RSA bets on gravitas

Certainly, the task facing Mr Hester at RSA isn’t so different to that which he struggled with at RBS - to rebuild capital. RSA’s capital worries emerged last last year with news that profits at the Irish operation had been overstated, leaving RSA with a £200m capital shortfall - but more than that is thought needed to restore RSA's capital health. The problems in Ireland have led to a focus on group’s wider solvency, which analysts think has looked increasingly strained in recent years. There are also storm and flood related claims to worry about - accountant PwC has estimated a cost for the insurance sector as a whole from this of about £500m.

It would also be churlish not to acknowledge Mr Hester’s successes at RBS in dealing with such capital problems. Since 2008, for instance, he oversaw the wind-down of about £200bn of non-core assets, largely comprising legacy bad debts that the bank needed to exit in order to free-up capital. He also did this whilst managing the politicised interference of the bank’s largest shareholder, the UK government.

But, for all that, RBS’s Basel III core tier one capital ratio for 2013 is likely to be as low as 8.1 per cent - making RBS the least well capitalised amongst its big UK bank peers. RBS is also forecast by analysts to report a thumping loss for 2013, while reprivatisation and a return to the dividend list remain distant prospects.

Mr Hester’s reputation at British Land (BLND), too - where he was chief executive from 2004 to 2008 - deserves a glance. He’s credited with having overhauled British Land’s corporate governance culture, a company long-dominated by Sir John Ritblat. But some in the City note that he oversaw property divestments at valuation low-points - opinion remains divided over whether that was a mistake or whether it helped British Land to survive the downturn. Neither can Mr Hester point to a significant background in insurance.

In the City, however, the overwhelming feeling is of relief at the appointment of a big-hitter, with gravitas, who can knock RSA into shape. "He's well respected by institutional investors and boasts excellent attention to detail," says insurance analyst Ben Cohen of broker Canaccord Genuity. "He's dealt with some very complex situations in the past." The City is also expecting better disclosure from Mr Hester: "that’s been quite an issue at the company in recent years," notes insurance analyst Oliver Steel of Deutsche Bank.

So what are Mr Hester’s options? According to Mr Cohen, he might need to find as much as a £1bn in new capital to take RSA's "capital strength back to the levels in 2008/09 when solvency was simply not an issue". Getting there will probably involve disposals, although there's less consensus on the scale.

Insurance analyst Nick Johnson of Numis Securities, for example, thinks Mr Hester could pursue some combination of cutting the dividend, re-working reinsurance arrangements (on more a capital efficient basis), selling businesses and tapping shareholders for fresh funds. A fundraising, however, could be "difficult right now", reckons Mr Johnson. He also thinks that some disposals may need to be "focused on the better parts of the business" in order to get a good price.

But Mr Cohen points out that selling core operations, in Latin America, Scandinavia or Canada, would hit RSA's earnings and growth prospects. "He's not there to break it [RSA] up and sell it off, but to build it up and grow the franchise," reckons says Mr Cohen. He also thinks there’s "some low-hanging fruit to sell" - such as the central and eastern European operations or businesses in India and Thailand. A sharp exit from such peripheral operations could mean that any new fundraising may be "lower than previously assumed" reckons Mr Steel. A possible £500m rescue rights issue is currently being rumoured.