The broad market fund was up 85 basis points this week, against a disappointing 25 bp loss for the S&P. My balanced mandates were up 40 basis points, also good. In general, my cyclical and foreign names outperformed.

On the insurance side, Conseco reported that it would be taking some middling charges — the reaction in the stock market was muted. My own estimate of reserve insufficiencies is higher than what they took, so if this cleans it all up, this is a net plus. I’m still waiting to hear back from Conseco IR, so I can’t really tell what is going on yet. From my recent conversation with James Prieur, the CEO, I think the company is on the right track; the only real question is how bad the old long term care [LTC] block is.

Lincoln National increased its buyback today. I appreciate the shareholder-friendly actions of many insurers. Rather than being hyper-competitive, many companies are returning capital in the soft part of the pricing cycle, and that is the right thing to do.

Long LNC CNO

Insurance stocks are tricky for several reasons. There are probably more unique accounting rules for insurance, then any other industry. Why? The cost of goods sold is not known at the issuance of a policy. Every dollar into an insurance company is equal, but every promise made is not equal. Over time, estimates of cost become more accurate, but with long-tailed lines the progress is often fitful at best.

Life reserving is a science (please ignore the new funky investment derivatives inside some policies). Short-tailed P&C reserving is close to a science. Long-tailed P&C reserving is an art, and a dark art. I’m not sure that even the internal actuaries reserving the long-tailed lines can be that comfortable with the accuracy of the reserves.

This is why it pays to stick with conservative and competent managements that have shown that they can manage the soft part of the cycle. I may miss some speculative gains managing this way, but for the most part, I will miss out on the losses. To give you further insight into my philosophy, here’s a presentation that I gave to the Southeastern Actuaries Club. (I am available for other speaking engagements if I can show my employer a business purpose.)

1. The Broad Market Portfolio made 30 basis points yesterday, amid a rally in some cyclicals. Names that worked for me included Tsakos Energy Navigation [TNP], Royal Bank of Scotland [RBSPF], and Lafarge SA [LR]. Industrias Bachoco SA lagged, but after yesterday’s great performance, who can complain? Energy names did okay, but less well than the commodity; this may be part of a correction for the recent energy equity outperformance.

2. I think Cramer has it wrong on railroad mergers. The great demand in rail is for traffic to go East-West, not North-South. If the antitrust authorities allowed it, it would make sense for Union Pacific and Norfolk Southern to merge, as well as Burlington Northern and CSX. That would offer far more value than what he proposes.

long RBSPF ABN BCS IBA TNP LR

1. Hartford increases its buyback authorization by a billion dollars. Well good. Like Allstate, they are oozing free cash flow in this environment, and don’t have as many reinvestment opportunities; they ought to be returning cash to shareholders, but cautiously, buying only on dips.

2. How do you lower personal lines insurance premiums, if you are a state regulator? Oddly, the answer is to not panic and create mandates for insurers in the state, but to allow free entry and exit for the insurers. Premium rate filings should either not be required, or be “file and use.” If a regulator does that, the insurers will trust the regulator, and there will be no lack of insurance companies seeking business in the state. Premium rates will fall.

Immature regulators place demands on insurance companies (leaving aside fraud issues). Mature regulators focus on fraud, and let the market do its work.

Long ALL HIG