MMC's downgrade tops off a troubled year of lawsuits and poor financial results
All is not well at the world’s largest insurance broker. Two years after making a humiliating $850m settlement in Spitzer’s contingent commissions lawsuit, Marsh & McLennan (MMC), parent to Marsh, now finds itself downgraded to “BBB-” from “BBB”.
The ratings move by Standard & Poor’s, although assigned a stable outlook, is a worrying development in another troubled year for MMC.
S&P credit analyst Steven Ader pointed to Marsh’s “disappointing third-quarter 2007 operating results” which “reflects the many challenges the Marsh Inc subsidiary faces over the next two years.”
The rating agency highlighted the fact that Marsh had posted an operating loss resulting from the unsuccessful implementation of initiatives.
This is undoubtedly a reference to the repositioning of the brokerage earlier this year as a risk consultancy, a move exclusively broken by Global Reinsurance at the time.
MMC’s president and chief executive officer Michael Cherkasky blasted Marsh recently for the group’s profit slump.
“Despite continued strong performance in our consulting businesses, MMC's third-quarter results were significantly impacted by unacceptable financial performance in our insurance broking business,” he said.
“We have changed the leadership at Marsh and are taking comprehensive actions to improve profitability.”
Standard & Poor’s did throw MMC a lifeline, with Ader conceding that the group could see its outlook revised to positive if they were “successful in improving the balance between operating performance and debt.”
The rating’s downgrade comes after another of MMC’s subsidiaries, reinsurance broker Guy Carpenter, faced accusations of bid rigging, price fixing and illegally steering Connecticut businesses and consumers to insurers in exchange for multi-million dollar undisclosed kickbacks.
The lawsuit brought by Connecticut AG Richard Blumenthal echoes that of Eliot Spitzer’s two years ago which resulted in Marsh repaying $850m in settlements and abandoning contingent commissions. Guy Carpenter has flatly denied Blumenthal’s claims and remains confident that they can defend any charges.
When placed alongside the recent findings from the EU Competition Commission enquiry into business insurance, which found a lack of transparency across many areas of the business, the future looks anything but certain for Marsh.