Evening star. [volume] (Washington, D.C.) 1854-1972, 1907-02-01
LIMITING THE AMOUN1
FOR WHICH GOVERNMENT WILL
ACCEPT A SURETY COMPANY.

Secretary Shaw signed an order today
limiting the amount for which any bonding
company will be accepted upon the bond Of
any government official to 10 per cent Of
the paid-up capital and surplus Of such
company, and other cabinet officers are to
follow suit. The order also prohibits the
acceptance Of any company upon the bond
Of any public official II such company I'M
dertakes to become liable on the bond Of
any private individual, firm, association or
corporation for an amount greater than 10
per cent of its paid-up capital and sur
plus unless such company shall be Sc
cured as to such excess to the satisfaction
of the Secretary Of the Treasury by REIN
surance, or by the deposit with such COM
pany in pledge or by conveyance to 1t in
trust for its security or indemnity of prop
erty equal in value to such excess.
similar order was issued in a modified
form in December, and since some of the
companies protested against its provisions,
Secretary Shaw agreed to grant them a
hearing. which was held several weeks ago.
At the hearing the interests Of the govern
ment were taken care Of by Charles Ly-
man. chief Of the appointment division,
and by s. HaZen Bond, the law and bond
officer of the department, who is the gov
eminent expert in bonding matters.
10000 Bonds Given.
4ASlC are dUout SiAty lHouSdhu poiuo
given by officials of the government on file
In the Treasury Department, with penal
ties aggregating eight hundred million dol
lars. 1t has been the practice in some
branches of the government service to ac-
cept surety companies on bonds in amounts
Of from several hundred thousand to sew
era1 million dollars without much regard
to what proportion the penalties Of such
bonds bore to the total loss-paying ability
10 onfnc
The liberal attitude Of the departments
under the Attorney Generals construction
Of the law, which permits of the acceptance
of company on a single bond for any
amount for which the approving officer
deems 1t wise or proper, notwithstanding
that such company may have the minimum
of capital prescribed by the law C$25O,OOO),
had led to very dangerous practice,
which, should one of the companies fall
was likely to plunge the government into
heavy loss The Treasury Department had
previously prescribed 30 per cent limita-
ton of capital and surplus as the greatest
amount which a company might safely put
in any one bond. but the unstable con-
dition of the surety business, an out
has led to the acceptance of imprudent risks
at inadequate rates, has made radical ac-
ton by the department necessary for the
proper protection of the government. There
part of government officials during the past
few years, any one of which would have
been sufficient to wreck an ordinary COM
pany, and two of such companies have
failed. One went into bankruptcy upon
payment of a loss of 100000 on a single
government contract.
Secretary Shaw's order will not only in
sure better protection to the government,
but, it is believed, will also promote the
safety and stability of the surety compa-
MES. The capital and surplus Of the re-
spective companies is to be aScertatned by
the quarterly financial statements which
fhnry fn q To N
Secretary Shaws order also contemplates
minute inquiry by experts into the business
methods of the companies, as Is suggested
by the provisions of the circular, which re-
quire that each company shall file In the
Treasury Department, during the month of
January of each year, report giving an
itemized statement Of all recognizances,
stipulatons, bonds or undertakings which
such company shall have executed during
the previous year in excess of 10 per cent
of it's paid-up capital and surplus, showing
the character and penalty OF such obi ga
ton, the nature and amount OF indemnity,
collateral or reinsurance thereon, and such
other information as may be required. Ex-
animation into the value of securities as
we'll as into the detail arrangements OF the
corporation will probably follow by prop
erly qualified expert or commission OF
experts to be detailed for that important
duty. The penalty for violation of the or
thority to do business with the government
under the law.
States Have Similar Limitations.
A number Of states have laws imposing
similar limitations upon the bonds exc
cuted within their borders. Among these
are Massachusetts, Connecticut, New York,
New Jersey, Delaware, Virginia, Ohio, Wis
consin, Iowa, Mississippi and Kentucky.
Many of the other states are considering
the advisability Of enacting similar legisla-
ton, and bills are now pending in Mary
land, Illinois. Michigan, Indiana, Georgia,
Missouri Nebraska, Tennessee, Texas, Ar
kansas Utah, Louisiana, Alabama, Colora-
do and Pennsylvania. The simultaneous
action of these states is probably due to the
incentive furnished by the unanimous adop-
ton of a draft of a suitable bill at con-
vention of the insurance commissioners of
the various states held in Washington in
October last. The provisions of this bill are
similar to the order promulgated by the
Treasury Department, and the concurrent
action Of the state insurance commissioners
was in the interest of uniformity in the
needed legislation
The aggregate capital Of all companies
authorized to become bondsmen for govern
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