Study: Most Insurers' Reserves Okay

However, the insurers with the 12 largest reserve increases?all large national carriers?raised reserves by $3.7 billion, indicating that the remaining carriers lowered reserves by about $1.2 billion.

Joe Petrelli, Demotech's president, said this means that under-reserving "does not appear to be an industry-wide, everybody's guilty type of problem." Mr. Petrelli noted that "the smaller companies seem to be reserving adequately."

However, Jim Auden, senior director of Fitch Ratings in Chicago, noted that the study looks only at developments in the first six months of 2003. "There could be a flood of third- and fourth-quarter reserve strengthening, as there was last year," he pointed out.

"Also, companies may be having reserve issues, but they haven't reported them yet because it takes time for the issues to materialize," Mr. Auden added. "Fitch believes that industry reserves are deficient, but not to the point where there is a large capital adequacy issue," he said.

The Hartford had the most reserve strengthening, according to the study, as three of the top four insurers that increased reserves are Hartford subsidiaries. Other companies with substantial reserve additions include CNA's Continental Casualty Co., Zurich American Ins. Co. and Travelers' Gulf Insurance Company.

Demotech's Mr. Petrelli said that he expects no more than "minor tinkering" of reserves during the third quarter. "The study also reveals that insurers that do have an under-reserving problem recognize the fact and seem to be addressing it," he added.