Standard & Poor’s (S&P) has lowered its counterparty credit rating on Marsh & McLennan (MMC) to BBB- from BBB, which it attributes to the poor performance of broking subsidiary Marsh.

S&P has also lowered the short-term rating on MMC from A2 to A3. It has removed the ratings from CreditWatch with negative implications, and assigned a stable outlook.

The ratings agency says Marsh had a disappointing third quarter and faces many challenges over the next two years.

It says Marsh has implemented unsuccessful initiatives that have led to increased costs and distracted the broker from its core sales and service.

The subsidiary has faced upheaval in recent months, with former CEO Brian Storms stepping down in September. AIG Europe CEO Daniel Glaser was last week appointed its new Chairman and CEO.

S&P expects Marsh’s performance to get an immediate lift from remedial action but predicts further setbacks caused by its delay in adjusting to the elimination of contingent commissions, worth US$845 million ($962 million) in 2003.

But S&P expects parent MMC to improve its earnings and debt reduction, describing its position as strongly competitive.