Aon Corp, one of the world's largest insurance brokers, said on 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 for $2.4 billion in cash and that Munich Re is buying its Sterling Life Insurance unit 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.

Our core assets will now be more strategically aligned as we expand our capabilities to better serve our risk brokerage and consulting clients, Greg Case, president and chief executive, said in a statement.

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 shares closed at $59.51 on the New York Stock Exchange on Friday, while Aon shares closed at $48.94.

Munich Re's deal for Sterling, which valued the U.S. insurer at 10 times its 2009 forecast price/earnings ratio, should be completed in the first quarter of 2008 and should offer significant synergies to Munich Re, it said in slides on its website.

The deal, which should enhance the world's second largest reinsurer's earnings per share from 2008 onwards, 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.

Munich Re shares were down 0.8 percent at 128.8 euros at 0851 GMT, outperforming the DJ Stoxx index of European insurers which was down 1.8 percent, as European stocks fell on unexpectedly high U.S inflation data late last week.

(Reporting by Emily Chasan and Simon Challis; Editing by Paul Bolding and David Holmes)

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