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According to the sources, American International Group, Inc. (NYSE:AIG) is in talks with insurance rival The Hartford Financial Services Group Inc (NYSE:HIG), to buy its independent broker-dealer business. The parties involved are optimistic of closing the deal by early August.

The divestment of broker-dealer business by Hartford comes as a result of severe criticism that it has faced from big shareholders like Paulson & Co., to improve its stock price. So as a measure, to improve it has been divesting from several of its businesses, to focus more on core activities.

In March, Paulson & Co. actually praised Hartford efforts to divest, along with requesting them to carry forward this effort, “We support today’s actions, not as a conclusion of the strategic review, but as a first step in creating a clear delineation between The Hartford’s P&C and non-P&C businesses. We are pleased that The Hartford is taking steps to focus on core operations, and to divest or discontinue non-core and capital intensive businesses. While we appreciate the extensive work of The Hartford’s board and management, we do not believe the positive actions announced today address the main problem.”

Just a few days before the praise, it was Paulson only, who advised Hartford to spin off its property-casualty arm. According to Paulson, the property-casualty arm though being a “dominant” player in commercial insurance with strong management, is overshadowed by the larger company.

Paulson manages about $24 billion in assets. He rose to fame because of his bet against subprime mortgages during the financial crisis, which rewarded him with billions of dollars. Recently, he had been criticized for being bullish on economic recovery, and for his involvement in a controversial Chinese forestry company. He was ranked among the worst performers among U.S. hedge-fund managers, when one of his main funds was down 52% last year.

Giant insurance conglomerate, AIG was one of the prime recipients of the U.S. government’s bailout packages during the financial crisis of 2008-09. It is almost 60% owned by taxpayers. Its involvement in such deals definitely signifies that the insurer is looking to expand in selected areas.

Just last weekend there was news reporting that AIG could be interested in purchasing Hartford’s Woodbury Financial Services Inc. unit.