further improvements in the quality of State insurance regulation can be made.

There is also more to insurance solvency than regulation. And we must also inquire to these other public policy matters which impact on insurance solvency. We will hear testimony from the NAIC on its proposals for limited Federal action in some areas, including alien reinsurance. Where there is not doubt in my mind but that strong action is required. We will be as careful in examining all of the various legislative options as we are in conducting our investigation which will also continue to unfold.

Thank you, Mr. Chairman.

Mr. DINGELL. The Chair thanks the gentleman. The gentleman from New York, Mr. Lent?

Mr. LENT. Thank you, Mr. Chairman. Mr. Chairman, given the importance of insurance solvency to the American public it's timely that we further address this issue here in the oversight and investigation subcommittee. This subcommittee has been looking into this issue, thanks to your leadership, for almost 3 years now. During that time the subcommittee issued its "Failed Promises" report which has served a useful purpose both in framing a discussion on insurer solvency issues and identifying those areas of particularly urgent concern to this subcommittee.

Today's witnesses should serve an important role in our investigation of insurance solvency. Since the subcommittee began its investigation of State solvency regulation I understand the NAIC has recognized the need to improve State regulation and develop a certification program acknowledging States that meet their solvency standards. I look forward to hearing their testimony and commend them for their efforts.

I also look forward to the testimony of our other witnesses, the GAO, the National Association of Independent Insurers and the National Association of Life Companies, and learning what additional considerations are important to consider in this investigatory process. I hope we can come to understand how regulators and industry might make State solvency regulation as strong as possible to prevent further situations such as First Executive and First Capital. The ultimate success of these efforts will clearly serve the best interests of all concerned.

Thank you, Mr. Chairman.

Mr. DINGELL. The Chair thanks the gentleman. The gentleman from Minnesota, Mr. Sikorski?

Mr. SIKORSKI. Thank you, Mr. Chairman. First, I want to commend you and the excellent staff for your foresight, hard work, and professionalism in pursuing this 3 year old investigation. I want to thank the GAO people for their professionalism, hard work, and dedication throughout this investigation.

Insurance is designed to provide an additional level of comfort for American families. Insurance fraud, poor regulatory structures, lax enforcement, and crazy "State systems" can eventually crush American families that thought they had adequately protected themselves against unforeseen tragedies. We've had some great and aggressive insurance commissioners tell Congress that 4,800 individuals in Minnesota were covered by First Executive contracts or policies. And as of January 1990, First Executive Life had sold

approximately $250 million worth of policies. Apparently in that year $100 million were cashed in, so roughly $140 million worth of policies or contracts in the State of Minnesota are in place and many Minnesotans may not receive the benefits they anticipated under their contracts that they had paid for.

We're here today to insure that the American people, American policy holders and American taxpayers are protected. Federal minimum standards may well be necessary. So, I look forward to the testimony today and joining with the chairman in aggressively pursuing this issue.

Thank you, Mr. Chairman.

Mr. DINGELL. The Chair thanks the gentleman. The Chair recognizes the gentleman from North Carolina, Mr. McMillan.

STATEMENT OF HON. ALEX MCMILLAN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NORTH CAROLINA

Mr. MCMILLAN. Thank you, Mr. Chairman and I'm pleased that the oversight committee is holding further hearings today on insurance solvency, an issue of great importance, not only to this subcommittee but to the entire committee and the entire country.

It's been my good fortune to serve on the Oversight Subcommittee in the past 2 years, although I'm not on it at the present time. The Oversight and Investigations Committee has conducted numerous case studies which have included three of the largest property casualty insurance insolvencies: Transit, Mission and Integrity. We have witnessed major insolvencies recently, including First Executive Life, with profound implications for pension plans even in my own State of North Carolina, in the case of Cannon Fieldcrest Mills. As documented in our "Failed Promises" report, we learned that the insurance industry is vulnerable to mismanagement and fraud that feeds on the weaknesses that have existed in the past in a multistate regulatory jurisdiction. And we also have seen cases where off-shore reinsurance is inadequately supervised.

