<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

(Mark One)

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

For the Quarterly Period Ended September 30, 2006

[ ]  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.
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                            <C>                       <C>
          Delaware                  (302) 478-5142             13-3427277
(State or other jurisdiction   (Registrant's telephone      (I.R.S. Employer
     of incorporation or          number, including      Identification Number)
        organization)                 area code)
</TABLE>

<TABLE>
<S>                                                                   <C>
  1105 North Market Street, Suite 1230,
   P.O. Box 8985, Wilmington, Delaware                                   19899
(Address of principal executive offices)                              (Zip Code)
</TABLE>

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to filing requirements
for the past 90 days:

                                 Yes  X  No
                                     ---    ---

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (check
one):

   Large accelerated filer  X  Accelerated filer     Non-accelerated filer
                           ---                   ---                       ---

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).

                                 Yes     No  X
                                     ---    ---

As of October 31, 2006, the Registrant had 43,385,758 shares of Class A Common
Stock and 5,671,744 shares of Class B Common Stock outstanding.

<PAGE>

                          DELPHI FINANCIAL GROUP, INC.
                                    FORM 10-Q
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                              AND OTHER INFORMATION

<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
<S>                                                                         <C>
PART I.  FINANCIAL INFORMATION (UNAUDITED)

         Item 1. Financial Statements

            Consolidated Statements of Income for the Three and
               Nine Months Ended September 30, 2006 and 2005.............     3

            Consolidated Balance Sheets at September 30, 2006 and
               December 31, 2005.........................................     4

            Consolidated Statements of Shareholders' Equity for the
               Nine Months Ended September 30, 2006 and 2005.............     5

            Consolidated Statements of Cash Flows for the
               Nine Months Ended September 30, 2006 and 2005.............     6

            Notes to Consolidated Financial Statements...................     7

         Item 2. Management's Discussion and Analysis of Financial
                 Condition and Results of Operations.....................    12

         Item 3. Quantitative and Qualitative Disclosures About Market
                 Risk....................................................    17

         Item 4. Controls and Procedures ................................    18

PART II. OTHER INFORMATION

         Item 1A. Risk Factors...........................................    18

         Item 6. Exhibits................................................    22

         Signatures......................................................    22
</TABLE>


                                       -2-
<PAGE>

                          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)

<TABLE>
<CAPTION>
                                                                 Three Months Ended     Nine Months Ended
                                                                   September 30,          September 30,
                                                                -------------------   ---------------------
                                                                  2006       2005        2006        2005
                                                                --------   --------   ----------   --------
<S>                                                             <C>        <C>        <C>          <C>
Revenue:
   Premium and fee income ...................................   $295,190   $250,649   $  838,419   $732,603
   Net investment income ....................................     66,159     53,843      185,974    162,293
   Net realized investment (losses) gains ...................       (335)     3,397       (1,880)     8,534
                                                                --------   --------   ----------   --------
                                                                 361,014    307,889    1,022,513    903,430
                                                                --------   --------   ----------   --------
Benefits and expenses:
   Benefits, claims and interest credited to policyholders ..    217,322    180,644      612,961    541,157
   Commissions ..............................................     18,844     16,843       53,106     46,987
   Amortization of cost of business acquired ................     20,478     17,972       57,715     49,940
   Other operating expenses .................................     45,992     39,975      129,133    115,126
                                                                --------   --------   ----------   --------
                                                                 302,636    255,434      852,915    753,210
                                                                --------   --------   ----------   --------
      Income from continuing operations before interest
         and income tax expense .............................     58,378     52,455      169,598    150,220
Interest expense:
   Corporate debt ...........................................      5,250      3,781       15,029     11,712
   Junior subordinated deferrable interest debentures .......      1,319      1,229        3,887      3,599
                                                                --------   --------   ----------   --------
                                                                   6,569      5,010       18,916     15,311
                                                                --------   --------   ----------   --------
      Income from continuing operations before income
         tax expense ........................................     51,809     47,445      150,682    134,909
Income tax expense ..........................................     15,641     14,607       45,858     41,834
                                                                --------   --------   ----------   --------
      Income from continuing operations .....................     36,168     32,838      104,824     93,075
Income (loss) from discontinued operations, net of income
   tax expense (benefit) ....................................          1    (10,806)      (2,932)    (8,959)
                                                                --------   --------   ----------   --------
      Net income ............................................   $ 36,169   $ 22,032   $  101,892   $ 84,116
                                                                ========   ========   ==========   ========
Basic results per share of common stock:
   Income from continuing operations ........................   $   0.73   $   0.67   $     2.12   $   1.91
   Net income ...............................................   $   0.73   $   0.45   $     2.06   $   1.72
Diluted results per share of common stock:
   Income from continuing operations ........................   $   0.71   $   0.65   $     2.06   $   1.86
   Net income ...............................................   $   0.71   $   0.44   $     2.00   $   1.68
Dividends paid per share of common stock ....................   $   0.08   $   0.06   $     0.23   $   0.18
</TABLE>

                 See notes to consolidated financial statements.


                                       -3-

<PAGE>

                  DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                  (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                    September 30,   December 31,
                                                                                        2006            2005
                                                                                    -------------   ------------
<S>                                                                                 <C>             <C>
Assets:
   Investments:
      Fixed maturity securities, available for sale .............................    $3,329,065      $3,244,764
      Short-term investments ....................................................       297,276          94,308
      Other investments .........................................................       695,147         573,532
                                                                                     ----------      ----------
                                                                                      4,321,488       3,912,604
   Cash .........................................................................        45,496          28,493
   Cost of business acquired ....................................................       269,179         248,138
   Reinsurance receivables ......................................................       404,970         413,113
   Goodwill .....................................................................        93,929          93,929
   Securities lending collateral ................................................       250,379         244,821
   Other assets .................................................................       263,778         235,644
   Assets held in separate account ..............................................       107,334          99,428
                                                                                     ----------      ----------
      Total assets ..............................................................    $5,756,553      $5,276,170
                                                                                     ==========      ==========
Liabilities and Shareholders' Equity:
   Future policy benefits:
      Life ......................................................................    $  278,770      $  273,486
      Disability and accident ...................................................       593,027         539,929
   Unpaid claims and claim expenses:
      Life ......................................................................        60,265          55,885
      Disability and accident ...................................................       281,504         247,093
      Casualty ..................................................................       808,247         746,479
   Policyholder account balances ................................................     1,126,273       1,039,610
   Corporate debt ...............................................................       263,750         234,750
   Junior subordinated deferrable interest debentures underlying
      company-obligated mandatorily redeemable capital securities issued by
      unconsolidated subsidiaries ...............................................        59,762          59,762
   Securities lending payable ...................................................       250,379         244,821
   Other liabilities and policyholder funds .....................................       794,739         701,888
   Liabilities related to separate account ......................................       107,334          99,428
                                                                                     ----------      ----------
      Total liabilities .........................................................     4,624,050       4,243,131
                                                                                     ==========      ==========
   Shareholders' equity:
      Preferred Stock, $.01 par; 50,000,000 shares authorized ...................            --              --
      Class A Common Stock, $.01 par; 150,000,000 shares authorized;
         47,948,113 and 31,274,166 shares issued and outstanding, respectively ..           479             313
      Class B Common Stock, $.01 par; 20,000,000 shares authorized;
         5,671,744 and 3,904,481 shares issued and outstanding, respectively ....            57              39
      Additional paid-in capital ................................................       470,797         442,531
      Accumulated other comprehensive income ....................................        17,001          20,264
      Retained earnings .........................................................       727,139         636,285
      Treasury stock, at cost; 4,565,716 and 2,723,211 shares of Class A Common
         Stock, respectively ....................................................       (82,970)        (66,393)
                                                                                     ----------      ----------
         Total shareholders' equity .............................................     1,132,503       1,033,039
                                                                                     ----------      ----------
            Total liabilities and shareholders' equity ..........................    $5,756,553      $5,276,170
                                                                                     ==========      ==========

</TABLE>

                 See notes to consolidated financial statements.


                                       -4-
<PAGE>

                  DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                             (DOLLARS IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                         Accumulated
                                       Class A   Class B   Additional       Other
                                        Common    Common     Paid-in    Comprehensive   Retained   Treasury
                                        Stock     Stock      Capital       Income       Earnings     Stock       Total
                                       -------   -------   ----------   -------------   --------   --------   ----------
<S>                                    <C>       <C>       <C>          <C>             <C>        <C>        <C>
Balance, January 1, 2005 ...........     $304      $39      $406,908       $ 57,371     $534,540   $(59,314)  $  939,848
                                                                                                              ----------
Net income .........................       --       --            --             --       84,116         --       84,116
Other comprehensive income:
   Decrease in net unrealized
      appreciation on investments ..       --       --            --        (28,762)          --         --      (28,762)
   Decrease in net loss on cash
      flow hedge ...................       --       --            --            589           --         --          589
                                                                                                              ----------
Comprehensive income ...............                                                                              55,943
Issuance of stock, exercise of stock
   options and share conversions ...        8       --        26,928             --           --         --       26,936
Stock-based compensation ...........       --       --         2,301             --           --         --        2,301
Cash dividends .....................       --       --            --             --       (8,658)        --       (8,658)
                                         ----      ---      --------       --------     --------   --------   ----------
Balance, September 30, 2005 ........     $312      $39      $436,137       $ 29,198     $609,998   $(59,314)  $1,016,370
                                         ====      ===      ========       ========     ========   ========   ==========
Balance, January 1, 2006 ...........     $313      $39      $442,531       $ 20,264     $636,285   $(66,393)  $1,033,039
                                                                                                              ----------
Net income .........................       --       --            --             --      101,892         --      101,892
Other comprehensive income:
   Decrease in net unrealized
      appreciation on investments ..       --       --            --         (3,852)          --         --       (3,852)
   Decrease in net loss on cash
      flow hedge ...................       --       --            --            589           --         --          589
                                                                                                              ----------
Comprehensive income ...............                                                                              98,629
Issuance of stock, exercise of stock
   options and share conversions ...        7       (1)       21,912             --           --         --       21,918
Stock-based compensation ...........       --       --         6,533             --           --         --        6,533
Acquisition 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)  $1,132,503
                                         ====      ===      ========       ========     ========   ========   ==========
</TABLE>

                 See notes to consolidated financial statements.


