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, 2009
 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
    
    (Registrants telephone number,
    
    (I.R.S. Employer Identificationincorporation or organization)
    
    including area code)
    
    Number)
 1105 North Market Street, Suite 1230, P.O. Box 8985, Wilmington, Delaware
    
    19899(Address of principal executive offices)
    
    (Zip Code)
 þ o
 o o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 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, 2009 and 2008
    
    
    3Consolidated Balance Sheets at June 30, 2009 and December 31, 2008
    
    
    4Consolidated Statements of Equity for the Six Months Ended June 30, 2009 and 2008
    
    
    5Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2009 and 2008
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    28Item 4. Controls and Procedures
    
    
    28PART II. OTHER INFORMATIONItem 1A. Risk Factors
    
    
    29Item 4. Submission of Matters to a Vote of Security Holders
    
    
    30Item 6. Exhibits
    
    
    30Signatures
    
    
    31
  -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 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenue:Premium and fee income
    
    $
    352,445
    
    
    $
    340,774
    
    
    $
    710,166
    
    
    $
    683,064Net investment income
    
    
    92,023
    
    
    
    60,750
    
    
    
    154,878
    
    
    
    93,087Net realized investment losses:Total other than temporary impairment losses
    
    
    (45,628
    )
    
    
    (18,131
    )
    
    
    (63,236
    )
    
    
    (24,306
    )Less: Portion of other than temporary impairment
losses recognized in other comprehensive income
    
    
    20,719
    
    
    
    
    
    
    
    20,719
    
    
    
    Net impairment losses recognized in earnings
    
    
    (24,909
    )
    
    
    (18,131
    )
    
    
    (42,517
    )
    
    
    (24,306
    )Other net realized investment losses
    
    
    (2,562
    )
    
    
    (1,368
    )
    
    
    (6,953
    )
    
    
    (1,629
    )(27,471
    )
    
    
    (19,499
    )
    
    
    (49,470
    )
    
    
    (25,935
    )Total revenues
    
    
    416,997
    
    
    
    382,025
    
    
    
    815,574
    
    
    
    750,216Benefits and expenses:Benefits, claims and interest credited to policyholders
    
    
    251,807
    
    
    
    243,755
    
    
    
    507,405
    
    
    
    486,667Commissions
    
    
    22,456
    
    
    
    20,853
    
    
    
    45,160
    
    
    
    42,120Amortization of cost of business acquired
    
    
    26,184
    
    
    
    20,222
    
    
    
    49,477
    
    
    
    36,645Other operating expenses
    
    
    60,622
    
    
    
    53,608
    
    
    
    120,759
    
    
    
    105,811361,069
    
    
    
    338,438
    
    
    
    722,801
    
    
    
    671,243Operating income
    
    
    55,928
    
    
    
    43,587
    
    
    
    92,773
    
    
    
    78,973Interest expense:Corporate debt
    
    
    3,876
    
    
    
    4,289
    
    
    
    7,861
    
    
    
    8,513Junior subordinated debentures
    
    
    3,241
    
    
    
    3,246
    
    
    
    6,481
    
    
    
    6,486Junior subordinated deferrable interest debentures
underlying company-obligated redeemable capital
securities issued by unconsolidated subsidiaries
    
    
    
    
    
    
    353
    
    
    
    
    
    
    
    7577,117
    
    
    
    7,888
    
    
    
    14,342
    
    
    
    15,756Income before income tax expense
    
    
    48,811
    
    
    
    35,699
    
    
    
    78,431
    
    
    
    63,217Income tax expense
    
    
    11,804
    
    
    
    8,824
    
    
    
    16,940
    
    
    
    15,198Net income
    
    $
    37,007
    
    
    $
    26,875
    
    
    $
    61,491
    
    
    $
    48,019Basic results per share of common stock:Net income
    
    $
    0.74
    
    
    $
    0.56
    
    
    $
    1.25
    
    
    $
    0.99Diluted results per share of common stock:Net income
    
    $
    0.74
    
    
    $
    0.55
    
    
    $
    1.25
    
    
    $
    0.97Dividends paid per share of common stock
    
    $
    0.10
    
    
    $
    0.10
    
    
    $
    0.20
    
    
    $
    0.19
  -3-




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##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Per Share Data)
 June 30,
    
    
    December 31,2009
    
    
    2008Assets:Investments:Fixed maturity securities, available for sale
    
    $
    4,037,088
    
    
    $
    3,773,382Short-term investments
    
    
    626,774
    
    
    
    401,620Other investments
    
    
    542,965
    
    
    
    479,9215,206,827
    
    
    
    4,654,923Cash
    
    
    79,194
    
    
    
    63,837Cost of business acquired
    
    
    241,055
    
    
    
    264,777Reinsurance receivables
    
    
    375,871
    
    
    
    376,731Goodwill
    
    
    93,929
    
    
    
