##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
  þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the Fiscal Year Ended December 31, 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 
incorporation or organization)
    
    (Registrants telephone number,
including area code)
    
    (I.R.S. Employer Identification
Number)
 1105 North Market Street, Suite 1230, P. O. Box 8985, Wilmington, Delaware
    
    19899(Address of principal executive offices)
    
    (Zip Code)
  Title of each class
    
    Name of each exchange on which registeredClass A Common Stock, $.01 par value
    
    New York Stock Exchange8.00% Senior Notes due May 15, 2033
    
    New York Stock Exchange7.376% Fixed-to-Floating Rate Junior Subordinated Debentures due May 1, 2067
    
    New York Stock Exchange
   þ o
  o þ
  þ o
  o o
 þ
  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.
ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 2009
 TABLE OF CONTENTS
 PagePART I.Item 1. Business
    
    
    3Item 1A. Risk Factors
    
    
    20Item 1B. Unresolved Staff Comments
    
    
    24Item 2. Properties
    
    
    24Item 3. Legal Proceedings
    
    
    25Item 4. Submission of Matters to a Vote of Security Holders
    
    
    26PART II.Item 5. Market for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
    
    
    27Item 6. Selected Financial Data
    
    
    29Item 7. Managements Discussion and Analysis of Financial Condition
and Results of Operation
    
    
    32Item 7A. Quantitative and Qualitative Disclosures about Market Risk
    
    
    48Item 8. Financial Statements and Supplementary Data
    
    
    48Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure
    
    
    48Item 9A. Controls and Procedures
    
    
    48Item 9B. Other Information
    
    
    51PART III.Item 10. Directors, Executive Officers and Corporate Governance
    
    
    51Item 11. Executive Compensation
    
    
    51Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
    
    
    51Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    51Item 14. Principal Accountant Fees and Services
    
    
    51PART IV.Item 15. Exhibits, Financial Statement Schedules
    
    
    52EX-21.1EX-23.1EX-24.1EX-31.1EX-31.2EX-32.1
  -2-




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PART I
 
 Item 1. Business
  www.delphifin.com/financial/secfilings.html
 Operating Strategy
     -3-




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Group Employee Benefit Products
   -4-




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Year Ended December 31,2009
    
    
    2008
    
    
    2007(dollars in thousands)Insurance premiums:Core Products:Disability income
    
    $
    560,361
    
    
    
    41.6
    %
    
    $
    572,630
    
    
    
    43.0
    %
    
    $
    527,500
    
    
    
    42.4
    %Life
    
    
    393,173
    
    
    
    29.2
    
    
    
    402,928
    
    
    
    30.2
    
    
    
    364,771
    
    
    
    29.3Excess workers compensation
    
    
    277,485
    
    
    
    20.7
    
    
    
    264,244
    
    
    
    19.8
    
    
    
    276,252
    
    
    
    22.1Assumed workers compensation and
casualty reinsurance (1)
    
    
    34,168
    
    
    
    2.5
    
    
    
    22,369
    
    
    
    1.7
    
    
    
    17,614
    
    
    
    1.4Limited benefit health insurance
    
    
    31,987
    
    
    
    2.4
    
    
    
    24,698
    
    
    
    1.9
    
    
    
    16,276
    
    
    
    1.3Accident and dental
    
    
    49,029
    
    
    
    3.6
    
    
    
    45,507
    
    
    
    3.4
    
    
    
    43,135
    
    
    
    3.5$
    1,346,203
    
    
    
    100.0
    %
    
    $
    1,332,376
    
    
    
    100.0
    %
    
    $
    1,245,548
    
    
    
    100.0
    %Non-Core Products:Loss portfolio transfers (2)
    
    $
    
    
    
    
    
    
    
    $
    3,304
    
    
    
    
    
    
    $
    14,697Other (1)
    
    
    8,464
    
    
    
    
    
    
    
    7,343
    
    
    
    
    
    
    
    7,3478,464
    
    
    
    
    
    
    
    10,647
    
    
    
    
    
    
    
    22,044Total insurance premiums
    
    $
    1,354,667
    
    
    
    
    
    
    $
    1,343,023
    
    
    
    
    
    
    $
    1,267,592Sales (new annualized gross premiums):Core Products:Disability income (3)
    
    $
    109,409
    
    
    
    37.4
    %
    
    $
    134,215
    
    
    
    42.8
    %
    
    $
    135,375
    
    
    
    44.7
    %Life
    
    
    70,526
    
    
    
    24.1
    
    
    
    94,681
    
    
    
    30.2
    
    
    
    87,210
    
    
    
    28.8Excess workers compensation
    
    
    45,251
    
    
    
    15.4
    
    
    
    25,832
    
    
    
    8.1
    
    
    
    30,092
    
    
    
    9.9Assumed workers compensation and
casualty reinsurance (1)
    
    
    17,226
    
    
    
    5.9
    
    
    
    12,103
    
    
    
    3.9
    
    
    
    6,742
    
    
    
    2.2Limited benefit health insurance
    
    
    20,141
    
    
    
    6.9
    
    
    
    12,530
    
    
    
    4.0
    
    
    
    17,779
    
    
    
    5.9Accident and dental
    
    
    30,282
    
    
    
    10.3
    
    
    
    34,415
    
    
    
    11.0
    
    
    
    25,883
    
    
    
    8.5$
    292,835
    
    
    
    100
    %
    
    $
    313,776
    
    
    
    100.0
    %
    
    $
    303,081
    
    
    
    100.0
    %Non-Core Products:Loss portfolio transfers (2)
    
    $
    
    
    
    
    
    
    
    $
    3,305
    
    
    
    
    
    
    $
    3,800Other (1)
    
    
    6,468
    
    
    
    
    
    
    
    6,955
    
    
    
    
    
    
    
    6,0256,468
    
    
    
    
    
    
    
    10,260
    
    
    
    
    
    
    
    9,825Total sales
    
    $
    299,303
    
    
    
    
    
    
    $
    324,036
    
    
    
    
    
    
    $
    312,906
 
 (1)
    
    Assumed workers compensation and casualty reinsurance is included in the Companys core
group employee benefit products beginning in the third quarter of 2009. Accordingly, to
assist in comparability with prior periods, premium and production from this product have been
reclassified to core products from other non-core products for prior periods. Effective for
the fourth quarter of 2009, production for this product is determined by reference to the
inception of a reinsurance assumed arrangement with a third party with which the Company
previously had no such arrangements. Production for this product was previously determined by
reference to the effectuation of a reinsurance assumed treaty with a third party, whether or
not other reinsurance assumed arrangements were already in place with such third party. Prior
period results have been restated to conform to the new method.(2)
    
    Beginning in the first quarter of 2009, the Companys deposits from loss portfolio transfers
are recorded as liabilities rather than as premiums.(3)
    
    Beginning in the third quarter of 2009, production from the Companys turnkey disability
product is included with disability income products in core group employee benefit product
production. Accordingly, to assist in comparability with prior periods, production from this
product has also been included in core production for prior periods. The production from the
Companys turnkey disability products was $12.3 million, $12.7 million and $3.6 million in
2009, 2008 and 2007, respectively.  -5-




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Year Ended December 31,2009
    
    
    2008
    
    
    2007Loss ratio
    
    
    68.5
    %
    
    
    69.5
    %
    
    
    70.3
    %Expense ratio
    
    
    24.8
    
    
    
    22.7
    
    
    
    22.1Combined ratio
    
    
    93.3
    %
    
    
    92.2
    %
    
    
    92.4
    %
    -6-




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-8-




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Asset Accumulation Products
     -9-




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Year Ended December 31,2009
    
    
    2008
    
    
    2007(dollars in thousands)Asset accumulation product deposits (sales)
    
    $
    248,595
    
    
    $
    245,117
    
    
    $
    107,145Funds under management (at period end)
    
    
    1,425,442
    
    
    
    1,327,502
    
    
    
    1,053,221
    Other Products and Services
   -10-




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Underwriting Procedures
   Investments
   -11-




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Year Ended December 31,2009
    
    
    2008
    
    
    2007(dollars in thousands)Average invested assets (1)
    
    $
    5,053,304
    
    
    $
    4,728,126
    
    
    $
    4,555,225Net investment income (2)
    
    
    318,187
    
    
    
    134,850
    
    
    
    270,547Tax equivalent weighted average annual yield (3)
    
    
    6.7
    %
    
    
    3.2
    %
    
    
    6.2
    %
 
 (1)
    
    Average invested assets are computed by dividing the total of invested assets as reported
on the balance sheet at the beginning of each year plus the individual quarter-end balances
by five and deducting one-half of net investment income, increased, in the case of tax exempt
interest income, to reflect the level of the tax benefit associated with such income.(2)
    
    Consists principally of interest and dividend income less investment expenses, along with
the changes in value, positive or negative, of the Companys investments in investment funds
organized as limited partnerships and limited liability companies, trading account
securities and hybrid financial instruments.(3)
    
    The tax equivalent weighted average annual yield on the Companys investment portfolio for
each period is computed by dividing net investment income, increased, in the case of tax
exempt interest income, to reflect the level of the tax benefit associated with such income,
by average invested assets for the period. See Results of Operations in Part II, Item 7 -
Managements Discussion and Analysis of Financial Condition and Results of Operations. Reinsurance
    -12-




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Life, Annuity, Disability and Accident Reserves
   -13-




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##### Table of Contents



Property and Casualty Insurance Reserves
    Year Ended December 31,2009
    
    
    2008
    
    
    2007(dollars in thousands)Unpaid claims and claim expenses, net of reinsurance,
beginning of period
    
    $
    951,342
    
    
    $
    850,956
    
    
    $
    752,375Add provision for claims and claim
expenses incurred, net of reinsurance, occurring during:Current year
    
    
    163,642
    
    
    
    152,069
    
    
    
    155,052Prior years
    
    
    21,556
    
    
    
    27,111
    
    
    
    37,443185,198
    
    
    
    179,180
    
    
    
    192,495Add provision for assumed retroactive reinsurance claims and claim
expenses incurred, net of reinsurance, occurring during the current
year
    
    
    38,346
    
    
    
    
    
    
    
    Incurred claims and claim expenses, net of reinsurance,
during the current year
    
    
    223,544
    
    
    
    179,180
    
    
    
    192,495Deduct claims and claim expense
payments, net of reinsurance, occurring during:Current year
    
    
    2,432
    
    
    
    1,625
    
    
    
    2,950Prior years
    
    
    90,047
    
    
    
    77,169
    
    
    
    90,96492,479
    
    
    
    78,794
    
    
    
    93,914Deduct assumed retroactive reinsurance claims and claim expenses
paid, occurring during the current year
    
    
    3,829
    
    
    
    
    
    
    
    Total paid
    
    
    96,308
    
    
    
    78,794
    
    
    
    93,914Unpaid claims and claim expenses, net of reinsurance, end of period
    
    
    1,078,578
    
    
    
    951,342
    
    
    
    850,956Reinsurance receivables, end of period
    
    
    109,236
    
    
    
    109,704
    
    
    
    113,018Unpaid claims and claim expenses, gross of reinsurance,
end of period (1)
    
    $
    1,187,814
    
    
    $
    1,061,046
    
    
    $
    963,974
 
 (1)
    
    All years include the results from the Companys discontinued non-core property
catastrophe reinsurance business. See Other Transactions. -14-




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December 31,1999
    
    
    2000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    2009(dollars in thousands)Reserve for unpaid
claims and claim
expenses, net of
reinsurance
    
    $
    434,512
    
    
    $
    444,061
    
    
    $
    638,189
    
    
    $
    680,835
    
    
    $
    744,760
    
    
    $
    853,515
    
    
    $
    1,011,699
    
    
    $
    1,175,979
    
    
    $
    1,341,764
    
    
    $
    1,544,282
    
    
    $
    1,766,862Cumulative amount of
liability paid:One year later
    
    
    40,660
    
    
    
    (29,990
    )
    
    
    61,954
    
    
    
    57,235
    
    
    
    64,170
    
    
    
    81,847
    
    
    
    92,760
    
    
    
    90,963
    
    
    
    77,170
    
    
    
    90,055Two years later
    
    
    4,020
    
    
    
    26,398
    
    
    
    112,639
    
    
    
    118,685
    
    
    
    134,981
    
    
    
    149,983
    
    
    
    175,852
    
    
    
    163,149
    
    
    
    164,107Three years later
    
    
    54,846
    
    
    
    71,938
    
    
    
    169,890
    
    
    
    187,303
    
    
    
    198,133
    
    
    
    222,440
    
    
    
    241,235
    
    
    
    246,895Four years later
    
    
    94,899
    
    
    
    123,330
    
    
    
    231,870
    
    
    
    247,487
    
    
    
    266,834
    
    
    
    283,820
    
    
    
    319,465Five years later
    
    
    139,949
    
    
    
    178,852
    
    
    
    283,783
    
    
    
    311,350
    
    
    
    323,461
    
    
    
    357,611Six years later
    
    
    187,952
    
    
    
    221,817
    
    
    
    341,035
    
    
    
    361,095
    
    
    
    391,116Seven years later
    
    
    223,920
    
    
    
    270,792
    
    
    
    382,757
    
    
    
    423,250Eight years later
    
    
    266,415
    
    
    
    304,964
    
    
    
    435,326Nine years later
    
    
    298,579
    
    
    
    350,770Ten years later
    
    
    338,683Liability reestimated as of:One year later
    
    
    424,187
    
    
    
    442,624
    
    
    
    636,123
    
    
    
    678,535
    
    
    
    766,886
    
    
    
    908,162
    
    
    
    1,072,990
    
    
    
    1,198,719
    
    
    
    1,366,919
    
    
    
    1,561,749Two years later
    
    
    420,419
    
    
    
    442,807
    
    
    
    634,576
    
    
    
    714,303
    
    
    
    838,458
    
    
    
    1,007,198
    
    
    
    1,122,567
    
    
    
    1,264,493
    
    
    
    1,445,876Three years later
    
    
    417,868
    
    
    
    446,948
    
    
    
    678,009
    
    
    
    790,941
    
    
    
    939,254
    
    
    
    1,057,913
    
    
    
    1,192,300
    
    
    
    1,361,739Four years later
    
    
    423,425
    
    
    
    502,140
    
    
    
    754,717
    
    
    
    881,073
    
    
    
    991,103
    
    
    
    1,120,868
    
    
    
    1,299,511Five years later
    
    
    466,975
    
    
    
    568,993
    
    
    
    832,968
    
    
    
    933,259
    
    
    
    1,036,718
    
    
    
    1,226,238Six years later
    
    
    522,592
    
    
    
    636,007
    
    
    
    878,948
    
    
    
    975,524
    
    
    
    1,137,342Seven years later
    
    
    582,364
    
    
    
    670,762
    
    
    
    914,362
    
    
    
    1,064,638Eight years later
    
    
    611,869
    
    
    
    696,812
    
    
    
    977,152Nine years later
    
    
    633,617
    
    
    
    746,544Ten years later
    
    
    665,983Cumulative
deficiency(1)
    
    $
    (231,471
    )
    
    $
    (302,483
    )
    
    $
    (338,963
    )
    
    $
    (383,803
    )
    
    $
    (392,582
    )
    
    $
    (372,723
    )
    
    $
    (287,812
    )
    
    $
    (185,760
    )
    
    $
    (104,112
    )
    
    $
    (17,467
    )
 
 (1)
    
    Full years 2000 through 2009 include the results from the Companys discontinued non-core
property catastrophe reinsurance business. -15-




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December 31,1999
    
    
    2000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009(dollars in thousands)Reserve for unpaid claims and
claim expenses before
discount:Net of reinsurance
    
