Furthermore, the report says the situation across all lines may be worse than it appears, as strong Personal Auto redundancies are masking other lines’ less-conservative reserves.

The size of companies’ reserve releases are expected to decline at some point, but “favorable reserve development should continue in 2012,” the report states.

Stifel Nicolaus’ view is in line with recent reports by Keefe, Bruyette & Woods and A.M. Best. Both firms said companies should continue to release reserves through 2012 but that the industry has largely depleted its reserve cushion.

Workers’ Comp is viewed as “the line most vulnerable to adverse development,” Stifel Nicolaus says, noting that even if results improve this year, the line is still likely to “experience adverse reserve development on more recent accident years, which should perpetuate Workers’ Compensation rate increases in 2013.”

At the other end of the spectrum, the report says Private Passenger Auto reserves are at $88 billion—well above the $75.1 billion figure Stifel Nicolaus considers to be the minimum adequate-reserve level.

The analyst firm gave a positive outlook on reserves to Markel Corp., saying “its reserves stand out as overly conservative to both its standard and specialty peers.”

Mercury General received a negative vote of confidence, with Stifel Nicolaus stating the company’s “aggressive reserving practices” expose its 2012 and 2013 earnings estimates to “adverse reserve development.”

While a vanishing reserve cushion would seem to suggest the onset of a hard market as insurers push harder for rate to replenish depleted reserves, the second Stifel Nicolaus report points out the inconsistencies seen in rate increases across various lines.

For example, the report says one line showing less momentum with respect to rate increases is Property Catastrophe, which had seen aggressive price increases in response to high losses in 2011.

Shields says ample supply in the reinsurance market is meeting the high demand for coverage, which is helping to slow. He says recent reports indicate that Property Catastrophe reinsurance-renewal pricing for carriers was lower than many expected.

Regarding rate movement across a broader spectrum of commercial lines, Stifel Nicolaus says rate increases for Workers’ Comp, Commercial Auto Liability, Commercial Multiple Peril and Product Liability should continue to gain traction as underwriting profits deteriorate. Commercial Multiple Peril is described as “volatile” due to catastrophe losses from 2009-2011.

While a small line of business, Product Liability has been unprofitable and continues to display a “consistent track record of overall adverse development and deteriorating...accident-year development,” the report says.

Other commercial-lines coverages are showing improved results, which may indicate a slower pace for rate increases, Stifel Nicolaus says.