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Reviving Swiss Life

Rescuing the insurer from the grave was the easy part. Now Rolf Dörig must restore the healthy glow of solid growth to this national icon.

Rolf Dörig had been chief executive of crisis-plagued Swiss Life Group for barely three weeks back in December 2002 when he decided he'd better rally the troops. Morale was at rock bottom following the abrupt firing of Dörig's predecessor and several senior executives over a cozy investment scheme that allowed them to net millions by betting company money -- a scandal that had tarred the group's reputation. Even worse, Swiss Life was running record losses after its big equity investments had turned sour, forcing Dörig to go cap-in-hand to shareholders for a Sf1.1 billion ($752 million) rights issue to ensure the company's solvency.

Alerted by a hastily scrawled note posted in the elevator that the new boss wanted to meet his employees, Swiss Life's worried workers flocked to the spacious lobby of the company's Zurich headquarters, jamming the room and overflowing into the stairwell. Dörig, a Swiss Army colonel who knows how to marshal his forces, grabbed a microphone, jumped onto the reception desk and urged his colleagues not to lose heart. Together, he declared, they could restore the company's financial health.

"He said, 'I don't know anything about insurance, but together we can get through this,'" says one former employee. "That gave everyone self-confidence."

Dörig's sense of mission runs deep. His take-charge approach came coupled with a patriotic appeal to the employees' sense of duty to save a troubled national icon. "This company is a part of the country, a part of the society," Dörig tells Institutional Investor. "Here at Swiss Life the duty is probably bigger because more than 1 million Swiss have their life insurance and pensions with us. It would have been fatal if this company had gone, not only for Switzerland but for the customers who had their life's pension there."

Some 18 months later Dörig has succeeded in pulling Swiss Life, Europe's eighth-largest life insurer by premiums, back from the brink. Working with chairman Bruno Gehrig, a former Swiss National Bank vice chairman whose appointment in December 2003 underscored the national importance of the company's rescue, Dörig has moved swiftly to restore profitability by slashing the payroll, selling off noncore assets and persuading Swiss regulators to ease minimum-return requirements on insurance products to reflect Switzerland's historically low interest rates. Those moves helped the company post a better-than-expected profit of Sf233 million for 2003, versus a record loss of Sf1.7 billion a year earlier. Dörig confidently promises that Swiss Life will double its return on equity to 10 percent by 2006. That compares with an estimated 4.3 percent in 2004 for France's Axa Group, 5.7 percent at Germany's Allianz Group, 11.9 percent at Italy's Assicurazioni Generali and 12.7 percent for the Netherlands' Aegon, according to analysts at Pictet & Cie.

Yet for all the success and confidence, the restructuring of Swiss Life is far from complete. Dörig and Gehrig failed earlier this year to sell Banco del Gottardo, a Swiss private bank that was the largest of their planned disposals, when UniCredito Italiano walked away in a dispute over price. That failure forced Swiss Life to tap its shareholders for the third time in 18 months for a Sf1.1 billion issue of equity and convertible bonds, a step that has caused some of the insurer's biggest investors to lose faith. Italy's Premafin Group, the holding company of the Ligresti family and the largest shareholder, with a 9.4 percent stake, voted against the capital raising at Swiss Life's annual meeting in May and publicly criticized a perceived lack of strategy at the company. Credit Suisse Group, Dörig's former employer and once Swiss Life's largest shareholder, has reduced its stake from 8 percent to less than 5 percent over the past 18 months.

The two executives also have yet to show that they have a strategy for restoring growth. New premium income in Swiss Life's domestic business plunged by 19 percent last year as the company's difficulties, low interest rates and competitive inroads by powerful rivals like Italy's Generali all combined to deter customers. Swiss parliamentarians, responding to the company's previous management mishaps, have imposed regulations that will slow recovery in the domestic market.

Dörig hopes to generate growth in other European countries, but it's far from clear that he has the resources or the brand name to compete effectively with bigger rivals such as Generali, Axa or Allianz. Early this month Swiss Life scrapped plans to pursue a joint venture with Fondiaria-SAI, an Italian insurer controlled by Premafin, and said it would pull out of the Italian market, where it generated just Sf24 million in premiums in 2003. "What's still missing is earning power. That's a big problem," says René Locher, senior analyst at Kepler Equities in Zurich. "They have to come up with a net profit, and not from one-offs on disposals but on underwriting from life insurance business."

