By Michael Shields and Maria Sheahan
FRANKFURT (Reuters) - German reinsurer Munich Re
For AIG, once the world's largest insurer, it is the first of several planned asset sales to raise funds to repay a $150 billion U.S. government bailout. AIG shares rose 5 percent in morning trade, making them the top gainer among U.S. insurers <.KIX>.
HSB's main asset is the Hartford Steam Boiler Inspection and Insurance Co, which provides coverage for a range of risks, including the cost of lost business and repairs when equipment breaks down.
In 2007, HSB posted an after-tax profit of $158 million and had gross premiums of $904 million.
"The purchase seems low-priced and matches (Munich Re's) growth strategy in the United States well," LBBW analyst Robert Mazzuoli said in a note. "But we hope that Munich Re can buy HSB without burdens inherited from AIG."
AIG bought Hartford Steam Boiler for $1.2 billion in 2000.
Edward Liddy, AIG's chief executive since the bailout, on Monday expressed confidence that the insurer would be able to sell a series of other major assets, adding that the company hopes to repay the government loan in 2009.
He said the sale process had been slowed by the credit crisis and that if conditions continue to deteriorate, "It's anyone's guess" what would happen."
But he also told CNBC television, "We're very encouraged by the level of interest" in AIG assets. The company's U.S. personal lines business is seen as a likely candidate for the next sale.
Munich Re said a clause in its purchase agreement would protect it from further investment losses at HSB. "If (HSB's) equity capital increases, Munich Re will pay more, and if capital declines, it will pay less," Chief Financial Officer Joerg Schneider told reporters in a conference call.
Munich Re said it plans to finance the transaction, expected to close at the end of the first quarter of 2009, entirely from existing resources.
HSB will start boosting Munich Re's earnings next year, even if no synergies are realized by then, Schneider said.
"We estimate Munich Re's earnings per share will rise by some 0.30 euros due to the HSB earnings after deducting financing costs," Merck Finck analyst Konrad Becker said in a note, adding he saw only limited synergy potential.
Schneider said the purchase would help boost revenue in the medium term and was not driven by a push for cost cuts.
"Owing to our strong capital base, this acquisition will not affect our share buyback program or the planned dividend of 5.50 euros per share for the financial year 2008," he said in a statement.
Munich Re shares were up 0.9 percent at 107.33 euros at 10 a.m. EST, while the German blue-chip DAX index <.GDAXI> was down 0.34 percent.
(Additional reporting by Irene Preisinger in Munich and Paritosh Bansal in New York; Editing by Jon Loades-Carter and John Wallace)
