Travelers' shares were down marginally at $82.79 in early trade on the New York Stock Exchange. E-L Financial shares rose about 10 percent to C$649.99 - their highest in about six years - on the Toronto Stock Exchange.
The deal will add Dominion's commercial and personal insurance portfolios to Travelers' business in Canada.
It will help E-L Financial, which operates as an investment and insurance holding company, narrow its focus to life and health insurance, and mutual funds and annuity products that it sells through majority-owned Empire Life Insurance Co.
The combined operations will be led by Dominion Chief Executive Brigid Murphy, Travelers said in a statement.
Dominion was the biggest contributor to E-L Financial's operating profit in the quarter ended March 31, accounting for more than a third of its operating profit.
However, E-L's operating income more than halved during the quarter as Dominion was hit by higher claims for automobile and weather-related property losses.
The deal, expected to close in the fourth-quarter, will have no significant impact on Travelers' 2013 earnings, but add slightly to 2014 profit.
Travelers, which has a market capitalization of about 31 billion, said it would fund the transaction through debt or preferred stock financing or a combination of both.
The company said it does not expect the transaction to have a big impact on its anticipated share repurchases for 2013 or 2014.
Skadden, Arps, Slate, Meagher & Flom LLP and Gowling Lafleur Henderson LLP were legal advisers to Travelers.
Reporting by Tanya Agrawal and Anil D'Silva in Bangalore; Editing by Saumyadeb Chakrabarty, Roshni Menon