STUDY OF MONOPOLY POWER MONDAY, AUGUST 1, 1949 HOUSE OF REPRESENTATIVES, SPECIAL SUBCOMMITTEE ON THE STUDY OF MONOPOLY POWER OF THE COMMITTEE ON THE JUDICIARY, Washington, D. C. The special subcommittee met, pursuant to adjournment, at 10:05 a. m. in room 346, Old House Office Building, Hon. Emanuel Celler (chairman) presiding. Present: Representatives Celler, Denton, Wilson, Michener, Keating, and McCulloch. The CHAIRMAN. This session of this subcommittee will come to order. Our first order of business will be to hear a distinguished gentleman, president of a very old life-insurance company, Mr. Leroy A. Lincoln, who started with this company, as I understand it, as one of the members of their legal staff and became general counsel and vice president and is now president of the Metropolitan Life Insurance Co. We will be very glad to hear you, Mr. Lincoln. STATEMENT OF LEROY A. LINCOLN, PRESIDENT, METROPOLITAN The CHAIRMAN. Yes. You can stand or be seated. I assumed that you had some questions, as I wrote you the other day. I did not intend particularly to volunteer anything, although, after considering your request, I did send you by mail on Friday some statements that are available, and I suppose you have received them. The CHAIRMAN. Yes; we have; and if you care to read your statement, we will be very glad to hear it, and then we can ask some questions with respect to that. Mr. LINCOLN. Well, the introductory paragraph is, of course, the explanation why I concluded to send it after I first indicated to you that I did not care to. While it had not at first been thought that there was occasion to present any prepared statement in advance of the committee meeting, because one could not anticipate the nature of the questions, it now seems that it might be helpful if the subject mentioned in the letter of July 22 to Chairman Celler is somewhat expanded, as follows: 96347-49-pt. 1—30 457 It may not be amiss to observe that the announced purpose of the subcommittee is to study the antitrust laws and the question of monopoly. It has not been thought that practices of the life-insurance companies are in violation of the antitrust laws. No life-insurance company or organization, so far as I know, has sought in any way to secure legislative exemption from the effect of the antitrust laws of the United States. On the other subject-that is, monopoly-there is certainly no monopoly in the life-insurance business. Some companies are larger than others, but the very largest falls short of 20 percent of the total amount of insurance in force or of the total amount of assets held by all companies; and there are 584 companies in the field. Besides the matter of relative size, the so-called larger companies have been exhibiting a slower rate of growth than the newer companies or the business as a whole. There is no such thing as absorption by one company of another unless it be in the case of some well-justified mergers among some of the smaller southern or western companies. No large eastern company, except the Metropolitan, has undertaken the reinsurance and assumption of another company's business, certainly not within the last 30 years or more. The Metropolitan did, in 1917, in the case of the Pittsburgh Life & Trust Co., and in 1923, in the case of the Niagara Life Insurance Co., on account of their financial difficulties, undertake to reinsure the policies of those companies, but it must be definitely emphasized that the action in both cases was taken by the Metropolitan reluctantly and under the urgent request of the State insurance department. There has crept into the hearings on one or two occasions an intimation that business requires certain regulation and supervision. Surely, as to the life-insurance business, there can be no question on this score. All life-insurance companies are subject to regulation by the laws and the supervision of the States where they are incorporated and of all other States where they are licensed to do business. This applies to the 48 States of the United States and the District of Columbia. The Metropolitan, for instance, is regulated by an elaborate set of provisions in the New York insurance law, which has been recodified within the past 10 years. They are supervised by the State insurance department, the official head of which is the superintendent of insurance. Under the law every life-insurance company must be examined by the superintendent of insurance once in every 3 years. In the case of a large company like the Metropolitan, this examination from its commencement to the filing of the department report of something like 200 pages occupies a year and a half, or, in other words, the department is engaged in the examination of the company 50 percent of the time. Furthermore the department is in constant correspondence with the company. Its representatives call frequently either in person or by telephone, and every possible activity of the company is subject to department scrutiny. In the case of examinations other States join in the examinations under a set of zoning rules provided by the National Association of Insurance Commissioners. Life-insurance companies have to file annually, in each State in which they are licensed to do business, an elaborate statement of condition which, in the case of a company like the Metropolitan, consists of a volume a foot by a foot and a half in size and almost 200 pages of closely printed information. These examination reports are filed with all State insurance departments (including the District of Columbia) and are open to public inspection. No other business, it is believed, is subjected to anywhere near the same amount of regulation and supervision as the life-insurance business. When one adds to the considerations above-stated that there is, of course, no desire whatsoever to violate any of the provisions of the Federal antitrust laws, there seems little occasion for concern as to the