TRADING WITH THE ENEMY.

WEDNESDAY, JULY 25, 1917.

UNITED STATES SENATE,

SUBCOMMITTEE OF THE COMMITTEE ON COMMERCE, Washington, D. C'. The subcommittee reassembled, pursuant to adjournment, at 10 o'clock a. m., in the committee room, Capitol, Senator Joseph E. Ransdell, presiding.

Present: Senators Ransdell (chairman), Vardaman, and Fernald. Present, also, Hon. Charles Warren, Assistant Attorney General of the United States; Senator Joseph S. Frelinghuysen, of New Jersey; and Mr. Neal Bassett, representing certain American fire insurance companies.

The CHAIRMAN. Are you ready now, Senator Frelinghuysen, to make your statement, or would you gentlemen prefer to go into the matter further before presenting it?

Senator FRELINGHUYSEN. I would like to introduce Mr. Neal Bassett, who is representing certain American fire insurance companies.

The CHAIRMAN. We will be glad to hear Mr. Bassett.

STATEMENT OF MR. NEAL BASSETT, REPRESENTING CERTAIN AMERICAN FIRE INSURANCE COMPANIES.

Mr. BASSETT. This is a matter, gentlemen, with relation to insurances and reinsurances between fire insurance companies of this country, and enemy and ally of the enemey insurance companies that are domiciled in this country, and with neutral companies that are doing business in this country, and that may be doing business within enemy or ally of enemy countries.

There are a great many insurance companies of this country who have treaties or contracts of reinsurance with enemy companies or ally of enemy companies, or with neutral companies referred to. Those treaties or contracts of reinsurance provide that companies of this country may cede or give to those companies by contract a part of the liability assumed as direct insurers of the people of this country. This practice of reinsurance has lasted over a long period of years. There is a very large amount of liability primarily assumed by the American direct writing companies that has been reinsured in these other or reinsurance companies.

Any action taken which would make it impossible for American companies to continue the practice of reinsurance would work not. only a great hardship upon the American companies themselves, but would work an equal or greater hardship upon American property owners who are the policyholders of the American companies.

It is our desire not only to safeguard the interests of the American insurance companies, but also through them the interests of the individual policyholders: and those policyholders are domiciled in every section of this country, on farms, in villages, in towns, and in great cities.

The American companies are doing business in every State in the Union. Therefore, they have policyholders in those States, and those policyholders are depending upon them to pay their claims promptly in the event of fire. The American companies, in turn, depend upon recovering the insurances which have been reinsured with other companies. Anything that may be done that would make it impossible for American companies to recover immediately or within a reasonably short-time funds from their reinsurance companies, would work a great hardship upon American companies and through them upon their direct policyholders, in fact a greater hardship than I think we can well make clear here. Let us say, to use an illustration, that a conflagration should occur such as occurred in Baltimore or in San Francisco. The American companies would then be called upon to pay out of their funds losses which occurred in those conflagrations. Should they not be able to immediately receive funds due them from their reinsurance companies, it would put them in a very embarrassing position and would have a very direct effect upon property owners.

Senator VARDAMAN. Let me ask you a question right there.
Mr. BASSETT. Yes.

Senator VARDAMAN. Have you any reinsurance in Germany or with the enemy countries?

Mr. BASSETT. There are in this country a number of companies of enemy or ally of enemy countries. I will have to look at the tables to refresh my memory as to the number of them, I can not give you that without reference.

Mr. WARREN. There are possibly eight or nine companies?

Mr. BASSETT. I think there are possibly more than that, Mr. Warren. It will take but a second for me to find out. [After consulting tables.] There are eight or nine enemy companies or ally of enemy companies that are doing a reinsurance business in this country.

Senator FERNALD. How extensive is that?

Mr. BASSETT. Their annual premium incomes are approximately $20,000,000 a year.

Senator FERNALD. That is the total?

Mr. BASSETT. That is the total of the annual premium incomes. That, of course does not represent the liability which they have assumed for these direct companies. Neither does it represent the amount of premiums in force. Bear in mind that these reinsurances extend over a period of five years; as an illustration, companies reinsured business five years ago, much of which has not expired. In addition, they have reinsured business in each of the succeeding years.

The CHAIRMAN. Could you tell us about how much insurance that would mean that $20,000,000 of premiums-approximately? Mr. BASSETT. That would mean approximately $2,000,000,000. The CHAIRMAN. Two billion dollars of insurance? Mr. BASSETT. Yes; of insurance liability.

Senator FERNALD. Have you had any losses during the past four months on this reinsurance?

Mr. BASSETT. We have them every day.

Senator FERNALD. What has been done in those cases?

Mr. BASSETT. Those losses have been paid in the ordinary course of business.

Mr. WARREN. Under the President's proclamation authorizing it temporarily.

Mr. BASSETT. Yes.

The CHAIRMAN. Is that reinsurance business that you are speaking of, or do any of these nine companies do a direct business in this country?

Mr. BASSETT. The companies that I have mentioned do a reinsurance business.

The CHAIRMAN. And the American companies place a portion. of their risks with these other companies?

Mr. BASSETT. Yes. In addition to that there are a certain number of companies doing a direct business. There are, I think, from four to six of those companies that are doing a direct business with the people of the country.

In addition to the above there are a number of companies domiciled in neutral countries or belligerent countries friendly to the United States who are doing business in this country and are possibly doing business with the enemy countries. In other words, they have branches in the United States, and they may have branches in Germany.

The CHAIRMAN. How about these nine companies that you speak of, are they all represented by branches in this country which are practically independent companies?

