<PAGE>   1

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

                                    FORM 10-K

(Mark One)

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

For the Fiscal Year Ended December 31, 2000


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

For the transition period from __________ to __________

Commission File Number 001-11462

                          DELPHI FINANCIAL GROUP, INC.

             (Exact name of registrant as specified in its charter)

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

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

           Securities registered pursuant to Section 12(b) of the Act:

Class A Common Stock, $.01 par value               New York Stock Exchange
--------------------------------------           ----------------------------
       (Title of Each Class)                        (Name of Each Exchange
                                                     On Which Registered)

           Securities registered pursuant to Section 12(g) of the Act:

                                      None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to filing requirements
for the past 90 days.
                             Yes  X            No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X] The aggregate market value of the voting stock
held by nonaffiliates of the Registrant, based upon the closing price for the
Registrant's Class A Common Stock on March 26, 2001, was $473,346,041. As of
March 26, 2001, the Registrant had 15,751,658 shares of Class A Common Stock and
4,537,522 shares of Class B Common Stock outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the Registrant's 2001 Annual Meeting of
Stockholders are incorporated by reference into Part III of this Form 10-K.

<PAGE>   2

This document contains certain forward-looking statements as defined in the
Securities Exchange Act of 1934, some of which may be identified by the use of
terms such as "expects," "believes," "anticipates," "intends," "judgment" or
other similar expressions. These statements are subject to various uncertainties
and contingencies, which could cause actual results to differ materially from
those expressed in such statements. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Cautionary Note Regarding
Forward-Looking Statements."

                                     PART I

ITEM 1. BUSINESS

Delphi Financial Group, Inc. (the "Company," which term includes the Company and
its consolidated subsidiaries unless the context indicates otherwise), organized
as a Delaware corporation in 1987, is a holding company whose subsidiaries
provide integrated employee benefit services. The Company manages all aspects of
employee absence to enhance the productivity of its clients and provides the
related insurance coverages: long-term and short-term disability, excess and
primary workers' compensation, group life and travel accident. The Company's
asset accumulation business emphasizes individual annuity products. The Company
offers its products and services in all fifty states and the District of
Columbia. The Company's two reportable segments are group employee benefit
products and asset accumulation products. See Note A and Note P to the
Consolidated Financial Statements for additional information regarding the
Company's segments.


OPERATING STRATEGY

The Company's operating strategy is to offer financial products and services
which have the potential for significant growth or which require expertise to
meet the specialized needs of its customers and which offer the Company the
opportunity to earn an above average return on its shareholders' capital.

The Company has concentrated its efforts within certain niche insurance markets,
primarily group employee benefits for small to mid-sized employers, where nearly
all of the employment growth in the American economy has occurred in the last
few years. The Company markets unbundled employee benefit products and absence
management services as well as programs that integrate both employee benefit
products and absence management services. The Company also operates an asset
accumulation business that focuses primarily on offering fixed annuities to
individuals planning for retirement.

The Company's operating strategy has contributed to an average return on
shareholders' equity (excluding realized gains and losses) of 21% from January
1988 to December 2000. Over this same period, shareholders' equity and income
from continuing operations (excluding realized gains and losses) have grown at a
compound annual rate of 27% and 17%, respectively, and book value per share has
grown at a compound annual rate of 22%. This strategy has also contributed to an
11% compound annual growth rate in insurance premiums and fee income during the
period from January 1988 to December 2000 and an increase in total assets from
$819.1 million at December 31, 1987 to $3,440.0 million at December 31, 2000, a
compound annual growth rate of 12%.

The Company's primary operating subsidiaries are as follows:

Reliance Standard Life Insurance Company ("RSLIC"), founded in 1907 and having
administrative offices in Philadelphia, Pennsylvania, and its subsidiary, First
Reliance Standard Life Insurance Company ("FRSLIC"), underwrite a diverse
portfolio of life and accident and health insurance products targeted
principally to the employee benefits market. These companies also market asset
accumulation products, primarily fixed annuities, to individuals and groups. The
Company, through Reliance Standard Life Insurance Company of Texas
("RSLIC-Texas"), acquired RSLIC and FRSLIC in November 1987.

Safety National Casualty Corporation ("SNCC") is an insurance specialist that
focuses primarily on providing workers' compensation products to the
self-insured market. Founded in 1942 and located in St. Louis, Missouri, SNCC is
one of the oldest continuous writers of excess workers' compensation insurance
in the United States. The Company acquired SNCC in March 1996. See "Other
Transactions" and Note B to the Consolidated Financial Statements.


                                      -1-
<PAGE>   3

Matrix Absence Management, Inc. ("Matrix") provides integrated disability and
absence management services to the employee benefits market across the United
States. Headquartered in San Jose, California, Matrix was acquired by the
Company in June 1998. See "Other Transactions" and Note B to the Consolidated
Financial Statements.

GROUP EMPLOYEE BENEFIT PRODUCTS

The Company emphasizes the origination of specialty insurance products directed
to the employee benefits market, primarily group life, disability, workers'
compensation and travel accident insurance. The Company also offers group dental
insurance. The Company markets its group products to employer-employee groups
and associations in a variety of industries. The Company insures groups ranging
from 2 to more than 1,000 individuals, although the typical size of insured
groups currently ranges from 100 to 300 individuals. In underwriting its group
employee benefit products, the Company attempts to avoid concentrations of
business in any industry segment or geographic area.

The following table sets forth for the periods indicated selected financial data
concerning the Company's group employee benefit products:

<TABLE>
<CAPTION>
                                                                                   Year Ended December 31,
                                                                         -----------------------------------------
                                                                            2000            1999           1998
                                                                         -----------    -----------     ----------
                                                                                   (dollars in thousands)
<S>                                                                      <C>            <C>             <C>
Insurance premiums:
   Core Products:
     Life.............................................................   $   156,594    $   146,416     $  132,418
     Disability income................................................       145,031        126,263        110,983
     Excess workers' compensation.....................................        56,015         47,948         48,726
     Travel accident, dental and other................................        42,765         36,914         34,643
                                                                         -----------    -----------     ----------
                                                                             400,405        357,541        326,770
                                                                         -----------    -----------     ----------
   Non-Core Products:
     Loss portfolio transfers.........................................        13,939         43,983         27,284
     FEGLI/SGLI pools.................................................         1,233         37,745         39,308
     Other reinsurance pools..........................................        19,652         22,001         19,941
     Other............................................................        12,461          6,652          3,108
                                                                         -----------    -----------     ----------
                                                                              47,285        110,381         89,641
                                                                         -----------    -----------     ----------
       Total insurance premiums.......................................   $   447,690    $   467,922     $  416,411
                                                                         ===========    ===========     ==========

Sales (new annualized gross premiums):
   Core Products:
     Life.............................................................   $    38,241    $    38,421     $   37,848
     Disability income................................................        56,251         41,245         43,860
     Excess workers' compensation.....................................        19,313         11,803          4,896
     Travel accident and dental.......................................        26,694         19,153         16,449
                                                                         -----------    -----------     ----------
                                                                             140,499        110,622        103,053
                                                                         -----------    -----------     -----------
   Non-Core Products:
     Loss portfolio transfers ........................................        14,647         44,633         28,370
     Other ...........................................................        52,965         20,438         10,311
                                                                         -----------    -----------     ----------
                                                                              67,612         65,071         38,681
                                                                         -----------    -----------     ----------
       Total sales....................................................   $   208,111    $   175,693     $  141,734
                                                                         ===========    ===========     ==========
</TABLE>


                                      -2-
<PAGE>   4

The profitability of group employee benefit products is affected by, among other
things, differences between actual and projected claims experience and the
ability to control administrative expenses. The table below shows the loss and
expense ratios as a percent of premium income for the Company's group employee
benefit products for the periods indicated. Changes in the components of the
ratio between years primarily reflect changes in the Company's product mix.

<TABLE>
<CAPTION>
                                                                                    Year Ended December 31,
                                                                           ----------------------------------------
                                                                              2000           1999           1998
                                                                           ---------      ---------       ---------
<S>                                                                        <C>            <C>             <C>
Loss ratio...........................................................          66.0%          72.3%          71.6%
Expense ratio........................................................          26.3           22.9           24.9
                                                                           --------       --------        -------
    Combined ratio...................................................          92.3%          95.2%          96.5%
                                                                           ========       ========        =======
</TABLE>

The Company's group life insurance products provide for the payment of a stated
amount upon the death of a member of the insured group and policy terms are
generally one year. Accidental death and dismemberment insurance, which provides
for the payment of a stated amount upon the accidental death or dismemberment of
a member of the insured group, is frequently sold in conjunction with group life
policies and is included in premiums charged for group life insurance. The
Company reinsures risks in excess of $150,000 per individual for employer
provided group life insurance policies and $100,000 per individual for voluntary
group term life policies. See "Reinsurance."

Group disability products offered by the Company, principally long-term
disability insurance, generally provide a specified level of periodic benefits
to persons who, because of sickness or injury, are unable to work for a
specified period of time. The Company focuses group long-term disability sales
toward employers engaged principally in service industries such as accounting,
engineering and financial services, as well as certain retailing and
manufacturing fields. Long-term disability benefits generally are paid monthly
and typically are limited for any one employee to two-thirds of the employee's
earned income up to a specified maximum benefit. The Company actively manages
its disability claims, working with claimants to help them return to work as
quickly as possible. When insureds' disabilities prevent them from returning to
their original jobs, the Company, in appropriate cases, provides assistance in
developing new productive skills for an alternative career. Premiums are
generally determined annually for disability insurance and are based upon
expected morbidity and emerging experience of the insured group, as well as
assumptions regarding operating expenses and future interest rates. The Company
reinsures risks in excess of $2,500 in disability benefits per individual per
month. See "Reinsurance."

Excess workers' compensation insurance products provide coverage to employers
and groups who self-insure their workers' compensation risks. The coverage
applies to losses in excess of the applicable self-insured retentions ("SIRs" or
deductibles) of employers and groups, whose workers' compensation claims are
generally handled by third-party administrators ("TPAs"). These products are
principally targeted to mid-sized companies and association groups, particularly
small municipalities, hospitals and schools. These companies and groups tend to
be less prone to catastrophic workers' compensation exposures and less price
sensitive than larger account business. Because claim payments do not begin
until after the SIR is met, it takes an average of 15 years from the date the
claim is incurred to the time claim payments begin. At that point, the payments
are primarily for wage replacement, similar to the benefit provided under
disability coverage, and any medical payments tend to be stable and predictable.
These products also include a complementary product, workers' compensation
self-insurance bonds, and large deductible workers' compensation insurance,
which provides coverage similar to excess workers' compensation insurance. The
pricing environment for the excess workers' compensation sector improved in 2000
and the demand for excess workers' compensation insurance increased due to
higher primary workers' compensation rates. There has also been disruption in
the excess workers' compensation marketplace due to difficulties experienced by
some competitors. This disruption has created opportunities for SNCC. The
Company reinsures excess workers' compensation risks between $500,000 and $50.0
million per policy per occurrence. See "Reinsurance."

Business travel accident as well as "all risk" accidental death and
dismemberment insurance policies pay a stated amount based on a predetermined
schedule in the event of accidental dismemberment or death of a member of the
insured group. The Company reinsures risks in excess of $150,000 per individual,
and a catastrophe reinsurance agreement protects the Company from losses in
excess of $500,000 arising from any one occurrence. See "Reinsurance." Group
dental insurance provides coverage for preventive, restorative and specialized
dentistry up to a stated maximum benefit per individual per year.


                                      -3-
<PAGE>   5

Non-core group employee benefit products include reinsurance pools and loss
portfolio transfers. The Company has discontinued its participation in
reinsurance pools. See "Reinsurance." Pursuant to loss portfolio transfers
("LPTs"), the Company acquires existing blocks of disability or workers'
compensation claims, typically from employers who are shifting from
self-insurance to fully insured coverage. The Company began to actively market
its LPTs during 1998 due to the weak pricing environment in the excess workers'
compensation sector. These products are typically marketed to the same types of
clients who have historically purchased the Company's disability and excess
workers' compensation products. Sales of LPTs are episodic in nature. Non-core
group employee benefit products also include primary workers' compensation and
commercial automobile liability insurance. The Company primarily receives fee
income from these products since a significant portion of the risk is reinsured.

The Company's group employee benefit products are sold primarily by independent
brokers, agents and TPAs. The Company's home office and 23 sales offices located
throughout the country provide nationwide sales support and service existing
business. The Company believes that its national sales network minimizes
expenses traditionally associated with large insurance company captive marketing
systems.


ASSET ACCUMULATION PRODUCTS

The Company's asset accumulation products consist primarily of single premium
deferred annuities ("SPDAs") and flexible premium annuities ("FPAs"). An SPDA
provides for a single payment by an annuity holder to the Company and the
crediting of interest by the Company on the annuity contract at the applicable
crediting rate. An FPA provides for periodic payments by an annuity holder to
the Company, the timing and amount of which are at the discretion of the annuity
holder, and the crediting of interest by the Company on the annuity contract at
the applicable crediting rate. Interest credited on SPDAs and FPAs is not paid
currently to the annuity holder but instead accumulates and is added to the
annuity contract's account value. This accumulation is tax deferred. The
crediting rate may be increased or decreased by the Company subject to specified
guaranteed minimum crediting rates, which currently range from 3.0% to 5.5%. For
most of the Company's annuity products, the crediting rate may be reset by the
Company annually, typically on the policy anniversary. The Company's annuity
products also include multi-year interest guarantee products, in which the
crediting rate is fixed at a stated rate for a specified period of years, such
periods ranging from three to nine years. At December 31, 2000, the weighted
average crediting rate on all of the Company's annuity products was 5.84%.
Withdrawals may be made at any time, but some withdrawals may result in the
assessment of surrender charges, market value adjustments, taxes, and/or tax
penalties on the withdrawn amount.

The Company principally markets SPDA products, including products with a market
value adjustment ("MVA") feature that provides for an adjustment to the
accumulated value of the policy if it is surrendered during the surrender charge
period. These products are sold predominantly through networks of independent
agents. In 2000, the Company's SPDA products accounted for $160.2 million of
asset accumulation product deposits, of which $146.0 million was attributable to
the MVA annuity product. Two networks of independent agents accounted for
approximately 39% of the deposits from these products during 2000, with no other
network of independent agents accounting for more than 10% of these deposits.
The Company believes that it has a good relationship with these networks. Prior
to 1995, the Company's strategy with respect to this product line focused
primarily on the acquisition of blocks of annuity business from other insurers
via reinsurance. See "Reinsurance."

The following table sets forth for the periods indicated selected financial data
concerning the Company's asset accumulation products:

<TABLE>
<CAPTION>
                                                                                   Year Ended December 31,
                                                                         -----------------------------------------
                                                                            2000            1999           1998
                                                                         ----------     ----------      ----------
                                                                                 (dollars in thousands)
<S>                                                                      <C>            <C>             <C>
Asset accumulation product deposits (sales)...........................   $   160,523    $    77,798     $   46,294

Funds under management (at period end)................................       751,311        645,555        633,676
</TABLE>

At December 31, 2000, funds under management consisted of $667.4 million of SPDA
liabilities and $83.9 million of FPA liabilities. Of these liabilities, $408.1
million were subject to surrender charges averaging 7.17% at December 31, 2000.
Annuity liabilities not subject to surrender charges have been in force, on
average, for 18 years.


                                      -4-
<PAGE>   6

The Company prices its annuity products based on assumptions concerning
prevailing and expected interest rates and other factors to achieve a positive
difference, or spread, between its expected return on investments and the
crediting rate. The Company achieves this spread by active portfolio management
focusing on matching invested assets and related liabilities to minimize the
exposure to fluctuations in market interest rates and by the adjustment of the
crediting rate on its annuity products. In response to changes in interest
rates, the Company increases or decreases the crediting rates on its annuity
products. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

In light of the annuity holder's ability to withdraw funds and the volatility of
market interest rates, it is difficult to predict the timing of the Company's
payment obligations under its SPDAs and FPAs. Consequently, the Company
maintains a portfolio of investments which are readily marketable and expected
to be sufficient to satisfy liquidity requirements. See "Investments."


OTHER PRODUCTS AND SERVICES

The Company provides integrated disability and absence management services
through Matrix, which was acquired in June 1998. See Note B to the Consolidated
Financial Statements. The Company offers a comprehensive package of disability
and absence management services designed to assist clients in identifying and
minimizing lost productivity and benefit payment costs resulting from employee
absence due to illness, injury or personal leave. Services that the Company
offers include event reporting, leave of absence management, claims and case
management and return to work management. The goal of these services is to
enhance employee productivity and provide more efficient benefit delivery and
enhanced cost containment. Included among the Company's clients for these
services are approximately half of the Fortune 500 companies located in
California, where most of Matrix's business was located prior to the
acquisition. Subsequent to the acquisition of this business, the Company has
expanded the offering of these services on a nationwide basis through the
Company's national sales offices.

In 1991, the Company introduced a variable flexible premium universal life
insurance policy under which the related assets are segregated in a separate
account not subject to claims of general creditors of the Company. Policyholders
may elect to deposit amounts in the account from time to time, subject to
underwriting limits and a minimum initial deposit of $1.0 million. Both the cash
values and death benefits of these policies fluctuate according to the
investment experience of the assets in the separate account; accordingly, the
investment risk with respect to these assets is borne by the policyholders. The
Company earns fee income from the separate account in the form of charges for
management and other administrative fees. The Company is not presently actively
marketing this product. The Company reinsures risks in excess of $200,000 per
individual under indemnity reinsurance arrangements with various reinsurance
companies. See "Reinsurance."


UNDERWRITING PROCEDURES

Premiums charged on insurance products are based in part on assumptions about
the incidence and timing of insurance claims. The Company has adopted and
follows detailed underwriting procedures designed to assess and qualify
insurance risks before issuing policies to groups and individuals. To implement
these procedures, the Company employs a professional underwriting staff.

In underwriting group coverage, the Company focuses on the risk characteristics
of the group to be insured as a whole. A prospective group is evaluated with
particular attention paid to the claims experience of the group with prior
carriers, the occupations of the insureds, the nature of the business of the
group, the current economic outlook of the group in relation to others in its
industry and of the industry as a whole, the appropriateness of the benefits or
SIR applied for and income from other sources during disability. The Company's
products generally afford it the flexibility to adjust premiums charged annually
to its policyholders in order to reflect emerging mortality or morbidity
experience.


                                      -5-
<PAGE>   7

INVESTMENTS

The Company's management of its investment portfolio is an important component
of its profitability since a substantial portion of its operating income is
generated from the difference between the yield achieved on invested assets and
the interest credited on policyholder funds and reserves. The Company's overall
investment strategy to achieve its objectives of safety and liquidity, while
seeking the best available return, focuses on, among other things, matching of
the Company's interest-sensitive assets and liabilities and seeking to minimize
the Company's exposure to fluctuations in interest rates.

In the fourth quarter of 2000, the Company liquidated a substantial majority of
the investments of its investment subsidiaries. The proceeds from these sales
were used in 2001 to repay in full the $150.0 million of outstanding borrowings
under its revolving credit facility. For information regarding the composition
and diversification of the Company's investment portfolio and asset/liability
management, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources" and Notes A, C and I to
the Consolidated Financial Statements.

The following table sets forth for the periods indicated the Company's pretax
investment results:

<TABLE>
<CAPTION>
                                                                               Year Ended December 31,
                                                                  -------------------------------------------------
                                                                       2000             1999              1998
                                                                  --------------    -------------    -------------
                                                                               (dollars in thousands)
<S>                     <C>                                       <C>               <C>              <C>
Average invested assets (1)...................................    $    2,522,094    $   2,445,367    $    2,577,477
Net investment income (2).....................................           184,576          180,945           168,692
Weighted average annual yield (3).............................              7.3%             7.4%              6.5%
Net realized investment (losses) gains........................    $    (138,047)    $    (25,720)    $       8,060
</TABLE>

(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.

(2)   Consists principally of interest and dividend income less investment
      expenses.

(3)   The weighted average annual yield on the Company's investment portfolio
      for each period is computed by dividing net investment income by average
      invested assets for the period. See "Management's Discussion and Analysis
      of Financial Condition and Results of Operations - Results of Operations."


REINSURANCE

The Company participates in various reinsurance arrangements both as the ceding
insurer and as the assuming insurer. Arrangements in which the Company is the
ceding insurer afford various levels of protection against excessive loss by
assisting the Company in diversifying its risks and by limiting its maximum loss
on risks that exceed retention limits. Under indemnity reinsurance transactions
in which the Company is the ceding insurer, the Company remains liable for
policy claims if the assuming company fails to meet its obligations. To limit
this risk, the Company monitors the financial condition of its reinsurers,
including, among other things, the companies' financial ratings, and in certain
cases receives collateral security from the reinsurer. Also, certain of the
Company's reinsurance agreements require the reinsurer to set up trust
arrangements for the Company's benefit in the event of certain ratings
downgrades.

The Company cedes portions of the risks relating to its group employee benefit
and variable life insurance products under indemnity reinsurance agreements with
various unaffiliated reinsurers. The terms of these agreements, which are
typical for agreements of this type, provide, among other things, for the
automatic acceptance by the reinsurer of ceded risks in excess of the Company's
retention limits stated in the agreements. The Company pays reinsurance premiums
to these reinsurers which are, in general, based upon percentages of premiums
received by the Company on the business reinsured less, in certain cases, ceding
commissions and experience refunds paid by the reinsurer to the Company. These
agreements are generally terminable at any time as to new risks by either the
Company or the reinsurer on appropriate notice; however, termination does not
affect risks ceded during the term of the agreement, which generally remain with
the reinsurer. See Note O to the Consolidated Financial Statements.


