H.R. 10684, a bill to amend sections 1 and 5b of the Life Insurance Act for H.R. 10921, a bill to amend section 35 of chapter III of the Life Insurance Act for the District of Columbia... H.R. 10964, a bill to amend the Life Insurance Act of the District of Colum- 18, 31, 44 Congleton, Richard J., general attorney, Prudential Insurance Co. of Eslinger, Frank R., vice president and treasurer, Equitable Life Insurance Jordan, Albert F., Superintendent, District of Columbia Department of McMillan, Hon. John L., a Representative in Congress from the State of South Carolina, and chairman of the House Committee on the District Marsh, John D., Variable Annuity Life Insurance Co. of America and Equity Annuity Life Insurance Co. Phillips, Charles E., president, Equitable Life Insurance Co. Schmuck, Edward J., vice president and general counsel, Acacia Mutual ADDITIONAL INFORMATION SUPPLIED FOR THE RECORD O'Mahoney, Hon. Joseph C., a Senator in the Congress of the United States from the State of Wyoming, letter dated March 22, 1960, to Congressman Schmuck, Edward J., vice president and general counsel, Acacia Mutual Life Insurance Co., letter from American Life Convention and Life In- III AMENDMENT OF LIFE INSURANCE ACT FOR DISTRICT OF COLUMBIA THURSDAY, MARCH 17, 1960 HOUSE OF REPRESENTATIVES, COMMITTEE ON THE DISTRICT OF COLUMBIA, SUBCOMMITTEE No. 4, H.R. 10964: A BILL TO AMEND THE LIFE INSURANCE ACT OF THE DISTRICT OF COLUMBIA APPROVED JUNE 19, 1934, AS AMENDED A hearing was held before Subcommittee No. 4 of the Committee on the District of Columbia in room 445-A, Old House Office Building, Washington, D.C., opening at 10 a.m., March 17, 1960, Hon. D. R. (Billy) Matthews presiding. Members present: Mr. Matthews (chairman), Mr. McMillan, Mrs. Weis, and Mr. Broyhill. Staff members present: William N. McLeod, Jr., clerk; Hayden S. Garber, counsel; Donald J. Tubridy, minority clerk; Ann L. Puryear, assistant clerk; and Ellen Coxeter, stenographer. Chairman MATTHEWS. The committee will come to order. The first bill we are going to discuss this morning is H.R. 10964, a bill introduced by our colleague, the chairman of the committee, Mr. McMillan, to amend the Life Insurance Act of the District of Columbia approved June 19, 1934, as amended. Without objection, I should like to have a copy of this bill filed for the record. [H.R. 10964, 86th Cong., 2d sess.] A BILL To amend the Life Insurance Act of the District of Columbia approved June 19, 1934, as amended Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That chapter III of the Life Insurance Act, as amended (sec. 35-501, et seq., D.C. Code, 1951 edition), is amended by adding a new section 41 as follows: "SEC. 41. (a) Every domestic life insurance company which issues contracts providing for payments which vary directly according to investment experience shall establish one or more separate accounts in connection with such contracts, as directed by the superintendent. All amounts received by the company which are required by contract to be applied to provide such variable payments shall be added to the appropriate separate account, and the assets of any such separate account shall not be chargeable with liabilities arising out of any other business the company may conduct. Any surplus or deficit which may arise in any such separate account by virtue of mortality experience shall be adjusted by withdrawals from or additions to such account so that the assets of such account shall always equal the assets required to satisfy the company's obligations for such variable payments. "(b) A foreign or alien life insurance company authorized to do business in the District may be authorized to issue or deliver contracts in the District 1 providing for payments which vary directly according to investment experience only if authorized to issue such contracts under the laws of its domicile. "(c) No domestic life insurance company shall be authorized to issue such variable contracts, and no foreign or alien life insurance company shall be authorized to issue or deliver such contracts in the District, until such company has satisfied the Superintendent that its condition and methods of operation in connection with the issuance of such variable contracts will not be such as to render its operation hazardous to the public or to its policyholders in the District. In determining the qualification of a company to issue or deliver such variable contracts in the District, the Superintendent shall consider, among other things, the history and financial condition of the company; the character, responsibility, and general fitness of the officers and directors of the company; and, in the case of a foreign or alien company, whether the regulation provided by the laws of its domicile provides a degree of protection to policyholders and the public substantially equal to that provided by this section and the rules and regulations issued by the Superintendent pursuant thereto. "(d) Every life insurance company which issues or delivers such variable contracts in the District shall file with the Superintendent, in addition to the annual statement required by section 8 of the Act of June 19, 1934 (48 Stat. 1132; sec. 35-407, D.C. Code, 1951 edition), such other periodic or special reports as the Superintendent may prescribe. "(e) The provisions of this section shall not apply to any contracts which do not provide for payments which vary directly according to investment experi ence. "(f) The Superintendent shall have the authority to issue such reasonable rules and regulations as may be necessary to carry out the purposes of this section. "(g) In the case of a domestic life insurance company which issues contracts providing for payments which vary directly according to investment experi ence "(1) the 2 per centum limitation of clause (1) of subsection (7) of section 35 of chapter III of the Life Insurance Act, as amended (sec. 35-535, D.C. Code, 