Weaker investment results and customers who are cutting back in a tough economic environment helped hold back insurer Travelers Cos.' (TRV) fourth-quarter earnings, though the company is seeing some welcome signs of better things to come.

"The world seems like a riskier place," said Chief Executive Jay Fishman, which is helping contribute to the company's efforts to raise prices, after several quarters of a soft insurance market.

Travelers, the second-largest U.S. commercial insurer behind American International Group Inc. (AIG), posted net income of $801 million, or $1.35 a share, down from $1.06 billion, or $1.64 a share, a year earlier. The latest results include net investment income of $438 million after tax, compared with $696 million after tax in the year-earlier quarter. Investment income was hurt by $138 million in net realized investment losses in its non-fixed income portfolio, compared with net realized gains of $6 million in the year-earlier quarter.

But the company projected 2009 earnings well below analysts' estimates, seeing profit excluding investment losses of $4.50 to $4.90 a share. On average, analysts surveyed by Thomson Reuters expected $5.59 a share.

Excluding that, earnings fell to $1.58 a share from $1.63 a share while revenue decreased 6.9% to $6.02 billion. Analysts expected earnings of $1.46 on revenue of $6.36 billion.

Fishman said Travelers believes it is well-positioned in the "current uncertain economic environment" because of its strong balance sheet and debt-to-capital ratio.

CreditSights Inc. analyst Rob Haines said via an email message that Travelers' strong earnings represent "evidence of a real turnaround," and that property/casualty insurance is probably "the only financial sector that has started to rebound."

The combined ratio, the percentage of each dollar the company collects in premiums it pays out on losses and expenses, rose to 91.8% from 90.5% excluding items such as catastrophes. The ratio increased on pricing pressures and a small number of large losses that exceeded expectations.

Net premiums written edged up 0.4% to $5.39 billion. Insurance prices rose in several lines of commercial coverage, but the price increases were partially offset by customers who cut back their coverage due to the weak economic conditions. Return on equity, an important measure of profitability, slid to 12.8% from 16.1%.

As the insurance sector has been roiled by its exposure to the troubled stock and debt markets, Travelers has emerged as a company that, despite also suffering from investment and catastrophe losses, is seen as one that can take advantage of its rivals' weaknesses. Sandler O'Neill analyst Paul Newsome said recently that Travelers was his top pick in the industry because of its light subprime-mortgage exposure relative to its peers and potential to win over big commercial insurance accounts from weakened AIG.

The company said it has no investment exposure to Bernard Madoff, and total insurance exposure of $150 million, net of reinsurance, mostly in its management liability business, in accounts with investment losses or other exposures, including investment advisors, non-profit entities and pension funds. It expects aggregate losses to be less than $75 million pre-tax. Overall, Travelers expects its management liability business to be profitable in 2009.

Travelers' shares were up 6% at $39.82 in recent trading. The stock is down about 13% this month amid the swoon in financial stocks, making up the entire drop over the past year.

-By Lavonne Kuykendall, Dow Jones Newswires; 312-750-4141; lavonne.kuykendall@dowjones.com

-By Kerry E. Grace, Dow Jones Newswires; 201-938-5089; kerry.grace@dowjones.com

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