Northeastern University
^S2.S533S5SS5o2
School of Law
Library
^^\^vVvV^vV
INVESTIGATION OF CONCENTRATION
OF ECONOMIC POWER
HEARINGS
BEFORE THE
TEMPOEAfiY NATIONAL ECONOMIC COMMITTEE
CONGEESS OF THE UNITED STATES
SEVENTY-SIXTH CONGRESS
FIRST SESSION
PURSUANT TO
Public Resolution No, 113
(Seventy-fifth Congress)
AUTHORIZING AND DIRECTING A SELECT COMMITTEE TO
MAKE A FULL AND COMPLETE STUDY AND INVESTIGA-
TION WITH RESPECT TO THE CONCENTRATION OF
ECONOMIC POWER IN, AND FINANCIAL CONTROL
OVER, PRODUCTION AND DISTRIBUTION
OF GOODS AND SERVICES
PART 10 - 10 A
LIFE INSURANCE
INTERCOMPANY AGREEMENTS
TERMINATIONS
SAVINGS BANK INSURANCE
LEGISLATIVE ACTIVITIES
June 6, 7, 12, 13, 14, 15, 16, 20, and 21, 1939
Printed for the use of the Temporary Maiional Economic Committee
^-Ol^THEASTERN UNIVERSITY SCHOOtof DWEIBWRR^
UNITED STATES
GOVERNMENT PRINTING OFFICE
WASHINGTON : 1940
TEMPORARY NATIONAL ECONOMIC COMMITTEE
(Created pursuant to Public Res. 113, 75tli Cong.)
JOSEPH C. O'MAHONEY, Senator from Wyoming, Chairman
HATTON W. SUMNERS, Representative from Texas, Vice Chairman
WILLIAM E. BORAH, Senator from Idaho
WILLIAM H. KING, Senator from Utah
B. CARROLL REECE, Representative from Tennessee
CLYDE WILLIAMS, Representative from Missouri
THURMAN W. ARNOLD, Assistant Attorney General
•WENDELL BBRGE, Special Assistant to the Attorney General
Representing the Department of Justice
JEROME N. FRANK, Chairman
♦LEON HENDERSON, Commissioner
Representing the Securities and Exchange Commission
GARLAND S. FERGUSON, Commissioner
*EWIN L. DAVIS, Commissioner, Representing the Federal Trade Commission
ISADOR LUBIN, Commissioner of Labor Statistics
♦A. FORD HINRICHS, Chief Economist, Bureau of Labor Statistics
Representing the Department of Labor
JOSEPH J. O'CONNELL, Jr., Special Assistant to the General Counsel
♦CHRISTIAN JOY PEOPLES, Director of Procurement
Representing the Department of the Treasury
RICHARD C. PATTERSON, JR., Assistant Secretary
Representing the Department of Commerce
JAMES R. BRACKETT, Executive Secretary
♦Alternates.
i\ ^i
REPRINTED
BY
WILLIAM S HEIN & CO , INC
BUFFALO, N Y.
1968
CONTENTS
Testimony of— '^ag*
Bassford, H. R., actuary, Metropolitan Life Insurance Co., New York
City - 4541-4567
Beers, H. S., vice president, Aetna Life Insurance Co., Hartford,
Conn .. -- — 4243-4258
Bolt, Dr. William, medical director, New York Life Insurance Co.,
New York City ---^, 4633-4642
Cammack, E. E., vice president and actuary, Aetna Life Insurance
Co., Hartford, Conn. - 4182-4222
Cathles, Lawrence M., president, North American Reassurance Co.,
New York City : . 4668-4684
Clark, Gilbert A., actuary. Equitable Life Insurance Co., Washington,
D. C -......-.-. 4313-4317
Cooney, Robert L., inspector of agencies, New York Life Insurance
Co., Atlanta, Ga 4396-4418
Davenport, Dr. Donald H., special economic consultant, insurance
section, Securities and Exchange Commission, Washington,
D. C - ^.4282-4312,4684-4686
Dewey, Judd, deputy coipmissioner of Savings Bank Life Insurance in
the State of Massachusetts, Boston,iMass 4450-4500
Flynn, Benedict D., vice president and actuary. Travelers Insurance
Co., Hartford, Conn-__--._fe4154-4182, 4224-4240, 4258-4266, 4275-4278
Hogg, Robert L., assistant general counsel, Association of Life Insur-
ance Presidents, New York City 4375-4396, 4428-4443
Holcombe, John Marshall, Jr., director, Life Insurance Sales Research
Bureau, Hartford,! Conn 4317-4338
Howell, Valentine, vice president and actuary, Prudential Insurance
Co., of America,^ Newark,^ N.J . * 4266-4275, 4619-4626
Hunter, Dr. Arthur, chief actuary and vice president New York Life
Insurance Co., New York City 4505-4541, 4570-4576, 4583-4584
Hutcheson, William Anderson, actuary. Mutual Life Insurance Com-
pany, New York City 4626-4632
Jones, Frank L., vice president. Equitable Life Assurance Society of
the United States, New York City 4648-4668
Laird, John M., vice president, Connecticut General Life Insurance
Co., Hartford, Conn 4240-4243
Marshall, Edward J Wayne, vice president and actuary. Provident
Mutual Life Insurance Co., Philadelphia, Pa 4585-4596, 4603-4619
Montgomery, William, president Acacia Mutual Life Insurance Co.,
Washington, D. C 4339-4343
Murphy, Ray D., vice president and actuary. Equitable Life Assur-
ance Society of the United States.iNew^York City i 4576-4588,
4597-4603,4642-4648
Plantz, C. B., assistant vice president. New York Savings Bank, New
York City 4500-4504
Reilly, Joseph A., insurance section, Securities and Exchange Com-
mission, Washington, D. C , 4447
Whitsitt, VincentiP., manager and general counsel. The Association
of Life Insurance Presidents, New York City 4345-4373,
4389,4394-4396,4418-4446
Intercompany agreements 4153
The Group Association 4154
Nonparticipating rates 4224
Annuities ■■ 4505
Settlement options 4569
Surrender values and surrender charges . 46U
Medical information bureau 4633
"Jumbo risks" 4642
Replacement agreement : 4648
Reinsurance 4^68
IV CONTENTS
Page
Terminations of life insurance — ordinary and industrial 4281, 4287, 4684
Theory of life insurance 4283
Lobbying and legislative activities — Association, of Life Insurance Presi-
dents 4345
Savings bank life insurance — opposition of insurance interests 4419
Savings bank life insurance — description 4449
Schedule and summary of exhibits i
Tuesday, June 6, 1939 4153
Wednesday, June 7, 1939 4223
Monday, June 12, 1939 -4281
Tuesday, June 13, 1939 4345
Wednesday, June 14, 1939 4375
Thursday, June 15, 1939 4449
Friday, June 16, 1939 4505
Tuesday, June 20, 1939 4569
Wednesday, June 21, 1939 4633
Appendix 4687
Supplemental data 4927
Index I
SCHEDULE OF EXHIBITS
Number and summary of exhibits
641. Table: Group life insurance, United States companies (1919-
37)
642. Letter, dated Nov. 26, 1917, from E. B. Morris, actuary.
Travelers Insurance Co., to J. D. Craig, assistant actuary,
Metropolitan Life Insurance Co., stating lack of uniform-
it}' among companies writing group insurance a drawback
643. Memorandum; dated Apr. 12, 1919, from the actuary of the
life department of the Travelers Insurance Co., to the
president and vice president of Travelers Insurance Co.,
summarizing action taken at meeting of committee of
actuaries in New York concerning group insurance
644. Memorandum, dated May 9, 1932, from B. D. Flynn, secre-
tary, Travelers Insurance Co., to BroSmith, vice presi-
dent and general counsel. Travelers Insurance Co., asking
whether companies writing group insurance are violating
antitrust lav/s; and memorandum of BroSmith in reply,
dated May 11, 1922
645. Memorandum, dated Mar. 28, 1925, from B. D. Flynn, sec-
retary of Travelers Insurance Co., to vice president and
general counsel BroSmith, Travelers Insurance Co., con-
cerning statement of representatives of Metropolitan Life
Insurance Co. with regard to violation of certain laws by
companies writing group insurance; and memorandum in
reply, dated Mar. 30, 1925 .'-
646. Excerpts from statutes of Arizona, Georgia, Kansas, Ne-
braska, Oregon, South Carolina, Texas, and Washington,
' defining trusts and specifying antitrust violations in con-
nection with activities of life insurance companies
647. JMemorandum, dated Mar. 26, 1924, from B. D. Flynn, sec-
retary. Travelers Insurance Co., to President Butler,
Travelers Insurance Co., referring to minutes of last inter-
company group meeting
648. Letter, dated Feb. 24, 1926, from Alfred Hurrell, vice presi-
dent and general counsel. Prudential Insurance Co. of
America, to William BroSmith, Esq., vice president and
general counsel, Travelers Insurance Co., stating attitude
on proposed constituticn for Group Life Association
649. Letter, dated Mar. 12. 1926, from B. D. Flynn, secretary,
Travi ^Ts Insurance Co., to H. S. Beers, associate actuary,
Aetna Life Insurance Co., stating attitude of BroSmith
concerning rules of Group Association
650. Art. 2, see. lOl-A, New York Insurance Law, subsec. 3, estab-
Iis?liing uniform initial rate to be charged by domestic life
insurance CGmrjanies issuing group life insurance policies.
651. Constitution of Group Association as amended February 1929
652. Table: Officers el'-clcd an annual meeting of Group Associa-
tion, March 1926 to November 1938
653. Table: List of standing committees of Group Association
654. Table: Members of Group Association, 1926-28
655. Table: The Group Association, attendance at meetings
656. Tabic: Group life insurance in the United States comparing
number of companies and insurance in force of Group-
Association with total number of companies and total
amount of group insurance in force .
Intro-
duced
at page
Appears
on page
4156
4163
4165
4168
4170
4171
4175
4177
4177
4179
4180
4185
4185
4185
4186
4687
4687
4688
4689
4690
4692
4701
4702
4703
4703
4703
4705
4706
4707
4708
4186 4710
VI
SCHEDULK OF EXHIBITS
Number and summary of oxhibits
657.
658.
659.
660.
661.
662.
663.
664.
665.
666.
667.
608.
0G9.
B70.
071,
Ruling!? of New York superintendent of insurance on group
life insurance prepared to show relation between date
of promulgation and dates rulings discussed or approved
by association and/or recommended to superintendent
Underwriting rules of the Group Life Association
Table: -Total group annuity business in force end of year
1935-38..-.
Appears in Hearings, part VIII, appendix, p. 3487
Table: Stockholders dividends; Aetna Life Insurance Co.,
^Connecticut General Life Insurance Co. and Travelers
Insurance Co., 1929-38
Table: Exhibit of changes in surplus, ordinary nonpartici-
ipating business; Aetna Life Insurance Co., Connecticut
General Life Insurance Co., and Travelers Insurance Co.,
1929-38 -
Memorandum, dated June 22, 1932, from B. D. Glynn, vice
president and actuary, Travelers Insurance Co., to Presi-
dent Zachcr, Vice President Howard and Actuary Ham-
mond, of Travelers Insurance Co., concerning new rates for
life-insurance policies and possibilities of conference
between Hartford nonparticipating companies
Memorandum, dktcd June 25, 1932, from H. Pierson Ham-
mond, actuary, Travelers Insurance Co., to President
Zacher, Vice President Howard, and Vice President and
Actuary Flynn, Travelers Insurance Co., concerning new
rates on life insurance policies
Letter, dated June 28, 1932, from B. D. Flynn, vice president
and actuary, Travelers Insurance Co., to L. E. Zacher,
president, Travelers Insurance Co., reporting tenative de-
■ cisions reached concerning nonparticipating rates for life
insurance policies among three Hartford companies
Memorandum, dated Oct. 20, 1932, from B. D. Flynn, vice
president and actuary, Travelers Insurance Co., to Actu-
ary Hammond and Assistant Actuary Hoskins, of Tl^avelers
Insurance Co., concerning modified life pohcy form sold
by the Aenta Life Insurance Co
Memorandum, dated Nov. 17. 1932, from M. B. Brainard,
president, Aetna Life Insurance Co., to H. S. Beers, asso-
ciate'actuary, Aetna Life Insurance Co., referring to con-
. versation with Mr. Huntington and Mr. Zacher on Aetna's
modified life policy form and memorandum dated Nov. 16,
1932, of E. C. Henderson, actuary, to Mr. Huntington re
continuation of present rates on Aenta's modified life
policj' --
Memorandum, dated Dec. 6, 1932, from H. S. Beers, associate
actuary, Aetna Life Insurance Co., to M. B. Brainard,
Aetna Life Insurance Co., president, re modified life pre-
mium rates referring to meeting with representatives of
Connecticut General aad Travelers Life Insurance Cos
Memorandum, dated Nov. 16, 1932 of H. Pierson Hammond,
Travelers Insurance Co., concerning conversation with
J. M. Laird, vice president and actuary, of Connecticut
General oii subject to Aetna's modified life policy form.
Memorandum, dated Dec. 28, 1933, from B. D. Flynn, v»ce
president and actuary, Travelers Insurance Co., to Presi-
dent Zacher, Travelers Insurance Co., concerning proposed
new program of life rates a^.d va,lues
Memorandum, dated Feb. 15, 1934, from B. D. Flynn, vice
president and actuary. Travelers Insurance Co., to Presi-
dent Zacher, Travelers Insurance Co., with further refer-
ence to proposed new program of life rates and values and
referring to meetingt; of oi^;^^als of three Hartford non-
participating companies held at the offices of the Aetna
Life Insurance Co ,-
Intro-
duced
at page
Appears
on page
4191
4204
4206
4223
4225
4226
4229
4231
4233
4240
4710
4711
4716
4717
4717
4717
4718
4718
4719
4243
4245
4259
4260
4262
4720
4721
4722
4722
472'3
SCHEDULE OF EXHIBITS
VII
Number and summary of exhibits
672. Memorandum, dated Feb. 15, 1934, from B. D. Flynn, vice
prcsiilent and actuary. Travelers Insurance Co., to Presi-
dent Zacher, 'JVavelers Insurance Co., with reference to
proposed new program of life rates and values and recording
further discussions between representatives of three Hart-
ford companies
673. Memorandum, dated Mar. 6, 1934, of James F. Little, vice
president and actuary. Prudential Insurance Co. of
America, concerning future interest rates and discussing
proposal of nonparticipating companies to raise rates on
life policies and possibility of additional conferences with
other companies to synchronize changes in rates
674. Memorandum, dated June 12, 1934, of Valentine Howell,
associate actuary, Prudential Insurance Co. of America,
concerning. ordinary premium rates and suggesting sched-
ule of rate increases determined following conferences with
actuaries of Metropolitan and Provident Mutual Life
Insurance Cos
675. Memorandum, dated Mar. 17, 1934, of B. D. Flynn, vice
president and actuary, Travelers Insurance Co., to Presi-
dent Zacher and Vice President Howard, Travelers In-
surance Co., concerning conferences with Metropolitan,
Prudential, and Provident Mutual Life Insurance Cos.
representatives on proposed new^ program of life rates and
values
676. Memorandum, dated Aug. 1, 1936, of H. Pierson Hammond,
Travelers Insurance Co., referring to conferences between
representatives of the Aetna, Connecticut General, and
Travelers Insurance Cqs. on subject of 1937 policy rate
revisions 1
677. Table: Comparative gross aggregate premium costs, cash
values, net aggregate premium costs, over 10-year period,
under nonparticipating policies of Aetna Life, Connecticut
General and Travelers Insurance Cos
678. Appears in Hearings, Part VI, appendix, p. 2748
679. Table: Statement showing the volume of the ordinary busi-
ness of Aetna Life, Connecticut General, and Travelers
Insurance Cos
680. Table: Life insurance; total in force, new business and
terminations United States legal reserve life insurance
companies, 1928-37.
681. American Experience Table of Mortality
682. Chart: Whole life policy ($1,000) age 35. Supported by
statistical data on page 4734 in appendix
683. Chart: Terminations of hfe insurance, 1922-37. Supported
by statistical data entitled terminations — ordinary life
insurance — amounts, 1922-37; and terminations — in-
dustrial life insurance— amounts, 1922-37 on pp. 4735
and 4736 in appendix
684. Chart: Life insurance in force newly issued and terminated.
Supported by statistical data on p. 4737 in appendix
685. Chart: Industrial life insurance in force newly issued and
terminated, number of policies. Supported by statistical
data on p. 4738 in appendix
686. Table: Industrial insurance — termination experience of 7
companies, 1924-28, 1929-33, 1934-33
687. Table: Net gains or losses from surrendered and lapsed
Si policies — ordinary and industrial
688. Table: Equitable Life Insurance Co., Washington, D. C—
terminations, January through March 1939 — industrial
insurance
689. Tables: (1) Lapse rates for years 1925-28; (2) lapse rates for
years 1929-38; (3) lapse trends for 20 "A" companies
4262
4275
4275
4275
4277
4278
4279
4281
4282
4283
4286
4293
4300
4304
4308
4312
4317
4322
Appears
on page
4724
4725
4727
4728
4729
4732
4732
4733
4733
4286-a
4293-a
4300
4305
4739
4740
4740
4741
VIII
SCHEDULE OF EXHIBITS
Number and summary of exhibits
Intro-
duced
at page
Appears
on page
690. Minutes of first meeting of the Association of Life Insurance
Presidents of the United States (Dec. 21, 1906)
691. Table: Initiation fees, dues, and contributions of members of
the Association of Life Insurance Presidents
692. Constitution of Association of Life Insurance Presidents
693. Table: Litigation fees and expenses, 1934 through 1938, in-
curred. Association of Life Insurance Presidents
694. Table: Total fees, compensation and expenses in connection
with the legislation and appearances before departments
of Government by States, 1934 through 1938, of the Asso-
ciation of Life Insurance Presidents ^
695. Letter dated July 12, 1937, from Vincent P. Whitsitt, mana-
ger and general counsel, Association of Life Insurance
Presidents, to Leroy A. Lincoln, president. Metropolitan
Life Insurance Co., marked "confidential" concerning
"1937 legislative high points"
696. Form letter, dated July 5, 1935, from Vincent P. Whitsitt,
manager and general counsel, Association of Life Insur-
ance Presidents, concerning "1935 legislative high points'
697. Form letter, dated Apr. 8, 1937, from Vincent P. Whitsitt,
manager and general counsel. Association -of Life Insur-
ance Presidents, to certain indicated member companies
of Association of Life Insurance Presidents, re: California
Senate bill 460, segregation of assets
698. Memorandum, dated June 13, 1935, of R. L. Hogg, assistant
general counsel, Association of Life Insurance Presidents,
with reference to Florida legislative activity, 1935
699. Letter, dated May 5, 1935, from Robert L. Hogg, assistant
general counsel, Association of Life Insurance Presidents,
to Frank P. Deering, president, Florida Association of Life
Underwriters, regarding legislative activity in connection
with proposed Florida legislation to increase premium taxes.
700. Telegram (date illegible) from F. P. Deering, president, Flor-
ida Association of Life Underwriters, to R. L. Hogg, Asso-
ciation of Life Insurance Presidents, reporting agents im-
mediately soliciting 10 letters each from policyholders for
transmittal to members of Florida House of Representa-
tives__j,
701. Letter, dated May 8, 1935, from F. P. Deering, president,
Florida Association of Life Underwriters, to Robert L.
Hogg, assistant general counsel. Association of Life Insur-
ance Presidents; -letter dated June 10, 1935, from F. P.
Deering to R. L. Hogg; letter dated June 17, 1935, initialed
F. P. D. to R. L. Hogg; and letter dated July 1, 1935, of
C. F. Creswell, statistician. Association of Lifip Insurance
Presidents, to Frank P. Deering, all with reference to
payment of certain expenses incurred by Association of
Life Insurance Presidents in connection with the Florida
Association of Life Underwriters' activity in soliciting
letters from policyholders for transmittal to members of
Florida House of Representatives
702. Bulletin, dated June 6, 1935, of Association of Life Insurance
Presidents, reporting on legislative results in connection
with the regular session of the Florida Legislature ad-
journed June 2, 1935
703. Letter, dated Feb. 25, 1938, from R. L. Coon^y and others to
Robert L. Hogg, special counsel. Association of Life Insur-
ance Presidents, stating method of operation of agents'
comm'+'^ee handling legislative matters in Georgia and
acknowledging letter, dated Feb. 27, 1937, from Robert
L. Hogg, special counsel, to Robert L. Cooney, inspector of
agencies, New York Life Insurance Co., Atlanta, Ga
4346
4349
4349
4355
4357
4360
4361
4368
4377
4385
4386
4744
4746
4748
4750
4752
4754
4755
4756
4757
4761
4762
4387
4390
, 4400
4762
4764
4767
SCHEDULE OF EXHIBITS
IX
Number and summary of exhibits
Intro's"
duced
at page
Appears
on page
704. Letter, dated Mar. 22, 1933, from R. L. Cooney and S. M.
Carson to Cuaries F. Creswell, statistician, Association of
Life Insurance Presidents, reporting on legislative activi-
ties in connection with the adjournment of Georgia
Legislature
705. Letter, dated Mar. 1, 1938, from R. L. Cooney, inspector of
agencies. New York Life Insurance Co., to W. H. Pierson,
vice president, New York Life Insurance Co., concerning
legislative activities
706. Letter, dated Nov. 21, 1938, from R. L. Cooney, inspector
of agencies, New York Life Insurance Co., to Charles F.
Creswell, statistician. Association of Life Insurance Presi-
dents, concerning legislative activities and desirability of
determining nature of talk that goes on before a bill is
introduced
707. Letter, dated Mar. 3, 1937, from R. L. Cooney, inspector of
agencies. New York Life Insurance Co., to R. L. Hogg,
assistant general counsel, Association of Life Insurance
Presidents, concerning legislative activities in Georgia and
stating Cooney is a "marked man"
708. Letter, dated Feb. -26, from R. L. Cooney, inspector of
agencies, New York Life Insurance Co., to Atlanta
NYLICS urging agents of New York Life Insurance Co.
to see their Representatives or Senators and urging against
increase of premium taxation in Georgia
709. Letter, dated July 5, 1934, from R. L. Cooney, inspector of
agencies. New York Life Insurance Co., to W. H. Pierson,
vice president, New York Life Insurance Co., concerning
luncheon meeting with 20 policyholders at Rome, Ga
710. Letter, dated Feb. 12, 1937, from H. L. Cooney, inspector of
agencies, New York Life Insurance Co., to Robert L.
Hogg, assistant general counsel, Association of Life
Insurance Presidents, referring to fact that "we have
stirred up activities over all the State"
711. Letter, dated Mar. 5, 1934, from R. L. Cooney, to W. H.
Pierson, second vice president, New York Life Insurance
Co., with reference to the Lannie Thomson case
712. I^etter, dated Feb. 8, 1933, from R. L. Cooney, inspector
of agencies. New York Life Insurance Co., to Charles F.
Creswell, statistician. Association of Life Insurance Presi-
dents, discussing how senate bill No. 21 was killed, and
enclosed telegram from First National Bank, Valdosta, Ga.,
to Hon. H. W. Nelson, senate chamber, Atlanta, Ga.,
dated Feb. 7, 1933. Also letter, dated Feb. 10, 1933, from
Charles F. Creswell, statistician. Association of Life Insur-
ance Presidents to Robert L. Cooney, acknowledging letter
of Feb. 8, 1933 .:.°_
713. Letter, dated Dec. 1, 1934, signed Louis A. Irons, deputy
insurance oommissianer, to Robert L. Cooney, New York
Life Insurance Co., concerning p.ayment of occupation tax
for chairman of insurance committee of the Georgia House
of Representatives
714. Letter, dated Feb. 12. 1937, signed Robert L. Cooney,
mspector of agencies, New York Life Insurance Co., to
Robert L. Hogg, assistant general counsel. Association of
Life Insurance Presidents, concerning certain Georgia
legislation and letter from R. L. Cooney, to Robert L.
Hogg, dated Mar. 4, 1937, advising that legislation had
been killed after "salty interview"
715. Bulletin of Association of Life Insurance Presidents, dated
Apr. 8, 1935, concerning legislative results in State of
Georgia for session of legislature adjobrned Mar. 23, 1935-
4402
4403
4404
4406
4406
4407
4410
4411
4768
4770
4771
4772
4772
4773
4773
4774
4414
4410
4416
4418.
4775
4776
4776
4777
X
SCHEDULE OF EXHIBITS
Number and summary of exhibits
716.
717.
718.
719.
720.
721.
722.
723.
724.
725.
7.'>G.
727.
'28.
729.
Bulletin of Assocmtion of Life Insurance Presid^ts, dated
Apr. 2, 1935, concerning legislative results in State of
Georgia for session of legislature adjourned Mar. 25, 1937
Bulletin of Association of Life Insurance Presidents, dated
Feb. 19, 1938, concerning .legislative results in State of
of Georgia for session of legislature adjourned Feb. 13,
1938
Letter, dated June 10, 1935, from Charles F. Creswell,
statistician, Association of Life Insurance Presidents, to
William H. Kingsley, vice president, Penn Mutual Life
Insurance Co., concerning savings bank life insurance
legislation
Telegram, dated Feb. 24, 1937, from B. E. Shepherd, Asso-
ciation of Life Insurance Presidents, to James C. Jones,
of Jones, Hacker, Gladney and Grand, attorneys-at-Law,
of St. Louis, Mo., concerning development of opposition
to saving? bank life insurance legislation in Missouri
Letter, dated Feb. 25, 1937, from James C. Jones, of Jones,
Hacker, Gladney and Grand, attorneys-at-law, St. Louis,
Mo., to Association of Life Insurance Presidents, and
telegram, dated Feb. 26, 1937, from B. E. Shepherd,
Association of Life Insurance Presidents, to James C.
Jones; and letter, dated Feb. 25, 1937, from James C.
Jones to Association of Life Insurance Presidents, all in
regard to Missouri savings bank life insurance legislation.
Letter, dated Mar. 17, 1937, from James C. Jones, of Jones,
Hacker, Gladney and Grand, attorneys-at-law, St. Louis,
Mo., to the Association of Life Insurance Presidents, re-
ferring to discussion of savings banks life insurance legis-
lation with 40 insurance agents and enclosed document
prepared for use of agents in opposition to savings bank
life insurance entitled "Arguments for Industrial Agents"
Pamphlet entitled "The Savings Bank in Life Insurance" by
Floyd BeGfoat, Boston
Letter, dated Mar. 29, 1937, from Vincent P. Whitsitt, man-
ager and general counsel, Association of Life Insurance
Presidents, to Guy A. Smith, president, Wilkes-Barre As-
sociation of Life Insurance Presidents, referring to savings
bank life insurance legislation in Penusvlvania and letter
from Guy A. Smith to Vincent P. Whitsitt, dated May 3,
1937, indicating the character of legislative activity against
such legislation
Excerpt from Armstrong report entitled "Lobbying"
letter, dated Mar. 22, 1935, from Clinton C. White, secre-
tary, PuritPvn Life Insurance Co., of Pthode Island, to As-
sociation of Life Insurance l'"csidonts, eojicerning savings
bank life insurance legislation in Rhode Island
letxer, dated Apr. 10, 1937, from Clinton C. White, secre-
tary, Puritan Life Lisurance Co. of Rhode Island, to the
Association of Life Insurance Presidents, with further ref-
erence to savings bank life insurance legislation
Letter, dated May 7, 1937, from Clinton C. White, secretary,
Puritan Life Insurance Co. of Rhode Island, stating "I am
particularly pleased that we were able to defeat the savings
bank life insurance bill" .
Report by M. Joseph Cummings, chief of Division of Bank-
ing and Insurance of the State of Rhode Island on savings
bank life insurance as represented by the Massachusetts
system
Memorandum, dated Apr. 20, 1938, of C. F. Creswell, statis-
tician. Association of Life Insurance Presidents, concern-
ing Rhode Island savings bank life insurance
Intro-
duced
at page
4418
4418
4421
4422
4423
4425
4426
4427
4428
4430
4431
4431
4433
4433
Appears
ou page
4781
4783
4785
4785
4786
4787
4790
4801
4802
4804
4805
4806
4800
4810
SCHEDULE OF EXHIBITS
XI
Number and summary of exhibits
Intro-
duced
at page
Appears
on page
730. Form letter, dated Feb. 28, 1935, from C. F. Creswell, statis-
tician, Association of Life Insurance Presidents, requesting
actuarial letters from companies in opposition to savings-
bank life-insurance bill introduced in New Hampshire
731. Memorandum prepared by Association of Life Insurance
Presidents, entitled "Reasons Why New Hami^shire House
Bill No. 125 to Permit Savings Banks to Engage in the
Life Insurance Business Should Not Be Enacted"
732. Letter, dated Apr. 28, 1937, of A. H. Yost, vice president.
Phoenix Mutual Life Insurance Co., to Vincent P. Whit-
sitt, manager, and general counsel. Association of life In-
surance Presidents, referring to savings bank life insurance
legislation pending in Connecticut General Assembly and
letter, dated May 19, 1935, from A. H. Yost to Vincent P.
Wliitsitt, indicating activity of life-insurance 'officials to
defeat savings-bank life-insurance bill
733. Form letter, dated Feb. 25, 1938, from committee on law and
legislation of the Life Underwriters Association of the City
of New York, Inc., to agents in New York State, entitled,
"Your Future Is at Stake," and urging agents to protest
savings-bank life-insurance measure
734. Bulletin entitled "Flash" prepared by committee on law and
legislation of the Life Underwriters Association, urging
further opposition to savings-bank life-insurance legislation
and enclosed 16 suggestions for form letters or telegrams. _
735. Typical patent license agreements, cross-license agreements,
and other contracts between and among the principal con-
cerns engaged in the manufacture of glass-making' ma-
chinery and of the various types of glassware
736. Table: Massachusetts savings ba.nks issuing life insurance
listed in the order of their entrance into the system (and
the general insurance guaranty fund), Oct. 31, 1938
737. Table: Growth of savings bank life insurance in Massachu-
setts 1908 to 1938 -" -^-v
738. Table: Number and types of agencies for savings bank life
insurance on June 13, 1939
739. Table: Savings bank life insurance (as of Aug. 31, 1938),
showing number of persons insured for the several stated
amounts
740. Table: Amount of new insurance written and insurance
terminated in Massachusetts during the year 1938 (ordi-
nary)
741. Table: Relative proportions of amounts of insurance term-
inated by lapse and surrender in Massachusetts savings
banks and in Massachusetts insurance companies, 1911-38..
742. Tabl^: Mortalitv experience of Massachusetts savings bank
life insurance compared with life insurance companies —
ratios of actual to expected mortality losses for savings
banks, all ordinary, and all industrial insurance, 1910 to
1938
743. Table: Net rate of income earned on investments by savings
bank life insurance and by all insurance organizations, in-
cluding savings bank life insurance, 1920 to 1938
744. Table; Percent total expenses are of premium income in
savings bank life insurance, ordinary insurance, and in-
dustrial insurance 1920 to 1938
745. Table: Comparing 10-year costs of savings bank life insur-
ance issues of 1929 for $1,000 straight life insurance policy
age 35, v^ith similar policies of certain indicated companies.
746. Table: Comparing 10-year costs of savings bank life insur-
ance issues of 1929 for $l,000"straight life insurance polk-y,
age 35, with similar policies of certain indicated companies,
based upon projection of 1938 dividends
• On filn with the committee.
4434
4435
4810
4811
4437
4447
4447
4449
4813
4814
4815
0)
4454
4816
4455
4816
4463
4817
4466
4817
4407
4818
4471
4819
4473
4475
4476
4482
4485
4819
4820
4820
4821
4822
XII
SCHEDULE OF EXHIBITS
Nuipber and summary of exhibits
Intro-
duced
at page
Appears
on page
747. Table: Comparison of ratios of surplus to reserves of Mas
sachusetts savings bank life insurance and the life insur
ance companies (capital included as surplus) 4488
748. Table: Massachusetts savings bank life insurance compared
with total amount of life insurance of all kinds in Mas-
sachusetts (1908-38, Dec. 31) 4491
749. Table: 30 years' experience in Massachusetts savings bank
life insurance (statement to Oct. 31, 1938) and growth of
Massachusetts savings bank life insurance 449 1
750. Table: Containing analysis of savings bank life insurance
policies issued by New York savings bank 4503
751. Table: Premium income and consideration received, an
nuity contracts -. 4506
752. Table: Personal annuities — 10 largest United States com
panies — increase ( + ) or loss ( — ) in surplus — after ap
propriation for contingency or other special reserves (un
assigned funds), for the years 1929 to 1938, inclusive 4508
753. Table: Personal annuities — increase or loss in surplus— after
appropriation for contingency or other special reserves —
26 largest United States companies.- 4508
754. Principal inter-company meetings re annuities 4514
755. Letter, dated Apr. 22, 1933, from Arthur Hunter, vice presi-
dent and chief actuary, New York Life Insurance Co., to
E. E. Cammack, vice president and actuary, Aetna Life
Insurance Co., concerning annuity rates and reporting on
program of rate increases tenatively decided by 5 New
York companies 4515
756. Memorandum, dated May 19, 1933, signed B. D. Flynn,
vice president and actuary. Travelers Insurance Co., to
President Zacher and Vice President Howard, Travelers
Insurance Co., recording tentative votes of actuaries of
22 leading life insurance companies attending meeting at
New York Life Insurance Co. on the subject of life-annuity
rates and policy values 4526
757. Memorandum, dated June 13, 1933, prepared by Arthur
Hunter, vice president and chief actuary, New York Life
Insurance Co., regarding new annuity rates and indicating
companies which had determined to adopt new rate sched-
ule _-- 4526
758. Notice, dated June 14, 1933, to agents of New York Life
Insurance Co., regarding new annuity rates signed Arthur
Hunter, vice president and chief actuary, New York-Life
Insurance Co 4527
759. Letter, dated Mar. 12, 1934, signed Arthur Hunter, vice
president and chief actuary, New York Life Insurance
Co., to John M. Laird, vice president, Connecticut Gen-
eral Life Insurance Co., inviting representatives of 14 life
insurance companies to attend meeting for discussion of
bases of annuities and other matters.. i 4528
760. Appears in Hearings, Part V, appendix p. 2301 4530
761. Memorandum, dated Mar. 31, 1934, of E. C. Henderson,
Travelers Insurance Co., on surrender values and referring
to discussion of annuitv rates and other matters at meet-
ing held in Dr. Hunter's office. Mar. 23, 1934 Ji.. 4530
762. Memorandum, dated Oct. 31, 1934, of B. D. Flynn. vice
president and actuary, Travelers Insurance- Co., to Presi-
dent Zacher, Vice President Howard, and Vice President
Armstrong, Travelers Insurance Co., concerning meeting
of actuaries of 26 representative life insurance companies
at which agents' com.missions on life annuities and annuity
rates were discussed . i 4532
4822
4823
4823
4825
4825
4826
4827
4848
4830
4831
4833
4834
4834
4835
4n;::7
SCHEDULE OF EXHIBITS
XIII
Number and summary of exhibits
Intro-
duced
at page
Appears
on page
763. Letter, dated Dec. 12, 1934, of John M. Laird, vice president,
Connecticut General Life Insurance Co., to Arthur Hunter,
vice president. New York Life Insurance Co., discussing
agents' commissiuns on life annuities
764. Letter, dated Dec. 31, 1934, from Arthur Hunter, vice presi-
dent. New York Life Insurance Co., to John M. Laird,
vice president, Connecticut General Life Insurance Co.,
stating he will get information on attitude of companies
regarding commissions on single. premium annuities
765. Letter, dated Dec. 15, 1934, from John R. Larus, vice presi-
dent and actuary. Phoenix Mutual Life Insurance Co.,
John M. Laird, vice president, Connecticut General Life
Insurance Co., requesting attitude of Connecticut General
on subjects relating to annuity rates and agents' commis-
sions. Also summary prepared from company responses
to general inquiry on these subjects
766. Memorandum from files of Connecticut General Life Insur-
ance Co., summarizing attitude of companies on 13 ques-
tions including annuity rate increases discussed at meeting
at offices of Arthur Hunter, vice president and actuary,
New York Life Insurance Co., Oct. 10, 1935
767. Letter, dated Oct. 17, 1934, from Arthur Hunter, vice presi-
dent and actuary, New York Life Insurance Co., calling
meeting of company actuaries and enclosing agenda of
topics for discussions which- includes annuity rates
768. Memorandum, dated Oct. 25, 1935, of John M. Laird, vice
president, Connecticut General Life Insurance Co., sum-
marizing discussions of company actuaries at meeting held
at offices of Arthur Hunter, vice president and chief actu-
ary, New York Life Insurance Co., Oct. 24, 1935
769. Memorandum, dated Nov. 21, 1935, of Arthur Hunter, vice
president and chief actuary, New York Life Insurance Co.,
with regard to immediate annuity rates
770. Memorandum, dated Nov. 25, 1935, of Arthur Hunter, vice
president and chief actuary, New York Life Insurance Co.,
with regard to immediate annuity rates ----.
771. Letter, dated Dec. 2, 1935, from Arthur Hunter, vice presi-
dent and chief actuary. New York Life Insurance Co., to
J. b. Craig, actuary. Metropolitan Life Insurance Co.,
advising certain companies have adopted new annuity rate
basis
772. Letter, dated June 9, 1936, from Arthur Hunter, vice presi-
dent and chief actuary, New York Life Insurance Co., to,
J. F. Little, vice president and actuary. Prudential Insur-
ance Co., reporting on subjects discussed at meeting of
company actuaries
773. Memorandum, dated Apr. 13, 1934, from files of Metropoli-
tan Life Insurance Co., discussing attitude of companies
concerning new annuity rates as revealed at informal meet-
ing held Apr. 12, 1934, in offices of Arthur Hunter
774. Letter, dated Mar. 4, 1938, from H. R. Bassford, chairman
of subcommittee, appointed at intercompany conferences,
and summary of replies received to questionnaire in regard
to" adoption of new annuity and settlement option rates...
775. Memorandum, dated Apr. 22, 1938, of H. R. Bassford, actu-
ary. Metropolitan Life Insurance Co., summarizing discus-
sions of actuaries of 25 companies on subject of settlement
options at meeting held Apr. 22, 1938 .
776. Form letter, dated June 3, 1938, marked "confidential"
fr^^ ^Arthur Hunter, vice president, J^ew York Life
Insurance Co., advising names of companies which will
adopt new annuity rates ■
4533
4533
4534
4535
4536
4538
4539
4539
4539
4541
4542
4549
4560
4552
4838
4838
4839
4840
4843
4844
4847
4847
4847
4848
4848
4850
4852
4855
XIV
SCHEDULE OF EXHlBiTis
Number and summary of exhibits
777. Letter, dated Oct. 22, 1934, from E. E. Cammack, vice
president and actuary, Aetna LifeHInsurance Co., to
J. M. Laird, vice president, Connecticut General Life
Insurance Co., concerning agent's commissions on single
premium annuities and stating company expects to go
along with majority
778. Memorandum, dated May 13, 1938, from E. E. Cammack,
vice president and actuary, Aetna Life Insurance Co.,
entitled "Meeting of Travelers, Connecticut General, and
Aetna at the Aetna Life Insurance Co., 10 a. m., Friday,
May 13" and having reference to discussions on im-
mediate annuities and optional settlements
779. Memorandum, dated Oct. 10, 1938, of John M. Laird, vice
president, Connecticut General Life Insurance Co., re-
ferring to discussions on retirement annuities at meeting
of actuaries representing 30 companies
780. Table: Exhibit of personal annuities (excluding group
annuities) of 26 United States companies attending inter-
company conference and of all United States companies. -
781. Letter, dated Nov. 6, 1935, from Arthur Hunter, vice
president and actuary, New York Life Insurance Co.,
to J. F. Little, vice president and actuary, Prudential
Insuraince Co., referring to meeting of representatives of
Metropolitan, Equitable, Mutual, and New York Life
Insurance Cos.' representatives in regard to settlement
options ,
782. Letter, dated Nov. 12, 1935, from vice president and actuary
of Prudential Insurance Co., to Arthur Hunter, vice
president of New York Life Insurance Co., discussing
settlement options and stating company will be glad to
go along with some reasonable rules
783. Memorandum from files of Connecticut General Life Insur-
ance Co., entitled "Memorandum of meeting held at
offices of Dr. Arthur Hunter, vice president and actuary of
the New York Life Insurance Co. on Nov. 14, 1935" re-
ferring to discussions among company actuaries on subject
of settlement options and indicating further meetings of
company actuaries to be held — l!
784. Letter, dated Apr. 30, 1937, from Louis H. Pink, superintend-
ent of insurance for the State of New York, to Thomas I.
Parkinson, president, Equitable Life Assurance Society of
New York, regarding the appointment of a committee of"
life companies and departmental representatives to con-
sider settlement options
785. Report of subcommittee appointed at intercompany con-
ference of Feb. 16, 1937, entitled "Revision of practice on
optional settlements," dated May 28, 1937
786. List of company representatives at intercompany meeting
held on June 3, 1937, in Arthur Hunter's ofiice
787. Summary of recommendations by subcommittee headed by
R. D. Murphy, vice president and actuary, Equitable Life
Assurance Society^ concerning settlement options and
proposed action indicated by various companies at the
June 3 meeting, prepared by E. C. Henderson, actuary,
Connecticut General Life Insurance Co., dated June 10,
■ 1937
788. Memorandum from files of Equitable Life Assurance Society
of New York, entitled "Recommendations for revised prac-
tice under new optional agreements on both new and
outstanding business"
Intro-
duced
at page
4566
4566
4567
4567
4575
4575
4575
4579
4580
4581
4583
4583
Appears
on page
4856
4856
4857
4857
4858
4858
4858
4860
4861
4865
4866
4867
SCHEDULE OF EXHIBITS
XV
Number and summary of exhibits
Intro-
duced
at page
Appears
on page
790.
791.
792.
789. Letter, dated Aug. 6, 1937, signed Arthur Hunter, vice
president and actuary. New York Life Insurance Co., to
John M. Laird, vice president and secretary, Connecticut
General; letter dated Aug. 11, 1937, from J. M. Laird to
Arthur Hunter; and letter dated Aug. 12, 1937, from
Arthur Hunter to John M. Laird, concerning failure of some
companies to adopt recommendations for settlement
options and desirability of further discussions on subject- ^
Letter, dated Oct. 22, 1937, signed E. W. Marshall, vice
president and actuary, Provident Mutual Life Insurance
Co. of Philadelphia, to R. D. Mnrphy, vice president and
actuary, Equitable Life Assura- Ce Society, referring to
intercompany conference on option settlements and en-
closed questionnaire entitled "Questionnaire Regarding Re-
vision of Practice Under New Optional Agreements on Both
New and Outstanding Business"
Letter, dated Nov. 9, 1937, signed E. W. Marshall, vice presi-
dent and actuary, Provident Mutual Life Insurance Co.,
to R. D. Murphy, Equitable Life Assurance Society, refer-
ring to proposed intercompany meeting and indicating
representatives should come to meeting authorized to state
official attitude of their companies on settlement options
Form letter of E. W. Mai-shall, vice president and actuary,
Provident Mutual Life Insurance Co., dated Nov. 19,
1937, and enclosed recommendations for revised practice
under new optional-settlement agreements on both new
and outstanding business as amended at intercompany
conference on Nov. 15, 1937, together with schedule
marked "Very confidential," indicating attitude of 27 com-
panies toward questions raised at conference on Nov. 15,
1937
Memorandum, dated Nov. 16, 1937, from R. D. Murphy,
vice president and actuary. Equitable Life Assurance So-
ciety of New York to W. G. Schelker concerning inter-
company meeting and understanding of signatory com-
panies regarding competition with "No" companies
Memorandum, dated May 25, 1938, from E. W. Marshall,
vice president and actuary, Provident Mutual Life Insur-
ance Co. of Philadelphia, to R. D. Murphy, vice president
and actuary, Equitable Life Assurance Society, discussing
attitude of various company groups concerning settlement
option rules and making proposal directed toward bringing
about an intercompany agreement on a uniform basis
795. Preliminary report, dated June 7, 1938, from E. W. Marshall,
vice president and actuary. Provident Mutual Life Insur-
ance Co. of Philadelphia, concerning company reaction to
optional-settlement program indicating widespread desire
for uniform basis by companies
Letter, dated June 23, 1938, from E. W. Marshall, vice presi-
dent and actuary, Provident Mutual Life Insurance Co. of
Philadelphia, to R. D. Murphy, vice president and actuary,
Equitable Life Assurance Society and enclosed confidential
summary of votes taken at "Little Entente" meeting re-
garding guaranteed basis of optional settlements
Letter, dated July 7, 1938, from E. W. Marshall, vice presi-
dent and actuary. Provident Mutual Life Insurance Co. of
Philadelphia, to R. D. Murphy, vice president and actuary,
Equitable Life Assurance Society, an enclosed chart giving
confidential plans of various companies regarding new
optional basis
793.
794.
796.
797.
4584
4868
4589
4596
4869
4871
4596
4598
4612
4616
4616
4618
4871
4872
4873
4875
4876
4878
XVI
SCHEDULE OF EKHIBITS
Number and summary of exhibits^
Intro-
duced
at page
Appears
on page
798. Letter^ dated July 28, 1938, from E. W. Marshall, vice presi-
dent and actuary, Provident Mutual Life Insurance Co. of
Philadelphia, to R. D. Murphy, vice president and actuary.
Equitable Life Assurance Society, setting forth certain
changes in company attitude toward optional settlement
program in direction of greater uniformity
799. Table: Intercompany meetings resettlement options
800. Memorandum from files of Aetna Life Insurance Co. setting
forth attitude of companies attending intercompany meet-
ing atx)fEces of New York Life Insurance Co. for purpose
of considering settlement options, annuity rates and other
matters
801. Memorandum, dated Feb. 15, 1933, from Valentine Howell,
second vice president and associate actuary. Prudential
Insurance Co. of America, regarding surrender values
802. Memorandum, dated Apr. 18, 1933, of Valentine Howell,
second vice president and associate actuary. Prudential
Insurance Co. to Colonel D'Olier, Prudential Life Insur-
ance Co. of America, referring to attitude of various com-
pany groups in reducing surrender values
803. Memorandum, dated Apr. 17, 1933, of Valentine Howell, sec-
ond vice president and associate actuary. Prudential In-
suranQe Co. of America, regarding surrender values of sup-
plementing memorandum of Feb. 15, 1933 (exhibit 801,
supra)
804. Memorandum, dated May 19, 1933, of Valentine Howell,
second vice president and associate actuary. Prudential
Insurance Co. of America, concerning annuity premiums
and surrender charges and summarizing attitude of com-
pany representatives attending intercompany meeting
toward proposed changes in surrender values
805. Memorandum frord files of Prudential Life Insurance Co.
of America, entitled "Proposed program re premium rates,
reserve basis and surrender charges"
S06. Letter, dated June 22, 1924, signed Arthur Hunter, vice
president and actuary, New York Life Insurance Co.,
to James F. Little, vice president and actuary. Prudential
Insurance Co. of America, and enclosed memorandum
suggesting proposed table of cash surrender values
807. Memorandum from files of Mutual Life Insurance Co., en-
titled "Surrender and loan values" and discussing attitude
of company toward various suggested changes
808. Memorandum, of W. A. Hutcheson, stamped May 9, 1934,
concerning proposed changes regarding cash and loan
values and indicating reasons for lowering surrender values
and increasing surrender charges, from files of Mutual Life
Insurance Co .
809. Bylaws of Medical Information- B^eau
810. Regular and associate members of Medical Information
Bureau .
811. Underwriting rules recommended by committee on under-
writing large risks (corrected as of Apr. 1, 1936)
812. Report of executiye committee of underwriting large risks
for year ending Mar. 31, 1939, signed R. D. Murphy,
chairman __-
813. Letter on stationery of Metropolitan Life Insurance Co.,
signed J. D. Craig, chairman, committee underwriting
large risks listing members of Recording Bureau, as of
Aug. 18, 1932
814. Letter, dated Oct. 29, 1931, from Frank L. Jones, chairman
and member of replacement committee, to Walter E
Webb, chairman, executive committee association of life
agency officers and list of original signatory companies to
replacement agreement
4618
4619
4619
4621
4623
4623
.4624
4625
4626
4628
4633
4635
4635
4644
4644
4645
4651
4880
4881
4882
4883
4884
4885
4886
4887
4889
4890
4894
4896
4897
4901
4902
4903
4904
SCHEDULE OF EXlIILilfc;
Number and summary of exhibits
815. Plan for discouraging the replacement of life insurance in one
company by new insurance in another company, (replace-
ment agreement)
816. Amendment to plan for discouraging the replacement of life
insurance in one company by new insurance in another
company
817. List of signatory companies signing replacement agreement
with names of persons in charge of intercompany corres-
pondence (July 6, 1938)
818. Letter, dated Oct. 6, 1931, from K. Seton Lindsay, vice presi-
dent, New York Life Insurance Co., to Frank L. Jones, vice
president. Equitable Life Assurance Society;" letter dated
Oct. 13, 1931, from Frank L. Jones to L. Seton Lindsay;
and letter dated Oct. 15, 1931 from L. Seton Lindsay to
Frank L. Jones, regarding attitude of New York Life In-
surance Co. toward signing of replacement agreement
819. Memorandum entitled "Exceptions made by some of the
signatory companies in the matter of replacement of life
insurance"
820. Table: 6-year record of intercompany replacements
521. Table: Consolidated report of replacement figures for the 8
months' period ended Oct. 31, 1938
522. Letter, dated May 15, 1929, from Herbert M. Wollen, presi-
dent, Ainerican Central Life Insurance Co., to Lawrence
M. Chatels, president. North American Reinsurance Co.,
regarding conference of representatives of reinsurance com-
panies mentioning possibility of more general meeting to
establish code of behavior
823. Letter, dated June 3, 1929, from Herbert M. Wollen, presi-
dent American Central Life Insurance Co. to Emmett C.
May, president, Peoria Insurance Co. regarding meeting of
representatives of reinsurance companies and listing six-
teen subjects needing consideration .
824. Memorandum containing recommendations "to promote the
best interests of the business" of rates and underwriting
committee appointed by reinsurance companies
825. Rules adopted by reinsurance conference -.-
826. Table: 1937 lapse ratio compared with the relative sales
rates during 1935 and 1936 .
827. Table: The 40 United States life insurance companies of
which the life insurance sales research bureau computed
1937 lapse ratios
922. Table 1: Nonparticipating insurance company rates of
Aetna Life Insurance Co., Connecticut General Life Insur-
ance Co., Travelers Life Insurance Co. — 1909-29
Table 2: Percentage deviation of nonpartipipating life insur-
ance rates of Connecticut General and Travelers from
Aetna Life rates before the adoption of uniform rates effec-
tive Apr. 1, 1933 -
Table 3: Nonparticipating life insurance company rates
of Aetna Life Insurance Co., Connecticut General Life
Insurance Co. and Travelers Insurance Co. showing the
rates (annual premium without disability and double in-
demnity) in force before and after the adoption of uniform
rates effective Apr. 1, 1933 — typical plans at typical ages--
Unnumbered. Date of incorporation, admitted assets, insurance
in force, capitalization, number of shareholders
of record and other information regarding Trav-
elers Insurance Co., Aetna Life Insurance Co.
and Connecticut General Life Insurance Co
Unnumbered. Summary of statutory prerequisites for licensing
of life insurance agents -'
S [Appears
at page
:, on page
4652
4653
4654
4655
4656
4657
4658
4670
4673
4675
4676
4684
4684
4906
4907
4907
4911
4913
4916
4917
4918
4919
4921
41122
4926
4927
4927
4928
49
492^
4929
124491 — 40— pt.
INVESTIGATION OF CONCENTRATION OF ECONOMIC POWER
TUESDAY, JUNE 6, 1939
United States Senate,
Temporary National Economic CoMiMiTTEE,
Waslmiffton, 1). C.
The committee met at 10:40 a. m., pursuant to adjournment on
Friday, May 26, 1939, .in the caucus room, Senate Office Building,
Senator Joseph C. O'Mahoney presiding.
Present: Senators O'Mahoney (chairman), Borah, and King; Kep-
resentatives Reece and William's ; Messrs. Henderson, Frank, Arnold,
Lubin, and Brackett.
Present also: Senator Gerald P. Nye, of North Dakota; Senator
Scott W. Lucas, of Illinois ; Harry J. Daniels, Chief of the Insin\ance
Section, Department of Commerce"; Willis J. Ballinger, Federal Trade
Connnission; and Gerhard A. Gesell, special counsel, Securities and
Exchange Commission.
The Chairman. The committee will please come to order.
The committee has assembled this morning to hear further testimony
presented in the insurance study by the Securities and Exchange Com-
mission. Chairman Frank, of the Commission, member of this com-
mittee, will make an opening statement.
intercompany AGREEMENTS
Mr. Fr:Vnk. I want to make this brief opening statement in order
to acquaint the committee in a general way with the subject matter
of the hearings which are about to commence. In President Roose-
velt's message recommending that Congress initiate and carry out the
program upon which this connnittee is now engaged, he urged that
there should be a study of insurance companies.^ He also spoke of the
necessity of strengthening and enforcing antitrust laws, placed con-
siderable emphasis upon price fixing, and urged that all forms of
price fixing, without regard to their degree or to whether or not they
fell within the traditional antitrust field, be examined.
Accordingly, the Securities and Exchange Comrnission is now pre-
pared to present considerable evidence concerned with price fixing and
other forms of anticompetitive arrangements affecting many depart-
ments of the life-insurance business. In doing so, I wish to make it
clear that our approach is objective. We have not reached any con-
clusion as to the social or economic Tightness or wrongness of those
activities. That is the province of the committee, not the Securities
and Exchange Commission. The activities and arrangements to be
> See "Exhibit No. 1," Hearings, Part I, appendix, p. 185 at p. 190.
4153
4154 CONCENTRATION OF ECONOMIC POWER
described are, for the most part, of recent origin. Evidence will be
presented as to whether or not they affect thg price which the policy-
holder pays for his insurance.
The Chairman. I am very glad, Mr. Frank, that you have made
that statement, because I think it is helpful to continue to lay empha-
sis upon the fact that this committee is merely trying to find out how
things are working. We are not passing judgment upon any of the
institutions or actiyities which are revealed before us.
Mr. Gesell is to conduct the examination?
Mr. Frank. That is correct.
The Chairman. Mr. Gesell, are you ready to..proceed?
Mr. Gesell. I am, Mr. Chairman.
THE GROUP association
Mr. Gesell. The first intercompany arrangement to be considered
will be the Group Association, an organization among principal com-
panies issuing various form of group insurance. I would like to call
as my first witness Mr. B. D. Flynn, of the Travelers Insurance Co.
The Chairman. Mr. Flynn, do you solemnly swear that the testi-
mony you are about to give in these proceedings shall be the truth,
the whole truth, and nothing but the truth, so help you God ?
Mr. Flynn. I do.
TESTIMONY OF BENEDICT D. FLYNN, VICE PRESIDENT AND
ACTUARY, TRAVELERS INSURANCE CO., HARTFORD, CONN.
Mr. Gesell. Will you state your full name, please, sir ?
Mr. Flynn. Benedict D. Flynn.
Mr. Gesell. Are you associated with the Travelers Life Insurance
Co.?
Mr. Flynn. Yes, sir.
Mr. Gesell. In what capacity ?
Mr. Flynn. Vice president and actuary.
Mr. Gesell. How long have you been with the company, Mr.
X' ij illl S
Mr. Flynn. Forty years, approximately.
Mr. Gesell. How long have you been actuary for the company ?
Mr. Flynn. Vice president and actuary since 1930.
Mr. Gesell. Are you familiar with the activities of Travelers In-
surance Co. in the sale of group insurance — group life insurance ?
Mr. Flynn. Yes, sir.
Mr. Gesell. Will you tell us a little about group insurance, what
kind of insurance is it, how is it sold, and so forth ?
Mr. Flynn, Group insurance is insurance issued to an employer
to cover his employees for life insurance, accident, and sickness in-
surance, or annuities as pensions. At least 75 percent of the eligible
employees must be covered.
The Chairman. How many?
Mr. Flynn. Seventy-five percent of eligible employees; and be-
cause of the fact that a large percentage of eiigibles come into the
plan it is written without examination, medical examination ; that is,
there is no medical test. It is written under a plan which precludes
individual selection; that is, the amount of insurance is graded by
CONCENTRATION OF ECONOMIC POWER 4155
classification of some kind under conditions pertaining to
employment.
Mr. Gesell. You mean by that that employees within a certain
salary or wage level will receive so much insurance; those in the
next nighest will receive, perhaps, a little additional amount.
Mr. Fltnn. That is it. That would be one way of classifying
them.
The Chairman. How many different ways of classifying are
there?
Mr. Flynn, Well, you can classify by occupational class, by salary
class, by years of service, and also they have modified the amount
by sex.
The Chairman, I beg your pardon.
Mr. Flynn. By sex; that is, the woman worker having a lower
amount.
Mr. Gesell. "Now, is group insurance rewritten every year?
Mr. Flynn. No; the contracts are ordinarily 1-year, renewable-
term contracts.
Mr. Gesell. They are renewed at the option of the employer every
year, are they not?
Mr. Flynn. At the option of the employer.
Mr. Gesell. Both the emploj^er and the employee are covered by
the policies in ixiost cases, &,re they not?
Mr. Flynn. The employees are always covered, but the employer,
if it is a corporation — the officials of the corporation are eligible;
but if an employer owns the establishment, he is not an employee
technically and not covered.
Mr. Gesell. How many people would you say are covered by group
life insurance in the United States at the present time? Am I not
correct it has been estimated to be around 9,000,000?
Mr. Flynn. I think that is correct: about 9,000,000. ^
' Mr. Gesell. They are, by and large, the wage earning group, em-
ployees in industrial concerns?
Mr. Flynn. Yes; by and large, the majority are the wage-earning
class.
Mr. Gesell. Just roughly, about liow much does each employer pay
per $1,000 of group life insurance under a group-life plan? Is it
around 60 cents per thousand ?
Mr. Flynn. Sixty cents, as a rule.
Mr. Gesell. That is monthly or yearly ?
Mr. Flynn. Monthly.
Mr. Gesell. When was group life insurance first written, do you
recall ?
Mr. Flynn. I should say about 1914.
Mr. Gesell. It has had a rather spectacular growth since that time,
has it not?
Mr. Flynn. Yes, it has.
Mr. Gesell. Both with respect to the number of companies writing
it and as to the amount of insurance in force.
Mr. Flynn. Particularly as to the amount of insurance in force.
Senator King. Did you state the maximum amount of any policy?
Mr. Flynn. Per individual?
Senator King. Yes.
4156 CONCENTEATION OF ECONOMIC POWEU
Mr. Fltnn. $20,000 in very, very large cases. The average maxi-
mum per case is about five thousand.
Mr. Gesell. As background at this point I should like to offer for
the recoi'd a schedule which has been prepared by tlie staff of the
Securities and Exchange C.'ommission from Spectator Insui-ance Year-
book for the issues 1927 to 1938, entitled "Group Life Insurance —
United States Companies." This schedule shows the number of com-
panies reporting to Spectator writing group life insurance for each
year from 1919 to 1937, the amount of group insurance written each
year, and the amount of group insurance in force at the end of the
year. I might say m 1919 it shows 28 companies writing group insur-
ance, with the insurance in force at around $1,100,000,000; that at
the end of 1937 there were some 98 companies writing group insurance,
and there was twelve billion nine hundred fifty-seven of that insurance
in force.
The Chairman. Does this statement purport to be a summary of
the principal group insurance activity in the United States?
Mr. Gesell. It is a summary of the amount of insurance in force and
the number of companies writing it, prepared from a recognized
statistical soutce.
The Chairman. The beginning date is 1919?
Mr. Gesell. Yes.
The Chairman. Do I understand that is substantially the year at
which group insurance began to emerge as a significant activity?
Mr. Gesell. Yes ; I think that is a fair statement. Mr. Flynn says
it was first started around 1914, but there are really no available
figures for those years.
The Chairma^t. The statement may be admitted.
(The statement referred to was marked "Exhibit No. 641" and is
included in the appendix on p. 4687.)
Senator King. That comprises all the insurance companies so far
as. you are advised ?
Mr. Flynn. I think so. I haven't seen it, but- 1 should say if it
came from that source it probably does.
Senator King. As far as you kiiow, this would be an accurate state-
ment of the companies ?
Mr. Fltnn. I would like to see it. I really haven't seen it. [Exam-
ining "Exhibit No. 641."] I think that is undoubtedly correct.
Mr. Gesell. One further question about group life insurance —
what is the minimum size of the group covered ?
Mr. Fltnn. The minimum number of individuals is 50.
Mr. Gesell. And it can run up to almost any amount above that,
can it?
Mr. Flynn. Yes. That is the minimum number of employees.
Mr. Gesell. Now, are you familiar with the fact that actuaries and
officials representing the principal companies writing group insurance
got together on an informal basis to discuss mutual problems sometime
in the fall of 1917?
Mr. Flynn. Yes.
Mr. Gesell. Will you tell us how it was that these individuals got
together, what com.panies they represented, and what it was that
brought them together the first time?
Mr. Flynn. Prior to 1917, some group insurance had been written
by a few of the companies. The insurance commissioners — that is, the
CONCENTRATION OF ECONOMIC POWER 4157
National Convention of Insurance Commissioners — decided it was
about time to determine upon a definition of just what group insur-
ance was. I am referring to group life insurance.
Senator Kino. You mean the commissioners of the various States?
Mr. Fltnn. The commissioners of the various States. So they ap-
pointed a committee consisting of three actuaries of three insurance
departments and three actuaries of three companies. I was not a mem-
ber of the committee, and I can't exactly recall which companies were
represented. That committee was to draft a definition of group life
insurance. They did that in 1917, and that definition was enacted
into law in New York State.
The Chairman. What was the method by which this meeting of
State insurance commissioners was called?
Mr. Fltnn. I imagine it was in the regular convention that the
matter came up. They have conventions periodically.
Mr, Gesell. That is, conventions of insurance commissioners?
Mr. Flynn. Insurance conmiissioners, yes.
The Chairman. That is an informal association of the commission-
ers of insurance of the various States?
Mr. Fltnn. Yes, sir.
The Chairman. It has no legal life as such? I mean, it is not a
public institution, is it?
Mr. Fltnn. I don't think 'So; I think it is an informal association.
Mr. Gesell. Am I correct in saying that after first getting together
with tlie insurance commissioners the actuaries continued to meet
witliout tlie insurance commissioners to consider problems of mutual
interest ?
Mr. Fltnn. Yes, sir.
Mr. Gesell. How often did they meet?
Mr. Fltnn. I would imagine they met about every 6 months.
Mr. Gesell. Wliat companies were represented in those meetings,
Mr. Flynn?
Mr. Fltnn. The companies which were writing group insurance at
that time.
Mr. Gesell. Would you say all the companies or the principal
companies ?
Mr. Fltnn. The principal companies. In fact, I doubt if there were
any companies writing group insurance other than five or six of the
principal companies.
Senator ICing. You mean at that time ?
Mr. Fltnn. At that time.
Senator I^ng. And their actuaries or officers met once every 6
months to discuss problems?
Mr. Fltnn. Yes.
Senator Kjng. Did the actuaries of the various State insurance de-
partments also participate?
Mr. Fltnn. I can't recall exactly, but I have been told that at
various times a representative of the iN'ew York Insurance Department
would sit in at the meeting.
Senator King. Would the results of these actuarial meetings be
submitted to the various State insurance departments?
Mr. Fltnn. Not formally ; no.
_ Mr. Gesell. What kind of an organization did you h:;ve a I. that
time? Did you keep minutes of what you fcilked about?
4158 COiNCENTRATION OF ECONOMIC POWER
Mr. Flynn. Yes ; we kept minutes, or rather memoranda were sent
around. It was an informal gathering of actuaries interested in the
problems of group insurance.
Mr. Gksell. You had no official organization then of any sort?
Mr. Fltnn. No official organization.
JMr. Gesell. You had no official minutes?
Mr. Flynn. No official minutes.
Mr. Gesell. Did you have any officers, or any bylaws, or any
constitution, or anything of that kind?
Mr. Flyxn. Not at that time. We had a chairman and a secretary
pro tempore.
Mr. Gesell. They would be elected for purposes of each meeting.
Mr. Flynn. I think so.
Mr. Gesell. What was it that impelled the actuaries to get together
at that time ? What did they want to discuss ? What were the problems
in the industry?
Mr. Flynn. The good practices and proper underwriting rules to
direct this new line of insurance. It was something entirely new
and rates and practices were really the subject of discussion all
through those meetings.
Mr. Gesell. Would you say that there was any uniformity of rates
at this time?
Mr. Flynn. In the early years I don't think there was much of
an}' uniformity.
Mr. Gesell. Was there any uniformity of underwriting practices
at that time?
Mr. Flynn. Yes ; I think they were gra lually crystallizing uni-
lorm practices.
Mr. Gesell. But when the actuaries first got together were those
l>ructices uniform or were they not?
Mr. Flynn. They were not I think when they first got together.
Mr. Gesell. Were the companies making or losing money in their
group departments?
Mr. Flynn. I can't answer that. I don't know.
Mr. Gesell. Would you say that competition was severe at that
time ?
Mr. Flynn. Perhaps ;/ou are thinking of the wrong period. I am
thinking of the very eurly years, and I think competition was always
severe.
Mr. Gesell. Different companies had different plans which they
were writing Avhich the other companies weren't, and each of them
was going off ( n its own hook, so to speak?
Mr. Fltnn. To a large extent that is so.
Mr. GEh'EiL. Then, u you tell us whether there were invited into
these conferences some of the smaller companies which were writing
group life insurance?
Mr. Flynn. Any company that started to write group insurance
•vhich wanted to come in Avould be invited to these "meetings.
Mr. Gesell. I read you a bit from a memorandum from yourself
10 Mr. Butler under date of September 30, 1924, in which you say:
There is the general feeline among all of the smaller companies, based upon
that which has been said iu the Actuarial Society and other meetings, that all
are invited to cooperate to obtain policy forms, underwriting rules, etc., if
they will be good.
CONCENTRATION OF ECONOMIC POWER 4159
What did you mean by that ?
Mr. Flynn. If they agreed to follow good practices.
Mr. Gesell. You mean not if they would agree ^u follow the
practices which the larger companies had established?
Mr. Flynn. I don't want to evade. I would say that the larger
companies' main object was to establish sound practices and, having
had perhaps more experience than the smaller companies, they would
like to lead along that line, and that was what I meant in saying "if
they will be good."
Mr. Arnold. Would it be fair to suggest that you didn't want
obstreperous and dissenting opinions in these conferences?
Mr. Flynn. I wouldn't think that was it. We didn't mind the
dissenting opinions because there were many in those early days. I
think we felt that they would need a little leading into good
practices.
Mr. Arnold. Then would it be fair to suggest that you did not
want anyone who was incapable of accepting leadership?
Mr. Flynn. Well, I don't think that is it, exactly.
Mr. Arnold. You did want the leadership, didn't you?
Mr. Flynn. I think we felt we knew perhaps a little more, having
written more business and having had more experience. AVe had
gone through a great many troubles and seen the number of improper
offshoots of group insurance in its early days, and a nevv company
starting up oftentimes had new ideas, and we thought we could really
teach and lead them a little better.
Mr. Arnold. Then would it be fair to suggest that you didn't want
people who wouldn't follow the advantages of your superior experi-
ence ?
Mr. Flynn. I think that is it.
Senator King. The testimony you have given to date— does it
deal almost exclusively with a period in and about 1917 or immedi-
ately thereafter?
Mr. Flynn. I think that is dated, Senator, 1924, and it is after the
191T period, after business had developed quite a bit.
Mr. Gesell. Mr. Flynn, will you look at that file" and state
whether it is not a fact that the circumstances which prompted that
memorandum were the fact that a small company, the Western I^ion
Co., which wa^s not a member of the association but which was writ-
ing group insurance, had attempted to take a contract aAvay from
one of the members of the association, or one of the members of the
group ?
Mr. Flynn. Yes ; that was in relation to a transfer, or attempt to
transfer, a case carried by another company!
Mr. Gesell. They had, in effect, succeeded in taking a piece of
business away from one of the members of the group, had they not,
and when you said they were invited to join if they would be good,
did you not have in mind that they would cease to take business away
from the members of the association ?
Mr. Flynn. Yes"; that is correct.
May I make a statement which I think will clear the point here?
Group life insurance is like regular life insurance in that there is a
high first-year commission and a very low renewal commission. It Is
written on the supposition that, once written, it would be retained
b}'^ the carrier in order that the lower expenses of continued handling
4160 CONCENTRATION OF ECONOMIC POWER
of the business would be enjoyed by the employer and the employee.
To transfer a group case is just as much twisting as to transfer an
ordinary life case.
Mr. Gesell. Let me see about that. Is not twisting the taking
away of a policy by misrepresentation or omission to state some
material fact?
Mr. Flynn. That is correct.
Mr. Gesell. Is there anything in Ihat file in front of you which
indicates the Western Union Co. had misrepresented the situation
or had omitted to state any material fact, or had acted in an ulterior
manner? They had just taken the business.
Mr. Flynn. If I remember correctly there was some influence of
some kind used in the transfer of the business. I don't think there
was any dissatisfaction with the service or the handling of the case.
It was a reciprocity matter, I believe, if I remember that correctly.
Mr. Gesell. Isn't it a fact that your rules that you call "anti-
twisting" rules are rules which prevent one company from taking
business from another, regardless of whether or not they take it by
misrepresentation or whether they take it fairly ? They prevent the
taking of business under any circumstances, do they not? That is a
lot more than twisting.
Mr. Flynn. It discourages it in that no commission is paid, which
doesn't offer any incentive for the transfer of the business. Business
is transferred occasionally, but the companies I think appreciate what
I said first, that if there is a continual transferring of business a new
.first-year commission must be paid eventually, and the overhead will
run somewhat similar to many of the casualty and fire lines. The
overhead in group life insurance is very low, mainly because of low
acquisition expense and low expense of handling.
It is very efficiently handled.
Mr. Gesell. Now we will come to a detailed discussion of the
rules when we get to the formal association. I want to call your atten-
tion, at this time, to another memorandum written by yourself to
Mr. Brosmith under date of April 21, 1933, in which you refer to some
of these rules and state :
These rules have not dealt with the minor detailed features of the under-
writing but with the important matters upon which the companies should be
together in order to prevent ruinous competition.
Do you recall that memorandum?
Mr. Flynn. Yes, sir; I recall that.
Mr. Gesell. Does that not help you to refresh your recollection
that the purpose of some of these rules was not simply, purely the
establishment 'of ethical standards of luiderwriting but was to pre-
vent what you term "ruinous competition."
Mr. Flynn. Yes ; I think that is correct.
Mr. Gesell. What did you mean by "ruinous competition"?
Mr. Flynn. Well, I think the major item of that kind would be
this transfer danger or evil if it ever got under way, and for the
reason that that would increase the cost of group insurance because
the new first-year commission must be paid on each transfer and it
would work out inefficiently.
The Chairman. What is the evil in the transfer of insurance from
one company. to another?
CONCENTRATION OF ECONOMIC POWER 4161
Mr. Fltnn. Senator, there isn't anything in it excepting the loss
to the employer and the employee in higher cost.
The Chairman. But if an employer is willing to assume that higher
cost, wliat is the objection to it?
Mr. Flynn. Well, oftentimes there is an accumulated good expe-
rience which he established, a reputation with his company, the first
carrier. He might have to build up his reputation, you might say,
with the new carrier.
The Chairman, Now, your employer A has entered into a group
insurance contract with insurance company X and then insurance
company Y for one reason or another induces A to switch that group
insurance to Y from X. To do that it would be normally assumed
that Y would have to convince A that the transfer was to the benefit
of A. Assuming those to be the facts, what evil would there be in
the transfer?
Mr. Flynn. Well, really if those were the facts, if there were nothing
lost, there would really be nothing of evil in the transfer. The point
which I am trying to make is that we as companies deveiyping group
insurance with the responsibility of trjdng to keep it on an efficient,
economical basis, feel that if there is frequent transfer — there can be
transfer, but if there are frequent transfers — there will be a demand
for a new first-year commission from the agent effecting the transfer
and generally the
The Chairman (interposing). So your position is that it is desir-
able from the point of view of group insurance as a whole that trans-
fers be discouraged?
Mr. Flynn. Yes, sir.
The Chairman. You regard the transfers as ruinous competition ?
Mr. Flynn. That is it.
The Chairman. That altogether, without regard to whether or not
the insured desires to make the transfer?
Mr. Flynn. Yes.
The Chairiman. Your feeling is that those who are handling group
insurance ought to be in a position to raise obstacles to the free trans-
fer by the insured of their policies? You nodded affirmatively?
Mr. Flynn. Yes.
Mr. Frank. May I ask, purely out of ignorance, would your rules
be designed to prevent a transfer, even if in a particular case the cost
to the employer was less?
Mr. Flynn. Our rules are designed to have full information come
out if there is a transfer desired, and for the new carrier, that is the
new company, to be quite fair in handling it. If it is clearly to the
advantage of the employer to transfer, that could be accomplished and
the transfer would be made.
Mr. Frank. Wha| I am getting at is, might" not the cost to the em-
ployer^ regarding him as distinguished from the insurance company
that lost the business, be to the advantage of the employe): in that he
might in a particular case get a lower cost ?
Mr. Flynn. That is right.
Mr. Frank. Assuming that that were true, would your rules never-
theless be designed to discourage the- transfer ?
Mr. Flynn. They would in that no commission would be paid to
the agent effecting the transfer..
4162 CONCENTRATION OF ECONOMIC POWER
Mr. Frank. In that event the employer would, not suffer.
Mr. Fi-YNN. No.
Mr. Frank. It would be the company that would suffer.
Mr. Flynn. That is it and the agent.
Mr. Frank. Ought not the employer be allowed to get insurance at
the least cost to him on the basis of competition if that is possible ?
Mr. Flynn. That is correct, he should.
Mr. Frank. Yet these rules — I don't know anything about them;
I am just inquiring out of my own ignorance — are designed to prevent
him from getting a lower cost even if he can do so,
Mr. Flynn. They are not designed to prevent him. They are de-
signed to have full information come out so he can make his own
decision.
Senator King. Do these transfers increase the cost of operation?
Mr. Flynn. Yes, sir.
Senator King. The cost of operation would necessarily cost the in-
sured, the employee, a higher rate.
Mr. Flynn. That is right.
Senator King. You mentioned 60 cents a moment ago in a given
case. Supposing there were frequent transfers from one company to
another, thus increasing the cost, might the reaction be an increased
cost to be paid by the employee for his insurance ?
Mr, Flynn. That would be the net effect.
Mr. Frank. You mean the net effect after a long series of transac-
tions.
Mr. Flynn. Yes.
Mr. Frank. A^uin, without indicating my own views in any re-
spect as to the desirability or undesirability as to preventing competi-
tion, cannot the same argument be made in any industry that compe-
tition which will briiig lower cost to the- consumer may ultimately in-
crease the cost to all consumers, and isn't that argument frequently
made where persons want to engage in any competitive practice?
Mr. Flynn. I am really not familiar with that matter.
Mr, Gesell. I think possibly if we proceed with this, the signifi-
cance of some of these rules would be more apparent.
The Chairman. Perhaps you would prefer to conduct your exami-
nation without interruption by the committee.
Mr. Gesell. I would, sir.
The Chairman. We will try to observe that rule.
Mr. Gesell. Will you tell me, Mr. Flynn, when it was after your
organization in 1917 that you first started to consider bringing about
uniform rates?
Mr. Flynn. I would say within a year or two.
Mr. Gesell. I show you a letter from Mr. Morris to Mr. Craig, of
the Metropolitan, Mr. Morris being then actuary of the Travelers, and
ask you If that letter does not indicate that in 1917, the very year
that the organization got together, there was some discussion of the
desirability of bringing about uniform rates ?
Mr, Flynn. AVell, that apparently was written by Mr. Morris to
Mr. Craig.
Mr. Gesell. You recognize his signature, do you not?
Mr. Flyva-, Yes, sir.
CONCENTKATION OF ECONOMIC POWER 4163
Mr. Geseul. So that this letter would indicate that as early as
November 26, 1917, there was some consideration being given to the
desirability of bringing about uniform rates for group life insurance.
Mr. Fltnn. It appears so.
Mr. Gesell. I should like to read a paragraph of this letter [read-
ing from "Exhibit No. 642"] :
I am working on a schedule, by occupation, of rate classification to see if it is
not possible to bring about some uniformity among the companies in this matter.
As I look at it, lack of uniformity is a decided draw-back to the business as a
whole. For instance, on a certain class of risk where there is competition and
the Travelers quotes a B rate, the Aetna a C, and the Metropolitan a D rate, the
Travelers, all things being equal, gets, the business. If, on the other hand, th.e
Aetna quotes the A rates, the Metropolitan the B, and the Travelers the C, the
chances are that the Aetna gets the business, so that the tendency due to lack
of uniformity is toward the company quoting the lowest rate. If the companies
were able to average up on other risks, the situation might not be as serious, but
when the tendency is always the same the result is, of course, the writing of
group business below the average quotations. In other words, it isn't necessarily
one company but all companies that suffer through a lack of uniformity. Of
course, I refer to companies granting nonparticipating or practically noupar-
ticipating rates. Whether we can get all such companies to consider such a
scale is another matter, but it is worth trying.
I would like to offer that letter for the record.
The Chairman. Have you identified it?
Mr. Gesell. The witness has identified it.
The Chairman. The letter may be received.
(The letter referred to was marked "Exhibit No. 642" and is in-
cluded in the appendix on p. 4687.)
Mr. Gesell. Will you tell me when it was that the members of this
informal association first agreed upon a uniform rate base?
Mr. Flynn. I can't tell from memory.
Mr. Gesell. May I call your attention to another memorandum writ-
ten by Mr. Morris from the files of your company to the president and
to Vice President Way.^ "What is the date of that memorandum ?
Mr. Flynn. April V2, 1919.
Mr. Gesell. Mr. Morris is dead, is he not ?
Mr. Flynn. Yes ; he is.
Mr, Gesell. Will you examine that memorandum? Does that re-
fresh your recollection ?
Mr. Flynn. Yes, sir.
Mr. Gesell. Wlien was it the uniform rates were agreed upon ?
Mr. Flynn. 1919.
Mr. Gesell. Do you recall what companies agreed to them at that
time?
Mr. Flynn. Aetna, Travelers, Connecticut General, I think
Mr. Gesell (interposing). Metropolitan and Prudential?
Mr. Flynn. They agreed upon a slightly higher rate, approxi-
mately 5 percent higher.
Mr. Gesell. That was to take care of the difference, was it not, be-
tween the three Hartford companies, which were writing on a non-
participating basis, and the two New York companies, writing on a
participating basis?
Mr. Flynn. That is right.
1 Subsequently introduced as "Exhibit No. 64a," infra, p. 4165.
4164 CONCENTRATION OF ECONOMIC POWER
Mr. Gesell. The net result of the rates agreed upon was to elimmate
competition entirely so far as rates were concerned among those prin-
cipal companies, was it not ?
Let me read a paragraph of this letter [reading from "Exhibit No.
643"] :
It would seem, therefore, that the action which has been sought by the Hart-
ford companies involving an understanding as to rates and maximum commis-
sions is now possible and that competition on the basis of rates and underwrit-
ing, as well as commissions, wii' in the future be avoided by an agreement of
the three Hartford companies, the Metropolitan and the Prudential.
That is pretty specific, is it not?
Mr, Flynn. I agree upon agreement as to rates, but not as to the
purpose of it.
Mr. Geslll. Well, regardless of the purpose of it, the result was to
eliminate competition so far as rates and commissions were concerned,
was it not ?
Mr. Fi-TNN. Yes ; ruinous competition, really.
Mr. Abnold. This eliminates all competition, doesn't it?
Mr. Flynn. I imagine at that time there were other companies writ-
ing group insurance.
Mr. Arnold. But you three companies, in your anxiety to eliminate
ruinous competition, made an agreement which eliminated all compe-
tition.
Mr. Flynn. Competition of those companies, bat if there were com-
panies outside they would have different rates, perhaps.
Mr. Gesell. This agreement involves the Tra/elers, the Aetna, the
Connecticut General, the Metropolitan, and the Prudential, does it
not? And does not the memorandum also state Ihat the Equitable is
not to be considered from a competitive point of view, because their
rates are higher than the rates of those other five companies ?
Mr. Flynn. Yes ; it says that.
Mr. GESELt,. Then we have the six largest companies writing group
life insurance coming to an understanding with respect to both rates
and commissions, which eliminates competition; is that not correct?
Mr. Flynn. As to eliminating competition, I can't quite agree with
that.
Mr, Gesell. It eliminates it from the point of view of rates, from
the point of view of underwriting, and from the point of view of
commissions to agents.
Mr. Flynn. Among the six companies.
Mr. Gesell. At this time, 1919, what other company was in a posi-
tion to compete with these six large companies ?
Mr. Flynn. I can't recall offhand, but Canadian companies, if I
remember correctly, were at that time writing business.
Mr. Gesell. You mean there might be a little competition up in
Ottawa, or up near Hudson Bay ?
Mr. Flynn. No ; they were doing business in the United States — I
believe the Sun Life and one or two other companies.
The Chairman. So far as these particular companies are concerned,
you did eliminate competition?
Mr. Flynn. So far as rates and commissions were concerned.
Mr. Gesell. Rates and commissions and underwriting.
Mr. Flynn. And the underwriting rules also.
CONCENTRATION OF ECONOMIC POWER 4165
The Chairman. And in expressing the fact that an agreement had
been reached among six companies to eliminate competition the memo-
randum stated "The Equitable's rates being so much higher, they have
not caused controversy. Would it be a proper inference that some of
the other companies which were not in the agreement were also charg-
ing higher rates, and therefore were not bothering you from a com-
petitive standpoint ?
Mr. Flynn. I can't recall. Senator. I doubt if that was so; but I
should remark here, I think, to clarify this, that the Metropolitan, Pru-
dential, and Equitable rates were participating rates.
The Chairman. In order that the record may be clear, let me ask
you to define briefly the difference between participating and non-
participating companies.
Mr. Fltnn. Participating contracts provide for the participation
in profits under the contract of the policyholder; nonparticipating
contracts are guaranteed maximum rates without a participation
clause. In later years it developed that nonparticipating companies
gave what we call "experience credits," and are doing that today.
Mr. Gesell. Now, at this time, in simple language, if you have
•I nonparticipating group life policy the policyholder doesn't get
anything back. If he has a participating policy he may get some-
thing back. There is a difTerence there, isn't there?
Mr. Flynn. That isn't true today.
Mr. Gesell. I am talking as of April 1919, when this memoran-
dum was written.
Let me read this memorandum to refresh you on that [reading
from "Exhibit No. 643"] :
The rates for standard groups suggested by the subcommittee appointed at
an earlier meeting were considered acceptable as the minimum for the non-
participating companies. The Metropolitan and the Prudential announced that
they would use these rales increased approximately 5 percent for dividends.
In other words, the Metropolitan and Prudential, which had par-
ticipating rates, raised their rates 5 percent for the dividend of 5
percent which they would eventually give back to the policyholder
so that the rates were uniform.
Mr. Flynn. The dividend would not necessarily be 5 percent. It
simply gave a little more margin and leeway so that they could offer
participation.
Mr. Gesell. Your effort here was to even out any differences which
might exist, because one set of companies were writing nonpartici-
pating business and the other set of companies were writing par-
ticipating business. Isn't that so?
Mr. Flynn. I wouldn'< say it evened it out, because the dividends
might run considerably more or considerably less than 5 percent.
It was simply to give a working margin more than the nonparticipat-
ing rate.
Mr. Gesell. I should like to offer the memorandum which we have
just been discussing for the record.
The Chairman. The memorandum may be received.
(The memorandum referred to was marked "Exhibit No. 643" and
is included in the appendix on p. 4688.)
Mr. Arnold. What consideration was given to the consideration
of antitrust laws at the time this agreement was made?
4166 CONCENTRATION OF ECONOMIC POWER
Mr. Flynn. My answer must be more or less of an estimate. I
don't think that much of any consideration was given to it at that
time. I think it was in the minds of certain officials of certain com-
panies, but I don't think it had been discussed a great deal.
Mr. Gesell. Mr. Flynn, this memorandum which has just gone into
the record is dated April 12. 1919. I wish to read you a memorandum
dated May 9, 1922, which you wrote to Mr. Brosmith, vice president
and general counsel of your company [reading from "Exhibit No
644" 1] :
The following question has been raised at various times : Are the companies
writing group insurance violating any antitrust law or in any way acting in an
illegal manner by permitting their representatives to gather periodically in
order to pool their knowledge as a basis for a unanimous recommendation of a
necessary underwriting rule, or by pooling their experience as a basis for
rates?
The recommendation of the informal committee of representatives can be
adopted or rejected by each company, but as a general rule no recommendation
is adopted by the committee unless the vote is unanimous. There is nothing
binding upon any company to follow the underwriting rule, the recommended
commission scales, or the rates which are recommended, but each company
appreciates the advantages of cooperation to such an extent that it follows its
own rules, which are generally based upon the recommendations of the
committee.
Will you kindly let me have your opinion as to the legality of this procedure?
You recognize that memorandum as yours, do you not?
Mr. Flynn. I do.
Mr. Gesell. Does that refresh your recollection as to your worries
about antitrust legislation at this time ?
Mr. Flynn. At this time the question had been raised by some com-
pany officials. In answering Mr. Arnold's question, the time was back
in 1919. In '22 this question was much more alive.
Mr. Gesell. Will you tell me what briught up tliis question and
what prompted the writing of this memorandum that we have just
read ?
Mr. Flynn. One company questioned the propriety or the legality
of companies getting together.
Mr. Gesell. What company was that ?
Mr. Flynn. Metropolitan Life.
Mr. Gesell. All right ; will you tell us about what happened ?
Mr. Flynn. I believe at that time there was some thought of a
more formal organization, and the Metropolitan was fearful that it
might not jibe with certain antitrust laws.
Mr. Gesell. That was in 1922, was it not?
Mr. Flynn. That was in 1922.
Mr. Gesell. Your formal organization wasn't made until 1926,
was it?
Mr. Flynn. No.
Mr. Gesell. Do I understand that away back in 1922 you were
considering getting together on a more formal basis?
Mr. Flynn. I think there was talk of it. I can't be sure.
Mr. Gesell. What was done to dissolve the worries of the Metro-
politan about this matter?
Mr. Flynn. Mr. Brosmith made a reply to my memorandum.
Mr. Brosmith was recognized, I think, as a very fine lawyer, par-
1 Subsequently introduced, see infra, p. 4168.
CONCENTRATION OF ECONOMIC POWER 41g7
ticularlA^ in insurance ]a^Y. He had had the experience of other
oro:aDizations in other lines of insurance. I think that had a large
effect upon the decision of the Metropolitan.
Mr. Arnold. Did he draw up this formal statement of your policy
which was read as part of that letter?
Mr. Geselx,. The second part of your letter.
Mr. Fltnn. Do you refer, Mr. Arnold, to May 9, 1922?
Mr. Arnold. Yes; May 9, 1922.
Mr. Flynn. This does not refer really to a formal understandinij.
In this second paragraph I am referring to the method of handling
these informal meetings, and I say :
The recommendation of the informal committee of representatives can- be
adopted or rejected * * *.
That was not a written rule. That was our practice.
Mr. Arnold. It occurs to me from reading this that it is some-
what cagily drawn for the purpose of getting a complete undcM'
standing that competition will be iliminated and also for the pii-
pose of making it appear that the law is not being violated. I;
example, you start out by saying that no recommendation is adopts '
by the committee unless the vote is unanimous. Then you say <:hei ^
is nothing binding on the company to follow these rules, and the
you say, "Well, we are going to follow them anyhow." It seems U>
point both ways, and it seems to have a certain similarity to man}
other attempts to^ stay within the antitrust laws and get all the
advantages of combination.
Is that an unfair characterization of that memorandum ?
Mr. Flynn. I wouldn't say it was unfair except in the aninuis.
Our effort wasn't to stay within the law and accomplish things, but
to attempt to get together informally for the good of the business.
We had, perhaps, in mind the fact that if we did one thing oi'
another thing it might be questioned by certain of the informal mem-
bers. This was drawn to Mr. Brosmith's attention by me, stating it
in a rather careful way in order to show, really, the animus of the
members in working things out.
Mr. Arnold. The animus of the members was to get together, but
at the same time not to appear to get together. Is that right?
Mr. Flynn. I think that isn't quite right.
Mr. Arnold. This certainly was drawn with the idea that there was
a real danger of violating the antitrust laws, and it was d-"awn for
the purpose of obtaining the benefits of combination for your com-
pany and at the same time not appearing to violate the law.
Mr. Flynn. I think that is right.
Mr. Gesell. Mr. Flynn, will you look at the second page of that
document and tell me whether or not that is not the reply which Mr.
Brosmith wrote to j^ou?
Mr. Flynn. Yes; that is the reply.
Mr. Gesell. May I also show you another memorandum to Mr.
Brosmith, under date of March 28, 1925, 3 years later, and ask you
if you do not recognize that.
Mr. Henderson. Mr. Gesell, did you introduce into the record
Mr. Flynn's memorandum?
124491 — 40— pt. 10 3
4168 CONCENTRATION OF ECONOMIC POWER
Mr. Gesell. I neglected to, Mr. Henderson. I wish to offer for
the record at this time Mr. Flynn's memorandum to Mr. Brosmith,
which has been identified, and Mr. Brosmith's reply.
The Chairman. The memorandum may be received, together with
the reply.
(The documents referred to were marked "Exhibit No. 644" and
are included in the appendix on p. 4689.)
Mr. Gesell. That memorandum which you have in your^ hand
would indicate that it was not until 1925 that the Metropolitan
raised the objection with respect to the legality of this procedure.
Is that not correct?
Mr. Flynn. This would lead you to think so, but I think th^t opinion
I got from Mr, Brosmith was because of discussions at that? time.
Mr. Gesell. In other words, in 1922 the Metropolitan Life Insur-
ance Co. was worried about this matter; and in 1925, 3 years later,
they are still worried about it.
- Mr. Flynn. They are still discussing the matter.
Mr. Gesell. May I have the memorandum, please, a moment?
Mr. Brosmith is dead, is he not?
Mr. Flynn. Yes; he is.
Mr. Gesell. You say to Mr. Brosmith as follows [reading from
"Exliibit No. 645" ^] :
Mr. J. D. Craig, of the Metropolitan, told me the other day that President
Fiske, at a recent conference, told Kavanagh and Craig —
Those are actuaries, are they not, of the Metropolitan?
Mr. Flynn. Craig is. Kavanagh is the head of the sales organi-
zation.
Mr. Gesell (reading further) : .
that he was still firmly of the opinion that representatives of the Metropolitan
should not convene with other companies writing group insurance with the
idea of adopting certain recommendations. Mr. Fiske —
Mr. Fiske was the president of the Metropolitan ?
Mr. Flynn. Yes.
Mr. Gesell (reading further) :
Mr. Fiske had recently told the Metropolitan they could attend such confer-
ences, but he says now he thought they were group accident and sickness
conferences, not group life.
I asked Mr. Crang if this was simply an excuse for the Metropolitan to break
over the traces, and he said "No" ; that Mr. Fiske was sincere in his opinion
that by getting together with other company representatives, even in an informal
way, the Metropolitan was violating certain laws — and that Mr. Fiske based
this opinion mainly upon the advice of Mr. Lincoln.
Mr. Lincoln is a lawyer, is he not?
Mr. Flynn. Yes.
Mr. Gesell. Now president of the company, is he not ?
Mr. Flynn. Yes.
Mr. Gesell (reading further from "Exhibit No. 645") :
Craig said that Mr. Lincoln thinks that the informal get-together of the group
companies is in violation of certain statutes. I tried to find out what statutes
he referred to. Craig did not know, but did say that a year or so ago Lincoln
drew to his attention a bill proposed in Arkansas, section 2, article 151, which
prohibited such getting together of companies engaged in life-insurance business.
Jim was not sure that such a bill "had passed.
1 Subsequently introduced, see infra, p. 4170.
CONCENTRATION OF ECONOMIC T^OWER 4169
I suggested to Mr. Craig that you talk with Mr. Lincoln about the matter,
and he thought it would be advisable, as Mr. Fiske would not change his mind
until Mr. Lincoln changed his. I have spoken to Mr.- Butler —
He was the president of your company, was he not ?
Mr. Fltnn. Yes.
Mr. Gesell (reading further):
and he wanted me to suggest to you that you take the matter up with Mr.
Lincoln to see what he had in mind.
Although the Metropolitan are supposed to conform to all of the rules, even
if they do not attend the conferences, it would be a much better working plan
to have them on hand at the meetings; and it would also be much better to
clear up the question of legality of our meetings, as some of the other companies
may also become frightened if they feel that the Metropolitan really have some
legal grounds upon which to stand.
Do you recognize attached to that memorandum the reply which
Mr. Brosmith gave you? Do you recognize that, Mr. Flynn?
Mr. Flynn. It is not initiatled, but I have seen it. I recognize it.
Mr. Gesell. I would like to read that to the committee, if I may.
This is a memorandum dated March 30, 1925, from vice president and
general counsel to Secretary Flynn— that is yourself, is it not?
Mr. Flynn. Yes.
Mr. Gesell (reading from "Exhibit No. 645") :
Re antitrust laws, and Haley Fiske's position re Metropolitan.
In many of the States the laws which prohibit trusts and combinations in re-
straint of trade have been held to apply to insurance companies. In some of
these States the words "insurance" or "insurance premiums" or "ii^i durance-pre-
mium rates" are specifically mentioned. In other States the languj«e of these
laws is not broad enough to affect the business of insurance. Again, in other
States there are no laws against trusts or combinations in restraint of trade and
the common-law rules prevail.
Commencing back about 1910 or 1911, the legal committees of the several cas-
ualty bureaus made studies of all of the antitrust laws and of decisions in all of
the States bearing thereupon and prepared a schedule for the use of the casualty
organizations, indicating in which States mandatory rates might be used and in
which States only advisory rates-
Do you have that distinction between advisory and mandatory rates
in your organization ?
Mr. Flynn. No.
Mr. Gesell (readtng further) .
also, indicating the pains and penalties for violations of the statutes where they
applied, and the connnon-law penalty was simply that of an injunction prohibit-,
ing the combination without any other penalty or damage.
All of the casualty organizations are operating under the opinions given by our
legal committees, and I venture to say that the fire-insurance companies are
operating under opinions of like tenor given by the counsel to their organizations.
We have never had; any trouble concerning rates or agreements or combinations
in any State of the Union except Kansas, where, some years ago, an action was
brought against a nvmaber of the casualty companies and thereafter dismissed.
The fire companies have had trouble in some States which has been overcome
in part by laws intended to regulate rates.
To the extent that these laws apply to insurance companies, it would seem that
they apply equally well to life insurance and accident insurance and to tho
organizations of companies which care for the interests of life- and accident-
insurance companies, so that a company oflicial who is fearful of the results
should avoid membership on the part of his company or of its officers in the life
presidents, American Life Convention, actuarial societies, and kindred organiza-
tions, which all have more or less to do with the establishment of the right
premium rates for insurance and the maintenance of right practices.
4170 CONCENTRATION OF ECONOMIC POWER
With regard to employers' liability and compensation insurance, the question
of a violation of any of these laws is practically a dead letter in all of the States
in which other laws require that the rates charged for such insurances shall be
ratefe which shall have been approved as to adequacy and reasonableness by
the insurance supervising oflBcial or an industrial board or commission. This
is true as to certain States with regard to fire insurance as well.
You should note this next paragraph, ^Mr. Flynn, because I want
to ask you about it :
To sum up, in many States there is no real risk at all. In some States there
is a technical risk, but this is no greater than all of the companies are taking
every day in the year with regard to some requirement or other.
We expect to have the life counsel meet in Hartford the 13th and 14th of
. May, and I shall probably have a chance to discuss this question with Lincoln
during the sessions.
I wish to offer these memoranda for the record.
The Chairman. They may be received.
(The memoranda referred to were marked "Exhibit No. 645" and
are inchided in the appendix on p. 4690.)
Mr. Gesell. The result of Mr. Brosmith's legal analysis of the com-
plicated question was that if you continued, you_ possibly were
technically violating some State antitrust laws, was it not?
Mr. Flynn. Yes.
Mr. Gesell. What was done about Metropolitan's objection ? Did
they continue in the organization ?
Mr, Flynn. I think they did.
Mr. Gesell. Was the nature of your organization changed in any
way, or did you not continue just the same way after this legal
opinion ?
Mr. Flynn. If I remember rightly, the Metropolitan gathered with
the other company representatives after that, provided no matters
bearing upon rates or rate making were handled.
Mr. Gesell. The rest of your companies continued to consider rates
and handle rate matters?
Mr. Flynn. Keally outside the organization; it was sort of an
actuarial gathering.
Mr. Gesell. You mean that you moved your rate-making activities
from your informal organization to another group?
Mr. Flynn. Yes.
Mr. Gesell. I see. In view of these references in the memoranda
10 State antitrust laws, if the committee please, I think it might be
well for me to offer for the record as background only the statutes of
eight States, which appear to contain specific prohibitions of one
type or another against life-insurance companies combining as to
rates or entering into one form or another of anticompetitive
agreement.
The Chairman. Ic is not your desire to have those statutes printed
in the record, is it?
Mr. Gesell. I just would like to save the committee the rather ar-
duous job of reading through and pulling out those statutes. I can
summarize them for you.
The Chairman. I think the summarization of the statutes would
be all that is necessary.
Mr. Gesell. The ones I refer to are Arizona, Georgia, Kansas, Ne-
braska^ Oregon, South Carolina, Texas, and Washington. I might
CONCENTRATION OF ECONOMIC POWER 4171
make brief reference to one or two of these States, The Arizona stat-
ute, for example, defines a trust as —
a combination of capital, skill, or acts, by two or more persons * * to
control the rates of insurance.'
In Nebraska the definition of a trust includes —
a combination of capital, skill, or acts by two or more persons to prevent com-
petition in insurance, either life, fire, accident, or any other kind.*
The Georgia statute states:
No insurance company authorized to do business in this State, or the agent
thereof, shall make, maintain, or enter into any contract, agreement, pool, or
other arrangement with any other insurance company or companies, licensed to
do business in this State, or the agent or agents thereof, for the purpose of, or
that may have the tendency or effect of, preventing or lessening competition in
the business of insurance transacted in this State.''
I might say the statutes of Oregon and Washington are patterned
after this Georgia statute and are quite similar.
The CHAIRMAN'' All of these statutes have specific prohibitions of
certain types of combinations and agreements with respect to the fixing
of insurance rates?
Mr. Gesell. That is correct, and I have not included in this dis-
cussion those statutes where it is clear that they do apply only to
casualty or fire companies.
The Chairman. Nor have you included those States which have
antitrust acts without specific allusion to any particular type of busi-
ness.
Mr. Gesell. That is correct. There are, of course, as the chairman
knows, many such statutes.
Kather than reading the citations I will hand them to the reporter
to copy the citations for the record.
The Chairman. Very good.
(The citations referred to were marked "Exhibit No. 646" and are
included in the appendix on p. 4692.)
Senator King. In those States to which reference has been made by
counsel, was there any requirement that before insurance was written
in those States the rates must be filed and a license obtained from the
insurance commissioner ?
Mr. Fltnn. As regards life insurance?
Senator King. Yes.
Mr. Flynn. I really don't know.
Senator King. Did your company write insurance in any State
without submitting the rates or obtaining a license from the insurance
commissioner of that State?
Mr. Flynn. We always obtained the license from the insurance
commissioner, but as a rule there is no law requiring the filing of
manual life rates.
Senator King. What representations are required in the States to
which you have referred by the State law or by the insurance commis-
sioner before the license is obtained? In other words, what are the
prerequisites which must be satisfied by the applicant in order to obtain
a license ?
1 See "Exhibit No. 646," appendix, p. 4692.
^ Ibid, at p. 4695.
« Ibid, at p. 4692.
4172 CONCENTRATION OF ECONOMIC POWER
Mr. Flynn. Ordinarily a deposit, I mean a certain corporate stand-
ing, not necessarily a deposit of security.
Mr. Gesell. I would be glad to prepare a memorandum on that
for you, Senator, for the record.^
Senator King. I would be glad to get that.
My recollection is, and I had that in mind when I propounded
the question, that in New York you had a statute which very care-
fully outlines the piogram, the rates, and the steps to be taken in
order to do business in that State.
Mr. Flynn. That is correct.
Senator King. And reports must be submitted of the financial stand-
ing of the various companies, the number of policies which they have
written, and the obligations which they have assumed, and the re-
serves, and so forth, so you operate in New York under the directioit
of the statute, substantially. Is that true of other States ?
Mr. Flynn. That is true of all States. "We must file annual state-
ment forms and any other schedule or form they want annually.
Senator King. Do those forms require a statement as to your assets
and liabilities?
Mr. Flynn. Yes, sir.
Senator King. Tlie policies which you have written ?
Mr. Flynn. Yes, sir.
Senator King. And the obligations which you have assumed under
those policies ?
Mr. Flynn. Yes, sir.
Mr. Gesell. Now, Mr. Flynn, we made passing reference some while
ago to the fact that the companies agreed upon a uniform rate of life
insurance in 1.919. That was the so-called T rate, was it not?
Mr. Flynn. I can't say whether at that time the T rate was adopted^
or not.
Mr. Gesell. , Will this refresh your memory ?
Mr. Flynn. That is correct.
Mr. Gesell. That T rate in effect was agreed to by all of the com-
panies that belonged to this informal conference at this time, was
it not?
Mr. Flynn. Yes, sir.
Mr. Gesell. And those were the principal companies writing group
life insurance?
Mr. Flynn. Yes, sir.
Mr. Gesell. And that rate — here you want to w^atcli me, because
I am getting into actuarial language — was a rate based upon the
American Men's Ultimate Table, with provision for loading of $1.70
plus 5 percent of gross for commissions and an additional 1% percent
of gross for taxes. Is that not correct ?
Mr. Flynn. You have really got me ; I think that is correct.
Mr. Gesell. That makes me feel better, Mr. Flynn.
That T rate fixed the price at which group insurance could be sold
by all of those companies which were members of your conference?
Mr. Flynn. I would like to check as to whether or not that par-
ticipating rate of the Metropolitan and Prudential was still in exist-
ence, which was approximately 5 percent more than the T rate.
'*Mr. Gesell subsequently submitted a memorandum entitled "Summary of Statutory
Prereqiilsites for Licensing of Life Insurance Agents" wliich appeaISs in the appendix on
p. 4929.
CONCENTRATION OF ECONOMIC POWER 4173
Mr. Gesell. We can do that at the noon hour, and if you will let
us know in tlie afternoon session it will be fine.
At this time did you also enter into various underwriting agree-
ments of one sort or another which would control the underwriting
practices of the companies?
Mr. Flynn. Yes. The rules of the informal association governed
the major underwriting practices.
Mr. Gesell. May I summarize them briefly?
In addition to the rate agreement on the rate which we con-
sidered, you had agreements concerning the commission scale, did
you not?
Mr. Flynn. Yes, sir.
Mr. Gesell. You also had certain agreements affecting various
hazardous industries, so-called?
Mr. Flynn. Extra premiums; yes.
Mr. Gesell. -Those were additional rates that would be charged in
industries where the mortality experience was high because of the
nature of the occupation of the employees?
Mr. Flynn. That's it.
Mr. Gesell. You also had some agreements with respect to the
maximum amount of insurance and the size of the group that would
be written, did you not ?
Mr. Flynn. Yes.
Mr. Gesell. You also had provisions with respect to the transfer
of business, which we have discussed ?
Mr. Flynn. Yes.
Mr. Gesell. Had you at that time gotten to a consideration of
uniform policy forms and provisions, and done something to make
those provisions uniform ?
Mr. Flynn. Only so far as the policy provisions would be af-
fected by those underwriting rules,
Mr. Gesell. Wherever the underwriting rule related to a policy
provision, some uniformity resulted, did it not?
Mr. Flynn. Yes.
Mr. Gesell. Will you tell me what led to the organization of the
formal Group Association in 1926, why it was you changed the na-
ture of your operations? What prompted the change, and what was
the change ?
Mr. Flynn. Toward the end of 1925 competition became very in-
tense.
Mr. Gesell. Tell me what you mean by that, please, Mr. Flynn.
Mr. Flynn. Well, a large case would be in prospect and 4 or 5
comp;inies would be trying to write it, and the various ways in
which you would modify your proposition and give a little more for
• the money or a little' different scheme for the employer were all
worked out. Toward the end of 1925 schemes of experience rating
were developed rather intensely; that is', at the end of the first year
there would not be a guaranty, but another case had shown such
and such an experience rating at the end of that period, therefore
that would be mentioned. Toward the end of '25, or right at the
end of the year, one company cut rates in large cases.
Mr. Gesell. What company was that ?
Mr. Flynn. That was Travelers.
Mr. Gesell. That was your co^mpany?
4174 CONCENTRATION OF ECONOMIC POWER
Mr. Flynn. My company, because so many plans for modifying the
net cost had been offered that we thought the best way was to simply
cut the contract rate. The New York Insurance Department took
cognizance of this development and called the companies together,
and various hearings were held in December and January as a result.
A law was enacted in the early part of 1926 establishing the legal
minimum rate for group life insurance.
Mr. Gesell. Well now, before we come to the enactment of tha' law,
which we will consider in a moment, I want to develop a little more
the facts and circumstances that led to its enactment. You say that
one company, the Travelers, had cut rates. Was it true that you were
having difficulty holding other companies in line on the various under-
writing, provisions which you had set up ?
Mr. Flynn. I think only mainly as regards the matter of estimated
net cost.
Mr. Gesell. Well now, you had a rule, did you not, which pre-
vented the insurance company from agreeing to make available to
the employer clerical assistance which was needed in the preparation
of the cards and system to cover the group insurance?
Mr. Flynn. Yes.
Mr. Gesell. Was not that one of the matters which you were having
difficulty holding people in line on?
Mr. Flynn. I think it probably was.
Mr. Gesell. May I read, to refresh your recollection, from a memo-
randum from you to President Butler under date of March 26, 1924?
I read onlv a portion of the memorandum [reading from "Exhibit
No. 647"] :"
During the 2 weeks preceding the meeting, we had lieard from the field of
the offer of the Aetna in several cases to supply clerical assistance.
All that is is just getting some people over to help with the clerical
side of the business, isn't it ?
Mr. Flynn. I think to stay there and continue to handle the clerical
work in connection with the cards and registration.
Mr. Gesell. Just helping out the man, giving better service to the
man getting the group policy.
Mr. Flynn. Not installation, but continuing the handling of the
records.
Mr. Gesell. During the time the policy is in force?
Mr. Flynn. In force.
Mr. Gesell (reading further from "Exhibit No. 647") :
The offer was generally made in the form of a monthly allowance for clerical
hire to handle the detail work. This violation of the spirit of the intercompany
understanding by the Aetna was the first item on the agewda. After a hot dis-
cussion of an hour or two, the Hrst two votes outlined in the minutes were
adopted. In the course of the discussion a large number of cases where Mr.
Cammack had strained the rules for his company's advantage were brought out.
A couple of days after the meeting Mr. Cammack reported to me that the Aetna
had withdrawn as of March 17 all outstanding quotations for clerical assistance.
Then [reading further] :
I am referring to the above matter as an important possible cause for trouble
in the conference which was successfully cleared up and matters put in good
.shape in short order. It illustrates the willingness of the companies to play
together on the basis of an honest interpretation of the rules. The meeting was
Tinfoj^'tunate in that the discussion became somewhat heated and personal and
undoubtedly scandalized the John Hancock representatives who were present.
CONCENTRATION OF ECONOMIC POWER 4175
Clearly Mr. Cammack was being badly chastised and it; was apparent to all that
upon the basis of his improper practices during the past 6 or 12 months he
deserved the rough handling that he was getting. The measures which were
necessary to whip the matter in shape left some of the weaker company members,
such as the Connecticut Geneial and the Missouri State, at the point where they
were hinting at getting out of the conference in order to enjoy cut-rate
opportunities.
Do you recall that memorandum?
Mr. Flynn. Yes.
Mr, Gesell. Well now, all Mr. Cammack had done was to offer a
little better service to his particular group by giving them some
clerical assistance during the time the policy was in force.
Mr. Flynn. I should say it was a material advantage, in that he
was offering to pay for a clerk to handle all records which other
employers would have to pay for tliemselves.
Mr. Gesell. You mean, it gave' his company a competitive advan-
tage ?
Mr. Flynn. That's it.
Mr. Gesell. And even though it might be in the interest of the
particular group which had the policy, you wanted him to eliminate
it and you made him eliminate it?
Mr. Flynn. I wouldn't say it was mainly a question of policy-
holders interest. It was one of many other ways which gave a
monetary advantage to a particular purchaser.
Mr. Gesell. Why shouldn't Mr. Cammack do this if he wanted to
do it ? IVhy shouldn't he send one of his fellows over to this group ?
Mr. Flynn. Unless the companies established the practice of doing
the work for the employers, I think it would be rather discriminatory
to offer it to some.
Mr. Gesell. You meai^ you were alarmed because maybe Mr. Cam-
mack hadn't offered this to all his groups?
Mr. Flynn. Unless all companies were doing it.
Mr. Gesell, If he wanted to do it, even if he did it for one feUow
it would help that fellow out, wouldn't it?
Mr. Flynn. Well, it was a financial offer to a particular pur-
chaser.
Mr. Gesell. In other words, Mr. Cammack had been adopting a
procedure which, in net effect, enabled him to have a slight com-
petitive adv^antage, and the rest of you companies were trying to
prevent him from continuing it, and did succeed,
Mr. Flynn, Yes — not slight, I would say, as to the competitive
advantage,
Mr. Gesell, I offer the memorandum.
The Chairman, The memorandum may be received,
(The memorandum referred to was marked "Exhibit No, 647" and
is included m the appendix on p, 4701. )
Mr, Gesej^l. Then am I correct in stating that this association was
breaking down at many different points? Your company was cut-
ting rates, some of the small companies were threatening to cut
rates, Mr. Cammack was offering clerical assistance to some of his
groups, and generally you were having a little difficulty in binding
the companies together under your informal association.
Mr, Flynn, That is correct.
Mr. Gesell, Who suggested the organization of a formal associa-
tion?
4176 CONCENTRATION OF ECONOMIC POWER
Mr. Flynn. I can't tell.
Mr. Gesell. Wasn't it true tliat that suggestion came as a natural
course, as a way of binding the companies closer together and mak-
ing the rules more enforceable? , .
Mr. Flynn. I thinlc that is true, and also to have more supervision,
to have it more formal.
Mr. Gesell. You mean more self -supervision ?
Mr. Flynn. Yes; and also to bring in the New York Insurance
Department to some extent.
Mr. Gesell. You didn't bring him in,^id you? Isn't it a fact
that your constitution, as originally drafted, contained a provision
that he could come in, and you very carefully struck that out when
you set up your final constitution, so he did have no participation?
Mr. Flynn. I don't know about that.
Mr. Gesell. Let me show you this document and direct your at-
tention to paragraph (c) on pa^e 2, and ask if that doesn't refresh
your recollection. It is a fact, isn't it, Mr. Flynn, that the super-
intendent of insurance has no official connection with the association ?
Mr. Flynn. That is correct. Apparently there is a paragraph
there wdiich was stricken out later.
Mr. Gesell. Were there any objections raised to the organization
of this formal association ?
Mr. Flynn. Not that I can remember.
Mr. Gesell. May I show you this letter, a letter from Mr. Hurrell,
vice president and general counsel of the Prudential, to Mr. Brosmith,
and ask you if the initials on that letter do not indicate you had
seen it and initialed it?
Mr. Flynn. I noted that.
Mr. Gesell. In order that there can be no misunderstanding, let
me read you this letter, which is dated February 24, 1926. This was
just before your formal organization got under way, was it not?
Mr, Flynn. Yes, sir.
: Mr. Gesell (reading from "Exhibit No. 648") :
The proposed constitution for tlie Group Life Association has been turned over
to me by Mr. Little. I need hardly say that I appreciate the care and skill
that you have displayed in drafting this constitution, and I cannot- think of
anything that has been overlooked-in its preparation. '
At the same time, I have been wondering whether a written constitution does
not contain seeds of difficulty for the future. As we all know, the old informal
group committee was, on the whole, unusually successful in avoiding improper
methods of competition, particularly in avoiding the cutting of premium rates.
The fact that first one and then another company chose to withdraw seems to
have been the real cause of the subsequent difficulties. Where there is an asso-
ciation with the rather rigid rules prescribed in the tentative constitution, it
seems to me there would be strong temptation for any dissatisfied company (o
withdraw as the only possible way in which it could secure independent action
even on a quite minor point, whereas, as you know, under tlie more flexible
system of the informal committee, certain differences ia practice did persist
while the committee was still able to secure a general agreement to follow its
recommendations.
There does seem to be —
and this paragraph.anterests me in view of your statement about the
insurance commissioner —
on the part of some of the insurance departments rather a decided tendency
to look with disfavor on any positive agreement among the companies as to what
shall and shall not be done in their dealings with the insuring public. To an
insurance commissioner looking for matter for criticism, I am afraid the formal
CONCENTRATION OF ECONOMIC POWER 4177
constitution of the proposed Group Life Association would be found only too
satisfactory as evidence that the companies were combining to prevent such
freedom of competition as would result in the maximum service being offered
for the premiums collected.
I am frank to admit that perhaps I am unduly timid in this connection, but
I do feel that we secured a very satisfactory measure of success with the old
informal group committee, and having now apparently got rid of the problem
of premium rates, my own feeling is strongly in favor of avoiding anything
that would supply ammunition to an unfair critic.
May I offer this letter?
The Chairman. The letter may be received.
(The letter referred to was marked "Exhibit No. 648" and is in-
cluded in the appendix on p. 4702.)
Mr. Gesell. Were there any otlter companies that were afraid the
formation of a formal association would have some of the difficulties
which Mr. Hurrell suggests in his letter?
Mr. Fltnn. It may be that the Metropolitan still felt that there
was some danger, but I don't recall whether that was so.
Mr. GESEiiL. Do you recall, Mr. Flynn, that in setting up the con-
stitution and the rules which were adopted thereunder, that some
legal question Was raised as to the statement of the rules, and that
the rules were slightly modified so as to avoid any indication that
they would result in a combination in restraint of trade?
Mr. Flynn. You mean a change in the wording of the constitu-
tion, or something of that kind?
Mr. Gesell. a. change in the rules that were adopted.
Mr. Flynn. I do.
Mr. Gesell. It is a fact, is it not, that under Mr. Brosmith's recom-
mendations, rules which have previous!}' said no companies shall do
this or no companies shall do that, were changed to read no company
should do this or no companj' should do that?
Mr. Flynn. Yes, sir.
Mr. Gesell. Did that satisfy the Metropolitan and Prudential that
all legal questions were eliminated?
Mr. Flynn. I can't recall. .
Mr. Gesell. You recall this letter to Mr. Beers, that you wrote
on ]\Iarch 12, do you not [reading for "Exhibit No. 649"] :
Mr. Brosmith has redrafted the rules adopted by the Group Association at its
meeting held March 5, 1926, as per copy attached.
As I told you the other day, his feeling xms that the association should be
careful in putting out its rules or its minutes of meetings to steer clear of any
indication of combination in restraint of trade.
My suggestion would be that you send out new set of rules in accordance
with Mr. Brosmith's draft to be used in place of the earlier set.
Mr. Fltnn. Yes, sir.
Mr. Arnold. Am I correct in assuming that the phrase "to steer
clear of any indication of combination in restraint of trade" means
that you wanted the combination, but you wanted to steer clear of the
indication of the combination?
Mr. Flynn Yes; I thinK that is correct.
Mr. Gesell. May I offer this letter for the record?
The Chairman. The letter may be received.
(The letter referred to was marked "Exhibit No. 649" and is in-
cluded in the appendix on p. 4703.)
Mr. Gesell. Now, Mr. Flynn, am I correct in saying that in order
to obviate some of the difficulties which the Metropolitan and the
4178 CONCENTRATION OF ECONOMIC POWER
Prudential and some of these other companies had referred to, it was
arranged that a law would be enacted under the laws of the State of
New York which would enable the commissioner of insurance of the
State of New York to establish the rates, minimum rates for group
life insurance ? ^
Mr. Flynn. I dvon't think that was the reason, Mr. Gesell. I think
that the superintendent of insurance was the motivating power in
that, in establishing that minimum rate law.
Mr. Gesell. After the law was enacted, the same "T" rate which
had been the rate adopted by the informal association in 1922 was
enacted as the basic minimum rate under the New York law, was
it not?
Mr. Fltnn. Yes.
Mr. Gesell. And that rate is still the basic rate ?
Mr. Flynn. Yes, sir.
Mr. Gesell. Under the New York law.
Mr. Flynn. Yes, sir.
Mr. Gesell. So that through the informal association from 1922
to 1926, and subsequently through the promulgation of that rate
through the insurance commission under the State law, tha:t "T"
rate has been the basic rate.
Mr. Flynn. Yes, sir.
Mr. Gesell. The companies recommended to the insurance com-
missioner unanimously, did they not, the adoption of this "T" rate
at the time the. law went into effect in 1926 ?
Mr. Flynn. Yes, sir.
The Chairman. Would it be convenient for you to suspend now,
Mr. Gesell?
Mr. Gesell. It would.
The Chairman. The committee will go into executive session for
a few moments and will reassemble — what time do you want to re-
assemble, 2 : 15 ?
Mr. Gesell. 2 : 15 would be fine, sir.
The Chairman. The committee will reassemble at 2 : 15 this after-
noon and you will be on the stand.
(Whereupon, at 12 : 10 noon, a recess was taken until 2 : 15 p. m.
of the same day.)
AFTERNOON SESSION
(The hearing was resumed at 2:25 p. m., upon the expiration of
the recess.)
The Chairman. The committee will please come to order. Are
you ready to proceed, Mr. Gesell ?
Mr. Gesell. I am.
Before the noon recess, we were discussing the provision of the
New York insurance law, article 2, section 101-a, subparagraph (3),
which gives to the insurance superintendent authority to fix min-
imum rates for group life insurance, and in order that the record
may be complete, I would like to offer a copy of this statute for
the record.
The Chairman. It may be admitted.
1 See "Exhibit No. 650," appendix, p. 4703.
CONCENTRATION OF ECONOMIC POWER 4179
(The copy of the statute referred to was marked "Exhibit No.
650" and is included in the appendix on p. 4703. )
Mr. -Gesell. Now Mr. Flynn, that statute covered minimum rates
on group life insurance for companies which were subject to the
jurisdiction of the New York superintendent of insurance, did it not?
Mr. Flynn. Yes, sir.
Mr. Gesell. There were, however, companies which were mem-
bers of the association which were not subject to the jurisdiction
of the New York commissioner, were there not?
Mr. Flynn. Yes ; that is right.
Mr. Gesell. Was not an agreement reached with those companies
whereby they would abide by the rates established by the insurance
commissioners ?
Mr. Flynn. Yes; they stated that they would abide by the New
York department minimum rates.
Mr. Gesell. Even though they were not subject to his jurisdiction?
Mr. Flynn. Correct.
Mr. Gesell. What companies were they? Am I correct in stat"
ing that the Missouri State was one?
Mr. Flynn. That was one.
Mr. Gesell. The Canadian companies?
Mr. Flynn. The Sun Life of Canada agreed.
Mr. Gesell. And what other companies?
Mr. Flynn. I can't recall just which companies were doing busi-
ness at that time.
Mr. Gesell. Well now, these companies which were not subject to
the jurisdiction of the superintendent, did they enter into this agree-
ment with you before you recommended a rate to the New York
superintendent, or afterward?
Mr. Flynn. I can't recall.
Mr. Gesell. Was it about the same time, do you think?
Mr. Flynn. About the same time.
Mr. Gesell. A point with respect to that statute: Does it cover
straight group life insurance, or does it cover also what are known
as "extras," or rates for extra-hazardous industries?
Mr. Flynn. The law covers the minimum rate, but the New York
department has promulgated the extras by industries.
Mr. Gesell. There was some doubt when the law was first passed,
was there not, as to whether or not it covered these so-called extra-
hazardous occupations?
Mr. Flynn. I don't recall.
Mr. Gesell. May I refresh your recollection by reading a portion
of a memorandum which you wrote under date of February 4, 1926,
in which you stated:
Mr. Lincoln, of the Metropolitan, and Major Tuck, of the Equitable, stated
that if the New York insurance department would make a ruling with regard
to extra premiums which must be charged by the companies for extra-hazardous
classifications, so that with standard rates covered by the law all rate matters
would be taken out of the companies' hands, their companies would enter into
a formal association to promulgate rules and govern practices of the companies.
Mr. Craig, of the Metropolitan and Major Tuck, of the Equitable, were ap-
pointed a committee to recommend to Superintendent Beha that both standard
and extra rates be handled by him.
There was some question, was there not, at that time?
Mr. Flynn. Apparently there was.
4180 CONCENTRATION OF ECONOMIC POWER
Mr. Gesell. As it has worked out, the New York department has
established rates for extra-hazardous industries as well as the basic
minimum group life rate.
Mr. Flynn. Yes.
Mr. Gesell. Do you recall the date that the Group Association
was organized?
Mr. Flynn. I don't.
Mr. Gesell. Was it not March 5, 1926?
Mr. Flynn. I would have to check up on that. I think that prob-
ably would be right.
Mr. Gesell. Do you recognize that as a copy of the Constitution?
Mr. Flynn. It is a draft. It says "amended February 1939."
Mr. Gesell. That is the present constitution as in effect, is it not?
Mr. Flynn. I would say so.
Mr. Gesell. And the constitution has been substantially the same
since the date of the original organization of the association, has
it not ?
Mr. Flynn. Substantially the same. I think one or two amend-
ments have been made.
Mr. Gesell. Those amendments have mostly related to the estab-
lishment of separate sections to handle other forms of group insur-
ance other than group life insurance, have they not?
Mr. Flynn. Yes, sir.
■ Mr. Gesell. I would like to offer a copy of the constitution of the
Group Association for the record.
The Chairman. The copy may be admitted.
(The document referred to was marked "Exhibit No. 651" and is
included in the appendix on p. 4703.)
Mr. Gesell. I have no further q^uestions for Mr. Flynn at this
time. With the committee's pern»:ssion I would like to ask that Mr.
Flynn be not excused because we want to call him again tomorrow
on a different subject.
The Chairman. Do any of the members of the committee desire to
ask Mr. Flynn any questions ?
Mr. Flynn. To clarify some- of the testimony of this morning, I
would like to say that although the companies in the Group Associa-
tion have uniform underwriting rules, tmiform commissions and,
under the New York statute, have uniform rates, the rates are the
initial rates. All carriers today are in effect issuing participating
policies. Participating companies have participation clauses in their
contracts; nonparticipating companies are allowed under the New
York statute to make retroactive rate credits, which in effect are
dividends. So in effect the group life rates are today and have been
for a number of years participating rates, and the net cost varies
considerably among the companies. The main basis of competition
today is not only service, such as claim service, but also the records
of net cost at which the various companies carry risks of similar size
and classification.
Mr. Arnold. It is very difficult for me to judge when presented by
a number of insurance agents which is the cheaper company on the
basis of dividends, isn't it ?
Mr. Flynn. That is correct although if a group prospect is shown
as an example the actual experience of a risk of about the same size
and industrial classification the problem is simplified.
CONCENTRATION OF ECONOMIC POWER 4181
Mr. Abnold. But there is always a hope for the future in the talk
of about how efficient the company is, though it is ictually the same.
Mr. Fltnn. That is true.
Mr. Arnold. So you don't really get the competition you get if
the rates are diffc"?nt at the outset.
Mr. Flynn. I don't see how you can have any more intense compe-
tition than we have today.
Mr. Arnold. I am talking about competition of prices.
Mr. Flynn. Well, price is really the basis of the present-day com-
petition, to a large extent. Service and reputation, et cetera, have,
however, some effect.
Mr. Arnold. Yes; it is a good deal like competition in cigarettes
and gasoline. There is a great deal of meetings and enthusiasm and
all that but a general understanding that prices will not be cut.
Mr. Flynn. Well, the initial price will not be cut; as experience
indicates there will be a material change in net cost.
Mr. Gesell. Isn't it also true, although I didn't intend to get into
the discussion until the next witness, that the Group Association has
in force at the present time a rule, namely, rule 9-A, which definitely
prohibits companies from making much competitive advantage our.
of their relative operating experience by limiting very closely the type
of sales approach that they can make to a client with respect to the
amount of money he may expect to get back out of his policy.
Mr. Flynn. That is correct.
Mr. Gesell; We will come to a discussion of that rule.
The Chairman. What degree of competition is there among the
companies which are associated in this organization ?
Mr. Flynn. In soliciting a new case, we tire not permitted to say
that we will carry it with a certain overhead for expenses added to
claim cost.
The Chairman. You are not permitted by whom ?
Mr. Flynn. By the association. We are not permitted to state that
our experience rating plan or our dividend plan would work out to
such and such a dividend if you had such and siich a loss ratio, but
we are permitted — and this is the basis of competition — to take a risk
of comparatively the same size and the same industrial classification
and show what has been done in the way of dividends on that similar
risk.
The Chairman. But you have, according to this memorandum of
April 12, 1919,^ effected an understanding as to rates and jnaximum
commissions such that it is now possible to say that competition on
the basis of rates and underwriting as well as commissions is avoided
by the three Hartford companies, the Metropolitan,' and the
Prudential.
Mr. Flynn. That is correct so far as the initial rates and initial
costs.
The Chairman. Do you recall the answer which you gave when
your attention was first directed to your memorandum of September
30, 1924, addressed to President Butler, which concluded with the
following sentence:
There is the general feeling among all of the smaller companies based upon
that which has beTn said in the Actuarial Society and other meetings that all
* See "Exhibit No. 643," appendix, p. 4688.
4]g2 C()NCENT]*.ATION OF ECONOMIC POWER
are invited to cooperate to obtain policy forms, underwriting rules, and so forth,
if they will be good.
Your comment M-as that tlie phrase "if they will be good" was
intended to imply that if they would follow sound practices.^
Mr. Fltnn. Yes, sir.
The CiiAiKMAN. And that it was youi- purpose only to lead these
other companies along in the proper way ?
Mr. Flynn. That is it. It was a new line of insurance and we
would like to help lead them.
The Chairman. Does that answer require any modification in
your opinion in the light of your other miemorandum of March 26,
1924, to President Butler, in which you said, describing the meeting
at which Mr. Cammack was present [reading from "Exhibit No.
647"] :
The meeting was unfortunate in that the discussion became somewhat heated
and personal and undoubtedly scandalized the John Hancock representatives
who were present. Clearly Mr. Cammack was being badly chastised and it
was apparent to all that upon the basis of his improper practices during the
past 6 or 12 months he deserved the rough handling that he was getting.
Is that an example of how you led them along in the path in
which they ought to go?
Mr. Flynn. That is really an example.
The Chairman. It is an example?
Mr. Flynn. Yes, sir.
The Chairman. I wonder if there are any other examples to
which you migiit call the attention of the comuTittee which have
not been revealed by Mr. Gesell. I think you might enliven the
hearing if you would give us a few more such examples.
Mr. Flynn. Well, I know there were a number of other cases be-
cause the Group Association meetings have always been very frank
and very much to the point with nothing held back. If I could
remember, I know there are a number that could be told that would
be very interesting.
The Chairman. The point always was tO' lead them along in the
path in which they should go, so as to adopt sound practices?
Mr. Flynn. That is exactly it.
The Chairsian. Very well. Are there any other questions? You
may call your next witness.
Mr. Gesell. The next witness is Mr. Cammack.
The Chairman. Mr. Cammack, do you solemnly swear that the
testimony you are about to give shall be the truth, the whole truth,
and nothing but the truth, so help jqu God ? . '
Mr. Cammack. I do.
TESTIMONY OF E. E. CAMMACK, VICE PRESIDENT AND ACTUARY,
AETNA LIEE INSURANCE CO., HARTFORD, CONN.
Mr. Gesell. Will you state your full name, please, sir?
jNIr. Cammack. Edmund Ernest Cammack.
Mr. Gesell. With what company are you associated?
INIr. Cammack. The Aetna Life Insurance Co. of Hartford.
Mr. Gesell. Are you actuary and vice president of tliat company?
* See supra, p. 4158.
CONCENTRATION OF ECONOMIC POWER 4183
JSIr. Cammack. Yes, sir.
Mr. Gesell. How long have 3^ou been with the company?
Mr. Cammack. Since 1910.
Mr. Gesell. You are familiar with the affairs of the Group Asso-
ciation since its formal organization in 1926, are you not ?
Mr. Cammack. Yes.
Mr. Gesell. At the present time, and since .November 1937, you
have been chairman of the Group Association, have you not?
Mr. Cammack. Yes.
Mr. Gesell. I would like you to tell us a little about the organization
of this Group Association, how often it meets, what types of com-
mittees it has, the type of matters it considers, the formal aspects of
the Group Association's operations.
Mr. Cammack. The Group Association meets four times a year and
special meetings may be called. The obj'ect of the Group Association
is to promote sound underwriting practices and to prevent abuses
cropping up in the business. Perhaps the fundamental idea of the
Group Association is to encourage economy of operatioii so that the
insurance can be extended to the industrial classes at minimum cost.
As such the Group Association does not govern rates. I think I may
say that it does govern to a large extent the cost of operation. Now,
there is no insurance business so economically and perhaps efficiently
managed as the group business. The expenses of operation in tlie
group life business are very low; from 7 to 10 percent only of the
premiums are consumed in expenses of management and taxes.
We believe that in the group business, which is intended to extend
insurance coverage to the industrial classes at the lowest possible cost,
costs should be divided between the employer and the employee. We
believe that the employer should pay part of the cost, and it has been
one of the objects of the Group Association to bring that about.
Now, the Group Association as such does not govern rates. The
rates for group life insurance are promulgated and prescribed by the
superintendent of insurance in New York.
Mr. Gesell. You are talking about group life insurance now?
Mr. Cammack. I am talking about group life insurance for the
moment, sir.
When we say that the rates are governed by the New York Insur-
ance Department I mean simply the initial deposit. The rate
under the group life policy is not determined until the end of the first
year, and it is different in each company, and it is the subject of the
keenest competition.
I am associated with a nonparticipating company, and we will write
a group policy, if you will, on a thousand lives, and the initial rate
prescribed by New York law, we will say, is 90 cents a month per
$1,000 of insurance. We provide in our policy that at the end of the
year we will adjust that rate downward if experience justifies it. We
>eannot raise it. But if, for example, we can reduce the rate from 90
cents to 70 cents for the second year, we make that second year cost
retroactive to the first year, and we give the policyholder a 20-(ient
refund, so that you see the rate is not determined in advance — the rlate
is little more than a deposit.
Mr. Gesell. Well, now, Mr. Cammack, my question to you was, Will
you tell us about the formal organization of the association? I am
124491— 40— pt. 10 4
4184 CONCENTRATION OF ECONOMIC POWER
very interested in this ijuestion of rebating, the whole question of cost
of insurance, and whether or not the business is or is not competitive,
but I would like to set up for the committee, first, if you don't mind,
the formal organization of the committee, who the members are, how
often it meets, what types of rules they are bound by, how they vote,
what kind of decisions they have. Then we can get into these more
technical and interesting matters.
Mr. Cammack. Yes, sir. There are two officers of the association,
the cliairman and the secretary. There is a chairman of the sub-
section that handles group sickness matters, and another subsection
that handles group pensions.
Mr. Gesell. By group pensions you mean group annuities?
Mr. Cammack. Grouj) annuities.
Now tlie group association passes underwriting rules. No under-
writing rule is adopted unless it is unanimously voted for, and after
meeting, the companies have some 10 days in which to veto that rule.
Mr. Gesell. Let me see if I get that straight. You have a vote at
the regular meeting of your association.
Mr. Cammack. Every member.
Mr. Gesell. And suppose that all the members say, "We are in favor
of this rule." There is still a 10-day period within which the repre-
sentatives can veto. They may do that after they consult the manage-
ment of their companies or after further consideration, or for what-
ever reason it is.
Mr. Cammack. That is so.
Now a member is bound, in writing, to the rules that are so ad.opted,
but if one of the companies feels that the ruling is not a good one, that
member can serve notice that after 60 days it withdraws from that
rule, and it is not bound by that rute any more.
The Chairman. Did you say a member is bound in writing?
Mr. Cammack. A member who joins the association agrees in writ-
ing to keep the rules of the Group Association.
Mr. Gesell. That is provided for in the constitution, is it notl^
Mr. Cammack. I think that is in the constitution. I am sure it is.
We have various committees appointed. One of the objects of the
Group Association is to compile the experience of its members. We
want to know what the death rate is in every industry according to
age, we want to know what the sickness rale is in various industries,
we want to know what the mortality rate is under pension plans.
Mr. Gesell. For that purpose you have various standing com-
mittees that you appoint to look into such matters, do you not, such as
the mortality committee, complaint committee, accident committee,
committee on group hospitalization, group annuity experience com-
mittee, committee to cooperate with the legal departments in dealing
with legislative matters, and so forth ?
Mr. Cammack. That is so.
Mr. Gesell. And if you have some experience which you want to
pool and collect from the companies it is delegated to the particular
standing committee concerned with those aifairs and that committee
comes back and reports to the full association as to its findings' and
recommendations ?
1 See "Exhibit No. 651," appendix, p. 4703.
CONCENTRATION OF ECONOMIC POWER 4185
Mr. Cammack. Yes, sir,
Mr. Gesell. Well now, I show you a schedule entitled "Officers
Elected at Annual Meeting of Group A: ociation," which shows the
chairman, the secretary, and chairmen of the two principal subsec-
tions since 1926^, and ask you if ^ -^t is a correct schedule prepared by
you?
Mr. Cammack. That is correct.
Mr. Gesell. I also show you a schedule entitled "List of Standing
Committees." Are those the principal conomittees and the names of
the chairmen of each of those committees?
Mr. Cammack. That is correct.
Mr. Gesell. I notice that with respect to both of these documents
the principal officers and the chairmanships of the principal standing
committees has been in the past almost uniformly allocated to one of
the larger companies. Has that been by chance, or what is the reason ?
Mr. Cammack. Well, the reason is, I think, that five companies have
such a large proportion of this business that I think it is imturally
assumed they know more about it. Perhaps that is the reason.
Mr. Gesell. I would like to offer these schedules for the record.
The Chairman. They may be received.
(The schedules referred to were marked "Exhibits Nos. 652 and
653" and are included in the appendix on pp. 4705 and 4706. )
Mr. Gesell. Mr. Cammack, do you recognize those five bound vol-
umes as the minutes of the Group Association ?
Mr. Cammack. Well, I don't recognize them.
Mr. Gesell. Will you look at them and see if they are not the rec-
ords that you made available to the representatives of the committee
some while back ?
Mr. Cammack. Yes ; I am quite sure they are.
Mr. Gesell. That is a complete set of the minutes, is it not?
Mr. Cammack. I l>elieve so.
Mr. Gesell. If the committee please, the staff of the Commission
has prepared from the minute books, which are here at the hearing, a
chart entitled "Members of the Group Association." This chart shows
the names of all companies which have been members of the associa-
tion, the year they joined, and the period of time for which they
continued. The minutes themselves are so bulky that I believe this
summary is all that is required for the record, and I offer it, of course,
as usuaL subject to correction.
The Chairman. May I ask if it has been verified by the wicness?
Mr. Gesell. No, it has not; but it was taken fcom the records sub-
mitted.
The Chairman. This has been prepared by the staff from the minute
books ?
Mr. Gesell. From the minute book Mr. Cammack has lust identi-
fied.
The Chairman. It is accepted as you offer it, subject to correction.
(The chart referred to was marked "Exhibit No. 654" and is in-
cluded in the appendix on p. 4707.)
The Chairman. Does this purport to show wnen the certain
companies withdrew?
Mr. Gesell. Yes; it does When, the line discontinues their with-
drawal is reflected on that chart.
4186 CONCENTRATION OF ECON'OMIC POWER
The Chairman. Tlie beginning of the line indicates when a par-
ticular company entered the association and the ending when it
withdrew.
Mr. Gesell. That is correct.
We have also prepared from the minutes of the association, and I
wish to offer this schedule, subject to the same qualification, a schedule
showing the attendance of various companies at the meetings of the
association held for the period from February 3, 1926, up until Feb-
ruary 20, 1939. This has been again compiled from the minutes of the
association.
The Chairman. The schedule may be received.
(The schedule referred to was marked "Exhibit No. 655" and is
included in the appendix on p. 4708.)
Mr. Gesell. I want to discuss with you, Mr. Cammack, in some
detail the formal operations of the association. Before I do that,
have you any idea as to the percentage of group life insurance which
is represented by the members of this association ?
Mr. Cammack. No, sir; I couldn't tell you. Of course it is a very
large proportion.
Mr. Gesell. It probably runs over 90 percent, would you say ? It
has run over 90 percent since 1926?
Mr. Cammack. Of group life business, I think perhaps that figure
is reasonable.
Mr. Gesell. We have to offer "for the record at this time a schedule
entitled "Group Life Insurance in the United States." This schedule
has been prepared by the staff of the commission from the Spectator
Insurance Book, the issues 1927 to 1938, inclusive. It shows yearly
the number of United States and Canadian companies writing group
life insurance and the amount of insurance in force at the end of each
year. It also shows the number of those companies which are mem-
bers of the Group Association, and the insurance in force written by
association company members, and there is a computation to show
what percentage of insurance in force is attributal to the Group
Association companies. I might say in summ.ary that over the period
1926-37 the Group Association companies had on the average of 93.5
percent of the total group life insurance in force in the United
States. Over the 12-year period, January 1, 1926, to December 31,
1937, Group /association companies wrote on the average more than
81 percent of the initial group life insurance issued under new
contracts.
I would like to offer this schedule for the record.
The Chairman. The schedule may be received.
(The schedule referred to was marked "Exhibit No. 656" and is
included in the appendix on p. 4710.)
Mr. Gesell. Paragraph 5, article II, of the constitution, Group
Association, Mr. Cammack, reads,^ "But nothing in this constitution
or in any rule adopted subordinate thereto shall be held to authorize
the making or promulgation of premium rates," does it not?
Mr. Cammack. Yes.^
Mr. Gesell. And I believe you said in discussing the association in
your beginning remarks that the association has not had anj'^thing to
do with the fixing of group life insurance rates.
1 See "Exhibit No. 651,' atpendix, p. 4703, at p. 4704.
CONCENTRATION OF ECONOMIC POWER 4187
Mr, Cammack. I did not intend to make that statement. I said in
itself the Group Asspciation did not make rates. Indirectly, of course,
it has a bearing on initial rates. If I might explain that, I would be
glad to do so.
Mr. Gesell. Let me see if I understand it, and then if any explana-
tion is necessary I wish you would give it.
The Chairman. To what clause of the constitution did you refer?
Mr. Gesell. Paragraph 5, article II.
The superintendent of insurance has established under the. New
York law as the minimum group life insurance rate, the T rate, which
we were discussing when Mr. Flynn was on the stand.^
Mr. Cammack. Yes.
Mr. Gesell. Now, that rate is the initial rate, as you call it, the
selling rate, the rate at which group life insurance must be sold, the
minimum rate.
Mr. Cammack. I don't think that is the rate at which it is sold. I
think that is more in the nature of a deposit, because under our poli-
cies we do not determine the rate until the end of the year, and that is
a competitive matter. Now, the rates, for instance, in my companies
that are actually in effect are some 17 percent below the minimum
rate prescribed by the New York law.
Mr. Gesell. "WTien you go to an emploj^ei- and say, ''Here, I want
to write a group policy," tlie rate you quote to him is this T rate, is it
not, and then you say to him that actually your true rate cannot be
<literminrd until 3'ou have had the advantage of reviewing the expe-
rience of his company over the year which is to co)ne, and tlion cer-
tain I'ebates and adjustinents are made, but thi? rate Avhich you put
to him originally is the maximum late Avhich he must pay and the
rate that is quoted to him, is it not?
Mr. Cammack. That is the maximum rate which he must pay and
the rate we quote to him subject to the provision in the policy tliat we
will make a revision in that rate downward for the first year if expe-
rience justifies it, and moreover we show him from experience that it
is usual to make a revision in the rate.
!Mr. Frank. But all companies in the group are quoting ine same
initial rate.
Mr. Cammack. They all quote the same initial rate.
Mr. Gesell. If we have an extrahazardous industry which, I under-
stand, would be an industry where the mortality experienced by rea-
son of the occupation of the employees is expected to he in excess of
American Mortality Table, special rates can be provided, can they
not, by the promulgation tlu-ough the superintendent of extrahaz-
ardous rates for certain types of occupations?
jNIr. Cammack. Yes; for certain types we are compelled to quote a
hif^her initial rate.
Mr. Ozsrix. Now, has it not heon the pra'-iice for the Group Asso-
ciation to make recomnicndations for extrahazardous rates to the
snpeiinteiident of insurance from time to lime?
INfj". Cammack. When we have compiler] the experience under our
groupjife i>:.iicies, it has been the custom foj members of tl)c Group
Association to review that experience; and if it apj: ^.rs to indicate
n.
• .'Jjlita p. 4172. "* ■
4188 CONCENTRATION OF ECONOMIC POWEB
that cef tain industries need an extra premium we have submitted our
recommendations to the superintendent of insurance.
Mr. Gesell. Your association, after reaching unanimous agreement,
makes the recommendation for the new rate in the particular industry
to the superintendent?
Mr. Cammack. No, sir; that is not so. On the question of rates we
do not come to any unanimous agreement. A committee will be
appointed, the fact is, to interpret the experience, and their findings
are submitted to the superintendent of insurance, but the question is
not put to the group afcociation for unanimous agreement.
Mr. Gesell. You, mean your committee goes directly to the super-
intendent of insurance?
Mr. Cammack. That is so.
Mr. Gesell. Now will you tell me whether there has been any time
in your recollection that the superintendent of insurance has promul-
gated a rate which was not one which was recommended to him by one
of your committees? I was able to find one, Mr. Gammack, in connec-
tion with the brewery industry, but that was the only one I could find.
Mr. Cammack. Well, I think I can think of another. I believe it
promulgated an extra rate for labor-union gi'oups. I don't think that
was recommended by the association.
Mr. Gesell. By and large, the rates which he has promulgated have
been at the i-ecommendation of this committee ?
Mr. Cammack. That is so.
Mr. Gesell. Does that committee not make its recommendation in
the name of the Group Association?
Mr. Cammack. I would say not. I think the procedure is to sub-
mit to the superintendent the experience that we have compiled, and
we say we think that the experience here is 20 percent higher in this
industry than the average, and we think there ought to be a 20-percent
extra rate. I think that is the procedure. It really lies with the
superintendent, but, of course, he must base his conclusions on the ex-
perience of , the companies which we have been very careful to file
with him every year.
The Chairman. You file your experience and you make your sug-
gestion and then what happens?
Mr. Cammack. Well, then he usually follows our suggestions, by
ruling.
Mr. Hekdet?son, Let me get that. T\niat did you mean by "he must
follow"? You don't mean by law.
Mr. Cammack, Oli, no; he makes his own. But what I mean to
say is that the superintendent cannot make rates except on experience.
The Chairman. And he has no source of experience except that
which vou give liim.
Mr. Cammack. He has no other source of experience; and if we give
him an experience which shows an extra premium is needed, if I said
"must"' I mean it is just a reasonable thing.
Mr. GESEiiL. I have a memorandum that went to members of the
Group Association under April 7, 1933, which doesn't gibe with what
you say, Mr. Cammack. Tlie second paragraph says, "It has been
the practice of the association to make recommendations to tlie super-
intendent of insurance for industrj' loadings and usually such recom-
mendations nave been voted on at a r^ular association meeting a p.d (],;■.
CONCENTRATION OF ECONOMIC POWER 4189-
recommendations have invariably been followed by the superindent."
That would indicate both that the superintendent follows your
recommendations and that the association formally ajjproves the
•recommendations of the particular- committe which has compiled the
experience.
Mr. Cammack. There is this difference, Mr. Gesell. Under our
constitution, I stated that no rule could be adopted except with the
unanimous consent of all the members. Now, any recommendation we
may make to the superintendent in regard to rates is not a unanimous
recommendation. It is just the sense of the association.
Mr. Gesell. In other words, if the recommendation of a small
committee comes before the association and one member is in dis-
agreement he can be overruled with respect to placing the recommen-
dation before the superintendent of insurance, whereas he couldn't be
overruled if it was a matter of a rule.
Mr. Cammack. That is true.
The Chairman. You say such a recommendation is not a unani-
mous decision?
Mr. Cammack. No.
The Chairman. Do you mean to imply that there is usually a
debate ?
Mr. Cammack. As a matter of fact, in piactice there is no debate.
It is a small committee. It is the committee which compiles the
experience, of which I happen to be the chairman.
The Chairman. Is there any disagreement?
Mr. Cammack. Very seldom.
The Chairman. So that to all intents an4 purposes it is unanimous.
Mr. Cammack. It is because in one industry, if we have a large
experience in it and if the experience shows that we need a 20 percent
extra rate, there is nothing very much to discuss, I mean everybody
agrees with it.
The Chairman. But you appear to draw a distinction between the
unanimity with which a rule must be supported and a more informal
action which supports a recommendation, and I am trying to der
termine just what that difference is. .Now you tell me that there is
no disagreement, ordinarilj-^, with respect to the recommendation
regarding rates.
Mr. Cammack. You are precisely right in regard to the lecom-
mendation of an extra premium; if the majority of the members
. think it should be made, we make it.
The Chairman. So that tl.e recommendation goes up to the State
insurance conmiissioner, to all intents and purposes, as the unanimous
recommendation of the association.
i\Ir. Cammack. Not as the unanimous one; no sir. In some cases
the insurance superintendent has written to perhaps all the com-
panies writing group insurance in New York and asked each com-
pany for its opinion.
The Chairman. Well, if there is no disagreement when the com-
mittee acts, that is a unanimous rti -commendation.
Mr. Cammack. Well, it will not bv. uii.tninioMS. p^^rhaps, m a com-
mittee of five, three think one tiling, and one thinivs for one reason
it shouldn't be.
4190 CONCENTRATION OV" ECONOMIC POWER
Mr. Gesell. May I ask hoAv you explain this letter. This is a
copy of a letter from the miiuite books of the association dated
February 11, from the State of New York Insurance Department,
addressed to Mr. Craig of the Metropolitan, signed by Mr. Alfred
Con^vay, superintendent, re proportion of premiums to be paid by
employees under group life-insurance policies. He discusses the re-
ceipt of a letter from the association quoting a rule which was
adopted at the meeting of the association with respect to this matter
and he says, "The above provision," which he sets forth in some
detail, 'Syill take tho place of section 6, this department's letter,"
and so forth. "The above ruling Avill be promulgated with effective
date of March 1, 1928, provided no company veto of the Group
Association rule is recorded." In other words, the superintendent
of insurance here is in eflPect ratifying the constitution of the associa-
tion and making sure that you don't have a single veto before he
a'lo}>ts a reconniiendation which has been made.
Mr. Cammack. Excuse me, sir, I think this is not a question of a
rate on a group life policy. The question here was: What is the
maximinn amount that an eniplo3'ee should pay for one thousand of
group life insurance a month? Now the rate for one thousand of
group life "jnsuriuice a month \a\\ vary from 70 cents to say $1.10 or
$1.20. Now Me have a rule tliat the employee may not contribute more
than 60 cents a month and the employer must pay the balance. Now
the Group Association does pass rules or can pass rules by its consti-
tutioj] as to the maxinunn contribution that an employee may make
toward his group insurance. This was not the rate to be charged.
Mr. Gesfll. It had a direct effect on the rate, did it not?
Mr. Cammack,. No ; it would have no effect.
Mr. Frakk. May I ask a question, Mr. Cammack? I understood you
to say, perhaps I v.as in error, that your committee would meet, and
if a majority of them believed that the experience indicated a certain
rate, then that would be the recommendation of the committee. Is
that correct?
Mr. Cammack. That is right.
Mr. Frank. Then I would gather from that that the conclusion
that the committee arrives at is not an irresistible inference compelled
by the data, but that there is room for difference of opinion, but that
the minority will acquiesce in the majority judgment.
Mr. Cammack. Ob, there would be some difference of opinion; yes.
There would be some difference of opinion.
Mr. Fraxk. Then when the superintendent acts upon that recom-
mendation he is not then performing, if he were to go through the
reasoning process of rehing on your data and drawing a conclusion,
he is not going through, a purely mechanical process of drawing an
irresistible inference from the premises presented by the data?
Mr. Cammack. That is so.
Dr. LuBiN. Do you knovv- of any instances where the superintendent
of insurance has liiinself investigated the experience of specific indus-
tries to see whetlier the conclusions you came to were justified?
> Mr. Cammack. No, sir; I don't think that he could, because thetre
is not mu.v;> experience to be gathered except from the business of the
members of the associstio^' tluit we compile and give to the superin-
tendent.
i
CONCENTRATION OF ECONOMIC POWER 4191
Dr. LuBiN, Do you give him a summary experience of all the com-
panies who have been writing that sort of business, or do you give
him the experience of each individual company?
Mr. Cammack. No; the experience we compile is the experience of
about six companies. I think the six largest ones, which would be
the bulk of the business, and we compile it for each industry and
show the mortality for each age, and we sent it to the superintendent.
Dr. LuBiN; For each company individually ?
Mr. Cammack. No; fdr the six companies combined.
Dr. LuBiN. So that in the event the experience of one company
would be more favorable than the experience of the other five, ho
wouldn't know that, would he?
Mr. Cammack. No; he wouldn't.
Mr. Gesell. I have, bearing on this matter, a schedule which wo
have prepared from the minutes of the association showing, with
respect to a series of rules promulgated by the superintendent of
insurance, the date that these proposed rules were discussed by the
association, the date (where known) w^hen the)' were recommended
to the superintendent, and the date they were promulgated by the
superintendent. I would like to offer this for the record.
The Chaikman. The schedule may be received.
(The schedule referred to was marked ^'Exhibit No. 657" and is
included in the appendix on p. 4710.)
Mr. Gesell. Now, bearing on the question of whether the asso-
ciation approves these recommendations or not, may I read you hit
or miss one or two paragraphs from your minutes, Mr. Cammack?
From the minutes of a special meeting held at the Waldorf-Astoria,
May 20, 1936:
The committee to consider what changes, if any, to be recommended to the
New York superintendent of insurance in connection with the rulings regard-
ing extra premiums for group life insurance made its report, which was
discussed and accepted, subject to certain changes voted by the meeting. The
chairman and the secretary were instructed to present this matter to the
New York department with the recommendation that suitable action be taken.
That would indicate clearly that it is an association matter when
it is presented to the superintendent of insurance ?
Mr. Cammack. That is true. The association submits it, but, as I
said before, to adopt a recommendation for an extra rate does not
need the unanimous approval of the members.
Mr. Henderson. Are you going to develop anything from that?
Mr, Gesell. I thought it spoke for itself.
Mr, Henderson, I notice you have set up three columns. Tho
last two are "Date recommended to superintendent (where known)"
and "Date promulgated." ^ In the four instances where you have
that information the longest- lapse of time between the time the
superintendent received tlie recommei)dation and their promulgation,
I gather, is something like 21 or 22 days. In one instance it was 4
days, in another instance 8 days, and in another instance 15 days.
Mr. Cammack, does promulgation usually follow as promptly as that
after receipt by the superintendent of your recommendations ?
_ Mr. Caaimack, I thinl: he has usually adopted our recommenda-
tions promptly.
* See "EThibit No. 657," appernlix, p. 4710.
4192 CONCENTRATION OF ECONOMIC POWER
Dr. LuBiN. Mr. Cammack, may I clarify this matter for my own
mind? As I understand it, the companies, on the basis of their
experience through this committee, come to the conclusion that a
given rate would have to be loaded 20 percent. They submit a state-
ment to the insurance commissioner which, in effect, is a rate that
they think should be fixed. He thenliccepts that rate, so that in
reality the companies become legally compelled to fix the rates that
they themselves liave determined. Is that a correct conclusion of
what you have said ?
Mr. Cammack. Well, I don't think the companies determine the
rates. The companies prepare the experience, they interpret the
experience, and they submit their recommendations to the superin-
tendent. I feel, sir, that if we submitted some recommendations to
the superintendent without any data to show that those recommenda-
tions were reasonable and fair, I don't think they would be approved.
Mr. Henderson. But there has been, as I gather from what you
were saying in discussing the chairman's question, a situation where
there was not unanimity of opinion sometimes on these recommenda-
tions, and that the majority generally prevailed.
Mr. Cammack. Well, somebody mentioned the breweries just now.
I remember that some of us, most of us,* thought that breweries
could be written at regular rates, but one man who never took a drink
said we ought to Jiave a $2 extra.
Mr. Gesell. That was the one exception that proved the rule that
I was able to get out of five volumes of minutes. Let's not talk about
beer. What about the great bulk ?
Mr. Cammack. The great bulk of the recommendations are adopted.
Mr. Hendeeson. But they are the majority recommendations of the
committee.
The Chairman. And there is no substantial disagreement at any
time.
Mr. Cammack. That is so.
, Dr. LuBiN. But in the event that company A felt that no loading
was necessary and that it was willing, on the basis of its own ex-
perience, to write insurance on the existing rate, the fact still remains
that if the majoritj'^ of the committee should recommend to the Com-
missioner that the rate should be loaded, that' company is legally
bound to charge that high rate.
Mr. Cammack. That would be so, if the superintendent promulgated
that extra premium. ■
Dr. LuBiN. And he does generally ?
Mr, Cammack, Yes.
The Chairman. "Invariably" was the word that was used ?
Mr. Cammack. Almost invariably.
Mr. Arnold. That wouldn't be true outside of tKe State of New
York, and therefore out of the State of New York the companies
a;re not bound to charge the rate fixed by the New York Commission,
yet they always do.
Mr. Cammack. They are bound to follow the New York rate if they
are licensed to do business in New York.
Mr. Gesell. But Mr. Flynn stated that the conipanies which were
not licensed to do busifibat n New York but which were writing
group insurance and were members of the Group Association had
CONCENTRATION OF ECONOMIC POWER 4193
agreed to abide by the rates fixed by the Superintendent of Insur-
ance of New York, even though he had no authority over them.'^
Mr. Cammack. They have been doing so ; yes.
Mr. Arnold. And they are more or less compelled to do that by
your constitution, are they not ?
Mr. Cammack. No ; I don't think they would be violating any rule
of the Group Association if they quoted lower rates.
Mr. Geselx,. That would be what you call a gentleman's under-
standing.
Mr. Cammack. I think so.
The Chabrman. The sum and substance of the situation is Mi is, is
it not, that the superintendent of insurance in New York hko no
means of determining experience except that which you supply him,
and that you, and by you I mean of course the association, hold your
meetings, you come to a determination of what the experience is,
you do that by agreement — it may not be unanimous, it may not have
been voted upon by all, but it is by unanimous consent, as we some-
times say — and that experience table, with the recommendation, then
goes to the superintendent of insurance, w^ho thereupon, within
usually a very short period of time, ordinarily adopts that recom-
mendation and makes it the legal rate in the State of New York,
which is then followed throughout the country, is it not ?
Mr. Cammack. Just one step further. It makes it the legal rate
throughout the United States for anj^ company doing business in
New York, because the law reads that if a company does not follow
those rates throughout the country, it will not be licensed to do busi-
ness in New York.
The Chairman. So that in effect the rate is determined by this
association, which has submitted its experience and its recommenda-
tions to the superintendent.
Mr. Cammack. Yes, sir; although I would like to say that I thmk
the rate is really determined upon the experience that is compiled
by the Group Association, and the object, c^^ course
The Chairman (interposing) . I meant to say that, of course. You
gather your experience, whatever it may be, and from whatever
sources you get it, but it is the association that does that, not the
superintendent of insurance. He has no means of doing it. It is
your association tliat does it. Your association compiles the material,
makes its recommendation as to the rate, and almost invariably the
superintendent of insurance follows that recommendation.
Mr, Cammack. That is right.
Mr. Frank. And the superintendent, as I miderstand it, does not
have the benefit of seeing the data of the individual companies, but
simply this composite experience.
Mr. Cammack. We send liim only the composite experience. Of
course the experience of one company wouldn't be of very much
value. • You have to have a large experience to determine a rate.
Mr. Arnold. May I contrast t^o methods of handling this situa-
tion? One would be for the Insurance Commissioner to send out to
companies which ^vere not meeting in an association to determine
fates for information regarding their experience, and having that
1 Supra, p. 4187.
4194 CONCENTRATION OF ECONOMIC POWER
information before him, to exercise an independent judgment as to
what rates should be charged. Now by that method he would get all
of the information which he now gets from your association,
wouldn't he ?
Mr. Cammack. Yes.
Mr. Arnold. And there would be no process by which part of that
information would be withheld, and there would be no pressure on
any individual company to agree with some other under that sys-
tem, would there?
Mr. Cammack. I don't think I quite follow the last.
Mr. Arnold. I ■^^as assummg that there was a certain amount of
pressure in this association to follow good .sound leadership, and at
times when they didn't do that they were even chastised, and that
type of pressure would be absent if the superintendent wrote to all
of the companies who were not gathering together for the purpose
o_f fixing rates to get this information.
" Mr. Ca:\imack. Well, of course, we have such a large bulk of the
experience compiled; if there was added to that experience the ex-
perience of the small companies who did not contribute their ex-
perience, it would really not make it any more valuable as a basis
for rates,
Mr. Arnold. It might create certain independent judgments which
the superintendent could appraise, whereas under your present sys-
tem all independent judgments are in the great majority of instances
ironed out in conference.
Mr. Cammack. I don't think so. We give the superintendent the
actual experience, without any comments. We give him all the in-
formation which an expert sliould have to make rates. He needs
nothing more. AVe give him everything that we have.
Mr. Gesell. Let me just challenge that statement very directly,
Mr. Cammack. You, in your original T scaJe, have determined the
loading on all kinds of policies, haven't you?
Mr. Cammack. In nonhazardous industry.
Mr. Gesell. When you carry into the hazardous industry you
change the rate from the mortality point of view, but the loading
remams constant.
Mr. Cammack. The extra premium is to pay the extra death
claims we expect,
Mr. Gfskll. So that your loading on these policies has been de-
termined by the original basic T rate?
Mr. Cammack. The T rate contains the loading; yes.
Mr. Gesell. Do I understand from you that there is no degree
of ditfercnces as between the companies of your association with re-
spect to the expense factor in running their business, that the load-
ing should be ahvays the same for all of these companies if it had
been reached inde})endentl3' of tlie insurance commissioner?
Mr. Cammack. No, sir; the object, I think, of the superintendent
of New York in promulgating a raie is to obtain a rate that will
be adequate for the gi-eat bulk of risks tiiat are suV»mitted in the
industry to Vvbicli they belong, but will not be excessive. We know
that those rati^^s are higucr than v.c need on ihe. Ix-st class of risks,
and we adju.->t those ra;c: at the end of thw ^-ear for the first year,
so that the j^olicyholder is not overcharged.
CONCKXTKATION OF EC^ONOMIC POWER 4195
The Chaieman. May I ask you, Mr. Cammack, what, in your
opinion, is the protection of the public interest in this system that
3^ou have described ?
Mr. Cammack. In my opinion, the results are the answer. The
expense rate, including taxes, on group life insurance, runs from
7 to, say, 12 percent in the leading companies. It is the lowest
expense rate in any insurance business.
The Chairman. That, of course, is not a definite answer. What
you are saying is that this system has, in your opinion, operated
beneficially.
Mr. Cammack. May I tell you why I think it has brought about
that low expense rate?
The Chairman. Certainly.
Mr. Cammack. It is because when we are competing for a new
risk the purchaser does not consider that the rates are the same.
He says to each company, "Now I want to know how much is this
going to cost me. You must have enough money for your claims,
and you must have something for overhead and taxes. Show we
what you have done on other companies."
Well, the answer in our company would be that we have operated
on an expense rate of about 9 percent. The expense rate is lower
on the large risks and higher on the small ones, and I should pick
out half a dozen cases of about the same size as his in the same
industry, with similar schedules of insurance, and say: "Sir, this
is what we have been able to do. Compare it with the other com-
panies," and if it doesn't compare well, we don't write it.
The Chairman. That isn't exactly what I was driving at. We
have demonstrated now, according to your testimonj^ that the rates
are fixed by the superintendent of insurance upon a showing that
is made to him by the association. So my question to you was:
"What is the protection of the public interest in that system?" And
your answer is, "The experience we have had," which doesn't reach
the point, as I see it. Does it not depend, this rate which is fixed,
wholly upon the accuracy of the representations which you make
under this system ?
Mr. Cammack. Well, I don't think there can be any doubt about
the accuracy.
The Chairman. That is aside from the question. Does the result
not depend upon the accuracy of the representation that you make?
Mr. Cammack. It depends upon the experience and the accuracy
with which it is compiled.
The Chairman. And there is no check of those representations by
anybody on behalf of the public?
Mr. Cammack. I think. Senator, it would be impossible to do
anything except what we do ; if the insurance department itself com-
piled the experience, it could do nothing but ask for the data that
we prepare.
The Chairman. Do you submit these data imder oath, let us say ?
Mr. Cammack. No ; we do not.
The Chairman. So that it all depends upon the good faith and
accuracy of the association in submitting this material to the superin-
tendent. Is that not so?
Mr. Cammack. Well, Senator, it seems to me to be impossible that
these results could be inaccurate, or deliberately inaccurate.
4196 CONCENTRATION OF ECONOMIC POWER
Tlie Chairman. Of course, as an actuary, that is naturally your
opinion, and perhaps altogether justified, but that is aside from the
question.
Mr. Cammack. As an actuary, the mortality experience amongst
insured lives has always been compiled by actuarial bodies, and this
experience on group life insurance has been compiled by a committee,
I think, of five actuaries.
The Chairman. I can judge from your answers that you regard
this experience submitted by the actuaries as almost a mathematical
certainty that cannot vary one way or the other. But so far as the
public is concerned, so far as the superintendent of Insurance is con-
cerned, he is accepting the work of the actuaries of the association
which sells the insurance. Is that not so ?
Mr. Cammack. I think that is true.
The Chairman. And there is no check in the public interest of that
information.
Mr. Cammack. Senator, these experiences have been published
widely. They have been published in the transactions of the
Actuarial Society, they have been discussed there. They are availa-
ble to anybody.
The Chairman. All right, then. Let us forget the mathematical
exactitude of the experiences and turn our attention to the recom-
mendations which your association makes on the basis of those experi-
ences. Are they entitled to the same degree of mathematical respect ?
Mr. Cammack. I think I could explain them very simply.
The Chairman. Are they? Are they entitled to that same degree
of respect? That can be answered "Yes" or "No."
Mr. Cammack. Not with the same mathematical certainty; no.
The Chairman. Certainly not. In other words, there is an ele-
ment of judgment entering there.
Mr. Frank. There must be an element of judgment, since you told
us your committee was not always unanimous in its belief, but always
unanimous in your recommendations.
Mr. Cammack. cj have admitted there is room for an element of
judgment there.
The Chairman. But to get down to the question again: What
protection is there of the public interest when the rates are almost
invariably those which are recommended by the association of com-
panies most interested in fixing the rates ?
Mr. Cammack. Well, Senator, I would reply that the experience is
published, and it is open to the public or any expert so they can them-
selves examine it.
The Chairman. Now you are going back to the experience. I have
abandoned that in order to get this less certain judgment with respect
to the recommendation which you say can be subject to some dis-
agreement, though ordinarily there is no disagreement in the
recommendation.
Mr. Cammack. Well, may I illustrate it? We compile the experi-
ence in what you might call nonhazardous industries where there is
no particular accident hazard and no particular health hazard, and
then we compare that with the mortality experience in, we will say,
a steel mill; and if we have got a large experience and it shows that
the mortality in the steel mill — mind you, I am talking about a large
experience with perhaps 2,000 deaths in two or three hundred thou-
CONCENTRATION OF ECONOMIC POWER 4197
sand — and the mortality in the steel mill is 20 percent higher and has
been 20 percent higher than in the nonhazardous, we recommend a 20-
percent extra.
The Chaieman. That is perfectly clear. I am assuming the en-
tire accuracy of your experience, and I am assuming the complete
good faith of your recommendations; and, having made those two
assumptions, I say to you : Is it not a fact that the only protection of
the public interest in this situation which you nave so clearly de-
scribed is the accuracy and the good faith of this association of
companies?
Mr. Cammack. Well, they'd have no protection if the experience
was not accurately and honestly compiled.
The Chaieman. That is the only protection they have, isn't it? I
don't know why you should be unwilling to answer.
Mr. Cammack. I will answer that, but it seems to me the protection
is enough.
The Chaieman. Ah, but that is the only protection there is.
(Mr. Cammack nodded his head in the affirmative.)
Mr. Abnold. May I approach it from a slightly different angle?
I presume you would say that the accountants for public utilities are
on the whole just as honest and acting in just as good faith and are
just as accurate as insurance actuaries.
Mr. Cammack. I must admit I know nothing about public utilities,
but I expect the accountants are honest people.
Mr. Aenold. You wouldn't mind making that assumption for the
moment ?
(Mr. Cammack nodded his head in the affirmative.) .
Mr. Arnold. Now, would you be satisfied with a public-utility rate
which was determined entirely upon consultation with the account-
ants of the public-utility companies and on which the public-utility
commissioner exercised no independent judgment?
Mr. Cammack. I don't think the cases are analogous.
Mr. Arnold. Would you be satisfied with it?
Mr. Cammack. No; no.
Mr. Arnold. Therefore, it must be, if there is a difference, that
there is some sacrosanct character to insurance actuaries which doesn't
exist with public utilities.
Mr. Cammack. No; the only part the actuary plays in this is to
compile the mortality experience. All I want to say is that one
industry has a 20-percent higher mortality than another and another
has 30 percent; the coal-mining industry has a mortality of 50 per-
cent higher than you get among bank clerks. Now, that we know.
Mr. Gesell. W^ have these rates, also the loading factor — don't
we ? — which stems back to that basic T rate which was put into effect
as soon as the law went into existence, so that by promulgating that
basic T rate, no matter how much the companies are in agreement on
mortality experience, there is a complete disappearance of all those
factors which would tend to show disparity between rates and the
initial quotations of the rates to be insured. Isn't that correct ?
Mr. Cammack. Gentlemen, may I say this to you ? I have been
in this business since the first policy was written, I think'; and when
we started writing group policies, we wrote nonparticipating policies
at a fixed rate and we guaranteed that rate for 20 years. Now the
plan did not operate, because if we quoted a rate too low, we were
4198 CONCENTRATION OF ECONOMIC POWER
on an unprofitable risk for 20 j^ears; and if we quoted a rate too
high, we had to reduce it or it was rewritten in another company;
so we changed our plan of operation and said it doesn't much matter
what rate you charge. Charge a rate that is enough but not exces-
sive. The cost to the policyholder is going to depend on economy
of management and its experience. If we can manage our business
economically, then we shall be fair to the policyholder and doing
business on a safe basis, and that is the way we operate.
ISIr. Arnold. And that is the way the public utilities operate,
isn't it?
Mr. Cammack. I don't know.
Mr. Arnold. Yes; they operate so they will give the maximum
service and be fair to their investors, which is somewhat similar to
the policyholders.
Now I am a little at a loss to understand why it is that you ^instinc-
tively reject the idea of a combination among public utilities which
fixes rates and instinctively say that a combination of insurance
companies is on an entirely different basis and they should in the
public interest be granted that power.
Mr. Cammack. The reason is because I don't think we do fix rates.
If any policyholder — I don't care — Schenley Distillers; they have
4,000 employees, and they are in the market
Mr. Arnold (interposing). --Let us not fix it.
Mr. Cammack. All right. They are going to buy group insurance,
and they are going to pay an annual premium in advance, if you
will. It is $100,000, and it will be a hundred thousand in the Pru-
dential, the Aetna, the Travelers, the Connecticut General, and at the
end of the year they may get twenty-five thousand from one company
and fifteen thousand from another and twenty from another, and
they have all paid a different rate in all of the different companies,
and the difference in rate is a difference in the economy of manage-
ment.
Mr. Arnold. I presume that is equally true with public utilities, if
they are permitted to have a fair return on investment; and if the
rates are too high, the public utilities will be delighted to return
their overearnings to the consumers, and yet it would seem curious if
we allowed the public utilities to have the sole judgment as to what
the rate should be and how much money should be returned. Now,
you admit that, don't you? You wouldn't want that situation in
public utilities, would you ?
Mr. Cammack. I don't know about public utilities.
Mr. Arnold. No ; but would you want it ?
Mr. Cammack. I am very ignorant on public utilities. It is not
that I don't want to answer your question, but I just feel that I am
not qualified.
Mr. Frank. I think that you feel there is a difference in this fact,
that you feel that the actuarial data that you have collected has an
accuracy about it and that there be a corresponding fact in the
utilities. Let us make that assumption. Let us assume that you have
accurately reported infallible data. I want to come back to the fact
that from that data inferences are drawn as to the appropriate rate,
and as you have twice testified there are differences of opinion at.
times in your group as to the inferences and that the inferences do
not have that infallibility that the data itself does.
CONCENTRATION OF ECONOMIC POWER 4199
Now, nevertheless, the superintendent of insurance is not advised
of those differences in the inferences but is given the composite judg-
ment representing the majority view and apparently, on the facts
as you have presented them, he relies upon that majority inference
so that in effect we have these companies who are engaged in selling
this insurance, giving the majority judgment, which is not infallible
and not as accurate as the data jt'self, to the superintendent and the
superintendent fixing the rates, based upon that inference Avithout
scrutiny of the data or going through the reasoning process that
you engaged in when you drew that inference. Is that correct?
Mr. Cammack. I think that is true.
JNIr. Gesell. Now, Mr. Cammack, we have been talking here en-
tirely about group life insurance where the superintendent of .insur-
ance has some authority to set a minimum rate. What about group
annuities? What about group accident and health? What about
group death and dismemberment? There your association fixes uni-
from initial selling rates with no participation by the insurance
company at all, does it not?
Mr. Cammack. The association as such does not tix the rates, but
we have informal discussions and somebody suggests that they are
going to adopt a rate and all the other companies follow, so in a
sense they do fix the rate, but I want to again call your attention
that these are mere tentative rates and they are adjusted at the end
of the year. We have followed — in order to do what has been pre-
scribed by the New York law for fife insurance, we have regulated
ourselves in a similar way for group disability and group pensions.
Mr. Gesell. Before the New York Insurance Department stepped
into this picture at all, you had the rate and that was put into effect
nnder the law, was it not? You also had a group of rules that were
in sffect before the insurance commissioner came into this picture
at all, and you adopted those rules after the law was enacted and
the formal association was created.
Let us take a look at those rules, Mr. Cammack. First of all,
you have a rule 9- A which says that [reading from "Exhibit No.
658" ']:
No overhead cost, dividend, or rate reduction should be estimated by size of
risk, either directly or indirectly by statement of current cost of operation or
otherwise. The only data submitted should be actual past experience on actual
cases.
There you have to some extent limited the degree to which the
companies in competition for a risk can show comparable experi-
ence or make promises with respect to what they will give back
from this initial rate which they take in, do you not?
Mr. Cammack. I don't think so. I think the best criterion of
what you can do in the future is what you have done in the past,
and not a mere estimate of what you think you may or hope you
may be able to do,
Mr. Gesell. You have another rule that fixes uniform commis-
sions to salesmen. Why should they be uniform ?
Mr. Cammack. Because it is for the protection of the public.
Mr, Gesell. How?
* Subsequently entertd, see iiiLia. p. 4204.
124401— 40— pt. 10 5
4200 CONCENTRATION OF ECONOMIC] POWER
Mr. Cammack. The broker, of course, is interested in the commis--
sion that he is going to get for placing a risk. Now if the companies
began to compete with one another and get business by paying
higher commissions to the brokers, it would run up the expense rate
and increase the cost, not only to the employer but to the employees.
Mr. Gesell. Suppose I am selling group insurance and I can pay
a commission to my salesmen, and keep within the rates which have
been established already, higher than that promulgated by your as-
sociation. Wouldn't that be to my advantage competitively speak-
ing?. "Wouldn't I get more business? Andliow would it hurt the
public if I did ?
Mr. Cammack. I don't understand you. Those are the commis-
sions, rates that the insurance companies pay to the broker who in-
troduces the business. Now if you pay him any more, it is going to
cost us that much more to operate.
Mr. Arnold. Supposing you paid him less.
Mr. Cammack. If we pay him less, why, so much the bettc^r.
Mr. Arnold. This uniformity is only on top commissions?
Mr. Cammack. That is the highest commissions. Some companies
pay less.
Mr. Gesell. Isn't it clear, however, that one of the reasons for
establishing uniform commission rates is to prevent one company or
another from having a competitive advantage by reason of the fact
that the brokers will shop around and sell the insurance with the
company which has the highest commission rate?
mr. Cammack. That is the reason.
Mr. Gesell. Isn't the result of the commission rule, then, such
that it levels off competition and keeps all of the companies on the
same plane as far as agents and brokers are concerned?
Mr* Cammack. I don't think it has that effect at all. The only
effect it Jias is to enable us to manage our business economically. If
we were to pay, say, 2 percent commission — if that is our scale and
we were told that tne Metropolitan would pay 3, we would be tempted
to pay 4.
Mr. Gesell. That isn't the way the actuarial science works, is it?
Mr. Cammack. It is the way practical business works.
Mr. Arnold. But I thought insurance was simply written on an
actuarial basis and if you got beyond the actuarial basis, then you
wouldn't accept it. You mean you are subject to temptations to go
beyond the actuarial basis?
Mr. Cammack. We certainly are.
Mr. Arnold. And this is a method of preventing you from yield-
ing to temptation to lose money.
Mr. Cammack. In the New York law the maximum rates of com-
missions for ordinary 'business are set by statute and that was to
prevent the excessive commissions that were paid in former years.
Now there has been no statute limiting acquisition costs on group
life insurance, but the companies have themselves regulated them-
selves in that respect and kept down their cost.
Mr. Arnold. If you were subject to temptations to go contrary to
your actuarial tables in the instance which you now speak of, might
it not be that you might be subject to temptations within your own
group in submitting tliese rates, if the temptation were there?
Mr. Cammack. I don' quite follow you.
CONCENTRATION OF ECONOMIC POWER 4201
Mr. Arnold. You indicated that there was a great deal of pressure
and a great deal of temptation not to follow actuarial tables in the
event it was to your business advantage to disregard them.
Mr. Cammack. You mean pay an excess commission?
Mr. Arnold. Well, as an example of where actuarial figures did
not control the situation. Now if you are subject to those tempta-
tions, why isn't it equally true that if in one of these meetings similar
temptations arise by which it is to your advantage not to follow
closely the actuarial experience, you might fall in those instances also,
mightn't you?
Mr. Cammack. You mean we might compile a deliberately false
experience ? Because my answer would be no.
Mr. Arnold. No; in determining the rates which you would
charge, the selfish interest of the company would be a large motivat-
ing factor as it was possible in public utility rates prior to regu-
lation.
Mr. Cammack. No; I don't think so. I think the danger is on a
large risk to quote too low a rate and not too high a rate because, of
course, we are all eager to write these large risks and the danger is
we would cut the rate too low. Now what we want is a reasonable
rate which is perhaps a little redundant but not excessive and then
adjust the cost at the end of the year.
Mr. Arnold. Now I think we are getting in agreement because I
had assumed all along that this whole device was a method to remove
from the association any temptation to cut the rates. Now that is
probably true isn't it ?
Mr. Cammack. That is true — no, that is not the whole reason, but
we do Want to avoid simply cutting rates.
Mr. Arnold. You think that the insurance company is one of those
instances which runs better by a rate fixing agreement than by a
competitive arrangement?
Mr. Cammack. I don't think we fix our rates. I think the rates
are fixed at the end of the year.
Mr. Gesell. Now we are dealing here with group insurance and
you sell group insurance, don't you, Mr. Cammack?
Mr. Cammack. Yes.
Mr. Gesei.l. Now if you state in your rules what commission you
are going to pay to your salesmen, if you say in your rules how
much guarantee you are going to allow him to make with respect to
rate, if you very much limit what he can say to the group as to what
they may expect back, if you also set up your rules in such a way
as 1,0 prevent him from taking business from other members in your
association, and if you limit your selling procedure from all these
various points, the net r&sult of it is to put selling competition on a
very narrow basis, is it not?
Mr. Cammack. I can't quite agree with this. You mention the
fact that we arrange so that the group could not be transferred.
I want to say that if an employer has his group insurance with
one insurance carrier, it is the easiest thing in the world for him
to transfer it to another. Any of the big companies will accept that
business. He has simply got to go in and make application and
they will be glad to get it. The only rule we have is we won't pay
any commission because the acquisition cost in writing that busi-
4202 CONCENTRATION OF ECONOMIC TOWER
ness has been incurred once and we feel it should not be incurred
twice.
Mr. Gesell. Now, let me see about that. You charge your com-
mission to your group just the same whether you pay it to your
agent or not, don't you ?
Mr, Cammack. We spread our commission.
Mr. Gesell. So that in spite of the fact that this rule prevents
the payment of commissions to agents on transferred business, you
still charge the company which has transferred the same amount
you would ask if you did pay the commission, so you don't lower
the price at all, from that point of view.
Mr. Cammack. But, Mr. Gesell, if we had the same custom in
the group business as we had in compensation, and these group
policies were transferred to one company one year and another com-
pany the next year and another the third, instead of having an expense
of 8 we would have an expense rate of 15 or 20. We don't want that
to happen.
Mr. Gesell. The result of it would be that those companies which
kept on a sound underwriting basis would persevere and have more
business and those companies which permitted large acquisition costs
to grow up would lose out and have difficulties in their group busi-
ness; would it not?
Mr. Cammack. I don't know.
Mr. Henderson. If I understand your answer, there is quite a
range of difference in the actual cost, the expenses of doing business.
You say it would run from 7 to 15 percent?
Mr. Cammack. I was thinking of some of the companies. I sup-
pose they have an expense rate as high as 15 percent, and I think
probably the loAvest is abouc 7 percent.
Mr. Hendersoi^. Yours is about 9 ?
Mr. Cammack. i think it is about 9.
Mr. Henderson. Well, Mr. Cammack, along the line suggested,
perhaps the company that, was able to keep its expense rate some-
where near 7 might get the business as against the high cost one with
15 percent. You say that that would be disorganizing.
Mr. Cammack. It would h& very disorganizing if we paid com-
missions every time to the broker that he transferred.
Mr. Henderson. I do not mean switching. I was talking about the
disorganization in the business as a result of one company's having
half the expense cost of another company and thereby getting the
business. I am trying to get your point of view as to what would be
disorganizing about that.
Mr. Cammack. There is nothing disorganizing about that.
Mr. Henderson. I understood your answer to Mr. Gesell was that
it w^ould be very disorganizing. He suggested, did you not, Mr.
Gesell, that it might be possible that the low expense company would
get a larger part of the underwriting?
Mr. Gesell. I suggested that if these rules and rate activities
didn't result in selling of group insurance on the same level for
all companies that those companies which kept sound underwriting
practices, didn't permit their expenses to run up, would eventually
survive, and those which went into unsound prac(:ices would be elim-
inated.
(CONCENTRATION OF ECONOMIC POWER 4203
Mr. Henderson. Your answer to that
Mr. Cammack. I misunderstood your question. I thought that
3'ou said if we paid commissions on transferred business it might
result very beneficially because those companies that paid com-
missions would get a high expense rate and those that didn't would
get a low expense rate and it would perhaps be a good thing to pay
commissions on that.
Mr. Gesell. One result of this transfer rule, Mr. Cammack, is to
keep this business which has been accumulated by the big five or
six companies in their hands and prevent it from being taken away
from them by some independent company which is out writing in-
surance at lower rates and is not governed by the restrictions of
your association.
Mr. Cammack. I really don't think so, Mr. Gesell.
Mr. Gesell. You don't know, do you, that that isn't true?
Mr. Cammack. I can't say positively it is not, but it is my im-
pression that it is not so.
Dr. LuBiN. Mr. Cammack, if I am a businessman and my ex-
penses of operation are 7 percent as compared to the expense of
operation oi my competitor, which, let us say, is 10 percent, do you
feel that I should have tlie right, in order to increase my business, to
pay my employees a little bit more than my competitor and in other
words be satisfied with a smaller margin than I am getting now?
Shouldn't I have that right?
Mr. Cammack. Of course in life insurance and group insurance
the commission that you pay to an agent is paid by the employer and
the employees. It can come from no other source.
Dr. LuBiN. The same is true of any merchant who does business.
It is the consumer who has to pay.
Mr. Cammack. And I can't imagine anything worse for the busi-
ness and for the interest of the policyholder than competition in
the payment of commission scales.
Dr. LuBiN. But if I can still undersell my competitor, and pay a
little higher commission scale and still sell my policies at a lower
rate in the long run, why shouldn't I have that privilege?
Mr. Cammack. Because I don't think that if you pay high com-
missions you can undersell your competitors.
Dr. LuBiN. It needn't necessarily be high, say a quarter of a
percent more than my competitor. Why shouldn't I have that right?
If it is going to increase my business and lower my overhead per
unit and ultimately give the consumer or purchaser of the policy a
lower premium, why shouldn't I have that right ?
ISlr. Cammack. I admit you have the right to do it, but I don't
think it is a good thing. As soon as one company pays a higher
scale of commissions than another that increased scale of commis-
sions is met by all competitoi*s.
Mr. Gesell. I think we are getting toward the end of the day,
Mr. Chairman, and if I could complete one phase of this examina-
tion, I think it may shape up somewhat.
The Chairman. I will cooperate with you in completing it. I
will ask the committee to refj-ain from iiiterrupting your examina-
tion until you have finished.
4204 CONCENTRATION OF ECONOMIC POWER
Mr. Gesell. Thank you very much. I am pretty nearly done.
Do you recognize those papers that I hand you, a set of the present
group life rules which have been promulgated by the association ?
Mr. Cammack. Yes.
Mr. Gesell. I wish to offer these rules for tlie record.
The Chairman. The rules may be received.
(The rules referred to were marked "Exhibit No. 658" and are
included in the appendix on p. 4711.)
Mr. Gesell. I want to find out just what the association does about
fixing rates for group death and dismemberment insurance, Mr.
Cammack. That i^ not controlled by the superintendent of insur-
ance in any way, is it?
Mr. Cammack. No.
Mr. Gesell. The superintendent of insurance has no right to fix
rates, minimum or maximum or otherwise, in group death and dis-
memberment.
Mr. Cammack. The procedure is just about the same as it is in
group life insurance except that the recommendations which are made
on the basis of compiled experience are adopted by the members of
the Group Association.
Mr. Gesell. In other words, you don't even have in group death
and dismemberment the pretense of a superintendent of insurance
having some type of review of what you are doing?
Mr. Cammack. No; he doesn't.
Mr. Gesell. You get together, you recommend rates, all the mem-
bers in the association adopt those rates, and those are the rates that
are used in selling death and dismemberment insurance.
Mr. Cammack. We make those rates up on our experience.
Mr. Gesell. Do you all agree that the loading should be the same ?
Mr. Cammack. We have uniform rates.
Mr. Gesell. Yes; that means you all agree that the loading
Mr. Cammack (interposing). That would make the loading the
same.
Mr. Gesell. That isn't true, as a practical matter, is it? One com-
pany is better managed than another, one company has different fac-
tors involved in computing its expenses, and if each of the com-
panies were to sell, using their own loading or experience, the rates
would not be uniform, but would be different, would they not?
Mr. Cammack. Well, my reply, Mr. Gesell, is again that tlie rates
are adjusted at the end of the first year and the company that has
got the lowest expense rate gives a bigger refund,
Mr. Gesell. From the selling point of view, you have uniform
rates in the sale of death and dismemberment insurance.
Mr. Cammack. Initial rates.
Mr. Gesell. Just how are those activities in fixing uniform rates
for death and dismemberment insurance reflected in those minute
books? Is it a formal association matter, or is it done more or less
on the side by a small informal committee ?
Mr. Cammack. They are not in the minute books. There will be
a committee on death and dismemberment that will examine the
experience and recommend the rates. Now the members are nd't
bound by those rates. I suppose that we can best describe it as a
gentlemen's agreement. If a member does not use those rates, the
Group Association has no complaint in the matter.
CONCENTRATION OF ECONOMIC POWER 4205
Mr. Henderson. Do yon mean no complaint or no recourse?
Mr. Cammack. No recourse. .
Mr. Henderson. It has complaint, I would gather from the testi-
mony of the previous witness, in which you were a little bit in-
volved as a bad boy .^ Am I not correct in that? It is not complaint
you are talking about. It has no legal recourse. It has recourses
that are either extra-legal or non-legal.
Mr. Cammack. No.
Mr. Gesell. But as a practical matter all of the companies 'do
follow these uniform rates, do they not?
Mr. Cammack. That is right.
Mr. Gesell. Has there been some effort to conceal the activities
of fixing those uniform rates? Am I to gather that from the
fact that there is no record of it in those minute books?
Mr. Cammack. The constitution of the association provides that
we cannot fix rates, so that it has been done informally through com-
mittees that have recommended rates on the basis of the experience
compiled.
Mr. Gesell. You were afraid your rate-fixing activities would be
unconstitutional, is that it, so you kept them on the side.
Mr. Cammack. I wouldn't say that. I think some companies feel
that it was joerhaps dangerous.
Mr. Gesell. Dangerous fi'om what point of view?
Mr. Cammack. For myself, I could never see there was anything
illegal in promulgating rates.
IVTr. Gesell. What did they think was dangerous abolit it?
Mr. Cammack. I can't tell you, Mr. Gesell, because I was not one
of them.
Mr. Arnold. Was the specter of the antitrust laws raised?
Mr. Cammack. I think so, that is right.
Mr. Arnold. And that while you don't think it is" dangerous, still
there is no object in sticking your neck out, and therefore it is a
good thing to put these in an informal meeting.
Mr. Cammack. Personally I didn't think we were violating any
of the laws.
Mr. Arnold. But the specter appeared at the feast.
Mr. Cammack. That js right.
The Chairman. Let me interrupt. Let's follow Mr. Gesell's rec-
ommendation and permit him to conclude his questioning.
Mr. Gesell. I am almost through, sir, I thank you. I wish to
read from the minutes of the meeting of the committee of June 26,
1926, held at the offices of the Connecticut General Life Insurance
Co., attended by Aetna, Connecticut, and Metropolitan :
All questions voted on by companies. Moved, seconded, and carried that
the committee di'a.w up rules covering the proper subjects, excluding rates,
and have a branch of the Group Association with a subchairman and a sub-
secretary handle all matters pertaining to accident and health insurance, in-
cluding death and dismemberment insurance, the subsection to have the right
to elect members not writing group life insurance. Under the discussion it
was brou^t out that Mr. Brosmith thought there might be a very remote legal
objection to including rates in rules, but the fact that they have the same
rates now and that they have a rate exi)erience bureau in compensation insur-
ance made him feel it could b^ done properly. Mr. Bassford said the Metro-
1 See supra, p. 4158.
4206 CONOKNTRATION OF ECONOMIC POWER
politau 'could not consider entering if rates were discussed, for some
commissioner aslts a question every year about collaborating witli any other
company on the subject of rates. It was felt that the subject of rates mighi
by handled by a temporary committee which might suggest rates and then
dissolve.
Has that been the procedure, Mr. Cammack, to set up this small
committee, have them recommend rates, and have them disappear
from the scene and have no records of their recommendations at all
contained in the minute books?
Mr. Cammack. No, sir; we have had these standing committees.
The standing committees have informally recommended rates, and
they have been adopted.
Mr. Gesell. Has that same procedure been adopted in the han-
dling of group accident and health insurance ?
Mr. Cammack. Yes.
Mr. Gesell. Again the companies have adopted uniform rates
after the recommendation has been made by the committee?
Mr. Cammack. That is so.
Mr. Gesell. And again the superintendent of insurance, or no
official body, has anything to do, from a supervisory point of view,
in approving the processes by which those uniform rates are reached.
Mr. Cammack. Yes, sir.
Mr. Gesell. Likewise, in the case of group annuities, do the
companies writing group annuities get together, pool their experi-
ence,' reach a program for uniform rates, and follow those uniform
rates ?
Mr, Cammack. Yes, sir; they have pooled their experience from
time, to time. "Of course tlie principal factor in computing your
group annuities is the interest rate you expect to be able to invest
your premiums at.
INIr. Gesell. But the basic rate in the sale of group annuities is
a uniform rate, is it not?
Mr. Cammack. I don't think it is entirely uniform and it has not
always been uniform. I think it is uniform for all the American
companies.
Mr. Gesell. All thi American companies writing group annuity
business are members of the Group Association, are they not?
Mr. Cammack. I c^aldn't answer that question.
Mr. Gesell. I would like to offer for the record a schedule entitled
"Total Group Annuity Business iii Force, End of Year, 1934-38."
This schedule has been prepared from Spectator's Insurance Year-
book, Best' Life Reports, New York Reports, and the annual state-
ments filed with the insurance departments, and shows for each year
from '34 to '38 the number of contracts, the number of .certificates,
and the annual income in dollars of each of the association companies
not members of the association which have any group annuity busi-
ness in force on their books.
I may say that from this schedule it appears that from 1936 to
1938 there is no record of any new group annuity business being
issued by a nonassociation company.
The Chairman. The schedule may be received.
(The schedule referred to was marked "Exhibit No. 659" and is
included in the appendix on p. 4716.)
CONCKNTRATION OF F.CONOMIC POWFJl 4207
Mr. Gesell. Am I correct in stating that for group accident and
liealtli, group death and dismemberment, and group annuities, under-
writing rules in general similar to the underwriting rules established
in the writing of group life insurance have always been promulgated
and are followed by the companies?
Mr. Cammack. Yes.
Mr. Gesell. And the same rules apply with respect to those rules,
namely, that any dissenting company can veto?
Mr. Cammack. Yes; they are governed by the constitution,
]Mr. Gesell. Now just one further question, Mr. Cammack. Has
there been an effort to achieve uniform policy forms for the com-
panies writing group insurance through the medium of this asso-
ciation?
Mr. Cammack. I would say not. Of course, the provisions of the
policy nnist be similar in many respects by reason of the fact that
they have similar underwriting rules in some respects, but we have
no uniform contract.
Mr. Gesell. My question was prompted by a letter written by
Mr. Beers, of the Aetna, in whicli he refers to the Texas Corporation,
and he says :
I see that the Travelers have given the above a copy of the contract. I am
upset at this and am telling them so. I thiulc that both you and we have at
all times been ready to cooperate to discuss luisettled matters promptly and that
all the delay has been on the part of the Travelers. I feel that it is very
unwise to submit to an employer a form of contract on which the insurance
companies are not yet agreed.
j\Ir. Cammack. Mr. Gesell, the Texas Corporation took out a group
annuity policy on their employees. They decided they would like
to have three insurance carriers, namely, the Travelers, the Aetna,
and the Equitable, and one-third of the plan would be carried in each
company. Each company woidd hold one-third of the reserves, and
in a case like that, of course, the policyholder desires to have the same
contract in each com^pany. There was no competition between the
companies; it was awarded to them, each to have one-third of the
l)usiness, and it is highly desirable, of course, and in the policy-
liolder's interest, that they should have the same wording, the same
, contract.
Mr. Gesell. Naturally. And you say so far as the contracts where
com.petition does exist are concerned, there is no uniformity in the
policies except where that uniformity results by reason of the appli-
cation of the various rules^of the association to the policy?
Mr. Cammack. And by reason of the laws in the various States,
.of course, that require certain standard provisions.
'Mr. Gesell. By and large, they are pretty much the same.
Mr. Cammack. They look very much alike. We have no standard
forms agreed to by the association.
Mr. Gesell. That completes my examination today, Mr. Senator.
Mr. Arnold. Mr. Cammack, there is a good deal of competitive
spirit in this industry which is being curbed by this association,
isn't there? I am liot talking about whether it should be or should
not be curbed, but that is a statement of fact, isn't it?
Mr. Cammack. There is some.
Mr. Aknold. And you think now that that is for the good of the
industry ?
4208 CONCENTRATION OF ECONOMIC POWER
Mr. Cammack. I am convinced of it,
Mr. Arnoij). At one time you didn't think so; isn't that so?
I refresh your recollection by reading one of the exhibits [reading
from "Exhibit No. 647"] :
In the course of the diseussiou a large number of cases where Mr. Cammack
had strained the rules for his company's advantage were brought out —
and then I understand that you were brought back into line, so
that at one time you were somewhat skeptical about this curbing
of that sort of competition.
Mr. Cammack. I don't remember that particular incident, but
it would appear to me that under niy interpretation of the rules it
was perfectly proper for us, and we were not breaking any rule if
we gave our policyholder clerical assistance, and I appear to have
done so. The rules were altered so as not to allow it, and I believe
it was proper then.
Mr. Arnold. And therefore now you think, after having been
chastised at this meeting, that it is a good thing that that competi-
tive spirit which you evidenced in 1924 has been curbed ?
Mr. Cammack. "^I think it is probably a good thing. I don't think it
costs the policyholder anything. If we spend less money in admin-
istering his business we are enabled to reduce his rate by just so
much; it makes no difference whether he spends it and we return
it to him, or whether we spend it direct.
Mr. Arnold. But at that particular meeting you took a rather
heated position to the contrary, didn't you ?
Mr. Cammack. I can't remember the meeting. I couldn't testify
as to that.
Mr. Arnold. The records appear to show that, and you wouldn't
deny it, would you ?
ISIr. CammactiI. I don't deny anything that Mr. Flynn writes.
Mr. Hendekson. Mr. Cammack, you say it doesn't make any dif-
ference as to the getting and the refunding. With these various uni-
formities by which the area of competition is considerably narrowed
and in which pretty generally the initial rate is just the same it
certainly doesn't, because in that initial rate there is really an aver-
age struck. That is wliat happeriS with the composite experience,
isn't it, that there is an average struck? But in order to have that
average, as we have said before, there are some companies that
might have 7 percent of expense and some that might have 15. It
would make a difference, then, wouldn't it, as to the taking and re-
fimding if it were done on the basis of 7 percent or 15 percent?
' Mr. Cammack. I think what makes the difference is the relative
economy of management of the two companies. I don't think it is
the initial rate the policyholder pays.
Mr. Henderson. That is just my point. With competition de-
cidedly narrowed the policyholders are not getting the benefit on ac-
count of the uniformity of the initial rates, that is, when the business
is placed.
Mr. Cammack. It would seem to me that competition is just as
keen as ever it was, even in the days when there were
Mr. Henderson (interposing). Keen on something else than
initial rates.
Mr. Cammack. It is keen on net cost.
CONCENTRATION OF ECONOMIC POWER 4209
Mr. Henderson. You would have a little difficulty in convincing
people that unless there is competition in rates there is real competi-
tion, wouldn't you ?
Mr. Cammack. I think there is competition in rates, because the
rate is not determined until the end of the first year.
Mr. Henderson. But business is sold at the beginning of the year,
Mr. Cammack. The rate isn't determined until the end of the
3^ear. It is sold at the beginning of the year, but it is sold on what
the net rate is going to be.
Mr. Henderson. It is a sort of delayed competition in a very nar-
row and circumscribed field.
Mr. Cammack. I think it is very active.
Mr. Henderson. Of course, my experience in N. R. A. with some
500 codes, indicated that any deviation or any price cutting was
thought to be evidence of very severe competition, and that is evi-
dently what is running through your mind, isn't it?
Mr. Cammack. The competition is on the net rate that the policy-
holder will have to pay at the end of the first and subsequent years.
Mr. Arnold. You did think, however, that you were getting an
advantage by your conduct in 1924, which was subsequently stopped,
didn't you?
Mr. Cammack. Yes, sir.
Mr. Arnold. And that kind of competition is compel ition th:it
hurts, as appears from the meeting, isn't it?
Mr. Cammack. I don't know how important that was.
Mr. Arnold. It hurt. It sliocked the representatives of John
Hancock.
Mr. Henderson. There was a difference there that took some busi-
ness. Wasn't that it? Isn't that the thing that determines whether
competition exists ?
]\Tr. Cammack. I am sorry I can't testify about that. I don't
know the case; I don't know whether we really wrote business under
that plan, or whether it was just hearsay.
Mr. Frank. The letter shows you did, and it says the measures
which were necessary to whip the matter into shape, which included,
according to the letter, your being badly chastised [reading from
"Exhibit No. 647"] : '
left some of the weaker members, such as the Connecticut General and Mis-
souri State, at the point where they were hinting at getting out of the confer-
ence in order to enjoy cut-rate opportunities.
So apparently it was assumed that your activities prior to this
meeting enabled your company to enjoy some opportunities.
Mr. Cammack. Mr. Frank, I would be glad — if I had known I
was going to be questioned on that latter — to refresh my memory
by a review of that correspondence. In my mind I don't recollect
it at all.
The Chairman. The witness may believe that Mr. Flynn was
just writing a letter to his president.
Mr. Frank. Mr. Cammack, I am puzzled about one thing. You
say the competition comes in the net amount determined at the end
of the year, but that, at the time a company is soliciting insurance
the net amount is not yet known to the purchaser, and no matter what
company he goes to, he will be met with the same initial rate, so that
4210 (JONCENTKATION OF ECONOMIC POWER
he can't know, in his own mind, at the time he buys, Avhether he will
do better with one company than another. Is that correct?
Mr. Cammack. That is true; he doesn't know.
Mr. Frank. Then there can''t be m.uch competition at the time of
purchase wMen he cannot ascertain until a year later whether he is
getting- an advantage by going to one company rather than another.
Mr. Cammack. I think there is keen competition, because your
buyer demands illustrations from every company that is competing
for the business of what that company has been able to do for other
policyholders of like size in the same industry, and the company
that can show the best record has the best chance of writing the
business.
Mr. Frank. Then why don't you let that differentiation between
companies manifest itself at the beginning of the year in a differ-
ence of rate based upon the experience, as is done in other com-
petitive industries ?
Mr, Cammack. I am afraid that you would have uniform rates
then, because if one company reduced its rate 10 percent all the other
companies would do likewise.
Mr. Gesell. What about the actuaries? Wouldn't they stop' that?
Isn't that what the actuary is meant to do?
Mr. Cammack. No; I don't think so. I think the actuary is one
to determine a rate that was adequate for most risks, that would be
inadequate for some, that was not excessive, and that should be
adjusted at the end of the fii-st year so that equity could be given to
the policyholder.
The Chairman. Are there any other questions?
Dr. Lubin. I wanted to ask, Mr. Cammack, with regard to these
rules and regulations for group life, formulated in June? 1938,^ who
formulated these rules, a subcommittee of the association ?
Mr. Cammack. My memory won't allow me to answer that ques-
tion.
Dr. Lubin. Are you i)ersonally acquainted with the drafting of
these rules?
Mr. Cammack. I was probably on the committee that drafted them.
Of course, we had had this informal committee of actuaries, and
doubtless these rules were based on the old rules of the old com-
mittee, with some amendments. I am speaking from recollection
only.
. Dr. Lubin. Do you remember whether the earlier rules defined
trade-unions in the same terms as they are defined in this bulletin,
page 6 (a) ?2
Mr. Cammack. I think the definition of trade-unions is a new
definition. I don't think that was in the old rules.
Dr. Lubin. Thank you.
The Chairman. Congressman Williams, do you have any questions.^
Representative Williams. No.
The Chairman, Mr. Cammack, when you referred to the existence
of competition, do you mean competition among the associatioil com-
panies or competition of th^ association companies with those which
are not association companies ?
1 See "Exhibit No. 658," appendix, p. 4711.
- Ibid.
CONCENTKATION OF ECONOMIC POWER 4211
Mr. Cammagk. I refer particularly to competition among the mem-
bers of the association, though of course we have competition with
companies that are not members.
The Chaieman. On what subjects, or in what fields, does this com-
petition exist among the association companies?
Mr. Cammack. The competition is in regard to net cost, and that
is the first and most important point, as to what our refunds or your
dividend is going to be. The next is the point of service.
The CHAihMAN. How does competition exist with respect to net
cost when it appears from the constitution of the association that
the third objective of the association is [reading from "Exhibit No.
651"] :
to promote economy aud reduce expense in the matter of general administration
by an interchange of views on practice among insurance companies which issue
contracts of group insurance.
Which I take to mean that one of the objectives of the association
is to effect some degree of uniformity in all of these administrative
matters ?
Mr. Cammack. We have some uniformity, but of course
The Chairman (interposing). Isn't that the purpose of your asso-
ciation, to effect that uniformity?
Mr. Cammack. We don't try to effect uniformity in net cost, Sena-
tor. We try to effect uniformity in certain underwriting rules and
practices.
The Chairman. Does the fixing of the commission enter into net
cost?
Mr. Cammack. Very much so. It is one of the most important
factors in net cost.
The Chairman. Your association has promulgated a rule for effect-
ing uniformity with respect to payment of commissions.^
Mr. Cammack. Yes, sir.
The Chairman. And it has also promulgated a rule with respect
to the clerical aid to employers.^
(The witness nodded his head in the affirmative.)
The Chairman. All designed to effect uniformity of cost.
Mr. Cammack. That is so. Nevertheless, in the overhead and gen-
eral administration of the business some companies are more efficient
and more economical than others. That will be always so.
The Chairman. Well now, just in what respects have you failed
to bring items within the scope of objective No. 3 of your consti-
tution ? 3 [Heading :]
The objects of this association shall be (1) to promote the welfare of holders
of group policies, (2) to advance the interests of group insurance, (3) to promote
economy and reduce expense in the matter of general administration by an
interchange of views on practice among insurance companies which issue con-
tracts of group insurance.
Mr. Cammack. That is so, sir, and I think we have achieved pro-
moting economy and reducing expense.
The Chairman. Now, on what items of administrative cost have
you failed to effect the objective of this association, which was to
bring about a degree of uniformity?
' Soo "Exhibit No. C,r>S," npuenriix. p. 4711
2 Ibid.
3 "I-^xliibit No. 651," iii)penclix, p. 470.".,
4212 CONCENTRATION OF ECONOMIC POWER
Mr. Cammack. We haven't brought the expense laid down in all
the companies to the lowest possible level, and some companies are
more economically managed than others, and I think that will alwaj^s
be so. I do think, as a whole, the association has been able to effect
economies in the business.
The Chairman. In other words, so far as possible the purpose of tlic
association was to bring about uniformity in these items which go to
make up the administrative cost ?
Mr. Cammack. Yes, but there is no uniformity, of course, in the
general overhead, the salaries in the home offices, and so forth. Some
companies spend more than others.
The Chairman. Then with respect to the overhead in the home office,
the competitive differences appear.
Mr. Cammack. That is generally so.
The Chairman. Any other items ?
Mr. Cammack. Well, there are sOme expenses in the field, too, over-
head in the field. The companies have branch offices.
The Chairman. To what do you attribute the fact which appears
from the table presented by Mr. Gesell as compiled from the Spectator
Insurance Year Book ^ that in 1926 when there were 81 companies
writing group insurance and 9 of them were associated, those 9 com-
panies had 95.2 percent of the insurance in force attributable to Group
Association companies of the insurance in force; and in 1937 when
there were 19 companies associated out of 105 all told, the associated
companies had 94.3 percent of the total ; a percentage which is exhib-
ited in each succeeding year from 1926 to 1937; the lowest apparently
being 91.9 percent in 1930 and the highest 95.2 percent in 1926. My
question was, To what do you attribute the fact that the associated
companies which have effected this constitution and have operated
under this constitution, have throughout the period controlled over 92
percent of the entire group insurance in the country?
Mr. Cammack. Well, of course, you must remember, Senator, that
all the large companies writing group insurance had been members of
the association; it would indicate that these companies who were not
members of the association and who do not follow the rules don't ob-
tain a great competitive advantage. In other words, our rules impose
no hardship in getting business.
The Chairman. Would it indicate the reverse, that the associated
companies do obtain a great competitive advantage over those which
are not in the association?
Mr. Cammack. I don't see that they attain any competitive advan-
tage. They are bound by rules where others are bound by no rules.
Mr. Gesell. May I ask one question here, please ?
The Chairman. Certainly.
Mr. Gesell. Are the rules applicable when group insurance is sold
by an association company in competition with a nonassociation
company?
Mr. Cammack. Yes, sir.
Mr. Gesell. Do you still follow exactly the same rules with respect
to quoting possibly future experience, for example?
Mr. Cammack. Let me just — I d j Q't know.
» Soe "Exhibit No. 656," appendix, p. 4710.
CONCENTRATION OF ECONOMIC POWER 4213
Mr. Gesell. Yes; I wish you would expltiin that fully.
Mr. Cammack. I don't know what the practices of the companies
are, but take the rules where we pay no commission on transferred
cases. I believe the rules do not bind a member of the association to
pay no commission on a case transferred from a nonmcmber company.
I think some of the companies refuse to pay a connnission. I don't
know what the practice is, Mr. Gesell.
Mr. Gesell. Is it a general understanding that the association com-
panies are not bound by these rules in competition with nonassociation
companies ?
Mr. Cammack. Oh, no, no. These rules — if we have competition
from a nonassociation company, we are still bound by these rules. For
example, the limit of insurance we might put on a life in a certain case
is $5,000. The competitive company may offer 10 thousand. That
would not be met; we are not allowed to do it under the rules.
The Chairman. There are 22 rules in this list which has been pre-
sented here.^ How uniformly have they been followed by the associ-
ated companies ?
Mr. Cammack. I should say they have been followed in a very sub-
stantial way.
The Chairman. Are there any substantial items of insurance pro-
cedure, aside from this administration of the overhead and home office,
upon which there is no agreement among associated companies ?
Mr. Cammack. It is a little hard to answer that question.
The /Chairman. Let me put it this way: Do these rules cover sub-
stantially the field of group-insurance activity?
Mr. Cammack. I think so.
The Chairman. There is not much left out of the rules, in other
words ?
Mr. Cammack. No ; I think they are quite complete.
The Chairman. So there is little opportunity for individual com-
pany action, if the rules are followed ?
Mr. Cammack. Oh, the companies use a good deal of judgment. Of
course, sometimes the business we can write under our rules our com-
pany doesn't care to write ; other companies think the business is good
and will write it.
The Chairman. You spoke a little while ago about the informal
committees which have fixed the rates or determined the rates of pro-
cedure of the legality of which you had no doubt, but of the legality
of which others did have a doubt. Were those recommendations with
respect to rates made by the actuaries?
Mr. Cammack. Practically so. The members of the committees that
considered thcrse matters are usually actuaries of the companies. There
may be some exceptions, but that is generally so.
The Chairman. Are the recommendations and judgments of the
actuaries subject to review by executives who are not actuaries?
Mr. Cammack. Yes.
The Chairman. Do the executives sometimes change the decision of
the actuaries with respect to matters of this kind?
Mr. Cammack. In respect to matters of rates?
The Chairman. Yes: and these other mattei'S.
•See "I'^xbibit No. 638," a|ii»-iidix, p. 47J1.
4214 CONCEXTIIATTON OF ECONOMIC POWER
Mr. Cammack. Oh, yes ; the executives, of course, have the executive
authority. The actuary may be the executive.
The Chairman. The first objective of the association was to promote
the welfare of holders of group policies.^ Do the holders of the poli-
cies have any voice in their own protection?
Mr. Cammack. The holder of the oroup policy, of course, is the
employer. ,
The Chairman, That is right. Does he have any voice in the de-
liberations of the association?
Mr. Cammack. Oh, none.
The Chairman. So that his protection all depends upon the judg-
ment of the association?
Mr. Cammack. Yes.
The Chairman. What is good for him is what you decide to be good
for him.
Mr. Cammack. That is so.
The Chairman. No. 2, to advance the interest in group insurance."
Just what does that mean ?
Mr. Cammack. Well, I think that means to promote it and develop it
on sound underwriting lines.
The Chairman. From the point of view of the company or of the
general public?
Mr. Cammack. Of all three.
The Chairman. And again according to the judgment of the asso-
ciation.
Mr. Cammack. That is so.
The Chairman. We have discussed No. 3 at length. No. 4, to rep-
resent the members of the association in matters pertaining to or whicli
may affect group insurance before the, insurance departments and other
public and quasi public official bodies.^ I observe that the plural is
used there with respect to departments and quasi public official
bodies. Do I understand that to mean that one of the purposes of
the association is to represent its members before State insurance com-
missioners wherever the Group Association companies operate?
Mr. Cammack. Yes.
The Chairman. In other words, the business of the association is
more than a matter of State importance but is a matter of national
importance, and this organization of all the companies was formed
for the purpose of properly representing them according to their
point of view before the various commissions which have been set up by
the respective States for the protection of the public interest.
Mr. Cammack. That was one of the purposes of the association.
The Chairman. Fifth, to collect and analyze the group experience
of the members of the association — with the qualification — but nothing
in this constitution or any rule adopted subordinate thereto shall be
held to authorize the making or promulgation of premium rates.*
That qualification, as I gather from your testimony, was made more or
less of a dead letter by the creation of the temporary committee which
informally fixes the rates.
1 Spp "Exhibit No. 651," Mppendix, i). 470.'?.
2 Ibid.
» Ibid.
* Ibid.
CONCENTRATION OF ECONOMIC TOWER 4215
Mr. Cammack. That is so except that the companies are not bound
by the rates. I think I can describe it best by saying that it is a
gentleman's understanding.
The Chairman. A gentleman's agreement, but have you any knowl-
edge of any instance in which a gentleman did not follow the agree-
ment?
Mr. Cammack. On these rates ?
The Chairman. Or on any of the matters which were questionable.
Mr. Cammack. I don't think I can think of any one, but, you see,
we are all governed by the New York law.
Mr. Frank. On certain matters?
Mr. Cammack. On the life.
The Chairman. Any other questions?
Mr. Frank. Yes; I would like to go over one matter. I confess
I have been very stupid in following you on one item. As I under-
stood it, you said that if at the beginning of a policy, at the time of
its purchase, if there were to be competition based upon the superior
skill of one company as against another, its economy of management,
the result would be undesirable from your point of view because it
would bring rates down to the level of the lowest-cost company. That-
is, the competition — if one company as against another offered a lower
initial rate based upon its lower cost — would tend to bring them all
down to that rate, and some of them icouldn't afford to do so. That is
what I gathered from what you said.
Mr. Frank. You say that was undesirable; neverthetess, you
said there was keen competition based upon the fact of the econo-
mies resulting from the lower net cost at the end of the year. Well,
if that competition is effective because of the reduced net cost at the
end of the year, so that one company with a lower cost as a result of
that competition gets more business than anotherj why does that not
then have the same result even though the competition becomes mani-
fest only at the end of the year ? Why doesn't that produce a lowering
of the rates down to the level of the most eflBcient, lowest-cost company ?
Mr. Cammack. There is a danger of the company that is not the
most economically managed cutting the rate to meet the low-rate
company below what it can afford. Now, I think the important thing
is, and I have said it before, to charge adequate rates, rates that are
not excessive. Now, that will mean that they are a little redundant,
and then deal equitably with your policyholders by makmg such
refund on dividends at the end of the year that you are able to do.
Mr. Frank. But if competition is effective by virtue of what occurs
at the end of the year — anticipated as you indicated by the buyer at
the beginning of the year, because of his examination of previous ex-
perience— why doesn't that competition have the tendency to cause
returns to the policyholder at the end of the year in excess of what
the experience of the company justifies, so as to bring about just the
Same consequences, which you consider evil, as would result from the
initial rate?
Mr, Cammack. I think when the policy is written and been in
effect a year the danger of paying back too much to your policyholder
is less than the danger of quoting a rate that is too low before you
have written the risk.
124491—40-
4216 CONCENTRATION OF ECONOMIC TOWER
Mr. Frank. Yes ; but if the competition results from the knowledge
in advance of the initial period, knowledge on the part of the pur-
chaser based upon his examination of the various companies as to
what will happen to him at the end of the year, if that is true, then
why doesn't that have the same effect on all of the companies, and why
do they then not, by what they do yearly in the way of returns of part
of the gross premiums, meet the competition, one of the other, just as
exactly as if they initially made their rates different? As I under-
stand it, you say the competition is just the same. Well, if it is just
the same, why bother to go through the rigamarole by having uni-
formity which ends up iit lack of uniformity at the end of the year,
a lack of uniformity which you say is known to the buyer and induces
him to purchase from one company instead of another ?
Mr. Cammack. Of course, one of the difficulties there is you don^t
know what its rates should be when you underwrite the risk. Now
you can make a guess at it and your guess may be too high or too
low. What you should do is to charge a rate that in all probability
will be adequate and then reduce it on the basis of the experience
under the risk. Now you can't reduce it before you have got any ex-
perience under it because you don't know what the experience is
going to be.
Mr. Henderson. But the competition is a little bit different.
Mr. Cammack. It is a little bit different and a little sounder, I
think.
Mr. Henderson. We get it. It doesn't seem to act in the way in
which competition, in terms of the American conception of competi-
tion, is expected to, however. It doesn't seem to influence the transfer
of business. -
Dr. LuBiN. Do you feel that aiiy businessman knows at the be-
ginning of the year just how be is going to come out at the end?
Mr. Cammack. I don't think so.
Mr. Henderson. There is very little risk taken in this method.
Isn't that it?
Mr. Cammack. Very little risk to the insurance company?
Mr. Henderson. Yes.
Mr. Cammack. That is so. But in this business the policies are
taken out, they are renewed year after year for 20 or 30 years.
Mr. Henderson. You said you can't tell what it is going to be until
the end of the year, until you have had the experience. You know
•pretty well, don't you, that is, if your actuarial tables
Mr. Cammack (interposing). Our actuarial tables won't tell how
many deaths you are going to have.
Mr. Henderson. I feel we dealt a little unfairly with that distinc-
tion, actuarially and mathematically. But you do know pretty well,
don't you ? Put it this way, Mr. Cammack. Your company knows
pretty well as an over-all matter what il^ charges and costs and out-
payments are goin^ to be, and if you decided to go into price com-
petition with the initial rate, you could make it pretty lively for
some of the higher cost companies, couldn't you ? I gather you think
it would be unsound, but there would be a greater degree of competi-
tion, would there not, and it would be competition more in terms of
industrial competition.
CONCENTRATION OF ECONOMIC POWER 4217
Ml". Cammack. Of course there would be, but that competition
would be met by all the other companies in the field, and the net
cost to the policyholders wouldn't be any lower than it is today.
Mr. Henderson. But it is assumed in industrial competition where
the prices are not delayed for a year on the terms of any agreement
that the necessity for taking a risk, the necessity for coming close
to a margin, does add more to the reduction in cost, to the efficiency,
and to lowered prices than this coverage that you have against these
problematical risks.
Mr. Cammack. I don't think you can draw any parallel between
the cost of a group life policy and the cost of putting up a building,
because the cost of putting up the building is fixed by contract. Now,
our cost is not fixed until the end of the year.
Mr. Henderson. Let's not take the cost of putting up a building;
let's take something that is competitive in price. What you are say-
ing is that there is a difference between the way you do business
and the way a competitive price is arrived at in industry. Isn't
that what you are saying?
Mr. Cammack. Well, the fundamental difference is that we do
not determine our price until the end of the year. I keep repeating
that, but I must because that is the fundamental difference.
Mr. Henderson. I keep repeating that that is not competition
within the terms of understanding of the American people.
Mr. Cammack. I think that the object of competition is to protect
the public from exorbitant prices.
Mr. Henderson. That is right, and the public expects that the
competition will take place when a thing is bought.
Mr. Cammack. I maintain that our plan of rating group insur-
ance has resulted in exceedingly low expense rates and in exceedingly
low net cost to the policyholder.
Mr. Henderson. Your guess is that it is a lower cost than would
result if there were competition at the initial rate line.
Mr. Cammack. I think so.
Mr. Henderson. But you have nothing on which to gage that.
That is a personal opinion.
Mr. Cammack. It is a personal opinion because no one can tell.
Mr. Frank. So you have deviated from the normal mode of com-
petition and you conjecture that it is better than the normal mode
of competition, but you are unable to establish that.
Mr. Cammack. Well, my memory will go back when we had no
predetermined rates, and the companies would quote any rate.
Mr. Henderson. That wasn't so long a period.
Mr. Cammack. It was over a period of some years, and I tell you
that this plan works much better, that the cost to the policyholder
is lower.
Mr. Frank. Mslj I ask whether there is anything in the law or
rules of your association which prevents you from returning to the
policyholder at the end of the year a larger sum than the amount
of your savings ? Can the net cost be fixed arbitrarily ?
Mr. Cammack. The law says that the refund must be based upon
mortality experience, or some such wording. I don't think we can
make an arbitrary refund on what is earned.
4218 CONCENTRATION OF ECONOMIC POWER
Mr. Frank. In part you said that the competitive factor, as 1 under-
stand it, at the end of the year is the net cost, so that if two com-
panies are writing identical insurance, the mortality table cannot be
the controlling factor because that is assumed to be identical ; is that
correct ?
Mr. Cammack. Yes.
Mr. Frank. Therefore the difference must be, as you have several
times indicated, in the efficiency of your operations. Very well ; now
the amount that is returned on the basis of the difference in efficien(;y
between two companies — can that be arbitrarily determined by a
company ?
Mr.i Cammack. No. It is determined by formula. I have known
group life cases written where, we will say, every employee is in-
sured for $2,000, and he is insured for $1,000 in one company and
$1,000 in another, and they pay the same initial rate, and when you
come down to the end of the year they find they have paid a different
rate because they get different refunds in the two companies. You
can make an easy comparison there.
Mr. Frank. If company A refunded X dollars and company B
refunded X plus Y dollars, who determines whether company B shall
add Y to the amount of the refund ?
Mr. Cammack. The dividend formula or the rate-reduction form-
ula of these companies is .determined upon a formula.
Mr. Henderson. Who determines the formula?
Mr. Cammack. Well, that is probably put in the hands of the
actuary. i
Mr. Frank. Of the particular company.
Mr. Cammack. Yes.
Ml. Frank. That is not uniformly agreed upon?
Mr. Cammack. Oh, no.
Mr. Frank. If competition results from the amount of the refund
and if each company can refund what it pleases without regard to
law or any agreement among the members of the association, and if
the amount of the refund determines whether a person will purchase
insurance from company A or company B, then is there not, accord-
ing to you, just as much jlikelihood of injury to the public, to the
insurance company, and to the insured from making those refunds too
great? Isn't the possible injury just the same as would result from
making the initial price too low?
Mr. Cammack. No, sir. 'Look at the operations of your group de-
partment at the end of the year and you find out how much money
you make. You are not going to refund more than you made. You
have to put some in a contingent reserve and the balance you refund.
and your actuary determines upon the formula to equitably divide
that amongst the policyholders.
Mr. Frank. But that is determined by the company itself.
Mr. Cammack. Yes, sir;
Mr. Frank. You said before if you had competition in the initial
rate there would be danger, that if one company being a lower cost
company, reduced its rate to correspond to what it anticipated would
be its lower cost, another company would come down to that fevej
even though it cduld not afford to do so.
Mr. Cammack tsaid there would be temptation.
CONCENTRATION OF ECONOMIC POWER 4219
Mr. Frank. Why doesn't the same temptation exist at the end of
the year on the part of the higher cost company to refund more than
its actuaries would tell it it should ref uid ?
Mr. Cammack. Because at the end of the year I don't think there
is any company would make in total refunds more than its total
earnings in the department.
Mr. Frank. Even though it thought it could get more customiei's
by doing so ?
Mr. Cammack. Oh, yes ; I don't think it would.
Mr. Frank. Why would they do so at the beginning of the year?
Mr. Cammack. There is the hope that^you are going to have a good
experience. At the end of the year you know.
Mr. Frank. Yes; but if they knew at the beginning of the year,
from their past experience, that their cost was 15 percent and the
other company's was 7. percent, would it be likely that they would
think that in l.year much difference woul,d result?
Mr. Cammack. Well, it is not only the, cost of operating the busi-
ness, it is the mortality experience; you don't know what death rate
you are going to have.
Mr. Frank. But the difference in refund is not based on the mor-
tality experience, as I understand it.
Mr. Cammack. No; the mortality experience
Mr. Frank (interposing). Therefore we can throw that out in
both instances, initially and at the end of the year. That is a red
herring as far as this discussion is concerned, isn't it, really? \
Mr. Gesell. By the way, who gets these refunds, the employer or
the employee?
Mr. Cammack. The employer gets th^m to reduce his costs.
Mi". Gesell. So that your initial rate does affect what these 9,000,-
000 working people have- to pay for their group insurance.
Mr. Cammack. Of course, if the refund is greater than what the
employers pay, then tlie balance of it ;,^oeS to the employee.
Mr. Gesell. But he has first call.
]\Ir. Cammack. He has first call. \
The Chairman. Mr. Cammack. the whole discussion this after-
noon, all the questions which have been put to you, seem to have been
based upon the assumptiDn that a competitive system is better than-
a system based upon agreement among competitors. Do you think
that assumption is a correct one?
Mr. Cammack. It is very hard for me to answer that question,
Senator, because I still believe that we have got the .competitive
system.
The Chairman. Of course, the purpose of the association was to
eliminate at least certain fields of competition.
Mr. Cammack. To eliminate certain possible abuses in the business.
The Chairman. Well, of course, we, can use a euphonious phrase
or use one Avhidi might be "rough," tb use the word that appeared
in the memorandum whicli detailed the experiences.^ The question,
however, is whether or not the association has not been formed for
the express pu.rpose of eliminating actual competition in certain lines,
as, for example, in underwriting, and in the rates of commission, two
items which were specifically mentioned.
^ See "Exhibit No. 647," appendix, p. 4701.
4220 CONCENTRATION Or^ ECONOMIC POWER
Mr, Cammack. It has; thut is right.
The Chairman. Now competition has been eliminated in those two
items.
Mr. Caimmack. Absolutely.
The Chairman. And yon think that is a desirable thing to do?
Mr. Cammack. I think it very sound.
_ The Chairman. So then I ask you, in your opinion, is the competi-
tive system superior to a system of organized agreement among com-
petitors as to what rates and policies shall be?
Mr. Cammack. I believe in organized agreement up to an extent,
but not to the elimination of competition. I will not agree that
competition should be eliminated.
The Chairman. Now, then, what you are saying, in other words,
is that you believe in organized activity to eliminate competition up
to a certain extent, but not to eliminate all competition.
Mr. Cammack. In certain respects, I would say yes.
The Chairman. What elements of competition do you say from
your experience as an actuary and an expert in insurance may prop-
erly be eliminated from your insurance field?
Mr. Cammack. I think that is illustrated in our underwriting
rules.'^
The Chairman. Before you answer, let me say "this: I recognize the
fact that witnesses who come before this committee and who are
interrogated witli i-espect to their actions and the action of their
companies in relulion to the antitrust laws are naturally fearful of
what inferences may be drawn from their replies. Now from my
point of vicAV I am not concerned about that at all, and what I nm
I tying to find out is the facts of our economic situation upon which
to base a sound judgment witli respect to competition and combina-
tion. It may be, for example, tliat the whole system of antitrust law
ought to be rewritten. There have been many recommendations to
that effect. Therefore, I ask you for your opinion as to the exact
extent to which competition may properly be eliminated, and to whal
extent those who carry on a business may be permitted to write their
own rules, which is what you are doing in this case.
Mr. Cammack. I can't give you a full answer to that. Senator. I
believe that elimination in competition in some matters is for the
benefit of the public. I think elimination of competition in the coua-
mission rate that you would pay to a broker is entirely beneficial. I
think it desirable to have limitations as regards your underwritiisg,
as to
The Chairman (interposing). What specifically do you regard it
to be good ]}ractice, a desirable practice, to eliminate competition as
to underwriting?
Mr. Cammack. As to underwriting, I can only take one or two
illustrations. Group insurance was designed for the protection of
the industrial worker and a regular schedule of insurance, insurance
on 1 year's salary. All right; you get into competition on a case and
you iiave got a conple of hundred lives and the president wants
$10,000 of insurance. We say no, under our rules the president in
that case can't have' more than $2,500; we don't want to disturb the
experience on that case by having one death. There are not a large
1 "Exhibit No. GGS.'' iippeiidix. p. 4711.
CONCENTRATION OF ECONOMIC POWER 4221
enough number of lives to insure anyone for $10,000. There is a
rule restricting underwriting that is absolutely sound.
Mr. Henderson. That is based on the actuarial tables, is it not?
Mr. Cammack. I think it is an actuary's problem to know how
large a risk we can take in a group of a given number of lives.
The Chairman. Let us have your opinion with respect to the elim-
ination of competition in fixing the initial rate.
Mr. Cammack. I have tried to answer that question. I think that
it would be a mistake to allow any company to quote any rate .on any
risk. The temptation to cut rates, as you know, has been very dan-
gerous. On the other hand, you should prevent the companies from
charging rates that are excessive.
The Chairman. Now, who should prevent the companies from
charging rates that are excessive?
Mr. Cammack. Well, perhaps I could put it another way. If it
is found that companies under their plan are charging excessive rates,
then a correction should be made.
The Chairman. By whom?
Mr. Cammack. By the States, I presume.
The Chairman. Ihen you do believe that the States, in the public
interest, should exercise some regulatory power over these rates?
Mr. Cammack. I wouldn't say that, because I can only illustrate
by taking the New York State situation. They have exercised that
power on group-life insurance.
The Chairman. Has the State of New York actually exercised it?
Your testimony this afternoon is that your association holds its meet-
ings and compiles its experience, its actuarial experience, and then
makes its recommendations, and then hies its recommendations with
the State commissioner of insurance, and m a comparatively short
time the recommendations are acted upon and a rate is promulgated,
to use your phrase, almost invariably the same rate as that recom-
mended.
Mr. Cammack. Yes.
The Chairman. So that you have been fixing these rates yourselves,
and your organization has been fixing the rates. These tables show-
that there were how many companies out of 105 — 19 companies out
of 105 — in 1937 who were in the association. Now, it was the 19
companies that made the recommendation upon which the State of
New York acted in fixing the rate, so that the situation which you
have described to us is that an organization of 19 corporations is
meeting together in an association which they set up themselves,
reviewing the facts in the light of their own" judgment, reaching a
decision without the supervision of any public authority or without
the participation of any public authority, and then having their rec-
ommendation, so reached, reflected in an officially promulgated rate
by the State authority.
Mr. Cammack. I would say that the superintendent of New York
certainly did supervise those rates. It is true that he did adopt our
recommendations, but he has adopted them on the basis of the experi-
ence that we submit to him.
The Chairman. But you testified to us tliat he couldn't get any
Qther experience except the experience wliich you submitted to him.
Mr. Cammack. There is no other experience.
4222 CONCENTIIATKJN OF ECONOMIC POWER
The "Chairman. Certainly, so that it comes down actually to the
fact that you yourself fix tlie rate which was promulgated by the State
authority, so I am asking you, Is that a desirable system or is it not ?
Mr. Cammack. I think it is -a very satisfactory system.
The Chairman. Well, then, assuming that you have been acting
with the utmost accuracy and the utmost good faith, it amounts to a
declaration that so far as group insurance is concerned, therefore, the
experts of 19 companies should be permitted to establish the rule
which the 105 must needs follow.
Mr. Cammack. It seems to me the superintendent of New York
State can change those rates.
The Chairman. Ah, but he doesn't, you testified, because he has no
opportunity to do so, and he has no macliinery by which lie conducts
tlie investigation.
Mr. Cammack. He has the investigation at his disposal. It is filed
with him.
The Chairman. Then let us assume tliat he has. Do you think it
would be desirable, tlien, for the State authority to employ a force of
actuaries of liis own to investigate these matters and to announce the
rates ?
Mr. Cammack. I don't think it v»ould be any better than our present
system.
The Chairman. Tliat is wliat I Avas getting at. So what you are
telling this committee is that the experts of the group insurance com-
panies are fully equipped to do a good job, and that they do a good
job, and that that is the best system obtainable at the time.
Mr. Cammack. I think they have done a very good job.
The Chairman. Are there any other questions ?
Dr. LuRiN. One more question. Mr. Cammack, do you remember
tlie date of the formation of your association ?
Mr. Cammack. I think it was in 1926 ; I don't recall.
Dr. LuBiN. Off-hand, do you remember at what time of the year'*
Mr. Cammack. No ; I don't.
Dr. LuBiN. Do you remember the date on which tlie New York
insurance law was amended, and article II, section 101a, w^as inserted?
Mr. Cammack. No.
Dr. LuBiN. Was it before or after the formation of the association?
Mr. Cammack. I don't remember.
The Chairman. If there are no further questions, Mr. Cammack,
we are very much indebted to you for your appearance this afternoon.
Mr. Gesell. May I state that Mr. Cammack will be wanted to-
morrow, as well as Mr. Flynn ?
The Chairman. Who will he your first witness?
Mr. Gesell. Mr. Flynn.
The Chairman.- The committee will stand in recess until 10 : 30
tomorrow morning.
(Whereupon, at 5 p. m., a recess was taken until Wednesday, June 7,
1939, at 10: 30 a.m.)
INVESTIGATION OF CONCENTRATION OF ECONOMIC POWEE
WEDNESDAY, JUNE 7, 1939
United States Senate,
Temporary National Economic Committee,
Washington^ D. G.
The committee met at 10:50 o'clock a. m., piireiiant.to adjourn-
ment on Tuesday, June 6, 1939, in the Caucus Eoom, Senate Office
Building, Senator Joseph C. O'Mahoney presiding.
Present: Senator O'Mahoney (chairman); Representative Reece;
Messrs. Henderson, Frank, Arnold, Lubin, Berge, and Brackett.
Present also : Senator Pat McCarran, of Nevada ; Representative
James M. Barnes of Illinois; Commissioner Edward C. Eicher,
Securities and Exchange Commission; Ernest S. Meyers, Department
of Justice; Harry J. Daniels, Department of Commerce; and Ger-
hard A. Gesell, special counsel, Securities and Exchange Commission.
The Chairman. The committee will please come to order.
During the hearing on May 11, when the consumer study was in
progress,^ I suggested to Mr. Donald Montgomery, who was pre-
senting that study, that some statement should be prepared for the
record on the manner in which various sta'ndardization acts which
are being administered by the Department of Agriculture are being
enforced, and what the experience has been under them. In re-
sponse to that suggestion, I now have a letter, under date of May
29, from Mr. Montgomery, together with a memorandum on the
effect of these various acts, together with certain bulletins which
have been issued by the Department of Agriculture from time to
time.
I present the letter and the memorandum for printing in the record,
and the ])amphlets to be filed with the records of the committee.
(The letter and memorandum referred to were marked "Exliibit
No. 660" and appear in Hearings, Part 8, appendix, p. 8487. The
pamphlets are on file with the committee.)
The Chairman. Mr. Gesell, are you ready to proceed?
Mr. Gesell. I am, Mr. Chairman. The first witness this morn-
ing will be Mr. Flynn. I might say that yesterda}- we considered
group insurance of various forms. This morning we will consider
ordinary life insurance and present testimony with respect to agree-
ments reached by certain companies controlling the rates of ordinary
life insurance.
' See nenriugs. Tart VIII, p. lir'.fiC..
4223
4224 CONCENTRATION OF ECONOMIC POWER
TESTIMONY OF B. D. FLYNN, VICE PRESIDENT AND ACTUARY,
TRAVELERS INSURANCE CO., HARTFORD, CONN.— Resumed
NON-PARTICIPATING RATES
Mr. Gkselt-. Mr. Flynn, yon stated yesterday, did you not, that yon
were an officer and actnary for the Travelers Insnranct; Co. of
Hartford?
Mr. Flynn. Yes, sir.
Mr. Geseix. That company at the present time is writinff nonpar-
ticipatinff life insurance, is it not?
Mr. Fi,TNN. Yes.
Mr. rTE<=:ELL. It is a stock company?
Mr. Flynn. Yes; a stock company.
Ml". Gesell. Am I correct in sayinjo: that the two other principal
companies writing nonparticipating life insurance are also located at
Hartford, Conn.?
Mr. Flynn. Yes.
Mr. Gesell. Those are the Aetiia Life Insurance Co. and the Con-
necticut General; is that correct?
Mr. Flynn. Correct.
Mr. Gesell. Have yon any idea as to the total amount of nonpar-
ticipating insurance in force which is attribntable to those three
companies as opposed to the total attribntable to all companies?
Mr. Flynn. Just a minute. The ratio of nonparticipating insur-
ance in force of the Hartford stock companies and the total business
of all companies was "6.1 percent and 6 percent, respectively, in 1936
and at the' end of 1937.
Mr. Gesell. I don't quite understand what yon said. Do I under-
stand yon to say that the three companies, the Aetna, the Connecticnt
General, and the Travelers, have only 6 percent of the nonpartici-
pating insurance in force? ^
Mr. Flynn. That is correct.
Mr. Gesell. In the United States?
Mr. Flynn. Not of the nonparticipating ; of the total insurance.
Mr. Gesell. Now I was asking you what percentage of the non-
participating business is attributable to those three companies.
Mr. Flynn. You mean in force?
Mr. Gesell. Yes.
Mr. Flynn. Or issued?
Mr. Gesell. In force.
Mr. Flynn. About 32 percent.
Mr. Gesell. Our staff has prepared figures from Spectators' Year-
book, Mr. Flynn, which would indicate that the figure was in the
neighborhood of 46.6 percent as of December 31, 1937. There were
some 232 com]ianies reporting to the Spectators' Yearbook as of that
date and 46.62 percent of the ordinary nonparticipating insurance in
force was written by the three Hartford companies.
Mr. Flynn. Does that exclude the group life business?
Mr. Gesell. No; that is ordinary, nonparticipating business ex-
cluding the group life.
1 In this connection see also statement showing the volnme of the ordinary business of
the three Hartford companies, subsequently introduced as "Exhibit No. 679," and included
in appendix, p. 4732.
CONCENTRATION OF E(]ONOMIC POWER 4225
Mr, Flynn. Excludes the group life?
Mr. Gesell. Yes.
Mr. Flynn. These figures are taken from the Unique Manual Di-
gest for the end of 1937
The Chairman. 1937?
Mr. Flynn. Yes.
Mr. Gesell. Have you those figures so that you can read them
for the record and I will also offer this schedule? We will have
both figures before us.
Tiie Chairjian. Perhaps I may suggest that you take the figures
offered by Mr. Flynn and then perhaps later during the day you
can acconnnodate the two.
Mr. Gesell. Certainly, It is in the neighborhood of thirty-what
percent ?
Mr. Flynn. Thirty-two percent. Thirty-one and seven-tenths at
the end of 1937.
Mr. Geseix. All three of those companies are stock companies,
are they not?
Mr. Flynn. Yes.
The Chairman. What are the names of the companies ?
Mr. Gesell. The Aetna, the Travelers, and the Connecticut Gen-
eral.
Mr. Flynn. Yes.
Mr, Gesell. Now I would like to offer for the record at this time
a schedule showing the dividends paid by the Aetna, the Connect-
icut General, and the Travelers for each year from 1929 to 1938.
This schedule shows the stockholders of these companies have re-
ceived in dividends during the period from 1929 to 1938 a total of
$51,075,000 in stockholders' dividends. The figures have been pre-
pared by our staff from the annual reports of the companies.
The Chairman. The schedule may be received.
(The scliedule referred to was marked "Exhibit No. 661" and is in-
chided in the appendix on p. 4717. f'
Mr. Gesell. Those dividends are dividends paid by the companies
without regard from what department the dividends have been
earned. They are the total stockholders' dividends paid.
Mr. Flynn. Mr. Chairman, I think I should put in the record that
we have a very large casualty department, fpom which most of the
dividends 'have beer, paid in recent years. That really has nothing
(o do with the life business and life profits.
The Chairman. You mean of the total of $51,075,000 in dividends
which have been paid to the stockholders of these three companies as
shown by this schedule, a substantial portion vv'as due. to the profits
on casualty insurance?
Mr. Flynn. Yes, sir.
Mr. Gesell. In order tliat tlie^e figures wJuch T have just offered
for the- record may be supplemented and- explained, I have also for the
record an exhibit entitled "Exhibit of Changes in Surplus Ordinary
Non-Participating Business."^ This exhibit has been prepared for
the years 1929 to 1938, inclusive, for each of the three companies .sep-
arately, and shows the amount of money which tJiey made or lost
* SubscquenUy entftied as "Exhibit No. 6G9," infra, p. 4259.
422G COXCEXTKATION OF ECONOMIC TOWER
each year in the conduct of their nonparticipatmg business. I would
like to offer it for the record.
The Chairman. Would you be good enough to show that to the wit-
ness and see what his opinion may be of it?
Mr. Gesfxl. That schedule has been prepared from the gain and
loss exhibits of the companies.
The Chairman. This statement would appear, Mr. Gesell, to indi-
cate losses in certain years by some of the companies.
Mr. Gesell. For tlie nonparticipating business; yes.
Mr. Flynn. Mr. Chairman, I can't understand the Travelers'
figures here, in 1936 a gain of seven millions. Is that right?
The Chairman. Would you look at your copy, Mr. Gesell ?
Mr. Gesell. Those figures are to my knowledge, as far as I know,
accurate and have been prepared from the gain-and-loss exhibits of
the company. They are offered, as all exhibits are, subject to any
corrections which there may be. I have a witness whom I can put on
the stand now to say that their figures have been compiled from the
gain-and-loss exhibits, if the committee wishes.
The Chairman. It would seem to the chairman it Avould be a com-
paratively simple matter, although one requiring some detail, to deter-
mine what the exact facts are, and I have no doubt that the witness or
some of his associates can collaborate with one of your staff to get the
correct statement. Don't you think that would be helpful?
Mr. Gesell. Certainly.
Mr. Cole. Mr. Examiner, I have quite a little doubt whether these
relate to the life business of our company, whether they are not the
entire business of the' company, and if so, they have very little bear-
ing on the life business. So, I think it might be safer, to check them
before they go in.^
The Chairman, I think it would be well to develop the facts, what-
ever they may be, with respect to the total figures and the sources from
which the profits or losses are incurred.
Mr. Gesell. These figures are to our best efforts and knowledge
correct. Now if there are any errors in them, Mr. Chairman, if
pointed out to us specifically I think the exhibits can be changed ac-
cordingly. They are prepared from the annual reports of the com-
pany.
The Chairman. These are offered now by the S. E C. as schedules
which have been prepared from the annual report?
Mr. Gesell. That is correct.
The Chairman. They are offered subject to correction.
Mr. Cole. May we have an opportunity to offer correct figures? ^
The Chairman. Certainly. Tlie committee would very much desire
that you point out any errors that there may be in them, but I assume
that there is no dispute of the fact that^he three companies did pay
. dividends on all of their business throughout this period represented to
their stockholders.
(The schedule referred to was marked "Exhibit No. 662 and is in-
cluded in the appendix, on p. 4717.)
Mr. Flynn. The Travelers did not pay dividends throughout the
period from its life department.
1 Mr. B. D. Flynn subsequenUy admitted that the fij^ures in "Exhibit No. 6G2" are
corroot, sec; infra, p. 4258.
(CONCENTRATION OF ECONOMIC POWER 4227
The Chairman, What I said was on all business dividends were
paid.
Mr, Flymn, Yes, sir.
The Chairman, Profits may not have accrued to a particular de-
partment, but apparently from these reports, each of these three com-
panies made sufficient profit in the years covered to pay dividends to
the stockholders,
Mr. Flynn. Yes, sir.
The Chairman, Have you developed any facts M-ith respect to the
number of stockholders of each of these corporations ?
Mr. Gesell, I have not got to that, sir. I will be glad to ask some
questions on that.
The Chairman, Would you do that? I would like to have the
record show where each of these companies was incorporated, the num-
ber of stockholders, and such related information,^
Mr, Gesell, Do you have that information, Mr, Flynn, available for
your company ?
Mr. Flynn. I haven't that.
Mr, Gesell, We will be glad to prepare it and submit it for the
record.
The Chairman. Very well.
Mr. Gesell. Mr. Flynn, will you tell us what a nonparticipating
contract is?
Mr, Flynn, A nonparticipating contract is ordinarily a long-term
contract with a fixed premium rate guaranteed throughout the term
of the policy. There is no offer of dividends or dividend participation
on the part of the policyholder.
Mr. Gesell. The essential difference between participating and non-
participating insurance is that in nonparticipating insurance the
profits, if any, which result, go to the stockholders of the company and
not back to the policyholders, whereas in participating insurance any
profits that result go back to the policyholders. Is that correct ?
Mr. Flynn. That is correct. Profits and losses go to the stock-
holders.
Mr, Gesell, And your companies sell nonparticipating insurance,
do they not ?
Mr. Flynn, Yes, sir,
Mr, Gesell. There is no money paid back to the policyholders if
there are any profits ?
Mr. Flynn. Eight.
Mr, Gesell, And if there are any losses, the policyholder does not
suffer those ?
Mr. Flynn. Right.
Mr. Gesell. Am I correct in saying that generally speaking, non-
participating rates, gross rates, are lower than participating gross
rates ?
Mr. Flynn, Yes, sir ; that is correct.
Mr, Gesell. Will you tell us in a general way what the various
factors involved in computing a nonparticipating rate are? Am I
correct in saying that there are three basic factors, the computation of
the expected mortality experience, the interest rate which the com-
pany will guarantee on the contract, and the loading or amount which
^ For nl)ove information see supplemental data, appendix, p. 4929.
4228 CONCENTRATION OF ECONOMIC POWER
is added to the net preminm to cover expenses which are expected will
be incurred in connection with the handling of the policy?
Mr. Flynn. That is correct.
Mr. Gesell. You have three basic things, then, which you deter-
mine in computing a nonparticipating rate — mortality, interest, and
loading or expense.
Mr. Flynn. Right.
Mr. Gesell. The responsibility of fixing rates for any particular
company rests upon the actuary ?
Mr. Flynn. Yes, sir.
Mr. Gesell. He must, by his calculations, attempt to anticipate what
interest will be earned, w^liat mortality rate will be expected, and what
expenses or loadings will be incurred?
Mr. Flynn. Correct.
Mr. Gesell. That is entirely a matter which relates to the opera-
tions of his own company insofar as the expense factor is concerned,
is it not? ,
Mr. Flynn. Yes; he will base his rates, so far as possible, on his
own idea of the future expenses.
Mr. Gesell. Likewise, in guaranteeing an interest rate, he would
look closely to his own company's investment position, what the com-
pany could expect as a company to earn ?
Mr. Flynn. He wT)uld do that, but in addition he w^ould look at
the general situation and get all the advice and counsel he could.
Mr. Gesell. Yes ; and in the case of mortality, there he would want
to pool the experience of his company with the experience of a great
number of other companies to get the broadest possible distribution
of death rates, shall we say ?
Mr. Flynn. Well, he wouldn't pool his experience, but he would
study his own experience in relation to other current experiences.
Mr. Gesell. Then you might say that in establishing the nonpar-
ticipating rate, the matter which would be of most general interest to
a group of actuaries faced with a similar problem would be the mor-
tality problem, and the problem which would be most subjective, the
one involving more closely the operation of his own company only,
would be the loading and expense factor.
Mr. Flynn. I would say the loading and expense factor would in-
volve more nearly the indications of his own company.
Mr. Gesei.l. Prior to April 1933, am I correct in saying that the
three Hartford companies did not have uniform rates? ^
Mr. Flynn. Correct.
Mr. Gesell. Am I also correct in saying that prior to April 1933
the three Hartford companies did not have uniform cash values on
their policies ?
• Mr. Flynn. That is correct.
Mr. Gesell. By cash values we mean (he amount which the policy-
holder may get back if he turns in his policy before it runs to the
expected maturity.
Mr. Flynn. liight.
Mr. Gesell. That is sometimes known as surrender value, is it not?
1 In this connection see tables on nonparticipating Ufe-insurance rates for the three
Hartford coinpauies before ahd after the adoption of uniform rates, subsequently sub-
mitted to the committee by the companies, and entered in the record during hearings held
July i;^, m.".!), as "Exhibit No. 922."' Printed in appendix, infra, p. 4927.
('ONCi;NTRA'!^rON OF ECONOMK^ POWER 4229
Mr, Fltnn. Yes.
Mr. Gesell. So that before April 1933 there was no uniformity,
either in rates on one side or on surrender values on the other?
Mr. Fltnn. Rj<Tht.
Mr. Gesell. Am I correct in saying that tlie last time the Travelers
Insurance Co. had changed its rates was January 15, 1920?
Mr. Fltnn. I can't answer that.
Mr. Gesell. It was in the neighborhood of '29, was it not, Mr.
Flynn — the last time they had made an over-all revision of their
ordinary life-insurance rates?
Mr. Fltnn. I can tell you in a moment. It was January 15, 1929.
Mr. Gesell. And have you then? information which would indicate
when the Aetna and Connecticut General had last changed their rates?
Mr. Fltnn. No, sir; I haven't that.
Mr. Gesell. Reading from Best's Illustration, the 1933 edition, it
would indicate that Aetna had last changed its rates January 1, 1926,
and the Connecticut General had last changed its rates April 1928.
Is that approximately correct?
Mr. Fltnn. I really don't know.
The Chairman. How about the source? Is that a reliable source
book?
Mr. Fltnn. That is a reliable source; yes.
Mr. Gesell. I want to call your attention to a memorandum written
by you, addressed to President Zacher, of your company, under date
of June 22, 1932. The memorandum is captioned, "Re: New Life
Rates." You refer to the fact that Vice President Cammack had tele-
phoned you about some matter in connection with group insurance,
and then your memorandum proceeds [reading from "Exhibit No.
663"] :
Cammack stated tliat they would like to go ahead with the idea of increasing
rates, but, of course, would be embarrassed if the Travelers did not do likewise.
I told him that I did not see why the three local nonparticipating companies
could not get together on a joint program, for if he was agreeable, we were willing,
and from what Actuary Henderson said the other day the Connecticut General
are thinking along the same line.
Do you recall that memorandum ?
Mr. Fltnn. Yes ; I recall that.
Mr. Gesell. I would like to offer the memorandum for the record.
The Chairman. The memorandum may be received.
(The memorandum referred to was marked "Exhibit No. 663" and
is included in tlte appendix on p. 4717.)
Mr. Gesell. Now what did you mean when you said Mr. Cammack
would like to increase the rates of the Aetna but would be embarrassed
if the Travelers didn't do likewise?
Mr. Fltnn. I would imagine that he had in mind the fact that at
that time investment conditions had changed materially and were
changing. Prospects of interest rates were changing, and I think in
the minds of all actuaries at that time was the thought that we would
have to take care of that in rates.
Mr. Gesell. Very well, but why would he be embarrassed to go
ahead and take care of it himself for his own company?.
Mr. Fltnn. I think under the conditions he felt it would be well
for us to pool our experience, pool our knowledge, and pool all informa-
tion bearing upon the working of rates.
4230 CONCIONTRATION OF ECONOMK^ POWER
Mr. Gesell. Your companies had operated side by side there in
Hartford, Conn., without having had uniform rates for years and
years and years, hadn't they ?
Mr. Fltnn. Yes.
Mr. Gesell. Then suddenly, in 1932, he tells you that he would like
to raise his rates, but would be embarrassed if you didn't do likewise.
You could have exchanged information without coming to a uniform
agreement on this thing, couldn't you ?
Mr. Flynn. Not very well. I think we would all work independ-
ently unless we were going to get together and study the problem.
Mr. Gesell. Now may I proceed and call to your attention another
memorandum which is dated June 25, 1932, addressed to you from
Mr. H. Pierson Hammond. He is one of the actuaries in your division,
is he not ?
Mr. Fltnn. Yes, sir.
Mr. Gesell. The subject is agaiil new life rates. He says [reading
from "Exhibit No. 664] :
Nonparticipating companies, American Life Convention, appear to want to
increase rates but are waiting to see what the three companies in Hartford
will do.
In discussing the situation with Mr. Laird, he said that the Connecticut Gen-
eral was waiting to see what the Travelers and Aetna would do. I suggested
that he might, on his return, take the matter up with the Travelers and that I
felt sure that the company would cooperate. He said he would try to do so
immediately upon his return.
I thought it advisable to suggest that Mr. Laird take this matter up Inasmuch
as he had told me that President Huntington was away for 2 months.
Now, putting this memorandum and the other memorandum to-
gether, w© have about this situation, don't we, that all the nonpartici-
pating companies in the American Life Convention, the small non-
participating companies scattered throughout the Middle West, were
looking to see what you three Hartford companies would do, and
that Connecticut General was waiting to see what Aetna and Trav-
elers would do, and Aetna, next to the largest, was waiting to see what
your company, the largest, would do? That was the situation,
wasn't it?
Mr. Flynn. I think that is probably so,' and the reason for that
was, as I remember, that the times were very unusual. June 1932
everybody was thinking along the same line. I think if they ever
felt they should get together to pool their information, to pool their
knowledge, to get the very soundest and most secure rates for the
policyholders, that was the time.
Mr. Gesell. Your company was sitting at the top of this heap,
wasn't it?
Mr. Flynn. As far as size is concerned.
Mr. Gesell. You were in a position to control the prices of non-
participating insurance throughout the United States.
Mr. Flynn. I wouldn't say that. I don't think our size gave us
any right or privilege in that matter.
Mr. Geseix. In effect they were all waiting to see what your com-
pany would do, weren't they ?
Mr. Flynn. That may have said so there. I really can't give an
opinion on that.
Mr. Gesell. Is there anything in these memoranda which discusses
pooling of information, discusses troubled times, discusses the need
for getting together?
CONCENTRATION OF ECONOMIC POWER 4231
It IS just a pure and simple question of price leadership from start
to finish, isn't it?
Mr. Flynn. I wouldn't say that at all. It was not a matter of
getting together to fix prices. It was a matter of strenuous times,
strained times. Every actuary was anxious to get the very best result
he could, and to pool all information, pool all investment-depart-
ment knowledge, investment oflScers' knowledge, and in every way
try to work for security.
Mr. Gesell. You have just told me a minute ago, though, Mr,
Flynn, that as lar as the loading factor in your. premiums was con-
cerned, that was a matter for you to determine individually, upon
the basis of your own company's expNerience. What difference did
it make to you whether some little middle western company in the
American Life Convention had a higher or a lower expense rate
in connection with the operation of this nonparticipating business?
Mr. Flynn. We weren't making rates for them. We were working
out rates among ourselves, and w^hen we began to study the matter,
we discovered our expenses didn't differ very much.
Mr. Gesell. I would like to offer te memorandum for the record.
(The memorandum referred to was marked "Exhibit No. 664" and
is included in the appendix on p. 4718.)
Mr. Arnold. Would it be fair to say that in these troubled times
companies with higher expenses than yours might be facing diffi-
culties?
]Mr. Flynn. I wouldn't think that they would be facing difficulties.
Mr. Arnold. What do you mean by these troubled times that
worried you so much?
Mr. Flynn. Well, the investment situation, primarily.
Mr. Arnold. You thought a raise in rates would help out the
investment situation?
Mr. Flynn. To change the interest factor in the rates, should help.
Mr. Arnold. Any raise would help out any companies which
might be in difficulty.
Mi\ Flynn. Not for the purpose of helping them out of difficulties.
Mr. Arnold. But itr would have that effect, wouldn't it ?
Mr. Flynn. It would help, but you see these life rates wc were
talking about were to run in the future, 5, 10, 40, or 50 years. You
have to figure out today what rate you are going to earn over an
average term. It was really the rate of interest that most everybody
was looking at.
Mr. Arnold. You didn't expect troubled times for 40 years, di«l
you ?
Mr.' Flynn. I am really not competent to make reply to that.
Mr. Arnold. Did you at the time? You spoke of troubled times.
You weren't really thinking of the next 40 years, were you?
Mr. Flynn. Well 10, 20, 30, or 40.
Mr. Arnold. You thought there would be troubled times for 40
years, and in effect you were holding an umbrella over the less effi-
cient companies by these price-fixing agreements, weren't you ?
Mr. Flynn. We, at the time we were discussing this matter,
weren't contemplating other companies following our rates. We were
working it out for the three.
Mr. Arnold. Then you were, in effect, ci)nteiTii>lating holding an-
umbrella over the less efficient of the three companise?
124491— 40— pt. 10 7
4232 CONCENTRATION OF ECONOMIC POWER
Mr. Flynn. You mean the three companies?
Mr. Arnold. When you raised the rates or agreed to raise your
rates.
Mr. Flynn. The only reply I can make, Mr. Arnold, is what
I said before. We were trying to get together to pool information
and knowledge to have as sound a rate as possible during these long
terms.
Mr. Arnold. I have only one more question for the record which I
simply want to put in. We discussed it yesterday, and I simply want
to put it m at this point. Was the question of the violation of the
antitrust laws, which assumed some proportion with respect to group
insurance, raised with respect to this insurance?
Mr. Flynn. Not so far as I know.
Mr. Arnold. You didn't consider them at all ?
Mr. Flynn. No.
Mr. Gesell. As a result of these memoranda, the Aetna, the Trav-
elers, and the Connecticut General, the three largest nonparticipating
companies, got together and agreed to a program of uniform rates
for ordinary insurance, did they not?
Mr. Flynn. Right.
Mr. Gesell. Now, that program for unifoi-m rates was a program
tor uniform rates, whether you call it pooling or whether you call it
rate fixing, or no matter what you call it, Mr. Flynn. Yoli agreed to
all the factors in ordinary life insurance nonparticipating rates.
Mr. Flynn. After full discussion and examination of the experi-
ence and the figures of each of the three companies, and after consider-
able debate, we reached a conclusion which was agreeable to all three.
Mr. Gesell. Now, I would like to read you a letter which you wrote
under date of June 28, 1932, to Mr. Zacher, who was president of the
Travelers Co. The letter states [reading from Exhibit No. 6651 :
A meeting was hold in my oflSce this afternoon on the general subject of
prospective increase in nonparticipating life rates. Those present were Vice
President Cammacls of the Aetna, Vice President Laird and Actuary Henderson
of the Connecticut General, Actuary Hammond, Assistant Actuary Hoskins, and
myself. After considerable friendly and cooperative discussion the follovping
points were tentatively decided upon.
1. The three local nonparticipating companies would increase rates effective
upon the same date.
2. January 1, 1933, appealed to all three companies as a good date for
making increased rates effective. It was apparent from Mr. Cammack'.s general
statements — which he made to me over the phone Saturday morning and again
on the train from New York yesterday — that he had not as yet had an oppor-
tunity to talk with Mr. Brainard In regard to the effective dates of rates * * *.
3. It was tentatively thought desirable to have identical rates for all three
companies for principal forms.
4. The Aetna and Travelers felt that 4 percent was a proper interest assump-
tion as a basis for new rates. The Connecticut General thought that this was
ns low as we could go (they had previously mentioned 4i>4 percent and were
agreeable to go along with the idea of 4 percent at least in the preliminary
work of matching ideas on rates.) My own opinion is that the Connecticut
General will cooperate with the other companies upon a 4-percent interest basis.
That would indicate that the Connecticut General wasn't in accord
with your company and the Aetna with respect to the interest factor
when you first got together.
Mr. Flynn. At that time ; yes.
CONCENTRATION OF ECONOMIC POWER 4233
Mr. Geseix. No. 5 would indicate that you agreed on the mortality
basis. No. 6, the nicniorandura states [reading further from "Exhibit
No. 665"] :
Expense loadings were discussed tentatively with the result that a reasonable
loading for expenses and profit by age can be safely counted upon.
That a reasonable loading for expenses and profit by age can be
safely counted upon —
Was that a pooling of experience ?
Mr. Flynn. Well, this decision, or this tentative getting together,
w as based upon the study by each company of its own expenses.
Mr. Geselx,. And profits.
Mr. Flynn. Well, not necessarily profits.
Mr. Gesell. It says "loading for expenses and profit."
Mr. Flynn. Well, that would not be a matter of experience.; (hat
u ould be a matter of determination.
Mr. Gesell. That would be a matter of comnTon design rather
than of common experience.
Mr. Flym^. It would be common purpose or design for profit and
contingency.
Mr. Gesell. So that in reaching a decision as to the loading, tenta-
tive though it was, at this time you were in effect reaching a decision
also as to the amount of profit that you felt desirable.
Mr. Flynn. We were discussing that.
Mr. Gesell. You also discussed at this time surrender values. The
luemorandum says under paragraph 7 [reading further from "Exhibit
No. 665"] :
The Connecticut General, which has had rather liberal surrender values, is
agreeable to a material change, particularly in those at the end of the third,
fourth and other e'arly policy years. The Aetna at present have values which
are not quite so liberal as ours and would prefer not to increase surrender
values materially. There was the further point thot the Aetna use the same
values for both participating and nonparticipating business and did not feel
that they could lower participating values because of participating competition.
Our own position was that we would like to have as high surrender charges as
possible particularly in the early years.
Then your memorandum goes on to state that :
The general conclusion from today's meeting would be that material progress
has been made and we can with fair assurance assume that the local non-
participating companies will act together in an increase in life rates at the en<l
of this year.
May I offer this memorandum for the record ?
The Chairman. It may be received.
(The memorandum referred to was marked "Exhibit No. 655" and
is included in the appendix on p. 4718. )
Mr. GeseXiL. Now, Mr. Flynn, at this time when you had your first
meeting and got together on this thing there were substantial dif-
ferences in opinion expressed were there not?
Mr. Flynn. Well, I wouldn't say substantial. I think the experi-
ence rates and their ideas of probable interest rates did not differ
very much.
Mr. Gesell. Kegardless of the matter of degree, you were in dif-
ference as to intereF,t in rates; you were in difference as to the ques-
tion of surrender value. There was some slight difference on the
question of mortality.
4234 CONCENTRATION OF ECONOMIC POWER
Mr. Fltnn. Yes.
Representative Barnes. Mr. Chairman, may I interrupt right
there? Wliat percentage does the mortality play in the fixing of
rates? You base it upon loading, interest charges, and mortality.
Now, what percent of your total rate is made up of your mortality ?
Mr. Flynn. That is very difficult to answer because the mortality
by age throughout the life of the contract is discounted at a particular
rate of interest. You mean if the premium were $30, how much of
that could be reasonably figured as the mortality cost?
Representatives Barnes. Correct.
Mr. Flynn. May I ask my assistant for an estimate on that?
The Chairman. Surely.
Mr. Flynn. The best answer that I can give is that the net pre-
mium which involves the mortality cost, discounted for interest, would
1)6 about twenty- four or twenty-five dollars out of a $30 premium.
Representative Barnes. In other words, the big major part of your
rate structure is the mortality table.
Mr. Flynn. Yes, sir.
Representative Barnes. Your mortality table as I understand is
based on one or two or more general mortality tables in existence,
subject to the own experience of each individual company as to the
risks they insure themselves, depending upon the agents and upon the
medical examination ; is that correct ?
Mr. Flynn. Yes ; that is correct.
Representative Barnes. In pooling your information and interest
at the time this agreement was reached, was there much variance
between the various companies as to the mortality experience of the
various companies?
Mr. Flynn. Not very much variance, if I remember correctly.
Representative Barnes. Their experience was approximately the
same, or was there any difference at all, do you know?
Mr. Flynn. I don't recall any material difference. There may have
been differences by form, a particular form, but in general I think
all companies operated in about the same sections of the country,
underwriting about the same way.
Representative Barnes. But the class of business being insured
would materially affect the mortality rate and therefore materially
affect the rate structure to be charged to the individual.
Mr. Flynn. Right.
Representative Barnes. And if one company was more strict on
their risks than the others, it would be a material saving to that
company.
Mr. Flynn. It would mean some saving ; yes.
The Chairman. How do you explain, then, the apparently wide
variance in the opinion of the actuaries of these three companies as
set forth in paragraph 5 of your memorandum of June 28, 1932 ? ^
Mr. Flynn. I think the answer to that, Senator, is that the Con-
necticut General had a somewhat lower mortality on its direct busi-
ness than either of the other two companies had at that time.
The Chairman. May I ask when the American Men Table of Mor-
tality was computed ?
1 See "Exhibit No. 665," appendix, p. 4718, at p. 4719.
CONCENTUATION OF ECONORIIC POWER 4235
Mr. Flynn, I don't know ; I think it was 1925 or 1926.
The Chaieman. Is that table now the basis of the actuarial com-
putations of all the companies?
Mr. Flynn. No, sir. There are various bases used by the com-
panies. That is the present basis for nonparticipating rates, how-
ever.
The Chairman. Is this the table wdiich was prepared in 1926?
Mr. Flynn. Yes.
The Chairman. And it is uniformly used by some of the com-
panies, the nonparticipating companies?
Mr. Flynn. Yes, sir.
The Chairman. It is a different table from that which is used
by the participating companies?
Mr. Flynn. I really can't tell.
Mr. Henderson. Tlie actuarial table is the same, but the percentage
applied is different. This is the same table, isn't it?
Mr. Flynn. This is not the American Experience Table, which
is the old table referred to- so often. This is the American Men
I'able, wliich was a later compilation on more recent experience.
Mr. Frank. But used by many companies, both participating and
nonparticipating.
Mr. Flynn. I beg your pardon. What was the question?
Mr. Frank. I say that table is used both by participating and non-
participating companies for many purposes, is it not?
Mr. Flynn. I can't tell.
Representative Barnes. Your experience was based on that table
was it not ?
Mr. Flynn. Our experience was related to that table, but we also,
related it to a table of our own experience which we have compiled
along through the years.
The Chairman. Here we have apparently three different tables;
We have the Table of Experience, we have the American Men Table,
and we have the table mentioned in the New York statute, which was
put in the record yesterday,^ the American Men Ultimate Table. That
is a different table from either of the other two, is it not '^
Mr. Flynn. That is the ultimate experience; that is, experience
after a -certain selected period of duration of the policy, while the
medical selection is w^orking off. The ultimate experience, the Ameri-
can Men Ultimate Table, covers the experience after that selection iis
l)resumed to have worked off.
The Chairman. What I am getting at is this — that to you as an
insurance actuary these three phrases mean different things: The
American Experience Table, the American Men Table, llie American
Men Ultimate Table.
]\Ir. Flynn. Excepting the second. I would make thai ilie Ameri-
can Men Select Table, and then tliere is the American Men Ultin^ate
Table.
The Chairman. Which of these tables is actually used as the basis
of your company in fixing rates ?
Mr. Flynn. In this particular calculation it was the American Men
Select Table.
1 See "Exhibit No. G46," appendix, p. 4G92.
4236 CONCENTRATION OF ECONOMIC POWER
The Chairman. And then that selection Avas further refined by this
agreement, I take it.
JMr. Flynn. Yes.
The Chairman. Because the paragraph to which I refer reads
[reading from "Exhibit No. 665"] :
The Aetna's idea of a mortality basis was 90 percent of the American Men
Table up to age 75, increasing 2 percent for each age up to age 80 for all
forms other than term, which they would place upon a 100-percent mortality
basis for all ages. The Connecticut Generars idea was to start at about 75
percent of the American Men Table at age 20 —
A very striking variation apparently —
increasing to 100 percent at age 50 and going somewhat higher for the older
ages. Our own idea follows more closely that of the Aetna. This basis should
give a reasonable mortality margin for safety.
Sahere in this agreement we have three different views of hoAv the
mortality selection table, the American Men Select Table, should be
varied m order to determine the rates.
Mr. Flynn. That is correct.
The Chairman. Would a layman be justified in the assumption
that these so-called tables of experience and tables of mortality really
play but little part in fixing the rate ?
Mr. Flynn. I don't think that would be correct, Senator. They
play an important part.
The Chairman. But if there can be such a variation in judgiuent
between the actuaries of the Aetna, who say that they will tak? '/()
percent of the table up to the age 75, and the actuaries of the C<)i)-
necticut General, who say they will take 75 percent of the table
beginning at the age 20, it must be clear that there is no standard.
Mr. Flynn. That is the judgment of tlie actuary of a particular
company as to the experience he thinks will be experienced by his
company in the future
The Chairman. So now again I am asking you, as a layman, what
confidence can I place in the standard fixed by the so-called experi-
ence tables when I find you, the secretary of the Travelers Insurance
Co., drafting a memoraiidum like this, which shows such a tremen-
dous variation among the three leading companies of Hartford?
Mr. Flynn. Well, these were at the beginning of negotiations. We
were all basing estimates upon the same table.
Mr. Gesell. Isn't it a fact, Mr. Flynn, that in reaching an agree-
ment upon the basis of mortality experience that you use in coni-
puting your r?.t8S, you have in ef tct rSaCiieu an agreement whicli
directly affects the amount of profit that each of the companies will
make, since it is from the mortality savings that you non})articipat-
ing companies make such a large percentage of your profits?
Mr. Flynn. Are you basing your question on gain and loss exhibit
figures ?
Mr. Gesell. Your company has made money, hasn't it ?
Mr. Flynn . Yes ; but I thought you were thinking of those exag-
gerated profit figures which appear in the gain and loss exhibits.
Mr. Gesell. Your company has made money, ha.s it not, and docs
not that money which is made come from, to a large extent, savings
in mortality?
Mr. Flynn. To a large ertent; yes.
CONCENTRATION OF ECONOMIC POWER 4237
Mr. Gesell. In coming to an agreement in your mortality experi-
ence, you have come to an agreement which directly affects the
amount of profits which you will receive.
Mr. Hendekson. Mr. Geseli. may I suggest that Mr.^ Flynn has
been in consultation with his assistant and Mr. Cole, and maybe the
questions are being precipitated too fast. If he has some memos, and
the like, he may wish to consult with them.
Mr. Cole. I "am simply worried, Mr. Henderson, about this state-
ment about profits, because I don't think there are any accurate figxires
here yet as to the profits from the life business in the last few years,
and I don't want any misleading assumptions; that is all.
Mv. Henderson. Neither do we, Mr. Cole; that is the reason sug-
gested that we don't ask the question so that an answer might be
given that would be different. I suggest that when the witness does
want opportunity to speak to his associates he ask for it. If he
will ask us, we will let him consult.
The Chairman. Do you care to have the question of Mr. Gesell
repeated ?
iNfr. Flynn. That last question.
The Chairman. Yes.
Mr. Flynn. I Avould like it, Senator.
The Chairman. The reporter will read it to you.
(The reporter read Mr. Gesell 's last question.)
Mr. Gesell. Let me put it this way. Is it not a fact' one of the
.sources of profit in the sale of the nonparticipating insurance is sav-
ings from mortality?
Mr. Flynn. Yes.
Mr. Gesell. When you three nonparticipating companies reached
an agreement on the mortality you would use, you were reaching an
agreement which had relation to not only anticipated mortality but
also a relation to anticipated profits.
Mr. Flynn. I wouldn't put it "anticipated profit"; I would think
that we had in mind a possible margin in the mortality factor.
Mr. Gesell. Let's just see. Do you make an}' appreciable amount
of money or expect to make any appreciable amount of money, by
guaranteeing an interest rate lower than that which you are going to
earn ?
Mr. Flynn. It is very difficult to answer thaU Mr. Gesell. We
can't tell where the ]irofii may come. We can't tell if a ]Drofit will
come. As Mr. Cole has said, if the life department profits could be
segregated, I think you would find we were not making much of any
profit in the life insurance business.
Mr. Gesell. As far as the figures are concerned, we have asked for
the forms, and we will have them over here and decide on the ac-
curacy of them. Now let's keep the discussion on the theoretical base
of v.-here rates are computed and where sources of profit arc expected
to come from. All three of you companies have stockholders, and
you are in the business of selling insurance to make profits for your
stockholders, are you not?
Mr. Flynn. Right.
jMr. Gesell. Now, in fixing the nonparticipating rates and attempt-
ing, as you must if you are to be the trustee for your stock! lolders, to
anticipate some reasonable njargin of profit for them in the business,
4238 CONCENTRATION OF ECONOINIIC POWER
is it not true that you expect that profit, if it is to come, to come
largely from savings from mortality?
Mr. Flynn. I can't say that, Mr. Gesell.
Mr. GiiSELL. Isn't that where your profits in the past have come
from, Ml-. Flynn? ,
Mr. Fi,TNN. I wouldn't say it was where they have come from. I
think ov(ir certain years there have been possible savings of expenses
against loading and savings in interest.
Mr. Gesell. Those two have been very, very slight as compared
to the amount of money you have saved through mortality, have they
not?
, Mr. Flynn. I really cannot answer that.
The Chairman. Where do you expect your profits to come from?
Mr. Flynn. We have no particular source of profit — from all three
we would hope.
Mr. Arnold. Don't you segregate them?
Mr. Flynn. Keally, we haven't, that I know of.
Mr. Henderson. Wasn't the Connecticut General's idea based upon
their saving on the mortality table?
Mr. Flynn. It was based upon their experience, apparently.
Mr. Henderson. But that experience
Mr. Flynn (interposing). Would indicate a profit.
Mr. Henderson. A saving; yes. Don't you have the same experi-
ence? Don't you record that?
Mr. Flynn. I don't think our experience during that period was
as good as the Connecticut General's.
Mr. Henderson. That wasn't my question. My question was:
Don't you keep a record of that experience?
Mr. Flynn. Yes, sir.
Mr. Henderson. How did you arrive at 90?
Mr, Flynn. From a study of mortality experience.
Representative Barnes. In other words, your rates are based, from
an actuarial point of view, on 100-percent mortality. Your loading
or administrative charge, say, 4 percent charge, would bring you out
even at the termination of the policy, assuming no surrender and
assuming all the way through — in other words, if you earn more than
4-percent interest that would be profit. If you do not have 100-
percent mortality, you will save a difference of mortality; if there
are surrenders in the early years in your policy, say, up to 8 years,
you are going to make a profit on all those surrenders or lapsing
of all those policies, and those savings in that will mean savings and
the profits your company will make ; is that correct ?
Mr. Flynn. That is correct, except I should explain about the
profits on surrenders. That is really a misnomer. Wlien a policy is
i -sued you put up a legal reserve and borrow from surplus to put it
ip. When the policy is surrendered, you release that reserve back
,0 surplus. It is called profits in certain exhibits, but we look upon
it as a release of the surplus borrowed.
. Representative Barnes. But it gives the company access to that
money where thay couldn't use it otherwise.
Mr. Flynn. Correct. It releases that money.
Representative Barnes. Do you know the mortality experience
based on American Men Select Table in 1932 of your company?
CONCENTRATION OF ECONOMIC POWER 4239
Mr. Flynn. I don't.
Kepresentative Barnes. Or any of the years of that time ?
Mr. Flynn. I don't.
Mr. Gesell. It was appreciably less in each case, "wasn't it, Mr.
Flynn? V
Mr. Flynn. Than the American Men Select; yes, sir.
Mr. Gesell. If I may, I would like to proceed.
The Chairman. I think we have taken you away from your exami-
nation.
Mr. Gesell. Can you tell us the nature of the discussions and agree-
ments which were reached among the three companies with respect to
surrender values and charges at this time?
Mr. Flynn. I don't recall what those deductions were.
Mr. Gesell. May I ask you to examine this document?
Mr. Flynn. Will you tell me where this comes from? There is no
identifying mark on it.
Mr. Gesell. I am simply asking you to refresh your memory with
respect to ^igreements reached. It didn't come from the files of your
company.
Mr. Flynn. I really can't recollect whether this was a final conclu-
sion or tlie tenijDorary or tentative conclusion during discussion.
Mr. Gesell. Let me get at it this way, Mr. Flynn : Your companies
now have uniform agreements for surrender charges, do they not, and
surrender values ?
Mr. Flynn. Yes.
Mr. Gesell. When did those agreements go into effect — was it not in
connection with the uniform rate increase of 1933?
Mr. Flynn. Yes.
Mr. Gesell. Now, what is the uniform basis that all of your com-
panies are operating on at the present time?
Mr. Flynn. I haven't the detail. I will have it prepared.
Mr. Gesell. Will you just consult with your associates and tell us
wliat charges you have agreed to ? It is a very simple program, Mr.
Flynn.
Mr. Flynn. Mv. Gesell, you mean the basis for making the decision ?
Mr. Gesell. You testified your three companies have a uniform
agreement which has been in effect since the uniform rate increase in
1933. All I want to know is what that uniform basis is,
Mr. Flynn. The basis of surrender charges has been changed since
1933.
Mr. Gesell. Can you tell me what it is now ?
Mr. Flynn. Under our present plan the surrender value is based on
chai'ges of one-third of the reserve in the secQud year, with a minimum
of $12.50 and a maximum of $25 in later years, no surrender charge
in the twentieth and later years.
Mr. Gesell. Now, you had an agreement substantially similar to
Ihat which was reached at the time of the rate increase in 1933, did vou
not?
Mr. Flynn. Yes.
Mr. Gesell. Mr. Flynn, do you recall that just prior to the time
these first uniform rates went into effect in 1933, there were some objec-
tions raised as to the methods being followed by the Aetna in handling
its modified life policy?
4240 rONCENTIlATION OF ECONOMIC POWER
Mr. Flynn. I don't remember distinctly. I know there was some
discussion at tliat time.
Mr. Gesell. May I call your attention to a memorandum which you
wrote under date of October 20, 1932, re Aetna's Modified Life Form
[reading from "Exhibit No. 666"] :
Mr. Cainmack phoned tbis morning to state that they were endeavoring to
increase their niodilied life rate but discovered that if they followed the basis of
their new life rates they would have nonparticipating rates at certain ages
higher than those of the Prudential's modified life. Little is increasing his mod-
ified three rates at ages between 50 and 60 but not changing his modified five rates.
Canvmack is proposing to continue his present modified life rates. The contract
is not as liberal as that of the Prudential in that 40-percent commission is paid
at first and 40 percent only on the increase of premium at the end of the 5-year
period whereas he understands the Prudential pays the commission on the whole
premium at the end of the preliminary period.
As 1 understood it over tlio phone, Camniack checked his present modified life
with the rates which would be required under the new program and found that
at age 40 there was no difference; at age 45 the old rates were GO cents inade-
<iuate ; at age So $1.23 inadequate ; and at age 65 .$2 too much.
Cammack stated that he called in order to i emove any question of bad faith
in the matter — although he presumed that we would not be parLicuhu'ly interested.
Does that refresh your recollection with respect to that matter?
Mr. Flynjs. Yes, sir.
Mr. Gesell Is it not a fact that when the presidents of the three
insurance companies met to approve this uniform rate increase the
question of this modified life policy of the Aetna's came up?
Mr. Flynn. I don't know.
Mr. Gesell. May I ask, then, if the connnittee please, that Mr.
Flynn step down from the stand for a moment and I wdll call Mr.
Laird.
Wliile Mr. Laird is coming to the stand, may I offer this memo-
randum for the record?
The Chairman. The memorandum may be received.
(The memorandum referred to was marked ''Exhil)it No. Ci(K)'- and
is included in the appendix on p. 4719.)
The Chairman. Mr. Laird, do you solenmly swear the testimony
you are about to give in this proceeding shall be the trutli, tlie whole
truth, and nothing but the truth, so help you God?
Mr. Laird. I do.
TESTIMONY OF JOHN M. LAIRD, VICE PRESIDENT, CONNECTICUT
GENERAL LIFE INSURANCE CO., HARTFORD, CONN.
Mr. Gesell. Mr. Laird, you are connected with the Connecticut
General, are you not?
Mr. Laird. Yes.
Mr. Gesell. In what capacity?
Mr. Laird. Vice president and secretary.
Mr. Gesell. Were you familiar with the discussions which took
place among the three companies in 1926, with respect to arriving at a
uniform rate program?
Mr, Laird. In a general way, yes.
Mr. Gesell. You have heard the testimony of Mr. Flynn just be-
fore he left the stand. Do you recall the conversations that took place
in you]- company and with the other companies concerning tiif Aetna's
modified life ))olicy?
CONCENTRATION OF ECONOMIC POWER 4241
Mr. Laird. I remember a question was raised, yes.
Mr. Gesell. Do you recognize the second and third sheets of this
document as a memorandum ^ which was written concerning it by Mr.
Henderson of your company and which you turned over to Mr.
Huntington ?
Mr. Laird. Yes ; that is a memo by our actuary.
Mr. Oesell. Did you ( ake that memorandum with you to a meeting
of the presidents, or have any discussion with Mr. Huntington, the
presidBnt of your company?
Mr. Laird. I think I talked with Mr. Huntington, but I don't know
that the presidents even met.
Mr. Gesell. Tiie memorandum states as follows [reading from
"Exhibit No. 667"] :
The coutiuiiation of the present r.ites by Aetna on this policy form will be a
very serious matter from a competitive standpoint. Because I have been assum-
ing that we were going to have almost 100 percent cooperation between the
three companies, I was very much surprised when I heard of their decision.
Then there is a. discussion of the Aetna's modified life form, and a
comparison of that form with the term forms used b}'' j'our company
and the Travelers.
Do you recall what discussions you had with President Huntington
of your company concerning this matter?
Mr. Laird. Naturally, not in detail, but, as I remember the situa-
tion, the Aetna's modified life form was a kind of combination of life
and term.
I think the Aetna worked the rates for it as if it were entirely life,
whereas we thought it sliould bear a different rate because of what
v.e considered a term element in it.
Mr. Gesell. Well, in effect, though your company and the Travelers
did not write this modified life form, your term forms were so near
to the modified life form that the Aetna's failure to apply the new
program to its modified life form gave it a competitive advantage.
Mr, Laird. Well, the two situations were sufliciently close that the
agents Avould make comparisons and it could be shown that the Aetna
was offering lower-priced insurance.
Mr. Arnold, You wanted to remove that competitive advantage.
Mr. Laird. Well, the three companies had agreed on what we
thought was the minimimi safe rate to charge for new insurance to
be issued thereafter, and there were naturally zones w^here we didn't
have a complete meeting of the mind. This was one of them.
Mr. Arnold. The agreement constituted the acceptance of the high-
est possible basis out of three diverse views, didn't it?
Mr. Laird. No, not necessarily. In fact, it would seldom vrork out
that way. In practice, as I remember it, each of the three companies
worked out tentative gross premiums according to its best judgment
of the future. Then we got together and compared notes and, if there
was a variation, we tried to decide according to our best judgment
what was the best rate that we should guarantee, having in mind
that we must make the contract safe so that we would be able to fulfill
our obligations and, on the other hand, having in mind that fully over
90 percent of the business is written by participating companies which
at that time were (quoting dividends based on their past experience.
Subs^oiimnlly imro'Uicod as i>;iif of "Kxliibit No. ,GW," see :uH'i"n(lix, p. 4720.
4242 CONCENTRATION OF ECONOMIC POWER
whereas we were projecting into the future; so that we just couldn't
raise the rates very much or we wouldn't sell any business.
Mr. Arnold, But you also had in mind profits.
Mr. Laird. We hoped there would be profits although, as events have
turned out, we didn't pitch the rates high enough.
Mr. Gesell. May I refresh your recollection a little further on this
thing. You said you didn't recall whether the presidents got to-
gether and just what kind of discussions were had. I have in my hand
a memorandum written by Mr. Hammond of the Travelers Life
Insurance Co., dated 1 : 50 p. m., November 16, 1932.^
He reports as follows [reading from "Exhibit No. 669"] :
Mr. Laird, vice president and actuary of the Connecticut General, has just
called me on the tolephone. I understand from Mr. Laird that there is to ho a
meeting of the presidents of the Aetna Life, tlu; Travelers, and Connecticut \^en-
eral at 2 : 30 o'clocli today in tlie Connecticut General building.
It is rather specific on the meeting.
Mr. Laird stated that Mr. Cammack has not had anything to say relative to
any change in the rates of their modified life contract. The Connecticut General
has just discovered that the Aetna Life proposes to make no change in such
rates, and as he understands it the Aetna Life takes the position that if they
raise their rates for this form they will be unable to compete with the corre-
sponding policy of the Prudential, namely, the modified five.
Mr. Laird feels that the loading on the Aetna Life form should be somewhere
between the ordinary-life and 5-year term, although possibly the ordinary-life
loading would be satisfactory.
Mr. Laird told me that he was taking this matter up with President Hunting-
ton and expressing the opinion that unless the Aetna Life will change its rates
upon the modified-life contract it practically nullifies the entire program. I
assume that the conchisions reached by Mr. Laird are probably based upon the
fact that the Aetna Life writes a great deal of business on this form in place of
ordinary life.
Now, you felt pretty strongly then about tliis matter, did you not, at
the time it came up?
Mr. Laird. Well, of course, that isn't my memo; that is another
man's interpretation, and that may exaggerate the way I felt.
Mr. Gesell. Will you tell us how you did feel, so we will have it
for tlie record ?
Mr. Laird. What is the date of that memo ?
Mr. Gesell. One-fifty p. m., November 16, 1932.
Mr. Laird. Well, of course, it is several years ago, and it is a matter
of feeling. It was the first attempt of the tliroe companies to- work
together, and we did feel that, some change had to be made in the
Aetna's situation, or we couldn't claim that we had a uniform program.
Mr. Gesell. If you didn't have that imiform program, the Aetna-
would have had a competitive advantage, would it not?
Mr. Laird. Temporarily.
Mr. Frank. It was the purpose, then, of the effort to get an agree-
ment on this item to deprive Aetna of that competitive advantage.
Mr. Laird. Well, the purpose was to put guaranteed rates on a safe
basis as we then saw it.
Mr. Frank. Leaving out the word safe, you may be right; I express
no opinion as to whether it was desirable or undesirable. It may be
that this Avas a perfectly desirable, socially useful arrangement; but
we are trying to get the facts, and not going into the question of its
' Siihseqnently cnlmTd a.s "E.vliihil No. (!60," .src ni>i'cnriix, p. 4722.
CONCENTRATION OF ECONOMIC POWER 4243
desirability at this time, but the purpose was to avoid any competitive
arrangements.
Mr. Laird. Do 3^ou mind repeating that?
Mr. Frank. I say your purpose was to eliminate competitive ar-
rangements and to arrive at an anticompetitive agreement.
Mr. Laird. The purpose was to have uniform rates on th6 contracts
which all three companies issued, and to have comparable rates on any
odd forms that any one of us might happen to have.
Mr. Frank. And the purpose, therefore, was to stop competition
within that field ?
Mr. Laird. Within the three companies, who, of course, did a very
small fraction of the total insurance business in the country.
Mr. Gesell. Is it not a fact, Mr. Laird, that following the dissen-
sion which arose with respect to this modified life policy of the Aetna
additional meetings were held among the actuaries which resulted in
the Aetna agreeing to. change the rates which it was going to quote
on its modified life, so as to bring them in line with the uniform pro-
gram which had been proposed ?
Mr. Laird, My impression is that they adopted a different set of
rates. I think there was still a little question in our minds as to
whether it was according to our interpretation of the general formula,
but at any rate it was close enough so that we didn't object further.
Mr. Gesell. You agreed to it.
Thank you, that is all.
I would like to call for a moment, before Mr. Flynn returns, Mr.
Beers.
The Chairman. Do you solemnly swear the testimony you are about
to give in this proceeding shall be the truth, the whole truth, and
not hing but the truth, so help you God ?
Mr. Beers. I do.
TESTIMONY OF H. S. BEERS, VICE PRESIDENT, AETNA LIFE
INSURANCE CO., HARTFORD, CONN.
Mr. Gj^sell. You are associated with the Aetna Life Insurance Co.,
Mr. Beers?
Mr. Beers. Yes, sir.
Mr. Gesell. In what capacity?
Mr. Beers. Vice president.
Mr. Gesell. I show you a memorandum addressed to you dated
November 17, 1932, initialed by the president of your company, and
ask you if you recognize that.
Mr. Beers. Yes, sir.
Mr. Gesell. This memorandum states [reading from "Exhibit No.
667"] :
In conversation yesterday with Mr. Huntington and Mr. Zacher with reference
to the new rates, Mr. Huntington told me that his actuarial department have
jugt discovered that the Aetna did not propose to raise its present modifled-llfe
rates. He gave me a memorandum handed him by Mr. Laird. Will you read this
and then discuss the matter with me?
May I offer the memorandum and the attached?
The Chairman. The memorandum may be received.
(The memorandum referred to was marked "Exhibit No. 667" and
is included in the appendix on p. 4720. )
4244 CONCENTRATION OF ECONOMIC POWER
Mr. Gesell. Now, after that matter was brought to your atten-
tion, were there not discussions held between the actuaries and rep-
resentatives of your company " '^^e other two companies with a
view to reaching a uniform a^ "enn at which would no longer put
the Aetna's modified life form out (;f line with the program which
had generally been agreed to?
Mr. Beees. That is a long question. We held several meetings
and discussed what would be the answer to the question that had
arisen. There was a difference of opinion and we thought that our
premium rate was all right; they thought it should be higher. We
reached a compromise.
Mr. Gesell. You raised yours somewhat, as a result?
Mr. Beers. Yes.
Mr. Gesell. Why was that done, if you thought the original rate
v>^as all right, Mr. Beers?
Mr. Beers, They thought it wasn't. When you are entering an
agreement with other persons you must reach an agreement. You
cannot insist on your own v»^ay with respect to one point.
Mr. Gesell. Then, to put it another way, is it safe to say that
you departed from what you considered sound actuarial standards
in the interests oi reaching uniformity ?
Mr. Beers. I should prefer that you don't bring in "sound actu-
arial standards" at this point. We were selling insurance at rates
which we knew we could not afford and we wanted to get our rates
up as much as we thought we could get them up with the competi-
tion that then existed.
We did not, of course, get the rates up to a profitable point, but
we accomplished something.
Mr. Gesell. You said you thought your original rate as proposed
was all right. What did you mean, "all right" ?
Mr. Beers. That it was in accordance with the preliminary prin-
ciples which we had laid down in our current discussions.
Mr. Gesell. In other words, I should have said preliminary sound
actuarial standards?
Mr. Befjjs. Excuse me, no, sir — fair to the other companies.
Mr. Arnold. And by "fair to the other companies" you meant
what was stated in this memorandum to Mr. Huntington- [reading
from "Exhibit No. 667"] :
When we compare a modified policy and an ordinary life policy issued at
age 50, the Aetna's competitive advantage is even more marked.
By "fair to the other companies" you meant the elimination of
disagreeable competition.
Mr. Beers. I believe, sir, I referred to the rate we were proposing
to keej) as being fair to the other companies. That is, we did not
feel, with the Connecticut General, that it put them at an insuper-
able competitive disadvantage.
Mr. Arnold. But in the word "fair" you mean that you want a
rate which will not put* any company at a competitive disadvantage.
That is really what you mean by the word "fair."
Mr. Beers. As between these three companies I think that is right,
although I used the word "fair," I believe, as meaning fair to the
other companies by the terms of. the agreement we were trying to
reach.
nONCEXTKATION OF ECONOMIC POWER 4245
Mr. Arnold. You were all more comfortable in your minds when
competition was eliminated.
Mr. Beers. Yes, sir.
Mr. Geseix. Do you recognize this memorandum dated December
G, 1932, from you to President Brainard of your company, as setting
forth the final agreement which was reached with respect to this
modified life policy?
Mr. Beers. I presume so, but I would rather read it.
Yes; yes; that is my memorandum, all right.
Mr. Gesell. And tliat is the final agreement which was reached
on that policy?
Mr. Beers. I could not swear to that without checking rate books.
I presume it is.
Mr. Arnold. And there was no insurance commissioner supervis-
ing these particular rates, as tliere was in group life?
Mr. Beers. None.
Mr. Gesell. The memorandum in the first paragraph states [read-
ing from "Exhibit No. 668"] :
Mr. Keffer and I have attended three meetings with Mr. Laird of the Con-
necticut General, Mr. Flynn of the Travelers, and their assistants, and this
morning we reached an understanding vpith tliem with regard to the proper
rates to be charged for modified life policies.
I would like to offer this for the record.
The Chairman. That memorandum may be received.
(The memorandum referred to was marked "Exhibit No. 668" and
is included in the appendix on p. 4721.)
Mr. Gesell. That is all, thank you.
The Chairman. In response to a question propounded by Mr.
Arnold, you referred to certain rates which, if I remember your
phrase correctly, you were proposing to keep. Do you remember
that phrase?
Mr. Beers. Yes, sir; I used that phrase.
The Chairman. What did you mean by saying you were propos-
ing to keep these rates?
Mr. Beers. I meant that we were proposing to use the same rates
in our new rate book as we then had in our existing rate book. If that
IS possibly inaccurate, I could check it by looking at the memorandum.
The Chairman. I don't think there is anything inaccurate about it.
I was merely trying to discover if those were the rates which the
other companies were complaining about.
You were proposing to keep certain rates, and the other companies
wanted you to raise those rates?
Mr. Beers. That is right.
The Chairman. And the question for discussion at these conferences
was whether or not you should raise your rates ?
Mr. Beers. That is right.
The Chairman. Your memorandum of December 6, 1932, says [read-
ing from "Exhibit No. 668"] :
Mr. Keffer and I have attended three meetings with Mr. Laird, of the
Connecticut General. * * *
And so forth. It took three meetings, therefore, for you to be
convinced that you should raise the rates?
4246 CONCENTRATION OF ECONOMIC POWER
Mr. Beers. Yes ; and to convince them that the amount by which we
proposed to raise them was enough.
The Chairman. The amount by which who proposed to raise them ?
Mr. Beers. We.
The Chairman. Did you propose to raise them?
Mr. Beers. In response to their complaint we endeavored to reach
a compromise solution.
The Chairman. Did you raise them as far as they wanted you to
raise them ?
Mr. Beers. I believe not, sir.
The Chairman. So that when these three conferences were con-
cluded you were still of the opinion that the proposed schedule of
rates offered by the other companies was too high ?
Mr. Beers. Oh, well, you know, when you reach a compromise,
sometimes you get convinced yourself. I can't say how far we were
convinced ourselves and how far we merely gave in. We didn't go
all the way to their original suggestion.
The Chairman. So, therefore, you were still of the opinion that
their original proposal was too high, or otherwise you would have
gone all the way. Isn't that a justifiable conclusion.
Mr. Beers. Possibly.
The Chairman. Possibly ? Isn't it "yes" ?
Mr. Beers. Perhaps they asked for more than they thought they
could get.
Mr. Arnold. Do you think that these companies, in fixing these rates
around the table, by means of these rate-fixing conferences, are accus-
tomed to ask for more than they think they ought to get as a trading-
basis?
Mr. Beers. This particular contract was issued by us, but not by
the other two companies ; consequently we were not discussing a com-
mon rate ; we were discussing a special rate which should be consistent
with the common rates we had already decided upon.
Mr. Arnold, I was referring to your remark that you thought
perhaps these companies went into the conference asking for higher
rates than they thought they would get.
Mr. Beers. I beg your pardon. I should have said first, directly,
with respect to this one policy form, but that was because — and then
what I said, that it was a special kind.
The Chairman. Now it appears from your testimony that at the
beginning you were contending for low rates and the other two com-
panies were contending for much higher rates ; that you held various
conferences, intracompany conferences and intercompany conferences
(three of the latter), at the conclusion of which you went part of the
way toward raising the rates. That is the story, isn't it?
Mr. Beers. I think, sir, you should have said, "with respect to
this policy form which you alone issued," and then the answer is "yes."
