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 September 30, 2009
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number 001-11462
 DELPHI FINANCIAL GROUP, INC.
   Delaware (302)
    
    478-5142
    
    13-3427277(State or other jurisdiction of
    
    (Registrants telephone number,
    
    (I.R.S. Employer Identificationincorporation or organization)
    
    including area code)
    
    Number)
 1105 North Market Street, Suite 1230, P.O. Box 8985, Wilmington, Delaware
    
    19899(Address of principal executive offices)
    
    (Zip Code)
  þ o
  o o
  Large accelerated filer þ

    
    Accelerated filer o
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
  o þ




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##### 



DELPHI FINANCIAL GROUP, INC.
FORM 10-Q
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND OTHER INFORMATION
 PagePART I. FINANCIAL INFORMATION (UNAUDITED)Item 1. Financial StatementsConsolidated Statements of Income for the Three and
Nine Months Ended September 30, 2009 and 2008
    
    
    3Consolidated Balance Sheets at September 30, 2009 and
December 31, 2008
    
    
    4Consolidated Statements of Equity for the
Nine Months Ended September 30, 2009 and 2008
    
    
    5Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2009 and 2008
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    22Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    29Item 4. Controls and Procedures
    
    
    29PART II. OTHER INFORMATIONItem 1A. Risk Factors
    
    
    30Item 6. Exhibits
    
    
    31Signatures
    
    
    31
  -2-




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##### 



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, Except Per Share Data)
(Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenue:Premium and fee income
    
    $
    342,610
    
    
    $
    345,028
    
    
    $
    1,052,776
    
    
    $
    1,028,092Net investment income
    
    
    88,682
    
    
    
    19,407
    
    
    
    243,560
    
    
    
    112,494Net realized investment losses:Total other than temporary impairment losses
    
    
    (73,771
    )
    
    
    (28,173
    )
    
    
    (137,007
    )
    
    
    (52,479
    )Less: Portion of other than temporary impairment
losses recognized in other comprehensive income
    
    
    21,748
    
    
    
    
    
    
    
    42,467
    
    
    
    Net impairment losses recognized in earnings
    
    
    (52,023
    )
    
    
    (28,173
    )
    
    
    (94,540
    )
    
    
    (52,479
    )Other net realized investment gains (losses)
    
    
    1,564
    
    
    
    (5,567
    )
    
    
    (5,389
    )
    
    
    (7,196
    )(50,459
    )
    
    
    (33,740
    )
    
    
    (99,929
    )
    
    
    (59,675
    )Loss on redemption of junior subordinated deferrable
interest debentures underlying company-obligated
mandatorily redeemable capital securities issued
by unconsolidated subsidiaries
    
    
    
    
    
    
    (598
    )
    
    
    
    
    
    
    (598
    )Total revenues
    
    
    380,833
    
    
    
    330,097
    
    
    
    1,196,407
    
    
    
    1,080,313Benefits and expenses:Benefits, claims and interest credited to policyholders
    
    
    240,956
    
    
    
    244,042
    
    
    
    748,361
    
    
    
    730,709Commissions
    
    
    21,886
    
    
    
    22,254
    
    
    
    67,046
    
    
    
    64,374Amortization of cost of business acquired
    
    
    26,740
    
    
    
    21,814
    
    
    
    76,217
    
    
    
    58,459Other operating expenses
    
    
    61,054
    
    
    
    55,756
    
    
    
    181,813
    
    
    
    161,567350,636
    
    
    
    343,866
    
    
    
    1,073,437
    
    
    
    1,015,109Operating income (loss)
    
    
    30,197
    
    
    
    (13,769
    )
    
    
    122,970
    
    
    
    65,204Interest expense:Corporate debt
    
    
    3,806
    
    
    
    4,427
    
    
    
    11,667
    
    
    
    12,940Junior subordinated debentures
    
    
    3,247
    
    
    
    3,240
    
    
    
    9,728
    
    
    
    9,726Junior subordinated deferrable interest debentures
underlying company-obligated redeemable capital
securities issued by unconsolidated subsidiaries
    
    
    
    
    
    
    177
    
    
    
    
    
    
    
    9347,053
    
    
    
    7,844
    
    
    
    21,395
    
    
    
    23,600Income (loss) before income tax expense (benefit)
    
    
    23,144
    
    
    
    (21,613
    )
    
    
    101,575
    
    
    
    41,604Income tax expense (benefit)
    
    
    2,321
    
    
    
    (11,803
    )
    
    
    19,261
    
    
    
    3,395Net income (loss)
    
    $
    20,823
    
    
    $
    (9,810
    )
    
    $
    82,314
    
    
    $
    38,209Basic results per share of common stock:Net income (loss)
    
    $
    0.39
    
    
    $
    (0.20
    )
    
    $
    1.63
    
    
    $
    0.79Diluted results per share of common stock:Net income (loss)
    
