##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended March 31, 2010
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number 001-11462
 DELPHI FINANCIAL GROUP, INC.
 
  Delaware
    
    (302) 478-5142
    
    13-3427277(State or other jurisdiction of
    
    (Registrants telephone number,
    
    (I.R.S. Employer Identificationincorporation or organization)
    
    including area code)
    
    Number)
 1105 North Market Street, Suite 1230, P.O. Box 8985, Wilmington, Delaware
    
    19899(Address of principal executive offices)
    
    (Zip Code)
  þ o
  o o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
  o þ




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##### 



DELPHI FINANCIAL GROUP, INC.
FORM 10-Q
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND OTHER INFORMATION
 PagePART I. FINANCIAL INFORMATION (UNAUDITED)Item 1. Financial StatementsConsolidated Statements of Income for the Three
Months Ended March 31, 2010 and 2009
    
    
    3Consolidated Balance Sheets at March 31, 2010 and
December 31, 2009
    
    
    4Consolidated Statements of Equity for the
Three Months Ended March 31, 2010 and 2009
    
    
    5Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2010 and 2009
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    18Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    24Item 4. Controls and Procedures
    
    
    24PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    25Item 1A. Risk Factors
    
    
    25Item 6. Exhibits
    
    
    25Signatures
    
    
    25EX-31.1EX-31.2EX-32.1
  -2-




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##### Table of Contents



PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
 DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, Except Per Share Data)
(Unaudited)
 Three Months EndedMarch 31,2010
    
    
    2009Revenue:Premium and fee income
    
    $
    347,763
    
    
    $
    357,721Net investment income
    
    
    84,050
    
    
    
    62,855Net realized investment losses:Total other than temporary impairment losses
    
    
    (27,273
    )
    
    
    (17,608
    )Less: Portion of other than temporary impairment
losses recognized in other comprehensive income
    
    
    4,275
    
    
    
    Net impairment losses recognized in earnings
    
    
    (22,998
    )
    
    
    (17,608
    )Other net realized investment gains (losses)
    
    
    7,892
    
    
    
    (4,391
    )Net realized investment losses
    
    
    (15,106
    )
    
    
    (21,999
    )Total revenues
    
    
    416,707
    
    
    
    398,577Benefits and expenses:Benefits, claims and interest credited to policyholders
    
    
    246,321
    
    
    
    255,598Commissions
    
    
    21,396
    
    
    
    22,704Amortization of cost of business acquired
    
    
    25,570
    
    
    
    23,293Other operating expenses
    
    
    64,664
    
    
    
    60,137357,951
    
    
    
    361,732Operating income
    
    
    58,756
    
    
    
    36,845Interest expense:Corporate debt
    
    
    7,323
    
    
    
    3,985Junior subordinated debentures
    
    
    3,241
    
    
    
    3,24010,564
    
    
    
    7,225Income before income tax expense
    
    
    48,192
    
    
    
    29,620Income tax expense
    
    
    10,529
    
    
    
    5,136Net income
    
    $
    37,663
    
    
    $
    24,484Basic results per share of common stock:Net income
    
    $
    0.68
    
    
    $
    0.51Diluted results per share of common stock:Net income
    
    $
    0.68
    
    
    $
    0.51Dividends paid per share of common stock
    
    $
    0.10
    
    
    $
    0.10
  -3-




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##### Table of Contents



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Per Share Data)
 March 31,
    
    
    December 31,2010
    
    
    2009(Unaudited)Assets:Investments:Fixed maturity securities, available for sale
    
    $
    5,107,812
    
    
    $
    4,875,681Short-term investments
    
    
    420,292
    
    
    
    406,782Other investments
    
    
    441,613
    
    
    
    466,8555,969,717
    
    
    
    5,749,318Cash
    
    
    61,783
    
    
    
    65,464Cost of business acquired
    
    
    238,437
    
    
    
    250,311Reinsurance receivables
    
    
    360,429
    
    
    
    355,030Goodwill
    
    
    93,929
    
    
    
    93,929Other assets
    
    
    304,899
    
    
    
    293,835Assets held in separate account
    
    
    115,277
    
    
    
