NEW YORK (Bloomberg)—Travelers Cos. Inc., the top gainer among financial firms in the Dow Jones Industrial Average last year, said fourth-quarter profit fell 30% as catastrophe costs climbed and investment gains narrowed.

Net income slipped to $894 million, or $1.95 per share, from $1.29 billion, or $2.36, in the same period in 2009, the New York-based insurer said today in a statement distributed by Business Wire. Operating profit, which excludes some investment results, was $1.89 a share, beating the $1.66 average estimate of 19 analysts surveyed by Bloomberg.

Insurers’ losses from natural catastrophes in 2010 surged 90% to $38 billion, from $20 billion a year earlier, according to Chicago-based insurance broker Aon Corp.

Travelers’ $16 million in losses on from natural disasters in the last three months of 2009 was the second-lowest fourth- quarter total since 2004.

The end of 2010 “was a reasonably active quarter for catastrophe losses,” said Brian Meredith, an analyst at UBS A.G. who has a “buy” rating on the stock. “We had some winter weather on the East Coast and throughout the Midwest where you’re going to see some incidence of loss activity.”

Results in the last period of 2009 also benefited from $103 million gain on the sale of a stake in actuarial data provider Verisk Analytics Inc.

Travelers climbed 14% in the past year through yesterday in New York Stock Exchange composite trading, compared with the 17% rise in the 30-company Dow. The insurer said today that its board authorized an additional $5 billion share repurchase program.

Municipal bonds

CEO Jay Fishman, 58, put most of the company’s fixed-income investments in municipal bonds, sidestepping the losses from mortgage-backed securities that hobbled competitors such as American International Group Inc. Travelers held more than $41 billion of municipal debt at the end of September.

State and local government bonds lost 4.5% in the fourth quarter, including invested interest, their worst performance since the first quarter of 1994, according to Bank of America Merrill Lynch’s Municipal Master Index.

“There are some very legitimate concerns that you’re going to see higher defaults and lower values in the future for these bonds,” said Paul Newsome, an analyst at Sandler O’Neill & Partners L.P., who has a “hold” rating on the stock.

Auto insurance

Mr. Fishman has invested in car insurance to take advantage of drivers’ eagerness to buy coverage on the Internet as commercial clients scale back. Progressive Corp., the No. 4 U.S. auto insurer said last week that net income in the three months ended Dec. 31 beat analysts’ estimates as the company added customers through direct channels such as the Internet.

Job cuts and plant closings left corporate customers in need of less protection, forcing insurers to compete for the remaining business. U.S. commercial insurance rates fell 5.4% in the last three months of 2010 and have dropped every quarter since 2004, according to the Council of Insurance Agents and Brokers. U.S. unemployment averaged 9.6% in 2010, the highest since 1983.