##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended September 30, 2007
 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)
  Yes þ
    
    No o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
  Yes o
    
    No þ




---



##### 



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 Nine Months Ended September 30, 2007 and 2006
    
    
    3Consolidated Balance Sheets at September 30, 2007 and
December 31, 2006
    
    
    4Consolidated Statements of Shareholders Equity for the
Nine Months Ended September 30, 2007 and 2006
    
    
    5Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2007 and 2006
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    19Item 4. Controls and Procedures
    
    
    19PART II.
    
    OTHER INFORMATIONItem 1A. Risk Factors
    
    
    20Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    20Item 6. Exhibits
    
    
    21Signatures
    
    
    21
  -2-




---



##### 



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
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenue:Premium and fee income
    
    $
    325,944
    
    
    $
    295,190
    
    
    $
    972,528
    
    
    $
    838,419Net investment income
    
    
    62,768
    
    
    
    66,159
    
    
    
    203,178
    
    
    
    185,974Net realized investment losses
    
    
    (1,480
    )
    
    
    (335
    )
    
    
    (925
    )
    
    
    (1,880
    )Loss on redemption of junior subordinated deferrable
interest debentures underlying company-obligated
mandatorily redeemable capital securities issued
by unconsolidated subsidiaries
    
    
    
    
    
    
    
    
    
    
    (2,192
    )
    
    
    387,232
    
    
    
    361,014
    
    
    
    1,172,589
    
    
    
    1,022,513Benefits and expenses:Benefits, claims and interest credited to policyholders
    
    
    234,525
    
    
    
    217,322
    
    
    
    708,220
    
    
    
    612,961Commissions
    
    
    20,044
    
    
    
    18,844
    
    
    
    60,638
    
    
    
    53,106Amortization of cost of business acquired
    
    
    17,426
    
    
    
    20,478
    
    
    
    58,377
    
    
    
    57,715Other operating expenses
    
    
    50,162
    
    
    
    45,992
    
    
    
    149,982
    
    
    
    129,133322,157
    
    
    
    302,636
    
    
    
    977,217
    
    
    
    852,915Income from continuing operations before interest
and income tax expense
    
    
    65,075
    
    
    
    58,378
    
    
    
    195,372
    
    
    
    169,598Interest expense:Corporate debt
    
    
    3,328
    
    
    
    5,250
    
    
    
    12,973
    
    
    
    15,029Junior subordinated debentures
    
    
    3,246
    
    
    
    
    
    
    
    4,652
    
    
    
    Junior subordinated deferrable interest debentures
underlying company-obligated redeemable capital
securities issued by unconsolidated subsidiaries
    
    
    488
    
    
    
    1,319
    
    
    
    2,251
    
    
    
    3,8877,062
    
    
    
    6,569
    
    
    
    19,876
    
    
    
    18,916Income from continuing operations before income
tax expense
    
    
    58,013
    
    
    
    51,809
    
    
    
    175,496
    
    
    
    150,682Income tax expense
    
    
    17,284
    
    
    
    15,641
    
    
    
    52,659
    
    
    
    45,858Income from continuing operations
    
    
    40,729
    
    
    
    36,168
    
    
    
    122,837
    
    
    
    104,824Income (loss) from discontinued operations, net of income
tax expense (benefit)
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    (2,932
    )Net income
    
    $
    40,729
    
    
    $
    36,169
    
    
    $
    122,837
    
    
    $
    101,892Basic results per share of common stock:Income from continuing operations
    
    $
    0.80
    
    
    $
    0.73
    
    
    $
    2.44
    
    
    $
    2.12Net income
    
    
    0.80
    
    
    
    0.73
    
    
    
    2.44
    
    
    
    2.06Diluted results per share of common stock:Income from continuing operations
    
    $
    0.79
    
    
    $
    0.71
    
    
    $
    2.38
    
    
    $
    2.06Net income
    
    
    0.79
    
    
    
    0.71
    
    
    
    2.38
    
    
    
