If there are any other questions, I will be very glad to help you. Chairman MATTHEWS. Thank you very much, Mr. Phillips. I don't believe there are any other questions. We appreciate so much your being here.

Now, Mr. Jordan, I wonder if you would care to make a statement about this particular phase of legislation?

STATEMENT OF ALBERT F. JORDAN, SUPERINTENDENT, DISTRICT OF COLUMBIA DEPARTMENT OF INSURANCE

Mr. JORDAN. Mr. Chairman, I think the statement that I made about the other bills referred to this bill too. I have nothing further to add. Chairman MATTHEWS. All right. You are not against this legislation. You just haven't had a chance to study it, is that it?

Mr. JORDAN. I believe I expressed it a little bit differently, sir. I studied it in draft form, and I have no objection to it. It is my opinion that it was reasonable.

Chairman MATTHEWS. Thank you very much, Mr. Jordan.

Mr. Bryan, I wonder if you would care to make a statement about H.R. 10921?

STATEMENT OF IRVING BRYAN, OFFICE OF THE CORPORATION COUNSEL

Mr. BRYAN. Mr. Chairman, I had intended that what I said about the other bill would be equally applicable to this bill. So far as the Commissioner is concerned, they only recently received the bill and have not yet had an opportunity to analyze it and give it the proper consideration in order to make a report. We ask that that we be permitted to file a report later on.

Chairman MATTHEWS. Permission is granted, without objection. Is there any other witness either for or against this measure? (No response.)

Chairman MATTHEWS. I would like to say that we appreciate so much the Acacia Mutual Life Insurance Co., Equitable Life Insurance Co., Government Employees Life Insurance Co., People's Life Insurance Co., and the United States Life Insurance Co. making a joint statement as you did. It has been helpful to the committee and I think the consolidation of the effort has been an excellent thing.

Without objection at this point in the record we will file a letter from Hon. Joseph C. O'Mahoney of the Senate Judiciary Committee to Hon. John L. McMillan of the House District Committee.

U.S. SENATE,

COMMITTEE ON THE JUDICIARY, SUBCOMMITTEE ON ANTITRUST AND MONOPOLY, March 22, 1960.

Re H.R. 10921.

Hon. JOHN L. MCMILLAN,

Chairman, District of Columbia Committee,
House of Representatives, Washington, D.C.

DEAR CONGRESSMAN MCMILLAN: I am advised that above bill dealing with life insurance company investments has been approved by a subcommittee of the House District of Columbia Committee and is now pending before the full committee. Because I believe that at least one section of this bill raises a serious question of public policy in terms of future competition and the development

of our economy, I deemed it necessary to bring these views directly to your attention and to the attention of the members of your committee.

Paragraph (e) of H.R. 10921 beginning on page 7, line 17, amends the Life Insurance Act of the District of Columbia to permit any domestic life company to acquire the stock of other insurance companies in such fields as fire, casualty or health and accident. However, paragraph (e) beginning on page 8, line 8, provides that the total cost of such investment shall not exceed the lesser of (i) 4 percent of the investing company's admitted assets, or (ii) the amount of capital surplus and contingency reserves in excess of $150.000. It is further provided that such stocks may be acquired only with the intention of ultimately acquiring ownership or control of the issuing corporation, and a statement of such intention must be incorporated in the resolution authorizing the acquisition. In the statement submitted to your committee by Mr. Charles E. Phillips on behalf of five domestic District of Columbia life insurance companies, he explained the reasons for this proposed change in the life insurance law in these words:

"Some of the more forward thinking people in the insurance industry believe that in the near future a company will not be able to compete effectively unless it offers a full line of insurance. Under existing statutes the practical effect is that a District of Columbia company is not able to form an effective subsidiary company nor can it acquire affiliates if it wishes to expand or diversify its business."

In legislating for the District of Columbia, Congress has traditionally accepted the view that life insurance companies should not be permitted to acquire a controlling interest in the stock of other insurance companies engaged in other lines of insurance. Many of the States have adopted this position. At one time it was felt that the necessity of preserving the solvency of life insurance companies would not justify the acquisition of controlling interests in other insurance lines such as fire and casualty where the risks were greater and not as susceptible to careful measurement. However, another basic reason for such legislation has been the fear that further unrestricted expansion by life insurance companies might result in the control of our economy through investment of the vast pools of capital which must be reserved against future contingencies by life companies.