                                      -5-

<PAGE>

                  DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                   Nine Months Ended
                                                                                     September 30,
                                                                                -----------------------
                                                                                  2006          2005
                                                                                ---------   -----------
<S>                                                                             <C>         <C>
Operating activities:
   Net income ...............................................................   $ 101,892   $    84,116
   Adjustments to reconcile net income to net cash provided
      by operating activities:
      Change in policy liabilities and policyholder accounts ................     197,987       196,872
      Net change in reinsurance receivables and payables ....................       3,523        10,608
      Amortization, principally the cost of business acquired
         and investments ..... ..............................................      50,397        46,571
      Deferred costs of business acquired ...................................     (77,473)      (69,739)
      Net realized losses (gains) on investments ............................       1,880        (8,534)
      Net change in federal income tax liability ............................      12,193         8,614
      Other .................................................................     (38,463)      (59,614)
                                                                                ---------   -----------
         Net cash provided by operating activities ..........................     251,936       208,894
                                                                                ---------   -----------
Investing activities:
   Purchases of investments and loans made ..................................    (898,282)   (1,460,493)
   Sales of investments and receipts from repayment of loans ................     597,301     1,142,110
   Maturities of investments ................................................     168,327       134,023
   Net change in short-term investments .....................................    (202,886)      (44,566)
   Change in deposit in separate account ....................................      (2,234)       (3,033)
                                                                                ---------   -----------
         Net cash used by investing activities ..............................    (337,774)     (231,959)
                                                                                ---------   -----------
Financing activities:
   Deposits to policyholder accounts ........................................     178,231        80,229
   Withdrawals from policyholder accounts ...................................     (98,778)      (76,031)
   Borrowings under revolving credit facility ...............................      31,000        32,000
   Principal payments under revolving credit facility .......................      (2,000)      (11,000)
   Change in liability for Federal Home Loan Bank advances ..................          --       (15,000)
   Other financing activities ...............................................      (5,612)       14,499
                                                                                ---------   -----------
         Net cash provided by financing activities ..........................     102,841        24,697
                                                                                ---------   -----------
Increase in cash ............................................................      17,003         1,632
Cash at beginning of period .................................................      28,493        24,324
                                                                                ---------   -----------
         Cash at end of period ..............................................   $  45,496   $    25,956
                                                                                =========   ===========
</TABLE>

                 See notes to consolidated financial statements.


                                      -6-
<PAGE>

                  DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE A - SIGNIFICANT ACCOUNTING POLICIES

The financial statements of Delphi Financial Group, Inc. (the "Company," or
"Delphi" which terms include the Company and its consolidated subsidiaries
unless the context indicates otherwise) included herein were prepared in
conformity with accounting principles generally accepted in the United States
("GAAP") for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by GAAP for complete financial
statements. The information furnished includes all adjustments and accruals of a
normal recurring nature, which are in the opinion of management, necessary for a
fair presentation of results for the interim periods. Certain reclassifications
have been made in the September 30, 2005 consolidated financial statements to
conform to the September 30, 2006 presentation. On May 4, 2006, the Company's
Board of Directors declared a 3-for-2 common stock split effected in the form of
a 50% stock dividend, which was distributed on June 1, 2006 to stockholders of
record on May 18, 2006. Results per share and applicable share amounts for prior
periods have been restated to reflect the stock split. Operating results for the
three and nine months ended September 30, 2006 are not necessarily indicative of
the results that may be expected for the year ended December 31, 2006. For
further information refer to the consolidated financial statements and footnotes
thereto included in the Company's annual report on Form 10-K for the year ended
December 31, 2005 (the "2005 Form 10-K"). Capitalized terms used herein without
definition have the meanings ascribed to them in the 2005 Form 10-K.

Accounting Changes

Stock Options. As of January 1, 2006, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 123 (Revised) ("123R"), "Share-Based Payment,"
a revision of SFAS No. 123, which requires all share-based payments to
employees, including grants of employee stock options, to be recognized as
expense in the income statement based on their fair values and prohibits pro
forma disclosure as an alternative. The Company adopted SFAS No. 123R using the
modified prospective transition method, under which compensation cost is
recognized for all new awards granted after the date of adoption and for any
unvested awards previously granted for which expenses were not being recognized
under SFAS No. 123. Accordingly, since the Company adopted SFAS No. 123 in 2003
using the prospective transition method, compensation cost for unvested awards
granted prior to 2003 is required to be recognized under SFAS No. 123R.
Compensation cost recognized for such awards was not material to the results of
operations of the Company for the three and nine months ended September 30,
2006.

SFAS No. 123R also requires the Company to estimate forfeitures in calculating
the expense relating to stock-based compensation as opposed to recognizing these
forfeitures and the corresponding reduction in expense only as they occur.
During the first nine months of 2006, the Company recorded an adjustment for
expected forfeitures as a reduction in stock-based compensation expense, which
is included within other operating expenses on the Company's consolidated income
statement. The adjustment attributable to compensation expense recognized prior
to 2006 for unvested awards as of January 1, 2006 was not recorded as a
cumulative effect adjustment, net of tax, because the amount was not material to
the results of operations of the Company. In addition, SFAS No. 123R requires
the Company to reflect the tax savings resulting from tax deductions in excess
of expense as a financing cash flow in its statement of cash flows rather than
as an operating cash flow as in prior periods. These cash flows were not
material to the Company's consolidated statements of cash flows for the three
and nine months ended September 30, 2006.


                                       -7-

<PAGE>

                  DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                   (UNAUDITED)

NOTE A - SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)

The following table illustrates the effect on net income and earnings per share
as if the Company had applied the fair value recognition provisions of SFAS No.
123 to stock-based employee compensation as of its original effective date
(dollars in thousands, except for per share data):

<TABLE>
<CAPTION>
                                                                    Three Months    Nine Months
                                                                       Ended           Ended
                                                                   September 30,   September 30,
                                                                        2005            2005
                                                                   -------------   -------------
<S>                                                                <C>             <C>
Net income, as reported ........................................       $22,032        $84,116
Add: Stock-based employee compensation expense included
   in reported net income, net of related tax effects ..........           707          2,003
Deduct: Stock-based employee compensation expense
   determined under the fair value based method  for all awards,
   net of related tax effects ............. ....................          (764)        (2,215)
                                                                       -------        -------
Pro forma net income ...........................................       $21,975        $83,904
                                                                       =======        =======
Earnings per share:
Basic, as reported .............................................       $  0.45        $  1.72
Basic, pro forma ...............................................          0.45           1.72
Diluted, as reported ...........................................       $  0.44        $  1.68
Diluted, pro forma .............................................          0.43           1.66
</TABLE>

The Company recognized stock compensation expenses of $7.2 million and $2.9
million in the first nine months of 2006 and 2005, respectively, of which $3.5
million and $1.0 million was recognized in the third quarter of 2006 and 2005,
respectively. The remaining unrecognized compensation expense related to
unvested awards at September 30, 2006 was $17.2 million and the weighted-average
period of time over which this expense will be recognized is 2.9 years.

The fair values of options were estimated at the grant date using the
Black-Scholes option pricing model with the following weighted average
assumptions for the first nine months of 2006: expected volatility - 24.4%,
expected dividends - 0.9%, expected lives of the options - 6.5 years, and the
risk free rate - 4.8%. The following weighted average assumptions were used for
the first nine months of 2005: expected volatility - 23.3%, expected dividends -
0.8%, expected lives of the options - 5.0 years, and the risk free rate - 3.8%.

The expected volatility reflects the Company's past monthly stock price
volatility. The expected life of options granted in the first nine months of
2006 was calculated using the "simplified method" in accordance with Staff
Accounting Bulletin 107. For options granted in the first nine months of 2005,
the Company used a projected expected life based on employees' historical
exercise behavior. The dividend yield is based on the Company's historical
dividend payments. The risk-free rate is derived from public data sources at the
time of the grant. Compensation cost is recognized over the expected life of the
option using the straight-line method.


