Delphi Financial Group, Inc. (NYSE: DFG) announced today that
its operating earnings (1) in the fourth quarter of 2009 were $47.7
million or $0.86 per share, compared to $17.0 million or $0.35 per
share in the fourth quarter of 2008. Operating earnings for the
full year 2009 were $195.0 million or $3.76 per share, compared to
$94.4 million or $1.93 per share in the full year 2008. Annualized
operating return on beginning equity (2) in the fourth quarter 2009
was 14.3% compared to 7.6% in the fourth quarter of 2008.
Delphi’s net income in the fourth quarter of 2009 was $16.8
million or $0.30 per share, compared to a net loss in the fourth
quarter of 2008 of $(1.5) million or $(0.03) per share. Net income
in the fourth quarter of 2009 included after-tax realized
investment losses of $(30.9) million or $(0.56) per share,
including other-than-temporary impairments (“OTTI”) of $(32.6)
million or $(0.59) per share. Net loss in the fourth quarter of
2008 included after-tax realized investment losses of $(18.5)
million or $(0.38) per share, including OTTI of $(17.0) million or
$(0.35) per share.
For the full year 2009, Delphi’s net income was $99.1 million or
$1.91 per share, compared to net income of $36.7 million or $0.75
per share for the full year 2008. Net income for the full year 2009
included after-tax realized investment losses of $(95.9) million or
$(1.85) per share, including OTTI of $(94.1) million or $(1.82) per
share. Net income for the full year 2008 included after-tax
realized investment losses of $(57.3) million or $(1.17) per share,
including OTTI of $(51.1) million or $(1.04) per share, and an
after-tax loss of $(0.4) million or $(0.01) per share from the
redemption of junior subordinated deferrable interest
debentures.
Robert Rosenkranz, Chairman and Chief Executive Officer,
commented, “In 2009, Delphi recovered strongly from the stresses of
2008. We ended the year with all-time high levels of book value and
book value per share. Operating earnings for the year were also an
all-time high, and have grown at 12.7 percent compounded over the
past five years. Core group employee benefit premiums were $1.3
billion, modestly up from 2008. Since these premiums are payroll
related, we consider this satisfactory, and reflective of the
ongoing pricing and underwriting discipline at both Reliance
Standard and Safety National.”
Mr. Rosenkranz continued, “Investment income was $318 million in
2009, up from $135 million in 2008. We took advantage of market
dislocations for fixed income securities and benefited from strong
performance in our alternative asset portfolio. The improvement in
the financial markets during the year also helped to strongly boost
the mark-to-market value of our portfolio. We ended the year with
fully diluted book value per share up 43 percent. At our insurance
subsidiaries, we expect the statutory risk-based capital ratios at
the end of 2009, as compared to 2008 year-end levels, to be up
modestly at Safety National and significantly at Reliance Standard.
During the fourth quarter, we made no capital contributions to our
insurance subsidiaries and at 2009 year-end, our holding company
financial resources were at a comfortable $84 million. We
continued to enhance our financial flexibility in January by
issuing $250 million in 10-year senior unsecured notes, which
enabled us to repay all of our outstanding short-term borrowings on
our $350 million revolving bank facility.”
Delphi’s core group employee benefit premiums in the fourth
quarter of 2009 were $332.8 compared to $341.0 million in the prior
year quarter. Delphi’s core group employee benefit production in
the fourth quarter of 2009 was $94.5 million compared to $104.3
million in the prior year quarter. Delphi’s group employee benefit
combined ratio in the fourth quarter of 2009 was 93.2%, unchanged
from the fourth quarter of 2008. For the full year 2009, the
combined ratio in group employee benefits insurance was 93.3%,
compared with 92.2% in 2008. The loss ratio for the group employee
benefits segment declined in the fourth quarter of 2009 to 67.3%
from 70.1% for the fourth quarter of 2008 and 69.5% for full-year
2008.
Delphi’s asset accumulation segment, which is primarily focused
on individual fixed annuities, had new sales of $16.4 million in
the fourth quarter of 2009, compared to $49.3 million in last
year’s fourth quarter. New annuity sales for the full year 2009
were $248.6 million, up from $245.1 million for the full year 2008.
Funds under management in this segment at December 31, 2009 rose to
$1.4 billion from $1.3 billion at December 31, 2008.
Delphi’s net investment income in the fourth quarter of 2009 was
$74.6 million compared to $22.4 million in the prior year quarter.
Invested assets at December 31, 2009 increased to $5.7 billion from
$4.7 billion at December 31, 2008. The tax equivalent yield on the
Company’s investment portfolio in the fourth quarter of 2009 was
5.7%, compared to 2.3% in the fourth quarter of 2008. Diluted book
value per share was $24.42 at December 31, 2009, compared with
$17.05 at December 31, 2008.
