Stephen Hester, the former head of Royal Bank of Scotland, made his mark on Thursday in his new job at the insurance group RSA, formerly Royal Sun Alliance, when he announced a plan to raise £700m-plus from shareholders.
He needs the funds to fill a hole caused by the discovery of a long-running fraud in Ireland – a fraud which cost his predecessor his job.
But in this age of sophisticated risk control you do wonder how that fraud could have gone undetected for perhaps eight years.
A comparison of the RSA Irish operation with that of its rival Aviva shows that both were doing similar kinds of business and with similar premium income. But while RSA was setting aside about £400m a year to reserve for future claims, Aviva was allocating about £1bn. In insurance companies the less you pay out in claims or transfer to reserves, the bigger the apparent profit.
Shouldn’t someone in RSA’s head office have wondered why its Irish business was so massively more profitable than that of Aviva, its main competitor?