                                       -8-

<PAGE>

                  DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                   (UNAUDITED)

NOTE A - SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)

Option activity with respect to the Company's plans excluding the
performance-contingent incentive options was as follows:

<TABLE>
<CAPTION>
                                                                Weighted
                                                   Weighted     Average     Aggregate
                                         Number     Average    Remaining    Intrinsic
                                           of      Exercise   Contractual     Value
Options                                 Options     Price         Term        ($000)
-------                                ---------   --------   -----------   ---------
<S>                                    <C>         <C>        <C>           <C>
Outstanding at January 1, 2006 .....   3,847,821    $17.66
Granted ............................     565,901     33.28
Exercised ..........................    (748,908)    13.44
Forfeited ..........................     (47,770)    27.85
Expired ............................        (203)    29.43
                                       ---------    ------
Outstanding at September 30, 2006 ..   3,616,841    $20.84        4.6        $68,862
                                       =========    ======        ===        =======
Exercisable at September 30, 2006 ..   2,638,090    $17.45        3.1        $59,174
</TABLE>

The weighted average grant date fair value of options granted during the first
nine months of 2006 and 2005 was $8.07 and $7.48, respectively, and during the
third quarter of 2005 was $7.98. The Company did not grant any options during
the third quarter of 2006. The cash proceeds from stock options exercised were
$10.1 million and $14.6 million for the first nine months of 2006 and 2005,
respectively. The total intrinsic value of options exercised during the first
nine months of 2006 and 2005 was $17.2 million and $20.1 million, respectively.

At September 30, 2006, 3,787,500 performance-contingent incentive options were
outstanding with a weighted average exercise price of $24.51, a weighted average
contractual term of 7.4 years and an intrinsic value of $58.2 million. None of
the options were exercisable at September 30, 2006.

Recently Issued Accounting Standards

In February 2006, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 155, "Accounting for Certain Hybrid Financial Instruments -- an
amendment of SFAS No. 133 and SFAS No. 140." This standard (a) permits fair
value re-measurement of an entire hybrid financial instrument that contains an
embedded derivative that otherwise would require bifurcation; (b) clarifies
which interest-only and principal-only securities are not subject to the
requirements of SFAS No. 133; (c) establishes a requirement to evaluate
interests in securitized financial assets to identify interests that are
freestanding derivatives or that are hybrid financial instruments that contain
an embedded derivative requiring bifurcation; (d) clarifies that concentrations
of credit risk in the form of subordination are not embedded derivatives; and
(e) amends SFAS No. 140 to eliminate restrictions on a qualifying
special-purpose entity's ability to hold a passive derivative financial
instrument that pertains to beneficial interests that are or contain a
derivative financial instrument. This statement is effective for all financial
instruments acquired or issued after January 1, 2007. The Company has not yet
determined the impact, if any, that the adoption of SFAS No. 155 will have on
its consolidated financial position or results of operations.

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements",
which addresses the manner in which fair value should be measured under GAAP.
SFAS No. 157 provides a common definition of fair value and establishes a
framework that fair value measures should follow under GAAP, but this statement
does not supersede existing guidance on when fair value measures should be used.
This standard will also require companies to disclose the extent to which they
measure assets and liabilities at fair value, the methods and assumptions they
use to measure fair value, and the effect of fair value measures on their
earnings. This statement is effective for financial statements issued for fiscal
years beginning after November 15, 2007. The Company has not yet determined the
impact, if any, that the adoption of SFAS No. 157 will have on its consolidated
financial position or results of operations.


                                       -9-

<PAGE>

                  DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                   (UNAUDITED)

NOTE A - SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)

In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans." This Statement requires
an employer to recognize the overfunded or underfunded status of a defined
benefit postretirement plan as an asset or liability in its statement of
financial position and to recognize changes in that funded status in the year in
which the changes occur through comprehensive income. Prior accounting standards
only required footnote disclosure of a plan's funded status. This statement is
effective for financial statements issued for fiscal years ending after December
15, 2006. The Company does not expect the adoption of SFAS No. 158 to have a
material impact on its consolidated financial position or results of operations.

In September 2005, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 05-1, "Accounting by Insurance Enterprises for
Deferred Acquisition Costs in Connection With Modifications or Exchanges of
Insurance Contracts." SOP 05-1 provides accounting guidance for deferred policy
acquisition costs associated with internal replacements of insurance and
investment contracts other than those already described in SFAS No. 97,
"Accounting and Reporting by Insurance Enterprises for Certain Long-Duration
Contracts and for Realized Gains and Losses from the Sale of Investments." This
statement defines an internal replacement as a modification in product benefits,
features, rights, or coverages that occurs by the exchange of a contract for a
new contract, or by amendment, endorsement or rider to a contract, or by the
election of a feature or coverage within a contract. The provisions of SOP 05-1
are effective for internal replacements occurring in fiscal years beginning
after December 15, 2006. The Company has not yet determined the impact, if any,
that the adoption of SOP 05-1 will have on its consolidated financial position
or results of operations.

NOTE B - INVESTMENTS

At September 30, 2006, the Company had fixed maturity securities available for
sale with a carrying value and a fair value of $3,329.1 million and an amortized
cost of $3,300.4 million. At December 31, 2005, the Company had fixed maturity
securities available for sale with a carrying value and a fair value of $3,244.8
million and an amortized cost of $3,208.7 million.

The summarized aggregate unaudited net income for the limited partnerships and
limited liability companies in which the Company maintained investments at
September 30, 2006 was $2,878.3 million and $1,341.8 million for the first nine
months of 2006 and 2005, respectively, and $2,384.1 million and $638.1 million
for the third quarter of 2006 and 2005, respectively.

NOTE C - SEGMENT INFORMATION

<TABLE>
<CAPTION>
                                                Three Months Ended     Nine Months Ended
                                                  September 30,          September 30,
                                               -------------------   ---------------------
                                                 2006       2005        2006        2005
                                               --------   --------   ----------   --------
                                                          (dollars in thousands)
<S>                                            <C>        <C>        <C>          <C>
Revenues:
   Group employee benefit products (1) .....   $325,743   $274,261   $  923,902   $804,570
   Asset accumulation products .............     26,315     21,634       73,718     65,079
   Other (2) ...............................      9,291      8,597       26,773     25,247
                                               --------   --------   ----------   --------
                                                361,349    304,492    1,024,393    894,896
   Net realized investment (losses) gains ..       (335)     3,397       (1,880)     8,534
                                               --------   --------   ----------   --------
                                               $361,014   $307,889   $1,022,513   $903,430
                                               ========   ========   ==========   ========
Operating income:
   Group employee benefit products (1) .....   $ 57,820   $ 47,417   $  164,907   $134,331
   Asset accumulation products .............      8,134      5,817       21,485     16,574
   Other (2) ...............................     (7,241)    (4,176)     (14,914)    (9,219)
                                               --------   --------   ----------   --------
                                                 58,713     49,058      171,478    141,686
   Net realized investment (losses) gains ..       (335)     3,397       (1,880)     8,534
                                               --------   --------   ----------   --------
                                               $ 58,378   $ 52,455   $  169,598   $150,220
                                               ========   ========   ==========   ========
</TABLE>

(1)  During the fourth quarter of 2005, the Company decided to exit its non-core
     property catastrophe reinsurance business. Prior period information has
     been restated to conform to the current period presentation.

(2)  Primarily consists of operations from integrated disability and absence
     management services and certain corporate activities.


                                      -10-

<PAGE>

                  DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                   (UNAUDITED)

NOTE D - COMPREHENSIVE INCOME (LOSS)

Total comprehensive income (loss) is comprised of net income and other
comprehensive income (loss), which includes the change in unrealized gains and
losses on securities available for sale and the change in the loss on the cash
flow hedge described in the 2005 Form 10-K. Total comprehensive income (loss)
was $98.6 million and $55.9 million for the first nine months of 2006 and 2005,
respectively, and $87.1 million and $(2.0) million for the third quarter of 2006
and 2005, respectively.

NOTE E - COMPUTATION OF RESULTS PER SHARE

On May 4, 2006, the Company's Board of Directors declared a 3-for-2 common stock
split effected in the form of a 50% stock dividend, which was distributed on
June 1, 2006 to stockholders of record on May 18, 2006. A total of 17,737,749
shares of common stock were issued in connection with the split, and the
aggregate amount of $0.2 million, equal to the par value of the common stock
issued, was reclassified from additional paid-in capital to common stock. The
stated par value of each share remained at $0.01. Results per share and
applicable share amounts for prior periods have been restated to reflect the
stock split. The following table sets forth the calculation of basic and diluted
results per share.