    $
    434,512
    
    
    $
    444,061
    
    
    $
    638,189
    
    
    $
    680,835
    
    
    $
    744,760
    
    
    $
    853,515
    
    
    $
    1,011,699
    
    
    $
    1,175,979
    
    
    $
    1,341,764
    
    
    $
    1,544,282
    
    
    $
    1,766,862Add reinsurance
recoverable
    
    
    179,180
    
    
    
    206,704
    
    
    
    92,828
    
    
    
    95,709
    
    
    
    93,030
    
    
    
    104,266
    
    
    
    103,014
    
    
    
    105,287
    
    
    
    113,018
    
    
    
    109,704
    
    
    
    109,236Deduct discount for
time value of
money
    
    
    192,220
    
    
    
    203,710
    
    
    
    224,241
    
    
    
    241,688
    
    
    
    265,100
    
    
    
    311,833
    
    
    
    368,234
    
    
    
    423,604
    
    
    
    490,808
    
    
    
    592,940
    
    
    
    688,284Unpaid claims and claim
expenses as reported
on balance sheets
    
    
    421,472
    
    
    
    447,055
    
    
    
    506,776
    
    
    
    534,856
    
    
    
    572,690
    
    
    
    645,948
    
    
    
    746,479
    
    
    
    857,662
    
    
    
    963,974
    
    
    
    1,061,046
    
    
    
    1,187,814Reestimated unpaid claims
and claim expenses, gross
of reinsurance, net of
discount, as of December
31, 2008
    
    
    791,165
    
    
    
    884,496
    
    
    
    973,743
    
    
    
    1,013,682
    
    
    
    1,019,438
    
    
    
    1,043,654
    
    
    
    1,054,749
    
    
    
    1,051,892
    
    
    
    1,059,004
    
    
    
    1,083,984Discounted cumulative
deficiency, gross of
reinsurance
    
    
    (369,693
    )
    
    
    (437,441
    )
    
    
    (466,967
    )
    
    
    (478,826
    )
    
    
    (446,748
    )
    
    
    (397,706
    )
    
    
    (308,270
    )
    
    
    (194,230
    )
    
    
    (95,030
    )
    
    
    (22,938
    )Add accretion of
discount and change
in reinsurance
recoverable
    
    
    138,222
    
    
    
    134,958
    
    
    
    128,004
    
    
    
    95,023
    
    
    
    54,166
    
    
    
    24,983
    
    
    
    20,458
    
    
    
    8,470
    
    
    
    (9,082
    )
    
    
    5,471Cumulative deficiency,
before discount, net
of reinsurance
    
    $
    (231,471
    )
    
    $
    (302,483
    )
    
    $
    (338,963
    )
    
    $
    (383,803
    )
    
    $
    (392,582
    )
    
    $
    (372,723
    )
    
    $
    (287,812
    )
    
    $
    (185,760
    )
    
    $
    (104,112
    )
    
    $
    (17,467
    )
  -16-




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Competition
   Regulation
     -17-




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Employees
  Other Subsidiaries
  Other Transactions
    -18-




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-19-




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Item 1A. Risk Factors.
  The recent financial crisis has resulted in highly adverse conditions in the capital markets.
   The recent recession in the United States economy could adversely affect the Companys ability
to achieve premium growth, as well as its claims experience.
  Reserves established for future policy benefits and claims may prove inadequate.
  -20-




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The Company may be adversely affected by declines in the market values of its investments.
    The Companys investment strategy exposes the Company to default and other risks.
   -21-




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The Company is exposed to interest rate risks.
  The Companys ability to reduce its exposure to risks depends on the availability and cost of
reinsurance.
   -22-




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##### Table of Contents



The insurance business is a heavily regulated industry.
    The Companys financial position and results of operations may be adversely impacted by
changes in accounting rules and in the interpretations of such rules.
  The financial services industry is highly competitive.
  The Company may be adversely impacted by a decline in the ratings of its insurance
subsidiaries or its own credit ratings.
  -23-




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##### Table of Contents



Robert Rosenkranz has the power to vote all of Delphis Class B Common Stock, and his
interests may differ from those of other Delphi securityholders.
  
 Item 1B. Unresolved Staff Comments.
  
 Item 2. Properties
 th th
 -24-




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##### Table of Contents



Item 3. Legal Proceedings
   -25-




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##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders
  Executive Officers of the Company
  Name
    
    Age
    
    PositionRobert Rosenkranz
    
    
    67
    
    
    Director of the Company; Chairman of the Board and Chief Executive Officer of the Company;
Chairman of the Board of RSLICDonald A. Sherman
    
    
    59
    
    
    Director and President and Chief Operating Officer of the CompanyRobert M. Smith, Jr.
    
    
    58
    
    
    Director and Executive Vice President of the CompanyChad W. Coulter
    
    
    47
    
    
    Senior Vice President, Secretary and General Counsel of the Company; Vice President, General
Counsel and Assistant Secretary of RSLICThomas W. Burghart
    
    
    51
    
    
    Senior Vice President and Treasurer of the Company and Senior Vice President and Treasurer of
RSLICLawrence E. Daurelle
    
    
    58
    
    
    President and Chief Executive Officer of RSLICMark A. Wilhelm
    
    
    57
    
    
    Chief Executive Officer of SNCC
       -26-




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##### Table of Contents



PART II
 
 Item 5. Market for the Registrants Common Equity, Related Stockholder Matters and Issuer Purchases
 of Equity Securities.
   High
    
    
    Low
    
    
    Dividends2008:
    
    
    First Quarter
    
    $
    35.15
    
    
    $
    25.92
    
    
    $
    0.09Second Quarter
    
    
    30.95
    
    
    
    22.26
    
    
    
    0.10Third Quarter
    
    
    38.50
    
    
    
    20.17
    
    
    
    0.10Fourth Quarter
    
    
    31.00
    
    
    
    7.58
    
    
    
    0.102009:
    
    
    First Quarter
    
    $
    18.75
    
    
    $
    9.05
    
    
    $
    0.10Second Quarter
    
    
    22.14
    
    
    
    13.84
    
    
    
    0.10Third Quarter
    
    
    24.91
    
    
    
    17.46
    
    
    
    0.10Fourth Quarter
    
    
    24.40
    
    
    
    21.15
    
    
    
    0.10
    -27-




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##### Table of Contents



Performance Graph
  
 2004
    
    2005
    
    2006
    
    2007
    
    2008
    
    2009Delphi
    
    
    100
    
    
    
    100
    
    
    
    134
    
    
    
    117
    
    
    
    63
    
    
    
    78S&P 500 Index
    
    
    100
    
    
    
    105
    
    
    
    121
    
    
    
    128
    
    
    
    81
    
    
    
    102S&P Insurance Index
    
    
    100
    
    
    
    114
    
    
    
    127
    
    
    
    119
    
    
    
    50
    
    
    
    57
 -28-




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##### Table of Contents



Item 6. Selected Financial Data
  Year Ended December 31,2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Income Statement Data(1):
    
    (dollars and shares in thousands, except per share data)Insurance premiums and fee income:Core group employee benefit products(2)
    
    $
    1,346,203
    
    
    $
    1,332,376
    
    
    $
    1,245,548
    
    
    $
    1,093,992
    
    
    $
    940,833Non-core group employee benefit
products(2) (3)
    
    
    8,464
    
    
    
    10,647
    
    
    
    22,044
    
    
    
    30,134
    
    
    
    20,329Asset accumulation products
    
    
    1,641
    
    
    
    1,918
    
    
    
    2,666
    
    
    
    3,438
    
    
    
    3,220Other
    
    
    44,733
    
    
    
    39,949
    
    
    
    33,903
    
    
    
    29,014
    
    
    
    25,8291,401,041
    
    
    
    1,384,890
    
    
    
    1,304,161
    
    
    
    1,156,578
    
    
    
    990,211Net investment income(4)
    
    
    318,187
    
    
    
    134,850
    
    
    
    270,547
    
    
    
    255,871
    
    
    
    223,569Net realized investment (losses) gains(5)
    
    
    (147,543
    )
    
    
    (88,177
    )
    
    
    (1,897
    )
    
    
    (858
    )
    
    
    9,003Loss on redemption of junior subordinated
deferrable interest debentures(6)
    
    
    
    
    
    
    (598
    )
    
    
    (2,192
    )
    
    
    
    
    
    
    Total revenue
    
    
    1,571,685
    
    
    
    1,430,965
    
    
    
    1,570,619
    
    
    
    1,411,591
    
    
    
    1,222,783Income from continuing operations(7)
    
    
    99,104
    
    
    
    36,683
    
    
    
    164,512
    
    
    
    145,003
    
    
    
    126,684Net income(7)
    
    
    99,104
    
    
    
    36,683
    
    
    
    164,512
    
    
    
    142,068
    
    
    
    113,334Basic Results Per Share(1) (7):Income from continuing operations
    
    $
    1.92
    
    
    $
    0.76
    
    
    $
    3.27
    
    
    $
    2.92
    
    
    $
    2.58Net income
    
    
    1.92
    
    
    
    0.76
    
    
    
    3.27
    
    
    
    2.86
    
    
    
    2.31Weighted average shares outstanding
    
    
    51,532
    
    
    
    48,278
    
    
    
    50,269
    
    
    
    49,631
    
    
    
    49,008Diluted Results Per Share(1) (7):Income from continuing operations
    
    $
    1.91
    
    
    $
    0.75
    
    
    $
    3.19
    
    
    $
    2.85
    
    
    $
    2.52Net income
    
    
    1.91
    
    
    
    0.75
    
    
    
    3.19
    
    
    
    2.79
    
    
    
    2.25Weighted average shares outstanding
    
    
    51,811
    
    
    
    48,963
    
    
    
    51,579
    
    
    
    50,939
    
    
    
    50,267Other Data:Operating earnings(8)
    
    $
    195,007
    
    
    $
    94,387
    
    
    $
    167,170
    
    
    $
    145,561
    
    
    $
    120,832Operating earnings per share(8)
    
    
    3.76
    
    
    
    1.93
    
    
    
    3.24
    
    
    
    2.86
    
    
    
    2.40Cash dividends paid per share(9)
    
    
    0.40
    
    
    
    0.39
    
    
    
    0.35
    
    
    
    0.31
    
    
    
    0.24Diluted book value per share(10)
    
    
    24.42
    
    
    
    17.05
    
    
    
    23.28
    
    
    
    23.70
    
    
    
    20.96
 December 31,2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Balance Sheet Data:
    
    (dollars in thousands)Total investments
    
    $
    5,749,318
    
    
    $
    4,654,923
    
    
    $
    4,987,868
    
    
    $
    4,483,380
    
    
    $
    3,912,604Total assets
    
    
    6,921,375
    
    
    
    5,953,873
    
    
    
    6,094,810
    
    
    
    5,670,475
    
    
    
    5,276,170Corporate debt
    
    
    365,750
    
    
    
    350,750
    
    
    
    217,750
    
    
    
    263,750
    
    
    
    234,750Junior subordinated debentures(11)
    
    
    175,000
    
    
    
    175,000
    
    
    
    175,000
    
    
    
    
    
    
    
    Junior subordinated deferrable interest
debentures underlying company-obligated
mandatorily redeemable capital securities
issued by unconsolidated subsidiaries
    
    
    
    
    
    
    
    
    
    
    20,619
    
    
    
    59,762
    
    
    
    59,762Shareholders equity(12)
    
    
    1,359,019
    
    
    
    820,579
    
    
    
    1,141,390
    
    
    
    1,174,808
    
    
    
    1,033,039Corporate debt to total capitalization ratio(13)
    
    
    19.3
    %
    
    
    26.1
    %
    
    
    14.0
    %
    
    
    17.6
    %
    
    
    17.7
    %
 
 (1)
    
    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 has not thereafter entered into or renewed 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 prior to the end of
the third quarter of 2006. The Company has classified the operating results of this
business as discontinued operations. See Other Transactions in Part I, Item 1  Business. -29-




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##### Table of Contents



Net income includes loss from discontinued operations, net of federal income tax benefit, as follows: Year Ended December 31,2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005(dollars in thousands, except per share data)Loss from discontinued operations, net of
income tax benefit
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (2,935
    )
    
    $
    (13,350
    )Basic per share amount
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.06
    )
    
    
    (0.27
    )Diluted per share amount
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.06
    )
    
    
    (0.27
    )
 (2)
    
    Beginning with third quarter of 2009, assumed workers compensation and casualty reinsurance
is included in the Companys core products. Accordingly, to assist in comparability with prior
periods, premium and production from this product have been reclassified to core products from
non-core products.(3)
    
    Non-core group employee benefit products include LPTs, primary workers compensation
insurance, bail bond insurance and reinsurance facilities, among others. Beginning in 2009,
the payments received by the Company in connection with LPTs, which are episodic in nature,
are recorded as liabilities rather than as premiums. In prior years, premiums from non-core
group employee benefit products included deposits from LPTs, of $3.3 million, $14.7 million,
$20.9 million and $10.4 million in 2008, 2007, 2006 and 2005, respectively. See Group
Employee Benefit Products and Reinsurance in Part I, Item 1- Business.(4)
    
    Extraordinary volatility in the investment markets resulted in a significant decrease in net
investment income in 2008. See Introduction in Part I, Item 7  Managements Discussion and
Analysis of Financial Condition and Results of Operations.(5)
    
    In 2009, the Company recognized $180.2 million of losses due to the other than temporary
declines in the market values of certain fixed maturity securities and other investments, of
which $144.7 million was recognized as credit-related realized investment losses in its
earnings and $35.5 million remained as a component of accumulated other comprehensive income.
In 2008, 2007, 2006 and 2005, the Company recognized in its earnings pre-tax losses of $78.6
million, $4.1 million, $4.2 million and $4.2 million, respectively, due to the other than
temporary declines in the market values of certain securities, which are reported as net
realized investment losses.(6)
    
    In the first quarter of 2007, the Company redeemed $36.0 million of junior subordinated
deferrable interest debentures and recognized a pre-tax loss of $2.2 million in connection
with this redemption. During the third quarter of 2008, the Company redeemed $20.6
million of floating rate junior subordinated deferrable interest debentures and recognized a
pre-tax loss of $0.6 million in connection with this redemption.(7)
    
    Income from continuing operations and net income include realized investment (losses) gains,
net of federal income tax (benefit) expense and the loss on redemption of junior subordinated
deferrable interest debentures, net of federal income tax benefit, as follows:
 Year Ended December 31,2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005(dollars in thousands, except per share data)Net realized investment losses, net of income tax
benefit
    
    $
    (95,903
    )
    
    $
    (57,315
    )
    
    $
    (1,233
    )
    
    $
    (558
    )
    
    $
    5,852Basic per share amount
    
    
    (1.86
    )
    
    
    (1.19
    )
    
    
    (0.03
    )
    
    
    (0.01
    )
    
    
    0.11Diluted per share amount
    
    
    (1.85
    )
    
    
    (1.17
    )
    
    
    (0.02
    )
    
    
    (0.01
    )
    
    
    0.12Loss on redemption of junior subordinated deferrable
interest debentures, net of income tax benefit
    
    $
    
    
    
    $
    (389
    )
    
    $
    (1,425
    )
    
    $
    
    
    
    $
    Basic per share amount
    
    
    
    
    
    
    (0.01
    )
    
    
    (0.03
    )
    
    
    
    
    
    
    Diluted per share amount
    
    
    
    
    
    
    (0.01
    )
    
    
    (0.03
    )
    
    
    
    
    
    
    
 
 (8)
    
