Compared with life insurers and many other financial-services companies, shares of insurance firms that cover property damage and legal liability, known as property/casualty companies, have weathered the market downturn well.

But the industry's profit fell 96% last year, and it would have lost money overall if insurers hadn't released billions of dollars from reserves. Reserve releases, common in the industry, reflect an insurer's judgment that it had set aside more to pay claims than it now expects to need.

This year might not see the same boost from reserve releases. John Finnegan, CEO of Chubb, told investors in January that the firm expects "a good deal less" in reserve releases for 2009. "I mean after a while, you can't sustain" recent levels. Chubb last week reported lower first-quarter profits, due partly to falling premiums and investment losses.

Lowered reserve releases would cut into earnings and leave the industry more vulnerable to other threats to its bottom line, including natural catastrophes, stagnant prices, and the possibility of rising inflation. Investors and analysts will zero in on these issues as firms report results in coming weeks. ACE reports Tuesday afternoon. Travelers reports Thursday morning.

Deciding how much to subtract from or add to reserves is a management judgment call that depends on factors such as inflation and the legal environment. If an insurer later determines its earlier estimates were too low, it has to add to reserves. If it concludes estimates were high, it must report the money as income, which is what's happened recently.

Paul Bauer, a senior analyst at Moody's, estimates the insurers released $14 billion in reserves last year. At Travelers, 34% of net income came from reserve releases in 2008, up from 7.6% in 2007. For Chubb, 31.3% of net income in 2008 was due to reserve releases, compared with 16.2% in 2007.

The percentages of net income grew in part because of declines elsewhere such as in investment income. (Chubb notes that its releases in the first quarter were down as a percentage of operating income.) But those other issues could also persist in 2009. Investment income remains under pressure, and insurance prices remain stagnant, reflecting the lingering impact of a glut of capital fed in part by record industry earnings in 2005 and 2006.

In the event of a major catastrophe -- a Katrina-size hurricane, for instance -- some insurers could need to raise capital amid difficult market conditions, though Robert Hartwig, the head of the Insurance Information Institute, a trade group, notes that property/casualty insurers were able to raise $11 billion in 2008.

Also looming is the worry of inflation, a fear spurred partly by recent government spending amid the crisis.

Commercial insurers, in particular, often sell long-term liability policies that commit them to make payments on claims that could appear years later, so that promises made now, when inflation is low, may prove far more costly. Mario Vitale, a top executive at Zurich Financial Services, says it's not clear when higher inflation will hit but adds, "Everybody believes it's coming."

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