    113,488Total assets
    
    $
    7,144,471
    
    
    $
    6,921,375Liabilities and Equity:Future policy benefits:Life
    
    $
    347,674
    
    
    $
    341,736Disability and accident
    
    
    789,332
    
    
    
    781,701Unpaid claims and claim expenses:Life
    
    
    60,022
    
    
    
    58,665Disability and accident
    
    
    439,410
    
    
    
    433,273Casualty
    
    
    1,222,165
    
    
    
    1,187,814Policyholder account balances
    
    
    1,469,397
    
    
    
    1,454,114Corporate debt
    
    
    393,750
    
    
    
    365,750Junior subordinated debentures
    
    
    175,000
    
    
    
    175,000Other liabilities and policyholder funds
    
    
    711,035
    
    
    
    647,269Liabilities related to separate account
    
    
    115,277
    
    
    
    113,488Total liabilities
    
    
    5,723,062
    
    
    
    5,558,810Equity:Preferred Stock, $.01 par; 50,000,000 shares authorized, none issued
    
    
    
    
    
    
    Class A Common Stock, $.01 par; 150,000,000 shares authorized;
56,122,682 and 55,995,995 shares issued and outstanding, respectively
    
    
    561
    
    
    
    560Class B Common Stock, $.01 par; 20,000,000 shares authorized;
5,981,049 shares issued and outstanding
    
    
    60
    
    
    
    60Additional paid-in capital
    
    
    667,727
    
    
    
    661,895Accumulated other comprehensive loss
    
    
    (11,096
    )
    
    
    (33,956
    )Retained earnings
    
    
    959,845
    
    
    
    927,706Treasury stock, at cost; 7,761,216 shares of Class A Common Stock, and
227,216 shares of Class B Common Stock
    
    
    (197,246
    )
    
    
    (197,246
    )Total shareholders equity
    
    
    1,419,851
    
    
    
    1,359,019Noncontrolling interest
    
    
    1,558
    
    
    
    3,546Total equity
    
    
    1,421,409
    
    
    
    1,362,565Total liabilities and equity
    
    $
    7,144,471
    
    
    $
    6,921,375
  -4-




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##### Table of Contents



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(Dollars in Thousands)
(Unaudited)
 AccumulatedClass A
    
    
    Class B
    
    
    Additional
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    Non-Common
    
    
    Common
    
    
    Paid in
    
    
    Comprehensive
    
    
    Retained
    
    
    Treasury
    
    
    Shareholders
    
    
    controlling
    
    
    TotalStock
    
    
    Stock
    
    
    Capital
    
    
    Income (Loss)
    
    
    Earnings
    
    
    Stock
    
    
    Equity
    
    
    Interest
    
    
    EquityBalance, January 1, 2009
    
    $
    489
    
    
    $
    60
    
    
    $
    522,596
    
    
    $
    (351,710
    )
    
    $
    846,390
    
    
    $
    (197,246
    )
    
    $
    820,579
    
    
    $
    4,035
    
    
    $
    824,614Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,484
    
    
    
    
    
    
    
    24,484
    
    
    
    (5
    )
    
    
    24,479Other comprehensive income:Decrease in net
unrealized depreciation
on investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,580
    
    
    
    
    
    
    
    
    
    
    
    15,580
    
    
    
    
    
    
    
    15,580Decrease in net loss on
cash flow hedge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    196
    
    
    
    
    
    
    
    
    
    
    
    196
    
    
    
    
    
    
    
    196Change in net periodic
pension cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    291
    
    
    
    
    
    
    
    
    
    
    
    291
    
    
    
    
    
    
    
    291Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,551
    
    
    
    (5
    )
    
    
    40,546Change in noncontrolling
interest ownership
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (93
    )
    
    
    (93
    )Exercise of stock options
    
    
    1
    
    
    
    
    
    
    
    1,450
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,451
    
    
    
    
    
    
    
    1,451Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    2,131
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,131
    
    
    
    
    
    
    
    2,131Cash dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,302
    )
    
    
    
    
    
    
    (5,302
    )
    
    
    
    
    
    
    (5,302
    )Balance, March 31, 2009
    
    $
    490
    
    
    $
    60
    
    
    $
    526,177
    
    
    $
    (335,643
    )
    
