Munich Re Agrees To Buy Hartford Steam Boiler Inspection and Insurance Co.

Dec. 22--Munich Re has agreed to buy the Hartford Steam Boiler Inspection and Insurance Co. from AIG for $742 million in cash, the German reinsurance company said on its web site early this morning.

The deal for the old-line Hartford specialty insurer is expected to close in the first quarter of 2009, Munich Re said. It would help American International Group Inc. repay some of the tens of billions of dollars in government loans made this year to bail out the insurance giant. AIG bought HSB for $1.2 billion in 2000.

Like HSB, which was founded in 1866, Munich Re was founded in the 19th century, and like HSB it has a significant engineering services business. Munich Re is one of the world's largest reinsurance companies.

"The acquisition of HSB is a perfect fit for our US strategy: It is another step in developing our position in high return specialised niche segments," said Peter Röder, Munich Re Board member responsible for US business, in the press release.

Munich Re America will control HSB, the release said. What that means for HSB's operations remains unclear. HSB has operated somewhat autonomously under AIG, maintaining its brand and its highly profitable niche in the industry. HSB has 377 employees in Hartford, and 2,469 worldwide.

The sale price reflects depressed market values for insurance companies across the board. HSB had 2007 after-tax profits of $158 million, Munich Re said. Still, the price is higher than HSB's book value. AIG is under pressure to repay loans that were part of the recent government bailout package of as much as $150 billion.

Munich Re and HSB praised each other in written comments.

"Munich Re offers HSB new opportunities to grow our business profitably and expand our offerings in North America and globally," said Douglas G. Elliot, President and Chief Executive Officer of HSB Group.

Richard H. Booth, a longtime Connecticut resident who was HSB chief executive until 2007, is now vice chairman at AIG and is also chairman of HSB. It was unclear this morning what role if any Booth would have with HSB under Munich Re.