Mr. Rosenkranz added, “We will be furnishing guidance on our
conference call regarding our expectations for operating earnings
in 2010. While we expect the environment to remain challenging due
to continued low interest rates, tightened credit spreads, and high
unemployment levels, we continue to be optimistic about the growth
prospects of our insurance businesses and our ability to capitalize
on our leadership positions in our attractive niche markets.”
Conference Call
On February 12, 2010 11:00 AM (Eastern time), Delphi will
broadcast the Company’s fourth 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 February 12, 2010.
Investors can also download Delphi’s fourth 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,”
“effort,” “attempt,” “achieve,” “project,” 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 casualty programs including 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, redemptions 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 impacts 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. Redemptions of junior
subordinated deferrable interest debentures occur based on
management’s decision to exercise its ability to redeem the
outstanding debentures. Discontinued operations occur based on
management’s decision to exit or sell a particular business. Thus,
realized investment gains and losses, losses on redemptions 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,
including, in certain cases, in connection with the performance
goals under its incentive compensation plans, and to make operating
plans and decisions. The Company believes that analysts and
investors typically utilize measures of this type as one element of
their evaluations of the financial performance of insurers.
However, gains and losses of these types, particularly as to
investments, occur regularly and should not be considered as
non-recurring 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 measures utilized by other companies. 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 Twelve Months Ended 12/31/2009
12/31/2008 12/31/2009 12/31/2008
Income Statement Data
Operating earnings $ 47,739 $ 17,000 $ 195,007 $
94,387 Net realized investment losses (A) (30,949 ) (18,526 )
(95,903 ) (57,315 )
Loss on redemption of junior
subordinated deferrable interest debentures underlying
company-obligated mandatorily redeemable capital securities issued
by unconsolidated subsidiaries (B)
- - - (389 )
Net income (loss) (GAAP measure) $ 16,790 $
(1,526 ) $ 99,104 $ 36,683
Diluted results
per share of common stock: Operating earnings $ 0.86 $
0.35 $ 3.76 $ 1.93 Net realized investment losses (A) (0.56 ) (0.38
) (1.85 ) (1.17 )
Loss on redemption of junior
subordinated deferrable interest debentures underlying
company-obligated mandatorily redeemable capital securities issued
by unconsolidated subsidiaries (B)
- - - (0.01 )
Net income (loss) (GAAP measure) $ 0.30 $
(0.03 ) $ 1.91 $ 0.75
Annualized
operating return on beginning shareholders' equity 14.3 % 7.6 %
23.8 % 8.3 %
Annualized net income return on beginning
shareholders' equity (GAAP measure) 5.0 % -0.7 % 12.1 % 3.2 %
(A)
Net of an income tax benefit of
$16.7 million, $10.0 million, $51.6 million and $30.9 million, or
$0.30 per diluted share, $0.21 per diluted share, $1.00 per diluted
share and $0.63 per diluted share for the three months ended
12/31/2009 and 12/31/2008, and the full year ended 12/31/2009 and
12/31/2008, respectively. The tax effect is calculated using the
Company's statutory tax rate of 35%.
(B)
Net of an income tax benefit of
$0.2 million or $0.00 per diluted share for the year ended
12/31/2008. The tax effect is calculated using the Company's
statutory tax rate of 35%.
