Delphi Financial Reports 14% Increase in Third Quarter Operating EPS to $0.81; Net Income Per Share Reaches $0.79

Delphi Financial Group, Inc. (NYSE:DFG) announced today that net income in the third quarter of 2007 was $40.7 million or $0.79 per share, compared to $36.2 million or $0.71 per share in the third quarter of 2006. Net income for the first nine months of 2007 was $122.8 million or $2.38 per share, compared with $101.9 million or $2.00 per share in the first nine months of 2006. Operating earnings (1) in the third quarter of 2007 increased 15% to $41.7 million from $36.4 million in the third quarter of 2006. Operating earnings per share rose 14% to $0.81 from $0.71 a year ago. For the first nine months of 2007, operating earnings increased 18% to $124.9 million from $106.0 million, while operating earnings per share grew 16% to $2.42 from $2.09. Annualized operating earnings return on beginning equity (2) in the third quarter of 2007 was 14.6%, up from 14.0% in the third quarter of 2006. Core group employee benefit premiums in the third quarter of 2007 grew 10% from the third quarter a year ago, reaching $306.6 million. This growth was driven by a 12% increase in group life premiums and an 11% increase in group disability premiums at Delphi’s Reliance Standard Life (RSL) subsidiary. The combined ratio for the Company’s group employee benefit products in the third quarter of 2007 was 91.9%, down from 93.3% in the third quarter of 2006 and down from 93.2% for full-year 2006. Robert Rosenkranz, Chairman and Chief Executive Officer, said, "Delphi’s excellent bottom-line growth in the third quarter was driven by improved margins in our insurance operations. Our investment returns were below our expectations, resulting from the unusually turbulent market conditions in the third quarter. Our premium and production growth at Reliance Standard continued to benefit from increased market acceptance of our voluntary products, including our new group limited benefit health insurance product, RSL BasicCare. We are achieving improved underwriting margins from our pricing discipline at Reliance Standard and the continuing firm market for Safety National’s excess workers’ compensation insurance.” Mr. Rosenkranz added, "We remain confident in our growth prospects and the positive outlook for our insurance businesses in 2007 and beyond. Our strong balance sheet gives us excellent financial flexibility to capitalize on opportunities we deem attractive.” Delphi’s net investment income in the third quarter of 2007 was $62.8 million, down from $66.2 million in the same quarter a year ago. For the first nine months of 2007, net investment income rose 9% to $203.2 million from $185.9 million in the first nine months of 2006. Invested assets at September 30, 2007 were $4.7 billion, an increase of 9% from $4.3 billion at September 30, 2006. The tax equivalent yield on the Company’s investment portfolio in the third quarter of 2007 was 5.7% compared to 6.6% for the third quarter of 2006. For the first nine months of 2007, the tax equivalent yield was 6.3%, compared to 6.5% for the first nine months of 2006. Delphi’s shareholders’ equity was $1.2 billion at the end of the third quarter, and book value per share before accumulated other comprehensive income and loss (3) rose to $24.07 at September 30, 2007 compared with $22.52 at September 30, 2006. Conference Call On October 24, 2007 at 11:00 AM (Eastern time), Delphi will broadcast the Company’s third quarter 2007 earnings teleconference live on the Internet, hosted by Robert Rosenkranz, Chairman and Chief Executive Officer. Investors can access the broadcast at www.delphifin.com by clicking on the webcast icon on the home page. It is advisable to register at least 15 minutes prior to the call to download and install any necessary audio software. The online replay will be available on Delphi’s website for one week beginning at approximately 1:00 PM (Eastern time) on October 24, 2007. Investors can also download Delphi’s third quarter 2007 statistical supplement from the Company’s website at www.delphifin.com. In connection with, and because it desires to take advantage of, the "safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, Delphi cautions readers regarding certain forward-looking statements in the foregoing discussion and in any other statements made by, or on behalf of, Delphi, 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, prospects, outlooks or other