INSURANCE: Big 26

Mortal fear of most U. S. big-business men is Federal control. In the New Deal economy, insurance companies and investment trusts are becoming conspicuous as the only big holders of investment capital not under regulation by the U. S. Investment trusts’ turn is coming soon if Congress adopts the recommendations now being readied by SEC. And the unwilling march of insurance to Federal regulation may have begun last week when TNEC (monopoly committee) reopened its insurance hearings.

SEC began preparing for the hearings late in 1938 when SEC Chairman Bill Douglas summoned his Columbia University schoolmate (and brother in Beta Theta Pi) Ernest J. Howe, started him on a preliminary survey of U. S. life insurance. Bald Ernest Howe had had some eight years’ investment-buying experience in Wall Street (with Blyth & Co., Inc. and Lehman Bros.), knew as well as any other wide-awake economist what tremendous capital reservoirs the insurance companies have become as holders of mortgages on the U. S., its States and municipalities and on U. S. farms and business.

Last week earnest Ernest Howe sat down before TNEC with a 322-page book on his knees, an array of charts alongside him. The book was his survey of the 26 largest of the U. S.’s 306 life insurance companies (selected for study because all had assets above $125,000,000;, and its long tables were filled with figures furnished by the companies themselves at SEC’s request. From book and chart Witness Howe began to testify. Excerpts:

— The big 26 at the end of 1938 had assets of 24.2 billion dollars—equal to more than half the Federal public debt—87½% of the total U. S. life insurance company assets.

—Between 1929 and 1938 their combined assets had increased 63.1%. But insurance in force, 92.2 billion, had increased only 9.8%. Among reasons for the striking disparity: increased sales of annuities and use of supplementary contracts (e.g., for paying death benefits by installments) had slowed up the outflow of funds.

— The two largest companies (Metropolitan, Prudential) had 75% of the life policies of the big 26, nearly 44% of the total dollar value.

— At the end of 1937 the big 26 owned 11.6% of the Federal debt (in bonds), 6.7% of the State and local public debt. Paring down on railroad bond holdings, they still owned 17.4% of the $13,000,000,000 mortgage on U. S. railroads. Their share of the $13,900,000,000 public utility debt was 18.2%.

— Of the mortgage on U. S. private indus try, they held better than a tenth. Biggest non-Government group of farmers in the U. S., they held 10.5% of the total farm mortgage debt (down from 19.2% in 1930).

— Over the ten years ending in 1938 the big 26 invested 26.3 billions in bonds, stocks and mortgages, became more potent as a capital influence as other sources of investment funds dried up. In 1929 they had two billions for investment; in 1938 it was 4.3.

— Significant was the growth of the big 26 as competitors of investment bankers and — so Mr. Howe charged — of private purchasers who had money to invest in good securities. In 1932 the companies bought 33 millions in bonds direct from issuers. In 1938 their private purchases totaled 1.9 billions.

— The Howe survey found archaic methods of bookkeeping in use in some of the big 26. It also showed no uniform method of valuing bonds for asset list purposes. Yet in spite of valuing some securities too high, others too conservatively, the bonds held by the big 26 at the end of 1938 were worth 201 millions more at market prices than at their admitted asset value.

— Best-paying investments of the big 26 were their copper-riveted loans to policyholders, on which they grossed 5.79% with no risk to themselves. Only loan in existence that can be made at the option of the borrower (by simple application), policy lending has recently invited the competition of some banks, which charge lower rates on policy loans than the issuing companies.