"A.M. Best believes that Lloyd's benefits from its high-profile global brand and network of licenses and representative offices. Lloyd's has a leadership profile in many specialist classes of business and a strong relationship with its main market--the United States," the agency said.

"A.M. Best expects current market conditions to be particularly advantageous for Lloyd's because it has a strong profile in many of the lines of business that are now experiencing the most marked improvements in premium rates," Best said.

As for capitalization, "A.M. Best believes that Lloyd's maintains an excellent level of capital on a risk-adjusted basis. Funds supporting underwriting at year-end 2001 increased 17.5 percent on year-end 2000 to $31.8 billion."

The agency noted that Lloyd's has "taken steps to rebuild the Central Fund [used to pay claims of insolvent syndicates] in the wake of the World Trade Center loss by increasing the premium levy from 1.1 percent to 2 percent."

On the negative side, however, "in A.M. Best's opinion, Lloyd's recent closed-year performance has been weak. The 1997 year began the loss-making trend, and 1999, the most recent closed year, produced a loss of 19.2 percent of capacity."

Best said it "expects weak performance to continue when the 2000 and 2001 years are closed, with inadequate rates and the WTC loss having a severe impact on both years of account."

Best said that "although Lloyd's acted swiftly and decisively following Sept. 11, 2001, the sheer magnitude of the loss-- Lloyd's current estimate is $8.95 billion gross and $2.89 billion net--leads to an element of uncertainty."

However, Best said that this year and in 2003, the rating agency "expects a marked improvement in Lloyd's performance, assuming normal loss experience."

As for reform of the market's structure, Best said that it "believes that the Lloyd's Chairman's Strategy Group may have compromised its original objective to increase the simplicity of the market for capital providers. The CSG franchise proposals are recognized as a constructive blueprint for the future direction of the market, although A.M. Best believes that practical implementation of the proposal to manage the market from a commercial perspective will be a significant challenge."

In looking at reserves for Equitas, Lloyd's runoff reinsurer, "A.M. Best believes that Lloyd's is unlikely to be adversely affected by Equitas in the foreseeable future. However, uncertainty over the long-term development of Equitas' reserves remains a negative factor in the rating."

For the future, Best said it expects "a healthy return on capital employed in 2002 and 2003, subject to normal loss experience," as well as "maintenance of the Central Fund at a minimum of the pre-WTC level?."

"We are delighted that A.M. Best has reaffirmed our rating," said a Lloyd's representative. "Perhaps more significantly, Best has now assigned Lloyd's a stable outlook, reflecting the market's continuing recovery from the impact of Sept. 11 and strong growth."

The Lloyd's official, responding to Best's comments that implementing the franchise concept contained in the Chairman's Strategy Group reforms will be a "significant challenge," said "we believe it is a radical, but sensible proposal--one that will lead to tighter control of underwriting and greater consistency of financial performance. As such, it is a challenge we are more than ready to meet."