Delphi Financial Group, Inc. (NYSE: DFG) announced today that
its operating earnings (1) in the fourth quarter of 2010 were $53.6
million or $0.96 per share, compared to $47.7 million or $0.86 per
share in the fourth quarter of 2009. Annualized operating return on
beginning equity (2) in the fourth quarter of 2010 was 13.0%
compared to 14.3% in the fourth quarter of 2009. Diluted book value
per share was $28.16 at December 31, 2010, up 15% since December
31, 2009.
Delphi’s net income attributable to shareholders in the fourth
quarter of 2010 was $52.4 million or $0.94 per share, compared to
$16.8 million or $0.30 per share in the fourth quarter of 2009. Net
income attributable to shareholders in the fourth quarter of 2010
included a loss on early retirement of senior notes, net of taxes,
of $(2.4) million or $(0.04) per share and after-tax net realized
investment gains of $1.2 million or $0.02 per share, including
other-than-temporary impairments (OTTI), net of taxes, of $(7.1)
million or $(0.13) per share. Net income attributable to
shareholders in the fourth quarter of 2009 included after-tax net
realized investment losses of $(30.9) million or $(0.56) per share,
including OTTI, net of taxes, of $(32.6) million or $(0.59) per
share.
For the year ended December 31, 2010, Delphi’s operating
earnings were $194.9 million or $3.50 per share, compared to $195.0
million or $3.76 per share for the full year 2009. Net income
attributable to shareholders was $173.1 million or $3.11 per share,
compared to net income attributable to shareholders of $99.1
million or $1.91 per share for the full year of 2009. Net income
attributable to shareholders for the full year of 2010 included a
loss on early retirement of senior notes, net of taxes, of $(5.0)
million or $(0.09) per share and after-tax net realized investment
losses of $(16.8) million or $(0.30) per share, including OTTI of
$(39.7) million or $(0.71) per share. Net income attributable to
shareholders for the full year of 2009 included after-tax net
realized investment losses of $(95.9) million or $(1.85) per share,
including OTTI of $(94.1) million or $(1.82) per share.
Robert Rosenkranz, Chairman and Chief Executive Officer,
commented, “We were pleased to achieve strong fourth quarter
operating results, which brought full year operating earnings per
share to the very top of the range of guidance we provided at the
beginning of the year. This was accomplished in a challenging
environment: stagnant payrolls, low interest rates, and an
industry-wide trend in our disability business toward increased
claims incidence. We benefited from strong growth in premiums and
production along with favorable underwriting margins at Safety
National, which helped offset the impact of higher disability
claims incidence at Reliance Standard Life. Investment income
benefited from continued growth in invested assets and very strong
returns in our alternative investments portfolio. Delphi
strengthened our balance sheet and capital structure in the fourth
quarter with the full redemption of our 8.00% Senior Notes and a
new $300 million bank credit facility. At the end of 2010, our
debt-to-capital ratio was 18% and holding company financial
resources were at a comfortable $107 million.”
Delphi’s core group employee benefit premiums in the fourth
quarter of 2010 rose 4% to $346.2 million from $332.8 million in
the fourth quarter of 2009. This premium growth was driven by a 13%
increase in core premiums at Delphi’s Safety National subsidiary.
Excess workers’ compensation premiums rose 6% in the quarter,
boosted by a 99% increase in production, and assumed workers’
compensation reinsurance premiums rose 69%. Premiums rose 1% at
Delphi’s Reliance Standard Life subsidiary, boosted by a 9%
increase in production. Delphi’s group employee benefit combined
ratio in the fourth quarter of 2010 was 96.7%, compared with 93.2%
for the fourth quarter of 2009.
Delphi’s asset accumulation segment, which is primarily focused
on individual fixed annuities, had new sales of $106.9 million in
the fourth quarter of 2010, up from $16.4 million in last year’s
fourth quarter. New annuity sales for the full year 2010 were
$377.4 million, up from $248.6 million for the full year of 2009.
Funds under management at December 31, 2010 rose to $1.7 billion
from $1.4 billion at December 31, 2009.
Delphi’s net investment income in the fourth quarter of 2010 was
$102.1 million compared to $74.6 million in the fourth quarter of
2009. Invested assets at December 31, 2010 were $6.5 billion
compared to $5.7 billion at December 31, 2009. The tax equivalent
yield on the Company’s investment portfolio in the fourth quarter
of 2010 was 6.8%, compared to 5.7% in the fourth quarter of
2009.
Mr. Rosenkranz added, “We will be furnishing guidance on our
conference call regarding our expectations for operating earnings
in 2011. While we expect the environment to remain difficult due to
continued low interest rates and high unemployment levels, we
continue to be optimistic about the growth prospects of Delphi’s
insurance businesses and our ability to capitalize on the
leadership positions we have established in our attractive niche
markets.”
