AP reports that Liberty Mutual, the nation's largest provider of workers' compensation insurance and its sixth largest property-casualty insurer, is buying Safeco (NYSE: SAF) for $6.1 billion, a 51% premium over Tuesday's close.

Having spent years working for Liberty Mutual in the 1990s -- part of it for Gary Gregg, who heads the Agency Markets unit that will manage Safeco -- I know that this deal may well be the largest in its history. Safeco sells $5.9 billion in insurance policies a year, while Liberty booked annual premiums of $20.2 billion. Safeco has posted poor earnings and its stock has tumbled recently. Bloomberg News reports that Safeco's auto unit posted a loss at the end of 2007 because of rising medical claims and repair costs, leading to a 33% decline in fourth-quarter profit and a 19% decline in its stock in 2008 before this morning's announcement.

It looks like there will be more consolidation in the personal lines property casualty industry. Seventy one percent of analysts tracking insurers of homes, cars and businesses expect a "significant increase" in mergers in 2008, according to an Accenture (NYSE: ACN) report based on 108 stock analysts in December and January. Candidates for acquisition could include Progressive Corp. (NYSE: PGR), Mercury General (NYSE: MCY), The Hanover Insurance Group (NYSE: THG), and The Commerce Group (NYSE: CGI).

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.