New-York tribune. [volume] (New York [N.Y.]) 1866-1924, 1913-02-13
Menaced by Action Of States.


The development which now menaces
the business Of life insurance is the dis
position on the part of some states To
compel companies before a franchise 10
do business is granted 10 invest in GER
tain specified local securities.
I cannot here discuss the unwisdom OF
all such legislation az this-legislation
which takes away from trustees substan-
TALLY all rights of choice. all exercise OF
discretion, but does not Mt the same time
relieve them of any responsibility.
What | want TO emphasize is the fact
that this development. which grew nat
urally out Of the declaration that insur-
ance is not commerce, shows the eco
nomic unsoundness Of the rule laid down
by the Supreme Court in 1859 in the case
of Paul VS.. Virginia. Recent legislation
tends not only to prescribe certain local
securities. such as municipal bonds, real
estate mortgages. etc, in which COM
pany must invest it's money but, either
directly or by the rule OF its Insurance
Department ii tends to outlaw all rail-
road bonds not issued by a company in
corporated In the state and the obligation
Of lines lying wholly within the state.
Naturally. the life insurance companies.
particularly in showing any given in
surance department that their invest
ments in a state equal the mathematical
reserves on their business in the state.
take their bonds on trunk lines Of rail-
roads and prorate them according TO mile
age in each state and hold a proper pro-
portion TO be investments in each sep
arate state The tendency of local super
vision is to reject that claim.
Consider for a moment what a stua-
ton this creates. IT says in effect that
if one Of the great trunk lines Of the
United States running across, for exam
pie. fifteen states, was cut up into fifteen
different companies, fifteen different
roads and we were back in the days
when this was pretty nearly the condi-
ton of railroading in the United States.
their securities would be acceptable In
other words the state would accept Sc
curties which. in the nature OF the case
would not be anything like as good as the
securities which the insurance companies
now own. Theyreject securities which rep
resent a local investment and a local bene-
fit merely because they represent an inter
state enterprise. See what follows: Under
this rule the companies, already havinS
full reserves on their business in any
given state invested in securities Of this
kind, are in effect required 10 invest their
reserves all over again. AS the companies
can have in all only securities equal 10
the mathematical reserves on their bust
ness plus any other moneys reserved for
dividends or other purposes. the require
ment creates an impossible situation
Supreme Court Economically Wrong
The logic of this, of course. is that the
Supreme Court in 1859 went wrong eco
nomically. Business has had TO be done
Notwithstanding that rule of the court. II
has developed naturally and wonderfully.
For many years it did not attract mucn
attention. but when the companies came
10 present balance sheets with assets
which run into the hundreds CT millions.
the states began to vie with each other
in the amount of loot which they could
take from defenceess benefciaries I'm the
form OF local taxes for purposes of state
revenue. For their justification the states
fell back on the case of Paul VS.. Virginia.
Rules began to be established which were
absolutely at variance with the facts and
the ideals which have controlled all bust
ness in this country in the last forty
years.
The issue must soon be definitely joined
is already joined in some states. lnsur-
ance cannot comply with this demand It
should not submit 10 any rule which
forces certain investments. but even If
the board OF directors in any given case
were weak enough TO submit TO that
vicious demand. they will find 1t impos-
sible 10 do so when faced with the fact
that they have already invested their re-
serves in other first class securities-se-
curities which under the reactionary de-
crees OF state supervision are in effect
outlswed.
Need Not Amend Constitution.
Mr.. Emmett holds that the only relief
lies in an amendment to the Constitution
of the United States. ] do not believe this
is necessary, and. IL necessary, it is not
practicable. The Supreme Court has al
ways been big enough TO change its mind
when il discovered that an earlier ruling,
involving no constitutional prohibition.
was contrary to the welfare Of the people
II has reversed itself in considerable
number of instances. AS matter Of