                                      -6-
<PAGE>   8

In January 1998, an offering was completed whereby shareholders and
optionholders of the Company received, at no cost, rights to purchase shares of
Delphi International Ltd. ("Delphi International"), a newly-formed, independent
Bermuda insurance holding company. During 1998, the Company entered into various
reinsurance agreements with Oracle Reinsurance Company Ltd. ("Oracle Re"), a
wholly owned subsidiary of Delphi International. Pursuant to these agreements,
approximately $101.5 million of group employee benefit reserves ($35.0 million
of long-term disability insurance reserves and $66.5 million of net excess
workers' compensation and casualty insurance reserves) were ceded to Oracle Re.
The Company has received collateral security from Oracle Re in an amount
sufficient to support the ceded reserves. During 2000 and 1999, Oracle Re and
the Company effected the partial recaptures of approximately $4.6 million and
$10.0 million, respectively, of the long-term disability liabilities ceded to
Oracle Re. These agreements are not expected to have a material effect on the
Company's financial condition, liquidity or results of operations.

The Company historically participated as an assuming insurer in a number of
reinsurance pools. These reinsurance pools generally are administered by TPAs or
managing underwriters who underwrite risks, coordinate premiums charged and
process claims. In the fourth quarter of 1999, the Company discontinued its
participation in a federal employee group life reinsurance pool and a
servicemembers' group life reinsurance pool (collectively, the "FEGLI/SGLI
pools") in order to enhance available resources for products believed to offer
greater financial potential. Premium income from the FEGLI/SGLI pools totaled
$1.2 million, $37.7 million and $39.3 million in 2000, 1999 and 1998,
respectively, and incurred benefits totaled $1.1 million, $37.5 million and
$39.0 million in 2000, 1999 and 1998, respectively. In addition, in 2000, the
Company terminated, on a prospective basis, its participations in all of the
other reinsurance pools in which the Company had participated. However, the
terms of such pools provide for the continued assumption of risks by, and
payments of premiums to, pool participants with respect to business written in
the periods during which they formerly participated in such pools. Premium
income from all other reinsurance pools was $19.7 million, $22.0 million and
$19.9 million in 2000, 1999 and 1998, respectively, and incurred benefits from
these pools were $19.4 million, $19.9 million and $17.0 million in 2000, 1999
and 1998, respectively. The Company does not expect its withdrawals from
reinsurance pools to have a material impact on its financial condition,
liquidity or results of operations.

Between 1988 and 1992, the Company acquired five blocks of annuity policies that
resulted in the assumption of policyholder account balances, the outstanding
amount of which was $192.4 million at December 31, 2000. The first acquisition
was an assumption reinsurance transaction, and the others were indemnity
reinsurance transactions. In the case of each acquisition, assets supporting the
related reserves were transferred to, and are managed by, the Company. Pursuant
to the assumption reinsurance acquisition, the Company has the right to
establish the crediting rate with respect to the business acquired. The Company
has the right under each indemnity reinsurance transaction to recommend to the
ceding company crediting rates with respect to the business acquired. The ceding
company is solely responsible for payment of crediting rates to the extent that
these rates exceed the greater of the recommended rate and certain benchmark
rates. The aggregate lapse rates experienced on the annuity acquisitions have
been consistent with the levels assumed in pricing the transactions and
consequently have not adversely affected the Company's financial condition,
liquidity or results of operations.

LIFE AND ACCIDENT AND HEALTH INSURANCE RESERVES

The Company carries as liabilities actuarially determined reserves to satisfy
its life, accident and health and annuity policy and contract obligations. These
reserves, together with premiums to be received on policies in force and
interest thereon at certain assumed rates, are calculated to be sufficient to
satisfy policy and contract obligations. The Company performs periodic studies
to compare current experience for mortality, morbidity, interest and lapse rates
with expected experience in the reserve assumptions to determine future policy
benefit reserves for these products. Differences are reflected currently in
earnings for each period. The Company has not experienced significant adverse
deviations from its assumptions.

The life and accident and health insurance reserves carried in the Consolidated
Financial Statements are calculated based on accounting principles generally
accepted in the United States ("GAAP") and differ from those reported by the
Company for statutory financial statement purposes. These differences arise from
the use of different mortality and morbidity tables and interest assumptions,
the introduction of lapse assumptions into the reserve calculation and the use
of the net level method on all insurance business. See Note A to Consolidated
Financial Statements for certain additional information regarding reserve
assumptions under GAAP.


                                      -7-
<PAGE>   9

WORKERS' COMPENSATION INSURANCE RESERVES

The Company carries as liabilities actuarially determined reserves for
anticipated claims and claim expenses for its workers' compensation insurance
and other casualty insurance products. Reserves for claim expenses represent the
estimated probable costs of investigating those claims and, when necessary,
defending lawsuits in connection with those claims. Reserves for claims and
claim expenses are estimated based on individual loss data, historical loss data
and industry averages and indices and include amounts determined on the basis of
individual and actuarially determined estimates of future losses. Therefore, the
ultimate liability could deviate from the amounts currently reflected in the
Consolidated Financial Statements.

Reserving practices under GAAP allow discounting of claim reserves related to
workers' compensation losses to reflect the time value of money. Reserve
discounting for these types of claims is common industry practice, and the
discount factors used are less than the annual tax-equivalent investment yield
earned by the Company on its invested assets. Reserves for claim expenses are
not discounted.

The following table provides a reconciliation of beginning and ending unpaid
claims and claim expenses for the periods indicated and excludes the effects of
reinsurance:

<TABLE>
<CAPTION>
                                                                                    Year Ended December 31,
                                                                         ------------------------------------------
                                                                            2000            1999           1998
                                                                         -----------    -----------     -----------
                                                                                   (dollars in thousands)
<S>                                                                      <C>            <C>             <C>
Unpaid claims and claim expenses, beginning of period.................   $   421,473    $  406,214      $   388,051

Provision for claims and claim expenses incurred in the current year..        81,034         73,271          61,776
Increase (decrease) in estimated claims and claim expenses
     incurred in prior years (1)......................................        10,884          1,398            (166)
                                                                         -----------    -----------     -----------
         Incurred claims and claim expenses during the current year...        91,918         74,669          61,610
                                                                         -----------    -----------     -----------

Deduct claims and claim expenses paid, occurring during:
     Current year.....................................................        12,009         12,529           6,953
     Prior years......................................................        54,327         46,881          36,494
                                                                         -----------    -----------     -----------
         Total paid...................................................        66,336         59,410          43,447
                                                                         -----------    -----------     -----------

Unpaid claims and claim expenses, end of period.......................   $   447,055    $   421,473     $   406,214
                                                                         ===========    ===========     ===========
</TABLE>

(1)     The change in estimated claims and claim expenses incurred in prior
        years reflects the accretion of discounted reserves offset by favorable
        claims development.


                                      -8-
<PAGE>   10

The effects of the discount to reflect the time value of money have been removed
from the loss development table which follows in order to present the gross loss
development. This discount totaled $180.8 million, $192.2 million and $203.7
million at December 31, 1998, December 31, 1999 and December 31, 2000,
respectively. During 2000, $11.7 million of discount was amortized, and $23.2
million was accrued. The loss development table below illustrates the
development of reserves from March 5, 1996 to December 31, 2000 and excludes the
effects of reinsurance.

<TABLE>
<CAPTION>
                                                                              December 31,
                                        March 5,     --------------------------------------------------------------
                                         1996(1)        1996         1997         1998         1999         2000
                                        ---------    ---------    ---------     --------     --------     ---------
                                                                         (dollars in thousands)
<S>                                     <C>          <C>          <C>           <C>          <C>          <C>
Reserve for unpaid claims and
     claims expenses.................   $ 533,871    $ 549,653    $ 564,734     $586,984     $613,693     $ 650,765

Cumulative amount of liability paid:
     One year later..................      24,444       30,079       36,494       46,881       54,326
     Two years later.................      53,605       62,833       68,976       84,871
     Three years later...............      85,739       93,314      100,772
     Four years later................     115,266      122,656
     Five years later................     143,257

Liability reestimated as of:
     One year later..................     524,423      531,118      549,577      580,222      613,135
     Two years later.................     506,024      524,304      545,155      571,503
     Three years later...............     500,301      517,568      540,156
     Four years later................     505,688      518,054
     Five years later................     507,423
Cumulative Redundancy................      26,448       31,599       24,578       15,481          558
</TABLE>

(1)    Amounts are as of or for the periods subsequent to March 5, 1996, the
       date the Company acquired its workers' compensation business.

The "Reserve for unpaid claims and claim expenses" line of the table above shows
the estimated reserve for unpaid claims and claim expenses recorded at the end
of each of the periods indicated. These liabilities represent the estimated
amount of losses and expenses for claims arising in the current year and all
prior years that are unpaid at the end of each period. The "Cumulative amount of
liability paid" line of the table represents the cumulative amounts paid with
respect to the liability previously recorded as of the end of each succeeding
period. The "Liability reestimated" line of the table shows the reestimated
amount relating to the previously recorded liability and is based upon
experience as of the end of each succeeding period. This estimate is either
increased or decreased as additional information about the frequency and
severity of claims for each period becomes available and is reviewed. The
Company periodically reviews the estimated reserves for claims and claim
expenses and any changes are reflected currently in earnings for each period.
The Company has not experienced significant adverse deviations from its
assumptions. The "Cumulative redundancy" line of the table represents the
aggregate change in the estimated claim reserve liabilities from the dates
indicated through December 31, 2000.

The workers' compensation insurance reserves carried in the Consolidated
Financial Statements are calculated in accordance with GAAP and, net of
reinsurance, are approximately $56.6 million less than those reported by the
Company for statutory financial statement purposes at December 31, 2000. This
difference is primarily due to the use of different discount factors under GAAP
and statutory accounting principles. See Note A to Consolidated Financial
Statements for certain additional information regarding reserve assumptions
under GAAP.


COMPETITION

The financial services industry is highly competitive. The Company competes with
numerous other insurance and financial services companies both in connection
with sales of insurance and asset accumulation products and integrated
disability and absence management services and in acquiring blocks of business
and companies. Many of these organizations have substantially greater asset
bases, higher ratings from ratings agencies, larger and more diversified
portfolios of insurance products and larger sales operations. Competition in
asset accumulation product markets is also encountered from the expanding number
of banks, securities brokerage firms and other financial


                                      -9-
<PAGE>   11

intermediaries marketing alternative savings products, such as mutual funds,
traditional bank investments and retirement funding alternatives.

The Company believes that its reputation in the marketplace, quality of service
and investment returns have enabled it to compete effectively for new business
in its targeted markets. The Company reacts to changes in the marketplace
generally by focusing on products with adequate margins and attempting to avoid
those with low margins. The Company believes that its smaller size, relative to
some of its competitors, enables it to more easily tailor its products to the
demands of customers.


REGULATION

The Company's insurance subsidiaries are regulated by state insurance
authorities in the states in which they are domiciled and the states in which
they conduct business. These regulations, among other things, limit the amount
of dividends and other payments that can be made by the Company's insurance
subsidiaries without prior regulatory approval and impose restrictions on the
amount and type of investments these subsidiaries may have. These regulations
also affect many other aspects of the Company's insurance subsidiaries'
business, including, for example, risk-based capital ("RBC") requirements,
various reserve requirements, the terms, conditions and manner of sale and
marketing of insurance products and the form and content of required financial
statements. These regulations are intended to protect policyholders rather than
investors. The Company's insurance subsidiaries are required under these
regulations to file detailed annual reports with the supervisory agencies in the
various states in which they do business, and their business and accounts are
subject to examination at any time by these agencies. To date, no examinations
have produced any significant adverse findings or adjustments. The ability of
the Company's insurance subsidiaries to continue to conduct their businesses is
dependent upon the maintenance of their licenses in these various states. In
1998, the National Association of Insurance Commissioners (the "NAIC") approved
a codification of statutory accounting principles, which became effective on
January 1, 2001, and serves as a comprehensive and standardized statement of
statutory accounting principles. The adoption of the codification will change,
to some extent, the accounting practices that the Company's insurance
subsidiaries will use to prepare their statutory financial statements; however,
the Company does not believe that such changes will have a material adverse
impact on the statutory financial condition of any of these subsidiaries.

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

The NAIC's RBC requirements for insurance companies take into account asset
risks, insurance risks, interest rate risks and other relevant risks with
respect to the insurer's business and specify varying degrees of regulatory
action to occur to the extent that an insurer does not meet the specified RBC
thresholds, with increasing degrees of regulatory scrutiny or intervention
provided for companies in categories of lesser RBC compliance. The Company
believes that its insurance subsidiaries are adequately capitalized under the
RBC requirements and that the thresholds will not have any significant
regulatory effect on the Company. However, were the insurance subsidiaries' RBC
position to materially decline in the future, the insurance subsidiaries'
continued ability to pay dividends and the degree of regulatory supervision or
control to which they are subjected may be affected.

The Company's insurance subsidiaries can also be required, under solvency or
guaranty laws of most states in which they do business, to pay assessments to
fund policyholder losses or liabilities of insurance companies that become
insolvent. These assessments may be deferred or forgiven under most solvency or
guaranty laws if they would threaten an insurer's financial strength and, in
most instances, may be offset against future state premium taxes. None of the
Company's insurance subsidiaries has ever incurred any significant costs of this
nature.


                                      -10-
<PAGE>   12

EMPLOYEES

The Company and its subsidiaries employed approximately 871 persons at December
31, 2000. The Company believes that it enjoys good relations with its employees.


OTHER SUBSIDIARIES

The Company conducts certain of its investment management activities through its
wholly-owned subsidiary, Delphi Capital Management, Inc. ("DCM"), and makes
certain investments through other wholly-owned non-insurance subsidiaries. In
the fourth quarter of 2000, the Company liquidated a substantial majority of the
investments of its investment subsidiaries. The proceeds from these sales were
used in 2001 to repay in full the $150.0 million of outstanding borrowings under
its revolving credit facility.


OTHER TRANSACTIONS

On March 5, 1996, SIG Holdings, Inc. ("SIG"), the parent company of SNCC, was
merged into a subsidiary of the Company (the "SIG Merger") for consideration of
approximately $131.9 million consisting of $54.5 million of cash, net of
approximately $1.0 million payable upon the exercise of certain SIG stock
options, and approximately 5.7 million shares of the Company's Class A Common
Stock, including shares reserved for issuance upon the exercise of stock options
of SIG assumed by the Company in connection with the merger (the "SIG Options"),
plus contingent consideration of up to $20.0 million if SIG met specified
earnings targets subsequent to the merger. Because SIG met all of the specified
earnings targets, the Company paid $10.0 million of the contingent consideration
consisting of $6.9 million of cash and 63,000 shares of the Company's Class A
Common Stock during 1998 and the remaining $10.0 million of the contingent
consideration consisting of $9.0 million of cash and 30,000 shares of the
Company's Class A Common Stock in 1999. The Company also assumed $45.0 million
of SIG's 8.5% senior secured notes due 2003 (the "SIG Senior Notes"). The SIG
Senior Notes began maturing in $9.0 million annual installments in 1999 and are
collateralized by all of the common stock of SNCC.

On June 30, 1998, the Company acquired Matrix, a provider of integrated
disability and absence management services to the employee benefits market. The
purchase price of $33.8 million consisted of 409,424 shares of the Company's
Class A Common Stock, $7.9 million of cash and $5.7 million of 8% subordinated
notes due 2003 (the "Subordinated Notes"). Additional consideration of up to
$5.2 million in cash is payable if Matrix's earnings meet specified targets over
the four-year period subsequent to the acquisition. During 2000, the Company
paid $2.6 million of the contingent consideration which was due with respect to
the initial two-year period. See Note B to the Consolidated Financial
Statements.

Effective April 30, 1999, the Company completed the disposition of its Unicover
Managers, Inc. subsidiary and a related company (collectively, "Unicover"),
which were acquired in the fourth quarter of 1998, to certain of the former
owners of Unicover. See Note Q to the Consolidated Financial Statements. In
January 2000, the Company received from Unicover's pool and facility members and
the retrocessionaires of Unicover's pools and facilities legal releases relating
to, among other things, the Company's former ownership of Unicover. The releases
were obtained in connection with a global Unicover-related settlement involving
Reliance Insurance Company, its retrocessionaires and a group of ceding
companies and brokers. The Company contributed to this settlement by agreeing to
rescind a quota share reinsurance contract with Reliance Insurance Company.


ITEM 2. PROPERTIES

The Company leases its principal executive office at 1105 North Market Street,
Suite 1230, Wilmington, Delaware under an operating lease expiring in October
2003. RSLIC leases its administrative office at 2001 Market Street, Suite 1500,
Philadelphia, Pennsylvania, under an operating lease expiring in June 2009. SNCC
owns its home office building at 2043 Woodland Parkway, Suite 200, St. Louis,
Missouri, which consists of approximately 58,000 square feet. DCM and FRSLIC
lease their offices at 153 East 53rd Street, 49th Floor, New York, New York
under an operating lease expiring in July 2008. Matrix leases its principal
office at 4777 Hellyer Avenue, Suite 200, San


                                      -11-
<PAGE>   13

Jose, California under an operating lease expiring in December 2006. The Company
also maintains sales and administrative offices throughout the country to
provide nationwide sales support and service existing business.

ITEM 3. LEGAL PROCEEDINGS

In the course of their respective businesses, the Company's subsidiaries are
defendants in litigation; in the case of its insurance subsidiaries, principally
involving insurance policy claims and agent disputes and in the case of its
integrated disability and absence management subsidiary, benefit claims-related
litigation. The ultimate disposition of such pending litigation is not expected
to have a material adverse effect on the Company's financial condition,
liquidity or results of operations.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY

The table below presents certain information concerning each of the executive
officers of the Company:

<TABLE>
<CAPTION>
     Name                        Age      Position
     --------------------------------------------------------------------------------------------------------
<S>                              <C>      <C>
     Robert Rosenkranz            58      Director of the Company; Chairman of the Board, President and Chief
                                          Executive Officer of the Company; Chairman of the Board of RSLIC
     Robert M. Smith, Jr.         49      Director and Executive Vice President of the Company
     Chad W. Coulter              38      Vice President and General Counsel of the Company; Vice President,
                                          General Counsel and Assistant Secretary of RSLIC
     Lawrence E. Daurelle         49      Vice President and Treasurer of the Company; President and Chief
                                          Executive Officer of RSLIC
</TABLE>

Mr. Rosenkranz has served as the President and Chief Executive Officer of the
Company since May 1987 and has served as Chairman of the Board of Directors of
the Company since April 1989. He is also Chairman of the Board of RSLIC-Texas,
RSLIC, and FRSLIC and serves on the Board of Directors of SNCC and Matrix. Mr.
Rosenkranz, by means of beneficial ownership of the corporate general partner of
Rosenkranz & Company, an irrevocable proxy and direct or beneficial ownership,
has the power to vote all of the outstanding shares of Class B Common Stock,
which represents 49.9% of the voting power of the Company's common stock as of
March 26, 2001.

Mr. Smith has served as Executive Vice President of the Company and DCM since
November 1999 and as a Director of the Company since January 1995. From July
1994 to November 1999, he served as Vice President of the Company and DCM. Mr.
Smith also serves as a Director of RSLIC-Texas, RSLIC, FRSLIC, SNCC and Matrix.

Mr. Coulter has served as Vice President and General Counsel of the Company and
as Vice President, General Counsel and Assistant Secretary of RSLIC, FRSLIC and
RSLIC-Texas since January 1998. He also served for RSLIC in similar capacities
from February 1994 to August 1997, and in various capacities from January 1991
to February 1994. From August 1997 to December 1997, Mr. Coulter was Vice
President and General Counsel of National Life of Vermont.

Mr. Daurelle has served as Vice President and Treasurer of the Company since
August 1998 and as President and Chief Executive Officer of RSLIC, FRSLIC and
RSLIC-Texas since October 2000. He also serves on the Board of Directors of
RSLIC, FRSLIC and RSLIC-Texas. From May 1995 to October 2000, Mr. Daurelle was
Vice President and Treasurer of RSLIC, FRSLIC and RSLIC-Texas. Prior to May
1995, Mr. Daurelle was Senior Vice President and Chief Financial Officer for
Mutual Assurance Company.


                                      -12-
<PAGE>   14

                                     PART II

ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS

The closing price of the Company's Class A Common Stock was $30.25 on March 26,
2001. There were approximately 2,700 holders of record of the Company's Class A
Common Stock as of March 26, 2001.

The Company's Class A Common Stock is listed on the New York Stock Exchange
under the symbol DFG. The following table sets forth the high and low sales
prices for the Company's Class A Common Stock.

<TABLE>
<CAPTION>
                                                                   High              Low
                                                              ------------      ------------
<S>                                                           <C>               <C>
         1999:    First Quarter                               $  55.8125        $  26.4375
                  Second Quarter                                 39.8906           28.3594
                  Third Quarter                                  37.9219           29.5313
                  Fourth Quarter                                 33.8281           26.4688

         2000:    First Quarter                               $  35.9375        $  22.9375
                  Second Quarter                                 35.9375           26.3125
                  Third Quarter                                  42.1875           33.5000
                  Fourth Quarter                                 40.5625           34.7500
</TABLE>

In 2001, the Company's Board of Directors declared a cash dividend of $0.07 per
share, which was paid on the Company's Class A Common Stock and Class B Common
Stock on March 14, 2001. The Company intends to continue to pay a quarterly
dividend at this level. However, the declaration and payment of such dividends,
including the amount and frequency of such dividends, is at the discretion of
the Board and depends upon many factors, including the Company's financial
condition, liquidity requirements, operating results and such other factors as
the Board may deem relevant. Cash dividend payments are permitted under the
respective terms of the Company's $150.0 million and $80.0 million revolving
credit facilities (collectively, the "Credit Agreements") and $85.0 million 8%
Senior Notes due 2003 (the "Senior Notes") subject to certain restrictions and
covenants. See Note K to the Consolidated Financial Statements.

