Delphi Financial Reports Second Quarter 2008 Operating EPS of $0.81; Net Income per...

Delphi Financial Reports Second Quarter 2008 Operating EPS of $0.81; Net Income per Share is $0.55

WILMINGTON, Del.--(Business Wire)--
Delphi Financial Group, Inc. (NYSE:DFG) announced today that its
net income in the second quarter of 2008 was $26.9 million or $0.55
per share, compared to $42.9 million or $0.83 per share in the second
quarter of 2007. Net income in the second quarter of 2008 included
after-tax realized investment losses of $(12.7) million or $(0.26) per
share, while net income in the second quarter of 2007 included
after-tax realized investment gains of $0.6 million or $0.01 per
share. Net income for the first half of 2008 was $48.0 million or
$0.97 per share, compared with net income in the first half of 2007 of
$82.1 million or $1.59 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, while net income in the first half of 2007 included
after-tax realized investment gains of $0.4 million or $0.01 per share
and an after-tax loss of $(1.4) million or $(0.03) per share from the
redemption of junior subordinated deferrable interest debentures.

Operating earnings (1) in the second quarter of 2008 were $39.5
million or $0.81 per share, compared to $42.3 million or $0.82 per
share in the second quarter of 2007. Operating earnings for the first
half of 2008 were $64.9 million or $1.31 per share, compared to $83.2
million or $1.61 per share in the first half of 2007. Annualized
operating return on beginning equity (2) in the second quarter of 2008
was 14.7%, compared to 14.8% in the second quarter of 2007.

Core group employee benefit premiums in the second quarter of 2008
rose 4.5% over the prior year quarter to $324 million. This growth was
driven by an 11% increase in group life premiums and a 5% increase in
group disability premiums at Delphi's Reliance Standard Life
subsidiary. Delphi's group employee benefit combined ratio in the
second quarter of 2008 was 91.8%, down from 92.4% for the second
quarter of 2007 and full-year 2007.

Delphi's net investment income in the second quarter of 2008 was
$60.8 million compared to $69.1 million a year ago. Invested assets at
June 30, 2008 were $4.8 billion compared to $4.7 billion at June 30,
2007. The tax equivalent yield on the Company's investment portfolio
in the second quarter of 2008 was 5.4%, compared to 6.3% in the second
quarter of 2007. Diluted book value per share before accumulated other
comprehensive income or loss(3) was $24.91 at June 30, 2008, compared
with $24.34 at Dec. 31, 2007 and $23.46 at June 30, 2007.

Robert Rosenkranz, Chairman and Chief Executive Officer,
commented, "Delphi Financial's solid performance in the second quarter
resulted from continued strong underwriting profits in our insurance
businesses. Improvement in our combined ratio continues to be driven
by our disciplined pricing and underwriting at both Reliance Standard
and Safety National. Reliance Standard continues to benefit from our
emphasis on the small case market focused on companies with less than
500 employees, and our focus on voluntary products. At Safety
National, we were very pleased with preliminary results for the July
renewal period in excess workers' compensation, in which we had
continued excellent renewal ratios, solid growth in new sales, modest
declines in rates and modest increases in the important self-insured
retention level."

Mr. Rosenkranz added, "Our investment results improved in the
second quarter compared to the first quarter as we achieved better
returns in our investments in alternative assets. We plan to gradually
reduce our exposure to alternative assets and increase allocations to
our traditional fixed income asset classes, including municipal
securities and highly-rated mortgage-backed securities, where we are
seeing improved yield opportunities. Delphi continues to have a strong
balance sheet which gives us excellent financial flexibility to invest
in our insurance businesses and build shareholder value through share
repurchases. In the second quarter of 2008, Delphi repurchased 965,200
shares at a volume weighted average price of $26.61, and we have
remaining authorization to repurchase one million shares."

Conference Call

On July 23, 2008 at 11:00 AM (Eastern time), Delphi will broadcast
the Company's second quarter 2008 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 23, 2008. Investors can also download Delphi's
second quarter 2008 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" 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, 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.

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(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. Redemptions 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.

