Primerica will pay dollars 550m in cash for the stake in the struggling property-casualty group and will give Travelers a 50 per cent stake in its own small property-casualty insurer, Gulf Insurance.
Primerica's chairman, Sandy Weill, a Wall Street veteran with an impressive takeover record, will take a major role in re-organising Travelers.
Travelers - which also announced plans to make 3,500 employees redundant - was one of the many American insurers which invested heavily in property during the 1980s to improve yields for policyholders and now finds almost a third of its dollars 15bn portfolio experiencing trouble.
Travelers has also suffered a surge in claims as a result of Hurricane Andrew and will take a charge of between dollars 175m and dollars 225m against its third quarter earnings.
But Mr Weill, whose group also includes a consumer finance subsidiary and a term insurance group, said yesterday that he believed the five-year downturn in the commercial property-casualty business in the US was 'very close to a turning point'.
The deal received a warm welcome from most Wall Street analysts, several of whom had been worried about Travelers' ability to maintain its dividends.
'From Travelers' standpoint it's the best thing in the world,' said Gordon Luce, an analyst at Brown Brothers Harriman.
'They get a smart manager to help them out with a problem. This gives them more capital and keeps the rating agencies away from their door.'
Another analyst added: 'For Primerica, it seems to me at first glance that the only way to make a lot of money from the investment is if the property market or property-casualty turns around.'
News of the deal lifted Travelers' shares to dollars 20.50, up dollars 3, in afternoon trading. Primerica slipped 37.5 cents to dollars 40.50.Reuse content