<TABLE>
<CAPTION>
                                                                      Three Months Ended    Nine Months Ended
                                                                        September 30,         September 30,
                                                                      ------------------   ------------------
                                                                       2006       2005       2006       2005
                                                                      -------   --------   --------   -------
                                                                               (dollars in thousands,
                                                                               except per share data)
<S>                                                                   <C>        <C>        <C>          <C>
Numerator:
   Income from continuing operations ..............................   $36,168   $ 32,838   $104,824   $93,075
   Income (loss) from discontinued operations, net of income tax
      expense (benefit) ...........................................         1    (10,806)    (2,932)   (8,959)
                                                                      -------   --------   --------   -------
   Net income .....................................................   $36,169   $ 22,032   $101,892   $84,116
                                                                      =======   ========   ========   =======
Denominator:
   Weighted average common shares outstanding .....................    49,652     49,350     49,531    48,818
      Effect of dilutive securities ...............................     1,274      1,214      1,293     1,320
                                                                      -------   --------   --------   -------
   Weighted average common shares outstanding, assuming dilution ..    50,926     50,564     50,824    50,138
                                                                      =======   ========   ========   =======
Basic results per share of common stock:
   Income from continuing operations ..............................   $  0.73   $   0.67   $   2.12   $  1.91
   Loss from discontinued operations, net of income tax
      benefit .....................................................        --      (0.22)     (0.06)    (0.19)
                                                                      -------   --------   --------   -------
   Net income .....................................................   $  0.73   $   0.45   $   2.06   $  1.72
                                                                      =======   ========   ========   =======
Diluted results per share of common stock:
   Income from continuing operations ..............................   $  0.71   $   0.65   $   2.06   $  1.86
   Loss from discontinued operations, net of income tax
      benefit .....................................................        --      (0.21)     (0.06)    (0.18)
                                                                      -------   --------   --------   -------
   Net income .....................................................   $  0.71   $   0.44   $   2.00   $  1.68
                                                                      =======   ========   ========   =======
</TABLE>


                                      -11-
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

INTRODUCTION

The Company, through its subsidiaries, underwrites a diverse portfolio of group
employee benefit products, primarily group life, disability, and excess workers'
compensation insurance. Revenues from this group of products are primarily
comprised of earned premiums and investment income. The profitability of group
employee benefit products is affected by, among other things, differences
between actual and projected claims experience, the retention of existing
customers, product mix and the Company's ability to attract new customers,
change premium rates and contract terms and control administrative expenses. The
Company transfers its exposure to some group employee benefit risks through
reinsurance ceded arrangements with other insurance and reinsurance companies.
Accordingly, the profitability of the Company's group employee benefit products
is affected by the amount, cost and terms of reinsurance it obtains. The
profitability of certain group employee benefit products is also affected by the
difference between the yield achieved on invested assets and the discount rate
used to calculate the related reserves. The Company is continuing to experience
favorable market conditions for its excess workers' compensation products due to
high primary workers' compensation rates. For its other group employee benefit
products, the Company is continuing to increase the size of its sales force in
order to enhance its focus on the small case niche (insured groups of 10 to 500
individuals), including employers which are first-time providers of these
employee benefits, which the Company believes to offer opportunities for
superior profitability. In the fourth quarter of 2005, the Company decided to
exit its non-core property catastrophe reinsurance business, due to the
volatility associated with such business and other strategic considerations, and
has not thereafter renewed or written any new reinsurance contracts in this
business. A substantial majority of these reinsurance contracts expired on or
before December 31, 2005 and all of the remaining contracts expired during the
third quarter of 2006. Accordingly, the Company reclassified the operating
results of this business as discontinued operations. Prior period information
has been reclassified to conform to the current period presentation.

The Company also operates an asset accumulation business that focuses primarily
on offering fixed annuities to individuals. In addition, during the first
quarter of 2006, the Company issued $100 million of fixed and floating rate
funding agreements with maturities of three to five years in connection with the
issuance of funding agreement-backed notes in a corresponding principal amount.
The Company believes that the funding agreement program enhances the Company's
asset accumulation business by providing an alternative source of distribution
for this business. The Company's liability for the funding agreements is
recorded in policyholder account balances. Deposits from the Company's asset
accumulation business are recorded as liabilities rather than as premiums.
Revenues from the Company's asset accumulation business are primarily comprised
of investment income earned on the funds under management. The profitability of
asset accumulation products is primarily dependent on the spread achieved
between the return on investments and the interest credited to holders of these
products. The Company is setting the crediting rates offered on its asset
accumulation products in an effort to achieve its targeted interest rate spreads
on these products, and is willing to accept lower levels of sales on these
products when market conditions make these targeted spreads more difficult to
achieve.

The following discussion and analysis of the results of operations and financial
condition of the Company should be read in conjunction with the Consolidated
Financial Statements and related notes included in this document, as well as the
Company's annual report on Form 10-K for the year ended December 31, 2005 (the
"2005 Form 10-K"). Capitalized terms used herein without definition have the
meanings ascribed to them in the 2005 Form 10-K. The preparation of financial
statements in conformity with GAAP requires management, in some instances, to
make judgments about the application of these principles. The amounts of assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period could differ materially
from the amounts reported if different conditions existed or different judgments
were utilized. A discussion of how management applies certain critical
accounting policies and makes certain estimates is contained in the 2005 Form
10-K in the section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Critical Accounting Policies and
Estimates" and should be read in conjunction with the following discussion and
analysis of results of operations and financial condition of the Company. In
addition, a discussion of uncertainties and contingencies which can affect
actual results and could cause future results to differ materially from those
expressed in certain forward-looking statements contained in this Management's
Discussion and Analysis of Financial Condition and Results of Operations can be
found below under the caption "Forward-Looking Statements And Cautionary
Statements Regarding Certain Factors That May Affect Future Results" and in Part
II Item 1A, "Risk Factors."


                                      -12-

<PAGE>

RESULTS OF OPERATIONS

Nine Months Ended September 30, 2006 Compared to
Nine Months Ended September 30, 2005

Summary of Results. Net income was $101.9 million, or $2.00 per diluted share,
for the first nine months of 2006 as compared to $84.1 million, or $1.68 per
diluted share, for the first nine months of 2005. Net income for the first nine
months of 2006 and 2005 included realized investment (losses) gains (net of the
related income tax (benefit) expense) of $(1.2) million, or $(0.03) per diluted
share, and $5.5 million, or $0.11 per diluted share, respectively. Net income
for the first nine months of 2006 benefited from growth in income from the
Company's core group employee benefit products, increased investment spreads on
the Company's asset accumulation products and an increase in net investment
income, and was adversely impacted by an increase in interest expense. Core
group employee benefit products include group life, disability, excess workers'
compensation, travel accident and dental insurance. Premiums from the Company's
core group employee benefit products increased 15% in the first nine months of
2006 and the combined ratio (loss ratio plus expense ratio) for these products
decreased to 93.1% in the first nine months of 2006 from 94.3% in the first nine
months of 2005. Net investment income for the first nine months of 2006, which
increased 15% from the first nine months of 2005, reflects an 11% increase in
average invested assets. The increase in interest expense was primarily due to
the increases in the Company's weighted average borrowings and the weighted
average borrowing rate due to increases in the levels of the short-term interest
indices referenced under the Company's revolving credit facility during the
first nine months of 2006 as compared to the first nine months of 2005. During
the 2006 and 2005 periods, the Company had losses from discontinued operations
(net of the related income tax benefit) of $(2.9) million, or $(0.06) per
diluted share, and $(9.0) million, or $(0.18) per diluted share, respectively,
attributable to the non-core property catastrophe reinsurance business which it
decided to exit during the fourth quarter of 2005.

Premium and Fee Income. Premium and fee income for the first nine months of 2006
was $838.4 million as compared to $732.6 million for the first nine months of
2005, an increase of 14%. Premiums from core group employee benefit products
increased 15% to $798.2 million for the first nine months of 2006 from $692.2
million for the first nine months of 2005. This increase reflects normal growth
in employment and salary levels for the Company's existing customer base, price
increases, new business production and improved persistency. Within core group
employee benefit products, premiums from excess workers' compensation insurance
for self-insured employers increased 19% to $191.3 million for the first nine
months of 2006 from $160.4 million for the first nine months of 2005. This
increase was primarily due to the demand for this product as a result of high
primary workers' compensation rates. In its renewals of insurance coverage
during the first nine months of 2006, SNCC continued to obtain higher SIR
levels, which are up 8%, while maintaining its pricing. Excess workers'
compensation new business production, which represents the amount of new
annualized premium sold, increased 56% to $53.4 million for the first nine
months of 2006 from $34.3 million for the first nine months of 2005 and the
retention of existing customers for the first nine months of 2006 remained
strong. New business production for 2006 benefited from a renewal rights
agreement into which SNCC entered in July 2005. Under the agreement, SNCC
acquired, among other things, the right to offer renewal quotes to expiring
excess workers' compensation policies of a former competitor. Premiums from the
Company's other core group employee benefit products increased 14% to $606.9
million for the first nine months of 2006 from $531.8 million for the first nine
months of 2005, primarily attributable to new business production, improved
retention of existing customers and a 16% increase in premiums from the
Company's group disability products. During the first nine months of 2006,
premiums from the Company's group disability products increased to $338.1
million from $291.5 million during the first nine months of 2005, reflecting
substantial growth in the Company's turnkey disability business. New business
production for the Company's other core group employee benefit products was
$133.0 million for the first nine months of 2006 as compared to $134.3 million
for the first nine months of 2005. New business production does not include
premiums from the Company's turnkey disability business. The level of production
achieved from these products reflects the Company's focus on the small case
niche (insured groups of 10 to 500 individuals) which resulted in a 12% increase
in production based on the number of cases sold as compared to the first nine
months of 2005. The Company continued to implement price increases for certain
existing disability and group life customers.

Deposits from the Company's asset accumulation products, consisting of new
annuity sales and funding agreements, were $171.1 million for the first nine
months of 2006 as compared to $74.4 million for the first nine months of 2005.
The increase in deposits reflects the issuance of $100.0 million of fixed and
floating rate funding agreements during the first quarter of 2006 under the
Company's new program under which funding agreement-backed notes are issued to
institutional investors by an unconsolidated special purpose vehicle which uses
the proceeds to purchase from the Company funding agreements having terms
substantially similar to those of the notes. Deposits from the Company's asset
accumulation products are recorded as liabilities rather than as premiums.