    $
    865,572
    
    
    $
    (197,246
    )
    
    $
    859,410
    
    
    $
    3,937
    
    
    $
    863,347Balance, January 1, 2010
    
    $
    560
    
    
    $
    60
    
    
    $
    661,895
    
    
    $
    (33,956
    )
    
    $
    927,706
    
    
    $
    (197,246
    )
    
    $
    1,359,019
    
    
    $
    3,546
    
    
    $
    1,362,565Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37,663
    
    
    
    
    
    
    
    37,663
    
    
    
    65
    
    
    
    37,728Other comprehensive income:Decrease in net
unrealized depreciation
on investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,050
    
    
    
    
    
    
    
    
    
    
    
    24,050
    
    
    
    
    
    
    
    24,050Increase in other than
temporary impairment
losses recognized in
other comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,437
    )
    
    
    
    
    
    
    
    
    
    
    (1,437
    )
    
    
    
    
    
    
    (1,437
    )Decrease in net loss on
cash flow hedge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    196
    
    
    
    
    
    
    
    
    
    
    
    196
    
    
    
    
    
    
    
    196Change in net periodic
pension cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    51
    
    
    
    
    
    
    
    
    
    
    
    51
    
    
    
    
    
    
    
    51Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60,523
    
    
    
    65
    
    
    
    60,588Change in noncontrolling
interest ownership
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,053
    )
    
    
    (2,053
    )Exercise of stock options
    
    
    1
    
    
    
    
    
    
    
    4,044
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,045
    
    
    
    
    
    
    
    4,045Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    1,788
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,788
    
    
    
    
    
    
    
    1,788Cash dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,524
    )
    
    
    
    
    
    
    (5,524
    )
    
    
    
    
    
    
    (5,524
    )Balance, March 31, 2010
    
    $
    561
    
    
    $
    60
    
    
    $
    667,727
    
    
    $
    (11,096
    )
    
    $
    959,845
    
    
    $
    (197,246
    )
    
    $
    1,419,851
    
    
    $
    1,558
    
    
    $
    1,421,409
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##### Table of Contents



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
 Three Months EndedMarch 31,2010
    
    
    2009Operating activities:Net income
    
    $
    37,663
    
    
    $
    24,484Adjustments to reconcile net income to net cash provided
by operating activities:Change in policy liabilities and policyholder accounts
    
    
    94,640
    
    
    
    99,523Net change in reinsurance receivables and payables
    
    
    (7,428
    )
    
    
    (7,086
    )Amortization, principally the cost of business acquired and investments
    
    
    15,413
    
    
    
    13,543Deferred costs of business acquired
    
    
    (30,901
    )
    
    
    (34,392
    )Net realized losses on investments
    
    
    15,106
    
    
    
    21,999Net change in federal income tax asset/liability
    
    
    9,755
    
    
    
    4,114Other
    
    
    (32,743
    )
    
    
    (30,969
    )Net cash provided by operating activities
    
    
    101,505
    
    
    
    91,216Investing activities:Purchases of investments and loans made
    
    
    (435,672
    )
    
    
    (207,901
    )Sales of investments and receipts from repayment of loans
    
    
    165,711
    
    
    
    77,696Maturities of investments
    
    
    139,323
    
    
    
    261,307Net change in short-term investments
    
    
    (13,510
    )
    
    
    (207,968
    )Change in deposit in separate account
    
    
    
    
    
    
    4,845Net cash used by investing activities
    
    
    (144,148
    )
    
    
    (72,021
    )Financing activities:Deposits to policyholder accounts
    
    
    40,332
    
    
    
    61,681Withdrawals from policyholder accounts
    
    
    (26,138
    )
    
    
    (70,938
    )Proceeds from issuance of 2020 Senior Notes
    
    
    250,000
    
    
    
    Borrowings under revolving credit facility
    
    
    
    
    
    
    17,000Principal payments under revolving credit facility
    
    
    (222,000
    )
    
    
    (2,000
    )Cash dividends paid on common stock
    
    
    (5,524
    )
    
    
    (5,302
    )Other financing activities
    
    
    2,292
    
    
    
    816Net cash provided by financing activities
    
    
    38,962
    
    
    
