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back only one-third as much relative to what was put into the Federal coffers as 5 industrial Southern States), and other Federal favors In other words, the merger movement capitalizes on artificial induced advantages for some regions as well as on other advantages.

Of special significance is the impetus given to the merger movement by our tax system. In textiles this is a matter of greater importance than in any other major industry. Losses are serious in textiles over the years and especially during the low points of the 2-year textile cycle; and in the last few years, many of the major woolen firms have experienced large and steady losses. Under these conditions the textile mills operating primarily in the South find it profitable to absorb the northern units. The prices or the value of the assets reflect loss financing, not the potential value of these assets as later offsets against profits reported for taxes of textile firms experiencing large profits. Hence the equities or assets are available at very favorable prices for those firms which seek avoidance of taxes by acquiring plants or firms suffering large losses. There is clearly something wrong with a tax system which encourages such noneconomic movements of industry.

Northern capital cooperates with southern communities. It is an interesting commentary of recent economic history that much of the capital to finance the mergers comes from the Northeast. This theory is supported by the statistics on changes in ownership of plants, both North and South. Whereas the South purchases few of the northern mills involved in transfers, the northern interests buy a very large proportion of the plants transferred in the South. Hence it should be concluded that northern capital accelerates the migration to the South and the accompanying advance of the merger movement. In other words, northern financial interests, in cooperation with southern communities and rather calloused to the interests of northern communities and labor, push investments in textiles where exploitation of low-wage standards, regressive taxes, and Federal aid can be exploited.

Reconsideration of Federal policies.-Surely there is a strong case for revisions of our tax laws which encourage mergers that do not yield gains for one region commensurate with the losses of another. Surely, a reexamination is needed of the Federal policies which advantage one region at the expense of another and excessively stimulate the merger movement. We should reconsider Federal tax and spending policies, minimum-wage legislation inclusive of Walsh-Healey, the present social-security program which favors the South, the labor legislation insofar as it encourages right-to-work laws, largely in vogue in the South, etc. "RESOLUTION VIII-CONGRESSIONAL COOPERATION

"We would also like to take this opportunity to thank the New England congressional delegation which, operating in the national interest, nevertheless has increasingly fought for our regional interests. In protecting the region against unjustifiable trade liberalization, in fighting for a higher minimum wage, in seeking increased appropriations for flood control, aid to distressed areas, and flood insurance, and in helping on many other issues, we have had the strongest support of our congressional delegation, both Republicans and Democrats. We commend them for these contributions and for their increased realization that strong organization by Congressmen in other regions must be offset by equally strong organization of New England's Congressmen."

Senator LEHMAN. Next we will hear from Congressman Curtis.



Mr. CURTIS. Mr. Chairman, I am Lawrence Curtis, Tenth Massachusetts District. I shall be very brief. I merely want to record myself as very much in favor of the efforts being made by your committee to relieve this flood-disaster situation by providing some system that will share the loss. I am heartily in favor of that.

There seems to be a gap that is not covered by private insurance. I would like to commend your committee, sir, for coming to our section and sitting in Boston where we are all close to this. Although

the flood did not hit the district which I represent, because it is a "brick sidewalk" district, certainly many of the people whom I represent are very much concerned with the industries and the properties which have been hit. So I commend your committee.

I expect to support the results of your deliberations when they are reported into the House, which I hope will be very soon, Mr. Chair


Senator LEHMAN. Where is the Tenth Congressional District? Mr. CURTIS. Newton, Brookline, and seven wards of Boston, sir. Senator LEHMAN. The reason I ask that is that I went to Williams College, and I was in hopes that my Congressman would be here today.

Senator KENNEDY. Mr. Heselton represents your district. He is represented by telegram.

Mr. CURTIS. Thank you, Mr. Chairman.

Senator LEHMAN. Thank you, Congressman. Mr. H. W. Yount and Mr. Chase Smith, American Mutual Alliance.


Mr. YOUNT. Mr. Smith was unable to be here. In fact, I didn't know until last night that I was going to be here.

For the record my name is H. W. Yount. I am vice president of the Liberty Mutual Insurance Co. and appearing on behalf of the American Mutual Alliance.

