Stephen Hester has gone to the grey side. After five years leading Royal Bank of Scotland and its shriveling investment bank and four months tending his gardens, Hester has gone on to become chief executive of UK insurance firm RSA. And guess what? He’s not the only ex-investment banker to defect.
Martin Senn, the CEO of Zurich Insurance Group, was a member of the global fixed income management committee of Credit Suisse between 1997 and 1999. Josef Ackermann, the former chief executive of Deutsche Bank and ex-head of Deutsche’s investment banking division also went to Zurich Insurance, where he was chairman until the suicide of the finance director last August. Then there’s Steven Kandarian at MetLife has a background in private equity (and insurance), or Henri de Castries at Axa, who spent a short time at Credit Suisse First Boston.
At the top of the tree, insurance can be a very lucrative career.
If all his bonuses materialize, Hester stands to make up to £5.3m ($8.7m) at RSA. Senn was paid CHF7.6m ($8.4m) at Zurich in 2012 and Kandarian earned an impressive $13.7m at MetLife. That’s not equivalent to the $20m+ earned by Jamie Dimon and Lloyd Blankfein at JPMorgan and Goldman Sachs respectively – but it’s not far off.
Needless to say, most insurance jobs pay nowhere near as much. A recent insurance salary survey by recruitment firm Reed suggests the most remunerative sub-executive insurance roles in the UK pay £86k ($140k), and that’s after 11 years of toil. While that looks good compared to the national average, it’s unlikely to do much to titillate anyone used to an investment banking benchmark.
And yet insurance firms need investment banking-type talent. The Solvency II directive which is revolutionizing their regulatory capital requirements is now due to be implemented by 2016. Even outside Europe, capital concerns are an issue: a Towers Watson survey of insurance companies globally in June 2013 found that capital management was a huge concern for insurers in North America, and that capital management was seen by insurers as an incipient source of competitive advantage.
Few people now know more about regulatory capital management than senior investment bankers. Hester’s role at RSA will be to help the company fill a £200m capital gap. With insurance firms paying well and unconstrained by punitive legislation dictating the level and structure of their compensation, expect other senior bankers to follow Hester to the grey side in years to come.