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 Twelve Months Ended 12/31/2009 12/31/2008 12/31/2009
12/31/2008 Revenue: Premium and fee income $ 348,265 $ 356,798 $
1,401,041 $ 1,384,890 Net investment income 74,627 22,356 318,187
134,850 Net realized investment losses: Total other than temporary
impairment losses (43,184 ) (26,147 ) (180,191 ) (78,626 )
Portion of other than temporary
impairment losses recognized in other comprehensive income
(6,987 ) - 35,480 -
Net impairment losses recognized in earnings (50,171 )
(26,147 ) (144,711 ) (78,626 ) Other net realized investment gains
(losses) 2,557 (2,355 ) (2,832 )
(9,551 ) (47,614 ) (28,502 ) (147,543 ) (88,177 )
Loss on redemption of junior
subordinated deferrable interest debentures underlying
company-obligated mandatorily redeemable capital securities issued
by unconsolidated subsidiaries
- - - (598 )
375,278 350,652 1,571,685
1,430,965 Benefits and expenses: Benefits, claims and
interest credited to policyholders 242,441 258,544 990,802 989,253
Commissions and expenses 108,987 93,271
434,063 377,671 351,428
351,815 1,424,865 1,366,924
Operating income (loss) 23,850 (1,163 ) 146,820
64,041 Interest expense: Corporate debt 3,818 4,761 15,485
17,701 Junior subordinated debentures 3,240 3,240 12,968 12,966
Junior subordinated deferrable
interest debentures underlying company-obligated mandatorily
redeemable capital securities issued by unconsolidated
subsidiaries
- - - 934 Income tax expense (benefit) 2
(7,638 ) 19,263 (4,243 ) Net income
(loss) $ 16,790 $ (1,526 ) $ 99,104 $ 36,683
Basic results per share of common stock: Net income
(loss) $ 0.31 $ (0.03 ) $ 1.92 $ 0.76 Weighted average
shares outstanding 54,960 47,975 51,532 48,278 Diluted
results per share of common stock: Net income (loss) $ 0.30 $ (0.03
) $ 1.91 $ 0.75 Weighted average shares outstanding 55,385
47,975 51,811 48,963 Dividends paid per share of common
stock $ 0.10 $ 0.10 $ 0.40 $ 0.39
DELPHI FINANCIAL
GROUP, INC. SUMMARIZED CONSOLIDATED BALANCE SHEETS
(Unaudited; in thousands)
12/31/2009 12/31/2008 Assets: Investments: Fixed maturity
securities, available for sale $ 4,875,681 $ 3,773,382 Short-term
investments 406,782 401,620 Other investments 466,855
479,921 5,749,318 4,654,923 Cash 65,464 63,837
Cost of business acquired 250,311 264,777 Reinsurance receivables
355,030 376,731 Goodwill 93,929 93,929 Other assets 293,835 409,103
Assets held in separate account 113,488 90,573
Total assets $ 6,921,375 $ 5,953,873
Liabilities and Equity: Policy liabilities and accruals $
2,803,189 $ 2,574,050 Policyholder account balances 1,454,114
1,356,932 Corporate debt 365,750 350,750 Junior subordinated
debentures 175,000 175,000 Other liabilities and policyholder funds
647,269 581,954 Liabilities related to separate account
113,488 90,573 Total liabilities
5,558,810 5,129,259 Equity: Class A
Common Stock 560 489 Class B Common Stock 60 60 Additional paid-in
capital 661,895 522,596 Accumulated other comprehensive loss
(33,956 ) (351,710 ) Retained earnings 927,706 846,390 Treasury
stock, at cost (197,246 ) (197,246 ) Total
shareholders' equity 1,359,019 820,579 Noncontrolling interest
3,546 4,035 Total equity
1,362,565 824,614 Total liabilities and equity
$ 6,921,375 $ 5,953,873
DELPHI
FINANCIAL GROUP, INC. CONSOLIDATED STATEMENTS OF CASH
FLOWS (Unaudited; in thousands)
Twelve Months Ended 12/31/2009 12/31/2008 Operating activities: Net
income $ 99,104 $ 36,683
Adjustments to reconcile net
income to net cash provided by operating activities:
Change in policy liabilities and policyholder accounts 234,615
233,116 Net change in reinsurance receivables and payables 18,513
30,746 Amortization, principally the cost of business acquired and
investments 53,914 63,438 Deferred costs of business acquired
(123,152 ) (124,529 ) Net realized losses on investments 147,543
88,177 Net change in federal income tax liability (11,347 ) (68,689
) Other 41,357 137,390 Net cash
provided by operating activities 460,547
396,332 Investing activities: Purchases of
investments and loans made (1,859,365 ) (1,474,661 ) Sales of
investments and receipts from repayment of loans 1,014,200 537,328
Maturities of investments 159,525 336,417 Net change in short-term
investments (5,162 ) (115,587 ) Change in deposit in separate
account 4,845 12,429 Net cash used by
investing activities (685,957 ) (704,074 )
Financing activities: Deposits to policyholder accounts 267,499
388,419 Withdrawals from policyholder accounts (162,494 ) (120,984
) Borrowings under revolving credit facility 17,000 139,000
Principal payments under revolving credit facility (2,000 ) (6,000
)
Redemption of junior subordinated
deferrable interest debentures underlying company-obligated
mandatorily redeemable capital securities issued by unconsolidated
subsidiaries
- (20,619 ) Proceeds from issuance of common stock 120,696 -
Acquisition of treasury stock - (42,729 ) Cash dividends paid on
common stock (20,160 ) (18,409 ) Other financing activities
6,496 1,661 Net cash provided by financing
activities 227,037 320,339
Increase in cash 1,627 12,597 Cash at beginning of period
63,837 51,240 Cash at end of period $ 65,464
$ 63,837
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