Under the legislation, the Commission is authorized to provide insurance to cover these items:

(1) Reinsurance of marine hull policies issued by the American market. (2) Hull and cargo direct war-risk insurance.

(3) Reinsurance of marine cargo policies issued by the American market. (4) Reinsurance of policies issued by the American market to cover loss of life and personal injury or detention of masters, officers, and crews of American vessels. (In the remote contingency that this type of insurance cannot be secured through private facilities with the aid of Government reinsurance, direct insurance is authorized in sec. 226.)

REINSURANCE OF MARINE HULL POLICIES

With respect to reinsurance of marine hull policies issued by the American market (item 1 above), the maximum capacity of the underwriters constituting the American market is $4,000,000 per vessel.

That is all the American market will absorb.

Mr. TABER. That is all that the concerns engaged in that business can carry?

Admiral LAND. It is all they are willing to absorb, and that is an increase of about 50 percent. Since the Commission took this matter under its wing, we have increased the American market about 50 percent. That is the limit at the present time.

Take the new America, which is worth about $18,000,000. Something had to be done to take care of the difference between what the American market can insure and the value of the ship. That is one reason why this is an emergency measure. Included in all the American-flag vessels, there are now 15 American-flag vessels the values of which exceed the insuring capacity of the American market unassisted. On these vessels the amount which the unassisted private American market cannot carry ranges up to $14,000,000.

HULL AND CARGO DIRECT WAR-RISK INSURANCE

With respect to direct war-risk insurance on hull and cargo (item 2 above) the present American market capacity is limited to approximately $5,000,000 per vessel for cargo insurance, and approximately $2,500,000 per vessel for hull insurance. Thus, it is evident war-risk underwriting by the Commission would be in larger amounts than for the marine insurance.

REINSURANCE OF MARINE CARGO POLICIES

With respect to reinsurance of marine cargo policies issued by the American market (item 3 above), it is much more difficult to estimate the risks which it may be necessary for the Commission to cover under the legislation. Many American vessels, in addition to the 15 high-valued vessels heretofore referred to, will carry cargoes valued in excess of the American insurance market capacity, which is $5,000,000 on any one vessel. The lower-valued straight cargo vessels have considerably more cargo-carrying capacity than the highervalued vessels which are generally combination passenger-cargo or passenger vessels. For example, hull and machinery insurance on the America will greatly exceed the insurance to be underwritten on hull and machinery of cargo vessels of the C-2 or C-3 type, but the

amount of cargo insurance required on the latter will generally exceed the amount of cargo insurance on a vessel like the America. Commercial cargoes carried in American bottoms today range up to a valuation of approximately $6,000,000, but in some cases have been very much higher. Cargo valuations are constantly increasing. It is entirely possible that the amount of cargo insurance on any one vessel which the unassisted American market would be unable to cover at any one time might run as high as $50,000,000.

REINSURANCE OF POLICIES TO COVER LOSS OF LIFE AND PERSONAL INJURY OR DETENTION OF MASTER, ETC., OF AMERICAN VESSELS

With respect to reinsurance of policies to cover loss of life and personal injury or detention of masters, officers, or crews of American vessels (item 4 above), it is reasonable to expect that most of the settlements would be in rather small amounts. Conservative practice, however, would provide against a total liability in the event of a larger casualty.

A mean average of $2,500 per claim would be a conservative basis for reserves, and the extent of the casualty may conservatively be predicated on the possibility of a single risk involving two larger vessels where the casualty might result in approximately 1,000 claims.

AMOUNT OF RESERVE FUND REQUIRED FOR MARINE AND WAR-RISK INSURANCE

What then are the reasonable and necessary total reserves required under the circumstances? The financial policy of American marine insurance underwriters is to establish a reserve fund at a figure approximately two and one-half times the value of the largest vessel risk assumed. This basis would require that the Commission have a reserve fund for marine insurance of about $35,000,000 based on the underwriting of $14,000,000 (not coverable by the American insurance market) on the America. This does not include reserves for war risks, and the amount of war risk to be underwritten on one vessel will be greater than the ordinary marine insurance on such vessel, largely due to the fact that the capacity of the American insurance market is considerably less in the case of war risks than in the case of ordinary marine risks.