    Operating earnings, which is a non-GAAP financial measure, consist of income from continuing
operations excluding after-tax realized investment gains and losses, and the loss on
redemption of junior subordinated deferrable interest debentures, as applicable. The Company
believes that because realized investment gains and losses, redemptions of junior subordinated
deferrable interest debentures and discontinued operations arise from events that, to a
significant extent, are within managements discretion and can fluctuate significantly, thus
distorting comparisons between periods, a measure excluding their impacts is useful in
analyzing the Companys operating trends. Redemptions of junior subordinated deferrable
interest debentures occur based on managements decision to exercise its ability to redeem the
outstanding debentures. Investment gains or losses may be realized based on managements
decision to dispose of an investment, and investment losses may be realized based on
managements judgment that a decline in the market value of an investment is other than
temporary. Discontinued operations occur based on managements decision to exit or sell a
particular business. Thus, realized investment gains and losses, losses on redemptions of
junior subordinated deferrable interest debentures and results from discontinued operations
are not reflective of the Companys ongoing earnings capacity, and trends in the earnings of
the Companys underlying insurance operations can be more clearly identified without the
effects of these items. For these reasons, management uses the measure of operating earnings
to assess performance, including, in certain cases, in connection with the performance goals
under its incentive compensation plans, and to make operating plans and decisions. The
Company believes that analysts and investors typically utilize measures of this type as one
element of their evaluations of the financial performance of insurers. However, gains and
losses of these types, particularly as to investments, occur regularly and should not be
considered as non-recurring items. Further, operating earnings should not be considered a
substitute for net income, the most directly comparable GAAP measure, as an indication of the
Companys overall financial performance and may not be calculated in the same manner as
similarly titled measures utilized by other companies. For reconciliations of the respective
operating earnings amounts to the corresponding net income amounts for the indicated periods,
see the table captioned Non-GAAP Financial Measures  Reconciliation to GAAP which follows.
All per share amounts are on a diluted basis. -30-




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##### Table of Contents



Non-GAAP Financial Measures  Reconciliation to GAAP Year Ended December 31,2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005(dollars in thousands, except per share data)Operating Earnings
    
    $
    195,007
    
    
    $
    94,387
    
    
    $
    167,170
    
    
    $
    145,561
    
    
    $
    120,832Net realized investment (losses) gains, net of taxes(A)
    
    
    (95,903
    )
    
    
    (57,315
    )
    
    
    (1,233
    )
    
    
    (558
    )
    
    
    5,852Loss on redemption of junior subordinated
deferrable interest debentures, net of taxes(B)
    
    
    
    
    
    
    (389
    )
    
    
    (1,425
    )
    
    
    
    
    
    
    Income from continuing operations
    
    
    99,104
    
    
    
    36,683
    
    
    
    164,512
    
    
    
    145,003
    
    
    
    126,684Discontinued operations, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,935
    )
    
    
    (13,350
    )Net income
    
    $
    99,104
    
    
    $
    36,683
    
    
    $
    164,512
    
    
    $
    142,068
    
    
    $
    113,334
 Year Ended December 31,2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005(dollars in thousands, except per share data)Diluted results per share of common stockOperating Earnings
    
    $
    3.76
    
    
    $
    1.93
    
    
    $
    3.24
    
    
    $
    2.86
    
    
    $
    2.40Net realized investment (losses) gains, net of taxes(A)
    
    
    (1.85
    )
    
    
    (1.17
    )
    
    
    (0.02
    )
    
    
    (0.01
    )
    
    
    0.12Loss on redemption of junior subordinated
deferrable interest debentures, net of taxes(B)
    
    
    
    
    
    
    (0.01
    )
    
    
    (0.03
    )
    
    
    
    
    
    
    Income from continuing operations
    
    
    1.91
    
    
    
    0.75
    
    
    
    3.19
    
    
    
    2.85
    
    
    
    2.52Discontinued operations, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.06
    )
    
    
    (0.27
    )Net income
    
    $
    1.91
    
    
    $
    0.75
    
    
    $
    3.19
    
    
    $
    2.79
    
    
    $
    2.25
 
 (A)
    
    Net of an income tax (benefit) expense of $(51.6) million, $(30.9) million, $(0.7)
million, $(0.3) million and $3.2 million, or $(1.00) per diluted share, $(0.63) per
diluted share, $(0.01) per diluted share, $(0.01) per diluted share and $0.06 per diluted
share for 2009, 2008, 2007, 2006 and 2005, respectively. The tax effect is calculated
using the Companys statutory tax rate of 35%.(B)
    
    Net of an income tax benefit of $0.2 million and $0.8 million, or $0.00 per diluted
share and $0.01 per diluted share for 2008 and 2007, respectively. The tax effect is
calculated using the Companys statutory tax rate of 35%. (9)
    
    In 2001, the Companys Board of Directors approved the initiation of a quarterly cash
dividend payable on the Companys outstanding Class A and Class B Common Stock and has
subsequently increased the dividend rate from time to time. The quarterly cash dividend was
$0.06 per share during 2005. In the first quarter of 2006, the Companys Board of Directors
increased the cash dividend to $0.07 per share and subsequently increased it to $0.08 per
share in the second quarter of 2006. During the second quarter of 2007, the Companys Board of
Directors increased the cash dividend to $0.09 per share. During the second quarter of 2008,
the Companys Board of Directors further increased the cash dividend to $0.10 per share.
During 2009, 2008, 2007, 2006 and 2005, the Company paid cash dividends on its outstanding
capital stock in the amount of $20.2 million, $18.4 million, $17.2 million, $15.0 million and
$11.6 million, respectively. See Note I to the Consolidated Financial Statements.(10)
    
    Diluted book value per share is calculated by dividing shareholders equity (as determined in
accordance with GAAP), as increased by the proceeds and tax benefit from the assumed exercise
of outstanding in-the-money stock options, by total shares outstanding, also increased by
shares issued upon the assumed exercise of the options and deferred shares.(11)
    
    In May 2007, the Company issued $175.0 million of 2007 Junior Debentures. See Other
Transactions in Part I, Item 1  Business and Note H to the Consolidated Financial
Statements.(12)
    
    Due to the adoption of new guidance relating to the accounting for deferred policy
acquisition costs in connection with internal replacements, the Company made a reduction to
its retained earnings at January 1, 2007 in the amount of $82.6 million, net of an income tax
benefit of $44.5 million, which represents the net reduction in the deferred policy
acquisition cost from internal replacements included in cost of business acquired on the
consolidated balance sheet. See Note A to the Consolidated Financial Statements under the
caption Cost of Business Acquired.(13)
    
    The corporate debt to total capitalization ratio is calculated by dividing long-term
corporate debt by the sum of the Companys long-term corporate debt, junior subordinated
debentures, junior subordinated deferrable interest debentures underlying company-obligated
mandatorily redeemable capital securities issued by unconsolidated
subsidiaries/company-obligated mandatorily redeemable capital securities of subsidiaries and
shareholders equity.
 -31-




---



##### Table of Contents



Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Introduction
     -32-




---



##### Table of Contents



Results of Operations
 2009 Compared to 2008
 Summary of Results.
 -33-




---



##### Table of Contents



Premium and Fee Income.
  -34-




---



##### Table of Contents



Net Investment Income.
 Net Realized Investment Losses.
  Benefits and Expenses.
 -35-




---



##### Table of Contents



Interest Expense
 Income Tax Expense (Benefit).
 2008 Compared to 2007
 Summary of Results.
 Premium and Fee Income.
  -36-




---



##### Table of Contents



Net Investment Income.
 Net Realized Investment Losses.
 Loss on Redemption of Junior Subordinated Deferrable Interest Debentures.
  Benefits and Expenses.
 -37-




---



##### Table of Contents



Interest Expense
 Income Tax (Benefit) Expense.
 Liquidity and Capital Resources
 General.
   -38-




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##### Table of Contents



Contractual Obligations
 Payments Due by PeriodLess than
    
    
    1 -3
    
    
    3 - 5
    
    
    More thanTotal
    
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    5 Years(dollars in thousands)Other long-term liabilities(1)Life
    
    $
    1,535,562
    
    
    $
    351,264
    
    
    $
    318,809
    
    
    $
    209,768
    
    
    $
    655,721Casualty
    
    
    1,876,098
    
    
    
    123,745
    
    
    
    199,780
    
    
    
    176,635
    
    
    
    1,375,938Annuity
    
    
    1,992,625
    
    
    
    211,899
    
    
    
    457,942
    
    
    
    464,731
    
    
    
    858,053Corporate debt (Note E)
    
    
    365,750
    
    
    
    222,000
    
    
    
    
    
    
    
    
    
    
    
    143,750Interest on corporate debt (Note E)(2)
    
    
    271,139
    
    
    
    12,087
    
    
    
    23,334
    
    
    
    23,000
    
    
    
    212,718Advances from Federal Home Loan Bank (Note F)
    
    
    55,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55,000Interest on advances from Federal
Home Loan Bank (Note F)
    
    
    42,848
    
    
    
    4,106
    
    
    
    8,211
    
    
    
    8,211
    
    
    
    22,320Junior subordinated debentures (Note H)
    
    
    175,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    175,000Interest on junior subordinated debentures (Note H)(3)
    
    
    354,898
    
    
    
    12,908
    
    
    
    25,816
    
    
    
    25,816
    
    
    
    290,358Operating lease obligations (Note K)
    
    
    71,761
    
    
    
    12,690
    
    
    
    25,664
    
    
    
    20,257
    
    
    
    13,150Total contractual obligations
    
    $
    6,740,681
    
    
    $
    950,699
    
    
    $
    1,059,556
    
    
    $
    928,418
    
    
    $
    3,802,008
 
 (1)
    
    Other long-term liabilities consist of future policy benefits and unpaid claims and claim
expenses relating to the Companys insurance products, as well as policyholder account
balances. Substantially all of the amounts reflected in this table with respect to such
liabilities consist of estimates by the Companys management based on various actuarial and
other assumptions relating to the Companys insurance products and, as to policyholder account
balances, the periods for which the related annuity and other contracts will remain in force
and the crediting rates to be applied thereto in the future. In accordance with GAAP, a
substantial portion of such liabilities, as they relate to the Companys insurance products,
are carried on a discounted basis on its consolidated balance sheet; however, the amounts
contained in this table are presented on an undiscounted basis. The actual payments relating
to these liabilities will differ, both in amount and timing, from those indicated in this
table and such differences are likely to be significant. See Critical Accounting Policies
and Estimates  Future Policy Benefits and Unpaid Claims and Claim Expenses.(2)
    
    Primarily includes interest on the 2033 Senior Notes.(3)
    
    Interest on the 2007 Junior Debentures is fixed at 7.376% until May 15, 2017. -39-




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##### Table of Contents



Cash Flows
 Investments.
   -40-




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##### Table of Contents



Asset/Liability Management and Market Risk.
 -41-




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##### Table of Contents



Reinsurance.
 Off-Balance Sheet Arrangements
  -42-




---



##### Table of Contents



Critical Accounting Policies and Estimates
  Future Policy Benefits and Unpaid Claims and Claim Expenses.
   -43-




---



##### Table of Contents



Balance, net of reinsurance:Case reserves:Disability and accident
    
    $
    887.2Property and casualty
    
    
    333.1IBNR reserves:Disability and accident
    
    
    227.9Property and casualty
    
    
    745.5Total reserves
    
    
    2,193.7Reinsurance receivables
    
    
    209.1Balance, gross of reinsurance
    
    $
    2,402.8Balance Sheets:Future policy benefits:Disability and accident
    
    $
    781.7Unpaid claims and claim expenses:Disability and accident
    
    
    433.3Property and casualty
    
    
    1,187.8$
    2,402.8
   -44-




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##### Table of Contents



Deferred Acquisition Costs.
   -45-




---



##### Table of Contents



Investments.
   -46-




---



##### Table of Contents



-47-




---



##### Table of Contents



Forward-Looking Statements And Cautionary Statements Regarding Certain Factors That May Affect
Future Results
  
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 8. Financial Statements and Supplementary Data
  
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A. Controls and Procedures
   -48-




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##### Table of Contents



MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
    -49-




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
        /s/ ERNST & YOUNG LLP 
 -50-




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##### Table of Contents



Item 9B. Other Information
  
 PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance
   
 Item 11. Executive Compensation
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
  
 Item 13. Certain Relationships and Related Transactions, and Director Independence
  
 Item 14. Principal Accountant Fees and Services
  -51-




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##### Table of Contents



Part IV
 
 Item 15. Exhibits, Financial Statement Schedules
 (a)
    
    The financial statements and financial statement schedules filed as part of this report are
listed in the Index to Consolidated Financial Statements and Financial Statement Schedules on
page 57 of this Form 10-K.(b)
    
    The following Exhibits are numbered in accordance with the Exhibit Table of Item 601 of
Regulation S-K:
 2.1
    
    Agreement and Plan of Merger, dated October 5, 1995, among the Company, SIG Holdings
Acquisition Corp., and SIG Holdings, Inc. (5)2.2
    
    Agreement and Plan of Merger, dated June 11, 1998, by and among Delphi Financial Group,
Inc., Matrix Absence Management, Inc. and the Shareholders named therein (7)3.1
    
    Amendment to Restated Certificate of Incorporation of Delphi Financial Group, Inc. (Exhibit
3.2)(2)3.2
    
    Certificate of Amendment of Restated Certificate of Incorporation of Delphi Financial
Group, Inc. (Exhibit 3.1)(6)3.3
    
    Certificate of Amendment of Restated Certificate of Incorporation of Delphi Financial
Group, Inc. (Exhibit 3.1)(15)3.4
    
    Amended and Restated By-laws of Delphi Financial Group, Inc., as amended (Exhibit 3.1)
(17)4.1
    
    Indenture, dated as of May 20, 2003, between Delphi Financial Group, Inc. and Wilmington
Trust Company, as Trustee (Exhibit 4(a)) (11)4.2
    
    First Supplemental Indenture, dated as of May 20, 2003, between Delphi Financial Group,
Inc. and Wilmington Trust Company, as Trustee (Exhibit 4(b)) (11)4.3
    
    Amended and Restated Declaration of Delphi Financial Statutory Trust I, dated as of May 15,
2003, by and among U.S. Bank National Association, as Institutional Trustee, Delphi Financial
Group, Inc., as Sponsor, and the Administrators named therein (Exhibit 4.1) (12)4.4
    
    Indenture, dated as of May 15, 2003, between Delphi Financial Group, Inc. and U.S. Bank
National Association, as Trustee (Exhibit 4.2) (12)4.5
    
    Guarantee Agreement, dated as of May 15, 2003, by and between Delphi Financial Group, Inc.,
as Guarantor, and U.S. Bank National Association, as Trustee (Exhibit 4.3)(12)4.6
    
    Junior Subordinated Indenture, dated as of May 23, 2007, between the Registrant and U.S.
Bank National Association, as trustee (Exhibit 4.1)(21)4.7
    
    First Supplemental Indenture, dated as of May 23, 2007, between the Registrant and U.S.
Bank National Association, as trustee (Exhibit 4.2)(21)4.8
    
    Form of Junior Subordinated Debentures (Exhibit 4.3)(21)4.9
    
    Senior Notes Indenture, dated January 20, 2010, between the Company and U.S. Bank National
Association, as trustee (Exhibit 4.1)(22)4.10
    
    First Supplemental Indenture, dated as of January 20, 2010, between the Company and U.S.
Bank National Association, as trustee (Exhibit 4.2)(22)4.11
    
    Form of 7.875% Senior Note due 2020 (Exhibit 4.3) (22)10.1
    
    Amended and Restated Credit Agreement, dated as of October 25, 2006, among Delphi Financial
Group, Inc. as the Borrower, Bank of America, N.A., as Administrative Agent, and the other
lenders party thereto (19)10.2
    