While nothing as serious as the S&L problem, and because government is not involved with guarantees in any way, it is nevertheless a very serious concern. Fortunately, we have the opportunity to thoughtfully examine the insurance insolvency situation before we reach a crises. We can consider what changes could improve the insurance regulatory system and minimize both the size and the frequency of future insolvencies.

By serving as an active member at these hearings, I realize that the solvency issue is both complex and far reaching. The breadth and causes of insurance insolvency cannot be fully understood in just a few hearings. Given the multi-dimensional nature of this issue, I believe it is most important that we are holding additional hearings on this issue. It is also my hope that solutions can be found within existing regulatory structures with such supplemental measures that meet with approval of both State commissioners and the industry. But it must be acknowledged that the problem has national dimensions. We need only look at the Cannon Mills situation to confirm that.

Our witnesses today will shed light on the effectiveness of the existing regulatory regime and its efforts to strengthen itself. Their

efforts deserve our close attention. I especially want to welcome James E. Long, the president of the National Association of Insurance Commissioners, who is also the insurance commissioner of the State of North Carolina, testifying for us today.

I thank the chairman for pursuing this matter and for allowing me to participate in these hearings.

Mr. DINGELL. The Chair thanks the gentleman. The gentleman from Colorado, Mr. Schaefer?

Mr. SCHAEFER. I thank the chairman. It really wouldn't take a thorough examination of my voting record to conclude that State primacy is my preferred approach whenever possible. The States I believe are better situated to develop regulations most in tune with their particular needs. Insurance is really no exception. But recently letters I've received have forced me to take another look at the current insurance regulatory system.

Letters from constituents of mine who have lifetime investments in life insurance policies are finding that when the difficult time came to make a claim, their carrier was insolvent. And while the safety net of a guarantee fund was available for most others, Colorado residents just recently got this passed through their legislature.

Mr. Chairman, I would be concerned if these were isolated cases, but in 1989 there were 43 insurance insolvencies. The most in any given year. This compares to the previous 6 years when annual insolvency stood at about 17. And while it may be too early to determine an insurance crisis, the danger signs for a continued and more widespread problem are definitely there.

I therefore appreciate the committee's on-going interest in this very important issue and particularly yours, Mr. Chairman, and I look forward to the testimony of the witnesses to hear their thoughts on an appropriate Congressional response, if one is needed. Although in my mind, State based regulation is still the way to go. I'm open to considering any type of adjustments to the current system and I look forward to working with the chairman in this regard. Yield back.

Mr. DINGELL. The Chair thanks the gentleman. The gentleman from Ohio, Mr. Eckart?

Mr. ECKART. Thank you very much, Mr. Chairman. You know, one of the fundamental premises of insurance is sharing of the risk. We pool people who are in need of seeing that risk is set off among their colleagues in a way to limit their exposures. It's the protection of risks from a particular event or a particular set of circumstances. It's also protection, in my view, from the vagaries of State regulation. The best regulatory effort, however, is founded on the strength of the weakest regulatory system since the basis of this regulatory system is founded in each of the individual States. Clearly, those constituents of mine in northeastern Ohio who purchased policies from companies that do business under a different set of rules find themselves potentially at risk as well.

I have discovered, embarking on my eleventh year now, that the pretense of protection is probably worse than no protection at all. The focus of this hearing, at least from this gentleman's perspective, is the vagaries of the regulatory effort being conducted by the States. The extent to which those different standards and condi

tions affect my constituents as consumers will determine ultimately how I view this matter from a legislative perspective.

But from an oversight view, I can only commend the GAO in reviewing their report last evening as a vigorous wholehearted effort to strip away some of the bark, if you will, on a slab of wood that has grown awfully tall and awfully long in the forest of States' rights. While having come from the State legislature and having served on the State insurance committee as a member and vice chair, and rewriting our State insurance code, I know, or at least I think I do, the difference between good and weak State regulation. I think the GAO will shine a bright spotlight on that for us and I am very grateful for their contribution to this debate.

Mr. DINGELL. The Chair thanks the gentleman. The gentlewoman from Illinois?

STATEMENT OF HON. CARDISS COLLINS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS

Mrs. COLLINS. Thank you, Mr. Chairman. I want to commend you for holding this important hearing and I also want to thank your for allowing me to participate.