    $
    0.39
    
    
    $
    (0.20
    )
    
    $
    1.63
    
    
    $
    0.78Dividends paid per share of common stock
    
    $
    0.10
    
    
    $
    0.10
    
    
    $
    0.30
    
    
    $
    0.29
  -3-




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##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Per Share Data)
 September 30,
    
    
    December 31,2009
    
    
    2008Assets:Investments:Fixed maturity securities, available for sale
    
    $
    4,608,184
    
    
    $
    3,773,382Short-term investments
    
    
    572,802
    
    
    
    401,620Other investments
    
    
    542,047
    
    
    
    479,9215,723,033
    
    
    
    4,654,923Cash
    
    
    82,269
    
    
    
    63,837Cost of business acquired
    
    
    244,930
    
    
    
    264,777Reinsurance receivables
    
    
    378,277
    
    
    
    376,731Goodwill
    
    
    93,929
    
    
    
    93,929Other assets
    
    
    320,428
    
    
    
    409,103Assets held in separate account
    
    
    109,016
    
    
    
    90,573Total assets
    
    $
    6,951,882
    
    
    $
    5,953,873Liabilities and Equity:Future policy benefits:Life
    
    $
    346,716
    
    
    $
    300,567Disability and accident
    
    
    775,320
    
    
    
    743,690Unpaid claims and claim expenses:Life
    
    
    64,110
    
    
    
    70,076Disability and accident
    
    
    426,802
    
    
    
    398,671Casualty
    
    
    1,158,937
    
    
    
    1,061,046Policyholder account balances
    
    
    1,452,332
    
    
    
    1,356,932Corporate debt
    
    
    365,750
    
    
    
    350,750Junior subordinated debentures
    
    
    175,000
    
    
    
    175,000Other liabilities and policyholder funds
    
    
    740,539
    
    
    
    581,954Liabilities related to separate account
    
    
    109,016
    
    
    
    90,573Total liabilities
    
    
    5,614,522
    
    
    
    5,129,259Equity:Preferred Stock, $.01 par; 50,000,000 shares authorized, none issued
    
    
    
    
    
    
    Class A Common Stock, $.01 par; 150,000,000 shares authorized;
55,922,807 and 48,946,432 shares issued, respectively
    
    
    559
    
    
    
    489Class B Common Stock, $.01 par; 20,000,000 shares authorized;
5,981,049 shares issued
    
    
    60
    
    
    
    60Additional paid-in capital
    
    
    659,683
    
    
    
    522,596Accumulated other comprehensive loss
    
    
    (46,303
    )
    
    
    (351,710
    )Retained earnings
    
    
    916,309
    
    
    
    846,390Treasury stock, at cost; 7,761,216 shares of Class A Common Stock and
227,216 shares of Class B Common Stock
    
    
    (197,246
    )
    
    
    (197,246
    )Total shareholders equity
    
    
    1,333,062
    
    
    
    820,579Noncontrolling interest
    
    
    4,298
    
    
    
    4,035Total equity
    
    
    1,337,360
    
    
    
    824,614Total liabilities and equity
    
    $
    6,951,882
    
    
    $
    5,953,873
  -4-




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##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY
(Dollars in Thousands)
(Unaudited)
 AccumulatedClass A
    
    
    Class B
    
    
    Additional
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    Non-Common
    
    
    Common
    
    
    Paid in
    
    
    Comprehensive
    
    
    Retained
    
    
    Treasury
    
    
    Shareholders
    
    
    controlling
    
    
    TotalStock
    
    
    Stock
    
    
    Capital
    
    
    Income (Loss)
    
    
    Earnings
    
    
    Stock
    
    
    Equity
    
    
    Interest
    
    
    EquityBalance, January 1, 2008
    
    $
    487
    
    
    $
    59
    
    
    $
    509,742
    
    
    $
    (42,497
    )
    
    $
    828,116
    
    
    $
    (154,517
    )
    
    $
    1,141,390
    
    
    $
    30,181
    
    
    $
    1,171,571Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38,209
    
    
    
    
    
    
    
    38,209
    
    
    
    1,697
    
    
    
    39,906Other comprehensive loss:Increase in net unrealized
depreciation on
investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (246,781
    )
    
    
    
    
    
    
    
    
    
    
    (246,781
    )
    
    
    (1,032
    )
    
    
    (247,813
    )Decrease in net loss on
cash flow hedge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    589
    
    
    
    
    
    
    
    
    
    
    
    589
    
    
    
    
    
    
    
    589Change in net periodic
pension cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35
    
    
    
    
    
    
    
    
    
    
    
    35
    
    
    
    
    
    
    
    35Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (207,948
    )
    
    
    665
    
    
    
    (207,283
    )Change in noncontrolling
interest ownership
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (491
    )
    
    
    (491
    )Exercise of stock options
    
    
    2
    
    
    
