Business & Finance
Business and Finance
Business and Finance
Wed, October 27, 2010
Tue, October 26, 2010 Delphi Financial Reports Third Quarter 2010 Operating EPS of $0.86; Net Income per Share Is $0.83
WILMINGTON, Del.--([ BUSINESS WIRE ])--Delphi Financial Group, Inc. (NYSE:DFG) announced today that its operating earnings (1) in the third quarter of 2010 were $47.8 million or $0.86 per share, compared to $53.6 million or $1.00 per share in the third quarter of 2009. Annualized operating return on beginning equity (2) in the third quarter of 2010 was 12.8%, compared to 20.4% in the third quarter of 2009. Diluted book value per share increased to $29.28 at September 30, 2010, up 20% since December 31, 2009.
"Non-GAAP Financial Measures a" Reconciliation to GAAP"
Delphia™s net income attributable to shareholders in the third quarter of 2010 was $46.1 million or $0.83 per share, compared to $20.8 million or $0.39 per share in the third quarter of 2009. Net income attributable to shareholders in the third 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 $0.8 million or $0.01 per share, including other-than-temporary impairments (OTTI) of $(4.2) million or $(0.07) per share. Net income attributable to shareholders in the third quarter of 2009 included after-tax net realized investment losses of $(32.8) million or $(0.61) per share, including OTTI of $(33.8) million or $(0.63) per share.
For the first nine months of 2010, Delphia™s operating earnings were $141.4 million or $2.54 per share, compared to $147.3 million or $2.91 per share in the first nine months of 2009. Net income attributable to shareholders was $120.8 million or $2.17 per share, compared to net income attributable to shareholders of $82.3 million or $1.63 per share for the first nine months of 2009. Net income attributable to shareholders for the first nine months of 2010 included a loss on early retirement of senior notes, net of taxes, of $(2.6) million or $(0.05) per share and after-tax net realized investment losses of $(18.1) million or $(0.32) per share, including OTTI of $(32.6) million or $(0.59) per share. Net income attributable to shareholders for the first nine months of 2009 included after-tax net realized investment losses of $(65.0) million or $(1.28) per share, including OTTI of $(61.5) million or $(1.21) per share.
Robert Rosenkranz, Chairman and Chief Executive Officer, commented, aDelphi continued to achieve strong operating performance in the third quarter, with shareholdersa™ equity and book value per share both reaching new all-time highs. We were pleased with our top line growth, our investment results and the favorable loss ratios in our insurance businesses. Safety National increased our leadership position in the excess workersa™ compensation market while also achieving notable growth in assumed workersa™ compensation reinsurance. Reliance Standard achieved modest growth in premiums and production over last yeara™s third quarter while maintaining pricing and underwriting discipline.a
Delphia™s core group employee benefit premiums in the third quarter of 2010 rose 4% to $341.6 million from $329.8 million in the third quarter of 2009. This premium growth was driven by an 11% increase in core premiums at Delphia™s Safety National subsidiary. Excess workersa™ compensation premiums rose 8% in the quarter, boosted by a 23% increase in production, and assumed workersa™ compensation reinsurance premiums rose 29%. In addition, premiums increased 1% at Delphia™s Reliance Standard Life subsidiary, driven in part by strong sales of Delphia™s Integrated Employee Benefits program. Delphia™s group employee benefit combined ratio in the third quarter of 2010 was 94.9%, compared with 93.7% for the third quarter of 2009, as a decline in the loss ratio was offset by an increase in the expense ratio.
Delphia™s asset accumulation segment, which is primarily focused on individual fixed annuities, had new sales of $153.6 million in the third quarter of 2010, up from $57.5 million in last yeara™s third quarter. New annuity sales in the first nine months of 2010 were $270.4 million, up from $232.2 million in the first nine months of 2009. Funds under management at September 30, 2010 rose to $1.6 billion from $1.4 billion at December 31, 2009.
Delphia™s net investment income in the third quarter of 2010 was $86.9 million compared to $88.7 million in the third quarter of 2009. Invested assets at September 30, 2010 were $6.6 billion compared to $5.7 billion at September 30, 2009. The tax equivalent yield on the Companya™s investment portfolio in the third quarter of 2010 was 6.0%, compared to 7.0% in the third quarter of 2009.