    93,929Other assets
    
    
    364,935
    
    
    
    409,103Assets held in separate account
    
    
    100,189
    
    
    
    90,573Total assets
    
    $
    6,462,000
    
    
    $
    5,953,873Liabilities and Equity:Future policy benefits:Life
    
    $
    327,365
    
    
    $
    300,567Disability and accident
    
    
    767,231
    
    
    
    743,690Unpaid claims and claim expenses:Life
    
    
    64,681
    
    
    
    70,076Disability and accident
    
    
    415,971
    
    
    
    398,671Casualty
    
    
    1,129,802
    
    
    
    1,061,046Policyholder account balances
    
    
    1,435,319
    
    
    
    1,356,932Corporate debt
    
    
    365,750
    
    
    
    350,750Junior subordinated debentures
    
    
    175,000
    
    
    
    175,000Other liabilities and policyholder funds
    
    
    624,473
    
    
    
    581,954Liabilities related to separate account
    
    
    100,189
    
    
    
    90,573Total liabilities
    
    
    5,405,781
    
    
    
    5,129,259Equity:Preferred Stock, $.01 par; 50,000,000 shares authorized, none issued
    
    
    
    
    
    
    Class A
Common Stock, $.01 par; 150,000,000 shares authorized; 52,195,142 and 48,946,432 shares issued, respectively
    
    
    522
    
    
    
    489Class B Common Stock, $.01 par; 20,000,000 shares authorized;
5,981,049 shares issued
    
    
    60
    
    
    
    60Additional paid-in capital
    
    
    582,219
    
    
    
    522,596Accumulated other comprehensive loss
    
    
    (232,753
    )
    
    
    (351,710
    )Retained earnings
    
    
    899,331
    
    
    
    846,390Treasury stock, at cost; 7,761,216 shares of Class A Common Stock and
227,216 shares of Class B Common Stock
    
    
    (197,246
    )
    
    
    (197,246
    )Total shareholders equity
    
    
    1,052,133
    
    
    
    820,579Noncontrolling interest
    
    
    4,086
    
    
    
    4,035Total equity
    
    
    1,056,219
    
    
    
    824,614Total liabilities and equity
    
    $
    6,462,000
    
    
    $
    5,953,873
  -4-




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##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(Dollars in Thousands)
(Unaudited)
 AccumulatedClass A
    
    
    Class B
    
    
    Additional
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    Non-Common
    
    
    Common
    
    
    Paid in
    
    
    Comprehensive
    
    
    Retained
    
    
    Treasury
    
    
    Shareholders
    
    
    controlling
    
    
    TotalStock
    
    
    Stock
    
    
    Capital
    
    
    Income (Loss)
    
    
    Earnings
    
    
    Stock
    
    
    Equity
    
    
    Interest
    
    
    EquityBalance, January 1, 2008
    
    $
    487
    
    
    $
    59
    
    
    $
    509,742
    
    
    $
    (42,497
    )
    
    $
    828,116
    
    
    $
    (154,517
    )
    
    $
    1,141,390
    
    
    $
    30,181
    
    
    $
    1,171,571Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48,019
    
    
    
    
    
    
    
    48,019
    
    
    
    445
    
    
    
    48,464Other comprehensive loss:Increase in net unrealized
depreciation on investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (113,848
    )
    
    
    
    
    
    
    
    
    
    
    (113,848
    )
    
    
    (272
    )
    
    
    (114,120
    )Decrease in net loss on
cash flow hedge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    392
    
    
    
    
    
    
    
    
    
    
    
    392
    
    
    
    
    
    
    
    392Change in net periodic
pension cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24
    
    
    
    
    
    
    
    
    
    
    
    24
    
    
    
    
    
    
    
    24Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (65,413
    )
    
    
    
    
    
    
    (65,240
    )Change in noncontrolling
interest ownership
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,022
    
    
    
    1,022Exercise of stock options
    
    
    2
    
    
    
    
    
    
    
    5,145
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,147
    
    
    
    
    
    
    
    5,147Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    3,222
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,222
    
    
    
    
    
    
    
    3,222Acquisition of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (42,729
    )
    
    
    (42,729
    )
    
    
    
    
    
    
    (42,729
    )Cash dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,022
    )
    
    
    
    
    
    
    (9,022
    )
    
    
    
    
    
    
    (9,022
    )Balance, June 30, 2008
    
    $
    489
    
    
    $
    59
    
    
    $
    518,109
    
    
    $
    (155,929
    )
    
    $
    867,113
    
    
    $
    (197,246
    )
    
    $
    1,032,595
    
    
    $
    31,376
    
    
    $
    1,063,971Balance, January 1, 2009
    
    $
    489
    
    
    $
    60
    
    
    $
    522,596
    
    
    $
    (351,710
    )
    
    $
    846,390
    
    
    $
    (197,246
    )
    
