(FORTUNE Magazine) – THINK OF the great companies of the U.S. life insurance industry, their names redolent of solidity and the promise of security for families suddenly bereft of breadwinners. Prudential, Metropolitan Life, ICH Corp. . . . Hold on a minute. ICH Corp.? What's that? Well may you ask. If ICH, a life insurance holding company that has made a career out of acquisitions, were to grow in the next five years as it has in the last five -- from $800 million in assets to $8 billion -- the company would reach $80 billion by 1992. At that point Prudential, the industry's leader with $134 billion in assets today, might well be looking over its shoulder. Is that where ICH, this unknown upstart, is headed -- ever upward? At home base in Louisville, Kentucky, Robert T. Shaw, 52, the hard- charging country boy who built ICH from nothing, chews on that question. He's ambivalent. He doesn't think $80 billion is necessarily in the cards, but he certainly expects ICH to be significantly larger in 1992 than it is today. One near-certainty is that Bob Shaw and ICH will kick up plenty of controversy, just as they have in the past. Shaw has given ICH a set of financial characteristics that virtually invite suspicion. The initials once stood for Insurance Company Holding. Shaw has always gone for leveraged buyouts, which he began doing many years ago, before they even had a name. ICH's debt is more than $1.4 billion and equity only $813 million; on the asset side of the balance sheet are a few items of uncertain value created by the magic of accounting. Profits, too, have a habit of appearing through accounting. At the same time taxes do a disappearing act, whisked away by what an ICH officer calls ''aggressive'' efforts to avoid them. Nonetheless, this outfit is not solely a financial contraption. ICH's 1986 profits were $147 million, a solid result for a company that paid $70 million in interest before getting to its bottom line. Behind this accomplishment is a fundamental strength: ICH has an undeniable ability to run insurance companies. Until recently, ICH's stock was also an undeniable success. From around $1 a share in 1980, its price soared to a peak last June of $32. But that's yesterday's news. In mid-March ICH was down to $17, a true rout in the midst of a roaring bull market. At that price, the company was selling at only six times its 1986 earnings per share. No cataclysmic news did the stock in. Reasons for selling just seemed to pile up: Analysts were rattled by two successive quarters of unpleasant earnings surprises in the second half of last year. Some investors began to have qualms about ICH's latest and biggest acquisition, two life companies * owned by Tenneco that ICH bought on December 31. A fraud judgment came down against Shaw and ICH. Even the name Ivan Boesky entered the picture. Probably most important, ICH made an alliance with two highly controversial parties -- Los Angeles insurer First Executive Corp. and its redoubtable chairman, Fred Carr. The country's most conspicuous buyer of junk bonds, he is close to Drexel Burnham Lambert and its West Coast junk bond czar, Michael Milken, and often at odds with insurance regulators. Behind the scenes, it turns out, Shaw has helped Carr solve some of his regulatory problems. Several links -- some reported here for the first time -- have formed between these two men, and none has done much for Shaw lately. He is no stranger to adversity. Shaw grew up in small Arkansas and Texas towns, the son of a plumber who often barely scraped by. As a boy, Shaw fished for ''the protein,'' not the fun. College was out. After high school Shaw simply went to work, for a while making and selling ornamental ironware and awnings. He also married at 18. Shaw's interest in insurance arose a bit later, after he had joined the Air Force. He spent 3 1/2 years in Colorado, first learning and then teaching electronics. Occasionally he would drive to Arkansas on duck-hunting trips with a buddy who had a yen to go into the life insurance business. New life companies were a hot item those days in places like Arkansas and Texas. Typically, they were formed by promoters who would try to sell both shares and insurance to a designated group -- teachers, for example, or Baptists. The more Shaw heard about the life insurance business, the more he liked its sound. Today he lists its virtues: ''There's very little labor involved for the business you get to handle. It's a cash business. If you stop selling new policies, the postman will still bring you checks from existing ones. Your product doesn't thaw out or get old. It's a liquid business. When you buy a company, all you're buying is money -- bonds and the like.'' In 1964, after the Air Force and another fling at awnings, Shaw at 29 made his assault on this seductive world. He picked Kentucky as a base because it was relatively underpopulated with new life companies, a scarcity that Shaw hoped would help him raise capital. He gave his company a name that