By Dörig's own admission, Swiss Life is only halfway through its recovery. He is confident, however, that the company can grow by taking advantage of pension reform in countries like France and Germany to sell more of its pension-linked life insurance policies. In Europe, he asserts, "we have very strong growth potential. We don't have large market shares, but we do have enough overall to have a niche in which we are very strong."

Gehrig urges patience, arguing that Swiss Life is a long-term turnaround story. "The question is the time horizon of our strategy," he says. "We have achieved the exit out of a crisis situation. This institution now is on sound ground." But he is cautious about the outlook for growth in the near term. "In the interest-rate environment where we are now, it is very difficult to sell life insurance."

Complicating the task of the two executives is that neither had any background in insurance before joining the company. Dörig candidly admitted as much to the employees at his lobby pep rally. Dörig also lacks experience outside Switzerland, having spent most of his career rising through the domestic banking ranks at Credit Suisse. Furthermore, the two men are following a restructuring plan drawn up by Roland Chlapowski, the CEO who was fired over the executive investment scheme.

"The new strategy was developed by the old board, together with consultants. We didn't have to invent a new strategy," Gehrig says.

Stephan Schürmann, a senior insurance analyst for Pictet in Geneva, says a lack of vision is the biggest problem facing Swiss Life. "There doesn't appear to be any real strategy. That gives them less credibility," he says, referring to Dörig and Gehrig. Despite his concerns, Schürmann has an accumulate rating on Swiss Life because he considers the shares undervalued and believes life companies will benefit from higher interest rates. The shares traded at Sf167 in mid-June, up from a record low of Sf41.75 in March 2003 but down fully 88 percent since the start of 2001.

To be sure, the mess the two executives inherited is hardly unique. Many insurance companies struggled to bolster their solvency during the long bear market in equities. And most European insurers have turned to their shareholders for fresh capital over the past two years, although none as frequently as Swiss Life.

Like such once-proud companies as Zurich Financial Services Group, Winterthur Group and Swissair, which had been content with domestic dominance, Swiss Life grew emboldened during the go-go days of the late '90s and expanded aggressively into new markets and asset classes, including hedge funds, while its core domestic life business deteriorated. When equity markets retrenched, the company's management and capital weaknesses were cruelly exposed.

SWISS LIFE'S ROLLER-COASTER RIDE BEGAN IN 1997 when then-CEO Manfred Zobl decided he needed to shake up the staid 140-year-old mutual life and pension company to enable it to thrive in the 21st century. Zobl took the company public that year by giving shares to policyholders and issuing a convertible loan and bonds. The deal valued the company at $2 billion and was managed by Union Bank of Switzerland, where Zobl held a board seat. As part of the deal, UBS took a 25 percent stake in the company and created an asset management joint venture that aimed to sell Swiss Life's insurance and pension products to UBS's banking customers. The partners parted company later that year after UBS merged with Swiss Bank Corp. and focused on its own asset management business. In 1999, Swiss Life paid Sf1.3 billion for UBS's stake in the asset management joint venture and a separate real estate joint venture, Livit. UBS gradually sold off its stake between 1999 and 2001.

Once he had taken Swiss Life public, Zobl and his chief financial officer, Dominique Morax, went on a buying spree, spending Sf4 billion to acquire ten companies. In France they purchased health insurer Lloyd Continental; a 50 percent stake in Erisa, a life insurance subsidiary of HSBC's Crédit Commercial de France; and a similar stake in the French life subsidiaries of rival Bâloise Insurance Group. At home they picked up Banca del Gottardo and STG Schweizerischen Treuhandgesellschaft, a Basel-based fund manager with Sf7 billion under management, in an effort to develop private banking and wealth management. They also purchased two real estate companies, making Swiss Life the largest commercial landlord in Switzerland. In addition, the two executives expanded existing operations in Germany, Italy, the Netherlands, Spain and the U.K.

Zobl's goal was to make Swiss Life a "local insurer" across Europe by building a network of subsidiaries that could tailor products and marketing to the tax, pension and social security rules of individual countries. He hoped to take advantage of Europe's aging population and budding pension reform movement to sell more life and pension products throughout the Continent.

