Delphi Financial Group Inc. (DFG, Financial) filed Quarterly Report for the period ended 2009-03-31.
Delphi Financial Group Inc. is a holding company whose subsidiariesprovide integrated employee benefit services. The Company manages all aspects of employee absence to enhance the productivity of its clients and provides the related insurance coverages: long-term and short-term disability excess and primary workers' compensation group life and travel accident. The Company's asset accumulation business emphasizes individual annuity products. Delphi Financial Group Inc. has a market cap of $1.04 billion; its shares were traded at around $22.14 with a P/E ratio of 9.93 and P/S ratio of 0.73. The dividend yield of Delphi Financial Group Inc. stocks is 1.81%. Delphi Financial Group Inc. had an annual average earning growth of 8.9% over the past 10 years.
Premium and Fee Income. Premium and fee income in the first quarter of 2009 was $357.7 million as compared to $342.3 million in the first quarter of 2008, an increase of 4%. Premiums from core group employee benefit products increased 4% to $337.6 million in the first quarter of 2009 from $324.3 million in the first quarter of 2008. This increase reflects normal growth in employment and salary levels for the Companys existing customer base, price increases, and new business production. Premiums from excess workers compensation insurance for self-insured employers were $67.8 million in the first quarter of 2009 as compared to $66.7 million in the first quarter of 2008. Excess workers compensation new business production, which represents the amount of new annualized premium sold, increased 251% to $15.1 million in the first quarter of 2009 from $4.3 million in the first quarter of 2008. SNCCs rates for its 2009 renewal policies declined modestly and SIRs on average are up modestly in 2009 new and renewal policies. SNCCs retention of its existing customers remained strong in the first quarter of 2009.
Premiums from the Companys other core group employee benefit products increased 5% to $269.8 million in the first quarter of 2009 from $257.6 million in the first quarter of 2008, primarily reflecting increases in premiums from the Companys group life and group disability products and new business production. During the first quarter of 2009, premiums from the Companys group life products increased 4% to $103.7 million from $99.5 million in the first quarter of 2008. During the first quarter of 2009, premiums from the Companys group disability products increased 3% to $146.4 million from $141.6 million in the first quarter of 2008. Premiums from the Companys turnkey disability business were $15.2 million in the first quarter of 2009 compared to $12.2 million in the first quarter of 2008. New business production for the Companys other core group employee benefit products was $44.5 million and $61.1 million in the first quarter of 2009 and 2008, respectively. New business production includes only directly written business, and does not include premiums from the Companys turnkey disability business. The level of production achieved from these products reflects the Companys focus on the small case niche (insured groups of 10 to 500 individuals), which resulted in an 8.6% increase in production based on the number of cases sold as compared to the first quarter of 2008. The Company continued to implement price increases for certain existing disability and group life customers.
During the first three months of 2009, the market value of the Companys investment portfolio, in relation to its amortized cost, increased by $13.6 million from year-end 2008, before related increases in the cost of business acquired of $10.4 million and a decrease in the federal income tax provision of $8.4 million. At March 31, 2009, gross unrealized appreciation and gross unrealized depreciation, before the related income tax expense or benefit and the related adjustment to cost of business acquired, with respect to the fixed maturity securities in the Companys portfolio totaled $98.9 million (of which $97.4 million was attributable to investment grade securities) and $636.1 million (of which $492.9 million was attributable to investment grade securities), respectively. During the first three months of 2009, the Company recognized pre-tax net investment losses of $22.0 million. The weighted average credit rating of the securities in the Companys fixed maturity portfolio having ratings by nationally recognized statistical rating organizations was AA at March 31, 2009. While ratings of this type are intended to address credit risk, they do not address other risks, such as prepayment and extension risks.