suggested scope and substance, American Security Corp. But in truth he had little going for him. He had almost no life insurance experience except those conversations during duck hunts. It helped that he was tall and good-looking. But he also looked awfully young, even though he combed his hair artfully, trying to make the most of a few locks that had turned gray when he was 17. SHAW'S GOAL was to sell $2.7 million of stock in his company. Under Kentucky's securities laws he had a year to get the money. Whatever he raised in the meantime had to go into an escrow account, to be refunded if he failed to reach the goal. After nine months Shaw had only $900,000, so he hit upon merging with another company struggling to get out of escrow. This company's capital goal was $1 million, toward which it had raised $100,000. That plus Shaw's $900,000 made $1 million, and bingo, the merged company was out of escrow. (Soon after, Kentucky passed a law barring such elopements.) Shaw's own stake in the new company was $35,000 that he borrowed, unsecured, from a Louisville banker. Shaw contributed ''American'' to the new company's name; the other company threw in ''Pyramid.'' So Shaw really got his start in American Pyramid Cos., a name that by pure coincidence described his purpose: accumulating companies, not forming them. He knew, he says, that the new companies would run out of easy sales and grow sick of the game. In effect, he planned to make money off other people's discarded cigar butts. As the years passed, the constant denominator in his deals was always debt. But the cigar butts got bigger and bigger and of better quality -- coming to resemble Havanas, so to speak, rather than White Owls. By 1975 Shaw had bought ICH, a publicly traded company, and was just warming up. He also had been in some trouble on the way. In the early 1970s the Kentucky commissioner of insurance seized Shaw's operations for nine months, claiming they were financially under water. (Shaw says that was ''politics'' and that he did not deserve the rap.) Shaw has managed to bruise a few opponents himself through the years. ''I don't want to fuss with you,'' is a Shaw line that has preceded a lot of fusses, including proxy fights and other struggles for control. He concluded in some of the early battles that a tight personal grip on his businesses was vital. Today ICH looks rather like a Shaw fiefdom: Superimposed on it is a private company, Consolidated National Successor Corp., owned 55% by Shaw, 35% by a longtime Louisville associate, C. Fred Rice, and 10% by another associate. Consolidated holds not only 20% of ICH's common stock but also 100% of a voting preferred stock that controls the company absolutely. Shaw's ICH stock, most of it owned through Consolidated, is worth roughly $100 million. Shaw retains his pleasant looks but packs at least 20 excess pounds. He is low-key and unpretentious. ICH headquarters in Louisville occupy a small three-story building plopped down in a suburban residential area. Shaw is frugal. New York prices pain him. ''I can't possibly sleep hard enough to get value out of a $220 room,'' he jokes. Shaw fishes for fun these days, often taking off in one of two motor homes he owns and loves. His fishing companion is sometimes Denny Crum, coach of the University of Louisville basketball team, last year's national champ. Shaw is a rabid fan. But that is about the extent of his dedication to Louisville. He takes no part in civic affairs and is not well known in the city. Most days he stays away from the Wall Street Journal also. ''I don't want to get confused,'' he says. Sometimes that means he is uninformed. Take the Boesky connection: Shaw says that a year ago, when a broker suggested that ICH put money in Boesky's partnership, he had never heard of this swinger. Checking further, Shaw decided to commit $10 million, half debt and half equity. ICH has recovered the debt; the fate of the equity is uncertain. Over the long term, much of Shaw's success seems to have been based on a tremendous facility with numbers. Says associate Rice: ''His strength is that he can size up massive financial statements in a short time and come out seeing both the opportunities and problems. Probably his biggest fault is that he thinks so fast he doesn't finish his sentences. He can be hard to understand.'' SHAW CAN ALSO be a demon bargainer. Three years ago he bested Torchmark, a Birmingham, Alabama, insurance company, in a bidding contest for Bankers Life & Casualty, a Chicago health and accident company then owned by the John D. MacArthur Foundation. Paul Purcell, the Kidder Peabody investment banker who conducted the auction, remembers that when it was over Ronald K. Richey, now chairman of Torchmark, said: ''I don't ever want to bid against that fellow again.'' Moreover, since making the Bankers deal for $382 million, Shaw has worked the price down by $12 million. And that's just a canape compared with what he extracted from Tenneco, which agreed last June to sell