    2.00Dividends paid per share of common stock
    
    $
    0.09
    
    
    $
    0.08
    
    
    $
    0.26
    
    
    $
    0.23
  -3-




---



##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Per Share Data)
 September 30,
    
    
    December 31,2007
    
    
    2006Assets:Investments:Fixed maturity securities, available for sale
    
    $
    3,624,642
    
    
    $
    3,377,578Short-term investments
    
    
    261,434
    
    
    
    400,239Other investments
    
    
    809,381
    
    
    
    705,5634,695,457
    
    
    
    4,483,380Cash
    
    
    45,684
    
    
    
    48,204Cost of business acquired
    
    
    179,777
    
    
    
    267,920Reinsurance receivables
    
    
    412,626
    
    
    
    410,593Goodwill
    
    
    93,929
    
    
    
    93,929Other assets
    
    
    276,675
    
    
    
    251,975Assets held in separate account
    
    
    122,833
    
    
    
    114,474Total assets
    
    $
    5,826,981
    
    
    $
    5,670,475Liabilities and Shareholders Equity:Future policy benefits:Life
    
    $
    288,824
    
    
    $
    279,919Disability and accident
    
    
    671,945
    
    
    
    610,618Unpaid claims and claim expenses:Life
    
    
    67,538
    
    
    
    58,752Disability and accident
    
    
    334,470
    
    
    
    300,693Casualty
    
    
    941,412
    
    
    
    857,662Policyholder account balances
    
    
    1,091,011
    
    
    
    1,119,218Corporate debt
    
    
    147,750
    
    
    
    263,750Junior subordinated debentures
    
    
    175,000
    
    
    
    Junior subordinated deferrable interest debentures underlying
company-obligated mandatorily redeemable capital
securities issued by unconsolidated subsidiaries
    
    
    20,619
    
    
    
    59,762Other liabilities and policyholder funds
    
    
    789,414
    
    
    
    830,819Liabilities related to separate account
    
    
    122,833
    
    
    
    114,474Total liabilities
    
    
    4,650,816
    
    
    
    4,495,667Shareholders equity:Preferred Stock, $.01 par; 50,000,000 shares authorized
    
    
    
    
    
    
    Class A Common Stock, $.01 par; 150,000,000 shares authorized;
48,652,044 and 48,010,697 shares issued and outstanding, respectively
    
    
    487
    
    
    
    480Class B Common Stock, $.01 par; 20,000,000 shares authorized;
5,934,183 and 5,671,744 shares issued and outstanding, respectively
    
    
    59
    
    
    
    57Additional paid-in capital
    
    
    503,098
    
    
    
    474,722Accumulated other comprehensive (loss) income
    
    
    (24,396
    )
    
    
    19,133Retained earnings
    
    
    790,817
    
    
    
    763,386Treasury stock, at cost; 4,611,216 and 4,565,716 shares of Class A
Common Stock, respectively, and 227,216 and 0 shares of Class B Common Stock, respectively
    
    
    (93,900
    )
    
    
    (82,970
    )Total shareholders equity
    
    
    1,176,165
    
    
    
    1,174,808Total liabilities and shareholders equity
    
    $
    5,826,981
    
    
    $
    5,670,475
  -4-




---



##### 



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, 2006
    
    $
    313
    
    
    $
    39
    
    
    $
    442,531
    
    
    $
    20,264
    
    
    $
    636,285
    
    
    $
    (66,393
    )
    
    $
    1,033,039Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    101,892
    
    
    
    
    
    
    
    101,892Other comprehensive (loss) income:Decrease in net unrealized
appreciation on investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,852
    )
    
    
    
    
    
    
    
    
    
    
    (3,852
    )Decrease in net loss on
cash flow hedge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    589
    
    
    
    
    
    
    
    
    
    
    
    589Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    98,629Issuance of stock, exercise of stock
options and share conversions
    
    
    7
    
    
    
    (1
    )
    
    
    21,912
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,918Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    6,533
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,533Acquisition of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,577
    )
    