Mr. BASSETT. They are all represented by branches in this country, and the funds of those branches are in the hands of United States trustees. Those trustees are subject to the laws of the various States in which those companies are locally domiciled. The funds in this country are in the hands of those trustees except what would be called current funds. Those current funds are subject to check, except that since war has been declared the States in which those companies are domiciled have promulgated rules that no funds of any kind shall be sent out of this country, and my recollection is that the President's proclamation of April 6, 1917, provided that also.

The CHAIRMAN. I was just going to ask if it would be practical for those reinsuring agencies of foreign countries to conduct business in this country without remitting to the parent companies the earnings which they were making?

Mr. BASSETT. It is not only practicable, but that is the course which is being pursued to-day. Not a dollar of money can leave the country to go abroad, under the President's proclamation and under the provisions required by the various State departments who have control over these varicus companies.

Senator FERNALD. Do I understand that they are paying these reinsurances and are not sending them any funds?

Mr. BASSETT. No, sir; we are paying the premiums as they become due, monthly.

Senator FERNALD. Yes; that is, we are sending them the funds?

Mr. BASSETT. We are sending funds to the branches in this country. No money is going out of the country.

Senator VARDAMAN. Really, you are not having any business relations with the foreign countries at all now, except with their representatives here?

Mr. BASSETT. That is true.

Senator VARDAMAN. And the restrictions around those representatives here are such that they can not remit their earnings to the foreign countries.

Mr. BASSETT. That is correct.

The CHAIRMAN. They can remit neither their moneys, nor the funds remaining which are held in trust for your benefit.

Senator VARDAMAN. What legislation do you want in regard to this?

Mr. BASSETT. We desire that in the event it becomes in the future necessary to cancel the licenses of any of these companies that we shall have the ability to immediately recover back our funds and collect debts due us instead of waiting until the termination of the war. We desire that those companies may be permitted to continue to do their business in this country, believing that by so doing they are not harming the country, but rather are aiding the country, because by using the funds which they have over here in granting reinsurances to American companies the latter are enabled to take care of the business or commerce of this country, and the country itself is benefited instead of hurt.

The CHAIRMAN. Is that objected to by any of the departments of the Government, so far as you know?

Mr. BASSETT. No; not now. The situation as it appeared to us, until we had a conference with Mr. Warren, was somewhat confused. The President issued a proclamation providing that companies referred to could continue to do business in this country subject to certain regulations. Subsequently a certain provision was placed in the act, commencing at section 2, page 2, line 6.

Mr. WARREN. You mean it was placed in the act by the House? Mr. BASSETT. Yes.

Senator FERNALD. That is, in House bill 4960?

Mr. BASSETT. Yes. This is the provision (reading):

Provided, That nothing in this act shall impair or affect the President's proclamation of April 6, 1917, or any amendment, modification, or revocation thereof, in relation to the branches of enemy or ally of enemy insurance companies in the United States when such branches are under the management of citizens of the United States, and such branches, and the managers and trustees thereof, shall be subject to license by the Secretary of Commerce regulating the business thereof and the control and disposition of the funds thereof, subject to rules and regulations prescribed by the Secretary of Commerce, with the approval of the President.

We can not see the wisdom or the necessity of that provision in the bill, which was read into it by the House. It would adversely affect a large number of American companies and a very large volume of business which they have reinsured with these reinsurance companies.

The CHAIRMAN. Just what would be the evil effect of that? Describe it, will you, because we will have to thrash this out with the house, probably, in conference; that is, if we decide, I mean, to strike it out?

Mr. BASSETT. In the first place and I will ask Mr. Warren to correct me if I am wrong about that-the bill itself provides for the regulation of these companies by the Secretary of Commerce; and putting in this provision that nothing shall interfere with the President's proclamation, and then providing thereafter "subject to license by the Secretary of Commerce," is reading something into the bill which seems to be totally unnecessary, as it seems to be already taken care of in the bill.

Senator FERNALD. That would seem to be true.

Mr. BASSETT. Then, in addition to that, it provides as follows: "When such branches are under the management of citizens of the United States." It so happens that a very important reinsurance company is under the management of a German citizen. To the best of our knowledge and belief he is conducting his business properly. He has no means of transmitting these funds abroad, and to pick out and exclude a certain class of companies without the opportunity of a hearing before the Secretary of Commerce, so that he may determine whether or not these companies should be licensed, seems to us to be a distinction which is not only unnecessary but harmful.

The CHAIRMAN. You think that the license clause would enable the Secretary to protect every right of America which should be protected without these words?

Mr. BASSETT. Yes; without those words.

Senator VARDAMAN. Then, if I understand you correctly, these words are mere surplusage?

Mr. BASSETT. They are surplusage.

Senator VARDAMAN. Do they complicate that matter in any way, other than that it is a repetition of the provision conferring this power upon the Secretary of Commerce?

Mr. BASSETT. No.

Senator VARDAMAN. The only objection, then, to it is that it is Just surplusage?

Mr. BASSETT. No; it goes further than that, Senator. It provides that certain companies may not do business at all if they are under the management of German citizens. That would, immediately upon this bill becoming a law, stop the operation of those companies. It would not give the Secretary of Commerce an opportunity to inquire and determine in regard to them.

The CHAIRMAN. Or it would force those companies to change their management?

Mr. BASSETT. Yes; if under the law they could then do so.

The CHAIRMAN. You say there is one very powerful company that is now under the management of a German citizen?

Mr. BASSETT. Yes.

The CHAIRMAN. And there may be others?

Mr. BASSETT. I know of one, and I think there are others. Am I correct about that, Mr. Warren?

Mr. WARREN. Yes.

Senator VARDAMAN. What would you think of the suggestion that the Secretary of Commerce might be given discretion to permit a German citizen to assist in the management of a company, if in his judgment the public interest would not be interfered with?

Mr. BASSETT. I would think, Senator, that the removal of the words that I have quoted from that section of the clause would leave that