Delphi Financial Group, Inc. (NYSE:DFG) announced today that
operating earnings (1) in the second quarter of 2009 were $54.9
million or $1.09 per share, compared to $39.5 million or $0.81 per
share in the second quarter of 2008. Operating earnings for the
first half of 2009 were $93.6 million or $1.90 per share, compared
to $64.9 million or $1.31 per share in the first half of 2008.
Annualized operating return on beginning equity (2) in the second
quarter of 2009 was 25.5%, compared to 14.7% in the second quarter
of 2008.
Delphi reported net income in the second quarter of 2009 of
$37.0 million or $0.74 per share, compared to $26.9 million or
$0.55 per share in the second quarter of 2008. Net income in the
second quarter of 2009 included after-tax realized investment
losses of $(17.9) million or $(0.35) per share, including
other-than-temporary impairments of $(16.2) million or ($0.32) per
share. Net income in the second quarter of 2008 included after-tax
realized investment losses of $(12.7) million or $(0.26) per share,
including other-than-temporary impairments of $(11.8) million or
($0.24) per share.
Delphi’s net income in the first half of 2009 was $61.5 million
or $1.25 per share, compared to net income in the first half of
2008 of $48.0 million or $0.97 per share. Net income in the first
half of 2009 included after-tax realized investment losses of
$(32.2) million or $(0.65) per share, including
other-than-temporary impairments of $(27.6) million or ($0.56) per
share. Net income in the first half of 2008 included after-tax
realized investment losses of $(16.9) million or $(0.34) per share,
including other-than-temporary impairments of $(15.8) million or
($0.32) per share.
Core group employee benefit premiums in the second quarter of
2009 grew 2% from the second quarter of 2008, reaching $331
million. Excess workers’ compensation premiums at Delphi’s Safety
National subsidiary rose 8% while core premiums at Delphi’s
Reliance Standard Life subsidiary increased 1%. Delphi’s group
employee benefit combined ratio in the second quarter of 2009 was
93.1% compared to 91.8% for the second quarter of 2008 and 92.2%
for the full year 2008, as a decline in loss ratio was offset by an
increase in expense ratio resulting in part from new product
initiatives at Safety National.
In its asset accumulation segment, Delphi achieved annuity sales
of $115 million in the second quarter of 2009, up 15% from the
second quarter of 2008. Funds under management at June 30, 2009
were $1.4 billion, up from $1.3 billion at December 31, 2008.
Delphi’s net investment income in the second quarter of 2009 was
$92.0 million compared to $60.8 million in the second quarter of
2008. Invested assets at June 30, 2009 were $5.2 billion compared
to $4.8 billion at June 30, 2008. The tax equivalent yield on the
Company’s investment portfolio in the second quarter of 2009 was
7.9% compared to 5.4% in the second quarter of 2008. Shareholders’
equity at June 30, 2009 was $1.052 billion, up from $820 million at
December 31, 2008 and $1.032 billion at June 30, 2008. Diluted book
value per share was $21.28 at June 30, 2009, compared with $18.41
at December 31, 2008 and $22.03 at June 30, 2008.
Robert Rosenkranz, Chairman and Chief Executive Officer,
commented, “Delphi’s ability to maintain book value per share at
levels consistent with last year is a notable achievement for any
financial institution in a time of unprecedented market turmoil and
credit impairment. This is testimony to the earning power of our
insurance operations. In the second quarter, Reliance Standard was
able to grow its revenues slightly while maintaining pricing and
underwriting discipline and achieving very strong underwriting
margins. At Safety National, strong premium and production momentum
in the second quarter was accelerated by July renewals, which are
not included in second quarter results. Safety’s annualized new
business production in excess workers’ compensation was $37 million
for the first seven months of 2009, versus $26 million for all of
2008. Our assumed excess of loss workers’ compensation treaty
reinsurance line has also grown rapidly and has been producing
excellent underwriting results. We have classified this line as
‘non-core’ during its start-up phase, but expect to be including
premiums from this business as core premiums starting in the third
quarter.”
Mr. Rosenkranz added, “Our improved investment results reflected
higher spreads in our fixed income portfolio. Our alternative asset
portfolio, sharply reduced in size from a year ago, produced
excellent results. Cash balances continue at record levels,
representing considerable latent earnings power. Delphi
strengthened our balance sheet and enhanced our financial
flexibility to support the growth of our insurance businesses by
completing a $51 million common stock offering in April. We remain
optimistic about our long-term growth prospects and confident in
our ability to meet our financial targets for the remainder of
2009.”