Mr. Rosenkranz added, aInvestment income was in line with expectations, despite lower prevailing interest rates. Our fixed income investment yields were constrained by continued high levels of short-term investments, as we patiently seek attractive niches in an environment where rates are low and spreads narrow. We were pleased that Delphi reported net realized investment gains in the quarter for the first time since 2007, again consistent with the expectations we expressed earlier this year. Delphi continued to strengthen our balance sheet and capital structure with the partial call in September of $50 million of our 8.00% Senior Notes. Since the beginning of the year we have retired $75 million of these notes, which will save about $5 million to $6 million in pre-tax interest expense annually. At the end of the third quarter, our debt-to-capital ratio was 18% and holding company financial resources were at a comfortable $71million.a
Conference Call
On October 27, 2010 at 11:00 AM (Eastern time), Delphi will broadcast the Companya™s third 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 Delphia™s website for one week beginning at approximately 12:00 PM (Eastern time) on October 27, 2010. Investors can also download Delphia™s third quarter 2010 statistical supplement from the Companya™s website at [ www.delphifin.com ].
In connection with, and because it desires to take advantage of, the asafe harbora 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 aexpects,a abelieves,a aanticipates,a aintends,a ajudgment,a aoutlook,a aeffort,a aattempt,a aachieve,a aproject,a 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 Delphia™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 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 Delphia™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 Delphia™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 workersa™ compensation for self-insured employers, large casualty programs including large deductible workersa™ compensation, travel accident, dental and limited benefit health insurance. Delphia™s asset accumulation business emphasizes individual annuity products. Delphia™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 managementa™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 managementa™s decision to dispose of an investment, and investment losses are realized based on managementa™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 managementa™s decision to redeem or repurchase these notes and debentures. Discontinued operations result from managementa™s decision to exit or sell a particular business. Thus, these excluded items are not reflective of the Companya™s ongoing earnings capacity, and trends in the earnings of the Companya™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 insurersa™ 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 Companya™s overall financial performance and may not be calculated in the same manner as similarly titled captions in other companiesa™ 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 aNon-GAAP Financial Measures a" Reconciliation to GAAPa 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 shareholdersa™ 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 aNon-GAAP Financial Measures a" Reconciliation to GAAPa which follows. | |
| DELPHI FINANCIAL GROUP, INC. | ||||||||||||||||
| Non-GAAP Financial Measures | ||||||||||||||||
| Reconciliation to GAAP | ||||||||||||||||
| (Unaudited; in thousands, except per share data) | ||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| 09/30/2010 | 09/30/2009 | 09/30/2010 | 09/30/2009 | |||||||||||||
Income Statement Data | ||||||||||||||||
| Operating earnings | $ | 47,806 | $ | 53,621 | $ | 141,395 | $ | 147,268 | ||||||||
| Net realized investment gains (losses) (A) | 775 | (32,798 | ) | (18,062 | ) | (64,954 | ) | |||||||||
| Loss on early retirement of senior notes (B) | (2,444 | ) | - | (2,582 | ) | - | ||||||||||
| Net income attributable to shareholders (GAAP measure) | $ | 46,137 | $ | 20,823 | $ | 120,751 | $ | 82,314 | ||||||||
| Diluted results per share of common stock attributable to shareholders: | ||||||||||||||||
| Operating earnings | $ | 0.86 | $ | 1.00 | $ | 2.54 | $ | 2.91 | ||||||||