The Chairman. Do you think that the rates were raised far enough
now?
Mr. Beers. No, indeed ; if by "now" you mean at the conclusion
of this.
The Chairman. At this moment what is your conclusion as to what
should have been done?
Mr. Beers. Arc vou referring; to 1932 or 1939?
COXCKNTRATION OF ECONOMIC POWER 4247
The Chairman. This memorandum is dated December 6, 1932.^
JNIr. Beers. My present opinion with resj^ect to our 1932 decision is
that of course we bhmdered. We did not raise the rates enough.
The Chairman. And your original position was altogether wrong?
Mr. Beers. I am sorry to say it was, but it was competitively
desirable, if competition is desirable.
The Chairman. Which was competitively desirable?
Mr. Beers. The decision we reached.
The Chairman. The decision to eliminate competition was com-
petitively desirable?
Mr. Beers. No, sir ; the decision to charge the rate we charged was
competitively desirable.
The Chairman. Of course that decision to charge the rate you did
charge was reached by way of agreement ahiong three companies
wliich were supposedly competing.
Mr. Beers. In the rate book that we were talking about there was
not going to be that kind of competition among themselves. Of
course we were competing with the other 90 percent of the industry.
The Chairman. That is to say, among the three the competition
was to be eliminated, but not among the other 90 percent.
Now, if you recall Mr. Hammond's memorandum of November 16,
1932,^ in which he made a report of a conference with Mr. Laird, it
contained the sentence [reading from "Exhibit No. 669"] :
Mr. Laird told me that he was taking this matter up with President Hunt-
ington and expressing the opinion that unless the Aetna Life will change its rates
upon the modified life contract it practically nullifies the entire program.
Was that representation made to you, that your failure to agree
would nullify the entire program ?
Mr, Beers. Failure to agree would be a failure to agree, and that,
of course, would nullify the agreement.
The Chairman. And you felt it very desirable that there should be
an agreement?
Mr. Beers. Yes, sir.
The Chairinian. And therefore you agreed to aljandon your position
;ind to raise the rates in accSi'dance with the modified suggestions of tlie
otJier two companies.
Mr. Beers. We compromised ; yes, sir.
Mr. Gesell. Am I correct in saying, Mr. Beers, tliat what you
wanted to do was to get companies of your type, those otlier two com-
panies of your type, together on a united front so that you would stop
competing among each other and go after the participating companies ?
Mr. Beers. We had been competing in the past, because every now
and then we would come to the conclusion that we could write the busi-
ness a little cheaper than we had, and we wanted to cut the rate first
to get a competitive advantage. When it came to raising rates for the
sake of safety and not to increase profits but to cut our losses, we very
much hated to be the first company, and we were all waiting for each
of the other two, so the only thing to do was to get together and go
part of the way that we should have gone.
Mr. Frank. May I refer back to an expression you used a few mo-
ments ago? First 1 want to indicate that one of the purposes of this
1 "Exhibit No. 668," appendix, p. 4721.
■■' Subsequently introduced as •'lOxhiliit No. OOlt," infra, p. 42."9.
124491 — 40— pt. 10 8
4248 CONCENTRATION OF ECONOMIC POWER
committee is to explore whether, and to what extent, it is desirable in
particular areas of industry to have competition eliminated or modi-
fied, and you used the expression, "if competition is desirable." May
I ask, Have you any attitude as to whether the life insurance business
should be noncompetitive or monopolistic to some or other extent ?
Mr. Beers. I think it should be competitive almost entirely, except
in those fields where competition will not lead to better terms for the
public but will lead to the destruction of the industry.
Mr. Arnold. That means you shouldn't have any competition in
rates ?
Mr. Beers. That does not mean you should have no competition in
rates: I'm sorry.
Mr. Arnold. That means, then, you should have price-fixing agree-
ments as to rates, similar to the thing you have been testifying about.
Mr. Beers. The price-fixing arrangements would be proper only in
the most limited circumstances.
Mr. Arnold. The limited circumstances being when the companies
could get together and compromise and negotiate concerning the com-
petitive advantage of another. Is that the limited circumstances?
Mr. Beers. I cannot, sir, lay down a general principle. I do believe
that the agreement we reached at the time of the memos we are discuss-
ing was a right and proper one, and we acted for the good of the busi-
ness and of the public.
Mr. Arnold. Did the idea of the existence of an antitrust law ever
occur to anyone during this conference ?
Mr. Beers. I presume it occurred to everyone during this confer-
ence, sir.
Mr. Arnold. And you accepted the possibility of violation of the
law as a necessary risk of doing business ?
Mr. Beers. I think we would put it this way. I am not a lawyer.
Judging from what lawyers told me, and so on, I came to the con-
clusion that we were not violating the law.
Mr. Arnold. Had you read the warning correspondence which the
Metropolitan Life wrote in connection with rate fixing in group
insurance ?
Mr. Beers. I have read correspondence and also engaged in discus-
sions from time to time.
Mr. Arnold. And you discarded the statements of those counsel as
not. being worth consideration?
Mr. Beers. No, sir.
Mr. Arnold. But weighing them you came to the conclusion that the
antitrust laws did permit the fixing of rates in a group, informal or
formal ?
Mr. Beers. The weight of the legal advice I received seemed to
justify that, sir.
Mr. Arnold. Suppose that public utilities fixed their rates by agree-
ments between each other, and without supervision or regulation by
any public body. Would you be willing to hazard a guess as to
whether that would be good practice ?
Mr. Beers. That is another business. It is easy for me to hazard a
guess that the people in the other business might be selfish. The peo-
ple in my business I don't think are.
Mr. Arnold. Never selfish?
CONCENTRATION OF ECONOMIC POWER 4249
Mr. Beers. Seldom.
Mr. Arnold. Seldom very selfish. You do consider profits, how-
ever.
Mr. Beers. We consider them in a rather academic way nowadays.
We hope a little later to be able to consider them in a practical way.
We think we should make a little profit.
Mr. Arnold. Your basis, then, for making a distinction between
public utilities and insurance companies with respect' to the private
monopolistic power to fix rates is that insurance companies are com-
posed of people of so much higher moral and mental caliber that we
are safe with them and unsafe with public utilities ?
Mr. Beers. "I don't need to apologize for a somewhat frivolous refer-
ence to the comparison between the men in the industry. No; of
course, not.
Mr. Arnold. May I say that the question was frankly argumenta-
tive and intended to bring out the point. You need not answer it.
Mr. Beers. I will see if I can do it. I did want to make the point
seriously that, of course, I don't know the public-utility business.
The second point I would like to make is that as I understand the
meaning of the words "public utility" most publiQ utilities have of
necessity a monopoly. Each company has a monopoly, almost, usually
a real monopoly, of the services that it is performing for the group
for whom it is performing them. In the insurance business there is
no monopoly that I know about on the part of any one company.
Mr. Frank. May I ask, then, leavmg the field of industries in
which, by law, there is a monopoly to some extent, would you mind
comparing your business, let us say, with one which is generally con-
sidered to be desirably competitive — let us say the shoe-manufactur-
ing business. I gather from what you say that you think the life-
insurance business differs, let us say, from the shoe-manufacturing
business, and that to some extent, at any rate, there should be recog-
nized as economically desirable, and therefore legal, noncompetition,
anticompetitive devices, or what are popularly called, monopolistic
practices.
Mr. Beers. No; I don't think I can say that. I suppose that cer-
tain anticompetitive practices in the shoe business are desirable, just
as I think certain anticompetitive practices in life insurance are desir-
able. Don't I pay the same for my sneakers, whichever store I buy
them in ? I am not sure of this.
Mr, Arnold. Are you giving me a lead for an antitrust prosecu-
tion of the shoe business?
Mr. Beers. I thpught so, because I think they cost $1.65, and I
don't think they vary much.
The Chairman. You haven't read the arguments about Czecho-
slovakian sneakers and those made at home?
Mr. Beers. These have a trade name on them.
The Chairman. May I say, Mr, Beers, that I think there is basis
for the opinion you have very recently expressed of the high char-
acter of the executives of the insurance business. I think the testi-
mony which has been given here today and yesterday indicates a dis-
position upon the part of the witnesses to be quite generally frank.
Mr. Beers. We are used to being investigated. We have 48 inves-
tigators already, sir.
4250 CONCENTRATION OF ECONOIMIC POWER
The Chairman. Of course I don't like that word. We are just
studying you, we are not investigating.
Mr. Beers. I beg your pardon. If I may change the word, will
you say "ask questions" instead of "investigated"?
The Chairman. But you have been exceptionally frank in answer-
ing questions which have been propounded from all sides, it seems
to me, and I think that is very helpful in getting to a basis of under-
standing of the problem.
I was impressed with the statement which, as I recall, you made
in response to one of the questions propounded by one of the mem-
bers of the committee, that in your opinion the insurance business
should be competitive except when, in the interests of the insured,
competition should be eliminated. Is that a correct statement of
your opinion?
Mr. Beeks. That is almost what I said, and I think that is a reason-
able statement of my opinion ; yes, sir.
The Chairman. In Avhat fields, is it your opinion, as an expert
speaking out of your experience in the insurance business, should
competition be eliminated in the interest of the insured and the
public ?
Mr. Beers. In general, it is very difficult to state anything so im-
portant as that in general terms, particularly without considerable
study and thought. I said before, I think, that in certain phases
anticompetitive arrangements might be desirable when they do not
increase the cost to the public, or where they decrease the cost to the
public, where they do not mean less favorable contracts but prefer-
ably more favorable contracts to the public, and where the arrange-
ments are necessary to prevent competition which might destroy the
industry or tend to destroy the industry; in other words, where the
competition would hurt us without benefiting our customers.
The Chairman. That is a very clear statement. Who is to deter-
mine what those fields are?
Mr. Beers. Naturally we would rather determine them ourselves
if we can do that safely to the general public.
The Chairman. We had a good deal of testimony yesterday in the
group insurance field showing that there v;as an association of some
19 companies, one of them yours, I think, which reached an agree-
ment to eliminate competition with respect to rates, underwriting,
and commissions. Do you remember?
Mr. Beers. Yes, sir.
The Chairman. You think it is a desirable thing to eliminate com-
petition in those fields and to do it by the action of the competing
companies themselves?
Mr. Beers. In those particular phases, taking the exception to your
statement about competition and rates which has been taken before,
I must answer yes.
The Chairman. Do you think that there should be any participa-
tion in the determination of the fields in which competition should be
eliminated in the interests of the public by any Government agency?
Mr. Beers. As a theoretical question, that, of course would be
answered by most people in the affirmative for this particular field,
CONCENTRATION OF ECONOMIC POWER 4251
and I answer it in the negative and the reason I answer it in the
negative may be, of course, that it is my own field ; but I think that
the results have so far been beneficial to the public, to the purchasers
of group policies and the competition in the group business is so keen
that I don't believe any unduly restrictive agreement could stand.
The Chairman. Did you hear the testimony of Mr. Flynn with
respect to the variations in the American Men Table?
Mr. Beers. Tliis morning?
The Chairman. Yes.
Mr. Beers. Yes, sir.
The Chairman. You recall I read to him paragraph 5 of the
memorandum which he prepared which reads as follows [reading
from "Exhibit No. 665"] :
Aetna's idea of a mortality basis was 90 percent of the American men table
up to the age of 75, increasing 2 percent for each age up to the age of 80 for
all forms other than term which they would base upon a 100 percent mortality
basis for all ages. The Connecticut General's idea was to start at about 75
percent of the American men tatjle at the age of 20, increasing to 100 percent
at age 50 and going somewhat higher for the older ages. Our own idea
follows more closely that of the Aetna. This basis should give a reasonable
mortality margin for safety.
Mr. Beers. Yes.
The Chairman. You agree, do you, that there was this wide var-
iation among the three companies with respect to the -use of the
mortality tables?
Mr. Beers. There is this variation, a wide one at some ages of issue,
a very narroAV one at other ages of issue. I cannot really show you
and you cannot see how wide and how narrow the variation is with-
orrt looking at the resulting premium price. If you were interested
in that, I could prepare the actuarial study on the subject.
The Chairman. No; I am interested in whether there was a varia-
tion.
Mr. Beers. There was, but I think your word "wide" is not correct.
The Chairman. I sec. There may not be as a great a variation as
tliis might indicate.
Mr. Beers. If you saw the table of premium rates, I don't think
it would indicate that.
The Chairman. What I am getting at, Mr. Beers, is this. Tlie
(estiinony of I\Ir. Cammack yesterday was to the effect that the ac-
tuaries of these various companies, meeting together through their
committees, made a composite table of experience and then made the
recommendations as to rate and then submitted those recommenda-
ti(ms to the State commissioner of insurance who almost invariably
followed them. Tliat was an example of what we might call self-
regulation by the associated group and the elimination of competi-
tion in the field of rate making to the degree that it was effective,
Avas it not ?
Mr. Beers. No, sir.
The Chairman. It was not?
Mr. Beers. No, sir ; I think perhaps I can clear that point up for
you in about 1 minute. Tlie companies send their statement of num-
ber of emi)loyees insured and number of deaths to one company —
it happens to be the Aetna — whicli adds together the number of
employees and the number of deaths in each industry classification,
4252 CONCENTRATION OF ECONOMIC POWER
each a^e, et cetera, and prepares a mortality report which shows
the ratio of the actual rates of mortality to the rates of mortality
which should have been — which the mortality table shows. That is
published, printed, and sent to a great many different organizations,
including the Insurance Department of New York. That is the basic
data, the only basic data available to the different insurance com-
panies, in studying the substantive rates. The committee then in-
terprets that and sends the result of the interpretation, after approval
of the association, to the Superintendent of Insurance in New York,
as stated yesterday, who has a staff of actuaries. . He studies the
basic data and the recoiiimendations of the association insofar as he
wishes and feels proper. We know that the actuary of the depart-
ment always sees it, and then has, so far, always approved our
recommendations.
Mr. Henderson. May I
Mr. Beers (interposing). Excuse me, sir. The fact that the super-
intendent has the power and the ability and the authority to scruti-
nize and change the recommendation if he wishes is, in my opinion,
sufficient to force us to claim that the superintendent is fixing the
rates.
Mr. Henderson. I wanted to ask whether what is available to the
superintendent's actuaries is a five-company consolidated experience,
isn't that correct ?
Mr. Beers. Correct.
Mr. Henderson. He does not have the basic data at his command?
Mr. Beers. He has not asked for it.
Mr. Henderson. I am asking for an exact statement as to the
basic data.
Mr. Bejers. He has all the basic data at his disposal because he —
not investigates; what is the word — examines each of the companies.
The Chairman. I am glad you avoided the word "investigates."
'[Laughter.]
Mr. Beers. He examines each of the companies every 3 years, if
they are located in New York State; if they are Connecticut com-
panies, the Connecticut department does it. And at that time they
go .through all our operations. They can check any data which we
have prepared that way and they can insist on the preparation of
other data; so in effect he has available to him more data than our
committee does because our committee would not feel it proper to
look at the individual data of our competitors.
Mr. Gesell. Now that isn't followed at all when you are fixing
these nonparticipating rates. You aon't submit any data to him of
one sort or another.
Mr. Beers. Yes; quite right.
The Chairman. Let me finish this question. What I was leading
up to, Mr. Beers, was a comparison between the method employed in
fixing the two rates. The testimony of Mr. Cammack, which I think
is substantially approved by your statement now, to the effect that
the good faith and accuracy of the actuaries in presenting this com-
posite experience is the basis upon which the insurance commissioner
arts.
Mr. Beers. No.
Tlie Chairman. Your qualification of it is merely that the insur-
ance commissioner has all of this material available to him and if
CONCENTRATION OF ECONOMIC POWER 4253
lie wanted to change, he could ; and, therefore, since he doesn't change,
your report must be accurate and in good faith.
Mr. Beers. Well, isn't it something like this? Perhaps I have to
report, being in some business or other, that I took in $2,000 gross
income last year and here are my books to prove it and they say,
*'0h, we won't look at your books. We will take your word for it."
But the fact I have said here are my books to prove it makes it some-
what different than if I say, "I made $2,000 last year and that is my
statement and that is all you have to go on." Isn't there that dif-
ference ?
The Chairman. I see your point exactly. Let me get this con-
cluding question in and then I will abandon the field. Now I am
referring to paragraph 5 of Mr. Flynn's memorandum,^ dealing with
the mortality table which shows a variation, not as wide a variation
as it seems to my lay mind in your opinion, but a variation.
Mr. Beers. A substantial one.
The Chairman. My thought w^as that if the actuaries of these
three companies can disagree to the extent indicated by Mr. Flynn's
memorandum w^ith respect to the mortality table, what assurance
have we that there is not an equal inaccuracy in the sort of infor-
mation that your association has presented to the State insurance
commissioner, because in neither instance do you have anybody par-
ticipating in the preparation of this data on behalf of the public or of
the insured.
Mr. Beers. The similar inaccuracy tcivhich you refer and w^hich
exists — probably you asked your question in a way you didn't intend —
the similar inaccuracy might be this. In our interpretation of the
meaning of the past mortality results, which interpretation leads to
our reconunendation, there will be differences of opinion from time
to time, and what you would call the similar inaccuracies to the dif-
ferences of opinion in this paragraph to which you refer. With re-
spect to the basic data which is merely, you might say, the ratio of the
number of deaths to the number of employees insured, there can be no
inaccuracy because that is mere arithmetic.
The Chairman. But now, coming back to the fundamental ques-
tion, to what extent in your opinion should there be participation by
some agency acting in the public interest in eliminating competition
in these Jaelds of competition, in which, in your opinion, competition
should be eliminated?
Mr. Beers. I do not feel that that participation has been proved
necessary by results, and I am inclined to think that it is unnecessary.
" J'he Chairman. So that w'e can safely trust to the good faith and
scientific accuracy of the insurance executives in determining these
rates and in determining in what fields competition shall be permitted
to survive and in what fields it ought to be eliminated.
Mr. Beers. My theory may be w^rong; I'd say yes, as long as we are
good.
The Chairman. Well, now, who is going to determine how long
you are going to be good ?
Mr. Beers. I hope that employers who are buying new group poli-
cies, individuals who are buying ordinary policies, and from time to
time legislative bodies will take a look at us and see it.
1 "Exhibit No. C65," appendix, p. 4718, at p. 4710.
4254 CONCENTRATION OF ECONOMIC POWER
The Chairman. Your phrase bring^s to my mind the first memo-
randum presented yesterday by Mr. Flynn, in which he referred to
certain methods used to make you be good.
Mr. Beers. As I remember, that sounded to me as if we would get
along very well as long as these companies acted outside the meeting
as they talked in meeting.
The Chairman. Now, that reminds me of the phrase that appeared
in that memoranduni ; that memorandum, by the way, was dated
September 30, 1924.^ There seemed no possibility of getting the West-
ern Union, wliich was an insui-ance company, to release the business
ir.tilis case, "and the only point in writing was to let them know that
we ,iinderstood their attitude and to put some fear in them so that
they would not molest other Travelers' renewals in that territory."
Is that the way to make them be ^ood, by putting the fear into them ?
Mr. Beers. I don't know. I don't remember that. Incidentally, I
don't like the sound of the memorandum. It probably sounds a good
deal different this year than it would have 15 years ago; and one
memo, while it probably
The Chairman (interposing). Well, of course, you can't judge the
weather by a swallow. That is true, but I think there is more than
one in this instance.
Mr. Gesell. I have no further questions.
Mr. Frank. May I ask a question as to the agreements tliat you
were discussing originally in your testimony this morning? There is
no supervision by any State superintendent?
Mr. Beers. No; there has been no supervision with respect to any
of those agreements.
Mr. Frank. Now, at the time those agreements were made was there
some publication of the fact that such agreements had been made
and of the basis upon which they had been arrived at ?
Mr. Beers. Are you referring to this agreement? Do you mean
the agreement we made to adopt certain rates and surrender values?
You used the plural.
Mr. Frank. I'm sorry ; I should have used the singular.
Mr. Beers. It was, you might say, obvious from the facts that were
made public that we were adopting the same rates on surrender value
at the same time- At least, I think it was the same time, the same
date.
Mr. Gesell. Yes.
Mr. Bkkrs. And consequently that was as good a fact as if there
was publication ; but whether we published it, I don't know.
Mr. Frank. Was the public informed; were the insurance buyers
informed of the basis upon whicli you raised, that agreement?
Mr. Beers. Tlie statement that that was made on such and such a
loading wouldn't interest the public.
Mr. Frank. TJiat ^^^n't what I was referring to. I w^ns referring to
the matters contained in these memoranda as to whether you were
to ajj^iee on which life tables to use, and how you were to adiiist them,
and Avhether the leading one was to be sufficient to make possible
certain profits, and so on. That data miaht be very interesting tt)
insurance buyers, v,t)nldfi't you think?
' ;S>iDr!i T1. 4l;>9.
CONCKNTHATION OF ECONOMIC POWER 4255
Mr. Beers. I think, sir, we are talking about the same thing really,
because if you are going to tell what this premium rate is, you must
state the mortality table, which may be a particular mortality table
or a percentage variation of another one. You must state the loading
formula, which is quite complicated. You must state the rate of in-
terest and any other things that vary the actuarial computation. By
the time you get through you haA^e a very complicated statement.
Mr. Frank. What was that?
Mr. Beers. By the time you get through you have a very compli-
cated statement, and the buyer of insurance wants to knoAv how much
it is at liis age ; that is all.
IMr. Frank. I appreciate that often the formulas which technicians
use are unintelligible to the laity, but they are capable of being made
intelligible, aren't they?
Mr. Beers. I think there was a publication. Didn't we publish in
one of the actuarial journals something about this?
Mr. Gesell. I have been able to find a speech by Mr. Cammack,
before some actuarial society, in which he said that the companies had
adopted the same mortality basis and the same interest basis in com-
puting their rates. I have not been able to find any publication which
snid that the three companies had sat down together and reached an
understanding on all factors affecting the rates for all ages, and that
the rates announced April 1930 were the result of a uniform decision
among the three companies.
Mr. Beers. We would probably avoid tiiat language out of deference
to those of us who were worrying most about these antitrust cases.
Mr. Henderson. Mr. Beers, you said that all this actuarial computa-
tion involved formulas which would be uninteresting to the public.
It wouldn't be, however, to a buyer of insurance. Take myself, who
bought some insurance about that time. It would be of advantage to
know that there had been an agreement 'reached about the rates by
these companies, would it not?
Ml'. Beers. I doubt it, sir.
Mr. Henderson. Let me then assure, you it would be to me as a
buyer.
Mr. Beei!s. You are different.
Mr. Henderson. I don't think I am much diffei-ent from anyone
wlio wants to know whether he is buying in competition oi* buying
in a fixed market. I think pretty generally the Amei'ican public does
like to know, if possible, in what kind of a market it is buying.
jSIr. Beers. You were buying in a very competitive market, sir.
M)\ Henderson. I am not so sure after the testimony of these last 2
days: that is tlie i-oason I am asking. Was the ])ublic generally ap-
l)rized of this agreement; just the simple fnct that an understanding
had been arrived at after all these years about this uniformity? Out-
side of this little statement to a learned society that Mr, Cammf»ek
made, was there any general notice put upon the public?
Mr. Beers. Yes; I believe so. I think by the scrutiny of the news-
papers and insurance journals, notices of this change in rates were
made amply clear to everybody. I don't believe we made the first
pa^e of the daily news. -
Mr. Hendekson. I don't think it got down to me, either.
Mr. Gesell. On this point, if I may interrupt a moment, the Life
Insa ■;)ri(v Edifion of the National Underwriter for the issue of Febru-
4256 CONCENTRATION OF ECONOMIC POWER
ary 24, 1933, readinp^ from a small box at the bottom of page 15, had
an announcement reading something as follows, and I think this is
more or less tlie frankest statement that we have been able to find of a
public nature on this matter:
The Aotna Life has announced that it will make a slight increase in non-
participating rates, effective April 1. When the Travelers, near the end of last
year, announced an average increase of 4 percent at older ages, it was rumored
tliat Aetna would take similar action early this year unless investment appre-
ciation make this unnecessary. The Travelers, as it happened, after making the
announcement, did not actually put the increase in force, but is expected to do
so also about April 1. In the case of the Aetna, it is said there will be little
change in rates below age 30 or above age 55. Between ages 31 and 55, the
advance will range from 3 to 8 percent, probably averaging around 4 percent.
There also will be a change in women's life-income plan. The rate is to be
increased materially, .and also maturity values. At present these are the same
as for men. The Connecticut General will increase nonparticipating rates an
average of 5 percent April 1.
Mr. Henderson. There is nothing in that, Mr. Gesell, which suggests
to me that it was by arrangement. On tho contrary, what I would
gather from that is the same thing I would gather from announce-
ments on merchandise which is bought in competition, tliat tlie leader
hi the business had made certain arrangements, that somebody else
followed him, that changes had been made and in competition uni-
formity had come about because of the necessity of meeting the price.
There is nothing in that that you have just read which suggests the
^inblic was put on notice. Certainly the policyholders were not put
on notice.
Mr. Geskll. I have been unable to find anything of the sort.
Mr. Beers. I would not like to accept that as being the most open
statement of the thing without a little study of the press clippings
myself, if they are available at this late date.
What I started to say a minute ago was that if you bought in-
surance at that time you were probably told by your agent that lie
w;i8 giving a policy in a company with the lowest net cost, and hf
would be glad to compare the net cost with all the other compan!(>s
you might be interested in, because, of course, you ought to have tlial
thing interpreted to you by an expert, and if you asked him about
nonparticipating insurance he would have known that the three Hart-
ford companies had the same rate and would have told you. Do you
remember whether you bought participating or nonparticipating
insurance?
Mr. Penderson. Leaving aside what I bought — —
The Chairman (interposing). I think the witness ought to insist
on an answer.
Mr. Henderson. The insurance agents who talked to me didn't talk
at all as you have just been talking.
Mr. Beers. They should have known better.
The Chairman. This colloquy between Commissioner Henderson
and the witness prompts me to ask, w^here do the actuaries buy their
insurance, or could they buy insurance?
Mr. Beers. I just bought a little nonparticipating insurance from
my own company, sir.
The Chairman. How about the rate. Do you pay the same rate
everybody else pays?
Mr. Beers. Yes, sir.
C^ONCENTRATION OF ECONOMIC POWER 4257
The Chairman. How about the commission? Did yon pay the
commission
Mr. Beers. No, sir. What did yon say? I do not ^jet the com-
mission. If I were an employee I think t could get it, but being an
officer, I can't.
The Chairman. Does an^-body get a commission on it?
Mr. Beers. I am making an agent do a little work for me and he
will get the commission — work on the purchase of insurance, excuse me.
Mr. Arnold. One remark you made interested me. You spoke of
the feeling of deference to those w^ho were engaged in the prosecution
of antitrust laws.
Mr. Beers. I beg your pardon, sir, I said deference to those of our
group who had some problems on the antitrust laws. I wouhhrt use
that word
Mr. Arnold (interposing). You thought it wise, in view of that
split of opinion, then, in your group as to whelher the antitrust laws
applied, to conceal this machinery.
Mr. Beers. To avoid publicizing, absolutely. That is, our lawyers
did not feel absolutely sure that they knew the answer; they thought
the courts might have to decide something.
Mr. Arnold.- And you also felt it wise, I take it, not to call the
attention of those who were enforcing the antitrust laws to the nature
of this price-fixing arrangement.
Mr. Beers. I wouldn't know how to do that, sir.
Mr. Arnold. By letter or by phone or by wire or by oraT confei--
ences, are the methods I could think of. ,
Mr. Beers. Do they give hypothetical decisions ?
Mr, Arnold. It is quite frequent that this matter is opefled and
called to the attention of people engaged in enforcing tlie antitrust
laws. That is the frequent procedure.
Mr. Beers. As I said, I am not a lawyer ; I couldn't answer that.
Mr. Arnold. But yen thought it wise, on the whole, in view of the
situation in your own group who were not sure about the antitrust
laws, and in view of the situation of various prosecuting officers, not
to make this public. Is that a fair statement ?
Mr. Beers. It is a little stronger than I would have made, sir — not
much.
Mr. Arnoij). Another question. You say thatthe private power to
fix prices in the various areas which you think should be noncompeti-
tive in insurance has resulted in lower rates to insurance holders. You
don't think it has.
Mr. Beers. I don't think I said that, sir.
Mr. Arnolb. I thought you intimated it was justified because in the
long run it would result in lower rates.
Mr. Beers'. No ; we have had no real price fixing in this field, in the
field of insurance that we have been discussing the last 2 days.
Mr. Arnold. Without arguing the point whether this price fixing
that you have testified to is real price fixing or not, you think that that
price fixiiig has resulted in the long run in better rates to the insured ?
Mr. Beers. That is not a conclusion which you can draw from the
nonparticipating rate history. The price fixing in nonparticipating
rates is 5 or 6 years old, has accomplished three increases in rate, none
of which kept up with the increasing cost of rates and decreasing cost
4258 CONCMONTRATION OK IX'ONOMK; I'OWER
of insurance. In group insurance there is no real price fixing at all,
so you have no liesitation in group insurance in saying it has led to
lower cost to the public.
Mr. Akmold. And you don't think that the price fixing in life insur-
ance has led to lower cost 'i
Mr. Beeks. Ordinary life insurance, oh, I don't know, we have per-
haps had less sulHcient rates or more sufficient rates, I can't say.
Mr. Aknold. In any event, it- has led to higher immediate costs,
liasn't it?
Mr. Beeks. No, sir; I don't think so.
Mr. Aknoij). There have been certain instances to which you have
testified with respect to one policy at least where it led to higher costs.
Mr. Beeks. That was only one instance in one agreement.
Mr. Aknold. But in that instance it did.
Mr. Beers. No, sir; that was an indivisible agreement.
Mr. Arnold. But you were induced to raise your rate; you so testi-
fied, didn't you?
Mr. Beehs. Yes; but it is not an example, I think.
Mr. Arnold. It is an example.
]\Ir, Beeks. No, sir.
j\Ir. Gesell, May I say, Mr. Cliairman and Mr. Arnold, we have
considered here only the first agreement among these tln-ee companies,
and this afternoon we will proceed to consider at least two other
agreements that have happened since 1933. Possibly that background
would be of some advantage to the committee.
Tlie Chairman. The subject has been a matter of sucli great interest
that we have stayed here almost an hour overtime. We appreciate
very much your patience, Mr. Beers, in responding to our questions.
The committee will stand in recess until 2: 30 this afternoon. Who
will be your first witness?
Mr. Gesell. I want Mr. Flynn to come back on the stand at that
time.
(Whereupon, at 12:55 p. m., a recess was taken until 2:30 ]). m. of
the same day.)
afternoon session
(The hearing Avas resumed at 2 : 40 p. m., upon the expiration of the
recess. Representative Reece in the chair.)
Acting Chairman Reece. Tlie committee will come to order, please.
Are you ready to proceed, JNIr. Gesell ?
Mr. Gesell. Yes;IanL
Mr. Reece. Will you call the first witness, please?
Mr. Gesell. Mr. Flynn, will you return to the stand, please, sir?
TESTIMONY OF B. D. FLYNN, VICE PRESIDENT AND ACTUARY,
TRAVELERS INSURANCE CO., HARTFORD, CONN.— Resumed
Mr, Gesell. Mr. Flynn, at tlie opening of the testimony this morn-
ing we had some discussion with respect to an exhibit entitled "Ex-
hibit of changes in surplus, ordinary nonparticipating business." ^
Since the recess, have you had an opportunity to examine tliat scliedule,
and are you now in a position to state that insofar as the figures with
respect to Travelers Insuraiice Co. are concerned, they are correct?
1 "Exhibit Xo. 'J<J2,' oee stipio., ^. ■! ^:jU,..i41ii>fciltlix, p. 4717.
CONCKNTUATrON OF ECONOMIC POWKR 4259
Mr. Flynn. They are correct.
Mr. Gesell. They are the figures shown in the annual statements
filed by the insurance companies with the insurance commissioners of
various States on the gain-and-loss exhibit for the nonparticipating
business ?
Mr. Flynn. Yes.
Mr. Gesell. Then I can state for the benefit of the committee
that we have reexamined these figures as to the other two companies
and again assert tliat they are correct, so I believe we have no differ-
ences on this schedule now, do we, Mr. Flynn?
Mr. Flynn. No.
Mr. Gesell. Wliile Mr. Beers was on the stand I read him a mem-
orandum daled November IG, 1932, from Mr. Hammond. I ask you
if yon recognize Mr. Hammond's initials on that memorandunL
Mr. Flynn. Yes; I do.
Mr. Geseix,. I wish to offer the memorandum, which has already
been read, for the record.
Acting Chairman Reece. It may be admitted.
(The memorandum referred to was marked "Exhibit No. G69'' and
is included in the appendix on p. 4722.)
Mr. Gesell. The three companies, Mr. Flynn, raised their rates on
April 1, 1933, did they not?
Mr. Flynn. Yes.
Mr. Gesell. Those rates were uniform?
Mr. Flynn. Yes.
Mr. Gesfxl. Now when did you next get together and raise rates?
Mr. Flynn. Tlie next rate change was January 1, 1935.
Mr. Gesell. You discussed that rate change as early as 1933, did
you not?
Mr. Flynn. I believe that is correct.
Mr. Gesell. First of all, I will ask you if you recognize this as
a memorandum that you prepared.
Mr. Flynn. Yes.
Mr. Gesell. This is a memorandum from you to Mr. Zacher, under
date of December 28, 1933, entitled "Re: Proposed new program of
life rates and values" [reading fi-om "Exhibit No. G70"] :
A meeting on the above subject of oflScials of the three local stock life
companies was held on Wednesday morning, December 27, at the Aetna.
Mr. Cammack proposed that the Travelers, Connecticut General, and Aetna
increase present life rates for all forms, excepting term, by changing the inter-
est basis from 4 to 3% percent. This would mean an increase upon the
average (for forms other than term) of approximately 21^ percent or 75
cents per thousand. The increase would be somewhat less for ordinary life
than the average and somewhat more for the higher premium forms.
Skipping some, your memorandum states :
You will recall that when life rates were under discussion last year, although
rates and values agreed upon were generally satisfactory to us, nevertheless, we
would have been glad to have even higher rates and lower values but could not
get the Aetna to concur at that time.
Mr. Laird said that the Connecticut General was not convinced that this move
would be a wise one at the present time and that they would like to wait at least
until the end of February before making a decision.
Then skipping still further in the memorandum, I want to call your
particular attention to this sentence [reading further] :
It was pointed out that recent mutual dividend reductions relieved the com-
. petitive situation somewhat and that the trend toward smaller policies means
4260 CONCENTRATION OF ECONOMIC POWER
that competition will be less of a consideration in the next few years, thus
indicating that the traffic might stand a rate increase.
What do you mean by that particular sentence in your memorandum,
Mr. Flynn, that "The traffic might stand a rate increase"?
Mr. Flynn. In life-insurance sales the competition of the net cost of
the participating companies and nonparticipating rates is very in-
tense, very important. If the participating companies were going to
reduce dividends at that time or soon afterward, the nonparticipating
companies could increase their rates if they felt they should be in-
creased, whereas if they didn't make a modification of the dividends,
we might not be able to effect the increase at that time because of
competitive reasons.
Mr. Gesell. In other words, you would continue to sell policies on
a basis which you didn't think was actuarially sound in order to com-
pete with the participating companies.
Mr. Flynn. We might have to delay our increase in rates and for-
sake some mild profits, or something of that kind.
Mr. Gesell. So when you say that you believe the competitive situ-
ation would permit a raise, that the traffic would stand -the rate in-
crease, you meant that you thought you could raise the rates which
would assure you of greater profits and which would insure the policy-
holders greater protection, without hurting your competitive position.
Mr. Flynn. That is it.
Mr. Gesell. Now, the last paragraph in the memorandum states
[reading further from "Exhibit No. 670"] :
The general question of changing the present life program was left with the
understanding that the Travelers and Connecticut General would study over the
matter further, discuss it among their company officials, and report at a later
meeting.
May I offer this memorandum for the record ?
Acting Chairman Reece. It may be admitted.
( The memorandum referred to was marked "Exhibit No. 670" and is
included in the appendix on p. 4722.)
Mr. Gesell. Do you recall a later meeting which was held with
respect, to this matter?
Mr. Flynn. I don't recall it offhand.
Mr. Gesell. May I show you this memorandum and ask you if you
recognize it as one which you prepared?
Mr. Flynn. Yes; I do.
Mr. Gesell. This memorandum is again from you to President
Zaclier, dated February 15, 1934, entitled "Re: Proposed new j)ro-
gram of life rates and values." ^ It states [reading from "Exhibit
No. 671"] :
Another meeting on the above subject of officials of the three local stock life
companies was held Wednesday morning, February 14, at the Aetna.
Then skipping a paragraph, it states:
Mr. Laird stated that it was the feeling of the Connecticut General at this
time that they would not go along with a program of increased rates and de-
cre' sed values. In any event, if they change their mind later, they would not
put the new program into effect before January 1, 1935. They felt that finan-
cial and business conditions had improved materially In the past 2 months ; that
the farm situation was improving, and good bonds could be purchased to net
4 percent or more.
» Subsequently introduced as "Exhibit No. 671" ; see appendix, p. 4723.
CONCENTRATION OF ECONOMIC POWER 4261
Laird felt that participating competition was si ill severe, citing that of New
England Mutual, Provident Mutual, Metropolitan, etc.; he thought that condi-
tions had improved suflSciently to permit nonparticipating agents to work out
the more advantageous competitive position that they would have against the
majority of participating companies during the next year or two.
The result of that conference was, then, that you were still not in
agreement on a new program for rate increase, is that correct ?
Mr. Fltnn. That is correct.
Mr. Gesell. Your company and the Aetna were willing to increase
rates.
Mr. Flynn. Yes.
Mr. Gesell. The Connecticut General was not willing to go along
with you.
Mr. Fltnn. Correct; at that time.
Mr. Gesell. Why didn't you just raise rates?
Mr. Fltnn. Because we wanted to act in harmony, the three of us.
Mr. Gesell. Why?
Mr. Fltnn. Because to gain that advantage of joint knowledge and
not have a break-up of the original arrangement.
Mr. Gesell. What do you mean, advantage of joint knowledge?
You had the knowledge; you could go ahead and raise the rates after
you had the knowledge, even though you didn't all agree.
Mr. Fltnn. We didn't have a consensus of opinion that we had
before.
Mr. Gesell. You mean now you only had a 66% percent vote in
favor of increasing rates and therefore you weren't going to do it.
Mr. Fltnn. We weren't going to do it at that time. We preferred
to delay it.
Mr. Gesell, Your company thought it should raise rates, didn't it?
Mr. Flynn. Well, we would like to. We didn't make it impera-
tive. That really is less than a year after the preceding change,
which is rather frequent change.
Mr. Gesell. This memorandum indicates clearly that your com-
pany and the Aetna agreed there should be a rate increase.
Mr. Fltnn. We thought the investment situation would take care
of it and it did not. The investment situation was improving, but
we preferred to have the consensus of opinion of the three companies.
Mr. Gesell. You say the consensus of opinion of the three. What
you really mean is that you were afraid if you didn't have the con-
sensus of the opinion, the Connecticut General would be able to take
away business from you because it was selling at a lower rate. Is that
what you mean?
Mr. Fltnn. Not exactly. If we had agreed on the change of rates
at that time, the Aetna and the Travelers, it would probably have
bt -^n 6 months before we could get the new manual out.
Mr. Gesell. At any event, if you could have agreed, you would
have put the program into effect. Why didn't you do it?
Mr. Fltnn. Because we thought it was better judgment to wait.
It wasn't an urgent matter. It was a matter of opinion. We pre-
ferred to wait.
Mr. Gesell. Until you could get uniformity and complete unanim-
ity of agreement.
Mr. Fltnn. That is it.
Mr. Gesell. I wish to offer this memorandum for the record.
4262 CONCENTRATION OF ECONOMIC POWER
Acting Chairman Reece. It may be admitted.
(The memorandum referred to was marked "Exhibit No. 671" and
is incruded in the appendix on p. 4723.)
Mr. Gesell. Now the big thing that worried the Connecticut Gen-
eral in this situation was, was it not, that certain policies of the
Provident and of the Metropolitan and of the Prudential were being
sold at a gross premium which was so low that the nonparticipating
policies of the Connecticut General could not compete with them if
this new rate increase went into effect. Is that not so ?
Mr. Flynn. I am not certain of the date.
Mr. Gesell. May I call that memorandum to your attention?
Mr. Flynn. That is the proposed scale of rates that we were dis-
cussing at that time.
Mr. Gesell. Was it not a fact that the Connecticut General did not
want to go along with those rates because it was fearful of the com-
petition which it would receive from the Metropolitan, the Pruden-
tial, and the Provident Mutual?
Mr. Flynn. Right.
Mr. Gesell. This memorandum refers to another meeting of the
tAvo stock companies held February 27, 1934, and states [reading from
"Exhibit No. 672"] :
Although the Connecticut General were not prepared at this time to offer any
further encouragement as to finally going along with the Aetna-Travelers' pro-
gram, they were agreeable to go ahead with us in the preparation of rates,
leaving their decision with regard to preparation of values until after tl\^
senior actuaries meeting, March 2. After further discussion of the new program
as affecting various forms, it was decided to call a conference with .those par-
ticipating companies whose gross rates in our opinion should he increased, par-
ticularly at the older ages.
A meeting has been called of the Metropolitan, Prudential, and Provident
Mutual, with the three local companies in New York for March 2. In conversa-
tion with Mr. Craig of the Metropolitan over the phone, it was apparent that
the New York companies are ready to report rather definitely in regard to what
can be expected in the way of decreased surrender values. It was also ap-
parent from conversation with others that these companies are in a mood to
consider modification of gross rates, particularly at the older ages.
Now what did you mean, in this memorandum, Mr. Flynn, when
you said that it was decided to call a conference with those participat-
ing companies whose gross rates, "in our opinion should be increased" ?
Do I gather that you even tell your competitors when they should
increase their rates?
Mr. Flynn. We don't tell them, we try to persuade them.
Mr. Gesell. In the interest of increased competition?
Mr. Flynn. No; in the interest of good actuarial Avork.
Mr. Gesell. In other words, here you are actually going to the
extent, you nonparticipating companies, of approaching your prin-
cipal participating company competitors in an effort to get them to
increase their rates, were you not?
Mr. Flynn. Correct.
Mr. Geseli^. I wish to offer this memorandum for the record. It
is dated February 27, 1934.
Acting Chairman Reege. It may be admitted.
(The memorandum referred to was marked "Exhibit No. 672" and
is included in the appendix on p. 4724.)
Mr. Gesell. Such a conference was held, was it not?
CONCENTRATION OF ECONOMIC POWER 4263
Mr. Flynn. Yes.
Mr. Gesell. Do you recognize this memorandum wliich I show you
as a memorandum of that conference ?
Mr. Flynn. Yes ; that is correct.
Mr. Gesell. Who called that meeting?
Mr. Flynn. I can't recall.
Mr. Gesell. Did the nonparticipating companies call it or did the
participating companies call it?
Mr. Flynn. I can't say. I didn't read that memorandum.
Mr. Gesell. Let me read the memorandum to you and see if it
refreshes your recollection. It is again a memorandum from you
to Mr. Zacher, dated March 7, 1934, and it is entitled "Re: Proposed
New Program of Life Rates and Values — Conference with Metro-
politan, Prudential, and Provident Mutual" ^ [reading from "Exhibit
No. 675"] :
Officials of the three local nonparticipating companies met with officials of
the Metropolitan, Prudential, and Provident Mutual in New York, March 2.
Each of the three companies last named has a special contract with initial
gross rates lower than our proposed nonparticipating premiums. The Pru-
dential's "Modified 3" and the Provident's "Protector" (Modified 2) carry ma-
terially lower gross rates at all ages than our proposed nonpar premiums and
the Metropolitan's "Special Ordinary Life" at age 45 and above.' (The Phoenix
Mutual has a low premium form but no one seemed to be fearful of that
company's competition.)
Are you following me so far, Mr. Flynn ? It goes on to state :
All factors bearing upon the cost of life insurance were thoroughly discussed,
particularly the probable future rate of interest. Somewhat to our surprise, we
learned that the Prudential are seriously considering an increase in rates and
reduction in values. Mr. Little, of the Prudential, stated they would probably
change their rates by substituting 3 for Sy^ percent in the formula. He was
going to arrange his rates so that the company could get by on a rate of
interest as low aa 2y2 percent — if dividends were omitted. Mr. Craig, of the
Metropolitan, had been considering changes, but his statements vpere much less
definite. He expected to talk with Mr. Ecker this week and in the course of 10
days would have more definite information to report. The Metropolitan, how-
ever, will undoubtedly decide to increase its rates and decrease its surrender
values soon. Both the Prudential and Metropolitan thought that they could not
prepare their manuals so that the change could be effective before January
1, 1935.
Mr. Linton, of the Provident Mutual, was away but sent Yice President
Marshall, who stated that while he could not •commit his company his personal
feeling was that their rates would be increased, including a complete revision
and increase in the "protector" policy premiums.
Then you go on to discuss the opinions of some of the other niiin
jiresent, and state toward the end of the memorandum [reading fur-
ther from "Exhibit No. 675"] :
Mr. Craig stated ttat the Mutual Life and New York Life were willing to
follow the Prudential. Metropolitan, and others in a reduction in surrender
values, but that the Equitable was standing out for very slight changes. Mr.
Little stated that Mr. Duffield would endeavor to see Mr. Parkinson some time
this week and try to get the Equitable to be more cooperative. It was felt that
if the Equitable did not come along, the New York Life would also decline to
make a change.
It is probable that in the course of two weeks, we shall hear more definitely
from the Metropolitan — and possibly from the Provident.
1 Subsequently entered as "Exhibit No. 675," infra, p. 4728.
124491 — ^10— pt. 10 9
4264 CONCENTRATION OF ECONOMIC POWER
Is that the way yon meet with your competitors to iron out the
differences between you with respect to rates?
Mr. Fltnn. I think, Mr. Gesell, that is more nearly a meeting of
actuaries, professional men interested in their work, and it has that
guise really rather than competing companies.
Mr. Gesell. You mean this is sort of like the Harvard- Yale foot-
ball teams going out to a dance together after a big game ?
Mr. Flynn. I would think so. Actuaries meet quite often to dis-
cuss professional problems.
Mr, Gesell. Really you were not only actuaries, you were officials
of your companies, you were meeting and discussing mutual prob-
lems and reaching decisions, were you not ?
Mr. Flynn. I don't know that we reached decisions; we tried to
persuade one another and argue matters out.
Mr. Henderson. Mr. Flynn, Mr. Craig expected to talk with Mr.
Ecker and somebody expected to talk with Mr. Duffield, and Mr.
Linton sent Vice President Marshall, who could not commit his com-
pany, but his personal feeling was that their rates would be increased.
Now, Ecker, Duffield, and Lmton are not the actuaries of their com-
panies but the chief executives, are they not?
Mr. Flynn. That is right.
Mr. Henderson. So there was something more than a professional
actuarial meeting.
Mr. Flynn. It was something more than that. It was — to crystal-
lize the opinions of the advisory staff — was the main thing.
Mr. Henderson. And they were in pretty close conjunction with the
executive officers who had been thinking about this problem also.
Mr. Flynn. I think the executive officers had considerable weight.
Mr. Gesell. And what you were anxious to accomplish was, was
it not, a desire on your part to get an agreement from these three
low-gross-rate participating companies to raise rates which would
enable you to get the Connecticut General to come into line with the
Aetna -Travelers program for nonparticipating rate increase?
Mr. Flynn. I think that is pretty nearly true. I will repeat what
I said this morning, that all actuaries at that time, along in 1934, were
fearful of the future rate of interest, and very anxious to get onto a
more conservative basis, and I think it was that urge as much as
anything else rather than simply to raise rates and to get companies
in line, which compelled us all to get together.
Mr. Gesell. As an actual matter what happened was, was it not,
that your coiv'-^nj, the Travelers, the Connecticut General, the
Aetna, the Metropolitan, the Prudential, the Provident Mutual, the
six companies present at this conference, all announced the rate in-
crease simultaneously on January 1, 1935 ?
Mr. Flynn. I really can't say about the three participating com-
panies, but the three nonparticipating did.
Mr. Arnold. You don't seriously contend, do you, that this wasn't
a somewhat informal method of fixing rates ?
Mr. Flynn. No; I won't say that it was not an informal effort to
persuade the actuaries of the companies to look at it in the same way.
Mr. Henderson. This line of the actuary as a professional and
technical man and the line of the actuary as an operating officer of
the company come together at times, don't they ?
CONCENTRATION OF ECONOAJIC POWER 4265
Mr. Flynn, Periodically they meet; they are all members of the
actuarial society.
Mr. Henderson. My point is that where he has a status, as it has
sometimes been called, of a digit hound, or is strictly concerned with
figures, and where he comes into action as an executive in determining
policy, sometimes those two functions which a single man like yourself
performs run together and the line gets a little confused. You can't
distinguish which is the policymaking director and which is the
actuary.
Mr. Flynn. That is quite correct.
Mr. Gesell. I would like to call your attention, Mr. Flynn, to the
National Underwriter, Life-Insurance Edition, of December 21, 1934.
I think you will notice on that page the announcement of the rate
increases of all three of the companies that you did not recall — the
Provident, the Metropolitan, and the Prudential. Does that not re-
fresh your recollection as to the rate increases thg,t simultaneously
were those of the nonparticipating companies ?
Mr. Flynn. The Prudential, Metropolitan, January 1, apparently,
and the Provident Mutual, March 1.
Mr. Gesell. And what is the date the three Hartford companies
increased ?
Mr. Flynn. January 1, 1935.
Mr. Chairman, I would like to make this point : That the three par-
ticipating companies were raising their gross rates, not their net rates ;
■the nonparticipating companies were raising their net guaranteed
rates; but the participating companies were only raising their gross,
initial rate, you might call it.
Mr. Gesell. But we have already considered here, have we not,
Mr. Flynn, the fact that the Connecticut General was concerned by
reason of the fact that its nonparticipating rates were higher in some
cases than the gross participating rates of the participating companies ?
As a result, they would obviously not be able to sell any insurance if
they tried to sell a nonparticipating policy which had a higher gross
rate than the gross participating policies of these large participat-
ing companies.
Mr. Flynn. That is correct, Mr. Gesell ; but I think they were afraid
of the proposed nonparticipating rate rather than the current non-
participating rate.
Mr. Gesell. Yes; the proposed rate would have that result, unless
you could get these participating companies to jack up their rates, too.
Mr. Flynn. Yes.
Mr. Henderson. You don't mean they wouldn't be able to sell any.
You mean that their competitive position would be jeopardized.
Mr. Gesell. Well, it would be a very serious position.
Mr. Henderson. A serious jeopardy, but it doesn't mean their busi-
ness would be completely terminated.
Mr. Gesell. No; they would have a difficult competitive situation,
would they not ?
Mr. Flynn. Yes; a difficult competitive position with those com-
panies.
Mr. Henderson. I want to keep my position that insurance is not
always sold on the basis of cost. I psk you to protect that once in a
while.
4206 CONCENTRATION OF ECONOIMIC TOWER
Mr. Gesell. These are all gross rates.
Mr. Flyim, may I ask you to step down from the stand ? I want to
call Mr. Howell for a montent, if the committee agrees.
Actmg Chairman Reece. Do you solemnly swear that the testimony
you are about to giye in this proceeding will be the ruth, the whole
truth, and nothing but the truth, so help you God?
Mr. Howell. I do.
TESTIMONY OF VALENTINE HOWELL, VICE PRESIDENT AND
ACTUARY, PRUDENTIAL INSURANCE CO. OF AMERICA, NEWARK,
N. J.
Mr. Gesell. What is your full name, please, sir?
Mr. Howell. Valentine Howell.
Mr. Gesell. You are associated with the Prudential Insurance Co.,
are you not?
Mr. Howell. Yes; I am vice president and actuary of Prudential.
Mr. Gesell. You have heard the testimony of the last witness, have
you not?
Mr. Howell. I have.
Mr. Gesell. Are you familiar with the facts and circumstances sur-
rounding the rate increases announced by your company, the Provi-
dent, and the Metropolitan in the first of 1935?
Mr. Howell. In a general way I am.
Mr. Gesell. Will you tell us what your recollection in respect to
that is, please?
Mr. Howell. About in the fall 6f 1933 the Prudential actuaries came
to the conclusion that our gross premiumrates w^ere too low for safety.
We at that time had rates computed on the 3i/^-percent basis. We
made some computations in the fall of the year on a 3i/4-percent basis
and were interrupted by the year end. In the following March
Mr. Little attended this conference of which Mr. Flynn spoke.
Mr. Gesell. Mr. Little was your superior; was he not?
Mr. Howtell. Yes ; he was at that time vice president and actuary of
the company and I was associate actuary.
Mr. Gesell. He is now deceased ?
Mr. Howell. Yes; that is correct — and he made a summary or a
memorandum summarizing the proceedings at that meeting.
Mr. Gesell. Do you recognize this memorandum as the memoran-
dum which he prepared at that time and that is his signature ? ^
Mr. Howell. I do.
Mr. Gesell. Following that conference and subsequent conferences
which the three companies held, there was an agreement for raising
of ordinary premium rates, was there not?
Mr. HowTLL. We had determined upon an increase of ordinary
premium rates and such an agreement was an aid to the fact.
Mr. Gesell. What was the net result of those increases so far as your
tliree participating companies were concerned? Were they more or
less in line with each other and on a uniform basis ?
Mr. Howell. They were more or less in line with each other. They
were not on a uniform basis. I am not quite sure what you mean by
that term.
' Sul)sequently entererl as "Kxhiblt No. C7.'?,'* see api>oiH]ix, p. 472"
CONCENTTtATION OF ECONOMIC I'OWER 42G7
Mr. Gesell. I had in mind a luemoraiKliim wliicli appears to have
been written by 3'ou under date of June 12, 1934/ tlie hist paragraph
in. which you state, after referring to the meeting [reading from "Ex-
hibit No. 674"J :
The rales described above are believed to be reasonably consistent with those
tentatively decided upon by the Metropolitau and Provident Mutual.
Mr. Howell. Yes; that is a correct statement.
Mr. Geskll. In other words, the rates of the three companies fol-
lowing this rate increase were more or less in line with each other
were they not?
Ml". Howell. Yes.
Mr. Henderson. That was arri\'ed at by general agreement, was it
not ?
Mr. Howell. I don't recall that we made any modification of our
rates, of our ideas, after the meeting. Of course, I was not present
at this meeting and the n.ieeting occurred 5 or more years ago.
Mr. Henderson. My point was there was a general agreement be-
tween those companies. Will you read the language again?
Mr. Gesell. This is your memorandum?
Mr. Howell. Yes; that is my memorandum.
Mr. Gesell. Tliat memorandum states [reading from ''Exhibit No.
674"] :
The rates described above are believed to be reasonably consistent with those
tentatively decided upon by the Metropolitau and Provident Mutual.
Mr, Howell. Yes; and we were interested in seeing that other
companies in their rate increases were reasonably consistent with
our own for competitive reasons.
Mr. Gesell. Your final decision grew out of perhaps two or three
conferences which were lield from the time of this first six-company
conference of March 2, 1934, until the rates were finally announced in
1935.
Mr. Howell. Tliat is possible, Mr. Gesell.
Mr. Gesell. Were there any other factors which prompted your
three companies in raising the rates at this time?
Mr. Howell. I think the reasons that lay behind our increases in
rates so far as the Prudential is conperned are very ably set forth in
this memorandum to which you have referred. I suggest you read
it if you care to.
Mr. Gesell. With respect to that memorandum which discusses
at considerable length expected interest rates and some other techni-
cal matters, I w^as particularly interested in this portion of the
memorandum. It states [reading from "Exhibit No. 673"] :
Up to the time of the depression the three large nonparticipating companies
domiciled in Hartford had enjoyed very large annual earnings and seemed to
be well provided against contingencies. The severe losses of the depression have
sharply reduced the surpluses of these companies, and the fall which has
already taken place in the interest rate has reduced the normal annual margin
very substantially. In the opinion of the two larger companies which raised
their rates at certain ages about a year ago, the necessity for a further
increase in premiums has become quite acute. They are, however, very much
hampered in the matter of premium rates by the fact that the premiums of
the three participating companies referred to are so low tiiat a moderate in-
crease in the nonparticipating rates would bring them very close to the par-
> Entered later as "E.xhibit No. G74," see appendix, p. 4727.
4268 CONCENTRATION OF ECONOMIC POWER
ticipatiug rates of the companies mentioned, and at some ages even abtve these
rates. From the point of view of this and the other participating ctmpanies
concerned, therefore, we are in the position, by reason of our ijresent premium
rates, of holding down the rates of the nonparticipatiug companies. If insutli-
cient rates should eventually result in the wrecking of these great uonpartici-
pating companies, a very severe blow would be given to the life-insurance busi-
ness, so that, for our own protection, it is desirable that our gross rates should
not be so low as to make it difficult for the nonparticipatiug companies to
increase their premiums to rates which shall be adequate and still appear less
to a reasonable extent than the rates of any responsible participating company.
Do I understand from that memorandum that there was any con-
cern among the three participating companies that the tliree non-
participating companies were in serious financial difficulties?
Mr. Howell. I don't know that I have much to add to the wording
of the memorandum, Mr. Gesell. It seems to speak for itself.
Mr. Gesell. Quite the contrary, it is true that companies were de-
claring dividends, were they not, and according to the schedule we
have in the record, during the year 1934, all three of the companies
had made money in the operation of their nonparticipatiug depart-
ments.
Mr. Howell. I think, Mr. Gesell, in looking at current earnings only
you are overlooking a very serious additional factor, and that is the
fut'jre. In other words, at that time, or during the current year in
1933, there was a vast reservoir of investments on the nonparticipating
company books at interest rates that were available some years ago
when those investments had been made, and which were no longer
available. Mr. Little was looking forward, if you will recall this
in the memorandum, where he speaks of what to him seems to be a
decided probability of very low interest rates extending over a very
long period. Now, it might well be that in 1933, the cash position, so
to speak, would be a proper basis, and yet these rates were being guar-
anteed for long periods in the future, and I think he was decidedly
worried about that phase of the situation.
Mr. Gesell. You mean over a great number of years, maybe as
many as 30 or 40, the companies might under certain circumstances
which wei:f^n't certain to occur, get into some degree of financial
difficulty.
Mr. Howell. Yes.
Mr. Gesell. Why should that be a factor, Mr. Howell, in a deter-
mination made by three participating companies with respect to what
rates they should charge? That is the nonparticipating companies'
problem, is it not ?
Mr. Howell. Don't you think the memorandum itself sets forth why
that is a factor? If there had been a*iiy large and important failures
in the life-insurance business, whether participating or nonparticipat-
ing companies, we ail would have felt the resulting resentment in
public opinion. I think that is a very serious factor. We had no
desire to have trouble.
Mr. Gesell. Isn't that the excuse that is quite customarily made
whenever people get together to fix rates — that if they don't have some
bottom to their rates there is going to be somebody who is going to
get hurt and the whole business is going to be hurt ?
Mr. HowTELL. I don't know whether that is customarily made, but
r am certain that Mr. Little was very sincere in taking this position,
and I, for one, agree with him. ,
(JONCJENTRATION OF ECONOMIC POWER 4269
Mr. Arnold. I can assure you that is the excuse tliat is always made.
I don't doubt his sincerity," and the effect of the thing, I take it, is
that you wanted to hold an umbrella over the less eflGicient companies
in the business, even although that involved raising your rates more
than was necessary, and even though that involved an additional
expense to the people who were taking out insurance.
Mr. Howell. May I interrupt to say we did not raise our own rates,
in our opinion, one cent more than was necessary. This factor Mr.
liittle speaks of, and the memorandum so states, was a minor factor.
We had previously started our calculation looking toward rate in-
crease. I think, if you have not read Mr. Little's memorandum in its
entirety,^ you perhaps get a wrong impression of the conclusions he
was drawing from it. 1 know that your time is short, but I suggest
Mr. Gesell read it all. It would be very helpful.
Mr. Arnold. May I state I do not doubt, as in all price-fixing agree-
ments, the parties believed that from the point of view of maintaining
all the units on an even keel the raise was necessary.
Mr. Howell. In the first place, it wasn't an agreement, sir ; but once
again we were not primarily motivated by this question of what was
happening to the nonparticipating company ; we were primarily moti-
vated by what was ^oing to happen to ourselves. We knew that
interest rates were going to be low ; we didn't know they would be as
low as they tui'ned out to be later. We thought our rates were too
low to give us a necessary safety margin. We knew further, as a
participating company, that, had the rates been increased too much,
we would simply have increased policy dividends. We knew we were
doing the insured public no injustice and we needed the additional
safety factor.
Mr. Arnold. The thing I am directing my question to relates not to
your own belief that the increase was necessary, but to your belief
that a certain informal or formal concerted action was necessary.
Now, the effect of agi-eements like this of course is to eliminate the
daring competitor, isn't it?
Mr. Howell. But I can't follow you that there was an agreement.
As far as that was concerned, we needed to increase our rates. Other
companies, presumably, needed to increase theirs, but we couldn't
choose a different date to do something else to stay away from the
appearance
Mr, Arnold (interposing). Let me delete the word "agreement" and
say getting together. There was a getting together.
Mr. Howell. There was certainly a getting together.
Mr. Arnold. And a getting together which tended to eliminate the
competitive factors in the industry.
Ml*. Howell. I differ from that. I see no compulsion we could have
exercised on any of those companies to make any difference in what
they did. We wanted them to come along, and they independently,
apparently, wanted to come along, but we had no means of making
them do anything they didn't want to do.
Mr. Arnold. The getting together, I do not suggest, was made under
compulsion, but it is a getting together and it does have that effect
upon competitive factors.
' See "Eibibit No. 67ri," api)endix, p. 4725.
4270 CONCENTRATION OF ECONOMIC POWER
Now, may I ask you, just for the purpose of the record, whether you
considered in getting together for this purpose such things as anti-
trust laws, or was that not considered at all ?
Mr, Howell. In our case it wasn't considered at all, because we felt
there was absolutely no question on our part. We needed the rate
increase.
Mr. Arnold. First, you needed the rate increase.
Mr. Howell. That should not be forgotten.
Mr. Arnold. And, second, you needed the getting together.
Mr. Howell. To a much more minor extent.
Mr. Arnold. Because the getting together avoided the competitive
disadvantages which might otherwise have followed from the rate
increase.
Mr. Howell. Well, you see, in the case of a participating company,
particularl}'^, it is true that we would rather have our competitors raise
rates when we do, but in the participating field the rate charges are not
of primary importance. A number of large, prosperous participating
companies now charge substantially higher rates than we charged after
this increase. There are various groups of participating premium
rates, do you see? I am quite prepared to admit that a change, an
increase in premium rates in itself, may have had some effect on
competition, but as long as you keep in mind that the rate was par-
ticipating you can see that was a minor influence.
Mr. Gesell. There must have been some desire for uniformity or
you wouldn't have met.
Mr. Howell. That is certainly true, and it is an influence, but a
minor one.
Mr. Arnold. It justifies a paragraph which indicates a fear in your
mind that if there was a getting together it might have disastrous
effects on the Hartford companies.
Mr. Howell. Yes; I think that expresses our views very well,
and still does.
Mr. Arnold. So I wonder if you can say in view of the rather
strong language of that paragraph that that really was a minor
consideration.
Mr. Howell. I think I still would say it was a minor factor.
Mr. Henderson. The memorandum says [reading from "Exhibit
No. 673"] :
An additional and quite important factor lias entered into it.
Mr. HowELii. But it was additional.
Mr. Henderson. But you are now subjecting it to the test that
it js a minor matter; as against a quite important factor it is now a
minor matter. Mr. Morris says it is a quite important factor.
Mr. Howell. Mr. Little said.
Mr. Henderson, i mean Mr. Little.
Mr. Howell. I quite agree it was important but relatively I am
trying to say it was minor.
Mr. Henderson. But not a minor mat ter.
Mr. Howell. No; of course it wasn't. I don't wish to leave the
im.plication that tliis was something that occurred to us and \vas
dismissed. It was important yes.
Mr Henderson. It was important.
CONCENTRATION OF ECONOMIC POWER 4271
Mr. Howell. But relatively it was far more important for us to
have sufficient rates, do you see?
Mr. Henderson. It is certainly always important to a competitor
to have sufficient rates.
Do you mind if I finish the sentence?
Mr. Howell. Not at all.
Mr. Henderson. It is always quite important to any competitor to
have sufficient rates, isn't it?
Mr. Howell. Why, of course.
Mr. Henderson. It is much more important to a competitor to
have rates sufficient for him to cover his costs and lo make a profit
than it is to hold an umbrella over the rest of the industry, so that
they can win also. I am willini; to accept that distinction.
Mr. HowEiJj. I think I started to say, aiul I think it is important
enough to volunteer it, that we would have raised our rates in any
event, without respect to what action the other people took. As a
matter of fact, 4 years later, last December, we raised our rates
again. We were interested in getting other people to go along with
us but they didn't go, and we nevertheless made the increase in
rates. I am trying to give you the idea of the relative importance to
us of the increase.
Mr. Gesell. One thing that prompts the question of the committee,
I am silre, is the fact that in the early days of these hearings this ques-
tion came up in the testimony of both JSIr. Ecker and Mr. Buckner.
You will recall Mr. Ecker stated on February 7, 1939, on page 46 of
tlie transcript:^
Competition compels the stock companies to come pretty close to meeting the
cost of insurance issued by the mutual companies.
and Mr. Buckner, chairman of the board of the New York Life, later
stated, on February 15, page 146 in the record : -
The mutual life-insurance companies are the factor that keep down the costs
on stock companies as well as the mutual companies. In other words, they are
the bulwark. Stock companies have to meet the issue or go out of business.
It seems to me here we have just the opposite fact clearly established
on the record, that the mutual companies, the participating companies,
were raising their rates, and one of the factors involved Avas the very
factor of preventing any harm coming to the nonparticipating com-
panies.
Mr. I^owell. I think you will find upon analysis or a rereading of
that testimony that Mr. Ecker was referring to the net cost of the
participating companies, which is a diii'erent thing entirely from the
rates, obviously. In other words, we have a modified-3 policy with a
low initial rate, but with a provision, for an increase in rate after 3
years, which is, and should be, offset by dividends.
But if our dividends, our earnings, are sufficient, it may be we will
more than offset it by dividends, and it is the net cost that counts in
the long run.
Mr. Gesell. You just heard Mr. Flynn testify that the Connecticut
General wouldn't go along unless the participating companies raised
their rates, and the result of the raise of the rates to the participating
^ See HearinKS, Part IV, p. 1246.
" Ibid., p. 1423.
4272 CONClONTKATKrN <>l'^ KCON'O.MK^ POWl'Ml
companies was to enable Uie iHinpaiLicipatiiig canipaiiies to piil an
entirely new rate program into elt'ect at a higher rate.
Mr. Howell. But the point I am making is, Mr. Gesell, that it was
incidental with us, and I think you will find wnth other companies.
Mr. Arnold. You would admit that where companies do get together
in this fashion almost inev-itably the tendency is to adopt tlie policy of
"get along together" and raising of rates.
Mr. Howell. I wouldn't be prepared to admit that^ unless the indi-
vidual companies felt the increase was necessary.
Mr. Arnold. Do you know of a meeting to lower rates ?
Mr. Howell. I don't think there has been any occasion to lower
rates within the past 10 years, since 1929. Before that I was not of an
age where I would know much about it.
Mr. Arnold. I was merely suggesting that experience generally in
industries where the members do get together on formal or informal
price fixing results always in meetings to raise rates, and within the
last 10 years not in meetings to lower rates.
Mr. Howell. I submit to you that when it is a question of lowering
rates, it isn't necessary to get together.
Mr. Arnold. That is exactly what I was saying. The tendency of
getting together is always to raise them.
Mr. Henderson. I want to return to something which I feel is very
important. I think Mr. Howell is trying to make a distinction here
which is an important one, and certainly important to this committee.
He is trying to make this distinction, that the live-and-let-live policy is
one part referred to in this memorandum and is of lesser or minor
importance than the necessitj^ vi hich the Prudential had for covering
its costs.
Now, this conmiittee, as I see it, is tremendously interested in the
relation between costs and prices. In the resolution which created
the connnittee,^ and in the message of the President which gave rise
to the creation of this committee,^ there was a tremendous emphasis
on the matter of prices and their relation to costs, the setting aside of
competitive arrangements, and the entering into aoreements on uni-
form prices. I know of no subject that the committee staff has ad-
dressed itself to with more time and attention than the relation
between costs and prices.
We haven't adduced that information in public hearing, up to tlie
present time, but the technical staffs of several departments are at
work. For example, we have an extensive study in the Procurement
Division of the Treasury, in which we have covered for the first time
a very large sample of the prices at which the Govenmient buys,
what is the nature of the identity of price, how important it bulks,
and in which industries it bulks. At the same time, the Department
of Labor and the Bureau of Labor Statistics, which is the residual
place where prices are tabulated, have had going for upward of 9
months now a study of prices, and prices in relation to costs.
The Federal Trade Commission has given considerable attention
to cost studies. We have drawn on the Tariff Commission, also, so
we are interested in prices and in costs and are taking up a number
of individual industries.
1 Public Res. No. 11."^, see "Exhibit No. 2," Iloarins^s, l':irt I, ap])f>n(li-v. i>. 102.
■See 'Inhibit No. I,"' Heortiins, I'art I, appcndi.x. p. 185.
CONCENTRATION OF ECONOMIC POWER 4273
I don't want to fjet into any feeling, Mr. Howell, on your part,
that we are not interested in this very necessary effort on your part to
make your rates cover your costs in order that your companies mi<Tht
live. I do hope that in your testimony you will undertake to have
regard for the fact that it would be pretty difficult, except over a
long period, as you have suggested, for any company to be destroyed
by a failure to cover costs by a small amount, because the mortalily
])art of any insurance charge, as was developed this morning, is an
extraordinarily large part of it, so that there is that minimization
of risk.
On the other hand, although the committee is essentially and
l)asically interested in costs and prices, we have continuously this
(luestiou of the areas in which the ordinary concepts of the American
public, upon which our traditional laws are based, have assumed no
setting aside of competition and no consideration of a live-and-let-
live policy, and we are decidedly interested in this relatively new
phenomenon as it begins to appear in recent years in your own in-
dustry.
I just wanted to make that distinction here.
Mr. Howell. If you will let me make just one comment in that
connection, I think it would be useful to bear in mind that a life-
insurance contract is a continuing contract. I imagine most of the
other commodities whose prices you have studied deal with transac-
tions over and done with. Unfortunately in a life-insurance contract
we have to estimate, and let me say that rate-fixing is not an exact
science. You probably realize by this time it can't be.
Mr. Henderson. We are beginning, despite some of the testimony.
<o recognize that.
Mr. Ho^vELL. And, therefore, we are in a very unfortunate position
if we fix a rate that must roll on into the years and find that that
rate isn't adequate. That does strike me as being an important factor
for your consideration.
Mr. Henderson. We are interested in that because, as you say, a
price that is fixed usually has to do with one contract and then it is
terminated. But, on the other hand, just as you emphasize the
continuing nature of your service, the amount of money which is
expended from the ordinary family income for insurance bulks very,
very larg-e, and so everything which has to do with rate-fixing, or
price-fixmg, affects a large part of the expenditures, and therefore
becomes increasingly important.
Mr. Ho^\^LL. I quite agree.
Mr. Arnold. Would you take the position, assuming that uniform
rates must be fixed by companies (make that assumption for the
moment), that it should be done without the participation of some
public regulatory body?
Mr. Howell. It has always seemed to me that we have fairly
active regulatory bodies in the State insurance departments. I
don't know; it was long before my time, but my impression is that
the Hughes' investigation, for example, was very largely concerned
with the results of undisciplined competition. I may be wrong on
that. I would like to be set right.
Mr. Arnold. I was making the assumption, for the moment, that
undisciplined competition sh^ould be eliminated, which I take it is
your own assumption.
4274 (CONCENTRATION OF ECONOMIC POWER
Mr. Howell. I would certainly say that competition should not be
eliminated in toto in the life-insurance business.
Mr. Arnold. But in respect to rates I was assuming that you be-
lieved that either formally or informally there should be concerted
action.
I take that to be your belief.
Mr. Howell. Yes; I think so.
Mr. Arnold. In the light of that belief, may I ask you whether
you think that such concerted action ought not to be supervised
by some rate-making body ?
Mr. Howell. Well, I think that the important — now let me con-
fine myself for the moment to participating life insurance.
Mr. "Arnold. All right, participating life.
Mr. Howell. The initial rate charge is important, but the cost
to the policyholder obviously is the amount he pays less the dividends
returned to him year after year, so the initial rate is not — whether
that is fixed or whether as "at present it varies from one company
to another — I don't think it is of primary importance. The net cost
results inevitably in competition and differs with each company —
has to differ.
Mr. Arnold. To have this power to fix the rate in private hands
without public supervision is the way you would have it?
Mr. Howell. Yes.
Mr. Arnold. May I ask another stock question which I have asked
many other witnesses. You wouldn't apply that to any other busi-
ness than inurauce? You Mouldn't apply that to public utilities,
would you?
Mr. HowEix. You are asking me something about which I know
very little. I wouldu't say wliether there was
Mr. Arnold (interposing). If you had to vote on abolishing the
Interstate Commerce Conimission, you wouldn't vote to abolish it?
Mr. Howell. No; that is right.
Mr. Arnold. Therefore, you must have a feeling that somehow you
are different than railroad executives.
Mr. Howell. Well, I have a feeling that we are already supervised
very extensively, and I frankly fail to see the necessity for any
further supervision.
Mr. Gesell. May I ask just in that connection one question, and
then I am through, Mr. Howell. Do you know of any case where,
when the companies have gotten together on a uniform rate program,
they have invited the insurance commissioners of all the States in
which they sell insurance to come and m6et with them in a meeting,
including those States which have rather vigorous antitrust laws
against life-insurance activities and activities of that character, ex-
plained to those people just exactly what they' are doing and when
they are getting together and what decisions are prompting them to
reach this uniform program? Have yon ever heard of that
happening?
Mr. HowEi-L. No, I haven't.
Mr. Gesell. So when you saj" that the State superintendents of
insurance regulate you, you are talking about regulation in fields
other than the field of rate-fixing, aren't you ?
Mr. HowEiJi. My impression is that the superintendents have — at
least the State actuaries have — quite ample knowledge of our rates.
Am I correct? May I ask my co'.nsel?
CONCKNTKATION OF ECONOMIC TOWEll 4275
Mr. GESELii. Yes.
Mr. HowEix. Am I correct in a number of States we file our rates?
1 am quite certain that we did in the State of Washington, for exam-
ple. We file them as a matter of information.
Mr. Henderson. But you don't file evidence of concerted action.
Mr. Howell.- Not because we are concealing it, particularly.
Mr. Henderson. You differ in that from a previous witness, don't
you?
Mr. Howell. Well, of course, once again I get back to the belief
that we don't have concerted action except incidentally, because I
can't go past the thought that we needed this increase in rates, and
we had to have it. And when we needed another increase in rates
last December we made it, anyhow.
Mr. Henderson. But you don't want to go past the bald fact, how-
ever, that there was a concerted action.
Mr. Howell. You mean that there was on this occasion?
Mr. Henderson. Yes.
Mr. Howell. No; that existed.
Mr. Gesell. I should like to offer for the record the memorandum
of Mr. Little, dated March 6, 1934, from which we have been reading.
Acting Chairman Eeece. It may be admitted.
Mr. Gesell. Also Mr. Howell's memorandiun of June 12, 1934. I
have no further questions from Mr. Howell.
(The memoranda referred to were marked "Exhibits Nos. 673 and
G74" and are included in the appendix on pp. 4725 and 4727.)
(Mr. Howell was excused from the stand.)
Mr. Gesell. When Mr. Flynn was on the stand last, I neglected to
offer for the record his memorandum of March 7, 1934, to Mr. Zacher.
I wish to offer it at this time.
Acting Chairman Eeece. It may be admitted.
(The memorandum referred to -was marked "Exhibit No. 675" and
is included in the appendix on p. 4728.)
Mr. Gesell. Mr. Flynn, will you resume the stand, please?
TESTIMONY OF B. D. FLYNN. VICE PRESIDENT AND ACTUARY,
TRAVELERS INSURANCE CO., HARTFORD, CONN.— Resumed
Mr. Gesell. So far we have covered two rate agreements among
the nonparticipating companies, have we Tiot, tlic One m o6 and the
one in '35?
Mr. Flynn. Yes.
Mr. Gesell. When was the next one ?
Mr. Flynn. I believe it was effective March 1, 1937.
Mr. Gesell. Prior to the next agreement, is it not a fact that addi-
tional agreements were reached with respect to surrender charges and
surrender value? Maj^ I show you these two memoranda to refresh
your recollection?
Mr. Flynn. These are in regaid to llie retirement-income contract.
Mr. Gesell. Will you tell us whsd agreements were reached and
what the nature of them was?
Mr. Flynn. The first agreement was that full-surrender charge
of $25 be continued beyond the twentieth policy year up to within 1
year of maturity, during which year the surrender charge be twelve
and one-half dollars per thousand dollars of insurance.
4276 CONCENTRATION OF ECONOMIC POWER
The second one states that at a prior conference of the three local
companies it was agreed that the full-surrender charge was to be
continued on retirement-income contracts beyond the twentieth year
up to 1 year of maturity, during which year the surrender charge
be $12.50" per $1,000 of insurance.
Mr. Gesell. In effect, those agreements were just a continuation
then of your company's policy of reaching uniform agreements with
the other two nonparticipating Hartford companies on matters of
surrender charges and value?
Mr. Flynn. On a particular policy; yes.
Mr. Gesell. Now those surrender-charge agreements have a direct
bearing upon competition, do they not? If your companies have
identical rates, yet a policyholder in one company may be getting
back more money than a policyholder in another company, then that
company which gives the most liberal benefits has a competitive
advantage, has it not ?
Mr, Flynn. There is an element of competition,
Mr. Gesell. So that in reaching an agreement on surrender values
and charges, you were in effect standardizing the amount of money
which a policyholder could get back if he turned in his policy before
maturity.
Mr. Flynn. Correct.
Mr. Gesell. Having reached the agreements, in other words, to offer
a uniform price to the policyholder when you sold him the insurance,
you also were reaching agreements that caught the policyholder going
out, so to speak, in order that he would only get back the same thing
from any of your three companies.
Mr. Flynn. We also agreed on surrender values, in other words.
Mr. Gesell. That was the net result of it.
Mr. Flynn. That was the net result.
Mr. Gesell. May I call your attention to a memorandum dated
August 1, 1936, contained in the 1936 Life Actuarial Notes of- your
company, a memorandum written by Mr. Hammond whom, I believe,
you stated was a member of your actuarial staff.
Mr. Flynn. Yes, sir.
Mr. Geseli>. Does that memorandum set forth the nature of the
rate agreement which was reached and became effective March 1, 1937?
Mr. Flynn. I can't tell from a cursory glance at this whether this
is the final basis agreed upon or one of the tentative statements.
Mr. Gesell. Let me ask you this: Your three companies are still
operating under the 1937 agreement?
Mr. Flynn. Yes.
Mr. Gesell. You know the basis of your company's operation at
the present time, do you not, Mr. Flynn, and you can tell us whether
this coincides with the present basis or not.
Mr. Flynn. I can say this, if it would be sufficient : It appears to be
generally the basis.
Mr. Gesell. There may have been one or two slight variations, but
this is the general program.
Mr. Flynn. Yes. The effective date I notice is April 1 rather
than March 1.
Mr. Gesell. I believe you were originally correct in stating that
the agreement went into effect in March.
Mr. Flynn. Yes.
dONClONTUATION OF lOCONOMIC r(>\VKR 4277
Mr. Gesell. Ill substance, the ugreeiueiit reacluHl in 1937 covered
again all forms of ordinary nonparticipating insurance, did it not ^
Mr. Flynn. Witli the exception of a few special forms.
Mr. Gesell. And it covered the three factors in the rates which
we discussed at the first of your testimony this morning, the mortality,
loading, and interest.
Mr. Flynn. Yes, sir.
Mr. Gesell. I wish to offer tlie memorandum for the record.
Acting Chairman Reece. It may be received.
(The memorandum referred to was marked "Exhibit No. 676" and
is included in the appendix on p. 4729.)
Mr. Gesell. I want to ask you one further question, Mr. Flynn. As
the three Hartford companies reached their decision to raise rates
on a uniform basis, and after that decision was announced and became
known in the industry, did you find that by and large other smaller
nonparticipating companies followed the lead of your three com-
panies ? By that I don't mean they necessarily adopted the same rate,
but when a rate increase was announced by the Hartford group that
throughout the industry there seemed to be some announcement of a
general increase?
Mr. Flynn. I think that is correct. Perhaps not throughout the
industry but certain companies wrote in and certain companies then
decided to adopt the same rates, generally as of a later date,
Mr. Gesell. Can you tell us what companies decided to adopt the
same rates? Am I perhaps correct in saying Columbian National,
Pacific Mutual, the Atlantic Life, and some of those?
Mr. Flynn. That sounds right.
Mr. Gesell. Can you name any more ?
Mr. Flynn. Is this the recent one ?
Mr. Gesell. Yes.
Mr. Flynn. I think the Missouri State, too.
Mr. Gesell. So the result of the agreement reached by your com-
panies was to bring about a considerable uniformity in rates through-
out the nonparticipating field and certainly to bring about a rate
increase throughout the nonparticipating field.
Mr. Flynn. It would have that tendency — I wouldn't say through-
out, I Avouldn't know just how materially insurance companies were
affected, but it did influence a number of companies.
Mr. Gesell. Now, if the committee please, in order that there may
be something in the record which will give some indication of the
effect of these rate changes as they have taken place, we have pre-
pared a schedule which is offered subject to the provision that it be
checked, which will show the premiums required on an ordinary life
policy from each of these three companies for age 35, the amount to
be required to maintain $1,000 of that insurance in force from age 35
for a period of 10 years, and we have shown the cash values which
each policyholder in the three companies might receive if he cashed
in his policy at the end of that 10 years. This schedule, as I said,
offered subject to check, does give some indication of the amount
involved in the rate increases which we have been discussing. I would
like to offer the schedule for the record. It has been prepared from
the Little Gem Life Chart, and Best's Illustrations.
Acting Chairman Reece. It may be entered.
4278 CONCKNTRATION OF ECONOMIC POWER
(The scliodiile referred to was marked "Exhibit No. G7-7" and is in-
chided in the appendix on p. 4732.)
Mr. Gesell. I am not clear whether the record contains the exhibit
entitled "Exhibit of Changes in Surplus Ordinary Nonparticipating
Business." ^ Has that been received?
Miss Lee. Yes.
Mr. Gesell. I haAe no further questions for this witness.
Acting Chairman Reece. Do the committee members desire to ask
any further questions?
Mr. Gesell. Thar concludes tjie testimony which we have to date.
Mr. Henderson. Mr. Chairman, I think it would be in order to
commend Mr. Fl^/nn on the completeness and the frankness with,
which he has responded to an extraordinary number of questions.
Acting Chairman Reece. The committee appreciates the appearance
of the witness and thanks him for his cooperation and the informa-
tion he has given.
Would you care to state, Mr. Gesell, what your program is to be
next week? As I understand, it is the intention of the committee
when it recesses toda}^, to recess until Monday.
Mr. Gesell. That is my understanding.
Actinf Chairman Reece, And what is to be the procedure at that
time ?
Mr. Gesell. There has been no final decision as to what will be pre-
sented. I want to discuss that with the committee, but the witnesses
v/ill be advised amply in advance so their plans may be made
accordingly.
Mr, B. M. Anderson (counsel, Connecticut General). I w^ould like
to ask, on behalf of the Connecticut General
Acting Chairman' Reece (interposing). Have you discussed with
any member of the committee or representative of the committee the
matter which you wish to take up with the committee ?
Mr. Anderson. Yes ; I have. I have discussed it with Mr. Arnold.
Mr, Arnold. I beg to differ with 3'ou — a slight conversation. There
was no formal taking up.
Acting Chairman Reece. I have no information whatever of what
you have in mind to request, but under the procedure of the com-
mittee I would suggest that you contact the chairman or the executive
secretary and then the matter will be given consideration and if
tliought advisable it may be entered.
Mr. Anderson. Thank you. What I w anted to do was to correct a
statement which had been made and which Mr. Gesell said had been
set
Acting Chairman Reece (interposing). If there has been an error
made
Mr. Anderson. It is unintentional, I know.
Acting Chairman Reece, The committee and Mr. Gesell also, I am
sure, would be very anxious to correct it. Was it a matter that
occurred today ?
Mr. Anderson. It occurred today and it relates to
Acting Chairman Reece (interposing). Mr, Anderson
1 Previously entered as "Exhibit No. 662," see appendix, p. 4717.
CONCENTRATION OF ECONOMIC POWER 4279
Mr. Gesell. I have no objection. It is a question of one of the
figures of one of the schedules. This gentleman is attorney for the
Connecticut General.
Mr. Anderson. You have heard our witness today and it relates
Acting Chairman Eeece (interposing). This is not the procedure
of the committee. I suggest that the informal discussion be off the
record.
(Mr. Anderson and Mr. Gesell conferred.)
Mr. Gesell. If it please the committee, we are in distinct disagree-
inent as to whether or not I am right or wrong. We have checked
a series of figures which this gentleman challenges. I do not believe
that any correction is possible until we have had a chance to confer
Avith his representatives. He has talked simply by telephone to
Hartford concerning the figures and I am quite sure it is simply a
misunderstanding that has occurred between hini and his home
office.
Mr. Henderson. Then the matter can be submitted formally to the
executive secretary or the chairman according to our ordinary pro-
cedure, and it can be inserted in the record after it has passed the
executive committee.
Acting Chairman Reece. If there is no objection to that procedure,
which is in accordance with the policy of the committee, it will be
done.
The committee requested information from the Calvert Distillers
Corporation when the previous hearing was being held.^ The in-
formation is submitted in response to a question by Commissioner
Davis and with the permission of the committee it will be received
and will appear properly in the record.
(The schedule referred to was marked "Exhibit No. 678" and
appears in the appendix to Hearings, Part VI, p. 2748.)
Acting Chairman Reece. The committee will stand in recess until
Monday at 10:30.
(Whereupon, at 3 : 55 p. m., an adjournment was taken until Mon-
day, June 12, 1939, at 10 : 30 a. m.)
1 See Hearings, Part VI, p. 2562.
124491 — 40— pt. 10 10
INVESTIGATION OF CONCENTRATION OF ECONOMIC POWER
MONDAY, JUNE 12, 1939
United States Senate,
1'emporary National Economic Committee,
Washington, D. C.
Tlie committee met at 10 : 35 a. m., pursuant to adjournment on
Wednesday, June 7, 1939, in the caucus room. Senate Office Buildinjr,
Representative Reece presiding.
Present: Representative Reece, acting chairman; Senator King;
Messrs. Henderson, Frank, O'Connell, and Brackett.
Present also : Harry J. Daniels, Department of Commerce ; Joseph
Borkin, Department of Justice; and Gerhard A. Gesell, special
counsel, S. E. C.
Acting Chairman Reece. The committee will please come to order.
Are you ready to proceed, Mr. Gesell ?
Mr. Gesell. Yes; I am.
Acting Chairman Reece. Call your first witness.
Mr. Geseil. Before calling the first witness I have one exhibit
for the record which relates to the testimony last Wednesday. At
that time, when Mr. Flynn was on the stand, we had some discus-
sion as to the nonparticipating insurance in force in the three Hart-
ford companies.^ At that time the figures presented included group
insurance. At my suggestion the figures have been prepared ex-
cluding group, and I would like to offer this schedule for the record,
which has been reviewed by counsel for the Connecticut General and
approved by him.
Acting Chairman Reece. It will be admitted.
(The exhibit referred to was marked "Exhibit No. 679" and is
included in the appendix on p. 4732.)
terminations of life insurance — ordinary and industrial
Mr. Gesell. Last week the Commission presented to the committee
evidence with respect to various intercompany agreements for the
establishment of uniform rates and underwriting practices. Fur-
ther material of a similar nature will be presented during this week
of hearings and subsequently. This morning, however, we will shift
for a moment to an entirely different topic and will present through
charts and statistical summaries on the one hand, and the representa-
tives of the insurance business on the other, information which will
demonstrate the character, amount, and relative importance of vari-
* See supra, p. 4224.
4281'
4282 CONCENTKATION Ol' ECONOMIC TOWER
ous modes of teriniiiatioiis for life insurance policies, botli ordinary
and industrial.
The first witness will be Dr. Davenport, who has already testified
before this committee on several occasions.^ He will present statis-
tical material compiled under his direction from reco<jjnized public
sources by the staff of the Insurance Section of the Commission. He
has already been sworn.
TESTIMONY OF DE. DONALD H. DAVENPORT, SPECIAL ECONOMIC
CONSULTANT TO THE INSURANCE STUDY, SECURITIES AND
EXCHANGE COMMISSION, WASHINGTON, D. C— Resumed
Dr. Davenport. The importance of life insurance is most oencrally
measured by reference to the total amount of insurance in force.
This table, which is entitled "Life Insurance, Total In Force, New
Business, and Terminations, United States Legal Reserve Life In-
surance Companies, 1928-37," contains the basic data about which
we shall talk this morning.
Mr. Geseix. Has this schedule to which you refer been prepared
under your direction?
Dr. Davenport. It has.
Mr. Gesell. From Spectator Insurance Year Books. Is that the
source ?
Dr. Davenport. That is the source.
Mr. Gesell. I wish to offer the schedule for the record.
Acting Chairman Reece. It may be admitted.
(The schedule referred to was marked "Exhibit No. 680" and is
included in the appendix on p. 4733.)
Mr. Gesell. Will you tell us, Dr. Davenport, the nature of the
information contained on that schedule?
Dr. Davenport. If you will examine the schedule, you will find that
in the first column we have listed the total amount of insurance in
force at the beginning of the year 1928 and for each year through
1937. The next to the last column lists the total amount of insurance
in force reported at the end of each of these respective years. On
the first of January 1928, the face amount of all kinds of insurance in
force was about $87,000,000,000. As of the first of January 1938,
10 years later, the face amount of all kinds of insurance in force was
almost $110,000,000,000. That figure appears in the lower right hand
corner of the chart. Thus in this 10-year period the amount of
insurance in force had increased $23,000,000,000. To achieve this
increase in the insurance in force, the insurance companies had to
sell seven times this amount of new insurance. This seven to one
relationship between the new business written and the gain in the
amount of insurance in force is a reflection of the large proportion
of terminations of insurance each year.
The terminations are listed in the third column. For example, in
the first year, 1928. $10,000,000,000 of insurance passed off the books
of the companies. The figures that represent the terminations in suc-
ceeding years are listed in order, and the total for the 10-year period
amounted to $133,000,000,000.
1 Hearings, Part IV, pp. 11G5-1197, 1400-1407; and Hearings, Part IX, pp. 3720-3774.
CONCENTRATION OB^ ECONOMIC POWER 4283
Acting Chairman Reece. Pardon me. Mr. Gesell, will the witness
show the percentage of those terminations which came by reason of
death?
Mr. Gesell. That will be the subject considered in subsequent tables
and charts.^
Dr. DAVENroRT. Thus the amount of insurance that terminated in
these 10 years was 83 percent as large as the amount, of new business
written in the same period. In other words, for every thousand dol-
lars of new life insurance written from 1928 to 1937, inclusive, $830
was merely to replace insurance that had terminated and passed off
the books of the companies. Stated another way, in these 10 years
$1,200 of insurance terminated for every thousand dollars of insurance
that was in force at the end of the period. These facts serve to focus
attention on the termination of life insurance, its importance to the
policyholders and its importance to the companies.
Contrary to popular notion, death accounts for a very small prri^*
portion of the total amount of terminations. Before we attempt ail-
explanation of the methods by which insurance contracts terminate,"
there are certain basic conceptions and certain terms that must be
explained and defined in order that we may all have a common under-
standing of the significance of this problem.
THEORY OF LJFE INSURANCE
Dr. Davenport. The basic theory of life insurance in its simplest
aspect presupposes the existence of a large group of persons banded
together in order to assure each one of the group that he will leave an
estate of a certain size w^henever he sliall die. For illustrative pur-
poses, it is customary to assume a group of 100,000 persons of the same
age. Let us suppose that each of a group of 100,000 persons is exactly
35 years old and tliat each person washes to be assured that his
estate will have $1,000 if he should die. For this purpose the group
may elect a few of their number to manage the enterprise. Let us
call these managers the company. The company examines a table
of mortality such as the one that is reproduced here,
Mr. Gesell. That is the American Experience Table of Mortality ?
- Dr. Davenport. It is, Mr. Gesell.
IVIr. Gesell. I wish to offer that table for the record.
Acting Chairman Reece. It may be admitted.
(The table referred to was marked "Exhibit No. 681" and is
inchided in the appendix on p. 4733.)
Dr, Davenport. In-order to determine the amount each member
of the group mast pay the company examines this table of mortality
to ascertain the number of the group which will probably die before
the end of the next year. From the mortality table we learn the
number of members of this group who are likely to die. According
to this table, this number is found to be 8.95 persons per thousand,
at age 35. If you will pass your finger down in the left hand
colunm under the caption "age" to 35, opposite that in the third
column, you will find under the caption "death rate per 1,000" 8.95.
Therefore the company will expect 895 of their 1,000 members
Mr. Gesell (interposing). Their 100,000 members,
1 See "Exhibits Nos. 683-683," pp. 4293-a, 4300, 4738.
4284 CONCENTRATION OF ECONOMIC POWP]U
Dr. Davenport, Thank you; tlicir 100,000 members to die by Hie
end of their thirty-fifth year. In order to pay a thousand dollars
to the estate of each of these, the company mnst collect a total of
$895,000 from the group of 100,000. This means a payment or
premium of $8.95 from each member of the group. This amount is
called the annual cost of insurance for 1-year term'.
At the beginning of the second year there will remain 90,105
persons of the original group who were 35 years old when the com-
pany began doing business. If these 99,105 wish to continue their
^insurance for the second year, each one must pay another premium
to the company. An examination of the mortality table shows that
the, mortality rate is slightly higher between the ages of 3C and 37
than between the ages of 35 and 36. The mortality table indicates
that out of the 99,105 there are 901 who will probably die before
the end of the second year. $901,000 is then the amount needed
this year in order to pay $1,000 to the estate of each of the 901
persons expected to die. A contribution of $8.97 from each will be
required.
We note that this represents an increase of 2 cents per person in the
premium of the second year over that of the premium of the first
3^ear. This same process can be continued during each succeeding year
until all the members of the group have died. However, it can readily
. be seen ttiat the premiimis would have to increase every year because
of" the rising rate of mortality as the group gets older. By the time
the individuals have reached the age of 69, for instance, when approxi-
mately half of the group that started would be dead, the net annual
premium on $1,000 insurance would have to be about $57. From this
age on the premiums increase so rapidly as to become almost pro-
hibitive. In order to obviate the difficulty presented by this continu-
ally increasing cost of annual 1-year term insurance, there was de-
vised what is known as the level premium life insurance. This calls
for an annual premium vvhich remains the same throughout the lifetime
of the insured.
Mr. Gesell. Have you charted on a chart entitled "Wliole Life
Policy, $1,000 at age 35" ^ the annual cost of insurance on that risk
and the net level premium charged each year?
Mr. Davenport. That is charted on the chart that is before you.
Mr. Gesell. Will you explain that chart, please ?
Mr, Davenport. Reference to this chart and the table upon which
it is based will assist in understanding the significance of the level
premium plan. The illustration is worked out for a whole life policy
.for $1,000 taken out at age 35. At this age the net level premium each
year is $21.08. This net level premium is based on the American
Experience Table of Mortality and assumes that the company will be
able to earn from its investment of reserves interest at the rate of 3
percent.
Tlie level premium is computed in such a way that the earnings on
the reserves augmented by the annual premiums will provide the
company with sufficient funds to meet all claims. To maintain a
thousand dollars of life insurance in force throughout his lifetime, a
person who takes out this insurance at age 35 must pay a net level
premium of $21.08 each year. In the early years of his life, this net
1 Subsequently entered as "Exhibit No. 682,'" see infra, p. 42S6-a.
(10NCENTKATI0N OF ECONOMIC Pf>WER 4285
level premium is in excess of what it would cost to buy 1-year term
insurance. This excess charge constitutes the policyholder's savings
and is accumulated for him at compound interest by the company in
the reserves. Wlien the insured has attained an age where the mor-
tality rates are so high that the annual cost of insurance is greater
than this level premium, the company begins to draw on the interest
earned on these reserve funds. As a net 1-year term premium of about
$8.84 would be enough to pay all claims in the first year, using the
same table and the same interest assumption, the balance would go
into the reserve. The interest earned would bring the reserve to
$12.88 by the end of the first year.
Tlie American Experience Table of Mortality assumes that no life
extends beyond age 96 and that all claims will have been incurred by
that time. At age 96 the reserve on each policy will equal the face of
the policy. A whole life policy may be considered as an endowment
payable at age 96.
Reference to the table upon which this chart is based ^ will indi-
cate how the savings element in the net level premium accumulates
in the reserves against the individual policy. Ten years after the
policy is taken out, the reserve will amomit to $146.01.
When the policy has been in force 20 years the reserve will amount
to $327.58. By the time the policyholder is 96 years old the reserve
will have reached the face value of the policy, $1,000. The company
holds the reserve for the benefit of the policyholder, subject to certain
restrictions; the policyholder may obtain the reserve in cash by sur-
rendering his policy. On the other hand, he may borrow almost alL
of his reserve from the company, at interest. There are two elements,
therefore, insurance and savings, that make up the amount that is
paid upon the death of the insured. These parts vary in importance
depending upon the number of years that elapse before death occurs.
In the early years the insurance element, the amount of risk, is pre-
dominant. In the later years the reserve, or the policyholder's ac-
cumulations of savings, overshadow the insurance.
To illustrate how these two elements vary over the life of an in-
sured is the purpose of the second diagram on the chart, that portion
of the chart appearing in the right-hand segment. It will be seen
that in any year the two elements add up to $1,000, the face of the
policy.
The rej^erve, which has been described, is really an accumulation of
savings by the policyholder. Any member of the insured persons
could, of course, accomplish the same result by buying 1-year term
insurance for the amount at risk each year and placing the differ-
ence between that amount and the net level premium in a savings
bank. It would have to be assumed, of course, that the savings bank
would pay the same interest rate, 3 percent, that the company em-
ploys in accumulating reserve. At about age 67, when the rising
mortality rate makes the tabular cost of insurance at risk exceed the
net level premium, he could then draw upon the interest earned on
his savings in the savings bank to make up the difference.
It is, of course, more convenient for the policyholder to be able to
pay his premium and his savings to the same company, and he is
also more likely to carry out the plan if he does so.
* See "Exhibit Mo. 882," infra, p. 4286-a.
4286 CONCENTRATION OF ECONOMIC TOWER
Mr. Geselx,, Now, may I offer for the record at this time the chart
which Dr. Davenport has just discussed, entitled "AVhole Life Policy,
$1,000, age 35," and the schedule supporting the chart?
Acting Chairman Reece. The document may be admitted.
(The chart referred to was marked "Exhibit No. 682" and appears
on p. 4286-a. The statistical dat;i on which this chart is based are
included in the appendix on p. 473*4.)
Mr. Gesell, Before going on, Dr. Davenport, I want to be sure
that I understood what you were saying. In the left-hand portion
of the chart entitled "Charges" the portion marked "Excess of pre-
miums paid by policyholders over cost of insurance at risk," directing
3^our attention to. that portion of the chart, am I correct in saying that
tit age 3,5, during the fii-st years of the policy, a person purchasing it
on a net level-premium plan pays into tlie company more money than
is required to meet the amount which he would contribute simply for
the purpose of insuring himself, in other words, covering the risk
involved.
Dr. Davenport. That is essentially correct. Throughout the life-
time of the policyholder he pays $21.08. The annual cost of the
amount of insurance at risk varies as is shown by this line that goes
up from the lower left to the upper right.
Mr. Geselx,. For how long is it that he pays in more ihnn is ntn-es-
sary to meet the annual cost of insurance for the amount of risk?
Dr. Davenport. The- line crosses at about age 68, I should say;
up until he is 68 years old the net level premium exceeds the ammal
cost of insurance for the amount for which the insurance company is
insuring him.
Mr. Gesell. Do I understand that that reserve which is built up
by these excess payments earns interest which in later years is used
to reduce the amount of the premium which he would have had to
pay had he been paying it on the pure basis of the cost of insurance
at risk each time ?
Dr. Davenport. From age 35 the excess premium charges that are
made to the policyholder until he I'eaches the age of about 68 is accu-
mulated by the company at compound interest, as is indicated by the
blue section (the lower section) of the second part of this chart. At
the end of the first year the reserve against this policy amounts to
$12.88 and each year until 69 additional amounts are added to that
"reserve and they continue to earn interest at 3 percent, so that by
the time the policyholder has theoretically reached the age of 96 the
accumulation of those amounts in the reserve will total $1,000. There
comes a time when the cost of the insurance at risk exceeds $21.08, the
net level premium charged each year. That is at age 68. After age 69
the company in effect takes some of the interest earnings on the reserve
to add to the $21.08 a year which the policyholder continues to pay
as his net level premium, to make up what it would actually cost to
insure the policyholder for the amount at risk in each one of those
years.
Mr. Frank. Is the portion on the right of that chart equal to the
portion on the left ?
CONCENTRATION OF ECONOMIC ['OWER
4286-a
If)
UJ
O
ym^&^m:i^m^i:im^^<;i^^mi^:x^^^:'':;yi^.'^^;^^^:-^,^^^^^^:m^
UJ
UJ
O
Z
■»'.
n
1 1 i
^
s.
?s
>Rt:MIUMS PAID
( POLICYHOLDER
"
1 1
...
\
V
so
o ^
U.52
— - (ft .
\
<nfc
O CO
1 — tn *^
/
t X z m
bj => o
CO
LU
O
or
<
X
21^
25
>^
1 (LZ
OZ
N
V
C Z
o n
_,o
z o
J
\
3< !
z ir
z o
o
4
zliu -
2|
\ ^
/
■111
EXCESS OF PREM'S
PAID BY POL'HLDRS
OVER COST OF
in \
_IU1
iri 1
z 1
in
K
1- <
z u
1
S 6
« o
rX)NCl-:NTI{A'J^ION Ol' ECONOMIC POWER 4287
Dr. Davenport. No ; there is no reason whj^ it should be. We have
assumed that it starts at age 35 and it does in this case. We might
have taken an example at age 25 in which case the segment of blue
would be much larger, you see.
Mr. Gesell. You mean the segment entitled "Excess of l*reniiums
Paid by Policyholders Over Cost of Insurance at Kisk"?
' Dr. Davenport. Yes; that is right. There is no necessary equality
between those two segments.
Mr. Gesell. Now, what is your next chart, Dr. Davenport'?
Dr. Davenport. I should noAv like to turn to the consideration of
terminations.
Mr. Gesell. You are referring riow, are you not, to the chart entitled
''Terminations of Life Insurance, 1922-37, Amounts."^
Dr. Davenport. "Terminations of Life insurance, 1922-37, amounts.
Ordinary. Industrial."
It is important to understand the various ways in which life-insur-
ance policies are terminated. The most important contingency against
which life insurance is /written is, of course, that of the death of the
policyholder. When the insured dies, the policy terminates by death.
and is so designated. The company is obliged to pay the face of the
policy to the beneficiary. Some few^ policies carry what is known as
an installment disability benefit. Under this, if the insured suffers
total and permanent disability, the policy terminates by what is known
as disability. The premium payments by the policyholder then cease,
and benefits are paid to the nisured b}' the company. In addition to
the above modes of termination, there are two other ways which also
represent the successful termination of insurance contracts; for ex-
ample, endovAment contracts written to mature in a stated period of
years terminate by what is known as maturity when that period ex-
pires. Also, term insurance, which has no savings elements, is written
for stipulated periods; upon the completion of the period specified
term insurance terminates by what is known as expiry. From the
policyholder's point of view^, terminations by death, by disability, by
maturity, represent satisfactory completions of the insurance contract,
and it rna}' be said that to the extent that expiry represents the ter-
minations of policies originally written for a term of years, expiry
also represents a satisfactory mode of termination.
It is a generally recognized fact that the great bulk of life insur-
ance termmates in a manner that cannot be regarded either by the
companies or by the policyholders as entirely satisfactory. A great
deal of insurance terminates within a short time after it is sold, by
reason of the failure of the insured to keep u]) the payments of his
premiums. Wheii such failure to maintain premium payments occurs
before the policyholder is entitled to a refund of any portit.n of the
leserve against his policy, the insurance is said to have terminated
by lupse. Let me repeat that because it is ver}^ important: When
such failure to maintain premium payments (K-curs before the policy-
holder is entitled to a refund of any portion of the reserve against
his policy, the insurance is said to have terminated by lapse.
Mr. Gesell. Referring a moment. Dr. Davenport, to the chart en-
titled "Whole Life Policy," "^ which you discussed a moment ago,
iSubseguenUy introduceil as "l]xhil)it No. 08.''.," see intra, p. 4293-a.
-^ "Exhibit No. 682," supra, \>. 4286-a.
4288 rDNCENTKATTON OF EPONOiMTC TOWER
llio. reserve to Avhich you refer is the portion marked "Excess of pre-
iiiiunii< paid by policyholders over cost of insurance at risk," is it not?
Dr. Damsni-oht No. Mr. Gesell ; it is the blue portion of this dia-
gram. It is the lower right-hand portion of the second part, which
represents the accunudation of the reserve at age 35; at the end of
the first year the reserve amounts to $12.88, and each successive year
that reserve accumulates by reason of additions that are represented
here by the blue, and by the accumulation of interest at 3 percent on
wliat has previously been put in that reserve.
Mr. Gesell. The"^ reserve results from the excess payments which
ai-e referred to in the part of the chart I mentioned, and the actual
reserve itself is represented by the lower portion of the right-hand
section of the chart?
Dr. Davenport. That is correct, Mr. Gesell.
Mr. Gesell. And you say that when a policy terminates under such
conditions that the policyliolder receives no portion of that reserve
l)a(k at the time of termination, that policy is said to have lapsed.
Dr. Davenport. It is called a lapse under those circumstances.
Mr. Frank. Does that mean that he has made contributions which
ire in effect savings by him, together with interest accumulations
thereon, and that in the circumstances you describe he receives back
no portion of those savings? •
Dr. Davenport. When a policy is said to terminate by lapse he gets
no portion of that reserve back. That is correct.
Mr. Frank. In effect that is the savings portion of his insurance!'
Dr. Davenport. Yes, sir.
Mr. Frank. And under the circumstances you have described, he
has made what were assumed to be savings, but whicli he does nor
receive
Dr. Davenport. That is right.
Senator King. It is part of the contract that if he shall not con-
tinue his payments he will lose the benefits of tliat.
Dr. Davenpoijt. It lapses. It is stipulated very definitely in the
contract he takes that if he C(Mitinues until he dies, or until the
policy terminates at age 96, he f^ets all of it back.
Mr. Frank. You are describmg at this time the consequences of
contractual provisions in the insurance policy?
Dr. Davenport. That is right.
Senator King. Those policies have been the subject of scrutiny, have
they not, by the various States il^ their formulation of legislation?
Dr. Davenport. It is my uriderstanding that every new polic}^ that is
issued nnist first receive the approval of the State insurance commis-
sion.
Senator King. And the States in wliicli policies are v/ritten have
insurance laws, I presume, and an insurance connnission?
Dr. Davenport. They have, Senator King.
Senator King. To supervise the law and protect the policyholder
as well as the comi)anies?
Mr. Frank. As I understand it, you are not now in this testimonj'
in any way indicating that these consequences to which you refer are
the result of any violation of contract or of a State law.
Dr. Da\enport. None whatever. It is clearly specified in the terms
of the contract and the laws of the State. This is in essence what
COXrEXTIfATIOX OF KCONOMTr POWER 4289
happens. Tlie jiislilicalioii for it will re(iuire considerable explana-
tion. We are stating the facts as reported.
Senator King. You aie not contending that the rate'^ are too high
or too low?
Dr. DA\^NroKT. We are discussing merely this morning the modes
of termination of policies.
Senator King. Yes.
Dr. Davenport. I had just finished describing what we call lapse.
In further explanation of that, in this case the policyholder has paid
the full net le\'el premium for the insurance protection afforded him
over the period that he was covered. Reference to the table and
chart describing this whole life policy, $1,000, age 35, indicates that
under such conditions the cost of protection the insured actually
enjoyed was at least twice as great as it would have been if he had
taken out term insurance for the sam.e period.
After the policy has been in force for a period specified in the
policy, usually from 3 to 5 years, the policy holder is entitled, under
the terms of the policy, to receive a cash value if he discontinues pay-
ment of premiums. This cash value is known as the cash-surrender
value, and policies that terminate in this manner are said to terminate
by surrender.
Mr. Gesell. Where policies terminate by surrender, the policyholder
gets back a portion of his reserve but not the entire reserve, in some
cases, and in some cases he gets back the entire reserve, does he not?
Dr. Davenport. Practice differs in different companies. There is
usually imposed what is known as a cash-surrender penalty or charge,
presumably to compensate the company for the bookkeeping expense
involved and also probably to act as a stimulus to keep the policyholder
from withdrawing his cash-surrender value.
Life-insurance policies carry what are known as nonforfeiture op-
tions, which become available after the policy has been in force for a
specified period. One of these options is known as extended term
insurance. Under this option, the company will apply the reserve in
the policy to the purchase of insurance equal to the face amount of
the policy, which will continue for a term, the duration of which
depends upon the size of the reserve. After having paid premiums
for 5 years, for instance, the policyholder may be entitled to insur-
ance for the face amount of the policy for an additional 5 years with-
out the payment of any more premiums. At the expiration of this
extended term the insurance is said to terminate by expiry.
Another option, a nonforfeiture option, is called paid-up insurance
for a decreased amount. Under this option, if the policyholder can
no longer continue to make his premium payments, the reserve in the
policy is used to buy for the policyholder insurance for the rest of his
life for a smaller amount than the face of the old policy, but without
obliging him to pay any additional premiums. The amount of this
paid-up insurance is calculated by a formula that depends on the size
of the reserve when the premium payments stopped. From the com-
panies' point of view, this represents a decreased amount of insurance
in force, and consequently we have insurance that terminates by de-
crease. When policyholders can no longer continue to pay their pre-
rniums but they have paid those premiums long enough to become
eligible enough for one of these non^forfeiture options, this type of
4290 CONCENTRATION OF ECONOMIC POWER
paid-up insurance for a decreased amount ma}^ be put in force. The
difference between tiiat amount and the amount of the face value of
the original policy means a writing off the books of a certain amount
of insurance of the company, and that kind of a decrease is a termi-
nation, and it is described as decreased.
Senator King. However, there is a liability there to make certain
payments from time to time, annual or otherwise.
Dr. Davenport. Not on the part of the policyholder. On the part
of the company there is a liability to pay that face amount of the
decreased policy whenever the policyholder dies.
Mr. Gesell. In fact, what happens is that the company takes the
cash value on the policy and uses that to purchase paid-up insurance
which the policyholder then has entirely paid up, and upon which he
has no requirement to make any further payments ?
Dr. Davenport. That is correct.
In addition, it should be pointed out that insurance may be taken off
the books of the company by reason of the direct request of the insured
to reduce the amount of his insurance. Such reduction in the cover-
age of insurance is also reported as a termination by decrease^ so the
total amount reported as a decrease arises from these two sources.
Thus it appears that when insurance terminates by lapse, surrender,
decrease, and, in certain cases, expiry, it terminates in a manner not
representing the purpose for which the insurance was sold. Such
modes of termination are called by the insurance industry volimtary
terminations. They represent the extent of the frustration of the
original purposes for which the insurance was taken out.
Mr. Gesell. Now, Dr. Davenport, if you will refer to the chart
entitled "Terminations of Life Insurance, 1922-37, Amounts," ^ and
explain to the committee the basis upon which that chart has been
prepared and the relative ratios and percentages illustrated both for
ordinary and industrial insurance
Dr. Davenport (interposing). In the chart that is on the easel to
the left
Mr. Frank (interposing). That is the chart entitled "Terminations
of Life Insurance, 1922-37"?
Dr. Davenport. The chart entitled "Terminations of Life Insur-
ance, 1922-37," we have a picture of the amounts and modes of termi-
nations of ordinary insurance and industrial insurance for the period
from 1922 through 1937. The schedules upon which this chart is
based ^ give the figures for each year separately. In presenting the
material graphically, we have summarized the period in four periods
of 4 years each. The first bar that you see represents the 4 -year period
from 1922 through 1925, inclusive. In that period the total amount of
ordinary insurance that terminated was $17,127,000,000. The height
of that bar is proportional to the amount just stated.
In the next 4-year period the total amount of ordinary insurance
that terminated was a little in excess of $25,000,000,000, and in the
third period the amount reached over $42,000,000,000. In the fourth
period, from 1934 through 1937, the total terminations amounted to
$28,000,000,000.
1 "Exhibit No. 683," infra, p. 4293-a.
- Ibid., appendix, p. 4735.
CONCENTRATION OF ECONOMIC POWER 429]
Bear in mind that this refers only to ordinary insurance.
Mr. Gesell. Now, am I correct in saying, Dr. Davenport, that for
all four of those periods, generally speaking, the percentage of termi-
nations which are accountable to death, maturity, and expiry, are rela-
tively the same?
Dr. Davenport. Practically the same.
Mr. Gesell. Taking the period 1934 to 1937 for purposes of illus-
tration, what percentage of the terminations of ordinary insurance
in that period terminated by death?
Dr. Davenport. At the bottom of the table supporting that portion
of the chart appears the percentages that you have just requested.
Under the caption "Death," which appears in the next to the last col-
umn on that table, we have the following figures that represent the per-
centages of the total terminations of ordinary insurance by reason of
the death of the insured. In the first 4-year period they amounted to
7.94 percent. On the chart that is represented by the black segment of
the bar ; 7.94 percent by death.
In the next 4-year period it amounted to 8.29 percent; in the third
period, from 1930 through 1933, death accounted for 6.66 percent ; and
in the last period death was responsible for the termination of 9.88
percent of the ordinary insurance that terminated.
Mr. Gesell. Now, will you give us the figures on a similar basis for
the amount of insurance which terminated in each period by lapse?
Dr. Davenport. On the table, the second column gives the percent-
ages of terminations that occurred by reason of lapse. On the chart
lapse is represented by the segment of the bar that is at the bottom, the
very bottom, the dark red portion of each of these bars.
In the first period, lapse accounted for 52.59 percent ; in the second
period, 53.16 percent; in the third period, 42.19 percent; and in the
fourth period, 36.47 percent.
Mr. Gesell. "Well, now, so far we have been discussing the ordi-
nary section — the ordinary insurance section of the chart. Now, on
the right-hand portion of the chart you have a section marked "In-
dustrial insurance," and I believe, as we have already defined indus-
trial insurance in these hearings, it is a form of insurance which is
sold usually in small amounts, collections being made by the agents
through door-to-door canvassing, and it is familiarly known, some-
times, as "burial insurance," is it not ?
Dr. Davenport. That is correct.
Mr. Gesell. Now, will you tell us for industrial insurance termina-
tions the amount of insurance that actuallv terminated by death
during the four periods covered on the chart ?
Dr. Davenport. These amounts are given on the second schedule
that supports this chart, the schedule entitled "Terminations, Indus-
trial Life Insurance, Amounts, All Companies, in Thousands of Dol-
lars, 1922-37."
In the period from 1922 to 1925, death accounted for the termina-
tion of $348,000,000 of industrial insurance, an amount that repre-
sented 5.14 percent of all industrial insurance that terminated in
that period. You will note that the percentages that represent ter-
minations by death are considerably smaller in the case of industrial
insurance than they were in the case of ordinary insurance.
In the second period, from 1926 through 1929, death accounted
for only 4.7 percent of total terminations of industrial insurance ; in
4292 CONCENTRATION OF ECONOMIC POWER
the third period, 3.11 percent; and in the fourth period, 4.01 percent.
Mr. Geseli.. Now, as you did in the case of ordinary, will you
irive us the lapse percentages for industrial insurance for these
periods ?
Dr. Davenport. Lapses, represented on the chart by the segment
of the bar that is colored in deep red, are the segment that appears
at the bottom of the bar. In the first period, lapse accounted for
83.75 percent of all terminations of industrial insurance. In the
second period the percentage was 81.66 percent; in the third period,
73.67 percent ; and in the fourth period, 63.32 percent.
Mr. Frank. Does that mean that in the period 1926-29, and again
in the period '34-'37, $10,000,000,000 of policies lapsed and that the
purchasers received nothing back of what they had paid in ?
Dr. Davenport. They received no cash value for what they paid
in. There was no cash return to those purchasers. They had pro-
tection during the period that their insurance was in force. That
is all they had.
Mr. Frank. And for those respective periods, approximately 83
percent for the earlier period and 63 percent for the second period I
mentioned ?
Dr. Davenport. That's right.
Dr. LuBiN. Dr. Davenport, I note that in more recent years, par-
ticularly since 1930, the percentage that went to these policyholders in
surrender values increased. Can you explain why that happened?
Was it due to the fact that some of them for the first time learned that
there was a surrender value, or were there other factors involved, such
as a change in type of policy ?
Dr. Davenport. Tliere were two factors that I think probably ex-
plain the increase in the percentage by surrender under which the
policyholder got back a portion of his reserve. One of them was a
liberalization of industrial policies taking place over this period which
made available to those people who had to lapse their policies pre-
viously a cash surrender value. I think, too, the fact that during the
twenties tjiere was this great surge of interest in insurance, and tre-
mendous volumes of insurance were written, meant that we gradually
accumulated on the books of the companies policies that continued
long enough so that they had cash surrender values and, consequently,
when they did go off the books, could go off the books by surrender
rather than lapse.
Dr. LuBiN. Is there a difference in the surrender clauses of the in-
dustrial policies as compared, let's say, to the ordinary ?
Dr. Davenport. It varies from company to company.
Dr. Ltibin. Is the industrial more or less liberal than the ordinary ?
Dr. Davenport. It is much less liberal than the ordinary.
Dr. LuBiN. I notice that you have got here, under "Maturity," cer-
tain figures, both for industrial and for ordinary. I take it that some
of the i]\dustrial insurance is endowment, is it not?
Dr. Davenport. That is right — a small proportion.
Dr. LuBiN. Can you read into the record the actual percentage of
industrial policies that actually matured as shown by your table?
Dr. Damenport. The figures that appear in the third from the last
colunm, Dr. Lubin, show the amounts in thousands of dollars of
industrial policies that terminated by maturity during this period.
CONCENTRATION OF ECONOMIC POWER 4293
In the first period, 1922 throug:h 1925, $61,079,000 of industrial insur-
ance terminated by maturity. In the last period, 1934 through 1937,
the total amount of industrial insurance that terminated by maturity
was $107,879,000.
Mr. Gesell. I believe Dr. Lubin asked for the percentage that those
maturity terminations represented to total terminations for all kinds,
of ^"ndustriai insurance.
'. Da\-enport. Those percentages appear just belotv the figures I
have, just read, and they constitute 0.90 percent for the first period,
0.36 percent for the second, 0.26 percent for the third, and 0.68 percent
for the fourth.
Mr. Geseix. Just before passing to the next chart, to clarify one
phase of this matter, where your figures and your chart show a per-
centage and amount of insurance terminated by surrender, that meai>s
the amount of insurance that terminated by surrender and not the
amount which was paid in surrender values, does i,t not?
Dr. Davenport. Quite right. It is all based on the face amount
of insurance terminating.
Mr. Frank. Do I understand correctly that industrial insurance is
largely purchased by people in the lower-income brackets?
Dr. Davenport. Yes, sir.
Mr. Frank. That means poor man's insurance ?
Dr. Daatenport. It is poor man's insurance. It is called burial in-
surance— weekly payment premium insurance. Usually the premi-
ums are collected by the agents that call upon the policyholders at
their homes weekly, and in some cases monthly. In some cases the
companies give an inducement to the policyholder if he will pay his
premium on industrial insurance directly to the office, but that does not
account for a very large percentage of the total amount of industrial
insurance. It is poor man's insurance.
Mr. Frank. Perhaps I am anticipating, but do I understand the
surrender rights in poor man's insurance are generally less favorable
to the insured than other types of insurance ?
Dr. Davenport. I think there is no question about that.
Mr. Gesell. We will come in a moment to a more-detailed considera-
tion of the termination experience in industrial insurance.
I would like to offer for the record at this time the chart entitled
"Terminations of Life Insurance, 1922-37, Amounts," which Dr.
Davenport has just been discussing, together with the two supporting
tables, one labeled "Terminations, Ordinary Life Insurance, Amounts,""
and the other labeled "Terminations, Industrial Life Insurance,
Amounts."
Acting Chairman Reece. They may be admitted.
(The chart referred to was marked "Exhibit No. 683" and appears
on p. 4293-a. The statistical data on whicli this chart is based are
included in the appendix on p. 4737.)
Mr. Gesell. Now, Dr. Davenport, you have before you, have you
not, a chart entitled "Life Insurance in Force, Newly Issued, and
Terminated, Amounts, 1918-37, 1928-37" ? ^
Dr. Davenport. That is right.
Mr. Gesell. Will you explain that c^iart to the committee, please?
1 Subsequently introduced as "Exhibit No. 684," infra, p. 4300.
124491 — 40— pt. 10 11
CONCENTRATION OF ECONOMIC POWER 4293-1,
Exhibit No. 683
TERMINATIONS OF
LIFE INSURANCE. 1922-1937
AMOUNTS
l^'^ll ORDINARY
INDUSTRIAL b°uSnI
1988-25 1986-89 1930-33 1934-37 1922-85 1926-29 1930-33 1934-37
tovwe: aKCTgroK mauK/uiet rrtii books os-itst mtP*iieo er see. a eiren. cotm.
4294 concp:ntration op economic power
Dr. Davenport. In order to study the significance of terminations
of life insurance, we have devised this cliart exhibited before you.
This shows the total of industrial and ordinary insurance combined.
The data upon which this chart is based appear on the accompanying-
table entitled "Terminations, Ordinary and Industrial Life Insur-
ance, Amounts, Compared with Total New Business and Insurance in
Force." ^
Mr. Gesell. I notice that the chart is divided into two intervals of
10 years each, for which separate totals and separate percentages have
been computed. Will you kindly step to the chart and explain for
the committee what each of the several bars on the chart represents ?
Dr. Davenport. You will note that the chart is divided into two
parts. The first part represents the history of this insurance business
as reflected by the total of ordinary and industrial insurance in the
decade of 1918-27. The scale of the chart runs from zero at the base
to $150,000,000,000 at the top. The first bar, that colored in yellow
on the chart
Mr. Gesell. That is the one entitled "Old Business," is it not?
Dr. Davenport. Entitled "Old Business," represents the amount of
business on the books of the companies, the amount of life insurance
in force, as of January 1, 1918, the beginning of this 10-year period.
Mr. Gesell. That is ordinary insurance and industrial insurance.
Dr. Davenport. A combination of all ordinary and industrial
insurance.
Mr. Gesell. Group insurance has been exluded from this chart.
Dr. Davenport. Group insurance is subject to peculiar conditions
which necessitate a separate treatment of group insurance. At the
present time group insurance accounts for approximately 12 percent
of the total amount of insurance in force. It is wholesale insurance
purchased by employers for the behefit of their employees.
Mr. Gesell. The second bar is entitled "New Business" and repre-
sents business written during this period from 1918 to 1927. Is that
correct ?
Dr. Davenport. That is correct. We started this period with
$27,000,000,000 of life insurance on the books of the companies. Dur-
ing the 10-year period a total of $109,800,000,000 of new business
was put on the books of the companies.
Mr. Gesell. At the top of that bar there is a segment entitled
"Revivals." Will you tell us what "revivals" are.
Dr. Davenport. Revivals represent the reinstatement of policies
that had previously lapsed, which are reinstated by the policyholder
and put again on the books of the company.
Mr. Gesell. It might also represent the revival of an extended
term policy, might it not?
Dr. Davenport. Yes. The third bar is entitled "Total Termina-
tions." In this 10-year period there was a total of $54,400,000,000
of insurance that passed off the books of the companies.
Mr. Gesell. May I ask here, to make the record clear, whether
that termination bar, the third bar, represents only the termination
of business covered by the bar entitled "New Business," or whether
it represents terminations of all business, that is' p^ the old business
plus terminations of some portion of the ne\^ business.
1 "Exhibit No. 684," appendix, p. 4737.
CONCENTRATION OF ECONOMIC POWER 4295
Dr. Davenport. In all probability many of the insurance policies
that terminated during this period had been in force at the begin-
ning of the 10-year period. It is quite likely that some of the 7.9
percent of the terminations that terminated by death were on the
lives of individuals that had been insured even before this period
started.
Mr. Gesell. So it includes termination of both new business
Avritten during the period and terminations of some portion of the
old business which was on the books at the beginning of the period.
Dr. Davenport. That is correct.
Mr. Gesell. Now I notice there that the terminations were some
62.32 percent accountable to lapse, and only some 7.97 percent ac-
countable to death. Is that correct?
Dr. Davenport. These are the figures on the chart and they are
correct.
Mr. Geseli.. The fourth bar entitled "Ten- Year Gain" represents,
does it not, the amount of increase in insurance in force which re-
sulted in the writing of the new business shown on the second bar ?
Dr. Davenport. The fourth bar represents insurance in force at
the end of the 10-year period. This bar is broken into two seg-
ments, the first segment of which is exactly the size of the old busi-
ness. . The difference between the height of the bar that represents
new business issued and the height of the bar that represents total
terminations in the 10-year period is exactly the height of this seg-
ment of the fourth bar that represents insurance in force.
Mr. Frank. The upper portion.
Dr. Davenport. That is right; the upper portion is exactly the
difference between the height of that bar of new business and the
lieight that represents total terminations.
Mr. Gesell. Will you tell us how much of the gain was made
during this 10-year period in insurance in force?
Dr. Davenport. The total gain for the 10-year period is $53,-
000,000,000.
Mr. Gesell. And to accomplish that gain how much insurance
was written?
Dr. Davenport. The figure is $109,800,000,000.
Mr. Gesell. Am I correct in saying thai the second portion of
your chart, that marked "1928-1937," is prepared on a comparable
basis showing the experience during the period from January 1,
1928, to December 31, 1937?
Dr. Davenport. Yes, sir.
Mr. Gesell. Now will you tell us, Mr. Davenport, how much btisi-
iiess was written during that period and what the resulting gain
was for that period?
Dr. Daa-enport. We started the second period of 1928-37 with
$80,000,000,000 of business on the books of the companies — that is
the same figure that we had to end with the previous period. Dur-
ing this 10-year period the new business issued amounted to a total
of $146,700,000,000.
Mr. Geseix. I didn't hear that figure.
Dr. Da\t:nport. $146,700,000,000 of new insurance put on the books
of the company in the 10-year period from 1928 to 1937. In that
same 10-year period tlie total of tKe insurance that terminated was
4296 CONCENTRATION OF ECONOMIC POWER
$126,700,000,000, and the difference between the new business and the
business that terminated is represented by this small segment here.
$16,000,000,000. In other words, as of December 31, 1937, we ended
with $16,000,000,000 more life insurance on the books of the com-
panies in their ordijiary and industrial departments than we had 10
years before.
Mr. Gesell. Then, as compared with the previous fteriod, a great
deal more insurance was written and a much smaller net gain in
insurance in force was accomplished.
Dr. Davenport. Yes. In the first period we wrote $109,800,000,000 ;
in the second period we wrote $146,700,000,000. In the first period
$54,400,000,000 terminated ; in the second period $126,700,000,000 ter-
^ninated. The gain in the first period was $53,000,000,000; the gain
in the second period was $16,000,000,000.
Mr. Frank. Are those figures right? He said 146 for the second
and 126 terminated. According to the table, the difference between
the two would be 20.
Dr. Davenport. The difference arises. Commissioner, by reason of
the manner in which the figures are compiled. We do not have a
complete census of the insurance business. We are forced to depend
on the figures that are reported to the Spectator and puLiisihed in
the Spectator Yearbook every year. The number of companies in-
cluded is never the same, and consequently there is a slight discrep-
ancy which arises when a company fails or is reinsured or merged
with another company, or when a company doesn't report in time to
get into the Spectator Insurance Yearbook.
Mr. Gesell. That is explained in a footnote to the table which
accompanies the chart.^
Mr. Frank. What you have just said, to recapitulate, means that
during the period 1928 to 1937 there was approximately $146,000,-
000,000 of new business, and the net result was only $16,000,000,000
of gain.
Dr. Davenport. That is right.
Mr. Frank. So you wrote 146 billion to add 16 billion ?
Dr. Davenport. That is right.
Mr. Gesell. Once again- your terminations by death represeilted
considerably less than 10 percent of the terminations. How much did
they represent?
Dr. Davenport. The terminations by death in the first period rep-
risented 7.9 percent of the total terminations; in the second period
they dropped to 6.59 percent of total terminations.
Mr. Gesell. Using the terms which you used in discussing termina-
tions on the previous chart, is it fair to say that in both periods the
terminations representing the successful accomplishment of the plan
contemplated by the policyholder at the time his insurance was taken
out are a relatively small percentage in either of the 10-year periods?
Dr. Davenport. A very small percentage. I have summarized the
significant relations that are revealed in this chart, as follows: The
largest single mode of termination was by lapse. Lapse accounted
for 62 percent of all' terminations. Surrender accounted for almost
16 percent, and decrease for 4.4 percent.
' Set- 'Exhibit No. 684," appendix, p. 4737.
CONCENTRATION OF ECONOMIC POWER 4297
Mr. Gesell. That is in the first period ?
Dr. Davenport. That is in the first period. These three modes con-
stituted terminations that represented the frustrations of the inten-
tions of the policyholders when they took out their insurance. To-
gether these modes of terminations that represent frustration of j)ur-
poses account for over $82 of every $100 that terminated in the period.
Senator King. Did you use the word "frustration" accurately ? A
person might take out insurance for a few months or a few years.
Dr. Davenport. If he did he would take out term insurance, in which
it would terminate at maturity.
Mr. Gesell. You mean terminate by expiry.
Dr. Da\t:nport. Yes. If he took out an endowment policy, say, a
10-year-endowment policy, at the end of 10 years it would mature ; it
would terminate in a manner that would be successful so far as he
was concerned.
Senator King. Are not some of the industrial policies taken out with
the expectation that they will not be continued more than a short time,
perhaps in the employment of A or B or C, or for some other reason ?
Dr. Davenport. It would be hard to look into the mind of the indus-
trial policyholder to determine the real reason why he bought that
insurance.
Mr. Frank. When
Senator King. Let him complete the answer.
Mr. Frank. I didn't mean to interrupt.
Dr. Davenport. When we find such a l^rge percentage of industrial
policies that lapse by the end of the first, second, or third week, it
doesn't seem that the policyholder took it out with the intention that
he would allow that policy to lapse so soon.
Mr. Gesell. By and large, industrial insurance is known as burial
insurance, is it not, and is taken out primarily for the purpose of
burying the worker when he dies, so the family will have some way
of taking care of him?
Dr. Daatnport. Again I say it would be hard to understand the
motives that activate the policyholder in taking out that insurance,
but certainly the necessity of having burial expenses to prevent
being buried in poverty is a very potent motive.
Mr. Frank. Dr. Davenport, may I ask, where an industrial policy
terminates by lapse, is the cost to the insured greater than if he
took a policy for that same period in the form of term insurance?
Dr. Davenport. Oh, much greater.
Mr. Frank. Then, if his intention had been to have insurance
only for the limited period, his cost would have been much less
if he had taken term insurance?
Dr. Davenport. Yes.
Mr. Frank. Would you not, therefore, assume that if he were well
instructed and intelligent, he would not have taken out the ordinary
industrial insurance for the short period?
Dr. Davenport. That is a very great assumption which doesn't
jibe with the facts as we understand them.
Mr. Frank. But if he had been well -instructed.
Dr. Davenport. If he were an intelligent --prospect arid had been
well informed by the agent what you say is perfectly true.
4298 CONCENTRATION OF ECONOMIC POWER '
Mr. Frank. Then, in that sense you can say the intention which,
if well instructed, he would have had, has been frustrated.
Dr. Davenport. That is right.
Mr. Henderson. Dr. Davenport, again picking up on that, it is
true, isn't it, that the most active of the agents selling policies and
the one that comes to the attention of the workman most is the indus-
trial policy agent?
Dr. Davenport. Yes.
Mr. Henderson. Since the buying of one of these weekly policies is
the only thing before him and he had merelj' a short period in mind,
he would have taken that, although he could have done better if he
had taken term insurance.
Dr. Davenport. Yes.
Dr. Lfbtn. Can you buy term insurance on a weekly basis?
Dr. Davenport, 'iliorc are some companies that sell it.
Dr. LuBiN. Whenever there is a surrender value in a policy and
1li(^ policy is given up — let us assume that a man has a policy and if
he suddenly finds that he can't continue to pay his premiums, he lets
it lapse — does the policyholder automatically get the surrender value
or must he make application for it or how does he proceed to get his
share of the return ?
Dr. DwHENPORT. Never having worked inside a life-insurance com-
pany, I don't know what the procedure is. I imagine that in the
companies that do an industrial business where they don't know tlie
name of the industrial policyholder, and he is merely known by a
number, that sometimes they lose sight of the claims that might
arise, and it is only when the family or the beneficiary to the policy
makes inquiry of the company that the facts are known. In the case
of the ordinary policies, I should imagine that the companies would
know the name, address, and so forth, and would be much move
likely to take the initiative.
Dr. LuBiN. In other words, as you understand it, it is possible for
a policy to lapse without the individual getting his surrender value
back, although there is a surrender value under the contract?
Di'. Daatenport. Well, I call your attention to the fact that if the
policy lapses there is no surrender value that is accessible to him.
Dr. LuBiN. I am using the term "lapse" in the unscientific way.
In other words, a man gets to the point where he can't continue to pay
liis weekly premium; lets the policy go. It is possible under those
conditions, even though he may be entitled under his contract to some
surrender value, tliat he may not get it.
Dr. Davenport. That is right. There is a bill introduced in the
New York State Legislature to attempt to recapture from the com-
panies unclaimed moneys to the credit of the policyholders that have
simply disappeared. I know in the case of the Massachusetts Savings
.J^ank Life Insurance of one individual, a policyholder that disaji-
peared. The man had apparently moved or died ; they didn't know.
They had $8 a month to his credit because it was an endowment poli:y.
Tliey finally located the man. He himself didn't know he liad any
' legitimate claim against that particular savings bank life-insurance
department.
Mr. Gesell. Some of these matters, Dr. Lubin, will be considered as
we ])rocced later on.
CONCENTRATION OF ECONOMIC POWER 4299
Mr. Frank. May I ask this question— perhaps I am anticipating?
In the period 1928 to 1937, more tlian 51 percent of these industrial
])olicies lapsed. Have you any approximate notion of the number of
persons who held such policies which thus lapsed?
Dr. Damsnport. In just a moment we shall introduce figures on
the number of policies. We do not know the number of persons
involved, but the number of policies will add a different light to
this picture from what is given when we are talking about amounts.
Acting Chairman Reeck. Do you think, Mr. Gesell, you expect to
cover most of the ground that is approached by these questions and,
tlierefore, prefer to proceed uninterrupted until tlie witness has
completed his testimony?
Mr. Gesell. It is perfectly all right. I think perhaps if the ques-
tions are held until the completion of a single cluirt, we might move
a little faster.
Mr. Frank. We are admonished.
Acting Chairman Reece. You may proceed.
Dr. Davenport. Still speaking of this first lO-yeur period, I have
indicated that these three modes — lapse, surrender, and decrease —
constitute terminations that represent the frustration of the inten-
tion of the policyholders when thej^ took out their insurance. To-
gether these modes of termination account for $82 out of every $100
of all insurance terminated. The modes of termination that rep-
resent the fulfillment of the objectives of the insured — death, ma-
turity, disability, and expiry, including all of expiry though part
of expiry may actually have occurred through fruoiration — combined,
account for only $18 out of every $100 that terminated.
The decade just discussed was one of remarkable growth in life
insurance; it occurred during the period of expanding industrial
activity and increase in the standard of living.
During the second 10-year period, 1928 to 1937, inclusive, large
amounts of new insurance were sold and large amounts of insurance
were terminated. Except for 2 years, 1932 and 1933, the amount of
insurance sold each year exceeded the amount terminated. The dec-
ade ended in 1937 with over $96,000,000,000 of insurance in force, an
amount that was $16,000,000,000 greater than insurance in force in
1928. In this 10-year period the total of the ordinary and industrial
insurance business that terminated amounted to 126 billion. As indi-
cated in the accompanying exhibit, lapse accounted for over 51 per-
cent; surrender, for almost 27 percent, and decrease for over 4 percent.
These modes of termination combined accounted for $83 out of every
$100 that terminated.
In comparing the experience of the first decade with that of the sec-
ond, it will be noticed that the relative importance of lapses declined
as the relative importance of terminations became greater. The total
surrender of lapse, surrender, and decreases, representing the frus-
tation of the policyholders' plans is almost exactly the same in the
two decades.
Mr. Gesell. I would like to offer for the record at this time the chart
entitled "Life Insurance in Force, Newly Issued, and Terminal <^(1,"
which \vas discussed by the witness and the supporting table.
Acting Chairman Reece. It may be received.
4300 CONCENTRATION OF ECONOMIC TOWER
(The chart referred to was marked "Exhibit No. 684" and appears
on this page. The statistical data on which this chart is based are
inchided in the appendix on p. 4737.)
p]XHll:IT No. 081
LIFE INSURANCE IN FORCE,
NEWLY ISSUED & TERMINATED*
AMOUNTS
.INS. IN NEW TOTAL INS. IN
FORCE BUSINESS TERMINA- FORCE
JAN. I -IB ISSUED TIONS DEC. 3l-'eT
INS. IN NEW TOTAL INS. IN
FORCE BUSINESS TERMINA- FORCE
JAN. I -eB ISSUED TIONS DEC. 3 1 "'ST
»ORo. a IMP. ms. eotiBiNco or u.$. uml i>s$CKye un m$. co$.
t$-»n t^tuKi gr ste. a aen oomf.
CONCENTRATION OF ECONOMIC POWER 439 1
Acting Chairman Reece. I think Mr. Ballinger has a question that
would be permissible.
Mr. Ballinger. Is it true that the total amount of money received by
insurance companies on lapsed policies is in considerable excess of the
cost of writing policies and carrying that insurance ?
Dr. Davenport. That is a matter that is subject to considerable dis-
pute, a matter in which the terminology that is employed in setting up
the accounts of the insurance companies, convention forms in which
they report to their respective superintendents and commissioners of
insurance, leaves something to be desired, shall we say, in clarity ; but
I will touch upon that matter to the extent that I am able to.
Mr. Ballinger. I wanted to ask this for information : I had always
heard that because insurance companies put the time from 3 to 5 years
before a policy has any surrender value, that the period is put that
long because the chances are the policy will lapse, and if it lapses it is
a clear gain to the insurance company over and above the cost of Avrit-
ing and carrying that insurance. If that is the case then the period
ought to be reduced so the policy would have a quicker surrender value,
I mean a nearer surrender value.
Dr. Da\tenport. The law requires that upon the payment of the first
premium a specified reserve should be set up against that particular
policy, and the way in which that reserve accumulates out of successive
])remiums and out of the interest earned on that reserve is specific, it is
definite. Now, actually, after you have taken out of the first
year's premium and set up this reserve which is required by law and
is in accordance with the actuarial tables and the assumption of the 3-
percent interest earned on the reserve, after you have done what the
law requires, there remains a portion of the first year's premium to
pay expenses, agents' connnissions, home-office expenses, and the actual
share of that particular policyholder toward the death losses in that
first year. Those claims, those expenses, exceed what is left after the
first year's reserve is set up out of the first year's premium.
Mr. Gesell. Now we are going to consider, are we not, following
this chart the nature of the gains and losses and surrenders and
lapses shown on the convention forms, and discuss this matter in
great detail at that time.^
Dr. Davenport. I think probably that will help answer your in-
quiry, Mr, Ballinger.
Mr. Gesell. You have before you, have you not, a chart entitled
"Industrial Life Insurance in Force, Newly Issued and Terminated,
Number of Policies"? "^
Dr. Davenport. That is correct.
Mr, Gesell. That chart has been prepared on the same basis as
the previous chart except that it relates to numbers of policies rather
than amounts of insurance and also is confined solely to industrial
insurance rather than having both ordinary and industrial insurance
combined?
Dr. Davenport. That is right. This differs from the previous
chart in that it is based upon the number pf policies.
1 Infra, p. 4"12.
' Suhspqiiently introd»ioo(l as "Exhibit No. 685/' infra, p. 4nn4.
»In tliis connoction see siibsecment testimony ©f Dr. Davenport, and "Exhibit No. 94n,"'
IleariTigs, Part XII. p. .".GO? et se<|.
4302 CONCENTRATION OF ECONOMIC POWER
Mr. Henderson. As against dollars.
Dr. Davenport. As against the dollar amount involved in the poli-
cies. Up to the present time we have been discussing the amount of
insurance that terminated. Now we have turned in the case of indus-
trial insurance to the number of policies involved. Again we have
the period divided into two decades, 1918 to 1927 and 1928 to 1937.
The scale on the chart runs from zero to 200,000,000 policies, number
of policies. The first bar represents the numVjer of old policies in
force at the beginning of the first period. There were 38.763.000
industrial policies in force at the beginning of this 10-year period.
During the 10-year period 127,800,000 new business, new policies, were
put on the books of the companies.
In that same period of time 85.100000 industrial policies termi-
nated. The gain is represented by the dift'erence between the new
business and the amount that terminated. The gain, added to whv^
we had before, brings the number of policies in force as of Decembei'
31, 1927, to 82,246,0()().
Mr. Gesell. Now, if you will explain the period from 1928 to 1937
and make comparisons between the two periods, I tliink it would be
helpful.
Dr. Davenport. The second period started with 82,200,000 of indus-
trial policies in force, and in this period the new business put on
tlic books totaled 193,700,000 policies.
Mr. Gesell. Do you mean to say that there were 193.000,000 indus-
trial policies written during the period of 1928-37?
Dr. Da"\^nport. One hundred ninety-three million seven hundred
thousand.
Mr. Hendekson. That wns an avernge of about 19,000,000 a year.
Dr. Davenport. That is riglit ; a.lO-yeur period.
ISIr. Gesell. And from Avritiug all that — —
Dr. LuRTN (interposing). Tliat includes the i>olicies revived, too,
does it not ?
Dr. Davenport. That includes the ])olicies revived.
INIr. Gesell. From writing all that business what was the net
gnin?
Mr. D\^ EXPORT. The net gain is 6,600,000 jiolicies.
Mr. Gf,seij.. In otlier words, over $193,000,000 policies were written
lo r.ccomplish a net gain of around 6,500,000.
Dr. Davenport. That is right. We climbed up that majiy steps in
ihe ladder and we dropped back this many rungs in the hutder. We
actually made a net gain of 6,600,000.
Mr. Frank. That is a little over 3 percent.
Dr. DA^^i:NP0RT. Yes; about 4 percent, I should say, of the total of
new business.
Mr. Gesell. And of the policies that went off the books during that
period, wliat percentage of tliem went off by lapse?
Dr. Davenport. The la})se percentage is shown by the heavy red
segment, the bottom segment of the bar ^^■hic1\ is next to the last bar on
the chart. That percentage was 70.68 percent of 187.800,000 policies
that terininated. Seventy point sixty-eight percent of them termi-
nated by lapse.
]\rr. Frank. Or, in number, that was 132,700,000, ai)proxii!iately.
CONCENTRATION OF ECONOMIC POWER 4303
Dr. Davenport. Tlie figures are given at the bottom of the chart;
132,708,000 policies terminated by lapse in this 10-year period.
Dr. LuBiN. Mathematically it means that for every family in the
United States four policies lapsed during that period — a minimum of
four policies lapsed.
Dr. Davenport. Yes; but of course we have to recognize that it is
only the lower income families that buy this kind of insurance, so if
you segregated your population on an income level it would have to
be a larger figure for the average family that actually is exposed to
the purchase of this kind of insurance.
Dr. LuBiN. I was interested in Mr. Gesell's questionj namely, that
193,000,000 policies had been sold during that period, which means that
for every family in the United States six policies were sold.
Dr. Davenport. That is right.
Mr. Gesell. Now will you make the comparjson between one period
and the other.
Dr. Davenport. I think probably the most interesting comparison is
between the third bar in the first part of the chart, "Total Policies
Terminated," and the next to the last bar in the second decade, "Total
Policies Terminated."
Mr. Gesell. You are comparing the termination experience of the
10-year periods.
Dr. Davenport. The termination experience in the 10-year periods.
You will note that in the first 10-year period almost 82 percent of
the terminations terminated by lapse ; in the second period 70.68 per-
cent terminated by lapse. Surrenders in the first period accounted
for 7.39 percent; in the second period surrenders had increased to
20.47 percent. Deaths accounted for 7.34 in the first period; in the
second period deaths accounted for 4.45 percent only.
Mr. Gesell. I think I can properly say, "Wliat was that?" due to
the buzzer. How much by death during the 1928 period?
Dr. Davenport. Four and forty-five one-hundredths percent of the
terminations. Of the number of industrial policies that terminated
in the 10-year period from 1928-37, 4.45 percent of them terminated
by death. In the prevous period, 7.34 percent terminated by death.
Dr. LuBiN. I may appear to be naive, but I do want to ask a
question which occurs to me. How do you account for the fact that
the American people buy 193,000,000 policies in a period of 10 years ?
In other words, how does it happen ? Are people so anxious to have
insurance that t:hey are willing to do almost anything to get it?
Dr. Davenport. Well, of course, the institution of insurance satis-
fies a very deeply rooted desire on the part of the average man. In
part it is an answer to that, but that has been present "all the time.
In part it is a tribute to the perfection of the art of salesmanship and
the organization of large crews of selling agents. I think we have
learned a technique of selling Ufa insurance.
Dr. LuBiN. Are you implying that we have learned the technique
of taking advantage of this fundamental desire for security?
Dr. Daatsnport. I am not impugning the motives of the insurance
company or the agent.
Mr. Henderson. But in all this squirrel-cage activity in that 193,-
000,000 you pointed out there must have been some Workers that had
five, six, eight, and nine policies.
4304 CONCENTRATION OF ECONOMIC POWER
Dr. Davenport. We find cases where they have as many as 20
industrial policies.
Mr. Henderson. As many as how many ?
Dr. Davenport. Twenty industrial policies in force in a particular
family.
Mr. Henderson. But I mean in this period 1928-37, if you took
all the working population there was, there must have been an average
of at least four policies to each member of the labor force.
Dr. Davenport. Many of the policies were written on children, on
the wives, on other members of the family.
Mr. Gesell. But the net result of this tremendous selling of new
policies with a very small gain is that there must be a continual turn-
over of policies within a single family or family group.
Mr. Henderson. Are you trying to avoid my characterization of
this as squirrel-cage activity ? It seems to me you are going around
the barn.
Mr. Geselx.. There must be continual selling and reselling of poli-
cies to the same family and individual, must there not?
Dr. Davenport. I am sure that occurs.
Mr. Gesell. There are not 193,000,000 people in the United States,
are there, Dr. Davenport?
Dr. Davenport. No ; according to the Census about 130,000,000.
Mr. Gesell. Every time a policy lapses there is some loss to the
policyholder, is there not?
Dr. Davenport. It means he has paid a great deal more for the
protection that he had than was necessary.
Mr. Geselll. So that as this process continues and he is sold and
resold and sold again, he, as a laboring man, is suffering continual
loss every time that occurs, is he not?
Dr. Davenport. That is perfectly true.
Mr. Frank. If he took term insurance, there would be no such loss,
I assume.
Dr. Davenport. That is right. The cost of term insurance would
be much lower and would be more in proportion to the actual ex-
penses involved covering him, giving him what he actually got.
Mr. Frank. In buying ordinary industrial insurance he is paying
for something which he does not get if there is a lapse ?
Dr. Davenport. That is right.
Mr. Gesell. I would like to offer for the record at this time a
chart entitled "Industrial Life Insurance in Force, Newly Issued and
Terminated, Number of Policies," and the supporting schedule which
we have just been discussing.
Acting Chairman Reece. They may be received.
(The chart referred to was marked "Exhibit No. 685" and appears
on p. 4305. The statistical data on which this chart is based are in-
cluded in the appendix on p. 4739.)
CONCENTRATION OF ECONOMIC POWER
4305
Exhibit No. 685
INDUSTRIAL LIFE INS. IN FORCE,
NEWLY ISSUED & TERMINATED*
MILLIONS
OF POLICIES
NUMBER OF POLICIES
1918 -1927
1928-1937 ofpouc°eI
NO OF TOT.NEW TOTAL NO. OF
POLICIES POLICIES POLICIES POLICIES
IN FORCE ISSUED a TERM- IN FORCE
JAN. l-'ie REVIVED INATED 0EC.3l-'27
NO. OF TOT NEW TOTAL NO. OF
POLICIES POLICIES POLICIES POLICIES
IN FORCE ISSUED S TERM- IN FORCE
JAN. 1-28 REVIVED INATEO OEC.31-37
os-itio PKH/teo er sec a ckch comm
Mr. Gesell. So far, Dr. Davenport, we have been considering the
business as a whole. Take this problem of industrial insurance policy
terminations. Have you prepared ce^rtain studies of the experience
of representative indusd-ial companies?
4306 <;ONCKNTKATION OF ECONOMIC POWER
Dr. Davenport. We have a study that shows the experience of
seven coin])anies selling industrial life insurance.
Mr. Ge<ell. That is a schedule entitled "Industrial Insurance —
Termination, Experience of Seven Companies,"^ is it not?
Dr. Davenport. Correct.
Mr. (jesell,. Will you describe what that schedule demonstrates?
Dr. Davenport. The seven companies from which this informa-
tion was assembled are listed at the top of this table. They are the
Metropolitan Life Insurance Co., Prudential Insurance Co., Western
& Southern Life Insurance Co., Life Insurance Co. of Virginia,
Equitable of the District of Columbia, Washington National, and the
Peoples of the District of Columbia. The chart is ai-ranged in three
segments of the exhibit. The first segment relates to the experience
in the period 1924-28; the second the period 1929-33, and the third
ilie period 1934—38. Both amounts and percentages of terminations
are given. For example, for the Metropolitan Life Insurance Co. in
the first period, $3,798,210,000 of industrial insurance terminated. Of
that amount of terminations 76.48 percent terminated by lapse and
5.88 terminated by death. Perhaps it would be easier to follow the
table by merely reading down through the columns that are headed
"Percent."
Metropolitan percents: Death, 5.88 in the first period; lapse, 76.48.
In the second period, death, 4.23 percent; lapse, 58.72 percent. In
the last period, death, 5.49 ; lapse, 50.31 percent.
Mr..GESELL. How does that compare, say, with the Peoples?
Dr. Davenport. We will take the row headed "Death" and run
right across the page. You can see the variety of experience is
revealed by these seven companies. Death for the Metropolitan in
the first period, 5.88; for the Prudential Insurance Co. of America,
5.93; for the Western & Southern Life Insurance Co., only 2.71; Life
Insurance Co. of Virginia, 4.41; the Equitable of the District of
Columbia, 1.86 ; the Washington National, 1,22 ; Peoples, 1.23.
Mr. Gesell. Will you do the same thing with the lapse line for
that first period?
Dr. Davenport. Certainly. We will run across the row entitled
"Lapse," and we find that in the Metropolitan 76.48 percent termi-
nated by lapse; in the Prudential, 76.26; in the Western & Southern,
88.23; in the Life Insurance Co. of Virginia, 83.13; in the Equitable
of the District of Columbia, 92.08; in the Washington National,
98.40; in the Peoples, 98.74.
Mrn Gesell. That is the all-high on this schedule, is it not, 98.74
percent ?
Dr. Davenport. That is the highest figure reported on this sched-
ule. We have listed only seven companies. We might find others
where it would be even, perhaps, higher than that.
Mr. Gesell. Will you tell us what the basis of selection of these
companies has been? The Metropolitan and the Prudential, as we
know, are the two principal companies selling industrial insurance.
What about the other five companies? How do they rank?
Dr. Davenport. We took in two of the largest, two medium-sized
companies, and two companies that are in between, as you can see from
the amounts of insurance that terminated, for example, in the Metro-
1 Entered later as "Exhibit No. 686," see appendix, p. 4739.
CONCENTRATION OF ECONOMIC POWER 4307
politan, $3,798,210,000 in that first 5-year period; in the Prudential,
$8,717,814,000; in the Western & Southern, only $611,000,000; in the
Life Insurance Co. of Virginia, $211,000,000. Now we come down to
companies tliat are somewhat smaller, the Equitable of the District of
Columbia, almost $55,000,000; the Washington National, $35,000,000;
Peoples, $181,000,000. These companies are not new companies.
The JNIetropolitan was organized in 1879, the Prudential in 1873, -the
Western & Southern in 1888, Life Insurance Co. of Virginia in 1871 ;
Peoples began in 1916.
Mr. Gesell. You are talking now of the dates, not of the organiza-
tion of the company, but the date they started to write industrial
business.
Dr. Davenport. That is correct ; the date they began doing indus-
trial business. The Equitable Life Insurance Co. of the District of
Columbia, 1902, and the Washington National was formed as a merger
in 1926 of other companies; the other companies ha^ industrial busi-
ness in force at the time of the merger.
Mr. Gesell. Would you say this is a representative gi'oup of indus-
trial companies and that by and large it represents the more important
industrial companies ?
Dr. Davenport. Well, certainly there is no question about the
Metropolitan and the Prudential being the most important industrial
companies. Those two companies together probably account for
$15,000,000,000 of insurance in force in 1937, and industrial insurance
in force was about $20,000,000,000. Those two companies alone take
almost two-thirds or three-fourths of the total.
Mr. Gesell. Is it fair to say that you view the period from 1924
to 1928, the period from 1929 to 1933, and from 1934 to 1938, as shown
on this schedule, as prepared on a comparable basis and by and large,
as showing comparable results?
Dr. Davenport. I think the figures do not show any great differ-
ence in the three periods, with the exception of the last period. If
you will come down to the last period and run across on the line
labeled "Lapse," you will find that the MetropoliJ:an had 50 percent
of its policies that lapsed in that period, the Prudential only 22.5.
This was a sudden change in the characteristic of terminations of
the Prudential's insurance, and an explanation is in order. The
Prudential liberalized its industrial-insurance policies by a provision
which in effect was this : That a policy that was in force for 3 weeks,
if it lapsed and no more premiums were paid on it, would be carried
on for 1 additional week as a term policy. At the end of that week,
if no additional premium was collected it would then terminate as a
terrn policy terminates by expiry. Consequently, the expiries jumj)
up in this last period, although fundamentally the reason for the
termination is essentially the same as the reason in the previous pe-
riods before they liberalized the policies, when such a policy was
called a lapse.
Mr. Gesell. All that has happened is that the policyholder lias
gotten a slightly greater amount of protection for the money that
lie paid in.
Dr. Davenport. That is correct.
Mr. Henderson. One week?
Mr. Davenport. He has been given 1 week for every three weeks
the policy had be^n in force.
1 04401 _4o >>«■ in
4308 CONCENTRATION OF ECONOMIC POWER
Mr. Henderson. One week for every three; so if at the end of 30
weeks
Dr. Davenport (interposing). He would have 10 weeks' additional
coverage at no additional expense to himself.
At the end of that 10 weeks, then the policy passes out by expiry.
Mr. Henderson. Yes ; but if he took Prudential, they nad an expiry
rate on the first period of about 5.5 percent and about 5 percent in
the second period. If you took, say, 6 percent of that expiry rate
of 33 percent as a liberal allowance for expiry on their usual experi-
ence in the two previous periods, there would remain about 27 percent
which ou^ht to be added to their lapse.
Dr. Davenport. That is correct.
Mr. Henderson. Making it 49.50, or almost the same again as the
Metropolitan.
Dr. Davenport. With that adjustment, the percentages that repre-
sent termination by frustration of the objectives of the policyholder
at the time he was sold his insurance remains about the same through-
out the period.
Mr. (jESELL. I would like to offer for the record at this time the
schedule quoting the experience of the companies Dr. Davenport has
just been discussing.
Acting Chairman Reece. It may be received.
(The schedule referred to was marked "Exhibit No. 686" and is
included in the appendix on p. 4739.)
Mr. Gesell. Coming to the question Mr. Ballinger raised slightly
earlier in the period, am I correct in stating, from the gain-and-loss
exhibits of the various companies as compiled in the Spectator Year-
book, you have prepared a statement showing the net gains or losses
from the surrendered and lapsed policies both for ordinary and indus-
trial, as reported by the companies for the years from 1918 to 1937,
inclusive ?
Dr. Davenport. That is correct.
Mr. Gesell. Now, will you explain in more detail for the com-
mittee what is shown on that schedule and how it was prepared?
Dr. Davenport. The schedule lists for each jy^ear from 1918 to
1937 the number of companies from which this information was
assembled in the Spectator. The number of companies was 144
companies that reported this information.
Mr. Henderson. In 1918.
Dr. Davenport. In 1918. The next year it was 165. We come
down at one time to when it was 283 companies, from which this
information was available that particular year. The last year, 1937,
there were only 250 companies included in the aggregate. The
column at the right is entitled^ "Net gain or loss." I should like to
read this as I phrased it rather carefully.
In the gain and loss exhibits contained in convention forms, which
the life-insurance companies submit to their respective insurance
commissioners, there appears an item designated as "Net gains or
losses" — surrendered and lapsed policies. Each year the amounts
under this heading reported by a large number (the number stipu-
lated over here) of companies are summarized in the Spectator
Insurance Yearbooks. These summaries, covering the years 1918
through 1937, are presented in the accompan\ing table. If these
amounts represent what is indicated by their title, it appears that
CONCENTRATION OF ECONOMIC POWER 4309
(he life-insurance business gains from the fact that such a large
amount of the life insurance terminates through lapse and surrender.
In every year covered by this table gains were reported. The total
gain from this source over the 20-year period amounts to over 1.3
billion dollars, and average of $66,000,000 a year.
Mr. Frank. That is a total for the period ?
Dr. Davenport. That is the total for the period 1918 through 1937.
It is maintained by life-insurance officials that the amounts re-
ported as gains from this source are not really profits. It is con-
tended that the reserve which the law requires the company to set
up against each policy takes so much of the premiums for the first
few years that there is not enough left to pay the full costs of
acquisition. That is the home office expense, and so on. Therefore,
the company must borrow from its surplus to meet part of the
selling costs. When insurance is terminated by lapse or surrender,
the gain reported therefrom is merely a recovery of these sums and
is transferred back to the surplus. Howevet- this may be, this much
is perfectly clear — the figures given show that the policyholders
whose insurance terminated *by lapse and surrender lost at least
this amount of their savings. In other words, the total of the
policyholders' reserves that was not returned to policyholders upon
the lapse or surrender of their policies amounted to 1.3 billion dol-
lars in these 20 years.
Mr. Ballinger. In this chart you combine surrender and lapse
policies. Is it possible to separate them ?
Dr. Davenport. They are not separated in the convention forms.
Mr. Ballinger. Would it be possible to find out from 1918-37
the total amount of money paid in to insurance companies on lapsed
policies, the total amount paid in before the policies lapsed?
Dr. Davenport. Probably by interrogating the companies' direc-
tors we might get that information, of the items which the convention
report does not segregate.
Mr. Ballinger. I should think on a surrendered policy the gain
that the company made, if anything, would be very slight, but I should
think on a lapsed policy the gain might be considerably more.
Dr. Davenport, There is a surrender charge that is imposed. It
varies in different States and it varies in the same State with different
companies. The law usually stipulates the maximum surrender
charge that can be imposed upon the termination of a policy by sur-
render, and that is imposed presumably on the theory that certain
expenses are involved in terminating that policy, and also, quite
frankly, upon the theory that there should be some kind of incentive
for the policyholder not to give up his program of coverage and
savings.
Mr. Ballinger. I mean 3 to 5 years might be pretty strong incen-
tive and also it might be one to break the back.
Dr. Davenport. I have some figures, that deal with the practice.
Under the New York law a certain maximum surrender charge is
allowed. The surrender charge the third year for the Mutual Lite of
New York is $13.25. The policyholder would get back two-thirds of
the reserve against his policy at the end of the third year. At the end
of the fourth year the surrender charge is $13.40, He would get back,
then, 25 percent of the reserve against his policy. The percent ge that
is imposed as a surrender charge runs down from 33V^ percent in the
4310 CONCENTRATION OF ECONOMIC POWER
third year to 1 percent in the nineteenth year. That is the Mutual
Life of New York's schedule on surrender charges. In the case of
the Northwestern Mutual Life Insurance Co., the surrender charge on
the second year is $16 per thousand ; $14 per thousand the third year ;
and then it drops down so that by the ninth year it is only $2 per
thousand.
Mr. Gesell. This figui-e of $1,338,000,000 that you have mentioned
for this 20-year period is simply the figure as shown on the gain-and-
loss exhibits of the various companies, is it not ?
Dr. Davenport. That is the figure that is reported in the Spectator
Insurance Yearbook. It represents a consolidation of those items
reported by the individual companies in their convention forms.
Mr. Gesell. Is it your contention that the $1,338,000,000 is all that
the policyholders lose whose policies lapse and are surrendered, or
is it rather your contention that this is the only figure bearing on that
matter which can be obtained from published sources ?
Dr. Davenport. This is the only figure that we can obtain readily
which seemed to have a clear connotation. If we mean by "lose"
what the policyholder loses, the first 2 or 3 years that he has- paid for
the premium and eventually has a lapse of policy. I think we have to
define a little more clearly what are the legitimate costs to be imposed
against it. That has never been satisfactorily defined. Until we do
that, and agree to it, I would be loath to attempt to estimate what is
lost. This is a minimum.
Mr. Gesell. That would get, for example, into the whole question
of whether there have or have not been in certain companies excessive
acquisition costs charged against the policyholders brought in for this
short period of time and lapsed.
Dr. Davenport. Yes ; and whether the new policyholder should pay
the entire acquisition cost of putting his policy on the books of the
company; should pay his share of the commission, the expenses of the
insurance agent calling upon 20 other people whom he didn't sell.
Mr.. Gesell. I have no further questions.
Mr. Frank. May I ask a question ? Have you any figures showing
the total amounts of premiums paid in on industrial policies, poor
man's insurance, with respect to lapsed policies? ^
Dr. Davenport. We haven't those figures segregated, Mr. Commis-
sioner, but we would be very glad to assemble them and introduce
them later.^
Mr. Frank. Have you any figures to show how murh of that amount
thus paid went to pay agents for soliciting insurance in the first
place, and for collecting premiums? -
Dr. Davenport. Those figures are not in shape to give them to you
now.
Mr. Frank. Could it be said that, even assuming that the companies
did not gain as a result of lapses in the manner indicated, nevertheless
the insured in these lapsed industrial policies were paying a very
considerable amount for the expenses of the company in connection
with solicitation and collection of premiums by agents?
Dr. Davenport. I think there is no question but that these policy-
holders that have to lapse their policies pay a great deal more than
^ In this connection see subsefinent hearings on industrial insnr.-ince, HparinKs, I'art XII.
See also, infra, p. 4312.
» Ibid.
CONCENTRATION OF ECONOMIC POWER 4311
(hey would have to pay for what they actually got in the way of
protection.
Mr. Frank. Have you any figures to show what the difference
would be in cost to the insured, on this poor man's insurance that
lapses, the difference between what it costs those people in the aggre-
gate and what it could have cost them if they had taken out term
insurance ?
Dr. Davenport. We haven't for the industrial. The picture that
we have here shoAvs only for the ordinary whole-life policy of $1,000.^
It would be a considerably worse picture if we could get that for
typical industrial policies.
Mr. Gesell. Is it not true that published reports considering vari-
ous ages upon w^hich the policyholders come into a company, the
various types of policies they have, the various periods within which
lapse and surrender occur make it impossible to prepare the type of
figure that Commissioner Frank has just mentioned?
Dr. Davenport. We could make illustrative examples of what hap-
l^ens to a particular policyholder at a certain age taking out a certain
kind of policy, but it is very complicated to present the over-all.
Mr. Frank. Assuming, and I think from my limited knowledge,
correctly, that where the intention of the policyholder is not frus-
trated, to use your terminology, that industrial insurance would be
better than term insurance, nevertheless does the experience indi-
cate that so large a proportion of such insurance lapses that it would
be better in the aggregate for poor men taking our insurance to have
t aken out term insurance rather than industrial insurance which they
did take out?
Dr. Davenport. I am coming rapidly to that conclusion. Com-
paring what they actually got, the cost of what they actually had in
tlie way of protection, with what it would have cost them to get that
protection in another way, probably these people who have to pay
their premiums on a -weekly basis w^ould have been much better ad-
vised not to try to take insurance that accmnulatively involved a
savings element.
Mr. Frank. In other words, a good argument could be made cer-
tainly for a iiiaii of means in favor, in certain circumstances, of liis
taking ordinary life instead of term. But where the experience indi-
cates that the great bulk of the policies, or so large a proportion, are
going to lapse and mean nothing so far as the insured is concerned
excej^t in terms of its consequences as tei-m insurance, then term insur-
ance would be what he ou^ht to take out?
Dr. Davenport. There is a possibility that a different marketing
mechanism, a different method of distributing industrial life insur-
ance that Avould be much less expensive than the present method, could
be devised which would enable these poorer people to obtain the same
kind of insurance that the wealthier man gets at a much lower cost.
Mr. Frank. What, from your study of the subject, do you think
is the motivation of the company in seeking to sell to poor people the
kind of insurance that they do. rather than the less expensive type
which, you say, would be more serviceable to these poor ^Deople taking
out insurance?
1 See "Exhibit No. 682," supra, p. 4286.
4312 CONCENTRATION OF ECONOMIC POWER
Dr. Davenport. Well, it started this way. It got a big momentum.
They have a big organization of agents. They know how to handle
chose agents in the old methods; any great change in the method of
applying agents' incentives is rather difficult to accomplish.
Mr. Gesell. May -I say that this afternoon and for some period of
time tomorrow w^e will present representatives of the insurance busi-
ness and interrogate them on that point? Dr. Davenport's presenta-
tion here has been, as far as we have been able to make it, purely a
statistical presentation of background material for the study.
Mr. Frank. Just to clarify my own thinking, perhaps I have been
anticipating this, I would like to get Dr. Davenport's reaction. Leav-
ing out the so-called gains with reference to which you have tes-
tified, it would appear that, so far as the companies are concerned,
they get no financial advantage from the loss to the insured whose
policies terminate and whose intentions are frustrated.
Dr. Davenport. In many cases' they claim that unless the insurance
policy has been in force for 3 or 4 or 5, and in some cases 7 years they
actually suffer a loss; that is, the continuing body of policyholders
has lost by reason of getting this man in for such a limited period of
time.
Mr. Frank. So that there appears to be no strong profit incentive
on the part of the companies in the maintaining of this present
system.
Dr. Davenport. As most of these companies are mutual companies,
consequently the profit motive shouldn't predominate.
Mr. Frank. The explanation, therefore, must be found, as you
indicate, rather in inertia than in selfishness.
Dr. Davenport. I should think so.
Mr. Gesell. May I offer for the record a schedule entitled "Net
gains and losses from surrendered and lapsed policies"?
Acting Chairman Reece. It may be admitted.
(The schedule referred to was marked "Exhibit No. 687" and is
included in the appendix on p. 4740.)
(Whereupon, at 12:35 p. m., a recess was taken until 2:15 p. m.
of the same day.)
afternoon session
(Whereupon the hearing was resumed at 2:20 o'clock, upon the
expiration of the recess.)
Acting Chairman Reece. The committee will come to order. Are
you ready to proceed, Mr. Gesell?
Mr. Gesell. I am.
Before calling the first witness, one or two points came up due to
questions of the committee this morning that I would like to mention.
-First, the question was asked as to what the total of premiums received
by the industrial companies was,^ and for 1937 the best figure we were
ble to find available showed 66 of the 140 companies had a premium
icome from industrial insurance of in the neighborhood of $775,-
00,000. Also, the question was asked as to how much industrial in-
iirance is whole life insurance and how much is endowment.^ From
a. p. 4810.
-It, p. 4292.
CONCENTRATION OF ECONOMIC POWER 4313
figures as of December 31, 1937, it would appear that there are about
50,000,000 whole life policies, and 33,000,000 endowment policies in
the industrial field, and in terms of amount there is almost twice as
much whole life as endowment in force.
The first witness to be called this afternoon is Mr. Gilbert A. Clark.
TESTIMONY OF GILBERT A. CLARK, ACTUARY, EQUITABLE LIFE
INSURANCE CO., WASHINGTON, D. C.
Acting Chairman Reese. Mr. Clark, do you solemnly swear that
the testimony you are about to give in this proceeding shall be the
truth, the whole truth, and nothing but the truth, so help you God ?
Mr. Clark. X do.
Mr. Gesell. Mr. Clark, you are actuary and vice president of the
Equitable Life Insurance Co. of Washington, D. C, are you not?
Mr. Clark. Yes, sir.
Mr. Gesell. Your company writes industrial insurance, does i
not?
Mr. Clark. Both ordinary and industrial.
Mr. Gesell. Is your principal business industrial or is your princi-
pal business ordinary?
Mr. Clark. Two-thirds industrial and about a third ordinary.
Mr. Gesell. How long has your company been writing industrial
insurance ?
Mr. Clark. Since 1887. The company was organized in 1885 under
the laws of the State of West Virginia and wrote only 5-year endow-
ment policies until 1887. In 1902 the company was reincorporated
under the laws of the District of Columbia.
Mr. Gesell. And how many States does your company do business
in?
Mr. Clark. Five States, including the District of Columbia.
Mr. Gesell. Those States are in the neighborhood of the District
of Columbia?
Mr. Clark. Delaware, Maryland, West Virginia, and Ohio.
Mr. Gesell. How long have you been with the company ?
Mr. Clark. Fifty years.
Mr. Gesell. Now, as of the end of 1938, how many industrial policies
were in force in your company?
Mr. Clark. Industrial, 288,416.
Mr. Gesell. And how much insurance did that represent ?
Mr. Ci^RK. Sixty-seven million, one hundred seventy-one, two-
twenty-four.
Mr. Gesell. Am I coi-rect in saying that your company is, in terms
of size, with relation to other industrial companies, about seventh or
eighth, somewhere along there?
Mr. Clark. No; I don't think we come up that high on the list;
possibly tenth or eleventh.
Mr. Gesell. Somewhere in that neighborhood. And you have about
less than 1 percent of total industrial insurance in the country in force?
Do you know, in terms of amount ?
Mr. Clark. I don't know ; I can't say ; I don't know the total amount
in force.
4314 CONCENTRATION OF ECONOMIC POWER
Mr. Gesell. Have you prepared a schedule showing the experience
in terminations of your company in the period of January through
March 1939?^
Mr. Clark. I have.
Mr. Gesell. Is that a copy of the schedule ?
Mr. Clark. That is right.
Mr. Gesell. Will you tell us what that schedule purports to show
and on what basis it was compiled ?
Mr. Clark. This purports to show the duration for which premiums
were paid on the termination of those 3 months. Column No. 1 shows
the period. That runs down for 51 weeks and then drops off into
years, 1 year, 2 years, 3, 4, 5, and then I take it up in groups of 5 years
each, 6 to 10, 16 to 20, and so on down; the last one is 51 to 55 years.
Mr. Gesell. You mean you took all terminations of policies during
the period from January to March through 1939 and classified those
terminations, first, as to the period in w^hich the policy involved had
been in force ?
Mr. Clark. Yes ; that is it.
Mr. Gesell. Then did you also classify the terminations in terms
of voluntary and involuntary terminations?
Mr. Clark. Yes; we first took all terminations. Then we showed
terminations by death and maturity, and then the difference between
those two we considered voluntary terminations.
Mr. Gesell. Voluntary terminations would be all terminations other
than terminations by death or maturity ?
Mr. Clark. Yes ; that would include a lot of cash surrenders.
Mr. Gesell. Now this schedule shows, does it not, that by number
of policies IJ 9 percent terminate within the first week that they are
in force.
Mr. Clark. Yes ; that item shows policies on which only one pre-
mium was paid on eadi policy.
Mr. Gesell. So on those policies you had only received one pre-
mium before termination.
Mr. Clark. Yes.
Mr. Gesell. Then am I correct in saying that some 48.4 percent
of your policy terminations during this period were voluntary termi-
nations on policies which had been in force 25 weeks or less?
Mr. Clark. That is right.
Mr. Gkskll. And by the end of the first year your terminations
durii\g the period were some CO percent voluntary on policies which
had not been in force more than the year period.
Mr. Clark. That's right,
Mr. Gesell. Now, calling your attention first of all to the 11.9
percent of your policies wliicli terminate after one premium has been
paid, is there some special explanation for that high percentage in
that week, and if so what is it ?
Mr. Clark. Well, we can only surmise to a certain extent that these
people are supposed to make a deposit of 1 week's premium before
the policy is issued and the agent being unable to collect that
premium has advanced the money himself. Probably in quite a num-
ber of those cases the insured did not pay the premium, the premium
w as paid by the agent.
1 Subsequently introduced as "Exhibit No. CSS,'" infr.i, p. 4H17.
CONCENTKATION OF ECONOMIC POWER 4315
Mr. Gesell. Ill an effort to put business on the books.
Mr. Clark. Yes ; that is right.
Mr. Gesell. And so even if we make adjustment for that high
termination rate in the first week, it is clear, is it not, that ])y the
end of the twenty-fifth week — or rather that some 37 percent of
your policies terminate within the first 25 weeks by voluntary causes —
for voluntary causes, rather.
Mr. Clark. At least that.
Mr. Gesell. Probably the figure is somewhat higher?
Mr. Clark. Yes.
Mr. Gesell. Now, have you made an effort to find out whether your
company makes money or loses money by these voluntary termina-
tions ?
Mr. Clark. No; we have not. I think we would be better off if they
did not terminate. We prefer tliat the insured do not terminate (heii-
policies.
Mr. Gesell. Taking your ]iolicies that lapse specifically, those are
all policies which go off the books sometime during the first 3 years
they are in force, are they not?
Mr. Cl\rk. Yes; there is no value in those policies.
Mr. Gesell. Do I understand you to sny that your company does
not profit for any of those lapses during the first 3 years?
Mr. Clark. Oh, there must be profit on some of them, I think.
Mr. Gesell. Would you say that probably those policies which
lapse sometime after they have been, in force 2 years and before
they have been in force 3 years are the policies upon which your
company makes some money?
Mr. Clark. Probably so; tliere is some profit thei'c
Mr. Gesell. Is there any way you can definitely detei'uiine the
top and bottom period within which your company malces nioney bj'
lapse?
Mr. Clark. No; I don't see any method of doing that.
Mr. Gesell. Have you ever been able to make any estimate as to
the amount of money involved?
Mr. Clark. No; we cannot on account of the cost of opening new
territories. We assume that we will not make any money under 10
years in a new district.
Mr. Gesell. Mr. Clark, is it clear in your mind that these policy-
holders who lapse lose? They, as policyholders, lose, do they not?
The policyholders themselves lose, regardless of whether the com-
pany makes or loses.
Mr. Clark. There is no doubt about that.
Mr. Gesell. And as to whether or not the com]")any makes inoney,
or how inuch,^ understand you to say that on this lapsed business
you have no specific figures.
Do you know^ of any company which does make that type of
computation?
Mr. Clark. No; I have never seen anything of the kind.
Mr. Gesell. Your company is a stock company, is it not?
Mr. Clark. Yes.
Mr. Gesell. It is rather importa-nt from the point of view of the
management for your company to know- whether it is making or
losing money on this lapsed business, is it not?
4316 CONCENTRATION OF ECONOMIC POWER
Mr. Clark. Well, I don't know. At the end of the year, if we
have found out we have made some money w^e are satisfied. We
don't have to look to see exactly where it came from.
Mr. Gesfxl. But part of the profits which have been made have
been made from lapsed business, have they not?
Mr. Clark. Well, probably so.
Mr. Gesell. Can you give us any idea as to the reasons why
policies lapse?
Mr. Clark, I talked to the supervisor of our field force in regard
to this matter. There are various reasons given. As to the industrial
class of people, a great many of them can be sold anything provided
the installment payments are small, and often they become overloaded
with installment payments. This is one reason.
There is another explanation. Many of these people are in-and-
outers as far as insurance is concerned. A great many of them
become insurance-wise. They go into one company, pay premiums
for a week or two and at the expiration of the 4 weeks' grace period
they insure in another company, and continue this practice to quite
an extent. This is based on statements of some of our field force.
Mr. Gesell. Then we have so far two ; one that some policyholders
are in-and-outers, and the policyholders are frequently overloaded
both w^ith insurance and other forms of installment commitments.
Are there any other reasons?
Mr. Clark. There is a question of removal. These jooople often
move, and the agent is not able to ascertain the new address. They
cannot find them. Whether it is deliberate on the part of the mover
I do not know. Tliey disappear and we can't locate them.
Mr. Gesell. Are there any other reasons? What about the selling
and agency side of the question?
Mr. Clark. There is some high-pressure salesmanship in the selling
of industrial insurance. That is apt to take place where a person sur-
renders a policy for cash and the agent wishes to replace it, and uses a
little pressure there.
Mr. Gesell. You mean that when an industrial policyholder turns
in his policy and gets a cash value, the agent attempts frequently to
turn that money right back into new insurance?
Mr. Clark. Well, he doesn't try to get all of it. He 'tries to get part
of it, anyway, and to replace the policy which has gone off his books.
Mr. Gesell. Do you think that frequently, perhaps, agents sell more
industrial insurance to the policyholder than he can afford to carry
because of his other installment commitments?
Mr. Clark. Yes ; that is true.
Mr. Gesell. In terms of your company, do you find that you have a
difficult time getting a high grade of business because of the competi-
tion of the larger companies, and is that a factor in your lapse experi-
ence ?
Mr. Clark. Well, I assume that the larger companies can get a
slightly better grade of business than we do. So far as competition is
concerned, we are not worried.
Mr Gesell. You think you have the same grade of business as, say.
Metropolitan and Prudential?
Mr. Clark. I imagine very close. We may not have quite as good,
but we have a very good grade of business.
CONCENTRATION OF ECONOMIC POWER 4317
Mr. Gesell. What about the agents?
Mr. Clark. We have more turn-over than the larger companies,
because we do not have such large debits which we can give a man.
Mr. Gesell. And this factor of agency turn-over brings about a
high-lapse experience, does it not?
Mr. Clark. Yes ; it does. Every time an agent leaves it mean^ft|iere
will be a rather good amount of lapses against the company.
Mr. Gesell. Are there any other factors ?
Mr. Clark. I don't think of any at this moment.
Mr. Gesell. I would like to offer for the record at this time the
chart which Mr. Clark identified, showing the experience of his
company.
Acting Chairman Reece. It may be admitted.
(The chart referred to was marked "Exhibit No. 688" and is included
in the appendix on p. 4740.)
Mr. Gesell. I have no further questions of Mr. Clark.
Acting Chairman Reece. Are there any (questions l)y the com-
mittee?
(None.)
Mr. Gesell. Thank you, Mi\ Clark.
(The witness, Mr. Clark, was excused.)
Mr. Gesell. Tlie next witness is Mr. John Marshall Holcombe.
Acting Chairman Reece. Do you solemnly swear the testimony you
are about to give in this proceeding shall be the trutli, the wliole truth,
and nothing but the truth,- so help you God?
Mr. Holcombe. I do.
TESTIMONY OF JOHN MARSHALL HOLCOMBE, JR., DIRECTOR, LIFE
INSURANCE SALES RESEARCH BUREAU, HARTFORD, CONN.
Mr. Gesell. Will you state your full name, please, sir ?
Mr. Holcombe. John Marshall Holcombe, Jr.
Mr. Gesell. What is your business, Mr. Holcombe?
Mr. Holcombe. Manager. Life Insurance Sales Research Bureau.
Mr. Gesell. That is at Hartford, Conn., is it not?
Mr. Holcombe. Yes, sir.
Mr. Gesell. Will you tell us who and what the bureau is?
Mr. Holcombe. The bureau is the organization consisting of ninety-
odd life-insurance companies in the United States and 15 in Canada.
The purpose of the bureau is to study the problems of distributions of
ordinary life insurance to the end that we shall thereby assist the com-
panies, in better distribution. It is the only bureau of its kind, we are
told, in the country, whose sole purpose is to study the distribution
problem in that particular business, one of its primary purposes being
to make for more efficient distribution among the companies which
are members of the bureau. Its significance is partly, at least, that
it undertakes to achieve the benefits that can come from research and
distribute them to all of the membership.
All of the membership gets the information from our research, and
in that manner we are undertaking to do for the business and to pass
on to the consumer the knowledge which we secure from research,
its purpose being to achieve a better form of distribution and thereby
eliminate gradually such human frailities as we may have in the dis-
tribution of life insurance.
^3j^g ("ONCIOXTKATrOX OF KCONOillC POWER
Mr. Gesell. Well, no^Y, when was this bureau organized?
Mr. HoLCOMBE. January 1922
Mr. Gkseli.. Have you been with it since that time?
Mr. HoLCOMBE. Yes, sir.
Mr. Gesell. Now, do I understand that you receive dues or con-
tributions from your member companies and use that money in making
studies of problems affecting the distribution of life insurance, and
then take those studies and put them in forms of reports which are
rendered to the member companies for their guidance?
Mr. HoLCOMP.E. Yes, sir. You did say life insurance, and we do
nothing except ordinary.
Mr. Gesell. Your studies ai'e couHned ejitii-ely to ordinary insur-
ance?
Mr. HoLCOMBE. Yes, sir.
Mr. Gesell. How many companies did you say were members?
Mr. HoLCOMBE. Ninety-one in the United States, 15 in Canada, and
we have un associate membership basis, without voting privileges and
other privileges, that consists of about a dozen companies scattered
over the rest of the world.
Mr. Gesell. Doesn't your mcinlK'rsliip include the principal com-
j)anies in this country?
Mr. HoLCo:\rBE. Yes, sir.
Mr. (Resell. Princijval legal rosei've companies?
Mr. HoLCOMBE. Yes, sir,
Mr. Gesell. You referred to voting privileges. What pi()|)oi-l ion
aie they? Is that an organization?
Mr. iloLcoMBE. 1'here never has been one.
Mr. Gesell. Do they outline, or do you outline the studies made by
you? I mean by "3'ou," the bureau,-
Mr. Holcombe. Well, we operate under a board of directors of 15
company officers, 12 in the United States and 3 from Canada; and that
in turn has an executive committee consisting of 5 company officers,
1 from Canada and 4 from the United States, I suppose the answer to
your question really is that it is out of the deliberations of that execu-
tive committee in conjunction with our staff that the subjects to be
considered are finally chosen.
Mr. Gesell. Now the studies are prepared, I take it, from material
submitted by the member companies?
Mr. Holcombe. Yes, sir; with perhaps the possibility that' we might
study an entirely different line of business with a viow^ to finding
something that would benefit the life-insurance business, but that
would be a very small activity,
Mr. Gesell. And you have at your disposal, then, figures which are
in greater detail and perhaps more confidential than the figures which
are available by and large through published reports of the members?
Mr. Holcombe. Well, I don't believe that is quite true, is it, be-
cause
Mr. Gesell. Let me ask it this way, then, because I think it is : Do
you base your studies entirely upon, the published reports of the com-
pany ?
Mr. Holcombe. Oh, no.
Mr. Gesell. Then you receive other information from them which
IS not published, do you not?
con(m:xtrati<)N of v^conomtc rowEU 4319
Mr. HoLCOMBE. Quite. The only dittereiice between what you gave
this morning and what we would give is tliat you have a much larger
group of companies than what we would have.
Mr. Gesell. Now, what kind of a budget do you have ? How much
money do you spend on this research a year, approximately ?
Mr. HoLcoMBE. Two hundred thousand.
Mr. Geseel. The reports that you render are confidential to the
membership, are they ?
Mr. HcLCOMBE. Some are confidential to the membership and some
are available to noimieinbers at a price per report.
Mr. Gesell. I was interested in your statement that you passed on
the studies, the results of your research, to the consumer. If your
reports are confidential, and assuming that the policyholder is the
ultimate consumer here, he doesn't see those reports, does he?
Mr. HoLCoaiP.K. No; I think what I intended to say was, the advan-
tages of the research went to th§ ultimate consumer.
Mr. Gesell. Provided the membership deemed it wise to follow the
recommendations that you made.
Mr. H01.COMBE. Quite, quite.
Mr. Gespjx. You have no authority, I presume, in the bureau to
force your recommendations into operation.
Mr. HoLajMBE. No.
Mr. Gesell. You are simply advisory.
Mr. HoixjoMBE. Quite.
Mr. Gesell. Am I correct in saying that (me of the subjects which
has been of considerable interest to the bureau in the past has been
tile study of the subject of conservation of business, persistency of
business, lapse ratios and rates, agency turn-over, acquisition costs —
matters of that sort?
Mr. Holcombe. Yes, sir.
Mr. Gesell. Will you give us a little idea of the type of studies you
have made in that direction and what the results of your studies have
indicated ?
Mr. Holcombe. Shall I go back and trace it a bit chronologically?
Mr. Gesell. Any way that you think best.
Mr. Holcombe. When the bureau first started there was a consid-
erable body of thought that lapses were largely to be considered as
perhaps synonymous ; that the lapse question was to be considered as
synonymous with the reinstatement question. The material that you
saw on some of these charts this morning used the word "revival," but
that, for- this purpose, is synonymous with reinstatement. When we
first started the bureau, in 1922, we began realizing that there was a
different way of looking at the lapse problem than the one which was
properly called reinstatement, for reinstatement involves cure, and so
almost immediately we began to turn our studies onto the question of
prevention. In other \vords, the basic idea in that line of reasoning
was, to prevent a lapse was more desirable than to let it lapse and then
reinstate it; so with that beginning we then have proceeded through
various channels
Mr. Gesell (interposing) . If I may interrupt just a moment, I don't
want to cut your statement short at all, but the fact that you deter-
mined that it would be advisable to prevent lapses indicates that your
studies had demonstrated that it was desirable to do so, and I wish
4320 CONCENTRATION OF ECONOMIC POWER
you would tell us as you proceed why it would be desirable to reduce
lapses.
Mr. HoLcoMBE. Well, the companies, of course, were, as you sug-
gested a little while ago, extremely anxious to reduce ordinary lapses
for reasons that I think have perhaps already been brought out. They
were extremely anxious to reduce lapses by their prevention wherever
possible, and the things that have been done both by the bureau and
by the companies themselves since 1922 are an evidence of the fact
that today there is being done in the business a very considerable num-
ber of things which 10 years ago or 15 years ago were practically not
being done at all.
Now, the bureau, I suppose, has had an influence in bringing that
about in that we have shown various things that could be done. I
don't know that we needed to drive home to the companies the desir-
ability of cutting their lapse rate, for they are quite well aware of that
already; and then, in addition to those various general studies that
we made, we make a periodic study called the lapse survey, which you
have in your files, and which I should discuss now or later.
Mr. Gesell. Those are some of the results of your lapse survey on
the sheet that I have handed you ?
Mr. HoLcoMBE. Yes, sir.
Mr. Gesell. I wish you would tell us on what basis those studies
liave been prepared ; what they purport to show.
Mr. HoLCOMBE. Those studies were the result of an effort to find a
basis of collecting lapse figures which the companies" generally could
contribute to and which also would attack the lapse problem at the
point of its greatest importance, to wit, in the early years of the
policy. Those figures on that memorandum which you have show
the percentage of lapse of new ordinary business which fail to pay two
full annual premiums; that is to say, the figures there indicate the
business which at the rate we are going, at the particular time that
report was published, will fail to pay two full annual premiums.
Mr. Gesell. You mean that from the material which you col-
lected you found out what percentage of each company's business would
lapse within the first 2 years after the policy was in force?
Mr. Holcombe. Yes. I am not quite sure that is the technical way
to phrase it, but it is the amount of business that will go off the books
before the two full annual premiums have been paid, going at the
rate we are going now.
Mr. Gesell. Am I correct in saying that you classified your com-
panies by various groups in terms of size and location ?
Mr. Holcombe. Yes, sir; hardly by location. We classify all com-
panies in four classes and that classification is used there.
Mr. Gesell. Your A, B, C, and D classifications.
Mr. Holcombe. Yes, sir.
Mr. Gesell. They include in total about how many companies ; your
entire membership ?
Mr. Holcombe. No, no; I think the total on that memorandum is
about 55.
Mr. Gesell. And your A companies, are they the largest companies,
by and large?
Mr. Holcombe. That contribute to this survey ?
Mr. Gesell. Yes.
Mr. Holcombe. No; hardly.
(JONCKNTKATION OF ECONOMIC POWER 4321
Mr. Gesell. What is the basis of the classification of the A and B
companies ?
Mr. HoLcoMBE. Oh, well, the A companies are the largest, but this
particular study does not have the figures from all of the membership
and there are quite a few of the larger companies that do not con-
tribute to this, as I thought perhaps you were asking.
Mr. Gesell. On the basis of your survey, your A companies are
the largest companies contributing to the survey?
Mr. HoLCOMBE. Yes.
Mr. Gesell. Your B companies are the next largest?
Mr. HoLcoMBE. Yes.
Mr. Gesell. Now, with these sheets before you, will you tell the
conmiittee in a general way what the results of your findings were
with respect to various companies?
Mr. HoLCX)MBE. The lapse rate as figured on this formula show^s a
variation between companies and a variation between sections of the
country. We give this by States of the Union and the variation be-
tween the various sections of the country is noticeable in these figures.
The variation, therefore, in these two sets of figures here are between
individual companies and between sections of the United States.
Mr. Gesell. Referring to the last sheet on that memorandum, to
begin with, am I correct in saying that for the total United States busi-
ness of the companies reporting to this survey, you found that the lapse
percentage for the 1930 series was 17 percent.
Mr. HoLCOMBE. Yes, sir.
Mr. Gesell. And that it grew as high as 22 percent for the whole
country in 1933 ?
Mr. Holcombe. Yes, sir.
Mr. Gesell. And that at the end of 1938 it was only 1 percent below
what it was in 1930, namely, 16 percent?
Mr. Holcombe. Yes, sir.
Mr. Gesell. And then, in breaking the lapse rate down as between
various localities, which localities did you find to have the highest
lapse expei-ience ?
Mr. Holcombe. The highest in 1938 was the Mountain section, and
the lowest was New England and Middle Atlantic.
Mr. Gesell. And generally speaking the Mountain States have been
among the highest, have they not, and the New England States among
the lowest in the point of view of experience?
Mr. Holcombe. Yes, sir; for the high I should think it varied a
little between the West South Central and the Mountain.
Mr. Gesell. Now, will you look at the other sheets which you have
and tell us among your A companies which company had the highest
and which company had the lowest rate for 1938?
Mr. Holcombe. 1938, the highest lapse rate for the first 2 years,
which is all this is, was the Lincoln National.
Mr. Gesell. What did it have ?
Mr. Holcombe. Thirty-seven.
Mr. Gesell. You mean that 37 percent of the policies written in the
Lincoln National lapsed during the first 2 years?
Mr. Holcombe. Yes.
Mr. Gesell. What is the lowest ?
Mr. Holcombe. The lowest for 1938 is the Northwestern Mutual
and the Massachusetts Mutual, each w*ith 9.
4322 CONCENTRATION OF PX'ONUMIC POWKli
Mr. Gesell,. So then, taking your B companies, will you ajnain give
us the highest and the lowest company experience?
Mr. HoLcoMBE. The highest was the Occidental of California with
50, and the lowest was the Manufacturers of Toronto — of course con-
sidering only their United States business — with 19.
Mr. Gesell. So that by and large the B companies, which are
smaller than the A companies, had a worse experience^ did they not?
Mr. HoLcoMBE. Yes, sir.
Mr. Gesell. Does that follow through for the C and D companies?
Mr. Holcombe. Yes.
Mr. Gesell. What were your highest rates shown there?
Mr. Holcombe. The highest was 48 percent, West Coast, and the
lowest was 21 percent. National Guardian.
Mr. Gesell. I would like to offer these scliedules, which Mr. Hol-
combe lias identified, for the record.
Acting Chairman Keece. They may be received.
(The schedule referred to was marked "Exhibit No. 689" and is
ijirluded in the appendix on p. 4741.)
Mr. Frank. Mr. Gesell, does the word "lapse" used in this testi-
mony have the same meaning at it had this morning, meaning termi-
nation without any surrender value or any return to the policy-
holder?
Mr. Holcombe. Yes; with the rarest exception there might be a
value in there, but we are using it in the sense that it is without A^alue.
Mr. Gesell. You understand, do you not, Mr. Frank, that this
afternoon we are relating the lapse to the period of time the policy
has been in force, whereas this morning our figures were only bulk
figures showing percentages of total.
Mr. Henderson. The material Dr. Holcombe is giving has to do
with ordinary and not industrial?
Mr. Gesell. Yes.
Mr, Henderson. Is there any bureau that does analytic work simi-
lar to yours for the industrial?
Mr. Holcombe. Not that I know of ; no, sir.
Mr. Gesell. Now can you tell us just so we will have it for the
record, Mr. Holcombe, what the formula is upon which this lapsed
percentage or ratio has been determined ?
Mr. Holcombe. I don't know that I can do it in the accuracy that
it is described on that survey. What it is basically is to take — well,
in the last one, latest one we give it there; apparently it isn't here;
yes, here it is. The formula; the rate is the total amount regarded
as lapsed during the quarter, divided by one-eighth of total sales
during a 24-month period, ending 2 months before the beginning of
the quarter. It is an effort to relate lapses to the current sales.^
Mr. Gesell. And that formula was developed after a great deal of
thought and study, was it not ?
Mr. Holcombe. Yes; we had a committee of company officers who
considered the matter, and this was their conclusion.
Mr. Gesell. And am I correct in saying that these lapsed survey
figures which we have had summarized here for the record are figures
which are distributed among the companies and relied upon and used
by them?
1 In this connoctiop see later testimony of Dr. Donald 11. Davenport, infra, pp. 4684-
4686, see also "Exhi it Nos. 826 and 827," appendii, pp. -192C. and 4927.
CONCENTRATION OF ECONOMIC POWER 4323
Mr. HoLCOMBE. Yes; I think that is fairly true.
Mr, Gesell. Now, so much for the facts with respect to lapse expe-
rience in ordinary insurance. Can you tell us what you think the
causes are, and what studies you have made to determine the causes?
Mr. HoLCOMBE. The causes of lapse are perhaps to be classified in
two main classes: One is the market and the other is our method of
reaching that market. Now, of course, we are undertaking—the life-
insurance business is undertaking — to interest people- in doing some-
thing which involves thrift. It is an undertaking to make people put
aside money against a day in the future when that money will be
needed.
Now, in that connection, of course, we know that we are dealing
with a difficult element in human nature. We Imow that whether it is
a very informal resolution that we make at New Year's, or whether
it is an effort to carry out some policy looking to thrift for our own
advantage in the future, we know that we are dealing with something
that is difficult to handle. Other businesses that liave certain points
in common with the life-insurance business have a similar problem
confronting them.
The record in. other lines of business — in the savings banks — ^we
understand that approximately one-third of the savings accounts are
lost within 2 years, 33 percent as against 20 percent, the figure that
we are discussing in these lapse rates here today.
Mr. Gesell. Just in passing, there is a tremendous difference. If a
bank loses a savings account, the fellow who has the account gete his
money back, and the fellow wholapses his policy doesn't get his n' .ney
back, so it isn't quite the same thing.
Mr. HoiiCOMBE. Quite. The only reason I cited that is because we
are both interested in thrift. Now, taking up the point Mr. Gesell
makes, namely, that in life insurance there is a distinction between
that and savings banks, if we consider the matter of automobiles.
In 1938, 8 percent of the automobiles which were sold on installments
were taken a-way from the owner within the year, and. in the case of
used cars 19 percent of the automobiles were taken away from the
prospective owners within that period.
Mr. Geseix. Again I just remark, Mr. Holcombe, that in automo-
biles the fellow pays for what he is getting, and on the level-premium
insurance plan, as we demonstrated here this morning, a fellow
doesn't get what he is paying for, does he?
Mr. Holcombe. Well, that is a pretty broad statement.
Mr. Henderson. I think, Mr. Gesell, the automobile case is not to
be likened to the savings banks. There is quite a loss on the repos-
session of automobiles, siiice it is possible in many States to serve the
prospective buyer with the amount of the contract bill in full, less
the resale value. There is a decided lossage there.
Mr. Holcombe. Well, that is one element. In other words, we are
dealing with the human frailty in this matter of carrying out a plan
of purchasing an automobile or a plan of. putting money in the sav-
ings banks.
Mr. Henderson. Do you have any record of wha,t it is m the build-
ing-and-loan associations? Have you looked into that? '
Mr. Holcombe, Well, we don't have as accurate figures in that as '
we have in these other fields. One field which has — none of these are
exactly like life insurance, of course, but they all apparently have some
124491— 40— pt.. 10 13
4324 CONCENTRATION OF ECONOMIC POWER
relation to the problem that we are working on. Christmas clubs, as
an example. We understand that the Christmas club procedure of
putting in 25 cents each week for 50 weeks, before the year is out
60 percent of those plans have fallen. So that you asked in general
the reason for these lapses. We certainly are dealing with the general
field of human nature, which apparently runs through both life insur-
ance and some other businesses.
Mr. Gesell,. That is when you said that one of the factors in lapse
was the market ?
Mr. HoLcoMBE. Quite so.
Mr. Gesell. You did also say, I believe, that there were the
methods used by the companies in selling insurance?
Mr. HoLcoMBE. Yes.
Mr. Gesell. Can you tell us a little about what the difficulties there
are?
Mr. HoLCOMBE. Well, may I finish the market first?
Mr. Gesell. Certainly.
Mr. Holcombe. The first point in the market is this matter of
what I called human nature. Now there is another factor in the
market, which is clearly of value in major importance, and that is
change in circumstances of tha insured. A very easy example of that,
type is the case where an insured takes out a policy, makes his wife
the beneficiary, and in a short time they are divorced or she dies. A
very large part of the reason for taking out that policy has dis-
appeared, which I have called a change in circumstance.
Now there are all kinds of changes in circumstance that may occur
to this policyholder. He may lose his job, something that no one
could have foreseen. He may have some serious illness in his family
and he may lose the person for whom the insurance was taken out,
be that his wife or be that one of his children; so that there are a
considerable number of examples where the change in circumstance
of the insured is a factor in bringing about that lapse. Well, now,
there are two main classifications which would fall under the main
heading of the market. Now, of course, there are other factors which
I described a moment ago as the manner in which we sell.
I don't mean the bureau sells the business; the manner in which
the institution sells its policies. And there we have our imagination
which can picture a considerable number of possible activities on the
part of the company or the agency, but, in answer to your question,
Mr. Gesell, what studies we have made. Such studies as we have been
able to make — and they are not awfully easy to make, as you can
imagine — indicate that the market element, the market factors appear
to me to account for the very considerable majority, the very great
majority, I think I would be safe in saying, of these lapses.
Such failure as there is on the part of our distributive system being
the thing that the bureau has, of course, attacked with all the vigor
we can but which we have to recognize, is a minor contribution out.
of the total causes.
Mr. Gesell. Let's find out what you meant when you said that
there were things in the distribution system of insurance which had
something to do with lapse. What are those causes?
Mr. Holcombe. Oh, there must be examples of cases where an
agent has unwisely acted in regard to a particular policyholder.
There are examples
CONCENTRATION OF ECONOMIC POWER 4325
Mr. Geseix (interposing). You mean by that high-pressure selling?
Mr. HoLCOMBE. Well, 1 was even making it broader than that. 1
was thinking to include high pressure selling in it, but I was even
trying to cover the whole field and suggest that there are agents
who misrepresent, either through ignorance or through intent, and
some small element in there. I would suppose that a research man
Would have to tell you that those were possibilities.
Mr. Geseix. Then from the management point of vifew, what abour,
the drive of the companies for volume? Hasn't that got a lot to do
with it, Mr. Holcombe?
Mr. Holcombe. Oh, without any question, and there you clearly are
considering a social question. I assume that we could adopt the
system that is in use not on this continent, but elsewhere, where they
have no agents whatsoever. We could abandon the agency force,
drastically cut down the amount of business sold, unquestionably
drastically cut down the lapses, and so far as that distribution of it
is concerned, it would have been a gain because of the drop in lapses.
But we unquestionably would be tackling a social problem because
we would have so very heavily cut the total protection which our
united States system of distribution seems largely to have caused.
Mr. Gesell. I notice that in a publication of your agency entitled
"Measuring agency profit" you say, "It is generally admitted today
that volume is one of the false gods of our business." What do you
mean by that, that there is too much emphasis upon volume, too much
emphasis upon new business?
Mr. Holcombe. When we call it a false god we are, of course,
undertaking to talk to our companies somewhat in the way, if I am
not presumptuous in saying this, a teacher talks to a class; namely,
puttmg on a very vigorous statement for the desired end, and our
studies, of course, indicate that we want to cut down these lapses
all that we possibly can, and we recognize what I mentioned a moment
ago, that we can cut down . lapses by cutting down the volume of
business, but just where is the optimum point is a difficult question
to settle.
Mr. Frank. Omitting, for the moment, the possible socially desir-
able consequences of large volume, what, from the company s point
of view, is the incentive to obtain a large volume?
Mr. Holcombe. Why, I suppose, Mr. Frank, that that is in itself
the conviction on the part of these companies, that life-insurance
protection is a good thing and that the more of a spread of that pro-
tection we achieve, the greater the value of the institution's service
to the country.
Mr. Frank. Omitting- that factor of desire to aid the country
generally, which you mi^ht ascribe to the industry as a whole, why
does any one company which is of already great size desire to become
larger and compete with another company in attaining largeness?
In other words, if there are two companies, A and B, one might stop
its pressure for increasing volume and leave that to the other, but
as I see the picture — I may be in error — they are all actively engaged
in attaining large volume. Now, why does a company which is
already very large in volume want larger volume?
Mr. Holcombe. I suppose that it is part of this philosophy of the
institution of life insurance, then being reduced to one company,
namely, that if the A company now has X amount of insurance in force
4326 CONCENTRATION OF ECONOMIC POWER
the accumulation of X plus 1 is carrying out the mission of life
insurance.
Mr. Frank. Do you really believe that there is no other interest than
the" general desire to benefit the country ?
• Mr. HoLCOMBE. Well, of course, there is not the interest for the profit
element, because in life insurance that is practically nonexistent.
Mr. Frank. Certainly so far as the mutual companies are concerned. •
Mr. HoLcoMBE. It is practically so for all of them, because the non-
participating companies have got to stay in line with mutual pro-
cedures so far as cost to policyholders goes, else they wouldn't write any
business.
Mr. Frank. Yes ; but I can conceive that a stock company would be
interested in making profits.
Mr. HoLcoMBE. Quite.
Mr. "Frank. Take the mutual company that cannot be interested in
making profits, which profits will not go to any stockholders ; take the
two or three largest companies, if one of them would somewhat reduce
its pressure for increasing size and the others were to keep it up, the
country as a whole would be just about in as good condition,
wouldn't it?
Mr. HoLcoMBE. Yes.
Mr. Frank. So if we look at single companies, why is it that any
particularly very large company wants to increase its volume ?
Mr. HoLCOMBE. Well, I suppose it is the human desire to gi'ow,
isn't it?
Mr. Frank. Yes. Now, if you were thinking of social values, do
you think there is any inherent virtue in just getting bigger?
Mr. HoLCOMBE. Wliy, I don't — certainly the larger companies have
done the particular question we have this afternoon with a good deal
of success, and that is to hold down the termination rate. Well, now,
is that a factor of size ?
Mr. Frank. I don't know, but I am restricting my inquiry to this
specific question. If you take one of the gigantic companies, appar-
ently it, in common with the other gigantic companies and the smaller
ones, manifests a desire to grow. If it were to cease growing at the
same rate and the others kept it up, the country would be just about
as well off ; and yet, as you indicate, there is this desire to grow, an end
in itself, regardless of the social consequences. It seems to me, look-
ing at it, that we have to recognize that is so, and perhaps somebody
should look at the social consequences ; but do you think there are any
other motivations? I am asking out of ignorance, now. Is it pos-
sible that you have an institution that consists of agents w^ho are
themselves eager to increase their emoluments by increasing the
amount of insurance that they bring?
Mr, HoLCOMBE. Oh, I shouldn't think we could deny that at all.
Mr. Frank. It may be that their eagerness to increase their emolu-
ments may or may not have socially desirable consequences.
Mr. HoLcOMBE. Yes ; I think that is true ; and I should think that
the work that this bureau has been doing and all the emphasis that
we have been throwing in our attempt to emphasize this lapse busi-
ness was an indication of the fact that we now are attempting to
make a greater net contribution than we did 10, 12, 15 years ago.
Mr. Frank. If you found that the percentage of lapses were very,
very much higher than the figures you have would indicate, would
CONCENTUATION OF ECONOMIC POWER 4327
that not be some sign to you that the growth was not a desirable
growth ?
Mr. HoLCOMBE. You mean
Mr. Frank, Let me explain what I have in mind. You directed
your attention to lapses in ordinary life. Now the figures we had
this morning showed an extraordinarily greater percentage in indus-
trial insurance. Suppose that the lapses in the field which you have
been survej'ing approach in percentage terms the quantity of lapses
in the industrial field, wouldn't you feel that that was some index of
something wrong?
Mr. HoLcoMBE. Well, we certainly would if they went from one to
the other in a relatively short period. If we had entered this study
as we did in 1922 and found that condition, it is very easy for me
to agree with you ; I am not quite sure what the standard would
have been, however.
Mr. Frank. An extraordinarily high percentage of lapses would
indicate that growth was being attained without much regard to
social desirability, would it not?
Mr. HoLCOMBE. Yes; I should think that was true.
Mr. Frank. And that this anthropological phenomenon of desire
for growth might be something that just happened, like Topsy; it
was a habit like biting one's nails or something or other, that might
not necessarily be socially useful and perhaps we might find there
were other motivations other than the profit to the company as an
entity that might be one of the factors.
Mr. HoLcoMBE. Yes; I suppose that is conceivable. Of course, the
question of the optimum size or the question of the contribution to
this social problem we are talking about, based on size of company,
is a pretty large order. This afternoon the lapse figures of course
show that the largest companies have very much the best lapse rate.
Now you might well ask me what causes that, and I suppose I might
say that there was something about the prestige of a large company
that really caused people to hesitate to drop their business there,
Avherc in a very small company they might not.
Mr. Frank. I wasn't speaking so much of size as we find it, but
of the desire on the part of all of them, large and small, to get bigger
and bigger,
Mr. HoLCOMBE. Yes.
Mr. Frank. And I was wondering vrhether that desire in some
instances, and particularly in the field of industrial insurance where
the lapse rate is so high, was necessarily desirable and whether,
when you had that large lapse rate the eagerness to grow might
not indicate that there was something that wasn't socially desirable,
that if the eagerness to grow has concomitantly the consequence of
very large lapse rate, one might question w^hether that eagerness
to grow ought not to be curbed. Don't you think that might be true?
Mr. HoLCOMBE. Yes; I should think that might clearly be true;
just where the dividing line is we don't know.
Mr. Gesell. Haven't you taken a very decided attitude on size?
Let me read some of the things from your publications.^
In life insurance, selling is but the first step in a much more complicated
process. In the first place, if the true function of life . insurance is to be car-
"^ Measurinf) Agency Profit, Juue 1935, p. 4.
4328 CONCENTRATION OF ECONOMIC POWER
ried out to the maximum benefit of policyholder, company, and agent alike,
more must be done than to collect the first premium. If the policyholder is to
receive protection, if the company and agent are to earn legitimate profits,
business sold must remain in force for a reasonable period of years. Hence,
nonperslstant business, while swelling the total of sales, cannot be justified
from any point of view .and is an economic waste.
Or again.
While much of the heavy lapse in recent years has been to a large degree
unpreventable, it has been substantially less in those companies and agencies
which have observed the essentials of good management and have looked for
quality rather than quantity.
Or again.
For the last 6 years we have been selling about the same amount of business
as we sold 15 years ago. It raises the question of whether we have achieved
an approach to a stabilized market and, if so, what we shall do about
it. * * * It begins to look as if the wise agency ofiicer will lay his sights
not on the old horizon of increasing sales at the rate of 10 percent a year,
but on a much more stabilized situation. * * * But when the tide turns
and life insurance is faced with a situation where sales are harder to make,
our response is instinctive — we must find ways to secure more new business be-
cause it is the only road to success which we know * * * and unques-
tionably adopt methods which are unwise. We are "scraping the bottom of
the barrel" and securing what we have recently come to call "marginal
agents" or "marginal business," the significance of which acquirement we are
now beginning to see. * * * The "marginal agents" tribe increases. * * *
Genuine agency success can be achieved without the yearly 10-percent increase
in new business —
And so forth.
I am sure you can find a lot jnore in these publications. Now
those indicate that your studies have ^own tliat companies have
placed too gi-eat an emphasis on volume, that the agency managers
have been shooting for a 10-percent increase every year, that there
has been not sufficient attention to persistency in conservation, and
these last few quotations coming from something you .said in 1938
would indicate to me that there has been no substantial change since
1929 in the selling tactics of the company.
Mr. HoLcoMBE. No ; that assumption, if I may say so, is not correct,
for I could recite to you a very long list of the motivating factors put
into the distribution process by these companies designed solely to re-
duce lapses.
Mr. Gesell. But the figures we put in evidence showed in 1930 a
lapse rate of 17 percent and in 1938 a lapse rate of 16 percent,' a very
insubstantial reduction.
Mr. HoLCOMBE. Quite so, but we are dealing with something which
r told you originally was a minor contributor, namely, the work of our
distribution forces and as it is a minor contributor We must recognize
that we are not going to get a major result by whatever we do in that
field because wiB are operating on a very small factor of the total.
Mr. Gesell. We had figures here this morning, did we not, which
showed that during the last 10 years in both the industrial and ordi-
nary and industrial combined, there was much more business sold than
in the previous 10 years," and yet we all know certainly the market for
insurance in the last 10 years was not as receptive to new business as
the market during the previous 10 years.
^ See "Bxhibit No. 680. • appendix, p. 4741.
2 See "EjMbits Nos. 6S4 and 685," supra, pp. 4300 and 4304.
CONCENTRATION OF ECONOMIC POWER 4329
(Mr. Henderson assumed the chair.)
Mr. HoLCX)Mi}E. Those two periods that you had, the second period
started with '28, so of course, you had three very large life-insurance
years in there ; the sales since then of course having been materially
less.
Mr. Gesell. Do you believe there has been any substantial reduc-
tion of emphasis upon volume ?
Mr. HoLcoMBE. Yes, I do ; I believe it in this way. As we have this
annual meeting, the minutes of which you have there, to which come
the agency officers of the United States and Canada, we can see in those
reports a very marked increase in the amount of attention given to
lapse and conservation now in comparison to 10 years ago. For ex-
ample, I took occasion the other day to see if I could measure it in this
Avay — I think this is in answer to your question — to find out how much
change there is in the insurance press, and I found that in one of the
insurance journals for 1928 there were 268 lines of information given
out to their readers in 1928 on lapse and conservation ; in 1938 there
were 413. That is undoubtedly typical. Now, you say, as you did a
moment ago, that we haven't achieved very much in result, and we
haven't; I still would tell you that the emphasis that we see going
through our office on persistency is very much greater now than it was
10 or 12 or 14 years ago. We haven't achieved a drop in the lapse rate
that is noticeable, but of course there are at least two reasons for that,
one of which I just mentioned, that we are attacking what apparently
is a minor contributor, namely, the distribution process, and secondly,
of course, we are operating in a period in our country's history when it
is a question of where we would be if we hadn't put all this pressure
onto lapses. Perhaps instead of having improved 1 percent, as I
think tliose figures you have there indicated, if we had done no more
than we were doing 10 years ago that lapse rate would have increased
5 or 10 or more percent.
Mr. Gesell. On the other hand, the figures which we have been
discussing here do not contain, for example, do they, the experience
of some of the largest of the companies, like the Metropolitan or
the Prudential or the New York Life ?
Mr. HoLCOMBE. That is right.
Mr. Gesell. We don't know whether there may not have been an
increasingly adverse condition in the operation of those companies.
Mr. HoLcoMBE. No; from those figures you don't know what they
did.
Mr. Gesell. I have no further questions.
Acting Chairman Henderson. I was interested. Dr. Holcombe, in
this illustration you used of some other countries which have a sort
of cafeteria basis for selling insurance. Have you any idea what their
lapse rate is as compared with, say, your 20 A companies or your
13 B companies?
Mr. Holcombe. No, sir ; I don't tliink we have ever seen it. I have
no idea.
Acting Chairman Henderson. You would imagine it would be a
much lower rate; it certainly would be in this country if it were
on that basis. Is that it?
Mr. Holcombe. Oh, I think without a doubt.
Acting Chairman Henderson. You have here, I see, lapse rates of
the A companies that run around 16 percent.
4330 CONCENTRATION OF ECONOMIC POWER
Mr. HoLCOMBE. I think that is the figure.
Acting Chairman Henderson. You have been letting these experi-
ences and these rates run through your fingers for something like 17
years now, more than that ; I would imagine you were doing some-
thing of this kind at Carnegie Tech, weren't you ?
Mr. HoLCOMBE. Well, that is where we started; that is included.
Acting Chairman Henderson. '22.
Mr. HoLCOMBE. Yes. Of course we didn't collect any of these
figures until 1926, 1 think— it was 1925.
Acting Chairman Henderson. Have you ever determined in your
own mind what under proper conditions a lapse rate should be, one
where you would meet the socially desirable demand and still would
avoid all the ills that go with excessive lapse?
Mr. Holcombe. The ideal at the moment, of course, is the lowest
company record. Now, if we could get every company down to that
lowest company record that would be the ideal.
Acting Chairman Henderson. I think in your discussion with
Chairman Frank you indicated that practically all of these companies
were in the general sdramble for increase in size. Isn't that true ?
Mr. HoLcoMBE. "Well, they certainly vary, but they all want to
grow. I think that is clearly true.
Acting Chairman Henderson. Suppose some company didn't go out
with high-pressure selling as it had in the past. Have you any idea
what its lapse rate would probably be cut to ?
Mr. Holcombe. I don't see how I could have.
Acting Chairman Henderson. That is what I am trying to get at,
whether, in all this research you have done, upon which you cer-
tainly have ruminated, to say the least, you have established in your
own mind any standards for what a normal lapse rate would be.
Mr. Holcombe. No, sir; I don't think we have. I think we prob-
ably haven't gone beyond the desire to get every company's lapse rate
reduced, but as for a reasonable figure or a desirable figure, I don't
think we have gone that far.
Acting Chairman Henderson. This means that in the A companies
1 out of every 6, and ift the 13 B companies about 1 out of every 3,
and in the C and D companies about 2 out of every 5, lapse.
Mr. Holcombe. Yes.
Acting Chairman Henderson. You would expect it to be something
much less than that, wouldn't you, certainly less than 2 out of 5?
Mr. Holcombe. You mean if I wei-e just viewing this thing in
general ?
Acting Chairman Henderson. Yes; which you do, as I know, from
things which you have written.
Mr, Holcombe. Of course we want to get it down very much. T
^don't know that I can see any foundation for a standard. For in-
sStauce, I don't know wlietlier I would say tliat these Christmas clubs
liad a very high lapse rate or not until I compared it with life insur-
ance, or these other comparisons. We wish the life insurance lapse
would go down, and the companies in supporting this bureau have
certainly given tangible evidence of their desire to bring it down.
. Acting Chairman Henderson. Let me ask you in anotlier way.
You say you don't know what are the elements of a standard. It
isn't necessary to have a 10-percent growth- in an insurance company
eacii yf^.o.T in order that it be sound, is it?
CONCENTRATION OF ECONOMIC POWER 4331
Mr. HoLCOMBE. To be solvent?
Acting Chairman Henderson. Sound or solvent.
Mr. HoLCOMBE. No.
Acting Chairman Henderson. Is it necessary for them to have a
1-percent increase?
Mr. HoLCOMBE. Well, there, of course, you are getting. into the
field of comparison between the rights of the present policyholders
and the rights of the prospective policyholders.
Acting Chairman Henderson (interposing). But put it this way:
Mr. HoLCOMBE. And that is
Acting Chairman Henderson (interposing). But put it this way:
Could a company remain sound, or solvent, in your terms, if it didn't
increase the number of policyholders it had?
Mr. Holcombe. If it just wrote enough business to take care of the
lapses and all terminations; rather, if it just wrote enough business
to take care of all terminations, would it be a sound institution?
Acting Chairman Henderson. Yes.
Mr. Holcombe. I should think it would be a sound institution.
Acting Chairman Henderson. Even if it didn't write enough to
take ciare of all the terminations, it could be, couldn't it? Isn't that
percentage of an insurance policy which is really savings enough to
cariT the obligations of the insurance company?
Mr. Holcombe. Well, certainly the company could be sound if it
was properly managed and didn't increase insurance in force, I
should think.
Acting Chairman Henderson. And even if it had a decline and
managed its affairs, its investments, ,with reasonable diligence, it
could continue?
Mr. Holcombe. Well, of course, I am not an actuary and I think
you are gettin<j pretty close to the actuarial field.
Acting Chairman Henderson. Dr. Holcombe, you know a little
about the actuarial science.
Mr. Holcombe. I don't know much about the actuarial business.
I tliink that is pretty nearly an actuarial question.
Acting Chairman Henderson. You wouldn't guess that the policy-
holders in their current payments are paying enough to keep tlie'ir
insurance in force? "V^Hiat I am getting at is, is it necessary to have
growth in order that life insurance companies remain sound ?
Mr. Holcombe. I don't suppose it is necessary because I suppose
you have examples of companies with varying degrees of growth, all
of which are perfectly sound. It is, as Mr. Frank said, the anthro-
pological tendency to want to grow. It is the feeling of life insur-
ance companies that the more protection is available in the country
the better the country is.
Acting Chairman Henderson. That is an American as well as an
mthropological idea, too, of course. But I am trying to get at
whether in your mind, if you were approaching a standard — and
evidently you have thought about a standard though you indicate
you do not know the elements — whether you wouldn't look toward
what constitutes soundness for policyholders. Wouldn't that be the
test you would apply?
Mr. Holcombe. Well, the soundness of policyholders, the particular
thing we are talking about this afternoon, lapses; the larger com-
panies have the_ soundest position on that score. •
4332 CONCENTRATION OF ECONOMIC POWER
Acting Chairman Henderson. Do j^ou attribute that to the growth
rate?
Mr, HoLcoMBE. I suppose you have to; don't you?
Acting Chairman Henderson. How about some of your other com-
panies? Don't you have some of the smaller companies with just as
good experience records on lapses as the larger ones ?
Mr. Holcombe. Oh, no. The best C and D company there is a
21-perccnt, and there are more tnan half of the A companies that
are less than 21.
Acting Chairman Henderson. I am saying, aren't there some of
the smaller companies whose experience record is just as good?
Mr. Holcombe. Not from those.
Acting Chairman Henderson. Sixteen percent here in Home and
New York for the year 1938, for example.
Mr. Holcombe. Well, that is just the average of the A companies,
whereas half the A companies are lower than that.
Acting Chairman Henderson. That is right; it is lower; but don't
some of the small companies approach the good record of the larger
companies ?
Mr. Holcombe. Well, they approach it, but none of them are down
to it.
Acting Chairmun Henderson. None of them touch it?
Mr. Holcombe. Oh, no. If I recall the figures correctly, your av-
oi-age there for 1938 — I don't think the average is on the sheet Mr.
Gesell handed me — is 16 for the A companies, whereas none of your
B companies are as low as the A average.
Mr. Frank. There is a B company that is as low as the A average,
the Home of New York.
Mr. Holcombe. Yes; just on the avei*age, I guess.
Acting Chairman Henderson. That is what I said earlier.
Mr. Gesell. And again we don't know what the figures for the
three largest companies in the country are, do we?
Mr. Holcombe. No.
Mr. Frank. Mr. Holcombe, may I ask you, if you found that lapses
in the ordinary-life Xield went up to 70 percent, wouldn't you think
lliat was some indication that there was some undesirability in the
amount of insurance written ?
jSIr. Holcombe. Clearly, if I had been educated to a 20.
Mr. Frank. In any event, wouldn't 70 percent seem an extraordi-
narily large ^gure to you?
Mr. Holcombe. Sixty percent seems to me high for these Christmas-
savings funds.
Mr. Frank. But what I am getting at is, When you are t:ying to
appraise the value of growth and you find that there is 80 oi 70 per-
cent of lapses, doesn't that disturb you, that figure ?
Mr. Holcombe. Wouldn't it disturb me?
Mr. Frank. Wouldn't it disturb you?
Mr. Holcombe. Certainly it would disturb me, if I had any stand-
ard such as 20 percent to compare it with.
Mr. Frank. Taking the standard for a moment, the ordinary life
policy is the policy written by the moderately well-to-do person as
compared with industrial insurance — industrial insurance being poor-
man's insurance. Now, in the poor-man's-insurance field we found this
morning that the percentage of lapses for the years 1918 to 1927 was
CONCENTRATION OF ECONOMIC POWER 4333
81 — something over 81 — percent; and for the years '28 to '37 it was
70.6 percent.^
Mr. Geseli,. May I make a correction, Mr. Frank? Those figures
this morning were percentages of total terminations, wliereas Mr. Hol-
combe's figures have some relation to exposure, length of time insur-
ance has been in force, and they are not comparable.
Mr. Frank. How would you make them comparable ?
Mr. Gesell. It would be necessary to make new calculations. We
can't make any comparison between the figures which are in the record
at the present time.
Mr. Frank. Are the figures, may I ask for information, as to indus-
trial lapses not much larger than the figures if you were to use them on
a comparable basis for ordinary life?
Mr. Gesell. I think you will find the industrial figures are larger
but not on the basis of the comparison you have before you; and in
some cases considerably larger.
Mr. Holcombe. I was assuming, Mr. Frank, that you actually meant
that our figure expanded from 20 to 70, which would be enormous, and
would worry me if I had been educated to 20.
Mr. Frank. No; I didn't mean that.
Just one more question : If we were looking solely to the welfare of
existing policyholders, a great reduction in expansion would not affect
them adversely, would it?
Mr. Holcombe. In regard to the present policyholders ?
Mr. Frank. They Avould not be endangered by a reduction in the
increase jier annum.
Mr. Holcombe. Well, I don't hardly believe that is true;. is it?
Mr. Frank. Why?
Mr. Holcombe. They would begin to lose the advantage of the pres
tige of the company, which apparently is something of a factor, be
cause the company would gradually dry up, as I understand it.
Mr. Frank. I am not quite sure I follow that. I have a policy in
the X company. Is it necessary for the protection of my investment
in that policy that that company grow so much per year — ^^increase the
number of iU policies?
Mr. Holcombe. Why, yes; probably, because there is something
about that factor of lapse that I have related to size, and if the com-
pany begins to drop in size, apparently they begin to lose business on
this lapse formula that we have in a rather significant manner.
Mr. Frank. Seriously enough so that I, an existing policyholder,
would be injured?
Mr. Holcombe. Of course, you couldn't be injured immediately, be-
cause the institution is too big; but it would be in that direction, I
should think.
Mr. Frank. You mean I would lose something in the loan or sur-
render value, or the ultimate payment to my estate, in event of death?
Mr. Holcombe. Oh, no. I don't think you could lose that; but the
most delicate thing Avould be dividends and, if you w^ore beginning to
throw factors in there that cut dividends you would feel it there.
Mr. Gesell. Are you clear in your own mind, Mr. Holcombe, that
because the figures for the larger companies are slightly lower, that
that is because the companies are large ? Is it not rather that your
' See "Exhibit No. 685," appendix, p. 4738.
4334 CONCENTRATION OF ECONOMIC POWER
figure are higher for the smaller companies because they are growing
faster, and doesn't the whole thing relate itself directly again to
volume?.
]\Ir. HoLCOMBE. I have not undertaken to say that volume is not
in there, for I did suggest that you are really dealing with this social
problem of whether you want to cut down your total spread and
cut down your lapses.
Mr. Gesell. But your figures do not demonstrate that the larger
the company the smaller the lapse rate, necessarily. The question
relates itself rather to the amount of new business which is being
written, does it not?
Mr. HoLcoMKE. To some extent; but if you had our insurance in
force figures there, which perhaps you have, you would see that
there are some companies that can write a proportion of new business
considerably in advance of others, some of those large companies,
and still have a good lapse rate.
Mr. Gesell,. That is the quality of management in each case.
Mr. HoivCOMBE. Yes.
Mr. Gesell. But couldn't you argue from these figures just as well
tliat volume — new sales — is one of the contributing factors to lapse?
Mr. HoLcoMBE. I should think that there was very little question
of that.
Mr. Gesell. Then this whole question of growth and increase of
size does have a direct bearing on lapse rate, which can't be excused
simply by saying, "Well, look at the big companies; they have a
smaller figure."
Mr. HoLco:srRE. Yes; and of course our bureau is an evidence of
the desire to find the best condition dealing with both new business
and lapses.
Acting Chairman Henderson. That is where I wanted to pick up
again, Mr. Holcoml)o. When you find that a company in your group
has a lapse rate of 40, 50, or 60 percent over a period of years, do
you make any special inquiries as to the reasons why theirs departs
so mucli from tlie average?
Mr. HoLCOiMBE. Well, not a statistical study.
Acting Chairman Henderson. More of a qualitative study?
Mr. PIolcombe. Yes; more of an effort to help them. I think of
one company that did have a higher lapse rate than many, and I
think we perhaps have been of assistance to them in putting in
certain factors. I know we have.
Acting Chairman Henderson. Well, what factors did you change?
Mr. HoLcoMBE. Their sales force had been motivated by sales, by
so-called agency clubs, by attendance at company conventions, by
all of that kind of motivating influence.
Acting Chairman Henderson. Special reward for meeting quotas
and the like ?
Mr. HoLcoMBE. Things like that. I was thinking really not mone-
tary at the moment. I was thinking of more things in the way of
honors.
^ Acting Chairman Henderson. Recognition, psychological promo-
tions, and things like that?
Mr. HoLCCfMBE. Now I think we have undoubtedly assisted- that
company in changing the emphasis over to persistent business in a
way that has changed the picture there to some extent.
CONCENTRATION OF ECONOMIC POWER 4335
Acting Chairman Henderson. When you run into some of these
companies, witli this persistence of a high rate, do you pretty generally
find that it is the kind of selling arrangement which is responsible, or
is it the percentage of growth they are aiming at, or what is it?
Mr. HoLCOMBE. Well, in the first place, of course, it often seems to
be related to the section of the country where they are operating. I
don't think he got the figures.
Acting Chairman Henderson. I have the regional.
Mr. HoLCOMBE. In that regional figure we oftentimes find a com-
pany will be considerably influenced by that.
Acting Chairman Henderson. Will it run to double the average,
as I notice some of them do here, particularly in the C and B company
list? ^
Mr. HoLCOMBE. I am not sure how wide those geographical varia-
tions run, those figures you have there.
Acting Chairman Henderson. But you are familiar
Mr. HoLCOMBE. This year they went from a low of 14 to a top of 21,
which is just exactly 50 percent.
Acting Chairman Henderson. Getting back to this question of
where you have a compilny which, over a period of time, has something
which you plainly recognize, regardless of an exact standard, as a
higher than average or a higher than standard lapse rate, do you
find anything else that is really the cause of that extraordinarily high
rate?-
Mr. HoLCOMBE. Well, in this particular company that I am thinking
of, they weren't doing any of those things that seemed to us to be
possible, and they
Acting Chairman Henderson (interposing). I don't quite get what
you mean, "They weren't doing any of those things that seemed to us
to be possible."
Mr. HoLCOMBE. Such as having the motivating influence on the
agents partake more of the persistent factors than they did before;
that is to say, company clubs for agents, company conventions, and
the like. They put those things in, and it had an effect.
There is one company that you find there — the Lincoln National —
whose rate you had me quote a few minutes ago. They have done one
thing in the last few weeks, which was to put into their house organ
a very elaborate analysis of their lapse situation, in an effort to show
their general agents and their agents the desirability of reducing that
lapse.
Acting Chairman Henderson. Wliat did tliat run to, do you recall ?
What were the admonitions they gave in the article ?
Mr. HoLCOMBE. In this particular case it was just to show the agent
the desirability of writing business that stays on the books, and in-
cluding in that bis own monetary advantage because of the renewals
he loses if the policy goes off the books.
Acting Chamnan Henderson. Have you looked into more than one
company with a higii lapse rate, or is it just this one you are talking
about ?
Mr. HoLCOMBE. 1 suppose we are looking into them all the time in
more or less degree, because our office is studying all these companies
with a view to improving lapse rate.
1 See "Exhibit No. 689," appendix, p. 4741,
4336 CONCENTRATION OF ECONOMIC POWER
Acting' Chairman Hendekson. I come back again to what are some
of the things you feel they might do to reduce that ?
Mr. Hoix:oMBE. Well, they can, of course, give noticeable attention
in their company publications to terminations in their education of
their agents', through their published material they can emphasize
terminations and persistency, just as we get out this material which
we collect from all the companies.
(Representative Reece resumed the chair.)
They can give honors to the agents at the company convention and
hold the man up to the honor by that basis. They can study the
factors of persistency and attempt to train the agent to go to some
part of the market that shows a better persistency record.
Mr. Henderson. Wliat would be those factors of persistency?
Mr. HoLCOMBE. Well, there are a good many of those factors that
we now know about. We know, for example, that young people lapse
their policies more frequently than older people.
Mr. Henderson. So you can steer clear of young people and go
toward the older group?
Mr. HoLCOMBE. If that is sound policy; it might not be a sound
policy in the eyes of that company, but at least they know the fact
which, until research dug it up, they often didn't know. Tae^ can
direct the agent toward the writing of business With ^uch char-
acteristics as annual premium as against quarterly premium; they
can direct the agent to secure settlement of the policy at the time
he sells it, rather than to postpone it for 30 days or 60 days, with
the likelihood that there will be a loss there.
Mr. Henderson. That is rather than any agent taking any kind of
speculative risk there, to count only as business what he gets on the
line?
Mr. HoLCOMBE. Yes, sir. There are a good many factors that we
know about today that even 6 or 7 years ago hadn't been brought to
the surface. Today we know a good deal about them.
Mr. Henderson. What are some of the others beside those?
Mr. Holoombe. One of the other factors is that we are constantly
trying to have agents sell to cover individual needs, rather than
simply sell a policy of $5,000 for no specified need, and the partic-
ular way that that evidences itself is that those policies, with an
agreement in the policy for the payment of the proceeds to one or
several beneficiaries under various contingencies, that kind of busi-
ness shows a better termination than the kind of business where it is
sold without that.
Mr. Henderson. More people interested in the continuation of the
policy, then, would affect — ^liow about the various kinds of industrial
risks? Do you do anything on that?
Mr. Holcombe. You mean industrial insurance?
IVIr. Henderson. Well, no; the character of the employment of
different people. Do you canalize them toward those as being better
risks in having lower lapse rates?
Mr. Holcombe. Yes, sir; we have some figures on that now which
indicate something in that direction.
Mr. Henderson. So that it might be possible, then, going at these
factors of persistency, to construct a standard ; might it not ?
Mr. Holcombe. You mean to construct one in advance and direct
your sales force toward that ?
CONCENTRATION OF ECONOMIC POWER 4337
Mr. Henderson. Yes.
Mr. HoLCOMBE. Not only possible, but it is being done. We
created such a procedure after our research, and now that is being
used by a very large number of the companies in the bureau.
Mr. Henderson. But your idea is, however, that the reason why
it hasn't shown any better average results is that probably you
have prevented the lapse rate from going higher?
Mr. Holcombe. Yes, sir; plus the fact that we believe that we are
dealing by concentrating on the distribution process, with the minor
factor in the total causes of lapse. It looks as though the other
elements were the major cause of the lapse and the agents' and the
companies' contribution was minor.
Mr. Henderson. It is just the plain bedevilments of human nature?
Mr. Holcombe. Well
Mr. Henderson. How would you explain the range that runs all
the way from your lowest to your highest, Mr. Holcombe, if there
isn't something in what the company does? How would you explain
why one group has a low rate and another has a high rate, on the basis
of the average failings of human nature*?
Mr. Holcombe. Well, I am not trying to wash out the company's
contribution entirely.
Mr. Henderson. No; but you are trying to minimize it when you
say it is a minor factor, and yet we see this enormous range that
they run.
Mr. Holcombe. Well, I suggested that the geographical factor
Mr. Henderson. It doesn't bear up as I read it.
Mr. Holcombe. Well, you will find that those smaller companies,
to a very considerable extent, operate in some of the territory where
the lapses are higher. I think you will find that there is that
tendency.
Mr. Henderson. Well, that isn't human nature, then. Human
nature in the Pacific Northwest and West South Central is not
different.
Mr. Holcombe. Certainly not.
Mr. Gesell. Just to throw some light on the questions Mr. Hender-
son is asking, isn't it possible that your insurance market is saturated,
that all the good risks have been taken, by and large, and you have
a great bunch of agents out trying and trying to sell and all they
can do is sell marginal business and poorer risks, and therefore can't
keep your lapse rate down any lower, as you Jiave said yourself in
this publication which I read to you a minute ago?^
Mr. Holcombe. Of course, there are two viewpoints. One is that
we are reaching something in the way of a stabilization factor, and
the other is that we are nowhere near stabilization because we have
only got so few hundreds of dollars of ordinary life insurance, or
total insurance per capita in the United States. There are certainly
two attitudes in regard to it.
Mr. Gesell. It is your opinion from a study of the situation, is it
not, that the market has become saturated?
Mr. Holcombe. Not saturated. I should say that we hadn't become
persuaded that we had done more than approach saturation, but cer-
tainly we haven't reached saturation.
1 Supra, p. 4327.
4338 CONCENTRATION OF ECONOMIC POWER
Mr. Gesell. Well, it is just a matter of degree is what you quarrel
with me about.
Mr. HoLCOMBE. I don't mean to quarrel about it, but I think the
connotation of saturation implies that we just can't expect to write
more business, and I just don't hardly believe that is true.
Mr. Gesell. As you say, we can't return to the old 1929 standard,
Mr. Holcombe. A good many companies are still operating on that
basis. Don't you mean that the market has been sold to a much
higher extent than it was before, that you can't keep busy the same
number of agents working on the same basis day in and day out
when you haven't got the people to sell the business to ?
Mr. Holcombe. Of course, the reduction in agents which has oc-
curred seems to us to be sound, and no doubt that is going to continue.
Mr. Henderson. I noticed, Mr. Holcombe, in the list of things we
were going through that no attention was paid to the commission ar-
rangements which the agents have. Does that have anything to do
,with the rate of lapse? Do you find that in your special studies?
Mr. Holcombe. Theoretically, of course, it would have a very large
.influence, but we have no research, no material on which we have
been able to make any study that amounts to much to come out with a
conclusion as to what ought to be done.
Mr. Gesell. Our next witness will have something to present to
the committee on that question, Mr. Commissioner.
Mr. Henderson. I gather you said that in countries where life
insurance is sold on a come-and-get-it basis,, you have thought at
times perhaps something like that ought to be approached in this
country ?
Mr. Holcombe. No, sir; I don't. I think our job is not to give up
the agency System, 'but is to make the agency system do a better job,
which it can do and is doing, but as for giving up the agency system,
it seems to me that we would immediately lose very much more than
we would gain.
Mr. Henderson. The social advantage is greater by having this
extra amount written even though you lose 1 to 5 ?
Mr. Holcombe. I don't think there is any question of that, Mr.
Henderson, because although I don't have the figures in my head, I
think that is beyond question, that if we were to abandon our agency
distribution system we would be a minus in the net that we would
accomplish.
Mr. Henderson. That is, the amount of insurance which could be
bought, with the lapsed insurance wouldn't offset what is written
for the individuals who stay in.
Mr. Holcombe. I don't think that is
Mr. HJENDERSON (iuterposing). Although the cost would be con-
siderably less.
Mr. Holcombe. Oh, yes; but the net loss to society would be sizable.
Mr. Henderson. I just wanted to wind that up and put a little blue
band around it.
Mr. Gesell. If the committee please, I have no further questions
for Mr. Holcombe. We have another witness that we could put on
today and by doing so I believe we can nui only a half-day session
tomorrow, if that would be preferable to discontinuing now and run-
ning a whole day tomorrow. Is that agreeable?
Acting Chairman Reece. Suppose you call your next witness.
CONCENTRATION OF ECONOMIC POWER 4339
Mr. Gesell. Our next witness is Mr. Montgomery.
Acting Chairman Reece. Do you solemnly swear that the testimony
you are about to give in this procedure shall be the truth, the whole
truth, and nothing but the truth so help you God ?
Mr. Montgomery. I do.
TESTIMONY OF WILLIAM MONTGOMERY, PRESIDENT, ACACIA
MUTUAL LIFE INSURANCE CO., WASHINGTON, D. C.
Mr. Gesell. Will you state your full name to the reporter?
Mr. Montgomery. William Montgomery.
Mr. Gesell. What is your position?
Mr, Montgomery. President, Acacia Mutual Life Insurance Co.
Mr. Gesell. That is right here in Washington, is it not ?
Mr. Montgomery. Yes, sir.
Mr. Gesell. How long have you been associated with that company ?
Mr. Montgomery. Forty-five years last December.
Mr. Gesell. How long have you been president ?
Mr. Montgomery. Nineteen years.
Mr. Gesell. You have heard the testimony that has been before
the committee this morning^ have you not ?
Mr. Montgomery. Yes, sir.
Mr. Gesell. Can you tell us a little about your company in the
way it has operated and what you have done to cut down your lapse
experience and what you consider the factors' to be which contribute
to high rates of voluntary terminations?
Mr. Montgomery. You ask me what we have done or what I think;
which do you want?
Mr. Gesell. Will you first tell us what you have done and then
tell us what you think?
Mr. Montgomery. Well, we have tried to sell quality business.
By quality business I mean business that will stay on the books as
long as the policy is sold for and we base our agency contract on that
assumption. We don't pay the usual renewal ^commission that is
paid by other companies. We pay the usual commission that all com-
panies pay for first-year business, and then we pay the agents in
proportion to the business that they service and keep in force.
Mr. Gesell. You have found by adopting that method of com-
pensation you have been able to keep on your books a more consistent
type of business?
Mr. Montgomery. Yes; and more persistent agents.
Mr. Gesell. And can you tell us what you consider to be some
of the factors causing voluntary terminations, and what the relative
importance of those factors is?
Mr. Montgomery. Well, there is a saying in life insurance that the
lapse begins with the sale. You know what I mean by that.
Mr. Gesell. I have heard the expression. You tell us what is
meant by that.
Mr. Montgomery. The way life insurance is marketed is conducive
to lapse.
Mr. Gesell. Will you explain that more in detail?
Mr. Montgomery. Well, life insurance is not sold as the ordinary
product, if I can use that expression, is sold. The mutual companies
sell life insurance under a system of estimated dividends. Now, we
491— 40— pt. 10 14
4340 CONCENTRATION OF ECONOMIC POWER
know that estimated dividends, or rather dividend estimates, don't
always mature. We know that when men are given an estimate of
dividends, to use in a sale the agent isn't always as careful as he
might be in the figures he makes, and where there is high pressure
of that kind in the sale of life insurance we feel that contributes
very materially to lapses.
Mr. Gesell. You mean that the general practice of many com-
panies in giving to their agents dividend schedules and illustrations
which are a way of anticipating what will be paid back to the policy-
holder from mortality savings and otherwise, leads to the agent
building up in the mind of the prospective policyholder too many
advantages for insurance which don't really exist.
Mr. Montgomery. Well, not only advantages but the matter of
costs.
Mr. Gesell. Will you explain what you mean when you mention
costs ?
Mr. Montgomery. Well, if the dividends are not as large as the
estimates, then the cost has been increased.
Mr. Gesell. And you feel that frequently the policyholder finds
himself paying more for his insurance than he had reason to believe
at the time the agent sold it to him, he would have to pay ?
Mr, Montgomery. That is my opinion.
Mr. Gesell. What other factors do you believe contribute to lapse ?
Mr. Montgomery. Well, high-pressure salesmanship.
Mr. Gesell. What do you mean by high-pressure salesmansliip ?
Mr. Montgomery. Pushing agents too hard to get a volume of
business that will make the company good window dressing.
Mr. Gesell. Do you mean that you feel that from your experience
in the business many company managements put too much emphasis
upon volume?
Mr. Montgomery. Well, if you will notice all the ads at the end
of the year or at any other time, every companjr advertises, how much
it has paid for instead of how much it has gained. We believe that
a company should emphasize what it keeps and not what it pays for.
Mr. Gesell. You think there has been too much emphasis upon
what it writes.
Mr. Montgomery. I think there has been too much emphasis on
size.
Mr. Gesell. Now, about this matter of size; yours is a mutual
company is it not?
Mr. Montgomery. Yes, sir.
Mr. Gesell. Do jjou feel there is any advantage in your increas-
ing your size?
Mr. Montgomery. No, sir ; no special advantage.
Mr. Gesell. What do you consider some of the disadvantages in
increasing your size?
Mr. Montgomery. I don't know that there are any great disad-
vantages so far as the company is concerned.
Mr. Gesell, What about the policyholder?
Mr. Montgomery. Well, if size doesn't reduce cost or size doesn't
improve service or size doesn't give added strength, then of course
there is no particular advantage in size.
Mr. Gesell. Your feeling would be that in some companies at least
that have been for volume and size, as to point of view of service
CONCENTKATION OF ECONOMIC POWER 4341
and point of view of distribution of risk and point of view of distribu-
tion of investment, they have already reached a size adequate for the
full protection and servicing of their policyholders' interests?
Mr. Montgomery, I don't know that I could say that, sir, but I
feel this. I can't quite agree with Mr. Holcombe in the matter of
size. I feel that if there is anj difference in lapsation in one of the
A or B companies compared with another, and that is in favor of the
larger company, I think it will be found not in the efficiency of the
management, it will be found in the competition in the fii Id ; it will be
found by the agent of the large company telling the policyholder of
the smaller company that "We can do better for you; look at our
size," and so forth.
Mr. Gesell. And be able to get a better quality of business as a
result ?
Mr. Montgomery. Yes, sir.
Mr. Gesell. So far we have mentioned high-pressure selling, as
you called it, dividend estimates. What about overselling? Do you
think that that is another factor contributing to lapse?
By overselling, I mean agents attempting to load a policyholder
with more than he can carry or more than is needed to meet his par-
ticular insurance program?
Mr. Montgomery. Isn't that, after all, what you would call high-
pressure salesmanship ?
Mr. Gesell. Well, perhaps, although I related high-pressure sales-
manship more to' questions of misrepresentation, and the type of thing
that you see in the funny papers when the salesman holds the man's
pen to the paper.
Do you think lapse has any relation to the quality of agents ?
Mr. Montgomery. Yes; to an extent.
Mr. Gesell. Do you believe that a heavy turnover of agents, inade-
quate training of agents, the employment of too many agents, are all
factors which may lead to a high lapse rate ?
Mr. Montgomery. Unquestionably.
If an agent isn't trained, if he doesn't understand what he is sell-
ing, is picked off the street, given a rate book: and told to go out
and sell life insurance, how can he intelligently sell any man a policy ?
Mr. Gesell. Is it your experience in the business, Mr. Montgomery,
that frequently that is what is done?
Mr. Montgomery. It seems so, sir.
Mr. Gesell. Would you feel managements which do engage in that
practice are perhaps motivated by the desire for volume in getting
business on the books at any cost without regard to the training of
their personnel in connection therewith ?
Mr. Montgomery. Well, if that isn't their motive, why should thjey
do it?
Mr. Gesell. So much for tne causes. On this question of who gains
and who loses from lapses, what is your opinion on that score, and we
might include other forms of voluntary terminations?
Mr. Montgomery. Well, we have a saying that every man loses on
a lapse — the company loses, the policyholder loses, the agent only gets
a part of what he earns because he only gets his commission and
doesn't get his renewal.
Mr. Gesell. The agent just gets his first commission, and doesn't
get the commission he would get from renewals?
4342 CONCENTRATION OF ECONOMIC POWER
(Mr. Montgomery nodded his head in the affirmative.)
Mr. Gesell. The policyholder loses, because he has paid for some-
thing he doesn't get.
Mr. Montgomery. Yes, sir.
Mr. Gesell. The company loses for what reasons, the expense in
putting the business on the books?
Mr. Montgomery. Because it costs far more than they can get back
from it.
Mr. Gesell. Then you would feel that it is a serious economic
waste.
Mr. Montgomery. I would say yes in one way, no in another.
Mr. Gesell. Well, you explain yourself any way.
Mr. Montgomery. I think that the lapses that occur in the first
2 years are a very definite economic waste because a man gets back
nothing at all for what he has put in, except, of course, in term
insurance. Now, if a man gets to a point where he can get a sur-
render value of whatever kind it may be, then, of course, the loss is
not so large.
Mr. Gesell. So that if you define lapse as the termination of the
policy where the policyholder gets nothing back, then you say that all
lapse is an economic waste.
Mr. Montgomery. Well, there is no profit by it, so it must be a
waste.
Mr. Gesell, How much does it cost to put a policy on the books
in your company, for example, Mr. Montgomery?
Mr. Montgomery. You mean the commissions or the home-office
expense ?
Mr. Gesell. The whole works.
Mr. Montgomery. Well, it costs more than the first annual
premium.
Mr. Gesell. In other words, you take in money from a policy-
holder on his first premium, and by the time you have set up a reserve
which is required under the law you find yourself dipping into your
surplus in order to have accomplished that particular acquisition ?
Mr. Montgomery. That is right.
Mr. Gesell. And do you feel that all of that money is returned to
the company by the recapturing of the policyholder's reserve if his
policy lapses?
Mr. Montgomery. The company would recapture the reserve that
has been charged against the policy for the first 2 years ?
Mr. Gesell. Yes.
Mr. Montgomery. Well, that would go into, of course, the gen-
eral funds of the business.
Mr. Gesell. And do you feel that your gains from lapses and sur-
renders are sufficient to compensate you for the amount of money
which you had to expend to get that type of business on your books?
Mr. Montgomery. I could only say that the surplus increases, and
the dividends have increased, so that I guess that goes back to the
policyholders.
Mr. Gesell. Well, then, do you feel that if that is true, then your
company is not losing money by its lapsed policies?
Mr. Montgomery. No, sir.
Mr. Gesell. You are breaking even?
CONCENTRATION OF ECONOMIC POWER 4343
Mr. Montgomery. No, sir.
Mr. Gesell. You are losing money?
Mr. Montgomery. Yes, sir.
Mr. Gesell. Then I gather that you do not feel that by returning
some of the policyholder's reserve to the surplus you make up for
the amount of money that it has cost you to get the business?
Mr. Montgomery. I think not.
Mr. Gesell. Now, what about this question of the gross premium
in a mutual company? Do you feel the fact that most mutual coni-
panies have adopted the policy of charging more than they antici-
pate will be required with a view to returning some of that sum in
dividend, leads to a higher lapse rate?
Mr. Montgomery. Yes: and a wee bit more.
Mr. Gesell. Now, will you explain what you mean?
Mr. Montgomery. Because you can never return to the policy-
holder in its entirety the additional amount you have collected be-
cause the agent gets his commission, the Government steps in and
gets taxes; it costs a ^ood deal of money to adjust these, to arrange
these dividends and distribute them again. Then how can you pay
back to the policyholder the overcharge?
Mr. Gesell. And your company has adopted the policy, has it
not, of reducing the amount of its gross premiums somewhat con-
siderably below the standard gross premiums of other comparable
mutual companies with a view to eliminating that amount of the
waste which would occur if the policies written lapsed?
Mr. Montgomery. We reduced our premiums in 1925 to about the
same amount as the stock companies charged, that is the nonpartici-
pating companies, charged.
]Mr. Gesell. In other words, instead of taking the money away
from the policyholder and giving it back to him again, you decide to
leave it with him in the first plac^?
Mr. ]\Iontgomery. Well
Mr. Gesell. Tliat is the net result of it, isn't it?
Mr. ]Montgo:mery. Well, isn't that common sense?
INIr. Gesell, And the charging of large gross premiums then you
feel does not only increase the lapse rate but results in increasing
the amount of waste involved when policies lapse?
Mr. ISIontgomery. Yes ; and it contributes to the lapse.
Mr. Gesell. I have no further questions of this witness.
Mr. Hlnderson. I have none.-
_Acting Chairman Reece. Any further questions? You may be
excused, ilien, Mr. Montgomery. Thank you very kindly for your
appearance.
^Ir. Gesell. I have no further witnesses today. We can meet
either in the morning or the afternoon to meet the committee's pleas-
ure. The witnesses have been subpenaecl for the morning.
Acting Chairman Reece. The committee will stand in recess until
tomorrow morning at 10 : 30.
(Whereupon, at 4 : 25 p. m., a recess was taken until 10 : 30 a. m.
Tuesday morning, June 13.)
INVESTIGATION OF CONCENTEATION OF ECONOMIC POWER
TUESDAY, JUNE 13, 1939
United States Senate,
Temporary National Economic Committee,
Washington, D. G.
The committee met at 10:50 a. m., pursuant to adjournment on
Monday, June 12, 1939, in the caucus room, Senate Office Building,
Mr. Leon Henderson presiding.
Present: Messrs. Henderson (acting chairman), O'Connell, Lubin,
and Brackett.
Present also : Messrs. Willard L. Thorp, Department of Commerce;
Willis J. Ballinger, Federal Trade Commission; Joseph Borkin, De-
partment of Justice ; and Gerhard A. Gesell, special counsel, Securities
and Exchange Commission.
Acting Chairman Henderson. Will you call your first witness, Mr.
Gesell?
lobbying and legislative activities — ^association of life insurance
presidents
Mr. Gesell. The first witness this morning is Mr. Vincent Whit-
sitt. This morning the testimony will relate to the activities of the
Association of Life Insurance Presidents. Mr. Vincent Whitsitt,
manager and counsel of the association, will be the first witness. His
testimony will be confined to a consideration of the general organiza-
tion of the association, the purposes for which it was created, its
membership, and present objectives.
Tomorrow additional witnesses will be called for purposes of de-
veloping the activities of the association in more detail, with particular
reference to the association's legislative work and the participation
of member companies therein.
Has Mr. Whitsitt been sworn ?
TESTIMONY OF VINCENT P. WHITSITT, MANAGER AND GENERAL
COUNSEL, THE ASSOCIATION OF LIFE INSURANCE PRESIDENTS,
NEW YORK CITY
Acting Chairman Henderson. Do you promise to tell the truth and
nothing but the truth in these proceedings, Mr. Whitsitt?
Mr. Whitsitt. I do.
Mr. Gesell. Will you state your full name for the reporter, please,
sir ?
Mr. Whitsitt. My name is Vincent P. Whitsitt.
4346
4346 CONCENTRATION OF ECONOMIC POWER
Mr. Gesell. You are connected with the Association of Life Insur-
ance Presidents, are you not ?
Mr. Whitsitt. Yes, sir.
Mr. Gesell. In what capacity ?
Mr. Whitsitt. I am the manager and general counsel and chairman
ex officio of the executive committee.
Mr. GrrELL. How long have you been with the association, Mr.
Whitsitt?
Mr. Whitsitt. Nineteen years.
Mr. Gesell. Have you always been manager and general counsel?
Mr. W'hitsitt. No, sir. I started as a law clerk in 1920; I have
been manager since January 1, 1934. I was acting manager for the
year 1933.
Mr. Gesell. The association has offices in New York City, has it
jiot?
Mr. Whitsitt. That is right.
Mr. Gesell. And your offices are there, I take it?
\Mr. Whitsitt. That is right.
Mr. Gesell. Well now, will you tell us what the Association of
Life Insurance Presidents is?
Mr. Whitsitt. The association was founded in 1906, shortly after
the Armstrong investigation. If you recall, the Armstrong report
made some criticism of the methods that the life insurance companies
had prior thereto used in handling their legislation. It will also be
recalled that following the Armstrong investigation the Equitable
Life Assurance Society was reorganized; as a member of the com-
mittee, of that reorganization committee, was Grover Cleveland. Mr.
Grover Cleveland induced Mr. Paul Morton to become president of
the Equitable Life Assurance Society. Mr. Morton had been in
Mr. Theodore Roosevelt's Cabinet. Some months later Mr. Paul
Morton conceived the idea of some association, one of whose object-
ives was to take care of the legislative matters which were flooding
the country in the various legislatures to handle this legislation ui a
manner quite different from that which had been criticized by the
Armstrong investigation. They induced- Mr. Grover Cleveland to be-
come the first manager and general counsel. Mr. Cleveland laid
down the, guiding principles of the association's activities, which
have been followed' ever since.
In connection with legislation, we receive and examine thousands
of bills and examine them from the standpoint of their effect upon
life-insurance policyholders.
Mr. Gesell. We will come to that phase of it. To develop your
testimony a little more with respect to the original organization of
the association, do you recognize this document v\7hich I show you
as the minutes of the first meeting of the association ?
Mr. Whitsitt. Yes, sir.
Mr. Gesell. I would like to offer these minutes for the record.
Acting Chairman Henderson. They may be admitted.
(The minutes referred to were marked "Exhibit No. 690," and are
included in the appendix on p. 4744.)
Mr. Gesell. I wish to read a portion of these minutes for the
record [reading from "Exhibit No. 690"] :
The first meeting of the proposed "Association of Life Insurance Presidents"
of the United States was held at the Waldorf-Astoria in New Yorl< City on Fri-
CONCENTRATION OF ECONOMIC POWER 4347
day, December 21, 1906, in response to the letter sent out by President Morton,
of the Equitable Life Assurance Society, on December 3, IDOO.
There are then listed the names of tlie companies present, their
location, and their representatives. The minutes go on to state :
The chairman stated that the object of the meeting was clearly set forth in
his communication of December 3 addressed to the presidents of the principal
life-insurance companies throughout the country, the said objects being:
First. To promote the welfare of policyholders.
Second. To advance the interests of life-insurance companies in the United
States by the intelligent cooperation of officers in charge.
Third. To prevent extravagance and reduce expenses by encouraging uniformity
of practice among life-insurance companies in matters of general administration.
Fourth. To consider carefully measures that may be introduced from time to
time in legislative bodies, with a view to ascertaining and publicly presenting the
grounds which may exist for opposing or advocating the proposed legislation,
according as the welfare of the companies and their policyholders shall point to
the one course or the other.
Fifth. To consider anything that may be suitably a matter of general concern
to the life-insurance business.
Now, those five principles which I have just read, Mr. Whitsitt, were
embodied in the constitution of the association, were they not, and
they are the five principles to which you refer in your testimony when
you say that the general objectives of the association have always been
the same?
Mr. Whitsitt. Those, together with various informal expressions
which Mr. Cleveland and other managers at various times made to the
executive committee.
Mr. Gesell. Those are the principal guiding objectives of the asso-
ciation ?
Mr. Whitsitt. Yes.
Mr. Gesell. Now, before proceeding to the activities of the associa-
tion, can you tell us a little more about its organization; first of all,
who is eligible to belong to the association?
Mr. Whitsitt. According to our constitution, any legal reserve life
insurance company — the term used is "regular life insurance com-
pany"— of the United States or Canada.^ We have also a rule that
no company is eligible until it has conducted a legal reserve business
for at least 10 years.
Mr. Gesell. Now, does the company join the association or does one
of its officers, or some of its officers, join?
Mr. Whitsitt. Perhaps that is a little technicality. We are an
association of life insurance presidents, and the president makes the
application. As a practical inatterj of course, it is the company.
Mr. Gesell. Am I correct in saymg that as far as the meetings of
the association are concerned only the presidents and vice presidents
of the member companies can attend ?
Mr. Whitsitt. That is usually correct. The president may attend
himself, as they frequently do, or he may send one of the vice presi-
dents, or he may send another officer who does not happen to have the
rank of vice president, such as general counsel or secretary.
Mr. Gesell. Do I understand that both American and Canadian
companies are eligible to membersliip ?
Mr. Whitsitt. That is right.
Mr. Gesell. As nuuuiger, I take it you arc the person actively in
charge of tlie office from day to day.
'See "Exiiibit No.'G'J2." appendix, p. 4748.
4348 CONCENTRATION OF ECONOMIC POWER
Mr. Whitsitt. I am in charge of the administration of the office;
tliat is right.
Mr. Gesell. How many employees does the association have?
Mr. Whitsitt. Somewhere slightly over 60,
Mr. Gesell. Are they all located in New York City?
Mr. Whitsitt. That is right.
Mr. Gesell. Do you determine the policy of the association from
time to time, or is it determined by some committee or vote, or how is
it determined ?
Mr. Whitsitt. Our executive committee determines the policy of
the association.
Mr. Gesell. How often does the executive committee meet?
Mr. Whitsitt. Ordinarily it meets every other month, from No-
vember to May. Frequently we have, special meetings on special
occasions.
- Mr. Gesell. What type of thing vv^ould prompt the calling of a
special meeting of the executive committee?
Mr. Whitsitt. Some question of policy might come up that
needed determinatioti, and we would call a meeting of the executive
committee.
Mr. Gesell. Do you recognize this list which I show y(.>i as the
list containing the members of the association and their dues and
contributions during the last 5 years?
Mr. Whitsitt. That seems correct. Yes; here is our identifying
number. That is correct. Perhaps one of those companies is not a
member at the moment.
Mr. Gesell. How much of the legal reserve business of the United
States is represented by your membership?
Mr. Whitsitt. I could only give you an approximation; I think
it is about 85 percent,
Mr. Gesell. Do the member companies pay dues?
Mr. AVhitsitt. There are annual dues of $100 per year, but the
bulk of the contributions are distributed among tho companies by
what we call "calls" for contributions. Usually there are four each
year.
Mr. Gesell. What is the basis upon which those calls are made?
Mr. WniTsirr. They are based one-half upon first year premiums
of ordinary business and one-half upon assets.
Mr. Gesell. But what is it that prompts your asking for the
money? Your budgetary requirements?
Mr. Whitsitt. That is right. We make up a budget in November
or early December each year, approximating what we anticipate we
will spend the next year, and then calculate roughly about the amount
and the rates of these calls, and then at the annual meeting in De-
cember the authority is given for those calls, and those calls are then,
in turn, passed on to member companies.
Mr. Gesell. And the companies contribute on the basis of size and
premium income.
Mr. Whitsitt. That is, first year premium income; that is right.
Mr. Gesell. This schedule shows the fees, dues, and contributions
received from the member companies for the years 1935 to 1938, does
it not?
Mr. Whitsitt. That is right — I am not sure. Does it say "dues"?
Yes,
CONCENTRATION OF ECONOMIC POWER 4349
Mr. Gesell. That shows that you received in 1934 a total of
$332,694.16; in 1935, $442,896.15 ;* in 1930, $365,211.29; 1937, $495,-
086.85; 1938, $435,375.96.
I wish to offer this schedule for the record.
Acting Chairman Henderson. It may be received.
(The schedule referred to was marked "Exhibit No. 691" and is in-
cluded in the appendix on p. 4746.)
Mr. Gesell. That money, Mr. Whitsitt, represents your operating
funds, does it not, and with those funds you operate ?
Mr. WiiiTSiTT. That is right.
Mr. Gesell. In view of the system which
Mr. Whitsitt (interposing). Tlie disbursements may not equal the
contributions because there might be a small balance at the end of the
year.
Mr. Geseix. But in view of the nature of your system of calling for
contributions, your receipts pretty well equal your disbursements from
year to year, do they not ?
Mr. Whitsitt. Oh, definitely.
Mr. Gesell. In order that the record maj' be complete, do you rec-
ognize this as the present constitution of the association?
Mr. Whitsitt. Yes, sir.
Mr. Gesell. Reading from article VI of the constitution, it states
[reading from "Exhibit No. 692"] :
The manager shall have sole charge and management of the affairs of the asso-
ciation subject to such direction and control as may be exercised by the executive
committee or by the association.
He shall receive and carefully keep all the moneys belonging to tlie association
and disburse the same as may be directed by the association from time to time,
or by the executive committee.
He shall notify the members of the association of all meetings. In the case of
special meetings, the business for which the special meeting is called shall be
stated in the notice.
He shall take and keep a record of all proceedings of each meeting and conduct
the corr-espondence of the association.
He shall employ such assistants as in his judgment may be necessary and the
association or the executive committee may approve.
That article sets forth then, does it not, your duties?
Mr. Whitsitt. Yes, sir.
Mr. Gesell. I wdsh to offer the constitution for the record.
Acting Chairman Henderson. It may be received.
(The constitution referred to was marked "Exhibit No. 692" and is
included in the appendix on p. 4748.)
Mr. Gesell. You mentioned the executive committee. That, I take
it, is the working committee of the association which makes most of its
policy decisions.
Mr. Whitsitt. I wouldn't say "most." According to the constitu-
tion, the decision of the executive committee governs the policy
between association meetings.
Mr. Gesell. Who are the members of the executive committee
at the present time ?
Mr. Whitsitt. I haven't a list here. I think you have a list right
with you. I can name them. There are 11 members.
(Mr. Gesell submitted a list to Mr. Whitsitt.)
Mr. Whitsitt. Mr. Alfred L. Aiken, president of the New York
Life; Mr. Elbert S. Brigham, president of the National Life of
4350 CONCENTRATION OF ECONOMIC POWER
Vermont ; Mr. W. Howard Cox, president of the Union Central Life
Insurance Co. The name given here is Duffield; Mr. Franklin
D'Olier, president of the Prudential Insurance Co. of America; Mr.
John R. Hardin, president of the Mutual Benefit Life Insurance Co. ;
Mr. David Houston, president of the Mutual Life Insurance Co. of
New York ; Mr. Leroy A. Lincoln, president of the Metropolitan Life
Insurance Co. Mr. Nollen has resigned; there is one vacancy. Mr.
Thomas I. Parkinson, president of the Equitable Life Assurance
Society; Mr. George Willard Smith, president of the New England
Mutual; Mr. L. Edmund Zacher, president of the Travelers Insur-
ance Co.
Mr. Gesell. Those appear to be, by and large, the larger eastern
companies which are represented on this executive committee.
Mr. Whitsitt. Well, there are some exceptions to that. The
National of Vermont I wouldn't say was such a large company and
Mr. Cox lives in Cincinnati and Mr. Nollen who was representative
of the West; although he has resigned, he did represent the Middle
West.
Mr. Gesell. The majority of your committee are officers of the
larger eastern companies.
Mr. AViiiTsiTT. Well, that depends upon where you draw the line
of "large."
Mr. Gesell. Let's call them big. Does that help?
Mr. WiTiTsiTT. Well, how big is big ?
I would say this, the New York Life, the Prudential, the Mutual
Life, the Metropolitan, and the Equitable are members of the
executive committee; also the New England Mutual, the Travelers,
and the Mutual Benefit and the National Life of Vermont.
Mr. Gesell. How do these members vote? Does ertch vote?
Mr. Whitsitt. Each has a vote.
Mr. Gesell. Each one has one vote?
Mr. Whitsitt. That is right.
]Mr. Gesell. In the association as a whole, does each meinber have
one vote?
Mr. Whitsitt. That is right.
Mr. Gesell. No member has any preference by reason of its size in
the voting of the organization.
Mr. Whitkitt. No ; not at all.
Mr, Gesell. We have mentioned the executive committee. What
other committees are there of this association ?
Mr. Whitsitt. Oh well, there are numerous committees.
]\Ir. Gesell. Can you name some of the more important committees
and tell us a little what they do? You have a coihmittee, have you
not, on informing the public on life insurance?
Mr: Whitsitt. We did have ; that committee has completed its duties
and been discharged.
Mr. Gesell. That was a committee, was it not, which made a survey
to determine what the attitude of the people was concerning^ life insur-
ance and what could be done, if there was anything which would be
done, to change the situation?
Mr. Whitsitt. About 2 years ago — there had been growing for some
years tlie thought that something might be done along the line of
informing the public on life insurance. It finally culminated about
CONCENTRATION OF ECONOMIC POWER 435 1
2 years ago (I am not sure of the exact date) in a motion at an asso-
ciation meeting that a committee be appointed to explore the question
of whether tlie public seemed well enough informed on life insurance
and, if not, whether anything might be done about it. That committee
was under the chairmanship of Mr. Frazer B. Wilde, of the Con-
necticut General Life Insurance Co. of Hartford. It made quite a
lengthy study and made a report to the association and was discharged
with thanks.
Mr. Gesell. Nothing was done on the basis of the study that was
made?
Mr. WmrsiTT. Not so far as the association was concerned.
Mr. Gesell. What other committees do you have? What do they
do?
Mr. Whitsitt. Well, we have a committee on State premimn tax
interpretation, which makes studies regarding the State premium-tax
lawsjand how to apply the various statutes to premium taxes. We
have a committee on Federal tax interpretation, which studies various
problems of interpretation of the Federal act as it applies to our
member companies. Most of our committees at the moment are not
very active.
Mr. Gesell, Would you say you had named the principal com-
mittees of the association ?
Mr. Whitsitt. There are some others. They don't occur to me just
at the moment.
Mr. Gesell. May I ask you this, are members bound in any w:ay by
the action of the association? If there is a meeting or a decision
reached by the executive committee or the association at large, aije
members bound by that action ?
Mr. Whitsitt. Not at all.
Mr. Gesell. If the association decides that it wants to take some
position with respect to a piece of legislation or any other matter of
policy and the other members, some other member, doesn't feel that
he wants to go along, he can just refuse to cooperate in that venture.
Is that correct?
Mr. Whitsitt. Quite right.
Mr. Gesell. Is he assessed for his share of the expenses even though
he disagrees with the program of the association?
Mr. Whitsitt. Well, there wouldn't be any breaking down for in-
dividual projects normally. I don't recall an instance where we had
a breaking down of a special assessment for a special purpose. Any
expenses we have come out of our general budget.
Mr. Gesell. So that he would simply contribute to the general
budget and no change would be made because of his not agreeing
with a particular policy or program which was under way.
Mr. Whitsitt. That is right.
Mr. Gesell. The only way he could prevent paying his pro rata
share would be to resign from the association.
Mr. Whitsitt. That is quite right.
Mr. Gesell. Your association has an annual meeting, does it not ?
Mr. Whitsitt. We have an annual meeting' each year in December.
Mr. Gesell. Do you also prepare statistical studies of one sort and
another ?
Mr. Whitsitt. Oh, quite definitelj^.
4352 CONCENTRATION OF ECONOMIC POWER
Mr. Gesell. And do you give, make those statistical studies avail-
able to the companies and to public organizations which may be
interested in examining them?
Mr. Whitsttt. We have quite a variety of statistics that we gather.
Referring to the annual meeting, we gather elaborate statistics on
various subjects and quite a number of those, or several sets or series
of those, frequently form the basis of an address at our annual meet-
ing. There are other statistics we gather; for instance, our monthly
figures, the monthly figures on new business. We gather those at the
request of the United States Department of Commerce, and furnish
them to the Department regularly.
There are several other series, monthly figures on assets, monthly
figures on premium income, and data on number of employees, and
the number of agents.
Mr, Gesell. I think perhaps, Mr. Chairman, we might stop and
have these pictures over with, and then go on, if that is agreeable.
Acting Chairman Henderson. Very well.
Mr. Gesell. Now, in addition to preparing this statistical informa-
tion, Mr. "Wliitsitt, does the association participate in what might
be called test litigation of one sort and another?
Mr. WiirrsiTT. Yes, sir.
Mr. Gesell. Does this schedule which I show you contain the prin-
cipal cases in which the association has participated? ^ And the
cimount of the fees that have been paid ? And the lawyers involved ?
Mr. Whitsitt, Yes ; this is of recent years ; runs from 1934 to 1938,
inclusive. That is right.
Mr. Gesell. Now, I would like to — this schedule indicates that
one of the cases which you handled in 1935, or to which you con-
tribut-ed, was the case of the so-called Radford suit, involving the
Frazier-Lemke Act?
Mr. Whitsitt. Quite right.
Mr. Geseij^. Can you tell us a little about that suit and why the
association took a participation in that? I notice that it involved
fees in 1935 alone of $60,0Q0.
Mr. Whitsitt. You may recall the original Frazier-Lemke Act,
which was in the nature of a moratorium on mortgages, and also
would have permitted scaling down of mortgages; it was felt by our
executive committee that this act, if it went into effect — and we op-
posed it in Congress unsuccessfully — might cause grave damage to the
security behind the many mortgages held by our companies, and
hence the security behind the policy reserves of our millions of policy-
holders. Consequently or subsequently we were unsuccessful in op-
posing it before Congress, and one of the early cases tested its valid-
ity which arose in Louisville, Ky., Radford against tlie joint-stock
land bank, I believe it was.
Mr. Gesell. Who is Radford?
Mr. WiiiTSirr. I do not know.
Mr. Gesell. He wasn't an insurance person, was he, at all?
Mr. Whitsitt. He wasn't as far as I know ; I don't know him.
Mr. Gesell. And yet the association wanted to help him out?
Mr. Whitsitt. We wanted to test the principle of the constitu-
tionalitv of the Frazier-Lemke Act, so we retained Mr. William
^ Entered later as "Exhibit No. 693," see appendix, p. 4750.
CONCENTRATION OF ECONOMIC POWER 4353
Marshal Bullitt, of Louisville, Ky., who frequently handles cases
before the Supreme Court for us, to select a case. It just so happened
that one of the junior associates in his office had been retained in
this case to test the constitutionality of it. We were very much
interested in wanting to employ the best counsel in order to see that
it was properly presented to the Supreme Court, so we employed
Mr. John W. Davis and Mr, William Marshal Bullitt, who handled
the case before the Supreme Court, and it was declared unconsti-
tutional by a unanimous decision, by Mr. Justice Brandeis.
Mr. Gesell. Now will you tell us
Acting Chairman Henderson (interposing). You mean Justice
Brandeis wrote the opinion?
Mr. Whitsitt. Wrote the opinion, that is right; concurred in by
the eig;ht other Justices.
Acting Chairman Henderson. The law would have been a great
deal different in this country if a decision could have been made by
Justice Brandeis.
Mr. Gesell. Can you tell us what sort of procedure your associa-
tion went through in determining that it would participate in this
particular piece of litigation? Did you have a regular meeting of
your executive committee and did they approve the program?
Mr. Whitsitt. As I recall we had several meetings in connection
with that. My recollection is that the first meeting authorized us
to retain those two gentlemen, Messrs. Davis and Bullitt, to render
us an opinion on the constitutionality of the act. That opinion was
rendered, the conclusions of which were that the act was invalid.
How many meetings we had I can't say without referring to our
minutes.
Mr. Gesell. Did you consult your whole membership, or was this
a determination made by the executive committee?
Mr. Whitsitt. I am not sure of that; I can't say; it may have
been; there may have been an association meeting intervening and
there may not have been. I can't say. AH of the acts — may I inter-
ject this? — at every meeting of the association the full minutes of all
executive committee meetings in the interim are presented for rati-
fication and approval and endorsement. Then later the executive
committee concluded on the basis of the opinion rendered by these
two gentlemen that we should select some case to carry it to the
Supreme Court, and have a final determination on the point..
At that time it was determined that Mr. William Marshal Bullitt
and Mr. John W. Davis be selected.
Dr. LuBiN. Mr. Whitsitt, your organization and no company con-
nected with your organization were parties to that suit, as I under-
stand it ; is that correct ?
Mr, Whitsitt. That is right.
Dr, LuiiiN, Nor were you amicus curiae in the case ?
Mr. Whitsitt, Whnt is that? As I explained a few moments
ago, the case happened to be in the office of ^Ir, Bullitt, He — one
of his associates had been retained by the, I believe, joint-stock land
bank to handle the case, and so the case was in INIr. Bullitt's office.
In canvassing the various cases Ihat seemed the most appropriate
one to select for the testing, and also seemed the one nearest to
appeal.
4354 CONCENTRATION OP ECONOMIC POWER
Dr. LuBiN. In other words, here was an individual private citizen
who had brought suit against a given agency the plaintiff was not
related to you in any way, but you, your association, said "We will
pay the counsel fees for this person, even though he has no relation-
ship to us, because we are interested in seeing to it that this case is
presented to the court in a certain way.
Mr, Whitsitt. I guess that is right.
Mr. Gesell. Did your interest in the litigation appear at all, as
a matter of public record ?
Mr. Whitsitf. I don't recall. In this way, our books are always
examined by the New York Insurance Department and we make no
secret of it, of our interest in any test litigation. Mr. Bullitt is
rather well known as a counsel for insurance companies.
Mr. Gesell. If I were to pick up the record in the Radford case^
or go look at the Supreme Court reports now, would I know the
Association of Life Insurance Presidents was interested and had
participated in that piece of litigation to the extent of at least
$60,000?
Mr. WHrrsiTT. I do not know.
Mr. Gesell. I notice another suit on here called the "New York
<^ity Contemplated Suit." Can you tell us what that was ? That was
in 1934 and involved fees in 1934 of some, $17,500.
Mr. Whitsfft. Was that the
Mr. Gesell. The payments were made to three sources, Shearn;
Root, Clark, Buckner & Ballantine; Bruce and Bullitt. What was
the nature of that?
Mr. Whitsftt. My recollection is that had to do with a proposed
city ordinance in New York City, taxing in some manner — I am not
familiar and don't recall the details — taxiing in some manner our
insurance companies, and we retained counsel in order to be prepared
so that when, as, and if, the act became effective we might want to
test its constitutionality. That is my best recollection.
I haven't reviewed the files on that for some time.
Mr. Gesell. In other words, then, these were simply fees ex-
pended ?
Mr. Whitsitt. In conferences and for opinions.
Mr. Gesell. Getting ready to oppose this legislation if it did go
through ?
• Mr. Whitsitt. If our counsel and if our executive committee fin-
ally concluded that it was invalid and should be opposed. It was a
preliminary step.
, Acting Chairman Henderson. I presume you opposed the passage
of the ordinance?
Mr. Whitsitt. As I recall — now this is from recollection; I am a
little dim on the recollection of this — there were some hearings before
the New York City Board of Aldermen and Council.
Acting Chairman Henderson. And you probably appeared — did
you appear yourself?
Mr. Whitsitt. I did not appear.
Acting Chairman Henderson. Did counsel for the association ?
Mr. Whitsitt. My recollection is that we had a committee of offi-
cers of the New York City companies; that is my recollection. I
haven't reviewed this file for quite some time.
CONCENTRATION OF ECONOMIC POWER 4355
Acting Chairman Henderson. So your interest in this particular
ordinance was apparent? That is, you did make your appearance
in the contemplation of the ordinance?
Mr. Whitsitt. That is right. Before we leave the Frazier-Lemke,
may I add in connection with the question over there (Mr. Lubin's),
our representation in that was in behalf of the Louisville Joint Stock
Land Bank, and not Radford.
Acting Chairman Henderson. Not Radford? Your people didn't
represent Radford, is that it ? Your people fej^resented the Govern-
ment agency?
Mr. Whitsitt. Yes.
Dr. LuBiN. May I ask a question, Mr. Chairman? Just for per-
sonal enlightenment. I don't happen to be a lawyer, so I don't know
much about legal procedure, but is it customary for — in the practice
before American courts — an outside agency to hire counsel to defend
cases without being themselves a party of record? Ts that a cus-
tomary procedure in our courts? It is for my own personal enlight-
enment that I ask that question.
Mr. Whitsitt. It is not uncommon; the railroads, I believe, have
done that a great many times.
Acting Chairman Henderson. I think that is correct, Mr. Whitsitt.
I think it is not an uncommon thing.
Mr. Gesell. I would like to oflfer this schedule of litigation fees
and expenses.
Acting Chairman Henderson. It may be received.
(The schedule referred to was marked "Exhibit No. 693" and
appears in the appendix on p. 4750.)
Mr. Gesell. As far as your legislative activities are concerned, Mr.
Whitsitt, am I correct in saying that each year there is a break-down
of your disbursements which shows those expenditures, the amount
spent for legislative purposes and the amount spent for nonlegisla-
tive purposes?
Mr. WHiTsrrr. Oh, definitely ; that is in order that we may furnish
our companies in turn a break-down so that they may comply with
what is known as schedule K in the annual statement blank. It is a
little bit broader than legislation. It is what is known as D of G,
departments of government,, meaning legislation or departments of
government. Schedule K is a part of the nnual statement. Every
life insurance company must file, arfd that was one of the statutes
requiring that; to my recollection it Was a result of the Armstrong
investigation; that each company show in detail the amounts ex-
pended for legislation; so we allocate our expenses to legislation and
others; and litigation also for schedule J; and then in turn break
that down for each of our companies in proportion that they have
contributed to our total receipts.
Mr. Gesell. Now can you tell us for the period from 1935 to 193S
by each year the amount of your total disbursements and the amount
disbursed for legislative purposes?
Mr. Whitsitt. I think you have some of those here.
Mr. Gesell. Am I correct in saying that in 1935 vou disbursed
$480,783, of which $139,601 was for legislative purposes?
Mr. Whitsitt. That allocation, yes; and that also includes break-
down for office rent, other overhead, and salaries, and so on, $139.-
601.50. '
124491— 40— pt. 10 15
4356 CONCENTRATION OF ECONOMIC POWER
Mr. Gesell. And in 1936-
Acting Chairman Henderson. To clear that up, I gather from
your statement that you have a basis of allocation in your office of
overhead expense in this break-down you make?
Mr. Whitsitt. In addition to those items that are directly allocable,
for instance, if we reimburse a legislative representative so many
dollars and so many cents, that is directly allocable, those are directly
allocable items.
Then in addition we allocate for our auditors — Haskins & Sells —
report, other general items on a basis of a formula compiled by our
actuary.
Acting Chairman Henderson. Instead of your accountant?
Mr. Whitsitt. That is right, and that
Acting Chairman Henderson. You must have a good actuary, then.
An actuary we had before us last week professed not to know much
about accounting. Do I understand from that, then, a part of your
salaries would be allocated in this break-down to legislative expense?
Mr. Whitsitt. Quite right.
Acting Chairman Henderson. So that the $139,000 wouldn't
represent moneys that had been expended entirely in direct legislative
activities ?
Mr. Whitsitt. The actual disbursement figure for that year, which
you have on another year
Mr. Gesell. $487,000.
Mr. Whitsitt. Not actual disbursement; for legislation and D of
G I think around $90,000.
Mr. Gesell.. We wilL introduce that schedule in a moment. Now
in 1936 your total disbursements were $331,260, were they not, and
your legislative disbursements $91,241?
Mr. Whitsitt. That is right,
Mr. Gesell. In 1937 your total disbursements were $390,380, and
your legislative disbursements $181,246?
Mr. Whitsitt. That is right.
Mr. Gesell. And in 1938 your total disbursements were $505,344,
and your legislative disbursements $147,683 ?
Mr. WnrrsiTT. That is right. You haven't included '34 ; I think you
are referring to 5 years.
Mr. Gesell. Will you give us the '34 figures ?
Mr. Whitsitt. The total disbursements were $331,307.71, and legis-
lative $66,121.83. And may I say regarding the year 1938 the total
disbursements were $505,000? There was one sizable nonrecurring
item, something over $100,000, which was for setting up a retirement
annuity plan for our employees.
Acting Chairman Henderson. That accounts for the fact that your
disbursements in that year outran your income?
Mr. Whitsitt. Yes. Well, we had a balance at the end of the
previous year which enabled us to handle this large lump disburse-
ment.
Acting Chairman Henderson. But you say you were not in the red.
Mr. Whitsitt. That is right.
Mr. Gesell. Mr. Wliitsitt, do you recognize this schedule, which I
now show you, entitled "Total fees, compensation, and expenses in con-
nection with legislation and appearances before departments in the
Government by States, 1934r-38," as a schedule prepared by your office.
CONCENTRATION OF ECONOMIC POWER 4357
showing the fees, expenses, and compensations paid during the years
covered directly for legislative purposes to persons not in the employ
of the association ?
Mr. Whitsitt. For legislative purposes, and, as I said a moment
ago, D. of G.
Mr. Gesell. Appearances before departments of government.
Mr. Whitsitt. The heading of schedule K will explain this. Only
one minor suggestion, "Prepared by our office" — it was {)repared on the
form, and the figures were taken from our books by one of your
examiners, and our statisticians checked it about 2 weeks after and
verified it.
Mr. Gesell. It is a correct statement, is it not ?
Mr. Whitsitt. My statisticians tell me that it is correct.
Mr. Gesell. I wish to offer this schedule for the record.
Acting Chairman Henderson. It may be received.
(The schedule referred to was marked "Exhibit No. 694" and is in-
cluded in the appendix on p. 4752.)
Mr. Gesell. This schedule shows for 1934 fees and compensation
of $10,400 and expenses of $18,758, and for 1935 fees and compensa-
tion of $46,085 and expenses of $44,154.49 ; 1936, fees and compensa-
tion of $13,850, expenses of $13,996.65; 1937, fees and compensation
of $39,675, expenses of $34,381.15; 1938, fees and compensation of
$8,950 and expenses of $14,551.41.
Mr. Whitsitt. You will notice that there is a variation from the
even numbered year to the odd numbered year — ^between the even
numbered and the odd numbered years because in the odd numbered
years there are some forty-odd State legislatures in session and in the
even years there are not so many regular sessions.
Mr. Gesell. I notice on the right-hand column this schedule under
the heading "Legislative Representatives to Wliom Fee or Com-
pensation was Paid," and the names of various individuals and law
firms in some instances. Will you explain to us who those persons
are, what their connection with the association is?
Mr. Whttsitt. The first one, Mr. Brown, is aji agent, possibly a
general agent, of the Guardian Life in Alabama ; Montgomery, I
believe, is his home. For many years he has 'acted as a correspond-
ent with us, for us, in watching legislation in Alabama which might
be detrimental to the interests of our policyholders.
Mr. Gesell. Then you have on that list other individuals con-
nected with insurance companies who receive fees from you for
their work in connection with legislative matters.
Mr. Whitsitt. Only in very exceptional cases are payments made
to men who are connected with some com|>any. Most of our legis-
lative correspondents are voluntary workers. It happens that 5iis
was one of the exceptions and there are two or three from time to
time. Usually where we are represented by a general agent or a
manager he is a voluntary worker.
Mr. Gesell. Then the bulk of the names that appear on that riglit-
hand column are persons who are employed specially by the associa-
tion to give representation in the particular State. Is that correct*
They have no connection with any insurance company ?
Mr. Whitsitt. Most of these, I believe — ^may I glance down- aro
counsel. One of these, Mr. Peterson — there is a fee to him — is a
4358 CONCENTRATION OF ECONOMIC POWER
general counsel of a member company, but it was a matter for a
department of the government, as I recall, not in connection with
legislation.
Mr. Gesell. In order that we can understand in a little more de-
tail what prompts the selection of these particular individuals in
some cases, in some cases why you use voluntary workers, as you call
them, and in other cases why you employ someone specially, will
you tell us a little about your procedure? Am I correct in saying
that you review a great number of bills from all States as they come
to you in the New York office ?
Mr. Whitsitt. Quite right. We have received in each of the last
2 "on" years about 10,000 bills, I suppose.
Acting Chairman Henderson. You mean by an "on" year
Mr. Whitsitt (interposing). The odd-numbered year.
Mr. Gesell. When the legislature is in session.
Mr. Whitsitt. Yes.
Mr. Gesell. You review those bills and classify them in some way in
terms of those you consider objectionable and those you consider not
objectionable — those you want to watch actively and those you don't.
Mr. Whitsitt. There are various classifications.
Mr. Gesell. Tell us what your classifications are.
Mr. Whitsitt. You have practically stated it. There are bills we
feel would be quite objectionable from the standpoint of our policy-
holders and other bills that might be amended in the course of passage
and become objectionable; they would be watched. Other bills are
obviously of no interest.
Acting Chairman Henderson. You say objectionable to your policy-
holders. You don't mean you consult the policyholders as to w^hether
or not you should oppose a certain bill ?
Mr. Whitsitt. For instance, a premium-tax bill materially increas-
ing the premium tax on policies would obviously have to be borne by
the policy ohlders.
Acting Chairman Henderson. But that isn't the sole test you apply
as to whether you oppose it or not ; that is, it isn't a test of exactly what
the policyholders' interest is. .
Mr. Whitsitt. Obviously we couldn't consult 64,000,000 persons.
Acting Chairman Henderson. My question is, the test you apply
is whether or not the insurance companies which are members of
your association find it objectionable?
Mr. Whitsitt. Obviously anything that would be to the detriment
of a company, I believe, would also be to the detriment of the policy-
holders.
Acting Chairman Henderson. Would that be true with a stock com-
pany, would you say, or isn't there a division of interest as between
the stockholders and an insurance company similar to what exists in
other types of companies ?
Mr. Whitsitt. Almost 75 percent of the business is in purely
mutual companies ; obviously, insofar as that goes, there is no divi-
sion of interest.
Acting Chairman Henderson. What determination is made by the
companies themselves as to whether your association oppose or favor
any given piece of legislation as representing these companies? That
was the purpose of the formation of the association.
CONCENTRATION OF ECONOMIC POWER 4359
Mr. Whitsitt. That is right.
Acting Chairman Henderson. Tlieir interests may coincide at times
with the policyholders?
Mr. Whitsitt. I think largely so.
Dr. LuBiN. Mr, Whitsitt, in the event that you ran across a, piece
of proposed legislation which strengthened the position of the policy-
holder at the expense of the company, would you feel that you would
have to pass judgment as to whether or not that bill should be opposed
or favored?
Mr. Whitsitt. I am afraid that question is too general.
Dr. LuBiN. Let us be specific.
Mr. Gesell. May I suggest that within the next few minutes we will
have specific bills before the committee which the association opposed
Perhaps that will give a better basis for the question.
Dr. LuBiN. Thanks.
IVIr. Gesell. Mr. Whitsitt, after you have determined which bills
are objectionable to the association, I presume you have some contact
at the particular State where the bill has been introduced.
Mr. Whitsitt. We have a correspondent or representative or a law
firm. We always — you were asking me a moment ago that I didn't
quite complete. It is far better, we have found b}^ experience, that
legislative representations be made by men in the business, so that most
of our legislative correspondents and representatives are either com-
pany officials of, say, a member company, domiciled in thaf particular
State, or some leading general agent or manager in that State. There
are, however, several States — I would guess some 8 or 10 — where such
a person is not available. In those instances we find it necessary to
employ counsel to represent us.
Mr. Gesell. Let me see if I understand that. You, in the normal
case excluding these 10 or 12 instances that you refer to, deal directly
with some company official in the particular State. He may be either
an officer of a company or he may be the head of the local agents or
underwriters' association, or he-may be a specially appointed man rep-
resenting all the agents and underwriters in that district. Is that not
correct ?
Mr. Whitsitt. Just along that line, it may be the president or, say,
the general counsel or some vice president of a member company, or it
may be some leading general agent. He might not necessarily be presi-
dent of, say, the local life underwriters, or even the chairman of their
legislative committee — they frequently have legislative committees.
Mr. Gesell. And you have had frequent contact with the legisla-
tive committees of the underwriters' associations in the various States,
have you not?
Mr. Whitsitt. Well, quite frequent, but our direct contact is with
the man whom we have designated as our correspondent.
Mr. Gesell. There is one man designated as your correspondent in
each of these States.
Mr. Whitsitt. That is right. There are one or two exceptions. For
instance, in Minnesota we have two member companies there. We
send a copy of the correspondence to the man in each company, and
there may be one or two other exceptions of something like that.
Mr. Gesell. If you find that you don't get, can't have handy, the
right kind of agent or manager or official to represent you in some
4360 CONCENTRATION OF ECONOMIC POWER
locahty, or suppose the work becomes too diflScult or too complex or
too legal in character, you designate some attorney frequently to repre-
sent you as your correspondent in that.
Mr. Whitsitt. That is quite right. In a number of States there
does not seem to be a man available willing to give his time or a man
qualified to handle the situation, and then it becomes necessary to
employ counsel.
Mr. Gesell. The selection of a counsel in those States is illustrated
on this schedule which you had before you a minute ago, showing fees
and compensations, is it not?
Mr. Whitsitt. That is right.
Mr. Gesell. Then, if during a particular legislative session there
seems to be a great deal doing and too much to be handled by the
local representative, am I correct in saying that it is your practice on
many occasions to send down to the legislature an employee of the New
York office of the association who goes down and contacts the people
there in that State and helps whip things into shape ?
Mr. Whitsitt. To coordinate the local activity, oh, yes.
Mr. Gesell. So that you have three different possible contacts in a
particular State, or a combination of those three.
Mr. Whitsiti. Explain what you mean by three different combina-
tions.
Mr. Gesell. A representative of the industry, an attorney that you
appoint specially, or a representative that you send down,
Mr. Whitsitt. One or the other and possibly an officer of the asso-
ciation.
Mr. Gesell. Now, I ask you whether this document which I show
you now, being a letter dated July 12, 1937, addressed to Leroy A.
Lincoln, president of the Metropolitan Life Insurance Co., is not a
summary of the association's legislative activities for the year 1936, this
being a form letter which was sent not only to Mr. Lincoln but to
all other member companies ?
Mr. Whitsitt. This is in the form of a report, and attempting to
boil it down into two pages.
Mr. Gesell. I would like to have this for the record.
Acting Chairman Henderson. It may be received.
(Thp letter referred to was marked "Exhibit No. 695" and is in-
c.lucjed in the appendix on p. 4754.)
Mr. Gesell. This letter is captioned "1937 Legislative High Points"
[reading from "Exhibit No. 895"] :
For the confidential information of mem'ier companies, there are outlined be-
low a few of the high points of the 1937 legislative proposals. Detailed informa-
tion appears in our regular bulletin service.
Of the 46 regular and 14 special sessions — in 46 States, two Territories and
<>)ngress — Congress and three States (Minnesota, New Hampshire, Ohio) are still
active. Total bills examined here, 11,047, set a new high, almost double that of
G years ago and over three times that of 10 years ago.
Ten premium-tax-increase bills on foreign companies failed in 8 States, Cali-
fornia, Colorado, Florida, Georgia, Minnesota, Nevada, Oklahoma, Washington.
None enacted. Such proposals so far failed this year would have increased the
annual tax by $3,300,300. A bill, still pending, was passed by the House to in-
<Toase the District of Columbia rate from V/y to 2 percent. This increase has
bi'cn deleted by the Senate committee.
Seven bills were introduced in five States to subject annuity considerations to
premium taxation. Five failed, one was amended in Maryland to exempt
Mnnuitits and enacted, and the other, in "New Hampshire, is still in committee.
