Lloyd's of London, long the largest alien market for U.S. surplus lines risks, is seeing sharp increases in U.S. premium volume and a slight expansion of its market share, while other alien insurers are watching their share of the U.S. surplus lines market shrink, insurance regulators and surplus lines market observers say.

Like their U.S.-domiciled counterparts in the nonadmitted market, Lloyd's syndicates have benefited from a tightening market, recording a roughly 26% jump in surplus lines gross premium volume to $2.40 billion last year from $1.90 billion the previous year.

The growth has continued into this year and is partly a function of shrinking capacity among U.S. nonadmitted markets for such lines of coverage as property catastrophe, directors and officers liability and difficult products liability.

Other non-U.S. insurers, meanwhile recorded a roughly 22% decline in gross premium volume to $940.0 million last year from $1.20 billion in 1999, according to figures compiled by the National Assn. of Insurance Commissioners.

A variety of factors explains the drop, including insurer mergers and acquisitions; cutbacks in underwriting of U.S. risks; and changes in U.S. regulators' trust fund requirements for alien companies, which may be leading some to form U.S.-licensed subsidiaries, regulatory and market sources say.

Overall, Lloyd's and other alien nonadmitted markets are gaining slightly in their share of the U.S. surplus lines market, brokers and market analysts say.

"I wouldn't call it dramatic, but it's been a steady increase in the flow of business as the market has firmed," said Les Ross, executive vp with Tri-City Insurance Brokers Inc. in New York. "Is it a huge tidal wave? No."

Lloyd's dominance of the surplus lines landscape remains unchanged. Lloyd's underwriters' $2.40 billion in 2000 gross premiums represents 24% of the total U.S. surplus lines market, and Lloyd's syndicates collectively represent the single largest surplus lines writer in each of the largest U.S. states, state surplus lines association data show.

In California, for example, Lloyd's accounted for $225.0 million, or 21.2%, of the state's total $1.06 billion in surplus lines premiums for the first six months of this year, far outstripping the $52.3 million written by all the other alien insurers, according to the Surplus Lines Assn. of California.

Lloyd's share of the U.S. surplus lines market has also expanded steadily since the market implemented its reconstruction and renewal plan in the mid-1990s, according to figures compiled by A.M. Best Co. While Lloyd's held about 20% of the surplus lines market in the late 1980s, its market share dropped to 14% in 1994 and 1995, as the rebuilding plan was taking hold. Since then, Lloyd's portion of the market has grown slightly almost every year and had reached 18% by year-end 1999, according to Best.

The premium growth Lloyd's saw during 2000 proceeds this year as the market continues to tighten, said Wendy Baker, president of Lloyd's America Inc., the market's New York-based U.S. arm.

Lloyd's syndicates saw 10% to 50% rate increases on business they wrote last year, and underwriters this year are being asked to write larger participations on risks as capacity from U.S. markets becomes tighter, Ms. Baker said.

Where Lloyd's falls short of U.S. competitors, she conceded, is in its relatively cumbersome distribution system, in which a risk may be passed along a chain of brokers before reaching a Lloyd's underwriter. Lloyd's is asking non-U.K. brokers to become Lloyd's brokers, cutting down the number of hands submissions must pass through; so far, it has signed up 11 brokers, including two in the United States, she said.

U.S. surplus lines brokers cite capacity among Lloyd's attractions.

While the "vast majority" of business is still written by U.S. nonadmitted insurers, "we are doing more business with Lloyd's than we have in the past," said Neal Abernathy, executive vp with Aon Corp.'s Swett & Crawford Group unit in Atlanta. For property placements, "they still have some capacity left, where most domestic carriers do not have much capacity in catastrophe-prone areas."

While Lloyd's U.S. surplus lines business has grown steadily in recent years, that of all other alien insurers has fluctuated and appears to have shrunken since 1998.

Excluding Lloyd's, regulated alien insurers-those listed quarterly by the NAIC's International Insurers Department-saw their U.S. surplus lines market share shrink to a 10-year low of 8% in 1997 and then jump to 12% the following year before sliding to 11% in 1999, according to A.M. Best.

Excluding Lloyd's syndicates, the number of alien insurers writing surplus lines business in New York has been falling for 10 to 12 years, according to Daniel F. Maher Jr., executive director of the Excess Line Assn. of New York.

Non-U.S. insurers exited the market during that period for a number of reasons, including that they were not writing enough business to justify a market presence; that U.S. risks were underpriced; and that they acquired U.S.-licensed units to take over the business, Mr. Maher noted.

A change in state regulators' rules on policyholder trust funds may also have pushed a small number of alien companies out of the market, observers say.

Last year, the NAIC, following regulatory changes in Louisiana and New York, began requiring non-U.S. insurers to maintain trusts with a minimum of 30% of gross surplus lines liabilities on business written after year-end 1997, in addition to the previous trust minimum of $5.4 million.

For some alien insurers, committing an ever-larger amount of money to a trust fund may be proving less attractive than simply setting up or acquiring a U.S.-domiciled company.

"You would be tying up less capital by setting up a subsidiary," Mr. Maher said.

As the market tightens, though, Mr. Maher said he is seeing a comeback in the number of non-Lloyd's alien insurers seeking to do business in New York.

"It makes no sense to pump up volume in a market that is fundamentally underpriced," but that may change as prices rise, he said.