and unwise intrusion into an area of state law where principles are well-developed.

We believe that the Report constitutes a serious and effective effort to organize many of the problems and issues in tender offers today. It should be borne in mind, however, that the complexity of the subject when combined with the time allotted for completion of the Report imposes a significant limitation on the depth of analysis and the refinement and implication of many of the recommendations.

We hope the comments in this letter will be helpful to you and your staff. Because of the scope and complexity of the subject and the time constraints within which we have worked our comments may not reach every concern which might be addressed in connection with your review. Moreover, there are many addressed in the Report and the "agree" or "disagree" format we have employed, even with the additional comments we have made, obviously does not thoroughly discuss the reasons for positions we have taken. We are prepared to be

facets to the issues

of further assistance to you and your staff in connection with this important matter.

The American Council of Life Insurance (the "Council") is pleased to have this opportunity to respond on behalf of its 598 life insurance company members to your request for comments regarding tender offer issues. The members of the Council, which account for approximately 97% of the total assets of all United States life insurance companies and which represent over 98% of the insured pension business, are vitally interested in tender offers. We hope that the following discussion will be of assistance.

Pursuant to state law, anyone wishing to make a tender offer for control of an insurance company must file with the state insurance commissioner a "statement" containing the material terms of the offer. Pursuant to the SEC's tender offer rules, the filing of such a statement triggers the "commencement" of the tender offer, which must proceed rapidly within a specified schedule. However, under state law the tender offer cannot commence unless authorized by the Commissioner.1/

This conflict has been the subject of litigation2/ in which the ultimate issue has been whether or not these portions of the state insurance laws violate the Supremacy Clause3/ or the Commerce Clause4/ of the United States Constitution. In order to reach these questions, the courts have had to

See, Keefer, Insurance Takeover Laws: The Case Against Preemption: 1 Journal of Insurance Regulation 157 (Dec. 1982).

2/ Infra. notes 6-8.

3/U.S. Const. art. VI, Section 2 (the "Supremacy Clause") from which

the "preemption" doctrine is derived, provides that: "This Constitution, and the Laws of the United States which shall be made in Pursuance thereof,... shall be the Supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.")

4/U.S. Const. art. I. Section 8, cl. 3 (the "Commerce Clause") provides that: "the Congress shall have Power To regulate Commerce with Foreign Nations, and among the several states.

...

consider whether the state insurance laws are saved by the McCarran-Ferguson Act ("McCarran-Ferguson")5/ from conflict with the SEC tender offer rules. Currently the resolution of the cases is in equipoise. Two cases have held that the McCarran-Ferguson Act requires the priority of the state procedures.6/ Two cases have held that the state insurance laws, or the conflicting portions thereof, are unconstitutional.7/ A fifth case has upheld a theory proffered by the SEC that the two regulatory systems can be "harmonized" so long as the tender offer proceeds pursuant to SEC rules but with the taking down and paying for the shares contingent upon approval by the insurance commissioner.8/

This letter discusses state laws concerning the regulation of insurance, particularly those provisions dealing with the acquisition of insurance companies, distinguishes those provisions from state general take-over laws, and points out the relationship of state insurance regulation to federal law as established by McCarran-Ferguson. The letter then discusses current law concerning the conflict between the SEC tender offer rules and state laws regarding the acquisition of insurance companies and explains that these two systems of regulation can function effectively to meet their respective responsibilities.

We believe that it is important that the Subcommittee appreciate that the state law provisions dealing with the acquisition of insurance companies are an integral part of the venerable system of state insurance regulation that has successfully protected the interests of insurance policyholders for well over one hundred and fifty years. As such, those provisions of state insurance law dealing with the acquisition of insurance companies are easily distinguishable from the state general business takeover laws that have been the subject of extensive litigation and comment.. 10/

571

15 U.S.C., Section 1011-1015 (1971).

6/Professional Investors Life Insurance Company, Inc. v. Roussel 528 F. Supp. 391 (D. Kan. 1981); John Alden Life Insurance Company v. Woods, [1982 Transfer Binder] Fed. Sec. L. Rep. (CCH) 198,617 (D. Idaho, Dec. 19, 1981).