    $
    820,579
    
    
    $
    4,035
    
    
    $
    824,614Cumulative effect
adjustment, April 1, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,372
    )
    
    
    2,372
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61,491
    
    
    
    
    
    
    
    61,491
    
    
    
    115
    
    
    
    61,606Other comprehensive income:Decrease in net unrealized
depreciation on investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    132,393
    
    
    
    
    
    
    
    
    
    
    
    132,393
    
    
    
    
    
    
    
    132,393Increase in
other than temporary
impairment losses
recognized in other
comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,038
    )
    
    
    
    
    
    
    
    
    
    
    (12,038
    )
    
    
    
    
    
    
    (12,038
    )Decrease in net loss on
cash flow hedge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    392
    
    
    
    
    
    
    
    
    
    
    
    392
    
    
    
    
    
    
    
    392Change in net periodic
pension cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    582
    
    
    
    
    
    
    
    
    
    
    
    582
    
    
    
    
    
    
    
    582Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    182,820
    
    
    
    
    
    
    
    182,935Net distribution to
noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (64
    )
    
    
    (64
    )Issuance of common stock
    
    
    30
    
    
    
    
    
    
    
    51,017
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    51,047
    
    
    
    
    
    
    
    51,047Exercise of stock options
    
    
    3
    
    
    
    
    
    
    
    4,014
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,017
    
    
    
    
    
    
    
    4,017Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    4,592
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,592
    
    
    
    
    
    
    
    4,592Cash dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,922
    )
    
    
    
    
    
    
    (10,922
    )
    
    
    
    
    
    
    (10,922
    )Balance, June 30, 2009
    
    $
    522
    
    
    $
    60
    
    
    $
    582,219
    
    
    $
    (232,753
    )
    
    $
    899,331
    
    
    $
    (197,246
    )
    
    $
    1,052,133
    
    
    $
    4,086
    
    
    $
    1,056,219
  -5-




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##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
 Six Months EndedJune 30,2009
    
    
    2008Operating activities:Net income
    
    $
    61,491
    
    
    $
    48,019Adjustments to reconcile net income to net cash provided
by operating activities:Change in policy liabilities and policyholder accounts
    
    
    137,172
    
    
    
    108,256Net change in reinsurance receivables and payables
    
    
    (6,663
    )
    
    
    16,881Amortization, principally the cost of business acquired and investments
    
    
    24,842
    
    
    
    33,010Deferred costs of business acquired
    
    
    (64,079
    )
    
    
    (60,481
    )Net realized losses on investments
    
    
    49,470
    
    
    
    25,935Net change in federal income tax liability
    
    
    5,228
    
    
    
    (24,913
    )Other
    
    
    (15,428
    )
    
    
    15,866Net cash provided by operating activities
    
    
    192,033
    
    
    
    162,573Investing activities:Purchases of investments and loans made
    
    
    (668,972
    )
    
    
    (706,313
    )Sales of investments and receipts from repayment of loans
    
    
    130,226
    
    
    
    148,589Maturities of investments
    
    
    446,734
    
    
    
    317,518Net change in short-term investments
    
    
    (225,154
    )
    
    
    (39,683
    )Change in deposit in separate account
    
    
    4,845
    
    
    
    3,430Net cash used by investing activities
    
    
    (312,321
    )
    
    
    (276,459
    )Financing activities:Deposits to policyholder accounts
    
    
    180,624
    
    
    
    154,302Withdrawals from policyholder accounts
    
    
    (102,969
    )
    
    
    (53,226
    )Borrowings under revolving credit facility
    
    
    17,000
    
    
    
    58,000Principal payments under revolving credit facility
    
    
    (2,000
    )
    
    
    (3,000
    )Proceeds from issuance of common stock
    
    
    51,017
    
    
    
    Acquisition of treasury stock
    
    
    
    
    
    
    (42,729
    )Other financing activities
    
    
    (8,027
    )
    
    
    (7,157
    )Net cash provided by financing activities
    
    
    135,645
    
    
    
    106,190Increase (decrease) in cash
    
    
    15,357
    
    
    
    (7,696
    )Cash at beginning of period
    
    
    63,837
    
    
    
    51,240Cash at end of period
    
    $
    79,194
    
    
    $
    43,544
  -6-




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##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 Note A  Significant Accounting Policies
  Accounting Changes
 Business Combinations.
  Noncontrolling Interests.
 -7-




---



##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Note A  Significant Accounting Policies  (Continued)
 Derivative Instruments.
   Earnings Per Share.
 Fair Value Measurements.
 -8-




---



##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Note A  Significant Accounting Policies  (Continued)
  Other Than Temporary Impairments.
 Subsequent events.
 Recently Issued Accounting Standards
  -9-




---



##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Note A  Significant Accounting Policies  (Continued)
   Note B Investments
   June 30, 2009Gross UnrealizedOther ThanAmortized
    
    
    
    
    
    
    