    1
    
    
    
    7,197
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,200
    
    
    
    
    
    
    
    7,200Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    4,880
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,880
    
    
    
    
    
    
    
    4,880Acquisition of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (42,729
    )
    
    
    (42,729
    )
    
    
    
    
    
    
    (42,729
    )Cash dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,716
    )
    
    
    
    
    
    
    (13,716
    )
    
    
    
    
    
    
    (13,716
    )Balance, September 30, 2008
    
    $
    489
    
    
    $
    60
    
    
    $
    521,819
    
    
    $
    (288,654
    )
    
    $
    852,609
    
    
    $
    (197,246
    )
    
    $
    889,077`
    
    
    $
    30,355
    
    
    $
    919,432Balance, January 1, 2009
    
    $
    489
    
    
    $
    60
    
    
    $
    522,596
    
    
    $
    (351,710
    )
    
    $
    846,390
    
    
    $
    (197,246
    )
    
    $
    820,579
    
    
    $
    4,035
    
    
    $
    824,614Cumulative effect
adjustment, April 1, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,372
    )
    
    
    2,372
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    82,314
    
    
    
    
    
    
    
    82,314
    
    
    
    226
    
    
    
    82,540Other comprehensive income:Decrease in net unrealized
depreciation on
investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    325,660
    
    
    
    
    
    
    
    
    
    
    
    325,660
    
    
    
    
    
    
    
    325,660Increase in other than
temporary impairment
losses recognized in other
comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19,343
    )
    
    
    
    
    
    
    
    
    
    
    (19,343
    )
    
    
    
    
    
    
    (19,343
    )Decrease in net loss on
cash flow hedge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    589
    
    
    
    
    
    
    
    
    
    
    
    589
    
    
    
    
    
    
    
    589Change in net periodic
pension cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    873
    
    
    
    
    
    
    
    
    
    
    
    873
    
    
    
    
    
    
    
    873Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    390,093
    
    
    
    226
    
    
    
    390,319Net contribution from
noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37
    
    
    
    37Issuance of common stock
    
    
    65
    
    
    
    
    
    
    
    121,056
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    121,121
    
    
    
    
    
    
    
    121,121Exercise of stock options
    
    
    5
    
    
    
    
    
    
    
    9,189
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,194
    
    
    
    
    
    
    
    9,194Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    6,842
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,842
    
    
    
    
    
    
    
    6,842Cash dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,767
    )
    
    
    
    
    
    
    (14,767
    )
    
    
    
    
    
    
    (14,767
    )Balance, September 30, 2009
    
    $
    559
    
    
    $
    60
    
    
    $
    659,683
    
    
    $
    (46,303
    )
    
    $
    916,309
    
    
    $
    (197,246
    )
    
    $
    1,333,062
    
    
    $
    4,298
    
    
    $
    1,337,360
  -5-




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##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
 Nine Months EndedSeptember 30,2009
    
    
    2008Operating activities:Net income
    
    $
    82,314
    
    
    $
    38,209Adjustments to reconcile net income to net cash provided
by operating activities:Change in policy liabilities and policyholder accounts
    
    
    225,538
    
    
    
    194,967Net change in reinsurance receivables and payables
    
    
    (4,613
    )
    
    
    18,901Amortization, principally the cost of business acquired and investments
    
    
    38,295
    
    
    
    46,601Deferred costs of business acquired
    
    
    (97,936
    )
    
    
    (94,043
    )Net realized losses on investments
    
    
    99,929
    
    
    
    59,675Net change in federal income tax liability
    
    
    6,632
    
    
    
    (53,654
    )Other
    
    
    (14,101
    )
    
    
    (56,828
    )Net cash provided by operating activities
    
    
    336,058
    
    
    
    267,484Investing activities:Purchases of investments and loans made
    
    
    (1,206,214
    )
    
    
    (1,012,307
    )Sales of investments and receipts from repayment of loans
    
    
    177,957
    
    
    
    348,569Maturities of investments
    
    
    637,166
    
    
    
    311,840Net change in short-term investments
    
    
    (171,162
    )
    
    
    (158,961
    )Change in deposit in separate account
    
    
    4,845
    
    
    
    10,547Net cash used by investing activities
    
    
    (557,408
    )
    
    
    (500,312
    )Financing activities:Deposits to policyholder accounts
    
    
    242,614
    
    
    
    335,082Withdrawals from policyholder accounts
    
    
    (131,337
    )
    
    
    (83,382
    )Borrowings under revolving credit facility
    
    
    17,000
    
    
    
    79,000Principal payments under revolving credit facility
    
    
    (2,000
    )
    
    
    (6,000
    )Redemption of junior subordinated deferrable interest debentures
    
    
    
    
    
    
    (20,619
    )Proceeds from the issuance of common stock
    
    
    121,121
    
    
    
    Acquisition of treasury stock
    
    
    