It is proposed that the Commission have a fund to cover both marine and war-risk insurance in an amount equal to twice the larg est and the next largest policies expected to be written. These two policies will probably be the marine war risk on the America and the Manhattan or the Washington, in amounts of approximately $16,000,000 and $6,000,000 respectively. This requires a reserve for marine and war risks of at least $44,000,000. A reserve of $4,000,000 to $5,000,000 is necessary for marine and war-risk cargo insurance based on twice the value of the two average cargoes on such vessels, and approximately $2,500,000 is now considered necessary for seamen's insurance. The total amount would be approximately $51,500,000, and it is proposed therefore that an appropriation of $50,000,000 be granted.

During the World War, 1914-18, the total appropriated for the revolving fund for payment of losses under the War Risk Insurance Act of 1914 was $50,000,000. This was returned to the Treasury upon

termination of the insurance activities, together with the $17,500,000 representing the excess of premiums received over losses paid. While the 1914 act did not originally provide for a revolving fund, it was later found necessary to establish such a fund.

For the purpose of roughly estimating the need for substantial reserves, a comparison of the possible maximum operations under the law, with the total risks insured by the Bureau of War Risk Insurance under the 1914 act, may be useful. It should be borne in mind that the above estimates for the needed reserves are based upon reasonable probable losses to be met at any given time. The net insurance written under the 1914 act was slightly over $2,000,000,000, and the net seamen's insurance was approximately $320,000,000 (see 1920 Report of the Secretary of the Treasury). On July 1, 1918, the net amount at risk was approximately $115,000,000, and the net on seamen's risks at that time was approximately $6,400,000 (see 1919 Report).

On May 15, 1940, there were approximately 1,000 American seagoing vessels (excluding vessels on the Great Lakes and Governmentowned vessels) of about six and three-quarter millions gross tons in the foreign and domestic trade of the United States. Roughly, the maximum insurance on the hulls may be figured on the basis of $70 per gross ton, cargoes at an average of $1,000,000, and the number of the crew on the vessel at 40 men. This would give a possible maximum insurable risk of approximately $470,000,000 for hulls, $1,000,000,000 for cargo, and $100,000,000 for seamen. Of this total possible maximum risk of $1,570,000,000, the portion to be insured at any time by the Commission necessarily will depend on the extent of operations of these vessels in areas where war-risk insurance is carried, and the extent to which private commercial facilities are inadequate to carry the risks in the event of the unavailability or undesirability of world insurance protection, on the fluctuations in cargo values, and on the extent of voyages of these vessels.

In connection with the amount of the required fund, I must emphasize that the need is likely to be a sudden and rapidly increasing one. If the world insurance market becomes unavailable or undesirable for American shipping, the need for Government support of the American market is likely to arise overnight. There will be no time to make the necessary adjustments on the part of private facilities, and if commerce is to be kept moving there must be immediately available sufficient insurance protection from the Government as provided in this legislation. Thus the need for the insurance protection may arise very suddenly and will require protection in large amounts. The volume of exports and imports now being carried in American bottoms is much greater than in 1914. At that time only 12 percent of our commerce was transported in American vessels. Prior to the outbreak of the present war, this percentage had increased to 35 percent. It must also be borne in mind that the Commission will be called upon to supply insurance for the very highly valued vessels and cargoes, and at the same time may not have a premium income from the smaller risks because these will be insured by the commercial underwriters. This requires that even more substantial reserves be maintained.

The Commission, under the Merchant Marine Act, 1920, has authority and writes both marine and war-risk insurance on vessels in which

it has an interest, and it has available personnel and experience which can be quickly put into use in meeting the needs of American shipping under this legislation. The Bureau of War Risk Insurance, which administered the 1914 act, was established for that purpose.