Conference Call
On July 29, 2009 at 11:00 AM (Eastern time), Delphi will
broadcast the Company’s second quarter 2009 earnings teleconference
live on the Internet, hosted by Robert Rosenkranz, Chairman and
Chief Executive Officer. Investors can access the broadcast at
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 July 29, 2009. Investors
can also download Delphi’s second quarter 2009 statistical
supplement from the Company’s website at 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, such as
earnings per share guidance, 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,
changes in accounting rules or interpretation, 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. Forward-looking statements contained in the
foregoing discussion are made as of the date of this press release
and Delphi disclaims any obligation to update these or any other
forward-looking statements.
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 group insurance coverages: long-term and
short-term disability, life, excess workers’ compensation for
self-insured employers, large deductible workers’ compensation,
travel accident, dental and limited benefit health insurance.
Delphi’s asset accumulation business emphasizes individual annuity
products. Delphi’s common stock is listed on the New York Stock
Exchange under the symbol DFG and its corporate website address is
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, and the loss on
redemption of junior subordinated deferrable interest debentures,
as applicable. The Company believes that because realized
investment gains and losses, redemption of junior subordinated
deferrable interest debentures, 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. Redemption of
junior subordinated deferrable interest debentures occur based on
management’s decision to exercise its ability to redeem the
outstanding debentures. 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, losses on redemption of junior
subordinated deferrable interest debentures 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. For reconciliations of the respective
operating earnings amounts to the corresponding net income amounts
for the indicated periods, see the table captioned “Non-GAAP
Financial Measures – Reconciliation to GAAP” which follows. All per
share amounts are on a diluted basis. (2) Annualized
operating return on beginning equity, which is a non-GAAP financial
measure, is based on operating earnings, as defined in the
preceding footnote (1) (rather than the most directly comparable
GAAP measure, net income), divided by beginning shareholders’
equity. For the reasons that the Company believes that the
calculation of this non-GAAP measure based upon operating earnings
is useful, see such footnote. For reconciliations of the respective
annualized operating return on equity amounts to the corresponding
annualized net income return on equity amounts for the indicated
periods, see the table captioned “Non-GAAP Financial Measures –
Reconciliation to GAAP” which follows.
DELPHI FINANCIAL GROUP, INC. Non-GAAP Financial
Measures Reconciliation to GAAP (Unaudited; in
thousands, except per share data) Three Months
Ended Six Months Ended 6/30/2009 6/30/2008 6/30/2009
6/30/2008
Income Statement Data
Operating earnings (Non-GAAP measure) $ 54,864 $
39,549 $ 93,647 $ 64,877 Net realized investment losses, net of
taxes (17,857 ) (12,674 ) (32,156 )
(16,858 )
Net income (GAAP measure) $ 37,007 $
26,875 $ 61,491 $ 48,019
Diluted
results per share of common stock: Operating earnings
(Non-GAAP measure) $ 1.09 $ 0.81 $ 1.90 $ 1.31 Net realized
investment losses, net of taxes (0.35 ) (0.26 )
(0.65 ) (0.34 )
Net income (GAAP
measure) $ 0.74 $ 0.55 $ 1.25 $ 0.97
Annualized operating return on beginning
equity 25.5 % 14.7 % 22.8 % 11.4 %
Annualized net
income return on beginning equity (GAAP measure) 17.2 % 10.0 %
15.0 % 8.4 %
Balance Sheet Data
6/30/2009 12/31/2008
Shareholders' equity, excluding
accumulated other comprehensive (loss) income
$ 1,284,886 $ 1,172,289 Add: Accumulated other comprehensive loss
(232,753 ) (351,710 )
Shareholders' equity
(GAAP measure) $ 1,052,133 $ 820,579
Diluted book value per share of
common stock, excluding accumulated other comprehensive (loss)
income (Non-GAAP measure)
$ 25.25 $ 24.77 Add: Accumulated other comprehensive loss
(3.97 ) (6.36 )
Diluted book value per share of
common stock (GAAP measure) $ 21.28 $ 18.41
Please see footnotes 1 and 2 of the press release to which
this table is attached for important information regarding these
non-GAAP financial measures.