(3) Diluted book value per share before accumulated other
comprehensive income and loss, which is a non-GAAP financial
measure, is based on shareholders' equity excluding the effect
of accumulated other comprehensive income and loss. The Company
believes that, because accumulated other comprehensive income
and loss fluctuates from period to period primarily due to
changes in the value of its assets resulting from fluctuations
in market interest rates, while the values of its liabilities
are not similarly marked to market in determining diluted book
value per share (the most directly comparable GAAP measure),
this non-GAAP measure is useful in analyzing the Company's
operating trends. For reconciliations of the respective diluted
book value per share before accumulated other comprehensive
income and loss amounts to the corresponding diluted book value
per share amounts for the indicated dates, see the table
captioned "Non-GAAP Financial Measures - Reconciliation to GAAP"
which follows.
*T

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DELPHI FINANCIAL GROUP, INC.
Non-GAAP Financial Measures
Reconciliation to GAAP
(Unaudited; in thousands, except per share data)

Three Months Ended Six Months Ended
----------------------- ------------------------
6/30/2008 6/30/2007 6/30/2008 6/30/2007
----------- ----------- ----------- ------------
Income Statement Data
---------------------

Operating earnings
(Non-GAAP measure) $ 39,549 $ 42,305 $ 64,877 $ 83,172
Net realized
investment
(losses) gains,
net of taxes (12,674) 609 (16,858) 361
Loss on redemption
of junior
subordinated
deferrable
interest
debentures, net of
taxes - - - (1,425)
----------- ----------- ----------- ------------

Net income (GAAP
measure) $ 26,875 $ 42,914 $ 48,019 $ 82,108
=========== =========== =========== ============

Diluted results per
share of common
stock:
Operating earnings
(Non-GAAP measure) $ 0.81 $ 0.82 $ 1.31 $ 1.61
Net realized
investment
(losses) gains,
net of taxes (0.26) 0.01 (0.34) 0.01
Loss on
redemption of
junior
subordinated
deferrable
interest
debentures, net
of taxes - - - (0.03)
----------- ----------- ----------- ------------

Net income (GAAP
measure) $ 0.55 $ 0.83 $ 0.97 $ 1.59
=========== =========== =========== ============

Annualized operating
return on beginning
equity 14.7% 14.8% 11.4% 15.2%

Annualized net income
return on beginning
equity (GAAP
measure) 10.0% 15.0% 8.4% 15.0%

Balance Sheet Data 6/30/2008 12/31/2007
--------------------- ----------- ------------

Shareholders' equity,
excluding
accumulated other
comprehensive (loss)
income $1,188,524 $ 1,183,887
Add: Accumulated
other
comprehensive loss (155,929) (42,497)
----------- ------------

Shareholders' equity
(GAAP measure) $1,032,595 $ 1,141,390
=========== ============

Diluted book value
per share of common
stock, excluding
accumulated other
comprehensive (loss)
income (Non-GAAP
measure) $ 24.91 $ 24.34
Add: Accumulated
other
comprehensive loss (2.88) (0.77)
----------- ------------

Diluted book value
per share of common
stock (GAAP measure) $ 22.03 $ 23.57
=========== ============

Please see footnotes 1 through 3 of the press release to which this
table is attached for important information regarding these non-GAAP
financial measures.
*T

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DELPHI FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited; in thousands, except per share data)

Three Months Ended Six Months Ended
----------------------- ----------------------
6/30/2008 06/30/2007 6/30/2008 06/30/07
----------- ----------- ----------- ----------
Revenue:
Premium and fee
income $ 340,774 $ 324,337 $ 683,064 $ 646,584
Net investment income 60,750 69,107 93,087 140,410
Net realized
investment (losses)
gains (19,499) 937 (25,935) 555
Loss on redemption of
junior subordinated
deferrable interest
debentures - - - (2,192)
----------- ----------- ----------- ----------
382,025 394,381 750,216 785,357
----------- ----------- ----------- ----------
Benefits and expenses:
Benefits, claims and
interest credited to
policyholders 243,755 235,483 486,667 473,695
Commissions and
expenses 94,683 90,814 184,576 181,365
----------- ----------- ----------- ----------
338,438 326,297 671,243 655,060
----------- ----------- ----------- ----------

Operating income 43,587 68,084 78,973 130,297

Interest expense:
Corporate debt 4,289 4,591 8,513 9,645
Junior subordinated
debentures 3,246 1,406 6,486 1,406
Junior subordinated
deferrable interest
debentures
underlying company-
obligated
mandatorily
redeemable capital
securities issued by
unconsolidated
subsidiaries 353 479 757 1,763
Income tax expense 8,824 18,694 15,198 35,375
----------- ----------- ----------- ----------

Net income $ 26,875 $ 42,914 $ 48,019 $ 82,108
=========== =========== =========== ==========

