Accordingly, we have strongly supported and urged the enactment of legislation designed to extend insolvency protection to include noncar-owning pedestrians, coverage for vehicle damage, property insurance policyholders-virtually all claimants and insurers of insolvent property and casualty insurance.

The alliance strongly urges the subcommittee to favorably report title I of S. 2208-a post solvency assessment plan. This legislation would create an insolvency program in which all licensed carriers in the District of Columbia would be required to participate. If an insolvency occurs, these carriers, through an assessment, would provide funds out of which claimants and policyholders of insolvent insurers would be compensated. Title I is substantially similar to model legislation proposed for enactment in each State by the National Association of Insurance Commissioners.

Most insolvencies can be traced to three categories of causes: 1. Uncontrollable events or acts of God, such as economic depressions and catastrophic losses as those resulting from hurricanes or floods. Examples are the insurers who became insolvent due to the fall in value of their assets, chiefly securities, during the Great Depression.

2. Poor management, involving inadequate underwriting standards, marketing errors which reduce premium volume, under reserving and inept investment techniques.

3. Dishonest management, that converts company funds for personal use or falsifies assets.

It is evident from these causes of insolvency that some may be detected far enough in advance for the regulator to stop the deterioration before it causes insolvency, or at least before it invades the funds set aside for obligations to policyholders or claimants. Nevertheless, it is also evident from the causes of insolvency that in spite of the best efforts of competent regulators, some insolvencies cannot be detected in time. One commentator, conversant with the subject, has pointed out:

Expansion of and improvement in the quality of examination and audits of annual statements will curb insolvency. Still, crimes are committed regardless of the number of policemen hired and insolvencies will occur regardless of the thoroughness or frequency of examination.1

Therefore, the American Mutual Insurance Alliance, recognizing its responsibility to work for an improved "insurance environment believes that it is imperative that a postinsolvency assessment plan be

enacted.

Prior to May 1969, only eight States had laws providing some form of insurance insolvency protection for their citizens. No State had a law providing coverage for all lines of property and casualty insurance. In 1970, 20 States enacted post assessment insolvency laws covering virtually all lines of property and casualty insurance. Thus, combined with the four States passing similar laws in late 1969, this brought to 24 the number of States with insolvency-fund laws covering all property and casualty lines.

This year (1971) 20 additional States adopted postassessment insolvency fund laws covering virtually all lines of property and casu

1 "The Public Interest Now in Property and Liability Insurance Regulations," State of New York Trance Department, Jan. 7, 1969. 1 Test Dr. Richard M. Heins before the National Association of Insurance Commissio mittee on Insolvency, proceedings of NAIC, 1963, vol. I, p. 41.

alty insurance, bringing the total to 44. In addition, New Jersey has insolvency laws applicable to automobile and workmen's compensation insurance.

Thus, 45 States provide insolvency protection to 92 percent of the countrywide property and casualty insurance premium volume. Only Alabama, Arkansas, Kentucky, New Mexico, Oklahoma, and the District of Columbia do not have such protective legislation.

The American Mutual Insurance Alliance is pledged to securing the enactment of consumer protection laws against insurance company insolvencies in all 50 States and the District of Columbia. We shall continue to press for the enactment of this consumer protection program until all the States and the District of Columbia have taken appropriate action. Accordingly, we urge the enactment of title I of S. 2208.

TITLE IV-INCREASE THE MINIMUM CAPITAL AND SURPLUS REQUIREMENT FOR PROPERTY AND CASUALTY INSURANCE COMPANIES

Title IV would double the minimum capital and surplus which property and casualty insurance companies licensed and authorized to do business in the District of Columbia shall maintain at all times.

The existing requirement was enacted 40 years ago, and, it is obvious that if the requirement was adequate then it no longer is today. The adjustment is in line with increases in minimum capital and surplus requirements which have been adopted by many State legislatures.

We support title IV. It must be recognized that the minimum capital and surplus requirement is but one tool available to the insurance. superintendent to control the solvency of insurance companies. Although there are a number of very reputable domestic companies that would not meet the new requirements, we believe that their continued operations are protected by section 14. These companies have demonstrated in the past sound fiscal management, and they provide an invaluable service to District of Columbia residents. Some of those companies specialize in certain lines of insurance and their expertise in those specialties goes far beyond that of the larger companies.

CONCLUSION

The high level of insurance regulations in the District of Columbia has served District residents well. There has not been a single insolvency of a domestic insurer in the District since the mid-1930's.

Furthermore, the District Insurance Superintendent and his staff, through the judicious use of existing insurance regulations, have been able to spot foreign companies licensed in the District of Columbia heading for trouble before it was too late to protect District of Columbia residents.

For instance, the District of Columbia Insurance Superintendent refused to renew the license of a large Florida fire and casualty insurance company some 18 months before that company became insolvent. Thus, by preventing questionable financial operators in the District of Columbia, the Superintendent has protected residents against insolvency losses.

The enactment of title I of S. 2208 will protect District of Columbia residents from losses resulting from insurance company insolvencies which are beyond the control of the District insurance regulator.

Title IV of S. 2208 will update one of the existing tools available to the District of Columbia Superintendent to insure that the excellent insolvency record presently existing in the District will continue in the future.