Reinsurance. The Company cedes portions of the risks relating to its group employee benefit products and variable life insurance products under indemnity reinsurance agreements with various unaffiliated reinsurers. The Company pays reinsurance premiums which are generally based upon specified percentages of the Companys premiums on the business reinsured. These agreements expire at various intervals as to new risks, and replacement agreements are negotiated on terms believed appropriate in light of then-current market conditions. The Company currently cedes through indemnity reinsurance 100% of its excess workers compensation risks between $10.0 million and $50.0 million per occurrence, 85% of its excess workers compensation risks between $50.0 million and $100.0 million per occurrence, 100% of its excess workers compensation risks between $100.0 million and $150.0 million per occurrence and 30% of its excess workers compensation risks between $150.0 million and $200.0 million per occurrence. In addition, the Company currently cedes through indemnity reinsurance up to $10 million of coverage with respect to workers compensation losses resulting from certain naturally occurring catastrophic events. The Company also currently cedes through indemnity reinsurance risks in excess of $300,000 per individual and type of coverage for new and existing employer-paid group life insurance policies. Reductions in the Companys reinsurance coverages will decrease the reinsurance premiums paid by the Company under these arrangements and thus increase the Companys premium income, and will also increase the Companys risk of loss with respect to the relevant policies. Generally, increases in the Companys reinsurance coverages will increase the reinsurance premiums paid by the Company under these arrangements and thus decrease the Companys premium income, and will also decrease the Companys risk of loss with respect to the relevant policies.
Cash Flows. Operating activities increased cash by $91.2 million and $97.5 million in the first three months of 2009 and 2008, respectively. Net investing activities used $72.0 million and $139.7 million of cash during the first three months of 2009 and 2008, respectively, primarily for the purchase of securities. Financing activities provided $1.3 million of cash during the first three months of 2009, principally from deposits to policyholder accounts, partially offset by the repayment of $35.0 million in aggregate principal amount of floating rate funding agreements at their maturity. During the first three months of 2008, financing activities provided $32.4 million of cash, principally from deposits to policyholder accounts.
Read the The complete ReportDFG is in the portfolios of Richard Pzena of Pzena Investment Management LLC.
Delphi Financial Group Inc. is a holding company whose subsidiariesprovide integrated employee benefit services. The Company manages all aspects of employee absence to enhance the productivity of its clients and provides the related insurance coverages: long-term and short-term disability excess and primary workers' compensation group life and travel accident. The Company's asset accumulation business emphasizes individual annuity products. Delphi Financial Group Inc. has a market cap of $1.04 billion; its shares were traded at around $22.14 with a P/E ratio of 9.93 and P/S ratio of 0.73. The dividend yield of Delphi Financial Group Inc. stocks is 1.81%. Delphi Financial Group Inc. had an annual average earning growth of 8.9% over the past 10 years.
Highlight of Business Operations:
Summary of Results. Net income was $24.5 million, or $0.51 per diluted share, in the first quarter of 2009 as compared to $21.1 million, or $0.42 per diluted share, in the first quarter of 2008. Net income in the first quarter of 2009 and 2008 included net realized investment losses, net of the related income tax benefit, of $14.3 million, or $0.30 per diluted share, and $4.2 million, or $0.09 per diluted share, respectively. Net income in the first quarter of 2009 as compared to the first quarter of 2008 benefited from growth in income from the Companys core group employee benefit products and a significant increase in net investment income, including increased investment spreads on the Companys asset accumulation products, and was adversely impacted by an increased level of realized investment losses due to the adverse market conditions discussed above. See Introduction. Core group employee benefit products include disability, group life, excess workers compensation, travel accident and dental insurance. Premiums from these core group employee benefit products increased 4% in the first quarter of 2009. Net investment income in the first quarter of 2009, which increased 95% from the first quarter of 2008, reflects an increase in the tax equivalent weighted average annualized yield to 5.8% from 2.9%. Investment losses in the first quarters of 2009 and 2008 included losses, net of the related income tax benefit, of $11.4 million, or $0.24 per diluted share, and $4.0 million, or $0.08 per diluted share, respectively, due to other than temporary declines in the market values of certain fixed maturity securities and other investments.Premium and Fee Income. Premium and fee income in the first quarter of 2009 was $357.7 million as compared to $342.3 million in the first quarter of 2008, an increase of 4%. Premiums from core group employee benefit products increased 4% to $337.6 million in the first quarter of 2009 from $324.3 million in the first quarter of 2008. This increase reflects normal growth in employment and salary levels for the Companys existing customer base, price increases, and new business production. Premiums from excess workers compensation insurance for self-insured employers were $67.8 million in the first quarter of 2009 as compared to $66.7 million in the first quarter of 2008. Excess workers compensation new business production, which represents the amount of new annualized premium sold, increased 251% to $15.1 million in the first quarter of 2009 from $4.3 million in the first quarter of 2008. SNCCs rates for its 2009 renewal policies declined modestly and SIRs on average are up modestly in 2009 new and renewal policies. SNCCs retention of its existing customers remained strong in the first quarter of 2009.
