Reinsurer Munich Re AG on Monday said it would pay $742 million to buy Hartford Steam Boiler from its embattled parent company, American International Group Inc.
The purchase price is considered well below HSB’s value - estimated at between $1 billion and $2 billion by the Financial Times - as AIG is forced to sell off units to pay back a US government bailout loan. “These are financial conditions that we wouldn’t have dreamed of a short time ago,” Munich Re’s chief financial officer Joerg Schneider told reporters in a conference call. Munich Re said it planned to complete its purchase in the Q1 of 2009.
HSB, based in Hartford, Connecticut, is a specialty unit focused on engineering insurance and inspection. Peter Roeder, a Munich Re board member responsible for US business, said HSB was an attractive, low-risk investment because of its specialized business. “The acquisition of HSB is a perfect fit for our US strategy,” Roeder said. “It is another step in developing our position in high return specialized niche segments.”
The US government is forcing AIG to shed or sell some interest in units globally as a means to pay back the US government’s $150 billion (€107 billion) rescue package announced last month to help it pull through the credit crisis. That bailout had replaced a previous $85 billion loan from the US Federal Reserve as it became apparent the insurer needed more funds to survive.
Reinsurers sell backup coverage to other insurers, spreading risk so the system can handle large or widespread losses. Munich Re also operates Ergo, one of Germany’s biggest insurers, and Munich Reinsurance America Inc. Shares of Munich Re were down 0.2% at €106.16 in Frankfurt trading Monday. (The Economic Times)