Delphi Financial Announces First Quarter 2005 Operating EPS of $0.87 a

WILMINGTON, Del., April 26 /PRNewswire-FirstCall/ -- Delphi Financial Group, Inc. announced today that net income in the first quarter of 2005 was $30.1 million, or $0.91 per share, compared to $30.6 million, or $0.94 per share, in the first quarter of 2004. Net income in the first quarter of 2005 included after-tax realized investment gains of $1.2 million, or $0.04 per share, while net income in the first quarter of 2004 included after-tax realized investment gains of $3.4 million, or $0.11 per share.

Operating earnings (1) in the first quarter of 2005 were $28.9 million, or $0.87 per share, compared with operating earnings of $27.2 million, or $0.83 per share, in the first quarter of 2004.

Core group employee benefit premiums in the first quarter of 2005 grew 19% from the first quarter a year ago, reaching $225.7 million. This growth was driven by a 38% increase in group disability premiums at Delphi's Reliance Standard Life subsidiary and a 15% increase in premiums from excess workers' compensation insurance for self-insured employers, the leading product of Delphi's Safety National subsidiary. The combined ratio in group employee benefits insurance in the first quarter of 2005 was 94.4%, compared with 95.5% in the first quarter of 2004 and 94.7% for the full-year 2004.

Robert Rosenkranz, Chairman and Chief Executive Officer, commented, "Delphi continued to achieve excellent financial results in the first quarter of 2005, as operating earnings per share were at the top end of our range of guidance. We capitalized on ongoing favorable market conditions in our insurance businesses and continued strong earnings in our asset accumulation business, which is benefiting from wider spreads. In our group disability line at Reliance Standard, we achieved a 15% increase in production while continuing to focus intensely on smaller cases where we have historically achieved higher margins. Our premium growth in disability was boosted by a new strategic alliance with several health insurers in which Reliance Standard is responsible for underwriting, pricing and claims management on group disability policies we assume under a new reinsurance arrangement. This strategic alliance, which is primarily focused on employers with less than 300 employees, provides us with significant alternative distribution to our small case niche."

Mr. Rosenkranz added, "Safety National achieved a 47% increase in excess workers' compensation production, as a continued firm market in primary workers' compensation insurance is driving employers to self-insure or remain self-insured. In the first quarter, which included our important January renewal season, Safety National achieved moderate rate increases and 8% average increases in self-insured retentions, the critical point where risk shifts from our client to us. We continue to see few signs that the market for excess workers' compensation will soften anytime soon."

Delphi's net investment income in the first quarter of 2005 was $53.4 million compared to $52.5 million a year ago. Invested assets at March 31, 2005 were $3.6 billion compared to $3.3 billion at March 31, 2004. The pre- tax equivalent yield on the Company's investment portfolio in the first quarter of 2005 was 6.2% compared to 6.7% for the first quarter of 2004. Delphi's book value per share was $29.22 at March 31, 2005 compared with $29.36 at December 31, 2004.

Conference Call

On April 27, 2005 at 11:00 AM (Eastern time), Delphi will broadcast the Company's first quarter 2005 earnings teleconference live on the Internet, hosted by Robert Rosenkranz, Chairman and Chief Executive Officer. Investors can access the broadcast at http://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 April 27, 2005. Investors can also download Delphi's first quarter 2005 statistical supplement from the Company's website at http://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 statement 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 "expect," "believe," "plan," "outlook," "goal" 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 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 http://www.delphifin.com/.

(1) 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 $1.2 million and $3.4 million, or $0.04 per share and $0.11 per share, for the first quarter 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 and losses may be realized based on management's decision to dispose of an investment or 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 are likely to 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 performance and may not be calculated in the same manner as similarly titled captions in other companies' financial statements. All per share amounts are on a diluted basis.