Senator LEHMAN. May I make one explanation to you in apology? Mr. YOUNT. Surely.

Senator LEHMAN. I did say something earlier today that we had expected to hear from Mr. Herd, and I characterized him as the representative of the insurance companies, but I understand that he represents the stock insurance companies, while you represent the mutual insurance companies. Is that correct?

Mr. YOUNT. That is correct; one segment of the mutual insurance companies, Senator.

Senator BUSH. Could we have just an idea of the scope of the American Mutual Alliance for the benefit of the record?

Mr. YOUNT. The American Mutual Alliance consists of 118 mutual companies in the fire and casualty business, writing insurance programs on an annual basis in excess of a billion dollars a year.

Senator BUSH. That is the largest federation of mutuals in the fire and casualty business?

Mr. YOUNT. That is correct.

My statement will be very brief, Senator. We have not had the opportunity to prepare the sort of formal statement we would like. Senator LEHMAN. Have you extra copies of your statement? Mr. YOUNT. I have a few extra copies.

I remarked to Mr. Harris that after listening to an economist talk about the insurance business perhaps it would be appropriate for an insurance man to talk a little ecoonmics.

As I understand the purpose of the committee, it is to consider the problem of dealing with economic loss resulting from natural disasters and perhaps other disasters.

This morning I want to talk merely about flood insurance and a little bit about the attitude of the companies which I represent.

Our companies are owned and operated by their policyholders, and we are all concerned with the economic loss which can be covered by insurance. The matter of catastrophic losses from floods has been a matter of major concern both to our company managements and to our policyholders.

First of all, therefore, we wish to express our desire to cooperate with your committee in the exploration of this problem. We regret that we have no immediate solution for the problem.

The following observations which I jotted down have been covered by other speakers this morning. I think I'd like to take them one by one and discuss them briefly, however.

It seemed to me that the various speakers have approached the problem first from the standpoint of the amount of economic loss; second, what can be done about preventing that loss; third, whether insurance is applicable; and, fourth, whether something other than insurance would have to be done.

I might point out parenthetically that the companies which I represent are interested in loss prevention, and therefore it is natural that in thinking about the problem of flood insurance we would first say: What can be done to prevent the loss? Secondly, what can be done to provide insurance for the loss that remains over and beyond what can be prevented?

We believe that it is generally recognized that areas regularly subjected to flood present a problem which cannot be solved by insurance as I understand the term and as we generally speak of it in the industry. The frequency of damage is such as to render any normal insurance principles inapplicable. We believe that in these areas the problem of economic loss can be solved best by flood prevention.

I refer there to the river flood plains so called which normally overflow every year or every other year. Prevention would seem to be the better part of trying to work out compensation schemes in those


This, of course, entails a long-range program of cooperative action between Federal, State, and local government agencies, and we had some discussion this morning on the cost of such a program.

Incidental to such a program of control in normal flood areas should be some method of local control of the occupancy of such areas. It has seemed to us in our consideration of this problem that it is contrary to the public interest to subsidize people and pay them again and again for losses that arise in an area that is going to be flooded out every year or so. I realize the problem is broader than that, but ultimately we should work toward some regulation of who and what is going to be located in areas that are normally subject to floods.

Now, turning to the second problem, as to what may be insurable, if we eliminate from consideration those areas which are subject to regular flood damage, it may be possible to develop an insurance program applicable to areas subject only to occasional floods. I realize in this connection that some of my friends in the business disagree and claim that you can't possibly insure flood damage. I think that speaking from the standpoint of private industry there is an area which might possibly be covered.

A primary requisite of any program of insurance would appear to be one which over a period of time would produce enough in premiums to meet losses and expenses.

You asked a question earlier as to how long an experimental period would be. We have thought of that probably in terms of 10 years as a minimum, just to explain what we mean by a long period of time.

Admittedly, such a program would have to be highly experimental in its early stages. Such a program would have to be developed after careful study in order to determine some sort of fair relationship between premiums charged and the coverage to be afforded. The rates would therefore vary by broad ranges of incidence-by that I mean flood frequency-and by the degree of coinsurance required of the insurance purchaser.

