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securities with an
equal value being exchanged for those removed from the
The insurance company at its peril makes the decision as to the
under annual statement valuation rules, wlien it makes the exchange.
The only general exception to this rule is contained in Subparagraph
Prior approval from the commissioner must be obtained for a company
withdraw, in any 90 day period, 10% or more of its account.
Elimination of Deficiency.
Subsection (C) deals with those companies
which have slipped and which have been required to eliminate the deficiency under
the provisions under Sections 5 and 6.
In this unusual case, the commissioner in
his discretion may require prior notice from the custodian of any withdrawal,
substitution or exchange of cash or marketable securities.
It is believed thac
this requirement is extremely important because, although the failure to maintain
the proper value in a Policyholder Security Account may have occurred out of all
innocence and without any intention to reduce the account, nor without any serious
financial implications, more often than not, failure to maintain the account does
indicate incipient or existing problems. Therefore, the commissioner should have the right to require prior notice of withdrawal in case of the invoking of Section 6
against any individual company.
There are two purposes for the language of this section:
To spell out the inherent concept that these are not trust
'accounts and that the bank or other custodian merely holds
as a bailee, with complete investment freedom on the part of
the company within the limited restraints of Section 7(a).
To note that the only liens or priorities on the account are
the ones given to insolvency funds.
Some companies might find immediate compliance with this act would
require some significant change in investment policy.
For this reason,
requirements are phased in over a three year period to permit an orderly change.
LĀ Section in the Model NAIC Insurance Cuaranty Association Acc.T
The insolvency fund act is amended to give the fund a lien on the
Policyholder Security Account.
This lien could dramatically reduce the amount
of assessments to the industry for insolvencies, and thus the ultimate cost to
policyholders of well-run companies.
ision has been included which will, it is hoped, encourage
all states to enact such a law, including a lien on the Policyholder Security
Account in favor of the Guaranty Funds of other states with Policyholder
Security Account statutes.
In any state
which enacts this provision, its
"domestic" insolvency fund will be given a pro rata lien on the Policyholder
Security Account of any foreign company which has gone insolvent and whose
state of domicile has enacted this model law.
The CHAIRMAN. Thank you, Mr. Hiestand.
Our last witness is Dr. Reinmuth. Dr. Reinmuth, go right ahead, sir.
STATEMENT OF DENNIS REINMUTH, DIRECTOR OF SPECIAL
PROJECTS, LEAGUE INSURANCE GROUP
Mr. REINMUTH. Thank you, Mr. Chairman.
My name is Dennis Reinmuth and I am representing the League Insurance Group of Southfield, Mich. I will keep my comments very brief.
I would like to mention that our general counsel, Mr. Jack Birkinsha, was planning to be here but he also is recovering in the hospital from surgery, so I bring his regrets.
Let me explain just a little bit about the background of the League Insurance Group which consists of League Life Insurance, League General Insurance Co., the automobile insurance affiliate. By national standard we are not very large; however, League Life is Michigan's largest domestic life insurance company providing over $5 billion worth of life and disability protection to over 2.5 million credit union people in the States of Michigan and California and League General currently insures 100,000 motor vehicles in Michigan and three other States.
I should also mention that we are members of the American Council of Life Insurance, so therefore I guess we must be the minority of one who objected to their report; we are also a member of the National Association of Independent Insurers.
The League Insurance Group has had a long interest in this whole area of Federal versus State regulation and what I would like to do is to quote our president's, Robert Vanderbeek, testimony before Senator Hart in the Senate Antitrust Monopoly Subcommittee 10 years ago.
Here's what he said.
In a democracy there is, I believe, substantial value in having "alternatives and dispersion of power" even when the result is somewhat less efficient than with centralized control. It would seem to me that what is probably desirable is a combination of both Federal and State regulation of insurance. This is the approach used in Canada (i.e., an insurance company can have a Federal or Provincial license). It is also the approach used in regulating the banks, saving and loans, and credit unions in the United States (i.e., Federal and State charters). I believe that within the next few years many insurance executives, particularly of large companies, will recognize the desirability of certain types of Federal regulation.
In 1969 we reiterated that position during the same committee's general hearings on the insurance industry. So fundamentally, we support the concept and objectives of E. 1710, particularly the concept of a Federal insolvency fund which is prefunded rather than operating on an assessment basis.
There have been comments today about the problems with GEICO. I can assure you that 2 years ago many companies, including our own, were very concerned with respect to that situation, and because of the nature of the State insolvency funds operating on a postassessment, we would have been subject to assessments right at the point of time when we were having financial problems because of the difficulties during that period. So I think it would have had a serious impact if GEICO was allowed to go under. Of course, GEICO did survive and we are all happy about that, but I think we have to be concerned in the future that we do not let policyholders suffer because of something like that, and particularly of the impact on small com panies and a lot of large companies.
We also support the Federal chartered idea. As I pointed out in Mr. Vanderbeek's comments or statement, we are used to that concept with credit unions being both federally chartered and State chartered. We think the concept of financial regulation by the Federal Government automatically comes with the Federal solvency guarantee, and we believe that makes sense. That doesn't mean that we don't have specific comments and suggestions to make and part of the statement includes two letters that were sent to Senator Brooke and Senator Proxmire outlining some of our specific comments on the bill.
We recognize that no bill is perfect, and we hope that you and your staff will examine our comments. I'd say most of our suggestions involve the very tricky area of the relationship of State versus Federal authority, but I believe that particular problems can be worked out in a good bill.
So that, in essence, is our position, and we would be happy to give any assistance we can. Thank you.
Complete statement follows:]
STATEMENT BEFORE THE U.S. SENATE COMMITTEE ON
BANKING, HOUSING AND URBAN AFFAIRS ON
WASHINGTON, D.C., SEPTEMBER 14, 1977
BY DENNIS F. REINMUTH, Ph.D., C.L.U., C.P.C.U., ASSISTANT TO THE PRESIDENT AND DIRECTOR OF SPECIAL PROJECTS
LEAGUE INSURANCE GROUP, SOUTHFIELD, MICHIGAN
My name is Dennis Reinmuth.
I wish to offer testimony in support
of s.1710 on behalf of the League Insurance Group. League Insur
ance Group, consisting of League Life Insurance, League General Insurance Company, and related service organizations, is wholly
owned by the Michigan Credit Union League. League Life is Michigan's largest domestic life insurance company, providing
over $5 billion of life and disability insurance protection to
over two and one-half million residents of the states of Michigan
League General was organized in 1969 and already
is among Michigan's twenty largest automobile insurers insuring
nearly 100,000 motor vehicles in Michigan and three other states.
We have a keen interest in the problems of interstate insurance
operations and regulation. We have long supported the concept of dual regulation. In 1967, as part of testimony before the Senate Anti-trust and Monopoly Subcommittee under the chairmanship of
Senator Hart on the subject of consumer credit insurance, our
President, Robert E. Vanderbeek, suggested some form of dual
I would like to quote a portion of Mr. Vanderbeek's
testimony in 1967:
"In a democracy there is, I believe, substantial value in having 'alternatives and dispersion of power' even when the result is somewhat less efficient than with centralized