    1,257(Decrease) increase in cash
    
    
    (3,681
    )
    
    
    20,452Cash at beginning of period
    
    
    65,464
    
    
    
    63,837Cash at end of period
    
    $
    61,783
    
    
    $
    84,289
  -6-




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##### Table of Contents



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




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##### Table of Contents



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Note B  Investments  (Continued)
  March 31, 2010Gross UnrealizedOther ThanAmortized
    
    
    
    
    
    
    
    
    
    
    Temporary
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Impairments
    
    
    Value(dollars in thousands)Residential mortgage-backed securities
    
    $
    1,561,252
    
    
    $
    93,481
    
    
    $
    (53,357
    )
    
    $
    (33,531
    )
    
    $
    1,567,845Commercial mortgage-backed securities
    
    
    28,007
    
    
    
    514
    
    
    
    (1,982
    )
    
    
    (243
    )
    
    
    26,296Corporate securities
    
    
    1,216,195
    
    
    
    61,323
    
    
    
    (20,789
    )
    
    
    
    
    
    
    1,256,729Collateralized debt obligations
    
    
    208,240
    
    
    
    94
    
    
    
    (91,686
    )
    
    
    (1,619
    )
    
    
    115,029U.S. Treasury and other U.S. Government
guaranteed securities
    
    
    196,671
    
    
    
    3,245
    
    
    
    (664
    )
    
    
    
    
    
    
    199,252U.S. Government-sponsored enterprise securities
    
    
    45,115
    
    
    
    155
    
    
    
    (20
    )
    
    
    
    
    
    
    45,250Obligations of U.S. states, municipalities and
political subdivisions
    
    
    1,858,706
    
    
    
    57,249
    
    
    
    (18,544
    )
    
    
    
    
    
    
    1,897,411Total fixed maturity securities
    
    $
    5,114,186
    
    
    $
    216,061
    
    
    $
    (187,042
    )
    
    $
    (35,393
    )
    
    $
    5,107,812
 December 31, 2009Gross UnrealizedOther ThanAmortized
    
    
    
    
    
    
    
    
    
    
    Temporary
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Impairments
    
    
    Value(dollars in thousands)Residential mortgage-backed securities
    
    $
    1,542,204
    
    
    $
    81,652
    
    
    $
    (65,029
    )
    
    $
    (29,450
    )
    
    $
    1,529,377Commercial mortgage-backed securities
    
    
    29,773
    
    
    
    206
    
    
    
    (3,682
    )
    
    
    (288
    )
    
    
    26,009Corporate securities
    
    
    1,219,711
    
    
    
    49,373
    
    
    
    (30,918
    )
    
    
    
    
    
    
    1,238,166Collateralized debt obligations
    
    
    215,301
    
    
    
    868
    
    
    
    (98,281
    )
    
    
    (3,444
    )
    
    
    114,444U.S. Treasury and other U.S. Government
guaranteed securities
    
    
    108,114
    
    
    
    3,036
    
    
    
    (344
    )
    
    
    
    
    
    
    110,806U.S. Government-sponsored enterprise securities
    
    
    16,750
    
    
    
    483
    
    
    
    (231
    )
    
    
    
    
    
    
    17,002Obligations of U.S. states, municipalities and
political subdivisions
    
    
    1,801,595
    
    
    
    59,108
    
    
    
    (20,826
    )
    
    
    
    
    
    
    1,839,877Total fixed maturity securities
    
    $
    4,933,448
    
    
    $
    194,726
    
    
    $
    (219,311
    )
    
    $
    (33,182
    )
    
    $
    4,875,681
  Amortized
    
    
    FairCost
    
    
    Value(dollars in thousands)Residential mortgage-backed securities
    
    $
    1,561,252
    
    
    $
    1,567,845Commercial mortgage-backed
securities
    
    
    28,007
    
    
    
    26,296Other fixed maturity securities:One year or less
    
    
    68,462
    
    
    
    67,826Greater than 1, up to 5 years
    
    
    550,585
    
    
    
    566,397Greater than 5, up to 10 years
    
    
    855,932
    
    
    
    831,402Greater than 10 years
    
    
    2,049,948
    
    
    
