CHICAGO—More than six years after it first announced its intention to exit the underwriting business, Aon Corp. last week agreed to sell its remaining insurance operations for more than $2.75 billion.

The Chicago-based brokerage said it had signed separate definitive agreements to sell Combined Insurance Co. of America to ACE Ltd. for $2.4 billion and Combined unit Sterling Life Insurance Co. to Munich Re Group for $352 million.

The all-cash deals will give Aon $2.6 billion after tax, which it will use to buy back company stock. The Sterling deal is expected to close in the first quarter of 2008 and the Combined deal is expected to close in the second quarter, Aon said.

The move culminates Aon's effort to focus solely on its core brokerage and consulting business—a process that began in 2001 when it put all of its underwriting operations under one holding company and attempted to spin it off to shareholders.

Aon scrapped the spinoff in 2002 due to unfavorable market conditions and had been selling its underwriting units piecemeal ever since (see chart, page 21).

Combined, which underwrites accident and health, and life insurance and generated $2 billion in 2006 revenues, was Aon's last remaining underwriting unit.

As a result of the deals, Aon's core assets will be more strategically aligned as it continues to expand its capabilities to better serve its brokerage and consulting clients, said President and Chief Executive Officer Greg Case.

"To me this is a tour de force in the growth of Aon and the commitment Aon has to brokerage and consulting," Mr. Case said in an interview. "There cannot be a stronger statement to the commitment we have to continuing to take what we believe is a very unique platform and making it stronger."

Over the past 30 months, Mr. Case said, Aon has invested roughly half a billion dollars in building the brokerage with acquisitions, recruiting people and adding capabilities and it has no plans of stopping.

"The buyback signals (our board's) faith in the firm and what we're trying to accomplish," Mr. Case said. "It also signals we are going to continue to be in growth mode." He said that Aon has little debt and had a strong cash position even before the sale.

For ACE and Munich Re, the underwriting operations will further diversify the organizations, executives there said.

"The acquisition (of Combined) essentially doubles our already significant personal accident and health insurance franchise, which has been and remains an area of focus for our company," said Evan G. Greenberg, chairman and CEO of Bermuda-based ACE.

ACE plans to export Glenview, Ill.-based Combined's franchise to developing markets in Latin America, Asia-Pacific and other promising regions where ACE has an established presence and where a growing middle class presents favorable conditions, the company said.

For Munich Re, the addition of Bellingham, Wash.-based Sterling Life, which provides health insurance products to the Medicare market, furthers growth of its health insurance business, executives said.

"Sterling gives us an important platform with an excellent reputation to gain access to the fast-growing senior markets in the U.S., and to leverage our existing business," Peter Choueiri, a member of Munich Re's International Health Board, said in a statement.

Analysts say the deals make sense for all parties involved.

"While the dilution of earnings is greater than we initially anticipated, we continue to believe this was the right move for Aon," David Small, an analyst with Bear, Stearns & Co. Inc., said in a note to investors. "Management can now spend more time focusing on its core business, where it is showing increasing momentum. Additionally, this gives Aon greater capital flexibility as they no longer need to be as focused on maintaining an investment-grade rating, something that was critical while they had an insurance underwriting subsidiary."

"For a long time, Combined was great for this company," said Cliff Gallant, an analyst with Keefe, Bruyette & Woods Inc. in New York. "It was a cash cow and a stable source of earnings. But I don't think they need that anymore. They've sort of outgrown their need for the company."

Mr. Gallant, who described the divestiture as "a good deal," noted that Aon "clearly beat expectations" on Combined's purchase price. "We were expecting a sale price of $2.3 billion on the piece sold to ACE and they got $2.4 billion."

Mr. Small also said the $2.75 billion purchase price for the units surpassed his estimate of between $2.0 and $2.5 billion.

He also said that Combined is a "good strategic fit" for ACE. Not only will it double the size of ACE's successful accident and health franchise and provide a "solid platform" for further international expansion, it also "should lower ACE's earnings volatility through the P/C cycle," he wrote.

ACE said it will finance the $2.4 billion deal with cash and a "modest amount of new debt."