Four compulsory-investment bills failed in two States. None enactt^d.
concentrXtion of economic power 4Z61
Nine savings-bank life-insurance bills failed in seven States, Colorado, Con-
necticut, Missouri, New York, Ohio, Pennsylvania, Rhode Island. None enacted
Seven bills specifically to restrict policy-loan interest failed in five States-
41/2 percent in Minnesota and New York, 4 percent in Colorado and Pennsylvania,'
and prohibition of any interest in California. None enacted. Numerous other
bills to restrict general interest failed.
New insurance codes were enacted in Illinois and Alaska. Proposed codes
failed in Penilsylvania and Hawaii.
Proposals were made in nine jurisdictions to subject applicants for life agents'
licenses to department examination. All failed or were amended to exempt life ;
except in Washington a new law requires examination but permits it to be given
by a company with an approved course of instruction.
A large number of net- and gross-income and sales-tax measures broad enough
to include insurance were proposed. Numerous inheritance, intangible, gift,
stamp, capital stock, mortgage, and municipal tax bills would have imposed
additional taxes on life insurance. One intangible-tax proposal would have spe-
cifically taxed annuities and surrender values.
A new Georgia law requires deposits by life-insurance companies. In Alabama,
Arkansas, Delaware, and Nebraska proposals to require bonds or deposits in the
State were unsuccessful. The Nebraska bill would have required a deposit equal
to Nebraska reserve with either 30 percent in Nebraska securities or an
additional 2 percent premium tax.
Other noteworthy adverse measures which failed included proposals for pre-
mium notices, attorneys' fees and penalties, insurance investigations, prohibition
of race distinction, segregation of life-insurance assets, appointment of certain
life companies' directors by a State insurance commissioner, and all companies
to offer renewable term insurance.
Forty measures of interest from a mortgage-loan viewpoint were enacted.
Nearly half extend emergency laws permitting stays of foreclosure,, extensions of
i-edoniption periods, or modifications of deficiency judgment rights. Others pro-
hibit deficiency judgments In certain cases 01*" p''ovide other changes in fore-
closure procedure. Two bills in Oklahoma would have provided for escheat of
corporate-owned farm lands held beyond 7 years. One which became law was
amended to substitute a penalty. In four States six bills to impese a graduated
land tax failed. Two such measures are pending in Minnesota. Numerous other
measures adverse to mortgage-loan investments failed.
The favorable outcome is attributable to the cooperation of life-insurance men —
both home oflfice and field — wholly typical of the institution of life insurance.
Mr, Whitsitt. I think yon stated that went to the presidents of
each of our member companies.
Mr. Gesell. Yes; that is correct.
Mr. Whitsitt. That is correct.
Mr. Gesell. Do you recognize this document which I show you as
a simihir report sent to the member companies on July 5, 1935?
Mr. Whitsitt. Yes; quite right.
Mr. Gesell. I wish to offer this for the record.
(The letter referred to was marked "Exhibit No. 696" and is in-
chidcd in the appendix on p. 4755.)
Mr. Gesell. Now, the report which I read for the 1936 legislative
session sets up, generally speaking, does it not, the type of bill which
the association considered desirable to oppose'^
Mr. Whitsitt. Well, I think you will find some bills in there ihnt
we do not take action on. It was a mere question of report, \.h\~
doubtedly, most of the bills in there that were referred to as objec
tionable were opposed. I have to review the list, but I think thero
were some there that we didn't oppose.
Mr. Gesell. By aad large, the bills mentioned in there were op
posed by the association.
Mr. Whitsitt. By and large, the bills were opposed, but possibly
some of them ^;^'8re supported. I would have to go through it again.
4362 CONCENTRATION OF ECONOMIC POWER
Mr. Gesell. Will you just pick out of there those bills mentioned
which were defeated but which the association didn't oppose.
Mr. Whitsitt. Well, I would say this irenerally. We have never
opposed an investigation of insurance. That is the one thing that
caught my mind.
Mr. Gesell. All right. What else, Mr. Whitsitt?
Mr. Whitsitt. And I have no recollection of ever opposing prohi-
bition of racial distinction.
Acting Chairman Henderson. What was that?
Mr. Whitsitt. I have no recollection that we ever opposed a bill
described here as prohibition of race distinction. I think that gen-
erally would be true. There may be some exceptions that I haven't
caught, but generally that is- true.
Mr. Gesell. Now, coming
Mr. Whitsitt (interposing). On insurance codes, we do not oppose
the complete insurance code. Mr. Hogg reminded me of that.
Mr. Gesell. You have your own code, which is the code you wanted
adopted.
Afr. Whitsitt. Not necessarily, at all. We are very happy to make
suggestions; and if there is a first draft, we are happy to go through
that and make suggestions for amendments as we have for a period
of '2 years in New York.
Acting Chairman Henderson. Do you have a model code of your
own
Mr. Whitsitt. We have one. It is a . little antique right now.
The American Bar Association has one which, as far as life is con-
cei-ned, is substantially the same that we considered, so-called stand-
ard. We receive requests quite frequently from various persons in
Slates for what we consider standard provisions or a model. We
have used it for that, substantially the same as the American Bar
Association code.
Mr. Gesell. Referring back to a question by Dr. Lubin for a
moment, I noticed there a reference to the defeat of bills requiring
a State examination for agents. Your association has opposed that
type of legislation, has it not?
Mr. Whitsitt. In the past, some years ago, and for a good many
years. up until quite fairly recently, we have — our association, the
executive committee — felt it was undesirable, and we have opposed
those bills; however, it happens that our position on written ex-
aminations for life-insurance agents Jias been reversed, and we are
not now opposing written examinations for life-insurance agents
where there is a provision that a man may be licensed and operate for
6 months, say, on trial pending his opportunity to take an examination.
Mr. Gesell. During the period before you had this reversal of
policy you had opposed examinations by States of life-insurance
agents, had you not ?
Mr. Whitsitt. That is quite right in most instances.
Mr. Gesell. Was that not the type of situation to which Dr. Lubin
referred where the legislation may have been the type of legislation
which would have brought to the policyholder an added protection?
Mr. Whitsitt. Is there a question?
Mr. Gesell. Yes; I will repeat it again. Was that not the kind of
.a bill which would have brought to the policyholders added protection?
CONCENTRATION OF ECONOMIC POWER 4363
Mr. Whitsitt. I will answer it this way : The reasons that our ex-
ecutive committee and association felt it advisable to oppose written
examinations were these: In a good many States in practice in the early
days of examinations it was found that examinations were not given
frequently enough, and it Avas found that they were not given in
various sections of a populous State. Some of the agents had to travel
great distances, and, also, it was an added expense to the insurance
department, which in turn would be an added expense imposed on
the policyholders. Tlie companies also felt that since they had been
introducing schools — most of our larger companies and most of our
membership have various training courses and schools for the training
of their agents — they felt that their own training was a sufficient test.
Furthermore, it was felt that the mere passing of a written examina-
tion does not make an honest man or a man of good character. I
would say an educated crook would be worse than an uneducated
crook.
Dr. LuBiN. Of course, tliQ fact that a man passed an examination
doesn't compel you to hire him. He might be dishonest and pass the
examination but that is no assurance that you a];e going to hire him,
is it?
Mr. WiiiTsixr. Under the procedure, as I understand it — I am not
an agency man — a man applies to the company for an opportunity to
become an agent, and the company certifies to the department in order
to have an examination given to that man. The arrangement tenta-
tively is made with the com])any before the examination is taken.
Dr. LuBiN. So the company in the last analysis determines whether
they will hire the man.
Mr. WiiiTSTTT. Now I am referring to our past policy, prior to our
recent reversal. At that time it was felt that it was an added burden;
however, there have been changes in the times. In recent years there
have been many more — well, there have been many taxes; and the
way you leave your life insurance will frequently invplve the payment
of your death taxes and other complications — the various modes of
settlement which make it necessary to have a higher standard and
our reversal of attitude was along the line of the trends of the day
for having higher qualifications for life-insurance agents so that they
be better equipped to deal with the injuring public.
Mr. Gesell. Let's see about that. In 1934 your association opposed
such a bill in Rhode Island, did it not ?
Mr. Whitsitt. I wouldn't say offhand ; we probably did.
Mr. Gesell. Will you examine this file, please, and refresh your
recollection ?
jMr. Whitsitt. Yes; this is — as I said, our reversal was quite recent.
Mr. Gesell. Nov\', you opposed it in 1934 and, as this file indicates,
a letter went out to Mr. Stearns, general agent of John Hancock,
stating [reading] :
As you know, the policy of the member companies of this association in opposi-
tion to measures calling for written examination of applicants before they can
be licensed as life-insurance agents, is long established and unaltered.
This man, who was a Maurice H. Stearns, you addressed as general
agent of the John Hancock, and he replied (o you as chairman of the
law and legislative connnittee of the Rhode Island Underwriters Asso-
ciation and said
4364 CONCENTRATION OF ECONOMIC POWER
Mr. Whitsitt (interposing). Yes; he disagreed.
Mr. Gesell. He said [reading] :
This bill was prepared in this office after a personal visit to the insurance
department of one or two of our surrounding States and in correspondence with
other insurance departments. You may also know that various other bills, and
particularly the bill recodifying the entire life-insurance law of the State, also
had our attention. Life-insurance men have done considerable work for the
betterment of the business in the State of Rhode Island, and we know that
the life-insurance fraternity believe that this bill should become law.
Mr. Whitsitt. Yes; it is quite true. That is an indication of one
point that we do not control the agents; they do not always agree
with us.
Mr. Gesell. Now, let's just see what happened about that. You
wrote back to him again, the association did, and said [reading] :
We are fully in accord with you as to the desirability of having the life-insur-
ance business represented by the highest type of agency personnel. In this con-
nection, however, we feel tliat the companies, rather than others, should bo
responsible for the selection of competent and trustworthy agents.
And' after that letter had gone out you received a reply, a memo-
randum in your file, from Mr. Crane, which says:
In view of the sentiment among the underwriters in Rhode Island in favor
of this bill, Mr. Creswell —
Who is he?
Mr. Whitsitt. He is our statistician.
Mr. Gesell (continues reading) :
telephoned the following with the request that they communicate with their
general A companies, making known that opposition to measures of this type
and llioy are the representatives of the Metropolitan, the Prudential, the Equi-
table, the Mutual Life of New York, the Mutual Benelit, the New-York Life, the
Nortliwe.stern Mutual, the Connecticut Mutual, Massachusetts Mutual, the Phoenix
Mutual, the Now England Mutual, and the State Mutual —
and tlicre is recorded against the memorandum that thoy all will
do so.
And subsequently there is a memorandum from Mr. Crane, which
says that —
Mr. White, of the Puritan Life, telephoned Mr. Whitsilt this afternoon. He
said that a meeting of the agents had been held yesterday to consider the merits
of tliis bill and that tlie agents had decided to withdrnw their support and
oppose it.
So that even if there is this disagreement with you among the
agents, you are pretty vigorous in your efforts to have your position
succeed, are you not?
Mr. Whitsitt. Yes; we were carrying out the policy of our <"xecu-
tive committee. Now, it is instances like that and a growing feeling
is that there should be written examinations, which resulted in a
reversal of our policy.
Mr. Gesell. Why iiot leave well enough alone if the agents in
Rhode Island want this bill and the people of Rhode Island through
tl^eir elected legislature have proposed a bill which they want to enact,
and (iiose people are policyholders; why not have the bill enacted*
Why should yon inter]ect yourself into the situation at all?
Mr. Whiisitt. We feel we have a stake in the life-insurance busi-
ness. As a mtitter of fact we have changed our policy.
CONCENTRATION OF ECONOMIC POWER 4365
Acting Chairman Henderson. I gather you would support the bill
now; is that it?
Mr. WHirsiTT. I don't know as we would go so far as to actively
support one; in changing a policy of an organization from one posi-
tion to another it is usually a matter of evolution; it goes slowly.
Acting Chairman Henderson. But if they went ahead you wouldn't
have Mr. Creswell telephone down?
Mr. Whitsitt. That is right; quite right.
Acting Chairman Henderson. And try to kill it?
Mr. Whitsitt. That is right.
Mr. Gesell. Now one thing that interested me in that file was the
indication that the association on occasion apparently communicates
with the offices of the member companies and asks them to communi-
cate in turn with their general agents with a view to establishing a
concerted action on a particular measure?
Mr. Whitsitt. Quite right.
Mr. Gesell. Now will you explain that procedure to us in some
detfiil and how it works out, and how it is handled ?
Mr. Whitsitt. We may have a very vicious tax bill. The average
premium tax, which is nothing more than a gross sales tax or a
transaction tax, is slightly less than 2 percent. Now assume a bill
has been introduced, as has happened in some States, making that 4
or 6 percent. There is an added burden on the policyholders. We
feel that such additional burden should not be imposed. We take
such local steps as we may have available to us to ascertain the situa-
tion as to how strongly the bill is being pressed. In order to meet
the situation, however, we need the cooperation of the general agents
and managers of our member companies, so we frequently, as you
say, will send a telegram to the home offices asking their local repre-
sentatives in that State — calling their attention to this vicious bill
which they might not otherwise be acquainted with, and suggesting
that they cooperate with whoever happens to be representing us in
the State at that time.
Mr. Gesell. What is the procedure ? You wire to the member com-
panies, they get their general agents to meet with your representa-
tive, or correspondent, and then a plan of procedure is worked out
with a view to defeating the particular bill ; is that correct?
Mr. Whitsitt. Insofar as they respond ; yes.
Mr. Gesell. Well, what can the general agents do besides vote?
Mr. Whitsitt. Well, they can cooperate with our agent in appear-
ances before committees and possibly conferences with members in
educating any member they might happen to know upon the evils of
the bill.
Mr. Gesell. You mean they can go out and contact the various rep-
resentatives and present to them the position of the life-insurance
companies?
Mr. Whitsitt. Present their own position as an agent of their com-
pany in behalf of their policyholders.
Mr. Gesell. What about stirring up policyholders?
Mr. Whitsitt. Well, in some instances that may have been done. I
don't know of a general campaign of that type. It has been suggested
many times that we circularize all policyholders; I don't recall that
that has ever been done, although frequently an agent will have some
4366 CONCENTRATION OF ECONOMIC POWER
prominent policyholder or several prominent policyholders who would
feel that they slioiild also resist the imposition of this burden upon
their premiums.
Mr. Gesell. Well, I have here a letter in my hand from Mr. Eear-
don to you, under date of March 2, 1935, in which he refers to some
legislative activities in California. It says [reading] :
We are using as our field forces the California Association of Life Insurance
Agents, the State organization of life underwriters, and the various local under-
writers' associations throughout the State who are working under our direction.
Among other things, they have by this time, through friendly agents, contacted
practically every member of the senate and assembly in the State. In addition
to that, we are securing a certain amount of publicity through the metropolitan
and rural papers against the increase in insurance taxes.
Now, this is the part I was particularly interested in ; it says :
While we have only allowed a comparatively small luimber of iiolicyholders to
be contacted, we have succeeded in creating the impression that over 2,000.000
policyholders in this State are up in arms against any increase in insurance taxes,
and the writer is competently advised that Governor Merriam's administration
is weakening in its purpose to increase the insurance taxes.
That would indicate to me that there are some dangers in approach-
ing ])olicyho]ders with respect to legislation.
Mr. Whitsitt. I think you are quite right.
Mr. Gesell. I wanted to know
Mr. Whitsitt. Mr. Reardon no longer represents us.
Mr. Gesell. I wanted to know whether it was the policy of your
association to encourage representatives to approach policyholders or
whether it was not the policy.
Mr. Whitsitt. Generally not ; generally not.
Mr. Gesell. Now that isn't a sufficient answer for my purposes.
What do you mean, "Generally not" ?' You mean not unless necessary ?
Mr. Whitsitt. AVe wouldn't approve of that. It apparently was
the idea of the local State association. We can't control the State
associations when they get enthusiastically into a legislative fight.
They do a good many things we do not approve.
Dr. LuBiN. The members of these State associations are employees
of the various companies that are among your members?
Mr. Whitsitt. They are not employees under the doctrine of
independent contractor. They are agents of either both members
or nonmember companies.
Dr. LrniN. Well now in the case of Rhode Island, where you did
want to control them, it was relatively simple, by calling up the home
office and telling their boys what to do and what not to do. Would
it not be possible to control them in other instances?
Mr. Whitsitt. That is one of our ]:)roblems.
Dr. Li'Bix. I raise the question because you just said you can't
control these ])eople, but apparently in some instances it is possible
to control them if you use proper devices to do it ?
Mr. Whitsitt. Is that in the form of a question? If so, I didn't
understand it.
Dr. LiTRiN. Well, I tried to explain why I asked you that question.
I can't understand why you coiddn't control them in California and
you coidd in Rhode Island, if in both instances they are employees
or agents of member companies.
Actiuff Chaiiman Henderson. Mny I put it in the form of a ques-
tion? Do you have any genei'al policy not to contact policyholders?
CONCENTRATION OF ECONOMIC POWER 4367
Mr. Whitsitt. I can answer that in this way. Our general policy
has been not to contact policyholders on a wholesale basis. There
have been instances, as I mentioned a moment ago, where a number
of general agents or agents will wish to contact a certain limited
number of their own policyholders, men whom they have insured,
and enlist their assistance in o])posing certain legislation, but our
policy has not been, so far as I have been with the association, to
send out a wholesale circularization or wholesale request to policy-
holders to enlist them.
Acting Chairman Henderson. Well, it isn't necessary and would
be impractical with 11,047 bills, wouldn't it?
Mr. WnrrsiTT. Beg pardon?
Acting Chairman Henderson. It would be impracticable and al-
most impossible with 11,047 bills?
Mr. Whitsitt. Yes; it would.
Acting Chainnan Henderson, Then when you do give a "go ahead"
on this contact in these special circumstances, what is the controlling
factor in the association's mind which lets them do it in one case
as against the general policy?
Mr. Whitsitt. As a matter of fact quite a bit of that is spon-
taneous on the part of the agents.
Acting Chairman Henderson. That isn't my point. I can see
your point, that in their enthusiasm to kill a bill in an individual
State all kinds of things are done. I am talking now as to the
association policy. You have told me the general policy is you dp not
encourage that; in some special instances you do. Can you give me
some illustrations of the circumstances in which you do?
Mr. Whitsitt. I think it would depend somewhat upon how
strongly supported and how vigorous the press was on the particular
bill in question.
Acting Chairman Henderson. Can you give me some instances
of specific bills?
Mr. Whitsitt. I don't recall; it has happened several times.
Mr. Gesell. We will present some testimony with respect to that
tomorrow, Mr. Henderson, with subsequent witnesses.^ Now you say
it is hard to control underwriters in this matter, referring again to
this matter of Mr. Reardon. He was your representative, was he not?
Mr. Whitsitt. At that time.
Mr. Gesell. He stated that the underwriters were working under
his direction, did he not ?
Mr. Whitsitt. 1 think he was bragging a bit.
Mr. Gesell. Did you write to him at all about not circularizing
policyholders when you received his letter?
Mr. Whitsitt. I don't recall.
Mr. Gesell. Do you recall whether or not you made any effort
to acquaint the legislators that there were. not 2,000,000 policyholders
stirred up?
Mr. Whitsitt. I don't recall.
Mr. Gesell. In view of the principles set forth in your consti-
tution, which is the fourth principle, it states —
to consider carefully measures that may be introduced from time to time in
legislative bodies with a view to ascertaining and publicly presenting the
grounds which may exist for opposing or advocating the proposed legislation.
1 Infra, p. 4384.
4368 CONCENTRATION OP ECONOMIC POWER
I was wondering how, under any circumstances, the association
justified an approach to a legislature through the policyholders; that
is not a public presentation of a position of the association, is it ?
Mr. WHrrsiTT. In such a situation as that we make no secret of
our opposition. Isn't that quite public?
Mr. Gesell. Do these telegrams to policyholders say "at the re-
quest of a representative of the Association of Life Insurance
Presidents Ij am telegraphing to protest against such and such a
bill"?
Mr. Whitsitt. I couldn't say.
Mr. Gesell. You know that isn't the fact, don't you?
Mr. WHrrsiTT. I do not know it isn't a fact ; I do not know one
way or the other.
Mr. Gesell. Is it part of your procedure when you do approach
policyholders to tell your men to make sure that the policyholders
advise the le^T^islature that the association has had an interest in that
telegram?
Mr. Whitsitt. The point really is this. Here is a very bad bill
that would affect these policyholders^ and the work of our agents is in
educating the policyholder to the evils and dangers of this particular
legislation • as it would affect him and his family and other policy-
holderSj and when he becomes so familiar with the facts our policy
is to present the facts to him — our great trouble in legislation, as
a mati,3r of fact, is getting an opportunity to lay the facts before
the members of the legislature.
Mr. Gesell. You can go into a legislature with the facts, with a
whole written memorandum as to what is wrong with a bill. - You
can pi esent your position rather actively, can you not ?
Mr Whitsitt. It all depends on the legislature. There are 48
different kinds of legislatures ; there are frequent occasions when you
can*t even have a committee hearing. A bill will be assigned to a
committee and reported out before you ever have a chance to present
your facts.
Acting Chairman Hes^jderson. In those cases, then, you take some
more direct action. Is ihat it?
Mr. Whitsitt. It is obviously necessary, but we make no secret of
our opposition to any bill.
Mr. Gesell. May I ask you whether this document is the form
of document used by your association in a typical case in encouraging
general agents to cooperate with the local representative, and does
that second sheet contain the list of persons to whom it was sent?
Mr. WnrrsnT. I think that is quite correct. It usually has on it
"sent to" and this doesn't have "sent to" here, but I think that is
«:;orre«-t.
Mr. Gesell. This is a letter which was sent out in connection with
a CaVifornia bill on April 8, lUbT, was it not?
Mr Whitsitt. Yes.
Mr, Gesell. I wish to offer it in the record.
Acting Chairman Henderson. It may be received.
(The letter referred to was marked "Exhibit No. 697" and is in-
cluded in the appendix on p. 4756.}
Mr. Gesell. There is one part of this problem that I would like
to ask you a few more questions about before we finish. You have
spoken of your cooperation with underwriters' associations and may
CONCENTRATION OF ECONOMIC POWER 43g9
I ask whether you have any formal agreement or understanding
with the underwriters' association that they will cooperate with you,
or is it a matter which is dependent upon the particular circum-
stances in every case?
Mr. Whitsitt. We have no agreement whatsoever.
Mr. Gesell. By and lar^e you are able to call upon the under-
writer's associations for assistance, are you not?
Mr. Whitsitt. Their interests are largely the same as ours on most
propositions.
Mr. Gesell. You have worked rather closely with them, have you
not?
Mr. Whitsitt. At times, in some States, yes — in some States not
so much.
Mr.. Gesell. In some States over a period of maybe as many as 10
years you have always had as your correspondent a representative
of the underwriters' association, have you not? I have in mind, for
instance, Georgia.
Mr. Whitsitp. I will have to answer from recollection but I do
not think Mr. Cooney, who is our contact man in Georgia, is a
member of the underwriters, or very active.
Mr. Gesell. You mean he is not chairman of the legislative com-
mittee of the Underwriters' Association qf the State of Georgia?
Mr. WHrrsiTT. He may be, I know that he doesn't think much of
the national association; he may have a formal membership.
Mr. Gesell. If the underwriters' association is not in agreement
with your association have you had many cases where, for instance
in Rhode Island, through approach to the management of the various
companies you have been able to get association cooperation ?
Mr. WiHTSirr, I don't recall.
Mr. Gesell. You have no ideas about it at all ?
Mr. WmTSiTT. Will you make it specific?
Mr. Gesell. Certainly. Have you been able to get cooperation of
the underwriters by approaching the managements of your mem-
ber companies whenever you have desired it ?
Mr. Whitsitt. We have not often undertaken, as I recall, to influ-
ence the agents of our member companies contra to the action of the
underwriters. There have been some exceptions, and you put your
finger on one in Rhode Island. There may have been one or two
others, but I don't recall them offhand.
Mr. Gesell. By and large, then, it has not been necessary to par-
ticularly attempt to line up the underwriters, their interests and
yours have been more or less synonymous.
Mr. Whitsitt. Generally speaking, the interests of tKe under-
writers are in their policyholders, as are our interests.
Mr. Gesell. And so they cooperate with you in legislative matters?
Mr. Whitsitt. Yes; they do from time to time.
Mr. Gesell. I have no further questions of Mr. Whitsitt at this
time. I would like to ask the committee not to excuse him but to
recall him to the stand tomorrow.
Acting Chairman Henderson. Are you going to discuss legislative
activities again tomorrow?
Mr. Gesell. Yes; in much greater detail.
Acting Chairman Henderson. Do ^you wish the members of the
committee to withhold their questions until tomorrow ?
4370 CONCENTRATION OF ECONOMIC POWER
Mr. Geseli.. I am perfectly agreeable to any questioning.
Acting Chairman Henderson. Mr. Wliitsitt will be back on the
stand ?
Mr. Gesell. He will be back tomorrow. The general questioning
today has been on the organization of the association. We have not
laid emphasis on the direct legislative activities which we will cover
tomorrow.
Dr. LuBiN. Mr. Whitsitt, can you tell us briefly why the Associa-
tion of Life Insurance Presidents opposes the segregation of assets
under State laws ?
Mr. Whitsitt. You are referring to that California bill? That
would mean a walling off, and if carried to its logical conclusion
would break a company up into many small bits, the assets of each
division only being subject to the liabilities of that section. The
whole theory of insurance is that all of the assets of the company
are subject to all the liabilities of the company.
Dr. LuBiN. So that in the event that a company wrote both life
insurance and, let's say, casualty insurance, if the casualty division
.was losing money the assets of the life-insurance section would be
available to meet those needs.
Mr. Whitsitt. I am not familiar with companies writing that "type
of business, but my impression is that that would be true, in the ques-
tion of California related to our disability. Do I make myself clear?
Acting Chairman Henderson. We run into this question which I
notice was discussed concerning the Nebraska bill requiring a reserve
of 30 percent in Nebraska securities or an additional 2 percent pre-
mium tax. Would your association oppose that kind of legislation
which would require a company to buy securities ?
Mr. Whitsitt. Special deposit. Is that what you have in mind?
Acting Chairman Henderson. Yes.
Mr. Whitsitt. I don't have the text of the bill here, I have only a
summary. A special deposit, somewhat similar, would tend to break
down
Acting Chairman Henderson (interposing). Where a state wants
to require the insurance company to buy securities of that State equal
to the amount of the insurance in force.
Mr. Whitsitt. That is right.
Acting Chairman Henderson. You oppose that.
Mr. Whitsitt. Yes.
Mr. O'CoNNELL. Does your association oppose bills designed to re-
strict policy loan interest? Several of those are referred to in your
letter of July 12.
Mr. Whitsitt. Policy loan interest rate?
Mr. O'CoNNELL. Yes; your letter refers to seven bills specifically
to restrict policy loan interest.^ Do you oppose those ?
Mr. Whitsitt. We have opposed the reduction of the interest rate
on policy loans.
Mr. O'CoNNEix. On the theory, too, that that is contrary to the
interests of the policyholders ?
Mr. Whitsitt. Yes; definitely.
Mr. O'CoNNELL. Of course, those that borrow on policy loans are
policyholders.
1 See "Exhibit No. 605," appendix, p. 4754.
CONCENTRATION OF ECONOMIC POWER 4371
Mr. Whitsitt. Approximately ojie-third of the policyholders only
are borrowers. About two-thirds of policyholders are nonborrowers.
Any reduction in investment income which would result from a re-
duction in the interest rate would in turn result in decreased divi-
dends or increased costs of insurance so that two-thirds would be
penalized for the one-third. Furthermore, there are various, many
additional reasons, if you are interested in them.
Mr. O 'Con NELL. Go ahead.
Mr. Whitsitt. There is a point somewhere in the reduction of the
policy loan interest rate — just where I wouldn't say, not being an
economist^ — but somewhere there is a point in reducing the interest
rate on policy loans wher^ a company would become nothing more
than a banking institution and there would be too big a temptation
for the policyholders to borrow on their policies; the company's
assets would necessarily have to be in a much more liquid f prm,
hence shorter term securities, hence lower return, and a materially
reduced investment income, and hence higher cost t)f insurance on the
policyholders generally.
Mr. O'CoNNELL. At a later point in your letter you refer to legis-
lation providing for the appointment of certain life-insurance com-
pany directors by a State insurance commission. Does your associa-
tion oppose that type of legislation ?
Mr. Whitsitt. Frankly, I do not recall. I could check up on that.
I do not recall. Those bills are very rare and I only recall one many
years ago and I am not familiar with this.
Mr. O'CoNNELL. You don't recall whether you opposed the one
bill many years ago ?
Mr. Whitsitt. I would have to check on that.
Mr. O'CoNNELL. Do you recall whether your association opposes
legislation designed to require all companies to offer renewable term
insurance ?
Mr. Whitsitt. I will have to check on that. That would depend
entirely upon the phraseology of the bill. I would have to see the
full text of the bill.
Mr. O'CoNNELL. I gather generally speaking tJiat this whole letter
related to bills that at that time you opposed.
Mr. Whitsitt. That is right,, generally speaking, and I wouldn't
want to say until I had reanalyzed that particular bill.
Acting Chairman Henderson. Getting back to that question of the
opposition to restricting policy loan interest, your point was, I gather,
that the rate of somewhere around 6 percent which is charged on
policy loans, which has been reduced recently I understand
Mr. Whitsitt. New York has reduced it to 5.
Acting Chairman Henderson. I gather from that that you feel
that is a deterrent against the policyholder borrowing back his own
savings.
Mr. Whitsitt. It is a deterrent to borrowing on hi^ policy. I
wasn't here, but I understood you were discussing lapses yesterday.
I am not a statistician, but I imagine if you checked the figures you
would find a very high percentage of policies with loans on them
eventually lapse.
Acting Chairman Henderson. And your idea is that the higher in-
terest rate would be a deterrent.
Mr. Whitsitt. It is one deterrent. Of course, it is only a small-
loan business after all. The average policy loan is less than $600.
124401 — 40— pt. 10 16
4372 CONCENTRATION OF ECONOMIC POWER
including the ordinary and industrial companies, and in some com-
panies the average would be either, say, $200 or $300, so the overhead
is really a small-loan business. Small-loan concerns charge much
more.
Acting Chairman Henderson. I understand that. What a man
does when he borrows this average $600 — it is his own savings, isn't it ?
Mr. Whitsitt. I wouldn't say that. I wouldn't put it that way,
quite. It has been so characterized.
Acting Chairman Henderson. It is savings, isn't it, Mr. Whitsitt?
Mr. Whitsitt. It is the reserve on his policy, or approximately the
reserve on his policy ; it is the amount the company has to carry.
Acting Chairman Henderson. What do the advertisements of life-
insurance companies say? Don't they characterize it as savings?
Mr. Whitsitt. It is a fund that is available.
Acting Chairman Henderson. I didn't ask you for your character-
ization, but isn't it generally represented as savings? Life insur-
ance is a form of savings ?
Mr. Whitsitt. Life insurance definitely is a form of savings.
Acting Chairman Henderson. When he borrows back at 6 percent,
or under the present term, 5 percent, he is paying more for that re-
serve— I will adopt your term — than that reserve is drawing under the
accruals which come to it from investment?
Mr. Whitsitt. He is really borrowing from all of the other policy-
holders. All of the other policyholders of the company.
Acting Chairman Henderson. You mean it isn't separately com-
puted as to how much is a reserve for him ?
Mr. Whitsitt. For the purposes of having it in the policy form.
This is an actuarial problem. I am not an actuary.
Acting Chairman Henderson. I am not an actuary, but I under-
stand fairly reasonably how that' reserve is built up. It is the sum
total of the reserves of all the individual policies, but he does pay
a higher rate, doesn't he, than the reserve generally is earning?
Mr. Whitsitt. You mean higher than the 3 or 3^/2 assumption
rate?
Acting Chairman Henderson. Yes.
Mr. Whitsitt. Obviously more than 3iA.
x^cting Chairman Henderson. In that case, what happens is that
the two-thirds who do not borrow get an extra earning rate from
him, do they not?
Mr. Whitsitt. Well, the cost of insurance is kept down.
Acting Chairman Henderson. I didn't ask you that. I said they
get an earning from him so that what actually happens
Mr. Whitsitt. The same as they get earnings from all invest-
ments.
Acting Chairman Henderson. Yes. But my question was — fol-
low this a little more closely — my question was- they get a higher
earning rate
Mr. Whitsitt. Wliether the net yield over the cost would bo
higher I wouldn't know. You would have to ask the investment
men or the actuaries. There is quite an overhead.
Acting Chairman Henderson. If there is a higher earning rate,
what the two-thirds would lose would be this difference ; it wouldn't
be that they would be subtracting anything from their 3 or 3i/^
percent assumption rate?
CONCENTRATION OF ECONOMIC POWER 4373
Mr. Whitsitt. Which would be reflected, whatever it would be,
would be reflected eventually, I would assume, in the cost of their
insurance.
Acting Chairman Henderson, In what way?
Mr. Whitsitt. If it would reduce the general investment iiicoine,
therefore, the investment of the whole company being lower, there
would be less available.
Acting Chairman Henderson. Wait a minute; let me see. I am
assuming that there is a little profit on these loans, just a little bit
more than is gotten from the investment, from the assumed interest
rate,
Mr. Whitsitt. I couldn't tell you. I am not qualified as an actuary.
Acting Chairman Henderson. Adopt for just a minute my as-
sumption ; my assumption is — let's leave out the question of whether
you know or do not know whether there is anything there — that there
IS, say, 1 percent ; it is 1 percent higher ; then those who do not borrow
do not lose anything.
Mr. Whitsitt. I wouldn't be prepared to discuss something that
I don't know much about.
Acting Chairman Henderson. Then perhaps you won't mind if I
seem to r^'ard this as a little evasion on your part. I mean, I am
asking you just for a simple statement on an assumed set of facts.
Suppose that there is $100,000,000 which is borrowed by one-third of
the policyholders out of the reserves on their policies, and you get
on that 1 percent more than you get on the assumption rate.
Then the two-thirds who are left who have $200,000,000, are getting
a higher rate of return, aren't they ? They are getting more income,
assuming always, again — don't let this cloud your mind — that there
is that 1 percent there. I am not trying to trap you. I am just
asking you a question in terms of a statement you piade. You made
the statement that the two-thirds lost something.
Mr. Whitsitt. Because they are penalized.
Acting Chairman Henderson. You said they were penalized, anv^
I am taking you over to a set of facts where they get more rather
than less.
Mr. Whitsitt. You are taking me to a set of facts where they
would get more if the rate were maintained, is that it ?
Acting Chairman Henderson. No. They would get more if they
got more. I am assuming they laorrowed this $100,000,000 for a year
and they got on that $100,000,000, the company got, 1 percent more
than it would have gotten from its investments. The two-thirds that
were left would profit by that, would they not? They might have
a lower cost of insurance to take the assumption you make ?
Mr. Whitsitt. You are assuming they would get a higher net
yield from this field than say a Government bond ?
Acting Chairman Henderson. Yes.
Mr. Whitsitt. And that the two-thirds who did not borrow woula
gain by having the policy loans in existence as differentiated from
Government bonds?
Acting Chairman Henderson. Yes.
Mr. Whitsitt. That seems right.
Acting Chairman Henderson. They would gain?
Mr. Whitsitt, That would seem so.
(Whereupon at 12 : 30. noon the hearing recessed until 10 : 30 Wed-
nesday, June 14, 1939, at 10:30 a, m.)
INVESTIGATION OF CONCENTEATION OF ECONOMIC POWEK
WEDNESDAY, JUNE 14, 1939
United States Senate,
Temporary National Economic Committee,
Washington., D. C.
The committee met at 10: 50. a. m., pursuant to adjournment on
Tuesday, June 13, 1039, in the caucus room, Senate Office Building,
Senator Joseph C. O'Mahoney presiding.
Present: Senator O'Mahoney (chairman); Representative Reece;
Messrs. O'Connell, Ferguson, Henderson, and Brackett.
Present also: Senator Homer T. Bone, of Washington; Repre-
sentative J. M. Barnes, of Illinois; Harry J. Daniels, Department of
Commerce; Commissioner Edward C. Eicher, Securities and Ex-
change Commission, and Gerhard A. Gesell, special coufisel, Secur-
ities and Exchange Commission.
The Chairman. The committee will please come to order. Mr.
Gesell, are you ready to proceed?
Mr. Gesell. Yes, I am; and the first witness this morning will be
Mr. Robert L. Hogg.
The Chairman. Do you solemnly SAvear that the testimony you
are about to give in this proceeding shall be the truth, the whole
truth, and nothing but the truth, so help you God?
Mr. Hogg. I do.
TESTIMONY OF ROBERT I. HOGG, ASSISTANT GENERAL COUNSEL,
ASSOCIATION OF LIFE INSURANCE PRESIDENTS, NEW YORK
CITY
Mr. Gesell. Will you state your full name for the reporter, please,
sir?
Mr. H(x;g. ]My name is Robert L. Hogg.
Mr. Gesell. Are you empltgyed by the Association of Life In-
surance Presidents ?
Mr. Hogg. I am.
Mr. Gesell. In what capacity?
Mr. Hogg. I am now the assistant general counsel.
Mr. Gesell. How long have you been with the association?
Mr. Hogg. I have been with the association as assistant general
counsel since September 1, 1935. Prior to that time, from January
1 until July 1, 1935, I was special counsel for the organization.
Mr. Gesell. Have you always been attached to the New York
office of the association ?
Mr. Hogg. I have.
4375
4376 CONCENTRATION OF ECONOMIC POWER
Mr. Gesell, What was your experience before you joined the
association ?
Mr. Hogg. I was engaged in the general practice of law in West
Virginia.
Represent&.tive Reece. And one time had the misfortune of serving
in the House ?
Mr. Hogg. That is right. You are entirely too modest.
The Chaikman. I hope that Members of Congress, both ex-Mem-
bers and present Members, won't nominate that a misfortune.
Mr. Gesei-l. You notice I didn't say that, Senator.
The Chahiman. As a matter of fact I have always had a great
deal of respect for the House.
Mr. Hogg. That is the reason I thought Mr. Reece was very
modest.
Mr. Geseil. Now, will you tell us in a general way what your
duties have been since you have been with the association, the type
of work you handle, the type of problems that come across your desk ?
Mr. Hogg. I believe that Mr. Whitsitt, the general manager or
manager and general counsel on yesterday explained the activities
of the association in a very minute way. As assistant general coun-
sel I might sQ,j that the very designation of my title, assistant gen-
eral counsel, ties me very decidedly into the legal aspects of the
business. As Mr. Whitsitt pointed out ye.sterday, about one-third
of the activities of the association are concerned with legislation.
I have had certain connections with that. My work generally, I may
say, has had to do with the preparation of memoranda on legal sub-
jects, and particularly the participation from the home office stand-
point of the test litigation which you referred to yesterday.
Mr- Gesell. Have you on occasions been sent by the association to
some State during the time that the legislature is in session in that
State to help handle legislative matters there?
Mr. Hogg. I recall one occasion that I think would meet that
question.
Mr. Gesell. Do you recall that you went to Florida in connec-
tion with the session of the legislature in 1935?
Mr. Hogg. I went to Florida; yes.
Mr. Gesell. I show you a memorandum entitled "Memorandum
with reference to Florida Legislature activity — 1935," and ask you
whether that is not a memorandum which you prepared summarizing
some of your activities during that session of the legislature.
Mr. Hogg. It is not necessary for me to examine it. I can see
(his is a photostat copy of such memorandum, but let me qualify
your question and my answer. When you say "your activities," this
is a su!nma''y of the activities.as I observed them.
Mr. Gi:se;,l. Were you during that period the representative of
I hi' association vrho was in charge of legislative matters in Florida?
fdv. Hogg. I was not.
Mr. Gi'.y.r.LL. "V\1i(^ was in charge of them?
Nfr. Hugo. If you will permit just a little hitroductory remark
there the member of the staff who was in charge or who primarily
?-)ad been in touch with legislation in that State, hnd a minor opera-
tion in thr- spring or wiptpr of 19-^5, nid I might «:iy thnt T went
down (here merely to pir^cli-hit in an emergency. I rlii'.'. 1 vvct;^ Loui
CONCENTRATION OF. ECONOMIC POWER 4377
one day that it would be necessary for me to go to Florida, and I left
the next day.
Mr. Gesixl. How long were you down there, Mr. Hogg?
Mr, Hogg. My trip to Florida — I made two trips there. I wasn't
down there continuously. I remember that I went there and was
there a few days, returned to West Virginia ^or a few days, and
went back to Florida later, but I was there a substantial portion
of the time.
Now, with reference to the first trip, I went .down there on the
first trip, as I said, pinch-hitting because there suddenly appeared a
tax bill which would have levied or exacted a premium tax from
foreign insurance companies on a graduated basis. By that I mean,
a tax at a certain rate for so many thousand dollars of premiums
in one bracket and the rate of tax constantly increasing to the higher
brackets. That was a very vicious piece of legislation, and contrary
to a decision of the Supreme Court of the United States 3 weeks
before that, in the case of Stewart Dry Goods Co. against Lewis,
and I went down there priniarily on that one bill ; that is the reason
I went there the first time.
Mr. Gesell. I would like to offer the memorandum which has just
been identified by the witness for the record.
The Chairman. The memorandum may be received.
(The memorandum referred to was marked "Exhibit No. 698" and
is included in the appendix on p. 4757.)
Mr. Hogg. Mr. Gesell, I presume I will have an opportunity to
further explain this.
Mr. Gesell. I am going to interrogate you on it at length. [Keaci-
ing from "Exhibit No. 698" :]
In handling Florida legislative matters, the following is a chronological outline
of activity :
(a) A close check of all pending measures, being a review of such bills, notices
of introduction of which had been received by the association, as well us a check
for any possible new introductions.
(b) Ascertainment of the attitude of the administration upon general insur-
ance legislation, as well as specific measures.
(c) Ascertainment of whether the organization of the senate and house had
been effected by the administration. If so, effectiveness of control.
(d) General sentiment of the legislature as to insurance matters.
(e) Establishing legislative contacts through various life groups, attention
first being given to the membership of the insurance and finance committees
of the two houses.
(/) General development of a favorable legislative atmosphere with special
emphasis ucon particular measures.
Before proceeding to the next section of the memorandum, Mr.
Hogg, referring to item (e), which states, "Establishing legislative
contacts through various life groups," will you explain what is meant
by that in your memorandum?
Mr. Hogg. When I found that I was going to Florida I went
through the files for the two previous terms to find out exactly who
represented the companies, who had done work, and generally tried
to find out the people who were in touch with the situation from an
insurance standpoint.
Mr. Gesell. Finding out who was who, in other words.
Mr. Hogg. Yes.
Mr. Gesell. And I assume contacting them and getting them ac-
quainted with who you were down there.
4378 CONCENTRATION OF ECONOMIC POWER
Mr. Hogg. When I first went there, that was scarcely as essential
as at a later period, and for this reason. I say I went down there
primarily on this one bill which laid down a principle which the
Supreme Court of the United States 3 weeks previously declared
invalid. In Florida there are no general agents in Tallahassee, the
capital; it is a very peculiar situation. I was told that the general
agents primarily were in Jacksonville and Miami. Jacksonville was
on my way, of course, to Tallahassee, and I stopped off to see them,
I think one morning, and spent the day going around introducing
myself. I knew no one in Florida at all. in the insurance business.
I handed them a- memorandum on the legal aspects of this bill, and
I left that with these men whom I met.
Mr. Gesell. That was to acquaint yourself with the people who
might be able to help, who were associated with insurance companies
in and around Tallahassee ?
Mr. Hogg. Well, yes; and, in addition to that, I felt that anybody
would know that it was impractical for me, as a stranger, to make
any approach to any member of the legislature; as a matter of fact,
I never did. I have to find somebody to pass this memorandum along,
somebody who was in "touch with that particular situation, and point
out the defects of that bill.
Mr. Gesell. Under (/) the memorandum states "General devel-
opment of a favorable legislative atmosphere." Is that much the same
thing as establishing legislative contact?
Mr. Hogg. No; it isn't.
Mr. Gesell. Will you explain what you mean by that ?
Mr. Hogg. As I say, my approach to this whole thing was — you
might say, I started from scratch; I didn't know how to handle it
or how it had previously been handled, but I found, very much to
my surprise, that all of the difficulties in that State were due entirely
to misinformation about insurance. That wasn't, you understand, on
the first trip.
Mr. Gesell. This memorandum relates to the whole experience ?
Mr. Hogg. To the whole thing ; yes. The situation was this : There
was an atmosphere in Florida that by taking the total premium in-
come of the life-insurance company and the losses as reported, the
balance represented some sort of a margin of profit, and a memoran-
dum had been circulated, had been placed legislative wise, showing
the collection, I think, of $17,000,000 in premiums and the payment of
$10,000,000 in losses.
Mr. Gesell. That was one of the unfavorable factors which are
summarized in the second section of your memorandum, was it not,
"Prevailing unfavorable factors"?
Mr. Hogg. You requested to know what "general development of a
favorable legislative atmosphere" was ; I have to tell you about the un-
favorable atmosphere first.
Mr. Gesell. Perhaps I had best read the second section before you
proceed. [Reading further from "Exhibit No. 698" :]
1. In 1934, through the adoption of a constitutional amendment, residence
property of the assessed value of $500, when occupied by the owner as a home,
was exempt from taxation.
Representative Reece. Shouldn't that be $5,000?
Mr. Gesell. I think so.
CONCENTRATION OF ECONOMIC POWER 4379
To overcome this deficit it was necessary to obtain $10,500,000 in additional
taxes from other sources. This, in itself, even in the absence of other factors,
constituted a serious threat of increased taxation upon insurance.
2. The Governor, at the beginning of the session, firmlj* expressed his intention
of placing additional taxes upon insurance, due primarily to his conviction that
insurance companies had been exploiting tlie people of Florida, but specifically
referred to the report of the insurance connnissioner of the State showing that
life companies 'in a particular year had collected approximately $17,000,000 in
premiums while it had, over the same period, paid losses to the extent of only
$10,000,000. He insisted the difference represented profit, his position ignoring
payments to living policyholders and residents of Florida. He was firmly con-
vinced of his position and the accuracy of his figures.
That is the situation?
Mr. Hogg. Yes; that is precisely so, and that was so thoroughly so
that I was, as a newcomer to the life-insurance business, absolutely
shocked to know that that position prevailed.
Mr, Gesell. [Reading further from ''Exhibit No. 698'" :]
The Governor further distributed memoranda of these figures to eacli of the
members of the legislature as justifying his position that insurance taxes should
be materially increased and such proposed increase was made a part of the
administration program.
4. As indirectly affecting the insurance atmosphere, organized propagandists
had created the impression that the fire companies had taken many millions of
■dollars from the people of Florida by fixing rates in Florida to offset losses in
other States. This erroneous impression reflected itself many times with refer-
ence to life measures.
5. A general belief that life-insurance companies had unconscionably foreclosed
mortgages in the State of Florida.
6. Erroneous belief that life companies took from Florida policyholders many
millions of dollars which wore invested in other States.
7. Many matters dealing with the internal organization and operation of the
large life-insurance companies.
8. Complete domination of both houses of the legislature by the Governor.
Now, those prevailing unfavorable factors, I take it, were the fac-
tors which you desired to offset by developing a favorable legislative
atmosphere, as mentioned in paragraph (/) on the first page of the
memorandum ?
Mr. Hogg. Let me replirase it. Those were the practical aspects
of the thing we were facing. I wouldn't say we were trying to
develop a favorable atmosphere particularly, but we were trying to
minimize an unfavorable atmosphere.
The Chairman. Before you proceed, may I get a definite conclu-
sion with respect to that figure in the first ])aragraph? Was the
exemption under the Florida law $500 or $5,000?
Mr. Hogg. I am inclined to think it was $5,000. I am quite sure
it must have been $5,000.
The Chairman. Do you know?
Mr. Gesell. I do not know.
Representative Reece, It is my information that it was $5,000.
Mr. Gesell. That seems reasonable.
Mr. Hogg. Yes.
Mr. Gesell. Now, the next section of your memorandum is en-
titled "Procedure," and I want to ask you one or two questions about
that, but we will read it first. [Reading further froni "Exhibit
No. 698" :]
As soon as a study of the pending insurance measures had been completed
and some thought given to anticipated introductions, it was decided, in view
of the administration control of both houses, that it was imperative some efPbrt
4380 CONCENTRATION OF ECONOMIC POWER
should be made to overcome the anhigoiiistic attitude of the Governor, other-
wise effective contacts with the membership of either house would be ineffec-
tive. To accomplish this end, it was decided the approach to the Governor
should be through purelj' political contacts. Work was begun immediately
along this line and was prosecuted incessantly throughout the entire session.
Further, since proposed insurance taxation was only a part of the Governor's
program and was the portion capable of mustering strenuous opposition, the
Governor, through its defeat, might suffer a loss of prestige. Consequently
these political contacts urged upon the Governor that a further increase in
insurance taxes was wrong on principle and then from the purely political
viewpoint the measure might be defeated on its merits, thus affecting admin-
istration prestige.
These efforts were stressed while at the same time direct legislative contacts
were also developed by the insurance groups.
Now, will you tell me what you mean when you say it was decided
the approach to the Governor should be purely through political
contact?
Mr. Hogg. I will be very glad to explain that. As I say, when
we got there and found — when these measures appeared — I am
speaking now primarily of taxation — there was one bill that would
have placed an additional 4 percent premium tax on life-insurance
premiums. That would have represented — and incidentally the aver-
age rate in the United States at that time, I was informed, was 1%
percent — that additional 4 percent would have represented 6-percent
premium tax in the State of Florida. I might have become more
unduly exercised and shocked because of my comparatively slight
experience up to that time, but, as I say, it impressed me; it was
shocking to think a 6-percent bill was in there.
I contacted the New York office for information as to what that
meant. 1 asked them to convert for me what a 6-percent premium
tax would represent in net income, .and found it would' have repre-
sented 147-perccnt net income tax on life-insurance companies doing
business in the State of Florida.
Another bill
Mr. Geseli. (interposing). Mr. Hogg, my question was very spe-
cific. I asked you what you meant by "it was decided the approach
to the Governor should be through purely political contact."
Mr. Hogg. That is just exactly what I am leading up to now; we
couldn't get those facts before any committee. We would request an
opportunity for a hearing — when I say "we" I say that, I am speak-
ing about the general agents; I never contacted anybody. It was ab-
solutely impossible to get a committee hearing on those bills. Not that
there was any reflection upon any of the people in charge of it, but
they were so firmly convinced tliat these figures were correct that
they were just going to bull this thing through.
Now, under those circumstances there was only one tiling to do, and
that was to explore and follow up every conceivable angle to convince
these people that those figures were wrong; and the only way you
could do that, the only practical way — regardless whether you agree
with the situation or not — the only practical way to do that was
to get somebody, get hold of somebody who personally knew
the people who were pushing this program, and some of these gen-
eral agents were those people. I recall that two or three of them
were close personal friends of the Governor.
They were interested in our problem, and they were interested in
him, not only on account of the fact of long personal acquaintance-
CONCENTRATION OF ECONOMIC TOWER 43gl
ship, but tlioy were also interested in seeing lie did not get off on a
tangent on a thing that was fundamentally wrong, and those arc the
men that attempted to get audiences with the Governor.
Mr. Gesell. Then the answer to the question is simply this, I take
it, that not being able to get a committee hearing, you decided to
get friends of the Governor who were interested in your point of
view to present that point of view to the Governor ?
Mr. Hogg. To get our facts to the Governor; we were trying to
get our facts before the legislature, and before the people responsible
for these ridiculous bills.
Mr. Gesell. Now, some of that is discussed in the next paragraph
of your letter, is it not, "Cooperation with Florida life under-
writers"? [Reading from "Exhibit No. G98":]
1. The agency directors' and managers' conference at Jacksonville is the
best organized group of life underwriters in the State. These men were ad-
vised of the threatening nature of the legislative situation and requested to
furnish a list of the names and addresses of their Florida agents. Card index
was then made for this information.
2. Contacts were immediately established with the individual agents to ascer-
tain their sphere of influence with Members of the House and Senate Each
agent was furnished with the names of the Members of the House and Senate
from his particular locality and asked to advise us at once as to acquaintance-
ship. Where the particular agent was close to some Member, suggestions were
made to ascer^ain the attitude of the particular Member towai'd insurance.
Many other items of a personal nature were also made the subject of inquiry.
3. After the agency contacts had been established, the check of House and
Senate membership was made to ascertain the names of those with whom any
such agency contacts had been directly established. For example, in many
instances Members came from some towns where there were no life agents.
To meet this problem those Members from various small communities with
no resident life agents were listed and assigned to a larger city for contact.
Notably the Jacksonville agents assumed the responsibility for contacts with
some Members from the north and the iiortheast section of the State, Tampa
for the south-central portion, and so on.
Now, one or two points in that paragraph interest me. One,
you say:
contacts were immediately established with the individual agents to ascertain
their sphere of influence with Members of the House and Senate.
Did you make those contacts?
Mr. Hogg. No; I didn't make those contacts; no. I knew they
were being made.
Mr. Gesell. Who made them?
Mr. Hogg. The general agents were in and out of there; it was
more or less of a hit-and-run proposition ; one agent might be there
in Tallahassee and another the next day: I don't recall the details;
I would have looked them up if I had had an opportunity.
Mr. Gesell. You say contacts were immediately established.
Someone must have had the responsibility for making those contacts.
1 want to know who it was and how it was done.
Mr. Hogg. Well, at this late date I presume they wore made by the
Jacksonville organization ; I don't know ; it has been so long airo.
Mr. Gesell. Was that on the suggestion of the Association of" Life
Insurance Presidents?
Mr. Hogg. I imagine it was; I would have suggested it if nobody
else thought of it.
Mr. Gesell. Now what did you mean by "many other items of a
personal nature were also made the subject of inquiry"?
4382 CONCENTRATION OF ECONOMIC POWER
INIr. Hogg. A lot of these ajients had sold insurance to Members
of the House and Senate. They knew them. We felt — when I say
"we," ajiain I want to say the whole ^roup trying to handle this
thing — it would be futile to send a stranger to anybody to convince
him of the accuracy of your figures. jSIore or less informal infor-
mation was kept as to Uie amount of insurance and what agents had
sold it, and so forth, and those items of personal nature; if a man
had written a letter saying that he favored a bill or he was against
one of these bills, a memorandum was made of that, but it wasn't
broadcast, of course.
Mr. Gesell. Let me go on and call your attention to the next para-
graph, entitled "Legislative contacts" [reading from "Exhibit No.
698"] :
In order to obtain the most effective contact with Members of the Senate and
House, the following course was followed :
1. The geographical location of each ;Member was indicated upon a large map
of the State by using red tacks for House and blue thicks for Senate Members.
Attached to each tack was the name and post-ofiice address of a particular
Member. The map was on a large scale and clearly discernible for ready
reference.
Where was tliat map kept?
Mr. Hogg. That map was originally kept in some room the general
agent had, and I had it put in my room.
I\Ir. Gesell. It was sort of a chart which helped you with your
activities.
Mr. Hogg. It was just an example of salesmanship that any life-
insurance agent possessed, I presume.
Mr. Gesell. What were these agents selling?
Mr. Hogg. Well, they were selling life insurance.
Mr. Gesell [reading further from "Exhibit No. 698"] :
2. An individual card index was made for Members of the House of Represen-
tatives and a similar index for Memliers of the Senate. Each carried the post-
office address aiKl personal data of the particular Member. Notation was made
in some instances as to the best method of approach. For example, if a par-
ticular life-insurance agent was personally acquainted with a Member, a nota-
tion was made to that effect. It was not considered wise, however, to place
much personal information on these cards. This was carried on a separate
memoranda. To indicate a Member's attitude toward insurance, or the names
of the particular agents with whom he was on intimate terms, might be subse-
quently the cause of some embarrassment to both the Member and ourselves
in the event that the cards should come to the attention of unauthorized persons.
Consequently records as to attitude of Members or each plan of contact were in
most cases omitted from the card record, although preserved by independent
means.
Now what is there embarrassing about having a card which shows
wdiether or not a legislator will vote one way or another on a bill or
whether or not he owns insurance?
Mr. Hogg. Well, I am very glad you have asked that, because it
puts me in a position to be able to answer how I would feel personally
as a legislator. I would not want as a legislator a card with my name
on it saying I had w^ritten to Bill Jones and was going to oppose a
certain bill and have that lying around loose, or possibly lost on the
street.
Now, another thing, there are a good many people who doubtless
approved our position. I think I recall one distinct instance when a
man said, "Well, confidentially, I am opposed to that bill, but I am
CONCENTRATION OF ECONOMIC POWER 4383
not goino^ to make any declaration or statement until I Lave got to
vote on it."
Tlie Chairman. Do yon su))})ose you have any card index on the
members of this connnittee?
Mr. Hogg. I think a good many people had them on me. I say legis-
latively I think they might have had some of those things on me.
The Chairman. But you haven't answered my question.
Mr. Hogg. I don't think that was such a remarkable development
that the agents had it copyrighted or patented.
The Chairman. Still you haven't answered the question.
Mr. Hogg. In this light vein, I have been quite evasive. To return
to your question, of course we have had no occasion to be in such
close touch with your committee.
The Chairman. You say "of course not."
Mr. Hogg. Of course not.
The Chairman. If you were a Member of" the House-, I understand
from your statement just now, that you Avould ha^-e distinctly resented
any such cataloging of your activities and your personal foibles, and
so forth.
Mr. Hogg. Absolutely, if they had been broadcast so as to carry
wrong implications.
The Chairman. I wonder how Congress would feel about that.
Mr. Gesell. The thing I have difficulty understanding, however, is
why, although you keep the information, you keep it on a separate
card system ; I don't see that that results in your keeping the infor-
mation any more confidential than it would be if it was all on one card
instead of two.
Mr. Hogg. As a matter of fact, I don't know — I don't recall what
all of the details were. I remember very distinctly some of them had
the information written on the back of a letterhead, in his pocket, pre-
served by independent — it wasn't stuck on a card index w^ith a man's
name, post-office address, and all that sort of stuff on it at all.
Mr. Henderson. You didn't have in mind that any of these cards
were going to be lost on the street.
Mr. Hogg. Oh, not necessarily.
Mr. Henderson. You said they might come to the attention of
unauthorized persons.
Mr. Hogg. Well, at the end of the session, nobody knew — I don't
know — wdiat became of the cards. Nobody else kncAV, but I don't
know what would have happened or what did happen, as a matter of
fact. I want to reiterate again this was written in 1935 and a detail
I just don't recall. It w^asn't prepared for any use except in connec-
tion with the entire file we have in the State of Florida.
Mr. Henderson. You probably had some pretty hot information
on some of those cards and that was the reason you wanted to keep
it a little more secret.
Mr. Hogg. Not at all. I will give you an example.
Mr. Henderson. What was the purpose, then, of keeping it?
Mr. Hogg. Well, here is one thing. If a man had made a statement
which would indicate his position — no use annoying him to death,
like is frequently done to legislators. If he made a statement and
his position was fairly definitely known, why go back-tracking.
Mr. Henderson. I can understand why you had that on the card,
but I gather ftr «vent a little bit beyond that.
4384 CONCENTRATION OF ECONOMIC POWER
Mr. Hogg. I think they also had in there the amount of insurance the
man had and what company. There is a great .deal of jealousy as to
this. There was a lot of hesitancy on the part of these agents, giving
out the information, who their clients were and the amount of insur-
ance they held. That is one thing.
Mr. Henderson. Did you record whether or not they were lining
up with the Government ?
Mr. Hogg. That is an angle I didn't know anythii.j r«bout. I want
to reiterate again, I knew nobody there personally tht ^ hole time I
was there.
Mr. Henderson. You saw these cards?
Mr. Hogg. Not knowing the individuals, they meant nothing to me.
The Chairman. Well, as a matter of fact, I think it may be proper
for me to say here I think that when a man goes into public life or
even when he goes into an executive position with big business, he
ought to be content to living in a goldfish bowl, and he shouldn't ob-
ject to anybody having all the information there may be about his
whole personal history.
Representative Reece. And objection usually doesn't avail him.
The Chairman. It doesn't avail him anything at all. .
Mr. Hogg. You ask the type of information carried here. My at-
tention has been called here to one letter that is fairly typical. I would
have no doubt this went on the record somewhere, telling about a con-
versation he had with two Members and what they said — this letter,
May 16, 1935, from a man named Partridge. I think you have that
letter. It just gives a pretty fair picture of the situation.
Mr. Henderson. You don't have all the letters though, Mr. Hogg?
Mr. Hogg. I have two or three scattered around here. The only ones
I have are the ones the S. E. C. took.
The Chairman. I do take it that in the compilation of this card in-
dex and in the assembling of the information with respect to each of
the various Members of the House and the Senate you overlooked
nothing that could possibly be regarded as helpful in swaying the vote
of that Member.
Mr. Hogg. Absolutely not. In conformity with facts.
Representative Reece. I think the memorandum indicates he was
doing a very good job.
The Chairman. Yes ; I think very.
Mr. Gesell. Now if I may, I would like to come to the last section of
the memorandum. The next section is entitled "Nature of contacts."
I notice there that one of the contacts which was followed, was tele-
grams and letters from the public generally. Will you explain what
you mean by that ?
Mr. Hogg. I had a little — what turned out to be a little unorthodox
thinking in connection with these vicious measures down there. When
this 147-percent-net income tax bill put in its appearance, I found
out that I had become much more exercised even than the com-
panies had. I wanted to get these agents to contact every policy-
holder in the State of Florida and tell him exactly what was going
on. That was overruled. The agents said it hadn't been done before,
but that still didn't convince me; and I attemj)ted to get the per-
sonnel from the association to do that very tiling, just tell every-
thing— ^get the facts of the case before these policyholders in the
State of Florida.
CONCENTRATION OF ECONOMIC POWER 4385
Mr, Gesell. And do I understand your testimony to be that you
never did encourage or get letters and telegrams from policyholders
during the 1935 legislature in Florida ?
Mr. Hogg. Oh, by no means. The point I am making is I didn't
get authority to get enough of them.
Mr. Gesell. But you did pursue the practice, didn't you, of getting
letters and telegrams from policyholders?
Mr. Hogg. We certainly did^ What I wanted them to do was, the
company was to release the list of policyholders in the State, but it
was not done.
Mr. Gesell. But, using other means which you had at your dis-
posal, you did get together as much information about policyholders
as you could and encouraged the sending of letters and telegrams
by policyholders to the legislature.
Mr. Hogg. Well, again I want to say when you say it was the whole
plan down there, I subscribed to it most assuredly; as a matter of
fact, I was more enthusiastic about it, I think, than the agents were.
Mr. Gesell. Let me call your attention to a letter dated May 5,
1935, and ask you, did you not write this letter to Mr, Frank P.
Bearing of the Mutual Life Insurance Co. of New York?
Mr. Hogg. Unquestionably I think I recognize that.
Mr. Gesell. This letter states [reading from "Exhibit No. 699"] :
Senator Futeh has just introduced in the senate a companion measure of
House 776, which would increase the premium tax to 6 percent. It is now
necessary that we establish some immediate contacts with all the members of
the senate and the house and unfortunately we have no agents in the home
communities of many of these members. Consequently, we have decided to ask
you on behalf of the Jacksonville group to establish contact with the following
members —
then you list names of senators and representatives, and the next to
the last paragraph of your letter states:
It is thought wise that there should be as many telegrams and telephone
calls as possible to reach these members from their respective home communities.
This, of course, is a matter with which you are thoroughly familiar. Further-
more, it is advisable to have as many communications as possible from policy-
holders. These, of course, are details concerning which you will use your own
judgment.
Mr. Gesell. I wish to offer that letter for the record.
The Chairman. It may be received.
(The letter referred to Avas marked "Exhibit No. 699" and is included
in the appendix on p. 4761.)
Mr. Gesell. Do you recall this as the telegram you received in
response to that letter?
Mr. Hogg, Unquestionably. That unquestionably is.
Mr. Gesell. Tliis is a telegram to you at the Floridan Hotel, Talla-
hassee, Fla., signed by F. P. Bearing [reading from "Exhibit No.
700"] :
Letter 5th given consideration lengthy session of agency directors conference
today, all members writing all agents to immediately solicit 10 letters each from
policyholders to representatives, each name listed taken as individual responsi-
bility of one or more members of conference and quick action promised ; details
tomorrow.
I wish to offer this for the record.
The Chairman. It may be received.
4386 CONCENTRATION OF ECONOMIC POWER
(The telep'am referred to was marked "Exhibit No. 700" and is
inchided in the appendix on p. 4762.)
]Mr. Gesell. Now, may I ask you, Mr. Hogg, who paid for all this ?
Mr. Hogg. All of the expenses of the agents in making the trips to
Tallahassee, such trips as they made, Avere paid by the individual
companies. I think the only item of expense we paid was Mr. Dear-
ing— wasn't it— $50 or $60.
Mr. Gesell. Is it not a fact that the association paid Mr. Bearing
for stenographic expense involved in the preparation of these com-
munications to policyholders?
Mr. Hogg. I presume it is a matter of fact. I think he should have
been reimbursed, I think, unquestionably.
Mr. Gesell. Then this solicitation of the policyholders and the
subsequent mailing by them of letters and the transmission of tele-
grams to the legislators was financed in part by the Association of Life
Insurance Presidents?
Mr. Hogg. I ami not in charge of the financial end of it. I will
consult Mr. Whitsitt.
Mr. Whitsitt tells me that in part those disbursements were paid by
the association for the purpose of disseminating correct information to
policyholders.
Mr. Henderson. I gather that that meant they paid also for the
telegrams that were sent by the policyholders.
Mr. Hogg. I don't think so.
Mr. Gesell. I have a file liere which I think discloses the nature of
the expenditures. I would like Mr. Hogg to identify it and then I
will put it in the record.
Mr. Hogg. Yes ; unquestionably it is a photostat of the correspond-
ence that passed. Mr. Whitsitt tells me there is $35.10; Mr. Whitsitt
says it is some more than that possibly.
Mr. Gesell. The letter, dated May 8, 1935, from Dearing to your-
self at the Hotel Floridan, Tallahassee, says [reading from "Exhibit
No. 701"] :
By mail last night we sent you 71 letters addressed to senators and repre-
sentatives, and as these were put on the train with special-delivery postage
they doubtless reached you early this morning. We will send you the balance
of the letters today. We regret that it was not possible to send all of them
to you last night, but as we understood that you wanted them to be personal
letters, it proved to be quite an undertaking on such short notice.
If the other companies' representatives are having as good luck with their
efforts as we have had, I feel sure that there are a number of personal letters
from policyholders on the desks of the senators and members of the legislature
today, and there will be an increasing output of these letters daily from now on.
I enclose copy of a letter written by one of the Sun Life men from Tampa to
the chairman of the finance and taxation committee. It is not much of a letter,
but the response from Mr. Sandler on the back thereof is quite enlightening.
P. S. — I am keeping a memorandum of the outlay for extra help and overtime
work ; also, of long-distance calls and telegram tolls, as I suppose the Life
Presidents' Association will want to defray this cost as in previous years. I
know they do not expect Mutual Life to bear this cost, and when we have it all
assembled I will get your "O. K." on the charge and submit it in the usual
way.
Subsequent letters indicate a bill of $35.10 was rendered and that
bill of the statistician of the association to Dearing on July 1, 1935.
The bill was honored. I would like to ofi^er this file for the record.
The Chairman. The file may be received.
C(^NCENTRATION OF ECONOMIC POWER 4387
(The file referred to was marked "Exhibit No. 701" and is included
in the appendix on p. 4762.)
The Chairman. Does this purport to cover the entire expense of
this particular campaign?
Mr. Gesell. No ; it does not. Mr. Whitsitt has stated that, I un-
derstand. Is that correct, Mr. Whitsitt?
Mr. Whitsitt. I think there was another item or two that we dis-
bursed to the underwriters. I can't be sure without looking up the
record. I think there possibly was another item or two of small
amounts.
The Chairman, Were any local attorneys retained?
Mr. Hogg. Absolutely none. If there had been, I wouldn't have
had to stay there.
The Chairman. I thought possibly as a stranger you might have
felt it necessary to have some other help.
Mr. Hogg. No.
The Chairman. Were any of the attorneys who- represent the vari-
ous insurance companies in the ordinary business impressed into
service ?
Mr. Hogg. Absolutely none. >
The Chairman. They were not called upon then to make any rep-
resentations to the members of the legislature whom they knew.
Mr. Hogg. If I recall correctly, and just intersperse further obser-
vation, that it has been so long ago I have forgotten a good many of
the details but if I remember correctly one of these measures Would
have also included domestic companies and the attorney for a do-
mestic company, Florida company, at one time conferred with the
agents down there, I think. But we employed no counsel, had no
connection with any counsel ; that is, the life group.
The Chairman. But in bringing your pressure to bear upon the
Governor, the political pressure to which you referred in the memo-
randum, did you avoid using any influence that they a« attorneys
might have exerted?
Mr. Hogg. We avoided that. The people who went to the Gover-
nor, Mr. Chairman, as I indicated before, were life, were general
agents and managers who stood well in their community and knew
the Governor. They were finally able to get an audience with him
and convinced him that he was absolutely wrong in his figures, and
I have here now a copy of a letter which the Governor wrote to this
man who had gone in there to try to convince him, and just three
short paragraphs I would like to read it with your permission.
The Chairman. That will be quite all right.
Mr. Hogg. Dated May 22, and this is in your file, I think, Mr,
Gesell. After the salutation, it says:
Just a line in the midst of a busy day to tell you that I am sorry if I offended
your feelings the other day when you were in the oflSce. As you probably
noticed, I was worn out. However, some good did come from our meeting. As
a result of which I checked thoroughly into the situation and have come to the
conclusion that you are correct in your statements.
I hope the next time you are in Tallahassee we can have a good laugh over
the occurrence and renew our friendship.
That wound up the whole thing.
The Chairman. May I say, Mr. Hogg, that to my mind the in-
trinsic merits of the issue are not particularly significant. You mar
124491 — iO — pt. 10 17
1388 CONCENTRATION OF ECONOMIC POWER
indeed have been wholly right in resisting this legislation. You
probably were right in resisting the legislation, let me say. The
significant thing to me, however, is that it was necessary for an asso-
ciation of life-insurance presidents, with its offices in New York, to go
to the legislature in Florida to resist this thing, to conduct a very
thorough lobby of that legislature — and when I use the word lobby,
I don't use it in any offensive sen-se, understand. I recognize fully
the complete right of any citizen or any group of citizens to make
representations to the legislative bodies whether they are local bodies
or national bodies, but the significant thing to my mind is that this
is a national business and its interest is conserved by an association
of life-insurance presidents, with headquarters in the city of New
York, and those life-insurance presidents have found it necessary to
build up a very efficient organization, let me say, to employ a very
efficient staff, as evidenced by your testimony and by this material,
to make representations to these State legislatures to bring pressure
to bear through policyholders upon the representatives of the public,
and the thought that arises in my mind is whether it would not be
better for the policyholders and better for the insurance companies
if we had one national system to handle what is obviously a national
business.
Mr. Hogg. It is quite true what you say with reference to the na-
tional scope of the business. At the same time I want to point out
that on account of the mutual nature of the life-insurance business —
when I say that I am talking about substantially 80 percent of it —
you can't do anything to a policyholder in a mutual company in the
State of Florida that doesn t affect the policyholder in the State of
Maine.
The Chairman. That is just exactly what I am pointing out.
Mr. Hogg. Now I want to get to the point where we possibly part
our ways. These companies hold themselves out, and are trustees for
the benefit of these various policyholders. We would be derelict in
our duty as an association if we didn't go in here and preserve the
interests of these policyholders who are really beneficiaries of this
trusteeship now.
Now I don't see where particularly there would be any advantage
in consolidation; of course, that is a matter of a question of policy to
be decided, and there is a difference of opinion on that. I don't
know, that is an angle I never have investigated ; it is clear out of my
sphere of activity.
The Chairman. I am ready to agree with you that you are trustees
for the policyholders, and particularly in the mutual companies. I
think you are trustees for policyholders even in those companies which
are not mutual. You are trustees in a very real sense for the whole
public which is affected by the operation of the life-insurance busi-
ness, and yet the conclusion which you seem to have in mind is that
these trustees should be permitted to exercise their judgment with
respect to what is right and proper and beneficial for the beneficiaries
without the inteiwention of any public party which by reason of its
scope would be competent to deal with the situation. Now you present
the picture of a national insurance system by which legislation in
Florida would affect the policyholders in New York. That prac-
tically was your statement, wasn't it?
CONCENTRATION OP ECONOMIC POWER 4389
Mr. Hogg. Yes.
The Chaieman. What happens to the policyholder in Florida by
reason of the legislation there affects policyholders from the Pacific
to, the Atlantic, from the Canadian border to the Gulf, and yet under
this system it becomes necessary for your association to travel from
State to State and bring pressure to bear upon local legislative bodies
which by reason of the very facts of the case cannot be expected to be
able to apply an adequate pressure to the problems with which they
are dealing. Now wouldn't it be better, under such a system, to have
a national rule of trusteeship to which these trustees would have to
respond ? As it stands now, there is no effective way of making them
respond.
Let Mr. Whitsitt answer for himself and you answer for yourself.
Mr. Hogg. I think I can pass on to a statement here that I was
getting ready to make. That is purely a matter of polic}^ and any
expression that I make would not be sufficiently grounded in experi-
ence to be worth anything. That is my answer to that. It is clear
out of my sphere of activity.
The Chairman. Mr. Whitsitt, you had some definite information?
Mr. Whitsitt. I wouldn't say that my views are final or anything
like that. I would say this : It depends entirely upon what type of
Federal supervision or regulation you have in mind. If you have in
mind the complete elimination of any contact by the States over
insurance including taxation, in other words taking away the taxing
power of the States, then our work would be somewhat simpler. If,
however, you only intend to superimpose upon the present State reg-
ulation some further supervision, then it would not affect our travel-
ing from State to State, as you said.
The Chairman. Of course, I have no intentions about it at all
personally.
Mr. Whitsitt. What you had in mind wh6n you asked the question.
The Chairman. I don't believe any member of the committee has,
either. I am merely trying to probe the situation, but here we have
clearly presented a national business with effects upon the whole
economy, with no effective system of supervision in the public interest.
I feel that those of you who are experts in this business and experts
in other industrial lines and in other lines of commerce could very
well advise the National Legislature as to what the contents should be
of a national system, but that there should be a national system be-
comes increasingly apparent to me as we proceed with this study.
Mr. Whitsitt. As I say, it would depend entirely upon the type of
national supervision, whether you would take away the rights of the
State or the rights of the various States to tax the business of insur-
ance. If that were eliminated it would save our trips, but if it is
something superimposed and States are allowed to retain their right
to tax the insurance premiums, we still would have our tax problem
before us in every State.
The Chairman. My personal desire would not be to create any new-
burdens to be placed upon insurance or upon any other industry. My
purpose would be rather to remove burdens which now exist and to
provide a better system of protection for the policyholders, and a
greater certainty that the trusteeship which unquestionably lies upon
the shoulders or the executives in every line ^f big business would be
4390 CONCENTRATION OF ECONOMIC POWER
more adequately enforced. I didn't mean to interrupt your examina-
tion, Mr. Counsel.
Mr. Gesell. That is perfectly all right, Senator; we have just one
further matter from this witness. Do you recognize this document
as a summary prepared by the association of results of the legisla-
tures in 1935?
Mr. Hogg. Yes. That is on our form of bulletin ; it unquestionably
is.
Mr. Gesell. I wish to offer this for the record.
The Chairman. It may be received.
(The summary referred to was marked "Exhibit No. Y02" and is
included in the appendix on p. 4764.)
Mr. Gesell. Now, Mr. Hogg, it wasn't made quite clear to me as
to who was in responsible charge of the activities which we have been
hearing about before the legislature in Florida while you were there.
Mr. Hogg. It was more or less of a cooperative undertaking upon
the part of the general agents who were primarily in Jacksonville.
There was one man who had had a great deal of experience in the work
and he assumed the responsibility generally, but I am frank to say
that there was nothing done there that I wouldn't have approved.
Mr. O'CoNNELL. You want me to believe that you were not in charge
but that you would have been perfectly willing to be.
Mr. Hogg. If I had thought it would have been practical I would
have. I was there primarily for furnishing information in connection
with these various matters that these agents didn't have at their com-
mand. I did ; I amassed all the data and all the information that I
could in connection witihi it and I had it. We conferred with persons
as to putting it in shape, writing it out, and things of that kind ; but
the responsibility, that is I might say the "guiding influence," as far
as the effective work was done, was done by the agents, and I want
again to say that I knew no legislator. It would have been presumptu-
ous for me to attempt it at all.
Mr. O'CoNNELL, But the battle plan, the card index, and so forth,
was kept in your room ?
Mr. Hogg. No.
Mr. O'CoNNELL. I thought you said that.
Mr. Hogg. I said the map was there ; I don't know ; it was just a de-
tail, and that wasn't novel. I think we fell into the plan that had
been prosecuted prior to that time. I don't know what the plan has
been since. That is the only time I was there.
Mr. O'CoNNELL. Quite apart from the question as to who was in
charge, you see no impropriety in anj^ of the activities outlined in
the memorandum which we have been referring to?
Mr. Hogg. Not with the supplementary statement which I have made
in connection with it.
Mr. O'CoNNELL. I also understood you to say in answer to a ques-
tion of the chairman that the facts that you collected in connection
with the individual members of the legislature were used and it was
thought entirely proper to use them to "sway," I think was the word
you used, judgment in connection with insurance legislation.
Mr. Hogg. I wouldn't say "sway." Largely it was used for the pur-
pose of being able to get to them and explain the facts. It was in-
formation whicli would have been of use ; yes.
CONCENTRATION OF ECONOMIC POWER 4S91
Mr. O'CoNNELL. Would 5^ou accept the word "influence" as the use
to which you put the facts that you collected ?
Mr. Hogg. I wouldn't say it was influence at all.
The only thing that we asked was an opportunity to present the
facts. If the facts influenced him — yes; if the facts influenced him.
Mr. O'CoNNELL. The facts I was referring to were facts about the
members of the legislature, not about the insurance.
Mr. Hogg. Oh, no; those facts hadn't anything to do with it.
Mr. O'CoNNELL. You collected them.
Mr. Hogg. Yes.
Mr. O'CoNNELL. You were referring to those facts which you said
to the chairman that you collected for the purpose of influencing
members of the legislature.
Mr. Hogg. Oh, no. When I say "the facts," I mean the statistical
data to influence them.
Mr. O'CoNNELL. You wouldn't think it proper to use facts which
you collected about members of the legislature ?
Mr. Hogg. No. I can very aptly call your attention
Mr. O'CoNNELL. That isn't necessary; I just wanted to he f;ure
that you didn't mean that.
Mr. Hogg. I wrote a letter before this thing ever arose — it is
only eight lines — as to just exactly what our policy was in reference
to it. May I read it, Mr. Chairman? Just eight lines?
The Chairman. Yes.
Mr.HoGG. It is a letter which is in your flies, I think, Mr. Gesell,
referring to our attitude toward a legislator. [Reading:]
In addition, I infer from you that Mr. Blank is the type of legislator regard-
less of his own personal connections who will exercise his judgment primarily
in the interest of his State without at the same time subjecting any of its tax-
payers to unreasonable burdens. No one has the right to expect more from a
person charged with the responsibility of public office. From your connection
with the Association of Life Insurance Presidents in the past, you of course
know that its policy has been and will continue to be to take no position which
cannot be substantiated upon a basis of sound judgment and fair dealing
toward both the State and the policyholder.
That was sent out before. That is exactly the statement of our
position.
The Chairman. May I see that?
Mr. O'CoNNELL. That is very interesting, but that has nothing
to do with the question I asked. I asked as to how far you people
would go, how far you would think it proper to go in effectuating
one of these so-called policies which is very important to your
policyholders. My question had to do with what you would tliink it
proper to do in influencing a legislature to carry out a policy that
you believed to be sound.
Mr. Hogg. We would-not use anything which would be unethical
in any sense of the word.
Mr. O'CoNNELL. That is a rather broad word.
Mr. Hogg. I am willing to stand on that — nothing that would be
unethical in any sense of the word.
Mr. Henderson. But in this set of paragraphs having to do with
legislative contacts ^ you did emphasize that the facts collected about
1 See "Exhibit No. 698," appendix, p. 4757, at p. 4759.
4392 CONCENTRATION OF ECONOMIC POWER
the members were important. You take it that they were important
in establishing the contacts in order to get your facts before the
members ; is that it ?
Mr. Hogg. Yes ; in some respects possibly so, but primarily this : If
a man was a substantial policyholder in a mutual company, the in-
ference would be that he would be more inclined to give favorable
consideration or would give sympathetic hearing to a bill whi;;h would
aifect his interests, as these proposals would, and which would put a
terrific burden, an unconscionable burden, upon the companies ; and I
want to say this
Mr. Gesell (interposing). May I ask a question? You say "would
be an unconscionable burden," If the Florida tax is increased to
6 percent, that doesn't mean that the Florida policyholders pay that
tax, does it? Is it not a fact that the companies prorate those taxes
on a Nation-wide basis, so that, as far as the Florida policyholders are
concerned, it might have been only an increase of one-half percent?
Mr. Hogg. Well, here, you can't establish a policy applicable to one
State and expect some other State to sit idly by and acquiesce and
penalize their own people, as the people of Florida would have done
if they passed a measure of this kind,
Mr. Gesell. Will you answer my question? Is it not a fact that
tlie companies do prorate those taxes on a Nation-wide basis, so if
one State raises its taxes it does not mean that those taxes are paid
entirely by the policyholders of that State ?
Mr. Hogg. You have raised a — let me answer and say you are cor-
rect ; but tliere has long been this question of taxation, which has been
a very vexatious one with reference to disparagement. The companies
have had a recurring occasion to consider the advisability of classify-
ing the policyholders geographically for dividend purposes, with an
extensive examination made, and nobody knows but what that might
be the case. Now, if you classify them geographically for dividend
purposes, the whole thing is right back on the shoulders of a re-
stricted class of policyholders.
Mr. Gegell. That is not a fact, though.
Mr. Hogg. There is very decided legal opinion to the effect that
that can be done; if they would put 147 percent net income tax on
Florida policyholders it woud certainly justify the companies; it
would certainly be justified in making geographical allocation.
Mr. Gesell. Has it ever been done?
Mr. Hogg, It has not ever been done.
Mr. Henderson. Where did you get that 147 percent? It isn't 147
percent of the premium itself, is it?
Mr. Hogg. I have the break-down of that and would be glad to
give to you.
Mr. Henderson. One hundred and forty-seven percent of what ?
Mr, Hogg. Here is what we had in mind : Tlie tax system — to put it
another way, the substantial taxes of life-msurance companies are
represented by premium taxes. We wanted to compare the burden
which these measures would have put upon insurance companies
with the burdens borne by comparable other businesses^ and the only
way you could do that was to transpose this 6 percent premium tax
into terms of a net income tax, so that instead of passing a 6 percent
premium tax, making a 6 percent premium tax, if they had trans-
posed it and put it into a net income tax it would have represented
CONCENTRATION OF ECONOMIC POWER 4393
147 percent of the net iiicome of those companies. Do I make myself
plain ?
Mr. Henderson. You call net income the amount of savings, due to
savings and mortality, from the loading?
Mr. Hogg. Frankly, I can't tell you the elements that enter into
those figures. Our statistical department prepared the fornmla.
Mr. Henderson. But the 6 percent would have been on the amount
of the premiums paid.
Mr. Hogg. That is correct.
Mr. Henderson. For each dollar of premiums paid.
Mr. Hogg. That is correct; on the gross premium.
Mr. Henderson. Another question. You felt that the situation was
so serious that it was likely to recur for the next year, I gather.
Mr. Hogg. I don't know. I didn't know whether I would ever be
back down there again or not, but I felt it was to the benefit of the
association, whoever did go do^vn again ought to have the benefit of
the picture as I saw it at that time, hence this memorandum.
]\Ir. Henderson. You suggest that they get started earlier.
Mr. Hogg. That is correct.
Mr. Henderson. Get started on factual presentation to legislators?
Mr. Hogg. No; not necessarily. I found that it was difficult to
rouse those agents.
Mr, Henderson. I gather from your memorandum that they said
this thing had always been defeated and therefore there wasn't any
hope.
Mr. Hogg. It was a sort of laissez f aire attitude. You couldn't get
them to believe that anything like that could happen.
Mr. Henderson. And you were somebody from New York who felt
more seriously aboyt it than the local people.
Mr. Hogg. Precisely so.
Mr. Henderson. And you suggested that they get together in ad-
vance of the next session and establish die legislative contacts then.
Mr. Hogg. Whatever was necessary to cope with the situation in
view of our experience down there. 1 was willing, from that memor-
andum, to leave this entirely in the hands of those local men. Those
men, agents and managers, were men ever.y one of w^hom stood well
in the community; they couldn't ha^ve had that position if they
didn't, and those details I was perfectly willing to leave in their
hands.
Representative Barnes. May I ask one question? Not being here
yesterday, I was v.ondering if one of tlic purposes of your associa-
tion of which you are counsel was to work to get a uniform system
of taxation on policyholders in various States at this time?
Mr. Hogg. I wouldn't say a "uniform system."
Representative Barnes. In other words^ there is no equalization
between States as to the amount of taxes charged upon the policy-
holder, but one uniform rate applies to each company as to the
States they do business in regardless of taxation.
Mr. Hogg. No uniform rate; no. The average of the United States
at that time was 1% percent premium tax. The present law down
there, by the way, is 2 percent.
Mr. Gesell, The next witness is Mr. Cooney, if there are no more
questions.
4394 CONCENTRATION OF ECONOMIC POWER
The Chairman. Mr. Hogg, my attention has been called to the
letter of Mr. Whitsitt of July 12, 1937, addressed to Mr. Lincoln,
which I think you put in the record yesterday, in which I find this
paragraph [reading] : ^ . -
Of the 46 regular and 14 special sessions — in 46 States, 2 Territories, and
• Congress — Congress and 3 States (Minnesota, New Hampshire, Ohio) are still
active. Total bills examined here, 11,047, sets a new high, almost double that
of 6 years ago and over 3 times that of 10 years ago.
Since your association with this organization you have been de-
voting your time largely to this legislation activity ?
Mr. Hogg. No; I have not.
The Chairman. You have not?
Mr. Hogg. No; I have not.
The Chapman. Could you tell us about this increase ?
Mr. Hogg. I couldn't tell you about that.
The Chahiman. Mr. Wliitsitt, are you familiar with that? I am
referring to that letter of yours of July 12, the increase in the
number of bills. You said that it was double that of 6 years ago —
speaking from 1937 — and 3 times that of 10 years ago. Has this
legislative activity been increasing throughout the States?
Mr. Whitsitt. You are familiar, as I stated yesterday, that the
number of bills varies from year to year, depending on whether it is
an even-numbered year or an odd-numbered year.
The Chairman. According to the number of legislatures in session.
Mr. Whitsitt. In the odd numbers there are some forty odd and
in the even, some 13 or 14 with some special sessions. When we com-
pared, we compared the odd-numbered years with the previous odd-
numbered and the even-numbered with the previous even-numbered
years. For the present year — of course it isn't complete yet — I
imagine it will be somewhere around 10,000 bills passing through
our ojffice.
The Chairman. The point is. This represents a steady increase of
legislation affecting life insurance?
Mr. Whitsitt. Not all of those bills directly affect insurance. Of
course many of them do not, but they are bills that it is necessary
to examine in order to determine whether or not they have any effect
upon our business. Many of them are quite objectionable, some of
them are bills that do not appear objectionable on the surface but
should be watched during the course of the session for possible
objectionable amendments ; others when we receive them are obviously
of no interest. If I get your question, there has been an increase in
the last 10 or 15 years, a gradual upgrade.
The Chairman; To what do you attribute this increase of legis-
lation to which you must give attention ?
Mr. Whitsitt. I would consider part of it as a byproduct of the
depression. I think that there are more adverse bills, probably other
industries (I do not know) have had the same experience, and also
because of the taxation situation. We have more tax bills than we
used to have, they occur with more frequency. We have had a 6
percent bill in Florida ; we had one this year, and I think we had one
in 1937 if I am not mistaken, I am not sure of that. The States
are— it is an obvious fact — very much in need of money and conse-
1 See "Exhibit No. G95," apiwndix, p. 4754.
CONCENTRATION OF ECONOMIC POWER 4395
quently more tax bills are coming in. The same is true of other
things.
The Chairman. In any event it is perfectly obvious that you have
to examine at least 10,000 bills every year —
Mr. Whitsitt (interposing). In recent years. I don't recall the
figure for '35, but I think it ran fairly close. I am not sure whether
the letter has '35 on it or ftot.
The Chairman. Would you care to express an opinion as to whether
or not most of these bills are beneficial to life insurance ?
Mr. Whitsitt. Of the total of 10,000, it is only a comparative few
that turn out actually to require attention. I am not sure that I got
your question.
The Chairman. I am trying to find out wliether on the whole,
after the examination of this large amount of legislation, you feel
that most of the bills are satisfactory bills and beneficial legislation,
or are most of them subject to criticism?
Mr. Whitsitt. Out of the 10,000, a very small proportion would
be subject to, shall I say
The Chairman (interposing). But out of those which you-finally
determine do affect your business?
Mr. Whitsitt. Do I get you this way : Out of the ones that we
actually take action on, for a period of years are they increasing?
The Chaujman. Are they good, bad, or indifferent ?
Mr. Whitsitt. Out of the ones we actually take action on ?
The Chairman. That is right.
Mr. WiHTSiTT. Well, I would say that the number run about the
same proportion during the various years. Assume 200 — I have no
figures on it, but assume 200 in '37; I would assume, say, 200 in '39.
If that is what you mean, the number of bills on which we take
action (
The Chairman. I am not referring to the number now. This let-
ter of yours was entitled "1937 Legislative High Points," and as I
glance over it I would judge that most of these high points had to
do with bills which you regarded as at least adverse to the interests
of life insurance.
Mr. Whitsitt. Generally so.
The Chairman. Wliat I am trying to determine is whether or not
most of this legislation you regard as being adverse lo the interests
of the insurance companies.
Mr, Whitsitt. I am not sure that I get you clear ; not most of the
10,000.
The Chairman. Oh, no, no; those that you have examined.
Mr. Whitsitt. Most of those that we take action on, of course, that
is quite right.
The Chairman. Most of them are adverse?
Mr. Whitsitt. Most of those we tajce action on are either adverse,
or quite a number of those bills merely need a clarifying amendment,
through an oversight, or lack of facts. As lystated yesterday, our
greatest trouble with State legislation is the lack of opportunity to
present the facts to the members.
The Chairman. And this applies to all the States indiscriminately,
I mean this situation might arise in Maine or in Florida or California
or Oregon.
4390 CONCENTRATION OF ECONOMIC POWER
Mr. Whitsitt. It might arise anywhere, and there are 48 different
kinds of State legishxtnrop;; there are no two alike.
"^J'he Chairman. And yours is a national organization?
Mr. Whitsitt. Intern:itional. We have some Canadian members.
The Chairman. Any Mexican members?
Mr. Whitsitt. Not yet.
The Chairman. It is obvious, is it not, that you are dealing with a
national problem, and the State legislatures are passing laws which
affect tlie interests of companies which have an international aspect
and policyholders who are scattered all over the continent ?
Mr. Whitsitt. We follow the legislation in all of the 48 States and
tlie District.
The Chairman. Because it is a national business?
Mr. Whitsitt. Because it affects our policyholders, who reside
everywhere.
The Chair:man. Because it is a national business; it is an interstate
business, is it not ?
Mr. Whitsitt. I wouldn't say it is an interstate business.
The Chairman. Well, let the record speak for itself.
Mr. Hogg. Mv. Chairman, may I express one qualification to that
last answer? Did I understand you to ask whether or not I had any
connection with the 11,000 bills? Of course, I have occasion to
examine some of the measures. I am not completely divorced from
that feature of it at all.
The. Chair:man. Let the record show that you are one of the legis-
lative experts.
There are a large number of questions that might be asked, but, Mr.
Gesell, you have another witness that you want to call ?
Mr. Gesell. I have.
'The Chairman. Ve;.-y well. Thank you, sir.
(The witnesses, Messrs. Hogg and Whitsitt, were excused.)
Mr. Gesell. The next Vv itness is Mr. Kobert L. Cooney.
The Chairman. Do you solemnly swear that the testimony you are
about to give in this proceeding shall be the truth, the whole truth,
and nothing but the truth, so help you God?
Mr. CooNEY. I do.
TESTIMONY OF ROBERT L. COONEY, INSPECTOR OF AGENCIES, NEW
YORK LIFE INSURANCE CO., ATLANTA, GA.
Mr. Geseix, Mr. Cooney, are you connected with the New- York Life
Insurance Co. ?
Mr. CooNEY. Yes, sir.
Mr. Gesell. In what capacity ?
Mr. CooNEY. My title is inspector of agencies.
Mr. Gesell. Where do you reside, in Atlanta?
Mr. CooNEY. Yes, sir.
Mr. Gesell. What are your duties as inspector of agencies ?
Mr. CooNEY. I have charge of what is called the agency work.
Mr. Gesell. In what States?
Mr. CooNEY. Florida, Georgia, North and South Carolina, Virginia.
Mr. Gesell. Are you also a member of the legislative committee of
the GeorsJ a. Underwriters Association?
CONCENTRATION OF ECONOMIC POWER 4397
Mr. CooNEY. I am. I am chairman of it, sir.
Mr. Gesell. What was that answer ?
Mr. CooNEY. I am chairman of those committees.
Mr. Gesell. Are yon also the representative of the Association of
Life Insurance Presidents in Georgia?
Mr. CooNEY. Yes, sir; but not by any direct appointment. That
sort of thing is like Topsy, it has just "growed" on me.
Mr. Gesell. But you have had that as one of your functions for a
period of years ?
Mr. CooNEY. Yes, sir.
Mr. Gesell. For how many years ?
Mr. CooNEY. Oh, I should say for 15^ at least.
Mr. Gesell. You have represented the association in Georgia for
about 15 years ?
Mr. CooNEY. I should say about that ; yes, sir.
Mr. Gesell. How often does the Georgia Legislature meet — once
every 2 years unless there is a special session?
Mr. CooNEY. At one time it was once every 1 year; now the law is
once every 2 years, but we usually have a special session in addition
to that.
Mr. Geseij.. Can you tell us how much time you spend during a
year that the legislature is in session on legislative matters?
Mr. Cooney. I would say directly, sir, not so much, because as a
matter of fact I have to remain in close contact for possibly the length
of each session,
Mr. Gesell. So a good proportion of your time each day for the
period of the session is taken up with legislative matters in one way or
another ?
Mr. Cooney. No, sir; I wouldn't answer it that way. I would say
that I keep close in contact and usually stay in Atlanta during the
session. As a matter of fact, my time is occupied principally in mak-
ing addresses to committees when we are called before committees to
argue in regard to any bill that happens to be before that committee
relating entirely to life insurance. I attend to nothing else.
Mr. Gesell. Now, Mr. Cooney, will you tell us a little about fhis
legislative committee of the Georgia Underwriters Association, of
which you are a member ? Who are the other two members ?
Mr. Cooney. At the present time I happen to be chairman ; a man
named Sam M. Carson is one member of the connnittee, and Mr. Baxter
Maddox is the other member. We have on occasion called in one or
two others who are not directly members of the committee but who
have done committee work.
Mr. Gesell. How is that committee appointed?
Mr. Cooney. There are two associations, one the Atlanta Association
of Life Underwriters, and the other is the State Association of Life
Insurance Companies. I happen to be chairman of the committees
appointed by both of those.
Mr. Gesell. They are appointed by the agents either in Atlanta or
the State?
Mr. Cooney. Yes.
Mr. Gesell. I take it you incur some' expense in connection with
your appearances before the legislature, do you not?
Mr. Cooney. Yes. Part of the expenses are paid by the Life Pres-
idents Association.
4398 CONCENTRATION OF ECONOMIC POWER
Mr. Gesell. Am I correct in saying that generally speaking the
Association of Life Insurance Presidents will reimburse you for travel,
telephone, stationery, stenographers, purchasing of a legislative serv-
ice, or something of that kind ?
Mr. CooNEY. No, sir ; only a part of it. As a matter of fact, they
pay no traveling expenses whatever. If we incur telegraphic expenses
or telephone expenses to the association asking instructions or impart-
ing information, and they make a certain allowance for sundries, we
will say like taxicab fares going up and down, after all, you go up and
down four times in 1 day
Mr. Gesell (interposing). Some of your expenses are paid out of
your own pocket, are they ?
Mr. CooNET. Yes, sir.
Mr. Gesell. Is it true that the Underwriters Association at the
end of the year chips in to try to reimburse the legislative committee
for some of its work?
Mr. Coonet. To a certain extent, yes.
Mr. Gesell. And during the time that the legislature is in session
I take it that you continue to receive your salary from the New York
Life Insurance Co. ?
Mr. Cooney. Yes, sir.
Mr. Gesell. Will you tell us or describe for us the methods which
you adopt when a particular bill which is or may be adverse to life
insurance is introduced in the legislature?
Mr. Cooney. After it is introduced — as a matter of fact, if I can
put in here, if we can learn that a bill is about to be introduced we
try to get hold of the man to introduce it and argue the question
on its merits and get him to withdraw it. I may say to you, sir, if
yon will let me diverge a minute, we rather believe in that, like the
dutch man at the boarding house where they were tough roosters.
He said he ate them when they were eggs.
^r. Gesell. You moan, you like to get at a bill at its earliest
possible moment?
Mr. Cooney. That is right.
Mr. Gesell. Let's say you cannot prevent the sponsor from intro-
ducing the bill. "What happens?
Mr. Cooney. We try to deal with it before the committee to which
it is referred.
Mr. Gesell. Suppose the committee reports it out?
Mr. Cooney. Well now, if it is reported unfavorably tliat ends it.
Mr. Gesell. Let's assume it reports out favorably,
Mr. Cooney. Then we begin to try to get hold of different mem-
bers of the legislature in one way or the other and try to convince
them they ought not to vote for it.
Mr. Gesell. Suppose the matter is coming up for a vote and the
result looks as tliough the bill may get through?
Mr. Cooney. Wo have to wait until we see what that is, sir, and
then possibly deal with it in the Senate after it goes there, if it is
a revenue bill.
Mr. Gesell. You follow the same procedure through the Senate?
Mr. Cooney. To a certain extent.
Mr. Gesell. May I ask you if it is your practice on some occasions
to introduce another bill, hoping that by introducing another bill
CONCENTRATION OF ECONOMIC POWER 4399
you can initiate obstructionist tactics which will prevent the original
bill from passing?
Mr. CooNEY. I can't agree to the word "obstructionist," sir, at all.
Mr. Gesell. Do you recognize this memorandum which I show
you?
Mr. CooNEY. Yes, I know-; i wrote that. I am going to try to
explain that to you.
Mr. Gesell. May I read it to you before you begin? This is a
letter signed by yourself and Mr. Carson and Mr. Allen. I take it
they are the other members of the committee.
Mr. CooNEY. Yes, sir; at that time.
Mr. Gesf^:.. Addressed to Mr. Hogg, dated February 25, 1935.
The letter states [reading from "Exhibit No. 703"] :
On general principles we are taking up our duties again today, after a 3-day
vacation ; while the legislature has junketed, we would like to say that we appre-
ciate the arguments
The Chairman. What is that ?
Mr. Gesell [reading] :
junketed, we would like to say that we appreciate the arguments furnished us,
and this committee assimilates same and uses them where practical. There is
not the same disposition, however, to regard the altruism of the situation as
there was at the time when the money was less needed. So unofficially, we
make the following statement. It has been our practice for years.
1. To try to persuade the author of a bill, either before its introduction or
after introduction and reference to a committee, to withdraw same. This has
worked out ofteuer than might be thought.
2. We make effort in advance, as described to you, to have friends on the
committee and to have meetings at the proper time and under favorable environ-
ment. This has frequently worked out.
And this refers, I believe, to the matter we were discussing, Mr.
Cooney —
3. If we do not succeed in getting a biU adversed, we try to introduce another
bill, hoping that the whole thing will wind up in a row, to be plain about it.
That sentence was what prompted me to use the word "obstruc-
tionist."
The Chairman. Your word was mild, compared with "row."
Mr. Gesell [reading further from "Exhibit No. 703"] :
This has worked out at this session, and I will add, in passing, that we have
one man that if any bill comes out on the floor to get up and say that he does
not believe in taxing Hfe-insurance premiums at all, and create u diversion in
that way.
4. If a bill passes either house and goes to the other house, we try to repeat
the above tactics.
5. At this session particularly we have considerable confidence in the Gover-
nor's statement that he will veto any tax increase. His language, however, was
"citizens of Georgia," but we hope, if any bill should pass both houses, to show
him that the taxes rest on the citizens of the State of Georgia.
I would like to offer this letter for the record.
The Chairman. Mr. Cooney's letter to Mr. Hogg?
Mr. Gesell. Together with Mr. Hogg's reply of February 27, 1935,
which is attached thereto.
The Chairman. Has that been identified ?
Mr. Gesell. Will you identify that as a copy of the letter you
received ?
Mr. Cooney. Yes.
4400 CONCENTRATION OF ECONOMIC POWER
The Chairman. The exhibit may be received.
(The letters referred to were marked "Exhibit No. 703" and are
included in the appendix on p. 4767.)
Mr. CooNEY. What particular phase do you want me to comment
on, Mr. Gesell ?
Mr. Gesell. I asked you whether it was your practice on occasion
to introduce a bill, having in mind the possible benefits which would
result from obstructionist tactics, and you were about to explain.
Mr; CooNEY. I am sorry — if I had known I would have to explain
that I would have used a different word. There is no question about
that. As a matter of fact what I meant was here comes a man where
we have II/2 percent premium tax in Georgia. Somebody introduces
a bill to increase it to 3 percent. We will say, for the sake of argu-
ment, it gets on the floor of the house, and that has happened only
once in several years. In that particular case
The Chairman (interposing). I take it the auditors thought that
was a compliment; the auditors thought that was a reason for com-
plimenting you.
Mr. CooNEY. I respect your opinion. Excuse me.
The Chairman. I just interfered unnecessarily.
Mr. CooNEY. Not at all, sir; I am glad you gave me the oppor-
tunity. Mr. Gesell, as a matter of fact we have any number of men
who agreed with us, and I state my unqualified opinion that taxation
on life-insurance premiums ought not to be more severe than enough
to pay for the regulatory body and there are any number of men
that agree.
Mr. Gesell. Now I am not interested in the merits of the case
here; I am interested more in the methods pursued and I want you
to explain, if you can, how you justify introducing obstructionist
legislation.
Mr. Cooney. I wanted to confine myself to the word you used.
Nojv, I will repeat, if a 3-percent bill gets on the floor of the house,
which it would not usually do, we try to get some man who objects to
any taxation on life-insurance premiums at all to introduce a bill to
abolish them entirely, except to support the insurance department.
Now, as a matter of fact, that gives us an opportunity to argue on
both sides of that question, and it has been successful up to a certain
point.
Mr. Gesell. Now will you tell us a little more about the procedure
which you adopt in approaching sponsors of bills or committee mem-
bers before the bill gets out onto the floor of either the house or the
senate ?
Mr. Cooney. I either get somebody who knows them to introduce
me, or if I can't get that, I go and introduce myself, which is a
poor introduction, I know, and argue the question with him as to the
merit of the case.
Mr. Gesell. Now, is it frequently your practice to entertain mem-
bers of the legislature ?
Mr. Cooney. Yes, sir; not as members of the legislature altogether,
but as my personal friends, when they are my friends.
Mr. Gesell. Do you recognize this letter of March 22, 1933, signed
by yourself, and the two other members of the committee to Mr.
Creswell, of the association ? ^
I Entered later as "Exhibit No. 704," Infra, p 4402.
CONCENTRATION OF ECONOMIC POWER 4401
Mr. CooNEY. Yes, sir.
Mr. Gesell. I wish to read a portion of that letter, commencing
on page 3 [reading from "Exhibit No. 704"] :
* * * We mention here that roughly speaking, the expense in money to
members of our committee, no part of which has been paid by anybody else,
has been about $500. About $30 of this wns for cab fares to and from the
capitol, on hurry calls from our friends, or to get bills just introduced and
before the service people were in position to get them. Not one cent for any
purpose that is not legitimate, or which any other man, if he worked as we
work, would not have incurred. We might mention in passing that we believe
in killing a bill before it gets on the floor, or before a committee, if possible.
It is much easier to handle one man or two men alone than it is to argue
with a whole committee and it is impossible to argue with the whole house.
This money has been spent in invitations to those of whom we wished to make
friends, and seeing that their wives and daughters were looked after properly
and courteously ; and a large portion of it in giving a dinner after the session
was over to all of those who were good enough to favor us. We have been
told that one reason we are kindly received is that we do not forget favors after
we get them. The other is that we do not seek to interview members of the
legislature while they are in their seats, going through the lobbies, or stop
them at their lunches, as most people do.
Now with reference to my questions on entertainment, you say
that some of the money has been spent in seeing that the wives and
daughters of legislators are looked after properly ?
Mr. CooNET. Yes, sir; a good deal of that was spent in my own
house and I think if you will let me say.it, what I had in mind
there, though I didn't make it plain, was that some. of that $500
was in connection with previous -experiences but, however that may
be, I don't remember just how that was arrived at at that time
because I know we spent a good deal of it and pay everything
ourselves.
Mr. Gesell, May I suggest we pause for the pictures and then
proceed ?
The Chairman. It is all over now.
Mr. Gesell. Now did I understand you to say that it was the
practice of you or other members of the committee to entertain
members of the legislature in order to obtain a means of putting
before them your position?
Mr. CooNEY. Yes; I would like to make proper explanation of
that, my dear sir.
Mr. Gesell. Certainly.
Mr. CooNEY. As. a matter of fact I repeat what I said in that
letter; it is very hard, if you ever had that kind of an experience,
maybe you have, to argue a man out of his position before a number
of other men. It doesn't make any difference whether he is right
or wrong. If you can get that man and show him the merit of your
case and the mistake that he may have in his mind when he is advo-
cating certain propositions, it is easier to reverse him in his own
mind by himself, than it is before a lot of other people.
Mr. Gesell. That I take it is what you meant on page 2 of the
memorandum when you state [reading from "Exhibit No. 704"] :
The Honorable J. W. Culpepper (previously our friend and our friend again
now) previously chairman and now on the ways and means committee, gave
notice that he would introduce a 3 percent tax bill. One of our committee
had supper with this gentleman, and a long interview afterwards. This bill
never made its appearance.
The Honorable -J. Scott Davis, of Cedartown, Ga., had prepared by the
attorney general of the State, a bill increasing our taxes to 21/2 precent One
4402 CONCKNTRATION OF ECONOMIC POWER
of our couimittee entertained this gentleman and some of his friends, and
after an argument on the merit of the case, the Honorable Mr, Davis withdrew
this bill.
The Honorable Orville A. Park, of Macon, Ga., introduced a bill, had it read
once, referred to ways and means committee, which bill would have increased
insurance premiums to 3 percent, but eliminating municipals. We likewise
obtained an interview, through entertainment, with the Honorable Mr. Park, the
result of which was his statement then that he would withdraw this bill, and
that he was suflBciently convinced of the merits of the case to promise opposition
to any other hill of the kind that might come up, and to ask for the appoint-
ment of a committee to inquire into insurance taxes and make a report to the
next session.
Mr. CooNEY. i think that means exactly what it says, except that
the word "entertainment" I think you misunderstand. I don't mean
entertainment with any sinister motive at all.
The Chairman. I didn't understand what you said.
Mr. CooNEY. I don't mean entertainment with any sinister motive
at all, any ulterior motive. For instance, you mention Judge Park.
That is the man who has written the Code of Georgia twice. I had
that gentleman out to my house and after the dinner was over I
argued the question with him exactly as that letter states, and he said :
I think the presentation you make convinces me that it would be wrong to
increase the insurance taxes, and I won't pursue the bill, and I will oppose
anything else.
Mr. Gesell. What I was interested in, Mr. Cooney, as much as any-
thing else, was why it was necessary to approach representatives of
the legislature in that manner. Is it not possible to go to see them
and talk to them about it in a more public manner ?
Mr. CooNEY. Yes ; as a matter of fact, it is. I have had men engaged
in what our chairman has called a lobby, meaning it in an inoffensive
way, to stop men running across the lobbies of the house. I have
access to the floor of the house but I never use it, except simply to listen
to an argument. Now those men don't like that and it never gets
anywhere because a man who comes off the floor of the house to go
somewhere else has something in his mind, and if you stop him, why
he is irritated over it — not mad, you understand; I differentiate be-
tween "mad" and "irritated." I am going to be careful about the
language I use hereafter.
Mr. Gesell. I would like to offer this letter for the record at this
time.
The Chairman. The letter may be received.
(The letter referred to was marked "Exhibit No, 704" and is in-
cluded in the appendix on p. 4768.)
Mr. Cooney. That letter means just about what it says, except I
don't want the word "entertainment" as we used it to be misunder-
stood. We entertain them, offer them a lunch or dinner, to talk to
those gentlemen when they have nothing else on their minds but the
consideration of the question we bring up with them.
Mr. Gesell. Now, Mr. Cooney, let me ask you this: What about
campaign contributions? Does your legislative committee make any
campaim contributions in the State of Georgia?
Mr. Cooney. I don't know what anybody else does, except what I
do on occasion, I do wdth my personal friends whom I want to see
elected. I have done that. Even, may I say, that one time I made
some contribution to the campaign fund of the President of this United
States.
CONCENTRATION OF ECONOMIC POWER 44Q3
Mr. Gesell, Now, have you made many?
Mr. CooNEY. Yes.
Mr. Gesell. Or few ?
Mr. CooNEY. Quite a number.
Mr. Gesell. Does your association attempt to participate in the
elections and help get men elected whom you want to see in the
legislature ?
Mr. Cooney. I don't know what the others do. I know I do.
Mr. Gesell. Now, do you recognize this letter of March 1, 1938,
written by you to Mr. Pierson, vice president of your company?
Mr. Cooney. I have to tell you at the moment that Mr. Pierson
and I have been more or less intimate persoiml friends for a long,
long time, and he and I joke with each other, but I will never do it
again.
Mr. Gesell. I notice you marked the letter "Personal,"
Mr. Cooney. Yes; that sounds so funny I don't see any reason to
explain it.
Mr. Gesell. You do recognize the letter, do you not?
Mr. Cooney. Yes.
Mr. Gesell. I was interested particularly in the second paragraph.
You state [reading from "Exhibit No. V05"] :
they have remitted to me all of the expenses that would be proper to charge
up. There are some, of course, that do not go into an account of this kind. And
I am going to say in passing that (admitting, of course, that we have been
rather successful in heading off legislation) the method is to interest ourselves
in key men before they are elected, help them to get elected, and then they owe
us something instead of oup owing them. That is the whole secret.
Mr. Cooney. If tliat language is not misunderstood, it means
exactly what it says.
Mr. Gesell. That is fine.
The Chairman. The letter may be received. It is rather explicit,
Mr. Cooney; I think nobody can misunderstand it.
(The letter referred to was marked "Exhibit No. 705" and is in-
cluded in the appendix on p. 4770.)
Mr. Cooney. Senator, may I say a word off the record?
(Remarks off the record.)
The Chairman. I don't know why you say that off the record.
Mr. Gesell. Now, Mr. Cooney, I wish you would tell us a little
more about what tactics you use in obtaining advance information
about proposed bills and advance copies of bills which are about to
be introduced. I gather from what you said previously that that was
somewhat essential to the program which you had adopted of getting
to the sponsor as soon as you could.
Mr. Cooney. That is to save as much time and trouble as we pos-
sibly can. As a matter of fact, we have a number of friends — very
evident from the letters you have read. A member of the legislature
frequently talks to one of his friends about a bill that is about to be
introduced. If you know the method, you know they try to enlist
votes for it before they ever introduce it. Our friends sometimes will
tell us Bill Smith is about to introduce a bill that will do some dam-
age to us in that jjarticular case. We try to get hold of the man and
ask him to withdraw it. I think I made that plain in my letters.
Mr. Henderson. What do you call a bill like that, Mr. Cooney?
Is that a bell ringer, or do you have some other nnrae for it ?
124491 — 10— pt. 10 1**
4404 CONCENTRATION OF ECONOMIC POWER
Mr. CooNEY. I have another one, but I don't use it here.
Mr. Henderson. I think I know it, but I will let it go.
Mr. Gesell. Now, my question was, Mr. Cooney, is it not a fact
that you have worked out arrangements with people who have the
privilege of the floor to supply you with advance information?
Mr. CooNEY. Yes,
Mr. Gesell. Will you tell us what those arrangements are and how
you have made them and who you have made them with ?
Mr. Cooney. I don't know whether the result had anything to do
with the arrangement, but as a matter of fact we had one man who
is a reporter for a new^spaper who had the privilege of the floor and
he hears talk all over the floor about bills to be introduced and then
reports it to mCj so we can get hold of the men individually instead
of having to wait to argue the question in detail before a large body
of men.
Mr. Gesei,l. Do you recognize that letter I show you, Mr. Cooney '?
Mr. Cooney. Yes. This is the man I referred to as a newspaper
reporter.
Mr. Gesell. This is a letter dated November 21, signed by your-
self, addressed to Mr. Creswell, statistician of the association [read-
ing from "Exhibit No. 706"] :
Of course we have to have copies of these bills to study them, but Ed Bradley,
of a local newspaper, has access to the floor of ^he house and a partner, so
to speak, on the floor of the senate. For $100 this man will keep his eyes open,
not only for the introduction of bills but for the talk that goes on before a bill
is introduced, and this service has proven very valuable to us and has enabled
us to abort on occasion the proposed tax measures. X think we should have
this service, and I hope we will have your approval.
I would like to offer that for the record.
Mr. Cooney. That letter means ^'ust what it says, too.
The Chairman. That may be received.
(The letter referred to was mai^ked "Exhibit No. 706" and is
included in the appendix on p. 4771.)
Mr. Geheli^. That expenditure was approved by the association,
was it not ^ Now do I understand you to say that you yourself have
the privilege of the floor?
Mr. (JooNEY. I have, but I don't take advantage of it very often.
As a matter of fact, I am going to say here for the record, or other-
wise, tliat t think there is a resentment against a man who is not a
member of the legislature running around on the floor of the house
and I have had complimentary cards to both the senate and the
house for years and years. At the last session of our legislature I
don't think I went into it three times.
Mr. Gesell. May I ask just from 'he point of view of ignorance
and curiosity what the difference is between your going and your pay-
ing a man $iOO to go for you ?
Mr. Cooney. Because he is there all the time and he legitimately
is there seeking information, news for his newspaper, and I am not.
Mr. Gesell. He is there under an entirely different guise ?
Mr. Cooney. Absolutely.
Mr. Gesell, Now, do' you recognize this letter to Mr. Hogg, dated
March 3, 1937?
Mr. Cooney. Yes, sir. Let me get the gist of it, if you don't mind.
CONCENTRATION OF ECONOMIC POWER 4405
Mr. Gesell. Certainly.
Mr. CooNET. Yes, sir; that man is a good friend of ours and a good-
sized policyholder in the New York Life.
Mr. Gesell. Now, I was interested particularly in the last two para-
graphs where you say [reading from "Exhibit No. -707"] :
we have made five or six friends who will oppose on the floor of the house any
increase whatever in premium taxation. A. typical letter from the Honorable
J. B. Joel is herein, together with copy of ray reply.
I have replied in this way because I have understood this morning, to repeat
the expression used to me, that I am a marked man. I have the privilege of the
floor and I have been down to the legislature several times, possibly a dozen or
more. The speaker of the houpe has made the public statement that he does not
wish any member to accept any invitation given by any person who has any
interest in legislation before the house. I will try to deal with this later.
Mr. CooNEY. Yes, sir; that means what it says, too. As a matter of
fact, I have abandoned the invitations we used to give to a very great
extent.
Mr. Gesell. I notice in the accompanying letter that on ihe very
same day you offered Mr. Joel an invitation to come to your house,'
saying:
I know that you will not understand me as having any ulterior motive when
I say I will be glad to have you at a meal at my house any time convenient to
you, and herewith promise not to bring up the question of insurance taxation.
Mr. Coonet. I think that is a plain social invitation. It says so on
the face of it.
Mr. Geselt^. But w^hat about the other entertaining which we have
already considered in the record?
Mr. Cooney. One minute. Entertainments are of various kinds and
I repeat my explanation of what I mean by the word. Sometimes I
have one man to lunch; sometimes I have a man and his wife to my
house to dinner. If you will take a particular species I will try to
explain it.
Mr. Gesell. I would like to offer this letter of which I have just
read a portion for the record.
The Chairman. The letter may be received.
(The letter referred to was marked ''Exhibit "No. 707" and is in-
cluded in the appendix on p. 4772.)
Mr. Gesell. Now, will you tell me whether as part of your program
you occasionally, Avhen a bill gets out on the floor of either the house
or the senate, attempt to stir up interest in the agents and general
managers and policyholders m the State so that they can express their
disapproval through letters and telegrams and otherwise?
Mr. CooNEY. I want to correct the statement "gets out on the floor of
the house." That has happened only once in the last several years.
I repeat that because we have another letter; now, as a matter of fact
I think Mr. Eeilly took from my files a letter that I had written to
every insurance agent in the State of Georgia that we knew ; that is,
the agents of the members of the association.
Mr. Gesell. Is that the letter I show you now ?
Mr. CooNEY. This is one of them I wrote^ too ; I don't know whether
you have the other ojie p v not.
Mr. Gesell. That is such a letter?
Mr. CooNEY. If you read that, please read it all.
4406 CONCENTRATION OF ECONOMIC POWER
Mr. Gesell. I certainly will. A letter dated February. 26, 1937;
it is a letter signed by yourself as an inspector of agencies, written
to all Atlanta Kylics (reading from "Exhibit No. 708") :
Since the middle of January I have been so busy fighting any increase in
premium tax that I have hardly had time to do anything else.
By the way, that would indicate that you were a little busier than
you indicated at the first part of your testimony?
Mr. CooNEY. Not at all. It indicates this particular session, when
the State needed money more than it ever did, it worked harder.
Mr. Gesell [reading from "Exhibit No. 708"] :
You know when we insure a man we persuade him to tax himself to keep his
dependents from taxing others after his death, and it is really not fair to levy
any tax on premiums in any amount except enough to pay for supervision. We
are paying in Georgia today a little more than the average in the United States.
There is a bill to increase this. The rate of percentage as named in the bill
now under consideration would make taxes here higher than anywhere else in
the country.
Your senator or your representative will probably be back home tomorrow.
The legislature adjourns this afternoon until Monday. I want you, for the sake
of your own business and for your policyholders, whom we are bound to protect,
to see this representative or senator personally and urge against any increase in
premium taxation in this State for the reasons above stated.
I feel sure that you will do this, and I am going to repeat to you that I have
been giving all my time to it for the last month, and I do it because I think it is
fair to the policyholders, out of whom we make our living. That's the plain
fact in the long run, so kindly do this for me.
I ana glad to tell you that the business this year is 50 percent ahead of last
year, and I hope you have had your share. I have wanted to see every one of
our agents, and I will do that as soon as the matter that has been so serious is
over.
Good luck to you, and see if you can't send me an application by return mail.
Address it to me personally and I will see that it gets to the right place.
I would like to offer that for the record.
(The letter referred to was marked "Exhibit No. 708" and is included
in the appendix on p. 4772.)
Mr. CooNEY. I say, if Mr. Gesell will tell me what criticism he has
of that letter I will be glad to try to make it plain.
Mr. Gesell. I have not attempted to criticize, only to bring out
the facts, Mr. Cooney. Is that the type of letter which you have
written on occasion to the agents of the New York Life Insurance Co.
eliciting their support?
Mr. CooNEY. Yes, sir; but I want to say here I am perhaps con-
fusing myself with the statement about my giving my whole time
to it for a long while, that is to put the responsibility on those fellows
to give some of their time to it.
Mr. Gesell. Well, you are anxious when a bill comes out, then, I
take it, on the floor, to have as much support as you can from the
agents and general managers throughout the State ?
Mr. CooNEY. I answer that "Yes" ; unequivocally.
Mr. Gesell. Do you send similar letters or cause similar letters
to be sent to the agents and managers of other companies?
Mr. CooNEY. Yes, sir ; as far as I can.
Mr. Gesell. What efforts do you make to stir up a policyholder
himself in the expressing of disapproval?
Mr. Cooney. None at all, except through tlie agents who have in-
sured them and who know them.
Mr. Gesell. Will you explain that in a little more detail?
CONCENTRATION OF ECONOMIC POWER 4407
Mr. CooNET. Your question was, what efforts do I make outside
of letters like this to contact policyholders and stir them up, is
that it?
Mr. Gesell. That is it.
Mr. CooNEY. None, except that way.
Mr. Gesell. You answer none except those agents to see the policy-
holders ?
Mr. CooNEY. Yes.
Mr. Gesell. And have them wire
Mr. Cooney. I stopped that all years and years ago. If you men
stopped that you would be happier. Everybody knows they are
paid for by somebody else and incited by somebody else, and written
by somebody else, and sometimes signed by somebody else.
Mr. Gesell. The agent makes a personal contact with a man whom
he has insured, calling his attention to the fact that he has put a
tax on himself to keep his children from taxing somebody else?
Mr. CooNEY. That is the^ strongest support there is.
Mr. Gesell. Your objection to telegrams is that they are a source
of irritation and initiated too obviously by someone else?
Mr. Cooney. Do you remember some utility man? If I had been
president of that company tliat wouldn't have happened. No; Mr.
Gesell, those things simply irritate the men; they know the source
of those; they know there isn't 1 out of 100 written by the name
signed to it, and possibly half of them are signed by somebody else.
I think that was in evidence here sometime ago.
The Chairman. The practice still continues, Mr. Cooney, I can
testify.
Mr. Cooney. Won't you let me help you stop it ?
The Chairman. If you know how to do it, I would Avelcome it.
Mr. Gesell. Do you recognize this as a letter which you wrote
to Mr. Pierson ?
Mr. Cooney. Yes, sir.
Mr. Gesell. That is a letter dated
Mr. Cooney. 1934.
Mr. Gesell. July 5, 1934. It reads as follows [reading from "Ex-
hibit No. 709"! :
Please let me write you in a personal way. Last week I went to Rome,
Ga., and invited to lunch 20 men, whom I happen to know, large policyholders.
Every one of them in our company, and, of course, with other companies,
too, some of them. The -0 men carry a n\illion and a lialf of life insurance.
I talked to them some about the taxation of premiums, as I am sure we are
going to have a world of f rouble with the next lesislature. We have laid some
foundation, I think, on which to build, to stnll this. But what I want to say
is, that I asked thes^e men (and repeat, in a most personal way, they under-
standing that no company had anything whatever to do witli it, hut tliat I was
inviting them and meeting them as a fellow policyholder ) what they would
do if it were indicated that this, that, or the other man would vote to increase
the tax on their premiums. Their response wa^'. to name the man who would
do that and they would do the best they could to keep him frcm going to the
legislature again. This is a straw.
Mr. Cooney. Now, I will have to ask you, Mr. Chairman, may I
amplify that a little?
(The letter referred to was marked "Exhibit No. 709" and is in-
cluded in the appendix on p. 4773.)
4408 CO'NCENTRATION OF ECONOMIC POWER
Mr. CooNEY. As a matter of fact, the use of the word "legislature'"
was absolutely improper. That, was a city managership government
and the people that were involved in that were the city manager and
the city clerk.
Now, as briefly as I can put it, we have a 11/2 percent premium
tax in Georgia, and in five cities of Georgia we have another premium
tax on top of the State tax. We also have in nearly every city of
Georgia a license tax. We have a county tax on the statute book, we
have taxes in every which way. Now, this city manager came to At-
lanta and asked whether his city couldn't levy a premium tax. The
answer was that other cities had done it. Mr. Carson and I did our
best to convince those two men that no premium tax ought to be levied
in Rome and we couldn't get anywhere. So I invited — and by the
way paid for that lunch myself, it has never been reimbursed from
any source — a lot of those men to dinner, 1 made a beautiful speech
at the senate, if you will permit hie to say so, I almost cried qver it
myself. I explained that any mutual taxes in a mutual company like
ours are bound to come out of the policyholder, they are bound to in-
crease the cost of this insurance which we universally tiy to make as
little as wexjan, and if they wanted to vote to return the city manager
nnd the city clerk with the idea that they would levy a |)remium tax
and cost their own cities more for then insurance to do it, that is the
gi^t of that..
Mr. Gesell. Do 3'ou recognize tliis letter dated February 12^ 1937,
i^ddressed to Mr. Hogg, as a letter ^^' licli you wrote ^'^
Mr. Hend^pson. For the purpose of the record, Mr. Cooney, you
said the use of the word "legislature" was improper. You mean it
was incorrect?
Mr. CoONEY. The legislature has been on my mind for so many
years, I meant tlie city council in that particular case, the city man-
.iger. Please accept that explanation if you can.
Mr, Gesell. Do you recognize that letter as one that 3'Ou wrote?
Mr. CooNEY. Yes; I do.
The Chairman. Before you go to that, does the city council in
Rome, Ga., meet in special sessions?
Mr. CooNEY. That I don't know, sir.
The Chairman. In stated sessions?
Mr. CooNEY, That I don't know.
The Chairman. That isn't the practice, is it?
Mr. CooNEY. That I don't know.
The Chairman. You see, your reference to the legislature in your
k ter reads as follows [reading f rorh '"Exhibit No. 709"] :
1 talked to them about the taxation of premiums, as I am sure we are going
to have a world of trouble with the next legislature. We have laid some
foundation, I think, on wliich to bnild to stoll this.
Am I to understand that those two sentences were not referring to
(lie next session of the legislature?
Mr. CooNEY. Wliat did you say, Senator; I beg your- pardon?
The Chairman. I say am I to understand that this reference is not
to the next session of the legislature but to the continuing sessions of
the city government ?
1 Subsequenfly introduced as "Exhibit No. 710," infra, p. 4U0.
CONCENTRATION OF ECONOIMKJ POWER 4409
Mr. CooNEY. Yes, sir. Yes. sir; if I remember the letter — the indi-
vidual letter that you are referring to.
The Chairman. You have just been handed a copy of the letter.
Will you read it over 'I
Mr. CooNEY (reading from "Exhibit No. 709") :
Please let nie write you in a personal way. Last week 1 went to Rome, Ga..
and invited to luucL 20 men, whom I happen to know, large pohcyholders. Every
one of them in our company, and, of course, with other companies, too, some of
them. The 20 men carry a million and a half of life insurance.
I talked with them about the taxation of premiums, as I am sure we are going
to have a world of trouble with the next legislature. We have laid some founda-
tion I think, on which to build to stall this. But what I want to say is that I
aslced these men (and repeat, in a most personal way, they understanding that
no company had anything whatever to do with it, but that I was inviting them
and meeting them as a fellow policyholder) what they would do if it were
indicated that this, that, or the other man would vote to increase the tax on
their premiums. Their response was to name the man who would do that and
they would do the best they could to keep him from going to the legislature
again. This is a strav-
This referred to the city manager and city clerk.
Incidentally that legislative business — I am going to have to reverse
something I said. As a matter of fact, the men in Rome who elect
members of the legislature and those important men who are interested
largely in life insurance I addressed on that subject, too ; I remember
that at the moment, Senator.
Tlie Chairman. Then you were dealing
Mr. CooNEY. AVill you let me say this much more before I quit?
One fellow there who had about $200,000 of insurance put his hand on
the .shoulder of the city manager and said, "Mr. Cooney, if we do that,
we V ill see they never get back." That related entirely to the taxation
on the part of the city, don't you understand, in addition to the State
tax. On the other hand, }'olitics — we call it so — more or less is bound
up in various ways. You have county politics, city politics, State
legislation, and any impression made in regard to city taxation extends
itself, of course, to State taxation.
The Chairman. And you qualify as an expert in all these lines, I
take it.
Mr. CooNEY. No, sir. I claim to be nothing but a common life-
insurance agent with a point of view that is distinctly in the interest
of the policyholders.
The Chairman. Oh, I understand your point of view. But the
effect of the testimony is that it was your job as the representative of
the company and as acting for the association to watch legislation
affecting life insurance, whether it was before the legislature or before
the city council.
Mr. CooNEY. Yes ; I. would say that.
The Chairman. And you devoted a good deal of your time to that
task.
Mr. Cooney. No ; not so much. I have tried to tell you I give most
of my time to work v/ith the agents and I give a great deal of my
time to get tliem to give theirs.
Mr. Gesell. You have identified a letter dated February 12, 1937,
which reads in part [reading from "Exhibit No. 710"] :
* * * and we have stirred up activity all over the State. All the
insurance associations have protested, and I ventured to suggest a little
4410 CONCENTRATION OF ECONOMIC POWER
reprisal some day on the part of policyholders. That has made several of
them sit up and pay attention.
That would indicate to me that it is part of the program on
occasions to stir up policyholders.
Mr. CooNEY. Not at all, except insofar as an individual conversing
with me in a personal way; I have often said if we have too much
taxation we may have to bring it to the attention of the policy-
holders as a whole, just as I brought it to the attention of the Kome
policyholders as indicated in that letter you just filed.
Mr. Gesell. I wish to introduce the letter I have just read from
for the record.
(The letter referred to was marked "Exhibit No. 710" and is
included in the appendix on p. 4773.)
Mr. Gesell. May I ask if it has been your practice on occasion
to attempt to work out an arrangement which will give legal business
to some member of the legislature in order that you may win his
friendship ?
Mr. Cooney. As a matter of fact, sometimes when we find a good
lawyer in the legislature — and I want to interject here that at one
time in the early days when we had one general counsel in the city
of Atlanta, I went with him several times to various little country
towns where we almost invariably lost our case, and as a matter of
fact it was suggested to me that we should avoid the criticism that
we brought a city slicker to the little country town. You have prob-
ably heard that expression. I asked the company to allow me to
indicate to our general counsel some counsel locally to be taken into
our local cases in order that we might get the local atmosphere.
For that I make no apology. When we found a smart lawyer in
the legislature and we were unable to show him that our particular
proposition was correct and h^ indicated that he believed it, I
have told our general counsel to take that man into any local litiga-
tion that we might have. I repeat that, and am going to keep on
doing it.
The Chairman. You say "sometimes when you find a smart lawyer
in the legislature."
Mr. Cooney. Yes, sir.
The Chairman. Dc you find a smart lawyer there very often?
Mr. Cooney. When I say "a smart lawyer," I mean one that agrees
with me. [Lavighter.]
Mr. Gesell. Mr. Cooney, did I understand from your statement
that, where you can, you attempt to give that type of employme'it to
members of the legislature because of the other incidental bf nefits
that may accrue ?
Mr. Cooney. I don't think I get your question.
Mr. Gesell. Will you tell me whether you wrote the letter which I
now hand you?
Mr. Cooney. Yes ; that is my signature.
Mr. Gesell. That is a lettor addressed by you to Mr. Pierson,
vice president or second vice president of the New York Life Insur-
ance Co., dated March 5, 1934, in wliich you refer Jto the possible
employment of Judge E. M. Davis, of Camilla, in a case known as
the Larmie Thompson case^ which had been in the hands of your
CONCENTRATION OP ECONOMIC POWER 4411
Savannah attorneys, and reading in the last paragraph I notice this
[reading from "Exhibit No. 711"] :
He is one of two men to whom the legislature listens with the greatest
respect, and has been on the law committee at every session that he has
attended. We are going to need him in the legislature to cover the constitu-
tionality of an act depriving municipalities of the right to levy taxes, and that
is the principal reason why I would like to see him in this Lanyiie Thompson
case, aside from the fact that, as I said in my letter of March 1, I believe
that the respect in which he is held will be a material factor in securing a
change in the point of view of our appellate court, one of whose judges did
me the honor to discuss that situation academically yesterday.
The Chairman. I note the word "academically."
Mr. CooNEY. Senator, there was no case before the court so it had
to be academic.
Mr. Gesell. I offer that for the record.
(The letter referred to was marked "Exhibit No. 711" and is in-
cluded in the appendix on p. 4774.)
Mr. CooNEY. One minute, Mr. Gesell, I want to ask you to let me
make a statement in regard to that.
The Chairman. You may make the statement.
Mr. CooNEY. There is a disposition all over the country, not only
in Georgia but I think mors severely there than anywhere else, to
disregard entirely the intent of the language of the contract; and
not only that but when it comes to a question of law for the judges
to sidestep the tiling by referring it to the jury as a question of fact.
Now Judge Davis — the poor fellow is about dead now — was a vei7/
prominent constitutional lawyer, and I repeat what was said in that
letter, that the legislature looks to him on a question of constitu-
tional law to give them advice and usually abides by 4t. That has
been so for years. What we want — just a minute, pardon me, you
said you would let me explain this — we have in Georgia, I told you
that, a premium tax in the State, a premium tax in some of the
cities, a county tax on every agent, a city tax everywhere, and it
has been my desire, speaking individually, to transfer to the State
the ent' o amount of that taxation and eliminate the possibilities of
the cities levying anything further so that we may know, which we
don't know now, that when we have paid the one tax we have paid
it all.
The Chairman. In other words, your position is that it was sound
policy in order to obtain the objective which you had in mind, namely,
to prevent the passage of legislation to which you were opposed, to
secin-e a favorable attitude among influential lawyers who had a repu-
tation with the legislature, by employing them in cases on behalf of
the company while the legislature was not in session.
Mr. CooNEY. Senator, not with any distinct reference to that par-
ticular conclusion, but because of the fact that it is impossible for any
man who ]ias taken a point of view that some other man has presented
to him, not to .feel to a certain extent that that man ought to take
another point of view favorable to him.
The Chairman. I understand, but tliis is the statement in vour
letter [reading from "Exhibit No. 711"] :
Judge Davis. I make the statement uiu-eservedly, has the reputation in the
legislature of knowing more general constitutional law than all the rest. He
is one of the two men to whom the legislature listens wiih the greatest respect,
4412 CONCENTRATION OF ECONOMIC POWER
and has been on the law committee at every session tliat he luis attended.
We are going to need him in the legislature to cover the constitutionality of an
act depriving municipalities of the right to levy taxes, and that is the princpal
reason why I would like to see him in this Lannie Thompson case.
Now, there is an explicit -statement.
Mr. CooNET. Unquestionably.
The Chairman. That the principal reason you are bringing him
into this Laiiftiie Thompson cas<c was not because of his knowledge of
the law upon which that case depended but upon the fact that you
would need him in the legislature with respect to legislation.
Mr. CooNEY. Yes. I think it might be read that way. One min-
ute, will you allow me to go a bit further, Senator?
The Chairman. Certainly.
Mr. CooNEY This particular Lannie Thompson case is one of the
most aggravating that I ever had hold of. As a matter of fact, our
contract is tliat a man shall not do any labor for profit. The decision
in the coiu't of aj^poals was that, though we produced evidence with
his ]iicture on it applying for work as the city clerk of the town of
Glennville, ihQ, language is that the public shall generally pass on the
claims of political aspirants and if they didn't elect him it was proof
positive that he couldn't do the work. We produced a photograph of
manual labor to the United States Government and that was treated
in the same way.
The Chairman. I say the "principal reason." Those were the other
reasons.
Mr. CooNEY. I wanted to get that thing reversed. That is the con-
trolling judgment in Georgia today, and it is very serious.
The Chairman. Let's read the rest of that sentence [reading from
"Exhibit No, 711"] :
That is the principal reason why I would like to see him in this Lannie Thomp-
son case, aside from the fact that, as said in my letter of March 1, I believe that
the respect in which he is hold will be a material factor in securing a change in
the point of view of our appellate court, one of whose judges did me the honor
to discuss that situation academically yesterday.
I am not interested in the facts respecting the Lannie Thompson
case; I am just interested in the principle of the retaining of lawyers,
which is exemplified by this statement. These are your own words,
and they sum up to a statement on your part that lawyers should be
retained by insurance companies in the litigation in which those com-
panies may engage, not particularly because of their knowledge of the
law in the particular cases but for the use to which you ma}" be able
to put their influence and reputation in affecting legislation. Is that
not a proper summary of your statement?
Mr. CooNEY. Senator, I dislike to disagree with you at all, but I
don't think so. I said the principal reason we wanted him was a ques-
tion of constitutional law in which he was the ablest man in the legis-
lature. The secondary reason was this particular thing where we had
had a decision in contradiction to the language of our contract, and is
now coded, and I wanted him to try to reverse that under some consti-
tutional provision. I think there is some understanding that the lan-
guage of a contract
The Chairman. I know ; but, Mr. Cooney, you are apparently trying
to induce Mr. Picrson to retain Mr. Davis.
Mr. Cooney. Yes.
CONCENTRATION OF ECONOMIC POWER 4413
The Chairman. You wanted to have him retained in the Lannie
Thomfsoii case^ and this is apparently a matter which is still to be
acted upon in the future, because you say :
That is the principal reason why I would like to see him in this Lannie
Thompson case —
and that prmcijial reason has to do solely with the infiuencfe that he
will bring to bear upon the legislature in matters of legislation. Now,
I ask you, Do you believe that that is a proper principle to be followed
in retaining attorneys?
Mr. CooNEY. Senator, I think that statement is a bit negative instead
of positive. As a matter of fact, Judge Davis, you will notice I said
because of his constitutional ability, was one of two men they would
listen to. Therefore if that doesn't relate and make plain it wa&
because of his ability in constitutional law, and this Thomption case
involved a question of constitutional law, also the question
The Chairman. Now, now, Mr. Cooney, your great virtue on the
stand today has been your frankness.
Mr. CooNEY. I am trying to be so now.
The Chairman. We all recognize that you are a man of great
ability and oi great personal charm, let me say, and I can imagine
nobody who would be more influential in dealing with members of
the legislature or even with Members of Congress than you. Now,
here we have a letter to Mr. Pierson in which you begin [reading from
'^Exhibit No. 711"] :
Referring to my letter of March 1, marked "strictly personal," and in regard to
the possible employment of Judge E. M. Davis, of Camilla, in what we call the
liannie Thompson case, originally in the hands of our attorneys, Messrs. Lawton
c^ Cunningham of Savannah —
Now, obviously, you are trying to sell a bill of goods to Mr. Pierson,
to use the common phrase, and the bill of goods is "Hire Judge
Davis," Then you say to him — this is the reason you should hire
Judge Davis [reading further from "Exhibit No. 711"] :
He has the reputation in the leerislature of knowing more general constitu-
tional law than all the rest. He is one of two men to whom the legislature
listens with the greatest respect, and has been on the law committee at every
session that he has attended. We are going to need him in the legislature to
cover the constitutionality —
Now are yoti going to tell me and tell this committee that was not
your purpose to bring him into the Lannie Thmnpson case'^.
Mr. CooNEY. No; I wouldn't say that. That letter says that was
my purpose.
The Chairman. Certainly ; therefore I ask you, Mr. Cooney, do you
regard that to be a sound principle for the insurance companies to
retain lawyers in their litigation because of the influence that they
are going to exert in future legislation before the legislature ? Do you
regard that as a sound principle ? Now you can answer that question
"yes" or "no."
Mr. Cooney, I don't think I can. I am going to be frank. T want
to continue the good opinion you have expressed but I can't get away
from the fact that that controlling point in that particular event,
rather the two controlling points, both of which involved constitu-
tional questions, and I repeated in that letter, as you remember, that
Judge Davis was one of the two able constitutional lawyers, and the
4414 nONCENTRATION OF ECONOMIC POWER
constitutional question about taxation would come up and, as a matter
of fact, the use of the words "in the legislature" — if the question had
been raised in the legislature with the bill that we did have there to
take away the taxing power of the cities and transfer it entirely to
the State, he would have argued the constitutionality of it better than
anybody else, and with more respect for his opinion. That is all I
]m\ant, Senator.
The Chairman. Of course; that is exactly what you meant.
Mr. CooNET. If your question is, "Do you think that is a proper
thing to do?" I am compelled to ansvrer "y^s," from my standpoint.
The Chairman. That is what I thought you would answer, of
course, and that is exactly the point that I wanted to bring out. Not
only is it true that you regarded that to be a proper method of
influencing legislatures, but that is true of the entire national in-
dustrial system. It has been the practice of these large corpora-
tions that are engaged in interstate and foreign commerce to hire
the best lawyers they could find in the particular States in partic-
ular litigation for tlie purpose ratlicr of influencing legislation than
of the service that could be performed in particular cases. That is
a matter of connnon knowledge.
Mr. CooNET. I can't argue that with you, sir.
The Chairman. Of course, you can't argue it because that is the
fact, and we all recognize it.
Mr. Geseix. Do 3'ou recognize this letter dated February 8, 1933,
signed by yourself and addressed to Mr. Creswell, as a letter that
you wrote, and do you recognize the attached sheet as a copy of a
reply which you received?
Mr. CooNEY. Yes, sir.
Mr. Gesell. I should like to read this letter. [Reading from
''Exhibit No. 712":]
You wrote me on February 2 in regard to senate bill No. 21, suggesting
some amendments.
The easiest way to handle this bill is to kill it. I think that has been
done. The First National Bank, of Valdosta, Ga., is the financial backer of
the Honorable Nelson, who introduced the bill. I hand you a copy of a tele-
gram that was sent to Senator Nelson yesterday by this bank, at the iostaneo
of one of our agents, ex-Senator E. E. Dekle, to wit.
I have an idea that the bill will now be withdrawn.
The telegram to Nelson states [reading further from "Exhibit No.
712"] :
We believe passage of senate bill No. 21 detrimental to business interests of
Georgia. Hope you will not urge its passage.
Signed "First National Bank, Valdosta, Ga.," by the president.
You received in response to your letter to Mr. Creswell the fol-
lowing reply from him dated" February 10, 1933 [reading further
from "Exhibit No. 712"] :
Thanks for your letter of February 8 with regard to the above-numbered
bill in which was enclosed a copy of a telegram. We much appreciate this
reassuring information and trust that the measure wt.11 not now be seriously
pressed for passage
I wish to offer this for the record.
The Chairman. It may be received.
(The documents referred to were marked "Exhibit No. 712" and
are included in the appendix on p. 4775.)
CONCENTRATION OF ECONOMIC POWER 4415
Mr. Gesell. May I ask you who was chairman of the house com-
mittee on insurance in 1933? Was it not Mr. Harold Dobbins?
Mr. CooNEY. I think so.
Mr. Gesell. Am I correct in stating he was a young nian ap-
pointed at the instance of the insurance men to that position?
Mr. CooNEY. I wouldn't say "instance." He was appointed on
the recommendation of them.
Mr. Gesell. Do you recognize this letter signed by you dated
March 4, 1933, addressed to Mr. Whitsitt? I call your attention to
the portion underlined in red.
Mr. CooNEY. Yes. That is another very unfortunate word that
I didn't exj^cct to have to explain, the "instance." I meant more
"recommendation."
Mr. Gesell. This letter states :
This young man was appointed at the instance of the insurance men here.
Mr. CooNEY. We have to let it go. I used that word and I have to
stand by it up to a certain point.
Mr, Gesell. Do you recall, Mr. Cooney, whether or not in 1933 or
in 1934 you paid occupational taxes for Mr. Dobbins by reason of
the fact that he was employed as a special agent for your company?
Mr. Cooney. No; he wasn't a special agent; he was an ordinary
everyday local agent and a poor boy, and my recollection is that he
paid it back. It was $10.
Mr. Gesell. He was an agent for the New York Life Insurance
Co. ; was he not ?
Mr. Cooney. Yes.
Mr. Gesell. Do you recall any of the circumstances surrounding
the payment of that tax?
Mr. Cooney. I think I had a letter from the acting insurance com-
missioner of Georgia, didn't I ?
Mr. Gesell. Do you recognize this letter signed by Mr. Lewis A.
Irons, deputy insurance commissioner, to you dated December 1, 1934,
as the letter to Avhich you refer?
Mr. Cooney. Yes; I do.
Mr. Gesell. I would like to call your attention specifically to a
portion of that letter. This letter states [reading from "Exhibit No.
713".] :
A few days ago I had a call from Mr. Harold Dobbins, who seems to have an
agency contract with you and who is very much concerned about the payment
of his occupational tax, although it had been my previous understanding
that the company takes care of such matters for its agents. In any event, Mr.
Dobbins gave me the impression that he was called on to pay this tax and
that by reason of his inability so far to close some business, although he said
he had some under way which he expected to close if he could hang on, he
found himself unable at this time to pay the tax levied against him, and asked
whether or not it could be allowed to run along for a little while unpaid.
I did not take up the above matter with Miss Nagle, although she is in direct
charge of, and has supervision in, the matter of occupation tax collection and
license fees. My plan was rather to take it up with you, in the thought that
under all of the circumstances you might feel that it would be a good "invest-
ment" for the company to meet this expense, at least for the time being, in
view of the fact that Mr. Dobbins is again scheduled, 1 understand, for the chair-
manship of the insurance committee and his good will might be worth keeping.
Think it over, and destroy this letter when you have its contents in mind.
That is signed by the deputy insurance commissioner of the State
of Georgia ; is it not ?
4416 CONOENTRATION OF ECONOMIC POWER
Mr. CooNEY. Yes, sir. I paid that $10 and he got some business
to pay it baci<:. As a matter of fact our company doesn't pay those
taxes.
Mr. Gesell. I wish to offer this letter for the record.
The Chairman. It may be received.
(The letter referred to was marked "Exhibit No. 713" and is in-
cluded ni the appendix on p. 4776.)
Tlie Chairman. You say the company does not pay it.
Mr. CooNET. No, sir.
Mr. Gesell. You paid this tax in this case.
Mr. CooNET. I paid it myself.
(Whereupon, at 1:05 p. m., a recess was taken until 2:15 p. m. of
the same day. )
AFTERNOON SESSION
(The hearing was resumed at 2 : 35 p. m. upon the expiration of the
recess. )
The Chairman. The committee will please come to order. Mr.
Gesell, will you resume where you left off this morning '?
Mr. Gesell, Will you return to the stand, Mr. Cooney, please, sir ^
Mr. Cooney, I show you a letter addressed to Mr. Robert L. Hogg,
assistant general counsel of the Association of Life Insurance Presi-
dents, dated February 12, 1937, signed by yourself, and ask you if you
recognize that as a letter written by yourself.
Mr. Cooney. Yes, sir; that is my signature.
Mr. Gesell. Do you also recognize the attached sheet?
Mr. Cooney. Yes, sir ; yes, sir.
Mr. Gesell. The letter is dated February 12, 1937, and says [read-
ing from "Exhibit No. 714"] :
Re House bUl 179 ; House bill 180.
Your telegram of yesterday concerning House bill 179.
There were two bills by Daves of Dooley. Daves being one of our examiners.
We were promised a hearing by the chairman of the subcommittee. We went
u> the hearing and remained 2^^ hours without the committee meeting. The
'hairman gave another assurance as to a hearing. Bill 179 apparently was put
Through in what might be called a secret meeting.
Bill 180, which related to the character of notes which could be taken by life-
insurance companies, was withdrawn.
We are after 179. I have an agreement with Mr. Daves, and I expect we can
get this one withdrawn. There has been quite considerable pressure put on him.
It is a foolish bill.
And approximately 2 or 3 weeks later, under date of March 4, 1937,
you again wrote to Mr. Hogg as follows [reading furtlier from "Ex-
hibit No. 714"] :
Bill 179; by Daves of Dooly, was duly and finally killed yesterday. This writer
had rather a salty interview with the gentleman, who happens to be examiner for
^''arious life-insurance companies. He promised to withdraw the bill firit, to
imend it afterward. I am getting a copy of the bill as it was killed, and if "he
lid not amend it as he said he would or indicated he would, I do not think he ought
to have any more examinations.
I wish to offer these for the record.
The Chairman. They may be received.
(The letters referred to were marked "Exhibit No. 714" and are
included in the appendix on p. 4776.)
Mr. Gesell. When you say Dr. Daves is examiner, you mean a med-
ical examiner for insurance companies?
CONCENTRATION OF ECONOMIC POWER 4417
Mr. CooNET. Yes.
Mr. Oesell. And I take it from the correspondence it was your feel-
ing that if he didn't vote right on this particular legislation, he
shouldn't be allowed to receive any further examinations.
Mr. CooNEY. I don't think you put that right. That bill absolutely
cancelled the contracts we would make with every insured that if he
has concealed something from us we can go to the doctors and get them
to make statements, and this bill said we couldn't call on any informa-
tion of that kind unless, after a suit was started, the man himself gave
permission to crucify himself and, of course, that couldn't be done. I
mean just exactly that,
Mr. Gesell. You m^eant, when you said that if he did not amend it
as he said he would, or indicated he would, "T do not think he ought
to have any more examinations" ?
Mr. CooNEY. I meant just that, sir. As a matter of fact, that bill
would have upset everything we have ever done; would liave caused
a change in our method of doing business ; and really would have pre-
vented us from getting the proper information and testimony in case
of law suits where a man had absolutely lied over his signature.
Mr. Gesell. What did you tell this fellow when you had a salty
interview with him ?
Mr. Cooney. That is another unfortunate word, as it looks now.
As a matter of fact, I told him that he simply was putting through
that bill in order to get fees for examiners to furnish statements with
the permission of the man, which has happened.
Mr. Gesell. Did you indicate to him in tliis salty interview that if
he didn't withdraw and amend the bill, you w-ould attempt to see that
he didn't get any more examinations?
Mr. CooNEY. Yes ; I told him that very thing.
Mr. Gesell. Now, Mr. Cooney, what has been your approximate
salary during the last 2 or 3 years from the New York Life Insurance
Co.?
Mr. CooNEY. Well, sir, it has been all the way from $9,600 a year to
$11,000.
Mr. Gesell. In addition to that, I take it you receive some commis-
sions.
Mr. Cooney. Yes.
Mr. Gesell. Has any proportion of your salary at any time been
xllocated by the New York Life Insurance Co. under schedule K of
its annual statements for lobbying or expenditures ?
Mr. Cooney. No, sir. If I would suggest that, they would fire me.
Mr. Gesell. What's that 1
Mr. Cooney. If I suggested anything like that the company would
fire me. Never a 5-cent piece has been paid me by anybody for lobhy-
ing ; not a nickel.
Mr. Gesell. Now, let me turn to schedule K. Schedule K of the
annual statement of the New York Life Insurance Co. calls for a
showing of ail expenditures in connection with matters before legis-
lative bodies, officers, or departments of government during the year,
does it not ?
Mr. CotwEY. I think so, sir. As a matter of fact, they don't send
us those things any more. We don't get them. They keep those at
headquarters.
4418 CONCENTRATION OF ECONOMIC POWER
Mr. Gesell. a considerable portion of your time during some of
these lemslative sessions was spent on legislative matters, was it not?
Mr. CooNET. I agree with your word from 3'our standpoint — con-
siderable. From my standpoint, not so m\ich, because I had people
watching it. I told you about one man that let me know when I had
to be there. I didn't have to hang around every minute, as some of
them do.
Mr. Gesell, From the correspondence we have of you in connec-
tion with your testimony you appear to have been at least busy.
Mr. Coonet. Yes, sir.
Mr. Gesell. Now, I want to know if you have any explanation as to
why there does not appear in schedule K of the New York Life Insur-
ance Co. reports any item allocating a proportion of your salary to that
type of expenditure?
Mr. CooNET. Because that is done in connection with other work,
and to very little detriment of the other work. I tried to tell you when
I write letters to agents telling how busy I am that I want them to get
busy, too. I want to be an example.
Mr. Gesell. So that during all these years you were engaged in
legislative activity in the State of Georgia there has not been, to your
knowledge, any reporting of any proportion of your salary or ex-
penses in the schedules K of the New York Life Insurance Co. ?
Mr. CooNET. No, sir there has never been any understanding of that
kind. If it is there, I don't know it, and I don't know why it is there.
I don't think so. Would you mind telling me if there is anything of
that kind there ?
Mr. Gesell. I can assure you there is not.
Mr. CcKiNET. That's what I thought I knew.
Mr. Gesell. Do you recognize these three bulletins of the Associa-
tion of Life Insurance Presidents, dated April 8, 1934; April 2,
1937; and February 19, 1938, as bulletins of the association covering
the history of the legislatures in 1935 and 1937 in the State of Georgia,
showing which bills were enacted and which were defeated ?
Mr. CooNEY. I think I recognize these, sir. I think I have copies
of them.
Mr. Gesell. Those schedules would indicate that you have been
quite successful in your efforts to defeat legislation, would they not?
Mr. Coonet. Yes, sir ; thank you.
Mr: Gesell. And that is a fact, is it not ?
Mr. Coonet. Yes, sir.
Mr. Gesell. I wish to offer these for the record.
The Chairman. They may be received.
(The bulletins referred to were marked "Exhibits Nos. 716, 716, and
717" and are included in the appendix on pp. 4777, 4781, and 4783.)
Mr. Coonet. I wish to put in that the legislation we defeated was
that which we thought would do harm to policyholders of life-insur-
ance companies.
Mr. Gesell. I have no further questions of Mr. Cooney.
The Chairman. Do any members of the committee desire to interro-
gate the witness? [None.] The witness may be excused.
(The witness, Mr. Cooney, was excused.)
Mr. Gesell. Mr. Whitsitt, will you resume the stand ?
CONCENTRATION OF ECONOMIC POWER 4419
TESTIMONY OF VINCENT P. WHITSITT, MANAGER AND GENERAL
COUNSEL, THE ASSOCIATION OF LIFE INSURANCE PRESIDENTS,
NEW YORK CITY— Recalled
SAVINGS-BANK INSTIRANCEi— OPPOSITION OF INSURANCE INTERESTS
Mr. Gesell. Mr. Whitsitt, I wanted to review with you this after-
noon the efforts of the Association of Life Insurance Presidents to
defeat savings-bank life-insuranc^ bills in the various States. Eefer-
ring to "Exhibit No. 696," ^ which was introduced in the record yes-
terday, reporting on the activities of the association in 1935, I note
the statement in your report that —
Six savings-bank life-insurance bills similar to the Massachusetts law failed in
five States, as did a constitutional ajnendment in Missouri to permit creation of
savings banks with or without life-insurance departments. * * * The gen-
erous and loyal cooperation rendered by executives and agents in the various
States in behalf of life-insurance policyholders in warding.off unjust impositions
of all types is a real tribute to the institution of life insurance.
And again, in "Exhibit No. 695," ^ which is a report on the asso-
ciation's activities during the follawing legi.'^Iative period, your report
states :
Nine savings-bank life-insurance bills failed in seven States — Colorado, Con-
necticut, Missouri, New York, Ohio, Pennsylvania, Rhode Island; none enacted.
*;4* * The favorable outcome is attributable to the cooperation of life-insur-
ance men, both home office and field, wholly typical of the institution of life
insurance.
From those two exhibits I gather that it has been the policy of the
association to oppose savings-bank life insurance under certain cir-
cumstances.
Mr. Whitsitt. You are asking me for the policy of the association ?
Mr. Gesell. I am asking you, first, whether it has been the policy of
the association to oppose savings-bank life insuranxje under certain
circumstances.
Mr. Whitsitt. I can't better answer tnat question than by reading a
resolution adopted by our executive committee on January 9, 1931. It
is an excerpt from the minutes which determine our policy :
The manager brought to the attention of the meeting correspondence with
Massachusetts companies regarding the operation of the Massachusetts savings-
bank plan of life insurance, and of the threatened extension of that plan to other
States. All of those present took part in the ensuing discussion. It was revealed
that for many years in Massachusetts the State had paid the expenses of the divi-
sion of savings-bank life insurance, which has prepared the plans and supervised
the operation of this business, and that the savings banks engaged in the life-
insurance business are not subjected to the same restrictions nor to the same
taxation as legal-reserve life-insurance companies doing business in that State.
Upon motion, duly seconded and carried by unanimous vote, it was resolved
that the association should hereafter oppose legislation authorizing savings banks
to engage in the life-insurance business, wherever any form of State subsidy is
provided and wherever such savings banks engaged in the life-insurance business
are not subjected to the same restrictions and burdens as are imposed upon legal-
reserve life-insurance companies. It was emphasized that no objection was
expressed to savings banks engaging in the life-insurance business on equal foot-
ing with the existing legal-reserve life-insurance companies. The real objections
were to the granting of some forms of State subsidy to such enterprises, to the
unfairness of requiring policyholders in life-insurance companies whose pre-
* See appendix, p. 4755.
■ See appendix, p. 4754.
124491 — 40— pt. 10 19
4420 CONCENTRATION OF ECONOMIC POWER
miums are taxed for State purposes thereby to pay any portion of the expenses
Incident to the conduct througli another agency of a life-insurance business whose
policyholders would not be subject to the same taxation, and to the failure to
subject savings-bank life insurance to the same regulatory laws provided for the
protection of policyholders in existing legal-reserve companies.
Mr. Gesell. I take it from what you have read that the answer to
my question is "j^es," that you did oppose savings-bank life insurance
under certain circumstances.
Mr. Whitsitt. Under certain circumstances; and may I explain
that ? It is in the minutes I have read. But briefly, it has been felt,
out of fairness, that no State subsidy should be granted to a compet-
ing private enterprise. In other words, we only oppose the savings
bank life-insurance bill where there is some form of State subsidy,
and preferential taxation. Under the so-called Massachusetts plan,
for 20 years — it is not true now — or approximately thereabouts the
State had a form of subsidy to the savings banks by furnishing
through an office in the State capitol, whose letterheads carried the
title of the Statehouse, actuarial advice, preparation of policy forms,
computation of premiums, the computation of dividends, surrender
values, and such other actuarial advice as was necessary, and these
forms were furnished to the various banks.
Also, ill Massachusetts, the life-insurance departments of the savings
banks were subjected to the same type of taxation which the savings
banks were, which, as a net result, computed in dollars and cents, was
less than the tax paid by the life-insurance companies. For these
reasons it was felt that that type of bill in other States would be
unfair to existing private enterprises, as exemplified in life insurance.
There are a number of instances — several — where we have not op-
posed such bills. In 1932 there was a bill introduced in the New
York Legislature which provided for life-insurance departments in
savings banks subjected substantially to the same requirements, to the
same taxation, and no State subsidy. That bill we did not oppose
in 1932.
In 1938 there was a bill introduced which also met our objections.
As a matter of fact, the present New York savings-bank life-insurance
law was not opposed by our association.
Mr. Gesell. It is the only one which has ever passed since the
Massachusetts law was enacted, is it not?
Mr. Whitsitt. That is correct. The present New York savings-
bank life-insurance law provides for a subsidy for the first year of
operation, but after the first year of operation the division or bureau
of savings bank life insurance in the insurance department, which
furnishes all of this actuarial advice I described in Massachusetts,
will assess against the various savings banks that do a life-insurance
business their pro rata portion of the expenses of that bureau.
There is a subsidy for 1 jear, but beginning next year, unless the
legislature extends the subsidy, they will stand on their own feet.
Also, the New York bill, when introduced, provided for equal tax-
ation, the same taxation as domestic legal reserve life-insurance com-
panies. For that reason, also, we did not oppose that bill.
Mr. Gesell. Well then, except for the New York bill, which went
through, we have reported in the exhibits already in evidence the
opposition of the association to some 15 measures in various States,
have we not?
CONCENTRATION OF ECONOMIC POWER 4421
Mr. Whitsitt. Quite a number, a number in New York prior to
1932, and some since, but not the ones that complied with our objec-
tions. In other words, we had made these objections before the vari-
ous committees at various times, and what happened apparently was
that the proponents of the bill in New York, in 1938, met our
objections.
Mr. Gesell. And that is the only bill that passed ?
Mr. Whitsitt. That is the only one that has beefi enacted since
the Massachusetts law.
Mr. Gesell. Do you recognize this letter, dated June 10, 1935,
as a copy of a letter written by Mr. Creswell, statistician of the asso-
ciation, to Mr. William Kin^sley, vice-president of the Penn Mutual,
reviewing some of the experience in savings bank life insurance prior
to that time ?
Mr. Whitsitt. I believe that is correct, yes, sir.
Mr. Gesell. This letter would indicate that prior to 1931 there
had been two bills introduced in New York in 1909 and two bills
introduced in 1910 in New York, one in Rhode Island in 1910, one
in New Hampshire in 1913, one in North Carolina in 1929. Do I
understand that the association opposed the enactment of those bills ?
Mr. Whitsitt. Prior to '31 ?
Mr. Gesell. Yes.
Mr. Whitsitt. Not to my knowledge. I think not. That is indi-
cated by these minutes that I read a few moments ago, at which the
question came up as to what attitude we should take, and that was
dated January 9, 1931.
Mr. Gesell. Was that not simply a reviewal of the policy of the
association prior to that time, and a slight modification of it?
Mr. Whitsitt. Well, my recollection back in those years is not
entirely clear, but so far as I know we did not. I would be glad
to review our files to see. My best recollection is that we didn't
before '31. It is possible we did.
Mr, Gesell. This is for the record.
The Chairman. The exhibit may be received.
(The letter referred to was marked "Exhibit No. 718" and is
included in the appendix on p. 4785.)
Mr. Gesell. Now I want to understand one thing rather clearly
at this stage. Am I correct in saying that the opposition to savings
bank life insurance by -the association has been by and large moti-
vated by a feeling that it does not want any competing insurance
business to develop under some form of State subsidy ?
Mr. Whitsitt. Our executive committee feels that it would prefer
not to compete with State subsidized organizations. It has no objec-
tion to any savings bank wishing to write life insurance if it will
write on an equal basis, equal fee, the same taxes, and stand on
its own feet, the same as a life insurance company. In other words,
we wouldn't oppose the organization's incorporation of a new life
insurance company. It is a question of a State subsidy and prefer-
ential taxation.
Mr. Henderson. Mr. Gesell, have you finished with this letter to
Mr. Kingsley? ^
Mr. Gesell. Yes.
4422 CONCENTRATION OF ECONOMIC POWER
Mr. Henderson. I want to ask a question, if I may. I notice
that it records a Missouri proposal for the form of a constitutional
amendment. Did your association oppose that?
Mr. Whitspit. We did in '37. I can't say offhand Vv^hether we did
in '35 or not.
Mr. Henderson. Do you recall what you did in your opposition ? I
mean, did you work through your locals?
Mr. Whitsitt. Missouri is one of the States that I referred to yes-
terday where we have no member company and no general agent or
manager available for legislative contact work in that State. We
employ counsel.
Mr. Henderson. Who is your counsel?
Mr. WinTSiTT. James C. Jones, Hocker, Gladney and Grand, those
are tlie names. They are in St. Louis.
Mr. Henderson. They are in St. Louis. Did they act in the name
of the association, or did they act in the name of the
Mr. WnrrsiTT (interposing). They represent our association.
Mr. Henderson. You employed no underwriters' association there?
Mr. Wiiirsirr. I suppose there are times — and I rather think there
have been times — when this law firm would cooperate with the local
underwriters, depending upon the type of the bill and the pressure
behind it.
Mr. Henderson. Something on the same order as Mr. Hogg men-
tioned ?
Mr. Whitsitt. Depending entirely on the circumstances at the
time.
Mr. Gesell. In reference to the Missouri activity, do you recognize
this telegram to Mr. Jones dated February 24, 1937, signed by Mr.
B. E. Shepherd, the telegram sent by a representative of the associa-
tion to Mr. Jones at that time ?
Mr. Whitsitt. Oh, yes; yes. That was in 1937. That was when
the constitutional amendment and the bill was pending at that time,
I believe.
Mr. Gesell. This telegram states [reading from "Exhibit No.
719"] :
As promised in telephone conversation this morning, have arranged with
President Sears of Columbian National to wire Dyer expressing adverse views
House Resolution 11 while presuming Dyers opposition. Massachusetts Mutual
air-mailing letter St. Louis representative and Scott in Kansas City also express-
ing adverse views. New England Mutual wiring similarly to St. Louis agent
today. John Hancock writing Cammack to cooperate with you, as it has already
expressed opposition this bill. Still working on State Mutual. Sending air
mail one copy DeGroat's recent analysis Massachusetts plan, distributed by
National Association Life Underwriters. Can obtain additional copies this
pamphlet or other material similar to that sent 2 years ago if you wish. Re-
ferring view of Crocker, former president John Hancock, think, perhaps he may
have said savings bank insurance not in competition with industrial insurance.
This because former written in larger amounts so as to be in competition ordi-
nary insurance, and not because Crocker favored Massachusetts system. On
contrary, he was violently opposed. Think Dyer must have misconstrued his
meaning. Will be glad to take further action if such desirable.
I wish to offer this for the record.
The Chairman. It may be received.
(The communication referred to was marked "Exhibit No. 719"
and is included in the appendix on p. 4785.)
CONCENTRATION OF ECONOMIC POWER 4423
Mr. Gesell. Now, do you recognize this letter which I now show
you dated February 25, 1937, signed by Mr. Jones; addressed to the
Association of Life Insurance Presidents, a letter which was received
by the association?
Mr. Whitsitt. May I glance through it?
Mr. Gesell. Certainly.
Mr. Whitsitt. Yes.
Mr. Gesell. Referring to the entire file in your hand, do you recog-
nize that as the correspondence from the association's offices?
Mr. Whitsitt. Yes.
Mr. Gesell. I notice Mr. Jones says in his letter to you of Feb-
ruary 25, in discussing savings bank life insurance bill at that time
[reading fron "Exhibit No. 720"] :
Some of the smaller banks are reported to be distinctly in favor of H. R. 201,
which provides for the organization of savings banks, and favoring this, they
also favor H. R. 11, which would authorize savings banks to write Insurance.
Now when the agent, apathetic in the sense above adverted to, ascertains
that his friend, the small banker^ favors these measures, he naturally becomes
more apathetic because he fails to appreciate what he is building up against
himself, as indicated in De Groat's pamphlet, particularly at page 24.
In response to that letter in which Mr. Jones suggested that ma-
terial be sent to the agents, Mr. Shepherd wired Mr. Jones on Feb-
ruary 26 [reading from "Exhibit No. 720*'] :
Interested in plan you suggest for educating agents on savings bdnk insurance
but wish time to consider fully. In view difBgulty securing results at present
session by this method suggest you might want to consider immediate distribu-
tion DeGroat pamphlet by yourself in St. Louis and Scott through underwriters
association if sufficiently well organized and if you think this would reach right
persons. If this appeals to you wire number of copies desired by yourself and
Scott.
And Mr. Jones replied in his letter of February 25 to the associa-
tion partly as follows [reading further from "Exhibit No. 720"] :
The telegrams which were sent to the agents of the various companies have,
I think, materially changed the attitude of most if not all of them, and, from
being apathetic, I think they have become, or will by the time of the hearing,
distinctly cooperative in opposing this resolution.
I wish to offer this file for the record.
The Chairman. The file may be received.
(The documents referred to were marked "Exhibit No. 720" and
are included in the appendix on p: 4786.)
Mr. Henderson. Is tliat the constitutional amendment that was
proposed? Does that plainly indicate that there was to be a State
subsidy in connection with it?
Mr. Whitsiit. There was also a bill, House bill 409, pending
jointly with concurrent resolution 11, which did follow the Massa-
chusetts plan.
Mr. Henderson. But the constitutional amendment
Mr. Whitsitt (interposing). The amendment itself provided for
the organization of mutual savings banks with or without life insur-
ance departments. We would have been satisfied if they had stricken
out that part with reference to life insurance, but there was pending
at the same time a bill along the line of the Massachusetts subsidy
plan.
4424 CONCENTRATION OF ECONOMIC POWER
Mr. Henderson. So you joined in the opposition to an amendment
which would have given permission to these banks under proper
authorization from me State legislature to do a life-insurance busi-
ness ?
Mr. Whitsitt. That is right. However, if they had amended the
constitutional amendment, leaving out reference to life-insurance
departments, that would have answered the problem regarding the
pending bill. Do I make myself clear?
Mr. Gesell. If the amendment had- gone through, Mr. Wliitsitt,
would it not be a fact that banks could have written savings-bank life
insurance without a subsidy?
Mr. Whitsitt. There was at that time pending a bill providing for
the institution of the Massachusetts plan.
Mr. Gesell. But that doesn't answer my question, Mr. Wliitsitt.
I said if the constitutional amendment went through, would that not
have enabled banks to write savings bank life insurance without any
subsidy ?
Mr. Whitsitt. If this bill had been defeated and a substitute bill
along the present New York plan, but up to that time, to the best
of my knowledge, we had never seen a bill without some subsidy.
Mr. Gesell. Now will you stick to the constitutional amendment
which I am asking you about, Mr. Whitsitt? My question was if the
constitutional amendment went through it would have authorized
banks to write savings-bank life insurance. They could have written
savings-bank life insurance without having received any subsidy,
provided the bill itself was defeated?
Mr. Whitsitt. They could; that would depend entirely upon the
legislation which was enacted to carry into effect the constitutional
amendment.
Mr. Gesell. Yet I, understand from Mr. Henderson's questioning
and your replies that you opposed the constitutional amendment as
well as the bill itself?
Mr. Whitsitt. They were coupled together ; it was all one program.
x.Ir. Gesell. All one program from your poi'it of view but two
separate pieces, of legislation?
Mr. Whitsitt. That is right.
Mr. Gesell. Now I want to call your attention to a letter dated
March 17, 1937, addressed to the. association, signed by Mr. Jones,
:ind accompanying sheets of paper entitled "Arguments for Industrial
Agents," and ask you if these do not come from the files of the Associ-
ation of Life Insurance Presidents?
Mr. Whitsitt. Apparently; the letter does definitely. Now these
sheets attached, so far as I know — how they got in I don't know;
I really think Mr. Jones drafted those for possible use. Whether
he ever used' them I do not know.
Mr; Gesell. They are referred to in the body of the letter, are
they not?
Mr. Whitsitt. Let me review the letter.
Mr. Gesell. Certainly. I am referring, I think, to the last para-
graph where he mentions that he has prepared arguments for dis-
tribution.
Mr. Whitsitt. Yes, apparently he had appended them.
Mr. Gesell. So far as you know he had handed them the attached
documents for arguments for industrial agents?
CONCENTRATION OF ECONOMIC I'OWER 4425
Mr. Whitsitt. I don't know; the assumption would be from the
letter that that is correct, but I wouldn't know from my own personal
knowledge,
Mr. Gesell. Is it your understanding that these arguments for
agents were prepared by Mr. Jones for the use of the agents?
Mr. WiiiTsiri'. So far as I know they were.
Mr. Gesell. They come from the files of the association, do they
not?
Mr. Whitsitt. Yes; apparently he either sent them or left them
in our office.
Mr. Gesfll. The letter states in part as follows [reading from
"Exhibit No. 721"] :
I talked to about 40 of the insurance agents yesterday at a luncbeon of the
Managers' Association and explained to them what our course was,, handing
them a document prepared for their use with the section relating to bankers
somewhat modified. Those managers are now engaged in picking the men best
available for contact purposes, but they are not to be turned loose until I
give them word, which will not be until this measure gets over into the
Senate, which will probably be sometime next week.
I would like to offer the letter and accompanying documents for
the record.
The Chairman. The exhibit may be received.
(The documents referred to w^-re marked "Exhibit No. 721" and
are included in the appendix on p. 4787.)
Mr. Gesell. Now the bill was defeated in Missouri; both tne con-
stitutional amendment and the bill itself?
Mr. Whitsitt. I believe they failed in passing; but by what process
of defeating I do not know,
Mr. Gesell. They didn't pass?
Mr. Whitsitt. They did not pass.
Mr. Gesell. Now you refer, the letter refers, to the fact that copies
of a pamphlet written by Mr. De Groat — G-r-o-a-t — were sent to Mr.
Jones to assist him in his work in opposing this legislation?
Mr. Whitsitt. That is right.
Mr. Gesell. Is this the pamphlet that I show you?
Mr. ' Whitsitt. I think so. I am sure it is, unless there has been
some later edition, and this is an earlier edition; that is the pamphlet.
Mr. Gesell. Is that tlie pamphlet that has been used frequently by
the association in acquainting agents and managers and other persons
with the nature of savings bank life insurance ?
Mr. Whitsitt. We have used it fi'om time to time; the National
Association of Life Underwriters, I believe secured quite a supply
of those pamphlets. Mr. De Groat is a general agent of the Mutual
Benefit in Boston and has been there for a good many years, since
the inception of savings bank life insurance, and has given great
study to it, and it is rather a hobby of his to w^rite articles about it.
Mr. Gesell. And the association has, after examining this pam-
phlet, adopted -it for its use and distributed it from time to time
when people wanted information about savings bank life insurance?
Mr. Whitsitt. That is quite right. We have received requests for
all sorts of information on all sorts of subjects, directly or indirectly
connected with life insurance.
Mr. Henderson. Mr. Gesell, are you going to cover this argument
for industrial agents?
4426 CONCENTRATION OF ECONOMIC POWER
Mr. Gesell. I intended to cover some of it tomorrow, Mr. Hender-
son, with a subsequent witness. I am afraid we won't have time
today.
Mr. Henderson. Will you be covering this part, part 6 on Mis-
souri's insurance record, where it says:
First, are we going to add to or lessen the occasion for further scandal by en-
couraging small banks to go into the life insurance business? I think the
answer must be that we will increase the scandal. For if. there is any one
thing true in business life it is that men interested in the banking business
make a failure of trying to run an insurance company.
Are 3''ou going to cover that ?
Mr. Gesell. I was going to cover that argimient, yes, tomorrow. I
have no objection to it being covered now.
Mr. Henderson. I want to make sure that this thing is covered.
Mr. Gesell. I have no objection.
Mr. Henderson. I just don't want to miss it.
Mr. Gesell. I should like to offer the De Groat pamphlet for the
record. " We will have occasion to discuss the contents of this pamphlet
on several occasions.
The Chairman. Do you want it to appear in the record ?
Mr. Gesell. It is not necessary for it to appear if it is an exhibit ;
the portions I am interested in we can discuss specifically.
The Chairman. Whatever you say. Of course, I haven't read the
pamphlet.
Mr. Gesell. It is rather lengthy, I am afraid, for the written record.
The Chairman. Unless it is necessary to put it in the printed record
shall we just file it with the committee?.^
Mr. Gesell. That is perfectly all right.
The Chairman. And if there are any sections of it that you want
they '^hould be read at the proper time.
Mr. Gesell. That will be the procedure.
The Chairman. Then we will leave it 'in your possession until this
phase of the record is concluded.
Mr. Gesell. It has been admitted then as an exhibit and shall we
give it a number ?
(The pamphlet referred to was marked "Exhibit No. 722" and is in-
cluded in the appendix on p. 4790.)
Mr. Gesell. Now the association opposed savings banks legislation
in the State of Pennsylvania, did it not?
Mr. Whitsitt. Yes ; I think twice. I am not sure of the number of
times ; once in 1935 or 1937 and there was a bill there this year.
Mr. Gesell. Now I would like to calTyour attention to a letter which
you wrote to Mr. Guy A. Smith, dated April 29, 1937, and ask you
whether you recognize "that as a copy of your letter, and the attached
paper as a reply which was received thereto ?
Mr. Whitsitt. Eight.
Mr. Gesell. This letter from Mr. Smith states — it was written
by you, was it not?
Mr. Whitsitt. Yes.
Mr. Gesell (reading from "Exhibit No. 723") :
in connection with House bill No. 883 now pending in the Pennsylvania
Legislature, authorizing savings banks to issue life insurance, I am sending to
^ The committee subsequently decided to print the De Groat pamphlet, see infra, p. 4426.
CONCENTRATION OF ECONOMIC POWER 4427
you today 25 copies each of the following material on the subject: (1) Printed
pamphlet on savings bank life insurance by Mr. Floyd E. DeGroat of Boston ;
(2) mimeographed copy of a statement on the same subject by Hon. M. Joseph
Cummings, chief of the division of banking and insurance of Rhode Island.
This material is not intended for general distribution, but is sent to you for
the personal information of yourself and the leading members of your associa-
tion, so that you may be fully informed on the experience of this system in
Massachusetts, the only State which has ever adopted such a plan.
Trusting this will be helpful to you, I am —
And Mr. Smith's reply to ^ou, dated May 3, 1937, which you have
also identified, states (reading further from "Exhibit No. 723") :
Upon receipt of your April 29 letter, with publication from the Hon. M.
Joseph Cummings, and Mr. Floyd E. DeGroat, I am pleased to inform you
that the Wilkes-Barre Association of Life Underwriters, which represents all
the "old line" companies, and which are approximately 500 in number, were
very much in accord with your letter, and immediately contacted all State
senators, and each member of the house of representatives, including the chair-
man of the insurance committee, and protesteti strongly against House bill No.
883.
Undoubtedly, such an avalanche of telegrams and personal calls has never
before been received by these individuals. We have had definite assurance
from tliem that the bill will be strongly opposed.
I write this word that you may know your letters have not dropped by the
wayside.
We are wholehearted iu guarding Lhe fair name of the institution of life
Insurance and strongly oppose any encroachment such as this bill No. 883
represents.
I wish to ojffer these for the record.
The Chairman. They may be received.
(The letters referred to were marked "Exhibit No. 723" and are
included in the appendix on p. 4801.)
Mr. Hendekson. This letter you wrote to Mr. Smith in which
you said you sent some material for personal information to mem-
bers in your association. As I understood, when your association was
created the minutes of the first meeting, I thinlf the fourth item,^
stated that it "was to consider carefully measures that may be intro-
duced from time to time in legislative bodies, with a view to ascer-
taining and publicly presenting the grounds which may exist l^r
opposing or advocating the proposed legislation." You have gotten
away from that a bit, haven't you ?
Mr. Whitsitt. No ; I wouldn't say so. We make no secret of our
opposition whatsoever.
Mr. HE^-DERS0N. Not the opposition; it says publicly presenting
the grounds which may exist. That is a little bit different from
just the opposition, isn't it?
Mr. Whitsitt. It all depends by what you mean publicly. In
other words, we made no secret of our opposition-whatsoever and as
has been stated several times, one of the best ways to approach a
member is to see him personally and this was for the education of
the agents ; inform them upon the objections to the bill so that they
might be well informed and in turn pass that information to mem-
bers.
Mr. Hendef'Wn. As I understood it, this meeting was called as a
result of the Armstrong investigation, wasn't it ?
Mr. Whitsitt. You mean our association?
* Previously introduced as "Exhibit No. 090." See appendix, p. 4744, at p. 4745.
4428 CONCMNTKATIUN OF ECONOMIC POWER
Mr. Hendiorson. Yes.
Mr. Whitsitt. As I stated yesterday, it was a byproduct or an
uLityrowth somewhat of that.
]\lr. Hendi KSON. The Arinstroiig committee, Mr. Gesell, was pretty
stroii<r aoainst lobbyin<^, wasn't it^
Mr. Gesell. Yes; there is a section in volume 10 of the report
which discusses the lobbying practices of the companies as revealed at
that time. 1 have a copy here if it is thought desirable to have it
for the record.
Mr. Hogg. They used the word "clandestine" in the report of the
Armstrong connnittee.
Mr. WiiiTSi'iT. That same report also suggests the company sliould
conununicale with all of tlieir policyholders.
ISlr. Hendehson. The Armstrong report?
Mr. WiOTsrrr. Yes, sir; it su<jgesls that.
Mr. Gesell. 1 liave a copy of it here.
Mr. Hogg. Page 302.
Mr. Gesell. If it is read it shovdd all be read or not read.
The Chairman. Let us get it in the record.
Mr. Henderson. Is it very long, Mr. Gesell?
Mr. Gesell. It is three and a half single space.
The Chairman. As a matter of fact, I think you can probably
summarize wliat it is. We all know what the Armstrong report was,
and what it was intended to pre\ent. I don't assume that it was
intended by that report uj prevent insurance companies from making
proper representation to legislative bodies.
]\Ir. Gesell. The report is quite specific on the fact that they
should be permitted to engage in lobbying activities but it attempts
to detine what the scope of tliose activities should be and how they
should be reporteel. 1 think it might be just as well to offer the
entire section of the report for the record.
The Chahiman. Suppose we do that. It may be printed.
(The excerpt of the Armstrong report referred to was marked
"Exhibit No. 724" and is included in the appendix on p. 1802.)
Mr. Hogg. Tlie Armstrong committee prepared a bill carrying into
effect this very recommendation and that is in the report.
Mr. Gesell. Was the bill passed?
Mr. Hogg. Oh, yes.
The Chairman. By the Legislature of New York?
Mr. Gesell. You will find it was amended several times,- I would
like to offer the report for the record.
The Chairman. The report was received. Can you state whether
or not the New York statute was adopted in Florida?
Mr. Hogg. I don't know.
The Chairman. How about Georgia?
Mr. Hogg, I think they have a very stringent one in Georgia.
Mr. Henderson. In Georgia they get a little bit away from the
public presentation, don't they, Mr, Whitsitt? Could I get you to
admit that they get away ?
Mr. Whitsitt. Obviously, as I stated yesterday, you can't secure a
committee hearing; a bill will be introduced
Mr. Henderson (interposing). I asked you a simple question ajid
you give me an explanation of something you said yesterday. In
CONCENTRATION OF ECONOMIC POWER 4429
Georgia they do get a little bit away from the public presentation
of the grounds ?
Mr. Whitsitt. So far as I know, Mr. Cooney lias never made a
secret of his opposition to objectionable bills to life insurance.
Mr. Henderson. I still consider that you do better than any wit-
ness who has been before us in not responding to a direct question,
Mr. Whitsitt.
Mr. Whitsitt. I don't intend to be evasive, I am sure.
Mr. Henderson. You may not, but you certainly unconsciously
achieve it.
Mr. Gesell. Do you have any further questions, Mr. Henderson?
Mr. Henderson. No.
Mr. Gesell. Noav may I ask Mr. Whitsitt whetlier this Pennsyl-
vania bill which we have just been considering in tlie previous ex-
hibit ^ was a bill which provided for a State subsidy?
Mr. Whitsitt. That is my understanding.
Mr. Gesell. Is it not a fact, however, that the bill as finally re-
ported out contained provision for reimbursement of the State for
expenses incurred in behalf of the proposed savings-bank life-insur-
ance department?
Mr. Whitsiit. I don't recall. Possibly there was such an amend-
ment made.
Mr. Gesell. Is it the position of the association that it will ojipose
savings-bank life insurance, even where the statute provides for a
reimbursement over a period of time of the subsidy involved?
Mr. WniTSirr. It is our association policy not to oppose them
where there is reimbursement to the State. If there was an amend-
ment, it was quite possible that the agents who were most heavily
hit by these bills pursued a policy of opposition after the amend-
ment. I don't recall the details.
Mr. Gesell. Now, there have been savings-baiik life-insurance bills
introduced on several occasions in the State of llhode Island^ have
there not?
Mr. Whitsitt. Yes, sir; at times.
Mr. Gesell. Has the association opi)osed legislation there reg-
ularly?
Mr. Whitsitt. On several occasions.
Mr. Geseix. I want to ask you whether you recognize this letter
which I am about to show you, addressed to Mr. (,'reswell, from Mr.
White, Clinton C. White, of the Puritan Life Insurance Co. of Khode
Island, dated March 22, 1935. It is a letter from the files of your
association.
Mr. Whitsitt. Quite right.
Mf. Gesell. This letter relates to House bill No. 79o, savings-bank
insurance. The letter states [reading iAnn "Exhibit No. 725"]:
This bill, t feel, is a serious one to life-insurance interests, an'.l has taken
considerable time. From all I can ascertain, the following is the situation :
The bill still rests in the House Finance Committee. Fortunately a member
of this committee is Mr. Charles Brown, general agent of the Columbian Na-
tional, and he naturally is opposed to the bill. Today I spent an hour with
him and went through the bill very much in detail, and I am "sve that he will
do everything possible to hold it back. This noon we had a meeting of the gen-
eral agents of Rhode Island and at their request I reviewed (lie bill with them
'See "Exhibit No. 723," appendix, p. 4801.
4430 CONCENTRATION OF ECONOMIC POWER
and presented the objections. Very fortunately, Mr. Tracy, the president of the
Massachusetts Life Underwriters, was present, and he gave a very fine exposi-
tion of the experience in Massaclmsetts witli savings banlt insurance, so that
the general agents have a thorough understanding of tlie Rhode Island bill and
recognize as a result of Mr. Tracy's remarks, the evils and misrepresentations
which will probably follow if the bill is made law. They, however, will not
raise too mucli dust unle^^s it is necessary. Too much opposition with this par-
ticular legislature might give the bill lindue importance.
I would like to offer this letter in its entirety for the record.
The CiiAKMAN. The letter may be received.
(The letter referred to was marked "Exhibit No. 725" and is
included in the appendix on p. 4804.)
Mr. Gesell. That bill was defeated, was it not ?
Mr. WiiiTSiTT. It must have been. They do not have it in Rliode
Island.
Mr. Geskll. There was another bill introduced in the following
year, was there not — the followinf^ legislative year?
Mr. WiTiTSiTT. If 3'our record shows so, I assume you are correct.
It has been tliere several times.
Mr. GEsr.i.iv. I want to ask you whether you recognize this letter
dated April 10, 1937, addressed to the Association of Liff Insurance
Presidents, signed by Mr. Wliite, as a letter from the files of the
association.
Mr. IVniTSirr. Quite right.
Mr. Gesell. This letter states in part as follows [reading from
"Exhibit No. 726"] :
As I informed you luidor date of March 17, I do not anticipate the enact-
ment of this legislation permitting the savings banks of Rhode Island to
engage in the life-insurance business. There is, however, more pressure being
brought upon the Governor this year than previously, and I think there is a
feeling hero that in another year the pressure will be even greater. I appre-
ciate very much the material which you have sent to me as it was helpful in
formulating the necessary facts in opposition. AVill you pardon me for making a
suggestion along a line of thought which to me is fundamental in this whole
situation. Let me make the mere suggestion and in your office with your
expert ability you can develop it and incorporate it if you see fit in future
memoranda.
It seems to me that greater emphasis should be laid upon the fact that by
this legislation certain private institutions arc granted special privileges which
are not granted to the existing private institutions engaged in the same busi-
ness. I believe that this simple thought can be developed so that it is an
unanswerable item. If the State itself were to engage in the life-insurance
business we would expect the State to avail itself of certain inherent rights.
This would be entirely consistent with the prevailing social tendencies of tb.e
day, but when a State grants special privileges to one private institution and
exempts that private institution from established requirements and regulations
which control competitive private institutions, there is involved a fundamental
principle which I believe would convince any honest citizen.
Then, skipping a bit of the letter, it states :
Pressure was brought upon our Governor for favorable action on the savings
bank life insurance legislation, and he naturally turned to the chief of the
division of banking and insurance for information. I gave to the latter the
material which you so kindly sent to me accompanied by a letter, a copy of
which I enclose. I am also enclosing copy of the report which Mr. Cummings.
chief of the division of banking and insurance, has made. This has been sent
by him to each general agent and to some of the insurance commissioners, kg
that it is not now confidential.
I wish to offer that letter for the record.
CONCENTRATION OF ECONOMIC POWER 4431
Mr. Whitsitt. I may say that Mr. Wliite is an officer of the Puri-
tan Life Insurance Co., one of our member companies in Rhode
Island.
The Chairman. The letter may be received.
(The letter referred to was m:irked ''Exhibit No. 726" and is in-
cluded in the appendix on p. 4805.)
Mr. Gesell. Do you know what material it was that you sent to
Mr. White? I assume it was the De Groat pamphlet.
Mr. Whitsitt. I couldn't recall offhand. If that were up today I
would probably send that pamphlet and possibly some memoranda
we have preDared in our own offices for similar purposes. We have
prepared a number of memoranda ourselves attemptin<v to brief the
chief arguments that we find available for use in such circumstances.
Mr. Gesell. The bill was again killed in 1937, was it not?
Mr. Whitsitt. It was.
Mr. Gesell. Do you recall this as a letter w^ritten to you by Mr.
Wliite on that occasion?
Mr. Whitsitt. Yes; quite.
Mr. Gesell (reading from "Exhibit No. 727") :
I iim particularly pleased that we were able to defeat the savings bank life
insurance bill. As I stated to Mr. Crane previously, I am quite certain that
there will be an increased effort on the part of the proponents of this legislation
next year. I certainly trust that you will be able to defeat its adoption in
Pennsylvania and Connecticut, for if adopted elsewhere it will surely influence
its acceptance in other States.
I wish to offer that for the record.
The (.'H AIRMAN. It may be received.
(The letter referred to was marked "Exhibit No. 727" and is in-
cluded in the appendix on p. 4806.)
Tiic Chairman. Did this letter of Mr. While, Mr. Whitsitt, repre-
sent the point of view of the Puritan Life Insurance Co. and the point
of view of the Association of Life Insurance Presidents?
Mr. WniTsrrr. Well, of course, it primarily represents the personal
point of view of Mr. Wliite,
The Chairman. Naturally ; yes, of course.
Mr. Whitsitt. And I assume it represents the point of view of the
Puritan Life, since it is written on their stationery.
The Chairman. This letter didn't come to you ?
Mr. WniTSiTi. It is one of my associates to whom it is addressed.
The Chairman. Tt is addressed to the association and it is noted
for the attention of Mr. Crane.
Mr. Whitsitt. Yes.
The Chairman. So it didn't come to you personally ?
Mr. Whitsitt. That is right.
The Chairman. I was very much interested in his statement [read-
ing from "Exhibit No. 726"] :
If the State itself were to engage in the life-insurance business, we would expect
the State to avail itself of certain inherent rights. That would be entirely con-
sistent with the prevailing social tendencies of the day.
I was just wondering whether that expression on the part of Mr.
Wliite indicated a feeling by himself and those with whom he was
associated that the entry of the States into the insurance field might
not be objectionable.
4432 CONCENTRATION OF ECONOMIC POWER
Mr. Whitsitt. I couldn't put that down as an expression of the
association at all.
Mr. Gesell. Did the association adopt those arguments that he
siig^'csted ?
Mr. WiiiTsi'iT. My recollection is that they are more or less a re-
phrasing of ai iruments Ave had used before emphasizing the objection-
able features of the State subsidy' to private enterprise. My recollec-
tion is that it is a rephrasing.
The Chairman. That particular sentence I quoted was merely a
passing remark and doesn't enter into the merits of that controversy.
Mr. Henderson. In this letter of Mr. White's to the association I
notice that pressure was brought upon the Governor for favorable
action. He naturally turned to the chief of the division of banking
and insurance [reading from "Exhibit No. 726"] :
I gave to the latter the material which you so liincUy sent to me, accompanied
by a letter, a copy of which I enclose. I am enclosing a copy of the report which
Mr. Cummings, chief of the division of banking and insurance, has made. This
has been sent by him to each general agent and to some of the insurance commis-
sioners, so that it is now not confidential.
In other words, you sent some material to Mr. White^ or Mr. Crane
did. Mr. Wliite gave it to Mr. Cummings, the State officer.
Mr. Whitsitt. Who asked him for the information.
Mr. Henderson. I would like to finish the sentence,
Mr. Whitsitt. I beg your pardon.
Mr. Henderson. Mr. Crane sent some material to Mr. White, of the
Puritan Life. Mr. Wliite gave it to Mr. Cununings, who had re-
quested it, I gather. Mr. Cummings then made a report to the Gov-
ernor, as chief of the division of banking and insurance. Then he
gave a copy of that to Mr. White, and then he sent it to the various
insurance commissioners. What I am getting at is, is that the mimeo-
graphed copy of the statement which you sent to Guy Smith?
Mr, Whitsitt. Yes, sir ; we received some copies of that and re-
produced it.
Mr. Henderson. So in effect this has been sort of an adaptation
of your idea, as has been suggested, in that statement, and it goes
out now under the imprimatur of the chief of the division of bank-
ing.
Mr. Whitsitt. As I understand it, Mr. Cummings gave mature
consideration of all this material and came to the conclusion that he
did not favor savings bank life insurance for the State of Rhode
Island.
Mr. Henderson. I mean that is how it originated.
Mr. Whitsitt. That is right.
Mr. Gesedll. I have a copy of that report here which I can offer
for the record under the same restrictions that were involved when
we offered the DeGroat pamphlet. I think it would be well to have
it in the record.^ Do you recognize this as the mimeographed state-
ment that you have distributed?
Mr. Whitsitt. Yes, sir; on various occasions.
The Chairman. The exhibit may be numbered and filed for the use
of the committee.^
1 The committee subaequently decided to print the Cummings report, see infra, p. 4433.
CONCENTRATION OF ECONOMIC POWER 4433
(The report referred to was marked "Exhibit No. 728" and is in-
ckided in the appendix on p. 4806.)
Mr. Gesell. The association then opposed savings-bank life in-
surance in Rhocie Iskmd in 1938, did it not ?
Mr. WHiTsrrr. That is my recollection.
Mr. GeseixL. Is this a memorandum from the files of the associa-
tion which I show you now?
Mr. Whitsitt. Yes, sir.
Mr. Gesell. This memorandum relates to "Rhode Island House
bill No. 552," and is dated April 20, 1938, and prepared by Mr. C. F.
Creswell. It states [reading from "Exhibit No. 729"] :
Mr. Crane telephoned late this afternoon that this measure was reported
favorably today in the House.
Mr. Crane is your representative, is he not ?
Mr. Whitsitt. Mr. Crane is an officer of our association.
Mr. Gesell [reading further] :
Mr. Crane telephoned late this afternoon that this measure was reported
favorably today In the house. He anticipates that it is likely to pass the
house but feels that it is much less likely to receive favorable consideration in
the senate. He had not seen Mr. White since the bill had been reported in the
house and placed on the calendar, but is to go over the matter with him tonight
and will pass on to us the result of their conference. Mr. Crane thought they
might desire us to get in touch with the companies, seeking cooperation of
general agents in the State, but is going to consider first with Mr. White
the possibility of seeking such cooperation through the local general agents.
I wish to offer this memorandum for the record.
The Chairman. It may be received.
(The memorandum referred to was marked "Exhibit No. 729" and
is included in the appendix on p. 4810.)
Mr. Gesell. That bill did not become law, did it?
Mr. Whitsitt. That is right-
Mr. Gesell. So that we have, then, in effect three different savings
bank bills offered in the State of Rhode Island on three different
occasions, none of which became law.
Mr. Whitsitt. That is right.
Mr. Gesell. All of which were opposed by the association.
Mr. Whitsitt. Right.
Mr. Gesell. Was there also a proposal in the State of New Hamp-
shire for the adoption of savings-bank life insurance ?
Mr. Whitsitt. T seem to recall one; just what year it was, I
couldn't say. Your data will show the year.
The Chairman. One apparently in 1939 and one in 1935, accord-
ing to the memorandum which you have.
Mr. Gesell. With respect to the 1935 bill, is this a form of letter
which was sent out by your association to your member companies?
Mr. Whitsitt. Yes ; this is one of ours.
Mr. Gesell. This is a letter which w<as written to all of the member
companies, was it not, or at least distributed to some of them? It is
a form letter, isn't it?
Mr. Whitsitt. It apparently is; since there is no list of com-
panies— our uniform letters usually have a list of persons whom they
are sent to — I rather imagine it was sent to a list of companies in the
New England jirea.
4434 CONCENTRATION OF ECONOMIC POWER
Mr. Gesell. Those who would have the personnel in New Hamp-
shire or thereabouts.
Mr. Whitsitt, 1 believe that was asking for some actuarial slants
on the bill and it was probably written to Massachusetts companies,
possibly Connecticut and Vermont, possibly some New York com-
panies. I can only speak from recollection on that point.
Mr. Gesell. Now this letter states that [reading from "Exhibit No.
730"] :
Maj. Robert P. Burroughs, special agent at Manchester, N. H., of the National
Life Insurance Co., of Vermont, who is active in the opposition to this measure,
has suggested that we request the actuaries of several companies to write to
him with respect to the actuarial defects of a proposal of this nature. He has
particularly in mind that any life insurance originating from such a small geo-
graphical area could not place the usual reliance in mortality averages with
the result that any local epidemic might be disastrous. He believes that letters
from actuaries along this line, as well as pointing out any other actuarial un-
soundness, will prove of material help in presenting opposition to the measure.
The letter goes on to discuss the bill in some detail. I wish to offer
it for the record.
The Chairman. It may be received.
(The letter referred to was marked "Exhibit No. 730"- and is in-
cluded in the appendix on p. 4810.)
Mr. Gesell. \Vliy should the association encourage opposition to
the bill because of actuarial defects if the only reason for its opposi-
tion is because of State subsidy?
Mr. Whitsitt. I think Mr. Burroughs thought that if he could
have some argurpents against the bill on various phases, signed by
some actuaries, it might carry more weight.
Mr, Gesell. That isn't the answer to my question, Mr. Wliitsitt,
and so I will ask it again. Why should the association encourage
sending actuarial arguments against a bill if its opposition is based
entirely on State subsidy?
Mr. Whitsitt. Well, a great many of our actuaries think the
Massachusetts system is unsound actuarily, and Mr. Burroughs, as
I recall — and this is only from recollection — w^as very much impressed
with that viewpoint, and he was very anxious to defeat the bill.
Mr. Gesell. Since you won't answer my question directly, can I
get at it this way ? Once you decide to oppose a savings-bank bill, do
I understand that you adopt all the conceivable arguments you can
to defeat that bill?
Mr. Whitsitt. Not all the conceivable arguments, all the legiti-
mate arguments.
Mr. Gesell. All the arguments that you consider legitimate, I
take it.
Mr. Whitsitt. That is quite right.
Mr. Gesell. So if, though the motivating reason for opposing the
bill may be State subsidy, you do prepare arguments of all kinds with
respect to the inadvisability of the legislation and adopt such argu-
ments as are used, for instance, in the DeGroat pamphlet.
Mr. Whitsitt. Mr. Burroughs was very active and was very help^
ful in defeating this bill and we decided to do everything we could
in propriety to assist him, so we complied with his request to secure
CONCENTRATION OF ECONOMIC POWER 4435
some letters from some actuaries, he thinking that they would carry
some weight,
Mr. Gesell. So that once you decided to oppose a bill you adopt
all the arguments that you feel legitimate and urge all of them, not
just the argument that prompts your opposi;:ion to the bill.
Mr. WurrsiTT. That was true with certain limitations. I wouldn't
want to say all arguments, but the most effective ones, those that
we consider most effective. Mr. Burroughs apparently thought the
actuarial argument might prove effective in his particular situation.
Mr. Gesell. Now can you tell us what some of the arguments
that have been generally by your association against savings bank
life insurance are? We have mentioned the State subsidy, we have
mentioned your feeling that it is actuarily unsound. Will you tell
us what other arguments you have publicly made or made through
agents and representatives against that kind of bill in all States ?
Mr. Whitsitt. I think you have taken a memorandum from our
files on that that summarizes all of our arguments. I don't know
whether I have one here or not. I could gladly give you a typical
memorandum that covers that.
Mr. Gesell. I would appreciate that very much.
Mr. Whitsitt. I don't have one here, but I rather think you took
one from our files. The other principal arguments would be prefer-
ential taxation and not subjected to the same original capital require-
ments nor the same examination and strict advisory requirements
that ordinary legal-reserve life-insurance companies are subjected to.
Those would be the principal arguments that you will find.
Mr. Gesell. Is this memorandum entitled Reasons why New
Hampshire house bill No. 125 to permit savings banks to engage in
the life-insurance business should not be enacted" prepared by you
what you call a typical memorandum?
Mr. Whitsitt. I rather think that is correct.- We have a rather
standard form and we adjust it from State to State because some-
times there are little variations in these bills other than the subsidy
and other than the taxation measures. They are frequently copies
from one State to another. One State will frequently copy the
Massachusetts law and sometimes they copy the Massachusetts name.
Mr. Gesell. I wish to offer this memorandum for the record.
The Chaikman. It may be received.
(The memorandum referred to was marked "Exhibit No. 731'! and
is included in the appendix on p. 4811.)
Mr. Gesell. Did the association oppose savings bank life insurance
in the State of Connecticut ?
Mr. Whitsiit. Connecticut is a somewhat different State legisla-
tively than most other States in that it is quite a life-insurance center
itself. Of course, we are on record against opposing savings bank
life insurance there, but our correspondents are company officials,
and there are five, I believe, of our member companies located there.
In the actual mechanics of handling the opposition there it is left
practically entirely to the domestic companies, other than furnishing
them some material, memoranda from our office, which they put to
their uses. We have sent them memoranda and possibly the DeGroat
article — I don't remember that.
Mr. Gesell. But they carry on the burden of their work right
there in their own State.
124491— 40— pt. 10 20
4436 CONCENTRATION OF ECONOMIC POWER
Mr. Whitsitt. That is right.
Mr. Gesell. I show you two letters from Mr. Albert H. Yo.st, vice
president and general counsel of the Phoenix Mutual Life Insurance
Co., of Hartford, Conn., dated April 28, 1937, and May 19, 1937, ad-
dressed to you, and ask you if those are letters which you received
from Mr. Yost with respect to the Connecticut situation in 1937.
Mr. Whitsitt. I think so ; but may I glance through them ?
Mr. Gesell. Certainly.
Mr. Whitsitt. Quite right.
Mr. Gesell. May I read these letters for the record? The letter
dated April 28, 1937, states [reading from "Exhibit No. 732"] :
Thank you very much for the material that accompanied your letter of April 26
with reference to the savings bank life insurance legislation pending in the
general assembly here. I hope to be able to use it with good effect.
The companies have finally waked up to the fact that the bill might possibly
slip through the legislature. We all met yesterday in Mr. Brosmith's office and
outlined a plan of campaign which will be directed particularly at the banking
committee of the house. The situation here in Connecticut this year is that
the senate is Democratic and inclined to be radical ; the house is Repulilican
and of a more conservative complexion.
So far as I can find out, this bill, which is a senate bill, is likely to be reported
favorably and passed by the senate.
It so happens that one of our own agents is a member of the house banking
committee. He told me yesterday over the phone that, while he had made no
canvass of the membership of the house committee, from casual conversations
he had had with some of the members, he was of the opinion that the bill will
not be recommended favorably by the house committee. The chairman of tho
committee, he told me, is open to argument, and we are going to concentrate most
of our efforts right there.
Because of these later .developments I am a little more optimistic now of
being able to defeat the bill than I was after the hearing last week when
none of the companies raised any protest against the passage of the bill.
The suggestions that you made to me, last week and the information that you
have sent will, I know, be very helpful.
Again he writes on May 19 [reading further from "Exhibit No.
732"] :
Roger B. Hull called me up the other day—:
Who is Mr. Hull?
Mr. Whitsitt. He is the manager and general counsel of the
National Association of Life Underwriters. It is an association of
life-insurance agents.
■ Mr. Gesell [reading further] :
Roger B. Hull called me up the other day to find out the present status of
the savings bank insurance bill in the Connecticut legislature. I suspect that
he probably found out from you that I had some connection with the opposition
to the bill, and it occurred to me that perhaps you would be interested to know
what the situation is at the present time if you have not already heard.
The opposition, as I probably have told you, has been organized since the
first hearing and the committee, headed by Berkeley Cox, whose other members
are Allan Brosmith, and John Thompson, general agent of the Connecticut
Mutual, has been working on the matter. They have particularly seen to it
that sombody has gotten in touch with the key members of the senate and
house committees. The net result has been that the senate commitee has
reported the bill favorably, as we expected they would, hut we have found out
that some of the Democratic members of the committee, particularly those
from Hartford, are not entirely favorable to the bill, and there is a slight
chance that it may not even pass the senate.
The house committee has reported unfavorably, and presumably since the
house is largely Republican, while the senate is predominantly Democratic, the
probabilities are that the house will kill the bill.
CONCENTRATION OF ECONOMIC POWER 4437
The Chairman. Apparently the agent on the house committee was
a rather effective member.
Mr. Gesell. That is what it would appear to be.
Mr. Gesell. Mr. Brosmith represents the Travelers, does he not?
Mr. Whitsitt. He is an attorney for the Travelers, and Mr. Cox
is an attorney for the Aetna Life.
Mr. Gesell. I wish to offer these letters for the record.
The Chairman. The letters may be received.
(The letters referred to were marked ^'Exhibit No. 732" and are
included in the appendix on p. 4813.)
Mr. Gesell. Now before leaving this subject Mr. Whitsitt, I want
to ask yoa a few more questions. Is your opposition to these sav-
ings bank life insurance measures an opposition which you would
say was in the interest of the policyholders?
Mr. Whitsitt. I would say that in answering that question it is
quite possible that the interests of the policyholders in our opposin^g
savings bank bills is not quite so predominant as in some other bills.
However, it has been felt by our executive committee and our asso-
ciation that any widespread introduction and passage of bills pro-
viding for State subsidy and preferential taxation, savings-bank life
insurance, amounts to an assault on the established companies. And
any assault on the established companies is an assault on their policy-
holders.
Mr. Gesell. Let me understand that. You mean that if I am a
policyholder in a company that is a mutual company and well Or-
ganized and has sound investments, that I am going to be injured"
because someone sets up a rival system of insurance?
Mr. Whitsitt. If it has been subsidized by the State.
Mr. Gesell. How am I injured ?
Mr. Whitsitt. Just a moment. If it has been subsidized by the
State and has preferential taxation, the chances are the rates will
be lower. I would suppose that some people might drop their in-
surance and take savings bank life insurance. If so, they would be
the healthy lives and not the uninsurable lives; consequently the
mortality of the existing companies would tend io rise over a period
of years, thereby reducing dividends in the future.
Mr. Gesell. Is that all of it, or is there any other way !
Mr. Whitsitt. That is for the moment.
Mr. Gesell. Well, that is the same if you set up any company
with a low net cost, has the same result ?
Mr. Whitsitt. I am not an actuary.
Mr. Gesell. Well, you present an exteremely actuarial analysis
of the situation.
Mr. Whitsitt. Just a layman's analysis.
Mr. Gesell. if I set up a company, even if I haven't a State subsidy,
and I sell at a lower net cost than your company, I may take a few
policyholders away from you and lower the standard of risk that you
have and increase your mortality ?
Mr. Whitsitt. I would suppose that if you were a wise man over a
period of years your selection would be the same as that followed by
the existing companies, and your expenses would be somewhat
comparable.
Mr. Gesell. And your feeling is that the savings-bank selection is a
bad risk, I take it?
4438 CONCENTRATION OF ECONOMIC POWER
Mr. Whitsitt. Not necessarily ; but you suggested that you would
have lower net costs if you set up a company. There is a question as
to where you would secure those savings in costs. One way would be
to have a looser selection. If you had looser selection you would have
higher mortality If you save in your overhead, how would you save
in the overhead as compared with existing companies?
Mr. Gesell. You don't imagine that all existing companies have
the same net cost, do you ?
Mr. Whitsitt. Certainly not.
Mr. Gesell. Well, then, there are low net cost companies and high
net cost companies; the low net cost companies are possibly taking
business away from the high net cost companies all the time, are they
not? Just the same way that savings-bank insurance might do?
Mr. Whitsitt. I suppose that is quite right.
Mr. Gesell. Is that the the only way in which you can say that the
opposition to savings-bank life insurance is in the interests of the
policyholders ?
Mr. Whttsiit. I supposp if is ir> <"lie Interest of the policyhuluers.
Take a man who has a policy in an existing life-insurance company who
is uninsurable; in other words, he has his limit; why should he be
taxed to support another life-insurance company ?
Mr. Gesell. Oh, do you mean that if this State subsidy
Mr. Whitsitt- (interposing). The life-insurance companies pay
taxes on the premiums. Part of those taxes must go toward the State
subsidy of a competing private enterprise.
Mr. Gesell. That involves a matter of amount that comes in the
next question I have : What kind of State subsidies do you oppose and
what kind of State subsidies do you approve ?
Mr. Whitsitt. I have in mind the type of subsidy that was in the
original Massachusetts plan, which I believe I outlined earlier. Do
you want me to review that? There is set up in the statehouse at
Boston a bureau known, I believe, as the division of savings-bank life
insurance, under the charge of a director, I believe. They have an
actuary, possibly an assistant actuary, and a medical director. That
bureau provided — I am speaking in past tense for the early periods
of the savings-bank system — actuarial advice, forms, computed the
rates, computed the surrender values.
Mr. Gesell. If I may interrupt, if this is a question of the policy-
holders' interest, the form of a subsidy isn't as important as the
amount of money involved, if it is an actuary or a charwoman or if
it is an office or a printing bill, as far as the policyholders are con-
cerned, the expense is the item?
Mr. Whitsitt. In dollars and cents.
Mh Gesell, So does your association have some expense standard
by which it operates in 'determining whether or not it will permit
subsidy ?
Mr. Whitsitt. No; we have not. As I was trying to outline, it is
the type of bill to which we object that follows the original Massa-
chusetts plan, whereby the actuarial service and the forms and the
policies were given free gratis from the State to the savings banks,
writing life insurance, as well as a medical director who gave medical
advice and underwriting advice.
Mr. Gesell. Even without regard for the amount of money that
would be involved?
CONCENTRATION OF ECONOMIC POWER 4439
Mr. Whitsitt. The dollars and cents involved may be secured; I
do not have them at hand ; from rmining through the appropriation
bills I believe of the Massachusetts legislature for that period of
time.
Mr. Gesell. We will present those figures shortly but do I under-
stand you to say that it doesn't involve a question of amount at all;
that if those services are given you oppose the bill, regardless of how
much they cost?
Mr. Whitsitt. I think you can say that that is correct. On the
other hand, in the New York bill, and the present New York law,
there is a State subsidy for 1 year, despite that we did not oppose the
bill because there was a provision, distinct provision, to come into
effect 1 year after the law went into eflfect to provide for a reim-
bursement to the State and for equal taxation, and we — our com-
panies— feel they have no fear from savings bank competition so long
as it operates on equal footing with existing companies.
Mr, Gesell. I think you have stated the thing very nicely; it is
the question of a fear of competition from State life insurance, sav-
ings bank life insurance, that concerns the companies, is it not?
Mr. WHiTsm. May I qualify the way you put it? I may say it
this way. It is the unfairness, from our point of view — from our
company executives' point of view — with a State subsidized organiza-
tion and an organization which has preferential tax.
Mr. Gesell. I have no further questions.
The Chairman. There are other questions to be asked of the wit-
ness?
Mr. Henderson: I wasn't quite clear on the part which your asso-
ciation took in connection with the New York savings bank life
insurance act. You opposed the earlier acts?
Mr. WrrsiTT. We did. Prior to the year 1932 I think there were
one or two introduced. I am not sure if there were ; my recollection
is that we opposed them in the year 1932 ; there was one of somewhat
different type; it wasn't copied from the Massachusetts law, as most
of them are. But it did not provide for any State subsidy and it
did provide for equal taxation. We did not oppose that bill in 1932.
Again, in 1938, a bill came in, copied quite substantially from the
Massachusetts law, but with several material variations, among them
the one I just mentioned, a plan for the reimbursement to the State
for the costs of this division of savings-bank life insurance which was
created in the insurance department and also for equal taxation with
domestic life-insurance companies. We did not oppose that bill.
Mr. Henderson. Did you support it?
Mr. Whitsitt. We did not support it.
Mr. Henderson. What about your members individually?
Mr. Whitsitt. So far as I know, our company members did not take
action. Mr. Hogg reminds me tliat one of our company presidents
wrote a letter to the Governor, I believe, who sponsored the bill or
recommended it in his message, stating that for those reasons, as I
have outlined, his company would not oppose the bill. That was the
attitude so far as I know of our member companies in New York State
Mr. Gesell. What about the agents?
Mr. WHiTSirr. The agents were rather active.
Mr. Henderson. You mean against?
4440 CONCENTRATION OF ECONOMIC POWER
Mr. Whitsitt. The agents suggested an amendment. The agents
are the persons always most desirous to defeat -a savings-bank bill
because the experience in Massachusetts is that it does not compete
with industrial life insurance, the average policy in Massachusetts is
about $900, the average industrial life-insurance policy is materially
less than that, so the agents writing ordinary life insurance felt that
after they had worked hard on a prospect and practically sold him the
idea of taking, say, 5 or 10 or 15 thousand dollars worth of life in-
surance, with all that work, then the man could walk across the street
and buy a savings-bank life-insurance" policy at a somewhat cheaper
rate, that was taking business away from them.
I am merely explaining the background of why the agents are much
more enthusiastic than any group that I know in opposing savings-
bank life insurance. In New York they proposed an amendment, I
believe through their State association, limiting the amount of life
insurance which may be issued on any one life. As you may recall, in
Massachusetts the limit is $1,000 on each life in each savings bank, but
there is no limit on the number except limited by the number of savings
batiks writing life insurance, which I believe is about twenty-five or
twenty-six at this time. So a man in Massachusetts can take some
twenty-five or twenty-six thousand. The agents in New York, having
learned from the experiences of the agents in Massachusetts, the busi-
ness that they had practically sold up to the signing of the application
had been lost to them, were anxious to secure some limitation in New
York, and I gather that through their efforts a limitation was put in.
I think they proposed a lower limitation than was finally adopted.
There was a question of conference back and forth. Finally a $3,000
limitation was adopted in the New York savings-bank insurance law.
Mr. Henderson. For any one bank?
Mr. WHiTsrrr. No ; $1,000 per bank but not more than $3,000 on any
one life.
Mr. JIenderson. Tlie agents were very active there and were apa-
thetic, I gather, in Florida and sometimes in Georgia, on premium
taxes.
Mr. Whitsitt. The agents in New York are much closer to Massa-
chusetts and in much closer contact with the agents in Massachusetts.
Mr. Henderson. They are much closer to the association and to
its headquarters. Would that explain it a little bit ?
Mr. Whitsitt. Oh, I wouldn't say that, if you know how we view
the. contacts we have with the ai^ents.
Mr. Henderson. You wouldn't expect an agent in Florida, then, to
be very active in opposing savings bank legislation?
Mr. Whitsitt. He is far removed from Massachusetts, where the
system began.
Mr. Gesell. If the committee is interested in this question of the
activities of the Underwriters' Association in the State of New York,
we can present for the record two publications sent out by the Under-
writers' Association to the agents in New York indicating the type of
efforts taken by them to defeat savings-bank insurance there.^
Mr. Henderson. There is no indication that there was any connec-
tion between the underwriters in this case and the Association of
Life Insurance Presidents?
1 Subsequently entered as "Exhibits Nos. 733 and 734." See appendix, pp. 4814 and
4815.
CONCENTRATION OP ECONOMIC POWER 4441
Mr. Gesell. No ; this would be an independent effort.
Mr. Henderson. I wanted to make that distinction, as I understand
there is sometimes.
Mr. Whitsitt. That is quite true ; in this instance, not.
Mr. Gesell. If the committee would be interested, however, I can
present this material for the record and call one of our representatives
who obtained it from the files of the Underwriters' Association. I
think it would help to complete the picture.
The Chairman. If the material is available. You can't have it
identified by this witness?
Mr. Gesell. No ; I will have to call another witness.
The Chairman. Very well, at the proper time.
May I ask Mr. Whitsitt whether his association has interested itself
in promoting any legislation?
Mr. Whitsitp. In some instances wjiere there seemed to be a need
of clarification of some statutes there have been times ; those are excep-
tions, but there have been some instances.
The Chairman. Not very many?
Mr. Whitsitt. Comparatively few.
The Chairman. The question was prompted by the provision of
your minutes, I believe, reading from the record of yesterday — yes;
the minutes — which state that among the objects of the association^
was —
to consider carefully measures that may be introduced from time to time in legis-
lative bodies with a view to ascertaining and l)ublicly presenting the grounds
which may exist for opposing or advocating the proposed legislation.
I understand that you have had very little experience in advocating
legislation.
Mr. Whitsitt. There is, of course full authority for that, and when
a situation arises where it seems necessary w6 have done it, but as a
practical matter those occasions haven't arisen so often. There have
been a number. I could furnish you with a list of them; I haven't
them offhand.
The Chairman. But, as you said a moment ago, that is exceptionjtl ?
Mr. Whitsitt. I would say it is exceptional.
The Chairman. Have you ever interested yourself in opposing or
advocating any legislation in any other field ?
Mr. Whitsitt. Other than life insurance?
The Chairman. Yes.
Mr. Whitsitt. No, sir; other than directly or very closely affecting
our business. In other words, may I give you an illustration? When
the Wlieeler-Rayburn bill was pending affecting the utilities, we were
importuned — our association was importuned— to take part in it on
the theory that it Avould affect the securities of our companies. As a
matter of fact, the utilities securities for our companies are the under-
lying operating companies, and we took no part in that, even though
it might in some instances have affected us, because we felt that was
out of our field.
The Chairman. As an association you took no part in it.
Mr. Whitsitt. That is correct. As an association Ave had nothing
to do with it. We try to attend to our own business.
> See "Exhibit No. 690," appendix, p. 4744.
4442 CONCENTRATION OF ECONOMIC POWER
The Chairman. Do you know whether any of the insurance com-
panies individually did ?
Mr. WiriTsirr. That may be true ; I wouldn't be in a position to say.
The Chairman. I may say that the question was suggested to me
by Senator Bone, of- Washington, who has joined us this afternoon
to listen to the testimony, and he has just remarked to me that at least
one insurance company intervened in a legislative matter in the State
of Washington over a measure dealing with municipal power com-
panies. The Senator corrects me — an initiative matter, authorizing
municipal power plants to sell power outside the boundaries of the
city. That was opposed, the Senator says, by some insurance
companies.
Senator Bone. Very vigorously.
The Chairman. Apparently that was not tlie association.
Mr. Whitsitt. Evidently not. I never heard of it before.
Mr. Henderson. How about social security ?
Mr. Whitsitt. On social security, meaning the Federal Social Secu-
rity Act, we have taken no position. We have not opposed it. We
have very carefully avoided opposing the Federal Social Security Act.
Mr. Henderson. You are not opposing it now?
Mr. Whitsitt. We are not.
Mr. Henderson. Nobody representing your association is here in
Washington?
Mr. Whitsitt. May I make a slight explanation ? In the course
of the spread of the State unemployment act over all of the States,
we have a very important question, to us, regarding the interpretation
of the act, namely, whether life-insurance agents on the commission
basis are employees under the various State acts or under the unem-
ployment provisions of the Federal act. We have been rather active
in that field in attempting to secure rulings and in one instance some
test litigation attempting to determine whether or not our agents on a
commission basis are employees under the State acts. We presented
many briefs to the Bureau of Internal Revenue with regard to the
Federal act in behalf of various of our member companies because we
maintained that such agents are independent contractors and not
employees under the act, and, in addition, as a practical matter, it
would be rather difficult to apply any unemployment act on a commis-
sion basis.
Mr. Henderson. No one is authorized to represent your associa-
tion in opposing the present proposals' for liberalization of the
Social Security Act?
Mr. Whitsitt. Not so far as our association is concerned. What
any individual company may do would be a matter for its own
determination.
Mr. Gesell. Your association has been very active in the real
estate and mortgage field.
Mr. Whitsitt. That is quite right, as affecting our investments.
Mr. Gesell. How do you distinguish between mortgages and utili-
(ies? What was the reasoning there?
Mr. Whitsitt. My executive committee so decided.
Mr. Gesell. You mean in the case of mortgages and real estate
the executive committee did authorize the association to extend it?
Mr. Whitsitt. That is correct.
CONCENTRATION OF ECONOMIC POWER 4443
Mr. Geseli.. Tliey have not yet given that authorization in the case
of utilities ?
Mr, Whitsitt. Utilities, railroads, or any other bonds as distin-
guished from real -estate mortgages.
Mr. Hogg has handled all our social -security matters. Mr. Hogg
made an appearance before the Ways and Means Committee on these
bills in the House opposing the possible extension of the act to agents
or an express inclusion of agents on a commission basis to be em-
ployees insofar as the unemployment provisions are concerned. Our
official attitude is that we have no objection to their being under the
old-age provisions.
Mr. Hogg. And the committee adopted our suggestion.
The Chairman. In presenting your point of view to the legisla-
tive bodies, you have followed the program which was outlined by
Mr. Hogg and by Mr. Cooney wherever you have operated. I mean
to say of briftging pressure to bear upon the legislators through the
policyholders, through lawyers who may be retained, and through
your agents, and any other person to whom you could present argu-
ment or whom you could stimulate to expression of your point of
view.
Mr. WiirrsiTT. If the net result of your question is: Is Georgia
or is Florida a typical State? I would have to say "No." There
is no typical State.
The Chairman. I didn't intend to imply that, but I am glad to
have you make the answer.
]Mr. Whitsitt. There is no typical State; there are 48 varieties
of States and I couldn't say the procedure followed in either Georgia
or Florida was typical of any other State. There are dift'erent situa-
tions. It happens that those two States are two of our busiest States.
They have given us many headaches and they have been most trouble-
some insofar as objectionable taxation legislation is^ concerned.
The Chairman. But in carrying on a legislatiA^e campaign the
strategy of the association has been to arouse as much popular pres-
sure as possible or the appearance of as much as possible by produc-
ing telegrams and letters of various kinds to be laid on the desk or
poured in the ears of the legislators.
Mr. Whitsitt. I would say to a much lesser degree in substantially
all of the other States.
The Chairman. It is a perfectly natural procedure and I don't
know how we are going to get away from it.
Mr. Whitsitt. I would like to get away from it myself. It just
so happens that those two States are unusual from the standpoint
of increased taxation proposals.
The Chahjman. Do you mean by your answer to convey the im-
pression that .you feel that the methods which were employed in
Georgia and in Florida are perlia}:>s a little bit reprehensible?
Mr. Whitsitt. I wouldn't go so far as to ?ay that.
The Chairman. Well, undesirable?
Mr. Whitsitt. There may have been some things done in Georgia,
for instance, that I wouldn't have approved if I had been in charge,
but I was not in charge.
The Chairman." Well, the point of my question is merely that when
you go into these various States to fight a bill, you use all of the well-
known methods_to effect your objectives.
4444 CONCENTRATION OF ECONOMIC POWER
Mr. Whitsitt, Insofar as we consider them proper and legitimate.
The Chairman. And one of the principal means is to put arguments
before the legislators through the mouths of agents and lawyers and
policyholders.
Mr. Whitsitt. I don't know about lawyers; through the agents
and at times their policyholders, but largely through the agents. It
is a question of educating the agents. Our great trouble is the lack
of information in the hands of the members of the legislature. If we
get opportunit}^ to lay our facts before them, we find we get a very
fair reception.
The Chairman. How do you educate the policyholders?
Mr. Whitsitt. That isn't done very extensively.
The Chairman. Of course, I have in mind the letter that Mr. Guy A.
Smith wrote to you on May 3, 1937,^ and undoubtedly such an ava-
lanche of telegrams and calls had never before been received by those
individuals.
Mr. Whitsitt. Quite right ; I think I can say that that was rather
an unusual situation.
The Chairman. How did you proceed to educate these policyholders
to express themselves ?
Mr. Whitsitt, In that instance it was a question of the State asso-
ciation and the various local associations of life-insurance under-
writers.
The Chairjian. What I am getting at is this: Doesn't it all boil
itself down in the end to the presentation by the insurance executives,
your association, through the mouths of dozens if not hundreds of
people who themselves don't know the arguments, the arguments that
you prepare in your office and circulate aroimd ?
Mr. Whitsitt. It is really a question of educating them to the dan-
gers that will react to them and to their policyholders if such objec-
tionable legislation is adopted.
The Chairman. And the judge as to what those dangers are is the
association.
Mr. Whitsitt. The association and our executive committee and
our member companies.
The Chairman. In other words, your association determines what
you believe to be the desirable standards to govern life insurance and
all legislation that affects life insurance, and then you endeavor to
make those standards effective by opposing legislation that threatens
those standards when it arises.
Mr. Whitsitt. As has been so many times said, our executives con-
sider themselves trustees for the policyholders, and obviously they
would feel they were neglecting tlieir duty if they did not call the
attention of the agents and the policyholders to such bills.
The Chairman. And there is no public body which'' participates
with your organization of insurance companies to determine what the
desirable standards are.
Mr. Whitsitt. That is right. I may say, referring to public bodies,
we are subject to examination by the New York State Insurance De-*
partment. We have been examined several times, and they audit our
books, they go over all of our accounts, and they look through our
minutes, even more completely than some of the examiners for the
1 See "Exhibit No. 728," appendix, p. 4801.
CONCENTRATION OF ECONOMIC POWER 4445
S. E. C. have. They spend quite a time there every few years bring-
ing up to date examinations and then make a report to the insurance
department.
The Chairman. Wlien you refer to that, I also have in mind the
testimony which appeared here this afternoon that at least one of the
State insurance commissioners adopted the arguments which the asso-
ciation made for him and issued that statement and then in turn the
Association circularized a particular legislat'ire with his statement.^
Mr. Whitsitt. We didn't prepare the argument. We submitted to
him data. So far as I know, he gave it consideration and then he
came to his conclusion and prepared it.
Mr. Henderson. Did you send a copy of Plain Talk to him ?
Mr. Whitsitt. No ; I guess I am not familiar with that.
The Chairman. Senator Bone has suggested that he might like to
ask a question; and if there is no objection, the Senator will be per-
mitted to address a question or two to the witness.
Senator Bone. Mr. Whitsitt, I would like to ask you what would
induce a very prominent life-insurance company to enter into a politi-
cal campaign in a State against a power bill of the character described
by Senator O'Mahoney, which was then before the people of the State
in the form of an initiative, subject to popular vote? In this particu-
lar instance this big insurance company circularized all of its policy-
holders and participated very actively in that campaign. That bill
merely authorized the cities owning their own light and power systems
to sell power to surrounding farm areas. Why would an insurance
company feel called upon to come out on the Pacific coast and inter-
fere in a thing of that kind and try to prevent the enactment of a bill
of that character? It dealt purely with local matters.
Mr. Whitsitt. I am sure I wouldn't be able to explain that.
Senator Bone. Is there any explanation for it at all ?
Mr. Whitsitt. I would suggest the best answer to that would be the
executive of whatever company you have in mind.
Senator Bone. I assume that you as an executive of a life insurance
organization would be able to inform me as to why they would feel
called upon to come clear across the country from New York to
interfere.
Mr. Whitsitt. I never heard of it until a few minutes ago.
Senator Bone. That was in 1924 in the State of Washington. At
the moment I can't give you the name of the company — I think it was
the Metropolitan or the New York Life — but one of the larger ones.
I have my files full of material they sent out to their policyholders.
Mr. Whitsitt. Our association does not have any control over the
actions of its members whatsoever. We are an entirely voluntary
association.
Senator Bone. Do the big insurance companies feel called upon to
defend private power companies against that form of small competi-
tion?
Mr. Whitsitt. I am afraid I will" have to suggest that the only
way to get an answer to that question is to direct it to the oflScers
of that company.
Senator Bone. They had the question directed to them.
The Chairman. In any event your association did not intervene.
^ See supra, p. 4432.
4446 CONCENTRATION OF ECONOMIC POWER
Mr. Whitsitt. No, sir.
Mr. Henderson. I think you suggested, Mr. Whitsitt, that Georgia
and Florida were a couple of States that gave you the most head-
aches.
Mr. Whitsitt. Yes.
Mr. Henderson. They are not the ones that cost your association
the most.^
Mr. Whitsitt. Excuse me. They are two ; there are some others.
Mr. Henderson. Oklahoma seems to be bad.
Mr. Whitsitt. Oklahoma is very troublesome.
Mr. Henderson. Virginia seems to be very small, and Missouri
seems to have some high expenses; and California.
Mr. Whitsitt. That is rig! it. It will vary from State to State.
Mr. Henderson. Wisconsin. So it isn't just a couple of Southern
States that happened to be chosen for exhibit today ?
Mr. Whitsitt. I didn't intend to imply they were the only two
lieadaches. We have headaches here and there and it may break
out in a previously quiet spot.
Mr. Henderson. Some of these seem to have repetitions.^
Mr. Whitsitt. Oklahoma, you will find, has always Been a head-
ache.
The Chairman. Well that, of course, brings back the question that,
perhaps, I propounded this morning, whether or not it isn't a fact
that this is a business with a pronounced national aspect, but in which
there is no agency representing the public interest to cooperate with
the experts of business in effecting necessary standards.
You have formed an association of insurance executives for the
purpose of improving the general insurance picture. In these cir-
cumstances do 3^ou think it would be. good or a bad thing if there were
national legislation in this field ?
Mr. Whitsitt. I_think, as I intimated this morning, it would depend
entirely upon what kind of
The Chairman (interposing). Naturally it would..
ISIr. Whitsitt. Whether it was supervision superimposed upon the
existing, or whether it would eliminate entirely the 48 State insurance
departments that we now have, which have been functioning for many
years. If you eliminate them entirely, excluding in the elimination
the rights of the various 48 States to tax the premiums, from which
they get a very sizeable revenue — I suppose some 15 or 20 times more
than it takes to support the insurance department — it depends entirely
upon what kind of legislation is contemplated.
The Chairman. You wouldn't object to proper legislation, and if it
were proper, if a national system were adopted, it might be approved?
Mr. Whitsitt. My association lias never taken a position on that
subject; therefore, as for the association, I could not express an opinion.
The Chairman. This is probably not the proper place to pursue
the inquiry anyway.
Are there any other questions ?
Mr. Gesell. No further questions of this witness.
If the committee desires, I can call a member of our staff to identify
two documents relative to the activities of the Life Insurance Under-
writers Association.
1 See "Exhibit No. 694," appendix, p< 4752.
CONCENTRATION OF ECONOMIC POWER 4447
The Chairman. Let that be done. That will go into the record
as of today.
Do you solemnly swear the testimony you are about to give in
this proceeding will be the truth, the whole truth, and nothing but
the truth, so help you God ?
Mr, Reillt. I do.
TESTIMONY OF JOSEPH A. REILLY, INSURANCE SECTION, SECURI-
TIES AND EXCHANGE COMMISSION, WASHINGTON, D. C.
Mr. Gesell. What is your full name ?
Mr. Reillt. Joseph A. Reilly.
Mr. Gesell. You are on the staff of the insurance section of the
Securities and Exchange Commission, are you not?
Mr. Reillt. That is right.
Mr. Gesell. Did you have occasion recently to call at the offices
of the Life Underwriters' Association of the city of New York and
talk to Mr. Arthur V. Youngman, president of that association ?
Mr. Reillt. I called at the offices of the Life Underwriters' Asso-
ciation of New York and talked to Mr. Don Hughes, managing direc-
tor. Mr. Hughes was not managing director at the time, during the
early part of 1938, however.
Mr. Gesell. Do you recognize these two documents which I show
you?
Mr. Reillt. Yes ; these were obtained from Mr. Hughes at the office
of the Life Underwriters' Association of New York.
Mr. Gesell. Did he state that they were documents used by the
association ?
Mr. Reillt. He did.
Mr. Gesell. I wish to offer these documents for the record; first,
a circular letter dated February 25, 1938, sent over the heading of
the committee on law and legislation of the Life Underwriters' Asso-
ciation of the City of New York, Inc.
The Chairman. The document may be received.
(The document referred to was marked "Exhibit No. 733" and is
included in the appendix on p. 4814.)
Mr. Gesell. And a second document, undated, marked "Flash !"
also over the signature of the committee on law and legislation of the
Life Underwriters' Association.
The Chairman. It may be received.
(The document referred to was marked "Exhibit No. 734" and is
included in the appendix on p. 4815.)
The Chairman. If there is no further testimony to be offered this
afternoon, the committee will stand in recess until 10 : 30 tomorrow
morning.
(Whereupon, at 4 : 30 p. m., a recess was taken until 10 : 30 a. m.
Thursday, June 15, 1939.)
INVESTIGATION OF CONCENTEATION OF ECONOMIC POWER
THURSDAY, JUNE 15, 1939
United States Senate,
Tebiporart National Economic Committee,
Washington^ D. C.
The committee met at 10:50 a. m., pursuant to adjournment on
Wednesday, June 14, 1939, in the caucus room, Senate Office Building,
Senator Joseph C. O'Mahouey presiding.
Present: Senator O'Mahoney (chairman) ; Messrs. Williams, Reece,
Henderson, Lubin, O'Connell, and Brackett.
Present also : Joseph Borkin, Department of Justice, and Gerhard
A. Gesell, special counsel. Securities and Exchange Commission.
The Chairman. The meeting will please come to order. Will you
call your first witness ?
savings bank life INSURiVNCE — DESCRIPTION
Mr. Gesell. Yes. I would like to make a short statement at the
opening this morning. On yesterday we presented testimony indi-
cating the character of the opposition which the Association of Life
Insurance Presidents has made in recent years against the enactment
of savings-bank life insurance in many States.
Today we will present testimony illustrating the operations of
savings bank life insurance in Massachusetts and New York, the
two States in which it has been enacted to date. Many of the prob-
lems the committee has been considering will be brought into sharper
focus through today's testimony. Not only will the activities of the
association be more clearly understood, but the testimony will bear
on such problems as size, net cost, the relationship between agency
selling and voluntary terminations, and other matters in which the
committee has expressed an interest.
The first witness will be Mr. Judd Dewey, deputy commissioner of
savings bank life insurance in the State of Massachusetts.
Mr. BoRKiN. On behalf of the Department of Justice I would like
to introduce for the record some of the contracts used during the last
investigation, but not introduced.^ I should like to introduce them
at this time.
The Chairman. Not for the record ?
Mr. BoRKiN. Not to be printed, but to be filed with the committee.
The Chairman. It is so ordered.
(The contracts referred to were marked "Exhibit No. 735" and are
on file with the committee.)
*Por record of hearing on the glass container industry, see Hearings, Part II.
4449
4450 CONCENTRATION OF ECONOMIC POWER
Tlie Chairman. Mr. Dewey, do you solemnly swear that the testi-
mony you are about to give in this proceeding shall be the truth, the
whole truth, and nothing but the truth, so help you God?
Mr. Dewey. I do.
TESTIMONY OF JUDD DEWEY, DEPUTY COMMISSIONER OF SAV-
INGS BANK LIFE INSTJEANCE IN THE STATE OF MASSACHU-
SETTS, BOSTON, MASS.
Mr. Gesell. Will you state your full name, please, sir?
Mr. Dewey. Judd, J-u-d-d, Dewey, D-e-w-e-y.
Mr. Gesell. You are deputy commissioner of savings-bank life
insurance in the State of Massachusetts, are you not ?
Mr. Dewey. Yes, sir.
Mr. Gesell. How long have you occupied that position?
Mr. Deavey. Since April 1934.
Mr. Gesell. Were you connected in any way with savings-bank
life insurance prior to that time?
Mr. Dewey. I served as unpaid counsel for savings-bank life in-
surance from 1916, when Mr. Brandeis came to Washington to go on
the Court; I undertook to do as well as I could what he had been
doing theretofore as counsel for the system, and I served as unpaid
counsel from 1916 until in 1934 when Miss Grady, who was deputy
commissioner, died, and I gave up my practice and took her position
as deputy commissioner.
Mr. Gesell. What is your salary . as deputy commissioner, Mr.
Dewey ?
Mr. Dewey. $4,200 a year.
Mr. Gesell. Will you give us some idea of your responsibilities
and duties and the extent to which you come into contact with the
day-to-day problems of savings-bank life insurance in Massachusetts?
Mr. Dewey. I am appointed deputy commissioner by a board of
seven unpaid trustees. The division of savings-bank life insurance
consists of a board of seven unpaid trustees who are appointed by
the Governor for terms of 7 years each in rotation. The chairman
of that board is the commissioner of savings-bank life insurance.
They are all unpaid trustees and he is unpaid and is not expected to
devote his time, or at least his full time, to the work of the division.
The active administrative officer in charge of the division is the
deputy commissioner, and that is my position. It is a full-time job
and requires all of my time from morning till night, and sometimes
late at night, and I am in contact with the banks which issue the
insurance — that is, in daily contact not with all of them each day —
but with the banks who issue the insurance, with the employers who
act as agencies and other institutions who act as agencies, and with
a great many of the policyholders, who come to the office or telephone
to the office, have general administrative supervision of the division.
I haven't actually any authority or any considerable authority.
The authority is in the board of trustees and in the State actuary
and the State medical director.
Mr. Gesell. You say you are appointed by the board of trustees (
Mr. Dewey. Yes, sir.
CONCENTRATION OF ECONOMIC POWER 4451
Mr. Gesell. How cah you be removed from office? What is the
term of your appointment?
Mr. Dewey. I can be removed from office or the State actuary or
the State medical director can be removed from office only by action
of this board of trustees which would have to be approved by the
Governor and council, but the Governor and council couldn't initiate
proceedings to remove either the State actuary or the medical di-
rector or myself. Mr. Brandeis had the idea and that of the legis-
lature which adopted this statute, which was that those in charge
of the administration of savings-bank life insurance should be re-
moved so far as humanly possible from any possible pressure or
influence — political — because we have political influence in Massa-
chusetts I suppose as they do in some other States, or financial or
any other kind. And it was felt, therefore, that those officers,
although they were to be State officers, should not be subjected to, for
instance, expiration of a term of office when they would have to be
wondering whether they would be reappointed.
And so to accomplish that as far as possible it was provided that
this division should consist of this board of seven unpaid trustees and
they are appointed for a term of 7 years in rotation.
Mr. Gesell. By whom are they appointed?
Mr. Dewey. They are appointed by the Governor.
Mr. Gesell. Mr. Dewey, will you tell us a little about the history
of savings bank life insurance, how it was originated, and so forth ?
Mr. Dewey. The act was enacted in June of 1907. Mr. Brandeis
prepared the bill which was enacted at that time. It might be some
illustration of the thoroughness with which he did his work to say
that we have a letter from him to his consulting actuary, written in
November 1905, saying he had now decided the savings bank could
be adapted .to the writing of life insurance, and he was going to
begin work in preparation of a bill for that purpose. That was in
November of 1905 and he didn't have that bill in form satisfactory to
him until September of 1906. He didn't devote all of that inter-
vening time to it, but he was working on it all of that time, and when
it was done it was in such form that there was no place where an
amendment could be plausibly suggested, and it was enacted by the
legislature finally, after a very vigorous fight, but it was enacted as
Mr. Brandeis had prepared and presented it to the recess commission.
Kepresesntative Reece. Did he hold any official position at that
time?
Mr. Dewey. He had no official position. He was in the private
practice of law in Boston.
Mr. Gesell. What was the purpose of savings bank life insurance ;
what functions was it supposed to perform?
Mr. Dewey. The primary purpose of it was to make life insurance
available to the people of Massachusetts at lower cost than insurance
could then be had for, and at what insurance would need to cost on a
basis such as was proposed in the bill.
I might say there, Mr. Chairman, that there has been considerable
discussion of savings-bank life insurance in comparison with the
companies and upon a basis that seems to assume that it should be
conducted as the companies are : It should be remembered that when
this was proposed in Massachusetts there were already some 35 or
124491— 40— pt. 10 21
4452 CONCENTRATION OP ECONOMIC POWER
40 companies operating in Massaclnisetts, writing life insurance.
Those were all of the larger companies, the good companies. Most
of them are still writing insurance there. There was no need of just
another life insurance company. These companies were all good and
they could provide life insurance to the people of Massachusetts on
that general basis of operating. So there wasn't any intention in the
minds of the legislature of creating just another life insurance com-
pany like those which were already functioning. Therefore, the
system was set up on a different basis. It was proposed to provide
the same type of life insurance actuarially, that is legal-reserve life
insurance written under the laws of Massachusetts governing the
domestic legal -reserve companies, but with a different structure and a
different method of operation, and the structure was different in hav-
ing those in charge of important functions in the institution State
officers : That is, first, the State actuary. The State actuary does that
work which is done for life insurance companies by their own actu-
arial staff.
The actuary is an important person in the life-insurance institu-
tion. He decides a lot besides just technical questions. He decides a
lot of questions that affect the welfare of the policyholder as well as
the welfare of the institution that writes the policy. He computes
the profits, he recommends what can be paid as dividends to policy-
holders, he determines the policy forms, he has a lot to do with deter-
mining how soon you can get a cash surrender value and how soon
you can have a loan value, and a great many things that affect the
welfare of the policyholder are determined by the actuary.
In the ordinary life-insurance institution, those are decided by a
person who is in the employ of the company that is going to write
the contract. I don't say that isn't all right, but he is employed to
do those things and to decide those questions, and he is employed by
one of the parties to the contract, and the other one hasn't anybody
representing him there.
It was thought by Mr. Brandeis and by the legislature that it
would be well to have those services performed for this new life-
insurance institution by a person who wasn't employed by the insti-
tution that was going to write the policy.
Mr. Gesell. This State actuary, Mr. Dewey, is he appointed the
same way you are, removable in the same way ?
Mr. Dewey. He is appointed by the trustees and removable only
by the trustees, with the approval of the Governor and council.
Mr. Geseli^. What is the salary?
Mr. Dewey. I beg j^our pardon, you asked me about the term of
office. Neither the State actuary, the State medical director, or the
deputy commissioner is appointed for any definite term; they are
appointed during good behavior, if I may say so, so they don't have
to wonder if they are going to be reappointed.
Mr. Gesell. What is the actuary's salary ?
Mr. Dewey. Thirty-eight hundred dollars.
The Chairman. Wliat guaranty is there, if any, of permanent
status as an employee and protection against political removal?
Mr. Dewey. This structure of the thmg. Senator. The seven trus-
tees in the first place serve without pay and ever since the sj'stem
was established, ever since Governor Guild appointed the first board
CONdENl^RATlON OF ECONOMIC pow5:r 4453
of trustees, it has been possible to have men of the very finest type,
public-spirited men: for instance, George Wigglesworth, chairman
of the board of overseers of Harvard ; Bernard J. Rothwell, former
president of the chamber of commerce ; George S. Barnes. That type
of men give their time to this thing as trustees of this fund.
Mr. Gesell. Those trustees ai-e appointed for a term by the Gov-
ernor, are they not?
Mr. Dewey. Yes, sir; in rotation.
Mrs Gesell, Then they appoint the actuary, the medical director,
and the deputy commissioner.
Mr. Dewey. Yes, sir.
Mr. Gesell. They can institute proceedings to remove the deputy
commissioner, the actuary, or the medical officer, can they not?
Mr. Dewey. Yes, sir.
Mr. Gesell. But the Governor himself cannot institute such pro-
ceedings.
-Mr. Dewey. No.
Mr. Gesell, The Governor must, however, approve, must he not, the
recommendation of the trustees, if removal is recommended ?
Mr. Dewey. It would require approval of the action of the trustees
by the Governor and council. If the gentlemen were disposed to be
arbitrary — and, of course, they wouldn't be — their action in removing
would be subject to review by the Governor and council.
I don't know that I have answered the chairman's question.
The Chairman. I think you have.
Mr. Gesell. In the case of the medical officer, Ayhat is his salary ?
Mr. Dewey. Dr. Burnett, the State medical director, and his assist-
ant, Dr. Manton, are not full-time employees. They are paid on a
basis calculated in proportion to what would be a full-time salary.
Dr. Burnett received $2,000 a year, Dr. Manton about $1,400; that is
for an hour and a half of Dr. Manton 's time and 2 hours a day of Dr.
Burnett's time.
Mr. Gesell. Do I understand they must approve each risk written
by the savings banks in Massachusetts ?
Mr. Dewey. Yes, sir. The application I might explain a little more
if you want me to, just how the machinery works, because it is quite
simple. If I went into a savings bank somewhere in Massachusetts
and applied or went into the office of the United Shoe Machinery Co.
and applied for say a $1,000 policy, the person who took that appli-
cation would ^ive me a note to the local medical examiner. The local
medical examiners are appointed as examiners for savings bank life
insurance just the same as the companies have their local examiners.
Then the application would be sent to the office of the State medical
director. After he receives the report from the medical examiner, he
either approves or disapproves the application. He so indicates in
writing on the application, and if approved it is sent to the bank
which issues the policy. The bank issues the policy and mails it to
the place where the application originated, and they notify the per-
son that the policy is there, and he comes in and gets it. We don't
take any deposit with the application. We don't have the problem
of policies, what are called N. T. O. — not taken out. People apply
for savings bank life insurance, and when they are notified the policy
is ready they go and get it and pay the first premium, and the policy
is in force.
4454 CONCENTRATION OF ECONOMIC POWER
In response to your question, the application must be approved by
the State medical director.
Mr. Gesell. Did I understand that the State actuary fixes the rates
at which the insurance policies are sold ?
Mr. Dewey. He determines the premiums to be charged for the pol-
icies. The banks have nothing to do with that whatsoever. They
have no authority in the matter of determining the premiums.
Mr. Gesell. And do I understand that the banks are authorized to
write all the customary forms of life insurance which are written by
the old-line companies?
Mr. Dewey. The law authorizes the banks to write any type of pol-
icy that can legally be issued by any domestic legal reserve company
operating under the laws of Massachusetts. As a matter of fact, sir,
after the insurance department is established in the savings bank, it
receives a license from the commissioner of insurance ; it is, except for
special provisions, governed by all of the laws of Massachusetts that
govern domestic legal-reserve companies. It can issue any kind of
policy they issue.
Mr. Gesell. When did the first bank enter into the system ?
Mr. Dewey. The first bank began operations in June of 1908. That
was about a year after the act was passed which made it possible for
such departments to be established.
Mr. Gesell. I show you a schedule entitled "Massachusetts savings
banks issuing life insurance listed in the order of their entrance into
the system." Can you identify that as a schedule prepared in your
office?
Mr. Dewey. That schedule was prepared by Mr. Eugene F. Cald-
well, the State actuary. He has put his initials on it, "E. F. C."
Mr. Gesell. That shows the names of banks, the date they have
entered, the number of policies in force, the amount of insurance in
force, the admitted assets of the insurance department of the respec-
tive banks, the assets of the savings banks, and the totals of those
figures.
Mr. Dewey. Yes, sir.
Mr. Gesell. I wish to offer this schedule for the record.
The Chairman. The schedule may be received.
(The schedule referred to was marked "Exhibit No. 736" and is
included in the appendix on p. 4816.)
Mr. Gesell. Are there any comments you wish to make on the
schedule ?
Mr. Dewey. First, I would say that the assets of the savings de-
partment were included there only because it was thought they might
be of interest. They have no relation to the insurance department
whatsoever. The insurance department legally is entirely separate
from the savings department.
Mr. Gesell. Well now
Mr. Dewey. Excuse me. It will be noticed there the growth in the
number of banks was slow. The Whitman Savings Bank came in in
June of 1908 ; then the Peoples Savings Bank during the same ^ear.
Governor Douglas — by the way ex-Governor Douglas was president
of that Peoples Savings Bank and he put up the entire $25,000 guar-
anty fund. He was a shoe manufacturer and he wanted this made
available to the workers in his factories.
CONCENTRATION OF ECONOMIC POWER 4455
Mr. Gesell. Now, am I correct in saying that there are now 24
banks issuing savings-bank life insurance?
Mr. Dewey. Twenty -six; two that are not included here because
they became issuing banks on November 1, 1939, and had not had a
full year's operation to the time when these figures were prepared.
Mr. Gesell. What are the names of those two banks, Mr. Dewey,
please ?
Mr. Dewey. The Brockton Savings Bank and the Penny Savings
Bank of Boston.
Mr. Gesell. Now I show you a schedule entitled "Growth of sav-
ings-bank life insurance in Massachusetts, 1908 and 1938," and ask
you if that schedule is correct and prepared by the State actuary?
Mr. Dewey. It is, sir.
Mr. Gesell. I wish to offer this schedule for the record.
The Chairman. The schedule may be received. With respect to
this schedule, Mr. Dewey, I observe that there was a very substantial
reduction of the amount of annuity premiums in 1938 as compared
with 1937.
(The schedule referred to was marked "Exhibit No. 737" and is
included in the appendix on p. 4816.)
Mr. Dewey. Yes, sir.
The Chairman. How is that explained?
Mr. Dewey. Well, whether it was in part due to people not having
the money to buy annuities, I don't know, but we have been making
from time to time in the last several years changes in our amiuity
premium rates, increasing the premium somewhat, decreasing the
benefits. Annuities, sir, are dependent almost entirely upon invest-
ment earnings. You don't have any mortality profit from annuities
like you do from life insurance policies. Annuitants don't die as fast
as the table says they will.
The Chairman. Well, if you will observe, if you will compare the
figures for 1938 with those for 1936 you will note that the amiuity
premiums suffered similar substantial decline as compared to '37,
which I have already pointed out ; whereas the total premium income
for 1938 was greater than that of 1936.
Mr. Dewey. Well, this also occurred, sir. The savings banks which
write these contracts are authorized under the law and have been
from the start, to write annuity contracts paying $200 a year; that is
the maximum that any one bank could write. That would make it
possible when there were 24 banks, if a person bought an annuity
contract in each bank he could buy as much as $4,800 of income, do
you see^ in the savings bank system. Now that means quite a lot —
very few could do that — but that means quite a lot of cash and it was
felt that that was beyond the average, and that we ought to use our
facilities not for people who had 20 or 30 or 40 thousand dollars to
buy an annuity with. Our investment facilities, I mean, for those
who could buy the smaller amounts. Not that there is anything
wrong about the people buying the larger amounts, but savings bank
investment boards have work to do, and they have this investment
to do, and life-insurance premium income comes in steadily and grad-
ually and in small amounts, but single premium annuity income
comes in fairly large bunches, and so the banks agreed that notwith-
standing that they could write $4,800 of annuity they would restrict
4456 CONCENTRATION OT' ECONOMIC POWER
the purchase of annuities to an income of $600. That accounts for
that sharp drop. The banks will not now write — you can buy as much
as $50 in any one bank and not more than 12 banks ; so that the total
income you can buy at this time in savings bank life insurance
annuities is $600 per. year.
That was due, as I say, to the difficulty of investment, not the im-
possibility, but it was a large sum of money to have to invest and we
felt that our facilities should be used for other things.
Mr. Gesell. Perhaps you should explain at this time to the com-
mittee how the savings bank system operates, the different types of
institutions that are members, the way in which a man must proceed
to take out a policy, the procedure he must follow in paying for
that policy.
Mr. Dewey. Perhaps, Counsel, if you will pardon me, the com-
mission might be interested to know first what a bank has to do
before it can write a life-insurance policy.
Mr. Gesell. Yes ; will you tell us that please ?
Mr. Dewet. If a bank decides that it would like to become an is-
suing bank — that is, to write life-insurance policies — it must call a
special meeting of its board of .incorporators and its board of trustees
and it must be called only for the purpose of considering the estab-
lishment of an insurance department. It cannot be done at one of
the regular- meetings — a special meeting must be called for this pur-
pose upon 30 days' notice. At such meeting the trustees of the bank
vote by not less than a three-fourths majority to establish an insur-
ance department. If they do so vote, then that vote must be ratified
by the incorporators of the bank, who are a larger body, correspond-
ing in a general way perhaps to the stockholders, whereas the trustees
would represent the directors. There is no such thing, but the incor-
porators are a larger body of 40 or 50 men. They approve the vote
of the trustees and then the treasurer of the bank must certify under
oath and the president that these votes have been passed to establish
the department; that the bank has been provided with a special
expense guaranty fund oi $5,000 and with a special insurance fund
of $20,000.
Mr. Gesell. That makes a total of $25,000.
Mr. Dewey. Yes.
Mr, Gesell. May I ask, Mr. Dewey, whether all the savings banks
incorporated in Massachusetts are eligible for membership in the
savings-bank life insurance system?
Mr. Dewey. Yes, sir; any savings bank in Massachusetts is eli-
gible to become an issuing bank provided the commissioner of banks
sees no objection.
Mr. Gesell. He has a veto power, then, over their joining?
Mr. Dewey. Oh, yes; we wouldn't go ahead encouraging the bank
before we talked to the commissioner. I mean, we haven"t had any
trouble, with savings banks, but, for instance, several years ago I
talked with the commissioner, and said a bank was thinking of com-
ing in, and he said, "I have told them they can't buy a new broom
until they get such and such bond situation straightened out. Just
leave them alone for a jittle while."
Mr. Gesell. You work in close cooperation, I take it, with the
commissioner of banks.
CONCENTRATION OF ECONOMIC POWER 4457
;Mr. Dewey. Oli, yes; he has legal authority to say the bank may
not come in, but it has never gone to that point.
Mr. Gesell. Do I understand that the banks in Massachusetts are
mutual banks ?
Mr. Dewey. Purely mutual banks. Those banks began^the first
one was created about 120 years ago. There is a story about it in
the Savings Bank Journal last week, and a Mr. Savage started thfe
Provident Institution for Savings, which is an old one and a very
line one, although in no way identified with the savings-bank life
insurance. They are purely mutual. The country I come from out
in Iowa they don't have mutual savings banks. A lot of the States
don't have them, but these New England savings banks are very fine
institutions. They have the best men, businessmen and professional
men of the community who serve without pay as trustees and incor-
porators of these banks, and they give their time and thgir thought
to this purely public thing of making a place where the people can
deposit their money, have it handled frugally and safely and care-
fully, and paid such rate of- interest as can be paid, and they are
really very fine, and they are purely mutual.
Mr. Gesell. Quite a few other States, some 17 T ^^'^''''^ve, have^saur
tual banks, do they not?
Mr. Dewey. Well, there are a limited number in the States outside
of New England and New York. There is a mutual sayings bank
in Minneapolis, maybe two. There are three mutual savings banks
in Ohio. There is a mutual savings bailk in Florida, I think one.
There are a number in other States, I think perhaps one or more in
as many as 17 States ; but the great bulk of them are in New England
and New York.
Mr. Gesell. Now, you have told us what a bank must do to become
a member. Let us assume that a bank has applied and qualified;
what is the next step?
Mr. Dewey. Let me state first that these papers showing the votes
have been taken and that the guaranty funds are on hand, are sent
to the commissioner of banks and the conmiissioner of insurance, and
they issue a joint declaration that the insurance department is estab'
lished. Then the commissioner of insurance issues a license and tha
bank is ready to begin business. Meanwhile, the State actuary has
prepared the policy forms for the bank in the intervening time and
they are provided with policy forms, premium rate sheets, and all
of the things that they will, need to conduct the business. The only
thing a new bank has to furnish is some kind of a cabinet in which
they can keep these ^t policy forms, but they start it without any^
outlay for equipment for policies or premium rate sheets or similar
material.
Mr. Gesell. Now, let me ask whether the bank must contribute to
any central guaranty fund when it enters into the system ?
Mr. Dewey. Not now. When the system was established it was
provided — you see, this thing had to be done on a basis where it not
only would be absolutely safe and sound but where it would appear
obviously so to the legislature that was considering it; and so it was
provided — should I wait until the chairman is through?
Mr. Gesell. No.
4458 CONCENTRATION OF ECONOMIC POWER
Mr. Dewey. And so it was provided not only that the insurance
to be written shoiild be legal-reserve insurance under the laws of
Massachusetts, but that there should be a statutory requirement of
the building up of some surplus in the insurance department. Then,
in addition to that, -it was provided that 4 percent of all premium
income of every kind should be paid in to these trustees of the general
insurance guaranty fund to be held by them and used for the making
good of tbe impairment of the reserve or for any other purpose for
which it might be needed by the insurance departments of these
banks.
Mr. Gesell. How big a fund was accumulated in that manner ?
Mr. Dewet. That fund accumulated to something over a hundred
thousand dollars. The law provided that after that fund — I have
just said, Senator, in the early days, in addition to legal reserve and
statutory requirements for surplus in each individual bank, the law
also provided that 4 percent of all premium income should be paid
into a special fund called the general insurance guarantee fund, to be
held by these trustees of whom I spoke earher, and to be used to
make good any impairment of the reserve in the insurance depart-
ment of any of these banks from unusual mortality or for any other
reason such impairment occurs. That fund accumulated to some-
thing over $100,000. The law also provided that when it became a
hundred thousand dollars or more, those contributions might be dis-
continued or reduced.
Mr. Gesell. So I understand there are no contributions at the
present time.
Mr. Dewey. Since that time — that is done with the approval of
the commissioner of insurance and commissioner of banks. Since
that time there have been no contributions to that fund. It has
accumulated to $180,000 or $190,000 by interest accretions and it has
never been needed. Those contributions could be at any time re-
sumed if the trustees of the general insurance guaranty fund felt it
would be desirable. Now, that would be quite a factor; premium
income being about 5,000,000 a year, that would be quite a factor.
Mr. Gesell. Do I understand when a bank enters into this system
then it must set aside a total, I think you said, of $25,000 with which
to commence operations?
Mr. Deavey. The bank doesn't set that aside. That money is pro-
vided to the Joank. Those funds don't come out of bank deposits. Not
a dollar of the savings department money can be used for the insurance
department. That $25,000 of guaranty fund is provided to the batik
by interested individuals.
Mr. Gesell. Oh, in other words, if the bank decides to go into it, it
doesn't have to put up any of its capital at all.
Mr. Dewey. It cannot. It does not put up a penny.
Mr. Gesell. It is prohibited from doing so.
Mr. Dewey. Oh, yes; they can't take a dollar out of the savings
department.
Mr. Gesell. During the course of operation of the bank after it
enters into the system, do I understand that segregation is maintained ?
Mr. Dewey. Oh, yes ; the statute provides for it definitely. One of
the few places where the language is repeated says that the assets of
the insurance department may not be taken for the savings depart-
CONCENTRATION OF ECONOMIC POWER 4459
ment and the assets of the savings department may not be taken for
the insurance department, and they shall be kept separate in matters
of accounting. They are kept entirely separate.
Mr. Gesell. At the present time what are the expenses, total funds
expended in the Division of Savings Bank Life Insurance of Massa-
chusetts ?
Mr. Dewey. Pardon me, before I answer that may I say that those
guaranty funds which have been put up in that way have all been
repaid to the people who put them up, and the law permits them to be
repaid with mterest at the same rate being paid in the savings de-
partment, and except for the two banks which came in last November,
those funds have been returned to those who put them up with interest.
Mr. Gesell. Now with respect to my question which was. How much
are the expenses of the division of savings bank life insurance ? Can
you tell us what the figure is at the present time ?
Mr. De\\t:y. Well, the appropriation last year was $64,000, 1 think.
Mr. Gesell. How is that appropriation made ?
Mr. Dewey. It is made in the regular way. It is a regular part of
the State budget. It is for the division of savings bank life insurance.
We have two items in the budget, personal service and other than per-
sonal. It includes the salary of the State actuary, medical director,
deputy commissioner, and clerks and employees; and then other than
personal is other exj^enses of the department, stationery, telephone,
telegraph. Our budget last year was $64,000. That is appropriated
whenever the budget is passed.
Mr. Gesell. Is that fund reimbursed at the present time by the
banks ?
Mr. Dewey. On or before December 30 for the State fiscal year
ending November 30 the entire State appropriation of that year is re-
paid to the treasury of the Commonwealth by the issuing banks under
a statute which we caused to be enacted in 1929 called the reim-
bui-sement statute. That is assessed upon the issuing banks, not an'
assessment — the statute provided for its allocation by the State actu-
ary among the issuing banks in proportion to their premium income.
Mr. Gesell. They in effect reimburse the State for the amount of
money that it has to appropriate to maintain the division of savings-
bank life insurance.
Mr. Dewey, They reimburse it for every penny spent for the di-
vision, but this interesting thing has occurred. The life-insurance
people, having first talked about the appropriation which they said
was a burden to the taxpayers, and they having been deprived of
that argument by reimbursement having been provided, in the last
year or two they have begun to say, "Yes, it is all repaid, but you
have the use of the money for a year without interest," and so we,
being tractable, reasonably persons, and liking to Jieep the life-in-
surance people happy if we can without hurting anything, we pro-
posed a bill in the legislature this year, which is what I spoke about
before the Ways and Means, just before I came down here, under
which we are going to provide the Commonwealth with the money in
advance, so now the Commonwealth will have the money in advance
for expenditure by the division of savings-bank life insurance.
Mr. Gesell. I understood. you to say this reimbursement feature
has been in existence since 1929.
4460 CONCENTRATION OF ECONOMIC POWER
Mr. Dewey. Yes, sir.
Mr. Gesell. Do I understand prior to that time the State was not
reimbursed for the appropriation which was necessary to maintain
the division of savings-bank life insurance?
Mr. Dewey. Not at all.
Mr. Gesell. What was the total amount of money expended by
the State from 1908 to 1929 in maintaining that division^
Mr. Dewey. About $500,000, a little less than that, $492,000.
Mr. Gesell. There is no provision for reimbursing the State for
that expenditure?
Mr. Dewey. Oh, no; and there won't be any provision for reim-
bursing. There is no reason why — actually there was no reason for
reimbursing any of it. The people in the division of State savings-
bank life insurance are State officers, performing a State function
just the same as any other State officer. There is no reason why their
salaries shouldn't be paid as they were by the Commonwealth of
Massachusetts. The reason we jQnally proposed reimbursement wasn't
because it wasn't proper for the State to pay State officers. It was
because the life-insurance men were using the fact that there was a
State appropriation. They were saying that that accounted for the
low cost of savings-bank life insurance and that the taxpayers were
paying for it. Of course, they weren't ; the savings banks, every one
of them from the day it established its insurance department, every
one of them has paid the expenses of running the insurance depart-
ment. The State has never subsidized the insurance department of
any savings bank.
Mr. Gesell. Let me see if I understand that. This five hundred-
odd-thousand-dollar figure has been money expended solely for the
maintenance of the division of savings-bank life insurance as a
department of the Massachusetts State government.
Mr. Dewey. That is all.
Mr. Gesell. The banks themselves since 1908 have always been
able to meet their expenses in writing, underwriting, and handling
insurance. Is that correct?
Mr. Dewey. They have always paid the expenses of their own
insurance departments and they have never even used a dollar of
the special expense guaranty fund.
Mr. Gesell. It has never had to go to that guaranty fund ?
Mr. Dewey. Not to either the expense or the guaranty insurance
fund, neither one.
Mr. Gesell. Can you tell us a little more about this bank which
we have been following?
Mr. Dewey. I would like, if I may, sir, I would like to tell you
why we put in reimbursement.
Mr. Gesell. I will come to the question of reimbursement and
cost in more detail. I would like you to answer my questions.
Mr. Dewey. All right, the first question.
Mr. Gesell. The bank which has entered into this system com-
mences to write insurance after it has been approved.
Mr. Dewey. Yes, sir.
Mr. Gesell. What does it do to get insurance on its books?
Mr, Dewey. Well, there will be some publicity connected with the
fact that it has opened an insurance department. The local papers
CONCENTRATION OF ECONOMIC POWER 4461
will carry a story on it. It is a matter of news. The name of that
bank will be sent to all of the agencies which there are which
receive applications. There are 517 or 519 agencies which receive
applications for savings-bank life insurance.
Mr. Gesell. On that, in order that we can understand the mecha-
nism of this system, I show you a schedule entitled "Number and
Types of Agencies for Savings Bank Life Insurance on June 13,
1939."^ That purports to show the number of agencies of various
types per county in Massachusetts ; does it not ?
Mr. Dewey. Yes, sir.
Mr. Gesell. It was prepared by the State actuary; was it not?
Mr. Dewey. Yes, sir.
Mr. Gesell. Now I notice you have a total of 517 types of agencies
for savings-bank life insurance.
Mr. Dewey. Not 517 types, 517 agencies.
Mr. Gesell. Agencies.
Mr. Dewey. Yes, sir.
Mr. Gesell. I notice there are 36^ issuing banks or their branches.
Mr. Dewey. Twenty-six, oh, j^es; some of the issuing banks have
branches.
Mr. Gesell. Thirty-six the schedule states, 36 issuing banks or
their branches.
Mr. Dewey. You are correct.
Mr. Gesell. Those, I take it, are banks which directly issue
savings-bank policies; is that correct?
Mr. Dewey. No. 11, Mr. Chairman ; yes, sir.
Mr. Gesell. You then have a caption on this schedule "Agency
Banks or Their Branches." What is an agency bank?
Mr. Dewey. That is a savings bank, usually a savings bank. That
is a savings bank which doesn't wish to open an insurance depart-
ment for the purpose of issuing policies, but which does wish to make
savings-bank life insurance available to the people in its community,
and so it becomes an agency under a simple agency agreement. It
becomes an agency for the issuing bank.
Mr. Gesell. You mean by that if I were in Massachusetts I could
go to one of these agency banks and take out a policy issued by one
of the issuing banks?
Mr. Dewey. Yes, sir ; you could go into the Springfield Five Cent
Savings Bank, which is an agency, and make your application there.
They would send the application to the issuing ba.nk or to the State
House and then to the issuing bank, and the issuing bank sends it to
them. You could have your savings account /there if you wished,
pay your premiums and everything else.
Mr. Gesell. Do the agency banks have any particular affiliation
with a particular issuing bank?
Mr. Dewey. No, sir ; the agency banks, each of them, is an agency
for all of the issuing banks.
Mr. Gesell. What sort of fee is taken by the agency banks? I
assume there is some fee.
Mr. Dewey. Tiiere is a collection fee which is now 3 percent; up
to 2 years ago, a year ago, it was 2 percent of the premium income.
That is supposed to take care of the expenses of the agency bank
» Entered later as "Exhibit No. 738." See appendix, p. 4817.
4462 CONCENTRATION OP ECONOMIC POWER
in connection with handling the applications. It is not supposed
to be a source of profit.
Mr. Gesell. There is nothing for the application at all ?
Mr. Dewet. Payment for it?
Mr. Gesell. No fee?
Mr. Dewey. Oh, no.
Mr. Gesell. You have also on this schedule five public agencies.
What functions do they perform?
Mr. D-EWEY. "Well, they perform just the same — for instance, the
Lincoln House, a settlement house in the South End. There is no
savings bank anywhere near there and I suppose there are a thousand,
1,500 people in that community whose principal social headquarters
is that settlement house.
Mr. Gesell. So that settlement house acts in the same capacity as
the agency bank?
Mr. Dewey. Exactly.
Mr. Gesell. Do they get a fee?
Mr, Dewey. They do. I don't know whether they take it at the
Lincoln House, but at least they are entitled to 3 percent collection
fee.
Mr. Gesell. I notice there are 267 employer agencies.
Mr. Dewey. Yes, sir.
Mr. Gesell. Will you explain what an employer agency is?
Mr. Dewey. Well, an emploj^er wanting to make savings-bank
life insurance available to his employees, enters into an agency agree-
ment much the same as the agency bank agreement. The employer
agrees that he will receive applications for savings-bank life insur-
ance and send them to the bank where the policies may be issued;
that he will receive premium payme^its. He doesn't agree in the
agency agreement to make weekly pay-roll deductions, but prac-
tically all of the employers do; so that I could go in, if I worked
for the United Shoe Machinery Co., General Electric Co., in Lynn, or
Pittsfield, the Plymouth Cordage, or any of those places, I could
go into tlie office, the paymaster or treasurer's office and say, "I want
to take some savings-bank insurance." They have the application
there. I fill out the application. The examination is made by one
of our examiners, sometimes the plant doctor. In a large plant
frequently the plant doctor might be one of our examiners in the
community. The employer sends the application to the bank. , They
send it back to the employer when the policy is is^ied and he delivers
it to the employee.
Mr. Gesell. That sounds much to me like group life insurance.
Mr, Dewey. That has the advantages — not all the advantages — but
it would have the advantage of giving most of the people in the plant
an opportunity for coverage that will be at low cost, but it has ad-
vantages over group. It is in my opinion a much better thing than
group insurance.
Mr. Gesell. I suppose you have in mind that if a person takes out
insurance through an employer agency of this kind he may take
that policy with him if he changes his etnployment?
Mr. Dewey. Yes; that is one very great advantage; it is his policy;
he can keep paying the premiums ; of course, if he is insured under
a group policy he can convert that into an individual policy when he
leaves the employment, but that privilege isn't much value because
CONCENTRATION OF ECONOMIC POWER 4463
he has to convert it into a higher-priced policy. This is his own
policy and he keeps on with it — excuse me, it doesn't make it neces-
sary for him to stay on that particular job to keep his insurance.
Mr. Gesell. Now I notice you have headed here too, credit unions,
50 credit unions. They act in the same way, do they ?
Mr. Dewet. Exactly the same way.' Credit unions, I should say,
Mr. Chairman, I don't know how widely they are spread throughout
the country, but we have a lot of credit unions in Massachusetts and
they are very fine institutions ; they are conducted under the banking
department and they lend money on the security of three, usually
three, comakers, and they have grown a great deal. I happen to be
the director of a small one of State employees, with their assets two or
three hundred thousand dollars ; they have been conducted very, very
well under the supervision of the commissioner of banks, and they
serve a great purpose and those credit unions — they act as agencies
for savings-bank life insurance in the same way that employers do,
and they receive the same collection fee.
Mr. Gesell. I wish to offer this schedule entitled "Number and
Types of Agencies for Savings Bank Life Insurance on June 13,
1939," for the record.
The Chairman. The schedule may be received.
(The schedule referred to was marked "Exhibit No. 738" and is
included in the appendix on p. 4817.)
Mr. De"v\'et. May I say, Mr. Chairman, that it is incorrectly said
that the savings-bank life-insurance law made it unlawful for the
savings banks to employ agents. It didn't at all. This shows you
that we have provided opportunities, agencies for savings-bank life
insurance.
Mr. Gesell. Now let me see, Mr. Dewey. Is there anything, any
such thing in savings-bank life insurance as the reqular life-insurance
agent, as the term is familiarly known ?
Mr. Dewey. What the law forbids the bank to do is to employ
solicitors, doesn't forbid them having agents, though.
Mr. Gesell. They may make connections with organizations of
the type represented on this schedule^ which has just gone into the
record, but they may not employ soliciting agents ?
Mr. Dewey. That is it.
Mr. Gesell. There are, however, are there not, employed by the
banks persons known as instructors?
Mr. Dewey. Field instructors; two.
Mr. Gesell. Now what is the function of those field instructors?
What do they do ? How do they operate ?
Mr. Dewey. They go to factories and lecture to the workers and
explain savings-bank life insurance to them; the detail of how they
operate in particular factories depends somewhat upon the factory
conditions. If it is a small factory with a couple hundred workers,
the workers will probably be given half-hour or an hour on pay to
come together and they will all come together, and the instructor
will explain savings-bank life insurance. If it is a large factory
with several thousand and a lot of different rooms and departments,
the foreman will call them together, perhaps of one department at a
time for a half hour or so, and it is explained to them.
Mr. Gesell. Now who employs these instructors?
4464 CONCENTRATION OF ECONOMIC POWER
Mr. Dewey. They are State employees; they are ajDpointed under
the classified civil service, field instructors in the division of savings-
bank life insurance; there are only two.
Mr, Gesell. They are then connected with the division of savings-
bank life insurance?
Mr. Dewey. Oh, indeed, they are employees in the division.
Mr. Gesell. Their expenses are included in this?
Mr. Dewey. Reimbursement.
Mr. Gesell. This appropriation which is reimbursed?
Mr. Dewey. Oh, yes.
Mr. Gesell. Do they work for any particular bank or attempt
to sell policies in any particular bank ?
Mr. Dewey. Oh, no, indeed; not employed by the banks at all.
Mr. Gesell. Do they get any commission if they succeed in get-
ting business for the banks ?
Mr. Dewey. Their compensation is fixed by statute under the laws
of Massachusetts and does not depend in any way upon the amount
of business that is dii*ectly or indirectly attributable to their work —
has nothing to do with it whatsoever. As a matter of fact, one
instructor today is working in Fall River. There hasn't been any
instruction work done in Fall River for 15 or 20 years.
Mr. Gesell. And do I understand
Mr. Dewey (interposing). Excuse me. And he came up to me on
Friday and said, "Mr. Dewey, there won't be any insurance written
as a result, immediate result, of my work in Fall River." I said,
''That is all right; you keep right on." He is going to be there for
3 or 4 weeks, just lecturing in these factories; they don't know any-
thing about this thing, or much about it.
Mr. Gesell. I take it these instructors don't take applications
themselves at all?
Mr. Dewey. They would help you fill out your application; they
wouldn't take the application, but they wJU help you fill it out;
yes, sir. You see in each case where they do instruction work the
employer has become an agency; the application would be ^iven to
the employer's office and sent in ; the instructor doesn't take it at all.
Mr. Gesell. Do the banks advertise?
Mr. Devtey. Yes, sir.
Mr. Gesell. In what manner do they advertise?
Mr. Dewey. Well, they advertise in a variety of ways. All savings
banks in Massachusetts are permitted by the commissioner— banks in
the last 20 years, anyway — to do some newspaper advertising. You
see, savings bank or bank advertising is not particularly striking. It
says the name of the bank and the amount of the dividend being paid,
and those banks which are agencies for savings-bank life insurance
or issuing banks put into their regular advertisement, "We are an
agency for savings-bank life insurance." The issuing banks and some
of the agency banks publish advertisements which relate only to
savings-bank life insurance.
Mr. Gesell. Is it true that some of the banks place literature in
passbooks and leave it around in leaflet form for people to pick up
and look at?
Mr. Dewey. Oh, yes; and they have, for instance, just now they
have a new thing just going out; a slip ^bout this size [indicating]
CONCENTRATION OF ECONOMIC POWER 4465
that goes in every letter written, every mortgage interest notice;
every communication to a depositor will contain that little slip which
says :
Savings-bank life insurance is available at this banlc ; inquire about it if you
are interested.
Mr. Gesell. What about radio advertising?
Mr. Dewey. For the last 2 years and a half, I think, radio adver-
tising has been conducted — it is now conducted by a group represent-
ing the issuing banks. That is all paid for by the issuing banks ; cost
about. Oh, $10,000 for the radio advertising last year, I should say.
That is not very much.
Mr. Gesell. Now may I ask if you recognize this schedule which
I show ^ou, entitled "Savings Bank Life Insurance," showing num-
ber of persons insured for the several stated amounts?
The Chairman. Before that is put in, may I ask Mr. Dewey why
it was decided to prohibit solicitation?
Mr. Dewey. Because, Mr. Chairman, that is, firstly, the largest
single item of expense in providing life insurance by the companies ;
the largest single item of expense is commissions to agents, and you
can never provide life insurance to people at what life-insurance pro-
tection needs to cost if you are going to pay 40 and 50 percent of
the first premium to somebody for selling the policy. Every policy,
practically every policy, I think every new policy, sold by the life-
insurance companies today is sold actually at a loss to the existing
policyholders. So much is paid out for agents' commissions, acquisi-
tion costs, that they have to borrow from their surplus to set up
legally required reserve on that new policy, and they don't get even
unless that policyholder stays in for 3 or 4 years.
The acquisition cost, the commissions to agents firstly, that ifem of
cost. Then the commissions are so high and there are so many agents
working for them that the agents themselves are bound to feel under
a good deal of pressure to sell policies, and the result is the selling
of policies to people frequently who don't want to buy policies; buy
them under pressure, with a large resulting termination, lapses of
those policies. That is expensive. That costs money, and it all has
to be paid for by the policyholders.
The Chairman. Yet it is probable, is it not, that many persons are
insured today who ought to be insured, and who are able to carry
the insurance, but who never would have been insured had they not
been solicited?
Mr. Dewey. I have no doubt there are such cases ; perhaps a great
many. There is no way of determining, but, I think, sir, that it is
fair to say tliis, that the contention that is put forward without any
qualifications and justification, of the high-cost agency system is that
people won't buy insurance that has to be sold to them. Now, that
statement is not true, and it is not capable of being proven ; it is true
ther6 is more life insurance in force in America than European coun-
tries, but there are more bathtubs, more radios, lots of things, here ;
people are better able to buy them. We don't know that people won't
buy. The records indicate that they are buying it in savings banks,
life insurance in Massachusetts, and they keep it when they buy it.
The Chairman. I gather from glancing over these exhibits that
perhaps you intend to go into that subject ?
4466 CONCENTRATION OF ECONOMIC POWER
Mr. Gesell. I do, Senator, in more detail, when we get to the
questions of cost and mortality experience, and some of those other
matters. Now, Mr. Dewey, I have asked you if yoli recognize a
schedule entitled "Savings Bank Life Insurance," showing number
of persons insured for several stated amounts?
Mr. Dewey. Yes, sir.
Mr. Gesell. That schedule I wish to offer for the record at the
present time.
The Chairman. The schedule may be received.
(The schedule referred to was marked "Exhibit No. 739" and is
included in the appendix on p. 4817.)
Mr. Gesell, How many policyholders does this schedule show
that your institution has, Mr. Dewey ?
Mr. Dewey. I am not sure. Counsel, that I have a copy of that.
Mr. Gesell. It shows 82,221 policies-, does it not ?
Mr. Dewey. No, sir; 82,221 policyholders.
Mr. Gesell, Policyholders?
Mr. Dewey. That is the number of persons, this schedule here;
that is the number of persons ; it isn't in there, Mr. Chairman ; this
is the only one we have. This is the tabulation of the number of
persons who were insured in savings-bank life insurance on indi-
vidual policies on August 31, 1938.
Mr. Gesell. In other words, at that time you had 82,221 persons
insured in the system?
Mr. Dewey. On individual policies^ that is excluding group.
Mr. Gesell. Now, of those persons insured what percentage had
policies of $500 or less ?
Mr. Dewey. 26.79 percent.
Mr. Gesell. What percent had policies of $1,000 or less?
Mr. Dewey. 76,41 percent.
Mr. Gesell. And what percent had policies of $2,500 or less?
Mr. Dewey. 86.56 percent.
Mr. Gesell, Now, I notice that there are some persons who have
policies as high as $24,000, There were 73 such persons, were there
not?
Mr. Dewey. Yes, sir.
Mr. Gesell. What is the total amount of insurance that any one
bank may issue ?
Mr. Dewey. $1,000.
Mr. Gesell, On a single person? I take it these 73 people who
had policies of $24,000 apiece were persons who had gone around to
each of these banks and taken out $1,000 ?
Mr, Dewey. They hadn't gone around, but they had taken out
$1,000 policy in each bank;- they can do it all in one bank.
Mr. Gesell. YoU; mean it is possible to go to a single bank and
take out any amount of insurance up to an amount equal to $1,000
for each issuing bank ?
Mr, Dewey. Yes,. sir; it was at that time.
Mr. Gesell. Those applications can all be written at a single
bank?
Mr. Dewey. Yes, sir.
Mr. Gesell. And the mechanics of distributing it among the
other banks is handled by the bank itself ?
Mr. Dewey, Yes, sir.
CONCENTRATION OF ECONOMIC POWER 4467
Mr. Gesell. What is the maximum that anyone can take out at
the present time ?
Mr. Dewey. At the present time the maximum is $25,000. There are
26 banks issuing policies, but we don't allow anybody to buy $26,000.
JNIr. Geseix. I notice that the maximum persons taking out $24,000
were .09 percent of the total?
Mr. Dew^ey. Yes, sir.
Mr. Gesell. The great bulk of your policies are 76.41 percent, or
$1,000, or less, are they not?
Mr. Dewey. YeSj sir.
Mr. Gesell. I wish to offer this schedule for the record.
Mr. Dewey. Now, let me say that those $500 or less include a great
many $250 policies, some 150's and lOO's, but it was a matter of con-
siderable expense to break those down below $500; we broke those
down $500 or less, representing 26 percent.
Mr. Gesell. You have, then, a considerable percentage that are
below $500?
Mr. Dewey. Of those less than $500, the great majority are $250;
that is what we recommend people to buy on a child.
Mr. Gesell. Now I show you a schedule entitled "Amount of New
Insurance Written and Insurance Terminated in Massachusetts Dur-
ing the Year 1938."
Mr. Dewey. That schedule is in the exhibits, I think, isn't it?
Mr. Gesell. Was that schedule prepared by your organization?
Mr. Dewey. Prepared by the State actuary.
Mr. Gesell. I wish to offer the schedule for the record.
The Chairman. It may be received.
(The schedule referred to was marked "Exhibit No. 740" and is
included in the appendix on p. 4818.)
Mr. Gesell. Will you state, Mr. Dewey, what that schedule shows?
Mr. Dewey. Well, it shows first an illustration, Mr. Chairman, of
what I said in response to your question regarding the prohibiting of
solicitors on commission. There is the experience in Massachusetts
in the year 1938. That word "ordinary" up there means to distinguish
it from industrial ; this is ordinary level yearly premium.
The Chairman. What number is this ?
Mr. Dewey. It is that one before you now. That shows that in
that year 1938 the 46 companies which write life insurance in Massa-
chusetts, with the savings banks, issued, sold, and issued a total of
$293,000,000 new insurance in that year ; that is the first column. The
next column shows terminations, 258,000,000 terminated during the
same year; and the next column shows the net gain in insurance in
force.
The Chairman. The column on terminations includes all types?
Mr. Dewey. All types of terminations — death, surrender, lapse,
everything — but that is the insurance that terminated. Now, the net
gain for the year was $35,000,000. The new issues were 293,000,000.
Now, the commissions on that 293,000,000 — if you look in the right-
hand column you will see that the gain in savings-bank life insurance
that year was nearly 16,000,000 ; the total gain for all 47 institutions
was only 35,000,000.
Mr. Gesell. So it is correct to say that no company gained as much
insurance in force in Massachusetts in 1938 as did the savings banks?
124491 — 40 — pt. 10 22
4468 CONCENTRATION OF ECONOMIC POWER
Mr. Devtet. Nobody gained as much; four companies wrote more,
but nobody gained as much as the savings banks did.
Mr. Gesell. What percentage did the savings banks account for of
the new issues ?
Mr. Dewey. They accounted for only 6.8 percent of the new issues.
Mr. GeselIj. And what percent did the savings banks account for
of the total increase in insurance in force ?
Mr. Dewey. More than 45 percent of the total increase in insurance
in force was in the savings oanks. Now, I was going to say, Mr.
Chairman, you will notice that the gain then in the 46 companies, the
total for the 47, was only 35 million. The gain of the savings banks
was nearly 16 million : so that the total gained by those 46 companies
was only about 20 million. Well, they paid about that much agents'
conmiissions to sell that 293 million.
Mr. Gesell. Now going
Mr. Dewey (interposing). What other business could do that?
Mr. Gesell. Going on with this matter, Mr. Dewey. Will you tell
us how the lapse experience of savings banks life insurance compares
with the lapse experience of the companies writing business in
Massachusetts ?
Mr. Dewey. Of course, the lapse ratio in savings bank life insurance
has consistently been very much lower.
Mr. Gesell. Have you any figures which compare the percentage
of policies lapsed to the percentage of policies issued for the savings-
bank life insurance banks as compared with the companies doing
business in the State ?
Mr. Dewey. Yes, sir.,
Mr. Gesell. Can you give us some idea of what that comparison
shows ? Let's say for the period from 1927 to 1937.
Mr. Dewey. Let me say first that our insurance commissioner's re-
port in Massachusetts is not available for the years since 1936 ; the '36
report is just out now. Let me say that is not at all the fault of the
insurance department. Our annual report — this is not my depart-
ment; this is another department — the report is audited, the figures
from the companies, their annual statements are audited by the depart-
ment of insurance before they go into the annual report; that means
that the annual report of our commissioner of insurance comes out
about a year after the year is terminated.
Mr. Gesell. What you are saying is that your figures are based
upon the annual reports and the annual reports aren't available since
1937?
Mr. Dewey. 1936.
Mr. Gesell. Then, will you give us the figures for the period prior
to 1936?
Mr. Dewey. We will take 1927. The lapse ratio in industrial com-
panies was 58 percent ; in the ordinary companies, the ordinarj^ busi-
ness, you understand, Mr. Chairman, the distinction between indus-
trial insurance, weekly premium insurance, and the so-called annual
or annual.
The Chairman. Yes ; that is understood.
Mr. Dewey. I am sorry if I assumed too much. In the ordinary
the lapse ratio was 24 percent, in the savings banks it was 93 hun-
dredths of 1 percent.
CONCENTRATION OF ECONOMIC POWER 4469
Mr. Gesell. Now, I take it when you say lapse ratio you mean
the relationship between the percentage of policies lapsed to the
policies issued during the year?
Mr. Dewey. That is the basis used.
Mr. Gesell. Those are figures used by the commissioner of insur-
ance in the State of Massachusetts ?
Mr. Dewey. Yes, sir; that is one method of termination, lapse.
Mr. Gesell. How do those figures reflect these for subsequent years ?
Mr. Dewey. Well, in 1930 the lapse ratio in the industrial busi-
ness was 74.91 percent. In the ordinary business it was 32 percent;
in the savings banks it was 1.2 percent. In 1932 the lapse ratio
on the industrial was 107 percent. They lapsed more than they
wrote that year. The laps© ratio for the ordinary was 42, and the
lapse ratio for savings banks was 2.63.
In 1936 the lapse ratio in the industrial was 34.52 and the ordi-
nary 29.9, and in the savings banks 1.25 percent.
Mr. Gesell. Now, may I ask you this: Is there any reason — is
one of the reasons why the lapse ratio of the savings bank life insur-
ance reflects itself better than these other companies the fact that it
pays surrender values at a much earlier period than the ordinary
companies do ?
Mr. Dewey. Yes, sir ; that does help account in part for it.
Mr. Gesell. How long must I have a policy in force in savings bank
life insurance before I have a surrender value?
Mr. Dewey. Every policy issued by the sav^r.gs banks has a cash
surrender value of the full legal reserve, without any surrender charge
after 6 months' premiums have been paid.
Mr. Gesell. Is that written into the statute?
Mr. Dewey. That is required by the statute, but in addition to the
requirement of statute, when we were getting out new policy forms
November 1, the State actuary said to me, "We don't have to wait
6 months to give a surrender value; we can give a surrender value
any time after the policy is issued." It wouldn't be quite fair to give
the full legal reserve immediately after the policy is issued, because the
medical fee for writing that policy is $2 for examining the applicant,
and we could have done it all right, but it would have meant that
these applicants who dropped out within a month were getting a
little something that somebody else paid for, so we make a surrender
charge of $2 if you surrender the policy within 6 months ; that is, it
begins with $2.
Mr. Gesell. And after 6 months you get the full reserve?
Mr. Dewey. Full reserve; but you have a surrender value at any
time after the policy is issued if the reserve is more than $2.
Mr. Gesell. Now, how does that compare with the companies
operating in Massachusetts ? What is the usual period within which
a policy must be in force before some surrender value accrues to
the policyholder?
Mr. Dewey. Well, the laws of Massachusetts, and I think New
York, other States, require that the standard ordinary form — stat-
utes in those States, in Massachusetts and the other States, ha,ve what
we call, not irreverently, the "ten commandments," 10 things that
must be in the standard form ; one thing is a loan value land a cash
surrender value after 3 years' premiums have been paid.
4470 CONCENTRATION OF ECONOMIC POWER
Mr. Gesell. So that is the customary procedure in the companies?
Mr. Dewey. That is the requirement but I think quite a number
of the companies are now giving a cash surrender value after 2 years,
some of the better ordinary companies, but let me say that that
surrender value is subject to a substantial surrender charge.
Mr. Gesell. You mean that the companies do not give the entire
legal reserve?
Mr. Dewey. They give — it says in the books "full reserve allowed,
minus surrender charge," for instance.
Mr. Gesell. For what period do the companies make a surrender
charge, generally speaking? Is it around 10 to 20 years?
Mr. Dewey= Well, I should say, in fairness to those companies
which are doing better on that thing, that it ought to be looked
up and ought not to be taken as a general observation. Some of
them are now giving or discontinuing surrender charges within, oh,
early years. The .Metropolitan in their ordinary department, their
surrender charge is 2i/2 percent of the face of the policy, disappear-
ing at the end of 20 years. Now quite a number of them have the
surrender charge disappear earlier than that, but you could see how
that would affect what the person would get back. Suppose the
reserve at the end of 3 years is $33 on the Metropolitan policy. You
get that full legal reserve minus surrender charge, 21/2 percent of
the face of the policy. Now 2^^ percent sound small, but 21/2 percent
of $1,000 face of a policj^ is $25, so that if you had that $33 reserve
on that Metropolitan policy you would get $33 minus 25 ; you would
get $8. If you had it on a savings-bank life insurance policy the
reserve would be just the same. We are all on the same reserve
basis, but you would get the $33, not minus $25. You would get $33
instead of $8.
Mr. Ballinger. Is the reason your policies have an immediate
surrender value attributable principally to the fact that you don't
pay any agents' commissions?
Mr. Dewey. Yes^ sir ; and we have that money.
Mr. Gesell. The only expense you have to make allowance for
is this $2 medical expense, is it not, and as soon as the reserve is
sufficient to take care of that you pay the full reserve back when
the policy is surrendered ?
Mr. Dewey. Of course, there is a little expense. There is the print-
ing of a nice policy form and some few things of that type, but the
principal item is the $2 medical fee, and we make enough profit on
them to get that $2 back in 6 months.
Mr. Ballinger. In previous testimony the^^ have emphasized the
considerable cost in setting up this reserve against each policy. That
also was one of the reasons they had to advance the time for surrender
value.
Mr. Dewey. There is no expense about setting up the reserve. The
table tells what the reserve is. There is no expense about setting it up
at all. It just is automatically there. The insurance commissioner
makes you put it up as a bookkeeping liability ; that is all.
Mr. Gesell. I show you a schedule entitled "Kelative proportions
of amounts of insurance terminated by lapse and surrender in Massa-
chusetts savings banks and in Massachusetts insurance companies,
1911-38." Do you recognize that schedule as a schedule prepared by
CONCENTRATION OF ECONOMIC POWER 4:471
the actuary of the savings-bank life-insurance division of Massa-
chusetts?
Mr. Dewey. Yes, sir.
Mr. Gesell. Am I correct in stating that this schedule shows as 100
percent the total lapses and surrenders of the companies and has di-
vided that amount of termination by allocating what percentage went
to lapse, what percentage went to surrender?
Mr. Dewet. Yes, sir.
Mr. Gesell. I wish to offer the schedule for the record.
The Chaikman. The schedule may be received.
(The schedule referred to was marked "Exhibit No. 741" and is
included in the appendix on p. 4819.)
Mr. Gesell. Have you any comments to make on that schedule ?
Mr. Dewey. Just that I think it is perhaps significant of the differ-
ent treatment that the policyholders get. In the industrial business of
100 terminations, 64 of them are lapses. You understand, gentlemen, a
lapse is a forfeiture. A lapse doesn't mean just a policy where you
have stopped paying premiums. It is frequently used that way some-
what loosely, but in the report of the insurance commissioner and in
insurance circles a lapse is a policy where you have discontinued paying
premiums before you could get back any cash or any paid-up or
extended insurance. It is a forfeiture, except for such protection as
you had up to that time.
The Chairman. Lapse does not include surrenders ?
Mr. Dewey. No ; lapse means where you stop paying before you can
get anything.
To finish answering your question, in the industrial companies in
1937 of 100 terminations of these 2 classes 64 were lapses and only 36
were surrenders ; on the surrenders they got something back. In the
ordinary business, the nice business, 54 out of 100 were lapses and 46
were surrenders, a little better than the industrial, you see. The
ordinary policyholder gets treated better than the industrial all the
way around.
Then in savings-bank life insurance, out of 100 terminations only
10 were lapses and 90 were surrenders. Those lapses don't occur with
us at all, because if you pay a 1-month premium and then discontinue,
then the policy is a lapse, but if you keep on for 6 months it can't
become a lapse. You get something back when you quit.
The Chairman. In other words, whenever the reserve is more than
$2 there is no lapse.
Mr. Dewey. There can't be a lapse there; no, sir; after 6 months
there can be no lapse. There can be no forfeiture after 6 months.
