DFG Delphi Financial Grp., Inc.

WILMINGTON, Del., Oct. 24 /PRNewswire-FirstCall/ -- Delphi Financial Group, Inc. (NYSE:DFG) announced today that net income in the third quarter of 2006 was $36.2 million or $0.71 per share, compared to $22.0 million or $0.44 per share in the third quarter of 2005. In the third quarter of 2005, net income per share included after-tax realized investment gains of $0.04 and losses from discontinued operations of $(0.21). Prior period per share amounts have been restated to reflect the 3-for-2 common stock split effected on June 1, 2006. Operating earnings(1) in the third quarter of 2006 increased 19% to $36.4 million from $30.6 million in the third quarter of 2005. Operating earnings per share rose 16% to $0.71 from $0.61 a year ago. Operating earnings for the first nine months of 2006 increased 21% to $106.0 million compared to $87.5 million a year ago, while operating earnings per share grew 19% to $2.09 per share from $1.75 per share in the first nine months of 2005. For the first nine months of 2006, net income was $101.9 million or $2.00 per share, compared with $84.1 million or $1.68 per share in the first nine months of 2005. Net income in the first nine months of 2006 included after-tax realized investment losses of $(1.2) million or $(0.03) per share and losses from discontinued operations of $(2.9) million or $(0.06) per share. Net income in the first nine months of 2005 included after-tax realized investment gains of $5.5 million or $0.11 per share and losses from discontinued operations of $(9.0) million or $(0.18) per share. Core group employee benefit premiums in the third quarter of 2006 grew 18% from the third quarter a year ago, reaching $280 million. This growth was driven by a 21% increase in premiums from excess workers' compensation insurance at Delphi's Safety National subsidiary and a 20% increase in group disability premiums at Delphi's Reliance Standard Life (RSL) subsidiary. The combined ratio for the Company's group employee benefit products in the third quarter of 2006 was 93.3%, which was unchanged from the third quarter of 2005 and down from 94.1% for full-year 2005. Robert Rosenkranz, Chairman and Chief Executive Officer, commented, "Delphi's excellent financial results reflect continued growth and improved margins in our insurance operations and strong investment performance in the quarter. Our premium growth continued to benefit from strategic initiatives implemented over the past two years to expand our distribution and strengthen our market leadership positions. The CDS division of RSL, established in April to lead RSL's expansion in the attractive turnkey group disability market, made a strong contribution to our premium growth in the third quarter. Safety National's solid growth in excess workers' compensation production was boosted by renewals of former excess workers' compensation clients of Employers Re, for which we purchased renewal rights in July 2005." Mr. Rosenkranz added, "We are continuing to capitalize on positive market trends in our insurance businesses, including the ongoing hard market for excess workers' compensation and the favorable climate for our small-case niche at Reliance Standard. As a result, we remain confident in our outlook for strong earnings growth in the remainder of 2006 and heading into next year." Delphi's net investment income in the third quarter of 2006 was $66.2 million, a gain of 23% from $53.8 million in the same quarter a year ago. Invested assets at September 30, 2006 were $4.3 billion, an increase of 13% from $3.8 billion at September 30, 2005. The pre-tax equivalent yield on the Company's investment portfolio in the third quarter of 2006 was 6.6% compared to 5.9% for the third quarter of 2005. Delphi's shareholders' equity was $1.1 billion at the end of the third quarter, and book value per share before accumulated other comprehensive income(2) rose to $22.52 at September 30, 2006 compared with $20.59 at December 31, 2005. Conference Call On October 25, 2006 at 11:00 AM (Eastern time), Delphi will broadcast the Company's third quarter 2006 earnings teleconference live on the Internet, hosted by Robert Rosenkranz, Chairman and Chief Executive Officer. Investors can access the broadcast at http://www.delphifin.com/ by clicking on the webcast icon on the home page. It is advisable to register at least 15 minutes prior to the call to download and install any necessary audio software. The online replay will be available on Delphi's website