    Delphi Financial Group, Inc. Second Amended and Restated Nonqualified Employee Stock Option
Plan, as amended May 23, 2001 (Exhibit 10.1)(8)10.3
    
    The Delphi Capital Management, Inc. Pension Plan for Robert Rosenkranz(1)10.4
    
    Second Amendment to the Delphi Capital Management, Inc. Pension Plan for Robert Rosenkranz
(Exhibit 10.2) (9)10.5
    
    Investment Consulting Agreement, dated as of November 10, 1988, between Rosenkranz Asset
Managers, LLC (as assignee of Rosenkranz, Inc.) and the Company (Exhibit 10.8)(2)10.6
    
    Investment Consulting Agreement, dated as of November 6, 1988, between Rosenkranz Asset
Managers, LLC (as assignee of Rosenkranz, Inc.) and Reliance Standard Life Insurance Company
(Exhibit 10.9)(2)10.7
    
    2003 Bonus Criteria for Chairman, President and Chief Executive Officer of Delphi Financial
Group, Inc. (Exhibit 10.1) (10)10.8
    
    SIG Holdings, Inc. 1992 Long-Term Incentive Plan (Exhibit 10.12)(4)10.9
    
    Stockholders Agreement, dated as of October 5, 1995, among the Company and the affiliate
stockholders named therein (Exhibit 10.30)(5)10.10
    
    Reliance Standard Life Insurance Company Nonqualified Deferred Compensation Plan (Exhibit
10.14)(5)10.11
    
    Reliance Standard Life Insurance Company Supplemental Executive Retirement Plan (Exhibit
10.15)(5)
 -52-




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##### Table of Contents



10.12
    
    Reliance Standard Life Insurance Company Amended and Restated Management Incentive
Compensation Plan (Exhibit 10.2) (20)10.13
    
    2007 Exhibits to the Reliance Standard Life Insurance Company Amended and Restated
Management Incentive Compensation Plan (Exhibit 10.3) (20)10.14
    
    Stock Option Award Agreement, dated July 8, 2003, for Harold F. Ilg (Exhibit 10.5)
(12)10.15
    
    Amendment of Stock Option Award Agreement, dated January 4, 2006, for Harold F. Ilg (Exhibit
10.17) (16)10.16
    
    Stock Option Award Agreement, dated May 19, 2004, for Lawrence E. Daurelle (Exhibit 10.1) (13)10.17
    
    Stock Option Award Agreement, dated January 4, 2006, for Lawrence E. Daurelle (Exhibit 10.19) (16)10.18
    
    Delphi Financial Group, Inc. Second Amended and Restated Directors Stock Plan (Exhibit 10.1)(20)10.19
    
    Employment Agreement, dated March 18, 1994, for Robert M. Smith, Jr. (Exhibit 10.31)(3)10.20
    
    Employment Agreement, dated July 8, 2003, between Safety National Casualty Corporation and
Harold F. Ilg (Exhibit 10.6) (12)10.21
    
    Employment letter, dated April 19, 2006, for Donald A. Sherman (Exhibit 10.1)
(18)10.22
    
    Form of Restricted Share Unit Award Agreement (Exhibit 99.1) (14)10.23
    
    SIG Holdings, Inc. Note Agreement, dated as of May 20, 1994 (8.5% Senior Secured Notes due
2003) (Exhibit 10.25)(4)10.24
    
    Borrower Pledge Agreement, dated as of May 20, 1994, between SIG Holdings, Inc. and the
Chase Manhattan Bank, N.A., as collateral agent (Exhibit 10.26) (4)10.25
    
    Restricted Share Unit Amendment and Consolidation Agreement for Robert M. Smith, Jr.
(Exhibit 10.1) (24)10.26
    
    Delphi Financial Group, Inc. Second Amended and Restated Long-Term Performance Based
Incentive Plan (Exhibit 10.1)(23)10.27
    
    Supplement to Credit Agreement dated November 8, 2007, among Delphi Financial Group, Inc. as
the Borrower, Bank of America, N.A., as Administrative Agent, and the other lenders party
thereto (Exhibit 10.1) (25)10.28
    
    Amendment and Consolidation of Prior Stock Option Award Agreements for Lawrence E. Daurelle
dated May 12, 2008 (Exhibit 10.1) (26)10.29
    
    Amendment and Consolidation of Prior Stock Option Award Agreements for Thomas W. Burghart
dated May 12, 2008 (Exhibit 10.2) (26)10.30
    
    Amendment to Second Amended and Restated Employee Stock Option Plan dated May 7, 2008
(Exhibit 10.4)(26)10.31
    
    Amendment to Employee Stock Purchase Plan dated May 7, 2008 (Exhibit 10.5) (25)10.32
    
    Restated Investment Consulting Agreement, dated as of August 14, 2008, between Rosenkranz
Asset Managers, LLC and the Registrant (Exhibit 10.1) (27)10.33
    
    Amendment to the Registrants Second Amended and Restated Long-Term Performance-Based
Incentive Plan dated August 12, 2008 (Exhibit 10.2) (27)10.34
    
    Stock Option Award Agreement for Robert Rosenkranz dated August 14, 2008 (Exhibit 10.3)
(27)10.35
    
    Amended and Restated Reliance Standard Life Insurance Company Supplemental Executive
Retirement Plan dated August 14, 2008 (Exhibit 10.4) (27)10.36
    
    Amended and Restated Reliance Standard Life Insurance Company Nonqualified Deferred
Compensation Plan dated August 14, 2008 (Exhibit 10.5)(27)10.37
    
    Amended and Restated Pension Plan for Robert Rosenkranz dated December 18, 2008 (Exhibit
10.1)(28)10.38
    
    Amended and Restated Nonqualified Deferred Compensation Plan  Reliance Standard Life
Insurance Company dated December 18, 2008 (Exhibit 10.2)(28)10.39
    
    Amendment, Restatement and Consolidation of Prior Award Agreements for Robert Rosenkranz
dated December 22, 2008 (Exhibit 10.3)(28)10.40
    
    Amendment and Restatement of Restricted Share Unit Award Agreement for Donald A. Sherman
dated December 22, 2008 (Exhibit 10.4)(28)10.41
    
    Amendment to Safety National Casualty Corporation Stock Option Award Agreement dated
December 19, 2008 (Exhibit 10.5)(28)10.42
    
    Underwriting Agreement dated April 28, 2009 between Delphi Financial Group, Inc. and
Barclays Capital Inc. (Exhibit 10.1)(29)10.43
    
    Delphi Financial Group, Inc. 2003 Employee Long-Term Incentive and Share Award Plan, as
amended (Exhibit 10.1)(30)10.44
    
    Delphi Financial Group, Inc. Annual Incentive Compensation Plan (Exhibit 10.2)
(30)10.45
    
    General Form of RSL Performance-Contingent Incentive Option Award Agreement (Exhibit
10.1)(31)10.46
    
    Underwriting Agreement dated August 18, 2009 between Delphi Financial Group, Inc. and
Barclays Capital Inc (Exhibit 10.1) (32)
 -53-




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##### Table of Contents



10.47
    
    Amendment 2009-1 to the Reliance Standard Life Insurance Company Supplemental Executive
Retirement Plan (Exhibit 10.1) (33)10.48
    
    Amendment to the Delphi Capital Management, Inc. Pension Plan for Robert Rosenkranz (Exhibit
10.1) (33)10.49
    
    Amendment 2009-1 to the Reliance Standard Life Insurance Company Nonqualified Deferred
Compensation Plan (Exhibit 10.1) (33)10.50
    
    Underwriting Agreement, dated January 14, 2010, among the Company and Banc of America
Securities LLC and Wells Fargo Securities, LLC, as representatives of the underwriters named
therein (Exhibit 1.1)(22)11.1
    
    Computation of Results per Share of Common Stock(34)21.1
    
    List of Subsidiaries of the Company(35)23.1
    
    Consent of Ernst & Young LLP(35)24.1
    
    Powers of Attorney (35)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) (35)31.2
    
    Certification by the Senior Vice President and Treasurer of Periodic Report Pursuant to Rule
13a-14(a) or 15d-14(a) (35)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 (35)
 
 (1)
    
    Incorporated herein by reference to the designated exhibit to the Companys Form 10-K
for the year ended December 31, 1992.(2)
    
    Incorporated herein by reference to the designated exhibit to the Companys
Registration Statement on Form S-1 dated March 13, 1990 (Registration No. 33-32827).(3)
    
    Incorporated herein by reference to the designated exhibit to the Companys Form 10-K
for the year ended December 31, 1994.(4)
    
    Incorporated herein by reference to the designated exhibit to the Companys Form 10-K
for the year ended December 31, 1995.(5)
    
    Incorporated herein by reference to the designated exhibit to the Companys
Registration Statement on Form S-4 dated January 30, 1996 (Registration No. 33-99164).(6)
    
    Incorporated herein by reference to the designated exhibit to the Companys Form 10-Q
for the quarter ended June 30, 1997.(7)
    
    Incorporated herein by reference to the designated exhibit to the Companys Form 10-K
for the year ended December 31, 1998.(8)
    
    Incorporated herein by reference to the designated exhibit to the Companys Form 10-Q
for the quarter ended June 30, 2001.(9)
    
    Incorporated herein by reference to the designated exhibit to the Companys Form 10-Q
for the quarter ended September 30, 2002.(10)
    
    Incorporated herein by reference to the designated exhibit to the Companys Form 10-Q
for the quarter ended March 31, 2003.(11)
    
    Incorporated herein by reference to the designated exhibit to the Companys Current
Report on Form 8-K dated May 20, 2003.(12)
    
    Incorporated herein by reference to the designated exhibit to the Companys Form 10-Q
for the quarter ended June 30, 2003.(13)
    
    Incorporated herein by reference to the designated exhibit to the Companys Form 10-Q
for the quarter ended June 30, 2004.(14)
    
    Incorporated herein by reference to the designated exhibit to the Companys Current
Report on Form 8-K dated February 9, 2005.(15)
    
    Incorporated herein by reference to the designated exhibit to the Companys Form 10-Q
for the quarter ended June 30, 2005.(16)
    
    Incorporated herein by reference to the designated exhibit to the Companys Form 10-K
for the year ended December 31, 2005.(17)
    
    Incorporated herein by reference to the designated exhibit to the Companys Current
Report on Form 8-K dated April 19, 2006.(18)
    
    Incorporated herein by reference to the designated exhibit to the Companys Form 10-Q
for the quarter ended June 30, 2006.(19)
    
    Incorporated herein by reference to the designated exhibit to the Companys Current
Report on Form 8-K dated October 25, 2006.(20)
    
    Incorporated herein by reference to the designated exhibit to the Companys Form 10-Q
for the quarter ended March 31, 2007(21)
    
    Incorporated herein by reference to the designated exhibit to the Companys Current
Report on Form 8-K dated May 23, 2007.(22)
    
    Incorporated herein by reference to the designated exhibit to the Companys Current
Report on Form 8-K dated January 14, 2010.(23)
    
    Incorporated herein by reference to the designated exhibit to the Companys Current
Report on Form 8-K dated August 23, 2007.(24)
    
    Incorporated herein by reference to the designated exhibit to the Companys Form 10-Q
for the quarter ended September 30, 2007.(25)
    
    Incorporated herein by reference to the designated exhibit to the Companys Current
Report on Form 8-K dated November 7, 2007.(26)
    
    Incorporated herein by reference to the designated exhibit to the Companys Current
Report on Form 8-K dated May 7, 2008.(27)
    
    Incorporated herein by reference to the designated exhibit to the Companys Current
Report on Form 8-K dated August 12, 2008.(28)
    
    Incorporated herein by reference to the designated exhibit to the Companys Current
Report on Form 8-K dated December 17, 2008.(29)
    
    Incorporated herein by reference to the designated exhibit to the Companys Current
Report on Form 8-K dated April 28, 2009(30)
    
    Incorporated herein by reference to the designated exhibit to the Companys Current
Report on Form 8-K dated June 15, 2009(31)
    
    Incorporated herein by reference to the designated exhibit to the Companys Current
Report on Form 8-K dated August 11, 2009(32)
    
    Incorporated herein by reference to the designated exhibit to the Companys Current
Report on Form 8-K dated August 18, 2009(33)
    
    Incorporated herein by reference to the designated exhibit to the Companys Current
Report on Form 8-K dated December 31, 2009(34)
    
    Incorporated herein by reference to Note M to the Consolidated Financial Statements
included elsewhere herein.(35)
    
    Filed herewith. (c)
    
    The financial statement schedules listed in the Index to Consolidated Financial Statements
and Financial Statement Schedules on page 57 of this Form 10-K are included under Item 8 and
are presented beginning on page 90 of this Form 10-K. All other schedules for which provision
is made in the applicable accounting regulations of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable, and therefore have been
omitted.
 -54-




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##### Table of Contents



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
 SIGNATURES
  Delphi Financial Group, Inc.By:
    /s/ ROBERT ROSENKRANZChairman of the Board andChief Executive Officer  Name
    
    Capacity
    
    Date/s/ ROBERT ROSENKRANZ

(Robert Rosenkranz)
    
    Chairman of the Board
and
Chief Executive
Officer (Principal Executive
Officer)
    
    March 1, 2010*

(Kevin R. Brine)
    
    Director
    
    March 1, 2010*

(Edward A. Fox)
    
    Director
    
    March 1, 2010*
    
    Director
    
    March 1, 2010(Steven A. Hirsh)*

(Harold F. Ilg)
    
    Director and Executive
Vice President
    
    March 1, 2010*
    
    Director
    
    March 1, 2010(James M. Litvack)*
    
    Director
    
    March 1, 2010(James N. Meehan)*
    
    Director
    
    March 1, 2010(Philip R. OConnor)/s/ DONALD A. SHERMAN

(Donald A. Sherman)
    
    Director, President and
Chief Operating Officer
    
    March 1, 2010*

(Robert M. Smith, Jr.)
    
