April 17 (Bloomberg) -- Zurich Financial Services Inc.’s agreement to buy American International Group Inc.’s auto- insurance unit may spark more takeovers as sellers accept prices below those commanded before the financial crisis.

Zurich will pay $1.9 billion and assume $100 million in debt to buy AIG’s 21st Century Direct and other auto businesses to increase U.S. Internet sales, the firms said yesterday. The price is about 86 cents for every dollar of book value, a measure of assets minus liabilities, Zurich said.

The ratio may break a logjam in the U.S. insurance industry created last year after Liberty Mutual Group Inc. purchased Safeco Corp. and Tokio Marine Holdings Inc. acquired commercial insurer Philadelphia Consolidated Holding Co. Liberty Mutual agreed to pay 1.8 times book value in April 2008, and Tokio agreed in July to pay 2.8.

“It resets the bar, which will allow some other deals to go forward,” said Michael Costonis, managing director for the North American insurance practice at consulting firm Accenture Ltd. “It’s going to get back to a level of sanity.”

AIG, once the world’s largest insurer, has been forced to seek buyers for its insurance businesses to repay the loan portion of a $182.5 billion federal bailout. The New York-based firm had to ask the U.S. for more cash and a longer timetable to repay the government when its initial plan to raise the funds in two years appeared unlikely to succeed because bids from prospective buyers didn’t meet AIG’s expectations.

‘Great Companies’

“There are some great companies out there that have the potential to do some things, and I wouldn’t be surprised to see that happen now.” said Paul Hopkins, chief executive officer of the Americas for Zurich, in an interview yesterday in New York after the deal was announced. “We had the strength and the discipline to make it happen.” Zurich, based in the city of the same name, is Switzerland’s largest insurer.

Allianz SE, Germany’s biggest insurer, will spend $100 million to increase sales to small businesses, homeowners and drivers in the U.S., said Michael LaRocco, CEO of the firm’s Fireman’s Fund unit, in an interview in January.

QBE Insurance Group Ltd., the largest property and casualty carrier in Australia, has also been expanding in the U.S. It acquired Atlanta-based home insurer ZC Sterling Corp. and Michigan-based North Pointe Holdings Corp. to add small business coverage last year for a combined total of more than $700 million. John Rumpler, incoming chief executive officer of QBE’s Americas division, wasn’t available for comment, spokeswoman Amanda LaPolla said yesterday.

Munich Re

Germany’s Munich Re has also been expanding in the U.S., most recently with the purchase of equipment insurer Hartford Steam Boiler this year from AIG for about $740 million.

U.S. insurers that weren’t hobbled by investment losses may also be looking for acquisitions, said Costonis.

“There’s definitely a select group of U.S.-based insurers that are looking to buy, but they are looking for the right price,” he said, declining to name companies.

Shivan Subramaniam, CEO of Johnston, Rhode Island-based FM Global, said his firm was discouraged from bidding for HSB because of antitrust concerns. Subramaniam said in an interview this week it often makes more sense for U.S. insurers to gain market share in the country by competing for accounts rather than acquiring units. He considered bidding for HSB because it would have added underwriting expertise that would be hard to develop internally, he said.

California, New York

The purchase of AIG’s auto business will allow Zurich and its U.S. home and auto insurer, Farmers Group Inc., to reach the increasing number of consumers who are buying coverage from so- called direct channels, including the Internet, instead of buying from agents. Zurich will become the largest seller of car insurance in California and add customers in states including New York where the company had a smaller presence.

“It’s a price that makes sense,” said Elizabeth Malone, an insurance analyst at Wunderlich Securities Inc. in Baltimore. “They’re buying the foothold on the Internet and buying some meaningful market share.”

Of the 48 U.S. property-casualty insurance transactions since 1999 for which Bloomberg tracked the valuation, the average price-to-book ratio was 1.55.

To contact the reporter on this story: Erik Holm in New York at eholm2@bloomberg.net.

Last Updated: April 17, 2009 08:26 EDT