UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the Quarterly Period Ended June 30, 2008
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number 001-11462
 DELPHI FINANCIAL GROUP, INC.
  Delaware
    
    (302) 478-5142
    
    13-3427277(State or other jurisdiction of 
incorporation or organization)
    
    (Registrants telephone number,
including area code)
    
    (I.R.S. Employer Identification
Number)1105 North Market Street, Suite 1230, P.O. Box 8985, Wilmington, Delaware
    
    19899(Address of principal executive offices)
    
    (Zip Code)
 
 þ o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
  o þ




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##### 



DELPHI FINANCIAL GROUP, INC.
FORM 10-Q
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND OTHER INFORMATION
 PagePART I. FINANCIAL INFORMATION (UNAUDITED)Item 1. Financial StatementsConsolidated Statements of Income for the Three and
Six Months Ended June 30, 2008 and 2007
    
    
    3Consolidated Balance Sheets at June 30, 2008 and
December 31, 2007
    
    
    4Consolidated Statements of Shareholders Equity for the
Six Months Ended June 30, 2008 and 2007
    
    
    5Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2008 and 2007
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    16Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    22Item 4. Controls and Procedures
    
    
    22PART II. OTHER INFORMATIONItem 1A. Risk Factors
    
    
    23Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    24Item 3. Legal Proceedings
    
    
    24Item 4. Submission of Matters to a Vote of Security Holders
    
    
    25Item 6. Exhibits
    
    
    25Signatures
    
    
    26
  -2-




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##### 



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF INCOME
 (Dollars in Thousands, Except Per Share Data)
 (Unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenue:Premium and fee income
    
    $
    340,774
    
    
    $
    324,337
    
    
    $
    683,064
    
    
    $
    646,584Net investment income
    
    
    60,750
    
    
    
    69,107
    
    
    
    93,087
    
    
    
    140,410Net realized investment (losses) gains
    
    
    (19,499
    )
    
    
    937
    
    
    
    (25,935
    )
    
    
    555Loss on redemption of junior subordinated deferrable
interest debentures underlying company-obligated
mandatorily redeemable capital securities issued
by unconsolidated subsidiaries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,192
    )382,025
    
    
    
    394,381
    
    
    
    750,216
    
    
    
    785,357Benefits and expenses:Benefits, claims and interest credited to policyholders
    
    
    243,755
    
    
    
    235,483
    
    
    
    486,667
    
    
    
    473,695Commissions
    
    
    20,853
    
    
    
    20,883
    
    
    
    42,120
    
    
    
    40,594Amortization of cost of business acquired
    
    
    20,222
    
    
    
    20,059
    
    
    
    36,645
    
    
    
    40,951Other operating expenses
    
    
    53,608
    
    
    
    49,872
    
    
    
    105,811
    
    
    
    99,820338,438
    
    
    
    326,297
    
    
    
    671,243
    
    
    
    655,060Operating income
    
    
    43,587
    
    
    
    68,084
    
    
    
    78,973
    
    
    
    130,297Interest expense:Corporate debt
    
    
    4,289
    
    
    
    4,591
    
    
    
    8,513
    
    
    
    9,645Junior subordinated debentures
    
    
    3,246
    
    
    
    1,406
    
    
    
    6,486
    
    
    
    1,406Junior subordinated deferrable interest debentures
underlying company-obligated redeemable capital
securities issued by unconsolidated subsidiaries
    
    
    353
    
    
    
    479
    
    
    
    757
    
    
    
    1,7637,888
    
    
    
    6,476
    
    
    
    15,756
    
    
    
    12,814Income before income tax expense
    
    
    35,699
    
    
    
    61,608
    
    
    
    63,217
    
    
    
    117,483Income tax expense
    
    
    8,824
    
    
    
    18,694
    
    
    
    15,198
    
    
    