    
    
    
    Temporary
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Impairments
    
    
    Value(dollars in thousands)Residential mortgage-backed securities
    
    $
    1,385,132
    
    
    $
    59,675
    
    
    $
    (148,252
    )
    
    $
    (22,169
    )
    
    $
    1,274,386Commercial mortgage-backed securities
    
    
    39,881
    
    
    
    
    
    
    
    (21,145
    )
    
    
    
    
    
    
    18,736Corporate securities
    
    
    1,186,843
    
    
    
    19,722
    
    
    
    (94,358
    )
    
    
    
    
    
    
    1,112,207Collateralized debt obligations
    
    
    224,091
    
    
    
    
    
    
    
    (120,592
    )
    
    
    
    
    
    
    103,499U.S. Treasury and other U.S. Government
guaranteed securities
    
    
    100,732
    
    
    
    4,058
    
    
    
    (20
    )
    
    
    
    
    
    
    104,770U.S. Government-sponsored enterprise securities
    
    
    6,753
    
    
    
    531
    
    
    
    
    
    
    
    
    
    
    
    7,284Obligations of U.S. states, municipalities and
political subdivisions
    
    
    1,431,952
    
    
    
    33,273
    
    
    
    (49,019
    )
    
    
    
    
    
    
    1,416,206Total fixed maturity securities
    
    $
    4,375,384
    
    
    $
    117,259
    
    
    $
    (433,386
    )
    
    $
    (22,169
    )
    
    $
    4,037,088
 -10-




---



##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Note B  Investments  (Continued)
 December 31, 2008Gross UnrealizedOther ThanAmortized
    
    
    
    
    
    
    
    
    
    
    Temporary
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Impairments
    
    
    Value(dollars in thousands)Residential mortgage-backed securities
    
    $
    1,367,041
    
    
    $
    40,489
    
    
    $
    (207,905
    )
    
    $
    
    
    
    $
    1,199,625Commercial mortgage-backed securities
    
    
    44,190
    
    
    
    
    
    
    
    (18,891
    )
    
    
    
    
    
    
    25,299Corporate securities
    
    
    1,339,519
    
    
    
    9,688
    
    
    
    (183,995
    )
    
    
    
    
    
    
    1,165,212Collateralized debt obligations
    
    
    227,229
    
    
    
    
    
    
    
    (116,268
    )
    
    
    
    
    
    
    110,961U.S. Treasury and other U.S. Government
guaranteed securities
    
    
    51,826
    
    
    
    5,905
    
    
    
    
    
    
    
    
    
    
    
    57,731U.S. Government-sponsored enterprise securities
    
    
    22,031
    
    
    
    3,147
    
    
    
    
    
    
    
    
    
    
    
    25,178Obligations of U.S. states, municipalities and
political subdivisions
    
    
    1,270,166
    
    
    
    19,230
    
    
    
    (100,020
    )
    
    
    
    
    
    
    1,189,376Total fixed maturity securities
    
    $
    4,322,002
    
    
    $
    78,459
    
    
    $
    (627,079
    )
    
    $
    
    
    
    $
    3,773,382
  Amortized
    
    
    FairCost
    
    
    Value(dollars in thousands)Residential mortgage-backed securities
    
    $
    1,385,132
    
    
    $
    1,274,386Commercial mortgage-backed securities
    
    
    39,881
    
    
    
    18,736Other fixed maturity securities:One year or less
    
    
    61,879
    
    
    
    61,327Greater than 1, up to 5 years
    
    
    512,094
    
    
    
    502,932Greater than 5, up to 10 years
    
    
    783,592
    
    
    
    715,714Greater than 10 years
    
    
    1,592,806
    
    
    
    1,463,993Total
    
    $
    4,375,384
    
    
    $
    4,037,088
  June 30, 2009Less Than 12 Months
    
    
    12 Months or More
    
    
    TotalGross
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    GrossFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses(dollars in thousands)Residential mortgage-backed securities
    
    $
    261,929
    
    
    $
    (66,089
    )
    
    $
    262,179
    
    
    $
    (104,332
    )
    
    $
    524,108
    
    
    $
    (170,421
    )Commercial mortgage-backed securities
    
    
    5,831
    
    
    
    (1,190
    )
    
    
    12,905
    
    
    
    (19,955
    )
    
    
    18,736
    
    
    
    (21,145
    )Corporate securities
    
    
    138,821
    
    
    
    (14,218
    )
    
    
    450,601
    
    
    
    (80,140
    )
    
    
    589,422
    
    
    
    (94,358
    )Collateralized debt obligations
    
    
    41,378
    
    
    
    (27,650
    )
    
    
    62,122
    
    
    
    (92,942
    )
    
    
    103,500
    
    
    
    (120,592
    )U.S. Treasury and other U.S. Government
guaranteed securities
    
    
    4,082
    
    
    
    (20
    )
    
