The board alleged that Mercer was negligent, breached its contract and misrepresented its work related to actuarial services it provided to two state pension and benefit plans: the Alaska Public Employees Retirement System and the Alaska Teachers Retirement System.

The board sought damages of at least $2.8 billion. A trial was set to begin in July.

MMC, the parent company of insurance broker Marsh and reinsurance broker Guy Carpenter, said it concluded "that a settlement was in the best interests of the company and its stakeholders" because of the uncertainty of a jury trial, the complex technical nature of the claims, and the amount of damages the board was seeking.

Under terms of the settlement, Mercer denies liability and all claims by the board are resolved. MMC said $100 million of the $500 million settlement will be covered by insurance.

S&P said the settlement follows "several large extraordinary charges" Mercer has taken over the years that have "contributed to marginal operating performance" and diminished the firm's "earnings quality."

While the company's performance has shown improvement, S&P said the settlement underscores "legacy issues" remain and are affecting MMC's results.

S&P added there is concern regarding whether the services firm can continue "to sustain in earnings improvements."

Speaking to NU Online News Service, Gregory Dickerson, director in the insurance group of Fitch Ratings, did not hold the same opinion as S&P. He said MMC has "ample liquidity" on hand to deal with this settlement, boosted by the recent announcement that it has an agreement to sell its risk consulting unit Kroll for $1.13 billion.

With the insurance brokerage segment stabilizing and margins holding steady, the firm appears financially capable to deal with the settlement, he noted.

"This is not a huge event for the company," he said.

Moody's Investors Service today affirmed the ratings of MMC, saying while the "pretax cost is substantial" the sale of Kroll would cover the cost and also allow for MMC to "pay-off a meaningful amount of debt. The rating outlook for MMC is stable.

Moody's said it expects that MMC will improve its operating margin further, but if improvement is not evident in the next 12-18 months, MMC could see a downgrade.