    35,375Net income
    
    $
    26,875
    
    
    $
    42,914
    
    
    $
    48,019
    
    
    $
    82,108Basic results per share of common stock:Net income
    
    $
    0.56
    
    
    $
    0.85
    
    
    $
    0.99
    
    
    $
    1.63Diluted results per share of common stock:Net income
    
    $
    0.55
    
    
    $
    0.83
    
    
    $
    0.97
    
    
    $
    1.59Dividends paid per share of common stock
    
    $
    0.10
    
    
    $
    0.09
    
    
    $
    0.19
    
    
    $
    0.17
  -3-




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##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 (Dollars in Thousands, Except Per Share Data)
 June 30,
    
    
    December 31,2008
    
    
    2007Assets:Investments:Fixed maturity securities, available for sale
    
    $
    3,811,763
    
    
    $
    3,691,694Short-term investments
    
    
    325,716
    
    
    
    286,033Other investments
    
    
    631,902
    
    
    
    1,010,1414,769,381
    
    
    
    4,987,868Cash
    
    
    43,544
    
    
    
    51,240Cost of business acquired
    
    
    209,877
    
    
    
    174,430Reinsurance receivables
    
    
    381,259
    
    
    
    402,785Goodwill
    
    
    93,929
    
    
    
    93,929Other assets
    
    
    275,171
    
    
    
    260,602Assets held in separate account
    
    
    118,592
    
    
    
    123,956Total assets
    
    $
    5,891,753
    
    
    $
    6,094,810Liabilities and Shareholders Equity:Future policy benefits:Life
    
    $
    295,884
    
    
    $
    290,775Disability and accident
    
    
    719,541
    
    
    
    688,023Unpaid claims and claim expenses:Life
    
    
    68,622
    
    
    
    69,161Disability and accident
    
    
    364,407
    
    
    
    341,442Casualty
    
    
    1,010,692
    
    
    
    963,974Policyholder account balances
    
    
    1,190,604
    
    
    
    1,083,121Corporate debt
    
    
    272,750
    
    
    
    217,750Junior subordinated debentures
    
    
    175,000
    
    
    
    175,000Junior subordinated deferrable interest debentures underlying
company-obligated mandatorily redeemable capital
securities issued by unconsolidated subsidiaries
    
    
    20,619
    
    
    
    20,619Other liabilities and policyholder funds
    
    
    622,447
    
    
    
    979,599Liabilities related to separate account
    
    
    118,592
    
    
    
    123,956Total liabilities
    
    
    4,859,158
    
    
    
    4,953,420Shareholders equity:Preferred Stock, $.01 par; 50,000,000 shares authorized, none issued
    
    
    
    
    
    
    Class A Common Stock, $.01 par; 150,000,000 shares authorized; 48,847,365
and 48,717,899 shares issued and outstanding, respectively
    
    
    489
    
    
    
    487Class B Common Stock, $.01 par; 20,000,000 shares authorized; 5,934,183
shares issued and outstanding
    
    
    59
    
    
    
    59Additional paid-in capital
    
    
    518,109
    
    
    
    509,742Accumulated other comprehensive loss
    
    
    (155,929
    )
    
    
    (42,497
    )Retained earnings
    
    
    867,113
    
    
    
    828,116Treasury stock, at cost; 7,761,216 and 6,227,416 shares of Class A
Common Stock, respectively, and 227,216 shares of
Class B Common Stock
    
    
    (197,246
    )
    
    
    (154,517
    )Total shareholders equity
    
    
    1,032,595
    
    
    
    1,141,390Total liabilities and shareholders equity
    
    $
    5,891,753
    
    
    $
    6,094,810
  -4-




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##### 



DELPHI
FINANCIAL GROUP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 (Dollars in Thousands)
(Unaudited)
 AccumulatedClass A
    
    
    Class B
    
    
    Additional
    
    
    OtherCommon
    
    
    Common
    
    
    Paid-in
    
    
    Comprehensive
    
    
    Retained
    
    
    TreasuryStock
    
    
    Stock
    
    
    Capital
    
    
    Income (Loss)
    