ADMINISTRATIVE EXPENSES

The proposed appropriation contemplates that not to exceed $150,000 of the total appropriation shall be used for expenses of administration involved in the legislation. This will cover salaries of employees of the Commission, communication and travel expenses, purchases of supplies and stationery, printing, office equipment and its maintenance, and other miscellaneous expenses generally considered as administrative overhead. It will not include expenses incurred for outside services in the examination, investigation, and payment of claims under insurance issued pursuant to the legislation. These expenses are properly considered as part of the claims expense and are not to be considered as part of the overhead expense of administration. They would best be payable along with the losses paid out of the fund. Under the World War legislation, expenses of the establishment and maintenance of the Bureau of War Risk Insurance in the Treasury Department were appropriated for separately from the appropriation for payment of losses. The total appropriation for these expenses was $250,000.

MINIMUM AND MAXIMUM CARGO INSURANCE

Mr. JOHNSON of West Virginia. Do you insure along with insurance companies?

Admiral LAND. We do one or both. We might insure direct, or we might reinsure, depending upon what the market affords.

Mr. TABER. What would you figure would be the maximum amount of cargo insured on one ship?

Admiral LAND. There is a very wide variation in that figure, from a minimum, say, of $500,000 to $1,000,000 up to a possible total of $50,000,000. If you take the most valuable products at the present time, they would probably have to do with aircraft, engines or wings, and that might run as high as $50,000,000. The normal amount is around one or two million dollars, and the maximum would be $50,000,000.

Mr. TABER. You would not expect to be in on the ordinary cargoes at all?

Admiral LAND. If they are cargoes carried on American ships, somebody has to insure them.

Mr. TABER. If the insurance companies are able to carry them to a million dollars, you would not get those?

Admiral LAND. No; unless the rates ran away. This provides for rate-war prevention.

Mr. JOHNSON of West Virginia. You do not intend to go into competition with private companies?

Admiral LAND. No, sir; we do not. But if the rates ran completely away we would steady the market by taking some of this business ourselves, in order to hold it on an even keel.

VOYAGE INSURANCE PREMIUM RATES

Mr. TABER. What is the premium on most of this business?

Mr. OGDEN. For voyages on the North Atlantic, which our vessels cannot engage in at the present time, it runs about 7 percent for one *cargo.

Admiral LAND. They vary from one-half to 1 percent up to 234 percent.

Mr. TABER. What would it be on the normal voyage?

Mr. OGDEN. On voyages to South America it would run about onehalf of one percent, or a little less.

Mr. TABER. What about voyages to the Far East?

Mr. OGDEN. It would be about the same.

Mr. SNYDER. Is there any difference on voyages from the west coast?
Mr. OGDEN. Not unless they went through the Mediterranean.
Mr. TABER. You do not go there any more?

Mr. OGDEN. No, sir.

Mr. TABER. Do your rates vary with the length of time that the voyage would require?

Admiral LAND. Generally; yes.

Mr. WOODRUM. Are the rates subject to change during a voyage? Admiral LAND. No; if the vessel sails within the proper time, which is generally about 10 or 12 days after the insurance goes into force, the insurance rate remains the same.

Mr. WOODRUM. Have you had any insurance on the gold ships?
Admiral LAND. That has all been placed on the market.

Mr. SNYDER. Have you insurance on the ships at Newport News that are being rehabilitated?

Admiral LAND. Not this type of insurance. This is emergency insurance.

Mr. SNYDER. They are rehabilitating about 30 or 40 ships there which have been there, I believe, since 1926.

Admiral LAND. You mean the Commission's laid-up fleet?
Mr. SNYDER. Yes.

Admiral LAND. We are reconditioning ships there, but we are not carrying any insurance there.

AMOUNT OF MARINE INSURANCE CARRIED BY LLOYD'S ON AMERICAN

VESSELS

Mr. WOODRUM. Do you have any figures on the volume of marine insurance written in the United States, and the volume abroad?

Admiral LAND. Mr. Ogden can give you all the data we have on that.

Mr. OGDEN. I can give it to you in percentages. Approximately 50 percent of all insurance on vessels is placed in England, and about 25 percent of the insurance on cargo. As to volume, it is hard to give any figures.

Mr. WOODRUM. You are speaking only of American vessels?

Mr. OGDEN. Yes; the total amount insured would be pretty hard to estimate. We have some rough figures in the report showing that the total amount of insurance on American vessels runs about half a billion dollars.