Mr. Gesell. What about your policy terms; are they just the same
as the old-line companies, or are they more strict or more liberal?
Mr. Dewey. They contain, they have to contain under the law all
of the things required by statute for standard ordinary-form legal-
reserve policies, but in certain particulars, particularly in those
which we have just discussed, they are more liberal. The law re-
quires a 3-year cash value and we give one in 6 months; the law
requires a 3-year loan value and we give one in a year, and we give
these without any surrender charges. Those are the particular pro-
visions in which the policy is more liberal than the standard ordinary
form.
4472 CONCENTRATION OF ECONOMIC POWER
The Chairman. Mr. Gesell, I assume you have gathered a com-
plete file of all these various forms, have you not ?
Mr. Gesell. Yes; we have. I didn't want to burden you with
that.
The Chmrman. I .wanted to be sure they are available.
Mr. Gesell. They are available to the committee.
Mr. Dewey, to get me straight on one thing, these savings banks
write participating insurance, do they not?
Mr. Dewey. Only.
Mr. .Gesell. There is no nonparticipating insurance ?
Mr. Dewey. No. Under the law of Massachusetts you are not sup-
posed to write both participating and nonparticipating. I notice
some of them are doing it a little bit. This is a mutual undertaking
and writes only participating insurance.
Mr. Geseijl. What about policy loans? Can a man who has a
policy in a savings bank borrow?
Mr. Dewey. He can borrow the full legal reserve without any sur-
render charge being deducted from it, and we have al\^ays loaned at
5 percent, that was until recent years. The practice of the companies
was to loan at 6 and we have always loaned at 5. Until recent years
.5 percent was about what the policyholder's money would earn. If
interest rates continue down as they are, we will make a further re-
duction in policy loan interest rates.
Mr. Gesell. May I ask how the mortality experience of the savings
banks has compared with the mortality experience of other companies
operating in the State of Massachusetts?
Mr. Dewtiy. By those operating in Massachusetts, you mean not
their Massachusetts business but their business all over America?
Mr. Gesell. Yes.
Mr. Dewey. Well, the mortality experience in the savings banks
has been very much more favorable than the experience of the com-
panies over this entire period of 30 years since the system was estab-
lished.
Mr. Gesell. Is the difference between the experience of the com-
panies writing ordinary insurance and the companies writing indus-
trial insurance, savings-bank life insurance, demonstrated on this
schedule eiltitled "Mortality Experience of Massachusetts Savings
Bank Life Insurance Compared With Life Insurance Companies"?
Mr. Dewey. Yes, sir; that was prepared by the State actuary.
Mr. Gesell. It is correct, then?
Mr. Dewey. Yes, sir.
Mr. Gesell. This schedule shows that in 1910, for example, the
ratio of actual to expected mortality for the savings banks was 30.84
percent ; for the ordinary insurance companies, 70.63 percent ; and for
the industrial companies, 104.49. Is that right?
Mr. Dewey. Yes, sir.
Mr. Gesell. Have you any comments which you wish to make on
this schedule?
Mr. Dewey. My only comment on the schedule would be, firstly,
that it shows from 1910 to 1938 for each year of the period a lower
percentage of actual to expected mortality in the savings-bank system
than there was in the ordinary companies or in the industrial com-
panies.
CONCENTRATION OF ECONOMIC POWER 4473
Mr. Gesell. Do you us© the same mortality table ?
Mr. Dewey. We are required by law to use the American Experi-
ence Table, old 1860.
Mr. Gesell. These figures come, do they not, from the reports of
the insurance commissioner of Massachusetts?
Mr. Dewey. They are taken from a public document, the report of
the insurance commissioner.
Mr. Gesell. I offer this for the record.
The Chairman. It may be received.
(The table referred to was marked "Exhibit No. 742" and is
included in the appendix on p. 4819.)
Mr. Dewey. I would like to make this further comment, that this
schedule includes the years 1917, 1918, and 1919, and one of the —
not criticisms, but one of the constant statements made by the life-
insurance men about savings bank life insurance in the early years
was that its mortality would get higher and that if there was an
epidemic or anything of that sort the thing probably wouldn't
stand.
Mr. Gesell. And the experience of the savings banks during that
time of the influenza epidemic was as satisfactory as that of the
other companies?
Mr. Dewey. 1918 was the flu epidemic. I was saying, Mr. Chair-
man, that dire things had been predicted for savings bank insurance
if there ever was an epidemic in Massachusetts, and the epidemic
came, the flu in 1918. Our mortality experience was 77.9 percent of
what the American Experience Table said would occur, 77 percent.
The ordinary companies' was 96 percent and the industrial companies'
142 percent. That is on schedule No. 6, the year 1918.
Mr. Gesell. I might call to the attention of the committee that
there was introduced into the record yesterday "Exhibit No. 730,"
being a letter from the statistician of the Association of Life Insur-
ance Presidents to certain members dated February 28, 1935, with
respect to the savings-bank bill in the State of New Hampshire.^
The letter states as follows, bearing on this point :
Maj. Robert P. Burroughs, special agent of Manchester, N. H., of the National
Life Insurance Co. of Vermont, who was active in the opposition of this
measure, has suggested that we request the actuaries of several companies to
write him with respect to the actuarial defects of a proposal of this nature.
He has particularly in mind that any life insurance originating from such a
small geographical area could not place the usual reliance in mortality aver-
ages, with the result that any local epidemic might be disastrous.
It is that type of criticism to which you referred a moment ago ?
Mr. Dewey. Yes ; and I would like to comment there.
The Chairman. Of course, that wasn't a local epidemic.
Mr. Dewey. Oh, no; but these companies were operating there in
Massachusetts also. I should like to say in passing a word as to what
I said about the desirability of the actuary being free and independent.
I don't know what occurred as a result of this thing, but here were the
actuaries, or the companies asking the actuaries to write a particular
type of statemen<>-no suggestion that they investigate the facts apd
find what they would be, but here was a political campaign in New
Hampshire against the savings-bank life-insurance bill, the actuaries
^ See appendix, p, 4810.
4474 CONCENTRATION OF ECONOMIC POWER
of the companies being asked to state as actuaries that the mortality
experience would be bad.
Mr. Gesell. I take it the point you wish to make is that you fee]
there are advantages in the actuary being free from underwriting or
• political influence.
Mr. Dewey. Yes. I don't think it works out badly, for the actuaries
are a pretty fine lot, but I think it is nice for them to be free. •
(Representative E.eece assumed the Chair.)
Mr. Blaisdell. May I ask a question? I wonder if the witness
would care to indicate whether the schedule as he has submitted it
reflects the fact that apparently in the State of Massachusetts the mor-
tality experience has been better than the mortality experience for the
country at large.
Mr. Dewey. I should think in part so, sir. We haven't any quick
answer to the frequently made query as to why our mortality is lower
than that of the companies. It is a matter that has concerned the
companies a good deal, and we haven't a short answer ta it — it involves
a lot of things. We think that it is in part due to the fact that general
conditions under which people live, particularly the masses — because
that is what makes up every life-insurance company's business; we
read about somebody with a million dollars of life insurance, but no
company could live on that ; it is the masses which make up the volume
of every life insurance institution — and particularly the conditions
under which they work are, I won't say better in Massachusetts than
in any other State, but I think as to matters affecting their health and
their safety at work they are better than in the average States. I have
had some talk about that matter with persons in the department of
public health and Harvard Medical School. It is a matter of some
interest to them why we should have this long experience of lower
mortality. The department of public health told me, for instance,
that 98 percent of the people in Massachusetts have access to drinking
water which is certified by the department of public health. A lot of
those things exist. We had an early industrial accident lav/ in Massa-
chusetts and conditions in the factories there for avoiding occupational
diseases and hazards and things of that sort are pretty well taken care
of in Massachusetts. I haven't any doubt that that is one factor. I
think this may be another factor — I wouldn't undertake to estimate the
relative value, but I think there is some advantage in the fact that the
chief medical oJfRcer of our system is entirely free of those who are
interested in writing the policies. That may be in part, I think that
probably is, a factor.
Mr. Blaisdell. That is, there is a selection to a certain extent.
Mr. Dewey. The rules of acceptability are the same.
Mr. Blaisdell. Yes; I understand.
Mr. Dewey. For instance, before I left my ofiice day before yester-
4ay, a person high — not way high but fairly up in the State govern-
ment— called me up and said, "There's a gentleman in my office now
who has been declined by your State medical director for $2,000.
Can't we do something about it?"
And I said, "No."
"Well," he said, "Dr. Burnett" (the State medical director) "is in
your department."
I said, "Yes." I said, "I have never told Dr. Burnett that I wanted
him to take somebody that he didn't want. I don't know what he
CONCENTRATION OF ECONOMIC POWER 4475
would say, I can. imagine what he would say. He is entirely free to
say it because he is not even under my control ; he is the State medical
director ; he is responsible to the trustees, not to me, and he is not sub-
ject to pressure to accept a risk that he doesn't want." I think that
may make a difference, because there might be pressure, which there
no doubt is, from those who are interested in getting the policy
written.
Mr. Gesell. It goes back again, I take it, to the fact that there
isn't the underwriting pressure that you feel may exist in some other
companies ?
Mr. Dewey. Yes. For instance, in many of the companies, there
is an underwriting committee ; that underwriting committee includes
representatives of the business. The only underwriting committee
we have is the State medical director; he tells whether the risks are
all right or not.
Mr. Gesell. Mr. Dewey, have you had prepared by the State actuary
a comparison between the interest earned by the savings banks in
Massachusetts with the interest earned by all insurance organizations,
including savings bank life insurance, from 1920 to 1938 ? Is that the
schedule ?
Mr. Dewet. Interest earned by the insurance aepartments of the
savings banks ; yes, sir.
Mr. Gesell. I wish to offer that schedule for the record.
Acting Chairman Reece. It may be admitted.
(The schedule referred to was marked "Exhibit No. 743" and is
included in the appendix on p. 4820. )
Mr. Gesell. That shows, does it not, that for the year 1920 the
savings bank life insurance departments earned a net rate of income
of 5.58 and all organizations 5.03. Generally, since that time the
savings banks have had a better earning record, have they not ?
Mr. Dewey. They have had consistently a better earning record.
That is the insurance departments, the life insurance departments of
these savings banks in Massachusetts earned a higher net rate of re-
turn on their invested funds than the average oi the life-insurance
companies were able to do during any of that period.
Mr. Gesell. To what factors do you consider that attributable?
Mr, Deave^i. I should suppose in the first place a perfectly natural
reason why it should be true is that the trustees of savings banks,
say the little Whitman Savings Bank with assets of five or six million
and with premium income of a few hundred thousand, can do a
better job investing that sum of money than anybody can do with
two or three or four millions dollars a day; I should* suppose just
reasonably that that would be so.
Mr. Gesell. You mean you feel they don't have as much money
to place out in investments from day to day and therefore it is pos-
sible for them to have a greater range in which to exercise their dis-
cretion ?
Mr. Dewey. Well, no; not that; not greater range but they can de-
vote more time and attention to the particular investments, they can
make sure of the quality olthem. WTien you go to a savings bank in
Massachusetts to get money on a mortgage, it is not a $20,000,000
mortgage, it is probably a $1,500 or a $3,000 mortgage. The persons
in that savings bank who would consider the application, in a great
'majority of cas^, wilt> know the man applying for the mortgage,
4476 CONCENTRATION OF ECONOMIC POWER
they will know what kind of person he is^ they will go and look at
his house, they know whether he pays his bills or keeps his cellar
clean, they know what kind of person they are dealing with.
Mr, Gesell. These banks have invested more in the locality around
them and therefore have better acquaintance with the nature of the
investment, the nature of the borrower.
Mr. De\vey. That would be true of their real-estate mortgages.
Mr. Gesell. May I ask whether the insurance departments of the
savings banks are limited to the same investments which the insur-
ance companies are limited to?
Mr, Dewey. They are more strictly limited.
Mr. Gesell. Will you explain that? I take it that you mean the
savings-bank insurance departments are more strictly limited.
Mr. Dewey. Yes, sir. The insurance departments of the savings
banks of Massachusetts — it is the same for New York but I am talk-
ing about Massachusetts — are restricted to the same class of invest-
ments that are legal for the savings deposits, what we call in Massa-
chusetts the legal list. It is a list that is legal investment for savings
deposits, and those are of such a character that, for instance, a trustee
can invest in the "legals" without specific authorization from the
court; if he invests outside of the l6gals he takes his own risk. It is
the so-called legal list for trust funds, savings-deposit funds in Massa-
chusetts. Now the insurance departments, as to every dollar of their
assets, both reserve and surplus, are restricted to the legal list. The
life-insurance companies operating under the laws of Massachusetts
are restricted to not exactly the same but a similar list, but they are
restricted only as to an amount equal to three-quarters of their re-
serve. The remainder of the reserve and the surplus are not so
restricted. But notwithstanding tliat more restricted class of invest-
ments, the savings banks have earned consistently a higher rate of
return than insurance companies have earned.
Mr. Gesell. I would also like to ask you if you can identify the
schedule entitled "Expense of operation, percent total expenses are of
premium income in savings bank life insurance, 1920 to 1938." Was
that schedule prepared by the actuary?
Mr. Dewey. Yes, sir.
Mr. Gesell. I wish to offer it for the record.
Acting Chairman Keece. It may be admitted.
(The schedule referred to was marked "Exhibit No. 744" and is
included in the appendix on p. 4820.)
Mr. Gesell. Mr. Dewey, this would indicate that at all times from
1920 to 1937 the percent of expenses to premium income of the
insurance departments of the savings banks has been considerably
lower than that for either ordinary or industrial insurance.
Mr. Dewey. Yes.
Mr. Gesell. To what do you attribute the fact that the expense
percentage is lower in the case of savings-bank insurance ?
Mr. Dewey. Of course, the largest single factor is the absence of
agent's commissions, but that is not the only thing ; that is the elimina-
tion of the largest single item of expense that there is in the life-
insurance business.
Mr. Gesell. Do you think that accounts for the entire difference
between, say, what we had in 1937 of 7.16 percent for the insurance
CONCENTRATION OF ECONOMIC POWER 4477
departments of the savings banks as against 14.13 percent of the
ordinary companies and 25.32 percent for the industrial companies?
Mr. Dewey. No ; that doesn't account for it all.
Mr. Gesell. What are the other factors, then?
Mr. Dewey. Well, I would say that it is a more — well, I don't
want to make comparisons, but it is conducted very frugally. It is
not necessary to have a lot of expenses connected with life-insurance
business. For instance, the little Canton Institution for Savings be-
comes an insurance bank. It is frequently difficult for people —
life-insurance people criticize savings bank life insurance, think the
expenses are too low. The Canton Institution for Savings, a little
$3,000,000 savings bank, becomes an issuing bank. The officers of that
bank who direct it are the president, who comes every morning, a
treasurer who is a full-time employee, and when they opened their
insurance department, the secretary who is also the paying teller takes
care of it — just a teller's window. It is a small bank, a good one ; it
has been there a hundred vears or so.
Mr. Gesell. I take it, what you are trying to say is that you have
been successful in savings bank life insurance in keeping the over-
head at a minimum.
Mr. Dewey. Yes.
Mr. Gesell. It isn't necessary when a bank enters into the system
to build a new building, to appoint many new employees.
Mr. Dewey. In only one case in all the 30 years has any space been
added to a bank for the insurance department.
Mr. GesEll. We heard a great deal yesterday about the difference in
taxation as between the taxes on savings bank life insurance and the
taxes on insurance companies. Will you explain to us first whether
there is a differential, and if there is, what that differential amounts
to?
Mr. Dewey. Unless the legislature since I left has passed a bill
that we urged them to pass 4 or 5 days ago, the tax basis is somewhat
different.
Mr. Gesell. What if they passed the bill ?
Mr. Dewey. Then it would be exactly the same.
Mr. Gesell. Do I understand you have urged before the legislature
just recently that the taxes be^ made exactly the same ?
Mr. Dewey. Yes.
Mr. Gesell. Your lobbying has been in the direction of higher
taxes then, Mr. Dewey?
Mr. Dewey. Yes.
Mr. Gesell. What is the differential at the present time, assuming
this new bill is not passed ?
Mr. Dewey. When the savings bank
Mr. Gesell. I beg your pardon ; what is the differential in amount
before you discuss it?
Mr. Dewey. I can't give you any rate of differential, it isn't a
matter of rate.
Mr. Gesell. Have you made any computations to determine what
the amount would be if you had to pay these new taxes, to put you on
an even basis?
Mr. Dewey. Yes ; if we had been taxed last year on the same basis
as the companies, the difference would have been that 19 banks out
4478 CONCENTRATION OF ECONOMIC POWER
of the 24 would have paid a higher tax, 5 of the banks would have
paid a lower tax, and the total difference would have been about
$10,000.
Mr. Gesell. Now, will you tell us the itature of the differential that
exists ?
Mr. Dewey. Yes. When the system was established it was pro-
vided, as I told you, that the investment of the insurance department
should be in the same class of securities as the savings department.
It was therefore provided that they should be taxed on the same
basis as the savings department. It was probably thought a matter
of convenience not to have two investment policies because of two
different bases of taxation, so it was provided that the two depart-
ments should be taxed on the same basis. The insurance companies
in Massachusetts are taxed on an excise tax. It is measured by the
reserve, it is not based upon the nature of the investments at all. It
is an excise tax of a quarter of 1 percent, based upon the amount of
the reserve. That tax was first established in the eighties. Wlien
it was originally enacted it was a tax of i/^ percent. The companies
contested the constitutionality of it but the constitutionality was up-
held and then the rate was changed to one-quarter of 1 percent and
that has been the basis ever since.
Our tax is a property tax of one-half of 1 percent but real-estate
mortgages are not taxed to the holder and other tax-exempt securities
are not taxed, and so it would work out that while the tax rate was
higher on savings bank life insurance than it was on the companies,
the actual amount paid would be somewhat less for a given amount
of assets. So as I said in response to Mr. Gesell's question, last
year if we had been taxed on the same basis as the companies, the
tax would have been about $10,000 more. It would have been about
sixty thousand instead of about fifty — some such proportion as that.
Mr. Gesell. And some banks actually would have had to pay less
taxes, would they not?
Mr. DE^VET. Yes.
Mr. Gesell. May I ask you on this question of lobbying, do the
savings bank life insurance groups attempt to stir up their policy-
holders to participate in legislative matters ?
Mr. Dewey. We haven't at any time felt that we ought to com-
municate with the policyholders on matters of legislation. I don't
say that I wouldn't- sometime if a proposal were made that I thought
affected the safety of the policyholder system, I think I would want
them to be advised; I mean some proposal, for instance, like that
relating to the State actuary which the insurance companies pro-
posed the past year. They want to get the State actuary and the
medical director out of State employ and have them run by somebody
else. A proposal of that sort if seriously considered, that would affect
the welfare of the policyholders directly, I think there I would feel
I ought to tell them it was going on.
Mr. Gesell, You have never told them or brought to their atten-
tion any legislation to date, have you ?
Mr. Dewey. No. I don't mean that the policyholders haven't
known. I will say we have never communicated with the policyhold-
ers as such, we have never allowed anybody to have a list of them for
the purpose of publicity, not even one bank to have the list of an-
CONCENTKATION OP ECONOMIC POWER 4479
other. We have told the public over the radio, for instance last
5'ear, that there was a bill proposing to limit the amount of savings
bank life insurance anybody could buy to $3,000. We told the public
over the radio about that and I have no doubt a lot of policyholders
heard it, but we have never used the policyholders in any way in
connection with legislation up to now.
Mr. Gesell. I believe, Congressman Reece, this would be an oppor-
tune time to recess until after lunch.
Acting Chairman Reece. The committee will stand in recess until
2:30.
(Whereupon, at 12:30 noon, a recess was taken until 2:30 p. m.
of the same day.)
afternoon session
The committee resumed at 2 : 40 p. m. on the expiration of the recess.
Acting Chairman Williams. The committee will be in order.
Mr. Gesell. Will you resume the stand please, Mr. Dewey.
TESTIMONY OF JUDD DEWEY, DEPUTY COMMISSIONER OF
SAVINGS BANK LIFE INSURANCE IN THE STATE OF MASSACHU-
SETTS, BOSTON, MASS.— Resumed
Mr. Dewey. Mr. Chairman, this morning in referring to No. 6 of
the file of papers that have been filed with you
Mr. Gesell. That is the schedule of mortality experience,^ is it not ?
Mr. Dewey. Yes, sir. That schedule, Mr. Chairman, gives the com-
parative rates of mortality experienced by savings banks life insur-
ance and by the ordinary life insurance companies and by the industrial
companies. It gives the record of their so-called mortality experience.
I did not point out as I should, and my attention has been called to
it, that industrial insurance is written on a different mortality table
from that used by the savings banks and by the so-called ordinary
companies. The result was that it makes it appear that the industrial
mortality experience was lower than the experience of the ordinary
companies. The explanation is that they use the so-called standard
industrial table for computing mortality which assumes a higher death
rate.
Mr. O'Connell. Is it also true that the columns entitled "All ordi-
nary insurance, including savings bank life insurance," and the indus-
trial column involve insurance throughout the country at large?
Mr. Dewey. Through the country at large.
Mr. O'Connell. And the first column relates only to Massachusetts ?
Mr. Dewey'. Yes, sir ; that is right.
Mr. O'Connell. So I take it that that has some significance, though
I don't know exactly what it would be.
Mr. Dewey. We have a few policyholders in other States who be-
came insured when they lived in Massachusetts and have moved away,
and we might have had a death among them, but it is entirely Massa-
chusetts mortality experience.
Mr. O'Connell. There wouldn't be any experience in these other
fields in Massachusetts only ?
1 See "Exhibit No. 742," appendix, p. 4819.
4480 CONCENTRATION OF ECONOMIC POWER
Mr. Dewey. There is no record so far as I know of mortality by
States alone. I don't think the companies keep that.
Acting Chairman Williams. Perhaps you have given this. Are
there any other savings-bank life insurance outside of Massachusetts ?
Mr. Dewey. New York State began operations this year, but has
not had a full year's experience, so their mortality figures would not be
available.
Mr. Geseix. There are one or two points that I want to cover for a
h. ^ent, Mr. Dewey, that may involve some of the matters we consid-
ereli during the morning session. First of all, I didn't ask you
whether policyholders in savings-bank life insurance in Massachusetts
must be residents of Massachusetts.
Mr. Dewey. They must be residents of Massachusetts or their regu-
lar employment must be within Massachusetts. We got the statute
amended in 1915 because along the border, for instance in Newbury-
port, quite a number of people work in those factories every day and
go across the river to their homes in the little New Hampshire villages
and the employers wanted to insure all of their workers, of course, in
the same way ; so the statute was amended to include not only residents
of Massachusetts but persons regularly employed in Massachusetts.
Other than that, it is limited to Massachusetts residents.
Mr. Gesell. Now, can you give us some idea of the type of person
who takes out a policy with savings-bank life insurance ? I presume
you must have many types, and I mean to direct my question primarily
to the average policyholder.
Mr. Dewey. That might be indicated in part, Mr. Chairman, by the
figures given showing the relative number of persons holding insur-
ance in certain stated amounts.^ -For instance, 26.7 percent of all the
persons insured have $500 or less; that would probably indicate per-
sons in the relatively low-income groups. Then some 80 percent
Mr. Gesell (interposing). 76.41 percent are below $1,000.
Mr. Dewey. One thousand dollars or less. That includes the ones
with $500 or less, so that more than three-quarters of them have a
thousand dollars of insurance or less than a thousand. That costs not
very much at the lower ages, of savings-bank life insurance, and that
is consistent with their being in the lower-income groups. We don't
any longer keep a record tabulated of the policyholders by employ-
ment classifications, so that I can't give you that.
Mr. Gesell. When you did keep such a record did you find that you
touched almost every employment classification ?
Mr. Dewey. We had, of course, practically all of the different kinds
of employment ; teachers are included, and workers of almost all kinds,
but relatively the low-income group.
Mr. Gesell. Just out of curiosity, Mr. Dewey, do you have any
liferinsurance agents or life-insurance executives who have taken out
policies in savings-bank life insurance ?
Mr. Dewey. Oh, yes, indeed. We are very glad to have them as
policyholders.
Mr. Gesell. On the schedule entitled "Expense of Operation" ^ I
neglected to ask you whether the percent ratio shown for savings-bank
life-insurance banks included some pro rata accounting by the banks
as between its insurance and savings-bank departments.
I See "Exhibit No. 739," appendix, p. 4817.
' See "Exhibit No. 744," appendix, p. 4820.
CONCENTRATION OF ECONOMIC POWER 4481
Mr. Dewet. Expense of operation; well, that first column giving
savings-bank life insurance, that is all of the expenses of the savings
insurance banks for running their insurance departments, and it in-
cludes also the entire reimb^T'spment of the State appropriation; that
is all operating expense.
Mr. Uesell. But in computing this expense, does each bank adjust
for the amount of its office space which is used for insurance purposes,
the amount of its office space which is used for banking purposes, and
make divisions between other physical properties which are involved ?
Mr. Dewey. Yes ; that is left under the statute to the trustees of the
savings bank. The law says that they shall allocate the expenses.
Now, the direct expenses of conducting the insurance department are
paid directly out of the insurance-department funds. Overhead ex-
pense is allocated by the trustees of the bank.
Mr. Gesell. On the basis of operations?
Mr. Dewey. Well, on the basis of their judgment as to what the
allocation ought to be.
Mr. Gesell. The charge has been frequently made, has it not, that
the savings banks are carrying some of the insurance expense? Is
that true or false ?
Mr. Dewey. Well, I don't like to characterize anything as being
false, but substantially that statement is false.
Mr. Gesell. I take it then
Mr. Dewey (interposing). I mean I will say this, sir, that as an
explanation of any difference in cost, it is entirely false. The banks
in the first place — when a bank opens an insurance department it
doesn't start with a lot of expense. It hangs up a little sign over
one of the teller's windows saying "Savings-bank life insurance," and
the people who are interested in savings-bank life insurance go to that
window. They haven't incurred any expense. In only one instance
in 30 years has a bank added any space to the building for savings-bank
life insurance. That is the Whitman Savings Bank, and the rent
charged to the insurance department in the Whitman Savings Bank is
more — nwt much more, only $75 more — but it is more than the rent
charged for the savings department.
Mr. Gesell. Now can you tell me whether it is a fact that there is
always a medical examination in connection with any policyholder?
Mr. Dewey. Every individual policy that we issue is issued only
after medical examination.
Mr. Gesell. Now, when do you first commence to pay dividends —
after the end of the first policy year ?
Mr. Dewey. Every policy that ever was issued by a savings bank in
Massachusetts has paid a dividend every year that it was outstanding,
including the first.
Mr. Gesell. Now, if I have a policy in savings-bank life insurance,
can I pay for it on a monthly or weekly basis, or must I always pay
for it on a yearly basis?
Mr. Dewey. We have no premium on any basis for more frequent
payment than monthly. We have premiums payable annually, semi-
annually, quarterly, and monthly, but as a practical matter, what
concerns the payer of the premium is how frequently he has to
part with the money, and arrangements are made — for instance, in
our 300 employer agencies, the larger factories, Mr. Chairman, which
I explained this morning, for the making of weekly pay-roll deduc-
4482 CONCENTRATION OF ECONOMIC FOWER
tions, the employer at the request of the worker, by a card filed with
the paymaster, makes a pay-roll deduction for as many employees as
want it done, and he then writes one check for all of the weekly pay-
roll deductions for that week and sends it to the local agency bank,
and they deposit it to the account of the policyholder, so that they
pay weekly by pay-roll deductions. There is another thing about that,
sir^ and that is that where they are buying $250 of insurance on a
child, that is frequently costing them 25 cents a week in the indus-
trial insurance company, well, they can get a straight life $250 in a
savings bank for 26 cents a month, so they can pay a monthly
premium of 26 cents, where they, have been paying weekly 25 cents
and that is no particular inconvenience.
Mr. Geseli.. It is also possible for a person who has an account in
a savings bank to make arrangement with that bank to make with-
drawals from the account at periodic intervals to meet premium
payments ?
Mr. Dewey. That is regular practice, they are called savings insur-
ance accounts ; you might put $1 a week in your savings account and
that goes on interest; you leave a card there saying to pay your in-
surance premium out of that savings account, and if the premium is
payable monthly, then once a month the savings bank will take the
premium out of the savings account; the rest of it stays in the sav-
ings account and draws interest. In such cases they will frequently
have the dividend check sent to the savings bank to be deposited in
the savings account also.
Mr. Gesell. Now I would like to call your attention to a chart
schedule, entitled, "Illustration of 10 Years' Experience — Issues of
1929, $1,000 Straight Life Insurance, Age 35," and ask you whether
that is a schedule which was prepared by the chief actuary of the
savings-bank life-insurance division of Massachusetts, reflecting the
net cost of savings-bank life insurance as compared to a representa-
tive number of companies.
Mr. Dewey. YeSj sir.
Mr. Gesell. I wish to offer this schedule for the record.
Acting Chairman Williams. It may be admitted.
(The schedule referred to was marked "Exhibit No. 745" and is in-
cluded in the appendix on p. 4821.)
Mr. Gesell. Now, I notice that the average net cost ranges from
$2.74 a thousand for the savings bank life insurance to $8.73 a thou-
sand for the Berkshire Life Insurance Co. ?
Mr. Dewey. Yes, sir.
Mr. Gesell. Will you tell us what the basis of the selection of the
companies shown on this schedule is?
Mr. Dewey. Well, we took all, this schedule, by the way, is not
specially prepared for this occasion ; it is our regular 10-year net-cost
comparison, which we have been putting out from time to time for the
last 20 years. Every time it is got out new it includes all of the com-
panies for which the dividend schedule is then available.
Mr. Gesell. There has been no particular basis for selection other
than the availability of the dividend schedules then ?
Mr. Dewey. No. We wouldn't make it up unless all of the prin-
cipal companies, the larger companies, were all available, and you
will find they are all included in here.
CONCENTRATION OF ECONOMIC POWER 4483
Mr. Gesell. Now, the way you have computed this net cost on the
10-year basis is, I take it, based upon past experience ?
Mr. Dewey. In this one it is. We have a schedule that is based
upon
Mr. Gesell (interposing). I will come to that schedule.
Mr. Dewey. This is based on actual experience ; yes, sir.
Mr. Gesell. The method of computation should be described. Will
you describe it, please ?
Mr. Dewey. Yes, sir. The purpose of this is to show the figures as
to the cost of life-insurance protection over a period of years, in this
case, 10 years; to determine that you take the amount of money that
you pay in minus the amount of money that you get back, and that
is what it has cost you for the protection.
Mr. Gesell. You take the annual premium first of all ?
Mr. Dewey. Yes, sir.
Mr, Gesell. Then you say what 10 times that premium would be?
Mr. Dewey. Yes, sir.
Mr. Gesell. That would be the premium for the 10-year period.
Then you make adjustment for the dividends over that 10-year period?
Mr. Dewey. We subtract the actual dividends.
Mr. Gesell. Then, in addition, you subtract the cash value which
would be available at the end of the 10-year period, do you not?
Mr. Dewey. Yes, sir.
Mr. Gesell. Ana the resulting figure is the net-cost figure for 10
years, and then you divide that by 10 to show the average net cost
per year ?
Mr. Dewey. Yes, sir, that means, in savings-bank life insurance at
age 35, over this 10-year period, you could have carried $1,000 of life-
insurance protection at an average co^t of $2.74 a year for the thou-
sand dollars of protection.
Mr. Gesell. I notice that the. top company on the list under the
banks is the Northwestern Mutual which has an average net cost of
$4.60 per thousand, as compared with $2.74 per thousand for the
banks. Is the Northwestern Mutual the lowest net cost company which
your studies have revealed?
Mr. Dewey. At the time this was prepared the Northwestern was
the lowest on this comparison. They are usually at the top, what we
call the position of honor next the savings banks; the Northwestern
Mutual, the National Life of Vermont, Provident Mutual. The New
England is pretty well up also.
Mr. Gesell. iThis is for $1,000 straight life. Have you prepared
similar studies :^rom time to time for special forms of policies, such as
endowment policies?
Mr. Dewey. Not for distribution, no, sir. We have prepared them
in special cases when we have been asked to, but this is the one we use
for general distribution.
Mr. Gesell. Am I correct in saying that generally savings-bank life
insurance shows a beter experience than the comparisons made with
other forms of policies, such as endowment ?
]!tfr. Dewey. It does, eir, but the difference in cost would not be such
a high percentage if ^.ou were dealing with an endowment policy.
There would still be an advantage in favor of the savings bank but I
must say the advantage wouldn't be so marked as it is here because in
124491 — 40— pt. 10 23
4484 CONCENTRATION OF ECONOMIC POWER
an endowment policy an important factor is the so-called reserve and
the interest earnings on the reserve are big in the dividends there. So
our difference wouldn't be so big on endowment.
Mr. GESi^iL. I notice that you have at the bottom of the schedule
"Special policies issued only in amounts of $5,000 or more."
Mr. Dewet. There are some companies that issue special policies
only in amounts of five thousand, they are called "preferred risks."
Those are included here and they are described as such.
Mr. Gesell. Is there any company that you know of which offers a
policy at a lower net cost than the savings-bank life insurance ?
Mr. Dewet. No company available to the general public. I should
say the Teachers' Insurance Annuity Association of New York, which
is available only to teachers, and the Presbyterian Ministers' Mutual
and the Episcopal and other Clergymen's Mutuals, but there is no
company operating on the agency system of solicitors which sells in-
surance at as low cost as savings-bank insurance.
Mr. Henderson. Before you leave that, I wasn't here this morning
and haven't followed this. In this table of illustration of 10 years'
experience where you are comparing banks 1 through 10, those are the
ones which are offering savings-bank life insurance ?
Mr. Dewey. That, sir, is the first 10 banks. We had only 10 banks
that have had more than 10 years of experience, so we used onW those.
We now have 26 banks.
Mr. Henderson. This is net cost in the 10-year period ?
Mr. Dewey. For all of the banks that have had a 10-year experience.
Mr. Henderson. Does that mean that you can get the same coverage
of a thousand dollars lor $2.74 which would cost in the highest on
this table, $8.73?
Mr. Dewey. You get the same protection.
Mr. Henderson. You get the same protection?
Mr. Dewey. Yes, sir; I don't want anyly)dy to think that you can
buy a thousand-dollar policy in the savings bank for the initial
premium, one- fourth of what you pay in a company, but the cost of
the protection in the savings bank is $2.74 and the cost of exactly the
same protection under a policy not quite so liberal and in no respect
any better is $8.73 in the highest, for exactly the same thing.
Mr. Henderson. Just picking up some of the testimony of yester-
day, that difference of $6 isn't covered by what the State gives you
free?
Mi*. Dewey. The State, gives us nothing free, sir.
'Mr. Geseix. Mr. Henderson, that was discussed at some length this
morning.
Mr. Henderson. I will have to read the testimony.
Mr. Gesell. I can develop it again this afternoon.
Mr. Henderson. I wanted to get it clear in my own mind before we
go on.
Mr. Gesell. The cost is all included in here. Briefly, the State is
reimbursed at the end of the fiscal year for every dollar of its appro-
priation for the division of savings-bank life insurance.
Mr. Henderson. There is no phoney in this thing, that's all I
wanted to get.
Mr. Dewet. Oh, no; there is no explanation of the cost on any basis
of that sort.
CONCENTRATION OF ECONOMIC POWER 4485
Mr. Henderson, This thing will stand up?
Mr. Dewey. This is what it costs the banks to provide life insur-
ance protection, paying all of the expenses and all of the death
claims and all of the things that need to be paid in providing life
insurance protection, they are paid for in those figures.
Mr. Gesell. Those figures have been used by you many times, have
they not?
Mr. Dewey. They have been put out for years.
Mr. Giic:"T,L. Have they ever been challenged?
m.1. Dx. Mever.
Mr. Henderson. I recall from some of the correspondence intro-
duced yesterday that one of the arguments was that we don't have a
broad enough coverage,^ therefore, a local epidemic or the like would
be very disastrous. "Would the $6 additional you got cover it ?
Mr. Dewey. More than cover it, sir. That was discussed this
morning; we put in figures showing our mortality experience during
the flu epidemic, and as a matter of fact in the worst of the flu
epidemic we experienced only 77 or 79 percent, about that, of the ex-
pected mortality under the table for which we had collected pre-
miums. We collect premiums enough to pay 100 percent and we
average to get about 35, and in the flu epidemic we got less than 80,
so we still had a margin there.
Mr. Gesell. We mentioned a moment ago, Mr. Dewey, rather you
mentioned, a 10-year net cost comparison projected into the future on
the basis of the last available dividend.
Mr. Dewey. Yes, sir
Mr. Gesell. I ask you if the schedule I now hand you is such a
schedule reflecting net cost comparisons on that basis.
Mr. Dewey. Yes, sir.
Mr. Gesell. I would like to ofi'er this schedule for the record, with
the statement that it reflects 24 savings banks carrying $1,000 straight
life insurance, age 35, at an average yearly net cost of $2.72, and ni
case of every company, I believe, a relatively higher average yearly
net cost with a maximum at $10.32, the Berkshire Life, which was the
highest on the previous schedule, being carried on this schedule at
$9.09.
Acting Chairman Williams. It may be received.
(The. schedule referred to was marked "Exhibit No. 746" and is
included in the appendix on p. 4822.)
Mr. Gesell. Will you briefly review for the committee, Mr. Dewiey,
factors which you think are responsible for savings-bank life insur-
ance having this lower net cost?
Mr. Dewey. Firstly, the elimination of agents' commissions, which
is the largest single item of expense in conducting the life-insurance
business of the companies, elimination of considerable other ex-
pense of acquisition and the adoption of a method of acquisition
that is different from that employed by the companies. That is the
largest single item. Then the more efficient conduct of the business
by the banks as reflected in the larger net rate of return on invested
funds and lower expense ratios, part of the lower expense ratio being
accounted for also by the absence of agents' commissions.
> See "Exhibit No. 730," appendix, p. 4810.
4486 CONCENTRATION OF EtlONOMIC POWER
Mr. Gesell. Are there any other factors?
Mr. Dewey, The lower mortality.
Mr. Gesell. Does the higher persistency of the business account
for the lower net cost to some degree?
Mr. Dewey. Yes. To a very marked degree. That is a very im-
portant thing. The people who buy life insurance in the savings
banks keep it; they buy it because they want it. They go in and
apply for it ; nobody tries to sell it to them ; they buy what they feel
they can afford. The only suggestion that we ever make sometimes
is to somebody who wants to apply for $5,000, and Dr. Burnett, the
State medical director, is likely to call me and say, "Here's a fellow
who wants to apply for $5,000. The credit agency reports that he has
a little business out in Roxbury and his income is only about $1,400.
Don't you think we'd better tell him to start with $3,000?" So we
suggest that he start off with $3,000 and if he can carry that for a
while he buys five later.
Mr. Henderson. You might call it low-pressure selling.
Mr. Dewey. Low-pressure selling; yes. The result is that they
stay ; we don't have the expense of putting business on the books and
letting it go off. The companies have to make a profit ; I don't mean
a profit like a profit to stockholders, but I mean an underwriting
profit. That has got to be adequate over some period of time to get
back the cost of putting that policy on the bookSj the agent's com-
mission, the doctor's fee, and so on. In the ordmary case of the
companies that takes 3 years or 4 years. We have to do the same
thing except that the amount we have to get back isn't so large. We
have to get back the expense of the medical fee, $2, but we get that
back within 6 months.
Mr. Henderson. That would mean that you don't get down to th£
class of people who take the industrial insurance at 5, 10, and 15
cents a week?
Mr. Dewey. We do get down to them. We do get them. There
were some figures put in this morning, sir, a table, showing the
amounts of insurance held by different persons who were insured in
savings-bank life insurance,^ an analysis by persons, not by policies.
Mr. Henderson. But you don't get down to that general coverage
of 5 cents a week ?
Mr. Dewey. We don't do it on that basis of 5 cents a week but we
reach those people all right because 26 percent of the people who are
insured m savings-bank life insurance have $5(X) or less.
Mr. Henderson. Let me get this straight. Many years ago, of
course, my parents took out some industrial insurance, 5 cents a week.
The collector used to come around with his book and collect 15 or
20 cents every week.
Mr. Dewey. Yes, sir.
Mr. Henderson. That 15 cents a week would be about $7.50, some-
thing like that, a year.
Mr. Dewey. $7.50.
Mr. Henderson. For the coverage of three persons, or about $2.50
a person. Do you have any people who are getting about the same
amount of coverage we were getting, who only pay, say $2.50, to
you people in the course of a year ?
1 See "Exhibit No. 739," appendix, p. 4817.
CONCENTRATION OF ECONOMIC POWER 4487
Mr. Dewey. Yes; we have exactly that same type of coverage,
small amounts of insurance, $250, $100, largely on children the
industrial is written. We have that except we don't have it on a
weekly premium basis. We would give you $250 not of the en-
dowment— we think it is not right to write an endowment policy on
a child — but we would give you $250 of straight life insurance, a
standard ordinary form policy with a cash reserve value in 6 months.
We would give you that policy, $250, for 26 cents a month. The
premium is so little that you don't need to pay it by the week. You
pay for a month what you have been paying for a week for your pro-
tection, but we have a lot of those people ; yes.
Mr. Gesell. And you touch the same occupational classes that take
out industrial insurance, do you not ?
Mr. Dewet. Certainly, we have the working people to a large
extent.
Mr. Gesell. And those people who want to pay in small amounts
to savings-bank life insurance for their premiums can do so by pay-
roll deductions, arrangements through the savings deposits and other
ways which we have discussed this morning ?
Mr. Dewey. Oh, yes; where there are a number of children in the
family and you have $250 on each one — suppose there are 6 children,
quite a lot of families have that many, there would be $1.50 a month,
and $500 on the mother and a thousand on the father , that might run
to $2 or $2.50 a month. That would be deducted weekly from the
worker's pay, deducting 70 cents a week.
Mr. Henderson. The check-off plan.
Mr. Dewey. Yes; it is paid by the factory on the check-off plan.
In the United Shoe Machinery factory in Beverley there is a branch
of the Beverly Savings Bank, which is an issuing bank. There is so
much of it they have a brancli savings bank in the shoe-machinery
factory. The workers there ail buy this. They save an amount —
well, the Associated Industries estimated that it was an amount
equal to 6 percent of the pay roll. They save large sums of money.
They are frequently paying out $2 and $3 a week for industrial
insurance, and th^ get the same amount of protection for $1.
Mr. Henderson. What is the 6 percent — 6 percent on the pay roll
of the people who have insurance?
Mr. Dewey. Yes; that is they estimate that the amount that is
saved by s'lbstituting savings-bank life insurance among the work-
ers for the weekly premiums industrial insurance is an amount equal,
on the average, to 6 percent of their total pay. I have seen in-
stances in the factory where the employer kept the record, where it
amounted to 10 percent of their pay that they were saving by sub-
stituting savings-bank life insurance.
ISlr. G^ SELL. Mr. Dewey, to come to a slightly different topic for a
moment, I want to show you a schedule entitled "Comparisons of
Ratio of Surplus to Reserve of Massachusetts Savings Bank Life
Insurance and Life Insurance Companies" and ask you if you iden-
tify that as a schedule prepared by the chief actuary of the savings-
bank life-insurance division.
Mr. Dewey. Yes, sir.
Mr. Gesell. Will you describe that schedule for the committee
and make such comments with respect to what it illustrates as you
think are significant?
4488 CONCENTRATION OP ECONOMil^ i O , ER
Mr. Dewey. Only to say that the regular method of making com-
parisons of surpluses is to state tlie proportion of the surplus to
the reserve. The reserve is fixed by law. The reserve on a straight
life policy, age 30, at the end of the first year, American experience,
3 percent, is $10.49,-1 think it is. That reserve is fixed by law so
that it is a definite thing and the reserve is just the same for all
companies, using the same reserve basis. The reserve on a policy is
the same in Whitman Savings Bank as jt is in New England Mutual.
So that is fixed. Then you determine the relative surplus by its
proportion to the reserve and this is a statement of the relative pro-
portion of surplus to reserve in savings-bank life insitrance as com-
pared with the comp»anies.
Mr. Gesell. And it shows, does it not, that at all times from 1920
through 1937 the ratio of surplus to reserve for the Massachusetts
savings-bank life insurance has been considerably higher than the
similar ratio for all insurance companies doing business jn Massa-
chusetts.
Mr. Dewey. Yes, sir.
Mr. GESELii. I wish to offer this schedule for the record.
Acting Chairman Williams. It may be received.
(The schedule referred to was marked "Exhibit No. 747" and is
included in the appendix on p. 4822.)
Mr. Dewey. I don't mean the surpluses of the companies aren't
adequate. I mean ours are very much higher.
Mr. Gesell. Let me ask you this question: During the banking
holiday in 1933 did savings-bank insurance experience any diffi-
culties?
Mr. Dewey. No, sir.
Mr. Gesell. Was their experience more or less the same as the
regular insurance companies, or did it differ in any respect?
Mr. Dewey. It differed.
Mr. Gesell. Will you explain how, please, to the committee.
Mr. Dewey. You all know there was adopted at that time some-
thing that was called the "convention values" for valuing the assets of
life-insurance coinpanies. The law requires that the assets be valued
at their market value at the close of the fiscal year, usually December
31. As you all know, the market was pretty bad then, and with some
of the companies, if they had had to be value4 at market, it would
have shown on paper, at least, an impaired reserve, and under tlie
laws if the company's reserve is impaired, the insurance commissioner
has to stop its writing new insurance, stop its doing new business.
And so the insurance commissioners got together in an emergency
meeting in Chicago and agreed on^ what were called the "convention
values"; that is, the operation of tl\e law was suspended, they
wouldn't have to value at market, they could value on these conven-
tion values. I am not criticizing it at all, it was an emergency, but
since they talk sometimes about the safety of savings-bank life insur-
ance, at the lowest market that there was at any time during the crash
savings-bank life insurance had unimpaired reserves and a 5 or 6
percent surplus. There never was a time when we needed convention
values.
Mr. Gesell. What about the moratoriums at that Mme? Did you
discontinue pa'yments of any sort, the way many of the princix)al
insurance companies did under (he existing laws?
CONCENTRATION OF ECONOMIC POWER. 4489
Mr. Dewey. The insurance companies discontinued or limited sur-
renders and loans, but they did that upon orders of the commissioner
of insurance.
Mr. Gesell. I understand.
Mr. L»EWET. We asked the Commissioner of Insurance — we are gov-
erned by the law of Masssachusetts relating to life insurance; we
asked him to let us make policy loans in each of the banks, assuming
each bank to be a separate company. The ruling let you borrow up
to the amount of the reserve, or up to the specified amount of $400
in each company in which you had policies, but not more than $400
in any one company. We asked the insurance commissioner, Mr.
Brown, to treat our institutions as so many separate companies so we
could make the maximum loan in each bank. He wanted: to treat it
as one institution and let us make the maximum loan in only one
bank. We finally compromised, and he allowed us to make the maxi-
mum loan in four banks. That more than took care of most of our
people as we could loan up to $1,600 to one person.
Mr. Gesell. You continued to make policy loans (Turing that
period ?
Mr. Dewey. Yes; indeed, we did.
Mr. Gesell. Other insurance companies were not doing so.
Mr. Dewey. They were making policy loans. I don't know how
they made them. They have a 60-day moratorium provision in the
policy, and we have it also. We have never used it. I don't know,
the practice differed among the companies,
Mr. Gesell. Did you continue to pay surrender values?
Mr. Dewey. We encouraged policyholders at that time, if they
needed money, to come to us.
Mr. Gesell. Did you continue to pay surrender values?
Mr. Dewey. Indeed.
Mr, Gesell. Were the banks closed at one time during the de-
pression ?
Mr. Dewey. You remember there was a time when every bank in
America was closed.
Mr. Gesell. Did you continue the insurance departments at thai
time ?
Mr. Dewey. Yes, sir. The insurance departments of the savings
banks were kept open and were open and doing business and paying
death claims and making policy loans and doing ail the other things;
all through the bank moratorium when every bank in America was
closed, tlie insurance departments of the savings bank in Massachu-
setts were open and doing business.
Mr. Henderson. What do you ctiarge on policy loans?
Mr. Dewey. We have always charged 5. The -usual rate with the
companies has been 6. We have charged 5. The State actuary and
I have been discussing now for several months if interest earnings
on investment continue as they are now — down — that we will prob-
ably reduce it still further, because it is our feeling tliat people ought
to be able to borrow their own money for about wliat we could earn
with it, after all, the reserve is their money; it is their overpayment
Mr. Henderson. Is it their savings?
Mr. Dewey. It is their savings.
Mr. Henderson. I don't want to trick you; I ought to tell you I
had a little discussion the other day with a fellow as to whether they
were savings or not. You think they are savings.
4490 CONCENTRATION OF ECONOMIC POWER
Mr. Dewey. That is all they are. I mean, you could get insurance
for a year at $9, the next year a little more, the next year a little
more, and so forth, but it would keep costing more if you had it on
a 1-year term. Instead of that, you say to the company or bank, "I
will pay you $18 ; put the other $9 away as reserve." It is your over-
payment. You should be allowed to borrow it for what it will fairly
earn.
Mr. Hendebson. On your 6-percent charge on loans, do you think
that you net anything after expenses on those loans above what your
earning rate is?
Mr, Dewey. Oh, yes; that is why I think if interest earnings stay
down as they are, we ought to reduce it. Our net earnings last year
were only 3.82. That means that the policyholders' money with
which we earned only $3.82, we are charging $5 for. The expenses
are not much.
Mr. Henderson. They are not very much.
Mr. Dewey. No ; I mean relatively no.
Mr. Henderson. How long does it take a man who comes in with
his book and wants to get a loan ?
Mr. Dewey. Well, he comes in with his policy to our banks and
wants to get a loan; he can get it in 5 minutes. He just signs the
policy loan agreement (the policy has stamped on it, "This policy is
subject to a loan") ; they hand it back to hmi and he will get the check.
They will complete it in 5 minutes. The reserve is stated on there.
There is nothing to do but look at it and draw the check. There are
no extended computations made. If he wants to borrow anything
"that he can, you add to it the reserve that is accumulated in the mid- .
die of the year up to the time that he is borrowing. But if he has
$300 reserve and wants to borrow it ■
Mr. Henderson. What is your experience on lapses?
Mr. Gesell. We discussed that this morning.
Mr. Henderson. Can I have the answer on that for Mr. Lubm's
benefit and mine?
Mr. Dewey. Yes, sir.
Mr. Gesell. May I refresh your recollection, Mr. Dewey? Did we
not present this niorning some figui"es showing the percentage ratio
between terminations by lapses, new business issued? ^
Mr. Dewey. Yes; tlie lapse ratio. I will just give you 2 or 3 char-
acteristic years, perhaps. Nineteen hundred and twenty-seven, the
lapse ratio on industrial insurance was 58.3 percent. That is, that
means they lapsed a number equal to 58 percent of what they wrote
that year. The lapse ratio in ordinary life insurance that year was
27.44. ■ The lapse ratio in savings-bank insurance was less than 1
percent, 0.91 percent.
Mr. Henderson. I am talking now about the policies on which loans
liave been taken. Do you have a higher ratio of lapsing in the policies
from which loans have been taken than you do
Mr, Dewey. We have a loan, the policy goes off? We don't have
that experience ; they pay up the policy loans. I haven't the accurate
figures. It may be some of them, but for the most part that isn't a
problem at all; they pay off the loans. They pay off the loans and
keep the insurance.
1 See-"Exhibit No. 740/' appendix, p. 4818.
CONCENTRATION OF ECONOMIC POWER 4491
Mr. Gesell. Now, Mr. Dewey, do you identify this as a schedule
which I show you, entitled "Massachusetts Savin<^s Bank Life Insur-
ance Compared With Total Amount of Life Insurance, of All Kinds
in Force in Massachusetts, 1908-38"; is the schedule prepared by the
actuary of the savings-bank life-insurance division?
Mr. Dewey. Yes, sir.
Mr. Gesell. I wish to offer this schedule for the record.
Acting Chairman Williams. It may be received.
(The schedule referred to was marked "Exhibit No. 748" and is
included in the appendix on p. 4823.)
Mr. Gesell. I wish to ask if you recognize this document which I
now hand you, entitled "Thirty Years' Experience in Massachusetts
Savings Bank Life Insurance" as a break-down of the income, dis-
bursements, expenses, assets, and liabilities of the, Masssachusetts
savings bank life insurance, the premium income, policies in force,
and other similar information?
Mr. Dewey. Yes, sir; it is a regular publication of our office.
Mr. Gesell. I wish to offer this schedule for the record.
Acting Chairman Williams. It may be received.
(The document referred to was marked "Exhibit No. 749" and. is
included in the appendix on p. 4823.)
Mr. Geseix.. Now, one other question, Mr, Dewey.
Would you say that the banks which have entered into the savings
bank life insurance system have regretted the fact tli^t they ent'n*ed
into it, or have they found it an advantageous thing from their poi.">t
of view?
Mr. Dewey. I have never heard one express any regret. No bank
that has 6ver become identified with the system, either as issuino- or
agency bank, has ever discontinued that relationship, or wanted to
do so.
Mr. Gesell. What are the factors which make this situation a
happy one from the bank's point of view ? Is it a fact, for example,
that the maintenance of an insurance de])artment helps the savino-s
department, and that it may increase its accounts ?
Mr. Dewey. That, of course, does result. It increases the number
of depositors in the bank. That might naturally be assumed to oc-
cur, but it does actually occur; in one bank in Massachusetts— I was
talking with the president recently — there are 3 banks in that city,
and he said "1 of our 3 banks last year lost about 800 accounts,"
1 gained about 800; and 1 of them stood still." He said, "it so
happened that our bank was the one that gained the 800 accounts,"
and he said, "I am inclined to attribute a great deal of it to the fact
that we are actively engaged in savings bank life insurance. People
hear about the bank and they come in."
Then there is another thing that occurs, and that is that when
you go to a savings bank you might go there for years as ., savings-
bank depositor without having any occasion to deal with tht insur-
ance department, but when you go there as a policyholder to ^eal,
or as a premium payer, even to deal with the insurance departme.it,
you do have occasion to deal with the savings department, because a
natural easy way to handle your premium payment is to open a sav-
ings account in the bank. One of the larger banks kept a record over
a period of 2 years; just recently gave me the figures, showing that
the persons who were then policyholders in that baiik, or out of those
'4492 CONCENTRATION OF ECONOMIC POWER
policyholders, 14 percent of them were depositors in the bank, when
they became policyholders, and at the end of 2 years an additional 24
percent of that same group had become depositors — ^through 2 year's
relations with the bank.
Mr. Gesell. Would you say, too, or have you found this to be
your experience, that the banks have liked the idea because it has
localized funds and kept funds in the neighborhood of the bank,
rather than giving them to some other outside company for invest-
ment?
Mr. Dewey. They, say tiia't that is one of the things they like best
about it. And here is a thing they very much like about it. I want to
speak of it because it was one of the things that was very much in Mr.
Brandeis' mind in setting up the system in the way he did, and that
is they like it because it gives the people in the bank an interest;
it gives them something that is interesting to do. I don't mean that
being a teller in a savings bank isn't all right, but it is pretty
much the passbook in and the passbook out; but the life-insurance
department is a new thing; it is a new interest; it is a new life to a
lot of people in savings banks in Massachusetts that they have had
this new interest, this thing that is interesting and interesting every
day, and men have developed in savings bank life insurance in
Massachusetts, men have developed — one in New York we were talk-
ing about at luncheon today, was just a teller in this bank; got in-
terested in the savings bank life insurance department when they
escablishee it, and he then finally was the manager of the life-insur-
ance depai tment in another bank.
He is now in New York in charge of the savings bank life insur-
ance council; savings bank life insurance is his work; it is an inter-
esting thing to him. Mr. Brandeis says an institution should be
judged by the effect that it has on tlie people who are in it, as well
as by what it does for the people who deal with it and savings bank
life insurance has a nice effect — leaving myself out— on the people
who are in it. They get interested in it and it develops them, and
helps them, and that is not a tangible thmg, Mr. Chairman, but it is
a very real reason why the savings banks like it.
Acting Chairman Wii^liams, Does the same personnel i:>erform
both duties for the bank and the insurance company 'i
Mr. Dewey. In a small bank, yes, sir; take a little bank just
opening its insurance department; one of the clerks in the bank
will come to the statehouse and spend several days there studying
the thing, and will go around to some of the already operatin«T
banks, and she will look out for the life insurance until it grows
more than she can handle and needs another clerk, or another per-
son; then she may devote her whole time to it.
Acting Chairman Williams. How many of these banks have you
in Massachusetts?
Mr. Dewey. TAventy-six issuing banks and then some 100 or 120
additional savings banks which act as agencies for the issuing banks
to receive applications and premiums.
Acting Chairman Williams. Well I meant to ask you how many
mutual savings banks you have in Massachusetts.
Mr. Dewey. One hundred and ninety-three.
Acting Chairman Williams. And of that how many are engaged
in the insurance business?
CONCENTRATION OF ECONOMIC POWER 4493
Mr. Dewey. Twenty-six ks issuing banks and about 120 additional
as agency banks. We can now say that two-thirds of the banks,
savings banks, are identified with savings bank life insurance.
Mr. Gesell. Now, Mr. Dcwo}^, yesterday there was some discus-
sion of a pamphlet entitled "The Savings Bank in Life Insurance,"
written by a Mr. Floyd E. De Groat of Boston.^ This was a pam-
phlet which was used by the Association of Life Insurance Presidents
in connection with some of its legislative activities against savings
bank life insurance, as the record shows. I want to first ask you
whether you have ever seen this pamphlet before ?
Mr. Dewey. Yes, sir.
Mr. Gesell. Have you had an opportunity to examine it in some
detail ?
Mr. Dewey. I have had occasion, yes, sir; I have.
Mr. Gesell. That is a pamphlet which has been frequently used
in opposition to savings bank life insurance by persons having that
as their interest, has it not?
Mr. Dewey. Very widely distributed by the life insurance inter-
ests in Massachusetts.
Mr. Gesell. Are there to your knowledge misstatements of facts
in this pamphlet?
Mr. Dewey. Yes; there are.
Mr. Gesell. Will you point out to us some of those misstatements?
Mr. Dewey. Take what is perhaps the most
Mr. Gesell (interposing). This pamplilet was introduced into the
record yesterday, and if the committee so desires
Mr. Henderson (interposing). Not introduced into the record, re-
ceived for filing.
Mr. Gesell. It was received as an exhibit. I think it might be
well, since it is to be discussed today, for it to be printed in the
official transcript, and if that may appjy also to the report of M.
Joseph Cummings, chief of the bureau of banking and insurance,^
which' was introduced and received under th,e same conditions, that
would be helpful.
Dr. LuBiN. Mr. Dewey, can you tell us who published this
pamphlet"?
Mr. Dewey. I don't know ; it doesn't tell. I don't want to say it is
characteristic, but it doesn't have anything on it to indicate whnt it is.
The fact is that Mr. De Groat is a general agent of the Mutual
Benefit Life Insurance Company of New Jersey. .
I get called on the telephone by businessmen and professional men
1o whom this had been given and they say, "Wlio is De Groat," and
I say, "He is a general agent of the Mutual Benefit of New Jersey."
They s:\y. "Oh, I thought so," or something like that, but it is
written by life-insurance men but with nothing to disclose that it
was put out by life-insurance men. You wouldn't know Floyd De
Groat is a general agent. There is nothing on it to show who prints
it. It was distributed by the Boston Life Underwriters Association
and the Massachusetts Life Underwriters Association.
Dr. LuBTN. Is there anything available to show who paid for the
printing of it?
Mr. Dewky. No; nothing. I assume the Life Underwriters did.
1 rrovioiisly iritroduoed as "Exhibit No. 722." Soe appendix, p. 4700.
' Previously introduced as "Exhibit No. 728." See appendix, p. 4806,
4494 CONCENTRATION OF ECONOMIC POWER
Mr. De Groat is a man of substantial means. He probably paid in
the first instance for the first copies, but I think the Life Under-
writers paid for the wider distribution.
Acting Chairman Williams. Did it show who prepared it?
Mr. Dewey. It shows Mr. De Groat is
Mr. Gesell (interposing). His name appears as the author.
Mr. Dewey. Yes.
Mr. Gesell. I asked you a moment ago to point out to the com-
mittee some of the statements which you say are misstatements con-
tained in that pamphlet.
Mr. Dewey. On page 2 of the pamplilet it says [reading from
"Exhibit No. 722"] :
The interest earnings of the foremost life insurance companies of tliis country
have exceeded savings-bank rates through a major portion of tlieir history —
perliaps always.
it says. Now that is definite. That is the only dehnite categorical
statement that you can find in here, about the only one, but that is
definite.
The general purpose of the first part of this book and the purpose
of this part of the book is to sustain Mr. De Groat's thesis which
he states later, that the insurance companies earn a larger rate of
return than the savings banks do, and yet savings banks in their in-
surance departments pay a larger rate of interest on funds left than
the savings department of the bank pays. Mr. De Groat under-
takes to make out that that is wrong and his first important state-
ment is that the insurance companies earn a larger rate of return
than the savings banks. The question is. How can savings banks do
these things if insurance companies earn more?
Mr. Gesell. Wliat are the facts? ■
Mr. Dewey. The facts are that beginning in 1908, from 1908 to
1924, the gross earnings of all the li^e insurnnce companies report-
ing to the Massachusetts Commission were 4.9; the gross earnings
of all the savings banks operating in Massachusetts were 5.08 — 4.9
and 5.08, not much in excess, but substantially in excess. That is
for the period from 1909 to 1924. Beginning in 1925 (those are gross
earnings) life-insurance companies reporting to the Massachusetts
Commission — and it may be true also in New York — report their
earnings on a so-called net" basis, that is gross earnings minus an
arbitrary deduction for investment expenses, so the returns from
then on are on a net basis. Our savings banks in their savings-
departments continue on a gross basis so the comparison from then
on is made with the earnings of the insurance departments of the
savings banks which are reported on a net basis just the same as the
companies.
- Now, from 1925 to 1936, the earnings of the insurance companies
reporting to the Massachusetts Commission were, on the average,
4.61; the earnings of the insurance departments of the Massachusetts
savings banks were 4.88 — substanfially more than the earnings of the
companies. That may not seem to you gentlemen important, but
that is the basis of a substantial part of Mr. De Groat's book. That
statement by him on the second page, that the insurance companies
earn a higtier rate of return than the banks do, so how can the banks
pay more on deposits in the insurance department than the com-
CONCENTRATION OF ECONOMIC POWER 4495
panies pay or than the savings department of the banks pay — the
answer is that Mr. De Groat's statement is untrue. I have stated
that to Mr. De Groat at a public hearing before a legislative com-
mittee in Massachusetts, giving him these figures, and said, "Mr.
De Groat, your statement is untrue," and Mr. De Groat said, "I
didn't mean interest earnings, I meant the interest factor in the
dividends formula," but that isn't the statement.
Mr. Geselx,. Running through this thing I notice the statement
here toward the end, "From the original objective, savings bank life
insurance has departed far. It has not a single industrial, i. e.,
weekly premium policy on its books. It seeks precisely the same
business as is sought by the regular ordinary company." Is it true
that the savings bank has departed from its original objective?
Mr. Dewet. That is a matter of argument, sir. I wouldn't want
to say that Mr. De Groat — I mean there is sufficient chance for him
to say that is an expression of opinion that I wouldn't want to char-
acterize that as a false statement. As a matter of fact, savings-bank
life insurance has not departed from its purpose. Mr. Brandeis stated
what the purpose of it was (the recess commission in Massachusetts
Just got through investigating it) that the purpose was to make life
insurance available to people in Massachusetts for those who were
sufficiently thrifty to buy life insurance without the intervention of
somebody to sell it to them.
Mr. Oesell. It was not set up, was it, with a view to writing in-
dustrial insurance?
Mr. Dewey. It never has written industrial policies, never has pur-
ported to. Mr. De Groat knows that. I am sure he does. We never
have written anything but the standard ordinary form policy. We
give them the same amount of insurance that the industrial company
oes, $100, $250, but you get just the same policy form on your $100
policy that you do if you buy a thousand dollar policy; there is no
discrimination against people applying in small amounts. We never
have written one of those industrial policies. The company industrial
policies are written on what is called standard industrial form. We
have never used that. That is a 5-year cash surrender value, and
that sort of thing which the law permits in a standard industrial
form but doesn't permit in the standard ordinary. We use the stand-
ard ordinary for all people.
Mr. Gesell. What about the statement, "Savings bank life insur-
ance has been in operation 28 years. It is not yet self-supporting."
Mr. Dewet. That statement is untrue. I dislike to use that expres-
sion, I don't like to, but it is actually untrue. Every savings bank in
the system has supported itself, paid its own expenses from the time
when it started. The Commonwealth has never given the savings
bank a dollar. The Commonwealth is now reimbursed for every dol-
lar that it appropriated even for the division of savino;s bank life
insurance in the statehouse; I am a State officer, my salary is paid
back to the Commonwealth of Massachusetts. That wasn't because it
wasn't proper for those officers to be paid by the Commonwealth; it
w^as because of such statements as that, the life-insurance agents all
the time saying that the appropriations from the statehouse office
explained the low cost, here is the taxpayer paying it. Well, in 1929
we discussed the matter and said, "Here, the State appropriation this
4496 CONCENTRATION OF ECONOMIC POWER
year is $30,000; our premium income is three million, 1 percent. For
that little 1 percent we are letting the life insurance agents explain
away the saving of 25 and 30 and 35 percent. Let's pay back the
State appropriation." That is why we did it, not because it wasn't
right to have it.
Mr. Geselx.. Wliat about this statement [reading from "'Exhibit
No. 722"] :
The fact that savings-bank life insiir^pce is not guaranteed by the State is
effectively obscured, so also is the fact that it is not guaranieeu Ly t^'^ covings
bank.
Later on :
The statement in the literature that savings bank life insurance is not State
insurance is of little weight against the practical misrepresentation constituted
by statehouse headquarters and the use of the State seal.
Mr. Dewey. Well, in the first place we have not used the State seal,
although the attorney general of Massachusetts gave a written opin-
ion to Governor Fuller that we had a perfect right to use the State
seal on literature put out from the State actuary and from my office.
The State seal never appeared on the policy. The policy has always
stated that tlie assets of the insurance department are behind the
policy. The literature that we have put out has always said, only
made necessary by that kind of propaganda, that it is not State insur-
ance. The two things that we distribute to everybody who asks for
literature, 20 Questions and the Brief Survey, both state that it is not
State insurance. Nobody ever thought it was State insurance, or not
many ever did, but that kind of propaganda by the insurance in-
terests has made some people think so.
Mr. Gesell. It is not unusual, is it, for insurance companies to use
seals on their policies?
Mr. Dewey. I understand it is quite frequently done by others. It
never has been done by us. Let me say further that there is an
illustration of the type of thing that is said and repeated. Webster
said there is a class of falsehoods capable of getting themselves be-
lieved if they are repeated enough times. Now there is a thing that
is intended to create, is bound to create, a false impression, the state-
ment about being guaranteed by the State, The policies of Mr. De
Groat's company are not guaranteed by the State; no life-insurance
companies are guaranteed by the State, they don't need to be guar-
anteed by the State to be safe if they are written in Massachusetts or
New York and some of the other States with good insurance laws;
any company that writes in those jurisdictions is safe. They don't
have the guarantee of the State either, and ours are written on the
same reserve basis as theirs and with the same reserve and a higher
surplus behind them, and yet they would make out to people, and
they constantly propagandize, that our policies are not guaranteed by
the State, the inference being therefore they are not safe.
Mr. Gesell. I might state to the committee that I have in my hand
policies that have been used in recent years at least by the American
Union Life Insurance Co., which contains the seal of the United
States; a policy of the Life Insurance Co. of Virginia, which again
contains the State seal; a policy of the Colorado Life Co., which
again contains the State se^l. I should be glad to pass these policies
around for the benefit of the committee if they wish to see them. I
CONCENTRATION OF ECONOMIC POWER 4497
believe there is one there from the Metropolitan which contains the
seal of the city of New York.
Now, Mr. Dewey, there is reference here in the pamphlet to a
special commission for investigation and study of the banking struc-
ture of Massachusetts, and there is a long quotation from that report
contained under the caption, "Segregation Officially Urged," Have
you any comments to make with respect to that ?
Mr. Dewey. Yes; and I would like these gentlemen to look at
the seals but to get this. Counsel has shown a statement in Mr.
De Groat's book discussing the matter of allocation of expenses be-
tween the two departments in the savings-insurance bank. Mr. De
Groat says :
The Special Commission for Investigation and Study of thie Banliing Struc-
true of Massachusetts (created by ch. 35, Resolves of 1933) in its report
of January 1934, said, "When savings banks were authorized to form a depart-
ment of life insurance, the law provided that this department should be a
distinct entity, but did not provide any effective means." ♦ * •
The statement quoted goes ahead to say that there was no effective
means for providing a separation of the expenses or the two depart-
ments. Mr. De Groat quotes that from what he describes as "The
Special Commission for Investigation and Study of the Banking
Structure of Massachusetts, Created by Chapter 35, Resolves of
1933" Now, Mr. De Groat knows the circumstances of that resolve.
We had trust company failures in Massachusetts in '29 and '30 and
'31, and a commission was appointed to stud^ the trust companies,
not the savings banks, it had nothing to do with savings banks. We
paid no attention to the commission, never attended any hearings ; that
commission was authorized to study the trust companies. That com-
mission was composed of the joint legislative banking committees of the
two houses of our legislature, with three men added. One of the men
added was a gentleman who is now the legislative representative of
the John Hancock Life Insurance Co. at the State house, Mr. Robert
Lee. Wlien their report was filed (nobody supposed it would have
anything in it about savings banks, nobody supposed or expected it
would have anything about savings banks, they had no authority to
say anything about savings banks) this language was found in that
report. I talked with the chairman of the commission. Senator Cot-
ton, the chairman of the committee on banks and banking, and chair-
man of the commission, and he said, "That is something Bobbie Lee
asked us to put in that. He said you folks had no objection to it, so
we put it in.^' He said, "We all saved our rights." That is how that
got in. Mr. Lee, then Representative Lee, now legislative representa-
tive of the John Hancock in the State house, got that into that report.
The joint legislative committee rejected it unanimously, although
they were the members of the commission in whose name this thing
had been done. They rejected it unanimously and reported leave to
withdraw on the bill reported in connection with it, and that adverse
report was accepted in both branches of the legislature without divi-
sion. The house chairman of the commission stated that that had
been put in there by Representative Lee and there were a lot of things
they had not had time to read. That all occurred when that report
was made, and it never was adopted by anybody officially in Massa-
'" chusetts and Mr. De Groat knows it, but he puts it in there to lead the
4498 CONCENTRATION OF ECONOMIC POWER
reader to believe that that is an official pronouncement of the Common-
wealth of Massachusetts.
Mr. Gesell. Now, Mr. Dewey, you have seen the report of M. Joseph
Cummings, chief of the division of banking and insurance,^ have you
not?
Mr. Dewey. Yes, sir.
Mr. Gesell, Have you had occasion to compare that report with
the De Groat report?
Mr. Dewey. Yes, sir.
Mr. Gesell. Do you find any similarity?
Mr. Dewey. I find that it is sufficiently the same to be striking.
The language is changed in some cases, but there are figures. The
answer is "yes."
Mr. Gesell. Can you tell us a little in a general way what type of
opposition there has been to savings-bank life insurance in the State
of Massachusetts by insurance representatives? Have you found
much evidence of misrepresentation by agents selling insurance in
Massachusetts ?
Mr. Dewey. Constantly, constantly. I wouldn't say all life-insur-
ance agents,
Mr. Gesell. Will you tell us rather precisely how this informa-
tion has come to your attention and what the character of it is?
Mr. Dewey. Well, in the first place, I would say that two life-insur-
ance agents in Massachusetts — representing not industrial companies
either; representing the ordinary companies — have had their licenses
revoked by the commissioner of insurance for making false statements
about savings-bank life insurance. I don't say that all the agents do
this ;^it hasn't come to my attention in this period of 20 years that
there are any who don't, but I won't say that they all do. The repre-
sentations are largely directed to a campaign of fear, terror, fear;
making people afraid of savings-bank life insurance, that the banks
are likely to fail, that is the impression they try to create — the
impression that the banks will fail. Prior to the adoption of the
reimbursement statute, which we proposed and had passed, the propa-
ganda was that the State was going to withdraw its support from
savings-bank life insurance and then "your insurance will cost more;"
when we caused the reimbursement statute to be enacted, then they
went out and said, "The State has withdrawn its support ; now your
insurance will cost more."
Before coming down here I appeared before the Joint Committee
on Ways and Means in favor of a proposal to increase the taxes on
savings-bank life insurance, the increase being very trivial, but to put
them on the same basis on which the life companies are taxed. It will
amount to about $10,000. We are paying a million dollars this
year in dividends, but before I left last evening — that afternoon we
began getting telephone calls from policyholders in savings-bank
insurance who were being told that the taxes were now going to be
increased and their insurance would cost them more.
Mr. Gesell. This information, I take it, has come to your attention
through conversations with policyholders.
Mr. Dewey. Not altogether. I have one illustration that came to
me in writing, and it was the conduct of a general agent of the New
England Mutual — not even an industrial agent.
» See "Exhibit No. 728," appendix, p. 4806.
CONCENTRATION OF ECONOMIC POWER 4499
Mr. Gesell. You are referring, I take it, to the statement which
was introduced in the hearings before the Massachusetts committee
last fall?
Mr. Dewey. Yes, sir; the statement of Merle G. Sumners, general
agent of the New England Mutual.
Mr. Gesell. Most of the information to which you have referred
came to you through conversation with policyholders ?
Mr. Dewey. Yes, sir ; that is true.
Mr. Gesell. Have there been efforts from time to time to amend
the savings-bank legislation?
Mr. Dewey. Yes.
Mr. Gesell. Those efforts, I take it, have been of two characters:
one to defeat the appropriation measure and the other to reduce
the maximum amount of insurance which any single policyholder
might take out.
Mr. Dewey. Yes, sir.
Mr. Gesell. Have there been other forms of objections and oppo-
sition raised by life insurance people who oppose the measure ?
Mr. Dewey. In the legislature?
Mr. Gesell. Or elsewhere.
Mr. Dewey. In the legislature the proposals have been principally
to reduce the amount which any citizen of Massachusetts could buy;
it was usually to 5 thousand or to 3 thousand.
Mr. Gesell. I have no further questions of this witness.
Mr. Dewey. May I, Mr. Chairman, add one sentence to what I
said about this campaign of making people afraid. Here are the
instructions given by Merle G. Sumners, the general agent of the
New England Mutual, to a group of his agents whom he was giving
instructions on how to compete with savings bank life insurance.
He said : "Ask who gets the money in the guaranty fund, if the bank,
fails; the first or the last bank that failed." That is what Mr.
Sumners, the general agent of the New England Mutual, was telling
his agents who work for him to go out and say to people in Massa-
chusetts about savings bank insurance.
Acting Chairman Williams. If there are no more questions, that
is all.
Dr. LuBiN. May I ask one jjuestion ? Would it be possible for
you to make available to the tsommittee standard forms of policies
of the savings bank life-insurance banks in Massachusetts with, let
us say, the standard forms of the four largest companies operating
in Massachusetts? ^
Mr. Dewey, I should be very glad to provide you with whatever
number you say for the committee of all of our forms.
Mr. Gesell. We are obtaining forms of the other companies inde-
pendently.
Mr. Dewey. I have no way of getting the others.
Dr. LuBiN. Would it be all right, Mr. Gesell, to request Mr.
Dewey to file with us the standard forms of their policies?
Mr. Gesell. I have a standard form here. If you would like to
luiveit in the record-- —
Dr. LuBiN. I don't think that would be necessary if you have it
available.
* standard forms of various companies are on file with the comnalttee.
124491 — 40— pt. 10 24
4500 CONCENTRATION OF ECONOMIC POWER
Mr. Gesell. Very well.
Acting Chairman Williams. Has it been offered for file ?
Mr. Gesell. I have not been offering policy forms for the files.
We intend, at some time before the conclusion of these hearings,
to prepare a study of differences in policy forms and present it to
the committee.
Dr. LuBiN. That is perfectly all right.
Mr. Dewey. Thank you for your courtesies.
(Mr. Dewey was excused from the stand.)
Mr. Gesell. I will next call Mr. Plantz.
Acting Chairman Williams. Do you solemnly swear that the
testimony you are about to give in these proceedings shall be the
truth, the whole truth, and nothing but the truth, so help you God?
Mr. Plantz. I do.
TESTIMONY OF C. B. PLANTZ, ASSISTANT VICE PRESIDENT, NEW
YORK SAVINGS BANK, NEW YORK CITY
Mr. Gesell. Will you state your full name ?
Mr. Plantz. Clarence B. Plantz.
Mr. Gesell. Are you connected with the New York Savings Bank,
Mr. Plantz?
Mr. Plantz. I am ; I am assistant vice president of the New York
Savings Bank.
Mr. Gesell. Are you in charge of the savings bank insurance
department of that bank?
Mr. Plantz. I have been ; yes.
Mr. Gesell. Are you familiar with its activities under the New
York law?
Mr. Plantz. I am.
Mr. Gesell. When was the New York savings bank life insurance
law enacted?
Mr. Plantz. It was enacted in the 1938 legislature, and the law
itself became effective January 1, 1939.
Mr. Gesell. Was the New York Savings Bank one of the first
banks to enter into the system ?
Mr. Plantz. Yes; it received its license on January 6.
Mr. Gesell. How many banks are in the system now ?
Mr. Plantz. There are 13 banks that have received licenses; 6 of
them are issuing banks and 7 are agency banks. Since I was sub-
penaed by the committee I have heard that another bank has taken
action by its' board of trustees to come into the system; I don't believe
the licenses have been issued yet, though.
Mr. Gesell. By and large, is the New York law similar to the
Massachusetts law ?
.Mr. Plantz. In many respects it is almost identical.
Mr. Gesell. Will you point out to the committee where it differs
materially ?
Mr. Plantz. There are 3 material differences. First, the New
York law places a limitation of $3,000 tliat can be issued on any
one life. The same limitation of $1,000 by any one bank applies, but
whereas in Massachusetts each bank in the system, assuming there
were 26, each may issue a policy; in New York only 3 policies of
$1,000 could bo issued.
CONCENTRATION OF ECONOMIC POWER 4501
Now the second — there is a second major difference which has to
do with the set-up in the division of savings bank life insurance. In
New York State there is a constitutional limitation on the number of
State departments that may be formed, and I am told that that is the
reason for that difference in our law. In other words, it was felt that
a division with a- board of trustees operating with powers as out-
lined by Mr. Dewey in his testimony would constitute an additional
State department. For that reason in New York — many of the
powers that are exercised by the trustees of the general insurance
guarantee fund are exercised by the New York State superintendent
of insurance.
That leaves about the only duties or powers of the board of
trustees the control and management and investment of the general
insurance fund.
Mr. Gesell. And what is the third difference?
Mr. Plantz. The third has to do with the method of taxation.
In New York State the insurance departments in the savings banks
are subject to the same provisions of law as to taxation as are the
insurance companies.
Mr. Gesell. Now, is there at the present time any form of State
subsidy by the State department for the bank system other than the
operations of the regular insurance department?
Mr. Plantz. There is, I believe, an allowance in the budget cover-
ing the first-year expenses of the system ; that is the maintenance of
the division of savings bank life insurance in the State. Commencing
at the end of this year the law provides that the expenses of the
State office, of course, including the deputy superintendent of insur
ance and the State actuary, the medical director, and any other
employees, expenses for printing, must all be borne by the banks.
The superintendent of insurance is authorized under the law to allo-
cate the contributions to reimburse the State.
Mr. Gesell. Now can you tell us — I presume you have rates set
up and there are policyholders who have taken out savings bank
insurance in New York, are there not?
Mr. Plantz. Yes; I have.
Mr. Gesell. How do your rates compare with the Massachusetts
rates ?
Mr. Plantz. In New York rates are somewhat higher than the
Massachusetts rates; being a new enterprise in New York, to be on
the conservative side, let us say, it was felt that it would be better to
have slightly higher rates. Another element that made it necessary
to have higher rates was the fact that at this time there must be a
contribution of 4 percent of premium income in order to build up this
State-wide general insurance guaranty fund.
Mr. Gesell. Your fund does not yet
Mr. Plantz. Ours is not yet 100,000.
Mr. Gesell. You say there is a slight difference. Am I correct in
saying that for an ordinary-life policy, age 35, $1,000, Massachusetts,
the charge would be $22.19 and in New York it ^ould be $23.96?
Mr. Plantz. Those are the rates; yes.
Mr. Gesell. And that difference as represented between those two
figures is more or less the same difference which prevails all through
the rates, is it not?
Mr. Plantz. I think there is a similar difference as to the expense
loading in all the types of policies.
4502 CONCENTRATION OF ECONOMIC POWER
Mr. Gesell. That still makes the savings-bank insurance in New
York very low from a net-cost point of view, does it not ?
Mr. Plantz. As yet we are unable to give figures on the basis of
net cost, because we have no dividend schedule and can't have until
the end of the year.
Mr. Gesell. But assuming normal experience, you anticipate you
will have a low net cost?
Mr. Plantz. We see no reason why there should be any material
difference in net cost over a period of years, other than by reason
of this necessity of contribution of 4 percent to the general insur-
ance guaranty fund, and some slight difference in methods of taxa-
tion, which I don't believe should total more than 43^-percent differ-
ence in the question of real cost.
Mr. LuBiN. You mean no difference between the cost in New York
as compared with Massachusetts?
Mr. Plantz. With the exceptions that I have mentioned.
Mr. Gesell. Now, Mr. Plantz, how many policyholders are there
in New York State by this time ? Can you give us a rough idea ?
Mr. Plantz. As of June 1, 4,302 policies had been issued for a total
of $3,807,750.
Mr. Gesell. That is all savings-bank life insurance, is it not?
Mr. Plantz. It is, yes; it represents that issued not only by the
New York but by all the others. Some of those issuing banks, by the
way, have not been in since the beginning of the system.
Mr. Gesell. You have had more success from the point of view
of number of banks and the amount of insurance written than the
Massachusetts system did in its early experience, have you not?
Mr. Plantz. I am told that in the first 3 or 4 months we have
accomplished more than was accomplished in the first 3 or 4 years
in Massachusetts. Now, that is not any particular result of our
activities; it is the normal thing to be expected, because when this
system was started in Massachusetts there was nothing to which to
point, that it was workable, that it would result -in low-cost insur-
ance. I think the reason for our better experience has been the
experience in Massachusetts over the past 30 years.
Mr. Gesell. What percentage of the policyholders have pdlicies in
your bank, approximately? Is it around 40 percent?
Mr. Plantz. I don't understand your question.
Mr. Gesell. Of the policyholders that have taken out policies in
New York, have a rather large number of them taken out insurance
with your bank at your bank ?
Mr. Plantz. Oh, yes; we have done nearly half of the business.
Mr. Gesell. Have you any idea as to how the size of the policies
is running ?
Mr. Plantz. Yes; you mean in the State or in our bank alone?
Mr. Gesell. Well, can you give us both figures ?
Mr. Plantz. I can. In the State 35 percent of the policies that
have been issued are under $1,000, 43 percent are for $1,000, 9 percent
are for $1,100 to $2,000, and 13 percent are from $2,100 to $3,000.
Now, that represents the figures — the amount of insurance per per-
son; it doesn't represent the average policy issued by a particular
bank. In our bank alone it is our experience that about 78 percent
have $1,000 or less of insurance. The others have applied for addi-
tional insurance. On the basis of the actual policies issued by our
CONCENTRATION OF ECONOMIC POWER 4503
bank, the average policy is $866. That bears out the fact that most
of the people apply either for $1,000 or $500.
Mr. Gesell. What kind of people come into your bank ? You see
them, don't you, Mr. Plantz ?
Mr. Plantz. Yes; I have been in contact, even before this began,
because as early as December people began coming into the bank,
having read in the newspapers about savings bank life insurance.
Mr. Gesell. What kind of people are they ; what occupational level
do they come from ?
Mr. Plantz. Very general public. We have made an analysis of
the first thousand policies issued. Of that thousand the largest class
was clerks, the next largest class was salesmen.
Mr. Gesell. Is this schedule which I show you that analysis to
which you refer ?
Mr. Plantz. That is right ; yes.
Mr. Gesell, I notice on here "Insurance." I take it you have
some insurance people who are policyholders.
Mr. Plantz. Of the first thousand policies issued seven were em-
ployees of life-insurance companies.
Mr. Gesell. I wish to offer this schedule for the record.
Acting Chairman Williams. It may be received.
(The schedule referred to was marked "Exhibit No. 750" and is
included in the appendix on p. 4825.)
Mr. Gesell. Am I correct, under the New York law there is a
medical examination of each policyholder?
Mr. Plantz. No; insurance issued on the lives of children under
the age of 15 is not based on medical examination except in unusual
cases where the application itself may divulge a necessity for some
check up. On all those over 15 an examination is required.
Mr. Gesell. Have you found that many of the people who have
come to you to take out savings-bank life insurance have policies
with other companies?
Mr. Plantz. A great many of the people that apply have insur-
ance ; some a considerable amount of insurance, but the amazing fact
to us in the savings banks, starting in this insurance, is the number
of people, in answering the questions on their application for insur^
ance, state that they have no other insurance. We have made checks
of that right from the beginning and those checks show that in our
bank 42.6 percent of the people that we have issued policies to have
no other insurance, had no other insurance at the time they came in
and applied to us for savings bank life insurance.
Mr. Gesell. I take it, in New York you don't have agents to sell
insurance.
Mr. Plantz. In connection with savings-bank life insurance, no;
we have savings banks who act as agencies. We have no agencies
other than savings banks, however. There is no limitation in the law,
but at the beginning we have not as yet appointed any other agency.
Mr. Gesell. Do you have instructors, the way they do in Massa-
chusetts ?
Mr. Plantz. No; we have no instructors. There are no State in-
structors that go out and lecture on savings-bank life insurance. The
law has the same limitation against having paid solicitors.
Mr. Gesell. Have you in New York experienced much opposition
from insurance agents to the savings-bank life-insurance program?
4504 CONCENTRATION OF ECONOMIC POWER
Mr. Plantz. We have experienced opposition.
Mr. Gesell. You say yon have or have not ?
Mr. Plantz. We have, from the agencies. In New York, as far as
I know, the companies themselves have never taken any open or active
part in opposition, but from conversations I have had from time to
time with people applying for insurance or coming in to talk about
it I understand that the agents are following the same campaign,
trying to rouse fear in the minds of people, as was followed in the
beginning in Massachusetts. The principal method, of course, is the
allusion to the hypothetical epidemic that may come some day and
carry everybody away. The other is that the savings banks have gone
into this as a temporary side line, and after they have had a little
fun with it they are going to drop it. In fact, I think one publica-
tion to that effect got into the newspapers, which, of course, was
promptly denied, because there is no such feeling on the part of any
of the banks that have gone in. The banks that have gone in are very
well pleased with the results so far. In fact, the results have been
far beyond anything that we had planned on when we thought of
going into this the first of the year.
Mr. Gesell. I have no further questions of this witness.
Acting Chairman Williams. Are there any questions?
Dr. LuBiN. May I ask Mr. Plantz whether there was any opposi-
tion from insurance companies when this legislation was being con-
sidered?
Mr. Plantz. The companies themselves at that time issued public
statements in which they said they were not opposed. However, the
legislators were flooded with letters, thousands of letters, opposing
it, and these letters were very similar in type, which would naturally
arouse the suspicion that they were instigated by some one organiza-
tion. I don't think the insurance companies themselves were respon-
sible. I think the opposition came from the life underwriters.
Mr. Gesell. I might call attention. Dr. Lubin, to "Exhibit No. 734," ^
introduced yesterday, wherein the committee on law and legislation of
the Life Underwriters Association sent out a bulletin worded as
follows :
Flash! Word>from Albany indicates pressure from New York and vicinity
against savings-bank life-insurance bill is still not strong enough. Please have
all your agents wire again, making sure every senator and assemblyman gets
at least one telegram from your office regardless of constituency. They are
weakening.
Keep up the good work.
Suggestions enclosed.
And there are enclosed and printed in the record 16 "canned" tele-
grams ^ which were suggested by the committee on law and legislation
as appropriate for the occasion.
Acting Chairman Williams. Thank you.
(The witness, Mr. Plantz, was excused.)
Mr. Gesei^l. We have no further witnesses today, if the committee
please.
Acting Chairman Williams. The committee will be in recess until
10 : 30 tomorrow.
(Whereupon, at 4:10 p. m., a recess was taken until Friday, June
16, 1939, at 10: 30 a.m.)
1 See appendix, p. 4815.
'Ibid.
INVESTIGATION OF CONCENTRATION OF ECONOMIC POWER
TBIDAY, JUNE 16, 1939
United States Senate,
Temporary National Economic Committee,
Washington^ D. G.
The committee met at 10:45 a. m., pursuant to adjournment on
Thursday, June 15, 1939, in the Caucus Room, Senate OflSce Building,
Representative B. Carroll Reece presiding.
Present: Representative Reece (acting chairman), Messrs. O'Con-
nell, Lubin, Henderson, and Brackett.
Present also: Joseph Borkin and Ernest Meyers, Department of
Justice; Willis Ballinger, Federal Trade Commission; and Gerhard
A. Gesell, special counsel, Securities and Exchange Commission.
Acting Chairman Reece. The committee will come to order, please.
Mr. Gesell, are you ready to proceed?
Mr. Gesell. I am.
intercompany agreements — annuities
Mr. Gesell. Today, if the committee please, the Commission will
present additional testimony indicating the nature and effect of inter-
company meetings held among representatives of principal com-
panies for the purpose of discussing premium rates. On Tuesday and
Wednesday of last week we discussed intercompany arrangements
affecting group life-insurance rates and ordinary insurance rates of
nonparticipating companies.^ The testimony this morning will per-
tain to annuity rates.
I would like to call as my first witness Dr. Hunter, of the New York
Life Insurance Co.
Acting Chairman Reece. Do you solemnly swear the testimony you
are about to give in this proceeding shall be the truth, the whole truth,
and notliing but the truth, so help you God?
Dr. Hunter. I do.
TESTIMONY OF DR. ARTHUR HUNTER, CHIEF ACTUARY AND VICE
PRESIDENT, NEW YORK LIFE INSURANCE CO., NEW YORK,
N. Y.
Mr. Gesell. Will you state your full name for the record, please?
Dr. Hunter. Arthur Hunter.
Mr. Gesell. Are you chief actuary and vice president of the New
York Life Insurance Co.?
' Supra, pp. 4228 et seq.
4506
4506 CONCENTRATION OF ECONOMIC POWER
Dr. HuNTEB. I am.
Mr. Gesell. How long have you been with the New York Life In-
surance Co. ?
Dr. HuNTEB. ^C'orty-one years.
Mr. Gesell. How long have you been chief actuary, Dr. Hunter?
Dr. Hunter. Twenty years.
Mr. Gesell. As actuary of the New York Life Insurance Co., I
understand that you have the principal responsibility for establish-
ing the basis of the premium rates of that company, do you not ?
Dr. Hunter. I have the responsibility with my associates who
recommend to the appropriate committee of the board of directors.
Mr. Gesell. You hpve had, then, in the last years, the responsi-
bility of recommending to the board of your company what rates
should be charged by the company for various types of annuities?
Dr. Hunter. Yes.
Mr. Gesell. Am I correct in saying that the annuity business has
grown considerably in recent years?
Dr. Hunter. It has.
Mr. Gesell. Do you know when it was that the companies first
started to write annuities on any large scale?
Dr. Hunter, May I look at my records?
Mr. Gesell. Certainly.
Dr. Hunter. About 10 years ago, 1927.
Mr. Gesell. I would like to offer for the record at this time a
scheduled entitled "Premium Income and Consideration Received,
Annuity Contracts" which has been prepared by the staff of the Com-
mission from the Spectator Insurance Yearbook. This shows the
premium income and other consideration received for annuity con-
tracts of the companies reporting to the Spectator for the years 1913
to 1937; "Total premium income and consideration received on an-
nuity contracts during the years 1933 to 1937, inclusive, amounted to
$2,065,191,000 or 67.11 percent of such income during the entire period
from 1933 to 1937, inclusive.*'
Acting Chairman Eeece. It may be admitted.
(The schedule referred to was marked "Exhibit No. 751" and is
included in the appendix on p. 4825.)
Mr. Gesell. Can you tell me. Dr. Hunter, whether the principal
companies writing annuities have been making or losing money in
recent years on their annuity contracts?
Dr. Hunter. I could not tell.
Mr. Gesell. You are familiar with the experience of your own
company, are you not?
Dr. Hunter. Yes.
Mr. Gesell. What has that experience been?
Dr. Hunter. That experience up to date indicates that there is
little if any loss.
Mr. Gesell. You mean that eventually there will be little if any
loss?
Dr. Hunter. It depends entirely on the future.
Mr. Gesell. So far as your operating results during the last fe"W
years are concerned, however, your company has been losing money
on annuities, has it not?^
Dr. Hunter. I doubt it.
CONCENTRATION OF ECONOMIC POWER 4507
Mr, Gesell. Is it not a fact that you have shown since 1932 for
every year a decrease in the surplus of your company allocated for
annuity business?
Dr. Hunter. May I ask whether you are referring to the gain and
loss exhibit statement?
Mr. Gesell. Yes ; it has shown such by that statement. Your gain
and loss exhibit has shown losses in annuities.
Dr. Hunter. By that statement.
Mr. Gesell. Yes. Do I understand you to say, then, that that state-
ment is not correct or doesn't represent the operating results ?
Dr. Hunter. It does not show the operating results. It does not
show the realized loss. What it does show is that the company was
strengthening its reserves, and in strengthening its reserves that
increase must appear in that, and of that
Acting Chairman Eeece (interposing). Will you kindly talk into
the microphone a little more closely, please ?
Dr. Hunter, Shall I begin again ?
Acting Chairman Reece. Yes.
Dr. Hunter. That amount which appears in the gain and loss ex-
hibit is not a realized loss. It is due to the fact that the company as
a conservative measure has been strengthening its reserves. These
reserves have been strengthened in two ways, either by putting up
reserves at a lower rate of interest or by adopting tables showing a
lower mortality.
Of that total reserve, total loss, apparent loss, at least three-quarters
of it is due to increasing reserves. Another goodly portion of the
balance is due to the fact that the company has been writing down
certain of its assets which may or may not turn out to be real losses,
and a proportion of that has been charged against the annuities.
Mr. Gesell. In setting up these special reserves in recent years, I
take it, in the case of your company, the reserves have been set up
partly because of the feeling that added protection is needed to insure
the company of meeting its commitments on its annuity business.
Dr. Hunter. I would like to amend one word there. I think it is
desirable to do so. If the rate of interest continues to go down, it is
most desirable, but one doesn't know whether the rate of interest is
going down or not.
Mr. Gesell. The establishment of these reserves by your company
and the other principal companies would indicate that, generally speak-
ing, the companies have felt that it has been advisable to set up higher
reserves to secure their annuity contracts.
Dr. Hunter. That is so where there is an indication prevailing in
the condition which might mean a loss.
Mr. Gesell. It is impossible to tell whether at the present time there
has been a loss or whether or not a loss will be realized in the future.
Dr. Hunter. Yes.
Mr. Gesell. Would you concede, however, Dr. Hunter^ that the
establishment of special contingency reserves against annuity con-
tracts in recent years is an indication that the management of the
companies feel it desirable to increase the protection against these
policies ?
Dr. Hunter. I should say yes, and there is the fact that our company
has been more conservative than any others in that respect, and there-
4508 CONCENTRATION OF ECONOMIC POWER
fore there is an apparent loss to a greater extent than the others, but
that is not criticism of the company. It sliould be commended for
being most careful.
Mr. Gesell. If the contracts had been written on a different basis
originally, it would not be necessary to make these special contribu-
tions in terms of contingency reserve, would it?
Dr. Hunter. No; if they had been written on a basis such as we
have now, 2^/2 percent, it probably would not.
Mr. Gesell. So that it is fair to sayj is it not, that the companies
have felt on the basis of present conditions, the" annuities which have
been written were written on too liberal a basis?
Dr. Hunter. That only the future can tell, Mr. Gesell. If the
rate of interest continues going down, yes; but we hope it will
return, and may I add this, that I am old enough to remember the
influenza epidemic of forty-five-odd years ago, m which the death
losses occurred almost entirely among elderly people. An epidemic
of that kind might come along in the future, who knows? It is a
measure of conservatism, if that is what you wish me to say.
Mr. Gesell. I would like you to say that it is a measure of con-
servatism which has been particularly pronounced in the annuity
field as opposed to the general operations of your business.
Dr. Hunter. I think that is a fact.
Mr. Gesell. I would like to offer for the record a schedule entitled
"Personal annuities, 10 largest United States companies, increase or
loss in surplus after appropriation for contingency or other special
reserves for the years 1929 to 1938, inclusive." This schedule has
been prepared from replies of the companies to the investment ques-
tionnaire of the Commission.
Acting Chairman Reece. It may be admitted.
(The schedule referred to was marked "Exhibit No. 752 and is
included in the appendix on p. 4826.)
Mr. Gesell. I should also like to offer for the record at this time a
schedule entitled "Personal annuities, increase or loss in surplus after
appropriation for contingency or other special reserves, 26 largest
United States companies." The previous schedule showed the names
of the top 10 companies and the gains or losses in their surplus.
This schedule shows numerically only the number of companies which
have increased and the number of companies which have shown
losses in their annuity surpluses during the years from 1929 to 1938.
It has been prepared also by the staff of the Commission from the
replies to the investment questionnaire.
Acting Chairman Reece. It may be admitted.
fThe schedule referred to was marked "Exhibit No. 753" and is
included in the appendix on p. 4827.)
Mr. Gesell. Dr. Hunter, am I correct in stating that meetings have
been held from time to time at your office attended by representatives
of principal companies to discuss annuity premiums and other matters
affecting annuities?
Dr. Hunter. Yes; these conferences have gone on for a period of
pretty nearly 20 years.
Mr. Gesell. Have the conferences been more frequent in recent
years ?
Dr. Hunter. Yes; because of the more serious problems which we
have had to face.
CONCENTRATION OF ECONOMIC POWER 4509
Mr. Gesell. Are the representatives of the companies attending
these meetings usually the actuaries of the companies?
Dr. Hunter. Yes.
Mr. Gesell. The meetings are held in your offices, are they ?
Dr. Hunter. Sometimes; sometimes elsewhere.
Mr. Gesell. They have been frequently held in your offices, have
they not?
Dr. Hunter. Frequently.
Mr. Gesell. Have you been the presiding officer at those meetings ?
Dr. Hunter, Mostly ; at many of them.
Mr. Gesell. How many companies were represented, usually, at the
meetings ?
Dr. Hunter. Oh, about 20.
Mr. Gesell. They are all, usually, the 20 largest companies, are they
not?
Dr. Hunter. Yes; with tiie exception that we usually had with us
Mr. Moir, who is a famous actuary who died a little while ago.
Mr. Gesell. Who called the meeting together. Dr. Hunter ?
Dr. Hunter. There were a great many meetings which I had nothing
to do with, but those which I had to do with I called.
Mr. Gesell. On whose suggestion did you call the meetings
together ?
Dr. Hunter. Usually they were called through actuaries of the
companies writing in to me and saying they would like to discuss some
of their problems.
Mr. Gesell. Why did they write in to you ?
Dr. Hunter. Because I am the oldest ex-president of the Actuaries'
Society.
Mr. Gesell. Do you wish to elaborate on your statement?
Dr. Hunter. May I say that the first meeting which was held in
connection with these annuities was at the suggestion of the insurance
commissioner of the State of New York ?
May I continue ?
Mr. Gesell. Certainly.
Dr. Hunter. In 1930— yes; in 1930 — a committee of actuaries was
requested to prepare a new annuity table. That same committee had
been working with the insurance department on amendments to the
expense section of the law. That was finished by this group of actu-
aries, and then a little bit later, in 1932, the insurance department
brought to the attention of the companies the fact that the then annuity
table did not &eem to be in accordance with present-day conditions.
Accordingly, a committee of five of us were asked by the insurance
department to take up the whole question of the annuities, and in
the beginning of 1933 we presented to the insurance department a
statement of the experience of the five largest companies.
Following that, and at the suggestion of the insurance department,
the five of us met in the offices ot Mr. Gore, who at that time was the
.senior actuary in Newark. I think Mr. Craig had something to do
with it at the time. After the mortality conference statement had been
submitted to the insurance department it was suggested by the insur-
ance department that we give the other companies the benefit of the
information, and accordingly that experience of the five companies
was sent to quite a large number of companies.
4510 CONCENTRATION OF ECONOMIC POWER
Mr. Gesell. Your original meeting that was held at the suggestion
of the insurance department and your subsequent discussions related
entirely to the question of pooling mOftality experience, did it not?
Dr. Hunter. No, sir.
Mr. Gesell. Do I understand you to say that the insurance com-
missioner suggested that the companies get together to discuss all other
factors involved in premium rates ?
Dr. Hunter. There was no discussion, sir, ever in the committee
with regard to premium rates for life insurance.
Mr, Gesell. We are talking about annuities.
Dr. Hunter. You say "annuities and other matters." The insur-
ance department did ask us to get together on other matters than
annuities.
Mr. Gesell. In the field of annuities, which is our subject for dis-
cussion this morning, did not the insurance commissioner limit his sug-
gestion of discussions with you to the question of mortality experience
on annuity contracts?
Dr. Hunter. No. I think by that time he considered that the rates
of interest were beginning to decline, and we should consider that, but
I wouldn't like to be positive on that.
Mr. Gesell. Can you be positive on the question of loading on
annunity contracts?
Dr. Hunter. No ; that was left to ourselves.
Mr. Gesell. You were saying a moment ago that you presided
at these meetings which were held at your office. Can you tell us
how the meetings were conducted from the time that they opened
until the time they closed ?
Dr. Hunter. The procedure was entirely informal. When the
notice was sent out there may or may not have been an agenda with
regard to the meeting. When the meetings were opened I stated the
subjects which were to be discussed or the subject if it happened to
be one. There was then a free discussion as to what the actuarial
basis of whate^ er it was should be. Each member there told what
the experience of his company was, it may have been with mortality,
it may have mentioned the rates of interest, it may have mentioned
other matters. After that was completed — each man took his own
notes, there were no minutes, there never have been any minutes
kept in any informal meeting that I have ever attended — they then
went back to their companies, discussed the matter with them, and
I then became a clearing house to send to the other companies what-
ever information came to me. I would like to say at this point that
a number of the companies came to their own decisions after we had
our talks, and so in ours, while others did not; some of them were
a little bit in doubt. But I served as a broadcaster for the opinions
of these companies.
Mr. Gesell. Let me see if I understand that. The meeting would
be held in your office, an agenda would be discussed topically, the
companies would express their opinion
Dr. Hunter. Not the companies — ^the actuaries would discuss it.
Mr. Gesell. Then they would go back to their companies and
consult with their colleagues. They then would advise you as to
what position their company was going to take on the matters dis-
cussed.
Dr. Hunter. Yes.
CONCENTRATION OF ECONOMIC POWER 4511
Mr. Resell. And then you in turn would advise all of the com-
panies present as to what information you had gotten from each of
the others who had attended.
Dr. Hunter. That is correct.
Mr. Gesell. Am I correct in saying that after a matter had been
discussed and decisions reached, it is your customary practice to
destroy your papers relating to that conference ?
Dr. Hunter. Not at that time, but my practice is this, I have
to be on duty every August. In August I go over all my papers
and my secretary brings to my attention the papers which he thinks
are of no value. That covers all kinds of correspondence. These
papers are destroyed. If they are of any value they are kept. The
last meeting of any moment that I attended was over 2 years ago
and in the normal course of business these were destroyed. It never
crossed my mind for a moment that anyone, including such a body
as this, would be interested in notes made in connection with in-
formal discussions.
Mr. Gesell. I am not suggesting that was done with any im-
proper motive. I want that to be clear.
Dr. Hunter. But I want to add one more thing to that. Among
the actuaries there are very careful men who keep all their papers
and everything that has happened could be obtained from them
from their records. I have no doubt that Mr. Gesell has a complete
list of everything that was discussed, even our thoughts.
Mr. Gesell. It is to me of some interest, however, Dr. Hunter,
that regardless of the reasons why or the circumstances under which
these records were destroyed, that the records which came to ^ou
as the presiding oflBcer of these conferences and the records which
you maintained in that capacity have all been done away with. The
only way, then, that anyone can determine what happened at those
conferences in detail is to go through the rather laborious process
which you have suggested that we must have pursued to go to each
of the companies attending and determine the nature of the records
that may or may not have been kept by that particular company.
Dr. Hunter. I shouldn't think it would be laborious because you
might find one man who had the complete file.
Mr. Gesell. That is a question. The facts are that at the con-
clusion of the conference and in the regular course of your office,
papers relating to the discussions of that conference and correspond-
ence which you received from the participating companies with re-
spect thereto were destroyed.
Dr. Hunter. Yes ; but not at that time. Maybe a year afterward,
longer. It may have been a few months, may have been a few
weeks. I don't know. I kept no record of it.
Mr. Gesell. Now I want to understand a little more clearly why
it is that it was necessary to hold these meetings at your office. Isn't
it a fact that topics with respect to annuities and annuity problems
are continually discussed at the meetings of the actuarial society ?
Dr. Hunter. There are two types of subjects discussed at the
actuarial society; one is topics of permanent value where papers
, are submitted and the discussions take place which are printed.
There is another set of subjects which are discussed in an informal
way of current topics, but may I just add that that is not the only
place where there are meetings of actuaries. There is a senior and
4512 CONCENTRATION OF ECONOMIC POWER
a junior actuary club in New York. There are clubs throughout
the whole country, jn Des Moines, in Los Angeles, Toronto, and else-
where, and meetings are held frequently.
Mr. Gesell. That is just the point exactly. Why was it necessary
then to add to the meetings of all these clubs and discussion groups
throughout the country a series of meetings at your own office?
Dr. Hunter. Because there are something like 200 companies,
which means an attendance of possibly 400 people at an actuarial
society meeting, and it is not possible to discuss such subjects there.
Mr. Gesell. Is it not a fact that at the informal discussion of
topics of current interest at the actuarial society that during the last
8 years the annuities have been included on that agenda at least 10
times, and there have been informal discussions periodically of an-
nuity problems?
Dr. Hunter. Yes, sir ; but that has consisted almost exclusively of
persons giving their opinion and stating the experience of their
companies.
Mr. Gesell, How did that differ from what was happening in your
own office?
Dr. Hunter. Because it was a much more intensive one, where the
group of actuaries, after discussing the problems of their own com-
pany and the experience of their own company, try to come to some
kind of a solution of their common difficulties.
Mr. Gesell. Then am I correct in saying that the meetings that
were held in your office were for the purpose of working out a uni-
form program and getting specific commitments from company
officers to follow the same?
Dr. Hunter. Not necessarily.
Mr. Gesell. That isn't an answer to my question, Dr. Hunter.
Dr. Hunter. Well, the companies did not adopt a uniform basis
on anything after these conferences.
Mr. Gesell. You mean there was no single time when all of the
companies agreed to what was proposed.
Dr. Hunter. That is true.
Mr. Gesell. As a result of the conferences, however, considerable
uniformity developed, did it not?
Dr. Hunter. Yes.
Mr. Gesell. My question was. Was it not the purpose of the meet-
ings held in your offices to bring about that uniformity ?
Dr. Hunter. No; I should think not.
Mr. Gesell. What was the purpose, then?
Dr. Hunter. The purpose of these meetings was to pool our experi-
ences, to discuss our common problems, and if it appeared that the
companies should adopt some measure of uniformity, all right; but
most of the companies represented in these meetings, after discussing
the matter, decided for themselves whether they were going ahead
or not. It was not dependent on what other companies did.
Mr. Gesell. This was just putting another actuarial society on
top of the actuarial societies you already had.
Dr. Hunter. No; it was much more intensive.
Mr. Gesell. You mean you could discuss the things in greater
detail.
Dr. Hunter. Not only in greater detail, but more freely than you
could at an actuarial society meeting.
CONCENTRATION OF ECONOMIC POWER 4513
Mr. Gesell. What do you mean, more freely?
Dr. Hunter. Because there were certain things that we wouldn't
want to broadcast.
Mr. Gesell. You had 26 companies sometimes present at these
meetings ?
Dr. Hunter. Yes.
Mr. Gesell. Broadcasting something to actuaries of the 25 biggest
companies, do you consider that not to be broadcasting?
Dr. Hunter. I certainly do; because every man there could be
relied upon.
Mr. GESELL. Then who was it that you were concerned would learn
about your discussion ? It wasn't the actuaries if you had 26 of them
present.
Dr. Hunter. There was no concealment at the meetings at all.
That is what I am trying to bring out.
Mr. Gesell. You said a moment ago that you didn't want your
discussions broadcast.
Dr. Hunter. There was no concealment about these meetings. It
was known to the press, the insurance press, that these meetings
were going on, but if you intend to get out a set of annuity rates in
which there was an increased premium, it was certainly undesirable
to have it known to your entire field force because you would get
a large amount of business, much more than you wanted, and if anj'
of these letters are marked confidential, it was intended to keep them
from others and preventing agents from knowing wTiat the company
alone should know.
Mr. Gesell. You did what I was driving at. If you are meeting
for the purpose of getting out a higher set of premium rates then
you don't want your discussions known to the agent.
Dr. Hunter. That is correct.
Mr. Gesell. The purpose of these meetings was to reach as near
as possible a uniform program for increased annuity rates, was it not?
Dr. Hunter. Yes ; I think that is a fair statement.
Mr. Gesell. If the committee please, there is before each member
of the conmiittee a schedule entitled "Principal intercompany meet-
ings re annuities." For the convenience of the committee, the staff of
the Commission has prepared this schedule. On the extreme left-
hand margin there are listed the names of 26 United States com-
panies and three Canadian companies which at one time or another
have been represented at the meetings indicated on the schedule.
You will note that the schedule reflects a total of 14 meetings held
during the period from March 15, 1933, to Octobei: 5, 1938, inclusive.
The schedule also reflects for the United States companies the
percentage of insurance in force and the percentage of admitted
assets represented at each meeting. You will note that on all but
one occasion the companies represented have always accounted for
over 50 percent of the assets of all United States companies, and at
one meeting, that of April 22, 1938, over 85 percent of the assets of the
United States companies were represented.
The documents and testimony in support of this schedule will b.i
introduced during the course of the hearing.
I have referred to the schedule in advance in order that the com-
mittee may more readily follow the testimoriy which is to come, and
I would like, if the committee please, to offer the schedule for the
4514 CONCENTRATION OP ECONOMIC POWER
record at this time with the understanding that the supporting in-
formation will be introduced during the course of the hearing.
Acting Chairman Reece, It may be admitted, the supporting testi-
mony to be introduced later.
(The schedule referred to was marked "Exhibit No. 754" and is
included in the appendix on p. 4828.)
Mr. Gesell. You referred a moment ago, I believe, Dr. Hunter, to
a pooling of mortality experience by the five largest companies. That
was in 1933, was it not?
Dr. Hunter. The work was commenced in 1932 and was completed
in 1933.
Mr. Gesell. That was a gathering together of the mortality experi-
ence of the five largest companies on their annuity contracts, was it
not?
(The witness nodded in the affirmative.)
Mr. Gesell. Do you recall how many meetings were held amongst
the representatives of the five companies in connection with this
matter ?
Dr. Hunter. May I just emphasize again that all this was done
at the request of the insurance d!epartment. That first set of meetings
was not volunteered by the companies.
I should think that the first meeting was held in the spring of 1933,
and it was held at the office of Mr. Gore in Newark, who has since
retired. At that time the insurance department suggested that the
experience of the five companies be sent to other companies, so that
they might be informed of the experience of these companies on an-
nuities. Accordingly, I sent copies of that experifince to a number
of companies, and again at the suggestion of the insurance department
the first meeting was held at my office, and I should think it may have
been in May of 1933, at which probably 15 companies were represented.
Mr. Gesell. Why was it necessary for the insurance department to
suggest that the companies get together on this mortality situation
at this time ?
Dr. Hunter. Because there is a clause in the law, section 97, para-
graph 9, which says, "No such corporation shall issue any policy that
shall not appear to be self supporting on reasonable assumptions as to
interest, mortality, and expense," and the insurance department felt
that there was a possibility that annuities were not being issued under
such conditions as stated in the law.
Mr. Gesell. So he suggested to you that you get together and see
what you could do to eliminate that situation if it existed?
Dr. Hunter. Yes.
Mr. Gesell. Did he attend these meetings ?
Dr. Hunter. No ; but we reported to the insurance department our
findings.
Mr. Gesell. Refreshing your recollection with a letter of Mr.
Hutcheson, of the Mutual Life Insurance Co., does that not indicate
that there was a meeting in your office on March 15, 1933, with respect
to this matter ?
Dr. Hunter. Yes. I said, as you remember, in the spring. I
couldn't get it any nearer than that.
Mr. Gesell. And then there were subsequent meetings held, were
there not, from time to time ?
CONCENTRATION OF ECONOMIC POWER 4515
Do ycu recognize this letter which I show you, signed by yourself,
addressed to Mr. E. E. Cammack, of the Aetna, dated April 22, 1933 ?
Dr. Hunter. Yes. May I read it?
Mr. Gesell. I am going to read it to you.
I should like to offer this letter for the record at this time.
(The letter referred to was marked "Exhibit No. 755" and is included
in the appendix on p. 4830. )
Acting Chairman Keece. It may be admitted.
Mr. Gesell. The letter states, under date of April 22, 1933 [reading
from "Exhibit No. 755"] :
A month ago there was a meeting in my office of the representatives of five
companies — Metropolitan, Prudential, Equitable, Mutual, and New York Life —
with regard to a proposed increase in the annuity rates. It was then suggested
that we prepare the experience of the five companies for recent years so as to
show whether the mortality had been improved or not. For your information, I
am enclosing a synopsis of this investigation. It should be stated, however, that
there are two of the companies which included annuities issued in connection
with single-premium policies. Arrangements are being made to have these
omitted from the experience, but they are not likely to affect it materially. It is
anticipated that the effect of omitting them would be to slightly decrease the
mortality. Of course, it is understood that this material is for the confidential
information of the Ti'avelers, Connecticut General, and yourselves.
We had a meeting of the representatives of the five companies at the Prudential
yesterday, during which ^our letter to Mr. Little of the 12th instant and also your
more recent letter to Mr. Hutcheson were read. We are very glad to learn that
the Hartford companies are ready to cooperate with us in obtaining an increase in
the annuity rates.
The following program was decided to be the most feasible, although not all
the members present wished to make a final decision without further consultation
with other officers of their companies :
First. Immediate annuities nonparticipating : Both male and female to be taken
on the American annuitants table as of 1 year younger, the rate of interest to be
3% percent and the loading 5 percent of the gross premium. This would apply to
cash refund or continuation of annuity to beneficiary, also to joint lives.
Before proceeding with the rest of the letter, Dr. Hunter, if I may
pause there a moment, you were considering at these meetings I gather
from this letter not only questions of mortality experience but also
loading and interest rate.
Dr. Hunter. That is true.
Mr. Gesell.- Those are the three factors which go to make up
the annuity rate.
Dr. Hunter. Yes.
Mr. Gesell. If the superintendent of insurance in the State of
New York was interested in this matter only because he wanted
the contracts on a sound basis, was there anything in his discussions
which would lead you to believe that he wanted uniformity in rates?
Dr. Hunter. I am afraid I couldn't answer that. It was more
to assure himself that the rates charged, where the bases had anything
to do with mortality or interest or loading, came within what he
thought were reasonable assumptions.
Mr. Gesell. He wanted each company to sit dowfh and make sure
its contracts were safe.
Dr. Hunter. I should think all the companies operating in New
York State wanted to make sure of that.
Mr. Gesell. If one company decided to use one mortality table
and another decided to use another, if one company decided to use
one interest factor and another company decided to use another, if
124491— 40— pt. 10 25
4516 CONCENTRATION OF ECONOMIC POWER
one company's loading or expenses were less or ^eater than another,
he didn't care at all, provided the contracts of each company were
safe ; is that not a fact ?
Dr. Hunter. On the whole.
Mr. Gesell. So you were going quite beyond these preliminary
discussions with the insurance commissioner when you proceeded to
establish, or attempt to. establish uniform rates, were you not?
Dr. Hunter. I hardly think so. When companies are operating
on the same basis for many years, have been for 30 or more years
under the same conditions, it seemed perfiectly natural that they
should follow the same procedure.
Mr. Gesell. You mean that each company spends just as much
money to put the annuity business on its books and keep it there?
Dr. Hunter. I don't mean to say that.
Mr. Gesell. You were agreeing on the loading factor here, were
you not?
Dr. Hunter. May I say, we were talking of uniformity. So far
as uniformity is concerned, the rates which the three companies,
Equitable and Mutual and New York Life, used for — that would
be the same that had been used together for many, many years,
probably 40 years. So it was perfectly natural we get together
on a new rate, on the advice of the actuaries.
Mr. Gesell. Was there any
Dr. Hunter (interposing). In other words, it wasn't a sudden jog,
it was procedure for many, many years,
Mr. Gesell. The result of these conferences we are about to dis-
cuss has been to bring about a greater and greater uniformity in
annuity rates.
Dr. Hunter. Yes.
Mr. Gesell. I will come back to that question in a moment as "^.^e
proceed [reading from "Exhibit No. 755"] :
Second. Deferred annuities: Single premium deferred annuities nonparticipat-
ing to be treated the same as immediate annuities whettier with or without re-
turn at death within the deferred i)eriod.
Then the third item, skipping a bit :
Retirement annuities participating : Under retirement annuities would come the
cases where a yearly deposit was made as in a sinking fund to purchase an an-
nuity at usually ages 50 to 70. It was agreed that the loading would be 12%
percent of the gross and that the rate of interest prior to the date the annuity was
entered upon would be 3% i)ercent. The rate used in converting the cash value
into annuity at maturity age would be the net American annuitant's select 3%
percent table. It was thought that the age should not be moved back 1 year, but
some tests are to be made to determine whether the new gro&o rates, less 3 percent,
would result in any anomalies by comparison with the above.
Fourth. Survivorship annuities : There did not seem to be any reason for com-
ing to a decision regarding survivorship annuities as so few of them were issued,
and as some companies issued nonparticipating and others participating forms.
You also discuss options in insurance policies, and state in the last
two paragraphs of your letter [reading further from "Exhibit No.
755"] :
It was not thought feasible for all companies to put the program into effect
until the 1st of July, especially as one company at least had a printed pamphlet
covering extensive joint and survivorship annuity rates. One company announced
that the new program would go into effect at once if there was cooperation among
the companies.
CONCENTRATION OF ECONOMIC POWER 4517
We shall appreciate it if you will take up the foregoing suggestions with the
Travelers, Connecticut General, and anj' of the other companies which you wish
to consult, then let us know your ideas as soon as possible. We should like to
have a definite program to announce at the Senior ^Actuaries Club, as a number
of other companies propose to follow the lead of the principal companies.
There was a meeting held thereafter, I believe you said sometime
in May, was there' not ?
Dr. Hunter. That would be my impression.
Mr. Gesell. Will you tell us what decisions were reached at that
meeting ?
Dr. Hunter. Well, I can show you the results of the decisions, if
that is near enough for your purpose.
Mr. Gesell. That wasn't my question at all.
Dr. Hunter. But I can't remember, naturally, we had so many meet-
ings and discussions of all types.
Mr. Gesell. Let me read you a memorandum of Mr. Flynn dated
May 19, 1933,^ which he prepared at the conclusion of the conference,
and ask you if this does not refresh your recollection as to what hap-
jiened. It is entitled "K.e: Conference of Companies Life Annuity
Rates — Policy Values" [reading from "Exhibit No. 756"] :
A conference of the actuaries of 22 of the leading life companies was held at
the New York Life yesterday to discuss the above subjects,
Life annuities. — After much discussion, 18 companies voted tentatively for
the following uniform program:
Rates. — Single premium life annuities (immediate annuities, cash refund, and
joint life annuities) —
Men : American annuitants select, net rates taken for 1 year younger than
actual age ; 3% iiercent interest, loaded 4% percent of gross.
Women : American annuitants select, net rates for men taken 5 years younger
than actual age: 3% percent interest, loaded 4% percent of gross.
Commissions.- — Three percent to soliciting agent ; lA percent overriding to
general agents.
Date effective. — On or about July 1, 1933, not later than August 1.
Does that refresh your recollection as to what was said about life
annuities at that meeting?
Dr. Hunter. It does.
Mr. Gesell. That is a correct statement, is it not ?
Dr. Hunter. That is a correct statement.
Mr. Gesell. It says 18 companies voted tentatively. Did you
have votes at these special me^ings?
Dr. Hunter. I think that language is a little loose, if we are ap-
plying the legal standi^oint; that really meant the companies intended
to recommend to their companies, the actuaries intended to recom-
mend. It may be that some of us were in a position to say that we
were going to do it anyhow; we had the authority to state so.
Mr. Gesell. On each of these proi^ositions what would you have,
a show of hands?
Dr. Hunter. We had a show of hands, but that was a tentative
affair.
Mr. Gesell. Is it not a fact that you distributed to each person
present a schedule upon which he could show the voting of the com-
panies ?
Dr. Hunter. No ; we did not at each of them. As a matter of fact,
I stated again and again that that voting did not bind any company,
again and a<rain.
1 Entered later as "Exhibit No. 750." See api)en(lix, p. 4831.
4518 CONCENTRATION OF ECONOMIC POWER
Mr. Gesell. Why was the vote taken ?
Dr. Hunter. Just to get a consensus of opinion of the actuaries.
Mr. Gesell. I notice this matter discussed upon which 18 companies
voted tentatively; you even went down to the question of commis-
sions to agents and overriding commissions to general agents. Why
was it necessary to make recommendations with respect to that
matter ?
Dr. Hunter. In the interest of the policyholders.
Mr. Gesell. You will have to explain that to me.
Dr. Hunter. Let me start with this : That when we first took up
the question of commissions it was purely a side issue, and the various
companies stated what their commission was and it was really the
result of stating what the other fellow was able to get business at that
resulted in this change. The actuaries, of course, had nothing to do
with commissions; it was just a question of taking it up with the
agency force.
Mr. Gesell. As a result of your discussions, uniform agreements on
commissions were arrived at, were they not?
Dr. Hunter. Not uniform, but they covered a great many com-
panies.
Mr. Gesell. You were going to explain why that was in the in-
terest of the policyholders.
Dr. Hunter. Because any saving, I should say, in expenses was
a benefit to the mutual policyholders.
Mr. Gesell. Your agreement aiready covered expenses, Dr.
Hunter, when you reached your agreement on loading.
Dr. Hunter. Not necessarily, because taxation was increasing.
Mr. Gesell. Isn't it a fact that the agents commission is just part
of the loading on the policy? Having reached the agreement on the
total loading figure, what difference did it make whether one com-
pany paid more or less conunission within that range?
Dr. Hunter. It didn't make any difference as far as any of us were
concerned, it was up to each individual company to decide. We
didn't all agree to that.
Mr. Gesell. Why did you discuss it ?
Dr. Hunter. Because it happened to be just one of the subjects
which we would like to take up in connection with the question of
our loading.
Mr. Gesell. Why was it of interest to the policyholder to discuss
it?
Dr. Hunter. I have already tried to answer that. I am not trying
to evade any questions; I simply make the one statement that any
saving in expense in a mutual company eventually is to the benefit
of the mutual policyholders.
Mr. Gesell. It resulted entirely in eliminating in one field as be-
tween the companies any competition at all on the question of these
annuities, did it not?
Dr. Hunter. I shouldn't think the question of commission paid
to an agent would eliminate competition.
Mr. Gesell. You know, don't you, that annuities are sold very
largely by brokers, Dr. Hunter?
Dr. Hunter. No, I do not.
Mr. Gesell. They are not sold by brokers ?
CONCENTRATION OF ECONOMIC POWER 4519
Dr. Hunter. Not in a company like ours. In a great many others
they are not sold by brokers at all.
Mr. Gesell. They are sold by brokers.
Dr. Hunter. They are sold in some companies.
Mr. Gesell. Isn't it a fact that the broker shops around to where
he can get the highest commission ?
Dr. Hunter. That I don't know.
Mr. Gesell. After 40 years' experience you must have some judg-
ment with respect to that.
Dr. Hunter. Surely there are some companies that permit it, but
the most of the companies do not accept business from brokers. I
should think a very small proportion of the business in my company
comes from brokers.
Mr. Gesell. Do I understand you to say, though, that the fact
that the companies offer a uniform commission on annuities has no
effect on directing more business to one company than another?
Dr. Hunter. I can quite understand that if one company pays
more than another, that the brokerage business would tend to go to
that company.
Mr. Gesell. It would get more business.
Dr. Hunter. It would tend to, yes.
Mr. Gesell. So that when you pay even commissions you eliminate
that factor, do you not?
Dr. Hunter. I think so, but we never got to a uniform basis.
Mr. Gesell. Every time I use the word "uniform" you say there
are one or two companies that didn't do it.
Dr. Hunter. Yes.
Mr. Gesell. You have testified here already that a large number
of companies reached an agreement exactly the same on these an-
nuity commissions have you not?
Dr. Hunter. Yes, but a number didn't, but
Mr. Gesell (interposing). With respect to those that entered into
the uniform agreement, you eliminated this factor, did you not, by
reaching an agreement on commissions?
Dr. Hunter. Yes.
Mr, Henderson. Mr. Gesell, if I gather the point you are making
with Dr. Hunter, it is that as far as the agreement went there was
a genuine uniformity. That is, there is no doubt about that, as Dr.
Hunter indicates. Although some of them did not conform to the
agreement, there was very definitely a uniform understanding and a
tentative agreement reached at the meeting. Isn't that correct?
]\Ir. Gesell. That is right.
Mr. Henderson. So Dr. Hunter is talking about whether they
enforced that agreement and you are talking about coming to an
agreement.
Mr. Gesell. I believe not. Didn't you testify that a lar^e number
of companies did put into practice this uniform commission agree-
ment ?
Dr. Hunter. Yes.
Mr. Gesell. The memorandum goes on to state [reading from
"Exhibit No. 756"] :
It was first voted that rates for male lives l)e b.ised upon net rates for 1
year younger than ac-tual age, Kiau<-il H peicenr. and to use for females the
4520 CONCENTRATION OF ECONOMIC POWER
female table of net rates 1 year younger than actual age, loaded 5 percent.
For ease in calculation of joint plans and for economy in manual space,
it was thought more desirable to use one table, that for male lives. The basis
of rates finally decided upon is a practical equivalent for females and i/^ of 1
percent loading lower for males * * *.
The companies voting for the above proposal were: New York Life, Mutual
Life, Equitable, Metropolitan, Aetna, John Hancock, Travelers, Berkshire,
United Sjates Life, Massachusetts Mutual, Connecticut General, Prudential,
Home, National of Vermont, Sun Life, Canada Life, Mutual Benefit, and
Northwestern Mutual.
This is a part of the memorandum I want to call to your attention :
The last two companies were not represented, but Chairman Hunter read
letters stating that they would go along with the majority of the companies
both as to rates and commissions.
The last two — that would be the Mutual Benefit and the North-
western Mutual. Do I understand companies sometimes write in to
your conferences and say, "We will go along with what the majority
does," even before they know what the decisions are going to be?
Dr. Hunter. Oh, no.
Mr. Gesell. Is that what happened in this case?
Dr. Hunter. I should certainly say not.
Mr. Gesell [reading further from "Exhibit No. 756"] :
The last two companies were not represented, but Chairman Hunter read
letters stating that they would go along with the majority of the companies
both as to rates and commissions.
Dr. Hunter. They had all the information in advance of what
was likely to take place.
Mr. Henderson. That is very interesting, Mr. Gesell. Had it
been decided in advance. Dr. Hunter, that the commissions would
be 3 percent, the loading would be so much, the interest assumption
would be so much? You say they knew, that they had the informa-
tion as to what was going to take place. Had somebody made a
predetermination as to what they were to be?
Dr. Hunter. What I meant to say was that no company would be
foolish enough to agree to some program which it didn't know some-
thing about in advance. That evidently indicates that I had talked
to the representatives of these two. In other words, they wouldn't
go in blind.
Mr. Henderson. I didn't undertake to get that assumption out
of it, but it would seem to me that Mr. Flynn's language is very
plain here:
stating that they would go along with the majority of the companies both as to
rates and commissions.
You mean you had talked to the companies and before the meet-
ing you had come to some general agreement as to fixing these defi-
nite percentage rates?
Dr. Hunter. I would say that there had been some prior meeting
to that whicli is not indicated here.
Mr. Henderson. Attended by all of them?
Dr. Hunter. Certainly these two.
Mr. Henderson. I didn't ask that. I said attended by all of them.
. Dr. Hunter. Well, it is difficult for me to remember the order
of these meetings and how many took place. I should certainly
assume tliat before this there was some kind of a meeting.
CONCENTRATION OF ECONOMIC POWER 4521
Mr. Gesell. The only meetings that this schedule reflects, and that
there has been any evidence of that we can determine, are two meet-
ings of the five big companies. Do I gather from that then that the
five principal companies really make these decisions and then bring
in the other fellows to nod their heads ?
Dr. Hunter. Absolutely not ! Absolutely not ! but there must have
been some talk on that with these men. I am sure of that.
Mr. Henderson. What I think Dr. Hunter means is, when com-
panies and representatives of industrial groups are getting together
for consideration of uniformity, it is usually pretty well known what
they are going to get together about. They have some idea as to what
they are going to discuss, and a pretty general understanding as
to what they are likely to agree to. Isn't that about the nature of it?
Dr. Hunter. It would have been discussed in some way between
some of us before the meeting, I assume. I am rather being put at a
disadvantage, not having a complete record of what happened, and I
am not trying to evade anything at all.
Mr. Henderson. We are not trying to confuse, confute, or con-
found you. What we are trying to get at is exactly the procedure
by which this uniformity and this agreement are reached. Any
time you are not certain you are not only at liberty to say it, but,
in my opinion, you must say it. We are not trying to trap you into
anything.
Dr. Hunter. I don't like to say what happened in public in connec-
tion with this, but I am afraid I have to. There were companies that
were paying, prior to this time, much higher commissions than several
of the large companies, and when they found that the larger companies
were getting a substantial amount of business at a much lower rate
they were glad to know that, and make the necessary change. I hesi-
tate to say that, because it might be considered as a criticism of those
companies, and notwithstanding the fact that a number of them pay-
ing much higher rates of commission weren't doing any better in
the matter of new annuities. That is why I hesitated when you
asked, "Didn't the business go to the companies that paid the highest
commissions?"
Mr. Henderson. I am glad yon made that statement, because I think
you would feel with us that it is necessary to get a complete record
rather than to get it by inference.
Dr. Hunter. I do, and I want to say this in connection with annui-
ties: The annuitants are looking for security in the first place, and
if it is a small company, not necessarily insecure, which is paying a
high rate of commission, it is more likely that the business will go to
a large company with a great deal of security that is paying a small
commission.
Mr. Henderson. That's right.
Now, in these companies that were paying the higher return. Dr.
Hunter, didn't they know of the lower rates that were being paid
by their competitors?
Dr. Hunter. Several of them did not know until these meetings.
Mr. Henderson. I see.
Mr. Gesell. The memorandum continues Freadinor from "Exhibit
No. 756"]:
The following companies did not vote for the proposal for the reasons stated :
Fidelity Mutual : Had not had time to discuss the matter with officials ; prob-
ably would agree.
4522 CONCENTRATION OF ECONOMIC POWER
Provident Mutual : Prefers 4-percent interest but would adhere to S^^-percent
outside commission. Mortality had been about 100 percent of expected on
American annuitants select. Would increase rates but probably not so much as
proposed.
Penn Mutual : Matter had not been discussed with officials. Would prefer 3-
percent commission to soliciting agents; 1 percent overriding. Would probably
go along with other companies, however, to new basis.
Phoenix Mutual : Thinks interest basis all right but would probably want to
adhere to 2-percent commission to solicitor, one-fourth percent overriding — reduc-
ing gross rates of other companies correspondingly (about 1^/4 percent)."
Connecticut Mutual : Feels 4-percent interest better basis. Would adhere to
3 Vi -percent outside commission and increased rates but probably not so much as
other companies.
Guardian: Thinks increases too great but probably will go along with other
companies after further discussion with officers.
New England Mutual : Not present, but feeling of some- officials — particularly
J. Hancock — that they would not increase so much, although Dr. Hunter felt
confident that they would go along with other companies.
First of all, I notice that there were some companies that didn't
agree because they hadn't had time to discuss the matter with their
officials. That would indicate to me quite clearly that those who did
vote on the proposal had already consulted with their companies and
were entering a binding commitment at the time of this meeting.
Dr. Hunter. There were no binding commitments at that time. A
company might vote for it and might change its rates any time it
pleased. Some of the companies were in a position to speak ; some of
the actuaries were in a position to speak for the companies. Others
were not.
Mr. Gesell. As a matter of practice, regardless of whether there
was any signed contract or formal commitment here, those com-
panies that voted for a proposal were men who were in a position
to speak for their companies.
Dr. Hunter. Generally so, but occasionally these men found that
they were not and changed later.
Mr. Gesell. How do you account for the fact that some of these
companies which expressed a disagreement with the proposal indi-
cated that they would go along?
Dr. Hunter. I couldn't speak for them.
Mr. Gesell. Was that frequently an occurrence, that a company
which didn't agree on the details of the program was willing to go
along for the sake of uniformity?
Dr. Hunter. I doubt if it was for the sake of uniformity, but they
deemed it best to go along.
Mr. Gesell. For what reason?
Dr. Hunter. I can't speak for these other companies.
Mr. Gesell. Oh, well. Dr. Hunter, you were the presiding officer
at a series of meetings where you were going to consider this matter.
You must have some opinions which you would give the committee
to helj) us witii the problem.
Dr. Hunter. I should be very glad to state my opinion, if that be
satisfactory. My feeling is that if I were in one of these companies,
they are between the horns of a dilemma. If the companies of their
own size do adopt these uniform rates, then that company gets far
more — that company which did noti reduce rates got far more — than
its share of the annuities; and therefore it was advantageous to find
out what these other Companies were doing and go along, for the
CONCENTRATION OF ECONOMIC POWER 4523
protection of themselves, so that they should not get an undue pro-
portion of that.
Mr. Geseix. You mean that none of these companies wanted a lot
of this business?
Dr. HuNTEK. Not an undue proportion, compared with their assets.
Mr. Gesell. The memorandum goes on to state
Dr. Hunter (interposing). At the rates then prevailing, Mr.
Gesell.
Mr. O'CoNNELL. I am not sure I understand that. Do I under-
stand you to say a company which might be willing to sell insurance
at a lower rate would be unwilling to do so because it was afraid it
would get too much business?
Dr. Hunter. Which was selling, not insurance, but annuity busi-
ness. They would be afraid to get too much of it because it was
felt, judging from the opinion of the other companies, that the rates
were too low.
Mr. O'CoNNELL. But I am assuming, and it was the fact, appar-
ently, that some companies were willing and felt it would be good
business judgment to sell annuities at a lower rate, and you want ub
to believe that in your view, companies that wanted to do that would
at the same time be unwilling to do it because they would get too
much business. I have difficulty in understanding that.
Dr. Hunter, I rather have difficulty in understanding you, sir. If
one company in a certain group about the same size were to decide
that it would continue rates for annuities which were lower than the
other nine decided to adopt, say it was 4-percent interest that had
been assumed and they decided to go to a lower rate of interest, 3i/^,
which would mean that there would be a higher cost for the same
amount of annuity, then the one company that didn't go along would
be apt to get a very large amount of business compared to its size,
and the chances are that the other companies Avere right in going to
a lower rate of interest. As a matter of fact, they were right as
conditions showed. So that company which was unduly cautioiis in
changing might be losing money.
Mr. O'CoNNELL. I have difficulty in understanding the position of
the hypothetical company that wants to and thinks as a matter of
judgment it can sell annuities at a lower rate, and at the same time
in your view isn't willing to do it because it would be bad business.
I mean, it can't be that they thought it was both good and bad busi-
ness to sell annuities cheaper than the majority. In the light of the
later experience, it might be they have been making a mistake, but at
that time I assume from what you say there were some companies that
wanted to and felt it would be good business for them to sell annuities
cheaper than the majority.
Dr. Hunter. May I state this, that some companies held back quite
a while in that smaller group, based on their judgment.
Mr. O'CoNNELL. I was only addressing myself to your explanation
of why a company which at one point wanted to sell annuities cheaper
than the majority was impelled for some reason or other not to do
so. Your explanation of it was that they would want to sell annuities
cheaper than the majority, but they would not do so because they
would get a disproportionate share of the business, as I understood
you, I am not making myself clear, apparently.
4524 CONCENTRATION OF ECONOMIC POWER
Mr. Gesell. Perhaps, Mr. O'Connell, a couple of paragraphs from
the rest of this memorandum will help to shape up what you have
in mind.
Dr. Hunter. I am afraid I don't quite understand. I would say
it was a matter of judgment.
Mr. Gesell. You were anxious for uniformity.
Dr. Hunter. No ; our company didn't care whether there was uni-
formity or not ; they were going ahead. If the other companies came
along, it was good.
Mr. Gesell. You are talking about the New York Life Insurance
Co. and the position of its membership and I am ta^lking about the
actuaries who met at the meetings. The actuaries at the meeting
wanted uniformity.
Dr. Hunter. We thought it was desirable to have uniformity.
Mr. Gesell. Why was that? Why couldn't the Guardian here,
which thought the increase was too great, go along with its program ?
Dr. Hunter. It was at perfect liberty to do so.
Mr. Gesell. May I call your attention to another paragraph in the
memorandum [reading from "Exhibit No. 756"] :
After the meeting the general feeling was that if some missionary work were
done on the Connecticut Mutual, Phoenix Mutual, and New England Mutual,
practically all important companies, with the possible exception of the Provident
Mutual, would go along on. the proposed program.
Dr. Hunter. Is that from anything I wrote?
Mr. Gesell. I am reading from the memorandum of Mr. Flynn.
Dr. Hunter. Ah! I never said anything of the sort. I never
attempted any missionary work at any time.
Mr. Gesell. What do you imagine Mr. Flynn meant when he said,
"if some missionary work were done on the other companies" ?
Dr. Hunter. I assume Mr. Flynn felt it would be good to have
other companies of that type go along with them.
Mr. Henderson. You indicated that before this meeting took place
at which two of the companies had indicated they would go along
with the majority, there had been some discussion of what was to take
place at the conference. I gather from this statement that there
hadn't been anything said at the discussion prior to the meeting about
missionary work, is that it?
Dr. Hunter. May I just look at the memorandum ?
Mr. Henderson. At the bottom of page 2 of the mimeographed
release.
Dr. Hunter. May I have the date of my note, Mr. Gesell? What
was the date of my memorandum?
Mr. Henderson. Dr. Hunter, my discussion with you concerns Mr.
Flynn 's memorandum. If you look at the bottom of page 2, there
were these two companies, Mutual Benefit and Northwestern Mutual,
which had written you letters stating that they would go along with
the majority. I asked you about that, and you said there had been
a prior meeting and they knew pretty well what was to come up at
this meeting.
Dr. Hunter. I think that this letter is dated May 19. This mem-
orandum of Mr. Flynn's, which I haven't seen until the present time,
is dated May 19, and that followed a meeting of the Actuarial Society
at which undoubtedly there had been some discussion of the program.
CONCENTRATION OF ECONOMIC POWER 4525
So that accordingly, both of these gentlemen representing the com-
panies had been told at that meeting of the Actuarial Society what
we had in mind, what the discussions M^ere over.
Mr. Henderson. I am getting now to this question Mr. Gesell
asked you. On page 4 it says:
After the meeting the general feeling was that if some missionary work were
done —
and you indicated you had nothing to do with that, that you had
done no missionary work, that you hadn't tried to persuade other
companies to come into the general agreement. My question was
whether in the discussion leading up to this meeting, there was any-
indication given by you to these other companies about missionary
work.
Dr. Hunter. All I did at these meetings was to express my point of
view, try to bring forward my own experience, the experience of my
company, and if that influenced the others, all right, but there was
no such thing as what might be called missionary work on my part.
Mr. Henderson. This thing is very specific, though :
After the meeting the general feeling was that if some missionary work were
done.
Dr. Hunter. That says after the meeting. It wasn't during the
meeting.
Mr. Henderson. That is what I am getting at : at the meeting itself,
and in these prior discussions which you indicated you had with the
two companies which were willing to go along with the majority, you,
yourself, didn't indicate that you were going to talk about missionary
work.
Dr. Hunter. No.
Mr. Henderson. That is my only point. I wanted to get it clear
that anything that developed about how to bring the others into line
wasn't a part of your undertaking.
Dr. Hunter. Not at all.
Mr. Henderson. That is all I am trying to develop, but it is very
evident it was in the air and it must have come about some way
from the discussions in the meeting.
Mr. Gesell. Was there discussion at the meeting as to the desir-
ability of getting all these companies in line on this program?
Dr. Hunter. The very fact that we met together would indicate
that.
Mr. Gesell. Then I take it from your answer that there was.
Dr. Hunter. That is rather difficult for me to answer.
Mr. Gesell. Will you do the best you can. Dr. Hunter, to answer
my question?
Dr. Hunter. What was the question.
(The reporter read Mr. Gesell's question.)
Dr. Hunter. I should think I would like to go back in answering
that question to this point, that we were in the middle of the so-
called bank holiday, and we were facing an exceedingly serious con-
dition and no one knew what was to come out at that time, and the
actuaries, being concerned as it were, were naturally anxious to have
changes, especially as the insurance departments were after that,
and I think I might therefore say that it was desirable in the opinion
of those present to have uniform rates.
4526 CONCENTRATION OF ECIONOiMIC POWER
Mr. Gesell. There is one more portion of the memorandum that
I would like to call to your attention. It says [reading from "Ex-
hibit No. 756"] :
Throughout the conference it was apparent that the larger companies were
quite willing to make changes for the good of their companies and the business
in general. The opposition was generally found in the smaller, self-sufficient,
participating companies. If these concerns could be brought to a better ap-
preciation of the current situation, the present is a wonderfully fine oppor-
tunity for clearing up many of the present troubles of the life business.
I would like to offer this memorandum for the record.
Acting Chairman Reece. It may be admitted.
(The memorandum referred to was marked "Exhibit No. 756" and
is included in the appendix on p. 4831.)
Mr. Henderson. Mr. Gesell, Mr. Flynn has not identified that.
Do you want to make a statement as to how this memorandum
came in?
Mr. Gesell. We can adopt one of three courses as the committee
pleases. I will state now that that is a correct copy of a memorandum
from the files of the Travelers Life Insurance Co. I have a repre-
sentative who will testify to that if you want it on sworn testimony.
Or we can bring Mr. Flynn down at some later time.
Acting Chairman Reece. I should think that would be satisfactory,
the statement by yourself. If anything is wrong with the mem-
orandum, Mr. Flynn could file an objection.
Mr. GESELii. If I recall correctly from that memorandum, it was
agreed that the companies would write in to you and let you know
what they were going to do about the program.
(The witness nodded in the affirmative.)
Mr. Gesell. Do you recognize this schedule which I show you as
a schedule entitled "Memorandum Regarding New Annuity Rates,"
dated June 13, 1933, as a schedule which you prepared showing the
attitude of the various companies as indicated to you?
Dr. Hunter. Yes.
Mr. Gesell. I should like to offer this schedule for the record.
Acting Chairman Reece. It may be admitted.
(The schedule referred to was marked "Exhibit No. 757" and is
included in the appendix on p. 4833.)
Mr. Gesell. The schedule crates [reading from "Exhibit No.
757"] :
The following companies have decided to adopt the new schedule of rates, at
least for immediate annuities, the dates being given wherever stated : Metro-
politan, on or about July 1 ; Prudential, ditto ; New York Lift, ditto ; Equitable,
on or about July 1 ; Mutual, ditto ; Travelers, not later than August 1 ; Aetna,
on or about August 1 ; Connecticut General, ditto ; Union Central —
Nothing from Union Central or Northwestern Mutual —
John Hancock, intend to revise annuity rates generally to conference basis but
not as early as July 1 ; Berkshire Life, as early as possible ; United States Life —
Nothing from the United States Life or the Minnesota Mutual.
State Mutual, plans to adopt the new single premium immediate annuities on
January 1, 1934 ; Mutual Benefit, does not expect to adopt the same basis but
their rates will be noncompetitive ; Peun Mutual, favorably considering adopting
new rates ; Massachusetts Mutual, final decision not taken — will doubtless adopt ;
Canadian companies, majority in favor of adopting somewhat similar rates in
near future ; Fidelity Mutual, will increase rates but basis and time not decided ;
Guardian Life, ditto; New England Mutual, no definite decision on account of
CONCENTRATION OF ECONOINIIC POWER 4527
absence of president ; Connecticut Mutual, expect to increase rates but not to
conference basis —
The same for Provident and the same for the Phoenix Mutual —
National Life, may adopt entire program in near future; Home Life, may go
to conference basis but not before January 1, 1934.
Do I understand that that memorandum is a correct summary of
information which you received concerning this matter from respon-
sible officers of the companies indicated?
Dr. HuNTEK. I would say "Yes."
Mr. Gesell. What did you mean when you said, about the Mutual
Benefit, "Their rates Avill be noncompetitive"?
Dr. Hunter. I was probably quoting from a letter which they
sent to me or a telephone message.
Mr. Gesell. Then let me ask you, Dr. Hunter, what do you think
they meant?
Dr. Hunter. I think they meant they intended to go to a higher
basis than any of the rest of us.
Mr. Gesell. I was stressing the words "competitive" and "non-
competitive." Does that not indicate that one of the factors in this
decision for uniform rates was the factor that there would not be any
competitive advantage to one company or another?
Dr. Hunter. Well, I want to answer you without any attempt at
evasion. Let me put it this way to you: The Mutual Benefit has
very little annuity business and so far as I remember has always
charged a higher rate for the same amount of annuity than the other
companies, and probably intended to continue doing so.
Mr. Gesell. And you had no quarrel or concern with any com-
pany which charged rates higher than the conference basis ?
Dr. Hunter. No ; I would like to add, "or lower."
Mr. Gesell. Well, I thought we discussed that matter in some de-
tail in connection with the previous memorandum and you indicated
quite clearly that there was a desire that companies come to a uni-
form decision on the conference rates and no companies sell at a
lower rate, so what did you mean when you said "or lower"?
Dr. Hunter. We couldn't make any company adopt a lower rate
if it desired not to.
Mr. Henderson. You mean you have no sanctions for compulsion,
there is no legal basis. You couldn't write a contract which would
compel them to abide by this agreement on uniformity.
Dr. Hunter. Thank you.
Mr. Gesell. Do you recognize this letter, entitled "Notice To
Agents — New Annuity Rates — June 14, 1933," as a letter written by
you to the agency force of your company announcing the new rate
program ?
Dr. Hunter. Yes.
Mr. Gesell. Was the answer "Yes"?
Dr. Hunter. Yes.
Mr. Gesell. I wish to offer this for the record.
Acting Chairman Reece. It may be admitted.
(The letter referred to was marked "Exhibit No. 758" and is in-
cluded in the a])pendix on p. 4834.)
Mr. Gesell. Now, I wish to show you a letter signed by you dated
Marcli 12, 1934, addressed to John M. Laird, the vice president of
4528 CONCENTRATION OF ECONOMIC POWER
the Connecticut General. Do you recognize that as a copy of the
letter which you wrote ?
Mr. Gesell. This letter states [reading from "Exhibit No. 759"] :
A meeting was held at my oflSce on March 8 of the actuarial representatives
of the Metropolitan, Prudential, Mutual Life, and Equitable, with regard to
cash surrender values, policy loans, and options in policies. Incidentally the
bases of annuities were discussed. It was decided to invite the representatives
of a number of the principal companies to join with us in considering these
matters. I am accordingly writing to about 14 of the largest companies
today asking them if they could meet with the actuaries of the other 5 com-
panies at my office on Friday, the 23d instant, at 10 o'clock.
In order to focus our attention on a definite plan for increasing the surrender
charges, a program is enclosed.
I wish to oflPer this letter for the record.
Acting Chairman Reece. It may be admitted.
(The letter referred to was marked "Exhibit No. 759" and is in-
cluded in the appv^.ndix on p. 4834.)
Mr. Gesell. That indicates that subsequent to the general meeting
of May 18, 1933, which we discussed a moment ago, the five principal
companies met on March 8, 1934, and discussed the basis for annuity
rates among other matters.
(Dr. Hunter nodded his head in the affirmative.)
Mr. Gesell. Can you tell us about that meeting, why it was called,
who called it, what provoked it, and what was said?
Dr. HuNTEK. What provoked that meeting was that the rate of
interest continued to go down. We did not see what the future
would be. There was an increase in the number of annuities coming
to the companies, and it seemed desirable again to discuss that matter.
Mr. Gesell. Did the five companies reach an agreement at that
time, or come to a consensus of opinion that it w;ould be desirable for
them to increase their annuity rates?
Dr. Hunter. My memory was that they came to the conclusion
that it was desirable to do so, but no basis was considered at that
time, no understanding was come to as to what action they would
recommend.
Mr. Gesell. Why was it thought desirable, as your letter states,
to ask 14 other companies to join you in a conference? Why didn't
you five companies go ahead and reach your decision independently?
Dr. Hunter. Because it seemed desirable to continue the same pro-
gram as nearly as possible that we had, of uniformity.
Mr. Gesell. Uniformity throughout the business?
Dr. Hunter. For annuities.
Mr. Gesell. Do you recall there was a meeting held on March 23,
1934, attended by a considerable number of companies to discuss this
matter ?
Dr. Hunter. Yes.
Mr. Gesell. Reading for a moment from a memorandum of Mr.
Henderson of the Connecticut General, he states with respect to
annuity rates, one of the problems discussed : ^
Dr. Hunter said there was some feeling that they should go to 3^/2 percent
and a higher loading than we have now. They felt the higher loading neces-
sary for fear that taxes would increase. As an alternative to the 3i/^-percent
rates, h? said we could go to a 3-percent rate with even a higher loading
and make them participating. A vote was taken on 3i/^-percent interest 6V2
^Entered later as "Exhibit No. 761." See appendix, p. 4835, at p. 4837.
CONCENTRATION OF ECONOMIC POWER 4529
loading, and one year down in age. Those voting "yes" were Metropolitan,
Prudential, Mutual, New York Life, Equitable, Mutual Benefit, Massachusetts,
Mutual, Northwestern, Travelers, Aetna.
That memorandum would indicate that by the time of the meeting
on March 23, 1934, the basis for the new rates had been pretty well
talked over.
Dr. Hunter. It would.
Mr. Gesell. That the rate would then be 3V2-p6rcent interest, load-
ing at 6l^ percent.
Dr. Hunter. Yes.
Mr. Gesell. Who settled on those figures to put up to the actu-
aries at this meeting? Wasn't it a fact, Dr. Hunter, that that was
reached and decided upon tentatively by the five principal companies
in their meeting of March 8, 1934?
Dr. Hunter. I would say that it was something to be discussed, in
the opinion of the others, to be suggested to the rest of them.
Mr. Gesell. You representatives of the five companies met and
came to a tentative understanding on this basis in the March 9 meet-
ing and they then presented it for discussion at the meeting on
March 23.
Dr. Hunter. 1934.
Mr. Gesell. Yes.
Dr. Hunter. Which the New York Life did not carry out.
Mr. Gesell. Will you answer my question, however? The five com-
panies which met on March 8, 1934. came to a tentative agreement con-
cerning the basis for the new rates and they presented those for
discussion at the meeing of March 23, 1934?
Dr. Hunter. Mr. Gesell, it is just a question of a difference of word-
ing between us. I would say that these companies — these actuaries —
had the opinion that these were the rates that should be adopted, and
brought them before the others for discussion. I know at that time
it had not been decided by these companies that they would be adopted,
because we never did adopt those rates.
Mr. Gesell. But that was the tentative feeling of the five actuaries ?
Dr. Hunter. Yes ; that is right.
Mr. Henderson. There was an agreement on that feeling by the
actuaries. I think the distinction you are trying to make is that the
actuaries were not authorized at that meeting to commit their com-
panies to put them in force, isn't that what you mean ?
Dr. Hunter. That is correct.
Acting Chairman Keece. It is now about 12 : 15, Mr. Gesell, and I
wonder what your wishes are with respect to meeting. Do you think
you will be able to finish with this witness soon ?
Mr. Gesell. I don't think so. We have considerable ground to
cover with this witness and I think he will be on the stand most of
the afternoon.
Acting Chairman Reece. Wliat is your pleasure with recess?
Mr. Gesell. This is as good a time as any. If we might convene
at 2 : 15, I am sure we would then have sufficient time io cover what
we have to do.
Acting Chairman Reece. Mr. Borkin has a statement.
Mr. BoRKiN. The committee has received an affidavit from Mr. C. B.
Sawyer, president, Brusli Beryllium Co., Cleveland, Ohio, concerning
a situation when the matter of a beryllium patent infringement suit
4530 CONCENTRATION OF ECONOMIC POWER
was discussed. This affidavit was requested by Mr. Cox when Mr.
Sawyer testified before the committee on May 9, 1939.^ This is the
statement that Mr. Sawyer presented. I am offering it for the record.
Acting Chairman Reece. It may be admitted.
(The affidavit referred to was marked "Exhibit No. 760" and appears
in Hearings, Part V, appendix, p. 2301.)
Acting Chairman Reece. I have just been handed a newspaper
notice, being an A. P. dispatch, with reference to beryllium prices
being reduced. Reduction of 15 cents a pound on prices of roll beryl-
lium was announced today by the Beryllium Corporation of Penn-
sylvania. Reduction in strip beryllium is from $1.11 to 96 cents a
pound and from $1.29 to $1.14, so it looks as if our hearing might be
having some results.
Mr. Henderson. You might suggest that maybe insurance rates will
be reduced. [Laughter.]
Acting Chairman Reece. The committee will stand in recess until
2 : 15 o'clock.
(Whereupon, at 12 : 15 p. m., a recess was taken until 2 : 15 p. m. of
the same day.)
afternoon session
The committee resumed at 2:20 p. m. on the expiration of the
recess.
Acting Chairman Reece. The committe will come to order. Are
you ready to resume?
Mr. Gesell. I am. Will you take the stand, Dr. Hunter, please?
TESTIMONY OF ARTHUK HUNTER, CHIEF ACTUARY AND VICE
PRESIDENT, NEW YORK LIFE INSURANCE CO., NEW YORK,
N. Y. — Resumed
Mr. Gesell. I would like to offer for the record at this time the
memorandum which we were discussing entitled "Synopsis of meet-
ing held in Dr. Hunter's office March 23, 1934."
Acting Chairman Reece. The memorandum may be admitted.
(The memorandum referred to was marked "Exhibit No. 761" and
is included in the appendix on p. 4835.)
Mr. Gesell. At that meeting of March 23, 1934, Dr. Hunter, there
was some discussion of the possible increase in annuity rates, using
the American annuitants' select table on the same basis as had been
previously used, with interest at 3i/^ percent, loaded 6i^ percent of
gross; is that not correct?
Dr. Hunter. Tliat is true.
Mr. Gesell. Am I correct in saying that it was necessary to hold
an additional meeting to crystallize opinion with respect to this rate
increase ?
Dr. Hunter. I assume so.
Mr. Gesell. Do you recall that there was a meeting held on Thurs-
day, April 12, 1934, at your offices^ at which the following companies
were represented : New , York Life, Equitable, Provident Mutual,
> See Hearings. Part V, p. 2147.
CONCENTRATION OF ECONOMIC POWER 453^1
Connecticut General, Travelers, Sun Life, Union Central, Connecticut
Mutual, Massachusetts Mutual, Aetna, Equitable of Iowa, Penn Mu-,
tual, John Hancock, Metropolitan, Phoenix Mutual, United States
Life, Mutual, and Prudential?
Dr. Hunter. That is right.
Mr. Gesell. Do you recall what took place at that meeting?
Dr. Hunter. No ; I am afraid you will have to refresh my memory.
Mr. Gesell. I read you a portion of a memorandum dated April
13, 1934, from the files of the Metropolitan Life Insurance Co.^ The
memorandum states in part [reading from "Exhibit No. 773"] :
For single premium immediate annuities there was general consensus of
opinion that current rates are too low. Most of the companies felt that a
safer basis would be the American annuitants' select table, stepped back at
present interest 3% percent, loaded 6^ percent of gross. A few companies
leaned toward a 3-percent interest. The New York Life, Equitable, Connecticut
General, Travelers, Prudential, Metropolitan, Mutual, Massachusetts Mutual,
Aetna, Union Central, Provident Mutual, thought that they probably would
adopt a schedule like the above by January 1, 1935. Sun Life would adopt a
similar schedule based on the Canadian table.
The John Hancock, Penn Mutual, and Connecticut Mutual were doubtful that
they would change by the end of the year since they had only recently changed
their present rates.
Does that refresh your recollection as to the discussion that took
place at that time?
Dr. Hunter. I believe that is correct.
Mr. Gesell. Was there a new rate increase on that basis announced,
effective January 1, 1935 ?
Dr. Hunter. That is — you are asking about the new rate in 1935 ?
Mr. Gesell. Yes.
Dr. Hunter. Before that time, at the end of 1934, the New York Life
determined that it would issue a new type of annuity, the partici-
pating annuity, and so announced in December of 1934. Soon there-
after the Equitable decided to adopt that same rate. The other com-
panies adopted the rate on that same table you mentioned with a
set-back of 1 year interest at 3I/2 percent and a loading of 6i/^ percent.
Mr. Gesell. Approximately how many companies adopted that rate
at that time ?
Dr. Hunter. I would say about 20 ; it is just a guess on my part.
Mr. Gesell. Was it necessary to hold an additional meeting between
the meeting of April 12, 1934, and the announcement of the new rates?
Dr. Hunter. I don't know whether you would say it was necessary,
but I think we did so.
Mr. Gesell. There was another meeting held, was there not, at your
call, on the 18th of October 1934?
Dr. Hunter. There was a meeting about that time.
Mr. Gesell. Your letter to Mr. Hutcheson, which I show you, states
[reading] :
At the last meeting of the senior actuaries' club it was suggested that I ask
the representatives of the principal companies to meet together to discuss a pos-
sible reduction in the rate of commissions under immediate annuities. Let's
plan to meet on Thursday, the 18th instant, at the close of the afternoon session
of the society.
That refreshes your recollection, does it not ?
Dr. Hunter. Yes.
» Subsequently entered as "Exhibit No. 773." See appendix, p. 4848.
124491 — 40— pt. 10 26
4532 CONCENTRATION OF ECONOMIC POWER
Mr. Geseijl. Now, at that meeting held on the 18th of October 1934,
was there a discussion of commissions ?
Dr. Hunter. I would have to refresh my memory. I should think
there was.
Mr. Gesell. May I read you a memorandum, Mr. Flynn's, dated
October 31, 1934, and ask you if this correctly states what occurred?
[Reading from "Exhibit No. 762":]
A meeting of actuaries of 26 representative life companies was called by Vice
President Hunter, of the New York Life, following one of the sessions of the
Actuarial Society, meeting in Washington recently. The purpose of the meeting
was to canvass the companies as to their willingness to reduce the commissions
on single-premium life annuities from 3% percent general agent (soliciting agent,
3 percent) to 2V^ percent general agent (soliciting agent, 2 percent). It was
pointed out that in Canada and Great Britain outside commissions of 2 percent
or 2% percent were being paid and that several American companies were now
paying commissions at approximately this rate in this country. To divert agents'
attention from the sale of annuities to life insurance, to provide a small addi-
tional margin in the rate, and to bring the commission for life annuities more
nearly in line with the sale of other investment propositions, such as bonds, it
was urged by several company actuaries that the commission rate for life annui-
ties be reduced.
A canvass of the companies represented showed that 15 of the 26 were
agreeable to an outside commission of 'ly^ percent. These companies were as
follows : Aetna, Equitable of New York, Imperial of Canada, John Hancock,
Metropolitan, Mutual Life, Mutual Benefit, New York Life, Penn Mutual,
Phoenix Mutual, Provident Mutual, Prudential, Sun Life, Canada Life, and
Home Life.
Four companies were not decided but would probably follow later if prac-
tical unanimity of action were obtained — Phoenix Life, Connecticut General,
Massachusetts Mutual, and Northwestern.
Three others preferred not to change now but would probably fall in line
later— Connecticut Mutual, New England Mutual, and State Mutual.
Three companies expected to make no change for the present — Equitable of
Iowa, National Life of Vermont, and Union Central.
Do you recall that as the nature of the discussion ?
Dr. Hunter. It was the nature of the discussion.
Mr. Gesell. Those facts are correct to the best of your recollection ;
are they not?
Dr. Hunter. Yes.
Mr. Gesell. I wish to offer this memorandum for the record.
Acting Chairman Reece. It may be admitted.
(The memorandum referred to was marked "Exhibit No. 762" and
is included in the appendix on p. 4837.)
Mr. Gesell. Do you recall that subsequent to this meeting, and
before the announcement of the new rates and commissions, there
was still some doubt as to whether or not the program would go
through and, if it did, how many companies would follow it?
Dr. Hunter. No; I don't remember that.
Mr. Gesell. Do you recall that you had some correspondence with
Mr. John M. Laird, vice president of the Connecticut General, and
that he issued a questionnaire and distributed to the companies the
results reflected by that questionnaire?
Dr. Hunter. I don't remember that.
Mr. Gesell. I ask you if you recall receiving this letter from Mr.
Laird, dated December 12, 1934 [reading from "Exhibit No. 763"] :
Prior to August 1933 we paid on single premium life annuities 21/2 percent
to soliciting agents and 3 percent to general agents. At that time we raised
CONCENTRATION OF ECONOMIC POWER 4533
the rate to 3 percent for soliciting agents and 3l^ percent for general agentp
in order to be in line with the prevailing rates of other companies.
We are in sympathy with the present trend toward 2 percent for soliciting
agents and 2^4 percent for general agents, but we have taken many negative steps
during the last year or two, and on .January 1, 1935, we are further reducing
surrender values and increasing pi'emiums on both insurance and annuities. We
hesitate to be one of the pioneers in the commission reduction, particularly as our
general level of commissions on insurance and annuities is lower than that of
some of our competitors.
Naturally we are influenced by the action of such companies as the New York
Life, Travelers, and Aetna, but we have understood that several of the companies
of about our size are deferring action. Is it feasible for you to give us a complete
list of the companies which have definitely- decided to change as of January 1 or
as of an early date thereafter?
And your reply to him of December 13, 1934, stating [reading from
"Exhibit No. 764"] :
Your letter of the 12th instant was duly received.
I have a knowledge of what the majority of the leading companies will do with
regard to commission on single-premium annuities, but have asked Mr. Larus to
obtain definite information with regard to the others. He will then send a
notice to all the companies which took part in the conference. I know that the
Equitable, Prudential, Metropolitan, Travelers, Aetna, and New York Life have
all adopted the new scale of commission. There are several others, including
the Penn Mutual and Phoenix Mutual, that I understand have followed suit, but
Mr. Larus will get definite information from them.
Do you recall that correspondence ?
Dr. Hunter. Yes.
Mr. Gesell. I wish to offer those letters for the record.
Acting Chairman Reece. They may bo admitted.
(The letters referred to were marked "Exhibits Nos, 763 and 764"
and are included in the appendix on p. 4838. )
Mr. Gesell. Who was Mr. Larus?
Dr. Hunter. Mr. Larus was actuary for the Phoenix Mutual, of
Hartford.
Mr. Gesell. And you asked him to find out from the companies first
whether they were going to follow the new rate program; and if so,
when ; and, second, whether they were going to follow the new program
for commissions?
Dr. Hunter. Right.
Mr. Gesell. Do you recognize the second page of this memorandum
I show you as the memorandum prepared by Mr. Larus summarizing
the replies to that questionnaire?
Dr. Hunter. Yes.
Mr. Gesell. That summary states [reading from "Exhibit No.
765"] :
Summarizing the questionnaire sent out last week, the following companies
will have annuity rates at least as high as the new nonparticipating rates in effect
in January 1935—
and the memorandum there names approximately 18 companies, and
states :
The Penn Mutual and the John Hancock will probably adopt the new rates
by April 1. The Equitable of Iowa and the Phoenix Mutual will adopt rates
slightly more favorable, while the National Life, New England Mutual, North-
western, and Union Central have as yet reached no decision.
The following companies have adopted the commission scale not exceeding 2
percent to the subagent with Va percent overriding.
4534 CONCENTRATION OF ECONOMIC POWER
The memorandum then lists approximately 15 companies and says
[reading] :
The Connecticut General and the Penn Mutual will probably make the change
within a few months. The Northwestern will not accept business from other
than their own agents. No decision has been reached by the others.
May I also ask you whether you recognize the letter of Mr. Larus
to Mr. Laird, shown on the first sheet of this document, as the form
of questionnaire which was sent by him to all companies?
Dr. Hunter. It wasn't sent to us. I don't remember having seen it.
Mr. Gesell. I can state for the committee that that is the form of
questionnaire from which this summary was prepared, and with that
statement would like to offer it for the record.
Acting Chairman Reece. It may be admitted.
(The documents referred to were marked "Exhibit No. 765" and
are included in the appendix on p. 4839. )
Mr: Gesell. You stated a moment ago, I believe, that approxi-
mately 20 companies adopted the new rates that were discussed at
that time; did you not?
Dr. Hunter. Yes; I should say so — about that number.
Mr. Gesell. When was the next rate increase announced?
Dr. Hunter. Are you referring to all of the companies ?
Mr. Gesell. The next general rate increase ; yes.
Dr. Hunter. As I have mentioned to you before, neither the Equit-
able nor the New York Life adopted that basis but adopted a partici-
pating annuity.
Mr. Gesell. These rates were nonparticipating rates?
Dr. Hunter. Nonparticipating; exactly.
Mr. Gesell. And the New York Life and the Equitable changed
to participating rates?
Dr. Hunter. Participating rates; yes.
Mr. Gesell. Therefore, they did not participate in their pro-am.
Dr. Hunter. Yes. Now dealing just with these two companies, if
I may for a moment, the New York Life left these rates the same
until the 1st of July of 1^38, when they then adopted a new scale
which was higher than any other company. The Equitable also had
a participating scale and increased their rates, but not to the same
basis as we have. In the meantime, in about the beginning of 1936,
a. number of companies again made a change, I think that is what
you refer to.
Mr. Gesell. What was that date?
Dr. Hunter. I should say in the fall of 1935 or the beginning of
1936.
Mr. Gesell. When did the discussions leading toward the adop-
tion of that new rate program commence?
Dr. Hunter. I should think in the fall of 1935.
Mrj Gesell. Do you recall that the actuaries of the five largest
companies met on September 24, 1935, to discuss certain problems
with respect to annuities, including the advisability of combined
annuity and insurance arrangements, commissions on single-premium
annuities, the advisability of withdrawing single premium retire-
ment annuities and placing a limitation on the amoimt of single
premium annuity insurance?
Dr. Hunter. Yes.
CONCENTRATION OF ECONOMIC POWER 4535
Mr. Gesell. Subsequent to that, there was a meeting, was there
not, of the larger number of companies at your office ?
Dr. Hunter. Probably. If you have the information it is so.
Mr. Gesell. Do you recall there was a meeting at your offices on
October 10, 1935?
Dr. Hunter. I know there was a meeting about that time.
Mr. Gesell. Can you recall what discussions were had at that
meeting ?
Dr. Hunter. No ; not without refreshing my memory.
Mr. Gesell. May I refresh your memory with a memorandum of
Mr. Laird's from the files of the Connecticut General ? It refers to a
meeting at your office on October 10, 1935. At that meeting you dis-
cussed many matters, including dividends, rates of interest, but with
respect to annuities he states [reading from "Exhibit No. 766"] :
The New York Life has already decided to continue the dividends already
estimated on about a 3i/^-percent interest rate but in view of the general con-
servative feeling in the meeting both the New York and the Equitable may
change to nonparticipating 3-percent premiums or participating 2i/^-percent,
premiums. During the discussion there was such a strong tendency toward
higher single premiums that it was finally decided to have each person present
sound out his company on the possibility of going to nonparticipating 3-percent
single premiums for straight-life annuities on January 1, 1936. After Dr.
Hunter has heard from the various persons, he may call another meeting to
crystallize opinion.
The following companies indicated that they would like to go along on
such a change: Connecticut General, Massachusetts Mutual, Metropolitan,
Travelers, Canada, Pennsylvania, Phoenix, Pnadential, John Hancock, Home
Provident, and Mutual Benefit.
Do you recall that discussion now?
Dr. Hunter. There was a meeting of that kind ; yes.
Mr. Gesell. And do you recall you also discussed at that time
placing some limitation upon the amount of single-premium insur-
ance and annuities which the company should take ?
Dr. Hunter. Yes.
Mr. Gesell. And that you also discussed at that time whether
there should be a further reduction in commissions on single-premium
insurance ?
Dr. Hunter. Yes.
Mr. Gesell. I should like to offer that memorandum for the
record.
Acting Chairman Reece. It may be admitted.
(The memorandum referred to was marked "Exhibit No. 766" and
is included in the appendix on p. 4840.)
Mr. Gesell. Do you recall there was a subsequent meeting held
as suggested in that recommendation for the purpose of crystaJizing
opinion ?
Dr. Hunter. I am not sure.
Mr. Gesell. I show you a letter over your signature dated October
17, 1935, saying [reading from "Exhibit No. 767"] :
I have been requested by several actuaries to call our next meeting before the
date of tlie American Institute meeting as a number are going there and as there
is a holiday in the following week. A meeting is accordi»fely called for Thursday,
October 24, at 10 o'clock in my oflSce.
A copy of the agenda is attached.
4536 CONCENTRATION OF ECONOMIC POWER
Do you recognize that as the agenda of the meeting?
Dr. Hunter. I am sure it is.
Mr. Gesell. That is your signature on the letter, is it not?
Dr. Hunter. Yes.
Mr. Gesell. I wish to offer this letter and the agenda for the record.
Acting Chairman Reece. It may be admitted.
(The documents referred to were marked "Exhibit No. 767" and
are included in the appendix on p. 4843. )
Mr. Gesell. Can you tell us what took place at the meeting on
October 24, 1935, which was called as per your suggestion?
Dr. Hunter. I shall be glad to have you refresh my memory.
Mr. Gesell. Can you remember nothing with respect to these meet-
ings, Dr. Hunter?
Dr. Hunter. Keep this in mind, that our company had made its
program for annuities, participating annuities, sometime in advance
of this, and I was merely acting as a clearing house, collecting the
information from the other companies and sending it back to them,
and these things didn't stick very much in my mind. In other words,
my company was not vitally interested.
Mr. Gesell. You did preside at these meetings, did you not?
Dr. Hunter. Yes; I say I presided and acted as a clearing house.
Mr. Gesell. And you are in a general way familiar with annuity
problems, whether you happened to write a particular form of annuity
or not.
Dr. Hunter. Certainly.
Mr. Gesell. Is it just that you prefer to have me read these memo-
randa to you, or do you have no independent recollection of what took
place at all ?
Dr. Hunter. No ; you have it all. in writing and I might make a
misstatement based on memory and I would much rather have you
tell me what happened.
Mr. Gesell. I have no objection to reading the memoranda, Dr.
Hunter, but I assume you would have some recollection as to what
took place and I would appreciate your own opinion and views as to
what took place. You are the witness on the stand. Do you recall
anything about this meeting on October 24, 1935 ?
i)r. Hunter. I recall that — all I remember about that was that
there was a discussion as to whether the rate of interest which was
then 31/^ percent was too liberal and it would be ad¥4sable to get it
down to 3 percent. I think that was the only question raised at that
particular time; namely, the rate of interest, lowering it from 31/2 —
3% to 31/^. I think that was the main thing discussed.
Mr. Geselij. From 33^ to 31/2 ?
Dr. Hunter. That is what I think it was.
Mi\ Gesell. Or from 31/4 to 3 percent?
Dr. Hunter. Wait a minute. I think you are right. It was 3i/^ in
1935 and we were talking about the end of 1935 and the discussion was
as to dropping it from 31/2 percent to 3 percent.
Mr. Gesell. I would like to read you a memorandum of Mr. Laird's
dated October 25, 1935,^ from the files of the Connecticut General,
* Subsequently introduced as "Exhibit No. 768." See appendix, p. 4844.
CONCENTRATION OF ECONOMIC POWER 4537
which I think is in some more detail and ask you whether this cor-
rectly states what happened at the meeting as your recollection is
refreshed [reading from "Exhibit No. 768"] :
Dr. Hunter reported that apparently some companies wanted to go to 3^4
percent but others to 3 percent. He suggested that on annuities now being pur-
chased, there might be less selection against the companies and therefore a higher
mortality. Mr. Bourke of the Sun Life, however, said that about 3 years ago
in Great Britain when the Government refunded its obligations at a lower inter-
est rate the Sun's annuity business increased by about 30O percent and that
while their experience is not yet extensive, the mortality on this business has so
far been extremely light, namely, 70-75 percent of the American Annuitants'
Select Table.
The memorandum, skipping a bit, says :
The first informal ballot was overwhelmingly in favor of 3 percent with the
same loading and mortality assumptions as have hitherto been used with 3Vi
percent. Several companies, however, felt that they could not go along on this
program unless the New York Life and Equitable of IJv^ew York would also go on
this nonpar basis or make a radical change in their participating annuities.
Apparently Hunter and Henderson were expecting a nonpar 3^4 percent rate
to be adopted, and this would have enabled them to continue their 3 percent
participating premiums. They were distinctly surprised at the landslide in favor
of 3 percent nonpar but indicated that either the companies would be forced
to abandon the participating idea and adopt the new uniform nonpar rate or
possibly go participating with 2yo percent interest assumption. On direct ques-
tion, Henderson said the Equitable wouldn't continue to project the dividends on
a 3.9 basis, but did not indicate what they would do.
The following companies will adopt the new 3-percent program on January 1
or sooner : Aetna, Connecticut General, Connecticut Mutual, Home, Guardian,
Massachusetts Mutual, Metropolitan, Mutu'al Benefit, Mutual Life, Penn, Pru-
dential, and Travelers.
The following will come along just as soon as they get definite assurance
from the New York Life and Equitable : John Hancock, Phoenix, and
Provident.
The following will probably be the last to move : Equitable of lovra, New
England, National of Vermont.
Now does that refresh your recollection somewhat as to what took
place at that meeting?
Dr. Hunter. Yes.
Mr. Gesell. Now, having had your recollection refreshed, will
you tell us what these discussions were back and forth between your
company and the Equitable on the one side and the nonparticipating
annuity companies on the other, and why it was that your partici-
pating rates and the nonparticiapting rates had so many common
problems ?
Dr. Hunter. As I mentioned, we adopted a participating rate in
December of 1934. There was this discussion in the fall of 1935
and at the beginning of 1936. Some of these nonparticipating com-
panies seemed to think that there wouldn't be a proper differential
between the participating and nonparticipating.
Mr. Gesell. What difference did that make. Dr. Hunter?
Dr. Hunter. I don't know; they thought that they couldn't get
business unless we raised our rates, which we did not do; we stood
pat on that.
Mr. Gesell. You mean they were attempting to get your com-
panies to change your paHicipating annuity rate basis in order to
make it more comparable with the proposed nonparticipating rate
increase ?
4538 CONCENTRATION OF ECONOMIC POWER
Dr. Hunter, I snppose that was so ; yes.
Mr. Gesell. That was so, wasn't it,?
Dr. Hunter. I would say "Yes."
Mr. Gesell. Do you recall any of the other discussions at that
meeting ?
Dr. Hunter. No.
Mr. Gesell. Do you recall the cash refund annuities were con-
sidered and installment annuities were considered?
Dr. Hunter. I know they had been considered at meetings, but I
could not attach it to that particular meeting.
Mr. Gesell. Well now, were there any further meetings prior to
the adoption of the new rate increase, do you recall ?
Dr. Hunter. No ; I don't recall.
Mr. Gesell. Do you recall tliis memorandum which I show you
as an announcement which you sent out sometime in the fall of 1935,
stating what the attitude of the companies would be ?
Dr. Hunter. Yes ; I was used as a clearing house for the companies.
Mr. Gesell. This memorandum from the clearing house states
[reading from "Exhibit No. 768"] :
The following companies intend to put into effect at the beginning of next year
or earlier new immediate annuity rates, nonparticipating, on the basis of the
Ainerican Annuitant's Select Table (male) with 3-percent interest, stepped back
one age for men and five ages for women : Metropolitan, Mutual, Travelers, Aetna,
Connecticut General, Massachusetts Mutual, Connecticut Mutual, Canada Life
(or a higher basis), Mutual Benefit (a higher basis). The following will adopt
with reservatiorts : New England Mutual, if there is any general trend in that
direction. Sun Life, anxious to adopt if 10 companies of importance in the
annuity field are willing Id do so. Home Life would follow if one-half of the
companies in the little entente did so. Guardian Life will probably follow the
action of i;he majority of other companies. Provident Mutual are sympathetic
and would like to adopt the new basis if a substantial number of companies do so.
f'rudentidl ai'e waitirg to know more definitely which companies will make the
clninge indicated. Phoenix Mutual depends on the action of the other companies,
including the cwo participating companies.
The John Hancock and National Life are not yet prepared to go along with
the others, and the Penn Mutual has not come to any decision.
Please let me know if tbore is anything further that I can do to further a
coooerative movement for the good of life insurance.
May I offer these documents for the record ?
Acting Chfiimian Reece. They may be admitted.
(llie documents r-.f erred to were marked "Exhibit No. 768" and are
included in the appendix on p. 4844.)
JMr. Gesell. No»v, that memorandum hidicates to me, Dr. Hunter,
that one of the basic considerations in this new rate increase was the
anifornnty of the decision which was to be reached, that the com-
panieL, many of them, were unwilling to take any position with re-
spect to the ncAv rates uiiless they knew that the other companies were
going to be ir: accord with their program. Is that correct?
Dr. Hunter. That is correct.
Mr. Gesfll. Have you any explanation to offer as to why these
companies had that as one of the considerations in indicating whether
or not they would agree to the new rate program?
Dr. Hun TER. I wonder, Mr. Gesell, if that is really a fair question
to ask me, to interpret the minds of these other people. I might — I
don't know what they meant when they put that in.
Mr. Gesell. You were present at many of the conferences?
CONCENTRATION OF ECONOMIC POWER 4539
Mr. Henderson. Mr. Gesell, maybe you could, without asking Dr.
Hunter to interpret, ask him to try to recollect what the nature of their
discussions was in these meetings. That would be some indication of
what was on their minds, without trying to make a mind reader of
Dr. Hunter. Perhaps he could recall some of the conversations which
took place which would indicate their position.
Dr. Hunter. Well, there was a general feeling among companies
of the same class that they would like to go along with them when
they made the change ; I think that is understandable.
Mr. Henderson. You see, Dr. Hunter, I served at N. K. A. and
I would p^ree with you that it is understandable. Is that all that
3'ou can re A\ ?
Dr. Hunter. That is all in a general way.
Mr. Henderson. Was the discussion very vigorous back and forth
between the companies on this matter?
Dr. Hunter. Oh, very little in our meetings.
Mr. Henderson. AVas there anything which might be characterized
as "missionary" work going on ?
Dr. Hunter. Not at all.
Mr. Henderson. That is, attempts to persuade other companies?
Dr. Hunter. Not at all in these meetings.
Mr. Henderson. Do you know of anything which went on outside
of the meetings?
Dr. Hunter. Not so far as I had anything to do with.
Mr. Henderson. Not to your personal knowledge?
Dr. Hunter. Not to my personal knowledge.
, Mr. Gesell. You subsequently notified the member companies from
time to time that other companies had decided to adopt this program,
did you not?
Dr. Hunter. Yes.
Mr. Gesell. You recognize these three memoranda which I hand
3^ou as announcements indicating that additional companies had
decided to follow the program?
Dr. Hunter. Yes.
]Mr. Gesell. I should like to offer these memoranda of Dr. Hunter's
dated November 21, 1935, November 25, 1935, and December 2, 1935,
for the record.
(The memoranda referred to were marked "Exhibits Nos. 769, 770,
and 771" and are included in the appendix on p. 4847.)
Mr. LuBiN. May I ask who they are addressed to?
Mr. Gesell. Those memoranda are three memoranda which were
sent by you to all of the conference companies were they not?
Dr. Hunter. To all of them.
Mr. LuBiN. Dr. Hunter, I wonder if you could tell us why you
felt it encumbent upon you to send them such notification?
Dr. Hunter. Well, I was the chairman of that committee and I
felt that the other companies should have the benefit of the informa-
tion of all. I was requested by these companies at the meeting to
let the others know what decision had been reached.
Mr. Gesell. It was rather important, was it not. Dr. Hunter, to
advise the other companies when additional companies entered in
because by doing so your chances for a broader, uniform program
were increased?
Dr. Hunter. Yes. ^
4540 CONCENTRATION OF ECONOMIC POWER
Mr. Gesell. I notice a reference in one of those memoranda to the
"little entente." ^ Can you tell us what the "little entente" is?
Mr. Hunter. It is a group of companies — I don't know, 12 or 13 —
I don't belong to it and haven't attended any of their meetings;
someone else could probably give you better information. I could
tell you some of the names, if that is what you wish.
Mr. Gesell. Will you tell us what you know about the organiza-
tion?
Dr. Hunter. I don't know anything about the organization.
Mr. Gesell. It is a group of New England companies, is it not?
Dr. Hunter. Yes; two Philadelphia companies and one Newark
company are connected with it.
Mr. Gesell. And I take it when that company said it would go
along if the majority of the little entente companies did, it meant
it would go along if the majority of companies in its particular class
went along.
Dr. Hunter. Yes.
Mr. Henderson. I notice on the last page of this memorandum of
Mr. Laird's about tlie meeting in your office of October 24, he says
concerning restrictions on settlement options [reading from "Exhibit
No. 768"] :
A small committee of actuaries and lawyers will get together in New York
to see what restrictions, if any, can be agreed upon.
That is the first reference I have seen in those memos to lawyers
being present. "Were lawyers present when these other negotiations
took place ?
Dr. Hunter. Not at all.
Mr. Henderson. Well, can you give me an idea of why lawyers
were going to be called in on these settlement options ?
Dr. Hunter. I should be very glad to. I understood Mr. Gesell
would take up that subject with me later, but I will be very glad to
take it up now.
Mr. Gesell. We do intend to have a separate hearing on settlement
option agreements among the companies, Mr. Henderson. The an-
swer is, as will be developed, that there were many legal matters
involved in wording types of settlement options, and legal advice
was necessary, since the provisions were in the nature of trust agree-
ments in many cases and care had to be taken because of the com-
plexity of the State laws.
Mr. Henderson. The only point I wanted to get to was whether in
these other negotiations lawyers were present also?
Dr. Hunter. They were not; only when it came to a legal matter.
Mr. Gesell. Now, Dr. Hiuiter, when was the next rate increase
announced?
Dr. Hunter. In the fall of 1938.
Mr. Gesell. Do you recall when the first meetings directed toward
establishing this new rate increase were held?
Dr. Hunter. I would like to correct that ; it was the spring of 1938
when these meetings were held.
Mr. Gesell. Do you recall when the first meetings were held that
resulted in that rate increase in the spring of 1938?
Dr. Hunter. No ; I do not.
1 Se^ "Exhibit No. 768." appendix, p. 4844, at p. 4846.
CONCENTRATION OF ECONOMIC POWER 4541
Mr. Gesell, Do you recall any of the circumstances which led up
to that rate increase?
Dr. Hunter. I think the circumstances which led up to that rate
increase among; these other companies were that they felt that the
mortality was improving among annuitants, as shown by recent ex-
perience, and that was the principal reason for the companies, or the
actuaries, wishing to discuss the matter together. ^ ' '"
Mr. Geseli.. When did the discussions first starE with respect to
that problem ? Was it not as early as June 9, 1936 ?
Dr. Hunter. Will you permit me to state that this matter went
back to conversations with the superintendent of insurance in 1937,
which eventually — and then in January of 1938 at least one company
came out with options in its policies at the death of the insured which
provided for an annuity, and started possibly as far back as 1936. But
when I have attended so many meetings such as these it is just im-
possible for me to remember all that went on and what discussions
took place.
Mr. Gesell. I show you a memorandum dated June 9, 1936, and
ask you if that does not refresh your recollection that the discussions
first started among the five principal companies at a meeting held on
June 9, 1936.
Dr. Hunter. Yes.
Mr. Gesell. I wish to offer this letter and the agenda for the meet-
ing for the record.
Acting Chairman Reece. They may be admitted.
(The documents referred to were marked "Exhibit No. 772" and are
included in the appendix on p. 4848.)
Mr. Gesell. Did you conduct the meetings and discussions and pre-
side at the discussions which took place leading up to this change in
the spring of 1938, or was th^-t handled by Mr. Bassford, of the
Metropolitan ?
Dr. Hunter. I think that I stopped attending any meetings early
in 1937 and that from that time on Mr. Bassford took up the matters
in connection with the subjects we are discussing.
Mr. Gesell. Then may I ask you to step down from the stand for
a moment, and I will call Mr. Bassford.
Dr. Hunter. May I say that I am not sure of that, Mr. Gesell ?
Mr. Gesell. I think you are correct.
Acting Chairman Reece. Do you solemnly swear that the testimony
you are about to give in this proceeding shall be the truth, the whole
truth, and nothing but the truth, so help you God ?
Mr. Bassford. I do.
TESTIMONY OF H. R. BASSFORD, ACTUARY, METROPOLITAN LIFE
INSURANCE CO., NEW YORK, N. Y.
Mr. Bassford. Before starting the discussion I want to state that
I was not in charge of these meetings at this time. I wasn't in charge
of any meetings at any time.
Mr. Gesell. I think we will develop what the facts were as we go
along.
Mr. Bassford, will you state your full name for the record?
Mr. Bassford. H. R. Bassford.
Mr. Gesell. You are actuary for the Metropolitan?
4542 CONCENTRATION OF ECONOMIC POWER
Mr. Bassford. That's right.
Mr. Gesell. Some reference was made during Dr. Hunter's testi-
mony ^ to a memorandum from the files of your company, dat«d April
13, 1934, and I will ask you to identify that memorandum.
Mr. Bassford. Yes.
Mr. Gesell. I should like now to offer this memorandum for the
I'ecord. It already has been referred to.
Acting Chairman Reece. It may be admitted.
(The memorandum referred to was marked "Exhibit No. 773," and
IS included in the appendix on p. 4848.)
Mr. Gesell. Did you have occasion, in 1938, Mr. Bassford, to send
out a questionnaire to certain of the principal companies asking them
what their attitude would be regarding the adoption of a new an-
nuity rate base in 1938?
Mr. Bassford. I did.
Mr. Gesell. Will you explain the circumstances under which that
happened ?
Mr. Bassford. Yes; I will be glad to.
This questionnaire is only part of the general study of annuities
the various companies made in '37 and early '38.
Let me say, first, that Metropolitan writes only a very small amount
of annuity business. While it is a large company in the life-insurance
field, there are at least 16 companies which do more annuity busi-
ness than the Metropolitan does. The reason for that is rather obvi-
ous, that it requires a substantial amount of money to buy an annuity.
Since we deal with people who are not wealthy, not many annuities
come to our company. It is, therefore, absolutely impossible for us
to get any rate basis for annuities based on experience of the Metro-
politan. It is also true of most, practically every company, because
the annuity experience has not been developed very materially. This
is evidenced b}^ the fact that many times the insurance department,
not only of New York but of other States, has taken a great interest
in the development of annuity experience. In fact, on one or two
occasions, at least two occasions, it has definitely asked the companies
to get together and pool their experience and try to form a proper
basis for rates and reserves.
Mr. Henderson. Is that to form a unified basis?
Mr. Bassford. In the annuity business there are two very impor-
tant factors, the mortality rate and the interest rate. The expenses
are extremely small. In our company the expenses are only a little,
over 1 percent of the premium in the home office.
Mr. Henderson. My question is on the matter of what the insurance
department's suggestion was. Did they suggest that you get together
and agree on a uniform rate base ?
Mr. Bassford. They asked us to get together and get a proper rate
for animities, rates and reserves for annuities. I was about to explain
that if you get the reserve on — these are single premium immediate
amiuities — if you get the basis for the reserve, if you are doing business
in New York State, you practically have the basis for the rate. The
New York law, section 97, has a very definite limit on the amount of
expenses — a definite allowance on the amount of expenses which may
be incurred on the annuity business. In the present law it is only
1 Supra, p. 4.'531.
CONCENTRATION Of ECONOMIC POWER 4543
4 percent and with the home office expenses running from 1 to li/^
percent, there can't be much difference between the rates of the various
companies, and therefore it is almost bound that the annuity rates will
be fairly uniform.
Mr. Henderson. Mr. Bassford, will you let me finish my question?
Mr. Bassford. I thought you had ; I beg your pardon.
Mr. Henderson. I tried to break in without any success.
Mr. Bassford. I thought I was answering your question, sir.
Mr. Henderson. The question was not whether the items which go
to make up the rate tend toward uniformity. The question that I
asked was whether in the suggestions which you say the insurance
department made to you for getting together, they suggested that
you agree on uniform rates for all companies. Now, that was my
question.
Mr. Bassford. Well, they didn't ask us to do that and we didn't do
that.
Mr. Henderson. That would have been the answer.
Mr. Bassford. All right ; I am sorry.
In that connection, may I say something ? The New York Insurance
Keport for 1936 has this to say :
Insurance companies, however, are peculiarly susceptible to the evil effects of
unrestricted price cutting and the public is fully as much interested in prevent-
ing inadequate rates as it is in prohibiting excessive rates. Therefore, to be fully
effective, insurance supervision must have jurisdiction over rates which in prac-
tice means substantial standardization of rates. Many states have come to
adopt this point of view, although few have gone as far as New York in following
out the logical implications of the principle of regulating rates.
That was a general statement in his report. I must say that further
on he did say that for life insurance^^— I must paraphrase it — he said
that that did not apply as much to life insurance as it did to other
forms of insurance. The reason he gave was that life insurance in
most cases was issued on a mutual basis. Therefore, that statement
about life insurance would not apply to annuity rates because most
companies now write annuities on a nonparticipating basis. The law
specifically provides that the companies may do that, and most com-
panies do that. So that the statement made did apply very clearly to
annuities; although it was known, there was no special statement
that did.
Mr. Henderson. There are two items in that connection. First of
all, this idea that several cost elements are put into some sort of
adding machine and that, no matter which company's cost figures are
used, the result is practically uniform. The testimony adduced here
on various occasions, and particularly the memorandum by Mr.
Flynn,^ suggests that there is quite a difference in those elements and
that uniformity does not necessarily follow.
The second observation I want to make applies to the previous
witness also. It is very evident, as indicated by your voluntary testi-
mony and the nature of your introductory statement, that these activ-
ities may be questionable. Consequently, you are building up a de-
fense mechanism and sometimes your answers are not directly related
to the specific questions asked.
Now it ou^ht to be evident to you, as it certainly is to those of us
who sit at this table, that this is not a trial or an adjudication of laws
1 See "Exhibit No. 756," appendix, p. 4831.
4544 CONCENTRATION OF ECONOMIC POWER
on agreements which may have been violated. As Senator O'Mahoney
has pointed out several times, what we are interested in are the facts.
We are interested in knowing what took place.
Beginning in 1933 a few companies decided that the annuity busi-
ness required an increase in rates. Later, many companies from dif-
ferent States, with a wide variety of individual problems and with
considerable differences in mortality experiences, assumed interest
rates, and expenses of doing business, sat down together and, after
considerable negotiation, came to an agreement. Certain companies
not represented at the meeting promised to go along with the majority
for the sake of a unified program.
There was a give and take in order to achieve the standardization
which a number of competent observers believed necessary. Some of
the actuaries and managers of various associations, I gather, consid-
ered it inevitable that certain conditions of competition would lead
to uniform rates.
The evidence adduced, of course, shows that though some State
officials thought perhaps the rates were too low and at times sug-
gested meetings to consider them, no regulatory officer ever attended
the meetings. Without any maliciousness on any one's part, the
presiding officer at times destroyed the record of the discussions and
of the decisions reached at these meetings. This afternoon the pre-
siding officer of one of these meetings could not tell the nature of the
discussions which took place without constantly refreshing his
memory with memoranda.
Another item evident from testimony is that the actuaries, in reach-
ing these agreements on annuity rates, were subjected to competitive
pressure and influenced to some extent by the agency forces of their
respective companies.
All of this leads to a defense mechanism which is not conducive to
eliciting information.
I am sure, Mr. Bassford, from my experience that the persons who
came to this general agreement honestly believed that, in order to get
rid of destructive competition and to avoid positive harm to policy-
holders and their interests, they had to find some means, official or
unofficial, of getting these understandings.
I think it would serve our purposes best if the witnesses would tell
us frankly what we want to know, in as calm a way as possible, and
avoid the kind of answers which give the impression that this com-
mittee is conducting a trial on the question whether competition has
been eliminated illegally. No one would dispute, after the evidence
p.dduced here today, that competition in the form in which it was
taking place prior to 1933 no longer exists. Even the commissions
which the solicitors take are now subject to control.
Mr. Bassford. Have you finished, sir ?
Mr. Henderson. Yes, sir.
Mr. Bassford. I am very sorry that I am not able to tell you where
I disagree with the many statements that you have made, but there are
many of them that are not in accordance with my recollection of what
happened, or the basis of what we have done. Let me say that we
are certainly not ashamed of anything we have done.
Mr. Henderson. That is what I am asking for.
Mr. Bassford. Let me tell you that this business represents one-
fiftieth of 1 percent of the contracts issued by our company, and let
CONCENTRATION OF ECONOMIC POWER 4545
me tell you that it is a problem child. Under annuities a reducing
rate of mortality increases the cost, a reducing rate of interest increases
the cost. Both of those phenomena have been taking place in the last
6 years. Particularly there has been a very substantial and steady
decrease in interest rates — that is, interest on investments — and it has
made a very serious problem for all of the companies. That par-
ticular item not only increases the cost of annuities, it also increases
the cost of all insurance, and people that pay interest realize it ; people
that receive interest don't realize it, but the people in our company are
paying more for their insurance because of it.
Because we have such a problem as brought out by the figures given
by Mr. Gesell, we, of course, want to get every bit of information that
we can in order to get proper rates. We want adequate rates but we
don't want excessive rates. We want fair rates.
Mr. Henderson. Do you w^ant uniform rates?
Mr. Bassford. I don't care whether they are uniform or not, as long
as they are adequate and fair.
Mr. Henderson. Does your company want uniform rates?
Mr. Bassford. I don't think they do.
Mr. Henderson. In these discussions which began in March of 1933
and continued to 1938, the Metropolitan participated in every one of
those, did it not?
Mr. Bassford. It did.
Mr. Henderson. Do you want me to understand that in all those
discussions, concerning which we have a tremendous amount of testi-
mony, it was a matter of indifference to the Metropolitan whether the
rest of the companies came to a general understanding?
Mr. Bassford. I wouldn't say that. What we were trying to get
was the most authoritative information.
Mr. Henderson. That doesn't follow from the nature of the testi-
mony, Mr. Bassford.
Mr. Bassford. You haven't heard my testimony yet.
Mr. Henderson. I mean from the testimony that has been taken
here about meetings in which the Metropolitan was represented. Cer-
tainly the Metropolitan in what it was doing wanted
Mr. Bassford (interposing). I think, if you look through the rec-
ords of the meetings, you wnll find that practically every time the
Metropolitan was one of the first-tp suggest and adopt a more adequate
basis of rates, and I don't think of any case where we did it on the
proviso that somebody else would do it. So I think that answers your
question.
Mr. Henderson. That is what I am trying to get at, whether you
want us to understand that the Metropolitan did not have this driv-
ing desire that was very evident in the memoranda we have, suggesting
that "We will go along if the majority does," or "We will not do
this unless X company does that; we will not do it as long as the
nonparticipating rate is different from the participating rate; we will
not do this as long as the stock companies are doing this." I am trying
to get from you the Metropolitan's attitude.
Mr. Bassford. That is all I can tell you, of course.
Mr. Henderson. And I am to gather that in this general drive
toward getting uniformity, which is something different, I think you
will agree, from getting adequate information, the Metropolitan was
4546 CONCENTRATION OF ECONOMIC POWER
not a strong participant, that what it wanted was more information
so that it could handle its own problem child.
Mr. Bassford. Let me say that frequently there were quite lengthy
discussions as to the proper mortality table. In fact, the reason I
think that Mr. Gesell thought I was in charge of some of the meet-
ings was that I happened to be appointed chairman of a committee
which got up a report early in 1938 dealing with the question of
the proper mortality table that we ought to use. That memorandum
that he has introduced is part of that report that I made early in
1938.
Mr. Hendeeson. I think, Mr. Gesell and Mr. Bassford, my com-
ments were adduced by reason of this defensive attitude which I felt.
Mr. Bassford. It wasn't intended that way, sir.
Mr. Henderson. I think we will get further along if you are re-
sponsive to the questions, and then any additional comment which
illuminates what your position was would be very welcome. You
have been here during this testimony, you know we have never shut a
witness off, and' we have not tried to trap witnesses, have we?
Mr. Bassford. I know you haven't, sir.
Mr. Henderson. I don't believe any members of the committee or
the examiners have tried to trap witnesses. We want no responses
here that do not flow from what the witness honestly believes. They
wouldn't serve any purpose. We are not engaged in a propaganda
campaign, and we haven't a deep-seated motive of trying to lead
either the witnesses or the insurance companies.
Mr. Bassford. I don't know whether it is clear to you, Mr. Hender-
son and the other members of the committee, but the question that
you are dealing with, and we were dealing with at these meetings,
particularly the one Mr. Gesell is talking about now, was just a
single contract, it was a single-premium immediate annuity. • There
were one or two forms in which that was issued, and it required in
our company on the average $5,500 to buy one of those contracts,
and we wouldn't accept less than about $1,000. So that was our rea-
son for needing to participate with other companies on this mortality
question, and I believe that was the reason of the superintendent's
interest, because no one company could have got the information
itself.
Mr. Henderson. Let me ask you this, and you can kiss this off if
you want to.
Mr. Bassford. I will answer it if I can, of course.
Mr. Henderson. The record that has been adduced today shows
something more than just a scientific interest in actuarial rates was
evident at these conferences, that they went beyond the question of
mortality rates and the like toward getting together on rates. That
was admitted by the witness. Do you think that is an improper
question ? ' If Mr. O'Brian thinks it is an improper question, we will
skip it.
Mr. O'Brian.* Even if it were, I would want you to ask it. We
are prepared to answer any questions, I am sure, that we can answer.
Mr. Henderson. All the actuaries were not interested in getting
information. They wanted to go beyond that and get some uni-
formity.
* John Lord O'Brian, counsel, Metropolitan Life Insurance Co.
CONCENTRATION OF ECONOMIC POWER 4547
Mr. Bassford.- Of course there again, Mr. Henderson, I can speak
for the Metropolitan only.
Mr. Henderson. I am not asking you to speak for the Metropolitan
only.
Mr. Bassford. I don't know what was in the minds of -the other
people, except as you have brought it out here.
Mr. Henderson. It was in the minds, evidently got translated into
action, and has been discussed very frankly here.
Mr. Bassford. Wouldn't it be better for you to ask them, rather
than to ask me? I can only tell you what our interest is.
Mr. Henderson. I will accept that as being your answer. Let's
go on.
Mr. Bassford. Mr. Henderson, I am willing to say that of course
all of the information that you have brought out most of which I
heard, and I do know that you are probably right, but I feel that
I ought to speak only for the Metropolitan. Mr. O'Brian says it
is all right.
Mr. O'Brian. I want you to answer all the questions.
Mr. Henderson. I think that is good advice.
Mr. O'Brian. If I might interpolate, I think some of the con-
fusion, if I may so characterize it, results from the fact that it hasn't
been clearly brought out what it was that the department of insur-
ance wanted and why it intervened, and what it asked these companies
to do. I think if we could get started there, as a starting point,
we could develop it. I think that is what Mr. Bassford has m his
mind, although I haven't consulted with him.
Mr. Gesell. Might I at least interject a word and say that I
haven't got an answer to my first question, that I am not going to
ask the questions Mr. Bassford thinks I am, and that I think we
can move pretty fast if I can have about 15 minutes ?
Now, Mr. Bassford, I show you a report dated March 4, 1938, signed
by yourself as chairman, subcommittee.^ Do you recognize that as
part of the report which you rendered on that date ?
Mr. Bassford. Yes, sir.
Mr. Gesell. That report states [reading from "Exhibit No. 774"] :
For your information we have prepared the enclosed summary of the replies
received to the subcommittee's questionnaire in regard to the adoption of new
annuity and settlement option rates based on the 1938 Standard Annuity
Table. Please bear in mind that this information is highly confidential and
advise the undersigned if we have not properly stated your attitude toward
the adoption of new rates.
While some requests have been made for an early meetings, the general feeling
inclines toward deferring the conference until the situation with regard to the
New York code and other legislation affecting policy forms is more definitely
known. Dr. Hunter will accordingly advise you as to the most suitable time
for a meeting which will probably be some time in April, with a view of
reaching a definite recommendation by the time of the Actuarial Society's
meettng.
Now, attached to that document is a summary of replies to the
subcommittee's questionnaire. You sign yourself on this document as
chairman of the subcommittee.
Mr. Bassford. That's right.
Mr. Geseix.. Will you tell us who appointed the subcommittee ?
Mr. Bassford. Yes, sir.
^ Subsequently entered as "Exhibit No. 774," see appendix, p. 4850.
124491^0 — pt. 10 27
4548 CONCENTRATION OF ECONOMIC POWER
In order to explain that, I have to go back to some time in '37.
There was another committee appointed following the publication of
information on mortality on settlement options. One of the settle-
ment options is a life-income option, which is a form of annuity.
They developed a report and published a table based upon the expe-
rience that had been presented, and because that experience didn't
give them enough information they had to develop experience from
certain other lines, certain other bases of mortality, but they prepared
this table.
The last part of that report I would like to read, which gives you
the reason that I happened to serve as chairman of this other com-
mittee— I mean, why the other committee was appointed.
Well, I can explain it; I remember just what it did say, or just
about what it did say. When they worked out the table it showed
that the rates on a net basis, that is, settlement option rates include
no loading for expenses because they are given, and at maturity of
a policy no commission is paid, and they are issued on what we call
a net basis; that is, on the basis of mortality and interest without
loading. In this report the annuity rates adduced from that table
indicated rates higher than the rates companies were charging for
individual annuities, so in the last part of the report they suggested
that a new committee be appointed in order to study that table, and
then the other table, and suggest a basis f: r annuities, individual
annuities, on the latest information available, and I was appointed
chairman of that committee.
Mr. O'Brian. By whom?
Mr. Bassford. I don't know. I think it was appointed by this
informal conference. I am not sure whether that was it or whether
I was appointed by Dr. Hunter, who was chairman of the mortality
committee of the Actuarial Society, but I made my report, which you
have and which you have just shown me, and along with that report,
in that report — this is a report which I sent out with my letter of
February 9, 1938 — I believe Mr. Ge^ll has it — there were several
questions.
I want to make just a few quotations from this to indicate the
reason I sent out the questionnaire :
To the extent to which the actual experience may be considered to reflect an
underlying trend in annuitant mortality during the 20 years following the Amer-
ican Annuitants investigation, the proposed table may also be considered as
providing some margin for future improvement in mortality.
Then again, toward the end of it —
The effect of these additional assumptions —
that is, the assumption of select mortality —
as to selection would be to increase the net annuity rates by about 1 percent for
males and 1.5 percent for females. If it is felt that this additional element of
safety should be introduced fnto annuity rates, it is suggested that the provision
for select mortality could be made in the loading, retaining the 1938 Standard
Annuity Table —
the table they produced —
for net annuity values.
While this subcommittee is further of the opinion that no special provision
need be made in the loading for a mortality margin other than that furnished
by the proposed table, companies may wish to give this matter individual
consideration.
CONCENTRATION OF ECONOMIC POWER 4549
This report was made by a committee of some six, I think, actuaries ;
it was sent out to the people who had contributed to it, and along
with this report we sent a questionnaire which was in the nature of
as I recall it, a Gallup poll, to try to find out what they thought of
our report, and this memorandum which Mr. Gesell is just asking me
about is the reply that was made by the companies in answer to the
questions which I asked them, and these answers were made without
any meeting. It was just a question of, "What do you think of our
report and what are you going to do about it?"
Mr. Gesell. Yes. You asked them to state, first of all, whether
they would follow the new proposed rate ; and, second, to comment on
the date when they would adopt that rate, did you not?
Mr. Bassford. There was no proposed rate, Mr. Gesell. The
report does not include a single item about a proposed rate. The
report merely is a mortality study. I think you will find nothing
in it
Mr. Gesell (interposing). Have you a copy of the questionnaire
which you sent out?
Mr. Basseord. Yes; the questionnaire asks what rates you are
going to adopt, but there had been no rates proposed in the report,
or By me or anybody else, at that time.
Mr. Gesell. Your report simply asks them to state what rate
they would adopt on the basis of the mortality report which you
made to them?
Mr. Bassford. That is correct,
Mr. Gesell. And also the date when they would adopt that new
rate?
Mr. Bassford. That's right. This also includes a questionnaire
for life income settlements. The first one is the life income settle-
ments.
Mr. Gesell. Then, in reporting your replies in the memorandum
which you have identified, you state in paragraph one that [reading
from "Exhibit No. 774"] :
Fourteen companies appear to be willing to adopt new individual annuity
rates as of July 1, 1938, or sooner provided a large number of companies do so.
While most of these companies have not decided upon the basis of their new
rates, it appears as if the 1938 Standard Annuity Table at 3 percent and a
loading of 6i/^ percent of the gross would generally be acceptable for non-
participating immediate annuity tates.
And in the case of many of the companies listed under that item 1,
the companies indicated that they would adopt the rate on the same
date as the other companies.
Mr. Bassford. That proviso, you notice, applied merely to the
date of adoption and not to the rates.
Mr. Gesell. You mean that they would adopt the rate stated in the
last column at the same time other companies announced rate changes,
even though those rates were not in harmony?
Mr. Bassford. That is right.
Mr. Gesell. I wish to offer this memorandum and report for the
record.
Acting Chairman Reece. They may be admitted.
(The documents referred to were marked "Exhibit No. 774" and are
inchided in the appendix on p. 4850.)
4550 CONCENTRATION OF ECONOMIC POWER
Mr. Gesell. Now, subsequent to receiving the replies from that
questionnaire, was there a meeting of the actuaries held to discuss what
was shown ?
Mr. Bassford. I believe so.
Mr. Gesell. Do you recall the date of that meeting ?
Mr. Bassford. No, I don't oflfhand; I think it was in May.
Mr. Gesell. I show you a memorandum dated April 22, 1938, report
of meeting held April 22, 1938. Is that a memorandum which you
prepared summarizing what happened at that meeting ?
Mr. Bassford. That is a memorandum prepared from my notes,
summarizing what I thought happened. In most cases I think it is
correct.
Mr. Gesell. There were 25 companies present at that meeting, were
there not?
Mr. Bassford. I can't tell.
Mr. Gesell. The first line
Mr. Bassford. Ohj it does say.
Mr. Gesell. I notice on page 3, under nonparticipating companies,
the statement [reading from "Exhibit No. 775"] :
There was some discussion as to whether or not the rates in the committee
report; that is, 1938 Standard Table 3 percent with 6.5 percent loading, was
satisfactory. All companies stated that their companies would adopt rates
at least as severe as that basis. The Connecticut Mutual said they would
adopt them for life annuities but that the age should be set forward 1 year
for annuities with guaranteed minimum return. There was about an equal
division between those wanting to use set-back in mortality rate and those wish-
ing to increase the loading. The comjxanies are to report to Mr. Hunter as to
what their preference is after giving the matter further consideration. The
following companies strongly favored a more severe basis than that proposed :
New England, Sun Life, Travelers, State Mutual, Massachusetts Mutual, Home
Life, Mutual Benefit, Phoenix Mutual.
In view of the fact that it is very probable that most companies will adopt
the 1938 Standard Table for Life Income Options without set-back it seems a
little inconsistent to set back the table for Immediate Annuities.
I wish to offer this memorandum for the record.
. Acting Chairman Reece. It may be admitted.
(The memorandum referred to wasi marked "Exhibit No. 775" and
is included in the appendix on p. 4852.)
Mr. Gesell. Was there a subsequent meeting held, Mr. Bassford?
Mr. Bassford. I can't tell you.
Mr. Gesell. I show you a letter dated May 12, 1938, addressed to
yourself, signed by Mr. Hunter, stating :
It has been suggested that a meeting be held to consider further the bases for
annuities and for the proceeds of policies on Wednesday, the 18th instant, 8 p. m.,
at the Waldorf Astoria. Mr. MacClean will engage a room for us.
Do you recall that ?
Mr. Bassford. It must have been the time of the actuarial meeting.
Mr. Gesell. There were then further discussions at the time of the
actuarial meeting?
Mr. Bassford. Apparently.
Mr. Gesell. Would you recall them, Mr. Bassford ?
Mr. Bassford. I don't think that the question of single premium
annuities was taken up at that time. I think — I am pretty sure at
least the Metropolitan had already decided on other rates, because
we put them in effect by July 8. I am not sure, Mr. Gesell ; I can't
CONCENTRATION OF ECONOMIC POWER 4551
remember. Apparently there must have been a meeting and I don't
think that the question of single premium annuities was discussed at
that meeting.
Mr. Gesell. Do you recall this letter that I now show you, dated
May 26, 1938, which came from the files of your company, from Dr.
Arthur Hunter ?
Mr. Bassford. Oh, j-es ; I remember that. I don't think that had any
connection with the meeting, Mr. Gesell. It was just a question
Mr. Gesell. Then, did Dr.
Mr. Bassford. Oh, wait a minute ; I am sorry ; yes, this is correct.
Mr. Gesell. All I want to get at, Mr. Bassford, is this, Who took
up the responsibility of acting as the clearing house after you had first
sent out this questionnaire ? Did that then go back to Dr. Hunter to
handle from then on ?
Mr. Bassford. Apparently it did, as this letter tells him what the
Metropolitan decided to do, so I assume he was the clearing house.
Mr. Gesell. He wrote on May 26, 1938, did he not :
I have been requested by several companies to obtain final information with
regard to the basis for nonparticipating immediate annuities on and after the
1st of July. At our last meeting all companies, with two exceptions, which
issue such annuities agreed to the new standard annuity table stepped back 1 year
for men and 6 for women, with 3-percent interest and a loading of Q'Y2 percent.
One of these has agreed to go along with the others if there are no defections.
May I ask you to answer this question by return mail.
If you have also decided to use the foregoing table without loading for settle-
ment options with life contingencies, retirement annuities, annuity endowment,
retirement endowments, kindly let me know.
He wrote that letter, then, to all of the companies, I take it, and
then reported to you by the attached questionnaire, did he not, a sum-
mary of the replies he received ?
Mr. Bassford. I guess it was.
Mr. Gesell. Do you recognize that as a document from the files of
your company ?
Mr. Bassford. It looks like it.
Mr. Gesell. This letter signed by Dr. Hunter, dated June 3, 1938,
marked "Confidential," states [reading from "Exhibit No. 776"] :
I have received information with regard to the final decision in connection with
the new basis for immediate annuities. The following companies will adopt for
nonparticipating annuities the Standard Mortality Table for 1938 stepped down
1 year for men and 6 years for women, with 8-percent interest and 6i/^-percent
loading on the gross rate, effective on the 1st of July, with the exceptions noted.
Then are listed the —
Aetna, Berkshire, Connecticut General, Fidelity Mutual, Guardian, Home Life,
John Hancock, Massachusetts Mutual, Metropolitan, Mutual Benefit, New Eng-
land Mutual, Penn Mutual, Phoenix Mutual, Provident Mutual, Prudential,
State Mutual, Travelers, Equitable Life of Iowa (date not determined), Mutual
Life (calculating rates on the above basis and anticipate they will be adopted by
the trustees at an early date for use on July 1), Northwestern Mutual (with IVz-
percent loading on gross, probably effective September 1), Connecticut Mutual
(but on refund annuities probably the standard table, without set-back, with a
higher loading than 6V^ percent). The National Life has not yet decided the
matter.
Now, the memorandum states further on :
I anticipate that the Canadian companies doing business in the United
States will use the same or an equivalent basis for their business in this
country.
4552 CONCENTRATION OF ECONOMIC POWER
I should like to offer this.
Acting Chairman Reece. It may be admitted.
(The memorandum referred to was marked "Exhibit No. 776" and
is included in the appendix on p. 4855.)
Mr. Gesell. Now, the net result of all of this, then, Mr. Bassford,
was that after your committee had examined the mortality experience
and reported on that mortality experience to the two companies, some
14 companies indicated that they had an interest in adopting what
appeared to be approximately the same rate, and thereafter there
were one or two meetings held. Following those meetings a rather
general program for a uniform rate basis was adopted.
Mr. Bassford. The net result of the study was, of course, that the
companies all adopted the new mortality basis and changed nothing
else.
Mr. Gesell. They kept the same interest and the same loading as
had been in use before.
Mr. Bassford. That is right and only adopting the most up-to-date
table — those who adopted it, of course.
Mr. Gesell. The uniformity in interest and loading had been
established by the previous agreement, had they not ?
Mr. Bassford. I don't know the agreements. There were uniform
loadings and uniform interest among some companies but not all.
Some companies which had different loadings may have changed
at this time. I really don't know.
Mr. Gesell. As far as this change was concerned, will you explain
for the committee just what participation therein was had by the
New York State Insurance Department?
Mr. Bassford. The first meeting, the first experience which sug-
gested to the companies that they needed a new basis for single pre-
mium annuities was an experience on settlement options on mortality
under the life-income benefits under the settlement options, and the
New York department in a meeting dealing with policy loan interest
rate, I believe, had raised a question about settlement, options, not
only the basis but al3o the administrative provisions, and so on. So
it was very indirect, I would say.
Mr. Gesell. It was very indirect, wasn't it? He talked to you
about settlement options and in an effort to work out studies on
settlement options you had to analyze your annuity experience, and
from the analysis of the annuity experience new rates came into effect,
but the superintendent hadn't talked to you about annuities at all.
Mr, Bassford. He hadn't talked to me about anything, but he had
talked to one or two of thi actuaries about the settlement options and,
as I say, the reports showed, of course, the development of the new
table for annuities was a direct result of the experience under the
settlement options. It isn't direct, but it is merely a continuation of
the sort of meeting that was originally inaugurated by the insurance
department.
Mr. Gesell. He didn't attend any of the meetings which you had,
did he?
Mr. Bassford. No; in one case he asked the Actuarial Society —
(hat was Superintendent Beha in 1927 — he asked the society to ap-
point a committee to get a new mortality basis for a new test, and
the result of that was an investigation of annuity mortality, and Mr.
Henderson, actuary of the Equitable, and Mr. Craig, our former
CONCENTRATION OF ECONOMIC POWER 4553
actuary, were a committee of two that made up this table, and a
result was a new table called the Combined Experience Annuity
Table.
Mr. Gesell. That was in 1927?
Mr. Bassford. Yes; that is right; which went into the law in 1930.
Mr. Gesell. I am on safe ground, am I not, Mr. Bassford, when
I say that as far as the superintendent of insurance w^as concerned he
had never done anything to encourage the companies to reach an
agreement or an understanding, say, on a uniform loading for
immediate annuities?
Mr. Bassford. I don't think the companies had reached an agree-
ment on uniform loadings.
Mr. Gesell. Pass over the question of the word agreement. As a
result of a bunch of conferences the companies have the same loading ;
now he hadn't tried to encourage that, liad he ?
Mr. Bassford. Except to the extent that he asked us to get an
adequate basis for annuity rates and, of course, the best information — ■
we attempted to get the best information, and the interchange of
ideas naturally led to that conference.
Mr. Gesell. I must have been reading too many books, Mr. Bass-
ford, about the work of an actuary. I was under the impression that
the loading was determined, theoretically speaking, on the basis of
each company's individual expense experience.
Mr. Bassford. No; that is not true. The loading is the amount
which is added to the net premium in order to provide for expenses,
partially, but it is also added as a proper margin of safety, and in
some cases, for example, the premium rates of life insurance have
been made less than the net premium on the American Experience
Table, and the only function of the loading is to produce the answer
which the actuary thinks is a proper answer, having in regard the
safety of the company and probable future experience. That is, the
loading isn't anything specific for any specific purpose at all.
Mr. Gesell. If he wants to give his company adequate margin of
safety — I think those are the words you used — he does that in the
selection of his mortality table.
Mr. Bassford. Not always. A proper table may not be available.
Mr. Gesell. Here you have a proper table.
Mr. Bassford. No ; it isn't. Wait a minute. In the annuity busi-
ness, as I explained in the beginning of my testimony, the mortality
rate is improving. The past experience, therefore, is not a safe guide
for the future experience as it is in life insurance. In life insurance
an improvement in mortality reduces the cost. Under annuity busi-
ness, since it is paid for the lifetime of the annuity, the reduction
in the mortality rate makes the cost higher; therefore, if you use a
past experience for mortality in the future, it isn't a conservative basis
because of that general improvement.
Mr. Henderson. Mr. Gesell, may I ask a question? Would I inter-
rupt too much ?
Mr. Gesell. All right ; I will come back.
Mr. Henderson. It is along the same line. Up to 1933, did each
company compute its loading rate ?
Mr. Bassford. No, no ; I believe there were many companies having
the same rates prior to 1933.
4554 CONCENTRATION OF ECONOMIC POWER
Mr. Henderson. No; that wasn't my question, Mr. Bassford. I
said, did they compute them separately ?
Mr. Bassford. I don't know what you mean.
Mr. Henderson. Did they compute their loading separately, in-
dividually ? Did each company compute its own loading ?
Mr. Bassford. I can't answer that; I don't know what you mean.
Mr, Henderson. In the make-up of a rate, you understand
Mr. Bassford (interposing). I think each company computed its
rate which, of course, would include its loading.
Mr. Henderson. Did they vary ?
Mr. Bassford. Not very much. I think most companies loaded
their single premium annuities 3 percent of the gross.
Mr. Henderson. Take the discussion we had here on group insur-
ance where the expense ratio ranged from 7 to 15. Do we have a
similar range of about 100 percent or more in what was added for
loading in the single life, for example?
Mr. Bassford. Well, of course, Mr, Henderson, the group rates are
participating rates. They are rates, initial rates as brought out by
the previous testimony, and it isn't as necessary to get an answer as
near to the probable cost under participating rates as it is under a
nonparticipating rate. In answering your question, therefore, the
companies had a loading which was substantially in excess of the
average expense rate because, of course
Mr. Henderson (interposing). Maybe you haven't understood me
yet. What I asked was, of the amount called loading in the differ-
ent companies, was there a substantial difference ?
Mr. Bassford. For group life insurance
Mr. O'Brian. No ; he isn't asking about group life.
Mr. Henderson. Using that as an example showing that there had
been a wide range between companies, I asked you whether in -this
arena we are now discussing, the loading which individual companies
compute themselves, there was a difference.
Mr. Bassford. I don't think there was. I can't answer the ques-
tion. I can tell you what our loading was every year.
Mr. O'Brian. Was the loading factor of the individual companies
included in their several rates substantially the same or was it com-
puted by different companies and fixed at different amounts. Is that
the question?
Mr. Henderson. That is right.
Mr. Bassford, The answer is that I believe the loading factor was
substantially the same as between companies. I think it was usually
3 percent.
Mr. Henderson. But it was not as a result of conference.
Mr. Bassford. I don't know. I had nothing to do with it at that
time.
Mr. O'Brian. What time are you speaking of ?
Mr. Bassford. You say prior to '33.
Mr. Henderson. Yes.
Mr. O'Brian. Yes.
Mr. Gesell. On that point, I have a copy of Best's Illustrations of
1933 and, referring you to page 529, I ask you if it is not a fact that
there were only six of the conference companies that bad the same
loading factor in their annuity rates at that time.
Mr. Bassford. You said prior to '33.
CONCENTRATION OF ECONOMIC POWER 4555
Mf. Henderson, les.
Mr. Bassford. Do you mean immediately prior to 1933 or in 1929?
I think there were about 10 companies having the same rate in 1928
and that is why I said there was some uniformity in rates, substantial
uniformity in rates, prior to 1933. I think that between 1929 and
1933 there were changes in rates and when we changed ours in 1930
I think there were about 10, but I believe it is correct there were 6 —
prior to July 1, 1933.
Mr. Gesell. I am correct in saying, am I not, that there has been
an increasing uniformity in recent years?
Mr. Bassford. Decreasing and increasing-^-decreasing from '29 to
'33 and increasing from there on, right.
Mr. Gesell. Now coming back to this loading factor, you say that
it includes a margin of safety, but it does also include the expense
factor, does it not?
Mr. Bassford. That is right.
Mr. Gesell. Now is there any reason why such a large number
of companies should make the same assumption as to their individual
expense factors?
Mr. Bassford. There has been in recent years, because a few years
ago the New York law, section 97, was amended, which fixed a limit
expenses of 4 percent, and therefore if a company were to live within
section 97 on annuities — it didn't have to do that individually — there
was a necessity for them to reduce their expenses.
Mr. Gesell. That fixed the ceiling, but there might be well-man-
aged companies which were below that 4 percent, might there not ?
Mr. Bassford. There isn't much chance of variation below 4 percent
when the commission is usuall}^ about 2i/2 percent and the expenses, as
I know in my company, are between one and one and a half percent.
Mr. Gesell. But your uniformity of commissions was also a result
of the agi'eements reached at this time?
Mr. Bassford. That is wh}^ I say, Mr. Gesell, that in the last few
years I think some reason for the uniformity in commissions was the
reduction in the allowance for expenses under single premium im-
mediate annuities. It was 6 percent to 4 under section 97, and under
(he code Avhich goes into effect, which the Governor signed today, by
the way, it will be three and a half percent.
Mr. Gesell. But the fact still remains that there is a margin there ?
Mr. Bassford. A small margin, yes; that is right.
Mr, Gesell. And by this agreement or understanding or whatever
you want to call it, that margin disappeared, did it not, in a substantial
immber of companies?
Mr. Bassford, In a substantial number of companies, but I believe
less than half the business is written by those companies.
Mr. Gesell. Well now, is it not a fact, Mr. Bassford, that for per-
sonal annuities the 26 companies attending these intercompany con-
ferences that we have been talking about have at all times received
over 90 percent of the personal annuity premiums in 1935, 1936, and
1937, and have always been in excess of 85 percent, if you examine
them in terms of the percentage of annuity income ? ^
Mr, Bassford, That isn't your question, Mr, Gesell, Your question
was what proportion of companies having uniform rates — what is the
» See "Exhibit No. 780," appendix, p. 48r>7.
4556 CONCENTRATION OF ECONOMIC POWER
proportion of business done by companies having uniform rates, ^^hich
is altogether different. The companies who attended the conferences,
who had uniform rates, wrote only 44 percent of the business in 1938 —
the two largest companies, two largest annuity writing companies,
having different rates.
Mr. Gesell. But those two companies were companies writing par-
ticipating business, weren't they ?
Mr. Basseord. That is right, but having different rates.
Mr. Gesell. Now, what about those that write nonparticipating
business, what percentage of the nonparticipating annuity business is
on the same uniform basis ?
Mr. Bassford. Very large proportion.
Mr. Gesell. It is a very large proportion, isn't it?
Mr. Bassford. Yes, but two types of the business are in competi-
tion, so I don't see that means much.
Mr. Gesell. That is a matter of opinion, Mr. Bassford. We have
a memorandum which indicates there was some effort to make the
participating rates in harmony with the nonparticipating.
Mr. Bassford. They can't make participating rates in harmony ;
they can make them so that they wouldn't be lower, which might
make it difficult for the nonparticipating companies to write busi-
ness, but the contract is entirely different, so the question of har-
mony doesn't enter into it.
Dr. LuBiN. You were saying there might be harmony. Might there
not, in terms of net cost to the purchaser ?
Mr. Bassford. I doubt it ; I don't think it would be possible unless
they set out to do it.
Dr. LuBiN. Well, similarly it wouldn't be possible for your so-
called nonparticipating policies to be in harmony unless they set
out to do it, would it?
Mr. Bassford. I don't think you understood me, Doctor. I mean
that it would be rather difficult to devise a dividend formula which
would be equitable and which would produce the same cost undei .:
participating policy as under a nonparticipating policy of any kind,
whether annuity or life insurance.
Mr. Gesell. I have no further questions of this witness.
Acting Chairman Reece. Any further questions?
Dr. LuBiN. I would like to ask a question or two, Mr. Bassford.
As I understood your testimony, you stated that it is your job as
chairman of the subcommittee, and particularly as representative of
the Metropolitan Life Insurance Co., to prepare a report which
would show what rate ought to be charged on this type of policy,
which would be equitable in the sense that it covered the costs and
this risks involved ?
Mr. Bassford. No; that is not so. Our job is to determine a proper
mortality basis. Now, the mortality as brought out previously is
only one of three factors affecting cost, and the only thing this
committee did was to try to determine a proper basis of mortality,
based upon what experience it had.
Dr. LuBiN. Well, that being the case, if that was your sole pur-
pose, what interest did this committee have in caring or even being
interested in knowing if and when the Aetna would accept this
table? If it was- your job to find the proper mortality table, having
found it, why was it any concern of yours jis to whether Aetna, Berk-
CONCENTRATION OF ECONOMIC POWER 4557
shire, or Connecticut General or anybody else adopted it and under
what conditio IS they would do it?
Mr. Bassford. That was merely my desire to get information. As
I say, this thing is not definite; it is not specific, and we had made
this report based partly on judgment and the reason for sending the
questionnaire as to the rates which they were to adopt was to find out
whether the rest of the actuaries who had contributed their experience
and therefore were entitled to have the information — to find out
whether they agreed with our recommendation or not as to the
mortality table. And as I pointed out as part of the report, and as
some of the discussions later developed, there were two methods of
taking care of what we called select mortality, which means that the
early mortality will be better and will add to the cost, and the idea
was to find out what was the most authoritative, what was the best
basis for taking care of that particular thing.
Now, as to date, the only reason that we were interested in the date,
and the only reason, as far as our company was concerned, we cared
about the date, was that the companies had put this experience to-
gether; each of the companies represented on that committee had
probably contributed the experience of their company, and it seemed
only fair to them that they ought to know what was going to be
done about it. Just an exchange of information.
Dr. LuBiN. Apparently, as far as the Metropolitan Life Insurance
Co. was concerned, it didn't care whether your mortality table was a
good one or not, as I understand the report here, because their state-
ment is, they will consider it if most companies adopt new rates. ^
Now, if it was a good mortality, what concern was it of theirs whether
other companies adopted it or not ?
Here is another company that says they will adopt it at the same
time other companies would. Now, if it was a good table and their
actuaries approved of it, why should somebody say that "We will do
it if other people adopt it"?
Mr. BAssroBD. I can't answer that. I can answer the question as
to date. Our reason for wanting to know the date is that it would
be disturbing to our agency force if many companies came out with
new rates before we did; they would want to know if we were going
to increase ours and so on; so we were very much interested, if it
were going to be adopted, about when it was to be adopted.
Dr. LuBiN. It is quite evident from this report, however, that some
of the companies were not concerned with the validity of the mortality
table; they were more concerned
Mr, Bassford (interposing). I don't agree with you, Doctor.
Dr. LuBiN. They specifically say so.
Mr. Bassford. Where?
Dr. LuBiN. Before January 1, 1939, if new immediate annuity
rates are generally adopted.^
Mr. Bassford. Where is that?
Dr. LuBiN. It is under Connecticut General; John Hancock says,
"Before October 1, 1938. if new rates are generally adopted."^ Now.
that assumes if new rates are not generally adopted they wouldn't
change theirs, irrespective of the mortality table.
1 Se" "Exhibit No. 774," appendix, p. 48.'')0, at: p. 4851.
' Tbid.
» Ibid.
4558 CONCENTRATION OF ECONOMIC POWER
Mr. Bassford. The only thing I could say about that is they didn't
even mention what table they were going to use. I assume they were
planning to use this particular table ; I don't know.
Dr. LuBiN. That was the only purpose of sending ^our question-
naire, and you sent the questionnaire — the report here is a mortality
table. You say you want to know now whether they accept this idea,
whether it is a good table. Now they say, "We don't give a hang
whether it is ; we won't accept it unless somebody else does."
Mr. Bassford. All I can say is that when we asked them they didn't
tell us; and if you want to know, I think you are going to have to
ask them.
Dr. LuBiN. The thing I can't understand is why you should be con-
cerned as to whether they would adopt it. What you were after was
the opinion of their actuaries as to whether or not this table was a
valid table.
Mr. Bassford, That is right.
Dr. LuBiN. Why should you be concerned as to whether they
would adopt the table, and if so why ?
Mr. Bassford. I was anxious to find out what they thought was
the best basis for annuities.
Dr. LuBiN, And let us assume they said, "This is the best basis,
but as far as we are concerned" — that is what they said in many
cases, "but as far as we are concerned that doesn't interest us; we
will accept it if other people do."
Mr. Bassford. Well, my own idea is this, that if a large nimiber
of these people felt that this was a proper annuity table, then it ap-
pears to me that probably that was the best basis • for an annuity
table, and therefore I would want to adopt it.
Dr. LuBiN. But evidently many of these companies, as far as you
were concerned, didn't.
Mr. Bassford. I am a little confused. Dr. Lubin. Are you in-
terested in the date or the table or both? The date has nothing to do
with the table.
Dr. Lubin. No ; I am interested in two things. First, a table was
drawn up by a subcommittee, as I understood you; that table was
sent to the actuaries of these various companies, so you could get their
judgment as to whether that was a good or the best basis.
JNIr. Bassford. That is right.
Dr. Lubin. But you didn't stop there; you went a step further,
apparently, judging by the answer to the questions in your report..
You wanted to know whether they have accepted it and used it.
Mr. Bassford. I wanted to know whether — what basis of rates
they were going to adopt, and when they were going to adopt them.
Dr. Lubin. So you were interested in more than merely knowing
whether or not they agreed that this was the best table ; you wanted to
know more, namely, will you use it ; and thirdly, if you will use it,
when will you use it?
Mr. Bassford. That is right.
Dr. Lubin. Now on the basis of the replies it is quite evident that
some of them said, "Why, this is apparently a good table, but we
are not going to use it unless somebody else adopts it."
Mr. Bassford. I don't think that is true.
Dr. Lubin. Well, wouldn't you conclude that if I came to you and
saitl, "I will do this if somebody else does it," that my decision is
CONCBNTHATION OF ECONOMIC POWER 4559
based not upon whether or not the table has definite merits, but as
to whether or not somebody else will do the same thing?
Mr. Bassford. The statement which you read comes under the head-
ing, "Comment on Date of Adoption," and not on the rate basis or
table which was used.
Dr. LuBiN. But if you look at paragraph 1 you will see, although
they have not decided on the basis, that their new rates appear as of
the 1938 standard, new table, and loading 6i/^ percent of gross was
generally acceptable.^
Mr. Bassford. That is only summarizing what is in the last column.
Fourteen companies, at least 14, because some used a somewhat dif-
ferent loading; the participating companies and the Canadian Life
did.
Dr. LuBiN. That is all, Mr. Chairman.
Mr. O'CoNNELL. I take it that one of the factors, one of the things
that was discussed and on which we seemed to have a certain amount
of uniformi<^y, was the interest factor. What does the interest factor
represent, the return that the particular company makes on its invest-
ments ?
Mr. Bassford. The interest factor under an annuity is the com-
pany's estimate of the interest rate at that particular time on new
investments, because under single premium annuity the money is
received in one sum and invested when it is received, so the going rate
of interest on any investments would be very close to the determining
factor.
Mr. O'CoNNELL. Yes; but that would be the return on the invest-
ments of each company^ I take it, or of the particular company.
Mr. Bassford. That is correct.
Mr. O'CoNNELL. How do you account for or how would you ex-
plain the uniformity of interest rates? I should take it there would
be a variance between companies as to their earnings.
Mr. Bassford. There was a slight variance.
Mr. O'CoNNELL. But under this arrangement that variance is elim-
inated.
Mr. Bassford. None of the companies had any other rate than 3
percent. It was our understanding at the time these rate^ went into
effect that the companies couldn't use a lower rate than 3
Mr. O'CoNNELL (interposing). What do you mean, they couldn't
use a lower rate?
Mr. Bassford. The New York law. It isn't entirely clear and I
understand it has been interpreted otherwise. The New York law
fixes a minimum rate of interest for valuation at 3 percent, and that
I understand, however, applies only to life insurance, although in
the opinion of our people we thought it applied to annuities also.
But 3 percent is about the lowest that any non-participating company
has ever used for annuities, so we have got down almost to rock
bottom.
Mr. O'CoNNELL. But to the extent that there might be a difference
between the income that the different companies would have, there
would be the absence of this type of uniformity that we have, a dif-
ferent basis for interest.
Mr. Bassford. There might be.
1 "Exhibit No. 774," api)endix, p. 4850, at p. 48r)l.
4560 CONCENTRATION OF ECONOMIC POWER
Mr. O'CoNNELL. But that, by virtue of this type of arrangement, is
eliminated, too, as well as the difference in the loading factor, the
expense.
Mr. Bassford. Because in this particular case, of course, we were
down to the place where some of us felt we couldn't go any lower.
Mr. Gesell. Wliat about on the way down ?
Mr. Bassfoed. I agree that probably at times there was a difference.
It is likely to be very close because the companies have generally the
same type of investments and their new investments from time to time
wouldn't differ very much.
Mr. O'CoNNELL. To the extent they might differ, it would be im-
material insofar as these factors are concerned under this type of
system ? ^
Mr. Bassford. Yes; that is right.
Acting Chairman Reece. Any further questions?
Mr. Gesell. I have finished with this witness.
Mr. Henderson. May I ask some questions?
Mr. Bassford. I wanted to say just one thing, that is that these
rates we make up are filed by our company in every insurance depart-
ment; I think 26 insurance departments require filing of annuity
rates, and the rates are widely publicized. I make that statement only
because I want to get away from the thought that there is any secret
about what we do in this respect. Whatever we do is open and known
to the public.
Dr. LuBiN. When you say that do you mean you notify these insur-
ance departments you had a meeting with the actuaries and agreed
you would have a certain rate?
Mr. Bassford. I didn't say that.
Dr. LuBiN. When you said you make all the facts known I wondered
what you were referring to.
Mr.. Bassford. I said there is no secret about our meetings. They
are reported in many of the insurance journals and there is no secret
about our rates. They are published, and on© particular publication
lists the companies that have uniform rates, so it is very widely known.
Dr. LuBiN. When you say that the insurance journals report these
facts are you implying that the insurance journals say there was a
meeting on such a date of actuaries of certain companies, and these
companies have agreed to accept this rate ?
Mr. Bassford. No ; they don't say that, because it isn't true.
Mr. Gesell. The nature of the discussions that go on at the meetings
is not reported.
Mr. Bassford. Of course not; but I believe they have mentioned
from time to time that there have been meetings.
Mr. Henderson. Mr. Bassford, have you represented the Metro-
politan in this series of meetings which began in March of 1933?
Mr. Bassford. Only in recent years. In the early years I didn't. I
became actuary in 1936.
Mr. Henderson. You didn't participate in the earlier meetings ?
Mr. Bassford. Not all of them. I may have gone. Mr. Craig was
actuary at that time and I have attended some, and some others I may
not have attended. In recent years I have attended all of them.
Mr. Henderson. That would mean that you have attended probably
four as the direct representative.
CONCENTRATION OF ECONOMIC POWER 4561
Mr. Bassford. I would think at least that.
Mr. Henderson. How many more do you think you have attended ?
Mr. Bassford. I can look it up and tell you. I would think it would
be more than four. I would say at least six.
Mr. Henderson. You think in addition to these four that you
attended two of the previous meetings?
Mr. Bassford. Yes, sir.
Mr. Henderson. Did you attend the meeting of May 18, 1933, the
big meeting?
Mr. Bassford. I will have to look it up. No ; I didn't.
Mr. Henderson, Mr. Craig probably represented you.
Mr. Bassford. Yes; that is right.
Mr. Henderson. In these prior meetings your company went along
on the general idea of getting a common understanding about these
items?
Mr. Bassford. I couldn't call it a common understanding, Mr.
Henderson.
Mr. Henderson. For example, Mr. Flynn, reporting on the meeting
of May 18, 1933, details a basis and then says :
The companies voting for the above proposal were ; * * * the Metropoli-
tan.'
Mr. Bassford. I think you will find, Mr. Henderson, that usually
we are about the first one on the list, and that we haye always been
anxious to get our rates on an adequate basis, I mean that we don't
go along; we start it.
Mr. Henderson. How about a comparable basis? Are you inter-
ested in having other companies fairly near your rates as a matter of
competition ?
Mr, Bassford. As a matter of fact, I think I would prefer, if any-
thing, to have the other companies have lower rates than we have.
Mr. Henderson, You would prefer them to have lower rates?
Mr. Bassford. Yes.
Mr. Henderson. Why?
Mr, Bassford. Because I don't think we want a large amount of this
business. I am talking now about single premium annuities.
Mr. Henderson. Do you have to write this business ?
Mr. Bassford. No; not at all. We think it is a good thing, and that
is why we write it. It is a very fine service. In fact, every policy
that we issue in the ordinary department has a provision under the
optional modes of settlement which provides for a life income, which
is an annuity, and, therefore, the selling of the single-premium indi-
vidual annuities performs a service that goes along with the life
insurance.
Mr. Henderson. Where you get into a discussion at these meetings
you have attended, and a proposal of some kind is made, don't
you say, "We will go along if there is a large enough group going
along" ?
Mr. Bassford. I guess we do; yes. I think we have said that.
Mr. Henderson. That isn't just a question of adequacy of your own
rate, then, is it?
1 See •Exhibit No. T.'.O," appendix, p. 4881.
4562 CONCENTRATION OF ECONOMIC POWER
Mr. Bassford. I think it is. I think it represents the best opinion
as to what is an adequate rate.
Mr. Henderson. I am talking about your going along.
Mr. Bassford. "Going along" — that is an expression that is some-
times used. I would not say it in just that way. I would say that
if the majority think that is a good rate we would be willing — well,
I can say it there — to go along ; that we think that is a good rate.
Mr. Henderson. I took the language right out of your memo-
randum : ^
The next question asked was what companies would favor a rate lower than
the 1938 standard table and only three companies expressed a real desire to
adopt rates on a lower basis — the Mutual, Phoenix, and New York Life. I
stated that we would go along if a large enough group of companies did it.
Mr. Bassford. That particular thing you are asking about, Mr.
Henderson, deals with settlement options, I think. I think the head-
ing is
Mr. Henderson (interposing). No; that is options on life income.
Mr. Bassford. That's right; the life income options, settlement
options. If you will read the previous paragraph —
Option 3 (Life income) the question was asked — What companies were willing
to adopt income no lower than by the 1938 Standard Table with 3 percent inter-
est throughout. All companies voted in favor of doing this except the Guardian
and Mutual Benefit. The Guardian have recently adopted —
and so on.^
In the next paragraph it deals only with the mortality table.
The next paragraph, where I stated that we would go along, deals
only with the question as to whether that 1938 standard table was the
proper table, or a table which would be a more conservative table
was a proper table. That is, it is the mortality basis we were talking
about.
Mr. Henderson. That's right. Your decision there, according to
your own language, was that if enough companies wanted it you
would go along.
Mr. Bassford. That, of course, is a rough way of saying it. If
enough actuaries thought it was the proper basis, we thought so too.
Mr. Henderson. You say it is a rough way of saying it. It is your
way of saying it.
Mr. Bassford. That's right. It is exactly the way of saying it.
Mr. Henderson. When something has come up in these ineetings
you have attended, and there is a discussion about what the larger
companies will do and some request is made, you do, for the sake of
harmony, make adjustments in your own basis for the sake of going
along, don't you?
Mr. Bassford. I don't think so.
Mr. Gesell. Let me ask this, if I may, Mr. Henderson: You
said you would be glad if all the other companies had lower annuity
rates than you do ?
Mr. Bassford. I said personally. I don't think the company would.
Mr. Gesell. Why doesn't your company raise its rates higher than
the other companies?
Mr. Bassford. Because we want to give our policyholders the op-
portunity to buy annuities at reasonable rates.
^ Sep "Exhibit No. 775," appendix, p. 4852, at p. 485.S.
' Ibid.
CONCENTRATION OF ECONOMIC POWER 4563
Mr. Gesell. I take it you feel the rate for annuities should still be
higher, don't you?
Mr. Bassford. We raised them July 1, 1938. We probably will
raise them again next year, and every year so long as the interest
rates go down.
Mr. Gesell. Why don't you just raise your annuity rates now and
get in the position you feel, as the actuary of the Metropolitan, you
should be in, with higher rates than the other companies?
Mr. Bassford. Well, one reason is that I don't have the say as to
what the rates are.
Mr. Gesell. Who has the say — the agency force?
Mr. Bassford. Tlie president and the chairman of the board.
Mr. Gesell. Mr. Ecker has decided it is not advisable?
Mr. Bassford. I say that the annuity business has produced a loss,
and naturally an actuary doesn't like business that produces a loss.
I said it was my personal opinion that I would be just as well pleased
if we didn't have it ; but, as a service to our people, I think we should
offer it.
Mr. Gesell. Do you mean you ought to continue to write it at a
loss?
Mr. Bassford. No; not at all.
Mr. Gesell. Why don't you raise your rates ?
Mr. Bassford. Because I don't think they need it right now.
Mr. Gesell. You feel they are going to need it within a few
months.
Mr. Bassford. Interest rates have gone down every year since 1930.
There have been very substantial reductions in interest rate in the
last several years and I think that the rates adopted in July 1938, were
certainly adequate at that time. I think they are adequate today. I
am not sure they are going to be adequate next year if interest rates
continue to go down.
Mr. Gesell. What did you lose last year on annuities?
Mr. Bassford. About $300,000.
Mr. Gesell. And you have lost money off and on during these last
years, haven't you ?
Mr. Bassford. Yes; we have lost about $2,000,000 over the past 10
years, a substantial part of that Jbeing due to the increase in our reserve
basis.
Mr. Gesell. And you feel as the actuary of the Metropolitan that
the rate should be higher on annuities, do you not ?
Mr. Bassford. No; I don't. Don't forget that that loss of $300,000
doesn't come out of the annuities we wrote last year, it comes out of
annuities we have written every year for the last 30 years.
Mr. Gesell. Regardless of where it comes from, if you are losing
money on annuities I am surprised that you don't feel the rate should
be higher.
Mr. Bassford. That is because you don't understand.
Mr. Gesell. Will you explain it to me, please?
Mr. Bassford. I will explain it to you.
We have been issuing annuities for 30 years. The loss you speak of
isn't the loss due to the annuities we wrote last year. In fact, we had
a profit on the annuities we sold last year. But the cost comes from
the reducing interest rates which affect all contracts issued as far back
as we have been issuing annuities.
124491— 40— pt. 10 28
4564 CONCENTRATION OF ECONOMIC POWER
Mr. Henderson. Let me ask you this: Take an annuity written
30 years ago. The interest rate goes up this year. Aren't you less
likely to lose on that ?
Mr. Bassford. Yes.
Mr. Henderson. So you are interested in what that interest rate is-
Mr. Bassford. Oh, I didn't say I wasn't interested.
Mr. Henderson. I thought you were trying to make it follow from
your testimony that it had nothing to do with these 30 previous years.
Mr. Bassford. No ; what I am saying is, the loss of $300,000 shown in
bur "Gain and loss" exhibit for 1938 is not the loss for the annuities
we issued in 1938.^ It is the loss of the entire amount of business we
have, some of which may have been issued 50 years or 40 years ago.
Mr. Henderson. Getting back to this other item, Mr. Flynn in his
memorandum said [reading from "Exhibit No. 756"] :
Throughout the conference it was apparent that the largest companies were
quite willing to make changes for the good of their companies and the business
in general. The opposition was generally found in the smaller, self-suflBcient, par-
ticipating companies. If these concerns could be brought to a better appreciation
of the current situation, the present is a wonderfully fine opportunity for clearing
up many of the present troubles of the life business.
Now, in the meetings that you have attended, when questions came
up in which somebody suggests that it would clear up some of the
present troubles if your company or a group of companies would go
along, what attitude did you take then ? Do you recall anything like
that coming up in any of these four meetings ?
Mr. Bassford. I don't remember anybody ever saying that they
would raise their rates if the Metropolitan did. The Metropolitan
meets companies in competition which are just a few companies, and
I don't think that anyone ever used us as their reason for wanting
to raise rates. I know that I have not based any of my decisions or
recommendations on what other companies would do, except to the
extent of trying to get the best judgment.
Mr. Henderson. Do you regard this conference method as a good
one ?
Mr. Bassford. I think it is excellent to get as much information as
possible on a subject that is as troublesome as the annuity business is
at the present time, with a very decreasing interest rate.
Mr. Henderson. Do you think it a good thing to have a uniform
interest assumption ?
Mr. Bassford. I don't think it makes much difference.
Mr. Henderson. Do you think it is a good thing to have uniform
loading ?
Mr. Bassford. Not necessarily ; no.
Mr. Henderson. Do you think it is a good thing to have uniform
mortality-table acceptance?
Mr. Bassford. I don't think it makes any difference, except to the
extent that you get the best table available.
Mr. Henderson. Did you express yourself in these conferences as
being relatively indifferent concerning uniformity?
Mr. Bassford. Usually; yes.
1 In this connection see "Exhibit No. 7r)2," appendix, p. 4826.
CONCENTRATION OF ECONOMIC POWER 4565
Mr. Henderson. That is, in tl.o conferences you took an attitude
different from some of the other companies which are very much
interested in getting a general harmonious acceptance ?
Mr. Bassford. I think that is true.
Mr. Henderson. That is, on this 3-percent loading and 6i/^ per-
cent
Mr. Bassford (interposing). Three-percent interest and 6i/^-percent
loading.
Mr. Henderson. Yes; if a number of companies thought that was a
pretty good thing, was that a matter of indifference ?
Mr. Bassford. No ; I wouldn't say 'it was indifference. I would say
that if a number of companies thouglit it was a good basis, that proba-
bly it was a good basis. To that extent I would be glad to adopt it.
Mr. Henderson. But you are not, I gather, interested so much in this
conference except as an exchange of actuarial experience, a compari-
son of loading and ideas on interest rates.
Mr. Bassford. Well, yes; I think that is correct.
Mr. Henderson. You regard it much the same as a meeting of a
learned society, the Actuarial Society?
Mr. Bassford. I think that is just what it is, Mr. Henderson.
Mr. Henderson. Maybe you and I, then, take a different point of
departure. I fail to see that a meeting of a learned society is the same
thing as a number of company representatives meeting and a uni-
formity emerges. Whether or not you like the word agreement, you
kept ducking on that
Mr. Bassford (interposing). Well, it can be used in two ways.
That is why I ducked.
Mr. Henderson. Isn't there something more than just an academic
interest, an exchange of intellectual gymnastics that goes on?
Mr. Bassford. This is a practical business, Mr. Henderson.
Mr. Henderson. Well, now — it is a practical business, certainly.
Do you regard it as a business in which a certain amount of cooperation
should take place ?
Mr. Bassford. Well, it can't be anything else.
Mr. Henderson. Should the cooperation take place on the basis of
common acceptance of these factors which make up the rate ? What
do you think about that?
Mr. Bassford. I think in cases where so little information is avail-
able as under annuities that probably we want to get, as I say, all
the information we can, and when a lot of people agree with me as to
what they are going to do, I think that probably I have the right
answer.
Mr. Henderson. Do you think that is a good thing ?
Mr. Bassford. I think it is, a good thing in the case of this indi-
vidual policy, where we don't have sufficient information, and where
the factors affecting it are changing so rapidly. As a matter of fact,
practically in eveiy other line of our business our rates disagree with
every other rate, and except for this one-fiftieth of 1 percent of the
contracts, our contracts are all very highly competitive. There are
about 8,000 individual immediate annuities out of about 40,000,000
contracts.
Mr. Henderson. And this is the only line where you have that?
4566 CONCENTRATION OF ECONOMIC POWER
Mr. Bassford. Oh, yes ; as a matter of fact, no other company has
the same ordinary-life insurance rate as we do. I' think of some 197
companies which reported their rates in Best's for 1939 there were 146
different gross premiums for 20-payment life. That makes up a
bulk — probably the other plans of life insurance would show the same
results, and if you consider that 96 of those companies are participat-
ing and that the costs would be different, meaning the premiums, or the
initial premiums, there would be 163 different costs under a 20-pay-
ment life policy out of 197 companies who list their rates in that
book, and it seems to me that is a fair indication that there is plenty
of competition in the rest of our business.
(Mr. O'Connell took the chair.)
Mr. Gesell. Even in your ordinary policies, though, you have
eliminated some degree of competition by reaching an agreement on
settlement options?
Mr. Bassford. The settlement options in our policies are different
from those — the benefits themselves differ from those of most other
companies. The basis for those settlement options is the same as
many other companies, merely because we use our own values rate
which is 3-percent interest.
Mr. Gesell. I am talking about the kind of settlement options you
will offer.
Mr. Bassford. No ; they are not the same. Our options are not the
same. There is a wide difference between the options of the com-
panies.
Mr. Gesell. Do you not know that the companies have entered into
an understanding with respect to certain basic settlement options
which will be offered ?
Mi'. Bassford. No ; they haven't done anything of the kind.
Mr. Gesell. We will present testimony with respect to that next
week.
Mr. Henderson. I suggest then that you discontinue this line of
interrogation until we get to where you can develop the matter.
Acting Chairman O'Connell. Are you through with the witness ?
Mr. Gesell. I have nothing more.
(The witness, Mr. Bassford, was excused.)
Mr. Gesell. Before the record is closed, I should like to offer two
or three documents. First, a letter signed by Mr. Cammack, addressed
to Mr. Laird, dated October 22, 1934, which was obtained from the files
of the Connecticut General Life Insurance Co.
Acting Chairman O'Connell. It may be received.
(The letter referred to was marked "Exhibit No. 777" and is
included in the appendix on p. 4856.)
Mr. Gesell. The next is a memorandum from Mr. Cammack dated
May 13, 1938, which was obtained from the files of the Aetna Life
Insurance Co.
Acting Chairman O'Connell. It may be received.
(The memorandum referred to was marked "Exhibit No. 778" and
is included in the appendix on p. 4856.)
Mr. Gesell. A memorandum dated October 10, 1938, signed by
Mr. John M. Laird, of the Connecticut General Life Insurance Co.
Acting Chairman O'Co^tS^ell. It may be received.
CONCENTRATION OF ECONOMIC POWER 4567
(The memorandum referred to was marked "Exhibit No. 779" and
is included in the appendix on p. 4857. )
Mr. Gesell. And a schedule prepared bv the staff of the commis-
sion from Spectator Year Book, entitled "Exhibit of Personal An-
nuities," which shows the percentage of annuity premiums and amiual
income to annuitants written by conference companies.
Acting Chairman O'Connell. It may be received.
(The schedule referred to was marked "Exhibit No. 780" and is
included in the appendix on p. 4857.)
Mr. Gesell. That finishes for today.
Acting Chairman O'Connell. What is your pleasure about next
week or the next hearing?
Mr. Gesell. I believe the understanding was Tuesday at 10 : 30.
Acting Chairman O'Connell. The committee will stand in recess
until Tuesday at 10 : 30.
(Whereupon, at 4 : 40 p. m., an adjournment was taken until Tues-
day, June 20, 1939, at 10 : 30 a. m.)
INYESTIGATION OF CONCENTEATION OF ECONOMIC POWER
TUESDAY, JUNE 20, 1939
United States Seinate,
Temporary National Economic Committee,
Washington^ D. G.
The committee met at 10:40 a. m., pursuant to adjournment on
Friday, June 16, 1939, in the Caucus Room, Senate Office Building,
Representative B. Carroll Reece, presiding.
Present: Representative Reece (acting chairman); Messrs. Hen-
derson, O^Connell, and Brackett.
Present also : Harry J. Daniels, Department of Commerce ; Willis
Ballinger, Federal Trade Commission; Ernest Meyers and Joseph
Borkin, Department of Justice; and Gerhard A. Gesell, special
counsel, Securities and Exchange Commission.
Acting Chairman Reece. The committee will please come to order.
Are you ready to proceed, Mr. Gesell?
Mr. Gesell. Yes; I am.
intercompany agreements — settlement options
Mr. Gesell. The first witness this morning is Dr. Hunter, who was
on the stand on Friday. Today the Commission will continue with
the presentation of testimony illustrating the character and effect of
various interinsurance companies' understandings which may have a
tendency to restrict competition. The committee will recall that last
Friday, during the presentation of testimony relating to intercompany
conferences designed to bring about uniform annuity increases, ref-
erence was made on several occasions to the discussions which took
place at those conferences with respect to settlement options.
Settlement options are available to the holder or beneficiary of
many forms of ordinary life insurance policies. It is through the
exercise of such options that the insured or the beneficiary may
arrange for the payment of the proceeds of a policy. Different
modes of settlement are available. The testimony today will be for
the purpose of developing the procedure through which the leading
life insurance companies arrived at a mutual understanding to restrict
forms of settlement options.
You have already been sworn, have you noti
Dr. Hunter. Yes.
4560
4570 CONCENTRATION OF ECONOMIC POWER
TESTIMONY OP DR. ARTHUR HUNTER, CHIEF ACTUARY AND VICE
PRESIDENT, NEW YORK LIFE INSURANCE CO., NEW YORK,
N. Y. — Resumed
Mr. Gesei.l. Will you tell us, Dr. Hunter, what settlement options
are and why in recent years they have become an increasing problem
to the insurance business?
Dr. Hunter. At the time of the investigation in New York, which
is sometimes known as the Hughes Investigation, sometimes the
Armstrong, the life insurance companies were required to issue in
New York State exactly the same form of policy, word for word;
tli^re was no variation permitted at all. And in these policies there
were three forms of settlement options. That is to say, at the death
of the insured or at the maturity, three forms of settlements could be
required by either the insured or the beneficiary.
The first one was payment of an annuity equal to a certain per-
centage of the proceeds of the policy, which usually was 3 percent.
It simply was a guaranty of interest during the lifetime of the
beneficiary.
The second one was that specified amounts or installments could
be obtained over a series of years, and the table was inserted in the
policy.
And the third one was that there should be equal installments for .
a fixed period of ,20 years and payment for life thereafter if the
beneficiary survived.
In other words, a guaranty of 20 years with continuation during
the lifetime of the beneficiary after that time.
That was the provision in the laws of the State of New York at that
time. These ran along for a number of years and they are practically
in existence today with one or two develoi)ments. For example, there
is one which provides that a certain amount may be taken out of the
proceeds of the policy each year until that amount is exhausted. That
covers the general group of four settlements in the policy.
Mr. Gesell. Am I correct in stating that in recent years more com-
plex forms of settlement options have developed?
Dr. Hunter. Yes. I am referring, Mr. Gesell, just to what is pro-
vided in the policy. Outside the policy very complex forms have de-
veloped in recent years.
Mr. Gesell. Will you tell us about that development, please ?
Dr. Httnter. That development covers partly combinations of these
options in the policy. For exam]>le, a com))any might provide m its
policy for interest during the lifetime of the beneficiary or for a certain
period. That is combined with another option in the policy. Let me
take an example. Suppose when the man insures, his wife is 35 years
of age, he might ask that the money may be left at interest until she
has attained 55 years of age, and at that time another option be added
to it, namely, that there should be fixed installments for a period of
10, 15, or 20 years, with continuation during her lifetime if she lived
beyond that period.
Mr. Gesell. Generally speaking, there were many different combi-
nations of these basic settlement options, were there not?
Dr. Hunter. Yes ; many of them.
CONCENTRATION OF ECONOMIC POWER 4571
Mr. Gesell. And I presume that one company in a desire to offer a
slightly different service than another company, would increase the
complexities of its settlement option rules and provisions?
Dr. Hunter. The competition did increase the complexity of these
settlements.
Mr. Gesell. These settlements are available on practically all forms
of ordinary life insurance policies, are they not?
Dr. Hunter. Yes. Term insurance generally; no, the other; yes.
Mr. Gesell. Am I correct in saying that sometime in 1935 the com-
panies began to give consideration to the desirability of limiting or re-
stricting in some manner the forms of settlement options ?
Dr. Hunter. Yes.
Mr. Gesell. Do you recall when that idea first originated, and with
whom it originated ?
Dr. Hunter. I would say it was spontaneous on account of the con-
ditions. I question whether it originated with anyone. It came out
as a matter of discussion among actuaries as the result of the decreas-
ing rate of interest.
Mr. Gesell. Well, now, we are talking about the various forms of
settlement options. Many of those had become complex, had they not,
and the actuaries felt they should be curtailed, quite apart from the
consideration of the interest rate ?
Dr. Hunter. That was part of the reason, because so many of these
settlement options outside the terms of the policy extended for a much
longer period than the provisions in the policy.
Mr. Gesell. Do you recall when the first discussions took place with
respect to the restricting the forms of settlement options?
Dr. Hunter. I should say in the fall of 1935.
Mr. Gesell. Reading from a memorandum of a meeting at your
office on October 10, 1935
Dr. Hunter (interposing). Did I say 1935?
Mr. Gesell. Yes; you did. I was simply trying to fix the exact
meeting. The memorandum reads as follows [reading from "Exhibit
No. 766"] : ^
Dr. Hunter evidently wanted to start a movement to curtail these prolonged
settlements, but the Mutual Benefit and the Mutual Life practically killed the
movement by saying they would continue to do almost anything. Apparently the
Northwestern Mutual is also very liberal, but is said to be receding from such
liberality. The Canada Life for 7 years has had in its contracts a provision that
settlement options will be available during such time as may be agreed upon by
the company.
That notation is contained under the general heading in the memo-
randum, "Should the Special Agreements Which Generally Combine
Two Settlements in the Policy Be Discontinued?" So it was about in
the fall of '35, was it not?
Dr. Hunter. Yes.
Mr. Gesell. In broaching that subject at that meetiilg. Dr. Hunter,
had you had previous conferences with actuaries concerning the
problem ?
Dr. Hunter. Not that I remember, but we had discussions from
time to time.
1 See appendix, p. 4840, at p. 4842.
4572 CONCENTRATION OF ECONOMIC POWER
Mr. Gesell. And you thought at this time that the situation had
reached a stage where it was desirable to bring it to this group for
consideration ?
Dr. Hunter. Yes.
Mr. Gesell. Why should the fact that two companies, the Mutual
Benefit and the Mutual Life, having slightly different programs, kill
any movement to curtail the prolonged settlements?
Dr. Hunter. It didn't.
Mr. Gesell. The memorandum states that you wanted to start a
movement to curtail these provisions for prolonged settlement, but the
Mutual Benefit and Mutual Life practically killed the movement.^
Dr. Hunter. May I ask who wrote that? I don't think I did.
Mr. Gesell. This is a memorandum of Mr. Laird's, which is in the
record. At that time was the program delayed because of the position
of those two companies ?
Dr. Hunter. I doubt that.
Mr. Gesell. What was the first step in the program to bring about
this curtailment ?
Dr. Hunter. I think that the first step was an analysis by a number
of companies of the complex and long-continued settlements which
they had. My memory is that a number of companies did make such
an analysis. I know our company did.
Mr. Gesell. Do you recall that at the meeting of October 24, 1935,
as indicated by "Exhibit No. 768" ^ of the record, a small committee of
actuaries and lawyers was appointed?
Dr. H'rNTER. Yes.
Mr. Gesell. The memorandum states [reading from "Exhibit No.
768"] :
A small comiuittoe of actuaries and lawyers will get together in New York
to see what restrictions, if any, can be agreed upon. In the meantime the five
Hartford companies will have a meeting consisting of one actuary and one lawyer
from each company, and then the five will send two representatives to the meeting
in New York.
Dr. Hunter. Yes.
Mr. Gesell. I take it from that that the program was to be initiated
both by the studies of this committee and by a meeting of a small group
of actuaries representing a selected number of the leading companies ?
Dr. Hunter. Yes.
Mr. Gesell. Do you recall what developed out of the appointment
of that committee ?
Dr. Hunter. There were two meetings at my office, but so far as I
remember, the differences were so great that we didn't come to any
common understanding.
Mr. Gesell. Will you tell us what those differences were, Dr. Hunter,
as between companies? Give us some ideas of the discussions that
took place.
Dr. Hunter. That is rather difficult ; it is so long ago. I know my
opinions were quite positive at that time on certain restrictions. I
think one of them was that it was inadvisable to leave the proceedings
of life-insurance policies at interest during the life of more than
two beneficiaries.
' See appendix, p. 4842.
» Ibid, p. 4844.
CONCENTRATION OF ECONOMIC POWER 4573
Mr. Gesell. I understood you to say that there were differences, and
no progress was made.
Dr. Hunter. That was one of the differences. Some of the com-
panies believed that that should be done, others didn't. I might add
one more that comes to my memory, and that was that some companies
provided that on remarriage the share of the wafe should go to the
children, that the wife had forfeited her rights, and there was a very
distinct difference of opinion regarding that.
Mr. Gesell. Am I correct in saying that at that tinie there was, as
between individual companies, a very broad difference of opinion ?
Dr. Hunter. Oh, yes.
Mr. Gesell. I take it that the purpose of the meetings was directed
toward bringing about some uniform rules restricting the forms of
settlement options.
Dr. Hunter. I would rather say, instead of uniform rules, that it
was the purpose of the meeting to restrict the unduly complicated
and long-continued settlements.
Mr. Gesell. And your desire was that all companies would enter
into such restrictions, was it not?
Dr. Hunter. Not necessarily, but that the worst of the long-term
continued ones should be eliminated.
Mr. Gesell. And so far as the elimination of those settlement op-
tions is concerned, they should be eliminated by a representative group
of companies.
Dr. Hunter. That proved not to be so.
Mr. Gesell. That was what you were working for at that time.
Dr. Hunter. Not so far as I was personally concerned, because we
had decided practically what we would do. It wasn't decided until
later. It was impossible, Mr. Gesell, for companies to come together
for uniformity when there was such a wide difference of opinion as to
what should be done. There might be a few come together, but uni-
formity in that respect was impossible.
Mr. Gesell. And the lack of uniformity at that time resulted in
many companies not putting on any restrictions on their modes of
optional settlement?
Dr. Hunter. I believe so. Remember, Mr. Gesell, we are talking
about outside contracts.
Mr, Gesell. Yes; we are talking about rules restricting the forms
of settlement options.
Dr. Hunter. Special settlement options, as we called them.
Mr. Gesell. Do you recall the meeting which was referred to in this
memorandum,^ namely, a meeting among representatives of the Hart-
ford companies and representatives of the five large New York
companies?
Dr. Hunter. There was a meeting, two meetings in my office at which
two of the Hartford companies were present, an actuary and a lawyer.
I don't think it was the five largest companies, because, as I remember
it, the lawyer from the Northwestern Mutual was among us, but there
was such a meeting.
Mr. Gesell. I have a memorandum from the files of the Connecticut
General which records a meeting held on November 14, 1935.- It
states [reading from "Exhibit No. 783"] :
1 "Exhibit No. 768," appendix, p. 4844.
=> Entered later as "Exhibit No. TS."!." See appendix, p. 4858.
4574 CONCENTRATION OF ECONOMIC POWER
There were present Messrs. Hunter and Cramer, of the New York Life ; Messrs.
Murphy and Schelker, of the Equitable ; Messrs. Craig and Keyes, of the Metro-
politan ; Mr. Strong, of the Mutual Life ; Mr. Percy Evans, of the Northwestern ;
and Messrs. Laird and Yost, representing the Hartford companies.
Dr. Hunter. My memory is wrong. I thought Mr. Evans was
their counsel ; maybe at the second meeting the counsel was present.
Mr. Gesell. How did it happen these particular companies came
to this meeting, Dr. Hunter ? This was a smaller meeting, was it not,
than the customary intercompany meetings you had been holding ?
Dr. Hunter. These names were suggested at the meeting which
preceded that.
Mr. Gesell. Would it be fair to say this was really a subcommittee
of the main conference?
Dr. Hunter. Yes ; I think that is correct.
Mr. Gesell. Attended by representatives of companies particularly
interested in the problem.
Dr. Hunter. Yes.
Mr. Gesell. Do you recall that the Prudential was invited to this
meeting ?
Dr. Hunter, No ; I can't recall.
Mr. Gesell. Does that letter refresh your recollection, Dr. Hunter?
Dr. Hunter. Yes.
Mr. Gesell. The letter was addressed to Mr. J. F. Little, vice presi-
dent and actuary of the Prudential, signed by Dr. Hunter, dated
November 6, 1935, and states [reading from "Exhibit No. 781"] :
We are having a meeting with regard to special agreements under settlement
options at my oflBce on Thursday, November 14, at 10 o'clock. ' There will be two
representatives each from the Metropolitan, Equitat)le, Mutual, and New York
Life. If you care to be present we shall be glad to have you, but I understood
you to say that it was unlikely that you would make any change in your present
liberal plans.
Do you recall receiving a reply to that letter. Dr. Hunter ?
Dr. Hunter. No.
Mr. Gesell. I show you this document and ask you if that refreshes
your recollection.
Dr. Hunter. Yes.
Mr. Gesell. You recall that as a repfy you received ?
Dr. Hunter. Yes,
Mr. Gesell. The letter is dated November 12, 1935, and states as
follows [reading from "Exhibit No. 782"] :
In reply to your letter of the 6th instant, we will not have a representative
at the meeting in your office next Thursday, as the smaller committee will prob-
ably proceed more expeditiously.
You did not understand me rightly in supposing that we are not prepared to
make any change in our present rather liberal rules. I have felt for a long time
that we, under the stress of competition, have become rather too liberal in two
directions; first, in undertaking certain arrangements that perhaps we should
refuse and, second, in allowing very complicated and intricate settlements, some
of which have already come through to the claims department and had that
department very much concerned as to just what the complicated settlement really
meant.
If some reasonable rules as to what may and may not be allowed can be adopted
generally, we shall be glad to go along. We have already in some cases refused
to adopt complicated arrangements that we felt would cause diflSculty and pos-
sibly legal action, but we still do allow arrangements that are quite troublesome
CONCENTRATION OF ECONOMIC POWER 4575
to handle when death occurs. A general understanding to refuse to allow complex
settlements would probably be helpful.
I wish to offer this correspondence for the record.
Acting Chairman Keece. It may be admitted.
(The letters referred to were marked "Exhibits No. 781 and No. 782"
and are included in the appendix, p. 4858.)
Mr. Gesell. I would like also to offer at this time the memorandum
from the files of the Connecticut General with reference to the meet-
ing of November 14, 1935.
Acting Chairman Keece. It may be admitted.
(The memorandum referred to was marked "Exhibit No. 783" and
is included in the appendix on p. 4858. )
Mr. Gesell. I believe you said there were two meetings at which a
lack of uniformity was shown.
Dr. Hunter. Yes.
Mr. Gesell. We have already considered one, that of November 14,
1935. Do you recall that the next meeting was on June 30, 1936 ?
Dr. Hunter. I remember a long time elapsed before we took up that
subject again.
Mr. Gesell. And there was still disagreement at the 1936 meeting,
was there not — the June 30, 1936, meeting ?
Dr. Hunter. Yes.
Mr. Gesell. Do you recognize this document as a memorandum
which you prepared summarizing what took place at that meeting ?
Dr. Hunter. Yes ; I recognize that.
Mr. Gesell. Under the heading "Settlement agreements." you state:
There was a unanimous opinion that in our settlement agreements we were
practically preparing the wills of a great many persons, some of them so involved
that lawsuits were likely to determine their interpretation. A committee of
actuaries and lawyers in charge of the settlement agreements was held about a
year ago but produced no results. Each actuary agreed that he would try to
lay down certain cardinal principles in the hope that some understanding could
be reached. One of these was that the first beneficiary could leave the proceeds
on deposit during her lifetime but the second beneficiary must select an option
which would deplete the capital.
Then I take it that the committee to which you refer was the com-
mittee th^t was appointed sometime back, which was referred to in
"Exhibit No. 768,"^ as having been appointed at the meeting of
October 24, 1935.
Dr. Hunter. It would contain probably the same actuaries but not
the lawyers of the men from the special settlements departments.
Mr. Gesell. You are referring to a committee of actuaries and
lawyers, a meeting that "was held about a year ago and produced no
results."
Dr. Hunter. Yes; that is right.
Mr. Gesell. That would be the one appointed on October 24?
Dr. Hunter. That is right.
Mr. Gesell. Have you any idea as to why they produced no results ?
Dr. Hunter. Possibly the more professions you get together, the
more difficult it is to come to an understanding.
Mr. Gesell. You mean you feel the presence of the lawyers on the
committee held the thing up ?
1 See appendix, p. 4844.
4576 CONCENTRATION OF ECONOMIC POWER
Dr. Hunter. I wouldn't go as far as that, but it made it even more
difficult to come to an understanding.
Mr. Gesell. When you say they accomplished nothing, I take it
you mean that they were unable to initiate any uniform program for
restricting these settlement options.
Dr. Hunter. Yes.
Mr. Gesell. Do you recall who was present at this meeting of
June 30, 1936?
Dr. Hunter. No; unfortunately.
Mr. Gesell. Reading from a memorandum from the files of the
Metropolitan, I ask you whether this refreshes your recollection as to
who was present :
At the conference held at the New York Life's office Tuesday, June 30, a number
of the companies were represented, including not only the larger New York com-
paniefe but the Penn Mutual, Mutual Benefit, Union Central, Sun Life, New
England Mutual, Massachusetts Mutual, Travelers, Aetna, Provident Mutual,
Connecticut General, Northwestern, National of Vermont, Phoenix, John Hancock,
United States, and Guardian.
Dr. Hunter. Yes; that sounds reasonable.
Mr. Gesell. That sounds like the group that was present?
Dr. Hunter. Yes.
Mr. Gesell. At that meeting, Dr. Hunter, was a new committee
appointed ?
Dr. Hunter. I can't remember.
Mr. Gesell. There was a committee, a subcommittee appointed to
consider this problem of revising the practice on optional settlement,
was there not ?
Dr. Hunter. I know there was a committee appointed, a subcom-
mittee, but the date of that appointment I couldn't tell.
Mr. Gesell. Who was the head of that committee ?
Dr. Hunter. If you mean the head of the committee I have in
mind, it was Mr. Murphy.
Mr. Gesell. May I ask if you will step down for a moment while
I call Mr. Murphy ?
Acting Chairman Reece. Do you solemnly swear the testimony you
are about to give in this proceeding shall be the truth, the whole
truth, and nothing but the truth, so help you God?
Mr. Murphy. I do.
TESTIMONY OF RAY D. MURPHY, VICE PRESIDENT AND ACTUARY,
EQUITABLE LITE ASSURANCE SOCIETY OF THE UNITED STATES,
NEW YORK, N. Y.
Mr. Gesell. Will you state your full name, sir?
Mr. Murphy. Ray D. Murphy.
Mr. Gesell. Are you an officer of the Equitable Life Assurance
Co.?
Mr. Murphy. Vice president and actuary.
Mr. Gesell. Do you recall that you were at one time head of a
committee to revise practices on optional settlements?
Mr. Murphy. Yes.
Mr. Gesell. When was that committee appointed?
Mr. Murphy. According to my best recollection, February 16,
1937.
CONCENTRATION OF ECONOMIC POWER 4577
Mr. Gesell. That was at an intercompany meeting held on that
date?
Mr. Murphy. Yes.
Mr. Gesell. Were you present at that meeting ?
Mr. Murphy. I beheve I was.
Mr. Gesell. Will you tell us what took place ?
Mr. Murphy. My best recollection is that in discussing the matter,
it was very difficult, with a large group, to consider all possible
suggestions for reasonable limitations on these combinations of modes
of settlement that would still preserve the essential services to the
beneficiaries and yet not go to what a great many people considered
a bit dangerous point, and in order to have a working basis that was
more practicable, it was felt that if they had a committee, a sub-
committee, that they could probably in a more intimate way discuss
the matter and get to some sort of recommendations which they
could in turn pass over to the group.
Mr. Gesell. You mean that there was such a variety of opinion
at the big meeting that it was felt desirable to have a smaller com-
mittee which would make recommendations for the consideration
of the larger group ?
Mr. Murphy. Yes. As I remember the circumstances, there was
a very broad opinion that the companies had gone too far, which
was being emphasized by the lowered interest rates and the very
rapid increase in the leaving of such funds with the company.
Mr. Gesell. Can you tell us who the other members of the com-
mittee were, Mr. Murphy. '
Mr. Murphy. Yes; there was a Mr. Strong; of the Mutual Life;
Mr. Marshall, of the Provident Mutual; Mr. Kineke, of the Pru-
dential.
Mr. Gesell. How do you spell that, please?
Mr. Murphy. K-i-n-e-k-e. And Mr. Laird, of the Connecticut
General.
Mr. Gesell. Your committee issued a report, did it not, after study-
ing the problem?
Mr. Murphy. It did; yes.
Mr. Gesell. I will come to the report in a moment. Will you tell
us what type of studies were made in the preparation of this report,
just what the committee did, in other words?
Mr. Murphy. The committee met on two occasions, as far as I can
recall, and in the interval considered the various tentative sugges-
tions that had been brought out and consulted with, presumably, those
who had intimate contact with the administration of the clauses in
connection with the practicability of various solutions that would
still appear to serve the essential needs of tha policyholders without
involving such extensive guaranties thnt would go not only beyond
.the life of the insured but also beyond the life of the first beneficiary.
Mr. Gesell. Then after consulting with representatives of the
various companies, the report was prepared, was it not, and dis-
tributed to the companies which had attended the meetings of the
conference ?
Mr. Murphy. Yes; there was an intervening matter, because on
the 30th of April 1937 while we were considering this matter, the
superintendent of insurance of New York wrote a letter to mv com-
pany, and I suppose he did probably to five others since he was
4578 CONCENTRATION OF ECONOMIC POWER
suggesting consideration of the same problem, and said that the
department was considering the problem and suggested that a good
way to begin would be to have technical men from six of the New
York City companies consider the matter and then confer with the
department. So that that also was taking place at vhe same time.
Mr. Gesell. Have you a copy of his letter with you ?
Mr. Murphy. I have.
Mr. Gesell. May I see it, please?
Mr. Murphy. I will be glad to read it if you like.
Mr. Gesell. Very well.
Mr, Murphy (reading from "Exhibit No. 784") :
The suggestion that I appoint a committee composed of jepresentatives of the
life companies and experts of our own department to study the question of
policy loans and interest on policy loans has met with general approval. The
matter of the numerous options and the guaranteed rate of 3-percent interest
has also been brought to my attention with the suggestion that the department
study the situation in the light of the preparation of the new code.
If I might interpose there, it will be recalled that the department
had appointed Professor Patterson, of Columbia University, to pre-
pare complete recodification of the New York insurance law. They
were at work on that problem and his reference here is to whether
there should be some changes in the law in order to bring some restric-
tions on this very question of extended beneficiary provisions. [Read-
ing further from "Exhibit No. 784" :]
Since these two subjects are closely related, I shall ask the committee to
consider both.
It is my thought that the original committee should be comparatively small, and
should be composed largely of technical men ; and that, when some tentative
recommendation has been agreed upon, we call in the executives of all of the life
companies to discuss the situation. The representatives of the department will
be Deputy Superintendent Paul Taylor ; Dillon F. Broderick, chief of the life
bureau ; and Mr. Charles Dubuar, actuary. Mr. Gardner, counsel to the depart-
ment, will also give such service to this committee as may be necessary.
The following companies are requested to designate someone to form the
original committee : Metropolitan, New York Life, Equitable, Mutual Life, Home
Life, Guardian Life.
It is the understanding that this committee will be enlarged and that all com-
panies will be represented before any definite action is taken.
I wish to thank you for your help and cooperation in this matter.
Mr. Gesell. Who signed that letter, Mr. Murphy ?
Mr. Murphy. It is signed in the name of Louis H. Pink, Avith some
initials under it, but the typist has indicated the initials "L. H. P."
so I suppose he dictated it.
Mr. Gesell. Mr. Murphy, I understand that this suggestion which
came to your company, and you presume to the other companies, was
with a view to making recommendations to the superintendent of in-
surance for the provisions which might be included in the New York
code.
Mr, Murphy. Yes. I had a subsequent discussion with the super-
intendent which verified the fact that the question in his mind was
whether such provision should be put in because, very obviously, in
his opinion, the companies through this, what I may call compounding
of beneficiary clauses, had gone further than appeared in his opinion
to be good practice, considering the general welfare and safety of the
whole body of policyholders.
CONCENTRATION OF ECONOMIC POWER 4579
Mr. Gesell. He was interested in writing provisions into the New
York law which would eliminate some of the abuses which he thought
might have developed.
Mr. Murphy. He was until I told him about our meetings and what
we were studying and that the problem seemed so complicated that
it might be rather difficult to draft statutory provisions which would
turn out to be wise, and that it seemed to me that it might be more
practicable to let the companies see whether they could not come to a
reasonable consensus of opinion as to what limitations would be "wise,
and then follow that process of, what I may call, voluntary action
rather than specific statutes at a time when it is very difficult to tell
just what these specific statutes should be.
He thereupon said that he thought that that probably was a satis-
factory way to handle the matter, and would I keep him advised as to
what the reconmaendations of this group were, which, of course, I
duly did.
Mr. Gesell. In other words, he departed somewhat from the pro-
gram he outlined in his letter of April 30 at your suggestion in order
to see what the companies could work out on their own hook with
respect to this problem.
Mr. M uRPHY. Yes.
Mr. Gesell. Did you urge upon him that he adopt that procedure 'f
Mr. MuKPHY. I suggested it to him as seeming to me a wise pro-
cedure in a very difficult and complicated situation.
Mr. Gesell. Was one of the reasons, aside from the complexity of
the situation, Mr. Murphy, the fact that the companies subject to the
jurisdiction of the New York commissioner had some concern lest
restrictions be placed upon them by the New York commissioner which
would not be placed upon companies not under his jurisdiction ?
Mr. MuEPHY. That was not my concern, if I may speak for mj^self .
Mr. Gesell. Was it expressed as a concern of anyone at that time ?
Mr. MuEPHY. I don't recall hearing it.
Mr. Gesell. It certainly is a factor in the situation, isn't it?
Mr. Murphy. Not necessarily; because if such statutes had been
drawn, in view of what I interpreted as a very widespread feeling that
there should be further restrictions on this matter, it is quite possible
that the companies that migh^^ not be subject to the statute might,
nevertheless, have done voluntyj-ily the same thing.
Mr. Gesell. It would have been voluntary on their part.
Mr. Murphy. Oh, yes.
Mr. Gesell. I would like to offer the letter of Mr. Louis Pink, which
has been read by the witness, for the record.
Acting Chairman Reece. It may be admitted.
(The letter referred to was marked "Exhibit No. 784" and is included
in the appendix onf^p. 4860.)
Mr. Gesell. I show you a document entitled "Report of Subcom-
mittee Appointed at Intercompany Conference of February 16, 1937,
Revision of Practice on Optional ^tlementa." This is dated May 28,
1937. I ask j^ou if that is a correct copy of the report which your
subcommittee issued ?
Mr. Murphy. Yes ; that appears to be a correct copy.
Mr. Gesell. I would like to read the first paragraph of the report,
which states [reading from "Exhibit No. 785"] :
There is a growing realization that current practices under optional settlements
need revision. Many companies now desire to solve the problems of unsound
124491 — 40— pt. 10 29
4580 CONCENTRATION OF ECONOMIC POWER
practice which have been encouraged by unwise competition in the past and
greatly accentuated by the conditions of the last 3 years.
You state these problems arise in four directions and refer to the
guarantee of interest over a long period, the increased complications
of the forms, the experience of the company with life income options,
and the great increase in volume, by which I suppose yOu mean the fact
that more and more policyholders have wanted to take advantage of
these various modes of settlement in recent years.
Mr. MuKPHY. Particularly because where the insured had not a
g revision put on his policy for such a settlement with his bene-
ciary, the beneficiaries, having the privilege of taking such settle-
ments voluntarily, were very obviously using present interest condi-
tions as a reason for leaving the sums in that way to a very abnormal
amount.
Mr. Gesell.. In other words, the guarantee on the interest at that
time was in some cases, at least, higher than what was being earned,
and therefore they were taking advantage of leaving their funds
with the companies ?
Mr. Murphy. Not higher than what was — that is, the guarantee
was liot higher than what was being earned, if you mean the life
insurance companies.
Mr. Gesell. No ; I don't mean that. I mean higher than what the
policyholder could anticipate earning on the outside.
Mr. Murphy. Apparently there was great question whether he
could earn a satisfactory rate on the outside, and was therefore leav-
ing the proceeds with the company.
Mr. Gesell. Your report recommended, did it not, 11 specific rules,
and a supplementary rule in addition?
Mr. Murphy. Yes.
Mr. Gesell. Now, reading from the last portion of the report, it
states, does it not, under the heading [reading further from "Exhibit
No. 785"] :
Steps in Preparation For Inteecompant Conference on June 3
It represents what the subcommittee considers a very reasonable minimum set
of changes required to malie progress in approaching a solution of the problems
now encountered in optional settlements. In preparation for this conference
two important steps are suggested :
(a) Progress can only be made if individual companies are willing to waive
small differences in viewpoint because of the much greater advantage which
will accrue to all through a sound solution of these problems.
(&) At this stage it is most desirable that each representative come to the
conference invested with authority to speak for his company as to its willingness
to accept each of the above rules individually, provided that the great majority
of the other companies are willing to do likewise.
TTie changes recommended are for the good of the life insurance business
and the benefits of policyholders as a whole. Widely adopted, they would in
our judgment have practically no effect on the sale of life insurance or the
meeting of legitimate and reasonable needs of clients. Thus our subcommittee
strongly recommends them for your consideration.
I offer this for the record.
Acting Chairman Reece. It may be admitted.
(The report referred to was marked "Exhibit No. 785" and is
included in the appendix on p. 4861.)
Mr. Gesell. This all seems to be leading up to a meeting on June
3. Was there such a meeting held ?
CONCENTRATION OF ECONOMIC POWER 4581
Mr. Murphy. On June 3, 1937 ,- yes, .
Mr. Gesell. Where was that meeting held?
Mr. Murphy. I think in the office of the New York Life.
Mr. Gesell. Do you recognize this schedule which I show you as
a copy of a paper from your files recording who was present at that
meeting.
Mr. Murphy. That looks correct.
Mr. Gesell. There were at least some twenty companies at that
meeting, were there not?
Mr. Murphy. Yes. My impression is there were a little more than
that.
Mr. Gesell. I wish to offer this document for the record.
Acting Chairman Reece. It may be admitted.
(The list referred to was marked "Exhibit No. 786" and is included
in the appendix on p. 4865.)
Mr. Gesell. What happened at the meeting of June 3 ?
Mr. Murphy. This was, of course, a list of recommendations by
this small group as to what we would consider minimum practice.
There was considerable discussion, as I remember it, of those recom-
mendations, and then there were, I think, one or two minor changes ^
made in the recommendations at the large conference, because of one
or two small points that were brought out where we felt that the sug-
gestions could be altered and give a little more service without any
serious detriment.
Mr. Gesell. In other words, the recommendations were before each
person present at the intercompany conference ?
Mr. Murphy. As I remember it ; yes.
Mr. Gesell. They were discussed and considered in a general dis-
cussion, and some slight changes in wording were made.
Mr. Murphy. Yes.
Mr. Gesell. What came out of the meeting, Mr. Murphy? Did
they agree to follow the recommendations, or did they indicate that
they were not in complete accord with them ?
Mr. Murphy. As I remember it, there was an indication of what
might be called rather broad approval of the idea. I think I expressed
myself perhaps as well as I could on that in writing to the New York
Insurance Department on Juna 9, where, to quote from my letter, I
said :
Naturally not all the companies agreed to all tlie points, but there was suf-
ficient unanimity to indicate that the program will be largely put into effect by
the great majority of these companies.
I think that description to the New York department is a fair
resume of the conferences as I could make.
Mr. Gesell. Was there a vote taken on each of these recommenda-
tions, Mr. Murphy ?
Mr. Murphy. I don't remember the procedure — ^you mean as to
whether each one approved or disapproved?
Mr. Gesell. What they would do or wouldn't do; that is correct.
Mr. Murphy. I doubt if at that time everybody was willing or
in any position to commit himself as to whether his company would
act upon it or not. It was largely a consensus of opinion. Probably
in some cases it did indicate rather definitely that that company
would probably do so and so with respect to such and such a point.
4582 CONCENTRATION OF ECONOMIC POWER
Mr. Gesell. In sending out the call for the meeting you requested
that each man come qualified to speak for his company and commit
his company, did you not ?
Mr. MuBPHT. Yes. My recollection is as we discuss it that probably
the majority of companies were fairly definite in their expression
as to what they would undoubtedly do, probably a few companies
reserving their opinions.
Mr. Gesell. May I refresh your recollection with respect to this
matter of voting from a memorandum from the files of the Connecticut
General ? It refers to the actions of various companies at the meeting
of June 3. It states, for example, under paragraph 1 [reading from
"Exhibit No. 787"] :
The share of a secondary beneficiary following a primary beneficiary must be
paid in cash at the second beneficiary's death. In other words, stick to "two
lives in being" which is all that is permitted in New York and possibly also
another State or so.
It says :
Mr. Laird's notes show that of the 25 companies represented at the June 3
meeting, 10 voted "no," and 4 "were on the fence." Such a restriction is in
accordance with our present practice.
On another provision he says :
Twenty voted "yes"; 4 voted "no," and 1 was "on the fence."
On the next provision :
Twenty-five voted "yes."
Next,
Twelve companies voted "yes," 3 voted "no," 9 were "on the fence."
Does that refresh your recollection as to what took place at this
meeting ? There was a vote, wasn't there ?
Mr. Murphy. When you say a vote, of course I don't wish to quarrel
about terms, but what is apparently meant in Mr. Laird's letter was
not a vote of what a majority would determine, but what each com-
pany would do.
Mr. Gesell. You were attempting to find out at the meeting, first of
all, how many companies were going to follow each recommendation.
Mr. Murphy. Yes ; we would have liked to have known that.
Mr. Gesell. And if that was the purpose, the natural thing to do was
to ask them, and whether you call it a vote or whether you call it a
consensus of opinion or whatever you call it, the vote is a method of
each company expressing what it will do.
Mr. Murphy. And also, of course, we were very much interested in
carrying through on this idea that the companies should pretty defi-
nitely do something with respect to these matters, and which opinion,
apparently, was very much in the minds of the New York department.
Mr. Gesell. And you <;ame away from the meeting with a feeling
that a great majority of the companies would adopt at least some of
the recommendations?
Mr. Murphy. Yes. . There would be a tendency in that direction,
although not entirely uniform.
Mr. Gesell. I would like to offer this memorandum from the files
of the CJonnecticut General.
Acting Chairman Reece. It may be admitted.
CONCENTRATION OF ECONOMIC POWER 4583
(The memorandum referred to was marked "Exhibit No. 787" and
is included in the appendix on p. 4866.)
Mr. Gesell. Following the meeting, am I correct in stating that
copies of the revised recommendations were sent to each of the
companies?
Mr. Murphy. That's right.
Mr. Gesell. Do you recognize these two sheets as the revised recom-
mendations ?
Mr. MuKPHY. Yes ; that appears to be the sheet.
Mr. Gesell. I wish to oflfer these for the record.
Acting Chairman Reece. They may be admitted.
(The sheets referred to were marked "Exhibit No. 788" and are
included in the appendix on p. 4867.)
Mr. Gesell, Now may I ask you if you will step down for a moment,
Mr. Murphy? I will want you back later on, unless the committee
has any questions. (None.)
Dr. Hunter, will you take the stand, please ?
TESTIMONY OF DR. AETHUK HUNTER, CHIEF ACTUARY AND VICE
PRESIDENT, NEW YORK LIFE INSURANCE CO., NEW YORK,
N. Y. — Resumed
Mr. Gesell. Dr. Hunter, I want to ask you if you recognize these
three sheets which I hand you, the first being a letter signed by your-
self to Mr. Laird, dated August 6, 1937, as correspondence which you
had with Mr. Laird subsequent to the meeting of June 3, which Mr.
Murphy has just been discussing. Do you recognize that as the
correspondence ?
Dr. Hunter. I do.
Mr. Gesell. I wish to read it for the record, the first being a letter
of Dr. Hunter to Mr. Laird, dated August 6, 1937, and stating [read-
ing from "Exliibit No. 789"] :
At the meeting held at my office about 2 months ago with regard to special-
settlement agreements practically all the companies stated that they intended to
change their practice. If you have issued instructions to your agents on that
line, I shall be glad to have a copy of the circular. You already have a copy of
our procedure as outlined in my letter of last April.
I take it that meant your company had already adopted the recom-
mendations, had they not ?
Dr. Hunter. No, sir. We had adopted our own reconmaendations
before these came out, and we were not present at that meeting and
were not influenced by anything that happened at the meeting.
Mr. Gesell. Mr. Laird's letter to you states [reading further from
"Exhibit No. 789"] :
As you know, we are in sympathy with the movement to simplify special-
settlement agreements, but we have not yet issued any circular to agents.
We are now working on a proposed announcement, but we should like to be
sure that similar action will be taken by a nimiber of companies of about our
size. As we recently adopted more conservative settlement options in pur new
policies, we feel that some of the other companies in New England should take
the lead in this other conservative step.
Perhaps another general meeting would clear the air and bring, more concerted
action.
4584 CONCENTRATION OF ECONOMIC POWER
And your letter in reply to him of August 12 states [reading
further from "Exhibit No. 789"] :
Your letter of the 11th instant was duly received.
It is apparent that a number of companies are slow in sending their circulars
to the field, although three have told me that they have already put the rule
into effect without notification of it. It may be that other companies of your
size are waiting for a leader. Why don't you take that position with them?
If there were a request for another meeting I should be glad to call it, but
it must be in the form of a "round robin," as there must be no implication that
I am asking the other companies to pull our chestnuts out of the fire. We have
taken our stand and intend to abide by it whatever other companies may do.
Confidentially, our leading agents realized that our action was a proper one,
and we are having their support, although occasionally they are finding it very
tough in competition.
I offer the correspondence for the record.
Acting Chairman Reece. It may be admitted.
(The letters referred to were marked "Exhibit No. 789" and is
included in the appendix on p. 4868.)
Mr. Gesell. I gather from that correspondence, Dr. Hunter, that
in spite of this meeting of June 3, at which some rather general opinion
was expressed, the companies were not all adopting the reconmienda-
tions which had been made by Mr. Murphy's committee.
