Delphi Financial Group, Inc. (NYSE: DFG) announced today that
its operating earnings (1) in the first quarter of 2011 were $51.5
million or $0.91 per share, compared to $46.3 million or $0.84 per
share in the first quarter of 2010. Annualized operating return on
beginning equity (2) in the first quarter of 2011 was 13.5%
compared to 14.3% in the first quarter of 2010. Diluted book value
per share was $28.02 at March 31, 2011, up 3% from December 31,
2010 and up 15% from March 31, 2010.
Delphi adopted on a retrospective basis, effective January 1,
2011, new FASB guidance limiting the extent to which an insurer may
capitalize costs incurred in the acquisition of an insurance
contract. Accordingly, the 2010 financial information has been
restated, to reduce operating earnings per share for the first
quarter of 2010 by $0.02 per share and to reduce diluted book value
per share at March 31, 2010 by $1.06. (3)
Delphi’s net income attributable to shareholders in the first
quarter of 2011 was $50.2 million, up 38% from $36.5 million in the
first quarter of 2010. On a per share basis, net income was $0.89,
a 35% increase from $0.66 per share in the prior period. Net income
attributable to shareholders in the first quarter of 2011 included
after-tax net realized investment losses of $(1.3) million or
$(0.02) per share, including other-than-temporary impairments
(OTTI), net of taxes, of $(5.9) million or $(0.10) per share. Net
income attributable to shareholders in the first quarter of 2010
included after-tax net realized investment losses of $(9.8) million
or $(0.18) per share, including OTTI, net of taxes, of $(14.9)
million or $(0.27) per share.
Robert Rosenkranz, Chairman and Chief Executive Officer,
commented, “Delphi’s insurance businesses achieved strong top-line
growth in the first quarter as we benefited from improving payroll
trends in our small case market niche at Reliance Standard and
continued market share gains for Safety National’s products. In
both companies, we have been able to achieve the largest price
increases of the past several years. Our group employee benefits
loss ratio improved 110 basis points from the fourth quarter of
2010 as we began to see the effect of better pricing and other
actions we’ve taken to address the elevated long-term disability
claims incidence we experienced in the second half of 2010.”
Delphi’s core group employee benefit premiums in the first
quarter of 2011 rose 8% to $359.4 million from $333.3 million in
the first quarter of 2010. This premium growth was driven by a 16%
increase in core premiums at Delphi’s Safety National subsidiary.
Excess workers’ compensation premiums grew 10% in the quarter,
boosted by a 42% increase in production, and assumed workers’
compensation reinsurance premiums rose 51%. Core premiums increased
5% at Delphi’s Reliance Standard Life subsidiary and core
production was up 40%. Delphi’s group employee benefit combined
ratio in the first quarter of 2011 was 95.2%, compared with 94.6%
for the first quarter of 2010.
Delphi’s asset accumulation segment, which is primarily focused
on individual fixed annuities, had new sales of $97.6 million in
the first quarter of 2011, up from $38.8 million in last year’s
first quarter. Funds under management at March 31, 2011 rose to
$1.7 billion, up 20% percent over the prior year.
Delphi’s net investment income in the first quarter of 2011 rose
10% to $92.3 million from $84.1 million in the first quarter of
2010. Invested assets at March 31, 2011 were $6.7 billion compared
to $6.0 billion at March 31, 2010. The tax equivalent yield on the
Company’s investment portfolio in the first quarter of 2011 was
6.0%, compared to 6.2% in the first quarter of 2010.
Mr. Rosenkranz added, “We are off to a good start in 2011 from
our well-diversified business mix. Delphi continues to have
excellent financial flexibility to support the growth of our
insurance and asset accumulation products.”
Conference Call
On April 27, 2011 at 11:00 AM (Eastern time), Delphi will
broadcast the Company’s first quarter 2011 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 April 27, 2011.
Investors can also download Delphi’s first quarter 2011 statistical
supplement from the Company’s website at
www.delphifin.com/financial/stats11.html.
