Lionel Laurent is a Bloomberg Gadfly columnist covering finance and markets. He previously worked at Reuters and Forbes.

Legal & General will be hoping the Treasury touch will work better for it than for Tesco.

Outperforming Benchmark
Legal & General has trounced the FTSE 100 over the past five years
Source: Bloomberg

The British insurer is poised to hire John Kingman, second permanent secretary to Her Majesty's Treasury, as its chairman, Bloomberg News reported on Monday.

The 47-year-old comes with no direct experience of running an insurance company -- but plenty of bailing out banks. He played a leading role in the 2008 rescue of RBS and Lloyds, gaining a reputation as a scourge of bankers such as RBS' disgraced ex-chief Fred Goodwin.

A civil service background is no guarantee of corporate success: Richard Broadbent, a former Treasury high-flyer, stepped down as Tesco chairman in 2014 after an accounting scandal at the retailer.

If Kingman is to prove to shareholders his appointment wasn't a shoo-in born out of institutional complacency, he will need to demonstrate the sharp elbows he displayed during the financial crisis. 

Firstly, he will have the human task of managing Nigel Wilson, L&G's CEO. Wilson, who is 12 years older than Kingman, has had a good run since taking over in 2012: he's exited non-core markets from France to Ireland, cut costs, boosted cash flow and almost doubled the dividend.

It won't be easy to defend the company's above-average stock-market valuation -- a price-to-book ratio of 2.2 -- and dividend yield of 5.7 percent, the second-highest among peers, according to Bloomberg data.

Kingman will need to be a counterweight against the temptation of potentially racy expansion -- and to hew towards capital strength a time when regulators are scrutinizing insurers' balance sheets and risk-taking more closely.

Capital Check
Legal & General's 2015 Solvency II ratio came in below some U.K. peers
Source: Bloomberg News

Tougher capital charges under Solvency II make growth a tricky and potentially costly balancing act. L&G's 2015 capital adequacy ratio of 169 percent doesn't compare well with 193 percent at Prudential and 180 percent at Aviva.

There are plenty of growth opportunities out there for the next chairman of L&G to gauge, with companies seeking to offload the risk of pension plans to insurers. L&G also wants to boost investment in housing and infrastructure. Kingman's reach into the corridors of regulatory and political power, as well as his disinclination to rubber-stamp management decisions, should only help.

He should also get the benefit of the doubt from shareholders as someone who -- despite his civil-service credentials -- doesn't fit the bill of a City grandee looking for an easy retirement gig. He hasn't, for example, picked up the same number of appointments as, say, Aviva's chairman, Adrian Montague.

And, at a time of Brexit threats and ultra-low interest rates, being chairman of one of London's biggest insurers and asset managers won't be the cushy job it might once have been.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. A ratio of 100 means a firm has sufficient capital to withstand the kind of shock that happens once in 200 years.

  2. He is also chairman of Manchester Airports Group and a director of Cellmark Holdings. He was formerly chairman of Anglian Water, Friends Provident and British Energy, among others.

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