Delphi Drives Ahead

Delphi Financial Group (DFG) third quarter operating income of $1.00 per share was ahead of the Zacks Consensus Estimate of 87 cents per share. Last year, the company had reported earnings of 26 cents per share. Growth in operating earnings was driven by improved investment performance and underwriting profit margins. 

Net income was $20.8 million, which significantly improved from a net loss of $9.8 million in the prior year quarter. Premium and fee income declined slightly to $342.6 million from $345.0 million in the prior year quarter. We expect premium and fee income to remain under pressure because of the recessionary conditions. 

Delphi’s core group employee benefit premiums in the quarter were $329.8 million compared to $333.1 million in the prior year quarter, reflecting the impact of lower production at Reliance Standard. The loss ratio for the group employee benefits segment declined to 68.2% from 68.8% in the prior year quarter. 

Delphi’s asset accumulation segment, which primarily focuses on individual fixed annuities, had new sales of $57.5 million, up from $44.0 million in last year’s third quarter. Funds under management at Sep 30, 2009, rose to $1.4 billion from $1.3 billion at Sep 30, 2008. 

Improved yields in the company’s fixed income portfolio and improved performance from sharply reduced alternative asset portfolio led to an increase in net investment income to $88.7 million, compared to $19.4 million in the prior year quarter. Invested assets at Sep 30, 2009, were $5.7 billion compared to $4.8 billion at Sep 30, 2008. The tax equivalent yield on the company’s investment portfolio was 7.0%, compared to 2.0% in the prior year quarter. 

Return on equity was 20.4%, compared to 4.8% in the prior year quarter. The improved market environment for fixed income securities increased book value per share to $23.99 from $18.69 in the prior year period. 

The company has maintained its profitability over the last several years has established market presence in its core small to mid-sized employee benefits market, improved investment quality due to portfolio repositioning. With combined ratios lower than the earlier levels Delphi is expected to maintain its premium growth even this recessionary environment.