    2,048,046Total
    
    $
    5,114,186
    
    
    $
    5,107,812
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##### Table of Contents



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Note B  Investments  (Continued)
  March 31, 2010Less Than 12 Months
    
    
    12 Months or More
    
    
    TotalGross
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    GrossFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses(dollars in thousands)Residential mortgage-backed securities
    
    $
    174,733
    
    
    $
    (7,811
    )
    
    $
    304,112
    
    
    $
    (79,077
    )
    
    $
    478,845
    
    
    $
    (86,888
    )Commercial mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    15,489
    
    
    
    (2,225
    )
    
    
    15,489
    
    
    
    (2,225
    )Corporate securities
    
    
    95,995
    
    
    
    (3,460
    )
    
    
    160,783
    
    
    
    (17,329
    )
    
    
    256,778
    
    
    
    (20,789
    )Collateralized debt obligations
    
    
    15,986
    
    
    
    (5,796
    )
    
    
    98,330
    
    
    
    (87,509
    )
    
    
    114,316
    
    
    
    (93,305
    )U.S. Treasury and other U.S. Government
guaranteed securities
    
    
    142,660
    
    
    
    (664
    )
    
    
    
    
    
    
    
    
    
    
    142,660
    
    
    
    (664
    )U.S. Government-sponsored enterprise
securities
    
    
    10,980
    
    
    
    (20
    )
    
    
    
    
    
    
    
    
    
    
    10,980
    
    
    
    (20
    )Obligations of U.S. states, municipalities
& political subdivisions
    
    
    313,694
    
    
    
    (5,246
    )
    
    
    159,053
    
    
    
    (13,298
    )
    
    
    472,747
    
    
    
    (18,544
    )Total fixed maturity securities
    
    $
    754,048
    
    
    $
    (22,997
    )
    
    $
    737,767
    
    
    $
    (199,438
    )
    
    $
    1,491,815
    
    
    $
    (222,435
    )
 December 31, 2009Less Than 12 Months
    
    
    12 Months or More
    
    
    TotalGross
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    GrossFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses(dollars in thousands)Residential mortgage-backed securities
    
    $
    235,605
    
    
    $
    (6,783
    )
    
    $
    312,760
    
    
    $
    (87,696
    )
    
    $
    548,365
    
    
    $
    (94,479
    )Commercial mortgage-backed securities
    
    
    3,484
    
    
    
    (17
    )
    
    
    18,466
    
    
    
    (3,953
    )
    
    
    21,950
    
    
    
    (3,970
    )Corporate securities
    
    
    111,656
    
    
    
    (3,739
    )
    
    
    200,186
    
    
    
    (27,179
    )
    
    
    311,842
    
    
    
    (30,918
    )Collateralized debt obligations
    
    
    9,097
    
    
    
    (4,179
    )
    
    
    95,651
    
    
    
    (97,546
    )
    
    
    104,748
    
    
    
    (101,725
    )U.S. Treasury and other U.S. Government
guaranteed securities
    
    
    56,693
    
    
    
    (344
    )
    
    
    
    
    
    
    
    
    
    
    56,693
    
    
    
    (344
    )U.S. Government-sponsored enterprise
securities
    
    
    9,769
    
    
    
    (231
    )
    
    
    
    
    
    
    
    
    
    
    9,769
    
    
    
    (231
    )Obligations of U.S. states, municipalities
& political subdivisions
    
    
    331,027
    
    
    
    (5,128
    )
    
    
    160,359
    
    
    
    (15,698
    )
    
    
    491,386
    
    
    
    (20,826
    )Total fixed maturity securities
    
    $
    757,331
    
    
    $
    (20,421
    )
    
    $
    787,422
    
    
    $
    (232,072
    )
    
    $
    1,544,753
    
    
    $
    (252,493
    )
  Three Months EndedMarch 31,2010
    
    
    2009(dollars in thousands)Gross investment income:Fixed maturity securities, available for sale
    
    $
    81,118
    
    
    $
    70,484Mortgage loans
    
    
    1,913
    
    
    
    1,199Short-term investments
    
    
    20
    
    
    
    248Other
    
    
    8,817
    
    
    
