Imagens das páginas
PDF
ePub

This report proceeds on the assumption, accepted as an axiom among insurance people, that insurance is affected with the public interest and that protection for the policyholder is a paramount public concern.

We have concluded that the holding company device, when it involves affiliation with non-insurance enterprises, jeopardizes the interest of both the public and the policyholder, and especially will do so if its development is indiscriminate and without benefit of close regulatory supervision.

Further we are convinced that there are some restraints imbedded in insurance practice and insurance law which are no longer essential and which have unnecessarily added to the pressures to organize non-insurance holding companies. We are recommending that such restraints be relaxed to enable insurance enterprises directly and affirmatively to deal with the economic realities they face.

In fact we are agreed that, with appropriate changes in the New York Insurance Law, substantially all of the sound objectives sought through the formation of holding companies can be achieved in ways that are preferable to a solution that places an insurer under the active control of non-insurance interests.

Thus, we recommend that life and property-liability insurance companies be given greater latitude in the formation and acquisition of subsidiaries. With respect to insurance subsidiaries, we think the freedom should be wide, provided certain standards are observed. As to non-insurance subsidiaries, we believe they should be restricted to activities which are truly ancillary to the insurance enterprise. In either case, with limited exceptions, we recommend that subsidiaries of insurance companies be wholly owned by their parents, if such subsidiaries are to have subsidiaries of their own, or majority owned, if the subsidiary is not itself a parent. We also consider it essential that all intercorporate relationships among parents and subsidiaries, and their affiliates, be disclosed to the Superintendent of Insurance and amenable to his regulation.

Similarly, in a second major area, investment, we recommend that New York's insurance laws be liberalized to enable New York life insurers to achieve better investment results through greater freedom to invest in shares of common stock. In this report we make a number of specific suggestions to this end. For property-liability companies we urge the development of a better method of calculating the funds that are excess to insurance needs and which may therefore be freely invested.

The capitalization of insurance companies is a third major area in which there should be liberalization. We recommend that domestic stock insurance companies in New York be permitted to raise needed capital through the sale of senior equities and securities convertible into equities. Similarly, we recommend that stock companies and mutuals, in both the life and property-liability fields, be permitted to issue debt to obtain the capital required to support insurance and permitted ancillary operations, provided, however, that all such debt must be effectively subordinated to the interests of policyholders and claimants with respect to all assets required for insurance purposes. The issue of any debt and equity securities should, of course, be disclosed to the Superintendent and subjected to the regulation of the Insurance Department to prevent abuses.

To the extent that non-insurance interests now control insurance companies licensed in New York, or to the extent non-insurance interests hereafter acquire such control, we recommend the adoption, and vigorous implementation, of a comprehensive system of holding company regulation. In this report we suggest the essentials that should be embodied in such a system.

The proliferation of non-insurance control over insurance companies is a development we view with concern. Such proliferation is plainly an undesirable response to the modern needs of insurance companies. We think, moreover, it is an unnecessary response if insurance law and practice are modified as we recommend.

We conclude with a sense of confidence that the insurance industry in New York is healthy. Yet it is faced with challenges and opportunities which it seeks positively to meet and embrace. It legitimately seeks greater diversification, broadened activities, improved earnings and readier access to capital markets. It should be assisted in reaching these goals. The removal of some existing and no longer desirable legal constraints will, we are satisfied, enable the New York insurance industry to add to its strength and usefulness without risking the vital interests of its policyholders or the public and without resort to the dangerous expedient of subjecting insurance enterprises to the control of persons whose primary interests lie elsewhere.

At the outset of our study we sought to understand the nature of holding company developments that prompted our assignment and the objectives of the insurance executives who sought, often at great trouble and expense, the sometimes drastic alteration of the corporate framework within which their operations were to be conducted. The "holding company problem" proved to be complex and elusive.

Early in our review it became plain that the formation of a holding company, in the strict sense, was merely one of the most visible and dramatic manifestations of a proliferation in corporate structure and activity within and around the insurance business that in many ways parallels similar developments elsewhere in American business life.

As we pursued our inquiries it also became clear that the executives who have made, or now contemplate making, basic changes in the corporate framework of the insurance industry and of the economic activities that either border or threaten to impinge upon insurance, have goals that are both numerous and disparate. What is more, the consequences of the changes that have taken place, or are predicted, are certain. to go well beyond the objectives of the men who initiate them.

Most of the insurance industry representatives whose views were presented to us expressed the need for changes in law or regulations that would allow more "flexibility" than is presently afforded in New York. They gave voice to a conviction that, if the insurance industry is to discharge its historic responsibilities with optimum effectiveness, it must accommodate itself to the new technology, the new products, the new patterns of economic growth and the new social demands that are directly pertinent to its insurance mission.