Net Investment Income. Net investment income for the first nine months of 2006
was $186.0 million as compared to $162.3 million for the first nine months of
2005, an increase of 15%. The level of net investment income in the 2006 period
reflects an


                                      -13-

<PAGE>

11% increase in average invested assets in the first nine months of 2006 from
the first nine months of 2005 and an increase in the tax equivalent weighted
average annualized yield. The tax equivalent weighted average annualized yield
on invested assets was 6.4% for the first nine months of 2006 and 6.2% for the
first nine months of 2005.

Net Realized Investment (Losses) Gains. Net realized investment (losses) gains
were $(1.9) million for the first nine months of 2006 as compared to $8.5
million for the first nine months of 2005. The Company's investment strategy
results in periodic sales of securities and, therefore, the recognition of
realized investment gains and losses. During the first nine months of 2006 and
2005, the Company recognized $1.4 million and $12.7 million, respectively, of
net gains on the sales of securities. The Company monitors its investments on an
ongoing basis. When the market value of a security declines below its cost, and
management judges the decline to be other than temporary, the security is
written down to fair value, and the decline is reported as a realized investment
loss. In the first nine months of 2006 and 2005, the Company recognized $3.3
million and $4.2 million, respectively, of losses due to the other than
temporary declines in the market values of certain fixed maturity securities.

The Company may recognize additional losses of this type in the future. The
Company anticipates that if certain other existing declines in security values
are determined to be other than temporary, it may recognize additional
investment losses in the range of $5 million to $10 million, on an after-tax
basis, with respect to the relevant securities. However, the extent of any such
losses will depend on future market developments and changes in security values,
and such losses may be outside this range. The Company continuously monitors the
affected securities pursuant to its procedures for evaluation for other than
temporary impairment in valuation, which are described in the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Critical Accounting Policies and Estimates - Investments" in the
2005 Form 10-K. It is not possible to predict the extent of any future changes
in value, positive or negative, or the results of the future application of
these procedures, with respect to these securities. There can be no assurance
that the Company will realize investment gains in the future in an amount
sufficient to offset any such losses.

Benefits and Expenses. Policyholder benefits and expenses were $852.9 million
for the first nine months of 2006 as compared to $753.2 million for the first
nine months of 2005, an increase of 13%. This increase primarily reflects the
increase in premiums from the Company's group employee benefit products
discussed above, and also reflects additions to reserves for prior years' claims
and claim expenses in the amount of $21.8 million due to adverse loss
experience, primarily arising from the Company's excess workers' compensation
line and due principally to moderately increased claim frequency, relative to
prior periods, relating to policies written during the competitive market cycle
years of 1997 to 2001. If this experience trend were to continue in the future,
absent favorable loss experience in other policy years, the Company's results of
operations could be materially adversely affected. The combined ratio (loss
ratio plus expense ratio) for the Company's group employee benefits products
decreased to 93.1% in the first nine months of 2006 from 94.3% in the first nine
months of 2005. The weighted average annualized crediting rate on the Company's
asset accumulation products, which reflects the effects of the first year bonus
crediting rate on certain newly issued products, was 4.5% and 4.6% for the first
nine months of 2006 and 2005, respectively.

Interest Expense. Interest expense was $18.9 million for the first nine months
of 2006 as compared to $15.3 million for the first nine months of 2005, an
increase of $3.6 million. This increase primarily resulted from the increases in
the weighted average borrowings and the weighted average borrowing rate due to
increases in the levels of the short-term interest indices referenced under the
Company's revolving credit facility during the first nine months of 2006 as
compared to the first nine months of 2005.

Income Tax Expense. Income tax expense was $45.9 million for the first nine
months of 2006 as compared to $41.8 million for the first nine months of 2005.
The Company's effective tax rate was 30.4% for the first nine months of 2006 and
31.0% for the first nine months of 2005.

Loss from Discontinued Operations. During the fourth quarter of 2005, the
Company decided to exit its non-core property catastrophe reinsurance business,
due to the volatility associated with such business and other strategic
considerations, and did not enter into or renew any assumed property reinsurance
contracts. A substantial majority of these reinsurance contracts expired on or
before December 31, 2005 and all of the remaining contracts expired during the
third quarter of 2006. In the first nine months of 2006, the Company recognized
an after-tax operating loss of $(2.9) million, or $(0.06) per diluted share, net
of an income tax benefit of $1.6 million, substantially all of which was
attributable to additional losses relating to the Katrina and Wilma hurricanes
which occurred in 2005. In the first nine months of 2005, the Company recognized
an after-tax operating loss of $(9.0) million, or $(0.18) per diluted share, net
of income tax benefit of $4.8 million from this business.


                                      -14-

<PAGE>

Three Months Ended September 30, 2006 Compared to
Three Months Ended September 30, 2005

Summary of Results. Net income was $36.2 million, or $0.71 per diluted share,
for the third quarter of 2006 as compared to $22.0 million, or $0.44 per diluted
share, for the third quarter of 2005. Net income in the third quarter of 2006
and 2005 included realized investment (losses) gains (net of the related income
tax (benefit) expense) of $(0.2) million, or $0.00 per diluted share, and $2.2
million, or $0.04 per diluted share, respectively. The increase in net income in
the third quarter of 2006 is primarily attributable to growth in income from
group employee benefit products, increased investment spreads on the Company's
asset accumulation products and an increase in net investment income, partially
offset by an increase in interest expense. Premiums from the Company's core
group employee benefit products increased 18% in the third quarter of 2006 and
the combined ratio (loss ratio plus expense ratio) was 93.3% in the third
quarter of 2006 and 2005. The 23% increase in net investment income in the third
quarter of 2006 from the third quarter of 2005 reflects a 10% increase in
average invested assets and an increase in the tax equivalent weighted average
annualized yield. The increase in interest expense was primarily due to the
increases in the weighted average borrowings and the weighted average borrowing
rate due to increases in the levels of the short-term interest indices
referenced under the Company's revolving credit facility during the third
quarter of 2006 as compared to the third quarter of 2005. During the third
quarter of 2005, the Company had losses from discontinued operations (net of the
related income tax benefit) of $(10.8) million, or $(0.21) per diluted share,
attributable to the non-core property catastrophe reinsurance business which it
decided to exit during the fourth quarter of 2005.

Premium and Fee Income. Premium and fee income for the third quarter of 2006 was
$295.2 million as compared to $250.6 million for the third quarter of 2005, an
increase of 18%. Premiums from core group employee benefit products increased
18% to $279.8 million for the third quarter of 2006 from $236.5 million for the
third quarter of 2005. This increase reflects normal growth in employment and
salary levels for the Company's existing customer base, price increases, new
business production and improved persistency. Premiums from excess workers'
compensation insurance for self-insured employers increased 21% to $67.7 million
for the third quarter of 2006 from $55.9 million for the third quarter of 2005.
This increase was primarily due to the demand for this product as a result of
high primary workers' compensation rates. In its renewals of insurance coverages
during the third quarter of 2006, SNCC continued to obtain higher SIR levels,
which were up 6%, while maintaining its pricing. Excess workers' compensation
new business production, which represents the amount of new annualized premium
sold, increased 11% to $19.7 million for the third quarter of 2006 from $17.7
million for the third quarter of 2005 and the retention of existing customers in
the third quarter of 2006 remained strong. New business production for 2006
benefited from a renewal rights agreement into which SNCC entered in July 2005.
Under the agreement, SNCC acquired, among other things, the right to offer
renewal quotes to expiring excess workers' compensation policies of a former
competitor. Premiums from the Company's other core group employee benefit
products increased 17% to $212.1 million for the third quarter of 2006 from
$180.7 million for the third quarter of 2005, primarily reflecting new business
production, improved retention of existing customers and a 20% increase in
premiums from the Company's group disability products. During the third quarter
of 2006, premiums from the Company's group disability products increased to
$119.2 million from $99.5 million during the third quarter of 2005, reflecting
substantial growth in the Company's turnkey disability business. New business
production for the Company's other core group employee benefit products
increased 5% to $44.4 million for the third quarter of 2006 from $42.2 million
for the third quarter of 2005. New business production does not include premiums
from the Company's turnkey disability business. The level of production achieved
from these products reflects the Company's focus on the small case niche
(insured groups of 10 to 500 individuals) which resulted in a 3% increase in
production based on the number of cases sold as compared to the third quarter of
2005. The Company continued to implement price increases for certain existing
disability and group life customers.

Deposits from the Company's asset accumulation products were $26.3 million for
the third quarter of 2006 as compared to $25.4 million for the third quarter of
2005. Deposits from the Company's asset accumulation products are recorded as
liabilities rather than as premiums.

Net Investment Income. Net investment income in the third quarter of 2006 was
$66.2 million as compared to $53.8 million in the third quarter of 2005, an
increase of 23%. The level of net investment income in the 2006 period reflects
a 10% increase in average invested assets in such period, an increase in the tax
equivalent weighted average annualized yield and a higher level of tax-exempt
interest income. The tax equivalent weighted average annualized yield on
invested assets was 6.6% for the third quarter of 2006 compared to 5.9% for the
third quarter of 2005. The tax equivalent weighted average annualized yield in
2006 benefited from an increased level of tax-exempt interest income while the
tax equivalent weighted average annualized yield in 2005 was adversely impacted
as a relatively higher percentage of total investment income was allocated to
discontinued operations.