for one week beginning at approximately 1:00 PM (Eastern time) on October 25, 2006. Investors can also download Delphi's third quarter 2006 statistical supplement from the Company's website at http://www.delphifin.com/. In connection with, and because it desires to take advantage of, the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, Delphi cautions readers regarding certain forward-looking statements in the foregoing discussion and in any other statements made by, or on behalf of, Delphi, whether in future filings with the Securities and Exchange Commission or otherwise. Forward-looking statements are statements not based on historical information and which relate to future operations, strategies, financial results, prospects, outlooks or other developments. Some forward-looking statements may be identified by the use of terms such as "expects," "believes," "anticipates," "intends," "judgment," "outlook" or other similar expressions. Forward-looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic, competitive and other uncertainties and contingencies, many of which are beyond Delphi's control and many of which, with respect to future business decisions, are subject to change. Examples of such uncertainties and contingencies include, among other important factors, those affecting the insurance industry generally, such as the economic and interest rate environment, federal and state legislative and regulatory developments, including but not limited to changes in financial services, employee benefit and tax laws and regulations, market pricing and competitive trends relating to insurance products and services, acts of terrorism or war, and the availability and cost of reinsurance, and those relating specifically to Delphi's business, such as the level of its insurance premiums and fee income, the claims experience, persistency and other factors affecting the profitability of its insurance products, the performance of its investment portfolio and changes in Delphi's investment strategy, acquisitions of companies or blocks of business, and ratings by major rating organizations of Delphi and its insurance subsidiaries. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, Delphi. Delphi disclaims any obligation to update forward-looking information. Delphi Financial Group, Inc. is an integrated employee benefit services company. Delphi is a leader in managing all aspects of employee absence to enhance the productivity of its clients and provides the related insurance coverages: group life, long-term and short-term disability, excess workers' compensation for self-insured employers, travel accident and dental. Delphi's asset accumulation business emphasizes individual fixed annuity products. Delphi's common stock is listed on the New York Stock Exchange under the symbol DFG and its corporate website address is http://www.delphifin.com/. (1) Operating earnings, which is a non-GAAP financial measure, consist of income from continuing operations excluding after-tax realized investment gains and losses, as applicable. After-tax net realized investment (losses) gains were $(0.2) million and $2.2 million, or $0.00 per share and $0.04 per share, for the third quarter of 2006 and 2005, respectively, and $(1.2) million and $5.5 million, or $(0.03) per share and $0.11 per share for the first nine months of 2006 and 2005, respectively. After-tax income (loss) from discontinued operations was $1,000 and $(10.8) million, or $0.00 per share and $(0.21) per share, for the third quarter of 2006 and 2005, respectively, and $(2.9) million and $(9.0) million, or $(0.06) per share and $(0.18) per share for the first nine months of 2006 and 2005, respectively. The Company believes that because realized investment gains and losses and discontinued operations arise from events that, to a significant extent, are within management's discretion and can fluctuate significantly, thus distorting comparisons between periods, a measure excluding their impact is useful in analyzing the Company's operating trends. Investment gains or losses may be realized based on management's decision to dispose of an investment, and investment losses may be realized based on management's judgment that a decline in the market value of an investment is other than temporary. Discontinued operations occur based on management's decision to exit or sell a particular business. Thus, realized investment gains and losses and results from discontinued operations are not reflective of the Company's