    
    Earnings
    
    
    Stock
    
    
    TotalBalance, January 1, 2007
    
    $
    480
    
    
    $
    57
    
    
    $
    474,722
    
    
    $
    19,133
    
    
    $
    763,386
    
    
    $
    (82,970
    )
    
    $
    1,174,808Cumulative effect adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (82,553
    )
    
    
    
    
    
    
    (82,553
    )Adjusted balance, January 1, 2007
    
    
    480
    
    
    
    57
    
    
    
    474,722
    
    
    
    19,133
    
    
    
    680,833
    
    
    
    (82,970
    )
    
    
    1,092,255Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    82,108
    
    
    
    
    
    
    
    82,108Other comprehensive loss:Decrease in net unrealized
appreciation on investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (44,398
    )
    
    
    
    
    
    
    
    
    
    
    (44,398
    )Decrease in net loss on
cash flow hedge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    392
    
    
    
    
    
    
    
    
    
    
    
    392Change in net periodic
pension cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    536
    
    
    
    
    
    
    
    
    
    
    
    536Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38,638Issuance of stock, exercise of stock
options and share conversions
    
    
    6
    
    
    
    (2
    )
    
    
    16,532
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,536Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    3,462
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,462Cash dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,391
    )
    
    
    
    
    
    
    (8,391
    )Balance, June 30, 2007
    
    $
    486
    
    
    $
    55
    
    
    $
    494,716
    
    
    $
    (24,337
    )
    
    $
    754,550
    
    
    $
    (82,970
    )
    
    $
    1,142,500Balance, January 1, 2008
    
    $
    487
    
    
    $
    59
    
    
    $
    509,742
    
    
    $
    (42,497
    )
    
    $
    828,116
    
    
    $
    (154,517
    )
    
    $
    1,141,390Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48,019
    
    
    
    
    
    
    
    48,019Other comprehensive loss:Increase in net unrealized
depreciation on investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (113,848
    )
    
    
    
    
    
    
    
    
    
    
    (113,848
    )Decrease in net loss on
cash flow hedge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    392
    
    
    
    
    
    
    
    
    
    
    
    392Change in net periodic
pension cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24
    
    
    
    
    
    
    
    
    
    
    
    24Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (65,413
    )Issuance of stock, exercise of stock
options and share conversions
    
    
    2
    
    
    
    
    
    
    
    5,145
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,147Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    3,222
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,222Acquisition of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (42,729
    )
    
    
    (42,729
    )Cash dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,022
    )
    
    
    
    
    
    
    (9,022
    )Balance, June 30, 2008
    
    $
    489
    
    
    $
    59
    
    
    $
    518,109
    
    
    $
    (155,929
    )
    
    $
    867,113
    
    
    $
    (197,246
    )
    
    $
    1,032,595
  -5-




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##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Dollars in Thousands)
 (Unaudited)
 Six Months EndedJune 30,2008
    
    
    2007Operating activities:Net income
    
    $
    48,019
    
    
    $
    82,108Adjustments to reconcile net income to net cash provided
by operating activities:Change in policy liabilities and policyholder accounts
    
    
    108,256
    
    
    
    153,073Net change in reinsurance receivables and payables
    
    
    16,881
    
    
    
    (11,492
    )Amortization, principally the cost of business acquired and investments
    
    
    33,010
    
    
    
    40,549Deferred costs of business acquired
    
    
    (60,481
    )
    
    
    (53,659
    )Net realized losses (gains) on investments
    
    
    25,935
    
    
    
    (555
    )Net change in federal income tax liability
    
    
    (24,913
    )
    
    
    9,267Other
    
    
    15,866
    
    
    
    (38,188
    )Net cash provided by operating activities
    
    
    162,573
    
    
    
    181,103Investing activities:Purchases of investments and loans made
    
    
    (706,313
    )
    
    
    (665,152
    )Sales of investments and receipts from repayment of loans
    
    
    148,589
    
    
    
    249,879Maturities of investments
    
    
    317,518
    
    
    
