in nuclear electric generating stations. Thus, I believe I am in a reasonably good position to appraise the insurability of ocean mining ventures. There is attached as an addendum to this statement a profile on my firms as it presently exists.

I am most pleased and honored that I should have been selected among those to testify before you regarding the very important legislation now under discussion before this committee.

The area of my expertise, understandably, covers but a very narrow salient of the total consideration of this legislation. My involvement in the industry is principally in the area of the assessment and management of risk. The principal considerations, from an insurance point of view today, as I understand it, deal with the availability and practicability of considering insurance as a security device as it relates to the prospective deep-sea mining operations contemplated by American industry.

My firm has reviewed the risks relative to deep-sea mining, and has given assurances that, as respects these risk, there would appear to be no reason why there should be any problem in developing an insurance program to cover the investment in standard forms for Hull Machinery and Protection and Indemnity insurances to cover to appropriate limits the risks of loss for the operation of the involved ocean marine vessels.

As respects the on-shore milling operations, we have also given assurances that we can buy insurance policies with limits of liability equal to the risks of loss of the investments in plant and equipment. This is also true as respects Public Liability policies.

There remains, then, the question as to whether the risks that I would classify in a general sense as political risks such as terrorisms, sabotage, vessel seizure, claim jumping, other expropriation by third parties, and loss of political or legal rights through the ratification of a Law of the Sea Treaty, are insurable.

The analysis of this problem becomes somewhat easier if you can place yourself in the position of one who agrees by contract to assume a risk of loss in consideration of the payment of a premium. Implicit in this a definition of the risk involved and some ability to measure that risk. There does exist a market in the world for a kind of political risk insurance. Where the risk cannot be measured, however, the market does not exist, or, where the risk is very great, the amount, or limit of liability that is obtainable in the world market is small. Where circumstances are changing rapidly, the term of the policy is short. In other words, the availability of the market will be determined by the definition of the risk.

As I would view the problem for ocean miners from an insurance point of view, the industry is not concerned with the security of the investment involved with research and development, but is concerned with the prospective investment in the permanent plant, attendant machinery, and associated at sea mining and transportation systems. If industry may be assured that there is no risk of loss legally or politically to specified sites at which they actually have a legal claim, they would be unconcerned with a risk of loss and thusly would not need insurance. If the treaty provides this security, we would eliminate this as a risk of loss.

If through appropriate legislation, there is suitable indemnity for these risks of loss on the part of a stable government so that the risk of loss might be transferred to that political body, again there would be no need for insurance.

Thusly, we come to the situation where industry may be involved in substantial investment and have the risk of loss of losing a demonstrated body of ore or site. The question, as I understand it, presented to me, is whether an insurance market would exist in the world to transfer such a risk of loss to this market. If so, at what cost.

In this event, the underwriter would ask, "What is the risk?" Let us assume an investment of 500 million dollars to a billion dollars in permanent plant and equipment which has a single use in the mining of these sea-bed ores. These properties, let us assume, would be obsolete if there should develop an inability, for whatever reason, to mine the particular site for which the particular plant and equipment was designed. Thusly, the risk of loss would be the value of such equipment.

There would follow, then, in the analysis, the question as to the nature and extent of the risk. In general sense, if you should be the underwrter, you would ask the first question, "How great is the risk of loss" In the absence of legislation to give definition to security for the site, I would have great difficulty, as the underwriter, in responding to your question.

At this time, there can be no assurance whatsoever as to the final form of a treaty to be agreed among the 150-odd nations involved with these negotiations. I understand that the negotiations have been underway for some years, and there presently exists no definable assurances as to the form and/or substance of the agreement to be ultimately agreed upon, and thusly provide the security for indus

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try's investment in these ventures. It would be my opinion, therefore, that there is no way that you has an underwriter could find the basis for assessing a premium that could have any relationship to the risk.

Limits of 500 million dollars to a billion dollars in a policy of insurance would exhaust world market capacity in the best of circumstances insofar as it might relate to a well-defined risk. Where a risk of this nature has no definition, it is to be assumed that no legitimate market would be available.

Mr. Chairman, I have deliberately kept my statement very brief today because I felt that my usefulness to the Committee is probably greatest if I respond to your questions and those of your colleagues.

Thank you, Mr. Chairman.

EARLE V. MAYNARD & COMPANY

BACKGROUND AND CAPABILITIES

I. Background

The firm commenced business in 1962. Thrust has been initially in areas of Marine Insurance, although specialties have been developed in General Industrial, Mining, Aviation, Foreign and Public Utilities coverages.

Maynard & Company has very strong ties with the London market. Extensive direct business is done with Sedgwick Forbes Holding, Ltd. This firm, the largest of the London brokerages, handles the firm's London placements and is especially important in the World Marine Insurance Market. In addition to excellent relations with virtually the entire spectrum of U.S. stock and mutual insurance companies, this strong relationship with London gives Maynard & Company recourse to the balance of the world market. Mr. Maynard visits London several times yearly to resolve difficult placements.

