EXHIBIT 99.1
1105 North Market Street
Suite 1230
[DELPHI LOGO] Wilmington, Delaware 19801
www.delphifin.com
Press Release
Contact: Bernard J. Kilkelly FOR IMMEDIATE RELEASE
Vice President, Investor Relations 10/25/05
Phone: 212-303-4349
E-mail: bernie-kilkelly@dlfi.com
DELPHI FINANCIAL REPORTS THIRD QUARTER 2005 RESULTS;
WILL EXIT NON-CORE PROPERTY REINSURANCE BUSINESS
Wilmington, Delaware - October 25, 2005 - Delphi Financial Group, Inc. (NYSE:
DFG) announced today that net income in the third quarter of 2005 was $22.0
million or $0.65 per share(1), compared to $32.2 million or $0.98 per share in
the third quarter of 2004. Net income in the third quarters of 2005 and 2004
included after-tax realized investment gains of $2.2 million or $0.06 per share,
and $0.9 million or $0.03 per share, respectively. For the first nine months of
2005, net income was $84.1 million or $2.52 per share, compared with $89.9
million or $2.74 per share, in the first nine months of 2004. Net income in the
first nine months of 2005 and 2004 included after-tax realized investment gains
of $5.5 million or $0.17 per share, and $5.6 million or $0.17 per share,
respectively.
Operating earnings (2) in the third quarter of 2005 were $19.8 million or $0.59
per share, compared to $31.2 million or $0.95 per share in the third quarter of
2004. Operating earnings for the first nine months of 2005 were $78.6 million or
$2.35 per share, compared to $84.3 million or $2.57 per share in the first nine
months of 2004.
Delphi's net income and operating earnings in the third quarter and first nine
months of 2005 included losses of $12.2 million or $0.36 per share net of taxes
and reinstatement premiums in the company's non-core property catastrophe
reinsurance business, which cover the company's maximum exposure to Hurricane
Katrina. Delphi's net income and operating earnings in the third quarter and
first nine months of 2004 benefited from a reduction of federal income taxes
payable of approximately $4.6 million or $0.14 per share.
Robert Rosenkranz, Chairman and Chief Executive Officer, commented, "Excluding
the impact of the Katrina losses, Delphi's third quarter operating earnings per
share were $0.95, which is above the $0.91 to $0.93 range of guidance we
provided in July. This reflects the excellent results in our core insurance
businesses, which are achieving strong premium growth, robust new production and
higher margins as we capitalize on positive market trends. In particular, we are
benefiting from improved profitability in group long-term disability at Reliance
Standard Life and a continued hard market for excess workers' compensation at
Safety National. Our two most profitable insurance lines are also our fastest
growing lines, with third-quarter production in excess workers' compensation up
56% and group disability up 43%. Based on these ongoing trends and our positive
momentum, we remain confident in our outlook for strong earnings growth in our
core insurance businesses in the fourth quarter of 2005 and in 2006."
DELHI FINANCIAL REPORTS THIRD QUARTER 2005 RESULTS Page 2
Mr. Rosenkranz added, "After a thorough analysis of our non-core property
reinsurance business, we have decided not to participate in this business in the
future. This was a difficult decision. We have assembled an excellent, highly
experienced underwriting team that has managed this business profitably on a
cumulative basis since inception, even after the largest insured loss in
history. Post-Katrina, pricing and terms are improved, and the economic outlook
for the line is attractive. Nonetheless, we concluded it was not a good
strategic fit, since clearly the market perceives it as a risk to our core focus
on building shareholder value by delivering consistent, predictable earnings
growth."
Core group employee benefit premiums in the third quarter of 2005 grew 19% from
the third quarter a year ago, reaching $237 million. This growth was driven by a
34% increase in group disability premiums at Delphi's Reliance Standard Life
subsidiary and a 12% increase in premiums from excess workers' compensation
insurance at Delphi's Safety National subsidiary. The combined ratio for the
Company's group employee benefit products in the third quarter of 2005 was
100.7%, compared with 93.8% in the third quarter of 2004 and 94.7% for the
full-year 2004. Excluding the impact of non-core property reinsurance losses,
the combined ratio in the third quarter of 2005 would have been 93.1%.
Delphi's net investment income in the third quarter of 2005 was $55.3 million, a
gain of 15% from $48.2 million in the same quarter a year ago. Invested assets
at September 30, 2005 were $3.8 billion, an increase of 9% from $3.5 billion at
September 30, 2004. The pre-tax equivalent yield on the Company's investment
portfolio in the third quarter of 2005 was 6.1% compared to 5.9% for the third
quarter of 2004. Delphi's shareholders' equity was $1.0 billion at the end of
the third quarter, and book value per share rose to $30.90 at September 30, 2005
from $29.36 at December 31, 2004.