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 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 occurs based on management’s decision to redeem or repurchase
these notes. 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. (3)
In October 2010, the FASB issued guidance
limiting the extent to which an insurer may capitalize costs
incurred in the acquisition of an insurance contract. The guidance
provides that, in order to be capitalized, such costs must be
incremental and directly related to the acquisition of a new or
renewal insurance contract. Insurers may only capitalize costs
related to successful efforts in attaining a contract and
advertising costs may only be capitalized if certain direct
response advertising criteria are met. This guidance is effective
for interim and annual reporting periods beginning after December
15, 2011, with either prospective or retrospective adoption
permitted. Effective January 1, 2011, Delphi elected to adopt this
guidance on a retrospective basis, which resulted in the write-off
of the portion of its cost of business acquired that does not
satisfy the standards for being capitalized under such guidance, as
well as the restatement of certain of Delphi’s financial
information for prior periods. Detailed financial data concerning
these matters is contained in the Company’s First Quarter 2011
Financial Supplement, which is available on the Company’s website
at www.delphifin.com/financial/stats11.html.
DELPHI FINANCIAL GROUP, INC. Non-GAAP
Financial Measures Reconciliation to GAAP (Dollars In
Thousands, Except Per Share Data) Three Months
Ended
Income Statement
Data
03/31/2011 03/31/2010
Operating earnings $ 51,506 $ 46,335 Net realized investment
losses (A) (1,282 ) (9,819 )
Net income
attributable to shareholders (GAAP measure) $ 50,224 $
36,516
Diluted results per share of common stock
attributable to shareholders: Operating earnings $ 0.91
$ 0.84 Net realized investment losses (A) (0.02 )
(0.18 )
Net income attributable to shareholders (GAAP
measure) $ 0.89 $ 0.66
Annualized operating return on beginning shareholders'
equity 13.5 % 14.3 %
Annualized net income return on
beginning shareholders' equity (GAAP measure) 13.1 % 11.2 %
(A) Net of an income tax benefit of $0.7 million and $5.3
million, or $0.01 per diluted share and $0.10 per diluted share for
the three months ended 03/31/2011 and 03/31/2010, respectively. The
tax effect is calculated using the Company's statutory tax rate of
35%.
Balance Sheet
Data
03/31/2011 12/31/2010
Shareholders' equity, excluding accumulated other comprehensive
income $ 1,549,115 $ 1,499,564 Add: Accumulated other
comprehensive income 41,206 30,932
Shareholders' equity (GAAP measure) $ 1,590,321 $
1,530,496
Diluted book value per share of
common stock, excluding accumulated other comprehensive income
$ 27.35 $ 26.57 Add: Accumulated other comprehensive income
0.67 0.52
Diluted book value per share of
common stock (GAAP measure) $ 28.02 $ 27.09
Corporate debt to total capitalization ratio, excluding
accumulated other comprehensive income 17.9 % 18.3 %
Corporate debt to total capitalization ratio (GAAP measure)
17.5 % 18.0 %
DELPHI FINANCIAL GROUP, INC.