its subsidiaries, Southwestern Life and Philadelphia Life, to ICH for $1.5 billion, subject to negotiations on final terms. Months later, partly thanks to hardball, Shaw paid $1.26 billion. His pursuit of the best price possible has caused him legal problems. Last fall Shaw, ICH, and two of its subsidiaries lost an appeal of a fraud judgment against them. The case grew out of a tender offer they made in 1979 for a minority interest in still another subsidiary. They paid $5 a share. A North Carolina jury found that Shaw and the other defendants had misled minority shareholders about the company's worth and had violated their fiduciary duty to them. The jury set damages at $5.28 a share, or a total of $1,436,000 -- not that much, but no one likes to be on the wrong end of a fraud judgment. That verdict is being brandished by the plaintiffs in another case. They charge that in an acquisition financed with ICH stock, Shaw and ICH paid too little for the minority shares in ten subsidiaries they merged into ICH in 1982. The plaintiff is TBK Partners, a New York money management firm that practices ''value'' investing and does not take kindly to getting paid less than it thinks warranted. In this lawsuit, certified recently as a class action, TBK is claiming that the shareholders of the subsidiaries were underpaid by at least 37 million ICH shares -- equal to more than two-thirds of the shares now outstanding. Shaw says the case has ''absolutely no merit.'' As all this suggests, Shaw is the buyer at ICH, not the operating man. ''I've been lucky,'' he says. ''Someone always turned up to do that job for me.'' The latest is ICH's president, John W. Gardiner, 56, a lifelong insurance professional who joined ICH in 1981 when Shaw bought the company he worked for. Gardiner is based in Denver, where ICH has a major processing center. Gardiner and Shaw differ dramatically in style. Gardiner's luxurious office, meant to impress insurance agents, has a sweeping view of the Rockies. Shaw likes to keep himself flexible and his calendar free; Gardiner has every moment of his day planned. Shaw defines broad goals; Gardiner pesters him for details on how the hell the company is to get there. ''We argue a lot,'' Gardiner said recently. An ICH public relations vice president sitting in protested that was putting things too strongly. ''No,'' Gardiner persisted, ''we argue.'' The one point they plainly do not argue about is the need for economy. ICH's management staff, a handful of hard-worked executives, regards every acquisition as an assemblage of costs to be whacked. ''Bob Shaw has an insatiable appetite for cutting expenses,'' says a Bankers Life executive. Gardiner works under a rubric he calls ''the model company concept,'' aimed at installing efficiency in an industry that has traditionally lacked it. Essentially, he demands assembly-line standards. For example, an employee might be expected to process 50 claims a day. Layers of management are apt to vanish once ICH takes a company over. At the same time, Shaw and Gardiner are solicitous of ''the field'' -- the managers and agents who bring in the business. ICH wants and expects internal growth and has achieved large quantities of it, though the company seldom gets much credit for that. ICH's latest acquisition, the Tenneco insurance companies, represents a new magnitude of challenge. They are big: Southwestern was No. 23 on FORTUNE's last list of the 50 largest life companies, and Philadelphia Life was not far off it. The pair roughly double ICH's assets and obviously raise its earnings potential. The companies, however, are not now inspiringly profitable. Last year their combined statutory earnings, a rough measure of their ability to generate funds for ICH, were under $10 million. In 1985, a better year, they earned $35 million. And yet to buy these companies ICH paid that $1.26 billion, largely financed through $1 billion of new debt and other fixed obligations. As Gardiner himself says, ''This is the toughest damned thing we've ever done.'' FOR AT LEAST a while, the rest of ICH will have to help with the debt. Gardiner has a cost-cutting program intended to chop upward of $80 million out of expenses by the end of 1990, paring today's costs by about 40%. A key step will be consolidation of the two Tenneco companies in Dallas with another ICH company, Great Southern, being brought up from Houston. Gardiner's plan -- note that this man does not deal in round numbers -- calls for 1,132 employees ultimately to do the work once done by 2,001. ICH will also be battling to make the new companies grow. Gardiner has just won an early round in that fight at meetings held in Dallas for the field forces of his two new companies. Kay Dempsey, a Philadelphia Life regional director from Atlanta, says she and many friends went into the meetings apprehensive about this oddball, ICH, and emerged enthusiastic: ''What I found is that these guys are professional managers.'' Only days before, however, ICH struck out