Diversified insurer Liberty Mutual Group said it would buy Safeco for $6.2 billion in a deal that would make Liberty Mutual the fifth-largest U.S. property and casualty insurer.
Each share of Safeco will be exchanged for $68.25 cash, nearly a 51 percent premium over Safeco's closing stock price of $45.23 on Tuesday.
Liberty Mutual is the sixth-largest property and casualty insurer in the United States, based its 2007 direct written premium of $20.2 billion.
Safeco had 2007 direct written premium of $5.9 billion.
"Safeco's operations and product mix complement our existing Agency Markets operations," Liberty Mutual Chairman Edmund Kelly said in a statement.
Safeco would become part of Liberty Mutual's Agency Markets business unit.
Combined, the organization would have about 15,000 independent agencies.
The deal is subject to approval by Safeco shareholders, as well as regulatory approvals and conditions.
The transaction, which is not subject to financing conditions, is expected to close by the end of the third quarter.
Shares of Safeco jumped 46.2 percent, or $20.89, to $66.12 on the New York Stock Exchange.
Before that rise, the shares traded at about 7.5 times earnings, below the sector's average multiple of 18.5.
Safeco is scheduled to report first-quarter earnings on April 30.
In the fourth quarter, Safeco's net income fell by nearly a third because of competition in auto insurance and losses from California wildfires.
The company had been facing increasing competition from rival car insurers such as ProgressiveCorp, which had been dropping prices to gain market share.