Dr. Hunter. Yes.
Mr. Gesell. Am I correct in gathering from the last letter which
I read that this question of settlement options did have some com-
petitive importance? In other words, that companies with more
liberal settlement-option provisions stood, perhaps, to gain in the
sale of insurance as against companies which had stricter provisions ?
Dr. Hunter. Yes.
Mr, Gesell. If that is correct, I take it, it is also correct that one
of the great interests of the companies attending these conferences
was to bring about a unifonnity of position on the part of 'he com-
panies, so that that competitive advantage would not accrue to any
particular company.
Dr. Hunter. To such an extent as it was possible. Quite evidently
it wasn't possible from the actions taken by certain companies.
Mr. Gesell. It was not possible at this time.
Dr. Hunter. As you remember, you read two companies would not
definitely make any changes at all; two quite prominent companies.
Mr. Gesell. I have no further questions for Dr. Hunter at this
tinie.
Dr. Hunter. May I remind you that our company put this program
into effect — its own program of restriction into effect — in April 1937 ;
that I had nothing to do with any of the arrangements prior to tluit
time, and that I appeared and acted only as chairman in this matter.
My reference to pulling the chestnuts out of the fire, as you can under-
stand, was so that other companies might not feel that I was trying
to induce others to do what w^e had voluntarily done the first in the
field.
Acting Chairman Reece. Are there any questions, Mr. Henderson ?
Mr, Henderson. No.
Mr. Gesell. The next witness is Mr. Marshall.
Acting Chairman Reece. Do you affirm that the testimony you are
about to give in these proceedings shall be the tfiftth, the whole truth,
and nothing but the truth, so help you God ?
Mr. ^Marshall. I so affirm.
CONCENTRATION OF ECONOMIC POWER 4585
TESTIMONY OF EDWARD WAYNE MAESHALL, VICE PRESIDENT
AND ACTUARY OF THE PROVIDENT MUTUAL LIFE INSURANCE
CO., PHILADELPHIA. PA.
Mr. Gesell. "Will you state your full name, please, sir ?
Mr. Maeshali.. Edward Wayne Marshall.
Mr. Gesell. Are you connected with the Provident Mutual Life
Insurance Co.?
Mr. Marshall. Yes; as vice president and actuary.
Mr. Gesell. How long have you been with that company ?
]\Ir. Marshall. I first became connected with the company in 1911 ;
resigned in 1915 ; became connected again in 1920.
Mr. Gesell. You were a member, were you not, of the committee
of which Mr. Murphy was chairman, which was appointed at the
meeting of February 27, 1937, to consider recommendations for^
uniform restrictions on settlement options?
Mr. Marshall. Yes.
Mr. Gesell. I wish to show you a letter dated October 22, 1937,
addressed to Mr. Murphy, signed by yourself,^ and ask you if you
recognize that as a letter which you wrote?
Mr. Marshall. I wrote that letter.
Mr. Gesell. The letter is marked "Confidential"; is addressed to
Mr. Murphy, and states as follows [reading from "Exhibit'No. 790"] :
At the intercompany conference on optional settlements, held at. Swampscott
on October 14, it was revealed that at least two more companies are about to
announce rules Similar to those discussed at the conference last June. Already
at least six companies have adopted the rules, including the Aetna, Equitable
of Iowa, Guardian, Metropolitan, New York Life, and Prudential. It is
becoming apparent that some such rules are desirable for the good of the
business, and that it would be well for the various companies themselves to
take measures to eliminate any weaknesses and dangers now inherent in
optional settlement practice.
Quite a number of the representatives at the conference indicated the readi-
ness of their respective companies to adopt the rules provided a majority of the
companies of their own group did likewise. Some of them however were
reluctant to "pioneer" in the absence of definite information regarding the
official attitude and intentions of other companies.
Accordingly the conference requested me to send to each of the 27 companies
represented a questionnaire, the answers to which would indicate definitely the
official attitude of the. company on the subject, based on the decision of its
interested executives. This questionnaire would be returned to me so that a
summary could be made of the attitude of the individual companies and dis-
tributed at once to all the companies represented.
The conference also decided that another conference should be held on
November 1.5 in New York City at 10 in Mr. Bassford's office, in order to give
what was hoped would be a decisive turn to the whole subject. At that con-
ference each company representative should be empovrered to state finally the
program of his company in the light of the information derived from the above-
mentioned summary. It is also hoped that the subcommittees stiidyiug the
basis of the life-income option will then be prepared to give a conclusive report
for the consideration of the entire group.
In accordance with this plan, please return one of the enclosed questionnaires
to me before November 3' in order that the compilation of the answers may be
made and forwarded to you well in advance of the meeting on November 1.5.
Your cooperation in returning the questionnaire by that date will be greatly
appreciated as you can see that the compilation itself will require considerable
time.
1 Subsequently entered as "Exhibit No. 790." See appendix, p. 486&.
4586 CONCENTRATION OF ECONOMIC POWER
Now, that letter refers to an intercompany conference on optional
settlements, held at Swampscott on October 14. I take it you were
present at that conference, were you not?
Mr. Marshall. Yes.
Mr. Gesell. Will you tell us what the discussions with respect to
optional settlements were at that conference, who called it, and so
forth?
Mr. Marshall. In order to explain that, it will be necessary to give
the background of our own company, the Provident Mutual, and a
good many other mutual companies which had the same problem.
Our company was mutual. It had no stockholders; its only interest
in determining questions such as this was to try to make each group
work -as nearly as possible for the benefit of the whole group of
policyholders. We had no desire to discriminate in favor of one
group and thereby throw ,a heavy burden of cost on the other group.
For years the Provident Mutual had been interested in a conserva-
^'ve attitude toward optional settlements practices, dating far back
beyond the 1935 date mentioned in the testimony earlier. In fact,
I think it was about 1920 that one of our representatives was present
at a conference of lawyers at which this subject was discussed.
It was recognized then that the trust-company problem would be-
come very important in the life-insurance business if allowed to get
out of hand. Accordingly some rules were then adopted, but as the
volume of this optional settlement business was so small then, they did
not get very much attention. A few companies adopted some rules,
some of which appear in these rules which have been referred to in
this hearing. However, the matter more or less drifted with, as I
say, some conservatism on the part of companies but a good variance
in practice.
But when the conditions of 1932 to 1935, of which you have heard,
came along, it was quite obvious that for the good of the business,
which after all means ini a mutual company the good of the general
body of policyholders, that something must be done because this
optional settlement business was not only in itself causing grave
complexities far beyond the policy contract, which seemed uncalled
for to these mutual companies, but it was throwing a burden of
cost on the general body of policyholders for the benefit of the rela-
tive few, and it seemed wise to get a scalpel and cut off some of this
growth which had occurred outside of the policy contract and which,
in the minds of many, had no place there.
Mr. Gesell. Those are the factors
Mr. Marshall (interposing). May I go on, please?
Mr. Gesell. Just a minute, please. Those were the factors which
were discussed in some detail in Mr. Murphy's report, were they not?
Mr. Marshall. I am giving this background to explain why I
became sort of a clearing house for this conference.
As I stated, our company had been conser-^ative on this subject, rela-
tively so, along with many others; and it saw clearly the dangers. As
far back as 1932, I think it was, I corresponded with a number
of companies, some 20 companies, as I recall, in regard to af least one
of the rules which were later adopted. It happened to be one of my
interests and ultimately that rule was adopted because it seemed the
only sound rule — it was rule 4, I believe — which gave protaction to
CONCENTRATION OF ECONOMIC POWER 4587
the general body of policyholders against what we call in our business
the antiselection made by a few at the expense of the many.
Well, then this matter began to drift in 1937, as you have heard.
Six companies, I believe, over the summer of 1937 had adopted
rules. There was a good deal of discussion and a feeling that it was
important, but companies were not acting. It was my own personal
feeling that it was for the good of the policyholders generally, that
there should be a lopping off as far as possible of these abuses which,
in my mind, has constituted almost discrimination certainly in extreme
forms. So that at the Swampscott meeting Mr. Larus, the vice presi-
dent of the Phoenix Mutual, and myself went around and personally
suggested to a lot of actuaries that we get together and discuss this
subject. So we met.
Mr. Gesell. What was the Swampscott meeting, Mr. Marshall?
Was that a meeting of the Actuarial Society ?
Mr. Marshall. Yes; I should have explained that. A meeting
of the Actuarial Society of America. Its regular semiannual meet-
ing was at Swampscott and we were together for the general purposes
of the Actuarial Society, and it had been in my mind for several days
before that, if the opportunity arose, we might bring up the subject of
optional settlement abuses.
Mr. Gesell. And you and Mr. Larus arranged a special conference
of interested actuaries on this subject of settlement options.
Mr. Marshall. As I recall, we suggested to the actuaries present
of about the 25 or 30 largest companies^ approximately the same group
that had been meeting from time to time in the past, that they meet
together and discuss this pressing problem.
Mr. Henderson. May I ask the witness a question, Mr. Gesell ? You
used the word "discrimination." In what way were the differences
in rates discriminatory and against whom did they discriminate ?
Mr. Marshall. Well, it seemed to many of us, and I think "many of
us" is correct, that if we have an unreasonable extension of a practice
outside of the terms of the policy contract, and that is very im-
portant to understand, and that extension involves undue expense or
undue risk, that it would be very proper, perhaps not legally but cer-
tainly from the standpoint of mutuality, in which our company is
interested, to consider the practice to involve discrimination and to
get rid of it.
Mr. Henderson. Where is the discrimination? Is it of one policy
against another, or the policies of one company bein^ more liberal
and discriminating against another company's policies?
Mr. Marshall. I heard of one case told me personally by the actu-
ary of another company illustrating this discrimination idea where
the possible combinations of contingencies in that one agreement were
68,000, and it seemed to us that a thing like that is unreasonable and
should be just sliced off.
Mr. Henderson. Unreasonable against w'hom ?
Mr. Marshall. It was unreasonable to the general body of policy-
holders to have this fungus growth creep in and cause them all expense
and possibly loss and possibly even, under extreme circumstances, im-
pairment of safety.
Mr. Henderson. I gather from that that you mean that one com-
pany's policy which had multiple provisions discriminated against
4588 CONCENTRATION OF ECONOMIC POWER
the whole body of policyholders regardless of what company they
were in.
Mr. Marshall. I didn't refer to intercompany conditions. I re-
ferred to intracompany.
Mr, Henderson. That is what I am trjang to get at.
Mr. Marshall. However, I am perfectly willing to volunteer that
even in the intercompany situation we must remember that the life-
insurance business extends over the whole country. The Provident
Mutual, for example, has policyholders who are also policyholders in
many other companies, and if some company follows an utterly
unsound and losing practice and grants to certain policyholders
something outside the reasonable terms of the contract — something
which will involve that company loss, then that policyholder may
come to the Provident Mutual and say, "Look here, unless you follow
this same practice" — which we considered unreasonable — "I am going
to drop my policy with you because you are a short-sighted com-
pany," or some such language, and the policyholders did get that
idea, perhaps, "I will drop my policy with your company because you
don't consider the interests of the policyholders.'-
Now, the point is there. If a company perhaps unknowingly em-
barks in an area where loss is involved to its policyholders ultimately,
we consider we have enough of an interest in the whole problem to
call that matter to that company's attention. There is the situation.
Mr. Henderson. Where the discrimination takes place against other
companies, that is the situation.
Mr. Marshall. I am not suggesting there is any discrimination
intercompany at all. It is just intracompany I was discussing.
Mr. Henderson. But it is against the other policyholders or all
policyholders, I think you make your point.
Mr. Marshall. No ; it was the policyholders of our own company.
An abuse which would favor one unduly or unreasonably outside the
terms of the contract against the whole body of our policyholders, I
consider discriminatory and against the principles of mutuality.
Mr. Henderson. You mean the mutuality of an individual com-
pany.
Mr. Marshall. The mutuality of an individual company.
Mr. Gesell. In other words, Mr. Marshall, what you mean is that
in your own company some policyholders had contracts with settle-
ment options, soriie did not. If those settlement options were disad-
vantageous, then all of the policyholders would be harmed by their,
existence.
Mr. Marshall. Of course, in the past we have issued settlement
options in policies and because of changing conditions some of them
perhaps are no longer self-supporting. Those are closed contracts
and there is nothing we should properly do about them, and we, of
course, adhere to them and go right along. That is part of the busi-
ness. But for us to go outside the terms of our policy contracts and
more or less gratuitously enter this field in an uncalled-for manner,
an unreasonable manner, seems to us to be violating the principles of
mutuality as we saw them.
Mr. Gesell. Had your company changed its practice on October
22,1937?
Mr. Marshall. A good many of the rules we had in effect before,
and some we adopted then, or approximately then.
CONCENTRATION OF ECONOMIC POWER 4589
Mr. Gesell. Had you adopted all of the recommendations of Mr.
Murphy's committee by October 22, 1937?
Mr. Marshall. We never adopted all of the recommendations.
Mr. Gesell. How many had you adopted by October 22 ?
Mr. Marshall. Before that date, you mean ?
Mr. Gesell. Yes.
Mr. Marshall. Approximately six, to some degree or other.
Mr. Gesell. You, yourself, had been a member of the committee
which had recommended all 12 of those provisions, had you not?
Mr. Marshall. That is quite true.
Mr. Gesell. Was the fact that your company had not adopted all of
the recommendations partly attributable to the fact that other com-
panies in which you were in competition had not adopted them ?
Mr. Marshall. The reason we did not adopt all those rules is be-
cause we felt that under certain sets of circumstances it was reasonable
for us to provide certain arrangements which were wholly excluded
by those rules, and which we partially wished to include. We did, of
course, discourage our agents from engaging in some of the more
extreme practice against which the rules were directed, and we have
continued that. However, they are a very minor phase of the situa-
tion.
Mr. Gesell. I wish to offer the letter of October 22 for the record.
Acting Chairman Reece. It may be admitted.
(The letter referred to was marked "Exhibit No. 790" and is in-
cluded in the appendix on p. 4869.)
Mr. Henderson. May I ask one more question on that? I gather
that in your discussion with some of the other actuaries of the possi-
bilities of combinations running as high as 68,000, you were convinced
that that had run riot. In other words, you felt that you ought to
call that to the attention of actuaries of other companies engaged in
the liberalization of their terms.
Mr. Marshall. That is true. Undoubtedly the attitude of com-
panies differs regarding the importance of various features, sometimes
because they haven't been observing them, and sometimes because they
happen to have a peculiar situation where they don't have many such
cases in their own company.
Mr. Henderson. And you would try to show them that would do the
whole body of policyholders some damage if it were continued. Cer-
tainly there has got to be some limit, you feel, to the number of
combinations.
Mr. Marshall. We were working from our own company viewpoint,
naturally. In our own viewpoint we were quite convinced that the
fabric as a whole was too extreme and being outside the policy con-
tract we thought it reasonable it could be curtailed for the good of
the general body of policyholders.
Mr. Gesell. Your letter of October 22, 1937, stated in the second
paragraph that quite a number of the representatives indicated their
readiness to adopt the rules, provided a majority of the companies of
their own group did likewise,* and the questionnaire you sent out
attempted to find out from each company what other companies
would have to adopt the rules before it would go along, did it not ?
1 "Exhibit No. 790," appendix, p. 4869, at p. 4869.
4590 CONCENTRATION OF ECONOMIC POWER
Mr. Marshall. My questionnaire asked regarding the attitude or
intention of each company, and not its final conclusion. Each com-
pany followed its final action individually.
Mr. Gesell. Did not your questionnaire contain this statement:
"State the companies you consider to be in your group for the purpose
of giving the above answers," ^ and those above answers will be what
the attitude of the company is with respect to each rule ?
Mr. Marshall. Quite true.
Mr. Gesell. So you were attempting to find out, were you not, from
each company what other companies in its group would have to adopt
the same rules before it would go along ?
Mr. Marshall. Not necessarily, because companies sometimes fol-
low practices regardless of what they had indicated in a preliminary
way was their hope would happen. This, may I volunteer again, was a
sounding board which I set up, this questionnaire, to try to get each
company to state its attitude. That was a device which I thought
was very effective in getting them to state their attitude.
Mr. Gesell. I think so too, Mr. Marshall. The only thing I am
getting at was why it was effective. Was it not because it enabled a
company to commit itself, at the same time reserving its opportunity
to adopt the rules with other companies of its same size operating in
its same level ?
Mr. Marshall. I think it was simply a device which I used, which
if they did answer "yes," which after all had no final binding effect
on them, and if other companies also answered "yes," it would give
them courage to go ahead on their own individual hook and cut out
this abuse which existed.
Mr. Gesell. You recognize this document, marked "Very confiden-
tial," as a summary of the replies to the questionnaire.
Mr. Marshall. I am not sure about this handwriting in here, but
otherwise it seems to be the one I sent out.
Mr. Gesell. Reading from the typewritten part, under the head-
ing of "Companies in Same Group," I notice that some companies
say that their decision was made irrespective of the action that any
other company will take or may propose to take, but here, for in-
stance, the Berkshire Life says: "Based on general agreement by
majority of companies."
The Imperial Life says: "Canadian companies."
The Northwestern says: "All companies participating in confer-
ence.
The Penn Mutual says: ''The Junior Presidents' Association com-
panies and Northwestern Mutual."
Those were replies of companies indicating who else would have
to go along with these rules before they would be adopted by the
respective companies answering the questionnaire; were they not?
Mr. Marshall. Not necessarily. No eompany had to go along for
any other company to adopt any rule it saw fit.
Mr. Gesell. Of course not, but that was not an answer to my
question.
Mr. Marshall. I thought you said "have to."
Mr. Gesell. Is it not a fact that w^hat you were trying to do here
was to get together an expression from each company as to whether
1 "Exhibit No. 790," appendix, p. 4869, at p. 4870.
CONCENTRATION OF ECONOMIC POWER 4591
it would adopt the rules, always contingent upon the adoption of
those rules by certain companies that they would designate on their
questionnaire reply?
Mr. Marshall.. I was trying to get from each company an expres-
sion of its attitude regarding those rules.
Mr. Gesell. And one of the factors involved in the expression of
their attitude was the possible adoption of the rules by other com-
panies who they considered to be, as you call it, companies in the
same group.
Mr. Marshall. That was my phraseology, if you remember. I put
that in to sort of make a sounding board, as I said before, in order
to induce them to express themselves in some way.
Mr. Gesell. Let's find out what you meant. The Provident has
down in its questionnaire reply, "Mutual companies size of Home
Life or greater." What do you mean by that?
Mr. Marshall. I will be very glad to explain that. I can't speak
for the other companies but I can speak for the Provident as to what
it meant. As I said before, we were looking at this from the mutual
standpoint. We had no desire to have our general body of policy-
holders discriminated against by uncalled for abuse which had grown
beyond reasonable bounds. That is the general fabric. And we were
attempting to slice off the unreasonable part of that abuse, and by
various means minimize it to a proper area. We were interested in
what other companies did, naturally. We are interested from many
viewpoints in what other companies do. In thei first place, realistically
we are in a very competitive business and we want to know what our
competitors do, and it is very nice to know what they plan, but that
is only the beginning of the story. We always keep up with com-
petitive developments, wherever they go, but we are also interested
in what our competitors do because if they engage in practices which,
let us say, involve heavy loss to their company and our own policy-
holders come to us and ask us to do likewise, because they have
policies in the other company and in ours and want the same sort of
agreement attached to our policy, and demand it almost, as it were,
as their right because this abuse is done by the other company, we
are very much interested to try and let that company see the true
situation, realize the abuse and get out its own surgical knife and do
whatever it thinks necessary.
Furthermore, when we said "the Home Life and larger," that was
merely an illustrative statement of what we hoped might happen as
the result of this matter being called to the attention of the different
companies. When we said that it did not bind us as to our future
course of action in any way. We could change our mind at any
time in regard to that, or as a matter of fact regarding the annuity
premiums or any other feature.
Mr. Gesell. Let's keep to the issue.
Mr. Marshall. That is right; I was interjecting and explaining
what this means. Therefore, when we said that, we can always
change our mind regarding optional rules; we could tomorrow, any
time we want, if we think it is safe for our policyholders and in
accord with the principles of mutuality.
Mr. Henderson. That is true of any agreement which doesn't have
any sanctions, isn't it, Mr. Marshall ?
4592 CONCENTRATION OF ECONOMIC POWER
Mr. Marshall. I am not a lawyer.
Mr. Henderson. I mean any kind of an agreement entered into, in
which there is no penalty and no compulsion of law, is a voluntary
agreement ; each member is free, of course, to abandon that or modify
the general terms of the understanding or the uniformity whenever he
wants to.
Mr. Marshall. But this was not an agreement in that sense.
This was a consensus of opinion, as has already been expressed this
morning. In other words, this was the attitude-
Mr. Henderson (interposing). The difference between a consensus
and an agreement is pretty small, it seems to me. Certainly the ques-
tionnaire you sent out showed, as you have testified, a tremendous
range of difference, and your hopes, as you have expressed them, were
that they would see the error of their ways and would use the knife
and cut off .some of those. That is, common agreement or consensus
shows a tendency toward uniformity, doesn't it ?
Mr. Marshall. Not at all, because each company could follow its
own way at the conference, and after that, and today. It is purely a
matter of whether the company considers it safe and sound for its
general body of policyholders to follow this practice.
Mr. Henderson. That is why you are doing it?
Mr. Marshall. And it has nothing to do in the last analysis at all
with the other companie_s. It has to make its own decision.
Mr. Gesell. Mr. Marshall, I am going to get an answer to my ques-
tion if I have to stay here all afternoon. My question was, Why was
it necessary to include in this questionnaire at all any reference to
other companies in the group which would have to adopt the rules
to make the attitude of the particular company answering the ques-
tionnaire binding?
Mr. Marshall. Mr. Gesell, if you will phrase your question in a
way in which the words "binding" and "have to" are excluded, I will
be glad to answer it. .
Mr. Gesell. Let us get at it this way : Do you recognize this letter
of November 9, 1937, signed by yourself, to Mr. Murphy as a correct
copy of a letter which you wrote ? ^
Mr. Marshj^ll. Yes.
Mr. Gesell. This letter was a letter which was sent and states to
Mr, Murphy [reading from "Exhibit No. 791"] :
The information received regarding the attitude of your company toward
the proposed optional settlement rules has been included in a summary of the
returns from the various companies enclosed herewith as promised.
That is the summary which we have been talking about, is it not ?
Mr. Marshall. I believe so.
Mr. Gesell [reading further] :
As previously indicated, an intercompany conference will be held at 10
o'clock on Monday, November 15, in the office of Mr. Bassford, actuary of
the Metropolitan Life Insurance Co., 1 Madison Avenue, New York City. One
actuary from each company is invited to be present, as usual. It is assumed
that your company will be represented, but if this should not be possible will
you please wire me to facilitate arrangements for this meeting?
* Entered later as "Exhibit No. 7fll." See appendix, p. 4871.
CONCENTRATION OF ECONOMIC POWER 4593
Then, this is the paragraph I want to call to your attention [read-
ing further] :
It is important that representatives should come to the conference empowered
to state the official attitude of their respective companies in the light of the
information given in the summary of the questionnaire.
Mr. Marshall. I hoped that would be done.
Mr. Gesell. Now, one of the bits of information included in that
summary of the questionnaire was a statement by each company as
to what other companies would have to adopt the rules before their
attitude would be an attitude which we would actually undertake
from a practical point of view. Isn't that true ?
Mr. Marshall. No. Companies went ahead sometimes and
adopted rules when the other companies didn't adopt them.
Mr. Gesell. Your letter of October 22, 1937, states [reading from
"Exhibit No. 790"] :
Quite a number of the representatives of the conference indicated a readiness
of their respective companies to adopt the rules, provided a majority of the
companies of their own group did likiewise.
That is rather specific, "provided a majority of the companies of
their own group did likewise."
Mr. Marshall. I think that angle needs a little further explana-
tion which I haven't completely brought out, that the companies
were always anxious, in a field such as this, where loss to the gen-
eral body of policyholders was concerned, to see the abuse eliminated
from the insurance fabric, and as I said, one of their main concerns
was because the policyholders who have policies in various companies,
including their own, put a wrong interpretation when they failed
to act.
They also are very anxious to see pressure from uninformed indi-
viduals, who felt that some companies should follow this abuse be-
cause another company followed it — they wished to see that sort of
pressure eliminated. It could not be eliminated except by the indi-
vidual action of each company, and when I wrote these letters I was
perhaps trying a little bit of salesmanship, but I was very anxious
personally to see that the companies would eliminate this abuse.
Now, in phasing the wliole thing that way, I wanted to get each
company to state its own attitude, and if a given company knew that
there was a strong body of professional sentiment in the business, it
could go to its own executives and perhaps sell the ideas to them
more effectively than otherwise, because you must remember that there
was a great deal of what you might call dislike to change in any such
field as this. Administrative problems would be magnified by two sets
of rules, one old and one new; agents would be confused by the change
in their methods ; and it was unsatisfactory, and executives generally
were reluctant, naturally, to change unless it was very obvious that it
was a sound and wise procedure, and I sought by my method to bring
out a show of strength of sentiment. There was, frankly, a little bit
of salesmanship to put each actuary in such a position that he could go
to his executive and sell the matter more effectively.
Mr. Henderson. You wanted him, also, to sell to his executive the
idea that the other members of the group would go along too, didn't
you?
4594 CONCENTRATION OF ECONOMIC POWER
Mr. Marshall. It was very natural for the executive to ask, "Well,
now, are we going to have all our policyholders jumping on us because
we are the only one in the country recognizing this abuse ?" He would
be reluctant to act. After all, this was a device to dramatize the
matter quickly, to act as a sounding board ; and frankly, I hoped to
make the companies — or let the companies — see the importance of
this in, you might say, a concentrated way. They had already had it
brought to their attention in various ways, and this was a device to
concentrate it, and I hoped to make them all feel interested personally
in arriving at a solution inside their own walls.
Mr. Henderson. That's right ; to get group action on it.
Mr. Marshall. No group action ; excuse me. There never was any
group action as such.
Mr. Henderson. Group action doesn't have to be 100 percent, does
it, Mr. Marshall? Certainly some action took place, and you had
something in mind in wanting, as you have said, to get this informa-
tion so that they could go to their executives and say, "The other com-
panies in our group are prepared to adopt this also." That was a con-
sideration, wasn't it ? I gathered that from your testimony.
Mr. Marshall. As I said, it was my method of trying to get them
to see the importance of it. If you will notice, these are my letters
you are reading from.
Mr. Henderson. I do notice that, and that is why I can't understand
you when you say one time you did want to eliminate these abuses,
and then you sh}^ away from any idea that you wanted common
action.
Mr. Marshall. I said at the beginning I hoped it would induce
each one to adopt something like the rules, but
Mr. Henderson (interposing). I think that is Mr. Gesell's point.
Mr. Marshall. That was my hope. Each one had to act on his own
initiative, though, in all these conferences. As a case in exact point
in the memorandum of the intercompany conference of October 23,
1935 ("Exhibit No. 768"), where Provident said "Yes," they Avould do
something if assured that certain other companies would so do. If
you refer to what happened, you will find that Provident went ahead
and did it anyhow. This "only if" business doesn't apply. These
"if others" ideas do not mean "only if." The practice simply is a
sounding board, and each company ultimately, in the light of the
information, acts individually, and it can at any time reverse its
action if it wants to.
Mr. Henderson. You are not making a distinction which is very
clear, I think. One is this idea that one would go along if the others
were going along, and then the individual action that took place after-
ward.
Mr. Marshall. What I am really getting at is this whole device
in my company is pretty much the same as any of these other de-
vices used at the intercompany conferences to get an expression of
sentiment or attitude regarding the individual companies' ideas.
Mr. Henderson. And that should decide.
Mr. Marshall. No.
Mr. Henderson. Why do you go about getting it? Your own
testimony says you wanted to induce them to take action to eliminate
these abuses.
CONCENTRATION OF ECONOMIC POWER 4595
Mr. TVIarshall. But the point is, the companies had to take it on
their individual initiative. I don't know how many and I never
asked to find out. I said I hoped that they would come prepared to
state the attitude of their company. I know that some didn't and I
don't really know how many.
Mr. Henderson. Again you are making a distinction as to whether
they arrived at some general uniformity of consideration and also
whether they carried that out to the last penny's worth.
Mr. Marshall. There is no uniformity. Excuse a homely simile,
but I have felt about a lot of these things that wp have been talking
about here the last few days, including this, that they have about as
much significance as six roosters crowing at sunrise. It is the sun-
rise that is the force that causes these things, and not the roosters.
Mr. Henderson. X/ct's see. There is an inevitability about the sun
rising, but there isn't any inevitability about you and some of the
others on your own initiative deciding to get a consensus and trying
to iron out these things. There is a man-made action there. Some-
body took a very definite action to try to bring the common experience
together in the form of a table, hoping it would lead to some kind of
reduction of abuse. There isn't anything systemic about that.
Mr. Marshall, You are speaking about the general premium rate
proposition, and the premium rate proposition was affected by the
fact, sometimes, not that there was the slightest desire for uniformity,
but the fear of consequences if a company undersold the investment
market, lost money for its policyholders, and had clients come in to
beat the band and pyramid their purchases because the company was
selling below the market. I am speaking of the investment market.
Mr. Henderson. That happens because of a lack of uniformity;
doesn't it? Take your 68,000 permutations and combinations. That
was a lack of uniformity, wasn't it?
Mr. Marshall. I don't know what that was. It was an absurdity.
Mr. Henderson. In terms of mathematics, wouldn't an absurdity
be classified as something that was not a uniform practice?
Mr. Marshall. It was certainly an extreme case.
Mr. Henderson. That's right; and you wanted to get it down so
that it was nearer the general level of things.
Mr. Marshall. I didn't want discriminatory practices of this un-
reasonable type indulged in at the expense of the general body of
policyholders.
Mr. Henderson. I think you have said that in various forms six
or seven times.
Mr. Marshall. After aU, it was the guiding principle.
^ Mr. Henderson. I have no doubt but that it was the guiding prin-
ciple. We are not quarreling with the guiding principle. What we
are trying to get at here is whether or not you and 6 other actuarial
roosters came together, took some action, which was not like the
rising of the sun, and proceeded to crow about it until 21 others
joined you. Then you worked toward achieving uniformity.
Mr. Marshall. Well, now, to get back to your question, the Provi-
dent Mutual said "Yes" to a lot of these, and six of them the
Provident Mutual had already enforced in its rules.
Mr. Henderson. What rules?
Mr. Marshall. The rules suggested to practically
124491 — 40 — pt. 10 30
4596 CONCENTRATION OF ECONOMIC POWER
Mr. Henderson (interposing). That's right; which involved a
change, did it not?
Mr. Marshall. It did not involve a change. We went ahead and
continued the rules and hadn't the slightest intention of withdrawing
them, although we had used them before and after the conference.
Mr, Henderson. Did you make any changes ?
Mr. Marshall. I am not quite sure. I had better not say, but I
think in another sense we went ahead anyhow.
Mr. Gesell. Now I would like to offer for the record the letter of
November 9, to which Mr. Marshall referred.
(The letter referred to was marked "Exhibit No. 791" and is
included in the appendix on p. 4871.)
Mr. Gesell. Will you tell us what happened in the conference
at Mr. Bassford's office on November 15, 1937?
Mr. Marshall. Yes. The purpose of the conference was to con-
sider the rules further, because there has been some slight sugges-
tions, as I recall, as to the meaning of the rules, and then to finally,
get each company to consider them further in the light of the infor-
mation I had furnished them previously.
Mr. Gesell. Now, as a result of the conference, am I correct in
saying that the results were modified to some extent, and a new
schedule, showing the attitude of each company with respect to each
proposed rule, was prepared ?
Mr. Marshall. There were a new set of recommendations pre-
pared, and a new schedule showing the attitude of each company.
Mr. Gesell. Do you recognize the document which I hand you
as containing revision of the recommendations, together with your
covering letter, and the final position of each company with respect
to those rules?
Mr. Marshall. The final attitude of each company is expressed
there, but subject to its consideration when its actuary got home.
Mr. Henderson. As I gather, it didn't take place, but it was all
for the good of thepolicyholders just the same.
Mr. Marshall. Every bit of it.
Mr. Henderson. But it didn't take place, though.
Mr. Marshall. I'm sorry ; I don't understand.
Mr. Henderson. There were some revisions. Are we agreed on
that?
Mr. Marshall, I think there were some slight revisions; yes.
Mr. Henderson. Did they tend toward uniformity?
Mr. Marshall. I think that the rules were amended, as I recall, to
lop off one or two of the most extreme extensions — we might say
limitations — where various legal departments thought that the
policyholders' reasonable requests would be denied.
Mr. Gesell, May T offer the document recognized by the witness a
moment ago for the record?
Acting Chairman Reece. It may be admitted.
(The documents referred to were marked "Exhibit No. 792" and
are included in the appendix on p. 4871.)
Mr. Gesell, Mr, Marshall, I want to call you back in a moment.
Will you step down for a moment, please?
Mr. Murphy, will you take the stand again, please ?
CONCENTRATION OF ECONOMIC POWER 4597
TESTIMONY OF RAY D. MURPHY, VICE PRESIDENT AND ACTUARY,
EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES,
NEW YORK, N. Y.— Resumed
Mr. Gesell. Mr, Murphy, I show you what purports to be a memo-
randum initialed by yourself, to W. G. Schelker, vice president, re
Modes of Settlement, dated November 16, 1937, and ask you if you
recognize that memorandum.
Mr. Murphy, Yes ; I recognize it.
Mr. Gesell. I wish to read this memorandum for the record [read-
ing from "Exhibit No. 793"] :
At an intercompany conference yesterday for the purpose of stimulating the
adoption of settlement rules by additional companies, there were a few changes
made in the rules to make possible wider adoption.
There was added at the end of rule 1 "or in continuation of installments
certain, with the exception of a class of children of parents within the limita-
tions of rule 6."
Your memorandum goes on to record a similar change in rule 4,
and the last paragraph states:
At the conclusion of yesterday's meeting it appeared, confidentially, that
quite a number of additional companies would follow these new practices either
in whole or in part.
Mr. Murphy, I want to call your attention to a handwritten note
contained in the lower left-hand column of this document. Will you
read that note for the committee, please?
Mr. Murphy (reading) :
Told W. G. S. re understanding that a company subscribing to rules need not
feel bound in competition with a "no" company.
Mr. Gesell. That is initialed by you, is it not?
Mr. Murphy. It is.
Mr. Gesell. Who is W. G. S. ?
Mr. Murphy. The gentleman to whom the memorandum is
addressed.
Mr. Gesell. He is vice president of the Equitable ?
Mr. Murphy. That is right.
Mr. Gesell. That notation indicates to me that these rules that
you were attempting to reach uniformity on at this meeting and
previous meetings, were rules which would apply only among other
companies which also agreed to them, and you had an understanding
if you were in competition with some company which hadn't agreed
to follow a certain rule, you wouldn't have to agree to it.
Mr. Murphy. I asked in the conference, which may have been
academic, as far as I know since it was academic, and that was
whether, if a company said "Yes" to a certain practice and then
should on a particular case be competing with a "no'' company, and
should act in the same way as the "no" company, whether we were to
consider that it was throwing over its intention with respect to its
practice. There wasn't any discussion, particularly, of the point,
except that most people seemed to think that that wouldn't be taken
as rescinding its prior general action. As I say, the question, as
far as I know, was academic, because I haven't heard of any such
cases.
4598 CONCENTRATION OF ECONOMIC POWER
Mr. Gesell. In this case you told this vice president of your com-
pany, re understanding that a company subscribing to rules need not
feel bound to competition with a "no" company.
Mr. Murphy. I mean, bound by its own prior answer as to what jt
was going to do on that point.
Mr. Gesell. So that if, for the sake of uniformity, it said "Yes,"
and ran into a fellow not following a particular rule, it could depart
from its previous commitments.
Mr. Murphy. It could, apparently without changing its general
practice, if it wanted to.
Mr. Gesell. I wish to offer it for the record.
Acting Chairman Reece. It may be admitted.
(The memorandum referred to was marked "Exhibit No. 793," and
is included in the appendix on p. 4872.)
Mr. Hendeeson. What you are saying is that you understood at
this meeting that certain companies were answering "Yes," and that
there was an understanding that the companies were subscribing to
rules, and that was one transaction. And I gather from your half-
facetious remarks, you found out later, although some of them might
have said "Yes," in reality they said "No."
Mr. Murphy. I merely asked the question so if it came to my at-
tention that there was such a case I would know how to interpret it.
For example, a man might have an old policy and be taking a new
policy in another company. He might, if that were a so-called "no"
company, have had a certain extension of this particular clause on
that policy, and then come back and plead very hard for you to put
it on that individual policy in your company, so that his settlement
might be uniform under all his insurance. There might be such a
case, and somebody might feel, under the circumstances, that he
wanted to make some kind of exception.
Mr. Gesell. In other words, this whole question of settlement
options was a pretty ticklish one, from a competitive point of view.
Mr. Murphy. In a small percentage of the business, because of
these insurances that were in two companies, and the man wanted to
get the same settlement on all insurance in both companies.
Mr. Henderson, He wanted to get the better settlement; yes.
Mr. Murphy. What he thought was the better settlement.
Mr. Henderson. The better settlement for him individually.
Mr. Murphy. A longer guaranty in some instances.
Mr. Henderson. So if he had policies in two companies, and one
seemed to him more liberal, if the other didn't meet that com-
petition, he would take his business over to the other company.
Mr. Murphy. He might.
Mr. Henderson. It was a competitive matter in a number of
instances.
Mr. Murphy. Yes ; in those instances.
Mr. Henderson. Were you worried that that kind of thing would
expand and come to be a large part of the transactions?
Mr. Murphy. Well, I had the feeling that in past years these ex-
tremely extensive clauses had grown very largely in that way, so it
was a point to be considered if there was any danger of that history
being repeated.
Mr. Henderson. Were they growing? Was the number of per-
mutations and combinations growing?
CONCENTRATION OF ECONOMIC POWER 4599
Mr. Murphy. They had been growing pretty steadily by a process of
attrition of that kind over a great many years.
Mr. Henderson, By attrition 'i
Mr. Murphy. What I mean is by individual cas6s coming up in
which a company decided to go a little bit further than it had before.
Mr. Henderson. The company was the subject of the attrition, not-
the policyholder?
Mr. Murphy. Oh, yes.
Mr. Henderson. The policyholder was getting more for Jils money,
wasn't he ?
Mr. Murphy. Longer guaranty ; yes.
Mr. Henderson. Well, if he got a longer guaranty, wasn't he getting
more for his money ?
Mr. Murphy. Well, it depends how circumstances would turn out,
because the guaranty is only part of the story. It might be that the
excess- interest
Mr. Henderson (interposing). Between long guaranty and short
guaranty, which would you personally prefer to have ?
Mr. Murphy. Long guaranty and short guaranty ? I would take the
long one, probably.
Mr. Henderson. Probably?
Mr. Murphy. It depends where it was.
Mr. Henderson. Some time in the course of these hearings, Mr.
Gesell, there will be a direct answer of "Ye's" or "No." At that point
I will buy a drink.
Mr. Gesell. I think this is a good time to stop, if the committee
please.
Acting Chairman Reece. The committee will stand in recess until
2 : 30.
(Whereupon, at 12 : 25 p. m., a recess was" taken until 2 : 30 of the
same day.)
AETERNOON SESSION
The hearing was resumed at 2 : 30 p. m., upon the expiration of the
recess.
Acting Chairman Reece. The committee will please come to order.
Mr. Gesell. Will you.resume the stand, Mr. Murphy, please?
Just before the recess we had discussed the meeting of June 3, 1937,
I believe. I wanted to ask you first whether you reported the results
of that meeting to the superintendent of insurance of New York?
Mr. Murphy. I did.
I will be glad to put into the record the correspondence, my letter to
the department of June 9, and the acknowledgment from the depart-
ment of June 10.
Mr. Gesell. Could you read that correspondence for us, and we will
put it in the record ?
Mr. Murphy. Yes. On June 9 I wrote to Mr. Hollenberg, who is
associate actuary of the New York Insurance Department [reading] :
In accordance with your letter of June 4, and our telephone conversation today,
I am sending you four copies of the list of restrictions which were the subject of
discussion by representatives of about 25 companies last week.
Naturally not all the companies agreed to all points, but there was suflScient
unanimity to indicate that the program will be largely put into effect by the
4600 CONCENTRAIION OF ECONOMIC POWER
great majority of those companies. We are expecting that announcement will be
made by the various companies within the near future.
Since I talked to you I was speaking with 'Mr. Taylor on the telephone, and he
suggested that he would get one of the enclosed copies from you.
Then Mr. Hollenberg's acknowledgment [reading] :
Deab Mb. Murphy: I am in receipt of your letter of the 9th instant, with
enclosures, and note your remarks regarding the difficulty of securing full agree-
ment of the various companies. One copy of these recommendations has been
referred to Deputy Superintendent Taylor and, in the meantime, I expect to see
you in the conference to be held tomorrow.
Mr. Gesell. Now did you acquaint the insurance department with
the subsequent meetings which were held and the revision of the recom-
mendations which were made as a result of the meeting of November
15, 1937?
Mr. Murphy. No; those were very minor revisions and no special
steps taken at that time, other than, of course, the appearance in the
trade papers of such announcements by companies.
Mr. Geselx.. Did you advise him that there was an understanding
that the rules would not be applicable where a company was in com-
petition with a "no" company ?
Mr. MuEPHY. No.
Mr. Geseijj. Did all the New York companies agree to these rules?
Mr. Murphy. There was a certain amount of variation in agree-
ments. I don't know as I can readily supply the New York companies.
Mr. Gesell. There were some New York companies that did not
agree, were there not ; companies doing business in New York ?
Mr. Murphy. Oh, companies doing business in New York, yes.
Mr, Gesell. And once in a while an individual company would
change the position that it had taken in connection with the conference,
would it not ?
Mr, Mukphy, It might change its position slightly in detail.
Mr, Gesell. So that it is safe to say, is it not, that if these rules had
been writt-en into some New York code along the lines that the in-
surance commissioner had in mind originally, the practices would have
been more closely adhered to ?
Mr, Murphy. Probably ; yes.
Mr. Gesell. In other words, your form of voluntary agreement, as
we have been calling it, didn't have the same rigid sanctions that would
have been present if the commissioner had continued along the lines
he suggested at the outset ?
Mr. Murphy. Of course, the companies would have had to keep
within the boundaries of the law if it had passed; some of these, oi
course, might have limited themselves to something less than the
boundaries of the law, possibly.
Mr. Gesell. Did the New York commissioner or his representatives
attend any of these meetings which were held from time to time that
we have been considering ?
Mr. Murphy. No; they attended no meetings. I did discuss the
matter, informally at a meeting of the Actuarial Society in the middle
of May 1937, at which time I think, without question, there were ac-
tuaries for some of the insurance departments in the room. There
were about three hundred men there.
Mr. Gesell. That was before Mr. Marshall undertook his program
Qf bringing the companies into line ; wasn't it ?
CONCENTRATION OF ECONOMIC POWER 4601
Mr. Murphy. Yes.
Mr. Gesell. There was no participation of the insurance depart
ment representatives at your meetings?
Mr. Murphy. Not in the discussion ; no.
Mr. Henderson. Mr. Gesell, are you going to call Mr. Marshall
back?
Mr. Gesell. I am; yes.
Mr. Henderson. May I suggest that you give, him an opportunity
to comment on your characterization of his activities. You said,
"bring them into line," and I think he resisted that.
Mr. Gesell. I didn't mean to put any implication.
Mr. Henderson. I think for Mr. Marshall's sake you should let '^
him make a comment.
Mr. Gesell. Let me put it this way. It was before Mr. Marshall
commenced writing letters to companies asking them to state their
position with respect to this problem.
Mr. Murphy. Yes.
Mr. Henderson. I think that will take care of the problem.
Mr. Gesell. What was it that motivated the insurance depart-
ment's original interest in that matter, Mr. Murphy?
Mr. Murphy. I don't know. I had no contact with them on the
questions until we received that letter.
Mr. Gesell. You don't know what he had in mind at the time
he wrote that letter ?
Mr. Murphy. No; in the subsequent oral discussion with him, he
did have in mind that the extension of these guaranties — as beyond
the beneficiary, for example, things of that kind — were, he thought
gravely in question in view of the interest condition.
Mr. Gesell. How do you feel about it? Do you feel that this pro-
cedure which was adopted by the companies was the best procedure
that could be followed in the circumstances?
Mr. Murphy. Yes; I think it was directly for the benefit of the
policyholders as a whole.
Mr. Gesell. I didn't ask you that. I asked you whether you
thought it was the best procedure, or whether you felt that possibly
it was not the kind of thing where a regulatory body acting in the
public interest, should not nave been represented and participated.
Mr. Murphy. No; I think the procedure was pretty satisfactory
as it was; because, in dealing with a matter of that sort, I have a
good deal of sj^mpathy with permitting the companies to work a
situation out without the rigidity of, say^ one law or one regula-
tion, because I think in many of these questions none of us feel neces-
sarily dogmatically that we have the right answer when we start.
There may be adjustments that will prove to be advisable, so I think
that method of handling it works out pretty well.
Mr. Gesell. Of course, there were, as this procedure went through,
companies which departed from the position they thought was neces-
sary or adequate m order to bring about greater harmony, were
there not ?
Mr. Murphy. I can't answer that.
Mr. Gesell. Your own report, Mr. Murphy, states that it would be
advisable for companies to depart from differences for the sake of
uniformity, does it not?^
» See "Exhibit No. 785," appendix, p. 4861.
4602 CONCENTRATION OF ECONOMIC POWER
Mr, Murphy. There is always a margin of doubt in approaching
a difficult question of this kind, and if sometimes a company found that
a great body of opinion as to what the effect in the future of these
things would be, was slightly different from its own, it might be a
rather wise thing to do to pay attention to the interpretation of the
circumstances given by an important body of opinion.
Mr. Gesell. I take it it is your feeling that you do not feel any
benefit would have been served by the insurance commissioner having
access to, let's say, all the correspondence that has gone into the record
here this morning.
Mr. Murphy. I don't think it would have had any particular effect,
probably. I think the commissioner himself was working toward a
certain amount of unanimity on the subject.
Mr. Gesell. And you think, as far as he is concerned, the methods
adopted in achieving that unanimity are unimportant ?
Mr. Murphy. Yes ; I think it is largely the result that counts.
Mr. Gesell. Do you feel that at any time the commissioner had in
mind that the companies would enter into a uniform understanding of
this character, or do you rather feel that all he was interested in was
in each company's reviewing its own position with respect to'settlement
options and adjusting it as it thought best in the policyholders'
interest ?
Mr. Murphy. Well, I don't know as I can interpret the superin-
tendent's mind, other than to say that he did think that it was a per-
fectly satisfactory solution, at least for the present, for the companies
to go ahead and see if they couldn't work up some movement in that
direction.
Mr. Gesell. Did anything he said to you indicate he was encourag-
ing you to enter into this joint arrangement?
Mr. Murphy. Well, yes; I took it that was the general drift of his
mind.
Mr. Gesell. That he was encouraging you to get together for the
purposes of accomplishing this result ?
Mr. Murphy. Yes ; I think so. That was my interpretation of his
attitude.
Mr. Gesell. I have no further questions of Mr. Murphy.
Mr, Henderson. I think the phrase you used in the morning testi-
mony, which I went back and read, due to something you said, was
voluntary action on your part rather than trying to write difficult
code terms.
Mr. Murphy. Yes.
Mr. Henderson. And your answer to Mr. Gesell was that the thing
itself seemed to you much more important than how it was accom-
plished.
Mr. Murphy. Yes.
Mr. Henderson. I would like to explore that just a bit further.
Do you have a preference for voluntary action as against the inter-
vention of a State authority?
Mr. Murphy. I do ; because it is much more adaptable to variations
in circumstances.
Mr. Henderson. I mean, your answer indicated that you didn't care
much how it was done, but I gather you do prefer that the technical
men assemble , discuss the matter and bring the weight of their tech-
nical experience and knowledge to bear on each omer, and by that
CONCENTRATION OF ECONOMIC POWER 4603
interplay to come to some general standards which then can by volun-
tary action of the companies be fairly widely adopted.
Mr. MuBPHY. Yes ; I think there is a great deal to be said for that
from the standpoint of adaptability, and I think it is a perfectly safe
situation, because here we have a business which admittedly is a
peculiar business, in that the bulk of it is sold by the mutual com-
panies, and the motive, the only motive may I say, as I have known the
situation, that the actuaries have is to make the companies secure,
essentially secure, for the policyholders rather than from any stand-
point of making rules or limitations or any procedure from the stand-
point of creating a profit for the stockliolders ; that being the dominant
influence of the life-insurance business. I think that type of procedure
is a very safe procedure as well as flexible.
Mr. Henderson. Without any invidiousness, however, I was struck
by reading the testimony this morning the replies that were assembled
in the questionnaires, that none of the witnesses even hinted that the
question of getting business, as between companies, was one of the
motives. You say that the safety of the company and the general
protection of policyholders are the prime motives. But an actuary
does think in terms of business for his company ?
Mr. Murphy. Yes.
Mr. Henderson. That is, if he sees that there is a wide divergence of
terms and the like, it will likely have two effects. If it runs to absurd
extremes it will damage and harm the general structure and fabric
of life insurance. If your company doesn't follow what you consider
bad practice, you are likely to lose future business. Isn't that true?
Mr. Murphy. That may be true in some circumstances.
Mr. Henderson. You don't think it is a very large competitive
factor in the matter of getting standard terms ?
Mr. Murphy. Well, I think everybody, of course, has the competi-
tive situation of his company in mind.
Mr. Henderson. That is what I am getting at.
Mr. Murphy. Oh, I think so.
Mr. Gesell, No further questions.
(The witness, Mr. Murphy, was excused.)
Mr. Gesell. Mr. Marshall, will you resume the stand, please?
TESTIMONY OF EDWARD WAYNE MARSHALL, VICE PRESIDENT
AND ACTUARY OF THE PROVIDENT MUTUAL LIFE INSURANCE
CO., PHILADELPHIA, PA.— Resumed
Mr. Gesell. Mr. Marshall, following the meeting of November 15,
1937, can you tell us what the next significant development was in the
sfield of settlement options from the point of view of the companies
who had been attending the intercompany meetings ?
Mr. Marshall. Some of these developments have already been
covered. There was a meeting of April 22, 1938, which was referred
to,^ and there were various problems there in connection with the.
policy provisions as to the guaranteed basis to be used for the settle-
ment options.
Mr. Gesell. That is, the amount of interest to be guaranteed ?
1 Supra, p. 4550, also "Exhibit No. 775," appendix, p. 4852.
4604 CONCENTRATION OF ECONOMIC POWER
Mr. Marshall. The rate of interest to be used in the interest option
or the installment option, or the installment certain part of the life-
income option, and the life-income-option basis itself was a separate
consideration, but discussed.
Mr. Gesell. The rate of interest in those forms of options involves
options which are in the policies themselves ? Those are options
which are in the policies ; is that not correct ?
Mr. Marshall. They are the optional arrangements described in
the policies under which the proceeds can be left with the company
at interest with a certain guaranty, and a provision for participation
over and above the guaranty; or payable in installments with a
certain guaranteed rate, and a provision for participation over and
above that; or in the form of a life income with installments, with
provision for participation.
Mr. Gesell. The distinction I am trying to make is that heretofore
we have been discussing special forms apart from the policies and
now we are turning to certain provisions in the settlement options
as provided in the policy itself.
Mr. Marshall. That is true.
Mr. Gesell. This question of the guaranteed interest rate had been
considered off and on, had it not, at meetings prior to the meeting of
April 22, 1938?
Mr. Marshall. I would think so. My memory isn't very clear on
it. I am pretty sure it was. I would suppose it was, because the
interest rate being realized in the general investment market had gone
down and the whole subject of interest guaranties was naturally
coming to the fore in people's minds, as to what was safe and sound
to use, considering the protection of the general body of policyholders,
and what would be perhaps not conservative enough. In other words,
the question was in a sense the degree of safety involved from the
standpoint of the policyholders generally.
Mr. Gesell. Yes ; in other words, whether or not the companies had
not guaranteed on their existing settlement options too high a rate of
interest, which might result in some injury to those policyholders
which did not have the settlement option provisions in their policies.
Mr. Marshall. The consideration was as to what should be used in
new policies to be thereafter issued at some time in the future, and
each company was struggling with that problem.
Mr. Gesell. What was the average rate of interest guaranteed at
the time of this meeting of April 22, 1938?
Mr. Marshall. Let us concentrate on the interest option.
Mr. Gesell. Yes.
Mr. Marshall. At that time, as I recall, of the 19 companies whose
record I happened to see, 19 used 3 percent. I think 19 companies in
a tabulation I saw referred to in the digest used 3 percent.
Mr. Gesell. Was that uniformity of interest on the interest option
the result of any previous understandings or discussions which had
taken place among the actuaries, or was it the result of chance ?
Mr. Marshall. I would suppose, it was simply a corollary to the
fact that a good many companies used 3 percent in their reserve basis.
Mr. Gesell. And they naturally carried that percentage over into
their settlement ?
Mr. Marshall. A good many of these had used the 3-percent basis
ever since the settlement options were first conceived, as we heard. I
CONCENTRATION OF ECONOMIC POWER 4605
have forgotten, but somewhere around 1910 or 1915, along in there
they were introduced, but it was a situation of long standing that
the guaranteed rate would at that time be somewhat near the reserve.
Mr. Gesell. Now, what discussions were had at this meeting of
April 22 with respect to this matter of interest? You were present
at that meeting, were you not ?
Mr. Marshall. I believe I was. It is going to be difficult for me to
remember that, because I didn't concentrate on it particularly, because
I wasn't the chairman of that meeting, but I remember there was a
diversity of opinion on the subject.
Mr. Gesell. Some companies felt that 3 percent could still be guar-
anteed and some felt that it should be lower, or how did that differ-
ence——
Mr. Marshall. Of course, we have to remember that this whole sub-
ject of margins of safety is a matter of progressive education; that
the people were getting more and more to the realization that interest
rates were not falling just for a year or so, and they were further down
than they expected ; and perhaps they wouldn't go up as fast as they
expected in the future. They didn't know ; at any rate they realized
that it was a matter in which conservatism, as always, should be the
prime factor — safety first, in other words.
Mr. Gesell. Reading from "Exhibit No. 775," which is in the rec-
ord,^ where the meeting of April 22, 1938, is summarized, I will ask
you if this refreshes your recollection generally as to what the discus-
sions on the interest option were. The memorandum states [reading
from "Exhibit No. 775"] :
There was a great deal of discussion about reducing the interest rate below
3 percent, particularly on any policy which gave any withdrawal privilege,
whether in whole or in part. No poll of companies was taken on this question, but
the poll was taken as to the companies interested in the rate lower than 3 per-
cent, or at no guaranteed rate. The Equitable, Fidelity, Home, Sun, and Mutual
favored a policy which did not express any rate.
The following companies were strongly in favor of going below 3 percent:
Connecticut General, Aetna, Penn Mutual, Union Central, Provident Mutual,
Mutual, Connecticut Mutual, Massachusetts Mutual, Home Life, Prudential,
Fidelity, and Phoenix. The following were inclined that way ; would probably
adopt it if there was a general adoption : New England, Sun Life, State Mutual,
and John Hancock. The following wish to continue the 3-percent rate: Metro-
politan, Northwestern, National, Berkshire, and Mutual Benefit. The follow:ing
two companies would like to adopt a rate lower than 3 percent for an option;
which permitted withdrawal : Guardian and Equitable.
Is that more or less your recollection of the nature of the discussion
that took place ?
Mr. Marshall. Yes ; I would think so. It is very natural that there
would be a diversity of viewpoint there, as no one can read the distant
future. These optional methods of settlement usually begin at the
death of the insured or the maturity of the endowment and then carry
on after that point.
Mr. Gesell. So it involves anticipating something very far in the
future ?
Mr. Marshall. So naturally no one could read that distant future ;
in fact, it is pretty difficult to read 10 or 20 years in advance, and the
ideas at that time in most people's minds were conservatism and
safety. Now, as I say, there was difference of opinion as to how that
1 See appendix, p. 4862.
4606 CONCENTRATION OF ECONOMIC POWER
conservatism would be accomplished. Some companies thought of the
idea of 2 percent ; others thought that perhaps that wasn't necessary
and that conservatism would be accomplished at 2i^ percent. Some
liked the idea of using 3 percent, provided there was no right, to
withdraw and thus prevent what we might call the financial antiselec-
tion, which would be present if there were the right to withdraw at
any time. And that variation of opinion continued all the way to the
end, even when the policy provisions of the different companies were
finally adopted ; perhaps not as great as at that time, but still a very
great variation of opinion; in fact, looking at the 1939 Unique Manual
Digest, those same — the 19 companies which all had a -guaranty of
3 percent before, 3 of them are on a 3-percent basis, 14 of them are on
2%-percent basis, 1 of them is on 2-percent basis, and 1 of them has a
varying rate, II/2 or 3 percent, depending on, I believe, the right of
withdrawal.
In other words, the net result was less of what you might call uni-
formity than there was at the beginning.
Mr. Gesell. Well, there were 14 companies that went from 3 to
21/2 percent?
Mr. Marshall. They were conscious of the need for greater con-
servatism which they saw and they followed that course individually.
Mr. Gesell. I show you a letter written by yourself to Mr. Murphy,
under date of May 25, 1938,^ and ask you if that letter does not express
your attitude at that time with respect to the various discussions and
proposals that had been made with respect 'to this guaranteed interest.
Mr. Marshall. May I take the time to read this ?
Mr. Gesell. Certainly.
Mr. Marshall. I am interested in this sentence. May I mention it?
Mr. Gesell. I am going to read the letter entirely for the record.
Mr. Marshall. All right, then.
Mr. Gesell. Do you recognize that as a letter which^you wrote?
Mr. Marshall. Yes.
Mr. Gesell. The letter addressed to Mr. Murphy, entitled "Optional
Mode of Settlement" [reading from "Exhibit No. 794"] :
At the intercompany conference last week there was considerable diversity
of opinion regarding the guaranteed rate to use in the new policy forms for the
optional method of settlement under which proceeds are left with the company
at interest.
One substantial group of companies favors a 2-percent or 2^-percent guar-
anty in all cases, feeling that this reduced rate is necessary in view of the fact
that such optional settlement wduld begin after the life insurance ends and.
would on the average extend over a considerable period thereafter.
The second group composed of a few companies, would like to retain the
present 3-percent guaranty on the grounds of service to clients and agency force.
A third group of several large companies leans toward the use of a 3-percent
guaranty for funds left under elections made by the insured during his lifetime,
effective at his death, where the beneficiary has no right of withdrawal and no
guaranty whatever under other funds left at interest. This suggestion has cer-
tain merit but the use of no guaranteed rate of interest would mean a violent
change from the present practice under Federal income-tax laws. There would
be no exemption for the company of guaranteed interest and there might be a
question whether such a provision would be approved by all the States.
Each of these three points of view has certain advantages and disadvantages.
It has seemed so important that we should endeavor to adopt a uniform guar-
anty for this optional method of settlement that the following suggestion is
made, using the best ideas for each of the above proposals.
1 Entered later as "Exhibit No. 794." See appendix, p. 4873.
CONCENTRATION OF ECONOMIC POWER 4607
Now, before continuing with the rest of the letter, Mr. Marshall,
you say
it has seemed so important that we should endeavor to adopt a uniform guar-
anty for this optional method of settlement.
Why has that seemed important and to whom did it seem so ?
Mr. Marshall. It seemed to me — and remember, I wrote that letter,
although I think the ideas reflected the ideas of a few other actuaries
at least — it seemed important to me that we should not engage in the
sort of let us say emphasis on features which might be unsafe. The
situation might be compared to one in the automobile industry where
if a number of engineers thought it would be in the public interest
to use a higher safety steel in the frame of the automobile, it
would be a good thing for the different manufacturers to do that
each in his own way, according to what he thinks his requirements
were, for the good of the whole. The competition would continue as
before in the over-all cost of the car and there would be a highly com-
petitive system, but nevertheless greater safety to the public.
(Mr. Henderson assumed the chair.)
Mr. Gesell. You mean, if I get you straight, that if one company
guaranteed, let's say, 3i/^ percent, and another guaranteed 2l^ percent,
assuming that both of those guaranties^were uncertain and involved
a considerable amount of guess-work because of the length of time
that would have to be taken into consideration, that that difference
would be an unfair difference upon which the companies should
compete ?
Mr. Marshall. To my mind, it wouldn't be unfair — perhaps even
there, I could add that, but not from the way you mean. It seems to
me that would be an utterly unsound matter to stress from the stand-
point of the public interest. Remember that if the company guar-
anteed Zy2 percent and created the illusion to some client that there
might be a gain to him in that, and later on, the company ran into
financial difficulty because it overextended its guaranty, that would
not be in the public interest.
Mr. Gesell. So if the companies could be brought to a uniform
and safe and sound basis of guaranteed interest rate, eliminating
any factor of competition on that guaranty you thought it would
be advisable and to the interest of the business as a whole.
Mr. Marshall. You are talking about my personal views. I per-
sonally do believe it is well to have a good wide margin of safety,
and I don't see why in the fundamental margin of safety the com-
petitive element needs to enter, because the competition can center in
the excess interest over and above that guaranty. All it means is
that there is a little less emphasis on the guaranty in the struc-
ture, as it were, that works out at the time, and a little more empha-
sis on the excess interest. As you will find in those letters again
and again, I make the point that after all, participation will make
up the difference in normal times.
Now if, let us say, we should strike very abnormal times, far ahead
in the future, in which the interest rates would happen to go be-
low that reduced guaranty which a number of companies adopted
in the interest of conservatism, then the whole thing would have been
justified anyhow. "Safety first" is the idea we tried to suggest to
these different people in writing those letters, and while they reflect
4608 CONCENTRATION OF ECONOMIC POWER
my personal ideas, I think quite a number of actuaries feel very much
the same way.
Acting Chairman Henderson, May I ask a question there? I can
understand the conservatism, but isn't there a distinction to be made
between the idea of safety first and the uniformity ? As I understood
the letter, the emphasis was on adopting the uniform guaranty and
not on adopting a safe guaranty. Is the distinction present in your
mind?
Mr. Marshall,. I wasn't ever able to sell that idea very much
apparently.
Acting Chairman Henderson. Now, Mr. Marshall, that isn't what
I asked you at all. I asked you — I ask you again — whether or not
there isn't a distinction between a safe policy and the desirability
you expressed here of adopting a uniform guaranty. You could
have had a uniform guaranty that was unsafe, or you could have had
all the companies below a certain level, could you not, below a certain
safe level, and each of them having a different rate ?
Mr. Marshall. Well, I think that is true, only there isn't very much
margin for variation from' 2 to 2i^ percent and there are three com-
panies with 3 percent already.
We must also stress the fact that participation is a big element in
this whole situation. A number of companies ar6 allowing 3I/2 percent
or more today on these policies — including participation. That means
that if the guaranteed rate of interest were 3 percent they would be
allowing 2^/2 ; if the guaranteed rate of interest were 2 percent, they
would be allowing 1^, and so forth. In other words, under normal
conditions, the net result to the policyholder is the same. The only
question is, How much safety ? There is no reason fundamentally to
have full uniformity in safety, but my idea was, and still is, that it is
not a good idea — bringing in competition — for any industry to stress
competition to the point of lack of safety. It is not in the public
interest.
Acting Chairman Henderson. I can understand that and accept it,
but the stress here was on the adoption of a uniform basis. Do you
think it is best, leaving out these other considerations you are
talking about, for the industry to have a uniform guaranty which
automatically takes that out of the realm of competition ?
Mr. Marshall. It wouldn't worry me very much if some company
wanted to go to a still stricter basis. In a certain area there it is
almost a matter of choice within small limits. As you will find from
some of that correspondence, I rather favored 2 percent. It is pretty
hard to say whether 2 or 2.5 percent is right, looking into the distant
future, because you can't read the future too exactly, and it is some-
what a matter of opinion.
When I got the ideas of the different actuaries, I found a good
many of them thought that the 2 percent was unnecessarily con-
servative at this time, and that 2.5 percent was quite sufficient.
Well, the difference between 2 and 2.5 percent was small, and if the
companies liked 2.5 percent it was all right, but it is quite all right
to use 2 percent and some companies did, and some continued to us6
3 percent, as you have heard, with restrictions as to the right of
withdrawal.
Acting Chairman Henderson. You are again talking about the
adoption of a uniform guaranty, rather than a conservative one. Of
CONCENTRATION OF ECONOMIC POWER 4609
course, if you are in competition with some other insurance company,
and your company has a 2.5-percent basis and they have a 2-percent
basis, you are in a better competitive situation, aren't you?
Mr. Marshall. I think in normal times it doesn't make much dif-
ference. The excess interest rate is considerably over; it doesn't
make much difference at all.
Actinff Chairman Henderson. It does after you have taken your
option, doesn't it ?
Mr. Marshall. It might if interest rates fell very far down.
Acting Chairman Henderson. It would make quite a bit of dif-
ference. There is a difference, I think, which you haven't stressed, be-
tween what the assumed earning rate is and what the option rate
would be. Wlien you elect the option, that does continue throughout
the life of the contract then, doesn't it?
Mr. Marshall. It usually evens the matter up so that whether
the guaranty is 2, 2.5, or 3 percent under normal conditions the net
result to the client would be the same.
Acting Chairman Henderson. It irons itself out?
Mr. Marshall. It would under the participation.
Acting Chairman Henderson. But it wouldn't iron itself out so
far as the selling of the contract or the individual instance was con-
cerned.
Mr. Marshall. I haven't heard a great deal of difficulty over this.
Some companies use 2 percent, and I haven't seen any inclination
on their part to go to 2.5 percent.
Acting Chairman Henderson. This does go into what the cost of
your policy is, whether it is 2 or 2.5 percent. That is one of the
factors in the cost.
Mr. Marshall. Of course I am not sure how that would work in.
If there is participation, that would even it up.
Acting Chairman Henderson. It does, however — suppose there is
not participation and you are competing with a non-participating
company — make a difference in the cost as to what the rate is.
Mr. Marshall. I believe it is the case under optional methods of
settlement that there is participation in both the participating and
nonparticipating companies.
Acting Chairman Henderson. But it is one of the elements of
cost.
Mr. Marshall. Generally there is a great deal of difference in
cost in competition, and in life insurance and endowment insurance,
if that is what you mean, and there is terrific competition and varia-
tion in cost between companies according to their internal conditions,
and the way they conduct their business.
Acting Chairman Henderson. The coefficient of safety in an auto-
mobile engine is not an element of cost. Your analogy wasn't very
well chosen, was it? It would be more apt if the automobile com-
panies agreed on a uniform basis so far as the cost of tires in their
costing system is concerned. That would be more strictly comparable,
wouldn't it?
Mr. Marshaix. Well, of course, they didn't agree. I would have
to get back to what I said this morning. There was no agreement of
that sort.
Acting Chairman Henderson. Let me choose that language. That
was my choice. Suppose they adopt — that was your own language
4610 CONCENTRATION OF ECONOMIC POWER
here — let me go still further. Isn't the analogy to the automobile
experience this : If the automobile companies adopted a uniform cost
for tires or some other element in the cost of the automobile, that
would be comparable with this uniformity of guaranty you were
seeking ?
Mr. Marshall. It isn't comparable for the simple reason that par-
ticipation makes a wide variation in cost and in their individual
earnings.
Acting Chairman Henderson. I think I understand, but it would
be more nearly comparable when you were thinking of buying an
automobile than buying an insurance policy to consider those two
things.
Mr. Marshall. I don't think so. You would have to set up in that
assumption that the different tire companies had participation ; they
had to be mutual tire companies, and I don't think we would want
to get into that.
Acting Chairman Henderson. I think that in thef analogy the next
logical step would be that they take care of the things in which they
don't adopt uniform cost methods.
Mr. Marshall. If you wish to follow the automobile analogy, each
automobile as a whole is highly competitive, and that is the way it
works out in life insurance. Each automobile, which represents the
whole policy, is highly competitive, and then it just happens that
the options themselves, independent of the policy, are competitive
because of the participation, and that analogy just runs down to
the safety factor, that is all.
Acting Chairman Henderson. You don't hear of the automobile
people, however, coming into intercompany conferences for stand-
ardization of elements, do you?
Mr. Marshall. I don't know what they do.
Acting Chairman Henderson. I don't hear about it and I have been
at a listening post for several years.
Mr. Marshall. I have noticed, though, in the interest of the public,
they more or less simultaneously think that safety glass is a good
thing for the public, or hydraulic brakes, or whatever brakes are that
are eflficient.
Acting Chairman Henderson. They don't have an intercompany
conference on that, Mr. Marshall.
Mr. Marshall. But, of course, I confess that the analogy isn't
complete in the automobile because participation must always be
remembered as the element of cost. That is the thing that deter-
mines the cost of the gadget, the options themselves. Then on top
of that is the over-all cost, which varies tremendously, so you have
almost a double competitive element working there.
Mr. Gesell. To end this part of the discussion, Mr. Marshall, you
do believe, do you not, that if an agent of one company can go to a
man and say, "Here on this settlement option you have a guaranteed
interest rate of 3 percent," and an agent of another company says,
"Here you have a guaranteed interest rate of 2 percent," that the
fellow who has a 3-percent guaranty has some advantage in selling
the policy ?
Mr. Marshall. I think the policyholder would begin right away
in saying, "What is the over-all cost of the policy," and ne would
look right away and find that varies tremendously.
CONCENTRATION OF ECONOMIC POWER 4611
Mr. Gesell. Assuming that all other factors would be identical.
Mr. Marshall. I don't like to assume things that aren't so.
Mr. Gesell. You mean to say, then, it is your opinion that there
is no competitive advantage for a company that can offer a guar-
anteed interest rate of 3 percent as against a company that can only
offer a guaranteed interest rate of 2 percent.
Mr. Marshall. The over-all cost varies so vddely that that small
element is not at all the main element and is further subordinated
by the fact that the 3 percent and the 2 percent are subject to
participation which tends to put them on equality in the client's
mind and therefore he dismisses them as the main thing and turns
back to the over-all cost of the policy, which varies widely between
companies and is the main source of competition.
Mr. Gesell. Let's have an answer to my question. Do you believe
there is any competitive advantage to a company whicn can offer
3 percent interest as opposed to a company which can offer 2 percent.
It is a simple "yes" or "no" question ; I want a "yes" or "no" answer.
Mr. Marshall. I will have to give you a preamble first.
Acting Chairman Henderson. Wliether you have to or not, I am
sure you will. [Laughter.]
Mr. Marshall. But if you assume such limited premises that we
have, I could even consider where the 3 percent might be used against
the company
Acting Chairman Henderson (interposing) . I am acting chairman.
May I stop you right there? Do you want to say you can't give a
"yes" or "no" answer to that?
Mr. Marshall. I feel that requires much further amplification
than a simple "yes" or "no" to get the truth into the proceedings.
Mr. Gesell. I have no objection to your giving the explanation
if you will first answer the question "yes" or "no.'" You may make
any explanation you want. I had in mind, Mr. Marshall, when I
asked you that question a paragraph in your letter of June 7, 1938,^
concerning optional settlements which we are coming to in a moment,
when you say [reading from "Exhibit No. 795"] :
The outstanding feature is the widespread desire of companies to agree
on a standard basis so that unsound competition on differences in guaranty can
be avoided.
Now if that isn't an expression which indicates that difference in
guaranty is a factor in competition, I can't read English and that is
why I am surprised we can't get a "yes" or "no" to my question.
Mr. Marshall. As I said earlier in this afternoon's proceedings, it is
quite possible to have unsound competition on differences in guaranties
because there is the Emphasis on what may be an area of loss later on,
and the reason I couldn't answer your question "yes"' or "no" is be-
cause I could conceive, if you follow that difference of this guaranty
and that guaranty to its logical conclusion that the higher guaranty
might involve ultimate loss to the company ; and if the policyholder
were well aware of the circumstances, he would prefer to take the
lower guaranty at the moment. I had to get that preamble in to
answer it.
Mr. Gesell. With the preamble, what is the answer : "yes" or "no ^ ^
* Entered later as "Exhibit No. 795." Sec appendix, p. 4875.
124491 — 40— pt. 10 31
4612 CONCENTRATION OF ECONOMIC POWER
Mr. Marshall. If the policyholder could look into the future to
read the rate of interest, it might be just as Well "no" as "yes."
Mr. Gesell. Well, we will come back to the letter of May 25, 1938.
Reading from the third page, the letter states [reading from "Exhibit
No. 794^'] :
The main advantage of the suggested provisions is that a consistent basis for
the various optional settlements can be employed, the 3 percent guaranty made
in the area where most desirable and least dangerous, and 2 percent guaranteed
where a much-needed margin of safety should be introduced.
It is likely that, in normal times, participation would be sufficient to put both
the 2-percent and 3-percent funds on the same gross-interest basis if desired.
However, when earned interest rates are low, the differential could be taken into
account if necessary to protect the company. This is according to the best
mutual insurance traditions under which margins of safety are introduced to
be returned as dividends if not needed, but otherwise to be used to meet the
contingency involved.
The proposal in this letter has been discussed with a number of actuaries and
they are very hopeful that a substantial number of companies of our type can
agree on some such provision as a uniform basis in our forthcoming new policies.
Perhaps there are some details which may need polishing, but that would be
relatively easy if the main idea meets with favor.
This letter is being written to each of the following companies to see whether
we cannot reach a common ground in this very important area of our policy con-
tracts : Aetna, Connecticut General, Connecticut Mutual, Equitable of New York,
Fidelity, Home, John Hancock, Massachusetts, Mutual, Metropolitan, Mutual
Benefit, Mutual Life, National of Vermont, New England, New York Life,
Northwestern Mutual, Penn Mutual, Phoenix, Prudential, State, Union Central.
Would your company be willing to adopt such a provision if a substantial
majority of these companies did so? It would be greatly appreciated if you
could give consideration to this suggestion and let me know, say by June 1,
whether it appeals to your company as a basis for use in its new policies. An
abstract of the replies would be sent to you.
Mr- Marshall. May I look at that a moment, please ? I don't have
a copy here so I am forced to look at this one. The reason I am
looking at this is because, as I said before, these were some ideas I
threw out for discussion. It was a sounding-board process, the same
as I mentioned this morning, and as a toatter of fact some of these
suggestions were considered impractical, 'which is the word I think to
use, by some others and I later agreed that they were impractical
and discarded them myself.
As you will find, there are some of those ideas that were not
incorporated in the practice of any company that I know of.
Mr. Gesell. I would like to offer this letter for the record.
Acting Chairman Henderson. It may be received.
(The letter referred to was marked "Exhibit No. 794" and is
included in the appendix on p. — .)
Mr. Gesell. Now I wish to show you a letter dated June 7, 1938,^
and ask you if you recognize that as a letter which you wrote.
Did you send that letter to the same group of companies ?
Mr. Marshall. May I have it again?
Mr. Gesell. Certainly. It is not addressed to anyone. I am
wondering to whom it was sent.
Mr. Marshall. I believe I sent it to what are known as the little
entente companies.
Mr. Gesell. Now will you tell us what the little entente companies
are? 2
1 Entered later as "Exhibit No. 795." See appendix, p. 4875.
' See also, supra, p. 4540.
CONCENTRATION OF ECONOMIC POWER 4613
Mr. Marshall. The little entente is a discussion group of the
presidents of 13 companies. I can give you their names in a minute.
I have them in here somewhere.
Mr. Gesell. I would like to have the names of the companies, if
I might.
Mr. Marshall. Aetna, Connecticut General, Connecticut Mutual,
Home Life, John Hancock, Massachusetts Mutual, Mutual Benefit,
National of Vermont, New England, Penn Mutual, Phoenix Mutual,
Provident Mutual, and State Mutual.
Mr. Gesell. Is that the group that is sometimes referred to as the
jnnior presidents association?
Mr. Marshall. Yes.
Mr. Gesell. You call them a discussion group. You mean they
get together to discuss mutual problems from time to time?
Mr. Marshall. True.
(Representative Reece assumed the chair.)
Mr. Gesell. You wrote this letter to them, I take it ?
Mr. Marshall. I wrote this letter to actuaries in the companies of
the little entente.
Mr. Gesell. The letter states [reading from "Exhibit No. 795"] :
In view of the little entente meeting on Friday I am sending to the companies
this preliminary report of the reactions to the suggestions contained in my letter
of May 25.
The outstanding feature is a widespread desire of companies to, agree on some
standard basis so that unsound competition on differences in guarantee can be
avoided. Although the ideas of the different companies still differ, many of
them obviously are near agreement.
The suggestion in my letter met with the approval as a compromise from five
companies assuming other companies agreed : Aetna, Connecticut General, Equit-
able of New York, Home, Union Central. The following companies were defi-
nitely opposed to it because they do not like to use two rates of interest for
the same type of settlement depending on whether or not there is a right of
withdrawal : New England, Northwestern Mutual, Prudential. The Mutual
Benefit also was not favorable to the suggestion.
Most of the companies favor a uniform rate of less than 3 percent. Those
preferring 2 percent as a uniform rate were : Aetna, Northwestern Mutual, Penn,
Provident, State Mutual. Those preferring 2^^ percent were: Connecticut
Mutual, New England, Phoenix, Prudential, Union Central.
In other words, about 10 of the 16 companies heard from favored a uniform
rate of 2 or 2% percent.
Now, you say that the suggestion in your letter met with approval
as a compromise from five companies, assuming other companies
agreed. I am again going to ask you whether or not this uniformity
question is not/ directly related to the problem of competition.
Mr. Marshall. I am sorry to bother you. May I have this ? You
have to read the context of it as well as a few words. It says here
"unsound" — let me find the sentence. * * * "unsound competition
on differences in guaranty."
Mr. Henderson. Don't just read a few words.
Mr. Marshall [reading] :
The outstanding feature is a widespread desire of companies to agree on some'
standard basis so that unsound competition on differences in guaranty can be
avoided.
I interpret that as meaning they felt they wanted to be sure to have
a sound basis of guaranty that is safe, and they certainly hoped that
no company would adopt, for the good of the business, a guaranty
which was unsound, and as I said this morning, there would begin
4614 CONCENTRATION OF ECONOMIC POWER
to be brought into the business competition on unsound features which
ultimately may result in loss and disappointment to the companies
using them, and therefore react against the clients, whereas the par-
ticipation, plus the more conservative rate of interest, can still main-
tain the competition and avoid that unsound element which may not
be for the good of the policyholders and the ultimate safety of their
insurance.
Mr. Gesell. In other words, what you were trjdng to do here is
eliminate one feature of the business which you consider to be unwise
competition.
Mr. Maeshall. I personally would like to see that unsound emphasis
eliminated and to concentrate the competition, which will occur,
on the excess interest under the option and on the. over-all cost of
the policy, because if a company, for example, did use too high a
guaranty and incurred loss, that would certainly fall on its body of
policyholders, and they would suffer, and in the meantime they would
in a sense be misled by the illusory gains which they thought they
were going to get and didn't get. This is nothing more than the
same thing which existed, as I said before, in the insurance business
for years, that the guaranty was kept conservative and the competi-
tion centered around the other features, and it seems to me very sound
that that should be.
Mr. Gesell. In the last paragraph of your letter you again say
[reading from "Exhibit No. 795"] :
In view of the widespread desire for a uniform basis between companies, is
there any possibility that the Little Entente companies could get together on some
such program as that outlined above?
In every letter we have read so far-
Mr. Marshall (interposing) . Of course
Mr. Gesell. Just a moment, please, Mr. Marshall. In every letter
we have read so far there has been considerable stress laid upon the
uniformity, and I suggest to you that you are interested in there not
only being sound interest rates guaranteed but you were interested
in those guaranties being uniform.
Mr. Marshall. I have never been interested in uniformity between
companies if soundness exists. I don't mind a bit of competition;
I rather like it. We like it in our own company. I think in some
testimony that was introduced a few days ago the word "self-sufficient"
was used to describe our company, perhaps along with others. All
that meant was that we like to preserve our individuality where it is
safe and sound. We are in a highly competitive business and, where
it is safe and sound to be competitive, we don't want to miss any tricks ;
but where it is in competition in unsound guaranties, it is not for the
good of the business to have them, and I personally would like to
see them eliminated and have the competition center around the cost,
and other elements of service and like matters, after all, rather than
an excursion into the dubious area of wliether something is safe or
not, which should not enter into the picture. It is much sounder for
the business and the policyholders.
Mr. Gesell. AVliat interest rate did you end up by guaranteeing?
Mr. Marshall. Our company's rate is 2i/2 percent.
Mr. Gesell. You say in the letter the Provident very much pre-
fers 2 percent.
CONCENTRATION OF ECONOMIC POWER 4615
Mr. Marshall. That was my opinion at that time.
Mr, Gesell. Did your opinion change within the next month or so ?
Mr. Marshall. As I said before, it is very easy within a variation
of one-half of 1 percent not to be able to read the future. I, per-
sonally, as I told you I think earlier in the testimony, liked 2 percent,
but personally I tliink 2i/2 percent is a very good rate and perhaps
the fact that so many companies thought that that was quite sufficient
makes it likely that it was quite sufficient.
Mr. Gesell. It wasn't the fact that you would be selling at 2 per-
cent with 13 other companies selling at 2^/2 percent that affected your
judgment in any way ?
Mr. Marshall. I wouldn't say that was not so, but I w^ould put
the emphasis in a positive way ; first, namely, that there was no reason
for us to go to 2 percent if the concensus of opinion as to a safe rate
was 21/2, a-iid that seemed to be the consensus of opinion. I discussed
it with others and contacted them at length as to what was necessary,
and we came to the conclusion that ^y^ percent was all right.
Mr. Gesell. It was your independent judgment 2 percent was much
more preferable, and that is why I was surprised to find you were
offering 2i/2 percent.
Mr. Marshall. I think I would just as leave have seen the use of 2
percent. After all, participation makes up the difference under normal
conditions,, but I think 21^ percent is quite satisfactory. • There are
certain elements in the 2i/^ percent which appealed to me, that when
you use 21/2 percent for certain programs, for the beneficiary, you
don't have to charge quite as much as when you use 2 to accomplish
a given guaranteed income. On the other hand, the excess interest
makes it up.
Mr. Henderson. If this participation makes it up, how do you get
into unsound competition ?
Mr. INIarshall. Suppose a company very foolislily, through misun-
derstanding of the trend in interest rates, and perhaps a temporary
condition in its own company, thought 4 percent was quite all right for
a guai 11 ty, I think that would certainly be very unwise of that com-
pany. 1 would want to call its attention to the situation as emphat-
ically as I could.
Mr. O'CoNNELL. Why would you want to?
Mr. Marshall. Because I don't like to see any company ^^engage in
practices which will ultimately cause substantial loss to it, and perhaps
reflect on the credit of the whole industry.
Mr. Henderson. But you say here [reading from "Exhibit No.
795"] :
In view of the widespread desire for a uniform basis between companies, is
tbere any possibility that the Little Entente companies could get together on
some such program as that outlined above?
Mr. Marshall. I was hoping each company would adopt practically
\ uniform rate so as to focus competition on the over-all cost and par-
ticipation and not consider this one way or the other, because it might
react unfavorably on a company if it attempted to increase the guar-
anty under a mistaken supposition that it could do it and still be
safe.
Mr. Henderson. In the light of this letter and of the answer you
have just given, what is your answer to the question Mr. Gesell pro-
4616 CONCENTRATION OF ECONOMIC POWER
pounded as to whether there is competition as between different inter-
est rates ? Is there competition as bet\^'een the different interest rates ?
Mr. Marshall. I think I was urging that unsound competition be
eliminated. I think it might be possible for a company which offered
too large a guaranty to be engaging in unsound competition, as I said
before. My letter said "so that unsound competition could be avoided."
I didn't just say "competition." Competition is what we are all
engaged in, and we don't want to eliminate it.
Mr. Gesell. I would like to offer for the record the letter of June
7, 1938, identified by the witness.
Acting Chairman Keece. It may be received.
(The letter above referred to was marked "Exhibit No. 795" and is
included in the appendix on p. 4875.)
Mr. Gesell. - Now I call your attention to a letter, Mr. Marshall,
dated June 23, 1938, and enclosure, and ask you if this enclosure is a
correct summary which you distributed to the members of the "Little
Entente," summarizing the votes taken at that time with respect to
the interest rate.
Mr. Marshall. Yes; I wrote that.
Mr. Gesell. I wish to offer this for the record.
Acting Chairman Reece. It may be admitted.
(The letter referred to was marked "Exhibit No. 796" and is included
in the appendix on p. 4876.)
Mr. Marshall. May I read one paragraph of that letter to stress a
certain point?
Mr. Gesell. If the committee wishes, it is perfectly all right
with me.
Acting Chairman Reece, I didn't understand the si:atement.
Mr. Gesell. He wishes to read a paragraph from a letter we intro-
duced.
Mr. Marshall, I was referring to the interest rates, and I just
wanted to stress this [reading from "Exhibit No, 794"] :
It is likely that this normal- participation would be sufl5oient to put both 2 per-
cent and 3 percent on the same gross interest basis if desired. However, when
different rates are to be taken into account, if necessary to protect the com-
panies, that is according to the best mutual insurance traditions under which
margins of safety are introduced, to be returned as dividends if not needed, but
otherwise to be used to naeet the contingency involved.
Mr. Gesell, I now want to ask you if you recognize this letter to
Mr. Murphy, dated July 7, 1938, and the accompanying schedule, as a
letter and schedule which you prepared.^
Mr. Marshall, Yes ; I find this letter refers repeatedly to the word
"plan," and the like. There is no reference to agreement or anything
like that.
Mr. Gesell. What was that again, Mr. Marshall ? Will you repeat
that?
Mr. Marshall. I find that the word "plan" — what the companies
planned to do — is emphasized in there quite a bit,
Mr. Henderson. As against the June 7 letter, where you used "to
agree" and "getting together," ^ is that the distinction you want to
maka?
1 Subsequently Introduced as "Exhibit No. 797." See appendix, p. 4878.
' See "Exhibit No. 795," appendix, p. 4875,
CONCENTRATION OF ECONOMIC POWER 4617
Mr. Marshall. I was recording in this letter what the company
said, and before I was expressing some hopes.
Mr. Gesell. Well, I will read this letter for the record. [Reading
from "Exhibit No. 797" :]
The various companies have very kindly cooperated in malting it possible
to prepare the enclosed chart giving their confidential plans regarding the new
optional-settlement basis. The Home Life and National of Vermont have not
made a final decision but their present inclination is shown.
It will be seen that there is almost complete uniformity in connection with
the interest option and the life income option. Two companies are planning
to base the installments certain in the life-income option on 2i/^ percent
instead of 3 percent, and the Connecticut General to base them on SVo percent
for its nonparticipating policies only. With the few exceptions shown on the
sheet the companies will use the life-income-option basis for maturity settle-
ments under endowment-income policies.
The great majority of the companies indicate that they will employ 2i^
percent for the fixed income until proceeds and interest are exhausted option.
There is less agreement regarding the installments-certain option, although
the majority of the companies favor 214 percent. A number of the remaining
companies lean toward the use of 3 percent with no right of commutation,
but some of them have indicated that they may decide on 2V^ percent if the
majority of the companies favor it.
Most of the companies plan to put this program into effect January 1, 1939.
The Penn Mutual will make the optional settlements effective as of that date,
but will defer the remainder of the program until July 1, 1939, when the new
rate book will appear. The Home Life feels that it will be impracticable to
get all the forms approved by January 1, 1939, but will do so as soon as
feasible thereafter.
There are some questions raised as to whether the Massachusetts depart-
ment would approve optional-settlement provisions with different rates of
interest used for different options. The department has stated tentatively
to Mr. Tebbets that it would approve settlements based on 2% percent for
the interest option and both installment options, and 3 percent throughout for
the life-income option.
If there are any inaccuracies regarding the plans of your company set
forth on the accompanying chart please let me know so that a correction can
be made.
And the accompanying chart shows the position that each com-
pany will take on each of the questions under consideration, does it
not?
Mr. Marshall. It shows a wide variation in the position which
each company takes.
Mr. Gesell. Now let me see how wide this variation is. Under the
interest option, I notice 16 companies at 2I/2, 2 on a 3, and 1 on a 2.
Is that a wide variety to which you refer?
Mr. Marshall. As compared to complete uniformity, so-called,
before.
Mr. Gesell. Explain that one to me.
Mr. Marshall. As I said earlier in the testimony, before this
thing started there were 19 companies with a 3-percent basis, and
this resulted in less uniformity than when they started. All it
resulted in \^as getting the companies conscious of conservatism in
the safety factor of optional methods of settlement, and to my mind
that was a highly desirable result, for the conference to focus the
consciousness of the companies on safety. Each company, as you
will see from that very letter, followed its individual course and
plan according to its own judgment, and the net result, I believe,
was of very great value to the policyholders in the increased safety
interjected into the life-insurance situation. I think the companies
4618 CONCENTRATION OF ECONOMIC POWER
should be commended for that sort of discussion, and the outcome
through the actions of each company.
Mr. Gesell. The question we were addressing ourselves to at this
time was as to whether or not the uniformity had been achieved. Let's
take the question under the column "Maturity Settlement Endowment
Income Policies — Same as Life Income Option."
Yes ; yes ; yes ; yes ; yes ; yes ; yes ; yes ; yes ; yes ; yes ; yes ; ( ? ) ; not set back ;
yes; yes; yes; yes.
That indicates a certain amount of uniformity to me, Mr. Marshall.
Mr. Marshall. Of course that option is participating. During the
installment period
Mr. Gesell (interposing). I wish to offer this for the record.
Acting Chairman Reece. It may be admitted.
(The documents referred to were marked "Exhibit No. 797" and
are included in the appendix on p. 4878.)
Mr. Marshall. The variation in cost arises through the participa-
tion, and not through the guarantee alone, and I might point out also
that if we take age 65, female, there was a greater variation in the
return between the highest and lowest company putting them in order
of size of guaranty, after this form was got out, than there was before.
Mr. Gesell. Now I want to ask you if you will identify a letter of
July 28, 1938, addressed to Mr. Murphy, with respect to optional
modes of settlement.
Mr. Marshall. Yes.
Mr. Gesell. Again bearing on the subject of uniformity, I would
like to read this letter [reading from "Exhibit No. 798"] :
Since we sent you the letter of July 7 and the accompanying summary of the
attitude of companies regarding optional methods of settlement, a few changes
can be noted. For the Connecticut General, change the answer under "Life
income option" to "Yes (Par. Bus.)." Also note that the Connecticut General
policy forms will contain no provision for withdrawals or commutation under
optional methods of settlement.
The National of Vermont will probably use 2.5 percent for both installment
options.
The Massachusetts Mutual has practically decided upon 2.5 percent for install-
ments certain but is waiting to hear of any further action before making a final
decision.
The Equitable of New York will use 1.5 percent instead of no guaranty for
the interest option where funds are withdrawable. Its life-income option will
be without right of commutation and the two installment options will be based
on 3 percent with withdrawal or commutation only as may be approved by the
society at the time of the election of the option.
The Northwestern Mutual, Connecticut Mutual, and Phoenix are still consid-
ering whether to use the standard basis on maturity settlements of endowment
income policies.
In general the changes that have occurred have been slightly in the direction
of still greater uniforniity than indicated in the summary previously sent you.
I offer that letter for the record.
Acting Chairman Reece. It may be admitted.
(The letter referred to was marked "Exhibit No. 798" and is
included in the appendix on p. 4880.)
Mr. Marshall. The outcome of that, however, was that some of the
changes which later occurred were just in the reverse direction and
the net result, as I said before, was less uniformity when the whole
discussion was completed than when it began, and the net result, how-
ever, was that companies became conservatism conscious and just put
CONCENTRATION OF ECONOMIC POWER 4619
a little bit more strength into their fundamental assumptions, al-
though participation would, of course, make up the difference in
assumptions under normal conditions.
Mr. Gesell. I have no further questions of this witness.
Acting Chairman Reece. Any questions ?
Mr. O'CONNELL. No.
Acting Chairman Reece. Mr. Commissioner?
Mr. Henderson. I think it is better to let the record speak for itself
Acting Chairman Reece. Thank you very kindly.
(The witness, Mr. Marshall, was excused.)
Mr. Gesell. I would like to offer for the record at this time a
chart prepared by the staff of the Commission, entitled "Intercom-
pany Meetings re Settlement Options." This chart is based upon doc-
uments which have been introduced into the record and shows the
number of meetings held at various times between October 10, 1935,
and April 22, 1938, for the purpose of discussing settlement options,
and the companies in attendance at each of such meetings.
Acting Chairman Reece. The chart is compiled by your own staff?
Mr. Gesell. Yes ; from documents in the record and that are in the
testimony.
Acting Chaii'man Reece. It will be admitted.
(The chart referred to was marked "Exhibit No. 799" and is included
in the appendix on p. 4881.)
Mr. Gesell. I should also like to offer for the record a memorandum
from the files of the Aetna Life Insurance Co., noting discussions at a
meeting held December 1, 1937, at the offices of the New York Life
Insurance Co.
Acting Chairman Reece. It may be admitted.
(The memorandum referred to was marked "Exhibit No. 800" and
is included in the appendix on p. 4882. )
Mr. Gesell. I would like to call as my next witness Mr. Valentine
Howell.
TESTIMONY OF VALENTINE HOWELL, VICE PRESIDENT AND
ACTUARY, PRUDENTIAL INSURANCE CO. OF AMERICA, NEWARK,
N. J. — Resumed
intercompany agreements — SURRENDER VALUE AND SURRENDER CHARGES
Mr. Gesell. You are actuary for the Prudential Insurance Co., are
you not ?
Mr. Howell. That is correct.
Mr. Gesell. I want to question you for a few moments with respect
to surrender values and surrender charges. Are you familiar with
steps taken by the principal companies commencing in 1933 for the
purpose of increasing surrender charges and reducing cash values on
policies ?
Mr. Howell. In a general way; yes. I might say Mr. Little, my
predecessor, was much more active in this movement than I.
Mr. Gesell. He is- dead, is he not?
Mr. H DWELL. He is dead; yes.
Mr. Gesell. Will you tell us, -using such memoranda from the files
of your company as you may require, what the nature of the discus-
sions was at that time, and what the general result achieved was?
4620 CONCENTRATION OF ECONOMIC POWER
Mr. Howell. Well, I don't think I can do better than read, as a
start, Mr. Little's memorandum of February 15, 1933.^ You have that.
Mr. Gesell. That is a memorandum entitled "Re guaranteed sur-
render values," it is not?
Mr. Howell. Yes.
Mr. Gesell. I would appreciate your reading that.
Mr. Hoa\'ell. All right [reading from "Exhibit No. 801"] :
During the present depression the phrase "cash position" has come into use,
due to the fact that many companies have found that the demands for surrender
values and policy loans have exceeded the excess of income over outgo in
other directions.
Among the smaller companies in particular, suggestions have been numerous
as to ways and means of meeting the difficulty. Typical of these suggestions
is one that would permit the life-insurance company to pay one-half of the
surrender value in cash and the other half in paid-up insurance. All these
suggestions would require legislative action in most of the States, which
action is quite unlikely to be forthcoming, due to the feeling that it is part of the
duty of the life-insurance companies to be prepared with the surrender and
loan values in an emergency.
In the case of our own company the position has not up to the present!
become so acute, although the possibilities have resulted in our sacrificing
interest earnings to some extent in order to invest in Government securities.
The point there being in order keep the company in a liquid
position, in order to meet any sudden drain [reading further] :
The possibility of an even worse situation arising in some future depression
must be admitted, especially as bills have been introduced in several States
which, if enacted, would compel us to grant cash surrender values on industrial
policies before the end of 10 years. It is, indeed, not improbable that in the
State of Massachusetts the 5-year period, which now applies to domestic
companies, may be made compulsory for all industrial policies issued in that
State.
Several of the companies whose surrender values have been on an unusually
liberal basis, in some instances being 100 percent of the reserve after 3 years
from issue, have already reduced their surrender values, and others undoubt-
edly will follow suit. In our own case, under our ordinary contracts the full
reserve is not paid as surrender value until after 10 years from issue, so that
we are to a slight extent in a better situation than the companies which have
gone furtherest in the matter of liberal surrender values. In view, however,
of the experience during the depression, it has been thought worth while to
consider what might be done to relieve the situation in future within the
limits of the present statutory requirements.
While the State laws are by no means uniform as to the matter of minimum
surrender values at the present time any surrender value which represents
the full reserve reduced by not more than $25 per thousand of insurance is
permissible, except in the. early years where the Missouri requirement of a
value not less than 75 percent of the reserve on the Combined 4-percent Table
would have to be observed.
Under normal circumstances the Prudential's present scale of surrender
values is conservative. It is on the whole lower than the Metropolitan's scale,
which provides for full reserves after 5 years instead of after 10 years from
issue. The right to pay a lower surrender value in times of stress, however,
would appear to be justified, as the payment of these surrender values in
cash at such period may place a special burden on the company. It would
appear reasonable where securities had to be sold at a loss in order to pay an
abnormal demand for surrender values to charge the amount of loss to the
surrendering policyholders. There is, therefore, a reasonable ground for a
reduced surrender value in times of stress.
To be in a position to reduce surrender values in times of stress it is, of
course, necessary that the maximum guaranteed surrender value should be the
minimum which the company undertakes to pay under all circumstances. If
this minimum were to be fixed r !he reserve less $25 per thousand, modified
* Entered later as "Exhibit No. 801." See appendix, p. 4883.
CONCENTRATION OF ECONOMIC POWER 4621
as indicated above, with tlie proviso that for any period, such as a calendar
year, the board of directors might provide for the payment of larger sur-
render values, under normal conditions current surrender values could be
paid, but in case of an emergency the minimum guaranteed surrender values,
according to the contract, would be all that the policyholder could demand.
Calculations have been made which indicate that in the case of our ordinary
department the cash surrenders of 1932, totaling about $68,000,000, would have
been reduced, had the proposed plan been in operation on all contracts, by
about $3,000,000—
Three or five ; I think it is three million —
while policies lapsing for extended insurance would have been credited with
values lower by about $2,000,000, making the total saving about $5,000,000,
which in itself would have been a substantial contribution toward our asset
losses. In the case of the industrial department, where surrender values at
present are relatively somewhat lower, the saving for 1932 would have been
about $4,000,000.
With little hope of legislation permitting increased protection from a cash
drain, there does seem to be good reason for the companies providing them-
selves with the maximum protection that the present state of the laws per-
mits. It probably would not be feasible for any one company to start alone
along the path indicated, but if the Prudential, jointly with the four large
New York companies, adopted the plan, it would unquestionably be followed
by many other companies who, at the present time, are very anxious to provide,
as far as possible, against a recurrence of the extremely difficult situation
which they have suffered from for the last year or two. It is suggested, there-
fore, that if the plan is felt to be desirable the matter should be discussed with
the four other companies indicated to see what possibilities of joint action
may exist.
Mr. Gesell. I don't believe it will be necessary to read further.
I would like to offer this memorandum for the record.
Acting Chairman Reece. The memorandum may be admitted.
(The memorandum referred to was marked "Exhibit No. 801" and
is included in the appendix on p. 4883.)
Mr. Gesell. The situation as indicated by that memorandum was
that the experience of the profession had brought forcibly to the
attention of the company the necessity of their maintaining a liquid
position ?
(The witness nodded in assent.)
Mr. Gesell. Also the desirability of their being able to reduce, if
possible, the amount of immediate cash drains which they had to
anticipate at any given time.
Mr, Howell. Yes; that is correct.
Mr. Gesell. And there didn't appear to be any hope of legislation
coming along which would lead the companies out of that situation,
so Mr. Little suggested that the five principal companies get together
to discuss the matter.
Mr. Howell. Yes.
Mr. Gesell. Why would it not be feasible for the Prudential to
have gone ahead with a program of its own without discussing the
matter with the other four large companies?
Mr. Howell. Well, I think the record shows that it is feasible, sir,
because ultimately the Prudential went ahead to the extent that it
charged — put in considerably higher surrender charges than the
others, entirely on its own.
Mr. Gesell. As a result of conferences, the Prudential did not go
along with the other four principal companies ?
Mr. Howell. That is correct.
4622 CONCENTRATION OF ECONOMIC POWER
Mr. Gesell. That is why I was interested in the statement in the
memorandum to the effect that it would not be feasible to go along
with the program without consulting the other large companies.
Mr. Howell. Weil, I think that the event proved that Mr. Little ip
saying it wasn't feasible, was mistaken. I think Mr. Little would
have thought it would have been much more practical if the other
companies had gone along; much easier to have effected the change.
Mr. Gesell. The other companies, after all, though they didn't
adopt the same basis your company did, increased their charges and
reduced their values, did they not?
Mr. Howell. I believe so.
Mr. Gesell. So that the action the Prudential took, although it was
out of line, was not as much out of line as it would have been had
not the other four companies taken some action also.
Mr. Howell. That is correct.
Mr. Gesell. So he perhaps had in mind the desirability of keeping
on a fairly, as close as possible, uniform basis, so that no single
company would have too great a competitive advantage.
Mr. Howell. I should judge so.
Mr. Gesell, Were those discussions held?
Mr. Howell. I have the vaguest memory of those discussions be-
cause I was not present and Mr. Little conducted them. If you have
any material there, it might refresh my memory.
Mr. Gesell. Do you recall what the result of the discussions was?
Mr. Howell. Just in a general way. I recall there was consider-
able discussion as to the advisability of increasing surrender charges.
I don't know whether it was in any formal meeting. Certainly when-
ever two actuaries met together, if Mr, Little was one of them, there
was apt to be some discussion about it, but ultimately the other com-
panies, I don't think at the same time, increased their surrender
charges, and I know that we increased our surrender charges.
Mr. Gesell. Let me get at it this way : Did the Mutual, Equitable,
New York Life, and Metropolitan have identical surrender charges
and surrender values at that time ?
Mr. Howell. I don't know, Mr. Gesell.
Mr. Gesell. Subsequent to these conferences they did raise them
on a uniform basis, did they not?
Mr. Howell. I think they did. I really don't know.
Mr. Gesell, Perhaps, Mr, Howell, the best we can do is simply
ask j^ou to identify some memoranda and proceed to the next witness.
Do you recognize this memorandum, dated April 18, 1933, ad-
dressed to Colonel D'Olier, as a memorandum prepared by Mr. Little,
from the files of your company?
Mr. Howell. Yes ; I believe he wrote such a memorandum.
Mr, Gesell, The memorandum states [reading from "Exhibit No.
802"] :
During last year, or the present year, six participating companies and three
nonparticipating companies have reduced surrender values. The participating
companies are Northwestern, Mutual, Massachusetts Mutual, Provident Mutual,
National of Vermont, Connecticut Mutual, and State Mutual. All of these
companies have adopted a deduction from the reserve of $16 per thousand for
duration of 2 years, $14 per thousand for duration of 3 years, and so on, so that
after 10 years no deduction is made at all.
The three large nonparticipating companies, the Travelers, Aetna, and the
Connecticut General, have adopted uniform surrender values which represent
CONCENTRATION OF ECONOMIC POWER 4623
for all of them a substantial deduction from the previous values allovs'ed.
These companies reach the full reserve after 15 years' duration, prior to which
a deduction of one-third of the reserve, but never less than $12.50 per thousand
or more than $24.50 per thousand is used. This is modified to a deduction of
about $18 in the twelfth year, $12 in the thirteenth year, and $6 in the four-
teenth year.
As the attached copy of a memorandum handed to Mr. Gore indicates, we are
suggesting decidedly more drastic deductions than those made by the com-
panies named above. Mr. Gore intends to take the matter up with the repre-
sentatives of the other four large companies in the New York metropolitan area,
is being felt that the new schedule of surrender values would be undesirable
unless adopted by at least three or four of the five large companies. If sub-
stantially reduced values are adopted by the very large companies, it is almost
certain that many of the smaller companies will be glad to follow suit. Indica-
tive of this attitude is a statement from the actuary of the National of Ver-
mont, one of the companies which has mpde a reduction recently, to the effect
that he regards the reduction merely as a step in the right direction, but as
long a step as competitive conditions justify the company in taking at this time.
The importance of the matter to the companies is, of course, the justification
for an effort to secure the desired cooperation.
I wish to offer this memorandum.
Acting Chairman Reece. It may be admitted.
(The memorandum referred to was marked "Exhibit No. 802" and
is included in the appendix on p. 4884.)
Mr. Gesell. Do you recognize this memorandum entitled "Guaran-
teed Surrender Value, Supplement to Memorandum of February 15,
1933," as a memorandum prepared by Mr. Little, which accompanied
the previous exhibit?
Mr. Howell. Yes ; I do.
Mr. Gesell. I wish to offer this in the record.
Acting Chairman Reece. It may be admitted.
(The memorandum referred to was marked "Exhibit No. 803" and
is included in the appendix on p. 4885.)
Mr. Gesell. Mr. Howell, did you attend a meeting of actuaries of 22
companies held at the New York Life Insurance Co. on May 18, 1933 ?
Mr. Howell. I believe that I did. Several subjects were discussed.
I don't think it was devoted entirely to this particular subject, was it?
Mr. Gesell. It was not. Do you recall one of the subjects discussed
at that meeting was the subject of surrender values?
Mr. Howell. I think so ; yes.
Mr. Gesell. Reading from "Exhibit No. 756," ^ to refresh your
recollection, under the caption "Policy Values," the memorandum of
Mr. Flynn states :
There was a long and interesting discussion of proper surrender charges, pro-
prietary of early dividends, and jwssibility of payment of loans in installments
and cash values after a deferred period.
All companies agreed that it would be wise if it were made mandatory by stat-
ute that all life policies contain a provision which would give the company the
right to defer payment of cash and loan values 1 year, with the possible modifi-
cation that loans be granted in equal installmients during this 1-year period of
deferment. A further modification of this which would give the company the
right to defer payment of cash values 6 month and of granting loans in monthly
installments over a period of 1 year also received the support of the majority of
the companies.
An effort was then made to get the consensus of opinion of the participating
companies as to proper surrender charges. After many trials there was finally
a unanimous vote for a program of surrender charges similar to that adopted
1 See appendix, p. 4831, at p. 4832.
4624 CONCENTRATION OF ECONOMIC POWER
recently by the stock companies. No date for putting such a program into effect
could be arranged, however, as a number of the participating companies felt
that there should be a generaV agreement on early dividends as well as surrender
charges. Apparently several of the companies — at least the New York Life,
Metropolitan, Prudential, and Mutual Life — will, on January 1, 1934, increase
their surrender charges and distribute them through a longer policy period than
at present. Some companies, such as the Massachusetts Mutual and Provident
Mutual, wanted to delay till fall or until next year which would bring their
earliest action to the fall of 1934.
The discussion was frank and thorough so that all actuaries undoubtedly gained
by the interchange of ideas. There is a possibility that a further meeting will be
held in the course of the next few weeks at which time more progress may be
made in bringing the participating companies closer together in the matter of
eliminating or reducin^early dividends and increasing surrender charges.
Have you anything to add to that memorandum as to what took
place?
Mr. Howell. No; except that apparently Mr. Flynn was in error
when he said the vote was unanimous to adopt uniform surrender
charges. We went ahead with our somewhat higher ones.
Mr. Gesell. Perhaps he was referring to the fact that all companies
expressed the sentiment that some increase should be made. There was
a uniformity on that point.
Mr. Howell. I think there was uniformity on that point ; yes.
Mr. Gesell. The discussion which took place at that time is re-
corded in the memorandum of May 19, 1933, and I ask you if you recog-
nize that as a memorandum of Mr. Little.
Mr. Howell. Yes ; that appears to be his memorandum.
Mr. Gesell. I wish to offer this memorandum for the record.
Acting Chairman Reece. It may be admitted.
(The memorandum referred to was marked. "Exhibit No. 804" and
is included in the appendix on p. 4886.)
Mr. Gesell. There were subsequent discussions from time to time,
were there not, with respect to the desirability of bringing the com-
panies together on this program ?
Mr. Howell. I imagine there were, Mr. Gesell. I am unable to
give you the date and time of them.
Mr. Gesell. "Exhibits Nos. 759 and 761" ^ in the record indicate sub-
sequent discussions.
I ask you now if you recognize this memorandum which is undated,
which I show you from the files of the Prudential entitled "Proposed
Program Re Premium Rates, Reserve Basis and Surrender Charges."
Mr. Howell. I recognize it as having been taken from our files.
Mr. Gesell. Do you know who prepared it ?
Mr. Howell. I do not. Let me see it again. I imagine from the
style Mr. Little prepared it.
Mr. Gesell. He would be the logical person to prepare such a
memorandum ?
Mr. Howell. Yes.
Mr. Gesell. I wonder what was meant in this memorandum in the
paragraph on page 3 stating [reading from "Exhibit No. 805"] :
It is proposed to proceed in the matter of surrender values to bring such pres-
sure to bear on the larger companies as will be found practicable, and in our
own case it will probably be recommended that if not the full legal surrender
charges, larger surrender charges than the so-called compromise charges pro-
posed by the Equitable shall be made.
1 1 Infra, appendix, pp. 4834-4835.
CONCENTRATION OF ECONOMIC POWER 4625
In passing it may be noted that of 18 companies represented at a previous
meeting 17 felt tliat higher surrender charges were desirable * * *.
What does the memorandum mean, or do you know, when it says :
It is proposed to proceed in the matter of surrender values to bring such
pressure to bear on the larger companies as will be found practicable.
Mr. Howell. If I could hazard a guess, sir, it would be pressure
of conversation. I don't know any other means that would be em-
ployed.
Mr. Gesell. Wasn't this the situation, that the Prudential wanted
to raise its surrender charges and decrease its values ?
Mr. Howell. Yes.
Mr. Gesell. They were not so desirous of an entirely uniform
program as they were of encouraging the other companies to bring
about some increase so that the difference between their charges and
those of other comparable companies would be not too large.
Mr. Howell. That is so.
Mr. Gesell. I wish to offer this memorandum.
Acting Chairman Reece. It may be admitted.
(The memorandum referred to was marked "Exhibit No. 805"
and is included in the appendix on p. 4887. )
Mr. Henderson. I gather from your answer about the pressure,
Mr, Howell, that you mean there are no sanctions or legal remedies or
the like wliich might be used. It was entirely of a persuasive charac-
ter, you think, which was meant by the term "pressure" ?
Mr. Howell. That is so.
Mr. Gesell. Now a basis of surrender charges was prepared as a
result of the intercompany conferences, was it not ?
Mr. Howell. I believe so. I have a document here that sets
forth this.
Mr. Gesell. Do you recognize this letter of Dr. Hunter's enclos-
ing such a basis ?
Mr. Howell, I believe it to be a copy of the letter taken from
our files ; yes.
Mr. Gesell. And that the attached sheet is the proposed basi§,
is it not?
Mr. Howell I am unable to say definitely, Mr. Gesell. It is not
our basis, of course.
Mr, Gesell. The letter to which I refer states (June 22, 1934,
marked "confidential") [reading from "Exhibit No. 806"] :
I am enclosing a memorandum and table dealing with the proposed changes
in the basis of surrender charges contemplated for new policies to take effect
as of some date in the future. It looks as if four of the larger New York
companies will adopt this scale or approximately so and in order to gather
together and disseminate any information possible I shall be glad to learn if
your company will follow this scale, and if not, what scale it will adopt.
This table is the one referred to ?
Mr. Howell. The letter speaks for itself and I think the fact
that the schedule was found next to the letter is enough indication
that it was the one referred to.
Mr. Gesell. It is entitled "Proposed Table of Cash Surrender
Values," is it not ?
Mr. Howell. Yes.
Mr. Gesell. I offer this.
4626 CONCENTRATION OF ECONOMIC POWER
Acting Chairman Reece. It may be admitted,
(The letter referred to was marked "Exhibit No. 806" and is in-
cluded in the appendix on p. 4889.)
Mr. Gesell. I have no further questions of this witness.
Acting Chairman Eeece. Any questions? If not, we thank you
very kindly.
Mr. HowEUi. Am I excused, finally ?
Mr. Gesell. Yes.
(Whereupon the witness Howell was excused. )
Mr. Gesell. Mr. Hutcheson, will you take the stand ?
Acting Chairman Reece. Do you solemnly swear that the testimony
you are about to give in this proceeding shall be the truth, the whole
truth, and nothing but the truth, so help you God ?
Mr. Hutcheson. I do.
TESTIMONY OF WILLIAM ANDERSON HUTCHESON, ACTUARY,
MUTUAL LIFE INSURANCE CO., NEW YORK CITY
Mr. Gesell. Will you state your full name, please, sir?
Mr. Hutcheson. William Anderson Hutcheson.
Mr. Gesell. Are you an oflEicer and actuary of the Mutual Life In-
surance Co.?
Mr. Hutcheson. I am.
Mr. Gesell. Are you familiar with the various conferences and dis-
cussions which took place among the companies during the period
from 1933 to 1935 with respect to increases in cash surrender values?
Mr. Hutcheson. I know something about them.
Mr. Gesell. Well, will you tell us your recollection of those con-
ferences and discussions ?
Mr. Hutcheson. Well, because of the situation in the early 1930's
and large amount of cash surrender values that were being paid, it
seemed the proper time to look into the surrender charges and we —
after a number of conferences — came to the conclusion that we should
have considerably larger surrender charges than we had had for some
years, on our policies, and our company adopted a scale of a maximum
surrender charge, the third year $25 a thousand and minimum of $10,
which tapered off on the sixteenth year, seventeenth, eighteenth, and
nineteenth, to $8, $6, $4, and $2, and no surrender charge thereafter.
Mr. Gesell. Was that scale in accord with the scale adopted by other
of the large companies in New York ?
Mr. Hutcheson. Yes; that was the same scale for those years as wai
adopted by the Equitable and the New York Life, and the Equitable
and the New York Life of course give cash surrender values at the
end of the second year, which we do not, and so that in that respect
we differed ; and also they differed a small fraction of a dollar.
Mr. Gesell. Did your company and those other two companies have
a uniform scale prior to these conferences?
Mr. Hutcheson. We had.
Mr. Gesell. Had that been a matter of chance or had that been
discussed and been the result of previous conferences?
Mr. Hutcheson. Well, it had been in force since 1908, and at that
time I wasn't in a position to know exactly what happened, but
since that time, since 1908 on, we had had, generally speaking, the
same surrender values.
CONCENTRATION OF ECONOMIC POWER 4627
Mr. Gesell. Did these changes which resulted bring the companies
a little closer together than they had been before, or keep them on
about the same level?
Mr. HuTCHEsoN. I don't think closer together; closer together in
part.
Mr. Gesell. More uniform?
Mr. HucHESON. Well, they were just as uniform before because
they had the same surrender charges, so I don't think in that re-
spect It made any diflference.
Mr. Gesell. Did you feel on behalf of your company that in mak-
ing the change it would be desirable if the other two companies also
made the change?
Mr. HuTCHESo>i" I am not going to answer you directly first, if I
may get around. I felt it was very desirable that we should make
the change we did, and I was very glad that the other two com-
panies also agreed that they thought the same as I did.
Mr. Gesell. Well now, will you try to answer me directly with
that explanation? Was it your interest. to bring all the companies
into a harmony on this proposition, or did you go ahead and change
your surrender charges and values without regard to the action of
the other companies?
Mr. HuTCHESON. We were in conferences and talked of it and we
gradually arrived at the same conclusions, that these surrender
charges were the proper ones for the three companies to charge.
Mr. Gesell. Were there differences on the part of the actuaries
present at the early conferences which were harmonized through
subsequent conferences ?
Mr. Hutcheson. It seems so, from the evidence just given, but I
don't remember the details.
Mr. Gesell. I take it the fact that you did have to have several
discussions would indicate that there was not complete agreement at
the time you first met ?
Mr. HuTCHESON. Agreement — ^I want to call your attention to
that word. In what sense do you use that word just now?
Mr. Gesell, Complete unanimity of opinion as between the three
actuaries present.
Mr. HuTCHEsoN. Complete unanimity of opinion; no.
Mr. Gesell. And as a result of the conferences the actuaries of
the three companies did reach such unanimity and make independ-
ent recommendations accordingly to their own companies?
Mr. HuTCHEsoN. That is right,
Mr. Gesell. Were you present at some of the meetings which were
held ; were a larger number of companies represented ?
Mr. HuTCHESON. I was.
Mr. Gesell. Is it correct to say that as a result of those meetings
and other discussions a general movement throughout the industry
for increased surrender charges and reduced values was initiated?
Mr. HuTCHESON. It was certainly suggested to the actuaries and
companies. Of course, those meetings were not companies ; they were
actuaries of the companies, but officers of the companies. They were
actuaries and they were acting in their own capacities until such time
as they decided to bring the thing to their trustees. Of course, this
report of the committee on cash -surrender values, of the American
124491 — 40— pt. 10 32
4628 CONCENTRATION OF ECONOMIC POWER
Institute of Actuaries, of October 1933, goes to the point. It shows
really that the surrender charges, even the surrender charges that we
have now, are very, very much less than they are in any of the foreign
countries covered by this pamphlet.
Mr. Gesell. I show you a memorandum entitled "Surrender and
Loan Values" and ask you if this is a memorandum which you pre-
pared at about this time, presenting the attitude of the companies and
the reasons why your company should adopt the new basis?
Mr. HuTCHESON. I should say it was from the look of it. I guess
that was taken from my file.
Mr. Gesell. Do you recognize it?
Mr. HuTCHESON. I recognize it as being taken from my file.
Mr. Gesell. I wish to oflfer this memorandum for the record.
Acting Chairman Reege. It may be admitted.
(The memorandum referred to was marked "Exhibit No. 807" and
is included iji the appendix on p, 4890.)
Mr. Gesell. Now one of the matters discussed was whether or not
there should be a provision in the new policies which would enable
the company to delay for a period of 6 months before paying the cash
value.
Mr, HuTCHESoN. That is so.
Mr. Gesell. Had there been such provisions in most of the policies
prior to the discussions?
Mr. HuTCHEsoN. I don't know about most, but some.
Mr. Gesell. As a result of the conferences would you say that there
was more unanimity of opinion on that point and that more com-
panies included that provision in their policies?
Mr. Hutcheson. Without checking up I should saj "Yes." I think
every one — this is my recollection ; I have no data m front of me to
tell me whether I am right or not — but my recollection is that every
company thought it was very desirable. Perhaps I am wrong in
that.
Mr. Gesell. Your memorandum states, on page 2, with respect
to that [reading from "Exhibit No. 807"] :
The Federal banking holiday of March 1933 was followed by numerous
State embargoes on cash values and loans. Had it not been for these
embargoes many life companies would have gone under and once this had
happened there is no saying where it would have stopped. Depressions and
panics happen more or less periodically, and in order to be in a better position
to meet any such occurrences in the future the actuaries of the above 20
companies have been in conference from time to time during the last 12 mouths.
It was the practically unanimous opinion of the representatives of all of
these 20 companies that future policies should contain a clause giving tiie
companies the right to delay paying the cash value or making a loan (except
to pay premiums to the company) for 6 months. The right would, of course,
not be exercised except in emergency and it could then be exercised without
the necessity of State embargoes.
Your memorandum goes on to state that many companies had
provisions for 90 or GO days, and I gather from that that this 6-month
period was an extension of the customary policy provision with
•respect to this?
Mr. Hutcheson. And it was within the provisions of the New
York insurance law which permits companies to put in a 6-month
delay period.
CONCENTRATION OF ECONOMIC POWER 4629
Mr. Gesell. Your feeling was, I take it, that the heavy cash
drains which you had experienced during the depression made it
advisable to put this protection into the policies?
Mr. HuTCHEsoN. Yes.
Mr. Gesell. Referring to page 4 of the memorandum, I want to
call your attention to this portion [reading further from "Exhibit
No. 807"] :
The two large New York c^nipanies which have the same premium rates as
ours and which at present have the same scale of cash values as ourselves—
the Equit-\.e and the New York Life — are about to adopt the new scale of
sui render charges. These two companres are perhaps our most frequent
competitors because of the number of their agents.
The two large industrial companies — the Metropolitan and the Prudential —
at present have smaller surrender charges than ours and are about to adopt
even higher scales of surrender charges than those proposed.
The three Connecticut nonparticipating companies — Aetna, Travelers, and
Connecticut General— are adopting higher surrender charges than those pro-
posed, and are extending the period of such charges from 14 to 19 years.
Skipping a portion of the memorandum, you state:
The two Canadian companies — Canada Life and Sun — will adopt a scale of
charges at least as high as the proposed new scale.
Then at the very end of the memorandum you state [reading
further from "Exhibit No. 807"] :
In the case of the proposed return to more conservative surrender values,
the actuaries of the seven large companies
Mr. HuTCHESON. May I ask what page that is on ?
Mr. Gesell. Page 6-—
Aetna, Equitable, Mutual, New York Life, Metropolitan, Prudential, and Travel-
ers— first of all held many conferences. The scale of proposed surrender charges
is a compromise between the wishes of some of these seven, who wanted the
maximum surrender charge of $25 a thousand continued during the lifetime
of the policy, and of the others, who felt that because of the comparatively
small proportion of policies kept in force for 20 years, the surrender charge
might be terminated at the end of the twentieth year.
The other 13 companies mentioned above were brought into the later
conferences, but it was felt that, as a number of them had so' recently adopted
the new scale of surrender charges mentioned above, it was improbable that
they would be prepared to make another change immediately.
With the adoption by the larger companies of the proposed scale, it is
anticipated that some, at least, dT these other companies will follow suit
before very long.
The 18 United States companies represented in these conferences were all
eastern companies, but the companies of the West and South have taken up the
same question. These companies are represented by their actuaries in the
American Institute of Actuaries, and at the October meeting of the institute a
report by a committee on cash-surrender values was submitted which recom-
mended much higher surrender charges than those at present effective in these
other companies.
It may therefore be said that there is a general movement throughout the
United States, and Canada as well, to go back to a more conservative scale of
cash values than those now guaranteed in present contracts.
Would you say that those portions of the memorandum which I have
read summarize the results of the conferences which took place during
this period?
Mr. Hutcheson. Partly. It summarizes what, in my opinion, was
the result of the conferences, and which I heard otherwise about those
American Institute companies.
4630 CONCENTRATION OF ECONOMIC POWER
Mr. Gesell. What you had learned from other sources?
Mr. HuTCHESON. Other sources. I wasn't ubiquitous and I don't
know everything that was going along, but that was my general im-
pression. Now, this statement was written by me to inform the officers
of the company who were interested in this, what I was about to recom-
mend practically. I went to those conferences as actuary of the
Mutual. I was called as actuary of the Mutual. I went there and I
expressed my own opinion. I don't think I consulted with other offi-
cers in the company until I had made up my mind when the confer-
ences were over, and then I presented this memo for the information of
the officers of the company who were interested, and the officers of the
company who were interested would be the president and the manager
of the agencies, principally. There may have been others, too. That
is how this came into being.
Mr. Gesell. Why was it necessary for the insurance industry to go
through such a thorough overhauling on surrender charges and sur-
render values ?
Mr. Hutcheson. Because of the financial situation at that time.
Mr. Gesell. Will you explain that a little more ?
Mr. Hutcheson. Now, take here, I have a statement of the insur-
ance, the cash values which were paid by this company.
Mr, Gesell. By the Mutual?
Mr. Hutcheson. The Mutual Life alone. In 1930 — I am only going
to read in odd millions because you can put in the rest yourselves — in
1930 there were thirty-million-odd;, in '31, 42 millions; in '32, 70 mil-
lions; in '33, 89 millions. Now there is a jump of nearly three times.
Mr. Gesell. Those are sums paid out ?
Mr. Hutcheson. Paid out as cash values by the company, and that
suggested to us, of course, that we had better look into the cash-sur-
render values more thoroughly than we had done recently, and as a
result we decided that the surrender charges were much smaller than
they should be; and the surrender charges are not, as I read in the
newspapers as had been reported here the other day, as bookkeeping
entries. I believe one of yt)ur witnesses said they were bookkeeping
entries. I don't know where he got that idea, but it isn't any actuary's
idea and it isn't a correct idea.
Mr. Gesell. We had better keep to the issues here.
Mr. Hutcheson. That is all right, but I wanted to interpret that
because some of the committee might have gotten it into their heads
that it was a bookkeeping entry. I didn't see the whole thing. I
only saw it in the newspapers, and perhaps I am incorrect in my
impression.
Mr. Gesell. Were there any other factors contributing to this situa-
tion, Mr. Hutcheson? Would it be fair to say that the companies
had been too liberal, due to stress of competition ?
Mr. Hutcheson. Well, they had been too liberal, and you can
hardly say the stress of competition, can you, recent competition,
since it has been going on in our case since 1908.
Mr. Gesell. I was prompted by a portion of your memo which I
will read you. You say [reading from "Exhibit No. 807"] :
Shortly after the enactment of the New York insurance laws of 1906, which
required, inter alia, that all policies issued thereafter guarantee loan values,
a number of other States enacted similar laws, some of them requiring cash
values as well as loan values.
CONCENTRATION OF ECONOMIC POWER 4g31
The provision of the New York law was that the loan should not be less than
the policy reserve less a maximum surrender charge of $25 per $1,000 insured;
the provisions of the other State laws were in many cases in line with this.
Another provision of these New York laws, namely, that of limiting the
expenses for new business, put the companies in an entirely different position,
by reducing expenses and thereby increasing dividends to policyholders.
As a result of these changes, competition arose amongst the companies in
the matter of cash values, and the companies did not awake to the fact that
these cash values had gone too far until the depression hit us a few years ago.
With some exceptions, the small companies follow the larger companies, and
when any conservative action is taken the larger companies have to lead the
way.
I gather from that, then, that it was the depression which called
forcibly to your attention the fact that the companies had been, prior
to that time, too liberal in their cash value program.^
Mr. HuTCHESON. Too many people were taking advantage of the
cash values and the loan values contained in the policies.
Mr. Gesell. You say "taking advantage"; they were exercising
contract rights.
Mr. HuTCHESON. I stand corrected.
Mr. Gesell. It is really a question of the policies being too liberal
in their terms from your point of view.
Mr, HuTCHESON. You see, there is an increase of 300 percent in 4
years, was it, and that made us investigate the matter, 4ook into it,
but we didn't need to look into it very far before we decided we had
gone too far before.
Mr. Gesell. Having found that you had gone too far, you then
felt the most desirable procedure to follow would be for you to get
together and discuss your problems and as near as possible agree
upon a table of increases?
Mr. HuTCHEsoN. I have been in the insurance business and have
been a student of its history for over 50 years, and it has been the
custom for over 100 years for actuaries in England and Scotland — and
I come from Scotland as my accent testifies — to get together and dis-
cuss their problems. Consequently, when I came here 40 years ago it
was quite natural that I should think of our getting together — never
thought of anything else — and since the Actuarial Society was started
50 years ago the actuaries of the various companies have gotten to-
gether. Before that they .didn't know each other hardly except in
some cases. During the last 50 years the actuaries here have been
getting closer and closer together. They have this Actuarial Society
which meets twice a year. It consists of a very large number of
members nowadays, and of course a number of them are junior
members who are just out of college a few years and they are not
managing the company, and we felt the necessity for getting to-
gether in this sort of a way amongst the seniors who had the matters
to decide in their hands or to recommend in their hands, and that
is why we got together.
Mr. Gesell. Of course, as far as the English experience is con-
cerned I can't be much of an authority, but I noticed in looking at
the reports the other day on annuity rates, for instance, a very wide
disparity among the companies as among annuity rates, as opposed
1 In this connection see also "Exhibit No. 808," which was entered later and appears in
the appendix on p. 4894.
4632 CONCENTRATION OF ECONOMIC POWER
to what we have in this country as a result of the conferences, a
very close uniformity on those rates.
Mr. HuTCHESON. It depends as to whether you look at this week's
rates or last week's rates.
Mr. Gesell. It must be a different kind of getting together.
Mr. HuTCHESON. They jumped there overnight — sent a telegraph
out saying they were going to change the annuity rates as we have
been doing in the recent years. Now, we took a great deal more time
in doing it here, but it is the same idea.
Mr. Gesell. Is it a matter of your own personal knowledge that
the actuaries of British companies get together for uniform rate
programs ?
Mr. HuTCHESON. Not for uniform rate programs, but for uniform
other things.
Mr. Gesell. I have no further question.
Acting Chairman Keece. Are there any questions? [None.]
We thank you very kindly, Mr. Hutcheson.
(The witness, Mr. Hutcheson, was excused.)
Mr. GESELL. There are no further witnesses today.
Acting Chairman Reece. The committee will stand in recess until
10 : 30 in the morning.
(Whereupon, at 4 : 35 o'clock, a recess was taken until 10 : 30 a. m.
Wednesday, June 21, 1939.)
INVESTIGATION OF CONCENTEATION OF ECONOMIC POWEE
WEDNESDAY, JUNE 21, 1939
United States Senate,
Temporary National Economic Committee,
Washington^ D. G.
The committee met at 10:40 a. m., pursuq,nt to adjournment on
Tuesday, June 20, 1939, in the Caucus Room, Senate Office Building,
Representative B. Carroll Reece presiding.
Present: Representative Reece (acting chairman), Messrs. O'Connell
and Brackett.
Present also: Willis Ballinger, Federal Trade Commission; Harry
J. Daniels, Department of Commerce ; Ernest Meyers, Department of
Justice ; Thomas Blaisdell, Securities and Exchange Commission, and
Gerhard A. Gesell, special counsel. Securities and Exchange Commis-
sion.
Acting Chairman Reece. The committee will please come to order.
Are you ready to proceed, Mr. Gesell ?
Mr. Geselx.. Yes; I am.
Yesterday I neglected to offer for the record a memorandum of Mr.
Hutcheson, dated May 11, 1934, with respect to surrender values. I
would like to offer it at this time.
I might say I discussed this with counsel for the Mutual Life In-
surance Co. and they are agreeable to its admission.
Acting Chairman Reecis. It may be admitted.
(The memorandum referred to was marked "Exhibit No. 808" and
is included in the appendix on p. 4894.)
Mr. Gesell. The first witness this morning will be Dr. Bolt.
Acting Chairman Reece. Do you solemnly swear the testimony you
shall give in this procedure shall be the truth, the whole truth, and
nothing but the truth, so help you God ?
Dr. Bolt. I do.
TESTIMONY OF DR. WILLIAM BOLT, MEDICAL DIRECTOR, NEW
YORK LIFE INSURANCE CO., NEW YORK, N. Y.
intercompany agreements — medical information bureau
Mr. Gesell. Will you state your full name for the record ?
Dr. Bolt. William Bolt.
Mr. Gesell. You are medical director of the New York Life Insur-
ance Co.?
Dr. Bolt. I am.
Mr. Gesell. How long have you been with that company ?
4633
4634 CONCENTRATION OF ECONOMIC POWER
Dr. Bolt. Since Jaimary 1926.
Mr. Gesell. Is there an organization known as the Association of
Life Insurance Medical Directors of America ?
Dr. Bolt. Yes.
Mr. Gesell. Will you tell us a little about that organization?
Dr. Bolt. The kind of an association ? ....
Mr. Gesell, In a general way, what kind of an association is it?
Dr. Bolt. The Association of Life Insurance Medical Directors is
composed of the medical directors of certain American and Canadian
companies. It meets once a year, usually in October. The Executive
Council meets also, in the spring of the year. Its purpose is mainly
the study of problems of life-insurance medicine.
Mr. Gesell. How many companies are members of the associa-
tions ? How many companies are represented through their directors
on the association, approximately?
Dr. Bolt. There are approximately 100 companies whose medical
directors are members of the Medical Directors Association. Then
there are a number of other companies, whose medical directors do not
belong to the association, but are invited to the meeting and are
allowed to vote in proportion to their numbers and their relationship
to the other members in the medical association.-
Mr. Gesell. Now, the Association of Life Insurance Medical Di-
rectors has various subcommittees, does it not?
Dr. Bolt. Yes.
Mr. Gesell. One of those committees is known as the M. I. B.
committee ?
Dr. Bolt. Yes.
Mr. Gesell. M. I. B. stands for Medical Information Bureau, does
it not?
Dr. Bolt. That is correct.
Mr. Gesell. Will you tell us a little about that committee? I un-
derstand you are secretary of it, are you not. Doctor?
Dr. Bolt. Yes. You mean about the bureau itself ?
Mr. Gesell. Yes. What the functions of the committee are, first
of all, and then how the bureau operates.
Dr. Bolt. The committee itself, which is composed of thp medical
directors of a number of the member companies, these members being
appointed by the president of the Association of Life Insurance Med-
ical Director, administers the Medical Information Bureau.
Mr. Gesell. Now what is the bureau ?
Dr. Bolt. Well, possibly the best way to describe the Medical In-
formation Bureau is to read a summary of a memorandum prepared
a short while ago, with the contents of which I believe you are some-
what familiar. The formation of the Medical Information Bureau
was approved at the annual meeting of the Association of Life In-
surance Medical Directors of America, held June 3 and 4, 1902. The
function of the bureau is to facilitate the interchange, betrv^een medical
directors of life-insurance companies, of information bearing on the
insurability of risks. The purpose of this interchange is to protect
life-insurance companies and the policyholders against fraud and
misrepresentation.
Mr. Gesell. This bureau then is sort of a central clearing house
for information concerning policyholders' health ; is that correct ?
Dr. Bolt. That, in substance, is correct.
CONCENTRATION OF ECONOMIC POWER 4635
Mr. Gesexl. The companies report to the bureau cases of impair-
ment as they come across them in the examination of policyholders or
prospective policyholders ?
Dr. Bolt. That is correct.
Mr. Gesell. Does the bureau have regular bylaws ?
Dr. Bolt. The bylaws that govern the bureau are contained in the
bylaws of the Association of Life Insurance Medical Directors.
Mr. Gesell. Do you recognize this document as the bylaws which
govern the operations of the bureau?
Dr. Bolt. I do.
Mr. Gesell. I wish to offer these bylaws for the record.
Acting Chairman Reece. They may be admitted.
(The document referred to was marked "Exhibit No. 809" and is
included in the appendix on p. 4896. )
Mr. Gesell. Do you recognize this document which I now show
you as a list of the regular and associate members of the bureau?
Dr. Bolt. I do.
Mr. Gesell. I wish to offer this for the record.
Acting Chairman Reece. It may be admitted.
(The list referred to was marked "Exhibit No. 810" and is included
in the appendix on p. 4897.)
Mr. Gesell. Can you tell us, Dr. Bolt, how many companies are
members? Am I correct in saying there are 98 regular members and
116 associate members?
Dr. Bolt. That is correct. I think there are a couple of companies
that are in the course of applicarion; I can't say that they are mem-
bers yet. That would bring the associate membership up to about
two more than that figure.
Mr. Gesell. What is the standard for admission to the medical
information bureau ? What miist a company do to become a member
of it?
Dr. Bolt. The company applies to the secretary of the ISIedical
Directors Association. That application is referred to a subcom-
mittee which investigates the organization and makes its report to
the executive council at the next meeting.
Mr. Gesell. Are there any qualifications as to the length of time
the company has been in operation; the amount of assets it has?
Dr. Bolt. Yes; they are laid down in the bylaws which you have
already submitted.
Mr. Gesell. And there are two types of membership, are there
not, the regular and the associate?
Dr. Bolt. That is correct.
Mr. Gesell. Have there been in the past companies which have
applied for membership to the bureau which have been turned down ?
Dr. Bolt. Yes. Perhaps I should explain that by saying that in
many cases companies are deferred or postponed until more informa-
tion has been _ received. There have been occasionally companies
whose application has been definitely turned down.
Mr. Gesell. Can you tell us some of the reasons which have
prompted the turning down of any particular member ?
Dr. Bolt. Well now, I am speaking in general because I am not a
member of the subcommittee; that is, I am the secretary of the sub-
committee which investigates these companies but I do not act or vote
on that committee. In general, an application may be postponed
4636 CONCENTRATION OF ECONOMIC POWER
or even declined if there is reason to believe that the company is
not stable or hasn't been in existence long enough to prove that it
is going to remain as a life insurance company. Sometimes advice
is received that possibly the people who are in charge of the company
are not looked on perhaps as favorably as some others. There is also
the question of the medical department, whether it is efficiently ad-
ministered in the opinion of the committee investigating the
organization.
Mr. Gesell. How many companies would you say had been turned
down per year ; a negligible number, is it ?
Dr. Bolt. Not very many. I mean, offhand — of course this is
subject to correction — I have been on this M. I B. committee I think
about 8 years, and I can remember only two or three companies in
that time that have been permanently denied membership.
Mr. Gesell. Will you tell us the mechanical operation of the
bureau, how companies report to the bureau, the type of information
which they report, and what procedure they must follow to obtain
information from the bureau?
Dr. Bolt. The companies report impairments to each other
through a separate organization — the Recording and Statistical
Corporation. Reports are made in the form of code symbols which
include impairments, conditions, and clinical tests which may affect
insurability. The impairments to be reported are designated in the
official list of impairments, brought up to date and revised in 1935,
and are reported under the instructions given in this official list and
supplemented by regulations in the M. I. B. procedure. The rule
provides that all cases \yhich present one or more of the impairments
named in this official list shall be reported, entirely without regard
to whether the reporting company accepts, suspends, or declines the
risks or offers some modified plan of insurance. The action of the
reporting company with regard to any case is not regarded as a
proper subject of discussion or inquiry. The fact that an impair-
ment is reported is not necessarily an indication that the applica-
tion has been declined by the reporting company. Frequently the
reporting company issues insurance notwithstanding the impairment.
Upon receipt of the reports from the companies the Recording and
Statistical Corporation prints a card for each individual and distrib-
utes a copy of this card to the member companies. This card contains
the individual's name and other means of identification, such as the
date of birth and occupation, and the code symbol or symbols.
The rules also provide that the facts of record in the bureau, and
the meanings of the code symbols employed, shall not be communicated
to the Recording and Statistical Corporation, nor to any individual not
specifically authorized to receive them. Provision is made for substi-
tute reports by the same company or other companies indicating that
an impairment previously reported no longer exists, if later investiga-
tion shows this to be the case.
Mr. Gesell. Let me see if I understand how this operates. Let's
start with a policyholder. We will call him Mr. Jones. I go to Mr.
Jones to sell him a life-insurance policy and he has a medical exami-
nation. I am a member of this M. I. B. Do I report to the M. I. B.
the results of that medical examination ?
Dr. Bolt. You say you go to Mr. Jones and you are a member.
The agent is not a member.
CONCENTRATION OF ECONOMIC POWER 4637
The application comes in to the company with the medical exami-
nation.
Mr. Gesell. And the company reports then the results of the medi-
cal examination to the M. I. B. if any impairments are disclosed?
Dr. Bolt. That is correct.
Mr. Gesell. Assuming that no impairments are disclosed, the com-
pany can write to the M. I. B. and say, "Do you have any information
on policyholder Jones?"
Dr. Bolt. Well, actually the company would have in its own files
a previous record on that man Jones if any such record had been
compiled within the previous 5 or 10 years, depending on the type of
impairment.
Mr. Gesell. You mean the M. I. B. sends to each of the member
companies a copy of a card for each policyholder?
Dr. Bolt. For each impairment on any applicant as soon as it is
received.
Mr. Gesell. Then, if I want more information concerning that
policyholder, can I from the card tell which company reported the
impairment? How do I find out the name of the company that
reported the impairment ?
Dr. Bolt. The only method, assuming that the man himself in his
application did not reveal insurance experience with some other com-
pany, is for the company that is making the inquiry to send a request
for further details through the Recording and Statistical Corporation
to the reporting company, and that company is requested to reply
directly to the company that asked for the information. Of course,
that original company has it within its own discretion as to whether
or not they reply and reveal their own identity and give additional
information.
Mr. Gesell. As a practical matter, I assume they do reply.
Dr. Bolt. Yes. There are a few cases where they don't.
Mr. Gesell. And the company writing the policy gets in touch with
the previous company which reported the impairment by asking the
recording bureau to have the company reporting the impairm.ent to
get in touch with them?
Dr. Bolt. That's it, or asking that company to seiKi further details.
Mr. Gesell. How many names are there on file at the present time
in this bureau ?
Dr. Bolt. Of course, I can't tell you how many there are to date, but
approximately 6,700,000 the last time I asked, which was a month or
so ago.
Mr. Gesell. There is a daily reporting, is there not, by the com-
panies?
Dr. Bolt. A daily reporting by the companies and, of course, daily
elimination. Because some people die and their records are pulled.
Certain impairments are removed at the end of 5 years, and all impair-
ments are removed from the master file at the end of 10 years.
Mr. Gesell. But for these 98 regular companies and the 116 associ-
ate member companies you have on file cards for every policyholder
where some impairment appears in the course of the examination of
that policyholder for an application for insurance ?
Dr. Bolt. Yes ; with this modification, as I say. The man may be a
policyholder today and have had an impairment 6 years ago. If it
4638 CONCENTRATION OF ECONOMIC POWER
happens to be an impairment that we think of no importance after 5
years, perhaps that record would have been destroyed.
Mr. Gesell. Yes; but this in effect is a system which enables each
company which belongs to profit by the medical experience of any
other company which also belongs, with respect to the particular
policyholder involved.
Dr. Bolt. Yes ; I think that is correct.
Mr. Gesell. Now, we have been talking about impairments. What
are impairments? What are the kind of things that are reported on
these cards ?
Dr. Bolt. Mainly, of course, conditions of the body that in the opin-
ion of the medical directors affect the man's insurability.
Mr. Gesell. Well, you mean that
Dr. Bolt. Heart murmurs, history of tuberculosis, for instance, his-
tory of cancer ; anything of that nature.
Mr. Gesell. Overweight?
Dr. Bolt. Yes ; not necessarily minor degrees of overweight.
Mr. Gesell. Social disease of one sort and another?
Dr. Bolt. Yes.
Mr. Gesell. Do tlie cards contain any information of a personal
character concerning the policyholders which may not be strictly medi-
cal in nature, which may affect his insurability, say drunkenness or
things of that sort ?
Dr. Bolt. Of course, any information that affects the insurability of
the individual, whether of that nature or definite medical conditions,
may be reported in such a way as to warn the next company that the
man applies to that they should investigate and check up that possi-
bility.
Mr. Gesell. And I understand that information is all set up on a
code system ?
Dr. Bolt. That correct.
Mr. Gesell. So t^.at if anyone should chance to come across a card,
all he would see would be a bunch of symbols on the card, which he
couldn't translate without the code?
Dr. Bolt. He couldn't translate without a key to the code.
Acting Chairman Eeece. Mr. Gesell, does the index include appli-
cants for insurance as well as policyholders ? That is, if a party makes
application for an insurance policy and is turned down, does that
information go into the files and remain for a period of time ?
Dr. Bolt. Yes. Perhaps I could make it clearer. Xot all policy-
holders appear on this list. Only the names of policyholders who may
have an impairment.
Mr. O'CoNNELL. Doesn't that include a list of people who niight
not be policyholders at all ?
Dr. Bolt. It includes a list of people who have applied for insur-
ance, irrespective of whether they are policyholders of that company
or of any other company.
Mr. O'CoNNELL. So the index does not include all policyholders
and all the people in the index are not policyholders ?
Dr. Bolt. That is correct.
Mr. Gesell. We have talked so far about the reporting of informa-
tion which was obtained in connection with an application for insur-
ance, Dr. Bolt. What about this situation? Suppose one of the com-
CONCENTRATION OF ECONOMIC POWER 4639
panies lias a little country doctor out in some small town and he knows
that John Jones is a policyholder, or prospective policyholder, and in
the course of an examination he notices something seriously w^rong
with that particular person's health. Does he, as a matter of course,
report that to the M. I. B J
Dr. Bolt. You mean a man goes to his attending physician?
Mr. Gesell. Yes.
Dr. Bolt. And that attending physician happens to he an examiner
for some life-insurance company ?
Mr. Gesell. Yes.
Dr. Bolt. He is not called upon to report that unless that man later
comes to. him, and in his capacity as a life-insurance examiner he ex-
amines that man. Then that man presumably would give him the
history.
Mr. Gesell. Then the only reporting by the companies is reporting
of information obtamed directly in connection with an examination of
a policyholder or a policy ?
There is never any reporting of medical information obtained any
other way ?
Dr. Bolt. Oh well now, that is not entirely correct, because a man
may be applying for reinstatement of his policy. If you say that is
applying for a policy, then I presume your statement is substantially
correct. I mean it isn't necessary that the man should apply for new
insurance,
Mr. Gesell. But it must be in connection directly with an examina-
tion by a doctor representing an insurance company that the doctor
obtains the information; any other way, he does not report it?
Dr. Bolt. The doctor has no relation to the insurance company
and no connection with them, unless he is •axamining as an examiner
for the company at that time.
Mr. Gesell. And then the doctor does not report to his company
if he obtains any information which he obtains concerning a policy-
holder or prospective policyholder which he obtains in some way
other than in connection' with tTie writing of insurance?
Dr. Bolt. If it is connected with the writing of insurance the
doctor should report it, but I don't see any necessity for his reporting
unless it is in connection with insurance.
Mr. Gesell. I don't see any necessity, either. I am asking whether,
however, he does in some cases.
Mr. Bolt. I will put it this way, Mr. Gesell: The two-hundred-
odd members are all obligated to report any information, irrespec-
tive of the method in which they receive it. Now, of course, I cannot
say how these different companies may receive this information at all
times.
Mr. Gesell, Oh, you mean that as far as the M. I. B. is con-
cerned its contract and agreement and understanding is directly with
the company, and the company is obligated to report all information
that is concerning a policyholder's impairment to the bureau?
Dr. Bolt. Irrespective of how it obtains the information.
Mr. Gesell. And the bureau does not control or attempt to con-
trol the methods by which the individual companies obtain the in-
formation concerning the particular policyholder's health?
Dr. Bolt. That is so.
4640 CONCENTRATION OF ECONOMIC POWER
Mr. Gesell. So it is quite possible that the companies may be re-
porting to you from <,ime to time information concerning policy-
holders which they have obtained from their doctors or investigators
or from someone else other than in the regular course of examining a
policyholder or prospective policyholder for insurance?
Dr. }3oLT. That is true.
Mr. GrESELL. Now, do I understand that all of the companies that
belong to the bureau are level premium legal reserve companies?
Dr. Bolt. That is one of the requirements in the bylaws.
Mr. Gesell. Do you have any reporting system that covers indus-
trial policyholders, holders of industrial insurance?
Dr. Bolt. As far as I know — and, of course, I have not had any
experience with a company writing industrial insurance — the com-
panies that do industrial business do not report the industrial busi-
ness to the bureau. Those that I have spoken to about it tell me they
don't even check those applications through the bureau.
Mr. Gesell. Just as far as you know, the bureau relates to ordi-
nary insurance?
Dr. Bolt. That is true.
Mr. Gesell. How is it financed, Doctor?
Dr. Bolt. Of course, there is no cost for the administration by the
committee.
Mr. GeselI/. You mean the committee serves voluntarily, free of
charge ?
Dr. Bolt Yes; the various medical directors on the committee.
The companies pay to the Recording and Statistical Corporation
a certain amount based on the number of cards they receive per year.
For instance, one of the regular members, or rather most of the regu-
lar members, may receive cards from all over the country and they
pay at the rate of so much per thousand cards. Another smaller com-
pany doing business in a restricted area, possibly an associate mem-
ber, may only want the cards from a certain section of the country.
Mr. Gesell. In other words, the member companies subscribe
either for the entire service or for the service on policyholders resi-
dent in particular States and localities?
Dr. Bolt. That is correct.
J\Ir. Gesell. Now, do they pay their fee to the M. I. B. ?
Dr. Bolt. No ; they pay a fee, which is siniply a service charge and
covers the cost of assembling and distributing the information, to the
Recording and Statistical Corporation.
Mr. Gesell. And this Recording and Statistical Corporation is
employed by the M. I. B. to do this work?
Dr. Bolt. Yes ; I suppose you would term it that.
Mr. Gesell. It is under contract with it, not with the M. I. B., to
do that?
Dr. Bolt. We have arrangements by which they do this work
for us.
Mr. Gesell. So that the only expenses involved are the expenses in
the mechanical operations of this system?
Dr. Bolt. That is correct.
Mr. Gesell. The companies subscribe for the service and pay the
Recording and Statistical bureau accordingly ?
Dr. Bolt. Yes.
CONCENTRATION OF ECONOMIC POWER 4^41
Mr. Gesell. Supposing I was a company and decide to take the
entire service for a year. What would it cost me ?
Dr. Bolt. Well, of course, it depends on the number of cards issued
that year. I think— I haven't the figures with me— approximately
5 to 6 thousand dollars for the cards.
Mr. Gesell. That would be the entire country?.
Dr. Bolt. The entire United States and Canada.
Mr. Gesell. Would there be any other expenses that I would have
to pay ?
Dr. Bolt. Now, that would depend on the company. I meai., some
companies ask the Recording and Statistical Corporation to do addi-
tional work for them. They may ask them to supply certain forms;
they may sometimes say they want quick action on a report and tele-
graph for it. Well, they pay the additional cost themselves for tele-
graphing reports and so on.
Mr. Gesell. But for the cards themselves?
Dr. Bolt. For the cards themselves, no additional charge.
Mr. Gesell. Costs about 5 or 6 thousand dollars?
Dr. Bolt. Approximately that; a small company, of course, might
only pay 3 or 2 hundred dollars a year.
Mr. Gesell. How has this thing been running. Dr. Bolt ? How
many impairments have been reported a year to the bureau? It has
run a little under a million a year, hasn't it?
Dr. Bolt. Put it this way. There are probably between three-
quarters of a million and a million new cards printed each year, but
not all of those indicate additional reports. I mean some cards are
substitute cards, corrected cards, or something of that nature. For
instance, a company may today receive a report as a man may go to the
doctor for the company and say, "I had an ulcer of the stomach." All
right, the company reports an ulcer of the stomach. Well, it may be
the next month, on further investigation, he may find that it was not an
ulcer actually in the stomach but an ulcer of the intestine, so the
company will recall that first report and replace it with a more ac-
curate one. That is a substitute or corrected card, don't you see ?
Mr. Gesell. So there may be about three-quarters of a million im-
pairments reported a year; some of those may be duplications of
impairments already reported?
Dr. Bolt. Yes.
Mr. Gesell, What is the purpose of this bureau. Dr. Bolt? Is it
to eliminate any possibility of one company taking on an inferior
grade of risk?
Dr. Bolt. No.
Mr. Gesell. It has that result, doesn't it?
Dr. Bolt. That would be a matter of opinion, I think. The whole
purpose of the thing is so that the company shall not assume a risk
without having information about an impairment that some previous
company may have found. What they do with that is up to that
company itself.
Mr. Gesell. It must result, must it not, however, in eliminating
uninsurable people from any company and raising the standard of
risk taken by the member companies at large ?
Dr. Bolt. Well, within reasonable limits that is true. I mean you
use the term "uninsurable risk." 'A man may be considered not
4642 CONCENTRATION OF ECONOMIC POWER
insurable by one company today and yet another company may con-
sider him insurable, and a man who is uninsurable today may in the
course of a year or two be insurable.
Mr. Geseul. One of the results, regardless of those slight dif-
ferences, is to prevent companies from taking bad risks, isn't it ?
Dr. Bolt. Oh, yes.
Mr. Gesell. And it is to make available to each member company
the medical experience of all the other companies with that particular
risk where that medical experience has been at all unfavorable ?
Dr. Bolt. Yes.
Mr. Gesell. I have no further questions.
Acting Chairman Reece. Are there any questions? Thank you
very kindly. Doctor.
Mr. Gesell. I. will call Mr. Murphy.
TESTIMONY OF RAY D. MURPHY, VICE PRESIDENT AND ACTUARY,
PRUDENTIAL INSURANCE CO. OP AMERICA, NEWARK, N. J.—
Resumed
INTEKCOMPANY AGREEMENT — "jUMBO RISKS"
Mr. Gesell. You have already been sworn, have you not?
Mr. Murphy. Yes.
Mr. Gesell, Mr. Murphy, are you familiar with the committee
known as the Committee Underwriting Large Risks?
Mr. MuKPHY. I am.
Mr. Gesell. Am I correct in Saying that that committee was
formed in 1929 at a joint meeting of Medical Directors' Association
and the Actuarial Society?
Mr. Murphy. That is the first time that such a possibility was
discussed. It wasn't actually formed at that time.
Mr. Gesell,. First discussions at that time?
Mr. MxjRPHY. Yes.
Mr. Gesell. Willyou tell us a little about what this committee
is and why discussions with respect to its formation were held, and
what purposes it was meant to achieve?
Mr. Murphy. Just prior, a few years prior, to the meeting in
May 1929, when this was discussed very broadly between medical
directors and actuaries the companies had been increasingly concerned
with the fact that on the very large risks, frequently termed slangily
"jumbo risks," the mortality was rising and was considerably above
the general mortality of the company, even with due regard to age
distribution. It was therefore evident that this larger business was
throwing an extra cost onto the policyholders in general and it was
decided in view of the rather broad experience of that kind between a
large number of companies, that the medical directors and the actu-
aries were sufficiently concerned about it to get together and discuss
why it was, and what could be done to prevent it.
That conference finally, after discussion, suggested that a smaller
joint committee of doctors and actuaries be formed to study further
the causes of the high mortality. There was undertaken quite an
extensive study both from the general mortality standpoint and from
the standpoint of analyzing the early death claims for very large
CONCENTRATION OF ECONOMIC POWER 4643
amounts to see what could be discovered in the study of them, as to
the cause.
That study resulted in certain evidence of causes coming out. For
one thing, it was discovered that there was an abnormally high death
rate among the very large risks — I am now talking primarily about
people who are insured for, say, $100,000 or more; there was a very
high death rate from heart disease, far more than is normal among
policyholders. An examination of the cases indicated a very clear
presumption that there were many impairments existing in the hearts
of those people at the time they were insured, but the rather superficial
brief examination to which the ordinary policyholder is subjected did
not bring out those impairments, because they did not use suflSciently
intensive methods.
It also seemed pretty clear that there was pretty strong antiselection,
as we term it in the business, going on ; in other words, that mixed in
with it there must be a good deal of concealment of physical histories.
In fact^ in some of the cases we could trace down phj^sical histories
which had not been disclosed in answer to the questions on the medical
examination.
We also found that the representations in many of these large death
claims which had occurred within the first few years of issue, as to the
total insurance in force on the life and the amount of insurance being
applied for on the life in a number of companies, as is commonly the
fact in those large risks, were not being accurately disclosed to the
companies. In other words, there were misrepresentations taking
place likewise with respect to the total risk that the companies as, a
whole were being asked to assume.
Now, that was quite important, because studies that had been made
in the death rate among those large risks disclosed that the mortality
did not depend upon the amount of insurance in any one company,
but there was a clear correlation between the mortality and the total
amount of insurance existing on the life in all companies.
Mr. Gesell. You means that the more insurance these fellows had
the quicker they died ?
Mr. Murphy. The higher the death rate.
Mr. Gesell. 1 won't ask you for the actuarial explanation of that,
but that seems a j "ttle odd on the face of it.
Mr. MuEPHT. Well, it deals, as I say, largely with what we insurance
men are apt to call antiselection. That is, the more incentive there is
to act contrary to the legitimate insurance interests of the company,
the higher the incentive in amount, the more you ordinarily get, well,
some semi-innocent and some perhaps not so innocent failures to dis-
close in answer to the insurance companies' questions.
Mr. Gesell. You mean, to put it so I understand it, that a man who
thinks that he is going to die shortly, or is in poor health, is liable to
make many efforts to get a great deal of insurance, and if he has to
engage in a certain amount of misrepresentation to get it, that still
doesn't deter him ?
Mr. Murphy. No. As the ante goes up the likelihood of it occurring
becomes greater.
It was also disclosed in those investigations that one thing that the
companies should do was to intensify their investigations with respect
to the financial risk and what we call moral hazard of the risk. That
124491 — 40— pt. 10 33
4644 CONCENTRATION OF ECONOMIC POWER
is, his general business conditions, whether certain worries are hang-
ing over him, and so on. Based on those findings, which are thus
summarized, the committee that was considering the question con-
cluded that if they were to prevent the high extra mortality which
was, of course, going actually as a cost to the general body of policy-
holders, they ought to be in a better position to prevent conscious or
unconscious misrepresentation by setting up the necessary mechanical
procedure to prevent it.
Mr. Gesell. Am I correct in saying that as a result of those discus-
sions and conferences a series of rules was adopted by a group of com-
panies interested in the problem ?
Mr. Murphy. That is correct.
Mr. Gesell. Which resulted in more rigid medical examinations and
resulted in more extensive inquiry into the background of each particu-
lar applicant?
Mr. Murphy. That is correct.
Mr. Gesell. In addition, was there not an arrangement worked out
through the recording bureau similar to that that Dr. Bolt described
as working in the case of the M, I. B. for the reporting of large risks
by the member companies?
Mr. Murphy. Well, somewhat similar to it, and somewhat dissimi-
lar. There was worked out an arrangement whereby the companies
in this group would record at one central point the amount of insur-
ance that was in force that was taken in blocks of $50,000 or more, so
that approximately we could check the accuracy of the applicajit's
statements with respect to the total amount of business shown, which
was proving to be such an important factor, and particularly when
related to his finances.
Mr. Gesell. I show you a sheet entitled "Underwriting rules rec-
ommend, corrected as of April 1, 1936," and ask you if that is the
set of underwriLing rules with respect to underwriting of large risks
which are now in effect.
Mr. Murphy. That is the one that certainly was in effect on April 1,
1936. I think any amendments that might have been made in the last
3 years would be purely minor matters of administration.
Mr. Gesell. I wish to offer these rules for the record.
Acting Chairman Reece. They may be admitted.
(The rules referred to were marked "Exhibit No. 811" and is in-
cluded in the appendix on p. 4901.)
Mr. Gesell. Do you next recognize this document, dated April 30,
1939, signed by yourself as chairman of the executive cmmittee on
underwriting large risks, as a report of that committee for March
31,1939?
Mr. Murphy. Yes ; that is the annual report of the executive com-
mittee to the companies.
Mr. Gesell. I wish to offer that for the record.
Acting Chairman Reeoe. It may be admitted.
(The document referred to was marked "Exhibit No. 812" and is
included in the appendix on p. 4902.)
Mr. Gesell. I next show you a letter dated August 18, 1932, listing
the companies which were members of the recording bureau as of
that date, and ask you if that is a correct list of the membership in
this agreement for underwriting large risks at that time.
Mr. Murphy. I believe it was.
CONCENTRATION OF ECONOMIC POWER 4645
Mr. Gesell. Have there been any substantial changes in that
list?
Mr. Murphy. No substantial changes as I remember it; I think
cne additional company came in and three ^^ithdrew,
Mr. Gesell. The list includes, does it not, all of the principal
companies ?
Mr. Murphy. No. Of course it depends on what you call a princi-
pal company.
Mr. Gesell. There are some 38 or 39 companies here.
Mr. Murphy. If I may look at it here, I think there is one fairly
prominent company that is not in that list.
Mr. Gesell. What company is that?
Mr. Murphy. The Mutual Life Insurance Co. of New York.
Mr. Gesell. Other than that, most of the prominent companies
are members, are they not?
Mr, Murphy. Yes.
Mr. Gesell. I wish to offer this list for the record.
Acting Chnirman Eeece. It may be admitted.
( Tlij list referred to' was marked "Exhibit No. 813" and is included
in the appendix on p. 4903.)
Mr. Gesell. Is there any particular reason why the Mutual Life
didn't come into this, Mr. Murphy ?
Mr. Murphy. I don't know, I think they were unconvinced of the
necessity of it. I think as I remember it they probably had a little
better experience with the larger-sized risks than a lot of the rest
of the companies and I think that was probably the basis of the
reason for staying out.
Mr. Gesell. What I want to ask you is why it was necessary for
the companies to enter into an agreement such as this, to set up
underwriting rules and go through all the formalities of a concrete
understanding. Wouldn't it have been just as easy for each com-
pany, after it had participated in these discussions and gotten a
broad outlook on the whole problem, to adopt for its own company
such underwriting rules and requirements as it thought desirable?
Mr. Murphy. I might, if I may before answering this question
specifically, just state that the only part of the procedure which was
considered, shall I say, definitely to be followed in all cases and
precisely, were two : One was this reporting of the amounts of insur-
ance to the recording bureau ; and the other was the method of
medical examination. You will find, probably, in the record, a
good many suggestions with respect to the general phases of under-
writing that have always been considered purely suggestive.
Mr. Gesell. I was talking with respect to these rules for medical
examinations.
Mr. MuKPHY. The very large risk business is handled very largely
in what we may call a brokerage manner, that is, it is very common,
and has been, to have a man examined lor a number of companies
at once, and to have copies of that examination sent to the various
companies to which various amounts are being applied for simul-
taneously and then sometimes if one of the companies doesn't issue
and another one does, to increase the amount applied for in the com-
pany that does.
From a practical standpoint with that large business running, say,
$100,000 in general, and up, it is a very great practical advantage
4646 CONCENTRATION OP ECONOMIC POWER
to have a very concrete understanding among the companies as to
what their medical requirements will be, so that when the man is
examined it will be under a type of examination that will be quite
satisfactory for the use of all of those companies. That is one
aspect.
Mr. Gesell. Let me see. If I decide that these large risks were
risky risks for my company and that I should look at them with par-
ticular care, couldn't I simply say to my medical director that I
wanted him to employ such and such methods of examination. He
could turn away some of these large risks and they might go to other
companies, but why would I have to have any agreement with other
companies that they do the same thing,
Mr. Mtjrphy. Your suggested procedure has actually been adopted
by a number of companies over and beyond the examination procedure
outlined in these rules. There are several companies, for example, that
require electrocardiograms and X-rays of the chest, for example, and
blood examinations if necessary, for amounts even smaller than these,
so that they have actually operated on that plan. However, I will say
this: That, of course, it is also quite desirable for all the companies
to have their examination procedure quite thoroughly understood and
in what I call the brokerage atmosphere of the large business, there
is a much less chaotic condition going on if a large number of
companies are using the same examination procedure.
Mr. Gesell. I take it you mean, then, there is less shopping around
by the particular policyholder.
Mr. Murphy. It tends to prevent shopping around and just trading,
as it were, on the basis of the actual procedure of examination.
Mr. Gesell. But in your own company, Mr. Murphy, if you had
established rules which you thought were adequate and desirable what
difference did it make to you whether some of these other companies
were harassed by people shopping around for business? I can't see
why there has to be an agreement on this thing at all.
Mr. Murphy. As I said, there are other reasons which I spoke of
why an agreement of a definite kind is of very great practical use in
a field of business where the same examination is being used so largely
by other companies, put I agi-ee with you that as a practical fact, the
companies do not like, shall I put it this way, to have, shall I say,
business traded on from the standpoint of the mere mechanics of exam-
ination, particularly in a class of business where it is being sought to
protect the general body of policyholders against the extra mortality
on very large amounts.
Mr. Gesell. This, then, would be another instance in the life-insur-
ance business where the member companies, at least, felt that they did
not want to compete.
Mr. Murphy. I think that is correct ; yes.
Mr. Gesell. They did not want one company to have a competitive
advantage by offering slightly less rigid forms of medical examination
on these large risks than another.
Mr. Murphy. Yes ; that is right.
Mr. Gesell. And, therefore, they felt that there were more advan-
tages in an agreement and understanding which would unify the prac-
tice of all the companies than for each of them to go on their inde-
pendent road.
CONCENTRATION OF ECONOMIC POWER 4647
Mr. Murphy. Yes. I think I can fairly state that the companies
that were in this group felt that medical examinations were not a
proper instrument of competition.
Mr. Gesell. I have no further questions of this witness.
Acting Chairman Reece. Do any members of the committee have
any questions ?
Mr. Meteijs. Did the increasing rigidity in the rules apply on a
vertical scale, that is to all policyholders, large and small ?
Mr. Murphy. This rule about intensive medical examination ap-
plied only to very large risks. For example, when the procedure was
started it applied only if the applicant was currently applying in all
companies for as much as $100,000 of insurance, and that would make
his total insurance on his life in excess of $300,000 of insurance. Those
were the only cases where these so-called rules would automatically
come into play. Of course, if a company got a smaller application and
there was some peculiar, indefinite, say, heait history, they would
want him more intensively examined to develop whether that was a
serious heart history or not, but that would be merely applying the
individual case in the medical director's discretion.
Mr. Meyers. Does the attending physician know the amount of in-
surance applied for when he examines the applicant ?
Mr, Murphy. It depends on the company's blanks. In our own
blanks the examiner for us asks the applicant how much he is apply-
ing for, not only to us but to other companies, and how much insur-
ance he has on his life in our company and in other companies. I
think that is a fairly common form of practice.
Mr. Meyers. Can you attach any significance to such a question ?
Mr. Murphy. Yes; it is because of our findings that when you get
up into the large amount field, the necessity for safeguards against
extra mortality, primarily from fraudulent causes, very much in-
creases.
Mr. O'Connell. Just to be sure I understood you correctly, as I
understand it, the agreement or set of rules that were worked out
embody things that are being done by companies generally, which
your company could have done and could do individually and without
such an agreement but the result would have been that your company
would probably not have been able to get as large a share of that busi-
ness had you done so, is that correct ?
Mr. Murphy. That may be so ; yes. It probably would be so.
Mr. O'Connell. It eliminated the competitive advantage of com-
panies having less rigid rules, so I assume the competitive advantage
would mean you would get a bigger share of the business.
Mr. Murphy. And a bigger share of what we considered an unde-
sirable share of business.
Mr. O'Connell. Do I also understand that you are interested in
protecting the other companies ?
Mr. Murphy. No ; we are each interested in protecting ourselves.
Mr. Elaisdeli7. If I understand it correctly, Mr. Murphy, the pur-
pose here is to prevent a type of competition among agents where they
are apt to say to a large prospect: "Well, now, I can get you by our
medical examiners, where this other company wouldn't pass you." Is
that correct?
4648 CONCENTRATION OF ECONOMIC POWER
]\Ir, MuKPiiY. It may not be the agent. It might be, in the case of a
man who was not too ethical, but also we ran into many of these cases
where the applicant himself apparently had pretty well sized up the
situation by himself.
Mr. Blaisdell. And he thought he could get by ?
Mr, Murphy. He thought he could get by a simple examination,
but if he had to go through anything like an electrocardiogram, maybe
the damage to the heart would show up.
Mr. Blaisdell. And that is the type of thing you have in mind
when you speak of fraudulent representations?
Mr. Murphy. Yes. I don't want to be misunderstood on the use
of the word "fraud."
Mr. Blaisdell. I wanted to get it very clear.
Mr. MuKPHY. It is very difficult to say sometimes where you pass
the line from semi-innocence, failure to disclose, and that which is
fraudulent.
Mr. Blaisdell. We are very aware of that, Mr. Murphy.
Acting Chairman Reece. We thank you very kindly.
(The witness, Mr. Ray D. Murphy, was excused.)
Mr. Gesell. Mr. Jones.
Acting Chairman Reece. Do you solemnly swear the testimony you
are about to give in this procedure shall be the ^vhole truth and
nothing but the truth, so help you God ?
Mr. Jones. I do.
TESTIMONY OF FRANK L. JONES, VICE PRESIDENT, EQUITABLE
LIFE ASSURANCE SOCIETY OF THE UNITED STATES, NEW
YORK, N. Y.
INTERCOMPANYj agreements — REPLACEMENT AGREEMENT
Mr. Gesell. State your full name for the reporter.
Mr. Jones. Frank L. Jones.
Mr. Geset.l. Are you an officer of the Equitable Life Assurance Co.?
Mr. Jones. Vice president,
Mr. Gesell. How long have you been with the company, Mr.
Jones ?
Mr. Jones. Since 1906. I have been an officer for 11 years.
Mr. Gesell. What particular phase of the business of the company
are you responsible for?
Mr. Jones. I was for some years agency vice president, and in
more recent years my work has been public relations and advertising.
That comes as near explaining it without going into detail as I could
explain it.
Mr. Gesell. Are you familiar with an agreement known as the
replacement agreement? ^
Mr. Jones. Yes ; may I say that the document you refer to is called
a plan and it is subscribed to; I believe the word agreement doesn't
occur and it is quite different from an agreement, but I am perfectly
willing to refer to it as an agreement, as I often have.
Mr. Gesell. Will you tell us what the origins of this agreement
were? What your connecticm with it has been.
» Subsequently entered aw "Exbihit No. 81.5." See appendix, p. 4900.
CONCENTRATION OF ECONOMIC POWER 4649
Mr. Jones. For a great many years, I should say, reaching back 30
or 40 years, there have been enactments in the various States, in all
of the States, I think, on the subject of replacement, that is to say, the
taking up of a policy that is in force on the life of any citizen and
putting a new
Mr. Gesell (interposing). You mean statutes against twisting.
Mr. JoNDs. Against replacement, too.
Mr. Gesell. Can we distinguish here, to start, Mr. Jones, between
replacement and twisting?
Mr. Jones. I would be very glad to do it if I could make the laws,
but I have here, for example, a letter written by the Insurance Com-
missioner of Missouri on December 6, 1935, to the president of our
company, you have a copy, I think, in which he said that the Depart-
ment had adopted a definition and a rule and practice
Acting Chairman Keece. May I permit an interruption? We have
Mr. Bob Feller with us and we are very, very, glad to have him here.
I want to say to him that we have no intention of investigating
baseball.
Mr. Jones. Ho gives us as the rule of their department, as the
interpretation of their law, running back to December 16, 1915 — you
see that would be 24 years ago ; I will read this short paragraph :
Twisting is inducing or attempting to induce the holder of the life-insurance
policy to surrender that policy and talie out new insurance in the company
represented by the agent who advises the surrender of the existing policy. The
advice may be direct or indirect. The element of misrepresentation may or may
not be present.
In some of the statutes the word "twisting" is used, in some the
word "misrepresentation" is used, in some the word "replacement" is
used, and in a great many of them both words are used. Notably,
to give an illustration, in Connecticut they use the words to mean the
same thing, replacement and twisting.
Mr. Gesell. Let's get at my question, Mr. Jones. Generally speak-
ing in the business, the word "twisting" has meant, has it not, the
taking of a policy off the books of one company and putting it onto
tlie other by misrepresentation or omission to state a material fact?
Mr. Jones. That is true.
Mr. Gesell. And replacement, by and large, in the business has
meant taking such business from one company and putting it on the
books of the other without any misrepresentation and without any
omission to state any material fact.
Mr. Jones. Well, I don't think I could say that that is true. I
think that in most cases replacement where it has been induced from
the outside, has been done because of some willingness on the part
of the policyholder tO' be induced, and because all of the facts in favor
of replacement and not in favor of replacement have not been pre-
sented to him.
Mr. Gesell. In other words, replacement is the switching of a
policy from one company to another where the policyholder is fully
acquainted with all the factors involved.
Mr. Jones. Well, in most cases, unfortunately, he is not fully
informed, and that is the thing
Mr. Gesell (interposing). That isn't an answer to my question, Mr.
Jones.
Mr. Jones. I am trying to answer your question.
4650 CONCENTRATION OF ECONOMIC POWER
Mr. GESELii. We are talking about a definition, pure and simple.
Let's forget what we have said' before and will you give us a definition
of replacement.
Mr, tJoNES. Replacement is the putting of a new policy in the place
of an old one.
Mr. Gesell. By any means at all?
Mr. Jones. Yes, sir.
Mr. Gesell. You were connected with a committee which was re-
sponsible for the origination of this replacement agreement ; were you
not?
Mr. Jones. I was not originally connected with it. It was first
started by the Underwriters' Association of New York City. I might
say that there are about 200 underwriters' associations in the United
States; that is, organizations of agents. Home-office people, either
employees or officers, do not belong and cannot belong. In those asso-
ciations they have committees on good practice, and they try, through
that committee on good practice, to examine cases where there have
been replacements or misrepresentations, twisting, or any other kind
of bad practice.
Mr. Gesell. We are talking here about the replacement agreement.
Mr. Jones. This grew out of that. The call for the meeting was
by that committee in the New York Association. There were several
meetings held in New York City, and finally it was decided by them
that they needed some home-ojffice help, that their committees were
not able to handle the question because just then we had the depres-
sion come along, policyholders were much upset, agents were upset,
they were not getting as much business, and the replacement and
twisting took a very big turn.
Mr. Gesell. This was about 1931, was it not?
Mr. Jones. In July 1930 those conferences began.
Mr. Gesell. You say they had some home-office help. Am I cor-
rect in saying that a committee to inquire into the matter was
appointed by the Association of Life Agency Officers?
Mr. Jones. Later; yes, sir.
Mr. Gesell. Wlien was that committee appointed?
Mr. Jones. It was appointed sometime toward, as I recall, the
middle of 1931.
Mr. Gesell. Were you a member of that committee?
Mr. Jones. I was a member of the Life Agency Officers end of it.
You will find on the agreement there, if you will look, that the com-
mittee was made up of both life agency officers and of underwriters,
there being 7 underwriters and 4 life-agency officers on the committee.
Mr. Gesell. I show you a letter sent by the members of the com-
mittee to Mr. Walter E. Webb, chairman of the executive committee
of the Association of Life Agency Officers, dated October 29, 1931,^
and ask you if you recognize that as coming from the files of your
company.
Mr. Jones. Yes, sir ; I do.
• Mr. Gesell. The letter states [reading from "Exhibit No. 814"] :
You appointed a committee about a year ago to cooperate with a committee
from the Life Underwriters' Association of the city of New York, to consider
the evil practice generally known as "twisting" and to effect, if possible, an
» Enterod later as "Exhibit No. 814." See appendix, p. 4904.
CONCENTKATION OF ECONOMIC POWER 4651
agreement among companies to cooperate in a plan for discouraging the replace-
ment of life insurance of one company by new insurance in another company.
At the outset of this cooperation, a meeting called by the New York City
Aesociatiou was attended by representatives of many of the life-insurance
companies that are admitted to place life insurance in the State of New York.
Agency officers, general agents, managers, and Underwriters were in attendance.
Subsequently, your committee and that of the above-named association held
several joint meetings, most of which were held during the fall, winter, and
spring of 1930 and 1931.
A plan was agreed upon by the joint committee, and printed copies were
sent to all of the men who were in attendance at the original general meeting,
and to some others. That plan included certain recommendations for its
operation which some of the companies thought it would be difficult to carry
into execution. Accordingly, another general meeting was held, and out of it
grew the recommendation that the joint committee continue to function and
that a modified plan be printed, and submitted to the various companies which
had participated in any of the discussions.
We submit to you and to the members of the Life Agency Officers' Associa-
tion, the final form of the agreement, and beg to report that the 23 companies,
the names of which are separately attached, have signed the agreement and that
only 7 of them have made any exceptions in the plan as it stands in the printed
form. The exceptions are minor — in the main, they are intended either to effect
a harmony with certain well-established practices of those coniijanies or to
exclude term insurance from the provisions of the agreement. The exceptions
are endorsed on the forms which were executed respectively by these 7 com-
panies and are a part of the permanent record. It is expected that other
companies which have been considering the joint committee's plan will execute
the agreement in the near future.
There is no evil practice in the field of life-insurance underwriting which
needs to be more definitely killed than that of the improper replacement of the
business of one company by another company. Usually, twisted business is
accepted by the new company without knowledge of the fact that similar amount
has just been surrendered in another company. Recognizing the difficulty of
proving such illegitimate transactions, it is certainly worth while to have as
well planned cooperation to suppress it as can be established without running
into serious operating difficulties. It is heartening to all of us who have
worked earnestly throughout the past year to be able to report the whole-
hearted support of 23 important companies in a program which is at lenst
based upon a desire to solve this problem cooperatively— the only way it can
be solved. Like many other movements, this one has a small beginning. This is
reflected not only in the small number of companies relatively that are in the
agreement at present, but in the terms of the agreement as well. It must be
noted, however, that the amount of business which is transacted by the signatory
companies is much larger with respect to the total production of life insurance
than would be indicated by the number of companies in respect to the total
number of operating companies in the United States. Furthermore, the plan has
not been submitted heretofore to those companies in the United States and
Canada which are not nov; transacting new business in the State of New York.
We ask, therefore, that li.e agreement be pas.sed among the members of this
association who are in attendance at this time and that it be now read. The
joint committee is unanimous in the opinion that other compnnies represented
here today, without limitation as to geographical operations, will want to consider
their entrance into the agreement so that the widest possible support of the
life companies of the United States and Caiinda may be given to the program
and an opportunity offered to cooperate in the elimination of a great evil.
And you have listed there the names of the original signatory com-
panies, have you not?
Mr. Jones. Yes, sir.
Mr. Gesell. I wish to offer this letter for the record.
Acting Chairman Reece. It maj'^ be admitted.
(The letter referred to was marked "Exhibit No. S14" and is in-
cluded in the appendix on p. 4904.)
Mr. Gesell. The document I next show you is entitled "Plan for
Discouraging the Replacement of Life Insurance of One Company by
New Insurance in Another Company."
4652 CONCENTRATION OF ECONOMIC POWER
Mr. Jones. I have a copy of that in my hand.
Mr. Gesell. This is a correct copy of the plan ?
Mr. Jones. Yes, sir.
Mr. Gesell. I notice it pro slides that any company which agrees
to the plan must subscribe to it by the signature of its president.
Mr. Jones. That hasn't been followed. I think it was discussed
originally, but a great many of them are not signed by the president.
Mr. Gesell. They are signed by an officer of the company ?
Mr. Jones. Always by an officer.
Mr. Gesell. Will you tell us what the principal provisions of this
plan for discouraging the replacement of life insurance are?
Mr. Jones. The plan provides that companies should insert in their
agent's statement or application, or in some form in some of their
papers, a question to be asked the policyholder. Essentially the ques-
tion is, is this insurance you are applying for to replace insurance in
this or any other company ?
The second provision there states that it is taken to safeguard the
interests of the policyholder and the companies.
Third [reading from "Exhibit No. 815"] :
Whon a company shall receive an application for new insurance which appar-
ently will replace outstanding insurance in another company, it shall promptly
notify the other company and shall deny the issuance of the new insurance for
at least, 5 weeks so that it may hear from the other company and the other
company may have opportunity to conserve its business.
Those are the essential things. They are asked to make a report,
which they do not all follow. Those are the essential features.
Mr. Gesell. That is a report on the amount of replaced business?
Mr. Jones That is right.
Mr. Gesell. I wish to offer this plan for the record.
Acting Chairman -Reece. It may be admitted.
(The plan referred to was marked "Exhibit No. 815" and is in-
cluded in the onpendix on p. 4906.)
Mr. Gesell. jJo I understand that what happens is this, that a com-
pany which lias subscribed to tliis agreement promises that it will
place in its application forms a c^uestion designed to find out whether
the insurance to be written will replace insurance in any other
company ?
Mr. Jones. That is true.
Mr. Gesell. If the answer is "Yes," the names of the companies
whose replaced business is involved are given, are they not?
Mr. Jones. No.
Mr. Gesell. The policyholder states, does he not, the name of the
company whose insurance is being replaced?
Mr. Jones. Yes; usually he does.
Mr. Gesell. Then the company which is attempting to write the
new business advises that other company that it is about to lose busi-
ness. Is that correct?
Mr. Jones. That is correct.
Mr. Geseix,. And that company which is about to lose tho busi-
ness has a 2 weeks period within which it may attempt to conserve
its business.
Mr. Jones. That is right.
Mr. Gesell. That mechanism is followed, regardless of the reasons
which prompt a policyholder to switch from one company to another?
Mr. Jones. If it is to be replaced ; that is all.
CONCENTRATION OF ECONOMIC POWER 4653
Mr. Geseix. If he is to give up one and take another ?
Mr. Jones. That's right. He doesn't report to this committee; he
reports only to the other company involved. This committee gets no
reports from anybody with reference to transactions of that sort.
Mr. Gesell. The communications are directly between the company
writing the business and the company whose business is to be
replaced ?
Mr. Jones. That is correct.
Mr. Gesell. And those communications take place regardless of
whether the policyholder has been fully acquainted with the facts or
not, whether he has initiated this replacement, or whether it has
been initiated by the agent, or regardless of any of the extenuating
circumstances.
Mr. Jones. If he says it is to replace another, then the company
receiving that application or that word notifies the other company.
Mr. Gesell. And the purpose for notifying the other company is to
enable it to keep that business on its books if it can ?
Mr. Jones. Well, yes; roughly so.
Mr. Gesell. The agreement has been amended on one occasion, has
it not?
Mr. Jones. Yes.
Mr. (teskll. Is this a correct copy of the amendment?
Mr, Jones. It is; yes.
Mr. Gesell. Will you tell us what that amendment provided?
Mr. Jones. Well, as we proceeded in this program we were .laving
a good deal of trouble, a lot of replacing. It was considered advisable
to strengthen it somewhat if possible, and one of the suggestions made
was that where a company knew the agent was involved, it should
report the name of that agent to the other company, on the theory
that if a man's name came up frequently he was probably busily
engaged in twisting or replacing insurance. Only a few of the com-
panies. T don't remember how many, I think less than half, I think
about 40 percent of them, as I recall it, executed that amendment.
Mr. Gesell. I wish to oifer the amendment for the record.
Acting Chairman Reece. It may be admitted.
(The document referred to was marked "Exhibit No. 816" and is
included in the appendix on p. 4907.)
Mr. Gesell. Does this list, entitled "Signatory companies with
names of persons in charge of intercompany correspondence," repre-
sent the names of the companies which subscribed to the agreement,
which had been subscribed as of July 6, 1938?
Mr. Jones. Yes; it so seems.
Mr. Gesell. And those names marked with the asterisk, Mr. Jones,
are the names of the companies which subscribed to this amendment
with respect to agents?
Mr. Jones. So far as I know. I didn't have anything to do with
the preparation of this. It would seem that that is true, that more
than half of them, probably 60 or 70 percent of them, did sign it,
but a considerable number did not.
Mr. Gesell, This is a document from the files of your company and
prepared under your direction, was it not ?
Mr. Jones. I didn't see it until it was ready to go out. It was
niiule up by my secretary in my office.
Mr. Gesell. I wish to offer it for the record.
'^ ^ting Chairman Reece. It may be admitted.
4654 CONCENTRATION OP ECONOMIC POWER
(The document re'ferred to was marked "Exhibit No. 817" and
is included in the appendix on p. 4907.)
Mr. Gesell. Approximately how many companies have come into
the agreement?
Mr. Jones. I should say, now, 91 or 92 companies.
Mr. Gesell. Are there any of the principal companies which have
refused to participate in the ao^reement?
Mr. Jones. The Prudential has not executed the agreement. The
Mutual Life of New York executed it about 18 months ago, and the
New York Life about 2 years ago.
Mr. Gesell. What reasons does the Prudential give for not enter-
ing into this agi^eement?
Mr. Jones. I have never asked them. I haven't the slightest idea
about that. There has been no attempt to urge it upon anybody.
Mr. Gesell. I show you correspondence between yourself and Mr.
L. Seton Lindsay, vice president of the New York Life Insurance
Co., and ask you if you recognize that as the correspondence which
you had with Mr. Lindsay.
Mr. Jones. Yes, sir.
Mr. Gesell. Refreshing your recollection as to the reasons why
the Prudential
Mr. Jones (interposing). That is the original organization of it,
you see. That was back in 1931.
Mr. Gesell. They didn't come into the original organization
either, did they?
Mr. Jones. Mr. Lindsay was present at the meetings downtown.
He was present, I think, at all of them, or somebody from that com-
pany was, at the meetings of the Life Agency Officers Association.
]\lr. Gesell. We are discussing the reasons why the Prudential
didn't come into this plan.
Mr. Jones. I have answered that.
Mr. Gesell. I wrdit to see whether we can't elaborate on your
answer a little. Your letter to Mr. Lindsay states [reading from
"Exhibit No. 818"] :
On my return today, I had your letter of October 6. I cannot say definitely
that either the president of the Prudential or the president of the Mutual Life
has seen the suggested plan for the elimination of substituted or twisted
business.
Our committee has letters, however, from officers of both companies in which
they state they are in full sympathy with the plan but that they will not sign
the forms at this time. I quote from Second Vice President Sargent's letter:
What com]iany is Mr. Sargent with?
Mr. Jones. Mutual Life.
Mr. Gesell. The (][uotation says [reading further from "Exhibit
No. 818"] :
We would prefer, however, to reserve to ourselves freedom of action and
be in a position to handle each case on its merits, and, if necessary, to go
further than the committee program contemplates. On the other hand, we can
conceive of circumstances where it might not be to the interest of the com-
panies involved to carry out the connnittee program in every detail.
Your letter goes on to say [reading further from "Exhibit No.
818"] :
From Vice President Munsick's letter, I quote the following:
He is from
Mr. Jones. Prudential.
CONCENTRATION OF ECONOMIC POWER 4655
Mr. Gesell (reading) :
We are in thorough sympathy with the desire expressed that the substitution
of new insurance for protection thati has been in force for some time be dis-
couraged in every way. ♦ * * We believe that every case that presents itself
for consideration can be adjusted by the companies interested, and that the
gesture of a formal subscription to a plan over the signature of the president of
the company is unnecessary.
I wish to offer this correspondence for the record.
x\cting Chairman Reece. It may be admitted.
(The letters referred to were marked "Exhibit No. 818" and are
included in the appendix on p. 4911.)
Mr. Gesell. That would indicate to me, Mr. Jones, that in the case
of the Mutual and the Prudential their officers could see no reason to
enter into a formal agreement or understandinj^ of this character.
Mr. Jones. The Mutual Life afterward came m.
Mr. Gesell. That was sometime later.
Mr. Jones. Sometime later, and the Prudential — I think I am cor-
rect in saying this also, though I am not authorized to speak for
them — are following out the general rules of notification if they get a
case in which replacement is involved. I think they do it invariably.
Mr. Gesell. Was there any consideration at this time as to whether
or not this agreement might not be considered in restraint of trade or
squarely in opposition of all of the antitrust legislation ?
Mr. Jones. I don't recall any.
Mr. Gesell. I am asking you whether you do. You don't recall any
such discussions?
Mr. Jones. No ; I do not.
Mr. Gesell. Did manj^ of the companies entering into the agree-
ment do so with reservations ?
Mr. Jones. I should think a third of them.
Mr. Gesell. Does this document which I show you now summarize
the reservations or exceptions made by the various companies?
Mr. Jones. I should say so ; yes. It says "some"— "Exceptions made
by some of the signatory companies."
Mr. Gesell. Would you say these were the principal exceptions?
Mr. Jones. I should think so.
Mr. Gesell. Let me ask you, Did this agreement apply to term
insurance ?
Mr. Jones. No, sir.
Mr. Gesell. Why didn't it?
Mr. Jones. There are a great many people who hold the view that
term insurance is simply temporary insurance, and it is to the interest
of the policyholder to take permanent insurance as soon as he can.
There are a lot of people who continue to report, however. Our com-
pany is notable in that. We have for many, many years, long before
this agreement, followed this same plan that we have here, and we
notify on term insurance just as we do on anything else.
Mr. Gesell. If one company was substituting one term policy for
another term policy, would the agreement apply?
Mr. Jones. We have never considered that it had application to
term insurance.
Mr. Gesell. What about industrial insurance?
Mr. Jones. It does not concern itself with industrial.
Mr. Gesell. It is confined entirely to ordinary, I take it.
4656 CONCENTRATION OF ECONOMIC POWER
Mr. Jones. That is right.
Mr. Gesell. Did many of these companies enter into this agreement
with the understanding that they wouldn't follow the agreement
where they were in competion with a company which had not also
entered into the agreement?
Mr. Jones. Well, I have heard it said that some of the companies do
not like to make a report unless the other company makes its report.
In most cases I think companies make no discrimination at all.
Mr. Gesell. My question was: Were there some companies which
refused to enter into this agreement with the specific reservation that
tliey would not follow the agreement in cases where they were in com-
petition ?
Mr. Jones. If so, it would be in the list here.
Mr. Gesell. Do you recall that there were many of those ?
Mr, Jones. No ; I couldn't, offhand. I haven't read that for several
years.
Mr. Gesell. The Amicable Life Insurance Co. is quoted in that
document as saying [reading from "Exhibit No. 819"] :
An exception we desire to make to this plan is tliat we shall communiealp the
information only to such companies as have placed their signatntt s to i)e a^xve-
ment.
Does that refresh your recollection ?
Mr. Jones. No; I have no recollection about those specifically, be-
cause those were made 9 or 10 years ago.
Mr. Gesell. The Minnesota Mutual Life Insurance Co. notes the
exception [reading from "Exhibit No. 819"] :
Exception also made with respect to any other company which does not sub-
scribe to plan.
The General American Life Insurance Co. states [reading further
from "Exhibit No. 819"] :
We do not agree to do more than to reciprocate the commitments of the other
companies; in other words, we do not want to agree to notify another company
and hold up our policy for 2 weeks where the company has not become a signatory
company to this agreement.
Mr. Jones. I should think there might be a few of those, not many.
Mr. Gesell. The Great-West Life Assurance Co. states [reading
further from "Exhibit No. 819"] :
In other respects there are no reservations except that we shall reciprocate
any exceptions noted by other signatory companies.
I wish to offer this for the record.
Acting Chairman Reece. It may be admitted.
(The memorandum referred to was marked "Exhibit No. 819" and
is included in the appendix on p. 4913.)
Mr. Geseix. There were, then, I take it, some companies whicl
agreed to limit the operations of the plan solely as between themselvei
and other companies which had entered into the agreement?
Mr. Jones. Yes ; that is what you stated there. Those were all writ
ten on the third page here of this agreement.
Mr. Gesell. I am not doing the testifying here, Mr. Jones, and
you were on this committee from 1931 until the present time. You
have no recollection about that at all yourself?
CONCENTRATION OF ECONOMIC POWER 4657
Mr. Jones. I probably remember that some of the companies made
exceptions along that line, but if you were to ask me who did, I couldn't
have told you. I haven't looked at these for years.
Mr. Gesell. Was it a subject of discussion?
Mr. Jones. No, sir.
Mr. Gesell. As a result of the agreement, do you feel that replace-
ments became smaller?
Mr. Jones. Yes ; that is a general impression.
Mr. Gesell. Very much smaller?
Mr. Jones. A great many companies reported a very ^reat decrease.
There are figures from six companies in there showing the effect,
year by year.
Mr. Gesell. Is this the document you refer to?
Mr. Jones. Yes.
Mr. Gesell. It is a 6-year record of intercompany replacement for
the Provident Mutual, the Connecticut Mutual, the Lincoln National,
the Equitable Life Insurance, the Mutual Life, and the Bankers Life,
is it not?
Mr. Jones. Well, I shouldn't think the Mutual Life was in there,
because they didn't have 6 years of experience.
Mr. Gesell. Have you in your fiiles some record which would tell
us what company No. 18 is ?
Mr. Jones. No ; I can send it to you, but I unfortunately don't have
it here.
Mr. Gesell. I notice the words "Mutual Life" written on that
photostat.
Mr. Jones. I don't know — I doubt very much if that is Mutual Life.
I think the others are all correct, but I. rather think that that is some
other company.^
Mr. Gesell, If you will advise us.^
Mf. Jones. What is that number?
Mr. Gesell. No. 18. This record shows that for the period from '33
to '38 in the case of all of these companies the percentage of business
saved through the operation of the agreement increased, does it not?
Mr. Jones. I think so.
Mr. Gesell. I notice that company No. 8 saved 48.8 percent in '33,
66.3 percent in '38. That company No. 30 saved 26 percent in '33
and 44 percent in '38. Company No. 50 saved 46 percent in '33 and
83 percent in '38. Company No. 29 saved 54.1 percent in '33, 47.3
percent in '38. Company No. 18 saved 46.1 percent in '33 and 59.6
percent in '38. Company No. 61 saved 38.9 percent in '33 and 55.6
percent in '38.
I would like to offer that for the record.
Acting Chairman Reece. It may be admitted.
(The document referred to was marked "Exhibit No. 820" and is
included in the appendix on p. 4916.)
Mr. O'Connell. These percentages mean that of the applications
for replacement policies these large percentages did not result in
replacement ?
Mr. Gesell. The percentage of the business saved.
Mr. Jones. In those percentages he read, that is true.
^Mr. Jones subsequently advised by letter dated July 6, 1939, that #18 represented
the experience of the Mutual Life.
4658 CONCENTRATION OF ECONOMIC POWER
Mr. O'CoNNELL. So where we have 80 percent business saved, that
means 80 percent of the prospective policyholders who were thinking
of replacing their insurance with another company ended up by not
doing it ?
Mr. Jones. I should say, taking the whole — all of the companies
together, substantially 50 percent was conserved. I can't give that as
an accurate figure, but it wouldn't be far from that, I should say.
Mr. O'CoNNELL. So that on a statistical basis, if I wanted to
replace an insurance policy I have with another company, I would
have about a 50-50 chance?
Mr. Jones. You would have any chance you wanted to take after
you had the information. You would be faced right away with
what all of the facts are with reference to it, and then you should
do what you like.
Mr. O'CoNNELL. I would be faced with two insurance agents
where I had one before, also, wouldn't I ?
Mr. Jones. You might, and you might not; maybe there would
be no agent at all for the company whose business is being replaced,
and they would write you a letter about it, or something of that sort.
Mr. Gesell. I have in my hand a document entitled "Consolidated
Keport of Replacement Figures for the 8-Month Period Ending
August 31, 1938," and ask you if this is correct — a resume of the
business reported by the 63 companies shown on this schedule to
you for that 8-month period ?
Mr. Jones. That represents the figures they gave us ; yes, sir.
Mr. Gesell. I wish to offer that for the record.
Acting Chairman Reece. It may be admitted.
(The document referred to was marked "Exhibit No. 821" and is
included in the appendix on p. 4917.)
Mr. Gesell. Let me ask you this question now, Mr. Jones : Do you
think this really got at the basic problem at all ?
Mr. Jones. You mean the basic problem of twisting ?
Mr. Gesell. Yes.
Mr. Jones. Well, I should say it is just like statutory law and police
regulations, and regulations of all kinds of groups, including bar asso-
ciations, medical associations, and everything else ; some of them live
up to it and some don't.
Mr. Gesell. Well, let's have an answer to the quefstion.
Mr. Jones. That is as good an answer as I can give you.
Mr. Gesell. You mean it helped in some places and didn't help in
others ?
Mr. Jones. No; I mean it has helped and that there would have
been a lot more if we had not had some way of cooperating to
prevent it.
Mr. Gesell. How many agents did you report to State authorities
for twisting as a result of the information received through the
agreement ?
Mr. Jones. We don't get any such reports at all. We have no
names — nothing of that kind.
Mr. Gesell. Have you any information as to how many agents'
names were reported ?
Mr. Jones. I have none ; never have had.
Mr. Gesell. That was one contribution, part of the agreement, was
it not?
CONCENTRATION OF ECONOMIC POWER 4659
Mr. Jones. No. They were only to report to the other company
involved.
Mr. Gesell. And I think you stated in your previous testimony that
if they found that one agent's name was cropping up a considerable
number of times, they would know he was a replacer or a twister ?
Mr. Jones. There has never been any collection of those names
made, any report of them, of any kind, except as between the two
companies involved with reference to that one agent.
Mr. Gesell. So that the collection of these names was not for the
purpose of bringing to the attention of the State regulatory bodies
men who should be disciplined under the laws for twisting?
Mr. Jones. That would be up to the companies entirely, if they
wanted to report them.
Mr. Gesell. I take it, it is your judgment that wasn't done?
Mr. Jones. I don't know of any cases that have been reported,
though I think there may have been.
Mr. Gesell. Have you any figures which show whether or not it
was in the interest of the policyholders to have kept their business
where they did, or switched it to the other company ?
Mr. Jones. Yes, sir. You have in your files there a booklet called
Replacement and the Policyholder. In that are computations from
actuaries and various companies showing just what happens to the
policyholder in the dropping of his policy and taking a new one.
Mr. Gesell. I was asking about these particular policyholders and
these particular cases that were reported to you, not an actuarial
discussion of the pros and cons of replacement.
Mr. Jones. Cases are not reported to our committee at all.
Mr. Gesell. Well, for instance, one of these companies saved 88
percent of their business. Have you any study which would indi-
cate whether the saving of that business was or was not in the
interest of each of the policyholders involved ?
Mr. Jones. We take the general broad view that it is a very
diflScult matter to replace one policy with another to the policy-
holder's advantage.
Mr. Gesell, It is possible, isn't it ?
Mr. Jones. I don't offhand think of a single case.
Mr. Gesell. You mean that if there is a policyholder who took
out rather an expensive form cf endowment policy, let's say, and his
income has fallen off in recent years ; his life-insurance agent hasn't
been anywhere around to see him; suddenly an agent from another
company pops up and talks to him about his insurance, and he says,
"I don't have any need for an endowment policy here. I was going
to endow my daughter, but she has died and I have just been carry-
ing this old form of endowment policy because I didn't know I
could change," and this other fellow says, "Wellj I will sell you a
whole life policy which will reduce your premmms a little bit.'"
Would you feel that it is absolutely inconceivable that under any
possible case that might not be in the interest of the policyholder?
Mr. Jones. I thought you were talking about replacing it in an-
other company. The point about it is that if he wants to change
his policy his advantage lies with changing it in his- own company,
for the reason that they can make an adjustment back to the be-
ginning and save his insurance age.
124491 — 40-
4660 CONCENTRATION OF ECONOMIC POWER
Mr. Gesell. You don't think there is any particular advantage
which should come to a company which is energetic enough to go
out to this fellow and talk to him about his needs and revise his
insurance program in terms of his then requirements^
Mr. Jones. There are a good many disadvantages in doing so.
Mr. Gesell. But why shouldn't a company which was energetic
enough to go around and see policyholders and talk to them about
their needs and readjust their programs get some benefit for having
brought that service to the policyholder ?
Mr. Jones. The policyholder thinks he is getting a benefit but
he doesn't.
Mr. Gesell. Well, the whole crux of this agreement is to keep
the policyholder where he was originally, isn't it ?
Mr. Jones. No ; not necessarily.
Mr. Gesell. It has worked out that w^ay ?
Mr. Jones. It is to advise the policyholder about all of the facts.
Nearly all of the laws provide that he must have not only all of the
favorable information, but the unfavorable information, and that
they don't usually get ; that is the trouble.
Mr. Gesell. Wouldn't you say possibly that the trouble was that
there were so many life insurance agents out trying to make a liv-
ing, so many people who are policyholders, that it has become more
and more difficult to prevent agents from going to the policyholders
of another company and isn't the real purpose of this agreement to
prevent companies from raiding each other's business ?
Mr. Jones. No, no; it is not; as I said to you at the outset, it
originated with the agents themselves. It didn't originate with the
companies.
Mr. Gesell. The kind of thing I have in mind is pretty well ex-
pressed in a paragraph in a letter to Mr. Murphy from Mr. Chandler
Bullock, president of the State Mutual Life Insurance Co., which he
wrote March 9, 1934. He says :
Too many of the companies are crowding their general agents and managers
to get in more manpower to bring about more production. The result is that
there are twice as many men trying to sell life insurance as can make a living
out of a possible maximum buying capacity of the public, so some of this
horde of salesmen are forced, to scrape a living, to go to existing policyholders,
many of whom are carrying all the present coverage they can possibly pay for
and possibly a little more. The temptation and the necessities of the agent
are too great, and a replacement is the result.
Does that sharpen your thinking on the problem at all, Mr. Jones?
Mr. Jones. Well, I should think there might be cases of that kind,
else we wouldn't have an agreement,
Mr. Gesell. That is what I am getting at. One of the purposes
then of this agreement was, was it not, to prevent, or at least lessen,
the strain which was placed on one company in conserving its busi-
ness against the attacks of agents of other companies?
Mr. Jones. I have to say in all honesty that was not a consideration
at all at the time. The whole question had originated in the various
insurance departments in the United States, running back for years,
and they are the people that set the general pattern. As I showed
you here with the definition in Missouri and similar definitions else-
where, that replacement of insurance is not in the interest of the
policyholde
CONCENTRATION OF ECONOMIC POWER 4661
Mr, Gesell. By and large, you will admit, will you not that the
majority of State statutes simply hold out against twisting as being
defined as the switching of a policy by misrepresentation or omissions
to state a material fact?
Mr. Jones. Yes; but
Mr. Gesell. Now this agreement went along much further than
that, didn't it, Mr. Jones? It has no relation to misrepresentation op
omission. It prevents the replacing of a policy or at least gives an-
other company a right to prevent it, regardless of whether that
replacement has been made by fair representations or foul?
Mr. Jones. Well, that is between "the two companies involved, and
they take the matter up with the policyholder, and, if he has all of
the facts and acts, he either retains the policy he has or takes a new
one. That is up to him. The whole idea is to get these facts before
the policyholder. Tliat is substantially the ground work of this
whole thing, and it states so in this program and states it in two
different places, as I recall.
The idea is to get before the policyholder all the information. Now,
what would be some of the information? Well, the first is that he
wouldn't get a policy, for example, today as against 5 years ago, or
10 years ago, with some of the liberal provisions the old policy had.
If he got a new policy today he would have 2 years of contestability
on that policy, where he wouldn't have any if the policy had been in
force a year or two, his old policy.
In the third place he has to pay another acquisition cost, which he
wouldn't if he retained his present policy.
The next, his old policy was issued at an age where the mortality
cost was such and such and at the advanced age the mortality cost
is greater.
There are five different things that usually aren't told the policy-
holder by somebody vicious enough to want to twist it.
Mr. Geseix. Well, doesn't your fault then lie with the caliber of
the agents which have been employed by the companies? Isn't it more
proper direction of this thing to, as this letter of Mr. Bullock's sug-
gests, have a different type of agency force trained along a different
direction, rather than letting the agents run wild in trying to prevent
it by some intercompany agreement in the background ?
Mr. Jones. Well, we have otrr troubles along that line just like all
industries do; some are efficient, some aren't.
Mr. O'CoNNELL. Have the companies done something comparable to
this sort of thing in the replacement field ^ in connection with selling
business, new business to persons not insured with other companies?
In other words, this makes it possible, as you put it, to get all the facts
before the man who is thinking of replacing his insurance, and as a
general proposition I take it that means by putting two insurance men
on his trail, so that one can counteract the other?
Mr. Jones. I think you are overstating that, but
Mr. O'CoNNELL. What do you do about selling insurance to a man
where there is not replacement problem involved s
Mr. Jones. This isn't concerned with it at all.
Mr. O'CoNNELL. Well, that man is just as concerned with getting
all the facts, isn't he ?
1 See "Exhibit No. 815," appendix, p. 4906.
4662 CONCENTRATION OF ECONOMIC POWER
Mr. Jones. He gets all the facts ?
Mr. O'CoNNELL. This a little off the point. How does he get all the
facts if he is going to buy some new insurance ?
Mr. Jones. I suppose he inquires. The agent gives him whatever
facts he has; he already has some, I have no doubt, some general in-
formation about what he would like, how much he would like, what
kind, and so forth.
Mr. O'CoNNELL. You can say all that, about the man in the replace-
ment field, couldn't you, about the policyholder? All that you have
said could be said about these people ?
Mr. Jones. All of that, but I mentioned some points a while ago
that he wouldn't be familiar with, those five that I just enumerated
a moment ago he wouldn't know about.
Mr. O'CoNNELL. It occurred to me '-
Mr. Jones. He wouldn't know he was having a policy probably
with not as liberal provisions in it, or that he had an additional —
there was an additional expense involved, and the mortality question
is involved, and that the provisions of the policy" might not be as
liberal as those he had, and so on.
Mr. O'CoNNELL. As I listened to your testimony it occurred to me
it might be possible you were more concerned with getting all the
facts with regard to replacement policies before the policyholder than
you were with regard to new business.
Mr. J0NE8. There are other methods of course. There are always
educational processes about types of policies, insurance, and so forth.
I have no doubt you have seen some of them in magazines and
newspapers.
Mr. O'CoNNELL. Yes ; I have heard quite a bit about those.
Mr. Jones. Conferences, and so on. We have an organization
started 10 or 11 years ago called the American College of Life Under-
writers and when a certain test is met, educational test — and those
are under the direction of educators; the president of it is Dr. S. S.
Huebner, of Wliarton School of Finance — when those examinations are
taken on a scholastic basis, on an informational basis, and when the
man has had a certain amount of satisfactory practice, recommended
by his company, he is given a C. L. U. — chartered life underwriter —
designation. That has some general similarity to the C. P. A. —
certified public accountant — you see. So that is one of the big move-
ments we have to try to train agents along professional lines. We
have had very great success with that type of agent.
Mr. O'CoNNELL. I think we are getting a little far afield from
what Mr. Gesell wants, so I will desist.
Mi". Gesell. I have no further questions.
Mr. O'CoNNELL, One question I would like to ask you — not ter-
ribly important, but it refers to the amendment made in the agree-
ment providing for including in the notification that one company
gives to the other company the name of the agent submitting the ap-
plication.^ Tou explained as the reason for that amendment — but
I either didn't understand it or it was inadequate. Would you
explain it again?
Mr. Jones. I stated, as I recall, or at least I will state now, that
on account of the depression we are having an unusual amount of
1 See "Exhibit No. 816." appendix, p. 4907.
CONCENTRATION OF ECONOMIC POWER 4663
trouble with replacement, and there seemed to be on the surface an
indication that here and there there were some spots in which it was
being practiced more than elsewhere, and that probably a reporting
of the names of those agents would have the effect of bringing those
men in, talking with them about it, and telling them about the evil
of it, and so forth. But those reports were made only as between
companies ; never made to us as a committee.
Mr. O'CoNNELL. Yes; but taking a particular company, you get a
report from your agent which indicates that he has a prospect or ani
insurance policy which will be a replacement.
Mr. Jones. His name would be on the papers ; yes.
Mr. O'CoNNELL. He is your agent. But you send his name to the
company which has written the policy that he is attempting to replace ?
Mr. Jones. That is right.
Mr. O'CoNNELL. I don't quite understand how that is effective.
Don't you have control of your agents? I should think if you had an
agent or a number of agents about whom you had frequent evidence
that they were doing a large replacement business it would be your
problem to take care of your agents, and not to report it to the other
company.
Mr. Jones. It does work that way. In other words, we keep an
account of the agents whose names come up frequently.
Mr. O'CoNNELL. What I want to know is why you send them to the
other companies.
Mr. Jones. Because a great many agents throughout the United
States submit business to more than one company, and that was one
of the important points in it, too.
You take brokers, for example. We have to deal with brokers who
will place insurance with any company.
Mr. O'CoNNELL. I was thinking, of course, of agents as being agents
of the particular company writing the business.
Mr. Jones. We make no discrimination there. We report them all.
May I add this one point : That our committee sends its report each
year to all the insurance commissioners of the United States and that
the insurance commissioner of New York, in examining New York
companies, and commissioners examining companies in other States,
so far as I know — but it is particularly true in New York — always
go into that correspondence, and I have here important statements
made by the superintendent of New York. Here is one made in 1934,
in which he says :
Twisting is one of the evils which the department and men "hterested in the
life-insurance business are constantly trying to minimize. Twisting is defined
under section 60 of the insurance laws as the making of misleading repl-esenta-
tions or incomplete comparisons of policies for the purpose of inducing a policy-
holder to lapse his insurance. Section 60 has in some respects proved inadequate
and needs clarification. That matter has now received the attention of various
associations of life underwriters, as well as this department. Upon the com-
pletion of these studies there may be presented to the legislature a proposal
which would make this legislation more effective.
We have statements from the commissioner about every ^ y^ars,
when he makes a complete report.
Mr. Blaisdell. Are you suggesting here that the companies were
not interested just as much as the insurance superintendents in the
so-called antitwisting legislation?
4664 CONCENTRATION OF ECONOMIC POWER
Mr. Jones. I am not making any such suggestion as that. The com-
panies are just as much interested in leaving business done fairly and
aboveboard as any other kind of administration in this country is
anxious to have business done honestly, fairly, and with full
information.
Mr. Blaisdell. And you are suggesting that the companies were
giving their fullest support to this type of legislation?
Mr. Jones. There isn't any of this legislation that is up at the
moment that I know about.
Mr. Blaisdell. I am speaking now over the time period that is
involved.
Mr. Jones. That has been handled more largely by the Association
of Life Underwriters, because they have been particularly interested,
just as this grew out of the New York Association of Life Under-
writers and was first confined to New York State and companies doing
business in New York State, and the agents all over the country asked
us to extend it to the whole of the United States.
Mr. Blaisdell. But the companies stood behind their agents in
that regard ?
Mr. Jones. If you mean that the companies agreed that it ought to
be stopped, very definitely, exactly.
Mr. Blaisdell. That is exactly the point. And is your feeling that,
having got the legislation which was desired by the companies, and
we will assume approved by the departments, that that legislation was
not in itself sufficient to take care of the evil which you have described?
Mr. Jones. Yes, sir. It is just like a trade association or profes-
sional association. I mentioned a while ago the bar association, which
attempts to control certain things, and maybe not as successfully as
we are.
Mr. Blaisdell. And you would regard this as a fairly successful
policy ?
Mr. Jones. Yes, I would.
ISIr. Blaisdell. The policing being done by the insurance com-
panies rather than by the insurance officials of the States.
Mr. Jones. Yos. If I understood your other question, I can't an-
swer for the whole industry, but I don't at present have any informa-
tion about companies that have urged, certainly not upon any
legislature, anything about the laws. It would be more likely to come
from the agents themselves, in the field, because it is a State matter,
and they are familiar with the facts, and it is their own action. It
arises out of these committees on ethics in the local underwriters' asso-
ciations, of which there are more than 200 in the United States.
Mr. Blaisdell. But in- accordance with the testimony which Mr.
Wliitsitt gave us, the companies generally would support their local
agents in matters of that kind, would they not ?
Mr. Jones. Well, if they had agreed that the statute was a proper
one, I should think they might do so. I couldn't speak for the
companies.
Mr. Blaisdell. You can speak for your own company.
Mr. Jones. I can't speak for my own company. Unfortunately in
that, that would be in the hands of other people than me.
Mr. Blaisdell. And you wouldn't know whether the question of
the ^.ntitwisting statute under the New York State law was under
CONCENTRATION OF ECONOMIC POWER 4665
consideration during the present recodification of the New York
State law?
Mr. Jones. I don't think any change was made and I don't believe
any consideration was given it. I don't want to ^ive that as a
definite answer, but at least I was not involved in it in any way.
Mr, Blaisdell. I don't know either. I am just asking for infor-
mation.
Mr. Jones. I have to say "I don't know" on that point.
The fact of the case is, I have been trying for 3 years to get out
from this committee work, and in your papers there you will find that
3 years ago I suggested the abandonment of the committee. It has
not a very useful purpose any more. So I haven't been quite as active
in it recently as I was originally.
Mr. Blaisdell. That leads me, Mr. Jones, to a second question.
Is it your suggestion that this evil became very marked during the
period 1931? You laid the blame for the growth of the evil on the
depression. The evil was in existence for a long time before that, was
it not?
Mr. Jones. Oh, yes. These laws were all enacted long before that,
or most of them.
Mr. Blaisdell. Exactly, and you feel that it actually became a
much more serious question in those years, or was it that it was
during that period that these various arrangements between the com-
panies became much more prevalent, and you had sort of got into the
habit of dealing with this thing on an intercompany basis on other
matters, and this naturally came to be an intercompany matter?
Mr. Jones. There were several companies, my own company among
them, doing exactly what they were doing here long before there
was any agreement. Whenever they got a case from some source or
other that mdicated replacement, they at once notified the other com-
pany about it. That had been the practice for a long time.
Mr. Blaisdell. And while at the time of the sharpening of the
depression in those years, 1930 and 1931, the practice may have become
a little more prevalent, you don't mean to give the impression that
the depression was the cause of the difficulty?
Mr. Jones. Well, if you have the statements from the Life Under-
writers Association of New York, that was exactly the reason. It
is because it had very greatly increased with the depression. That
is the reason they brought it up. They found they couldn't handle
it in the usual way they had been handling it, through their own
association, and that is the reason they asked the companies to help
them.
Mr. Blaisdell. But you have just told us it existed before that,
and you had these imderstandings between the companies about that.
Mr. Jones. There were no understandings, so far as I know.
Some companies voluntarily did it.
Mr. Blaisdell. I was using "undestandings" in the sense that you
understood they would notify you, and they understood you would
notify them if any of these cases arose.
Mr. Jones. Most of them didn't notify us. It was our practice.
We notified them all, whether they notified us or not.
Mr. Blaisdell. So you had been dealing with it for a long time
and not just when the depression came along.
4666 CONCENTRATION OF ECONOMIC POWER
Mr. Jones. That is when the big increase came. There isn't any
question on that point. If you want definite information about
that, I think we can get it. There was a very great increase in the
replacement of insurance starting along about 1930 and '31 and '32
and '33, and continuing in that period.
Mr. GESEMi. I take it that was because the companies continued
to employ the same number of agents and compensated them in the
same way, and they were vigorously trying to sell insurance in a
market not as susceptible to the sale of new insurance, and as a result
they started to take business from each other.
Mr. Jones. It was more difficult for the agents to get business;
and on the other hand, the policyholder's troubles were very great,
and very often he tried to get money from any source he could, in
any way he could, whether it was in his interest or not.
Mr. Blaisdell. Essentially, isn't it a temptation to all of us to
blame the depression for many things when they go wrong, and
don't go the way we like ; instead of trying to burrow down to what
might be a more concrete cause we pass off among ourselves what
goes for an explanation, "It is the depression that made it." I don't
limit that to life insurance. _
Mr. Jones. I wouldn't think so in this case, and I wouldn't know
how to find words strong enough to state what disaster the depres-
sion has brought. The whole thing is that people undergo changes
in mental attitude. That goes for policyholders and agents and
everybody, and the abnormal activities become normal activities,
many of them. That is the effect of the depression. I think the
most serious effect of the depression is the effect it has had upon
the mental attitude of the American people, so far as this country
is concerned.
Acting Chairman Keece. Are there any other questions?
Mr. Mayers. This replacement agreement ^ you have been testi-
fying to has gone a little beyond the requirements or provisions
of the statutes that you referred to earlier, is that not so, Mr. Jones ?
In other words, this agreement prohibits, not in effect prohibits, but
requires insurance companies to notify each other of replacements
for any reason, whether it is misrepresentation on the part of the
agent or not.
Mr. Jones. I made the statement a while ago that it is very un-
likely that any policyholder who is thinking aboitt replacing his
policy and taking some steps to do so, has had full information as
to whether it is to his advantage or not.
Mr. Meyers. But reading the terms of this replacement agree-
ment, it would seem to go beyond the terms of the provision of
the statutes. Of course, the statutes prohibit replacement on the
ground of misrepresentation, so-called twisting. This is not twist-
ing. This is replacement for any reason.
Mr. Jones. The statutes, some of them, as I stated a while ago,
provide that it isn't necessary to misrepresent. You have also got
to be sure that you have fully represented. Several of the statutes
have not only that implication but that language, and I don't see
how you could go much further than that. We haven't gone any
further than that.
^ "Exhibit No. 815," appendix, p. 4906.
CONCENTRATION OF ECONOMIC POWER 4667
Mr. Meters. The net result of such an agreement would be to
freeze the position of the policyholder.
Mr. Jones. To freeze it?
Mr. Meyers. Exactly.
Mr, Jones. Not unless he wants to freeze it after he gets all the
facts.
Mr. Meters. It tends to restrict the activities of the agents. The
agents probably know they have a 50-percent chance of turning over
this insurance to another company.
Mr. Jones. I think anybody would take the stand that without
any kind of advice on it at all with reference to his insurance that
he has in force, dropping it and taking some other, he ought to have
full advice about it. In other words, you and I have got to take
recommendations of people who know about automobiles, for exam-
ple, or about heaters or ice boxes or anything.
Mr. Meter. Do you think that an agent would be less alert to
protect his policyholder when he knows that the agant is safeguarded
by such an agreement, that other companies would not seek to replace
the insurance of his policyholder ?
Mr. Jones. I don't know that I get the whole question.
Mr. Meyers. Do you think that agents, once having sold insur-
ance to a policyholder, would become less alert to protect the inter-
ests of the policyholder, to continue his interest in the policyholder,
knowing that that policyholder is his client?
Mr. Jones. These policyholders, most of them, have more than
one agent and more than one company. Most of the business that
is involved here would be in cases where men have probably several
policies in as many different companies.
Mr. Gesell. That still doesn't answer Mr. Meyers' question, does
it? After all, if I am an agent and I have sold a policy to a policy-
holder and I know that I am going to be told before he switches that
policy to another company, I don't have to go near him to service
him. I am sure I am going to have a chance to talk to him before
he lets his policy go to someone else. Isn't that true?
Mr. Jones. I wouldn't think so. I never heard a question like
that raised before.
Mr. Gesell. We are raising it here because it seems to be very
relevant.
Mr. Jones. I wouldn't think so. It would be a very poor kind
of agent that wouldn't look after his clients.
Mr. Gesell. I take it you have a poor kind of agent because you
don't rely upon him giving the full information to the policyholder
in the first place.
Mr. Jones. I couldn't answer your question any differently from
that. I wouldn't think that that would enter iiito it very much,
I never had even heard it raised before.
Acting Chairman Eeece. Are there further questions? We thank
you very kindly.
(The witness, Mr. Frank L. Jones, was excused.)
Acting Chairman Reece. The committee will stand in recess until
2:30.
(Whereupon at 12:40 p. m, a recess was taken until 2:30 of the -
same day.)
4668 CONCENTRATION OF ECONOMIC POWER
AFTERNOON SESSION
(The hearing was resumed at 2:35 o'clock upon the expiration of
the recess.)
Acting Chairman Reece. The committee will come to order, please.
Are you ready to proceed ?
Mr. Gesepljl. I am. The next witness is Mr. Lawrence M. Cathles.
Acting Chairman Reece. Will you be sworn, please? Do you
solemnly swear the testimony you shall give in this proceeding shall
be the truth, the whole truth, and nothing but the truth, so help
you God?
Mr. Cathles. I do.
TESTIMONY OF LAWRENCE M. CATHLES, PRESIDENT, NORTH
AMERICAN REASSURANCE CO., NEW YORK, N. Y.
intercompany agreements — reinsurance
Mr. Gesell. Will you state your full name for the reporter, please,
sir?
Mr. Cathles. Lawrence M. Cathles.
Mr. Gesell. Are you connected with the North American Reassur-
ance Co.?
Mr. Cathles. Yes, sir.
Mr. Gesell. You are president of that company, are you not?
Mr. Cathles. Yes, sir.
Mr. Gesell. How long have you been president of the company?
Mr. Cathles. I have been president of the company for 16 years.
Mr. Gesell. What is the nature of its business?
Mr. Cathles. Reinsurance is a means of spreading risks, thereby
increasing the safety and also avoiding undue fluctuations in losses
from year to year. Reinsurance enables small companies to safely
issue policies for larger amounts than they otherwise would feel
safe to do if they didn't have somebody to share the losses with
them. It assists them in competition with larger companies. It is
of considerable help to them in holding their agents. A reinsuring
company has no contact with the insuring public. It deals only with
insurance companies.
Mr. Gesell. Does your company sell reinsurance solely?
Mr. Cathles. Yes.
Mr, Gesell. It sells nothing else ? Does it sell only reinsurance on
life risks, or do you also reinsure other type risks?
Mr. Cathles. Life and accident.
Mr. Gesell. Life and accident. Your customers are, if I under-
stand correctly, life-insurance companies, by and large, are they not?
Mr. Cathles. We deal oTrly with life-insurance companies.
Mr. Gesell. They ask you to reinsure principally two kinds of risks,
do they not, substandard ri,Jks or so-called jumbo risks?
Mr. Cathles. No, sir; I don't think that is true. They ask us to
reinsure that part of any policy they issue which they think is an excess
of safety for them to retain at their own risk.
Mr. Gesell. That would include standard risks, but it would also
include the two types I meiition, would it not — large risks and sub-
standard risks ?
CONCENTRATION OF ECONOMIC POWER 4669
Mr. Cathles. Yes, sir.
Mr. Gesell. I wanted to ask you, first of all, Is the reinsurance which
you sell principally nonparticipating ?
Mr. Cathles. Yes, sir; almost exclusively.
Mr. Gesell. Is it sold on a yearly renewable term basis ?
Mr. Cathles. We sell on both the yearly renewable term basis and
on the coinsurance basis.
Mr. Gesell. Would you say that the yearly renewable term was the
great bulk of your business ?
Mr. Cathles. It is the bulk of our business today ; I should think
that about 45 percent of our total business was coinsurance and about
55 percent reinsurance.
Mr. Gesell. Is your company the largest company in the United
States writing solely reinsurance ?
Mr. Cathles. So far as I know, it is the only life-reinsurancei
company.
Mr. Gesell. Other companies write life reinsurance as part of their
regular line of business, do they not?
Mr. Cathles. As a byproduct, a side issue; there are a number of
companies that create special departments for the handling of reinsur-
ance business.
Mr. Gesell. I wanted to ask you this afternoon about the rein-
surance conference, and ask
Mr. Cathles (interposing). Might I make one thing clear that I
think will help get this picture clearer in the minds of the committee,
that the person insured rarely has any knowledge of the reinsurance
connected with his policy. He deals only with the company that issues
the policy in the first place, and the premium paid by the policyholder
is exactly the same whether part of his policy is reinsured or not
reinsured.
Mr. Gesell. Yes; reinsurance is purely something which the man-
agement of an individual company may desire to increase its protection.
Mr. Cathles. To enable it to compete on more even terms with
larger companies, to increase the safety and avoid fluctuation and
losses by spreading the risk.
Mr. Gesell. I want to show you now with respect to the reinsur-
ance conference which I mentioned a moment ago a letter addressed
to you, dated May 15, 1929, from Mr. Herbert M. Woollen, president
of the American Central Life Insurance Co., and ask you if you recog-
nize that as a letter Avliich you received ?
Mr. Cathles. Yes.
Mr. Gesell. The last sheet is a correct copy of your reply thereto,
is it not?
Mr. Cathles. I think so. It has every appearance of being correct.
Mr. Gesell. The letter states [reading from "Exhibit No. 822"]:
As I told you in Biloxi, Henry Buttolph was then in Fort Wayne for a
conference with Arthur Hall.
Who is Henry Buttolph?
Mr. Cathles. He was actuary of the American Central Life In-
surance Co.
Mr. Gesell. Does the American Central write reinsurance?
Mr. Cathles. It did at that time. The American Central is no
longer in existence.
4670 CONCENTRATION OF ECONOMIC POWER
Acting Chairman Keece. Would you mind, Mr. Cathles, speaking
just a little louder? I think the reporter is having a little difficulty
in hearing you.
Mr. Gesell. And who is Mr, Arthur Hall?
Mr. Cathles. The Arthur Hall there referred to is the president
of the Lincohi National Life Insurance Co.
Mr. Gesell. Did it also write reinsurance?
Mr. Cathles. Yes, sir.
Mr. Gesell [reading further from "Exliibit No. 822"] :
The conference resulted in their concluding that we were all indulging in
practices in the reinsurance business which were very detrimental to the
business and to our several companies and that a group of us should meet for
the purpose of devising means for doing away with these abuses, if possible.
Therefore, I am today inviting you and Arthur, as presidents of your com-
panies, to be my guests at luncheon at the Edgewater Beach Hotel on Wednes-
day, June 5, at 12 : 30, for the purpose of discussing these problems in a broad
and very general way.
Following the luncheon, I suggest that we adjourn to a more general meet-
ing where the discussion could be more detailed and made to include our
associates whom we had brought to Chicago with us. At such a meeting our
company would be represented by Harry Wilson, Henry Buttolph, and me. I
suggest that if you approve of this arrangement you bring persons in similar
executive authority in your organization, to the end that such conclusions as
we may be able to arrive at may be fully understood and faithfully carried out.
At this general meeting, it would be my hope that each of us would, in a
strictly impersonal way, present all of the pi-actices in the business which
seem to him to be destructive and at the same time present such constructive
ideas as seem to him to be proper.
I am aware that this small group does not cover the reinsurance field. How-
ever, my thought is that if we could agree upon a program, we might deem it
advisable to call a more general meeting in the hope that that program, modi-
fied if necessary, might come to be regarded as the general code of behavior
for this branch of the business. On the other hand, I feel that it would be
extremely inadvisable to call a larger meeting until after our three companies
had attempted to arrive at a general understanding.
I have suggested this date because the insurance commissioners, the dis-
ability committee of the American Life convention, and the Institute of Actu-
aries are all meeting in Chicago at this time and place, and I assume that it
would be more convenient for us to meet there than elsewhere.
I wish to offer this letter for the record.
Acting Chairman Reece. It may be admitted.
(he letter referred to was marked "Exhibit No. 822" and is in-
cluded in the appendix on p. 4918.)
Mr. Gesell. I gather from that that tliere were in 1929 some prob-
lems which were troubling the reinsurance executives. I would
appreciate your telling us a little what those problems were.
Mr. Cathles. The chief thing in our minds, I think, was a very
destructive rate-cutting.
Mr. Gesell. Will you tell us what you mean by that ?
Mr. Cathles. I mean that one company would overnight put out a
scale of rates that were perhaps 10 cents a thousand less than its com-
petitors'. Tliat was really the principal thing that I remember that
brought about this talk, and the feeling that the writing- companies
with whom we were dealing were playing one reinsurer against the
other and saying, "Why, I can get a lower rate than that in 30 minutes
over the telephone," and we felt they probably could. It was just
upsetting the whole thing. Rates were really not so important as the
confusion and agitation at that time made out. The underwriting of
the risks at those rates was very much more important, and each com-
CONCENTRATION OF ECONOMIC POWER 4071
pany retained its own underwriting rules. I don't know that I can
explain it any further, Mr. Gesell. It was just one company cutting
its rate and advertising the fact, and trying to get advantage by doing
it, and that leading in our minds — we felt that w^ould lead to a situa-
tion where the reinsurance business would be entirely upset and the
departments that had been established would not be of much use any
more, and my company, which only did reinsurance, would maybe just
have to give up.
Mr. Gesell. In other words, one company would quote a slightly
lower rate and the business would start to drift in the direction of that
company, so the other companies would come a little lower in order to
get back some business, and generally it was an open cut-rate business
at that time ?
Mr. Cathles. Yes; to an excessive extent; we felt to a dangerous
extent, an unwise extent, that threatened the safety of the entire
business.
Mr. Gesell. I take it that your rates weren't, at that time, controlled
by any regulatory body.
Mr. Cathles. No, sir; they never have been, except as they are
controlled by the State laws, which provide certain reserve standards.
Mr. Gesell. But there was then, and there is now, no body which
would be able to set up uniform rates for the business ?
Mr. Cathles. No, sir; there is only that statutory legal minimum
that is based on the reserve standards of the different States.
Mr. Gesell. And am I correct in saying that at this time, partly
because of these cut-rate activities, the companies were frequently
writing a low grade of business ?
Mr. Cathles. Do you mean the writing companies or the reinsuring
companies?
Mr. Gesell. The reinsuring companies.
Mr. Cathles. I don't think so. The only effect I can think of
would be that if we knew we were getting a very starvation premium
for it, we would have to be awfully careful in the kind of risks that
we took.
Mr. Gesell. Were companies, reinsuring companies, increasing spe-
cial terms in their policies, the liberality of their policies, and offering
specal services in order to meet the cut-rate competition of some other
company, and in that way departing from what might be considered
sound underwriting practices?
Mr. Cathles. I don't know whether it was designed to meet lower
rates or not, but a lot of that was being done by several companies
to an extent that we thought was stupid, loaning a man to make up
a company's financial statement at the end of the year, to outline a
system of accounting for them, to show them how to run their
offices — those things are all right to a certain point. All companies
do them, and exchange information very freely. But when it goes
beyond a reasonable extent it is patently an additional inducement to
secure a reinsurance contract.
Mr. Gesell. Well, now will you tell us what took place at this
conference in Chicago and what type of program resulted from the
conferences held at that time?
Mr. Cathles. Mr. Gesell, I can't remember that conference. I
didn't believe it ever took place. There was a conference that took
4672 CONCENTRATION OF ECONOMIC POWER
place very soon after that in Fort Wayne ; that is the first conference
that I remember.
Mr. Gesei^l. Has that exhibit already gone downstairs? In your
letter of acknowledgment you stated [reading from "Exhibit No.
822"] :
I was very much interested to receive today your letter of the 15th. All of
your suggestions appeal to me and I shall be most happy to lunch with you and
Mr. Hall at the Edgewater Beach Hotel June 5.
Is it your recollection that for some reason that meeting was post-
poned and held elsewhere at another time?
Mr. Cathles. I have a vague recollection that Mr. Hall was not
present in Chicago; I expect that I was at those other meetings and
probably Mr. Woollen also was, and we probably met, but I don't
recollect any discussion of the post reinsurance question.
Mr. Gesell. Wlien did you finally get down to brass tacks on the
subject matter of this letter?
Mr. Cathles. It was in Fort Wayne, I think, the following month.
Mr. Gesell. Wlio was present, Mr. Cathles?
Mr. Cathles. I am sorry; I don't have that. I think you must
have a copy of that. If you have a copy of a letter from Mr. Woollen
to Emmett May of the Peoria Life, that gives a complete description
of those present and what was brought up for discussion.
Mr. Gesell. Do you refer to this letter which I now show you?
That is the letter that summarizes the discussions that took place.
Mr. Cathles. It gives a very complete description of the entire
meeting.
Mr. Gesell. I should like to read a portion of the letter for the
record [reading from "Exhibit No. 823"] :
This letter is my attempt to carry out my promise to you to report the
results of the recent meeting with reference to reinsurance questions. I had
an understanding with the representatives of the other companies present
that I would send them a copy of this letter and that they in turn would
write you anything further that seemed to be required.
You will doubtless hear from them shortly. The meeting was opened at
the Keenan Hotel on the morning of June 26 and adjourned to the country
club where luncheon was served and the meeting carried to its conclusion.
The Lincoln National was represented by Messrs. Hall and McAndless ; the
North American Reassurance was represented by Messrs. Cathles, Coburn, and
Oden ; while the American Central was represented by Messrs. Buttolph,
Wilson, and myself.
The representatives of the companies first indulged in a general discussion
of the reinsurance business and the necessity of its being put into a more
orderly condition, the delegations unanimously agreeing that there was a
crying need for change and improvement. They also pledged themselves
to use their best efforts toward bringing them about.
After thus clearing the general atmosphere, the following 16 subjects were
suggested as being the things in the business most needing consideration :
1. Rate cutting.
2. D. I. rate cutting.
3. Disability rates and commissions.
4. Giving out M. I. B. information, directly or indirectly.
5. Furnishing actuarial and accounting services by reinsurance companies.
6. Furnishing underwriting service by reinsurance companies.
7. Coinsurance, guaranteeing the dividends of participating companies.
8. Traveling representatives from the reinsurance company.
9. Supplying the forms, manuals and other data in an organized way.
10. Underbidding on substandard business, either by changing the rating
of the underwriting department or by changing the rate.
11. Refunding mortality savings.
CONCENTRATION OF ECONOMIC POWER 4673
12. Refunding taxes on reinsurance premiums.
13. Twisting of each others accounts, directly or indirectly.
14. Issuing D. I. without life reinsurance.
15. Issuing disability without life reinsurance.
16. Handling of applications under aviation and submarine operations.
There seem to have been a lot of matters for discussion at that time,
Mr. Cathles. Would you say that it was correct that the rate cutting,
which heads the list, was the principal matter up for consideration?
Mr. Cathles. I think it was ; I know it was foremost in my mind.
Mr. Gesell. I notice that the memorandum states that :
Nos. 1, 2, and 3 entails rate cutting, double indemnity rate cutting, disability
rates and commissions, and underbidding on substanard business were discussed
more or less together, and it was agreed that rates, commissions, and under-
writing practices should be made as nearly uniform and standard as possible and
that the practice of cutting and underbidding would immediately be discontinued.
Mr. Cathles. That matter of underwriting, uniform or harmoniz-
ing our rules for underwriting, w^as never followed up. Our under-
writing has always remained an entirely individual matter with each
company.
Mr. Gesell. You have had some underwriting rules enacted, have
you not ?
Mr. Cathles. We have made some general, very temporal rules.
Mr. Gesell. May I offer this letter for the record, please ?
Acting Chairman Eeece. It may be admitted.
(The letter referred to was marked "Exhibit No. 823" and is included
in the appendix on p. 4919.)
Mr. Gesell. That was a letter written by Mr. Woollen, was it not?
Mr. Cathles. Apparently it was.
Mr. Gesell. Am I correct in saying that as a result of these confer-
ences a special subcommittee was formed for the purpose of recom-
mending uniform rates ?
Mr. Cathles. Yes ; they worked on those rates and they made up a
schedule of rates which did not differ a great deal from the rates in
use at that time, and a majority of the companies subsequently used
these rates ; not all of ^hem.
Mr. Gesell. How many companies used the rates, Mr. Cathles?
Can you name them for us ?
Mr. Cathles. I piink perhaps I could. The membership of the
conference has changed from time to time, but the American Central,
I am quite sure, used them; the Lincoln National, North American
used them because they were simply a continuance of North American
rates, with very few minor changes, medical changes in the first year
of the premiums. The Travelers, and I am not sure about the Peoria
Life. They indicated a desire to come into the conference with us and
act with us, but they didn't stay in the conference very long, and I am
not sure whether they stayed in long enough to change their rates.
Mr. Gesell. Am I correct that the first three companies^ whose
names you mentioned, are the three largest companies writing life
reinsurance ?
Mr. Cathles. I don't believe that was true at that time.
Mr. Gesell. They are at the present time, are they not?
Mr. Cathles. I think today the Lincoln National is the largest, and
I am not sure about the Metropolitan. The Metropolitan was the
largest at that time.
4674 CONCENTRATION OF ECONOMIC POWER
Mr. Gesell. They have since-
Mr. Cathles. They have lost interest in the reinsurance business,
as have the Connecticut General and the Travelers.
Mr. Gesell. And as a result the three companies whose names you
first read are the leaders in the business, are they not ?
Mr. Cathles. The American Central, Lincoln National, North
American. I should think they today lead in that yearly term
business.
Mr. Gesell. Have the rates which were recommended at that time
been followed ever since?
Mr. Cathles. Practically all the direct writing companies have
raised their rates, but these reinsurance rates have not been raised.
Mr. Gesell, Those original rates which you set back in 1930 have
been followed ever since by the companies who are members of the
conference ?
Mr. Cathles. By those companies which adopted it. The Metro-
politan and Sun Life of Canada did not ever adopt these rates, unless
the Metropolitan has adopted them this year.
Mr. Gesell. But with respect to the other companies whose names
you mentioned, they have followed those rates consistently since 1930,
have they not?
Mr. Cathles. I think that is a fair statement. I know there have
been lots of violations of these rules by all the companies, but sub-
stantially I think that is true.
Mr. Gesell. When you referred to violations of the rules, did you
have perhaps in mind what Mr. Woollen had in mind when he wrote
Mr. Coburn on August 22, 1930, and said [reading] :
Dr. Stutsman still seems to be shy on the minutes of the past meeting of the
reinsurance conference and its subcommittees and resolutions and what not. It
seems he has been out doing a little rate cutting and otherwise violating the
conference understanding in a perfectly innocent way. Anything you can do to
bring him up to date would be for the good of the order, I am sure.
Mr. Cathles. Dr. Stutsman was a fine old gentleman. He is a
medical doctor and his company has long since been out of business,
and we all felt that if the old doctor had done that, it was just a
mistake and we would just shut our eyes to it.
Mr. Gesell. Is that the kind of violation of the rules you had in
mind when you said that they had been departed from on occasions?
Mr. Cathles. I can't remember any actual rate cutting, Mr. Gesell.
Mr. Gesell. There has been a pretty steady adherence to those
original rates set down, has there not?
Mr. Cathles. Yes, sir. Of course, it was a voluntary organization.
Appearance was a voluntary matter with the companies ; there was no
penalty against any infraction. They could withdraw from the con-
ference any time they wanted and say, "We are out now and we are
going to make our own rules, and not regard the conference rules
any.'"
Mr. Gesell. The facts are, they did not.
Mr. Cathles. Even when they left I think they continued very sub-
stantially to follow the so-called rules laid down by the conference
because they appealed to them as reasonable rules for the conduct of
the business.
CONCENTRATION OP ECONOMIC POWER 4675
Mr. Gesell. And the rules and rates that were established by the
conference have been, to some extent, followed by companies which
were never members of the conference at all, have they not?
Mr. Cathles. I can't tell you that, but I am sure they had an
influence on them.
Mr. Gesell. I had in mind particularly the Reinsurance Associa-
tion.
They have rather closely followed the rules and rates established by
the conference, haven't they?
Mr. Cathles. That I can't saj'', IMr, Gesell.
Mr. Gesell. You say you are sure they have had an influence.
Mr. Cathles. The association was formed before the conference
was formed.
Mr. Gesell. You say they had an influence. On whom did they
have an influence?
Mr. Cathles. I think those conference rates have come to be gen-
erally accepted all over the country as sort of reasonable rates for
that kind of business.
Mr. Gesell. Do you recognize
Mr. Cathles (interposing). All kinds of companies do reinsurance.
Mr. Gesell. Do you recognize this memorandum which I show you
as a report of the committee on rates and underwriting, which was
appointed at the meeting which we discussed a moment ago?
Mr. Cathles. Yes ; I think that is the report of the meeting.
Mr. Gesell. I notice that the report says [reading from "Exhibit
No. 824"] :
The efforts of the committee were directed to encourage constructive rather
than destructive competition between the respective companies, and with that end
in view the committee arrived at certain rates and rules which in their opinion
can be recommended to promote the best interests of the business.
The determination as to what practices were destructive and what
practices were constructive was made entirely by the members of the
conference themselves, was it not?
Mr. Cathles. Yes, sir.
Mr. Gesell. I wish to offer this for the record.
(The document referred to was marked "Exhibit No. 824" and is in-
cluded in the appendix on p. 4021.)
• Mr. Gesell. We referred a moment ago to certain general confer-
ence rules of an underwriting nature which were adopted by the
members of the conference. Can you tell us what the nature of those
rules was, Mr. Cathles ?
Mr. Cathles. I am not sure I can remember all of them. I do
remember the principal ones.
It was decided that $750,000 of insurance was about a deadline
over which no man could safely go in reinsurance. If a man had
that amount of insurance, the rate of mortality was just too high.
We were discussing the question of how much accident insurance
we should participate in the reinsurance of, and I think there was a
rule made about that.
Mr. Gesell. You had a rule to prevent mortality refunds, did you
not?
Mr. Cathles. Yes; that was along the same lines, rate cutting
rather than underwriting, because that was giving back to a company
124491— 40— pt. 10 35
4676 CONCENTRATION OF ECONOMIC POWER
a share of the profits of the business if any profits were made. Those
are lower rates in underwriting.
Mr. Gesell. Do I understand the rates you established are related
only to the yearly renewable term business ?
Mr. Cathles. Yes.
Mr. Gesell. You also in effect, however, standardized the rates for
coinsurance, double mdemnity, and disability by establishing uniform
commissions.
Mr. Cathles. Yes, sir.
Mr. Gesell. Do you recognize these documents which I now hand
you as embodying the principal underwriting rules of the conference ?
Mr. Cathles. I am not sure that this is the latest copy of the rules,
after being amended.
Mr. Gesell. I think you will find the recent amendments on the last
two or three pages of those documents.
Mr. Cathles. Oh, I see. That seems to be a reasonably complete
copy of the current rules of the conference.
Mr. Gesell. It would be fair to say that there is no outstanding
present underwriting rule which isn't recorded in these documents?
Mr. Cathles. I couldn't think of any as I read them over. I think
that is pretty complete.
Mr, Gesell. I would like to offer these rules.
Acting Chairman Reece. They may be admitted.
(The rules referred to were marked "Exhibit No. 825" and is
included in the appendix on p. 4922.)
Mr. Gesell. Just in passing, there was one statement you made
about which I wanted to ask one or two questions. You said the Sun
Life and Metropolitan didn't follow the rates recommended by the
conference. Is it not true, however, that the rates of the Sun Life and
the Metropolitan were by and large comparable to the rates that were
being charged by the conference companies?
Mr. Cathles. We felt they did not differ a great deal from the
conference rates.
Mr. Gesell. And you felt that the difference was of such a small
character that there was not any decided competitive advantage in
the particular rates which they had ?
Mr. Cathles. I don't feel like going that far. I think we all felt
there was a decided competitive advantage in the Metropolitan rates.
Mr. Gesell. You say you felt the rates were comparable.
Mr. Cathles. It wasn't so far out of line that we objected.
Mr. Gesell. It wouldn't fall in the classification of rate cutting
then?
Mr. Cathles. No, sir.
Mr. Gesell. Did your organization, your conference, have a formal
constitution and bylaws and officers and that sort of thing?
Mr. Cathles. No, sir; we had nothing of that kind. It was a
very informal thing.
Mr. Gesell. How often do you meet?
Mr. Cathles. Well, we have been meeting about once a year, and
it is sometimes hard to get them to meet once a year. A lot of them
have said, "This thing's dead, so we are not going to meet again until
we have something to discuss."
CONCENTRATION OF ECONOMIC POWER 4677
Mr. Gesell. In other words, having reached the basic decisions on
certain underwriting rules and certain rates, there was very little
else to be done.
Mr. Cathles. Well, I don't know; you always talk about under-
writing rtiles. Those underwriting rules that you refer to are a very
small part of the underwriting rules. For instance, here is a book
of perhaps 130 or 140 pages. These are North American's under-
writing rules.
Mr. Gesell. Well, I was of the impression that the rules which
you reached some unanimity upon and which you discussed at your
conference must have been underwriting rules of some significance,
or you wouldn't have bothered to talk about them.
Mr. Cathles. Yes ; they were, but they were general rules.
Mr. Gesell. They were general rules, perhaps, but they were rules
which you considered necessary as fixing certain maximum or mini-
mum standards in important underwriting areas ; is that correct ?
Mr. Cathles. You are perfectly correct. We wouldn't have
bothered to discuss them if they hadn't been important or if we hadn't
felt them important.
Mr. Gesell. Particularly those rules which were sort of ancillary to
your uniform rates and designed to prevent rate cutting. They were
of extreme importance as underwriting rules, were they not ?
Mr. Cathles. I don't think there were any
Mr. Gesell (interposing). I had in mind the mortality refund rule,
for example. >
Mr. Cathles. That was tied up with rate cutting. I don't call that
an underwriting rule. It hasn't anything to do with underwriting,
except that the profits come out of underwriting.
Mr. Gesell. What about all your rules limitmg the type of service
which_the companies could provide to the direct- writing companies?
Were those underwriting rules or do you put those in the classification
of rate rules too ?
Mr. Cathles. I do, sir, because as I said, when those services were
given, beyond a certain reasonable point it seeiiied to me plain that they
were additional inducements for the securing of a reinsurance contract.
Mr. Gesell. So you would classify those rules also not as under-
writing rules, but as rate rules ^
; Mr. Cathles. Well, rules to avoid what we thought were unsound
situations in the business causing confusion and upset.
Mr. Gesell. Then I should just change my terminology, Mr. Cathles.
You did enter into quite a number of rules which had a direct relation
to the day-to-day conduct oi your reinsurance business, did you not?
Mr. Cathles. Yes, sir.
Mr. Gesell. Did you give any thought, or did anyone give any
thought during this time, to the applicability of the antitrust statutes
to this type of organization ?
Mr. Cathles. I don't think anybody thought seriously of that, or
had any idea that we were in danger of violating any laws.
Mr. Gesell. Did you seek any legal counsel on that matter at all ?
Mr. Cathles. No, sir; at least, I can only speak for myself. I
thought it was too far fetched an idea to bother about.
Mr. Gesell. And there was no discussion about it in any of the
meetings.
4678 CONCENTRATION OF ECONOMIC POWER
Mr. Cathles. Not that I know of, sir.
Mr. Gesell. My question was prompted to some extent by a letter
of Mr. Coburn, who is in your office, is he not ?
Mr. Cathles. He used to be ; he no longer is.
Mr. Gesell. He wrote to Mr. Buttolph, of the American Central
Life Insurance Co., on November 30, 1929, and one portion of his
letter said, referring to a discussion that he had with several other
men, including a Mr. Craig, and a Mr. Torrey, "I said that it is prob-
ably expected of our committee, without conflicting with any of the
anticontract laws, to establish a set of conference rates that could be
recommended to all of the members of the conference." That indi-
cated there must have been some consideration of the problem in his
mind at least. You didn't talk to him about it?
Mr. Cathles. Yes ; I asked him what he meant by that and he said,
"Oh, it didn't mean anything." I said, "We don't want to violate any
laws." He said, "I don't know of any laws that we would be violat-
ing," and that was as far as I remember the discussion went.
Mr. Gesell. Was it because of the fact that you felt that any com-
pany was free to adopt or reject these rates at any time, that there was
no mandatory obligation on any company to follow the rates, that you
felt free in your mind that the antitrust statutes weren't involved?
Was that the feature of j^our arrangement that you felt kept you free
from any such violations?
Mr. Cathles. No, sir ; I felt that we were not dealing with the public
at all, that we were simply spreading risks as a service for life-insur-
ance companies, and that we were subject only to state supervisory
laws.
Mr. Gesell. Well, the State supervisory laws didn't relate them-
selves in any way to the activities of your conference, did they ?
Mr. Cathles. That is a pretty hard question to answer. I don't
know, Mr. Gesell.
Mr. Gesell. They certainly didn't directly. There was no repre-
sentative of the State present or no particular statutory provision
which permitted your conference to establish these uniform rates.
Mr. Cathles. No, sir.
Mr. Gesell. You say you weren't dealing with the public. I take
it the operations of your business, however, very much affect the
public indirectly, since they are a cost factor in the operation of the
direct- writing companies.
Mr. Cathles. That again I am not sure that I understand, because
almost all of these companies were stock companies, and any saving
in reinsurance premiums or printing and stationery or other expenses,
I think, would more likely be for the benefit of stockholders. I never
heard it suggested that the cost of reinsurance was an element in calcu-
lating the premiums for life insurance. The fact of the matter is
that broadly speaking, you may say there is no cost of reinsurance
to a reinsuring company because it simply hands over to us a part of
the premium it collects from the insured. The cost is this : If there is
any mortality savings in the premium which it hands over to us, then
the reinsuring company gets those mortality savings and the original
company would have had those if it hadn't reinsured the business.
Mr. Gesell. It is true that if I am in the business of selling insur-
ance, I have to pay for reinsurance which I may put on the books of
CONCENTRATION OF ECONOMIC POWER 4679
my company, and the cost of that reinsurance is one of the expenses
that I must meet in the operations of my business, is it not?
Mr. Cathles. As I explained, the principal cost of the remsurance
is that you hand over a part of the premium you collect, and if you
didn't have the reinsurance at all you veouldn't issue that part of the
policy, so that it looks as if you ju'^t would be in the same position
as if you only issued a $10,000 policy instead of a fifteen and remsured
five of it. .11,-
Mr. Gesell. But that is assuming the companies wouldnt write
the policies unless they had reinsurance, but in some cases they quite
possibly would, wouldn't they ?
Mr. Cathl£S. And keep them for themselves?
Mr. Gesell. Yes ; take the risk, in other words.
Mr. Cathles. All companies establish a limit which they think it
is safe for them to take in the way of risk. They are not very apt
to go beyond that limit, although in some companies it is a little
flexible. It may be 10,000 or 12,500, depending on what they think
of the risk. But this reinsurance business, Mr. Gesell, is — an esti-
mate that I have seen made anyway, is that it is less than 2 percent
of the life-insurance business. It is a very small fraction of it.
Mr. Gesell. Of course, when we are talking about percentages in
the life insurance business we are talking about pretty big figures.
Mr. Cathles. Yes, sir.
Mr. Gesell. On that general question, Mr. Cathles, I notice from
some of the correspondence that the conference had been discourag-
ing participating reinsurance.
Mr. Cathles. Yes, sir ; that is true.
Mr. Gesell. Is there any particular reason for that?
Mr. Cathles. Again I can speak only for myself, Mr. Gesell. I
considered it unsound. It seemed to me a stupid position to be in,
to have, say, two reinsurance contracts, one of which you had a loss,
say of $20,000 on, and the other on which you had a profit of
$10,000, and then to pay a dividend when you had a net loss for the
year of $10,000 on your operations.
Mr. Gesell. You see what I had in mind, I am sure, that if your
conference is establishing rates, if those rates were for participating
insurance it might be possible to argue that the companies from a
net-cost point of view paid just what it cost to carry the reinsurance.
But here where you are establishing uniform reinsurance rates which
are nonparticipating, it seems to me that you are in the position of
in a way thereby fixing the margin of profit which you desire to
take out of that kind of business, and you may, over a period of
time, at least to some extent, increase the cost of insurance to policy-
holders who have their insurance in the direct-writing companies.
Mr. Cathles. Of course, to a reinsurance man that seems very
nebulous, and I think that you are overlooking entirely this under-
writing which I have referred to more than once. I don't know if I
can make the point clear. These points are terribly technical. I am
trying to avoid technical terms so as to get it quite clear. But it is
perfectly possible for companies, two reinsuring companies, with the
same rates, each taking one-half of every risk from an individual
company in the way or reinsurance which it has to give up, to get a
different compensation from that company for these risks, because of
4680 CONCENTRATION OF ECONOMIC POWER
different underwriting. That is to say, that a risk may be submitted
to Company A, and it considers that that is a substandard risk, that
the premium charged for it should be 25 percent in excess of the
standard rate. Company B might not think so. It might think
that was a perfectly standard risk and accept it at 100 jjercent, so
that it is possible if one company was much stricter in its under-
writing than the other company these two companies sharing the
same volume of business might receive different premiums.
Mr. Gesell. Of course, it is true, isn't it, Mr. Cathles, that there
are reinsurance companies in the United States which do write par-
ticipating reinsurance much more frequently than do the members
of your particular conference? There is a split of opinion on this
question of participating reinsurance within the business itself, isn't
there?
Mr. Cathles. I am not sure that I can answer that, Mr. Gesell.
I know that some companies use that participating method, but the
ones that I know use it mostly simply exchange business amongst
themselves.
Mr. Gesell. You mean they have entered into some sort of pool
agreement?
Mr. Cathles. Yes ; and I rather think that the participating yearly
renewable term reinsurance contract is practically out of date. There
are some still in existence. These contracts live as long as any policy
exists under them, and my own company has one or two of these
contracts, but I don't remember one of these contracts being made
in recent times.
Mr. Gesell. I have no further questions.
Acting Chairman Reece. Have you any questions. Congressman
Williams?
Representative Williams. I think not.
Acting Chairman Reece. Mr. Blaisdell?
Mr. Blaisdell. At the time when this rate cutting was proceeding,
along in 1929, was there indication that this portion of the business
of the companies was being written without profit?
Mr. Cathles. Yes, sir; some of the companies stated that, that
they were writing business at a loss.
Mr. Blaisdell. Were they at the same time paying dividends?
Mr. Cathles. That I don't know, sir.
Mr. O'Connell. Mr. Cathles, as I understand your testimony, gen-
erally it is to the effect that by virtue of the arrangement made in
1929 and 1930, price competition has, to a large extent, been elim-
inated in your field; is that a fair statement of what has happened?
Mr. Cathles. With a little restriction, sir. The pressure of com-
petition has been transferred from rates to underwriting.
Mr. O'Connell. It is no longer on price ?
Mr. Cathles. It is no longer on the rates, but competition still
exists and is very keen.
Mr. O'Connell. You mean in getting business?
Mr. Cathles. Yes, sir; and in the underwriting. Each of these
companies that we do business with keeps track of these things.
They enter up the premiums they pay us and the losses that we pay
back to them, and whenever that balance is materially against them,
they show it to us and grumble
CONCENTRATION OF ECONOMIC POWER 4681
Mr. O'CoNNELL. But the grumbling hasn't done any good so far,
has it? The rates have remained unchanged since 1930.
Mr. Cathles. Yes; but they are always in a position to protect
themselves.
Mr. O'CoNNELL. How ; by not using the service ?
Mr. Cathles. No, sir; not exactly in that way, if I understand
what you mean ; but there are about 300 life-insurance companies in
this country and every one of them is equipped to do reinsurance
business, and if at any moment a company didn't like or thought our
rates were too high, in all probability they could go across the street
or to a neighboring town, to a neighbor company, and say: "Look
here, I am not going to pay these rates any more. Can't we get
together on reinsurance?"
Mr. O'CoNNELL. I wasn't suggesting the people with whom you
deal were entirely helpless to deal with the situation. I was trying
to indicate that within your group price competition is no longer a
factor ; isn't that a fair statement of the situation ?
Mr. Cathles. I think that is a fair statement.
Mr. O'CoNNELL. And that situation having been brought about, I
also understood you to say that your committee or the group no
longer has a function which is really worth considering. Some
thought you might as well abandon it, that the job has been done.
Mr. Cathles. There has been something of that sort said, but you
must remember if the conference broke up, then there would be no
rules, there would be no rates, no conference rates, and the entire
situation would revert to what it was prior to the conference, except
that we think everybody knows a good deal more about how this
reinsurance business ought to be done.
Mr. O'CoNNELL. Of course, it is entirely possible, I suppose, that
at some time some consideration might be given to a change in the
rates that were established in 1930.
Mr. Cathles. Yes ; a number of companies have asked us when we
were going to raise the rates.
Mr. O'CoNNELL. That is usually the way it works.
Mr. Cathles. They have been raising their own rates and they
Imow the costs have gone up and they know the tendency of the
losses in reinsurance has been to increase as compared with the losses
on direct writing business.
Mr. O'CoNNELL. I assumed in such a situation, I think the general
tendency usually is once the situation has been controlled, that what-
ever pressure there is in the organization would ordinarily be in the
line of increasing rates rath"er than the reverse ; wouldn't you say that
was a fair statement?
Mr. Cathles. I don't know.
Mr. O'CoNNELL. I can see no reason for pressure within your group
for a reduction in the rates, can you ?
Mr. Cathles. And I can see little pressure for raising the rates
unless conditions developed which made it appear plainly that we were
going to face losses rather than profits. But you see, as I say^ those
companies are not helpless by any means. They can form their own
little groups and exchange the business, or they can go across the
street and get another reinsurance arrangement, and they arc all
trained life-insurance men, they know just as much about the business
as we do.
4682 CONCENTRATION OF P^CONOMIC POWER
Mr. O'CoNNELL. T wasn't intending to indicate this situation was as
bad as it miglit be in some other lines where you have the degree of
price control that exists here. I was merely trying to make it per-
fectly clear that the price control does exist and there is no price com-
petition in that field, and that except as some ne^y group might come
into the business, or that life-insurance companies with which you
deal might become so annoyed or perturbed with the situation that
they would go into the business themselves — well, that is all there is to
it. I mean there is that possibility, it is true, I suppose. It is also
true that somebody might go in the aluminum business, too, but I was
merely wanting to make it perfectly clear as I understood you to
testify, that price competition from your standpoint has been elimi-
nated in the industry and you believe it is a desirable thing to do.
Mr. Catiiles. I think that is perfectly fair if you don't forget the
underwriting pressure.
Mr. O'CoNNELL. Well, that is another form of competition, I
suppose.
Mr. Cathles. And also there is another thing that has not been
brought out here today. There is no uniformity in contracts. Each
reinsuring company writes its own contract.
Mr. O'CoNNELL. But there is uniformity in rates in the contracts, I
take it.
Mr. Cathles. There is uniformity in rates, but what you get for
the rates is not necessarily uniform, and one is just about as im-
portant as the other.
Mr. O'CoKNELL. Would you think that undesirable? Would you
prefer that that lack of uniformity be eliminated too?
Mr. Cathles. That lack of uniformity has a pressure to disappear
from the companies themselves, from the insuring companies, because
they come to me and say, "But you don't have this privilege in your
contract and I can get that from somebody else." Of course, I put it
in if I can.
Mr. O'CoNNELL. Could you answer my question specifically?
Would you think it desirable to eliminate that pressure, too?
Mr. Cathles. No; I think that — —
Mr. O'CoNNELL (interposing). You think that is a desirable type of
pressure ?
Mr. Cathles. Yes ; and also I think that the underwriting is neces-
sarily an individual thing.
Mr. O'Connell. Why?
Mr. Cathles. Because that is our individual opinion as to whether
a risk is acceptable or not.
Mr. O'Connell. I see. But you no longer have an individual
opinion as to what rate j^ou shoi M charge?
Mr. Cathles. No; but I know what the rate is I am getting, and
I think I know whether that risk is acceptable at that rate, and I exer-
cise my judgment as to whether I am willing to take that at 100 percent
of the rate or 125 percent of it, or 120.
Mr. O'Connell. But always going up. You couldn't exercise your
judgment to accept a particularly desirable risk at 95 percent of the
rate or 90 percent of the rate, could you ?
Mr. Cathles. No, sir; but we accept many risks that really rate
120 percent at the 100-percent rate.
Acting Chairman Reece. Are there any other questions ?
CONCENTRATION OF ECONOMIC POWER 4683
Mr. Meyers. Mr. Cathles, I infer from your testimony that you
consider rate cutting a harmful and unethical practice, with a result-
ing impairment to both your company and the rate cutter ; is that so ?
Mr. Cathles. I am not quite clear as to your question.
Mr. Meyers. My impression from the opening statement by you was
that rate cutting per se, itself, is a dangerous practice in the insurance
field.
Mr. Cathles. No; I intended to say that rate cutting carried to an
excess, where it threatened destruction of the business, was, in my
opinion, unsound and dangerous.
Mr. Meyers. And as a result the conference was organized to more
or less stabilize the rates?
Mr. Cathles. To stabilize the whole business of reinsurance, and I
believe that the writing companies are just as satisfied with the results
as the reinsuring companies are.
Mr. Meyers. Conferences of this sort require time, money, and
energy. Would you devote that same time, that same money, and
energy to correcting the habits of a company who had raised the rates,
placing that company at a competitive disadvantage ?
Mr. Cathles. I don't follow you. The conference is not an ex-
pensive thing to begin with. There are no expenses in the conference.
Mr. Meyers. The expense of travel, the expense of your time, the
attendance at meetings.
Mr. Cathles. The meetings are nearly always held when some other
meetings are being held at the same place.
Mr. Meyers. Would you have the same meetings if X company, X
reinsurance company, would raise its rates ? Would you go on a mis-
sionary expedition to that company and explain to them that their
rates are too high, that their rates should come down ?
Mr. Cathles. No, sir.
Mr. Meyers. Your only concern, then, is when other companies cut
their rates, which in your opinion are destructive, then you would
devote time and energy to correcting that so-called evil ?
Mr. Cathles. No, sir; we have not done so, and I don't think that
we would.
Mr. Meyers. Well, that is my impression in this conference; you
sat around a table and discussed rates and discussed the fact that
certain rates were abusive, certain level of rates was abusive.
Mr. Cathles. Mostly rates we were discussing.
Mr. Meyers. You wouldn't maintain those rates if other companies
didn't maintain the same rates? You would either bring yours up or
bring them down to meet the level of the majority, would you not?
Mr. Cathles. That would always be the tendency, but I don't re-
member anything of that sort happening, except I know rates were
reduced from time to time.
Mr. Meyers. There is no great interest or excitement on your part
where another company might raise its rates? It is only where an-
other company might reduce its rates?
Mr. Cathles. There wouldn't be excitement then.
Mr. Meyers. Well, I think Mr. Woollen was considerably excited to
write this letter.
Mr. Gesell. You would be excited, wouldn't you, if some member of
the conference reduced its rates below the rates that had been estab-
lished?
4684 CONCENTRATION OF ECONOMIC POWER
Mr. Cathles. Someone would immediately point out to them that
they had done so, and I think if they persisted or if that spread, the
conference would just break all to pieces.
Acting Chairman Reece. Thank you, very kindly.
(Whereupon the witness, Mr. Cathles, was excused.)
Mr. Gesell. I have one witness that will take just about 5 mmutes.
Dr. Davenport, will you take the stand, please ?
DR. DONALD H. DAVENPORT, ECONOMIC ADVISER, SECURITIES
AND EXCHANGE COMMISSION— Resumed
TERMINATION OF LIFE INSURANCE — ORDINARY AND INDUSTRIAL
Mr. Gesell. If the committee please, when we presented some testi-
mony with respect to terminations and lapse, the committee directed a
considerable number of questions to the witness, Mr. John Marshall
Holcombe, Jr., with respect to whether or not there was any relation-
ship between lapse ratios, on the one hand, and new business written,
and size, on the other.^ We have prepared on the basis of some figures
made available to us and in the record, from Mr. Holcombe, certain
comparisons which 1 would like to present to the committee through
the testimony of Dr. Davenport.
You have already been sworn ?
Dr. Davenport. I have been sworn.
Mr. Gesell. Do you recognize this table entitled "1937 lapse ratios
compared with the relative sales rates during 1935 and 1936" as a
schedule prepared under your direction?
Dr. Davenport. I do.
Mr. Gesell. Do you similarly recognize the schedule entitled "The
40 United States life-insurance companies for which the Life Insur-
ance Sales Research Bureau computed 1937 lapse ratios" ?
Dr. Davenport. Yes, sir.
Mr. Gesell. I wish to offer these tables for the record.
Acting Chairman Reece. They may be admitted.
(The schedules referred to were marked "Exhibits Nos. 82G and 827"
and are included in the appendix on pp. 4926 and 4927. )
Mr. Gesell. Have you any comments. Dr. Davenport, which you
wish to make with respect to the two tables which have just been
introduced ?
Dr. Davenport. We recall that the termination of insurance by
lapse occurs because of the nonpayment of premiums before the policy
has been in force long enough for it to have a cash surrender value.
As cash surrender values are not generally available in ordinary in-
surance until after policies have been in force 3 years, practically all
ordinary lapses take place before the insurance has been in force 3
years.
Indeed, from studies that have been made by individual companies,
it appears that the great bulk of lapses, perhaps as much as 75 or 80
percent, occurs in the first 2 policy years. It also appears that ap-
proximately twice as many policies lapse during the first policy year
as lapse during the second policy year. It is clear, therefore, that
» Supra, pp. 4332-4.^35.
CONCENTRATION OF ECONOMIC TOWER 4685
the amount of lapsed insurance is closely related to the amounts of
new business that has been placed upon the books of the company in
the preceding 2 years.
The Life Insurance Sales Research Bureau quite properly recognized
this fact in devising their formula for the measurement of the lapse
rates of individual companies. Every quarter of the year the bu-
reau computes lapse ratios for each of a number of companies which
voluntarily submit the necessary information to it. The formula
employed by the bureau is to total the amount of insurance regarded
as lapsed, the amount going out of force, because of nonpayment of
premiums before premiums for 2 full years have been paid, and to
express this as a percentage of the average quarterly sales during a
24-month period ending 2 months before the beginning of the quarter
in question.
In other words, the amount of business that lapses in a given quarter
is expressed as a percentage of the average quarterly business done
in a 2-year period, but the 2-year period ends 2 months before the
quarter in question. Thus, if the lapsed insurance in the last quarter
ending March 1029 had been $100,000 and the average quarterly sales
for the 2 years November 1937 through October 1938 had been $400,-
000, the lapse ratio would be 25 percent.
Inasmuch as lapses are thus associated with newly written business,
it seems reasonable to test the relationship of the lapse ratio to the
rate at which new business was sold. Therefore, in Table 1, which we
have just identified, we have taken the same 40 United States life-
insurance companies included in the Life Insurance Sales Research
Bureau's lapse survey and have determined the average rate of sales.
This average rate of sales was determined by taking the average
amount of new ordinary insurance sold during 1935 and 1936 and
expressing it as a percentage of the amount of ordinary insurance in
force January 1, 1935.
xin examination of the last two columns in table 1 shows that in
general the largest companies surveyed, the A companies, designated
by the Life Insurance Sales Research Bureau, have the lowest lapse
ratios, while the medium-sized companies, the B companies, and the
smallest companies, the C and D companies, have the higher lapse
ratios.
This relationship, however, is not necessarily because of the differ-
ences in s\i.e of companies. The largest companies have the lowest
relative sales rates, and therefore the amount of insurance exposed
to lapse in these companies was relatively less than in the smaller
companies, which were more successful in getting new business, as
indicated by their higher sales rates.
The nature of the relationship that exists between the rate of sales
and the lapse rate is more clearly revealed in Table 2. This table
shows these same 40 United States life-insurance companies listed in
the preceding table, arranged according to both sales rates and lapse
rates. It shows that, regardless of size, there is a tendency for low-
lapse rates to be associated with low-sales rates, and high-lapse rates
to be associated with high-sales rates. The 13 companies, for exam-
ple, that are listed in the first column with the lowest sales rates;
namely, those companies that had sales rates between 5 and 10 per-
cent, had the lowest lapse rates. The median lapse rate for that
group is given in the last row on that table, 15 percent.
4686 CONCENTRATION OF ECONOMIC POWER
In each successively higher sales-rate class, the median lapse ratio
is greater. You see, the correlation that exists between the rate at
which new business is taken on the books of individual companies,
and the rate of lapse experienced bj'^ those companies.
Mr. Gesell. In other words, Dr. Davenport, these tables which have
just been introduced demonstrate that there is a direct relationship
between the amount of business written by a company and its lapse
ratio?
Dr. Davenport. That is perfectly correct; direct positive relation-
ship between the amount of business put on the books of the company
and its lapse ratio. It doesn't mean there isn't variation in com-
panies. Companies with a greater degree of control over their sales-
men might effect the same rate of growth as another company and
still have a lower lapse ratio, but in general this tendency persists.
Mr. Gesell. Now, it would appear that the reason that the larger
companies showed a lower lapse ratio on the sales-research figures
was because their amount of new business written was not as great
proportionately as the amount of new business written by some of
the smaller companies ?
Dr. Davenport. That is a correct statement.
Mr. Gesell. I have no further questions.
Mr. Blaisdell. I would like to ask Dr. Davenport if classified by
size A, B, and C, what does that mean?
Dr. Davenport. This was the classification arranged by the Life
Insurance Sales Research Agency.
Mr. Gesell. That was explained in Dr. Holcombe's testimony, was
it not; the basis?
Dr. Davenport. In general, it is based on the amount of ordinary
insurance in force; and the fourth column on that table would indi-
cate, roughly, the break-down points.
Acting Chairman Reece. Thank you kindly. Doctor. Does this
conclude your presentation?
Mr. Gesell. It does; yes.
Acting Chairman Reece. When the committee recesses, it will re-
cess to meet Tuesday at 10 : 30 a. m., unless otherwise announced by
the chairman or the executive secretary; and in the meantime, the
chairman or the executive secretary will announce the program which
the committees will enter upon Tuesday morning.
Mr. Gesell. May I just make it clear, Congressman Reece, that it
will not be insurance at that time?
Acting Chairman Reece, It will not be insurance. I assume they
had already concluded we had had enough of that. The committee
will stand adjourned.
(Whereupon, at 3: 50 p. m., an adjournment was taken until Tues-
day, June 27, 1939, at 10 : 30 a. m.)
APPENDIX
Exhibit No. 641
[Prepared by the Securities and Exchange Commission Insurance Study Staff]
Group Life Insurance, United States Companies
[Includes Canadian Business]
Year
Number of
Companies
writing
Group Life
Insurance
Written During
Yeari
Insurance In
Force, End of
Year
1919 .
28
31
35
38
45
60
80
79
84
89
89-
98
101
102
100
96
100
97
98
$432,673,000
440, 632, 000
127, 980, 000
298,120,000
548, 599, 000
656, 334, COO
1,085,435,000
1, 183, 888, 000
1,032,980,000
1,572,141,000
1, 398, 182, 000
1, 405, 823, 000
981,898,000
763, 665, 000
464,106,900
595, 398, 000
779,561,000
702, 820, 000
917, 215, 000
$1, 102, 466, 000
1920
1, 636, 725, 000
1921 ---
1, 598, 743, 000
1922
1, 847, 139, 000
1923
2, 468, 936, 000
1924 -
3, 205, 228, 000
1925 .
4,312,048,000
1926 --
6, 447, 824, 000
1927 - -
6,479,971,000
1928
8, 133, 527, 000
1929 - --
9,139,104,000
1930
9, 905, 526, 000
1931 - -
9, 970, 425, 000
1932
9, 141, 352, 000
1933 - -
8, 928, 499, 000
1934 - -
9, 620, 179, 000
1935
10, 502, 921, 000
1936 -.
1937
11,508,910,000
12, 957, 266, 000
' Represents the approximate amount of business written under new contracts issued during the year.
Does not include additional certificates issued under old contracts except to a negligible extent.
Source: Spectator Insurance Year Book (Life Insurance), Issues of 1920-1938, inclusive.
Exhibit No. 642
[From files of Metropolitan Life Insurance Co.]
The Travelees Insurance Company
L. F. Butler, President
Lite Department:
Edward B. Morris, Actuary.
Charles Qamerdinger,
Assistant Actuary.
W. RULON Williamson,
Assistant Actuary.
Hartford, Conn., November 26, 1917.
Mr. J. D. Craig,
Assistant Actuary,
Metropolitan Life Ins7irance Co., New York, N. Y.
Dear Mr. Craig: Thank you for your letter of the 23d instant regarding the
question of limits. If we are able to get any satisfactory formula for limits, will
let you know.
I might say in this connection, however, that I wrote a similar letter to the
Actuaries of the principal companies writing group insurance as I did to you.
The replies are all about the same, indicating a desire for uniformity — one letter
suggesting that perhaps the Committee of Actuaries might infornially discuss the
matter when we get together in New York.
I am working on a schedule, by occupation, of rate classification to see if it is
not possible to bring about some uniformity among the companies in this matter.
4687
4688
CONCENTRATION OP ECONOMIC POWER
As I look at it, lack of uniformity is a decided drawback to the business as a
whole. For instance, on a certain class of risk where there is competition and the
Travelers quotes a "B" rate, the Aetna a "C" and the Metropolitan a "D" rate,
the Travelers, all things being equaj, gets the business. If, on the other hand,
the Aetna quotes the "A" rates, the Metropolitan the "B" and the Travelers the
"C," the chances are that the Aetna gets the business, so that the tendency due
to lack of uniformity is towards the company quoting the lowest rate. If the
companies were able to average up on other risks the situation might not be as
serious but when the tendency is always the same the result is, of course, the
writing of group business below the average quotations. In other words, it isn't
necessarily one company but all companies that suffer through a lack of uni-
formity. Of course, I refer to companies granting nonparticipating or practically
nonparticipating rates. Whether we can get all such companies to consider such
a scale is another matter, but it is worth trying.
Sincerely yours,
E. B. Morris, Actuary.
EBM: L.
(Stamped:) Please return to actuary's ofBce. File No. 102. A. G. .
Exhibit No. 643
[From flies of Travelers Insurance Co.]
[File of Group Life Intercompany]
From the Actuary, Life Department. April 12, 1919.
To the President and Vice President Way.
At the meeting of the Committee of Actuaries held in New York yesterday (the
members representing companies interested in group insurance) the following
action was taken:
(1) Rates. — The rates for standard groups suggested by the subcommittee
appointed at an earlier meeting were considered acceptable as the minimum for
the nonparticipating companies. The Metropolitan and the Prudential an-
nounced that they would use these rates increiised approximately 5% for dividends.
While Mr. Graham, of the Equitable, was not present, the Equitable's rates are
at present so much higher that it is probably unnecessary for the Equitable to
change their basic rates. (It is not expected that they will.)
This brings the rate situation to a satisfactory conclusion.
(2i Extra premiums. — All the nonparticipating cpmpanies and the Prudential
and the Metropolitan have adopted, or will adopt, a special rating plan for extra
premiums which was recommended by the committee some time ago. This plan
has already been used by all companies except the Metropolitan, and the Metro-
politan now falls in line. Here again the plan is not directly applicable to the
Equitable, but Mr. Graham has promised that the Equitable will adopt a plan
consistent with these results, meaning that the Equitable will also use extra
premiums so as to be sure that the Equitable's rates will be suflSciently in excess of
the nonparticipating rates.
(3) Commissions. — The companies flepresented were all agreeable to adopting
the commission rates recommended by the subcommittee at the meeting held
February 18, 1919, as follows:
First Suggested Schedule
Part of Premium
Renewals for 9
Years
$5,000 and under
From $5,000 to $10,000.
From $10,000 to $20,000
From $20,000 to $30,000
From $30,000 to $50,000
Over $50,000
CONCENTRATION OF ECONOMIC POWER 4689
Second Suggested Schedule
Part of Premium l^l ""'^ yTi's^"' "
$30,000 and under 10 5% for 9 Years.
$30,000 to $50,000 5 2% for 9 Years.
Over $50,000 - - - 2^ 1% for 9 Years.
The nonparticipating companies adopting the first suggested schedule and the
Metropolitan and Prudential schedules somewhat less than either of the sug-
gested plans; it being understood, however, that these were the maximum com-
missions which would be quoted to any agent or broker, but that the companies
operating on a general agency plan could make allowances (not commissions) to
the general agents in excess thereof for the handling of the business, with the
guarantee that the general agents would not pay commissions to agents or
brokers in excess of the scale adopted. While, as it has been stated, the Equit-
able was not represented in this connection at the meeting, Mr. Graham had
previously given assurance that the Equitable would modify their rates to con-
form to the adopted schedule. As a matter of fact, their present rates are very
close to the first schedule suggested.
The understanding was that the various companies would send out the neces-
sary notices to their field representatives in the very near future and that each
company would send copies of such notices to the other companies interested.
It was understood that the new rates as adopted by the various companies would
apply to business issued after May 1, 1919, but that previous quotations of rates
on older bases made prior to May 1, 1919, and where the rate had been finally
quoted by the company at the home office of the company and when based upon
full information as to inspection, schedule of employees, etc., could be continued
until May 31, 1919, at which time all old quotations would automatically cease.
The Metropolitan expects to send out its notification probably this next week.
With the Prudential the changes in rates will probably have to be officially adopted
by their board, which wiU not meet until the second week in May. before an
announcement is made.
While the Aetna was not represented at the meeting, that company had been
fully informed of the various questions and had already declared their willingness
to abide by the decisions reached.
It would seem, therefore, that the action which has been sought by the Hart-
ford companies involving an understanding as to rates and maximum commis-
sions is now possible and that competition on the basis of rates and underwriting,
as well as commissions, wiU in the future be avoided by an agreement of the
three Hartford companies, the Metropolitan, and the Prudential. The Equitable
rates being so much higher, they have not caused controversy.
It is necessary, of course, that the direetera [executives] now finally consider
this question, although the agreement reached is practically in accordance with
this company's previous consideration of the matter.
Assuming official endorsement, it will be necessary, therefore, that a statement
to the field representatives as to the new basis of rates and also as to the new
basis of commissions be drawn up for adoption. Vice President Way's letter of
December 2, 1918, dealing with commissions could be modified in accordance
with the attached suggestions.
(Signed) E. B. M.
EBM:L.
Note.— Crossed-out matter in linotype; new matter enclosed in brackets.
Exhibit No. 644
[From flies of Travelers Insurance Co.]
May 9, 1922.
Mr. BroSmith,
Vice President and General Counsel:
The following question has been raised at various times: Are the companies
[writing group insurance] violating any antitrust law or in any way acting in
an illegal manner by, permitting' their representatives to gather periodically in
order to pool their knowledge as a basis for a unanimous recommendation of a
necessary underwriting rule — or by pooling their experience as a basis for rates?
4690 CONCENTRATION OF ECONOMIC POWER
The recommendation of the informal committee of representatives can be
adopted or rejected by each company, but as a general rule no recommendation
is adopted by the committee unless the vote is unanimous. There is nothing
binding upon any company to follow the underwriting rule, the recommended
commission scales, or the rates which are recommended, but each company ap-
preciates the advantages of cooperation to such an extent that it follows its own
rules, which are generally based upon the recommendations of the committee.
Will you kindly let me have your opinion as to the legality of this procedure?
(Signed) B. D. F.,
Secretary.
[Mr. Faye to note and return. B. D. F. 5-15]
BDF-C.
Note. — Penciled notation enclosed in brackets.
The Travelers
Hartford, Connecticut May 11, 1922.
From Vice President and General Counsel.
To Secretary Flynn.
Subject:
At various times since 1911 I have had occasion as a member of the Legal
Committees representing different insurance organizations to examine into the
laws which prohibit trusts and combinations. My study of these laws and of the
constructions given to them by the courts in various states brought to me the
conviction that in most of the states these antitrust and anticombination laws do
not apply to the business of insurance. Of course, I realize that a combination or
conspiracy on the part of a number of insurance companies to maintain premium
rates would offend against common law without regard to any of these statutes.
However, in my opinion, there is nothing in any of the statutes referred to or at
common law which would make it unlawful for a number of companies engaged in
any particular kind of insurance to associate for the purpose of developing
experience, ascertaining adequate pure premiums, acquisition cost and rates, and
ethical practices for the conduct of the business. Such association protects the
interests of policyholders as well as the interests of the company, and it is through
such association and by reason of collaboration with regard to experience, loss cost;,
acquisition cost, and all of the other factors that we have obtained the rate tables
upon which the security of the policyholder as well as the integrity of the company
has been established. Indeed, the laws in a number of the states now recognize
not only the propriety but the necessity of such association, and this is evidenced
particularly by the statutes which provide for the supervision and regulation of
insurance rates and insurance rating organizations.
Altogether apart from any such statutory recognition, I can see no reason why
any company should hesitate to take part in, and enjoy the advantages of, an
association for the purpose of finding the right basis for rates and practices and
where the companies are free to accept or reject the recommendations made.
(Signed) Wm. BroSmith,
Note. — Penciled notation enclosed in brackets.
Exhibit No. 645
(From flies of Travelers Insurance Co.]
(Notation: W 3-30-25]
March 28, 1925.
From : Secretary Flynn,
To: Vice President and General Counsel BroSmith.
Mr. J. D. Craig, of the Metropolitan, told me the other day that President
Fiske, at a recent conference, told Kavanagh and Craig that he was still firmly
of the opinion that representatives of the MetropoUtan should not convene with
other companies writing Group Insurance with the idea of adopting certain
recommendations. Mr. Fiske had recently told the Metropolitan they could
attend such conferences but he says now he thought they were Group Accident and
Sickness conferences, not Group Life.
I asked Mr. Craig if this was simply an excuse for the Metropolitan to break
over the traces and he said "No," that Mr. Fiske was sincere in his opinion that by
getting together with other company representatives, even in an informal way,
the Metropolitan was violating certain laws — and that Mr. Fiske based this
CONCENTRATION OF ECONOMIC POWER 4691
opinion mainly up.on the advice of Mr. Lincoln. Craig said i 't Mr. Lincoln
thinks that the informal get-together of the Group companies is in violation of
certain statutes. I tried to find out what statutes he referred to. Craig did not
know but did say that a year or so ago Lincoln drew to his attention a bill pro-
posed in Arkansas, Section 2, Article 151, which prohibited such getting together
of companies engaged in life-insurance business. Jim was not sure that such a
bill was passed.
I suggested to Mr. Craig that you talk with Mr. Lincoln about the matter and
he thought it would be advisable as Mr. Fiske would not change his mind until
Mr. Lincoln changed his. I have spoken to Mr. Butler and he wanted me to
suggest to you that you take the matter up with Lincoln to see what he had in
mind.
Although the Metropolitan are supposed to conform to all of the rules even if
they do not attend the conferences, it would be a much better working plan to have
them on hand at the meetings and it would also be much better to clear up the
question of legality of our meetings as some of the other companies may also be-
come frightened if they feel that the Metropolitan really have some legal grounds
upon which to stand.
• (In ink) B. D. F.
BDF:K.
March 30, 1925.
Vice President and General Counsel.
Secretary Flynn.
Re Anti-Trust Laws and
Haley Fiske's Position Re
Metropolitan.
In many of the states the laws which prohibit trusts and combinations in
restraint of trade have been held to apply to insurance companies. In some of
these states the words "insurance" or "insurance premiums" or "insurance
premium rates" are specifically mentioned. In other states the language of these
laws is not broad enough to affect the business of insurance. Again, in other states
there are no laws against trusts or combinations in restraint of trade and the com-
mon law rules prevail.
Commencing back about 1910 or 1911 the Legal Committees of the several
casualty bureaus made studies of all of the anti-trust laws and of decisions in aU of
the states bearing thereupon and prepared a schedule for the use of the casualty
organizations, indicating in which states mandatory rates might be used and in
which states only advisory rates; also, indicating the pains and penalties for
violations of the statutes where they applied and the common law penalty was
simply that of an injunction prohibiting the combination without any other
penalty or damage.
All of the casualty organizations are operating under the opinions given by our
Legal Committees and I venture to say that the fire insurance companies are
operating under opinions of like tenor given by the counsel to their organizations.
We have never had any trouble concerning rates or agreements or combinations
in any state of the Union except Kansas where some years ago an action was
brought against a number of the casualty companies and thereafter dismissed.
The fire companies have had trouble in some states which has been overcome in
part by laws intended to regulate rates.
To the extent that these laws apply to insurance companies it would seem that
they apply equally well to life insurance and accident insurance and to the organ-
izations of companies which care for the interests of life and accident insurance
companies so that a company official who is fearful of the results should avoid
membership on the part of his company or of its officers in the Life Presidents,
American Life Convention, Actuarial Societies and kindred organizations, which
all have more or less to do with the estabhshment of the right premium rates for
insurance and the maintenance of right practices.
With regard to employers' liability and compensation insurance, the question
of a violation of any of these laws is practically a dead letter in aU of the States
in which other laws require that the rates charged for such insurances shall be
rates which shall have been approved as to adequacy and reasonableness by the
insurance supervising official or an Industrial Board or Commission. This is
true as to certain States with regard to fire insurance as well.
To sum up, in many States there is no real risk at all. In some States there
is a technical risk but this is no greater than all of the companies are taking
every day in the year with regard to some requirement or other.
We expect to have the Life Counsel meet in Hartford the 13th and 14th of
May and I shall probably have a chance to discuss this question with Lincoln
during the sessions.
124491 — 10— pt. 10 36
4692 CONCENTRATION OF ECONOMIC POWER
Exhibit No. 646
Revised Code Arizona — 1928
"Sec. 3212. Trust defined, declared void, prohibited, monopoly. — A trust is a
combination of capital, skill, or acts, by two or more persons for any of the follow-
ing purposes: To create or carry out restrictions in trade or commerce or aids
to commerce, or to carry out restrictions in the full and free pursuit of any business
authorized or permitted by law; to increase or reduce the price of merchandise,
products or commodities, or limit the production thereof, or to control the cost
or rates of insurance; to prevent any competition in the manufacture, making,
transportation, sale or purchase of merchandise, products or commodities, or to
prevent' competition in aids to commerce, to fix any standard or figure, for any
article or commodity of merchandise, or product of commerce, intended for sale,
use or consumption in this state, whereby its price to the public shall be, in any
manner controlled or established; to make, enter into, execute or carry out, any
obligation or agreement by which they shall bind or have to bind themselves
not to sell, manufacture, dispose of or transport any article or commodity below
a common standard figure, or by which they shall agree in any manner to keep
the price of such article, commodity or transportation at a fixed or graded figure,
or by which they shall in any manner establish or settle the price of any article
or commodity or transportation between them or themselves and others, to
preclude a free and unrestricted competition among themselves or others in
transportation, sale or manufacture of any such article or commodity, or by which
they shall agree to pool, combine or unite any interest they may have in connec-
tion with the manufacture, sale or transportation of any such article or com-
modity that its price may in any manner be afl'ected; or to regulate the trans-
portation of any product or commodity. Any such combination is against public
policy, unlawful and void, and n© person may form or be in any manner inter-
ested, either directly or indirectly, as principal, agent, representative, consignee
or otherwise, in any trust as herein defined. The creation or maintenance of a
monopoly within the state, or the attempt to create or maintain a monopoly
within the state, is unlawful and prohibited." (§§ 1-2, Ch. 73, L. '12; 579-80,'
585, in part, P. C. '13, cons. & rev.)
"Sec. 3213. Violation by corporation forfeits charter; duty of officers. — Any
corporation organized under the laws of this state, or doing business in this
state, violating any provision of this chapter, shall thereby forfeit its charter
and franchise, and its corporate existence, or its right to do business in this state
if a foreign corporation shall cease. The attorney general and the county attor-
neys, or either of them, shall institute civil and criminal actions to enforce the
provisions of this chapter." (§§ 3-4, Ch. 73, L. '12; 581-2, P. C. '13, Cons. &
rev.)
"Sec. 3214. Violator may not do business in state. — Every person or corpora-
tion, within or without this state, their olficers, agents, representative?, or con-
signees, violating any provision of this chapter, is prohibited from doing any
business within this state, and persons within this state shall not deal with,
directly or indirectly, any such person." (§ 5, Ch. 73, L. '12; 583, P. C. '13,
rev.)
"Sec. 3215. Violations, penalty. — Every person or corporation who directly
or indirectly, violates any provision of the three preceding sections of this chapter
shall be guilty of a misdemeanor and shall be punished by a fine of not less than
one hundred nor more than one thousand dollars, and, if a natural person, im-
prisoned not less than thirty days nor more than six months, and for each and
every day after a conviction hereunder that such violation shall continue, forfeit
and pay the sum of one hundred dollars, which mav be recovered in the name
of the state." (§§ 6-7, Ch. 73, L. '12; 584-5, in part, P. C. '13, cons. & reV.)
Georgia Code — 1933
"56-219. (2466) Arrangements by companies or agents preventing or lessening
competition; revocation of license to do business. —
"No insurance company authorized to do business in this State, or the agent
thereof, shall make, maintain, or enter into any contract, agreement, pool, or
other arrangement with any other insurance company or companies, licensed to
do business in this State, or the agent or agents thereof, for the purpose of, or
that may have the tendency or effect of, preventing or lessening competition in
the business of insurance transacted in this State. When it shall be made to
CONCENTRATION OF ECONOMIC POWER 4693
appear to the Commissioner of Insurance that any company or agent has entered
into any such contract, agreement, pool, or other arrangement, said Commis-
sioner shall revoke the license issued to such company and the same shall not be
reissued until the president or chief officer of such company shall file an affidavit
with said Commissioner, stating that such contracts, agreements, pools, or other
arrangements have been annulled and made void: Provided that nothing in this
Chapter shall be so construed as to prevent any insurance company, legally au-
thorized to transact business in this State, from separately surveying, inspecting,
or examining the premises to be insured, by and with the consent of the owner,
for the purpose of bringing about improvement in fire protection, so as to lessen
the cost of insurance by reducing rates. (Acts 1890-1, p. 206.)"
"56-220. (2467) Same: complaints by citizens: citation. —
"Any citizen of this State whose rates of .insurance have been increased, or who
has been refused insurance at reasonable rates, may file a written complaint under
oath, to the best of his knowledge and belief, with the Insurance Commissioner,
charging any company or companies authorized to do business in this State with
a violation of the preceding section, and thereupon it shall be the duty of said
Insurance Commissioner to issue a citation, addressed to the company or com-
panies against whom said complaint shall be made, requiring it or them to be and
appear before said Insurance Commissioner at a time and place to be fixed by
said Insurance Commissioner, not less than 20 nor more than 40 days from the
date of the filing of the complaint, and show cause why their licenses should not
be revoked as provided by the preceding section. Said citation shall be served
not less than 10 days from the date of filing said complaint by the sheriffs or con-
stables of the State in the same manner as provided by law for the service of
process upon insurance companies. (Acts 1890-1, p. 206.)"
General Statutes of Kansas, Annotated — 1935
"50-101. Trusts defined and declared unlawful and void. —
".A trust is a combination of capital, skill, or acts, by two or more persons,
firms, corporations, or associations of persons, or either two or more of them, for
either, any or all of the following purposes:
"First. To create or carry out restrictions in trade or commerce, or aids to
commerce, or to carry out restrictions in the full and free pursuit of any business
authorized or permitted by the laws of this State.
"Second. To increase or reduce the price of merchandise, produce or com-
modities, or to control the cost or rates of insurance.
"Third. To prevent competition in the manufacture, making, transportation,
sale or purchase of merchandise, produce or commodities, or to prevent compe-
tition in aids- to commerce.
"Fourth. To fix any standard or figure, whereby its price to the public shall be,
in any manner, controlled or established, any article or commodity or merchan-
dise, produce or commerce intended for sale, use or consumption in this state.
"Fifth. To make or enter into, or execute or carry out, any contract, obligation
or agreement of any kind or description by which they shall bind or have to
bind themselves not to sell, manufa^-ture, dispose of or transport any article or
commodity, or article of trade, uso, merchandise, commerce or consumption
below a common standard figure; or by which they shall agree in any manner to
keep the price of such article, commodity or transportation at a fixed or graded
figure; or by which they shall in any manner establish or settle the price of any
article or commodity or transportation between them or themselves and others
to preclude a free and unrestricted competition among themselves or others in
transportation, sale or manufacture of any such article or commodity; or by which
they shall agree to pool, combine or unite any interest they may have in connec-
tion with the manufacture, sale or transportation of any such article or com-
modity, that its price may in any manner be affected. And any such combina-
tions are hereby declared to be against public policy, unlawful and void."
(L. 1897, ch. 265, § 1; March 12, R. S. 1923, 5 50-101.)
"50-102. Denial of right to form or to be interested in any tru^t. —
"All persons, companies, or corporations within this state are hereby denied
the right to form or to be in any manner interested, either directly or indirectly
as principal, agent, representative, consignee or otherwise, in any trust as de-
fined in section one (50-101) of this act. (L. 1897, ch. 265, § 2.)
"50-103. Forfeiture of corporate charter and franchise, stockholders, officers and
agents subject to penalties. —
"Any corporation holding a charter under the laws of the state of Kansas which
shall violate any of the provisions of this act shall thereby forfeit its charter and
4694 CONCENTRATION OF ECONOMIC POWER
franchise, and its corporate existence shall cease and determine; and any stock-
holder, director, oflBcer, agent, representative or consignee of any such corpora-
tions shall be subject to the penalties herein prescribed. (L. 1897, ch. 265, § 3.)
"50-104. Action for dissolution of corporation. —
"For a violation of any of the provisions of this act by any corporation, or any
of its officers or agents mentioned herein, it shall be the duty of the attorney
general of the state, or county attorney of any county in which said violation
may occur, or either of them, upon his own motion, to institute an action in any
court in this state having jurisdiction thereof for the forfeiture of the charter,
rights and franchise of such corporations, and the dissolution of its corporate
existence. (L. 1897, ch. 265, § 4.)