CONFERENCE CALL
On October 26, 2005 at 11:00 AM (Eastern time), Delphi will broadcast the
Company's third quarter 2005 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 October 26, 2005. Investors can also download Delphi's third
quarter 2005 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, market pricing and
competitive trends relating to insurance products and services, acts of
terrorism or war, and the availability and cost of
DELHI FINANCIAL REPORTS THIRD QUARTER 2005 RESULTS Page 3
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. Delphi disclaims any obligation to
update forward-looking information.
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 insurance coverages: group
life, long-term and short-term disability, excess workers' compensation for
self-insured employers, travel accident and dental. Delphi's asset accumulation
business emphasizes individual fixed 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) All per share amounts are on a diluted basis.
(2) Operating earnings, which is a non-GAAP financial measure, consist of net
income excluding after-tax realized investment gains and losses, as applicable.
After-tax net realized investment gains were $2.2 million and $0.9 million, or
$.06 per share and $0.03 per share, for the third quarter of 2005 and 2004,
respectively, and $5.5 million and $5.6 million, or $0.17 per share and $0.17
per share, for the first nine months of 2005 and 2004, respectively. The Company
believes that because realized investment gains and losses 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.
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. Thus, realized investment gains and losses 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 gains and losses. 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, realized investment gains and losses 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.
-tables attached-
DELPHI FINANCIAL GROUP, INC.
NON-GAAP FINANCIAL MEASURES
RECONCILIATION TO GAAP
(UNAUDITED; IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended Nine Months Ended
-------------------------- -----------------------------
09/30/05 09/30/04 09/30/05 09/30/04
------------ ------------ --------------- ------------
INCOME STATEMENT DATA
OPERATING EARNINGS (NON-GAAP MEASURE) $ 19,824 $ 31,247 $ 78,569 $ 84,346
Net realized investment gains, net of taxes 2,208 932 5,547 5,587
------------ ------------ --------------- ------------
NET INCOME (GAAP MEASURE) $ 22,032 $ 32,179 $ 84,116 $ 89,933
============ ============ =============== ============
DILUTED RESULTS PER SHARE OF COMMON STOCK:
OPERATING EARNINGS (NON-GAAP MEASURE) $ 0.59 $ 0.95 $ 2.35 $ 2.57
Net realized investment gains, net of taxes 0.06 0.03 0.17 0.17
------------ ------------ --------------- ------------
NET INCOME (GAAP MEASURE) $ 0.65 $ 0.98 $ 2.52 $ 2.74
============ ============ =============== ============
BALANCE SHEET DATA 09/30/05 12/31/04
--------------- ------------
SHAREHOLDERS' EQUITY, EXCLUDING ACCUMULATED OTHER
COMPREHENSIVE INCOME $ 987,172 $ 882,477
Add: Accumulated other comprehensive income 29,198 57,371
--------------- ------------
SHAREHOLDERS' EQUITY (GAAP MEASURE) $ 1,016,370 $ 939,848
=============== ============
DILUTED BOOK VALUE PER SHARE OF COMMON STOCK, EXCLUDING
ACCUMULATED OTHER COMPREHENSIVE INCOME (NON-GAAP MEASURE) $ 30.08 $ 27.73
Add: Accumulated other comprehensive income 0.82 1.63
--------------- ------------
DILUTED BOOK VALUE PER SHARE OF COMMON STOCK (GAAP MEASURE) $ 30.90 $ 29.36
=============== ============
Please see note 1 of the press release for a discussion regarding the usefulness
of the non-GAAP financial measure "operating earnings." The Company believes
that the non-GAAP financial measure "diluted book value per share excluding
accumulated other comprehensive income" provides useful supplemental information
because accumulated other comprehensive income fluctuates from period to period
primarily due to changes in the value of its assets resulting from variations in
market interest rates, while the values of its liabilities are not similarly
marked to market under GAAP.
NOTE: See Footnote A of the Income Statement regarding the third quarter and the
first nine months of 2005 and 2004.