Consolidated Statements of Income Total Operations
(Dollars in Thousands, Except Per Share Data)
Three Months Ended 03/31/2011 03/31/2010
Revenue: Premium and fee income $ 376,399 $ 347,763 Net
investment income 92,294 84,050 Net realized investment losses:
Total other than temporary impairment losses (7,539 ) (27,273 )
Portion of other than temporary impairment losses (reclassified
from) recognized in other comprehensive income (1,479 )
4,275 Net impairment losses recognized in earnings
(9,018 ) (22,998 ) Other net realized investment gains 7,046
7,892 Net realized investment losses
(1,972 ) (15,106 ) Total revenue 466,721
416,707 Benefits and expenses: Benefits,
claims and interest credited to policyholders 271,265 246,321
Commissions and expenses 119,438 113,329
390,703 359,650 Operating
income 76,018 57,057 Interest expense: Corporate debt 6,010
7,323 Junior subordinated debentures 3,242 3,241 Income tax expense
16,395 9,912 Net income 50,371
36,581 Less: Net income attributable to noncontrolling
interest 147 65 Net income
attributable to shareholders $ 50,224 $ 36,516
Basic results per share of common stock Net income
attributable to shareholders $ 0.90 $ 0.66 Weighted average
shares outstanding 55,921 55,160 Diluted results per share
of common stock: Net income attributable to shareholders $ 0.89 $
0.66 Weighted average shares outstanding 56,734 55,457
Dividends paid per share of common stock $ 0.11 $ 0.10
DELPHI FINANCIAL GROUP, INC. Summarized
Consolidated Balance Sheets (Dollars In Thousands)
03/31/2011 12/31/2010
Assets: Investments: Fixed maturity securities, available for sale
$ 5,865,382 $ 5,717,090 Short-term investments 267,389 334,215
Other investments 613,343 498,678
6,746,114 6,549,983 Cash 93,025 72,806 Cost of business
acquired 151,777 149,325 Reinsurance receivables 355,241 360,255
Goodwill 93,929 93,929 Other assets 335,536 311,577 Assets held in
separate account 129,428 123,674 Total
assets $ 7,905,050 $ 7,661,549 Liabilities and
Equity: Policy liabilities and accruals $ 3,047,953 $ 2,970,389
Policyholder account balances 1,756,144 1,753,744 Corporate debt
375,000 375,000 Junior subordinated debentures 175,000 175,000
Other liabilities and policyholder funds 825,649 728,612
Liabilities related to separate account 129,428
123,674 Total liabilities 6,309,174
6,126,419 Equity: Class A Common Stock 566 565
Class B Common Stock 60 60 Additional paid-in capital 688,300
682,816 Accumulated other comprehensive income 41,206 30,932
Retained earnings 1,057,435 1,013,369 Treasury stock, at cost
(197,246 ) (197,246 ) Total shareholders' equity
1,590,321 1,530,496 Noncontrolling interest 5,555
4,634 Total equity 1,595,876
1,535,130 Total liabilities and equity $ 7,905,050 $
7,661,549
DELPHI FINANCIAL GROUP, INC.
Consolidated Statements of Cash Flows (Unaudited; in
thousands) Three Months Ended 03/31/2011
03/31/2010 Operating activities: Net income
attributable to shareholders $ 50,224 $ 36,516
Adjustments to reconcile net income
attributable to shareholders to net cash provided by operating
activities:
Change in policy liabilities and policyholder accounts 123,648
94,640 Net change in reinsurance receivables and payables 1,017
(7,428 ) Amortization, principally the cost of business acquired
and investments 13,912 6,906 Deferred costs of business acquired
(26,032 ) (20,630 ) Net realized losses on investments 1,972 15,106
Net change in federal income taxes 23,875 9,138 Other
(71,177 ) (32,743 ) Net cash provided by operating
activities 117,439 101,505
Investing activities: Purchases of investments and loans made
(826,996 ) (435,672 ) Sales of investments and receipts from
repayment of loans 592,455 165,711 Maturities of investments 71,970
139,323 Net change in short-term investments 66,826
(13,510 ) Net cash used by investing activities
(95,745 ) (144,148 ) Financing activities: Deposits
to policyholder accounts 99,076 40,332 Withdrawals from
policyholder accounts (97,028 ) (26,138 ) Proceeds from issuance of
2020 Senior Notes - 250,000 Principal payments under bank credit
facility - (222,000 ) Cash dividends paid on common stock (6,158 )
(5,524 ) Other financing activities 2,635
2,292 Net cash (used) provided by financing activities
(1,475 ) 38,962 Increase (decrease) in
cash 20,219 (3,681 ) Cash at beginning of year 72,806
65,464 Cash at end of year $ 93,025 $ 61,783
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