Best says it expects the impact of reserve releases to lessen going forward: “While there are select lines where reserving strength remains, A.M. Best continues to believe the overall industry's previous reserve cushion is largely exhausted because of sizable reserve releases over the past six calendar years.”

The ratings agency adds, “With overall industry-reserve redundancies expected to continue through 2012, albeit to a lesser extent, the overall reserve deficiency will continue to increase, and core, undiscounted reserves will remain inadequate.”

Despite the challenges in 2011, the industry's policyholders' surplus declined only 1.4 percent to $562.7 billion, Best says. In 2010, policyholders' surplus stood at a record $570.4 billion.

Additionally, the industry saw net-premiums written increase 3.5 percent to $442 billion.

“While the overall U.S. P&C industry demonstrated its resiliency yet again in 2011 and remains well capitalized, the year's results—and expectations for 2012—will vary by segment,” Best adds.

Looking ahead to 2012, Best says pricing continues to improve in personal lines and in catastrophe-exposed property accounts, but some commercial lines are still “fundamentally underpriced, and the segment continues to be negatively impacted by weak macroeconomic conditions and decreasing reserve-adequacy levels.”

According to online-insurance exchange MarketScout's latest monthly Market Barometer, commercial lines did see positive rate movement in January, as rates crept up by 1 percent.

“The 1 percent composite increase in January matched the increase for December 2011,” says MarketScout CEO Richard Kerr. “Workers' Compensation and Catastrophe Exposed Property continued to exhibit the largest increases with upward adjustments of 2 percent.”

By coverage class, all lines were up or flat, similar to December.

Business Interruption, which was up 1 percent in December, was up 2 percent in January. Umbrella/Excess and Commercial Auto were both flat in December and were up 1 percent in January.

Workers' Comp still showed upward momentum in January, but not as much as in December. Rates were up 2 percent in January for this line compared to 3 percent in the month prior.

By coverage class, small accounts were up 1 percent, down from 2 percent in December, while medium accounts were up 2 in January compared to 1 percent in December.

Large accounts were unchanged (up 1 percent), while jumbo accounts remained flat on a month-to-month basis.

Responding to the MarketScout survey, Meyer Shields, a financial analyst with Stifel Nicolaus, says in an analyst's note, “We see insurers' deteriorating calendar-year results as the primary catalyst for rate increases, and we expect these increases to accelerate as favorable-reserve development subsides.”

Despite the rate increases, and an expectation that 2012 will see improved operating performance, Best says in its report that a traditional hard market is still a ways off. Best says insurers “still face a challenging environment, with relatively weak underwriting results and lackluster investment returns expected to influence operating results over the next year.”

Best says its outlook for commercial lines remains negative, while personal lines and U.S. reinsurance are stable.