LONDON (Bloomberg) - Aon Corp., the world's biggest insurance broker, agreed to buy London-based Benfield Group Ltd. for £844 million ($1.6 billion) after the companies settled a legal dispute a year and a half ago.

Benfield surged 27 percent to 345.5 pence in London after Chicago-based Aon said it will pay 350 pence apiece for shares of the reinsurance broker plus a dividend of four pence next month.

The companies, which both have operations in Bermuda, said their boards support the takeover and declined to discuss the possibility of a higher bid.

"The management have agreed to the deal so it doesn't make a lot of sense for anyone else to come in," said Charles Coyne, an analyst at KBC Peel Hunt Ltd. in London who has a "hold" rating on Benfield. "It's a knockout offer so everyone is happy. The companies know each other very well."

CEO Gregory Case expanded Aon's London-based reinsurance business in 2006, triggering legal action when he hired about 20 Benfield employees. Mr. Case said on Friday that Benfield's management was a "leading driver" for the takeover. CEO Grahame Chilton, 49, has a 10-percent stake now worth £77 million ($142 million) in Benfield and would be vice-chairman of the combined company.

Aon's reinsurance division is "highly complementary with Benfield", Mr. Case said in a conference call on Friday, and added that the merger would help the company expand margins.

The acquisition will increase Aon's presence in the US catastrophe reinsurance market, Asia and Latin America, it said. The combination will generate about £20 million in cost savings by 2009 and increase profit margins, Aon said. "The strong cultural fit between our firms will enable us to quickly realize the benefits of this transaction and the value added for our clients and shareholders," the statement said.

Benfield has been struggling with low reinsurance rates for almost two years. First-half net income fell seven percent to £57.9 million, the company reported this month. Before today's surge, Benfield shares were down 43 percent from the May 2006 high.

Benfield directors' 18 percent stake in the company is now valued at £134 million. Chairman John Coldman's holding is worth £49 million.

Aon's second-quarter net income rose to $1.13 billion from $240 million after the company booked a gain on the sale of Combined Insurance Co. of America to Ace Ltd. Aon has bought back stock with proceeds of the sale and said on August 1 it was considering acquisitions to boost its brokerage. Risk and brokerage services revenue in the Americas, Aon's biggest market, fell one percent in the period as Aon's clients cut costs and made smaller deals.

Aon rose $1.22, or 2.5 percent, to $47.92 in New York Stock Exchange composite trading on Friday. The company is down less than one percent this year, valuing the company at about $13 billion. The company has outperformed the Bloomberg US Insurance Index, down 26 percent.

Aon hired employees in October 2006 from a reinsurance unit at Benfield, which responded with a lawsuit claiming the hires reduced profit by £10 million. Aon agreed to pay £9.5 million in March 2007 to settle the claim.

Benfield's adviser was Merrill Lynch & Co. while Aon was advised by Credit Suisse Group AG, the statement said.