    
    (16,577
    )Cash dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,038
    )
    
    
    
    
    
    
    (11,038
    )Three-for-two stock split
    
    
    159
    
    
    
    19
    
    
    
    (179
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )Balance, September 30, 2006
    
    $
    479
    
    
    $
    57
    
    
    $
    470,797
    
    
    $
    17,001
    
    
    $
    727,139
    
    
    $
    (82,970
    )
    
    $
    1,132,503Balance, 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    122,837
    
    
    
    
    
    
    
    122,837Other comprehensive (loss) income:Decrease in net unrealized
appreciation on investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (44,921
    )
    
    
    
    
    
    
    
    
    
    
    (44,921
    )Decrease in net loss oncash flow hedge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    589
    
    
    
    
    
    
    
    
    
    
    
    589Change in net periodic
pension cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    803
    
    
    
    
    
    
    
    
    
    
    
    803Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    79,308Issuance of stock, exercise of stock
options and share conversions
    
    
    7
    
    
    
    2
    
    
    
    23,247
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,256Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    5,129
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,129Acquisition of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,930
    )
    
    
    (10,930
    )Cash dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,853
    )
    
    
    
    
    
    
    (12,853
    )Balance, September 30, 2007
    
    $
    487
    
    
    $
    59
    
    
    $
    503,098
    
    
    $
    (24,396
    )
    
    $
    790,817
    
    
    $
    (93,900
    )
    
    $
    1,176,165
  -5-




---



##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
 Nine Months EndedSeptember 30,2007
    
    
    2006Operating activities:Net income
    
    $
    122,837
    
    
    $
    101,892Adjustments to reconcile net income to net cash provided
by operating activities:Change in policy liabilities and policyholder accounts
    
    
    219,478
    
    
    
    197,987Net change in reinsurance receivables and payables
    
    
    (7,428
    )
    
    
    3,523Amortization, principally the cost of business acquired and investments
    
    
    53,353
    
    
    
    50,397Deferred costs of business acquired
    
    
    (84,042
    )
    
    
    (77,473
    )Net realized losses on investments
    
    
    925
    
    
    
    1,880Net change in federal income tax liability
    
    
    16,440
    
    
    
    12,193Other
    
    
    (41,451
    )
    
    
    (38,463
    )Net cash provided by operating activities
    
    
    280,112
    
    
    
    251,936Investing activities:Purchases of investments and loans made
    
    
    (861,814
    )
    
    
    (898,282
    )Sales of investments and receipts from repayment of loans
    
    
    328,176
    
    
    
    597,301Maturities of investments
    
    
    120,486
    
    
    
    168,327Net change in short-term investments
    
    
    138,805
    
    
    
    (202,886
    )Change in deposit in separate account
    
    
    8,536
    
    
    
    (2,234
    )Net cash used by investing activities
    
    
    (265,811
    )
    
    
    (337,774
    )Financing activities:Deposits to policyholder accounts
    
    
    90,388
    
    
    
    178,231Withdrawals from policyholder accounts
    
    
    (123,802
    )
    
    
    (98,778
    )Borrowings under revolving credit facility
    
    
    42,000
    
    
    
    31,000Principal payments under revolving credit facility
    
    
    (158,000
    )
    
    
    (2,000
    )Proceeds from the issuance of 2007 Junior Debentures
    
    
    172,309
    
    
    
    Redemption of Junior Debentures
    
    
    (37,728
    )
    
    
    Other financing activities
    
    
    (1,988
    )
    
    
    (5,612
    )Net cash (used) provided by financing activities
    
    
    (16,821
    )
    
    
    102,841(Decrease) increase in cash
    
    
    (2,520
    )
    
    
    17,003Cash at beginning of period
    
    
    48,204
    
    
    
    28,493Cash at end of period
    
    $
    45,684
    
    
    $
    45,496
  -6-




---



##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 Note A  Significant Accounting Policies
  Accounting Changes
 Cost of Business Acquired.
 Hybrid Financial Instruments.
 Income Taxes.
 -7-