ongoing earnings capacity, and trends in the earnings of the Company's underlying insurance operations can be more clearly identified without the effects of these items. For these reasons, management uses the measure of operating earnings to assess performance and make operating plans and decisions, and analysts and investors typically utilize measures of this type when evaluating the financial performance of insurers. However, gains and losses of these types, particularly as to investments, occur frequently and should not be considered as nonrecurring items. Further, operating earnings should not be considered a substitute for net income, the most directly comparable GAAP measure, as an indication of the Company's overall financial performance and may not be calculated in the same manner as similarly titled captions in other companies' financial statements. All per share amounts are on a diluted basis. (2) Diluted book value per share before accumulated other comprehensive income, which is a non-GAAP financial measure, is based on shareholders' equity excluding the effect of accumulated other comprehensive income. The Company believes that, because accumulated other comprehensive income fluctuates from period to period primarily due to changes in the value of its assets resulting from variations in market interest rates, while the values of its liabilities are not similarly marked to market under GAAP, this non-GAAP measure is useful in analyzing the Company's operating trends. DELPHI FINANCIAL GROUP, INC. Non-GAAP Financial Measures Reconciliation to GAAP (Unaudited; in thousands, except per share data) Three Months Ended Nine Months Ended 09/30/2006 09/30/2005 09/30/2006 09/30/2005 Income Statement Data Operating earnings (Non-GAAP measure) $36,386 $30,630 $106,046 $87,528 Net realized investment (losses) gains, net of taxes (218) 2,208 (1,222) 5,547 Income from continuing operations 36,168 32,838 104,824 93,075 Discontinued operations, net of taxes 1 (10,806) (2,932) (8,959) Net income (GAAP measure) $36,169 $22,032 $101,892 $84,116 Diluted results per share of common stock: Operating earnings (Non- GAAP measure) $0.71 $0.61 $2.09 $1.75 Net realized investment (losses) gains, net of taxes - 0.04 (0.03) 0.11 Income from continuing operations 0.71 0.65 2.06 1.86 Discontinued operations, net of taxes - (0.21) (0.06) (0.18) Net income (GAAP measure) $0.71 $0.44 $2.00 $1.68 Balance Sheet Data 09/30/2006 12/31/2005 Shareholders' equity, excluding accumulated other comprehensive income (Non- GAAP measure) $1,115,502 $1,012,775 Add: Accumulated other comprehensive income 17,001 20,264 Shareholders' equity (GAAP measure) $1,132,503 $1,033,039 Diluted book value per share of common stock, excluding accumulated other comprehensive income (Non- GAAP measure) $22.52 $20.59 Add: Accumulated other comprehensive income 0.32 0.38 Diluted book value per share of common stock (GAAP measure) $22.84 $20.97 Please see note 1 of the press release for a discussion regarding the usefulness of the non-GAAP financial measure "operating earnings." The Company believes that the non-GAAP financial measure "diluted book value per share excluding accumulated other comprehensive income" provides useful supplemental information because accumulated other comprehensive income fluctuates from period to period primarily due to changes in the value of its assets resulting from variations in market interest rates, while the values of its liabilities are not similarly marked to market under GAAP. NOTE: Prior period results have been restated for discontinued operations attributable to assumed property reinsurance. Prior period results per share and applicable share amounts have been restated to reflect the 3-for-2 common stock split effected in the form of a 50% stock dividend distributed on June 1, 2006. DELPHI FINANCIAL GROUP, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited; in thousands, except per share data) Three Months Ended Nine Months Ended 09/30/2006 09/30/2005 09/30/2006 09/30/2005 Revenue: Premium and fee income $295,190 $250,649 $838,419 $732,603 Net investment income 66,159 53,843 185,974 162,293 Net realized investment (losses) gains (335) 3,397 (1,880) 8,534 361,014 307,889 1,022,513 903,430 Benefits and expenses: Benefits, claims and interest credited to policyholders 217,322 180,644 612,961 541,157 Commissions and expenses 85,314 74,790 239,954 212,053 302,636 255,434 852,915 753,210 Operating income 58,378 52,455 169,598 150,220 Interest expense: