Legal case sees Mercer parent facing downgrade

The negative outlook indicates the company, the second largest global insurance broker by assets, may be cut from its current BBB-minus, the lowest investment grade, into junk territory over the coming 24 months.

Mercer agreed on June 11 to pay $500m (£338.5m) to settle a lawsuit over two of Alaska’s unfunded employee pension plans. Mercer was accused of engaging in actuarial misconduct, breach of professional duty and breach of contract.

The consulting firm expressly denied all responsibility, but agreed to pay the sum as it was “in the best interests of the company and its stakeholders for several reasons”.

These included the uncertainty of the outcome of a jury trial in Juneau; its high concentration of plan participants; the complex technical nature of the claims; and the fact the plaintiffs were seeking at least $2.8bn in damages.

Standard & Poor’s credit analyst Laline Carvalho said despite the significant drop in compensation, the settlement amount “exceeded our expectations”.

“It raises potential concerns about Mercer’s reputation and competitive position on a prospective basis,” she added.

Bruce Ballentine, Moody’s lead analyst for MMC, disagreed, citing the broker’s outlook as “stable”. However, he acknowledged certain factors could lead to a rating downgrade, including its net profit margin remaining below 6%.

MMC’s Christine Walton stressed a negative outlook did not indicate a downgrade is likely.