Since I wrote my last portfolio update two months ago, it is time for a new report.

New Buys

• PartnerRe
• Allstate
• Assurant
• Nucor
• Genuine Parts
• Pepsico
• CRH
• Alliant Energy

New Sells

• Avnet
• Lincoln National
• YRC Worldwide
• CRH
• Jones Apparel
• Assurant
• Group 1 Automotive
• Smithfield Foods
• MetLife
• International Rectifier
• Cemex
• Officemax
• Universal American

Rebalancing Buys

• Shoe Carnival
• Charlotte Russe
• Devon Energy (2)
• RGA
• SABESP
• Ensco International (2)
• Industrias Bachoco
• Magna International
• Valero
• Kapstone Paper
• Hartford International (3)
• Cimarex Energy
• Lincoln National
• Smithfield Foods
• Allstate
• ConocoPhillips (2)
• Tsakos Energy Navigation

Rebalancing Sells

• PartnerRe
• Safety Insurance
• Devon Energy
• Ensco International
• Hartford Financial (3)
• Kapstone Paper
• Cimarex Energy
• Nam Tai Electronics (2)
• Honda Motors (2)
• Lincoln National (2)
• ConocoPhillips
• Charlotte Russe
• Shoe Carnival

I’ve had a lot of trades over the past two months, which is normal for me when volatility rises.

I have been asked by a number of parties why I don’t write about the insurance industry in this environment, given my past experience.? My main reason is that I have left it behind.? When I became a buyside insurance analyst, I had strong opinions about what made a good or bad insurance company.? For the most part, those opinions were correct, but there is a fundamental opaqueness to insurance.? One truly can’t analyze it from outside.? No boss would hear that, even if true.

I benefitted from the cleaning up of insurance assets 2002-3, and thought that the cleanup had persisted.? Largely, it has, but many life companies rely too heavily on variable products for profitability, and as the market has fallen, profits from variable products have fallen harder.? Thus my mistakes with Hartford, MetLife and Lincoln National.

That brings up two other possibilities where things can continue to go wrong in life insurance.? If fees are permanently reduced the companies might have to write down the deferred acquisition costs [DAC] that they capitalized when originally writing the business, if the expected cumulative fees are less than the DAC.? The second issue is hedging the guaranteed living benefits.? I will never forget the look that the CEO of Principal Financial gave me when I asked him how well the futures/options hedges during a month where the S&P 500 is down 20-30%.? It was not a pleasant look.? Not that that scenario could ever happen. 😉

My picks in pure P&C insurance have fared better.? Safety Insurance is a solid company; so is PartnerRe.? Would that I had done more there, and less in life companies, especially the equity sensitive ones.

So what do I hold today among insurers?

• Allstate
• Assurant (bought after the marginally bad earnings announcement)
• Hartford (yes 🙁 )
• PartnerRe
• Reinsurance Group of America
• Safety Insurance

Yes, I am overweight insurance, and I have paid the price, particularly with Hartford.? There is an uncertainty connected with life insurance holding companies about the ability to upstream dividends to service debt.? That uncertainty only appears in bear markets, and all the hubbub over optimizing the capital structure is so much hooey.? Assurant is in better shape because it ceased buying back stock because of the (somewhat bogus) investigation of a few of their executives.

Two final notes to close.? I had a bad October, worse than the S&P 500 by a significant margin.? My exposures in life insurance and emerging markets drove that.? Second, I may have my first equity client, and so I may be curtailing some of my discussion of individual names in my portfolio, and deleting my portfolio at Stockpickr.com.? My clients come first.

Full disclosure: long ALL AIZ HIG PRE RGA SAFT SCVL CHIC COP HMC NTE XEC KPPC ESV DVN TNP VLO MGA SBS CRH LNT PEP GPC NUE (what have I left out?!)