"50-105. Denial of right to do business; injunction or other proceedings: penalties
and forfeitures. —
"Every person, company or corporation within or without this state, their
officers, agents, representatives or consignees, violating any of the provisions of
this act within this state, are hereby denied the right and are hereby prohibited
from doing any business within this state, and all persons, companies and cor-
porations, their officers, agents, representatives and consignees within this state,
are hereby denied the right to handle the goods of or in any manner deal with,
directly or indirectly, any such person, company or corporation, their officers,
agents, representatives or consignees, and it shall be the duty of the attorney
general and the county attorney of any county in the state where any violation
of this act be committed, or either of them, to enforce the provisions of this
section by injunction or other proceeding; and all persons, companies and cor-
porations, their officers, agents, representatives or consignees, violating any of
the provisions of this section, either directly or indirectly, or of abetting or aid-
ing either directly or indirectly in any violation of any provision of this section,
shall be deemed guilty of a misdemeanor, and shall be fined not less than one
hundred dollars nor more than one thousand dollars, and confined in jail not less
than thirty days nor more than six months, and shall forfeit not less than one
hundred dollars for each and every day such violation may continue, which may
be recovered in the name of the state of Kansas in any court of competent juris-
diction." (L. 1897, ch. 265, § 5.)
"50-106. Persons liable for violations; penalties and forfeitures; prosecutions. —
"Each and every person, company, or corporation, their officers, agents, repre-
sentatives, or consignees, who either directly or indirectly violate any of the
provisions of this act, shall be deemed guilty of a misdemeanor, and on conviction
thereof shall be subject to a fine of not less than one hundred dollars nor more
than one thousand dollars, and shall be imprisoned not less than thirty days
nor more than six months, and in addition thereto, for each and every day there-
after that such violation shall be committed or continued, forfeit and pay the sum
of one hundred dollars, which may be recovered in the name of the state of
Kansas in any county where the offense is committed or where either of the
offenders resides ; and it shall be the duty of the attorney general of the state, or
the county attorney of any county in the state, in which said violation shall
occur, or either of them, to prosecute and enforce the provisions of this act,"
(L. 1897, ch. 265, §6.)
"50-107. Contracts void and unenforceable. — Any contract or agreement in vio-
lation of any of the provisions of this act shall be absolutely void and not en-
forceable in any of the courts of this state; and when any civil action shall be
commenced in any court of this state it shall be lawful to plead in the defense
thereof that the plaintiff or any other person interested in the prosecution of the
case is at the time or has within one year next preceding the date of the com-
mencement of any such action been guilty, either as principal, agent, representa-
tive, or consignee, directly or indirectly, of a violation of any of the provisions
of this act, or that the cause of action grows out of any business transaction in
violation of this act." (L. 1897, ch. 265, §7.)
"50-108. Recovery of damages and attorney fee by person injured. —
"That any person, firm, company, or corporation that may be damaged by
any such agreement, trusts, or combination described in sections one (60-101)
and two (50-102) of this act, may sue for and recover in any court of competent
jurisdiction in this state, of any person, company, or corporation operating such
trust or combination, such damages as they have sustained, together with a
reasonable attorney fee." (L. 1897, ch. 265, §8.)
"50-112. Trusts, combinations, and a cements in restraint of trade and free
competition declared unlawful. —
"That all arrangements, contracts, agreements, trusts, or combinations between
persons or corporations made with a viev^ or which tend to prevent full and free
CONCENTRATION OF ECONOMIC POWER 4695
competition in the importation, transportation, or sale of articles imported into
this state, or m the product, manufacture, or sale of articles of domestic growth
or product of domestic raw material, or for the loan or use of money, or to fix
attorneys' or doctors' fees, and all arrangements, contracts, agreements, trusts,
or combinations between persons or corporations, designed or which tend to ad-
vance, reduce, or control the price or the copt to the producer or to the consumer
of any such products or articles, or to control the cost or rate of insurance, or
which tend to advance or control the rate of interest for the loan or use of money
to the borrower, or any other services, are hereby declared to be against public
policy, unlawful, and void." (L. 1889, ch. 257, §1.)
"50-114. Penally for entering into or attempting to carry out unlawful arrange-
ment.—
"That all persons entering into any such arrangement, contract, agreement,
trust, or combination, or who shall after the passage of this act attempt to carry
out or act under any such arrangement, contract, agreement, trust, or combina-
tion described in sections one (50-112) or two (50-113) of this act, either on hie
own account or as agent or attorney for another, or as an officer, agent, or stock-
holder of any corporation, or as a trustee, committee, or in any capacity whatever,
shall be guilty of a misdemeanor, and on conviction thereof shall be subject to
a fine of not less than one hundred doUars and not more than one thousand
dollars, and to mnprisonment not less than thirty days and not more than six
months, or to both such fine and imprisonment, in the discretion of the court.
(L. 1889, ch. 257 §3.)
"50-115. Recovery of damages by persons injured by combination. —
"That any person or corporation injured or damaged by any such arrange-
ment, contract, agreement, trust, or combination, described in sections one
(50-112) or two (50-113) of this act, may sue for and recover in any court of
competent jurifidiction in this state, of any person or corporation, the full con-
sideration or sum paid by him for any goods, wares, merchandise, and articles
included in or advanced or controlled in price by said combination, or the full
amount of money so borrowed." (L. 1889, ch. 257, §4.)
CoMPiLiED Statutes of Nebraska — 1929
"Sec. 59-101. "Trust," Defined. — A "trust" is a combination of capital, skill,
or acts, by any person or persons, to fix the price of any article or commodity of
trade, use, or merchandise, with the intent to prevent othiers from conducting
or carrying on the same business or selling or trafl[icking in the same article, use,
or merchandise, or a combination of capital, skill, or acts by two or more persons
or two of them for either, any, or all of the following purposes: First. To create
or carry out restrictions in trade; Second. To limit or reduce the production or
increase or reduce the price of merchandise or commodities; Third. To prevent
competition in insurance, either life, fire, accident, or any other kind, or in manu-
facture, making, constructing, transportation, sale, or purchase of merchandise,
produce, or commodities; Fourth. To fix at any standard or figure, whereby its
price to the public shall be in the manner controlled or established, upon any
article or merchandise, produce, or manufacture of any kind intended for sale,
use, or consumption in this state; to establish any pretended agency whereby the
sale of any such article, commodity, merchandise, or product shall be covered up,
concealed, or made to appear to be for the original vendor, for a like purpose or
purposes, and to enable such original vendor, producer, or manufacturer to
control the wholesale or retail price of any such article of merchandise, produce,
or commodity after the title to the same shall have passed from, such vendor or
manufacturer; Fifth. To make or enter into, carry on, or carry out any con-
tract, obligation, or agreement of any kind or description by which they shall
bind or have heretofore bound themselves not to sell, dispose of, traffic in, or
transport any article of merchandise or commodity or article of trade, product,
use, merchandise, consumpt'on, or commerce, below a common standard figure,
card, or list price, or by which they shall agree in any manner to keep the price
of such article, product, commodity, or transportation, at a fixed or graduated
figure or price, or bj' which they shall in any manner establish or settle the price
of any article of merchandise, commodity, or of insurance, fire, life, or accident,
or transportation, between them or between themselves and others, or with the
intent to preclude, or the tendency of which is to prevent or preclude, a free and
unrestricted competition among themselves or others or the people generally in
the production, sale, traffic, or transportation of any such article of merchandise,
produce, or commodity or conducting a like business, or by which they shall
agree to pool, combine, or unite any interest they may have in connection with the
4696 CONCENTRATION OF ECONOMIC TOWER
sale, production, or transportation of any such article or merchandise, product,
or commodity or the carrying on of any such business that its price might in anv
manner be affected thereby" (1897, p. 347; Ann. 12000; Comp. 6281; R. S. 1913,
4017; C. S. 1922, 3420)
C. S., Supp., Nebraska— 1937
"Sec. 59-801. Restraint of Trade or Commerce, Unlawful, Penalty. — Except as
to any contract executed pursuant to or under the authority of the provisions of
the Fair Trade Act, every contract, combination in the form of trust or otherwise,
or conspiracy in restraint of trade or commerce, within this state, is hereby de-
clared to be illegal. Every person who shall make any such contract or engage in
any such combination or conspiracy shall be deemed guilty of a misdemeanor, and,
on conviction thereof, shall be punished by fine not exceeding Five Thousand
Dollars ($5,000.00), or by imprisonment not exceeding one year, or by both"
(1905, p. 636; Ann. 12028; Comp. 6302a; R. S. 1913, 4045; C. S. 1922, 3448;
C. S. 1929, 59-801; 1937, p. 481).
C. S., Nebraska— 1929
"Sec. 5&-802. Monopolizing Trade or Commerce, Unlawful, Penalty. — Ever}'
person who shall monopolize, or attempt to monopolize, or combine or conspire
with any other person or persons to monopolize, any part of tlie trade or commerce
within this state, shall be deemed guilty of a misdemeanor, and, on conviction
thereof, shall be punished by fine not exceeding five thousand dollars, or by
imprisonment not exceeding one year, or by both" (1905, p. 636; Ann. 12029;
Comp. 6302b; R. S. 1913, 4046; C. S. 1922, 3449).
"Sec. 59-813. Same. When Corporation Officers Personally Liable for Viola-
tion.— Every president, treasurer, general manager, agent, or other person usually
exercising the powers of such officers of any corporation, joint-stock company, or
other association, who has himself, in its behalf, violated, united to violate, or
voted for or consented to the violation of any of the provisions of this article, shall
thereafter be personally liable for all the debts and obligations of any such corpor-
ation, joint-stock company, or other association created while such person holds
Such office or agency, whether under the same or subsequent elections or appoint-
ments." (1905, p. 641; Ann. 12040; Comp. 6302m; R. S. 1913, 4057; C. S. 1922,
3460).
"Sec. 59-818. Same, Damages, Threefold to Injured Parties. — Any person who
shall be injured in his business or property by any other person or persons by reason
of anything forbidden or declared to be unlawful by this article may sue therefor
in any court of record in this state, in the county in which the defendant or
defendants reside or are found, without respect to the amount in controversy, and
shall recover threefold the damages by him sustained and the costs of suit, includ-
ing a reasonable attorney's fee" (1905 p. 644; Ann. 12045; Comp. 6302 r; R. S.
1913, 4062; C. S. 1922, 3465),
C. S., SiTPPL., Nebraska — 1937
"Sec. 44-321. Combination Agreements Prohibited. — If any insurance company
authorized to transact business in this state, or any agent or representative thereof
shall, either within or outside this state, directly or indirectly enter into any
contract, understanding, or combination with any other insurance company, or
agent or representative thereof, or with any association of such companies or
agents, for the purpose of controlling the rates to be charged for insuring any
risk or class or classes of risks in this state, or for the purpose of, or tliat may have
the tendency or effect of, preventing or lessening lawful competition in the trans-
action of the business of insurance in this state, the Department of Insurance
shall forthwith revoke its license, and those of its agents, and no renewal of the
license shall be granted until after the expiration of one year from the date of
final revocation" (R. S. 1913, 3186; 1919, p. 598; C. S. 1922, 7786; C. S. 1929,
44-321; 1935, p. 329).
Oregon Code Annotated — 1930
"46-140. Combinations and agreements prohibited. —
"It shall be unlawful for any insurance company authorized to transact business
in this state, or any manager or any agent or representative thereof, to, either
within or outside of this state, directly or indirectly, enter into any contract,
understanding, or combination with any other, insurance company, or any mana-
CONCENTRATION OF ECONOMIC POWER 4597
ger, or any agent or representative thereof, or to jointly or severally do any act
or engage in any practice or practices for the purpose of controlling the rate to be
charged, or commissions or other compensations to be paid, for insuring any risk
or class or classes of risks, in this state, or for the purpose of discriminating against
or differentiating from any company, manager, or agent, by reason of its or his
plan or method of transacting business or its or his affiliation or nonaffiliation with
any board or association of insurance companies, managers, agents, or representa-
tives, or for any purpose detrimental to free competition in the business or inju-
rious to the insuring public. Whenever the commissioner shall have knowledge
of any violation of this section, he shall forthwith order such offending company,
manager, agent, or representative to immediately discontinue such practice or
show cause to the satisfaction of the commissioner why such order should not be
complied with. Within thirty days from the receipt of such order, and upon a
failure to comply with such order, the commissioner shall forthwith revoke the
license of such offending company or agent, and no renewal of the license so revoked
shall be granted within three years from the date of the revocation" (L. 1917,
ch. 203, §18, p. 312; O. L. §6361).
Code of Laws of South Carolina — 1932
"Sec. 6620. Trusts and Combinations Declared Against Public Policy. —
"All arrangements, contracts, agreements, trusts, or combinations between
two or more persons as individuals, firms, or corporations, made with a view to
lessen, or which tends to lessen, full and free competition in the importation or
sale of articles imported into this State, or in the manufacture or sale of articles
of domestic growth or of domestic raw material, and aU arrangements, contracts,
agreements, trusts, or combinations between persons or corporations designed or
which tend to advance, reduce, or control the price or the cost to the producer
or to the consumer of any such product or article, and all arrangements, contracts,
trusts, syndicates, associations, or combinations between two or more persons as
individuals, firms, corporations, syndicates, or associations, that may lessen or
affect in any manner the full and free competition in any tariff, rates, tolls,
premium, or prices in any branch of trade, business, or commerce, are hereby
declared to be against public policy, unlawful, and void." (Civ. C. '22, §3530;
Civ. C. '12, §2437; Civ. C. '02, §2845; 1897, XXII, 434).
"Sec. 6621. Charier of Corporation Violating to be Forfeited — How. —
"Whenever complaint is made upon sufficient affidavit or affidavits showing a
prima facie case of violation of the provisions of section 6620 by any corporation,
domestic or foreign, it shall be the duty of the Attorney General to begin an action
agamst such domestic corporation to forfeit its charter; and for the purpose of
such forfeiture he shall apply to any court of competent jurisdiction for an order
restraining such offending corporation, and in cases where in his discretion it is
necessary, for the immediate appointment of a receiver for such offending corpo-
ration where such forfeiture affects a creditor or creditors of such offending
company; and in case such violation shall be established the court shall adjudge
the charter of such corporation to be forfeited, and such corporation shall be
dissolved, and its charter shall cease and determine; and in the case of such
showing as to a foreign corporation an action shall be begun by the Attorney Gen-
eral in said court against such corporation to determine the truth of such charge;
and in case such charge shall be considered established, the effect of the judgment
of the court shall be to deny to such corporation the recognition of its corporate
existence in any court of law or equity in this State. But nothing in this section
shall be construed to affect any right of action then existing against such corpo-
ration" (Civ. C. '22, §3531; Civ. C. '12, §2438; Civ. C. '02, §2846; 1897, XXII,
434; 1902, XXIII, 569).
"Sec. 6622. Injured Party May Recover Damages — Witnesses. —
"Any person or persons or corporations that ma}' be injured or damaged by
any such arrangement, contract, agreement, trust, or combination described in
section 6620 may sue for and recover, in any court of competent jurisdiction in
this State, of any person, persons, or corporation operating such trust or combina-
tion, the full consideration or sum paid by him or them for any goods, wares,
merchandise, or articles the sale of which is controlled by such combination
or trust.
"Any and all persons may be compelled to testify in any action or prosecution
under §§6620 to 6622, inclusive: Provided, That such testimony shall not be used
in any other action or prosecution against such witness or witnesses, and such
witness or witnesses shall forever be exempt from any prosecution for the act or
4698 CONCENTllATION OF ECONOMIC POWER
acts concerning which he or they testify" (Civ. C. '22, §3532; Civ. C. '12, §2439:
Civ. C. '02, §2847; 1897, XXII, 434).
"Sec. 6624. Conspiracies in Restraint of Trade Prohibited. —
"Any corporation organized under the laws of this or any other State or
country, and transacting or conducting any kind of business in this State, or any
partnership or individual, or other association of persons whatsoever, who shall
create, enter into, become a member of, or a party to any pool, trust, agreement,
combination, confederation, or understanding with any other corporation,
partnership, individual, or any other person or association of persons, to regulate
or fix the price of any article of manufacture, mechanism, merchandise, com-
modity, convenience, repair, any product of mining, or any article or thing
whatsoever, or to maintain said price when so regulated or fixed, or shall enter
into, become a member of, or a party to any pool, agreement, combination,
contract, association, or confederation to fix or limit the amount or quantity of
any article of manufacture, mechanism, merchandise, commodity, convenience,
repair, any p.oduct of mining, or any article or thing whatsoever, or the price or
premium to be paid for insuring property against loss or damage by fire, lightning,
storm, cyclone, tornado, or any other kind of policy issued by any corporation,
partnership, individual, or association of persons aforesaid, shall be deemed and
adjudged guilty of a conspiracy to defraud, and to be subject to the penalties as
provided bv sections 6624, 6625, and 6634 to 6639" (Civ. C. '22, §3534; Civ. C.
'12, §2441;'l902, XXIII, 1057).
"Sec. 6628. Validity of Trust Agreements. — All contracts or agreements made
in violation of any of the provisions of sections 6626 to 6633 shall be void"
(Civ. C. '22, §3.538; Civ. C. '12, §2445; 1909, XXVI, 19).
"Sec. 6631. Charter of Guilty Corporation to be Revoked. —
"If any corporation, foreign or domestic, authorized to do business in this State,
is found guilty of unfair discrimination, within the terms of sections 6626 to 6633,
it shall be the duty of the Secretary of State to immediately revoke the permit of
such corporation to do business in this State" (Civ. C. '22, §3541; Civ. C. '12,
§2448; 1909, XXVI, 19).
"Sec. 6635. Penalty for Violation. —
"Any person, partnership, firm, or association, or any representative or agent
thereof, or any corporation or company, or any officer, representative, or agent
thereof, violating any of the provisions of sections 6624, 6625, and 6634 to 6639,
shall forfeit not less than two hundred dollars, nor more than five thousand dollars,
for every such offense, and each day such person, corporation, partnership, or
association shall continue to do so shall be a separate offense, the penalties in
such cases to be recovered by an action in the name of the State, at the relation of
the Attorney General or the solicitor of the judicial circuit within which the offense
was committed; the moneys thus collected to go into the State Treasury, and to
become a part of the general fund except as hereinafter provided. The amount
of the forfeit to be fixed by the judge before whom the case is tried in each case,
within the aforesaid limits; the collection of which penalty shall be enforced as the
collection of fines against defendants upon conviction of a misdemeanor" (Civ. C.
'22, §3545; Civ. C. '12, §2452; 1902, XXIII, 1057).
"Sec. 6637. Forfeiture of Corporate Franchise or Right to Do Business. —
"Any corporation created or organized by or under the laws of this State which
shall violate any of the provisions of the sections 6624, 6625, and 6634 to 6639
shall hereby forfeit its corporate rights and franchises; and its corporate existence
shall, upon the proper proof being made thereof in any court of competent juris-
diction in the State, be by the court declared forfeited, void, and of none effect,
and shall thereupon cease and determine; and any corporation created, organized
by or under the law of any other State or country which shaU violate any of the
provisions of sections 6624, 6625, and 6634 to 6639, shall thereby forfeit its right
and privilege thereafter to do any business in this State; and upon proper proof
being made thereof in any court of competent jurisdiction in this State, its rights
and privileges to do business in this State shall be declared forfeited; and in all
proceedings to have such forfeiture declared, proof that any person who has been
acting as agent of such foreign corporation in transacting its business in this
State has been, while acting as such agent and in the name, behalf, or interest of
such foreign corporation, violating any provisions of sections 6624, 6625, and 6634
to 6639, shall be received as prima facie proof of the act of the corporation itself;
and it shall be the duty of the clerk of said court to certify the decree thereof to
the Secretary of State" (Civ. C. '22, §3547; Civ. C. '12, §2454; 1902, XXIII, 1057).
CONCENTRATION OF ECONOMIC POWER 4699
Vernon's Annotated Texas Statutes (Civil) — Vol. 20
"Art. 7429. (7799) Acts illegal. — Any and all trusts, monopolies, and con-
spiracies in restraint of trade, as herein defined, are prohibited and declared to
be illegal" (Acts 1903, p. 119).
"Art. 7430. (7800) Charters forfeited. — The charter of any corporation chartered
under the laws of this State, adjudged guilty of violating any provision of this
subdivision,~may be forfeited at the request of the Attorney General, if, in the
judgment of the court before whom the litigation is pending, the public interest
requires it, provided the forfeiture of the charter shall be in addition to all other
penalties prescribed by law" (Acts 1903, p. 119; Acts 1923, p. 12).
"Art. 7432. (7802) Successors are prohibited from doing business. — When a
corporation organized under the laws of this State shall have been convicted of a
violation of any provision of this subdivision and its charter and franchise has been
forfeited, no other corporation to which the defaulting corporation may have
transferred its properties and business, or which has assumed the payment of its
obligations, shall be permitted to incorporate or do business in Texas" (Acts 1903,
p. 119).
"Art. 7433. (7803) Foreign corporations.— When any foreign corporation is
adjudged guilty of violating any provision of this subdivision or any antitrust
law of this State, the Attorney General may bring suit in the district court of
Travis County for the purpose of enjoining and forever prohibiting such corpora-
tion from doing business in this State, and if in the judgment of the court the
public interest requires it, the injunction shall be granted, provided the denial
of the right to do business in this State to any foreign corporation adjudged
guilty of violating the antitrust laws shall be in addition to all other penalties
prescribed by law" (Acts 1903, p. 119; Acts 1923, p. 12).
"Art. 7436. (7806) Penalties; venue; fees. — Each firm, person, corporation,
or association of persons who shall in any manner violate any provision of this
subdivision shall, for each day that such violation shall be committed or con-
tinued, forfeit and pay a sum of not less than fifty nor more than fifteen hundred
dollars, which may be recovered in the name of the State of Texas, in the district
court of any county in the State of Texas, and venue is hereby given to such district
courts. * * *"■ (Acts 1903, p. 119; Acts 1909, p. 281).
"Art. 7437. (7807) All agreements in violation of, void. — Any contract or agree-
ment in violation of any provision of this subdivision shall be absolutely void and
not enforcible either in law or equity" (Acts 1903, p. 119).
Vernon's Annotated Criminal Statutes op the State of Texas (Penal
Code)— Vol. 3
"Art. 1632. (1454) Defining trusts. — A 'trust' is a combination of capital,
skill, or acts by two or more persons, firms, corporations, or associations of persons,
or either two or more of them, for any or all of the following purposes:
"1. To create, or which may tend to create or carry out, restrictions in trade or
commerce or aids to commerce, or in the preparation of any product for market or
transportation, or to create or carry out restrictions in the free pursuit of any
business authorized or permitted by the laws of this State.
"2. To fix, maintain, increase, or reduce the price of merchandise, produce, or
commodities, or the costs of insurance, or of the preparation of any product for
market or transportation.
"3. To prevent or lessen competition in the manufacture, making, transporta-
tion, sale, or purchase of merchandise, produce, or commodities or the business of
insurance, or to prevent or lessen competition in aids to commerce, or in the
preparation of any product for market or transportation.
"4. To fix or maintain any standard or figure whereby the price of any article
or commodity of merchandise, produce, or commerce, or the cost of transporta-
tion, or insurance, or the preparation of any product for market or transportation,
shall be in any manner affected, controlled, or established.
"5. To make, enter into, maintain, execute, or carry_out any contract, obligation,
or agreement by which the parties thereto bind, or have bound, themselves not to
sell, dispose of, transport, or to prepare for market or transportation any article,
or commodity, or to make any contract of insurance at a price below a common
standard or figure, or by which they shall agree, in any manner, to keep the price
4700 CONCENTRATION OP ECONOMIC POWER
of such article or commodity, or charge for transportation or insurance, or the
cost of the preparation of any ijrcduct for market or transi)ortation, at a fixed or
graded figure, or by which they shall, in any manner, affect or maintain the price
of any commodity or article, or the cost of transportation or insurance, or the cost
of the preparation of any product for market or transportation, between them or
themselves and others, to preclude a free and unrestricted competition among
themselves or others in the sale or transportation of any such article or commodity
or business of transportation or insurance, or the preparation of any product for
market or transportation, or by which they shall agree to pool, combine, or unite
any interest they may have in connection with the sale or purchase of any article
or commodity, or charge for transportation or insurance, or charge for the prepara-
tion of anj' product for market or transportation, whereby its price or such charge
might be in any manner affected.
"6. To regulate, fix, or limit the output of any article or commodity which
may be manufactured, mined, produced, "or sold, or the amount of insurance which
may be undertaken, or the amount of work that may be done in the preparation
of any product for market or transportation.
"7. To abstain from engaging in or continuing business, or from the purchase or
sale of merchandise, produce, or commodities partially or entirely within this
State, or any portion thereof" (Acts 1903, p. 119).
"Art. 1G35. (1466) Punishment.— Whoever violates any provision of this
chapter shall be confined in the penitentiary not less than two nor more than ten
years" (Acts 1907, p. 194).
"Art. 1637. (1470) Agreement to form trust, monopoly, etc.—U any person shall
enter into an agreement or understanding of any character to form a trust, or to
form a monopoly, or to form a conspiracy in restraint of trade, as these offenses
are defined in this chapter, or shall form a trust, monopoly, or conspiracy in restraint
of trade, or shall be a party to the formation of a trust or monopoly or conspiracy
in restraint of trade, or shall become a party to a trust or monopoly or conspiracy
in restraint of trade or shall do any act in furtherance of or aid to such trust or
monopoly or conspiracy in restraint of trade, he shall be confined in the peniten-
tiary not less than two nor more than ten years" (Acts 1907, p. 457).
"Art. 1638. (1471) Operating in violation of this law. — If any person shall, as a
member, agent, employee, officer, director, or stockholder of any business, firm,
corporation, or association of persons, form, in violation of the provisions of this
chapter, or shall operate, in violation of such provisions, any such business, firm,
corporation, or association formed in violation of this chapter, or shall make any
sale, or purchase, or any other contract, or do business for such business, firm,
corporation, or association, or shall do any other act which has the effect of violat-
ing or aiding in the violation of any provision of this chapter, or shall, with the
intent or purpose of driving out competition ,or for the purpose of financially
injuring competitors, sell within this State at less than cost of manufacture or
production, or sell in such a way or give away within this State, products for Liie
purpose of driving out competition or financially injuring competitors engaged iti a
similar business, or give secret rebates on such purchase for the purpose of the
aforesaid, he shall be confined in the penitentiary not less than two nor more than
ten years" (Acts 1907, p. 457).
"Art. 1639. (1472) Persons outside State liable. — If any person shall, outside
of this State, do anything which, if done within this State, would constitute the
formation of a trust or monopoly or conspiracy in the restraint of trade, as defined
in this chapter, and shaU cause or permit the trust or monopoly so formed by him
to do business within this State, or shall cause or permit such trust, monopoly, or
conspiracy in restraint of trade to have any operation or effect within this State,
or if such trust, monopoly, or conspiracy in restraint of trade, having been formed
outside of said State, any person shall give eflFect to such trust, monopoly, or.con-
spiracy in this State, or he shall do anything to help or aid it doing business in this
State, or otherwise violate the antitrust laws of this State, or if any person shall
buy or sell or otherwise make contract? for or aid any business, firm, corporation,
or association of persons, formed or operated in violation of any provision of this
chapter, or so formed or operated as would be in violation of the laws of this
State, if it had been formed within this State, shall be confined in the penitentiary
not less than two nor more than ten years" (Acts 1907, p. 457).
"Art. 1640. (1473) Forming trusts, etc. — If any person, employe, agent, stock-
holder, or officer of any person, firm, association of persons, or corporation, now
doing business in this State, have formed a trust, or monopoly, as defined in this
chapter, or have formed a conspiracy in restraint of trade, as defined in this chap-
ter, or shall do or perform any act of any character to carry out such trust, monop-
oly, or conspiracy in restraint of trade, such person, employe, agent, stockholder.
CONCENTRATION OF ECONOMIC POWER 4701
or officer shall be confined in the penitentiary not less than two nor niore than
ten years" (Acts 1907, p. 458).
Annotation: Potomac Fire Insurance Company vs. State, 18 Southwestern (2nd)
929 (1929). There was an agreement by two fire insurance companies to limit
the commissions to agents to 20 percent and to refuse to do business with an agent
who accepted more than 20 percent from any other company. This was held to
be a violation of subsections 2, 3, 4, and 5 of Article 7426, which is identical with
Article 1632 above. Such an agreement tends to fix rates.
Griffin vs. Palatine Insurance Company et al., 238 Southwestern 637 (1922).
Because Griffin refused to abide by the decision of an adjustor as to the amount
of his loss, the defendants agreed not to write any of his insurance. It was held
that this violates Sections 3 and 5 of Article 7426 mentioned above, in that it
lessens competition.
Remington's Revised Statutes of Washington
"Sec. 7076. Combinations and Agreements prohibited. —
"It shall be unlawful for any insurance company authorized to transact business
in this state, or any manager or any agent or representative thereof, or solicitor or
broker to, either within or outside of this state, directly or indirectly, enter into
any contract, understanding, or combination with any other insurance company,
or any manager, or any agent or representative thereof, or solicitor or broker, or
to jointly or severally do any act or engage in any practices for the purpose of
controlling the rates to be charged for insuring any risk, or class or classes of
risks, in this state, or for the purpose of discriminating against or differentiating
from any company, manager, agent, solicitor, or broker by reason of its or his plan
or method of transacting business or its or his affiliation or nonaffiliation with
any board or association of insurance companies, managers, agents, representa-
tives, solicitors, or brokers, or for any purpose detrimental to free competition
in the business or injurious to the insuring public. Whenever the commissioner
shall have knowledge of any violation of this section, he shall forthwith order such
offending company, m.anager, agent, representative, solicitor, or broker to im-
mediately discontinue such practice or show cause to the satisfaction of the com-
missioner why such order should not be complied with. Within thirty days from
the receipt of such order, and upon a failure to comply with such order, the com-
missioner shall forthwith revoke the license of such offending company, agent,
solicitor, or broker, and no renewal of the license so revoked shall be granted within
three years from the date of the revocation" (L. 15, p. 278, §1).
Exhibit No. 647
[From files of Travelers Insurance Co.J
[Notation: See "Aetna" file.]
March 26, 1924.
[In pencil: Wm. B.]
From: Secretary Flynn.
To: President Butler.
You may be interested in reading through the attached minutes of the last
intercompany Group meeting and the intercompany rules amended up to and
including that meeting. (If you would like a copy of thp intercompany rules for
your files, I shall be glad to furnish you one.)
During the two weeks preceding the meeting, we had heard from the field of the
offer of the Aetna in several cases to supply clerical assistance. The offer was
generally made in the form of a monthly allowance for clerical hire to handle the
detail work. This violation of the spirit of the intercompany understanding by
the Aetna was the first item on the agenda. After a hot discussion of an hour or
two, the first two votes outlined in the minutes were adopted, unanimously. In
the course of the discussion a large number of cases where Mr. Cammack had
strained the rules for his company's advantage were brought out. A couple of
days after the meeting Mr. Cammack reported to me that the Aetna had with-
drawn as cf March 17 all outstanding quotations for clerical assistance.
He also stated that in the case of the Empire Gas and Electric Company, which
Manager Campbell said had been given to the Aetna because they had offered an
allowance of clerical assistance, that no such allowance had been offered by the
Aetna nor would be given. This matter will be threshed out more thoroughly
with Manager Campbell in the next few days.
4702 CONCENTRATION OF ECONOMIC POWER
I am referring to the above matter as an important possible cause for trouble
in the conference which was successfully cleared up and matters put in good shape
in short order. It illustrates the willingness of the companies to play together on
the basis of an honest interpretation of the rules. The meeting was unfortunate in
that the discussion became somewhat heated and personal and undoubtedly
scandalized the John Hancock representatives who were present. Clearly Mr.
Cammack was being badly chastised and it was apparent to all that upon the
basis of his improper practices during the past six or twelve months he deserved
the rough handling that he was getting. The measures which were necessary to
whip the matter in shape left some of the weaker company members, such as the
Connecticut General and the Missouri State, at the point where they were hinting
at getting out of the conference in order to enjoy cut-rate opportunities
I am reciting all of the above with the idea of putting you in closer touch with
the intercompany situation in Group Insurance, which, judging from the pressure
which all companies are putting on this year, is going to become more and more
important and more and more difficult to keep lined up.
BDF:N (Signed) B. D. F.
Exhibit No. 648
[From files of Travelers Insurance Co.]
[Notations: See B. D. Flynn.— Noted. B. D. F.— A. W. 3-30-26. D.]
The Prudential Insurance Company of America
home office, newark, new jersey
Alfred Huerell, Vice President and General Counsel
February 24, 1926.
William BroSmith, Esq.,
Vice President and General Counsel, The Travelers Insurance Company,
Hartford, Conn.
My DEAR Bro: The proposed constitution for the Group Life Association has
been turned over to me by Mr. Little. I need hardly say that I appreciate the
care a)id skill that you have displayed in drafting this constitution, and I cannot
think of anything that has been overlooked in its preparation.
At the same time, I have been wondering whether a written constitution does
not contain seeds of difficulty for the future. As we all know, the old informal
Group Committee was, on the whole, unusually successful in avoiding improper
methods of competition, particularly in avoiding the cutting of premium rates.
The fact that first one and then another company chose to withdraw seems to
have been the real cause of the subsequent difficulties. Where there is an Associa-
tion with the rather rigid rules prescribed in the tentative constitution, it seems
to me there would be strong temptation for any dissatisfied company to withdraw
as the only possible way in which it could secure independent action even on a
quite minor point, whereas, as you know, under the more flexible system of the
informal Committee, certain differences in practice did persist while the Com-
mittee was still able to secure a general agreement to follow its recommendations.
There does seem to be on the part of some of the Insurance Departments rather
a decided tendency to look with disfavor on any positive agreement lamong the
companies as to what shall and shall not be done in their dealings with the insuring
public. To an Insurance Commissioner looking for matter for criticism I am afraid
the formal constitution of the proposed Group Life Association would be found
only too satisfactory as evidence that the companies were combining to prevent
such freedom of competition as would result in the maximum service being
offered for the premiums collected.
I am frank to admit that perhaps I am unduly timid in this connection, but
I do feel that we secured a very satisfactory measure of success with the old informal
Group Committee, and having now apparently got rid of the problem of premium
rates, my own feeling is strongly in favor of avoiding anything that would supply
ammunition to an unfair critic.
With best wishes, I am
Very truly yours,
Alfred Hurrell,
Vice President and General Counsel.
CONCENTRATION OB' ECONOMIC POWER 4703
Exhibit No. 649
[From flies of Travelers Insurance Co.]
March 12, 1926.
Mr. H, S. Beers,
Associate Actuary, Aetna Life Insurance Company,
Hartford, Connecticut.
Dear Mr. Beers: Mr. BroSmith has redrafted the rules adopted by the Group
Association at its meeting held March 5, 1926, as per copy attached.
As I told you the other day, his feeling was that the Association should be
careful in putting out its rules or its minutes of meetings to steer clear of any
indication of combination in restraint of trade.
My suggestion would be that you send out new set of rules in accordance with
Mr. BroSmith's draft, to be used in place of the earlier set.
Yours very truly,
, Secretary.
BDF:K.
Exhibit No. 650
New York Insurance Law
article 2, section 101-a
"(3) No domestic life-insurance company shall issue any policy of group life
insurance, the premium for which shall be less than the net premium based on
the American men ultimate table of mortality, with interest at three and one-half
per centum per annum, plus a loading, the formula for the computation of which
shall be determined by the superintendent of insurance. A foreign life-insurance
company which shall not conduct its business in accordance with this require-
ment shall not be permitted to do business in this state. Any such policy may,
however, anything in this chapter to the contrary notwithstanding, provide for a
readjustment of the rate based on experience at the end of the first or any subse-
quent year of insurance, which readjustment may be made retroactive for such
policy year only. Any dividends hereafter declared or rate reductions hereafter
made or continued for the first or any subsequent year of insurance under any
policy of the kind defined in subsection one of this section heretofore or hereafter
issued may be applied to reduce the employer's part of the cost, except that the
excess, if any, of the employees' aggregate contribution under the policy over the
net cost of the insurance shall be applied by the employer for the sole benefit
of the employee."
Laws 1926, ch. 92, effective March 12, 1926; as amended.
Laws 1936, ch. 712, effective May 21, 1936.
Exhibit No. 651
[From files of Aetna Life Insurance Co.]
CONSTITUTION
Article I
NAME
This Association shall be called the Group Association.
Article II
OBJECTS
The objects of this Association shall be —
(1) To promote the welfare of holders of Group policies.
(2) To advance the interests of Group Insurance.
(3) To promote economy and reduce expense in the matter of general
administration by an interchange of views on practice among insurance
companies which issue contracts of Group Insurance.
(4) To represent the members of the Association in matters pertaining to,
or which may affect. Group Insurance before the Insurance Departments
and other public and quasi-public official bodies.
4704 CONCENTRATION OF ECONOMIC POWER
(5) To collect and analyze the Group experience of the naembers of the
Association, but nothing in this constitution, or in any rule adopted sub-
ordinate thereto, shall be held to authorize the making or promulgation of
premium rates.
Article III
MEMBERSHIP
Section 1. The Association shall consist of —
(a) The insurance companies that shall subscribe to this constitution at
its adoption.
(b) Such other insurance companies in the United States and Canada as
may hereafter apply for and be admitted to membership by unanimous
resolution at any meeting after notice.
Section 2. Each member shall have the right to designate any officer of the
Company as its representative to attend and vote at meetings of the Association.
Section 3. Membership of a company in this Association shall be subject to
the right of the Association to terminate such membership at any time by a vote
of three-fourths of the members present and voting at the meeting at which
such action shall be taken.
Section 4. A member may resign from the Association upon sixty days' written
notice filed with the Secretary.
Section 5. Members which issue Accident and/or Sickness Insurance on groups
of lives shall constitute the Accident and Sickness Section of the Association.
Section 6. Members which issue annuity contracts covering groups of lives
shall constitute the Group Annuity Section of the Association.
Article IV
Section 1. The officers of the Association shall be a Chairman and a Secretary.
These officers shall be elected by ballot at each regular annual meeting of the
Association, but the officers who shall be so elected at the meeting at which this
constitution is adopted shall hold office until the next regular annual meeting
following and until their successors shall be elected and shall have qualified. If
either of the foregoing offices shall become vacant for any cause during any year,
a special meeting of the Association shall be called for the purpose of fiUing such
vacancy. A vote of three-fourths of all of the members present and voting shall
be necessary in the election of officers.
Section 2. The Chairman shall preside at meetings. The Secretary shall keep
a record of all proceedings of the Association and shall notify the members of the
Association of all meetings and shaU perform such other duties as may, from time
to time, be assigned to bim by the Chairman.
Section 3. Members constituting the Accident and Sickness Section may elect
a separate chairman to preside at meetings of the section. The Secretary of the
Association shall keep the records and perform the duties pertaining to the Acci-
dent and Sickness Section in the same manner as is provided for the Association
under Section 2 of this article.
Section 4. Members constituting the Group Annuity Section may elect a sep-
arate Chairman to preside at meetings of the section. The Secretary of the Asso-
ciation shall keep the records and perform the duties relating to the Group An-
nuity Section in the same manner as is provided for the Association under Section
2 of this Article.
Section 5. No representative or representatives of any one member shall hold
the chairmanship of the Association or of any one of its sections for more than
two successive terms.
Section 6. At the September meeting of the Association in each year, a Nomi-
nating Committee of three members shall be elected by a majority vote of the
members present and voting. It shall be the duty of the Nominating Committer
to submit to ell the members by mail not less than thirty days before the annu^
meeting of the Association the names of those recommended by it as nominees fyr
the respective offices to be filled at the annual meeting of the Association. Noth-
ing in this Section, however, shall prevent any member from presenting such other
nominations as it may wish to submit.
(As amended February 1939.)
CONCENTRATION OF ECONOMIC POWER
4705
Article V
Section 1. The annual meeting of the Association shall be held in New York
City on the third Tuesday in November of each year. Regular meetings shall
be held on the third Tuesday in February and September in each year, and on
the day preceding the Spring Meeting of the Actuarial Society, in such places as
may be designated in the call for the meeting. Special meeting? of the Association
may be called at any time by the Chairman, or in case of his inability to act, by
the Secretary, and shall be so called upon written request of three members.
Two weeks' written notice shall be g'ven by the Secretary for annual and other
regular meetings and one week's written notice for special meeingg.
Section 2. Five members shall form a quorum at any meeting.
Section 3. An agenda of matters to be taken up at any meeting of the Asso-
ciation shall be sent to each member with the notice of the meeting.
Section 4. The Association may recommend rules for the conduct of the busi-
ness. If unanimously approved by all members present at a meeting, such recom-
mendatiorr shall be submitted in writing by the Secretary to all members, who
must record with the Secretary their votes in writing. Unanimous approval by
all members who record their votes within ten days from the date of notification
by the Secretary of a recommendation shall make such recommendation binding
until changed by the vote of the Association, except as provided in Section 5
following.
Section 5. No member shall change or present any plan for future offer in-
volving a change in a practice required by any rule adopted, except after sixty
days' notice has been served upon the Secretary of the Association, who shall
notify all members immediately.
Section 6. No member which does not issue Life Insurance upon groups of
lives shall have the right to vote in relation to any matter pertaining solely to
Group Life Insurance, No member which does not issue Accident and Sickness
Insurances upon groups of lives shall have the right to vote in relation to any
matter pertaining solely to Group Insurance against Accident and Sickness. No
member which does not issue Annuity Contracts covering groups of lives
shall have the right to vote in relation to any matter pertaining solely to Group
Annuities.
Article VI
This constitution may be amended at any regular or special meeting of the
Association by the unanimous vote of all the members present, provided that
written notice with a copy of the proposed amendment shall have been given to
the members not less than two weeks in advance of the meeting.
Article VII
This constitution was adopted at a meeting held at the Hotel Pennsylvania in
the City of New York on the Fifth day of March 1926, by the vote of the com-
panies whose names are subscribed hereto.
(As amended February 1939.)
Exhibit No. 652
[Prepared by E. E. Cammack, Vice President, Aetna Life Insurance Co.]
Officers elected at annual meetings of group association
Meeting
Chairman
Chairman, Accident
and Sickness
Section
Chairman, Group
Annuity Section
Secretary
March 1926
November 1920
November 1927
November 1928
November 1929.
November 1930
November 1931
November 1932
November 1933
Novembor 1934.
Novembei 1935
November 193G
November 1937
November 1938.
W.J.
W.J.
J. D.
J. D.
J. D.
J. D.
B. D
B. D
J. F.
J. F.
E. O.
E. O,
E. E
E.E,
Graham
Graham
Craig
Craig
Craig.
Craig
. Flynn
. Flynn.. ..
Little
Little..
Dunlap
Dunlap --.
, Cammack,.
, Cammack..
W.I. King
B. D. Flynn
B. D. Flynn
B. D. Flynn
B. D. Flynn
J. F. Little
J. F. Little
E. E. Cammack
E. IC. Cammack
C. W. Gamcrdincer
C. W. Gamerdin;;er
G. W. Fitzhugh
Q. W.Fitzhugh
J. F. Little
D. A. Walker..
D. A. Walker..
F. B. Gerhard.
F. B. Gerhard-
E, E
E.E
U.S.
H. S.
H. S.
H.S.
H. S.
H.S
H.S.
H.S.
n.s.
H.S.
H.S,
H.S,
Cammack.
Camrr ■ k.
Beers.
Beers.
Beers.
Beers.
Beers.
Beers.
Beers.
Beers.
Beers.
Beers.
Beers.
Beers.
4706 CONCENTRATION OF ECONOMIC POWER
Exhibit No. 653
[Prepared by E. E. Cammack, Vice President, Aetna Life Insurance Co.]
List of standing committees
Mortality Committee ^tna, Chairman.
Complaint Committee ^" Metropolitan, Chairman.
Group Annuity Committee Prudential, Chairman.
Sickness and Accident Committee Metropolitan, Chairman.
Hospitalization Committee Equitable, Chairman.
Sub-Committee on Group Hospitalization Ex- .^tna, Chairman.
perience.
Group Annuity Experience Committee Metropolitan, Chairman.
Committee to Cooperate with Legal Departments Metropolitan, Chairman.
in Dealing with Legislative Matters.
CONCENTRATION OF ECONOMIC POWiOK
4707
.2 e
C5
OP
3
Ci
CO
>>
►-5
.
p
1 1
1 1
to
3
1
1
d
1
1
, !
2
"3
—
d
"-5
1 1
i i
i
— 1
"3
d
C3
1
1
!
1
3
d
03
»-3
1
1
o
3
1
1
!
1
1
1
d
a
i 1
1
O:
3
1
d
S3
1-s
i
5 1 1
!
1
i-5
1
1
i
3
1-5
1
1
d
03
§5
>,
3
>->
ri
03
2^
3
1-J
d
03
1
1
1
i
3
d
s:
>
c
c
E
c
C
?
c
i-
B
c
1-
c
a
•<
o
O
s
o
CO
tH
3
m
£
'«b
3« =
> 03 C
JO
i
s
l-H
3
1
»
O
3
Si c
a c
O
>
.a
*c!
c
c/"
c
£
<
a
'E
c
'a
o
O
03
3
s
■2
§>
;«i
8
a
«
3
£
3
fl
03 t>
•- C
M
£i
...
a .
a a!
p
^cn a
o ."^
a
03
i
o
<I>
i
u
3
n
.2 ^
>
c
c;
c
E
c
C
c
c
a
I
I
c
o
O
8
I
^ c
03
3
s>
si
il
a
03
s
s,
3
1,CI!
0)
i
1
a
l-H
3
a
o<-
O
3
OS
'i2s
if
0
o
O
8
a
OS
3
3
o
S
i
3
a
S
H
8
a
g
1
■3
■<>
c
C3 r-
CO
i
0
8
a
2
3
S
3
to 0:
« C
IS
8
CI
2
3
S
»-<
•2
3
S
a
0
8
a
2
3
<
£
3
|>
1^
c3 >
a i
3 1
a
0 0
P
124491 — 40 — pt.
4708
CONCENTRATION OF ECONOMIC POWER
3
.2
a
o
O
I
C5
n
o
w
1^
t«!
"O
W
03
ooS
?=
s
e
s
o
s
o
S
CO
CO
o
RE, '0<: -qej 1
>< M t^ X X ><
«£, 'L -00(1 1
x! ; X X ; X
se, Si AUN 1
>< X X X X X
>^£. '8o -Klag 1
x{ : X X '■ X
SK. •<)! 'P et 'Siiv 1
X X X X X X
8f:, 's: 'P i\ ■<>-n 1
xi X X X X X
se. 'yi -qa.^ 1
X X X X -x X
ii:< '91 •''OX i
X X X X X X
IE. -ilZ UO 1
X X X X ; X
ie, 71 J? 91 'anv 1
X X X X X X
:e. •ot;8UTir 1
X X X X : X
ze. "fii x-vn 1
X X X X X X
iR, Yi ■qa.'i 1
X X X X X X
9£. 'il 'AON 1
X X X X ; X
9£. '81 y il ■Snv 1
X X X X ; X
9£. 'OZ 'tviv 1
X X X X X X
y£, '81 "qa.i 1
X X X X : X
e£. '61 'Aox 1
X X X X ; X
2g. '03 =5> 61 "^nv |
X X X X : X
y£. 'yl Ai^iM 1
X X X X X X
t-R, 'i;i 'qaj 1
X X X X ; X
3
t-f^ 'OS "AON 1
X X X X : X
i-R. '!? ^ 0<; 'Stiv 1
X X X X ; X
>>
H. '(Z ^PW 1
X X (^ >^ X X
3
-1
t'S, 'IK ■<-!&.■{ 1
X X X X : X
fj
e?;. '\z ■''OH 1
X X X X ; X
",
rv;. '?i ^ il '^"v 1
X X X X X X
Eg, '01 A-^K 1
X X X X X X
3
££. '82 -qaj I
X X X X : X
a
ZE. '5i ■■■'ON 1
X X X X ; X
n
Z'S. 'l\ y 91 "^nv 1
X X X X X X
2R, '01 9unr 1
X ; X X ; X
3
2E. 'II ABj^ 1
X X X X X X
R
ZE, '91 -qa^l 1
X X X X X X
o
IE, 'il -AON 1
X X X X X X
cu
IE, '81 'StiV 1
X X X X X X
B
TE, '()Z /^^'Vi 1
X X X X X X
H
IE. 'LI qaj 1
X X X X X X
OE. '81 'AON 1
X X X X X X
OS, '61 -any 1
X X X X X X
a
OE, 'M -tFIV 1
X X X X X X
OE, '81 qoj 1
X X X X X X
62, '61 -AON 1
X X X X X X
3
6?.. 'Oc 'any 1
X X X X X X
62, 'H ^^Vi 1
X X X X X X
a>
62, 'S qaj 1
X X X X X X
82, '02 AON 1
X X X X X X
X>
82, '12 "3nv |
X X X X X X
•O
82. '81 '^WIV 1
X X X X X X
s
82, 'E2 -qej 1
X X X X X X
g-
Z2, 'SI AON 1
X X X X X X
Oh
tZ. 'il 3? 91 -atiV 1
X X X X X X
i2, '02 ^^Vi 1
X X X X X X
i2, 'SI Pdjf 1
X X X X X X
i2. 'H 'UBf 1
X X X X : X
92, '8 39(1
X ; X X X X
92, '91 AON
X X X X X X
92, 'zi -any 1
X X X X X X
92, 'M -^^PV 1
X X X X X X
92, '9-J<lV 1
X X X X X X
92, 'S 'J'^W
X X X X : X
92, 'E 'qe^J
X X X X : X
Aetna Life Insurance Co.
Canada Life Assurance
Co .---
Connecticut General Life
Insurance Co. -
Equitable Life Assurance
Society
London Life Insurance
Co...
Rfetropolitan Life Insur-
ance Co --
CONCENTRATION OF ECONOMIC POWER
47C0
; X X x
: X
:
X t-
1
1
: X ^ ><
: X
X i< X X
X
X
X X
X
-
: X X :
X
' X
X X X X X
X
X
X
X :
X X
X X X X X
X
X
X X
X X
X X 1
X X X X
X
X
X X
X
X X X X
X
X
X X
X
X X X X
X
: X
X
X X X X
X
X
XX
: X X
X
X X X X
X
X X :
X X X X X
X
X
X X
XXX
X
X X X X
X
X
X X
X
X X X X
X
X
: X
X X
: X X X
X
X
X X
X
X X X X
X
X
X X
X X
; X 1
X X X X
X
X X
X
X X X X
X
X
X X
I X X X X
X
X
X X
X
■ X X X X
X X
X X
X
X X X X ;
X
X X
X X
X X X X '
X
: X
X X
XXX ■ X
X X
X X
X X X X X
X
X X
X X
X X X X
; X
X X
X X X X
X
; X
X X
X X X X
X
X XX
X X
X X X X X
X
X X
X X
X X X X
X
: X
X X
X X X X
X
: X
X X
X X X X
X
X X
X X
■.XX'
-
X X X X X
X
X
X X
; X
X X X X
X
; X
X X
X X X X
;
: X
X X
X X X :
X
X XX
X
X X X X X
tx!
X X :
X
X X X X
X X : '
XXX'
X
; X X
X X X X
X
: X :
-
X X X X X
X XX
'.XX-:
]
: X
X X X X
X
: X
-
X X X : :
X
■ X
X X X X
:
X
X X
X X X X
: X
X X X X
X
-
X X X X •
X
; X
X X X X X
X
X X
X X
XXX'
X
-
X X X X
X
: X ■
X X
' X X X X
X
X X
X X X X "
X
X X
X X X X
X
X
-
: X X ■■
: X X '■
X X X X
-
X X X X
X
X X X X
X X X X
'.XXX
X X X X
Missouri State Life In-
surance Co. (General
American L. I. Co.)
Prudential Insurance
Company of America. .
Travelers Insurance Com-
nanv
d
O
8
□
S
3
<4
£^
tn
"3
3
□ □
a
£
a
00 o
|i
a a
a <n
P4
a
£
Is
£ £
a =
o m
O
<
s
C3 D
J O
«8
-4
as
i
£
1 =
i-i 03
o
<
£
a
8
5£
S3
Z
1-4
3
a
a
<»
•a
is
a as
M
3
a
£
-8
a
»-(
3
SO
p8
rr im
8
a
e)
3
<
£
3
"3
5o
1"
3
□
3
1°
©
Is
o
O
8
c
C3
u.
3
C
£
3
a
£
o
O
E
®
•a
c
.c
o
5
s
a
a
3
3
■3
1"
a
3
^1
(B
0
§
03
3
-<
3
a
0
"3
i 0
0
3
□
£
3
<D 0
.to
«
3
□
3 "
.a'"'
§0
if
00
a
£
3
i2
« 0
3O
li
il
4710
CONCENTRATION OF ECONOMIC POWER
Exhibit No. 656
[Prepared by Securities and Exchange Commission Insurance Study Staff]
Group Life Insurance in the United States
[Includes United States Business of Both Canadian and U. S. Companies]
All U. S. and Canadian
Cos. Writing Group Life
in U. S.
All Group Association Cos.
(U. S. and Canadian)
Percentage
of Insurance
in Force
Attribut-
able to
Year
Number
Group
Number
Insurance In
of Com-
Insurance In
Association
of Com-
Force, End of
panies
Force End of
Cos.
panies
Year
writing
group life
Year
Ratio-
Column (4)
To Col-
umn (2)
(1)
(2)
(3)
(4)
Percent
192G
81
$5, 398, 337, 000
6, 422, 689, 000
8, 081, 447, 000
9
$5, 136, 560, 000
5, 987, 077, 000
7, 442, 166, 000
95 2
1927
87
13
93 2
1928
92
15
92 1
1929
92
9, 107, 860, 000
16
8 550 115 000
93 3
1930
101
9, 967, 929, 000
16
9, 158,757,000
91 9
1931
106
10, 062, 508, 000
9, 197, 813, 000
8, 943, 427, 000
18
9, 432, 902, 000
8, 580, 933, 000
8, 345, 560 000
93 7
1932
108
18
93 3
1933
106
18
93 3
1934
103
9, 663, 423, 000
10, 529, 808, 000
11, 524, 470, 000
18
9, 046, 278, 000
9, 847, 254, 000
10, 881, 841, 000
93 6
1935...
107
19
93 6
1936...
103
20
94.4
1937
105
12, 970, 725, 000
19
12, 227, 549. 000
94 3
Over the period 1926-1937 the Group Association Companies had on the average 93.5% of the total group
life insurance in force in the United States. Over the twelve-year period, January 1, 1926 to December 31,
1937, the Group Association Companies wrote on the averaf^e more than 81% of tne initial group life insur-
ance issued under new contracts. Such percentage was in no year less than 74% and in some years amounted
to over 85%. The six large eastern U. S. companies of the Group Association— namely, the Aetna Life
Insurance Company, Connecticut General Life Insurance Company. Equitable Life A.ssurance Society
of the United States, Metropolitan Life Insurance Company, Prudential Insurance Company of America,
and Travelers Insurance Company— controlled, over the period 1926-1937 inclusive, 86.1% of the total
group life insurance in force in the United States, such percentage varying from a low of 84.24% to a high of
91.88%. Over the twelve-year period these six companies wrote more t'lian 70% of the initial insurance
written under new contracts, such percentage in any individual year being at no time less than 64%, and in
one year exceeding 82%.
Source: Spectator Insurance Year Book (Life Insurance) Issues of 1927-1938 inclusive.
Exhibit No. 657
[Prepared the Securities and Exchange Commission Insurance Study Staff]
Rulings of New York Superintendent of Insurance on Group Life
Insurance
The following schedule was prepared from the Minutes of the Group Associa-
tion. It reflects rulings made by the New Yorli Superintendent of Insurance
pursuant to Section 101 (a), subsection 3, of the New Yorli Insurance Law and at
the recommendation of the Group Association. It shows the date on which the
desired ruling was discussed and approved by the Association, the date, where
known, on which it was recommended to the Superintendent, and the date on
which it was promulgated by him. The formal promulgation was frequently in
the identical language of the recommendation.
Ruling
Date Discussed and
Approved by
Association
Date Recommended
to Superintendent
(Where Known)
Date Promulgated
Rule limiting scope of disability clause
Rule fixing maximum rate of contri-
bution l)y employees.
General revision of extras -
Extension of cotton mill extra to cover
cotton, rayon, and wool professes.
Reduced extras for transport and/or
air-mail companies.
Minimum conversion charge
Extras for silk industry
General revision of extras
General revision of extras..
Extras for police benevolent and civil
service associations.
November 16, 1926.-.
February 5, 1929
August 19, 1930...
February 17, 1931.
December 1,1926...
February 9, 1929...
August 18, 1931....
November 15, 1932.
November 21, 1933.
May 20, 1036 .
May 19, 1937
May 17, 1938
November 18, 1932.
Decembers, 1933..
December IC. 1926.
March 1, 1929.
November 15, 1930.
March 10, 1931.
September 26, 1931.
November 22, 1932.
December 16, 1933.
July 9, 1936.
July 26, 1937.
July 16, 1938.
CONCENTRATION OF ECONOMIC POWER
4711
Exhibit No. 658
[From files of Aetna Life Insurance Co.]
Group Life Rules — June 1938
underwriting rules recommended by the group association
In order to carry out the objects declared in Article II of the Constitution and
to the end that employers and employees insured under Group policies may be
treated equitably and without discrimination, and in order to promote uniformity
and economy in administration, so as to insure a reasonable cost for this kind of
insurance protection to all employers and employees and to keep the expense of
administration within reasonable limits, the following rules are suggested to the
members as adequate for these purposes:
1. A rate of interest should not be guaranteed in excess of 3%% in the calcula-
tion of payments by instalments instead df in one sum.
2. Two scales of commission are shown below:
First Scale
Part of Premium
First
Year
Renewals
for Nine
Years
$1,000 and under _.
From $1,000 to $5,000..
From $5,000 to $10,000.
From $10,000 to $20,000
From $20,000 to $30,000
From $30,000 to $50,000
Over $.'50,000
Percent
20
20
15
12H
, 10
5
2H
Percent
5
3
m
in
1
Second Scale
Part of Premium
First
Year
Renewals
for Nine
Years
$5,000 and under....
From $5,000 to $10,000. . .
From $10,000 to $100,000.
From $100,000 to $250,000
Oter $250,000.
Percent
I
Percent
2}i
2
2
One or the other of these scales should be adopted as a maximum scale for
soliciting agents and brokers and renewal commissions should not be commuted.
No additional commission or expense allowance should be paid to any agent
except a General Agent who represents his Company full-time and to the exclusion
of all other Companies; provided that General Agency contracts contrary to the
foregoing that have been entered into prior to February 20, 1934, need not be
cancelled immediately but should be eliminated as soon as possible.
No first year commission should be paid upon policies issued in conversion of
Group Insurance except that where no renewal commission is paid a first com-
mission of not to exceed 10% may be allowed.
No commissions should be paid upon any extra premium charged aviation
transport and/or air-mail companies when the extra premium is calculated on the
basis of the number of hours flown.
3. Rates for "labor union groups'' should not be guaranteed for more than one
year.
Rates for "employer groups" should not be guaranteed for more than one year,
except that the initial rate schedule may be guaranteed again.st increase for not
more than five years in the case of a policy where no extra premium of any sort
is charged.
Rates for "association groups" should not be guaranteed for more than ore year,
except that the initial rate schedule may be guaranteed against increase for not
more than five years if (1) only employees actively engaged in employment which
qualifies them for membership in the association shall be eligible for insurance,
C2) at least 75% of the actively engaged eroDloyt^cs eligible for membership are.
4712 CONCENTRATION OF ECONOMIC POWER
or become members, and apply for the insurance, (3) no extra premium of any sort
is charged.
In no case should rates be guaranteed for'more than one year when the p)olicy
represents insurance transferred from another company.
(September 1938.)
4. No class of employees should be insured under a Group policy issued to an
actual emjjloyer, under which any employee in the class pays more for his aggre-
gate Group Life Insurance than indicated by the following table:
Rate at Which Policy is Written
Maximum Contri-
bution from Em-
ployees per Thou-
sand
Standard
Standard plus $1.00
Standard pius $2.00
Standard plus $3.00 or more.
In the contributory cases three months should be the maximum period allowed
employees to elect the insurance without the insurance company reserving the
right to require evidence of insurability.
The application should show the maximum contribution to be made by em-
ployees. The balance of the premium should be paid by the employer.
In the state of New Jersey, the employees of municipalities may pay 75% of
the premium.
5. Group policies should not cover employees who are sick at the time insurance
is effected unless the number of persons in the group is over 500, in which cases
all may be insured; provided, however, that if the policy replaces one previously
in force with another carrier, sick employees may be insured but only after their
protection under the previous policj' ceases.
Policies should provide that the insurance of an employee shall be increased
in accordance with the insurance schedule only if the employee is in active service
on the date of eligibility for increase; otherwise, on return to active service.
(December 1937.)
6. No schedule of insurance should be allowed that provides for less than $500
of insurance for any employee i.nsured after the completion of one year's service.
A minimum of $250 may be allowed under the schedule for employees of less than
one year's service.
This rule does not apply to Group policies issued to labor unions or astiociations.
7. A company should not write further insurance on a group of employees
already insured under another Group policy in another company. Wholesale
Insurr^nce should not be written insuring employees already covered under a
Gror.p or Wholesale policy.
Furthermore, Group Insurance should not be divided between two Companies
so as to give amounts in excess of the limit which one Company will furnish under
a single policy.
This rule does not apply to policies issued to labor union or association groups
'^xcept that it should govern the question of the issu^mce of new policies to labor
U-;ions or associations confined to the employees of one employer.
8. Companies should discourage the transfer of Group Insurance from one Com-
pany to another, and field representatives should be prohibited from submitting
Grnnn propositions to employers on any plan (Life, Disability, Death, and Dis-
memberment or Annuities) where such coverage is carried in another Company.
When a field representative is requested by an employer to submit such a plan,
he should be instructed to submit nothing but to refer the matter to his Home
Office.
In such a case the following rules will apply:
(a) The Company from which quotation is requested will immediiS*:ely notify
the insurance carrier.
(b) The field representative may be notified that he may submit a plan with
the understanding that the insurance will be written, but only after fifteen days'
notice from the employer to the old company that the old policy is to be cancelled.
CONCENTRATION OF ECONOMIC POWER 4713
Moreover, no application can be accepted or solicitation of employees commenced
more than fifteen days prior to the termination of the old polic}'.
The above rule applies also where two or more insurance companies have cover-
age on separate units of one employer.
Where there is a merger of two or more employers, one or more of whose plants
is covered by Group Insurance, no quotation can be made for an insured unit
(except by the present carrier) except in accordance with the above rule.
When the field representative is notified that he may submit a plan, he will
also be instructed to advise^the employer of the disadvantages of transfers.
When an insured company is split into two or more independent units or when
the control of an insured company changes, the coverage prior to the split or
change in control may be reissued within six months after the split-up "or change
in control by the original insurance carrier to the units it previously covered.
Commissions may be paid for the unexpired term at a rate not to exceed that wiiich
would have been paid had there been no change. If at the same time, in the case
of any unit, the coverage is extended to employees previously uninsured by the
original carrier. Rule 10 should apply. No quotation should be made by any
other company for a unit whose employees were previously insured except in
accordance with the rules regarding transferred business.
In order to discourage transfers, no commissions shquld be paid to any soliciting
agent or broker for Group Insurance effective within six months of the premium
due date as of which the coverage was terminated under a policy previously car-
ried by another company; except that commission may be paid on additional
insurance resulting from the addition of new classes of employees or new units
not eligible under the policy with the previous carrier. A collection fee of not
more than 1% for the first $50,000 of premium and }^ of 1% on the balance may
be paid to the General Agent for handling the business.
When an application has been given for Group Insurance and a substantial
deposit in payment of premium has been made, the case should be considered a
closed case.
The same rules are appacable to Wholesale Insurance except where it is to be
replaced by Group Insurance.
9. A Company should not offer to make any definite allowance, premium reduc-
tion, credit, or payment of increased dividends to the employer, or any employee
of the employer, directh^ or indirectly, for clerical work, claim investigation or
settlement, solicitation of employees on contributory plans, or any other kind
of work done or service performed by the employer or by the emplo^'er's employees
in connection with the installation or administration of a Group Insurance plan;
nor should any company furnish its employee to the employer to perform clerical
or other work in connection with the Group Insurance plan which is usually done
by the employer or by the empioyees of tliO employer.
9-A. No overhead cost, dividend, or rate reduction should be estimated by
size of risk, eithei directly or indirectly, by statement of current cost of operation
or otherwise. The only data submitted should be actual past experience on actual
cases.
10. Labor Unions should be defined as organizations of men and/or women of
the same trade or calling or of several allied trades or callings whicii are organized
and maintained for the primary purpose of securing and maintaining by united
action the most favorable conditions as regards wages, hours and conditions of
labor, and the protection of their individual and collective rights in the prosecu-
tion of their trades or callings.
Only unions covering employees of more than one employer should be eligible
for group insurance, except that unions composed solely of employees of one em-
ployer may also be eligib'e if they are a part of or in direct afiiliation with a State,
National, International, or Federated Labor Union or if they consist of employees
of a Federal, State, County, or Municipal Government (or subdivision thereof).
Group insurance for unions should be subject to commissions, both new and
renewal, at not more than one-half of the corresponding regular group rates.
10-A. Associations should not be eligible for group ins\irance, except that asso-
ciations of employees of a Federal, State, County, or Municipal Government (or
subdivision thereof) may be eligible for group insurance if at least 75% of the
members, or 500, whichever is greater, apply for the insurance, or if at least 75%
of the employees eligible for membership are or become members and apply for
the insurance.
Group insurance for associations should be subject to commissions, both new
and renewal, of not more than one-half of the corresponding regular grouji rates.
11. Except as specified in Rule No. 10, a Group policy should only be issued
to a single employer (including a parent corporation with subsidiarj' companies
4714
(O.NX'ENTRATION OF ECONOMIC POWER
or allied companies owned and controlled by the same parties) covering his em-
ployees, and should only be written in accordance with the definition adopted in
the New York Insurance Law; Group policies should not be issued to associations
of employers covering their employees.
(June 1938.)
12. The maximum amount of insurance to be issued in any group should be
determined by ''a) the total amount of insurance in the group when actually issued,
and (b) the amoants of insurance on the lives of the fift}' employees insured for
the highest amounts, a? follows:
Total Insurance in Group When Aclaally Issued
Under $100,000
$100,000 to .$200,000
$200,000 to .$350,000
$.350,000 to $500,000
$o00,000 to $700,000
$700,000 to $900,000.
$900,000 to $1,100,000......
$1,100,000 to $1,300,000..,
$1,300,600 to $1,500,000...
$1,500,000 to $0,000,000...
$6,000,000 to $7,000,000...
$7,000,000 to $8,000,000...
$8,000,000 to $9,000,000...
$9,000,000 to $10,000,000..
$10,000,000 to $11,000,000.
$11,000,000 to $12,000,000.
$12,000,000 to $13,000,000.
$13,000,000 to $14,000,000.
$14,000,000 to $15,000,000.
$15,000,000 find over
Maximum amount, if at least
fifty employees are insured
lor at least
$5,000 $2,000
$7, 000
10, 000
10, 000
10, 000
10, 000
10,000
10, 000
11,000
12. 000
13, 000
14,000
15, 000
10,000
17,000
18, 000
19, 000
20, 000
$4, 000
5,000
5,000
5,000
6,000
7,000
8,000
9,000
10, 000
11,000
12, 000
13, 000
14, 000
1.5,001)
16, 000
17,000
18. 000
19, 000
20, 000
$1,000
$2, 500
3,000
3, 000
4,000
5,000
6,000
7,000
8, 000
9,000
10, 000
11,000
12, 000
13, 000
14, 000
15, 000
16, 000
17, 000
18, 000
19, 000
20, 000
Maximum
amount if
there are not
fifty em-
ployees in-
sured for at
least $1,000
$1, 500
2.000
3,000
4,000
5, 000
6, P'T
7,000
8.000
9,000
10, 000
11,000
12, 000
13, 000
14,000
15, 000
16,000
17, 000
18, 000
19,000
20, 000
Term Insurance on the Wliolcsale plan should not be used as a means of in-
creasirg the maximiui) amounts allov^■ed under a Group policy.
This rule applies not only to new Group policies but also to changes in e.xisting
policies and companies should not extend existing schedules beyond the limits of
this rule.
Group Insurance should not be written in conjunction with a group of indi-
vidual policius (issued without right to reject) where the aggregate insurance on
the life of any person under both the group and the individual insurance exceeds
the limit for Group Insurance.
(December 1937.)
13. Group Life policies (including only policies issued to an employer to cover
his employees; but not includi!"ig Wholesale policies or policies on a Group form
covering less than 50 employees in the United States) may contain a waiver of
premium provision to the etfect tliat if an employee, while insured and while
under age GO, becomes totally and permanently disabled, premiums will be waived
during such disal)ility provided the employee shall submit proof of continued dis-
ability at least once a year. The policy should not provide for presumption of
permanency until total disability has lasted at least nine months. The policy
should not provide for rcfmid of premiums paid before submission of proof of
disability. The policy should provide that the initial proof of permanent total
disability must be submitted before or within twelve months after termination of
premium payments for the employee, during which twelve-months period the in-
surance shall be in force during continued total disability. The amount of in-
surance on the life of such employee shall be the amount provided by the insur-
ance schedule in the policy but not in excess of the amount in force at termination
of premium payments for the employee.
If a policy does not contain the above disability clause, it may contain an alter-
native disability clause only if it provides (a) for no payment during the lifetime
of an employee, and (b) for waiv,er of premiums on a disabled emj^loyee for a
period not longer than the period the employee has been insured, nor for a longer
period than one year in any event, and (c) for no paym.ent if death occurs after
the employee attains age sixty-five.
CONCENTRATION OF ECONOMIC POWER 4715
it. Policies should provide that the conversion privilege should be granted only
upon termination of employment except that in the case of labor-union groups the
conversion privilege may be granted on termination of membership.
15. A company should not make, or offer to m.ake, any allowance, premium
reduction, credit, or payment of increased dividend on account of the nonpayment
of the whole or anj' portion of the regular scale of commissions.
(September 1938.)
16. Where Group Insurance is in force on only a section or sections but not all
of the employees of the holder of a Group policy or policies, either due to certain
classifications of employees or factory or other units having been omitted from the
Hst of eligible employees at the issue of the policy, or due to the subsequent taking
over of new units or organizations, or due to the merger of the original insured
unit or units with some other concern, or due to the absorption of such unit or
units by some larger organization, insurance may not be placed on a portion or the
total of an additional section or sections (either by addition to the existing policy
or policies or by issuance of an additional policj' or policies, or by both) and con-
sidered as an addition to the existing policy or policies if the total number of
employees eligible to be insured in the entire section or sections becoming insured
at one time (i. e., within a period of 32 consecutive days), together with the number
of employees insured in any other section or sections of employees to whom the
coverage has been extended and considered as an addition to the existing policy or
policies within the preceding twelve-month period, shall be greater than the num-
ber of employees insured under the policy or policies one year prior to the date
that the insurance on such additional section becomes effective. In any event,
except as provided in Rule 20, when such additional section or sections of employ-
ees exceeds 750 lives and exceeds 10% of the number of lives already insured and
is already insured in another company, it should be covered only under the rules
for the issue of new insurance; but, under Rule 8, should be considered as trans-
ferred business regardless of size.
17. Only those Directors who receive a regular stipulated compensation of at
least $1,000 annually from the assured employer other than compensation for
attending meetings should be covered under a Group policy.
18. The application for insurance, or a preliminarj'^ proposal to be signed by the
employer, should contain a question as to whether there is any present or previous
Group Life Insurance, and if so, when lapsed together with the name of the
previous insurer.
19. Pohcies should provide that the Company may refuse to renev/ if the
number insured falls below 50 lives or if the number insured falls below 75% of
the eligibles.
(March 1939.)
20. Where Group Insurance, including a permanent and total disability clause
providing for payment of the insurance to the employee while alive, is in force on
only a section of the employees of a Group policyholder either due to certain
classifications of emplo3'ees or factory or other units having been omitted from the
list of eligible em.ployees at the issue of the policy, or due to the subsequent taking
over of new' units or organizations, or due to the merger of the original insured
unit or units with some other concern, or due to the absorption of such unit or
units by some larger organization, insurance including such a permanent and
total disability clause may not be placed on an additional section of employees if
the number of employees eligible to be insured in such additional section, together
with the number of employees insured in any other sections of employees to whom
the coverage has been extended within the preceding twelve month period, shall
be greater than the number of employees insured under tiic policy one year prior
to the date that the insurance on such additional section becomes effective.
21. In case an Insurance Company, in accordance with Rules IG or 20, or both,
shall quote Group Insurance to cover an aflfiliated company located in a different
country from the Company now insured, any other Insurance Company may
quote the same policy provisions as to disability clause, employee rate of contribu-
tion or minimum amount of insurance as are being offered by the carrier of the
Company now insured with which the prospect Company is alHliated.
22. After Group coverage has been cancelled for over two years from the due
date of the premium defaulted, the insuring company should not rewrite the
group and consider the new coverage "a continuation of the old policy with regard
to policy provisions, schedule or financial exi)erience.
(December 1037.)
4716
CONCENTRATION OF ECONOMIC POWER
b^
■* !^ o> !0 0 -a-
^f4
i^')'
m-x-o
0
„.»__._ P,
lO 0
CO -D
CO
"3 2 i2
a: tC 0 0 l~ CO
00
00 CO
r^co
=
a a «
C'tCtc'cTM'to"
rj**
•oc"
Tf'C^*
1^^
C o —
■«• CI 0 Tf CI -^
oc
00
irj
coo
C -W .-. 00 rj"
0
odJ
COCO
•^
<SQ.
10" cf 00"
*J*"
10"
t-."-H"
CT>"
^ ID
CJ
0
0
00
oSg
M -:^ tr- CO r- 0
CO
^_.
lotgo
^
coo 1- 0000 0
CT =5
CO
■■" ^
Cl CC »0 u-j CJ .-^
Cl CO
00^5
0
(c'»-"od"i~'o"
co"
oo'o"
•o'ca"
r- — _ _H -.1
CO
0
— c>
■— '
0
CO
d o ^
OCl OOOMCJI
>o
00
^ ,-10
ca
lOC^CO c<
UJ
cao
•a<
•^
^ rt w
CO
CO
^oa
00 t-*. en -^ 0 -rj*
CO
,-( iD
^ Cl 0
0
3 t= «
05 05 0 fc c/? 1-
in
I~CO
U^IM
00
CJCO-W-COO
CO
r^ t^
CO 00
a op;
u-T-T V croo 0"
0"
o"-*
co"o"
co"
m
o« 00 r — 1
Cl
" r^
<oco>ra d
CO o>" c<r
CO
cf
oco
o-^
''I
s
0
S'^
0
^il
c» 0 00 0 1~ 0
Tj<
•9^0^
^go
2
C3
00 w r- ^ 1' -^
CO
1-. -rti
0
00-"0 -.-H
CO to
t^oo
Iss
■rto'cr'M'oo"
00"
0000"
o"oo"
a>
0 — ■ 0 CO
0
'a
"v3
*c
>o
c o =e
CI CD to ca »c c^
^^
OCC
O-HO
^
TT^O 0
■<»"
CO
« ^ c«
0
10
:<;^-s
tC C2C1 CC IN
00
occo
C500
10
§a^
OCOO ■* •«
.— CO
.,00
to
C TOO "00
■<s
•<)■ 10
0
Vc' 0* -^-^
co"
coco
c^oT
0"
CC CO -?* »o
00 "O
0 " w I^
o>
c3co
— Cl
■*
Pt" 'S t-T
0*
>o"
<o
,
■^
ca
00
CO
o£S
0 »^ 0 0 r^ "^
10
com
CO -■ 0
-ej*
Oi
Ess
CI Cl
MO
^
n
■wco
CJ CO
iO
5 fe'S
•^r-^^ CO"
co"
oo--*"
""tc
00
■«< t- 1-
01
0
0
1|l
M 0 r^ 0 Oi ^
01
-0
0 -< 0
„
COfHOO 00
c«
eo-H
0
o
•■*<
^i^is
^,^
0 >«•■«< 0 00 CO
•>*<
^ -.-
T^^
0
O OS
a 2 o
c t - « on -.
M- 3-.
— *r;
r^
I- C 00 ID 05
<^<
Orp
Oi^
CO
uic^t-^ OiCO
oc
-tfcrj"
r-'o*
t>."
ca ooco C--5
-* rj-
■oca
00
0-. 00 0
I^
CO--
ca -1
CO
^' *- g-
irT
■*"
0"— 1"
f-T
1.-5
'-H
i^
t-
w.i
0 >o — i 0 I-- CO
Cl
0 O
-.•ICO
CO
a
-H ^ -d« COM
W3
CO 00
CO 0
r^
5
00"""
CO
00
Cl
CM
1§I
o<»ooo-"-<
Tl<
-•00
00 wo
Oi
M CO t~
M
CO
■<»•
Tj»
"z^a
^^^
00 0 -. c c» 0
■*
•«-x
r-.o-«<
^
-322
S = C3
•00000 »
c»
t^CJ
0 c-»
CO
"-TO •«•
0
CO cs
"* CO
0
0 o —
cZT^n 0"
co"
or"co'
o
co"
C^ u-IO ■*
t-
00c
2
3>
r- CO 0
00
r-
'"'_
f-T CO r>r
0"
co"
co"
CO
■*
CO
uo
=3 3
lOtD-VOCOO
0
r- Tf<
ClO-1"
t-
CO u^ h- 1-
CO
-1 ca
0 t^l~. ■<(<
00 0
i^
^0"
OT C3 r4"
CO i-l
0 d <-.
-*
S
fj
0 • ij
. in to r^ 0 CI 0
00 to
.--o-<
dia
^00
c»
05
tJ-.
CO
CO
Sl'^i^
la la ij
0 .'
a 1 '
CD ' '
i i i
a !
0 1
s :§ :"
t»> 1
0 : ;
.2 ' '
^ ;
c>;s-:g
C3 1
0 1 !
n 1 1
ci , 1
ta '
i Et' t; 0 =
a '
0 ;
III
0 I QD
0. . ;
a 0 (u
0 c 2
■■s S 9
III
E.2
nee Co...
ral Life I
surance S
tualLlfcl
Insuranc
il Life Ins
0 ;
n >
C9 1
•§5
Aetna Life Insura;
Connecticut Oene
Equitalile Life .\s
John Hancock Mu
Metropolitan Life
Minnesota Mutua
d ;
5 ;
-,o
•Sa
s is
1 la
1-3
III
on
M 0
m" 0
•9 S
5 12
2§ .-s
CO fc-
c:^ o
■- ii li -^ w
n g g'co ^
3 5°^ S,
oM t.g m
.S -a 5 "■ -^
K-2aa 8
03 a ID o u
...,«■. CO
CONCENTRATION OF ECONOMIC POWER 4717
"Exhibit No. 660" appears in the appendix to Hearings, Part VIII, p. 3487.
Exhibit No. 661
[Prepared by Securities and Exchange Commission Insurance Study Staff]
Aetna Life Insurance Company.
Connpcticut Qenetal Life Insurance Company.
The Tra%'elers Insurance Company.
Stockholders' Dividends
Year
Aetna Life In-
surance Co.
Connecticut
General Life
Insurance Co.
Travelers In-
surance Co.
Total
1929
$2, 400. 000
1, 800, 000
1, 800, 000
450, 000
none
000, 000
1, 200, 000
1,42.^,000
1, G50, 000
1, son, 000
$320, 000
3G0, 000
3C0, 000
330, 000
180,000
240, 000
240. 000
240, 000
240, 000
240, 000
$4, 000, 000
4, 400, 000
4, 400, 000
3, 200, OOO
3, 200, 000
3, 200, 000
3, 20!), 000
3, 200, 000
3, 200, 000
3, 200, 000
$6, 720, 000
1930 -
6, 5G0, 000
1931
6, 5G0 000
19.32
3, 980, 000
1933
3, 380 000
1934
4, 040, 000
1935
4, 040 000
1936 -
4, SG5, 000
5 090 000
1937 -
1938 -
5, 240, 000
Totals.
$13,125,000
$2, 750, 000
$35, 200, 000
$51, 075 000
Source: Annual Reports.
Exhibit No. 662
[Prepared by the Securities and Exchange Commission Insurance Study Staff]
Aetna Life Insurance Company
Connecticut General Life Insurance Company
The Travelers Insurance-Company
Exhibit of Changes in Srirplus, Ordinary Non- Participating Business
Years ended December 31—
Aetna Life
Insurance Co.
Connecticut
General Life
Insurance Co.
Travelers In-
surance Co.i
Total
1929 . .
$675, 984
-9, 9G4, 407
-5,241,539
-576,935
-1,887,473
519,482
1, 530, 985
1, 762, 595
-609,715
585,915
$400, 883
-505, 747
498, 220
451,021
-985, 567
396, 902
231,913
1, 200, 770
58, 013
535, 234
$1, 194, 990
-3,082,338
793, 300
4,413,739
614, 992
2,687.301
2,810,755
7,091,395
-2,734,163
3, 724, 003
$2,271,857
— 13 552 492
1930
1931
-3,950,019
4, 288, 425
— 2 258 048
1932
1933
1934.
3, 003, 685
4 573 653
1935
1936
10,054 760
1937
—3 375 865
1938 ..'.
4 845 152
Totals
-$13, 295, 108
$2, 282, 242
$17, 513, 974
$6, 501, 108
' On December 31, 1938, Travelers Insurance Company's nonparticipating ordinary life-insurance business
accounted for over 99.90% of their total insurance in force. Only nonparticipating business has been issued
by the company since December 31, 1906. Statements furnished by the company do not segregate partic-
ipating and nonpart'cipating business, and the figures shown above for Travelers Insurance Company
represent gains and Icsses for all ordinary Ufe-insurance business, including less than .04 of 1% participating
life-insurance business as of December 31, 1938.
Source: Annual Reports.
Exhibit No. 663
[From files of Travelers Insurance Co.]
June 22, 1932.
Re New Life Rates.
President Zacher
Vice President Howard
Actuary Hammond:
Vice President Cammacli called on the phone this morning to discuss a uniform
charge among companies to Group per thousand of insurance converted — and
other matters. Toward the end of the conversation he asked what we were tbinlv-
4718 CONCENTRATION OF ECONOMIC POWER
ing about new life rates. I told him we were doing some studying along this line
without reaching definite conclusions and asked what his thoughts were.
He stated that he had about come to the conclusion that 4% interest was as
high as could be used, mortality approximating 80-S5% of the American Men
(probably a little higher than mortality basis of present Travelers rates) and
loading to cover "regular" expenses. Cammack stated that they would like to go
ahead with the idea of increasing rates but, of course, would be embarrassed if
The Travelers did not do likewise. I told him that I did not see why the three
local nonparticipating companies could not get together on a joint program, for
if he was agreeable, we were willing, and from what Actuary Henderson said the
other day the Connecticut General are thinking along the same line.
He stated that in his opinion some of the participating companies would go as
far as a 50% cut in dividends this Fall, with possibly further cuts later on. I
told him that in my opinion if we made a fairly early announcement of our program
effective, say, as of the end of the year, it might have a material effect upon the
action by participating companies. He didn't make any comment on my "end
uf the year" rem.ark but said that in his opinion we should go ahead regardless of
what participating companies may do. I told him that we were thinking along
the same general lines as he was and that undoubtedly contact upon the subject
v/ould be made with the Aetna and Connecticut General in the near future.
(Signed) B. D. F.,
BDF:B. Vice President and Actuary.
Exhibit No. 664
[From files of Travelers Insurance Co.]
[File]
June 25, 1932.
From Actuary Hammond.
To President Zacher.
Vice-president Howard.
Vice-president and Actuary Flynn.
Subject: [New] Life Rates.
Nonparticipating companies, American Life Convention, appear to want to
increase rates but are waiting to see what the three companies in Hartford will do.
In discussing the situation with Mr. Laird, he said that the Connecticut General
was waiting to see what The Travelers and Aetna would do. I suggested that he
might, on his return, take the matter up with The Travelers and that I felt sure
that the Company would cooperate. He said he would try to do so immediately
upon his return.
I thought it advisable to suggest that Mr. Laird take this matter up, inasmuch
as he had told me that President Huntington was away for two months. The
absence of the President may delay definite action by the Connecticut General,
although Mr. Laird did not intimate that that would be the case.
(Signed) H. P. H.
HPH:0. (Typed) H. Pierson Hammond.
Note.— Notations endosea in orackets.
Exhibit No. 665
IFrom files of Travelers Insurance Co.]
The Travelers
the travelers inshrance company
L. Edmund Zaciier, President
Benedict D. Flynn,
Vice President and Actuary.
Hartford, Connecticut, June 28, 1932.
Mr. L. E. Zacher,
Chateau Frontenac, Quebec, Canada.
Dear Mr. Zacher: A meeting was held in my office this afternoon on the
general subject of prospective increase in nonparticipating life rates. Those
present were Vice President Cammack, of the Aetna; Vice President Laird and
Actuary Henderson, of the Connecticut General; Actuary Hammond, Assistant
Actuary Hoskins, and myself. After considerable friendly and cooperative
discussion tlie following points were tentatively decided upon.
1. The three local nonparticipating companies would increase rates effective
upon the same date.
CONCENTRATION OF ECONOMIC POWER 4719
2. January 1, 1933, appealed to all three companies as a good date for making
increased rates effective.
It was apparent from Mr. Cammack's general statements — which he made to
me over the phone Saturday morning and again on the train from New York
yesterday — that he had not as yet had an opportunity "to talk with Mr. Brainard
in regard to the effective date of rates. Although he thought that the first of
next year might be satisfactory, he was inclined to consider this as tentative
dependent upon developments in the way of dividend reductions and the progress
of general conditions during the next three or four months. I would imagine
that after he has talked with Mr. Brainard that this point as to effective date
can be more definitely fixed.
3. It was tentatively thought desirable to have identical rates for all three
companies for principal forms.
4. The Aetna and Travelers felt that 4% was a proper interest assumption as
a basis for new rates. The Connecticut General thought that this was as low
as we could go (they had previously mentioned 4}4%) and was agreeable to go
along with the idea of 4% at least in the preliminary work of matching ideas on
rates. My own opinion is that the Connecticut General will cooperate with the
other companies upon a 4%-interest basis.
5. The Aetna's idea of a mortality basis was 90% of the American Men Table
up to age 75, increasing 2% for each age up to age 80 for all forms other than
Term which they would place upon a 100%-mortality basis for all ages. The
Connecticut General's idea was to start at about 75% of the American Men at
age 20, increasing to 100% at age 50 and going somewhat higher for the older
ages. Our own idea follows more closely that of the Aetna. This basis should
give a reasonable mortality margin for safety.
6. Expense loadings were discussed tentatively with the result that a reason-
able loading for expenses and profit bj' age can be safely counted upon.
7. Surrender Values: The Connecticut General which has had rather liberal
surrender values is agreeable to a material change particularly in those at the
end of the third, fourth, and other early policy years. The Aetna at present
have values which are not quite so liberal as ours and would prefer not to in-
crease surrender charges materially. There was the further point that the Aetna
use the same values for both participating and nonparticipating business and did
not feel that they could lower participating values because of participating com-
petition. Our own position was that we would like to have as high surrender
charges as possible particularly in the earlj'^ years.
It was finallj' concluded that each company would study the question of mor-
tality, expense loadings, and surrender charges more fully in the light of its own
experience and that we would get together again on July 13 in an attempt to
settle more definitely upon these elements.
Mr. Laird suggested that it might be advisable after we had pretty definitely
determined our program to invite a few of the important Middle Western non-
participating companies into conference on the matter.
The general conclusion from today's meeting would be that material progress
has been made and we can with fair assurance assume that the local nonpartici-
pating companies will act together in an increase in life rates at the end of this year.
Sincerely yours, ^^.^^^^^ B -^ p^^^^^
BDF-B Vice President and Actuary.
Exhibit No. 666
[From files of Travelers Insurance Co.]
[File]
OCTOBEE 20, 1932.
From: Vice President and Actuary Flynn.
To: Actuary Hammond.
Assistant Actuary Hoskins.
Re Aetna's Modified Life Form.
Mr. Cammack phoned this morning to state that they were endeavoring to
increase their modified life rate but discovered that if they followed the basis of their
new life rates they would have nonparticipating rates at certain ages higher than
those of the Prudential's modified life. Little is increasing his modified 3 rates
at ages between 50 and 60 but not changing his modified 5 rates. Cammack is
proposing to continue his present modified life rates. The contract is not as
liberal as that of the Prudential in that 40% commission is paid at first and 40%
only on the increase of premium at the end of the five-year period, whereas he
4720
CONCENTRATION OF ECONOMIC POWER
understands the Prudential pays the commission on the whole premium at the
end of the preliminary period.
As I understood it over the phone, Cammack checked his present modified life
with the rates which would be required under the new program and found that
at age 40 there was no difference; at age 45 the old rates were 60ji inadequate; at
age 55, $1.23 inadequate; and at ago 65, $2 too much.
Cammack stated that he called in order to remove any question of bad faith
in the matter — although he presumed that we would not be particularly interested.
B. D. Flynn.
BDF:B.
Exhibit No. 667
[From flics of Aetna Life Lisurance Co.]
Aetna Life Insurance Company,
Hartford, Connecticut, Nov. 17, 1932.
Memo, for Mr. H. S. Beers,
Associate Actxiary:
In conversation yesterday with Mr. Huntington and Mr. Zacher with reference
to the new rates, Mr. Huntington told me that his Actuarial Department have
just discovered that the Aetna did not propose to raise its present Modified Life
rates. He gave me a memorandum handed him by Mr. Laird. Will you read
this and then discuss the matter with me?
(Signed) M. B. B.,
President.
End.
memorandum to mr. huntington re continuation of present rates on
Aetna's modified life policy
The continuation of the present rates by the Aetna on this policy form will be
a very serious thing from a competitive .standpoint. Because I had been assum-
ing that we were going to have almost 100% cooperation between the three com-
panies, I was very much surprised when I heard of their decision.
The table given below, which compares the Aetna's present rates for the Modi-
fied Life plan with the rates to be adopted for 5- Year Term and Ordinary Life
plans, needs no explanation to s!;ow the competitive advantage to the Aetna if
they retain their present Modified Life rates. Take for example, the comparison
of a Modified Life policy issued at age 50 with a 5- Year Term policy issued at
the same age and converted to Ordinary Life five years later. Within seven j'ears
the accumulated cost under the Modified Life policy will equal the cost under the
5- Year Term and Ordinary Life combination, and from then on the Modified Life
policy will have an advantage of $5.39 per year per thousand. When we compare
a Modified Life policy and an Ordinary Life policy issued at age 50, the Aetna's
competitive advantage is even more marked. It will take twenty-three years
before the accumulated cost under the Modified Life policy will equal the accumu-
lated cost under the Ordinary Life policy. The advantage of the Ordinary Life
policy from then on is of no real value because the insured is then 73 years of age,
at which time only a small proportion of the original policyholder"^ who took
insurance at age 60 will be alive and still paying premiums.
Ag6
Aetna's
Modified
Life
Rate
New
T. 5&
0. L.
Rates
Aetna ahead
after—
New
0. L.
Rate
Aetna
ahead
for-
30
9.60
119.20
13 51
27.02
16.57
33 14
20.89
41.78
26.93
53.86
37.58
75.16
61.99
103. 98
8.35
• 20.06
10.45
29.85
13.20
37.27
17.89
47.17
25.26
60.44
12 years
10 years
9 years
7years
6years
16.92
24.26
29.85
37.27
47.17
60.44
79.88
21 years.
40
24 years.
46 -
25 years.
50 -
23 years.
65 - -
20 years.
80
12 years.
66
10 years.
' After 6 years. » 0
. L. rates \
Then convj
srted at end of 5
pears.
CONCENTRATION OF ECONOMIC POWER
4721
The basic mortality table for the new permanent plan rates is 90% of the
American Men Select and Ultimate Table, with interest of 4%. In the following
table I have compared the new gross premiums with the net premiums obtained
from such a table. The same comparison has been made between the present
Modified Life rates of the Aetna with the corresponding net premium.
Aetna's
Modified
Age
Ordinary
Life
Terms
Our Con-
vertible
Life,
Using
to 65
Present
Gross
Rates
^".
%
%
%
30
132
246
150
132
122
40 *-- - --
128
220
144
50 - --
123
189
138
116
55
122
178
139
115
60 - -
122
170
not issued
122
It will be noticed that the loading is much higher in the case of the 5- Year Term
plan than in the case of the Ordinary Life plan. It will further be noticed that
the loadings in the case of our Convertible to 65 lie between those for the Ordinary
Life plan and those for the 5- Year Term plan. The Modified Life which has a
certain Term Insurance element about it should require a higher loading than
Ordinary Life.
E. C. Henderson,
Actuary.
ECH:PHP.
November 16, 1932.
Exhibit No. 668
[From files of Aetna Life Insurance Co.]
December 6th, 1932.
Mr. M. B. Brainard, President.
H. S. Beers, Associate Actuary.
Modified Life Premium Rates.
Mr. Keffer and I have attended three meetings with Mr. Laird, of the Connecti-
cut General, Mr. Flynn, of the Travelers, and their assistants, and this morning
we reached an understanding with them with regard to the proper rates to be
charged for Modified Life policies. The following table shows a comparison be-
tween the present rates and the new rates during the first five-year period :
Ago
Present
Rate
New Rate
Age
Present
Rate
New Rate
30
$9.60
11.28
13.51
$9.81
11.68
13.98
45
$16. 57
20.89
26.93
$17.30
35
50
21 80
40
55
27.62
Below age 30 these rates grade down into the rates for Five- Year Term Insur-
ance converted at the end of five years to Ordinary Life Insurance.
At ages 60 and above we shall use our present rates, which are higher than the
rates by the new formula.
Under our present policies if provision is included for waiver of premiums in
the event of disability, the extra premium is the same both during the first five
years and thereafter. In the Prudential the total premium doubles after five
years, and we propose correspondingly for the new policies to use a waiver premium
which doubles after five years instead of a level premium as heretofore. This may
place us in a stronger position competitively without involving a reduction in pre-
mium rates.
(Signed) H. S. B.,
Associate Actuary,
4722 CONCENTRATION OF ECONOMIC POWER
Exhibit No. 669
[From files of Travelers Insurance Co.]
NovExMBEK 16, 1932—1:50 P. M.
Mr. Laird, Vice president and Actuary of the Connecticut General, has just
called me on the telephone. I understand from Mr. Laird that there is to be a
meeting of the Presidents of the Aetna Life, The Travelers, and Connecticut
General at 2:30 o'clock today in the Connecticut General building.
Mr. Laird stated that Mr. Cammack has not had anything to say relative to
any change in the rates of their Modified Life contract. The Connecticut General
has just discovered that the Aetna Life proposes to make no change in such rates,
and as he understands it the Aetna Life takes the position that if they raise their
rates for this form they will be unable to compete with the corresponding policy
of the Prudential, namely, the Modified Five.
Mr. Laird feels that the loading on the Aetna Life form should be somewhere
between the Ordinary Life and Five- Year Term, although possibly the Ordinary
Life loading would be satisfactory.
Mr, Laird told me that he was taking this matter up with President Huntington
and expressing the opinion that unless the Aetna Life will change its rates upon
the Modified Life contract it practically nullifies the entire program. I assume
that the conclusions reached by Mr. Laird are probably based upoi;i the fact that
the Aetna Life writes a great deal of business on this form in place of Ordinary
Life.
Assistant Actuary Hoskins was present when this memorandum was dictated
and stated that it was his understanding that Mr. Cammack had told Vice presi-
dent and Actuary Flynn that the Aetna Life would not follow the regular formula
as we [had] expected te [the] Aetna Life to do.
(Signed) H. P. H.
(Typed) H. Pierson Hammond.
HPH:0.
Note.— Crossed-out matter in linetype; new matter enclosed in brackets.
Exhibit No. 670
[From files of Travelers Insurance Co.]
December 28, 1933.
Re Proposed New Program of Life Rates and Values.
President Zacher,
Vice President Howard:
A meeting on the above subject of officials of the three local stock life com-
panies was held on Wednesday morning, December 27, at the Aetna.
Mr. Cammack proposed that the Travelers, Connecticut General, and Aetna
increase present life rates for all forms, excepting Term, by changing the interest
basis from 4% to 3%%. This would mean an increase, upon the average (for
forms other than Term), of approximately 2%% or 750 per thousand. The
increase would be somewhat less for Ordinary Life than the average and some-
what more for the higher premium forms. If the interest basis of Term con-
tracts were changed as suggested, the average increase would, because of the
lower reserves involved, be in the neighborhood of 50 per thousand.
Further, he proposed that the full legal surrender charge of $25 per thousand
of insurance be made throughout the term of the contract. We now have lower
surrender charges for the 11th year on nearly all forms and also in the earlier
years on low-premium forms.
You will recall that when life rates were under discussion last year, ai chough
rates and values agreed upon were generally satisfactory to us, nevertheless,
we would have been glad to have even higher rates and lower values but could
not get the Aetna to concur at that time.
Mr. Laird said that the Connecticut General was not convinced that this
move would be a wise one at the present time and that they would like to wait
at least until the end of February before making a decision. He stated that
President Huntington was feeling more optimistic; he (Mr. H.) felt that funda-
mental changes for the better had taken place and that interest rates might work
up somewhat before many years. Mr. Laird stated also that an increase as
proposed would bring our gross rates above those of certain participating com-
panies at certain ages — as, for ^example, the Metropolitan's Special Ordinary
Life at older ages; that the participating companies have not yet gone as far as
the nonparticipating companies in modifying surrender values — although there
CONCENTRATION OF ECONOMIC POWER 4723
is a move on foot among the five large metropolitan companies to make a $25
surrender charge throughout the policy term; that the field forces of the Con-
necticut General were competing mainly with the small participating companies,
such as the Phoenix Mutual and Connecticut Mutual, who had not as yet modified
values or increased materially net cost; that we had increased our rates and
reduced our values less than a year ago and it might be upsetting to confidence if
stock companies felt it necessary to increase rates again so soon.
We stated that the proposal necessarily brought up many points for con-
sideration and that though we v/ere in sympathy with the general idea, we did
not feel ready to agree upon the proposal that morning, as Mr. Cammack was
urging- , . . ,.
Various other matters came up during the discussion.
It was pointed out that recent mutual dividend reductions relieved the com-
petitive situation somewhat and that " the trend toward smaller policies
means that competition will be less of a consideration in the next few years,
thus indicating that the traffic might stand a rate increase. On the other hand,
it was brought out that another rate increase so soon after the one made last
April might upset the confidence of field forces; that in the past, general rate
increases have been made infrequently — never within four years of each other.
It was also pointed out that it might be possible to make a rate change at an
early date and defer till later the change in values, possibly until the mutual
companies had taken a further step in the same direction. Reference was made
to the fact that the interest-rate basis affects a company's trust-agreement
program and certain policy options and maturity values.
'j.'he Aetna produced a sheet shoAving a comparison of the proposed new non-
participating rntes On the Ordinary Life form at various ages with the 1934 net
cost, by p>ou«*y 1 ens' of six participating companies. For example, net cost
of the Massaciiuse^S Mutual contract under 1934 dividend scale would reach
the proposed nonporticipating rate, Ordinary Life, age 40, at the* end of the
15th J ear; Mtfivral Benefit would reach it at the end of the 14th; Northwestern
Mutual at the end of the 4th; New York Life at the end of the 10th. The
Provident Mutual's net cost would be lower than the stock rate at the end of
the first year and thereafter. This comparison showed also that the Aetna's
participating Ordinary Life at age 40 would show a net cost lower than the
proposed nonparticipating rate at the end of the 5th year; age 50, at the end of
the 4th year; age 30, at the end of the 9th year. When Mr. Cammack was asked
how the Aetna could show a lower net cost under its participating form than
the proposed nonparticipating rate so early in the history of the former policy,
he explained tliat the Aetna's current year dividends were fi.xed before other
participating companies had made their material changes. To a query es to
whether or not the Aetna's participating assets were earning a higher rate than
those of their nonparticipating department, he gave no satisfactory answer.
The Aetna will begin to issue January 1, 1934, their Elective Annuity con-
tracts on a participating basis — 3J^% interest. They have not yet decided
whether they will discontinue immediately or continue for a month or two their
present nonparticipating form. I asked Mr. Laird if they would be agreeable
to get together with us in a modification of our nonparticipating Elective Annuity
forms, and he said tha* they would be t^lad to do this^probably in the near future.
The general question of changing the present life program was left with the
understanding that the Travelers and Connecticut General would study over
the matter further, discuss it among their company officials, and report at a
later meeting.
(Signed) B. D. F.,
Vice President and Actuary.
BDF:B.
(Copies to Actuary Hammond and Asst. Actuary Hoskins.)
Exhibit No. 671
(From flies of Travelers Insurance Co.]
Fbbrtjabt 15, 1934.
Re Proposed New Program of Life Rates and Values.
President Zacher,
Vice President Howard:
Another meeting on the above subject of officials of the three local stock life
companies was held Wednesday morning, February 14, at the Aetna.
■ Mr. Cammack stated that the Aetna was prepared to go ahead with the orepa-
ration of rates and values upon the b.asis nroDosed at the last meeting, with the
124491^0— pt. 10 38
4724 CONCENTKATiOiN Ob' ECONOMIC POWER
idea that if conditions warranted, upon July 1, 1934, or possibly October 1, the
new program would be put into effect. We stated that The Travelers was
agreeable to such a program.
Mr. Laird stated that it was the feeling of the Connecticut General at this
time that they would not go along with a program of increased rates and de-
creased values. In any event, if they change their mind later, they would not
put the new program into effect before January 1, 1935. They felt that financial
and business conditions had improved materially in the past two months; that
the farm situation was improving, and good bonds could be purchased to net
4% or more.
Laird felt that participating competition was still severe, citing that of the
New England Mutual in Boston, the Provident Mutual, Prudential's Modified
3 Contract, and Metropolitan's Special Ordinary Life; he thought that conditions
had improved sufficiently to permit nonparticipating agents to work out the
more advantageous competitive position that they would have against the
majority of participating companies during the next year or two. The point
was raised that the larger New York Companies are endeavoring to get the
majority of participating companies to adopt more conservative values and,
further, that there is some hope that the Metropolitan, Prudential, and Provident
Mutual will raise their gross rates at the higher ages. The Connecticut General
have stated that if any action such as the latter were taken by the principal
participating companies, they would immediately feel that they could go along
with increased nonpar rates and decreased values. Because of the small likeli-
hood of such a development, however, the Connecticut General did not think it
worth while to go along with the Aetna and Travelers in the preparation of new
rates and values.
We submitted to the Aetna a new loading for proposed nonpar rates which
would raise the premiums somewhat over those proposed by the Aetna, Our
excess loading — although we did not mention it — was to cover the increased cost
of continuing the 4% trust agreement for beneficiary funds. Although the
Aetna was opposed to this further increase — and the Connecticut General stated
they also felt it unnecessary — Cammack is going to study over our proposal
more thoroughly and confer again later.
The matter was finally left that we would await the outcome of the next Senior
Actuaries' meeting, at which time the participating companies should be able to
report the progress which they have been able to make among themselves for
higher gross rates at the older ages and higher surrender charges. If anything
favorable to the general move occurs at this meeting, the Connecticut General
may at that time agree to go along with the Travelers and Aetna in the pre-
paratory work.
^ ^ -(Signed) B. D. F.,
Vice President and Actuary.
BDF-.B.
(Copies to Actuary Hammond and Asst. Actuary Hoskins.)
Exhibit No. 672
[From files of Travelers Insurance Co.]
[File]
Febeuart 27, 1934,
Re Proposed New Program of Life Rates and Values.
President Zachek,
Vice President Howard:
Another meeting of officials of the three local stock companies on the above
subject was held this morning at The Travelers.
The Travelers had proposed a modification in the Aetna rate formula which
increased rates somewhat to allow for continuation of our "Hundred a Month"
4% trust agreement program. Vv'^e did not, however, advance this as the reason
for the proposed increase. After discussion both the Aetna and Connecticut
General agreed to the use of our proposed formula, which was somewhat simpler
than that which the Aetna had put forward.
Although the Connecticut General were not prepared at this time to offer any
further encouragement as to finally going along with the Aetna-Travelers prograrn,
they were agreeable to go ahead with us in the preparation of rates, leaving their
decision with regard to preparation of values until after the Senior Actuaries
meeting, March 2. After further discussion of the new program as affecting
various forms, it was decided to call a conference with those participating com-
CONCENTRATION OF ECONOMIC POWER 4725
panies whose gross rates, in our opinion, should be increased, particularly at
the older ages.
A meeting has been called of the Metropolitan, Prudential, and Provident
Mutual, with the three local companies in New York, for March 2. In conversa-
tion with Mr. Craig, of the Metropolitan, o\'er the phone, it was apparent that
the New York companies are ready to report rather definitely in regard to what
can be expected in the way of decreased surrender values. It was also apparent
from conversation with others that these companies are in a mood to consider
modification of gross rates, particularly at the older ages.
Further progress should, therefore, be possible as a result of the meetings to
be held Friday, March 2.
(Signed) B. D. F.,
Vice President and Actuary.
BDF:B
(Copies to Actuary Hammond and Assistant Actuary Hoskins.)
Exhibit No. 673
[Notation: Mr. Howell's oflRce.]
[Stamped: The Prudential Insurance Company of America.]
Future Interest Rate and the Effect on Premium Rates
If the rate of interest falls so that the Company receives less interest, it is clear
that more premium will be required to make good the Company's contracts. A
moderate loss of interest can, of course, be made good by returning less of the
premiums collected in the shape of dividends, and using more for the payment of
the Company's contractual liabilities. If, however, the loss of interest revenue
reaches a point where the additional premium required leaves so slender a margin
for dividends that the entire margin might be wiped out for a number of years
by some unfavorable experience, it would be proper to increase premium rates so
that a reasonable margin for contingencies would still be maintained .despite the
reduction in interest earnings.
It has been recognized for many years that the tendency to an ever growing
annual margin available as new capital was likely to be emphasized by new labor-
saving inventions, and that wliile new demands for capital might for a long period
fully keep up with the growing annual margin, an alternative possibility was that
the new capital arising from year to year would gradually outstrip the demands
therefor.
In recent years certain new factors have been injected into the situation.
Among these may be named the desire evinced by very many employers to set up
pension plans on a proper reserve basis. In course of time this may lead to the
laying by annually of very large sums of money, a substantial part of which will
probably represent funds set aside as additional capital which would otherwise
have been expended for consumable goods, so that to a quite substantial extent
this special form of lay-by would represent an increase in the annual new capital.
Notwithstanding the impossibility oT establishing adequate and realizable unem-
ployment reserves, it is not unlikely that a number of states will legislate with just
this purpose in view, and that to some extent reserves will be set aside, repre-
senting again in large part additional new capital.
If the tendency to an increased margin available for lay-by is emphasized by an
increased desire to lay-by for certain special objects, it might very well happen
that the rate of interest would be forced down solely and steadily by the operation
of these factors.
At the present time, however, consideration of the future rate of interest must
take into account a new and important factor which has made its appearance
within the last twelve months. This new factor is tlie intervention of the govern-
ment between borrower and lender with the avowed object of reducing the rate
of interest to be paid by the borrower. The extent to which government inter-
vention will eventually proceed is, of course, quite uncertain. At a meeting of
representatives of a number of companies last week, the Travelers' representative
voiced an opinion on behalf of his company that it was quite possible that lending
on mortgage would in the future become almost wholly a Federal government
function, the ordinary lenders being limited to purchasing the bonds issued by the
Federal government in order to raise funds to make the direct mortgage loans.
Whether the matter proceeds to this extreme or not it may be taken for granted
that the net result of government intervention is ouite likely to be some notice-
4726 CONCENTRATION OF ECONOMIC POWER
able reduction in the interest rate secured on mortgages on real estate, whether
made directly or indirectly. A reduction in the rate of interest on mortgages
would, of course, be very promptly reflected in the rate of interest which could be
secured on investments in bonds. It follows, therefore, that the new factor under
discussion may very likely result in at least a moderate reduction in the interest
earnings of life-insurance companies as compared with what such earnings would
have been without the intervention of the Federal government.
At the meeting referred to, the opinion was unanimous that the possibility of a
substantial fall in the course of years in the rate of interest which could be earned
by life-insurance companies was a possibility that should be taken into account
in considering premium rates for new insurance, as well as other factors of the life
insurance business. It is proper to point out that conservatism in the matter of
premium rates was felt to be desirable, not because there was any certainty of a
sharp reduction in interest earnings, or because such reduction was extremely
probable, but merely because such reduction was a definite and not altogether
remote possibility, and, therefore, one that if it should materialize should have
alreadj' been properly provided against.
Among participating companies the Prudential, Metropolitan, and the Provident
Mutual have for some years had relatively low rates of premium. While the
current rates of premium will probably prove suflScient even though interest fell
eventually to as low as 3%, should so great a fall occur margins would become
uncomfortably small, and severe mortality or asset losses might, in the absence
of normal margins, result in very serious diflBculties.
Future possibilities as to interest earnings would alone justify careful considera-
tion of the propriety of an increase in premium rates. But within the last few
years, that is since the depression commenced, an additional and quite important
factor has entered into the problem. Up to the time of the depression the three
large nonparticipating companies domiciled in Hartford had enjoyed very large
annual earnings and seemed to be well provided against contingencies. The
severe losses of the depression have sharply reduced the surpluses of these com-
panies, and the fall which has already taken place in the interest rate has reduced
the normal annual margm very substantially. In the opinion of the two larger
companies which raised their rates at certain ages about a year ago, the necessity
for a further increase in premiums has become quite acute. They are, however,
very much hampered in the matter of premium rates by the fact that the premi-
ums of the three participating companies referred to are so low that a moderate
increase in the nonparticipating rates would bring them very close to the partici-
pating rates of the companies mentioned, and at some ages even above these
rates. From the point of view of this and the other participating companies
concerned, therefore, we are in the position, by reason of our present premium
rates, of holding down the rates of the nonparticipating companies. If insuflS-
cient rates should eventually result in the wrecking of these great nonpartici-
pating companies, a very severe blow would be given to the life-insurance business,
so that, for our own protection, it is desirable that our gross rates should not be so
low as to make it difficult for the nonparticipating compflr>iV« in in.---.-;; theli
premiums to rates which shall be adequate and still appear less to a reasonable
extent than the rates of any responsible participating company.
Because of the reasons outlined above, for some time consideration has been
given by the Actuarial department to the possibility of increased premium rates,
and now that the year-end work is over, calculations are being made with the
object of preparing new rates of premium which it is proposed to recommend for
adoption. It is planned to hold additional conferences with the other companies
interested, and if possible to synchronize our changes in rates fairly well with
those of the other companies. The present memorandum represents a pre-
liminary discussion and an intimation of the extent to which the matter has
been carried. It will be followed before very long by a further memorandum
witb tentative premium rates and information as to the rates likely to be adopted
by the other companies interested. In the meantime, it may be noted that
Mr. Linton, of the Provident Mutual, is fully convinced of the necessity for an
increase in premium rates in the case of his own company.
James F. Little,
Vice President and Actuary.
Mabch 6, 1934.
CONCENTRATION OF ECONOMIC POWER
4727
Exhibit No. 674
[Notation: Mr. Howell's office.]
[Stamped: The Prudential Insurance Company of America.]
Memorandum Re OErriNARY Premium Rates
Following conferences with the Actuaries of the Metropolitan Life and the
Provident Mutual, we have tentatively decided on schedules of increased Ordi-
nary premium rates a." shown in the attached illustrations. These rates are
based on net premiums according to the American Men Ultimate Table with
interest at 3%% plus a suitable addition for the Waiver of Premium Disability
benefit.
For all Endowment plans, including the Endowment at Age 85, the loading
formula calls for a loading of 10% of the net premium plus 5% of the Whole Life
net premium plus $4. In the case of 20 Payment Life policies the formula is
15% of the net premium plus $4, plus an additional amount, the accumulation
of which will be sufficient to provide for expenses of $1 per thousand after the
policy becomes paid up.
With respect to the Modified 3 plan, since these premiums were increased in
December of 1932 a smaller further increase is called for at present. The loading
formula is 20% of the net premium plus $1 on the ultimate premiums and 20%
plus 85^ on the premiums for the first three years. It is important that the
initial rate on this plan of policy be not too markedly out of line with the rates
of the nonparticipating companies, and in the attached comparison the new
rates tentatively decided upon by these companies are shown.
The Modified 5 loading formula is 15% plus $1.75. The use of this formula
results in a decrease in the premium rates as compared to the old pieiuiums at
the extreme younger ages and at age 60. This feature is due primarily to the
peculiarities of the original rate table, as our analysis indicates that the present
rates are abnormally high at these agee.
The rates described above are believed to be reasonably consistent with those
tentatively decided upon by the Metropolitan and by the Provident Mutual.
, Associale Actuary.
June 12, 1934.
VH: RMJ.
Age
Increase
Proposed
Over
DisabU-
Rate
Present
Rate
ity Cost
Tentative
New
Non-Par
Rate
MODIFIED LIFE 3
20
$12. 67
17. W
24. 63
37.99
61.17
$0.57
.99
1.30
1.45
1.92
$0.16
.24
.39
.58
30
$17.64
40 --
25.05
50 . -
38.08
60
61.24
MODIFIED LIFE 5
20
$9.01
11.78
16.70
25.72
42.47
-$0.10
.58
1.14
1.55
-.52
$0.10
.15
.24
.36
30 -
40 -
50 -
60.
ENDOWMENT AT AGE 85
20..
$17. 14
21.98
30.38
45.18
71.09
$1.65
2.07
2.67
3.42
3.26
$0.16
.24
.39
.58
30
40
50
60
4728
CONCENTRATION OF ECONOMIC POWER
Ape
Proposed
Rate
Increase
Over
Present
Rate
Disabil-
ity Cost
Tentative
New
Non-Par
Rate
20-YEAR ENDOWMENT
20 -- — -
$46.13
47.00
60.00
67.86
76.56
$2.23
2.42
2.95
3.56
3.16
$0.23
.32
,56
.77
30 - - -
40 -
50
60
20-PAYMENT LIFE
20
$25. 62
30.88
39.06
52.07
73.62
$2.31
2.72
3.30
3.89
3.39
$0.13
.20
.43
.68
30
40
50 - -
60
June 12, 1934.
VH:RMJ.
Exhibit No. 675
[From files of The Travelers InsuraDco Co.)
March 7, 1934,
Re Proposed New Program of Life Rates and Values — Conference with Metro-
politan, Prudential, and Provident Mutual.
President Zacher,
Vice President Howard:
Officials of the three local nonparticipating companies met with officials of the
Metropolitan, Prudential, and Provident Mutual in New York, March 2. Each
of the three companies last named has a special contract with initial gross rates
lower than our proposed nonparticipating premiums. The Prudential's "Modified
3" and the Provident's "Protector" (Modified 2) carry materially lower gross
rates at all ages than our proposed nonpar premiums and the Metropolitan's
"Special Ordinary Life" at age 45 and above. (The Phoenix Mutual has a low
premium form, but no one seemed to be fearful of that company's competition.)
All factors bearing upon the cost of life insurance were thoroughly discussed,
particularly the probable future date of interest. Somewhat to our surprise, we
learned that the Prudential are seriously considering an increase in rates and
reduction in values. Mr. Little, of tlie Prudential, stated they would probably
change their rates by substituting 3% for S\i% in the formula. He was going
to arrange his rates so that the company could get by on a rate of interest as low
as 2H% — if dividends were omitted. Mr. Craig, of the Metropolitan, had been
considering changes, but his statements were much less definite. He expected
to talk with Mr. Ecker this week and in the course of ten days would have more
definite information to report. The Metropolitan, however, will undoubtedly
decide to increase its rates and decrease its surrender values soon. Both the
Prudential and Metropolitan thought that they could not prepare their manuals
so the change could be effective before January 1, 1935.
Mr. Linton, of the Provident Mutual, was away but sent Vice President
Marshall, who stated that while he could not commit his company, his personal
feeling was that their rates would be increased, including a complete revision and
increase in the "Protector" policy premiums. They would also modify surrender
values somewhat.
Mr. Little said that the Prudential would probably carry reserves at 3)^% and
then deduct the full $25 surrender charge throughout the term of contracts.
Mr. Craig could not give definite information in regard to their surrender-value
program, but he spoke as if th^fuU $25 would be deducted up to at least the 15th
year. He did state, however, that the Metropolitan'would probably omit second-
year values on life forms, giving only an extended term value at the end of the
second year on endowment policies. Mr. Marshall could not state just what
change the Provident would make in surrender values, but he felt that they
would undoubtedly go along with the other companies.
CONCENTKATION OF ECONOMIC POWER 4729
Mr. Craig stated that the Mutual Life and New York Life were willing to follow
the Prudential, Metropolitan, and others in a reduction in surrender values but
that the Equitable was standing out for very slight changes. Mr. Little stated
that Mr. Duffield would endeavor to see Mr. Parkinson some time this week
and try to get the Equitable to be more cooperative. It was felt that if the
Equitable did not come along, the New York Life would also decline to make a
change.
It is probable that in the course of two weeks, we shall hear more definitely
from the Metropolitan, and possibly from the Provident.
(Signed) B. D. F.,
Vice President and Actuary.
BDF:B.
Exhibit No. 676
[From files of The Travelers Insurance Co.l
[Copy]
August 1, 1936.
1936 Life Actuarial Notes.
Subject: 1937 Rate Revision.
Memorandum No. 15.
(18) The above matter was considered at a conference on July 28th attended
by-
Aetna Life:
Vice President and Actuary Catmnack
Associate Actuary Keflfer
Connecticut General:
Actuary Henderson, Assistant Actuary Eddy
Assistant Actuary Hart
The Travelers:
Vice President and Actuary Flynn
Actuary Hammond
Associate Actuary Shepherd
Assistant Actuary Hoskins
(19) At the conference the following points were agreed upon:
Effective date April 1, 1937, and as much earlier as possible for aU three com-
panies.
The general basis of rates — 90% Graded American Men Select 3%% plus
$2.50, plus commission, plus 1%% of the gross for taxes.
Retirement Income maturity values — American Annuitants Select Male 3%,
ages stepped one year for males and five years for females.
Annual Premiima Elective Annuities on the same basis as Retirement Income
with accumulations of 3}^^%. (Travelers and Connecticut General, Aetna does
not issue nonparticipating.)
Short Term rates the same as at present with the following increases:
To and including Age 45 $0. 25
Age 46-. 20
47... - 15
48 10
49 .__ .05
50 and over . 00
Single Premiums will not be materially changed. At present, single premium
rates of the three companies do not quite coincide.
Mr. Hoskins is developing a formula which will produce approximately the
present single premium rates on a uniform basis for the three companies.
Surrender Values remain unchanged except as they may be affected by changes
in maturity values.
(20) Steps have already been taken to cooperate with the Aetna and Connec-
ticut General. The former Company will furnish the rates on various forms, and
the latter Company, the reserves on Retirement Income, upon which The Travelers
wiU calculate the surrender values. Some copy has already been sent to the
Print Shop.
4730 CONCENTRATION OF ECONOMIC POWER
(21) The following is taken from the minutes of the Conference prepared by
Associate Actuary Shepherd:
GENERAL PREMItJM FORMULA
(22) The first question discussed was the general basis for premium rates, put-
ting aside for the moment the particular questions of term rates and life income
forms.
There was a general agreement to substitute a 3}^%-interest rate in place of the
present S%%. The Travelers urged an increase in allowance for taxes from
1%% to 2%%, pointing out that our tax rate was already in excess of 1J4% and
steadily increasing.
Mr. Camraack vigorously opposed any increase in the tax allowance or the
overhead factor in any form. He contended that while it was true their allowance
for taxes was slightly insufficient, the allowance for taxes plus the $2.50 per $1,000
for overhead was more than sufficient to cover taxes an,d expenses combined;
the Aetna's overhead did not exceed $2.00 per $1,000. A few years back it had
been as low as $1.50. He attributed much of the increase to the decreasing insur-
ance account and was quite hopeful that expenses would drop now that we are
showing an increase in our insurance in force again. Mr. Henderson suggested a
compromise at 2}4%, but Mr. Cammack opposed any increase.
Mr. Cammack showed prepared tables of cost of insurance in various participat-
ing companies on the basis of present dividend scales and contended that we should
put ourselves out of the running if we tried to increase rates above the amount
required to cover the drop in interest rate. He pointed out that such corripanies
as the New England Mutual and the Phoenix Mutual, which had maintained their
low costs, had been able to show gains in insurance when other companies were
losing. He thought we might have to increase rates again in another j'ear, but
that it was better to increase them a step at a time. We had increased rates nearly
10% over the past few years.
Mr. Flynn brought out the fact that on the basis of Mr. Hoskins' comparison
with average net cost of fifteen mutual companies, present nonparticipating rates
were relatively better than they had been over the previous ten years.
The final conclusion was to leave the $2.50 overhead and 1%% for taxes un-
changed and change the interest rate to 3}i%.
LIFE INCOME FORM
(23) The basis proposed by The Travelers and Connecticut General for matur-
ity values on Retirement Income and similar forms was the American Annuitants
Male Select 3%, with the age stepped back one year for males, five years for fe-
males. Mr. Cammack was prepared to agree to this proposal, but he offered for
consideration an alternative plan which Mr. Keffer advocated. This plan was to
leave the regular reserves and values of these forms unchanged, but to provide an
additional reserve which would leave the company with total reserves on the basis
proposed for policyholders who actually exercise the life-income option. Mr.
Keffer calculated an extra premium on the assumption that 50% of the policies
issued would continue to maturity and exercise the life-income option. The
advantage of this basis would be a lower premium rate than would be required
if values were increased. It would save the work of recalculating reserves and
values (which, however, everyone agreed should be given no weight in arriving
at our decision). It would also have the advantage from the Aetna's viewpoint
that it would not necessitate a change in the settlement option basis printed in
aU their policies., Mr. Cammack was stiU undecided as to the advisability of
this latter move, inasmuch as they had been on a 3%-basis since the first of the
year, and the only change involved was the stepping back of one year in age.
It was pointed out that if Mr. Keffer's plan is adopted, the real nature of the
change we were making would not be apparent to other companies, and we
should not be furnishing an example which we might persuade other companies
to follow. It was realized that an increase in values would be of some help
to the agent in justifying the increase in premium rates.
The final conclusion was to adopt the 3% basis, age stepped back one year,
for a maturity value, and to change values prior to maturity.
CONCENTRATION OF ECONOMIC POWER
4731
TERM RATES
(24) The Connecticut General presented the following extension of their mor-
tality experience on term conversions:
Connecticut General Mortality on Term Conversions, Issues 1922-1936
Term— 10:
To 12/31/31
12/31/31 to 12/31/35
To 12/31/35.
Term— 5:
Tol2,'31/31
12/31/31 to 12/31/35.
To 12/31/35
Combined:
To 12/31/31-
12/31/31 to 12/31/35.
To 12/31/35
No.
Deaths
336
341
677
38
46
84
374
387
761
% Amer. Men
No.
Ami.
73
100
129
89
106
80
Neither the Aetna nor the Connecticut General felt that this indicated a great
need for a higher premium to cover higher mortality on short-term plans. Mr.
Henderson pointed out that while the experience, and perhaps general reasoning,
indicated that the Five Year Term rate should be increased, there way apparently
no need for increasing the Ten Year Term rates. It would be necessary, however,
to increase the rates to keep them in line with the Five Year Term.
The table below shows Five Year Term rates calculated by different formulae
by Mr. Keffer and Mr. Hoskins, compared with present rates:
Age
30
40
50
Present rates -
8.43
9.35
8.83
10.60
11.54
11.11
18.26
Hoskins' rates .
18.79
Keffer's rat«s.
18.02
Mr. Cammack admitted some weakness in the Five Year Term rates at the
younger ages, but felt that the rates were more than adequate at ages 50 and up.
The increases in the present Five Year Term rates referred to above were adopted.
(25) It may be interesting to record a comparison of the Connecticut General's
e::perience with The Travelers, although this was not well brought out in the
discussion.
The last comparison we had with the Connecticut General included exposures
only through 1931. The addition of their experience through anniversaries in
1935 increases their ratios perceptibly. Unfortunately for comparison, the bulk
of their experience is on the Ten Year Term form. Only 84 deaths are recorded
under the Five Year Term. The Connecticut General's figures are on the Ameri-
can Men basis. As compared with the Connecticut General's 81%-106% on the
Five Year Term, the Travelers had an experience on issues of 1923 and subsequent
years, exposed through 1934, of 108%-124% of the Travelers Table, or 88%-101 %
on the American Men basis, indicating that the Connecticut General's experience
was a trifle lower by policies and higher by amounts than the Travelers.
As compared with the Connecticut General's 74%-86% on the Ten Year
Term, the Travelers experience on the Travelers Table for all term forms other
than Five Year Term was 103%-127% of the Travelers Table, or 87%-103% on
the American Men basis, which is much higher than tiie Connecticut General's
mortaJrty covering 677 deaths as compared with 584 deaths in our experience.
The wide spread between the mortality by amounts and the mortality by num-
bers seems to be evidence of adverse selection. Mr. Cammack argued that the
ratio of 89% on both term forms conibined was within the mortality assumed in
4732
CONCENTRATION OF ECONOMIC POWER
our premium rates. Mr. Hoskins pointed out that this is probably not the case
if we take into account the younger ages at which term insurance is issued and
the comparative immaturity of exposure.
H. PiERsoN Hammond.
HPH:0.
Additional Routing.
Vice President Howard.
Miss Burke.
Source: 1935-1936 Life Actuarial Notes,
Exhibit No. 677
[Prepared by the Securities and Exchange Commission Insurance Study Staff]
Comparative gross aggregate premium costs, cash values, and net aggregate premium
costs, over ten-year period, under nonparlicipating policies of Mtna Life, Con-
necticut General, and Travelers Insurance Companies
[Ordinary Life Form, Age 35]
Just Prior to 4/1/33
Effec-
tiVR 1
4/1/33
Effec-
tive '
1/1/35
Effec-
Aetna
Conn.
Genl.
Travel-
ers
tive"
3/1/37
Ordinary Life— Age 35:
$197. 10
125.00
$197. 10
135.00
$197. 10
128 00
$200.60
111.00
$208. 20
111.00
$214.20
Cash Value— End of 10th year..
111.00
Difference — Net Cost...
72.10
62.10
69. 10 1 89. 60
97.20
103.20
I Gross premiums and tenth-year cash values were the same for the three companies.
Source: Little Gem Life Chart, published by National Underwriter, arid Best's Dlustrations.
'Exhibit No. 678" appears in the appendix to Hearings, Part VI, p. 2748
Exhibit No. 679
Statement showing the volume of the ordinary business ' of /Etna Life, Conn.
General, and Travelers
1934
1937
1938
All Ordinary Business:
$7,419,290,658
470, 55.3, 748
$7, 182, 309, .WS
457, 094, 951
% written in yEtna, Conn. Genl., and Trav...
Non-Participating Ordinary Business only:
Total written in larger U. S. Cos
6.3%
1,335,025,678
433,906,311
6.4%
1,872,360,193
411,873,521
% written in .Stna, Conn. Oenl., and Trav. ...
32.5%
22.0%
Total infarct (Dec. 31) in larger U. S. Cos
$14,752,073,927
4, 988, 818, 620
«33.8%
« Exclusive of group insurance.
• If Canadian Companies were included— and many do a large volume of business in the United States—
this percentage would be 31.6%.
Source: 1934 and 1938 figures, Fliteraft Compend, 1935 and 1939; 1937 figures, Unique Manual-Diteit, 193a
Prepared by .£tna Life, Coim. General, and Travelers.
CONCENTRATION OF ECONOMIC POWER
4733
Exhibit No. 680
IPrepared by the Securities and Exchange Commission Insurance Study Staff]
Life Insurance: Total in Force, New Business & Terminations U. S. Legal Reserve
Life Insurance Companies 1928-1937
Year
In Force at
Beginning
of Year Dec. 31 '
New Business
Written
During Year
Terminations
During Year
In Force at the
End of Year '
Number of
Companies
Reporting
1928
$87, 022, 103, 421
95,206,314,691
103,146,440,473
107, 948, 277, 732
108, 885, 562, 894
103.154,370,056
97, 985, 043, 747
98,542,411,146
100,730,41.5,016
104, 667, 205, 924
$18,673,574,996
19,267,332,211
19.019,790,453
17, 226, 248, 427
14,514,284,427
13,786.8.57,459
14,280,080,058
14,138,619,347
14,334,996,379
14,795,949,978
$10,111,858,568
11,004,503,966
13,912,494,179
15,870,864,610
19, 740, 382, 133
16, 923, 169, 167
13, 699, 352, 147
11,9.52,006.608
10,207,434,085
9, 693, 972, 980
$95, 583, 819, 852
103,409,142,936
108, 253, 736, 747
109,303,661,549
103,659,405,188
100,018,058,348
98,565,771,658
100, 728, 303, 885
104,857,977,310
109, 769, 182, 922
331
1929
353
1930
352
1931 ..
342
1932
1933
318
1934
313
1935 .
340
1936
315
1937
308
10-year total...
160,037,733,735
133, 176, 698, 443
I The amount of insurane* in force at the end of any year is found by subtracting the amount of insurance
terminated during the year from the amount of insurance In force at the beginning of the year, plus amounts
of insurance written during the year. Becau.se the number of companies reporting to Spectator changes
each year the amouflts of insurance in force at the beginning of any year vary sMgbtly from the amounts
of insurance in force at the end of the year preceding. Inasmuch as the great proportion of the business is
written by companies which do report to Spectator each year, the essential accuracy of the above figures is
not impaired.
Source: Spectator Insurance Year Books.
Exhibit No. 681
American Experience Table of Mortality
Ago
10.
11-
12.
13.
14.
15.
Ifi.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32
33
34
35
36
37
3S
39
Num-
ber
Living
100,000
99.251
68,505
97, 762
17,022
96,285
95. 550
94, 818
94,089
93, 362
92, 637
91,914
91, 192
90,471
89, 751
89, 032
, 88, 314
87, 596
80,878
86,160
85,441
84,721
S4.0(K)
83, 277
32,551
81, 822
81,090
80,353
79,611
78, 802
Dea ths
Each
Year
749
746
743
740
737
735
732
729
727
725
723
722
721
720
719
718
718
718
718
719
720
721
723
726
729
7.32
737
742
749
756
Death
Rate
Per
1,000
7.49
7.52
7.54
7.67
7.60
7.63
7.66
7.69
7.73
7.70
7.80
7.85
7.91
7.90
8.01
8.05
8.13
8.20
8. 26
8.34
8.43
8.51
8.61
8.72
8.83
8 95
9.09
9.23
9.41
9.59
Expec-
tation
of Life
48.72
48.08
47.45
46.80
46.16
45.50
44. 35
44.19
43. 53
42.87
42.20
41.53
40.85
40.17
39.49
38.81
33.12
37.43
36.73
36.03
35.33
34. 63
33.92
33.21
32.50
31.78
31.07
.30.35
29.62
28.'90
Age
53 ..
54...
55-..
56...
57...
58...
59...
60...
61...
62...
63...
04...
65. . .
66...
67...
68...
69...
70...
70...
72...
73...
71...
75...
76...
77
78...
79...
80...
81...
82...
Num-
ber
Deaths
Each
Death
Rate
Per
1,000
Living
Year
66, 797
1,091
16.33
6.5. 706
1,143
17.40
64, 563
1. !99
18. .57
63, 364
1,2C0
19.88
62,104
1,325
21.33
60. 779
1,394
22.94
69, 385
1,408
24.72
57,917
1,546
20.69
56,371
1,628
28.88
54, 743
1,713
31.29
53,030
1,800
33.94
51. 230
1,889
3S.87
49,341
1,980
40.13
47, 361
2,070
43.71
45,291
2,158
47.65
43,133
2.243
62.00
40,890
2,321
56.76
38.869
2,391
61.99
36,178
2,448
67.66
33,730
2,487
73.73
31, 243
2.505
80.18
28,738
2,501
87.03
26,237
2,476
94.37
Zi, 761
2,431
102. 31
21,330
2,369
111.06
18,961
2,291
120.83
16, 670
2,196
131. 73
14,474
2,091
144 47
12,383
1,964
158.60
10, 419
1,816
174.30 1
Expec-
tation
of Life
18.79
18.09
17.40
16.72
16.05
15. 39
14.74
14.10
13.47
12.86
12.26
11.67
11.10
10.54
laoo
9.47
8.97
8.43
8.00
7.55
7.11
6.68
6.27
5.88
6.49
5.11
4.74
4.39
4.06
3.71
4734 CONCENTRATION OF ECONOMIC POWER
American Experience Table of Mortality — Continued
Age
Num-
ber
Living
Deaths
Each
Year
Death
Rate
Per
1,000
Expec-
tation
of Life
Age
Num-
ber
Living
Deaths
Each
Year
Death
Rate
Per
1,000
Expec-
tation
of Life
40
78, 106
77, 341
76. 557
75, 782
74,985
74, 173
73, 345
72,497
71. 627
70, 731
69, 801
68,842
67, 841
765
774
785
797
812
828
848
870
896
927
962
1, 001
1,044
9.79
10.01
10.25
10.52
10.83
11.16
11.56
12.00
12.51
13.11
13. 78
14.54
15.39
28.18
27.45
26.72
26.00
25. 27
24.54
23.81
23. 08
22. 3.-)
21.63
20.91
20.20
19.49
83
8,603
6,955
5,485
4,193
3.079
2,146
1.402
847
462
216
79
21
3
1.648
1,470
1.292
1,114
933
744
5.55
385
246
137
58
18
3
191, 56
211.36
235. 56
265.68
303.02
346. 69
395. 86
454.54
532. 47
634. 20
734. 18
857. 11
1,000.00
3.39
41
84
3. OS
42
85
2.77
43
86
2.47
44
87. ..
2.18
45 ...
88
1.91
46
89
1.66
47
90
1.42
48
91
1.19
49...
92
.98
50
93....
.80
51
94
.64
52
95
.50
Source: Page 200 Life Insurance by John H. Magee. Business Publications, Inc., Chicago, 111., 1939.
Exhibit No. 682
[Prepared by thi^ .it curities and Exchange Commission Insurance Study Staff]
[Chart based on following statistical data appears in text on p. 42S6-a)
Whole Life Policy {$1,000) Age 35
Attained Age at Beginning
of Year
Annual
Net Level
Premium
for $1,000
Annual
Cost of
Insuratiee
for $1,000 1
Tabular
Cost of
Insurance
for Amount
at Risk
Reserve
at EnJ
of Year
Amount
at Risk
Sum of
Ki'serve
and
A}aount
at Risk
35 . . .
$21. 08
21.08
21.08
21.08
21.08
21.08
21.08
21.08
21.08
21.08
21.08
21.08
21.08
$8.95
9.69
10.83
13.11
17.40
24.72
36.87
56.78
87.03
131.73
211.36
395. 86
857. 14
$8.84
8.94
9.25
10. 06
11.70
14.20
17.59
21.85
20.27
29.73
32.97
37.37
43.04
$12.88
68.16
146. 01
233.28
327. 58
425, 49
522. 92
615. 14
698. 21
774.29
844.01
905. 59
949. 79
$987. 12
93'. 84
8.53. 99
706. 72
672. 42
574. 51
477. 08
384.86
301. 79
225.71
165. 99
94.41
50.21
$1, 000. 00
1 000 00
39 .
44
1 000 90
49
1,000.00
54
1,030.(10
59
1, 000, 00
64 .
1 000 00
69
1,000,00
74
1,000,00
79
!, 000, 00
84...
1, 000. 00
89
1,000.00
94
1,000.00
' It is assumed that no interest will be earned on the premiums paid each year.
Based on American Experience Table, 3%.
CONCENTRATION OF ECONOMIC POWER
Exhibit No. 683
[Prepared by the Securities and Exchange Commission Insurance Study Stafl]
[Chart ba^d on following statistical data appears In text on p. 4293-a]
Terminations — Ordinary Life Insurance — Amounts, 1922-19S7
[All companies, in thousands of dollars]
4735
Year
Lapse
Surrender
Decrease
Expiry
Disa-
bility
Matu-
rity
Death
Total Ter-
minations
1922 _.
1923
1924
1925
1926 »...
1927
1928
1929
1930
1931
1932
1933.
1934
1935...
1936
1937
TOTALS
1922-1925
1926-1929
1930-1933.
1934-1937
PERCENTAGES
1922-1925
1926-1929
1930-1933
1934-1937
2, 136, 701
1, 958, 100
2, 3%, 591
2, 516, 876
2, 946, 564
3, 442, 959
3, 339, 150
3,684,413
4, 405, 311
4, 770, 696
4, 929, 966
3, 816, 833
2, 933, 957
2, 746, 155
2, 306, 005
2, 247, 579
9, 008, 268
13, 413, 086
17, 922, 806
10, 233, 096
803,610
844,227
905, 657
966,820
1,117,643
1, 360. 188
1, 445, 859
1, 716, 939
2,150,329
2, 886, 158
4, 430, 228
4, 394, 233
3, 203, 668
2, 347, 591
1, 739, 919
1, 510, 575
3, 520, 314
5, 640, 629
13, 860, 948
8, 801, 753
288,728
236,211
305, 643
277, 421
318, 952
347,997
319, 854
315, 506
419, 535
542.544
722,923
815, 074
572, 669
400,625
352, 381
302, 012
1, 108, 003
1, 302, 309
2, 500, 076
1,687,687
52.59
53.16
42.19
36.47
20.55
22.35
32.63
31.36
6.46
5.16
5.88
6.01
305, 207
374, 494
454, 141
482,944
519, 143
562,503
628,608
718, 504
876,554
1, 068, 017
1. 376, 210
1, 578, 603
1, 338, 823
1,071,674
867, 814
761, 283
1, 616, 786
2, 428, 758
4, 899, 390
4, 039, 694
9.43
9.62
11.53
14.39
2,202
5,272
9,923
5,305
2,901
3,761
4,287
0,263
9,565
7,065
10, 167
9,939
24,911
7,661
7,562
5,608
22,702
17, 212
30, 736
45,742
.13
.06
.08
.16
138,902
124, 432
125, 182
101, 597
85, 792
76,420
77, 561
93, 118
97. 867
106,836
110, 118
107,502
109, 621
116,863
125, 916
124, 455
490, 113
332, 891
422, 323
476, 855
2.86
1.31
.99
1.69
298, 895
328,389
352, 132
381, 955
443,004
477,444
547, 838
624, 375
678, 794
732,128
723, 375
697, 532
684,509
675,288
706, 813
707, 983
1, 361, 371
2, 092, 661
2, 831, 829
2, 774, 593
7.94
8.29
9.88
3, 974, 247
3, 871, 125
4, 549, 269
4, 732, 920
5, 434, 000
6, 271, 272
6, 36,3, 157
7, 159, 118
8, 637, 956
10, 113, 443
12, 302, 995
11,419,716
8, 868, 158
7, 425, 857
6, 106, 409
5, 659, 496
17, 127, 561
25, 227, 547
42, 474, 110
28, 059, 920
100
100
100
100
Source: Spectator Insurance Year Books.
4736 CONCENTRATION OF ECONOMIC POWER
Terminations — Industrial Life Insurance — Amounts, 1922-1937
[All companies, in thousands of dollars]
Year
Lapse
Surrender
Decrease
Expiry
Dis-
ability
Matur-
ity
Death
Total
Termi-
nations
1922
1, 135, 518
1,161.428
1, 500, 807
1, 871, 320
2, 184, 156
2, ,'i83. 193
2,761,957
2, 777, 160
3, 503, 555
3, 586, 846
4, 187, 937
3, 367, 035
3, 127, f74
2, 534, 097
2, 224, 747
2, 136, 661
5, 669, 073
10,306,466
14,645.373
10, 023, 079
83.75
81. 66
73. 67
63.32
96, m)
80.907
109. 725
142, 591
178, 428
238,116
340, 582
383,890
597, 684
824, 937
1,261,672
1. 147. 972
983. 691
944, 984
815, 249
807, 049
429, 783
1, 1-41, 016
3, 832, 265
3. 550. 973
6.34
9.04
19.27
22.43
53, 872
9,038
12, 325
19, 994
70, 987
55,420
68, 816
72.589
138, 285
117.407
112,291
27. 217
15, 190
12, 586
10, 404
9,009
95. 229
267,812
395, 200
47, 289
1.4
2.12
1.98
.29
39, 355
42. 676
40. 397
42, 423
54, 263
47,751
81, 132
83, 261
80,209
79, 615
82. 104
92, 617
' 127, 340
411.849
450. 108
473, 441
164, 851
260, 407
334, 545
1, 462, 738
2.43
2.11
1.68
g.24
42
12
19
36
54
65
69
98
89
109
137
121
128
53
64
101
109
286
456
346
.001
.002
.002
.002
20,918
16,460
11,949
11,752
11, 149
10, 848
11,294
12, 474
12, 831
12, 875
13, 059
13, 083
20, 570
28.814
27.951
30,544
61,079
45, 765
51.848
107, 879
.90
.36
.26
.68
71.128
80, 457
91, 855
104,969
146. 247
126, 5.50
162, 228
158, 311
157, 572
159,079
153, 7.55
148, 863
153. 570
153,720
160,284
167, 536
348. 409
593, 336
619, 209
635, 160
6.14
4.7
3.11
4.01
1,417,393
1923
1, 390, 978
1924
1, 767, 077
1925
2,193,086
1928 -
2,645,283
1927
3.061.944
1928
3, 426, 078
1929
3, 487, 783
1930
4, 490, 225
1931
4, 780. 869
1932
5, 810, 955
1933....
4, 790, 907
1934
1935
4. 428, 063
4, 086, 203
1936 .
3, 688, 809
1937
3, 624, 391
TOTALS
1922-1925
192G-1929
1930-1933
1934-1937
FEECKNTAGES
1922-1925
1926-1929
1930-1933
1934-19.37
6, 768, 534
12. 621, 088
19. 878, 956
15, 827, 466
100
100
100
100
'The increase in e.xpiry is due to changes in industrial policy provisions, made by certain companies
beginning in 1935. whereby automatic extended term insurance was allowed upon discontinuance of
premium payments early in the life of the policy.
Source: Spectator Insurance Year Books.
NOTE.— The Spectator Year Books for some of the years included above listed several thousand industrial
policies as termiualod by "change." For the purposes of this study the word "termination" has been de-
fined to mean the cessation of all enforceable legal relations between policyholder and company. Hence
"increase" or "decrease," resulting in "change," cannot constitute a mode of termination of a policy. (When
dealing with amounts of insurance, a decrease is a form of termination for the reason that a portion of the
insurance is canceled.) Hoi^ever, the figures used for total annual terminations in this tabic, taken directly
from the Spectator Year Books, do include those policies listed as "changed" therein. The figures for
aggregate terminations for the 10-year periods, on which the charts were based, do not include any policies
"changed."
CONCENTRATION OF ECONOMIC POWER 4737
Exhibit No. 684
[Chart based on following stiitistical data appear.s in text on p. 4300.]
[Prepared by the Securities and Exchange Commission Insurance Study Staff]
Terminations — Ordinary and Industrial Life Insurance ' — Amounts — Compared
With Total New Business and Insurance in Force, 1918-1937
[All companies, in millions of dollars]
Terminations
New business
Insurance
In Force '
Year
Lapse
Sur-
render
De-
rease
Ex-
piry
Disa-
bility
Ma-
turity
Death
Total
Re-
vived
New
Issues '
1918 .
1.270
1, 412
1,957
3,428
3,272
3,120
3,897
4.388
5,131
6,026
6,101
6,460
7.909
8,358
9,118
7,184
6,062
5,281
4,531
4,384
33, 901
65,388
62.32
51.62
357
388
428
630
900
925
1,015
1,110
1,296
1,599
1,786
2,101
2,748
3,711
5.692
5,542
4,187
3,292
2,555
2,318
8,648
.33,932
15.90
26.79
44
73
139
145
343
245
318
297
390
403
3«9
388
558
660
835
842
588
473
363
311
2,397
5,407
4.41
4.27
193
199
228
325
345
417
495
525
573
610
710
802
957
1,147
1,458
1,671
1,466
1.483
1,317
1,235
3,910
12,246
7.19
9.67
. ....
r 2
' 2
•■ 5
10
6
3
4
4
7
9
7
10
10
25
8
8
6
33
94
.06
.07
81
102
124
130
160
141
137
113
97
87
89
106
111
120
123
121
130
146
154
155
1,172
1,255
2.15
.99
403
327
340
365
370
409
444
487
580
604
710
783
836
891
877
846
838
829
8R7
876
4.338
8,353
7.97
6.59
2.348
2,501
3,217
5, 025
5,392
x5, 202
6.316
6,926
8,079
9,333
9.789
10,647-
13, 128
14, 894
18.113
16.216
13, 296
11. .'=!2
9, 795
9,285
54, 399
126, 675
100.00
100. 00
281
332
512
.583
6S4
603
721
823
855
1,049
1,079
1,056
1,266
1, 2.58
1,566
1,432
1,167
935
838
717
6. 443
11,311
5.87
7.72
5,138
7,810
10, 105
8,578
9,428
11.227
12, 345
14. 219
1.5. 093
15, 809
16, 763
17. 695
17. 464
16. 168
13, 704
12. 966
13, 198
12, 836
12,927
12,935
109,812
146, 656
94. 13
92.28
27,189'(1/1/18).
1919
1920
1921
1922
1923 .
1924
1925 -_._
1926
1927
80,592 (12/31/27).
1928 _
1929
80,592 (1/1/28).
1930 -
1931
1932
1933 _.-.
1934
1935 .
1936...
1937
96,662 (12,/31/37).
Total:
1918-1927..
1928-1937. _
Percentages:
1918-1927. _
1928-1937. -
' Group insurance not included.
' New issues, including revivals, increases, and dividend additions.
' Tiie amount of insurance in force at the end of any period is found by subtracting the amount of insurance
terminated during the period from the amount of insurance in force at the bejiinning of the period, plus
aniounts of insurance written during the period. Because the number of companies reporting to Spectator
changes each year, the amounts of insurance in force at the end of any period do not exactly equal the sum of
total new issues and insurance in force at the beginning of the period, minus terminations. Inasmuch as
the great proportion of the business is written by companies which do report to Spectator e,^ch year, the
essential accuracy of the above figures is not impaired.
Source: Spectator Insurance Year Books.
4738
CONCENTRATION OF ECONOMIC POWER
05
8
^3
5S .H
1
°j
i-
a
a
w
5?
a
S
s
CO
1
S
a.
&
1
15:
d
a
3
;z;
O
tJ
OS
u
H
h.
CJ
n
n
■§
rt
&
i
§
1
*» s
k M '^
fi^a
ta o
i 1 1 1 iC^Cl III C4 11
i 1 , 1 lOO • > ■«l' 1 .
lllll'^Tftllllllll-^ II
i i i i iss i ; i i i i i ig8 i i
cjoocOoocs'^c^-^Wiococ^cooor^c^— <^oco t-co
OOC0Cl«O>-t'^»0a>Ci0aQ0'«j4CCt^<£'»0i0i0 t^t*
50COC4C-l»-H^eCOOC
00 o> o o c<j CO Tf'o to r^odoo 00 o> oioTo os^oi ob
0;= ,
p
S.2
"3 01
eDOC^ciecoo>0'*r'"^c<»eoc^'^r*^^«OQOOs
O^C^O^C000rf<00O^0SO?0^'^05O.-t00
05*0«-<COOOcO<DeOMO»OCOt>»l^Ci»OOit>-M
tC o o CO o 00 o »o cT »o c^ Tp os" *o CD rC |C OS oi" op
»c^c*coN«-'r^<DF-*r-co*o(C>»ocDO'-'cooc5
1— tcoi-HoO'-'uot^i-iooi-iioi-«oooor-'«fcoa!r^cD
^ ^' ^' r_," c^" ,_r ^ N T-T c^~ c^ c^ w w eo CO cf i-T i-T i-i
00iOi-iC0CDC^00OOO00T>«^Hr-C^0S0Si-iC^»O i^to
i-i»0'^ooo«-io)oooj^'~'r-coi^r>.»ot^ooooo
-_ §8
w »o o-^ ^ w CO w c^ ^«oc£i eot-»^ h* h*o r^05 b- o
00^iOh-'^J«"Ci*0C001C»TfOO05C0t^aC00cD »oS
»ccocoooc^C2ioO'-<t^Tt<ccoi»-oocooic?Dco or*
■^'oior^od r^o>»-<'c^co»o»oao'o lO^oToo tociT »o t>r
03
socooocopieo^O'
i'^C^»-iCs-«t^05OC0N00
- CO CO OOM o
SCO
5QOi
3*0 -*
C^t>-^f»w(NiOC^Gr)COC^C4COClcCl»»Cai
r^MOc^ooc^ocor^Oi'^c: (^Oico^^c^
TP»oocooost^oioooooooot^r-t^oooo
CO CO
c^'co
c^co
CO 00"
OC000i000MMe00>»0Oi-HCMM00»O-H00Ci'-t
r^«co^Hi^cootO'^t^ciooQ»-*<0'^r*coQoo
ocoi-Hi^oocoi-4CDcoai*Oi-iwcot>-^^H»oooo
r^ c^ -^os
coa>ocoooooga<QaQQaii-< »oooq^l
CO^Cs»OiO»t*C^WNC5cOCO«OC<COC«0>"^'^
^'3 r*co
eflO00C0t*C00500MQ'^e0000»»Ot^<
COTl<-^0»t^»-ib-cCiOP»0-^OCSO«»0'-
^«>^ioc«C4eoeococ4<-(coco*4<i-ir-<c
M<0 C«C3
oeot-t t*<o.^«fr«f'- » or "^ CO C3 C4 1^ »o CO 00 k5
Oitf •*• li^fej*^ t-5'^^M ^o^'oTo-^-c* oTc* oq"
«nQ'^«C*^oScDcCCOQp?iN ^ S r^ OC f^ CO C<S
^^^ ^o
> io<oeD<
s oco>oc
>COCDOOO"»^C
^ 1-t CD »-4 <-i .-• CO CO f-« ^ eo 00^ Oi t^
"" OC O -r* »0 00 06 **• O O O: »0 CO ■^
~* .-« O CO r^ o *o .-I CO 000s ■ .
>00 O OlOOO
10 »oo cooo <
- )ooo'^oco-^»ocop5^ocO'^Ci
05 -^ loco ^ ^ cp cor^ •-•a» ■^ c^ oOTt* -^ o « _
^^C^JM'^CD^eOOOC'^OO'-HCOCO-^fC^WOCOCO
CO'«J« C*'^
1-1 1-4 f~i C4 CO ■^ «D lO ■* -^ CO CO <0 00
»0 00 -^ OS ^ M< 7*« CO CO -^ r* Q ■**• «0 ^H O CO 00 OS t^ iO ^H ©00
h-c5«ooc^aoococot^»oonoioooO"Oc3co coco 5co
■^ 00 0» "<r C^ -^ ^ "O OS C4 00 <-^ uO CO -^ CO CO C« f-t to C005 . .
oT^r^oTi^oo o^--^«-^~co t>^oo t^»o « oTocoio t^aS 00 r^
•-•aQ»Ce001^(NOC0*0C^IC0'r(N^^C0»-HC0^ »co
coNc^t^cO'^row-^e^cooscoos'^ScotoccN <ot>-
co'««"V"<D<cr<oodorai"i-rffi'^'^TrrfC'<:jrv'^o o oc^
oooaO'-^C4co'*j»»ocpr^QoasoT'C^c
f-..-iC5c«wo*c^ic^M<Nc^c^co«'oeoc
W CO COM CO
OS OS <L) OS OS
t-t f-H tl|,r-« .-H
1^' OS OS q3 OS OS
?3-2;
"^ X o 0.*
CONCENTRATION OF ECONOMIC POWER
4739
s Z,
^?J i
1 ICO^I* 1
Q
1
00 I
1 IIO t* 1
o
t^^^
1 iN .-1 OJ
O 1
1 lO t^ 1
S
1 irHtO .
o
-TO
1 1 rt CO o
°
*~ T-i 1
1 I 'od i
o
(-4 1
I i 'od i
o
rH
1 1 l-J t>;
<= 1
6
1 ; o> 1
o
1 1 OS 1
o
1 1 e*
O
ti^ '
^ :
D.
"s-^ '
1 Iot)< 1
o !
1 Itoto i
e>»
«•<»<
1 itO-Ht-
OS
pi CO t
1 noa> 1
r-
1 .00O> 1
OJ
coco
1 1 t^tO rH
5
S
g CS 1
lit-..
o
S 1
. iCOOS 1
CO
1 it^ t^CM
1" ;
i i s ;
y^
CO I
II i-h" 1
to
CO
1 i'(N— "
oo"
00
1 1 S I
1 1 ^
-rr
^ i
• 1 "^1
N
CM
■k.(N 1
Irt ,-iOtO
o to 1
i^co r^oo
o
rH 1
ll^CNOO
O
e« 1
iOO-o<m
o a> ■
iP> ot~.o>
o
1-1 1
IO-* 00 to
O
a
o •*-< •
1 ■ 'od ■
o ■ 1
1 ■ ■ to' ci
o
rA 1
1 r-; 'to'
8
u 1
1 CB
O 1
1 a
o
1 o>
Ors
tn a
°H ;
a o
P
^fc '
'N -^00^
?^ s i.
liOOOSO
cq
OtO
ItO t~rt to
o
O 1
^ !
.0<N — --
•<5^
'Jl .
i t^OOi-iOJ
1 -a-r-i
1 eo
O P3 1
ui .-T 1
m 1
iCO-Ht^CO
1 CO
00
1
00
1 t^ to -^Ji.OS
to
I^H
|§g
i isss?
o <»«
ico-gio
|OOOo>
CON
1 loO-J" CO
s
d
o r-<N
o
t~-«<
1 icOCBto
_2
(^
1 ! N <N od
1 t O)
s " ■
I ■ od c4 1-^
' 00
8
rt- ■
1 icn-wco
1 1 (X)
8
S
ca
•S c^ t^
. . ^ t^ to
CO TJ*0
li-lOtO>CI
CO
oco
1 i^05 t-»
g
R (NTtI
1 ruDINCO
1 o> t^ t^
00
to^
1 Itoto -H
'3
SO
1 J-<J> tooo
§ S2
1 lOrHTt"
00
1 iOO'»f
to
CT
. ii-lOrt
■.*l .-1
1 tor^to
1 iO> Neo
to
W
1 1 lO
1 to
00
1 I 00
OS
6
frt
■g^Tj-C
sonmoi
o too
Ir^OO too
o
^^
ioootoio
8
O
t-* ■«'C
3O00 — rt
lOOOltO
o
S-2
WTJ*
■ ■ o m -^
8 " ■
1 ■ t^od ■
cS
CO
t-H tOOS
c5
rtOO
o
>-iK
o
a. a
a^
'^
gg-
1
It
■S— ""f-
-ooomoo
(N tSO
1 t--. Tt«COO
«
(N*"?*
.<»(N -H t^
S-* c<
CI iQ r^
iMO-iiO
CM
ss
00 CO to 00
CO
SCOO)
OS-H VO
00 00l>-
. -3< OJttl
■*
itOCOOOt*
o
*~' o
o -
.»
s*
(NtOlN
— C^
1 0>OM
^ rH O
s
S3
est^
1 tOC^I
. toi^
h3
^
o '^
1 "
rr
(N
eo
•«-JO
Icart «■*
O to Oi
'COrJiC^ OS
s
8
•lO
CO t^ 00 CM
o
lOmc^l Tti
O (NCM
■ O-OWCO
1 ' *d r-* *o
1 00
00 to
r-co^co
CO' to Q ■»<■
8
D o
9 0
ft,
ra a
«3 3
is
r5§
'S^iSgJ
iiO ^ 05 to
a
•OM
t^-,eoeo
I-CON rf
M (NO
o
OSto
o>
S>o«)
r-t(MO>00
»0 O 00
■ (Noitra >o
CO to
OOOt^OI
00
OT 0)
Is--
1 OJ'^od"
d g|"'
1 CO cic<f
^
••^c^
.-TcM r-^OJ"
*"**■
© ?3
v~^~
1 to »o o
t^
w
eor-cort
5
B:J
'^
. lO
to
. OO
a
CM
11
5a
■«co<o
iH t^
o c^-*-
O tOOOO
8
8
CMIN —
tOt^OCO
OtO to -^
o
eoso
So •
o
1
t-<<NC
OOa.-(to
COOC
o
8
t:*
^^t '
c-<
ft.
^°
jS >•
?S8fe
asi-f^ CO
■>)■ o»i^c
■«*« CO o> »o
<o
ass
r^r>-oo eo
*^ o
r^coMiO
S!Sg2
t^
or^ i-H t^
a a
jj-WCO-
r^-^ CO-**!
00 I^tOC
o
l~<BrfC»
o>
ID Q,
oo'cf
»n io»ood"
r^ 00 to"
coo"" <N
■<1^
^^
CMOO-O-ffM
CM-
1-
s^sg-^
t^ 1 n'"'
sgg^
o
tOOgCM
CO
PsO
«
J2j
.-T^
t^
rHCM-rt"
to
-, •>»
^SS5
t~c<«oooo
o
SIS
<0 li (N 04
o
OdO
to CO 1-1 00
8
5 a
o
040r-c^
o
^B
to toco -"I*
™- (9
■ 00 «5 t-'
t*
§
TT •
*S2S2
8
idt-i
-sg'^
8
aa
a o
(J:
no
as
o O
■>^r4a>
r-««>rt
o
1—1 f-H
COMO OS
to
CM to
tO-9iC»<»
^
g* (O t>.
■^ OOCOf*
CO <o
SoSqo
to
•B" COO— 1
CO
oooo
N
o
t^o>
CC o^to
o
2 moo
^'-'-no
00-
^tc
CCOQO
»-H -^ 00 ■^
oT
5S8
r^oo""— Tos"
ao
(B g
— mSS
o%
O CO
00 JO CM «
S3
t^
CO
coScft
— '
CO
O0 00"tft
(D
«
eo
i-T'^
t-T
t-JcM"
lO
a
o
MM ;
rt
1 ! ! I !
.a
ss ; !
I CO ' '
1 ! ! 1 1
00 ' ' '
a
' S ' '
1 1 1 1 I
S ' ' '
k4
o
■^6
» ,03
~ 2 : ; ;
1 :^^
;J ij 1
4. i ; :
i i ; '
1 l-i ! i
1 « 1 CD
o
o
'T3 1 CO
^ m 9 <»
^11
«So
ir^
qSq
X 3 d «
oSq
X a 03 i;
X a 03 «
Wwk5Q
"■ to
124491— 40— pt.
4740
CONCENTRATION OF ECONOMIC POWER
Exhibit No. 687
[Prepared by Securities and Exchauge Commission Tnsnrancc Study Staff]
Net Gains or Losses From Surrendered and Lapsed Policies Ordinary and Industrial
For Year
No. of
Com-
panies
Net Gain (+)
or Loss (-)
For Year
No. of
Com-
panies
Net Gain (+)
or Loss (— )
1918 - -
144
165
203
209
205
210
228
226
221
218
+$15,043,730
+ 15,021.459
+16. 669, 760
+39,981,608
+40,937.652
+35,524,619
+46,104,741
+49. 824, 940
+60. 635, 081
+65, 06G, 835
1928
222
250
263
265
253
283
271
262
269
250
+$74, 788, 313
1919
1929
+96, 049, 632
1920.
1930 .
+98 112 045
1921
1931 :. .
+ 112,340 400
1922
1932
+ 150,888,263
1923 ,
1933
+119,462,155
1924
1934
+84, 754, 507
1925
1935
+73, 927, 300
1926
1936
+67, 829, 724
1927
1937
+64, 880, 425
Total 1918-37
Total 1918-27
385,410,425
1, 328, 443, 189
Source: Spectator Year Books— Gains and Loss Exhibits— Totals.
Exhibit No. 688
[Prepared by Equitable Life Insurance Co.]
Equitable Life Insurance Company, Washington, D. C. — Terminations, January
through March 1939 — Industrial Insurance
Premiums paid for—
All Terminations
Involuntary Ter-
minations (Death
and Maturity)
Voluntary Termi-
nations (All Others)
Accumulated
Perce nts of
Voluntary Ter-
minations
, 1
No.
2
Prem.
3
No.
4
Prem.
5
No.
6
Prem.
7
No.
8
Prem.
9
I Week
2,102
859
461
525
459
372
371
339
253
284
285
226
213
244
210
196
162
124
191
125
136
124
114
101
111
85
145
106
137
97
104
133
09
87
87
$478. 22
183. 74
99.10
108. 19
99.00
77.79
71.68
67.96
52.61
64.28
65.76
42.20
42.51
44.78
39.79
40.15
33.85
26.37
32.48
22.74
27.40
22.83
23.57
18 87
20.89
18.08
25.93
23. 37
24.41
17.81
18.14
24.77
17.93
16.08
17.25
2,102
859
459
518
458
369
367
336
250
281
283
224
211
242
209
193
159
123
190
124
136
123
114
100
110
84
145
106
133
95
103
133
97
85
84
$478. 22
183. 74
98.74
106. 57
98.90
76.94
71.14
67.51
51.93
63.63
65.41
41.73
42.31
44.58
39.22
39.62
33.18
26.10
32.38
22.34
27.40
22.76
23.57
18.77
20.74
17.83
25.93
23.37
23.81
17.26
17.89
24.77
17.36
16.68
16.90
%
11.9
%
13.6
2 Weeks
3 Weeks
2
7
1
3
4
3
3
3
2
2
2
2
1
3
3
1
1
1
$0.36
1.62
.10
.85
.54
.45
.68
.65
.35
.47
.20
.20
.67
.63
.67
.27
.10
.40
4 Weeks
6 Weeks
24.9
27.5
6 Weeks
7 Weeks
8 Weeks
9 Weeks
10 Weeks
34.0
36.7
11 Weeks
12 Weeks.. .
13 Weeks
14 Weeks
15 Weeks
40.6
42.8
16 Weeks
17 Weeks
18 Weeks
19 Weeks
20 Weeks
45.1
47.4
21 Weeks
22 Weeks
1
.07
23 Weeks
24 Weeks
1
1
1
.10
.15
.25
25 Weeks ..
48.4
50.6
26 Weeks
27 Weeks
28 Weeks
29 Weeks
4
2
1
.60
.65
.25
30 Weeks.
51.6
53.7
31 Weeks
32 Weeks
33 Weeks
2
2
3
.57
.60
.35
34 Weeks
35 Weeks .
64.4
66,4
CONCENTRATION OF ECONOMIC POWER
4741
Equitable Life Insurance Company, Washington, D. C. — Terminations, January
through March 1939 — Industrial Insurance — Continued
Premiums paid for —
All Terminations
Involuntary Ter-
minations (Death
and Maturity)
Voluntary Termi-
nations CAll Others)
Accumulated
Perce nts of
Voluntary Ter-
minations
1
No.
2
Prem.
3
No.
4
Prem.
6
No.
6
Prem.
7
No.
8
Prem.
0
36 Weeks
87
81
86
78
71
93
64
71
68
60
61
49
62
49
47
32
1,700
970
841
669
419
1,788
606
412
96
37
33
41
11
4
6
$17. 51
14.74
16.06
16.18
13.30
19.15
12.40
14.93
13.65
7.69
9.11
10.35
11.37
7.95
8.71
7.23
333. 58
IS.-;. 15
163.01
109. 53
76 23
359. 46
121.36
60.62
9.91
4.11
2.86
3.31
.85
.25
.30
87
80
86
78
C9
91
64
71
67
50
50
49
62
49
45
32
1,671
938
812
650
403
1,742
551
176
80
25
26
32
8
2
3
$17. 61
14.49
16.06
16.18
13.10
18.95
12.40
14.93
13.40
7.69
8.86
10.35
11.37
7.95
8.36
7.23
325. 93
177.74
154. 71
104. 69
72.54
348. 57
107. 21
24.86
8.07
2.66
2.05
2.66
.65
.10
.20
%
%
37 Weeks
1
$0.25
38 Weeks
39 Weeks . .
40 Weeks
2
2
.20
.20
56.7
68.6
41 Weeks
42 Weeks
43 Weeks
44 Weeks
1
.25
68.6
60.5
46 Weeks
1
.25
48 Weeks
49 Weeks
50 Weeks
2
.35
60.1
60.2
69.7
75.0
79.6
61.8
51 Weeks
62.0
1 Year
29
32
29
19
16
46
55
236
16
12
7
0
3
2
2
7.65
7.41
8.30
4.84
3.69
10.89
14.15
35.76
1.84
1.45
.81
.65
.20
.15
.10
71.3
2 Years
76.4
3 Years
80.8
4 Years
6-10 Years
11-15 Years .. ..
16-20 Years
09.0
99.5
21-25 Years . —
26-30 Years
31-35 Years
36-40 Years
41-45 Years
46-50 Years
51-55 Years
18, 238
3,621.39
584
111.89
17,654
3, 509. 50
100
100
Exhibit No. 689
[From files of Life Insurance Sales Research Bureau, Hartford, Conn.]
(Confidential— For StaflE Only)
Lapse rates for years 1925-1928
[Companies are grouped as in the 1938 Survey. Rates are listed below only where they are on a comparable
basis]
1928
20 "A" Companies:
Aetna
Bankors (la.)
Canada '
Connecticut General
Connecticut Mutual
Oreat-West '
Guardian
Lincoln National
Massachusetts Mutual
Mutual Benefit ,
Mutual of New York
National of Vermont
New England Mutual
Northwestern Mutual
Pacific Mutual
Footnotes at end of exhibit.
1925
1926
1927
%
%
%
22
19
19
w
37
34
20
17
16
19
14
18
19
18
17
26
26
22
33
23
21
-35
38
42
(')
11
10
(')
10
9
12
13
14
13
14
17
(>)
(•)
(«)
9
9
9
(•)
27
26
(')
(»)
4742
CONCENTRATION OF ECONOMIC POWER
Lapse rates for years 1925-1928 — Continued
1925
1926
1927
%
%
%
11
11
12
15
14
15
17
16
15
14
13
16
(?)
(»)
(')
(')
(')
(«)
(')
(')
(')
27
27
29
(>)
(')
(•)
(?)
(')
(»)
17
19
20
33
29
30
35
19
20
24
24
23
25
30
34
(»)
(»)
(»)
(')
(')
(')
(')
(«)
55
30
32
33
(')
25
29
(•)
(«)
(')
(')
(')
(')
(')
(')
f')
(»)
(')
(')
(')
(')
(')
28
34
37
(»)
(')
(')
(')
(»)
24
(»)
(')
(')
(?)
(«)
(»)
39
34
38
42
48
47
W
(')
(«)
28
38
42
(')
(')
(')
(')
(»)
«
40
45
46
34
40
42
48
54
51
(»)
(»)
(')
1928
20 "A" Companies— Continued
Penn Mutual
Phoenix Mutual
Provident Mutual
State Mutual
Sun • --
13 "B" Companies:
Acacia .-
California-Western States. ..
Fidelity Mutual...
Franklin .
Great Southern.
Home of New York.
Jefferson Standard
Manufacturers ■
Minnesota Mutual
Mutual Trust
National Life & Accident...
Northwestern National
Occidental of California
22 "C & D" Cos.:
Atlantic
Bankers of Nebr
Continental American
Farmers & Bankers
Guarantee Mutual...
Lamar
Midland Mutual
Midwest
Monarch (Mass.)
National Guardian
Oregon Mutual
Pan-American
Philadelphia.
Pilot
Southland
Standard of Pa
Union Mutual
United Benefit
United Life & .Occident
Volunteer State
West Coast
Western
(')
32
36
(•)
Footnotes at end of exhibit.
L. I. S. R. B.
'12/39:D.
(Confidential— For Stafl Only)
Lapse rates for years 1929-19S8
(Companies are grouped as In the 1938 Survey. Rates are listed below only where they are on a comparable
basis]
1929
1930
1931
1932
1933
1034
1936
1936
1937
1st
6
Mo.,
1938
Last
6
Mo.,
1938
Year
1938
20 "A" Companies:
Aetna
%
16
%
20
%
21
%
23
%
20
%
18
%
18
%
13
%
13
26
22
21
17
25
20
32
15
13
14
19
11
13
20
19
14
16
%
17
27
20
18
18
23
20
29
16
14
11
18
12
11
25
16
17
16
%
16
Bankers (la.)
26
Canada'
17
17
17
26
19
37
9
9
11
17
9
10
23
15
12
12
22
21
21
29
22
44
12
13
12
20
12
11
25
20
15
16
23
23
23
38
21
41
13
11
14
23
12
13
29
19
17
18
29
28
24
50
25
43
18
14
17
33
19
16-
33
21
17
26
28
2fi
26
49
25
39
20
16
19
32
18
18
31
25
15
21
17
20
19
27
25
35
18
20
17
24
13
16
26
23
11
18
20
23
18
23
25
33
19
18
14
25
12
14
27
22
19
17
12
17
16
20
20
27
14
13
11
19
10
10
25
17
12
14
16
18
15
19
18
25
15
12
9
18
10
10
33
17
12
15
21
Connecticut Gen
19
Connecticut Mut
17
Groat- West '
24
Guardian
20
Lincoln National
30
Mass. Mutual
15
Mutual Benefit
13
Mutual of N.Y
12
National of Vt
19
N. E. Mutual
11
N. W. Mutual
1?
Pacific Mutual
22
Penn Mutual . .. . ...
18
Phoenix Mutual
Ifi
Provident Mutual
16
!f-iatnotes at end of exhibit.
CONCENTRATION OF ECONOMIC POWER
4743
Lapse rates for years 1929-1938 — Continued
Companies are grouped as in the 1938 Survey. Rates are listed below only where they are on a comparable
basis]
1929
1930
1931
1932
1933
1934
1935
1936
1937
1st
6
Mo.,
1938
Last
6
Mo.,
1938
Year
1938
20 "A" Companies- Continued.
State Mutual
%
13
19
%
15
21
%
16
12
%
19
21
%
20
23
22
%
22
28
%
21
20
%
17
14
%
13
16
%
15
19
%
14
22
%
14
Sun ' - - . -
21
Average "A" Cos
17
17
22
20
18
15
14
16
16
16
13 "B" Companies:
Acacia..-
26
36
19
45
43
15
34
23
37
31
58
27
38
22
35
20
38
42
16
28
18
33
29
41
34
30
24
Calif. -West. States
36
24
45
22
33
26
MO
29
25
27
38
24
3 38
24
35
Fidelity Mutual ... . .
19
19
19
Franklin...
42
Great Southern
46
19
33
32
60
25
39
28
64
26
41
29
67
28
40
31
75
27
34
33
52
22
38
25
47
21
37
19
42
15
33
11
38
13
30
13
42
HomeofN. Y
16
31
20
Minnesota Mutual
35
Mutual Trust
31
33
32
38
34
33
61
30
72
34
56
30
46
24
41
31
39
26
45
26
34
30
60
N. W. National
35
46
37
48
35
48
36
56
32
61
30
34
Average "B" Cos
35
30
33
J2"C. & D." Cos.:
37
25
41
30
48
42
39
55
39
48
73
44
46
62
•39
42
55
34
42
67
35
49
60
35
40
54
37
43
f 33
\48
44
39
25
61
40
27
28
39
34
46
45
31
34
68
31
33
44
65
26
30
23
58
41
37
21
69
44
21
33
35
24
38
47
22
27
62
21
40
53
42
32
Bankers of Nebr
37
Continental Amer. Farmers &
Bankers
28
63
Guarantee Mutual
43
39
24
44
31
17
31
61
27
45
46
22
39
53
27
38
42
21
37
52
30
55
45
25
35
55
28
58
40
25
39
50
»29
53
35
32
50
43
24
62
43
26
45
39
23
56
33
25
36
35
21
52
31
25
35
38
Midland Mutual
23
65
Monarch (Mass.)
42
?4
Oregon Mutual . ..
31
Pan-American
37
Philadelphia
35
41
37
32
37
53
45
40
39
46
64
31
35
48
60
60
54
45
68
37
39
49
50
48
41
46
47
39
26
37
37
22
29
39
39
34
29
Pilot
41
Southland .
46
Standard of Pa
26
Union Mutual
30
United Benefit .
52
60
57
58
60
United L. & A_
26
Volunteer State
38
61
46
55
50
67
51
53
41
51
46
62
41
61
38
46
38
46
36
West Coast
48
49
Av. "C. & D" Cos
45
39
42
Av. All U. S. Cos
22
23
27
28
26
24
20
19
21
20
21
Canadian Lapse Rates— 11 Com-
panies:
Canada *
21
31
19
25
22
30
16
22
19
20
17
19
21
35
17
15
24
16
12
19
17
21
27
20
16
26
21
13
19
15
26
22
21
26
23
19
25
20
12
15
13
24
20
^0
38
23
21
28
24
15
24
20
25
Confederation .
21
20
Equitable Life '.
32
35
16
16
20
21
14
32
Great-West '
24
15
25
23
14
21
23
26
11
21
27
28
10
17
24
20
16
20
London
27
Manufacturers *
22
Mutual of Canada
14
North American
19
Sun*
12
16
19
19
18
15
17
Average Canadian Companies..
19
22
21
• United States business only.
' Not available.
« Estimated.
< Canadian business only.
Definition of lapses: For the purposes of the above table, "lapse" is defined as the going out of force, be-
cause of nonpayment of premiums, of an insurance contract before premiums for 2 full years have been paid.
Formula: The rate is the total amount regarded as lapsed during the quarter, divided by Ys the total sales
during a 24-month period ending 2 months before the beginning of the quarter.
3/1/39: A.
4744 CONCENTRATION OF ECONOMIC POWER
Lapse Trends for Twenty "A" Companies
[The figures below give tho yearly lapse rates from 1530-1938, by Sections of the United States]
1930
1931
1932
1933
1934
1935
1936
1937
1938
United States total .-
%
17
%
17
%
22
%
22
%
20
%
18
%
15
%
14
%
16
New Eneland
13
15
17
17
20
22
25
21
21
13
15
17
19
19
21
28
21
20
IS
19
22
23
23
24
30
25
18
19
23
25
23
25
27
24
17
18
19
23
21
24
25
23
22
16
16
18
20
20
22
23
21
21
13
12
13
17
16
18
19
18
17
11
13
13
16
15
17
19
20
18
14
Middle Atlantic..
14
East North Central
16
West North Central
17
16
East South Central
17
West South Central
19
Mountain .
21
Pacific -
18
L. I. S. R. B.
2/16/39:A
Exhibit No. 690
[From files of Association of Life Insurance Presidents]
MINUTES OF THE FIRST MEETING OF THE ASSOCIATION OF LIFE
INSURANCE PRESIDENTS OF THE UNITED STATES
The first meeting of the proposed "Association of Life Insurance Presidents"
of the United States was held at the Waldorf-Astoria in New York City on Friday,
December 21, 1906, in response to the letter sent out by President Morton, of
the Equitable Life Assurance Society, on December 3, 1906.
At 10:30 A. M. the meeting was called to order by Mr. Morton.
The following were present:
Name of Company '
Location
Eepresented by
ITartford, Conn
J. L. English, V. P.
Pittsfield, Mass
James W. Hull, President.
Connecticut General Life
Hartford, Conn .
R. W. Huntinijton, Jr., Prest.
Equitable Life
New York, N. Y
Paul Morton, President; Q. E. Tar-
Fidelity Mutual Life
Philadelphia, Pa
bell, 2nd V. P.; and Geo. T. Wilson,
3d V. P.
L. G. Fouse, President.
Oermania Life
New York, N. Y
Cornelius Doremus, Prest.
Home Life
New York, N. Y
Geo. E. Ide, President.
New York, N. Y
N. W. Torrey, Secretary.
Baltimore, Md
W. n. Blackford, Prest.
Massachusetts Mutual
Sprint-field, Mass
New York, N.Y
Detroit, Mich
John A. Hall, President.
Metropolitan Life - - -
Haley Fiske, V. P., and F. 0. Ayres,
4th V. P.
A. F. Moore. Secretary.
New York, N. Y..... '..
Charles A. Peabody, Prest.
National Life
Montpelier, Vt
Boston, Mass . .
Joseph A. DeBoer, Prest., and J. T.
New England Mutual Life
Phelps, V. P.
Alfred D. Foster, V. P.
New York, N.Y
D. P. Kingsley and Thos. A. Buckner,
V. P.s.
Asa A. Wins, I^resident, and Jos.
Provident Life & Trust
Philadelphia, Pa
Provident Savings
New York, N. Y
Ashbrook, V. P.
John W. Vrooman, Secy.
Prudeniial
Newark, N. J
Bintiharaton, N. Y
Dr. Leslie D. Ward, V. P.
Security Mutual Life
Charles M. Turner, Prest.
State Mutual Life . . .
Worcester, Ma.ss
A. G. Bullock, President.
Travelers
S. C. Dunham, President.
Union Central Life . ...
Cincinnati, Ohio ... ..
J. R. Clfjk, President.
United States Life -..
New York, N. Y
Dr. John P. Munn, Prest.
' The Washincton Life, of New York, the Equitable Life of Iowa, and 'he Pacific Mutual Life of San
Francisco. California, exprossed themselves by letter as being favorable to the proposed organization, but
were unable to be represented at the meeting.
CONCENTRATION OF ECONOMIC POWER 4745
Upon motion of Mr. Buckner, duly made and carried, Mr. Morton was elected
Chairman of the Meeting.
Upon motion of Mr. Tarbell, duly made and carried, Mr. Buckner was elected
Secretary of the Meeting.
The Chairman stated that the object of the meeting was clearly set forth in
his communication of December 3, addressed to the Presidents of the principal
Life Insurance Companies throughout the country, the said objects being:
First. To promote the welfare of policyholders.
Second. To advance the interests of life-insurance companies in the United
States by the intelligent cooperation of officers in charge.
Third. To prevent extravagance and reduce expenses by encouraging uniformity
of practice among life-insurance companies in matters of general administration.
Fourth. To consider carefully measures that may be introduced from time to
time in legislative bodies, with a view to ascertaining and publicly presenting the
grounds which may exist for opposing or advocating the proposed legislation,
according as the welfare of the companies and their policyholders shall point to
the one course or the other.
Fifth. To consider anything that may be suitably a matter of general concern
to the life-insurance business.
Upon suggestion of the Chairman, the Secretary called the roll of the com-
panies alphabetically, and each company, through its senior officer present,
expressed its views on the subject of the proposed organization.
After each company represented had been heard from, it was
Resolved, upon motion of Dr. Munn, duly made and carried, that
a Committee of Seven be appointed by the Chairman, of which he himself
should be a member, to draft a Constitution and Bylaws for the organi-
zation, said Committee to report to the full meeting at 3 P. M. this ds.y.
The Chairman accordingly appointed the following Committee:
Dr. John P. Munn, President of the United States Life Insurance Con\pany;
Haley Plske, Vice President of the Metropolitan Life Insurance Company;
L. G. Fouse, President of the Fidelity Mutual Life of Philadelphia; Joseph A.
De Boer, President of the National Life of Montpelier, Vermont; Dr. Leslie D.
Ward, Vice President of the Prudential Insurance Company of Newark, New
Jersey; J. R. Clark, President of the Union Central of Cincinnati, Ohio; and
Paul Morton.
Upon motion, duly made and carried, the meeting adjourned until 3 P. M. this
day.
The Adjoined Meeting was called to order by Mr. Morton at 3 P. M.
Mr. Buckner, the Secretary, being unable to attend the afternoon session, the
Chairman requested his own private secretary to act as Secretary of the Meeting,
to which there was no objection.
The Committee on Constitution and Bylaws being ready to report, the Chair-
man requested Dr. Munn to read the Committee's report to the meeting. Dr.
Munn thereupon read the draft of a proposed Constitution and Bylaws prepared
by the Committee.
Upon motion of Mr. Ide, duly seconded, it was
Resolved, that the report of the Committee be received and the
Committee be discharged, and that the proposed Constitution be
printed and the Chairman send a copy to each Company with a state-
ment that at the next meeting of the Association the report would be
brought up for discussion and adoption.
Upon motion of Mr. Doremus, it was
Resolved, that Mr. Morton be continued as Chairman of the Associa-
tion temporarily.
Upon motion of Dr. Munn, duly made and carried, the meeting adjourned to
meet at 11:30 A.M. on Friday, December 28, 1906.
(Signed) Paul Morton, Chairman.
(Signed) John Nordhotjse, Secretary.
4746
CONCENTRATION OF ECONOMIC POWER
Exhibit No. 691
[Prepared by Association of Life Insurance Presidents]
Initiation Fees, Dues and Contributions
Member Companies
1934
1935
1936
1937
1938
Acacia Mutual Life Insurance Company, Wash-
ington D. C -
Aetna Life Insurance Company, Hartford,
Conn --
American United Life Insurance Company,
Indianapolis, Ind _
Atlantic Life Insurance Company, Richmond,
Va
Bankers Life Company, Dcs Moines, Iowa
Bankers Life Insurance Company of Nebraska,
Lincoln, Nebr
Berkshire Life Insurance Company, Pittsfield,
Mass _
Boston Mutual Life Insurance Company,
Boston, Mass
The Canada Life Assurance Company, Toronto,
Ont., Canada
Central Life Assurance Society, Des Moines,
Iowa
Central Life Insurance Company of Illinois,
Chicago, 111
The Colonial Life Insurance Company of Amer-
ica, Jersey City, N. J
The Columbian National Life Insurance Com-
pany, Boston. Mass
Confederation Life Association, Toronto, Ont.,
Canada..
Connecticut General Life Insurance Company,
Hartford. Conn .._
The Connecticut Mutual Life Insurance Com-
pany, Hartford, Conn
Continental Amerinan Life Insurance Com-
pany, Wilmington, Del .-
Continental Assurance Company, Chicago. 111..
The Equitable Life .Assurance Society of the
United States, New York, N. Y
Equital>le Life Insurance Company of Iowa,
D(^s Moiues, Iowa.
Federal Life Insurance Company, Chicago, IlL
Tli« Fidelity Mutual Life Insurance Company,
Philadelphia, Pa
The Franklin Life Insurance Company, Spring-
field, 111 :..
The Guardian Life Insurance Company of
America, New York, N. Y
Home Life Insurance Company, New York,
N. Y.._
The IiT.i'Tial Life Assurance Company of
Cauaurt, Toronto, Ont., Canada
JelTiTSon Standard I^ife Insurance Company,
Qrec■^l^^oro, .V. C _
John Hnneock Mutual Life Insurance Com-
pany, i^oston, Mass.-
The Life Insurance Company of Virginia,
Richmond, Va
The Lincoln National Life Insurance Company,
Fort Wayne. Ind
The London Life Insurance Company, London,
Ont , Canada .
The Matihattan Life Insurance Company,
New York, N, Y .
The Manufacturers Life Insurance Company,
Toronto, Ont., Canada...
Massachusetts Mutual Life Insurance Com-
pany, Springfield, Mass
Metropolitan Life Insurance Company, New
York. N. Y _..
The Minnesota Mutual Life Insurance Com-
pany. St. Paul, Minn
The Mutual Benefit Life Insurance Company,
Newark, N. J
The Mutual Life .\ssurance Company of Can-
ada, Waterloo, Ont , Canada
Tl^e Mutual Life Insurance Company of New
York, New York, N. Y .-.
Mutual Trust Lffe Insurance Company, Chi-
cago. Ill
The National Life and Accident Insurance
Company, Inc., Nashville, Tonn
National Life Insurance Company, Montpelier,
Vt -- -
$1,211.76
8, 543. 24
458.48
597. 80
2,831.68
604.84
993. 52
305. 76
765. 32
742. 84
349. 08
394. 16
699.28
100.00
2, 908. 92
5, 802. 72
580. 40
807. 64
24, 955. 76
2, 149. 20
353. 40
1, 369. 33
687.40
1, 926. 00
1, 468. 80
186. 00
1, 347. 00
10, 914. 88
1,231.88
2, 598. 28
100.00
380. 08
397. 04
10, 105. 52
04, 506. 64
309. 98
9, 042. 32
100. 00
20, 167. 68
1, 242. 84
2,177.01
$1, 562. 95
10, 631. 05
718. 80
687. 50
3, 549. 30
741. 75
1, 198. 90
370. 45
938. 75
1, 154. 35
351. 40
435. 20
902. 50
100. 00
4, 318. 75
9, 352. 65
630. 10
912. 55
30, 472. 25
2, 708. 10
385. 30
2, 306. 45
947. 20
2, 802. 80
1, 967. 55
194. 30
1, 816. 40
14. 806. 20
1, 615. 60
3, 606. 05
100. 00
420. 65
509. 20
10, 842. 50
82, 581. 90
1,014.10
11,478.20
m. 00
28, 339. 60
969. 30
1, 382. 30
3, 435. 85
$1, 186. 64
8, 820. 66
427.84
566.44
3, 318. 96
612. 80
885.60
291.04
726.20
768.16
285.76
346. 12
781. 16
185.44
4, 462. 16
6, 325. 20
539. 36
757. 96
34, 875. 24
2, 650. 12
311.62
2,018.00
733. 56
2, 231. 80
1, 675. 88
187. 00
1, 459. 00
12, 484. 84
. 1, 409. 68-
2, 929. 28
100.00
368.88
605. 16
8, 317. 44
G2, 167. 36
854. 04
10,741.44
100.00
25, 316. 72
754. 12
988.30
3, 562. 28
$1, 836. 20
12, 556. 90
909. 25
768.05
4, 445. 75
860. 90
1, 250. 80
383.30
1, 077. 36
1,065.15
342.30
474.80
1,021.55
267. 50
6, 373. 75
7, 860. 30
792. 85
1, 089. 70
40, 082. 30
3, 356. 60
467. 25
2, 575. 75
1,013.45
3, 314. 45
2, 247. 25
223. 90
2, 362. 00
17, 010. 75
2,115.05
4, 712. 70
100. 00
485. 05
1, 446. 25
13, 971. 95
86, 604. 30
1, 342. 40
17, 778. 00
100.00
28, 922. 00
1,066.00
1, 655. 35
3, 989. 90
$1, 810. 60
II, 376. 60
1, 041. 88
3, 654. 12
770.58
1, 052. 88
343.28
968.44
938. 20
311. 30
432. 76
1, 009. 92
235. 96
6, 838. 88
7, 183. 32
621. 84
1, 069. 00
33, 930. 88
3,156.40
401. 64
2, 255. 20
900.16
2, 983. 32
2, 074. 60
192. 16
2, 132. 36
15, 717. 64
2, 262. 12
4, 643. 48
100.00
660. 28
1, 414. 40
11,984.68
76, 194. 52
1,173.00
15, 972. 84
100.00
25, 7S7. 88
1, 039. 44
1, 443. 36
3, 447. 28
CONCENTRATION OF ECONOMIC POWER
Initiation Fees, Dues and Contributions — Continued
4747
Member Companies
1934
1935
1936
New England Mutual Life Insurance Company,
Boston, Mass _ _
New York Life Insurance Company, New York,
NY —
Northwestern National Life Insurance Com-
pany, Minneapolis, Minn _
Occidental Life Insurance Company, Raleigh,
N. C-... _
The Ohio National Life Insurance Company,
Cincinnati, Ohio.- -
The Old Line Life Insurance Company of
America, Milwaukee, Wis. .
Pacific Mutual Life Insurance Company, Los
Angeles, Calif
The Penn Mutual Life Insurance Company,
Philadelphia, Pa.
Phoenix Mutual Life Insurance Company,
Hartford, Conn
Provident Life Insurance Company, Bismarck,
N. Dak.- r.
Provident Mutual Life Insurance Company of
Philadelphia, Philadelphia, Pa...
The Prudential Insurance Company of Amer-
ica, Newark, N. J
Puritan Life Insurance Company of Rhode
Island, Providence, R. I..
Reliance Life Insurance Company of Pitts-
burgh, Pittsburgh, Pa _-_
Reserve Loan Life Insurance Company, Indian-
apolis, Ind -.
Security Mutual Life Insurance Company,
Binghamton, N. Y
Southland Life Insurance Company, Dallas,
Texas _..*..
State Mutual Life Assurance Company, Wor-
ces ter. Mass
Sun Life Assurance Company of Canada, Mon-
tral. Quo., Canada-
Sun Life Insurance Company of America, Balti-
more, Md
The Travelers Insurance Company, Hartford,
Conn
The Union Central Life Insurance Company,
Cincinnati, Ohio
Union Mutual Life Insurance Company, Port-
land, Me ,
The United States Life Insurance Company,
New York, N. Y ._
The Volunteer State Life Insurance Company,
Chattanooga, Tenn..
The Western and Southern Life Insurance Com-
pany, Cincinnati, Ohio
Totals
7, 037. 68
32, 866. 08
1,416.68
20". 52
742. 96
340. 16
2, 960. 04
8, 242. 00
3, 272. 04
171.68
4,850.84
51, 667. 68
131.57
1, 669. 24
676. 16
603. 16
574.88
2, 369. 44
4, 601. 72
276. 52
12, P28. 72
4, 904. 56
347.52
199. 24
482. 56
1, 892. 40
332, 694. 16
10, 435. 70
46, 640. 65
2, 056. 65
234. 00
1, 028. 95
408. 35
3, 876. 10
10, 480. 40
6, 362. 80
190. 30
6, 806. 40
65, 768. 60
131.75
2, 940. 80
538.30
692. 95
642. 05
2, 847. 05
6, 120. 85
335.86
15, 492. 45
6, 783. 55
413. 25
214.80
660.65
2, 444. 20
8, 947. 48
37, 531. 60
1, 870. 24
205. 16
868.52
381.20
2, 331. 25
10, 280. 36
4, 436. 32
181. 80
4, 799. 96
54, 579. 72
128.48
2, 182. 32
365. 40
524.88
507. 08
2, 344. 04
4, 664. 60
294. 72
11, 794. 76
4, 832. 44
398. 40
232. 36
442. 40
1, 956. 68
12, 330. 65
47,371.65
2, 674. 25
267. 95
1,245.86
694. 70
442,896.15 365,211.29
15,012.05
5.710.85
248. 35
6, 341. 85
78, 750. 50
136. 85
3, 166. 85
513.20
851.30
702. 35
3, 490. 10
6,886.15
416.70
17, 115. 90
6, 470. 80
611.70
385. 40
622. 55
2, 949. 90
495. 086. 85
11,595.08
43, 493. 96
1, 768. 04
262. 84
1, 082. 08
631. 20
12, 383. 04
6, 361. 60
245. 16
5, 622. 72
02. 643. 88
132. 12
3. 038. 48
420. t;8
702. 12
697. 04
3, 001. 20
7, 264. 12
370. 92
15, 422. 08
5, 746. 96
553. 12
404. 44
519.96
2, 605. 56
435, 376. 96
Note.— Each of the above items includes $100 annual dues (except Minnesota Mutual $50.00 and
Puritan Life $25.00 for 1934). The above items also include initiation fees of $100 each for the Minnesota
Mutual and Puritan in 1934 and for the Mutual Trust in 1935. Prior to 1937, the American United was
the American Central.
EDW.
4/10/39.
4748 CONCENTRATION OF ECONOMIC POWER
Exhibit No. 692
[From flics of Association of Life Insurance Presidents]
Constitution of the Association of Life Insurance Presidents
[Title page: Constitution, April 2, 1920— The Association of Life Insurance Presidents— No. 165 Broadway
New York City]
Constitution
(As amended April 2, 1920)
NAME
Article I. Tliis Association shall be called "The Association of Life Insurance
Presidents."
object
Article II. The object of this Association shall be:
First. To promote the welfare of policyholders.
Second. To advance the interests of life insurance.
Third. To promote economy and reduce expenses in matters of general adminis-
tration by an interchange of views on practice among life insurance companies.
Fourth. To consider carefully important measures that may be introduced
from time to time in legislative bodies, with a view to ascertaining and pubUcly
presenting the grounds which may exist for their adoption or rejection by the
Legislature.
Fifth. To consider anything that may be suitably a matter of general concern
to the Life insurance business.
membership
Article III. The Association shall consist of the Presidents and the Vice
Presidents of the regular life insurance companies of the United States and
Officers of the same standing in Canadian companies doing business in the United
States now enrolled as members of the Association. New members may hereafter
be admitted to this Association by Resolution at a regular meeting of the Asso-
ciation, or at any meeting of the Executive Committee by a unanimous vote of
the committee. The right to vote shall be limited to the officer of each company
highest in rank who may be present at any meeting. Every member of the
Association shall have the right to designate as his proxy to attend any meeting
of the Association any officer of the company he represents.
officers
Article IV. The Association shall have an executive officer to be known as
Manager, who shall be elected annually by the Association at its regular Annual
Meeting, to be held in the month of December in each year, and who shall hold
office for one year, or until his successor is appointed. He shall receive as com-
pensation such salary as may be determined by the Association or the Executive
Committee.
There shall also be elected by the Association at the same time, and in the same
manner, eleven members of the Association, who shall constitute an Executive
Committee, which shall attend to any business that may arise between the stated
meetings of the Association. The Manager shall be ex-officio Chairman of the
Executive Committee, but shall have no vote. A member of the Executive
Committee shall have power to appoint a proxy to act in his stead at any meeting
of the Committee in case of his inability to attend in person.
Vacancies may be filled at any meeting of the Association, stated or special.
vacancies
Article V. The Executive Committee shall have power to ffil any vacancy
occurring in said Committee or in any office and likewise shall have power to
direct that the duties of ^iny officer or employee be performed temporarily in
whole or in part by any other person or by a committee designated for that pur-
pose.
CONCENTRATION OF ECONOMIC POWER 4749
DUTIES OF OFFICERS
Article VI. The Manager shall have sole charge and management of the
affairs of the Association subject to such direction and control as may be exer-
cised by the Executive Committee or by the Association,
He shall receive and carefully keep all the moneys belonging to the Association,
and disburse the same as may be directed by the Association from time to time,
or by the Executive Committee.
He shall notify the members of the Association of all meetings. In the case of
special meetings, the business for which the special meeting is called shall be stated
in the notice.
He shall take and keep a record of all proceedings of each meeting, and conduct
the correspondence of the Association,
He shall employ such assistants as in his judgment may be necessary and the
Association or the Executive Committee may approve.
The Executive Committee shall appoint an Auditing Committee, to consist of
three members of the Association. It shall be the duty of this Committee to
audit the expenditures of the Association, and to report thereon at the end of
each year, and at such other times as the Association or Executive Committee
may direct.
meetings
Article VII. The Association shall hold stated meetings in New York, or at
such other place as may be agreed upon, on the first Friday of October, Decem-
ber, February, April, and June in each year, unless the Executive Committee
shall for good reason decide to vary the day.
Special meetings may be called at any time by order of the Manager, or at the
written request of five members.
Five voting members of the Association shall constitute a quorum, providing
said members represent companies domiciled in at least three different States or
Territories.
SPECIAL RESOLUTIONS AND UECOMMENDATIONS
Article VIII. No recommendation shall be held to be the sense of the Associa-
tion unless passed or approved by unanimous vote of the members, provided,
however, that in case one or more negative votes are cast upon any recommenda-
tion, three-fourths of the members present and voting may direct that the ques-
tion be submitted to a subsequent meeting, of which due notice shall be given,
and at such subsequent meeting the recommendation may be passed or approved
by a three-fourths vote of the members — the Manager to give absent members an
opportunity to vote.
FEES
Article IX. The initiation fee of the Association shall be $100, and the annual
dues $100 for each voting member. To cover any additional expense necessarily
incident to conducting the business of the Association, the contributions of mem-
bers shall be determined by pro-rating substantially one-half of the cost of the
Association (excepting that portion of the cost paid by initiation fees and annual
dues) on the basis of the admitted assets of the several companies, as of the last
December 31st, Canadian companies to be asked to pay on the basis of the
reserves and such additional assets as may be held by them against policies carried
on residents of the United States only. The remaining one-half of the cost to
be pro-rated on the basis of first year's premiums received on ordinary business
on original policies less reinsurance, as shown in Income Report in the last Annual
Statement; Canadian companies to pay on their United States premium collec-
tions only.
4750
CONCENTRATION OF ECONOMIC POWER
f^
CO
i
so
Oi
C3i
to
l-l
M
fH
•«
o
!
0
Q
H
o
a
1
n
n
O
CS
o
<
CO
i-l
e
•=1-3
3^
-3
§21
« S =3 3
si
9^
^ . ^
0 95
»■§ -
^ oSo,
■o s s = '
£ E?
^9 W
°^ ^r -rt kH°3>-5 K- Oh ..
.St.SoSoi'Ki- -r^ •
oSog^E^a &
OWWQ mow iri (
•g ^ w
Oh .^ "B
a
CONCENTRATION OF ECONOMIC POWER
4751
o
J^
«3
o
w
<a
■«
CflOOOO
■«*< .-I r^
^ s
&: ^
^;= a
.2>n.2"
-, a'"^ fl o ta
■Si " a
C> CJ fc- •— *
D-<0
-'J >
2.2 ^ ="
4752
CONCENTRATION OF ECONOMIC POWER
S a
d s
*-4 ^
g 3« 3 a.a£.!2."3
CONCENTRATION OF ECONOMIC POWER
4753
5 2
Oln
H«
S >W
2 -V
" '5 2
.M a
£ n
g <a >>
pa's a
^ ° a
COOQOO
CO O
00^*-^ CO
8SS
«• CO
«D » M* O
C4 »c a»
lO^CC'-iiOTt^eOas
»o ■g* CO 00 c^ OS
CD O i-H to »-i »0 O »0 CO CS »6 O O CO CO di CD CO 00 r-*
) ^ r. h. lo ^ r^
OO CD CD O O >— ' O »0 f-i
»0 CQ O lO t-- »0 f-i OS O
I'-WCOOOt-COCSCO O
I t>. o <-< o> .-< lO Cl •
05 oooc ^ »c o»o
88 SS
r^^ •-.CD
lOOCDOOOCDU^ CD
'~ "OCO 'tf' »o •-» «o »o
I w M 1-1 TT iM CO r^ >-i
I CO OS •'^ CO CO CO o> O
8 8
8 S
to to CD lO to Od
88
■"^lOCDO&C^^P-H
^eoc5 ^
O00'«r^H CO h»o<— »00>IO C4»— OiOClOOl^
CO ^ CO »o
CO r^t^oc
5 OS '«' CO ^ *-^ C^
3 03 *£?<-" (N Tt«
• C^l •* O r^ O »o C
' CSCO CD ^ CDCSOO
eccs c5rH CO
go*
CO CO CO •— 00 C3 w
OS^OO 1— COOOCCCD
88
88
•OtO
SS 88
gS 88
8 8
1^ to t^ O
a 03
■ D.t>,o
Qj a> o) o 0^ o OA
:z;55:z;2:2;2;2;o
888
I « -0 .9 5
■q c-r o
?, C-05 5
88
•* ^ M 00 -"T OJ r^ <0 GO «C
c^ — oa ooc^C5e-3C^*o»o
ocioQ iri»c^i^»ogpc^
^< to lO M" ^- CO ^^ ^ O t>"
a H
.O
a7 C ^ -^
B S
og
-w a
aS
o|«
"5 c S
g © a
82 8
5 ^'■^
<^ Ur
O "<!)£
<0*i o!
a° ^
lis
a> a- a
aJ J Si
";§£
£— 5
o.a
S-2
ox: "5
l||
«oa
L- t- •?
3 "2 Ha
fc i2 Vi •^ ?!
£. :2ig
o
o
4754 CONCENTRATION OF ECONOMIC POWER
Exhibit No. 695
[From files of Metropolitan Life Insurance Co.— Office of the President]
The Association op Life Insurance Presidents
number 165 broadway, new york
Vincent P. Whitsitt, Manager and Oeneral Counsel Clyde W. Savert, Attorney
Bruce E. Shepherd, Actuary Frank DeF. Ross, Associate Attorney
Charles F. Creswell, Statistician Mott A. Brooks, Assistant Secretary
Robert L. Hoqq, Assistant General Counsel Robert B. Crane, Assistant Secretary
Confidential.
July 12, 1937.
[Notation: m 7/21/37]
Leroy a. Lincoln, Esq.,
President, Metropolitan Life Insurance Company,
1 Madison Avenue, New York, N. Y.
1937 legislative HIGH POINTS
Dear Mr. Lincoln: For the confidential information of member companies,
there are outlined below a few of the high points of 1937 legislative propoyals.
Detailed information appears in our regular bulletin service.
Of the 46 regular and 14 special sessions — in 46 states, 2 territories and Con-
gress— Congress and 3 states (Minnesota, New Hampshire, Ohio) are still active.
Total bills examined here, 11,047, set a new high, almost double that of 6 years
ago and over 3 times that of 10 years ago.
Ten premium tax increase bills on foreign companies failed in 8 states — Cali-
fornia, Colorado, Florida, Georgia, Minnesota, Nevada, Oklahoma, Washington.
None enacted. Such proposals so far failed this year would have increased the
annual tax by $3,300,000. A bill, still pending, was passed by the House to
increase the District of Columbia rate from \)i to 2%. This increase has been
deleted by the Senate committee.
Seven bills were introduced in 5 states to subject annuity considerations to
premium taxation. Five failed, 1 was amended in Maryland to exempt annuities
and enacted, and the other in New Hampshire is still in committee.
Four compulsory investment bills failed in 2 states. None enacted.
Nine savings bank life insurance bills failed in 7 states — Colorado, Connecticut,
Missouri, New York, Ohio, Pennyslvania, Rhode Island. None enacted.
Seven biUs specifically to restrict policy loan interest failed in 5 states — 4^%
in Minnesota and New York; 4% in Colorado and Pennsylvania, and prohibition
of any interest in California. None enacted. Numerous other bills to restrict
general interest failed.
New insurance codes were enacted in Illinois and Alaska. Proposed codes
failed in Pennsylvania and Hawaii.
Proposals were made in 9 jurisdictions to subject applicants for life agents'
licenses to department examination. All failed, or were amended to exempt life,
except in Washington a new law requires examination but permits it to be given
by a company with an approved course of instruction.
A large number of net- and gross-income and sales-tax measures, broad enough
to include insurance were proposed. Numerous inheritance, intangible, gift,
stamp, capital-stock, mortgage-and municipal-tax biEs, would have imposed addi-
tional taxes on life insurance. One intangible tax proposal would have specific-
ally taxed annuities and surrender values.
A new Georgia law requires deposits by life insurance companies. In Alabama,
Arkansas, Delaware, and Nebraska, proposals to require bonds or deposits in the
state were unsuccessful. The Nebraska bill would have required a deposit equal
to Nebraska reserve with either 30% in Nebraska securities or an additional 2%
premium tax.
Other noteworthy adverse measures which failed included proposals for: Pre-
mium notices, attorneys' fees and penalties, insurance investigations, prohibition
of race distinction, segregation of life-insurance assets, appointment of certain
life companies directors by a State Insurance Commissioner, and all companies
to offer renewable term insurance.
Forty measures of interest from a mortgage loan viewpoint were enacted.
Nearly half extend emergency laws permitting stays of foreclosures, extensions of
redemption periods, or modifications of deficiency- judgment rights. Others pro-
hibit deficiency judgments in certain cases, or provide other changes in fore-
closure procedure. Two bills in Oklahoma would have provided for escheat of
coroorate-owned farm lands held bp.vond 7 years. One which became law was
CONCENTRATION OF ECONOMIC POWER
4755
amended to substitute a penalty. In 4 States, 6 biUs to impose a graduated
land tax failed. Two such measures are pending in Minnesota. Numerous
other measures adverse to mortgage-loan investments failed.
The favorable outcome is attributable to the cooperation of life insurance
men — both home office and field — wholly typical of the institution of life insurance.
Very truly yours,
Vincent P. Whitsitt,
Manager and General Counsel.
VPW:GN.
Exhibit No. 696
[From flies of Association of Eifo Insurance Presidents]
The Association of Life Insurance Presidents
number 165 broadway, new^ york
Vincent P. WmTS'.TT. Manager and General Counsel
Bruce E. Shepherd, Actuary
Charles F. Creswell, Statistician
Frank DeF. Ross, Associate Attorney
Morr A. Brooks, Assistant Se<:T.'<aTti
Robert B. Crank, Assistant Sr-ci\:ti.''j
Confidential.
July 5, 1935.
1935 LEGISLATIVE HIGH POINTS
Dear Sir: For the confidential information of member companies, herein is
presented a condensed summary of 1935 legislation. More complete details for
adjourned states have already been given in our regular bulletins. As anticipated
all previous years have been exceeded in activity, number of bills introduced,
and proportion of unfavorable proposals.
Of the 50 sessions held in 45 states and Congress, 45 were regular and 5 special.
Congress and 3 states (Alabama, Massachusetts, and Wisconsin) are still in
session.
The 10,876 bills examined were nearly double those in 1931 and over four
times those in 1925. The following illustrates trends in odd-numbered years:
Bills examined to June 30
1925
1927
1929
1931
1933
1935
Life Insurance. . .
2,032
594
2,497
548
3,403
933
4,518
1,221
8,052
2,376
S H5
2, 'S.'Jl
Total
2, f)26
3,045
4,336
5,739
10. 427-
10 876
The large number of tax measures included 32 premium tax-rate increase pro-
posals in 17 states; 9 to tax-annuity considerations in 7 states; numerous corporate
net income and sales-and-gross-incftme tax proposals broad enough to include
insurance; and inheritance, intangible, gift, stamp, capital stock, and mortgage
tax biEs. So far, two premium tax rate increases have become law, one in New
York increasing the rate from 1% to 1?^%, and one in Utah increasing the rate
from 13'^% to 2j4%. In North Carohna and Wyoming, annuity considerations
were included at the present premium tax rate.
An administration general revenue bill in Alabama as introduced, proposed a
premium tax-rate increase to 3%% (2>^% state; l>i% counties), inclusion of
insurance companies under the income tax, and the prohibition of dividend de-
ductions. House amendments restored the present 2% rate, dividend deductions,
and the exemption from income taxation, as well as eliminated the proposed
1M% additional state-wide tax for the benefit of counties. The administration
forces in the Senate, however, urgently insisted upon a 2)^% rate, but accepted
the other House amendments. In this form the bill has just been approved by
the Conference Committee and both houses.
Proposed premium taxes, which failed, would have increased the rates to 6%
in Florida and Michigan; 5% in Washington; 7>^% in North Dakota; 4% in
California, Colorado, Idaho and Utah; 3>^% in Wyoming; 3% in Georgia, Okla-
homa, and North Carolina. Other rate increases failed in Florida, Georgia,
Nevada, Texas, and Utah. In Massachusetts, a proposal to increase from % oi
1% to 1% the present tax on reserves, failed. Attempts to include annuity -
considerations for premium taxation failed in Arkansas, Florida, New Hamp-
shire. New York, and Wisconsin,
124491— 40— pt. 10-
-40
4756 CONCENTRATION OF ECONOMIC POWER
It is interesting to observe that the premium tax increase proposals introduced
in 17 states would have meant an additional annual tax burden upon policy-
holders of approximately $18,800,000. Those which became law in New York
and Utah, and the probable one in Alabama, will increase such taxes about
$4,300,000. Those which failed resulted in a saving of $14,500,000. The 17
states in which premium tax increases were proposed represent 42.5% of the
United States population — the 14 states in which such proposals failed repre-
senting 30.2%, the other 3 states 12.3%.
16 compulsory investment bills appeared in 9 states, several including grad-
uated premium tax increases in addition to the above. None was enacted.
8 measures proposing insuraiice codes were introduced in 6 states, some of
which, as introduced, contained many adverse provisions. Codes were enacted
in California and Indiana, and failed in Arkansas, Georgia, Illinois, and Missouri.
6 savings bank life insurance bills, similar to the Massachusetts law, failed
in 5 states, as did a constitutional amendment in Missouri to permit creation of
savings banks with or without life insurance departments.
Measures appeared in Tennessee and Vermont to require deposits for the
benefit of policyholders of such states; in Nebraska to require a deposit equal to
the reserve on all policies in the state, and in North Carolina to require a deposit
equal to the loan value of all policies in the state for the benefit of North Carolina
policyholders and their beneficiaries. All failed.
A large number of miscellaneous measures of life insurance interest appeared,
including proposals for investigations of insurance companies, premium notices,
attorneys' fees and penalties, automatic premium loans, state-fund life insurance,
changes in the incontestable clause and other policy provisions, reduction of
interest rates on policj' loans and prohibition of advance interest and compound
interest, and numerous other adverse proposals.
Of the 2,431 bills examined from the mortgage loan standpoint, 394 were of
particular interest. 45 of the latter were enacted. About one-third of these
extended existing laws of the emergency type permitting stays of foreclosures,
extending redemption periods, or modifying deficiency judgment rights, while
others comprise new measures of similar types as well as several which reduce
interest rates. No enactment lowered the permitted rate below 6%, although
several unsuccessful measures proposed changes to as low as 4%.
The Association's experience this year has revealed, more vividly than ever
before, the effectiveness of cooperation between company officials and field
representatives. The generous and loyal cooperation rendered by executives
and agents in the various states, in behalf of life insurance policyholders, in ward-
ing off unjust impositions of all types, is a real tribute to the institution of life
insurance.
Very truly yours,
Manager and General Counsel.
V.P.W.-M.T.
Exhibit No. 697
[From flies of Association of Life Insurance Presidents]
The Association of Life Insurance Presidents
number 165 broadway, new york
Vincent P. Whitsitt, Manager and General Counsel Clyde W^. Savert, Attorney
Bruce E. Shepherd, Actuary Frank De F. Ross, Associate Attorney
Charles F. Creswell, Statistician Mott A. Brooks, Assistant Secretary
Robert L. Hogq, Assistant General Counsel Robert B. Crane, Assistant Secretary
April 8, 1937.
re california senate bill 460, segregation of assets
Dear Sir: Section 8 of the above bill would require segregation of certain life-
insurance assets by all companies doing business in California. It is actively
sponsored by Insurance Commissioner Carpenter and has been vigorously opposed
by the Association since its introduction in January.
The section has passed through several drafts, and a copy of the latest redraft
is attached thereto. While still vague and ambigous, it would now be applicable
not only to companies doing an accident and health business, as originally con-
templated, but also to companies writing life insurance only.
CONCENTRATION OF ECONOMIC POWER 4757
A Senate hearing, which has been postponed twice, is now set for Monday,
April 12th. Mr. Shepherd — now in the fourth week of his second trip to California
on this bill — advises that the Commissioner is under the impression that our
opposition is solely in behalf of a few member companies doing an accident and
health business. In order to reinforce the Association's opposition and dispel
any misunderstanding, it would be most helpful if, at your early convenience,
you would
(1) Telegraph to Insurance Commissioner Samuel L. Carpenter, Jr.,
417 Montgomery Street, San Francisco, advising that you fully concur in the
opposition of our Association to this measure;
(2) Telegraph to your general agents or managers in the San Francisco
and Los Angeles areas, asking their active cooperation with Mr. Bruce E.
Shepherd, St. Francis Hotel, San Francisco, and Mr. Karl L. Brackett,
President of the State Life Underwriters Association, 1122 Russ Building,
San Francisco; and
(3) Send air-mail confirmations of the telegrams to the law firm of Pills-
bury, Madison & Sutro," attention Mr. L. B. Groezinger, Standard Oil Bldg.,
San Francisco, which firm has been specially retained by the Association to
oppose this measure.
With much appreciation for your assistance and cooperation, I am,
Sincerely yours.
V.P.W.-LH.
End.
William Montgomery, Acacia.
Brainard & Beckwith, Aetna.
Woollen, American United.'
Lounsbury, Atlantic (Special Delivery),
G. S. Nollen, Bankers, Iowa.'
Fred P. Carr, Central, Iowa.'
MacArthur, Central, Illinois.'
Sears & Hughes, Columbian National.
Wilde & Laird, Conn. General.
Loomis, Conn. Mutual.
Behrens, Continental Assur.'
Murphy & Pierson, Equitable, N. Y.
Nollen & Henry, Equitable, Iowa.'
Hamilton, Federal.
Talbot, Fidelity Mutual.
Merriam, Franklin.
Heye & McLain, Guardian.
Fulton «&; Cameron, Home.
Price, Jefferson Standard.'
Cox & Elliott, John Hancock Mutual,
Arthur F. Hall, Lincoln National.'
Lovejoy & Graham, Manhattan.
Perry & Maclean, Mass. Mutual.
Taylor, Metropolitan.
Phillips, Minn. Mutual.*
• Air Mall.
Manager and General Counsel.
Thompson & Weaver, Mutual Benefit.
Allen, Mutual, N. Y.
Olson, Mutual Trust.'
Wills & Peebles, National L. & A.'
Brighara, National, Vt. (Special De-
livery).
Smith, New England Mutual.
Aiken, Buckner & Cooke, N. Y. Life.
0. J. Arnold, N. W. National.'
Appleby, Ohio National.'
Reilly, Old Line Life.'
Kingsley & Dechert, Penn Mutual.
CoUens & Yost, Phoenix Mutual.
Linton, Provident Mutual.
Little & Merigold, Prudential.
Jamison, Reliance.
Russell, Security Mutual.
Seay, Southland.
Bullock, State Mutual.
Branch, Sun of Canada.
Zacher & Allen Brosmith, Travelers.
Cox, Union Central.'
Phillips, Union Mutual (Special De-
livery).
Exhibit No. 698
[From flies of Association of Life Insurance Presidents]
[Notation: V. P. W. Florida General 1935.]
Memorandum With Reference to Florida Legislative Activity, 1935
In handling Florida legislative matters, the following is a chronological outline
of activity:
(a) A close check of all pending measures, being a review of such bills, notices
of introduction of which had been received by the Association, as well as a check
for any possible new introductions.
(b) Ascertainment of the attitude of the administration upon general insurance
legislation, as well as specific measures.
4758 CONCENTRATION OF ECONOMIC POWER
(c) Ascertainment of whether the organization of the Senate and House had
been effected by the administration. If so, effectiveness of control.
(d) General sentiment of the Legislature as to insurance matters.
(e) Establishing legislative contacts through various life groups, attention first
being given to the membership of the Insurance and Finance Committees of the
two houses.
(f) General development of a favorable legislative atmosphere with special
emphasis upon particular measures.
PREVAILING UNFAVORABLE FACTORS
1. In 1934, through the adoption of a constitutional amendment, residence
property of the assessed value of $500, when occupied by the owner as a home,
was exempt from taxation. To overcome this deficit, it was necessary to obtain
$10,500,000 in additional taxes from other sources. This, in itself, even in the
absence of other factors, constituted a serious threat of increased taxation upon
insurance.
2. The Governor, at the beginning of the session, firmly expressed his intention
of placing additional taxes upon insurance, due primarily to his conviction that
insurance companies had been exploiting the people of Florida, but specifically
referred to the report of the Insurance Commissioner of the State showing that
life companies in a particular year, had collected approximately $17,000,000 in
premiums while it had over the same period paid losses to the extent of only
$10,000,000. He insisted the difference represented profit, his position ignoring
payments to living policyholders and residents of Florida. He was firmly con-
vinced of his position and the accuracy of his figures.
3. The Governor further distributed memoranda of these figures to each
member of the Legislature as justifying his position that insurance taxes should
be materially increased, and such proposed increase was made a part of the
administration program.
4. As indirectly affecting the insurance atmosphere, organized propagandists
had created the impression that the fire companies had taken many millions of
dollars from the people of Florida by fixing rates in Florida to offset losses in othei
States. This erroneous impression reflected itself many times with reference to
life measures.
5. A general belief that life-insurance companies had unconscionably foreclosed
mortgages in the State of Florida.
6. Erroneous belief that life companies took from Florida policyholders many
millions of dollars which were invested in other States.
7. Many matters dealing with the internal organization and operation of the
large life-insurance companies.
8. Complete domination of both houses of the Legislature by the Governor.
PROCEDURE
As soon as a study of the pending insurance measures had been completed and
some thought given to anticipated introductions, it was decided, in view of the
administration control of both houses, that it was imperative some effort should
be made to overcome the antagonistic attitude of the Governor, otherwise effect-
ive contacts with the membership of either House would be ineffective. To ac-
complish this end, it was decided the approach to the Governor should be through
purely political contacts. Work was begun immediately along this line and was
prosecuted incessantly throughout the entire session. Further, since proposed
insurance taxation was only a part of the Governor's program and was the portion
capable of mustering strenuous opposition, the Governor, through its defeat,
might suffer loss of prestige. Consequently, these political contacts urged upon
the Governor that a further increase in insurance taxes was wrong on principle
and then, from the purely political viewpoint, the measure might be defeated on
its merits, thus affecting administration prestige.
These efforts were stressed while at the same time direct legislative contacts
were also developed by the insurance groups.
COOPERATION WITH FLORIDA LIFE UNDERWRITERS
1. The Agency Directors' and Managers' Conference at Jacksonville is the best
organized group of life underwriters in the state. These men were advised of the
threatening nature of the legislative situation and requested to furnish a list of
CONCENTRATION OF ECONOMIC POWER 4759
the names and addresses of their Florida agents. Card index was then made for
this information.
2. Contacts were immediately established with the individual agents to ascer-
tain their sphere of influence with members of the House and Senate. Each agent
was furnished with the names of the members of the House and Senate from his
particular locality and asked to advise us at once as to acquaintanceship. Where
the particular agent was close to some member, suggestions were made to ascertain
the attitude of the particular member toward insurance. Many other items of a
personal nature were also made the subject of inquiry.
3. After the agency contacts had been established, the check of House and
Senate membership was made to ascertain the names of those with whom any such
agency contacts had been directly established. For example, in many instances
members came from some towns where there were no life agents. To meet this
problem those members from various small communities with no resident life agents
were listed and assigned to a larger city for contact. Notably the Jacksonville
agents assumed the responsibility for contacts with some members from the north
and the northeast section of the state, Tampa for the south central portion, and
so on.
LEGISLATIVE CONTACTS
In order to obtain the most effective contacts with members of the Senate and
House, the following course was followed:
1. The geographical location of each member was indicated upon a large map of
the state by using red tacks for House and blue tacks for Senate members. At-
tached to each tack was the name and post-office address of a particular member.
The map was on a large scale and clearly discernible for ready reference.
2. An individual card index was made for members of the House of Representa-
tives and a similar index for members of the Senate. Each carried the post-office
address and personal data of the particular member. Notation was made in some
instances as to the best method of approach. For example, if a particular life-
insurance agent was personally acquainted with a member, a notation was made
to that effect. It was not considered wise, however, to place much personal in-
formation on these cards. This was carried on a separate memoranda. To indi-
cate a member's attitude towards insurance, or the names of the particular agents
with whom he was on intimate terms, might be subsequently the cause of some
embarrassment to both the member and ourselves in the event that the cards
should come to the attention of unauthorized persons. Consequently records as
to attitude of members or each plan of contact were in most cases omitted from
the card record, although preserved by independent means.
3. Every adverse measure was examined from the standpoint of its sponsor.
For example, another set of cards was prepared showing the authors of aU adverse
measures. Whenever we found that the same member had introduced several
adverse measures or was cointroducer of several adverse measures, we concluded
his general attitude towards insurance was unfavorable. This theory was cer-
tainly borne out by subsequent check.
4. After determining the identity of our opposition, we then established its
geographical distribution upon the map. This course was followed in order to
find out the activities behind our opposition. In other words, we wanted to know
whether the attitude of the particular member was his own peisonal conclusion
or whether it reflected the sentiment of some particular sectioji of the state. In
pursuing this theory, it developed that most of our opposition centered around the
less densely settled secti^ is of the state — primarily in the north and north central
counties.
NATURE OF CONTACTS
The actual contacts with individual members rested primarily with local people.
The following methods of approach listed in the order of their efi^ectiveness:
(a) Personal interview by some life representative on intimate terms with the
member;
(b) Contact by telephone, telegraph, or letter from the same party where
personal interview was not practical;
(c) Interviews by telephone, telegraph, and letters from representative citizens
and especially life-insurance policyholders;
(d) Telegrams and letters from the public generally.
The use of these different methods of approach, of course, depended upon the
nature of the legislation under consideration.
4760 CONCENTRATION OF ECONOMIC POWER
COOPERATION BETWEEN LIFE AND FIRE INTERESTS
1. In a general conference the entire membership of both Houses was can-
vassed to ascertain possible contacts through local underwriters. In practically
every instance where there was a life contact, there was a corresponding fire
contact, due primarily to the larger number of fire than life agents. Comparison
of the merits, however, very frequently disclosed that the life contact was more
effective than that of the fire and vice versa. Again, in many instances there were
fire but no life agents in the home community of a particular member.
2. In a general conference all insurance matters were examined to ascertain
those where there was a community of interest between the two groups.
3. In dealing with specific bills where a community of interest did exist, House
and Senate membership was canvassed in a general conference to ascertain the
probable attitude of the individual members. Where both life and fire representa-
tives were in accord as to probable anatagonism of particular members, these
received first consideration. In dealing with individual members, our strongest
approach was made first. As illustrative, if it was agreed that a life contact was
stronger than that of a fire, the life group assumed the initiative of first contacts,
which were later supplemented by the fire people. Later developments in many
cases clearly disclosed the effectiveness of this program. Briefly, we exploited
our strong contacts first. We then followed with every other method of approach
we could develop.
SUGGESTIONS FOR NEXT SESSION
Some delay was encountered in legislative work of the 1935 session, due to the
fact that we had no immediate contacts with all of the life agents in the State.
It took some time to acquaint them with the general legislative situation.
The attitude on the part of some agents at the beginning of the session was one
of indifference. This was not due to the fact that they were not in sympathy
with our efforts to prevent the passage of adverse measures but rather the fact
that they felt there was no danger in any circumstances of the Legislature seriously
considering many of these adverse proposals. Tliey went upon the theory that
we were merely repeating this session what they had always heard during every
other session. Their line of reasoning appeared to be that since every other
proposal to increase premium taxes and past adverse measures had been defeated,
that the same result would follow the present 1935 session. Considerable time was
lost in impressing upon them tlie seriousness of the situation.
Before the next session, therefore, it is suggested that the agents be personally
contacted by the legislative representative of the Association. The work of the
Jacksonville group supports this suggestion. On my way to Tallahassee I stopped
in Jacksonville and in a general way discussed the matter with the agents and
directors. After being in Tallahassee for a week, I then met with the Jackson-
ville group again and very definitely outlined the situation that confronted us and
made suggestions for legislative contacts. The Jacksonville group immediately
grasped the situation and rendered most effective service a week or ten days before
activities of agents in other sections became noticeable.
RLH.GM.
6/13/35.
CONCENTRATION OF ECONOMIC POWER 4761
Exhibit No. 699
[From files of Association of Life Insurance Presidents]
May 5, 1935.
Mr. Frank P. Deering,
clo Mutual Life Insurance Company of New York,
Jacksonville, Florida.
Dear Mr. Deering: Senator Futch has just introduced in the Senate a com-
panion measure of House 776, which would increase the premium tax to 6%. It
is now necessary that we establish some immediate contacts with all the members
of the Senate and the House and unfortunately we have no agents in the home
communities of many of these members. Consequently, we have decided to ask
you on behalf of the Jacksonville group to establish contact with the following
members:
Senators: Herbert C. Harper, Madison.
R. S. Adams, Jasper.
Clayton C. Bass, Live Oak.
F. P. Parker, Mayo.
Dr. S. C. Smith, Lake City.
J. Turner Butler, Jacksonville.
Dr. J. M. Mann, Lake Butler.
A. G. McArthur, Callahan.
H. S. McKenzie, Palatka.
W. A. McWilliams, St. Augustine.
H. G. Murphy, Zolfo Springs.
F. B. Hordman, Daytona Beach.
William Pannill, Brooksville.
C. A. Savage, Ocala.
J. J. Parrish, Titusville.
Representatives: M. A. Best, Branford; Carl W. Burnett, Madison; J. W.
Burns, Lake City; Noah B. Butt, Cocoa; Wm. McL. Christie, Jacksonville;
M. A. Coogler, Brooksville; 0. Lamar Crocker, Trenton; J. D. Dugger, Mac-
clenny; H. M. Fearnside, Palatka; A. B. Folks, Ocala; M. M. Frost, Jackson-
ville; Bascom O. Hardee, Bronson; J. P. Hatch, Live Oak; J. Clarence Hill,
Day; Norman P. Ives, Lake City; Charley E. Johns, Starke; Dan Kelly, Jr.,
Fernandina; C. Wesley Larson, Green Cove Springs; J. M. McKinney, Cross
City; J. N. Miller, Daytona Beach; N. E. Roberts, Lake Butler; John R.
Rogers, Lynn; Harry H. Saunders, St. Augustine; Jurant T. Shepherd, St.
Augustine; L. E. Wadsworth, Bunnell; Walter Warren, Palatka; W. S. Whiddon,
Perry.
In some instances, there are agency contacts in the home communities of some
of these members, but it is felt that as a general matter, contacts with these
members as indicated can be most effectively made from Jacksonville.
It is thought wise that there should be as many telegrams and telephone calls
as possible to reach these members from their respective home communities.
This, of course, is a matter with which you are thoroughly familiar. Further-
more, it is advisable to have as many communications as possible from policy-
holders. These of course are details concerning which you will use your own
judgment.
Pleased be assured of our appreciation of your cooperation in connection with
this matter.
Yours sincerely,
Robert L. Hogg,
Floridan Hotel, Tallahassee, Fla.
P. S. In addition to the contacts which you wiU establish we shall also follow
up here such avenues as may be open to us.
P. P. S. In contracting members opposition should be directed "to any increase
in premium taxes."
4762 CONCENTRATION OF ECONOMIC POWER
Exhibit No. 700
[From flies of Association of Life Insurance Presidents]
[Copy of telegram]
[Notation: Florida. H. B. 776.]
[Western Union]
Received at corner Monroe Street and Park Avenue, Tallahassee, Flo.
[JNB609 47 DL-Jacksonville, Flo., 6 519P. Date illegible.]
R. L. Hogg,
Floridan Hotel, Tallahassee, Flo.
Letter fifth given consideration. Lengthy session of agency directors' con-
ference today. AU members writing all agonts to immediately solicit ten letters
each from policyholders to representatives. Each name listed taken as indi-
vidual responsibihty of one or more members of conference and quick action
promised. Details tomorrow.
F. P. Dearing.
Exhibit No. 701
[From flies of Association of lafe Insurance Presidents]
[Not.'^.tion: Florida. H. B. 776.]
Florida Association of Life Underwriters
1935-36
[The National Association of Life Underwriters' seal]
VICE PRESIDENTS J. HaLLFRED ChAILLE, C. L. U.
O. A. BooNE, Orlando Secretary-Treasurer
Chas. L. Gibbs, Jr., Miami 916 Graham Building
Albert Litschgi, Tampa Jacksonville, Fla.
Feank p. Deabino, President
The St. James Building, Jacksonville, Fla.
[Member Associations: Clearwatsr, Daytona Beach, Oainpsville, Jacksonville, Miami, Orlando, Pensacola,
St. Petersburg, Tampa, West Palm Beach]
[Directors: A. L. Baker, Daj^ona Beach; S. A. Burgess, Miami; J. H. Chaille, Jacksonville; T. C. Cross,
Taiipa; W. F. Herrick, St. Petersburg; Z. V. Hooker, West Palm Beach; J. 0. McNeil, Pensacola; M.
M. Parrish, Gainesville; O. A. Pleus, Orlando; H. C. Shaw, Clearwater]
May 8, 1935.
Mr. Robert L. Hogg,
Hotel Floridan, Tallahassee, Florida.
Dear Mr. Hogg: By mail last night we sent you seventj'-one letters addressed
to Senators and Representatives, and as these were put on the train with special-
delivery postage, they doubtless reached you early this morning. We will send
you the balance of the letters today. We regret that it was not possible to send
all of them to you last night, but as we understood that you wanted them to be
personal letters, it proved to be quite an undertaking on such short notice.
If the other companies' representatives are having as good luck with their
efforts as we have had, I feel sure that there are a number of personal letters from
policyholders on the de^ks of the Serators and members of the Legislature today,
and there will be an increasing output of these letters daily from now on.
I enclose copy of a letter written by one of the Sun Life men from Tampa to
the Chairman of the Finance and Taxation Committee. It is not much of a
letter, but the response from Mr. Sandler on the back thereof is quite enlightening.
Very truly yours,
F. P. Dearing, President.
FPD/MH.
P. S. I am keeping a memorandum of the outlay for extra help and overtime
work; also, of long-distance calls and telegram tolls, as I suppose the Life Presi-
dents Association wiU want to defray this cost as in previous years. I know they
do not expect Mutual Life to bear this cost, and when we have it all assembled
I will get your O. K. on the charge and submit it in the usual way. F. P. D.
CONCENTRATION OF ECONOMIC POWER 4763
[Lecterhead of the Florida Association of Life Underwriters)
June 10, 1935.
(Stamped) Rec'd 1935 July-1-AM 8:51.
Mr. R. L. Hogg,
cjo Jefferson Davis Hotel, Montgomery, Ala.
Dear Mr. Hogg: I have been intending to submit statement of expenses
incurred here in connection with the recent legislative efforts but have not been
able to get them all together as yet.
The extra stenographic work in the office incident to getting out letters to the
members of legislature was $18.60, and telephone calls from the office, $11.95.
In addition to these items there were some telephone calls from the residence of
my son, A. P. Bearing, the night we were trying to contact Mr. J. E. Yonge in
an effort to locate somebody who could talk to Mr. Robiueau in our behalf. These
items have not appeared on my son's telephone bill, nor is the Telephone Company
able to give them to me at this writing. If agreeable, I will continue to carry the
items here until I can get them all together.
With all good wishes, I am
Very truly yours,
F. P. Dearing, President.
FPD/MH.
[Copy]
[Letterliead of the Florida Association of Life Underwriters]
June 17, 1935.
(Stamped) 1935 July-1-AM 8:51.
Mr. R. L. Hogg,
cjo Jefferson Davis Hotel, Montgomery, Ala.
Dear Mr. Hogg: Supplementing my letter of June 10th, beg to say that aU
the charges referred to therein are now in hand, and they are as follows:
Stenographic Work $18. 60 [Extra— Clerical]
Telephone Calls from office 11. 951 rm, p, T Ptri-« 1
Telephone Calls from Residence 5/6 4. 55/^^^^ *'^- ^^^'^'^
35. 10
Will you kindly put this into the proper channel .^or payment, or instruct me
how to do so, and oblige.
Very truly yours,
, President.
FPD/MH.
Note.— Notations enclosed in brackets.
July 1, 1935.
Frank P. Dearing, Esq.,
President, Florida Association of Life Underwriters,
The St. James Building, Jacksonville, Florida.
Dear Mr. Dearing: Responding to your letter of June 28th to Mr. Whitsitt.
with which there were enclosed letters under date of June 10th and June 17th
to Mr. Hogg, it is a pleasure herewith to enclose our check in the sum of $35.10
to cover the expenses for mimeograph work and telephone calls which were handled
by the Florida Association of Life Underwriters on behalf of Mr. Hogg.
Very truly yours,
, Statistician.
CFC:CV
End.
4764 CONCENTRATION OF ECONOMIC POWER
Exhibit No. 702
[From files of Association of Life Insurance Presidents]
Association Bulletin Service
Th!s Bulletin Is sent in confidence for the infnrniation of our members. It is intended to advise
the companies in the Assoriation from time to time ns to current matters of general interest. Its
value would be enhanced by contributions from individual members of any information that would
be important or interesting to other members. In this way the Association may serve as a Clearing
House for the dissemination of information that will be of benefit to the entire membership.
The Association of Life Insurance Presidents.
MOTT A. Brooks, Assistant Secretary.
New York, June 6, 19S5.
No. 2397
Florida Legislature Adjourned — 6% Premium Tax Bill and Other Tax
Proposals Failed — Compulsory Investment and Savings Bank Life
Insurance Measures Not Enacted
The regular session of the Florida Legislature, which convened April 2nd,
adjourned on June 2nd.
Although many adverse measures were introduced and pressed for passage,
none was enacted. Among the unfavorable proposals were two administration
bills to increase the premium tax rate to 6%. One of these was amended to
increase the rate to 4%. A third would have increased the present rate from 2%
to 5%, while a fourth would have imposed an additional premium tax, on a gradu-
ated basis, equivalent to about 1.8%. The latter would have included annuity
considerations in the tax base. Two other measures would have imposed a
Yi oi \% gross receipts tax applicable to insurance and would have authorized
municipalities to impose unlimited license taxes. Another would have broadened
the Florida documentary stamp tax law so as specifically to include policy loans
in the 10 cents per $100 tax. As originally drafted, this measure would have
applied also to face amount of policies.
Other adverse measures included two compulsory investment bills similar to
the Texas Robertson Law, with a premium tax increase of 1.% scaled down de-
pending upon investments in the state, and two proposals which would have
authorized savings banks to write life insurance similar to the Massachusetts plan.
Among the mortgage measures which failed were bills to provide for a two-year
mortgage moratorium, to reduce the contract interest rate, and to restrict the
rights of mortgagees in connection with deficiency judgments.
Mr. Robert L. Hogg, the Association's Special Counsel, who was in Florida
during the major part of the session, reports that outstanding service was rendered
by life-insurance representatives throughout the state who cooperated most
effectively in connection with the various adverse proposals. Mr. James R.
Stockton, President of the Telco Holding Company, of Jacksonville, again ably
represented the Association in connection with mortgage m.attcrs.
A description of the more important measures of interest follows:
measures enacted
S. C. R. 16 Creates joint legislative committee to classify and define
powers, duties, and privileges of cities and towns. Under-
stand this committee will consider matter of municipal
taxation.
S. B. 104 Prohibits insurance organizations, including life-insurance
(H. B. 273) companies, from issuing policies payable in other than legal
tender. As originally introduced would also have pro-
hibited payment to anyone other than the beneficiary named
in the policy.
S. B. 249 Makes Blue Sky Law specifically inapplicable to the soliciting,
(H. B. 231) writing, or issuing of contracts of insurance by insurers or
agents duly qualified and licensed under the laws of Florida.
Eliminates securities issued by insurance companies from
definition of exempt securities.
S. B. 324 Permits insurance companies to invest in bonds issued by
(H. B. 410) Federal Land Banks and Joint-Stock Land Banks, and in
debentures issued by Federal Intermediate Credit Banks.
H. B. 247 Authorizes insurance companies, among others, to invest in,
(S. B. 127) or loan upon, certain prescribed securities issued, insured, or
insurable under the National Housing Act.
CONCENTRATION OF ECONOMIC POWER 4765
MEASURES WHICH FAILED
S. B. 3 To reduce legal interest rate from 8% to 6% and contract
rate from 10% to 6%, and to prohibit collection in advance
or compounding of interest, resulting in a rate of more than
6% per annum. Substitute measure would have made estab-
lished legal rate 6% and contract rate 8%.
S. B. 25 To require insurance companies to furnish certified copies of
policies to an}' person interested in payment of the pro-
ceeds, as assured, beneficiary, or assignee, upon demand and
affidavit that original policy had been lost. Would have em-
powered Commissioner to suspend a company's certificate
of authority for failure or refusal, for more than 15 days, to
furnish such copies. Would, also have required companies to
furnish proof of loss forms within 15 days after written de-
mand. Failure to do so would have been deemed waiver of
provision requiring proof of loss, but not acknowledgment of
liability. Amended to limit application of bill to policies and
contracts delivered in Florida, to increase the period for notice
to 20 days, to require notice and hearing before a company's
license could be revoked, and to limit the right to demand
proof of loss blanks to the insured or persons entitled to the
proceeds.
S. B. 103 To impose additional premium tax at rate, in the case of life,
health, and accident insurance, of $200 on gross annual prem-
iums of $7,000 or less and $180 for each additional $10,000
or fraction thereof. Annuity considerations also would have
been included in this additional tax. Tax would have been
reduced to one-third, if one-eighth of a company's total ad-
mitted asset-6 were invested in prescribed Florida securities.
S. B. 148 To grant liens to hospitals, nurses, and medical practitioners,
(H, B. 145) after written notice had been served and recorded on patient
or insurer, or filed in court. Sufficiently broad to cover double
indemnity and disability benefits.
S. B. 172 To reduce contract interest rate from 10% to 8%.
S. B. 300 To abolish all occupation licenses.
S. B. 389 To amend law, requiring alien companies to have $250,000,
(H. B. 488) foreign companies $200,000, and certain domestic companies
$100,000, invested in prescribed securities, so as to require
insurance companies to have $200,000 invested in some-
what different securities. Also would have permitted State
Treasurer, after notice and hearing and subject to appeal,
to revoke certificate of authority of foreign companies, if, in
his judgment, it would best promote the interests of the
people of the state.
S. B. 391 To prohibit foreign insurance companies from doing business
(H. B. 586) in state except through licensed resident agents. Amended to
exempt life-insurance companies and their agents.
S. B. 481 To authorize Boards of County Commissioners to deduct
(H. B. 738) from salaries of county employees premiums due upon insur-
ance and pay same to insurance companies entitled thereto.
S. B. 532 To authorize savings banks to write life insurance in manner
(H. B. 573) similar to Massachusetts Law.
S. B. 533 To require life-insurance companies to have 75% of their
(H. B. 541) Florida reserves invested in designated "Florida securities."
Would have imposed on foreign life companies an additional
premium tax of 1 % graduated down to ^■io of 1%, Yio of 1%
or no additional tax, depending upon whether as much as
30%, 60%, or 75%, respectively, of the Florida reserve was
invested in mortgages or other liens on Florida real estate.
Would have subjected withdrawing company to tax on future
premium collections before reentering state to do a life-
insurance business.
S. B. 634 To impose a 4% tax — in addition to the present 2% tax — on
gross premiums of_insurance companies, less return premiums
and premiums paid for reinsurance in authorized companies.
4766 CONCENTRATION OF ECONOMIC POWER
S. B. 656 To exempt proceeds of life-, accident-, or health-insurance
policies from debts of the beneficiary, or any person having a
right under such policies.
S. B. 800 To empower cities and towns, by ordinance, to levy and col-,
(H. B. 117) lect license or excise taxes, without limitation, upon privi-
leges, businesses, occupations, and professions.
S. B. 847 To impose 3% tax on sales of merchandise and "property"
and on certain amusements. Insurance companies specifically
exempted. Amended to impose a K of 1 % gross receipts tax
on individuals and corporations, exempting "premiums col-
lected by insurance companies upon which a tax is levied by
the laws of this state." Amended to eliminate foregoing
exemption, but to exclude certain policy proceeds.
f B. 1002 Similar to Senate Bill 847 in its original form.
S B. 1017 To amend intangibles tax law so as to increase the rates and
provide for the assessment of the tax by the state rather than
by the counties.
H. J. R. 17 To amend Constitution so as to authorize Legislature to
impose income taxes, without specific provision for reasonable
exemptions.
H.J. R. 53 ]
H.J. R. 64 Similar to H. J. R. 17.
H.J. R. 1388 j
H. B. 116 To permit guardians to invest funds of infant vrards in paid-up
life insurance.
H. B. 132__ To reduce legal interest rate from 8% to 6 % and contract rate
from 10% to 6%.
H. B. 204 To reduce legal interest rate from 8% to 6% and contract i*ate
from 10% to 8%
H. B. 212 To prohibit publication by newspapers of advertisements of
unauthorized insurance companies.
H. B. 265 To exempt proceeds of healtli, accident, or disability insur-
ance from claims of creditors of the insured, unless the policy
was effected for the benefit of such creditors.
H. B. 283 Similar to Senate Bill 1002.
H. B. 288 Similar to House Bill 132.
H. B. 289 Similar to House Bill 204, except would have specifically
exempted contracts executed prior to its enactment.
H. B. 295 Similar to Senate Bill 1002.
H. B. 361 To increase premium tax rate to 5%.
H. B. 385 To impose 3% tax on sales of tangible personal property and
on certain businesses, including insurance.
H. B. 401 To repeal documentary stamp tax.
H. B. 577 To restrict the rights of mortgagees in connection with defi-
ciency judgmentK by requiring foreclosure action to precede
an action at law to collect the mortgage debt, by requiring
suits for a deficiency to be commenced within three months of
the confirmation of sale, by requiring the fair market value
as determined by the court on a defendant's application to
govern the size of the deficiency judgment, and by providing
that the recovery of a deficiency should open up a foreclosure
giving a six months' period of redemption if the persons liable
did not dispute the amount of the deficiency.
H. B. 578 To prohibit for two years the foreclosure of any mortgage on
real property, used or intended to be used for dwelling purposes
by the owner or his family, on account of any default in the
payment of the principal.
H. B. 579 To permit courts, during the next two years, to postpone fore-
closure sales, during which postponement payment of a
reasonable rental would have been required to be applied on
taxes, insurance, interest, and the mortgage iudebtedne.ss,
and to permit resales where the sale price was found to be
unreasonabl}'^ inadequate.
H. B. 760 To authorize guardians of infants or disabled persons to invest
funds of sugh wards in excess of $5,000 in annuities purchased
from admitted insurance companies.
CONCENTRATION OF ECONOMIC POWER 4767
H. B. 776 Same as Senate Bill 634. Substitute measure would have
increased present premium tax to 4% instead of imposing an
additional 4% tax.
H. B. 1095 To broaden documentary stamp tax law so as, among other
things, specifically to impose tax of 10 cents per $100 on policy
loans, premium notes, and premium extension agreements.
Amended to eliminate this provision. As originally drafted
would also have imposed such tax on the face amount of
policies.
H. B. 1182 To impose 2% tax on sales of tangible personal property and
certain services. Sales of insurance specifically exempted.
H. B. 1282 Similar to Senate Bill 1002.
H. B. 1317 To empower cities and towns with populations of from 30,500
to 70,000 to change and control by ordinance "any and all
matters relating to the assessment of taxes in such city or
town."
Exhibit No. 703
[From flies cf Association of Life Insurance Presidents]
[Notations: Strictly personal. Georgia General.]
[Initialed: R. L. H.]
Atlanta, Ga., February 26, 1936.
(Stamped) 1 935 Feb.-2»- A M 1 0 : 0 1 .
Mr. RoBT. L. Hogg,
Special Counsel, The Association of Life Insurance Presidents,
166 Broadway, New York City.
Dear Mr. Hogg: On general principles, as we are taking up our duties again
today after a three-day vacation, while the legislature has junketed, we would
like to say that we appreciate the arguments furnished us, and this Committee
assimilates same and uses them where practical. There is not the same dispo-
sition, however, to regard the altruism of the situation as there was at the time
when the money was less needed. So, unofficially, we make the following state-
ment. It has been our practice for years:
1 — To try to persuade the author of a bill, either before its introduction
or after introduction and reference to a Committee, to withdraw same.
This has worked out oftener than might be thought.
2 — We make effort in advance, as described to you, to have friends on the
Committee and to have meetings at the proper time and under favorable
environment. This has frequently worked out.
3 — If we do not succeed in getting a bill adversed, we try to introduce
another bill, hoping that the whole thing will wind up in a row, to be plain
about it. This has worked out at this session, and I will add in passing
that we have one man, that if any bill comes out on the floor, to get up and
say that he does not believe in taxing life-insurance premiums at all and
create a diversion in that way.
4 — If a bill passes either house and goes to the other house, we try to
repeat the above tactics.
5 — At this session, particularly, we have considerable confidence in the
Governor's statement that he will veto any tax increase. His language,
however, was "citizens of Georgia," but we hope, if any bill should pass
both houses, to show him that the taxes rest on the citizens of the State of
Georgia.
One of our Committee is an intimate personal friend of the Governor, and on
his staff. We have not told you that before. He interviewed the Governor,
who expressed himself in favor of a change to a 2)^% tax. I. think we wrote
you that. We are going to ask for an interview tomorrow and try to feel out,
without offense, the Governor's position on all of these bills, including moratorium
bills. Though I repeat that I believe w£_fje going to have to face something on
tliat line.
The above statement of method of operations to which we add a final as-
surance that we sliall try to kill anything inimical, and if anything gets through
of that description it is simply because we cannot stop it by any method known
to us or any proper practice which we have at hand.
Yours very truly, ^ L. Cooney.
S. M. Carson
RLC-k. Allen.
4768 CONCENTRATION OF ECONOMIC POWER
[Notation: Georgia General.]
[Initialed: B.]
FeSruary 27, 1935.
Robert L. Coonet, Esq.
Inspector of Agencies, New York Lnfe Insurance Company,
Grant Bldg., 44 Broad St., N. W., Atlanta, Ga.
Dear Mr. Coonet: The joint letter of Mr. Allen, Mr. Carson, and yourself,
touching upon the general legislative situation, has been received and read with
interest. We know under present conditions the work of your committee, as
well as of our other representatives in various states, is extremely difficult and
that, as you indicate, the material we furnish you for presentation to the mem-
bers of the Legislature does not receive the consideration which it merits.
I assure you that the Association appreciates the aid and close attention given
to all these matters pertaining to life-insurance companies and their policy-
'lolders.
With my kind regards, I am,
Yours sincerely,
, Special Counsel.
RLH.GM.
Via air mail.
Exhibit No. 704
[From flies of The Association of Life Insurance Presidents)
[Notation: Georgia General.]
[Initialed: H. R. C]
New York Life Insurance Company
Grant Building, 44 Broad Street NW., Atlanta, Ga.
ROBT. L. CooNEY, Inspector of Agencies, P. O. Box 237
Southern Department: Virginia, North Carolina, South Carolina, Georgia, Florida, Atlanta
March 22, 1933
(Stamped) In Mar. 24-3,3.
Mr. Charles F. Creswell,
Statistician, Association of Life Insurance Presidents,
165 Broadway, New York City.
Dear Mr. Creswell: Our legislature has adjourned sine die, and we have the
honor to make the following report.
There has been so far no call for an extra session. It is regarded, however, as
inevitable that there will be such a session. We hope not.
We enclose copy of an editorial appearing yesterday, calling attention to the
fact that no revenue measures were passed and that our Appropriation Bill calls
for more money than present income will pay. Also that a revision of the General
Tax Act will probably take place.
We report our failures first:
We had a bill introduced at the request of our Comptroller General, to reorganize
his Department and to give him enough force to carry out the provisions of the law
for the protection of our legitimate agents and legitimate companies, who pay their
license fees and taxes. This bill passed the House after quite a squabble, 105 to 4.
Just where the opponents were on the final show-down, we do not know, but when
the bill was brought out for vote, it turned out that the original bill had been
stolen or mislaid — that is, the one the Insurance Committee had passed — and
another bill which the Insurance Committee had turned down was produced, as
the bill which was to be voted on. This was corrected, and our bill passed, as
stated, 105 to 4. It also passed through the Senate Committee, was put on the
calendar of the Senate, was ready to be called up, when our Governor suspended
all activities until a bill could cross from the House to the Senate, which bill
exonerated him from an accusation of misappropriating $25,000 during his term
in a previous office. This bill was passed, and was the only bill passed after
twelve o'clock at night, Saturday, after a public statement by the Governor that
he would veto every bill that was passed after that hour. He did not, of course,
veto this.
We had prepared a resolution requesting a revision of the Insurance Code. Our
friends bad this ready in the House, but were beaten to it by a Senate resolution
CONCENTRATION OF ECONOMIC POWER 4769
by a very antagonistic Senator named Sisk, who had tried to put the State, in
previous bills which were defeated, into the insurance business, to have rates named
by law, moratorium bills, etc. The Sisk resolution got through the Senate — how,
we do not know. It was through before we heard of it. It was, however,
smothered in the Insurance Committee in the House. Our bill was drawn so
closely describing the men to be named on the Committee, or rather, their char-
acteristics, that we felt certain that we knew the men who would revise the Code.
Some attention may be paid to this, for it will probably come up at an extra session,
if held, under the guise of a Revenue Bill, and if you have any suggestions or an
ideal Code, please send it to us; it is probable that we can put such through.
We are hoping to get into such a Code a provision for taxation, possibly specify-
ing that when the State gets in condition to do so, that insurance taxes may be
solely for the benefit of the Department which has supervision. If this can be done,
it would be a pretty good start. It is possible that we can do it, though we do not
make any statement positive to that effect.
We did put through, and they are either signed or awaiting the Governor's
signature,' which we feel reasonably certain of securing:
1 — A bill to license agents from other States. This has been done for the last
year by construction. As it stands now it is mandatory.
2 — There were some ten to fifteen moratorium bills introduced. We have had
considerable correspondence over this. We predicted to you in the beginning that
our friends had arranged to merge these, all in one bill, and put before a com-
mittee favorable to us (we think we detailed this to you), who would either write a
moratorium bill, if necessary to placate the mob, which would not have many
teeth in it, or else lose it in the shuffle. At one time we were afraid that the
rewritten Senate Bill 59 (copy of which you have) would go through, but the very
author of this bill, or the authors, thereof, after discussion in the Senate, shunted
it into the discard, and no moratorium bills of any kind were passed. This was as
difficult a piece of work, requiring as much judgment and careful action as
anything we have ever taken hold of.
3 — A bill which will exempt from levy or execution the proceeds of any life
policy in favor of a wife and children.
4 — The Hon. J. W. Culpepper (previously our friend and our friend again
now), previously Chairman and now on the Ways and Means Committee, gave
notice that he would introduce a 3 % tax bill. One of our committee had supper
with this gentleman and a long interview afterwards. This bill never made its
appearance.
5 — The Hon. J. Scott Davis, of Cedartown, Georgia, had prepared, by Ike
Attorney General of the State, a bill increasing our taxes to 2)-^%. One of our
committee entertained this gentleman and some of his friends, and after an argu-
ment on the merit of the case, the Hon. Davis withdrew this bill.
6 — The Hon. Orville A. Park, of Macon, Georgia, introduced a bill, had it read
once, referred to Ways and Means Committee, which bill would have increased
insurance premiums to 3%, but eliminating municipals. We likewise obtained
an interview, through entertainment, with the Hon. Park, the result of which was
his statement then that he would withdraw this bill, and that he was sufficiently
convinced of the merits of the case to promise opposition to any other bill of the
kind that might come up, and to ask for the appointment of a committee to inquire
into insurance taxes and make a report to the next session. It was the appoint-
ment of this committee for which we hoped, which was referred to in one of our
letters to the effect that we might be able to communicate to you some good news.
We think that we could predict here what the result of that report would have
been, and it might possibly have settled the tax question for years to come.
On the whole, while it has taken a great deal of time and effort, in fact, prac-
tically every day and many of the nights during this session, and the expenditure
of considerable money, we might say that we have come through without a
scratch.
We think it is fair at this time to call your attention to two matters:
One is the amount of time that each one of our committee has taken from his
own Company and his own business. This is not a suggestion for remuneration.
It would not be offered and neither would it be accepted if offered. But the question
is, if there is an extra session, after two-and-a-half months practically out of the
field, to the detriment of our individual records, whether or not we should ask for
specific instructions from our companies as to giving that much more time during
one year, and proper understanding of this time spent away from our contract
duties.
4770 CONCENTRATION OF ECONOMIC POWER
The second is the matter of money. These efforts have been expensive. We
have onr own method of working, and whether or not those are entirely approved,
they have been, bo far, successful. Early in the session we advised you of the
employment of Mr. Russell R. Whitman, who handles an information service
which has proved valuable. Before the next session, if our comnaittee goes on
with these duties, we shall recommend a different character of service. We
think such may be obtained, which will save us individually a great deal of time,
and that it can be done at less final expense. A bill for the service of Mr. Whitman
is herein. I think you wrote that the Association would pay this. At any rate,
they should. We mention here that, roughly speaking, the expense in money to
members of our committee, no part of which has been paid by anybody else, has
been about $500.00. About $30.00 of this was for cab fares to and from the
Capitol, on hurry calls from our friends, or to get bills just introduced and before
the service people were in position to get them. Not one cent for any purpose
THAT IS NOT LEGITIMATE, or which any other man, if he worked as we work,
would not have incurred. We might mention in passing that we believe in killing
a bill before it gets on the floor, or before a committee, if possible. It is much
easier to handle one man or two men alone than it is to argue with a whole com-
mittee, and it is impossible to argue with the whole House. This money has been
spent in invitations to those of whom we wished to make friends, and seeing that
their wives and daughters were looked after properly and courteously, and a large
portion of it in giving a dinner after the session was over to all of those who were
good enough to favor us. We have been told that one reason we are kindly
received is that we do not forget favors after we get them. The other is that we
do not seek to interview members of the legislature while they are in their seats,
going through the lobbies, or stop them at their lunches, as most people do. It
is impossible for us to continue to bear this expense, and in our opinion it is impos-
sible to do successfully the work any other way. The results in other places
along a different system should have some bearing on the interpretation of this
statement. We are perfectly willing to obey instructions, each of his own Com-
pany, and also instructions as to how to handle this, if our own methods do not
meet entire approval and final support. This is a question to which we ask you to
give consideration. We have given this service gladly. We really do not believe
that the same results could have been accomplished any other way, and the effect
of it, at any rate, is indicated by the simple statement that if there is no other
session for the next two years, that at least about a Million-and-a-Half Dollars
of taxes have been saved to the life companies in the Association. This increased
sum would have been the result of the passage of any one of the tax bills to which
we have referred above, by chapter and verse.
Yours very truly,
R. L. COONBT.
S. M. Carson.
RLC-k.
Exhibit No. 705
[Notation: From W. H. Pierson's file marked "Robt. L. Cooney."]
New York Life Insurance Company
Grant Building, 44 Broad Street, N. "W., Atlanta, Ga.
Robt. L. Cooney, Inspector of Agencies, P. O. Box 237
Southern Department: Virginia, North Carolina, South Carolina, Georgia, Florida
March 1, 1938.
Personal.
Mr. W. H. PiERsoN,
Vice President, New York Life Insurance Co.,
New York City.
Dear Mr. Pierson: Your letter of February 25.' I have already bought the
extra-size hat. I did that some years ago. It has been about twenty years, you
know, since anything was done to insurance companies in Georgia.
They have remitted to me all of the expenses that would be proper to charge up.
There are some, of course, that do not go into an account of this kind. And I am
CONCENTRATION OF ECONOMIC POWER 4771
going to say in passing that (admitting of course that we have been rather success-
ful in heading off legislation) the method is to interest ourselves in keymen before
hey are elected, help them to get elected, and then they owe us something instead
if our owing them. That is the whole secret.
Incidentally, I am going to send you a slip cut from the paper of yesterday.
[ think that you and I have rather agreed that we ought in some way to enlist
ur policyholders, and I am inclined to think that present conditions indicate
he integrity of that judgment. If we don't, apparently somebody else will.
This letter is off the record and intensely personal to yourself.
All I want to say now is, that I am delighted to see your regular signature again
lid to note that you are apparently right on the job once more. May that last a
■iig, long time.
With my best regards.
Yours very truly,
R. L. COONET,
Inspector of Agencies.
RLC-k.
[Notation: No ans. P.]
Exhibit No. 706
[From files of The Association of Life Insurance Presidents]
[Notation: Georgia General 1939.]
[Initialed: C. W. S.]
New York Life Insurance Company
Grant Building, 44 Broad Street, N. W., Atlanta, Ga.
ROBT. L. Cooney: Inspector of Agencies, P. O. Box 237
Southern Department: Virginia, North Carolina. South Carolina, Georgia, Florida
November 21, 1938,
(Stamped) Received 1938 Nov. 23 AM 8:54.
Mr. Chas. F. Creswell,
Statistician, The Association of Life Insurance Presidents,
165 Broadway, New York City.
Dear Mr. Creswell: Here is a bid from Mrs. Frances Moore for service at
the coming session of the Georgia Legislature, beginning January 9. I will not
be here the first days of the session as our Annual Meeting at Saint Petersburg
begins January 9. You will notice her bid is $90.00, plus copies of bills at $1.00
per original page and 50^ per page for carbon copies. I do not know just what
she means by this, but as she says it is the same as last year, and if it is, I think
we had better have the service. In this Mr. Carson agrees with me.
Of course we have to have copies of these bills to study them, but Ed. Bradley,
of a local newspaper, has access to the lioor of the House and a partner, so to
speak, on the floor of the Senate. Por $100.00 this man will keep his eyes open,
npt only for the introduction of biUs,'T3ut for the talk that goes on before a bill is '
introduced, and this service has proven very valuable to us and has enabled us
to abort on occasion the proposed tax measures. I think we should have this
service, and I hope we will have your approval.
Very truly yours,
R. L. CoONEY.
RLC/S.
' Underscored in ink.
124491 — 40 -pt. 10 41
4772 CONCENTRATION OF ECONOMIC TOWER
Exhibit No. 707
[From files of The Association of Life Insurance rresidciit^]
[Notation: Georgia General.]
[Initialed: R. L. H. C. B.]
New York Life Insurance Company
Grant Building, 44 Broad Street, N. W., Atlanta, Ga.
ROBT. L. COONET, Inspector of Agencies, P. 0. Box 237
Southern Department: Virginia, North Carolina, South Carolina, Georgia, Florida
March 3, 1937,
(Stamped) Rec'd. 1937 Mar. 4 PM 1:17.
Mr. Robert L. Hogg,
Assistant General Counsel,
The Association of Life Insurance Presidents,
166 Broadway, New York City.
Dear Mr. Hogg: Speaking generally. Yesterday the General Tax Act was
introduced, and we have been unable to get a copy of it, though I am having it
read now.
This morning the Income Tax Bill was introduced. This is another bill on
which we were promised a hearing, which we were not given. That particular
method seems to be prevailing. What I mean is, they are going to railroad some
of these bills, and I just do not know what to do about it.
We have made five or six friends who will oppose on the floor of the House any
increase whatever in premium taxation. A typical letter from the Hon. J. B.
Joel is herein, together with copy of my reply. ^
I have replied in this way because I have understood this morning, to repeat
the expression used to me, that I am a marked man.' I have the privilege of the
floor and I have been down to the legislature several times, possibly a dozep or
more. The Speaker of the House has made the public statement that he does
not wish any member to accept any invitation given by any person who has any
interest in legislation before the house. I will try to deal with this later. ^
Yours very truly,
R. L. CoONET,
Inspector of Agencies.
RLC-k.
[Notation: No answer. R. L. H.]
Exhibit No. 708
[From files of The Association of Life Insurance Presidents]
[Notation: Georgia. H. B. 272.]
Atlanta, Ga., February 26, 1937.
Atlanta NYLICS:
Since the middle of January I have been so busy fighting any increase in
premium tax that I have hardly had time to do anything else.
You know when we insure a man we persuade him to tax himself to keep his
dependents from taxing others after his death, and it is really not fair to levy
any tax on premiums in any amount except enough to pay for supervision. We
are paying in Georgia today a little more than the average in the United States.
There is a bill to increase this. The rate of percentage as named in the bill now
under consideration would make taxes here higher than anywhere else in the
country.
Your senator or your representative will probably be back home tomorrow.
The Legislature adjourns this afternoon until Monday. I want you, for the sake
of your own business and for your policyholders, whom we are bound to protect,
to see this representative or senator personally and urge against any increase in
premium taxation in this^State for the reasons above named.
I feel sure that you will do this, and I am going to repeat to you that I have been
giving all my time to it for the last month, and I do it because I think it is fair
to the policyholders, out of whom we make our living. That's the plain fact in
the long run, so kindly do this for me.
' Underlined in ink.
' Notation iu nmrgin of Inst 2 paraprai>lis: "Copy in file fl(>()rci:i. II. B. 272."
CONCENTRATION OF ECONOMIC POWER 4773
I am glad to tejl j'ou that the business this year is 50% ahead of last year,
and I hope you have had your share. I have wanted to see every one of our
agents, and I will do that as soon as the matter that has been so serious is over.
Good luck to you, and see if you can't send me an application by return mail.
Address it to me personally and I will see that it gets to the right place.
Very truly yours,
R. L. CooNEr,
Inspector of Agencies,
RLC/S.
Exhibit No. 709
(From files of New YorkXife Insurance Co.]
New York Life Insurace Company
Grant Building, 44 Broad Street, N. W., Atlanta, Ga.
ROBT. L. Cooney; Inspector of Agencies, P. 0. Box 237
Southern Department: Virginia, North Carolina, South Carolina, Georgia, Florida
July 5, 1934.
Personal.
Mr. W. H. PiERSON,
Vice President, New York Life Insurance Co.,
New York City.
Dear Mr. Pierson: Please let me write you in a personal way. Last week
I went to Rome, Ga., and invited to lunch twenty men, whom I happen to know,
large policyholders. Every one of them in our Company, and, of course, with
other companies, too, some of them. The twenty men carry a Million-and-a-Half
of life insurance.
I talked to them some about the taxation of premiums, as I am sure we are
going to have a world of trouble with the next legislature. We have laid some
foundation, I think, on which to build, to stall this. But what I want to say is,
that I asked these men (and repeat, in a most personal way, they understanding
that no company had anything whatever to do with it, but that I was inviting them
and meeting them as a fellow policyholder) what they would do if it were indicated
that this, that, or the other man would vote to increase the tax on their premiums.
Th,eir response was to name the man wlhb would do tjiat and they would do the
best they could to keep him from going to the legislature again. This is a straw.
Yours very truly,
R. L. Cooney.
RLC-k,
Exhibit No. 710
[From files of The Association of Life Insurance Presidents]
[Notation: Georgia General.]
Initialed: R. L. H. V. P. W. C. B.]
New York Life Insurance Company
Grant Building, 44 Broad Street, N. W., Atlanta, Ga.
ROBT. L. Cooney: Inspector of Agencies, P. O. Box 237
Southern Department: Virginia, North Carolina, South Carolina, Georgia, Florida
February 12, 1937,
(Stamped) Rec'd 1937 Feb-15-AM 8.32.
Mr. RoBT. L. Hogg,
Assistant General Counsel,
The Association of Life Insurance Presidents,
New York City.
Dear Mr. Hogg: Your letter of February 5th. The "Perry" to whom I re-
ferred in my letter is Perry Mullinax, our Agency Director at Savannah, and we
have stirred up activity all over the State. All the insurance associations have
protested, and I ventured to suggest a little reprisal some day on the part of
policyholders. That has made several of them sit up and pay attention.
4774 CONCENTRATION OF ECONOMIC POWER
Now in regard to a young lawyer, we may have to employ one yet. If we do,
of course we will advise you. I do not think it will be necessary to do anything
from the Home Office in regard to contacting the Associations. We have got
them pretty well stirred up.
Very truly yours,
R. L. COONEY,
Inspector of Agencies.
RLC/S.
Exhibit No. 711
[Notation: From V. P. Pierson's file marked "Robt. L. Cooney."] 5 (b) LCM
New York Life Insurance Company
Grant Building, 44 Broad Street, N. W., Atlanta, Ga.
Robt. L. Coonet: Inspector of Agencies, P. 0. Box 237
Southern Department: Virginia, North Carolina, South Carolina, Georgia, Florida
March 5, 1934.
Personal.
Mr. W. H. PiERSON,
Second Vice President, New York Life Insurance Co.,
New York City.
Dear Mr. Pierson: Referring to my letter of March 1st, marked "strictly per-
sonal," and in regard to the possible employment of Judge E. M. Davis, of Camilla,
in what we call the Lannie Thompson case, originally in the hands of our attorneys,
Messrs. Lawton & Cunningham of Savannah. The interview to which I referred
there took place yesterday, and I rather think that the point suggested as likely
to be made, was made to good effect — I do not know.
There is another angle that before dismissing the case, and if I am out of order
that will end it, and as briefly as I can put it, it is about as follows: As I told you
sometime ago, we are looking to put action into tbe next legislature which will
relieve, or rather deprive, the municipalities and counties of the right to tax.
There will be two or three bills before the next legislature, unless I am badly
mistaken, to increase our taxes to 2}^% or 3% and leave the municipalities as
they are. Of course, we will fight these. The outcome under present conditions
of necessity is, of course, unpredictable at this time, but we are going to do our best.
We have in line the man who was the Speaker of the last House. He is again a
candidate, and our Association is going to back him in such shape as will make the
matter entirely personal. There will be no come-back on account of that action.
The Governor of this State has been very antagonistic, but in a recent interview
it seems that he will authorize, and I am quite confident where it came from, a
statement that he thought that the powers of municipalities and counties should
be rigidly limited. Please see newspaper clipping herein. We have urged those
who are our friends along this line, not to announce the revised point of view too
suddenly, so to speak, but to work up to it gradually.
Judge IDavis, I make the statement unreservedly, has the reputation in the legis-
lature of knowing more general constitutional law than all the rest. He is one of
two men to whom the legislature listens with the greatest respect, and has been
on the Law Committee at every session that has has attended. We are going to
need him in the legislature to cover the constitutionality of an act depriving
municipalities of the right to levy taxes, and that is the principal reason why I
would like to see him in this Lanme Thompson case, aside from the fact that, as
said in m}' letter of March 1st, I believe that the respect in which he is held will
be a material factor in securing a change in the point of view of our Appellate
Court, one of whose Judges did me the honor to discuss that situation academically
yesterday.
As recited in the beginning of the letter, if I am out of order I will promise not
to bring up this subject further.
Yours very truly,
R. L. Cooney,
Inspector of Agencies.
RLC-k.l4-lNS-5.
CONCENTRATION OP ECONOMIC POWER 4775
Exhibit No. 712
[From files of The Association of Life Insurance Presidents]
[Notation: Georgia S. B. 21.]
[Initialed: H. R. C]
New York Life Insurance Company
Grant Building, 44 Broad Street, N. W., Atlanta, Ga.
ROBT. L. Cooney: Inspector of Agencies, P. O. Box 237
Southern Department: Virginia, North Carolina, South Carolina, Georgia, Florida, Atlanta
February 8, 1933,
(Stamped) In Feb. 10, '33.
Mr. Charles F. Creswell,
Statistician, The Association of Life Insurance Presidents,
165 Broadway, New York City.
Dear Mr. Creswell: You wrote me on February 2nd in regard to Senate Bill
No. 21, suggesting some amendments.
The easiest way to handle this bill is to kill it. I think that has been done.
The First National Bank of Valdosta, Ga., is the financial backer of the Hon.
Nelson, who introduced the bill. I hand you copy of a telegram that was sent
to Senator Nelson yesterday by this bank, at the instance of one of our agents,
Ex-Senator E. E. Dekle, to wit.
I have an idea that the bill will now be withdrawn.
Yours very truly,
R. L. Cooney,
Inspector of Agencies.
RLC-k.
[Copy]
CONFIRMATION
We sent you a telegram this date per The Western Union Telegraph Company
of which the following is a correct copy:
Feb. 7th, '33.
Hon. H. W. Nelson,
Senate Chamber, Atlanta, Georgia:
We believe passage of Senate Bill twenty-one detrimental to business interests
of Georgia. Hope you will not urge its passage.
First Nation.al Bank, Valdosta, Ga.,
By Jas. Y. Blitch, President.
February 10, 1933.
[Initialed: B. H. K.]
Re Georgia Senate Bill 21.
Robert L. Cooney, Esq.,
Inspector of Agencies, New York Life Insurance Company,
P. O. Box 237, Atlanta, Georgia.
Dear Mr. Cooney: Thanks for your letter of February 8th, with regard to the
above-numbered bill, in which was enclosed a copy of a telegram. We much
appreciate this reassuring information and trust that the measure will not now
be seriously pressed for passage.
Very truly yours,
, Statistician.
CFC:V.
4776 CONCENTRATION OF ECONOMIC POWER
Exhibit No. 713
[From files of Kobert L. Cooney, Atlanta, Qa.]
[Copy]
Insurance Department,
State of Georgia,
Atlanta, December 1st, 1934.
Mr. Robert L. Cooney,
New York Life Insurance Company,
Atlanta, Georgia.
Dear Mr. Cooney: A few days ago I had a call from Mr. Harold Dobbins,
who seems to have an agency contract with you and who is very much concerned
about the payment of his occupation tax, although it had been my previous
understanding that the company takes care of such matters for its agents. In
any event, Mr. Dobbins gave me the impression that he was called on to pay this
tax and that by reason of his inability so far to close some business, although he
said he had some under way which he expected to close if he could hang on, he
found himself unable at this time to pay the tax levied against him and asked
whether or not it could be allowed to run along for a little while unpaid.
I did not take up the above matter with Miss Nagle, although she is in direct
charge of, and has supervision in, the matter of occupation-tax, collection, and
license fees. My plan was rather to take it up with you, in the thought that
under all of the circumstances you might feel that it would be a good "investment"
for the company to meet this expense, at least for the time being, in view of the
fact that Mr. Dobbins is again scheduled, I understand, for the Chairmanship of
the Insurance Committee and his good will might be worth keeping.
Think it over, and destroy this letter when you have its contents in mind.
I do not want to be put in position of advocating something out of the ordinary,
hence this is purely a personal expression of opinion and in no way touches my
official stand.
I am hoping to be in St. Petersburg most of next week, although it is barely
possible that something may come up at the last minute to keep me here.
With kindest personal regards, I am.
Sincerely yours,
(Signed) Lewis A. Irons,
Deputy Insurance Commissioner.
LAI/m.
Exhibit No. 714
[From files of Association of Life Insurance Presidents]
[Notation: Georgia. H. B. 179.]
[Initialed: R. L. H. C. B.]
New York Life Insurance Company
Grant Building, 44 Broad Street, N. W., Atlanta, Ga.
ROBT. L. Cooney: Inspector of Agencies, P. O. Box 237
Southern Department: Virginia, North Carolina, South Carolina, Georgia. Florida
February 12, 1937,
(Stamped) 1937 Feb-15-AM 8:32.
Re House Bill 179.
House Bill 180.
Mr. Robert L. Hogg,
Assistant General Counsel, The Association of Life Insurance Presidents,
165 Broadway, New York City.
Dear Mr. Hogg: Your telegram of j'esterday concerning House Bill 179.
There were two bills by Daves of Dooley. Daves being one of our examiners.
We were promised a hearing by the Chairman of the Subcommittee. We went
to the hearing and remained two and a half hours without the Committee meeting.
The Chairman gave another assurance as to a hearing. Bill 179 apparently was
put through in what might be called a secret meeting.
Bill 180, which related to the character of notes which could be taken by life
insurance companies, was withdrawn. i
CONCENTRATION OF ECONOMIC POWER 4777
We are after 179. I have an engagement with Dr. Daves, and I expect we can
get this one withdrawn. There has been quite considerable pressure put on him.
It is a foolish bill.'
Yours very truly,
R. L. COONET,
Inspector of Agencies.
RLC-k.
[Notation: Mentioned to me over phone. No answer. C. J. C]
> Notation in margin of last 2 paragraphs: "Copy in file Georgia. H. B. 180."
[Letterhead of New York Life Insurance Company]
March 4, 1937,
(Stamped) 1937 Mar.-6-AM 8:52.
Mr. RoBT. L. Hogg,
Assistant General Counsel, The Association of Life Insurance Presidents,
165 Broadway, New York City.
Dear Mr. Hogg: Bill #179, by Daves of Dooly,^ was duly ' and finally kiUed
yesterday. This writer had rather a salty interview with the gentleman, who
happens to be examiner for various life-insurance companies. He promised to
withdraw the Bill first, to amend it afterwards. I am getting a copy of the Bill
as it was killed, and if he did not amend it as he said he would or indicated he
would, I do not think he ought to have any more examinations.
Very truly yours, _ , ^
R. L. CoONET.
RLC/S.
Air mail.
' Underscored in ink.
Exhibit No. 715
[From flies of Association of Life Insurance Presidents]
Association Bulletin Service
This Bulletin is sent in coNFinENCE for the information of our mem.bers. It is intended to advise
the companies in the Association from time to time as to current matters of general interest. Its
value would be enhanced by contributions from individual members of any information that would
be important or interesting to other members. In this way the Association may serve as a Clearing
House for the dissemination of information that will be of benefit to the entire membership.
The Association of Lite Insurance Presidents.
MoTT A. Brooks, AssistarU Secretary.
New York, April 8, 1935.
No. S354
Georgia Legislature Adjourned — Premium Tax Increase, Automatic
Premium Loan and Compulsory Deposit Proposals Failed
The Georgia Legislature, which convened on January 14th, adjourned on
March 23rd
Among the proposals failing were an increase in the state gross premium tax
rate from 1>^% to 2>^%; an increase to 3% and prohibiting municipal prenaium
taxation; and an increase to 2%but allowing certain dividend deductions, limiting
municipal taxation to >^ of 1%, and eliminating certain agents' fees. Another
premium tax measure, also failing, would have changed the state rate to 2}^% but
allowed certain dividend deductions, prohibited municipal taxation and eliminated
certain agents' fees. A bill failed which would have imposed a tax on intangi-
bles— specifically including policy reserves and possibly broad enough to include
mortgages and policy loans — as did another to enact an adverse automatic pre-
mium loan statute. A complete insurance code bill was introduced but failed.
Among other things, it would have required a $100,000 deposit of foreign companies
for the benefit of Georgia policyholders.
Although a number of measures which would have affected mortgage loans were
introduced, only one was enacted. The new law will tend to restrict the amount
of deficiency judgments obtained in connection with foreclosures by power of sale.
Credit in large measure for the favorable outcome is due to Mr. Robert L.
Cooney, Inspector of Agencies, at Atlanta, for the New York Life Insurance Com-
pany, who again represented the Association with respect to life-insurance mat-
ters. Commendation is also accorded for the splendid cooperation of Mr. Sam M.
4778 CONCENTRATION OF ECONOMIC POWER
Carson, General Agent, at Atlanta, for the Aetna Life Insurance Company, as
well as for the assistance of other life insurance representatives in the state.
Mr. Frank C. Owens, Vice-President, Draper-Owens Company, of Atlanta, repre-
sented the Association with regards to mortgage loan matters.
A brief description of the more important measures of interest follows:
MEASURES ENACTED
S. B. 79 Prohibits an action for a deficiency judgment after a sale of
real estate under a power of salfe unless the creditor within
thirty days after the sale obtains confirmation thereof by the
Superior Court. Court not permitted to confirm sale unless
selling price at least equals the true market value of the property.
Authorizes courts to order resales for good cause shown and
requires sales under powers of sale to be advertised and con-
ducted at the time and place and in the usual manner of sheriffs'
sales in the county where the real estate is located.
S. B. 100 Amends the Charter of the City of Atlanta to require certain
employees of the city to have group life insurance of $1,000
each, the citj' to pay premiums over 70 cents per month for
each employee.
S. B. 124 Adopts newly compiled Code of General Laws known as "The
Code of Georgia of 1933," as app'roved by the Code Com-
mission and as made effective, as of January 1, 1935, by procla-
mation of the Governor. No changes of substance made in
the Insurance Law.
H. B. 56 Prohibits life insurance companies from providing in policies
that the face amount which may accrue shall be payable in
anything other than legal tender of the United States and of
Georgia. The measure was amended, before passage, to elimi-
nate a provision which would have provided that any life
insurance company violating any law of the state regulating
life companies should be subject, upon petition of any indi-
vidual, to be enjoined therefor.
H. B. 561 Reenacts General Revenue Act. Althouth amendments were
ofl^ered from the House floor to increase the state premium
tax from VA% to 2J^%, and to impose a sales tax — exempting
premiums on which a tax is paid to the state but probably
broad enough to tax annuity considerations at 5% — no additional
tax burden was imposed upon insurance. In cases where a
company invests 75 % of its total assets in specified state securi-
ties, the premium tax rate was reduced from % of 1 % to 3^ of
1 %. A general provision is contained in the new act to require
the payment by January 1st of taxes imposed by the act, but
we understand it is not the disposition of the Department to
alter the date of premium tax collections.
MEASURES WHICH FAILED
S. B. 13 To prohibit a greater rate of interest than 6% on money loaned
and to repeal present law prescribing legal interest rate of 7%
and contract interest rate of 8%.
S. B. 25 To reduce the legal interest rate from 7% to 6% and the con-
tract interest rate from 8% to 7%.
S. B. 43 To reduce the legal interest rate from 7% to 6%.
S. B. 63 To change the present interest rate to 6%.
S. B. 78 To reduce the contract interest rate from 8% to 6%.
S. B. 97 To impose a tax on intangibles, defining intangibles to include,
among other things, "any equity in any life-insurance policy."
Might have required mortgages and policy loans to be returned
for taxation. Would have specifically required insurance com-
panies to report annually the names and addresses of policy-
holders, amounts of insurance, and the paid-up cash surrender
or unused loan values; also to furnish annually to the tax
official in each county, in which any stockholder or bondholder
may reside, a list of stockholders and known bondholders
residing therein, with the market value of their stock and the
face value of their bonds.
CONCENTRATION OF ECONOMIC POWER 4779
S. B. 123 To substitute a penalty of 12% of amount of claim, with reason-
able attorney's fees, for present penalty of 25 %, with reasonable
attorney's fees, upon failure to pay a loss within the time
specified in the policy.
S. B. 133 To provide a two-year redemption period after mortgage fore-
closure sales.
S. B. 148 To amend present penalty law, applicable to insurance claims,
so as to substitute for the provision conditioning the recovery
of the penalty upon bad faith of the company, a provision con-
ditioning the penalty upon a verdict for the plaintiff for 75%
or more of the principal amount for which suit was brought.
H. B. 34 To prohibit persons and corporations from sohciting or "Advertis-
ing or, in any way, holding themselves out as eligible to be
trustees of estates.
H. B. 61 To reduce license fees for industrial life-insurance agents from
$10.00 per county to $1.00 per county.
H. B. 92 To impose a tax of $1.00 on each individual and corporation
it)r the purpose of providing funds for old-age pensions.
H. B. 94 To provide for automatic premiums loans in a somewhat similar
manner as under present Rhode Island law.
H. B. 168 To invalidate all foreclosures of real estate under powers of
sale unless such sales are confirmed by court order; to prohibit
such confirmations unless the judge believes selling price repre-
sents the reasonable market value of the real estate; to require
suits for deficiency judgments to be instituted within three
months after confirmations; and to restrict deficiency judgments
to the difference between the reasonable market value and the
amount of the debt.
H. B. 201 To reduce the legal interest rate from 7% to 5% and the con-
tract interest rate from 8% to 6%.
H. B. 305 To increase the state gross premium tax from 1}^% to 3% and
to allocate one-half of such tax to the common schools. Would
have prohibited counties and municipalities from levying taxes
or license charges on companies or agents, except ad valorem
taxes, other than the special license taxes now permitted by
state law on companies and their representatives; would have
eliminated provisions as to reduction of the premium tax when
certain percentages of assets are invested in designated securi-
ties; and would have required all taxes and charges against
insurance agents and representatives to be paid by the com-
panies.
H. B. 317 To prohibit a greater rate of interest than 6% on money loaned.
H, B. 336 To extend the maturity of all evidences of indebtedness during
any period in which the withdrawal of deposits from banks is
limited by any lawful authority, and to restrict the institution
of action on any such evidences of indebtedness during such
period.
H. B. 344_._..- Same as Senate Bill 100.
H. B. 420 To reduce agents' license fees from $10.00 to $1.00 per county.
H. B. 469 To prohibit foreclosures by the power of sale method.
H. B. 472 Same as Senate Bill 133.
H. B. 489 To increase the state tax from l}i% upon gross premiums to
2J4 upon premiums, less dividends paid in cash, or deposited by
the insured subject to caU. Would have eliminated certain
license fees on agents and made the premium tax in lieu of any
county or municipal tax or license fee on con .panics and their
representatives. A substitute measure would have made the
tax for state purposes 2% of gross premiums, less dividends
paid in cash or deposited with company subject to withdrawal
or allowed as a credit against premiums. Also would have
permitted incorporated cities and towns to impose a tax of not
over "-^ of 1 % on gross premiums less the same deductions. Also
would have repealed special license fees of $10.00 per county on
local agents and $100.00 on general agents.
H. B. 639 To make an insurance company liable for acts of its agents in
inserting false statements or answers in appUcations, unless the
insured had actual knowledge of and consented to such inser-
tions, and to provide that an insurance company shall not be
4780 CONCENTRATION OF ECONOMIC POWER
allowed to avoid policies issued on such applications because of
such statements or answers.
H. B. 657 To vest discretion in the courts to determine whether or not
deficiency judgments would be permitted in foreclosure actions,
and to prohibit deficiency judgments in cases where the action is
against the original mortgagor, the mortgage is for the purchase
price of the pi-operty and the original mortgagee becomes the
purchaser at the sale.
H. B. 709 To impose upon industrial life companies a fee of $10.00 for each
agent, plus an additional $10.00 for each county in which the
agent soUcits; such charges to be in lieu of the present fee of
$10.00 per county now imposed upon each agent. Would have
prohibited companies from assessing such fees against agents.
H. B. 827 To repeal Senate Bill 100, described above.
H..B. 876 To impose a tax of 15% of the amount of premiums upon policies
1 written in unlicensed companies or by unlicensed agents.
H. B. 879 To reduce from $1,500.00 to $1,000.00 the amount of income
required to be reported under the information at source section
of the income tax law.
H. B. 918 To enact a complete new Insurance Code. Among the changes
which would have been made in the Georgia Insurance Law
were provisions which would have —
Required each life insurance company to deposit with the
State Treasurer specified securities in the amount of
$100,000.00 for the protection of Georgia policyholders.
Authorized the Insurance Commissioner to prescribe stand-
ard forms of policies and contracts.
J^utho^ized the Insurance Commissioner to examine any
insurance company, but without authority to accept a
report of examination made by another state.
Incorporated incomplete and ambiguous provisions relating
to incontestability. Qualification that period shall run
"during lifetime of insured" omitted. No exceptions in-
cluded with respect to naval or military service nor re-
garding the right to contest disability and double indem-
nity claims at option of company. (Georgia at present
has no incontestable law.)
Incorporated provision requiring insurer to return premiums
with interest, if insured committed suicide within two
years or died by the hands of justice within ten years.
Permitted Insurance Commissioner to measure policy values
by any recognized standard table of mortality acceptable
to him.
Set up agents' license and qualification law with a number
of adverse features.
A preliminary draft of the measure included a provision which
would have imposed an additional premium tax of }lo of 1 % for
the expenses of the Insurance Department.
CONCENTRATION OF ECONOMIC POWER 4781
Exhibit No. 716
[From flies o( Tho Association of Life Insurance Presidents]
AssoaATioN Bulletin Service
Tliis Bulletin is sent in confidence for the information of our members. It is intended to advise the
companies in the Association from time to time as to current matters of frencral interest. Its value
would be enhanced by contributions from individual members of any information that would be im-
portant or interesting to other members. In this way the Association may serve as a Clearing House for
the dissemination of information that will be of benefit to the'entirelmembership.
THE ASSOCIATION OF LIFE INSURANCE PRESIDENTS.
MOTT A. Brooks, Assistant Secretary.
New York, April S, 1937.
No. 2759
Georgia Legislature Adjourned — Deposit Law Enacted — Proposals to
Increase Premium Tax and to Impose Gross Income and Net Income
Taxes on Insurance Companies Failed
The regular session of the Georgia Legislature, which convened January 25'
adjourned on March 25.
The outstanding hfe-insurance measure enacted was one to include foreign
life-insurance companies, among others, in the law which required certain insurance
companies, other than life, to deposit $10,000 to $25,000 in prescribed securities
with the State Treasurer. As passed by the House, it was inapplicable to life
insurance. The Senate Insurance Committee, however, coincident with its
reporting unfavorably of a Senate bill to require life-insurance companies to make
a deposit of $100,000, broadened the House proposal to include life-insurance
companies. The bill as amended was quickly passed by the Senate, and the
amendments were concurred in by the House.
A number of tax proposals were introduced, including two to increase the
premium tax from 1^% to 2>2%, a third to levy a 2% gross-income tax to which
insurance companies would have been subject and a fourth to revise the net-income
tax which would have repealed the present exemption of insurance companies.
None of these measures was enacted, except the revision of the income tax which,
however, was amended before passage to restore the exemption of insurance
companies. Among the other proposals of special interest, which failed, were two
to provide for hospital liens and two to make communications to a physician or
surgeon privileged.
The association was again represented with respect to life-insurance matters
by Mr. Robert L. Cooney, Inspector of Agencies at Atlanta for the New York
lyife Insurance Company, who was ably assisted by Mr. Sam M. Carson, General
Agent at Atlanta for the Aetna Life Insurance Company. Much credit is due to
these gentlemen and to other life-insurance men in the state who generously
cooperated with them in the interest of life-insurance policyholders.
Brief descriptions of the more important measures of interest follow:
measures enacted
S. B. 75 Authorizes In.surance Commissioner to appoint such investi-
gators, as in his discretion are necessary, to effectively investi-
gate the activities of all insurance companies doing business
in state.
S. B. 95 Defines life-insurance contracts to include all contracts assum-
ing an obligation to be performed on the death of the insured.
H. B. 34 To amend Constitution so as to permit the legislature to classify
property for taxation and to tax the classes by different methods
and at different rates.
H. B. 140 Amends net-income-tax law so as, among other things, to tax
payments under annuity contracts in same manner as under
Federal Revenue Act. As introduced, would have repealed
exemption of insurance companies. Amended before passage
to restore this exemption.
H. B. 185 Creates system of unemployment compensation. Requires
employers of eight or more, specifically including insurance
companies, to make contributions based on wages of 3.6% for
the last six montha of 1937, and 2.7% thereafter. Commis-
sioner to report by December 1, 1939, on feasibility of estab-
lishing future rates according to experience. Contributions
due and payable in accordance wrth^ such regulations as Com-
missioner may prescribe. Includes within definition of "em-
4782 CONCENTRATION OF ECONOMIC POWER
ployment" service performed by an individual, unless shown to
satisfaction of Commissioner that such individual has been and
will continue to be free from control or direction, both under
his contract and in fact; that such service is either outside usual
course of business or is performed outside of all places of busi-
ness of the enterprise for which such service is performed, and
that such individual is customarily engaged in an independently
established occupation or business. Act inoperative and con-
tributions to be refunded, as prescribed, if Title IX of Federal
Social Security Act inoperative.
H. B. 385 Requires certain foreign insurance companies, including life,
to deposit with State Treasurer a minimum of $10,000 in pre-
scribed securities. Companies with paid-up or issued capital
stock in excess of $500,000 would be required to make such
deposit in an amount equal to 2% of its gross annual premiums
"from business written on Georgia property," but not exceeding
$25,000. Also gives claims of policyholders a preference in
liquidation of life-insurance companies.
MEASURES WHICH FAILED
S. B. 3 To reduce, from 8% to 7%, the contract interest rate, and to
reduce, from 7% to 6%, the legal interest rate.
S. B. 5 To require "nonresident" life-insurance companies doing busi-
ness in Georgia to deposit $100,000 in approved securities with
State Treasurer, and to give a preference to death claims in
liquidation of life-insurance companies.
S. B. 37 To give hospitals and medical practitioners a lien for services
(H. B. 36). renderedin connection with personal injuries on certain claims
of the patient, in language broad enough to have included
disability benefits.
H, R. 15-67C To amend Constitution to provide that after January 1, 1940,
no tax other than an income tax might be levied by the state
or municipalities except to pav existing bonded debt.
H. B. 39 Similar to Senate Bill 3.
H. B. 176 To impose a 2% gross income tax on all businesses. Would
have been broad enough to have included both premium and
investment income of insurance companies.
H. B. 179 To make communications to a physician or surgeon privileged.
Would have permitted waiver of privilege only by patient and
only after commencement of action.
H. B. 180 To require premium notes taken before delivery of policy to
contain a complete description of the policy and to make such
notes nonnegotiable.
H. B. 272 To increase the premium tax from 1^% to 2}^%, and to elimi-
nate present deductions of premiums returned in change of rate
and in cancellations and of premiums for reinsurance. Also would
have eliminated provision which grades such tax down to 1%
if % of total assets invested in prescribed securities, and to Yi
of 1% if % of such assets so invested.
H. B. 416 To require all foreign corporations to appoint resident of Atlanta
as agent for service of process.
H. B. 548 To provide that an insurance company, doing business in state,
which has no agent for service of process shall be presumed to
have designated the Insurance Commissioner as such agent.
H. B. 640 To amend General Revenue Act so as, among other things, to
increase the normal rate of premium tax from 1K% to 214%; to
increase rate from 1% to 1^%, if ^ of total assets invested in
prescribed securities, and to provide for no premium tax if %
of such assets so invested.
H. B. 675 To impose a gross income tax on certain businesses and occu-
pations, specifically exempting insurance companies which pay
a premium tax; also exempting certain policy proceeds.
H. B. 784 To require nonforfeiture provisions in industrial policies which
provide surrender values, loan values, extended insurance, or
other rights or privileges to the insured.
H. B. 835 To impose a gross income tax. Would have exempted insurance
companies and certain policy proceeds.
H. B. 845 Similar to House Bill 179.
CONCENTRATION OP ECONOMIC POWER 4783
Exhibit No. 717
[From files of The Association of Life Insurance Presidents]
Association Bulletin Service
This Bulletin is sent In Confidence for the information of our members. It is intended to advise
the companies in the Association from time to time as to current matters of general Interest. Its
value would be enhanced by contributions from individual members of any information that would
be important or interesting to other members. In this way the Association may serve as a Clearing
House for the dissemination of information that will be of benefit to the entire membership.
The Association of Life Insurance Presidents.
MOTT A. Brooks, AssiHant Secretary.
New York, February 19, 19S8.
No. 2954
Georgia §pecial Session Adjourned — Compulsory Investment and Premium
Tax Measures Failed
The special session of the Georgia Legislature, which convened November 22,
1937, adjourned on February 13.
A House measure which failed was of the "Robertson type" and would have
required companies to have 75% of their Georgia reserve invested in prescribed
Georgia securities. Another unsuccessful proposal would have imposed, in addi-
tion to present taxes, a 5% tax on gross premiums received by foreign Ufe com-
panies not having invested in certain prescribed Georgia securities 75% of "net
earnings" frcyn business done in Georgia during the previous year. Still another
adverse measure which failed would have imposed an inheritance tax on life-
insurance proceeds, in excess of $10,000, payable to named beneficiaries.
A new law creates a Department of Revenue and the office of State Revenue
Commissioner. Another proposal which became law provides for the classifi-
cation and taxation of intangible property in accordance with the authority
granted by a constitutional amendment passed at the last regular session of the
Georgia Legislature. A bill to permit banks to absorb the "intangibles" tax on
depositors' accounts is pending before the Governor. Of interest because of their
relation to the property tax demands of Fulton County, Georgia, which are now
the subject of litigation, are a measure to outlaw the employment of tax ferrets on
a contingent fee basis, which is awaiting the Governor's action, and a new law
authorizing towns and cities to create Boards of Tax Appeals. A new enactment
requires industrial policies to contain nonforfeiture provisions.
As in past years, the Association was represented by Mr. Robert L. Cooney,
Inspector of Agencies at Atlanta for the New York Life Insurance Company, who
received valuable assistance from Mr. Sam M. Carson, General Agent at Atlanta
for the Aetna Life Insurance Company. Credit for the successful outcome is due
to these gentlemen and to the life-insurance underwriters who cooperated with
them so generously in the interests of policyholders.
Brief descriptions of the more important measures of interest follow:
measures enacted OB before governor
S. B. 102 Amends new Intangibles Tax Act (House Bill 26) so as to permit
banks and trust companies to pay any tax due on depositors'
accounts. Before Governor.
H. R. 152-A_ To declare void contracts for the collection of taxes on a contingent
basis and to declare such practice against the public policy of the
State. Before Governor.
H. B. 26 Creates new Intangibles Tax Law providing for rate of 50^ per
$1,000 on bank deposits and $3 per $1,000 on certain other in-
tangibles. Intangibles of nonresidents declared taxable if such
property "acquired in the conduct of, or used incident to, business
carried on or property located in this State." Approved.
