CIGNA Corp. has agreed to pay $1.5 billion in cash to buy the health insurance arm of Great-West Life & Annuity Insurance Company.

Great-West Healthcare, a part of Great-West Life & Annuity, Greenwood Village, Colo., provides medical, dental, vision, life and disability coverage for 2.2 million U.S. residents in 5,200 U.S. employer groups.

Great-West HealthCare is particularly active in administering health coverage for small self-insured health plans.

The CIGNA deal does not include the Great-West Life & Annuity retirement services and individual markets businesses, which provide retirement plans and life insurance for 4 million U.S. residents. The businesses have about $127 billion in assets under management, according to Great-West Life & Annuity.

Great-West Life & Annuity is a unit of Great-West Lifeco Inc., Winnipeg, Manitoba., which in turn, is a unit of Power Corp. of Canada, Montreal.

CIGNA and Great-West Life & Annuity hope to complete the deal, which is subject to approval by several regulatory agencies, by June 30, 2008.

News of talks about the deal surfaced in the Hartford Courant in early November.

Acquiring Great-West Healthcare “will broaden our distribution reach and provider network in key geographic areas of the country, particularly the Western regions of the United States, and expand the range of health benefits and products we offer employers and their employees,” CIGNA Chairman Edward Hanway says in a statement about the deal.

Great-West Lifeco executives say they have agreed to sell the U.S. group insurance business as a result of the recent move to acquire Putnam Investments L.L.C., Boston, from Marsh & McLennan Companies Inc., New York, for $4.6 billion.

In addition to getting $1.5 billion in cash from CIGNA, Great-West Life & Annuity will be keeping $750 million it has invested in the U.S. business.

After paying taxes and writing off intangibles associated with the U.S. business, Great-West Lifeco should have about $1.6 billion in cash it can use to repay the loans used to finance the Putnam deal, Great-West Lifeco says.

Great-West Lifeco now has a total of about $336 billion in assets under management in the United States.

Once the CIGNA deal is completed, Great-West Lifeco will focus its U.S. efforts on expanding the financial services operations, according to Great-West Lifeco President Raymond McFeetors.

CORRECTED: An earlier version of this article incorrectly described the extent of the acquisition. CIGNA Corp. will be acquiring only Great-West Healthcare, not the rest of Great-West Life.