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functions. He will properly rate and prepare the policy after carefully determining the correct amount of insurance to value, with an eye on the coinsurance requirements. He will be called upon to explain the coverage to the occupants, who, from time to time, will want to have their quarters redecorated. It is likely that he will be called upon to investigate and carefully handle a loss or lossesgenerally windstorm losses brought about by the susceptibility of present-day roof-covering installation methods, making sure that repairs are prompt and adequate and delivering the loss-payment check. This latter function often involves the locating of a roofer who is able to do the work.

He is at his end of the phone where advice, counsel, and personal attention to the insured property is always available. More than often, the policy has to be endorsed during its life and he must stand ready to cancel in event of change of ownership, paying back return commission as a part of the return premium.

These services are a part and parcel of an insurance agent's daily life. It is through the agent's services that insurance, with a capital I, is known to the public. And it is through the efforts of the agent that the public has come to realize the value and comforts to be derived from insurance.

Gentlemen, whereas uninformed persons may take the view that insurance is a gamble, it is in fact, the reverse. For example, when you sit down to a poker game with a $10 bill to risk, you have created an uncertainty out of a certainty. You may come out of the game with more money or you may lose your $10 or more. On the other hand, when you buy insurance upon capital with which you enter a venture, you have created a certainty out of an uncertainty, having guaranteed yourself that you will come out of the venture with no less than that with which you went in.

Among other things, the regulatory laws of the several States, which apply to the conduct of the insurance business, have been evolved over the years through trial and error. As they pertain to the conduct of the insurance companies, those laws very specifically prescribe the amount of reserves that the company must maintain at all times in relation to the amount that it has at risk. If those regulations represented all the safeguards that are necessary to guarantee solvency of an insurance company, this would be a relatively simple business. However, there is a great deal more involved.

It is axiomatic that no insurance company dare concentrate its liability within an area that might be subject to a common loss. Consequently, so that the company may in turn be insured, it resorts to the practice of reinsuring a portion of its liability with other insurance companies. In turn, those companies, wherever they may be located, reinsure their liability with that carrier, bringing about a spread of risk which is absolutely essential to the good health of any insurance company.

One more safeguard is taken in an effort to obtain insurance for insurance, and that is, that the assets and reserves of an insurance company are permitted to be invested in certain carefully prescribed classifications of investment. By regulation, no insurance carrier is permitted, so to speak, to put all of its eggs in one basket.

Now, I have been given the opportunity of studying the list of insurance premiums paid upon the various categories of properties

now owned by FHA. Being in the mortgage-placement business, and fairly familiar with the various titles of the act, I observe that the high valties are concentrated in properties coming under titles VI and IX, sections 603, 608, and 903. I must therefore assume that the properties, for the most part, represent multifamily units, and as an insurance man, I realize that they are subject to catastrophe loss.

I have also seen a list of some 367 insurance agents who have been designated as placement offices for the required hazard insurance protection. And I observe that the Southern States are more liberally represented than those in the North. I therefore take the liberty of deducing that the bulk of the properties involved in this matter are located in the South. If that is so, then I must believe that those properties are subject to any force of the elements that might hit that section of the country.

Now, whereas wind has hit virtually every portion of these United States in the past few years without fear or favor-the most recent catastrophe being on May 12, less than a week ago-incidentally, gentlemen, that is designated as catastrophe No. 74-you will recall that there was a time when most of us believed that only the South was susceptible to windstorm. Who is there to say that for the next several years wind damage may not be confined to the lower tier of States? I mention these things, gentlemen, because as an insurance man, it does not appear to me that you have the necessary spread of risk to permit anyone without a crystal ball in excellent working order to name a figure that will properly represent the amount of reserve necessary for you to launch upon a program of self-insurance.

A word about rates: While this is not a field in which the agent works to any great extent, again, there are some things which are axiomatic. In fire insurance, the influence of improvements in domestic appliances, building materials and practices, fire-fighting equipment and methods, and pure spread of risk, have brought rates down to the least common denominator during the past 50 years. However, buildings still burn. With increasing frequency properties are damaged or demolished by wind and too often, by explosion. You will agree, won't you, that there is nothing sacred about FHA-owned properties which will render them invulnerable to those or other hazards?

