Travelers to Buy Aetna Property-Casualty Unit : Insurance: $4-billion cash deal could mark the start of a consolidation wave in another industry. Job cuts are expected.

In a deal that could mark the start of a consolidation wave like the one that has swept the banking industry this year, Travelers Group Inc. on Wednesday agreed to buy Aetna Life & Casualty Co.’s property-casualty insurance business for $4 billion in cash.

Analysts said Aetna was throwing in the towel on a line of business that it could not run profitably and that Travelers--headed by champion cost-cutter Sanford I. Weill--is expected to take advantage of the companies’ geographic and product overlap to cut 3,300 jobs and start saving $300 million a year within two years.

With the acquisition, which is subject to regulatory approval, Travelers would vault from the No. 9 to the No. 4 spot in domestic property-casualty insurance--a business in which, increasingly, size matters.

Insurance has undergone some consolidation recently, but nothing like the merger mania that has struck banking, where more than $60-billion worth of deals have been announced so far this year. Insurance has the same problems of overcapacity, cutthroat competition and slow growth that have forced the banking industry to shrink.

“Insurance companies have all spoken about consolidation, but they all consider themselves to be the surviving entity,” said analyst John Hall of Northington Partners, an Avon, Conn., research firm. “It takes somebody like Sandy Weill to break up the logjam.”

The Brooklyn-born deal maker is building a diversified financial-services powerhouse under the familiar red umbrella logo of Travelers.

Besides its commercial, auto, homeowners and life insurance products, the company offers investment banking and brokerage services through its Smith Barney unit, consumer finance at Commercial Credit, credit cards through Travelers Bank, and mutual funds via Primerica Financial Services.

Weill operates by buying troubled companies cheaply and installing hand-picked managers whom he pays lavishly to meet his profit goals. Travelers itself is an example. The now-131-year-old insurer was struggling when Weill’s Primerica Corp. bought it in 1993. Since then, it has cut its work force in half and seen its stock price more than double.

The same is expected at Aetna. About half of the announced 3,300 job cuts are expected in and around Hartford, where Aetna is headquartered and where New York-based Travelers’ property-casualty lines are situated. The Aetna unit employs 11,600. Travelers has 10,400 property-casualty employees.

If the deal goes through, it would be another blow to Hartford, which prides itself as the capital of the U.S. insurance business but that has witnessed a 15% decline in insurance employment since 1990 because of layoffs and competition from other states, notably Iowa.

Although the deal may draw some political heat because of the layoffs, one analyst asked rhetorically: “Which organization is going to employ more people--one that is prospering or one that is going to go bankrupt? The prospects for both these companies are better today than they were yesterday.”

Aetna, for its part, said in Wednesday’s announcement that it was jettisoning the domestic property-casualty business in order to focus on three areas that it thinks have greater potential for long-term profitability--health insurance, annuities and other retirement investments, and international insurance.

Aetna was vague about its plans for the sale proceeds, said analyst Lauren Koppel of Argus Research in New York. “Management didn’t have a really decisive idea of where to spend the $4 billion,” she said. “It was kind of, ‘We’ll see what comes up.’ ”

Nevertheless, Aetna was praised for dumping a business that has been a drag on earnings. The property-casualty line lost $230 million in the first nine months of this year because of a $506-million charge the company took to boost its reserves against expected industrial pollution claims.

Other “long-tail liability” troubles loom from asbestos claims. Travelers told analysts it may need to take an additional $1-billion charge next year to boost reserves against potential lung disease claims, Hall said.

But overall, the deal is expected to boost Travelers’ 1996 earnings by 5% to 15%, Hall said. For Aetna, the loss of property-casualty revenue will reduce earnings next year, but the company did not say by how much.

Wall Street seemed to react to the near-term earnings impact. Travelers shares leaped $3.75--or 7%--to $58.875, and Aetna lost $3.875 to close at $72. Both companies trade on the New York Stock Exchange.

To finance the deal, Travelers said it would raise $900 million through the sale of preferred stock and $1.5 billion from the sale of bonds. The company also will raise $1.3 billion privately, including a $200-million investment from Aetna itself. Travelers also plans a public stock offering next year.