Munich Re said it planned to complete the purchase in the first quarter of 2009, and will assume $76 million of HSB’s outstanding capital securities.

HSB is a specialty unit focused on engineering insurance and inspection. It is the parent company of Hartford Steam Boiler Inspection and Insurance Co.

HSB had been rumored to be next on the selling block as AIG sheds or sells some interest in units globally as a means to pay back the US government’s $150 billion rescue package announced last month to help it pull through the credit crisis. The $150 billion package replaced an earlier loan of $85 billion after it became apparent the insurer needed more funds.

AIG said in October it would sell off a number of business units to repay the original $85 billion government loan.

The company has not specifically disclosed the assets it would sell or the expected prices from the sales. However, AIG has said it plans to retain its US property and casualty and foreign general insurance businesses, and plans to retain an ownership interest in its foreign life insurance operations.

As of December 5, AIG had already sold interests in three businesses, and two weeks ago was said to be in the final stages of selling its US personal lines business and one other operation.

An AIG spokesman could not be reached for immediate comment, but in a statement, HSB Group President and Chief Executive Officer Douglas Elliot said the deal will “offer our clients the reassurance that they’re looking for in today’s uncertain market environment.”

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,” Mr Roeder said. “It is another step in developing our position in high return specialized niche segments.”

“These are financial conditions that we wouldn’t have dreamed of a short time ago,” Munich Re Chief Financial Officer Joerg Schneider told reporters in a conference call. “The sales price is, considering the profitability of the acquired company, very low.”

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 AIG rose 7 cents, or 4.4 percent, to $1.67 following the announcement December 22.