developments. Some forward-looking statements may be identified by the use of terms such as "expects,” "believes,” "anticipates,” "intends,” "judgment,” "outlook” 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 Delphi’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 financial services, employee benefit and tax laws and regulations, changes in accounting rules and interpretations thereof, market pricing and competitive trends relating to insurance products and services, acts of terrorism or war, and the availability and cost of reinsurance, and those relating specifically to Delphi’s business, such as the level of its insurance premiums and fee income, the claims experience, persistency and other factors affecting the profitability of its insurance products, the performance of its investment portfolio and changes in Delphi’s investment strategy, acquisitions of companies or blocks of business, and ratings by major rating organizations of Delphi and 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, Delphi. Delphi disclaims any obligation to update forward-looking information. Delphi Financial Group, Inc. is an integrated employee benefit services company. Delphi is a leader in managing all aspects of employee absence to enhance the productivity of its clients and provides the related insurance coverages: group life, long-term and short-term disability, excess workers’ compensation for self-insured employers, travel accident, dental and limited benefit health insurance. Delphi’s asset accumulation business emphasizes individual fixed annuity products. Delphi’s common stock is listed on the New York Stock Exchange under the symbol DFG and its corporate website address is www.delphifin.com. (1) Operating earnings, which is a non-GAAP financial measure, consist of income from continuing operations excluding after-tax realized investment gains and losses, and the loss on redemption of junior subordinated deferrable interest debentures, as applicable. The Company believes that because realized investment gains and losses, redemption of junior subordinated deferrable interest debentures, and discontinued operations arise from events that, to a significant extent, are within management’s discretion and can fluctuate significantly, thus distorting comparisons between periods, a measure excluding their impact is useful in analyzing the Company's operating trends. Redemption of junior subordinated deferrable interest debentures occur based on management’s decision to exercise its ability to redeem the outstanding debentures. Investment gains or losses may be realized based on management’s decision to dispose of an investment, and investment losses may be realized based on management’s judgment that a decline in the market value of an investment is other than temporary. Discontinued operations occur based on management’s decision to exit or sell a particular business. Thus, realized investment gains and losses, losses on redemption of junior subordinated deferrable interest debentures and results from discontinued operations are not reflective of the Company’s ongoing earnings capacity, and trends in the earnings of the Company’s underlying insurance operations can be more clearly identified without the effects of these items. For these reasons, management uses the measure of operating earnings to assess performance and make operating plans and decisions, and analysts and investors typically utilize measures of this type when evaluating the financial performance of insurers. However, gains and losses of these types, particularly as to investments, occur frequently and should not be considered as nonrecurring items. Further, operating earnings should not be considered a substitute for net income, the most directly comparable GAAP measure, as an indication of the Company’s overall financial performance and may not be calculated in the same manner as similarly titled captions in other companies’ financial statements. For reconciliations of the respective operating earnings amounts for the indicated periods to the corresponding net income amounts, see the table captioned "Non-GAAP Financial Measures – Reconciliation to GAAP” which follows. All per share amounts are on a diluted basis. (2) Annualized operating earnings return on beginning equity, which is a non-GAAP financial measure, is based on operating earnings, as defined in the preceding footnote (1) (rather than the most directly comparable GAAP measure, net