    (799
    )91,868
    
    
    
    71,132Less: Investment expenses
    
    
    (7,818
    )
    
    
    (8,277
    )$
    84,050
    
    
    $
    62,855
 -9-




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DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Note B  Investments  (Continued)
  Three Months EndedMarch 31,2010
    
    
    2009(dollars in thousands)Fixed maturity securities, available for sale
    
    $
    (11,449
    )
    
    $
    (18,457
    )Mortgage loans
    
    
    (4,817
    )
    
    
    (3,376
    )Other investments
    
    
    1,160
    
    
    
    (166
    )$
    (15,106
    )
    
    $
    (21,999
    )
     -10-




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DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Note B  Investments  (Continued)
  Three months endedMarch 31, 2010Balance at the beginning of period
    
    $
    89,658Increases attributable to credit losses on securities for which
an other than temporary impairment was not previously recognized
    
    
    6,987Increases attributable to credit losses on securities for which
an other than temporary impairment was previously recognized
    
    
    7,501Reductions due to sales, maturities, pay downs or prepayments of
securities
for which an other than temporary impairment was previously
recognized
    
    
    (18,054
    )Balance at the end of the period
    
    $
    86,092
     -11-




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DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Note C  Fair Value Measurements
          -12-




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DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Note C  Fair Value Measurements  (Continued)
         -13-




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DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Note C  Fair Value Measurements  (Continued)
  March 31, 2010Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3(dollars in thousands)Assets:Fixed maturity securities, available for sale:Residential mortgage-backed securities
    
    $
    1,567,845
    
    
    $
    
    
    
    $
    1,413,632
    
    
    $
    154,213Commercial mortgage-backed securities
    
    
    26,296
    
    
    
    
    
    
    
    
    
    
    
    26,296Corporate securities
    
    
    1,256,729
    
    
    
    5,382
    
    
    
    1,162,879
    
    
    
    88,468Collateralized debt obligations
    
    
    115,029
    
    
    
    
    
    
    
    
    
    
    
    115,029U.S. Treasury and other U.S. Government
guaranteed securities
    
    
    199,252
    
    
    
    166,549
    
    
    
    27,264
    
    
    
    5,439U.S. Government-sponsored enterprise
securities
    
    
    45,250
    
    
    
    
    
    
    
    45,250
    
    
    
    Obligations of U.S. states, municipalities
and political subdivisions
    
    
    1,897,411
    
    
    
    
    
    
    
    1,897,411
    
    
    
    Other investments
    
    
    95,686
    
    
    
    86,322
    
    
    
    
    
    
    
    9,364Assets held in separate account
    
    
    115,277
    
    
    
    
    
    
    
    
    
    
    
    115,277Total
    
    $
    5,318,775
    
    
    $
    258,253
    
    
    $
    4,546,436
    
    
    $
    514,086Liabilities:Other liabilities
    
    $
    66,596
    
    
    $
    66,596
    
    
    $
    
    
    
    $
    
  Three Months Ended March 31, 2010U.S.Residential
    
    
    Commercial
    
    
    
    
    
    
    
    
    
    
    Treasury and
    
    
    
    
    
    
    AssetsMortgage-
    
    
    Mortgage-
    
    
    Collateralized
    
    
    Govt
    
    
    Other U.S.
    
    
    
    
    
    
    held inbacked
    
    
    backed
    
    
    Corporate
    
    
    Debt
    
    
    Guaranteed
    
    
    Other
    
    
    SeparateTotal
    
    
    Securities
    
    
    Securities
    
    
    Securities
    
    
    Obligations
    
    
    Securities
    
    
    Investments
    
    
    Account(dollars in thousands)Balance at beginning of quarter
    
    $
    514,448
    
    
    $
    143,513
    
    
    $
    26,009
    
    
    $
    95,920
    
    
    $
    114,444
    
    
    $
    11,367
    
    
    $
    9,707
    
    
    $
    113,488Total (losses) gainsIncluded in earnings
    
    
    (16,846
    )
    
    
    (9,952
    )
    
    
    (1,197
    )
    
    
    (2,232
    )
    
    
    (3,265
    )
    
    
    (22
    )
    
