with the management of an organization of casualty and surety companies when they left the State department. From this, it is clear that, with these few exceptions, the insurance officials in New Jersey and New York who supervised insurance for many years back did not become affiliated with insurance companies when they left their official State positions.

The CHAIRMAN. I do not mind that. I said a moment ago that I would like to make a comment on State regulation, and I would like to go back to the TNEC, and I shall put into the record-I am not going to take the time now and I do not ask for your comment on it—a statement with reference to the conclusions reached by Sumner T. Pike, member of the TNEC and then chairman of the Securities and Exchange Commission, concerning the inadequacy of the regulations in a number of the States (TNEČ Final Report and Recommendations, p. 559 et seq.).

He drew attention, for example, to the fact that in a number of States there is an insufficient amount of appropriation to do an adequate job. In many instances there is only a small skeleton staff. In other instances the superintendent of insurance not only holds that job, important as it is, but he holds many other jobs, and his many chores make it imposible for him adequately to regulate a number of the insurance companies that are located in the State or which do business in that State, and in general, Mr. Pike said that the interests of the policyholders and the interests of the public were not properly conserved in many of these States.

I do not necessarily ask for your comment on that.

Mr. LINCOLN. I only want to make this request: That if you are going to be putting some of the things into the record, that I have a chance to make comments on them in the record? You do not want me around again, so I will put it in the record.

The CHAIRMAN. You have a perfect right to revise your remarks. Mr. LINCOLN. I do not want to revise my remarks. I want to make some comments on yours.

The CHAIRMAN. I mean, extend your remarks or revise them or anything you wish.

Mr. LINCOLN. All right, that is understood.

The CHAIRMAN. At this point in the record we will place the list of superintendents of New York State and New Jersey that I referred to before.

(The list referred to follows:)

INSURANCE COMMISSIONERS OF THE STATES OF NEW YORK AND NEW JERSEY AND THEIR SUBSEQUENT AFFILIATIONS WITH INSURANCE FIRMS

NOTE. This list does not include all of the insurance commissioners of New York and New Jersey; it includes only those who were discovered to have affiliations with insurance firms after the expirations of their terms as insurance commissioners.

NEW YORK

Beha, James (1924-28)1: Subsequent affiliations: director, New Amsterdam Casualty Co., Patriotic Insurance Co. of America, Sun Indemnity Co., Sun Underwriters, Inc., Seaboard Fire & Marine Insurance Co., Union Labor Life Insurance Co. (also member of executive committee), Western & Southern Life Insurance Co., Cincinnati, Ohio; and trustee, U. S. Casuality Co.

Emmet, William Temple (1912–13): Subsequent affiliations: Director, Metropolitan Life Insurance Co.

Hotchkiss, William H. (1909–11): Subsequent affiliations: Director, American Guarantee & Liability Insurance Co., Christiana General Insurance Corp. of New York, Constitution Reinsurance Corp. of New York, General Security Assur

1 Dates after each name indicate terms served as insurance commissioners.

ance Corp. of New York, The Homeland Insurance Co. of America, Manhattan Fire & Marine Insurance Co., North American Casualty & Surety Reinsurance Corp., North American Reassurance (also general counsel), North American Fire & Marine Reinsurance Corp., Unity Fire Insurance Corp., Zurich Fire Insurance Corp., Zurich Fire Insurance Co. of New York, Zurich General Accident & Liability Insurance Co. (member of local board of management).

Phillips, Jesse S. (1915-21): Subsequent affiliations: vice president and direc tor, American Alliance Insurance Co.; chairman of the board of directors, Great American Indemnity Co.; vice president and director, Great American Insurance Co., Rochester American Insurance Co., American National Fire Insurance Co., County Fire Insurance Co., Detroit Fire & Marine Insurance Co., Massachusetts Fire & Marine Insurance Co., North Carolina Home Insurance Co.; general manager and counsel, National Bureau of Casualty & Surety Underwriters, 1921-26.

Pink, Louis H. (1935–43): Subsequent affiliations: director, Mutual Life Insurance Co., New York, Columbia Insurance Co., Imperial Assurance Co., Phoenix Indemnity Co.

Van Schaick, George S. (1931-35): Subsequent affiliations: vice president, in charge of real estate loans 1936-48, New York Life Insurance Co.