with another important constituency -- security analysts. Trouble on this front began in the third quarter of 1986, when the company reported operating earnings far short of what most analysts had been expecting. The stock fell, whereupon ICH promised to do a better job of guiding the analysts to respectable estimates. Alas, the company itself failed to do a good job of forecasting fourth-quarter operating earnings, which came in at $28 million instead of the more than $40 million everyone assumed was in the bag. That alone sent the stock down from $21 to $17. Part of the fourth-quarter problem was that Shaw and others simply didn't have a handle on the numbers. The analysts heard many a mea culpa about that. But no one told them that another part of the problem was $9,750,000 that suddenly vanished from the quarter's earnings because of an accounting rinky- dink ICH's outside auditors wouldn't buy. Had the analysts heard the story, they would also have learned it involved Fred Carr and First Executive. First executive, with $14 billion in assets, is another insurer that grew from nothing. It has thrived on various products that offer high rates of return, made feasible through the company's heavy reliance on junk bonds. Carr has been in Shaw's picture since last October, when ICH made the startling announcement that it was buying seven million shares of newly issued First Executive stock -- 9.9% of the total to be outstanding -- for $138 million. The investment community blanched. Why, it asked, would a highly leveraged company, already strapped from its biggest-ever acquisition, the Tenneco properties, want to put that much into a single stock, and one paying no dividends at that? WITHIN WEEKS, moreover, the Boesky insider trading scandal hit the news and Shaw looked downright foolish -- not just because he had put money with Boesky, but because Drexel Burnham and some of its big customers, among them First Executive, were immediately rumored to be facing legal trouble themselves (which has not materialized). First Executive's stock, which had cost ICH $19.71 a share, promptly sank below $17. Shaw, shaken by the events, also faced sudden though temporary trouble completing the financing for the Tenneco deal. ''There was a point toward the end of last year,'' he says, ''when I said that everything dumb I could have done I'd done.'' Still, he says, he's glad he made the deal. Shaw thinks of it as basically an investment in Fred Carr, whose investment skills he greatly admires. Shaw also thinks of First Executive and ICH as having real merger possibilities. First Executive, he says, is 90% investments, while ICH is 90% insurance: ''If you took the best of both companies, you'd have a super life insurance company.'' Is a merger in the cards? ''I can't know that, but it's certainly not something that I wouldn't like.'' That means he'd go for it. Besides, says Shaw, ''there are a lot of things we can do even now that might be mutually beneficial. Like reinsurance.'' It turns out that Shaw and Carr have already done two big reinsurance deals, both unannounced. As with all reinsurance contracts, the details are complicated. But the upshot was that Carr got to show an additional $50 million in 1986 profits in the financial statements he filed with regulators for his subsidiary, Executive Life of New York, and Shaw ended up with two big new risks on his books. One risk makes an ICH company, Bankers, liable for $50 million in reinsurance if Executive Life of New York does not pay. The second leaves First Executive owing Bankers and four other ICH companies $183 million for securities they have deposited in a trust account with First Executive. For all this, Shaw seems to have received little compensation. ICH was paid a $9,750,000 ''fee'' on the second transaction, which was signed December 31. But in early March, just as ICH was getting ready to include that amount in reported fourth-quarter earnings, the company's accountants, Coopers & Lybrand, said the fee must be spread across the five-year term of the contract that had created it. That is the vanishing $9,750,000 the analysts never heard about. At the least, this episode in the ever-eventful life of Bob Shaw should tell investors that ownership of ICH stock is not likely to add placidity to their own lives. What seems to be at work here is a corporate split personality, expert at running insurance companies even while it is pushing the edge of the envelope financially. That combination will surely produce further news. Shaw himself says, ''I know that I have not yet done the most exciting thing in my life.'' Good or bad, that should be something to watch.

CHART: NOT AVAILABLE CREDIT: SUSAN PIZZO CAPTION: Popping Up -- and Down Staying on a steep climb, ICH's assets doubled in 1986. But when trouble hit on several fronts, the company's shares took their biggest fall ever. DESCRIPTION: Two charts: ICH Corp. assets and stock price, 1980 to 1986; color illustration of popping Jack-in-the-box.