NEW YORK (Bloomberg) — American International Group Inc., the insurer bailed out by the US, agreed to sell a Canadian unit to Bank of Montreal for about C$375 million ($305 million), as AIG accelerates sales to repay a $60 billion government loan.

The purchase of AIG's Canadian life insurance business will add about 400,000 clients and 300 employees, and will increase Bank of Montreal's earnings within a year, the Toronto-based bank said yesterday in a statement.

AIG is being forced to sell dozens of businesses, including a jet-leasing company and insurance operations in the US and Japan, to repay a US government loan. The New York-based-insurer raised $1.8 billion in asset sales before today's announcement, including an equipment insurer and a private bank.

"It'll be quite difficult indeed for AIG to sell sufficient assets at sufficient prices to pay down its government debt," said David Havens, an analyst at UBS AG's credit trading desk.

The deal values the Canadian operations at "slightly above" book value, or assets minus liabilities, said David Monfried, an AIG spokesman in New York. The final purchase price will adjust if the unit's worth changes before the acquisition is completed, AIG said in the statement.

For Bank of Montreal, Canada's fourth-biggest bank, the cash purchase will boost insurance revenue more than fourfold and may expand its asset-management business by selling investment products to insurance clients.

"It makes sense as a way for Bank of Montreal to build out their wealth-management platform," said Ian Nakamoto, director of research at MacDougall MacDougall and MacTier Inc. in Toronto, which manages about C$3 billion, including Bank of Montreal shares.

Bank of Montreal's insurance operation accounted for 4.3 percent of non-interest revenue last year. AIG's Canadian life business, based in Toronto, had C$571.4 million of revenue in the first six months of 2008, according to an October 3 letter to customers. That compares with Bank of Montreal's C$222 million in insurance revenue for the year that ended Oct. 31.

Canadian banks have been pushing to boost insurance sales even as federal law prohibits them from selling policies in bank branches. Royal Bank of Canada, the country¿s largest bank, began opening insurance offices adjacent to its branches in 2005.

The transaction "does put the bank in good stead if the Canadian Bankers Association can lift the restriction of branch sales of insurance", Dundee Securities Corp. analyst John Aiken wrote in a note today to clients.

The price-to-book value for the transaction is about 1.1, compared with an average of 1.3 for Canada's four publicly traded insurers, Aiken wrote.

The price compares to ratios at comparable US insurers including 0.59 for the shares of Birmingham, Alabama-based Protective Life Corp. and 0.83 for Kansas City Life Insurance Co., according to Bloomberg data.

The purchase is expected to be completed by June 1, AIG said in a statement. The business will operate under the BMO Insurance brand.

AIG shares closed up four cents (2.6 percent) at $1.58 in New York Stock Exchange trading yesterday.

BMO Capital Markets advised Bank of Montreal on the transaction, while J.P. Morgan Securities worked with AIG.