Travelers (NYSE:TRV) has given investors solid returns in 2013, with a jump of 29% outpacing most of its peers among the Dow Jones Industrials (DJINDICES:^DJI) by a substantial margin. But with competition getting fiercer, will the favorable conditions that created solid profits for Travelers also lead AIG (NYSE:AIG), Allstate (NYSE:ALL), and Progressive (NYSE:PGR) to try to capture more of the increasingly lucrative property and casualty insurance market?

For the most part, Travelers couldn't have asked for a better year than 2013, with an almost nonexistent hurricane season helping to keep losses down compared to storm-ravaged years in the recent past. Yet favorable cycles in the insurance market inevitably lead to more competition, and AIG, Allstate, and Progressive have all worked hard to carve out larger parts of the overall market and take share away from the Dow component insurer. Moreover, another threat reared up for Travelers when interest rates started to rise, as the drop in its bond portfolio value hurt the company's book value and raised questions about future losses. Could 2014 see more of the same pressures? Let's take a closer look at Travelers' prospects for the coming year.

Travelers' building, St. Paul, Minn. Source: Wikimedia Commons.

Stats on Travelers

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Source: Yahoo Finance.

Has Travelers played itself out?
At least from the perspective of analysts, Travelers doesn't look like it has much growth left in its future. With earnings expected to contract somewhat, the target price is only about 1% higher than where the stock currently trades.

Much of Travelers' future depends on unpredictable factors like the weather. During 2013, initial estimates had called for a fairly active hurricane season. Yet those fears proved unwarranted, as relatively few storms made landfall and were generally weaker than in past years. Trying to predict weather events a year in advance is pretty much impossible, but investors clearly believe that losses won't stay this benign forever.

One thing that's easier to predict is that falling losses will build competitive pressure to reduce premiums. In particular, competition in the personal auto-insurance market has gotten tough, with rivals Progressive and Allstate spending huge amounts on marketing campaigns featuring their respective products. In raising deductibles and boosting premiums, Travelers has had trouble holding onto its business and getting new business. Travelers is way behind Allstate and Progressive in market share, but new initiatives could help push Travelers higher up in importance in the industry. Yet in other policy lines, Travelers faces challenges from a newly revamped AIG, which has largely completed its reorganization and now is aiming at capturing a greater share of the property-casualty market. AIG is no longer in the Dow, but it still commands great importance in the insurance industry.

Even with tepid growth expectations, recent strategic moves from Travelers could help create new opportunities. Earlier this month, the company said it had completed its buyout of the Canadian insurance unit The Dominion, with plans to rename it Travelers Canada. International expansion could help Travelers broaden its risk profile to avoid excessive concentration on a single market.

In the end, Travelers' performance in 2014 will likely depend on two things: what happens with its loss experience and what happens to interest rates. With Janet Yellen's appointment to lead the Federal Reserve looking more likely, favorable interest rate trends could help give the Dow Jones Industrials component the boost it needs to keep earnings from contracting too much next year. That could give Travelers solid growth opportunities over AIG and its other rivals and make investors happy in 2014.

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Fool contributor Dan Caplinger owns warrants on American International Group. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends American International Group and Progressive. The Motley Fool owns shares of American International Group and has the following options: long January 2016 $30 calls on American International Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.