(Bloomberg) -- Travelers Cos., the only property-casualty insurer in the Dow Jones Industrial Average, said fourth-quarter profit advanced 5.1% as policy sales increased and margins improved.

Net income climbed to $1.04 billion, or $3.11 a share, from $988 million, or $2.70, a year earlier, the New York-based company said today in a statement. Operating profit, which excludes some investment results, was $3.07 a share, beating the $2.54 average estimate of 25 analysts surveyed by Bloomberg.

Chief Executive Officer Jay Fishman has been targeting the company’s less profitable commercial clients for price increases. The goal is to improve margins, either by boosting premium revenue or exiting accounts that were responsible for a disproportionate amount of claims costs.

The approach “has worked for them, and if you look at the profitability, they’re doing well, and they’ve got a relatively high return on equity,” Paul Newsome, an analyst at Sandler O’Neill & Partners LP, said in an interview before the results. “The strategic decision to be disciplined with underwriting, with respect to how they were increasing prices in recent years, has paid off.”

Travelers rallied 24% in the past year through yesterday, beating the increase of about 7% in the 30-company Dow Average.

The return on equity was 16.6%, compared with 15.9% in the fourth quarter of 2013. Book value, a measure of assets minus liabilities, climbed to $77.08 a share from $76.42 on Sept. 30.

Sales Gain

Policy sales rose 3.6% from the fourth quarter of 2013 to $5.84 billion. Travelers charged domestic business insurance customers 2.4% more at renewal in the three months ending Dec. 31. That compares with an increase of about 3.1% in the third quarter.

The insurer posted a combined ratio of 85, meaning it retained 15 cents of each premium dollar after claims and expenses. That improved from a ratio of 87.7 in the fourth quarter of 2013. Catastrophe costs were $41 million before tax, compared with $53 million a year earlier and more than $1 billion in the last three months of 2012 when the company faced claims from Superstorm Sandy.

The gain from reserves widened to $351 million pretax from $259 million a year earlier. Insurers regularly reassess the money they’ve set aside for future claims and can reduce or increase the amount based on their expectation of losses.

Investment Income

Net investment income fell to $637 million from $702 million a year earlier. The company, which invests mostly in bonds, had lower reinvestment rates on the securities and worse results in the non-fixed-income portfolio.

Full-year profit climbed to $3.69 billion from $3.67 billion in 2013. Travelers repurchased $1 billion of its own stock in the fourth quarter and $3.33 billion in the year.

Fishman, 62, said in November that he’d been diagnosed with a neuromuscular condition that that could require him to use a cane to get around. Earlier last year, the company reorganized management after the departure of Bill Cunningham, the former executive vice president of business insurance who is now CEO of IAT Reinsurance Co. Doreen Spadorcia and Alan Schnitzer took on added responsibilities, and report to Chief Operating Officer Brian MacLean.

Special Reports /

Travelers profit climbs 5.1%, beats estimates as sales rise

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