Rates for all types of insurance are reviewed regularly by the insurance departments of the several States. They are reviewed constantly by the underwriters. The very basis of insurance is the statistical data upon which rates are made. Obviously, the rates are not made to cover the pure loss factor. Expense of doing business has been on the increase for years and the tax burden upon this or other business is naturally involved. But the fact of the matter is that the influence of wind in particular has borne heavily upon rates for the past several years. That destroyer of property is completely unpredictable. As we sit here, the industry is not at all sure that it is being adequately compensated for underwriting that protection. If this situation is developed through the study of statistics in the insurance business, how can we assume that those outside the business would be able to prophesy probable losses on a given group of properties?

Now, plainly, gentlemen, the proposition as set forth in the proposed new section 10 of title I of the act is made with the thought of saving

money and if there is one thing in the world that every taxpaying citizen of this country would like to have you do, it is to save money. But as one who is engaged in the business of being an insurance agent and who knows that the underwriting profits of the insurance companies have been anything but attractive during the past 4 months, I cannot believe that FHA can save money in the direction of selfinsurance.

Not a week goes by that somewhere, some municipality, some school district, some State government, or some institution, launches upon a program of self-insurance. By and large, it has been anything but a successful undertaking. There have been almost unlimited printings of articles written on the fallacies of self-insurance. On the other hand, I don't believe I have ever seen one that extolled the virtue of such a plan.

We have come here today prepared to give you copies of a booklet titled "State and Municipal Self-Insurance," by Mr. George S. Hanson, the very able chief counsel and secretary of the National Association of Insurance Agents. I would like to think that this booklet might receive something more than your passing interest. There, you will find factual data on self-insurance. The important thing to remember, gentlemen, is that a fund such as FHA might set aside, can approximately take care of the normal. The important consideration in any insurance plan is not the normal, certain loss, but the uncertain, abnormal loss that grows out of catastrophe.

I will not deny that you could go through a period when the losses were small and infrequent and thus, in effect, realize a profit in a venture of self-insurance. But it is only a question of time when the losses will occur and actually the only way to show a profit would be to wind up the program while it was still healthy and while it was still ahead. That is gambling. Where is the person who is going to name that time? The only safe insurance program depends upon a regular influx of payments into the fund to maintain the fund's ability to meet losses at all times. Such payments might accumulate for some time with no serious trouble occurring to upset the scheme but the only known and carefully regulated system of successful insurance programs are those dictated by the insurance departments of the States and by the application of every established commonsense underwriting safeguard, spread of risk, and reinsurance. Under date of March 20, our office received a very fine letter over the signature of Norman P. Mason, Commissioner of the Federal Housing Administration. It contained a financial statement of FHA as of December 31, 1955. In the second paragraph of that letter, Mr. Mason said:

The FHA is self-sustaining. Its income from fees, premiums, and interest on investments is sufficient to pay all operating and loss expenses to date and to build up reserves in the form of capital, earned surplus, and statutory reserves which at the end of 1955 amounted to $447.6 million.

I must assume from reading that paragraph and looking at the financial statement, that FHA, as a mortgage insurance corporation, has been conducting a safe and healthy insurance business. I have great difficulty then in reconciling his letter with the recommendations which go with section 10 referred to in the housing bill for 1957. Because, therein it is proposed that FHA abandon the proper practices to which it has adhered in the conduct of its announced purpose,

to launch into a program of hazard insurance which is completely contrary to all of the basic principles involved in any type of insurance program.

Gentlemen, I am a citizen, a property owner, a small-business man, and first, last, and always, a taxpayer. We agents are unalterably opposed to the entry of the Federal Government into any business which is now being successfully conducted in the public interest. We do not want the FHA to get into our business. We are satisfied that the FHA, through whatever field forces it may now employ or might later employ, cannot possibly perform the services necessary to all-round insurance protection. A great part of that protection is the service which we render as agents, to our clients and to our companies as their local representatives. All of us hope we will never see the day when FHA will have to call upon its reserves to any great extent to bolster property values and to save the investment made by the lenders of the public's money in real-estate mortgages. But, most of all, we should not like to see any of the FHA reserves poured down the bottomless pit of uninsured catastrophe losses caused by the unpredictable elements.