    Director and Executive
Vice President
    
    March 1, 2010*
    
    Director
    
    March 1, 2010(Robert F. Wright)*

(Thomas W. Burghart)
    
    Senior Vice President and
Treasurer (Principal
Accounting and Financial
Officer)
    
    March 1, 2010
 * BY:
    /s/         ROBERT ROSENKRANZAttorney-in-Fact -55-




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##### Table of Contents



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
SELECTED QUARTERLY FINANCIAL RESULTS (Unaudited)
(Dollars in Thousands, Except Per Share Data)
 Year Ended December 31, 2009First
    
    
    Second
    
    
    Third
    
    
    FourthQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    QuarterRevenues excluding net realized investment losses
    
    $
    420,576
    
    
    $
    444,468
    
    
    $
    431,292
    
    
    $
    422,892Net realized investment losses
    
    
    (21,999
    )
    
    
    (27,471
    )
    
    
    (50,459
    )
    
    
    (47,614
    )Total revenues
    
    
    398,577
    
    
    
    416,997
    
    
    
    380,833
    
    
    
    375,278Operating income
    
    
    36,845
    
    
    
    55,928
    
    
    
    30,197
    
    
    
    23,850Net income
    
    
    24,484
    
    
    
    37,007
    
    
    
    20,823
    
    
    
    16,790Basic results per share of common stock:Net income
    
    $
    0.51
    
    
    $
    0.74
    
    
    $
    0.39
    
    
    $
    0.31Diluted results per share of common stock:Net income
    
    $
    0.51
    
    
    $
    0.74
    
    
    $
    0.39
    
    
    $
    0.30
 Year Ended December 31, 2008First
    
    
    Second
    
    
    Third
    
    
    FourthQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    QuarterRevenues excluding net realized investment losses
and loss on redemption of debentures
    
    $
    374,627
    
    
    $
    401,524
    
    
    $
    364,435
    
    
    $
    379,154Net realized investment losses
    
    
    (6,436
    )
    
    
    (19,499
    )
    
    
    (33,740
    )
    
    
    (28,502
    )Loss on redemption of junior subordinated
deferrable interest debentures
    
    
    
    
    
    
    
    
    
    
    (598
    )
    
    
    Total revenues
    
    
    368,191
    
    
    
    382,025
    
    
    
    330,097
    
    
    
    350,652Operating income (loss)
    
    
    35,386
    
    
    
    43,587
    
    
    
    (13,769
    )
    
    
    (1,163
    )Net income (loss)
    
    
    21,144
    
    
    
    26,875
    
    
    
    (9,810
    )
    
    
    (1,526
    )Basic results per share of common stock:Net income (loss)
    
    $
    0.43
    
    
    $
    0.56
    
    
    $
    (0.20
    )
    
    $
    (0.03
    )Diluted results per share of common stock:Net income (loss)
    
    $
    0.42
    
    
    $
    0.55
    
    
    $
    (0.20
    )
    
    $
    (0.03
    )
   -56-




---



##### 



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
 PageAudited Consolidated Financial Statements of Delphi Financial Group, Inc. and Subsidiaries:Report of Independent Registered Public Accounting Firm
    
    58Consolidated Statements of Income  Years Ended December 31, 2009, 2008 and 2007
    
    59Consolidated Balance Sheets  December 31, 2009 and 2008
    
    60Consolidated Statements of Equity  Years Ended December 31, 2009, 2008 and 2007
    
    61Consolidated Statements of Cash Flows  Years Ended December 31, 2009, 2008 and 2007
    
    62Notes to Consolidated Financial Statements
    
    63Financial Statement Schedules of Delphi Financial Group, Inc. and Subsidiaries:Schedule I, Summary of Investments Other Than Investments in Related Parties
    
    90Schedule II, Condensed Financial Information of Registrant
    
    91Schedule III, Supplementary Insurance Information
    
    95Schedule IV, Reinsurance
    
    96Schedule VI, Supplemental Information Concerning Property-Casualty Insurance Operations
    
    97
  -57-




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
      /s/ ERNST & YOUNG LLP 
 -58-




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##### Table of Contents



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF INCOME

(Dollars in Thousands, Except Per Share Data)
 Year Ended December 31,2009
    
    
    2008
    
    
    2007Revenue:Premium and fee income
    
    $
    1,401,041
    
    
    $
    1,384,890
    
    
    $
    1,304,161Net investment income
    
    
    318,187
    
    
    
    134,850
    
    
    
    270,547Net realized investment losses:Total other than temporary impairment losses
    
    
    (180,191
    )
    
    
    (78,626
    )
    
    
    (4,058
    )Less: Portion of other than temporary impairment
losses recognized in other comprehensive income
    
    
    35,480
    
    
    
    
    
    
    
    Net impairment losses recognized in earnings
    
    
    (144,711
    )
    
    
    (78,626
    )
    
    
    (4,058
    )Other net realized investment (losses) gains
    
    
    (2,832
    )
    
    
    (9,551
    )
    
    
    2,161(147,543
    )
    
    
    (88,177
    )
    
    
    (1,897
    )Loss on redemption of junior subordinated deferrable interest
debentures underlying company-obligated mandatorily
redeemable capital securities issued by unconsolidated
subsidiaries
    
    
    
    
    
    
    (598
    )
    
    
    (2,192
    )1,571,685
    
    
    
    1,430,965
    
    
    
    1,570,619Benefits and expenses:Benefits, claims and interest credited to policyholders
    
    
    990,802
    
    
    
    989,253
    
    
    
    944,901Commissions
    
    
    92,988
    
    
    
    87,206
    
    
    
    84,526Amortization of cost of business acquired
    
    
    101,406
    
    
    
    80,411
    
    
    
    81,222Other operating expenses
    
    
    239,669
    
    
    
    210,054
    
    
    
    199,9231,424,865
    
    
    
    1,366,924
    
    
    
    1,310,572Operating income
    
    
    146,820
    
    
    
    64,041
    
    
    
    260,047Interest expense:Corporate debt
    
    
    15,485
    
    
    
    17,701
    
    
    
    16,870Junior subordinated debentures
    
    
    12,968
    
    
    
    12,966
    
    
    
    7,891Junior subordinated deferrable interest debentures underlying
company-obligated redeemable capital securities issued by
unconsolidated subsidiaries
    
    
    
    
    
    
    934
    
    
    
    2,72728,453
    
    
    
    31,601
    
    
    
    27,488Income before income tax expense (benefit)
    
    
    118,367
    
    
    
    32,440
    
    
    
    232,559Income tax expense (benefit)
    
    
    19,263
    
    
    
    (4,243
    )
    
    
    68,047Net income
    
    $
    99,104
    
    
    $
    36,683
    
    
    $
    164,512Basic results per share of common stock:Net income
    
    
    1.92
    
    
    
    0.76
    
    
    
    3.27Diluted results per share of common stock:Net income
    
    
    1.91
    
    
    
    0.75
    
    
    
    3.19Dividends paid per share of common stock
    
    $
    0.40
    
    
    $
    0.39
    
    
    $
    0.35
  -59-




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##### Table of Contents



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 (Dollars in Thousands, Except Per Share Data)
 December 31,2009
    
    
    2008Assets:Investments:Fixed maturity securities, available for sale
    
    $
    4,875,681
    
    
    $
    3,773,382Short-term investments
    
    
    406,782
    
    
    
    401,620Other investments
    
    
    466,855
    
    
    
    479,9215,749,318
    
    
    
    4,654,923Cash
    
    
    65,464
    
    
    
    63,837Cost of business acquired
    
    
    250,311
    
    
    
    264,777Reinsurance receivables
    
    
    355,030
    
    
    
    376,731Goodwill
    
    
    93,929
    
    
    
    93,929Other assets
    
    
    293,835
    
    
    
    409,103Assets held in separate account
    
    
    113,488
    
    
    
    90,573Total assets
    
    $
    6,921,375
    
    
    $
    5,953,873Liabilities and Equity:Future policy benefits:Life
    
    $
    341,736
    
    
    $
    300,567Disability and accident
    
    
    781,701
    
    
    
    743,690Unpaid claims and claim expenses:Life
    
    
    58,665
    
    
    
    70,076Disability and accident
    
    
    433,273
    
    
    
    398,671Casualty
    
    
    1,187,814
    
    
    
    1,061,046Policyholder account balances
    
    
    1,454,114
    
    
    
    1,356,932Corporate debt
    
    
    365,750
    
    
    
    350,750Junior subordinated debentures
    
    
    175,000
    
    
    
    175,000Advances from Federal Home Loan Bank
    
    
    55,342
    
    
    
    55,342Other liabilities and policyholder funds
    
    
    591,927
    
    
    
    526,612Liabilities related to separate account
    
    
    113,488
    
    
    
    90,573Total liabilities
    
    
    5,558,810
    
    
    
    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;
55,995,995 and 48,946,432 shares issued and outstanding, respectively
    
    
    560
    
    
    
    489Class B Common Stock, $.01 par; 20,000,000 shares authorized;
5,981,049 shares issued and outstanding
    
    
    60
    
    
    
    60Additional paid-in capital
    
    
    661,895
    
    
    
    522,596Accumulated other comprehensive loss
    
    
    (33,956
    )
    
    
    (351,710
    )Retained earnings
    
    
    927,706
    
    
    
    846,390Treasury stock, at cost; 7,761,216 shares of Class ACommon Stock, and 227,216 shares of
Class B Common Stock
    
    
    (197,246
    )
    
    
    (197,246
    )Total shareholders equity
    
    
    1,359,019
    
    
    
    820,579Noncontrolling interest
    
    
    3,546
    
    
    
    4,035Total equity
    
    
    1,362,565
    
    
    
    824,614Total liabilities and equity
    
    $
    6,921,375
    
    
    $
    5,953,873
  -60-




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##### Table of Contents



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF EQUITY
 (Dollars in Thousands)
 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, December 31, 2006
    
    $
    480
    
    
    $
    57
    
    
    $
    474,722
    
    
    $
    19,133
    
    
    $
    763,386
    
    
    $
    (82,970
    )
    
    $
    1,174,808
    
    
    $
    30,056
    
    
    $
    1,204,864Cumulative effect adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (82,553
    )
    
    
    
    
    
    
    (82,553
    )
    
    
    
    
    
    
    (82,553
    )Adjusted balance, January 1, 2007
    
    
    480
    
    
    
    57
    
    
    
    474,722
    
    
    
    19,133
    
    
    
    680,833
    
    
    
    (82,970
    )
    
    
    1,092,255
    
    
    
    30,056
    
    
    
    1,122,311Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    164,512
    
    
    
    
    
    
    
    164,512
    
    
    
    845
    
    
    
    165,357Other comprehensive income:Increase in net unrealized
depreciation on investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (65,621
    )
    
    
    
    
    
    
    
    
    
    
    (65,621
    )
    
    
    (257
    )
    
    
    (65,878
    )Decrease in net loss on cash
flow hedge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    786
    
    
    
    
    
    
    
    
    
    
    
    786
    
    
    
    
    
    
    
    786Change in net periodic pension
cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,205
    
    
    
    
    
    
    
    
    
    
    
    3,205
    
    
    
    
    
    
    
    3,205Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    102,882
    
    
    
    588
    
    
    
    103,470Change in noncontrolling
interest ownership
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (463
    )
    
    
    (463
    )Exercise of stock options
    
    
    7
    
    
    
    2
    
    
    
    27,438
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,447
    
    
    
    
    
    
    
    27,447Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    7,582
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,582
    
    
    
    
    
    
    
    7,582Acquisition of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (71,547
    )
    
    
    (71,547
    )
    
    
    
    
    
    
    (71,547
    )Cash dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,229
    )
    
    
    
    
    
    
    (17,229
    )
    
    
    
    
    
    
    (17,229
    )Balance, December 31, 2007
    
    $
    487
    
    
    $
    59
    
    
    $
    509,742
    
    
    $
    (42,497
    )
    
    $
    828,116
    
    
    $
    (154,517
    )
    
    $
    1,141,390
    
    
    $
    30,181
    
    
    $
    1,171,571Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,683
    
    
    
    
    
    
    
    36,683
    
    
    
    2,474
    
    
    
    39,157Other comprehensive loss:(Increase) decrease in net
unrealized depreciation on
investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (299,435
    )
    
    
    
    
    
    
    
    
    
    
    (299,435
    )
    
    
    448
    
    
    
    (298,987
    )Decrease in net loss on cash
flow hedge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    785
    
    
    
    
    
    
    
    
    
    
    
    785
    
    
    
    
    
    
    
    785Change in net periodic pension
cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,563
    )
    
    
    
    
    
    
    
    
    
    
    (10,563
    )
    
    
    
    
    
    
    (10,563
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (272,530
    )
    
    
    2,922
    
    
    
    (269,608
    )Change in noncontrolling
interest ownership
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (29,068
    )
    
    
    (29,068
    )Exercise of stock options
    
    
    2
    
    
    
    1
    
    
    
    7,197
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,200
    
    
    
    
    
    
    
    7,200Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    5,657
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,657
    
    
    
    
    
    
    
    5,657Acquisition of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (42,729
    )
    
    
    (42,729
    )
    
    
    
    
    
    
    (42,729
    )Cash dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18,409
    )
    
    
    
    
    
    
    (18,409
    )
    
    
    
    
    
    
    (18,409
    )Balance, December 31, 2008
    
    $
    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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    99,104
    
    
    
    
    
    
    
    99,104
    
    
    
    280
    
    
    
    99,384Other comprehensive income:Decrease in net unrealized
depreciation on investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    328,833
    
    
    
    
    
    
    
    
    
    
    
    328,833
    
    
    
    
    
    
    
    328,833Increase in other than
temporary impairment losses
recognized in other
comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19,196
    )
    
    
    
    
    
    
    
    
    
    
    (19,196
    )
    
    
    
    
    
    
    (19,196
    )Decrease in net loss on cash
flow hedge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    785
    
    
    
    
    
    
    
    
    
    
    
    785
    
    
    
    
    
    
    
    785Change in net periodic pension
cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,704
    
    
    
    
    
    
    
    
    
    
    
    9,704
    
    
    
    
    
    
    
    9,704Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    419,230
    
    
    
    280
    
    
    
    419,510Change in noncontrolling
interest ownership
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (769
    )
    
    
    (769
    )Issuance of common stock
    
    
    65
    
    
    
    
    
    
    
    120,631
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    120,696
    
    
    
    
    
    
    
    120,696Exercise of stock options
    
    
    6
    
    
    
    
    
    
    
    10,406
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,412
    
    
    
    
    
    
    
    10,412Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    8,262
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,262
    
    
    
    
    
    
    
    8,262Cash dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20,160
    )
    
    
    
    
    
    
    (20,160
    )
    
    
    
    
    
    
    (20,160
    )Balance, December 31, 2009
    
    $
    560
    
    
    $
    60
    
    
    $
    661,895
    
    
    $
    (33,956
    )
    
    $
    927,706
    
    
    $
    (197,246
    )
    
    $
    1,359,019
    
    
    $
    3,546
    
    
    $
    1,362,565
  -61-




---



##### Table of Contents



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Dollars in Thousands)
 Year Ended December 31,2009
    
    
    2008
    
    
    2007Operating activities:Net income
    
    $
    99,104
    
    
    $
    36,683
    
    
    $
    164,512Adjustments to reconcile net income to net cash provided
by operating activities:Change in policy liabilities and policyholder accounts
    
    
    234,615
    
    
    
    233,116
    
    
    
    245,031Net change in reinsurance receivables and payables
    
    
    18,513
    
    
    
    30,746
    
    
    
    5,335Amortization, principally the cost of business acquired
and investments
    
    
    53,914
    
    
    
    63,438
    
    
    
    73,084Deferred costs of business acquired
    
    
    (123,152
    )
    
    
    (124,529
    )
    
    
    (108,574
    )Net realized losses on investments
    
    
    147,543
    
    
    
    88,177
    
    
    
    1,897Net change in federal income tax liability
    
    
    (11,347
    )
    
    
    (68,689
    )
    
    
    23,757Other
    
    
    41,357
    
    
    
    137,390
    
    
    
    (21,723
    )Net cash provided by operating activities
    
    
    460,547
    
    
    
    396,332
    
    
    
    383,319Investing activities:Purchases of investments and loans made
    
    
    (1,859,365
    )
    
    
    (1,474,661
    )
    
    
    (1,210,252
    )Sales of investments and receipts from repayment of loans
    
    
    1,014,200
    
    
    
    537,328
    
    
    
    550,991Maturities of investments
    
    
    159,525
    
    
    
    336,417
    
    
    
    171,927Net change in short-term investments
    
    
    (5,162
    )
    
    
    (115,587
    )
    
    
    114,206Change in deposit in separate account
    
    
    4,845
    
    
    
    12,429
    
    
    
    8,948Net cash used by investing activities
    
    
    (685,957
    )
    
    
    (704,074
    )
    
    
    (364,180
    )Financing activities:Deposits to policyholder accounts
    
    
    267,499
    
    
    
    388,419
    
    
    
    116,729Withdrawals from policyholder accounts
    
    
    (162,494
    )
    
    
    (120,984
    )
    
    
    (159,035
    )Borrowings under revolving credit facility
    
    
    17,000
    
    
    
    139,000
    
    
    