    73,720Net change in short-term investments
    
    
    (39,683
    )
    
    
    173,647Change in deposit in separate account
    
    
    3,430
    
    
    
    (330
    )Net cash used by investing activities
    
    
    (276,459
    )
    
    
    (168,236
    )Financing activities:Deposits to policyholder accounts
    
    
    154,302
    
    
    
    55,642Withdrawals from policyholder accounts
    
    
    (53,226
    )
    
    
    (82,476
    )Borrowings under revolving credit facility
    
    
    58,000
    
    
    
    38,000Principal payments under revolving credit facility
    
    
    (3,000
    )
    
    
    (158,000
    )Proceeds from the issuance of 2007 Junior Debentures
    
    
    
    
    
    
    172,309Redemption of junior subordinated deferrable interest debentures
    
    
    
    
    
    
    (37,728
    )Acquisition of treasury stock
    
    
    (42,729
    )
    
    
    Other financing activities
    
    
    (7,157
    )
    
    
    4,566Net cash provided (used) by financing activities
    
    
    106,190
    
    
    
    (7,687
    )(Decrease) increase in cash
    
    
    (7,696
    )
    
    
    5,180Cash at beginning of period
    
    
    51,240
    
    
    
    48,204Cash at end of period
    
    $
    43,544
    
    
    $
    53,384
  -6-




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##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 Note A  Significant Accounting Policies
  Accounting Changes
 Fair Value Measurements.
     Fair Value Option
 -7-




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##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Note A  Significant Accounting Policies  (Continued)
 Stock-Based Compensation.
 Recently Issued Accounting Standards
     -8-




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##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Note A  Significant Accounting Policies  (Continued)
   Note B Investments
   June 30, 2008Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value(dollars in thousands)Mortgage-backed securities
    
    $
    1,222,779
    
    
    $
    19,795
    
    
    $
    (120,186
    )
    
    $
    1,122,388Corporate securities
    
    
    1,664,549
    
    
    
    13,882
    
    
    
    (124,647
    )
    
    
    1,553,784U.S. Treasury and other U.S. Government
guaranteed securities
    
    
    47,711
    
    
    
    2,529
    
    
    
    (168
    )
    
    
    50,072U.S. Government-sponsored enterprises
    
    
    22,044
    
    
    
    268
    
    
    
    (55
    )
    
    
    22,257Obligations of U.S. states, municipalities and
political subdivisions
    
    
    1,072,928
    
    
    
    10,660
    
    
    
    (20,326
    )
    
    
    1,063,262Total fixed maturity securities
    
    $
    4,030,011
    
    
    $
    47,134
    
    
    $
    (265,382
    )
    
    $
    3,811,763
 December 31, 2007Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value(dollars in thousands)Mortgage-backed securities
    
    $
    1,105,518
    
    
    $
    16,306
    
    
    $
    (55,342
    )
    
    $
    1,066,482Corporate securities
    
    
    1,533,671
    
    
    
    22,985
    
    
    
    (52,519
    )
    
    
    1,504,137U.S. Treasury and other U.S. Government
guaranteed securities
    
    
    49,454
    
    
    
    2,704
    
    
    
    
    
    
    
    52,158U.S. Government-sponsored enterprises
    
    
    153,138
    
    
    
    1,112
    
    
    
    
    
    
    
    154,250Obligations of U.S. states, municipalities and
political subdivisions
    
    
    905,176
    
    
    
    16,370
    
    
    
    (6,879
    )
    
    
    914,667Total fixed maturity securities
    
    $
    3,746,957
    
    
    $
    59,477
    
    
    $
    (114,740
    )
    
    $
    3,691,694
 -9-




---



##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Note B Investments  (Continued)
  June 30, 2008Less Than 12 Months
    
    
    12 Months or More
    
    
    TotalGross
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    GrossFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses(dollars in thousands)Mortgage-backed securities
    
    $
    525,649
    
    
    $
    (51,888
    )
    