As matters now stand, you are making a certainty out of an uncertainty by buying insurance from healthy, well-regulated, private insurance companies through the facilities of our offices, with moneys which were collected for that purpose. We are compensated by commission received for our services. We pay taxes upon our income. The insurance company pays taxes on its premium writings. The municipalities, the States, and the Federal Government count upon and expect that tax income. Thousands of people are employed in the insurance industry. That is the kind of a system that gave this country its solid economy. It is our belief that any venture into selfinsurance by any branch of the Government-when private facilities are wholly adequate will serve to weaken the economy, and successful or not, will serve to induce additional ventures of a similar nature. Historically, free, competitive insurance underwriting has played a major role in the many steps to our present high standard of living by guaranteeing risk capital, large and small, private and governmental.

We are proud of the part the insurance agent has played in this free, competitive system. We ask no special favor. Only your understanding and consideration, to prevent Government competition in a field so well served by our industry.

Gentlemen, strike out section 10 of the Housing Act of 1957 and permit the Federal Housing Administration to continue to do a fine, sensible, and necessary job.

Mr. BROWN. We are very glad to have your splendid statement, Mr. White.

Are there any questions?

Mr. MUMMA. I have a question.

Mr. BROWN. Mr. Mumma.

Mr. MUMMA. Isn't it true that the insurance companies make more money on their investments than they do on their underwriting? Mr. WHITE. Indeed, it is, sir.

Mr. MUMMA. In other words, if it weren't for their investments, they couldn't maintain their rates?

Mr. WHITE. That is right.

Mr. MUMMA. That is all.

Mr. MULTER. In other words, you take the money from the premiums and lend it out on mortgages so the people can buy more insur

ance.

Mr. WHITE. That just about describes it, Mr. Multer.

Mr. BROWN. You may be excused. Thank you.

Our next witness is Mr. Harry Held, connected with the National Associaton of Mutual Savings Banks.

Come around, Mr. Held.

STATEMENT OF HARRY HELD, VICE PRESIDENT OF THE BOWERY SAVINGS BANK, NEW YORK CITY, APPEARING AS CHAIRMAN OF THE COMMITTEE ON MORTGAGE INVESTMENTS OF THE NATIONAL ASSOCIATION OF MUTUAL SAVINGS BANKS

Mr. HELD. Mr. Chairman, members of the committee, my name is Harry Held and I am a vice president of the Bowery Savings Bank in New York City, N. Y. I am appearing as chairman of the committee on mortgage investments of the National Association of Mutual Savings Banks. Our organization represents the mutual savings banks of the Nation, which are institutions operated solely for the benefit of their depositors.

They are 527 in number, operating in 17 States, primarily located in the New England States, New York, New Jersey, Pennsylvania, and Maryland. They have a total deposit liability of over $28.4 billion and have assets of $317 billion. They are traditionally known as depositories for small savers. They have 21,233,000 deposit accounts. The mortgage investments of mutual savings banks, amounting to well in excess of $17 billion or 55.6 percent of their assets, are comprised of loans made in every State in the country, Puerto Rico, and Alaska. During the year 1955, mortgage holdings of mutual savings banks increased $2.450 billion, or 19 percent above the former record gain of $2.052 billion in 1954.

Our committee on mortgage investments has studied the provisions of H. R. 10157 and the administration bill, H. R. 9537.

With reference to H. R. 10157, we should like to make the following

comments:

We recommended the continuance of the FHA title I home improvement program as provided in section 101 of H. R. 10157 as far as the 2-year extension, the increase in the maximum loan amounts to $3,500 and $15,000, and the increase in the maximum loan term to 5 years are concerned.

We recommend against the adoption of the sliding interest-rate scale, that is, a 5-percent discount on loans below $1,000 with a 4-percent discount on the balance above $1,000. These title I loans are really personal loans and it is our feeling that a maximum 4-percent discount on the portion over $1,000 would serve to defeat the purpose of title I. The present rate-that is, a 5-percent discount-is a maximum and is subject to competitive factors. The actual rate of many title I loans seeks its own level below the 5-percent discount.

As to the provisions for the liberalization of FHA section 207, rental-housing insurance, we believe that the increased loan ceilings to $2,250 per room and $2,700 per room in elevator-type structures

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