    
    
    
    (42,729
    )Cash dividends paid on common stock
    
    
    (14,767
    )
    
    
    (13,715
    )Other financing activities
    
    
    7,151
    
    
    
    3,200Net cash provided by financing activities
    
    
    239,782
    
    
    
    250,837Increase in cash
    
    
    18,432
    
    
    
    18,009Cash at beginning of period
    
    
    63,837
    
    
    
    51,240Cash at end of period
    
    $
    82,269
    
    
    $
    69,249
  -6-




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##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES

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




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##### 



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




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##### 



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




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##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Note A  Significant Accounting Policies  (Continued)
 Recently Issued Accounting Standards
     Note B Investments
  -10-




---



##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Note B  Investments  (Continued)
  September 30, 2009Gross UnrealizedOther ThanAmortized
    
    
    
    
    
    
    
    
    
    
    Temporary
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Impairments
    
    
    Value(dollars in thousands)Residential mortgage-backed securities
    
    $
    1,493,735
    
    
    $
    88,050
    
    
    $
    (86,710
    )
    
    $
    (31,048
    )
    
    $
    1,464,027Commercial mortgage-backed securities
    
    
    34,962
    
    
    
    164
    
    
    
    (6,656
    )
    
    
    (785
    )
    
    
    27,685Corporate securities
    
    
    1,244,356
    
    
    
    49,595
    
    
    
    (40,421
    )
    
    
    
    
    
    
    1,253,530Collateralized debt obligations
    
    
    220,587
    
    
    
    384
    
    
    
    (100,130
    )
    
    
    (1,573
    )
    
    
    119,268U.S. Treasury and other U.S. Government
guaranteed securities
    
    
    100,107
    
    
    
    5,875
    
    
    
    
    
    
    
    
    
    
    
    105,982U.S. Government-sponsored enterprise securities
    
    
    6,752
    
    
    
    599
    
    
    
    
    
    
    
    
    
    
    
    7,351Obligations of U.S. states, municipalities and
political subdivisions
    
    
    1,566,295
    
    
    
    75,085
    
    
    
    (11,039
    )
    
    
    
    
    
    
    1,630,341Total fixed maturity securities
    
    $
    4,666,794
    
    
    $
    219,752
    
    
    $
    (244,956
    )
    
    $
    (33,406
    )
    
    $
    4,608,184
 December 31, 2008Gross UnrealizedOther ThanAmortized
    
    
    
    
    
    
    
    
    
    
    Temporary
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Impairments
    
    
    Value(dollars in thousands)Residential mortgage-backed securities
    
    $
    1,367,041
    
    
    $
    40,489
    
    
    $
    (207,905
    )
    
    $
    
    
    
    $
    1,199,625Commercial mortgage-backed securities
    
    
    44,190
    
    
    
    
    
    
    
    (18,891
    )
    
    
    
    
    
    
    25,299Corporate securities
    
    
    1,339,519
    
    
    
    9,688
    
    
    
    (183,995
    )
    
    
    
    
    
    
    1,165,212Collateralized debt obligations
    
    
    227,229
    
    
    
    
    
    
    
    (116,268
    )
    
    
    
    
    
    
    110,961U.S. Treasury and other U.S. Government
guaranteed securities
    
    
    51,826
    
    
    
    5,905
    
    
    
    
    
    
    
    
    
    
    
    57,731U.S. Government-sponsored enterprise securities
    
    
    22,031
    
    
    
    3,147
    
    
    
    
    
    
    
    
    
    
    
    25,178Obligations of U.S. states, municipalities and
political subdivisions
    
    
    1,270,166
    
    
    
    19,230
    
    
    
    (100,020
    )
    
    
    
    
    
    
    1,189,376Total fixed maturity securities
    
    $
    4,322,002
    
    
    $
    78,459
    
    
    $
    (627,079
    )
    
    $
    
    
    
    $
    3,773,382
  Amortized
    
    
    FairCost
    
    
    Value(dollars in thousands)Residential mortgage-backed securities
    
    $
    1,493,735
    
    
    $
    1,464,027Commercial mortgage-backed securities
    
    
    34,962
    
    
    
    27,685Other fixed maturity securities:One year or less
    
    
    57,017
    
    
    
    57,097Greater than 1, up to 5 years
    
    
    493,228
    
    
    
    495,930Greater than 5, up to 10 years
    
    
    851,477
    
    
    
    830,221Greater than 10 years
    
    
    1,736,375
    
    
    
    1,733,224Total
    
    $
    4,666,794
    
    
    $
    4,608,184
 -11-




---



##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Note B  Investments  (Continued)
  September 30, 2009Less Than 12 Months
    
    
    12 Months or More
    
    
    TotalGross
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    GrossFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses(dollars in thousands)Residential mortgage-backed securities
    
    $
    36,605
    
    
    $
    (139
    )
    