    
    (178
    )
    
    
    Included in other comprehensive income
    
    
    11,440
    
    
    
    2,076
    
    
    
    2,053
    
    
    
    (161
    )
    
    
    7,647
    
    
    
    (7
    )
    
    
    (168
    )
    
    
    Purchases, issuances and settlements
    
    
    4,950
    
    
    
    18,576
    
    
    
    (569
    )
    
    
    (5,153
    )
    
    
    (3,797
    )
    
    
    (5,899
    )
    
    
    3
    
    
    
    1,789Transfers into Level 3
    
    
    3,825
    
    
    
    
    
    
    
    
    
    
    
    3,825
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Transfer out of Level 3
    
    
    (3,731
    )
    
    
    
    
    
    
    
    
    
    
    (3,731
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at end of the period
    
    $
    514,086
    
    
    $
    154,213
    
    
    $
    26,296
    
    
    $
    88,468
    
    
    $
    115,029
    
    
    $
    5,439
    
    
    $
    9,364
    
    
    $
    115,277Net losses for the period
included in earnings
attributable to the net
change in unrealized
gains and losses of assets measured at fair
value using unobservable inputs and held
at March 31, 2010 (1)
    
    $
    (16,640
    )
    
    $
    (9,948
    )
    
    $
    (1,153
    )
    
    $
    (3,168
    )
    
    $
    (2,193
    )
    
    $
    
    
    
    $
    (178
    )
    
    $
    
 
 (1)
    
    In the first quarter of 2010, net losses of $0.2 million and $16.4 million were
reported in the consolidated statements of income under the captions net investment
income and net realized investment losses, respectively. -14-




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DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Note C  Fair Value Measurements  (Continued)
  March 31, 2010
    
    
    December 31, 2009Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairValue
    
    
    Value
    
    
    Value
    
    
    Value(dollars in thousands)Assets:Short-term investments
    
    
    420,292
    
    
    
    420,292
    
    
    
    406,782
    
    
    
    406,782Other investments
    
    
    345,927
    
    
    
    345,927
    
    
    
    370,565
    
    
    
    370,565Liabilities:Policyholder account balances
    
    
    1,384,568
    
    
    
    1,510,737
    
    
    
    1,351,565
    
    
    
    1,471,669Corporate debt
    
    
    393,750
    
    
    
    405,329
    
    
    
    365,750
    
    
    
    361,754Junior subordinated debentures
    
    
    175,000
    
    
    
    146,860
    
    
    
    175,000
    
    
    
    124,600Advances from Federal Home Loan Bank
    
    
    55,342
    
    
    
    69,425
    
    
    
    55,342
    
    
    
    68,320Liabilities related to separate account
    
    
    115,277
    
    
    
    115,277
    
    
    
    113,488
    
    
    
    113,488
    -15-




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DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Note D  Corporate Debt
  Note E  Segment Information
 Three Months EndedMarch 31,2010
    
    
    2009(dollars in thousands)Revenues:Group employee benefit products
    
    $
    386,291
    
    
    $
    381,521Asset accumulation products
    
    
    31,597
    
    
    
    27,501Other(1)
    
    
    13,925
    
    
    
    11,554431,813
    
    
    
    420,576Net realized investment losses
    
    
    (15,106
    )
    
    
    (21,999
    )$
    416,707
    
    
    $
    398,577Operating income (loss):Group employee benefit products
    
    $
    70,832
    
    
    $
    58,835Asset accumulation products
    
    
    10,412
    
    
    
    8,038Other(1)
    
    
    (7,382
    )
    
    
    (8,029
    )73,862
    
    
    
    58,844Net realized investment losses
    
    
    (15,106
    )
    
    
    (21,999
    )$
    58,756
    
    
    $
    36,845
 
 (1)
    
    Primarily consists of operations from integrated disability and absence management
services and certain corporate activities. Note F  Comprehensive Income
  Note G  Stock-Based Compensation
   -16-




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DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Note G  Stock-Based Compensation  (Continued)
   WeightedWeighted
    