Net Realized Investment (Losses) Gains. Net realized investment (losses) gains
were $(0.2) million for the third quarter of 2006 as compared to $2.2 million
for the third quarter of 2005. The Company's investment strategy results in
periodic sales of securities and, therefore, the recognition of realized
investment gains and losses. During the third quarter of 2006 and 2005, the
Company recognized $0.8 million and $6.4 million, respectively, of net gains on
sales of securities. The Company monitors its


                                      -15-

<PAGE>

investments on an ongoing basis. When the market value of a security declines
below its cost, and management judges the decline to be other than temporary,
the security is written down to fair value, and the decline is reported as a
realized investment loss. In the third quarter of 2006 and 2005, the Company
recognized $1.1 million and $3.0 million, respectively, of losses due to the
other than temporary declines in the market values of certain fixed maturity
securities.

The Company may recognize additional losses of this type in the future. The
Company anticipates that if certain other existing declines in security values
are determined to be other than temporary, it may recognize additional
investment losses in the range of $5 million to $10 million, on an after-tax
basis, with respect to the relevant securities. However, the extent of any such
losses will depend on future market developments and changes in security values,
and such losses may be outside this range. The Company continuously monitors the
affected securities pursuant to its procedures for evaluation for the other than
temporary impairment in valuation which are described in the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Critical Accounting Policies and Estimates - Investments" in the
2005 Form 10-K. It is not possible to predict the extent of any future changes
in value, positive or negative, or the results of the future application of
these procedures, with respect to these securities. There can be no assurance
that the Company will realize investment gains in the future in an amount
sufficient to offset any such losses.

Benefits and Expenses. Policyholder benefits and expenses were $302.6 million
for the third quarter of 2006 as compared to $255.4 million for the third
quarter of 2005, an increase of 18%. This increase primarily reflects the
increase in premiums from the Company's group employee benefit products
discussed above, and also reflects additions to reserves for prior years' claims
and claim expenses in the amount of $11.6 million due to adverse loss
experience, primarily arising from the Company's excess workers' compensation
line and due principally to moderately increased claim frequency, relative to
prior periods, relating to policies written during the competitive market cycle
years of 1997 to 2001. If this experience trend were to continue in the future,
absent favorable loss experience in other policy years, the Company's results of
operations could be materially adversely affected. The combined ratio (loss
ratio plus expense ratio) for the Company's group employee benefits segment was
93.3% in the third quarters of 2006 and 2005.

Interest Expense. Interest expense was $6.6 million for the third quarter of
2006 as compared to $5.0 million for the third quarter of 2005, an increase of
$1.6 million. The increase was primarily due to the increases in the weighted
average borrowings and the weighted average borrowing rate due to increases in
the levels of short-term interest indices referenced under the Company's
revolving credit facility during the third quarter of 2006 as compared to the
third quarter of 2005.

Income Tax Expense. Income tax expense was $15.6 million for the third quarter
of 2006 as compared to $14.6 million for the third quarter of 2005. The
Company's effective tax rate was 30.2% for the third quarter of 2006 and 30.8%
for the third quarter of 2005.

Income (Loss) from Discontinued Operations. During the fourth quarter of 2005,
the Company decided to exit its non-core property catastrophe reinsurance
business, due to the volatility associated with such business and other
strategic considerations, and did not enter into or renew any assumed property
reinsurance contracts. A substantial majority of these reinsurance contracts
expired on or before December 31, 2005 and all of the remaining contracts
expired during the third quarter of 2006. Income from discontinued operations
was not material to net income in the third quarter of 2006. In the third
quarter of 2005, the Company recognized an after-tax operating loss of $(10.8)
million, or $(0.21) per diluted share, net of income tax benefit of $5.8 million
from this business.

LIQUIDITY AND CAPITAL RESOURCES

General. The Company had approximately $121.8 million of financial resources
available at the holding company level at September 30, 2006, which was
primarily comprised of investments in the common stock of its investment
subsidiaries, investments in limited partnerships and limited liability
companies and short-term investments. The assets of the investment subsidiaries
are primarily invested in limited partnerships and limited liability companies.
Other sources of liquidity at the holding company level include dividends paid
from subsidiaries, primarily generated from operating cash flows and
investments. The Company's insurance subsidiaries are permitted, without prior
regulatory approval, to make dividends payments totaling $72.5 million during
2006, of which $2.6 million has been paid to the holding company during the
first nine months of 2006. In general, dividends from the Company's
non-insurance subsidiaries are not subject to regulatory or other restrictions.
The Company had $80.0 million of borrowings available to it under its $200
million revolving credit facility as of September 30, 2006. In October 2006, the
Company and its bank lender group amended the Company's $200 million revolving
credit facility, which amendment, among other things, increased the maximum
borrowings available under the facility to $250 million, improved the pricing
terms and extended the maturity date from May 2010 to October 2011. A shelf
registration statement is also in effect under which securities yielding
proceeds of up to $106.2 million may be issued by the Company.


                                      -16-

<PAGE>

The Company's current liquidity needs, in addition to funding its operating
expenses, include principal and interest payments on outstanding borrowings
under its revolving credit facility, interest payments on the 2033 Senior Notes,
and distributions on the Capital Securities and the 2003 Capital Securities. The
2033 Senior Notes mature in their entirety in May 2033 and are not subject to
any sinking fund requirements but are redeemable by the Company at par at any
time on or after May 15, 2008. The junior subordinated deferrable interest
debentures underlying the Capital Securities are not redeemable prior to March
25, 2007. The junior subordinated deferrable interest debentures underlying the
2003 Capital Securities are redeemable, in whole or in part, beginning May 15,
2008.

On November 2, 2006, the Company's Board of Directors declared a cash dividend
of $0.08 per share, which will be paid on the Company's Class A Common Stock and
Class B Common Stock on November 30, 2006.

The Company and its subsidiaries expect available sources of liquidity to exceed
their current and long-term cash requirements.

Cash Flows. Operating activities increased cash by $251.9 million and $208.9
million in the first nine months of 2006 and 2005, respectively. Net investing
activities used $337.8 million of cash during the first nine months of 2006
primarily for the purchase of securities and financing activities provided
$102.8 million of cash, principally due to the issuance of funding agreements
and an increase in borrowings under the Company's revolving credit facility,
partially offset by repurchases of the Company's Class A Common Stock having a
total cost of $16.6 million.

Share Repurchase Program. The Company's board of directors has authorized a
share repurchase program. Share repurchases are effected by the Company in the
open market or in negotiated transactions in compliance with the safe harbor
provisions of Rule 10b-18 under the Securities Exchange Act of 1934. Execution
of the share repurchase program is based on management's assessment of market
conditions for its common stock and other potential uses of capital. During the
first quarter of 2006, the Company repurchased 480,900 shares of its Class A
Common Stock for a total cost of $16.6 million with a volume weighted average
price of $34.47 per share. At September 30, 2006, the repurchase of
approximately 0.9 million shares remained authorized under this program.

Investments. The Company's overall investment strategy emphasizes safety and
liquidity, while seeking the best available return, by focusing on, among other
things, managing the Company's interest-sensitive assets and liabilities and
seeking to minimize the Company's exposure to fluctuations in interest rates.
The Company's investment portfolio, which totaled $4.3 billion at September 30,
2006, consists primarily of investments in fixed maturity securities, mortgage
loans, investments in limited partnerships, trading account securities and
short-term investments. During the first nine months of 2006, the market value
of the Company's investment portfolio, in relation to its amortized cost,
decreased by $7.2 million from year-end 2005, before related changes in the cost
of business acquired of $1.3 million and the income tax provision of $2.1
million. In addition, the Company recognized pre-tax net investment losses of
$1.9 million in the first nine months of 2006. The weighted average credit
rating of the Company's fixed maturity portfolio as rated by Standard & Poor's
Corporation was "AA" at September 30, 2006. While ratings of this type address
credit risk, they do not address other risks, such as prepayment and extension
risks. See "Forward-Looking Statements and Cautionary Statements Regarding
Certain Factors That May Affect Future Results" and Part II Item 1A, "Risk
Factors" for a discussion of various risks relating to the Company's investment
portfolio.

Reinsurance. The Company cedes portions of the risks relating to its group
employee benefit products under indemnity reinsurance agreements with various
unaffiliated reinsurers. The Company pays reinsurance premiums which are
generally based upon specified percentages of the Company's premiums on the
business reinsured. These agreements expire at various intervals as to new
risks, and replacement agreements are negotiated on terms believed appropriate
in light of current market conditions. During 2005, the Company entered into a
reinsurance arrangement under which the Company cedes 30% of its excess workers'
compensation risks between $100.0 million and $150.0 million, per policy per
occurrence. This change has increased the reinsurance premiums paid by the
Company for these products.

In the fourth quarter of 2005, the Company decided to exit its non-core property
catastrophe reinsurance business, due to the volatility associated with such
business and other strategic considerations, and has not thereafter renewed or
written any new reinsurance contracts in this business. A substantial majority
of these reinsurance contracts expired on or before December 31, 2005 and all of
the remaining contracts expired during the third quarter of 2006.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in the Company's exposure to market risk or
its management of such risk since December 31, 2005.


