WILMINGTON, Del.–(BUSINESS WIRE)–Delphi Financial Group, Inc. (NYSE: DFG) announced today that operating earnings were $44.3 million or $0.79 per diluted share for the third quarter of 2011 compared to $46.5 million or $0.83 per share for the third quarter of 2010. Net income attributable to shareholders was $41.0 million or $0.73 per diluted share, compared to $44.8 million or $0.80 per share in the third quarter of 2010.
Highlights for the third quarter include the following:
- Core premium income of $379.6 million, an increase of 11.1% from the third quarter of 2010;
- Core production of $89.6 million, an increase of 24.2% from the third quarter of 2010;
- Annuity sales of $175.6 million, an increase of 14.3% from the third quarter of 2010;
- Annuity funds under management increased to $2.0 billion, up 22.6% from September 30, 2010;
- Annualized operating return on beginning shareholders’ equity in the third quarter of 2011 of 10.6%;
- Record shareholders’ equity of $1.72 billion and record diluted book value per share of $30.31 at September 30, 2011;
- Repurchases of 421,500 shares at a total cost of $9.7 million.
Robert Rosenkranz, Chairman and Chief Executive Officer, said, “Our ability to grow premiums and continue to earn double digit returns on equity truly highlights the strength of Delphi, our Safety National and Reliance Standard franchises and the quality of our management teams. We are pleased with these achievements, particularly in light of the difficult economic environment.
Safety National exceeded our expectations for new production during the third quarter, which includes the important July renewal period, as clients continued to recognize the value of our specialty workers’ compensation coverage. We remain the leader in the excess workers’ compensation market and achieved healthy increases to policy rates as well as self-insured retention levels.
Reliance Standard grew core premiums and production while maintaining pricing and underwriting discipline. As part of our strategy to further grow our group business we have launched a new line of employer medical stop-loss coverage. This new program is complementary to Reliance Standard’s other products and is designed to help employers who self-fund their health benefit plans maximize their control over health care spending and offers both specific risk and aggregate risk stop-loss coverage for groups as small as 50 lives.
Delphi’s asset accumulation business continued to achieve strong sales of fixed annuities in the quarter and surpassed a significant milestone of $2.0 billion in funds under management.”
Mr. Rosenkranz added, “We clearly fell short of our expectations for operating earnings during the quarter due to a shortfall in the performance of our approximately $300 million alternatives portfolio. Those assets have averaged a positive total return of 2.5% per quarter over the last decade and we budget them to earn 1.5% return per quarter in our planning. This quarter, these assets were down 1.3%, resulting in a $0.10 per share after-tax operating earnings shortfall. We hate to disappoint, but we do consider that our alternatives portfolio did very well on a relative basis during the worst investment quarter since 2008. It was, after all, a quarter when the S&P 500 Total Return Index fell 13.9% and the average hedge fund was down 6.8%.
Notwithstanding the challenging investment environment during the quarter, we remain confident that Delphi is on track to meet our financial targets for the year. Our operating performance is strong and we are confident in our investment strategy. Delphi’s conservative capital position provides us with excellent financial flexibility and the ability to consider actions such as the share repurchases that we completed during the quarter. Overall we believe that Delphi is well-positioned for future growth and we remain focused on generating value for our shareholders.”
Group Employee Benefit Segment
Core group employee benefit premiums for the third quarter of 2011 were $379.6 million, up 11.1% from $341.6 million in the third quarter of 2010. Core premiums at Delphi’s Safety National subsidiary rose 20.6% while core premiums at Delphi’s Reliance Standard Life subsidiary increased 7.9%. Core production in the third quarter of 2011 rose 24.2%, with core production at Safety National increasing 57.5% and core production at Reliance Standard Life increasing 8.6%.
Delphi’s group employee benefit combined ratio in the third quarter of 2011 was 95.9% compared to 95.5% for the third quarter of 2010 and 95.3% for the full year 2010.
Operating income for the group employee benefit segment for the third quarter of 2011 was $64.2 million, a 9.6% decrease from $71.0 million in the third quarter of 2010.
Asset Accumulation Segment
Delphi’s asset accumulation segment, which is primarily focused on individual fixed annuities, achieved new annuity sales of $175.6 million in the third quarter of 2011, an increase of 14.3% from $153.6 million in the third quarter of 2010. The strong growth in annuity sales reflected continued favorable market conditions in Delphi’s wholesaler distribution channel. Funds under management at September 30, 2011 were $2.0 billion, up from $1.6 billion at September 30, 2010.
Operating income for the asset accumulation segment was $9.2 million, a decrease of 13.2% from $10.6 million the third quarter of 2010. Profitability was impacted by lower than expected investment income.
Delphi’s net investment income in the third quarter of 2011 was $80.1 million, a decrease of 7.8% from $86.9 million in the third quarter of 2010. Invested assets at September 30, 2011 were $7.3 billion, an increase of 10.6% from $6.6 billion at September 30, 2010. The tax equivalent yield on the Company’s investment portfolio in the third quarter of 2011 was 5.0% compared to 6.0% in the third quarter of 2010.
Investment income was impacted in the third quarter by the challenging environment for fixed income securities, with interest rates trending lower and spreads remaining tight. In addition, the Company’s alternative investments, which have historically provided enhanced investment income and reduced overall portfolio volatility, had a negative total return in the third quarter of (1.3%), compared with total return of 3.4% in the third quarter of 2010.
Delphi reported after-tax net realized investment losses in the third quarter of 2011 of $(3.3) million, including other-than-temporary impairments (“OTTI”) of $(6.1) million, compared with after-tax net realized investment gains of $0.8 million, including OTTI of $(4.2) million, in the third quarter of 2010.
Capitalization and Shareholders’ Equity
Shareholders’ equity at September 30, 2011 increased 8.7% to a record $1.7 billion from $1.6 billion at September 30, 2010. Diluted book value per share reached a record $30.31 at September 30, 2011, up 7.6% from $28.16 at September 30, 2010.
Total capitalization at September 30, 2011 was $2.3 billion, including $375 million of corporate debt and $175 million of junior subordinated debentures. Debt to total capitalization was 16.5% at September 30, 2011 and holding company financial resources were a comfortable $135 million.
Delphi announced in August that its Board of Directors authorized repurchases of the Company’s outstanding Class A common stock in a total amount of up to $50 million. In the third quarter, Delphi repurchased $9.7 million of common stock, representing 421,500 shares at a volume average cost per share of $22.96.
On October 26, 2011 at 11:00 AM (Eastern time), Delphi will broadcast the Company’s third 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 1:00 PM (Eastern time) on October 26, 2011. Investors can also download Delphi’s third quarter 2011 Financial Supplement from the Company’s website at www.delphifin.com/financial/stats11.html.