Mr. HORNE. There is another factor. In one or two of the States, they do have a kind of State-chartered or State-authorized-but not necessarily State-backed insurance coverage of their own. For example, Maryland has had, since a situation with which we are all familiar, an insurance authority, not backed by the State of Maryland, but by a privately operated and owned insurance corporation. Senator ELLENDER. Proceed, Mr. Horne. RESERVES OF FSLIC The assets of the Insurance Corporation increased by 24 percent during fiscal 1965, reaching $1.5 billion at June 30, 1965. Its insurance reserves during the same period increased by almost $290 million to also $1.5 billion. Senator ELLENDER. What is the total volume? This is only the increase you say? Mr. HORNE. Well, it increased by 24 percent to $1.5 billion. Mr. HORNE. The total assets of the Insurance Corporation as of June 30, 1965, were $1.5 billion. Senator ELLENDER. What caused that increase? Did you have more loan associations come into the program? Mr. HORNE. That is one aspect. Also, more money was paid in in the form of premiums, and in our return on investments with the money paid in. We had a surplus instead of a deficit, so far as use of the funds was concerned. Senator ELLENDER. Well, your reserve has been ample to meet any contingency and it has kept an increasing? Mr. HORNE. So far, it has; yes, sir. Senator ELLENDER. As I recall, last year we discussed a matter of some area in which the losses Mr. HORNE. Potential losses, I believe. Senator ELLENDER (continuing). Potential losses, I believe, were great. Mr. HORNE. That situation still prevails, sir. Senator ELLENDER. As I remember, there were several associations on the west coast involved particularly. Mr. HORNE. Yes, sir; some were involved on the west coast, and in the Southwest, and in Chicago. Then, there was a scattering of a few elsewhere. Senator ELLENDER. Has that condition cleared up some? Mr. HORNE. No, sir; it has not. Senator ELLENDER. It has not? Mr. HORNE. I mention that a little later on in my statement, but I don't get into the details on it, although the Committee may wish me to do so. Senator ELLENDER. It might be well to indicate, if you do not have it in your statement, what you are doing to try to help the situation. Mr. HORNE. I mention that in the statement, sir. Senator ELLENDER. All right. Proceed. I am sorry I anticipated you. Mr. HORNE. That is all right, sir. Speaking of the reserves, this amount is more than double the insurance reserves for fiscal 1962. The Corporation's gross income of almost $123 million, primarily from insurance premiums and interest on Government securities, represented a gain of $16 million over fiscal 1964. The Corporation's net income, however, decreased by 1.5 percent to $72.8 million for fiscal 1965, mainly as a result of an allowance for estimated losses of $25 million. INSURANCE LOSSES Total cumulative losses, including provisions for estimated losses, to June 30, 1965, amounted to $52.1 million, representing approximately 6.1 percent of cumulative gross income. But insurance losses, including provision for estimated losses, for fiscal year 1965 totaled $25 million, an increase of 94 percent over the cumulative total at June 30, 1964. The significance of these figures can be understood better by an explanation of the terms "insurance losses" and "provision for estimated losses." Insurance losses are determined by the difference between the cost to the Insurance Corporation of the assets purchased by it and the amount realized in the liquidation of such assets, or, in the case of payment of insurance of accounts, by the difference between the amount of the insurance payoff, and payment received from the receiver after liquidation. The term "provision for estimated losses" means the best estimate on the basis of all known facts of the probable loss to the Corporation after liquidation of purchased assets or after distribution of the liquidating dividend by the receiver. Thus in fiscal 1965 insurance losses on assets purchased from insured institutions amounted to almost $1.5 million. Provision for estimated losses, however, amounted to $5.8 million on assets of almost $15 million acquired from institutions, and amounted to $19.6 million on insurance payment accounts of almost $85 million. Senator ELLENDER. You say here "your estimated losses." As a rule, how closely do you match your estimated losses? Mr. HORNE. Fairly closely, Mr. Chairman. Mr. Worthy, do you have any statistics as to that? Mr. WORTHY. Of course, most of the activities of the Corporation have been in the last few years and those cases are still pending so we don't know what the losses are going to be. My personal opinion is that they are very accurate, in fact, they may be conservative in some of the cases. Senator ELLENDER. There is a difference there. How much of these estimated losses must be paid from your reserves? How does that run? Mr. WORTHY. Sir, I did