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Travelers Charts Safe Course: Best in Class

ST. PAUL, Minn. ( TheStreet) -- The near collapse of American International Group (AIG) under the weight of troubled mortgage deals raised questions about other insurers.

While AIG dove deep into a risky market, other insurers stuck to conservative strategies, helping them weather the weak economy. Among them is Travelers (TRV - Get Report), which has plotted a steady course during the past two years and might be the best option for those looking for a stable insurance pick.

Insurers take premiums from clients and invest them in stocks and bonds to provide the growth necessary to meet future obligations. In the best cases, insurers reap large enough returns to invest the surplus and enhance underwriting profits. However, during times of volatile interest rates and stock prices, both activities become more difficult.

As stocks plunged in 2008, Hartford Financial (HIG - Get Report) and Progressive (PGR) suffered large losses from investments on their income statements. Progressive lost $807 million while Harford lost $6 billion, which led to a net loss of $2.7 billion in 2008. These losses are substantial for shareholders and those insured by these companies because they eat into funds that cover the future obligations of policies they write.

Travelers prudent investment strategy helped it avoid much of this mess. Chief Executive Officer Jay Fishman and Chief Investment Officer William Heyman oversee a portfolio that's heavily weighted toward fixed income, with only a small fraction invested in equities.

The benefits of this strategy are twofold. First, it allows the company to adjust its bond portfolio based on its liabilities, reducing risk. Second, it allows the majority of investment losses to bypass the income statement.

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