In connection with this problem, I was interested in Professor Harris' remarks about an actuarial basis for the rates. I'm not sure that he and I are speaking the same language on that problem. Certainly from a standpoint of the insurance industry we would not think of making a rate that would be adequate for the Connecticut Valley, for instance. That involves imposing premiums under which the people would pay their own losses in that area.

We might have some specific suggestions on that later, but our thinking at this time is that countrywide analysis of relative flood areas might serve as a basis for relativity in rates and the same rate would apply to the same type of flood area regardless of where you find it.

Now, a third point, as to whether private insurance could participate in such a program. I think at this stage about all I can offer is that we would like to have the privilege of participation. We would like to have the door left open. I think if the proper conditions can be developed a certain amount of private insurance could be sold.

If private insurance were to participate in such a well-conceived program it would probably be necessary to provide the equivalent of geographical spread through some form of governmental reinsurance until the business could become established ratewise and the necessary reserves accumulated. By that I mean the point that I believe Senator Kennedy brought up this morning. One carrier writing only in the Housatonic Valley might have so much coverage it would be wiped out; it doesn't have the benefit of spread in other areas.

So that if private insurance were to participate in such a program it might be desirable in the early years to provide governmental reinsurance which would effectively stop the amount which an individual insurance company could lose.

The next point may be a minor one, but I notice in the press that it has been mentioned by others. If private insurers should decide to offer coverage in this field, it would probably be helpful if the present income-tax regulations were amended to permit the accumulation of the necessary catastrophe reserves for future losses without having such reserves taxed as profit.

Senator LEHMAN. What is the law now with regard to that?

Mr. YOUNT. You get some carry forward, Senator, or carryback, but I think the opinion of the people who have been working on this is that a catastrophe that is spread widely in time needs more than the present provision, and I am sure that other industry spokesmen before they are through may have some specific recommendations on that. I

mention it merely as a point at this time which ultimately should be considered if private insurance is going to participate.

While this problem is not pecular to flood insurance but is common to all catastrophe insurance coverages, we believe it merits particular consideration in connection with the flood problem.

From that, going to No. 5, if the above conditions could be met it seems reasonable to assume that private insurance might be willing to write a reasonable amount of flood coverage. In that connection I am afraid I will have to speak at this time only for the group of companies I represent, and that is largely a personal opinion at this juncture. Our companies in general are interested in developing new forms of coverage to meet the needs of their customers as they can find means of doing it without incurring too much loss. However, we doubt that this would be in sufficient volume to meet the problem-at least in the early years of experimentation.

Therefore, if the insurance approach is to be recommended, it would appear desirable to provide for Government insurance and reinsurance. Legislation might also provide for periodic review of the amount of private insurance capacity available in order to determine the need for direct Government insurance, thereby providing a means by which the Government might gradually withdraw from the field.

If the initial approach is to be Government insurance without private carrier participation, then on behalf of the companies I represent we are prepared to offer the services of our companies and their staffs in the handling of claims if that can be worked out.

The concluding portion of this prepared statement is something that seemed to us very important, and I haven't seen too many references to it in the press with respect to other testimony. The presence of insurance, the availability of insurance does not necessarily mean that insurance will be used. People do not buy the insurance protection that is available today. We have had some discussion this morning about hurricane damage and windstorm losses. It is surprising that despite our experience in New England with hurricanes in the last year or so, a good many people are reducing or dropping their extended coverage because they think the rates are too high. And yet, as I recall it, the present rate here is predicated on a burning ratio of once in 400 years or some such figure.

In other words, mere availability of insurance does not mean that the economic loss will be eliminated unless people buy it.

We had some experience in this connection with the offering of wave-wash coverage, so-called, along the coast. This is my own companies. After the experience of some years ago, we developed a coverage and offered it to our customers who had properties located in exposed locations along the shore. The rate was, as I recall it, no higher than the rate that Mr. Harris talked about, and yet people didn't want to buy it. The cost was too great.

So I think the insurance approach of making protection available where people can buy it for their own self-preservation is a good thing, but I do not believe it is a good idea to get the impression that that will solve the problem of economic loss, because I think substantial numbers of people will not do it.

Today comprehensive coverage on an automobile is covered by flood loss. We have a lot of losses that we pay out of that. We sell the

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