| Net realized investment gains (losses) (A) | 0.01 | (0.61 | ) | (0.32 | ) | (1.28 | ) | |||||||||
| Loss on early retirement of senior notes (B) | (0.04 | ) | - | (0.05 | ) | - | ||||||||||
| Net income attributable to shareholders (GAAP measure) | $ | 0.83 | $ | 0.39 | $ | 2.17 | $ | 1.63 | ||||||||
| Annualized operating return on beginning shareholders' equity | 12.8 | % | 20.4 | % | 13.9 | % | 23.9 | % | ||||||||
| Annualized net income return on beginning shareholders' equity (GAAP measure) | 12.3 | % | 7.9 | % | 11.8 | % | 13.4 | % | ||||||||
| (A) | Net of an income tax expense (benefit) of $0.4 million, $(17.7) million, $(9.7) million and $(35.0) million, or $0.01 per diluted share, $(0.33) per diluted share, $(0.17) per diluted share and $(0.69) per diluted share for the three and nine months ended 09/30/2010 and 09/30/2009, 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 $1.4 million or $0.02 per diluted share for the three and nine months ended 09/30/2010 | ||
Balance Sheet Data | 09/30/2010 | 12/31/2009 | ||||||||
| Shareholders' equity, excluding accumulated other comprehensive income (loss) | $ | 1,510,112 | $ | 1,392,975 | ||||||
| Add: Accumulated other comprehensive income (loss) | 138,180 | (33,956 | ) | |||||||
| Shareholders' equity (GAAP measure) | $ | 1,648,292 | $ | 1,359,019 | ||||||
Diluted book value per share of common stock, excluding accumulated other comprehensive income (loss) | $ | 26.89 | $ | 25.02 | ||||||
| Add: Accumulated other comprehensive income (loss) | 2.39 | (0.60 | ) | |||||||
| Diluted book value per share of common stock (GAAP measure) | $ | 29.28 | $ | 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 | Nine Months Ended | |||||||||||||||
| 09/30/2010 | 09/30/2009 | 09/30/2010 | 09/30/2009 | |||||||||||||
| Revenue: | ||||||||||||||||
| Premium and fee income | $ | 357,019 | $ | 342,610 | $ | 1,057,348 | $ | 1,052,776 | ||||||||
| Net investment income | 86,886 | 88,682 | 249,170 | 243,560 | ||||||||||||
| Net realized investment losses: | ||||||||||||||||
| Total other than temporary impairment losses | (13,886 | ) | (73,771 | ) | (62,818 | ) | (137,007 | ) | ||||||||
Less: Portion of other than temporary impairment losses recognized in other comprehensive income | 7,498 | 21,748 | 12,599 | 42,467 | ||||||||||||
| Net impairment losses recognized in earnings | (6,388 | ) | (52,023 | ) | (50,219 | ) | (94,540 | ) | ||||||||
| Other net realized investment gains (losses) | 7,580 | 1,564 | 22,431 | (5,389 | ) | |||||||||||
| Net realized investment gains (losses) | 1,192 | (50,459 | ) | (27,788 | ) | (99,929 | ) | |||||||||
| Loss on early retirement of senior notes | (3,760 | ) | - | (3,972 | ) | - | ||||||||||
| Total revenue | 441,337 | 380,833 | 1,274,758 | 1,196,407 | ||||||||||||
| Benefits and expenses: | ||||||||||||||||
| Benefits, claims and interest credited to policyholders | 250,594 | 240,956 | 741,602 | 748,361 | ||||||||||||
| Commissions and expenses | 117,558 | 109,569 | 342,060 | 324,850 | ||||||||||||
| 368,152 | 350,525 | 1,083,662 | 1,073,211 | |||||||||||||
| Operating income | 73,185 | 30,308 | 191,096 | 123,196 | ||||||||||||
| Interest expense: | ||||||||||||||||
| Corporate debt | 7,783 | 3,806 | 23,370 | 11,667 | ||||||||||||
| Junior subordinated debentures | 3,241 | 3,247 | 9,730 | 9,728 | ||||||||||||
| Income tax expense | 15,982 | 2,321 | 37,130 | 19,261 | ||||||||||||
| Net income | 46,179 | 20,934 | 120,866 | 82,540 | ||||||||||||
| Less: Net income attributable to noncontrolling interest | 42 | 111 | 115 | 226 | ||||||||||||
| Net income attributable to shareholders | $ | 46,137 | $ | 20,823 | $ | 120,751 | $ | 82,314 | ||||||||
| Basic results per share of common stock: | ||||||||||||||||
| Net income attributable to shareholders | $ | 0.83 | $ | 0.39 | $ | 2.18 | $ | 1.63 | ||||||||
| Weighted average shares outstanding | 55,404 | 52,947 | 55,284 | 50,376 | ||||||||||||
| Diluted results per share of common stock: | ||||||||||||||||
| Net income attributable to shareholders | $ | 0.83 | $ | 0.39 | $ | 2.17 | $ | 1.63 | ||||||||
| Weighted average shares outstanding | 55,800 | 53,385 | 55,674 | 50,617 | ||||||||||||
| Dividends paid per share of common stock | $ | 0.11 | $ | 0.10 | $ | 0.31 | $ | 0.30 | ||||||||
