When you’re a long-term holder of a P&C Insurance company, you know that the industry has always gone through cycles of ups and downs, though not necessarily for every kind of product at the same time, and you want to be able to trust in the company’s discipline — which means you want them to sometimes choose not to grow in every part of their business, because sometimes the market pricing for insurance coverage is irrational and doesn’t cover the insurer’s risks. That’s sometimes hard to do, because you can report high growth now by taking risks that will only show up in losses probably years from now, and that’s tempting, so you really want a long record of disciplined behavior.

My core belief in this industry is that you want to buy the best underwriters and investors whenever they trade at appealing valuations, and you want to hold on to them for a long time — you want consistent underwriting profitability from a growing insurance business, and you want that to fuel an investment book that becomes large enough to help book value compound at a high rate over time.

There will always be occasional quarterly blips from catastrophes or discrete underwriting mistakes, that’s what we usually see… but it’s also true that during a soft market, when too much competition comes in to try to take market share, the best companies might also shrink from time to time, writing less coverage because the risk isn’t worth the price, and the stocks can easily go through multi-year periods when they don’t show much gain at all. We still want to own those best-in-class underwriters during those times, which means we have to learn which companies to trust, and be patient — and we want to own a handful of different ones, because they won’t all get the cycles right all the time.

And I think two of the better companies at managing these cycles, and explaining their position to investors, are Chubb (CB) and W.R. Berkley (WRB), mostly because they have seasoned leaders who aren’t afraid to say blunt and contrarian things. Both reported this week, along with specialist E&S insurer Kinsale (KNSL), so I’ve got some thoughts (and new valuation thinking) for all three as we seem to be mired in a pretty meaningful “softening” of risk pricing. That general sentiment could change significantly with big changes to ...