Corporate debt 5,250 3,781 15,029 11,712 Junior subordinated deferrable interest debentures 1,319 1,229 3,887 3,599 Income tax expense 15,641 14,607 45,858 41,834 Income from continuing operations 36,168 32,838 104,824 93,075 Discontinued operations, net of taxes 1 (10,806) (2,932) (8,959) Net income $36,169 $22,032 $101,892 $84,116 Basic results per share of common stock: Income from continuing operations $0.73 $0.67 $2.12 $1.91 Discontinued operations - (0.22) (0.06) (0.19) Net income 0.73 0.45 2.06 1.72 Weighted average shares outstanding 49,652 49,350 49,531 48,818 Diluted results per share of common stock: Income from continuing operations $0.71 $0.65 $2.06 $1.86 Discontinued operations - (0.21) (0.06) (0.18) Net income 0.71 0.44 2.00 1.68 Weighted average shares outstanding 50,926 50,564 50,824 50,138 Dividends paid per share of common stock $0.08 $0.06 $0.23 $0.18 NOTE: Prior period results have been restated for discontinued operations attributable to assumed property reinsurance. Prior period results per share and applicable share amounts have been restated to reflect the 3-for-2 common stock split effected in the form of a 50% stock dividend distributed on June 1, 2006. DELPHI FINANCIAL GROUP, INC. SUMMARIZED CONSOLIDATED BALANCE SHEETS (Unaudited; in thousands) 09/30/2006 12/31/2005 Assets: Investments: Fixed maturity securities, available for sale $3,329,065 $3,244,764 Short-term investments 297,276 94,308 Other investments 695,147 573,532 4,321,488 3,912,604 Cash 45,496 28,493 Cost of business acquired 269,179 248,138 Reinsurance receivables 404,970 413,113 Goodwill 93,929 93,929 Securities lending collateral 250,379 244,821 Other assets 263,778 235,644 Assets held in separate account 107,334 99,428 Total assets $5,756,553 $5,276,170 Liabilities and Shareholders' Equity: Policy liabilities and accruals $2,021,813 $1,862,872 Policyholder account balances 1,126,273 1,039,610 Corporate debt 263,750 234,750 Junior subordinated deferrable interest debentures underlying company-obligated mandatorily redeemable capital securities issued by unconsolidated subsidiaries 59,762 59,762 Securities lending payable 250,379 244,821 Other liabilities and policyholder funds 794,739 701,888 Liabilities related to separate account 107,334 99,428 Total liabilities 4,624,050 4,243,131 Shareholders' equity: Class A Common Stock 479 313 Class B Common Stock 57 39 Additional paid-in capital 470,797 442,531 Accumulated other comprehensive income 17,001 20,264 Retained earnings 727,139 636,285 Treasury stock, at cost (82,970) (66,393) 1,132,503 1,033,039 Total liabilities and shareholders' equity $5,756,553 $5,276,170 DELPHI FINANCIAL GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited; in thousands) Nine Months Ended 09/30/2006 09/30/2005 Operating activities: Net income $101,892 $84,116 Adjustments to reconcile net income to net cash provided by operating activities: Change in policy liabilities and policyholder accounts 197,987 196,872 Net change in reinsurance receivables and payables 3,523 10,608 Amortization, principally the cost of business acquired and investments 50,397 46,571 Deferred costs of business acquired (77,473) (69,739) Net realized losses (gains) on investments 1,880 (8,534) Net change in federal income tax liability 12,193 8,614 Other (38,463) (59,614) Net cash provided by operating activities 251,936 208,894 Investing activities: Purchases of investments and loans made (898,282) (1,460,493) Sales of investments and receipts from repayment of loans 597,301 1,142,110 Maturities of investments 168,327 134,023 Net change in short-term investments (202,886) (44,566) Change in deposit in separate account (2,234) (3,033) Net cash used by investing activities (337,774) (231,959) Financing activities: Deposits to policyholder accounts 178,231 80,229 Withdrawals from policyholder accounts (98,778) (76,031) Borrowings under revolving credit facility 31,000 32,000 Principal payments under revolving credit facility (2,000) (11,000) Change in liability for Federal Home Loan Bank advances - (15,000) Other financing activities (5,612) 14,499 Net cash provided by financing activities 102,841 24,697 Increase in cash 17,003 1,632 Cash at beginning of period 28,493 24,324 Cash at end of period $45,496 $25,956 DATASOURCE: Delphi Financial Group, Inc. CONTACT: Bernard J. Kilkelly, Vice President, Investor Relations, Delphi Financial Group , +1-212-303-4349, E-mail: Web Site: http://www.delphifin.com/

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