| DELPHI FINANCIAL GROUP, INC. | ||||||||
| SUMMARIZED CONSOLIDATED BALANCE SHEETS | ||||||||
| (Unaudited; in thousands) | ||||||||
| 09/30/2010 | 12/31/2009 | |||||||
| Assets: | ||||||||
| Investments: | ||||||||
| Fixed maturity securities, available for sale | $ | 5,724,161 | $ | 4,875,681 | ||||
| Short-term investments | 360,415 | 406,782 | ||||||
| Other investments | 476,436 | 466,855 | ||||||
| 6,561,012 | 5,749,318 | |||||||
| Cash | 77,248 | 65,464 | ||||||
| Cost of business acquired | 246,002 | 250,311 | ||||||
| Reinsurance receivables | 362,481 | 355,030 | ||||||
| Goodwill | 93,929 | 93,929 | ||||||
| Other assets | 335,791 | 293,835 | ||||||
| Assets held in separate account | 117,321 | 113,488 | ||||||
| Total assets | $ | 7,793,784 | $ | 6,921,375 | ||||
| Liabilities and Equity: | ||||||||
| Policy liabilities and accruals | $ | 2,912,062 | $ | 2,803,189 | ||||
| Policyholder account balances | 1,662,176 | 1,454,114 | ||||||
| Corporate debt | 368,750 | 365,750 | ||||||
| Junior subordinated debentures | 175,000 | 175,000 | ||||||
| Other liabilities and policyholder funds | 908,761 | 647,269 | ||||||
| Liabilities related to separate account | 117,321 | 113,488 | ||||||
| Total liabilities | 6,144,070 | 5,558,810 | ||||||
| Equity: | ||||||||
| Class A Common Stock | 563 | 560 | ||||||
| Class B Common Stock | 60 | 60 | ||||||
| Additional paid-in capital | 675,428 | 661,895 | ||||||
| Accumulated other comprehensive income (loss) | 138,180 | (33,956 | ) | |||||
| Retained earnings | 1,031,307 | 927,706 | ||||||
| Treasury stock, at cost | (197,246 | ) | (197,246 | ) | ||||
| Total shareholders' equity | 1,648,292 | 1,359,019 | ||||||
| Noncontrolling interest | 1,422 | 3,546 | ||||||
| Total equity | 1,649,714 | 1,362,565 | ||||||
| Total liabilities and equity | $ | 7,793,784 | $ | 6,921,375 | ||||
| DELPHI FINANCIAL GROUP, INC. | ||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
| (Unaudited; in thousands) | ||||||||
| Nine Months Ended | ||||||||
| 09/30/2010 | 09/30/2009 | |||||||
| Operating activities: | ||||||||
| Net income attributable to shareholders | $ | 120,751 | $ | 82,314 | ||||
Adjustments to reconcile net income attributable to shareholders to net cash provided by operating activities: | ||||||||
| Change in policy liabilities and policyholder accounts | 180,506 | 225,538 | ||||||
| Net change in reinsurance receivables and payables | (9,657 | ) | (4,613 | ) | ||||
| Amortization, principally the cost of business acquired and investments | 65,264 | 38,295 | ||||||
| Deferred costs of business acquired | (101,002 | ) | (97,936 | ) | ||||
| Net realized losses on investments | 27,788 | 99,929 | ||||||
| Net change in federal income taxes | 12,197 | 6,632 | ||||||
| Other | (42,849 | ) | (14,101 | ) | ||||
| Net cash provided by operating activities | 252,998 | 336,058 | ||||||
| Investing activities: | ||||||||
| Purchases of investments and loans made | (1,599,851 | ) | (1,206,214 | ) | ||||
| Sales of investments and receipts from repayment of loans | 1,057,614 | 177,957 | ||||||
| Maturities of investments | 70,801 | 637,166 | ||||||
| Net change in short-term investments | 46,367 | (171,162 | ) | |||||
| Change in deposit in separate account | - | 4,845 | ||||||
| Net cash used by investing activities | (425,069 | ) | (557,408 | ) | ||||
| Financing activities: | ||||||||
| Deposits to policyholder accounts | 277,854 | 242,614 | ||||||
| Withdrawals from policyholder accounts | (82,832 | ) | (131,337 | ) | ||||
| Proceeds from issuance of 2020 Senior Notes | 250,000 | - | ||||||
| Borrowings under revolving credit facility | 50,000 | 17,000 | ||||||
| Principal payments under revolving credit facility | (222,000 | ) | (2,000 | ) | ||||
| Early retirement of senior notes | (75,000 | ) | - | |||||
| Proceeds from issuance of common stock | - | 121,121 | ||||||
| Cash dividends paid on common stock | (17,150 | ) | (14,767 | ) | ||||
| Other financing activities | 2,983 | 7,151 | ||||||
| Net cash provided by financing activities | 183,855 | 239,782 | ||||||
| Increase in cash | 11,784 | 18,432 | ||||||
| Cash at beginning of period | 65,464 | 63,837 | ||||||
| Cash at end of period | $ | 77,248 | $ | 82,269 | ||||