not understand your question. Senator ELLENDER. You have estimated your losses, and you say that is fairly accurate. Mr. WORTHY. Yes, sir. Senator ELLENDER. Now, to what extent, in the last 3 or 4 years, have your losses been in excess of your fees, if any at all? Mr. HORNE. Never. Senator ELLENDER. Never? Mr. HORNE. No, sir. Senator ELLENDER. So you collect for the protection of these accounts, much more than you spend? Mr. HORNE. That has been true up to date, sir. Mr. WORTHY. Mr. Chairman, to give you an example: In just the last 31⁄2 years, we have increased our reserves available for losses by over $1 billion, after taking care of all losses. Mr. HORNE. Congress in 1962 or 1963, I don't remember the exact year, but about that time, authorized the Board to impose a prepayment on the savings and loan association in order to increase the capability of the Insurance Corporation to meet any contingency. This is still in effect and will remain in effect until a certain formula set by Congress is realized. We probably will realize that formula, I should think, by the end of 1970. Mr. TREVAS. This is the financial statement of the Insurance Corporation [handing leaflet to committee]. Mr. WORTHY. The two reserves are shown down in the left-hand column in the middle. Senator ELLENDER. At this point in the record, we will incorporate this statement, because it answers a few questions. Accounts receivable (principally insurance premiums payable after Mar. 31) Investments (U.S. Government obligations and accrued interest). Assets acquired from insured institutions (book value of assets acquired to prevent default after allowances for losses). Loans to insured institutions (including accrued interest). Subrogated accounts in insured institutions in liquidation (after allowances for losses) Insured accounts in insured institutions in liquidation (pending and unclaimed accounts after allowances for losses). Deferred charges and other assets. Total.... $3,472, 738 26, 269, 191 1,398, 250, 867 109, 278, 040 64, 601, 676 243, 141 $3,401, 316 24, 222, 497 1, 182, 630, 825 91,310, 613 18,000,000 797,080 1,617, 196, 895 1,320, 362, 331 LIABILITIES Secondary reserve (additional premiums in the nature of prepayments with respect to future premiums).. Total.... NOTE.-Market value of investments in U.S. Government obligations as of Mar. 31, 1966, amounted to $1,337,801,646. Combined reserves equivalent to 1.37 percent of the total amount of all accounts of insured members and creditor obligations of all insured institutions aggregating $114,400,000. 1 Loss incurred in connection with obtaining securities of higher yield. Source and application of total income, cumulative through Mar. 31, 1966 Summary of insurance losses, cumulative through Mar. 31, 1966 1 Includes $3,000,000 loss on loan of $45,000,000 included under "Acquisition of assets" since assets were acquired in settlement of loan. 2 Represents loan in the amount of $15,000,000 on which no loss is anticipated. 1 Selected financial data-FSLIC insured savings and loan associations, Mar. 31, 1966-Preliminary Membership: Federally chartered: Mutual__ State chartered: Mutual.. Stock... 2, 020 1, 800 689 Total mortgage loans. 4, 509 $126, 232, 701, 000 $27, 996, 000 $10, 629, 031, 000 $107, 375, 392, 000 39, 358, 000 $2,700 $108, 070, 436, 000 9, 673, 000 $11, 200 $8, 308, 437, 000 6. 58 7.74 7. 69 Percent of cash and Government obligations to total savings capital___ 1 Represents 96 percent of the resources of all operating savings and loan associations. INSURANCE PREPAYMENT PREMIUMS 9.90 Mr. HORNE. This might be something also that would interest you: By having this prepayment premium and by strengthening the Insurance Corporation, it puts it more in line with the strength that is evidenced so far by the FDIC and the Federal Deposit Insurance Corporation, so far as contingencies they might have to face in the commercial banking field. It also puts the Insurance Corporation in a much better position to meet some of the problems to which you have referred a moment ago, and which we briefly discussed at our session with you last year. This is one thing that Congress had in mind when it gave this prepayment authority. INSURANCE APPLICATIONS Senator ELLENDER. Let me ask you this. Is your rate of application as great now as it was 3 or 4 years ago? Mr. HORNE. I don't think it is, sir. Mr. Smith, what is your comment on that? Is it as great as it was 3 or 4 years ago, the number of applications? Mr. SMITH. The number of applications? Senator ELLENDER. For insurance, yes. Mr. SMITH. The volume of applications is pretty closely the same, but if there is any change, it is on the downgrade, a little bit, I would say, just slightly. But that is more noticeable within the last 12 months, I think, because of competition and so forth. Senator ELLENDER. Let me ask you this: In granting assistance to any applicant, do you require them to put aside a certain amount in reserve? |