7/N National City Lines, Inc. v. LLC Corp. 524 F. Supp. 906 (W.D. Mo. 1981):

Gunter v. AGO International B.V., [1991 Transfer Binder] Fed. Sec. L. Rep. (CCH), 98,460 (N.D. Fla. 1981).

U.S.

8/ Sun Life Group, Inc. v. Standard Life Insurance Company of Indiana [1979-1980 Transfer Binder] Fed. Sec. L. Rep. (CCH) 197,314 (S.D. Ind. 1980). 9/5.g., Edgar v. Mite Corp., 102 S. Ct. 2629, 73 L.Ed. 269 (1982); Great Western United Corp. v. Kidwell 439 F. Supp. 420 (N.D. Tex. 1977), aff'd., 577 F. 2d 1256 (5th Cir. 1978). rev'd on other grounds sub nom. 433 U.S. 173 (1979).

10/ E.g., Brudney and Chirelstein, Fair Shares in Corporate Mergers and

Takeovers, 88 Harv. L. Rev. 197 (1974); Note, Securities Law and the Constitution: State Tender Offer Statutes Reconsidered, 88 Yale L.J. 510 (1978); McCauliff, Federalism and the Constitutionality of State Takeover Statutes, 67 Va. L. Rev. 295 (1981).

State Insurance Regulation. and the McCarran-Ferguson Act

The states have traditionally assumed authority to regulate insurers and their products.11/ State regulation was perceived necessary to ensure the solvency of insurers because of, among other things, the long term nature of insurance contracts. As insurers expanded their operations beyond the boundaries of their domiciliary and jurisdictions, the question was raised as to whether federal regulation should replace sole state regulation of insurance. The first answer to this question came in 1868 in the landmark case of Paul v. Virginia12 in which the Supreme Court concluded that "issuing a policy of insurance is not a transaction of commerce....13/ and thus not subject to federal authority to regulate interstate commerce. As a result of the Paul decision, the states developed an extensive system of laws to regulate insurance.

The difficulties insurance companies experienced in complying with varying and conflicting state laws resulted in the founding of the National Association of Insurance Commissioners (the "NAIC") in 1870.14/ This group, made up of the state insurance regulators, was intended to promote "uniformity, simplicity, security and reciprocity" of insurance statutes and regulations among the states. 15/ Thus, with federal regulation of insurance presumed precluded by Paul, the individual state regulatory systems evolved, subject to the coordinating efforts of the NAIC.

In United States v. South-Eastern Underwriters Association,1 16/ the Supreme Court, in 1944, held that insurance was subject to the federal anti-trust laws and to the powers of Congress under the Commerce Clause. Both the insurance industry and the state insurance regulators feared that concurrent federal and state regulation of insurance would subject, the industry to an irreconcilable morass of conflicting systems and statutes. 17/ In response to the SouthEastern Underwriters decision, Congress, in 1945, adopted the McCarran-Ferguson

11/

The first insurance regulation case, Lord v. Dall, 12 Mass. 115 (1815) was decided in Massachusetts in 1815, and in 1851 New Hampshire became the first state to establish an insurance commission. See generally, Orfield, Improving State Regulation of Insurance, 32 Minn. L. Rev. 219 (1948).

12/75 U.S. 168 (1868).

13/

14/

Id. at 183.

Woodroof, Annuities Regulation in a Changing Society, 7 Calif. L. Rev. 307 (1971) at 309. (hereinafter cited as "Woodroof").

ducts:

15/Proceedings of the NAIC, 1st. Sess., 8 (1871).

16/322 U.S. 533 (1944).

17/Mason, The Evolving Pattern of State Regulation of Life Insurance ProThe Applicability of State Insurance and Securities Laws, at 4. (1982) unpublished--to be published in 1982 Association of Life Insurance Counsel Proceedings.