                                      -17-

<PAGE>

ITEM 4. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, an evaluation was performed
under the supervision and with the participation of the Company's management,
including the Company's Chief Executive Officer ("CEO") and Vice President and
Treasurer (the individual who acts in the capacity of chief financial officer),
of the effectiveness of the design and operation of the Company's disclosure
controls and procedures (as defined in the rules and regulations of the
Securities and Exchange Commission). Based on that evaluation, the Company's
management, including the CEO and Vice President and Treasurer, concluded that
the Company's disclosure controls and procedures were effective. There were no
changes in the Company's internal control over financial reporting during the
fiscal quarter to which this report relates that have materially affected, or
are reasonably likely to materially affect, the Company's internal control over
financial reporting.

FORWARD-LOOKING STATEMENTS AND CAUTIONARY STATEMENTS REGARDING CERTAIN FACTORS
THAT MAY AFFECT FUTURE RESULTS

In connection with, and because it desires to take advantage of, the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995, the
Company cautions readers regarding certain forward-looking statements in the
above "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and elsewhere in this Form 10-Q and in any other statement made
by, or on behalf of, the Company, whether in future filings with the Securities
and Exchange Commission or otherwise. Forward-looking statements are statements
not based on historical information and which relate to future operations,
strategies, financial results, prospects, outlooks or other developments. Some
forward-looking statements may be identified by the use of terms such as
"expects," "believes," "anticipates," "intends," "judgment," "outlook" or other
similar expressions. Forward-looking statements are necessarily based upon
estimates and assumptions that are inherently subject to significant business,
economic, competitive and other uncertainties and contingencies, many of which
are beyond the Company's control and many of which, with respect to future
business decisions, are subject to change. Examples of such uncertainties and
contingencies include, among other important factors, those affecting the
insurance industry generally, such as the economic and interest rate
environment, federal and state legislative and regulatory developments,
including but not limited to changes in financial services, employee benefit and
tax laws and regulations, market pricing and competitive trends relating to
insurance products and services, acts of terrorism or war, and the availability
and cost of reinsurance, and those relating specifically to the Company's
business, such as the level of its insurance premiums and fee income, the claims
experience, persistency and other factors affecting the profitability of its
insurance products, the performance of its investment portfolio and changes in
the Company's investment strategy, acquisitions of companies or blocks of
business, and ratings by major rating organizations of the Company and its
insurance subsidiaries. These uncertainties and contingencies can affect actual
results and could cause actual results to differ materially from those expressed
in any forward-looking statements made by, or on behalf of, the Company. Certain
of these uncertainties and contingencies are described in more detail in Part II
Item 1A, "Risk Factors." The Company disclaims any obligation to update
forward-looking information.

                           PART II. OTHER INFORMATION

ITEM 1A. RISK FACTORS

     RESERVES ESTABLISHED FOR FUTURE POLICY BENEFITS AND CLAIMS MAY PROVE
INADEQUATE.

The Company's reserves for future policy benefits and unpaid claims and claim
expenses are estimates that entail various assumptions and judgments. These
estimates are subject to variability, since the factors and events affecting the
ultimate liability for claims have not all taken place, and thus cannot be
evaluated with certainty. Moreover, under the actuarial methodologies utilized
by the Company, these estimates are subject to reevaluation based on developing
trends with respect to the Company's loss experience. Such trends may emerge
over longer periods of time, and changes in such trends cannot necessarily be
identified or predicted at any given time by reference to current claims
experience, whether favorable or unfavorable. If the Company's actual loss
experience from its current or discontinued products is different from the
Company's assumptions or estimates, the Company's reserves could be inadequate.
In such event, the Company's results of operations, liquidity or financial
condition could be materially adversely affected.

     THE MARKET VALUES OF THE COMPANY'S INVESTMENTS FLUCTUATE.

The market values of the Company's investments vary depending on economic and
market conditions, including interest rates, and such values can decline as a
result of changes in such conditions. Increasing interest rates or a widening in
the spread between interest rates available on U.S. Treasury securities and
corporate debt, for example, will typically have an adverse impact on the market
values of the fixed maturity securities in the Company's investment portfolio.
If interest rates decline, the Company generally achieves a lower overall rate
of return on investments of cash generated from the Company's operations. In
addition, in the event that investments are called or mature in a declining
interest rate environment, the Company may be unable to reinvest the proceeds in
securities with comparable interest rates. The Company may also in the future be
required or


                                      -18-

<PAGE>

determine to sell certain investments, whether to meet contractual obligations
to its policyholders, or otherwise, at a price and a time when the market value
of such investments is less than the book value of such investments.

Declines in the fair value of investments that are considered in the judgment of
management to be other than temporary are reported as realized investment
losses. The Company has experienced and may in the future experience losses from
other than temporary declines in security values. Such losses are recorded as
realized investment losses in the income statement. See "Results of Operations -
Net Realized Investment (Losses) Gains." In addition, the Company invests in
certain limited partnerships and limited liability companies that invest in
various financial instruments. These investments are reflected in the Company's
financial statements under the equity method; accordingly, positive or negative
changes in the value of the investees' financial instruments are included in net
investment income. Thus, the Company's results of operations, in addition to its
liquidity and financial condition, could be materially adversely affected if
these entities were to experience significant losses in the values of their
financial assets.

     THE COMPANY'S INVESTMENT AND FINANCING STRATEGY EXPOSES THE COMPANY TO
DEFAULT AND OTHER RISKS.

The management of the Company's investment portfolio is an important component
of the Company's profitability since a substantial portion of the Company's
operating income is generated from the difference between the yield achieved on
invested assets and, in the case of asset accumulation products, the interest
credited on policyholder funds and, in the case of the Company's other products
for which reserves are discounted, the discount rate used to calculate the
related reserves.

The Company is subject to the risk, among others, that the issuers of the fixed
maturity securities the Company owns will default on principal and interest
payments. A major economic downturn or any of the various other factors that
affect issuers' abilities to pay could result in issuer defaults. Because the
Company's investments consist primarily of fixed maturity securities and
short-term investments, such defaults could materially adversely affect the
Company's results of operations, liquidity or financial condition. The Company
continually monitors its investment portfolio and attempts to ensure that the
risks associated with concentrations of investments in either a particular
sector of the market or a single entity are limited.

At September 30, 2006, mortgage-backed securities comprised 22% of the Company's
total invested assets. Mortgage-backed securities subject the Company to a
degree of interest rate risk, including prepayment and extension risk, which is
generally a function of the sensitivity of each security's underlying collateral
to prepayments under varying interest rate environments and the repayment
priority of the securities in the particular securitization structure. The
Company seeks to limit the extent of this risk by emphasizing the more
predictable payment classes and securities with stable collateral.

The Company, through its insurance subsidiaries, maintains a program in which
investments are financed using advances from various Federal Home Loan Banks.
The Company has utilized this program to manage the duration of its liabilities
and to earn spread income, which is the difference between the financing cost
and the earnings from the investments purchased with those funds. At September
30, 2006, the Company had an outstanding advance of $55.0 million. The advance
was obtained at a fixed rate and has a term to maturity of 13.7 years. In
addition, the Company has from time to time utilized reverse repurchase
agreements, futures and option contracts and interest rate and credit default
swaps in connection with its investment strategy. These transactions may require
the Company to maintain securities or cash on deposit with the applicable
counterparty as collateral. As the market value of the collateral or contracts
changes, the Company may be required to deposit additional collateral or be
entitled to have a portion of the collateral returned to it. The Company also
maintains a securities lending program under which certain securities from its
portfolio are loaned to other institutions for short periods of time. The
Company maintains full ownership rights to the securities loaned and continues
to earn interest and dividends on them. The collateral received for securities
loaned is recorded at the fair value of the collateral, which is generally in an
amount in excess of the market value of the securities loaned. The Company's
institutional lending agent monitors the market value of the securities loaned
and obtains additional collateral as necessary.

The types and amounts of investments made by the Company's insurance
subsidiaries are subject to the insurance laws and regulations of their
respective states of domicile. Each of these states has comprehensive investment
regulations. In addition, the Company's revolving credit facility also contains
limitations, with which the Company is currently in compliance in all material
respects, on the composition of the Company's investment portfolio. The Company
also continually monitors its investment portfolio and attempts to ensure that
the risks associated with concentrations of investments in either a particular
sector of the market or a single entity are limited.

     THE COMPANY'S FINANCIAL POSITION EXPOSES THE COMPANY TO INTEREST RATE
RISKS.

Because the Company's primary assets and liabilities are financial in nature,
the Company's consolidated financial position and earnings are subject to risks
resulting from changes in interest rates. The Company manages this risk by
active portfolio management focusing on minimizing its exposure to fluctuations
in interest rates by matching its invested assets and related liabilities and by
periodically adjusting the crediting rates on its annuity products. The
profitability of certain group employee


                                      -19-

<PAGE>

benefit products is also affected by the difference between the yield achieved
on invested assets and the discount rate used to calculate the related reserves.
The Company manages this risk by seeking to adjust the prices charged for these
products.

     THE COMPANY'S ABILITY TO REDUCE ITS EXPOSURE TO RISKS DEPENDS ON THE
AVAILABILITY AND COST OF REINSURANCE.