    $
    169,575
    
    
    $
    (68,298
    )
    
    $
    695,224
    
    
    $
    (120,186
    )Corporate securities
    
    
    588,407
    
    
    
    (57,985
    )
    
    
    272,982
    
    
    
    (66,662
    )
    
    
    861,389
    
    
    
    (124,647
    )U.S. Treasury and other U.S. Government
guaranteed securities
    
    
    5,151
    
    
    
    (168
    )
    
    
    
    
    
    
    
    
    
    
    5,151
    
    
    
    (168
    )U.S. Government-sponsored enterprises
    
    
    6,689
    
    
    
    (55
    )
    
    
    
    
    
    
    
    
    
    
    6,689
    
    
    
    (55
    )Obligations of U.S. states, municipalities
& political subdivisions
    
    
    566,766
    
    
    
    (17,056
    )
    
    
    44,075
    
    
    
    (3,270
    )
    
    
    610,841
    
    
    
    (20,326
    )Total fixed maturity securities
    
    $
    1,692,662
    
    
    $
    (127,152
    )
    
    $
    486,632
    
    
    $
    (138,230
    )
    
    $
    2,179,294
    
    
    $
    (265,382
    )
 December 31, 2007Less Than 12 Months
    
    
    12 Months or More
    
    
    TotalGross
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    GrossFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses(dollars in thousands)Mortgage-backed securities
    
    $
    285,684
    
    
    $
    (26,938
    )
    
    $
    240,650
    
    
    $
    (28,404
    )
    
    $
    526,334
    
    
    $
    (55,342
    )Corporate securities
    
    
    449,456
    
    
    
    (33,191
    )
    
    
    229,845
    
    
    
    (19,328
    )
    
    
    679,301
    
    
    
    (52,519
    )U.S. Treasury and other U.S. Government
guaranteed securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    U.S. Government-sponsored enterprises
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Obligations of U.S. states, municipalities
& political subdivisions
    
    
    264,460
    
    
    
    (6,711
    )
    
    
    2,586
    
    
    
    (168
    )
    
    
    267,046
    
    
    
    (6,879
    )Total fixed maturity securities
    
    $
    999,600
    
    
    $
    (66,840
    )
    
    $
    473,081
    
    
    $
    (47,900
    )
    
    $
    1,472,681
    
    
    $
    (114,740
    )
  -10-




---



##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Note B  Investments  (Continued)
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(dollars in thousands)Gross investment income:Fixed maturity securities, available for sale
    
    $
    62,743
    
    
    $
    57,074
    
    
    $
    107,087
    
    
    $
    111,690Mortgage loans
    
    
    3,229
    
    
    
    5,650
    
    
    
    7,202
    
    
    
    11,731Short-term investments
    
    
    1,981
    
    
    
    2,875
    
    
    
    5,124
    
    
    
    6,824Other
    
    
    62
    
    
    
    11,336
    
    
    
    (10,835
    )
    
    
    29,84168,015
    
    
    
    76,935
    
    
    
    108,578
    
    
    
    160,086Less: Investment expenses
    
    
    (7,265
    )
    
    
    (7,828
    )
    
    
    (15,491
    )
    
    
    (19,676
    )$
    60,750
    
    
    $
    69,107
    
    
    $
    93,087
    
    
    $
    140,410
 -11-




---



##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Note C  Fair Value Measurements
   June 30, 2008Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3(dollars in thousands)Assets:Fixed maturity securities, available for sale:Mortgage-backed securities
    
    $
    1,122,388
    
    
    $
    
    
    
    $
    1,084,251
    
    
    $
    38,137Corporate securities
    
    
    1,553,784
    
    
    
    
    
    
    
    1,021,264
    
    
    
    532,520U.S. Treasury and other U.S. Government
guaranteed securities
    
    
    50,072
    
    
    
    23,575
    
    
    
    24,753
    
    
    
    1,744U.S. Government-sponsored enterprise
securities
    
    
    22,257
    
    
    
