NEW YORK (CNN/Money) - St. Paul Cos. agreed to buy Travelers Property Casualty Corp. Monday for more than $16 billion, in a deal that the companies said would create the nation's second-largest commercial insurer.

The new company will have an unmatched presence in nearly half of all U.S. states, with more than $100 billion in assets and $15.6 billion in combined premiums. Only American International Group Inc. (AIG: down $0.40 to $57.91, Research, Estimates) will be larger.

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St. Paul will retain the corporate headquarters and its top executive, Jay Fishman, will serve as CEO, while Travelers will gain a slight control of the combined company's board and hold the chairman's position for the next two years.

Under terms of the deal, holders of Travelers' A and B class shares would receive 0.4334 share of St. Paul for each share held. That values Travelers' shares at about $15.94, or about 1 percent below their closing price Friday, when the A shares closed off 7 cents to $16.03 and B shares closed down 10 cents to $16.06. Travelers' spokesman Keith Anderson said the deal was a merger of equals that did not have a premium, and that the exchange rate was calculated on a five-day average of the two companies' stock prices.

With Travelers' having just more than one billion A and B shares outstanding, the deal would be worth about $16.06 billion based on Friday's closing prices. Travelers shareholders will have about 435 million shares in the new company, while St. Paul has 228 million shares outstanding.

The announcement said the combined company would have total assets of $107 billion, shareholders' equity of $20 billion, total capital of $26 billion and net written premiums of $20 billion.

"I expect the transaction to enhance growth opportunities and enable the combined company to benefit from improved efficiencies and economies of scale," said Jay Fishman, St. Paul's chairman and chief executive, in a statement.

The new company will be called The St. Paul Travelers Companies. The combined company is expected to pay an annual dividend of 88 cents a share on each new share. That would represent about a 19 percent increase from the 8-cent quarterly dividend Travelers now pays, but a decrease from the $1.16 a share St. Paul now pays on an annual basis. But St. Paul shareholders are to receive a special dividend prior to the closing, so that in 2004, shareholders of The St. Paul will receive dividends amounting current indicated annual rate.

The combined company's corporate headquarters will be in St. Paul, Minn. The specialty insurance lines, which will be known as St. Paul Specialty, will be based in St. Paul. The St. Paul's international business will continue to be based in London. The combined company's commercial lines and personal lines business will be consolidated under the Travelers brand and based in Hartford, Conn.

Travelers Chairman and CEO Robert Lipp, 65, is to serve as the company's executive chairman until Jan. 1, 2006, at which time it is expected that Fishman will assume the chairman title as well. Travelers also will hold 12 seats on the combined company's 23-person board.

The companies' statement said one motivation for the deal was greater efficiencies and economies of scale, but it did not give any estimated cost savings, job cuts, or special charges that were expected under the merger.

The transaction represents one of the largest property and casualty insurance industry mergers since Citigroup Inc. (C: down $0.52 to $45.91, Research, Estimates) bought Travelers in 1998 for $38.6 billion, heralding a new era of financial consolidation and ending decades-old federal regulations prohibiting banks and insurance company mergers.

Citigroup eventually spun Travelers off, about a year and a half ago, to shareholders amid a downturn in the industry, but still owns nearly 10 percent of the company's shares.

The transaction should add to the combined company's earnings, executives said in a conference call. Travelers third-quarter profit rose 28 percent to $426.1 million, while St. Paul's profit more than tripled to $214 million, helped by rising premiums.

St. Paul expects to earn about $150 million in additional income by 2006 from new revenue generated by cross-selling the companies products and achieve cost savings of $225 million by the same period.

The company anticipates taking a $350 million restructuring charge when the deal closes, expected during the second quarter of next year. But Fishman said that charge did not include any adjustments to either companies' reserves against asbestos claims.

Merger activity in the P&C space has been held in check in recent years primarily by fears over growing asbestos claims against U.S. companies. Both Fishman and Lipp said their companies conducted extensive due diligence on the other's books and were comfortable with the exposure to additional asbestos claims going forward

Citigroup Global Markets and Lehman Brothers Inc. advised Travelers on the transaction. Goldman Sachs & Co. and Merrill Lynch & Co. advised St. Paul.

St. Paul (SPC: up $1.38 to $38.15, Research, Estimates) shares rose 3 percent, while Travelers class A (TAP.A: up $0.02 to $16.05, Research, Estimates) and class B (TAP.B: down $0.01 to $16.05, Research, Estimates) shares each slipped less than 1 percent on the New York Stock Exchange.  

-- Reuters contributed to this story.