Morax, who joined Swiss Life in 1997 after running Zurich Financial Services' European asset management business, proved to be an aggressive investor. With no debt on the balance sheet and equity markets booming, he leveraged the group in May 1998 by issuing $2 billion worth of bonds convertible into shares of six leading companies -- Glaxo Wellcome, Mannesmann, Novartis, Royal Dutch/Shell Group, UBS and Unilever -- and used the proceeds to ramp up Swiss Life's investments in the equity market. The following month Morax took a 23.5 percent stake in hedge fund manager RMF Holding and with RMF founded Swiss Life Hedge Fund Partners. Over the next three years, Swiss Life would raise its exposure to hedge funds and leveraged finance to more than Sf5 billion.

By December 2000, Morax, who cut his teeth as an investment banker at J.P. Morgan & Co. in London, had placed 21.9 percent of Swiss Life's investment portfolio into the red-hot equity market, up from 16 percent in 1996, and he put another 8.6 percent in hedge funds -- a first for the insurer.

The aggressive tactics employed by Zobl and Morax initially produced soaring profits, and the two men were feted as Switzerland's dream team. Swiss Life's earnings rose sixfold, to Sf924 million in 2000 from Sf152 million in 1997. But the improvement proved ephemeral, reflecting investment gains rather than profitable underwriting. When the stock market began tumbling in 2001, Swiss Life saw the value of its equity portfolio drop by nearly one third, forcing the company to take a Sf781 million write-down on its holdings. After record earnings in 2000, Swiss Life tumbled into the red with a net loss of Sf115 million in 2001. Its once-high-flying stock price plummeted 47 percent for the year.

"Insurance companies could compensate for lackluster technical results with above-average financial results," says Kepler Equities' Locher. "They were attracting premiums at any price because they knew they could close the gap through the financial results." When the bear market ended that game, the unprofitability of much of the group's underwriting, particularly in nonlife, became painfully apparent.

Swiss Life was not alone. Bâloise, Winterthur and Zurich Financial Services, too, were caught out by the crash, prompting Swiss regulators to tighten solvency requirements for insurers. "It was not a question of how much equity they should be in," says Herbert Luethy, director of the Federal Office of Private Insurance. "We learned that we don't just have to define upper limits; we have to calculate in the risk, especially the investment risk, and develop new solvency tests." The government subsequently tightened insurance regulations by setting tougher capital targets needed to absorb potential losses.

AS EQUITY MARKETS WERE TANKING, SWISS interest rates were sinking to record lows. Yields on ten-year Swiss government bonds averaged only 3.36 percent in 2001 and tumbled to 2.25 percent early this year. The decline in rates dealt a double whammy to Swiss Life and other insurers because the country's insurance regulations required companies to guarantee policyholders a minimum return of 4 percent a year.

With losses mounting, Zobl resigned in February 2002 in a dispute with the Swiss Life board and was replaced by Chlapowski, then chief executive of La Suisse Assurances, the insurer's nonlife subsidiary in French-speaking Switzerland. Hailed at the time as a new breed of Swiss manager, Chlapowski sought to curtail Morax's asset management strategy and focus the company on its core life and pensions business in Switzerland and major European markets. He stripped Morax of his CFO position and installed Bruno Pfister, a senior Credit Suisse executive. He also streamlined Swiss Life's complicated structure, integrating its largely autonomous subsidiaries and creating a holding company to strengthen central control and accountability. And he initiated plans for a major rights issue to bolster the group's solvency.

Chlapowski's reform drive faltered, however, when Swiss Life announced embarrassing accounting errors twice in the space of 30 days. In September 2002 the insurer restated a Sf253 million profit for the first half of 2001 to a loss of Sf1 million because of a calculation error in switching to international accounting standards. It also posted a loss of Sf386 million for the first half of 2002 because of write-offs of goodwill on the acquisitions of Gottardo and STG, triggering Morax's departure from his remaining post as chief investment officer. The following month it restated its loss for the first half of 2002 to Sf578 million from the originally reported Sf386 million, after auditors preparing for Swiss Life's capital increase found that a computer glitch had caused the company to overstate the value of its securities holdings. The news shattered investor confidence -- the company's share price fell by 10 percent on October 22, the day after the second announcement.

The following day, undeterred by the market reaction, Chlapowski went ahead and formally announced his plans to tap shareholders for a Sf1.1 billion capital increase. He had little choice. The company's sorry investment performance was eroding its solvency. Equity capital had plunged by Sf1.1 billion, to Sf3.9 billion, in 2002, and concerns about the company's diminishing capital base caused its share price to continue to plummet.