The Company transfers its exposure to some risks through reinsurance
arrangements with other insurance and reinsurance companies. Under the Company's
reinsurance arrangements, another insurer assumes a specified portion of the
Company's losses and loss adjustment expenses in exchange for a specified
portion of policy premiums. The availability, amount, cost and terms of
reinsurance may vary significantly based on market conditions. Any decrease in
the amount of the Company's reinsurance will increase the Company's risk of loss
and any increase in the cost of reinsurance will, absent a decrease in the
reinsurance amount, reduce the Company's premium income. In either case, the
Company's operating results could be adversely affected unless it is able to
accordingly adjust the prices or other terms of its insurance policies or
successfully implement other operational initiatives, as to which no assurance
can be given. Furthermore, the Company is subject to credit risk with respect to
reinsurance. The Company obtains reinsurance primarily through indemnity
reinsurance transactions in which the Company is still liable for the
transferred risks if the reinsurers fail to meet their financial obligations.
Such failures could materially adversely affect the Company's results of
operations, liquidity or financial condition.

Following the terrorist events of September 11, 2001, due to various factors,
higher prices and less favorable terms and conditions have been offered in the
reinsurance market. In the future, the Company's reinsurers may continue to seek
price increases, although the extent of any such increases cannot currently be
predicted. Also, there has been significantly reduced availability of
reinsurance covering risks such as terrorist and catastrophic events.
Accordingly, substantially all of the Company's coverages of this nature were
discontinued during 2002, which would result in the Company retaining a higher
portion of losses from such events if they occur. The Company has not been able
to replace such coverages on acceptable terms due to present market conditions,
and there can be no assurance that the Company will be able to do so in the
future. However, under the Terrorism Act, which terminates on December 31, 2007,
the federal government will pay 90% and 85% of the Company's covered losses
above the annual deductible during 2006 and 2007, respectively, relating to acts
of international terrorism from property and casualty products directly written
by SNCC. The occurrence of a significant terrorist or catastrophic event could
have a material adverse effect on the Company's results of operations, liquidity
or financial condition.

     THE INSURANCE BUSINESS IS A HEAVILY REGULATED INDUSTRY.

The Company's insurance subsidiaries, like other insurance companies, are highly
regulated by state insurance authorities in the states in which they are
domiciled and the other states in which they conduct business. Such regulations,
among other things, limit the amount of dividends and other payments that can be
made by such subsidiaries without prior regulatory approval and impose
restrictions on the amount and type of investments such subsidiaries may have.
These regulations also affect many other aspects of the Company's insurance
subsidiaries' businesses, including, for example, RBC requirements, various
reserve requirements, the terms, conditions and manner of sale and marketing of
insurance products, claims-handling practices and the form and content of
required financial statements. These regulations are intended to protect
policyholders rather than investors. The ability of the Company's insurance
subsidiaries to continue to conduct their businesses is dependent upon the
maintenance of their licenses in these various states.

In April 2004, the New York Attorney General (the "NYAG") initiated an
investigation into certain insurance broker compensation arrangements and other
aspects of dealings between insurance brokers and insurance companies, and, in
connection therewith, filed a civil complaint in October 2004 against a major
insurance brokerage firm based on certain of such firm's compensation
arrangements with insurers and alleged misconduct in connection with the
placement of insurance business. Other state regulators subsequently announced
the commencement of similar investigations and reviews. The Company has received
administrative subpoenas or similar requests for information from the Illinois
Division of Insurance, the Missouri Department of Insurance, the NYAG's office,
the North Carolina Department of Insurance and the Ohio Department of Insurance
in connection with their investigations. Additional regulatory inquiries may be
received by the Company's insurance subsidiaries in the future. The Company has
fully cooperated with inquiries it has received to date, and it intends to fully
cooperate with any future inquiries of this type.

Based on an internal review in 2004 relating to the Company's insurance
subsidiaries, the Company had identified certain potential issues concerning
past insurance solicitation practices involving SNCC and Marsh & McLennan. The
instances that the Company was able to specifically identify in this regard were
limited in number and involved modest amounts of premium. The Company reported
on these issues to the NYAG's office and to the Missouri Department of
Insurance. In 2005, SNCC was the subject of a targeted market conduct
examination by the Missouri Department of Insurance relating to these issues,
which did not result in any significant adverse findings. The Company will fully
cooperate with these and any other regulatory agencies relating to these issues.
It is not possible to predict the future impact of this matter on the Company or
of the various


                                      -20-

<PAGE>

investigations, or any regulatory changes or litigation resulting from such
investigations, on the insurance industry or on the Company and its insurance
subsidiaries.

From time to time, increased scrutiny has been placed upon the insurance
regulatory framework, and a number of state legislatures have considered or
enacted legislative measures that alter, and in many cases increase, state
authority to regulate insurance companies. In addition to legislative
initiatives of this type, the NAIC and insurance regulators are continuously
involved in a process of reexamining existing laws and regulations and their
application to insurance companies. Furthermore, while the federal government
currently does not directly regulate the insurance business, federal legislation
and administrative policies (and court interpretations thereof) in a number of
areas, such as employee benefits regulation, age, sex and disability-based
discrimination, financial services regulation and federal taxation, can
significantly affect the insurance business. It is not possible to predict the
future impact of changing regulation on the operations of the Company and its
insurance subsidiaries.

The Company's insurance subsidiaries can also be required, under solvency or
guaranty laws of most states in which they do business, to pay assessments to
fund policyholder losses or liabilities of insurance companies that become
insolvent.

     THE FINANCIAL SERVICES INDUSTRY IS HIGHLY COMPETITIVE.

The Company competes with numerous other insurance and financial services
companies. Many of these organizations have substantially greater assets, higher
ratings from rating agencies, larger and more diversified portfolios of
insurance products and larger agency sales operations than the Company.
Competition in asset accumulation product markets is also encountered from
banks, securities brokerage firms and other financial intermediaries marketing
alternative savings products, such as mutual funds, traditional bank investments
and retirement funding alternatives.

     THE COMPANY MAY BE ADVERSELY IMPACTED BY A DECLINE IN THE RATINGS OF ITS
INSURANCE SUBSIDIARIES OR ITS OWN CREDIT RATINGS.

Ratings with respect to claims-paying ability and financial strength have become
an increasingly important factor impacting the competitive position of insurance
companies. The financial strength ratings of RSLIC as of October 2006 as
assigned by A.M. Best, Fitch, Moody's and Standard & Poor's were A (Excellent),
A (Strong), A3 (Good) and A (Strong), respectively. The financial strength
ratings of SNCC as of October 2006 as assigned by A.M. Best, Fitch and Standard
& Poor's were A (Excellent), A (Strong) and A (Strong), respectively. Each of
the rating agencies reviews its ratings of companies periodically and there can
be no assurance that the current ratings of the Company's insurance subsidiaries
will be maintained or improved in the future. Claims-paying and financial
strength ratings are based upon factors relevant to policyholders and are not
directed toward protection of investors. Downgrades in the ratings of the
Company's insurance subsidiaries could adversely affect sales of their products
and could have a material adverse effect on the results of the Company's
operations. In addition, downgrades in the Company's credit ratings could
materially adversely affect its ability to access the capital markets. The
Company's senior unsecured debt ratings as of October 2006 from A.M. Best,
Fitch, Moody's and Standard & Poor's were bbb, BBB, Baa3 and BBB, respectively.
The ratings for RSLIC's fixed and floating rate funding agreements as of October
2006 from A.M. Best, Moody's and Standard & Poor's were a, A3 and A,
respectively.

     ALMOST HALF OF THE VOTING POWER OF DELPHI IS CONTROLLED BY ROBERT
ROSENKRANZ, WHOSE INTERESTS MAY DIFFER FROM THOSE OF OTHER SECURITYHOLDERS.

Each share of Delphi's Class A Common Stock entitles the holder to one vote and
each share of Delphi's Class B Common Stock entitles the holder to a number of
votes per share equal to the lesser of (1) the number of votes such that the
aggregate of all outstanding shares of Class B Common Stock will be entitled to
cast 49.9% of all of the votes represented by the aggregate of all outstanding
shares of Class A Common Stock and Class B Common Stock or (2) ten votes. Each
share of Class B Common Stock is convertible at any time into one share of Class
A Common Stock. The holders of the Class A Common Stock vote as a separate class
to elect one director of Delphi. As of November 1, 2006, Mr. Robert Rosenkranz,
our Chairman and Chief Executive Officer, by means of beneficial ownership of
the general partner of Rosenkranz & Company and direct or beneficial ownership,
had the power to vote all of the outstanding shares of Class B Common Stock,
which as of such date represented 49.9% of the aggregate voting power of the
Common Stock. Holders of a majority of the combined voting power of Delphi's
stockholders have the power to elect all of the members of its Board of
Directors (other than the director elected by the holders of Class A Common
Stock) and to determine the outcome of fundamental corporate transactions,
including mergers and acquisitions, consolidations and sales of all or
substantially all of its assets. We are a party to consulting and other
agreements with certain affiliates of Mr. Rosenkranz under which various fees
are paid to such affiliates, and which are expected to continue in accordance
with their terms.


                                      -21-

<PAGE>

ITEM 6. EXHIBITS

     11.1 Computation of Results per Share of Common Stock (incorporated by
          reference to Note E 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

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                        DELPHI FINANCIAL GROUP, INC.
                                        (Registrant)


                                        /s/ ROBERT ROSENKRANZ
                                        ----------------------------------------
                                        Robert Rosenkranz
                                        Chairman of the Board and Chief
                                        Executive Officer
                                        (Principal Executive Officer)


                                        /s/ THOMAS W. BURGHART
                                        ----------------------------------------
                                        Thomas W. Burghart
                                        Vice President and Treasurer
                                        (Principal Accounting and Financial
                                        Officer)

Date: November 8, 2006


                                      -22-