    
    Average
    
    
    AggregateNumber
    
    
    Average
    
    
    Remaining
    
    
    Intrinsicof
    
    
    Exercise
    
    
    Contractual
    
    
    ValueOptions
    
    Options
    
    
    Price
    
    
    Term
    
    
    ($000)Outstanding at January 1, 2010
    
    
    3,927,758
    
    
    $
    29.10Granted
    
    
    499,919
    
    
    
    21.24Exercised
    
    
    (164,938
    )
    
    
    13.18Forfeited
    
    
    (12,350
    )
    
    
    25.77Expired
    
    
    (750
    )
    
    
    33.43Outstanding at March 31, 2010
    
    
    4,249,639
    
    
    
    28.80
    
    
    
    7.1
    
    
    $
    7,387Exercisable at March 31, 2010
    
    
    1,897,213
    
    
    $
    29.62
    
    
    
    5.7
    
    
    $
    3,007
   Note H Computation of Results per Share
  Three Months EndedMarch 31,2010
    
    
    2009Numerator:Net income
    
    $
    37,663
    
    
    $
    24,484Denominator:Weighted average common shares outstanding
    
    
    55,160
    
    
    
    48,034Effect of dilutive securities
    
    
    297
    
    
    
    89Weighted average common shares outstanding, assuming dilution
    
    
    55,457
    
    
    
    48,123Basic results per share of common stock:Net income
    
    $
    0.68
    
    
    $
    0.51Diluted results per share of common stock:Net income
    
    $
    0.68
    
    
    $
    0.51
 -17-




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##### Table of Contents



DELPHI FINANCIAL GROUP, INC.
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Item 7.
Managements Discussion and Analysis of Financial Condition and Results of Operations
 Introduction
     -18-




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Results of Operations
 Summary of Results.
 -19-




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##### Table of Contents



Three Months EndedMarch 31,2010
    
    
    2009Operating earnings
    
    $
    47,482
    
    
    $
    38,783Net realized investment losses, net of taxes (A)
    
    
    (9,819
    )
    
    
    (14,299
    )Net income
    
    $
    37,663
    
    
    $
    24,484Diluted results per share of common stock
Operating earnings
    
    $
    0.86
    
    
    $
    0.81Net realized investment losses, net of taxes (A)
    
    
    (0.18
    )
    
    
    (0.30
    )Net income
    
    $
    0.68
    
    
    $
    0.51
 
 (A)
    
    Net of an income tax benefit of $5.3 million and $7.7 million, or $0.10 per diluted
share and $0.16 per diluted share, for the three months ended March 31, 2010 and 2009,
respectively. The tax effect is calculated using the Companys statutory tax rate of
35%. Premium and Fee Income. .
 -20-




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##### Table of Contents



Net Investment Income.
 Net Realized Investment Losses.
  -21-




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##### Table of Contents



Benefits and Expenses.
 Interest Expense
 Income Tax Expense.
 Liquidity and Capital Resources
 General.
   -22-




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Investments.
   Reinsurance.
 -23-




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##### Table of Contents



Cash Flows
 Item 3.
Quantitative and Qualitative Disclosures About Market Risk
  Item 4.
Controls and Procedures
  Forward-Looking Statements And Cautionary Statements Regarding Certain Factors That May Affect
Future Results
  -24-




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##### Table of Contents



PART II. OTHER INFORMATION
 Item 1.
Legal Proceedings
   Item 1A.
Risk Factors
  Item 6.
    
    Exhibits
 11.1
    
    Computation of Results per Share of Common Stock (incorporated by reference to
Note H to the Consolidated
Financial Statements included elsewhere herein)31.1
    
    Certification by the Chairman of the Board and Chief Executive Officer of
Periodic Report Pursuant to Rule 13a-14(a) or 15d-14(a)31.2
    
    Certification by the Senior Vice President and Treasurer of Periodic Report
Pursuant to Rule 13a-14(a) or 15d-14(a)32.1
    
    Certification of Periodic Report Pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 SIGNATURES
  DELPHI FINANCIAL GROUP, INC./s/ ROBERT ROSENKRANZRobert RosenkranzChairman of the Board and Chief Executive Officer
(Principal Executive Officer)/s/THOMAS W. BURGHARTThomas W.BurghartSenior Vice President and Treasurer
(Principal Accounting and Financial Officer)  -25-