In addition, dividend payments by the Company's insurance subsidiaries to the
Company are subject to certain regulatory restrictions. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources" and "Business - Regulation."


                                      -13-
<PAGE>   15

ITEM 6. SELECTED FINANCIAL DATA

The selected financial data below should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Consolidated Financial Statements and related notes.

<TABLE>
<CAPTION>
                                                                    Year Ended December 31, (1)
                                                -------------------------------------------------------------------
                                                   2000          1999           1998          1997          1996
                                                ----------    ----------    ----------    ----------     ----------
INCOME STATEMENT DATA:                                (dollars and shares in thousands, except per share data)
<S>                                             <C>           <C>           <C>           <C>            <C>
  Insurance premiums and fee income:
    Group employee benefit products............ $  447,690    $  467,922    $  416,411    $  355,892     $  331,378
    Asset accumulation products................      2,551         2,126         2,583         3,072          2,122
    Other......................................     16,116        15,220         7,880         1,907          1,733
                                                ----------    ----------    ----------    ----------     ----------
                                                   466,357       485,268       426,874       360,871        335,233
  Net investment income........................    184,576       180,945       168,692       162,380        157,020
  Net realized investment (losses) gains(2)....   (138,047)      (25,720)        8,060        14,568         (2,651)
                                                ----------    ----------    ----------    ----------     ----------
    Total revenue..............................    512,886       640,493       603,626       537,819        489,602

  Operating income (3).........................    157,371       144,995       124,960       118,326        102,270

  Income from continuing operations excluding
    realized investment (losses) gains.........     86,438        80,850        68,564        65,513         55,577

  (Loss) income from continuing operations(2)..     (3,293)       64,132        73,802        74,982         53,854

  Net (loss) income (2)(4).....................     (3,293)       50,285        87,035        74,982         47,253

BASIC RESULTS PER SHARE:
  Income from continuing operations excluding
    realized investment (losses) gains......... $    4.24     $     3.85    $     3.25    $     3.23     $    2.91
  (Loss) income from continuing operations(2)..     (0.16)          3.06          3.50          3.70          2.82
  Net (loss) income (2)(4).....................     (0.16)          2.40          4.13          3.70          2.48
  Weighted average shares outstanding..........     20,388        20,979        21,095        20,275         19,074

DILUTED RESULTS PER SHARE:
  Income from continuing operations excluding
    realized investment (losses) gains......... $    4.24     $     3.73    $     3.13    $     3.07     $    2.72
  (Loss) income from continuing operations(2)..     (0.16)          2.96          3.37          3.51          2.64
  Net (loss) income (2)(4).....................     (0.16)          2.32          3.97          3.51          2.32
  Weighted average shares outstanding..........     20,388        21,674        21,920        21,367         20,407

OTHER DATA:
  Diluted book value per share (5)............. $   26.87     $    24.52    $    26.59    $    24.09     $   17.43
  Diluted book value per share before net
    unrealized (depreciation) appreciation
    on investments  (6)........................ $   29.15     $    28.96    $    27.36    $    22.25     $   18.25
  Return on average shareholders' equity (7)...     15.1%          15.4%         13.1%         15.0%         18.5%
  Interest coverage ratio (8)..................      7.33x          7.98x         7.19x         7.87x         5.98x
</TABLE>

<TABLE>
<CAPTION>
                                                                         December 31, (1)
                                               --------------------------------------------------------------------
                                                  2000          1999           1998          1997          1996
                                               -----------   -----------   -----------   -----------    -----------
BALANCE SHEET DATA:                                                   (dollars in thousands)
<S>                                            <C>           <C>           <C>           <C>            <C>
  Total investments..........................  $ 2,488,289   $ 2,535,571   $ 2,519,631   $ 2,666,007    $ 2,343,108
  Total assets...............................    3,440,010     3,395,688     3,287,057     3,203,713      2,857,906
  Long-term debt.............................      267,770       283,938       265,165       178,769        231,004
  Capital Securities (9).....................      100,000       100,000       100,000       100,000             -
  Shareholders' equity.......................      538,193       501,417       566,440       509,486        366,965
  Debt to total capitalization ratio (10)....       29.6%          32.1%         28.5%         22.7%         38.6%
</TABLE>


                                      -14-
<PAGE>   16

(1)      Reflects the acquisitions of Matrix in 1998 and SNCC in 1996. See Note
         B to the Consolidated Financial Statements.

(2)      In 2000, the Company recognized investment losses of $89.7 million, net
         of an income tax benefit of $48.3 million, primarily attributable to
         the liquidation of a substantial majority of the investments of its
         investment subsidiaries and the termination of U.S. Treasury futures
         and options contracts. See "Management's Discussion and Analysis of
         Financial Condition and Results of Operations" and Note C to the
         Consolidated Financial Statements.

(3)      Income from continuing operations excluding realized investment gains
         and losses and before interest and income tax expense and dividends on
         Capital Securities of Delphi Funding L.L.C.

(4)      In 1999, the Company disposed of Unicover and recognized an after-tax
         loss of $13.8 million on the disposition. After-tax income from
         Unicover's operations totaled $13.2 million in 1998. See Note Q to the
         Consolidated Financial Statements. The Company discontinued its
         long-term care business and recorded a one-time after-tax charge of
         $5.8 million in 1996 attributable to this discontinuance. After-tax
         operating losses on this business were $0.8 in 1996.

(5)      Diluted book value per share is calculated by dividing shareholders'
         equity, as increased by the proceeds and tax benefit from the assumed
         exercise of outstanding stock options, by total shares outstanding,
         also increased by shares issued upon the assumed exercise of the
         options and deferred shares.

(6)      Diluted book value per share before net unrealized (depreciation)
         appreciation on investments is calculated by dividing shareholders'
         equity excluding net unrealized (depreciation) appreciation on
         investments, as increased by the proceeds and tax benefit from the
         assumed exercise of outstanding stock options, by total shares
         outstanding, also increased by shares issued upon the assumed exercise
         of the options and deferred shares.

(7)      Return on average shareholders' equity is calculated by dividing income
         from continuing operations, excluding after-tax realized investment
         gains and losses, by average shareholders' equity, excluding after-tax
         realized investment gains and losses, discontinued operations,
         extraordinary items and changes in accounting principles, as determined
         as of the beginning and end of each year.

(8)      The interest coverage ratio is calculated by dividing income from
         continuing operations excluding realized investment gains and losses
         and before interest and income tax expense and dividends on the Capital
         Securities by interest expense (1996 excludes interest paid in
         connection with the settlement of prior-year federal income taxes).

(9)      Reflects the issuance of $100.0 million of Capital Securities by Delphi
         Funding L.L.C. (the "Capital Securities"). See Note J to the
         Consolidated Financial Statements.

(10)     The debt to total capitalization ratio is calculated by dividing
         long-term debt by the sum of the Company's long-term debt, Capital
         Securities and shareholders' equity.


                                      -15-
<PAGE>   17

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The discussion and analysis of the results of operations and financial condition
of the Company below should be read in conjunction with the Consolidated
Financial Statements and related notes.

RESULTS OF OPERATIONS

2000 COMPARED TO 1999

Premium and Fee Income. Premium and fee income in 2000 was $466.4 million as
compared to $485.3 million in 1999. Premiums from non-core group employee
benefit products decreased to $47.3 million in 2000 from $110.4 million in 1999
due to the Company's termination of its participations in the reinsurance pools
in which it had historically participated and a lower level of premium from
LPTs, which are episodic in nature. See "Business - Group Employee Benefit
Products" and "Business - Reinsurance." The Company does not expect its
withdrawals from these reinsurance pools to have a material impact on its
financial results. Premiums from core group employee benefit products increased
12% to $400.4 million in 2000 from $357.5 million in 1999. This increase
reflects strong production of new business and normal growth in employment and
salary levels for the Company's existing customer base. Excess workers'
compensation premiums increased 17% as compared to 1999. This increase reflects
improvements in the pricing environment in this market sector and increased
demand due to higher primary workers' compensation rates. There has also been
disruption in the excess workers' compensation marketplace due to difficulties
experienced by some competitors. This disruption has created opportunities for
SNCC. Deposits from the Company's asset accumulation products, including the
Company's MVA annuity products, increased 106% to $160.5 million in 2000 from
$77.8 million in 1999. Deposits for these products, which are long-term in
nature, are not recorded as premiums; instead, the deposits are recorded as a
liability. The increase in annuity deposits in 2000 is principally the result of
an increase in the number of networks of independent agents distributing the
Company's expanded line of annuity products and a more favorable environment for
fixed annuity sales. The Company is maintaining its disciplined approach in
establishing crediting rates on its asset accumulation products. During the
early part of 2001, market interest rates and the resulting interest rate
spreads available to the Company on these products declined. Accordingly, the
level of deposits achieved in 2000 may not be representative of the level of
deposits attainable in 2001.

Net Investment Income. Net investment income in 2000 increased $3.7 million to
$184.6 million from $180.9 million in 1999. This increase primarily reflects an
increase in average invested assets offset by a decrease in the weighted average
annual yield on invested assets in 2000. The weighted average annual yield on
invested assets was 7.3% on average invested assets of $2,522.1 million in 2000
and 7.4% on average invested assets of $2,445.4 million in 1999. In the fourth
quarter of 2000, the Company liquidated a substantial majority of the
investments of its investment subsidiaries and, in the first quarter of 2001,
repaid in full the $150.0 million of outstanding borrowings under its $150.0
million revolving credit facility. As a result, the Company anticipates earning
a lower level of investment income in 2001. See "Liquidity and Capital Resources
- General."

Benefits and Expenses. Policyholder benefits and expenses were $493.6 million in
2000 as compared to $521.2 million in 1999. This decrease primarily reflects the
decrease in premiums from the Company's non-core group employee benefit products
discussed above. The combined ratio (loss ratio plus expense ratio) for the
Company's group employee benefits segment decreased from 95.2% in 1999 to 92.3%
in 2000. This decrease was primarily attributable to changes in the Company's
product mix. Benefits and interest credited on asset accumulation products
increased by $6.6 million in 2000, principally due to an increase in average
funds under management from $622.9 million in 1999 to $674.5 million in 2000.
Also contributing to this increase was an increase in the weighted average
annual crediting rate on asset accumulation products from 5.3% in 1999 to 5.7%
in 2000.

Net Realized Investment Losses. Net realized investment losses were $138.0
million in 2000 as compared to $25.7 million in 1999. The Company's investment
strategy results in periodic sales of securities and the recognition of related
investment gains and losses. In the fourth quarter of 2000, the Company
implemented a strategic decision to liquidate a substantial majority of the
investments of its investment subsidiaries, resulting in realized losses of
$72.5 million. In addition, net investment losses realized in 2000 include
$58.5 million of losses on closed U.S. Treasury futures and options contracts.
See "Liquidity and Capital Resources - General," "Liquidity and Capital
Resources - Asset/Liability Management and Market Risk" and Note C to the
Consolidated Financial Statements.


                                      -16-
<PAGE>   18

Interest Expense. Interest expense was $21.5 million in 2000 as compared to
$18.2 million in 1999. This increase was primarily due to increases in the
weighted average outstanding borrowings and the weighted average borrowing rate
under the $150.0 million revolving credit facility, partially offset by a
decrease in the average principal amount of the SIG Senior Notes due to the
scheduled partial principal repayment on the notes in 2000. During the first
quarter of 2001, the Company repaid in full the $150.0 million of outstanding
borrowings under its $150.0 million revolving credit facility. As a result, the
Company anticipates a lower level of interest expense in 2001.

Income Tax (Benefit) Expense. The income tax benefit was $4.9 million in 2000 as
compared to income tax expense of $30.9 million in 1999. The income tax benefit
in 2000 was attributable to the recognition of investment losses. The Company's
effective tax rate excluding net realized investment losses was 31.9% in 2000
and 31.5% in 1999.

1999 COMPARED TO 1998

Premium and Fee Income. Premium and fee income in 1999 was $485.3 million as
compared to $426.9 million in 1998, an increase of 14%. Premiums from non-core
group employee benefit products increased to $110.4 million in 1999 from $89.6
million in 1998 due to a higher level of premium from LPTs, which are episodic
in nature. Premiums from core group employee benefit products increased 9% to
$357.5 million in 1999 from $326.8 million in 1998. This growth reflects high
levels of new business production and normal growth in employment and salary
levels for the Company's existing customer base. Excess workers' compensation
premiums for 1999 were in line with 1998 levels reflecting improvements in the
pricing environment in this market sector. Deposits from the Company's asset
accumulation products, including the Company's MVA annuity products, were $77.8
million in 1999 as compared to $46.3 million in 1998. Deposits for these
products, which are long-term in nature, are not recorded as premiums; instead,
the deposits are recorded as a liability. The increase in annuity deposits in
1999 is principally the result of an increase in the number of networks of
independent agents distributing the Company's annuity products, as well as
enhancements made to the Company's products to improve their competitive
position in the marketplace and a more favorable environment for fixed annuity
sales due to increases in interest rates during 1999.

Net Investment Income. Net investment income in 1999 was $180.9 million as
compared to $168.7 million in 1998, an increase of 7%. This increase primarily
reflects an increase in the weighted average annual yield on invested assets.
The weighted average annual yield on invested assets was 7.4% on average
invested assets of $2,445.4 million in 1999 and 6.5% on average invested assets
of $2,577.5 million in 1998.

Benefits and Expenses. Policyholder benefits and expenses were $521.2 million in
1999 as compared to $470.6 million in 1998, an increase of 11%. This increase
primarily reflects the increase in premiums from the Company's non-core group
employee benefit products discussed above. The combined ratio (loss ratio plus
expense ratio) for the Company's group employee benefits segment decreased from
96.5% in 1998 to 95.2% in 1999. This decrease was primarily attributable to
changes in the Company's product mix. Benefits and interest credited on asset
accumulation products decreased by $2.5 million in 1999 principally due to a
decrease in average funds under management from $628.7 million in 1998 to $622.9
million in 1999, partially offset by an increase in the weighted average annual
crediting rate on asset accumulation products from 5.2% in 1998 to 5.3% in 1999.

Net Realized Investment (Losses) Gains. Net realized investment losses were
$25.7 million in 1999 as compared to net realized investment gains of $8.1
million in 1998. The Company's investment strategy results in periodic sales of
securities and the recognition of related investment gains and losses.

Interest Expense. Interest expense was $18.2 million in 1999 as compared to
$17.4 million in 1998. This increase was primarily due to an increase in average
outstanding borrowings under the $150.0 million revolving credit facility,
partially offset by a decline in the weighted average borrowing rate on this
facility and a decrease in the average principal amount of the SIG Senior Notes
due to the scheduled partial principal repayment on the notes in 1999.

Income Tax Expense. The Company's effective tax rate excluding realized
investment losses and gains was 31.5% in 1999 and 30.7% in 1998.

Discontinued Operations. Effective April 30, 1999, the Company completed the
disposition of Unicover, which was acquired in the fourth quarter of 1998. The
Company recognized a loss of $13.8 million on the disposition of the operations
of Unicover, net of a related tax benefit of $8.7 million, in the first quarter
of 1999. Income from


                                      -17-
<PAGE>   19

Unicover's operations totaled $13.2 million in 1998, net of tax expense of $8.8
million. See Note Q to the Consolidated Financial Statements.


LIQUIDITY AND CAPITAL RESOURCES

General. The Company had approximately $266.9 million of financial resources
available at the holding company level at December 31, 2000, which was primarily
comprised of investments in the common stock of its investment subsidiaries. The
assets of the investment subsidiaries were primarily invested in fixed maturity
securities, balances with independent investment managers and marketable
securities. In the fourth quarter of 2000, as a result of a strategic decision
to deleverage its holding company and to further emphasize insurance operations,
the Company liquidated a substantial majority of the investments of its
investment subsidiaries. The Company used the proceeds from these sales to repay
in full the $150.0 million of outstanding borrowings under its revolving credit
facility in the first quarter of 2001. As a result, the financial resources at
the holding company level decreased by approximately $150.0 million. These
investments contributed a significant amount to earnings over the last few
years. As a result, the Company anticipates earning a lower level of income in
2001 due to this strategic decision.

In June 2000, the Company entered into an additional revolving credit facility
with a group of lenders. The amount of this facility was $80.0 million at
December 31, 2000. This facility may be increased up to a total of $100.0
million at the Company's option if additional loan commitments are obtained.
This facility, which expires in April 2003, is subject to certain restrictions
and financial covenants, which are substantially identical to those contained in
the Company's existing revolving credit facility. They include, among others,
the maintenance of certain financial ratios, minimum statutory surplus
requirements for RSLIC and SNCC, minimum consolidated equity requirements for
the Company and certain investment and dividend and stock repurchase
limitations. The Company did not have any outstanding borrowings under this
facility at December 31, 2000. A shelf registration is also in effect under
which up to $49.2 million in securities may be issued by the Company.

Other sources of liquidity at the holding company level include dividends paid
from subsidiaries, primarily generated from operating cash flows and
investments. During 2001, RSLIC will be permitted, without prior regulatory
approval, to make dividend payments of $55.6 million. In addition, SNCC will be
permitted, without regulatory or other approval, to make dividend payments of
$22.2 million in 2001. Additional dividends may also be paid by RSLIC and SNCC
with the requisite approvals. See "Business - Regulation." In general, dividends
from the Company's non-insurance subsidiaries are not subject to regulatory or
other restrictions.

The Company's current liquidity needs, in addition to funding lease commitments
and other operating expenses, include principal and interest payments on
outstanding borrowings under the Credit Agreements, the Senior Notes, the SIG
Senior Notes and the Subordinated Notes and distributions on the Capital
Securities. The maximum amount of borrowings available under the $150.0 million
revolving credit facility will be reduced to the following amounts in October of
each year: 2001 - $110.0 million and 2002 - $60.0 million. The Senior Notes
mature in their entirety in October 2003 and are not subject to any sinking fund
requirements nor are they redeemable prior to maturity. The SIG Senior Notes
began maturing in $9.0 million annual installments in 1999 with a final maturity
in May 2003 and have an outstanding principal balance of $27.0 million at
December 31, 2000. The Subordinated Notes mature in their entirety in June 2003.
The junior subordinated debentures underlying the Capital Securities are not
redeemable prior to March 25, 2007. See Note E to the Consolidated Financial
Statements. The Company from time to time engages in discussions with respect to
acquiring blocks of business and insurance and financial services companies, any
of which could, if consummated, be material to the Company's operations.

Sources of liquidity available to the Company on a parent company-only basis,
including the undistributed earnings of its subsidiaries and additional
borrowings available under the Credit Agreements, are expected to exceed the
Company's current and long-term cash requirements.

The principal liquidity requirements of the Company's insurance subsidiaries are
their contractual obligations to policyholders. The primary sources of funding
for these obligations, in addition to operating earnings, are the marketable
investments included in the investment portfolios of these subsidiaries. The
Company believes that these sources of funding will be adequate for its
insurance subsidiaries to satisfy on both a short-term and long-term basis these
contractual obligations throughout their estimated or stated period.


                                      -18-
<PAGE>   20

Cash Flows. Operating activities increased cash and cash equivalents by $90.2
million in 2000, excluding $58.1 million of funds from a rescinded reinsurance
transaction which were returned to the ceding company in the first quarter of
2000 and a net cash payment of $19.7 million related to the cession by the
Company of group employee benefit product reserves. Operating cash flows in 1999
increased by $52.8 million, excluding cash inflows of $58.1 million of funds
related to the rescinded reinsurance transaction and $10.0 million related to
the recapture of ceded group employee benefit product reserves (see Note O to
the Consolidated Financial Statements). The increase in operating cash flows is
primarily due to federal income tax refunds received in 2000. Net investing
activities used $458.0 million of cash during 2000 primarily for the purchase of
securities, and financing activities provided $144.0 million of cash principally
due to advances from the Federal Home Loan Bank and deposits from asset
accumulation products.

Investments. The Company's overall investment strategy to achieve its objectives
of safety and liquidity, while seeking the best available return, focuses on,
among other things, managing the Company's interest-sensitive assets and
liabilities and seeking to minimize the Company's exposure to fluctuations in
interest rates. The Company's investment portfolio primarily consists of
investments in fixed maturity securities, cash and short-term investments. The
weighted average credit rating of the Company's fixed maturity portfolio as
rated by Standard & Poor's Corporation was "AA" at December 31, 2000. While the
investment grade rating of the Company's fixed maturity portfolio addresses
credit risk, it does not address other risks, such as prepayment and extension
risks, which are discussed below.

At December 31, 2000, 23% of the Company's total invested assets were comprised
of mortgage-backed securities, of which approximately 43% are guaranteed by U.S.
Government sponsored entities as to the full amount of principal and interest
and the remaining 57% consists of investments in trusts created by banks and
finance and mortgage companies. Ninety-five percent of the Company's
mortgage-backed securities portfolio, based on fair values, has been rated as
investment grade by nationally recognized statistical rating organizations.
Mortgage-backed securities subject the Company to a degree of interest rate
risk, including prepayment and extension risk, which is generally a function of
the sensitivity of each security's underlying collateral to prepayments under
varying interest rate environments and the repayment priority of the securities
in the particular securitization structure. The Company seeks to limit the
extent of this risk by emphasizing the more predictable payment classes and
securities with stable collateral.

