Net reserve releases by insurers may boost their earnings in 2006 for the first time in several years, said one leading property-casualty insurance analyst.

Morgan Stanley analyst William Wilt wrote this morning that “volatile loss reserves, long a thorn in the side of insurance investors, appear to have passed the tipping point in 2006.”

“Chronic deficiencies have likely turned to redundancies for most companies and earnings in 2006 may actually receive a boost from net reserve releases rather than face a headwind from reserve additions,” he wrote.

Virtually every line of business reviewed showed a net redundant reserve position. “This was no surprise for personal lines, which have shown redundancies since 2003,” he wrote.

But Mr. Wilt termed 2005 the “tipping point” for commercial lines including commercial auto, general liability and workers’ compensation.

“Since we began this effort with the year ending 2001, every major commercial line has shown a reserve deficiency,” Mr. Wilt wrote. “Until now the story had been that the size of the deficiency was declining with each passing year.”

While technology has accelerated the speed with which electronic data arrives, and the reserve report has come about a month earlier than in years past, Mr. Wilt wrote that further data in the summer could alter his views.

Asbestos and environmental liabilities will be of lessening concern in 2006 and 2007. “We don’t think environmental liabilities will resurface as an issue until there is concerted pressure from the EPA, something that is not likely to happen in the next two years,” he wrote.

As for asbestos, trends seem to be swinging in favor of the defendants and their insurers.

In addition to the fact that loss ratios are “dramatically” lower for the years 2003-2005, “projected claims counts are also substantially lower when compared to the years of the soft cycle,” he wrote.

These lower claims counts reflect improved underwriting terms and conditions, which have not yet begun to relax, Mr. Wilt said, citing his contacts in the industry.