DELPHI FINANCIAL GROUP, INC. Non-GAAP Financial Measures Reconciliation to GAAP (Unaudited; in thousands, except per share data) Three Months Ended 03/31/05 03/31/04 Income Statement Data Operating earnings (Non-GAAP measure) $28,926 $27,227 Net realized investment gains, net of taxes 1,181 3,394 Net income (GAAP measure) $30,107 $30,621 Diluted results per share of common stock: Operating earnings (Non-GAAP measure) $0.87 $0.83 Net realized investment gains, net of taxes 0.04 0.11 Net income (GAAP measure) $0.91 $0.94 Balance Sheet Data 03/31/05 12/31/04 Shareholders' equity, excluding accumulated other comprehensive income $917,387 $882,477 Add: Accumulated other comprehensive income 24,558 57,371 Shareholders' equity (GAAP measure) $941,945 $939,848 Diluted book value per share of common stock, excluding accumulated other comprehensive income (Non-GAAP measure) $28.53 $27.73 Add: Accumulated other comprehensive income 0.69 1.63 Diluted book value per share of common stock (GAAP measure) $29.22 $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. DELPHI FINANCIAL GROUP, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited; in thousands, except per share data) Three Months Ended 03/31/05 03/31/04 Revenue: Premium and fee income $239,600 $200,710 Net investment income 53,437 52,543 Net realized investment gains 1,817 5,221 294,854 258,474 Benefits and expenses: Benefits, claims and interest credited to policyholders 178,573 150,102 Commissions and expenses 67,594 59,775 246,167 209,877 Operating income 48,687 48,597 Interest expense: Corporate debt 3,670 3,436 Junior subordinated deferrable interest debentures 1,171 1,105 Income tax expense 13,739 13,435 Net income $30,107 $30,621 Basic results per share of common stock: Net income $0.93 $0.97 Weighted average shares outstanding 32,309 31,691 Diluted results per share of common stock: Net income $0.91 $0.94 Weighted average shares outstanding 33,262 32,706 Dividends paid per share of common stock $0.09 $0.08 DELPHI FINANCIAL GROUP, INC. SUMMARIZED CONSOLIDATED BALANCE SHEETS (Unaudited; in thousands) 3/31/05 12/31/04 Assets: Investments: Fixed maturity securities, available for sale $3,067,546 $3,049,013 Short-term investments 138,126 95,761 Other investments 437,863 396,302 3,643,535 3,541,076 Cash 25,768 24,324 Cost of business acquired 225,030 212,549 Reinsurance receivables 416,709 428,707 Goodwill 93,929 93,929 Securities lending collateral 239,919 236,900 Other assets 237,537 203,777 Assets held in separate account 90,683 88,205 Total assets $4,973,110 $4,829,467 Liabilities and Shareholders' Equity: Policy liabilities and accruals $1,707,106 $1,663,903 Policyholder account balances 1,027,930 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 239,919 236,900 Other liabilities and policyholder funds 727,015 658,522 Liabilities related to separate account 90,683 88,205 Total liabilities 4,031,165 3,889,619 Shareholders' equity: Class A Common Stock 306 304 Class B Common Stock 39 39 Additional paid-in capital 414,569 406,908 Accumulated other comprehensive income 24,558 57,371 Retained earnings 561,787 534,540 Treasury stock, at cost (59,314) (59,314) 941,945 939,848 Total liabilities and shareholders' equity $4,973,110 $4,829,467 DELPHI FINANCIAL GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited; in thousands) 3/31/05 03/31/04 Operating activities: Net income $30,107 $30,621 Adjustments to reconcile net income to net cash provided by operating activities: Change in policy liabilities and policyholder accounts 75,043 53,665 Net change in reinsurance receivables and payables 11,141 13,330 Amortization, principally the cost of business acquired and investments 14,328 6,094 Deferred costs of business acquired (25,280) (25,331) Net realized gains on investments (1,817) (5,221) Net change in federal income tax liability 10,640 15,374 Other (35,870) (25,178) Net cash provided by operating activities 78,292 63,354 Investing activities: Purchases of investments and loans made (505,340) (612,501) Sales of investments and receipts from repayment of loans 383,525 509,625 Maturities of investments 68,474 38,976 Net change in short-term investments (42,365) 4,751 Change in deposit in separate account (2,925) (762) Net cash used by investing activities (98,631) (59,911) Financing activities: Deposits to policyholder accounts 23,351 30,704 Withdrawals from policyholder accounts (23,545) (21,618) Borrowings under revolving credit facility 26,000 11,000 Principal payments under revolving credit facility (5,000) - Change in liability for Federal Home Loan Bank advances - (25,000) Other financing activities 977 6,113 Net cash provided by financing activities 21,783 1,199 Increase in cash 1,444 4,642 Cash at beginning of period 24,324 18,733 Cash at end of period $25,768 $23,375