A Helping Handicap.

Lars-Eric Petersson says his golf handicap will never improve beyond 18. "I'm very happy with it," says the chief executive of Swedish savings and insurance company Skandia.

"And no one ever outperforms their aspirations."

The same principle, he argues, applies to companies: If you don't aspire to great things you'll never achieve them. You have to think big, especially if your starting point is a small company from the North."

The son of a grocery store owner in southern Sweden, Petersson studied economics and then went into selling financial products. He joined Skandia in 1993, taking the helm in 1997. Since then he's been something of a star performer, becoming one of Sweden's highest-paid executives.

Until recently, Petersson's grand ambitions had Skandia rapidly growing its global reach in its core activity of asset accumulation and long-term savings. It now has operations in more than 20 countries in Europe, Asia, and the Americas and is setting its sights on China. In 1999, total sales climbed to SEK 198 billion ($20.3 billion in U.S. dollars), up 48 percent from the year before, while profits rose 22 percent to SEK 5.8 billion ($595 million). Assets under management climbed 19 percent to SEK 992 billion ($102 billion). Skandia has gathered accolades on both sides of the Atlantic for the strength of its products and its brand.

Yet all is far from rosy. Skandia's U.S. markets, which had been leading the charge of favorable financials, took a nasty fall in the last quarter of 2000. Skandia also faltered in other markets. UK sales were flat, sales dropped 10 percent in Sweden, and growth slowed in new markets like Japan. What had been an unbroken record of double- and triple-digit growth went into sharp reverse, with total sales dropping 37 percent to SEK 12 billion ($1.24 billion). The U.S., where Skandia had nabbed the top slot in variable annuities, was hardest hit. America Skandia's annuities sales halved from $1.6 billion to $800 million, dropping the company to third place in that arena, and mutual fund sales slipped from $1.1 billion to $500 million. Its tentative plans for a U.S. listing looked decidedly less promising as its share price tumbled.

Analysts give credit for the troubles to the sudden return of the bear market, combined with Skandia's failure to cut costs as sales fell and its reluctance to sell products offering a guaranteed return.

Fortunately for Skandia, Petersson doesn't tolerate complacence off the golf course. He responded to the potentially crippling events by instigating cost-cutting measures, promising a raft of new products this spring--and pointing to the continued long-term growth prospects for savings products. The downturn in U.S. results, he argues, is a blip, rather than fundamental weakness.

If so, it's a blip Skandia is taking to heart. The company announced a 13 percent reduction in its U.S. workforce in March and an "aggressive operating expense reduction" program. "The prolonged duration and severity of the market pullback, along with the difficulty in predicting the timing of its culmination have led us to these hard decisions," explains Wade Dokken, CEO of America Skandia.

In Europe, meanwhile, the picture continues to brighten. Growth has been especially strong in the UK and the Nordic region. In fact, the only cloud for Skandia in Europe is its involvement with If Property Casualty, the non-life insurance joint venture it set up with Norway's Storebrand and Finland's Pohjola in 1999. The idea is still to float--or perhaps sell--If. But plans for an IPO were delayed last year by Pohjola's rather acrimonious withdrawal.

Getting rid of If would complete the strategy, embarked upon by Petersson in the mid-'90s, of turning Skandia from an insurance-based company into one focused on long-term savings.

"Property and casualty [insurance] is a very mature business," says Petersson. "Nowhere is it growing more than GDP. To manage both a growth market, like long-term savings, and a mature market is very difficult. We want to float off If. We want to be a happy shareholder, but a financial, not a strategic, investor."

The decision to focus on long-term savings has sound demographics behind it. Now more than ever, as human beings live longer and state pension schemes struggle to keep up, people see the need to provide for their own retirement. Hence Petersson's interest in China, the holy grail for long-term savings--not only does it have the world's largest population, but decades of single-child families have resulted in a rapidly aging population.

Skandia isn't the only company in the world to have spotted this demographic trend. But as one London-based analyst, who asked not to be named, put it: "Part of the reason Skandia has done so well is because the competition sucks. Insurance companies are not well structured to serve the needs of customers. They're product pushers, not financial solutions providers."

What Skandia's Assurance and Financial Services division has done very successfully, by contrast, is set itself up as a wholesaler. It designs and packages a wide range of financial products based on external fund managers and sold by an independent sales force of financial advisors who are wooed, trained, and carefully cosseted.

This isn't rocket science, observes the analyst. But Skandia had the advantage of seriously entering the long-term savings market as a newcomer a decade or so ago without an existing sales force who had to unlearn old skills.

"If you have a tradition of agents and direct sales people, you are burdened with attitude," he opines. Other companies have since followed suit, but no one is adopting this model on a global scale.

Petersson himself would enjoy the comment that other companies are burdened with attitude. One of his favorite ideas is that the three key factors in a high-performance company are "attitude, attitude, and attitude."

vital statistics

Lars-Eric PETERSSON

CEO, Skandia

"You need goals that are not reachable to get the momentum going."

Age: 51

Family: Married, two Sons.

Education: B.S. in economics, 1974.

Professional Goal: Turning Skandia into a global player of size. Short-term, Petersson faces the challenge of guiding the company through a downturn in the U.S. and a possible slowdown across Europe.

Boards: Telia AB, National Agency for Higher Education (Sweden), Director of IMD 

Hobbies: Golf