(Bloomberg) — Travelers Cos., the only property and casualtyinsurer in the Dow Jones Industrial Average, said second-quarterprofit fell 26%, missing estimates, on catastrophe costs.

Net income declined to $683 million, or $1.95 a share, from $925million, or $2.41, a year earlier, the New York-based insurer saidtoday in a statement. Operating profit, which excludes someinvestment results, was $1.93 a share, 14 cents below the averageestimate of 26 analysts surveyed by Bloomberg.

Chief Executive Officer Jay Fishman, 61, has sought to maintainprofitability by charging some customers more for coverage assevere weather increased claims. Shareholders sometimes look pastquarterly jumps in such costs, because insurers can boost rates asa result, according to Cathy Seifert, an analyst at Standard &Poor's Capital IQ.

“Investors will accept catastrophe losses if they think that itis a catalyst for price increases,” Seifert said by phone beforeresults were announced.

Catastrophes cost Travelers $436 million in the quarter beforetax and net of reinsurance, compared with $340 million a yearearlier. The prior period also benefited from realized investmentgains and tax and legal settlements.

Claims jump

Hail and windstorms pounded the U.S. from the Rocky Mountains tothe Tennessee Valley in June, causing a spike in insurance claims,broker Aon Plc said. More than 300 tornadoes hit the U.S. lastmonth, compared with 125 a year earlier. Allstate Corp., thelargest publicly traded U.S. auto and home insurer, has saidsecond-quarter catastrophes cost $936 million before taxes.

Travelers fell 3.4% to $92 at 7:49 a.m. in New York, before thestart of normal trading. The insurer had climbed 5.2% to $95.26this year through yesterday, compared with the 2.9% advance by the30-company Dow.

The insurer's book value, a measure of assets minus liabilities,rose to $75.32 per share from $73.06 at the end of March, as thecompany bought back stock.

In June, Fishman highlighted how his strategy of charging somecustomers more for coverage and buying back stock boosted return onequity, leading to Travelers' out-performance over otherfinancial-services stocks. The comments may have been meant topersuade shareholders that the insurer was an attractiveinvestment, even as a looming increase in interest rates stand tobenefit banks and life insurers more, said Charles Sebaski, ananalyst at BMO Capital Markets.

Fed rate

Federal Reserve policy makers may raise interest rates in 2015,ending more than five years of keeping short-term borrowing costsnear zero.

An increase would have a more immediate benefit for banks,Sebaski said. Property-casualty insurers like Travelers will takeyears to roll over their bond portfolios into higher- yieldingsecurities, he said.

Industrywide, the annualized yield on their investments slippedto the lowest level in almost five decades, according to a reportfrom the Property Casualty Insurers Association of America and ISO,a unit of Verisk Analytics Inc.

Travelers' net investment income rose to $695 million from $687million a year earlier. Returns on private-equity investmentshelped mitigate lower reinvestment rates in its fixed-incomeportfolio, the company said.

Fishman expanded in Canada last year by buying auto insurerDominion of Canada General Insurance Co. from E-L Financial Corp.The acquisition helped increase policy sales to $6.16 billion from$5.82 billion a year earlier.

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