NEW JERSEY

Smith, Frank H. (1918-19, 1928-30): Subsequent affiliations: director, Plainfield Title & Mortgage Guaranty Co., North American Title Guaranty Co. (also chairman of the board), Reinsurance Corp. of America.

Watkins, David O. (1905-09): Subsequent affiliations: director, West Jersey Title & Guarantee Co.

Withers, Carl K. (1936): Subsequent affiliations: director, New Jersey Title Insurance Co.

Source: Annual Reports of the Superintendent of Insurance of the State of New York, 1860-1948; State of New York Insurance Department, Albany. Annual Reports of the Commissioner of Banking and Insurance of the State of New Jersey, 1879-1945; State of New Jersey Department of Banking and Insurance, Trenton. Directory of Directors in the City of New York, 1898–1947; Directory of Directors Co., New York. Poor's Register of Directors and Execu tives, 1928-1948; Standard and Poor's Corp., New York. Who's Who in Com merce and Industry, 1948; A. N. Marquis Co., Chicago.

The CHAIRMAN. At this point in the record I also wish to place the comments on State regulation that I referred to previously. (The document referred to appears in the Appendix.)

The CHAIRMAN. Do you have any questions?

Mr. MICHENER. No.

The CHAIRMAN. Well, we are very grateful to you for your contribution.

Mr. LINCOLN. It has been a great pleasure.

The CHAIRMAN. I am sure you shall have the transcript of this tes timony and to be able to suitably make any extensions or, as I say, revisions, that you care to.

Mr. LINCOLN. Thank you very much.

(Whereupon, at 12: 20 p. m., the committee adjourned to reconvene on Wednesday, August 3, 1949, at 10 a. m.)

At the request of the witness, the following memorandum subsequently prepared by the witness is reprinted, together with the reply of the chairman and a rejoinder by Mr. Lincoln. An additional letter from Mr. Lincoln to the chairman appears in the appendix, page 664.

MEMORANDUM

Additional material to be included in connection with testimony of Leroy A Lincoln before the subcommittee of the Judiciary Committee of the House of Representatives, at Washington, D. C., on August 1, 1949.

The following material is to be incorporated with the verbatim transcript of testimony on the pages and at the locations indicated herein.

I

Frequent references were made during the hearing to alleged views of the late Honorable Charles Evans Hughes and particularly the following, which appeared on page 1032 of the minutes of the hearing:

"The CHAIRMAN. Mr. Lincoln, Charles Evans Hughes, way back in 1906, said before the Armstrong Investigating Committee: 'No insurance company should be permitted ever to have over $250,000,000 of resources, net assets.'

"What is your comment on that?"

"Mr. LINCOLN. My comment is to read to you from a speech that Mr. Hughes made in 1926. * *

The speech to which reference was made at that juncture did not happen to be available at the moment in the committee room. The contents are so important in the present connection that it is set forth in full, for this record, as follows: "THE LIFE-INSURANCE ENTERPRISE FROM THE STANDPOINT OF THE PUBLIC-AN ADDRESS DELIVERED AT THE TWENTIETH ANNIVERSARY CONVENTION OF THE AssoCIATION OF LIFE INSURANCE PRESIDENTS IN NEW YORK CITY ON DECEMBER 9, 1926

"(By Hon. Charles Evans Hughes, New York)

"In appearing before you today, it seems to me like the fulfillment of a dream and the justification of a faith of 20 years ago.

"I am not here to review the past save as I am permitted to congratulate you upon the unparalleled growth and the soundness of the life-insurance enterprise under your management-upon the broadly diffused benefits which you are conferring upon the Nation. I have always been a wholehearted advocate of life insurance, and if at one time I was charged with the responsibility of assisting in a corrective endeavor, it was as a friend and not as an antagonist, as one having the keenest interest in the success of an enterprise which is essential to our social welfare. You are masters of statistics, and I shall not recite the figures familiar to you. During the last 20 years, as your chairman has pointed out, the amount of insurance in force and the invested funds of your companies have vastly grown. I understand that the amount of insurance outstanding is now about 80 billions of dollars and that the assets of the life-insurance companies aggregate about 122 billions. This expansion, it is most gratifying to observe, has been achieved with wise conservatism in management, without undue expenditures in obtaining business, and with the returns to policyholders that are consistent with safety. I believe that there is no safer or better-managed business in our country than yours.