DELPHI FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED; IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended Nine Months Ended
---------------------------- ---------------------------
09/30/05 09/30/04 09/30/05 09/30/04
------------- ------------- ------------ -------------
Revenue:
Premium and fee income $ 257,317 $ 210,292 $ 746,768 $ 618,051
Net investment income 55,250 48,220 163,879 149,468
Net realized investment gains 3,397 1,433 8,534 8,595
------------- ------------- ------------ -------------
315,964 259,945 919,181 776,114
------------- ------------- ------------ -------------
Benefits and expenses:
Benefits, claims and interest credited to policyholders 204,677 152,312 568,940 455,984
Commissions and expenses 75,457 63,527 213,804 184,155
------------- ------------- ------------ -------------
280,134 215,839 782,744 640,139
------------- ------------- ------------ -------------
Operating income 35,830 44,106 136,437 135,975
Interest expense:
Corporate debt 3,781 3,548 11,712 10,459
Junior subordinated deferrable interest debentures 1,229 1,124 3,599 3,335
Income tax expense (A) 8,788 7,255 37,010 32,248
------------- ------------- ------------ -------------
Net income (A) $ 22,032 $ 32,179 $ 84,116 $ 89,933
============= ============= ============ =============
Basic results per share of common stock:
Net income $ 0.67 $ 1.00 $ 2.58 $ 2.82
Weighted average shares outstanding 32,900 32,028 32,545 31,883
Diluted results per share of common stock:
Net income $ 0.65 $ 0.98 $ 2.52 $ 2.74
Weighted average shares outstanding 33,709 32,999 33,425 32,878
Dividends paid per share of common stock $ 0.09 $ 0.08 $ 0.27 $ 0.24
(A) Results in the third quarter and first nine months of 2005 included losses,
net of taxes and reinstatement premiums, of $12.2 million ($0.36 per diluted
share), in the Company's non-core property catastrophe reinsurance business
which cover the Company's maximum exposure to Hurricane Katrina. Results in the
third quarter and first nine months of 2004 included a release of federal income
taxes payable of approximately $4.6 million ($0.14 per diluted share) from the
favorable resolution of prior years' tax audits.
DELPHI FINANCIAL GROUP, INC.
SUMMARIZED CONSOLIDATED BALANCE SHEETS
(UNAUDITED; IN THOUSANDS)
9/30/05 12/31/04
-------------- --------------
Assets:
Investments:
Fixed maturity securities, available for sale $ 3,144,090 $ 3,049,013
Short-term investments 140,338 95,761
Other investments 537,504 396,302
-------------- --------------
3,821,932 3,541,076
Cash 25,956 24,324
Cost of business acquired 242,249 212,549
Reinsurance receivables 413,416 428,707
Goodwill 93,929 93,929
Securities lending collateral 246,137 236,900
Other assets 245,777 203,777
Assets held in separate account 96,168 88,205
-------------- --------------
Total assets $ 5,185,564 $ 4,829,467
============== ==============
Liabilities and Shareholders' Equity:
Policy liabilities and accruals $ 1,823,598 $ 1,663,903
Policyholder account balances 1,040,309 1,024,577
Corporate debt 178,750 157,750
Junior subordinated deferrable interest debentures underlying
company-obligated mandatorily redeemable capital securities
issued by unconsolidated subsidiaries 59,762 59,762
Securities lending payable 246,137 236,900
Other liabilities and policyholder funds 724,470 658,522
Liabilities related to separate account 96,168 88,205
-------------- --------------
Total liabilities 4,169,194 3,889,619
Shareholders' equity:
Class A Common Stock 312 304
Class B Common Stock 39 39
Additional paid-in capital 436,137 406,908
Accumulated other comprehensive income 29,198 57,371
Retained earnings 609,998 534,540
Treasury stock, at cost (59,314) (59,314)
-------------- --------------
1,016,370 939,848
-------------- --------------
Total liabilities and shareholders' equity $ 5,185,564 $ 4,829,467
============== ==============
DELPHI FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED; IN THOUSANDS)
09/30/05 09/30/04
-------------- --------------
Operating activities:
Net income $ 84,116 $ 89,933
Adjustments to reconcile net income to net cash provided
by operating activities:
Change in policy liabilities and policyholder accounts 196,872 145,556
Net change in reinsurance receivables and payables 10,608 (1,422)
Amortization, principally the cost of business acquired and investments 46,571 33,087
Deferred costs of business acquired (69,739) (66,814)
Net realized gains on investments (8,534) (8,595)
Net change in federal income tax liability 8,614 17,635
Other (59,614) (43,007)
-------------- --------------
Net cash provided by operating activities 208,894 166,373
-------------- --------------
Investing activities:
Purchases of investments and loans made (1,460,493) (1,524,817)
Sales of investments and receipts from repayment of loans 1,142,110 1,109,869
Maturities of investments 134,023 167,555
Net change in short-term investments (44,566) 21,632
Change in deposit in separate account (3,033) (2,440)
-------------- --------------
Net cash used by investing activities (231,959) (228,201)
-------------- --------------
Financing activities:
Deposits to policyholder accounts 80,229 114,830
Withdrawals from policyholder accounts (76,031) (66,332)
Borrowings under revolving credit facility 32,000 32,000
Principal payments under revolving credit facility (11,000) (5,000)
Change in liability for Federal Home Loan Bank advances (15,000) (15,000)
Other financing activities 14,499 6,936
-------------- --------------
Net cash provided by financing activities 24,697 67,434
-------------- --------------
Increase in cash 1,632 5,606
Cash at beginning of period 24,324 18,733
-------------- --------------
Cash at end of period $ 25,956 $ 24,339
============== ==============