    $
    446,865
    
    
    $
    (117,619
    )
    
    $
    483,470
    
    
    $
    (117,758
    )Commercial mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    24,111
    
    
    
    (7,441
    )
    
    
    24,111
    
    
    
    (7,441
    )Corporate securities
    
    
    20,419
    
    
    
    (180
    )
    
    
    313,002
    
    
    
    (40,241
    )
    
    
    333,421
    
    
    
    (40,421
    )Collateralized debt obligations
    
    
    
    
    
    
    
    
    
    
    112,854
    
    
    
    (101,703
    )
    
    
    112,854
    
    
    
    (101,703
    )U.S. Treasury and other U.S. Government
guaranteed securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    U.S. Government-sponsored enterprise
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Obligations of U.S. states, municipalities
& political subdivisions
    
    
    37,128
    
    
    
    (196
    )
    
    
    142,204
    
    
    
    (10,843
    )
    
    
    179,332
    
    
    
    (11,039
    )Total fixed maturity securities
    
    $
    94,152
    
    
    $
    (515
    )
    
    $
    1,039,036
    
    
    $
    (277,847
    )
    
    $
    1,133,188
    
    
    $
    (278,362
    )
 December 31, 2008Less Than 12 Months
    
    
    12 Months or More
    
    
    TotalGross
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    GrossFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses(dollars in thousands)Residential mortgage-backed securities
    
    $
    415,738
    
    
    $
    (140,542
    )
    
    $
    151,971
    
    
    $
    (67,363
    )
    
    $
    567,709
    
    
    $
    (207,905
    )Commercial mortgage-backed securities
    
    
    22,089
    
    
    
    (9,819
    )
    
    
    3,211
    
    
    
    (9,072
    )
    
    
    25,300
    
    
    
    (18,891
    )Corporate securities
    
    
    505,595
    
    
    
    (67,205
    )
    
    
    256,980
    
    
    
    (116,790
    )
    
    
    762,575
    
    
    
    (183,995
    )Collateralized debt obligations
    
    
    76,003
    
    
    
    (62,854
    )
    
    
    34,958
    
    
    
    (53,414
    )
    
    
    110,961
    
    
    
    (116,268
    )U.S. Treasury and other U.S. Government
guaranteed securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    U.S. Government-sponsored enterprise
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Obligations of U.S. states, municipalities
& political subdivisions
    
    
    520,492
    
    
    
    (61,106
    )
    
    
    164,817
    
    
    
    (38,914
    )
    
    
    685,309
    
    
    
    (100,020
    )Total fixed maturity securities
    
    $
    1,539,917
    
    
    $
    (341,526
    )
    
    $
    611,937
    
    
    $
    (285,553
    )
    
    $
    2,151,854
    
    
    $
    (627,079
    )
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(dollars in thousands)Fixed maturity securities, available
for sale
    
    $
    (41,918
    )
    
    $
    (31,444
    )
    
    $
    (85,929
    )
    
    $
    (48,639
    )Other investments
    
    
    (8,541
    )
    
    
    (2,296
    )
    
    
    (14,000
    )
    
    
    (11,036
    )$
    (50,459
    )
    
    $
    (33,740
    )
    
    $
    (99,929
    )
    
    $
    (59,675
    )
 -12-




---



##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Note B  Investments  (Continued)
     -13-




---



##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Note B  Investments  (Continued)
  Three months ended
    
    
    Nine months endedSeptember 30, 2009
    
    
    September 30, 2009Balance at the beginning of period
    
    $
    59,420
    
    
    $
    Increases attributable to credit losses on securities for which
an other than temporary impairment was not previously recognized
    
    
    17,775
    
    
    
    77,384Increases attributable to credit losses on securities for which
an other than temporary impairment was previously recognized
    
    
    2,332
    
    
    
    2,143Reductions due to sales, maturities, pay downs or prepayments of
securities
for which an other than temporary impairment was previously
recognized
    
    
    (9,454
    )
    
    
    (9,454
    )Balance at the end of the period
    
    $
    70,073
    
    
    $
    70,073
    Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(dollars in thousands)Gross investment income:Fixed maturity securities, available for sale
    
    $
    77,648
    
    
    $
    35,476
    
    
    $
    225,354
    
    
    $
    142,526Mortgage loans
    
    
    1,121
    
    
    
    3,072
    
    
    
    2,527
    
    
    
    10,274Short-term investments
    
    
    26
    
    
    
    1,953
    
    
    
    348
    
    
    
    7,114Other
    
    
    16,510
    
    
    
    (14,042
    )
    
    
    38,586
    
    
    
    (24,877
    )95,305
    
    
    
    26,459
    
    
    
    266,815
    
    
    
    135,037Less: Investment expenses
    
    
    (6,623
    )
    
    
    (7,052
    )
    
    
    (23,255
    )
    
