small amount of trustee business. We did a greater percentage of it back at the time we are discussing than we do now.

It is, in our opinion, a little confusing and a little difficult to handle it and we are not interested in handling it as we were at one time.

Mr. GRAHAM. You mentioned that your retention rate, and I presume it is a trust arrangement with hosiery workers, was 8 percent? Mr. SMITH. Yes, sir.

Mr. GRAHAM. With culinary workers in Atlantic City it was 371⁄2 percent. You said you had to maintain a high retention rate to override the claims in the group field.

Mr. SMITH. I get your question. May I answer it in two ways? First, coming back to your original question, we use somewhat of a combination overall plus individual risks.

Second, I would like to point out that the hosiery risk and most risks we have on the books today, were written subsequent to our start into the business; that the Atlantic City risk was almost in the category of one of our original risks and we learned a great deal and we found some theories we might hold were not so good and would not stand up over a period of time.

But today there would not be such a deviation or difference in risks. Mr. GRAHAM. There was for a 5-year period, though, you maintained that retention rate.

I was wondering whether what is fair for one is fair for all. Mr. SMITH. But it takes time to change situations. You don't change something overnight.

Mr. GRAHAM. Now, then, coming back, was that Atlantic City business let on a specified coverage bid?

Mr. SMITH. I think initially that there were somewhat general specifications. Frankly, I am going on memory and I say I think; I am not positive.

I believe that there was finally pretty specific specifications on which all companies bid, although it is my recollection that there was still some difference between coverages and benefits suggested by various companies.

Mr. GRAHAM. In line with the question that Mr. McConnell raised on a good risk with a good low-claim experience, the incentive is not given to the policyholder to maintain a low-claim experience in your method of doing business; is that correct?

Mr. SMITH. No, sir; it was not done in connection with this particular risk, and one other. It is now done with all of them. There have been no agreements such as these made in the past several years and, as you have already learned, those are being eliminated so that the incentive to the policyholder will be that

Mr. GRAHAM. But for 5 years there were not any.

Mr. SMITH. With those two particular groups of risk, yes.

Mr. GRAHAM. You mentioned that you were going to originally reduce the commission from 1712 percent for the first year to 8 percent commission for the succeeding years for renewals and you also mentioned that you anticipated an overall policy covering the culinary workers.

How was this to be engineered?

Mr. SMITH. Just what do you mean by engineering?

Mr. GRAHAM. How was this to be worked out?

Mr. SMITH. You will find, No. 1, that salesmen are always attempting to do something bigger and better and stronger and group insurance was coming in quite heavily; here was a group that was written, immediately almost there was a second one, and then a third, and the salesman obviously immediately thought "How can I work this in one big overall plan?"

It appeared to us as he discussed it that there was a possibility maybe

he can.

Mr. GRAHAM. Did he give you some assurance that he had the inside track in the culinary workers union?

Mr. SMITH. I would say he indicated that he thought he had good connections.

Mr. GRAHAM. With whom?

Mr. SMITH. With the union.

Mr. GRAHAM. With whom in the union?

Mr. SMITH. I don't know.

Chairman MCCONNELL. Mr. Graham, going back to your question a little bit before, I think you said the sounder policy was adopted for all other policies, but for these two; is that correct? Did I hear you say that?

Mr. SMITH. Yes, sir; the two groups of policies.

Chairman MCCONNELL. I was wondering why these two were delayed so long in the change, why you delayed so long in changing these

two.

Mr. SMITH. Purely because of the difficulty in getting changes of that type made.

Let us assume that I am a salesman and let us assume that I am compensated on a commission basis, and let us assume that the particular product that is being sold the company is the manufacture of— I am going to resist to the utmost any attempt of that manufacturer to reduce the amount of my compensation or commission.

Chairman McCONNELL. In other words, these two contracts were so good that you did not change them.

Mr. SMITH. On the other hand, this manufacturer is finding that the salesman is relatively safe to do business with; that the business that is being developed is relatively safe, so he does not wish to get too terrifically tough. So he tries to work it out.