manner and method by which the life-insurance business is conducted throughout the United States. The CHAIRMAN. You have a second statement, Mr. Lincoln. Would you care to read that? Mr. LINCOLN. That is much longer, sir, and had to do with the matter of private placements of investments. I did not know whether you would get to that or would want to get to it. It is very long, and I do not know that I ought to read it. The CHAIRMAN. It will be well to read it, and then we will ask questions. Mr. LINCOLN. I will read a paragraph or two. The CHAIRMAN. Whatever you wish. Mr. LINCOLN. You will thank me for not reading it all. The attitude or policy of a life-insurance company relative to the acquisition of corporation obligations direct from the borrower instead of through an investment banker as intermediary has been the subject of much misunderstanding. The development of such procedure during the last 15 years was probably a natural step in large-scale financing incident to many factors, including the provisions of the orginal law creating the Securities and Exchange Commission and its subsequent regulations. Large borrowers found themselves balancing the relative advantages of the necessary documentations with the Securities and Exchange Commission together with time and expenses involved, as against the opportunity to have proposed obligations in the hands of one or a few large investors with whom questions of indenture modification or other questions could be handled with out the complexities which would be incident to a widespread holding. Large borrowers, either on their own initiative or guided by an investment banker, came to approach a large investment organization, such as a life-insurance company, with a direct offering which was then subjected to whatever negotiations were indicated, and then the issue was purchased by one or by one or more substantial investors. The law of the State of New York forbidding underwriting by life-insurance companies and the antitrust laws of the United States made it impossible for such a large investor to undertake the leadership in a distribution directed toward smaller investors. Two factors-the preference of the borrowed to have its obligations with a limited number of investors and the legal objections to any effort on the part of a large investor to allocate portions of the investment to smaller investors-both operated to make it inevitable that large-scale investments should find their way into the hands of largescale investors. In the case of the Metropolitan Life Insurance Co., and I dare say in the case of other large investors, there would be a genuine desire to have the holdings of such investments allocated more widely. I am prepared to say, categorically, that, if the laws of New York and of the United States would permit, and if a borrower were not unwilling to have such a course followed, then the company would be glad to undertake whatever suitable allocation might be indicated, and certainly with no desire to have and to hold so large an issue if it were possible to have it distributed among a larger number of lifeinsurance companies. Then, I go on to call attention to five or six pages which have been added, Mr. Chairman, to that which I have just read, which are quotations from a memorandum that we filed before the New York State legislative insurance committee last November, known locally as the Mahoney committee in New York-not O'Mahoney; they are two distinct men-the chairman of which is Senator Mahoney, and then they had up some of these questions, and what I have included in here, beyond what I have just finished reading, is a quotation exactly from that memorandum of last November. Now, I will be glad to read further if you want me to. The CHAIRMAN. Either read it or give us an epitome of the contents, whatever you wish. Mr. LINCOLN. It is hard to digest such a thing. I will go on reading; if you can stand it, I can. A discussion of the subject of so-called private placements was contained in a memorandum filed on behalf of the Metropolitan Life Insurance Co. with the Joint Legislative Committee on Insurance Rates and Regulations of the New York Legislature. This memorandum bore date November 22, 1948. A complete discussion of the subject as contained in such memorandum follows: There is no fundamental difference between investments acquired by an insurance company through "private placements" and those acquired through public purchase. Private placements have become an accepted, simple form of financing, advantageous to both the borrower and the lender and do not affect adversely the public interest. The making of private placements is not limited to insurance companies, but is open to other institutions and funds with money to invest. If restrictions are placed upon life-insurance companies, the result is that they will be placed in a strait-jacket when seeking these investments while their competitors will be free to act as they may deem advisable. Furthermore, there is no more reason for attempting to force borrowers to raise their funds publicly through the investment-banking fraternity than there is to require borrowers desiring bank credit to negotiate the loan through an intermediary who would then choose the bank which would extend the credit. Private placements represent one means by which investments may be acquired, just as purchase of a public offering is another means. The inherent character and quality of the investment should not be confused with the method of acquisition. Normally, limitations as to amount or percentage in the investment statutes are for the purpose of diversification and to prevent undue concentration in one type of security, i. e., witness, among other limitations, the amount of life-insurance assets which may be invested in mortgages, housing and income-producing real estate. Were such limitations to be applied to corporate securities, they might be |