The Company, through its life insurance subsidiaries, maintains a program in
which various investments were financed using advances from the Federal Home
Loan Bank. The Company has utilized this program to manage the duration of its
liabilities and to earn spread income, which is the difference between the
financing cost and the earnings from the investments purchased with those funds.
At December 31, 2000, the Company had outstanding advances of $148.5 million, of
which $73.5 million were borrowed by the Company during 2000. The advances, of
which $130.0 million were obtained at a fixed rate and $18.5 million were
obtained at a variable rate, have a weighted average term to maturity of 9.2
years. At the Company's current level of advances, a repayment of $6.5 million
will be required in April 2001. In addition, the Company has utilized reverse
repurchase agreements, futures and option contracts and interest rate swap
contracts from time to time in connection with its investment strategy. These
transactions require the Company to maintain securities or cash on deposit with
the applicable counterparty as collateral. As the market value of the collateral
or contracts changes, the Company may be required to deposit additional
collateral or be entitled to have a portion of the collateral returned to it.
The Company also maintains a securities lending program under which certain
securities from its portfolio are loaned to other institutions for short periods
of time. The collateral received for securities loaned is recorded at the fair
value of the collateral, which is generally in an amount in excess of the market
value of the securities loaned. The Company monitors the market value of the
securities loaned and obtains additional collateral as necessary.

The ability of the Company's insurance subsidiaries to make investments is
subject to the insurance laws and regulations of their respective state of
domicile. Each of these states has comprehensive investment regulations. In
addition, the Credit Agreements and, as to SNCC, the SIG Senior Notes also
contain limitations, with which the Company is currently in compliance in all
material respects, on the composition of the Company's investment portfolio. The
Company also continually monitors its investment portfolio and attempts to
ensure that the risks associated with concentrations of investments in either a
particular sector of the market or a single entity are limited.

Asset/Liability Management and Market Risk. Because the Company's primary assets
and liabilities are financial in nature, the Company's financial position and
earnings are subject to risks resulting from changes in interest rates. The
Company manages this risk by active portfolio management focusing on matching
its invested assets and


                                      -19-
<PAGE>   21

related liabilities to seek to minimize the exposure to fluctuations in interest
rates and by the periodic adjustment of the crediting rates on annuity products.
In addition, the Company, at times, has utilized exchange-traded futures and
option contracts to reduce the risk associated with changes in the value of its
fixed maturity portfolio due to changes in the interest rate environment and to
reduce the risk associated with changes in interest rates in connection with
anticipated securities purchases. Generally, market prices of fixed maturity
securities decline in an environment of increasing interest rates in a manner
similar to that of U.S. Treasury securities. Therefore, in order to reduce the
extent of this interest rate risk, the Company, at times, entered into option
contracts and short U.S. Treasury futures, the value of which typically rises in
such an environment. During 2000, market interest rates, particularly rates on
U.S. Treasury securities, decreased, causing the value of these futures and
option contracts to decline. As a result, the Company terminated all of these
contracts in the fourth quarter of 2000 and recognized related losses of $58.5
million. The Company discontinued this strategy due to the continuing volatility
in the relationship between yields on U.S. Treasury securities and yields on
other categories of fixed income securities, as well as impending changes in the
accounting rules applicable to futures and options contracts used for hedging
purposes.

The Company regularly analyzes the results of its asset/liability matching
through cash flow analysis and duration matching under multiple interest rate
scenarios. These analyses enable the Company to measure the potential gain or
loss in fair value of its interest-rate sensitive financial instruments due to
hypothetical changes in interest rates. Based on these analyses, if interest
rates were to immediately increase by 10% from their year-end levels, the fair
value of the Company's interest-sensitive assets, net of corresponding changes
in the fair value of cost of business acquired and insurance and
investment-related liabilities, would decline by approximately $55.0 million at
December 31, 2000 as compared to a decline of approximately $79.7 million at
December 31, 1999. These analyses incorporate numerous assumptions and estimates
and assume no changes in the composition of the Company's investment portfolio
in reaction to such interest rate changes. Consequently, the results of this
analysis will likely be materially different from the actual changes experienced
under given interest rate scenarios.

A portion of the Company's trading account portfolio consists of equity
securities which are subject to risks resulting from, among other things,
changes in the level of equity prices. To reduce the extent of this risk, the
Company has entered into corresponding short positions relating to certain of
these securities. If the fair value of the Company's trading account securities
were to decrease by 10% from their year-end levels, the fair value of these
securities, net of the corresponding change in the fair value of the related
short positions, would decrease by approximately $2.9 million at December 31,
2000 as compared to a decline of approximately $10.9 million at December 31,
1999.

The Company manages the composition of its borrowed capital by considering
factors such as the ratio of borrowed capital to total capital, future debt
requirements, the interest rate environment and other market conditions.
Approximately 44% of the Company's corporate debt was issued at fixed interest
rates. A hypothetical 10% decrease in market interest rates would cause a
corresponding $1.3 million increase in the fair value of the Company's
fixed-rate corporate debt at December 31, 2000 as compared to an increase of
$1.8 million at December 31, 1999. Because interest expense on the Company's
floating-rate corporate debt fluctuates as prevailing interest rates change,
changes in market interest rates would not materially affect its fair value.


CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

In connection with, and because it desires to take advantage of, the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995, the
Company cautions readers regarding certain forward-looking statements in the
above "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and elsewhere in this Form 10-K and in any other statement made
by, or on behalf of, the Company, whether in future filings with the Securities
and Exchange Commission or otherwise. Forward-looking statements are statements
not based on historical information and which relate to future operations,
strategies, financial results or other developments. Some forward-looking
statements may be identified by the use of terms such as "expects," "believes,"
"anticipates," "intends," "judgment" or other similar expressions.
Forward-looking statements are necessarily based upon estimates and assumptions
that are inherently subject to significant business, economic, competitive and
other uncertainties and contingencies, many of which are beyond the Company's
control and many of which, with respect to future business decisions, are
subject to change. Examples of such uncertainties and contingencies include,
among other important factors, those affecting the insurance industry generally,
such as the economic and interest rate environment, federal and state
legislative and regulatory developments, including but not limited to changes in


                                      -20-
<PAGE>   22

financial services and tax laws and regulations, and market pricing and
competitive trends relating to insurance products and services, and those
relating specifically to the Company's business, such as the level of its
insurance premiums and fee income, the claims experience and other factors
affecting the profitability of its insurance products, the performance of its
investment portfolio and changes in the Company's investment strategy,
acquisitions of companies or blocks of business, and ratings by major rating
organizations of its insurance subsidiaries. These uncertainties and
contingencies can affect actual results and could cause actual results to differ
materially from those expressed in any forward-looking statements made by, or on
behalf of, the Company. The Company disclaims any obligation to update
forward-looking information.


ITEM 7A. MARKET RISK DISCLOSURE

The information required by Item 7A is included in this Form 10-K under the
heading "Asset/Liability Management and Market Risk" beginning on page 19 of
this Form 10-K.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by Item 8 is included in this Form 10-K beginning on
page 25 of this Form 10-K.


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by Item 10 is included in the Company's definitive
Proxy Statement, to be filed pursuant to Regulation 14A of the Securities
Exchange Act of 1934 in connection with the Company's 2001 Annual Meeting of
Stockholders, under the captions "Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance" and is incorporated herein by
reference, and in Item 4A in Part I of this Form 10-K.


ITEM 11. EXECUTIVE COMPENSATION

The information required by Item 11 is included in the Company's definitive
Proxy Statement, to be filed pursuant to Regulation 14A of the Securities
Exchange Act of 1934 in connection with the Company's 2001 Annual Meeting of
Stockholders, under the caption "Executive Compensation" and is incorporated
herein by reference.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN OWNERS AND MANAGEMENT

The information required by Item 12 is included in the Company's definitive
Proxy Statement, to be filed pursuant to Regulation 14A of the Securities
Exchange Act of 1934 in connection with the Company's 2001 Annual Meeting of
Stockholders, under the caption "Security Ownership of Certain Beneficial Owners
and Management" and is incorporated herein by reference.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by Item 13 is included in the Company's definitive
Proxy Statement, to be filed pursuant to Regulation 14A of the Securities
Exchange Act of 1934 in connection with the Company's 2001 Annual Meeting of
Stockholders, under the caption "Certain Relationships and Related Party
Transactions" and is incorporated herein by reference.


                                      -21-
<PAGE>   23

                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(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 26 of this Form
       10-K.

(b)    No reports on Form 8-K were filed during the fourth quarter of 2000.

(c)    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. (7)

   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 (11)

   2.3     Stock Purchase Agreement, dated as of October 1, 1998, by and among
           Delphi Financial Group, Inc., Unicover Managers, Inc., Unicover
           Intermediaries, LLC and the Shareholders named therein (11)

   2.4     Merger, Exchange and Release Agreement, dated April 30, 1999, by and
           among Delphi Financial Group, Inc., Unicover Managers, Inc., Unicover
           Intermediaries, LLC, Unicover Management Partners, LLC and the Buyers
           named therein (12)

   3.1     Restated Certificate of Incorporation of Delphi Financial Group, Inc.
           (Exhibit 3.2) (3)

   3.2     Certificate of Amendment of Restated Certificate of Incorporation of
           Delphi Financial Group, Inc. (Exhibit 3.1) (8)

   3.3     Restated Certificate of Incorporation of Delphi Financial Group, Inc.
           (Exhibit 3.2) (8)

   3.4     Amended and Restated By-laws of Delphi Financial Group, Inc. (3)

   4.1     Indenture, dated as of October 8, 1993, between Delphi Financial
           Group, Inc. and State Street Bank of Connecticut (formerly Shawmut
           Bank Connecticut, N.A.) as Trustee (8.0% Senior Notes due 2003) (4)

   4.2     Amended and Restated Limited Liability Agreement of Delphi Funding
           L.L.C. dated as of March 25, 1997, among Delphi Financial Group,
           Inc., as Managing Member, Chestnut Investors III, Inc., as Resigning
           Member, and the Holders of Capital Securities described therein, as
           Members (Exhibit 4(a))(9)

   4.3     Subordinated Indenture, dated as of March 25, 1997, between Delphi
           Financial Group, Inc. and Wilmington Trust Company as Trustee
           (Exhibit 4(b)) (9)

   4.4     Guarantee Agreement dated March 25, 1997, between Delphi Financial
           Group, as Guarantor, and Wilmington Trust Company, as Trustee
           (Exhibit 4(c)) (9)

  10.1     Fourth Amended and Restated Credit Agreement dated as of June 1,
           2000, among the Company, the Lenders named therein, The Bank of New
           York and Fleet National Bank, as Co-Agents, and Bank of America N.A.,
           as Administrative Agent and Collateral Agent (Exhibit 10.1)(13)

  10.2     Credit Agreement, dated as of June 1, 2000, among the Company, the
           Lenders named therein, Fleet National Bank and First Union National
           Bank, as Co-Syndication Agents, and Bank of America, N.A.,
           as Administrative Agent and Collateral Agent (Exhibit 10.2)(13)

  10.3     Borrower Pledge Agreement, dated as of February 23, 1993, between the
           Company and Bank of America Illinois (Exhibit 10.2) (2)

  10.4     Delphi Financial Group, Inc. Second Amended and Restated Employee
           Nonqualified Stock Option Plan, as amended May 9, 2000 (Exhibit 10.3)
           (13)

  10.5     The Delphi Capital Management, Inc. Pension Plan for Robert
           Rosenkranz (Exhibit 10.3) (2)

  10.6     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) (3)

  10.7     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) (3)

  10.8     Assumption Reinsurance Agreement, dated as of December 5, 1988,
           between John Alden Life Insurance Company and Reliance Standard Life
           Insurance Company (Exhibit 10.11) (3)

  10.9     Delphi Financial Group, Inc. Long-Term Performance-Based Incentive
           Plan (10)

  10.10    Settlement Agreement and Release of February 1988 among Insurers
           Service Corporation, Frank B. Hall & Co. Inc., Reliance Group
           Holdings Inc. and Safety National Casualty Corporation, as
           supplemented and amended by letter agreement dated March 4, 1996
           (Exhibit 10.11) (6)

  10.11    SIG Holdings, Inc. 1992 Long-Term Incentive Plan (Exhibit 10.12) (6)

  10.12    Stockholders Agreement, dated as of October 5, 1995, among the
           Company and the affiliate stockholders named therein (Exhibit 10.30)
           (7)


                                      -22-
<PAGE>   24

  10.13    Reliance Standard Life Insurance Company Nonqualified Deferred
           Compensation Plan (Exhibit 10.14)(7)

  10.14    Reliance Standard Life Insurance Company Supplemental Executive
           Retirement Plan (Exhibit 10.15) (7)

  10.15    Delphi Financial Group, Inc. Amended and Restated Directors Stock
           Option Plan (Exhibit 10.26) (10)

  10.16    Indemnity Coinsurance Agreement and Administrative Services
           Agreement, dated as of October 3, 1994, between Reliance Standard
           Life Insurance Company and Protective Life Insurance Company (Exhibit
           10.21) (5)

  10.17    Indemnity Coinsurance Agreement, dated as of June 30, 1990, between
           Reliance Standard Life Insurance Company and John Alden Life
           Insurance Company (with exhibit 1 thereto) (Exhibit 10.22) (1)

  10.18    Indemnity Coinsurance Agreement, dated as of October 31, 1990,
           between Reliance Standard Life Insurance Company and John Alden Life
           Insurance Company (with exhibit 1 thereto) (Exhibit 10.23) (1)

  10.19    Indemnity Coinsurance Agreement, dated as of March 31, 1992, between
           Reliance Standard Life Insurance Company and Washington National Life
           Insurance Company of New York (filed with the Trust Agreement dated
           as of April 27, 1992, between Reliance Standard Life Insurance
           Company and Washington National Life Insurance Company of New York)
           (Exhibit 10.24) (1)

  10.20    Indemnity Coinsurance Agreement, dated as of December 31, 1992,
           between Reliance Standard Life Insurance Company and Lamar Life
           Insurance Company (Exhibit 10.25) (1)

  10.21    Employment Agreement, dated March 18, 1994, for Robert M. Smith, Jr.
           (Exhibit 10.31) (5)

  10.22    SIG Holdings, Inc. Note Agreement, dated as of May 20, 1994 (8.5%
           Senior Secured Notes due 2003) (Exhibit 10.25) (6)

  10.23    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) (6)

  10.24    Subsidiary Pledge Agreement, dated as of March 5, 1996, between SIG
           Holdings, Inc. and Bank of America National Trust and Savings
           Association, as Administrative Agent (Exhibit 10.27) (6)

  10.25    Reinsurance Agreement, dated January 27, 1998, between Reliance
           Standard Life Insurance Company and Oracle Reinsurance Company Ltd.
           (Exhibit 10.27) (10)

  10.26    Casualty Excess of Loss Reinsurance Agreement, dated January 27,
           1998, between Safety National Casualty Corporation and Oracle
           Reinsurance Company Ltd. (Exhibit 10.28) (10)

  11.1     Computation of Results per Share of Common Stock (14)

  21.1     List of Subsidiaries of the Company (15)

  23.1     Consent of Ernst & Young LLP (15)

  24.1     Powers of Attorney (15)

----------

(1)        Incorporated herein by reference to the designated exhibit
           to the Company's Registration Statement on Form S-1 dated
           September 30, 1993 (Registration No. 33-65828).

(2)        Incorporated herein by reference to the designated exhibit to the
           Company's Form 10-K for the year ended December 31, 1992.

(3)        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).

(4)        Incorporated herein by reference to the designated exhibit to the
           Company's Form 10-K for the year ended December 31, 1993.

(5)        Incorporated herein by reference to the designated exhibit to the
           Company's Form 10-K for the year ended December 31, 1994.

(6)        Incorporated herein by reference to the designated exhibit to the
           Company's Form 10-K for the year ended December 31, 1995.

(7)        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).

(8)        Incorporated herein by reference to the designated exhibit to the
           Company's Form 10-Q for the quarter ended June 30, 1997.

(9)        Incorporated herein by reference to the designated exhibit to the
           Company's Current Report on Form 8-K dated March 21, 1997.

(10)       Incorporated herein by reference to the designated exhibit to
           the Company's Form 10-K for the year ended December 31, 1997.

(11)       Incorporated herein by reference to the designated exhibit to
           the Company's Form 10-K for the year ended December 31, 1998.

(12)       Incorporated herein by reference to the designated exhibit to
           the Company's Form 10-Q for the quarter ended March 31, 1999.

(13)       Incorporated herein by reference to the designated exhibit to
           the Company's Form 10-Q for the quarter ended June 30, 2000.

(14)       Incorporated herein by reference to Note N to the Consolidated
           Financial Statements included elsewhere herein.

(15)       Filed herewith.

(d)    The financial statement schedules listed in the Index to Consolidated
       Financial Statements and Financial Statement Schedules on page 25 of this
       Form 10-K are included under Item 8 and are presented beginning on page
       49 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.


                                      -23-
<PAGE>   25

                  DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                     Delphi Financial Group, Inc.

                                     By:  /S/ ROBERT ROSENKRANZ
                                          -------------------------------------
                                          Chairman of the Board, President and
                                          Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
Name                                                          Capacity                         Date
----                                                          --------                         ----
<S>                                                           <C>                              <C>
 /S/              ROBERT ROSENKRANZ                           Chairman of the Board,           March 28, 2001
----------------------------------------------------------    President and Chief Executive
                 (Robert Rosenkranz)                          Officer (Principal Executive
                                                              Officer)

                          *                                   Director                         March 28, 2001
----------------------------------------------------------
                   (Edward A. Fox)

                          *                                   Director                         March 28, 2001
----------------------------------------------------------
                (Charles P. O'Brien)

                          *                                   Director                         March 28, 2001
----------------------------------------------------------
                 (Lewis S. Ranieri)

                          *                                   Director                         March 28, 2001
----------------------------------------------------------
                 (Thomas L. Rhodes)

 /S/            ROBERT M. SMITH, JR.                          Director and Executive           March 28, 2001
----------------------------------------------------------    Vice President
               (Robert M. Smith, Jr.)


                          *                                                                    March 28, 2001
----------------------------------------------------------
                 (B.K. Werner)

                          *                                   Vice President and               March 28, 2001
----------------------------------------------------------    Treasurer (Principal
                Lawrence E. Daurelle                          Accounting and Financial
                                                              Officer)
</TABLE>

* BY:  /S/             ROBERT ROSENKRANZ
      -----------------------------------------------------
                       Attorney-in-Fact


                                      -24-
<PAGE>   26

                  DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
                SELECTED QUARTERLY FINANCIAL RESULTS (UNAUDITED)
                  (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                        Year Ended December 31, 2000
                                                          ---------------------------------------------------------
                                                             First         Second           Third         Fourth
                                                            Quarter       Quarter          Quarter        Quarter
                                                          -----------    -----------    -----------     -----------
<S>                                                       <C>            <C>            <C>             <C>
Revenues excluding realized investment losses........     $   163,435    $   158,659    $   166,648     $   162,191
Revenues.............................................         161,888        158,654        164,580          27,764
Income from continuing operations, excluding
   realized investment losses........................          22,300         22,911         22,646          18,581
Income (loss) from continuing operations.............          21,294         22,908         21,302         (68,797)
Net income (loss)....................................          21,294         22,908         21,302         (68,797)
Basic results per share of common stock:
   Income from continuing operations excluding
      realized investment losses.....................     $     1.09     $     1.13     $     1.11      $     0.91
   Income (loss) from continuing operations..........           1.04           1.13           1.05           (3.36)
   Net income (loss).................................           1.04           1.13           1.05           (3.36)
Diluted results per share of common stock:
   Income from continuing operations excluding
      realized investment losses.....................     $     1.06     $     1.09     $     1.07      $     0.91
   Income (loss) from continuing operations..........           1.01           1.09           1.01           (3.36)
   Net income (loss).................................           1.01           1.09           1.01           (3.36)
</TABLE>

<TABLE>
<CAPTION>
                                                                        Year Ended December 31, 1999
                                                          ---------------------------------------------------------
                                                             First         Second           Third         Fourth
                                                            Quarter       Quarter          Quarter        Quarter
                                                          -----------    -----------    -----------     -----------
<S>                                                       <C>            <C>            <C>             <C>
Revenues excluding realized investment losses........     $   169,162    $   157,981    $   172,575     $   166,495
Revenues.............................................         168,045        149,601        166,786         156,061
Income from continuing operations, excluding
   realized investment losses........................          20,255         20,058         20,455          20,082
Income from continuing operations....................          19,529         14,611         16,692          13,300
Net income...........................................           5,682         14,611         16,692          13,300
Basic results per share of common stock:
   Income from continuing operations excluding
      realized investment losses.....................     $     0.95     $     0.96     $     0.98      $     0.96
   Income from continuing operations.................           0.92           0.70           0.80            0.64
   Net income........................................           0.27           0.70           0.80            0.64
Diluted results per share of common stock:
   Income from continuing operations excluding
      realized investment losses.....................     $     0.92     $     0.93     $     0.95      $     0.93
   Income from continuing operations.................           0.89           0.68           0.77            0.62
   Net income........................................           0.26           0.68           0.77            0.62
</TABLE>

The results of interim periods may not be indicative of the results for the
entire year. Computations of results per share for each quarter are made
independently of results per share for the year. Due to transactions affecting
the weighted average number of shares outstanding in each quarter, the sum of
quarterly results per share does not equal results per share for the year.

