A favorable loss environment the past few years has served to mask underlying financial issues for property/casualty insurers, a new report from Keefe, Bruyette & Woods contends.

KBW’s 2011 Annual P&C Industry Reserve Review is based on 2010 data for the domestic P&C insurance industry as compiled by A.M. Best. This year, the review notes that Berkshire Hathaway Insurance Group,  Travelers Group, and State Farm Group all recorded the favorable reserve development in 2010, but finds industry reserves as a whole slightly deficient. One large contributor to the sector’s underperformance was the performance of American International Group, which reported $5.1 billion of adverse reserve development in 2010.

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