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1400 American Lane,

Schaumburg, Ill., 60196-1056;

847-605-6000; fax: 847-605-6011;

1997 1996

Gross premiums $351,319,459 $360,091,511

Non-admitted $317,272,143 $328,396,607

Commercial risks 100% 100%

Net premiums $30,990,196 $32,537,225

Paid-in capital $4,100,000 $4,100,000

Capital & surplus $95,725,290 $75,680,250

Employees 0 0

Combined ratio 111.7% 120.8%

Net income $4,059,974 $250,862

Best's rating A+ A+

S&P rating AA+ AA+

Despite lower overall premiums, thanks to the competitive market, Steadfast Insurance Co. is seeing steady growth in business and big profits from its key specialties, executives say.

After seeing premium growth slow from 1995 to 1996, Steadfast's premium volume actually declined in 1997.

The Zurich Insurance Co. subsidiary's gross premiums dipped to $351.3 million in 1997, down 2.4% from the previous year. Direct non-admitted premiums fell to $317.3 million in 1997, down 3.4%.

Still, Steadfast's premium was large enough to rank it No. 4 on the Business Insurance list of the largest surplus lines insurers.

Although premium volume is down, Steadfast remains "thrilled with what's going on right now," says Bryan Salvatore, vp and director of marketing in Zurich-American Insurance Co.'s specialty lines division in New York.

That's because the Schaumburg, Ill.-based insurer's key areas -- umbrella liability, employment practices, a miscellaneous professional liability area known as "specialized professions" and its primary casualty area -- are performing well in a soft market as they help Zurich-American meet specific customer needs that can't be met with admitted products.

"We think these areas are going strong, and we think it's largely because our commitment has been to focusing on our brokers' and our customers' needs," Mr. Salvatore said.

While gross premium volume might have fallen, Steadfast's net income increased in 1997 to almost $4.1 million, up dramatically from $250,862 in 1996, a jump in profits that Mr. Salvatore attributes to its key specialties.

In the specialized professions areas, there has been a dramatic growth in business as new exposures emerge.

"Specialized professions, which is miscellaneous professional liability, has doubled in the past year. We've been more aggressive," said Michael Smith, assistant vp at Zurich-American Specialties in New York. He heads the area.

Mr. Smith described the specialty as "professional liability for non-doctors, lawyers and accountants. It's basically everybody else."

"These days we see a lot of management consultants, temporary placement. . .we're writing outsourcing agencies, we're also writing third-party administrators," said Mr. Smith.

"Basically any area where there's a possibility of an error or omission, that's what we cover," he said.

Steadfast offers up to $50 million in limits with a $10,000 minimum premium for specialized professions coverage.

There is "a lot" of competition in the market, " 'a lot' being a relative term," Mr. Smith said, with some of it coming from the admitted market.

"One of the ways we distinguish ourselves is by our servicing to the broker community and also being creative in a lot of the coverages," he said.

The need for that creativity is emphasized as new professions with E&O risks emerge. For example, Steadfast is writing professional liability coverage for risks such as businesses that create computer encryption services, and Internet World Wide Web site designers.

In cases where the risk is a new one, Mr. Smith said it's necessary to sit down with the broker and be creative in designing the coverage, "because (such coverage) doesn't exist."

"That makes it interesting and frustrating at times but I think we do that pretty well," he said. "These are the kinds of things you didn't see 10 years ago."

Another hot area for the surplus lines insurer is employment practices liability insurance. Steadfast offers up to $50 million in EPL capacity, "and we pretty much are looking at companies with a minimum of 200 employees and up," said Lisa McElroy, an assistant vp at Zurich-American in New York who heads the EPL area.

"We basically look at every industry anyone can think of," she said. "There isn't any industry we wouldn't look at. The book is pretty diversified in terms of types of companies."

Having offered EPL coverage since 1993, Steadfast was an early player in that market. Now, even though employment practices remains an "immature" market with only about 15% of businesses buying the cover, Ms. McElroy noted that it acts "like a mature product in a saturated market" with considerable pressure on rates.

One way Steadfast competes in that tight market is with a package of EPL loss control services it offers free.

The services include a hotline fax service to provide personalized advice on employment situations, a self-administered computerized employment labor law audit, employment practices training, a corporate governance newsletter and an online, interactive source of EPL legal information.

In the umbrella area, where Steadfast also can provide $50 million in capacity, the surplus lines unit allows Zurich-American to meet specific customer requirements or fill in program gaps that call for non-admitted paper. "Basically, our target tends to be the Fortune 1000, Forbes 500 kinds of businesses," Mr. Spencer said. "So it's a fairly wide spectrum."

The company also specializes in the medical products and pharmaceuticals industries, said Bruce Spencer, a senior vp at Zurich-American Specialties in New York. That umbrella area also is seeing considerable market competition. Price competition continues, Mr. Spencer said, with prices "tending to be a little bit down but not necessarily by leaps and bounds, at least on our book."

"The competition seems to be more in meeting certain kinds of customer needs," he said. "We see new things now like third-party products recall, some of those types of things. And we tend to get a rational price for that."

Steadfast is eligible to write as a non-admitted insurer in every state, as well as in Puerto Rico and the District of Columbia. It's also an admitted insurer in Delaware.

Among the commercial risks the company specializes in insuring are environmental impairment liability, health care, professional liability, railroads, primary casualty, excess and umbrella, architects and engineers and directors and officers.

As an open brokerage unit, Steadfast has a wide distribution network. While it gets a lot of business from major brokers, the company also enjoys strong relationships with some wholesale and regional brokers.

In the specialized professions area, for example, Aon and J&H/Marsh & McLennan bring in the most business, though regional brokers and wholesalers also bring business Steadfast's way, Mr. Smith said.

"We're probably a little unique in that regard because miscellaneous professional liability, everybody has a piece of that," he said.

A majority of Steadfast's EPL business comes from wholesalers, Ms. McElroy said, "but it also comes from the alphabets and it also comes from the regionals, in that order."

Most of the EPL business flows from New York and California, she said. "California is just that way because it's indicative of the fact that people are buying there because it's such a litigious state and it's very favorable for employees."

On the umbrella side, "We tend to be very highly concentrated in national or major regional wholesalers or wholesale/retail markets," Mr. Spencer said. "Although we're trying to reach out and touch more people."

All Steadfast's premiums written on a direct non-admitted basis in 1997 was in commercial lines, as in 1996.

Policyholder surplus increased to $95.7 million, up 26% over the previous year. Steadfast's combined ratio was 111.7% in 1997, improved from 120.8% in 1996.

Steadfast has no employees, all staff being Zurich-American employees. It has an A+ rating from A.M. Best Co., unchanged from the prior year, and an AA+ rating from Standard & Poor's Corp., also unchanged.

Steadfast's officers are: Constantine P. Iordanou, president and CEO; Loren J. Alter, vp and treasurer; Ronald A. Anderson, vp; David A. Bowers, vp; and Barry J. Gilway, vp.