Munich Re, the world’s largest reinsurer, has agreed to buy American International Group’s (AIG) engineering insurance and inspection business for $742 million as it seeks to boost its presence in the US.

The German reinsurer is paying AIG about third less than the US group paid for the business, HSB, eight years ago, amid a bleak outlook for insurers and the economy as a whole.

The company’s biggest business is the Hartford Steam Boiler Inspection and Insurance Company, which provides insurance to cover the cost of lost business and repairs when equipment breaks down.

AIG is in the process of selling many of its businesses as it seeks to repay a US government rescue loan of $152.5 billion, needed to keep the group afloat following billions of dollars of losses on insurance and investments relating to subprime mortgages.

AIG, which bought HSB, which is headquartered in Hartford, Connecticut, in 2000 for $1.2 billion in shares, has also put its airplane leasing and global life insurance units up for sale.

Joerg Schneider, Munich Re’s chief financial officer, said: “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.”

The acquisition follows Munich Re’s purchase of The Midland Company, the US insurer, in October 2007 for $1.3 billion and Sterling Life Insurance, the health care insurer, for $352 million in December, 2007.

The transaction is expected to be completed in the first three months of next year.

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