    
    
    
    
    22,257
    
    
    
    Obligations of U.S. states, municipalities
and political subdivisions
    
    
    1,063,262
    
    
    
    
    
    
    
    1,063,262
    
    
    
    Other investments
    
    
    153,870
    
    
    
    125,937
    
    
    
    
    
    
    
    27,933Assets held in separate account
    
    
    118,592
    
    
    
    
    
    
    
    
    
    
    
    118,592Total
    
    $
    4,084,225
    
    
    $
    149,512
    
    
    $
    3,215,787
    
    
    $
    718,926Liabilities:Other liabilities
    
    $
    69,093
    
    
    $
    69,093
    
    
    $
    
    
    
    $
    
  Six Months Ended June 30, 2008U.S.Treasury and
    
    
    U.S.Other U.S.
    
    
    Government-
    
    
    
    
    
    
    AssetsMortgage-
    
    
    
    
    
    
    Government
    
    
    sponsored
    
    
    
    
    
    
    held inbacked
    
    
    Corporate
    
    
    Guaranteed
    
    
    Enterprise
    
    
    Other
    
    
    SeparateTotal
    
    
    Securities
    
    
    Securities
    
    
    Securities
    
    
    Securities
    
    
    Investments
    
    
    Account(dollars in thousands)Balance at beginning of year
    
    $
    1,060,154
    
    
    $
    302,852
    
    
    $
    476,299
    
    
    $
    
    
    
    $
    129,993
    
    
    $
    27,054
    
    
    $
    123,956Total (losses) gainsIncluded in earnings
    
    
    (19,767
    )
    
    
    (11,012
    )
    
    
    (3,507
    )
    
    
    
    
    
    
    42
    
    
    
    74
    
    
    
    (5,364
    )Included in other comprehensive loss
    
    
    (58,177
    )
    
    
    (24,764
    )
    
    
    (34,513
    )
    
    
    
    
    
    
    (93
    )
    
    
    1,193
    
    
    
    Purchases, issuances and settlements
    
    
    (16,133
    )
    
    
    9,033
    
    
    
    100,222
    
    
    
    
    
    
    
    (125,000
    )
    
    
    (388
    )
    
    
    Net transfer (out) in of Level 3
    
    
    (247,151
    )
    
    
    (237,972
    )
    
    
    (5,981
    )
    
    
    1,744
    
    
    
    (4,942
    )
    
    
    
    
    
    
    Balance at end of the period
    
    $
    718,926
    
    
    $
    38,137
    
    
    $
    532,520
    
    
    $
    1,744
    
    
    $
    
    
    
    $
    27,933
    
    
    $
    118,592Net (losses) gains included in earnings attributable
to the net change in unrealized gains or losses or
assets measured at fair value using unobservable
inputs and held at June 30, 2008
    
    $
    (3,746
    )
    
    $
    
    
    
    $
    (3,344
    )
    
    $
    
    
    
    $
    
    
    
    $
    (402
    )
    
    $
    
 -12-




---



##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Note D  Segment Information
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(dollars in thousands)Revenues:Group employee benefit products
    
    $
    366,949
    
    
    $
    355,656
    
    
    $
    715,030
    
    
    $
    711,733Asset accumulation products
    
    
    23,384
    
    
    
    26,886
    
    
    
    39,900
    
    
    
    54,579Other(1)
    
    
    11,191
    
    
    
    10,902
    
    
    
    21,221
    
    
    
    20,682401,524
    
    
    
    393,444
    
    
    
    776,151
    
    
    
    786,994Net realized investment (losses) gains
    
    
    (19,499
    )
    
    
    937
    
    
    
    (25,935
    )
    
    
    555Loss on redemption of junior subordinated deferrable
interest debentures underlying the Company-obligated
mandatorily redeemable capital securities issued
by unconsolidated subsidiaries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,192
    )$
    382,025
    
