Advisory opinion letter to Mr. Tostin: an acquisition by MONY of a majority of the capital stock of North…

Dear Mr. Tostin:

Our client, The Mutual Life Insurance Company of New York (“MONY”), 1740 Broadway at 55th Street, New York, New York 10019, respectfully requests an Advisory Opinion as to whether an acquisition by MONY of a majority of the capital stock of North American Life and Casualty Company (“N. Am”) would or would not, in'the opinion of the Federal Trade Commission (“FTC”), violate any of the laws administered by the FTC, including Section 7 of the Clayton Act. ; , On May 12, 1971, MONY notified the FTC of the contemplated acquisition pursuant to the FTC’s Pre-Merger Notification Resolution, and filed its Special Report on May 20, 1971. Notices of the proposed acquisition have been or will be filed with the New York and Minnesota, Insurance Departments. These departments are authorized to disapprove the transaction based upon considerations similar to those of Section 7 of the Clayton Act. 27 McKinney’s [N.Y.] Insurance Law §§ 46-a(b) ; 67; Minnesota House Bill No. 1595, Sec. 2, Subd. 4, effective May 15, 1971. We know of no other investigation of the proposed transaction. In requesting an Advisory Opinion, MONY does not waive such rights as it may have under the McCarran-Ferguson Act (15 U.S.C. § 1012[b]) to claim that the proposed acquisition is not subject to the jurisdiction of either the FTC or the Department of Justice: — MONY was incorporated in the state of New York on April 12, 1842. It is a mutual life insurance company and sells to the public only participating (“par”) insurance, that is, insurance on which dividends are from time to time paid to the policyholders. MONY operates in 50 states, the District of Columbia, Puerto Rico, the Virgin Islands and Canada. It sells a broad line of life, accident and health insurance, including whole life and endowment, term, individual and group. MONY does not sell and has no subsidiaries which sell other forms of insurance, such as property-liability. MONY has not to date acquired any existing company in or out of the insurance field. It caused to be organized and owns several small companies related to its activities, to wit MONY Advisers, Inc., which in turn provides investment management for MONY Fund, Inc., an open-end ADVISORY OPINIONS WITH REQUESTS THEREFOR 1057 1055. . Request mutual investment company. MONY Advisers, Inc., owns MONY Sales, Inc., which offers shares of the Fund to the public. Other wholly or partly owned or sponsored companies are MONY Mortgage Investors, a real estate investment trust, Key Resources, Inc., a premium financing subsidiary, and Insurance Systems of America, which produces and markets computer software systems for the life insurance industry.”

N. Am was incorporated in the state of Minnesota on April 17, 1896. It is a stock life insurance company and sells only non-participating (“non-par”) insurance, that is, insurance with respect to which no dividends are paid to the policyholders.

N. Am is licensed in 49 states (all except New York), the District of Columbia and Canada. It sells a broad line of life and accident and health insurance, including whole life and endowment, term, individual, group and accident and health. Despite the word “Casualty” in its name, N. Am does not sell and has no subsidiaries which sell other forms of insurance, such as property-liability. In May 1968, N. Am acquired the assets and business of a small life company, Thomas Edison Life Insurance Company, of Des Moines, Iowa, and the latter’s wholly-owned subsidiary Nalac Financial Plans, Ine., a broker-dealership. At the time of acquisition, Thomas Edison Life had about $51,000,000 of insurance in force. Thomas Edison Life’s operations were fully merged into N. Am’s and figures herein relating to N. Am, since the merger, include Thomas Edison Life. We are advised that the considerations weighed by MONY in reaching a tentative decision to acquire N. Am included the following: (a) The belief that the investment of funds in the stock of N. Am would be more beneficial to MONY’s policyholders than would the placement of such funds in other investments currently available to MONY.

(b) Acquisition of N. Am would aid MONY in broadening its access to the brokerage market. N. Am, in contrast to MONY, is geared to a brokerage operation. N. Am, we understand, has averaged 88% of its new sales of life insurance from brokers, in contrast to MON Y’s 3%. N. Am is said to have around 9,400 brokerage contracts, of which about 400 are considered active. MONY can expect some though not a large flow of business from such of N. Am’s brokers as do not have strong ties with other mutual companies. N. Am’s 250 career agents might also generate some business for MONY. 1 See Special Report of MONY, filed May 20, 1971. 1058 FEDERAL TRADE COMMISSION ‘DECISIONS © Request 79 ¥F.T.C.

(c) MONY’s field force, consisting of some 4,500 career agents, could be expected to channel some business to N. Am. To some clients, only low cost term or low premium non-par whole life, unavailable from MONY,? can be sold. Those sales are now lost by MONY to unrelated stock companies. To the extent that these sales were directed to N. Am, MONY would, through its ownership of N. Am stock, indirectly share in the profits therefrom. Moreover, for MONY’s agents to be able to offer non-par insurance through an affiliated company tends to broaden the services which can be offered to clients. (d) Experimenting with new lines of business is easier for a small stock company than an established mutual company. N. Am might serve asa testing ground for such new lines. (e) MONY could offer to N. Am financial services and to its agents and brokers a broader product line including mutual funds and variable annuities. (£) MONY could provide for reinsurance for N. Am. (g) MONY’s reputation in the industry could increase the confidence in N. Am of prospective clients of N. Am. A. The Product Market Both MONY and N. Am sell the normal complement of whole life, endowment and term, individual and group, and accident and health. Since accident and health insurance is a minor part of the business of both companies, we are of the opinion that the significant product market, viewing the acquisition as horizontal in nature, is life insurance generally.

MONY, as we have said, cannot sell non-par insurance. N. Am sells only non-par insurance. The distinction between non-par and par insurance may suggest the presence of a conglomerate aspect to the acquisition. Later herein we present our view that non-par and par insurance should not be considered as separate product lines. B. The Geographic Market Both MONY and N. Am are licensed in all states, except that N. Am is not licensed in New York. The nation, therefore, undoubtedly constitutes a relevant geographic market. We shall, however, also consider state and regional markets.

2MONY, being a mutual life insurance company, is forbidden by law to sell non-par insurance. 27 McKinney’s [N.Y.] Insurance Law § 216(5).