioner.


In order to bring about compliance, the Commissioner in section 7 is given powers to examine insurers and affiliates, the use of consultants and the right to assess expenses. The confidentiality of the information is dealt with in section 8.


The Commissioner is given regulatory powers in section 9; court injunctions are provided in section 10. Criminal proceedings in section 11, receivership in case of impairment in section 12, revocation, suspension or non-renewal of insurer's license in section 13, and judicial review in section 14.


Sections 15 and 16 provide proper safeguards.


Section 17 provides for the Act to take effect thirty days after the date of its enactment.


The Act provides satisfactory liberalization of investment laws, and procedures to disclose and examine mergers and acquisitions pertaining to D.C. domiciled companies. Foreign companies, if subject to substantially similar provisions contained in the acts of other states, are exempt. This permits sound and fair development of regulation at the state level, It also means an administrative relief from duplication of filings and reporting now required of D.C. domiciled companies in the other states.

Foreign companies domiciled in states which have not as yet passed similar legislation, will be subject to this Act.

The provisions of the bill will enable the District of Columbia to update its laws and attain the desirable level of holding company insurance regulations now existing in at least 37 states.

Mr. STUCKEY. Our next witness is Mr. Robert Price, the vice president of Peoples Life Insurance Co.

Our next witness is Mr. Robert Price, the vice president of Peoples Life Insurance Co.



Mr. PRICE. Good morning, Mr. Chairman. I had intended to make a few remarks to summarize my statement. However, I find that most of those would be repetitive of what Messrs. Lombard and Wallach have said.

In the interest of time, I will not do so, but I would request that my statement in its entirety be incorporated in the record.

Mr. STUCKEY. It will be included as part of the record.

[The complete prepared statement of Mr. Price, above-referred to, follows:]


I am Robert N. Price, vice president and general counsel of Peoples Life Insurance Co., Washington, D.C. This consolidated statement in support of H.R. 7218 is made on behalf of the following domestic District of Columbia life insurance companies :

Acacia Mutual Life Insurance Co.
Equitable Life Insurance Co.
Government Employees Life Insurance Co.
Peoples Life Insurance Co.

United Services Life Insurance Co. A model bill to regulate insurance holding companies was approved by the National Association of Insurance Commissioners in June 1969, and is known as the Insurance Holding Company System Regulatory Act. As of January 1973, 37 states have adopted this model bill with slight variations and modifications which were necessary for compatibility with their code. H.R. 7218 is the model bill for the District of Columbia Insurance Code with minor changes which have already been described to the committee.

During the past three decades, there have been major social, economic and political changes which have exerted great influence on the market for insurance and the serviecs which insurance companies can perform for their policyholders and the public. They have given rise to sound and legitimate reasons why some insurance companies have found it advantageous to utilize a holding company operation. The severe restrictions imposed by state statutes applicable to the insurance business have prevented insurers from serving new and changing needs of the insurance buyer and the total economy, particularly in the areas of investment, underwriting and the provisions of a wide spectrum of financial services.

Three major trends have impelled insurers to diversify their activities. The first is the long-run trend of inflation which has accelerated in the past two decades. The second trend is the persistent decline in the underwriting profits of property-liability insurers. And the third is the increased attention to the concept of “one-stop” financial service. To diversify their activities, many insurers have gone to the holding company system.

There are valid and beneficial economic, social and legal advantages that can accrue to many insurers in a holding company system. These advantages would also benefit the policyholders as insurers are able to increase underwriting capacity and to provide a broader spectrum of services. Nevertheless, there should be effective state supervision of insurers in their relationship with holding companies. Such supervision is a proper and natural extension of the responsibility of state regulatory authority to assure, in the public interest, the solvency of the insurer and the protection and fair treatment of policyholders.

The business of insurance has long been recognized as so affected with the public interest as to require extensive and detailed regulation. The objective of insurance regulation is to assure the solvency of the insurer and to protect the interests of the policyholder. The model holding company act is a logical extension of this broad regulation.

The Act is designed to provide a framework for the control of insurance holding company activities through registration of the insurance company with the District of Columbia and regulation by the District of the insurers' transactions with the other members of the holding company system. To avoid conflicting or multiple state regulation, responsibility is vested exclusively in the District, and registration in the District is required only of domestic insurers and those foreign insurers whose states do not have similar legislation.

The regulatory framework is predicated upon full and complete disclosure of all significant transactions between an insurer and its parent, subsidiaries and sister companies. These transactions must be reported according to accepted accounting principles and must adhere to specified standards of fairness and reasonableness. The Superintendent may examine the insurer's books and lie may direct the insurer to produce any necessary records of other members of the holding company system.

Recognizing that diversification through subsidiaries is not inconsistent with the public interest, the Act permits insurers to invest additional amounts in subsidiaries, provided always that remaining surplus is adequate to protect policyholder interests. Tests for determining whether remaining surplus would be adequate are included.

Any person attempting to take control of or to merge with an insurer must disclose to the Superintendent relevant information about both himself and the takeover transactions, and the soliciting material must be filed prior to its use. The Superintendent may disapprove any attempted acquisition of or change in control over an insurer if the takeover party could not satisfy specific standards designed to protect the interests of policyholders, shareholders and the public.

In paragraph (f) (2) entitled "Exemptions” in Sec. 4 on page 15 of the Bill, it is felt that a clarification of the phrase "acquiring party” is necessary, and it is respectfully requested that the following language be inserted between "vote" and ";" in the last line of paragraph (f) (2):

“or at least 80 per centum of the total combined voting power of all classes of stock of the person in control of the acquiring party entitled to vote.” H.R. 7218 will serve a twofold purpose. First, it will provide a framework for a District of Columbia insurer to enter a holding company system and once it has done so, it will avoid the duplication of regulation in every state where the insurer is licensed which has similar legislation. Secondly, the safeguards that are included will provide adequate protection for the policyholders and the shareholders. For these reasons, the Companies listed above support this legislation and earnestly request its passage.

On behalf of these companies, I wish to express my thanks to the chairman and members of the subcommittee for the opportunity to present our views.

Mr. PRICE. Thank you, sir.
Mr. STUCKEY. I wish we could have all of the bills run so smoothly.

Does anyone who is present today have any additional comments he would like to make regarding H.R. 7218?

[No response.]
Mr. STUCKEY. If not, we will move on to H.R. 6186.

Mr. BROYHILL. Mr. Chairman, are you going to hold a hearing on H.R. 6186 ?


Mr. BROYHILL. I understand Mr. Phillips has an amendment to H.R. 7218.

Did you present that to the committee, Mr. Phillips?

Mr. PHILLIPS. Mr. Chairman, Mr. Price's statement contained that suggested modification.

Mr. STUCKEY. Before we get started, are you all familiar with the amendment? Were there any objections to the amendment?

Mr. WALLACH. No objection. Just a modification of the term "person involved," and it is perfectly all right.

[Whereupon, at 10:25 a.m., the committee moved to the consideration of other business.]

20-374 0 - 74 - 7

« AnteriorContinuar »