Ratings agency Standard & Poor’s (S&P) has downgraded its outlook on Marsh parent Marsh & McLennan (MMC) to negative from stable, after the company paid hefty settlement costs.

Earlier this month MMC consulting unit Mercer agreed a $US500 million ($577 million) settlement with the Alaska Retirement Management Board after its unfunded liabilities grew by about $US2 billion ($2.3 billion) last year.

Among other allegations, Mercer was accused of failing to accurately calculate employee pension and healthcare costs.

S&P, which currently rates MMC as BBB- long term with an A-3 short-term counterparty credit rating, revised its outlook on the basis the settlement was higher than expected.

S&P noted its concern over the settlement’s effect on Mercer’s “reputation and competitive position”.

The ratings agency says the settlement and recent MMC restructuring “have contributed to marginal operating performance and have diminished MMC’s earnings quality”.

S&P’s pessimistic view of the company comes despite MMC’s improved net profit of $US248 million during the first quarter, which was up 41% on the corresponding period last year.