“They say if you love what you do, you never have to work a day in your life.” To be lucky enough to be working in jobs that we really enjoy, it is necessary to choose the right career path in which one might fit in.
The key understanding behind choosing the right industry can be put forth into 4 primary requirements:
- Realizing individual interests;
- Determining financial feasibility;
- Exploring future prospects;
- Work Life balance.
Finance industry for long has been a beacon of light for the job seeker. The industry offers a plethora of opportunities to candidates. There are many reasons for one to consider and pursue a job in this field.
Firstly, taking the interests into consideration it is always the experience and the history of the industries which shall help the individuals to choose a specific industry. Regardless of the booms, busts, upturns and downturns, the finance industry has enjoyed a long history as the most sought after career destination for fresh, bright and ambitious professionals. Finance industry has very well established fluidity and fast pace career which is unparalleled over other industries.
Well, to most of the professionals in the financial services, the highly motivating factor is that the industry is providing them smorgasbord opportunities, positions and environments. It is simple to get into the financial industry, however to have a successful long term career is tough. Further, to excel in any industry one must have discipline, intelligence and thick skinned psyche.
With finance in industry’s title, one should not be surprised that the financial services sector offers lucrative compensation packages. Two industries within finance industry that have such lucrative career are Reinsurance and Investment Banking.
Reinsurance vs. Investment Banking
Investment banking is amongst the most intricate financial mechanisms in the world. Financial Services offered by Investment banking are of offer various types viz. advisory helping Organisations in mergers & acquisitions, proprietary trading or trading securities for their own accounts, leveraged finance helping lending money to firms to buy assets and settle acquisitions, reorganization that involves improving organizations to make business more efficient and help making profit, and help new firms to go public through new issues or IPOs.
Reinsurance provides social and economic value by helping insurers reduce their exposure to risks. Reinsurance is a highly complex global business. The reinsurance company takes on all or part of the risk covered under a policy issued by an insurance company in consideration of a premium payment. In other words, it is a form of an insurance cover for insurance companies. The business is made feasible by the law of large numbers, which allows reinsurers to pool risks from their insurers, spreading their liability for losses over a diverse group of customers.
Comparing Investment Banks and Reinsurance companies is like comparing apples and oranges. They have different business models, risks, and implications for the financial system and broader economy. Therefore, it makes sense for the regulation of banks and reinsurance companies to differ as well.
There are various types of risks involved in Investment Banking such as Operational Risk, Legal Risk, Market Risk, Credit Risk and Reputation Risk. The main cause of failure of investment banks is underwriting assets and wrongly estimating their true values, resulting in losses for banker’s firms. Sometimes, assets that investment banks have overpaid are sold at lower prices which also results in losses.
There are different types of risks involved in Reinsurance companies as well though different from investment banking risks. Reinsurers may misjudge actual risk in what they are reinsuring and, in turn, set the wrong prices or terms for their policies or make bad investment decisions.
Investment underwriting vs Reinsurance underwriting
Investment underwriting and reinsurance underwriting are two different types of financial services. Underwriters in investment banks assess the risk involved with representing a company in the sale of securities or providing investment capital for a business whereas in reinsurance companies they determine the risk involved with offering of a reinsurance policy to a client.
Investment banks use underwriting to determine the minimum price of securities that are sold on behalf of companies/ government entities. The bank makes loss if the minimum guaranteed price is not met; otherwise, the bank makes profit. Investment bankers also use underwriting to determine creditworthiness of a business before offering investment capital.
Reinsurance companies use underwriting to evaluate the risk of insuring an insurance company’s portfolio. A reinsurance underwriter assesses risk to decide the premium to be charged for a policy. Obviously a risk defined as high-risk will bear a higher premium than a low-risk. Categorically speaking, reinsurance acts like a shock absorber for insurance vehicle.
Career Path
It’s been very interesting to having come across a quote which says
“Reinsurance is killer. Banking will kill you””
Given the different paths/career options under the finance industry, it often takes years for individuals to find and settle into a position that is a good fit for them. The scope and growth pertaining to two major and most sought ones in the industry are Reinsurance underwriting and Investment underwriting.
Both the industries offer a highly successful career path and have their own advantages and disadvantages. The key comparison factors are following:
- Eligibility
- Compensation
- Working Hours
- Learning Curve
- Advancement
- Transferability
- Job Security
- Reputation
- Exposure
- Innovation
Eligibility
Investment banking usually prefers candidates having degrees from top colleges that have specializations in accounting, finance, management, commerce, economics, mathematics, sciences or engineering.
Entry into reinsurance is easier compare to investment banking. Since reinsurance is a multi-sectorial business they have a wider base of candidates working with them. Apart from financial degree holders, doctors, lawyers, architectures, specialized engineering degree holders such as marine or aviation engineers are also able to get in to reinsurance. Since it’s a global business which involves a lot of negotiations there is good scope for people who can speak more than one language which is an added benefit.
Compensation
Salary is a huge factor when considering a job and it is usual to be enticed by big bonuses. The glint in every banker’s eye is the pay they get as starting salary. It can go as high as $100,000 salary in three years and bonus can be up to 100%, but nowadays the guaranteed bonuses are very rare and banks are methodically sacking people the week before bonus pay day.
In reinsurance, if one follows the right path and work hard then he/she can also be on $100,000 mark, maybe not in 3 years, but certainly in 5 years. Bonuses in reinsurance are also quite competitive; market underwriters and placing brokers can get bonuses similar to banking.