Chlapowski failed to see his plans through, however. On October 27 a Zurich newspaper disclosed the existence of a lucrative investment scheme hatched by Morax in 2000 that had made most members of Swiss Life's executive board, including Chlapowski, Morax and former CEO Zobl, even wealthier. The scheme allowed the executives to take low-interest loans from Swiss Life and invest in Swiss Life Hedge Fund Partners, which held a 23.5 percent stake in RMF.

Ironically, this had turned out to be one of Swiss Life's best investments. When the insurer sold its RMF stake to Man Group in May 2002, the company made Sf344.5 million on the transaction. The six executives had pocketed a Sf12 million profit on their original investment of Sf3.8 million.

The Federal Office of Private Insurance investigated and found conflicts of interest by the executives and a lack of oversight by the board. It ordered Swiss Life to recover as much as Sf9.9 million from the managers. Negotiations between the two sides failed, however, and Swiss Life announced in May of this year that it would sue the former managers to recoup the funds. The Zurich city prosecutor, meanwhile, is continuing a criminal investigation on possible charges of fraud. Neither Dörig nor Gehrig would comment on the issue.

The accounting errors and investment scandal tarnished Swiss Life's image at the worst possible moment. "The company was really on the brink of disaster," says Pictet analyst Schürmann.

So, too, was much of corporate Switzerland. The country was still reeling from the collapse of Swissair in October 2001, and other pillars of the business establishment, including Credit Suisse, Zurich Financial Services and ABB Group, were racking up massive losses and jettisoning discredited chief executives.

The Swiss Life board fired Chlapowski for his role in the executive investment scheme in early November 2002, just days before the rights issue was to be launched. The following day, seven of the nine directors on the board, including chairman Andres Leuenberger, said that they would not stand for reelection.

Two days later, at a hastily arranged press conference, Dörig was introduced as Swiss Life's third chief executive in two years. The prematurely graying man with the boyish face and perpetual tan sat upright and calm, his back as stiff as his smile, trying to assure angry policyholders and investors that he was the person to turn the company around.

The choice of Dörig surprised analysts, given his lack of insurance experience and relatively low profile. But his appointment fit a pattern of powerbroking among the coterie of establishment figures that has long controlled corporate Switzerland. At the time, Dörig was in charge of corporate and retail banking at Credit Suisse, then Swiss Life's largest shareholder. He had been the bank's negotiator with Jewish groups over dormant Holocaust accounts. Dörig had received a call from Leuenberger on a Tuesday offering him the job; he accepted the next day, after talking it over with his wife. "Somehow it was a decision I had to take," he recalls. "If it didn't work, they can't blame me, but I wouldn't have a job anymore. Anyway, I was convinced the company wasn't as bad off as everyone said."

Many troubled Swiss companies turned to experienced foreign executives to find a way out of their troubles. Zurich Financial Services hired American James Schiro as chief executive, ABB tapped German icon Jürgen Dorman, and Credit Suisse brought in another German, Leonard Fischer, from Dresdner to turn around Winterthur.

Dörig, by contrast, grew up in the Zurich suburb of Pfaffhausen and earned a law degree at the University of Zurich. He had spent almost all of his career at Credit Suisse in Zurich, except for a one-year stint in the mid-'90s in New York, where he attended the International Bankers School. He is a board member of Zurich's Grasshoppers football club, where he rubs elbows with other influential Swiss businessmen, including Rainer Gut, the Nestlé chairman and former Credit Suisse chairman who has been the éminence grise of corporate Switzerland for decades.

The local connections and experience evidently proved instrumental for Dörig. "This is a network story," says Arthur Rütishauser, a veteran journalist at Zurich newspaper SonntagsZeitung. "Life and pensions is a political business. Decisions on what they can do are made in Bern. They needed someone who was part of the network."

Former Credit Suisse colleagues characterize Dörig as a competent manager rather than a strategist and say that he left no big imprint on the bank. Indeed, his future at Credit Suisse was uncertain after Thomas Wellauer, the former McKinsey & Co. consultant who promoted him to head of retail, was ousted in the autumn of 2002 by his arch-rival, Oswald Grübel. Leuenberger, however, says Dörig was just the man to reassure anxious Swiss policyholders about Swiss Life's future. "He is a well grounded person who has two feet on the floor," Leuenberger tells II. "He has proved himself many times as someone who can work under stress. He is a person who works well with others. He is a team builder."

