Dec. 17 (Bloomberg) -- Aon Corp., the world's second-largest insurance broker, rose after it announced plans to sell two units for $2.75 billion and use the proceeds to buy back shares.

Aon will sell Combined Insurance Co. of America, an accident, health, and life insurer, to Ace Ltd. for $2.4 billion in cash, and health-care insurer Sterling Life Insurance Co. to Munich Re, the world's second-biggest reinsurer, for $352 million, Aon said in a statement today.

Chief Executive Officer Gregory Case, who planned to spin off Combined Insurance to shareholders next year, is selling the units to focus on providing advice and consulting services rather than underwriting policies. Chicago-based Aon will increase its share repurchase program by $2.6 billion.

``The purchase price is higher than most expected,'' David Small, an analyst at Bear Stearns Cos. in New York, wrote in a note to clients. ``The deal should bring in roughly $2.6 billion in after-tax cash,'' said Small, who rates Aon ``peer perform.''

Aon increased 46 cents, or 0.9 percent, to $50.13 in 4:15 p.m. New York Stock Exchange composite trading. The stock has gained 40 percent this year, the best return in the Standard & Poor's 500 Insurance Index.

Case announced plans on Oct. 31 to cut 2,700 jobs, or 6 percent of the company's workforce, as falling commercial insurance rates threaten sales. Aon is giving up the last vestige of its origins, which trace to W. Clement Stone, a door-to-door insurance salesman who founded Combined Registry Co. in Chicago in 1922 with $100 in borrowed money.

`Simplified Organization'

Patrick Ryan, who succeeded Stone as chief executive officer in 1982, built the company into one of the world's largest insurance brokerages through over 400 acquisitions. When Case succeeded Ryan in 2005, he sold or closed some of Aon's insurer units, including ones that sold auto warranties and liability protection for construction projects.

``We have further simplified our global organization and successfully executed our strategy to exit the lower-margin and more capital-intensive insurance underwriting business,'' Aon's Case said in a statement today.

The sale of Glenview, Illinois-based Combined Insurance is the largest of a U.S. life insurer since Aviva Plc bought AmerUs Group Co. for $2.9 billion last year. Combined has 4 million policyholders and almost 7,000 sales agents and the deal will probably close by the end of the second quarter, Aon said.

``We had tremendous interest across the board'' from multiple potential buyers, Case said in an interview today.

U.S. Presence

Ace, the Bermuda-based business insurer run by CEO Evan Greenberg, said in October it may make a purchase to expand its life insurance operations.

``This hasn't been a focus of Aon for a long time, so perhaps Ace can squeeze a bit more out of Combined,'' Cliff Gallant, an analyst at KBW Inc. in New York, said in an interview. Combined earns about a 10 percent return on equity, Gallant estimated.

Ace gets ``a nice U.S. presence where they didn't really have one'' for life insurance, Gallant said. He rates Ace ``outperform'' and Aon ``market perform.''

Greenberg said the company was also planning to expand small-business coverage in Asia and Latin America after reporting that third-quarter insurance sales in North America dropped 1 percent. Profit increased 13 percent to $656 million.

``The acquisition of Combined is a significant milestone for Ace and represents both an opportunity for considerable growth and expense-related efficiencies,'' Greenberg said in a statement.

Double Revenue Growth

Ace expects to more than double Combined's revenue growth within a few years from around 4 percent annually, Greenberg said on a conference call today. Combined will add 3.4 percent to 2008 per share earnings and 4.7 percent in 2009, Philip Bancroft, Ace's chief financial officer, said on the same call. Combined still focuses on door-to-door sales in the rural U.S., offering pre-paid funerals, insurance for medical bills and lost income after an accidental injury, plus coverage of specific illnesses such as cancer.

Through its Sterling Life Insurance Co. unit, it also sells policies that fill gaps in Medicare coverage, the U.S. government's health insurance program for people aged 65 or more.

North America

Combined was the sixth-largest U.S. seller of individual accident and health coverage by premiums in 2005, according to A.M. Best Co. Aflac Inc. was first, followed by American International Group Inc.,Unum Group, Conseco Inc., and WellPoint Inc. Combined gets 74 percent of revenue from the U.S. and Canada, with the balance coming from countries including Australia and New Zealand.

Combined is led by Chief Executive Officer Douglas Wendt, who joined the company in 2006 after 32 years at Allstate Corp.

Munich Re's acquisition of Bellingham, Washington-based Sterling Life marks its second U.S. purchase in two months. The Munich-based company agreed to buy Midland Co., a Cincinnati- based insurer of manufactured housing and mobile homes, for $1.3 billion in October, its largest U.S. takeover in more than a decade.

Sterling Life will strengthen the reinsurer's integrated health-care operation, which it plans to turn into a third major business line behind reinsurance and primary insurance. It expects premiums and profit to grow by an average of 20 percent a year until 2015 in that segment, Munich Re said in a presentation on its Web site today.

Munich Re

``For Munich Re, further acquisitions like Sterling could speed up the time it takes until its health-care strategy contributes notably to group profit,'' said Andrew Broadfield, an analyst at Lehman Brothers Holdings Inc.

Munich Re fell 1.17 euros, or 0.9 percent, to 128.18 euros in Frankfurt trading after UBS AG analysts led by Marc Thiele cut their rating to ``neutral'' from ``buy,'' because of concern equity markets will have a ``difficult'' year in 2008.

Aon sought financial advice on the transactions from Credit Suisse Group, Merrill Lynch & Co. and its own investment bank. Goldman Sachs Group Inc. represented Ace.

To contact the reporters on this story: Josh P. Hamilton in New York at jphamilton@bloomberg.net; Zachary Mider in New York at zmider1@bloomberg.net

Last Updated: December 17, 2007 17:16 EST