    
    $
    394,381
    
    
    $
    750,216
    
    
    $
    785,357Operating income:Group employee benefit products
    
    $
    63,342
    
    
    $
    64,315
    
    
    $
    107,792
    
    
    $
    128,074Asset accumulation products
    
    
    6,699
    
    
    
    8,855
    
    
    
    10,750
    
    
    
    17,166Other(1)
    
    
    (6,955
    )
    
    
    (6,023
    )
    
    
    (13,634
    )
    
    
    (13,306
    )63,086
    
    
    
    67,147
    
    
    
    104,908
    
    
    
    131,934Net realized investment (losses) gains
    
    
    (19,499
    )
    
    
    937
    
    
    
    (25,935
    )
    
    
    555Loss on redemption of junior subordinated deferrable
interest debentures underlying the Company-obligated
mandatorily redeemable capital securities issued
by unconsolidated subsidiaries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,192
    )$
    43,587
    
    
    $
    68,084
    
    
    $
    78,973
    
    
    $
    130,297
 
 (1)
    
    Primarily consists of operations from integrated disability and absence management
services and certain corporate activities. Note E Comprehensive (Loss) Income
  -13-




---



##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Note F  Stock-Based Compensation
     WeightedAverageWeighted
    
    Remaining
    
    AggregateNumber
    
    Average
    
    Contractual
    
    Intrinsicof
    
    Exercise
    
    Term
    
    ValueOptions
    
    Options
    
    Price
    
    (In Years)
    
    ($000)Outstanding at January 1, 2008
    
    
    3,260,251
    
    
    $
    27.15Granted
    
    
    990,231
    
    
    
    28.81Exercised
    
    
    (63,770
    )
    
    
    19.05Forfeited
    
    
    (20,295
    )
    
    
    35.11Expired
    
    
    (13,575
    )
    
    
    25.05Outstanding at June 30, 2008
    
    
    4,152,842
    
    
    
    27.64
    
    
    
    6.2
    
    
    $
    8,215Exercisable at June 30, 2008
    
    
    2,024,559
    
    
    $
    21.76
    
    
    
    3.3
    
    
    $
    8,214
   -14-




---



##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Note G Computation of Results per Share
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(amounts in thousands, except per share data)Numerator:Net income
    
    $
    26,875
    
    
    $
    42,914
    
    
    $
    48,019
    
    
    $
    82,108Denominator:Weighted average common shares outstanding
    
    
    48,146
    
    
    
    50,441
    
    
    
    48,600
    
    
    
    50,309Effect of dilutive securities
    
    
    854
    
    
    
    1,293
    
    
    
    976
    
    
    
    1,292Weighted average common shares outstanding, assuming dilution
    
    
    49,000
    
    
    
    51,734
    
    
    
    49,576
    
    
    
    51,601Basic results per share of common stock:Net income
    
    $
    0.56
    
    
    $
    0.85
    
    
    $
    0.99
    
    
    $
    1.63Diluted results per share of common stock:Net income
    
    $
    0.55
    
    
    $
    0.83
    
    
    $
    0.97
    
    
    $
    1.59
 -15-




---



##### 



DELPHI FINANCIAL GROUP, INC.
 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF 
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Introduction
    -16-




---



##### 



Results of Operations
 Six Months Ended June 30, 2008 Compared to
Six Months Ended June 30, 2007
 Summary of Results.
 Premium and Fee Income.
  -17-




---



##### 



Net Investment Income.
 Net Realized Investment (Losses) Gains.
  Loss on Redemption of Junior Subordinated Deferrable Interest Debentures.
 Benefits and Expenses.
 -18-




---



##### 



Interest Expense
 Income Tax Expense.
 Three Months Ended June 30, 2008 Compared to
Three Months Ended June 30, 2007
 Summary of Results.
 Premium and Fee Income.
  -19-




---



##### 



Net Investment Income.
 Net Realized Investment (Losses) Gains.
  Benefits and Expenses.
 Interest Expense
 Income Tax Expense.
 Liquidity and Capital Resources
 General.
 -20-