    112,000Principal payments under revolving credit facility
    
    
    (2,000
    )
    
    
    (6,000
    )
    
    
    (158,000
    )Proceeds from the issuance of 2007 Junior Debentures
    
    
    
    
    
    
    
    
    
    
    172,309Redemption of junior subordinated deferrable interest debentures
    
    
    
    
    
    
    (20,619
    )
    
    
    (37,728
    )Proceeds from the issuance of common stock
    
    
    120,696
    
    
    
    
    
    
    
    Acquisition of treasury stock
    
    
    
    
    
    
    (42,729
    )
    
    
    (62,417
    )Cash dividends paid on common stock
    
    
    (20,160
    )
    
    
    (18,409
    )
    
    
    (17,229
    )Other financing activities
    
    
    6,496
    
    
    
    1,661
    
    
    
    17,268Net cash provided (used) by financing activities
    
    
    227,037
    
    
    
    320,339
    
    
    
    (16,103
    )Increase in cash
    
    
    1,627
    
    
    
    12,597
    
    
    
    3,036Cash at beginning of year
    
    
    63,837
    
    
    
    51,240
    
    
    
    48,204Cash at end of year
    
    $
    65,464
    
    
    $
    63,837
    
    
    $
    51,240
  -62-




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##### Table of Contents



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31, 2009
 Note A  Summary of Significant Accounting Policies
 Principles of Consolidation.
 Nature of Operations.
 Basis of Accounting.
 Use of Estimates.
 Business Combinations.
 -63-




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##### Table of Contents



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
December 31, 2009
 Note A  Summary of Significant Accounting Policies  (Continued)
  Noncontrolling Interests.
 Derivative Instruments.
 Earnings Per Share.
 Subsequent events.
 -64-




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##### Table of Contents



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
December 31, 2009
 Note A  Summary of Significant Accounting Policies  (Continued)
  Investments.
 Other Than Temporary Impairments.
 Fair Value Measurements.
  -65-




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##### Table of Contents



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
December 31, 2009
 Note A  Summary of Significant Accounting Policies  (Continued)
        Cost of Business Acquired.
 -66-




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##### Table of Contents



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
December 31, 2009
 Note A  Summary of Significant Accounting Policies  (Continued)
  Reinsurance Receivables.
 Goodwill.
 Separate Account.
 Future Policy Benefits.
 Unpaid Claims and Claim Expenses.
 Policyholder Account Balances.
 -67-




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##### Table of Contents



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
December 31, 2009
 Note A  Summary of Significant Accounting Policies  (Continued)
   Income Taxes.
 Premium Recognition.
 Statements of Cash Flows.
 Recently Issued Accounting Standards
  -68-




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##### Table of Contents



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
December 31, 2009
 Note B  Investments
  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
 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
    
    $
    1,542,204
    
    
    $
    1,529,377Commercial mortgage-backed securities
    
    
    29,773
    
    
    
    26,009Other fixed maturity securities:One year or less
    
    
    49,787
    
    
    
    49,845Greater than 1, up to 5 years
    
    
    505,431
    
    
    
    514,798Greater than 5, up to 10 years
    
    
    818,886
    
    
    
    786,910Greater than 10 years
    
    
    1,987,367
    
    
    
    1,968,742Total
    
    $
    4,933,448
    
    
    $
    4,875,681
 -69-




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##### Table of Contents



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
December 31, 2009
 Note B  Investments  (Continued)
  Year Ended December 31,2009
    
    
    2008
    
    
    2007(dollars in thousands)Gross investment income:Fixed maturity securities, available for sale
    
    $
    304,367
    
    
    $
    183,694
    
    
    $
    232,624Mortgage loans
    
    
    3,346
    
    
    
    12,529
    
    
    
    22,966Other
    
    
    47,413
    
    
    
    (33,115
    )
    
    
    41,626355,126
    
    
    
    163,108
    
    
    
    297,216Less: Investment expenses
    
    
    36,939
    
    
    
    28,258
    
    
    
    26,669$
    318,187
    
    
    $
    134,850
    
    
    $
    270,547
  Year Ended December 31,2009
    
    
    2008
    
    
    2007(dollars in thousands)Fixed maturity securities, available for sale
    
    $
    (115,093
    )
    
    $
    (71,052
    )
    
    $
    (2,603
    )Mortgage loans
    
    
    (16,019
    )
    
    
    (9,268
    )
    
    
    Other investments
    
    
    (16,431
    )
    
    
    (7,857
    )
    
    
    706$
    (147,543
    )
    
    $
    (88,177
    )
    
    $
    (1,897
    )
   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
and 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
    )
 -70-




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##### Table of Contents



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
December 31, 2009
 Note B  Investments  (Continued)
 December 31, 2008Less Than 12 Months
    
    
    12 Months or More
    
    
    TotalGross
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    GrossFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses(dollars in thousands)Residential mortgage-backed securities
    
    $
    415,738
    
    
    $
    (140,542
    )
    
    $
    151,971
    
    
    $
    (67,363
    )
    
    $
    567,709
    
    
    $
    (207,905
    )Commercial mortgage-backed securities
    
    
    22,089
    
    
    
    (9,819
    )
    
    
    3,211
    
    
    
    (9,072
    )
    
    
    25,300
    
    
    
    (18,891
    )Corporate securities
    
    
    505,595
    
    
    
    (67,205
    )
    
    
    256,980
    
    
    
    (116,790
    )
    
    
    762,575
    
    
    
    (183,995
    )Collateralized debt obligations
    
    
    76,003
    
    
    
    (62,854
    )
    
    
    34,958
    
    
    
    (53,414
    )
    
    
    110,961
    
    
    
    (116,268
    )U.S. Treasury and other U.S. Government
guaranteed securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    U.S. Government-sponsored enterprise
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Obligations of U.S. states, municipalities
and 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
    )
    -71-




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##### Table of Contents



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
December 31, 2009
 Note B  Investments  (Continued)
  Year EndedDecember 31, 2009Balance at the beginning of period
    
    $
    Increases attributable to credit losses on securities for which
an other than temporary impairment was not previously recognized
    
    
    84,990Increases attributable to credit losses on securities for which
an other than temporary impairment was previously recognized
    
    
    20,467Reductions due to sales, maturities, pay downs or prepayments of
securities
for which an other than temporary impairment was previously
recognized
    
    
    (15,799
    )Balance at the end of the period
    
    $
    89,658
     -72-




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##### Table of Contents



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
December 31, 2009
 Note B  Investments  (Continued)
  Note C  Fair Value Measurements
      -73-




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##### Table of Contents



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
December 31, 2009
 Note C  Fair Value Measurements  (Continued)
       -74-




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##### Table of Contents



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
December 31, 2009
 Note C  Fair Value Measurements  (Continued)
  December 31, 2009Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3(dollars in thousands)Assets:Fixed maturity securities, available for sale:Residential mortgage-backed securities
    
    $
    1,529,377
    
    
    $
    
    
    
    $
    1,385,864
    
    
    $
    143,513Commercial mortgage-backed securities
    
    
    26,009
    
    
    
    
    
    
    
    
    
    
    
    26,009Corporate securities
    
    
    1,238,166
    
    
    
    
    
    
    
    1,142,246
    
    
    
    95,920Collateralized debt obligations
    
    
    114,444
    
    
    
    
    
    
    
    
    
    
    
    114,444U.S. Treasury and other U.S. Government
guaranteed securities
    
    
    110,806
    
    
    
    71,612
    
    
    
    27,827
    
    
    
    11,367U.S. Government-sponsored enterprise
securities
    
    
    17,002
    
    
    
    
    
    
    
    17,002
    
    
    
    Obligations of U.S. states, municipalities
and political subdivisions
    
    
    1,839,877
    
    
    
    
    
    
    
    1,839,877
    
    
    
    Other investments
    
    
    96,290
    
    
    
    86,583
    
    
    
    
    
    
    
    9,707Assets held in separate account
    
    
    113,488
    
    
    
    
    
    
    
    
    
    
    
    113,488Total
    
    $
    5,085,459
    
    
    $
    158,195
    
    
    $
    4,412,816
    
    
    $
    514,448Liabilities:Other liabilities
    
    $
    66,969
    
    
    $
    66,969
    
    
    $
    
    
    
    $
    
  Year Ended December 31, 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
    
    
    $
    321,440
    
    
    $
    110,961
    
    
    $
    2,608
    
    
    $
    21,494
    
    
    $
    90,573Total (losses) gainsIncluded in earnings
    
    
    (90,667
    )
    
    
    (41,088
    )
    
    
    (9,367
    )
    
    
    (32,784
    )
    
    
    (7,410
    )
    
    
    (1
    )
    
    
    (17
    )
    
    
    Included in other
comprehensive income
    
    
    60,164
    
    
    
    29,869
    
    
    
    15,128
    
    
    
    3,733
    
    
    
    14,646
    
    
    
    41
    
    
    
    (3,253
    )
    
    
    Purchases, issuances and settlements
    
    
    (119,175
    )
    
    
    25,047
    
    
    
    (5,051
    )
    
    
    (158,535
    )
    
    
    (3,753
    )
    
    
    8,719
    
    
    
    (8,517
    )
    
    
    22,915Net transfer out of Level 3
    
    
    (71,253
    )
    
    
    (33,319
    )
    
    
    
    
    
    
    (37,934
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at end of the period
    
    $
    514,448
    
    
    $
    143,513
    
    
    $
    26,009
    
    
    $
    95,920
    
    
    $
    114,444
    
    
    $
    11,367
    
    
    $
    9,707
    
    
    $
    113,488Net 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 December 31, 2009 (1)
    
    $
    (99,118
    )
    
    $
    (48,783
    )
    
    $
    (10,026
    )
    
    $
    (25,692
    )
    
    $
    (11,503
    )
    
    $
    
    
    
    $
    (3,114
    )
    
    $
    
 
 (1)
    
    In 2009, net losses of $1.6 million and $97.5 million were reported in the consolidated
statements of income under the captions net investment income and net realized
investment losses, respectively. -75-




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##### Table of Contents



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
December 31, 2009
 Note C  Fair Value Measurements  (Continued)
  December 31,2009
    
    
    2008Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairValue
    
    
    Value
    
    
    Value
    
    
    Value(dollars in thousands)Assets:Short-term investments
    
    
    406,782
    
    
    
    406,782
    
    
    
    401,620
    
    
    
    401,620Other investments
    
    
    370,565
    
    
    
    370,565
    
    
    
    336,411
    
    
    
    336,411Liabilities:Policyholder account balances
    
    
    1,351,565
    
    
    
    1,471,669
    
    
    
    1,214,024
    
    
    
    1,160,047Corporate debt
    
    
    365,750
    
    
    
    361,754
    
    
    
    350,750
    
    
    
    289,168Junior subordinated debentures
    
    
    175,000
    
    
    
    124,600
    
    
    
    175,000
    
    
    
    85,400Advances from Federal Home Loan Bank
    
    
    55,342
    
    
    
    68,320
    
    
    
    55,342
    
    
    
    75,861Liabilities related to separate account
    
    
    113,488
    
    
    
    113,488
    
    
    
    90,573
    
    
    
    90,573
    -76-




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##### Table of Contents



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
December 31, 2009
 Note D  Disability, Accident and Casualty Future Policy Benefits and Unpaid Claims and Claim Expenses
  Year Ended December 31,2009
    
    
    2008
    
    
    2007(dollars in thousands)Balance at beginning of year, net of reinsurance
    
    $
    1,977,720
    
    
    $
    1,749,106
    
    
    $
    1,521,829Add provisions for claims and claim expenses incurred, net
of reinsurance, occurring during:Current year
    
    
    707,266
    
    
    
    660,335
    
    
    
    620,286Prior years
    
    
    (24,697
    )
    
    
    (17,299
    )
    
    
    15,497Incurred claims and claim expenses during the current
year, net of reinsurance
    
    
    682,569
    
    
    
    643,036
    
    
    
    635,783Deduct claims and claim expenses payments, net of reinsurance,
occurring during:Current year
    
    
    154,651
    
    
    
    143,290
    
    
    
    126,763Prior years
    
    
    311,993
    
    
    
    271,132
    
    
    
    281,743466,644
    
    
    
    414,422
    
    
    
    408,506Balance at end of year, net of reinsurance
    
    
    2,193,645
    
    
    
    1,977,720
    
    
    
    1,749,106Reinsurance receivables at end of year
    
    
    209,143
    
    
    
    225,687
    
    
    
    244,333Balance at end of year, gross of reinsurance
    
    $
    2,402,788
    
    
    $
    2,203,407
    
    
    $
    1,993,439Balance Sheets:Future policy benefits:Disability and accident
    
    $
    781,701
    
    
    $
    743,690Unpaid claims and claim expenses:Disability and accident
    
    
    433,273
    
    
    
    398,671Casualty (1)
    
    
    1,187,814
    
    
    
    1,061,046$
    2,402,788
    
    
    $
    2,203,407
  Note E  Corporate Debt
  -77-




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##### Table of Contents



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
December 31, 2009
 Note E  Corporate Debt  (Continued)
     Note F  Advances from the Federal Home Loan Bank
  -78-




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##### Table of Contents



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
December 31, 2009
 Note G  Income Taxes
  Year Ended December 31,2009
    
    
    2008
    
    
    2007(dollars in thousands)Federal income tax expense at statutory rate
    
    $
    41,428
    
    
    $
    11,354
    
    
    $
    81,396Tax-exempt income and dividends received deduction
    
    
    (22,809
    )
    
    
    (16,027
    )
    
    
    (12,781
    )Other
    
    
    644
    
    
    
    430
    
    
    
    (568
    )$
    19,263
    
    
    $
    (4,243
    )
    
    $
    68,047
    December 31,2009
    
    
    2008(dollars in thousands)Cost of business acquired
    
    $
    72,688
    
    
    $
    80,193Future policy benefits and unpaid claims and claim expenses
    
    
    114,900
    
    
    
    105,305Investments
    
    
    2,264
    
    
    
    Other
    
    
    19,900
    
    
    
    12,355Gross deferred tax liabilities
    
    
    209,752
    
    
    
    197,853Future policy benefits and unpaid claims and claim expenses
    
    
    (7,097
    )
    
    
    (7,583
    )Investments
    
    
    (93,086
    )
    
    
    (252,590
    )Other
    
    
    (57,727
    )
    
    
    (53,165
    )Net operating loss carryforwards
    
    
    (8,190
    )
    
    
    (10,140
    )Gross deferred tax assets
    
    
    (166,100
    )
    
    
    (323,478
    )Net deferred tax liability (asset)
    
    $
    43,652
    
    
    $
    (125,625
    )
  As of or for the Year EndedDecember 31,2009
    
    
    2008
    
    
    2007(dollars in thousands)Current tax expense
    
    $
    21,841
    
    
    $
    36,024
    
    
    $
    48,361Deferred tax (benefit) expense
    
    
    (2,578
    )
    
    
    (40,267
    )
    
    
    19,686Current tax (recoverable) liability
    
    
    (9,910
    )
    
    
    (2,151
    )
    
    
    24,529Income taxes paid
    
    
    29,404
    
    
    
    62,563
    
    
    
    29,300Income tax refunds
    
    
    736
    
    
    
    
    
    
    
    
  -79-




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##### Table of Contents



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
December 31, 2009
 Note H  Junior Subordinated Debentures
    Note I  Shareholders Equity and Restrictions
   -80-




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##### Table of Contents



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
December 31, 2009
 Note I  Shareholders Equity and Restrictions (Continued)
     Year Ended December 31,2009
    
    
    2008
    
    
    2007(shares in thousands)Class A Common Stock:Beginning balance
    
    
    48,946
    
    
    