---



##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Note A  Significant Accounting Policies  (Continued)
 Recently Issued Accounting Standards
   Investment Companies Investment Companies
 Note B Investments
  -8-




---



##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Note C  Redemption of Junior Subordinated Deferrable Interest Debentures underlying the
Company-Obligated Mandatorily Redeemable Capital Securities of Delphi Funding L.L.C.
   Note D  Junior Subordinated Debentures
   -9-




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##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Note E  Segment Information
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(dollars in thousands)Revenues:Group employee benefit products
    
    $
    358,426
    
    
    $
    325,743
    
    
    $
    1,070,159
    
    
    $
    923,902Asset accumulation products
    
    
    19,944
    
    
    
    26,315
    
    
    
    74,523
    
    
    
    73,718Other(1)
    
    
    10,342
    
    
    
    9,291
    
    
    
    31,024
    
    
    
    26,773388,712
    
    
    
    361,349
    
    
    
    1,175,706
    
    
    
    1,024,393Net realized investment losses
    
    
    (1,480
    )
    
    
    (335
    )
    
    
    (925
    )
    
    
    (1,880
    )Loss on redemption of junior subordinated deferrable
interest debentures underlying the Company-obligated
mandatorily redeemable capital securities issued
by unconsolidated subsidiaries
    
    
    
    
    
    
    
    
    
    
    (2,192
    )
    
    
    $
    387,232
    
    
    $
    361,014
    
    
    $
    1,172,589
    
    
    $
    1,022,513Operating income (loss):Group employee benefit products
    
    $
    67,234
    
    
    $
    57,820
    
    
    $
    195,308
    
    
    $
    164,907Asset accumulation products
    
    
    6,946
    
    
    
    8,134
    
    
    
    24,112
    
    
    
    21,485Other(1)
    
    
    (7,625
    )
    
    
    (7,241
    )
    
    
    (20,931
    )
    
    
    (14,914
    )66,555
    
    
    
    58,713
    
    
    
    198,489
    
    
    
    171,478Net realized investment losses
    
    
    (1,480
    )
    
    
    (335
    )
    
    
    (925
    )
    
    
    (1,880
    )Loss on redemption of junior subordinated deferrable
interest debentures underlying the Company-obligated
mandatorily redeemable capital securities issued
by unconsolidated subsidiaries
    
    
    
    
    
    
    
    
    
    
    (2,192
    )
    
    
    $
    65,075
    
    
    $
    58,378
    
    
    $
    195,372
    
    
    $
    169,598
 
 (1)
    
    Primarily consists of operations from integrated disability and absence management
services and certain corporate activities. Note F Comprehensive Income
  -10-




---



##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Note G  Stock-Based Compensation
     WeightedWeighted
    
    
    Average
    
    
    AggregateNumber
    
    
    Average
    
    
    Remaining
    
    
    Intrinsicof
    
    
    Exercise
    
    
    Contractual
    
    
    ValueOptions
    
    Options
    
    
    Price
    
    
    Term
    
    
    ($000)Outstanding at January 1, 2007
    
    
    3,552,668
    
    
    $
    20.93Granted
    
    
    790,571
    
    
    
    40.68Exercised
    
    
    (889,170
    )
    
    
    16.86Forfeited
    
    
    (39,101
    )
    
    
    32.63Outstanding at September 30, 2007
    
    
    3,414,968
    
    
    
    26.43
    
    
    
    5.6
    
    
    $
    48,054Exercisable at September 30, 2007
    
    
    1,928,476
    
    
    $
    18.96
    
    
    
    3.1
    
    
    $
    41,385
   -11-




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##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Note H Computation of Results per Share
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(dollars in thousands, except per share data)Numerator:Income from continuing operations
    
    $
    40,729
    
    
    $
    36,168
    
    
    $
    122,837
    
    
    $
    104,824Income (loss) from discontinued operations, net of income tax
expense (benefit)
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    (2,932
    )Net income
    