We urge the adoption of this legislation.

Senator STEVENSON. I thank you, Mr. Stringer.

Did I understand you to say you are not concerned with the limits in title III?

Mr. STRINGER. No; that is beyond our jurisdiction. It does not relate to our sphere of interest, so we have no comments to make on that.

Senator STEVENSON. You have no changes to suggest with respect to title I? Are you well satisfied?

Mr. STRINGER. We are satisfied. We support it in its entirety. I understand there are some amendments being considered, but we support it as it is.

I understood Mr. Watt to say that he was proposing an amendment to modify it. I did not understand if that was related to title IV or not, but we thought that the bill as written is pretty much in line with at least some of the State legislatures.

Senator STEVENSON. Our final witness is Mr. Vernon Holleman, president of the District of Columbia Life Underwriters Association. STATEMENT OF VERNON W. HOLLEMAN, JR., PRESIDENT, DISTRICT OF COLUMBIA LIFE UNDERWRITERS ASSOCIATION

Mr. HOLLEMAN. Thank you very much, Mr. Chairman.

I have a short prepared statement which I would like to submit for the record.

Senator STEVENSON. It is so ordered.

(The prepared statement follows:)

PREPARED STATEMENT OF THE DISTRICT OF COLUMBIA LIFE UNDERWRITERS ASSOCIATION, BY VERNON W. HOLLEMAN, JR., PRESIDENT

Mr. Chairman and Members of the Committee: As President of the District of Columbia Life Underwriters Association, representing some 1,000 life insurance agents, I would like the record to show that we are in favor of the proposed changes in Senate Bill S. 2208 affecting the life insurance industry.

Specifically, Title II has the effect of increasing capital and surplus requirements of life insurance companies authorized to do business in the District of Columbia. The amendment here proposed would require a combined capital and surplus in an aggregate amount of $1,500,000 for stock life insurance companies and a surplus of also $1,500,000 for mutual life insurance companies in lieu of the present requirement of $300,000 and $150,000 respectively.

We as life insurance agents do not wish to discourage companies from being domiciled in the District of Columbia, but we do believe that present capital and surplus requirements are inadequate for sound business practices. Forty-four states now have higher requirements than the District of Columbia.

Under Tilte III, group life insurance limits would be increased to the lesser of $75,000 and 300 percent of compensation with a lower limit of $25,000 These increases would be in line with most other states and would be similar to Virginia and Maryland, which have a $100,000 limit and no limit respectively. Forty-six states have higher limits than the District.

We also endorse the clarification of DC Code, Section 35-710 which neither prohibits nor expressly permits the assignment of incidents of ownership of group life insurance. Such assignment may be made if contained in a group life insurance policy as a contractual right of the insured certificate holder.

In order to provide the full advantages possibly resulting from such assignment, we feel that a statutory basis should be created and thereby remove any doubt that may now exist.

Mr. Chairman, we encourage favorable action on these changes and appreciate the opportunity to testify. Thank you.

Senator STEVENSON. Mr. Holleman, can you tell us why there should be limits?

Mr. HOLLEMAN. Our feeling at this point is if an individual who is employed at a particular company has unlimited group insurance, and one company may vary a great deal from another company, he builds a false sense of security, and he does not have the portability of that life insurance. In some associations, he can move from occupation to occupation.

If you are employed in the District of Columbia in one occupation and move to another employer, you do not necessarily take that amount of group insurance with you. We feel you build a false sense of security in this particular area. When you are planning where your family is concerned, we think this is an important item.

We think no limits may discourage an individual from carrying personal life insurance at all.

Senator STEVENSON. The testimony so far has indicated that 28 States, if my recollection is correct, now have no limits in group term life insurance.

Mr. HOLLEMAN. Twenty-seven or twenty-eight, I believe.

Senator STEVENSON. If that is the case, the effect then would be on people moving from the District to other jurisdictions could increase their limits, at least in most other jurisdictions or conversely. Those that come to the District might very well, depending on what the limits are, have to decrease their coverage.

I guess I have difficulty understanding that argument about the false sense of security people have given the fact that 27 jurisdictions already have unlimited insurance.

Why not leave it to the groups to determine what they want to offer? Mr. HOLLEMAN. By and large, that is what is happening now, but we, of course, as representatives of the agents in this business, who have to be put in a position, where we are discouraging an individual from buying personal life insurance, and we feel as a result of this, that some limits should be set.

We are not necessarily saying that $75,000 is the figure. We are saying that some limit should be put on the availability of group

insurance.

Senator STEVENSON. I just want to make sure that we are talking about the same limits in title II.

In your statement, are you referring to the limits suggested by Mr. Watt, and the proposed amendment to S. 2208, or the limits that you support are those in the bill that has been introduced?

Mr. HOLLEMAN. We support those in the bill as introduced.

Senator STEVENSON. It is our understanding that neither Virginia nor Maryland have limits on the group term life insurance.

Mr. HOLLEMAN. I believe Maryland has. Perhaps in this last legislature they took off the limits. I was under the impression they had a limit of $100,000. Perhaps in the last legislature they took it off.

Senator STEVENSON. Is it also true that Virginia has no limits?