DFG Delphi Financial Grp., Inc.

WILMINGTON, Del., Feb. 13 /PRNewswire-FirstCall/ -- Delphi Financial Group, Inc. (NYSE:DFG) announced today that net income in the fourth quarter of 2006 was $40.2 million or $0.78 per share, compared to $29.2 million or $0.58 per share in the fourth quarter of 2005. In the fourth quarter of 2006, net income per share included after-tax realized investment gains of $0.01. In the fourth quarter of 2005, net income per share included after-tax realized investment gains of $0.01 and losses from discontinued operations of $(0.09). 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 fourth quarter of 2006 increased 19% to $39.5 million from $33.3 million in the fourth quarter of 2005. Operating earnings per share rose 17% to $0.77 from $0.66 a year ago. Operating earnings for full-year 2006 increased 20% to $145.6 million compared to $120.8 million a year ago, while operating earnings per share grew 19% to $2.86 per share from $2.40 per share for full-year 2005. Net income for full-year 2006 was $142.1 million or $2.79 per share, compared with $113.3 million or $2.25 per share a year ago. Net income for full-year 2006 included after-tax realized investment losses of $(0.6) million or $(0.01) per share and losses from discontinued operations of $(2.9) million or $(0.06) per share. Net income for full-year 2005 included after-tax realized investment gains of $5.9 million or $0.12 per share and losses from discontinued operations of $(13.4) million or $(0.27) per share. Core group employee benefit premiums in the fourth quarter of 2006 grew 16% from the fourth quarter a year ago, reaching $283 million. This growth was driven by an 18% increase in group disability premiums at Delphi's Reliance Standard Life subsidiary and a 15% increase in premiums from excess workers' compensation insurance at Delphi's Safety National subsidiary. The combined ratio in group employee benefits insurance in the fourth quarter of 2006 was 93.6%, compared with 93.7% in the fourth quarter of 2005. For the full-year 2006, the combined ratio in group employee benefits insurance was 93.2%, compared with 94.1% in 2005. Robert Rosenkranz, Chairman and Chief Executive Officer, commented, "Delphi's strong growth in the fourth quarter was above our expectations and enabled us to exceed the earnings guidance we provided at the beginning of 2006. We outperformed our internal targets for all key metrics, including premium growth, combined ratio, invested asset growth and investment yield. Two notable achievements during the year that boosted our premium growth were the formation of our new CDS turnkey disability division at Reliance Standard and our successful renewals at Safety National of more than half of the former excess workers' compensation clients of Employers Re." Mr. Rosenkranz added, "We continue to be optimistic about Delphi's outlook for strong earnings growth as we capitalize on ongoing positive trends in our insurance businesses. We expect continued growth in Reliance Standard's small-case niche and turnkey disability operation, and the market for excess workers' compensation at Safety National remains firm. In Safety National's important January renewal season, we have experienced continued strong demand for our excess coverage along with steady rates and improvements in contract terms." Delphi's net investment income in the fourth quarter of 2006 was $69.9 million, a gain of 14% from $61.3 million in the same quarter a year ago. Invested assets at December 31, 2006 were $4.5 billion, an increase of 15% from $3.9 billion at December 31, 2005. The pre-tax equivalent yield on the Company's investment portfolio in the fourth quarter of 2006 was 6.6%, unchanged from the same period a year ago. Delphi's shareholders' equity was $1.2 billion at December 31, 2006, up 14% from a year ago. Book value per share before accumulated other comprehensive income(2) rose 13% to $23.35 at December 31, 2006, from $20.59 at December 31, 2005. Conference Call On February 14, 2007 at 11:00 AM (Eastern time), Delphi will broadcast the Company's fourth 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 February 14, 2007. Investors can also download Delphi's fourth 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 gains (losses) were $0.7 million and $0.3 million, or $0.01 per share and $0.01 per share, for the fourth quarter of 2006 and 2005, respectively, and $(0.6) million and $5.9 million, or $(0.01) per share and $0.12 per share for the full year of 2006 and 2005, respectively. After-tax losses from discontinued operations was $(3,000) and $(4.4) million, or $0.00 per share and $(0.09) per share, for the fourth quarter of 2006 and 2005, respectively, and $(2.9) million and $(13.4) million, or $(0.06) per share and $(0.27) per share for the full years 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 Twelve Months Ended 12/31/2006 12/31/2005 12/31/2006 12/31/2005 Income Statement Data Operating earnings (Non-GAAP measure) $39,515 $33,304 $145,561 $120,832 Net realized investment gains (losses), net of taxes 664 305 (558) 5,852 Income from continuing operations 40,179 33,609 145,003 126,684 Discontinued operations, net of taxes (3) (4,391) (2,935) (13,350) Net income (GAAP measure) $40,176 $29,218 $142,068 $113,334 Diluted results per share of common stock: Operating earnings (Non-GAAP measure) $0.77 $0.66 $2.86 $2.40 Net realized investment