##### 



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 March 31, 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
    
    (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
  þ o 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
Months Ended March 31, 2007 and 2006
    
    3Consolidated Balance Sheets at March 31, 2007 and
December 31, 2006
    
    4Consolidated Statements of Shareholders Equity for the
Three Months Ended March 31, 2007 and 2006
    
    5Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2007 and 2006
    
    6Notes to Consolidated Financial Statements
    
    7Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    12Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    16Item 4. Controls and Procedures
    
    16PART II. OTHER INFORMATIONItem 1A. Risk Factors
    
    16Item 6. Exhibits
    
    17Signatures
    
    17
 -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 EndedMarch 31,2007
    
    
    2006Revenue:Premium and fee income
    
    $
    322,247
    
    
    $
    262,959Net investment income
    
    
    71,303
    
    
    
    59,029Net realized investment losses
    
    
    (382
    )
    
    
    (1,251
    )Loss on redemption of junior subordinated deferrable interest debentures
    
    
    (2,192
    )
    
    
    390,976
    
    
    
    320,737Benefits and expenses:Benefits, claims and interest credited to policyholders
    
    
    238,212
    
    
    
    191,618Commissions
    
    
    19,711
    
    
    
    16,421Amortization of cost of business acquired
    
    
    20,892
    
    
    
    18,043Other operating expenses
    
    
    49,948
    
    
    
    41,297328,763
    
    
    
    267,379Income from continuing operations before interest and income
tax expense
    
    
    62,213
    
    
    
    53,358Interest expense:Corporate debt
    
    
    5,054
    
    
    
    4,686Junior subordinated deferrable interest debentures
    
    
    1,284
    
    
    
    1,2716,338
    
    
    
    5,957Income from continuing operations before income tax expense
    
    
    55,875
    
    
    
    47,401Income tax expense
    
    
    16,681
    
    
    
    14,569Income from continuing operations
    
    
    39,194
    
    
    
    32,832Loss from discontinued operations, net of income tax benefit
    
    
    
    
    
    
    (10
    )Net income
    
    $
    39,194
    
    
    $
    32,822Basic results per share of common stock:Income from continuing operations
    
    $
    0.78
    
    
    $
    0.66Net income
    
    $
    0.78
    
    
    $
    0.66Diluted results per share of common stock:Income from continuing operations
    
    $
    0.76
    
    
    $
    0.65Net income
    
    $
    0.76
    
    
    $
    0.65Dividends paid per share of common stock
    
    $
    0.08
    
    
    $
    0.07
  -3-




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##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Per Share Data)
 March 31,
    
    
    December 31,2007
    
    
    2006Assets:Investments:Fixed maturity securities, available for sale
    
    $
    3,539,676
    
    
    $
    3,377,578Short-term investments
    
    
    241,018
    
    
    
    400,239Other investments
    
    
    873,877
    
    
    
    705,5634,654,571
    
    
    
    4,483,380Cash
    
    
    48,758
    
    
    
    48,204Cost of business acquired
    
    
    153,155
    
    
    
    267,920Reinsurance receivables
    
    
    411,301
    
    
    
    410,593Goodwill
    
    
    93,929
    
    
    
    93,929Securities lending collateral
    
    
    101,091
    
    
    
    Other assets
    
    
    274,139
    
    
    
    251,975Assets held in separate account
    
    
    117,534
    
    
    
    114,474Total assets
    
    $
    5,854,478
    
    
    $
    5,670,475Liabilities and Shareholders Equity:Future policy benefits:Life
    
    $
    284,560
    
    
    $
    279,919Disability and accident
    
    
    631,920
    
    
    
    610,618Unpaid claims and claim expenses:Life
    
    
    65,609
    
    
    
    58,752Disability and accident
    
    
    315,210
    
    
    
    300,693Casualty
    
    
    893,862
    
    
    
    857,662Policyholder account balances
    
    
    1,106,871
    
    
    
    1,119,218Corporate debt
    
    
    297,750
    
    
    
    263,750Junior subordinated deferrable interest debentures underlying
company-obligated mandatorily redeemable capital
securities issued by unconsolidated subsidiaries
    
    
    20,619
    
    
    
    59,762Securities lending payable
    
    
    101,091
    
    
    
    Other liabilities and policyholder funds
    
    
    877,546
    
    
    
    830,819Liabilities related to separate account
    
    
    117,534
    
    
    
    114,474Total liabilities
    
    
    4,712,572
    
    
    
    4,495,667Shareholders equity:Preferred Stock, $.01 par; 50,000,000 shares authorized
    
    
    
    
    
    
    Class A Common Stock, $.01 par; 150,000,000 shares authorized;
48,282,568 and 48,010,697 shares issued and outstanding, respectively
    
    
    483
    
    
    