Dörig himself describes the challenge he faced on arriving at Swiss Life in stark terms. "I came into a situation where trust was hit hard," he says. "There was talk of pension stealing. Employee motivation was on the floor. The press was hitting us right and left."

His most urgent task was to see through the capital raising. Twelve days after he arrived, Swiss Life sold 10.8 million new shares in a rights issue priced at a steep 52 percent discount to the market price, and Sf200 million of convertible bonds, to raise a total of Sf1.1 billion. The capital increase was fully underwritten by Credit Suisse First Boston, whose parent company, Credit Suisse, had taken a write-off of more than Sf400 million in 2001 to reflect the sharp drop in value of its 8 percent stake in Swiss Life. Faced with pressures of its own, including the need to inject Sf3.7 billion into its Winterthur insurance subsidiary, Credit Suisse has since cut its Swiss Life stake.

Swiss Life bolstered its management in December 2002 by appointing Gehrig as chairman. Leuenberger, a long-standing member of the Swiss National Bank council, a group that meets quarterly with central bankers to review the economy, had known Gehrig, the central bank's vice chairman, for years. "That was when I knew the company would survive," says Pictet's Schürmann.

The appointment of the highly respected Gehrig underscored the national importance of Swiss Life's rescue. He had steered the central bank toward a strategy of targeting inflation rather than controlling the money supply. He also boasted commercial experience to go with his central banking pedigree, having been chief economist at Union Bank of Switzerland in the 1980s and chairman of Zurich's Bank Cantrade, a small private bank owned by UBS, in the 1990s.

Gehrig did his own due diligence before taking the job, to assure himself that Swiss Life was salvageable. "The atmosphere was worse than the facts and figures," he recalls. "I was careful enough to look into the figures before I accepted the post."

The new Swiss Life executives are a study in contrasts. Gehrig, 57, is a jovial, straight-talking chain-smoker who likes to travel the world, most recently taking a boat trip on the Nile in April. Dörig, a decade younger and more straitlaced, had only one employer -- Credit Suisse -- before taking his current job. He spent his Easter holiday at his family's chalet in the Swiss ski resort of Davos, as he has done since childhood.

Their offices are separated by a secretary on the fourth floor of the company's elegant art nouveau headquarters overlooking Lake Zurich. Although Gehrig is a nonexecutive chairman, he has worked full-time since joining Swiss Life last summer, building a new board of directors, tightening corporate governance rules and plotting strategy. He describes his role as acting as Dörig's sounding board and coach.

After the capital raising Dörig set out to reduce both expenses and Swiss Life's investment risk. In February 2003 the company launched a cost-cutting program called Snow to underline the urgency of the task: The aim was to make staff reductions before Zurich's winter snow melted. It succeeded, slashing operating expenses by 16 percent, or Sf532 million, and laying off 1,800 employees, or 13.2 percent of the workforce.

Dörig also dismantled Morax's old power base, which lay at the root of Swiss Life's problems. Morax had held the posts of chief financial officer and chief investment officer, and the group's risk officer reported to him. Swiss Life, beginning under Chlapowski, separated those posts, bringing in Pfister as CFO in August 2002. Dörig then recruited Martin Senn, who was head of Credit Suisse's trading and investment division, as CIO in January 2003.

Their first task was to go back to basics and properly match Swiss Life's assets with its liabilities. That meant shifting out of equities and into bonds during 2002 and 2003. Net, or unhedged, equities accounted for just 2.1 percent of the investment portfolio at the end of 2003, down from nearly 22 percent in 2000. They also moved to reduce risk by eliminating exposure to sub-investment-grade entities.

Another high priority for Dörig was to persuade the government to reduce the 4 percent minimum return for policyholders mandated by Swiss pension law. Accompanied by executives from fellow insurers Zurich Financial Services and Bâloise, Dörig lobbied legislators in Bern. Parliament consented by lowering the minimum to 3.25 percent last year and to 2.25 percent this year.

To the dismay of Swiss insurance executives, however, Parliament declined to fix the minimum rate with a formula, which is a common practice in Europe. Instead, lawmakers chose to monitor the rate on an annual basis and warned the industry that they would not allow insurers to make big profits on the backs of policyholders. This spring the government adopted a complicated regulatory formula requiring that 90 percent of gross investment gains on life policies go to policyholders, leaving just 10 percent for shareholders. In case of bumper profits, where investment returns exceed 6 percent and the guaranteed minimum return is below 4 percent, policyholders and shareholders split the profits.