In the fourth quarter of 2000, the Company liquidated a substantial majority of
the investments of its investment subsidiaries. The Company used the proceeds
from these sales to repay in full the $150.0 million of outstanding borrowings
under its $150.0 million revolving credit facility in the first quarter of 2001.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note C to the Consolidated Financial Statements. Results for the
first quarter of 1999 include a loss on the disposition of Unicover, which was
acquired in the fourth quarter of 1998. See Note Q to the Consolidated Financial
Statements and "Other Transactions."


                                      -25-
<PAGE>   27

                  DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                        AND FINANCIAL STATEMENT SCHEDULES

<TABLE>
<CAPTION>
                                                                                                               Page
                                                                                                               ----
<S>                                                                                                            <C>
Audited Consolidated Financial Statements of Delphi Financial Group, Inc. and Subsidiaries:

     Report of Independent Auditors.......................................................................       27

     Consolidated Statements of Income - Years Ended December 31, 2000, 1999 and 1998.....................       28

     Consolidated Balance Sheets - December 31, 2000 and 1999.............................................       29

     Consolidated Statements of Shareholders' Equity - Years Ended December 31, 2000, 1999 and 1998.......       30

     Consolidated Statements of Cash Flows - Years Ended December 31, 2000, 1999 and 1998.................       31

     Notes to Consolidated Financial Statements...........................................................       32


Financial Statement Schedules of Delphi Financial Group, Inc. and Subsidiaries:

     Schedule I, Summary of Investments Other Than Investments in Related Parties.........................       49

     Schedule II, Condensed Financial Information of Registrant...........................................       50

     Schedule III, Supplementary Insurance Information....................................................       54

     Schedule IV, Reinsurance.............................................................................       55

     Schedule VI, Supplemental Information Concerning Property-Casualty Insurance Operations..............       56
</TABLE>


                                      -26-
<PAGE>   28


                         REPORT OF INDEPENDENT AUDITORS


Shareholders and Directors
Delphi Financial Group, Inc.


We have audited the accompanying consolidated balance sheets of Delphi Financial
Group, Inc. and subsidiaries as of December 31, 2000 and 1999, and the related
consolidated statements of (loss) income, shareholders' equity, and cash flows
for each of the three years in the period ended December 31, 2000. Our audits
also included the financial statement schedules listed in the Index to
Consolidated Financial Statements and Financial Statement Schedules. These
financial statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Delphi
Financial Group, Inc. and subsidiaries at December 31, 2000 and 1999, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all material respects,
the information set forth therein.


                                        /s/ ERNST & YOUNG LLP

Philadelphia, Pennsylvania
February 5, 2001


                                      -27-
<PAGE>   29

                  DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF (LOSS) INCOME
                  (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                      Year Ended December 31,
                                                                         ------------------------------------------
                                                                            2000            1999           1998
                                                                         -----------    -----------     -----------
<S>                                                                      <C>            <C>             <C>
Revenue:
   Premium and fee income.............................................   $   466,357    $   485,268     $   426,874
   Net investment income..............................................       184,576        180,945         168,692
   Net realized investment (losses) gains.............................      (138,047)       (25,720)          8,060
                                                                         -----------    -----------     -----------
                                                                             512,886        640,493         603,626
                                                                         -----------    -----------     -----------
Benefits and expenses:
   Benefits, claims and interest credited to policyholders............       342,758        378,409         342,997
   Commissions........................................................        40,327         35,208          34,010
   Amortization of cost of business acquired..........................        29,726         27,467          25,758
   Other operating expenses...........................................        80,751         80,134          67,841
                                                                         -----------    -----------     -----------
                                                                             493,562        521,218         470,606
                                                                         -----------    -----------     -----------
      Income from continuing operations before interest and income tax
        (benefit) expense and dividends on Capital Securities of
        Delphi Funding L.L.C..........................................        19,324        119,275         133,020

Interest expense......................................................        21,457         18,178          17,369
                                                                         -----------    -----------     -----------

      (Loss) income from continuing operations before income tax (benefit)
        expense and dividends on Capital Securities of
        Delphi Funding L.L.C..........................................        (2,133)       101,097         115,651

Income tax (benefit) expense..........................................        (4,892)        30,913          35,797
                                                                         -----------    -----------     -----------

      Income from continuing operations before dividends on
        Capital Securities of Delphi Funding L.L.C....................         2,759         70,184          79,854

Dividends on Capital Securities of Delphi Funding L.L.C...............         6,052          6,052           6,052
                                                                         -----------    -----------     -----------

      (Loss) income from continuing operations........................        (3,293)        64,132          73,802

Discontinued operations, net of income tax (benefit) expense:
   Income from operations.............................................             -              -          13,233
   Loss on disposal...................................................             -        (13,847)             -
                                                                         -----------    -----------     ----------

      Net (loss) income...............................................   $    (3,293)   $    50,285     $    87,035
                                                                         ===========    ===========     ===========

Basic results per share of common stock:
   Income from continuing operations excluding
      realized investment (losses) gains..............................   $      4.24    $      3.85     $     3.25
   (Loss) income from continuing operations...........................         (0.16)          3.06           3.50
   Net (loss) income..................................................         (0.16)          2.40           4.13

Diluted results per share of common stock:
   Income from continuing operations excluding
      realized investment (losses) gains..............................   $      4.24    $      3.73     $     3.13
   (Loss) income from continuing operations...........................         (0.16)          2.96           3.37
   Net (loss) income..................................................         (0.16)          2.32           3.97
</TABLE>


                 See notes to consolidated financial statements.


                                      -28-
<PAGE>   30

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

<TABLE>
<CAPTION>
                                                                                              December 31,
                                                                                      -----------------------------
                                                                                           2000            1999
                                                                                      ------------     ------------
<S>                                                                                   <C>              <C>
Assets:
   Investments:
      Fixed maturity securities, available for sale ...............................   $  2,010,634     $  1,715,289
      Cash and cash equivalents....................................................         56,093          357,692
      Other investments............................................................        421,562          462,590
                                                                                      ------------     ------------
                                                                                         2,488,289        2,535,571
   Cost of business acquired.......................................................        156,556          144,172
   Reinsurance receivables.........................................................        437,844          386,229
   Other assets....................................................................        289,433          258,625
   Assets held in separate account.................................................         67,888           71,091
                                                                                      ------------     ------------
      Total assets.................................................................   $  3,440,010     $  3,395,688
                                                                                      ============     ============

Liabilities and Shareholders' Equity:
   Future policy benefits..........................................................   $    523,911     $    528,247
   Unpaid claims and claim expenses................................................        646,233          612,440
   Policyholder account balances...................................................        782,452          676,664
   Corporate debt..................................................................        267,770          283,938
   Advances from Federal Home Loan Bank............................................        149,409           75,495
   Other liabilities and policyholder funds........................................        374,292          555,904
   Liabilities related to separate account.........................................         57,750           61,583
                                                                                      ------------     ------------
      Total liabilities............................................................      2,801,817        2,794,271
                                                                                      ------------     ------------

   Company-obligated mandatorily redeemable Capital Securities of Delphi
      Funding L.L.C. holding solely junior subordinated deferrable interest
      debentures of the Company....................................................        100,000          100,000
                                                                                      ------------     ------------

   Shareholders' equity:
      Preferred Stock, $.01 par; 10,000,000 shares authorized......................              -               -
      Class A Common Stock, $.01 par; 40,000,000 shares authorized;
         16,844,982 and 16,285,161 shares issued and outstanding, respectively.....            168              163
      Class B Common Stock, $.01 par; 20,000,000 shares authorized;
         4,839,072 and 5,180,072 shares issued and outstanding, respectively.......             48               52
      Additional paid-in capital...................................................        366,834          364,390
      Net unrealized depreciation on investments...................................        (53,622)        (101,465)
      Retained earnings............................................................        274,060          277,353
      Treasury stock, at cost; 1,435,390 and 1,110,290 shares of
         Class A Common Stock, respectively........................................        (49,295)         (39,076)
                                                                                      ------------     ------------
         Total shareholders' equity................................................        538,193          501,417
                                                                                      ------------     ------------
             Total liabilities and shareholders' equity............................   $  3,440,010     $  3,395,688
                                                                                      ============     ============
</TABLE>


                 See notes to consolidated financial statements.


                                      -29-
<PAGE>   31

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

<TABLE>
<CAPTION>
                                                                         Unrealized
                                     Class A    Class B    Additional  (Depreciation)
                                     Common     Common      Paid-in     Appreciation on   Retained     Treasury
                                      Stock      Stock      Capital     Investments       Earnings       Stock        Total
                                    --------   --------    ----------   -----------       --------     --------      -------
<S>                                 <C>        <C>         <C>          <C>            <C>            <C>           <C>
Balance, January 1, 1998.........   $    129   $     62    $  262,963   $   40,545      $  205,787    $       -     $  509,486
                                                                                                                    ----------
Net income.......................          -          -             -            -          87,035            -         87,035
Decrease in net unrealized
    appreciation on investments..          -          -             -      (58,619)              -            -        (58,619)
                                                                                                                     ---------
Comprehensive income.............                                                                                       28,416

Issuance of stock, exercise of
    stock options and share
    conversions..................         15        (10)       28,542            -               -            -         28,547
Stock dividends..................          6          2        37,518            -         (37,535)           -             (9)
                                    --------   --------    ----------   ----------      ----------   ----------      ---------

Balance, December 31, 1998.......   $    150   $     54    $  329,023   $  (18,074)     $  255,287   $        -      $  566,440
                                    ========   ========    ==========   ==========      ==========   ==========      ==========

Balance, January 1, 1999.........   $    150   $     54    $  329,023   $  (18,074)     $  255,287   $        -      $  566,440
                                                                                                                     ----------
Net income.......................         -          -              -            -          50,285            -          50,285
Increase in net unrealized
   depreciation on investments...         -          -              -      (83,391)              -            -         (83,391)
                                                                                                                     -----------
Comprehensive loss...............                                                                                       (33,106)

Issuance of stock, exercise of
   stock options and share
   conversions...................          7         (4)        7,162            -               -            -           7,165
Stock dividends..................          6          2        28,205            -         (28,219)           -              (6)
Acquisition of Treasury Stock....          -          -             -            -               -      (39,076)        (39,076)
                                    --------   --------    ----------   ----------      ----------   ----------      ----------

Balance, December 31, 1999.......   $    163   $     52    $  364,390   $ (101,465)     $  277,353   $  (39,076)     $  501,417
                                    ========   ========    ==========   ==========      ==========   ==========      ==========

Balance, January 1, 2000.........   $    163   $     52    $  364,390   $ (101,465)     $  277,353   $  (39,076)     $  501,417
                                                                                                                     ----------
Net loss.........................          -          -             -            -          (3,293)           -          (3,293)
Decrease in net unrealized
   depreciation on investments...          -          -             -       47,843               -            -          47,843
                                                                                                                     ----------
Comprehensive income.............          -          -             -            -               -            -          44,550

Issuance of stock, exercise of
    stock options and share
    conversions..................          5         (4)        2,444            -               -            -           2,445
Acquisition of Treasury Stock....          -          -             -            -               -      (10,219)        (10,219)
                                    --------   --------    ----------   ----------      ----------   ----------      ----------
Balance, December 31, 2000.......   $    168   $     48    $  366,834   $  (53,622)     $  274,060   $  (49,295)     $  538,193
                                    ========   ========    ==========   ==========      ==========   ==========      ==========
</TABLE>


                 See notes to consolidated financial statements.


                                      -30-
<PAGE>   32

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

<TABLE>
<CAPTION>
                                                                                   Year Ended December 31,
                                                                         ------------------------------------------
                                                                            2000            1999           1998
                                                                         -----------    -----------     -----------
<S>                                                                      <C>            <C>             <C>
Operating activities:
   Net (loss) income..................................................   $    (3,293)   $    50,285     $    87,035
   Adjustments to reconcile net (loss) income to net cash provided
        (used) by operating activities:
      Change in policy liabilities and policyholder accounts..........        71,934         98,609          83,420
      Net change in reinsurance receivables and payables..............      (101,676)        24,209        (124,445)
      Amortization, principally the cost of business acquired
        and investments...............................................         5,730         (4,375)        (41,137)
      Deferred costs of business acquired.............................       (51,840)       (41,781)        (36,367)
      Net realized losses (gains) on investments......................       138,047         25,720          (8,060)
      Net change in trading account securities........................       (15,957)       (23,830)         20,513
      Net change in federal income tax liability......................          (107)         2,319         (36,171)
      Discontinued operations.........................................             -         13,847         (13,233)
      Other...........................................................       (30,434)       (24,122)        (13,689)
                                                                         -----------    -----------     -----------
        Net cash provided (used) by operating activities..............        12,404        120,881         (82,134)
                                                                         -----------    -----------     -----------
Investing activities:
   Purchases of investments and loans made............................    (1,017,372)    (1,891,063)     (3,169,570)
   Sales of investments and receipts from repayment of loans..........       473,467      1,888,006       3,520,827
   Maturities of investments..........................................        72,494         89,134          38,798
   Sale of real estate................................................        16,656              -               -
   Business acquisitions, net of cash acquired........................        (2,610)        (8,993)        (11,803)
   Disposition (acquisition) of discontinued operations...............             -         20,968         (21,581)
   Change in deposit in separate account..............................          (631)        (1,467)          1,261
                                                                         -----------    -----------     -----------
        Net cash (used) provided by investing activities..............      (457,996)        96,585         357,932
                                                                         -----------    -----------     -----------
Financing activities:
   Deposits to policyholder accounts..................................       164,203         81,729          50,485
   Withdrawals from policyholder accounts.............................       (83,376)       (68,877)        (83,388)
   Proceeds from issuance of common stock
      and exercise of stock options...................................         2,445          2,177           1,572
   Acquisition of Treasury Stock......................................       (10,219)       (39,076)              -
   Borrowings under Credit Agreements.................................        19,000        142,000         139,000
   Principal payments under Credit Agreements.........................       (26,000)      (114,000)        (58,000)
   Principal payment under SIG Senior Notes...........................        (9,000)        (9,000)              -
   Change in liability for Federal Home Loan Bank advances............        73,500              -        (125,000)
   Change in liability for securities loaned or sold under agreements
      to repurchase...................................................        13,440       (153,570)         47,796
                                                                         -----------    -----------     -----------
        Net cash provided (used) by financing activities..............       143,993       (158,617)        (27,535)
                                                                         -----------    -----------     -----------
(Decrease) increase in cash and cash equivalents......................      (301,599)        58,849         248,263
Cash and cash equivalents at beginning of year........................       357,692        298,843          50,580
                                                                         -----------    -----------     -----------
      Cash and cash equivalents at end of year........................   $    56,093    $   357,692     $   298,843
                                                                         ===========    ===========     ===========
</TABLE>


                 See notes to consolidated financial statements.


                                      -31-
<PAGE>   33

                  DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2000

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation. The consolidated financial statements include the
accounts of Delphi Financial Group, Inc. ("DFG") and all of its wholly-owned
subsidiaries, including, among others, Reliance Standard Life Insurance Company
("RSLIC"), Safety National Casualty Corporation ("SNCC"), First Reliance
Standard Life Insurance Company ("FRSLIC"), Reliance Standard Life Insurance
Company of Texas ("RSLIC-Texas"), and Matrix Absence Management, Inc.
("Matrix"). The term "Company" shall refer herein collectively to DFG and its
subsidiaries, unless the context indicates otherwise. All significant
intercompany accounts and transactions have been eliminated. Certain
reclassifications have been made in the 1999 and 1998 consolidated financial
statements to conform with the 2000 presentation. As of December 31, 2000, Mr.
Robert Rosenkranz, Chairman of the Board, President and Chief Executive Officer
of DFG, by means of beneficial ownership of the corporate general partner of
Rosenkranz & Company, an irrevocable proxy and direct or beneficial ownership,
had the power to vote all of the outstanding shares of Class B Common Stock,
which represents 49.9% of the voting power of the Company's common stock.

Nature of Operations. The Company manages all aspects of employee absence to
enhance the productivity of its clients and provides the related insurance
coverages: short-term and long-term disability, primary and excess workers'
compensation, group life and travel accident. The Company's asset accumulation
business emphasizes individual annuity products. The Company offers its products
and services in all fifty states and the District of Columbia. The Company's two
reportable segments are group employee benefit products and asset accumulation
products. The Company's reportable segments are strategic operating divisions
that offer distinct types of products with different marketing strategies. The
Company evaluates the performance of its segments on the basis of income from
continuing operations excluding realized investment gains and losses and before
interest and income tax expense and dividends on Capital Securities of Delphi
Funding L.L.C. The accounting policies of the Company's segments are the same as
those used in the consolidated financial statements.

Use of Estimates. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates.

Investments. Fixed maturity securities available for sale are carried at fair
value with unrealized appreciation and depreciation included as a component of
shareholders' equity, net of the related income tax benefit or expense. Other
investments consist primarily of trading account securities, equity
securities and amounts receivable from investment sales. Trading account
securities include bonds, common stocks and preferred stocks and are carried at
fair value with unrealized appreciation and depreciation included in income.
Interest income, dividend income and realized gains and losses from trading
account securities are also included in income. Equity securities are carried
at fair value with unrealized appreciation or depreciation included as a
component of shareholders' equity, net of the related income tax benefit or
expense. Net realized investment gains and losses on investment sales are
determined under the specific identification method and are included in income.
Declines in the fair value of investments which are considered to be other
than temporary are reported as realized losses.

Cost of Business Acquired. Costs relating to the acquisition of new insurance
business, such as commissions and policy issuance costs, are deferred when
incurred. For certain asset accumulation products, these costs are amortized in
relation to the incidence of expected gross profits over the life of the
policies and products. Deferred acquisition costs for life, accident and health
and workers' compensation insurance policies are amortized over the
premium-paying period or the expected life of the related policies. The present
value of estimated future profits ("PVFP"), which was recorded in connection
with the acquisition of RSLIC and FRSLIC in 1987, is included in cost of
business acquired. The PVFP related to annuities is subject to accrual of
interest on the unamortized balance at the credited rate and amortization is a
constant percentage of the present value of estimated future gross profits on
the business. Amortization of the PVFP for group life and disability insurance
is at the discount rate established at the time of the acquisition.


                                      -32-
<PAGE>   34

                  DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                DECEMBER 31, 2000


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)

Receivables from Reinsurers. Receivables from reinsurers for future policy
benefits, unpaid claims and claim expenses and policyholder account balances are
estimated in a manner consistent with the related liabilities associated with
the reinsured policies.

Separate Account. The separate account assets and liabilities represent funds
invested in a separately administered variable life insurance product for which
the policyholder, rather than the Company, bears the investment risk. The excess
of separate account assets over the related liabilities represents the Company's
deposit in the separate account which is maintained to support the operation of
the separate account program. The Company receives a proportionate share of the
income or loss earned by the assets of the separate account, which it generally
reinvests in the separate account.

Future Policy Benefits. The liabilities for future policy benefits for
traditional nonparticipating business, excluding annuity business, have been
computed using a net level method. Mortality, withdrawals and other assumptions
are based either on the Company's past experience or various actuarial tables,
modified as necessary for possible variations. Changes in these assumptions
could result in changes in these liabilities.

Unpaid Claims and Claim Expenses. The liability for unpaid claims and claim
expenses includes amounts determined on an individual basis for reported losses
and estimates of incurred but not reported losses developed on the basis of past
experience. The methods of making these estimates and establishing the resulting
reserves are continually reviewed and updated, with any resulting adjustments
reflected in earnings currently. At December 31, 2000, reserves with a carrying
value of $491.3 million have been discounted at rates ranging from 3.7% to 7.5%.

Policyholder Account Balances. Policyholder account balances are comprised of
the Company's reserves for interest-sensitive insurance products, including
annuities. Reserves for annuity products are equal to the policyholder's
accumulated value at any point in time.

Income Taxes. RSLIC-Texas and RSLIC are taxed as life insurance companies and
file a consolidated federal tax return. FRSLIC does not qualify as a life
insurance company for federal income tax purposes and files a separate federal
tax return. DFG, SNCC and the non-insurance subsidiaries of the Company file as
a separate subgroup. The Company computes a balance sheet amount for deferred
income taxes, which is included in other assets or other liabilities, at the
rates expected to be in effect when the underlying differences will be reported
in the Company's income tax returns.

Premium Recognition. The Company's group insurance products consist primarily of
short-duration contracts, and, accordingly, premiums for these products are
reported as earned over the contract period. Deposits for asset accumulation
products are not recorded as premiums; instead the deposits are recorded as a
liability, since these products generally do not involve mortality or morbidity
risk.

Statements of Cash Flows. For purposes of the Statements of Cash Flows, the
Company defines cash equivalents as highly liquid debt instruments purchased
with maturities of three months or less.

Recently Adopted Accounting Standards. In June 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards ("SFAS") No.
133, "Accounting for Derivative Instruments and Hedging Activities," as amended,
which is required to be adopted in fiscal years beginning after June 15, 2000.
SFAS No. 133 will require all derivatives to be recognized on the balance sheet
at fair value. Derivatives that are not hedges must be adjusted to fair value
through earnings. If a derivative is a hedge, depending on the nature of the
hedge, changes in fair value of the derivative will either be offset against the
change in fair value of the hedged item through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
portion of a derivative's change in fair value not effective as a hedge will be
immediately recognized in earnings. The Company adopted SFAS No. 133 effective
January 1, 2001. Because the Company had no material derivative positions
outstanding at this time, the impact on the Company's financial position and
results of operations was not material.