"One of our greatest scientists said the other day that the 30 years ending with 1925 would probably be estimated as the most extraordinary in the history of the world up to the present time because of the number and fundamental character of discoveries in physics and of the changes wrought in man's conception of the world in which he lives. But what will man be able to accomplish as a social being in the New World with these extraordinary powers at his command? Whatever the answer, it is plain that the advantages to the average individual will inevitably depend upon a growing capacity for cooperative endeavor. As we reflect upon the increasing density of population and our multiplying intimacies, we cannot fail to realize that the social experiment has just begun. In a sense you are preeminently the prophets of the coming time. On the largest scale you are making scientific use of the lessons of the past in order to distribute all the accruing benefits to millions of people associated for mutual protection and investment.

"It is well for you constantly to emphasize that life insurance is the effective agency of thrift. The best guardian of the purse that has ever been discovered is a life-insurance policy and the increasing success of the life-insurance business is a welcome testimonial to the fact that in our prosperity we have not lost our heads. When confronted with many evidences of extravagance and waste, it is a pleasure to turn to the other side reflected in your reports, and the reports of the life-insurance companies are very good reading in the home on a quiet night by the fireside lamp. The life-insurance enterprise not only rests upon this disposition to work and save but represents the protection of the home. It spells the responsibility of the homemaker-the care of wife and children. We are so easily misled by the unpleasant spectacles of profligacy, of human wreckage, of useless lives in which the most solid satisfactions are sacrificed to temporary excitement and fleeting pleasure, that we are apt to forget the countless homes

where individuals cherish the old tradition of industry with a keen sense of mutual affection and dependence. The life-insurance statistics give you the barometric readings of the social weather.

"Sometimes, as we look at the superficial indications of society, we are reminded of what Mark Twain told us as he observed an unfortunate fellow struggling in the whirlpool rapids at Niagara. He said, "This poor devil chased a chip around 44 times and then didn't get it." But while there are so many, in one sense, who are chasing chips around in the social waters and never getting them, there are those who are putting currents to the best of use, and we are what we are as a nation because these unpleasant indications do not represent the great vital forces of our life.

"A reference to the feature of thrift and protection suggests the foundation but does not explain the structure. As the Supreme Court of the United States has pointed out, the object of life insurance is not only protection but investment: that is, the protection is achieved through investment and thus the field of cooperation is widely extended. The enormous contributions of policyholders must be productively employed. The benefits to policyholders--the safety of their contracts-depend not simply on mortality gains but upon the returns from the use of the funds placed at your command. In great industrial corporations the most of what is received must be paid out for labor and raw material. You deal in money. As your outstanding risks grow, your reserves must correspondingly increase. You cannot hoard; you must invest. Thus you control very largely the funds available for important public enterprises. This means that it is the policyholders of the country who in large measure are providing through you the means for public undertakings, for railroad expansion and betterment, for the service of public utilities, for every endeavor which on the most conservative basis gives such assurance of proper response to public needs as to justify investment of the funds upon the conservation and productivity of which policyholders depend. It also means that the policyholders of the country must rely upon the standards of integrity and efficiency maintained in other enterprises and thus the truth is again brought home to us that no enterprise in this country lives unto itself, the life-insurance enterprise least of all.

"This outstanding fact of the necessity of the safe investment of the vast accumulations of life insurance companies gives us striking illustration of the impos sibility of promoting the prosperity of the community by starving the instrumentalities of public service. The moneys that they require for their reasonably profitable management are furnished by the thrifty workers of the community whose savings are invested in these enterprises. Fair play all round is the only safe counsel in social effort. When one begins to exploit others he is likely to end with damage to himself. This is a lesson not only to financiers but to poli-! ticians, both to those who would sacrifice public interest to inordinate private gain and to those who would indulge in the fatuous policy of seeking to serve the public welfare at the expense of just private interest. You cannot get communal riches by individual impoverishment. A life insurance company as a great socia cooperative enterprise enforces this lesson. Policyholders are dependent on your skill, but ultimately also on the justice of the community.

"There was a time when insurance companies dealt with mortality only through the tables underlying their calculations of premiums. But now it is different. They find advantage to their members, and thus to the incorporated associa tion itself, in seeking to prolong life. They give us information; they promote undertakings to prevent disease. They thus become the agencies of health as well as of thrift, and it is idle to talk of thrift unless you have health.

