Aon Benfield's analysis coincides with a report late last month from insurance-ratings agency A.M. Best that said the reserve cushion after industry releases in 2012 will most likely be exhausted due to soft-market pricing in recent years.

At the same time, Keefe, Bruyette & Woods said it was surprised by the strength of 2012 first-quarter reserve releases, but agreed with A.M. Best that the industry likely would be unable to replicate that performance in future quarters.

In another report, Stifel Nicolaus said the industry is “flirting with inadequacy,” pointing to numbers that indicate continued weakening.

According to the report, consolidated reserves stood at more than $573 billion, just $5 billion above what the firm believes to be a sufficient reserve level.

Ratings agency Standard & Poor's took it a step further, analyzing reserves that were released in 2011 and questioning whether reserves from recent accident years were released prematurely.

S&P says the industry released $13 billion in reserves in 2011, up from $10 billion in 2010, as the industry responded to heavy losses in the first half of 2011.

But in its report, titled, “U.S.—Based Property/Casualty Insurers Have Stepped Up Releasing Reserves, Especially in Commercial Lines,” S&P suggests that insurers have been releasing reserves for long-tail commercial lines for accident years 2008, 2009 and 2010, which the ratings agency says may be premature on the part of insurers.

S&P says reserve releases increased across most types of commercial-insurance business irrespective of the liabilities' duration. “As of Dec. 31, 2011, almost all commercial lines had released reserves from accident years 2008-2010,” says S&P. “The exceptions were the workers' compensation and, to a lesser extent, product liability lines, which actually strengthened their reserves modestly in 2011.”

Speaking to its view of releasing reserves for longer-tail lines in recent accident years, S&P says, “We generally view these releases as premature because little time has passed since they were underwritten, which limits the information available to analyze reserves for these unseasoned businesses.”

S&P continues, “A commonsense approach calls for cautious and conservative reserving for recent accident years, especially for long-tail commercial lines, because of the inherent volatility of these businesses and the difficulty of projecting future claims at an early stage of reserving.”

IMPLICATIONS ON PRICING CYCLE; WHAT TO EXPECT IN 2012

In a statement, Stephen Mildenhall, chief executive officer of Aon Benfield Analytics, says recent strong reserve releases have created a “headwind” against a broad market hardening, which has continued into 2012's first quarter with insurers releasing an additional $4.2 billion in reserves. He adds, though, that “the forecast is for the winds to abate over the next four to six quarters….”

Ultimately, for all of the discussion and analysis, experts' reserve evaluations amount to a best-guess based on the extent of their calculations.

Brian Alvers, Aon Benfield's head of Americas Actuarial, points out that despite the loss activity during the first half of 2011, no one knows what insurers will actually book and there is no telling if reserves will be deficient or not for that period.

David Paul, principal with ALIRT Insurance Research says that while analysts' conclusions are indeed based on estimates calculated from available data, “from a broad perspective, they are directionally correct” in concluding that reserves are beginning to diminish.

That reality, however, may not translate into a hard market.

“There could be enough surplus in the industry to make-up for [deficiencies] and not damage the industry's balance sheet,” says Paul.

He adds that no company is in the business to lose money, but an insurer might decide that it's in its best interest to use surplus to gain market share instead of directing it toward reserves, “but it's difficult to say what will happen.”

Anya Khalamayzer contributed to this story.