    
    
    
    
    
    
    
    
    
    4,082
    
    
    
    (20
    )U.S. Government-sponsored enterprise
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Obligations of U.S. states, municipalities
& political subdivisions
    
    
    289,223
    
    
    
    (7,064
    )
    
    
    400,387
    
    
    
    (41,955
    )
    
    
    689,610
    
    
    
    (49,019
    )Total fixed maturity securities
    
    $
    741,264
    
    
    $
    (116,231
    )
    
    $
    1,188,194
    
    
    $
    (339,324
    )
    
    $
    1,929,458
    
    
    $
    (455,555
    )
 - 11 -




---



##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Note B  Investments  (Continued)
 December 31, 2008Less Than 12 Months
    
    
    12 Months or More
    
    
    TotalGross
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    GrossFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses(dollars in thousands)Residential mortgage-backed securities
    
    $
    415,738
    
    
    $
    (140,542
    )
    
    $
    151,971
    
    
    $
    (67,363
    )
    
    $
    567,709
    
    
    $
    (207,905
    )Commercial mortgage-backed securities
    
    
    22,089
    
    
    
    (9,819
    )
    
    
    3,211
    
    
    
    (9,072
    )
    
    
    25,300
    
    
    
    (18,891
    )Corporate securities
    
    
    505,595
    
    
    
    (67,205
    )
    
    
    256,980
    
    
    
    (116,790
    )
    
    
    762,575
    
    
    
    (183,995
    )Collateralized debt obligations
    
    
    76,003
    
    
    
    (62,854
    )
    
    
    34,958
    
    
    
    (53,414
    )
    
    
    110,961
    
    
    
    (116,268
    )U.S. Treasury and other U.S. Government
guaranteed securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    U.S. Government-sponsored enterprise
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Obligations of U.S. states, municipalities
& political subdivisions
    
    
    520,492
    
    
    
    (61,106
    )
    
    
    164,817
    
    
    
    (38,914
    )
    
    
    685,309
    
    
    
    (100,020
    )Total fixed maturity securities
    
    $
    1,539,917
    
    
    $
    (341,526
    )
    
    $
    611,937
    
    
    $
    (285,553
    )
    
    $
    2,151,854
    
    
    $
    (627,079
    )
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(dollars in thousands)Fixed maturity securities, available
for sale
    
    $
    (25,553
    )
    
    $
    (11,245
    )
    
    $
    (44,010
    )
    
    $
    (17,195
    )Other investments
    
    
    (1,918
    )
    
    
    (8,254
    )
    
    
    (5,460
    )
    
    
    (8,740
    )$
    (27,471
    )
    
    $
    (19,499
    )
    
    $
    (49,470
    )
    
    $
    (25,935
    )
   - 12 -




---



##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Note B  Investments  (Continued)
    Three months ended
    
    
    Six months endedJune 30, 2009
    
    
    June 30, 2009Balance at the beginning of period
    
    $
    43,045
    
    
    $
    Increases attributable to credit losses on securities for which
an other than temporary impairment was not previously recognized
    
    
    14,870
    
    
    
    57,915Increases attributable to credit losses on securities for which
an other than temporary impairment was previously recognized
    
    
    1,505
    
    
    
    1,505Balance at the end of the period
    
    $
    59,420
    
    
    $
    59,420
   - 13 -




---



##### 



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 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(dollars in thousands)Gross investment income:Fixed maturity securities, available for sale
    
    $
    77,222
    
    
    $
    62,743
    
    
    $
    147,706
    
    
    $
    107,087Mortgage loans
    
    
    207
    
    
    
    3,229
    
    
    
    1,406
    
    
    
    7,202Short-term investments
    
    
    74
    
    
    
    1,981
    
    
    
    322
    
    
    
    5,124Other
    
    
    22,875
    
    
    
    62
    
    
    
    22,076
    
    
    
    (10,835
    )100,378
    
    
    
    68,015
    
    
    
    171,510
    
    
    
    108,578Less: Investment expenses
    
    
    (8,355
    )
    
    
    (7,265
    )
    
    
    (16,632
    )
    
    
    (15,491
    )$
    92,023
    
    
    $
    60,750
    
    
    $
    154,878
    
    
    $
    93,087
 Note C  Fair Value Measurements
       - 14 -




---



##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Note C  Fair Value Measurements  (Continued)
         - 15 -




---



##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Note C  Fair Value Measurements  (Continued)
     June 30, 2009Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3(dollars in thousands)Assets:Fixed maturity securities, available for sale:Residential mortgage-backed securities
    
    $
    1,274,386
    
    
    $
    
    
    
    $
    1,094,030
    
    
    $
    180,356Commercial mortgage-backed securities
    
    
    18,736
    
    
    
    
    
    
    
    
    
    
    
    18,736Corporate securities
    
    
    1,112,207
    
    
    
    
    
    
    