Maynard & Company strongly emphasizes the risk management approach in handling of its accounts, and the fact that the firm has its own property loss prevention engineering department is of immense importance in its overall support of the risk management function. Maynard & Company's engineers are thoroughly experienced in the HPR field (all having been with either Industrial Risk Insurers or the Factory Mutual System), and give the firm the capacity to develop fire protection recommendations, to review working sprinkler plans, to make comprehensive field inspections and to provide professional opinion on the recommendtions of insurers. Maynard & Company is among the very few insurance brokers in America to have contracted with public utilities for the preparation of reports on nuclear generating station fire protection for the Nuclear Regulatory Commission. The following classes of insurance are presently written for clients of Maynard & Company: General Liability (including Charter Hire Legal Liability), Errors & Omissions, Directors and Officers Liability, Fiduciary Liability, Fire and Extended Coverage, Difference in Conditions, Builder's Risk, Boiler & Machinery, Aircraft, Transportation, Ocean Marine, Worker's Compensation, Contract and Miscellaneous Bonds, Group Accident and Health, Long Term Disability, and Life.

Maynard & Company maintains constant working relationships with several law firms whose advice is invaluable when legal support is required for specialized projects.

II. Earl V. Maynard, President

EDUCATIONAL BACKGROUND: Bachelor of Science Degree in Business Administration from the University of Oregon School of Business, 1941.

LLB Degree from San Francisco Law School, 1955. Admitted to practice law, State of California, 1955.

Doctorate in Law, San Francisco Law School, 1957.

Specialized training courses in Marine Insurance from Carter Quinby of Derby, Cook, Quinby & Tweedt and from Walter Hays, President of United States Average Adjusters Association.

PROFESSIONAL EXPERIENCE: Assistant Division Manager at National Lead Company, Portland, Oregon. Was in charge of Administration, Traffic, Credit and Accounting. Also served on New York Auditor's Staff.

Specialized in cargo handling on conventional cargo vessels, barges, go-downs, lighterage and container break-bulk, utilized and bulk shipments. Handled stevedoring in Ports of Los Angeles, San Pedro Wilmington, Long Beach, Stockton, Sacramento, San Francisco, Oakland, Benicia, San Diego, and Coos Bay.

Insurance Background: Worked for Marsh & McLennan, Inc., where four years were spent in Average Adjusting Department (Marine Claims), followed by eight

years Accounts work handling heavy industrial, Construction, and International Accounts.

President of Earle V. Maynard & Company. Specializing in setting up and handling of ongoing programs for international marine shipments. Deeply involved with many U.S. public utilities, including considerable research and public relations work on nuclear issues. Has testified before U.S. Congressional committees and Federal Agencies on international marine and nuclear issues. Oversees all aspects of the firm's operations; maintains personal contact with all Maynard & Company clients. III. Company Philosophy

The time and talent available for servicing of corporate insurance problems is directly dependent upon the nature of the sales or solicitation program, a simplistic truth that is too often overlooked in the day-to-day development of an insurance brokerage firm.

Maynard & Company does not solicit personal accounts or small mercantile, or manufacturing operations as we feel that our energies are better utilized for the commercial, industrial or public utility account requiring detailed risk analysis, assessment of loss potential and special marketing expertise. To this extent, we posses a high degree of specialization. We feel that too often in the brokerage end of the risk management chain, insufficient attention has been given to important aspects of risk control so as to reduce the cost of risk financing via transference of risk to insurers.

With this philosophy in mind, we feel we are in a unique position to become involved with presentation of appropriate recommendations for the engineering and/or financial treatment of the risk. Additionally, we feel it imperative that we be involved in projects of our accounts at the documentation stage, whether this be a sales program, an acquisition program, or new construction or modernization of facilities, as we feel we can make a substantial contribution ot the planning stages of business development.

Senator METCALF. We follow the hearings today and in the previous hearings, some of us feel we are in a rather unique situation where we are confronted with a risk that does not add up to the risks enumerated either by Mr. Howell or by you.

Now we have another witness who is very expert in this area, in insurance and banking, a lawyer and author on this subject, and the third member of our panel. I welcome Mr. Kaufman.

STATEMENT OF ALAN KAUFMAN

Mr. KAUFMAN. Thank you, Mr. Chairman. I think, in fairness, I would promise not to say I don't represent the entire legal community, the banking representatives, and the insurance representatives, if they will pledge similarly. This probably always reassures, especially when we have extended the hearing through the lunch hour to come up with someone who disagrees.

I would like to state at this point: I see no necessity for what is clearly investment guarantee in S. 2053.

Senator METCALF. You agree with the administration?

Mr. KAUFMAN. Apparently I do.