    
    (22,543
    )$
    88,682
    
    
    $
    19,407
    
    
    $
    243,560
    
    
    $
    112,494
 -14-




---



##### 



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




---



##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Note C  Fair Value Measurements  (Continued)
         -16-




---



##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Note C  Fair Value Measurements  (Continued)
  September 30, 2009Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3(dollars in thousands)Assets:Fixed maturity securities, available for sale:Residential mortgage-backed securities
    
    $
    1,464,027
    
    
    $
    761
    
    
    $
    1,303,745
    
    
    $
    159,521Commercial mortgage-backed securities
    
    
    27,685
    
    
    
    
    
    
    
    
    
    
    
    27,685Corporate securities
    
    
    1,253,530
    
    
    
    2,958
    
    
    
    1,131,255
    
    
    
    119,317Collateralized debt obligations
    
    
    119,268
    
    
    
    
    
    
    
    
    
    
    
    119,268U.S. Treasury and other U.S. Government
guaranteed securities
    
    
    105,982
    
    
    
    74,135
    
    
    
    29,110
    
    
    
    2,737U.S. Government-sponsored enterprise
securities
    
    
    7,351
    
    
    
    
    
    
    
    7,351
    
    
    
    Obligations of U.S. states, municipalities
and political subdivisions
    
    
    1,630,341
    
    
    
    
    
    
    
    1,630,341
    
    
    
    Other investments
    
    
    128,041
    
    
    
    111,574
    
    
    
    
    
    
    
    16,467Assets held in separate account
    
    
    109,016
    
    
    
    
    
    
    
    
    
    
    
    109,016Total
    
    $
    4,845,241
    
    
    $
    189,428
    
    
    $
    4,101,802
    
    
    $
    554,011Liabilities:Other liabilities
    
    $
    58,695
    
    
    $
    58,695
    
    
    $
    
    
    
    $
    
  Three Months Ended September 30, 2009U.S.Treasury andResidential
    
    
    Commercial
    
    
    
    
    
    
    
    
    
    
    Other U.S.
    
    
    
    
    
    
    AssetsMortgage-
    
    
    Mortgage-
    
    
    
    
    
    
    Collateralized
    
    
    Govt
    
    
    
    
    
    
    held inbacked
    
    
    backed
    
    
    Corporate
    
    
    Debt
    
    
    Guaranteed
    
    
    Other
    
    
    SeparateTotal
    
    
    Securities
    
    
    Securities
    
    
    Securities
    
    
    Obligations
    
    
    Securities
    
    
    Investments
    
    
    Account(dollars in thousands)Balance at beginning of quarter
    
    $
    554,020
    
    
    $
    180,356
    
    
    $
    18,736
    
    
    $
    131,745
    
    
    $
    103,499
    
    
    $
    2,185
    
    
    $
    17,310
    
    
    $
    100,189Total (losses) gainsIncluded in earnings
    
    
    (29,829
    )
    
    
    (1,077
    )
    
    
    (4,794
    )
    
    
    (19,917
    )
    
    
    (3,095
    )
    
    
    
    
    
    
    (946
    )
    
    
    Included in other comprehensive income
    
    
    37,839
    
    
    
    1,764
    
    
    
    13,868
    
    
    
    2,740
    
    
    
    19,273
    
    
    
    59
    
    
    
    135
    
    
    
    Purchases, issuances and settlements
    
    
    26,326
    
    
    
    10,307
    
    
    
    (125
    )
    
    
    7,265
    
    
    
    (409
    )
    
    
    493
    
    
    
    (32
    )
    
    
    8,827Net transfer (out of) in to Level 3
    
    
    (34,345
    )
    
    
    (31,829
    )
    
    
    
    
    
    
    (2,516
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at end of the period
    
    $
    554,011
    
    
    $
    159,521
    
    
    $
    27,685
    
    
    $
    119,317
    
    
    $
    119,268
    
    
    $
    2,737
    
    
    $
    16,467
    
    
    $
    109,016Net 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 September 30, 2009 (1)
    
    $
    (38,893
    )
    
    $
    (8,826
    )
    
    $
    (4,887
    )
    
    $
    (19,933
    )
    
    $
    (4,295
    )
    
    $
    
    
    
    $
    (952
    )
    
    $
    
 
 (1)
    
    In the third quarter of 2009, net losses of $0.5 million and
$38.4 million were reported in the
consolidated statements of income under the captions net investment income and net
realized investment losses, respectively. -17-




---



##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Note C  Fair Value Measurements  (Continued)
 Nine months Ended September 30, 2009U.S.Treasury andResidential
    
    
    Commercial
    
    
    
    
    
    
    
    
    
    
    Other U.S.
    
