Delphi Financial Group, Inc. (DFG)

Q2 2010 Earnings Conference Call

July 28, 2010 11:00 AM ET


Robert Rosenkranz – Chairman and CEO

Bernie Kilkelly – VP, IR

Don Sherman – President and COO

Mark Wilhelm – EVP, Safety National Casualty Corporation

Duane Hercules – EVP, Business Development and CFO, Safety National Casualty Corporation

Tom Burghart – SVP and Treasurer

Larry Daurelle – President and CEO, Reliance Standard Life


Randy Binner – FBR Capital

Ryan Krueger – KBW

Mark Finkelstein – Macquarie

Paul Newsome – Sandler O’Neill

Beth Malone – Wunderlich Securities

Alec Ofsevit – Credit Suisse

Mike Grasher – Piper Jaffray

Sean Dargan – Wells Fargo Securities

Eric Berg – Barclays Capital

Sam Hoffman – Lincoln Square Capital



Ladies and gentlemen, thank you for standing by. Welcome to the second quarter 2010 earnings conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session with instructions given at that time. (Operator instructions). And as reminder the conference is being recorded.

I would now like to turn the conference call over to our host, Chairman, Mr. Robert Rosenkranz. Please, go ahead.

Robert Rosenkranz

Thank you. Welcome to Delphi Financial second quarter 2010 conference call. Our earnings release for the quarter was distributed last evening and has been posted on the company’s website along with the second quarter financial supplement. This call is also being broadcast live on our web site

Participating in the call this morning with me are Don Sherman, Delphi’s President and Chief Operating Officer, Nita Savage, Vice President of Finance, Rich Waldis, Vice President, Investments, Bernie Kilkelly, Vice President of Investor Relations, and our colleagues at Reliance Standard Life, Safety National and Matrix.

At this point I’m going to ask Bernie to read the Safe Harbor statement.

Bernie Kilkelly

Thanks Bob and good morning, everyone. For those listening to a replay of this call that is being held on July 28, 2010. It contains time sensitive information that is current only as of this date. Statements made in this call relating to the future operations, performance goals, and expectations of the company, as opposed to historical facts are forward-looking statements under the Federal Securities laws.

These statements are based on assumptions and estimates by the Company that are subject to various uncertainties and contingencies. Discussions of these risk factors can be found in our second quarter 2010 earnings release yesterday, first quarter Form 10-K and our 2009 Form 10-K.

These factors could cause the company’s actual results to differ materially from those expressed in any forward-looking statements made during this call and should be considered carefully. The company specifically disclaims any duty to update forward-looking statements made in this call.

In addition, certain non-GAAP financial measures will be discussed on this call. The comparable GAAP financial measures, along with reconciliations to such measures are contained in our second quarter earnings release and financial supplement accessible on the company’s website.

Now, I’ll turn the call back to Bob.

Robert Rosenkranz

Thank you Bernie. Moving to overview, Delphi had an excellent second quarter and a good first half of 2010 with solid operating earnings and record high levels of shareholders equity and book value per share. Book value per share increased 10% since the end of 2009 to reach $26.74 at June 30. Operating earnings in the second quarter benefited from strong underwriting profits across our insurance businesses.

We also had positive sales trends in all of our insurance lines with good production growth at Reliance Standard and favorable results in the July renewal season at Safety National. Based on these trends we remained comfortable about meeting our financial targets in the remainder of 2010.

This morning we’re going to cover four main topics. First, I’m going to ask Don to review the performance of our insurance and asset accumulation businesses during the quarter. Second, I’ll discuss our investment performance. Third, we’ll be reviewing our balance sheet and capital positioning. And finally, discussing our outlook for the second half of 2010 and longer term.

After our remarks we’ll be glad to answer your questions. And at this point I would like to turn it over to Don.

Don Sherman

Thanks, Bob and good morning, everyone. Second quarter underwriting margins in our insurance operations were in line with our expectations in our employee combined ratio in the second quarters was 93.5%, that was up slightly from the 93.1 in last year’s quarter but down from the 94.1% in the first quarter of this year.

Our loss ratio continued to improve in the second quarter declining a 140 basis points from last year’s second quarter and declined to 67.6%. Loss ratios at Reliance Standard Life improved and we have not seen any impact from the recession on disability claims incidence, severity or termination rates. I want to make a couple of comments on this topic since I know it is top of mind after higher disability claims incidence was reported by one of our competitors.

We’ve done extensive analysis on this topic as part of our overall enterprise risk management effort. This analysis indicates that there is no significant correlation between a change in gross domestic products and our loss ratios including disability loss ratios. We’ve also analyzed the correlations between our loss ratios and ADP payroll data and Federal unemployment data. This analysis again showed no significant correlations. We believe there are three main reasons for this. First, the conventional belief that disability claims are more prevalent in times of rising employment has never been actually validated in the private group benefits market.

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