    980,462
    
    
    
    131,745Collateralized debt obligations
    
    
    103,499
    
    
    
    
    
    
    
    
    
    
    
    103,499U.S. Treasury and other U.S. Government
guaranteed securities
    
    
    104,770
    
    
    
    73,441
    
    
    
    29,144
    
    
    
    2,185U.S. Government-sponsored enterprise
securities
    
    
    7,284
    
    
    
    
    
    
    
    7,284
    
    
    
    Obligations of U.S. states, municipalities
and political subdivisions
    
    
    1,416,206
    
    
    
    
    
    
    
    1,416,206
    
    
    
    Other investments
    
    
    130,874
    
    
    
    113,564
    
    
    
    
    
    
    
    17,310Assets held in separate account
    
    
    100,189
    
    
    
    
    
    
    
    
    
    
    
    100,189Total
    
    $
    4,268,151
    
    
    $
    187,005
    
    
    $
    3,527,126
    
    
    $
    554,020Liabilities:Other liabilities
    
    $
    57,437
    
    
    $
    57,437
    
    
    $
    
    
    
    $
    
 - 16 -




---



##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Note C  Fair Value Measurements  (Continued)
  Three Months Ended June 30, 2009U.S.Treasury andResidential
    
    
    Commercial
    
    
    
    
    
    
    
    
    
    
    Other U.S.
    
    
    
    
    
    
    AssetsMortgage-
    
    
    Mortgage-
    
    
    
    
    
    
    Collateralized
    
    
    Govt
    
    
    
    
    
    
    held inbacked
    
    
    backed
    
    
    Corporate
    
    
    Debt
    
    
    Guaranteed
    
    
    Other
    
    
    SeparateTotal
    
    
    Securities
    
    
    Securities
    
    
    Securities
    
    
    Obligations
    
    
    Securities
    
    
    Investments
    
    
    Account(dollars in thousands)Balance at beginning of quarter
    
    $
    529,841
    
    
    $
    145,409
    
    
    $
    17,714
    
    
    $
    159,488
    
    
    $
    97,340
    
    
    $
    2,291
    
    
    $
    17,236
    
    
    $
    90,363Total (losses) gainsIncluded in earnings
    
    
    (15,895
    )
    
    
    (15,624
    )
    
    
    91
    
    
    
    1,540
    
    
    
    (1,905
    )
    
    
    
    
    
    
    3
    
    
    
    Included in other comprehensive income
    
    
    33,717
    
    
    
    17,497
    
    
    
    1,053
    
    
    
    6,864
    
    
    
    8,234
    
    
    
    (31
    )
    
    
    100
    
    
    
    Purchases, issuances and settlements
    
    
    11,733
    
    
    
    10,669
    
    
    
    (122
    )
    
    
    (8,366
    )
    
    
    (170
    )
    
    
    (75
    )
    
    
    (29
    )
    
    
    9,826Net transfer (out of) in to Level 3
    
    
    (5,376
    )
    
    
    22,405
    
    
    
    
    
    
    
    (27,781
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at end of the period
    
    $
    554,020
    
    
    $
    180,356
    
    
    $
    18,736
    
    
    $
    131,745
    
    
    $
    103,499
    
    
    $
    2,185
    
    
    $
    17,310
    
    
    $
    100,189Net losses for the period included in earnings
attributable to the net change in unrealized
gains and losses of assets measured at fair
value using unobservable inputs and held
at June 30, 2009 (1)
    
    $
    (15,830
    )
    
    $
    (12,641
    )
    
    $
    
    
    
    $
    
    
    
    $
    (3,176
    )
    
    $
    
    
    
    $
    (13
    )
    
    $
    
 
 (1)
    
    In the second quarter of 2009, net losses of $13,000 and $15.8 million were reported in
the consolidated statements of income under the captions net investment income and net
realized investment losses, respectively. Six Months Ended June 30, 2009U.S.Treasury andResidential
    
    
    Commercial
    
    
    
    
    
    
    
    
    
    
    Other U.S.
    
    
    
    
    
    
    AssetsMortgage-
    
    
    Mortgage-
    
    
    
    
    
    
    Collateralized
    
    
    Govt
    
    
    
    
    
    
    held inbacked
    
    
    backed
    
    
    Corporate
    
    
    Debt
    
    
    Guaranteed
    
    
    Other
    
    
    SeparateTotal
    
    
    Securities
    
    
    Securities
    
    
    Securities
    
    
    Obligations
    
    
    Securities
    
    
    Investments
    
    
    Account(dollars in thousands)Balance at beginning of period
    
    $
    735,379
    
    
    $
    163,004
    
    
    $
    25,299
    
    
    $
    323,043
    
    
    $
    109,358
    
    
    $
    2,608
    
    
    $
    21,494
    
    
    $
    90,573Total (losses) gainsIncluded in earnings
    
    
    (31,785
    )
    