1951 edition), shall be enlarged to include an additional 2 per centum of the assets held by such company in the separate account or accounts established pursuant to subsection (a) of this section. "(2) the 1 per centum limitation of subsection (9) of said section 35 shall be enlarged to include an additional 2 per centum of the assets held by such company in the separate account or accounts established pursuant to subsection (a) of this section. "(3) the 1 per centum limitation of subsection (10) of said section 35 shall be enlarged to include an additional 2 per centum of the assets held by such company in the separate account or accounts established pursuant to subsection (a) of this section." Chairman MATTHEWS. I also, without objection, would like to permit Mr. Dougherty of the Metropolitan Life Insurance Co. to file a statement at this point in the record. (The statement of Charles G. Dougherty, Metropolitan Life Insurance Co., is as follows:) Hon. JOHN L. MCMILLAN, METROPOLITAN LIFE INSURANCE CO., Chairman, Committee on the District of Columbia, DEAR REPRESENTATIVE MCMILLAN: I understand that the Committee on the District of Columbia, of which you are chairman, will hold hearings on Thursday, March 17, 1960, with respect to H.R. 10964, entitled, “A bill to amend the Life Insurance Act of the District of Columbia approved June 19, 1934, as amended." With the thought that it would be helpful to you and the members of your committee in considering this bill, and to place it in proper perspective, I am taking the liberty of enclosing the results of a survey of opinion on variable annuities that we made last year. The survey was initiated on May 12, 1959, by Mr. Ecker, then president and now chairman of the board, when he sent a letter to the presidents of all U.S. member companies of the American Life Convention, the Life Insurance Association of America, and the Life Insurers Conference. In all, representatives of 314 companies (including Metropolitan) were polled. They represent more than 98 percent of the assets of all U.S. companies. Each president receiving a letter was requested to answer the one question which we felt went to the heart of the problem : "Under present conditions, do you believe that it would be in the best interests of the life insurance business for life insurance companies to sell individual variable annuities to the general public?" The responses were tabulated and are shown on the enclosed chart. Two hundred and seventy-three replies were received, and as an indication that these views are truly representative of the business as a whole, I think it is interesting to note that the companies with which those expressing them are connected, hold 97.2 percent of the assets of all U.S. companies. In order that you might have a complete picture as to the way in which this survey was conducted, I am also enclosing a copy of Mr. Ecker's letter of May 12, 1959, as sent to the company presidents, together with the questionnaire itself and the other pertinent enclosures. Additional sets of the chart and related items are also enclosed for distribution to the other members of your committee. If, as the majority of those who responded to the questionnaire indicated, it is not desirable for life insurance companies to issue variable annuities, then one of the very real dangers of this legislation, to be enacted by the Congress of the United States, is that it would perhaps serve as a precedent for similar action by many State legislatures throughout the country. Sincerely yours, CHARLES G. DOUGHERTY, Vice President. METROPOLITAN LIFE INSURANCE CO., I am sure you are fully aware of the long debate which has been taking place on the question of whether life insurance companies should undertake to sell variable annuities to the public. For some time we have felt that it would be helpful to know the thinking on this matter of the leading life insurance executives throughout the country. Now that the Supreme Court of the United States has handed down its decision, in a case which had been pending since 1956, we are prompted to direct this inquiry to a number of company presidents. You are undoubtedly familiar with that decision which held that variable annuities are predominantly securities rather than insurance, that they must be registered under the Securities Act, and that the two respondent companies must comply with the Investment Company Act. In the majority opinion the Court said: "*** the variable annuity places all the investment risks on the annuitant, none on the company. The holder gets only a pro rata share of what the portfolio of equity interests reflects-which may be a lot, a little, or nothing." The Court also said: "But we conclude that the concept of 'insurance' involves some investment risk taking on the part of the company. The risk of mortality, assumed here, gives these variable annuities an aspect of insurance. Yet it is apparent, not real; superficial, not substantial. In hard reality the issuer of a variable annuity that has no element of a fixed return assumes no true risk in the insurance sense." The Court went on to comment that companies issuing variable annuities: **** guarantee nothing to the annuitant except an interest in a portfolio of common stocks or other equities-an interest that has a ceiling but no floor. There is no true underwriting of risks, the one earmark of insurance as it has commonly been conceived of in popular understanding and usage." For your convenience, I am enclosing herewith a copy of that opinion. The implications of this decision emphasize what I have always considered to be a very real danger to our business. Presumably, we are all anxious to preserve to the several States the right to regulate and supervise the business of insurance, but it is now a certainty that if life insurance companies go into the variable annuity field, they will be subjecting themselves to at least some |