of the motor carriers mentioned above and, with but 2 exceptions all of these companies possess policyholders' surplus funds considerably less than $100,000. Therefore, if the minimum financial standard proposed were established, it may be doubted that any of these companies would rearrange their financial structure to enable them to qualify. Four of the companies mentioned possess policyholders' surplus funds in excess of $100,000 and less than the $150,000 or $200.000 minimum proposed. These companies are insuring 95 of the 398 motor carriers referred to. Two of the companies possessing the required policyholders' surplus funds but insufficient paid-in capital are insuring 86 motor carriers. With but few exceptions, the amount of business which is being written for motor carriers by the 13 companies referred to appears to represent only a small portion of their total premium income. Two of the companies have filed only 1 certificate each, 1 company has filed 2 certificates, and another 4 certificates.

Counsel for the American Mutual Alliance, which was supported on brief by the Underwriters Service Association, Inc., took exception to the proposal that the minimum financial resources of insurance companies be computed on the basis of our evaluation of the assets and liabilities of each company and suggested that if rule VIII is amended that the financial resources of each insurance company be computed "on the basis of the evaluation of the assets and liabilities as approved by the insurance department or other appropriate official of the state of domicile or by an examination and report made by or under the supervision of the National Association of Insurance Commissioners, whichever is the latest." It is contended that there is nothing in the record that would warrant or justify our disregarding the standards of solvency established by the several States. In addition, it is urged that if we provide one standard for evaluating the assets and liabilities of insurance companies and the States follow other standards, the insurance companies will be in a dilemma. It is conceded that we have the right to call for annual statements of insurance companies and to make such evaluation of assets and liabilities as we desire, but our authority to examine and investigate into the business affairs and records of insurance companies is questioned on the ground that for the first time in history the insurance companies would be subject to Federal supervision even though indirectly. It is further urged that the proposed standard is undesirable because it would require us to have a large additional staff of employees properly to administer it.

We assert no authority to supervise the business of insurance, but we have no doubt as to our authority to prescribe such reasonable standards of eligibility and responsibility with respect to insurance

companies desiring to file certificates of insurance in behalf of motor carriers subject to our jurisdiction as will, in our judgment, provide adequate security for the protection of the public. Section 215 clearly imposes upon us the duty and responsibility of prescribing reasonable rules and regulations governing the filing and approval of insurance for the purposes stated, and this duty cannot be performed nor can our responsibility properly be discharged unless we possess the authority to pass upon the acceptability of insurance companies seeking our approval of insurance filed by them in behalf of motor carriers as required by law. The only limitation placed upon our authority in this connection is that our rules and regulations governing the filing and approval of insurance shall be reasonable.

While we may, in the exercise of our discretion in approving insurance and in prescribing reasonable rules and regulations governing its approval, decide to rely upon the standards for insurance companies established by the several States, as we have heretofore done, we are in no way bound to do so and we should not do so when in the light of our experience it is our judgment that they are not adequate to protect the public interest. In such event, it is our duty to establish such reasonable minimum financial or other standard of eligibility for insurance companies desiring our approval of their policies of insurance when offered for filing with us as in our opinion will adequately protect the public, and in so doing we are not undertaking any supervision of insurance companies. In Service Mutual Liability Ins. Co. v. United States, 18 Fed. Supp. 613, in which our authority to prescribe the present rule VIII was questioned, the court said:

The plaintiff's first point is that the Commission is without statutory authority to deal with the qualifications or the standard of eligibility and responsibility of insurance companies. The authority of the Commission to require protection in the nature of insurance for the benefit of the public and of shippers and consignees is given by the statute, which also gives the Commission power to make reasonable rules and regulations governing the filing and approval of surety bonds or policies of insurance. Irresponsible insurance would be of little value and when the Commission decided to require insurance, it was clearly reasonable to make provision that it should be written by responsible insurers. Otherwise the entire purpose of Section 215 might be nullified by insurance which would be of no value.

At this point, we should make clear that rule VIII has not heretofore been the only basis upon which we have approved or disapproved insurance filed with us under section 215, nor has it been the sole basis for revocation of approval previously granted. Rule IX of our rules and regulations reads as follows:

The Commission may, at any time, refuse to accept or may revoke its approval of any surety bond, policy of insurance (or certificate of insurance in lieu thereof), qualifications as a self-insurer, or other securities or agreements if, in its judg

ment, such security does not comply with these rules or, for any reason, fails to provide satisfactory or adequate protection for the public.

Under rule IX, we have undertaken to safeguard the public interest by keeping informed as to the financial condition of insurance companies which provide the security for the protection of the public in behalf of motor carriers. When occasion demanded, we have called upon companies for copies of their latest financial statements as filed with the insurance departments of their home States, also for copies of reports of examination on condition and affairs made by State supervisory authorities. In instances where we have not been completely satisfied as to the ability of a given company to fulfill its obligations under policies for which we have approved certificates of insurance, we have undertaken to satisfy ourselves through an exchange of correspondence or by conference with the company management and through correspondence with the supervisory authorities of the State in which the company was domiciled. When convinced that the policies of a given insurance company failed to provide the reasonable measure of protection for the public contemplated by our rules and regulations, we have, by appropriate order, refused to accept further certificates of insurance from such company, and in some instances we have revoked approval of certificates previously granted.