gains (losses), net of taxes 0.01 0.01 (0.01) 0.12 Income from continuing operations 0.78 0.67 2.85 2.52 Discontinued operations, net of taxes - (0.09) (0.06) (0.27) Net income (GAAP measure) $0.78 $0.58 $2.79 $2.25 Balance Sheet Data 12/31/2006 12/31/2005 Shareholders' equity, excluding accumulated other comprehensive income (Non- GAAP measure) $1,155,675 $1,012,775 Add: Accumulated other comprehensive income 19,133 20,264 Shareholders' equity (GAAP measure) $1,174,808 $1,033,039 Diluted book value per share of common stock, excluding accumulated other comprehensive income (Non- GAAP measure) $23.35 $20.59 Add: Accumulated other comprehensive income 0.35 0.38 Diluted book value per share of common stock (GAAP measure) $23.70 $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 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 Twelve Months Ended 12/31/2006 12/31/2005 12/31/2006 12/31/2005 Revenue: Premium and fee income $318,159 $257,608 $1,156,578 $990,211 Net investment income 69,897 61,276 255,871 223,569 Net realized investment gains (losses) 1,022 469 (858) 9,003 389,078 319,353 1,411,591 1,222,783 Benefits and expenses: Benefits, claims and interest credited to policyholders 234,525 184,050 847,486 725,207 Commissions and expenses 90,727 81,502 330,681 293,555 325,252 265,552 1,178,167 1,018,762 Operating income 63,826 53,801 233,424 204,021 Interest expense: Corporate debt 5,143 3,895 20,172 15,607 Junior subordinated deferrable interest debentures 1,324 1,256 5,211 4,855 Income tax expense 17,180 15,041 63,038 56,875 Income from continuing operations 40,179 33,609 145,003 126,684 Discontinued operations, net of taxes (3) (4,391) (2,935) (13,350) Net income $40,176 $29,218 $142,068 $113,334 Basic results per share of common stock: Income from continuing operations $0.80 $0.68 $2.92 $2.58 Discontinued operations - (0.09) (0.06) (0.27) Net income 0.80 0.59 2.86 2.31 Weighted average shares outstanding 49,932 49,577 49,631 49,008 Diluted results per share of common stock: Income from continuing operations $0.78 $0.67 $2.85 $2.52 Discontinued operations - (0.09) (0.06) (0.27) Net income 0.78 0.58 2.79 2.25 Weighted average shares outstanding 51,285 50,658 50,939 50,267 Dividends paid per share of common stock $0.08 $0.06 $0.31 $0.24 NOTE: 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) 12/31/2006 12/31/2005 Assets: Investments: Fixed maturity securities, available for sale $3,377,578 $3,244,764 Short-term investments 400,239 94,308 Other investments 705,563 573,532 4,483,380 3,912,604 Cash 48,204 28,493 Cost of business acquired 267,920 248,138 Reinsurance receivables 410,593 413,113 Goodwill 93,929 93,929 Securities lending collateral - 244,821 Other assets 251,975 235,644 Assets held in separate account 114,474 99,428 Total assets $5,670,475 $5,276,170 Liabilities and Shareholders' Equity: Policy liabilities and accruals $2,107,644 $1,862,872 Policyholder account balances 1,119,218 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 - 244,821 Other liabilities and policyholder funds 830,819 701,888 Liabilities related to separate account 114,474 99,428 Total liabilities 4,495,667 4,243,131 Shareholders' equity: Class A Common Stock 480 313 Class B Common Stock 57 39 Additional paid-in capital 474,722 442,531 Accumulated other comprehensive income 19,133 20,264 Retained earnings 763,386 636,285 Treasury stock, at cost (82,970) (66,393) 1,174,808 1,033,039 Total liabilities and shareholders' equity $5,670,475 $5,276,170 DELPHI FINANCIAL GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited; in thousands) 12/31/2006 12/31/2005 12/31/2004 Operating activities: Net income $142,068 $113,334 $123,543 Adjustments to reconcile net income to net cash provided by operating activities: Change in policy liabilities and policyholder accounts 270,620 227,188 201,571 Net change in reinsurance receivables and payables 5,160 13,818 (16,568) Amortization, principally the cost of business acquired and investments 70,935 62,014 49,325 Deferred costs of business acquired (100,260) (89,601) (84,627) Net realized losses (gains) on investments 858 (9,003) (15,460) Net change in federal income tax liability 28,590 16,924 24,057 Other (15,046) (25,274) (17,746) Net cash provided by operating activities 402,925 309,400 264,095 Investing activities: Purchases of investments and loans made (1,119,894) (1,946,034) (1,881,235) Sales of investments and receipts from repayment of loans 747,841 1,408,018 1,390,290 Maturities of investments 206,223 180,292 211,483 Net change in short-term investments (305,849) 1,484 18,991 Change in deposit in separate account (2,008) (5,876) (5,090) Net cash used by investing activities (473,687) (362,116) (265,561) Financing activities: Deposits to policyholder accounts 200,820 102,708 140,173 Withdrawals from policyholder accounts (131,229) (101,701) (88,251) Borrowings under revolving credit facility 31,000 88,000 38,000 Principal payments under revolving credit facility (2,000) (11,000) (24,000) Change in liability for Federal Home Loan Bank advances - (30,000) (65,000) Other financing activities (8,118) 8,878 6,135 Net cash provided by financing activities 90,473 56,885 7,057 Increase in cash 19,711 4,169 5,591 Cash at beginning of period 28,493 24,324 18,733 Cash at end of period $48,204 $28,493 $24,324 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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