                                      -33-
<PAGE>   35

                  DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                DECEMBER 31, 2000


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)

In September 2000, the Financial Accounting Standards Board issued SFAS No. 140,
"Accounting for Transfers of Financial Assets and Extinguishments of
Liabilities," that replaces SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities". This standard
revises the accounting for securitizations, other financial asset transfers and
collateral associated with securities lending transactions and requires certain
additional disclosures. SFAS No. 140 is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after March 31,
2001. However, for recognition and disclosure of collateral and for additional
disclosures related to securitization transactions, SFAS No. 140 was effective
for the Company's December 31, 2000 financial statements. The adoption of those
provisions effective in 2000 did not have a material effect on the Company's
financial position or results of operations. The Company does not expect the
adoption of those provisions effective after March 31, 2001 to have a material
effect on its financial position or results of operations.

In 1998, the National Association of Insurance Commissioners (the "NAIC")
approved a codification of statutory accounting principles, which became
effective on January 1, 2001, and serves as a comprehensive and standardized
statement of statutory accounting principles. The adoption of the codification
will change, to some extent, the accounting practices that the Company's
insurance subsidiaries will use to prepare their statutory financial statements;
however, the Company does not believe that such changes will have a material
adverse impact on the statutory financial condition of any of these
subsidiaries.


NOTE B - ACQUISITIONS

On June 30, 1998, the Company acquired Matrix, a provider of integrated
disability and absence management services to the employee benefits market. The
purchase price of $33.8 million consisted of 409,424 shares of the Company's
Class A Common Stock, $7.9 million of cash and $5.7 million of notes payable.
Additional consideration of up to $5.2 million in cash is payable if Matrix's
earnings meet specified targets over the four-year period subsequent to the
acquisition. During 2000, the Company paid $2.6 million of the contingent
consideration which was due with respect to the initial two-year period. The
Matrix acquisition was accounted for using the purchase accounting method, and
the results of Matrix were included in the Company's results from June 30, 1998,
the date of the acquisition. Goodwill recorded in connection with the Matrix
acquisition is being amortized on a straight-line basis over 25 years.

The consideration for the 1996 acquisition of SIG Holdings, Inc. ("SIG") and its
subsidiary, SNCC, included contingent consideration of up to $20.0 million if
SIG met specified earnings targets subsequent to the merger. SIG met all of the
specified earnings targets, and, accordingly, the Company paid the $20.0 million
of contingent consideration in two installments as follows: $6.9 million of cash
and 63,000 shares of the Company's Class A Common Stock in 1998 and $9.0 million
of cash and 30,000 shares of the Company's Class A Common Stock in 1999.


                                      -34-
<PAGE>   36

                  DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                DECEMBER 31, 2000


NOTE C - INVESTMENTS

The amortized cost and fair value of investments in fixed maturity securities
available for sale are as follows:

<TABLE>
<CAPTION>
                                                                              December 31, 2000
                                                        -----------------------------------------------------------
                                                                            Gross           Gross
                                                           Amortized     Unrealized     Unrealized        Fair
                                                             Cost           Gains          Losses          Value
                                                        -------------    -----------    -----------    ------------
                                                                           (dollars in thousands)
<S>                                                     <C>              <C>            <C>            <C>
   Mortgage-backed securities........................   $     599,285    $     3,449    $   (31,075)   $    571,659
   Corporate securities..............................         883,503          7,525        (56,639)        834,389
   U.S. Treasury and other U.S. Government
      guaranteed securities..........................         286,683          2,525         (9,728)        279,480
   Obligations of U.S. states, municipalities and
      political subdivisions.........................         302,541          3,554        (10,903)        295,192
   Securities sold under agreements to repurchase....          31,213              2         (1,301)         29,914
                                                        -------------    -----------    -----------    ------------
      Total fixed maturity securities................   $   2,103,225    $    17,055    $  (109,646)   $  2,010,634
                                                        =============    ===========    ===========    ============
</TABLE>

<TABLE>
<CAPTION>
                                                                              December 31, 1999
                                                        ---------------------------------------------------------
                                                                            Gross           Gross
                                                           Amortized     Unrealized     Unrealized         Fair
                                                             Cost           Gains          Losses          Value
                                                        -------------    -----------    -----------      ---------
                                                                            (dollars in thousands)
<S>                                                     <C>              <C>            <C>              <C>
   Mortgage-backed securities........................   $     564,274    $    16,826    $   (71,845)     $  509,255
   Corporate securities..............................         583,743          2,544        (58,102)        528,185
   U.S. Treasury and other U.S. Government
      guaranteed securities..........................         305,751          5,621        (41,124)        270,248
   Obligations of U.S. states, municipalities and
      political subdivisions.........................         418,128         12,533        (39,038)        391,623
   Securities sold under agreements to repurchase....          18,110              -         (2,132)         15,978
                                                        -------------    -----------    -------------     --------
      Total fixed maturity securities................   $  1,890,006     $    37,524    $  (212,241)     $1,715,289
                                                        ============     ===========    ===========      ==========
</TABLE>

The amortized cost and fair value of fixed maturity securities available for
sale at December 31, 2000, by contractual maturity are shown below. Expected
maturities will differ from contractual maturities because issuers may have the
right to call or prepay obligations, with or without prepayment penalties.

<TABLE>
<CAPTION>
                                                                                          Amortized          Fair
                                                                                            Cost          Value
                                                                                       ------------    ------------
                                                                                          (dollars in thousands)
<S>                                                                                    <C>             <C>
    Mortgage-backed securities......................................................   $    611,450    $    583,187
    Other securities:
       Less than one year...........................................................        126,055         125,269
       Greater than 1, up to 5 years................................................        283,937         278,740
       Greater than 5, up to 10 years...............................................        341,763         315,185
       Greater than 10 years........................................................        740,020         708,253
                                                                                       ------------    ------------
          Total.....................................................................   $  2,103,225    $  2,010,634
                                                                                       ============    ============
</TABLE>


                                      -35-
<PAGE>   37

                  DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                DECEMBER 31, 2000


NOTE C - INVESTMENTS - (CONTINUED)

Net investment income was attributable to the following:

<TABLE>
<CAPTION>
                                                                                   Year Ended December 31,
                                                                         ------------------------------------------
                                                                            2000            1999           1998
                                                                         -----------    -----------     -----------
                                                                                  (dollars in thousands)
<S>                                                                      <C>            <C>             <C>
   Gross investment income:
      Fixed maturity securities.......................................   $   161,973    $   151,738     $   183,828
      Other...........................................................        37,607         46,593             297
                                                                         -----------    -----------     -----------
                                                                             199,580        198,331         184,125
   Less: Investment expenses..........................................        15,004         17,386          15,433
                                                                         -----------    -----------     -----------
                                                                         $   184,576    $   180,945     $   168,692
                                                                         ===========    ===========     ===========
</TABLE>

Net realized investment (losses) gains arose from the following:

<TABLE>
<CAPTION>
                                                                                   Year Ended December 31,
                                                                         ------------------------------------------
                                                                            2000            1999           1998
                                                                         -----------    -----------     -----------
                                                                                  (dollars in thousands)
<S>                                                                      <C>            <C>             <C>
   Fixed maturity securities..........................................   $  (103,318)   $   (14,792)    $    45,273
   Other investments..................................................       (34,729)       (10,928)        (37,213)
                                                                         -----------    -----------     -----------
                                                                         $  (138,047)   $   (25,720)    $     8,060
                                                                         ===========    ===========     ===========
</TABLE>

Proceeds from sales of fixed maturity securities during 2000, 1999 and 1998 were
$581.6 million, $1,652.5 million and $3,381.3 million, respectively. Gross gains
of $8.9 million, $19.8 million and $98.2 million and gross losses of $49.2
million, $34.6 million and $52.9 million, respectively, were realized on those
sales. The net losses realized on fixed maturity securities also include a $4.5
million provision for the permanent impairment in the value of certain
securities and $58.5 million of losses on closed U.S. Treasury futures and
options contracts, which were used to reduce the risk associated with changes in
the value of the Company's fixed maturity portfolio. The fair value of these
contracts declined during 2000 due to a decrease in market interest rates. The
market value of the Company's fixed maturity portfolio did not correspondingly
increase due to a widening of the spread between yields on corporate and other
non-government fixed maturity securities and yields on U.S. Treasury securities,
which resulted from extraordinary market conditions. Sales of fixed maturity
securities and gross gains and losses from such sales do not include sales of
securities classified as trading account securities. In 2000, losses realized on
other investments include $40.7 million of losses associated with trading
account securities.

The Company, at times, enters into futures and option contracts and interest
rate swap agreements in connection with its investment strategy in order to
profit from short-term differences in price. These positions are carried at fair
value with gains and losses included in income. The Company recognized net
investment (losses) income of $(5.5) million and $3.0 million in 2000 and 1999,
respectively, and net realized investment losses of $0.8 million and $14.0
million in 2000 and 1999, respectively, related to these instruments. The
Company had no material outstanding futures and option contracts and interest
rate swap agreements at December 31, 2000.

The change in unrealized depreciation on investments, primarily fixed maturity
securities, included as a component of shareholders' equity was as follows:

<TABLE>
<CAPTION>
                                                                                   Year Ended December 31,
                                                                         ------------------------------------------
                                                                            2000            1999           1998
                                                                         -----------    -----------     -----------
                                                                                   (dollars in thousands)
<S>                                                                      <C>            <C>             <C>
   Gross change in unrealized depreciation on investments (1).........   $   (18,700)   $  (100,109)    $   (53,380)
   Less:  Reclassification adjustment for (losses) gains
      included in net income (2)......................................       (66,543)       (16,718)          5,239
                                                                         -----------    ------------    -----------
   Net change in unrealized depreciation on investments...............   $    47,843    $   (83,391)    $   (58,619)
                                                                         ===========    ===========     ===========
</TABLE>

(1) Net of tax benefit of $10.1 million, $53.9 million and $28.7 million,
    respectively.

(2) Net of tax (benefit) expense of $(35.8) million, $(9.0) million and $2.8
    million, respectively.


                                      -36-
<PAGE>   38

                  DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                DECEMBER 31, 2000


NOTE C - INVESTMENTS - (CONTINUED)

Unrealized (losses) gains on trading securities included in net investment
income totaled $(4.5) million, $5.4 million and $(14.3) million for 2000, 1999
and 1998, respectively.

Bonds and short-term investments with amortized costs of $32.2 million and $30.0
million at December 31, 2000 and 1999, respectively, are on deposit with various
states' insurance departments in compliance with statutory requirements.
Additionally, certain assets of the Company are restricted under the terms of
annuity reinsurance agreements. These agreements provide for the distribution of
assets to the reinsured companies covered under the agreements prior to any
general distribution to policyholders in the event of the Company's insolvency
or bankruptcy. The amount of assets restricted for this purpose was $81.1
million and $95.7 million at December 31, 2000 and 1999, respectively.

The Company maintains a securities lending program under which certain
securities from its portfolio are loaned to other institutions for short periods
of time. The collateral received for securities loaned is recorded at the fair
value of the collateral, which is generally in an amount in excess of the market
value of the securities loaned. The Company monitors the market value of the
securities loaned and obtains additional collateral as necessary. Amounts
related to this program were not material as of December 31, 2000 and 1999.

Other investments at December 31, 2000 and 1999 include trading securities of
$90.1 million and $308.0 million, respectively. To reduce its potential loss
exposure, the Company has entered into short positions relating to certain of
these securities. The liability for short positions related to the Company's
trading portfolio totaled $61.5 million and $198.7 million at December 31, 2000
and 1999, respectively, and is included in other liabilities and policyholder
funds on the balance sheet. Other investments also include equity securities of
$46.5 million and $55.5 million, respectively, at December 31, 2000 and 1999,
and amounts receivable from investment sales of $214.9 million and $19.8
million, respectively, at December 31, 2000 and 1999.

As of December 31, 2000 and 1999, approximately 23% and 21%, respectively, of
the Company's total invested assets were comprised of mortgage-backed
securities. The Company's mortgage-backed securities are diversified with
respect to size and geographic distribution of the underlying mortgage loans.
The Company also invests in certain non-investment grade securities as
determined by nationally recognized statistical rating agencies. Non-investment
grade securities included in fixed maturity securities had fair values of $166.2
million and $132.0 million at December 31, 2000 and 1999, respectively. Trading
account securities included additional non-investment grade fixed maturity
securities with fair values of $11.1 million and $67.0 million at December 31,
2000 and 1999, respectively. In the aggregate, non-investment grade securities
constituted 7% and 8% of total invested assets at December 31, 2000 and 1999,
respectively.

The fair value of the Company's investment in the securities of any one issuer
or securities backed by a single pool of assets, excluding U.S. Government
obligations, whose value represented 10% or more of shareholders' equity at
December 31, 2000 was as follows: Tersk LLC - $88.2 million and Bankers Trust
Corporation Secured Portfolio Notes, Series 1998-1 - $78.6 million. The
Company's investment in Tersk LLC consisted of redeemable preferred securities
of $80.1 million and common securities of $8.1 million at December 31, 2000. The
Bankers Trust notes, which are classified as available for sale corporate
securities, are privately-placed structured notes maturing in 2008 having a
variable crediting rate which is linked, on an amortizing basis over the term of
the notes, to the actual investment performance of a special purpose entity
which owns investments in a diversified portfolio of investment vehicles of
independent investment managers.


                                      -37-
<PAGE>   39

                  DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                DECEMBER 31, 2000

NOTE D - ACCIDENT AND HEALTH AND CASUALTY FUTURE POLICY BENEFITS AND UNPAID
CLAIMS AND CLAIM EXPENSES

The following table provides a reconciliation of the beginning and ending
accident and health and casualty future policy benefits and unpaid claims and
claim expenses:

<TABLE>
<CAPTION>
                                                                                   Year Ended December 31,
                                                                         -----------------------------------------
                                                                            2000            1999           1998
                                                                         -----------    -----------     ----------
                                                                                   (dollars in thousands)
<S>                                                                      <C>            <C>             <C>
Balance at beginning of year, net of reinsurance......................   $   655,179    $   595,811     $   650,019
Add:
   Provisions for claims and claim expenses incurred in the
      current year, net of reinsurance................................       201,062        210,158         176,154
   Decrease in estimated claims and claim expenses incurred
      in prior years, net of reinsurance..............................        (7,003)        (5,783)         (6,658)
                                                                         -----------    -----------     -----------
   Incurred claims and claim expenses during the current
      year, net of reinsurance........................................       194,059        204,375         169,496
                                                                         -----------    -----------     -----------
Deduct claims and claim expenses paid, net of reinsurance,
      occurring during:
      Current year....................................................        50,290         46,017          35,669
      Prior year......................................................       141,383         98,990         188,035
                                                                         -----------    -----------     -----------
                                                                             191,673        145,007         223,704
                                                                         -----------    -----------     -----------
Balance at end of year, net of reinsurance............................       657,565        655,179         595,811
Reinsurance receivables at end of year................................       276,275        230,652         200,021
                                                                         -----------    -----------     -----------
   Balance at end of year, gross of reinsurance.......................   $   933,840    $   885,831     $   795,832
                                                                         ===========    ===========     ===========
</TABLE>


NOTE E - CORPORATE DEBT

In June 2000, the Company entered into an additional revolving credit facility
with a group of lenders. The amount of this facility was $80.0 million at
December 31, 2000. This facility may be increased up to a total of $100 million
at the Company's option if additional loan commitments are obtained. This
facility is subject to certain restrictions and financial covenants, which are
substantially identical to those contained in the Company's existing revolving
credit facility. At December 31, 2000, the Company had no outstanding borrowings
under the additional facility and $150.0 million outstanding under its existing
facility; accordingly, the Company's available additional borrowing capacity was
$80.0 million. At December 31, 1999 the Company had outstanding borrowings of
$157 million under its revolving credit facility. The borrowings under the
existing and additional revolving credit facilities (collectively, the "Credit
Agreements") accrue interest at floating rates which are indexed to various
published interest indices, and non-use fees are charged on any unused portions
of the commitments. During 2000, the maximum amount of borrowings available
under the $150.0 million revolving credit facility was reduced from $180.0
million and will continue to be reduced in accordance with the contractual
schedule to the following amounts in October of each year: 2001 - $110.0 million
and 2002 - $60.0 million. During the first quarter of 2001, the Company repaid
in full the $150.0 million of outstanding borrowings under the $150.0 million
revolving credit facility. The final maturity of the Credit Agreements is on
April 1, 2003. The Credit Agreements are secured pro rata by a security interest
in all of the common stock of RSLIC-Texas, the issued and outstanding common
stocks of substantially all of the Company's non-insurance subsidiaries and, on
a subordinated basis, the common stock of SNCC. The debt is also subject to
certain restrictions and financial covenants considered ordinary for this type
of borrowing. They include, among others, the maintenance of certain financial
ratios, minimum statutory surplus requirements for RSLIC and SNCC, minimum
consolidated equity requirements for the Company and certain investment and
dividend and stock repurchase limitations. As of December 31, 2000, the Company
was in compliance in all material respects with the restrictions and covenants
in the Credit Agreements.


                                      -38-
<PAGE>   40

                  DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                DECEMBER 31, 2000


NOTE E - CORPORATE DEBT - (CONTINUED)

The Company's $85.0 million of 8.0% Senior Notes due 2003 (the "Senior Notes")
are senior unsecured obligations of the Company and, as such, are effectively
subordinated to all existing and future obligations of the Company's
subsidiaries, including the insurance subsidiaries' obligations to
policyholders. The Senior Notes are not redeemable prior to maturity or entitled
to any sinking fund. In certain instances, holders of the Senior Notes have the
right to require the Company to repurchase any or all of the Senior Notes owned
by such holders at 101% of the principal amount thereof, plus accrued and unpaid
interest. The terms of the indenture pursuant to which the Senior Notes were
issued contain certain covenants and restrictions which set forth, among other
things, limitations on incurrence of indebtedness by the Company and its
subsidiaries, limitations on payments of dividends on and repurchases of stock
of the Company and limitations on transactions with stockholders and affiliates.
As of December 31, 2000, the Company was in compliance in all material respects
with the terms of the indenture.

In 1996, the Company assumed $45.0 million of SIG's 8.5% senior secured notes
(the "SIG Senior Notes") which are collateralized by all of the common stock of
SNCC. The SIG Senior Notes began maturing in $9.0 million annual installments in
1999 with a final maturity in May 2003 and have an outstanding principal balance
of $27.0 million at December 31, 2000. The terms of the note agreement pursuant
to which the SIG Senior Notes were issued contain certain covenants and
restrictions which set forth, among others, minimum statutory surplus
requirements for SNCC, minimum consolidated equity requirements for SIG, as well
as the maintenance of certain financial ratios. As of December 31, 2000, SIG was
in compliance in all material respects with the terms of the note agreement.

In conjunction with the acquisition of Matrix, the Company issued $5.7 million
of 8% subordinated notes due 2003 (the "Subordinated Notes"). The Subordinated
Notes are unsecured obligations of the Company, and payments of principal and
interest on the notes are subordinated to all of the Company's senior debt
obligations.

Interest paid by the Company on its corporate debt totaled $21.0 million, $17.9
million and $17.0 million during 2000, 1999 and 1998, respectively.


NOTE F - ADVANCES FROM THE FEDERAL HOME LOAN BANK

The Company, through its life insurance subsidiaries, maintains a program in
which various investments were financed using advances from the Federal Home
Loan Banks of Pittsburgh and Dallas (collectively, the "FHLB"). As of December
31, 2000 and 1999, advances from the FHLB, including accrued interest, totaled
$149.4 million and $75.5 million, respectively. Interest expense on the advances
is included as an offset to investment income on the financed securities. The
average interest rate on the outstanding advances was 7.5% and 7.8% at December
31, 2000 and 1999, respectively. The advances, of which $130.0 million were
issued at a fixed rate and $18.5 million were issued at a variable rate, have a
weighted average term of 9.2 years at December 31, 2000. These advances are
collateralized by fixed maturity securities with a fair value of $179.2 million.


NOTE G - INCOME TAXES

Income tax (benefit) expense is reconciled to the amount computed by applying
the statutory federal income tax rate to income from continuing operations
before income tax (benefit) expense as follows:

<TABLE>
<CAPTION>
                                                                                   Year Ended December 31,
                                                                           --------------------------------------
                                                                             2000            1999           1998
                                                                           --------    -----------     ----------
                                                                                   (dollars in thousands)
<S>                                                                        <C>           <C>             <C>
   Federal income tax (benefit) expense at statutory rate ............     $    (744)    $   35,386      $  40,478
   Dividends received deduction and tax-exempt income.................        (6,160)        (7,185)        (6,264)
   Other..............................................................         2,012          2,712          1,583
                                                                           ---------      ---------      ---------
                                                                           $  (4,892)     $  30,913      $  35,797
                                                                           =========      =========      =========
</TABLE>


                                      -39-
<PAGE>   41

                  DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                DECEMBER 31, 2000


NOTE G - INCOME TAXES - (CONTINUED)

All of the Company's current and deferred income tax (benefit) expense is due to
federal income taxes as opposed to state income taxes.