income), divided by beginning shareholders’ equity. For the reasons that the Company believes that the calculation of this non-GAAP measure based upon operating earnings is useful, see such footnote. For reconciliations of the respective annualized operating earnings return on equity amounts for the indicated periods to the corresponding annualized net income return on equity amounts, see the table captioned "Non-GAAP Financial Measures – Reconciliation to GAAP” which follows. (3) Diluted book value per share before accumulated other comprehensive income and loss, which is a non-GAAP financial measure, is based on shareholders’ equity excluding the effect of accumulated other comprehensive income and loss. The Company believes that, because accumulated other comprehensive income and loss fluctuates from period to period primarily due to changes in the value of its assets resulting from variations in market interest rates, while the values of its liabilities are not similarly marked to market in determining diluted book value per share (the most directly comparable GAAP measure), this non-GAAP measure is useful in analyzing the Company’s operating trends. For reconciliations of the respective diluted book value per share before accumulated other comprehensive income and loss amounts for the indicated dates to the corresponding diluted book value per share amounts, see the table captioned "Non-GAAP Financial Measures – Reconciliation to GAAP” which follows. DELPHI FINANCIAL GROUP, INC. Non-GAAP Financial Measures Reconciliation to GAAP (Unaudited; in thousands, except per share data)           Three Months Ended Nine Months Ended   9/30/2007     9/30/2006     9/30/2007     9/30/2006   Income Statement Data   Operating earnings (Non-GAAP measure) $ 41,691 $ 36,386 $ 124,863 $ 106,046 Net realized investment losses, net of taxes (962 ) (218 ) (601 ) (1,222 ) Loss on redemption of junior subordinated deferrable interest debentures, net of taxes   -     -     (1,425 )   -   Income from continuing operations 40,729 36,168 122,837 104,824 Discontinued operations, net of taxes   -     1     -     (2,932 )   Net income (GAAP measure) $ 40,729   $ 36,169   $ 122,837   $ 101,892     Diluted results per share of common stock: Operating earnings (Non-GAAP measure) $ 0.81 $ 0.71 $ 2.42 $ 2.09 Net realized investment losses, net of taxes (0.02 ) - (0.01 ) (0.03 ) Loss on redemption of junior subordinated deferrable interest debentures, net of taxes   -     -     (0.03 )   -   Income from continuing operations 0.79 0.71 2.38 2.06 Discontinued operations, net of taxes   -     -     -     (0.06 )   Net income (GAAP measure) $ 0.79   $ 0.71   $ 2.38   $ 2.00       Annualized operating earnings return on beginning equity 14.6 % 14.0 % 15.2 % 13.7 %   Annualized net income return on beginning equity (GAAP measure) 14.3 % 14.0 % 15.0 % 13.2 %       Balance Sheet Data   9/30/2007     12/31/2006     Shareholders' equity, excluding accumulated other comprehensive (loss) income $ 1,200,561 $ 1,155,675 Add: Accumulated other comprehensive (loss) income   (24,396 )   19,133     Shareholders' equity (GAAP measure) $ 1,176,165   $ 1,174,808     Diluted book value per share of common stock, excluding accumulated other comprehensive (loss) income (Non-GAAP measure) $ 24.07 $ 23.35 Add: Accumulated other comprehensive (loss) income   (0.45 )   0.35     Diluted book value per share of common stock (GAAP measure) $ 23.62   $ 23.70     Please see footnotes 1 through 3 of the press release to which this table is attached for important information regarding these non-GAAP financial measures. DELPHI FINANCIAL GROUP, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited; in thousands, except per share data)           Three Months Ended Nine Months Ended   9/30/2007     9/30/2006     9/30/2007     9/30/2006   Revenue: Premium and fee income $ 325,944 $ 295,190 $ 972,528 $ 838,419 Net investment income 62,768 66,159 203,178 185,974 Net realized investment losses (1,480 ) (335 ) (925 ) (1,880 ) Loss on redemption of junior subordinated deferrable interest debentures   -     -   (2,192 )   -     387,232     361,014     1,172,589     1,022,513   Benefits and expenses: Benefits, claims and interest credited to policyholders 234,525 217,322 708,220 612,961 Commissions and expenses   87,632     85,314     268,997     239,954     322,157     302,636     977,217     852,915   Operating income 65,075 58,378 195,372 169,598 Interest expense: Corporate debt 3,328 