    
    (22,318
    )
    
    
    489
    
    
    
    (10,511
    )
    
    
    (898
    )
    
    
    
    
    
    
    1,453
    
    
    
    Included in other comprehensive income
    
    
    5,660
    
    
    
    14,027
    
    
    
    (2,254
    )
    
    
    505
    
    
    
    (5,088
    )
    
    
    (12
    )
    
    
    (1,518
    )
    
    
    Purchases, issuances and settlements
    
    
    (143,959
    )
    
    
    9,137
    
    
    
    (4,798
    )
    
    
    (153,511
    )
    
    
    127
    
    
    
    (411
    )
    
    
    (4,119
    )
    
    
    9,616Net transfer (out of) in to Level 3
    
    
    (11,275
    )
    
    
    16,506
    
    
    
    
    
    
    
    (27,781
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at end of the period
    
    $
    554,020
    
    
    $
    180,356
    
    
    $
    18,736
    
    
    $
    131,745
    
    
    $
    103,499
    
    
    $
    2,185
    
    
    $
    17,310
    
    
    $
    100,189Net losses for the period included in earnings
attributable to the net change in unrealized
gains and losses of assets measured at fair
value using unobservable inputs and held
at June 30, 2009 (1)
    
    $
    (29,587
    )
    
    $
    (23,231
    )
    
    $
    
    
    
    $
    (1,597
    )
    
    $
    (3,176
    )
    
    $
    
    
    
    $
    (1,583
    )
    
    $
    
 
 (1)
    
    In the first half of 2009, net losses of $0.6 million and $29.0 million were reported
in the consolidated statements of income under the captions net investment income and
net realized investment losses, respectively. - 17 -




---



##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Note C  Fair Value Measurements  (Continued)
  June 30, 2009
    
    December 31, 2008Carrying
    
    Fair
    
    Carrying
    
    FairValue
    
    Value
    
    Value
    
    Value(dollars in thousands)Assets:Short-term investments
    
    
    626,774
    
    
    
    626,774
    
    
    
    401,620
    
    
    
    401,620Other investments
    
    
    412,091
    
    
    
    412,091
    
    
    
    336,411
    
    
    
    336,411Liabilities:Policyholder account balances
    
    
    1,327,584
    
    
    
    1,365,313
    
    
    
    1,214,024
    
    
    
    1,160,047Corporate debt
    
    
    365,750
    
    
    
    327,340
    
    
    
    350,750
    
    
    
    289,168Junior subordinated debentures
    
    
    175,000
    
    
    
    106,750
    
    
    
    175,000
    
    
    
    85,400Advances from Federal Home Loan Bank
    
    
    55,342
    
    
    
    67,606
    
    
    
    55,342
    
    
    
    75,861Liabilities related to separate account
    
    
    100,189
    
    
    
    100,189
    
    
    
    90,573
    
    
    
    90,573
    - 18 -




---



##### 



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 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(dollars in thousands)Revenues:Group employee benefit products
    
    $
    396,536
    
    
    $
    366,949
    
    
    $
    778,057
    
    
    $
    715,030Asset accumulation products
    
    
    35,464
    
    
    
    23,384
    
    
    
    62,965
    
    
    
    39,900Other(1)
    
    
    12,468
    
    
    
    11,191
    
    
    
    24,022
    
    
    
    21,221444,468
    
    
    
    401,524
    
    
    
    865,044
    
    
    
    776,151Net realized investment losses
    
    
    (27,471
    )
    
    
    (19,499
    )
    
    
    (49,470
    )
    
    
    (25,935
    )$
    416,997
    
    
    $
    382,025
    
    
    $
    815,574
    
    
    $
    750,216Operating income:Group employee benefit products
    
    $
    78,771
    
    
    $
    63,342
    
    
    $
    137,606
    
    
    $
    107,792Asset accumulation products
    
    
    13,667
    
    
    
    6,699
    
    
    
    21,705
    
    
    
    10,750Other(1)
    
    
    (9,039
    )
    
    
    (6,955
    )
    
    
    (17,068
    )
    
    
    (13,634
    )83,399
    
    
    
    63,086
    
    
    
    142,243
    
    
    
    104,908Net realized investment losses
    
    
    (27,471
    )
    
    
    (19,499
    )
    
    
    (49,470
    )
    
    
    (25,935
    )$
    55,928
    
    
    $
    43,587
    
    
    $
    92,773
    
    
    $
    78,973
 
 (1)
    
    Primarily consists of operations from integrated disability and absence management
services and certain corporate activities. Note E  Comprehensive Income (Loss)
  Note F  Stock-Based Compensation
    - 19 -




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##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Note F  Stock-Based Compensation  (Continued)
  WeightedWeighted
    