Deferred tax assets and liabilities are determined based on the difference
between the book basis and tax basis of assets and liabilities using tax rates
in effect for the year in which the differences are expected to reverse. The
components of the net deferred tax liability (asset) are as follows:

<TABLE>
<CAPTION>
                                                                                               December 31,
                                                                                        ---------------------------
                                                                                            2000           1999
                                                                                        -----------     -----------
                                                                                          (dollars in thousands)
<S>                                                                                     <C>             <C>
Cost of business acquired............................................................   $    43,622     $    34,802
Future policy benefits and unpaid claims and claim expenses..........................        26,648          23,025
Other................................................................................         2,522           1,411
                                                                                        -----------     -----------
    Gross deferred tax liabilities...................................................        72,792          59,238
                                                                                        -----------     -----------
Future policy benefits and unpaid claims and claim expenses..........................        (8,789)         (7,165)
Investments..........................................................................       (24,872)        (50,957)
Other liabilities....................................................................        (8,545)        (13,115)
Cost of business acquired and other..................................................        (8,257)         (4,307)
                                                                                        -----------     -----------
    Gross deferred tax assets........................................................       (50,463)        (75,544)
                                                                                        -----------     -----------
    Net deferred tax liability (asset)...............................................   $    22,329     $   (16,306)
                                                                                        ===========     ===========
Deferred tax expense.................................................................   $    12,656     $    21,431
                                                                                        ===========     ===========
</TABLE>

Current tax (benefit) expense, current tax recoverable and income taxes paid and
refunded are as follows:

<TABLE>
<CAPTION>
                                                                                 As of or for the Year Ended
                                                                                        December 31,
                                                                         ------------------------------------------
                                                                            2000            1999           1998
                                                                         -----------    -----------     -----------
                                                                                   (dollars in thousands)
<S>                                                                      <C>            <C>             <C>
Current tax (benefit) expense.........................................   $   (20,807)   $     6,223     $    49,974
Current tax recoverable...............................................        41,038         28,179             140
Income taxes paid.....................................................        20,734         29,549          69,619
Income tax refunds....................................................        29,722              -           1,084
</TABLE>


NOTE H - PRESENT VALUE OF FUTURE PROFITS

A summary of the activity related to the PVFP asset, which is included in cost
of business acquired on the consolidated balance sheet, is shown below:

<TABLE>
<CAPTION>
                                                                                   Year Ended December 31,
                                                                         ------------------------------------------
                                                                            2000            1999           1998
                                                                         -----------    -----------     -----------
                                                                                   (dollars in thousands)
<S>                                                                      <C>            <C>             <C>
Balance at beginning of year.........................................    $    18,422    $    19,504     $    21,612
    Interest accrued.................................................            337            347             317
    Amortization.....................................................         (3,056)        (1,429)         (2,425)
                                                                         -----------    -----------     -----------
Balance at end of year...............................................    $    15,703    $    18,422     $    19,504
                                                                         ===========    ===========     ===========
</TABLE>

An estimate of the percentage of the December 31, 2000 PVFP balance to be
amortized over each of the next five years is as follows: 2001 - 16%, 2002 -
16%, 2003 - 15%, 2004 - 14% and 2005-13%.


                                      -40-
<PAGE>   42

                  DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                DECEMBER 31, 2000


NOTE I - FAIR VALUES OF FINANCIAL INSTRUMENTS

The fair values of the Company's financial instruments are shown below. Because
fair values for all balance sheet items are not required to be disclosed by SFAS
No. 107, "Disclosures about Fair Value of Financial Instruments," the aggregate
fair value amounts presented below do not necessarily represent the underlying
value of the Company.

<TABLE>
<CAPTION>
                                                                                December 31,
                                                        -----------------------------------------------------------
                                                                    2000                          1999
                                                        ----------------------------   ----------------------------
                                                          Carrying          Fair          Carrying        Fair
                                                            Value           Value           Value         Value
                                                        -------------   ------------   ------------    ------------
                                                                           (dollars in thousands)
<S>                                                     <C>             <C>            <C>             <C>
Assets:
   Fixed maturity securities, available for sale......  $   2,010,634   $  2,010,634   $  1,715,289    $  1,715,289
   Cash and cash equivalents..........................         56,093         56,093        357,692         357,692
   Other investments..................................        421,562        421,562        462,590         462,590
   Assets held in separate account....................         67,888         67,888         71,091          71,091

Liabilities:
   Policyholder account balances......................        684,344        684,379        594,769         597,528
   Corporate debt.....................................        267,770        265,455        283,938         280,677
   Advances from Federal Home Loan Bank...............        149,409        160,366         75,495          78,247
   Securities loaned or sold under agreements to
      repurchase......................................         29,025         29,025         15,602          15,602
   Securities sold, not yet purchased.................         61,526         61,526        205,725         205,725
   Liabilities related to separate account............         57,750         57,750         61,583          61,583
</TABLE>

The fair values for fixed maturity securities have been obtained from
broker-dealers, nationally recognized statistical organizations and, in the case
of certain structured notes, by reference to the fair values of the underlying
investments. The carrying values for all other invested assets approximate fair
values based on the nature of the investments. The carrying values of separate
account assets and liabilities are equal to fair value.

Policyholder account balances are net of reinsurance receivables and the
carrying values have been decreased for related acquisition costs of $55.9
million and $57.8 million at December 31, 2000 and 1999, respectively. Fair
values for policyholder account balances were determined by deducting an
estimate of the future profits to be realized from the business, discounted at a
current interest rate, from the adjusted carrying values.

The Company believes the fair value of its variable rate long-term debt is equal
to its carrying value. The Company pays a variable rate of interest on the debt
which reflects changed market conditions since the time the terms were
negotiated. The fair values of the Senior Notes, the SIG Senior Notes and the
Subordinated Notes are based on the expected cash flows discounted to net
present value. The fair values for advances from the FHLB were calculated using
discounted cash flow analyses based on the interest rates for the advances at
the balance sheet date. The carrying value of the liability for securities
loaned or sold under agreements to repurchase approximates fair value as the
liability is very short-term in nature. The carrying value of securities sold,
not yet purchased is equal to fair value.


NOTE J - CAPITAL SECURITIES OF DELPHI FUNDING L.L.C.

In 1997, Delphi Funding L.L.C. ("Delphi Funding"), a subsidiary of the Company,
issued $100.0 million liquidation amount of 9.31% Capital Securities, Series A
(the "Capital Securities") in a public offering. In connection with the issuance
of the Capital Securities and the related purchase by the Company of all of the
common limited liability company interests in Delphi Funding, the Company issued
to Delphi Funding $103.1 million principal amount of 9.31% junior subordinated
deferrable interest debentures, Series A, due 2027 (the "Junior Debentures").
Interest on the Junior Debentures is payable semiannually, but may, subject to
certain exceptions, be deferred at any time or from time to time


                                      -41-
<PAGE>   43

                  DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                DECEMBER 31, 2000


NOTE J - CAPITAL SECURITIES OF DELPHI FUNDING L.L.C. - (CONTINUED)

for a period not exceeding five years with respect to each deferral period, in
which event distributions on the Capital Securities will also be deferred and
the Company will not be permitted to pay cash dividends or make payments on any
junior indebtedness. No interest payments on the Junior Debentures have been
deferred since their issuance. The distribution and other payment dates on the
Capital Securities correspond to the interest and other payment dates on the
Junior Debentures. The Junior Debentures are not redeemable prior to March 25,
2007, but the Company has the right to dissolve Delphi Funding at any time and
distribute the Junior Debentures to the holders of the Capital Securities.
Pursuant to the related transaction documents, the Company has, on a
subordinated basis, guaranteed all payments due on the Capital Securities.


NOTE K - SHAREHOLDERS' EQUITY AND RESTRICTIONS

The holders of the Company's Class A Common Stock are entitled to one vote per
share, and the holders of the Company's Class B Common Stock are entitled to the
number of votes per share equal to the lesser of (1) the number of votes such
that the aggregate of all outstanding shares of Class B Common Stock will be
entitled to cast 49.9% of all votes represented by the aggregate of all
outstanding shares of Class A Common Stock and Class B Common Stock or (2) ten
votes per share. The Company's Board of Directors declared 2% stock dividends
which were distributed to stockholders on May 4, 1998, December 15, 1998, June
8, 1999 and December 15, 1999, respectively. On February 14, 2001, the Company
announced that its Board of Directors had approved the initiation of a quarterly
cash dividend of $0.07 per share, payable on the Company's outstanding Class A
and Class B Common Stock. The first cash dividend was paid by the Company on
March 14, 2001 to shareholders of record on February 28, 2001. Under the Credit
Agreements, cash dividends on, together with any repurchases or redemptions by
the Company of, its capital stock, may not, during any fiscal year, exceed 4% of
the Company's Consolidated Equity (as defined in the Credit Agreements) as of
the end of the preceding fiscal year, with unused amounts carrying over to
subsequent fiscal years, except that in fiscal year 1999 dividends and
repurchases were permitted in an aggregate amount equal to $56.1 million. The
aggregate limitation for 2001 on dividend payments and/or repurchases or
redemptions of its capital stock by the Company will be equal to $62.6 million.
The Credit Agreements also permit additional repurchases by the Company of its
capital stock in an aggregate amount of up to $20.0 million over the term of the
Credit Agreements. The Company's life insurance subsidiaries had consolidated
statutory capital and surplus of $253.7 million and $215.5 million at December
31, 2000 and 1999, respectively. Consolidated statutory net income for the
Company's life insurance subsidiaries, after interest expense of $0.0 million,
$0.9 million and $3.3 million in 2000, 1999 and 1998, respectively, on a surplus
debenture payable to DFG, was $56.6 million, $30.3 million and $18.7 million in
2000, 1999 and 1998, respectively. The Company's casualty insurance subsidiary
had statutory capital and surplus of $221.5 million and $195.3 million at
December 31, 2000 and 1999, respectively, and statutory net income of $32.3
million, $13.3 million and $48.1 million in 2000, 1999 and 1998, respectively.
Payment of dividends by the Company's insurance subsidiaries is regulated by
insurance laws and are permitted based on, among other things, the level of
prior-year statutory surplus and net income. The Company's insurance
subsidiaries will be permitted to make dividend payments totaling $77.8 million
during 2001 without prior regulatory approval.

In 1999, the Company's Board of Directors authorized the Company to purchase up
to 2.1 million shares of its outstanding Class A Common Stock from time to time
on the open market. During 2000 and 1999, the Company purchased 0.3 million and
1.1 million shares, respectively, of its Class A Common Stock for a total cost
of $10.2 million and $39.1 million, respectively.


                                      -42-
<PAGE>   44

                  DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                DECEMBER 31, 2000


NOTE K - SHAREHOLDERS' EQUITY AND RESTRICTIONS - (CONTINUED)

The following table provides a reconciliation of beginning and ending shares:

<TABLE>
<CAPTION>
                                                                                  Year Ended December 31,
                                                                         ------------------------------------------
                                                                            2000            1999           1998
                                                                         -----------   ------------    ------------
                                                                                    (shares in thousands)
<S>                                                                      <C>           <C>             <C>
Class A Common Stock:
   Beginning balance..................................................        16,285         14,956          12,884
      Issuance of stock, exercise of stock options and
           conversion of shares.......................................           560            704           1,516
      Stock dividend..................................................             -            625             556
                                                                         -----------   ------------    ------------
   Ending balance.....................................................        16,845         16,285          14,956
                                                                         ===========   ============    ============
Class B Common Stock:
   Beginning balance..................................................         5,180          5,433           6,157
      Conversion of shares............................................          (341)          (459)           (950)
      Stock dividend..................................................             -            206             226
                                                                         -----------   ------------    ------------
   Ending balance.....................................................         4,839          5,180           5,433
                                                                         ===========   ============    ============
Class A Treasury Stock:
   Beginning balance..................................................         1,110              -               -
      Acquisition of Treasury Stock...................................           325          1,082               -
      Stock dividend..................................................             -             28               -
                                                                         -----------   ------------    ------------
   Ending balance.....................................................         1,435          1,110               -
                                                                         ===========   ============    ============
</TABLE>


NOTE L - COMMITMENTS AND CONTINGENCIES

Total rental expense for operating leases, principally for administrative office
space, was $5.7 million, $4.7 million, and $3.5 million for the years ended
December 31, 2000, 1999, and 1998, respectively. As of December 31, 2000, future
net minimum rental payments under non-cancelable operating leases were
approximately $44.5 million, payable as follows: 2001 - $6.8 million, 2002 -
$6.7 million, 2003 - $6.2 million, 2004 - $5.7 million, 2005 - $5.3 million and
$13.8 million thereafter.

In the course of their respective businesses, the Company's subsidiaries are
defendants in litigation; in the case of its insurance subsidiaries, principally
involving insurance policy claims and agent disputes and in the case of its
integrated disability and absence management subsidiary, benefit claims-related
litigation. In the opinion of management, the ultimate disposition of such
pending litigation will not have a material adverse effect on the Company's
financial condition, liquidity or results of operations.


NOTE M - STOCK OPTIONS

The Company accounts for stock options in accordance with Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. Accordingly, no compensation expense has been recognized in the
accompanying financial statements for the Company's stock option plans, in each
case, because the exercise price of the options granted equaled the market price
of the underlying stock on the date of grant. If compensation expense for
options granted had been recognized based on the provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," the Company's net (loss) income would
have been $(7.9) million, $46.1 million and $82.5 million and (loss) earnings
per share would have been $(0.39), $2.20 and $3.91 ($(0.39), $2.10 and $3.75,
assuming dilution) in 2000, 1999 and 1998, respectively. The weighted average
per share fair value used to calculate pro forma compensation expense for 2000,
1999 and 1998 was $12.17, $16.17 and $19.88, respectively. These fair values
were estimated at the grant date using the Black-Scholes option pricing model
with the following assumptions: risk-free interest rates ranging from 4.1% to
6.7%, volatility factors of the expected market price of the Company's common
stock ranging from 29% to 37%, expected lives of the options ranging from five
to ten years and dividend yields of 0%.


                                      -43-
<PAGE>   45

                  DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                DECEMBER 31, 2000

NOTE M - STOCK OPTIONS - (CONTINUED)

Under the terms of the Company's employee stock option plan and outside
directors' stock option plan, a total of 3,332,490 shares of Class A Common
Stock have been reserved for issuance. The exercise price for options granted
under these plans is the fair market value of the underlying stock as of the
date of the grant and the maximum term of an option is ten years.

The Company's long-term performance-based incentive plan for its chief executive
officer (the "Performance Plan") provides for the award of up to 317,975 shares
or options for shares of the Company's Class B Common Stock (79,494 restricted
or deferred shares and options to purchase 238,481 shares) per year over a
ten-year term contingent upon the Company meeting specified annual performance
goals. The restricted or deferred shares may not be sold or otherwise disposed
of until the earliest of the individual's retirement, disability or death or a
change of ownership of the Company. The exercise price of the options awarded
under the Performance Plan is the fair market value of the underlying stock as
of the date of the grant and the maximum term of the options is ten years. The
options become exercisable 30 days following the date of grant. For the year
ended December 31, 1998, 79,494 deferred shares and 238,481 options were awarded
under the Performance Plan. No deferred shares or options were awarded for the
years ended December 31, 1999 or 2000. The Company recognized $3.5 million and
$4.0 million of compensation expense in 1999 and 1998, respectively, related to
the Performance Plan.

Option activity with respect to the above plans was as follows:

<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                             ----------------------------------------------------------------------
                                                      2000                     1999                    1998
                                             ---------------------    --------------------    ---------------------
                                               Number      Average      Number     Average      Number     Average
                                                 of       Exercise        of      Exercise        of      Exercise
                                               Options      Price       Options     Price       Options     Price
                                             ----------   --------     ---------  --------     ---------  ---------
<S>                                           <C>          <C>         <C>         <C>           <C>       <C>
Options outstanding, beginning of year....    1,837,616    $33.09      1,219,947   $33.34        813,348   $27.48
   Options granted........................      769,204     30.00        648,582    32.85        410,199    44.80
   Options forfeited......................       (8,620)    30.27        (27,791)   40.69           (417)   35.98
   Options exercised......................      (17,250)    12.13         (3,122)   12.64         (3,183)  12.64
                                            -----------              -----------             -----------
Options outstanding, end of year..........    2,580,950     32.32      1,837,616    33.09      1,219,947    33.34
                                            ===========              ===========             ===========

Exercisable options, end of year..........    1,711,693     32.08      1,303,158    32.47     680,281       28.21
</TABLE>

Information about options outstanding at December 31, 2000 was as follows:

<TABLE>
<CAPTION>
                                                                Outstanding                        Exercisable
                                                  ------------------------------------       ----------------------
                                                   Number         Average    Average          Number      Average
      Range of                                       of         Remaining    Exercise           of        Exercise
  Exercise Prices                                  Options         Life       Price           Options      Price
------------------                                ----------    ---------   ---------        ---------   ---------
<S>                                               <C>           <C>         <C>              <C>         <C>
$  0.00  - $ 13.59.............................      195,757        4.1     $   13.02         195,757     $ 13.02
$ 21.70  - $ 32.32.............................    1,516,005        8.3         29.70         919,054       29.24
$ 33.00  - $48.60 .............................      851,423        7.7         40.93         587,862       42.50
$ 56.36  - $56.36 .............................       17,765        7.4         56.36           9,020       56.36
                                                   ---------    -------     ---------       ---------     -------
                                                   2,580,950        7.8     $   32.32       1,711,693     $ 32.08
                                                   =========    =======     =========       =========     =======
</TABLE>


                                      -44-
<PAGE>   46

                  DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                DECEMBER 31, 2000


NOTE M - STOCK OPTIONS - (CONTINUED)

During 1996, the Company assumed 6.0 million SIG Options. Upon the exercise of
the SIG Options, the holder is entitled to receive (i) .1399 of a share of the
Company's Class A Common Stock for each SIG Option; plus (ii) an additional
number of shares of the Company's Class A Common Stock equal to the quotient of
(a) $1.90 multiplied by the number of SIG Options being exercised increased by
an interest component from the time of the SIG Merger to the exercise date,
divided by (b) the average closing share price for the Company's Class A Common
Stock for the ten days prior to the exercise date. The SIG Options were granted
annually from 1992 to 1996, have an exercise price of $0.02 and each grant vests
over five years beginning in the fourth year after the grant date. All of the
SIG Options expire on October 1, 2006. As of December 31, 2000, the weighted
average contractual life of the outstanding SIG Options was 5.8 years.

Activity with respect to the outstanding SIG Options was as follows:

<TABLE>
<CAPTION>
                                                                     Year Ended December 31,
                                         --------------------------------------------------------------------------
                                                    2000                      1999                    1998
                                         ------------------------ ------------------------  -----------------------
                                            Number    Equivalent     Number     Equivalent    Number     Equivalent
                                            of SIG       Class A     of SIG      Class A       of SIG      Class A
                                            Options      Shares      Options      Shares      Options      Shares
                                         -----------   ---------  -----------    --------   -----------  ----------
<S>                                        <C>           <C>        <C>           <C>         <C>           <C>
SIG Options - beginning of period......    2,590,259     571,483    3,536,241     648,978     4,167,878     804,984
   Options exercised...................     (694,907)    152,229     (945,982)    213,485      (581,032)    113,626
   Options forfeited...................            -           -            -           -       (50,605)          -
                                         -----------              -----------               -----------
SIG Options - end of year..............    1,895,352     387,545    2,590,259     571,483     3,536,241     648,978
                                         ===========              ===========               ===========
Exercisable SIG Options - end of year        716,923     146,590      595,584     131,402       501,839      92,098
</TABLE>


                                      -45-
<PAGE>   47

                  DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                DECEMBER 31, 2000


NOTE N - COMPUTATION OF RESULTS PER SHARE

<TABLE>
<CAPTION>
                                                                                    Year Ended December 31,
                                                                           ----------------------------------------
                                                                               2000          1999          1998
                                                                           -----------   -----------    -----------
                                                                         (dollars in thousands, except per share data)
<S>                                                                        <C>           <C>            <C>
Numerator:
    Income from continuing operations excluding net
      realized investment (losses) gains...............................    $    86,438   $    80,850    $    68,564
    Realized investment (losses) gains, net of taxes...................        (89,731)      (16,718)         5,238
                                                                           -----------   -----------    -----------
        (Loss) income from continuing operations.......................         (3,293)       64,132         73,802
    Discontinued operations, net of income tax (benefit) expense:
      Income from operations...........................................              -             -         13,233
      Loss on disposal..................................................             -       (13,847)             -
                                                                           -----------   -----------    -----------
        Net (loss) income..............................................    $    (3,293)  $    50,285    $    87,035
                                                                           ===========   ===========    ===========
Denominator:
    Weighted average common shares outstanding ........................         20,388        20,979         21,095
    Effect of dilutive securities......................................              -           695            825
                                                                           -----------   -----------    -----------
    Weighted average common shares outstanding, assuming dilution......         20,388        21,674         21,920
                                                                           ===========   ===========    ===========
Basic results per share of common stock:
    Income from continuing operations excluding net
      realized investment (losses) gains...............................    $      4.24   $      3.85    $     3.25
    Realized investment (losses) gains, net of taxes...................          (4.40)        (0.79)         0.25
                                                                           -----------   -----------    ----------
        (Loss) income from continuing operations.......................          (0.16)         3.06          3.50
    Discontinued operations, net of income tax (benefit) expense:
      Income from operations...........................................              -             -          0.63
      Loss on disposal.................................................              -         (0.66)             -
                                                                           -----------   -----------    -----------
        Net (loss) income..............................................    $     (0.16)  $      2.40    $     4.13
                                                                           ===========   ===========    ==========
Diluted results per share of common stock:
    Income from continuing operations excluding net
      realized investment (losses) gains...............................    $      4.24   $      3.73    $     3.13
    Realized investment (losses) gains, net of taxes...................          (4.40)        (0.77)         0.24
                                                                           -----------   -----------    ----------
        (Loss) income from continuing operations.......................          (0.16)         2.96          3.37
    Discontinued operations, net of income tax (benefit) expense:
      Income from operations...........................................              -             -          0.60
      Loss on disposal.................................................              -         (0.64)             -
                                                                           -----------   -----------    -----------
        Net (loss) income..............................................    $     (0.16)  $      2.32    $     3.97
                                                                           ===========   ===========    ==========
</TABLE>


                                      -46-
<PAGE>   48

                  DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                DECEMBER 31, 2000


NOTE O - REINSURANCE

The Company assumes and cedes reinsurance on both a coinsurance and a risk
premium basis. The Company obtains reinsurance for amounts above certain
retention limits which vary with age, plan of insurance and underwriting
classification. Amounts of standard risks in excess of those limits are
reinsured. Indemnity reinsurance treaties do not provide absolute protection to
the Company since the ceding insurer remains responsible for policy claims to
the extent that the reinsurer fails to pay such claims. To reduce this risk, the
Company monitors the financial condition of its reinsurers, including, among
other things, the companies' financial ratings, and in certain cases receives
collateral security from the reinsurer. Also, certain of the Company's
reinsurance agreements require the reinsurer to set up trust arrangements for
the Company's benefit in the event of certain ratings downgrades. As of December
31, 2000, all of the Company's significant reinsurers were either rated "A-"
(Excellent) or higher by A.M. Best Company or had supplied collateral in an
amount sufficient to support the amounts receivable.