This oversight subcommittee has held very extensive hearings examining the problems of insurance insolvency and has issued an extremely well developed and informative report called "Failed Promises." The report suggested that some Federal role in the regulation of insurance solvency may be appropriate. Recent events have shown the foresight of this subcommittee. The failure of Executive Life Insurance Company of California, the largest insurance company failure in the United States, has put in jeopardy the pensions of many American workers. First Capital Life Insurance is facing similar difficulties.

The issue for today's hearing is whether the current system of State regulation is sufficient. The Subcommittee on Commerce, Consumer Protection and Competitiveness requested the General Accounting Office to review how the State regulatory authorities have dealt with financially troubled companies. According to the GAO report released yesterday, insurance regulators delay in taking formal action against the nationally troubled companies.

The report found that State regulators did not take formal action in over 70 percent of failed insurer cases. In at least 36 failed insurer cases, insurers continued to write policies after regulators identified them as financially troubled.

Delays in taking action lead to increased costs and delayed claim payments. The National Association of Insurance Commissioners has been making efforts to improve State solvency regulation. But even with the best of intentions, we must face the fact that insurance is increasingly a national and even global business. There are practical limits to what 50 different State regulators can accomplish in addressing the solvency problems of large national or multi-national insurance companies.

Mr. Chairman, you have announced your intention to introduce legislation on solvency in the near future. I and the entire members of the Commerce Subcommittee stand ready to be of any assistance we can to work with you when the bill is being considered.

At the heart of the debate will be the adequacy of State regulation and I believe the testimony today will shed much light on this issue I look forward to hearing the witness.

Thank you, Mr. Chairman. I yield back the balance of my time. Mr. DINGELL. The Chair thanks the gentlewoman. The gentleman from Texas, Mr. Bryant?

Mr. BRYANT. I don't wish to make a statement.

Mr. DINGELL. Very well, the Chair announces the first panel before the subcommittee is Mr. Richard L. Fogel, Assistant Comptroller General for General Government Issues, U.S. General Accounting Office. Mr. Fogel is accompanied by Mr. Lawrence D. Cluff, Assistant Director for Financial Institutions and Markets; Ms. Mary Lynn Sergent, Evaluator, Financial Institutions and Markets and Ms. Rachel DeMarcus, Esquire, Assistant General Counsel.

Ladies and gentlemen, the Chair notes that all witnesses appearing before this committee appear under oath. Do any of you have any objection to appearing under oath?

The Chair notes that for your information copies of the rules of the committee and the subcommittee as well as the House are there to inform you of your rights and to inform you of the limitations on the powers of the committee.

Since you are being invited to testify under oath, it is your right to be advised by counsel. Do any of you desire to be advised by counsel during your appearance here?

[No audible response.]

Mr. DINGELL. Very well, if you have no objection to testifying under oath, would you please each rise and raise your right hand. [Witnesses sworn.]

Mr. DINGELL. You may each consider yourself to be under oath. The Chair will recognize you in such order as you choose to present the statements on behalf of the General Accounting office.

TESTIMONY OF RICHARD L. FOGEL, ASSISTANT COMPTROLLER GENERAL, GENERAL GOVERNMENT ISSUES, GENERAL ACCOUNTING OFFICE, ACCOMPANIED BY LAWRENCE D. CLUFF, ASSISTANT DIRECTOR FOR FINANCIAL INSTITUTIONS AND MARKETS; MARY LYNN SERGENT, EVALUATOR; AND RACHEL DEMARCUS, ASSISTANT GENERAL COUNSEL

Mr. FOGEL. Thank you very much, Mr. Chairman. I would ask that my complete statement be submitted for the record and I will try to highlight the statement.

Mr. DINGELL. Without objection that will be done. And the Chair recognizes you then, Mr. Fogel for your full statement.

Mr. FOGEL. We are pleased to be here today to participate in your inquiry and to the role of the National Association of Insurance Commissioners and its capability to create and maintain an effective national system of solvency regulation.

I want to emphasize at the outset that we have worked closely with NAIC in doing our review. And we have met with NAIC twice to discuss our findings and give them an opportunity to provide additional information. And I also want to emphasize that NAIC was cooperative in our current review. However, the GAO does not