    48,718
    
    
    
    48,011Issuance of stock
    
    
    6,450
    
    
    
    
    
    
    
    Exercise of stock options and conversion of shares
    
    
    600
    
    
    
    228
    
    
    
    707Ending balance
    
    
    55,996
    
    
    
    48,946
    
    
    
    48,718Class B Common Stock:Beginning balance
    
    
    5,981
    
    
    
    5,934
    
    
    
    5,672Exercise of stock options andconversion of shares
    
    
    
    
    
    
    47
    
    
    
    262Ending balance
    
    
    5,981
    
    
    
    5,981
    
    
    
    5,934Class A Treasury Stock:Beginning balance
    
    
    7,761
    
    
    
    6,227
    
    
    
    4,566Acquisition of treasury stock
    
    
    
    
    
    
    1,534
    
    
    
    1,661Ending balance
    
    
    7,761
    
    
    
    7,761
    
    
    
    6,227Class B Treasury Stock:Beginning balance
    
    
    227
    
    
    
    227
    
    
    
    Acquisition of treasury stock
    
    
    
    
    
    
    
    
    
    
    227Ending balance
    
    
    227
    
    
    
    227
    
    
    
    227
 -81-




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##### Table of Contents



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
December 31, 2009
 Note J  Accumulated Other Comprehensive Income (Loss)
  Net IncreaseNet
    
    
    in Other ThanUnrealized
    
    
    Temporary(Depreciation)
    
    
    ImpairmentAppreciation
    
    
    Losses in
    
    
    Net
    
    
    Definedon Available
    
    
    Other
    
    
    Loss on
    
    
    Benefitfor Sale
    
    
    Comprehensive
    
    
    Cash Flow
    
    
    PensionSecurities
    
    
    Income
    
    
    Hedge
    
    
    Plans
    
    
    Total(dollars in thousands)Balance, January 1, 2007
    
    $
    30,689
    
    
    $
    
    
    
    $
    (5,040
    )
    
    $
    (6,516
    )
    
    $
    19,133Unrealized depreciation on available for sale securities (1)
    
    
    (66,731
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (66,731
    )Reclassification adjustment for losses included in net income (2)
    
    
    1,110
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,110Net change in unrealized appreciation on investments
    
    
    (65,621
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (65,621
    )Reclassification adjustment for losses included in net income(3)
    
    
    
    
    
    
    
    
    
    
    786
    
    
    
    
    
    
    
    786Defined benefit pension plans:Amortization of prior service cost included in net
periodic pension cost(4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    338
    
    
    
    338Net gain arising during the period (5)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,410
    
    
    
    2,410Amortization of net loss included in net periodic pension cost(6)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    457
    
    
    
    457Net change in defined benefit pension plans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,205
    
    
    
    3,205Balance, December 31, 2007
    
    $
    (34,932
    )
    
    $
    
    
    
    $
    (4,254
    )
    
    $
    (3,311
    )
    
    $
    (42,497
    )Unrealized depreciation on available for sale securities (1)
    
    
    (346,974
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (346,974
    )Reclassification adjustment for losses included in net income (2)
    
    
    47,539
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47,539Net change in unrealized depreciation on investments
    
    
    (299,435
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (299,435
    )Reclassification adjustment for losses included in net income(3)
    
    
    
    
    
    
    
    
    
    
    785
    
    
    
    
    
    
    
    785Defined benefit pension plans:Amortization of prior service cost included in net
periodic pension cost(4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38
    
    
    
    38Net loss arising during the period (5)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,028
    )
    
    
    (11,028
    )Amortization of net benefit included in net periodic
pension cost(6)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    427
    
    
    
    427Net change in defined benefit pension plans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,563
    )
    
    
    (10,563
    )Balance, December 31, 2008
    
    $
    (334,367
    )
    
    $
    
    
    
    $
    (3,469
    )
    
    $
    (13,874
    )
    
    $
    (351,710
    )Unrealized appreciation on available for sale securities (1)
    
    
    259,616
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    259,616Reclassification adjustment for losses included in net income (2)
    
    
    69,217
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    69,217Net change in unrealized depreciation on investments
    
    
    328,833
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    328,833Cumulative effect adjustment (7)
    
    
    
    
    
    
    (2,372
    )
    
    
    
    
    
    
    
    
    
    
    (2,372
    )Other than temporary impairment losses recognized in other
comprehensive income (8)
    
    
    
    
    
    
    (26,868
    )
    
    
    
    
    
    
    
    
    
    
    (26,868
    )Reclassification adjustment for losses included in net income (9)
    
    
    
    
    
    
    7,672
    
    
    
    
    
    
    
    
    
    
    
    7,672Net change in other than temporary impairment losses
recognized in other comprehensive income
    
    
    
    
    
    
    (21,568
    )
    
    
    
    
    
    
    
    
    
    
    (21,568
    )Reclassification adjustment for losses included in net income(3)
    
    
    
    
    
    
    
    
    
    
    785
    
    
    
    
    
    
    
    785Defined benefit pension plans:Amortization of prior service cost included in net periodic
pension cost(4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22
    
    
    
    22Net gain arising during the period (5)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,699
    
    
    
    8,699Amortization of net loss included in net periodic
pension cost(6)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    983
    
    
    
    983Net change in defined benefit pension plans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,704
    
    
    
    9,704Balance, December 31, 2009
    
    $
    (5,534
    )
    
    $
    (21,568
    )
    
    $
    (2,684
    )
    
    $
    (4,170
    )
    
    $
    (33,956
    )
 
 (1)
    
    Net of an income tax benefit (expense) of $35.9 million, $186.8 million and $(139.8)
million for the years ended December 31, 2007, 2008 and 2009, respectively. Also, net of
the related adjustment to cost of business acquired of $6.2 million, $46.2 million and
$(36.2) million for the years ended December 31, 2007, 2008 and 2009, respectively.(2)
    
    Net of an income tax expense of $0.6 million, $25.6 million and $37.3 million for the
years ended December 31, 2007, 2008 and 2009, respectively.(3)
    
    Net of an income tax expense of $0.4 million for each of the years ended December 31,
2007, 2008 and 2009, respectively.(4)
    
    Net of income tax expense of $0.2 million, $20,500 and $12,000 for the years ended
December 31, 2007, 2008 and 2009, respectively. -82-




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##### Table of Contents



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
December 31, 2009
 Note J  Accumulated Other Comprehensive Income (Loss)  (Continued)
 
 (5)
    
    Net of an income tax (expense) benefit of $(1.3) million, $5.4 million and $(4.7) million
for the years ended December 31, 2007, 2008 and 2009, respectively.(6)
    
    Net of income tax expense of $0.2 million, $0.2 million and $0.5 million for the years
ended December 31, 2007, 2008 and 2009, respectively.(7)
    
    Net of an income tax benefit of $1.3 million for the year ended December 31, 2009.(8)
    
    Net of an income tax benefit of $14.5 million for the year ended December 31, 2009.(9)
    
    Net of an income tax expense of $2.7 million for the year ended December 31, 2009. Note K  Commitments and Contingencies
    Note L  Stock-Based Compensation
   Year Ended December 31,2009
    
    
    2008
    
    
    2007Expected volatility
    
    
    39.4
    %
    
    
    19.2
    %
    
    
    19.2
    %Expected dividends
    
    
    1.8
    %
    
    
    1.3
    %
    
    
    0.8
    %Expected lives of options (in years)
    
    
    7.3
    
    
    
    6.8
    
    
    
    6.5Risk-free rate
    
    
    3.0
    %
    
    
    3.2
    %
    
    
    4.6
    %
  -83-




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##### Table of Contents



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
December 31, 2009
 Note L  Stock-Based Compensation  (Continued)
     Restricted Share Units
  Restricted Shares
  -84-




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##### Table of Contents



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
December 31, 2009
 Note L  Stock-Based Compensation  (Continued)
  Performance-Contingent Incentive Options
    -85-




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##### Table of Contents



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
December 31, 2009
 Note L  Stock-Based Compensation  (Continued)
      Amended Performance Plan
  -86-




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##### Table of Contents



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
December 31, 2009
 Note L  Stock-Based Compensation  (Continued)
    Service-Based Stock Options
  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
    
    
    (389,912
    )
    
    
    13.41Forfeited
    
    
    (49,972
    )
    
    
    30.00Expired
    
    
    (40,482
    )
    
    
    32.32Outstanding at December 31, 2009
    
    
    3,927,758
    
    
    
    29.10
    
    
    
    6.7
    
    
    $
    5,289Exercisable at December 31, 2009
    
    
    1,755,029
    
    
    $
    28.06
    
    
    
    5.2
    
    
    $
    3,164
 -87-




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##### Table of Contents



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 December 31, 2009
 Note M  Computation of Results per Share
 Year Ended December 31,2009
    
    
    2008
    
    
    2007(amounts in thousands, except per share data)Numerator:Net income
    
    $
    99,104
    
    
    $
    36,683
    
    
    $
    164,512Denominator:Weighted average common shares outstanding
    
    
    51,532
    
    
    
    48,278
    
    
    
    50,269Effect of dilutive securities
    
    
    279
    
    
    
    685
    
    
    
    1,310Weighted average common shares outstanding, assuming dilution
    
    
    51,811
    
    
    
    48,963
    
    
    
    51,579Basic results per share of common stock:Net income
    
    $
    1.92
    
    
    $
    0.76
    
    
    $
    3.27Diluted results per share of common stock:Net income
    
    $
    1.91
    
    
    $
    0.75
    
    
    $
    3.19
 Note N  Reinsurance
   Year Ended December 31,2009
    
    
    2008
    
    
    2007(dollars in thousands)Premium income assumed
    
    $
    100,438
    
    
    $
    87,243
    
    
    $
    91,714Premium income ceded
    
    
    114,815
    
    
    
    108,738
    
    
    
    114,614Benefits, claims and interest credited ceded
    
    
    102,506
    
    
    
    89,964
    
    
    
    106,845
 Note O  Other Operating Expenses
  -88-




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##### Table of Contents



DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 December 31, 2009
 Note P  Segment Information
 Year Ended December 31,2009
    
    
    2008
    
    
    2007(dollars in thousands)Revenues:Group employee benefit products
    
    $
    1,543,524
    
    
    $
    1,414,253
    
    
    $
    1,431,293Asset accumulation products
    
    
    124,738
    
    
    
    59,841
    
    
    
    101,143Other (1)
    
    
    50,966
    
    
    
    45,646
    
    
    
    42,2721,719,228
    
    
    
    1,519,740
    
    
    
    1,574,708Net realized investment losses
    
    
    (147,543
    )
    
    
    (88,177
    )
    
    
    (1,897
    )Loss on redemption of junior subordinated deferrable
interest debentures underlying the Company-obligated
mandatorily redeemable capital securities issued
by unconsolidated subsidiaries
    
    
    
    
    
    
    (598
    )
    
    
    (2,192
    )$
    1,571,685
    
    
    $
    1,430,965
    
    
    $
    1,570,619Operating income:Group employee benefit products
    
    $
    279,848
    
    
    $
    176,073
    
    
    $
    259,487Asset accumulation products
    
    
    42,262
    
    
    
    (3,130
    )
    
    
    31,511Other (1)
    
    
    (27,747
    )
    
    
    (20,127
    )
    
    
    (26,862
    )294,363
    
    
    
    152,816
    
    
    
    264,136Net realized investment losses
    
    
    (147,543
    )
    
    
    (88,177
    )
    
    
    (1,897
    )Loss on redemption of junior subordinated deferrable
interest debentures underlying the Company-obligated
mandatorily redeemable capital securities issued
by unconsolidated subsidiaries
    
    
    
    
    
    
    (598
    )
    
    
    (2,192
    )$
    146,820
    
    
    $
    64,041
    
    
    $
    260,047Net investment income (2):Group employee benefit products
    
    $
    188,857
    
    
    $
    71,230
    
    
    $
    163,701Asset accumulation products
    
    
    123,097
    
    
    
    57,923
    
    
    
    98,477Other (1)
    
    
    6,233
    
    
    
    5,697
    
    
    
    8,369$
    318,187
    
    
    $
    134,850
    
    
    $
    270,547Amortization of cost of business acquired:Group employee benefit products
    
    $
    90,792
    
    
    $
    81,961
    
    
    $
    72,725Asset accumulation products
    
    
    10,614
    
    
    
    (1,550
    )
    
    
    8,497$
    101,406
    
    
    $
    80,411
    
    
    $
    81,222Segment assets (2):Group employee benefit products
    
    $
    4,691,063
    
    
    $
    4,098,540Asset accumulation products
    
    
    2,071,632
    
    
    
    1,746,356Other (1)
    
    
    158,680
    
    
    
    108,977$
    6,921,375
    
    
    $
    5,953,873
 
 (1)
    
    Primarily consists of operations from integrated disability and absence management
services and certain corporate activities.(2)
    
    Net investment income includes income earned on the assets of the insurance companies
as well as on the assets of the holding company and is allocated among business lines in
proportion to average reserves and the capital placed at risk for each segment. Segment
assets include assets of the insurance companies as well as the assets of the holding
company, which are allocated across business lines in proportion to average reserves and
the capital placed at risk for each segment. Note Q  Subsequent Events
  -89-




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##### Table of Contents



SCHEDULE I
 DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES
December 31, 2009
(Dollars in Thousands)
 AmountShown inAmortized
    
    
    Fair
    
    
    BalanceType of Investment
    
    Cost
    
    
    Value
    
    
    SheetFixed maturity securities, available for sale:U.S. Government backed mortgage-backed securities
    
    $
    699,257
    
    
    $
    730,049
    
    
    $
    730,049Residential mortgage-backed securities
    
    
    842,947
    
    
    
    799,328
    
    
    
    799,328Commercial mortgage-backed securities
    
    
    29,773
    
    
    
    26,009
    
    
    
    26,009Corporate securities
    
    
    1,219,711
    
    
    
    1,238,166
    
    
    
    1,238,166Collateralized debt obligations
    
    
    215,301
    
    
    
    114,444
    
    
    
    114,444U.S. Treasury and other U.S. Government
guaranteed securities
    
    
    108,114
    
    
    
    110,806
    
    
    
    110,806U.S. Government-sponsored enterprise securities
    
    
    16,750
    
    
    
    17,002
    
    
    
    17,002Obligations of U.S. states, municipalities and
political subdivisions
    
    
    1,801,595
    
    
    
    1,839,877
    
    
    
    1,839,877Total fixed maturity securities
    
    
    4,933,448
    
    
    
    4,875,681
    
    
    
    4,875,681Equity securities:Common stocks
    
    
    17,265
    
    
    
    17,219
    
    
    
    17,219Non-redeemable preferred stocks
    
    
    13,500
    
    
    
    11,450
    
    
    
    11,450Total equity securities
    
    
    30,765
    
    
    
    28,669
    
    
    
    28,669Mortgage loans
    
    
    75,701
    
    
    
    75,701
    
    
    
    75,701Real Estate acquired in satisfaction of debt
    
    
    39,003
    
    
    
    39,003
    
    
    
    39,003Short-term investments
    
    
    406,782
    
    
    
    406,782
    
    
    
    406,782Other investments
    
    
    322,096
    
    
    
    323,482
    
    
    
    323,482Total investments
    
    $
    5,807,795
    
    
    $
    5,749,318
    
    
    $
    5,749,318
 -90-




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##### Table of Contents



SCHEDULE II
 DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
DELPHI FINANCIAL GROUP, INC. (PARENT COMPANY)
BALANCE SHEETS
(Dollars in Thousands)
 December 31,2009
    
