German insurer Allianz SE will invest $US2.5 billion ($3.7 billion) in The Hartford Financial Services Group in a move designed to improve the balance sheet of the US life and property insurer.

News of the Allianz deal came shortly after media reports that MetLife had approached The Hartford about a possible merger.

Under the terms of the investment, Allianz will purchase $US750 million ($1.12 billion) of convertible preferred shares at $US31 per share ($46 per share), and $US1.75 billion ($2.6 billion) of 10% junior subordinated debentures.

Allianz will also receive seven-year warrants entitling it to purchase $US1.75 billion ($2.6 billion) in common stock at an exercise price of $US25.32 ($37.77).

Connecticut-based The Hartford tumbled on Wall Street, losing nearly $US9 billion ($13 billion) of market value in the first week of this month. Credit ratings agency Fitch had earlier cut its ratings outlook from stable to negative.

The Hartford CEO Ramani Ayer says the Allianz investment “strengthens our ability to weather volatile markets and continue to invest and vigorously compete in our businesses”.