I am saying that at this point: I think there might be some point in the future, after I have been studying all of the relevant documents for some period of time, but at some time in the future there may be a role for the Government either as insurer or guarantor and I cannot guarantee with accuracy-state with accuracy-what that might be.

But, after a significant amount of research in the last year and a half on this subject, I see no case whatsoever for the necessity of a guarantee of the form in this particular bill.

Mr. Chairman, I will acknowledge you have expressed repeatedly through these hearings an open mind as to the format that might

be taken to provide investment security which I think is a totally different matter than a guarantee. I found constructive the statement by Mr. Clements where he indicated there is a problem of semantics.

In my prepared statement, I go ino that problem. I think you have to look at investment security as the umbrella issue here which is: How can these mining issues attract financing? I think my fellow panel members will agree, to try to figure out a way to finance not just the risk but the industry. What I would like to emphasize in order to provide investment security, you do not have to necessarily provide political risk insurance nor do you have to provide a guarantee exclusively.

I have recommended in my prepared statement, in fact a hybrid of those two forms of investment security be pursued by the committee in that particular respect. I want to stay on the subject of semantics.

I think there are a couple of other phrases which have dominated consideration of this subject for a number of years. First of all, I would like to offer a legal opinion that there can never be secure legal climate for an ocean-mining investment in the absence of a Law of the Sea Treaty.

I think I can also say there may never be a legal climate for the ocean industry. But the point is if we only had a secure legal climate we could go ahead. I think that plays into an illusion that will ever be. I don't think there will ever be security of a climate. I think the issue before the committee is not whether there is a secure legal climate, but whether there can be a climate that allows for investment security in the form of a guarantee or in the form of insurance.

There is no way in which the U.S. Government can unilaterally provide a legal security which will insure lenders will be paid off. The only thing the Government can do is make a best effort to negotiate an agreement which will either allow the continuation of these projects to pay off loans, or which will allow subrogation of the companies interest to some other party to pay off these loans, or which will allow some other type of continuation of a particular project to pay off the loans.

I would like to move on to the guarantee issue and I think I can do it briefly on the three principal questions facing the committee at this juncture. The first one is whether a guarantee is necessary for purposes of allowing the industry to go ahead. The second one is addressing what is the purpose of a guarantee, and in addressing that you may change the focus from a guarantee to an insurance or hybrid program. Third is what is the impact or the consequence of either a guarantee or an insurance program both.

Moving to the first question: What is the necessity of a guarantee? I would like to say although I think the record could be documented more fully in the future to question or demonstrate the necessity of it, I do not believe the House hearings elicited testimony which even remotely supports the conclusion of the majority report, that there is no more market whatsoever in the private sector for some insurance coverage of this risk.

Now there are a number of brokers in the world, and by number I mean more than one. I do not mean a massive quantity in the

world who have participated in political risk insurance and I do not want to suggest I have more experience in this than Mr. Maynard. I will state I have spoken with other brokers, I have made available to them composite of the single revised negotiating text which I prepared for NOAA on some of this type of legislation on testimony which I have offered in the past and a number of brokers have expressed to me certainly there is a private market for political risk insurance for the type of risk that is ascertainable from the text.

That is different from stating there is private market capacity to cover the entire risk. Although I will say one broker told me last week-last Wednesday-and a broker with substantial experience in political risk, that subject to further effort and further inquiry into the matter, he would not be stunned if the entire risk could not be underwritten privately.

I do not want to underestimate for a moment the extreme statement I have just made. I do want to say, however, I think it is premature not to go ahead with legislation that will make it possible to get legislation but I think it is premature to conclude in any way there is no private market capacity for the political risk involved here.

What I do think could be said: It is very complex to get this kind of insurance. Along those lines, I would like to refer to provisions of S. 2053 which creates some incentive for obtaining insurance in the private sector. The statement is the insurance will become available or the guarantee will become available for any occurrences or events that will not be available for events which are within the coverage of usual and customary insurance.

I would like to emphasize there is no usual or customary insurance available for the type of risk contemplated in this investment. I would strongly recommend the changing of the phrasing for investment security whether it be insurance or guarantee to conform much more substantially with the type of risk involved.

In that respect, I would like to turn to the provision of bill S. 2053 as presently phrased. I think it is similar to H.R. 3350 in this regard and focus on the type of event that would trigger the Government's contingent liability in this particular situation. The event would be either entering into force with respect to the United States-the mere entering into force might trigger liability as an event was modified by the following language:

The implementation of that particular treaty in the manner under terms and conditions which are "Not substantially the same as the condition of the license or permit."

That doesn't mean there is insurance against the unlikely occurrence an enterprise or authority would order out of business American companies. That is insurance against any scheme which alters in any way the license or permit obtained from the U.S. Government under this proposal.

I am not saying it is right or wrong. It is not my business to go ahead and insure against those types of discrepancies. But I hope the committee will be fully aware under the present language of the two bills that would be insurance against any alteration over the kinds of the investments status of an ocean-mining investment.