    
    2008Assets:Fixed maturity securities, available for sale
    
    $
    1,497
    
    
    $
    7,023Short-term investments
    
    
    70,583
    
    
    
    201Other invested assets
    
    
    404
    
    
    
    4,202Investment in operating subsidiaries
    
    
    1,934,047
    
    
    
    1,435,962Investment in investment subsidiaries
    
    
    33,668
    
    
    
    15,675Cash
    
    
    
    
    
    
    745Other assets
    
    
    16,892
    
    
    
    34,596Total assets
    
    $
    2,057,091
    
    
    $
    1,498,404Liabilities:Corporate debt
    
    $
    365,750
    
    
    $
    350,750Junior subordinated debentures
    
    
    175,000
    
    
    
    175,000Short-term payables due to subsidiaries
    
    
    21,812
    
    
    
    15,786Other liabilities
    
    
    24,870
    
    
    
    25,649587,432
    
    
    
    567,185Shareholders Equity:Class A Common Stock
    
    
    560
    
    
    
    489Class B Common Stock
    
    
    60
    
    
    
    60Additional paid-in capital
    
    
    661,895
    
    
    
    522,596Accumulated other comprehensive loss
    
    
    (33,956
    )
    
    
    (351,710
    )Retained earnings
    
    
    915,243
    
    
    
    833,927Treasury stock
    
    
    (74,143
    )
    
    
    (74,143
    )1,469,659
    
    
    
    931,219Total liabilities and shareholders equity
    
    $
    2,057,091
    
    
    $
    1,498,404
  -91-




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##### Table of Contents



SCHEDULE II (Continued)
 DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)
DELPHI FINANCIAL GROUP, INC. (PARENT COMPANY)
STATEMENTS OF INCOME
(Dollars in Thousands)
 Year Ended December 31,2009
    
    
    2008
    
    
    2007Revenue:Equity in undistributed earnings of subsidiaries
    
    $
    165,007
    
    
    $
    79,514
    
    
    $
    277,613Dividends from operating subsidiaries
    
    
    3,600
    
    
    
    3,600
    
    
    
    3,600Other income (loss)
    
    
    1,897
    
    
    
    (450
    )
    
    
    4,373Realized investment losses
    
    
    (4,412
    )
    
    
    (3,160
    )
    
    
    Loss on redemption of junior subordinated deferrable
interest debentures underlying company-obligated
mandatorily redeemable capital securities issued
by unconsolidated subsidiaries
    
    
    
    
    
    
    (598
    )
    
    
    (2,192
    )166,092
    
    
    
    78,906
    
    
    
    283,394Expenses:Operating expenses
    
    
    19,272
    
    
    
    14,566
    
    
    
    21,460Interest expense
    
    
    28,453
    
    
    
    31,900
    
    
    
    29,37547,725
    
    
    
    46,466
    
    
    
    50,835Income before income tax expense (benefit)
    
    
    118,367
    
    
    
    32,440
    
    
    
    232,559Income tax expense (benefit)
    
    
    19,263
    
    
    
    (4,243
    )
    
    
    68,047Net income
    
    $
    99,104
    
    
    $
    36,683
    
    
    $
    164,512
  -92-




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##### Table of Contents



SCHEDULE II (Continued)
 DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)
DELPHI FINANCIAL GROUP, INC. (PARENT COMPANY)
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
 Year Ended December 31,2009
    
    
    2008
    
    
    2007Operating activities:Net income
    
    $
    99,104
    
    
    $
    36,683
    
    
    $
    164,512Adjustments to reconcile net income to net cash
provided (used) by operating activities:Equity in undistributed earnings of subsidiaries
    
    
    (129,420
    )
    
    
    (67,281
    )
    
    
    (193,797
    )Change in other assets and other liabilities
    
    
    36,226
    
    
    
    (13,493
    )
    
    
    5,660Change in current and deferred income taxes
    
    
    (14,743
    )
    
    
    5,172
    
    
    
    (9,566
    )Amortization, principally of investments and debt
issuance costs
    
    
    1,125
    
    
    
    1,712
    
    
    
    772Net realized losses on investments
    
    
    4,412
    
    
    
    3,160
    
    
    
    Change in amounts due from/to subsidiaries
    
    
    6,026
    
    
    
    8,890
    
    
    
    2,113Net cash provided (used) by operating activities
    
    
    2,730
    
    
    
    (25,157
    )
    
    
    (30,306
    )Investing activities:Purchases of investments and loans made
    
    
    (258
    )
    
    
    (10,247
    )
    
    
    (2,709
    )Sales of investments and receipts from repayment of loans
    
    
    2,419
    
    
    
    26,921
    
    
    
    5,636Net change in short-term investments
    
    
    (70,382
    )
    
    
    12,585
    
    
    
    (2,557
    )(Purchases) sales of investments in subsidiaries
    
    
    (61,692
    )
    
    
    (60,000
    )
    
    
    1,011Net cash (used) provided by investing activities
    
    
    (129,913
    )
    
    
    (30,741
    )
    
    
    1,381Financing activities:Borrowings under revolving credit facility
    
    
    17,000
    
    
    
    139,000
    
    
    
    112,000Principal payments under revolving credit facility
    
    
    (2,000
    )
    
    
    (6,000
    )
    
    
    (158,000
    )Proceeds from the issuance of 2007 Junior Debentures
    
    
    
    
    
    
    
    
    
    
    172,309Redemption of Junior Debentures
    
    
    
    
    
    
    (20,619
    )
    
    
    (37,728
    )Proceeds from the issuance of common stock
    
    
    120,696
    
    
    
    
    
    
    
    Acquisition of treasury stock
    
    
    
    
    
    
    (42,729
    )
    
    
    (62,417
    )Cash dividends paid on common stock
    
    
    (22,559
    )
    
    
    (18,409
    )
    
    
    (17,229
    )Other financing activities
    
    
    13,301
    
    
    
    5,400
    
    
    
    19,990Net cash provided by financing activities
    
    
    126,438
    
    
    
    56,643
    
    
    
    28,925(Decrease) increase in cash
    
    
    (745
    )
    
    
    745
    
    
    
    Cash at beginning of year
    
    
    745
    
    
    
    
    
    
    
    Cash at end of year
    
    $
    
    
    
    $
    745
    
    
    $
    
  -93-




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##### Table of Contents



SCHEDULE II (Continued)
 DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)
DELPHI FINANCIAL GROUP, INC. (PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
   -94-




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##### Table of Contents



SCHEDULE III
 DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
(Dollars in Thousands)
 Future PolicyBenefits andCost of
    
    
    Unpaid Claim
    
    
    
    
    
    
    PolicyholderBusiness
    
    
    and Claim
    
    
    Unearned
    
    
    AccountAcquired
    
    
    Expenses
    
    
    Premiums
    
    
    Balances2009Group employee benefits products
    
    $
    156,334
    
    
    $
    2,607,233
    
    
    $
    135,837
    
    
    $
    Asset accumulation products
    
    
    93,977
    
    
    
    127,590
    
    
    
    
    
    
    
    1,425,442Other
    
    
    
    
    
    
    68,366
    
    
    
    
    
    
    
    28,672Total
    
    $
    250,311
    
    
    $
    2,803,189
    
    
    $
    135,837
    
    
    $
    1,454,1142008Group employee benefits products
    
    $
    139,699
    
    
    $
    2,405,518
    
    
    $
    124,376
    
    
    $
    Asset accumulation products
    
    
    125,078
    
    
    
    100,115
    
    
    
    
    
    
    
    1,327,502Other
    
    
    
    
    
    
    68,417
    
    
    
    
    
    
    
    29,430Total
    
    $
    264,777
    
    
    $
    2,574,050
    
    
    $
    124,376
    
    
    $
    1,356,9322007Group employee benefits products
    
    $
    110,985
    
    
    $
    2,189,961
    
    
    $
    118,311
    
    
    $
    Asset accumulation products
    
    
    63,445
    
    
    
    92,510
    
    
    
    
    
    
    
    1,053,221Other
    
    
    
    
    
    
    70,904
    
    
    
    
    
    
    
    29,900Total
    
    $
    174,430
    
    
    $
    2,353,375
    
    
    $
    118,311
    
    
    $
    1,083,121
 Benefits,Claims and
    
    
    AmortizationPremium
    
    
    Net
    
    
    Interest
    
    
    of Cost of
    
    
    Otherand Fee
    
    
    Investment
    
    
    Credited to
    
    
    Business
    
    
    OperatingIncome (1)
    
    
    Income (2)
    
    
    Policyholders
    
    
    Acquired
    
    
    Expenses (3)2009Group employee benefits products
    
    $
    1,354,667
    
    
    $
    188,857
    
    
    $
    927,875
    
    
    $
    90,792
    
    
    $
    245,009Asset accumulation products
    
    
    1,641
    
    
    
    123,097
    
    
    
    61,422
    
    
    
    10,614
    
    
    
    10,440Other
    
    
    44,733
    
    
    
    6,233
    
    
    
    1,505
    
    
    
    
    
    
    
    77,208Total
    
    $
    1,401,041
    
    
    $
    318,187
    
    
    $
    990,802
    
    
    $
    101,406
    
    
    $
    332,6572008Group employee benefits products
    
    $
    1,343,023
    
    
    $
    71,230
    
    
    $
    933,215
    
    
    $
    81,961
    
    
    $
    223,004Asset accumulation products
    
    
    1,918
    
    
    
    57,923
    
    
    
    55,285
    
    
    
    (1,550
    )
    
    
    9,236Other
    
    
    39,949
    
    
    
    5,697
    
    
    
    753
    
    
    
    
    
    
    
    65,020Total
    
    $
    1,384,890
    
    
    $
    134,850
    
    
    $
    989,253
    
    
    $
    80,411
    
    
    $
    297,2602007Group employee benefits products
    
    $
    1,267,592
    
    
    $
    163,701
    
    
    $
    890,918
    
    
    $
    72,725
    
    
    $
    208,163Asset accumulation products
    
    
    2,666
    
    
    
    98,477
    
    
    
    52,814
    
    
    
    8,497
    
    
    
    8,321Other
    
    
    33,903
    
    
    
    8,369
    
    
    
    1,169
    
    
    
    
    
    
    
    67,965Total
    
    $
    1,304,161
    
    
    $
    270,547
    
    
    $
    944,901
    
    
    $
    81,222
    
    
    $
    284,449
 
 (1)
    
    Net written premiums for casualty insurance products totaled $331.6 million, $302.9
million and $304.5 million for the years ended December 31, 2009, 2008 and 2007,
respectively.(2)
    
    Net investment income includes income earned on the assets of the insurance companies as
well as on the assets of the holding company and is allocated among business lines in
proportion to average reserves and the capital placed at risk for each segment.(3)
    
    Other operating expenses include commissions. -95-




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##### Table of Contents



SCHEDULE IV
 DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
REINSURANCE
(Dollars in Thousands)
 PercentageCeded to
    
    
    Assumed
    
    
    
    
    
    
    of AmountGross
    
    
    Other
    
    
    from Other
    
    
    Net
    
    
    AssumedAmount
    
    
    Companies
    
    
    Companies
    
    
    Amount
    
    
    to NetLife insurance in force as of
December 31, 2009
    
    $
    154,019,475
    
    
    $
    10,043,187
    
    
    $
    24,259
    
    
    $
    144,000,547
    
    
    
    
    %Year ended December 31, 2009:Premium and fee income:Life insurance and annuity
    
    $
    422,239
    
    
    $
    25,312
    
    
    $
    465
    
    
    $
    397,392
    
    
    
    
    %Accident and health insurance
    
    
    647,015
    
    
    
    63,636
    
    
    
    55,946
    
    
    
    639,325
    
    
    
    9
    %Casualty insurance
    
    
    302,073
    
    
    
    25,867
    
    
    
    43,910
    
    
    
    320,116
    
    
    
    14
    %Other
    
    
    44,208
    
    
    
    
    
    
    
    
    
    
    
    44,208Total premium and fee income
    
    $
    1,415,535
    
    
    $
    114,815
    
    
    $
    100,321
    
    
    $
    1,401,041Life insurance in force as of December 31, 2008
    
    $
    163,258,702
    
    
    $
    11,115,197
    
    
    $
    25,456
    
    
    $
    152,168,961
    
    
    
    
    %Year ended December 31, 2008:Premium and fee income:Life insurance and annuity
    
    $
    431,881
    
    
    $
    24,457
    
    
    $
    561
    
    
    $
    407,985
    
    
    
    
    %Accident and health insurance
    
    
    647,728
    
    
    
    59,055
    
    
    
    52,068
    
    
    
    640,741
    
    
    
    8
    %Casualty insurance
    
    
    287,907
    
    
    
    25,225
    
    
    
    34,579
    
    
    
    297,261
    
    
    
    12
    %Other
    
    
    38,903
    
    
    
    
    
    
    
    
    
    
    
    38,903Total premium and fee income
    
    $
    1,406,419
    
    
    $
    108,737
    
    
    $
    87,208
    
    
    $
    1,384,890Life insurance in force as of December 31, 2007
    
    $
    159,363,539
    
    
    $
    17,358,631
    
    
    $
    27,114
    
    
    $
    142,032,022
    
    
    
    
    %Year ended December 31, 2007:Premium and fee income:Life insurance and annuity
    
    $
    402,457
    
    
    $
    32,811
    
    
    $
    499
    
    
    $
    370,145
    
    
    
    
    %Accident and health insurance
    
    
    593,911
    
    
    
    51,442
    
    
    
    51,524
    
    
    
    593,993
    
    
    
    9
    %Casualty insurance
    
    
    300,669
    
    
    
    29,099
    
    
    
    33,343
    
    
    
    304,913
    
    
    
    11
    %Other
    
    
    35,115
    
    
    
    
    
    
    
    
    
    
    
    35,115Total premium and fee income
    
    $
    1,332,152
    
    
    $
    113,352
    
    
    $
    85,366
    
    
    $
    1,304,166
 -96-




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##### Table of Contents



SCHEDULE VI
 DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION CONCERNING
PROPERTY-CASUALTY INSURANCE OPERATIONS
 (Dollars in Thousands)
 December 31,2009
    
    
    2008Deferred policy acquisition costs
    
    $
    14,747
    
    
    $
    13,961Reserves for unpaid claims and claim expenses
    
    
    1,187,814
    
    
    
    1,061,046Discount, if any, deducted from above (1)
    
    
    688,284
    
    
    
    592,940Unearned premiums
    
    
    127,567
    
    
    
    116,140
 Year Ended December 31,2009
    
    
    2008
    
    
    2007Earned premiums
    
    $
    320,237
    
    
    $
    297,300
    
    
    $
    305,305Net investment income
    
    
    94,650
    
    
    
    48,245
    
    
    
    84,712Claims and claim expenses incurred related to:Current year
    
    
    163,642
    
    
    
    152,069
    
    
    
    155,052Prior years (2)
    
    
    21,556
    
    
    
    27,111
    
    
    
    37,443Amortization of deferred policy acquisition costs
    
    
    34,459
    
    
    
    31,556
    
    
    
    32,958Paid claims and claim adjustment expenses
    
    
    92,479
    
    
    
    78,794
    
    
    
    93,914Net premiums written
    
    
    331,679
    
    
    
    302,979
    
    
    
    304,845
 
 (1)
    
    Based on discount rates ranging from 1.5% to 7.5%.(2)
    
    In 2009, 2008 and 2007, the change in the provision for claims and claim expenses
incurred in prior years reflects the accretion of discounted reserves and net unfavorable
claims development, partially offset by the accrual of additional discount with respect to
prior years reserves. The Companys insurance policies do not provide for the
retrospective adjustment of premiums based on claim experience. -97-