    Average
    
    AggregateNumber
    
    Average
    
    Remaining
    
    Intrinsicof
    
    Exercise
    
    Contractual
    
    ValueOptions
    
    Options
    
    Price
    
    Term
    
    ($000)Outstanding at January 1, 2009
    
    
    4,092,954
    
    
    $
    28.71Granted
    
    
    315,170
    
    
    
    15.27Exercised
    
    
    (163,207
    )
    
    
    13.52Forfeited
    
    
    (15,620
    )
    
    
    31.19Outstanding at June 30, 2009
    
    
    4,229,297
    
    
    
    28.29
    
    
    
    6.9
    
    
    $
    4,494Exercisable at June 30, 2009
    
    
    1,826,869
    
    
    $
    25.75
    
    
    
    4.7
    
    
    $
    3,179
    Note G Computation of Results per Share
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(amounts in thousands, except per share data)Numerator:Net income
    
    $
    37,007
    
    
    $
    26,875
    
    
    $
    61,491
    
    
    $
    48,019Denominator:Weighted average common shares outstanding
    
    
    50,148
    
    
    
    48,146
    
    
    
    49,091
    
    
    
    48,600Effect of dilutive securities
    
    
    195
    
    
    
    854
    
    
    
    142
    
    
    
    976Weighted average common shares outstanding, assuming dilution
    
    
    50,343
    
    
    
    49,000
    
    
    
    49,233
    
    
    
    49,576Basic results per share of common stock:Net income
    
    $
    0.74
    
    
    $
    0.56
    
    
    $
    1.25
    
    
    $
    0.99Diluted results per share of common stock:Net income
    
    $
    0.74
    
    
    $
    0.55
    
    
    $
    1.25
    
    
    $
    0.97
  - 20 -




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##### 



DELPHI FINANCIAL GROUP, INC.
 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Introduction
    -21-




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##### 



Results of Operations
 Six Months Ended June 30, 2009 Compared to  Six Months Ended June 30, 2008
 Summary of Results.
 -22-




---



##### 



Premium and Fee Income.
    Net Investment Income.
 Net Realized Investment Losses.
 -23-




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##### 



Benefits and Expenses.
 Interest Expense
 Income Tax Expense.
 Three Months Ended June 30, 2009 Compared to  Three Months Ended June 30, 2008
 Summary of Results.
 Premium and Fee Income.
 -24-




---



##### 



Net Investment Income.
 Net Realized Investment Losses.
  Benefits and Expenses.
 -25-




---



##### 



Interest Expense
 Income Tax Expense.
 Liquidity and Capital Resources
 General.
    -26-




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##### 



Investments.
   Reinsurance.
 -27-




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##### 



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
  -28-




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##### 



PART II. OTHER INFORMATION
 
 Item 1A. Risk Factors
  The Company may be adversely impacted by a decline in the ratings of its insurance
subsidiaries or its own credit ratings.
  -29-




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##### 



Item 4. Submission of Matters to a Vote of Security Holders
   1)
    
    Election of Directors
 VOTESWithholdFor
    
    AuthorityClass A Director:Philip R. OConnor
    
    
    30,852,063
    
    
    
    6,904,146Directors:Robert Rosenkranz
    
    
    73,987,032
    
    
    
    4,875,142Donald A. Sherman
    
    
    73,863,280
    
    
    
    4,998,894Kevin R. Brine
    
    
    74,811,353
    
    
    
    4,050,821Edward A. Fox
    
    
    74,958,423
    
    
    
    3,903,751Steven A. Hirsh
    
    
    74,814,249
    
    
    
    4,047,925Harold F. Ilg
    
    
    73,866,027
    
    
    
    4,996,147James M. Litvack
    
    
    74,807,034
    
    
    
    4,055,140James N. Meehan
    
    
    68,330,748
    
    
    
    10,531,426Robert M. Smith, Jr.
    
    
    73,865,224
    
    
    
    4,996,950Robert F. Wright
    
    
    71,665,508
    
    
    
    7,206,666
 2)
    
    All Other Matters  The proposal to re-approve Annual Incentive
Compensation Plan received 67,444,975 votes for approval and 8,845,259 votes against
approval, with 9,127 votes abstaining and 2,562,813 broker non-votes . The proposal to
amend the 2003 Employee Long-Term Incentive and Share Award Plan to increase the number
of authorized shares of Class A Common Stock available thereunder from 7,250,000 shares
to 9,750,000 shares received 48,006,752 votes for approval and 28,287,997 votes against
approval, with 4,611 votes abstaining and 2,562,814 broker non-votes. The proposal to
approve an option exchange program and related amendments to the 2003 Employee
Long-Term Incentive and Share Award Plan, Second Amended and Restated Employee Stock
Option Plan and Second Amended and Restated Long-Term Performance-Based Incentive Plan
received 45,561,485 votes for approval and 30,730,639 votes against approval, with
7,237 votes abstaining and 2,562,813 broker non-votes.
 
 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
 -30-




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##### 



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)  -31-