The new regulations and Swiss Life's tarnished reputation have taken a big toll on the company's domestic life insurance business. New premium income in its core Swiss life business fell 19 percent, to Sf6.6 billion, last year. Although the company enjoyed growth elsewhere in Europe -- non-Swiss operations generated 59 percent of life revenues and 78 percent of operating profits in 2003 -- gross life premiums fell 4 percent last year, to Sf18.8 billion.

"If they want to thrive, they can't depend on the Swiss market anymore. There are too many regulations," says Heinrich Wiemar, an insurance analyst at Bank Sal. Oppenheim jr. & Cie. in Zurich. "They must rely on side markets for their profits. That means they have to wrestle market share from other, stable competitors."

Dörig wants to do just that. He says that the European market for life insurance and pension products is bound to grow because of the looming crisis in pay-as-you-go state pension schemes. He believes Swiss Life can win a growing share of this market -- he targets 1 percent above market growth -- by keeping a tight rein on costs, focusing on products with risk protection elements and beefing up distribution to small and medium-size companies as well as affluent customers.

"These public social security programs are coming so strongly under pressure because they can't be financed anymore," says Dörig. "We have very strong growth potential. We don't have large market shares in Europe, but we do have enough overall to have a niche in which we are very strong."

There are some signs of success. In Germany new business volume rose by more than 30 percent last year, and overall premium revenues were up 9 percent, to Sf1.77 billion. Still, increasing market share in Germany is very difficult, Kepler's Locher says, because the competition from heavyweights like Allianz and Generali is so strong and Swiss Life has no proprietary sales force, relying instead on third-party brokers. Swiss Life officials, though, see this as a plus, saying that they have increased and strengthened their presence among brokers and remain very competitive. Standard & Poor's says Swiss Life has built up a strong niche in its German pension business that makes it able to compete.

France is Swiss Life's biggest market after Switzerland, accounting for 30 percent of its insurance business. Premium volume rose 2.3 percent last year, to Sf4.76 billion. The company sells 60 percent of its life policies through Erisa, its joint venture with HSBC banking subsidiary CCF. In the Netherlands, where Swiss Life has built a strong life brand in Zwitserleven, premiums jumped a whopping 68 percent in 2003, to Sf2.36 billion, thanks largely to a new contract with the pension fund of Hollandsche Beton Groep, a Dutch construction company, that brought in E570 million ($645 million) in premiums.

Yet for all that promise, Swiss Life's hamstrung financial condition has hindered its ability to grow in some European markets. The company failed to make good on an agreement last year to form a life joint venture in Italy with Fondiaria-SAI, whose owner, Premafin, is Swiss Life's largest shareholder. Dörig and Gehrig admit that they don't have the money to move aggressively into Italy, and Andrea Novarese, head of corporate development at Premafin, agrees that talks between the two sides have floundered.

Dörig and Gehrig also have made only fitful progress in paring the group down to size. They have unloaded a number of peripheral assets, selling Swiss Life (España) at a loss of Sf2.5 million and disposing of a 33 percent stake in Crédit Agricole Belgium at a break-even price of E48 million. They also sold Swiss Life's small mutual fund business, Profitline, to AIG Private Bank and in February sold the insurer's interests in Private Equity Holding and 5E Holding to management of the private equity vehicles. The two entities were launched by Morax in 1999 as part of his asset-gathering initiative and had assets of Sf3.4 billion. Terms of the sale were not disclosed.

Bigger subsidiaries have proved more problematic. Swiss Life failed to agree on terms to sell its U.K. group risk and group life business to Unum Provident, so the company will run it down. The insurer also took a Sf105 million loss on the May 2003 sale of its Swiss asset management firm, STG, to LGT Group, the fund management arm of the Liechtenstein royal family.

In the midst of the restructuring, Dörig tapped the capital markets for a fresh Sf341 million with an issue of mandatory convertible bonds in December 2003. Funds from the offering, underwritten by Credit Suisse, were used to buy out minority shareholders who had refused to convert their stock into shares of the holding company when Swiss Life created it in 2002. Once again, the money didn't come cheap. The conversion price on the bonds was set at a 39 percent discount to the market. By comparison, Allianz priced its 2003 rights issue at a 25.4 percent discount.