"In earlier days, when I was constantly sought by insurance agents, and I may add with a success on their part which I have never regretted, I thought that they represented in the highest degree the American talent for unrestrained eloquence. But as I have reflected upon the value of the life insurance enterprise I think that they were generally (although unconscious of it) too modest in their estimates of its benefits.

"To buttress the home, to give impetus to thrift and the relief which comes with the assurance of protection for dependents, to organize on a vast scale investing power conservatively used, to seek practical measures to conserve health and prolong life-what have we better than that?

"But the lesson taught by your success is that cooperation must have expert direction. It is well that policyholders should have the opportunity to correct improper management, and their power though latent must be real; they must have the final control. But if they undertook to manage affairs directly, they would make a mess of it. How to obtain the safeguard of ultimate control by

those whose interests are at stake, and the continuity and efficiency of expert management, without the intrusions and insincerities of politics or the fantasies of dreamers, that is the great problem. It has been solved to a gratifying degree in your case. It could not have been so successfully solved if respect for the fiduciary obligation of officers and directors had not been maintained. The members of your companies are so numerous, so scattered, so helpless individually, that while the insurance company is not technically a trustee it is practically the highest form of trusteeship. You represent trust and service. The vast accumulations in your care, and your reports as to your dealings with them, testify to trust protected and service performed, and what higher satisfaction can there be than the consciousness of that? The great growth of your business reflects not only the prosperity of the country and the saving disposition of our people, but confidence, and it is confidence that is the vital breath of progress. You could have all the resources in this country that we now enjoy, you could have all the talent available for every form of beneficial effort that we now have, you could have everything with which Providence has blessed us, and yet have a miserable state of society, with impoverishment on every hand and an inability to use any of the forces at our command to the benefit of the public, if you destroyed confidence.

"There are those who think they can do better by destroying the foundations upon which our prosperity now rests, but the difficulty is that they cannot succeed until there are new foundations equally secure. When would that time come? Businessmen who by unscrupulous conduct impair confidence are the worst enemies of enterprise. They do far more damage than any radical theorists can do. Your organization was formed to promote confidence by preventing extravagance, reducing expenses and intelligently cooperating in order to give administration of the wisest sort and you have reached the measure of success you now enjoy because the people believe in you.

"But one of the most important lessons of life is that success must continually be won and is never finally achieved. There are those who look upon the supposed fortunate in our social efforts, who have achieved places of influence and distinction, as though they had in some way gained a citadel in which they could stand secure against every possible attack. In truth, all they have done is to gain another level of responsibility in which they must make good. Every day is one of test. Every day puts at risk all that has been gained. The greater the apparent achievement, the more serious is the risk of loss. The farther you have climbed, the more disastrous the fall. As has well been said, it is not worth while to talk of the end of a period, for you are always at the beginning of a new one. You cannot rest content. You have been vigilant; it remains to be yet more vigilant. You have been faithful, but fidelity is an active virtue which demands its daily sacrifice of any counter interest, its daily response in energetic service. I congratulate you on your privilege to guard this trust and on your opportunity to perform this service.

"Manifestly the interests are too vast and those dependent upon your management are too many, to permit such enterprises to be conducted without legal restrictions and appropriate public supervision. The State undertakes to supply these. It would be the highest misfortune if confidence in this supervision were shaken by attempts to make the supervisors the proteges or lackeys of those who are supervised. It would be equally disastrous if State supervision were incompetent, capricious and constituted an interference rather than a help. Supervision of the life insurance business is not as difficult an administrative duty as railroad rate-making, for example. But it does demand a high degree of technical knowledge, and it absolutely requires honesty and intelligence. I am glad to believe that in the past 20 years there has been a great improvement in the administration of State departments of insurance. Proper measures of protection are better understood and more wisely applied. There is not only cooperation between the life insurance companies in the interest of policyholders, and to secure improvement in direction and management, but there is a better and more intelligent cooperation between the States and the insurance companies than in the past.

"From the millions of policyholders you would get strong criticism if you were remiss, but you are also assured of powerful support against mischievous assaults upon management which they recognize to be conducted in their interest. We have a fortunate balance, mutual undertakings under competent direction, with confidence in the integrity of management and a wholesome public supervision which is now as little menaced by political interference as any great public undertaking in democracy can well hope to be. I trust that the next 20 years will be 96347-49-pt. 1-33