NEW YORK (Bloomberg) — US property and casualty insurance sales dropped the most in five decades last year as businesses cut spending and reduced coverage amid the recession, an industry trade group said.

Policy sales fell 3.7 percent to $419 billion, a third straight annual decline, the Property Casualty Insurers Association of America said yesterday in an e-mailed statement. The industry group began tracking data in 1959, and 2009's decline is the largest on record, exceeding the 1.3 percent reduction in 2008.

"The recession cut into many of the drivers of premium, things like retail sales, payrolls, the number of autos that get sold," Michael Murray, an assistant vice president for financial analysis at Verisk Analytics Inc., who collaborated on the study, said today in an interview. "The recession took a terrific bite out of the demand for insurance. At the same time, prices in insurance markets are falling as a consequence of the imbalance of supply and demand."

US commercial rates have dropped each quarter since 2004 and fell 5.6 percent in the last three months of 2009, according to the Council of Insurance Agents and Brokers. Corporations have cut jobs and closed worksites, reducing spending and the need for coverage, and the unemployment rate climbed to a 26-year high of 10.1 percent last year. "As we ended 2009, there were some signs that an economic recovery was under way," John Degnan, Chubb Corp.'s chief operating officer, said in a January conference call. "It will be a while before economic conditions are sufficiently robust to generate premium growth, which is likely to lag any economic recovery."

Chubb's policy sales dropped six percent to $11.1 billion last year, the Warren, New Jersey-based insurer said in a Jan. 28 statement.

Policyholder's surplus, a measure of insurers' assets minus liabilities, increased 12 percent to $511.5 billion as investments gained value and net income rose in 2009, according to the trade group's statement. Insurers' net income climbed to $28.3 billion from $3 billion in 2008, when Lehman Brothers Holdings Inc. collapsed and Hurricanes Ike and Gustav struck the US, contributing to $27 billion in costs to insurers. In 2007, the net income was $62.5 billion, the trade group said.

Last year, the US escaped hurricane damage and only two tropical storms made landfall. In 2009 the Standard & Poor's 500 Index climbed 23 percent after dropping 38 percent in 2008. US corporate debt, including reinvested interest, returned 26 percent in 2009, compared with negative 11 percent in the previous year, according to Bank of America Merrill Lynch's US Corporate & High Yield Master index.