DELPHI FINANCIAL GROUP, INC. CONSOLIDATED STATEMENTS OF
INCOME (Unaudited; in thousands, except per share data)
Three Months Ended Six Months Ended 6/30/2009
06/30/2008 6/30/2009 06/30/08 Revenue: Premium and fee income $
352,445 $ 340,774 $ 710,166 $ 683,064 Net investment income 92,023
60,750 154,878 93,087 Net realized investment losses: Total
other-than-temporary impairment losses (45,628 ) (18,131 ) (63,236
) (24,306 )
Less: Portion of
other-than-temporary impairment losses recognized in other
comprehensive income
20,719 - 20,719 -
Net impairment losses recognized in earnings (24,909 )
(18,131 ) (42,517 ) (24,306 ) Other net realized investment losses
(2,562 ) (1,368 ) (6,953 ) (1,629 )
(27,471 ) (19,499 ) (49,470 ) (25,935 )
416,997 382,025 815,574
750,216 Benefits and expenses: Benefits, claims and
interest credited to policyholders 251,807 243,755 507,405 486,667
Commissions and expenses 109,262 94,683
215,396 184,576 361,069
338,438 722,801 671,243
Operating income 55,928 43,587 92,773 78,973 Interest
expense: Corporate debt 3,876 4,289 7,861 8,513 Junior subordinated
debentures 3,241 3,246 6,481 6,486
Junior subordinated deferrable
interest debentures underlying company-obligated mandatorily
redeemable capital securities issued by unconsolidated
subsidiaries
- 353 - 757 Income tax expense 11,804 8,824
16,940 15,198 Net income
$ 37,007 $ 26,875 $ 61,491 $ 48,019
Basic results per share of common stock: Net income $
0.74 $ 0.56 $ 1.25 $ 0.99 Weighted average shares
outstanding 50,148 48,146 49,091 48,600 Diluted results per
share of common stock: Net income $ 0.74 $ 0.55 $ 1.25 $ 0.97
Weighted average shares outstanding 50,343 49,000 49,233
49,576 Dividends paid per share of common stock $ 0.10 $
0.10 $ 0.20 $ 0.19
DELPHI FINANCIAL GROUP,
INC. SUMMARIZED CONSOLIDATED BALANCE SHEETS
(Unaudited; in thousands) 6/30/2009 12/31/2008
Assets: Investments: Fixed maturity securities, available for sale
$ 4,037,088 $ 3,773,382 Short-term investments 626,774 401,620
Other investments 542,965 479,921
5,206,827 4,654,923 Cash 79,194 63,837 Cost of business
acquired 241,055 264,777 Reinsurance receivables 375,871 376,731
Goodwill 93,929 93,929 Other assets 364,935 409,103 Assets held in
separate account 100,189 90,573
Total assets $ 6,462,000 $ 5,953,873
Liabilities and Shareholders' Equity: Policy liabilities and
accruals $ 2,705,050 $ 2,574,050 Policyholder account balances
1,435,319 1,356,932 Corporate debt 365,750 350,750 Junior
subordinated debentures 175,000 175,000 Other liabilities and
policyholder funds 624,473 581,954 Liabilities related to separate
account 100,189 90,573 Total
liabilities 5,405,781 5,129,259 Shareholders' equity: Class
A Common Stock 522 489 Class B Common Stock 60 60 Additional
paid-in capital 582,219 522,596 Accumulated other comprehensive
loss (232,753 ) (351,710 ) Retained earnings 899,331 846,390
Treasury stock, at cost (197,246 ) (197,246 ) Total
shareholders' equity 1,052,133 820,579
Noncontrolling interest 4,086 4,035
Total equity 1,056,219 824,614 Total
liabilities and shareholders' equity $ 6,462,000 $ 5,953,873
DELPHI FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited; in
thousands) Six Months Ended 6/30/2009 6/30/2008
Operating activities: Net income $ 61,491 $ 48,019
Adjustments to reconcile net
income to net cash provided by operating activities:
Change in policy liabilities and policyholder accounts 137,172
108,256 Net change in reinsurance receivables and payables (6,663 )
16,881 Amortization, principally the cost of business acquired and
investments 24,842 33,010 Deferred costs of business acquired
(64,079 ) (60,481 ) Net realized losses on investments 49,470
25,935 Net change in federal income tax liability 5,228 (24,913 )
Other (15,428 ) 15,866 Net cash provided by
operating activities 192,033 162,573
Investing activities: Purchases of investments and loans
made (668,972 ) (706,313 ) Sales of investments and receipts from
repayment of loans 130,226 148,589 Maturities of investments
446,734 317,518 Net change in short-term investments (225,154 )
(39,683 ) Change in deposit in separate account 4,845
3,430 Net cash used by investing activities
(312,321 ) (276,459 ) Financing activities: Deposits
to policyholder accounts 180,624 154,302 Withdrawals from
policyholder accounts (102,969 ) (53,226 ) Borrowings under
revolving credit facility 17,000 58,000 Principal payments under
revolving credit facility (2,000 ) (3,000 ) Proceeds from issuance
of common stock 51,017 - Acquisition of treasury stock - (42,729 )
Other financing activities (8,027 ) (7,157 ) Net cash
provided by financing activities 135,645
106,190 Increase (decrease) in cash 15,357 (7,696 )
Cash at beginning of period 63,837 51,240
Cash at end of period $ 79,194 $ 43,544
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