---



##### 



Share Repurchase Program.
 Investments.
 -21-




---



##### 



Reinsurance.
 Cash Flows
 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
  Forward-Looking Statements And Cautionary Statements Regarding Certain Factors That May Affect
Future Results
  -22-




---



##### 



PART II. OTHER INFORMATION
 
 Item 1A. Risk Factors
  The market values of the Companys investments fluctuate.
  -
 -23-




---



##### 



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    Total Numberof Shares
    
    MaximumPurchased
    
    Number ofas Part
    
    Shares thatTotal
    
    
    
    
    
    of Publicly
    
    May Yet BeNumber of
    
    Average
    
    Announced
    
    Purchased UnderShares
    
    Price Paid
    
    Plans
    
    the PlansPurchased
    
    per Share
    
    or Programs(1)
    
    or Programs(2)April 1-30, 2008
    
    
    412,000
    
    
    $
    25.49
    
    
    
    412,000
    
    
    
    553,200May 1-31, 2008
    
    
    553,200
    
    
    $
    27.45
    
    
    
    553,200
    
    
    
    1,000,000June 1-30, 2008
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    Total
    
    
    965,200
    
    
    $
    26.61
    
    
    
    965,200
    
    
    
    1,000,000
 
 (1)
    
    As of June 30, 2008, the Company had purchased 7,741,452 shares of its Class A Common
Stock, at a total cost of $187.8 million, in the open market and had previously received
19,764 shares of the Companys Class A Common Stock with an aggregate value of $0.3 million
in liquidation of a partnership interest, resulting in a total number of shares of treasury
stock outstanding on such date of 7,761,216.(2)
    
    On May 7, 2008, the Board authorized a 1,000,000 share increase in the Companys existing
share repurchase program. The program has no expiration date. 
 Item 3. Legal Proceedings
  -24-




---



##### 



Item 4. Submission of Matters to a Vote of Security Holders
   Election of Directors
 VOTESWithholdFor
    
    AuthorityClass A Director:Philip R. OConnor
    
    
    37,375,524
    
    
    
    2,631,075Directors:Robert Rosenkranz
    
    
    77,978,681
    
    
    
    3,894,228Donald A. Sherman
    
    
    76,525,483
    
    
    
    5,347,426Kevin R. Brine
    
    
    78,710,917
    
    
    
    3,161,992Lawrence E. Daurelle
    
    
    76,526,009
    
    
    
    5,346,900Edward A. Fox
    
    
    78,901,356
    
    
    
    2,971,553Steven A. Hirsh
    
    
    78,799,522
    
    
    
    3,073,387Harold F. Ilg
    
    
    76,516,358
    
    
    
    5,356,551James M. Litvack
    
    
    78,795,166
    
    
    
    3,077,743James N. Meehan
    
    
    77,141,357
    
    
    
    4,731,552Robert M. Smith, Jr.
    
    
    76,524,864
    
    
    
    5,348,045Robert F. Wright
    
    
    81,023,182
    
    
    
    849,727
 
 Item 6. Exhibits
 11.1
    
    Computation of Results per Share of Common Stock (incorporated by reference to
Note G to the Consolidated Financial Statements included elsewhere herein)31.1
    
    Certification by the Chairman of the Board and Chief Executive Officer of
Periodic Report Pursuant to Rule 13a-14(a) or 15d-14(a)31.2
    
    Certification by the Senior Vice President and Treasurer of Periodic Report
Pursuant to Rule 13a-14(a) or 15d-14(a)32.1
    
    Certification of Periodic Report Pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 -25-




---



##### 



SIGNATURES
  DELPHI FINANCIAL GROUP, INC. (Registrant)/s/ ROBERT ROSENKRANZRobert RosenkranzChairman of the Board and Chief Executive Officer
(Principal Executive Officer)/s/ THOMAS W. BURGHARTThomas W. BurghartSenior Vice President and Treasurer
(Principal Accounting and Financial Officer)  -26-