H. B. 27 Creates Department of Revenue and office of State Revenue Com-
missioner to head the Department. Commissioner i? to take over
all duties and powers relating to taxation and licensing now vested
in various state administrative officers, except that powers and
duties of the Comptroller General with respect to the licensing of
insurance companies and their agents is not disturbed, and except
that Commissioner is expressly authorized to delegate collection
of "license fees" to other departments of the State Government
4784 CONCENTRATION OF ECONOMIC POWER
under certain circumstances. Section containing delegation au-
thority also provides that "In any case in which the collection of
any tax or license may be delegated as provided in this Section
the Commissioner shall retam supervisory authority over such
activity and is herebj' charged with this duty." Approved.
H. B. 29 Authorizes towns and cities to create Boards of Tax Appeals before
which objecting taxpayers must appear prior to seeking relief by
court action. Approved.
H. B. 54 Requires industrial policies to contain nonforfeiture provisions and
establishes grace period of 90 days within which insured may elect
to take optional rights. Approved.
H. B. 78 Permits insurance companies, among others, to invest in shares of
state- chartered building and loan associations as defined in the
Building and Loan Act and of Federal savings and loan associa-
tions, up to $5,000 in each such institution, where such institutions
are insured by Federal Savings and Loar Insurance Corporation.
Also makes such permitted securities eligible for deposit. Approved.
H. B, 366 Authorizes Boards of Education of counties having poDulation of
not less than 48,667 nor more than 48,677 to insure the lives and
health of teachers and other employees, and authorizes such Boards
to pay necessary premiums and make necessary appropriations.
Approved.
MEASURES WHICH FAILED
H. B. 51 To impose an inheritance tax applying, among other things, to life-
insurance proceeds in excess of $10,000 payable to named bene-
ficiaries. Would have required mailing prescribed notices to the
State Revenue Commission as a prerequisite to payment of policy
proceeds, but Commission would have been permitted to waive
notice requirement on sums of $1,000 or less.
H. B. 197 Similar to House Resolution 152-A.
H. B. 268 To impose 5% tax on gross premiums received by companies doing
business in Georgia to be in addition to present taxes. Would
have exempted domestic companies and such other companies as
invest 75% of "net earnings from business done in the state during
the previous year" in certain specified Georgia securities.
H. B, 388 To impose a tax on gross receipts of individuals and corporations,
exempting insurance companies which pay to the State a tax on
premium income. Certain policy proceeds also exempted. Would
have required information-at-source reports and withholding in
certain cases.
H. B. 420 To impose a gross sales and income tax on individuals and corpo-
rations, exempting insurance companies which pay a premium tax
to Georgia, and exempting certain insurance proceeds.
H. B. 507 To require life-insurance companies to have 75% of their Georgia
reserve invested in prescribed Georgia securities. Similar to com-
pulsory investment features of Texas Robertson law.
H. B. 525 To require an assurer, upon the cancellation of an insurance policy
or contract for any cause by either party, to, within ten days,
refund to the assured a pro rata part of the premium paid, accord-
ing to the length of time the contract was in effect as compared
with the fuU time the contract was to remain in effect.
CONCENTRATION OF ECONOMIC POWER
Exhibit No. 718
[From flies of The Association of Life Insurance Presidents]
4785
[Initialed: B.]
June 10, 1935.
Re Pennsylvania Senate Bill No. 1520.
William H. Kingsley, Esq.,
Vice President, The Penn Mutual Life Insurance Company,
Philadelphia, Pa. ^
Dear Mr. Kingsley: Supplementing my letter of June 8th, in connection
with the above-mentioned proposal, it occurs to me that you might desire to
have before you a record of the bills of this type which have been introduced in
the various legislatures.
As you 1: :ow, the only savings-bank life-insurance law now on the statute books
is in Massachusetts. Since its enactment in 1907 seventeen measures of this
nature have been introduced in seven states. Despite the fact that some of these
were riather strongly supported, none has become law. The following table shows
the state and year of these introductions:
Year
State
Year
State
1909
New York (2).
New York (2).
Rhode Island.
New Hampshire.
No. Carolina.
Indiana.
New York.
1934 ..
New York (2).
1910
1934
1910
1935
Florida (2).
1913 -- --.
1936
New Hampshire.
New York.
1929 .
1935 -.
1931
1935 ..
Rhode Island.
1932
In addition, a Missouri proposal, in the form of a constitutional amendment,
was introduced this year but not enacted, to authorize the legislature to create
mutual savings banks, with or without life-insurance departments. It, however,
did not set up details for the operation or regulation of such departments.
Very truly yours,
, Statistician.
CFCrCV.
Exhibit No. 719
(From flies of Association of The Life Insurance Presidents]
February 24, 1937.
[Copy]
Fast message.
James C. Jones,
Jones, Hocker, Gladney and Jones,
705 Olive Street, St. Louis, Alissouri:
As promised in telephone conversation this morning, have arranged with
President Sears, of Columbian National, to wire Dyer expressing adverse views
House Resolution eleven, while presuming Dyer's opposition. Massachusetts
Mutual air-mailing letter St. Louis representative, and Scott in Kansas City also
expressing adverse views. New England Mutual wiring similarly to St. Louis
agent today. John Hancock writing Cammack to cooperate with you, as it has
already expressed opposition this bill. Still working on State Mutual. Sending
air mail one copy DeGroat's recent analysis Massachusetts plan distributed by
National Association Life Underwriters. Can obtain additional copies this
pamphlet or other material similar to that sent two years ago if you wish. Refer-
ring views of Crocker, former President John Hancock, think perhaps he may have
said savings-bank insurance not in competition with industrial insurance. This
because former written in larger amounts so as to be in competition ordinary
insurance and not because Crocker favored Massachusetts system. On contrary,
he was violently opposed. Think Dyer must have misconstrued his meaning.
Will be glad to take further action if such desirable.
B. E. Shepherd.
4786 CONCENTRATION OF ECONOMIC POWER
Exhibit No. 720
[From flies of The Association of Life Insurance Presidents]
[Notation: Missouri. H. J. & C. R. 11.]
[Initialed: R. Bacon. E. L. K.]
Jones, Hooker, Gladney & Grand
attorneys at law
705 Olive Street
James C. Jones Joseph H. Grand Edward W. Lake,
James C. Jones, Jr. Web A. Welker Warren F. Drescher, Jr.
Lon O. Hocker Vincent L. Boisaubin Lon Hooker, Jr.
Frank Y. Gladney Arnot L. Shepherd
St. Louis, Mo., February 25, 1937.
(Stamped) Rec'd 1937 Feb.-28-AM 10:29.
Air mail.
Association of Life Insurance Presidents,
165 Broadway, New York, N. Y.
(Attention Mr. Shepherd.)
Gentlemen: We are reporting details regarding above in a separate letter.
This is merely suggestive.
I think it is pretty generally true, though there are some notable exceptions,
that General Agents and Managers know nothing about the Massachusetts Sav-
ings Bank insurance law and its operation. The consequence is, they are gener-
ally apathetic.
Some of these in the operation of their business very naturally make close
contacts with the banks, large and small.
Some of the smaller banks are reported to be distinctly in favor of H. B. 201,
which provides for the organization of savings banks, and favoring this, they also
favor H. R. 11, which would authorize savings banks to write insurance.
Now when the agent, apathetic in the sense above adverted to, ascertains that
his friend, the small banker, favors these measures, he naturally becomes more
apathetic, because he fails to appreciate what he is building up against himself, as
indicated in De Groat's pamphlet, particularly at page 24, et seq.
THE remedy: If, in Missouri and other States where savings-bank insurance is
sought to be introduced, the President of the company would send to each General
Agent or Manager in the State a copy of Berman's book and a few copies of De
Groat's pamphlet, with a request that they read both and advise the President in
due time their own unbiased opinion on the subject, a lot of good would follow,
for the resultant attitude of the informed agent is easily foretold, and the request
for study and response is only to insure such study.
It is questionable that this or any equivalent course will have much effect
during this session, for the Legislature should adjourn in five or six weeks; and yet,
if it could be started at once, it might be of some help even in this session, but this
bill is being reintroduced with systematic regularity in each recurring session,
and something of the sort is indicated in preparation for the session of 1939.
Yours very truly,
(Signed) James C. Jones.
[Notation: H. J. & C. R. 11.]
[Initialed: B. R. B. B. E. L. K.]
Day letter. February 26, 1937.
rStamped) Sent 1937 Feb.-g8-PM 4^57
James C. Jones,
Jones, Hocker, Gladney & Grand,
705 Olive Street, St. Louis, Missouri:
Interested in plan you suggested for educating agents on savings-bank insurance
but wish time to consider fully. In view difficulty securing results at present
session by this method, suggest you might want to consider immediate distribution
DeGroat pamphlet by yourself in St. Louis and Scott through underwriters
association if sufficiently well organized and if you think this would reach right
persons. If this appeals to you, wire number of copies desired by yourself and
Scott.
ELK. B. E. Shepherd,
CONCENTRATION OF ECONOMIC FOWER 4787
[Letterhead of Jones, Hocker, Qladney & Grand]
[Notation: R. Bacon.]
St. Louis, Mo., February 25, 1937.
(Stamped) Rec'd 1937 Feb.-26-AM 10:30.
House Resolution No. 11.
Air mail.
Association of Life Insurance Presidents,
165 Broadway, New York, N. Y.
(Attention: Mr. Shepherd.)
Gentlemen: Mr. Welker, of this office, was at Jefferson Citj' j'esterday, and
ascertained that because of the illness of the sponsor of this bill, the hearing
would be deferred until March 3, a week from yesterday.
The telegrams which were sent to the Agents of the various Companies have
I think, materially changed the attitude of most if not all of them, and, from being
apathetic, I think they have become, or will by the time of the hearing, distinctly,
cooperative in opposing this resolution.
Mr. Scott, of Kansas City, was in town today, and I have just finished a con-
ference of an hour and a half with him in respect of this and other matters. He
a very earnest and painstaking man, and very persistent, and is in ail things
cooperative. He will not only help us on this measure, but on anything else that
we call on him for.
Yours truly,
James C. Jones,
by W.
Exhibit No. 721
[From flies of The Association of Life Insurivnce Presidents]
[Notation: Missouri. H. J. & C. R. 11.]
[Initialed: R. Bacon. B.]
Jones, Hocker, Gladnby & Grand
attorneys at law
705 Olive Street
James C. Jones, Joseph H. Grand, Edward W. Lake,
James C. Jones, Jr., Web. A. Welker, Warren F. Drescher, Jr.,
Lon O. Hocker, Vmcent L. Boisaubin, Lon Hocker, Jr.
Frank Y. Qladney, Arnot L. Sheppard,
St. Louis, Mo., March 17, 1937,
(Stamped) Rec'd 1937 Mar.-19-AM 8:51.
H. R. 11.
Association of Life Insurance Presidents,
165 Broadway, New York, N. Y.
(Attention Mr. Shepherd.)
Gentlemen: I was informed today that the legislative committee of the local
banks is going to bring out a resolution opposing the above bill.
It was also intimated to me that the one local banker who is in favor of this
measure probably changed his mind. I hope this is so, or otherwise a minority
report in favor of the measure would not be so good, for the reasons I explained
to you in New York.
I have done nothing to encourage action by this committee of bankers. One
is hardly in a position to tell them what not to do when it seems it is apparent
that they now propose to do it.
I talked to about forty of the insurance agents yesterday at a luncheon of the
Managers' Association and explained to them what our course was, handing them
a document prepared for their use with the section relating to bankers somewhat
modified. These managers are now engaged in picking the men best available
for contact purposes, but they are not to be turned loose until I give them word,
which will not be given until this measu-e gets over into the Senate, which will
probably be sometime next week.
Yours very truly,
(Signed) James C. Jones.
[Notation: No ans. R. B. B. E. L. K.]
124491 — 40 — pt. 10 42
4788 CONCENTRATION OF ECONOMIC POWER
Arguments for Industrial Agents
Each agent is invited to use and be prepared only for such part of what follows
as impresses him as forceful. Thus, Agent A may prefer to talk on Paragraph (1)
and agent B may prefer to talk on Paragraph (5) .
Choose what part you like, but get it over with a punch and in from 3 to 5
minutes. Best not to take longer.
(1)
SELFISH interest
As a general agent or manager of a life-insurance company, and particularly an
industrial company, I, of course, have a selfish interest in opposing this jneasure.
I am one of a number (perhaps ) of such agents, and we all have a
similar selfish interest.
We do not want the business which we have been years in building up disturbed
or destroyed by competition unless we have to make this sacrifice for the public good.
This selfish interest is the selfish interest of so large a number of the com-
munity that I think it is the duty of our Senators and Representatives to consider
the selfish interests of so large a number as being an important part of those who
should be considered in all measures designed for the betterment of the General
Welfare.
After all, legislating for the general welfare means essentially so legislating as to
improve the selfish interests of a substantial part of the community, and I claim
that we insurance agents are a substantial part of the community whose interests
should be guarded by our Representatives.
(2)
does MISSOURI WANT MUTUAL SAVINGS BANKS?
We have no mutual savings banks in Missouri.
The present Constitution says we shall have none unless the people expressly
vote for them, after the legislature passes an act creating them.
Why does anyone want Mutual Savings Banks; that is, banks without capital?
Capital is intended to give some security that deposits will be returned when
demanded by depositors.
Without capital there will be no security for the return of such deposits.
Even with the commercial banks, which have capital, the bank mortality in
Missouri has been little less than appalling. Starting with 1,463 banks in 1925,
Missouri had left at the beginning of 1935 only 642 banks.
These figures are taken from the last published report of the State Bank Com-
missioner, page 16.
The bank mortality was, therefore, 66% in 10 years — which means that two-
thirds of the banks existing in 1926 passed out of existence by 1935.
This record would seem to indicate that instead of having more banks, we
should have better banks. Instead of banks with no security for depositors or
less security, we should have banks with greater security.
But this measure looks to the creation of banks with no security for depositors.
I claim that for Missouri this is bad public policy and disregards the general
welfare.
(3)
increasing bank responsibilitt
During the ten-year period (1925 to 1935), Missouri organized 175 new banks.
During that same period, 696 banks failed. This is shown by the last Bank Com-
missioner's Report, page 16. In other words, during this period, four times as
many banks failed as were organized in Missouri.
Why should we add to the responsibilities of the bankers by letting them take
on the insurance business in any form?
Of course, it was the smaller banks that were undercapitalized that were mostly
the banks that failed. Now this measure proposes to create more smaU banks
with no capital — mutual banks — and to increase their responsibilities by empower-
ing them to write life insurance.
Life insurance means issuing contracts, some or most of which do not mature
until death-^30, 40, 50, 60 years hence.
If two-thirds of the banks fail in 10 years, of what value is the contract of
such a bank when the contract does not mature for from 15 to 50 years hence?
CONCENTRATION OF ECONOMIC POWER 4789
Small banks should make a better showing of ability to do a bankine; business
before they are authorized to take on the responsibility of the life-insurance
bn.<>iness.
The banking business is Itself an intricate business — indeed, a very hazardous
business, if two out of three fail in a ten-year period.
But the life-insurance business is much more intricate than the banking business.
Everybody concedes that. Now it is proposed to give the small banks two
hazards to jump — two ropes with which to haug themselves.
It's like saying to the small banks: "Well, boys, you did a pretty good job
during the last ten years killing yourselves off. Two out of 3 of you couldn't
survive 10 years." But, Missouri knows its stuff. We are going to fine you
during the next ten 5'ears. You smaller banks are hungry for profit, and ex-
perience indicates that it doesn't make a lot of difference to you how you get it.
Now we are going to offer j'ou an attractive bait. We are going to authorize
you to do the life-insurance business. You don't know anything about life
insurance, of course, but you'll learn or you will fail. And if enough of you take
on the added responsibility of 'life insurance during the next ten years, you can
run up the bank mortality of Missouri from 66% to perhaps 85% or 90%. And
that will sure be a record.
And that is just where this legislation is likely to lead Missouri.
(4)
COMMISSIONS TO AGENTS
It is claimed that savings bank insurance is cheaper because there are no agents
and no commissions to pay. But what does the agent do for his commission?
He collects the premium — from 5 cents to 25 cents per week — and thus keeps the
insurance in force.
Under the savings-bank plan, the insured would have to go — and each insured
would have to go — each week down to the bank or other agency and pay his
prenmim there. How can he do this when he is at work"! Will he do it after
working hours?
Experience shows that he will not. WiU^his wife do it for him? She has her
work to do at home.
The consequence is that his insurance will lapse in a far greater degree where
he has to go to the insurer (the bank) than it does when the insurer, through the
agent, comes to him to collect his premium.
If it is wise public policy to keep wage carriers covered with insurance to a
modest extent, then it is far better to have the agent call for the premiums than
to depend on the wage carrier to go to the bank to pay the premiums.
For the commission he gets, the agent visits each policyholder on his route —
much as a milk wagon delivers milk. For this commission, he wears out shoes,
clothing, feeds himself, and houses himself. He surely earns all he gets. He makes
a substantial return to each policyholder by keeping his policy in force. He makes a
substantial return to the state for each policyholder who dies adequately insured
is one or more (wife and children) less paupers left for the state to take care of.
Everybody is helped by the present system. Many will be harmed if it is changed.
(5)
TAXATION
Savings banks are not to be liable to Missouri for any taxes and fees assessed
against life-insurance companies.
The life-insurance companies during the past ten years have paid Missouri in
taxes a total of $ or $ per year.
Of course, every one knows that if you don't have to pay taxes, you caa sell
your goods for less.
But why should the State of Missouri set up a competitor to good customers.
Why should the state help savings banks who wiU be tax-free to reduce the
business of insurance companies who pay the state liberal taxes.
(6)
Missouri's insttrancb record
Missouri has never produced a great (that is a large) life-insurance company.
We have some smaller life insurance companies well worth while, but even in
this class there have beeto more failures than successes.
4790 CONCENTRATION OF ECONOMIC POWER
For the past four years there has been a lot of publicity (and some scandal) in
connection with companies put out of business and in the course of being put out
of business.
Fraternal life insurance hsbs also been the subject of oflBcial attack, with frequent
official charge of insolvency. Without discussing the merits of these charges or
countercharges, it is well to ask these questions:
First: Are we going to add to or lessen the occasion for further scandal by
encouraging small banks to go into the life-insurance business?
I think the answer must be that we will increase the scandal. For if there is
any one thing true in business life it is that men interested in the banking business
make a failure of trying to run an insurance company.
Second: What do such failures mean?
They mean —
(1) The banker loses his money;
(2) The depositor loses his money;
(3) The insurer loses his money;
(4) The state loses its taxes;
(5) And I, Mr. Committeeman, have my business impaired by cheap
insurance that doesn't stick, and who gains'!
Exhibit No. 722
The Savings Bank in Life Insurance
By Floyd E. De Groat, Boston
A recent treatise by an internationally known Actuary and Executive presents
in striking manner the effect of interest earnings on the institution of Life Insur-
ance. One illustration is the fact that at the close of 1933 the interest received
through their history, by three hundred and twenty-eight life-insurance com-
panies, has not only sufficed to pay all expenses and taxes, but has added to the
amount held for the future payment of existing policies the sum of $1,114,000,000.
Another demonstration of the power of interest affecting the individuail is that
at age twenty-five an Ordinary Policy carried through the expectation of life,
with all interest eliminated, would cost almost exactly double that whicli has
resulted from past and present conditions of interest earning.
Attention is directed to the marked trend towards lower interest now being
realized by all financial institutions, and the likelihood that such trend may con-
tinue. Unquestionably the present day witnesses the most powerful movement
towards lowered interest that has ever occurred in this country. It is instructive,
therefore, to study the behavior of our leading mutual life-insurance companies,
and that of our foremost mutual savings banks; and it will be interesting to
observe the conduct of the Massachusetts Savings-Bank Life Insurance and to
what degree its processes resemble those of its antecedent and superior institutions.
A number of life-insurance companies which have operated with premium
rates cast on the assumption that 3}i% interest would be realizable indefinitely
into the future, have remade those rates, proportionately increasing them as
mathematically required in order to provide the more ample reserve, which,
earning only 3% will bring their policies to maturity. As of November 1, 1935,
Savings-Bank Life Insurance has adopted the 3% basis for its future operations.
The savings banks of Massachusetts have during recent years steadily lowered
the interest rate to depositors. In the last two or three years changes have
been more frequent and violent. What was several years ago, for a very brief
period, a 5% dividend rate to depositors, has come to be quite generallj' 2^%.
There is no assurance that this rate may not go still lower. In the life-insurance
department of the banks the case is different, for what stood through the most
important period of their existence as the interest rate used in determining divi-
dends to policyholders, namely, 5J^%, has only in 1935 come to be 4.6%. On
the depositor's side of the bank the maximum reduction has been 2}^%, while
in the life-insurance department of the banks the maximum reduction has been
9/lOths of 1%.
The interest earnings of the foremost life-insurance companies of this country
have exceeded savings-bank rates through a major portion of their history —
perhaps always. The prevailing rate used for dividend distribution to policy-
CONCENTRATION OF ECONOMIC POWER 4791
holders in the hfe-insurance companies has, througli a long time prior to 1932,
hovered closely around 5%. A single illustration may be taken as fairly typical
of the high average rate of interest earned and distributed in mutual life-insurance
operations. One company has, through a period of more 1 han forty years, prior
to 1932, employed a net effective rate never less than 4.7%. The variation
through those years was from 5.1% to 4.7% — a single change fur the fortj^-year
period. Savings-bank rates to depositors, on the contrary, have not only aver-
aged materially below the foregoing, but very abrupt changes have been numerous.
The reasons for these differences may be attributed largely to the wide investment'
range for the life-insurance companies of national scope as compared with the
more limited and necessarily local field of savings-bank operations. Or it may
be put in this manner: The mutual life-insurance companies of the country have
been and are so positioned as to enable them to procure the full normal rate of
interest consistent with the safest investment of funds; their national character
affords the most favorable opportunity, and maximum advantage has been taken
of it.
It is not only during the forty-j-ear period above referred to that the mutual
life-insurance rate has exceeded the savings-bank rate. The effective rate in
use since 1932 is relatively quite as favorable — even more favorable — in mutual
life insurance. The rate actually employed in 1935, even upon those funds most
readily subject to cash withdrawal, i. e., most similar to savings-bank deposits,
namely, dividends left to accumulate, has in mutual life-insurance companies
ranged above 4%. These are, as of 1935, the effective rates eniplo3'ed in mutual
life-insurance dividend distribution, and are to be compared with the dividend
rates to depositors in mutual Savings Banks, 4% 'n tlie one case, 2)4% in the
other. A difference of 1^^% is observable. That a very similar relative differ-
ence has prevailed throughout the history of the two institutions — mutual Life
Insurance and mutual Savings Banks — can be truthfully stated. Incontro-
vertible evidence of this fact will be later presented.
That inequality between the deposit department and the insurance department
of the banks definitely exists is clear from the following quoted from a recent
publication by the Bureau of Labor Statistics at Washington entitled "The
JMassachusetts System of Savings-Bank Life Insurance":
"Probably the most common type of annuity purchased is the annual premium
deferred annuitj'. This may be paid for regularly, * + *, jf the purchaser
dies or surrenders his contract before the annuity begins, the total amount of
premiums paid in, x\ith interest compounded, at a guaranteed rate of 3% percent
is refunded."
Excess earnings are in addition to this. In other words on the deposit side of
the bank 2J^% is being paid without any guarantee of continuance. On the
insurance side deposits made will be compounded at 3'2% annual basis for an
indefinite period or until death or surrender. Manifestly the insurance side of
the bank should be used even for deposit accounts.
A life-insurance policy is a complex of contractual obligations. Mutual life
insurance is a business of guarantees. A mutual savings bank has nothing to
do with guarantees. It cannot under the law promise a depositor the fraction
of 1% as dividend for one-half year. In the life-insurance department of the
mutual savings bank, however, guarantees abound. Quite aside from the privi-
leges and provisions of policy contracts are reserve guarantees. Savings-Bank
Life Insurance has now in use three different guaranteed rates of interest: 3%
on policies issued since November 1, 1935, 3%% on all life-insurance contracts
issued before that date; and 4% under annuitv contracts, the reserves of which
exceed $3,500,000. These interest rates must be earned through the lifetime
of the policyholder or annuitant, forty, fifty, sixty years or more, and if the post-
maturity privileges of policies be emploj'ed these interest guarantees may extend
through the subsequent lifetime of even two beneficiaries in succession to each
other.
Attention has heretofore been directed to the tremendous importance of in-
terest rates in the determination of dividends and net cost to policyholders. In
the recent publication by the Bureau of Labor, the author makes a most unsatis-
factory defense of the employment by the banks of an interest rate so far in
excess of the depositor's rate, and some altogether inconsistent statements appear.
He sets forth an elaborate table under the heading "Earnings on Invested Assets"
which purports to demonstrate that the assets of the savings-bank insurance
departments earn a considerably higher rate of interest than do the assets of life-
insurance companies.
Elsewhere in the book appears the statement, "The protagonists of the savings
bank insurance system * * * point out that it is general for the rate of
4792 CONCENTRATION OF ECONOMIC POWER
interest on savings deposits to be less than the rate earned on insurance assets
whether one compares the interest rate paid to the depositors of the savings
insurance banks with that earned by their' insurance departments, or whether
one compares the interest rate paid by savings banks the country over v/ith the
rate of interest earned on the assets of private insurance companies."
We ' ave then this conflicting state of affairs. The life-insurance companies
earn more than do the savings banks. The savings-bank life-insurance depart-
ments, however, earn more than do the life-insurance companies. But the law is
specific that the investments of the life-insurance departments of the banks must
be the same as investments of the savings banks themselves. Some slight differ-
entiation in the rate applicable to insurance funds as compared with depositors'
funds may be logical, due to somewhat greater liquidity that must be recognized
for the funds more subject to withdrawal. Mutual life insurance companies,
some but not all, have in practice given recognition to this. The differentiation,
however, has been never more than one-quarter of one percent as a maximum
between those funds which most closeh' resemble savings-bank deposits, i. e.,
dividends arising from policies, but left at interest subject to withdrawal, and the
more permanent funds, such as the proceeds of policies left in the company's
keeping at maturity. Yield of 5]^% has had no place during the past thirty-five
years as normal rate of interest in the nonspeculative portfolio of any great
fiduciary institution in America, for a period so long as a twelve-month; few
savings-bank Trustees will declare otherwise. Certainlj' the rate of savings-
bank interest paid to depositors in Massachusetts disputes it for a period of even
a half year.
The effective rate of interest to depositors in other leading savings bank states
throughout New England, in New York, New Jersey, Pennsylvania, and Ohio,
also disputes the realization of so high an interest rate for distributive purposes
or otherwise. The interest rate used for dividend apportionment in the foremost
mutual life insurance companies of the country likewise disproves the realization
of this high rate. It is difficult to understand how any responsible official of
the Division of Savings-Bank Life Insurance could deny "that the assumption
of the 5%% rate of interest has any necessary connection with the rate of interest
earned on invested assets." For over a long period of years there must be a close
relationship between the rate used for the allocation of dividends to policyholders
and the net rate earned.
INTEREST RAT:b CHANGES
A careful compilation has been made from official records of dividends to de-
positors in four of the largest and most representative savings banks in Massa-
chusetts, through the period during which Savings-Bank Life Insurance has op-
erated in the Commonwealth. From 1907-35, inclusive, the maximum number
of interest-rate changes in any one of these banks is fourteen, and the most abrupt
drop is from 4J4% to 2}^%. The actual average rate of distribution to depositors
in this foremost group of banks on the basis of semiannual calculations is 3.975%.
The question manifestly propounds iteslf — what justification is there for so great
a differentiation between the funds of depositors and those of policyholders?
The power of interest as affecting life insurance dividend distribution is so
great that a difference of one percent applied yearly to the mean invested
assets of the savings-bank insurance departments through only the important
period of 1922 to 1934, inclusive, would amount to more than $1,000,000. Prior
to 1922 dividends were not determined by formula made of interest, mortality,
and expense factors. Criticism of the high interest rate with which the funds of
savings-bank life-insurance policyholders have been favored comes from many
sources. Critics appear in savings-bank circles, even amongst Trustees of savings
banks.
Even the casual reader is led to inquire what sources of income has savings-
bank life insurance that are not available to regular mutual life insurance com-
panies; and further, what justification exists for such differentiation in interest
rate between the depositor's side of a savings-bank and the life-insurance side.
Has the mutual principle of the savings bank been strained, perhaps violated?
"Funds of the Insurance Department * * * whether constituting insurance
reserve or surplus, shall be invested in the same classes of securities, and in the
same manner in which the deposits of the Savings Department are required by
law to be invested * * *" (Massachusetts General Laws). While there is
nothing in the law which authorizes the selection for policyholders' advantage of
the choicest assets in possession of the savings banks, there is nothing in the law
which specifically prevents this.
CONCENTRATION OF ECONOMIC POWER 4793
SOURCES OF INCOME
The publication by the Bureau of Labor Statistics previously mentioned makes
available considerable information as to the unusual sources of income with
which Savings-Bank Life Insurance has been and is favored. The author,
Professor Berman, of the Department of Economics at the University of Illinois,
sets forth in detail the appropriations by the Commonwealth of Massachusetts
since the formation in 1907 of the savings-bank life-insurance plan. The litera-
ture of the Institution has made scant acknowledgment of the subsidies granted
by the State during a twenty-seven-year -period, although much is now made of
the fact that since 1934 Savings-Bank Life Insurance has reimbursed the State
in the amount of the current appropriations. That such reimbursement refers
only to^the current year's appropriation has not been emphasized. The total
net amount of the State subsidy, after deduction of all reimbursements to the
State, isgiven in the book as^$551, 146.22.
Accompanying the statement is the observation that this sum constitutes but
2.18% of the total premium income 1907-33, inclusive. The real relationship,
however, of this subsidy to the present resources of the Institution may not be
so easilydismissed. This money — $551,146.22 — together with interest, must now
appear in the funds of the Instftution, for the reason, that the savings insurance
banks were not obliged to withdraw from their own resources the sums which were
gi'anted by the State for the furtherance of the enterprise. It is one of the func-
tions of life insurance to deal in compound interest, as it is also of the savings
bank.
Although the life-insurance departments of the savings banks have used an
interest rate of 5J4% in determining dividends through the important period of
their history, a rate of 5% might be nearer the actual. The annual subsidies,
less reimbursements, accumulated at 5% interest to the end of the last insurance
year, October 31st, 1934,* would reach a total of about $1,100,000.00. This
figure represents the larger part of the existing surplus of Savings-Bank Life
Insurance at that date, which surplus, including the General Insurance Guaran-
tee Fund of $184,844, amounted to $1,300,658. In fact, if the law, passed in 1929
relative to the refund of future State appropriations, iiad required the banks to
refund to the State aU previous appropriations with accumulated interest at the
rate of 5% , their surplus and general guarantee fund would have been completely
wiped out and their reserves impaired.
THE QUESTION OF "SUBSIDIES"
The book further sets forth that the gifts or donations, also termed "subsidies,"
received through the "Massachusetts Savings Bank Insurance League," for the
promotion of the insurance department of the banks during the years 1908-33,
inclusive, do not amount to as much as 1% of the total premium income, whici.
was more than $25,0UU,U00 duriag this period. This would represent an average
annual subsidy uf perhaps $9,500, which, accumulated at 5% interest to October
31, 1934, would total more than $500,000. In other words, the Institution net
having been compelled to furnish from its own income these yearly "subsidies"
should now be possessed of these sums witii accumulated interest.
In the publication by tiie Department of Labor, the author has stated, "Lower
costs are also attributable in part to the fact that the insurance companies, which
pay both State and Federal Taxes, have borne a larger burden of taxes than have
insurance departments of the savings banks, which pay no Federal Tax." He
further declares that this dih'erentiutiou ma}- be set down at 2% of the premium
income for the companies, as against }i oi 1% for the insurance departments of
the banks. Any attempt to measure the real siguihcance of this dilfercnce is
omitted. It clearly appears, however, tliat Savings-Bank Life insurance has
paid one-quarter of the amount of tax that would have been required if the insur-
ance department funds of the banks had been ta.xed as life insurance is taxed,
instead of as sav/ngs-bank funds, and that the banks enjoy an annual saving on
this account amounting to 1}^2% of the premium income. These taxes have been
saved to the insurance banks through the years; the present accumulated values
should, therefore, appear in the assets of the Institution. Compounded at 5%
through the period, this seemingly small difference amounts to about $600,000.
•Report for the Insurance Year ended October 31, 1935, not avuUable at this writing.
4794 CONCENTRATION OF ECONOMIC I'OWER
HOUSING FREE
Savings-Bank Life Insurance has been housed free of charge in the State Capitol
Building. The assumption is fair that had the Institution been required to
furnisli its own quarters and pay Tent, it would have been subjected to rental and
upkeep costs perhaps averaging $7,500 per year, or a total of $202,500.00 for the
period 1908-34, inclusive. Offices at all adequate to the dignity and growing
importance of a life-insurance institution could scarcely have been acquired for
less.
In this connection we quote from the book as follows: "The fact that the Seal
of the Commonwealth of Massachusetts is printed on some of its publicity material,
that its correspondence is written on stationery bearing the name of the State
and of a Department of the State government, and that there is general knowledge
that its offices are in the State House on Beacon Hill, helps to advance the growth
of Savings-Bank Life Insurance." It is impossible to assess the value to Savings-
Bank Life Insurance of thus breaking down sales resistance b;^ these intangibles
so generally accepted as proof that Savings-Bank Life Insurance is a State institu-
tion; that its policies are guaranteed by the Commonwealth.
The fact that Savings-Bank Life Insurance is not guaranteed by the State is
effectuaUy obscured; so also the fact that it is not guaranteed by the savings
bank. The law reads as follows: "The assets of one Department of the Bank are
not liable for nor applicable * * * to the liabilities of the other." The
name Massachusetts Savings-Bank Life Insurance does not signify guarantee by
the State nor by the Savings Bank; the Institution is distinctly without the guar-
antee of either.
The statement in the literature that savings-bank life insurance "is not State
insurance" is of little weight against the practical misrepresentation constituted
by State House headquarters and use of the State Seal. Where the specific
statement may be read by a single person, the fact of State House domicile and
literature bearing the Seal is taken as jjroof by the multitude. It is scarcely
possible to overestimate the value to Savings-Bank Life Insurance of these
evidences of guarantee. Prestige is without price. The annual rental above
referred to might not be an exaggeration if doubled. But even an annual rental
of $7,500, compounded at 5%, would amount to more than $400,000.
SIGNIFICANCE OF SUBSIDIES
It is unmistakable that the present admitted assets of Savings-Bank Life
Insurance mu?t include the sums thus saved, for the simple reason that the banks
were not required to pay them out. They represent totals as follows:
Present accumulated value of State subsidies $1, 100,000
Similar value of private subsidies 500, 000
Present accumulated value of tax exemption 600, 000
Accumulated value of free rent, light, upkeep, service 400, 000
$2, 600, 000
The significance of the foregoing tabulation may be viewed as follows: Taking
as a guide the admission made by Professor Berman as to subsidies and financial
advantage with which Savings-Bank Life Insurance has been favored, and apply-
ing a rate of interest lower than the rate which the Institution has been accus-
tomed to employ as the basis for dividend distribution to policyholders, it appears
that more than fifteen percent of the entire ledger assets — $17,143,474.94, at
October 31st, 1934 — has come from sources other than those which properly
belong to truly mutual life insurance.
RELATIVE COSTS
The foregoing pictures the effect upon tlie present asset condition of Savings-
Bank Life Insurance due to outside assistance which "private" mutual life insur-
ance companies have never had. It is well to consider, therefore, the efl'ect of
these monies upon the dividends and net cost of Savings-Bank Life Insurance as
compared with similar costs on the "private"' companies. Disregarding entirely
aU interest it appears that the four principal items —
Subsidy by the State $551, 146. 22
Savings Bank Insurance League — Benefactions 256, 500. 00
Specific tax exemption 439, 634. 25
Free rent, light, upkeep, service (app.) 202, 500. 00
Amount to _ $1,449,780.47
CONCENTRATION OF ECONOMIC TOWER 4795
The total of annual dividends paid by Savings-Bank Life Insurance through its
entire history is officially given, October 31st, 193i, as $6,651,136.96, so it is
clear that twenty-two percent of the entire dividend to policyholders has been
supplied from funds other than those created by policyholders. Professor Berman
j)resents an elaborate talkie of cost comparisons between the average of ten selected
life-insurance companies and the average of seven savings insurance banks, b.iscd
upon actual history of policies over a ten-year period, net cost less cash value
being the test. That illustration shows costs altogether favorable to savings-
bank life-insurance policyholders.
Were the dividend figures given in the book to be decreased, however, by
twenty-two percent, the result would be quite different. Taking the average
of the nine mutual companies used and the same seven savings banks, the com-
parison appears just slightly favorable to savings-bank life-insurance policy-
holders— a percentage of the premiums so small that, without the adventitious
aid which savings-bank life insurance has received from the beginning, the Insti-
tution could never have claimed costs sulFiciently lower than those of "private"
companies to justify advertising that fact.
No account has been taken of the expense incurred by the original founders
prior to the formation of the Savings Bank Insurance League, but literature
indicates that such expenditure was very generous. No account has been taken
of the expense incurred on behalf of Savings-Bank Life Insurance by the Asso-
ciated Industries of Massachusetts. This cost is considerable, and is indicated
in the book, viz: "A Secretary who devotes his time exclusively to the promotion
of Savings-Bank Life Insurance is employed by the organization."
No account has been taken of the fact that the savings departments in some
instances are charged with expenses of administration properly chargeable to the
insurance department. With these items brought into the calculations, it is
probable that average cost to policyholders in the seven selected insurance banks
would not be less, but more, than the average costs in the mutual companies
selected by the author. Such then is the background from which is so insistently
reiterated the claim that Savings-Bank Life Insurance is cheaper because no
agents are employed and no commissions paid.
ALLOCATION OF EXPENSES
The allocation of expenses between the insurance and savings departments of
the banks calls for further comm^:it. The author has devoted about thirteen
pages to refute the criticisms very generally made as to allocation of costs, i. e.,
rent and salaries, as between the depositors' department of each bank and the
life-insurance department. The ledger assets of the insurance department and
the savings department have been taken as criteria for the allocation of expenses.
The arguments advanced are by no means acceptable. The conclusion reached,
which is in effect that the life-insurance department of the banks has actually
subsidized the depositors' department, instead of the reverse, as charged, leads
surely to convict the author of bias.
Trustees of Massachusetts savings banks possessed of intimate knowledge as
to the work involved in purely savings bank operation and likewise possessed of a
broad experience with the practical transactions necessary to the carrying out of
life-insurance contracts, reject the author's contention, and declare his findings
wrong. Consider the following inconsistencies: Of the twenty-one banks oper-
ating life-insurance departments it is a fact that during the insurance year ending
October 31, 1932, nine banks charged both salaries and rent; ten banks charged
neither salaries nor rent; two banks charged salaries and no rent.
Quoting from the book: "In the year 1932 only one of the eleven banks which
came into existence during the period from 1929-31 paid anything, either as
salaries or as rent. In 1933 six of these banks paid no salaries and eight paid
no rent. In the latter year one of the insurance departments paid only $12
under the head of salaries for the whole year. In 1934 one bank paid neither
salaries nor rent, and six others paid no rent." The insurance department of
the bank which paid only $12 in salaries for the year 1933 occupied an entire floor
in a separate building in downtown Boston and employed nine or ten full-time
clerks. Evidently there is a vast difference of opinion amongst Trustees as to
the meaning of equitable apportionment, yet in the law appears the following:
"Expenses pertaining to the conduct of both the savings department and the
insurance department, such as office rent and the salaries of general officers,
shall be apportioned by the Trustees equitably between the two dei)artmcnts."
4796 CONCENTRATION OF ECONOMIC POWER
SEGREGATION OFFICIALLY URGED
The Special Commission for Investigation and Study of the Banking Structure
of Massachusetts (created by Chapter 35, Resolves of 1933), in its report of
January 1934, said: "When savings banks were authorized to form a department
of life insurance, the law provided that this department should be a distinct
entity, but did not provide any effective means for the segregation of the expenses
of this department from the general expenses of the savings bank itself. The
result has been that some life-insurance departments connected with savings
banks have been charged nothing for rent, and, in some instances, little or nothing
for clerical hire or management. It is believed that the interest of the public
requires tUat the expenses of the life-insurance departments in our various savings
banks should be uniformly maintained and segregated from the general expenses
of the savings bank itself so that the cost of such insurance may be fairly com-
puted and that the rights of depositors and policyholders may be mutually
protected."
To take as the basis for determination of two most important expense items,
namely, salaries and rent, relative ledger assets ascribed to depositors' accounts
and to insurance accounts, respectively, is to ignore the nature of the life-insurance
business; it is almost to deny that life insurance is a business. The two depart-
ments could not be subject to the same relative expenditure in respect to any
single particular, other than investment expense.
THE LIFE-INSURANCE CONTRACT
It is well to review ^ome of the essential provisions embodied in a contract of
life insurance that require the attention of a legal department, a medical depart-
ment, a mathematical department, an accounts department, very often executive
action, and in all instances clerical attention; transactions that are altogether
absent in the relations of a savings-bank depositor and his passbook. Premiums
upon life-insurance policies are payable annually, semiannually, quarterly, or
monthly. The privilege of changing from one method to any other is exercised
very frequently b.y policyholders. A policy with premium^s payable monthly
requires twelve different clerical processes in the sending] of premium notices
and requires twelve more similar activities in acknowledgment of receipts. Such
a policy, and monthly premimn xjolicies are generally very small in amount,
requires twenty-four clerical entries as compared with perhaps two for the average
deposit account.
Changes in the method of premium payment upon policies require, if from a
higher basis to a lower basis, the return of the policy for proper endorsement and
alteration, not only upon the books of the savings insurance department, but also
upon renewal receipts. All policies provide for changes of beneficiary. Such
changes very often are made; more than one in a single year is not infrequent.
The question of insurable interest is one of nicety and is involved in all beneficiary
changes. The opinion of a legal department or that of an informed executive
may often be necessary before- the policy may receive a proper endorsement of
beneficiary change. All policies provide for at least four different methods of
using dividends. They may be taken in cash, applied to reduce premiums,
upon the addition plan, or left to accumulate at specified interest. Changes
from one plan to another are permitted and are very frequent. Again changes
in the method of using dividends may be complicated with the methods of premium,
payments, requiring cautious mathematical calculation.
NONFORFEITURE PROVISIONS
The life-insurance policy contains three separate nonforfeiture provisions, one
of cash value, one of paid-up value, and one of extended term insurance. Policies
under which premiums have ceased for any cause require a wholly different book-
keeping entry from that which has been followed during the premium-paying
period. The exercise of any option, other than the automatic option, should
have personal attention of an able clerk. Frequently executive attention is very
much needed. The question of reinstatement arises, not merely as a routine
matter, but demanding medical attendance.
The life-insurance policy is subject to assignment. The- execution of a proper
and valid assignment may be one of great delicacy. There is an important differ-
ence between an assignment as collateral and an absolute assignment. Such
papers need to have the careful scrutiny of experienced life-insurance executives,
or clerks of highly specialized knowledge. The life-insurance policy provides
by its terms that loans may be had at any time after it has been in force for six
CONCENTRATION OF ECONOMIC POWER 4797
months. The granting of a loan, however, may be hindered by the need of proper
signatures to tlie loan certificate or note. If the beneficiary is an absolute bene-
ficiary, her signature must be secured. She may be in a distant land, necessitating
cautious correspondence. Similarly the making of a loan may be subject to the
requirements of an outstanding assignment, and assignments are sometimes
cancelled but not registered upon the books of the company or bank.
The making of loans upon life-insurance policies are often not mere matters of
routine. A single transaction may concern the insured and several beneficiaries,
needing the supervision of an experienced life-insurance expert. Policies contain
three different options of settlement. The proceeds may be taken in cash, they
may be taken in installments, or left at interest in the keeping of the company or
bank. Part of the proceeds may be applied under one option, and a part under
another option. There are endowments maturing with the interests perhaps of
several beneficiaries to be conserved. This is often the case also with death-claim
papers.
In all regular companies these matters are simplified by the agents of those com-
panies, to the comfort and advantage of policyholders. These are imremunerated
duties and responsibilities that belong to the field agent or solicitor. It is reason-
able to believe that in the absence of a regular Agency system very much more ad-
ministrative detail must falf upon the employees of the banks.
THE RADICAL DIFFERENCE
With sucn a radical diflference in the nature of the transactions of the insurance
department and those of the savings bank proper, the allocation of salaries and
rents between the two departments, taking the relative ledger assets of the two as
a criterion, must be rejected. Although Professor Berman admits the imperfec-
tions and inadequacies of this method, he waves them aside and accepts the results
of such allocation as conclusive, with the statement that no one has been able to
suggest a better method.
Yet the author himself (in a footnote in fine print) states "for the future the
Banks might well distribute joint expenses on the basis of an analysis of the num-
ber of transactions and the average time consumed by each class of transactions in
each Department." No general basis of allocation such as ledger assets or income
can be accepted as satisfactory unless tested by some analysis. If an analysis of
this nature were made on correct principles of cost accounting, the insurance de-
partments would undoubtedly incur expenses substantially greater than those
allocated on the basis of ledger assets and greater than those actually charged.
DEPARTURE PROM OBJECTIVE
It will be noted that cost comparisons have been made between savings-bank
life insurance and ordinary insurance issued by regular companies. Let it here be
stated that Industrial insurance is not a consideration in this treatise, because
savings-bank life insurance issues no weekly-premium contracts, i. e., Industrial
policies. The designated beneficiaries of the original savings-bank life-insurance
scheme were the persons who could afford only a small amount of insurance. All
early literature of the Institution was aglow with philanthropic purposes.
From theoriginal objective Savings-Bank Life Insurance ha&> departed far. It
has not a single Industrial, i. e., weekly-premium, policy on its books. It seeks
precisely tlie same business as is sought by the regular ordinary companies. That
the savings banks have not been successful in selling their insurance to people who
could afford only a few hundred dollars of life insurance is made obvious by the
fact that the average amount of the individual policies in force (i. e., excluding
Group insurance) at the present time is about $911. Since the amount that can
be written in any one policy is limited to $1,000, it appears that the great majority
of people who are insured by the savings banks are those who can afford at least
$1,000 of insurance.
The development of this business has been in the direction of making the insur-
ance more readily available to persons who can afford the larger amounts. Facili-
ties are now at hand whereby a person can enter one savings bank and apply for
insurance up to $23,000, i. e., $1,000 in each of the twenty-tnree banks having
insurance departments. This maximum amount will naturally increase if more
banks establish insurance departments.
Here, then, is the wide departure from the original purposes of savings-bank
insurance. Extensive tabulations appear in the Department of Labor Publica-
tion in defense of these very just criticisms. One table shows that in a certain
three months' period of 1934 only 109 persons applied for insurance in amounts
4798 CONCENTRATION OF ECONOMIC POWER
from $5,000 to the then maximum of $21,000. The reader is left to suppose that
this is a small number in comparison with those who have sought the lesser
amounts. This is true enough. The volume of insurance, however, is of different
proportions, for the amount represented by these 109 applicants is almost $800,000.
NOT RESTRICTED TO SMALL AMOUNTS
It jb reasonable to believe that other three months' periods of the year show very
similarly. That would mean a total of new insurance applied for on the lives of
those far removed from the Industrial class amounting to $3,200,000 — or about
one-third of that year's business. There is justification for assuming that the new
business of other years would show lUie division in respect to the amounts applied
for. This would indicate that about one-third of all outstanding ordinary insur-
ance has been applied for in amounts of $5,000 or more.
It is necessary, however, to add a consideiable voluhie to which the new appli-
cants form an addition, for Savings-Bank l.ife Insurance boasts of many repeaters.
If tabulations were available for amounts below $5,000 the conclusion would in-
evital)ly be reached that the bulk of the ordinary insurance acquired by the savings
banks is of a class far removed from the Industrial. A comprehensive statement as
to the truth of these things would prove infceresting to the public, instructive to
legislators everywhere, perhaps disturbing to the Officers and Trustees of the
savings banks, and undoubtedly disillusioning to those who have contributed
generously to the furtherance of a cause presumably philanthropic. More than
this, such statement of facts should be useful to the Tax Economist, because the
only excuse for tiie exemption with which Savings Bank Life Insurance is favored
is the allegedly charitable character of the Institution.
MORTALITY RATIOS
Further evidence that the less fortunately situated people are not reached to any
considerable degree by tiie savings banks may be found in the mortaUty ratios of
savings-bank insurance. The mortality experienced under Industrial policies is
much higher than under ordinary policies arising, of course, from the different
economic status of the Industrial policyholders. This higher -mortality is an im-
portant factor in the higher cost of Industrial insurance. These same Industrial
policyholders would, of course, die just as fast and increase the cost of insurance
by reason of the higher death rate, if they were insured in the savings banks. If
the savings banks insured the same classes of persons as are now insured under
Industrial policies, it is obvious that they would experience the same mortality
as the Industrial companies and that the cost of insurance in the savings banks
would be very materially increased.
The Department of Labor Bulletin states: "It is pertinent to point out, however,
that there is general agreement that Savings Bank mortality ratios are relatively
low." It also states: "The fact that Savings-Bank Insurance is relatively new
may properl}' be given some of the credit for the favorable mortality rate which
it enjoys." If the standards of selection, physical, moral, and financial, are ttie
same, the ratios of mortality between life-insurance institutions will vary only in
the proportion that the number of newly selected lives bears to the whole. In.
Savings-Bank Life Insurance the new business is in vast preponderance, with the
result of a ratio fictitious — in that it is neither permanent nor evidence of better
selection.
The life-insurance companies employ the ablest examiners in all communities,
and pay a proper fee for the service. Savings-Bank Life Insurance pays a much
smaller fee, and systematic investigation of the moral and financial hazard is not
ordinarily required. Certain it is that the law of mortality has not been suspended
in favor of persons insured in the savings banks — nor can a lesser ratio of deaths
be accepted as proof of superior judgment in a most important function — the
selection of life-insurance risks.
QUESTION OP "RELATIVE SECURITY"
It has already been pointed out that on November 1st, 1935, Savings-Bank
Life Insurance adopted for its future transactions that higher reserve basis which
for many years has predominated amongst the regular mutual life insurance
companies. Life-insurance reserves and the basis for their determination is the
first test of company strength ; surpluses are wholly supplementary thereto. The
question of "relative" security between the regular companies and Savings-Bank
Life Insurance is dealt with in a carefully prepared table by the author of the
Department book. On the basis of averages through a ten-year period, 1923-32,
CONCENTRATION OF ECONOMIC POWER 4799
a ratio surplus to reserve is given for Savings-Bank Life Insurance, 10.3%; and
for the Life-Insurance companies, 7%. The comparison is incomplete and mis-
leading. The reserves on all outstanding insurance in the savings banks issued
prior to November 1935 are upon the lowest basis which the law of Massachusetts
permits; whereas in a number of companies the reserves are upon the highest
basis known to American life insurance. The more ample the basis of reserve
the less is there need for surplus.
RESERVE AND SURPLUS
The close interrelationship between reserve and surplus is easily illustrated.
A certain company has insurance in force amounting to almost precisely two
billion dollars; all reserves are on the maximum basis. Careful mathematical
calculation has shown that the placing of these reserves on the lower basis, i.e.,
the same used by Savings-Bank Life Insurance, would result in the automatic
addition to surplus of eighteen million dollars. Conversely then, the raising of
these reserves to the higher basis would cause a reduction in surplus of eighteen
million dollars.
Savings-Bank Life Insurance has in force one hundred million, or just one-
twentieth that of the company cited; by analogy, therefore, the establishment
of its reserves upon the higher basis would necessitate a reduction of surplus by
one-twentieth of eighteen million, i. e., nine hundred thousand dollars. The
surplus of Savings-Bank Life Insurance has elsewhere been given as one million
three hundred thousand dollars, so that there would — by this logical test — be
only four hundred thousand dollars remaining in the surplus column.
So much for the Policy reserves. Savings-Bank Life Insurance, however, has
more than three and one-half millions of Annuity reserves on a still lower basis —
for on this amount four percent must be earned. It is safe to say, therefore, that
the raising of reserves to the maximum basis — such that every Policy and Annuity
contract would be met and solvency maintained if only three percent should be
earned— would leave the Institution pretty nearly devoid of surplus. Com-
parisons of surplus are neither adequate nor honest unless and until these major
liabilities of all companies — Policy and Annuity reserves — have been raised or
lowered to the same standard of valuation.
The subject of "relative security" is deserving of further attention. The
Attorney General of Massachusetts, addressing the American Bar Association at
Grand Rapids, August 29th, 1934, upon the question of Government Guarantee
of Bank Deposits, and arguing against subjecting Massachusetts Savings Banks
to the proposed law, said; "The experience of the Massachusetts Savings Banks
discloses a remarkably sound and solvent system of banks. From 1833 until
1913, only thirty savings banks were possessed by the Bank Commissioner and
liquidated. Of these, five were voluntary liquidations; in eight, 100% or more
was paid the depositors; in four, between 90% and 100% was paid; in only two cases
was less than 75% paid; and in only one case was less tiian 50% paid. During
the recent banking collapse only two savings banks were closed, and one has
reopened and the other will shortly."
A striking contrast appears. Savings-Bank Life Insurance literature is respon-
sible for the statement that "No mutual legal reserve life insurance company in
Massachusetts has ever failed." The more significant and consequential fact is
that in all the United States no strictly mutual legal reserve life insurance company
of any importance has ever failed. Mutual savings banks and mutual life insur-
ance are near contemporaries. Both had their beginnings about one hundred
years ago.
"INSTRUCTORS" OF THE BANKS
It is an assertion altogether misleading that savings-bank life insurance is
cheaper than regular mutual life insurance, because it is conducted without agents.
The statement that it employs no agents is not complete. In the Department
book is mentioned the fact that "Instructors" are employed; it is admitted that
their work is not unlike that of solicitors in private companies. Moreover the
Deputy Commissioner of Savings-Bank Life Insurance appears constantly in the
role of agent, particularly that of Manager or General Agent. "Instructors"
are not subject to licensing requirements, whereas all agents of the regular com-
panies are obliged to pass a written examination, prepared by the Commissioner
of Insurance, intended to prove qualification. No license is granted until this
test has been passed.
The Department of Labor publication recites the fact that in August 1934
there were three hundred atid thirty-four "agencies" from which Savings-Bank
4800 CONCENTRATION OF ECONOMIC POWER
Life Insurance could be\secured. These included employers' agencies, credit
unions, and savings banks. Since each of these "agencies" may assign a number
of employees to this type of work, there are quite likely a thousand, and perhaps
several thousand, individuals not only giving life-insurance advice but permitted
and authorized to take applications foi savings bank life insurance — unlicensed,
without training, equipment, or special knowledge of an altogether vital subject.
These individuals recognize no ethical code whatsoever. They may and do wil-
fully, or from ignorance, urge, and practice "twisting" of .policies from the regular
companies; they may misrepresent with impunity, whereas special penalties are
provided by law and inflicted on the regular licensed life-insurance agent who is
guilty of such misconduct.
Savings-Bank literature persistently decries the good offices of the life-insurance
agent, yet it is unquestionably true that a very large proportion of the volume
now in force in Savings-Bank Life Insurance is the direct result of agents' work.
A goodly number of policyholders have been secured by those employed on salary,
for specific reasons styled "Instructors," rather than agents. The volume,
however, is small in comparison with that which is procured through the con-
scientious, intelligent, hard work of those actually engaged in the life-insurance
business. These agents have, in the regular processes of solicitation, so thoroughly
demonstrated the uses of life insurance as an economic factor in modern living
that they have created appreciation amounting almost to demand. Persona
thus favorably minded listen to the arguments of "Instructors" who frequently
address large groups; they are allured by savings-bank life-insurance advertising,
and insidious literature widely distributed — all urging that the entire agent's
commission will be saved by application to the banks instead of to the
life-insurance companies.
To an extent far greater than guessed, Savings-Bank Life Insurance is the every-
day recipient of a large volume of new business that comes wholly from the work
of the regularly licensed life-insurance agent. Business thus procured is errone-
ously styled "over the counter." Nor is that all; the same term is applied to a
large number of policies lapsed daily from companies of highest class, and on the
same urge of "cheapness," "because no agents' commissions are paid." Savings-
Bank Life Insurance thrives upon the exertions of others. So far from being
proof that Life Insurance may be successfully carried on without agents, Savings-
Bank Life Insurance furnishes most substantial proof to the contrary.
Savings-Bank Life Insurance has been in operation twenty-eight years. It is
not yet seU'-supporting. No life-insurance enterprise in the history of America
has been so widely proclaimed and praised by its protagonists, so substantially
aided by philanthropy, nor so highly favored by legal enactment and State aid.
In twenty-eight years it has accumulated a grand total of insurance in force
slightly in excess of one hundred million dollars. This is just two percent of the
insurance in force in Massachusetts and just a one-thousandth part of the one
hundred billion dollars of insurance in force in the United States and Canada.
This latter amount is nearly three-quarters of the life insurance in the whole
world. The foremost place of this countr}' in life insurance is the unquestioned
direct result of solicitation under the American Agency System. That the agent
has paid his way is not a subject for dispute. The comparative costs previously
set forth furnish sufficient evidence that the services of the agent are rendered to
the insuring public at expense that is justifiable. All the achievements of Ameri-
can life insurance, including whatever may be credited to Savings-Bank Life In-
surance, prove the agent and his worth.
ATTACKS ON LIFE INSURANCE
Unfortunately, Savings-Bank Life Insurance has added nothing to the institu-
tion of mutual Life Insurance. Both positively and potentially it has hindered.
Through the years, in ever-increasing number, books, pamphlets, magazine
articles, even syndicated newspaper columns — all replete with attacks on the
regular life-insurance companies — have been making their appearance. Agency
expenditures are held up to view as unwarranted. Incomplete cost comparisons
offer illuminating portrayal of unusual advantage. Investments, even the security
of the companies themselves are assailed — while Savings-Bank Life Insurance be-
comes the glorified example of economy, equity, investment sagacity, and security.
The damage to the economic security of the nation cannot be measured.
The status of Savings-Bank Life Insurance with respect to the community in
which it exists is of peculiar order. Mutual life insurance companies have always
paid their way and more. Mutual savings banks have paid their own way.
Savings-Bank Life Insurance has never paid its way. It has been a burden to
CONCENTRATION OF ECONOMIC POWER 48Q1
tlie State. It continues to be a burden because of State favoritism through tax
exemption of its life insurance funds. It wrongfully flourishes the aegis of the
State. Its position as to the correctness of its relations to savings-bank de-
positors is in the light of strong evidence open to serious question. Monies that
it has received from individuals benevolently inclined to aid workingmen have
come to serve another purpose. Its attitude toward life-insurance companies —
field men in particular — is one of outright hostility, proof of which is plentiful as
witness the pamphlet, "Massachusetts' Great Insurance War," sponsored by a
former Deputy Commissioner of Savings-Bank Life Insurance, and the follow-
ing issued by the present Deputy Commissioner: "There isn't any excuse for the
insurance companies to go into the banking business — they don't even do the
insurance business as well as the savings bank does."
Life insurance is both a business and a profession of science. It involves the
most precise teachings of mathematics; it requires the best that the medical pro-
fession affords; it is a business of contracts, and therefore embraces the finest
principles o' law. Actuarial Science and Life Insurance are largely synonymous.
All these are prerequisities. It is not and never can be the province of mutual
savings banks to foretell and guarantee interest; this is in fact forbidden. Bank-
ing principles which form no part of savings bank finance are in life insurance
structural and fundamental.
WHY LEGAL RESERVE INSURANCE?
Defiance to all human endeavor in the quest of the absolute will ever continue;
security is, after all, a relative matter. The words of a distinguished American
are appropriate: "The Life-Insurance companies have lived through the Mexican
War, the Civil War, the Spanish War, and the World War. They have been
through epidemics of cholera, yellow fever, and influenza. They have seen every
type of devastating natural disaster — floods, droughts, tornadoes, blizzards,
earthquakes; boll weevils and other insect enemies of prosperous agriculture.
They have survived the financial throes of the major and minor depressions of
'57, '65, '73, '84, '93, '07, '14, '21, and '29. They have withstood many adjust-
ments of commodity prices. They have experienced wide ranges in interest rates,
and high and low market prices of securities. They have listened to prophets of
woe in time of business paralysis, and to the celebrants of joy during the extrava-
gance of speculation. Notwithstanding all these calamities they have unin-
terruptedly kept every obligation."
Appropriate also is the following from the New York State Superintendent of
Insurance: "No legal-reserve life-insurance company in this state failed during
the depression. Few life-insurance companies throughout the nation have failed.
It is estimated that loss to policyholders in the country from failure of life-insur-
ance companies has been less than one-tenth of one percent. It is probable that
no other industry or business can show such a record as this."
The social significance of the service performed by life-insurance companies
operating through established agencies the country over, during nearly one hun-
dred years, has been of educational value beyond the power of anyone to esti-
mate. That the people of the United States carry very much more life-insurance
protection than any other people in the world is illustrative of this fact. The
insurance-mindedness of this nation will be maintained by the same educational
forces that created it, and it will continue to withstand the criticism of theorists
and experimentalists.
[Stamped: L. E. C. Jan. 25, 1937.]
[Notation: Rhode Island. H. B. 883.1
[Initialed: V. P. W. B. H. 0.]
Exhibit No. 723
[From flies of The Association of Life Insurance Presidents]
April 29, 1937.
Gut a. Smith, Esq.
President, Wilkes-Barre Association of Life Underwriters,
9o Metropolitan Life Insurance Company,
Miner's National Bank Building, Wilkes-Barre, Pennsylvania.
Dear Mk. Smith: In connection with House Bill No. 883, now pending in the
Pennsylvania Legislature, authorizing savings banks to issue life insurance, I am
sending to you today 25 copies each of the following material on the subject:
(1) Printed pamphlet on savings bank life insurance by Mr. Floj^d E. DeGroat,
of Boston.
4802 CONCENTRATION OF ECONOMIC POWER
(2) Mimeographed copy of a statement on the same subject by Hon. M
Joseph Cummings, Chief of the Division of Banking & Insurance of Rhode
Island.
This material is not intended for general distribution, but is sent to you for the
personal information of yourself and the leading members of your Association,
so that you may be fully informed on the experience of this system in Massa-
chusetts, the only state which has ever adopted such a plan.
Trusting this will be helpful to you, I am,
Sincerely yours,
Manager and General Counsel.
VPW. MT.
[Notation: Rhode Island. H. B. 883. Pa. H. 883.]
(Initialed: V. P. W. (?)]
The Wilkes-Barre Association of Life Underwriters
[The National Association of Life Underwriters' seal]
Room 230 Miners Bank Bldg.,
Wilkes-Barre, Penna., May 3, 1937.
(Stamped) Rec'd 1937 May-4-AM 11:03.
Mr. Vincent B. Whitsitt,
Manager and General Counsel, The Association of Life Insurance Presidents,
165 Broadway, New York City, N. Y.
Dear Mr. Whitsitt: Upon receipt of your April 29th letter, with publication
from the Honorable M. Joseph Cummings, and Mr. Floyd E. DeGroat, I am
pleased to inform you that the Wilkes-Barre Association of Life Underwriters,
which represents all the "Old Line" Companies, and which are approximately
five hundred in number, were very much in accord with your letter, and imme-
diately contacted all State Senators, and each member of the House of Repre-
sentatives, including the Chairman of the Insurance Committee, and protested
strongly against House Bill No. 883.
Undoubtedly, such an avalanche of telegrams and personal calls has never
before been received by these individuals. We have had definite assurance from
them that the Bill will be strongly opposed.
I write this word that you may know your letters have not dropped by the
wayside.
We are whole hearted in guarding the fair name of the Institution of Life
Insurance and strongly oppose any encroachment such as this Bill No. 883
represents.
Very truly yours,
(Signed) Guy A. Smith,
President, Wilkes-Barre Assoc. Life Underwriters.
Notation: No ans. V. P. W.
Exhibit No. 724
Lobbying
(From the Report of the Joint Committee of the Senate and Assembly of the State of New York Appointed
to Investigate the Affairs of Life Insurance Companies, pp. 398-402, Vol. X)
Nothing disclosed by the investigation deserves more serious attention than
the systematic efforts of the large insurance companies to control a large part of
the legislation of the State. They have been organized into an offensive and
defensive alliance to procure or to prevent the passage of laws affecting not only
insurance, but a great variety of important interests to which, through subsidiary
companies or through the connections of their officers, they have become related.
Their operations have extended beyond the State and the country has been divided
into districts so that each company might perform conveniently its share of the
work. Enormous sums have been expended in a surreptitious manner. Irregular
accounts have been kept to conceal the payments for which proper vouchers have
not been required. This course of conduct has created a widespread conviction
that large portions of this money have been dishonestly used. Andrew C. Fields,
who represented both tlic Mutual and the Equitable in legislative matters, and
CONCENTKA'i'ION OF ECONOMIC POWER 4803
was in control of the supply department of the former company, remained beyond
the jurisdiction during the sessions of the committee. The general solicitor of
the Mutual, to whom the chairman of the committee on expenditures entrusted
large sums, died just before the beginning of the investigation and apparently
left no account as to how the money had been spent. Andrew Hamilton, who,
within ten years, received upwards of $1,000,000 from the New York Life on the
warrant of its President in connection with its bureau of legislation and taxation,
has remained abroad and has failed to render any proper account showing the
disposition of the money. The officers of the company say that they have no
knowledge of the uses to which it was put. The officers of the Equitable, from
whom light might have been expected on the disbursements of their co ipany,
either have remained out of the jurisdiction or have been disabled b\ illness.
On account of the absence of the necessary witnesses and the lack o' proper
vouchers, the committee has been unable to trace the moneys said to have been
disbursed in connection with legislation. But while it is sufficiently evident
that large sums have been disbursed for improper purposes, it is also clear that
payments for confidential outlays exempt from audit have furnished abundant
opportunities for misappropriations. They suggest the necessity of requiring
a strict accounting from those who are responsible for the payments as well as
from the agents who have received the nioneys.
It has been insisted that the insurance companies have "been so continuously
menaced by the introduction of improper and ill-advised legislative measures in
many States that they have been compelled to maintain a constant watchfulness
and to resort to secret means to defeat them. An insurance corporation, however,
holds a position of peculiar advantage in opposing any legislative measure which
really antagonizes the interests of policyholders. A very large proportion of the
voters of the State hold policies of life insurance. It is easy for the company to
apprise them of hostile legislative measures, and in addition a department of the
State government exists for their protection, whose recommendations have rarely
failed to receive proper consideration in the Legislature. It is not a diflficult matter
to direct public attention to an objectionable bill affecting life-insurance corpora-
tions or to have opposing argument and criticism eflfectively presented. Again,
if, in spite of argument fairly and publicly presented, the Legislature insists upon
passing a law inimical to the true interests of the companies, it is not the oflScers,
but the policyholders, who must bear the loss, and the consequences which Can
readily be pointed out are almost certain to bring about an early repeal of the
obnoxious legislation. The employment of agents to disburse large sums, and of
clandestine methods to defeat legislation is wholly inexcusable.
The pernicious activities of corporate agents in matters of legislation demand
that the present freedom of lobbying should be restricted. They have brought
suspicion upon important proceedings of the Legislature, and have exposed its
members to consequent assault. The Legislature owes it to itself, so far as pos-
sible to stop the practice of the lavish expenditure of moneys ostensibly for serv-
ices in connection with the support of or opposition to bills, and generally believed
to be used for corrupt purposes. The Legislature should free itself from the stigma
which now attaches to the progress of measures affecting important interests.
The laws against bribery and corruption^ offenses which are difficult of proof, are
sufficiently stringent, but an effort should be made to strike at the root of the evil
by requiring under proper penalties full publicity with regard to moneys expended
in connection with matters before the Legislature. Corporations should be re-
quired to keep accounts and vouchers in which aU such payments should be fully
detailed and receipted for, and an adequate statement regarding them should form
a part of such reports as may be required.
In the case of insurance corporations the remedy lies first, generally, in the
requirement of a proper authorization of all expenditures and vouchers, stating
in detail the purposes for which moneys paid for legal expenses or in connection
with legislative matters have been expended. And, further, the company should
be compelled to set forth in its annual statement to the Superintendent of Insur-
ance all sums so disbursed, giving the names of the payees, the amounts paid, and
the specific purpose of the payment.
Professional services in promoting or opposing legislation may be entirely hon-
orable and are frequently necessary. lo England members of the so-caUed Par-
liamentary bar have been held in deserved esteem. The drafting of bills and the
presentation of arguments for and against their enactment before legislative com-
mittees call for a high order of professional ability. In Massachusetts and in
Wisconsin statutes have been passed requiring that persons who professionally
advocate or oppose legislation affecting corporate interests should enter regular
appearances and disclose for what clients they are acting. In Wisconsin it h.
124491— 40— pt. 10 43
4804 CONCENTRATION OF ECONOMIC POWER
made a misdemeanor for any person to accept a fee contingent upon the passage
or defeat of a pending measure, and by statute passed there in 1905 it is made
unlawful for any person employed for a pecuniary consideration to attempt per-
sonally to direct or influence a member of the Legislature to vote for or against
any pending measure otherwise than by appearing before regular committees, by
publications or public addresses, or by statements, arguments, or briefs delivered
to all members of the Legislature and filed in the oflBce of the Secretary of State.
We are not inclined to recommend legislation on this subject which will interfere
with the presentation to a legislator of the views of his constituents or of citizens
generally, but we believe that where legislation is opposed or promoted by paid
professional advocates the matter should be the subject of suitable regulation.
The Committee therefore recommends that the Legislative Law be so amended
that every person retained or employed for compensation as counsel or agent to
promote or oppose the passage of biUs or resolutions by either House or execu-
tive approval of such measures shall before entering upon the service file in the
Office of the Secretary of State a writing stating the name or names of his em-
ployer, together with a brief description of the legislative matter with reference
to which the service is to be rendered. The Secretary of State should be required
to provide a docket to be known as the "Docket of Legislative Appearances,"
with appropriate blanks and indices in which the names of counsel and agent may
be properly entered. Fees contingent upon legislative action should be prohib-
ited. It should also be made the duty of every corporation and association doing
business in the State within two months after the adjournment of the Legislature
to file with the Secretary of State an itemized statement duly verified showing in
detail aU expenses paid or incurred in connection with legislation pending at the
last session, including all disbursements or compensation paid or payable to coun-
sel or agents. Exception may be made of the duly accredited counsel of munici-
palities, public boards and public institutions, and also of the ordinary profes-
sional services in drafting bills or advising clients as to the construction and efifect
of proposed or pending legislation where the professional service is not otherwise
connected with legislative action. Violation of the law should be made a mis-
demeanor, and the failure to file the statements required should subject the
o^ender to appropriate penalties.
Exhibit No. 725
[From flies of The Association of Life Insurance Presidents]
[Notation: Rhode Island. H. B. 793.]
[Initialed: S. V. B. (?)]
Puritan Life Insurance Company of Rhode Island
Executive Offices, Providence, R. I.
Directors: Henry D. Sharpe, President; Edmund D. Chesebro; Harold C. Field; John Johnston; Eben N-
Llttlefleld; Stephen O. Metcalf; Arthur L. Perry; Edward H. Rathbun; William P. ShelSeld; Henry G.
Thresher; Clinton O. White.
March 22, 1935,
(Stamped) Rec'd 1935 Mar. 23— AM 8:14.
Re House Bill #793 — Savings Bank Insurance.
Association of Life Insurance Presidents,
166 Broadway, New York, N. Y.
(Attention Charles F. CresweU, Statistician.)
Dear Mr. Creswell: This Bill, I feel, is a serious one to life insurance interests
and is taking considerable time. From all I can ascertain the following is the
situation: The Bill still rests in the House Finance Committee. Fortunately
a member of this Committee is Mr. Charles Brown, General Agent of the Colum-
bian National and he naturally is opposed to the Bill. Today I spent an hour with
him and went thru the Bill very much in detail, and I am sure that he will do
everything possible to hold it back. This noon we had a meeting of the General
Agents of Rhode Island and at their request I reviewed the Bill with them and
presented the objections. Very fortunately Mr. Tracy, the President of the
Massachusetts Life Underwriters, was present, and he gave a very fine exposition
of the experience in Massachusetts with Savings Bank Insurance, so that the
General Agents have a thorough understanding of the Rhode Island Bill and
recognize as a result of Mr. Tracy's remarks, the evils and misrepresentations
which will probably follow if the BiU is made law. They, however, will not raise
too much oust unless it is necessary. Too much opposition with this particular
Legislature might give the Rill undue importance.
Unless the Bill is brought out from the Committee before the 50th day it
cannot be presented for consideration in the House except by joint consent.
CONCENTRATION OF ECONOMIC POWER 4805
Next Wednesday is the 50th day, and the practice is to bring in all the biUs from
the Committee so that none will get by. We may, therefore, expect this Bill to
be brought out next Wednesday and we hope it will be referred back to the
Finance Committee. I have been assured by Mr. Brown that if any particular
interest develops within the Committee he will secure a hearing. I will then
advise you immediately for of course we will need your assistance, and Mr.
Tracy has agreed to appear with one or two others from Massachusetts.
I have questioned whether or not it is advisable to take this up with the oflBcers
of some of the savings banks. To be perfectly frank, however, I can imagine some
of them who probably know nothing about it at present deciding it would be a
good idea, and they might become proponents of the Bill. I have even been
informed that some of the banks have already approached some of the members
of the Committee in behalf of its passage. . Do you think it wise for me to keep
away from the banks?
Very sincerely, (Signed) Clinton C. White,
Secretary.
Exhibit No. 726
[From files of The Association of Life Insurance Presidents]
[Notation: Rhode Island. H. B. 550.]
[Initialed: R. Bacon. B.]
Puritan Life Insurance Company,
Providence, Rhode Island, April 10, 1937.
(Stamped) Rec'd 1937 Apr.-12-AM 8:38.
Re R. I. House Bill #550.
The Association op Life Insurance Presidents,
165 Broadway, New York City.
(Attention Mr. Crane.)
Dear Mr. Crane: As I informed you under date of March 17, I do not antici-
fiate the enactment of this legislation permitting the savings banks of Rhode
sland to engage in the life-insurance business. There is, however, more pressure
being brought upon the Governor this year than previously, and I think there is a
feeling here that in another year the pressure will be even greater. I appreciate
very much the material which you have sent to me as it was helpful in formulating
the necessary facts in opposition. Will you pardon me for making a suggestion
along a line of thought which to me is fundamental in this whole situation. Let me
make the mere suggestion and in your office with you expert ability you can
develop it and incorporate it if you see fit in future memoranda.
It seems to me that greater emphasis should be laid upon the fact that by this
legislation certain private institutions are granted special privileges which are not
granted to the existing private institutions engaged in the same business. I
believe that this simple thought can be developed so that it is an unanswerable
item. If the State itself were to engage in the life insurance business we would
expect the State to avail itself of certain inherent rights. This would be entirely
consistent with the prevailing social tendencies of the day, but when a State
grants special privileges to one private institution and exempts that private insti-
tution from established requirements and regulations which control competitive
private institutions there is involved a fundamental principle which I believe
would convince any honest citizen. In other words, I feel that the data which we
supply our insurance departments and legislators is apt to be interpreted as a
defense of our ov*ti business. The ignorant legislator wiU conclude that the life
insurance companies are naturally opposed to other competitors in the field.
You will agree with me that our opposition would be far less strenuous if private
institutions such as the savings banks were permitted to transact the life insurance
business under the same rules and regulations which control the existing private
institutions of Ufe insurance.
Pressure was brought upon our Governor for' favorable action on the savings
bank life insurance legislation and he naturally turned to the Chief of the Division
of Banking and Insurance for information. I gave to the latter the material
which you so kindly sent to me accompanied by a letter, a copy of which I enclose.
I am also enclosing copy of the Report which Mr. Cummings, Chief of the Division
of Banking and Insurance has made. This has been sent by him to each general
agent and to some of the insurance commissioners so that it is not now confidential.
Very sincerely",
(Signed) Clinton C. White,
Clinton C. White, Secretary.
4806 CONCENTRATION OP ECONOMIC POWER
Exhibit No. 727
[From flies of The Association of Life Insurance Presidents]
[Notation: Rhode Island General.]
[Initialed: V. P. W. B. R. B. C]
Puritan Life Insurance Company of Rhode Island
Executive Offices, Providence, R. I.
May 7, 1937,
(Stamped) Rec'd 1937, May-8-A. M. 8:49..
Association of Life Insurance Presidents,
166 Broadway,
New York City.
(Attention: Mr. Vincent P. Whitsitt.)
Dear Mr. Whitsitt: It was very kind of you to write me as you did under date
of the 3rd. I am particularly pleased that we were able to defeat the Savings
Bank Life Insurance Bill. As I stated to Mr. Crane previously, I am quite certain
that there will be an increased effort on the part of the proponents of this legisla-
tion next year. I certainly trust that you will be able to defeat its adoption in
Pennsylvania and Connecticut for if adopted elsewhere it will surely influence its
acceptance in other states.
Very sincerely,
(Signed) Clinton C. White,
Secretary.
COW.
IMM.
[Notation: No ans. W.]
Exhibit No. 728
[From files of The Assoolatlon of Life Insurance Presidents]
Copy of Report by M. Joseph Cummings, Chief of Division of Banking
and Insurance, of the State of Rhode Island, on Mutual Savings Bank
Life Insurance, as Represented by the Massachusetts System
The Massachusetts law, enacted in 1907, permits mutual savings banks to
establish life insurance departments. I might say right here that I am a great
believer in letting the banks tend to the banking business and do not think that
it is a good plan, as experience has demonstrated, for them to engage in the
brokerage business, run travel agencies, engage in the practice of law or invade
any other commercial or professional field.
This law evidently contemplated the issuance of insurance policies to only
residents of the state and to persons regularly employed in the state, the maximum
amount to be purchased from any one bank to be $1,000.00 of insurance, or a
$200.00 annuity.
As to the original objective, the issuance of apparently philanthropic insurance
to persons who could aflford only small amounts of protection, which was indeed
a worthy objective, Savings Bank Life Insurance has missed the mark.
It does not write Industrial policies; that is, these carrying weekly premiums.
I understand that the average amount of individual policies in force (outside of
Group insurance) at the present time is about $910.00. This high average would
indicate that those taking advantage of Savings Bank Insurance are not the people
the originators of this plan had in mind. With 23 banks as members of this system
a person may hold policies totaling $23,000.00 or annuity contracts yielding
$4,600.00 per annum.
It is true that under the Massachusetts system a Savings Bank Life Insurance
policyholder pays less for insurance than does the holder of a policy issued by a
private life insurance company, but the following circumstances are worthy of
note:
1. In Massachusetts a state subsidy extended approximately 20 years from the
inception of tl\e system.
The total dividends paid out by the Massachusetts system since its inception
have airtouftted to $6,651,136.00. The total subsidies and gratuities extended to
the system in the form of direct grants, tax exemptions, and free services have
amounted to $1,449,780.00, or 22% of all dividends declared.
2. Lower taxes are paid by the insurance departments of the banks than are
paid by private life insurance companies. State insurance departments are taxed
as savings banks, not as insurance companies.
CONCENTRATION OF ECONOMIC POWER 4807
Since its inception, the Massachusetts insurance system has paid one-quarter
of the tax that it would have been compelled to paj' if the insurance funds were
taxed, as such, instead of as savings bank funds, and as private insurance com-
panies are taxed.
3. Insurance fees are not collected by the State from these insurance depart-
ments.
4. Acquisition costs for Savings Bank Life Insurance are low^er for the following
reasons :
(a) Through authorization of law state insurance officials draw up policy forms,
prepare tables of rates and tables of loan and surrender values, as well as special
tables of mortality for special classes of risks. This simply means that the state
assumes all actuarial expense.
(b) The state employs and pays for instructors or educators whose duties are
not unlike solicitors in private companies, and also a Deputy Commissioner, whose
duties might be compared to those of a general agent.
(c) The United States' Department of Labor in 1934, in a report, mentions that
there are 334 agencies from which Savings Bank Life Insurance may be secured,
such as employers' agencies. Credit Unions and Savings Banks employees. This
method of solicitation leaves the way wide open for any number of individuals
unlicensed and without proper supervision to give life insurance advice and to
take insurance applications.
It costs money for private companies to train, instruct and supervise their own
agents who, in turn, must be examined and supervised by the Insurance Depart-
ment for the maintenance of which department the private companies are taxed.
5. Other free services furnished by the Commonwealth include those of a
medical director, legal services and offices in the state capitol building.
6. In Massachusetts there have been no effective means provided for the proper
segregation of operating expenses between the savings banks and their insurance
departments. In this way, the Insurance Department escapes the ^Jayment of a
just and proper portion of expense, and consequently all figures relating to costs
are misleading and erroneous.
7. The minimum requirements of legal reserve life insurance companies, such
as capital deposits, etc., are higher than those for the insurance departments of
savings banks.
8. Another questionable feature of the plan is its misleading title. Many
people believe that the name "Savings Bank Life Insurance" picans that the total
assets of any Savings Bank in the system arelin back of the liabilities of the life
insurance department. This is not so. The assets of the life-insurance department
are segregated and these only are subject to the claims of the policyholders.
9. in the formative years, to insure financial stability, these assets would have
to be supplemented by either state or private aid, as was the case in Massachusetts.
10. The Massachusetts system, it must be borne in mind, does not offer the
same service as does industrial insurance, as it relates to the method of payment
of premiums. Payments are made quarterly, semi-annually or annually the same
as in ordinary insurance. It is not possible to pay premiums weekly as is done by
practically all of the 887,000 holders of industrial policies in Rhode Island, nor are
the services of agents or collectors given for the purpose of making collections in
the home of the assured.
In turning to the extract from the magazine "Plain Talk," I offer the following
observations:
1. It states "Governors of 47 States can save $3,209,400,311" and it further
claims that Rhode Island policyholders can save $11,171,826. These statements
are not correct for the following very obvious reasons:
(a) $3,209,400,311 is the total premiums taken in during the calendar year
1935, according to the Spectator Year Book, by the 302 private insurance com-
panies reporting. The writer of the article must admit that even State Bank
Insurance costs something, therefore the heading is entirely false, as 100% of the
premiums taken in could not be saved.
(6) These premiums were received for many types of policies and insurance not
covered by the Massachusetts law, and then only after active solicitation on the
part of experienced insurance agents.
(c) The theoretical saving to Rhode Island policyholders is computed by
multiplying our State's population by $16.26. The $16.25 saving is arrived at by
dividing $3,209,400,311, (total premiums paid in 1935) by the population of the
United States and deducting from the quotient so obtained an alleged saving of
66 percent.
As the average principal sum of all industrial policies in force in Rhode Island
i? -i!.;4o.00, it is evident that with an average principal sum of $910.00, the Massa-
4808 CONCENTRATION OF ECONOMIC POWER
chusetts system cannot be catering to or serving thousands of insured such as
are in the lower brackets among our Rhode Island policyholders. This statement
recognizes the fact that many insured hold two or more policies.
The total number of industrial policies in force in Rhode Island is 887,869, or
79% of the total policies in force, and it would appear that a heavy percentage of
such policyholders would not be eligible to secure the benefits or savings that are
afforded by the Massachusetts system.
(d) As the average for all policies urlder the Massachusetts system is $910.00,
it must follow that no saving would be effected under such a system in the case
of policies for substantially larger amounts, and that any attempt to include such
policies in a system of computation is futile, disingenuous and false. This state-
ment will be made clear by the following:
There are only 23 banks in Massachusetts issuing such insurance. The maxi-
mum amoun,t issued by any bank to any one person is $1,000.00. It is hardly
likely that anyone would make the rounds of any great number of banks to secure
the greatest amount of insurance obtainable. Even if this were done, the maximum
obtainable would be $23,000. Assuming that a fairly substantial number of as-
sureds in Massachusetts were to take insurance of as many as ten banks, which
I deem very improbable, the total of insurance so obtained would be $10,000.00.
If this figure of $10,000.00 be taken as a fair maximum, it is evident that in order
to make ajiy claim as to actual savings possible to Rhode Island policyholders, all
policies in excess of $10,000.00 must be excluded from the reckoning. To do other-
wise is to attempt a comparison of unlike things. This point will be further
illustrated by the fact that the average of all ordinary policies in force in Rhode
Island is almost exactly $2,000.00 so that a great number of policyholders repre-
senting a vast sum in insurance would be excluded automatically from the benefits
conferred by the Massachusetts system.
(e) The claim put forth as to the saving in average yearly net cost is also mis-
leading. This involves a comparison of costs of the Massachusetts system on the
one hand, and the costs of various other insurance companies, on the other. This
statement showing a variation of $2.23 to $11.13 is made without setting forth
the terms and features of the various policies upon which the comparison is made,
and without this information an intelligent statement as to relative costs is im-
possible.
(/) Many of the figures contained in this statement are based upon the assump-
tion of the assured's availing himself of the cash surrender feature of his policy.
Insurance policies are written, primarily, for the purpose of being retained, not
surrendered. The figures contained in the column headed "Average Yearly Net
Payments", show no such spread as those computed upon the net cost, with the
cash surrender involved in the reckoning. Whereas, the latter Column shows a
spread or range of $2.23 to $11.13 or a ratio of almost exactly five to one, the figures
in the column showing average yearly net payments show a spread or range of
from $16.83 to $24.63 or a ratio of one and one-half to one. As already pointed
out, without information as to the types of policies and their special features, no
judgment can be passed as to the relative merits or costs of these forms of in-
surance.
2. The answer to the small lapsation of Savings Bank Life Insurance policies
as compared with lapsation on ordinary policies and industrial or weeklj' premium
policies issued by old-line companies may be supplied in several ways:
(a) As stated before. Savings Bank Life Insurance does no( compete with Indus-
trial policies to any considerable extei. although that was its original purpose,
because in Massachusetts the figure for the average policy in force is around
$910.00, while in Rhode Island the average Industrial policy is for $248.00, and
under the Massachusetts system no weekly premium policies are issued.
(b) Many policyholders of private companies were carrying large lines of
ordinary insurance during the boom days which would not be available under
the Massachusetts plan. Naturally, these lines were reduced during the depres-
sion year.
(c) Many business firms dropped insurance policies on their highly paid
executives when operating profits were cut. This type of policy is not issued
under the Massachusetts plan.
(d) In the excerpt from "Plain Talk" there also appears the following statement
pn the subject of lapsation:
"In 1935 only 2)4% of savings bank life insurance policies issued
were allowed to lapse. In the same period 35% of the ordinary
policies and 76% of weekly premium policies issued by the old-
line companies at high rates, were allowed to lapse."
CONCENTRATION OF ECONOMIC POWER 4809
This statement is doubtful or ambiguous in certain respects. For example,
it is not exact!}' clear as to whether the ratios of lapsation, 35% and 76% are com-
puted upon the number of policies written during the year 1935, or upon the
number of policies in force during that year. It would appear incredible that any
such ratio of lapsation as 76% would prevail in any one year on the policies
actually written during that one year. This would mean that only one policy
out of four would stick. It seems more logical and more likely that what is
intended to be set forth is that the total policies that were lapsed during the year
1935 are represented by a number that is equivalent to 76% of the number of
policies that were written during the year 1935, the lapsations actually repre-
senting policies written over a period of many years.
I have before me a copy of "Abstract of Rhode Island Business during the year
1935" as prepared by our Insurance Division.
Under the heading, "Ordinary Business," appears the following:
Number of policies terminated, 1935 33,514
Number of policies in force, December 31, 1934 226, 550
Number of policies issued, 1935 36, 200
Total number of policies in force and issued .. 262, 750
Ratio of policies terminated to such total 12.75%
Under the heading, "Industrial Business," appears the following:
Number of policies terminated, 1935 145,599
Number of policies in force, December 31, 1934 884, 213
Number of policies issued, 1935 138,106
Total number of policies in force and issued 1, 022, 319
Ratio of policies terminated to such total 14.24%
In this connection it is to be noted that the figures from "Plain Talk" ar«
based upon policies "lapsed," while the figures quoted from our Insurance Divi-
sion are based upon policies "terminated." This gives the "Plain T^lk" method
a great advantage as it is manifest that thousands of policies would be volun-
tarily terminated by the holders and so could not be classified as "lapsations"'.
My point is that our figures showing "terminations" are naturally much highor
than figures showing mere "lapsations," and would include cash surrenders,
surrenders due to change in policies, terminations by death, voluntary relin-
quishments to reduce expenses of the assured, and many other reasons of a special,
nature.
The success of the Massachusetts plan may be guaged by the fact that, although
it has been in effect approximately thirty years, only 23 mutual savings banks
out of 193 in the Commonwealth have seen fit to engage in this type of insur-
ance; that only one state out of 48 has adopted it; that only 2% of the insurance
in force in Massachusetts is held by Savings Bank Life Insurance Companies,
which amounts to approximately to one one-thousandth part of the insurance in
force in the United States and Canada.
If the same percentage of savings banks in Rhode Island were to adopt the
system as have adopted it in Massachusetts, it would mean that only one such
bank would take advantage of it. (12% of nine banks.)
In conclusion, it might be stated that judging by the experience of this system
in Massachusetts, there is no widespread demand for insurance of this type;
that any savings, real or alleged, are largely fictitious, in this sense, that to a
considerable extent, the supposed savings are at the expense of the general public
and that consequently, little actual saving is efifected; that it encourages an un^
desirable situation in the creation of mongrel institutions whose insurance opera-
tions apparently have not met with public commendation and support; that it
tends to create an atmosphere of falsity as to real costs and an apportionment of
expense among the various factors involved; that it has failed to reach and help
the class for whose benefit it was conceived, while, at the same time, benefiting a
class who do not stand in need of it; that under the cloak of a public benefaction,
it is a drain upon the public funds; that it tends, although apparently with no
great degree of success, to penalize private industry through means and practices
that are seemingly unfair and discriminatory; that it launches, or at least attempts
to launch, the savings bank upon a strange sea foreign to its natural activities;
and that under state auspices, it creates a favored class of tax dodgers and tax
evaders.
It is apparent to me from comparatively cursory examination of the subject
that this is a matter requiring deep and prolonged study for a complete mastery of
its various phases and ramifications, and that from my oflRcial standpoint, as
4810 CONCENTRATION OF ECONOMIC POWER
Chief of the Insurance Division, it is my opinion that the judicious course to
pursue is to postpone positive action pending a more definite proof of its merits
than has been demonstrated by the facts at hand.
March 29, 1937.
Exhibit No. 729
[From flies of The Association of Life Insurance Presidents]
[Notation: Rhode Island. H. B. 522.]
[Initialed: B.]
Dated: April 20, 1938.
OFFICE MEMO RE RHODE ISLAND HOUSE BILL NO. 522 — SAVINGS BANK LIFE
INSURANCE
Mr. Crane telephoned late this afternoon that this measure was reported favor-
ably todaj' in the House. He anticipates that it is li'cely to pass the House but
feels that it is much less likely to receive favorable consideration in the Senate.
He had not seen Mr. White since the bill had been reported in the House and
placed on the calendar, but is to go over the matter with him tonight and will
pass on to us the result of their conference. Mr. Crane thought they might desire
us to get in touch with the companies, seeking cooperation of general agents in
the state, but is going to consider first with Mr. White the possibility of seeking
such cooperation through the local general agents.
JA. C. F. Creswell.
Exhibit No. 730
[From files of The Association of Life Insurance Presidents]
[Notation: New Hampshire. H. B. 125.]
[Copy]
The Association of Life Insurance Presidents
Number 165 Broad wa}', New York
Vincent P. Widtsitt, Manager and General Coxinsel
Bruce E. Shephero, Actuary Frank DeF. Ross, Associate Attorney
HOBART S. Weaver, Ailo-ney Mott A. Brooks, Assistant Secretary
Charles F. Creswell, Statistician Robert B. Crane, Assistant Secretary
February 28, 1935.
Dear Mr. : Major Robert P. Burroughs, Special Agent at Manchester,
New Hampshire, of the National Life Insurance Company of Vermont, who is
active in the opposition to this measure, has suggested that we request the actu-
aries of several companies to write to him with respect to the actuarial defects of
a proposal of this nature. He has particularly in mind that any life insurance
originating from such a small geographical area could not place the usual reliance
in mortality averages with the result that any local epidemic might be disastrous.
He believes that letters from actuaries along this line, as well as pointing out anj'
other actuarial unsoundness, will prove of material help in presenting opposition
to the measure.
The pending proposal follows closely the Massachusetts law on this subject,
containing the same objectionable features. One of the differences is that a pro-
vision in the Massachusetts statutes with respect to reiml^ursing the state for
sums expended in behalf of the savings bank life insurance division does not appear
in the New Hampshire bill. There are also certain differences with respect to
administration, and others due to the effort to conform the general phraseology
of the Massachusetts law to the New Hampshire situation.
For ypur information, I am enclosing a copy of the bill and a copy of our short
form memorandum of arguments which we have prepared against the enactment
of this measure. This attempts to cover the high points of its objectionable fea-
tures. We also have prepared and forwarded to several insurance men in New
Hampshire a more lengthy and detailed memorandum along the same line, as
well as other material, but I shall not burden you with any of this.
As there may be a hearing on the measure as early as Tuesday, March 5th, it
would be helpful if you could write such a letter to reach Major Burroughs on or
before that date. He suggests that letters addressed to him begic-something as
CONCENTKATION OF ECONOMIC POWER 4811
follows: "In answer to your request,". We would be glad to have a copy of any
letter sent him.
Assuring you that any assistance in connection with this matter will be greatly
appreciated, I am
Sincerely yours,
, Statistician.
CFC NH
End.
Exhibit No. 731
[From flies of The Association of Life Insurance Presidents]
Reasons Why New IIampshikb House Bill No. 125, To Permit Savings
B.ANKS TO Engage in the Life Insurance Business, Should Not Be
Enacted
The performance of the life-insurance companies of America and its savings
banks during the severe tests of the past few years have demonstrated that they
are, in fact, financial bulwarks of the nation. The grov/th of life insurance in
America and the development of the Country's savings banks have fully kept
pace with the nation's progress; both institutions have a record of economic
benefit to their patrons,' and both have proven their merit in times of financial
stress. Any proposal for the assumption by one of these institutions of the
other's functions should, therefore, be examined carefully.
If it is felt advisable for savings banks to embark upon the life-insurance
business, the life-insurance companies could have no objection provided the
legislation authorizing this required the business to be conducted by the savings
banks upon an equal footing with the life-insurance companies, subjecting such
banks to the same burdens, restrictions, and requirements under the insurance
laws. This, however, is not what this bill provides.
It provides, in effect, for a form of state subsidy in that by Section 15 of the
bill the State Actuary, whose office would be created thereunder, is authorized
to draft policy forms and application forms, prepare tables of rates and tables
of loan and surrender values, and to adopt, if desired, a special table of mortality
for the class of risks for this business. The bill also provides that the State
Actuary may furnish actuarial service and advice to these so-called savings and
insurance banks free of charge.
In addition, to this form of state subsidy, a substantial differential in taxation
is provided for, as between "the insurance departments" of the savings banks
and the life-insurance companies. By Section 24 of the bill, it is provided that
the insui-ance departments in savings banks are not to be liable for any taxes
or fees provided to be assessed upon life-insurance companies, and are to be
subject merely to the taxes now payable on deposits held by the savings depart-
ments of such banks, namely, twelve twenty-fourths of one per cent on the
surplus and reserves resulting from the insurance business after deducting there-
from the value of real estate held; mortgage loans on New Hampshire real estate,
investments in Federal farm land and New Hampshire state and municipal
bonds, bearing less than five per cent interest; and up to five per cent of the
surplus and reserves if invested in certain commercial paper or stock of New
Hampshire national banks. This means that the policyholders in life-insurance
companies, which are taxed for state purposes, would be required, in effect, to
contribute to a portion of the expenses incident to the maintaining of the insurance
departments in the savings banks, whose policyholders would not be subject to
the same taxation.
In addition to this, the biU provides for inequality under the insurance laws.
The savings banks would be permitted to set up "insurance departments" with
a minimum capital requirement of $25,000 — $5,000 as an expense guaranty fund
and $20,000 as an insurance guaranty fund — whereas the minimum requirement
for the organization of a legal reserve life insurance company is much higher —
for a stock company $200,000, and for a mutual company $100,000, deposited
with' the Insurance Commissioner, with first premiums paid on $500,000 of life
insurance on 500 lives. The resources of the savings bank would not be back
of the policies which it issued, and this would constitute an unfair and misleading
competitive situation. For example^ a savings bank which had been in business
for many years and had accumulated $2,000,000 of deposits could, if this bill
becomes law, advertise that it proposed to go into the insurance business, to set
up an "insurance department" and to issue policies. The average citizen reading
this advertisement would be led to believe that the assets and resources of the
4812 CONCENTRATION OF ECONOMIC POWER
savings banks stood behind these policies, which would not be the case. In fact,
the contrary is the truth, since Section 8 provides that the assets of the savings
bank shall be liable for the payment of the savings department obligations only.
The bill provides for the setting up of a hybrid institution. The insurance
department of the savings bank would, by Section 6, be granted all the rights,
powers, and privileges and be subject to the burdens, regulations and restrictions
under the insurance law "so far as the same are applicable and except as is other-
wise provided herein." These insurance departments of savings banks are, on
the other hand, by the bill, to be managed as savings banks are managed under
the general laws relating to savings banks. This would result in a bank for tax
advantage, a bank for free home office service from the appointed State Actuary,
a bank for advertising to attract prospective purchasers, and a life-insurance
company to reject applicants, a bank for choice of investments and, finally,
supervision jointly by the Insurance Commissioner and the Bank Commissioner.
Measures of this type are often urged on the theory that they would provide
insurance at a lower net cost in smgdl amounts than is now available from the
ordinary life insurance coippany, and it has been stated that life insurance would
be available from these so-called savings and insurance banks at 25% or more,
lower net cost. Turning to the only system of savings bank life insurance which
is available as a precedent, namely, that in Massachusetts, it is found that the
net cost of the insurance is substantially affected by the state subsidy and the
differential in taxation. Examination of the appropriation bills which have been
passed in that state since 1907, when the system was set up in that state, dis-
closes that for every policy now in force under the plan there, or which has
matured as a death claim or as a matured endowment, the cost to the State of
Massachusetts has beeii between $5 and $6 per policy.
Furthermore, there has been no effective means provided in Massachusetts for
the segregation of the expense as between the savings bank itself and the insur-
ance department of the savings bank. From time to time this has been the
subject of reports made to the Legislature of Massachusetts. From these it ap-
pears that for one bank in Boston, which, at the end of 1933, had in force $3,400,-
000 of insurance, there had been apportioned for that year to its insurance de-
partment $900 for rent and $12 for salaries paid. Another bank in Cambridge,
which had done enough life-insurance business to have accumulated $208,000 of
assets in its insurance department, had charged that department nothing for
rent and nothing for salaries. Another bank in Lowell, which had $1,250,000 of
insurance in force at the end of 1933, had charged its insurance department
nothing for rent and $237 for salaries. The "Report of the Special Commission
for Investigation and Study of the Banking Structure," dated January 1934,
submitted to the Legislature in Massachusetts, Senate No. 100, says at page 54
under the heading "Expenses of Insurance Departments of Savings Banks" with
reference to this lack of effective means of apportionment of expense as between
the savings bank and its insurance department:
"The result has been that some life insurance departments connected
with savings banks have been charged nothing for rent, and, in some in-
stances, little or nothing for clerical hire or management. It is believed
that the interest of the public requires that the expenses of the life in-
surance departments in our various savings banks should be uniformly
maintained and segregated from the general expenses of the savings
bank itself so that the cost of such insurance may be fairly computed
4: :fc 4c "
It is also stated in urging measures of this type that this over-the-counter
insurance will result in large savings due to the absence of the agency system
and agency commissions. Life-insurance agents are performing a valuable
economic service which does not cease with the procurement of new business,
and it would be unfair to these agents to require them to compete on an unequal
basis with a state-subsidized business. Moreover, the plan in Massachusetts
has not operated without the benefit of soliciting agents. While the banks are
not permitted under the Massachusetts law to employ agents, it has developed
that private parties, interested in the operation of the plan, have employed and
paid the salaries of what are known as "educators." These "educators" go to
industrial establishments and business offices and are permitted to give lectures
concerning the advantages of the plan and to do everything except actually
take the applications for insurance, yet, they are not subject to the jurisdiction
of the state insurance department.
In conclusion, it is submitted that there is no widespread public demand for
legislation of this character. It has not greatly been taken advantage of in
Massachusetts. At the end of 1933 there were in force about 103,000 policies
CONCENTRATION OF ECONOMIC POWER 4813
of these savings and insurance banks, whereas the total population of the state,
according to the last census was 4,250,000. Furthermore, the development of
the business there has not been in the direction of making the insurance avail-
able to persons who can only affora the smaller amounts of insurance. The
average policy in force with the savings and insurance banks in Massachusetts is
around $910, which is near the limit, as the Massachusetts law limits the total
amount of a policy issued to one person by a bank to $1,000. It, therefore,
appears that the development of the business has been along the line of making
the insurance available to persons who can afford the larger amounts.
The savings banks and the life insurance companies are two great institutions
which have stood well the tests of the last few years. Both are engaged in
highly important businesses, namely, the encouragement of thrift and the pro-
vision of means of support for dependent widows and orphans of life-insurance
policyholders and savings-bank depositors. Both institutions command respect
from the people. Both have their own important part to play in the life of the
state. It is to the advantage of the community that they should preserve their
individuality as separate institutions of thrift without assuming one another's
functions.
Exhibit No. 732
[From files of The Association of Life Insurance Presidents]
[Notation: Connecticut. S. B. 239.]
[Initialed: R. Bacon. V. P. W. B. E. L. K.]
[Company seal]
Organized 1851
Phoenix Mutual Life Insurance Company
Hartford, Connecticut
Arthur M. Collins, President
Albert H. Yost, Vice President and Counsel
Legal Department: Benjamin L. Holland, Associate Counsel; Lyndes B. Stone, Attorney
April 28, 1937,
(Stamped) Rec'd 1937 Apr.-29-AM 8:46.
Mr. Vincent P. Whitsitt,
Manager and General Counsel, Association of Life Insurance Presidents,
New York, New York.
Dear Vincent: Thank you very mXich for the material that accompanied your
letter of April 26 with reference to the savings bank life-insurance legislation
pending in the General Assembly here. I hope to be able to use it with good
effect.
The companies have finally waked up to the fact that the bill might possibly
slip through the legislature. We all met yesterday in Mr. BroSmith's office and
outlined a plan of campaign which will be directed particularly at the banking
committee of the House. The situation here in Connecticut this year is that
the Senate is Democratic and inclined to be radical; the House is Republican and
of a more conservative complexion.
So far as I can find out, this bill, which is a Senate bill, is likely to be reported
favorably and passed by the Senate.
It so happens that one of our own agents is a member of the House banking com-
mittee. He told me yesterday over the phone that, while he had made no canvass
of the membership of the House committee, from casual conversations he had
had with some of the members he was of the opinion that the bill will not be
recommended favorably by the House committee. The Chairman of the Com-
mittee he told me is open to argument, and we are going to concentrate most of
our efforts right there.
Because of these later developments I am a little more optimistic now of being
able to defeat the bill than I was after the hearing last week when none of the
companies raised any protest against the passage of the bill. The suggestions
that you made to me last week and the information that you have sent will, I
know, be very helpful.
Yours very truly,
(Signed) A. H. Yost,
Vice President.
AHY:C.
4814 CONCENTRATION OF ECONOMIC POWER
[Letter head of Phoenix Mutual Life Insurance Company]
May 19, 1937,
(Stamped) Rcc'd 1937 May-20-AM 8:47.
Mr. Vincent P. Whitsitt,
Manager and General Counsel, Association of Life Insurance Presidents,
165 Broadway, New York, New York.
Dear Mk. Whitsitt: Roger B. Hull called me up the other day to find out the
present status of the savings bank insurance bill in the Connecticut legislature.
I suspect that he probably found out from you that I had some connection with
the opposition to the bill,' and it occurred to me that perhaps you would be in-
terested to know what the situation is at the present time if you have not already
heard.
The opposition, as I probably have told you, has been organized since the first
hearing and the committee, headed by Berkeley Cox, whose other members are
Allan BroSmith and John Thompson, General Agent of the Connecticut Mutual,
has been working on the matter. They have particularly seen to it that somebody
has gotten in touch with the key members of the Senate and House committees.
The net result has been that the Senate committee has reported the bill favorably,
as we expected they would, but we have found out that some of the Democratic
members of the committee, particularly those from Hartford, are not entirely
favorable to the bill, and there is a slight chance that it may not even pass the
Senate.
The House committee has reported unfavorably, and presumably since the
House is largely Republican, while the Senate is predominantly Democratic, the
probabilities are that the House will kill the bill.
However, even in the House, there is a division between old-line conservatives
and the younger Republicans. There is no definite leadership apparently which
has cortrol of the situation, and almost anything can happen at any time in either
the Ho -ie or the Senate.
We have done about all that can be done, and as nearly as we can tell the bill
is likely to fall between the two houses and to fail of enactment in the House.
Of course, if it does, we shall hear from it again two years from now, but sufficient
unto the day is the evil thereof. If and when that time come's, we will probably
be in a better position to oppose the legislation because of the experience we have
had this year.
Yours very truly, (Signed) A. H. Yost, Vice President.
•AHY:C.
Exhibit No. 733
[From flies of The Life Underwriters Association of the City of Now York, Inc.]
Organized 1886 [Company seal] Incorporated 1896
The Life Underwriters' Association op the City of New York, Inc.
Executive Ofiice, Hotel Pennsylvania, Seventh Ave. at Thirty Third St., New York
Akthtjr v. Youngman, President Louis A. Cerf, Jr., Secretarv-Treasurer
Harris L. Wofford, Vice-President Lloyd Patterson, Chairman of the Executive Committee
DiEDERiCH H. Ward, Vice-President Elles M. Derby, Kxecutioe Martager
Robert B. Skillings, Vice-President Denis B. Maduro, Counsel
Febrtjary 25, 1938.
don't throw this aside, read it all and act. n-o-w
Your Future Is At Stake!!
Here is the story on the Savings Bank Life Insurance Bill:
1. We have submitted to the Governor and all Legislators our February 7th
Resolution, which was very favorably received.
2. We have submitted our specific amendments to the bill, which to date have
not been seriously considered.
3. We are now told that the bill is on its way to passage in its original form.
4. We therefore urge you unmediately to bring all forces to bear to the end
that the original bill be rejected.
By Monday morning —
your Legislators, both Senators and Assemblymen, should have on their desks
in Albany, telegrams from you, your associates, your examiners, etc., pro-
testing the passage of the Livingston-Piper Bill on Savings Bank Life
Insurance.
CONCENTRATION OF ECONOMIC POWER 4815
IF YOU don't send IT NOW TOUR PROTEST WILL BE WORTHLESS
Drop Everything To Do This!!!
Sincerely,
The Committee on Law and Legislation.
Exhibit No. 734
[From flies of The Life Underwriters Association of the City of New York, Inc.]
FLASH
Word from Albany indicates pressure from New York and vicinity against
savings bank life-insurance bill is still not strong enough. Please have all
your agents wire again making sure every Senator and Assemblyman gets
at least one telegram from your office regardless of constituency.
They are weakening.
Keep up the good work.
Suggestions enclosed.
The CoMMir'. 3S on Law & Legislation,
Life Uni?ei:writers' Association.
Suggestions for Letters or Telegrams
1. Confine Savings Bank Life Insurance plan to one thousand limit per person.
2. Savings Bank Life Insurance idea suggested as alternative to "industrial"
life insurance should be confined to poorer classes and not offer a bargain oppor-
tunity to purchasers of such insurance in unlimited amount.
3. Keep Savings Banks for savings and life insurance companies for life insur-
ance.
4. At a time when title, mortgage, banking and insurance companies are being
dissocated from one another, it is a mistake to endanger institutions of life insur-
ance and mutual savings banks by seeking to combine the two.
5. Thousands of life-insurance agents of this State will lose their means of
earning a living unless the one thousand limit per person is placed in Savings
Bank Life Insurance bill. Please use your efforts to protect life-insurance agents
who are your constituents.
6. Social character of Savings Bank Life Insurance legislation will be defeated
unless amended with certain safeguards particularly those which will confine the
plan to its original purpose of serving the poor.
7. Am opposed to Savings Bank Life Insurance in any form. It will not
correct industrial life-insurance evils but merely substitutes one evil for another.
8. Savings Bank Life insurance in present form will help large buyers and not
poor buyers as planned. Please vote to amend measure.
9. Sixty-one thousand four hundred and twenty-two licenses issued in this
State to "nonindustrial" life insurance salesmen whose livelihood will be seriously
threatened if Savings Banks are permitted to write life insurance in needless
competition.
10. Well satisfied with present legal reserve life insurance.
11. Savings Bank Life Insurance is no solution to poor man's problem.
12. Savings Banks Life Insurance is a misnomer. It misleads and confuses the
public as to which is which.
13. The plan to put the Savings Banks into the Life Insurance business is not
a social measure; it is social hysteria. Don't be influenced by it.
14. Am opposed to authorizing Savings Banks or any other institution to go
into the life-insurance business. Legal reserve life-insurance companies, properly
supervised, are the only medium for the sale of Life Insurance.
15. The movement to put unwilling Savings Banks into the Life Insurance
business is based on good intentions but unsound and immature concepts. I am
strongly opposed to it.
16. To put savings banks into Life Insurance business is definitely an antisocial
move, however worthy the intention. It will throw the public into confusion and
weaken public confidence both in Banks and in Life Insurance.
'Exhibit No. 735", introduced on p. 4449 is on file with the committee.
4816
CONCENTRATION OF ECONOMIC POWER
Exhibit No. 736
[Prepared by Massachusetts State actuary, Eugene F. Caldwell]
Masaachusetts Savings Banks Issuing Life Insurance Listed in the Order of Their
Entrance into the System (and the General Insurance Guaranty Fund), October
SI, 1938
Bank
Date of
Entry
No. of Pol.
in Force '
Amt. of Ins.
In Force
Admitted
Assets of
Ins. Dept.
Assets of
Savings
Dept.
Whitman S. B
People's S. B., Brockton
Berkshire County Sav. Bk., Pitts-
field....
City Sav. Bk. of Pittsfield
Lynn Five Cents S. B
Lynn Inst, for Savings
North Adams S. B
Cambrldgeport S. B., Cambridge..
Massachusetts S. B., Boston
Waltham Sav. Bk
Lowell Inst, for Savings
The Boston Five Cents S. B
Grove Hall S. B., Boston
Cambridge S. B..
New Bedford Inst, for Savings
Arlington Five Cents S. B
Uxbridge Sav. Bk
Wildey S. B., Boston
Beverly Sav. Bk..
Leominster Sav. Bk.
Fall River Five Cents S. B
Canton Inst, for Sav
Plymouth Five Cents S. B
Newton Sav. Bk
General Insurance Guar. Funa
6/22/08.
11/2/08.
«/l/ll..
7/15/12.
11/1/22.
11/1/22.
2/29/24.
11/1/24.
11/1/25.
11/1/25.
11/1/29.
11/1/29.
11/1/29.
3/1/30..
7/15/30.
11/1/30.
3/10/31.
4/14/31.
6/1/31..
6/1/31..
11/1/31.
11/1/34.
11/1/34.
3/1/37..
20,682
12,001
8,950
7,410
11,681
11,519
3,717
10,466
7,181
7,542
2,987
14, 937
2,986
4,132
3,473
3,386
2,794
5,675
3,730
2,693
2,874
1,067
1,454
2,094
$19, 977, 265
13, 196, 141
11, 756, 930
9, 085, 309
11, 527, 992
11, 077, 847
3, 636, 690
10, 255, 062
6, 939, 007
6, 406, 413
2, 710, 013
13, 392, 734
2, 906, 204
4, 006, 627
3, 511, 076
3, 267, 032
2, 495, 404
6, 924. 476
3, 322, 533
2, 567, 187
2, 611, 262
1, 107, 413
1, 283, 673
1, 824, 066
$4, 582, 359. 87
3, 053, 142. 36
2. 284, 691. 13
1, 827, 258. 30
2, 222, 315. 70
2, 397, 045. 23
791, 882. 34
1, 960, 491. 86
1, 432, 662. 36
1, 105, 377. 31
457, 629. 86
2, 084. 822. 88
392, 963. 57
873, 006. 73
524, 870. 29
396, 569. 44
215. 833. 93
733, 103. 13
464, 949. 80
235, 054. 76
256, 181. 17
95, 678. 80
155, 529. 48
129, 301. 78
198, 245. 17
$7, Oil, 816. 63
10,076,065.93
17, 295, 609. 61
10, 727, 457. 98
21, 985, 771. 01
36, 698, 301. 96
7, 101, 656. 63
24, 084, 121. 83
8, 493. 662. 37
11,750,141.20
9, 947, 027. 14
137, 593, 457. 78
5, 719, 003. 76
40, 744, 287. 68
38, 561, 160. 03
14,456,116.19
4, 042, 660. 58
19, 481, 219. 47
11, 026, 420. 20
7, 702, 683. 02
12, 893, 540. 86
2, 518, 362. 04
5,740,527.09
20, 957, 867. 92
Total.
155, 431
154, 788, 376
28, 870, 867. 24
486, 608, 63S. 91
1 These figures include Group Insurance as 60 policies but they cover 16,673 people.
6/13/39. E. F. C.
Exhibit No, 737
[Prepared by Massachusetts State actuary, Eugene F. Caldwell]
Growth of Savings Bank Life Insurance in Massachusetts 1908 to 1938
Year
1908.
1909
1910
1911.
1912.
1913.
1914
1915
1916
1917.
1918.
1919
1920.
1021
1922
1923
1924.
1925.
1926.
1927.
1928.
1929
1930
1931.
1932.
1933
1934.
1935
1936.
1937.
1938.
Number of
Issuing
Banks
Insurance
Premiums
$368. 21
25, 377. 29
58, 890. 68
76, 348. 92
102, 832. 27
124,205.08
139, 757. 35
164, 058. 96
212, 885. 24
261, 562. 27
317, 475. 73
352, 104. 12
424, 901. 24
463, 792. 59
653, 006. 99
714, 773. 56
898, 747. 79
1, 073, 347. 23
1, 257, 788. 67
1, 421, 384. 83
1, 644, 121. 94
1, 946, 490. 80
2, 222, 001. 35
2, 631, 914. 82
2, 674, 957. 07
2, 645, 379. 81
2, 803, 800. 92
3,041,489.38
3, 350, 651. 67
3, 684, 097. 61
4,062,140.86
Annuity
Premiums
(')
74, 919. 84
107, 937. 68
162, 361. 42
256, 064. 63
422, 685. 54
422, 731. 96
663, 366. 61
304, 624. 07
611,030.56
1, 271, 974. 40
1,259,334.09
1, 336, 166. 84
1, 329, 696. 83
734,982.66
Total Pre-
mium Income
$368.21
25, 377. 29
58, 890. 68
76, 348. 92
102, 832. 27
124, 205. 08
139, 757. 36
164, 058. 96
212, 885. 24
261, 662. 27
317, 475. 73
362, 104. 12
424, 901, 24
463, 792. 69
563,006.99
714, 773. 66
89S, 747. 79
1, 148, 267. 07
1, 366, 726. 35
1.683,746.26
1, 899, 176. 67
2, 369, 176. 34
2, 644, 733. 31
3, 095, 271. 43
2, 979, 581. 14
3, 266, 410. 37
4, 076, 776. 32
4, 300, 823. 47
4, 686, 718. 61
6,013,694,44
4, 787, 123. 60
Insurance In
Force
$114, 953
992, 761
1, 367, 363
1,956,038
2,628,809
3, 160, 806
3, 666, 778
4, 341, 206
6, 041, 754
8, 139, 269
9, 783, 239
12,373,090
16, 050, 271
16,670,103
19,872,634
26,677,730
31, 758, 683
38, 105, 260
43, 293, 286
49, 171, 746
67, 836, 763
67, 688, 398
77, 324, 800
90, 960, 522
90, 606, 283
93, 186, 980
99,960,943
109, 645, 966
122, 374, 772
139, 706, 498
164, 788, 376
Admitted
Assets
$26, 048. 9^
82, 137. 17
130, 516. 97
223, 130. 83
331, 726. 51
430, 428. 89
642.900.68
666, 760. 00
779, 311. 68
990, 844. 66
1. 202, 932. 62
1, 418, 630. 62
1, 702, 141. 84
2,000,393.19
2, 348, 946. 70
2,834,089.67
3,447,486.36
4,246,820.39
6,161,388.06
6,221,049.09
7, 679, 708. 72
9, 074, 805. 36
10, 666, 034. 39
12, 313, 623. 34
13, 681, 368. 92
16, 171, 273. 68
17,634,808.89
20. 181, 423. 34
23, 096, 679. 30
26, 123, 367. 12
28, 870, 867. 24
■ Annuity Premiums Included with Insoranoe premium income'prior to 1925,
6/13/39. E. F. C.
CONCENTRATION OF ECONOMIC POWER 4817
Exhibit No. 738
[Prepared by Massachusetts State actuary, Eugene F. Caldwell]
Number and Types of Agencies for Savings Bank Life Insurance on June IS, 1939
County
Total in
each
county
Issuing
Banks or
their
Branches
Agency
Banks or
their
Branches
Public
Agencies
Employer
Agencies
Credit
Unions
Berkshire
29
11
13
48
71
125
36
33
23
50
72
6
3
2
4
8
12
12
48
20
0
2
16
20
6
24
7
5
25
49
61
12
17
9
26
33
Franklin
Hampshire
HftrnpHon
11
Worcester
3
8
1
4
6
5
7
7
Middlesex
1
7
Norfolk
3
Plymouth
3
Bristol
1
1
2
6
Essex
3
Suffolk
10
Barnstable
Duke's -
Nantucket
Total
617
36
159
6
267
60
6/13/39. E. F. C.
Exhibit No. 739
[Prepared by Massachusetts State actuary, Eugene F. Caldwell]
Savings Bank Life Insurance (as of Aug. SI, 19S8), Showing Number of Persons
Insured for the Several Stated Amounts
Glass
1.
2.
3
4
5.
6.
7.
8
9.
10
11
12
13.
14.
15.
16.
17.
18
19.
20.
21.
22.
23.
24.
26.
Amount
Group
Number
of
Persons
Percent
age of
Total
Cumu-
lative
Total %
$500
22,026
26.79
20.79
1,000
40,797
49.62
76.41
1,500
1,221
1.49
77.90
2,000
6,585
8.01
85.91
2,500
532
.65
86.56
3,000
3,342
4.06
90.62
3,500
89
.11
90.73
4,000
1,162
1.41
92.14
4.500
61
.08
92.22
6,000
2,718
3.31
95.53
6,500
29
.04
95.57
6,000
587
.71
96.28
6,500
14
.02
96.30
7,000
299
.36
96.66
7,500
45
.06
96.72
8,000
265
.32
97.04
8,500
11
.01
97.05
9,000
116
.14
97.19
9,500
6
.01
97.20
10,000
1,321
1.61
98.81
10,500
5
.01
98.82
11,000
56
.07
98.89
11,600
4
.00
98.89
12,000
82
.10
98.99
12,500
6
.01
99.00
Class
26..
27.
28.
29
30
31.
32
33
34...
35
36
37
38
39..
40-
41
42..
43
44
45
46
47
Total
Amount
Group
13,000
14,000
14,500
15,000
15,500
16,000
16,500
17,000
17, 500
18,000
18,500
19,000
19,500
20,000
20,500
21,000
21,500
22,000
22, 600
23,000
23,500
24,000
Number
of
Persons
Percent
aeeof
Total
94
68
3
198
2
60
4
27
1
20
1
10
1
143
1
66
2
10
3
64
1
73
82, 221
Cumu-
lative
Total %
99.12
99.21
99.21
99.46
99.46
99.61
99.61
99.64
99.64
99.56
99.66
99.57
99.67
99.74
99.74
99.82
99.82
99.83
.99.83
99.91
99.91
100.00
4818
CONCENTRATION OF ECONOMIC POWER
Exhibit No. 740
[Prepared by Massachusetts State actuary, Eugene F. Caldwell]
Amount of New Insurance Written and Insurance Terminated in Massachusetts
during the Year 1938 (Ordinary)
Company
New Tssues
Termina-
tions
Gain or
Loss for
the year
Acacia.
Aetna-
Bankers National
Berkshire
Boston Mutual
Columbian National...
Conn. General
Conn. Mutual
Continental American,
Equitable — New York.
Equitable— Iowa
Expressmen's
Farmers & Traders
Fidelity
Guardian
Home.
John Hancock
Lincoln National
Loyal Protective
Mass. Mutual
Mass. Protective
Metropolitan
Ministers Mutual
Monarch
Morris Plan
Mutual Life
Mutual Benefit
Mutual Trust
National
New England...
New York Life
No. Amer. Reass
Northwestern Mutual.
Paul Revere
Penn Mutual
Phoenix Mutual
Provident Mutual
Prudential...
Savings Banks*
Security Mutual
Shenandoah
State Mutual
Sun Life— Transferred in.
Travelers
Union Central
Union Labor...
Union Mutual
United Life & Accident...
Totals 293,772,006
844, 507
5, 336, 413
1, 389, 927
1, 947, 069
4, 493, 413
3,119,526
5, 350, 388
4,815,119
907, 332
9, 783, 758
440, 672
62, 000
352, 049
1, 378. 472
865, 026
2,112,111
37, 178, 919
2, 551, 198
34, 050
9, 793, 287
85,040
69, 752, 730
20,600
456, 315
1,000
6, 837, 764
4, 163, 676
1, 547, 706
2, 084, 386
20, 673, 074
11,127,074
293, 200
3, 773, 984
114, 469
1, 827, 235
7, 084, 787
2, 788, 855
25, 165, 373
20, 000, 167
462, 498
34,606
7, 608, 356
878, 719
3, 424, 359
6, 268, 778
2,824,012
106, 865
707, 811
903, 331
352, 927
5, 451, 517
914,411
1,911,507
3, 342, 948
2, 888, 406
4,801,120
4,311,030
135,624
11, 890, 412
349, 676
6,914
151. 864
1, 161, 607
597, 519
1,060,068
30, 447, 927
807. 580
19, 800
10, 708, 923
92, 436
06, 824, 140
18, 790
192, 708
1,000
5, 384, 680
5, 026, 703
1, 301, 284
2, 909, 357
15, 381, 015
13, 834, 603
129,800
4, 182, 738
73, 921
2, 415, 374
6, 901, 103
3, 509, 504
24, 506, 234
4, 005, 253
569, 361
21, 735
6, 419, 132
> 812, 414
> 4, 220, 957
5, 590, 864
2, 920, 864
63, 842
699, 368
433, 657
258, 744, 517
491,580
115, lOi
475, 516
35, 562
1, 150, 465
231, 120
549,268
504,089
771, 708
5, 106, 664
90,996
55, 086
200, 185
216, 865
207. 507
1. 052. 043
6, 730, 992
1, 743, 618
14, 250
916, 6S6
7,S96
2, 928, 590
1,810
263, 607
1, 453, 184
865, 027
246, 422
821 S71
5, 292. 059
t, im, 619
163, 400
408, 764
40,548
688, 1S9
1, 183, 684
720, 649
659, 139
15, 994, 914
106,868
12, 871
1, 189, 224
750, £99
677, 914
96,86$
53,023
8,443
469, 674
35, 027, 489
« Year ends October 31.
* Transferred out.
ORDINARY
Only 4 companies wrote more insurance in Massachusetts in 1938 than did the Savings Banks.
No company gained as much insurance in force in Massachusetts in 1938 as did the Savings Banks.
The Savings Banks accounted for 6.81% of the total new issues.
The Savings Banks accounted for 45.66% of the total net Increase in insurance in force.
0-13-39. E. F. C.
CONCENTRATION OF ECONOMIC POWER
4819
Exhibit No. 741
[Prepared by Massachusetts State actuary, Eugene F. CaWwell]
Relative Proportions of Amounts of Insurance Terminated by Lapse and Surrender
in Massachusetts Savings Banks and in Massachusetts Insurance Companies
1911-1938
S. B. L. I.
Other Massachusetts Companies '
Years
Lapse
Surren-
der
Ordinary
Industrial
Lapse
Surren-
der
Lapse
Surren-
der
1911
Percent
46
40
29
25
19
37
31
32
13
25
19
29
28
28
18
15
7
10
12
9
8
7
6
8
10
8
11
10
Percent
54
60
71
75
81
63
69
«8
87
75
81
71
72
.72
82
85
93
90
88
91
92
93
94
92
90
92
89
90
Percent
65
62
64
60
58
57
60
63
64
71
74
64
60
61
58
58
68
53
50
63
46
38
36
37
43
48
54
Percent
35
38
36
40
42
43
40
37
36
29
26
36
40
39
42
42
42
47
50
47
54
62
64
63
67
52
46
(•)
Percent
88
84
83
79
80
85
83
75
73
76
77
74
76
77
76
78
80
78
80
77
74
71
72
71
72
73
64
(')
Percent
12
1912
16
1913
17
1914
21
1915
20
1916
15
1917 . - ..-
17
1918 .--
25
1919
27
1920 -- --. -
24
1921 -
23
1922
26
1923
24
1924
23
1925 -.
24
1926....
22
1927
20
1928
22
1929 -
20
1930
23
1931 - --
26
1932 -
29
1933
28
1934
29
1935
28
1936
27
1937....
36
1938
(*)
' S. B. L. \. not included here.
> Not available.
&-13-39. E. F. C.
Exhibit No. 742
[Prepared by Massachusetts State actuary, Eugene F. Caldwell]
Mortality Experience of Massachusflts Savings Bank Life Insurance Compared
with Life Insurance Companies — Ratios of Actual to Expected Mortality Losses
for Savings Banks, all Ordinary, and aU Industrial Insurance, 1910 to 1938
Year
Savings
bank Life
Insurance
AU
Ordinary
Ins. incl.
S. B. L. L
All
Industrial
Year
Savings
Bank Life
Insurance
AU
Ordinary
Ins. incl.
S. B. L. L
AU
Industrial
1910
30.84
22.36
24.64
35.42
28.32
34.94
53.05
30.19
77.90
63.67
57.90
32.12
46.36
61.97
46.67
70.63
70.78
70.67
36.96
66.68
68.36
68.43
63.06
96.69
66.40
60.29
61.88
63.68
65.10
63.00
104.49
100.17
97.69
98.76
96.62
92.31
95.10
93.96
142.78
83.25
76.13
63.62
65.42
66.69
65.21
1925
44.98
43.24
43.74
36.22
46.85
41.55
39.43
38.85
36.77
41.22
40.06
33.51
35.89
34.20
51.51
53.59
53.78
67.91
60.89
61.80
63.48
63.10
63.31
61.73
60.49
61.05
68.96
(0
66.02
1911
1926..
68.07
1912
1927 . ..
63.88
1913
1928
64.23
1914
1929
66.37
1918
1930 .
60 04
1916
1931
69.60
1817
1932 . ..
66 72
1918
1933
66.26
1919
1934 . . .
63.64
1920
1935...
60.98
1921
1022
1936
1937.
60.06
47.62
1923
1938
P)
1824
> Not available.
6/13/39. E. F. C.
124491 — 40 — pt. 10-
-44
4820 CONCENTRATION OF ECONOMIC POWER
Exhibit No. 743
[Prepared by Massachusetts State actuary, Eugene F. Caldwell]
Interest Earned
Net Rate of Income Earned on Investments by Savings Bank Life Insurance and
by all Insurance Organizations, Including Savings Bank Life Insurance, 1920 to
1938
Year
Savings
Bank Life
Insurance
All Organ-
izations
Including
S. B. L. I.
Year
Savings
Bank Life
Insurance
All Organ-
izations
including
S. B. L. I.
1920 ,.-
6.68
6.66
6.62
5.32
5.49
6.21
6.30
5.25
6.18
5.30
6.03
5.22
6.29
6.34
6.33
6.06
5.06
6.02
6.04
6.02
1930
5.14
6.12
6.02
4.67
4.47
3.90
3.91
3.93
3.82
6.02
1921
1931
4 91
1922
1932
4 65
1923
1933
4.25
1924
1934
3 89
1925 -
1935
1936
3.66
1926
3 73
1927 .-..
1937
3.68
1928
1938
(1)
1929
> Not available.
6/13/39. E. F. C.
Exhibit No. 744
[Prepared by Massachusetts State actuary, Eugene F. Caldwell]
Expense of Operation
Percent Total Expenses are of Premium Income in Savings Bank Life Insurance
Ordinary Insurance and Industrial Insurance 1920 to 1938
Year
Savings
Bank LiTe
Insurance '
All
Ordinary
Industrial
Year
Savings
Bank Life
Insurance ■
All
Ordinary
Industrial
1920
6.80
6.84
7.73
6.54
6.10
4.45
4.47
4.66
4.53
4.63
22.72
20.60
19.88
20.20
20.43
19.63
19.40
18.82
18.13
18.32
35.84
34.24
32.33
31.78
30.99
30.01
29.92
27.64
26.30
26.34
1930
4.73
4.97
5.18
5.00
4.84
6.02
6.29
7.16
8.39
17.96
16.19
15.44
14.14
13.95
13.67
13.71
14.13
(»)
24.45
1921
1931
22.92
1922
1932
22.02
1923
1933
22.77
1924
1934
23.90
1926
1935
24.74
1926
1936
25.63
1927 -...
1937 .-
25.32
1938
1938
(')
1929
■ Inclading repayment to the Commonwealth of entire state appropriation for the Division of Savings
Bank Life Insurance.
' Not available.
6/13/39. E. P. O.
CONCENTRATION OF ECONOMIC POWER
Exhibit No. 745
[From flies of Massachusetts Division of Savings Bank Life Insurance]
Division of Savings Bank Life Insurance
109 State Ho a, Boston, Mass.
Illustration of 10 years' experience — Issues of 1929
$1,000 STRAIGHT LIFE INSURANCE— AGE 35
4821
Company
Annual
Pre-
mium
10 An-
nual
10
Years'
Net
Pay-
ment
Average
Net
Cash
Net
Pre-
miums
Divi-
dends
Pay-
ment
Value
Cost
$23.90
$239.00
$75. 87
$163. 13
$16. 31
$135. 76
$27. 37
26.88
268.80
76.78
192. 02
19.20
146.01
46.01
22.89
228.90
40.29
188. 61
18.86
135.00
53.61
27.00
270.00
70.11
199. 89
19.99
146. 01
53.88
26.35
263.50
61.63
201.87
20.19
146. 01
65.86
24.00
240.00
42.46
197. 54
19.75
137.00
60.54
26.35
263.50
56. 85
206.66
20.67
- 146. 01
60.64
26.35
263.50
56.14
207.36
20.74
146. 01
61.35
19.71
26.35
197. 10
263.50
197. 10
208.89
19.71
20.89
135.00
146. 01
62.10
62.88
64.61
28.11
281.10
72.15
208.95
20.90
146.00
62.95
26. 35
263.50
53.75
209.75
20.98
146.01
63.74
26.35
263.50
52.95
210. 55
21.06
146.01
64.64
28.11
281.10
68.56
212.54
21.25
146.00
66.64
26.35
263.60
50.39
213. 11
21.31
146. 01
67.10
23.10
231.00
28.01
202.99
20.30
135. 76
67.23
26.38
263.80
60.02
203.78
20.38
136.00
67.78
19.71
28.11
197. 10
281.10
197. 10
214. 74
19.71
21.47
128.97
146. 01
68.13
68.73
66.36
24.21
242. 10
35.12
206.98
20.70
137.00
69.98
26.49
264.90
47.06
217.84
21.78
147. 5J
70.33
26.00
260.00
51.30
208.70
20.87
137.00
71.70
19.71
24.89
197. 10
248.90
197. 10
210.65
19.71
21.06
126.00
136.00
72.10
76.66
38.35
25.49
264.90
44.07
210. 83
21.08
135.00
76.83
26.00
260.00
46.62
213.38
21.34
137.00
76.38
24.89
248.90
45.39
203.61
20.36
126.00
78.61
26.35
263.60
30.19
233.31
23.33
146.01
87.30
Average
Net
Cost
Banks 1 through'lO...
Northwestern Mut
Provident Mut-
New England Mut. .-
Penn Mut
Metropolitan '.-
State Mutual
Mutual Benefit.--
Conn. Oen. (Non-Par.)
Mass. Mutual
Equitable (N. Y.).-.- -
National (Vt.).-
Guardian (N. Y.)
New York Life
Conn. Mutual
Phoenix Mutual
Equitable (Iowa).- --
Travelers (Non-Par.)..
Mutual Life (N. Y.)
Prudential '
Home Life (N.Y.)>.-
John Hancock ' ..-
Aetna (Non-Par.)
Union Central
Conn. Gen. (Par.)
Fidelity Mutual >
Aetna (Par.)
Berkshire Life
$2.74
4.60
6.36
6.39
6.69
6.06
6.06
6.14
6.21
6.29
6.30
6.37
6.45
6.65
6.71
6.72
6.78
6.81
6.87
7.00
7.03
7.17
7.21
7.66
7.58
7.64
7.85
8.73
SPECIAL POLICIES ISSUED ONLY IN AMOUNTS OF $6,000 OR MORE-$1,000 BASIS
Metropolitan "Special"
John Hancock "Pref. Risk"..
Prudential "Mod. 3":
$21.40
22.90
19.02
22.38
22.90
$214.00
229.00
$35.16
41.39
$178. 84
187.61
$17.88
18.76
$136.60
136.00
$43.24
61.61
$4.32
6.16
4th & subs, yrs . .
213. 72
229. 0(J,
29.08
35.48
184.64
193.52
18.46
19.36
128.00
136.76
66.64
67.76
6.66
Home Life (N. Y.) (Pref.)...
6.78
> Endowment at age 85.
• Whole Life Payable at age 85.
Note.— The dividends shown for the Savings Banks equal the average of the ten years' dividends paid on
a straight life policy issued at age 35 in 1929 by the ten insurance departments established prior to November
1, 1929. The figures for the companies were taken from sources believed to be reliable.
6/8/39. N-l-3&-Actual.
4822 CONCENTRATION OF ECONOMIC POWER
Exhibit No. 746
[From files of Massachusetts Division of Savings Banli Life Insurance]
Savings Bank Life Insurance
109 State House, Boston, Mass.
Ten Year Net Cost Comparison — $1,000 Straight Life Insurance — Age 35
Annual
Pre-
mium
10 An-
nual
Prems.
Div.
Ret'd
10 Years
Net
Am't
Pd.in
lOYrs.
Av.
Yearly
Net ■
Payts.
Cash
Value
End
10 Yrs.
Net
Cost
for 10
Years
Av.
Yrly.
Net
Cost
$22.19
26.88
25.88
26.35
26.35
27.00
26.35
26.35
26.35
26.35
26.35
25.58
26.24
26.06
25.35
26.85
27.90
26.30
26.35
28.11
24.68
26.49
26.57
25.53
28.11
28.11
26.35
21.42
21.42
21.42
21.42
(')
$221.90
268. 80
258.80
263.60
263.50
270.00
263.50
263.50
263. 50
263.50
263.50
255.80'
262.40
260.60
253.50
268.50
279.00
263.00
263.50
281.10
245.80
264.90
265. 70
255.30
281. 10
281.10
263.50
214.20
214.20
214.20
214.20
(')
$48. 69
70.84
56.44
59.75
55.02
59.51
49.37
49.35
48.55
47.13
46.41
42.26
44.84
40.95
47.11
48.16
49.79
41.29
63.40
69.90
34.82
35.86
52.86
38.96
64.07
62.44
26.63
$173. 21
197, 96
202.36
203. 75
208.48
210. 49
214. 13
214.15
214.95
216. 37
217. 09
213.54
217. 56
219. 65
206.39
220.34
229.21
221. 71
210. 10
211.20
210.98
229.04
212. 84
216.34
217. 03
218.66
236.87
214.20
214. 20
214.20
214.20
$17. 32
19.80
20.24
20.38
20.85
21.05
21.41
21.42
21.50
21.64
21.71
21.35
21.76
21.97
20.64
22.03
22.92
22.17
21.01
21.12
21.10
22.90
21.28
21.63
21.70
21.87
2-3.69
21.42
21.42
21.42
21.42
$146.01
146.01
146. 00
146.00
146. 01
146. 01
146. 01
146.01
146. 01
146. 01
146. 01
142.00
146. 00
148.00
132.00
146.01
153.00
146.00
133.00
131.00
130.00
147. 51
131.00
131.00
131.41
131.00
146. 01
118.00
111.26
111.00
111.00
$27.20
51.95
56.36
57.75
62.47
64.48
68.12
68.14
68.94
70.36
71.08
71.54
71.56
71.65
74.39
74.33
76.21
75.71
77.10
80.20
80.98
81.53
81.84
85.34
85.62
87.66
90.86
96.20
102.94
103.20
103.20
$2.72
Northwestern Mutual
Provident Mutual -
5.20
5.64
National Life (Vt.)
5.78
Penn Mutual (1)
6.25
New England Mutual
Mutual Benefit -
6.45
6.81
6.81
Conn. Mutual
6.89
Guardian Life . -
7.04
Ma.s(?. Mntii<\l
7.11
Prudential
7.15
Fidelity Mutual -
7.16
John Hancock
7.17
7.44
Mutual Trust
7.43
Rnn T'lffi of Canada
7.62
7.57
Equitable Life -
7.71
Equitable (N. Y.)
8.02
Phoenix Mutual
8.10
Home Life
8.15
Aetna (Par.) . -..
8.18
Conn. General. .
8.53
Mutual Life
8.56
New York Life
Berkshire Life
Columbian Nat
8.77
9.09
9.62
10.29
10.32
10.32
• Not available.
Note.— The dividends shown for the Savings Banks are based on the dividend schedule for 1938 for
policies issued on the premium rates adopted November 1, 1935. Those for the companies, on dividends
payable in 1938 based on information in the Life Insurance Courant, Best's Life Insurance News, and
Best's Dlustrations.
Exhibit No. 747
[Prepared by Mas.sachusetts State actuary, Eugene F. Caldwell]
Comparison of Ratios of Surplus to Reserve of Massachusetts Savings Bank Life
Insurance and the Life Insurance Companies {Capital Included as Surplus)
Year
Massachu-
setts Savings
Bank Life
Insurance
All Companies
Doing Busi-
ness in Massa-
chusetts (ex-
cluding S. B.
L.I.)
Year
Massachu-
setts Savings
Bank Life
Insurance
All Companies
Doing Busi-
ness in Massa-
chusetts (ex-
cluding S. B.
L.I.)
1920 — . -
11.46
11.33
9.51
9.25
9.40
9.41
6.11
7.92
6.92
6.94
6.30
6.95
1934
8.69
9.10
9.45
8.85
8.31
6.60
1926
1935
5.68
1930
1936
5.82
1931
1937 — .
6.46
1032
1938
(')
1933
• Not available.
6/13/39. E.F. C.
CONCENTRATION OF ECONOMIC POWER
4823
Exhibit No. 748
IPrepared by Massachusetts State actuary, Eugene F. Caldwell]
Massachusetts Savings Bank Ldfe Insurance Compared with Total Amount of Ldfe
Insurance of All Kinds in Force in Massachusetts, 1908-1988 (December Slst)
Insurance in force
% Savings
Bank Life
Insurance
to Total
Year
Insurance in force
% Savings
Year
Savings
Bank Life
Insurance '
Total all
Kinds
Savings
Bank Life
Insurance '
Total all
Kinds
Bank Life
Insurance
to Total
1908
1909
1910
1911
1912
1913
1914
1915
1916
1917.
1918
1919
1920
1921
1922
1923
$114,953
992, 761
1,367,363
1, 956, 038
2,528,809
3, 150, 806
3, 566, 778
4, 341, 205
6,041,754
8, 139, 269
9, 783, 239
12, 373, 090
15, 050, 271
16, 670, 103
19, 872, 634
25, 677, 730
1800, 660, 535
850,842,393
894, 542, 543
944, 2.53, 553
997,464,458
1, 052, 847, 286
1. 102, 006, 727
1, 160, 188, 542
1,259,939,494
1,367,149,096
1,472,302,996
1,747,511,513
2, 026, 748, 823
2, 196, 175, 148
2, 393, 889, 663
2,700,383,558
0.014
0.117
0.153
0.207
0.254
0.299
0.324
0.374
0.480
0.595
0.664
0.708
0.743
0.759
0.830
0.951
1924
1925
1926
1927
1928
1929
1930
1931
1932
1933
1934
1935
1936
1937
1938
$31, 758, 583
38, 105, 250
43, 293, 286
49, 171, 745
57, 836, 763
67, 688, 398
77,324,800
90,960,522
90, 606, 283
93, 186, 980
99, 960, 943
109, 645, 965
122, 374, 772
139, 706. 498
164, 788, 376
$2,967,992,444
3,310,821,143
3, 607, 430, 429
3,873,181,359
4, 159, 872, 349
4, 491, 346, 282
4,690,758,341
4,816,053,305
4,641,492,7.35
4,513,255,113
4, 515, 409, 346
4, 559, 313, 606
4,693,157,546
4, 858, 280, 689
4,894,293,359
1.070
1.151
1.200
1.270
L390
1.505
1.648
1.889
1.952
2. 055
2.214
2.405
2.608
2.876
3.163
1 Savings Bank Life Insurance figures as of October Slst.
6/13/39. E. F. C.
Thirty
Exhibit No. 749
fPublication of Massachusetts Division of Savings Bank Life Insurance]
Years' Experience in Massachusetts Savings Bank Life Insunance (State-
ment to October 31, 1938)
INCOME DURING THIETT
YEARS
Premiums from Policyholders $48,097,312.36
Net Income from Investments 8, 412, 094. 83
Special Guaranty Funds _ 200, 000. 00
Totallncome $56,709,407.19
DISBURSEMENTS DUR-
ING THIRTT TEARS
Death and Disability Claims... $5,994,991.58
Matured Endowments.. 1,807,856.35
Paymentsto Annuitants 3,536,845.36
Cash Surrender Values 3,896,971.63
D ividends to Policyholders 10, 249, 561. 93
(Total Pd. Policyholders $26,486.-
226,86).
Special Guaranty Fund.o Ketired 195,000.00
Expenses (see detail below)... 3, 186,852.80
Total Disbursements $28,867,079.65
Income Over Disbursements $27, 842, 327. 54
EXPENSES DURING
THIRTY TEAKS
Salaries $1,221,436.12
Adv., Postage, Printing, Tel. and
Express 367,095.89
Medical Fees... 323,201.47
Taxes 301,337.43
Collection Fees 263,868.51
Rent 218,962.63
Peimbursement to State 328,425.68
Other Expenses 161,625.07
Total Expenses (6.62% of Prem.
Income) $3,185,852.80
ASSETS
Bonds
First Mortgage Loans on Massa-
chusetts Real Estate :..
Policy Loans
Real Estate Acquired by Foreclosure.
Bank Stocks
Collateral Loans
Taxes and Insurance Paid on Mort-
gaged Property
Personal Security Loans
Cash on Hand and in Banks
Other Ledger Assets
Total Ledger Assets
Interest and Rents due and accrued.
Premiums in Course of Collection...
Unification of Mortality
Other Non-Ledger Assets
Total Gross Assets
Assets Not Admitted
Total Admitted Assets
LIABILITIES
Legal Reserve
Policy Proceeds left with the Banks .
Reserve for Unpaid Claims
Dividends left to Accumulate
Premiums Paid in Advance
Interest and Rent Paid in Advance..
Reserve for Taxes.
Accrued Reimbursement to State
Unification for Mortality
Miscellaneous Liabilities..
$14,661,009.11
7,936,024.17
2, 807, 762. 43
660, 802. 74
478, 303. 82
228,253.30
26, 378. 93
7,685.00
1,045,146.65
962.39
$27, 842, 327. 54
$229, 298. 28
754, 382. 06
47,266.35
112.46
$28, 873, 386. 68
$2, 618. 44
$28, 870, 867. 24
$26, 069, 137. 00
234,960.00
38,191.48
135, 519. 88
36, 256. 56
70, 624. 96
60,207.11
65, 834. 49
47, 265. 35
29, 243. 75
Total Liabilities $25, 767, 240. 67
As.sets Over Liablities 3,103,826.67
Apportioned ior. Divi-
dends to Policy-
holders $1,016,276.45
Special Expense Guar-
anty Funds 6,000.00
1,020.275.48
Net Surplus (Including Qen.
ID& Guar. Food $196,823.27). $2, 083, 351. 22
4824 CONCENTRATION OF ECONOMIC POWER
Growth of Massachusetts Savings Bank Life Insurance
End of
Year
Num-
ber of
Banks
Premiums
Received
During
Year
Num-
ber of
Poli-
cies in
Force
Amount of
Insurance in
Force
Total Paid
Policy-
holders Dur-
Year
Legal Re-
serve
Surplus Inc.
General
Ins. Guar-
anty Fund
Total Ad-
mitted As-
sets
1908
1
2
2
3
4
4
4
4
4
4
4
4
4
4
4
6
7
8
10
10
.10
10
15
20
21
21
21
23
23
24
24
$368.21
25, 377. 29
58, 890. 68
76, 348. 92
102, 832. 27
124, 205. 08
139, 757. 35
164, 058. 96
212, 885. 24
261, 562. 27
317, 475. 73
352, 104. 12
424, 901. 24
463,792.59
553, 006. 99
714, 773. 56
898, 747. 79
1, 148, 267. 07
1, 365, 726. 35
1, 583, 746. 25
1, 899, 176. 57
2, 369, 176. 34
2, 644, 733. 31
3, 095, 271. 43
2, 979, 581. 14
3, 256, 410. 37
4, 075, 775. 32
4, 300, 823. 47
4, 686, 718. 51
5, 013, 694. 44
4, 787, 123. 50
282
2,521
3,318
5,063
6,662
8,054
9,439
10, 892
14,030
17,680
20,707
28,148
30, 834
31,705
35, 492
41,283
45,889
50,953
55,822
61,543
70, 212
81, 440
90,239
101, 002
101, 390
103, 763
112,294
122, 725
137, 345
156, 093
172, 004
$114,953.00
992, 761. 00
1, 367, 363. 00
1, 956, 038. 00
2, 528, 809. 00
3, 150, 806. 00
3,566,778.00
4,341,205.00
6, 041, 754. 00
8, 139, 269. 00
9, 783, 239. 00
12, 373, 090. 00
15,050,271.00
16, 670, 103. 00
19, 872, 634. 00
25,677,730.00
31,758,583.00
38, 105, 250. 00
43, 293, 286. 00
49,171,745.00
57. 836, 763. 00
67, 588, 398. 00
77, 324, 800. 00
90, 900, 522. 00
90,606,283.00
93, 186, 980. 00
99, 960, 943. 00
109, 645, 965. 00
122, 374, 772. 00
139,706,498.00
154, 788, 376. 00
$316. 00
21, 974. 00
58, 423. 00
108, 261. 00
173, 677. 00
260, 751. 00
351, 552. 00
460, 665. 00
609, 251. 00
778, 747. 00
948, 034. 00
1,138,807.00
1, 346, 075. 00
1, 568, 840. 00
1,856,911.00
2, 255, 202. 00
2, 743, 303. 00
3, 381, 058. 00
4,141,716.00
5, 019, 794. 00
6, 143, 166. 00
7, 414, 293. 00
8,741,481.00
10, 261, 409. 00
11,399,760.00
12, 736, 686. 00
14, 959, 062. 00
17,213,715.00
19,791,288.00
22, 612, 796. 00
25, 069, 137. 00
$64.83
6, 058. 32
14,0Q7.56
28, 215. 19
43, 576. 84
52, 302. 92
66, 591. 58
75, 536. 24
80, 825. 19
104, 148. 42
122, 464. 22
143, 913. 51
172, 869. 77
215, 379. 61
247, 033. 03
281, 074. 62
325, 501. 56
383, 564. 35
466, 725. 33
556, 375. 09
657. 899. 77
779. 738. 72
830,611.89
948, 466. 70
1, 071, 506. 28
1, 198, 474. 24
1, 300, 658. 45
1, 566, 356. 43
1, 870, 208. 00
2, 001, 406. 74
2. 083, 351. 22
$26,048.91
82, 137. 17
130, 516. 97
223, 130. 83
331, 726. 51
430, 428. 89
542, 900. 68
666, 750. 00
779,311.68
990, 844. 55
1, 202, 932. 52
1, 418, 530. 52
1,702,141.84
2, 000, 393. 19
2, 348, 945. 70
2, 834, 089. 67
3, 447, 486. 36
4, 246, 820. 39
5, 161, 388. 06
6, 221, 049. 09
7, 579, 708. 72
9, 074, 805. 35
10, 566, 034. 39
12, 313, 623. 34
13,681,358.92
15, 171, 273. 58
17, 634, 808. 89
20, 181, 423. 34
23, 096, 679. 30
26, 123, 367. 12
28, 870, 867. 24
1909...-
1910
1911
1912....
1913
1914....
1915....
1916....
1917....
1918....
1919....
1920....
1921....
1922....
1923....
1924
1925....
1926....
1927....
1928....
1929....
1930....
1931
1932....
1933....
1934....
1935....
1936....
1937....
1938....
$878. 06
8,879.86
12, 149. 74
21, 877. 67
28, 796. 99
35, 335. 32
56, 790. 27
73, 458. 28
72, 870. 00
132, 243. 51
176,331.81
197, 214. 28
212, 635. 56
281, 080. 16
347, 569. 98
437, 662. 33
523, 062. 98
644, 507. 63
770, 873. 45
849, 359. 70
1, 304, 982. 34
1, 458, 410. 69
1,756,711.49
2, 024, 936. 28
2, 057, 691. 77
2, 042, 616. 29
2,296,888.40
2, 438, 858. 91
2, 546, 982. 61
2, 674, 570. 49
Totals
48, 097, 312. 36
25, 486, 226. 85
CONCENTRATION OF ECONOMIC POWER 4825
Exhibit No. 750
[Prepared by New York Savings Bank]
Policy Analysis Report, June IS, 1939
Number of Policies Examined, _ 1, 000 Total Amount of Insurance .. $831, 460
Women 196
Men 662
Children 142
Average Age:
Adults 36.5
Children 7.5
OCCUPATIONS (ADULTS)
692
$1,000 Policies
692, 000
1
800 Policies
800
1
750 Policies
750
1
700 Policies
700
186
500 Policies
93, 000
96
400 Policies
38, 400
1
300 Policies
300
22
250 Policies
5,500
Engineers 32
Clerks 130
Laborers 16
Musicians 3
Students 34
Housewives 95
Teachers 27
Lawyers - 21
Executives 59
Doctors 14
Merchants 37
Artists 3
Seamen 6
Building Employees 39
Salesmen 95
Chauffeurs 10
Plumbers 1
Bookkeepers 33
Chemists 7
Nurses 7
Cashiers 3
Printers 9
Tailors 33
Retired ' 1
Domestic Help 14
Mechanics 8
Machinist _ 8
Butchers 1
Silk Weaver 1
Secretaries 14
Unemployed 22
Insurance » 7
Opticians 1
Manufactures 2
Photographers 2
Reporters 1
Social Workers 2
Restaurant Employees . 12
Public Service 39
Patrolman 7
Chiropodist 2
224 of the above applicants have applied for additional insurance.
TB:EQ.
[Initialed: T. B.]
Exhibit No. 751
[Prepared by Securities and Exchange Commission Insnrance Study Staff]
Premium Income and Consideration Received, Annuity Contracts
Year Amount
1931 $183,698,000
1932 190,057,000
1933 265,337,000
1934 414,134,000
1935 510,523,000
1936 467,022,000
1937 408,175,000
3, 078, 202, 000
Note.— Includes first-year andTrenewalJpremiums on Annuities, plus consideration for supplementary
contracts involving life contingencies.
Total premium income and consideration received on annuity contracts during the years 1933 to 1937,
inclusive, amounted to $2,065,191,000, or 67.11% of such income during the entire period from 1913 to 1937,
Inclusive. Of the $2,065,191,000 total premium income annuity contracts during the years 1933 to 1937,
inclusive, $104,104,000 was consideration for supplementary contracts involving life contingencies.
During the years 1933 to 1937, inclusive, the total premium income and consideration on personal an-
nuities (exclusive of grotip annuities) and supplementary contracts involving life contingencies amounted
to approximately $1,758,500,000, or 6S % of such income f$2,585,000,000 approximately) received during the
entire period 1913-37, inclusive.
Source: Spectator Insurance Year Book.
Year Amount
1913 $6,350,000
1914 7,044,000
1915 7,886,000
1916 12,738,000
1917 12,314,000
1918 14,407,000
1919 27,917,000
1920 10,721,000
1921 14,411,000
Year Amount
1922 $14,655,000
1923 18,265,000
1924 25,811,000
1925 43,867,000
1926 47,115,000
1927 60,632,000
1928 108,230,000
1929 ._ 99,170,000
1930 107,723,000
4826
CONCENTRATION OF ECONOMIC POWER
Exhibit No. 752
[Prepared by Securities and Exchange Commission Insurance Study Staff]
Personal Annuities — 10 Largest United States Companies — Increase (+) or Loss ( — )
in Surplus — After Appropriation for Contingency or Other Special Reserves
(Unassigned Funds), for the years 1929 to 1938, inclusive
Company
1929
1930
1931
1032
1933
1934
Metropolitan Life Insurance
Company
Prudential Insurance Company
of America _-.
New York Life Insurance Com-
pany
Equitable Life Assurance Soci-
ety of the U. S....
Mutual Life Insurance Com-
pany of New York '
Northwestern Mutual Life In-
surance Company _
Travelers Insurance Company..
John Hancock Mutual Life In-
surance Company
Penn Mutual Life Insurance
Company.,
Mutual Benefit Life Insurance
Company -..
-$19, 079
-185,527
0
-175,938
-f 789, 937
-f 71, 186
-3, 167
-10,240
-439,002
-22,116
+$46, 481
-74,022
0
H-51 1,998
-f 883, 213
+81, 643
+253, 823
-10,211
+606, 284
+78, 882
+$957, 592
-100,867
0
-347,455
+243, 861
+72, 299
-124,283
-11,473
+278,484
-97,398
-$297, 138
-187,436
-2,216,414
-754,042
-245,017
+91,090
-318,240
+24, 278
-731,232
+1, 832
-$138,492
-296,928
-2,909,689
-5,741,361
+27,916
+81,319
+197, 542
-103, 167
+177, 296
-4, 765
-$440,293
-616, 689
-8, 410, 838
-3,359,072
-1,853,945
-3, 602
-181,188
-182,478
+223, 098
-141,685
Total, 10 companies-
+6, 054
+2, 378, 091
+870, 760
-4, 632, 319
-14, 966,692
Company
1935
1936
1937
1938
10 Yr. Total
Metropolitan Life Insurance
Company —
Prudential Insurance Company
of America _
New York Life Insurance Com-
pany - ---
Equitable Life Assurance Soci-
ety of the U. S.
Mutual Life Insurance Com-
pany of New York ' -
Northwestern Mutual Life In-
surance Company.
Travelers Insurance Company...
John Hancock Mutual Life In-
surance Company
Penn Mutual Life Insurance
Company
Mutual Benefit Life Insurance
Company
-$195,982
-873,393
-3, 356, 054
-2,036,198
-523,870
-3. 114
+5, 972
-422,463
+253, 399
-142,701
-$733, 969
+975,318
-11, 706, 230
+4, 703, Oil
+413, 548
+173, 000
+167, 934
+474, 519
+1,309,883
-305, 782
-$1, 160, 162
+40, 619
-3,127,968
-6,318,729
-2,777,884
-203, 317
+237, 840
-105,250
-501, 178
-200,975
-$324, 108
+31,453
-5, 155, 342
-621, 283
-1,605,057
-633t902
-32,017
+172, 980
-738, 145
-125,616
-$2, 295, 150
-1, 287, 472
-36,882,535
-14,139,069
-4, 647, 298
-273, 398
+204,216
-173,505
+438. 887
-960,414
Total, 10 companies.
-7,294,494
-4, 528, 7(
-14,107,004
-9, 031, 037
-60,015,738
1 Because of the manner in which The Mutual Life Insurance Company of New York, the Mutual Benefit
Life Insurance Company, and the Lincoln National Life Insurance show in their annual statements amounts
which are ordinarily designated as Surplus (Unassi^ed Funds), and which in whole or in part in the case
of these three companies are shown as reserve for contingencies with or without further characterization,
the amounts designated by these three companies as reserves for contingencies have been treated as com-
parable to the surplus (Unassigned Funds) of the other companies.
HouTce: Compay replies to Investment Questionnaire of Securities and Exchange Commission.
CONCENTRATION OF ECONOMIC POWER 4827
Exhibit No. 753
[Prepared by Securities and Exchange Commission Insm'anee Study Staff]
Personal Annuities — Increase or Loss in Surplus — After Appropriation for
Contingency or Other Special Reserves — 86 Largest United States Companies *
Year
Number
of Co.'s
Showing
Increase
Amount
of Increase
Number
of Co.'s
Showing
Loss
Amount
of Loss
Total
Number
of Co.'s
Net
Increase (+)
or Loss (-)
1929 -.
11
16
9
7
7
4
6
12
6
5
$1,607,927
2, 977, 816
1, 730, 026
442, 471
942, 852
349,885
891,476
8, 829, 168
671, 786
1, 214, 478
12
7
14
17
18
21
19
14
20
21
$1, 207, 733
391. 672
1,456,541
5, 563, 380
10, 370, 675
17,211,986
8,918,151
16, 086, 370
16, 573, 201
13,760,956
24
24
24
24
25
25
25
26
26
26
+$400, 194
1930
+2, 586, 144
1931
+273, 485
1932
-5,120,909
1933 .-
-9, 427, 823
1934 -
-16,862,101
1935 -..
-8, 026, 675
1936
-7, 257, 102
1937
-15,901,415
1938...
-12,546,478
1 Excluding Western and Southern Life Insurance Company for the years 1929-1932, inclusive, when it
did not write annuity business, and Pacific Mutual Life Insurance Company for the years 192^^-1935
inclusive, as the present company was not organized until July 22, 1936. Because of the manner in which
The Mutual Life Insurance Company of New York and the Mutual Benefit Life Insurance Company
show in their annual statements amounts which are ordinarily designated as Surplus (Unassigned Funds)
and which in whole or in part in the case of these two companies are shown as reserve for contingencies
with or without further characterization, the amounts designated by these two companies as reserves for
contingencies have been treated as comparable to the Surplus (Unassigned Funds) of the other companies.
Source: Company replies to Investment Questionnaire of Securities and Exchange Commission.
4828
CONCENTRATION OF ECONOMIC POWER
J
CONCENTRATION OF ECONOMIC POWER
4829
a- CQ
2
«««HXt><><«
KWKXMHWXM
MXXXXXKXKXt'^KX^t'^.t^MXt^X
K««KKKXKHXt^X«XK
XnXXX
XXXXX
xxxxx
xxxxx
oi^
xxxxxxx
xxxxxxx
o
a
2 o
a «
ii
o c^
'U
►3s
_ 3
, d 2
fa :|
XXX
xxxxx
xxxxx
O) C3 u
3W o
o o
a Soo
05 03 ., -w o ,
X><X«
XX
c3 a
CO 2^ —
^3
O 03
o 3
03 1^
►4 o'3 3
« t: a ~
as3"«
Bs
•= 3 o-gs
, S M a fe o >
sis a o 3
o! OS.'S E<
335pa
-~'^_ 3
oc
"5 O 05 CO
f-H -^ r*
OO OS »o
h* CD
OO OJ
CC OO
W><K
a 03-0 L;t^.,
o c <i^ .£ o
"B-S a.te
— P 5 C 03 □
t^TDtJ a en o
:2:5?s<
SSs
H Gi'™' c: frl rtl I
o OJ3 as
3 03
□•3
wo
a a> ^
SxBull^
" 3.9 2 3 >.a >>
03 3 "— c O'^ S
So fflSdS os2
03 o t- O t;
« a 03 p "« 0)
t.C/3 O O 03 t/) 03 „ ■
2-oE-'^ 3.2!a.S
"" "^ Qj 3 o a
Bt>
" "^ L
o
o O 03
-<^3
.•S.s =
l-l » 03
a «
DQ«D
—1 O)
•^s a
S I
4830 CONCENTRATION OF ECONOMIC POWER
Exhibit No. 755
[From files of Aetna Life Insurance Co.]
New York Life Insurance Company
office of vice president and chief actuary
51 Madison Avenue, Madison Square, New York, N. Y.
April 22, 1933.
Annuity Rates.
Mr. E. E. Cammack,
Vice President and Actuary, Aetna Life Insurance Company,
Hartford, Conn.
Dear Mr. Cammack: A month ago there was a meeting in my office of the
representatives of five companies, Metropolitan, Prudential, Equitable, Mutual
and New York Life, with regard to a proposed increase in the annuity rates.
It was then suggested that we prepare the experience of the five companies for
recent years so as to show whether the mortality had been improved or not.
For your information I am enclosing a synopsis of this investigation. It should
be stated, however, that there are two of the companies which included annuities
issued in conjunction with single-premium policies. Arrangements are being
made to have these omitted from the experience but they are not likely to affect
it materially. It is anticipated that the effect of omitting them would be to
slightly decrease the mgrtality. Of course, it is understood that this material is
for the confidential injformation of the Travelers, Connecticut General, and
yourselves.
We had a meeting of the representatives of the five companies at the Prudentfal
yesterday, during which your letter to Mr. Little of the 12th instant and also
your more recent letter to Mr. Hutcheson were read. We are very glad to learn
that the Hartford companies are ready to cooperate with us in obtaining an
increase in the annuity rates.
The following program was decided to be the most feasible although not all the
members present wished to make a final decision without further consultation
with other Officers of their companies:
1st. Immediate Annuities Nonparticipating . — Both male and female to be taken
on the American Annuitants table as of one year younger, the rate of interest to
be 3%% and the loading 5% of the gross premium. This would apply to cash
refund or continuation of annuity to beneficiary, also to joint lives.
2nd. Deferred Annuities. — Single Premium Deferred Annuities nonparticipating
to be treated the same as Immediate Annuities whether with or without return
at death within the deferred period.
Annual premium Deferred Annuities to be treated the same as Immediate
Annuities so far as the rates of mortality and interest are concerned, and as to
taking the age one year younger, but the loading to be 6% of the net if deferred
one year, 7% if deferred two years, increasing by 1% each year to a loading of
15% of the net if deferred ten or more years. These are nonparticipating and
either with or without return. (It may be that it would be better to make a
lower percentage loading on the gross premium.)
The question of participating Deferred Annuities was taken up but as no one.
present seemed to be issuing them now except occasionally, no decision was made
other than that the rate of interest should be lower and the loading somewhat
higher than in the above.
3rd. Retirement Annuities Participating. — Under Retirement Annuities would
come the cases where a yearly deposit was made as in a sinking fund to purchase
an annuity at usually ages 50 to 70. It was agreed that the loading would be
12J4% of the gross and that the rate of interest prior to the date the annuity was
entered upon would be 3}4%. The rate used in converting the cash value into
annuity at maturity age would be the net American Annuitant's Select 3^%
^able. It was thought that the age should not be moved back one year, but
some tests are to be made to determine whether the new gross rates, less 3%,
would result in any anomalies bj' comparison with the above. At least one com-
pany provides for a net rate based on 3}^% interest or the then existing gross
rates less 3%.
Under the participating Single Premium Retirement Annuity a loading of 7}^%
of the gross was suggested which entailed raising the rate of several companies.
The same basis would be used at maturity date as under the annual premium form.
CONCENTRATION OF ECONOMIC POWER 4SS1
4th. Survivorship Annuities. — There did not seem to be any reason for coming
to a decision regarding Survivorship Annuities as so few of them vvere issued, and
as some companies issued nonparticipating and others participating forms.
5th. Options in Insurance Policies. — It was pointed out that the options in the
policies gave results inconsistent with the present annuity rates and would do so
to a greater extent under the proposed changes. Instances were given where the
options in the policy providing for life annuity with five years certain gave more
favorable results than if new annuities were purchased, the company paying a
commission thereon. It was thought most desirable that, when the companies
were issuing new forms of policies, the option should differentiate between male
and female, that the portion involving life contingencies should be on the American
Annuitant's Select 3}^ % table, but that the annuity certain portion could be based
on either 3% or 3}^% interest, depending upon the present practice of the companies.
It was not thought feasible for all companies to put the program into effect
until the 1st of July, especially as one company at least had a printed pamphlet
covering extensive Joint and Survivorship Annuity rates. One company an-
nounced that the new program would go into effect at once if there was coopera-
tion among the companies.
We shall appreciate it if you will take up the foregoing suggestions with the
Travelers, Connecticut General, and any of the other companies which you wish
to consult, then let us know your ideas as soon as possible. We should like to
have a definite program to announce at the Senior Actuaries Club, as a number
of other companies propose to follow the lead of the principal companies.
Sincerely yours,
Arthur Hunter.
End.
Exhibit No. 756
{From files of The Travelers Insurance Co.]
May 19, 1933.
[Initialed: D. B.]
Re Conference of Companies Life Annuity Rates — Policy Values.
President Zacher
Vice President Howard:
A conference of the actuaries of 22 of the leading Life companies was held at
the New York Life yesterday to discuss the above subjects.
LIFE ANNUITIES
After much discussion, 18 companies voted tentatively for the following
uniform program.
Rates. — Single Premium Life Annuities (immediate annuities, cash refund,
and joint life annuities) —
Men — American Annuitants Select, net rates taken for one year younger
than actual age; 3%% interest, loaded 4}^% of gross.
Women — American Annuitants Select, net rates for men taken five years
younger than actual age; 3%% interest, loaded 4^% of gross.
Commissions. — 3% to soliciting agent; J^% overriding to general agents.
Date Effective. — On or about July 1, 1933 — not later than August 1.
It was first voted that rates for male lives be based upon net rates for one year
younger than actual age, loaded 5%, and to use for females the female table of
net rates one year younger than actual age, loaded 5%. For ease in calculation
of joint plans and for economy in manual space, it was thought more desireable
to use one table — that for male lives. The basis of rates finally decided upon is a
practical equivalent for females and )^ of 1 % loading lower for males.
The above rate basis amounts to an increase' at the probable ages of issue
(ages 60 to 70 years) of approximately 4.7% over our present rates for males,
and approxigaately 4.6% for females. As we have not taken into consideration
the proposed ?e4uc^n in our general agents overriding from 1% to 1%%, this
saving can be addeo^ the proposed increase over our present rates, making a
figure of approximately 5.2% for males and 5.1% for females. As most of the
other companies are charging rates approximately 2% lower than ours, this means
an increase for the other companies of approximately 6.9% for males and 7.7%
for females.
4832 CONCENTRATION OF ECONOMIC POWER
The companies voting for the above proposal were:
New York Life. Massachusetts Mutual.
Mutual Life. Connecticut General.
Equitable. Prudential.
Metropolitan. Home.
Aetna. National of Vermont.
John Hancock. Sun Life.
Travelers. Canada Life.
Berkshire. Mutual Benefit.
U. S. Life. Northwestern Mutual.
The last two companies were not represented, but Chairman Hunter read
letters stating that they would go along with the majority of the companies
both as to rates and commissions. The following companies did not vote for the
proposal for the reasons stated:
Fidelity Mutual: Had not had time to discuss the matter with oiBcials; prob-
ably would agree.
Provident Mutual: Prefers 4% interest but would adhere to 3^% outside
commission. Mortality had been about 100% of expected on American Annui-
tants Select. Would increase rates but probably not so much as proposed.
Penn Mutual: Matter had not been discussed with officials. Would prefer
3% commission to soliciting agents; 1% overriding. Would probably go along
with other companies, however, to new basis.
Phoenix Mutual: Thinks interest basis all right but would probably want to
adhere to 2% commission to solicitor; yi% overriding, reducing gross rates of other
companies correspondingly (about 1%%).
Connecticut Mutual: Feels 4% interest better basis. Would adhere to 3%%
outside commission and increased rates but probably not so much as other
companies.
Guardian: Thinks increase too great, but probably will go along with other
companies after further discussion with officers.
New England Mutual: Not present, but feeling of some officials — particularly
J. Hancock — that they would not increase so much, although Dr. Hunter felt
confident that they would go along with other companies.
It was decided that each company would write the Chairman after further
consultation with its officials stating what each was prepared to do. If the list
of companies voting for the proposed basis holds together or enlarges, the general
move toward increase will undoubtedly be adopted this summer.
After the meeting the general feeling was that if some missionary work were
done on the Connecticut Mutual, Phoenix Mutual, and New England Mutual,
practically all important companies, with the possible exception of the Provident
Mutual, would go along on the proposed program.
Following the disposal of Single Premium Annuity rates and commissions, there
was further discussion of rates for Single and Annual Premium Deferred Annuities
and Single Premium Retirement Annuities (deposit forms). The general ten-
dency was toward higher rates, but nothing in the way of a general agreement
could be worked out.
The question of checking more carefully evidence of date of birth of applicants
was then taken up. The Mutual Life has for many years made a particular
point of investigating and checking thoroughly the date of birth information.
Their mortality is much higher, both by number and amount, males and females,
than that of other companies, and they feel that this is due mainly to their insist-
ence upon reliable date of birth information before policy is issued.
New York Life stated that in recent years when, after thorough checking, there
is a question as to the correct date of birth, they have not admitted the age and
have reserved the right in their contract to modify the benefit if subsequent
investigation discloses error. Dr. Hunter is going to make a survey of the
companies' methods of checking date of birth and make report to the companies.
POLICY VALUES
There was a long and interesting discussion of proper surrender charges, pro-
priety of early dividends, and possibility of payment of loans in installments and
cash values after a deferred period.
All companies agreed that it would be wise if it were made mandatory by
statute that all life policies contain a provision which would give the company the
right to defer payment of cash and loan values one year, with the possible modifica-
tion that loans be granted in equal instalments during this one-year period of
(^CONCENTRATION OF ECONOMIC POWER 4833
deferment. A further modification of this which would give the company the
right to defer payment of cash values six months and of granting loans in monthly
instalments over a period of one year also received the support of the majority of
the companies.
An efifort was then made to get the consensus of opinion of the participating
companies as to proper surrender charges. After many trials there was finally a
unanimous vote for a program of surrender charges similar to that adopted
recently by the stock companies. No date for putting such a program into eflfect
could be arranged, however, as a number of the participating companies felt that
there should be a general agreement on early dividends as well as surrender
charges. Apparently several of the companies — at least, the New York Life,
Metropolitan, Prudential, and Mutual Life — will on January 1, 1934, increase
their surrender charges and distribute them through a longer policy period than at
present. Some companies, such as the Massachusetts Mutual and Provident
Mutual, wanted to delay till Fall or until next year, which would bring their
earliest action to the Fall of 1934.
The discussion was frank and thorough, so that all actuaries undoubtedly gained
by the interchange of ideas. There is a possibility that a further meeting will be
held in the course of the next few weeks, at which time more progress may be
made in bringing the participating companies closer together in the matter of
eliminating or reducing early dividends and increasing surrender charges.
Throughout the conference it was apparent that the larger companies were
quite willing to make changes for the good of their companies and the business in
general. The opposition was generally found in the smaller, self-sufficient,
participating companies. If these concerns could be brought to a better appre-
ciation of the current situation, the present is a wonderfully fine opportunity for
clearing up many of the present troubles of the life business.
(Signed) B. D. F.,
Vice President and Actuary.
BDF:B.
(Copy to Actuary Hammond.)
Exhibit No. 757
New York Life Insurance Company
OFFICE OP VICE president AND CHIEF ACTUARY
51 Madison Avenue, New York
June 13, 1933.
memorandum regarding new annuity rates
The following companies have decided to adopt the new schedule of rates, at
least for immediate annuities, the dates being given wherever stated:
Metropolitan — On or about July 1st.
Prudential — Ditto.
New York Life— Ditto.
Equitable— Ditto.
Mutual — Ditto.
Travelers — Not later than August 1st.
Aetna — On or about August 1st.
Connecticut General — Ditto.
Union Central —
Northwestern Mutual —
John Hancock — Intend to revise annuity rates generally to conference basis,
but not as early as July 1st.
Berkshire Life — As early as possible.
United States Life —
Minnesota Mutual —
State Mutual — Plans to adopt the new single premium immediate annuities on
January 1, 1934.
Mutual Benefit — Does not expect to adopt the same basis but their rates will be
noncompetitive.
Penn Mutual — Favorably considering adopting new rates.
Massachusetts Mutual — Final decision not taken — will doubtless adopt.
4834 CONCENTRATION OF ECONOMIC POWER
Canadian companies — Majority in favor of adopting somewhat similar rates in
near future.
Fidelity Mutual — Will increase rates but basis and time not decided.
Guardian Life — Ditto.
New England Mutual — No definite decision on account of absence of President.
Connecticut Mutual — Expect to increase rates but not to conference basis.
Provident Mutual — Ditto.
Pheonix Mutual — Ditto.
National Life — May adopt entire program in near future.
Home Life — May go to conference but not before Jan. 1, 1934.
Exhibit No. 758
[From files of The Prudential Insurance Co. of America]
New York Life Insurance Company
office of vice president and chief actuary
51 Madison Avenue, Madison Square, New York, N. Y.
June 14, 1933.
Notice to Agents:
NEW ANNUITY RATES
The Company has adopted a new basis for annuity rates which will become
eflFective July 6, 1933.
The new rates provide for a moderalte increase in premiums, which has been
found necessary on account of the increased longevity of annuitants, and a lower
net return on the Company's investments.
The plans affected are the Life Annuities without Refund, with Instalment
Refund and with Cash Refund; Deferred Annuities; and Joint and Survivor
Annuities. An increase has also been made in the basis for Single Premium
Retirement 'Annuities. The premiums for the Annual Premium Retirement
Annuity, the Survivorship Annuity, and the Deferred Survivorship Annuity
remain unchanged.
In order to make the new rates for the various annuity forms available to our
agents, we have prepared a new Annuity Rate Book, a supply of which will be
sent to each Branch OflBce within the next few days. This book will contain all
the principal annuity plans issued by the Company. The rates for Deferred
Annuities are not given as very few are issued. This form has been almost
entirely replaced by the Retirement Annuity, which is a more flexible and
attractive form.
The old rates will apply to Annuity applications received at the Branch OflBces
on or before July 5th, provided the premium is paid on or before July 17th, 1933.
After the new rates become effective, please destroy any of the present literature
containing premium rates or values which have been changed. New literature to
replace that destroyed will be sent to the Branch Offices shortly.
(Signed) Arthur Hunter,
Vice President.
Exhibit No. 759
[From flies of Connecticut General Life Insurance Co.]
New York Life Insurance Company
office of vice president and chief actuary
51 Madison Avenue, Madison Square, New York, N. Y.
March 12, 1934.
Mr. John M. Laird,
Vice President, ConnectictU General Life Insurance Company,
Hartford, Conn.
Dear Mr. Laird: A meeting was held at my office on March 8 of the actuarial
representatives of the Metropolitan, Prudential, Mutual Life, and Equitable,
with regard to cash surrender values, policy loans, and options in policies. Inci-
dently the bases of annuities were discussed. It was decided to invite the repre-
sentatives of a number of the principal companies to join with us in considering
these matters. I am accordingly writing to about fourteen of the largest companies
CONCENTRATION OF ECONOMIC POWER 4835
today asking them if they could meet with the actuaries of the other five companies
at my office on Friday, the 23rd instant, at ten o'clock.
In order to focus our attention on a definite plan for increasing the surrender
charges, a program is enclosed.
Yours very truly,
(Signed) Arthur Hunter.
End.
"Exhibit No. 760" appears in the appendix to Hearings, Part V, p. 2301.
Exhibit No. 761
[From files of ronnectieiit General Life lusurance Co.]
[File Rates & Values]
Snyposis of Meeting Held in Dr. Hunter's Office, March 23, 1934, on
Surrender Values
In the case of several of the companies represebt'id no recent official considera-
tion had been given to cash values so that a good many opinions expressed were
personal. My impression of the meeting as a whole was that it simply served
the purpose of gathering opinions quite often personal on the subjects discussed.
The main thing discussed, of course, was surrender values. Arthur Hunter
stated that he had written Graham of the American Life Convention in regard to
the Missouri law and had received the opinion that it might be possible to have
the law changed in 1935.
Cammack and Little were the outstanding advocates of surrender charges
after the twentieth year. Cammack argued that even if you didn't need a
surrender charge because of low asset shares, one was needed during the depression
periods. He felt that when your surrender values were $25.00 a thousand less
than the reserve you could justify, for instance, the ainortized value of bonds at
times when the actual market value was lower. Little's theory was that we
should have minimum surrender values which could be liberalized in good times
by the payment of a final dividend. My interpretation of his thought was that
he felt we should have participating surrender values as well as participating
premiums. The Connecticut Mutual were for low surrender charges. They
felt that if the companies adopted high surrender charges today, they would
gradually increase their surrender values with the return of good times. They
felt it was better to keep the surrender charge moderate with the hope that the
surrender values would continue unchanged. They were strongly in favor of a
six months' waiting period. Henderson of the Equitable said that he felt that
the full reserve should be paid in twenty years, that he was in favor of the sur-
render charges he suggested except the minimum of $10.00. Someone asked him
to express the theory back of his recommendations. Larus of the Phoenix Mutual,
explained for him the $10.00 minimum charge, and Little remarked that Larus
had interpreted Henderson's formula for him.
Wood, of the Canada, felt that We should have higher surrender charges than
henderson recommended. He was inclined to feel that we should have a $25.00
surrender charge for fifteen years and at least a $10.00 surrender charge after the
twentieth year. He said that the Toronto companies might adopt a $25.00
surrender charge forever if they had enough company.
Percy Evans (Northwestern Mutual) stated that he was personally in favor of
larger surrender charges than Henderson's. He felt, however, that his company
wouldn't care to change at the present time because they had changed quite
recently.
Hutchison at first indicated that personally he might be inclined to agree with
Mr. Little but didn't feel it was practical to have surrender charges after the
twentieth year. As a practical measure he was inclined to feel that Henderson's
schedule was about right.
Craig, as usual, seemed to be cooperative.
Larus thought we should have a surrender charge of at least $10.00 after
twenty years. He stated that he felt his company would go along on a $25.00
surrender charge forever.
Perrin felt that Henderson's recommendations were about right but as his
company had already adopted new surrender values to become effective July 1,
1934, he was inclined to believe that they wouldn't care to make another change,
although it was possible if the change was general that they might-go along.
124491 — 40 — pt. 10 45
4836 CONCENTRATION OF ECONOMIC POWER
Tebbetts, of the New England Mutual, said that as Mr. Smith was away he
hadn't had time to discuss Henderson's recommendations at any great length, so
that he wasn't in a position to say anything.
Howe said he was personally inclined toward a stiff surrender charge, but
before they could go much farther than they had already gone the Massachusetts
Law as it applies to Massachusetts companies would have to be changed.
Thompson, of the Mutual Benefit, said he felt that each company must decide
for itself, and that they liked the six months' waiting period. The Mutual
Benefit didn't appear to be cooperative. Hunter said that the New York Life
was prepared to go as far as, say, ten other companies would; I presume he may
have meant as a limit that recommended by Henderson. He said he had dis-
cussed with Hadley the advisability of having the laws changed. Hadley had
told him that he felt before the insurance companies should ask to have any laws
changed they should go as far in all respects as the law now allows.
Marshall said that as their company had recently changed, he didn't believe
they would be interested in another.
Carrington, of the Union Central, was personally inclined to feel that the sur-
render charges recommended by Henderson were about right, but as his company
had just adopted new values he didn't think they would want to make a change
in the near future-
Burke, of the Sun, said their problem, of course, is different because their valua-
tion was based on the CM (5). He indicated that they intended to change their
values within a year, that Henderson's recommendations were not too bad,
except he felt the $10.00 minimum was not high enough. He said quite definitely
that the Sun felt there should not be a surrender charge after the twentieth year.
Pierce, of the Massachusetts Mutual, stated that they were curbed by the
Massachusetts Law, which it would be impossible to change this year. He hoped
the law could be changed in 1935, and if it could he felt that his company would
be willing to go along on the basis suggested by Henderson.
Some informal votes. were taken:
Q. Would you be willing to recommend to your company the adoption of
a provision to defer loans six months if permitted by law, and to have the
thing become effective January 1, 1935, or shortly after?
A. Everyone voted "yes." This also included cash values if permitted
by law.
Q. How many companies felt that there should be a surrender charge after
twenty years?
A. Travelers, Aetna, Prudential, Conn. General, Canada, Phoenix.
Q. How many of the other companies felt that there should be a surrender
charge up to the twentieth year?
A. Metropolitan, Equitable, Sun, New York Life, Mutual of New York.
Q. How many companies felt that the full reserve should be paid in ten
years.
A. Northwestern Mutual, Conn. Mutual, Union Central Provident, John
Hancock, Mass. Mutual, Penn Mutual.
Except for the Conn. Mutual, those representing these companies indicated
that personally they felt that there should be a surrender charge for twenty years
but that they doubted very much if their companies would be interested in
changing to such a basis. Most of them had changed their surrender values
quite recently.
The New England Mutual and the Mutual Benefit did not vote on any of these.
Q. How many companies feel that the first cash value should be at the
end of three years, except in short-term Endowments?
A. About half the companies voted "yes" and the other half felt that if
we paid second-year values on short-term Endowment • we should on Ordinary
Life at the high ages.
Some of the other things that were mentioned for consideration at the Home
Offices before the next meeting were as follows:
1. First dividend end of second year: The majprity appeared in favor of it.
2. Optional Settlements: Dr. Hunter asked about elimination of the five-
year certain period. The Penn Mutual stated that they were going to the
American Annuitants 3^% Select basis. The New England Mutual are
considering doing the same. The John Hancock, if I understood what House
said, have already gone. (My notes here aren't too good.)
CONCENTRATION OF ECONOMIC POWER 4837
3. Annuity rates: Dr. Hunter said there was some feeling that they should
go to 3)i%, and a higher loading than We have now. They felt the higher
loading necessary for fear that taxes would increase. As an alternative to
the 3H% rates he said we could go to a 3% rate with even a higher loading
and make them participating. A vote was taken on 3)^% interest, 6}i%
loading, and one year down in age. Those voting "yes" were: Metropolitan,
Prudential, Mutual, New York Life, Equitable, Mutual Benefit, Mass.
Mutual, Northwestern, Travelers, Aetna.
The Retirement Annuity was also discussed, especially the single-premium
contract. Most of those present appeared to favor the instalment cash value.
There will be another meeting in HoT^^croon'o [Hunter's] office at 1:30 P. M.
April 12.
E. C. Henderson.
ECH B.
March 31, 1934.
Exhibit No. 762
[Frorn files of The Travelers Insurance Co.l
October 31, 1934.
Subject: Commissions on Life Annuities.
President Zacher,
Vice President Howard,
Vice President Armstrong:
A meeting of actuaries of 26 representative life companies was called by Vice
President Hunter, of the N. Y. Life, following one of the sessions of the Actuarial
Society Meeting in Washington recently. The purpose of the meeting was to
canvass the companies as to their willingness to reduce the commissions on single-
premium life annuities from 3)i% General Agent (Soliciting Agent, 3%) to 2}i%
General Agent (Soliciting Agent, 2%). It was pointed out that in Canada and
Great Britain outside commission of 2% or 2}i% were being paid and that several
American companies were now paying commissions at approximately this rate
in this country. To divert agents' attention from the sale of annuities to" life
insurance, to provide a small additional margin in the rate, and to bring the com-
mission for life annuities more nearly in line with the sale of other investment
propositions, such as bonds, it was urged by several company actuaries that the
commission rate for life annuities be reduced
A canvass of the companies represented showed that 15 of the 26 were agree-
able to an outside commission of 2%%. These companies were as follows:
Aetna. Mut. Life. Prov. Mut.
Equitable, N. Y. Mut. Benefit. Prudential.
Imperial, Can. N. Y. Life. Sun Life.
J. Hancock. Penn Mut. Canada Life.
Metropolitan. Phoenix Mut. Home Life.
Four companies were not decided but would probably follow later if practical
unanimity of action were obtained:
Phoenix Life. Mass. Mutual.
Conn. Gen. Northwestern.
Three others preferred not to change now but would probably fall in line later:
Conn. Mutual.
New England Mut.
State Mutual.
Three companies expected to make no change for the present:
Equitable of la.
Natl. Life of Vt.
Union Central.
When The Travelers was called upon, I stated that although our general feeling
was that this was a poor time to reduce commissions, I would be glad to present
the matter to our officials for further consideration. This feeling was also
expressed by the Mass. Mutual, Conn. Gen., and several other companies which
later on voted more definitely.
It was also brought out at the meeting that 20 of the 26 companies either had
or would, on January 1, 1935, go to the same basis, or higher, of single-premium
immediate life annuity rates as the new basis of The Travelers. The Canadian
4838 CONCENTRATION OP ECONOMIC POWER
Companies, the Conn. Mutual, and the Bankers Life have already advanced
their rates.
The N. Y. Life and Equitable are planning January 1 to issue participating
live annuity rates based on 3% interest with a higher loading and also a more
severe mortality element.
Vice President and Actuary.
BDF:B.
Exhibit No. 763
[From files of Connecticut General Life Insurance Co.]
December 12, 1934.
Dr. Arthur Hunter,
Vice President, New York Life Insurance Company,
New York, New York.
Dear Dr. Hunter: Prior to August 1933, we paid on single-premium life
annuities 2J^% to soliciting agents and 3% to general agents. At that time we
raised the rate to 3% for soliciting agents and S}i% for general agents in order
to be in line with the prevailing rates of other companies.
We are in sympathy with the present trend towards 2% for soliciting agents
and 2%% for general agents, but we have taken many negative steps during the
last year or two, and on January 1, 1935, we are further reducing surrender
values and increasing premiums on both insurance and annuities. We hesitate
to be one of the pioneers in the commission reduction, particularly as our general
level of commissions on insurance and annuities is lower than that of some of our
competitors.
Naturally we are influenced by the action of such companies as the New York
Life, Travelers, and Aetna, but we have understood that several of the companies
of about our size are deferring action. Is it feasible for you to give us a complete
list of the companies which have definitely decided to change as of January 1
or as of an early date thereafter?
Very truly yours,
Vice President.
JMLrMRF.
Exhibit No. 764
[From files of Connecticut General Life Insurance Co.]
[File rates and values]
New York Life Insurance Company
office of vice president and chief actuary
51 Madison Avenue, Madison Square, New York, N. Y.
December 13, 1934.
Mr. John M. Laird,
Vice President, Connecticut General Life Insurance Co.,
Hartford, Conn.
Dear Mr. Laird: Your latter of the 12th instant was duly received.
I have a knowledge of what the majority of the leading companies will do with
regard to commission on Single Premium Annuities, but have asked Mr. Larus to
obtain definite information with regard to the others. He will then send a
notice to all the Companies which took part in the conference. I know that
the Equitable, Prudential, Metropolitan, Travelers, Aetna, and New York Life
have all adopted the new scale of commission. There are several others, including
the Penn Mutual and Phoenix Mutual, that I understand have followed suit,
but Mr. Larus will get definite information from them.
Yours very truly,
(Signed) Arthur Hunter,
Vice President.
CONCENTRATION OF ECONOMIC POWER 4839
Exhibit No. 765
[From files of Connecticut General Life Insurance Co.]
[Initialed: F. B. W. E. C. H.]
[Company seal]
Organized 1851
Phoenix Mutual Life Insurance Company
Hartford, Connecticut
Archibald A. Welch, President ' John R. Larus, Vice President and Actuary
Actuarial Department: Alden T. Bunyan, Associate Actuary; Harley W. Dewey, Assistant Actuary;
Harold M. Springer, Assistant Actuary
December 15, 1934.
IVIr. John M. Laird,
Vice President, Connecticut General Life Ins. Co.,
Hartford, Connecticut.
Dear Jack: Dr. Hunter has suggested that I prepare at this date a second
symposium on annuity rates and commissions. Will you accordingly be good
enough to designate liow your company stands at present on these two points.
The terminology to be used in the synopsis will probably be as follows:
Rates
A. On January 1, 1935, will be using new rates {foY'i.% loading on 3}^% table
rated down one and five years) or higher.
B. Will probably make such change within few months.
C No immediate intention of making change.
Commissions
a. On January 1, 1935, will be paying not over 2% to subagent plus y%% over-
riding.
b. Will change to this basis witliin a few months.
c. Prefer not to change in near future, but will probably fall in line if practical
unanimity is obtained.
d. Expect to make no such change.
My understanding is that the Aetna, Equitable of New York, Metropolitan,
New York, Prudential, and Travelers have announced not only that they are
adopting new rates, but that they have also adjusted commissions to the 2%
plus Yi'Yo level. The pui'pose of this letter is to find out how the other companies
stand at the present time and disseminate this information, to be kept confidential
among the different executives.
Very truly yours,
(Signed) John R. Larus,
Vice President and Actuary.
JRL:H.
Summarizing the questionnaire sent out last week, the following companies will
have annuity rates at least as high as the new nonparticipating rates, in efifect in
January 1935.
Aetna. Home Life. New York Life.
Bankers Life. imperial. Provident Mutual.
Canada Life. Massachusetts Mutual. Prudential.
Connecticut Mutual. Metropolitan. State Mutual.
Connecticut General. Mutual Life. Sun Life.
Equitable, New York. Mutual Benefit. Travelers.
The Penn Mutual and the John Hancock wiU probably adopt the new rates by
April 1. The Equitable of Iowa and the Phoenix Mutual will adopt rates slightly
more favorable, while the National Life, New England Mutual, Northwestern,
and Union Central have as yet reached no decision.
4840 CONCENTRATION OF ECONOMIC POWER
The following companies have adopted the commission scale not exceeding 2%
to the subagent with J^% overriding.
Aetna. Mutual Benefit.
Bankers Life. New York Life.
Canada Life. Provident Mutual.
Equitable, New York. Prudential.
Home Life. Sun Life.
Imperial. Travelers.
Metropolitan.
Mutual Life (so far as agents of other
companies are concerned).
The Connecticut General and the Penn Mutual will probably make the change
within a few months. The Northwestern will not accept business from other
than their own agents. No decision has been reached by the others.
John R. Larus/H.
ExpiBiT No. 766
[From files of Connecticut General Life Insurance Co.]
(File Annuities]
Meeting at Dr. Hunter's Office, October 10, 1935
1. Rate of interest to be allowed on sums left on deposit, including dividends, death
losses and maturity values.
New York Life will pay 3% on aU dividend accumulations; 3% on all settle-
ments subject to call, and 3%% on all settlements not subject to call. Over 50%
of their dividends and over 40% of their death losses are now being left on deposit.
Prudential will pay on deposits only 3^% or 3% actually guaranteed, and Little
indicated that they will never again pay excess interest.
Aetna 3)^%.
Mutual Benefit Probably 4% on settlements and 3^% on accumu-
lations.
Equitable of N. Y Will probably reduce from the present rates of 3.65
and 3.75.
Mutual On some policies they guarantee to allow the same
rate as in the dividend formula, which is now 4.1.
They will probably therefore use the same rate for
everything.
Conn. General 3.75.
National 3.8 probably.
Mass. Mutual 3.75 probably.
Metropolitan 3.75 probably.
Travelers May discontinued the 4 % guaranteed.
Equitable of Iowa Probably 4 %.
Sun Probably Jess than S%%.
Canada Probably less than 3% %.
Conn. Mutual Probably 4% or less.
Penn 4J4% to June 30th, then probably 4%.
Phoenix 4% to July 1st.
Imperial 4% or less.
John Hancock 35^^%.
New England May go down to 4 %.
Home Now 4%.
Provjdent Now 4%%, will probably go to 4% on dividends but
continue 4^4% on settlements.
2. Dividends for 1936.
New York: a new formula reducing the dividend by at least 5%, with an
average reduction of 8}i%. On single premiums they will cut the dividend in
two, and on paid-ups will make a drastic reduction.
Equitable of N. Y Probably a drastic reduction.
Mutual Benefit Continue.
Provident ,_ Continue one more year.
Home ^ May continue.
John Hancock Probably continue.
CONCENTRATION OF ECONOMIC POWER 4841
Imperial Increase from present 50% of top schedule to 65%
of top.
Prudential - Reduce by 10%, that is, reducing the interest factor
by /4%.
Phoenix Uncertain.
Penn Uncertain.
Conn. Mutual Will keep the same total distribution on premium-
paving policies but will reduce interest return from
4/^% to 3.9 and will increase the dividends at early
durations.
Canada Have already made a drastic reduction.
Sun Have already made a drastic reduction.
Equitable of Iowa Will have a new formula with about the same total
distribution.
Metropolitan On May 1st will probably reduce.
Mass. Mutual Continue one more year.
National A new scale, distributing about the same total but
with reduction on paid-ups and an increase on early
durations.
Conn. General Continue, but recently raised single premiums thus
giving materially higher net cost on this form.
Aetna New formula assuming 3%% interest, giving an in-
crease for the first 15 years but thereafter a decrease,
thus making the total amount distributed about the
same as under the old formula. On January 1st
they will go on a 3% reserve basis for mutual.
Mutual No decision.
3. Rates of consideration for annuities.
The New York Life has already decided to continue the dividends already
estimated on about a 3}4% interest rate but in view of the general conservative
feeling in the meeting, both the New York and the Equitable may change to non-
participating 3% premiums or participating "2^^% premiums. During the dis-
cussion there was such a strong tendency towards higher single premiums that it
was finally decided to have each person present sound out his company on the
possibility of going to nonparticipating 3% single premiums for straight life
annuities on January 1, 1936. After Dr. Hunter has heard from the various
persons, he may call another meeting to crystallize opinion.
The following companies indicated that they would like to go along on such a
change:
Conn. General. Phoenix.
Mass. Mutual. Prudential.
Metropolitan. John Hancock.
Travelers. Home.
Canada (but would prefer 2%% interest Provident.
and a smaller loading). Mutual Benefit.
Penn.
The following companies did not indicate what action they would take if such
a change is generally approved: Conn. Mutual, Aetna, Equitable of Iowa.
The National probably would not join the procession until several months
after all the others had acted.
There is practically no sale for old-fashioned deferred annuities without return;
about eight companies now issuing annual-premium retirement annuities but not
single-premium. Each member is to sound out his company and notify Dr.
Hunter as to whether they would be willing to withdraw single-premium retire-
ment annuity.
The Travelers, Conn. General, Mass. Mutual, and at least one other company
issuing the single-premium retirement annuity pay the cash value only in install-
ments. Dr. Hunter evidently wanted the cash values eliminated but the general
feeling was that it would be simpler to withdraw the contract entirely. (See #6,
Discussion Sheet.)
The New York has been issuing both a cumulative and a noncumulative single-
premium retirement annuity. Under the cumulative, apparently the man liaa
the right to make additional large deposits during the first three years and if so,
gets the benefit of the premium rate in force when his policy was first issued.
4842 CONCENTRATION OF ECONOMIC POWER
4. Should settlement options be changed in policies so that 3% or S}4% interest is not
allowed for an indefinite period and should we limit the instalment options to
20 year's?
5. Should the special agreements which generally combine two settlements in the
policy be discontinued?
Dr. Hunter evidently wanted to start a movement to curtail these prolonged
settlements but the Mutual Benefit and the Mutual Life practically killed the
movement by saying they would continue to do almost anything. Apparently
the Northwestern Mutual is also very liberal but is said to be receding from such
liberality. The Canada Life for seven years has had in its contracts a provision
that the settlement options will be available "during such time as may be agreed
upon by the Company."
7. What limits should be placed on the amount of single-premium insurances and
annuities? Should short-term Endowments be excluded?
Present limits are roughly as follows:
New York $100,000.
Mutual "Much larger."
Aetna 50,000.
Conn. General 25,000 on annuities.
Mass. Mutual 25,000.
Metropolitan 350,000 graded on insurance; $1,000
a month on annuities.
Travelers 100,000 on annuities.
Equitable of Iowa 50,000.
Sun 50,000.
Canada 50,000.
United States 50,000.
Conn. Mutual 25,000.
Penn ■- 50,000 on annuities; 25,000 on insur-
Phoenix_._ 27,000.
Single Premium Endowments: Four companies issue Five Year; nineteen
issue Ten Year; New York Life, Equitable, and Aetna, Fifteen Year or longer.
Company
Equitable
Mutual -.
Conn. General.
Travelers
Equitable
Sun ..
Prudential
Phoenix
John Hancock.
Combi-
natioD
ape
limit
Premium
$110, 000
110,000
108, .500
110,000
110,000
110,000
110,000
105,000
108,000
The Equitable feels that insisting on a medical examination would make little
difference, but the New York Life, which now insists on a medical examination,
claims that this has eliminated a large part of the business. Several companies
indicated that they would be glad to discontinue the combination but admitted
that they would still have to grant the two separate contracts to those who can
pass a full examination.
Mr. McCankie suggested that dividend additions should not be granted on a
life which has not given evidence of insurability but Hutcheson and Henderson
claimed that the $1,100 combination premium would cover any loss from this
factor.
8. Can we agree to further reduce commissions on single-premium insurance?
The Equitable and Prudential have just reduced the commission on single-
premium insurances to the following:
General Agent 1)^% of single premium.
1>4% of amount of insurance.
Soliciting Agent l%of single premium.
1 % of amount of insurance.
CONCENTRATION OF ECONOMIC POWER 4843
This apparently gives the Soliciting Agent about 4% at Age 20 graded down
to 2)4% at the higher ages, with an average of somewhat less than 2}4%.
On Ordinary Life single premiums the Metropolitan allows 2)4% to the Soliciting
Agent. The following companies pay 3%: Mutual, New York, Home, Mutual
Benefit, Penn, Conn. Mutual, Phoenix, and Sun.
There was no effort to get concerted action although it was evident that those
companies which are still paying 5% to the General Agent and 4% to the Soliciting
Agent are somewhat high. The Travelers did not mention at the meeting that
they pay even more than this on some forms.
9. Should smgle premhan -policies be issued to corporations?
New York Life has discontinued but no other companies showed any interest
in this question.
10. Should the cash values of single-premium insurance and single-premium annuities
be applicable to optional settlements?
Mutual Benefit excludes the first three years and the Metropolitan the first
five years. The New York Life will cut out entirely in new edition of all policies.
n. Nonpar tidpating Premiums.
The Aetna and Connecticut General are waiting for further dividend cuts
among the mutuals, but the Aetna would like to consider something in the spring.
Travelers would like to change April 1st to 3)4% interest with a bigger loading
to cover taxes. The Imperial will probably raise January 1st. The Canada
will certainly raise. The Prudential of England has an extremely low non-
participating rate in Canada.
Although the Sun Life did not take a position during the meeting, Mr. Bourke
said that they expect to make an increase January 1st and would like to know
as soon as possible if there is any probability that the three Hartford stock com-
panies will take uniform action in the near future.
12. Is it desirable to continue to issue Single-Premium Insurance and Annuities
on the same life, without medical examination, at $1,060 to $1,100 per $1,000
of insurance?
This has already been discussed rather completely under 7.
When Dr. Hunter called for still further questions, Mr. Flynn suggested that
each company issue only its own retention and therefore eliminate reinsurance.
The general feeling, however, seemed to be that such a movement is impractical,
particularly as the retention varied from $500,000 in the Mutual to $75,000 in
the Home and even less in the United States Life.
Mr. Moir entered the meeting rather late and did not participate in the dis-
cussions although he indicated that his company would like higher nonpartici-
pating premiums and would fall in line if the larger companies took such action.
Dr. Hunter indicated that he would be glad to call a meeting of this kind at
any time if there is a request from all the companies. Several present said they
thought the meetings were extremely constructive and should be continued
whenever there is an action of sufficient importance. Meetings have already
done much to clarify the situation on disability and cash values, annuities and
settlement option.s.
Exhibit No. 767
[From files of The Mutual Life Insurance Company]
[Stamped: V. P. and Actuary, Oct. 18, 1935, W. A. Hutcheson.]
New York Life Insurance Company
OFFICE OF vice PRESIDENT AND CHIEF ACTUARY
51 Madison Avenue, Madison Square, New York, N. Y.
October 17, 1935.
Dear Sir: I have been requested by several actuaries to call our next meeting
before the date of the American Institute meeting as a number are going there and
as there is a holiday in the following week. A meeting is accordingly called for
Thursday, October 24th, at ten o'clock in my office.
A copy of the agenda is attached.
Yours very truly,
(Signed) Arthur Hunter,
End. Vice-President.
[Notation: 10-24-35.1
4844 CONCENTRATION OF ECONOMIC POWER
1. Should more conservative annuity rates be adopted?
2. Should Single Premium Retirement Annuities be eliminated and if so, what
should take their place?
3. Should a more uniform system of Annual Premium Retirement Annuities
be put into eflFect?
4. Is a reduction in commission rates on either Single Premium Life Insurance
Policies or Immediate Annuities desirable?
5. What attitude should be taken with regard to a reduction of interest on
policy loans under existing or new poHcies?
6. Would it be feasible to have a more uniform treatment of replaced or re-
written business?
7. Any suggestions as a result of the previous meeting?
Exhibit No. 768
[From files of Connecticut General Life Insurance Co.]
Meeting at Dr. Hunter's Office, October 24, 1935
1. Should more conservative annuity rates be adopted?
Dr. Hunter reported that apparently some companies wanted to go to 3J4%
but others to 3%. He suggested that on annuities now being purchased, there
might be less selection. against the companies and therefore a higher mortality.
Mr. Bourke of the Sun Life, however, said that about three years ago in Great
Britain when the Government refunded its obligations at a lower interest rate
the Sun's annuity business increased by about 300% and that while their expe-
rience is not yet extensive, the mortality on this business has so far been extremely
light, namely, 70-75% of the American Annuitants' Select Table.
I pointed out that 13 representative companies which had invested new money
at a gross rate of 3.66 in the first nine months of 1934 had dropped to 3.22 gross
in the first nine months of 1935.
The first informal ballot was overwhelmingly in favor of 3% with the same
loading and mortality assumptions as have hitherto been used with 3}4%. Several
companies, however, felt that they could not go along on this program unless the
New York Life and Equitable of New York would also go on this non-par basis
or make a radical change in their participating annuities.
Apparently Hunter and Henderson were expecting a nonpar 3J4% rate to be
adopted, and this would have enabled them to continue their 3% participating
premiums. They were distinctly surprised at the landslide in favor of 3% nonpar
but indicated that either the companies would be forced to abandon the par-
ticipating idea and adopt the new uniform nonpar rate or possibly go partici-
pating with 2%% interest assumption. On direct question, Henderson said the
Equitable wouldn't continue to project the dividends on a 3.9 basis, but did not
indicate what they would do.
The following companies will adopt the new 3% program on January 1st or
sooner:
Aetna, Conn. General, Conn. Mutual, Home, Guardian, Mass. Mutual, Metro-
politan, Mutual Benefit, Mutual Life, Penn, Prudential, Travelers.
The following will come along just as soon as they get definite assurance from
the New York Life and Equitable:
John Hancock, Phoenix, Provident.
The following will probably be the last to move:
Equitable of Iowa, New England, National of Vermont.
The new program will apply to all single-premium contracts, which apparently
means that other companies on January 1st or sooner will adopt the exact pre-
miums we are already using for cash refund and installments, and that we shall
simply have to make our straight-life annuity agree with these investment forms.
Cash Refund Annuities. — The Equitable has discontinued this form. The fol-
lowing companies are willing to discontinue:
Aetna, Home, Guardian, John Hancock, New York, Provident, Travelers,
New England (?), Penn (?).
The following apparently do not issue it:
Equitable of New York, Equitable of Iowa, Mutual Benefit, Mutual Life,
National of Vermont, Prudential.
The following prefer not .to discontinue:
Connecticut General, Connecticut Mutual, Massachusetts Mutual, Metro-
politan, Phoenix, Sun.
CONCENTRATION OF ECONOMIC POWER 4845
The following companies which now give cash values on this contract are willing
to cut out cash values:
Aetna, Metropolitan, Massachusetts Mutual, Penn, Phoenix.
My notes indicate that the Prudential does not issue the contract and is willing
to cut out the cash value. I am not sure whether this is an error or a typical
Jimmy Little vote.
All the companies are asked to notify Dr. Hunter as to whether they are willing
to withdraw this contract entirely; and if not, whether they will cut out the cash
values.
The Aetna wanted to put this contract on a 2%% interest basis and the National
wanted to withdraw all investment annuities, continuing merely the straight-life
annuity without refund, but these two suggestions did not meet favor.
Installment Annuity. — -The Equitable of New York issues this contract with
cash values.
Temporary Annuities. — The following companies issue these annuities in some
cases with a provision that it must run for at least ten years:
Sun, Equitable of Iowa, Massachusetts Mutual, Guardian, Penn, Aetna,
Mutual, Mutual Benefit, Equitable.
Each company is asked to write Hunter as to whether it wiU discontinue these
contracts.
2. Should Single- Premium Retirement Annuities be eliminated; and if so, what
should take their place?
The following companies now issue this form and several are unwilling to dis-
continue; in fact, practically all of these will continue to issue:
Connecticut General,- Equitable of New York, Equitable of Iowa, Guardian,
John Hancock, Massachusetts Mutual, Mutual, New York, Penn, Travelers.
The Connecticut General and Travelers are nonparticipating. The other
companies are participating. The Massachusetts companies load about 10%.
Some of the companies limit to a ten-year minimum deferred period. Unfortu-
nately, there was no specific discussion about the basis for buying the annuity at
maturity. Probably most of the companies do not rate down the age but perhaps
some at least will rate soon, beginning to rate down in line with the proposed action
on regular single-premium life annuities.
3. Should a more uniform system of Annual Premium Retirement Annuities be
put into effect?
The following companies now purchase an annuity at 3% with true age for men
and four-year differential for women:
New York, Mutual, Equitable, Home.
The Mutual Benefit assumes a reduction of about 8% in mortality, and this is
apparently about equivalent in net result to what the other four companies are
doing. The Prudential apparently assumes 3>^% at maturity, although its policy
options are on a 3% basis.
Practically all the companies would like to go to 3% and in some cases with the
age stepped down one year, but they hesitate to act on this until they can change
the settlement options in life-insurance policies. The Now England Mutual has
a change now in the works.
Settlement Options in Life Insrirance. — The following companies now use the
American Annuitants' 3% Select Table, with exact age for men and four-year
differential for women:
Equitable.
Mutual.
New York.
The Aetna will go on this basis January 1st; the Connecticut General and Home
are now working on a revision. The Phoenix adds 2% to the current rate for a
regular life annuity and thus voluntarily is on a more conservative basis for set-
tlement options than any other company.
The Metropolitan is working on the problem, but already has two sets of settle-
ment options and hesitates to have a third because one man may hold three differ-
ent policy editions. Mr. Cameron said he understood the Metropolitan had had a
light mortality on settlement options and he thought that in looking so far ahead
we should inject the forecast idea, itunter finally agreed to compile the experi-
ence of the New York Life and some other companies in order to see what mor-
tality is actually being experienced on settlement options. It was suggested
that when this experience is available, the companies might agree on some uniform
4846
CONCENTRATION OF ECONOMIC POWER
program for settlement options on the understanding that each company will
adopt this program in its next policy revision.
Practically all the companies would like to go to 3% at the next revision, but
there is a good deal of uncertainty about whether to use the American Annuitants'
true age or to rate down the age one or two years. Perhaps Hunter's investigation
will clarify this situation.
4. Is a reduction in commission rates on either Single Premium Life Insurance
Policies or Immediate Annuities desirable?
The Travelers now pay 6 % to the soliciting agent on single-premium life insur-
ance but will probably reduce to 3% or 4%. Other companies are now paying as
follows :
Metropolitan 1
Prudential [ 2^<%
Equitable of New York I
Mutual "I
Mutual Benefit I 00/
New York f "* /°
Sun J
Home 1:3^%
Phoenix J
Connecticut General 4%
National
John Hancock
New England
Provident \ 4%
Connecticut Mutual
Penn
Massachuselits Mutual
Equitable of Iowa 4>^%
Guardian 5%
Travelers 6%
The Aetna pays 5% to the general agent, who in turn pays 3%, 4%, or possibly
m%.
Commission on Single Premium Annuities. — The National of Vermont now pays
3% to the general agent; Equitable of Iowa pays 3% to the general agent and 2J4%
to the soliciting agent; the Phoenix pays 2%% to the general agent and in turn he
pays 2y2% to the soliciting agent.
Restrictions on Settlement Options. — A small committee of actuaries and lawyers
will get together in New York to see what restrictions, if any, can be agreed upon.
In the meantime the five Hartford companies will have a meeting consisting of one
actuary and one lawyer from each company and then the five will send two repre-
sentatives to the meeting in New York.
Replacements. — Mr. Marshall will report to Mr. Linton, who is a member of the
Agency Committee on Replacements, that the actuaries are sympathetic towards
any practical program for eliminating all first comnjission on business twisted from
one company to another.
J. M. Laird.
October 25, 1935.
[Notation: Mr. Howell's office.]
[Stamped: TVic Prudential Insurance Company of America. 1
IMMEDIATE ANNUITIES
The following companies intend to put into effect at tlio I)ORinning of next year
or earlier new Immediate Annuity rates, nonparticipating, on the basis of the
American Annuitant's Select Table (male) with 3% interest, stepped l)ack one age
for men and five ages for women:
Metropolitan.
Mutual.
Travelers.
Aetna.
Connecticut General.
Massachusetts Mutual.
Connecticut Mutual.
Canada Life (or a higher basis).
Mutual Benefit (a higher basis).
The following wii. adopt with reservations:
New England Mutual, if there is any general trend in that direction.
Sun Life, anxious to adopt if 10 companies of importance in the annuity fieid
are willing to do so.
Home Ijifc would follow if one-half of the companies in the little Entente
did so.
Guardian Life will probably follow the action of the majority of other com-
panies.
Provident Mutual are sympathetic and would like to adopt the new basis if
a substantial number of companies do so.
Prudential are waiting to know more definitely which companies will make
the change indicated.
CONCENTRATION OF ECONOMIC POWER 4847
Phoenix Mutual, depends on the action of the other companies, including the
two participating companies.
The John Hancock and National Life are not yet prepared to go along with the
others, and the Penn Mutual has not come to any decision.
Please let me know if there is anything further that I can do to further a cooper-
ative movement for the good of life insurance.
(Signed) A. H.
Exhibit No. 769
[From files of The Mutual Life Insurance Co.]
[Stamped: V. P. and Actuary, Nov. 22, 1935. W, A. Hutcheson.]
November 21, 1935.
re immediate annuity rates
Referring to my memorandum of yesterday, I have just learned that the Penn
Mutual will adopt the proposed basis for Immediate Annuities (nonparticipating)
on or soon after the 1st of January.
The Equitable of Iowa expect to do so as of the 1st of January or soon there-
after, if ten companies take the same action.
(Signed) A. H.
Exhibit No. 770
[From files of The Mutual Life Insurance Co.]
[Stamped: V. P. and Actuary, Nov. 27, 1935. W. A. Hutcheson.]
November 25, 1935.
immediate annuity rates
The Mutual Life has put into effect the new nonparticipating rate for annuities
as of the 28th of this month.
Mr. Tebbetts, Vice President of the New England Mutual, states: "At a con-
ference yesterday we decided that we would plan to change annuity rates some-
time around the first of the year."
The Provident Mutual have decided, on the basis of the further information
contained in my recent memorandum, to adopt the proposed new Single Premium
Annuity rates as soon as they can be put into effect, but not later than January 1st.
The State Mutual and the Massachusetts Mutual intend to put the new rates
into effect on or before the beginning of next year.
(Signed) A. H.
Exhibit No. 771
[From flics of Metropolitan Life Insurance Co.]
[Initialed: H. R. B. J. D. C]
December 2j 1935,
Immediate Annuities.
Mr. J. D. Craig,
Actuary, Metropolitan Life Insurance Company,
New York.
Dear Mr. Craig: The Prudential, Home Life, and Guardian have decided
to adopt the new basis for Immediate Annuity rates on or before the first of
January 1936.
I have been asked by four actuaries to find out whether those companies which
are issuing the Cash Refund Annuity would consider the advisability of with-
drawing it. Would you be good enough to let me know so that I can apprise
such companies of your intentions.*
Sincerely yours,
(Signed) Arthur Hunter,
• Notation in margin of paragraph: "No."
4848 CONCENTRATION OP ECONOMIC POWER
Exhibit No. 772
[Notation: Mr. Howell's office.]
[Stamped: The Prudential Insurance Company of America.]
New York Life Insurance Company
office of vice president and chief actuary
51 Madison Avenue, Madison Square, New York, N. Y.
June 9, 1936,
Mr. J. F. Little,
Vice President and Actuary, Prudential Insurance Company,
Newark, New Jersey.
Dear Mr. Little: The meeting to which you were invited took place this
morning. On the attached memorandum you will find some of my comments.
The next meeting will be held two weeks from today, i.e., June 23rd, at ten
o'clock, in my office. I am sure that the Judge will consider the meeting of
sufficient importance to exempt you from service on that day.
Yours very truly,
(Signed) Arthur Hunter.
End.
June 9, 1936.
The subjects discussed were:
1. Instalment Options in the Policy:
(a) Should the option providing for leaving tlie proceeds on deposit have a
lower guaranteed rate of interest than 3%, or would it be advisable to have no
guaranteed rate but pay such rate as the Board of Directors might declare?
(b) Would it be feasible to use a lower rate of interest than 3 % in determining
these instalments, in view of the law in two or three states which provides that
pajrments, other than the face, shall not be "of less value" than the face amount?
(c) Should the life element in the options providing for a specified number
of years certain with continuance during the lifetime of the beneficiary be made
more severe? Should it be on the basis of the nonparticipating annuity rates
without a loading or should it be stepped back two ages?
2. Change in Annuity Basis:
(a) Should the nonparticipating annuity basis be made more severe or should
greater restrictions as to maximum amount be put into effect?
(b) Should the companies which grant annuities with cash refund do away
with them and restrict the refund to the instalment basis?
(c) Should the companies which grant the instalment refund eliminate, if they
have it, the cash surrender value?
(d) Has the commission (2%) on immediate annuities been reduced to the
minimum?
(e) Should the combined single premium and annuity contracts be dispensed
with? The Metropolitan, Equitable, and New York Life have done so.
Exhibit No. 773
[From flies of Metropolitan Life Insurance Co.]
April 13, 1934.
In re Informal Meeting on Surrender Values
At the meeting held Thursday, April 12th, in Mr. Hunter's Office, the following
were present:
New York Life — Hunter.
Equitable — Henderson.
Provident Mutual — Linton, Marshall*
Connecticut General — Laird.
Travelers — Flynn.
Sun Life — Bourke.
Union Central — Carrington.
Connecticut Mutual — Rice.
Massachusetts Mutual — A. T. Maclean.
Aetna — Cammack.
Equitable of Iowa — McCankie.
Penn Mutual — Perrin.
CONCENTRATION OF ECONOMIC POWER 4849
John Hancock — Howe.
Metropolitan — Bassford.
Phoenix Mutual — Larus.
United States Life — Moir,
Mutual — Hutcheson.
Prudential — Little.
The first question raised was the question of including a provision in the policy
for giving the company the right to postpone the payment of cash and loan
values for a period of at least six months except in the case of a loan for the pay-
ment of premium. Practically all of the participating companies agreed that
they would include such a provision where the State permitted it. Some thought
that there might be difficulty in including such a provision in Kentucky, Oregon,
and Massachusetts and Minnesota. The nonparticipating companies preferred
to keep their provision at three months, since they were planning to pay much
lower surrender values than the participating companies.
The nonparticipating companies [except ?] will probably include a schedule of
surrender values under which a charge of $25 per 1,000 is made for all durations
up to and including 18 years. In the 19th year the surrender charge will be $12.50
per 1,000 and thereafter no surrender charge. I believe their second-year value
will follow the originally proposed rule which bases it on the third-year value.
The next question raised was the adoption of a schedule [of surcharges] similar
to that proposed by Mr. Henderson for policies issued on and after January 1,
1935. The following companies thought they would adopt such a scale at that
time: New York Life, Mutual, Equitable of New York, Metropolitan, Travelers,
Prudential; Aetna, Connecticut General, Sun Life, Canada Life [?] thought their
scale would be somewhat more severe. The Metropolitan stated they would
adopt a similar scale without taking account of the provision based on the Missouri
Law that the Whole Life values might be slightly more liberal. The Union
Central thought they would adopt a similar scale a little later.
The following companies felt that they could not change their surrender values
by that time. Most of them would probably reduce their values sometime later.
The Provident Mutual, Connecticut Mutual, Massachusetts Mutual, Penn
Mutual, John Hancock, Phoenix Mutual, Northwestern Mutual (by letter), and
New England Mutual (by letter). For the small companies Mr. Moir stated
that his company had adopted surrender values with rather high surrender charges.
The surrender charges running for 20 years with a maximum of $24.50 and a
minimum of $12.50, or 80% of the premium, whichever was greater. Mr. Mc-
Cankie, of the Equitable of Iowa, thought that most western companies would
probably adopt schedules showing lower surrender values reasonably soon.
The next question raised was the second-year value. Most companies pre-
ferred a formula which would be based upon a minimum charge regardless of
plan but which would give no values or very small values to Whole Life Policies
and 20 Payment Life Policies. The New York Life favored third-year values for
all policies, the Mutual will continue to limit values to third year. Equitable will
probably adopt the Henderson formula with an increase by probably $10 per
1,000. No expression of opinion was taken on this question.
The next question raised was the question of a deferring clause in the optional
modes of settlement. The Massachusetts Mutual, Connecticut Mutual, Provi-
dent Mutual, and some other companies have a limiting clause on these options.
One suggestion was the six month's clause with a maximum withdrawal of 20%
of the face amount in any six month's period. This seems like a good idea, but
probably it should be included in the supplementary contract and not necessarily
in the policy.
The qu stion of interest paid on death claims was discussed, and it was found
that a number of companies paid such interest. Practically every company
agreed that no provision should be included in the policy, and the general agree-
ment seemed to be that the practice should fix a minimum period such as we have
beyond which the interest was paid.
ANNUITY KATES
For single-premium immediate annuities there was general concensus of opinion
that current rates are too low. Most of the companies felt that a safer basis
would be the American Annuitants Select Table step back as present; interest
3/^%, loaded 6.5% of gross. A few companies leaned toward a 3% rate. The
New York Life, Equitable, Connecticut General, Travelers, Prudential, Metro-
politan, Mutualj Massachusetts Mutual, Aetna, Union Central, Provident Mutual
4850 CONCENTRATION OF ECONOMIC POWER
thought that they probably would adopt a schedule like the above [which] by
January 1, 1935. Sun Life would adopt a similar schedule based on the Canadian
table. The John Hancock, Penn Mutual, and Connecticut Mutual were doubtful
that they would change by the end of the year, since they had only recently
changed their present rates.
For the Retirement Deferred Annuity the general consensus of opinion was
that the 3}^% rates were not at present safe. Most companies favored the 3%
interest rate during the accumulation period, with annuities based upon the
American Annuitants Select Table 3% interest without step back in age, interest
after retirement also 3% but participating during a certain period. The Provi-
dent Mutual, Equitable, Mutual, John Hancock, New York Life, Sun Life
(with table reservation), Massachusetts Mutual, Phoenix Mutual, and Aetna
(Participating) would probably adopt the above schedule either January 1, 1935,
or soon thereafter. The Union Central probably would not change, the Penn
Mutual was doubtful, and the Phoenix Mutual would express no opinion, as they
claim their contract is different from these others. The nonparticipating com-
panies would probably change their interest rate to 3.5%.
No statements were made about the loading formula for this policy nor for the
cash-surrender values or death benefit. They are aU to report to the Metropoli-
tan their present basis of loading and basis of surrender values, and we are to
summarize the answers and report to those present. There was a suggestion that
the surrender values be paid X)nly in instalments similar to the Travelers practice
and there was much favorable comment upon this practice. Most companies
favored a provision that the cash value be paid in instalments extending at least
two years where surrender values were, say, at least $200.
OPTIONAL' MODES OF SETTLEMENT
Practically all companies agreed that the optional modes of settlement should
be based upon the American Annuitants Select Table, valuation interest rate
both for certain period and deferred annuity, no step back for ages and without
loading [Endowment?] annuity to be participating during certain period. The
basis here should probably be the same as for the Retirement Deferred Annuity
after retirement.
"Note.— Penciled notations enclosed in brackets.
Exhibit No. 774
[From flies of Metropolitan Life Insurance Co.]
Horace R. Bassford
Actuary
Metropolitan Life Insurance Company,
New York City, March 4, 1938.
For your information, we have prepared the enclosed summary of the replies
received to the subcommittee's questionnaire in regard to the adoption of new
annuity and settlement option rates based on the 1938 Standard Annuity Table.
Please bear in mind that this information is highly confidential and advise the
undersigned if we have not properly stated your attitude toward the adoption of
new rates.
While some requests have been made for an early meeting, the general feeling
inclines toward deferring the conference until the situation with regard to the
New York code and other legislation affecting policy forms is more definitely
known. Dr. Hunter will accordingly advise you as to the most suitable time for
a meeting which will probably be some time in April, with a view of reaching a
definite recommendation by the time of the Actuarial Society's Meeting.
Very truly yours,
H. R. Bassford,
Chairman Subcommittee.
CONCENTRATION OF ECONOMIC POWER
4851
SUMMARY OF REPLIES TO THE SUBCOMMITTEE S QUESTIONNAIRE REGARDING
ADOPTION OF ANNUITY RATES BASED ON THE 1938 STANDARD ANNUITY TABLE
1. The following 14 companies appear to be willing to adopt new individual
annuity rates as of July 1, 1938, or sooner provided a large number of companies
do so. While most of these companies have not decided upon the basis of their
new rates, it appears as if the 1938 Standard Annuity Table at 3% and a loading
of 6J4% of the gross would generally be acceptable for nonparticipating immediate
annuity rates.
Company
Aetna
Berkshire
Conn. Oenoral...
Conn. Mutual...
Fidelity Mutual
Home Life.
John Hancock...
National (Vt.)...
New England...
New York Life..
Penn Mutual....
State Mutual
Sun Life—
Travelers
Comment on date of adoption
Earliest possible date.
Not earlier than July 1, 1038.
Before January 1, 1939, if new
immediate annuity rates are
generally adopted.
Promptly for immediate an-
nitities.
At same time as other com-
panies.
Promptly, at same time as other
companies.
Before Oct. 1, 1938, if new rates
are generally adopted.
Early action desired..
At same time as other companies.
At same time as other companies-
At same time as other companies.
Before Jan. 1, 1939, as soon as
other companies.
At any time agreed upon by the
Committee.
July 1, 1938
Tentative comment on rate basis
1938 Std. Annuity Table rate of Interest and
loading generally agreed upon.
1938 Std. Annuity Table 3% loading 6H% gross
(nonpar.).
1938 Std. Annuity Table 3% loading 6Ji% gross
(nonpar.).
1938 Std. Annuity Table 3% loading 6^% gro.ss
(nonpar.). Will consider higher loading.
1938 Std. Annuity Table 3% loading 6H% gross
(nonpar.).
1938 Std. .^.nnuity Table 3% loading 6H% Efoss
(nonpar.).
1938 Std. Annuity Table set back two years a%
and loading 7H% gross (participating).
1938 Std. Annuity Table 3% loading (5H% gross
(nonpar.).
1938 Std. Annuity Table 3% for lower interest
rate) loading 6^2% gross (nonpar.).
1938 Std. Annuity Table 3% loading 614% gross
(nonpar.).
2. The following 7 companies would prefer to adopt new Individual annuity
rates as of January 1, 1939. Most of these companies have tentatively decided
upon the 1938 Standard Annuity Table at 3% and a loading of 6%% of the gross
as a basis for nonparticipating immediate annuity rates.
Company
Comment on date of adoption
Tentative comment on rate basis
Ma.'s. Mutual
Metropolitan
Mutual Benefit
Mutual Life —
Will consider earlier action if
most companies adopt new
rates.
Will consider earlier action 11
most companies ada$»t new
rates.
Will consider earlier action if
most companies adopt new
rates.
1938 Std. Annuitj Table S% loading 6H% gross
(nonpar.).
1938 Std. Annuity Table 3% loading 6H% gross
(nonpar.).
Suggests using 1938 Std. Annuity Table set back
Northwestern
Provident...
Will coiLsider earlier action if
most companies adopt new
rates.
Will consider earlier action if
most companies adopt new
rates.
Will consider earlier action if
most companies adopt new
rates.
one or two 3t^. 3% loadhig 6}4% gross (non-
par.)~if agreeable to other oDmpanios.
i9C8 Std. Annuity Table 3% loading 6J^% gross
Prudential
(nonpar.).
1938 Std. Annuity Table 3% loading 6}4% gross
(nonpar.).
124491 — 40— pt. 10-
-46
4852
CONCENTRATION OF ECONOMIC POWER
3. The Equitable of N. Y. is undecided as to the date or precise rate basis but
is sympathetic to the adoption of new rates for annuities based on the 1938
Standard Annuity Table.
4. The following 5 companies do not contemplate changing their present rates
in the near future. A comparison of the proposed rates for immediate annuities
with the present rates of these five companies is attached.
Company
Canada Life
Guardian —
Equitable, Iowa_..
Imperial, Canada-
Phoenix Mutual-
Comment
Undecided — present rates not
much ditTerent from proposed.
May consider change In rates if
volume increases.
Undecided— present rates not
much different from proposed
rates — all annuity business in
England.
Present rates
Forecast Table age set back one year, 3% and
loading of 6% gross plus 10% of yearly pay-
ment—adopted December 1935.
Am. Ann. Select Male table age set back one year
for males, five for females, loading 6J4% of
gross- adopted Jan. 1, 1936.
Am. Ann. Select Male Table age set back one
year for males, five for females, loading 6J^% of
gross— adopted Dec. 1935.
Am. Ann. Select Male Table age set back one
year for males, five for females, loading 63-^% of
gross— adopted Jan. l, 1936.
Single premium for an immediate life annuity without refund of $10 monthly
(nonparticipating)
uai.es
Current Rate:
Canada Life
Equitable Iowa
Guardian '
Imperial Life » -
Phoenix Mutual
Proposed Rate -
FEMALES
Current Raie:
Canada Life
Equitable Iowa —
Guardian
Imperial Life' -
Phoenix Mutual
Proposed Rate
Age 40
$2, 549. 00
2, 438. 52
2, 439. 00
2, 494. 00
2, 438. 00
2, 564. 60
2, 705. 00
2, 589 48
2. 589. 00
2, 646. 00
2, 590. 00
2, 7G4. 90
Age 60
$1,64S.00
1, 569. 48
1,569.00
1,605.00
1. 570. GO
1, 649. 40
1,895.00
1,751.64
1, 752. 00
1, 848. 00
1, 752. 00
1, 887. SO
Age 65
$1, 405. 00
1,344 48
1,344.00
1, 3G6. 00
1, 344. 00
1,413.20
1,638.00
1, 524. 12
1, 524. 00
1,595.00
1,524.00
1, 649. 40
Age 70
$1. 166. 00
1, 128. 60
1,129.00
1,133.00
1, 129. 00
1, 185. 60
1,369.00
1,300.32
1, 300. 00
1,332.00
1,301.00
1,413.20
1 Actual rate slightly different.
> Approximate rate derived from monthly income rate.
Exhibit No. 775
[From files of Metropolitan Life Insurance Co.]
April 22, 1938.
Report op Meeting Held April 22, 1938
There were twenty-five companies represented at the meeting as follows:
Mutual — Hutcheson.
Connecticut General — Laird.
Aetna — Cammack.
Penn Mutual — Perrin.
Northwestern Mutual — Fassal (not vot-
ing authoritatively).
Union Central — Hardcastle.
New England Mutual — Tebbetts.
Suni Life — Bourke.
National — Jackson.
Connecticut Mutual — Rice.
Provident — Marshall.
John Hancock — Grout.
Berkshire — ?
Travelers — Hosklns.
State Mutual — Guest.
Mass. Mutual — Peirce.
Home Life — Cameron.
Mutual Benefit — Rhodes.
Prudential — Howell.
Fidelity— Hurd.
Phoenix — Larus.
Guardian — Barnsley.
Equitable — Murphy.
New York Life — Hunter and Macfar-
lane.
Metropolitan — Bassford.
CONCENTRATION OF ECONOMIC POWER 4853
The companies expressed their opinion as to what they might do with regard
to the various questions discussed below.
1. Loan Interest Rate — 4-8% in Advance. — The Home Life, Guardian, and
Travelers were seriously considering adopting the loan interest rate on this basis.
All other companies were planning to use 5% in arrears.
All companies except the Mutual Benefit expected to adopt the 5% interest
rate in all States in the United States where they do business; the Mutual Benefit
will probably use it for New York only and may possibly apply it to old policies.
All United States companies present who did business in Canada stated that
they would charge the same rate in Canada as in the United States. These com-
panies were the Prudential, Travelers, Aetna, New York Life, and Metropolitan.
The Sun Life expressed some concern at this because the Canadian companies
felt that it would force them to a 5% basis in Canada and stated that only a few
weeks ago the Parliament had approved substantially higher rates for small loans
for banks which average about $150 with an interest rate of 7% plus a service
charge. The insurance companies felt that this would make their position stronger
about policy loan interest rates at 6%.
The Prudential was planning to increase premiums about 2% on policies which
provide for 5%-loan rates. Several other companies expressed the opinion that
they might increase surrender charges on these policies. These were cluLfly :: ,
companies who had relatively low surrender charges. The Guardian and Phoenix
were particularly interested in increased values and the Provident Mutual, Con-
necticut Mutual, Penn Mutual, and Northwestern Mutual thought they might
give it serious consideration. Neither the New England Mutual nor the Mutual
Benefit joined in this opinion. Messrs. Marshall and Larus were appointed a
committee of two to keep in touch with the other companies.
S. Option 1 (Interest). — There was a great deal of discussion about reducing
the interest rate below 3%, particularly on any policy which gave any withdrawal
privilege whether in whole or in part. No poll of companies was taken on this
question but the poll was taken as to the companies interested in a rate lower
than 3% or at no guaranteed rate. The Equitable, Fidelity, Home, Sun, and Mu-
tual favored a policy which did not express any rate.
The following companies were strongly in favor of going below 3%: Connecticut
General, Aetna, Penn Mutual, Union Central, Provident Mutual, Mutual, Con-
necticut Mutual, Mass. Mutual, Home Life, Prudential, Fidelity, and Phoenix.
The following were inclined that way and would probably adopt it if there was
a general adoption: New England, Sun Life, State Mutual, and John Hancock.
The following wished to continue the 3% rate: Metropolitan, Northwestern,
National, Berkshire, and Mutual Benefit. The following two companies would
like to adopt a rate lower than 3% for an option which permitted withdrawal:
Guardian and Equitable.
The Travelers does not have Optional Modes of Settlement.
S. Option 2 {Instalment Benefits). — The following companies favored a rate less
than 3%: Mutual, Phoenix, Aetna, Provident Mutual, Union Central, New York
Life, Mass. Mutual, Phoenix Mutual. Doubtful but leaning that way: New
England, Guardian, Sun, and Equitable.
The question was asked if any con»pany favored going down to a limit of twenty
years under this option. No one faVored going down.
4. Option S {Life Income). — The question was asked — what companies were
willing to adopt income no lower than by the 1938 Standard Table with 3%
interest throughout. All companies voted in favor of doing this except the Guard-
ian and Mutual Benefit. The Guardian have recently adopted lower income under
Option 3 and do not want to change again. Likewise, the Mutual Benefit has
adopted the American Annuitants Table set back 3 years for males and 7 years
for females, 3% interest for certain part, 3>^% interest thereafter. They wish to
continue this benefit.
The next question asked was — what companies would favor a rate lower than
the 1938 Standard Table and only 3 companies expressed a real desire to adopt
rates on a lower basis: the Mutual, Phoenix, and New York Life. I stated that
we would go along if a large enough group of companies did it. Apparently the
companies do not plan to go beyond this.
While this was further discussed under the rates for immediate annuities and
there was a further expression of a desire to be more conservative, it is very im-
probable that a large number of companies will want to adopt rates less liberal
than that mentioned.
5. Participating Annuities. — Three companies — Equitable, New York Life, and
Union Central — write participating Immediate Annuities. The Equitable and
4854 CONCENTRATION OF ECONOMIC POWER
New York Life stated that they probably would adopt the 1938 Standard Table
set back two years for males, seven years for females, loading 7%% of gross pre-
mium, interest rate 3%. The Union Central did not state what table they would
adopt.
Nonparticipattng Companies. — There was some discussion as to whether or not
the rates in the Committee report, that is, 1938 Standard Table 3% with 6.5%
loading, was satisfactory. AU companies stated that their companies would adopt
rates at least as severe as that basis. The Connecticut Mutual said they would
adopt them for Life Annuities but that the age should be set forward one year for
annuities, with guaranteed minimum return. There was about an equal division
between those wanting to use set back in mortality rate and those wishing to
increase the loading. The companies are to report to Mr. Hunter as to what their
preference is after giving the matter further consideration. The following com-
panies strongly favored a more severe basis than that proposed: New England,
Sun Life, Travelers, State Mutual, Mass. Mutual, Home Life, Mutual Benefit,
Phoenix Mutual.*
In view of the fact that it is very probable that most companies will adopt the
1938 Standard Table for Life Income Options without set back it seems a little
inconsistent to set back the table for Immediate Annuities. On the other hand,
if the loading is increased it makes a wider distinction between Option 3 benefits
(under Life Income) and Option 4 benefits (other annuities at net rates) under
our contracts. Probably the cost of the annuity options under insurance policies
will show a more favorable experience than Immediate Annuities. Some distinc-
tion should be made in the rates. Because of the need for a larger margin in the
early years because of selection, probably an increased loading for annuities would
be more satisfactory. If, however, the loading is increased, then probably we
should consider the question of having a small loading on Option 4 benefits. I
doubt very much if there is a difference of even 6.5% in the cost of these benefits.
It is my suggestion that we report to Mr. Hunter that we favor increasing the
loading to 7.5% for Immediate Annuities.
The next question asked was the probable date of adoption of the Immediate
Annuity rates. Practically all companies favored the adoption of the new annuity
rates by July 1st. In our previous discussion of this question we decided to wait
until January 1, 1939. If, however, a very large proportion of companies would
be willing to put the rates in effect by July 1st, I would favor doing so. There
is a, big advantage in adopting the new rates without any long advanced announce-
ment of their adoption and if other companies adopted their rates by July 1st
this might make the situation more difficult for us. I believe this will also be more
satisfactory for the companies doing Group Annuity business as they are anxious
to adopt rates very quickly.
Most companies were planning to use the same basis of annuities for their
Retirement Income Policies. There was some discussion about discontinuance of
these policies and most companies expressed a desire to discontinue them. The
Equitable, however, felt that it would be practically impossible to discontinue
them for agency reasons as a very large proportion of their agents' earnings come
from writing these policies.
At the present time only five of the companies write a Single Premium Retire-
ment Income Policy, as follows: Connecticut General, Guardian, Travelers,
Berkshire, and John Hancock.
Only four companies do not write Retirement Income Policies, as follows:
Northwestern, Mutual Benefit, Phoenix, and Metropolitan. Most companies
expressed an interest in writing a straight Deferred Annuity with Guaranteed
Minimum Return similar to the one issued by the Metropolitan. At present only
the Mutual Benefit and Metropolitan write this and I explained that we do not
write very many contracts.
Question 6. — Practically all companies stated that they would adopt the same
Optional Modes of Settlement for use with a Retirement Income Policy; that is,
on a policy which carried $1,000 of life insurance and $10 of monthly income,
commencing at ages 55, 60, and 65. The Guardian and Travelers were both
doubtful as to whether they would adopt the new basis.
Note. — The Guardian does not plan to use the new basis for their options in
regular policies.
Question 7 — Double Indemnity. — Both the Mutual Life and Equitable expressed
doubt as to the advisability of continuing to issue the Double Indemnity Provi-
sion. Apparently they were the only companies who favored discontiniiing the
benefit. Mr. Hunter had a considerable amoimt of information, indicating that
they had little legal difficulty, and their Legal Division expressed the opinion that
1 Notation in margin of paraeraph: "Mutual."
CONCENTRATION OF ECONOMIC POWER 4855
there was not much to fear. This agrees with the opinion expressed both by Mr.
Bates and Mr. LaMont. Apparently there is no present indication of discontinu-
ing the Double Indemnity Benefit.
The discussion of the Double Indemnity Provision brought out that one com-
pany (the Prudential) offered their benefit for life, that another company granted
a benefit to age 70, 16 companies to age 65, and 6 companies to age 60. Of the
companies who had a benefit extending beyond age 60, only the New York Life,
Equitable, Guardian, Mutual, and Union Central expressed the opinion that they
might reduce the age to 60. This question was discussed by our company in 1934
and we decided against doing it. There are some advantages since the Waiver of
Premium Benefit stops at age 60 and it would seem more consistent to limit the
Double Indemnity Benefit to the same age. Likewise, Mr. LaMont expressed
the opinion that most of the legal difficulty under the accident benefits occurs at
the older ages and if we find that the rate is substantially increasing, we might
consider the reduction. Our experience to date does not indicate that there is a
need for any such action, particularlj' on Ordinary policies. While we have very
little experience for ages over 60, the actual to expected, based upon our own table
for the years 1931 to 1936, is less than 50%. This is based on total death claims
of just under $100,000. The experience in the Intermediate is somewhat worse
but the exposures are extremely small.
HRB:LR Actuary.
Exhibit No. 776
[From files of Metropolitan Life Insurance Co.]
[Stamped: Please return to file in actuary's office. File No. 1005.]
New York Life Insurance Company
office of vice president and chief actuary
51 Madison Avenue, Madison Square, New York, N. Y.
Confidential. J^^ 3, 1938.
I have received information with regard to the final decision in connection with
the new basis for Immediate Annuities. The following companies will adopt for
nonparticipating annuities the Standard Mortality Table for 1938 stepped down
one year for men and six years for v/^omen with 3% interest and G%% loading on
the gross rate, effective on the first of July, with the exceptions noted.
Aetna. Mutual Benefit.
Berkshire. New England Mutual.
Connecticut General. Penn Mutual.
Fidelity Mutual. Phoenix Mutual.
Guardian. Provident Mutual.
Home Life. Prudential.
John Hancock. State Mutual.
Massachusetts Mutual. Travelers.
Metropolitan.
FiQuitable Life of Iowa — T>aU' not determined.
Mutual Life — "Calculating rates on the above basis and anticipate they will be
adopted by the Trustees at an early date for use on July 1st."
Northwestern Mutual — With 7%% loading on gross, probably eflfective Septem-
ber 1st.
Connecticut Mutual — But on refund annuities probably the Standard Table
without set-back with a higher loading than 6}4%.
The National Life has not yet decided the matter.
I anticipate that the Canadian companies doing business in the United States
will use the same or an equivalent basis for their business in this country.
The Equitable of New York -wiU probably adopt for their participating basis
the Standard Mortality Table for 1938 stepped back two years for men and seven
years for women with 3% interest and 7^% loading. The New York Life will
probably adopt the same basis but with 2]4% interest.
I have not yet heard from the Union Central or the Bankers Life of Iowa,
which issue participating annuities.
Sincerely yours,
(Signed) Arthur Hunter,
Vice President.
4856 CONCENTRATION OF ECONOMIC POWER
Exhibit No. 777
[From files of Connecticut General Life Insurance Co.]
Aetna Life Insurance Company,
Hartford, Connecticut, October 22, 1934.
Commissions on P'ingle Premium Annuities.
Mr. J. M. Laird,
Vice President, Connecticut General Life Ins. Co.;
Hartford, Connecticut.
Dear Mr. Laird. I was sorry that I was not present at the meeting last week
in Washington when there was a discussion upon commissions on Single Premium
Annuities. As I understand it, nearly all the large companies are willing to
reduce the commission to 2% to the soliciting agent with one-half of 1 % overriding
commission for the General Agent if this scale is generally adopted.
We expect to go along with the majority of the companies and certainly will if
the Travelers and Connecticut General fall in line.
We should like to make the change effective on the first of January.
Yours very truly,
(Signed) E. E. Cammack,
Vice President and. Actuary.
E. E. Cammack.
JRF.
Exhibit No. 778
[From files of Aetna Life Insurance Co.]
Meeting of Travelers, Connecticut General, and Aetna at the Aetna
Life Insurance Company, 10 A. M., Friday, May 13
immediate annuities
We agreed to base our new annuity rates on the new standard annuity mor-
tality table with 3% interest and 6}^% loading.
All three companies preferred and would adopt a more conservative basis if th-
large companies will do so — namely, the same formula as above but with the age
set back one year.
If the companies will not agree to setting back the age one year, we would prefer
and would adopt the new mortality table with 3% interest and 7%% loading.
For an effective date, we will agree on as early a one as most of the large com-
panies will agree to.
MATURITY VALUES FOR INSURANCE WITH LIFE INCOME PLANS
We want to use the same table as used for immediate annuities with 3% interest.
This applies to Retirement Annuities as well.
OPTIONAL SETTLEMENTb
The Aetna Life Insurance Company would like to guarantee 2% interest on
money left on deposit. The Connecticut General feels that it may guarantee a
higher minimum rate on money left on deposit not subject to withdrawal.
The Aetna and Connecticut General agreed to the use of 3% in computing
annuities certain but both companies would use 2% if the five large companies
and a substantial number of other companies would do so.
Annuities for a Term Certain and as Long Thereafter as Annuitant Lives. — The
Aetna Life and the Connecticut General agree to use the same table as selected for
the calculation of immediate annuities and 3% interest. However, both compan-
ies would agree to use a more conservative mortality table if other companies
generally agree to this. In otlier words, v>'e would set back the age one year, or
even two years, if that is wh.at the other companies want even though this gives us
a more conservative mortality basis than adopted for immediate annuities and
maturity values of Insurance With Life Income and Retirement Annuity policies.
E. E. C.^r/UACK,
Mat 13, 1938. Vice Pvsideni and Actuarrj.
CONCENTRATION OF ECONOMIC POWER
4857
Exhibit No. 779
[From flies of Connecticut General Life In.surance Co.]
[File Settlement Option Values 1937-38]
[Notation: See Mr. Hart for Correspondence with Tebbetts.]
On tlie afternoon of October 5, 1938, Ed Marshall and Walter Tebbetts had a
meeting of about thirty companies represented by forty or fifty actuaries.
RETIREMENT ANNUITIES
The Aetna will withdraw on January 1, 1939. The following companies would
like to withdraw if they will not feel too lonesome: New England, Massachusetts
Mutual, New York Life, Prudential, and Union Central. About one-quarter of
the companies would like to substitute a different type of contract, for instance,
like the Sun Life's Pension Fund.
The Aetna will cut out dividends on the 3}^^% retirement annuities and wi'
pay 2)4% of the premium on the 3%. The Mutual Benefit, Phoenix, Metro-
politan, and Northwestern don't issue retirement annuity.
The following companies will not withdraw: Equitable of New York, Connec-
ticut Mutual, Travelers (Travelers are well satisfied With their contract with its
seven-year instalments for cash values). The Provident will reduce dividends on
retirement annuities in 1939. The Connecticut Mutual is now making a slight
change in its contract and later may make a further change. The Mutual Life
will continue after January 1st but adjusted to 2]4% accumulation and with
increasing surrender charges.
Some companies think there should be no conversion clause and some think there
should be no loan values.
INSURANCE INCOME
Northwestern Mutual will adjust its first commissions. Massachusetts
Mutual will adjust both first and renewal. The Home favor paying at same rate
as on the corresponding endowment. New England will probably change if
others do. Union Central will follow Schedule Q exactly. Mutual will pay 5%
less commission and will fobably have $1,250 as the amount for each $10.
Mctroijolitan will partially adjust. Phoenix would like to raise to $1,500. Provi-
dent will be $1,200. Aetna noni)ar will be $1,000 with $5.
The following companies favor a reduction in commissions: John Hancock,
New England, and Provident. The Travelers and Connecticut General are
favorable to a commission reduction but feel that it should be deferred.
RATE OF INTEREST ON POLICY LOANS
Practically all companies will make the 5% rate apply to all new policies in all
states and some will use a rider or rubber stamp before January 1st.
J. M. Laird.
October 10, 1938.
Exhibit No. 780
[Prcparca by Securities and Exchange Commission Insurance Study StafI]
Exhibit of Personal Annuities (Excluding Group Annuities) of Twenly-Stx United
States Companies Attending Inter-Company Conferences, and of All United States
Companies
Annuity Premiums Received During Year
Annual Income (to Annuitants) in Force,
End of Year '
Vear
26 United
States Com-
panies '
All United
States Com-
panies •
Percentage Re-
ceived by 26
United States
Companies
26 United
States Com-
panies '
All United
States Com-
panies >
Percentage in
Force in 26
United States
Companies
1935
$394, 803, 000
334, 367, 000
207, 343, 000
$428, 654, OOn
3.-.9. 394, 000
295, 164, 000
92.10
93.04
90.57
$330,061,000
300, 634. 000
3S4, S54, 000
$373,051,000
409, 010, OO'J
439, 235, COO
8S 4."'
1936
1937
88. 04
87 62
' Includes income now payable to annuitants; deferred (fully paid); and deferred (not fully paid).
' Figures rounded off to fail Ihuusauds.
Source: Spectator Year Bock. 1936-38, inclusive.
4858 CONCENTRATION OP ECONOMIC POWER
Exhibit No. 781
New York Life Insurance Company
office op vice president and chief actuary
61 Madison Avenue, Madison Square, New York, N. Y.
November 6, 1935.
Mr. J. F. Little,
Vice President and Actuary,
Prudential Insurance Company, Newark, N. J.
Dear Mr. Little: We are having a meeting with regard to Special Agreements
under Settlement Options, at my office on Thursday, November 14th at 10
o'clock. There will be two representatives each from the Metropolitan, Equit-
iable, Mutual, and New York Life. If you care to be present we shall be glad to
have you, but I understood you to say that it was unhkely' that you would make
any change in your present liberal plans.
Yours very truly,
(Signed) Arthur Hunter,
Vice President.
Exhibit No. 782
[Notation: Mr. Howell's office.]
[Stamped: The Prudential Insurance Company of America.]
November 12, 1935.
Dr. Arthur Hunter,
Vice President, New York Ldfe Insurance Company,
51 Madison Avenue, New York City.
Dear Dr. Hunter: In reply to your letter of the 6th instant, we Mill not have
a representative at the meeting in your office next Thursday, as the smaller
committee will probably proceed more expeditiously.
You did not understand me rightly in supposing that we are not f^repared to
make any change in our present rather liberal rules. I have felt for t, long time
that we under the stress of competition, have become rather too liberal in two
directions, first, in undertaking certain arrangements that, perhaps, we should
refuse, and, second, in allowing very complicated and intricate settlements, some of
which have already come through to the Claims department and had that depart-
ment very much concerned as to just what the complicated settlement really
meant.
If some reasonable rules as to what may and may not be allowed can be adopted
generally, we shall be glad to go along. We have already in some cases refused to
adopt complicated arrangements that we felt would cause difficulty and possibly
legal action, but we still do allow arrangements that are quite troublesome to
handle when death occurs. A general understanding to refuse to allow complex
settlements would probably be helpful.
Very truly yours,
Vice President and Actuary
[Notation: Little.]
Exhibit No. 783
[From files of Connecticut General Life Insurance Co.]
(File Settlement Options & Trust Agreement]
Memorandum of Meeting Held at the Office of Dr. Arthur Hunter,
Vice President and Actuary op the New York Life, on November 14
[1935]
. There were present Messrs. Hunter and Kramer of the New York Life, Messrs.
Murphy and Schelker of the Equitable, Messrs. Craig and Keyes of the Metro-
politan, Mr. Strong bf the Mutual Life, Mr. Percy Evans of the Northwostem,
and Messrs. Laird and Yost representing the Hartford companies.
Dr. Hunter explained that he had oalled the meeting for the purpose of having
an informal discussioiu.concerning ways and means of simplifying the optional
settlement (^^eements with a view of cutting the expense of preparation and
CONCENTRATION OF ECONOMIC POWER 4859
administration of these agreements and, if possible, of placing some limitations
on the period during which income would be payable. With that in view he
presented certain specific problems for discussion.
1. Would the companies present be inclined to eliminate a provision transferring
income to other beneficiaries upon the remarriage of the insured's widow?
[Yes.]*
All the companies present expressed a willingness to eliminate this clause, which
most of them are putting into their agreements at the present time under protest.
The New York Life will eliminate it whether the others do or not.
2. Should interest be made payable to children unborn at the time of the
making of the agreement?
[Yes.]*
The New York companies are generally providing for such payments. The
Equitable, Metropolitan, and the Mutual provide for payments to children who
are living at the death of the insured and thereafter to grandchildren at age 21.
The New York Life would be inclined to eliminate payments of income to children
unborn at the time of the making of the agreement. The other companies
expressed no opinion on this.
The discussion showed that the New York companies are observing the New
York Rule against Perpetuities in New York State, but on contracts issued outside
of the state the common-law rule, with modifications, in the few states which havi
stalrutes is being followed. The companies assume that the rule speaks as of the
date of the death of the insured and that in New York the insured's life is not
counted. Dr. Hunter expressed the hope that the New York Rule might be used
even outside of New York State.
3. Should the principal sum be held until the death of the survivor of a group of
beneficiaries, such as children, interest being payable in the meantime to succes-
sive beneficiaries; i. e., if a child dies should interest be continued to his children
until the death of the survivor of the original group of children?
[Interest to wife & one child, then stop (on each piece).]*
[Interest to (no wife) one child, then stop.]*
[No. But if the installment option continue installment to surviving children
until exhausted.]*
The Equitable and Metropolitan write such agreements outside of New York
State. The Metropolitan and New York Life expressed a willingness to insist
that at the death of a child its share should be distributed. Mr. Strong indicated
that he would be personally favorable to such a change.
4. Would the companies be favorable toward providing that after interest had
been paid to two successive beneficiaries any further payments must be on an
option with decreasing principal?
[Yes.]*
[I would prefer a lump sum.]*
[Old or young.]*
The Equitable and Mutual indicated that they were rather tied up on this point
by the provisions of their options at settlement as they appear in their policies.
Other companies were favorable to the suggestion
5. After interest has been paid to a wife and then to a child, may the third
beneficiary, or any final beneficiary under such conditions, be permitted to elect
an annuity option?
[Not troublesome with us. Will follow majority.]*
The Mutual and the Metropolitan do not permit such an election. Otber
companies did not express an opinion.
6. Should payments of income [Principal Sum?]* be made payable upon request
to [an individual or a bank as a trustee? Would guardian of minor have prece-
dence over a trustee?]*
[No.]*
The New York Life will not include such a provision. The Metropolilan and
"Equitable policies do not permit them to make such payments. The Mutual
Life will permit such a provision if the trust agreement is satisfactory and will also
agree to make payments to a member of the family as trustee for a minor child
without inquiring as to whether there is a trust agreement.
Several of the companies objected to giving assignees the right to elect to have
paynaents of the proceeds of policies made under the options at settlement. Some
of the companies, however, are apparently obliged to do so under the terms of
their policy contracts.
*In pencil on original document.
4860 CONCENTRATION OF ECONOMIC POWER
7. Should the options at settlement be written in favor of a corporation?
[Hospitals, Institutions?]*
[No.]*
Generally speaking, the New York conipanies do not write such policies. The
Mutual, however, will permit payments under its options to a charitable institu-
tion for not more than twenty years at the request of the insured. It will not,
however, permit a corporation beneficiary to elect the option.
Up to this time the points brought up for discussion by Dr. Hunter related solely
to provisions for distribution of the proceeds of a policy under a settlement
agreement. The Hartford representatives then suggested that at Hartford we
had been interested in the question of whether the rate of interest guaranteed in
the options could be reduced to 2)^% and whether any limitation could be placed
upon the right of withdrawal.
The Mutual Life indicated that they would like some modification in the guaran-
teed rate of interest, and Dr. Hunter suggested that he would like to limit the
guarantee of interest to a period of twenty or thirty years from the date of the
policy. This suggestion if carried out, however, v.ould create difficulties in con-
nection with the annuity options with instalhnents certain. The discussion with
regard to the guaranteed rate of interest was not carried very far, principally
because the New York companies liave recently made revisions of their policy
forms and arc not at the present time disposed to undertake another revision.
In a discussion after the meeting, Mr. Murphy expressed the opinion to Mr.
Laird that the real choice was between a 3% guarantee or no guarantee at all.
There was no extended discussion with regard to limiting the rights of with-
drawal.
All four of the New York companies indicated that they do not generally agree
to accumulate interest, except during minority, in New York State. The New
York Life will do so outside of the state for not more than twenty-five years.
At the suggestion of several of the members Dr. Hunter agreed to undertake
an investigation of the mortality which has lieen experienced under the annuity
options, in order to help to determine, if possible, whether the rates under these
options have been adequate.
The members present then agreed to adjourn for the purpose of giving eacli an
opportunity to discuss with ^is associates in his own company the problems taken
up at the meeting and to meet again at the same place on December 4 at 10 A. M.,
with a view perhaps of exploring the field further.
Exhibit No. 784
(From file? of The Kiniitnhlo I-ifc Assurniu-c S(.cict\|
[Notation: Advised Paul Taylor by telephone 5/13/37 that X. P. Murphy
would be our representative. L. H. P. 5/13/37.]
[Stamped: President. May 3, 1937. Eef erred to .|
[State seal]
Louis IT. Pixk,
Siii)cri)iteii(!rnt.
State of New Yokk,
Insurance Department,
Albany, April 30, 1937.
Thomas I. Parkinson,
Presiflcrd, The Equitable Life Assurance Society of the United States,
303 Seventh Avenne, New York City.
Dear President Parkinson: The suggestion that I appoint a committee
composed of representatives of the life conipanies and experts of our own Depart-
ment to study the question of policy loans and interest on policy loans has met with
general api)roval. The matter of the numerous options and the guaranteed rate
of 3% interest has also been brought to my attention with the suggestion that the
Department study the situation in the light of the preparation of the new code.
Since these two subjects are closelv related, I shall ask the committee to consider
both.
It is my thoisght that the original committee should be comparatively small, and
should be coinpn'scd largely of tecliiiicjl men, and that, when some tentative rccom-
iiiendation has lieeii agreed upon, we call in the executives of all of the life com-
*In pencil on oiii.Mii;i! dociuiient.
CONCENTRATION OF ECONOMIC POWER 4861
panies to discuss the situation. The representatives of the Department will be
Deputy Superintendent, Paul Taylor, Dillon F. Broderick, Chief of the Life
Bureau, and Mr. Charles Dubuar, Actuary. Mr. Gardner, Counsel to the De-
partment, will also give such service to this committee as may be necessary.
The following companies are requested to designate someone to form the origi-
nal committee:
Metropolitan.
New York Life.
Equitable.
Mutual Life.
Home Life.
Guardian Life.
It is the understanding that this committee will be enlarged, and that all com-
panies will be represented before any definite action is taken.
I wish to thank you for your help and co-operation in this matter.
Yours very truly,
(Signed) Louis H. Pink,
Superintendent of Insurance.
LHP/MTH.
[Initialed: M. A. A. McN.]
Exhibit No. 785
[From files of The Equitable Life Assurance Society]
[Stamped: Dept. R. D. M. Apr. 21, 1939. (Initialed: R. McN.)]
May 28, 1937.
Revision of Practice on Optional Settlements
Report of Subcommittee Appointed at Intercompany Conference of February
16, 1937
pressing need for revision of practice
There is a growing realization that current practices under optional settlements
need revision. Many companies now desire to solve the problems of unsound
practice which have been encouraged by unwise competition in the past and greatly
accentuated by the conditions of the last three years. These problems arise in
four directions:
1. Guarantee of Interest Over Long Period. — As optional settlements are fre-
quently written to extend for a very long period after the death of the insured,
there is uneasiness regarding the possible consequences of the guarantee over such
an undue length of time. There is a growing sentiment to limit optional settle-
ments to cases which do not e.xtend the guarantee for an unreasonable time into
the future.
2. Increased Complications. — Optional settlements have been increasing in com-
plexity partly owing to unwise competition in the past. In one company, over
one-half of the new optional agreements in 1936 were "complicated" or "very
complicated," and only 21% of them "simple." In the home offices the work in-
volved in pre ' aring these complex agi;eements is becoming unsatisfactorily heavy
with a prospect of continued increase. Their administration will ultimately throw
an undue burden of work and expense on the companies in keeping track of the
various beneficiaries and their shifting rights under the agreements. Trust com-
panies would charge a very substantial fee for this sort of service. Settlement
options can be kept much simpler than at present without interfering with the sale
of life insurance, provided unsound competition in complicated options is elimin-
ated by proper restrictions.
3. Life Income Option. — The recent experience of several companies has re-
vealed that the death rate among beneficiaries under the life income option is
much less than was anticipated when the guarantees in the present policies were
fixed. This will necessitate a revision of new policies to place the income option
on a self-supporting basis. It also makes it important to limit the use of this
option in new agreements under outstanding contracts to situations which will not
intensify the antiselection.
4. Great Increase in Volume. — Owing to general investment conditions and the
ditiicuUy of investing funds elsewhere, optional settlements have greatly increased.
Funds currently left witli the companies under these settlements vary from about
4862 CONCENTRATION OP ECONOMIC POWER
30% to 50% of the sum of all current death claims and matured endowments.
The "consideration for supplementary contracts" received during 1936 varied
from 22% to 39% of the entire increase in ledger assets during the year. The
new optional settlement agreements have also increased by leaps and bounds.
Thus the problems connected with these settlements are becoming very urgent
from a practical viewpoint.
In order to solve these problems two immediate steps can be taken by companies:
a. Wherever the policy provisions permit, revise at once the practice under
new agreements on aU contracts to conform to the rules recommended below.
In this way much progress toward solution of the problems can be made
without delay.
b. Where provisions in new policies are inconsistent with these rules, revise
the policies accordingly at an early date.
In framing these rules our subcommittee has continually borne in mind that
optional settlements are of great importance to policyholders and beneficiaries in
programming and to agents in the sale of life insurance. We would not wish to
impose unnecessary limitations on a legitimate use of settlement options in connec-
tion with sound programming. However, in recent years the practice under
options has gone far beyond this reasonable standard. Thus we believe the follow-
ing changes recommended are greatly to be desired as an approach to a solution of
the problems involved. These revisions represent the minimum limitations on
optional settlements. Many companies will doubtless wish to go further in their
restrictions than indicated.
RECOMMENDATIONS FOR REVISED PRACTICE UNDER NEW OPTIONAL AGREEMENTS
ON BOTH NEW AND OUTSTANDING BUSINESS
1. When a settlement agreement provides for a mode of settlement for second-
ary beneficiaries following a primary beneficiary no share of a secondary benefi-
ciary shall be settled in other manner than by payment in one sum upon tlic
death of such secondary beneficiary.
Comment: Extensions beyond the suggested rule have led not only to com-
plications in drafting clauses but also to a continuance of guarantees to an un-
reasonable extent. The above rule permits service as broad (two lives in being)
as can be given in compliance with the laws of all states on a uniform basi.s.
Companies have in the past commonly varied their practice depending upon the
law of the state in which the business was written, as the state in which a com-
pany is incorporated does not control its operations in this respect in other
states.
It is possible that, to circumvent this rule, request might be made for an ad-
ditional provision in the agreement to the effect that if the primary beneficiary
is deceased at the insured's death, the income shaU be continued to a third ben-
eficiary. Such a provision would greatly increase the length and complexity of
settlement agreements and should be refused as inconsistent with the spirit of
the above rule. If the primary beneficiary should die during the insured's life-
time he can easily revise the agreement to include this third beneficiary if he
then desires.
2. Where the settlement is elected by the primary beneficiary, and not the
insured, no secondary beneficiary shall receive other than a lump sum at the
death of the primary beneficiary.
Comment: The companies owe no obligation to set up an elaborate estate
structure for the beneficiary, with resulting extension of guarantees, if the
insured had not considered it worthwhile to do so.
3. No provision shall be made for accumulating interest except during the
minority of the beneficiary.
Comment: Other accumulations cannot be enforced and provision for them is
therefore undesirable.
4. The insured shall not be allowed to provide that a beneficiary shall have
the right to elect a life income settlement of a guaranteed amount in lieu of a
different settlement, if such right to elect would extend beyond one year from
the insured's death. If the insured makes no provision for a mode of settle-
ment, the beneficiary should not be given the right to choose a life income settle-
ment of a guaranteed amount later than one year from the insured's death.
Comment: The right to elect such conversions of the proceeds intensifies the
selection against the company under life income settlements. The mortality
under such settlements in the future is too uncertain to warrant an extended
right of this kind. Possibly most companies will wish to go further than thg
CONCENTRATION OF ECONOMIC POWER 4863
rule suggests and grant no extension of such a right, or at best for only a few
months. When the insured has made no provision, it would seem reasonable to
permit a beneficiary a short time to reach a decision following the insured's
death.
It should be noted that this rule prevents an extended period for election of
the life income option. It does not prevent automatic and obligatory conver-
sion of the proceeds to a life income at any time after the insured's death, pro-
vided the beneficiary has no right to withdraw.
5. If a primary beneficiary is living at the death of the insured, a secondary
beneficiary should not be given the right to select a mode of settlement for any
of the proceeds.
Comment: In such circumstances the reservation of such a right involves ad-
ditional complexity in drafting clauses and goes beyond a reasonable use of the
company's facilities to protect beneficiaries. Every right to alter the mode of
settlement permits selection against the company on financial grounds and should
not be permitted to be so far reaching as such a right to a secondary beneficiary
would be. '
It should be noted that some conapanies may wish to permit exceptions for
so-called "educational funds" where the alteration in the option is to permit the
funds to be drawn over the proper school period.
6. When the proceeds are to be left at interest for a primary beneficiary, they
shaU not be continued at interest for a secondary beneficiary unless the primary
beneficiary dies within 30 years from the death of the insured, and then only
for the balance of such 30-year period. If the secondary beneficiary is to receive
under the mode of settlement providing instalments of fixed amount, such amount
should be at least at the rate of 6% of the principal sum.
Comment: It is realized that the right to leave the principal at a guaranteed
interest rate of 3% or 3}^% over a very long period affords the strongest selec-
tion against the company on financial grounds, and hence this limitation is most
desirable. The above rule would permit the insured to leave the principal intact
drawing interest during his wife's life and until his children are aU 30 years of
age or more. Some companies may wish to pay out the principal more rapidly
than the above rule requires following an initial period when the principal was
left at interest. Others may wish to permit the secondary beneficiary to have a
life income, provided it is mandatory. The mode of settlement providing in-
stalments of fixed amount may so nearly approach the "at interest" option, if
the instalments are small enough, that the above limitation to an instalment of
at least 6% of the principal sum seems necessary. This seems consistent also
with the possible use of a fixed number of instalments. (See next item.)
7. The option granting a fixed number of instalments should be limited to
thirty years.
Comment: It is commonly recognized as undesirable to provide too long a
period of instalments, which may be continued long after the death of the primary
beneficiary. A period of thirty years is liberal and consistent with the program
for the other rules.
8. The proceeds of a Double Indemnity provision should be paid in cash or be
settled under a mode of settlement in the same manner as the face amount of the
policy. Death from accident should not affect the settlement of the face amount.
Comment: The purpose is to avoid undue complications in drafting settlement
agreements or in settling claims out of proportion to the premium income for the
Double Indemnity benefit. As an alternative a company might wish to use the
restriction only for policies below a given amount, but the existence of several
small policies in the same company or a small policy in combination with larger
policies in other companies may make such an alternative troublesome in ad-
ministration. It should be noted that if an instalment of 6% of the proceeds is
provided, as indicated in Item 6, the provision should properly cover the possi-
bility of a Double Indemnity claim.
9. Settlement agreements should not involve a remarriage contingency or be
affected by presentation to the company of evidence of remarriage.
Comment: Companies generally have recognized inability to discover remar-
riage, and therefore have refused to make settlement depend upon such discovery
by the company. A provision affecting the settlement upon presentation to the
company of evidence of remarriage of a primary beneficiary, who will usually
have possession of the supplementary contract, seems to put a secondary bene-
ficiary in a position where the contents of the provision are unknown and usually
will not be enforced in accordance with the intent of the insured. Probably most
policyholders would not want the provision if they thoroughly understood the
situation.
4864 CONCENTRATION OF ECONOMIC POWER
10. Under Family Income, and similar forms, provision should not be made to
apply the commuted value of the benefits at the death of the insured under a
mode of settlement.
Comment: These policies are intended for use vv^here the original form of
settlement fits the case. Undue complications are created by using this form in
the vv^ay mentioned. This rule does not prevent applying the final face amount
ultimately under a mode of settlement.
11. Provision should not be made for the payment of interest or instalments
through any corporation (such as a Trust Company) or any person presumably
charging a fee for receiving payments, except during the minority of the bene-
ficiary.
Comment: This rule is essentially to protect beneficiaries, and violation of it
would probably lead to ill-feeUng on the part of beneficiaries.
* * *
The following rule was discussed but as the subcommittee was not unanimous
it is inserted here as a supplementary rule for discussion with the whole group:
When the insured provides that a primary beneficiary is to receive a mode of
settlement with the right to withdraw all or substantially all the proceeds, no
provision for holding the proceeds under a mode of settlement for a secondary
beneficiary shall be included.
Comment: Provision for mode of settlement for a secondary beneficiary in such
a case is likely to lead to misunderstanding, disappointment and friction, and in
some instances to defeat the real purposes of the insured. Settlement provisions
are sometimes desired giving the primary beneficiary a right to withdraw a pro-
portion of the proceeds or a limited amount during any interval such as a year.
Many companies may wish to go further than the above wording would require
and refuse to hold for a secondary beneficiary if, for example, more than some
given percentage of the proceeds may be withdrawn.
REVISION OF NEW POLICY FORMS
Where the above changes in practice are inconsistent with present policy pro-
visions, an appropriate change should be made in the new policy forms.
The mortality basis of the life income option should be changed, to be self-
supporting. There will be a discussion at the meeting of the data so far prepared
by the subcommittee.
STEPS IN PREPARATION FOR INTERCOMPANY CONFERENCE ON JUNE 3
This memorandum is being sent to each company to be represented at the inter-
company conference of June 3. It represents what the subcommittee considers
a very reasonable minimum set of changes required to make progress in approach-
ing a solution of the problems now encountered in optional settlements. In
preparation for this conference two important steps are suggested:
a. Progress can only be made if individual companies are willing to waive
small differences in viewpoint because of the much greater advantage which
will accrue to all through a sound solution of these problems.
b. At this stage it is most desirable that each representative come to the
conference invested with authority to speak for his company as to its willing-
ness to accept each of the above rules individually, provided that the great
majority of the other companies are willing to do likewise.
The changes recommended are for the good of the life insurance business and
the benefit of policyholders as a whole. Widely adopted, they would in our
judgment have practically no effect on the sale of life insurance or the meeting
of legitimate and reasonable needs of clients. Thus our subcommittee strongly
recommends them for vour consideration.
CONCENTRATION OF ECONOMIC POWER 4865
Exhibit No. 786
[From files of The Equitable Life Assiir:ince Society]
[File 348]
[Stamped: Dept. R. D. M. Apr. 17, 1939. (Initialed: A. McN.)]
List of Company Representatives at Meeting Held on June 3rd in Dr.
Hunter's Office
Mr. Joseph C. Barnsley, Actuary, Guardian Life Insurance Co., 50 Union
Square, New York City.
Mr. W. J. Cameron, Vice President & Actuary, Home Life Insurance Co., 256
Broadway, New York City.
Mr. F. J. Cunningham, Assistant Actuary, Sun Life Assurance Co. of Canada,
Montreal, Canada.
Mr. P. H. Evans, Vice President & Actuary, Northwestern Mutual Life Insur-
ance Co., Milwaukee, Wisconsin.
Mr. H. A. Grout, Assistant Actuary, John Hancock Mutual Life Insurance Co.,
Boston, Mass.
Mr. R. C. Guest, Associate Actuary, State Mutual Life Assurance Co., Wor-
cester, Mass.
Dr. Arthur Hunter, Vice President & Chief Actuary, New York Life Insurance
Co., 51 Madison Ave., New York City.
Mr. Robertson G. Hunter, Vice President & Actuary, Equitable Life Insurance
Co. of Iowa, Des Moines, Iowa.
Mr. H. G. Hurd, Actuary, Fidelity Mutual Life Insurance Co., Philadelphia,
Pa.
Mr. H. H. Jackson, Actuary, National Life Insurance Co., Montpelier, Vermont.
Mr. R. Keffer, Associate Actuary, Aetna Life Insurance Co., Hartford, Conn.
Mr. F. D. Kineke, Assistant Actuary, Prudential Insurance Co., Newark, N. J.
Mr. G. F. Knight, Associate Actuary, Berkshire Life Insurance Co., Pittsfield,
Mass.
Mr. J. M. Laird, Vice President & Secretary, Connecticut General Life Insur-
ance Co., Hartford, Conn.
Mr. J. R. Larus, Vice President & Actuary, Phoenix Mutual Life Insurance
Co., Hartford, Conn.
Mr. R. Little, Associate Actuary, Massachusetts Mutual Life Insurance Co.,
Springfield, Mass.
Mr. B. W. Marshall, Vice President & Actuary, Provident Mutual Life Insur-
ance Co., Philadelphia, Pa.
Mr. L. R. Martin, Secretary, Connecticut Mutual Life Insurance Co., Hartford,
Conn.
Mr. Samuel MiUigan, Second Vice President, Metropolitan Life Insurance Co.,
1 Madison Ave., New York City.
Mr. R. D. Murphv, Vice President & Actuary, Equitable Life Assurance
Society of U. S., 393 7th Avenue, New York City.
Mr. J. G. Parker,' General Manager & Actuary, Imperial Life Assurance Co.,
Toronto, Ontario.
Mr. O. W. Perrin, Associate Actuary, Penn. Mutual Life Insurance Co., Phil-
pelphia. Pa.
Mr. C. O. Shepherd, Associate Actuary, The Travelers Insurance Co., Hartford,
Conn.
Mr. W. M. Strong, Associate Actuary, Mutual Life Insurance Co., 32 Nassau
St., New York City.
Mr. W. Tebbetts, Vice President, New England Mutual Life Insurance Co.,
Boston, Mass.
Mr. J. S. Thompson, Vice President & Mathematician, Mutual Benefit Life
Insurance Co., Newark, N. J.
Mr. W. A. P. Wood,' Assistant General Manager & Actuary, Canada Life
Assurance Co., Toronto, Ontario.
' Not present.
4866 CONCENTRATION OF ECONOMIC POWER
Exhibit No. 787
[From files of Connecticut General Life Insurance Co.}
[File settlement options & trust agreements]
[Notation: See memo, July , 1937, to .]
Summary of Recommendations by Subcommittee, Headed by R. D. Murphy,
Concerning Settlement Options and the Actions of Various Companies
AT THE June 3 Meeting
1. The share of a secondary beneficiary following a primary beneficiary must
be paid in cash at the secondary beneficiary's death. In other words stick to
"two lives in being" which is all that is permitted in New York and possibly also
another state or so. Mr. Laird's notes show that of the 25 companict- represented
at the June 3, meeting, W voted -no" [10 voted "yes," 3 voted "yes" \> tli modifi-
cation, 8 voted "no"] and 4 "were on the fence." Such a restriction is in accord-
ance with our present practice and naturally O. K. with Mr. McGuire.
2. Where no provision is made by the Insured but where the primary beneficiary
selects an option at the Insured's death, the secondary beneficiary must take eftfe
[cash] at the primary beneficiary's death, except that the balance of any instal-
ments certain which the primary beneficiary has been receiving may be continued
to the secondary bfeneficiary.
20 voted "yes," 4 voted "no," and 1 was "on the fence." This restriction is in
accordance with our present practice and is O. K. with Mr. McGuire.
3. Interest is not to be accumulated except during the minority of the bfene-
ficiary. This, I presume, means not only a primary beneficiary, but also a
secondary one.
25 voted "yes." Under our present practice we do not allow accumulation of
interest even during minority and naturally such a restriction is O. K. with Mr.
McGuire.
4. The Insured shall not be allowed to give the beneficiary the privilege of
selecting a guaranteed life income except during the first year after the Insured's
death. The same restriction shall also apply to the beneficiary when payment is
in a lump sum and as a result if the beneficiary wishes a guaranteed life income
it must be selected within a year of the Insured's death. It is not intended that
this restriction prevent the automatic and obligatory conversion of the proceeds
to a life income (I presume guaranteed), when the beneficiary has no right to
withdraw. I presume therefore that an Insured can arrange for Option C for
20 years after his death or until the beneficiary has reached age 55 and then have
the proceeds converted automatically into a guaranteed life income with the
certain period fixed in advance by the Insured.
12 companies voted "yes", 3 voted "no", 9 were "on the fence", and 1 did not
vote. Mr. McGuire does not agree with this.
I presume sXich a restriction might introduce optional life incomes at annuity
rates in effect at the time the option is selected, less 3% or some other amount.
This means a guarantee of this 3% or this some other amount which is something
I am not particularly enthusiastic about.
Note.— Penciled notations anclosed in brackets.
5. If a primary beneficiary is living at the death of the Insured a secondary
beneficiary should not be given the right to select a settlement option except in
the case of funds for educational purposes.
25 companies voted "yes." Mr. McGuire do.es not agree with this restriction.
6. When the proceeds are left at interest for a primary beneficiary they shall
not be continued at guaranteed interest or under any other form of guaranteed
instalments certain for a secondary beneficiary unless the primary beneficiary
dies within 30 years from the death of the Insured and then the proceeds shall only
be continued at guaranteed interest or paid under any form of instalments certain
for the balance of such a 30 year period. Apparently this does not prevent the
proceeds at the primary beneficiary's death being applied automatically to
provide a guaranteed life income for a secondary beneficiary with the certain
period fixed in advance. According to Mr. Laird's notes the portion fixing instal-
ments certain to the secondary beneficiary to at least 6% of the proceeds of the
principal sum is to be left out.
Only 4 companies voted, 3 of which were "no," and the other was "on the
fence." I am not exactly sure how Mr. McGuire feels about this rule. He
seems to feel that it is complicated and I am inclined to agree with him. As a
matter of fact, it is not too clear to me. I do feel, however, that if an Insured
CONCENTRATION OF ECONOMIC POWER 4867
takes care of a wife and then a child until some such age as 30, he has discharged
his responsibility and it is up to his child, (or children), to take care of himself
from then on. I remember receiving this very same advice from a man in the
Trust Department of a trust company.
7. Instalments certain should not be paid over a period of more than 30 years.
There was no vote on this restriction. Such a restriction is O. K. with Mr.
McGuire.
8. The proceeds of a double indemnity provision shall either be paid in cash
or be settled under the same options as the face amount of the policy. The
alternate restriction was that this apply only to policies below $5,000.
14 companies voted "yes," 6 voted "yes" for the alternate, 1 voted _"no," 2
were "on the fence," and 2 do not write double indemnity. This restriction is
O. K. with Mr. McGuire.
9. Settlement agreements should not involve a remarriage contingency or -be
affected by presentation to the company of evidence of marriage.
Only 2 companies voted on this. One voted "no" and the other was "on the
fence." Mr. McGuire is in favor of this restriction.
10. Under Family Income and similar forms the commuted value should
not be applied under settlement options. This, of course, does not prevent the
application of the principal sum under settlement options at the end of the Family
Income Period.
12 companies voted "yes," 10 companies voted "no," 1 company was "on the
fence," 2 companies do not issue this type of insurance. Such a restriction is
O. K. with Mr. McGuire.
11. Provision for payment of interest or instalments through any corporation
such as a trust company or through any person, presumably charging a fee for
receiving payrrients should not be allowed except during the minority of a bene-
ficiary. I presume if the policy is assigned the proceeds would have to be
paid to the assignee as his interest might appear.
16 voted "yes," 6 voted "no," 3 were "on the fence." I do not know whether
this is O. K. with Mr. McGuire or not.
SUPPLEMENTARY
When the Insured provides that a primary beneficiary is to receive a mode of
settlement with the right to withdraw all or to substantiate all of the proceeds,
provision for holding the proceeds under a mode of settlement for a secondary
beneficiary shall be allowed.
16 companies voted "yes," 7 companies were "on the fence," 1 did not vote.
I do not know what the Northwestern voted.
Mr. McGuire has pointed out that the wording of our policy is such that to
conform with restrictions 4, 5, and 6, we might be embarrassed. The wording is:
"Upon written request of the then legal owner the Company will agree in writing
with such owner to pay the proceeds of the policy in accordance with one or more
of the following options, provided that these options shall be available only with the
Company's consent if the payee is a corporation or association, if the proceeds
to be retained by the Company amount to less than $2,000, or if any instalment
payment amounts to less than $10."
E. C. Henderson, Actuary.
ECH: D.
June 10, 1937.
Exhibit No. 788
[From flies of The Equitable Life Assurance Society
[Notation: Dept. R. D. M. Apr. 17, 1929. (Initialed A. M. N.)]
Recommendations for Revised Practice Under New Optional Agreements
ON Both New and Outstanding Business
1. When a settlement agreement provides for a mode of settlement for second-
ary beneficiaries following a primary beneficiary no share of a seconday beneficiary
shall be settled in other manner than by payment in one sum upon the death of
such secondary beneficiary.
2. Where the settlement is elected by the primary beneficiary at the death of the
insured, no secondary beneficiary shall receive other than any remaining instal-
ments certain or a lump sum at the death of the primary beneficiary.
3. No provision shall be made for accumulating interest except during the
minority of the beneficiary.
124491—40 — pt. 10 47
4868 CONCENTRATION OP ECONOMIC POWER
4. The insured shall not be allowed to provide that a beneficiary shall have the
right to elect a life income settlement of a guaranteed amount in lieu of a different
settlement, if such right to elect would extend beyond one year from the insured's
death. If the insured makes no provision for a mode of settlement, the bene-
ficiary should not be given the right to choose a life income settlement of a guar-
anteed amount later than one year from the insured's death.
5. If a primary beneficiary is living at the death of the insured, a secondary
beneficiary should not be given the right to select a mode of settlement for any of
the proceeds.
6. When the proceeds are to be left at interest for a primary beneficiary, they
shall not be continued at a guaranteed rate of interest or under an instalment
settlement for a secondary beneficiary unless the primary beneficiary dies within
30 years from the death of the insured, and then only for the balance of such 30
year period. This does not prevent an automatic life income settlement for a
secondary beneficiary.
7. The option granting a fixed number of instalments should be limited to thirty
years.
8. Under a settlement agreement arranged by the insured the proceeds of a
Double Indemnity provision should be paid in cash or be settled under a mode of
settlement in the same manner as the face amount of the policy.
9. Settlement agreements should not involve a remarriage contingency or be
affected by presentation to the company of evidence of remarriage.
10. Under Family Income, and similar forms, provision should not be made to
apply the commuted value of the benefits at the death of the insured under a
mode of settlement.
11. Provision should not be made for the payment of interest or instalments
through any corporation (such as a Trust Company) or any person presumably
jcharging a fee for receiving payments, except during the minority of the bene-
ficiary.
SUPPLEMENTARY RULE
When the insured provides that a primary beneficiary is to receive a mode
of settlement with the right to withdraw all or substantially all the proceeds,
no provision for holding the proceeds under a mode of settlement for a secondary
beneficiary shall be included.
Exhibit No. 789
[From flies of Connecticut General Life Insurance Co.]
New York Life Insurance Company
office of vice president and chief actuary
51 Madison Avenue, Madison Square, New York, N. Y.
August 6, 1937.
Mr. J. M. Laird,
Vice President and Secretary, Connecticut General Life Insurance Co.
Hartford, Conn.
Dear Mr. Laird: At the meeting held at my office about two months ago
with regard to Special Settlement Agreements, practically all the companies
stated that they intended to change their practice. If you have issued instruc-
tions to your agents on that line, I shall be glad to have a copy of the circular.
You already have a copy of our procedure as outlined in my letter of last April.
Sincerely yours,
(Signed) Arthur Hunter
Vice President.
August 11, 1937.
Dr. Arthur Hunter,
Vice President, New York Life Insurance Company,
New York, New York.
Dear Dr. Hunter: As you know, we are in sympathy with the movement to
simplify special settlement agreements but we have not yet issued any circular
to agents.
We are now working on a proposed announcement but we should like to be
sure that similar action will be taken by a number of companies of about our size.
CONCENTRATION OF ECONOMIC POWER 4S69
As we recently adopted more conservative settlement options in our new policies,
we feel that some of the other companies in New England should take the lead in
this other conservative step.
Perhaps another general meeting would clear the air and bring more concerted
action.
Sincerely yours,
Vice President.
[File Settlement Options & Trust Agreements]
[Notation: See also postscript-Murphv letter 6/9.]
[Initialed: F. P. M.]
New York Life In.s.urance Company
ofl'ice of vice president and chief actuary
51 Madison Avenue, Madison Square, New York, N. Y.
August 12, 1937.
Mr. John M. Laird,
Vice-President, Conneclicut General Life Insurance Co.,
Hartford, Connecticut.
Dear Mr. Laird: Your letter of the 11th instant was duly received.
It is apparent that a number of companies are slow in sending their circulars
to the field, although three have told me that they have already put the rule into
effect without notification of it. It may be that other companies of your size are
waiting for a leader. Why don't you take that position with them?
If there were a request for another meeting I should be glad to call it, but it
must be in the form of a "round robin" as there must be no implication that I
am asking the other companies to pull our chestnuts out of the fire. We have
taken our stand and intend to abide bj' it whatever other companies may do.
Confidentially our leading agents realized that our action was a proper one and we
are having their support, although occasionally they are finding it very tough in
competition.
Yours very truly,
(Signed) Arthur Hunter, Vice-President.
Exhibit No. 790
[From files of Equitable Life Assurance Society]
[Stamped: R. D. Murphv, Vice President & Actuary. Oct. 25, 1937.]
[Stamped: Dept. R. D. M. Apr. 17, 1939. (Initialed: A. McN.)]
Provident Mutual Life Insurance Company of Phildelaphia
Forty-Sixth and Market Streets
Edward w. Marshall, Vice President and Actuary
October 22, 1937.
Confidential.
Mr. R. D. Murphy,
Vice President and Actuary, Equitable Life Assurance Society,
393 Seventh Avenue, New York City.
Dear Mr. Murphy: At the inter-company conference on optional settlements
held at Swampscott on October 14, it was revealed that at least two more com-
panies are about to announce rules similar to those discussed at the conference
last June. Already at least six companies have adopted the rules, including the
Aetna, Equitable of Iowa, Guardian, Metropolitan, New York Life and Prudential.
It is becoming apparent that some such rules are desirable for the good of the
business, and that it would be well for the various companies themselves to take
measures to eliminate any weaknesses and dangers now inherent in optional
settlement practice.
Quite a number of the representatives at the conference indicated the readiness
of their respective companies to adopt the rules provided a majority of the com-
panies of their own group did likewise. Some of them however wer' -reluctant to
4870 CONCENTRATION OF EriONOMTC TOWKU
"pioneer" in the absence of definite information regarding the official attitude and
intentions of other companies.
Accordingly the conference requested me to send to each of the 27 companies
represented a questionnaire, the answers to which would indicate definitely the
official attitude of the company on the subject, based on the decision of its interested
executives. This questionnaire would be returned to me so that a summary could
be made of the attitude of the individual companies and distributed at once to
all the companies represented.
The conference also decided that another conference should be held on Novem-
ber 15 in New York City at 10:00 in Mr. Bassford's office, in order to give what
was hoped would be a decisive turn to the whole subject. At that conference
each company representative should be empowered to state finally the program
of his company in the light of the information derived from the above-mentioned
summary. It is also hoped that the subcommittee studying the basis of the life
income option will then be prepared to give a conclusive report for the consideration
of the entire group.
In accordance with this plan, please return one of the enclosed questionnaires
to me before. November 3 in order that the compilation of the answers may be
made and forwarded to you well in advance of the meeting on November 15
Your cooperation in returning the questionnaire by that date will be greatly
appreciated as you can see that the compilation itself will require considerable
time.
With best regards.
Sincerely yours,
(Signed) E. W. M.\rsh.\ll.
Vice President and Aciunr>/.
EWM:AV
Enclosures.
Confidential.
QUESTIONNAIRE REGARDING REVISION OF PRACTICE UNDER NEW OPTIONAL AGREE-
MENTS ON BOTH NEW AND OUTSTANDING BUSINESS
Name of Company
The following rule numbers refer to those as revised at the intercompany con-
ference of June 3, 1937, with rule 10 regarding family-income limitations eliminated
as agreed upon. A copy of these rules is enclosed for your convenience.
Opposite each of the following numbers please state "Yes," "No," or "Modi-
fied." The answer "Yes" indicates that your company intends to adopt the
given rule if at least 75% of the companies of your group* will do so. If the
answer for any rule is other than "Yes" please e.xplain in an accompanying letter.
If possible, answer "Yes" without modification in order to facilitate agreement.
Rule Attitude of Company
1
2
3 :
4
a
Rule Attitude of Company
6
7
11
Suppl.
Date by which would intend to adopt rules labeled "Yes"
*State the companies you consider to be in your group for the purpose of giving
the above answers.
Signature of Company Officer.
Please return this questionnaire before November 3, 1937, to E. W. Marshall,
Provident Mutual Life Insurance Company, 4601 Market Street, Philadelphia,
Pa.
fJONCRNTRATION OF ECONOMIC POWER 4871
Exhibit No. 791
[From flics of Tho Equitable Life Assurance Society]
(Stamped: R. D. Murphy, Vice President & Actuary. Nov. 10, 1937.]
(Stamped: Dept. R. D. M. Apr. 17, 1939. (Initialed: A. McN.)]
[Notation: Bring up Monday 11/15 for meeting.]
Provident Mutual Life Insurance Company of Philadelphia
Forty Sixth and Market Streets
Edward W. Marshall, Vice President and Actuary
November 9, 1937.
Mr. R. I). Murphy,
Vice President and Actuary, Equitable Life Assurance Society,
New York City.
Dear Mr. Murphy: The information received regarding the attitude of your
company toward the proposed optional settlement rules has i)een included in a
summary of the returns from the various companies enclosed herewith as promised.
As previously indicated, an intercompany conference will be held at ten
o'clock on Monday, November 15, in the office of Mr. Bassford, Actuary of the
Metropolitan Life Insurance Company, 1 Madison Avenue, New York City.
One actuary from each company is invited to be present, as usual. It is assumed
that your company will be represented, but if this should not be possible will you
please wire me to facilitate arrangements for this meeting.
It is important that representatives should come to the conference empowered
to state the official attitude of their respective companies in the light of the infor-
mation given in the summary of the questionnaires.
Sincerely yours,
(Signed) E. W. Marshall,
Vice President and Actuary.
EWM:AV
Enclosure.
Exhibit No. 792
[From files of E. W. Marshall, Vice President & Actuary]
Provident Mutual Life Insurance Company of Philadelphia
Provident Mutual Life Insurance Company of Philadelphia
Forty Sixth and Market Streets
Edward W. Marshall, Vice President and Actuary
November 19, 1937.
Enclosed is a copy of the amended rules regarding optional-settlement practice
and a sheet setting forth the attitude of the various companies toward these rules
ias stated at the intercompany conference of November 15.
In case there are any inaccuracies in this sheet regarding your company's
attitude, please let me know.
Sincerely yours.
Vice President and Actuary.
EMW:AV
Enclosures.
RECOMMENDATIONS FOR REVISED PRACTICE UNDER NEW OPTIONAL AGREEMENTS
ON BOTH I'^EW AND OUTSTANDING BUSINESS AS AMENDED AT THE INTER-COMPANY
CONFERENCE ON NOVEMBER 15, 1937
1. When a settlement agreement provides for a mode of settlement for second-
ary beneficiaries following a primary beneficiary no share of a secondary bene-
ficiary shall be settled in other manner than by payment in one sum upon the
death of such secondary beneficiary or by the continuation of any installments
certain; provided however, that any such share which has been held under the
interest option may be reapportioned to the surviving members of a claisa of
secondary beneficiaries if composed of the insured's children or parents and if
payments are limited to the period prescribed by rule 6.
4872 CONCENTRATION OF ECONOMIC POWER
2. Where the settlement is elected by the primary beneficiary at the death of
the insured, no -idary beneficiary shall receive other than any remaining
installments certam or a lump sum at the death of the primary beneficiary.
3. No provision shall be made for accumulating interest except during the
minority of the beneficiary.
4. The insured shall not be allowed to provide that a beneficiary shall have
the right to elect a life-income settlement of a guaranteed amount in lieu of a
different settlement, if such right to elect would extend beyond one year from the
insured's death, except at one date or age specified by the insured, or within 30
days thereafter. If the insured makes no provision for a mode of settlement,
the beneficiary should not be given the right to choose later than one year from
the insured's death a life-income settlement of a guaranteed amount, except at
one date or age specified in the original election paper or within 30 days thereafter.
5. If a primary beneficiary is living at the death of the insured, a secondary
beneficiary should not be given the right to select a mode of settlement for any
of the jjroceeds, except in educational insurance elections.
o. When the proceeds are to be left at interest for a primary beneficiary, they
shall not. be continued for a secondary beneficiary at a guaranteed rate of interest
of 3% or more or under an installment settlement unless the primary beneficiary
dies within 30 years from the death of the insured, and then only for the balance
of such 30-year period. This does not prevent an automatic life-income settle-
ment for a secondary beneficiary. (The use of attained age 35 of the secondary
beneficiary may be substituted for the 30-year limitation.)
7. The option granting a fixed number of installments should be limited to
thirty years.
8. Under a settlement agreement arranged by the insured the proceeds of a
double-indemnity provision should be paid in cash or be settled under a mode
of settlement in the same manner and to the same person as the face amount of
the policy, except on policies for $5,000 or more.
9. Settlement agreements should not involve a remarriage contingency or be
affected by presentation to the company of evidence of remarriage.
10. Eliminated at intercompany conference of October 14.
11. Provision should not be made for the payment of interest or installments
through any corporation (such as a Trust Company) or any person presumably
charging a fee for receiving payments, except during the minority of the bene-
ficiary.
Supplementary Rule. Eliminated at intercompany conference of JSTovember
15.
Exhibit No. 793
[From files of The Equitable Life Assurance Society]
[Stamped: Dept. R. D. M. Apr. 17, 1927. (Initialed: A. McN.)]
[Filt 'iAS. Settlement agreement folder]
Modes of Settlement.
November 16, 1937.
Mr. W. G. SCHELKER,
Vice President:
At an intercompany conference yesterday for the purpose of stimulating the
adoption of settlement rules by additional companies, there were a few changes
made in the rules to make possible wider adoption.
There was added at the end of rule 1 "or in continuation of installments cer-
tain, with the exception of a class of children or parents within the limitations of
rule 6." It is not my understanding that the New York companies are interested
in this additional language as they desire to follow the two life in being rule
necessary in New York.
