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Shares of health insurer


(CNO) - Get CNO Financial Group, Inc. Report

are down 30% year to date, trading midday Wednesday at $13.98. Volatile trading is nothing new for the company.

Conseco filed for bankruptcy in 2002 with more than $52 billion of assets on its balance sheet, making it the third-largest U.S. bankruptcy at the time. The company re-emerged in September 2003 with its assets valued at about 10% of what they were the year before, with a stock trading at $20. And until recently, Conseco shares had remained above that level.

The latest decline came Aug. 6, when the company posted another surprise loss for the second quarter as management boosted reserves by $110 million to cover increased claims on long-term nursing health care policies that it sells to senior citizens. This marks the third straight quarter that Conseco had to increase reserves.

Despite the declining stock price, management is showing no signs of panicking yet. Led by CEO James Prieur and CFO Edward Bonach, company insiders have bought 128,500 Conseco shares on the open market since the second-quarter report.

With that in mind, I'm here to answer readers' questions: Should you buy shares in Conseco? Are the insiders putting a bottom in Conseco with their buying, or is the stock potentially headed for the single digits?

Prieur took office a year ago and is the company's third leader since Conseco re-emerged from bankruptcy, and he has targeted $100 million of earnings improvements over the course of 2007. And while the market's recent focus has been on the company's long-term care business, Conseco is posting solid growth outside of that area.

Total revenue grew 10% year over year in the second quarter, driven by a 23% improvement in sales from its Colonial Penn life insurance business. The Banker's Life division (about 50% of total sales), which offers financial planning and insurance services to seniors, also grew its revenue 19% year over year in the second quarter.

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In addition to the recent insider buying, Conseco boosted its stock repurchase program in May from $150 million to $350 million. The company said in its second-quarter earnings report that increased claims from the long-term care business took away capital that could have otherwise been used for the buyback, but I expect that management will likely soon start repurchasing treasury shares in addition to the recent insider buying for its own accounts, if it hasn't already.

So yes, I would recommend buying Conseco at current levels. Backing out deferred tax assets on its balance sheet, Conseco had a book value of $14.48 at the end of the second quarter. This is 4% above the current share price, and I don't expect Conseco to trade at a discount for book value for too long.

Assuming the company's long-term care reserve situation settles down in the next quarter or two, the stock could return to the high teens over the coming months, as investor focus returns to the solid revenue growth at Conseco's other businesses.

David Peltier is a research associate at In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Peltier appreciates your feedback;

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