Premiums from the Companys other core group employee benefit products increased 5% to $269.8 million in the first quarter of 2009 from $257.6 million in the first quarter of 2008, primarily reflecting increases in premiums from the Companys group life and group disability products and new business production. During the first quarter of 2009, premiums from the Companys group life products increased 4% to $103.7 million from $99.5 million in the first quarter of 2008. During the first quarter of 2009, premiums from the Companys group disability products increased 3% to $146.4 million from $141.6 million in the first quarter of 2008. Premiums from the Companys turnkey disability business were $15.2 million in the first quarter of 2009 compared to $12.2 million in the first quarter of 2008. New business production for the Companys other core group employee benefit products was $44.5 million and $61.1 million in the first quarter of 2009 and 2008, respectively. New business production includes only directly written business, and does not include premiums from the Companys turnkey disability business. The level of production achieved from these products reflects the Companys focus on the small case niche (insured groups of 10 to 500 individuals), which resulted in an 8.6% increase in production based on the number of cases sold as compared to the first quarter of 2008. The Company continued to implement price increases for certain existing disability and group life customers.
During the first three months of 2009, the market value of the Companys investment portfolio, in relation to its amortized cost, increased by $13.6 million from year-end 2008, before related increases in the cost of business acquired of $10.4 million and a decrease in the federal income tax provision of $8.4 million. At March 31, 2009, gross unrealized appreciation and gross unrealized depreciation, before the related income tax expense or benefit and the related adjustment to cost of business acquired, with respect to the fixed maturity securities in the Companys portfolio totaled $98.9 million (of which $97.4 million was attributable to investment grade securities) and $636.1 million (of which $492.9 million was attributable to investment grade securities), respectively. During the first three months of 2009, the Company recognized pre-tax net investment losses of $22.0 million. The weighted average credit rating of the securities in the Companys fixed maturity portfolio having ratings by nationally recognized statistical rating organizations was AA at March 31, 2009. While ratings of this type are intended to address credit risk, they do not address other risks, such as prepayment and extension risks.
Reinsurance. The Company cedes portions of the risks relating to its group employee benefit products and variable life insurance products under indemnity reinsurance agreements with various unaffiliated reinsurers. The Company pays reinsurance premiums which are generally based upon specified percentages of the Companys premiums on the business reinsured. These agreements expire at various intervals as to new risks, and replacement agreements are negotiated on terms believed appropriate in light of then-current market conditions. The Company currently cedes through indemnity reinsurance 100% of its excess workers compensation risks between $10.0 million and $50.0 million per occurrence, 85% of its excess workers compensation risks between $50.0 million and $100.0 million per occurrence, 100% of its excess workers compensation risks between $100.0 million and $150.0 million per occurrence and 30% of its excess workers compensation risks between $150.0 million and $200.0 million per occurrence. In addition, the Company currently cedes through indemnity reinsurance up to $10 million of coverage with respect to workers compensation losses resulting from certain naturally occurring catastrophic events. The Company also currently cedes through indemnity reinsurance risks in excess of $300,000 per individual and type of coverage for new and existing employer-paid group life insurance policies. Reductions in the Companys reinsurance coverages will decrease the reinsurance premiums paid by the Company under these arrangements and thus increase the Companys premium income, and will also increase the Companys risk of loss with respect to the relevant policies. Generally, increases in the Companys reinsurance coverages will increase the reinsurance premiums paid by the Company under these arrangements and thus decrease the Companys premium income, and will also decrease the Companys risk of loss with respect to the relevant policies.
Cash Flows. Operating activities increased cash by $91.2 million and $97.5 million in the first three months of 2009 and 2008, respectively. Net investing activities used $72.0 million and $139.7 million of cash during the first three months of 2009 and 2008, respectively, primarily for the purchase of securities. Financing activities provided $1.3 million of cash during the first three months of 2009, principally from deposits to policyholder accounts, partially offset by the repayment of $35.0 million in aggregate principal amount of floating rate funding agreements at their maturity. During the first three months of 2008, financing activities provided $32.4 million of cash, principally from deposits to policyholder accounts.
Read the The complete ReportDFG is in the portfolios of Richard Pzena of Pzena Investment Management LLC.