Rule 4 was altered by adding at the end of the first sentence "except at one
date or age, or within 30 days thereof, specified by the insured." Similarly there
was added.at the end of the second sentence "except within 30 days of one specified
date or age." Some of the companies feel that in view of the inattractiveness of
ttie life-income option at low ages they feel compelled to give a privilege, for
example, of letting the beneficiary convert an interest deposit to a life-income settle-
mert at one specified predetermined time. It was recognized also that the
o,on;;:<inies might be somewhat embf rras'^ed if they did not notify the beneficiary
of her ijcivilei.,; i,«.- co elect whtin th-- r;;;:; .latc arrives. If it should be considered
Very confidential.
Revised to Include Results of Conference of Xovember 15, 19S7
1
Lump sum at
death secondary
beneficiary
Election by Ben.
Lump sum at
death
3
No accumu-
lation of in-
terest
4
Life income
election
limited
5
No election
by secondary
ben»Lciary
6
Interest Option to
secondary bene-
ficiary limited
7
Installments.
Certain period
limited to 30
years
8
No special
double Indem-
nity setllement
9
No marriage or
remarriage
com ingency
11
Payments to
corporation
limited
Date of adoption
Remark.
Ye?
Yes
Yes .
Yes
Yes
Yes...
Yes . .
Yes
Yes
Yes
Yes .... 1 Yes, next Policy
change.
Yes Yes...
Yes
Yes
No
Yes
Y'es..
Yes
Yes ...
-Mready adopted
No laier than 1/l/as if suhswii-
tial agreement is obtained.
1/1/38 for rules not already in
force.
i;i,':IS for rules not already in
force.
No immediate .'innouiiceiiitMil
iulended.
-Already adopted and an-
nounced.
Policy recently
another tevlsii
mediate.
Policies contain
ment options.
Yes-
Yes - .
Yes
Yes
3, funnils Life..-
4. Cinin. I'^e'i'I
i. Own. Mutiiiil
li. Ki|iiit. Iowa
;. Equit. N. Y .-
Y'es
Yes.-.,
Mod.-agoSO.sec.
ben. if 00 right
to change.
\o . ....
Yes
Yes
No .
Yii ...
Yes
Yes
N'n
Yes -
Yes -. .
yes
Yes
Yes
Yes, rare e\-
ceptiua.
Yes, rare ex-
ception.
Yes .
Yes
Uncertain
No
Yes .
Yes
Yes .
Yes...
Yes
Yes
Yes
Y'es
Yes
Yes -.-
Yes, rare excep-
tion.
No
Yes
Yes .--
Yes. rare excep-
tion.
Yes
Yes
Yes .-.
Yes, iuslall-
menl options,
other w isa
discourage
but rare ex-
ception.
Yes
Y'es
Yes
Yes
Yes
Yes -
Yes .
Yes -
Yes
Yes
Yes
Yes
No, will discour-
age.
Yes
Yes
Yes
Yes-
Ves
Yes
No
Yes
No -
Yes
Yes -
Vreseut policy
preveuts com-
pliance.
Yes
Yes
No -
Y'es . .
Yes
l*re.sent policy
prevents eom-
pliiuu^.
Yes
Generally. Yes , .
Yes....
Yes
Yes -
Yes
Yes ...
Yes
Yes
Yes
.Adopted 8/1/37
Yes
Yes. rare ex-
ception.
Yes
Yes
Present policy
preveuts ft»m-
pliance.
No . ...
No
Yes
Yes
Yes...
Yes . . . -
^:::;::::::::
Double indem-
nity not is-
sued.
Yes
Y'es
.Vo...
Yes
No
No. rare excep-
tion.
No
Yes
Yes . .
Yes
Yes
-Vlreiiilv ado[)Ied ^.
I. Iriiperi;ii -
12. John Hariciick .
Now in force
.\t an early date except where
chance in Policy Isnecessary.
These rules now in effect
u nut lot-
No, any other
provision dis-
couraged.
Yes
No. rare excep-
tion.
Yes
Yes
Yes
Yes, except if
elected by in-
sured.
Yes
Yes.
Yes....
Yes
No
Yes
Yes...
Yes
Yes... .
Yes
Yes -
Yes
Answers icdicate present atti-
tude.
16. .Mutual Lire.-.-
Yes
Yes
Yes
A. National
Yes
Yes
Yes .
Yes
Yes
Yes
Yes -
1/1/38... -
When new Policy appears late
In winter.
B. NewEng
Yes
Yes
Yes
Mod
19. X.Y. Lite
Yes
Yes, under new
contracts ap-
p e a r i n B
shortly.
Yes
Yes
Yes
Yes, under new-
contracts ap-
p e a r i n g
shortly.
No, will discour-
age.
Yes
Y'es
No...
Yes
JO. Xorthwestern
No
Yes
Yes
Yes
No
21, Peon Mutual .
Yes
Yes
Y'es
Yes
22. Phoentt
Yes
Yes -
Yes
Yes
Yes.-.-
Yes
23. Provident
Yes
Yes
Yes...
Yes
No, will dis-
oovirage.
Yes.... - -.
Yes
Yes
Yes
Yes
Y'es
24. Prudential .
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Adopted 7/16/37 -
When 75% of U. S. Companies
in conference adopt rules.
1/1/38 or sooner- ...
Now in efTect
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
-No .-.;.-
28. Sun Life...-
Ye,s
Yes
Yes...
Yes, rare ex-
ception.
- -
v..
Yes. .
Yes, rare excep-
tion.
Yes-
Yes
no sellle-
124491— 40— pt. 10 (Face p. 4S72)
4872 CONCENTRATION OF ECONOMIC POWER
2. Where the settlement is elected by the primary beneficiary at the death of
the insured, no .idary beneficiary shall receive other than any remaining
installments certam or a lump sum at the death of the primary beneficiary
lU UC VUllMUClUU
CONCENTRATION OF ECONOMIC POWER 4873
necessary to do so this point might cause considerable administrative difficulties.
If you feel, however, that we should consider granting such a privilege will you
kindly let me know.
It was reiterated under rule 5 that this rule does not prevent a provision for a
secondary beneficiary choosing a specified alternate instalment benefit under
educational agreements.
Under rule 7 it was pointed out that the "pay until exhausted" clause should
be administered as nearly as possible so that the fund will not last longer than
thirty years.
At the conclusion of yesterday's meeting it appeared, confidentially, that quite
a number of additional companies would follow these new practices either in
whole or in part.
(Signed) R. D. M.,
Vice President & Actuary.
Notation: Told W. G. S. re understanding that a company subscribing to rules
need not feel bound in competition with a "No" company. R. D. M. 11/16.
Exhibit No. 794
[From flics of The E(iuitable T>ife Assurance Society]
[Stamped: R. D. Murphy, Vice President & Actuary. May 26, 1938.]
[Stamped: Dept. R. D. M. Apr. 17, 1939. (Initialed: A. McN.)]
[File 348]
Provident M- \l Life Insurance Company of Philadelphia
orty Sixth and Market Streets
Edward W. Marshall, Vice President and Actuary
May 25, 1938.
Optional Methods of Settlement.
Mr. R. D. Murphy,
Vice President and Actuary, Equitable Life Assurance Society,
S9S Seventh Avenue, New York City.
Dear Mr. Murphy: At the intercomj^any conference last week there was a
considerable diversity of opinion regarding the guaranteed rate to use in the new
policy forms for the optional method of settlement under which proceeds are left
with the company at interest.
One substantial group of companies favors a 2 percent or 2}^ percent guarantee
in all cases, feeling that this reduced rate is necessary in view of the fact that such
optional settlements would begin after the life insurance ends and would on the
average extend over a considerable period thereafter.
The second group composed of a few companies would like to retain the present
3-percent guarantee on the grounds of service to clients and agency force.
A third group of several large companies leans toward the use of a 3-percent
guarantee for funds left under elections made by the insured during his lifetime,
effective at his death, where the beneficiary has no right of withdrawal, and no
guarantee whatever under other funds left at interest. This suggestion has
certain merit, but the use of no guaranteed rate of interest would mean a violent
change from present practice, under Federal Income Tax laws there would be no
exemption to the company of guaranteed interest, and there might be a question
whether such a provision would be approved by all the states.
Each of these three points of view has certain advantages and disadvantages.
It has seemed so important that we should endeavor to adopt a uniform guarantee
for this optional method of settlement that the following suggestion is made,
using the best ideas from each of the above proposals:
There are two main objectives which we would like to bear in mind in framing
such a provision. The first is to do the best we can for our policyholders who
are making programs for their beneficiaries and thus also aid our agents, and
the second is to introduce a greater margin of safety than obtains at present.
These two objectives seem to be met to a reasonable extent by the following
suggestion.
On such funds left with the company at interest under elections made by the
msured during his lifetime, effective at his death, where the beneficiary is not
given the right to. withdraw more than 10 percent of the proceeds in ahy one
contract year or to choose another optional method of settlement except the
4874 CONCENTRATION OF ECONOMIC POWER
life income option, make a guaranty of 3 percent interest; on all other such funds
left under this option make a guarantee of 2 percent.
The advantages of this type of provision' are very great. The. elections by
the insured during his lifetime are the ones around which most programming,
competition and agency service center. The guarantee of 3 per cent on these
cases where the beneficiary is given little or no right of withdrawal might be
justified because, in effect, the life insurance funds are simply carried over for the
beneficiary without the disturbing influence of anti-selection introduced by the
right of the beneficiary to withdraw or leave all or a large part of the funds
according to the conditions at the time.
Ill the last three or four years we have seen the tremendous financial anti-
selection which can be exerted by the beneficiary under optional methods of
settlement. Thus the use of 2 percent on all other cases where the funds are
left at interest, ir ^.Iso reasonable, giving a very inuch needed protection to the
company. The rate would apply to all cases where the funds were left by the
beneficiary at the death of the insured, or by the insured at the maturity of
endowment or surrender, or where the beneficiary was given the right to with-
draw more than 10 percent of the proceeds in any one contract year under an
election made by the insured effective at his death or given the right to choose
another form of settlement except the life income option.
The same basis of fixing the guaranteed rate used in connection with optional
settlements involving proceeds left at interest, should also be used in such settle-
ments providing for an income for a fixed amount to continue until the proceeds
with interest are exhausted.
If a provision for instalments certain for a fixed period is to be included in the
poUcy, it could be provided that it would only apply if the beneficiary is given no
right of withdrawal, so that the table could be based on 3 percent. If the right
of withdrawal is desired, the election would have to be made under the option
providing for a level income to be continued until the proceeds with interest
are exhausted. This practice would eliminate the need of two different tables
of instalments certain for a fixed period based on 3 percent and 2 percent,
respectively. As an alternat've, the option of instalments certain for a fixed
period could be omitted from the policy and covered by an cxtracontractual
rider in view of the fact that it has largely been displaced in general practice by
the settlement calling for a fixed income until the proceeds and interest are
exhausted.
As. widely agreed upon at the recent intercompany conference the life income
option could be based on 3 percent interest and the new annuity table set back
one year. In view of the fact that the deferred annuity feature is present, thus
destroying the attractiveness of the option from a banking viewpoint and mini-
mizing financial antiselection, it might be thought unnecessary to insist that the
beneficiary shall not have the right to commute the instalments certain, even
though 3 percent interest is employed.
The main advantage of the suggested provisions is that a consistent basis for
the various optional settlements can be employed, the 3 percent guaranty made
in the area where most desirable and least dangerous, and 2 percent guaranteed
where a much needed margin of safety should be introduced.
It is likely that, in normal times, participation would be sufficient to put both
the 2 percent and 3 percent funds on the same gross interest basis if desired.
However, when earned interest rates are low, the differential could be taken
into account if necessary to protect the company. This is according to the best
mutual insurance traditions under which margins of safety are introduced to be
returned as dividends if not needed, but otherwise to be used to meet the con-
tingency involved.
The proposal in this letter has been discussed with a number of actuaries and
they are very hopeful that a substantial number of companies of our type can
agree on some such provision as a uniform basis in our forthcoming new policies.
Perhaps there are some details which may need polishing, but that would be
relatively easy if the main idea meets with favor.
This letter is being written to each of the following companies to see whether
we cannot reach a common ground in this very important area of our policy
contracts: Aetna, Connecticut General, Connecticiit Mutual, Equitable of New
York, Fidelity, Home, John Hancock, Massachusetts Mutual, Metropolitan,
Mutual Benefit, Mutual Life, National of Vermont, New England, New York
Life, Northwestern Mutual, Penn Mutual, Phoenix, Prudential, State, Union
Central.
CONCENTRATION OF ECONOMIC PO\Ni:U 4875
Would your company be willing to adopt such a provision U" :i siil>s1;intial
majority of these companies did so? It would be greatly appreciated if you
could give consideration to this suggestion and let me know, say, by June 1 whether
it appeals to your company as a basis for use in its new policies. An abstract of
the replies would be sent to you.
With best regards,
Sincerely yours,
E. W. Marshall,
Vice President and Actuary.
EWM.AV
Exhibit No. 795
[From flies of E. W. Marshall, Vice President & Actuary]
Provident Mutual Life Insurance Company of Philadelphia
Provident Mutual Life Insurance Company ok Philadelphia
Forty Sixth and Market Streets
Edward W. Marshall, Vice President and Actuary
June 7, 1938.
optional settlements
In view of the Little Entente meeting on Friday I am sending to the companies
this preliminary report of the reactions to the suggestions contained in my letter
of May 25.
The outstanding feature is a widespread desire of companies to agree on some
standard basis so that unsound competition on differences in guai-antee can be
avoided. Although the ideas of the different companies still ditl't'i-, many of
them obviously are near agreement.
The suggestion in my letter met with the approval as a compromise from five
companies assuming other companies agreed: Aetna, Connectidut General,
Equitable of New York, Home, Union CentraL The following companies were
definitely opposed to it because they do not like to use two rates of interest for the
same type of settlement depending on whether or not there is a right of with-
drawal: New England, Northwestern Mutual, Prudential. The Mutual Benefit
also was not favorable to the suggestion.
Most of the companies favor a uniform rate of less than 3%. Those preferring
2% as a uniform rate were: Aetna, Northwestern Mutual, Penn, Provident, State
Mutual. Those preferring 2}^% were: Connecticut Mutual, New England,
Phoeni.x, Prudential, Union Central.
In other words about ten of the sixteen companies heard from favored a uniform
rate of 2% or 2>^%.
Two companies, Connecticut General and Equitable of New York still favor the
use of 3% under elections by the insured effective at his death without right of
withdrawal, and no guarantee whatever otherwise.
Two companies, John Hancock and Massachusetts Mutual, postponed decision
until after the Little Entente meeting. The answer to my letter from the Fidelity
Mutual and National of Vermont has been delayed by absences. The Metropoli-
tan, Mutual Life, and New York Life have not yet been heard from.
The results of thid questionnaire suggest that the Little Entente companies
might very generally agree on a fixed rate of 2% or 2>^%. The Provident very
much prefers 2% because it is a safer rate to use in view of the possible uncer-
tainties of the future. Now that we are changing, it seems that we might as well
go the whole way and adopt a rate which would give us reasonably adequate
protection against greatly reduced rates of interest or financial anti-selection in the
future. Participation can always make up the difference when earned interest
rates are greater.
Assuming that a uniform rate is used regardless of right of withdrawal, the
following treatment of the various optional methods of settlement might follow:
Interest Option. — Use 2% for all proceeds left with the Company at interest, or
if the great majority of companies prefer, 2%%.
Fixed Income until Proceeds and Interest are Exhausted. — Use same rate of interest
as for Interest Option.
Instalments Certain for a Fixed Period. — Word provision so that there is no
right of commutation or withdrawal after the option becomes operative except
4876 CONCENTRATION OF ECONOMIC POWER
at the death of the payee. If further right of commutation or withdrawal is
desired employ the preceding option. ' With these conditions base the table in
the policy on 3%. The Northwestern Mutual suggests the elimination of this
option from the policy forms because it has largely been superseded l)y the
preceding option.
Life Income Option. — Base the instalment certain on 3% with the same limita-
tion of the right of withdrawal or commutation mentioned in the preceding
paragraph.
The use of 3% in the last two options prevents an inconsistency at the older
ages where the life income option is practically equivalent to the instalments
certain option. In practice the exclusion of the right of withdrawal or commuta-
tion would not work a hardship as it is hardly ever desired under these options.
The New England Mutual suggests the use of the same interest rate (2}^%) on
all four of the options including the instalment certain period under the life income
option.
In view of the widespread desire for a uniform basis between companies, is
there any possibility that the Little Entente companies could get together on some
such program as that outlined above?
Sincerely yours,
(Signed) E. W. Marshall,
Vice President and Actuary.
EWM:AV.
Exhibit No. 7'jij
[From flies of The Equitable T,if(; Assiirnncc Society]
[Folder 348]
[Stamped: R. D. Murphy, Vice President and Actuary. June 24, 1928.]
[Stamped: Dept. R. D. M. Apr. 17, 1939. (Initialed: A. McN.)]
Provident Mutual Life Insurance Company of Philadelphia
Forty-Sixth and Market Streets
Edward W. Marshall, Vice President and Actuary
June 23, 1938.
Mr. R. D. Murphy,
Vice President and Actuary, Equitable Life Assurance Society,
393 Seventh Avenue, New York City.
Dear Ray: I am sorry the confidential letter regarding optional settlements
was omitted from my letter of June 21. Here it is.
With best regards.
Sincerely yours,
E. W. Marshall,
Vice President and Actuary.
EWM:AV
Enclosure.
[Letterhead of Provident Mutual Life Insurance Company of Philadelphia]
OPTIONAL SETTLEMENTS
As promised, here is a confidential summary of the votes taken at the Little
Entente meeting (or information later received) regarding the guaranteed basis
of optional settlements. The votes of the Home and John Hancock were practi-
cally certain but subject to final confirmation.
Guaranteed Rate for Proceeds at Interest Option. —
2%— New York Life.
2}^% — Aetna, Connecticut General, Connecticut Mutual, Home, John Hancock,
Massachusetts, New England, Penn, Phoenix, Provident, State (Also Prudential
and Northwestern Mutual). The National of Vermont has not yet decided, and
the Mutual Benefit may adhere to a 3% rate.
Basis of Life Income Option. — Instalments certain based on 3%, and the life
annuity element on the new aiinuity table at 3% set back one year, the same
basis to apply also to endowment income and retirement annuity maturity settle-
ments: Aetna, Connecticut General (on participating business), Home, John
Hancock, Massachusetts, National of Vermont, New England (prefers 2^% for
instalments certain portion), Penn, Phoenix (for optional settlements). Provident,
State. fAlso New Vnrk Life and Northwestern Mutual.) The Connecticut
CONCENTKATION OF ECONOMIC POWER 4877
Mutual has not decided. The Mutual Benefit may use a basis approximately
the same at the older ages but more liberal at the younger ages. The Connecticut
General may employ a slightly more liberal basis on its non-participating business
only. The Phoenix may not make the one-year set-back in age for maturity
settlements in income policies with a fixed maturity date. A number of com-
panies will use the theoretically accurate correction varying by age to obtain the
monthly annuity value from the yearly value, instead of the approximate and
slightly redundant one not varying by age previously used. To illustrate, for a
settlement to a male aged 65, this true value would be $1,522.84 for a life annuity
of $10 monthly with 120 months certain.
If there are any inaccuracies regarding this statement of the vote of your
company please let me know at once.
A very gratifying degree of unanimity was reached regarding the two options
mentioned above, which are by far the most important ones in practice. The
vote on the two types of instalment option which furnish a temporary income of
a fixed amount or for a fixed period were less clear cut.
The companies rather inclined toward using 2^2% for the fixed income until
proceeds and interest are exhausted option because it could have certain semi-
banking characteristics and usually involves the right to withdraw. They also
leaned toward using 3% for the instalments certain for a fixed period in order to
avoid a conflict at the older ages with the life income option with its instalments
certain based on 3%.
On the other hand some companies dislike to use 2%% for one instalment option
and 3% for the other one, feeling that both are essentially equivalent. Some of
the companies felt that they should use 2%% for both types of instalment option
and endeavor to circumvent the slight inconsistency with the life income opiion
which would occur at the older ages by modifying the life income table at those
ages.
Most of the companies which had in mind using 3% for the option of instal-
ments certain for a fixed period were considering linking it up'-with a provision for
no right of commutation of unpaid instalments certain after the instalment pay-
ments had begun, except at the death of the payee. They felt that this would
eliminate any possible use of the option as a banking proposition and would justify
the use of 3%. On the other hand they prefer to use 2}^% on the fixed income
until proceeds and interest are exhausted option in order to permit the right of
withdrawal and consequent elasticity.
There is much to be said for the point of view advanced by some at the Little
Entente meeting that 2}i% should be used for both instalment options. Then
the right of commutation would not have to be withheld and there would be no
inconsistency between the guaranteed basis of instalments for a fixed amount
and those for a fixed period.
If this were done, the inconsistency at the older ages between the figures sliown
in the table in the policy for instalments certain for a fixed period based on 2^2%,
and the life income option with its instalments certain based on 3%, could be
eliminated by making the figures for the life income level instead of increasing
after age 85 for 10 years certain and age 65 for 20 years certain.
This may be the best solution of the problem regarding the basis of the two
instalment options. Thus it is now proposed that 2}^% be used for the options
providing respectively for fixed income until proceeds and interest are exhausted,
and for tlie instalments certain for a fixed period when taken by themselves and
not in conjunction with the life income option. This will supersede the suggestion
for these two types of instalment option mentioned in my letter of June 7. How
does this appeal to you?
Sincerely yours.
EWM:AV Vice President and Actuary.
4878 CONCENTRATION OF ECONOMIC POWER
Exhibit No. 797
[From files of The Equitable Life Assurance Society]
[File 348]
[Stamped: R. D. Murphy, Vice President & Actuary. July 8, 1928. Referred
to (notation: Mr. Blackadar to note & return.)]
[Notation: Noted. B.]
[Stamped: Dept. R. D. M. Apr. 17, 1929. (Initiated: A. McN.)]
Provident Mutual Life Insurance Company of Philadelphia
Forty-Sixth and Market Streets
Edward W. M.^rshall, Mce President and Actuary
July 7, 1938.
Optional Methods of Settlement.
Mr Ray D. Murphy,
Vice President & Actuary,
Equitable Life Assurance Society,
New York City.
Dear Mr. Murphy: The various companies have very kindly cooperated in
making it possible to prepare the enclosed chart giving their confidential plans
regarding the new optional settlement basis. The Home Life and National of
Vermont have not made a final decision but their present inclination is shown.
It will be seen that there is almost complete uniformity in connection with the
interest option and the" life-income option. Two companies are planning to base
the instalments certain in the life-income option on 2}^ percent instead of 3 percent
and the Connecticut General to base them on 3}^ percent for its nonparticipating
policies only. With the few exceptions shown on the sheet, the companies will
use the life-income option basis for maturity settlements under endowment-income
policies.
The great majority of the companies indicate that they will employ 2J4 percent
for the fixed income until proceeds and interest are exhausted option. There is
less agreement regarding the instalments certain option, although the majority of
the companies favor 2% percent. A number of the remaining companies lean
toward the use of 3 percent with no right of commutation, but some of them have
indicated that they may decide on 2}^ percent if the majority of the companies
favor it.
Most of the companies plan to put this program into effect January 1, 1939.
The Penn Mutual will make the optional settlements effective as of that date bvit
will defer the remainder of the program until July 1, 1939, when the new rate
book will appear. The Home Life feels that it will be impracticable to get all the
forms approved by January 1, 1939, but will do so as soon as feasible thereafter.
There was some question raised as to whether the Massachusetts Department
would approve optional settlement provisions with different rates of interest used
for different options. The Department has stated tentatively to Mr. Tebbetts
that it would approve settlements based on 2J-4 percent for the interest option and
both instalment options, and 3 percent throughout for the life income option.
If there are any inaccuracies regarding the plans of your company set forth on
the accompanying chart, please let me know so that a correction can be made.
Sincerely yours,
E. W. Marshall,
EWM.AV Vice President and Actuary.
CONCENTRATION OF ECONOMIC POWER
4879
Confidential.
Basis of optional settlements planned for 1939 policy forms
Company [19 companies]
Interest
Option
Life Income Ojition—
.\113':^. New Table
Set Back 1 Year
Maturity Set-
tlement
Endowment
Income Poli-
cies—Same as
Life Income
Option
Fixed In-
come Until
Proceeds
and
Interest
Exhausted
Instal-
ments
Certain
Aetna
Percent
2V-,
1 2l.i
2li
' 3
2M
2V^
2H
I 3
2>^
21^
2Vn
9
2V
2y,
2V2
2.^
23^
2.1/2
Yes
Yes
Yes
Yes....
Yes
Yes
Yes
Yes.... _
Yes...
Yes
Yes
Yes
Yes...
?
Percent
2] 2
'3
3
(3)
2J/2
2H
0)
2K
2^2
2J^
2H
2H
2H
2H
3
2H
2>^
Percent
21^
Conn. Genl
Yes (Par. bus.)...
Not set back
Yes
23
Conn. Mut
Equit. N. Y
3
(3)
Home
Yes
Yes
(2)
23
■2y2
Mass. Mut
Metropolitan
Mutual Life. -.
National Vt
New England-
New York _. ._
Yes
Yes _.-
Yes (2'2) [for certain
period, 3% on deferred
annuity].
Yes
Yes ..._
Yr-s (•21^)
Yes - -.-
2^4
Penn...
Yes...
Yes
Not set back. -
Yes
2yi
Yes
Yes
Yes
234
2}^
Prudential
Yes
Yes
Yes
3
State
Union Central
Yes...
Yes
23^
23
< I/imited withdrawals.
' No commutation.
' No information, or under consideration.
' No provision.
Note. — Penciled notations enclosed in brackets.
4880 CONCENTRATION OF ECONOMIC POWER
Exhibit No. 798
[From flies of The Equitable Life Assurance Society]
[Stamped: R. D. Murphy, Vice President & Actuary. July 8, 1928. Referred
to (notation: Mr. Blackadar.)]
[Stamped: Dept. R. D. M. Apr. 21, 1939. (Initiated: A. McN.)]
Provident Mutual Life Insurance Company of Philadelphi.i
Forty-Sixth and Market Streets
Edwakd W. Marshall, Vice President and Actuary
July 28, 1938.
Optional Methods of Settlement.
Mr. R. D. Murphy,
Vice President and Actuary, Equitable Life Asurance Society,
393 Seventh Avenue, New York City.
Dear Mr. Murphy: Since we sent ycu the letter of July 7 and the accom-
panying summary of the attitude of companies regarding optional methods of
settlement, a few changes can be noted. For the Connecticut General, change
the answer under Life Income Option to "Yes" and under Maturity Settlement
of Endowment Income Policies to "Yes (Par. Bus.)." Also note that the Con-
necticut General policy forms will contain no provision for any withdrawals or
commutation under optional methods of settlement.
The National of Vermont will probably use 2}i percent for both instalment
options.
The Massachusetts Mutual has practically decided upon 2}4 percent for instal-
ments certain but is waiting to hear of any further action before making a final
decision.
The Equitable of New York will use 1)4 percent instead of no guarantee for the
interest option where funds are withdrawable. Its life-income option will be
without right of commutation, and the two instalment options will be based on
3 percent with withdrawal or commutation only as may be approved by the
Society at the time of the election of the option.
The Northwestern Mutual, Connecticut Mutual, and Phoenix are still con-
sidering whether to use the standard basis on maturity settlements of endowment
income policies.
In general, the changes that have occurred have been slightly in the direction
of still greater uniformity than indicated in the summary previously sent you.
Sincerely yours,
(Signed) E. W. Marshall,
Vice President and Actuary.
EWM:AV
CONCENTRATION OF ECONOMIC POWER
4881
o
s ^
Qi
go;
02
xyMyMyMXi^MyMyMxx>^,yMX
xxyM*<
«(^x
XX
xxxxxxxxxxxxx
xxxxxxxxxxxxx
XX
xxxxx
xxxx
XXX
xxxxx
xxxxxx
xxxxxxxxxxxxxxx
xmxxx
y^mxxxx
xxxxx
xxxxx
xxxxxxx
xxxxxxx
£ o
30
93 03 S-^r
5 £ ^iJ
3 a,
MMX
xxxxx
xxxxx
0 H „
fl ?? 2 S S n — ,
XMX«
ocs
00 cm"
OC CM
»oc
Ci eo 00
t— CM OS CO
000
- * OS CO
XX
>3^
V-. CO a 3 r^
a OS'-"-' c
i3>-'iJ'S'5-£g
60
- » 00 c^
'SS
00 CO 01 10
t^ to •"-«
e
a
0
0
-
u
U
xz^
s
S.S ca
P.9
r/5
m ..
iS-'W.S'o-S
o 5 s; 03 .-g «
mQ P &a ft
^ 03 03^^ O O
"•oco^ S o S
t -kj T3 » 03 "" 03
KXM
XXK
^Par?
'93
'2 tJ*~*
aiS — *^ 3:=
3Wq|Sggo§
3 &.2 g g g 8|
i aj a ti o OJ3 «
I. g ID
^|s££So
2 "3 c3 "^ S •** "^
2 c 3 S o fc a
^ „ So ct"
a g o (B o a>
i-i^ o 0.0 &
— ^ a> „ «
2i2£«SP5
<u a ID a
" 03 u 03
O 03
S! "S
■< a
t^§o
t. CA CA
4882 CONCENTRATION OF ECONOMIC POWER
Exhibit No. 800
[From files of Aetna Life Insurance Co.]
Meeting Held December 1, 1937, at Office of New York Life
Representatives of the companies who have been considering settlement options
were asked to attend this meeting for the purpose of considering the adoption of a
new mortality basis for settlement options. The meeting was attended by
representatives of the same companies which had attended previous meetings
except the Canada Life, Equitable of Iowa, Imperial, Mutual Benefit, New Eng-
land, and Northwestern.
There was a general agreement that a more conservative mortality basis should be
adopted for settlement options and all of the representatives present, except those
represexiting the Connecticut Mutual and the Guardian, were prepared to recom-
mend the adoption of a new basis which would be as conservative as that proposed.
These companies were prepared to go ahead with the necessary policy changes
provided companies generally would adopt the same basis.
The Connecticut Mutual are now using a 3}4% interest basis on the American
Annuitants Table without rating of age and were prepared to change to a 3%
interest basis but were not prepared to adopt as conservative a mortality basis
as the new table, particularly in connection with retirement income policies.
The Guardian are changing their life income policies on January 1st to the
American Annuitants Select Table with 3% mterest but they are not prepared to
adopt a more conservative mortality basis. It is their belief that they can prevent
antiselection by their adoption of the new procedure regarding settlement options
and would not recommend any further change at this time.
The Metropolitan expressed the opinion that the new table would introduce
complications with Group Annuity rates and recommended the adoption of the
Combined Annuity Table with a rating of two years for males and seven years for
females. It was stated that this table would bring out approximately the same
values for the settlement options. It was pointed out, however, that while this
might be true for the annuities following a 10 or 20 year deferred period, it would
not be true if the new table were to be applied to immediate annuities.
Representatives of the following companies stated that they would probably
make settlement options participating after the certain period if the new table
were adopted:
Massachusetts Mutual. Phoenix.
I^quitable. Metropolitan.
Provident. Mutual.
Home. John Hancock.
Penn Mutual. New York.
Fidelity.
The New England sent word by the John Hancock representative that they
want to change their mortality basis for settlement options in the very near future
and if a new table is agreed upon they would adopt that but they regard it as
essential that they make some change very shortly.
Mr. Flynn stated that since any settlements used would be wholly Nonpartici-
pating he felt there should be a differential in the guaranteed rate of interest for a
Nonparticipating contract of J^ of 1% if no provision were made for excess
interest.
Some discussion occurred in regard to the adoption of a proposed new table for
immediate annuity rates and it was decided to appoint a new committee to con-
sider the whole question. They would first make an investigation of the appro-
priateness of the suggested new table as compared with modifications of existing
tables, particularly with reference to inconsistencies with Group Annuity rates.
They would then investigate the appropriateness of this table for immediate
annuity contracts without any guaranteed period. Dr. Hunter appointed the
following members on this committee:
Bassford, Chairman. Kineke.
Blackadar. Strong.
Flynn. Douglas.
Grout.
Some discussion of Retirement Annuity contracts took place and a number of
persons stated they would like to discontinue this contract provided some substi-
tute annuity plan that would be salable could be developed to take its place,
ilie committee was, therefore, asked to investigate the present practice of com-
panies regarding these annuities and their attitude toward possible changes.
CONCENTRATION OF ECONOMIC POWER 4883
Points to be considered were commission rates, restriction of number of renewal
commissions to Agent, entire discontinuance of the plan, provision that cash
values must be paid over a period of years, and possible substitute forms of
contracts.
Exhibit No. 801
[Notation: Mr. Howell's office.]
[Stamped: The Prudential Insurance Company of America.]
Re Guaranteed Surrender Values
During the present depression the phrase "Cash Position" has come into use,
due to the fact that many companies have found that the demands for surrender
values and policy loans have exceeded the excess of income over outgo in other
directions.
Among the smaller companies in particular, suggestions have been numerous
as to ways and means of meeting the difficulty. Typical of these suggestions is
one that would permit the life-insurance company to pay one-half of the surrender
value in cash and the other half in paid-up insurance. All these suggestions
would require legislative action in most of the states, which action is quite un-
likely to be forthcoming, due to the feeling that it is part of the duty of the life-
insurance companies to be prepared with the surrender and loan values in an
emergency'.
In the case of our own company the position has not up to the present become
so acute, although the possibilities have resulted in our sacrificing interest earnings
to some extent in order to invest in Government securities. The possibility of
an even worse situation arising in some future depression must be admitted,
especially as bills have been introduced in several states which, if enacted, would
compel us to grant cash-surrender values on Industrial policies before the end of
ten years. It is, indeed, not improbable that in the State of Massachusetts the
five-year period, which now applies to domestic companies, may be made com-
pulsory for all Industrial policies issued in that state.
Several of the companies whose surrender values have been on an unusually
liberal basis, in some instances being 100% of the reserve after three years from
issue, have already reduced their surrender values, and others undoubtedly will
follow suit. In our own case, under our Ordinary contracts the full reserve is
not paid as surrender value until after ten years from issue, so that we are to a
slight extent in a better situation than the companies which have gone furthest in
the matter of liberal surrender values. In view, however, of the experience during
the depression, it has been thought worth while to consider what might be done
to relieve the situation in future within the limits of the present statutory require-
ments.
While the State laws are by no means uniform as to the matter of minimum
surrender values at the present time, any surrender value which represents the
full reserve reduced by not more than $25 per thousand of insurance is permissible,
except in the early years where the Missouri requirement of a value not less than
75% of the reserve on the Combined 4% Table would have to be observed.
Under normal circumstances the Prudential's present scale of surrender values
is conservative. It is on the whole lower than the Metropolitan's scale, which
provides for full reserves after five years instead of after ten years from issue.
The right to pay a lower surrender value in times of stress, however, would appear
to be justified, as the payment of these surrender values in cash at such period may
place a special burden on the company. It would appear reasonable where secu-
rities had to be soM at a loss in order to pay an abnormal demand for surrender
values to charge the amount of loss to the surrendering policyholders. There is,
therefore, a reasonable ground for a reduced surrender value in times of stress.
To be in a position to reduce surrender values in times of stress it is, of course,
necessary that the maximum guaranteed surrender value should be the minimum
which the company undertakes to pay under all circumstances. If this mini-
mum were to be fixed at the reserve less $25 per thousand, modified a? indicated
above, with the proviso that for any period, such as a calendar year, the Board
of Directors might provide for the payment of larger surrender values, under
normal conditions current surrender values could be paid, but in the case of an
emergency the minimum guaranteed surrender values, according to the contract,
would be all that the policyholder could demand.
124491— 40— pt. 10 4S
4884 CONCENTRATION OF ECONOMIC POWER
Calculations have been made which indicate that in the case of our Ordinary
department, the cash surrenders of 1932, totaling about $68,000,000, would have
been reduced had the proposed plan been in operation on all contracts by about
$3,000,000, while policies lapsing for extended insurance would have been credited
with values lower by about $2,000,000, making the total saving about $5,000,000,
which in itself would have been a substantial contribution towards our asset losses.
In the case of the Industrial department, where surrender values at present are
relatively somewhat lower, the saving for 1932 would have been about $4,000,000.
With little hope of legislation permitting increased protection from a cash
drain, there does seem to be good reason for the companies providing themselves
with the maximum protection that the present state of the laws permits. It
probably would not be feasible for any one company to start alone along the path
indicated, but if the Prudential jointly with the four large New York companies
adopted the plan, it would unquestionably be followed by many other companies,
who at the present time are very anxious to provide, as far as possible, against a
recurrence of the extremely difficult situation which they have suffered from for
the last year or two. It is suggested, therefore, that if the plan is felt to be desir-
able the matter should be discussed with the four other companies indicated to
see what possibilities of joint action may exist.
In the case of the Prudential, a special situation arises in connection with our
Intermediate policies. These, in common with our Ordinary policies, provide
for surrender values after two years on the 20- Year Endowment plan and after
three years on the others. If our experience during 1932 under our Industrial
policies, on which surrender values are demandable after ten years, is an accurate
guide as to what would result under similar circumstances in the future in our
Intermediate department, the immensely large proportion of reserves subject to
demand for cash surrender value might produce results which would be disastrous.
It is suggested, therefore, that careful consideration be given to the question as
to whether, in view of what has happened. Intermediate policies should not here-
after be written in the Industrial department with cash surrender values com-
mencing only after the end of five years.
Second Vice President and Associate Actuary,
February 15, 1933.
Exhibit No. 802
[Notation: Mr. Howell's office.]
[Stamped: The Prudential Insurance Company of America.]
[Initialed: J. K. G.]
Memorandum for Col. D'Olier.
During last year or the present year six participating companies and three non-
participating companies have reduced surrender values. The participating
companies are Northwestern Mutual, Massachusetts Mutual, Provident Mutual,
National of Vermont, Connecticut Mutual, and State Mutual. All of these
companies have adopted a deduction from the reserve of $16 per thousand for
duration of two years, $14 per thousand for duration of three years, and so on,
so that after ten years no deduction is made at all.
The three large nonparticipating companies, the Travelers, Aetna, and the
Connecticut General, have adopted uniform surrender values which represent
for all of them a substantial deduction from the previous values allowed. These
companies ^eafc^ the full reserve after fifteen years' duration, prior to which a
deduction of one-third of the reserve, but never less than $12.50 per thousand or
more than $24.50 per thousand is used. This is modified to a deduction of about
$18 in the twelfth year, $12 in the thirteenth year, and $6.00 in the fourteenth
year.
As the attache J copy of a memorandum handed to Mr. Gore indicates, we are
suggesting decidedly more drastic deductions than those made by the companies
named above. Mr. Gore intends to take the matter up with the representatives
of the other four large companies in the New York metropolitan area, it being
felt that the new schedule of surrender values would be undesirable unless adopted
by at least three or four of the five large companies. If substantially reduced
values are adopted by the very large companies it is almost certain that many -
of the smaller companies will be glad to follow suit. Indicative of this attitude is
a statement from the actuary of the National of Vermont one of the eoxnpanies
which has made a reduction recently, to the effect that he regards the reduction
merely as a step in the right direction, but as long a step as comp ' ' 'vo f'>!iditionp
CONCENTRATION OF ECONOMIC POWER 48g5
justify the company in taking at this time. The importance of the matter to
the companies is, of course, the justification for an eflFort to secure the desired
cooperation.
You will also observe from the memorandum in question that a very potent
reason has now developed for changing our Intermediate contracts from Ordinary
to Industrial issues.
Second Vice President and Associate Actuary.
April 18. 1933.
Exhibit No. 803
[From files of The Prudential Insurance Co. of America]
Re Guaranteed Surrender Values
Supplement to memorandum of February 15, 1933
In the earlier memorandum the desirability of adopting the minimum legal
surrender values was discussed. It was there suggested that these minimum
surrender values could and should be paid in a time of emergency, with a conse-
quent saving to the life-insurance company, which saving in our own case would
have represented in 1932 cash of $3,000,000, with an additional $2,000,000, less
reserve required for the extended insurances granted, so that the total actual
saving from the point of view of surplus would have been $5,000,000 in our
Ordinary department. In our Industrial department the total saving, cash and
extended insurance, would have been about $4,000,000.
It was suggested that in normal times companies would probably want to pay
surrender values not very different from the present scales, and this could be
done by resolution of the Board from time to time. It is felt, however, that sur-
render values temporarily increased by the Board would not prove the most
satisfactory adjustment, and it is now suggested as an alternative that the sijr-
render values at all times consist of the reduced values established by the policy
contracts, which would make no reference to any other possible allowance. In
practice, however, the Board could at the end of each year set up a scale of final
settlement dividends which would be paid upon the termination of a policy by
surrender during the next ensuing year. The final settlement dividend would apply
whether the surrender was for cash or for paid-up or extended insurance. As
loans on the policies would be made only to the extent of the policy surrender value,
a policy lapsing with the full loan granted thereon would, so long as final settlement
dividends were available, always have some period of extended insurance, so that
an immediate forfeiture of a policy old enough to have a surrender value would
not follow upon the failure to pay a premium. This would frequently prove of
real service to the policy holders where, after having borrowed the rnaximum
loan, the failure to pay the premium through inadvertence may sometimes rob
the family of the insurance protection.
The strengthening of the cash position to the maximum that present legislation
would permit seems to be entirelj' ^desirable, but the substantial reductions in
surrender values which would result would probably not be a practicable measure
unless a number of the larger companies adopted the plan, in which case we could
be very certain that many of the smaller companies would be only too glad to
follow suit.
The smaller cash surrender values recited in the policies would proba,bly tend
to hamper somewhat the operations of the twisters, who make a livelihood by
inducing the insured to transfer from one company to another, and very generally
at a loss to the policyholder approximately equivalent to the commission secured
bv the twister.
At tne present time the Prudential allows cash surrender values on Ordinar
Endowments after two years and Life policies after three years. Many companies
use the two-y^ar period for both Life and Endowment contracts. It is proposed
in the case of the two-year surrender values which are not required by law to give
the value in paid-up or extended insurance only, allowing no cash prior to the
payment of premiums for three full years. This in our own case would not increase
the surplus earnings, but would improve the cash position in a year such as 1932
by about $500,000. It is also proposed that where the policy recites, as in our
owTi case, that paid-up or extended insurance may be surrendered for cash at any
time, this be changed to read "at any time after one year from the issue thereof,"
This would enable the Company to defer demands for cash on account of these
contracts in an emergency, although it would normally allow the cash surrender
value at any time as a matter of practice. The object of all the above suggestions
4886 CONCENTRATION OF ECONOMIC POWER
is to improve the cash position and the surplus margin in an emergency such as
exists at present. While the additional margin secured would be far from sufficient
to assure control of the difficulties under all circumstances, the extra margin secured
would prove very desirable and helpful when need therefor arose.
INTERMEDIATE ISSUES
In the earlier memorandum it was also suggested that Intermediate policies
should not be entitled to cash surrender values until at least five full years' pre-
miums had been paid thereon. An examination of the reserves subject to demand
for cash surrender value or loan during last year indicates that the rate of demand
was substantially higher in the case of Intermediate policies than in the case of
regular Ordinary contracts. As might be apprehended, the Intermediate rate of
demand follows rather the Industrial than the Ordinary rate, although as yet
Intermediate policies are not being frequently surrendered for the purpose of taking
out new insurance as in the case of many Industrial contracts. In due course,
however, this condition will undoubtedly arise, and in the event of another
serious depression twenty or thirty years hence, if there is a very large volume of
Intermediate reserves, the great bulk of which is demandable as loan or cash
surrender values, the protection secured in the Industrial department by the delay
of cash surrender values for ten years may be found to be very sorely needed. It
is, therefore, suggested that, unless some very important reasons can be found
for not making the change, Intermediate policies should hereafter be issued as
Industrial contracts, this being necessary in order to avoid the requirement for
payment of cash surrender values after three years. The change would incident-
ally enable us to use a uniform paid-up addition arrangement for dividends,
thereby reducing considerably the Home Office work in connection with such
policies.
Second Vice President and Associate Actuary.
April 17, 1933.
Exhibit No. 804
[Notation: Mr. Howell's office.]
[Stamped: The Prudential Insurance Company of America.]
Discussion at Meeting in New York Life Office Concerning Annuity
Premiums and Surrender Charges
It was agreed that, on account of convenience, instead of using separate male
and female American Annuitants' Select tables for the calculation of annuity
premiums, only the male table should be used. In determining premiums, the
age used was at one year less than the actual in the case of males and five years
less in the case of females. This change from the previous arrangement would
increase the cost of annuities to females and, in order to produce the same results
in the aggregate as the previous proposal, it was agreed to change the loading
from 5% to 4}i% of the gross premiums.
The annuity to a man aged X would, therefore, be based on the single premium
at age X-1, at S%% interest on the American Annuitants' Select table, with a
loading of 4}^% of the gross premium. For women we would substitute X-5
for X-1.
Commissions on annuities were to be generally limited to not more than 3%
for the soliciting agent, and not more than J4 of 1% overriding for the general
agent, who would not be permitted to allow any part of the overriding to the
soliciting agent. The Penn Mutual, having recently changed from an overriding
of 2% with 3% to the soliciting agent to an overriding of 1%, did not feel that
it would be practicable immediately to further reduce this overriding. Other
companies paying higher than the scale indicated have intimated that they are
willing to reduce commissions so as not to exceed the suggested maximum.
The companies which felt that the new basis could certainly be adopted as
soon as practicable were the New York Life, the Mutual Life, the Equitable, the
Aetna, Travelers, Massachusetts Mutual, Connecticut General, and the Pruden-
tial. Companies which felt that very probably the entire plan would be adopted
were the Fidelity Mutual, the Home, the Penn Mutual, the Guardian, the Berk-
shire, and the Sun Life, while the actuary of the National of Vermont strongly
approved the program but was not quite sure that complete agreement thereto
could be secured. The Provident Mutual, the Phoenix Mutual, and Connecticut
CONCENTRATION OF ECONOMIC POWER 4887
Mutual all agreed that increases would be made, but not to quite the scales
described above.
Considerable discussion on surrender values developed the fact that while some,
five companies were prepared if enough other companies joined them to -adopt
the present maximum legal .surrender charge, a number of the other companies
felt that, while surrender charges should be increased, something approximating
the new surrender charges of the non-participating companies would be desirable.
As many as 14 companies out of 17 agreed to approve these or larger charges.
In the course of the discussion there seemed to be a growing appreciation of the
fact that the maximum surrender charge did not represent a serious hardship on
the individual policyholder, and it did seem possible that further consideration
might increase the number of companies willing to use the maximum charges.
Several companies were prepared to reduce substantially the cash surrender
values if they did not have to reduce correspondingly the paid-up and extended
insurance. The laws of several states, however, including New York, appear to
require that the cash surrender value shall be not less than the equivalent of the
other nonforfeiture benefits.
Suggestions as to further restrictions which would involve legislative enact-
ment developed in due course that the companies very generally would be glad
to have the period for which the company should have the right to delay pay-
ment extended from three months to one year. There was some doubt as to
whether the Insurance Department would favor so considerable an extension, but
the point was made that at the present time their experience would probably
tend to make them more willing to regard favorably the longer waiting period.
It was also suggested that the companies should have the right to pay surrender
values or loans in instalments over a period of one year. It was pointed out that
if the Company had the right to defer the whole payment to the end of the year,
it could without any further clause in the policy pay in instalments over a year
instead of -n one sum.
It was feit that, as a number of those present had not been aware that surrender
value charges were to be discussed, after talking the matter over with their respec-
tive companies a further meeting might be helpful in developing a fairly unanim-
ous agreement as to what steps should be taken in the matter. There appeared
to be a general recognition of the fact that if anything was to be done, it should
be done speedily.
Second Vice President and Associate Actuary.
Mat 19, 1933.
Exhibit No. 805
[Notation: Mr. Howell's office.]
[Stamped: The Prudential Insurance Company of America.]
Proposed Progr.-vm Re Premium Rates, Reserve Basis, and Surrender
Charges
At the outset an endeavor is to be made to see whether by agreement with the
Mutual Benefit increase in all reserves, including those carried at 3%, will call for
a special contingency reserve instead of merely increase of reserves carried at
interest rates higher than 3%.
Acquiescence in such change by the Mutual Benefit with the necessary legis-
lation would enable us to go to a 3% American Experience basis with our reserves.
In the not unlikely event of finding the Mutual Benefit unwilling to acquiesce
in the proposed change, it is planned to ask the Insurance Department at Trenton
to father a change in the valuation law which will permit the use of the American
Men Ultimate table for vahiation purposes at a rate of interest not less than 3%
or more than Z%%. With tliis change in the law it is proposed to adopt a 3%%
American Men Ultimate reserve. On this basis the aggregate reserves would not
be very different from those on the American Experience table at 3%. An examin-
ation of the laws of the various states indicates that there would be no objection
to carrying the reserves on the basis indicated, provided our surrender values were
not less than those required by the laws of the various states on the basis of an
American 3'/^% valuation. It. appears probable that when limited payment life
policies become paid up at the very high ages we would have to carry a reserve
equal to the surrender values based on the American Experience 3H% table,
4888 CONCENTRATION OF ECONOMIC POWER
which at the higher 80's and in the 90's would involve a higher reserve than
according to the proposed standard. This requirement would be of no consequence,
the amount of money involved being trifling.
There would be a few cases where, given a surrender value according to the
American Experience 35-^% and using the maximum legal deduction, the surrender
value would be greater than according to the American Men 3%% reserve less
the maximum deduction, but not greater than the full reserve according to the
last-named table. Over almost the whole area it would be practicable, if desired,
to make the full $25 deduction from the actual reserve to be carried.
At the earlier durations the Missouri requirement for a surrender value equal
to 75% of the Combined 4% reserve calls for higher surrender values than might
otherwise be felt desirable, but it is planned to interest the American Life Con-
vention in an endeavor to have the Missouri requirements as to surrender charges
brought into line with those of other states.
In Massachusetts the maximum surrender charges would also interfere very
seriously with the program of substantially increased surrender charges, if the
effort to make the requirement which at present applies to domestic companies
also apply to foreign companies on policies issued in Massachusetts succeeds.
The companies have been successful in preventing the proposed change becoming
a law so far.
If the plan of using the American Men Ultimate table with 3>4% interest proves
feasible, reserves will be increased substantially for whole-life t. ilicies, more
slightly for endowments, and sometimes decreased, especially at tho older ages,
for limited-payment policies. These latter, however, are issued vory largely
through our Industrial field force, to whom the change in surrender valnes would
probably not be of any great importance. The increased reserves on th^ whole
life and endowment plans, would very materially assist the program of inci ^as'ng
the su'""nder charges at the same time that premiums are increased.
Wit the next two or three months it will be necessary practically to decide
, what surrender charges we are to make on the new issues, namely, "those from
January 1, 1935, on. At the present time the situation appears to be that the
Prudential and the New York Life favor the maximum legal surrender charge
at all durations. The Mutual Life, whose actuary earlier seemed quite anxious to
use the maximum surrender charge throughout, now must be classified as willing
to use the maximum surrender charge if a fairly general adoption thereof can be
secured, but also reasonably content with surrender charges limited to not more
than 20 years' duration. The Metropolitan is in about the same situation as the
Mutual Life, while the remaining one of the larger companies, the Equitable, is
definitely opposed to the full $25.00 charge even for durations up to 20 years, and
is also opposed to any surrender charge from 20 years on. Notwithstanding the
repeated pointing out of the fact that these surrender charges do not necessarily,
in the case of participating mutual companies, mean any actual charge to a given
policyholder, and in any event can mean no extra charge to the policyholders as
a whole, th ■ minds of the representatives of the companies seem continually to
slip back to the idea that an unnecessary deduction is being made from the reserve
when the company has funds in hand to pay it. From some remarks made recently
by Mr. Graham, of the Equitable, it seems not improbable that there is a division
of opinion in that company as to the proper extent of surrender charges. It may
possibly happen that more conservative surrender values may yet be adopted
by that company.
The three large nonparticipating companies, domiciled in Hartford, have come
to an agreement among themselves to use the maximum surrender charge per-
mitted by law throughout the history of the respective policies. This decision
may prove of extremely great importance in the future to these companies, as a
.sharp reduction in the rate of interest might so impair their profits that something
of a p«n for surrender values might develop. If in each case the surrendering
policyholder was taking his full quota, or even more than his full quota of the
company's funds, heavy surrenders would be a serious matter. If, however, each
surrendering policyholder is leaving something behind as an offset to his departure,
heavy surrenders may not actually weaken the financial situation of the com-
panies. With their premium rates, which would still be low after the projected
increase of approximately 75^ per thousand, the increased margin in the case of
surrender is extremely desirable, even though it may increase the difficulty in
writing insurance and reduce the annual amount written by these companies.
It is proposed to proceed in the matter of surrender values to bring such pressure
to bear on the larger companies as will be found practicable, and in our own case
it will probably be recommended that if not the full legal surrender charges, larger
CONCENTRATION OF ECONOMIC POWER 4889
surrender charges than the so-called compromise charges proposed by the Equit-
able shall be made.
In passing it may be noted that of 18 companies represented at a previous meet-
ing 17 felt that higher surrender charges were desirable, although some who had
recently increased their surrender charges, though not to the extent which they
now felt to be desirable, indicated that a further change in the immediate future
was not very likely. The one company that did not think surrender charges need
be changed was the one with the most liberal surrender values of all, namely, the
Mutual Benefit.
Whatever is done in the matter of our regular Ordinary surrender values it is
planned to reduce the surrender values to the legal minimum allowed in the case
of Intermediate and Industrial policies, the surrender charges in both cases tt?
continue throughout the duration of the contracts. In the case of Intermediate
policies it will be necessary in due course to consider the desirability of writing
these as Industrial contracts, but should it not be felt practicable to proceed with
this suggestion immediately, it would still seem proper to reduce the surrender
values as from the beginning of 1935.
Increased premium rates are being studied very carefully in conjunction with
the Metropolitan, while the Provident Mutual has already been in the picture.
It is reasonably certain that both companies named. will join us in making in-
creases in premiums, while increases have been definitely determined upon by
the three large nonparticipating companies, their increases being expected to
average about 75(i per thousand. Two other participating companies with premium
rates on the rather low side, namely, the Union Central and the Phoenix Mutual,
will be brought into the discussion in due course, the Union Central having already
intimated that it is prepared to consider very seriously a suggestion to adopt
higher premium rates with a 3% instead of a 3}^% reserve.
Among other changes which will probably be suggested in our policy forms is
one providing that the payment of surrender values and loans may be deferred
for six months instead of 90 days. In at least three states, namely, Massachusetts,
Oregon, and Kentucky, it will be necesssry to have a rider reducing the six months
to 90 days. In Minnesota there is some question as both 60 days and 6 months are
mentioned in the law. In this state we at present use 90 days, and have had our
policies approved, so that presumably the six months could be used. Whether
Massachusetts could be moved to extend its maximum to 6 months is doubtful,
the bills offered in recent years in that state having had a very strong radical
flavor. It is likely that Oregon and Kentucky would be willing to consider a
change if suggested by the American Life Convention. -We should ftte© ooopcrato
provioiono, which have limit ef 90 days fe«* apply only *e domcotio ooropanicQ.
Exhibit No. 806
[From files of Tho Prudential Insurance Co. of America]
New York Life Insurance Company
OFFICE OP VICE PQESIDENT AND CHIEF ACTUARY
51 Madison Avenue, Madison Square, New York, N. Y.
June 22, 1934.
Confidential.
Mr. James F. Little,
Vice President and Actuary, Prudential Insurance Company,
Newark, N. J.
Dear Mr. Little: I am enclosing a memorandum and table dealing with the
proposed changes in the basis of surrender charges contemplated for new policies
to take effect as of some date in the future. It looks as if four of the larger New
York companies will adopt thi.s scale or approximately so and, in order to gather
together and disseminate any information possible, I shall be glad to learn S your
company will follow this scale, and, if not, what scale it will adopt.
Yours truly,
(Signed) Arthur Hunter,
_, , Vice President.
End.
4890
rONCENTRATION OF ECONOMIC POWER
(Notation: Mr. Howell's office.]
[Stamped: The Prudential Insurance Company of America.]
June 14, 1934.
PROPOSEn Table of Cash Surrender Values
SURRENDER CHARGE
The surrender charge to be as follows with the limitations indicated:
Surrender Charge per $l,noo
Policy Year (n)
Basic Charge
Maxi-
mum
Charge
Minimum Charge
1
2M% of reserve+$25
15% of reserve+$25
I'i of reserve
M of reserve . . .
Non<>
>-;5.'.
25
25
25
25
25
25
25
25
25
25
25
$35.
2
None.
3 -
4
$11) but not more than )-3 of reserve.
Do.
5 . .
ii of reserve
^6 of reserve.
6 _
Do.
7
H of reserve . .
Do
8 -
^ of reserve
Do.
9
H of reserve
Mo of reserve...
Do.
10
Do.
u
9% of reserve..- ....
Do.
12
8% of reserve
7% of reserve
6% of reserve ..-
Do.
13
Do.
14 . ---
Do.
15
5% of reserve
Do.
16
4% of reserve:
3% of reserve ^
25 ' $8 but not more than M of reserve.
17
25
25
25
$6 but not more than \i of reserve.
18 - .
2% of reserve
$4 but not more than H of reserve.
19
1% of reserve
$2 but i.ot more than \i of reserve.
20
The basic rule for the surrender charge from the 3rd to the 10th year may be
expressed as -X reserve and for 11th to 1.9th j'ears may be expressed as (20-n) %
X reserve, where n = policy year.
CASH SURRENDER VALUE
The cash surrender value shall then be expressed in integral dollars omitting
odd cents (this will also apply to surrender values for 20th and subsequent years)
except where the maximum surrender charge of $35 for the second year or $25
for third and subsequent years is made, in which case the cash surrender value
shall be expressed to the higher dollar.
Exhibit No. 807
[From files of Mutual Life Insurance Co.]
Surrender and Loan Values
i. re suggested right to postpone cash and loan values for six months
after application
After payment of three full years' premiums our policies provide for cash
values, oUainable on demand at any time thereafter but not later than ninety days
after default in payment of any subsequent premium. Loans within the limits
of the cash vahie.s are also obtainable on demand at any time.
Our contracts arc more liberal in this demand privilege than those of a majority
of the companies— the policj' usually guarantees cash values only at premium
due dates, although the usual ■practice is to allow cash values at any time.
CONCENTRATION OF ECONOMIC POWER
4891
Contracts containing provisions similar to ours are issued by the following
four U. S. companies:
Connecticut Mutual,
Northwestern,
The Phoenix Mutual, and
Union Central.
and the following two Canadian companies:
Canada Life, and
Sun Life,
seven companies in all, including the Mutual.
The following thirteen U. S. companies guarantee cash values only at premium
due dates:
Aetna. New England.
Connecticut General. New York Life.
Equitable of U. S. Penn Mutual.
John Hancock. Provident.
Massachusetts Mutual. Prudential.
Metropolitan. Travelers.
Mutual Benefit.
In addition, fourteen of these twenty companies have clauses in their policies
giving the company the right to postpone paying the cash value or making the
loan — thirteen of them for ninety days, one of them for sixty days. The six
companies whose policies have no such delay period are:
Aetna.
Mutual Benefit.
New York Life.
Phoenix.
Sun of Canada.
Mutual Life.
The Federal Banking Holiday of March 1933 was followed by numerous State
p]mbargoes on cash values and loans. Had it not been for these embargoes
many life companies would have gone under, and once this had happened there
is no saying where it would have stopped.
Depressions and panics happen more or less periodically, and in order to be in a
better position to meet anj' such occurrences in the future, the actuaries of the
at)Ove twenty companies have been in conference from time to time during the
last twelve months.
It was the practically unanimous opinion of the representatives of all of these
twenty conij^anies that future policies should contain a clause giving the companies
the right to delay paying the cash value, or making a loan (except to pay premiums
to the company) for six months. The right would of course not be exercised
except in emcrgenc}' and it could then be exercised without the necessity of State
Embargoes.
The above statement shows that thirteen companies already have a 90-day,
and one other a 60-day delay period. These all favor the extension to six months,
Of the remaining compa'nies, which at present have no right to delay, the Aetna.
Mutual Benefit, and New York Life are strongly in favor of the six months
l^eriod, leaving the Phoenix, Sun, and Mutual Life still to render decisions on this
point.
I feel strongly that wc should adopt the six months' clause. Its adoption would
put us in the same position as nearly ever}^ other company. It might help us at
some time; it certainly wou4d help some companies to weather future storms.
Its adoption by us would not be a talking point against us in competition.
May 4, 1934.
II. RESUGGE.STED INCREASE IN SURRENDER CHARGES AND EXTENSION TO 19TH
POLICY YEAR
Our present cash values equal the full reserve less the following so-called
"standard" surrender charges, per $1,000 insured:
End Year:
3rd $15.00
4th 12.50
5th 10.00
6th 10.00
End Year:
7th _.. $7.50
8th :.. 5.00
9th 2.50
10th & later 0
4892 CONCENTRATION OF ECONOMIC POWER
In a few exceptional cases smaller surrender charges were made because of a
Louisiana Law, now repealed.
These standard surrender charges apply to policies of all plans issued since
January 1, 1907, although, at the same age at issue and duration, the reserve for
a limitdd-payment-life policy exceeds that for a life policy, and that for an endow-
ment policy exceeds that for a limited-payment-life policy.
On policies issued prior to 1907, our surrender charges were definite percentages
of the reserves held; starting at 60% for the third year and running down to 10%
for the 10th year, and reducing 1% each year thereafter to 1% for the 19th year;
thereafter none.
The proposed new scale of surrender charges goes back to the percentage of
reserve basis, but, in view of the greatly reduced expenses nowadays, starts with
a surrender charge of one-third of the reserve for the third year and runs down to
10% for the 10th year; thereafter it is reduced 1% each year, finally reaching 1%
for the 19th year, after which there is no charge. The surrender charge, however,
is limited by the laws of several states to a maximum of $25 per $1,000 insured.
One of the reasons for deducting any surrender charge from the reserve is that
it is some years before the accumulated premiums from the issues of any year less
the accumulated expenses and death claims leave a balance sufficient to set up the
tabular reserves for the outstanding business. Until this balance is struck, the
deficiency in the tabular reserves may be considered as borrowed from surplus.
As the expenses of procuring new business are largely in proportion to the pre-
miums— the reserves also are in proportion to the premiums — surrender charges
should be based on the reserves rather than on the sums insured.
The enormous demand for cash values and loans a few years ago, the break-
down in the country's banking system a year ago, and the fall in security prices,
have shown us what might happen and have prompted the proposed increase in
surrender charges. Incidentally, to picture the impossible, the maximum poten-
tial additional borrowing power of our policyholders is not very different from the
total book value of all bonds and stocks we own.
To return to the possible, however, in the event of a recurrence of the troubles
of the last few years, unless an embargo was placed on taking cash values and
loans, any cash value we might have would soon be exhausted and we would
have to sell securities at a loss — a loss to our persistent palicyliolders, not to
those who left us.
Such a condition may very well arise in tlie future; perhaps not for many
years, but it would be a number of years before the proposed changes — the right
to delay payment for six months and greater surrender charges — would have
much effect. The proposed new scale of surrender charges would have no effect
until three years after adoption, because we pay no cash values until three pre-
miums have been paid. Each year thereafter the aggregate reserves on these
new policies would gradually increase, and, conciirreiitlv the. older contracts
would be going off our books.
In bad times, these higher surrender charges would be an offset to any losses
on necessary sales of securities to meet loans and cash values, whereas in good
times the increased charges would help us out in dividends to policyholders or
contingency reserve or both.
If we did not adopt these higher charges we would have to keep large cash
balances uninvested and we would also have to make substantial investments in
readily convertible securities — such as Government Bonds — yielding small rates
of interest, which of course would mean smaller policy dividends.
The two large New York companies which have the same premium rates as
ours and which at present liave the same scale of cash values as ourselves — the
Equitable and the New York Life — are about to adopt the new scale of surrender
charges. These two companies arc perhaps our most frequent competitors
because of the number of their agents.
The two large industrial companies — tiie Metropolitan and the Prudential —
at present have smaller surrender charges than oiirs and are about to adopt even
higher scales of surrender charges than those proposed.
The three Connecticut nonparticipating companies — Aetna, Travelers, and
Connecticut General — are adopting higher surrender charges than those pro-
posed, and are extending tlie period of such cliarges from 14 to 19 years.
The premium rates of these two industrial companies and these three Hartford
companies are lower than ours, and to that extent they have the advantage over
us in competition.
All companies, except the Equitable and New York Life, charge higher premiums
than we do, but when net cost (premium minus dividend) is a deciding factor in
CONCENTRATION OF ECONOMIC POWER
4893
competition, some of the undernoted seven companies have an advantage over
us ba.sed on the 1934 dividend scale. A comparison of their surrender charges
(ordinary life, age 35) with out own present charges follows:
End of Year-
Mutual -
(a) Mass. Mutual (adopted 1933)
(b) Northwestern (adopted 1932)
(c) Provident (adopted 1932)
(d) Penn (previously "O", Just adopting) -._
(e) Conn. Mutual
(f) New England.
(g) Mutual Benefit
$7.95
14.00
14.00
14.00
10.00
8.00
0
0
$10. 75
12.00
12.00
12.00
10.00
4.00
0
0
$10.00
10.00
10.00
10.00
10.00
0
0
0
$10.00
8.00
8.00
8.00
8.00
0
0
0
$7.50
6.00
6.00
6.00
6.00
0
0
0
$5.00
4.00
4.00
4.00
4.00
0
0
0
$2.50
2.00
2.00
2.00
2.00
0
0
0
In view of the recent adoption of new scales of surrender charges by companies
(a), (b), (c), and (d), these companies are not prepared to change their scales so
soon again. The Connecticut Mutual and the New England will probably adopt
the above $14, $12, etc. scale, but the Mutual Benefit shows no disposition to
make any change.
The two Canadian companies — Canada Life and Sun — will adopt a scale of
charges at least as high as the proposed new scale.
The following comparison of premiums (O. L. page 35) and net costs, based on
1934 dividend scales, shows the extent to which these seven companies have an
advantage in tliesc matters over the Mutual Life:
Prciniuni
Average
net cost
1st 20 Yrs.
Compari-
son with
Mutual
net cost
Mutual Life _
$28. 11
26. 35
26. 88
22. 89
26. 35
26. 35
27.00
26.35
$20.97
20.96
19.54
18.93
19. 5'.)
21.62
17.86
21.02
Mass. Mutual ...
-$0.01
—1 43
Northwestern
Provident
—2 04
Penn ...
— 1 38
Conn. Mutual
+0.05
— 3 11
New England ■.
Mutual Benefit
+0 05
Except in the case of the New England Mutual, Provident, Northwestern, and
Penn the difference in the above net-cost comparison is negligible.
Shortly after the enactment of the New York Insurance Laws of 1906, which
required, inter alia, that all policies issued thereafter guarantee loan values,
a number of other states enacted similar laws, some of them requiring cash values
as well as loan values.
The prO\ ision of the New York Law was that the loan should not be less than
the policy reserve less a maximum surrender charge of $25 per $1,000 insured;
the provisions of the other state laws were iz\ many cases in line with this.
Another provision of these New York Laws, namely, that of limiting the ex-
penses for new business, put the companies in an entirely different position, by
reducing expenses and thereby increasing dividends to policyholders.
As a result of these changes, competition arose amongst the companies in the
matter of cash values, and the companies did not awake to the fact that these
cash values had gone too far until the depression hit us a few years ago.
With some exceptions, the small companies follow the larger companies, and
when any conservative action is taken the larger companies have to lead the way.
A recent example of this is the increasing of the prices for annuities; the larger
companies led the way and the smaller companies followed.
In the cAse of the proposed return to more conservative surrender values, the
actuaries of the seven large companies — Aetna, Equitable, Mutual, New York
Life, Metropolitan, Prudential, and Travelers — first of all held many conferences.
The scale of proposed surrender charges is a compromise between the wishes of
some of these seven, who wanted the rnaximum surrender charge of $25 a thousand
continued during the entire lifetime of the policy, and of the others, who felt that
4894 ("(^NCENTRATTON OF Ef'ONOMK^ POWER
because of the comparatively small proportion of policies kept in force for twenty
years, the surrender charge might be terminated at the end of the 20th year.
The other thirteen companies mentioned above were brought into the later
conferences, but it was felt that, as a number of them had so recentlj^ adopted the
new scale of surrender charges mentioned above, it was improbable that they would
be prepared to make another change immediately.
With the adoption by the larger companies of the proposed scale it is anticipated
that some at least of these other companies will follow suit before very long.
The eighteen U. S. companies represented in these conferences were all eastern
companies but the companies of the west and south have taken up the same
question. These companies are represented by their actuaries in the American
Institute of Actuaries, and at the October meeting of the Institute a report b,t a
Committee on Cash Surrender Values was submitted which recommended mucli
higher surrender charges than those at present effective in these other companies.
It may, therefore, be said that there is a general movement throughout the
United States, and Canada as well, to go back to a more conservative scale of cash
vahies than those now guaranteed in present contracts.
Exhibit No. 808
[From flies of Mutual Life Insurance Co.]
[Stamped: V. P. and Actuarv. Mav 9, 1934. W. A. Hutcheson.]
[Notation: 5/10/34— Left copy with Pres'. W. A. H.]
[Notation: 5/11/34— Sent copy to G. K. S.]
[Notation: 5/15/34 — Saw President, who saw Mr. Sargent yesterday, & he
agrees to our going ahead on both points. He is sorry our 7 principal com-
petitors are not going with us.]
Note. — Penciled notations enclosed in l.raektts.
Proposed Changes Regarding Cash and Loan Values
Practically all companies of importance are adopting:
I. A defertnent period of six months (optional with company) for payment
of cash for surrenders and loans,
and all of the companies larger than the Mutual, and many other companies,
are adopting:
II. A lower scale of cash and loan values.
I consider it of fundamental importance that the Mutual should join the
companies in question in both of these changes.
I. Deferment Period. — The fundamental question here is one of the ultimate
safety of the Company and is largely a financial question.
The situation in the early months of 1933 illustrated the possibilities in times
of stress. Notwithstanding the great excess of income over normal disburse-
ments at that time, had it not been for government interference and help, R. F. C.
loans, the general banking moratorium and the various state moratoria on cash
surrenders and loans, the breaking point would have been reached.
In the next comparable crisis it is quite possible there may not be any such
excess of normal income over normal disbursements, and government help
cannot be relied upon.
If the Mutual Life were the one important company not having an optional
deferment clause, it would at such a time be particularly vulnerable as being the
only such company promising to pay cash on demand. It might easily be brought
into a situation where it would be unable to fulfil its contracts.
II. Amounts of Cash Values. — The present scale is unjust to the continuing
policyholder for the reason that the Company loses money on nearly all policies
surrendered in the early policy years because premiums received are not sufficient
to cover the cost of the risk carried plus the expenses, dividends, and surrender
values paid.
In addition, high cash values also encourage surrenders and twisting because
there is little and sometimes no loss to the policyholder in so doing.
The elimination of loss to the Company and the discouragement of surrenders
would ultimately have an appreciable effect on increasing dividends, thus helping
new business.
rONCP^NTKATTON OF ECONOMKl POWER 4895
Objections [G. K. S.'s 5/3/34]
Objections are raised to both proposals as follows:
I. Deferment Period. — That the six months deferred period, or, in fact, any
deferment period whatever, would cause distrust amongst our present policy-
holders as to the Company's ability to carry out its existing policies.
Note.— Fourteen of the twenty principal companies already have 90
(or 80) day deferment periods in their contracts, and these companies, as
well as some others, including the New York Life, which at present has no
deferment period, are about to adopt the six months clause. [The other 6:
Aetna, about 6 mos.; M. B., Gmos.; M.L. 6mos.; N. Y. L., Gmos.; Phoenix,
6 mos.; Sun, 6 mos.]
Note.— Penciled notations enclosed in brackets.
Of our principal competitors in net cost (premiums minus dividends), all but
the Mutual Benefit have 90 (or 80) day clauses. All seven, as well as the Mutual
Benefit, are about to adopt the six months clause.
\t. Cash Values. — That the lower cash values proposed would injuriously
Affect us as compared with our principal competitors in net cost.
In order of lowest net cost our seven principal competitors are listed below.
Their present surrender charges are also indicated, and the years when they
were adopted are stated:
Surrender Charge
Year
Adopted
1) New England
None - - ...' .
1909
2) Provident
jlncreased scale to .slightly less than Mutual's
Increased scale — slightly lower than Provident
/ 1932
1 1932
1934
3) Northwestern
4) Penn
5) Mass. Mutual -
Increased scale to same as Provident
None - _
1933
6) Mutual Benefit
1922
7) Conn. Mutual
A scale lower than Penn's new scale
1925
The New England Mutual and the Connecticut Mutual are contemplating
the adoption of the recently adopted scale of the Provident, Northwestern, and
Massachusetts Mutual.
As compared with the above seven companies our net cost (for 20 years on
the 1934 dividend scales) was higher than the first four companies, practically
the same as the fifth company, and lower than the sixth And seventh companies.
In view of the above-indicated recent increases.in surrender charges we would
not be worse off competitively in the matter. oC cash values than we were before
these companies made their recent changes,.
The attached schedule shows for the above seven companies and for the Mutual
Life: (1) the average net cost on the three principal plans, (2) the present scales
of surrender charges, and (3) the amount of new business paid for in 1933.
In cases of competition with, other companies, our agents do not always com-
pete with those of any of the seven companies mentioned.'
Even if the adoption of these suggestions resulted in our writing slightly less
new business, I do not regard this as of importance comparable with the other
question involved.'
If we- io not adopt these suggestions but continue our demand system of
cash aftS loans while all the other important companies adopt a six months'
deferment period, we would be singled out as a target for needy policyholders
in time of stress. To insure safety, we would have to keep such an inordinately
large proportion of our assets in cash and securities readily convertible at such
a time that the interest yield (and consequently the policy dividends) would
be so reduced that this method would ultimately do us more harm in competition
than the adoption of the proposed delay period and the smaller scale of cash
values.
I, therefore, urge the importance of our coming to an early decision as to
adopting both suggested changes. The change could not take effect until the
commencement of next year owing to the great amount of preliminary work
required to be done.
(Signed) ^W. A. H.
' Penciled notation in margin of 2 paragraphs: "Changed 5/9/34 after .seeing O. K. 8."
4896 CONCENTRATION OF ECONOMIC POWER
Exhibit No. 809
[From files of Medical Information Bureau]
BYLAWS
I. Medical Information Bureau
MEMBERSHIP
A. Membership in the Medical Information Bureau shall consist of —
1. Regular Members, and
2. Associate Members.
1. Regular Members. — A Life Insurance Company to be -eligible for admission
as a Regular Member of the Medical Information Bureau — -
L Shall be of good repute.
2. Shall conduct its business on the level-premium, legal reserve plan.
3. Shall have its medical affairs administered by a Medical Director re-
sponsible for the confidential character of the interchange, so far as the busi-
ness of his Company is concerned.
4. Shall pledge itself to maintain the confidential character of the Medical
Information Bureau and to comply with all the rules and regulations thereof,
as established by the Association of Life Insurance Medical Directors.
5. Shall have been in continuous successful operation as a level-premium
company for at least ten years.
6. Shall have written at least $5,000,000 of new business, exclusive of
industrial policies, for each of the preceding five years, according to its report
of the last preceding year, as published in the "Insurance Year Book," issued
by the Spectator Company.
2. Associate Members. — A Life Insurance Company to be eligible for admission
as an Associate Member of the Medical Information Bureau —
1. Shall be of good repute.
2. Shall conduct its business on the level-premium, legal reserve plan.
3. Shall have its medical affairs administered by a Medical Director, re-
sponsible for the confidential character of the interchange, so far as the busi-
ness of his Company is concerned.
4. Shall pledge itself to maintain the confidential character of the Medical
Information Bureau and to comply with all the rules and regulations thereof,
as established by the Association of Life Insurance Medical Directors.
B. Medical Directors of Associate Member Companies shall not have the right
as individuals to participate in the meetings of the Association of Life Insurance
Medical Directors of America, but shall have the right to representation in the
Association, in proportion to the amount of new business done by Associate
Member Companies, compared with the amount done by Regular Member Com-
panies. To this end the Associate Members may, on consultation with the Exec-
utive Council of the Association of Life Insurance Medical Directors and subject
to its approval, organize themselves into groups. The number of delegates and
the apportionment thereof among the different groups thus formed shall be de-
termined by the Executive Council of the Association each three years, beginning
with the year 1922. The delegates of each group shall be chosen by the group.
Such delegates shall have the privilege of participating in the meetings, shall pay
dues and shall have the right to vote.
C. Each Associate Member agrees to terminate interchange of information and
withdraw from the Medical Information Bureau when requested to do so by the
Association of Life Insurance Medical Directors of America or its Executive
Council. Such action shall be taken only after presentation of charges and after
due opportunity has been given to the Associate Member and its group officials
to reply thereto.
D. This categorj' of Associate Membership may be terminated as a whole by
the Association of Life Insurance Medical Directors of America, only after one
year's due notice to the Associate Members.
E. Nothing in this Bylaw shall prejudice the right of the Association to refuse
at pleasure to recommend the application of any Company as a regular member
or as an associate member of the Medical Information Bureau.
F. All applications for regular membership or associate membership in the
Medical Information Bureau shall be sent to the Secretary of the Association and
referred by him to the Executive Council for consideration. If approved by
this Council, notice of the approval shall be sent to the Secretary of the Recording
CONCENTRATION OF ECONOMIC POWER
4897
& Statistical Corp., who, thereupon, shall communicate with each Company and
request its approval or disapproval of the interchange. He shall then send the
cards of such Companies as have assented to the interchange and omit the cards
of the Companies that have not assented.
G. The territory of the United States and Canada shall be divided into certain
Districts, as follows:
N. Northeastern: Maine, New Hampshire, Vermont, Massachusetts, Rhode
Island, Connecticut.
Y. New York.
A. Middle Atlantic: New Jersey, Delaware, Virginia, West Virginia, District
of Columbia, Maryland.
Q. Pennsylvania.
G. Great Middle: Wisconsin, Michigan, Indiana, Ohio.
L. Illinois.
E. Southeastern: North Carolina, South Carolina, Georgia, Alabama, Flor-
,ida, Mississippi, Tennessee, Kentucky.
W. Southwestern: Louisiana, Arkansas, Oklahoma, Texas.
P. Prairie: North Dakota, South Dakota, Nebraska, Kansas, Minnesota,
Iowa, Missouri.
M. Mountain: Idaho, Montana, Wyoming, Nevada, Utah, Colorado, Ari-
zona, New Mexico.
C. Pacific: Washington, Oregon, California, Alaska, Hawaii.
K. Dominion of Canada.
F. Foreign: All countries not mentioned above.
H. Each reporting Company, whether a regular member or an associate mem-
ber, shall, in reporting to the Recording & Statistical Corp. an impairment,
designate by means of a suitable symbol the territory in which that risk resides,
so that when the cards are printed, it shall be possible to separate them according
to their territory of origin. In this way members may secure cards covering
only a limited district.
The information received from all members of the Medical Information Bureau,
whether regular members or associate members, shall be so printed on the cards
that it may be possible in any case to determine at once whether the information
comes from a regular member or an associate member.
IT
IMPAIRMENT NOTICES
Whenever an impairment is furnished by any Company, the information shall
be regarded as confidential and the name of the Company from which the infor-
mation is received shall under no circumstances be imparted to any one.
Exhibit No. 810
[From flics of Medical Information Bureau]
Regular Members
Acacia Mutual Life,
Washington, D. C.
Aetna Life,
Hartford, Conn.
American United Life,
Indianapolis, Ind.
Amicable Life,
Waco, Tex.
Atlantic Life,
Richmond, Va.
Bankers Life Company,
Des Moines, Iowa.
Berkshire Life,
Pittsfield, Mass.
California- Western States Life,
Sacramento, Calif.
Canada Life,
Toronto, Ont.
Capitol Life of Colorado,
Denver, Colo.
Central Life Assurance Society,
Des Moines, Iowa.
Central Life of Illinois,
Chicago, 111.
Colonial Life,
Jersey City, N. J.
Columbian National Life,
Boston, Mass.
Columbus Mutual Life,
Columbus, Ohio.
Commonwealth Life,
Louisville, Ky.
Confederation Life Ast>n.,
Toronto, Ont.
Connecticut General Life,
Hartford, Conn.
4898
CONCENTRATION OF ECONOMIC POWER
Connecticut Mutual Life,
Hartford, Conn.
Continental American Life,
Wilmington, Del.
Continental Assurance Co.,
. Chicago, III.
Crown Life,
Toronto, Ont.
Dominion Life,
Waterloo, Ont.
Equitable Life Assurance Society,
New York, N. Y.
Equitable Life of Canada,
Waterloo, Ont.
Equitable Life of Iowa,
Des Moines, Iowa.
Excelsior Life,
Toronto, Ont.
Federal Life,
Chicago, 111.
Fidelity Mutual Life,
Philadelphia, Pa.
Franklin Life,
Springfield, 111.
General American Life,
St. Louis, Mo.
Great Southern Life,
Houston, Tex.
Great West Life,
Winnepeg, Man.
Guarantee Mutual Life,
Omaha, Neb.
Guardian Life of America,
New York, N. Y.
John Hancock Mutual Life,
Boston, Mass.
Home Life,
New York, N. Y.
Home Life of America,
Philadelphia, Pa.
Imperial Life,
Toronto, Ont.
Jefferson Standard Life,
Greensboro, N. C.
Kansas City Life,
Kansas City, Mo.
Life Insurance Company of Va.,
Richmond, Va.
Lincoln National Life,
Fort Wayne, Ind.
London Life,
London, Ont.
Manhattan Life,
New York, N. Y.
Manufacturers' Life,
Toronto, Ont.
Maryland Life,
Baltimore, Md.
Massachusetts Mutual Life,
Springfield, Mass.
Metropolitan Life,
New York, N. Y.
Metropolitan Life,
Ottawa, Ont.
Metropolitan Life,
San Francisco, Calif.
Midland Mutual Life,
Columbus, Ohio.
Minnesota Mutual Life,
St. Paul, Minn.
Mutual Benefit Life,
Newark, N. J.
Mutual Life of Canada,
Waterloo, Ont.
Mutual Life,
New York, N. Y.
Mutual Trust Life,
Chicago, 111.
National Life & Accident Ins. Co.
Nashville, Tenn.
National Life of Canada,
Toronto, Ont.
National Life,
Montpelier, Vt.
New England Mutual Life
Boston, Mass.
New York Life,
New York, N. Y.
North American Life,
Toronto, Ont.
North American Life,
Chicago, 111.
Northern Life,
Seattle, Wash.
Northwestern Mutual Life,
Milwaukee, Wis.
Northwestern National Life,
Minneapolis, Minn.
Occidental Life,
Los Angeles, Calif.
Ohio State Life,
Columbus, Ohio.
Old Line Life,
Milwaukee, Wis.
Oregon Mutual Life,
Portland, Ore.
Pacific Mutual Life,
Los Angeles, Calif.
Pan American Life,
New Orleans, La.
Penn Mutual Life,
Philadelphia, Pa,
Peoples Life,
Frankfort, Ind.
Philadelphia Life,
Philadelphia, Pa.
Phoenix Mutual Life,
Hartford, Conn.
Pilot Life,
Greensboro, N. C.
(The) Praetorians,
Dallas, Tex.
Provident Mutual Life,
Philadelphia, Pa.
Prudential Insurance Company,
Newark, N. J.
Reliance Life,
Pittsburgh, Pa.
Reserve Loan Life,
Indianapolis, Ind.
Security Mutual Life,
Binghamton, N. Y.
Shenandoah Life,
Roanoke, Va.
Southland Life,
Dallas, Tex.
CONCENTRATION OF ECONOMIC POWER
4899
Southwestern Life,
Dallas, Tex.
Standard Life,
Montreal, Que.
State Life,
Indianapolis, Ind.
State Mutual Life,
Worcester, Mass.
Sun Life,
Montreal, Que.
Travelers' Insurance Company,
Hartford, Conn.
Union Central Life,
Cincinnati, Ohio.
Union Mutual Life,
Portland, Me.
Associate
All States Life,
Montgomery, Ala.
Alliance Life,
Peoria, lU.
American Bankers Ins. Co.,
Jacksonville, 111.
American Life,
Birmingham, Ala.
American Mutual Life,
Des Moines, Iowa.
American National Ins. Co.,
Galveston, Tex.
American Reserve Life,'
Omaha, Neb.
Ancient Foresters' Mutual Life,
Toronto, Ont.
Atlas Life,
Tulsa, Okla.
Bankers Life of Nebraska,
Lincoln, Neb.
Bankers National Life,
Montclair, N. J.
Boston Mutual Life,
Boston, Mass.
Business Men's Assurance Co.,
Kansas City, Mo.
Central States Life,
St. Louis, Mo.
Colorado Life Company,
Denver, Colo.
Columbia Life,
Cincinnati, Ohio.
Columbian Mutual Life,
Memphis, Tenn.
Conservative Life,
South Bend, Ind.
Conservative Life,
Wheeling, W. Va.
Continental Life,
Toronto, Ont.
Country Life,
Chicago, 111.
Dominion of Canada General Ins. Co.
Toronto, Ont.
Eastern Life,
New York, N. Y
Empire Life,
Kingston, Ont.
' American Standard Life, Washington, D. C.
]24491— 40— pt. 10 49
United Life & Accident Ins. Co.,
Concord, N. H.
United States Life,
New York, N. Y.
Volunteer State Life,
Chattanooga, Tenn.
West Coast Life,
San Francisco, Calif.
Western and Southern Life,
Cincinnati, Ohio.
Woodmen of the World Life Ins.
Society,
Omaha, Neb.
Members
Equitable Life,
Washington, D. C.
Eureka-Maryland Assurance Corp.,
Baltimore, Md.
Farmers and Bankers Life,
Wichita, Kan.
Fidelity Union Life,
Dallas, Tex.
George Washington Life,
Charleston, W. Va.
Girard Life,
Philadelphia, Pa.
Globe Life,
Chicago, 111.
Great American Life,
San Antonio, Tex.
Great National Life,
Dallas, Tex.
Great Northern Life,
Chicago, 111.
Guaranty Income Life,
Baton Rouge, La.
Gulf Life,
Jacksonville, Fla.
Home State Life,
Oklahoma City, Okla.
Illinois Bankers Life,
Monmouth, 111.
Indianapolis Life,
Indianapolis, Ind.
Industrial Life,
Quebec, Que.
Interstate Life and Accident Co.,
Chattanooga, Tenn.
Kentucky Home Mutual Life,
Louisville, Ky.
Knights Life,
Pittsburgh, Pa.
LaFayette Life,
LaFayette, Ind.
Lamar Life,
Jackson, Miss.
La Sauvegarde Assurance Co.,
Montreal, Que.
Liberty Life of Kansas,
Topeka, Kan.
Liberty National Life,
Birmingham, Ala.
4900
CONCENTRATION OF ECONOMIC POWER
Life and Casualty Insurance Co.,
Nashville, Tenn.
Life Insurance Company of Detroit,
Detroit, Mich.
Lincoln Liberty Life,
Lincoln, Neb.
Maritime Life,
Halifax, Can.
Massachusetts Protective Life and Paul
Revere Life,
Worcester, Mass.
Michigan Life,
Detroit, Mich.
Mid-Continent Life,
Oklahoma City, Okla.
Midland Life,
Kansas City, Mo.
Midland National Life,
Watertown, S. D.
Midwest Life,
Lincoln, Neb.
Monarch Life,
Winnipeg, Man.
Monarch Life,
Springfield, Mass.
Montreal Life,
Montreal, Que.
Monumental Life,
Baltimore, Md.
Mutual Life and Citizens' Assur. Co.,
Ltd.,
Montreal, Que.
National Equity Life,
Little Rock, Ark.
National Fidelity Life,
Kansas City, Mo.
National Guardian Life,
Madison, Wis.
National Life Company,
Des Moines, Iowa.
National Old Line Ins. Co.,
Little Rock, Ark.
New World Life,
Seattle, Wash.
North American Reassurance Co.,
New York, N. Y.
Northern Life of Canada,
London, Ont.
Occidental Life,
Raleigh, N. C.
Ohio National Life,
Cincinnati, Ohio.
Peninsular Life,
Jacksonville, Fla.
Pioneer American Life,
Houston, Tex.
Policyholders National Life,
Sioux Falls, S. D.
Pos< 'i Life and Postal National Life,
New York, N. Y.
Protected Home Circle,
Sharon, Pa.
Protective Life,
Birmingham, Ala.
Provident Life and Accident Ins. Co.,
Chattanooga, Tenn.
Provident Life,
Bismarck, N. D.
Prudential Assurance Co., Ltd.,
Montreal, Que.
Puritan Life,
Providence, R. I.
Pyramid Life,
Kansas City, Mo.
Pyramid Life,
Little Rock, Ar .
Repubhc National Life,
Dallas, Tex.
Rockford Life,
Rockford 111.
Royal Insurance Company, Ltd.,
Montreal, Que.
St. Louis Mutual Life,
St. Louis, Mo.
Saskatchewan Life,
Regina, Sask.
Scran ton Life,
Scranton, Pa.
Seaboard Life,
Houston, Tex.
Securitv Life and Trust Co.,
Winston-Salem, N. C.
Security Mutual Life,
Lincoln, Neb.
Service Life,
Omaha, Neb.
Southeastern Life,
Greenville, S. C.
Sovereign Life,
Winnipeg, Man.
Standard Life,
Pittsburgh, Pa.
State Farm Life,
Bloomington, 111.
State Reserve Life,
Fort Worth, Tex.
Sun Life of America,
Baltimore, Md.
T. Eaton Life,
Toronto, Ont.
Texas Life,
Waco, Tex.
Texas Prudential Insurance Co.,
Galveston, Tex.
Union Labor Life,
New York, N. Y.
United Benefit Life,
Omaha, Neb.
United Fidelity Life,
Dallas, Tex.
Victory Life,
Topeka, Kan.
Washington National Insurance Co.,
Evanston, 111.
Western Empire Life,
Winnipeg, Man.
Western Life,
Hamilton, Ont.
Western Life,
Helena, Mont.
Western Reserve Life,
San Angelo, Tex.
Wisconsin Life,
Madison, Wis.
Wisconsin National Life,
Oshkosh, Wis.
CONCENTRATION OF ECONOMIC POWER 4901
Exhibit No. 811
[From files of Union Central Li/e Insurance Co.]
[Notation: Mr. Helle.]
Underwriting Rules Recommended (Corrected as of April 1, 1936)
1. (a) If the applicant is up to, and including age 45, electro-cardiographic
tracings and X-rays of chest shall be requested in all cases and also blood examina-
tions whenever indicated if concurrent applications total $100,000 or more, and
this together with existing insurance brings the total on the life to over $300,000;
and provided further, that no such medical examination has been made within six
months.'
(b) If the applicant is between ages 46 and 59, inclusive, electrocardiographic
tracings and X-rays of chest shall be requested in all cases if concurrent appUca-
tions total $100,000 or more, and this together with existing insurance brings the
total on the Ufe to over $200,000; and provided further, that no such medical
examination has been made within six months.'
(c) If the applicant is age 60 or over, electrocardiographic tracings and X-rays
of chest shall be requested in aU cases if concurrent applications total $50,000 or
more, and this together with existing insurance brings the total on the life to over
$100,000; and, provided further, that no such medical examination has been made
within six months.'
2. Specialists and laboratories should be recommended by a committee from the
Association of Life Insurance Medical Directors of America for use in connection
with the above rule. The fee schedule is to be arranged by this Committee of
Medical Directors and shall include fee for interpretation when desired. Use of
the same report by several companies may require some adjustment of the amount
to be paid by each company.
3. Statements should be obtained from the attending physician or surgeon in all
cases of serious character, or where the information regarding any previous illness
is incomplete or doubtful.
That in all cases where the insurance applied for is $50,00u or more of life insur-
ance or where the appUcation includes monthly disabUity income of at least
$250.00:
4. A company should require the completion of the application, declarations,
and examinations on its own blanks, including applicant's signature, but may
accept photo copies of examination directly from the Medical Division of another
company provided the examination is not over thirty days old and the examiner is
one of its regular appointees or the examiner of the original company is one in
whom the second company has confidence. Such reports should comply with the
second company's rules for its own examiners as to date and points to be covered.
The photo copy of the medical examination should be accompanied "by photo-
graphic copies of all other papers pertaining to the case and advice as to the final
action of the companv forwarding such papers, and to what other companies
photostats are sent. Where a company does not desire to furnish photographic
copies of inspection reports, and a rc-^ort is unfavorable, it should give full warning
to the company to which it is furnishing the papers or other confidential informa-
tion.
Where any company accepts reports not coming directly from the laboratory
to the medical department of the Home Office, they should so report to other com-
panies when forwarding copies of such reports.^
4 (a) No statement by the applicant or agent that the amount of insurance to
be placed will be less than the amount represented by current applications, and no
request for a reduction in the amount of a current application, should be permitted
to afl'ect the company's procedure during the period when final action is pending.^
5. Thorough inquiry should be made where an application or other source of
information discloses examination or treatment by a physician within five years
unless satisfactory explanation by the medical examiner accompanies the medical
report.
6. For personal coverage the amount should in general not exceed what 20% of
the income would purchase at net cost on the Whole Life plan.
7. For business insurance the amount should, in general, not exceed five times
the applicant's salary, bonus and profit earned from the business. In special
cases more than five times may be justified if the personal insurance carried is not
large. When the applicant is old, the five times rule can easily be excessive.
' As revised effective Janimrv 1 , 1336.
' New.
4902
CONCENTRATION OF ECONOMIC POWER
8. When an applicant' is .the owner or owns a substantial interest in a corpora-
tion, it is difficult to distbiguish between business and personal insurance. In
those cases the total insurance on the life should be maintained within the limits
for personal insurance.
9. The amount of insurance already in force, pending and applied for, must be
known. To get authentic information on these points, it is proposed to establish
a central bureau where the information will be available.
10. Accurate information must be developed as to the personal finances of the
applicant. If business insurance is involved, where the corporation is owned or
controlled by the applicant, a recent financial statement of the corporation should
be procured. Many large losses have occurred by disregarding this important
requirement.
11. A legitimate need for the insurance should be established.
12. Applications should not be finally acted upon until time has elapsed so that
complete investigation can be made.
13. All applications should contain questions inquiring as to the amount of
insurance, disability, double indemnity, and Accident and Health insurance
carried by the applicant; in force, pending, and contemplated. The completion
of answers to those questions should be insisted upon. The underwriting of the
life, the disability and the double indemnity insurance should be =- ^tely con-
sidered at the Home Office.
Exhibit No. 812
[From files of Union Central Life Insurance Co.]
Report of Exectjt'lve Committee on Uistderwriting Large Risks for the
Year Ending March 31, 1939
The Executive Committee herewith submits its report for the year ending
March 31, 1939 as called for under the By-Laws.
The Committee held a meeting on March 10th, 1939, at which it authorized
the Recording Bureau to forward to the companies an adequate supply of a
pamphlet covering the rules and procedure in a form which, it is hoped, will be
of assistance as a reference for those who handle the procedure in the Home
Offices and as an instruction manual to persons newly assigned to such work.
[Reed. C. H.]
Mr. J. M. Laird, Vice-President of the Connecticut General Life Insurance
Company, has been duly elected Chairman, eflfective April 1, 1939. [Voted for
him. C. H.]
Dr. R. L. Rowley, Mr. F. I. McGraw, and Mr. R. D. Murphy have retired
from the Executive Committee upon the expiration of their terms and in due
course Mr. Laird will make appointments to fill these vacancies.
There is enclosed herewith the Recording Bureau's summary of transactions
for the year.
Respectfully submitted.
(Signed) R. D. Murphy,
Chairman, Executive Commitlee on Underwriting Large Risks.
April 30, 1939.
Note. — Penciled notations enclosed in brackets.
RECORDING BUREAU
March 31, 1939.
Year End-
ing 31
Mar. '39
Total Pe-
riod of
Bureau
Companies in Bureau
Lives Master Carded
Application Reports Received
of which are new lives
Action Reports Received
Photostats Sent Out _
34
3,608
7,127
3,608
7,250
16, 085
59, 814
55,518
28, 859
56, 603
124, 367
CONCENTRATION OF ECONOMIC POWER 4903
SUMMARY ALL BUREAU CASES
Previous Report— In force 1 Apr. '38 $3,578,179,000
In force 16 May '32 reported in current year... 170,000
Adjusted In force 1 Apr. '38 3,573,349,000
Applied for April 1,1938, to March 31, 1939 $486,099,000
Declined -■-^.._ _ $123, 751,.000
Postponed (less issues of prior postponements) 15, 588, 000
Recalled. : 1,115,000
140, 454, 000
Net Approvals _. 345,645,000
Terminations and Decreases:
Not Taken $73,825,000
Death Claims... 27,626,000
All Others 151,757,000
Total Terminations _.. 253,208,000
Net Increase In force _.. 92,437,000
In force 1 Apr. '39 3,670,786,000
SUMMARY OF $500,000 OR OVER CASES
Previous Report— In force 1 Apr. '38 $672, 179,|000
In force 16 May '32 reported in current year. 20; 000
In force on cases transferred to $500,000 during year 18,270,000
Adjusted In force 1 Apr."38-- 690,469,000
Applied for April 1, 1938, to March 31, 1939 _. $72,336,000
Declined .$31,371,000
Postponed (less issues of prior postponements) : 3, 082, 000
Recalled 550,000
35, 003, 000
Net Approvals 37,333,000
Terminations and Decreases:
Not Taken $5,146,000
Death Claims 4,319,000
All Others 22,437,000
Total Terminations 3,902,000
Net Increase In force 5,431,000
In force 1 Apr. '39..., ,... 695,900,000
Exhibit No. 813
[From files of Union Central Life Insurance Co.]
James D. Ceaig, Actuary Fredekick H. Eckee, President
Metropolitan Life Inlurance Company,
New York City, August 18, 1933.
Dear Sir: The following Companies are members of the Recording Bureau as
of the above date:
Aetna Life Insurance Company.
American Central Life Insurance Company.
Bankers Life Company.
Berkshire Life Insurance Company.
Canada Life Assurance Company.
Columbian National Life Insurance Company.
Connecticut General Life Insurance Company.
Connecticut Mutual Life Insurance Company.
Equitable Life Assurance Society of the U. S.
Equitable Life Insurance Company of Iowa.
Fidelity Mutual Life Insurance Company.
Great West Life Assurance Company.
Guardian Life Insurance Company of America.
John Hancock Mutual Life Insurance Company.
Home Life Insurance Company.
Lincoln National Life Insurance Company.
Manufacturers Life Insurance Company.
Massachusetts Mutual Life Insurance Company.
Metropolitan Life Insurance Company.
Missouri State Life Insurance Company.
4904 CONCENTRATION OF ECONOMIC POWER
Mutual Benefit Life Insurance Company.
National Life Insurance Company of Vermont.
New England Mutual Life Insurance "Company.
New York Life Insurance Company.
North American Reassurance Company.
Northwestern Mutual Life Insurance Company.
Pacific Mutual Life Insurance Company of California.
Pan-American Life Insurance Company.
Penn Mutual Life Insurance Company.
Phoenix Mutual Life Insurance Company.
Provident Mutual Life Insurance Company.
Prudential Insurance Company of America.
State Mutual Life Assurance Company.
Sun Life Assurance Company of Canada.
Travelers Insurance Company.
Union Central Life Insurance Company.
Very truly yours,
(Signed) J. D. Craig,
Chairman, Committee- Underwriting Large Risks.
Exhibit Nc. 814
[From files or The Equitable Life Assurance Society]
Note. — This letter, and the printed folder attached, constitute the full report
of the Committee.
October 29, 1931.
Mr. Walter E. Webb,
Chairman, Executive Committee,
Association of Life Agency Officers,
Chicago, Illinois.
Dear Sir: You appointed a Committee about a year ago, to cooperate with
a Committee from the Lifie Underwriters Association of the City of New York,
to consider the evil practice generally known as "Twisting" and to effect, if
possible, an agreement among companies to cooperate in a plan for discouraging
the replacement of life insurance of one company by new insurance in another
company.
At the outset of this cooperation a meeting called by the New York City As-
sociation was attended by representatives of many of the life-insurance com-
panies that are admitted to place life insurance in the State of New York.
Agency Officers, General Agents, Managers, and Underwriters were in attend-
ance. Subsequently, your Committee and that of the above-named Association
held several joint meetings, most of which were held during the Fall, Winter,
and Spring of 1930 and 1931.
A plan was agreed upon by the Joint Committee, and printed copies were sent
to all of the men who were in attendance at the original general meeting, and to
some others. That plan included certain recommendations for its operation
which some of the companies thought it would be difficult ^to carry into execution.
Accordingly, another general meeting was held, and out of it grew the recom-
mendation that the Joint Committee continue to function and that a modified
plan be printed and submitted to the various companies which had participated
in any of the discussions.
We submit to you and to the members of the Life Agency Officers Association
the final form of the agreement, and beg to report that the twenty-three com-
panies, the names of which are separately attached, have signed the agreement
and that only seven of them have made any exceptions to the plan as it stands
In the printed form. The exceptions are minor — in the main, they are intended
either to effect a harmony with certain well-established practices of those com-
panies or to exclude Term Insurance from the provisions of the agreement. The
exceptions are endorsed on the forms which were executed respectively by these
seven companies and are a part of the permanent record. It is expected that
other companies which have been considering the Joint Committee's plan will
execute the agreement in the near future.
There is no evil practice in the field of life-insurance underwriting which needs
to be more definitely killed than that of the improper replacement of the business
of one company by another company. Usually twisted business is accepted by
the new company without knowledge of the fact that a similar amount has just
CONCENTRATION OF ECONOMIC POWER 4905
been surrendered in another company. Recognizing the difficulty of proving
such illegitimate transactions, it is certainly worth while to have as well planned
cooperation to suppress it as can be established without running into serious
operating difficulties. It is heartening to all of us, who have worked earnestly
throughout the past year, to be able to report the wholehearted support of twenty-
three important companies in a program which is at least based upon a desire to
solve this problem cooperatively — the only way it can be solved. Like many
other movements, this one has a small beginning. This is reflected not only in
the small number of companies relatively that are in the agreement at present,
but in the terms of the agreement as well. It must be noted, however, that the
amount of business which is transacted by the signatory companies is much
larger with respect to the total production of life insurance than would be indi-
cated by the number of companies in respect to the total number of operating
companies in the United States. Furthermore, the plan has not been submitted
heretofore to those companies in the United States and Canada which are not
now transacting new business in the State of New York.
We ask, therefore, that the agreement be passed among the members of this
Association who are in attendance at this time and that it be now read. The
Joint Committee is unanimous in the opinion that other companies represented
here today, without limitation as to geographical operations, will want to con-
sider their entrance into the agreement so that the widest possible support of
the life companies of the United States and Canada may be given to the program
and an opportunity offered to cooperate in the elimination of a great evil.
Respectfully submitted.
George H. Chace,
K. A. Luther,
M. A. Linton,
Frank L. Jones, Chairman,
Members of the Committee.
[Stamped: Dept. F. L. J. Mar. 28, 1939. A. McN.]
LIST OF SIGNATORY COMPANIES
Aetna Life Insurance Company.
Bankers Life Company.
Berkshire Life Insurance Company.
Brooklyn National Life Insu^iance Company.
Connecticut General Life Insurance Company.
Connecticut Mutual Life Insurance Company.
Equitable Life Assurance Society of the U. S.
Equitable Life Insurance Company of Iowa.
Fidelity Mutual Life Insurance Company.
Guardian Life Insurance Company of America.
Home Life Insurance Company.
John Hancock Mutual Life Insurance Company.
Judea Life Insurance Company.
Manhattan Life Insurance Company.
Massachusetts Mutual Life Insurance Company.
Metropolitan Life Insurance Company.
Mutual Benefit Life Insurance Company.
National Life Insurance Company.
New England Mutual Life Insurance Company.
Penn Mutual Life Insurance Company.
Phoenix Mutual Life Insurance" Company.
Provident Mutual Life Insurance'Company of Philadelphia.
The Travelers Insurance Company.
[Notation: Judea — Changed to Eastern.]
[Stamped: Dept. F. L. J. Mar. 28, 1939. A. McN.]
4906 CONCENTRATION OF ECONOMIC POWER
Exhibit No. 815
[From files of The Equitable Life Assurance Society]
[Stamped: Dept. F. L. J. Mar. 28, 1939. A. McN.]
Plan for Discouraging the Replacement of Life Insurance of One Com-
pany BY New Insurance in Another Company
The life-insurance companies subscribing to the following plan do so in the
belief that steps should be taken to put a check upon the cancellation of out-
standing life insurance to be replaced by new insurance. The problem is a grow-
ing one because of current economic conditions and the pressure for new business.
To solve it would give a sense of security to the men in the field, would create a
more wholesome atmosphere surrounding the writing of new insurance, woiild
reduce lapsation and thus tend to more effective conservation of outstanding
insurance and to a stabilization of the business.
MeaJsures to curb the practice of substitution will protect every agent who
servds his clients constructively and attempts to build a secure foundation for his
own future. It is the substantial men in the business who more than any others
suffer from the activities of those who for selfish reasons ma.v attempt to tear down
their work by urging policyholders to replace old insurance by new.
The question was brought to the foreground by the calling of two conferences
by the Life Underwriters Association of the City of New York, attended by repre-
sentatives of the Association and of companies doing business in New York. The
following plan has been formulated by the joint committee as a result of these
j;onferences. It is being sent to all members of the Life Agency Officers Associa-
tion in the hope th^t it may be approved by a large proportion of the membership.
The plan is as follows:
(1) That companies who have not already done so, insert in the next revision
of their application form, a question as to whether the new insurance is to take
the place of outstanding insurance either in the same company or in another
company. The question should be in a part signed by the applicant and also in
the agent's certificate so that he may state his knowledge in the matter. Several
companies have found by experience that the insertion of the question in the
medical part of the application leads to more accurate information. Although
each company is at liberty to place the question in either part signed by the
applicant, the committee believes that the medical part is the better one for the
purpose.
(2) The companies adhering to this plan welcome the greatest degree of mutual
cooperation in connection with cases where substitution has either taken place
or where there are indications that it may take place. Either company involved
in a substitution case is encouraged to communicate at once with the other com-
pany to the end that steps may be taken to safeguard the interests of the policy-
holder and the companies. In some instances a company may find that the
interest of the policyholder requires that the new policy be taken up and the
transaction cancelled.
(3) When a company shall receive an application for new insurance which
apparently will replace outstanding insurance in another" company, it shall
promptly notify the other company and shall delay the issuance of the new insur-
ance for at least two weeks so that it may hear from the other company and the
other company may have opportunity to conserve its business. If a company
shall learn that a replacement of its insurance has been made or is contemplated
in another company, it shall feel at liberty at once to notify the company involved.
(4) Each company will keep a record of the amount and kind of insurance in
cases where inter-company substitution, either attempted or consummated, has
occurred involving in any way its own insurance. By so doing it will be possible
in the course of time to gauge the extent of the evil of this kind of substitution
and to have a better idea than at present of the changes that could advantageously
be made in the plan herein formulated. In keeping the record of cases there
should be separate classifications for incoming and outgoing insurance.
"^ (5) Companies are encouraged to take effective steps to educate the members
of their agency force to the advantages of retaining outstanding insurance and to
the disadvantages of surrendering it to be replaced by a like amount of new
insurance in their own or other companies. A large proportion of such trans-
actions results from lack of information and understanding on the part of the
policyholder; and wrong and often misleading advice on the part of the agent.
We believe that the foregoing plan presents an opportunity for the business of
life insurance to move forward in the control of a growing and harmful practice.
It is a forward step for the institution of life insurance to take and it will become
CONCENTRATION OF ECONOMIC POWER 4997
increasingly clear to all concerned that the companies are not going to build up
their business at each other's expense.
(Q) Any company having subscribed to this plan may withdraw its adherence
by giving written notice of its intention to withdraw to the Secretary of the Life
Agency Officers Association, Hartford, Connecticut. Furthermore, any com-
pany wishing to adhere to this plan in general but unwilling at present to sub-
scribe to the entire program may do so by noting at the bottom of this form the
exceptions it desires to record.
On behalf of the Joint Committee representing the Life Underwriters Associa-
tion of the City of New York and the Association of Life Agency Officers:
Leon G. Simon George A. Kederich George H. Chace
John C. McNamara, Jr. WiUiam F. Atkinson " K. A. Luther
Edward J. Sisley Arthur P. Woodward M. A. Linton
Julian S. Myrick, Chairman Frank L. Jones, Chairman
We hereby subscribe to the foregoing plan and will endeavor to carry out its
provisions.
Date
By
President.
NOTE HERE YOUR EXCEPTIONS TO THE PLAN
Exhibit No. 816
[From flies of The Equitable Life Assurance Society] ■
[Stamped: Dept. F. L. J. Mar. 28, 1939. A. McN.]
Amendment to Plan for Discouraging the Replacement of Life Insurance
OF One Company by New Insurance in Another Company
As a mem'^er of the signatory group, the undersigned company accepts the
following amended paragraph (3) as a substitute for paragraph (3) of the present
agreement. W^ urderstand that from and after the date of our signature to this
amendment we a. t to operate under the new provision.
Amended paragi/^h (3) to read as follows: ---'
"When a company hall receive an applica-tion for new insurance which appar-
ently will replace outsttiuding insurance iruanother company, it shall promptly
notify the other company, including in its notification the name of the agent stib-
mitiing the application, and shall delay the issuance of the new ilisurance for at
least two weeks so that it may hear from the other company and the other com-
pany may have opportunity to conserve its business. It a company shall learn
that a replacement of its insurance has been made or is contemplated in another
company, it shall feel at liberty at once to notify the company involved."
Name Signatory Company
Address
Signature of Company Officer or Represent
ative
Date 1934
Exhibit No. 817
[From files of The Equitable Life Assurance Society]
[Stamped: Dept. F. L. J. Mar. 29, 1939. A. McN.]
Signatory Companies With Names of Persons in Charge of Intercompan'^
Correspondence
*Acacia Mutual Life Insurance Company, Washington, D. C.
Mr. La None Matta, Assistant to the President.
*Aetna Life Insurance Company, Hartford, Connecticut.
Mr "R F Fav, Agency ABsistant.
4908 CONCENTRATION OF ECONOMIC POWER
Amerioan Life Insurance Company, Detroit, Michigan.
Mr. Claris Adams, Executive Vice President.
*American United Life Insurance Company, Indianapolis, Indiana.
Mr. Harry C. Byers, Assistant Secretary.
*Amicable Life Insurance Company, Amicable Life Building, Waco, Texas.
Mr. W. A. Blair, Assistant Secretary.
♦Atlantic Life Insurance Company, Richmond, Virginia.
Dr. Frank P. Righter, Medical Director.
*Atlas Life Insurance Company, Tulsa, Oklahoma.
Mr. C. H. Menge, Actuary.
♦Bankers Life Company, Des Moines, Iowa.
Mr. F. I. McGraw, Underwriting Secretary.
♦Bankers National Life Insurance Company, 26 Park Street, Montclair, N. J.
Mr.. William J. Sieger, Superintendent of Agencies.
♦Berkshire Life Insurance Company, Pittsfield, Massachusetts.
Mr. R. H. Davenport, Secretary.
♦California Western States Life Insurance Company, Sacramento, California.
Mr. Walter C. Kennedy, Chief Underwriter.
♦Canada Life Assurance Company, Toronto, Canada.
Mr. J. Q. Strong, Secretary, Agency Department. "
♦Central Life Assurance Society (Mutual), Des Moines, Iowa.
■ Dr. Martin I. Olson, Medical Director.
♦Colonial Life Insurance Company of America, 921 Bergen Avenue, Jersey City,
N. J.
Mr. Richard B. Evans, Assistant to the Vice President.
♦Colorado Life Company, Patterson Building, Denver, Colorado.
Mr. R. K. Dunn, Manager of Application Department.
♦Columbian Mutual Life Insurance Company, Memphis, Tennessee.
Mr. George W. Clayton, President.
♦Columbian National Life Insurance Company, Boston, Mass.
Mr. Norman M. Hughes, Vice President and Secretary.
♦Confederation Life Association, 12 Richmond Street, East Toronto, Canada.
Mr. J. H. Birkenshaw, Associate Actuary.
♦Connecticut General Life Insurance Company, Hartford, Connecticut.
Mr. G. E. Bulkley, Vice President.
♦Connecticut Mutual Life Insurance Company, Hartford, Connecticut.
Mr. H. H. Steiner, Secretary.
Continental American Life Insurance Company, DuPont Building, Wilmington,
Delaware.
Mr. Daniel E. Jones, Secretary.
Eastern Life Insurance Company, 303 Fourth Avenue, New York City, N. Y.
Mr. Harry Yarin, Superintendent of Agencies.
♦Equitable Life Assurance Society of the U. S., 393 Seventh Avenue, New York
City. _
Mr. W. M, Donohue, Supt. of Policy Issue and Service Department.
♦Equitable Life Insurance Company of Iowa, Des Moines, Iowa.
Mr. J. E. McPherson, Assistant Secretary.
♦Equitable Life Insurance Company of Washington, D. C, 81&-14th Street,
Northwest, Washington, D. C.
Mr. Clyde R. de Haas, Chief of Ordinary Department.
♦Fidelity Mutual Life Insurance Company, Philadelphia, Pennsylvania.
Mr. C. T. Feddeman, Agency Assistant (In connection with replacement
of Fidelity Insurance).
Mr. R. F. Tull, Secretary (In connection with applications coming in to
New Business Department, indicating replacement of insurance of other
companies).
♦Franklin Life Insurance Company, Springfield, Illinois.
Mr. F. R. Jordan, Actuary.
♦General American Life Insurance Company, St. Louis, Missouri.
Mr. O. J. Burian, Assistant Actuary.
♦George Washington Life Insurance Company, Kanawha Street, Charleston, West
Virginia.
Dr. Hugh G. Thompson, Medical Director.
♦Girard Life Insurance Company, Philadelphia, Pennsylvania.
Mr. Clark T. Botting, Superintendent of Agencies.
*Great-West Life Assurance Company, Winnipeg, Manitoba.
Mr. E. A. Brock, Secretary.
CONCENTRATION OF ECONOMIC POWER 4909
Great Western Insurance Company, Des Moines, Iowa.
Mr. J. Kenneth Davis, Actuary.
*Guarantee Mutual Life Company, Omaha, Nebraska.
Mr. A. D. Hunter, Assistant Secretary.
*Guaranty Life Insurance Company, Kahl Building, Davenport, Iowa.
Mr. Harry A. Bryan, Auditor.
*Guardian Life Insurance Company of America, 50 Union Square, New York City.
Mr. Frederic H. Bachur, License and Records Division.
*Hercules Life Insurance Company,' Chicago, Illinois.
Mr. Carl L. Odell, President.
Home Life Insurance Company, 256 Broadway, New York City.
Mr. W. S. Gaylord, Vice President and Secretary.
*Home Life Insurance Company of America, Independence Square, Philadelphia,
Pa.
Mr. Bernard L. Connor, Secretary.
*Imperial Life .4ssurance Company, 20 Victoria Street, Toronto, Canada.
Mr. George H. Hunt, Superintendent of Agencies.
Jefferson Standard Life Insurance Company, Greensboro, North Carolina.
Mr. D. J. Tribble, Underwriter (Replacement of insurance of other com-
panies).
Mr. Karl Ljung, Manager, Conservation Department (Replacement of
Jefferson Standard Insurance).
*John Hancock Mutual Life Insurance Company, 197 Clarendon Street, Boston,
Mass.
Mr. Charles J. Diman, Secretary.
*Liberty National Life Insurance Company, Birmingham, Alabama.
Mr. Ralph W. Beeson, Secretary-Treasurer.
*Lincoln National Life Insurance Company, Fort Wayne, Indiana.
Mr. George M. Bryce, Assistant Secretary.
♦Manhattan Life Insurance Company, Madison Avenue at 60th Street, New York
City.
Mr. Vincent W. Edmondson, Superintendent of Field Service.
* Manufacturers Life Insurance Company, Toronto, Canada.
Mr. R. B. Wallace, Conservation Department.
Massachusetts Mutual Life Insurance Company, 1295 State Street, Springfield,
Mass.
Mr. Michael Marchese, Assistant Secretary, Underwriting Department.
♦Metropolitan Life Insurance Company, 1 Madison Avenue, New York, New
York.
For Metropolitan Policies where policyholder is located in Canada.
Mr. John Wilson, Manager, Ordinary Department, Canadian Head
Office, Ottawa, Ontario, Canada.
For Metropolitan Policies where policyholder is located in Pacific Coast
Territory which comprises the following States: California, Colorado,
Idaho, Montana, Oregon, Utah, and Washington:
Mr. Louis J. Schmoll, Assistant Secretary, 600 Stockton Street, San
Francisco, California.
For entire United States Territory outside of States controlled by Pacific
Coast Head Office:
Mr. Vincent D. Manahan, Manager, Ordinary Application Division
1 Madison Avenue, New York, New York.
♦Midland Mutual Life Insurance Company, Columbus, Ohio.
Mr. J. Charles Rietz, Vice President and Actuary.
♦Midland National Life Insurance Company, Watertown, South Dakota.
Mr. J. J. Bell, President.
♦Minnesota Mutual Life Insurance Company, St. Paul, Minnesota.
Mr. H. J. Cummings, Vice President and Superintendent of Agencies. .
Mutual Benefit Life Insurance Company, Newark, New Jersey.
Mr. Charles E. Brewer, Assistant Secretary.
♦Mutual Life Insurance Company of N. Y., 34 Nassau Street, New York City.
Mr. Willard T. Johns, Manager of Policyholders' Service Bureau.
♦Mutual Trust Life Insurance Company, 135 South La Salle Street, Chicago,
Illinois.
Mr. Harry J. Nelson, Agency Secretary.
♦National Fidelity Life Insurance Company, Kansas City, Missouri.
Mr. Ralph H. Rice, Jr., Vice President.
. ' Taken over by the Washington National Insurance Company otChlqago, 111. (Signatory).
4910 CONCENTRATION OF ECONOMIC POWER
National Guardian Life Insurance Company, Madison, Wisconsin.
Mr. George A. Boissard, President.
*National Life and Accident Insurance Company, Inc., Nashville, Tennessee.
Mr. E. B. Stevenson, Jr., Vice President.
National Life Insurance Company, Montpelier, Vermont.
Mr. L. P. Brigham, Superintendent of Agencies.
*New England Mutual Life Insurance Company, 87 Milk Street, Boston, Mass.
Mr. Walter Tebbetts, Vice President.
New World Life Insurance Company, New World Life Building, Seattle, Wash-
ington.
Mr. Edward Base, Assistant Secretary.
New York Life Insurance Company, 51 Madison Avenue, New York, N. Y.
Mr. S. S. Buxton, Assistant Secretary.
*North American Life Assurance Company, 112-118 King Street, Toronto,
Ontario, Canada.
Mr. E. J. Harvey, Superintendent of Agencies.
*North American Life Insurance Company of Chicago, 36 So. State St., Chicago,
111.
Mr. H. O. Cedarholm, Manager, Conservation Department.
*Northwestern Mutual Life Insurance Co., 720 East Wisconsin Ave., Milwaukee,
Wise.
Mr. J. N. Lochemes, Assistant Secretary.
♦Occidental Life Insurance Company, Professional Building, Raleigh, North
Carolina.
Mr. R. A. Gibson, Assistant Secretary and Underwriter.
*Ohio State Life InsurjJnce Company, Columbus, Ohio.
Mr. Joseph K. Bye, Secretary.
*01d Line Life Insurance Company of America, 623 North Second Street, Mil-'
waukee. Wis.
Mr. M. F. Ryan, Treasurer (In charge of Conservation).
*Oregon Mutual Life Insurance Company, 1029 S. W. Alder Street, Portland,
Oregon.
Mr. R. R. Brown, Vice President and Actuary.
♦Pacific Mutual Life Insurance Company, Los Angeles, California.
Mr. L. W. Morgan, Junior Vice President.
♦Pan-American Life Insurance Company, New Orleans, Louisiana.
Mr. Charles J. Mesman, Manager Agency Analysis Bureau.
♦Peninsular Life Insurance Company, Jacksonville, Florida.
Mr. W. W. Alderman, Assistant Secretary.
Penn Mutual Life Insurance Company, Philadelphia, Pennsylvania.
Mr. A. B. Furner, Assistant to Agency Vice President.
♦Philadelphia Life Insurance Company, 111 North Broad Street, Philadelphia, Pa.
Mr. E. R. Hurst, Director of Agency Service.
♦Phoenix Mutual Life Insurance Company, Hartford, Connecticut.
Mr. Howard Goodwin, Second Vice President.
♦Pilot Ijife Insurance Company, Greensboro, North Carolina.
Dr. H. F. Starr, Vice President and Medical Director.
♦Policyholders' National Life Insurance Company, Sioux Falls, South Dakota.
Mr. S. H. Witmer, President.
♦Protective Life Insurance Company, Birmingham, Alabama.
Mr. Alex C. Wellman, Vice President.
♦Provident Life and Accident Insurance Company, 727 Broad Street, Chatta-
nooga, Tenn.
Dr. Charles R. Henry, Medical Director.
♦Provident Mutual Life Insurance Company, 46th and Market Streets, Phila-
delphia, Pa.
Mr. F. P. Todd, Vice President and Insurance Supervisor.
♦Puritan Life Insurance Company, Providence, Rhode Island. ^,
Mr. Earl M. Pearce, Assistant Secretary.
♦Reliance Life Insurance Company, Pittsburgh, Pennsylvania.
Mr. T. J. McKenna, Vice President.
♦Seaboard Life Insurance Company, Houston, Texas.
Mr. Burke Baker, President.
♦Security Mutual Life Insurance Company, Binghamton, New York.
Mr. F. D. Russell, President.
♦Standard Life Insurance Company, Pittsburgh, Pennsylvania.
Mr. J. D. Van Scoten, Vice President.
CONCENTRATION OF ECONOMIC POWER 4911
State Farm Life Insurance Company, Bloomington, Illinois.
Mr. J. H. Miller, Chief Underwriter.
*State Mutual Life Assurance Company, Worcester, Massachusetts.
Mr. Farnham B. Goulding, Manager of Conservation Division.
*Sun Life Assurance Company of Canada, Montreal, Canada.
Mr. J. B. Mabon, Associate Actuary.
*Sun Life Insurance Company of America, Baltimore, Maryland.
Mr. S. Z. Rothschild, Third Vice President.
*The Travelers Insurance Company, Hartford, Connecticut.
Mr. L. M. Robotham, Secretary of the Life Department.
*Union Central Life Insurance Company, Cincinnati, Ohio.
Mr. Clyde W. Ferguson, Agency Secretary.
Union Labor Life Insurance Company, 570 Lexington Avenue, New York, N. Y.
Mr. Morris Pike, Vice President-Actuary.
*Union Mutual Life Insurance Company, Portland, Maine.
Mr. Ji. Thomas Lehman, Actuary.
*United Life and Accident Insurance Company, 24 South Main Street, Concord,
N. H.
Mr. John V. Hanna, President and Actuary.
*United States Life Insurance Company, 101 Fifth Avenue, New York City.
Mr. George M. Selser, Assistant Secretary.
*Volunteer State Life Insurance Company, Chattanooga, Tennessee.
Mr. H. H. Mansfield, Agency Secretary.
*Washington National Insurance Company, Chicago, Illinois.
Mr. James F. Houlihan, Supt. of Agencies, Ordinary Department.
*Western and Southern .Life Insurance Company, Broadway and Fourth Street,
Cincinnati, Ohio.
Mr. R. P. Edwards, Manager, Ordinary Issue Department.
*Yeomen Mutual Life Insurance Company, Des Moines, Iowa.
Mr. Arthur W. Larsen, Actuary.
Note. — The companies that are indicated by the asterisk above are also signatory to amended Paragraph
3, which eflects an exchange of the names of agents in replaced cases.
7/6/38.
Exhibit No. 818
[From files of The Equitable Life Assurance Society]
New York Life Insurance Company
51 Madison Avenue, Madison Square, New York, N. Y.
L. Seton Lindsay, Vice President
October 6, 1931.
Mr. Frank L. Jones,
Vice President, The Equitable Life Assurance Society,
393 Seventh Ave., New York, N. Y.
My Dear Mr. Jones: I have your letter of October 2nd.
You will recall that when I wrote you under date of June 25th I mentioned
that the President of the Company would be willing to sign the agreement after
the Equitable, Mutual Life, Metropolitan, Prudential, Aetna, and Travelers had
also agreed to sign.
On the list that you give in your letter of October 2nd we find all these companies
have signed excepting the Mutual Life and the Prudential.
Before taking the matter up with the President again I would like to know if
the Prudential and the Mutual Life are refusing to sign, or if they have since
signed.
You appreciate that we are heartily in accord with the idea of the preventing
of lapses and twisting of business, but dislike to sign an agreement of the kind
submitted unless it is being signed by all the other principal companies.
Very truly yours,
(Signed) L. Seton Lindsay,
Vice PTcsidcTit*
[Stamped: Dept. F. L. J. Mar. 28, 1939. A. McN.]
[Notation: Return to twisting folder.]
4912 CONCENTRATION OF ECONOMIC POWER
October 13, 1931.
Mr. L. Seton Lindsay,
Vice President, New York Life Insurance Company,
61 Madison Avenue, Madison Square, New York City, New York.
My Deak IvIk. Lindsay: On my return today I had your letter of October 6th.
I cannot say definitely that either the President of the Prudential or the President
of the Mutual Life has seen the suggested plan for the elimination of substituted
or twisted business.
Our Committee has letters, however, from Officers of both companies in which
they state they are in fuU sympathy with the plan, but that they will not sign
the forms at this time. I quote from Second Vice President Sargent's letter:
"We would prefer, however, to reserve to ourselves freedom of action and be
in a position to handle each case on its merits, and, if necessary, to go further
than the Committee program contemplates. On the other hand, we can con-
ceive of circumstances where it might not be to the interest of the Companies
involved to carry out the Committee program in every detail."
From Vice President Munsick's letter, I quote the following:
"We are in thorough sympathy with the desire expressed that the substitution
of new insurance for protection that has been in force for some time be discouraged
in every way * * * we believe that every case that presents itself for
consideration can be adjusted by the companies interested, and that the gesture
of a formal subscription to a plan over the signature of the President of the
company is unnecessary."
I hope that you and President Buckner in a reconsideration of thjts plan will
think it advisable to go along with the companies that have already affixed
their signatures to the agreement. I have just heard from President Linton
who has talked with the Presidents of the Massachusetts Mutual and of the
John Hancock and he thinks that they are both favorable to the plan. Ac-
cordingly, the Committee has just sent the necessary forms to them for their
consideration. I understand that neither of these Presidents had seen the
agreement at the time that Mr. Linton spoke to them, which was probably last
week.
As I stated to you in my previous letter, the Committee will make a report at
Chicago the last week of this month.
With personal regards,
Yours truly,
(Sgd.) Frank L. Jones,
Vice President.
C.
[Letterhead of New York Life Insurance Company]
October 15, 1931.
Mr. Frank L. Jones,
Vice President, The Equitable Life Assurance Society,
393 Seventh Ave., New York, N. Y.
My Dear Mr. Jones: I have just had a talk with the President of our Com-
pany in regard to the contents of your letter of October 13th.
We are both anxious to cooperate in every way with the program of saving
insurance already in force and preventing twisting of business.
As you are probably' aware we have gone to some length to make our views
on this subject public. The best evidence of this was the recent address by our
Director, Mr. Calvin Coolidge, which as you undoubtedly know was broadcast
all over the country. I enclose copy of the address and draw your special at-
tention to the part marked on Page 7.
On the other hand, we rather agree with the views of the Prudential as quoted
in your letter and would much prefer to adjust each case with the Company
concerned, rather than to go through the gesture of a formal subscription to a
plan over the signature of the President of the Company.
If there is any doubt in the minds of any of the other companies with regard
to our stand on the question of twisting, I will be very glad to supply the meeting
you refer to with copies of J Mr. Coolidge's address.
With personal regards and assuring you that while we have not signed the
agreement you submitted, you may count on us to cooperate in preventing
business being twisted from one company to another, believe me
Very truly yours,
''Signed) L. Seton Lindsay,
Vice President.
CONCENTRATION OF ECONOMIC POWER 4913
Exhibit No. 819
[From files of The Equitable Life Assurance Society]
[Notation: Dept. F. L. J. Mar. 28, 1939. A. McN.]
Exceptions Made by Some of the Signatory Companies in the Matter of
THE Replacement op Life Insurance
The following companies have noted on the printed form the exceptions which
follow their names:
Aetna Life Insurance Company. — Eliminates Term Insurance.
American Central Life Insurance Company. — "We have followed the practice set
out above for the past few years, and we are particularly glad that the companies
who are willing to follow a similar plan are doing so under an organized agreement.
"With reference to paragraph three, we prefer to notify the company involved
and hold up action on our application in accordance with the necessities of the
case involved.
"While this practice has been followed by us for the past few years, with all
companies, and we expect to so continue such practice, our acceptance of this
agreement has to do only with the companies who have signed a similar agree-
ment."
Amicable Life Insurance Company. — "An exception we desire to make to this
plan is that we shall communicate the information only to such Companies as have
placed their signatures to the agreement."
Atlantic Life Insurance Company. — "Paragraph (3) above stipulates that the
issue of the policy will be delayed for 'at least two weeks.' We believe that in
most cases two weeks is too long; we shall delay the issue for such period as in the
circumstances may appear reasonable."
California-Western States Life Insurance Company. — "That the provisions of
this agreement shall not apply to term insurance but that they shall apply to the
so-called life expectancy and long term modified life policies."
The Canada Life Assurance Company. — "For mechanical reasons we would
like, for the time being, to omit the question referred to in Section 1 from our
'Agent's Report,' although in due course we perhaps may overcome the said
difficulties. Meantime we are in agreement with the principle of having the
question in the Agent's Report as well.
"Again referring to Section 1 we prefer to have the question in the first part
signed by the applicant rather than in the medical part."
Also eliminates Term Insurance.
Connecticut Mutual Life Insurance Company. — "Referring to Section #3, the
Connecticut Mutual would modify its acceptance on the following basis:
"When a company shall receive an application for new insurance which appar-
ently will replace outstanding insurance in another company, it shall promptly
notify the other company and shall delay the issuance of new insurance until it
has heard from the other company or until it is satisfied the other company has
had sufficient opportunity to -conserve its business. If a company shall learn that
a replacement of its insurance has been made or is contemplated in another com-
pany, it shall feel at liberty at once to notify the company involved."
Continental American Life Insurance Company. — "(1) That this agreement is
not applicable to the replacement of term insurance by life or endowment insur-
ance; (2) That we do not agree to delay the issuance of our policy beyond the
expiration of the grace period of the policy that is to be replaced; and (3) That,
in view of the limited territory in which we operate, we shall delay the issuance
of such new insurance for only one week, instead of for two weeks, wherever the
Home Office of the other company is situated within overnight mail distance from
our Home Office."
Equitable Life Insurance Company of Iowa. — "Except under (3) we desire to
modify the fixed period of two weeks, so that this is left to the discretion of the
issuing company in each individual case. The notifying company usually receives
a prompt re|)ly to inquiries and then ample time is granted for a final adjustment."
Home Life Insurance Company. — "As respects Paragraph (1) of the Plan, we
have at present under consideration a revised form of application in which it is
proposed to insert a question as to whether the new insurance is to take the
place of outstanding insurance either in this or in another con\pany.
"A final decision as to whether such question shall be included in the application
or in the medical part of the application has not been reached and wc reserve the
privilege of reaching such a decision on that point as seems most advisable to us.
"We agree unreservedly to Paragraph (2).
4914 CONCENTRATION OF ECONOMIC POWER
"We agree to Paragraph (3) with the exception of the provision that the issuance
of the new insurance shall be delayed for at least two weeks. Our only objection
is to a certain specified and designated period binding, without exception, upon
this company. This does not mean that we shall not afford any other company
involved what, in our best judgment under the particular circumstances, is ample
opportunity of conserving its business.
"As respects Paragraph (4) we have found that a complete and detailed record
of every case entails some practical points, as a result of which our record has
not been full and complete. We reserve in this respect the privilege of keeping a
record which in our best judgment serves the end in view in a practicable manner."
John Hancock Mutual Life Insurance Company. — "We shall not, of course, wait
two weeks in every case, as no doubt the other company concerned, as well as
ourselves, when we are the company affected, will be able to settle the matter
without waiting that long."
The Lincoln National Life Insurance Company. — "That the provisions of this
agreement shall not apply to Short Term Policies but shall apply to so-called Life
Expectancy and Long Term Modified Life Policies."
Massachusetts Mutual Life Insurance Company. — "While we do not have the
question in our application blank, we require that each application be accompanied
by a signed statement to the effect that the insurance applied for is not to replace
insurance in this or any other Company."
Minnesota Mutual Life Insurance Company. —
"1. Term policies excepted in our relations with other companies also excepting
Term policies.
"2. Exception also made with respect to any other company which does not
subscribe to plan."
General American Life Insurance Company. —
"1. Exclude the replacement of Term Insurance by more permanent forms
from replacements prohibited.
"2. We reserve the right to release our policy in less than two weeks if, in our
judgment, a shorter period of time is sufficient.
"3. We do not agree to do more than to reciprocate the commitments of the
other companies; in other words we do not want to agree to notify another com-
pany and hold up our policy for two weeks where the company has not become a
signatory company to this agreement."
Mutual Benefit Life Insurance Company. —
"(1) We do not favor any question regarding substitution either in the appli-
cant's part of application or in the medical report.
"(2) At present we are not inclined to delay the issuance of new insurance for
more than one week, pending an attempt on the part of another company to save
business which is about to be terminated.
"(3) We are willing to keep a record of such twisting cases as are indicated:
(i) by answers to the inquiry in the Agent's Report, (ii) by correspondence with
other companies. A more thorough investigation of such transactions would
entail much more work than we consider profitable at the preseiit time."
National Life Insurance Company. —
"1. The National has for many years contained the question referred to on
its application blank, but not in the medical part. When the next supply of
medical forms is printed, this question will be included.
*******
"4. This Company has not at present developed the correct method for keeping
a record of the amount and kind of insurance in cases where intercompany sub-
stitution is either attempted or consummated. When such a plan is developed, it
will be made a part of Company practice."
National Life and Accident Insurance Company, Inc. — "We do not believe that
the provisions hereof should be construed as applying to Term Insurance."
New England Mutual Life Insurance Company. —
"1. The New England Mutual has no present -intention of changing the
question regarding replacements from the Agent's questionnaire to Part II of the
application.
"2. The New England Mutual believes that the replacement of term insurance
does not create the same obligation as when permanent insurance is replaced, and
retains the right to pay its regular commission scale."
Old Line Life Insurance Company of America. —
"1. That the provisions of this agreement should not apply to Short-Term
Policies but shall apply to so-called Life Expectancy and Long-Term Policies.
(CONCENTRATION OF ECONOMIC POWER 4915
"2. We desire to modify the fixed period of two weeks so that it is left to the
discretion of the issuing company in each individual case. The notifying com-
pany usually receives a prompt reply to inquiries and then ample time is granted
for a final adjustment."
Pacific Mutual Life Insurance Company. —
"1. Upon the first revision of our Life application form a statement will be
included in Part I of the application over the signature of the applicant. We
prefer to include the statement in this form rather than in the medical portion of
the blank.
"3. AVe prefer to modify the fixed period of two weeks so that discretion can
be used in each individual case, giving a reasonable period of time in which to
make the necessary investigation. Our experience has been that most cases can
be adjusted well within the two-week period.
"Ten-year and shorter period term policies are excluded from the agreement
"The form of record card submitted may not be adopted, but our Company will
install a system of keeping records suitable to our facilities."
Pan-American Life Insurance Company. — "I have not, in the agreement itself,
made any exception to the plan, but I have in mind that if such an arrangement
is entered into, it should be reciprocal and should not be binding upon companies,
as it applies to those companies that are unwilling to execute the agreement in
question."
Penn Mutual Life Insurance Company. — "We understand that Term Insurance
is not included in the operation of this plan."
Provident Mutual Life Insurance Company of Philadelphia. — "In cases where
new life or endowment insurance in our Company is to take the place of out-
standing term insurance in another company, we do not feel that it would be
necessary for us to delay the issuance of the new insurance for the two weeks'
period. We shall probably issue the insurance, and then notify the other company
that we have done so."
Sun Life Insurance Company of America. — "No reservations, except that this
Company will reciprocate any exceptions noted by other signatory companies."
Colorado Life Company. —
"A. Instead of two weeks in the absolute, such length of time as seems to us
reasonable in relation to the case involved.
"B. Term insurance.
"C The policies of some age where the loan value is of considerable amount and
which shall have been borrowed in full and where we do not have reason to believe
that the loan will be paid off."
Gibraltar Life and Accident Insurance Company. —
"A. Instead of two weeks in the absolute, such length of time as seems to us
reasonable in relation to the case involved.
"B. Term insurance.
"C. The policies of some age where the loan value is of considerable amount and
which shall have been borrowed in full and where we do not have reason to believe
that the loan will be paid off."
Great-West Life Assurance Company. —
• "1. We desire to modify the fixed period of two weeks and to feel free to issue
in a shorter period when sufficent opportunity has been given the other company
to conserve its business.
"2. In other respects there are no reservations, except that we shall reciprocate
any exceptions noted by other signatory companies."
124491—40 — pt.
4916
CONCENTRATION OF ECONOMIC POWER
Exhibit No. 820
[From files of The Equitable Life Assurance Society]
Six- Year Record of Intercompany Replacements
COMPANY No. 8
Company
Year
Opportunities
Oflered to Other
Companies
Opportunities to Save Our Business
Oflered by Other Companies
Cases
Amount
Cases
Amount
Saved
%
Saved
No. 8 [Prov. Mutual Life].
1933
181
146
78
39
56
40
448
419
322
298
208
179
82
100
60
52
43
54
663
668
381
267
378
332
361
361
197
197
219
138
11
28
46
43
36
27
$1, 926, 100
1, 335, 250
785, 505
471, 524
438, 500
294, 500
3, 587, 977
2,303,516
2, 336, 202
1, 850, 787
1, 369, 236
1,151,045
1, 096, 181
881, 528
516, 500
334, 600
415,137
47, 750
4, 373, 580
3, 388, 846
1,782,914
1,215,572
1, 862, 707
1,386,519
6, 620, 328
7, 457, 555
4,441,536
5, 982, 445
4,316,647
3, 058, 829
135, 500
154, 900
140, 200
164, 550
135, 500
162, 500
90
131
118
170
97
49
116
159
178
191
149
150
103
71
39
33
43
41
553
473
442
288
324
237
803
650
590
556
460
190
96
101
70
57
43
34
$1,501,546
1, 908, 250
1, 930, 194
1, 153, 558
1,155,060
812, 179
1,490,683
2,614,460
1,513,750
2, 225, 956
2, 092, 300
1,131,220
981,300
597, 580
292, 000
231, 182
229, 700
607, 522
11,531,874
8, 644, 376
6, 169, 449
3,157,820
4,081,025
2, 440, 436
7, 365, 421
7, 090, 105
6,310,4.38
5,334,917
3,431,318
3, 035, 679
703, 299
941,305
346, 125
2Sf;, 692
330, 343
168, 800
$733, 046
695, 000
1, 265, 139
550, 000
493, 160
538, 712
553, 363
1, 330, 750
1,089,950
1, 305, 704
951,780
495, 200
458, 300
318, 000
98,000
154, 000
108, 000
504,114
6,246,411
3,012,339
2,562,412
1,261,656
2, 102, 856
1,153,665
3, 395, 007
2,592,791
2, 730, 938
2, 756, 896
1, 488, 388
1, 808, 980
273, 680
306, 593
167, 945
142, 301
170,843
94, 000
48 8
1934-..- --
1935
36.4
65 5
No. 30 [Conn. Mutual
Life].
1936
1937..- -.
1938 (8 mos.) . -
1933
1934 --
47.7
42.7
66.3
26
33
1935
41
1936
59
1937
45
No. 50 [Lincoln Natl.
1938 (8 mos.) . .
1933
44
46
Life].
1934.- --
53
1935
34
1936
67
1937
47
No. 29 [Eq. Life Assur-
1938 (8mos.).-
1933
83
54.1
ance Society].
1934
34 8
1935
41.5
1936
39.9
1937
51 5
No. 18 (Mutual Life Ins.
1938 (8 mos.)..
1933... .-.
47.3
46.1
Co.].
1934
36.6
1935
43.3
1936
51.7
1937
43.4
No. 61 [Bankers Life Co.].
1938 (8 mos.)..
1933
59.6
38.9
1934
32.5
1935
48.5
1936
49.6
1937
56.8
1938 (8 mos.)..
55.6
Note. — Penned notations enclosed in brackets.
[Stamped: Dept. F. L. J. Mar. 28, 1939.
A. McN.l
CONCENTRATION OF ECONOMIC POWER
4917
Exhibit No. 821
[From flies of The Equitable Life Assurance Society]
Consolidated Report of Replacement Figures for the Eight Months Period Ending
August 31, 1938
SiaNATORY COMPANIES
Opportunities Offered
Other Companies
Opportunities Received From Other Companies
Company '
Total
Cases
Amount of
Our Applica-
tion
Total
Cases
Conserved
Lost
Cases
Amount
Cases
AmoQnt
No. 1
14
$334, 400
2
2
137
28
5
3
22
41
2
31
69
71
5
2
$11,000
3
154
9
4
993, 736
104, 130
16,000
........
3
'$1,477,074
472, 000
3,000
4
14
2
3
6
23
1
18
58
41
2
153, 077
2 0(K)
5 _
6 -
5,000
31 500
7--.
16
18
1
13
11
30
3
115, 500
448, 533
1,000
154,000
l.')4,000
262, 583
18, 250
8..
34
273, 500
217 467
9.--
1 000
10
19
119
22
4
1
8
176
12
119
89. 250
667, 830
106, 140
5,500
2,000
70, 206
2,958.137
14.067
2, 974, 909
121 000
11...
796, 765
337,417
14 000
12...
13... -
14... -.-
15. --
16...
5
59
12
121
7
100
8
1
14
35
4
2
24
80
167
117
9
9
5
1
7
16
40
1
...
49
1
28
2
1,000
'812,956
15,082
1, 023, 980
2,000
463. 068
8,000
4
15,010
17
18
7
72
6
70
6
1
8
24
1
13
55
109
77
6
7
4
1
6
11
24
15, 698
886, 532
18 600
19...
20
94
6
2
16
17
7
1, 276, 972
57. 500
2,324
106, 300
130, 200
33,500
1, 197, 404
38 500
21...
22
1,000
23
4
11
1
6
25
58
40
3
2
1
32,204
105, 667
19,000
40,000
57, 471
287,100
822, 567
407,200
7,000
5,200
5,000
54 205
24 .
273 750
25
13,041
26.-
6,000
27
2
31
'?43
142
3
1
3
22
6
33
9
3
16
35
7,000
111,000
1,056,661
1, 054, 365
25.000
1,000
15,000
431, 500
49,200
204, 500
18,400
9,000
46.000
483,541
46, 626
28 .
320,230
29
1,014,007
30 ..
545,920
31--
36,000
32 -
9,000
33---
9,500
34- -.
10,000
35 -
1
5
16
1,000
48,000
8,800
83,500
36
104, 250
37.-.
24,086
38
39..
8
48
2
3
19
3,000
231,000
5
29
2
7, ."iOO
40 .-
486, 750
41
6,000
42 .
1
3
5
170
58
60
87
149
36
92
9
57
2
7
14
2
69
15
2
25
113
• 9
l,flOO
40,000
27,000
2, 138, 921
331, 500
860, 682
1,226,000
753, 044
442, 845
851,040
20.500
610, 963
15,000
58,000
17,685
30,000
845,259
29, S.-^)
11,000
133,500
837,885
44,500
• 43.
44...
3
4
134
217
27
137
147
25
134
2
1
37
98
m
63
77
10
48
7,000
1,000
725,480
1, 205, 546
56,331
779,413
307, 850
449,114
157, 058
1
3
91
119
mi
74
70
15
86
1,000
3,000
45 ..
1, 228, 300
46 — _.
47.-
1,021,023
119,000
48 --
772, 687
.49
223,411
50
64,137
51 .
559, 782
52
53
31
1
15
2
9
1
5
I
20,000
1,000
18,000
1,000
22
186, 691
M
55
10
1
34, 076
56.-
1,000
57
58
48
6
18
28
47
13
19
3
6
14
14
6
303,000
7,000
42,200
49,500
332.500
68.000
29
3
12
14
33
7
459, 500
59
45,000
60
114,700
61
70,800
62
461,700
63 -
64.503
Total
2,371
$23,027,642
2.354
816
$12,043,227
1,328
$12,312,302
' 13 Compacles reported no replacements; 17 Companies submitted no reports.
' Opportunitle-s received but no account of distribution between conserved and lost.
4918
CONCENTRATION OF ECONOMIC POWER
Consolidated Report of Replacement Figures for the Eight Months Period Ending
August SI, 1938 — Continued
NONSIONATORY COMPANIES
Opportunities Offered
Other Companies
Opportunities Received From Other Companies
Company
Total
Cases
Amount of
Our Applica-
tion
Total
Cases
Conserved
Lost
Cases
Amount
Cases
Amount
No. 10
11
3
23
8
6
19
11
6
89
37
2
16
24
21
98
20
16
11
1
2
39
$9,500
20, 207
20,340
2,000
83,920
132, 225
54,000
329, 858
96, 680
6,000
85,000
101, 000
31,895
316.021
30,000
81,143
94,400
1,382
29,000
153, 183
6
11
12
12
69
15
16
70
33
?
24
93
164
93
27
16
2
6
22
3
1
3
6
29
6
6
21
12
3
3
5
36J^4
62
30
11
4
1
5
8
$8,000
50, 000
9.000
16, 342
785, 000
162. 500
21, 000
331, 098
88, 000
2,350
11,000
63, 000
572, 500
152. 382
53, 242
49, 500
7,000
2,500
44, 500
179, 500
3
10
9
6
40
9
10
49
21
3
4
17
102
63
16
12
1
1
14
$25,000
75, 167
12 - .
40,000
9 181
17
18
340, 167
20 . . ...
76 000
24
54 000
.29
272, 704
30 .
90 100
32
36
2,000
52, 500
45
79, 000
46
247, 108
49
184, 485
61
63
58
79, 994
53, 010
96, 500
59. —
61
62_
5,000
4,000
148, 901
{Stamped: Dept. F. L. J. Mar. 28, 1939. A. McN.]
Exhibit No. 822
[From flies of North American Reassurance Co.]
American Central Life Insurance Company
Indianapolis
Office of Hebbebt H. Woolen, President
Established 1899
May 15, 1929.
Mr. Lawrence M. Cathles,
President, North American Reassurance Company,
New York City, New York.
Dear friend Cathles; As I told you in Biloxi, Henry Buttolph was then in
Fort Wayne for a conference with Arthur Hall. The conference resulted in
their concluding that we were all indulging in practices in the reinsurance business
which were very detrimental to the business and to our several companies and that
a group of us should meet for the purpose of devising means for doing away with
these abuses, if possible.
Therefore, I am today inviting you and Arthur, as Presidents of your companies,
to be my guests at luncheon at the Edgewater Beach Hotel on Wednesday, June
5th, at 12:30, for the purpose of discussing these problems in a broad and very
general way.
Following the luncheon, I suggest that we adjourn to a more general meeting
where the discussion could be more detailed and made to include our associates
whom we had brought to Chicago with us. At such a meeting our Company
would be represented by Harry Wilsc .i, Henry Buttolph, and me. I suggest
that if you approve of this arrangement you bring persons in similar executive
authority in your organization, to the end that such conclusions as we may be able
to arrive at may be fully understood and faithfully carried out. At this general
meeting it would be my hope that each of us would, in a strictly impersonal way,
present all of the practices in the business which seem to him to be destructive
and at the same time present such constructive ideas as seem to him to be proper.
I am aware that this small group does not begin to cover the reinsurance field.
However, my thought is that if we could agree upon a program, we might deem it
advisable to call a more general meeting in the hope that that program, modified
CONCENTRATION OF ECONOMIC POWER 4919
if necessary, might come to be regarded as the general code of behavior for this
branch of the business. On the other hand, I feel that it would be extremely
inadvisable to call a larger meeting until after our three companies had attempted
to arrive at a general understanding.
I have suggested this date because the Insurance Commissioners, the Disability
Committee of the American Life Convention, and the Institute of Actuaries are all
meeting in Chicago at this time and place, and I assume that it would be more
convenient for us to meet there than elsewhere.
Yours very sincerely,
(Signed) Herbert M. Woolen.
HMW MGC.
Mat 17, 1929.
Mr. Herbert M. Woolen,
President, American CentraVLife Insurance Company,
Indianapolis, Indiana.
Deab Mr. Woolen: I was very much interested to receive today your letter
o&'the 15th instant. All of your suggestions appeal to me and I shall be most
happy to lunch with you and Mr. Hall at the Edgewater Beach Hotel June 5th.
Unless Board meetings of the Institute of Actuaries interfere, Arthur Coburn
will attend the suggested adjourned meeting with me.'
I appreciate your letter very much.
Very truly yours,
>
President.
LMC: D.
Exhibit No. 823
[From files of North American Reassurance Co.]
[Notation: July 3, 1929. By Herbert M. Woollen, Pros., American Centrr'
Life Ins. Co.]
[Copy]
Mr. Emmett C. May,
President, Peoria Life Insurance Com.pany,
Peoria, Illinois.
Dear Mr. May: This letter is my attempt to carry out my promise to' you to
report the results of the recent meeting with reference to reinsurance questions
I had an understanding with the representatives of the other companies presem
that I would send them a copy of this letter, and that they in turn would writt;
you anything further that seemed to be required. You will doubtless hear from
them shortly.
The meeting was opened at the Keenan Hotel on the mofning cf June 26th
and adjourned to the Country Club, where luncheon was served and the meeting
carried to its conclusion.
The Lincoln National was represented by Messrs. Hall and McAndless; the
North American Reassurance was represented by Messrs. Cathles, Coburn, and
Oden, while the American Central was represented by Messrs. Buttolph, W^ilson,
and myself.
The representatives of the companies first indulged in a getieral discussion of
the reinsurance business and the necessity of its being put into a more orderly
condition, the delegations unanimously agreeing that there was a crying need for
change and improvement. They also pledged themselves to use their best efforts
toward bringing them about.
After thus -clearing the general atmosphere, the followiTrg sixteen subjects were
suggested as being the things in the business most needing consideration:
1. Rate cutting.
2. D. I. Rate Cutting.
3. Disability Rates and Commissions.
4. Giving out M. I. B. Information — directly or indirectly.
5. Furnishing actuarial and accounting Services by Reinsurance Companies.
6. Furnishing Underwriting Service by Reinsurance Companies.
7. Coinsurance — Guaranteeing the Dividends of Participating Companies.
8. Traveling Representatives from the Reinsurance Company.
9. Supplyin.u the forms, manuals, and other data in an organized way.
10. Underbidding on sulistandard business — either by changing the rating of
the undcrvvritin;; department or by changing the rate.
4920 CONCENTRATION OF ECONOMIC POWER
11. Refunding mortality savings.
12. Refunding taxes on reinsurance premiums.
13. Twisting of each other's accounts — directly or indirectly.
14. Issuing D. I. without life reinsurance.
15. Issuing disability without life reinsurance.
16. Handling of applications under aviation and submarine operation.
These items were disposed of as follows:
Item 7 — Was laid aside as not being a practical subject for discussion at this
time.
Item 6 — Was laid aside for the same reason.
Items 12 and 13 — Were discussed generally and both reserved for more detailed
discussion at a meeting to be held later, as will be explained further on in this letter.
However, it was agreed that Item 13 presented a very serious problem and that
the practice of twisting accounts must be stopped and that satisfactory means
for bringing about that result must be devised at the later meeting.
Items 1, 2, 3, and 10 — -Were discussed more or less together, and it was agreed
that rates, commissions, and underwriting practices should be made as nearly
uniform and standard as possible and that the practice of cutting and underbidding
would immediately be discontinued.
Item. 4 — Was given a great deal of consideration, and it was agreed that com-
panies must exert every possible effort to avoid giving out, indirectly or directly,
M. I. B. information. However, it seemed to be the opinion of those men present
that it was entirely legitimate and in conformity with the rules of the M. I. B.
so far as we understand them, for us to give to our clients, upon inquiry, such
suggestions as might enable those dients to avoid bad underwriting. Thus,
would we avoid loading our clients and ourselves with bad business. This is a
very difficult subject upon which to write and much more will have to be said
about it at our next meeting.
The fear was expressed, generally, that unless the companies were much more
careful about their practices in connection with this item serious consequences
would result to them sooner or later.
Items 5, 6, and 9 — Were discussed in a general way, and I believe that I am
right in saying that it was' the consensus of opinion that activities under these
headings should be very materially restricted. Particularly should this be true
wi*h respect to Item 5, for the reason that we are already invading the field of
CO: ilting and private actuaries and we are likely to involve ourselves with these
[ .))le, if such practices continue. The opinion with respect to Items 6 and 9
were not quite so definite and will have to be clarified later.
Item 11 — Was discussed generally. It is my understanding that it is to receive
further consideration later on.
Items 14 and 15 — It appears to be the rather general practice to write these
classes of cases without life reinsurance.
Item 16 — Nothing was determined with respect to this point.
I realize that this analysis of the topics under discussion may appear to you to
be rather rambling. However, that was the method we used, and it is, I beheve,
logical.
In order further to amplify the report I am sending to you a copy of the minutes
of the meeting, which was, of course, informal. The minutes were kept bj' Mr.
McAndless in a very informal way.
After the discussion to which I have referred took place it was determined that
a Reinsurance Conference should be formed, consisting of the three companies
represented at the meeting and your own, if you care to go further with the
matter. As the minutes show, a committee, consisting of Messrs\ Coburn,
Mc.A.ndless, and Buttolph, and Pattison, on rates and underwriting was appointed
for the purpose of stud3-ing the ways and means whereby rates and underwriting
practices could be standardized. The meeting of this committee will be held at
Mr. Arthur Hall's house in Leland, Michigan, on July 26th. It was the earnest
hope of everyone that Mr. Pattison, representing your company, could be present.
If he can, won't you please notify the Chairman, Mr. Arthur Coburn, of the
North American Reassurance Company?
A further thoag:ht in connection with this committee was that the underwriters
of the various companies should keep a careful record of cases coming up between
meetings of the commitiefe which appeared to them to require discussion for any
reason. These cases shotild then be brought to the committee meeting for the
purpose of considering them, with the view of reaching more standardized opinions
i-«jgarding the questions involved. It was also decided, I believe, that the next
■:neeting of this conference should be held in Cincinnati perhaps on the first day
CONCENTRATION OF ECONOMIC POWER 4921
of the meeting of the American Life Convention, at which time steps would be
taken looking toward a more definite organization of the group.
I am enclosing a letter from Mr. Coburn to Mr. Pattison", which Mr. Coburn
sent to me for delivering to Mr. Pattison after checking it over with my records
and understanding regarding the meeting. Will you be good enough to hand it to
Mr. Pattison with this explanation and this further comment? Mr. Coburn sent
a copy of the letter which he wrote to Mr. Pattison to each member of the Com-
mittee. In Mr. Buttolph's reply he suggested that the question of coinsurance
should be gone into in much more detail than Mr. Coburn's letter might indicate
to be the intention. Mr. Coburn refers only to coinsurance of disability benefits,
while we feel that the committee should take up the whole coinsurance question
and consider not alone commission rates, but commissions in connection with
premium rates, surrender charges, and the possible guarantee of dividends or a
fixed allowance in lieu thereof. Of course, you wiU give this point full considera-
tion.
If I have not made anything clear, please let me know and J'will do my'best to
cover your point. I trust that what we have done will meet with your approval,
that it will be the pleasure of the Peoria Life to send Mr. Pattison to the com-
mittee meeting, and tliat we shall all gather around the table in Cincinnati this fall.
I think I am entirely correct in saying that the spirit of the meeting was grati-
fying indeed, and that there was a very genuine desire on the part of the people
present to get together for the betterment of the reinsurance business.
Yours very sincerely,
Exhibit No. 824
[From files of Nortli American Reassurancf Co.]
Rates and Underwriting
The Committee on Rates and Underwriting met on July 26th and 27th [1929J
at Mr. Hall's summer home in Leland, Michigan. Messrs. Buttolph, McAndless,
Pattison, and Coburn were present.
The efforts of the Committee were directed to encourage constructive rather
than destructive competition between the respective companies and, with that
end in view, the Committee arrived at certain rates and rules which in their
opinion can be recommended to promote the best interests of the business.
Schedules of new nonparticipating Annual Renewable Term Rates for —
1. Automatic Standard Business.
2. Facultative Standard Business.
3. Substandard Business.
are enclosed. These schedules will, on the whole, represent a slight increase over
the present established rate schedules.
The substandard rates will be the same for automatic and facultative contracts.
All of these are minimum rate schedules on which no commissions are to Ijc
allowed. The new rates are to be used in solicitation on and after August 15,
1929. Where propositions have been presented to companies on the basis of
old-rate schedules, the contracts must be signed not later than September 15,
1929, or the new-rate schedules apply.
It was understood that the automatic rates should i)e used only where all or a
definite part of the first excess was conliacted for. The facultative rate schedule
applies on second or subsequent excess contracts.
DOUBLE INDEMNITY
Where the original direct writing company charges $1.25 per thousand for
Double Indemnity the minimum reinsurance rate is 60^ first year and $1.20
renewal years per thout'and.
Where the original direct writing company charges $1.50 or more per thousand
the minimum reinsurance rate for standard Double Indemnity business shall
be 50^ first year and $1.35 renewal years per thousand dollars of Double
Indemnity insurance.
DISABILITY BENEFITS
The question of reinsuring Disabilitj' Benefits was fully discussed. It was the
unanimous opinion of the Committee that in quoting rates for reinsurance of
Disability Benefits unfair competitive practices had not been indulged in.
4922 CONCENTRATION OF ECONOMIC POWER
One Company has quoted definite reinsurance rates for the various Disability
clauses they have reinsured and the other three companies have reinsured tliis
benefit on a coinsurance basis, usually allowing commissions only sufficient to
cover the commissions allowed by the original company. It was difficult to arrive
at a uniform practice in reinsuring this benefit and it was agreed that question
might be reopened at a later meeting if occasion demanded.
MORTALITY REFUND CONTUACTS
The majority opinion of the Committee was against the use of mortality
refimd contracts but it was agreed that a mortality refund contract, allowing
33)^% of the excess of the expected claims according to the American Men
Ultimate Table (with 50% of the expected claims for the first policy year) over
the actual claims incurred, might be used provided that not less than the non-
participating conference automatic schedules for standard and substandard
premium rates increased by 5% should be employed in making such contract.
COINSURANCE OF LIFE BUSINESS
The question of permitting a company to recapture or take back life business
that had been coinsured was discussed. It was agreed that the practice of
permitting companies to recapture coinsured life business could be used to break
down the conference yearly renewable term premium rates and this situation
was not satisfactory to the Committee. Accordingly, it was agreed that the
recapture of coinsured life business should not be permitted until the tenth
policy anniversary of the life business coinsured.
UNDERWRITING
It was the consensus of opinion that constructive work could be done in
harmonizing underwriting practices.
UNFAIR BARGAINING BY DIRECT COMPANIES
It was the feeling of the Committee that certain direct writing companies have
told one reinsurer, for the purpose of securing a more favorable contract, that
another reinsurer had already offered more favorable rates than the usual practice
of such other reinsurer. It was the unanimous opinion of the Committee that in
future such statements to one of us should be promptly reported.
EXISTING CONTRACTS
The understanding is that the rates in existing contracts are not affected.
However, if business is being done without a contract the company shall have
until the 15th of September to sign a contract and if no contract has then been
signed the new rates shall apply.
Exhibit No. 825
[From files of North imerican Reassurance Co.]
Notation: 21 August 1936.
Reinsurance Conference Rule^
The Reinsurance Co'-ifcence was organized as a result of the feeling on the part
of the officers of several companies active in solicJ4;ing reinsurance that construc-
tive rather than destructive competition between the respective companies should
be encouraged. With that end in view the following rules were established:
RULES with REGARD TO RATES
(a) Lije Reinsurance. — Schedules of rates are provided for —
1. Automatic standard business. Schedule A.
2. Facultative standard business. Schedule B.
3. Substandard business. Schedule C.
These rates shall be nonparticipating.
The rates given in Schedule A for standard business shall apply only where all
OP a definite part of the first excess (or all the isecond excess where the first excess
is less than two hundred percent r200'^n"> of the original company's retention) is
CONCENTRATION OF ECONOISIIC TOWER 4923
contracted for; otherwise, the rates given in Schedule B shall apply. It is under-
stood, however, that the Metropolitan may continue to offer the rates which they
made effective on January 1, 1930, and that these rates shall be nonparticipating.
The substandard rates shall be the same for all contracts.
Disability.- — Disability reinsurance shall be handled upon a coinsurance basis
in accordance with the rates and forms of the original company. The commis-
sions to be allowed in connection with such coinsurance shall not exceed 75% in
tlie first year and 10% in renewal years or, alternatively, 85% in the first year and
7'^% in renewal years.
Double Indemnity. — Where the original direct writing company charges a basic
rate less than $1.50 per thousand, the commissions allowed in coinsuring such
Double Indemnity shall not exceed 60% in the first year and 7J/2% in renewal
years; thus, if a rate of $1.25 is charged by the original company, the reinsuring
company shall charge a rate of at least $0.50 per thousand in the first year and
$1.15 per thousand in renewal years.
Where the original direct ^vriting company charges $1.50 or more per thousand,
the minimiim reinsurance rate per thousand to be charged shall be $0.50 in the
first year and $1.35 in renewal years.
It is understood, however, that the Metropolitan may continue its practice of
charging $0,625 in the first year and $1.25 in renewal years.
It is satisfactory to allow the same rate of commission on Double Indemnity
as is allowed upon the Life portion of the premium, if all of the reinsurance is
handled upon a coinsurance basis.
Coinsurance. — -The commissions to be allowed in coinsuring policies designated
as "Non- Participating Preferred Risk Policies" shall not exceed 75% of the first
year premium and 7%% of the renewal premium for fourteen renewal years or a
scale comparable to this; furthermore, these commissions shall be granted only to
companies under contract to place with the reinsurer a definite part of their first
excess arising from all business issued.
Reductions shall not be made in coinsured Life business on account of a retro-
active increase in retention by the original company until the tenth policy anni-
versary of such coinsured business.
"Modified Coinsurance." — "Modified coinsurance" contracts shall grant no
expense allowance except for commissions and taxes, on reinsurance accepted at
standard rates, and this form of contract shall not be used to break down the
Conference Yearly Renewable Term rates.
Mortality Refund Contracts. — The opinion of the committee which consideretl
the question of issuing reinsurance contracts providing for a refund based on mor-
tality savings was against the use of such contracts.
Increase in Retention Under Y. R. T. Reinsurance. — Reductions in Yearly
Renewable Term reinsurance, because of a retroactive increase in retention, shall
be permitted only on standard lives in connection with which the Original Company
retained its maximum limit, effective at tfie time reinsurance was obtained, fur
the' .'and form of contract under consideration. When the Original Company's
stanffard retention is $5,000 or more at date of issue, recapture shall be permitted
only after the reinsurance has been in force five (5) years or more; all retroactive
increases in Retention shall provide for the same percentage increase at all ages,
adjusted to the nearest $500.
RULES GOVERNING COMPETITIVE PRACTICES
If any insurance company has in force a reinsurance contract, covering all or a
substantial portion of its reinsurance, with a Conference Company which has
Life, Disability, or Double Indemnity reinsurance rates that are less than the
existing conference rates, any member of the Reinsurance Conference may offer
equivalent rates under a contract covering at least one-half of the first excess
standard reinsurance of such company.
Conference companies shall not extend existing low rates (lower than Schedule
A) under a facultative contract providing for reinsurance of no definite portion of
a company's excess to any contract for a definite portion of a company's excess
nor shaU they make arrangements for autonratic acceptance at such low rates.
No conference company shall increase the percentage of participation in existing
mortality refund contracts without the consent of the other members of the
conference.
Effect of Merger on Reinsurance Contracts. — If Company A merges with Com-
pany B, and the charter of B is continued, a Conference Company having a con-
tract with Company A at less than Conference rates is not permitted to continue
such contract, as an active contract, with Company B.
4924 CONCENTRATION OF ECONOMIC POWER
Automatic Cessions. — Automatic Life reinsurance shall not apply if the sum of
the amount of insurance already in force on the Life and the amount applied for,
currently, is in excess of the following amounts:
Age Amount^
15 $100,000
16 200,000
17 300,000
18 400, 000
19 500,000
' Notation: "$500,000 all ages."
Age Amount '
20 $750, 000
21-50 1, 000, 000
51-55 750, 000
56-60 500,000
61-65 250, 000
If these amounts total more than $2,000,000, it is recommended that rein-
surance be refused.
Automatic Double Indemnity reinsurance shall not apply if the sum of the
amount of Double Indemnity and Principal Sum indemnity already in force on
the Life and the amount applied for, currently, is in excess of $25,000.2
Double Indemnity Claims. — It is recommended that the Original Company
should not be jJfermitted to settle Double Indemnity claims without the approval
of the reinsurer if the amount of the Double Indemnity benefit retained is less
than the amount reinsured.
Replacements. — When an'old policy is replaced by a new policy, it is recom-
mended that the new policy be handled as new business only if the original com-
pany secures complete new evidence of insurability; complete new evidence of
insurability is advisable in all such cases and commissions should be kept at a
minimum.
SERVICE TO REINSURANCE CLIENTS
It is the opinion of the Reinsurance Conference that services rendered to
reinsurance clients should not exceed those ordinarily offered to neighboring com-
panies. The following rules were formulated:
(a) No employee of a reinsuring company shall be loaned to a client or to
a prospective client for a period of more than five days unless the client
pays the entire cost (salary, traveling expenses, and maintenance) of the
employee so loaned, including the cost of the first five days.
(b) Actuarial services shall not be rendered by the Home Office of a
reinsuring company to a client, if such actuarial service puts the reinsuring
company to any material expense such as making up a rate book, preparing
annual statement, making of Gain and Loss statement, etc.
The foregoing rules shall not prohibit the reinsuring company from permitting
an employee of a client company from visiting the Home Office of the reinsurance
company and receiving instruction in underwriting methods, keeping insurance
and reinsurance records, and actuarial work, nor shall the foregoing rules prohibit
an officer or employee of a reinsuring company when paying a visit to the Home
Office of a client company from discussing matters of general insurance and
reinsurance interest, but such visit is not to be unduly prolonged simply to do
work for the client company, which the client company would otherwise have to
pay for.
EXPENSE OP REINSURANCE CONFERENCE
After each meeting of the Reinsurance Conference the Chairman shall deter-
mine the total expenses incurred and shall then notify the Secretary who will bill
each company for its proportionate part of such expenses.
NEW MEMBERS IN REINSURANCE CONFERENCE
If any company requests the privilege of becoming a member of the Conference,
the member company approached shall send notice of the application to the
Secretary of the Conference, who will take the matter up with the other Conference
companies. If no objection is raised by a member company, the company re-
questing membership shall be invited to send representatives to the next meeting.
If any objection is raised, the question shall be taken up at the next meeting of
the Conference.
' Notation: "Sometimes we say $25,000; sometimes $50,000."
CONCENTRATION OF ECONOMIC POWER 4925
ANNUAL MEETINGS OF CONFERENCE
Meetings of the Reinsurance Conference shall be held annually at the time
of the meeting of the American Life Convention, when that meeting is held in
Chicago and, otherwise, at the fall meeting of the American Institute of Actuaries
in Chicago.
* * *
[Notation: Brennan.]
MINUTES OF THE REINSURANCE CONFERENCE HELD AT THE EDGEWATER BEACH
HOTEL, IN CHICAGO, ON WEDNESDAY, JUNE 1, 1938
The following conlpanies were represented at the meeting:
American United-^Mr. Morris.
Business' Men's Assurance — Mr. McVity.
Connecticut General — Mr. Laird.
Lincoln National — Messrs. McAndless and Kalmbach.
Metropolitan — Mr. Craig.
North American — Messrs. Cathles, Oden, and Smith.
Ohio National — Mr. Sturtevant.
Travelers — Mr. Bagley.
The following rules were adopted unanimously:
1. No reinsurance shall be accepted on a risk for an amount which increases
the total amount in force on the life to more than $750,000; provided, however,
that if the original company has a retention of less than $25,000 and retains
its maximum limit currently, then it will be satisfactory to make it possible
for such a company to issue as much as $25,000 even though such acceptance
increases the total in force on the life to more than $750,000.
2. The definition of a "jumbo" risk shall be modified so that no reinsurance
will be accepted automatically on a risk in connection with which the sum
of the amount already in force and the amount applied for currently is in
excess of $500,000. This change is to be made as soon as possible in out-
standing contracts with companies from which reinsurance on such risks
can be expected.
3. Hereafter, the automatic Life coverage on standard and substandard
risks shall be limited to 400% of the original company's maximum retention,
or $100,000, whichever amount is the smaller.
4. The Committee which was appointed at the last meeting of the Con-
ference, to study ways and means of improving the profits under reinsurance
business, is to be continued; this Committee is composed of Messrs. Cathles,
Laird, and McAndless.
A question was raised as to the proper method of distributing reinsurance when
a company has several reinsurance connections. It was felt that each such situa-
tion should be settled as it arises and that no attempt should be made to decide
upon a general rule.
* * #
[File Keins. Conference]
[Notation: Circulated.]
June 6, 1938.
memorandum re reinsurance conference
At the meeting of the Conference held on June 1, 1938, in Chicago there were
present Messrs. Morris, Laird, Sturtevant, Bagley, Craig, McAndless, Kalmbach,
McVitty, Cathles, Oden, and Smith.
The following changes in rules were agreed to:
1. That the reinsurers will not give an acceptance, on a life where the
amount in force plus the amount to be accepted exceeds $750,000 except to
enable a small company to issue not more than $25,000, and then only when
such small company retains its full limit.
2. The automatic limit on Jumbo ca-ses was set at $500,000 in force and
applied for.
3. In all new treaties the limit of automatic coverage shall not exceed
four times or $100,000, whichever is the smaller.
4926
CONCENTRATION OF ECONOMIC POWER
There was a general discussion as to permitting the recapture of other than
standard business, and it was the unanimous opinion of the meeting that requests
to recapture such business should be denied in accordance with the rules of the
Conference.
(Signed) W. H. Smith.
WHS:N.
Exhibit No. 826
[Prepared by the Securities and Exchange Commission Insurance Study Staff]
19S7 Lapse Ratios Compared zvith the Relative Sales Rates during 1935 and 1936
[Data coverine the forty United States life insurance companies for which the Life Insurance Sales
Research Bureau reported lapse ratios for 1937. Based on ordinary business only]
16 "A" Companies:
Aetna
Connecticut General
Connecticut Mutual
Guardian
Lincoln National
Massachusetts Mutual...
Mutual Benefit
Mutual of New York
National of Vermont
New England Mutual...
Northwestern Mutual. ..
Pacific Mutual
Penn Mutual
Phoenix Mutual
Provident Mutual
State Mutual
8 "B" Companies:
Fidelity Mutual
Great Southern-
Home of New York-
Jefferson Standard
Mutual Trust..
National Life & Accident
Northwestern National..
Occidental (Calif.)
IG "C and D" Companies:
Atlantic.
Bankers of Nebraska
Farmers & Bankers
Lamar
Midland Mutual
Midwest
Monarch (Mass.).
National Guardian
Oregon Mutual
Philadelphia
Pilot-
Southland
Standard of Pa
United Benefit
Volunteer State
"West Coast...
New Business
1935
(Mil-
lions)
(1)
$212
80
100
44
120
136
129
269
38
146
268
58
169
47
83
36
28
43
35
h-i
IS
64
50
67
14.24
14. 86
11. 17
11.64
11.23
3.63
2.61
4.70
6.30
4.05
11.97
16.72
2.22
4C.04
10.19
17.24
1936
(Mil-
lions)
(2)
$216
87
91
49
126
145
132
253
46
147
279
15
179
54
72
41
28
45
36
54
IS
68
54
118
1.3. 43
13.44
12.98
11.20
11.52
3. 02
3.24
5.57
7.67
4.99
12.43
1.5. 65
1.46
52. 36
11. 19
17.19
-Average
New
Business
for 1935
& 1936
(Mil-
lions)
(3)
$214
84
96
47
126
141
131
261
42
147
274
37
174
5!
78
39
28
44
36
54
IS
66
55
93
13. 84
14. 15
12.08
11.42
11.38
3.33
2.93
5.14
6.99
4.52
12. 20
16.19
1.84
46.20
10.69
17.22
Business
in Force
1/1/.35
(Mil-
lions)
(1)
$1,883
747
893
457
821
1,889
2,057
3,744
514
1,282
3,705
637
1,847
584
935
576
362
216
352
315
154
133
281
156
132
123
50
61
102
20
17
41
52
54
74
115
20
60
103
104
Relative
Sales
Rates
3-7-4
(5)
11.4%
11.2
10.8
10.3
15.3
7.5
6.4
7.0
8.2
11.5
7.4
5.8
9.4
8.7
8.3
7.7
20.4
10.2
17.1
11.7
49.6
19.6
59.6
10.5
11.5
24.2
18.7
11.2
16.7
17.2
12.5
13.4
8.4
16.5
14.1
9.2
77.0
10.4
16.6
Lapse
Rntio
(L. I. S
R. B.)
(6)
13%
18
15
18
25
15
12
»
18
10
10
33
17
12
15
13
19
38
13
30
26
45
26
34
35
40
54
35
21
52
31
35
35
29
39
39
34
58
38
45
Sources: (1), (2) & (4) Spectator Insurance, Year Books. (5) Life Insurance Sales Research Bureau.
CONCENTRATION OF ECONOMIC POWER
4927
Exhibit No. 827
[Prepared by the Securities and Exchange Commission Insurance Study StaflE]
The Forty U. S. Life Insurance Companies for Which the Life Insurance Sales
Research Bureau Computed 1937 Lapse Ratios
[Companies cross-classified according to their respective relative sales rates during 1935 and 1936 and their
lapse ratios in 1937]
Lapse Ratios (L. I. S. R. B.)
Companies Classified According to Rela-
tive Sales Rates
Total
Num-
ber of
Com-
panies
5 to
9.9%
10 to
14.9%
15 to
19.9%
20 to
24.9%
25% &
over
55to59.9%
1
i"
1
50to54.9% '
1
1
1
2
45 to 49.9%
2
40 to 44.9% .
1
4
........
1
3
3
1
35 to 39.9%
2
2
2
1
...
7
30to34.9%
2
1
5
25 to 29.9%
5
20 to 24.9%
1
15 to 19.9%
5
4
1
8
10 to 14.9%
7
5 to 9.9% . -
1
0 to 4.9%
Total Number of Companies..
13
14
8
2
3
40
Averages (Median)
15%
23%
33%
46%
45%
Based on data from Exhibit No. 826.
SUPPLEMENTAL DATA
The following data was entered in the record on July 13, 1939, and
is printed herewith in connection with the testimony of the three
Hartford insurance companies, supra, p. 4228.
Exhibit No. 922
Nonparticipating Life Insurance Rates of JUtna Life, Connecticut General, and
Travelers, 1909-1929
[Oidinary;Life— Age 35]
Effective Date of Change ' by any Company
January 1, 1909
March 15, 1909
March 1, 1911 .-.
Januarv 3, 1913
March 1. 1913
.^pril 7, 1913
May 17, 1915
July 1, 1917
October 1, 1917
February 1, 1918..
October 1, 1922
January 1, 1925... -,
September 15, 1925
January 1, 1926
February 1, 1927...
April 1, 1928
January 15, 1929...
jEtna Life
$21. 62
21.62
21.52
21.62
21.52
21. n
21.52
20.59
20.59
20.59
19.91
19.91
19.91
19.71
19.71
19.71
19.71
Connecticut
General
$21. 68
21.66
21.66
21.66
21.66
21.66
21.66
21.66
20.61
20.61
20.61
19.91
19.91
19.91
19.91
19.71
19.71
Travelers
$22.60
22.50
21.90
21.90
21.70
21.70
20.91
20.91
20.91
20.11
20.11
20.11
19.91
19.91
19.91
19.91
19.71
1 On somes of these dates there were no changes inmanyrates.
to the adoption of uniform rates, .^pril 1, 1933.
Source: Official published Manuals of the Conipanies.
Prepared by .ffitna Life, Connecticut General, and Travelers.
There were no further rate changes prior
4928
CONCENTRATION OF ECONOMIC POWER
The Aetna Life rates January 1, 1909- February 1, 1918, the Connecticut
General rates May 17, 1915-October 1, 1922, and the Travelers rates January
1, 1909-October 1, 1917, were for policies with certain disability protection, it
being the practice with these companies during these periods to include this dis-
ability protection in all policies in the absence of underwriting reasons preventing
the inclusion.
Percentage Deviations of Nonparticipating Life Insurance Rates of Conn. General
and Travelers from /Etna Life Rates Before the Adoption of Uniform Rates Effec-
tive April 1, 19S3
Deviations from ^tna Life Rate
Year and Age
(May 15)
Ordinary Life
20-Payment Life
20- Year Endowment
Conn. Qen.
%
Travelers
%
Conn. Gen.
%
Travelers
%
Conn. Qen.
%
Travelers
%
Age 25; 1929-32
-0.20
0.00
0.00
+1.19
-0.20
0.00
0.00
+ 1.19
-0.18
-0.04
-0.57
-0.52
+0.05
-0.26
-0.57
+0.46
-0.10
+0.24
-0.25
+0.20
+0.88
Age 35: 1929-32..
+0.73
Age 45: 1929-32
—0 26
Age 55: 1929-32 .
+1 16
Maximum Deviation from ^tiia Life rates for these typical plans and at these typical ages for the several
years before the adoption of uniform rates was 1.19%.
Source, original data: OfEcial Published Manuals of the Companies.
Prepared by JJtna Life, Conn. General, and Travelers.
Non- Participating Life Insurance Rates of Mtna Life Insurance Co., Connecticut
. General Life Insurance Co., and Travelers Insurance Co., showing the rates
{annual premium, without disability or double indemnity) in force before (italic
type) and after the adoption of uniform rates effective April 1, 1933 — typical
plans at typical ages.
Year & Age (Mav 15)
Ordinary Life
Mtna
Conn.
Gen.
Trav.
Dollars"per thousand
20-Payment Life
MtnsL
Conn.
Qen.
Trav.
DoUars'per thousand
20- Year Endowment
.Stna
Conn.
Qen.
Trav.
Dollars per thousand
Age 25:
1937-39
1935-36
1633-34
1929-Si
Age 35:
1937-39
1935-36
1933-34
1929-S2
Age Ah:
1937-39
1935-36
1933-34
1929S2
Age 65:
1937-39
1935-36.
1933-34
19i9-SS.
15.78
16.78
15.26
15.26
14.72
14.72
1175
1^71
21.42
21.42
20.82
20.82
20.06
20.06
19.71
19.71
31.30
31.30
30.65
30.65
29.85
29.85
B8.Sd
S8.S6
48.65
48.65
47.97
47.97
47.17
--47. 17
U-4S
45.01
15.78
15.26
14.72
li.7S
21.42
20.82
20.06
19.71
■31.30
30.65
29.85
28. S5
48.66
47.97
47.17
46.01
24.78
24.78
23.48
23.48
22.14
22.14
22.18
22.14
30.59
30.59
29.29
29.29
27.82
27.82
27.20
27.19
39.70
39.70
38.61
38.61
37.16
37.16
55.27.
S5.07
54.49
54.49
53.48
63.48
62.35
62.35
49. 9S
49.67
24.78
23.48
22.14
22.19
30.69
29.29
27.82
trr.is
39.70
38.61
37.16
55.07
64.49
63.48
62.36
60. le
43.07
43.07
42.08
42.08
40.97
40.97
S9.96
S9.92
44.18
44.18
43.20
43.20
42.09
4Z09
41.02
41.12
48.01
48.01
47.06
47.06
46.98
45.98
44-70
U.69
67.89
67.89
67.01
57.01
66.02
66.02
64.19
5^50
43.07
42.08
40.97
40. SI
44.18
43.20
42.09
41. S2
48.01
47.06
45.98
44.69
67.89
67.01
66.02
64.82
Source: Official Published Manuals of the Companies.
Prepared by .£tna Life, Connecticut General, and Travelers.
CONCENTRATION OP ECONOMIC POWER
4929
The following data are printed herewith in connection witli testi-
mony supra, p. 4227.
The Travelers Insurance Company, 700 Main Street, Hartford, Connecticut.
Incorporated in Connecticut 1863.
Admitted Assets, December 31, 1938— $975,527,444.
Insurance in Force, December 31, 1938 — 745,163 policies; Amount in Force —
$4,644,922,861.
Annuities and Supplementary Contracts Involving Life Contingencies Out-
standing, December 31, 1938 — 55,358 number; annual income, $21,427,018.
Capitalization, December 31, 1938 — 200,000 shares common stock outstand-
ing, par value $100.
Number of shareholders of record, December 31, 1938 — 8,436.
.^tna Life Insurance Company, 151 Farmington Avenue, Hartford, Connecticut.
Incorporated in Connecticut — 1853.
Admitted assets, December 31, 1938— $621,319,457.
Insurance in Force, December 31, 1938 — 595,534 policies; Amount in force —
$3,984,353,013.
Annuities and supplementary contracts involving life contingencies outstand-
ing, December 31, 1938 — 94,c86 policies; annual income $17,353,387.
Capitalization, December 31, 1938 — 1,500,000 shares common stock out-
standing, $10 par.
Number of shareholders of record, December 31, 1938 — 17,219.
Connecticut General Life Insurance Company, 55 Elm Street, Hartford, Con-
necticut.
Incorporated in Connecticut — 1865.
Admitted assets, December 31, 1938— $246,598,612.
Insurance in Force, December 31, 1938 — 201,175 policies; amount in force,
$1,147,142,845.
Annuities and supplementary contracts involving life contingencies out-
standing, December 31, 1938—29,293 number; annual income $8,379,180.
Capitalization, December 31, 193Sr— 300,000 shares common stock outstand-
ing, $10 par.
Number of shareholders of record, December 31, 1938 — 2,444,
The following data were prepared by the Insurance Staff of the
Securities and Exchange Commission at the request of Senator King.
See text, p. 4172.
Summary of Statutory Prerequisites for Licensing of Life Insurance
Agents
The following is an outline of the steps which must be taken by applicants for
licenses as life insurance agents in order to show that the applicant is qualified as
to character, competence and knowledge. Most of the laws also require proof of
the appointment of the agent by a company, and enumerate illegal and unethical
practices. Frequently there are additional provisions outlining grounds for
revocation and suspension of licenses. Some states require proof that the licenses
will be used in legitimate insurance business and not in evasion of anti-rebate lav/s.
It should also be noted that department regulations frequently enlarge upon
the bare statutory requirements. Only the latter are included in the following
summary.
A. In the Following States All Life Insurance Agents are Required to obtain
Licenses:
State and Statute
Prerequisites for Obtaining License
Alabama Code 1928; Supp. 1936
Examination required for first applicants; discretionary for renewals.
Examination to show competency, good moral character, trust-
worthiness, qualifications that will reasonably protect the public
interest, knowledge of insurance fundamentals, insurance laws,
insurance business practices, policy provisions and classifications
(Sec. 8378; Sections 2 and 3).
Certificate from company certifying applicant's experience or training
(completed or intended).
Certificate from company representative or licensed agent certifying
to applicant's good reputation and worthiness (Sec. 8378:2).
4930
CONCENTRATION OF ECONOMIC POWER
State and Statute
Prerequisites for Obtaining License
Arizona Rev. Code 1928_
Arkansas Dig. 1937
California Deering, Cal. Codes
1937, "Insurance" (Laws 1935,
Ch. 145).
Colorado Stat. 1935, Ch. 87; Laws
1937, Ch. 177.
Connecticut Gen. Stat. 1930.
Delaware Rev. Code 1935
Dist. of Col. Code 1929, Supp. IV.
Florida Comp. Gen. Laws 1927
Idaho Code 1932.
Illinois Rev. Stat. 1937, Ch. 73.
Indiana Burns Ann. Stat. 1933
Supp.
Iowa Code 1935
Kansas Gen. Stat. 1935.
Kentucky Stat. 1936.
Louisiana Gen. Stat. 1939.
Maine Rev. Stat. 1930. Ch. 60;
Laws '31. Ch. 157; Laws '33. Ch.
195.
Maryland Ann. Code Supp. 1935,
Art. 48A.
Massachusetts Gen. Laws 1932,
Ch. 175.
No prerequisites stated in statute. License must be obtained for
each company to be represented (Sec. 1817).
Commissioner must be satisfied that applicant is "a suitable person"
to act as an agent (Sec. 7951).
E xamination required under oath on formp prepared by Commissioner
(Sec. 1705).
Certificate from company certifying applicant's experience or training
(completed or intended) within 30 days from date of obtaining li-
cense, and to applicant's business experience, good reputation and
worthiness (Sec. 1704).
Commissioner must determine that applicant has a good business
reputation, no prior rejections of applications for licenses and that
issuance of license will not be in violation of law. Commissioner
must also determine applicant's experience or training (Sec. 1706).
Application containing a statement of applicant's past record and
"general knowledge" of the insurance business (Sec. 19).
Commissioner must be satisfied that applicant is a "suitable person"
and that he has satisfactory qualifications and fitness (Sec. 8 and 19) .
Application must contain statement of applicant's past record.
Commissioner, upon such inquiry and examination as he deems neces-
sary, must be satisfied that applicant is properly qualified and that
the appointment is not against public interest (Sec. 4129).
Applicant must establish that he is properly qualified and equipped
to carry on the insurance business (Sec. 531).
Application must contain statement of applicant's past record, experi-
ence and knowledge of insurance laws and provisions of policies.
Certificate by company representative certifying to investigation of
applicant's character and qualifications (Sec. 217-x).
Application on prescribed form must contain affidavit against illegal
practices.
Certificate from company representative or licensed agent certifying
to applicant's experience or training (either completed or intended),
good business reputation and worthiness. Certificate must also
state that company is satisfied that applicant has good reputation,
experience or training and other qualifications, and is reasonably
familiar with the insurance law and policy provisions (Sec. 6210,
6211).
Application must contain statement of past record and other informa-
tion necessary to show qualification, character and fitness of appli-
cant.
Certificate from company representative certifying that investigation
of applicant's character and record proved him to be trustworthy.
Department must be satisfied that applicant is trustworthy and a
proper person to be licensed (Sees. 40-1001 and 40-1003).
Examinations required in writing for all new applicants. Examina-
tion to cover all types of insurance to be solicited (Sec. 10).
-Application must contain statement of past record.
Statements required from two "vouchers" for business reputation
and worthiness (Sec. 6).
Department must find applicant trustworthy (Sec. 12).
Examination required if department deems it necessary in order to
determine trustworthiness and competency.
Application must contain statement of past record and experience or
instruction.
Company representative must vouch for applicant's reputation for
business integrity and general fitness (Sec. 39-4603).
No prerequisites for obtaining license (Sec. 9119).
Certificate from company representative certifying to applicant's
experience or training (completed or intended), and his good reputa-
tion and worthiness.
Commissioner must find applicant to be of good business reputation,
and must determine applicant's experience, training, knowledge of
Insurance laws and policy provisions, and good business reputation
(Sees. 40-240 and 241).
Application must contain statement of past record, experience or
training (completed or intended), and familiarity with Insurance
laws and policy provisions.
Certificate from company representative certifying that Investigation
proved applicant to be trustworthy and qualified.
Commissioner must find applicant to be a "properly qualified"
person (Sec. 659-2).
No prerequisites for obtaining "a certificate of authority" from the
Secretary of State (Sec. 4264).
Application must contain statement of applicant's past recor
Commissioner must be satisfied that appointee is a suitable person
(Sec. 125).
Commissioner must find that applicant has not been guilty of mis-
representation, unfair business practices, misappropriation or
violation of law, and has never had a license revoked (Sec. 61).
Application must contain statement of past record.
Commissioner must be satisfied that applicant is suitable and com-
petent (Sec. 163).
CONCENTRATION OF ECONOMIC POWER
4931
state and Statute
Prerequisites for Obtaining License
Michigan Comp. Laws 1929; Supp.
1935, 1937.
Minnesota Stat. 1927.
Mississippi Code 1930.
Missouri Rev. Stat. 1929.
Montana Rev. Code 1935.
Nebraska Comp. Stat. 1929.
Nevada Comp. Stat. 1929; Laws
1931, Ch. 165.
New Hampshire Tub. Laws 1926;
Ch. 273; Laws 1933, Ch. 124.
New Mexico Stat. 1929.
North Carolina Code 1939.
North Dakota Comp. Laws Supp.
1925.
Ohio Gen. Code.
Oklahoma Stat. 1931.
Oregon Code 1930
Pennsylvania Stat. Ann. Supp.
Title 40.
Rhode Island Gen. Laws 1923, Ch.
256; Laws '26, Ch. 821; Laws '36,
Ch. 2294.
124491 — 40— pt. 10-
Examination may be required at discretion of Commissioner.
Application must contain sworn statement of past record, acknowl-
e<1ginent of illegality of enumerated practices and undertaking not
to indulge in them.
Commissioner must find applicant qualified to solicit the desired
line of insm-ance, reasonably famUiar with insurance laws and
policy provisions, and a fit and proper person (Sees. 12344, 12346
and 12340-1).
Applicant mu?t not be incompetent, unqualified, untrustworthy, of
bad moral character, or have been guilty of deceit, fraud, dishonesty,
misappropriation or practices in violation of the insurance law
(Sec. 3352).
Company may npt apply on behalf of a person known to be unfit or
disqualified to be licensed as an insurance agent under the law
(Sec. 3359).
Application must contain statement of past record.
Certificate from company representative certifying to investigation
of applicant's character and record which proved him to be trust-
worthy and qualified.
Commissioner must be satLsfied that applicant is fit and competent
(Sec. 5208).
No prerequisites. Company must have certifioate of its compliance
with law before commencing business, and every agent shall have
a certified copy of such certificate, showing the agent's name.
Agent's copy may be refused or suspended for cause (Sec. 5892).
Application must include statement of applicant's familiarity with
insurance laws and policy provisions, experience or training (com-
pleted or intended).
Certificate from company representative certifying that investiga-
tion proved applicant to be trustworthy and qualified (Sec. 6118).
Application must contain statement of past record.
Applicant must not hpve been guilty of violations of insurance law,
misappropriation or intent to evade anti-rebate laws (Sec. 44-328).
Application must contain sworn statement of past record and answer
to interrogatories included in application form.
Certificate from company representative certifying to applicant's
experience or training (completed or intended), good reputation,
and worthiness.
Commissioner must be satisfied with applicant's integrity and quali-
fication (Laws 1931, Ch. 165, Sees. 2 and 3).
Examination required for inexperienced applicants.
.Applicant must file statement of past record.
Commissioner must be .satisfied that applicant is a suitable person,
qualified by experience or instruction to act as an agent, and is rea-
sonably familiar with the insurance laws and policy terms (Sees. 14
and 15).
Application must contain statement of past record, experience or
training (completed or intended), good business reputation and
worthiness.
Certificate from company representative certifying to statements in
application (Sec. 71-134).
Commissioner must find that applicant is of good moral character
and a proper person to serve as agent, has sufficient knowledge of
the business, and has not violated any insurance laws, and that the
license will serve the public interest (Sec. 6299).
Interrogatories in application to be answered under oath.
Commissioner must be satisfied that the applicant is worthy of a
license ^Scc. 4854al).
Applicatipn must contain statement of past record.
Certificate from company representative certifying that investiga-
tion of api)licant's character and record proved him trustworthy
and qualified.
Applicant must be of good reputation or character, trustworthy or
suitable to be licensed (Sec. 654-4 Amended).
Notification from company to Commissioner upon appointment of a
suitable person to act as agent.
Commissioner to issue license "if the facts warrant it" (Sec. 10481).
Application must be filed containing prescribed statement.
Commissioner must be satisfied that applicant is qualified for the
proposed business (Sees. 46-112:5, 46-505).
Agent with five years' experience may have license with a different
company without submitting to an examination. Examination
required by department ruling (Sept. 1, 1927) for new applicants.
Application must contain statement of past record.
Certificate from company representative certifying to the statements
in the application, and to the applicant's good business reputation,
underwriting experience (other than soliciting), and worthiness.
Commissioner must be satisfied that applicant is worthy and reason-
ably familiar with the insurance law (Sec. 2.33).
Application must contain statement of past record, countersigned by
company.
Certificate from company representative certifying to applicant's
experience or training (completed or intended), and to his good
reputation and worthiness.
Commissioner must be satisfied that applicant possesses qualifications
required by law, and is reasonably familiar with the Insurance law
and policy provisions (Sec. 18).
51
4932
CONCENTRATION OF ECONOMIC POWER
State and Statute
Prerequlsities for Obtaining License
South Carolina Code 1932
South Dakota Code 1939.
T ennessee Code 1938
Texas Stat. 1936.
Utah Kev. Stat. 1933.
Vermont Pub. Laws 1933; Laws
1935, Act 179.
Virginia Code 1936; Supp. 1938.
Washington Rev. Stat. 1931; Laws
•37, Ch. 66.
West Virginia Code 1937
Wisconsin Stat. 1937
■ Wyoming Stat. 1931
Commissioner must determine that applicant is a fit and proper
person (Sec. 7951).
Commissioner must find proposed agent to be of good reputation and
character, and that the facts warrant issuance of a certificate of
authority (Sec. 31-1304).
Application must contain statement of past record, showing familiar,
ity with insurance laws and policy provisions, applicant's experience
or training (completed or intended), prior refusals of license and
cancellation of agency contracts.
Certificate from company representative certifying truth of state-
ments in application.
Commissioner must be satisfied that applicant is trustworthy and
properly qualified, and may require specific additional information
(Sec. 6236.10).
Application must be in such form and contain such information as
may be required.
Board must be satisfied that applicant is of good character and reputa-
tion (Sec. 5068-b).
Application must contain statement as prescribed.
Commissioner must be satisfied that the applicant is of good reputa-
tion and character, and that the facts warrant the issuance of a
certificate of authority (Sec. 43-6-1).
Application must contain statement as prescribed, including past
record.
Statement of trustworthiness and competence signed by three citizens
must be filed (Sec. 7047, 7048).
Certificate from company representative certifying that investiga-
tion of applicant's character and record proved him trustworthy.
Commissioner must be satisfied that applicant is trustworthy and
has sufficient knowledge of the business of insurance to conduct it
intelligently (Sec. 4235).
Examination in writing required of new applicants with questions
based upon a manual prepared by the Commissioner. In lieu of
examination by Commissioner, applicant may submit company
examination passed on a study course satisfactory to the Commis-
sioner.
Application must contain statement as prescribed (Sec. 7089).
Applicant must be found trustworthy and competent (Sec. 3398).
Application must contain statement of past record.
Commissioner must be satisfied that applicant is trustworthy and
reliable (Sec. 206.41).
Company to have applicant file statement as prescribed.
Commissioner must be satisfied that applicant is worthy and com-
petent (Sec. 57-203).
B. Some Life Insurance Agents are Required to obtain Licenses in the Following
States:
State and Statute
Prerequisites for Obtaining License
Georgia Code 1933.
New Jersey Rev. Stat. 1937.
New York Cons. Laws, Ch. 28,
as Amended.
Laws 1939, Ch. 882.
Agent need not procure license if his name is certified to the Com-
missioner by a reputable insurance company as its accredited agent
(Sec. 56-503).
Agents who must obtain license shall apply to Commissioner, who
shall be advised as to the moral character and integrity of the
applicant (Sec. 56-504).
Agents of domestic companies need not obtain licenses.
Agents of foreign companies must file certificate of representative of
company certifying appointment and stating that agent is a suitable
person.
Commissioner must be satisfied that facts warrant granting the
certificate (Sec. 17:32-6).
Law in force before January 1, 1940:
Industrial agents not required to obtain license.
Company must approve and countersign application by ordinary
agents.
Superintendent may refuse license in his discretion (Sec. 91).
Law in effect after January 1, 1940:
Industrial agents required to obtain license only if they act as
agents for periods of more than six months.
Examination required for ordinary agents, but not industrial
agents. Examination to determine the trustworthiness and
competency of the applicant.
Application to be in such form and containing such information
as the Superintendent may prescribe.
License or renewal of license may be denied if the applicant is
not trustworthy or competent or has given cause for revocation
or suspension of license, or has failed to comply with any
prerequisite for issuance or renewal (Sees. 113, 114).
No examination required for renewal of license of agent licensed
before January 1, 1940.
INDEX
Page
Acacia Mutual Life Insurance Co 4339
Intercompany agreements:
Medical Information Bureau 4897
Replacement agreement . 4906
Lapse rate .'_ 4742. 4743
Actuarial Society 4158,
4181, 4196, 4509, 4524, 4547, 4565, 4600, 4631, 4642, 4850
Discussions of commissions on life annuities 4837
Investigation of annuity mortality 4552
Optional settlement discussions . 4587
Adams, R. S 4761
Aetna Life Insurance Co 4224, 4225, 4230, 4236, 4239, 4243,
4244, 4251, 4260, 4437, 4556, 4566, 4729, 4744,4746, 4841, 4929
Intercompany agreements;
Annuities , 4515,
4520, 4526, 4529, 4531-4533, 4537, 4538, 4551, 4828-4830, 4832,
4833, 4837-4842, 4844-4846, 4850-4852, 4855-4857, 4865, 4886.
Group Association 4163,4164,4174, 4181, 4182,
4198, 4205, 4207, 4688, 4689, 4703, 4705, 4706, 4710, 4711, 4716
"Jumbo risks" 4903
Medical Information Bureau 4897
Nonparticipating rates 4229,
4232, 4233, 4240-4242, 4247, 4256, 4259, 4261, 4262, 4264, 4701,
4718-4724, 4729-4731, 4843, 4927, 4928.
Replacement agreement 4905, 4907, 4911, 4913
Settlement options an d surrender values 4576,
4585, 4605, 4612, 4613, 4619,4622, 4629, 4836, 4840, 4848, 4849,
4853, 4856, 4869, 4872, 4873-4876, 4879, 4881, 4882, 4884, 4891-
4893, 4895.
Lapse rate, 1925-28 4741
Lapse rate, 1929-38 . . 4742
Lapse ratio 4926
Little Entente, membership in 4613
Ordinarv business, volume 4732
Rates..' 4731
Stockholders' dividends. .. 4717
Agency directors' and managers' conference 4758
Agents, commissions discussed • 4465, 4485
State regulation of, discussed..'. 4362-4364, 4929-4932
Aiken, Alfred L 4349, 4757
Alabama code 4929
Allen, Mr . 4399, 4757, 4767, 4768
Alliance Life Insurance Co 4899
All States Life Insurance Co 4899
American Annuitants select table 4515,
4517, 4522, 4530, 4531, 4537, 4538, 4830, 4831, 4836, 4844, 4846,
4849, 4850,^4882, 4886.
American Bankers Insurance Co 4899
American Bar Association, The 4362
American Central Life Insurance Co.:
Intercompany agreements :
Medical Information Bureau 4903
Reinsurance 4669,4672-4674,4678,4918,4919
Replacement agreement 4910
American College of Life Underwriters '4662
American experience table 4235, 4283, 4284,4285, 4473, 4733, 4853, 4887
II INDEX
Page
American Institute of Actuaries 4535, 4843, 4925
Report of the committee on cash-surrender value 4627, 4629, 4894
American Life Convention 4169,
4231, 4670, 4691, 4718, 4835, 4888, 4889, 4921, 4925
Intercompany agreements:
Nonparticipating rates 4230
American Life Insurance Co., Birmingham, Ala 4899
American Life Insurance Co., Detroit, Mich 4908
American men table of mortality 4272,
4187, 4234-4236, 4238, 4239, 4251, 4719, 4721, 4727, 4729-4731
American men ultimate table 4887,4888,4922
American Mutual Life Insurance Co - 4899
American National Insurance Co 4899
American Reserve Life Insurance Co 4899
American Union Life Insurance Co:
Policy containing the seal of the United States 4496
American United Life Insurance Co 4746
Intercompany agreements :
Medical Information Bureau 4897
Reinsurance 4925
Replacement agreement 4908
Amicable Life Insurance Co.:
Intercompany agreements:
Medical Information Bureau 4897
Replacement agreement , 4656, 4913
Ancient Foresters' Mutual Life Insurance Co 4899
Anderson, B. M., counsel, Connecticut General Life Insurance Co — 4278, 4279
Annuities:
Commissions 4518-4521
Expenses 4542
Income from personal annuity contracts, 1913-37 4506-45t)8, 4825
Intercompany agreements 4505-4567, 4830-4857
Discussions of actuaries 4508
1933 rate increase 4514
1934 rate increase 4528
1936 rate increase 4530
1938 rate increase 4541
Aetna Life Insurance Co 4515,
4520, 4526, 4529, 4531-4533, 4537, 4538, 4551, 4828-4830, 4832,
4833, 4837-4842, 4844-4846, 4850-4852, 4855-4857, 4865, 4886
Bankers Life Insurance Co. of Iowa 4838-4840, 4855
Berkshire Life Insurance Co 4520, 4526,
4551, 4828, 4829, 4832, 4833, 4851, 4852, 4854, 4855, 4886
Canada Life Assurance Co 4520, 4532, 4535, 4538, 4559, 4828, 4829,
4832, 4837, 4839, 4840-4842, 4846, 4852, 4882
Canadian companies 4513, 4526, 4551, 4828, 4829, 4834, 4837, 4855
Connecticut General Life Insurance Co 4515,
4517, 4520, 4526, 4528, 4531, 4532, 4534-4538, 4551, 4557, 4828-
4834, 4837-4846, 4849, 4851, 4852, 4855, 4856, 4857, 4886.
Connecticut Mutual Life Insurance Co 4522,
4524, 4527, 4531, 4532, 4537, 4538, 4550, 4551, 4828, 4829, 4832,
4834, 4837-4842, 4844, 4846, 4850-4853, 4854, 4855, 4857, 4886
Equitable Life Assurance Society of the United States 4515,
4516, 4526, 4528, 4530-4532, 4534, 4535, 4537, 4552, 4826, 4828-
4830, 4832, 4833, 4837-4840, 4842, 4844, 4845, 4846, 4849, 4850,
4852, 4853, 4857, 4886, 4888, 4889.
Equitable Life Insurance Co. of Iowa 4531-4533,
4537, 4551, 4828, 4829, 4837, 4839, 4842, 4844r-4847, 4852, 4855
Fidelity Mutual Life Insurance Co 4521,
4526, 4551, 4828, 4829, 4832, 4834, 4851, 4855, 4882, 4886
Guardian Life Insurance Co 4522, 4524, 4526, 4537, 4538, 4551,
4828, 4829, 4832, 4834, 4844-4847, 4852, 4855, 4886
Home Life Insurance Co 4520,
4527, 4532, 4537, 4538, 4550, 4551, 4828, 4829, 4832, 4834, 4837,
4839, 4840, 4841, 4843-4847, 4851, 4852, 4854, 4865, 4857, 4886
INDEX III
Annuities — Continued.
Intercompany agreements — Continued. Page
Imperial Life of Canada 4532, 4828, 4829, 4837, 4839, 4852
John Hancock Mutual Life Insurance Co 4520,
4522, 4526, 4531-4533, 4535, 4537, 4538, 4551, 4557, 4826, 4828,
4829, 4832, 4833, 4836, 4837, 4839, 4841, 4842, 4844, 4845-4847,
4850-4852, 4855, 4857.
Massachusetts Mutual Insurance Co 4520,
4526, 4531, 4532, 4535, 4537, 4538, 4550, 4551, 4828, 4829, 4832,
4833, 4836, 4837, 4839, 4841, 4842, 4844, 4845-4847, 4849-4852,
4854, 4855, 4857, 4886.
Metropolitan Life Insurance Co 4515,
4520, 4526-4528, 4531-4533, 4535, 4537, 4538, 4541, 4545, 4547,
4550, 4551, 4556, 4557, 4560, 4561, 4563, 4826, 4828-4830,
4832-4834, 4836-4842, 4844-4847, 4849, 4850-4852, 4855, 4857.
Minnesota Mutual Life Insurance Co 4526, 4833
Mutual Benefit Life Insurance Co., The 4520,
4524, 4526, 4527, 4532, 4535, 4537, 4538, 4550, 4551, 4826, 4828,
4829, 4832, 4833, 4836, 4837, 4839, 4840, 4841, 4843, 4844, 4845,
4846, 4851, 4852, 4855, 4857.
Mutual Life Insurance Co 4514-
4516, 4520, 4528, 4532, 4537, 4538, 4551, 4820, 4828-4830, 4832-
4834, 4836, 4837, 4839-4847, 4849-4852, 4855, 4857, 4886.
National Life Insurance Co 4520,
4527, 4532, 4533, 4537, 4538, 4551, 4828, 4829, 4832, 4834,
4837, 4839, 4844-4847, 4851, 4855, 4886.
New England Mutual Life Insurance Co 4522,
4524, 4526, 4532, 4533, 4537, 4538, 4550, 4551, 4828, 4829, 4832,
4834-4837, 4839, 4844-4847, 4851, 4852, 4855, 4857.'
New York Life Insurance Co 4505,
4506, 4515-4517, 4520, 4524, 4526, 4529-4535, 4537, 4562, 4826,
4828-4834, 4836-4846, 4849-4852, 4854, 4857.
Northwestern Mutual Life Insurance Co 4520,
4524, 4526, 4529, 4532-4534, 4551, 4826, 4828, 4829, 4832, 4833,
4835-4837, 4839, 4851, 4852, 4855, 4857.
Penn Mutual Life Insurance Co., The 4522,
4526. 4531-4535, 4537, 4538, 4551, 4826, 4828, 4829, 4832, 4833,
4836-4839, 4841-4847, 4851, 4852, 4855.
Phoenix Mutual Life Insurance Co 4522,
4524, 4527, 4532, 4533, 4535, 4537, 4538, 4550, 4551, 4828, 4829,
4832, 4834-4839, 4841-4844, 4846, 4847, 4850, 4852, 48^54, 4855,
4857.
Provident Mutual Life Insurance Co- . 4522,
4524, 4527, 4530-4532, 4535, 4537, 4538, 4551, 4828, 4829, 4832,
4835, 4836, 4837, 4839-4841, 4844, 4846, 4847, 4849-4852, 4855,
4857. _,_
Prudential Ii surance Company of America, The 4515,
4520, 4526, 4527, 4529, 4531-4533, 4535, 4537, 4538, 4551, 4826,
4828-4830, 4832-4834, 4836-4841, 4842, 4844-4847, 4849, 4851,
4852, 4855, 4857, 488p.
State Mutual Life Assurance Co 4526, 4532, 4550, 4551, 4828,
4829, 4833, 4837, 4839, 4847, 4851, 4852, 4854, 4855
Sun Life Assurance Co "^^20,
4531, 4532, 4537. 4538, 4550, 4828, 4829, 4832, 4836, 4837, 4839,
4840, 4842-4840, 4850-4852, 4857.
Travelers Insurance Co., The 4515,
4517, 4520, 4526, 4529, 4531, 4533, 4535, 4537, 4538, 4550, 4551,
4826, 4828-4833, 4830-4846, 4849-4852, 4855-4857.
Union Central Life Insurance Co., The.--- 4526, 4531-4533, 4828, 4829,
4833, 4836, 4837, 4839, 4849, 4850, 4852, 4854, 4857
United States Life Insurance Co 4520, 4526, 4531, 4842, 4843
Interest rates discussed 4559
Loading discussed ^ c f a f c eo
Mortality tables discussed 4556-4558
Annuity, Group business 4716
Anti-trust laws, discussion of their applicability to life insurance com-
panies. - -■ 4165-4171, 4232, 4248, 4257
ly INDEX
Page
Arguments for industrial agents re savings bank life insurance 4424, 4788
Arizona Revised Code... - 4692, 4930
Arkansas Digest 4930
Armstrong committee report 4427, 4428
Criticism of methods of life insurance companies in handling legisla-
tion 4346
Discussion of lobbying practices 4428
Investigation 4346, 4427, 4570
Arnold, O, J. 4757
Ashbrook, Joseph ._ 4744
Associated Industries 4487
Associated Press, The ^ 4530
Association of Life Agency OflBcers 4654
Appointment of committee to study replacement 4650
Report of committee to study replacement : 4650, 4904, 4906
Association of Life Insurance Medical Directors 4634-4642, 4896, 4901
Association of Life-insurance Presidents, The 4354,
* 4368, 4370, 4381, 4386, 4391, 4397, 4398, 4416, 4418, 4375,
4423, 4424, 4430, 4431, 4440, 4449, 4473, 4493, 4813.
Committees . 4350, 4351
Constitution . 4349, 4748
Legislative activity:
California 4366,4370,4756
Connecticut 4435-4437
Florida 4376-4393,4757,4761,4762,4764
Georgia 4396-4418, 4767, 4768, 4771-4773, 4775-4777, 4781, 4783
Missouri 4422-4426, 4786, 4787
New Hampshire. 4433-4435, 4810, 4811
New York 4420, 4421, 4439, 4440, 4814
Pennsylvania 4426-4429^ 4785, 4801, 4802
Rhode Island 4363-4365, 4429-4433, 4804-4806, 4810
Legislative high points, 1935 4361, 4755
Legislative high points, 1937 4360, 4754
Litigation fees and expenses, 1 934 thru 1 938 4352, 4750
Lobbying and legislative activities . 4345
Membership, initiation fees, dues, and contributions 4348, 4746
Minutes of first meeting . 4346, 4744
Model insurance code '. 4362
Objects of 4347
Opposition to savings bank life insurance 441&-4441
Origin .__.. 4346
Promotion of legislation 4441
Total fees, compensation, and expenses in connection with legislation
and appearances before departments of government, by States,
1934 through 1938 4356, 4357, 4752
Association of Life Underwriters 4664, 4665
Atlanta Association of Life Underwriters 4397
Atlanta NYLICS 4406, 4772, 4773
Atlantic Life Insurance Co 4746
Intercompany agreements:
Medical Information Bureau 4897
Nonparticipating rates 4277
Replacement agreement 4908, 4913
Lapse rate 4742, 4743
Lapse ratio 4926
Atlas Life Insurance Co : 4899
Ayres, F. O J . 4744
Bank holiday 4525
Bankers Life Co., Iowa 4746, 4757
Intercompany agreements:
Annuities . 4838, 4839, 4840, 4856
Medical Information Bureau ^^, . 4897, 4903
^ Replacement agreement .._ 4657, 4905, 4908, 4916
Lapse rate. 1925-28 4741
Lapse TBt'% 1929-38 .._ 4742
INDEX V
Page
Bankers Life Insurance Co., Nebraska 4746
Intercompany agreements:
Medical Information Bureau 4899
Lapse rate, 1925-28 4742
Lapse rate, 192^38 4743
Lapse ratio 4926
Bankers National Life:
Intercompany agreements:
Medical Information Bureau 4899
Replacement agreement 4908
Barnes, George S 4453
Bass, Clayton C„ 4761
Bassford, H. R 4205, 4850-4867
Testimony of 4541-4567
Beers, H. S., vice-president, Aetna Life, Hartford, Conn 4177,
4207, 4259, 4703, 4720, 4721
Testimony of 4243-4258
Beha, James A 4179, 4552
Behrens, H. A j 4757
Berkshire Life Insurance Co_ _ 4482, 4485, 4744, 4746
Group annuity business in force, 1934-38 4716
Intercompany agreements:
Annuities 4520, 4526,
4551, 4828, 4829, 4832, 4833, 4851, 4852, 4854, 4855, 4865, 4886
Medical Information Bureau.. 4897, 4903
Replacement agreement 4905, 4908
Settlement options and surrender values... 4590, 4605, 4853, 4872, 4881
BervUium Corporation 4530
Best MA -- 4761
Best's Illustrat[o"nsV.'.I I . I " II " " " " I ' 1 1 ^ . I . " 1 . 1 1 ^ 1 1" . T 4229,' 4277, 4554
Best's Life Reports 4206
Beverly Savings Bank 4487
Blackford, W. H 4744
Blitch, James Y 4775
Board of Overseers of Harvard 4453
Bone, Senator 4442, 4445
Boston Life Underwriters Association 4493
Boston Mutual Life Insurance Co 4746, 4899
Brackett, Karl L 4757
Bradlev, Ed 4404, 4771
Brainard, Morgan B 4232, 4245, 4719, 4720, 4721, 4757
Brandeis, Justice Louis D 4353, 4450, 4451, 4452, 4492, 4495
Brigham, Elbert S 4349, 4757
Broderick, Dillon F 4578, 4861
Brockton Savings Bank, The 4455
Brooklyn National Life Insurance Co 4905
Brosmith, WilUam 4160,
4166-4170, 4176, 4177, 4205, 4436, 4437, 4689, 4690, 4702, 4703,
4757, 4813, 4814.
Brown, Mr., insurance commissioner of Massachusetts 4489
Brown, Charles, general agent of the Columbian National 4429, 4804, 4805
Bruce and Bullitt 4354,4750
Brush Beryllium Co 4529
Buckner, Thomas A 4271,4744,4745,4912
Bullitt, William Marshal 4353,4354
BuUock, A. G 4661,4744
Bullock, Chandler 4660, 4661, 4757
Bureau of Internal Revenue 4442
Bureau of Labor Statistics 4272
Burnett, Carl W I 4761
Burnett, Dr 4453,4474,4486
Burns, J. W i 4761
Burroughs, Maj. Robert? 4434,4435,4473,4810
Business Men's Assurance Co.:
Intercompany agreements:
Medical Information Bureau 4899
Reinsurance 4925
VI INDEX
Page
Butler, J. Turner 4761
Butler, Louis F 4158, 4169, 4174, 4181, 4182, 4691, 4701
Butt, Noah B 4761
Buttolph, Henry 4669, 4670, 4672, 4678, 4918-4921
Caldwell, Eugene F 4454, 4816, 4817, 4818, 4819, 4820, 4822, 4823
California Association of Life Insurance Agents 4366
California Code 4930
California Senate bill 460 - 4756
California Western States Life Insurance Co.:
Intercompany agreements:
Medical Information Bureau 4897
Replacement agreement , 4908, 4913
Lapse rate, 1925-28 4742
Lapse rate, 1929-38 4743
Calvert Distillers Corporation 4279
Cameron, W. J 4845, 4852, 4865
Cammack, E. E 4174,
4175, 4182-4222, 4229, 4232, 4240, 4242, 4251, 4252, 4255, 4259,
4422, 4515, 4566, 4701, 4702, 4705, 4706, 4717-4720, 4722-4724
4729-4731, 4785, 4830, 4835, 4848, 4852, 4856.
Testimony of 4182-4222
Canada Life Assurance Co 4746
Intercompany agreements:
Annuities 4520,4532,4535,4538,
4559, 4828, 4829, "4832, 4837, 4839, 4840-4842, 4846, 4852, 4882
"Jumbo risks" 4903
' Medical Information Bureau 4897
Replacement agreement 4908, 4913
Settlement options and surrender values 4571,
4629, 4835, 4836, 4840, 4849, 4865, 4872, 4881, 4891, 4893
Lapse rate, 1925-28 .. 4741
Lapse rate, 1929-38 4742, 4743
Canadian companies 4634
Intercompany agreements:
Annuities 4513, 4526, 4551, 4828, 4829, 4834, 4837, 4855
Settlement options and surrender values 4590, 4629, 4853. 4881
Canton Institution for Savings 4477
Capital Life of Colorado 4897
Carnegie Tech . . 4330
Carpenter, Samuel L., Jr 4756
Carr, Fred P 4757
Carson, Sam M 4397,
4399, 4408, 4767, 4768, 4770, 4771, 4777, 4778, 4781, 4783
Cathles, Lawrence M . 4918, 4919, 4925
Testimony of.^ 4668-4684
Central Life Assurance Society 4746
Intercompany agreements:
Medical Information Bureau 4897
Central Life Insurance Co. (Illinois) 4746, 4897
Central States Life 4889
Chace, George H 4905,4907
Chartered Life Underwriters 4662
Christie, William McL 1 4761
Clark, Gilbert A., actuary, Equitable Life Insurance Co.:
. Testimony of 4313-4317
Clark, J. R . 4744,4745
Cleveland, Grover 4346, 4347
Coburn, Arthur 4672, 4674, 4919, 4920, 4921
Cole, F. W 4226,4237
Colonial Life Insurance Co. of America, The 4746, 4897
Colorado Life Co 4496
Intercompany agreements:
Medical Information Bureau 4899
Replacement agreement 4908, 4915
Colorado Statutes 4930
Columbia Life 4899
INDEX V 1 1
Pago
Columbian Mutual Life 4899
Celumbian National Life Insurance Co 4429, 4746
Intercompany agreements:
"Jumbo risks" 4903
Medical Information Bureau 4897
Nonparticipating rates. ^ 4277
Columbus Mutual Life 4897
Combined experience annuity table 4553, 4882
Commonwealth Life Association 4897
Committee on Actuaries 4687, 4688
Committee on Underwriting Large Risks 4642-4648
Confederation Life Association 4746, 4897
Lapse rate, 1929-38 4743
Connecticut General Life Insurance Co 4224, 4225, 4351, 4744, 4746
Intercompany agreements :
Annuities 4515,
4517, 4520, 4526, 4528, 4531, 4532, 4534-4538, 4551, 4557,
4828-4834, 4837-4846, 4849, 4851, 4852, 4855, 4856, 4857, 4886.
Group Association,. 4163, 4164, 4175, 4181, 4198, 4702, 4710, 4716, 4205
"Jumbo risks" 4902, 4903
Medical Information Bureau 4897
Nonparticipating ordinary life insurance 4927-4929
Nonparticipating rates 4229,
4230, 4232-4234, 4236, 4238, 4240, 4242, 4244-4245, 4251, 4256,
4259, 4260-4262, 4718, 4719, 4721-4724, 4729-4731.
Rates 4732
Reinsurance 4674, 4925
Replacement agreement . 4905
Settlement options and surrender values 4566,
4573, 4575-4577, 4582, 4605, 4612, 4613, 4617, 4618, 4622, 4629,
4834-4836, 4840 4845, 4848, 4849, 4853-4856, 4858, 4865, 4866,
4868. 4872, 4874, 4875, 4876, 4877-4881, 4884, 4891, 4892.
Lapse rate, 1925-28 - 4741
Lapse rate, 1929-38 4742
Lapse ratio 4926
Little Entente, membership in 4613
Stockholders' dividends 4714
Connecticut General Statutes 4930
Connecticut Legislature 4436
Connecticut Mutual Life Insurance Co 4436, 4746
Intercompany agreements:
Annuities 4522,
4524, 4527, 4531, 4532, 4537, 4538, 4550, 4551, 4828, 4829, 4832,
4834, 4837-4842, 4844, 4846, 4850-4852, 4854, 4855, 4857, 4886.
"Jumbo risks" 4903
Medical Information Bureau - 4898
Replacement agreement 4657, 4905, 4908, 4913, 4916
Settlement options and surrender values 4605,
4612, 4613, 4618, 4622, 4835, 4836, 4840, 4848, 4849, 4853, 4865,
4872, 4874-4877, 4879-82, 4884, 4891, 4893, 4895.
Lapse rate, 1925-28 4741
Lapse rate, 1929-38 4742
Lapse ratio 4926
Conservative Life of Indiana 4899
Conservative Life of West Virginia 4899
Constitution of the Association of Life Insurance Presidents 4748
Continental American Life Insurance'Co 4746
Intercompany agreements:
Medical Information Bureau 4898
Replacement agreement 4908, 4913
Lapse rate, 1925-28 ,-- 4742
Lapse rate, 1929-38 4743
Continental Association 4898
Continental Assurance Co * 4746
Legislative activity 4757
VIII INDEX
Page
Continental Life of Toronto 4899
Conway, Alfred 4190
Coogler, M. A 4761
Coolidge, Calvin 49 1 2
Cooney , Robert L. , inspector of agencies, New York Life 4369,
4393, 4429, 4443, 4767, 4768, 4770-4777, 4781, 4783
Testimony of 4396-4418
Cotton, Senator 4497
Cox, Berkeley - 4436, 4437, 4814
Cox, Guy W 4757
Cox, W. Howard 4350,4757
Craig, James D 1 4162, 4168,
4169, 4179, 4190, 4262-4264, 4687, 4690, 4691, 4725, 4728, 4729,
4509, 4552, 4560, 4561, 4574, 4678, 4835, 4847, 4858, 4904, 4925
Crane, Mr 4364, 4431, 4432, 4433, 4805, 4806, 4810
Creswell, C. F 4364,
4365, 4400, 4404, 4414, 4421, 4429, 4433, 4768, 4769, 4770, 4771,
4775, 4804, 4810.
Crown Life 4898
Culpepper, Hon. J. W 4401, 4769
Cummings, Hon. M. Joseph 4427, 4430,
4432, 4493, 4498, 4802, 4805, 4806, 4807, 4808, 4809, 4810
Cunningham, F. J 4865
Davenport, Dr. Donald .H., special economic consultant, insurance study.
Security and Exchange Commission 4282-4312
Testimony of 4684-4686
Daves, Dr 4416, 4776, 4777
Davis, Hon. J. Scott J 4401,4402,4769
Davis, John W 4353
Davis, Judge E. M 4410,4411,4412,4413,4774
Dearing, A. P 4763
Dearing, Frank P 4385,4386,4761,4762,4763
DeBoer, Joseph A 4744, 4745
DeGroat, Floyd E 4422, 4423, 4425-4427, 4431,
4432, 4434, 4435, 4493, 4494, 4495, 4496, 4497, 4785, 4786, 4802
"The savings bank in life insurance" 4790-4801, 4493
Dekle, Ex-Senator E. E 4414,4775
Delaware, Revised Code 4930
Dewey, Harley W ' 4839
Dewey, Judd 4501
Testimony of . 4449, 4500
District of Columbia Code 4930
Dividends, stockholders', Aetna, Connecticut General, Travelers _- 4717
Division of Savings Bank Life Insurance of Massachusetts 4459
Dobbins, Harold 4415, 4776
Document stamp tax, Florida 4750
D'Olier, Franklin 4350, 4622, 4884
Dominion of Canada General Insurance Co 4899
Dominion Life Assurance Co 4898
Lapse rate, 1929-38 4743
Doremus, Cornehus ._ 4744, 4745
Douglas, Governor 4454
Draper-Owens Co 4778
Dubuar, Charles 4861
Duffield, Mr 4263, 4264, 4350, 4729
Dugger, J. D . 4761
Dunham, S. C 4744
Eastern Life 4899
Ecker, Frederick H 4263, 4264, 4271, 4563, 4728
Edgewater Beach Hotel 4670, 4672,4918,4919,4925
Empire Gas & Electric Co 4701
Empire Life 4899
English, J. L . 4744
INDEX IX
Pag«
Equitable Life Assurance Society of the United States 4266,
4346, 4347, 4360, 4364, 4729, 4744, 4746
Intercompany agreements:
Annuities 4515,
4516, 4526, 4528, 4530-32, 4534, 4535, 4537, 4552, 4826, 4828-30,
4832, 4833, 4837-40, 4842, 4844, 4845, 4846, 4849, 4850, 4852,
4853, 4857, 4886, 4888, 4889.
Double indemnity provisions 4854, 4855
Group association .. 4164, 4165, 4179, 4207, 4688, 4689, 4706, 4710, 4716
"Jumbo risks" 4903, 4904
Medical Information Bureau 4898
Replacement agreement 4648,
4905, 4906, 4907, 4908, 4911-13, 4916, 4917
Settlement options and surrender values 4574,
4576, 4578, 4597, 4605, 4612, 4613, 4618, 4622, 4624, 4626, 4629,
4835, 4836, 4840, 4848, 4858, 4859-61, 4865, 4867, 4869, 4871-4576,
4878-82, 4891, 4893
Legislative activity 4364, 4802. 4803
Equitable Life Insurance Co. of Iowa 4744, 4746
Intercompany agreements:
Annuities _.__ ___ _ _ 4531—4533
V5¥7r455i," 4828," 4829,' 48"37, '4839, "484274844-4>, 4852, 4855
"Jumbo risks" 4903
Medical Information Bureau 4898
Replacement agreement 4905, 4909, 4913
Settlement options and surrender values 4585,
4657, 4840, 4848, 4849, 4865, 4869, 4872, 4881, 4882
Legislative activity 4757
Equitable Life Insurance Co., Washington, D. C-, 4313
Industrial terminations 4306, 4307, 4740
Intercompany agreements:
Medical Information Bureau 4899
Equitable Life Insurance Co. of Canada 4898
Eureka Maryland Assurance Corporation 4899
Evans, Percy H 4574, 4835, 4858, 4865
Excelsior Life 4898
Farmers & Bankers Life Insurance Co.:
Intercompany agreements:
Medical Information Bureau 4899
Lapse rate, 1925-28 . 4742
Lapse ratio 4926
Fearnside, H. M 4761
Federal banking holiday . - 4628, 4891
Federal income-tax laws 4873
Federal Life Insurance Co 4746,4898
Federal Social Security Act 4442
Federal Trade Commission 4272
Federal supervision discussed " 4388, 4389
Fidelity Mutual Life Insurance Co . 4744-4746
Intercompany agreements:
Annuities 4521,
4526, 4551, 4828, 4829, 4832, 4834, 4851, 4855, 4882, 4886
"Jumbo risks" 4903
Medical Information Bureau 4898
Replacement agreement 4905, 4908
Settlement options and surrender values 4605,
4612, 4853, 4865, 4872, 4874, 4881
Lapse rate, 1925-28 4742
Lapse rate) 1929-38 4743
Lapse ratio - 4926
Fidelity Union Life 4898
Fieldg, Andrew C . 4802
First National Bank of Valdosta, Ga 4414, 4775
Fiske, Haley - 4168, 4169, 4690, 4691, 4744, 4745
X INDEX
Page
Florida Association of Life Underwriters 4762, 4763
Florida Compiled General Laws 4930
Florida legislative activity, Memo 1935 ._ 4757
Florida Life Underwriters 4758
Flynn. Benedict D 4243,4245,
4251, 4253, 4254, 4271, 4281, 4517, 4520, 4524, 4564, 4526, 4532,
4543, 4561, 4624, 4690, 4691, 4701, 4702, 4703, 4718, 4719-4725,
4729, 4730, 4848, 4882, 4843, 4187, 4192, 4208, 4222, 4223.
Testimony of 4154-4182, 4224-4240, 4258-4266, 4275-4278
Folks, A. B 4761
Foster, Alfred D 4744
Fouse, L. G - 4744,4745
Frank, Jerome N., chairman, Securities and Exchange Commission, state-
ment of 4153-54
Franklin Life Insurance Co 4746
Intercompany agreements:
Medical Information Bureau 4898
Lapse rate, 1925-28 4742
Lapse rate, 1929-38 4743
Frazier-Lemke Act 4352, 4355, 4750
Frost, M. M: 4761
Fuller, Governor , 4496
Futch, Senator 4385, 4761
General American Life Insurance Co.:
Intercompany agreements:
Medical Information Bureau 4656, 4908, 4914
Replacement agreement 4898
General Electric Co . 4462
George Washington Life Insurance Co 4899
Georgia Code • 4932
Georgia Underwriters Association, legislative committee 4369, 4396, 4397
Germania Life Insurance Co 4744
Gilbraltar Life & Accident Insurance Co 4915
Girard Life Insurance Co 4899
Globe Life Insurance Co - 4899
Gore, Mr 4509,4623,4884
Graham, Mr 4688,4689
Great American Life Insurance Co 4899
Great Britain, annuities 4532, 4537
Great National 4899
Great Northern Life Insurance Co 4899
Great Southern Life Insurance Co.:
Intercompany agreements:
Medical Information Bureau 4898
Lapse rate, 1925-28 .- 4742
Lapse rate, 1929-38 4743
Lapse ratio 4926
Great- West Life Assurance Co.:
Intercompany agreements:
Medical Information Bureau 4898
Replacement agreement 4656, 4903, 4908, 4915
Lapse rate, 1925-28 4741
Lapse rate, 1929-38 4742,4743
Groezinger, L. B 4757
Group annuity business 4716
Group Association 4154-4223,4687-4716
Activities of Group Association..: 4183
Group annuities 4206
Group death and dismemberment rates 4204
Group life rates 4186
Annuity business ^-. 4716
Antitwisting rules 4159, 4160
Applicability of antitrust legislation 4165
Attendance at meetings 4708
INDEX XI
Group Association — Continued. Page
Committees 4706
Constitution 4703
Formation of Group Association 4180
Group insurance in United States 4710
Members 4707
Officers 4705
Origins and activities of informal association 4156
Restriction of competition 4210
Rulings, New York superintendent 4710
T rate and underwriting rules. 4172
Underwriting rules 4711
Aetna Life Insurance Co 4163,4164,4174,4182,4198,4205,
4207, 4688, 4689, 4703, 4705, 4706, 4710, 4711, 4716
Connecticut General Life Insurance Co 4163,
4164, 4175, 4198, 4702, 4710, 4716, 4205
Equitable Life Assurance Society of the United States 4164
4165, 4179, 4207, 4688, 4689, 4706, 4710, 4716
John Hancock Mutual Life Insurance Co 4174,
4182, 4716, 4702
Metropolitan Life Insurance Co 4163-
4166, 4168-4170, 4172, 4177, 4179, 4181, 4190, 4200, 4205, 4688,
4689, 4690, 4691, 4706, 4710, 4716.
New York Insurance Department 4157,
4174, 4176, 4179, 4183, 4190, 4191, 4199
New York Superintendent of Insurance 4178,
4179, 4183, 4187, 4191, 4193, 4221, 4222
Prudential Insurance Co of America 4163-
4165, 4172, 4176-4178, 4181, 4198, 4688, 4689, 4706, 4710, 4716
Travelers Insurance Co 4154,
4162-4164, 4174, 4198, 4207, 4687-4690, 4701-4703, 4710, 4716.
Group insurance:
Competition in ^ 4175, 4181
Costs, average 4155
Defined 4154
Growth 4155, 4156, 4687
Grout, H. A 4852,4865,4882
Guarantee Mutual Life Co.:
Intercompany agreements:
Medical Information Bureau 4898
Lapse rate, 1925-28 . 4742
Lapse rate, 1929-38 4743
Guaranty income Hfe 4899
Guardian Life Insurance Co 4357, 4746
Intercompany agreements:
Annuities 4522,
4524, 4526, 4537, 4538, 4551, 4828, 4829, 4832, 4834, 4844-
4847, 4852, 4855, 4886.
"Jumbo risks" 4903
Medical Information Bureau 4898
Replacement agreement 4905, 4909
Settlement options and surrender values 4562,
4576, 4578, 4585, 4605, 4853, 4854, 4865, 4869, 4872, 4881, 4882.
Lapse rate, 1925-28 4741
Lapse rate, 192^38 4742
Lapse ratio 4926
Guild, Governor 4452
Gulf Life 4899
Hall, Arthur F 4669, 4670, 4672, 4757, 4918, 4919, 4920, 4921
Hall, John A 4744
Hamilton, Andrew 4803
Hammond, H. Pierson 4230,
4232, 4242, 4247, 4259, 4276, 4717, 4718, 4719, 4722-1425, 4729, 4732
Hardcastle, E. E 4852
Hardee, Bascom O 4761
Hardin, John R, - - _ . . . . . , , 4350
XII INDEX
Pag«
Harper, Herbert C 4761
Hart, Mr . 4729, 4857
Harvard Board of Overseers 4453
Harvard Medical School 4474
Haskins & Sells 4356
Hatch, J. P 4761
Henderson, E. C 4229, 4232,4241,4552,4718,
4721, 4729-4731, 4744, 4836, 4837, 4838, 4842, 4844, 4848, 4849, 4867
HiU, J. Clarence 4761
Hogg, Robert L., assistant general counsel, Association of Life Insurance
Presidents 4362, 4375-4396, 4399, 4404, 4408,
4416, 4422, 4428, 4443, 4761, 4762-4764, 4767, 4772-4774, 4776, 4777
Testimony of 4375-4396, 4428-4443
Holcombe, John Marshall, Jr., director. Life Insurance Sales Research
Bureau 434 1
Testimony of 4317-4338
Home Life Insurance Co 4332, 4744, 4746
Intercompany agreements:
Annuities 4520,
4527, 4532, 4537, 4538, 4550, 4551, 4828, 4829, 4832, 4834, 4837,
4839, 4840, 4841, 4843-4847, 4851, 4852, 4854, 4855, 4857, 4886
"Jumbo risks" 4903
Medical Information Bureau 4898
Replacement agreement 4905, 4909, 4913
Settlement options and surrender values 4578,
4591, 4605, 4612, 4613, 4617, 4840, 4853, 4861, 4865, 4872, 4874-4876
4878, 4879, 4881, 4882.
Lapse rate, 1925-28 4742
Lapse rate, 1929-38 4743
Lapse ratio ^ 4926
Home Life Insurance Co. of America 4898
Home Life v. Conway 4750
Home State Life Insurance Co 4899
Hordman, F. B _ 4761
Hoskins, assistant actuary 4232, 4718, 4719, 4722-4725, 4729-4732, 4852
Houston, David 4350
Howard, Mr 4717, 4718, 4722-4724, 4732
Howell, Valentine, vice president and actuary, Prudential 4266-4275,
4725, 4727, 4846, 4848, 4852, 4858, 4883, 4884, 4886, 4887, 4890
Testimony'of 4266-4275,4619-4626
Huebner, Dr. S. S '. 4662
Hughes, Don 4447
Hughes Investigation 4273, 4570
Hughes, Norman M 4757
Hull, Roger B 4436, 4814
Hunter, Dr. Arthur 4548, 4550, 4551, 4847-4850,
4852, 4854, 4855, 4858, 4859, 4860, 4865, 4868, 4869, 4882, 4889
Testimony of 4505-4541, 4570-4576, 4583-4584
Hunter, Robertson G 4865
Huntington, R. W 4230,4241-4244,4247,4718,4720,4722
Hurd, Mr - 4852,4865
HurreU, Alfred 4176,4177,4702
Hutcheson, W. A 4514, 4531, 4830, 4835, 4842, 4843, 4847, 4849, 4852, 4894
Testimony of 4626-4632
Idaho Code 4930
Ide, George E 4744,4745
Illinois Bankers Life Assurance Co : 4899
Illinois, Revised Statutes 4930
Imperial Life Assurance Co. of Canada:
Intercompany agreements:
Annuities 4532, 4828, 4829, 4837, 4839, 4852
Medical Information Bureau 4898
Settlement options and surrender values 4590,
4840, 4865, 4872, 4881, 4882
Lapse rate, 1929-38 4743
Indiana, Burns Annotated Statutes 4930
Indianapolis Life Insurance Co 4899
INDEX XIII
Page
Industrial insurance 4281, 4737
Defined 4291
Policies, number written, 1918-37 4301-4305
Premiums, total in 1937 of 66 companies , 4312
Terminations, 1922-37 4736
Terminations compared with number of policies in force, new policies
issued and revivals 4738
Terminations, Equitable Life Insurance Co., Washington, D. C, Jan-
uary through March 1939 4740
Terminations of seven companies, 1924-38 4739
Industrial Life Insurance Co.:
Intercompany agreements:
Medical Information Bureau 4899
Insurance Department of Massachusetts 4617, 4878
Insurance, Department of Missouri 4649
Insurance Department of New Jersey 4887
Insurance Department of New York 4252,4354,4444, 4663
Settlement options and surrender values.. 4552, 4581-4582, 4599, 4601, 4860
Suggested new annuity table 4509, 4514, 4542
Intercompany agreements:
Nonparticipating rates . 4220-4230,
4232-4234, 4236, 4238, 4240-4242, 4244-4245, 4247-4248, 4251,
4254, 4256, 4259-4267, 4271-4272, 4277-4279, 4281.
Intei&iate Commerce Commission 4274
Inter-State Life & Accident Co 4899
Investment questionnaire 4508
Iowa Code i 4930
Irons, Lewis A., deputy insurance commissioner of Georgia 4415, 4776
Ives, Norman P 4761
Jackson, H. H 4852,4865
Jefferson Standard Life Insurance Co 4746
Intercompany agreements:
Medical information bureau 4898
Replacement agreement 4909
Lapse rate, 1925-28 4742
Lapse rate, 1929-38 4743
Lapse ratio 4926
John Hancock Mutual Life Insurance Co 4363, 4497, 4746
Intercompany agreements:
Annuities 4520,
4522, 4526, 4531-4533, 4535, 4537-4538, 4551, 4557, 4826, 4828-
4829, 4832-4833, 4836-4837, 4839, 4841-4842, 4844-4847, 4850-
4852, 4855, 4857.
Group Association 4174,4182,4702,4716
"Jumbo risks" 4903
Medical Information Bureau 4898
Replacement agreement 4905, 4909, 4912, 4914
Settlement options and surrender values. . 4576, 4605, 4612-4613, 4840,
4849, 4853-4854, 4865, 4872, 4874-4876, 4879, 4881-4882, 4891
Johns, Charley E 4761
Jones, Bill 4382
Jones, Frank L . 4905,4907,4911-4912
Testimony of 4648-4668
Jones, Hocker, Gladney & Grand 4750, 4786-4787
Jones, James C 4422-4425,4785-4787
Judea Life Insurance Co 4905
Jumbo risks agreement 4642-4648
' Membership in . 4903
Report of executive committee 4902
Underwriting rules 4901
Kansas 4693
General statutes of . 4930
Kansas City Life Insurance Co 4898
Kavanagh, Roger 4168,4690
Kederich, George A 4907
Keffer, R 4245, 4721, 4729-4731, 4865
Kelly, Dan, Jr 4761
XIV INDEX
Page
Kentucky Home Mutual Life Insurance Co 4899
Kentucky Statutes 4930
Kineke, F. D 4577,4865,4882
Kingsley, D. P 4474
Kingsley, William H 4421,4757,4785
Knight, G. F 4865
Knights Life Insurance Co 4899
Laird, John M., vice president, Connecticut General Life Insurance Co.,
Hartford, Conn 4230,
4232, 4245, 4247, 4259-4261, 4527, 4532, 4534-4536, 4566, 4572,
4574, 4577, 4582-4583, 4718-4724, 4757, 4834, 4838-4839, 4848,
4852, 4856-4858, 4860, 4865-4866, 4868-4869, 4902, 4925
Testimony of 4240-4243
LaFayette Life Insurance Co 4899
Lamar Life Insurance Co.:
Intercompany agreements:
Medical Information Bureau 4899
Lapse rate, 1925-28 4742
Lapse rate, 1929-38 4743
Lapse ratio 4926
Lannie Thompson case 4410-4413, 4774
Lapse rates 4741-4744
{See also Terminations.)
Lapsed policies 4740
Larson, C. Wesley 4757
Larus, John R 4533-4534, 4587, 4835, 4838-4840, 4849, 4852-4853, 4865
La Sauvegarde Assurance Co 4899
Lawton & Cunningham, Messrs 4413, 4774
Lee, Robert 4497
Legal committees 4690-4691
Legislative activity.
(See Association of Life Insurance Presidents.)
Level premiums, explained 4284-4287
Liberty Life Insurance Co. of Kansas 4899
Liberty National Life Insurance Co 4899
Life & Casualty Insurance Co 4900
Life counsel i 469 1
Life form, modified 4719
Life Insurance Co. of Detroit 4900
Life Insurance Co. of Virginia 4306-4307, 4746
Intercompany agreements:
Medical Information Bureau 4898
Policy containing State seal 4496
Life insurance edition of the National Underwriter 4255, 4265
Life insurance, group 4687, 4710
Life insurance rules, group 4711
Life insurance rulings, group 4710
Life Insurance Sales Research Bureau 4317, 4684-4686, 4741, 4926
Life insurance, terminations of 4281
Life rates, modified 4720-4721
Life Underwriters Association 4904-4905, 4807
Committee on law and legislation 4504
Life Underwriters' Association of the City of New York, Inc 4446-4447
4814-4815
Lincoln House : 4462
Lincoln, Leroy A 4168-4170,4179,4350,4360,4394,4691,4754
Lincoln Liberty Life Insurance Co 4900
Lincoln National Life Insurance Co., The 4746
Intercompany agreements:
"Jumbo risks" _. 4903
Medical Information Bureau . 4898
Reinsurance 4670, 4672-4674, 4919, 4925
Replacement agreement 4657, 4909, 4914, 4916
Lapse rate 4321, 4335
Lapse rate, 1925-28 4741
Lapse rate, 1929-38 - 4742
Lapse ratio -• 4926
INDEX XV
Page
Lindsay, L. Seton • 4654, 4911-4912
Linton, M. A .._ 4263-4264, 4726, 4728, 4757, 4846, 4848, 4905, 4907, 4912
Little Entente .-. 4540,4612,4614-4616,4875-4877
Membership in 4613
Little Gem life chart 4277
Little, J. F 4176,
4240, 4263, 4266, 4268-4270, 4515, 4574, 4619-4620, 4622-4624,
4702. 4719, 4726, 4728-4729, 4757, 4830, 4835, 4848-4849, 4858,
4865, 4889.
Lobbying 4345,4802-4804
Lobbying and legislative activities.
(See Association of Life Insurance Presidents.)
Report of New York State joint legislative committee 4802
London Life Insurance Co., The 4746
Intercompany agreements:
Medical Information Bureau 4898
Lapse rate, 1929-38 , 4743
Louisiana General Statutes 4930
Louisville Joint Stock Land Bank 4355
Luther, K. A 4905, 4907
Maddox, Baxter. . 4397
Maine, Revised Statutes 4930
Managers' Association 4425, 4787
Manhattan Life Insurance Co 4744, 4746
Intercompany agreements:
Medical Information Bureau 4898
Replacement agreement 4905, 4909
Mann, Dr. J. M 4761
Manton, Dr 4453
Manufacturers Life Insurance Co., Toronto, Canada 4746
Intercompany agreements:
"Jumbo risks" 4903
Medical Information Bureau 4898
Replacement agreement 4909
Lapse.. 4322
Lapse rate, 1925-28 4742
Lapse rate, 1929-38 4743
Maritime Life Insurance Co 4900
Martin, L. R.... 4865
Maryland, Annotated Code, Supp 4930
Maryland Life Insurance Co 4744, 4898
Massachusetts Division of Savings Bank Life Insurance .. 4459, 4821-4824
Massachusetts General Laws 4930
Massachusetts Life Underwriters Association 4430, 4493, 4804
Massachusetts Mutual Life Insurance Co 4723, 4744, 4746
Intercompany agreements:
Annuities 4520,
4526, 4531-4632, 4535, 4537-4538, 4550-4551, 4828-4829, 4832-
4833, 4836-4837, 4839, 4841-4842, 4844-4847, 4849-4852, 4854-
4855, 4857, 4886.
"Jumbo risks" 4903
Medical Information Bureau 4898
Replacement agreement. . . .- 4905, 4909, 4912, 4914
Settlement options and surrender values 4576,
4605, 4612-4613, 4618, 4622, 4624, 4840, 4848, 4853, 4865, 4872,
4874-4876, 4879-4882, 4884, 4891, 4893, 4895.
Lapse 4321
Lapse rates, 1925-28 4741
Lapse rates, 1929-38 4742
Lapse ratio 4926
Massachusetts Protective Life Assurance Co 4900
Massachusetts Savings Bank Life Insurance 4298,
4419-4420, 4423-4424, 4427, 4434-4435, 4438-4440, 4449-4452,
4500-4504, 478&
Massachusetts State actuary 4816-4820, 4822-4823
May, Emmett 4672,4919
124491— 40— pt. 10 62
XVI INDEX
Page
McAndless, A. J 4672, 4919-4921, 4925
McArthur, A. G 4761
McCankie, R. C 4842, 4848
McKenzie, H. S 4761
McKinney, J. M 4761
McNamara, John C, Jr 4907
McWilliams, W. A . 4761
Medical Information Bureau 4633-4642, 4896, 4919, 4920
Membership in 4897
Metropolitan Life Insurance Co 4329, 4350, 4445, 4470, 4744-4746, 4754
Industrial terminations 430G-4307
Intercompany agreements:
Annuities 4515,
4520, 4526-4528, 4531-4533, 4535, 4537-4538, 4541, 4545, 4547,
4550-4551, 4556-4557, 4560-4561, 4563, 4826, 4828, 4830, 4832-
4834, 48336-4842, 4844-4847, 4849-4852, 4855, 4857.
Group Association 4162-4166,4168-4170,4172,4177,
4179, 4181, 4190, 4200, 4205, 4688-4691, 4706, 4710, 4716
"Jumbo risks" 4903
Medical Information Bureau 4898
Nonparticipating rates 4261-4267, 4722, 4724-4729
Reinsurance 4674,4676,4923,4925
Replacement agreement 4905, 4909, 4911
Settlement options and surrender values 4574,
4578, 4585, 4592, 4605, 4612, 4620, 4622, 4624, 4629, 4840, 4848-
4849, 4853-4854, 4858-4859, 4861, 4865, 4869, 4871-4872, 4874-
4875, 4879, 4881-4882, 4888-4889, 4891-4892.
Policy "containing New York City seal 4497
Michigan Compiled Laws . 4931
Michigan Life Insurance Co 4900
Michigan Mutual Life Insurance Co 4744
Mid-Continent Life Insurance Co 4900
Midland Life Insurance Co 4900
Midland Mutual Life Insurance Co.:
Intercompany agreements:
Replacement agreement 4909
Lapse rate, 1925-28 4742
Lapse rate, 1929-38 4743
Lapse ratio 4926
Midland National Life Insurance Co. :
Intercompany agreements:
Medical Information Bureau 4900
Replacement agreement * 4909
Midwest Life Insurance Co.:
Intercompany agreements:
Medical Information Bureau 4900
Lapse rate, 1925-28 _ 4742
Lapse rate, 1929-38 . 4743
Lapse ratio 4926
Miller, J. N 4761
Milligan, Samuel 4865
Minnesota Mutual Life Insurance Co 4746-4747, 4757
Intercompany agreements:
Annuities 4526,4833
Group Association 4716
Medical Information Bureau 4898
Replacement agreement 4656, 4909, 4914
Lapse rate, 1925-28 4742
Lapse rate, 1929-38 4743
Minnesota Statutes 4931
Mississippi Code . 4931
Missouri Revised Statutes ^- 4931
Missouri State Life Insurance Co 4175,4179,4277,4702
Intercompany agreements:
"Jumbo risks" 4903
INDB3X XVII
Monarch Life Insurance Co. of Winnipeg:
Intercompany agreements: Page
Medical Information Bureau . 4900
Lapse rate, 1925-28 4742
Lapse rate, 1929-38 4743
Lapse ratio 4926
Montana Revised Code 4931
Montgomery, Donald 4223
Montgomery, William, president, Acacia Mutual Life Insurance Co 4757
Testimony of 4339-4343
Montreal Life Insurance Co 4900
Monumental Life Insurance Co 4900
Moore, A. F 4744
Moore, Mrs. Frances 4771
Morris, Edward B 4162-4163, 4270, '4688-4689
Mortality tables, discussed 4234-4236, 4251-4253
Morton, Paul 4346-4347, 4744-4745
Mullinax, Perry , 477.^
Munn, Dr. John P l 4744-474'^
Murphy, H. G 4761
Murphy, Ray D 4574,4584,
4852, 4858, 4860, 4865, 4869-4871, 4873, 4875-4876, 4878, 4880
Testimony of 4576-4583, 4597-4603, 4642-4648
Mutual Benefit Life Insurance Co., The 4350, 4425, 4493, 4723, 4746
Intercompany agreements :
Annuities _. - _- . _ 4520 4521 4526—
4527,'4532," 4535^ "4"53'7-4538V4556^455i,' 4826^ 4828-4829,' 4832-
4833, 4836-4837, 4839-4841, 4843-4846, 4851-4852, 4855, 4857
"Jumbo risks" 4904
Medical Information Bureau 4898
Replacement agreement 4905, 4909, 4914
Settlement options and surrender values 4562,
4571-4572, 4576, 4605, 4612-4613, 4840, 4842, 4828-4829, 4832-
4833, 4836-4837, 4839-4841, 4843-4846, 4851-4852, 4855, 4857.
Lapse rate, 1925-28 . 4741
Lapse rate, 1929-38 4742
Lapse ratio ,_ 4926
Mutual Life Assurance Co. of Canada 4746
Intercompany agreements:
Medical Information Bureau 4898
Lapse rate, 1929-38 . 4743
Mutual Life & Citizens Assurance Co., Ltd 4900
Mutual Life Insurance Co 4350, 4385, 4744, 4746, 4802-4803
Intercompany agreements:
Annuities 4514-4516,
4520, 4527, 4532, 4537-4538, 4551, 4826, 4828-4830, 4832-4834,
4836-4837, 4839-4837, 4849-4852, 4855, 4857, 4886.
Medical Information Bureau 4898
Nonparticipating rat es 4263, 4729
Replacement agreement 4654-4655, 4657, 4909, 491 1-4912, 4916
Settlement options and surrender values 4562,
4571, 4574, 4577-4578, 4605, 4612-4613, 4622, 4624, 4626, 4629-
4630, 4645, 4840, 4849, 4853-4854, 4858-4861, 4865, 4872, 4874-
4875, 4879, 4881-4882, 4888, 4890-4891, 4893, 4895.
Lapse rate, 1925-28 4741
Lapse rate. 1929-38 4742
Lapse ratio 4926
Surrender charges 4309-43 1 0
Mutual Life v. Sullivan (Washington annuities) 4750
Mutual Trust Life Insurance Co 4746-4747
Intercompany agreements:
Medical Information Bureau ^ 4898
Replacement agreement- 4909
Lapse rate, 1925-28 4742
Lapse rate, 1929-38 4743
Lapse ra,tio 4926
XVIII INDEX
Page
Myrick, Julian S . 4907
National Association of Life Underwriters 4422, 4425, 4436, 4785
National convention of insurance commissioners 4157
National Equity Life Insurance Co 4900
National Fidelity Life Insurance Co 4900
National Guardian Life Insurance Co.:
Intercompany agreements:
Medical Information Bureau 4900
Lapse 4322
Lapse rate, 1925-28 4742
Lapse rate, 1929-38 4743
Lapse ratio 4926
National Life & Accident Insurance Co 4746
Intercompany agreements:
Medical Information Bureau 4898
Replacement agreement 4910, 4914
Lapse rate, 1925-28 4742
Lapse rate, 1929-38 4743
Lapse ratio 4926
National Life Insurance Co :
Intercompany agreements:
Annuities 4520, 4527, 4532-4533, 4537-4538, 4551,
4828-4829, 4832, 4834, 4837, 4839, 4844-4847, 4851, 4855, 4886
"Jumbo risks" . 4904
Medical Information Bureau 4898, 4900
Replacement agreement 4905, 4910, 4914
Settlement options and surrender values 4576, 4605,
4612-4613, 4617-4618 4622-4623, 4840, 4853, 4865, 4872, 4874,
4876, 4878-4881, 4884.
Lapse ratio 4926
National Life Assurance Co. of Canada.. 4898
National Life Insurance Co. of Vermont. 4349-4350,
4434, 4473-4474, 4745-4746
Lapse rate, 1925-28 4741
Lapse rate, 192^-38 4742
Net cost 4483
National Old Line Insurance Co 4900
National Underwriter, life insurance edition 4255, 4265
Nebraska 4695
Compiled statutes of 4931
Nelson, Senator H. W 4414, 4775
Nevada, Compiled Statutes of _• 4931
New England Mutual Life Insurance Co 4261, 4350,
4488, 4498-4499, 4724, 4730, 4744, 4747
Intercompany agreements :
Annuities 4522, 4524,
4526, 4532-4533, 4537-4538, 4550, 4551, 4828-4829, 4832, 4834-
4837, 4839, 4844-4847, 4851-4852, 4855, 4857
"Jumbo risks" 4904
Medical Information Bureau 4898
Replacement agreement . 4905, 4910, 4914
Settlement options and surrender values. _ 4576, 4605, 4612-4613, 4840,
4849, 4854, 4865, 4872, 4874-4876, 4879, 4881-4882
Lapse rate, 1925-28 474 1
Lapse rate, 192^38 4742
Net cost 4483
New Hampshire Public Laws 4931
New .Tersey Revised Statutes 4932
New Mexico Statutes ., 4931
New World Life Insurance Co 4900
New York:
Code 4578,4600,4850
Consolidated Laws 4932
Insurance Department . 4252, 4354, 4444
Intercompany agreements:
Group association 4157,
4174, 4176, 4179, 4183, 4190-4191, 4199
INDEX XIX
New York — Continued.
Insurance Department — Continued. P*Ke
Insurance law ' 4178,
4183, 4187, 419^4200, 4215, 4222, 4703, 4710
Insurance report 4543
Reports 4206
Savings bank life insurance 4420, 4424,
4439-4440, 4449, 4500-4504
Superntendent of insurance 4252, 4501,-
4509, 4515, 4577, 4663, 4710
New York City Board of Aldermen and Council- . 4354
New York City contemplated suit 4354, 4750
New York Life Insurance Co. 4263, 4271,
4329, 4349-4350, 4396, 4398, 4405-4406, 4410, 4415,
4417-4418, 4445, 4723, 4729, 4744, 4747, 4803
Intercompany agreements:
Annuities 4505-4506,
4515-4517, 4520, 4524, 4526, 4529-4535, 4537, 4562, 4826, 4828-
4834, 4836-4846, 4849-4852, 4855, 4857
"Jumbo risks" , 4904
Medical Information Bureau ' 4633, 4898
Replacement agreement 4654, 4910-4912, 4914
Settlement options and surrender values 4574,
4576, 4578, 4581, 4585, 4612, 4619, 4622-4624, 4626, 4629, 4840,
4845, 4848-4849, 4853-4854, 4858-4861, 4865, 4869, 4872, 4874r-
4876, 4879, 4881-4882, 4886, 4889, 4891-4893.
Lapse — 4332
New York Savings Bank, The 4500, 4825
Nonparticipating rates 4223-4280, 4717-4732
Intercompany agreements:
1933 rate increase 4229
1935 rate increase -- 4259
Cooperation with participating companies 4262-4275
1937 rate increase 4275
Aetna Life Insurance Co 4229,
4232-4233, 4240-4242, 4247, 4256, 4259, 4261-4262, 4264, 4701,
4718-4724, 4729^4731, 4843, 4927-4928.
American Life convention 4230
Atlantic Life Insurance Co 4277
Columbian National Life Insurance Co 4277
Connecticut General Life Insurance Co ■- 4229-
4230, 4232-4234, 4236, 4238, 4240, 4242, 4244-4245, 4251, 4256,
4259, 4260-4262, 4718-4719, 4721-4724, 4729-4731.
Metropolitan Life Insurance Co 4248, 4261-4267, 4722, 4724-4729
Pacific Mutual Life Insurance Co 4277
Provident Mutual Life Insurance Co 4262-4267,4723-4729
Prudential Insurance Co. of America 4262-4267,
4272, 4719-4722, 4724-4726, 4728^4729
Travelers Insurance Co., The --• 4843, 4927-4929
Nordhouse, John 4745
North American Life Assurance Co.:
Intercompany agreements:
Medical Information Bureau ^--, 4898
Lapse rate, 1929-38 4743
North American Life Insurance Co 4898
North American Reassurance Co.:
Intercompany agreements:
"Jumbo risks" r-- 4904
Medical Information Bureau 4900
Reinsurance 4668, 4672-4675, 4677, 49 18-4922, 4925
North Carolina Code. 4931
North Dakota Compiled Laws 4931
Northern Life Assurance Co. of Canada . 4900
Northern Life Insurance Co 4898
XX INDEX
Page
Northwestern Mutual Life Insurance Co 4723
Intercompany agreements:
Annuities 4520, 4524, 4526, 4529, 4532-4534, 4551, 4826,
4828-4829, 4832-4833, 4835-4837. 4839, 4851-4852, 4855, 4857
"Jumbo risks" 4904
Medical Information Bureau 4898
Settlement options and surrender values 4571, 4573-4574,
4576, 4590, 4605, 4612-4613, 4618, 4622, 4842, 4849, 48ri3-4854,
4865, 4872, 4874-4876, 4879-4882, 4884, 4891, 4893, 4S'»5.
Lapse 4321
Lapse rate, 1925-28 ^ . 4741
Lapse rate, 1929-38 4742
Net cost 4483
Surrender charges . 4310
Northwestern National Life Insurance Co.:
Interconrpany agreements:
Medical Information Bureau . 4898
Replacement agreement 4910
Lapse rate, 1925-28 4742
Lapse rate, 1929-38 . 4743
Lapse ratio.^ 4926
O'Brian, John Lord . 4546-4548, 4554
Occidental Life Insurance Co. of California 4747
Intercompany agreements:
Group association 4716
Medical Information Bureau 4898
Lapse 4322
Lapse rate, 1925-28 4742
Lapse rate, 1929-38 . 4743
Lapse ratio 4926
Occidental Life Insurance Co., Raleigh, N. C:
Intercompany agreements:
Medical Information Bureau 4900
Replacement agreement 4910
Ohio General Code ^ 4931
Ohio National Life Insurance Co 1 . 4747
Intercompany agreements:
Medical Information Bureau 4900
Reinsurance 4925
Ohio State Life Insurance Co.:
Intercompany agreements:
Medical Information Bureau > . 4898
Replacement agreement 4910
Oklahoma Statutes 4931
Old Line Life Insurance Co. of America 4747
Intercompany agreements:
Medical Information Bureau 4898
Replacement agreement 4910, 4914
Ordinary insurance 4224, 4281
Gain or loss from surrenders and lapses - 4740
Terminations 4735, 4737
Oregon ._. 4696
Code 4931
Oregon Mutual Life Insurance Co.
Intercompany agreements:
Replacement agreement 4910
Lapse Rate, 1925-28 . 4742
Lapse Rate, 1929-38 4743
Owens, Frank C 4778
Pacific Mutual Life Insurance Co . 4744, 4747
Intercompany agreements:
"Jumbo "risks" 4904
Medical Information Bureau 4898
Nonparticipating rates 4277
Replacement agreement , 4910, 4915
INDEX XXI
Pacific Mutual Life Insurance Co. — Continued. ^aw
Lapse rate, 1925-28 4741
Lapse rate, 1929-38 4742
Lapse ratio 4926
Pan-American Life Insurance Co.:
Intercompany agreements:
"Jumbo risks" 4904
Medical Information Bureau 4898
Replacement agreement 4910, 4914
Lapse rate, 1925-28 4742
Lapse rate, 1929-38 4743
Pannill, William 4761
Park, Hon. Orville A 4402, 4769
Parker, F. P 4761
Parker, J. G 4865
Parkinson, Thomas I 4263, 4350, 4729, 4860
Parrish, J. J 4761
Patterson, Prof. Edwin W 4578
Paul Revere Life Insurance Co.:
Intercompany agreements:
Medical Information Bureau 4900
Peabody, Charles A 4744
Peninsular Life Insurance Co 4900
Penn Mutual Life Insurance Co., The 4421
Intercompany agreements:
Annuities 4522,
4526, 4.531-4535, 4537-4538; 4551, 4826, 4828-4829, 4832-4833,
4836-4839, 4841-4847, 4851-4852, 4855.
"Jumbo risks" 4904
Medical Information Bureau 4898
Replacement agreement 4905, 4910, 4915
Settlement options and surrender values 4576,
4590, 4605, 4612-4613, 4617, 4840, 4848-4850, 4853, 4872,
4874-4876, 4878-4879, 4881-4882, 4886, 4891, 4893, 4895.
Lapse rate, 1929-38 . 4742
Lapse ratio ^ 4926
Pennsylvania Statutes Annotated, Supp 4931
Penny Savings Bank of Boston 4455
Peoples Life Insurance Co. (District of Columbia):
Industrial terminations 4306-4307
Peoples Life Insurance Co. (Indiana). 4898
Peoples Savings Bank 4454
Peoria Life Insurance Co 4672-4673, 4919, 4921
Perrin, O. W 4835, 4848, 4852, 4865
Phelps, J. T 4744
Philadelphia Life Insurance Co.:
Intercompany agreements:
Medical Information Bureau 4898
Lapse rate, 192.5-28 4742
Lapse rate, 1929-38 4743
Lapse ratio 4926
Phillips, S. B 4757
Phillips, T. A 4757
Phoenix Mutual Life Insurance Co 4263,4723,4728,4730,4747
Intercompany agreements:
Annuities 4522,
4524, 4527, 4532-4533, 4535, 4537-4538, 4550-4551, 4828-4829,
4832, 4834-4839, 4841-4844, 4846-4847, 4850, 4852, 4854-4855,
4857.
"Jumbo risks" 4904
Medical Information Bureau , 4898
Replacement agreement ' 4905, 4910
Settlement options and surrender values 4562,
4576, 4587, 4605, 4612-4613, 4618, 4840, 4845, 4849, 4853, 4865,
4872, 4874-4877, 4879-4882, 4886. 4889, 4891.
Lapse rate, 1929-38 4742
Lapse ratio 4926
Pillsbury, Madison & Sutro 4757
XXII INDEX
Pilot Life Insurance Co.:
Intercompany agreements: Page
Medical Information Bureau 4898
Lapse rate, 1925 28 4742
Lapse rate, 1929-38 = ,_ 4743
Lapse ratio '. .-: ._..,._ 4926
Pmk, Louis H 467a'4679, 4860-4861
Pioneer American Life Insurance Co ._ 4900
Plantz C. B., assistant vice president, New York Savings Bank:
Tectimony of ^ 4500-4504
Policies :
Lapsed 4740
Surrendered 4740
Policyholders National Life Insurance Co 4900
Postal Life Insurance Co 4900
Praetorians, The •- 4898
Premium tax, Tennessee 47 '0
Premium tax ordinance. West Virginia 47 J
Prebyterian Ministers' Mutual 4484
Procurement Division of the Treasury 4272
Protected Home Circle . 4900
Protective Life Insurance Co 4900
Provident Institution for Savings 4457
Provident Life & Accident Insurance Co 4900
Provident Life & Trust Co 4744
Provident Life Insurance Co 4747
Intercompany agreements:
Medical Information Bureau 4900
Provident Mutual Life Insurance Co 4261
Intercompany agreements:
Annuities 4522,
4524, 4527, 4530-4532, 4535, 4537-4638, 4551, 4828-4829, 4832-
4833, 4836-4837, 4839-4841, 4844, 484&-4847, 4849-4852, 4855,
4857.
"Jumbo risks" 4904
Medical information bureau 4898
Nonparticipating rates : 4262-4267, 4723-4729
Replacement agreement 4657, 4905, 4910, 4915-4916
Settlement options and surrender values 4576-
4577, 4585-4586, 4588, 4591, 4594-4595, 4605, 4613-4614, 4622,
4624, 4840, 4848-4849, 4853, 4865, 4869-4873, 4875, 4878-4882,
4884, 4889, 4891, 4893, 4895.
Lapse rate, 1929-38 4742
Lapse ratio 4926
Net cost 4483
Provident Savings 4744
Prudential Assurance Co., Ltd 4843, 4900
Prudential Insurance Co. of America 4240,
4242, 4308, 4316, 4329, 4350, 4744-4745, 4747
Industrial terminations 4306-4307
IntR'-company agreements:
Annuities 4515,
4520, 4526-4527, 4529, 4531-4533, 4535, 4537-4538, 4551, 4826,
4828-4830, 4S32-4834, 4836-4840, 4842, 4844-4847, 4851-4852,
4855, 4857, 4886.
Group association 4163-
4165, 4172, 4176-4178, 4181, 4198, 4688-4689, 4706, 4716, 4810
"Jumbo risks" 4904
Medical information bureau -. 4898
Nonpai ticipating rates 4262-
4267, 4272, 471&-4722, 4724-4726; 4728-4729
Replacement agreement 4654-4655, 4911-4912
Settlement options and surrender values 4574,
4577, 4585, 4605, 4612-4613, 461^4622, 4624-4625, 4629, 4848-
^^ 4849, 4853, 4858, 4865, 4869, 4871-4872, 4874-4875, 4879, 4881,
1«*83-4885, 4887-4891, 4893.
INDEX ' XXIII
Page
Puritan Life Insurance Co .. 4747, 4804-4806, 4900
Pyramid Life Insurance Co. , Arkansas 4900
Pvramici Life Insurance Co., Missouri _ 4900
Radford suit 4352, 4354, 4355, 4750
Rates, life 4717
Recording and Statistical Corporation 4636, 4637, 4640, 4641, 4897
Recording bureau 4902
Reilly, Joseph A 4405
Testimony of 4447
Reinsurance conference 4668-4684, 4922, 4924, 4925
Nature of conference 4668, 4669-4684
Risks . 4676,4922
Uniform rates 4673-4677
Reliance Life Insurance Co 4747, 4898
Remington's Revised Statutes 4701
Replacement agreement 4648-4668
Exceptions made by signatory companies 4913
Plan of operation 4906
Record of intercompany replacements 4916, 4917
Report of committee 4904
Report of nonsignatory companies 4918
Signatory companies ^-^—^ 4907
Report of New York State Joint Legislative Commi±teerrTr__r 4802-4804
Republic National Life Insurance Co 4900
Reserve Loan Life Insurance Co 4747, 4898
Rhode Island General Laws 4931
Rhode Island Underwriters Association legislative committee 4363
Roberts, N. E -. 4761
Rockford Life Insurance Co 4900
Rogers, John R 4761
Roosevelt, Theodore , 4346
Root, Clark, Buckner & Ballantine ^ 4354
Rothwell, Bernard J 4453
Rowley, Dr. R. L _. 4902
Royal Insurance Co., Ltd 4900
St. Louis Mutual Life Insurance Co 4899
Saskatchewan Life Insurance Co 4900
Saunders, Harry H 4761
Savage, C. A _ 4761
Savings Bank Journal 4457
Savings Bank in Life Insurance, The (Floyd E. DeGroat) 4493, 4790-4801
Savings Bank life insurance:
Massachusetts system 4298, 4419-4421, 4423,
4424, 4427, 4434, 4435, 4438-4440, 4449-4452, 4500-4504, 4786
Amounts written and terminated, 1938 4818
Banks issuing _ 4454, 4816
Expenses, percent of premium income, savings bank ordinary and
industrial 4476, 4820
Experience, 30 years, statement .. 4491, 4823
Growth 4455, 4816, 4824
History and description 4449
Illustration of 10 years' experience, issues of 1929 4482, 4821
Insurance in force, comparison 4491, 4823
Interest earned on'investments 4475, 4820
Mortality experience 4473, 4819
Number and types of selling agencies . 4463, 481 7
Number of persons insured 4466, 4817
Proportions of amounts terminated by lapse and surrender in
banks and companies. _^ 4471, 4819
Ratios surplus to reserve, comparison 4488, 4822
Ten year net cost comparison 4485, 4822
New York system 4420, 4424, 4439, 4440, 4449, 4500-4504, 4825
Opposition to savings bank life insurance 4419-4449
Against Connecticut legislation 4437
Against Missouri legislation 4422
Against New Hampshire legi&lation 4433
XXIV INDEX
Savings Bank life insurance — Continued.
Opposition to savings bank life insurance — Continued. Page
Against New York legislation 4420, 4447
Against Pennsylvania legislation i 4426
Against Rhode Island legislation 4429
Attacks on Massachusetts legislation 4493
Attitude of Association of Life Insurance Presidents 4419
Sawyer, C. B 4529,4530
Schelker, W. G 4574, 4597, 4858, 4872
Schenley Distillers 4198
Scranton Life Insurance Co 4900
Seaboard Life Insurance Co.:
Intercompany agreements:
Medical Information Bureau 4900
Replacement agreement 4910
Sears, Francis P 4422, 4757, 4785
Security Life & Trust Co 4900
Security Mutual Life Insurance Co 4744, 4747
Intercompany agreements:
Medical Information Bureau 4898, 4900
Replacement agreement 4910
Securities and Exchange Commission 4826-4827, 4857, 4880, 4926, 4927
Settlement options:
Abuses 4587
Complexity .. 4570-71
Definition 4570
Intercompany agreements:
Activities of Edward Wayne Marshall, vice president and actuary,
Provident Mutual Life Insurance Co 4585
Activities of special subcommittee of actuaries 4576
Origins of efforts to curtail settlement options 45'^'
Actuarial Society 4587
Aetna Life Insurance Co 4576,
4585, 4605, 4612, 4613, 4619, 4622, 4629, 4836, 4840, 4848, 4849,
4853, 4856, 4869, 4872, 4873-4876, 4879, 4881, 4882, 4884, 4891-
4893, 4895.
Berkshire Life Insurance Co 4590, 4605, 4853, 4872, 4881
Canada Life Assurance Co 4571,
4629, 4835, 4836, 4840, 4849, 4865, 4872, 4881, 4891, 4893
Canadian companies 4590, 4629, 4853, 4881
Connecticut General Life Insurance Co 4566,
4573, 4575-4577, 4582, 4605, 4612, 4613, 4617, 4618, 4622, 4629,
4834, 4835, 4836, 4840, 4845, 4848, 4849, 4853, 4854-4856, 4858,
4865, 4866, 4868, 4872, 4874, 4875, 4876, 4877-4881, 4884, 4891
4892.
Connecticut Mutual Life Insurance Co 4605,
4612, 4613, 4618, 4622, 4835, 4836, 4840, 4848, 4849, 4853, 4865,
4872, 4874-4877, 4879-4882, 4884, 4891, 4893, 4895.
Equitable tife Assurance Societv of the United States 4574,
4576, 4578, 4597, 4605, 4612, 4613, 4618, 4622, 4624, 4626, 4629,
4835, 4836, 4840, 4848, 4858, 4859-4861, 4865, 4867, 4869, 4871-
4876, 4878-4882, 4891, 4893.
Equitable Life Insurance Co. of Iowa 4585,
4657, 4840, 4848, 4849, 4865, 4869, 4872, 4881, 4882
Fidelity Mutual JL-ife Insurance Co 4605,
4612, 4853, 4865, 4872, 4874, 4881
Guardian Life Insurance Co . 4562,
4576, 4578, 4585, 4605, 4853, 4854, 4865, 4869, 4872, 4881, 4882
Home Life Insurance Co _ 4578,
4591, 4605, 4612, 4613, 4617, 4840, 4853, 4861, 4865, 4872, 4874-
4876, 4879, 4881, 4882.
Imperial Life Assurance Co. of Canada 4590,
4840, 4865, 4872, 4881, 4882
Insurance Department of New York. 4552, 4581, 4582, 4599, 4601, 4860
John Hancock Mutual Life Insurance Co 4576,
4605, 4612, 4613, 4840, 4849, 4853, 4854, 4865, 4872,. 4874-4876,
4879, 4881, 4882, 4891.
INDEX XXV
Settlement options — Continued.
Intercompany agreement — Continued. Pase
Massachusetts Mutual Life Insurance Co 4576,
4605, 4612, 4613, 4618, 4622, 4624, 4840, 4848, 4853, 4865, 4872,
4874-4876, 4879-4882, 4884, 4891, 4893, 4895.
Metropolitan Life Insurance Co 4574,
4578, 4585, 4592, 4605, 4612, 4620, 4622, 4624, 4629, 4840, 4848,
4849, 4853, 4854, 5858, 4859, 4861, 4865, 4869, 4871, 4872, 4874,
4875, 4879, 4881, 4882, 4888, 4889, 4891, 4892.
Mutual Benefit Life Insurance Co, The 4562,
4571, 4572, 4576, 4605, 4612, 4613, 4828, 4829, 4832, 4833, 4836,
4837, 4839-4841, 4842, 4843-4846, 4851, 4852, 4855, 4857.
Mutual Life Insurance Co 4562,
4571, 4574, 4577, 4578, 4605, 4612, 4622, 4624, 4626, 4629, 4630,
4645, 4840, 4849, 4853, 4854, 4858-4861, 4865, 4872, 4874, 4875,
4879, 4881, 4882, 4888, 4890, 4891, 4893, 4895.
National Life Insurance Co 4576, 4605, 4612, 4613, 4617, 4618,
4622, 4623, 4840, 4853, 4865, 4872, 4874, 4876, 4878-4881, 4884
New England Mutual Life Insurance Co 457G, 4605, 4612,
4613, 4840, 4849, 4854, 4865, 4872, 4874^4876, 4879, 4881, 4882
New York Life Insurance Co 4574,
4576, 4578, 4581, 4585, 4612, 4619, 4622-4624, 4626, 4629, 4840,
4845, 4848, 4849, 4853, 4854, 4858-4861, 4865, 4869, 4872, 4874-
4876, 4879, 4881, 4882, 4886, 4889, 4891-4893
Northwestern Mutual Life Insurance Co 4571, 4573,
4574, 4576, 4590, 4605, 4612, 4613, 4618, 4622, 4842, 4849, 4853,
4854, 4865, 4872, 4874-4876, 4879-4882, 4884, 4891, 4893, 4895
Penn Mutual Life Insurance Co., The 4576,
4590, 4605, 4612, 4613, 4617, 4840, 4848-4850, 4853, 4872, 4874^
4876, 4878, 4879, 4881, 4882, 4886, 4891, 4893, 4895
Phoenix Mutual Life Insurance Co 4562,
4576, 4587, 4605, 4612, 4613, 4618, 4840, 4845, 4849, 4853, 4865,
4872, 4874-4877, 4879-4882, 4886, 4889, 4891
Provident Mutual Life Insurance Co_ 4576, 4577, 4585, 4586, 4588, 4591,
4594, 4595, 4605, 4613, 4614, 4622, 4624, 4840, 4848, 4849, 4853,
4865, 4869-4873, 4875, 4878-4882, 4884, 4889, 4891, 4893, 4895
Prudential Insurance Co. of America 4574,
4577, 4585, 4605, 4612, 4613, 4619-4622, 4624, 4625, 4629, 4848,
4849, 4853, 4858, 4865, 4869, 4871, 4872, 4874, 4875, 487S|, 4881,
4883-4885, 4887-4891, 4893
State Mutual Life Assurapce Co 4605,
4612, 4613, 4622, 4853, 4865, 4872, 4874-4876, 4879, 4881, 4884
Sun Life Assurance Co. of Canada 4605, 4629,
4840, 4848, 4849, 4853, 4854, 4865, 4872, 4881, 4886, 4891, 4893
Travelers Insurance Co. , The 4576, 4622, 4629, 4840, 4848,-
4849, 4853, 4854, 4865, 4872, 4881, 4884, 4886, 4891, 4892, 4893
Union Central Life Insurance Co. , The 4576,
4605, 4612, 4613, 4848, 4853, 4874, 4875, 4879, 4881, 4889, 4891
United States Life Insurance Co 4576, 4849, 4881
Interest rates 4603-4619
Service Life Insurance Co 4900
•/henandoah Life Insurance Co 4898
Shepherd, B. E 4422, 4423, 4757, 4785, 4786, 4787
Shepherd, C. O 4729,4730,4865
Shepherd, Jurant T 4761
Simon, Leon G 4907
Sisk, Senator 4769
Sisley, Edward J 4907
Smith, Bill 1 4403
Smith, George Willard 4350
Smith, Guy A 4426, 4427, 4432, 4444, 4801, 4802
Smith, Dr. S. C 4761
Smith, W. H 4926
Social Security Act 4442
South Carolina- - 4697
Code 4932
XXVI INDEX
Page
South Dakota Code 4932
Tax case 4750
Southeastern Life Insurance Co 4900
Southland Life Insurance Co 4747
Intercompany agreements:
Medical Information Bureau 4898
Lapse rate, 1925-28 J 4742
Lapse, rate, 1929-38 4743
Lapse ratio 4926
Southwestern Life Insurance Co 4899
Sovereign Life Insurance Co 4900
Special Commission for Investigation and Study of the Banking Structure
of Massachusetts, The 4497
Spectator Insurance Yearbook 4156, 4186,
4206, 4212, 4224, 4282, 4296, 4308, 4310, 4506, 4567, 4896
Springfield Five Cent Savings Bank 4461
Standard annuity table 4547-4551, 4559, 4562, 4850-4853
Standard Life Assurance Co 4899
Standard Life Insurance Co. of America:
Lapse rate, 1925-28 .. 4742
Lapse rate, 1929-38 4743
Standard Life Insurance Co., Pennsylvania:
Intercompany agreements:
Medical Inforjnation Bureau ^ 4900
Lapse ratio ^ 4926
Standard mortality table 4855
State Association of Life Insurance Companies 4397
State Farm Life Insurance Co. :
Intercompany agreements:
Medical Information Bureau 4900
Replacement agreement 4911
State Life Insurance Co 4899
State Life Underwriters Association 4757
State Mutual Life Assurance Co 4747, 4422, 4744, 4785
Intercompany agreements:
Annuities 4526,
4532, 4550, 4551, 4826, 4829, 4833, 4837, 4839, 4847, 4851, 4852,
4854, 4855.
"Jumbo risks" 4904
Medical Information Bureau 4899
Replacement agreement ^ 4660, 4911
Settlement options and surrender values 4605,
4612, 4613, 4622, 4853, 4865, 4872, 4874-4876, 4879, 4881, 4884
Lapse rate, 1925-28 4742
Lapse rate, 1929-38 4743
Lapse ratio 4926
State Reserve Life Insurance Co 4900
State Unemployment Act 4442
Stearns, Maurice H 4363
Stewart Dry Goods Co . 4377
Stockholders' dividends, Aetna, Connecticut General, and Travelers 4717
Stockton, James R 4764
Strong, W. M . 4574,4577,4858,4859,4865,4882
Stutsman, Dr 4674.
Summary of statutory prerequisites for licensing of life insurance agents 4172
Sumners, Merle G 4499
Sun Life Assurance Co. of Canada 4164, 4747
Intercompany agreements :
Annuities 4520,
4531, 4532, 4537, 4538, 4550, 4828, 4829, 4832, 4836, 4837, 4839,
4840, 4842-4846, 4850-4852, 4857.
Group Association i 4179, 4716
"Jumbo risks" " 4904
Medical Information Bureau 4899
Reinsurance 4674, 4676
INDEX XXVII
Sun Life Assurance Co. of Canada — Continued
Intercompany agreements — Continued, Page
Replacement agreement 4911
Settlement options and surrender values 4605, 4629,
4840, 4848, 4849, 4853, 4854, 4865, 4872, 4881, 4886, 4891, 4893
Lapse rate, 1925-28 4742
Lapse rate, 1929-38 4743
Sun Life Insurance Co. of America 4747
Intercompany agreements:
Medical Information Bureau 4900
Replacement agreement 4911, 4915
Superintendent of Insurance of New York 4252, 4501, 4710
Intercompany agreements:
Group Association _ 4178, 4179, 4183, 4187, 4191, 4193, 4221, 4222
Supreme Court, United States 4353, 4354, 4377, 4378
Surplus, changes in (ordinary nonparticipating business) — (Aetna, Con-
necticut General, and Travelers) 4717
Surrender values and surrender charges, discussed 4619-4632
T rate 4172, 4*178, 4187, 4194, 4197
Tariff Commission 4272
Tarbell, G. E ^. 4744,4745
Taxation, State, discussed 4392, 4393
Taylor, Paul 4578, 4600, 4860, 4861
Teachers' Insurance Annuity Association of New York 4484
T. Eaton Life Insurance Co 4900
Tebbetts, Walter 4617, 4836, 4847, 4852, 4865, 4878
Telco Holding Co 4764
Tennessee Code 4932
Terminations:
Equitable Life Insurance Co., Washington, D. C 4740
Industrial 4736,4738
Of 7 companies 4739
Ordinary 4735
Ordinary and industrial 4737
Terminations of life insurance, ordinary and industrial 4281-4283,
4287-4345, 4684, 4733, 4735-4741, 4926, 4927
Definitions of types of terminations 4287
Experience of Equitable Life Insurance Co. of Washington, D. C 4313
Lapse rates:
Acacia Mutual Life Insurance Co 4742,4743
Aetna Life Insurance Co 4741, 4742, 4926
Atlantic Life Insurance Co 4742, 4743, 4926
Bankers Life Insurance Co., Iowa 4741, 4742
Bankers Life Insurance Co. , Nebr 4742, 4743, 4926
California Western States Life Insurance Co 4742, 4743
Canada Life Assurance Co 4741, 4742, 4743
Confederation Life Association 4743
Connecticut General Life Insurance Co 4741, 4742, 4926
Connecticut Mutual Life Insurance Co 4741, 4742, 4926
Continental American Life Insurance Co 4742, 4743
Dominion Life Assurance Co 4743
Farmers & Bankers Life Insurance Co 4742, 4926
Fidelity Mutual Life Insurance Co 4742,4743,4926
Franklin Life Insurance Co 4742, 4743
Great Southern Life Insurance Co 4742,4743,4926
Great West Life Assurance Co 4741,4742,4743
Guarantee Mutual Life Co. 4742, 4743
Guardian Life Insurance Co 4741,4742,4926
Home Life Insurance Co 4742,4743,4926
Imperial Life Assurance Co. of Canada.^ 4743
Jefferson Standard Life Insurance Co 4742, 4743, 4926
Lamar Life Insurance Co 4742, 4743,4926
Lincoln National Life Insurance Co 4321, 4335, 4741, 4742, 4926
London Life Insurance Co., The 4743
Manufacturers Life Insurance Co., Toronto Canada.. 4322, 4742, 4743
Massachusetts Mutual Life Insurance Co 4321, 4741, 4742, 4926
XXVIIi INDEX
Terminations of life insurance, ordinary and industrial — Continued.
Lapse rates — Continued. Page
Midland Mutual Life Insurance Co 4742, 4743, 4926
Midwest Life Insurance Co 4742, 4743, 4926
Monarch Life Insurance Co 4742, 4743, 4926
Mutual Benefit Life Insurance Co 4741, 4742, 4926
Mutual Life Assurance Co. of Canada 4743
Mutual Life Insurance Co 4741, 4742, 4926
Mutual Trust Life Insurance Co 4742, 4743, 4926
National Guardian Life Insurance Co 4322, 4742, 4743, 4926
National Life & Accident Insurance Co 4742, 4743, 4926
National Life Insurance Co 4926
New England Mutual Life Insurance Co 4741,4742
New York Life Insurance Co 4332
North American Life Assurance Co 4743
Northwestern Mutual Life Insurance Co 4321, 4741, 4742
Northwestern National Life Insurance Co 4742, 4743, 4926
Occidental Life Insurance Co. of California 4322, 4742, 4743, 4926
Oregon Mutual Life Insurance Co 4742, 4743
Pacific Mutual Life Insurance Co 4741, 4742, 4926
^an- American Life Insurance Co 4742, 4743
Penn Mutual Life Insurance Co 4742, 4926
Philadelphia Life Insurance Co 4712, 4743, 4926
Phoenix Mutual Life Insurance Co 4742, 4926
Pilot Life Insurance Co 4742, 4743, 4926
Provident Mutual Life Insurance Co 4742, 4926
Southland Life Insurance Co 4742,4743,4926
Standard Life Insurance Co. of America 4742, 4743
Standard Life Insurance Co., Pennsylvania 4926
State Mutual Life Assurance Co 4742, 4743, 4926
Sun Life Assurance Co. of Canada 4742, 4743
Union Mutual Life Insurance Co 4742, 4743
United Benefit Life Insurance Co 4742, 4743
United States Life Insurance Co 4926
Volunteer State Life Insurance Co 4742, 4743, 4926
West Coast Life Insurance Co 4322, 4742, 4743
Western Life Insurance Co. 4742,4743
Life insurance sales research bureau studies 4317, 4684
Terminations by type 4290
Terminations compared with new business and insurance in force 4294
Terminations of industrial insurance 4304
Terminations of life insurance, ordinarv and industrial 4281
Texas Statutes '. 4699, 4932
Texas Corporation , 4207
Texas Life Insurance Co 4900
Texas Prudential Insurance Co 4900
Theory of life insurance 4283-4287
Thompson Case, Lannie 4410-4413, 4774
Thompson, John 4436,4814
Thompson, J. S 4757,4865
Torrev, N. W _ 4744
Travelers Insurance Co., The 4224-4226, 4258, 4350, 4744, 4747
Intercompany agreements:
Annuities 4515,
4517, 4520, 4529, 4531, 4533, 4535, 4537, 4538, 4550, 4551, 4826,
4828-4833, 4836-4846, 4849-4852, 4855-4857.
Group Association 4154, 4162-4164, 4173,
4174, 4181, 4198, 4207, 4687-4690, 4702, 4710, 4716
"Jumbo risks" 4904
Medical Information Bureau 4899
Nonparticipating rates 4229,
4230, 4232, 4236, 4241, 4242, 4245, 4254, 4256, 4259-4262, 4264,
4718, 4719, 4721-4725, 4728-4731, 4843, 4927, 4928, 4929.
Reinsurance . 4673, 4674, 4925
Replacement agreement 4905, 491 1
Settlement options and surrender values 4576,
4622, 4629, 4840, 4848, 4849, 4853, 4854, 4865, 4872, 4881, 4884,
4886, 4891, 4892, 4893.
INDEX XXIX
Travelers Insurance Co. The — Continued. ^^se
Ordinary business, volume 4732
Rates 4732
Stockholders' dividends 4717
Tuck, A. E 4179
Turner, Charles M 4744
Twisting {see Replacement agreement).
Underwriters Association of New York City 4650, 4664
Underwriters' Association of the State of Georgia, legislative committee..- 4369,
4396, 4397
Underwriting rules, Group Association 4711
Union Central Life Insurance Co., The 4350, 4744, 4745, 4747
Intercompany agreements:
Annuities 4526, 4531-4533, 4828,
4829, 4833, 4836, 4837, 4839, 4849, 4850, 4852, 4854, 4857
Double indemnity provisions 4855
"Jumbo risks" 4904
Medical Information Bureau 4899
Settlement options 4576, 4605,
4612, 4613, 4848, 4853, 4874, 4875, 4879, 4881, 4889, 4891
Union Labor Life Insurance Co 4900
Union Mutual Life Insurance Co 4747, 4899
Lapse rate, 1925-28 4742
Lapse rate, 1929-38 : 4743
Unique Manual Digest 4225, 4606
United Benefit Life Insurance Co.:
Intercompany agreements:
Medical Information Bureau 4900
Lapse rate, 1925-28 4742
Lapse rate, 1929-38 4743
Lapse ratio 4926
United Fidelity Life Insurance Co 4900
United Life and Accident Insurance Co.:
Intercompany agreements:
Medical Information Bureau 4899
Lapse rate, 1925-28 4742
Lapse rate, 1929-38 4743
United Shoe Machinery Co 4453,4462,4487
United States Department of Agriculture 4223
United States Department of Commerce 4352
United States Department of Labor 4272
United States Life Insurance Co 4744, 4745, 4747
Intercompany agreements:
Annuities 4520, 4526, 4528, 4529, 4531, 4532, 4842, 4843
Medical Information Bureau 4899
Settlement options 4576, 4849, 4881
Lapse ratio 4926
Utah Revised Statutes 4932
Vermont public laws 4932
Vernon's Statutes 4699
Victory Life Insurance Co 4900
Virginia Code 4932
Volunteer State Life Insurance Co , 4747
Intercompany agreements:
Medical Information Bureau 4899
Lapse rate, 1925-28 4742
Lapse rate, 1929-38 4743
Lapse ratio 4926
Vrooman, John W 4744
Wadsworth, L. E 4761
Ward, Dr. Leslie D 4744-4745
Warren, Walter 4761
Washington :
Remington's Revised Statutes 4701
Revised Statutes -• 4932
Washington Life Insurance Co 4744
XXX INDEX
Washington National Life Insurance Co. :
Industrial terminations 4306-4307
Intercompany agreements:
Medical Information Bureau 4900
Replacement agreement . 4911
Way, John L . 4163,4688,4689
Webb, Walter E 4650,4904
West Coast Life Insurance Co.:
Intercompany agreements:
Medical Information Bureau 4899
Lapse 4322
Lapse rate, 1925-28 4742
Lapse rate, 1929-38 4743
Lapse ratio 4926
West Virginia Code .- 4932
Western & Southern Life Insurance Co 4306, 4307, 4747
Intercompany agreements:
Medical Information Bureau 4899
Replacement agreement 4911
Western Empire Life Insurance Co 4900
Western Life Insurance Co.:
Intercompany agreements:
Medical Information Bureau 4900
Lapse rate, 1925-28 . 4742
Lapse rate, 1929-38 4743
Western Life Insurance Co., Ontario 4900
Western Union Life Insurance Co 4159, 4160, 4254
Western Reserve Life Insurance Co ^ 4900
Wharton School of Finance r 4662
Wheeler- Ray burn bill . __ 4441
Whiddon, W. S 4761
White, Clinton C 4364,4429-4433,4805-4806,4810
Whitman, Russell R ., ._. 4770
Whitman Savings Bank, The : 4454, 4475, 4481, 4488
Whitsitt, Vincent P., manager and general counsel. The Association of Life
Insurance Presidents 4376,
4386, 4387, 4415, 4664, 4755-4757, 4763, 4802, 4806, 4813, 4814
Testimony of 4345-4373, 4389, 4394-4396, 4419-4446
Wigglesworth, George 4453
Wilde, Frazer B 4351,4757
Wilkes-Barre Association of Life Underwriters 4427, 4802
Wilson, George T . 4744
Wilson, Harry 4670,4672,4918,4919
Wing, Asa A 4744
Wisconsin Life Insurance Co 4900
Wisconsin National Life Insurance Co 4900
Wisconsin Statutes 4932
Wood, W. A. P 4835,4865
Woodmen of the World Life Insurance Society 4899
Woollen, Herbert M 4669, 4672-4674, 4683, 4757, 4918, 4919
Wyoming Statutes 4932
Yeoman Mutual Life Insurance Co.:
Intercompany agreements:
Replacement agreement , 4911
Yonge, J. E . 4763
Yost, Albert H 4436, 4757, 4813-4814
Youngman, Arthur V 4447
Zacher, L. Edmund 4229,4232,4243,4259,4260,
4263, 4275, 4350, 4717, 4718, 4720, 4722, 4724, 4757, 4831, 4837
BOSTON PUBLIC LIBRARY
3 9999 06351 934 0
«?
:!>
::i!i!iM ) ill Hi^
|jiil|i|j|{lji:
ill 1 11
Live Music Archive
Librivox Free Audio
Metropolitan Museum
Cleveland Museum of Art
Internet Arcade
Console Living Room
Books to Borrow
Open Library
TV News
Understanding 9/11