Mr. RHODES. Yesterday Mr. Liever stated he voluntarily came into the office of the American Casualty Co. and said there will be no more of this evil contract, the retrospective commission.

Would you then say that that was not the situation?

Mr. SMITH. I attempted to explain a while ago, probably rather poorly, that I think that frankly both parties think that they may have been the people who were responsible for something.

Mr. RHODES. Would you say, then, that as far as your reaction is concerned that you think American Casualty Co. was primarily responsible for the change in the rate schedule of these two contracts? Mr. SMITH. I think

Mr. RHODES. Instead of Mr. Liever being primarily responsible? Mr. SMITH. I would. At the same time I think there would be an opportunity for an honest difference of opinion.

Mr. GRAHAM. Mr. Smith, coming back to Mr. McConnell's question a while ago, these two contracts were so good you did hesitate to change them; is that correct?

Mr. SMITH. We didn't wish to do anything to jeopardize our having the opportunity of continuing them.

Mr. GRAHAM. How many brokers other than Mr. Liever have sold group insurance for you, just roughly?

Mr. SMITH. Two hundred.

Mr. GRAHAM. Do any other brokers get that 1712 percent?

Mr. SMITH. There are a few risks, yes, and there were risks in the past where they did. There are very few today.

Mr. GRAHAM. Did they get it longer than the first year?

Mr. SMITH. May I add one other point?

Mr. GRAHAM. Yes.

Mr. SMITH. Again, when we get into a sliding-scale basis of commission depending on the sizes, many risks will get 171⁄2 percent or even 20 percent the first year.

Mr. GRAHAM. But do you have any others though that after the first year paid 171/2 percent?

Mr. SMITH. Some. Very few; yes, sir.

Mr. GRAHAM. Were they in these trust-fund arrangements, do you recall?

Mr. SMITH. No, sir. Mr. Bruton tells me no.

Mr. GRAHAM. This is the only trust-fund arrangement where this was perpetuated?

Mr. SMITH. Yes, sir; the only one.

Mr. GRAHAM. Now, then, do you think that a consultant who puts out bid specifications should receive as his compensation the commission on insurance that is let?

Mr. SMITH. This matter of consultants is a rather confusing one. Frankly, I don't know how to answer your question. If a consultant is appointed by the risk, the policyholder, whoever it may be, the trustee fund, or whatever it is, as the agent of record, the fact is known in the first place that he is going to be the agent of record and if he then secures bids from a half dozen or some given number of companies, with their knowledge that, look, that man is going to be the agent, I think that is probably all right and I think it would be all right that he be compensated from the agency commission standpoint.

On the other hand, we much prefer that we do business with our regularly established agencies and not through so-called consultants. Mr. RHODES. Would you qualify that enough to say that would be the situation if the specifications were put out identically and bids were all made on the same set of specifications?

Mr. SMITH. And that it be known in advance that they were to be the broker of record.

Mr. GRAHAM. Following that up a little further, Don't you think that it would have some influence on the man who was making the recommendation if he could obtain a higher commission from one company than from another?

Mr. SMITH. It quite possibly would.

Mr. GRAHAM. In other words, it would tend to slant his view and possibly his selection of a carrier?

Mr. SMITH. It certainly would influence many people. It would only be human nature.

Mr. RHODES. Should that not be a part of the specifications of the policy that certain commission should be paid?

Mr. SMITH. Now, we come in a very, very debatable subject. Is it anybody's business what my salary is?

Mr. RHODES. Yes; it is when you are acting as fiduciary. It is very definitely the business of the people who are trustees and there is a public interest in it.

Mr. SMITH. In some States the insurance departments take the position that it is absolutely wrong if the amount of the commission is known. Another State may take a different viewpoint, but we do have conflicting views among regulatory bodies on that.

Mr. RHODES. Without intending to debate with you, I think you will find in a situation which is a quasi-trust situation, as an insurance consultant would be in as the situation was outlined, that the public interest would probably demand, and probably all the insurance departments would uphold, the disclosure of the commission.

Mr. SMITH. From our standpoint it would be desired.

Mr. GRAHAM. May I review the Atlantic City risk just once more for the record? There was over the period of 5 years some $166,000 paid in premiums?

