NEW YORK (Dow Jones) - The slow economy and falling insurance rates have produced a rare one-two punch for property-casualty companies, said Mark Watson, chief executive officer of Bermuda-based Argo Group International Holdings Ltd.

Commercial insurance clients have been cutting back on coverage as they close factories, dismiss workers and cut costs, even as the sellers of the coverage continue to cut rates to retain their customers. While insurer revenue typically shrinks with a contracting economy, and also declines when the industry is in a trough of its boom-and-bust pricing cycle, the two factors haven't socked the industry at any single point in memory — until now, Mr. Watson said.

Industry surveys show that the price of US commercial coverage has been declining since 2004 —with exceptions only for specialised corners of the market, like coverage of offshore energy operations in the Gulf of Mexico. There's no sign of a significant pricing reversal ahead, said Mr. Watson, who has headed Argo, a specialty insurer, for more than a decade.

"Rarely has the bottom of an insurance cycle tracked the bottom of an economic cycle," Mr. Watson said in an interview yesterday. "For the first time, we're actually seeing a reduction in demand with an oversupply" of insurance capacity.

The two factors have produced the first three-year decline in the value of policies sold since 1933, according to data compiled by the Insurance Information Institute.

While some indicators suggest an economic recovery has begun, Mr. Watson said the factors that would prompt a reversal in insurers' fortunes haven't shown much improvement.

"A significant amount of our new business comes from start-ups," he said. " There aren't any. Small business owners are not hiring and not starting new businesses."

While the US unemployment rate has dropped to 9.5 percent, Small business owners are not hiring and not starting new businesses."

While the US unemployment rate has dropped to 9.5 percent, the decline has been linked at least in part to people giving up on looking for work. In fact, the Labor Department reported a decrease of 125,000 non-farm payrolls in June.

Amid the troubles in the economy, a quiet hurricane season last year and a recovery in insurer investment portfolios provided the latest fodder to fuel commercial insurance price declines. Private US property-casualty companies produced an industry-wide underwriting loss of $3.1 billion in 2009, but that was offset by income from investments, according to the Insurance Services Office, and the industry's net income was $28.3 billion. That compares to $3 billion the year before.

Rivals in the industry, including Bill Berkley, the CEO of WR Berkley Corp. (WRB), have argued that insurers will soon have to raise rates and add to their reserves as their years of cost cutting finally catch up to them.

But Mr. Watson said any corrections are bound to be minor, if they occur at all, unless a catastrophic event like a major hurricane or other disaster causes some insurance companies to fail.