Asbestos and environmental losses will cost the US property and casualty market more than $121bn (£83.5bn), which could lead to AM Best downgrading insurers' ratings.

In a new report, AM Best said commercial insurers' reserves were almost 50% below the level they should be to cope with undiscounted asbestos and environmental liabilities. It predicted the industry would have a $33bn (£22.7bn) shortfall in asbestos liabilities and $24bn (£16.5bn) in environmental liabilities.

AM Best attributed the rising liabilities to a number of unfavourable developments occurring at the same time.

These included a growth in the number of bankruptcies of asbestos defendants, a spreading of asbestos-related litigation to secondary defendants and the recent peak of more serious asbestos-related illnesses.

AM Best said the shortfalls, exacerbated by the economic climate and earnings reduction, could lead to the down-grading of some insurers.