The holding company development, in our view, is just one response of the insurance industry to this strongly felt need. It is one of an inter-related series of alternatives, all of which have often loosely been described as the "insurance holding company problem."

The development of holding companies, so far as it is a product of felt necessitics, seems to have received its major impetus from two sources.

First, on the life insurance side, where the product sold has historically been a promise to pay a fixed sum of money at an uncertain date, generally far in the future, the steady march of inflation has robbed the company's promise of much of its real value. Relative to other savings media, the promise of life insurance contracts has steadily declined in attractiveness. The desire to reverse this trend, and to offer something to its policyholders in addition to a fixed-dollar investment, is understandably strong among life insurance executives.

Second, on the property-liability side, carnings from the insurance operation as such, which insurance executives already thought inadequate in comparison with many other branches of the economy, have declined further in recent years. An earnest concern has resulted for improved earnings, whether by disinvestment in the insurance business, by diversification into related businesses, or through increased efficiency or with different merchandising methods.

The stated objectives of the specific moves made by both life and property-liability insurance companies, either to strengthen their position, or improve their earnings or enlarge their capability, cover an ample range. They include the diversification of product lines, new opportunities for existing field forces, the addition of a new marketing organization, the extension of the use of a well regarded insurance name, and increased business efficiency. They sometimes reflect a desire to free assets and investments from the regulatory control of the insurance laws, or to avoid the operation of specific insurance laws (such as § 213 of the New York Insurance Law), or to save on taxes. They embrace many stated needs: the need to make access to the capital markets easier by escaping the present restraints on insurance company financing with senior securities; a need for a larger pool of high-quality executive talent attracted to more challenging and influential posts; and a need for tools to withstand both. the present competition from strong business enterprises entering the insurance industry and from anticipated government encroachments.

The catalogue is long and imaginative for holding company formation is not the product of a single line of development but a complex conjunction of trends and aspirations.

We have taken it as our task, accordingly, not to confine ourselves to the technical aspects of insurance holding companies, nor to the manner of their formation. but to examine the underlying challenge, and to recommend policies which should meet it, while fully protecting the paramount interests of both the policyholders and the public.

This Committee holds the view, held also by the Insurance Department and the responsible members of the insurance industry, that nothing should be done that would adversely affect in any measure the interests of policyholders in obtaining secure protection against insurable risks upon reasonable terms. Similarly, we are agreed upon the desirability of maintaining and fostering the additional public interest role that life insurance companies have played in mobilizing savings and channeling them into long-term investments of paramount importance to national economic growth. We are also agreed that the property hability companies should be supported in seeking ways to employ their resentees better to meet changing economic and social demands,

Our study convinces us that the framework of New York insurance regulation should be revised in many respects so as more effectively to advance these diverse but desirable ends. We believe that the initiatives allowable to insurance company management should be broadened and accompanied by adequate regulatory supervision and control.

In reaching our conclusions we have kept in mind that the two major categories of insurance operations-life and property-liability-have both shown generally consistent growth trends whether measured by value of assets or by premium income. In 1966, the value of assets for life insurance companies in the United States totaled over $167 billion and combined premium income was slightly under $26.5 billion. These figures represent an increase of 74 percent and 95 percent, respectively, over those for 1956, a decade earlier. For property-liability companies the corresponding totals were $41 billion and $22 billion, or increases of 77 percent and 98 percent, respectively, in a ten-year span. However pressing its problems, therefore, the insurance industry is neither static nor weak.

Yet, the problems are serious and differ as between the two major types of insurance operations. The life companies, which traditionally have played a dominant role in marshalling savings and making them available as long-term investment funds, have found the ratio of their total premium collections to total disposable personal income shrinking from 6.28 percent in 1935 to 3.87 percent in 1966. Individuals have been finding life insurance a less attractive medium for accumulating financial savings than the offerings of competitive financial institutions. By 1965 life insurance reserves represented only about 13 percent of individual financial savings as against 35 percent in 1940.

During the post-war period institutional savings have been growing at a faster pace than individual savings. But again life insurance companies have done less than hold their own in the portion of all institutional savings that they handle-their percentage dropped from over 50 percent in 1947 to 25 percent in 1966. The record shows that they have been losing ground to such institutions as savings and loan associations, non-insured pension funds, state and local retirement funds, investment companies and credit unions.

All of this suggests that life insurance companies, under the prevailing pattern of controls in the United States, are in a relative sense losing rather than gaining ground in the economy.

Such a decline in the relative role of life insurance either in mobilizing capital for investment or in attracting individual savings does not raise issies of significant national concern as long as adequate capital for mvestment is mobdized by other means, and as long as the insurance industry remitats healthy en uch to meet adesprately the needs of the

for hit: insurance protection. However, the weakness of any

« AnteriorContinuar »