A special committee of the New York State Legislature recently conducted hearings on a proposal to amend the New York law so as to permit life companies to either engage in multiple-line underwriting or to acquire fire and casualty affiliates. The New York Insurance Department expressed its unqualified opposition to this proposed change in the law. Its views were summarized in an affidavit filed in a case now pending in the New York courts which stated:

"Especially since the Armstrong investigation, the legislative policy of this State has been concerned to see not only that their investments be conservatively made, but also that the tremendous assets of life companies (the 'trust funds' belonging to their policyholders) should not be used to control enterprises unrelated to the life business and so to dominate our economy."

While numerous witnesses were heard on this proposed change, the New York State committee declined to act and suggested that considerably more study would have to be given to this problem before any recommendations for change were forthcoming.

In testimony during the insurance hearings conducted in May of 1959 by the Antitrust and Monopoly Subcommittee over which I presided, Mr. Robert A. Bicks, the Acting Assistant Attorney General in charge of the Antitrust Division of the Department of Justice, warned the subcommittee of the dangers of life insurance investments extending "insurance company influence way beyond the insurance industry." With reference to life insurance investments in welfare and pension funds, he said: "If the funds continue to increase at their present rate, any power which the insurance companies may have to dictate management may become even more significant."

From the record of your subcommittee it does not appear that any evidence has been submitted justifying the need for such a change in the law at this time. There was no indication that any of the companies presently wish to acquire an affiliate in the nonlife field, and no showing that their competitive activities have in any way been hampered by their inability to operate in other insurance fields. While "one-stop selling" has been expanding, and fire and casualty companies have been moving into the life business through subsidiaries,

I do not believe this would warrant the proposed change in the life insurance law without a clear showing of actual competitive disadvantage experienced by life companies.

I am not informed as to the number or size of the companies domiciled in the District of Columbia who would be affected by this proposed change in the life insurance law. It is very likely that the companies directly affected are relatively small and that the dangers expressed above might not be too pertinent in their case. However, I strongly feel that whatever action the Congress takes on this very important issue may have a great influence upon the action taken by legislatures in the various States of the Union. It could well be argued that in those States where the tremendous size of the life companies has great significance in terms of investments which affect our economy, the adoption of such a measure may represent a carte blanche sanction by the Congress of further expansion by life companies through acquisition or formation of fire and casualty subsidiaries. Whatever action Congress takes on this legislation, I think it most important that it be made clear that Congress is not endorsing the principle that all life insurance companies be permitted to acquire affiliates or subsidiaries in the fire, casualty, or health and accident fields. To insure this result your committee may wish to consider the inclusion of language specifically restricting such rights to companies under a specified size.

The findings of this subcommittee to date indicate that acquisitions and mergers in the insurance industry are occurring at a dangerous rate. Because of marketing developments in the industry there is every indication that such mergers will continue to increase. The Department of Justice has testified that it is important that both Federal and State Governments be especially vigilant to forestall any rash of mergers which could result in dangerous concentration and lessening of competition. Therefore, your committee might wish specifically to provide that before any such merger or acquisition occurs it must be approved by the insurance commissioner and that no such approval could be given where the effect may be substantially to lessen competition or tend to create a monopoly in any line of insurance.

Your committee may further wish to consider including in this bill a provision requiring the Attorney General to pass upon the merits of such mergers or acquisitions in the light of these competitive criteria before the merger can be approved by the insurance commissioner. In any event, because of the precedent this bill might establish, and because of its far-reaching effect, I strongly urge that the views of the Department of Justice and the Federal Trade Commission be obtained on this particular provision of the bill before final action is taken. I do not believe that the Congress of the United States should take any action which would inevitably be cited in other States as a precedent for the approval of mergers or combinations.

I appreciate the opportunity afforded me of bringing these views to your attention. May I request that this letter be made a part of the record. If such a bill should be adopted by the House I will, of course, strongly urge these views before the District of Columbia Committee of the Senate and on the floor of the Senate if necessary.

With best personal wishes, I am,
Sincerely,

JOSEPH C. O'MAHONEY.

Chairman MATTHEWS. Are there any other witnesses or statements? (No response.)

Chairman MATTHEWS. If not, this meeting is adjourned, and we will go into an executive session.

(The hearing adjourned at 11:20 o'clock a.m.)

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