    
    
    
    
    
    AssetsMortgage-
    
    
    Mortgage-
    
    
    
    
    
    
    Collateralized
    
    
    Govt
    
    
    
    
    
    
    held inbacked
    
    
    backed
    
    
    Corporate
    
    
    Debt
    
    
    Guaranteed
    
    
    Other
    
    
    SeparateTotal
    
    
    Securities
    
    
    Securities
    
    
    Securities
    
    
    Obligations
    
    
    Securities
    
    
    Investments
    
    
    Account(dollars in thousands)Balance at beginning of period
    
    $
    735,379
    
    
    $
    163,004
    
    
    $
    25,299
    
    
    $
    323,043
    
    
    $
    109,358
    
    
    $
    2,608
    
    
    $
    21,494
    
    
    $
    90,573Total (losses) gainsIncluded in earnings
    
    
    (61,614
    )
    
    
    (23,395
    )
    
    
    (4,305
    )
    
    
    (30,428
    )
    
    
    (3,993
    )
    
    
    
    
    
    
    507
    
    
    
    Included in other
comprehensive income
    
    
    43,499
    
    
    
    15,791
    
    
    
    11,614
    
    
    
    3,245
    
    
    
    14,185
    
    
    
    47
    
    
    
    (1,383
    )
    
    
    Purchases, issuances and settlements
    
    
    (117,633
    )
    
    
    19,444
    
    
    
    (4,923
    )
    
    
    (146,246
    )
    
    
    (282
    )
    
    
    82
    
    
    
    (4,151
    )
    
    
    18,443Net transfer (out of) in to Level 3
    
    
    (45,620
    )
    
    
    (15,323
    )
    
    
    
    
    
    
    (30,297
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at end of the period
    
    $
    554,011
    
    
    $
    159,521
    
    
    $
    27,685
    
    
    $
    119,317
    
    
    $
    119,268
    
    
    $
    2,737
    
    
    $
    16,467
    
    
    $
    109,016Net 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 September 30, 2009 (1)
    
    $
    (68,480
    )
    
    $
    (32,057
    )
    
    $
    (4,887
    )
    
    $
    (21,530
    )
    
    $
    (7,471
    )
    
    $
    
    
    
    $
    (2,535
    )
    
    $
    
 
 (1)
    
    In the first nine months of 2009, net losses of $1.1 million and $67.4 million were
reported in the consolidated statements of income under the captions net investment
income and net realized investment losses, respectively.  September 30, 2009
    
    December 31, 2008Carrying
    
    Fair
    
    Carrying
    
    FairValue
    
    Value
    
    Value
    
    Value(dollars in thousands)Assets:Short-term investments
    
    
    572,802
    
    
    
    572,802
    
    
    
    401,620
    
    
    
    401,620Other investments
    
    
    414,006
    
    
    
    414,006
    
    
    
    336,411
    
    
    
    336,411Liabilities:Policyholder account balances
    
    
    1,348,748
    
    
    
    1,504,396
    
    
    
    1,214,024
    
    
    
    1,160,047Corporate debt
    
    
    365,750
    
    
    
    351,375
    
    
    
    350,750
    
    
    
    289,168Junior subordinated debentures
    
    
    175,000
    
    
    
    119,000
    
    
    
    175,000
    
    
    
    85,400Advances from Federal Home Loan Bank
    
    
    55,342
    
    
    
    72,378
    
    
    
    55,342
    
    
    
    75,861Liabilities related to separate account
    
    
    109,016
    
    
    
    109,016
    
    
    
    90,573
    
    
    
    90,573
  -18-




---



##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Note C  Fair Value Measurements  (Continued)
   Note D  Segment Information
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(dollars in thousands)Revenues:Group employee benefit products
    
    $
    385,809
    
    
    $
    341,978
    
    
    $
    1,163,866
    
    
    $
    1,057,008Asset accumulation products
    
    
    32,775
    
    
    
    10,518
    
    
    
    95,740
    
    
    
    50,418Other(1)
    
    
    12,708
    
    
    
    11,939
    
    
    
    36,730
    
    
    
    33,160431,292
    
    
    
    364,435
    
    
    
    1,296,336
    
    
    
    1,140,586Net realized investment losses
    
    
    (50,459
    )
    
    
    (33,740
    )
    
    
    (99,929
    )
    
    
    (59,675
    )Loss on redemption of junior subordinated deferrable
interest debentures underlying the Company-obligated
mandatorily redeemable capital securities issued
by unconsolidated subsidiaries
    
    
    
    
    
    
    (598
    )
    
    
    
    
    
    
    (598
    )$
    380,833
    
    
    $
    330,097
    
    
    $
    1,196,407
    
    
    $
    1,080,313Operating income (loss):Group employee benefit products
    
    $
    74,678
    
    
    $
    32,979
    
    
    $
    212,284
    
    
    $
    140,771Asset accumulation products
    
    
    13,792
    
    
    
    (6,246
    )
    
    
    35,497
    
    
    
    4,504Other(1)
    
    
    (7,814
    )
    
    
    (6,164
    )
    