    480Class B Common Stock, $.01 par; 20,000,000 shares authorized;
5,671,744 and 5,671,744 shares issued and outstanding, respectively
    
    
    57
    
    
    
    57Additional paid-in capital
    
    
    488,314
    
    
    
    474,722Accumulated other comprehensive income
    
    
    19,928
    
    
    
    19,133Retained earnings
    
    
    716,094
    
    
    
    763,386Treasury stock, at cost; 4,565,716 and 4,565,716 shares of
Class A Common Stock, respectively
    
    
    (82,970
    )
    
    
    (82,970
    )Total shareholders equity
    
    
    1,141,906
    
    
    
    1,174,808Total liabilities and shareholders equity
    
    $
    5,854,478
    
    
    $
    5,670,475
  -4-




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##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(Dollars in Thousands)
(Unaudited)
 AccumulatedOtherClass A
    
    
    Class B
    
    
    Additional
    
    
    ComprehensiveCommon
    
    
    Common
    
    
    Paid-in
    
    
    Income
    
    
    Retained
    
    
    TreasuryStock
    
    
    Stock
    
    
    Capital
    
    
    (Loss)
    
    
    Earnings
    
    
    Stock
    
    
    TotalBalance, January 1, 2006
    
    $
    313
    
    
    $
    39
    
    
    $
    442,531
    
    
    $
    20,264
    
    
    $
    636,285
    
    
    $
    (66,393
    )
    
    $
    1,033,039Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,822
    
    
    
    
    
    
    
    32,822Other comprehensive income:Decrease in net unrealized
appreciation on investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23,033
    )
    
    
    
    
    
    
    
    
    
    
    (23,033
    )Decrease in net loss
on cash flow hedge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    196
    
    
    
    
    
    
    
    
    
    
    
    196Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,985Issuance of stock and exercise of
stock options
    
    
    3
    
    
    
    (1
    )
    
    
    9,890
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,892Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    1,561
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,561Acquisition of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,577
    )
    
    
    (16,577
    )Cash dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,250
    )
    
    
    
    
    
    
    (3,250
    )Balance, March 31, 2006
    
    $
    316
    
    
    $
    38
    
    
    $
    453,982
    
    
    $
    (2,573
    )
    
    $
    665,857
    
    
    $
    (82,970
    )
    
    $
    1,034,650Balance, 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39,194
    
    
    
    
    
    
    
    39,194Other comprehensive income:Increase in net unrealized
appreciation on investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    331
    
    
    
    
    
    
    
    
    
    
    
    331Decrease in net loss
on cash flow hedge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    196
    
    
    
    
    
    
    
    
    
    
    
    196Change in net periodic
pension cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    268
    
    
    
    
    
    
    
    
    
    
    
    268Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39,989Issuance of stock and exercise of
stock options
    
    
    3
    
    
    
    
    
    
    
    12,126
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,129Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    1,466
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,466Cash dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,933
    )
    
    
    
    
    
    
    (3,933
    )Balance, March 31, 2007
    
    $
    483
    
    
    $
    57
    
    
    $
    488,314
    
    
    $
    19,928
    
    
    $
    716,094
    
    
    $
    (82,970
    )
    
    $
    1,141,906
  -5-




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##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
 Three Months EndedMarch 31,2007
    
    
    2006Operating activities:Net income
    
    $
    39,194
    
    
    $
    32,822Adjustments to reconcile net income to net cash provided
by operating activities:Change in policy liabilities and policyholder accounts
    
    
    109,180
    
    
    
    71,266Net change in reinsurance receivables and payables
    
    
    (2,584
    )
    
    
    7,964Amortization, principally the cost of business acquired and investments
    
    
    21,692
    
    
    
    16,565Deferred costs of business acquired
    
    
    (30,387
    )
    
    
    (29,086
    )Net realized losses on investments
    
    
    381
    
    
    
    1,251Net change in federal income tax liability
    
    
    8,586
    
    
    
    9,807Other
    
    
    (56,787
    )
    
    
    (26,617
    )Net cash provided by operating activities
    
    
    89,275
    
    
    
    83,972Investing activities:Purchases of investments and loans made
    
    
    (408,925
    )
    
    
    (425,779
    )Sales of investments and receipts from repayment of loans
    
    
    139,880
    
    
    
    372,965Maturities of investments
    
    
    33,727
    
    
    
    45,673Net change in short-term investments
    
    
    159,221
    
    
    
    (181,132
    )Change in deposit in separate account
    
    
    (636
    )
    
    
    (1,546
    )Net cash used by investing activities
    
    
    (76,733
    )
    
    
    (189,819
    )Financing activities:Deposits to policyholder accounts
    
    
    21,866
    
    
    
    122,763Withdrawals from policyholder accounts
    
    
    (34,557
    )
    