    $
    40,729
    
    
    $
    36,169
    
    
    $
    122,837
    
    
    $
    101,892Denominator:Weighted average common shares outstanding
    
    
    50,596
    
    
    
    49,652
    
    
    
    50,405
    
    
    
    49,531Effect of dilutive securities
    
    
    1,126
    
    
    
    1,274
    
    
    
    1,236
    
    
    
    1,293Weighted average common shares outstanding, assuming dilution
    
    
    51,722
    
    
    
    50,926
    
    
    
    51,641
    
    
    
    50,824Basic results per share of common stock:Income from continuing operations
    
    $
    0.80
    
    
    $
    0.73
    
    
    $
    2.44
    
    
    $
    2.12Loss from discontinued operations, net of income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.06
    )Net income
    
    $
    0.80
    
    
    $
    0.73
    
    
    $
    2.44
    
    
    $
    2.06Diluted results per share of common stock:Income from continuing operations
    
    $
    0.79
    
    
    $
    0.71
    
    
    $
    2.38
    
    
    $
    2.06Loss from discontinued operations, net of income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.06
    )Net income
    
    $
    0.79
    
    
    $
    0.71
    
    
    $
    2.38
    
    
    $
    2.00
 -12-




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##### 



DELPHI FINANCIAL GROUP, INC.
 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Introduction
    -13-




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##### 



Results of Operations
 Nine Months Ended September 30, 2007 Compared to
Nine Months Ended September 30, 2006
 Summary of Results.
 Premium and Fee Income.
    -14-




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##### 



Net Investment Income.
 Net Realized Investment Losses.
  Loss on Redemption of Junior Subordinated Deferrable Interest Debentures.
 Benefits and Expenses.
 Income Tax Expense.
 -15-




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##### 



Three Months Ended September 30, 2007 Compared to
Three Months Ended September 30, 2006
 Summary of Results.
 Premium and Fee Income.
   Net Investment Income.
 Net Realized Investment Losses.
 -16-




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##### 



Benefits and Expenses.
 Income Tax Expense.
 Liquidity and Capital Resources
 General.
   -17-




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##### 



Share Repurchase Program.
 Investments.
 Reinsurance.
 Cash Flows
 -18-




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##### 



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
  -19-




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##### 



PART II. OTHER INFORMATION
 
 Item 1A. Risk Factors
  The Companys financial position and results of operations may be adversely impacted by
changes in accounting rules and in the interpretations of such rules.
   
 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)July 1  31, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    August 1  31, 2007
    
    
    45,500
    
    
    $
    39.57
    
    
    
    45,500
    
    
    
    888,176September 1  30, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    45,500
    
    
    $
    39.57
    
    
    
    45,500
    
    
    
    888,176
 
 (1)
    
    As of September 30, 2007, the Company had purchased 4,591,452 shares, at a total cost of
$84.5 million in the open market. In addition, during 2004, the Company 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, which increased the total number of shares of
treasury stock outstanding to 4,611,216, as of September 30, 2007.(2)
    
    On August 31, 1998, the Companys Board of Directors authorized the purchase of 2,387,718
outstanding shares of the Companys Class A Common Stock from time to time on the open
market. In August 1999 and February 2001, the Board of Directors increased the number of
outstanding shares authorized for repurchase under this program by 2,295,000 and 796,910,
respectively. This former share repurchase program was replaced by the new share repurchase
program authorized by the Companys Board of Directors on November 7, 2007. See Managements Discussion and Analysis of Financial Condition and
Results of Operation  Liquidity and Capital
Resources in Part I, Item 2 of this Quarterly Report for a
discussion of this new program. -20-




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##### 



Item 6. Exhibits
 10.1
    
    Restricted Share Unit Amendment and Consolidation Agreement for Robert M. Smith, Jr.11.1
    
    Computation of Results per Share of Common Stock (incorporated by reference to Note H 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 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
 
 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. BurghartVice President and Treasurer(Principal Accounting and Financial Officer)
  -21-