With that deal done, Dörig turned his attention to Banca del Gottardo, by far Swiss Life's biggest problem asset. The company paid $2.4 billion for Lugano-based Gottardo at the peak of the market in 1999. The bank has some Sf38 billion in assets under management and caters to wealthy Italians seeking to avoid the tax man. The drop in global equities hit the private banking market hard, however, and after the government of Prime Minister Silvio Berlusconi declared two tax amnesties, Gottardo also saw Sf2.5 billion of customer assets go back to Italy.

Dörig entered exclusive negotiations with UniCredito Italiano earlier this year over the sale of Gottardo, but the Italians walked away in April. A UniCredito executive says that the bank was willing to offer only Sf1 billion for Gottardo, well below the Sf1.5 billion sought by Swiss Life. Dörig contends that the fallout from Italy's Parmalat scandal effectively killed the deal, persuading UniCredito and Italian banking regulators that this wasn't the time to buy an offshore bank. Whatever the motive, Swiss Life is stuck with a private bank no one appears to want to buy. Gottardo predicts a pretax profit of Sf112 million in 2004, up 19 percent from last year's Sf94 million.

"It doesn't matter why we couldn't sell," says a clearly irritated Dörig. "The fact is, we didn't achieve. We had to face a new reality, so we had to say, 'What now?'"

Dörig's answer was to sell Gottardo from Swiss Life's main insurance subsidiary to its holding company. The move will strengthen the capital base of the insurance arm and remove Gottardo's profits from Switzerland's confiscatory new insurance regulations, benefiting shareholders. To finance the transaction, however, Dörig had to tap those shareholders for the third time in 18 months. The announcement stunned the group's long-suffering investors and triggered an 11 percent drop in the stock price.

Many investors, including some of Swiss Life's biggest shareholders, were livid. Premafin, the owner of Fondiaria-SAI, voted against the capital raising at Swiss Life's annual meeting -- a blatant rebuke from the company's largest shareholder. "It's not enough to say the capital increase is for the acquisition of Banca del Gottardo," says Premafin's Novarese. "We believe they should describe more deeply how they will use the funds."

Swiss Life got its money, but at a very high cost. It raised Sf834 million with a 1-for-3 rights issue priced last month at a dramatic 39 percent discount to the prevailing share price. It also raised Sf317 million with a mandatory convertible bond issue. The combined offering was underwritten by Goldman Sachs International and UBS. Premafin ultimately exercised its rights, as did more than 99 percent of shareholders, to prevent a dilution, but it shunned the bond issue, which was subscribed by only 10 percent of shareholders.

More telling, Novarese gave an effective vote of no confidence in Dörig by leveling a broadside against Swiss Life management at the annual meeting, while expressing appreciation to Gehrig for his efforts. "We are not completely satisfied with this management," Novarese tells II.

Swiss Life's other problem child is La Suisse, a nonlife business in the French-speaking part of Switzerland. The company put La Suisse up for sale in September 2002, saying it was no longer a core asset, but no buyers have emerged for the tiny domestic player. Dörig admits he has had little time to devote to the subsidiary. It did recover last year, posting a profit of Sf7.5 million, compared with a loss of Sf25.7 million in 2002, and Dörig says he's in no rush to sell it. For some analysts, however, that stance underscores a strategic void at the heart of Swiss Life.

"The company strategy was to get the government minimum guarantee lowered, offer new, better products and return to core competencies," says Eric Gueller, an insurance analyst at Zürcher Kantonalbank. "They got the minimum lowered, and the markets have improved on their own, but we're not seeing new products, we're not seeing the divestments."

Gehrig bristles at the criticism. "At the time the decisions were made to sell, the institution had to sell. This is no longer the case. We are no longer under existential pressure to bring in cash," he argues. "Now we don't have to sell Gottardo; we don't have to sell La Suisse. There is always the question of keeping them and creating more value."

Creating that value will require sharper strategy and better execution than Gehrig and Dörig have delivered so far, though, analysts say.

"In the beginning, I had a very good impression" of Dörig, says Kepler's Locher. "He was the right guy for the restructuring of Swiss Life. Now that it is getting harder and analysts are more focused on operating business, I'm not so sure."

Unless Dörig can revive the morale of his investors soon, he may face the same fate as his predecessors.