Federal Underwriters, at the hearing and on brief, urges that the requirement of a minimum surplus of $150,000 as applied to nonstock insurance institutions issuing assessable policies is excessive, and that because of this it discriminates unfairly between stock and nonstock institutions. The record shows that 67 percent of the companies having policies of insurance on file with this Commission which have failed up to this time were nonstock institutions issuing assessable policies. While there have, no doubt, been some instances where a substantial percentage of the assessments levied against policyholders of these companies were collected, from the information furnished us by the officials in charge of liquidation proceedings, the substance of which are shown in appendix B hereto, this has been the exception rather than the rule. We appreciate that the right to assess policyholders if and when the need therefor arises does provide some measure of security for creditors and that recognition should be accorded this feature in any financial standard we might prescribe, but in the light of the unfavorable record of performance on the part of nonstock companies issuing assessable policies, generally, we are convinced that ample recognition has been accorded the assessment feature of policies of insurance of nonstock institutions and that the proposal of the Bureau results in no unfair discrimination between stock and nonstock insurance institutions.

On the general subject of insurance company failures, Federal Underwriters argues in its brief that the situation in this respect is improving and that most of the failures occurred between 1937 and 1939 in what is stated to have been the midst of the depression. During these years, practically all soundly financed and well-managed companies were operating on a profitable basis. Moreover, since 1939 there have been seven failures of companies, some of whose policies were on file with this Commission. One of these failures took place as late as 1942 and another in 1943. It is further contended that there is no assurance that these failures would not have taken place even if the proposed rule VIII had then been in effect. This may or may not be so, but the consideration which is of paramount importance is that about 86 percent of all failures which occurred involved nonstock institutions and that 95 percent of those who failed were never in a position to qualify under a standard such as is now proposed.

Federal Underwriters also asserts that if the minimum financial standard proposed is prescribed it will destroy the so-called small insurance institutions. However, of all the companies whose policies are now on file with this Commission only 14 would be affected by the proposed new financial standard. Two of these have the necessary financial resources to enable them to comply. They must, however, rearrange their financial structures to some extent. Twelve would be confronted with the necessity of subscribing additional funds.

The Oregon Automobile Insurance Company questions the suggested change in rule VIII and the validity of the proposal that paidin capital of a stock company be not less than $150,000. It has suggested instead that the proposal be amended to provide for a capital of only $100,000 and surplus in excess of capital of $100,000 or $150,000. No reasons are given for this position. The paid-in capital of this company is $100,000, and it has sufficient policyholders' surplus funds in excess of capital to enable it to rearrange its capital structure to comply with the standard proposed. Moreover, the company concedes that compliance would not work a hardship on it.

It is more important to have the proposed minimum policyholders' surplus funds of $200,000 for stock companies divided so as to provide paid-in capital of $150,000 and surplus in excess of capital of $50.000 than to divide these funds on the basis of $100,000 capital and $100,000 surplus in excess of capital. The requirements of the several States for insurance companies as to minimum capital are prescribed for the purpose of having this fund remain unimpaired at all times if a company desires to continue to transact business and it is only in instances where the free surplus funds in excess of capital disappear and there is an impairment of capital that most, if not all, of the

States require a company to cease operating. State supervisory authorities have less control over free surplus funds than over minimum paid-in capital. Such funds can and sometimes do disappear rapidly. It follows that a larger requirement for minimum paid-in capital furnishes a more adequate measure of protection to policyholders and claimants. A further indication that the proposed capital requirement for stock companies is reasonable is evidenced by the fact that approximately 50 percent of the States require stock companies transacting liability and property-damage insurance to possess paid-in capital equal to or in excess of the amount here proposed. In view of the foregoing, it is our conclusion that any reduction in the minimum capital requirement as set forth in the proposed rule would have the effect of diminishing the protection to the public below the minimum which should be expected. Considering the large number of companies now filing certificates of insurance with us, it is somewhat surprising that any reasonably adequate minimum financial standard could be prescribed which would adversely affect such a small number of companies as we have indicated would be so affected by the proposed rule. That more are not affected is strong evidence that the proposed standard is not unreasonably high.

Underwriters Service Association Incorporated in 1938 filed a petition for amendment of rule VIII so that an insurance company possessing policyholders' surplus funds of $250,000, and which had been authorized to write the required classes of insurance in the State of its domicile for a period of 5 consecutive years and had on deposit with such State funds of not less than $100,000 would be exempted from compliance with that rule. A hearing was held on the proposal and thereafter the petition was denied, 18 M. C. C. 131. At the hearing on the rule now proposed and on brief, the Association requests that the proposed rule be amended by striking out the requirement that an insurance company be legally authorized to transact business in each State in which its policies cover the operations of the insured motor carrier and to substitute in lieu thereof a requirement that the company need be licensed only in the State of its domicile, or in the alternative that the proposal submitted by it in 1938 be adopted. In addition, this organization contends that the elimination of the licensing feature of rule VIII would remove the burden on insurance companies which it describes as onerous and oppressive and would tend to broaden the market available to motor carriers for the purchase of insurance; that rule VIII in its present form was adopted on the basis of arbitrary considerations and that experience has now demonstrated its futility. in determining the financial soundness or stability of insurance com

43 M. C. C.