LONDON Aon Corp AOC.N, one of the world's largest insurance brokers, said Monday it has agreed to sell two units for about $2.75 billion and will use the proceeds to buy back shares.
The company said it sold its Combined Insurance Co unit to ACE Ltd ACE.N for $2.4 billion in cash and sold its Sterling Life Insurance unit to Munich Re (MUVGn.DE) for $352 million.
Aon is planning to use the $2.6 billion in proceeds from the deals to increase its stock buyback plan, it said.
The sales of the two units are part of a plan by Aon to simplify its business and to do less insurance underwriting, which has lower margins and is more capital intensive.
"Aon likes the returns in brokerage, where pretax margins are 60 percent higher than its insurance unit," said Bill Bergman, an analyst with Morningstar.
Also, Aon said it expects to extract a one-time cash dividend of $325 million from Combined Insurance before the deal closes.
ACE's deal to buy Combined Insurance, which provides individual accident coverage and supplemental health insurance to more than 4 million policyholders, is expected to be completed by the second quarter of 2008, ACE said.
ACE's Chief Executive Evan Greenberg said in a statement that Combined's sales force of nearly 7,000 agents would give his company opportunities for growth and "expense-related efficiencies."
At midday ACE shares traded at $61.61, up $2.10 or 3.5 percent, while Aon shares traded at $50.07, up $1.13 or 2.3 percent, both on the New York Stock Exchange.
Rating agency Fitch said it has affirmed all of its ratings on Ace following the announcement that it would buy Combined.
Munich Re's deal for Sterling, which valued the U.S. insurer at 10 times its 2009 forecast earnings, should be completed in the first quarter of 2008 and should offer significant synergies to Munich Re, it said in slides on its Web site.
The company also unveiled target premium and profit growth of 20 percent until 2015 in its international health business, with premiums reaching 9.3 billion euros by 2015 from an estimated 2.3 billion in 2008.
The deal, which should enhance the world's second largest reinsurer's earnings per share from 2008 onward, will be paid for through Munich Re's own funds and will not affect its current plans to return more than 8 billion euros to its shareholders by the end of 2010.
Sterling, a leading healthcare benefits provider to U.S. senior citizens, which had an estimated revenue of $805 million in 2007 and 155,000 members, will complement Munich Re's existing U.S. life and health business, it said.
"Given that Sterling is active in a growth market, the acquisition does not look expensive on first glance," said DZ Bank analyst Matthias Duerr. "The growth targets for the international health business look extremely ambitious."
Munich Re shares closed at 128.70 euros.
(Reporting by Emily Chasan, Simon Challis and Ed Leefeldt; Editing by Louise Ireland, Leslie Gevirtz)