Hartford Steam Boiler could be separated from its embattled parent company, American International Group Inc. in the first quarter of 2009.
Reinsurer Munich Re AG it will pay $742 million for HSB, a specialty unit focused on engineering insurance and inspection.
Peter Roeder, a Munich Re board member responsible for U.S. business, said HSB was an attractive, low-risk investment because of its specialized business.
"The acquisition of HSB is a perfect fit for our U.S. strategy," Roeder said. "It is another step in developing our position in high return specialized niche segments."
The U.S. government is forcing AIG to shed or sell some interest in units globally as a means to pay back part of a bailout loan.
Last month, the U.S. government said it would provide a $150 billion rescue package to AIG to help it remain in business amid the worsening credit crisis.
That replaced an $85 billion loan from the U.S. Federal Reserve as it became apparent the insurer needed more funds.
Business
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.