Conference Call
On February 16, 2011 at 11:00 AM (Eastern time), Delphi will
broadcast the Company’s fourth quarter 2010 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 12:00 PM (Eastern time) on February 16, 2011.
Investors can also download Delphi’s fourth quarter 2010
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 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, health care and tax laws and
regulations, changes in accounting rules or interpretations
thereof, 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, consists of net income attributable to shareholders
excluding after-tax realized investment gains and losses, losses on
early retirement of senior notes and junior subordinated deferrable
interest debentures and results from discontinued operations, as
applicable. The Company believes that because these excluded items
arise from events that are largely within management’s discretion
and whose fluctuations can distort comparisons between periods, a
measure excluding their impact is useful in analyzing the Company's
operating trends. Investment gains or losses are realized based on
management’s decision to dispose of an investment, and investment
losses are realized based on management’s judgment that a decline
in the market value of an investment is other than temporary. Early
retirement of senior notes and junior subordinated deferrable
interest debentures occurs based on management’s decision to redeem
or repurchase these notes and debentures. Discontinued operations
result from management’s decision to exit or sell a particular
business. Thus, these excluded items 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 their effects. For these reasons, management
uses the measure of operating earnings to assess performance and
make operating plans and decisions, and the Company believes that
analysts and investors typically utilize measures of this type as
one element of their evaluations of insurers’ financial
performance. However, gains or losses from the excluded items,
particularly as to investments, can occur frequently and should not
be considered as nonrecurring items. Further, operating earnings
should not be considered a substitute for net income attributable
to shareholders, 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 amounts of operating earnings to the corresponding amounts of
net income attributable to shareholders 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
attributable to shareholders), 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 footnote (1). For reconciliations of the amounts of
annualized operating return on equity to the corresponding amounts
of annualized net income return on equity 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 12/31/2010
12/31/2009 12/31/2010 12/31/2009
Income Statement
Data
Operating earnings $ 53,554 $ 47,739 $ 194,949 $
195,007 Net realized investment gains (losses) (A) 1,243 (30,949 )
(16,819 ) (95,903 ) Loss on early retirement of senior notes (B)
(2,401 ) - (4,983 ) -
Net income attributable to shareholders (GAAP
measure) $ 52,396 $ 16,790 $ 173,147 $
99,104
Diluted results per share of common stock
attributable to shareholders: Operating earnings $ 0.96
$ 0.86 $ 3.50 $ 3.76 Net realized investment gains (losses) (A)
0.02 (0.56 ) (0.30 ) (1.85 ) Loss on early retirement of senior
notes (B) (0.04 ) - (0.09 ) -
Net income attributable to shareholders (GAAP
measure) $ 0.94 $ 0.30 $ 3.11 $ 1.91
Annualized operating return on beginning
shareholders' equity 13.0 % 14.3 % 14.3 % 23.8 %
Annualized net income return on beginning shareholders' equity
(GAAP measure) 12.7 % 5.0 % 12.7 % 12.1 % (A) Net of an
income tax expense (benefit) of $0.7 million, $(16.7) million,
$(9.1) million and $(51.6) million, or $0.01 per diluted share,
$(0.30) per diluted share, $(0.16) per diluted share and $(1.00)
per diluted share for the three months ended 12/31/2010 and
12/31/2009, and the full year ended 12/31/2010 and 12/31/2009,
respectively. The tax effect is calculated using the Company's
statutory tax rate of 35%. (B) Net of an income tax benefit
of $1.3 million or $0.02 per diluted share and $2.7 million or
$0.05 per diluted share for the three and twelve months ended
12/31/2010, respectively. The tax effect is calculated using the
Company's statutory tax rate of 35%.