Mr. SMITH. Yes, sir.

Mr. GRAHAM. What were the payments that Earl Liever realized out of that?

Mr. SMITH. The total commissions?

Mr. GRAHAM. Yes, sir.

Mr. SMITH. Approximately $45,000.

Mr. GRAHAM. How much did the company realize out of that? Mr. SMITH. For expenses and profits, or profits?

Mr. GRAHAM. Altogether, exclusive of claims.

Mr. SMITH. Exclusive of claims?

Mr. GRAHAM. Yes, sir. How much did the company retain after paying claims.

Mr. SMITH. I said approximately $45,000 out of the $166,000, that would leave approximately $121,000.

Maybe I am getting confused now.

Mr. GRAHAM. I mean other than commission. Now, what I would like to get is the amount of premium, the amount paid in commissions, the amount that was retained by the company over and above the commission, and the amount of claims paid.

Mr. SMITH. May I then just give the total figures here as I have them?

Mr. GRAHAM. Yes, sir.

Mr. SMITH. I show a total premium of $166,329.31.

I show commissions, direct commissions, of $29,107.61.

I show this contingent commission of $17,267.81.

Mr. GRAHAM. Both of those were paid to Earl Liever?

Mr. SMITH. Yes, sir.

What remains was then available for the company and losses.
Mr. GRAHAM. Then how much in claims was paid?

Mr. SMITH. $54,170.55.

Mr. GRAHAM. That leaves approximately $66,000 that was retained by the company?

Mr. SMITH. Yes, sir.

Mr. GRAHAM. That is all.

Mr. SMITH. And, may I add, which was used for the payment of claims on other risks where the claim payments exceeded the amount of the premiums.

Mr. GRAHAM. I was speaking of this one.

Mr. SMITH. Yes, sir.

Mr. GRAHAM. What I was trying to get at is that they paid $166,000 in premiums and out of that $45,000 was paid in claims in this individual case.

That is all.

Mr. MILLER. Mr. Chairman?

Chairman McCONNELL. Mr. Miller.

Mr. MILLER. I have been listing these figures as they were given. As I have it, a résumé here would be that out of $166,000 approximately received in premiums-that is right, is it not?

Mr. SMITH. Yes, sir.

Mr. MILLER. About $54,000 was paid out in claims?

Mr. SMITH. Yes, sir.

Mr. MILLER. About $46,000 paid out in commissions to Mr. Liever? Mr. SMITH. Yes, sir.

Mr. MILLER. And approximately $66,000 not profit, necessarily, but at least retained by the company?

Mr. SMITH. Yes, sir.

Mr. MILLER. This was annually; was it not?

Mr. SMITH. No, sir; that is total.

Mr. MILLER. Isn't it rather remarkable that through a period of 5 years that the one agent should receive in commissions $46,000 out of the total of $166,000 and almost as much as the entire amount retained by the company?

Mr. SMITH. Most unusual.

Mr. MILLER. However, that is over a period of 5 years, approximately?

Mr. SMITH. Yes, sir.

Mr. MILLER. That would average about $9,000 a year agent received in doing business with this one union?

Mr. SMITH. Yes, sir.

that this one

Mr. MILLER. Now, I believe that Mr. Liever told us yesterday that he was representing 15 or 18 unions. If he was doing this well with each one of them-perhaps he was not-it would look to us as if he is receiving an exorbitant compensation for his services, if this is comparable with the rest of his activities.

Mr. SMITH. Mr. Miller, it would appear that same way to me. Now, I cannot speak for business he may have with other companies, but the business that he has with us, this has not been true and I quoted here rather rapidly, figures on certain of the other risks in connection with the culinary workers he had with us where the commissions did not attain any percentages near that.

Mr. WELTMER. I have one more question, Mr. Smith.

Going back to this fact that you have canceled this retrospective commission arrangement and you are going to send it to the policyholder in the form of a retroactive rate credit, in the teamsters, for example, who would get it? Is the employer the policyholder in the teamsters' case, or does he pay the premium and the union hold the policy?