    
    (24,882
    )
    
    
    (19,798
    )80,656
    
    
    
    20,569
    
    
    
    222,899
    
    
    
    125,477Net realized investment losses
    
    
    (50,459
    )
    
    
    (33,740
    )
    
    
    (99,929
    )
    
    
    (59,675
    )Loss on redemption of junior subordinated deferrable
interest debentures underlying the Company-obligated
mandatorily redeemable capital securities issued
by unconsolidated subsidiaries
    
    
    
    
    
    
    (598
    )
    
    
    
    
    
    
    (598
    )$
    30,197
    
    
    $
    (13,769
    )
    
    $
    122,970
    
    
    $
    65,204
 
 (1)
    
    Primarily consists of operations from integrated disability and absence management
services and certain corporate activities. Note E  Comprehensive Income (Loss)
  -19-




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##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Note F  Stock-Based Compensation
     WeightedWeighted
    
    Average
    
    AggregateNumber
    
    Average
    
    Remaining
    
    Intrinsicof
    
    Exercise
    
    Contractual
    
    ValueOptions
    
    Options
    
    Price
    
    Term
    
    ($000)Outstanding at January 1, 2009
    
    
    4,092,954
    
    
    $
    28.71Granted
    
    
    315,170
    
    
    
    15.27Exercised
    
    
    (317,363
    )
    
    
    13.36Forfeited
    
    
    (65,014
    )
    
    
    32.36Outstanding at September 30, 2009
    
    
    4,025,747
    
    
    
    28.81
    
    
    
    6.9
    
    
    $
    6,204Exercisable at September 30, 2009
    
    
    1,834,937
    
    
    $
    27.54
    
    
    
    5.2
    
    
    $
    3,927
    -20-




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##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Note G Computation of Results per Share
  Three Months Ended
    
    
    Nine months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(amounts in thousands, except per share data)Numerator:Net income (loss)
    
    $
    20,823
    
    
    $
    (9,810
    )
    
    $
    82,314
    
    
    $
    38,209Denominator:Weighted average common shares outstanding
    
    
    52,947
    
    
    
    47,936
    
    
    
    50,376
    
    
    
    48,379Effect of dilutive securities
    
    
    438
    
    
    
    
    
    
    
    241
    
    
    
    880Weighted average common shares outstanding,
assuming dilution
    
    
    53,385
    
    
    
    47,936
    
    
    
    50,617
    
    
    
    49,259Basic results per share of common stock:Net income (loss)
    
    $
    0.39
    
    
    $
    (0.20
    )
    
    $
    1.63
    
    
    $
    0.79Diluted results per share of common stock:Net income (loss)
    
    $
    0.39
    
    
    $
    (0.20
    )
    
    $
    1.63
    
    
    $
    0.78
 -21-




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##### 



DELPHI FINANCIAL GROUP, INC.
 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Introduction
     -22-




---



##### 



Results of Operations
 Nine Months Ended September 30, 2009 Compared to
Nine Months Ended September 30, 2008
 Summary of Results.
 -23-




---



##### 



Premium and Fee Income.
   Net Investment Income.
 Net Realized Investment Losses.
 -24-




---



##### 



Benefits and Expenses.
 Income Tax Expense.
 Three Months Ended September 30, 2009 Compared to
Three Months Ended September 30, 2008
 Summary of Results.
 Premium and Fee Income.
 -25-




---



##### 



Net Investment Income.
 Net Realized Investment Losses.
  Benefits and Expenses.
 Income Tax Expense (Benefit).
 -26-




---



##### 



Liquidity and Capital Resources
 General.
     -27-




---



##### 



Investments.
   Reinsurance.
 Cash Flows
 -28-




---



##### 



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
  -29-




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##### 



PART II. OTHER INFORMATION
 
 Item 1A. Risk Factors
  The Company may be adversely impacted by a decline in the ratings of its insurance
subsidiaries or its own credit ratings.
  -30-




---



##### 



Item 6. Exhibits
 11.1
    
    Computation of Results per Share of Common Stock (incorporated by reference to
Note G to the Consolidated
Financial Statements included elsewhere herein)31.1
    
    Certification by the Chairman of the Board and Chief Executive Officer of
Periodic Report Pursuant to Rule 13a-14(a) or 15d-14(a)31.2
    
    Certification by the Senior Vice President and Treasurer of Periodic Report
Pursuant to Rule 13a-14(a) or 15d-14(a)32.1
    
    Certification of Periodic Report Pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 SIGNATURES
  DELPHI FINANCIAL GROUP, INC. (Registrant)/s/ ROBERT ROSENKRANZRobert RosenkranzChairman of the Board and Chief Executive Officer
(Principal Executive Officer) /s/ THOMAS W. BURGHARTThomas W. BurghartSenior Vice President and Treasurer
(Principal Accounting and Financial Officer)  -31-