Working Hours
Investment banking jobs are known to have high pay and long hours, and there is a lot of truth in that. The hours in banking are savage! The financial markets are open 24 hours a day and it is not uncommon for investment banking professionals to spend much of their life at work, even at entry level. This is one of the reasons many people either don’t prefer banking in the first place, or drop out within the first couple of years. Weekend and late evening shifts often become necessary as schedules become busier.
The working hours in reinsurance are not as brutal; 9 to 5 really does mean 9 to 5. However, as one progress up the career ladder he/she will be working longer hours but still typically less than those in investment banking. When one starts to make name for oneself within the industry and develop network, inevitably will have to work harder than when he/she started. If retaining a healthier work/life balance is particularly important to someone then reinsurance is the choice.
Learning Curve
The learning curve in banking is steep. One always has to be on his/her toes and ready to be intellectually challenged. Banking is for those who like to work under constant pressure and challenge but its sink or swim – for life.
In reinsurance the learning curve is also very sharp and there are constant challenges involved. Personal development opportunities are there in abundance, yet the pressure is not that severe. One does not have to worry about losing job hanging over him/her every day. In reinsurance one deal with various industries from motor to aviation to nuclear and hence develops multi sectorial knowledge. This gives the candidate options to choose from as per his/her interest. This unique facility in reinsurance jobs makes it very flexible. Also, within reinsurance companies there are many dimensions to work in such as Underwriting, Claims and Actuarial work.
Advancement
Investment banking has a traditional promotion mechanism. Analysts prefer to join a bank under 2 year programme. The performer at the top is offered to stay for 3rd year & the most successful amongst the graduates later become an associate handed over greater responsibility. Opportunity to grow up varies from bank to bank & may almost take 3-4 years for associate to move up at senior position. It may look rosy but if one is not performing at par then the chances of lay off is much higher.
Reinsurance tends to have a less structured career path and it can take longer to gain the experience needed for promotion. As one progress up the career ladder he/she finds opportunities to take on more responsibility. Prospects include promotion to a managerial role or further specializing in a chosen field.
Transferability
Within banking, one learns the core finance skills needed to run a worldwide business and will have an in depth understanding of business figures. This will put him/her notch ahead the competition if looking to switch industry.
The reinsurance business is knowledge driven and within it one develops a particular set of abilities. Some incredible skills that one learns in reinsurance sector that are incredibly transferable, such as negotiation skill, business development, accountability, influencing skills etc. Risk management or consultancy, specializing in reinsurance would be a good alternate to switch industry. Reinsurance also provides platform for different opportunities & experiences on different levels of policy placements. Levels can be insurance teams of original insured to broking to insurance companies to Reinsurance companies to regulating authorities. One can choose at which level he/she is comfortable working in and switch. This is a very unique feature of the industry.
Job Security
Banking has always been very aggressive in their employment policies and for many roles it’s either up the ladder or out on the street. Bank can at any moment close its loss making department and sack the employees. This makes it very difficult to feel stable and safe in career.
The employment practices in reinsurance are not as ruthless and will not have this constant uncertainty. One will have the job stability that is needed to concentrate on development and getting things right. One can be successful without the constant fear of being culled.
Reputation
The financial crisis of 2008 had hit the reputation of investment banking. Also, the media is often censorious of the bonuses traders earn. Still investment banking is the most sought after career by candidates who are recently graduated. The market reputation of investment banks have its ups and downs but the lucrative packages that comes with the job has kept it in demand.
Contrary to popular belief, the reinsurance industry is exciting. The industry gives exposure to candidates according to their interest. One can chose a field or industry that he/she likes and then join that particular field’s reinsurance. Chartered Insurance Institute survey carried out in 2014 reveals that only 20% of sixth form and university students would like to consider a career in insurance and 53% found it was uninspiring. Many students see reinsurance as a dull career as it is not properly understood.
Innovation
There is a popular misbelief that reinsurance lacks innovation. On the contrary, reinsurance world changes at a very fast pace and one has to be dynamic to keep up with the changes. Reinsurers all around the world are coming up with new tailor made products best suiting client’s needs. This requires innovative and out of the box thinking from of the reinsurers. Today we can get insurance for almost anything which is made possible by reinsurers giving proper support to the insurance companies so that they can take risks in new avenues. Reinsurers learn from their mistakes and constantly try to improve themselves. Reinsurance policies are evolving and amendment from time to time to match the need of hour.
Conclusion
Both, investment banking and the reinsurance market, are driven by emotions. If the banking oscillates between greed and fear, then the reinsurance market oscillates between comfort and fear. Investment banking has a very good starting graduate salary compare to other financial careers and hence it is a sparkle in the eye of every fresh candidate. But its hectic work hours and constant threat of losing one’s job in case of under performance makes it a risky career which is suited for only strong and steady minded people.
The reinsurance industry has grown to become far more fascinating and dazzling industry to work in than investment banking. Reinsurance industry provides a career path that is desired by most of the candidates. One has many exciting opportunities to work in reinsurance as they are involved in variety of business lines such as energy, power, construction, aviation, space and many more. There are plenty of knowledge to acquire from the industry that helps in personal development and increasing acumen of the candidate. The work life balance is the most beneficial advantage with at par pay scales. One can enjoy both professional and personal life as they progress towards a fruitful career. At last as Confucius said; “May you live in interesting times.”!
Author –
Rohit Babel
Working as Upstream Energy underwriter and Outward Marine Retro Deputy Manager in General Insurance Corporation of India. He has 5 years of underwriting experience with strong interest in Marine Reinsurance business and Reinsurance overall. Over the years he has developed the acumen for upstream energy markets and earned respectable name in the reinsurance industry.