94-03: The Use of A.M.Best and Company's Ratings by Lenders
* This bulletin was repealed by 08-05
RESCINDED AND INOPERATIVE
From: Jay Angoff, Director
Re: The Use of A.M.Best and Company's Ratings by Lenders
Date: June 13, 1994
The Department hereby rescinds Bulletin #87-14, and states its revised position concerning the use of Best's ratings by lenders. Section 375.937.1, RSMo provides that a lender or lienholder may not require a borrower to acquire or renew an insurance policy "through a particular insurer or group of insurers or agent, broker or group of agents or brokers." Furthermore, section 375.937.2(1), RSMo prohibits a lender from unreasonably rejecting an insurance contract furnished by a borrower for the protection of the property securing the credit or lien. However, a rejection is not unreasonable "if it is based on reasonable standards, uniformly applied, relating to the extent of coverage required and the financial soundness and the services of an insurer."
The Department believes that the ratings issued by A.M. Best and Company are "uniformly applied," and therefore may be utilized by lenders in such a manner as not to violate section 375.937.1 or section 375.937.2(1), RSMo. However, an unreasonable, unfair, or discriminatory use of Best's ratings could constitute a violation of these sections. The following examples serve as two (2) illustrations of an unreasonable, unfair, or discriminatory use of Best's ratings.
First, if a lender were to require the use of an insurer with a specific rating while excluding insurers with higher ratings in order to effect the use of an insurer or insurers with whom the lender is affiliated or has commercial arrangements, this would constitute a violation of section 375.937. Secondly, if a lender required the use of insurers receiving only an "A++" (the highest possible rating), in order to eliminate many financially sound insurers, that may constitute a violation of section 375.937, RSMo if the lender were affiliated with or had commercial arrangements with an A++ rated insurer. With respect to other fact situations, a case-by-case analysis would have to be performed to determine if a violation of section 375.937 has occurred.
In conclusion, the Department rescinds Bulletin #87-14. The Department no longer has a general policy precluding the use of Best's ratings by lenders. Instead, the Department will evaluate on a case-by-case basis whether a lender's requirement of a Best's rating is unreasonable, unfair or discriminatory by determining whether the lender is using Best's ratings as a means of directing insurance business to insurers with whom the lender is affiliated or has commercial arrangements.