In January 1998, an offering was completed whereby shareholders and
optionholders of the Company received, at no cost, rights to purchase shares of
Delphi International, a newly-formed, independent Bermuda insurance holding
company. During 1998, the Company entered into various reinsurance agreements
with Oracle Re, a wholly owned subsidiary of Delphi International. Pursuant to
these agreements, approximately $101.5 million of group employee benefit
reserves ($35.0 million of long-term disability insurance reserves and $66.5
million of net excess workers' compensation and casualty insurance reserves)
were ceded to Oracle Re. The Company has received collateral security from
Oracle Re in an amount sufficient to support the ceded reserves. During 2000 and
1999, Oracle Re and the Company effected the partial recaptures of approximately
$4.6 million and $10.0 million, respectively, of the group long-term disability
liabilities ceded to Oracle Re. These agreements are not expected to have a
material effect on the Company's financial condition, liquidity or results of
operations.

A summary of reinsurance activity follows:

<TABLE>
<CAPTION>
                                                                                    Year Ended December 31,
                                                                           ----------------------------------------
                                                                               2000          1999          1998
                                                                           -----------   -----------    -----------
                                                                                    (dollars in thousands)
<S>                                                                      <C>            <C>             <C>
Premium income assumed................................................   $    41,047    $    88,515     $    95,853
Premium income ceded..................................................       111,390         88,792          71,411
Benefits, claims and interest credited ceded..........................       110,667         95,522          78,413
</TABLE>


                                      -47-
<PAGE>   49

                  DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                DECEMBER 31, 2000

NOTE P - SEGMENT INFORMATION

<TABLE>
<CAPTION>
                                                             Group
                                                           Employee         Asset
                                                            Benefit     Accumulation
                                                           Products       Products        Other (1)         Total
                                                          -----------    -----------    -----------     ------------
                                                                           (dollars in thousands)
<S>                                                       <C>            <C>            <C>             <C>
2000
Revenues excluding net realized investment losses.....    $   547,614    $    81,870    $    21,449     $   650,933
Operating income (loss) (2)...........................        134,654         26,456         (3,739)        157,371
Net investment income(3)..............................         99,924         79,319          5,333         184,576
Amortization of cost of business acquired.............         25,307          4,419              -          29,726
Segment assets(3).....................................      1,963,114      1,353,874        123,022       3,440,010

1999
Revenues excluding net realized investment losses.....        563,881         81,671         20,661         666,213
Operating income (loss) (2)...........................        118,245         33,190         (6,440)        144,995
Net investment income (3).............................         95,959         79,545          5,441         180,945
Amortization of cost of business acquired.............         23,889          3,578              -          27,467
Segment assets(3).....................................      1,941,660      1,337,326        116,702       3,395,688

1998
Revenues excluding net realized investment gains......        499,821         82,973         12,772         595,566
Operating income (loss) (2)...........................         97,987         33,090         (6,117)        124,960
Net investment income(3)..............................         83,410         80,390          4,892         168,692
Amortization of cost of business acquired.............         23,412          2,346              -          25,758
Segment assets(3).....................................      1,793,756      1,337,792        155,509       3,287,057
</TABLE>

(1)    Consists of operations that do not meet the quantitative thresholds for
       determining reportable segments and includes integrated disability and
       absence management services and certain corporate activities.

(2)    Income (loss) from continuing operations excluding net realized
       investment gains and losses and before interest and income tax expense
       and dividends on Capital Securities of Delphi Funding L.L.C.

(3)    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 based on average reserves and risk
       based capital. Segment assets include assets of the insurance companies
       as well as assets of the holding company, which are allocated across
       business lines based on average reserves and risk based capital.


NOTE Q - DISCONTINUED OPERATIONS

Effective April 30, 1999, the Company disposed of its Unicover Managers, Inc.
subsidiary and a related company (collectively, "Unicover"), which were acquired
in the fourth quarter of 1998, to certain of the former owners of Unicover. The
Company recognized a loss of $13.8 million on the disposition of the
discontinued operations of Unicover, net of a related tax benefit of $8.7
million, in the first quarter of 1999. Revenue associated with Unicover for the
first four months of 1999 totaled $24.6 million, and no operating income was
associated with Unicover for such period. In 1998, revenue associated with
Unicover totaled $23.0 million, and income from Unicover's operations totaled
$13.2 million, net of tax expense of $8.8 million.


                                      -48-
<PAGE>   50

                                                                      SCHEDULE I

                  DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
                             SUMMARY OF INVESTMENTS
                    OTHER THAN INVESTMENTS IN RELATED PARTIES
                                DECEMBER 31, 2000
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                                         Amount
                                                                                                        Shown in
                                                                     Amortized           Fair            Balance
Type of Investment                                                     Cost              Value            Sheet
------------------                                                --------------    -------------    --------------
<S>                                                               <C>               <C>              <C>
Fixed maturity securities available for sale:

   U.S. Government backed mortgage-backed securities........      $      267,249    $     247,909    $      247,909
   Other mortgage-backed securities.........................             344,201          335,278           335,278
   U.S. Treasury and other U.S. Government
      guaranteed securities.................................             305,731          297,866           297,866
   Obligations of U.S. states, municipalities and
      political subdivisions................................             302,541          295,192           295,192
   Corporate securities.....................................             883,503          834,389           834,389
                                                                  --------------    -------------    --------------
      Total fixed maturity securities.......................           2,103,225        2,010,634         2,010,634

Equity securities (primarily common stock)..................              49,402           46,470            46,470
Cash and cash equivalents...................................              56,093           56,093            56,093
Other investments...........................................             384,188          375,092           375,092
                                                                  --------------     ------------    --------------
      Total investments.....................................      $    2,592,908    $   2,488,289    $    2,488,289
                                                                  ==============    =============    ==============
</TABLE>


                                      -49-
<PAGE>   51

                                                                     SCHEDULE II

                  DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                  DELPHI FINANCIAL GROUP, INC. (PARENT COMPANY)
                                 BALANCE SHEETS
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                               December 31,
                                                                                        ---------------------------
                                                                                            2000           1999
                                                                                        -----------     -----------
<S>                                                                                     <C>             <C>
Assets:
   Fixed maturity securities, available for sale..................................      $    40,440     $    55,605
   Cash and other invested assets (including cash and
      cash equivalents of $404 and $1,563, respectively)..........................           17,782          17,553
   Investment in subsidiaries.....................................................          769,189         699,432
   Surplus debenture due from subsidiary..........................................                -           6,990
   Amounts due from subsidiaries..................................................           76,015          94,521
   Other assets...................................................................           34,244          38,261
                                                                                        -----------     -----------
      Total assets................................................................      $   937,670     $   912,362
                                                                                        ===========     ===========
Liabilities:
   Corporate debt.................................................................      $   240,484     $   247,432
   Junior subordinated debentures payable to Delphi Funding, L.L.C................          103,093         103,093
   Securities sold under agreements to repurchase.................................           10,578          14,913
   Other liabilities..............................................................           45,322          45,507
                                                                                        -----------     -----------
                                                                                            399,477         410,945
                                                                                        -----------     -----------
Shareholders' Equity:
   Class A Common Stock...........................................................              168             163
   Class B Common Stock...........................................................               48              52
   Additional paid-in capital.....................................................          366,834         364,390
   Net unrealized depreciation on investments, net of deferred taxes..............          (53,622)       (101,465)
   Retained earnings..............................................................          274,060         277,353
   Treasury stock.................................................................          (49,295)        (39,076)
                                                                                        -----------     -----------
                                                                                            538,193         501,417
                                                                                        -----------     -----------
      Total liabilities and shareholders' equity..................................      $   937,670     $   912,362
                                                                                        ===========     ===========
</TABLE>


                   See notes to condensed financial statements


                                      -50-
<PAGE>   52

                                                         SCHEDULE II (CONTINUED)

                  DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
            CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
                  DELPHI FINANCIAL GROUP, INC. (PARENT COMPANY)
                          STATEMENTS OF (LOSS) INCOME
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                   Year Ended December 31,
                                                                         ------------------------------------------
                                                                            2000            1999           1998
                                                                         -----------    -----------     -----------
<S>                                                                      <C>            <C>             <C>
Revenue:
   Equity in undistributed earnings of subsidiaries...................   $    11,385    $   111,873     $   108,054
   Interest from subsidiaries.........................................            80            869           3,322
   Dividends from subsidiaries........................................         9,588          9,388           9,388
   Other net investment (loss) income.................................          (889)         5,922          23,928
   Realized investment gains (losses).................................           427         (5,193)         (8,525)
                                                                         -----------    -----------     -----------
                                                                              20,591        122,859         136,167
                                                                         -----------    -----------     -----------
Expenses:
   Operating expenses.................................................         2,143          5,612           6,066
   Interest expense...................................................        29,892         25,461          23,761
                                                                         -----------    -----------     -----------
                                                                              32,035         31,073          29,827
                                                                         -----------    -----------     -----------
      (Loss) income from continuing operations before income
         tax (benefit) expense........................................       (11,444)        91,786         106,340
Income tax (benefit) expense..........................................        (8,151)        27,654          32,538
                                                                         -----------    -----------     -----------
      (Loss) income from continuing operations........................        (3,293)        64,132          73,802
Discontinued operations, net of income tax (benefit) expense:
   Income from operations.............................................             -              -          13,233
   Loss on disposal...................................................             -        (13,847)              -
                                                                         -----------    -----------     -----------
      Net (loss) income...............................................   $    (3,293)   $    50,285     $    87,035
                                                                         ===========    ===========     ===========
</TABLE>


                  See notes to condensed financial statements.


                                      -51-
<PAGE>   53

                                                         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)


<TABLE>
<CAPTION>
                                                                                   Year Ended December 31,
                                                                         ------------------------------------------
                                                                            2000            1999           1998
                                                                         -----------    -----------     -----------
<S>                                                                      <C>            <C>             <C>
Operating activities:
   Net (loss) income..............................................       $    (3,293)   $    50,285     $    87,035
   Adjustments to reconcile net (loss) income to net cash provided
         (used) by operating activities:
      Equity in undistributed earnings of subsidiaries............           (11,546)       (77,188)        (74,916)
      Change in other assets and other liabilities................             1,093         (3,707)          3,953
      Change in current and deferred income taxes.................            12,017        (22,703)          3,638
      Amortization, principally of investments and debt
          issuance costs..........................................               390           (214)        (27,332)
      Net realized (gains) losses on investments..................              (427)         5,193           8,525
      Change in amounts due from/to subsidiaries..................            18,506         42,957         (71,686)
      Discontinued operations.....................................                 -         13,847         (13,233)
                                                                         -----------    -----------     -----------
         Net cash provided (used) by operating activities.........            16,740          8,470         (84,016)
                                                                         -----------    -----------     -----------

Investing activities:
   Purchases of investments and loans made........................           (19,658)      (254,076)       (225,980)
   Sales of investments and receipts from repayment of loans......            17,511        210,063         350,786
   Maturities of investments......................................             7,224         21,638           4,315
   Purchases of investments in subsidiaries.......................           (15,610)       (52,013)        (14,295)
   Disposition (acquisition) of discontinued operations...........                 -         20,968         (21,581)
                                                                         -----------    -----------     ------------
      Net cash (used) provided by investing activities............           (10,533)       (53,420)         93,245
                                                                         -----------    -----------     -----------

Financing activities:
   Proceeds from issuance of common stock and exercise of
      stock options...............................................             2,445          2,177           1,572
   Acquisition of Treasury Stock..................................            (5,493)        (5,683)              -
   Borrowings under the Credit Agreements.........................            19,000        142,000         139,000
   Principal payments under the Credit Agreements.................           (26,000)      (114,000)        (58,000)
   Payments received on surplus debenture.........................             6,990         11,260          24,750
   Change in liability for securities sold under agreements to
      repurchase..................................................            (4,308)         9,961        (116,554)
                                                                         -----------    -----------     -----------
         Net cash (used) provided by financing activities.........            (7,366)        45,715          (9,232)
                                                                         -----------    -----------     -----------

(Decrease) increase in cash and cash equivalents..................            (1,159)           765              (3)
Cash and cash equivalents at beginning of year....................             1,563            798             801
                                                                         -----------    -----------     -----------
      Cash and cash equivalents at end of year....................       $       404    $     1,563     $       798
                                                                         ===========    ===========     ===========
</TABLE>


                  See notes to condensed financial statements.


                                      -52-
<PAGE>   54

                                                         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


The accompanying condensed financial statements should be read in conjunction
with the consolidated financial statements and related notes of Delphi Financial
Group, Inc. and Subsidiaries.

The Company received cash dividends from subsidiaries of $9.6 million, $9.4
million and $9.4 million in 2000, 1999 and 1998, respectively.


                                      -53-
<PAGE>   55

                                                                    SCHEDULE III

                  DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
                       SUPPLEMENTARY INSURANCE INFORMATION
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                             Future Policy
                                                             Benefits and
                                                 Cost of     Unpaid Claim                    Policyholder
                                                Business       and Claim       Unearned        Account
                                                Acquired        Expenses       Premiums        Balances
                                                ----------     ----------      --------       ----------
<S>                                            <C>            <C>            <C>             <C>
2000
Group employee benefits products..........     $   100,701    $ 1,026,307    $    46,725     $         -
Asset accumulation products...............          55,855         21,956              -         782,452
Other.....................................               -        121,881              -               -
                                               -----------    -----------    -----------     -----------
    Total.................................     $   156,556    $ 1,170,144    $    46,725     $   782,452
                                               ===========    ===========    ===========     ===========

1999
Group employee benefits products..........     $    86,406    $   975,805    $    24,186     $         -
Asset accumulation products...............          57,766         39,468              -         676,664
Other.....................................               -        125,414              -               -
                                               -----------    -----------    -----------     -----------
    Total.................................     $   144,172    $ 1,140,687    $    24,186     $   676,664
                                               ===========    ===========    ===========     ===========

1998
Group employee benefits products..........     $    74,867    $   877,065    $    20,265     $         -
Asset accumulation products...............          29,593         41,854              -         664,576
Other.....................................               -        127,469              -               -
                                               -----------    -----------    -----------     -----------
    Total.................................     $   104,460    $ 1,046,388    $    20,265     $   664,576
                                               ===========    ===========    ===========     ===========
</TABLE>

<TABLE>
<CAPTION>
                                                                               Benefits,
                                                                              Claims and    Amortization
                                                 Premium          Net          Interest      of Cost of         Other
                                                 and Fee      Investment      Credited to     Business        Operating
                                                Income(1)       Income       Policyholders    Acquired        Expenses
                                               -----------    -----------    -------------   -----------    -----------
<S>                                            <C>            <C>            <C>             <C>            <C>
2000
Group employee benefits products..........     $   447,690    $    99,924    $   295,321     $    25,307    $    92,332
Asset accumulation products...............           2,551         79,319         45,563           4,419          5,432
Other.....................................          16,116          5,333          1,874               -         23,314
                                               -----------    -----------    -----------     -----------    -----------
    Total.................................     $   466,357    $   184,576    $   342,758     $    29,726    $   121,078
                                               ===========    ===========    ===========     ===========    ===========

1999
Group employee benefits products..........     $   467,922    $    95,959    $   338,130     $    23,889    $    83,617
Asset accumulation products...............           2,126         79,545         38,955           3,578          5,948
Other.....................................          15,220          5,441          1,324               -         25,777
                                               -----------    -----------    -----------     -----------    -----------
    Total.................................     $   485,268    $   180,945    $   378,409     $    27,467    $   115,342
                                               ===========    ===========    ===========     ===========    ===========

1998
Group employee benefits products..........     $   416,411    $    83,410    $   298,141     $    23,412    $    80,281
Asset accumulation products...............           2,583         80,390         41,452           2,346          6,085
Other.....................................           7,880          4,892          3,404               -         15,485
                                               -----------    -----------    -----------     -----------    -----------
    Total.................................     $   426,874    $   168,692    $   342,997     $    25,758    $   101,851
                                               ===========    ===========    ===========     ===========    ===========
</TABLE>

(1)   Net written premiums for casualty insurance products totaled $93.4
      million, $81.3 million and $80.8 million for the years ended December 31,
      2000, 1999 and 1998, respectively.


                                      -54-
<PAGE>   56

                                                                     SCHEDULE IV

                  DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
                                   REINSURANCE
                             (DOLLARS IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                                         Percentage
                                                         Ceded to         Assumed                        of Amount
                                          Gross            Other        from Other           Net          Assumed
                                         Amount          Companies       Companies         Amount         to Net
                                      -------------   -------------    -------------   -------------    -----------
<S>                                   <C>             <C>              <C>             <C>              <C>
Life insurance in force as of
    December 31, 2000...........      $  71,047,412   $   4,418,697    $      41,460   $  66,670,175            - %
                                      =============   =============    =============   =============

Year ended December 31, 2000:
    Premium and fee income:
       Life insurance and annuity     $     180,910   $      20,240    $       1,716   $     162,386            1 %
       Accident and health insurance        231,676          45,390           21,162         207,448           10 %
       Casualty insurance.......            110,006          45,760           18,169          82,415           22 %
       Other....................             14,108               -                -          14,108
                                      -------------   -------------    -------------   -------------
Total premium and fee income....      $     536,700   $     111,390    $      41,047   $     466,357
                                      =============   =============    =============   =============


Life insurance in force as of
    December 31, 1999...........      $  64,502,651   $   4,347,943    $   6,003,633   $  66,158,341            9 %
                                      =============   =============    =============   =============

Year ended December 31, 1999:
    Premium and fee income:
       Life insurance and annuity     $     169,507   $      19,537    $      38,481   $     188,451           20 %
       Accident and health insurance        223,870          43,068           23,511         204,313           12 %
       Casualty insurance ......             79,112          26,187           26,523          79,448           33 %
       Other....................             13,056               -                -          13,056
                                      -------------   -------------    -------------   -------------
Total premium and fee income....      $     485,545   $      88,792    $      88,515   $     485,268
                                      =============   =============    =============   =============

Life insurance in force as of
    December 31, 1998...........      $  59,012,936   $   5,231,738    $  14,571,867   $  68,353,065           21 %
                                      =============   =============    =============   =============

Year ended December 31, 1998:
    Premium and fee income:
       Life insurance and annuity     $     155,299   $      18,839    $      39,887   $     176,347           23 %
       Accident and health insurance        179,544          41,573           27,596         165,567           17 %
       Casualty insurance.......             61,747          10,999           28,370          79,118           36 %
       Other....................              5,842               -                -           5,842
                                      -------------   -------------    -------------   -------------
Total premium and fee income....      $     402,432   $      71,411    $      95,853   $     426,874
                                      =============   =============    =============   =============
</TABLE>


                                      -55-
<PAGE>   57

                                                                     SCHEDULE VI

                  DELPHI FINANCIAL GROUP, INC. AND SUBSIDIARIES
                       SUPPLEMENTAL INFORMATION CONCERNING
                     PROPERTY-CASUALTY INSURANCE OPERATIONS
                             (DOLLARS IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                           December 31,
                                                                                -----------------------------------
                                                                                     2000                1999
                                                                                ---------------    ----------------
<S>                                                                               <C>                <C>
Deferred policy acquisition costs........................................         $     4,315        $     1,563

Reserves for unpaid claims and claim expenses............................             447,055            421,473

Discount, if any, deducted from above (1)................................             203,710            192,220

Unearned premiums........................................................              43,383             20,761
</TABLE>


<TABLE>
<CAPTION>
                                                                            Year Ended December 31,
                                                            -------------------------------------------------------
                                                                 2000                1999                1998
                                                            ---------------     ---------------    ----------------
<S>                                                           <C>                 <C>                <C>
Earned premiums........................................       $    82,415         $    79,448        $    79,118

Net investment income..................................            38,318              33,383             32,388

Claims and claim expenses incurred related to:

    Current year.......................................            41,716              47,774             50,462
    Prior years........................................             1,116                 235               (559)

Amortization of deferred policy acquisition costs......             4,862               5,583              7,841

Paid claims and claim adjustment expenses..............            44,773              47,105            103,458

Net premiums written...................................            93,383              81,281             80,765
</TABLE>

-----------------

(1)  Based on interest rates ranging from 3.7% to 7.5%.


                                      -56-