The Best report found that American International Group had shot past Lloyd's to reclaim its position on the top of a list of 25 E&S carriers, with Zurich in third place and that the growth percentage of Lloyd's premiums between 2001 and 2002 is lagging behind the competition.

A comparison of figures in the most recent A.M. Best report with a similar one published last year indicates that direct premiums written by the Lloyd's market for U.S. E&S business grew 21 percent from 2001 to 2002. Over the same period, E&S premiums written by AIG's Lexington jumped 72 percent to $3.6 billion and American International Specialty Lines' premiums more than tripled, rising to $2.4 billion.

At $6 billion, overall, AIG's premium total eclipsed the Lloyd's total by nearly $2 billion, the report showed. E&S premiums for third-ranked Zurich Group leaped 75 percent.

But while the 21 percent Lloyd's growth figure is also below its 35 percent growth in 2001, its commit-ment is unwavering, according to Lloyd's executives.

In an address here at the annual convention of the Kansas City, Mo.-based National Association of Professional Surplus Lines Offices, Chairman Lord Levene said: "We are the second-largest under-writer of surplus lines business in this country, with a market share of 16 percent. That's a tremendous achievement for what your regulatory system labels ?an alien insurer.'"

Prior to Lord Levene's address, Julian James, director of worldwide markets at Lloyd's, told National Underwriter that the figures in the A.M. Best report for Lloyd's revealed a "consistency" in its commit-ment to the U.S. E&S marketplace. Indeed, figures in Best report dating back to 1988 show that Lloyd's market share has been in range, extending from the mid-teens to low-20s each year.

"Frankly, I was amazed to see some of the other numbers in the report," Mr. James responded when asked about the relative differences between the premium growth for Lloyd's and some top competitors.

Kevin Kelley, chief executive officer of Boston-based Lexington, pointed to the affiliation with AIG as a key reason for his company's substantial jump in volume. "We just have superior access to the business," he said, pointing out that a vast distribution network means that Lexington has sources of U.S. surplus lines business everywhere. "We're in London. We're in Bermuda. And we're in the United States," he said.

Mr. James did point out that Lloyd's underwriters have been looking more closely at relationships with coverholders (who place U.S. surplus lines business for underwriters) and that the number of cover-holder relationships has shown some decline. At the same time, he said, the volume of business placed among those coverholders has increased, he said.

While Mr. James said that the terms coverholder and binding authority are used almost inter-changeably, some people make the distinction between those surplus lines brokers who can issue perform rating and issue documentation?the binding authorities?and coverholders. Coverholders, he said, operate on behalf Lloyd's underwriters, while the rating is done by the Lloyd's underwriters themselves.

Mr. James described a marketwide effort to improve the quality of relationships between coverhold-ers, binding authorities and Lloyd's underwriters. There has been a process of "weeding out" some coverholders in situations where the relationships haven't proved to be as strong as the underwriters would have liked.

"This is all in keeping with the overall drive in the [Lloyd's] market to improve standards," he said.

In spite of strides the Lloyd's market has made, when asked what issues keep him up at night, he responded in the same vein as his U.S. counterparts at the meeting.

"We're still living in a very, very risky world," he said. Taking note of the advancing threat of Hurricane Isabel, he commented, "We, as an industry, are only one event away from serious problems. And frankly, I'm annoyed at all the soft market commentary that's being talked about," he added.

"Some people seem to have forgotten that this industry lost $50 billion in the space of six hours two years ago," he said, referring to the events of Sept. 11, 2001, and suggesting that the industry could not withstand a second similar event.

Mr. James said that one can "easily make the case" that the industry needs to go through a period of sustained profitability. "We shouldn't be embarrassed that we want to make returns for our shareholders," he said.

When asked to contrast the talk of a softening market reported on in the trade press with the reality he experiences when dealing with underwriters in London and at NAPSLO, he said, "I have yet to find one underwriter at Lloyd's or outside that is prepared to admit that they're reducing prices. They con-sistently say much the same--that the talk of prices softening is just not happening."

Mr. James said he is "optimistic" that discipline will persist in the market. "But we all need to keep our heads," he said.At Lloyd's, he said, current activity is devoted to the planning cycle for 2004, and the leaders are fix-ated on one goal?making an underwriting profit. Neither Lord Levene nor Lloyd's CEO Nick Prette-john are worried about the size of the market, he said.

A comparison of this year's A.M. Best report with two prior reports reveals the following noteworthy additions, omissions, and movements:

? Zurich Group, which ranked sixth two years ago, based on 2000 E&S premium writings, maintained its third place spot for the second year.

? ACE INA Group jumped from a 16th-place ranking two years ago to eighth last year, and seventh this year.

? New players among the top 25 included Bermuda-based Arch Capital, the IFG Companies (including Burlington Insurance) and HCC Insurance Holdings.

? Allianz Group (Fireman's Fund), Swiss Re Group, and PMA Group, which ranked 16th, 20th, and 22nd, respectively, in last year's report, are no longer among the top 25.

While it's interesting to see who ranks where in terms of premium volume, the main thrust of the A.M. Best report--as it has been for nine prior years?is to compare the financial strength of the E&S mar-ket with the rest of the p-c industry. In that vein, Best concluded that a composite of surplus lines in-surers had a higher average rating?an "A" rating--than the p-c industry in total, which has a median rating of "A-minus."

The report also noted that the combined ratio for a composite of 62 domestic surplus lines insurers has been 10 points better than the overall industry, on average, over the last five years.

Since 1973, Best also reports that surplus lines companies' insolvency rates have mirrored those of traditional insurers with a frequency less than 1 percent. Noting, however, that surplus lines insurers had a higher rate of failure from 1988 to 2003, Best attributed this to the "increased failure of program writers that heavily used managing general agencies, to which they granted too much authority for binding business.

Best's "Annual Review of the Excess & Surplus Lines Industry" was commissioned by the Derek Hughes/NAPSLO Educational Foundation?a foundation set up in 1991 to improve industry education about surplus lines.