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Munich Re Promises To Keep HSB A Stand-Alone Company

INSURANCE

By KENNETH R. GOSSELIN

December 23, 2008

Weeks of uncertainty over the sale of the Hartford Steam Boiler Inspection and Insurance Co. ended in relief Monday for employees and the city, as the company's next owners pledged to keep the specialty insurer as a stand-alone business and hold employment steady.

Munich Re, which announced plans Monday to buy the old-line insurer from American International Group for $742 million in cash and $72 million in HSB capital securities, said HSB would remain much as it is now with a corporate presence in downtown Hartford, where it has been based since it was founded in 1866.

"We are committed to the Hartford area and this business and we will do everything we can to make sure this company prospers," said Anthony J. Kuczinski, president and chief executive of Munich Re America. "At the end of the day, the management team is going to run it as they did before."

HSB, which sells equipment breakdown insurance, engineered lines insurance and reinsurance, has 377 employees in Hartford and 2,469 worldwide.

The companies said they hoped employment would grow in Hartford but couldn't make the promise given the difficult global economic climate that's fiercely competitive, even more so than a year ago.

HSB, technically owned by HSB Group, which Munich Re is acquiring, hasn't been independent since 2000 when it was bought by AIG for $1.2 billion. But the company continued to be run as though it were a separate company, with its own board.

The sale, if approved by regulators, would help AIG repay some of the tens of millions in government loans made this year to bail out the troubled insurance giant.

"HSB will be part of something different," said Douglas G. Elliot, HSB's president and chief executive. "But HSB is clearly something that is of great value to our customers and clients, and we intend to stay connected to that high quality brand identity."

HSB sells insurance that covers damage to electrical systems, production and mechanical equipment; air conditioning and refrigeration; boilers and pressure vessels; electronics, including computers; business equipment; and communication systems. It also sells policies to homeowners that cover mechanical breakdowns.

Kuczinski said the acquisition fits well with Munich Re's strategy of expanding into niche businesses such as HSB's, which has been highly profitable.

In 2007, HSB had after-tax profits of $158 million. Net written premiums rose from $658 million in 2005 to $803 million in 2007, a 22 percent increase.

The acquisition also was attractive because there isn't a lot of overlap between the two companies, executives said.

Munich Re, one of the world's largest reinsurers, sells to larger companies and has a broad international base of clients. HSB focuses on small and mid-size firms and has been working to expand its global reach.

Where the two companies do share clients, they sell them different products.

"This is as compatible a match as you can get," Kuczinski said.

It is likely that HSB's separate board will continue although discussions still need to take place, Kuczinski said.

Richard H. Booth, a longtime Connecticut resident who was HSB chief executive until 2007, is now vice chairman at AIG and is also chairman of HSB. He would remain with AIG after the transaction is completed, expected in the first quarter of next year.