5,250 12,973 15,029 Junior subordinated debentures 3,246 - 4,652 - Junior subordinated deferrable interest debentures underlying company-obligated mandatorily redeemable capital securities issued by unconsolidated subsidiaries 488 1,319 2,251 3,887 Income tax expense   17,284     15,641     52,659     45,858     Income from continuing operations 40,729 36,168 122,837 104,824   Discontinued operations, net of taxes   -     1     -     (2,932 )   Net income $ 40,729   $ 36,169   $ 122,837   $ 101,892       Basic results per share of common stock: Income from continuing operations $ 0.80 $ 0.73 $ 2.44 $ 2.12 Discontinued operations - - - (0.06 ) Net income $ 0.80 $ 0.73 $ 2.44 $ 2.06   Weighted average shares outstanding 50,596 49,652 50,405 49,531   Diluted results per share of common stock: Income from continuing operations $ 0.79 $ 0.71 $ 2.38 $ 2.06 Discontinued operations - - - (0.06 ) Net income $ 0.79 $ 0.71 $ 2.38 $ 2.00   Weighted average shares outstanding 51,722 50,926 51,641 50,824   Dividends paid per share of common stock $ 0.09 $ 0.08 $ 0.26 $ 0.23 DELPHI FINANCIAL GROUP, INC. SUMMARIZED CONSOLIDATED BALANCE SHEETS (Unaudited; in thousands)           9/30/2007     12/31/2006   Assets: Investments: Fixed maturity securities, available for sale $ 3,624,642 $ 3,377,578 Short-term investments 261,434 400,239 Other investments   809,381     705,563   4,695,457 4,483,380   Cash 45,684 48,204 Cost of business acquired 179,777 267,920 Reinsurance receivables 412,626 410,593 Goodwill 93,929 93,929 Other assets 276,675 251,975 Assets held in separate account   122,833     114,474     Total assets $ 5,826,981   $ 5,670,475     Liabilities and Shareholders' Equity: Policy liabilities and accruals $ 2,304,189 $ 2,107,644 Policyholder account balances 1,091,011 1,119,218 Corporate debt 147,750 263,750 Junior subordinated debentures 175,000 - Junior subordinated deferrable interest debentures underlying company-obligated mandatorily redeemable capital securities issued by unconsolidated subsidiaries   20,619 59,762 Other liabilities and policyholder funds 789,414 830,819 Liabilities related to separate account   122,833     114,474     Total liabilities 4,650,816 4,495,667   Shareholders' equity: Class A Common Stock 487 480 Class B Common Stock 59 57 Additional paid-in capital 503,098 474,722 Accumulated other comprehensive (loss) income (24,396 ) 19,133 Retained earnings 790,817 763,386 Treasury stock, at cost   (93,900 )   (82,970 )   1,176,165     1,174,808   Total liabilities and shareholders' equity $ 5,826,981   $ 5,670,475   DELPHI FINANCIAL GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited; in thousands)       Nine Months Ended   9/30/2007     9/30/2006   Operating activities: Net income $ 122,837 $ 101,892 Adjustments to reconcile net income to net cash provided by operating activities:   Change in policy liabilities and policyholder accounts 219,478 197,987 Net change in reinsurance receivables and payables (7,428 ) 3,523 Amortization, principally the cost of business acquired and investments 53,353 50,397 Deferred costs of business acquired (84,042 ) (77,473 ) Net realized losses on investments 925 1,880 Net change in federal income tax liability 16,440 12,193 Other   (41,451 )   (38,463 ) Net cash provided by operating activities   280,112     251,936     Investing activities: Purchases of investments and loans made (861,814 ) (898,282 ) Sales of investments and receipts from repayment of loans 328,176 597,301 Maturities of investments 120,486 168,327 Net change in short-term investments 138,805 (202,886 ) Change in deposit in separate account   8,536     (2,234 ) Net cash used by investing activities   (265,811 )   (337,774 )   Financing activities: Deposits to policyholder accounts 90,388 178,231 Withdrawals from policyholder accounts (123,802 ) (98,778 ) Borrowings under revolving credit facility 42,000 31,000 Principal payments under revolving credit facility (158,000 ) (2,000 ) Proceeds from the issuance of junior subordinated debentures 172,309 - Redemption of junior subordinated deferrable interest debentures underlying company-obligated mandatorily redeemable capital securities issued by unconsolidated subsidiaries   (37,728 ) - Other financing activities   (1,988 )   (5,612 ) Net cash (used) provided by financing activities   (16,821 )   102,841     (Decrease) increase in cash (2,520 ) 17,003 Cash at beginning of period   48,204     28,493   Cash at end of period $ 45,684   $ 45,496