    
    (28,010
    )Borrowings under revolving credit facility
    
    
    38,000
    
    
    
    25,000Principal payments under revolving credit facility
    
    
    (4,000
    )
    
    
    (2,000
    )Redemption of junior subordinated deferrable interest debentures
    
    
    (37,728
    )
    
    
    Other financing activities
    
    
    4,431
    
    
    
    (11,786
    )Net cash (used) provided by financing activities
    
    
    (11,988
    )
    
    
    105,967Increase in cash
    
    
    554
    
    
    
    120Cash at beginning of period
    
    
    48,204
    
    
    
    28,493Cash at end of period
    
    $
    48,758
    
    
    $
    28,613
  -6-




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DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 Note A  Significant Accounting Policies
  Accounting Changes
 Cost of Business Acquired.
 Fair Value Measurements.
 Income Taxes.
 -7-




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##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Note A  Significant Accounting Policies  (Continued)
 Recently Issued Accounting Standards
   Note B Investments
  Note C  Redemption of Junior Subordinated Deferrable Interest Debentures underlying the Company-Obligated Mandatorily Redeemable Capital Securities of Delphi Funding L.L.C.
   -8-




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##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Note D  Segment Information
 Three Months EndedMarch 31,2007
    
    
    2006(dollars in thousands)Revenues:Group employee benefit products
    
    $
    356,077
    
    
    $
    290,268Asset accumulation products
    
    
    27,693
    
    
    
    23,107Other(1)
    
    
    9,780
    
    
    
    8,613393,550
    
    
    
    321,988Net realized investment losses
    
    
    (382
    )
    
    
    (1,251
    )Loss on redemption of junior subordinated deferrable interest debentures
    
    
    (2,192
    )
    
    
    $
    390,976
    
    
    $
    320,737Operating income:Group employee benefit products
    
    $
    63,759
    
    
    $
    51,056Asset accumulation products
    
    
    8,311
    
    
    
    6,968Other(1)
    
    
    (7,283
    )
    
    
    (3,415
    )64,787
    
    
    
    54,609Net realized investment losses
    
    
    (382
    )
    
    
    (1,251
    )Loss on redemption of junior subordinated deferrable interest debentures
    
    
    (2,192
    )
    
    
    $
    62,213
    
    
    $
    53,358
 
 (1)
    
    Primarily consists of operations from integrated disability and absence management
services and certain corporate activities. Note E Comprehensive Income
  -9-




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##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Note F  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
    
    
    356,052
    
    
    
    40.83Exercised
    
    
    (184,757
    )
    
    
    14.06Forfeited
    
    
    (2,850
    )
    
    
    30.75Outstanding at March 31, 2007
    
    
    3,721,113
    
    
    
    23.17
    
    
    
    4.8
    
    
    $
    63,473Exercisable at March 31, 2007
    
    
    2,575,898
    
    
    $
    18.33
    
    
    
    2.9
    
    
    $
    56,420
   -10-




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##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Note G Computation of Results per Share
  Three Months EndedMarch 31,2007
    
    
    2006Numerator:Income from continuing operations
    
    $
    39,194
    
    
    $
    32,832Loss from discontinued operations, net of income tax benefit
    
    
    
    
    
    
    (10
    )Net income
    
    $
    39,194
    
    
    $
    32,822Denominator:Weighted average common shares outstanding
    
    
    50,177
    
    
    
    49,479Effect of dilutive securities
    
    
    1,290
    
    
    
    1,346Weighted average common shares outstanding, assuming dilution
    
    
    51,467
    
    
    
    50,825Basic results per share of common stock:Income from continuing operations
    
    $
    0.78
    
    
    $
    0.66Loss from discontinued operations, net of income tax benefit
    
    
    
    
    
    
    Net income
    
    $
    0.78
    
    
    $
    0.66Diluted results per share of common stock:Income from continuing operations
    
    $
    0.76
    
    
    $
    0.65Loss from discontinued operations, net of income tax benefit
    
    
    
    
    
    
    Net income
    
    $
    0.76
    
    
    $
    0.65
 -11-




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##### 



DELPHI FINANCIAL GROUP, INC.
 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Introduction
    -12-




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##### 



Results of Operations
 Summary of Results.
 Premium and Fee Income. .
   -13-




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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.
 Liquidity and Capital Resources
 General.
 -14-




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##### 



Investments.
 Reinsurance.
 Cash Flows
 -15-




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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
  
 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.
   -16-




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##### 



Exhibits
 10.1
    
    Second Amended and Restated Directors Stock Plan10.2
    
    Reliance Standard Life Insurance Company Amended and Restated Management
Incentive Compensation Plan10.3
    
    2007 Exhibits to the Reliance Standard Life Insurance Company Amended and
Restated Management Incentive Compensation Plan11.1
    
    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 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)  -17-