USLICO Corp. said yesterday that it will sell its property-casualty insurance business to a Pennsylvania insurer for $135 million and acquire that firm's life insurance operations for $17 million.

For Arlington-based USLICO, the deals with Harleysville Insurance Group Inc. will complete a process, begun in the mid-1980s, of returning the company exclusively to the life insurance business.

At the same time, the transaction would greatly expand Harleysville's territory -- from 19 states to 34 -- while giving it a strong presence in the Midwest, where automobile insurance rates are much less of a political issue than they are in the firm's current East Coast markets, particularly Pennsylvania and New Jersey.

"They want to focus on life insurance and our goal is to do the same for the property-casualty business," said Harleysville spokesman Fred Baker. "It seemed like a pretty good deal both ways."

USLICO acquired the property-casualty business when it bought its own corporate parent, International Bank, in 1985. It has already sold the banking companies it acquired in that deal. "We have always had the objective of getting back to life insurance" alone, but it was necessary to "rehabilitate" the property-casualty companies to make them salable, said USLICO Chairman Charles V. Giuffra. "We did rehabilitate them," and the companies -- Hawkeye-Security Insurance Co. and two subsidiaries -- have been showing healthy profits, Giuffra said.

Hawkeye and its subsidiaries write private auto and homeowner's insurance, commercial auto and liability coverage, worker's compensation and some fire insurance and other coverages. They operate in 15 states from Indiana to Idaho and are headquartered in Des Moines.

Harleysville will pay $110 million in cash and $25 million in a note payable over seven years. In addition, it will return to USLICO 500,000 USLICO shares now held by Hawkeye. Hawkeye and its subsidiaries had revenue of approximately $130 million last year, compared with about $550 million for USLICO's life insurance operations.

Harleysville, based in Harleysville, Pa., is a holding company for four East Coast property-casualty companies. The USLICO deal is the most recent of a series of acquisitions for the company. Baker said Harleysville had tried earlier to expand, but had had tough going. Its strategy now, he said, is to find "quality operations ... where we could make a purchase and provide those companies with centralized data processing and administrative support and let the companies operate essentially autonomously."

USLICO will pay Harleysville the $17 million for Harleysville Life Insurance Co. in the form of a seven-year note. Harleysville Life had $17 million in net premiums written last year -- a very modest sum by life insurance standards -- and is not expected to have any immediate effect on USLICO's financial statements. However, Giuffra said its products, annuities and universal life insurance, fit well with USLICO's offerings and USLICO expects that the administrative efficiencies it can bring because of its larger size make the small company an attractive acquisition.

The deals are contingent upon the firms receiving the necessary approvals from state regulators.