Balance Sheet
Data
12/31/2010 12/31/2009
Shareholders'
equity, excluding accumulated other comprehensive income (loss)
$ 1,563,801 $ 1,392,975 Add: Accumulated other comprehensive income
(loss) 30,932 (33,956 )
Shareholders'
equity (GAAP measure) $ 1,594,733 $ 1,359,019
Diluted book value per share of common stock, excluding
accumulated other comprehensive income (loss) $ 27.64 $ 25.02
Add: Accumulated other comprehensive income (loss) 0.52
(0.60 )
Diluted book value per share of common
stock (GAAP measure) $ 28.16 $ 24.42 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
12/31/2010 12/31/2009 12/31/2010 12/31/2009 Revenue:
Premium and fee income $ 362,214 $ 348,265 $ 1,419,562 $ 1,401,041
Net investment income 102,057 74,627 351,227 318,187 Net realized
investment gains (losses): Total other than temporary impairment
losses (14,585 ) (43,184 ) (77,403 ) (180,191 )
Less: Portion of other than temporary
impairment losses recognized in other comprehensive income
3,697 (6,987 ) 16,296
35,480 Net impairment losses recognized in earnings (10,888
) (50,171 ) (61,107 ) (144,711 ) Other net realized investment
gains (losses) 12,801 2,557
35,232 (2,832 ) Net realized investment gains
(losses) 1,913 (47,614 ) (25,875 ) (147,543 ) Loss on early
retirement of senior notes (3,694 ) -
(7,666 ) - Total revenue 462,490
375,278 1,737,248 1,571,685
Benefits and expenses: Benefits, claims and interest
credited to policyholders 263,783 242,441 1,005,385 990,802
Commissions and expenses 120,568 108,933
462,628 433,783 384,351
351,374 1,468,013
1,424,585 Operating income 78,139 23,904 269,235
147,100 Interest expense: Corporate debt 6,732 3,818 30,102
15,485 Junior subordinated debentures 3,241 3,240 12,971 12,968
Income tax expense 14,709 2
51,839 19,263 Net income 53,457 16,844 174,323
99,384 Less: Net income attributable to noncontrolling
interest 1,061 54 1,176
280 Net income attributable to shareholders $
52,396 $ 16,790 $ 173,147 $ 99,104
Basic results per share of common stock: Net
income attributable to shareholders $ 0.94 $ 0.31 $ 3.13 $ 1.92
Weighted average shares outstanding 55,458 54,960 55,327
51,532 Diluted results per share of common stock: Net income
attributable to shareholders $ 0.94 $ 0.30 $ 3.11 $ 1.91
Weighted average shares outstanding 55,978 55,385 55,750 51,811
Dividends paid per share of common stock $ 0.11 $ 0.10 $
0.42 $ 0.40
DELPHI FINANCIAL GROUP,
INC. SUMMARIZED CONSOLIDATED BALANCE SHEETS
(Unaudited; in thousands) 12/31/2010
12/31/2009 Assets: Investments: Fixed maturity securities,
available for sale $ 5,717,090 $ 4,875,681 Short-term investments
334,215 406,782 Other investments 498,678
466,855 6,549,983 5,749,318 Cash 72,806 65,464 Cost
of business acquired 248,152 250,311 Reinsurance receivables
360,255 355,030 Goodwill 93,929 93,929 Other assets 311,577 293,835
Assets held in separate account 123,674
113,488 Total assets $ 7,760,376 $ 6,921,375
Liabilities and Equity: Policy liabilities and
accruals $ 2,970,389 $ 2,803,189 Policyholder account balances
1,753,744 1,454,114 Corporate debt 375,000 365,750 Junior
subordinated debentures 175,000 175,000 Other liabilities and
policyholder funds 763,202 647,269 Liabilities related to separate
account 123,674 113,488 Total
liabilities 6,161,009 5,558,810
Equity: Class A Common Stock 565 560 Class B Common Stock 60 60
Additional paid-in capital 682,816 661,895 Accumulated other
comprehensive income (loss) 30,932 (33,956 ) Retained earnings
1,077,606 927,706 Treasury stock, at cost (197,246 )
(197,246 ) Total shareholders' equity 1,594,733 1,359,019
Noncontrolling interest 4,634 3,546
Total equity 1,599,367 1,362,565 Total liabilities
and equity $ 7,760,376 $ 6,921,375
DELPHI FINANCIAL GROUP, INC. CONSOLIDATED
STATEMENTS OF CASH FLOWS (Unaudited; in thousands)
Twelve Months Ended 12/31/2010 12/31/2009 Operating
activities: Net income attributable to shareholders $ 173,147 $
99,104
Adjustments to reconcile net income
attributable to shareholders to net cash provided by operating
activities:
Change in policy liabilities and policyholder accounts
213,687
234,615 Net change in reinsurance receivables and payables (5,322 )
18,513 Amortization, principally the cost of business acquired and
investments 85,504 53,914 Deferred costs of business acquired
(133,739 ) (123,152 ) Net realized losses on investments 25,875
147,543 Net change in federal income taxes 26,410 (11,347 ) Other
(22,760 ) 41,357 Net cash provided by
operating activities
362,802
460,547 Investing activities: Purchases
of investments and loans made (2,451,199 ) (1,859,365 ) Sales of
investments and receipts from repayment of loans 1,463,446
1,014,200 Maturities of investments 291,475 159,525 Net change in
short-term investments 72,567 (5,162 ) Change in deposit in
separate account - 4,845 Net cash used
by investing activities (623,711 ) (685,957 )
Financing activities: Deposits to policyholder accounts
389,720
267,499 Withdrawals from policyholder accounts
(113,241
) (162,494 ) Proceeds from issuance of 2020 Senior Notes 250,000 -
Borrowings under bank credit facility 175,000 17,000 Principal
payments under bank credit facility (272,000 ) (2,000 ) Early
retirement of senior notes (143,750 ) - Proceeds from issuance of
common stock - 120,696 Cash dividends paid on common stock (23,247
) (20,160 ) Other financing activities 5,769
6,496 Net cash provided by financing activities
268,251
227,037 Increase in cash 7,342 1,627
Cash at beginning of year 65,464 63,837
Cash at end of year $ 72,806 $ 65,464
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