Basic results per share
of common stock:
Net income $ 0.56 $ 0.85 $ 0.99 $ 1.63

Weighted average
shares outstanding 48,146 50,441 48,600 50,309

Diluted results per
share of common stock:
Net income $ 0.55 $ 0.83 $ 0.97 $ 1.59

Weighted average
shares outstanding 49,000 51,734 49,576 51,601

Dividends paid per
share of common stock $ 0.10 $ 0.09 $ 0.19 $ 0.17
*T

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DELPHI FINANCIAL GROUP, INC.
SUMMARIZED CONSOLIDATED BALANCE SHEETS
(Unaudited; in thousands)

6/30/2008 12/31/2007
----------- ------------
Assets:
Investments:
Fixed maturity securities, available for
sale $3,811,763 $ 3,691,694
Short-term investments 325,716 286,033
Other investments 631,902 1,010,141
----------- ------------
4,769,381 4,987,868

Cash 43,544 51,240
Cost of business acquired 209,877 174,430
Reinsurance receivables 381,259 402,785
Goodwill 93,929 93,929
Other assets 275,171 260,602
Assets held in separate account 118,592 123,956
----------- ------------

Total assets $5,891,753 $ 6,094,810
=========== ============

Liabilities and Shareholders' Equity:
Policy liabilities and accruals $2,459,146 $ 2,353,375
Policyholder account balances 1,190,604 1,083,121
Corporate debt 272,750 217,750
Junior subordinated debentures 175,000 175,000
Junior subordinated deferrable interest
debentures underlying company-obligated
mandatorily redeemable capital securities
issued by unconsolidated subsidiaries 20,619 20,619
Other liabilities and policyholder funds 622,447 979,599
Liabilities related to separate account 118,592 123,956
----------- ------------

Total liabilities 4,859,158 4,953,420

Shareholders' equity:
Class A Common Stock 489 487
Class B Common Stock 59 59
Additional paid-in capital 518,109 509,742
Accumulated other comprehensive loss (155,929) (42,497)
Retained earnings 867,113 828,116
Treasury stock, at cost (197,246) (154,517)
----------- ------------
1,032,595 1,141,390
----------- ------------
Total liabilities and shareholders'
equity $5,891,753 $ 6,094,810
=========== ============
*T

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DELPHI FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in thousands)

Six Months Ended
-----------------------
6/30/2008 6/30/2007
----------- -----------
Operating activities:
Net income $ 48,019 $ 82,108
Adjustments to reconcile net income to net
cash provided by operating activities:
Change in policy liabilities and
policyholder accounts 108,256 153,073
Net change in reinsurance receivables and
payables 16,881 (11,492)
Amortization, principally the cost of
business acquired and investments 33,010 40,549
Deferred costs of business acquired (60,481) (53,659)
Net realized losses (gains) on investments 25,935 (555)
Net change in federal income tax liability (24,913) 9,267
Other 15,866 (38,188)
----------- -----------
Net cash provided by operating
activities 162,573 181,103
----------- -----------

Investing activities:
Purchases of investments and loans made (706,313) (665,152)
Sales of investments and receipts from
repayment of loans 148,589 249,879
Maturities of investments 317,518 73,720
Net change in short-term investments (39,683) 173,647
Change in deposit in separate account 3,430 (330)
----------- -----------
Net cash used by investing activities (276,459) (168,236)
----------- -----------

Financing activities:
Deposits to policyholder accounts 154,302 55,642
Withdrawals from policyholder accounts (53,226) (82,476)
Borrowings under revolving credit facility 58,000 38,000
Principal payments under revolving credit
facility (3,000) (158,000)
Proceeds from the issuance of junior
subordinated debentures - 172,309
Redemption of junior subordinated deferrable
interest debentures underlying company-
obligated mandatorily redeemable capital
securities issued by unconsolidated
subsidiaries - (37,728)
Acquisition of treasury stock (42,729) -
Other financing activities (7,157) 4,566
----------- -----------
Net cash provided (used) by financing
activities 106,190 (7,687)
----------- -----------

(Decrease) Increase in cash (7,696) 5,180
Cash at beginning of period 51,240 48,204
----------- -----------
Cash at end of period $ 43,544 $ 53,384
=========== ===========
*T

Delphi Financial Group, Inc.
Bernard J. Kilkelly
Vice President, Investor Relations
212-303-4349
bernie-kilkelly@dlfi.com

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