NEW YORK (Bloomberg)—Travelers Cos. Inc., the insurer added to the Dow Jones Industrial Average last year, cut the top end of its full-year profit forecast after second-quarter results missed analysts' estimates as the economic slump pressured sales and catastrophe costs rose.

Net income fell to $670 million, or $1.35 a share, from $740 million, or $1.27, in the same period a year earlier, when there was more stock outstanding, the insurer said Thursday in a statement distributed by Business Wire. Operating profit, which excludes some investment results, was $1.39 a share, missing the $1.49 average estimate of 20 analysts surveyed by Bloomberg.

Travelers, led by CEO Jay Fishman, 57, is competing for business in a market that has been in decline after job cuts in construction and manufacturing reduced demand for business insurance. Travelers said full-year operating profit will be $5.20 to $5.45 a share, compared with the range of $5.20 to $5.55 the insurer gave in May.

“A lot of people are concerned over the current competitive state of the property/casualty pricing cycle,” said analyst Daniel Theriault at Portales Partners L.L.C. “I just don't see a catalyst for the stock in the near future.”

Travelers was little changed this year through Wednesday in New York Stock Exchange composite trading, compared with the 2.9% slide in the 30-company Dow.

Policy sales

Policy sales rose about 1.5% to $5.69 billion from $5.61 billion in the year-earlier period. Travelers earned 4.8 cents per each premium dollar in the three months ended June 30, compared with 6.8 cents in the same period last year on higher costs from natural disasters.

“The continuing difficult economic environment” weighed on results as renewal premium increases fell below the insurers' expectations, Mr. Fishman said in the statement.

Catastrophes costs more than doubled to $439 million before taxes in the three months ended June 30, compared with $200 million in the year-earlier period.

The insurer's book value, a measure of assets minus liabilities, rose 4.1% from the end of March to $55.67 per share. Net investment income rose 16% to $762 million from $658 million in the year-earlier period. The insurer posted an investment loss of $31 million compared with a gain of $13 million.

Travelers benefited from the release of $384 million from the funds it previously reserved for claims on policies sold in prior quarters. That compares with a benefit of $261 million in the same period last year.

Reserve releases

“Reserve releases are an increasingly valuable component” of insurers’ earnings as claims have been lower than expected, said Amit Kumar, an analyst at Macquarie Capital Inc.

Industrywide, policy sales fell 1.3% to $105.1 billion in the three months ended March 31, the Property Casualty Insurers Assn. of America said June 23. Until the slump began three years ago, quarterly sales had fallen only twice since 1987. U.S. property/casualty sales have dropped for 12 straight quarters through March 31 as insurers lower rates to win business.

Travelers increased its dividend twice in the last year and repurchased shares after remaining profitable in the financial crisis. Mr. Fishman put most of the company’s fixed-income investments in municipal bonds, sidestepping the losses from mortgage-backed securities that hobbled competitors.

Chief Investment Officer William Heyman told investors in May he doesn’t lose sleep over the company’s bond portfolio even as municipal borrowers add to deficits. Most U.S. states are strong enough to support debt loads, as long as politicians have the will to raise taxes and cut benefits when necessary, he said.