Delphi Financial Reports 15% Increase in Second Quarter 2007 Operating EPS to $0.82; Net Income per Share Reaches $0.83

Delphi Financial Group, Inc. (NYSE:DFG) announced today that its net income in the second quarter of 2007 was $42.9 million or $0.83 per share, compared to $32.9 million or $0.65 per share in the second quarter of 2006. Net income for the first half of 2007 was $82.1 million or $1.59 per share, compared with net income in the first half of 2006 of $65.7 million or $1.29 per share. Operating earnings (1) in the second quarter of 2007 increased 18% to $42.3 million from $36.0 million in the second quarter of 2006, while operating earnings per share rose 15% to $0.82 from $0.71. Operating earnings for the first half of 2007 increased 19% to $83.2 million from $69.7 million in the first half of 2006, while operating earnings per share grew 18% to $1.61 from $1.37. Annualized operating return on beginning equity (2) in the second quarter of 2007 was 14.8%, up from 13.9% in the second quarter of 2006. Core group employee benefit premiums in the second quarter of 2007 rose 16% over the prior year quarter to a record $310 million. This growth was driven by a 20% increase in group disability premiums and a 17% increase in group life premiums at Delphi’s Reliance Standard Life subsidiary. The group employee benefit combined ratio in the second quarter of 2007 was 92.4%, unchanged from the second quarter of 2006 and down from 93.2% for the full year 2006. Robert Rosenkranz, Chairman and Chief Executive Officer, commented, "Delphi Financial achieved strong growth in the second quarter both in premiums and, more importantly, on the bottom line. Our underwriting margins continue to improve as we benefit from Reliance Standard’s pricing discipline and the continuing firm market for Safety National’s excess workers’ compensation insurance. We achieved sharply higher new production at Reliance Standard in part due to continued growth in sales of voluntary products, including RSL BasicCare, our new limited benefit health insurance product.” Mr. Rosenkranz continued, "We remain confident about our growth prospects for the remainder of 2007 and beyond based on the positive outlook for our insurance businesses and our strong financial position, which gives us excellent financial flexibility to capitalize on attractive growth opportunities. Delphi’s solid balance sheet and conservative capital structure continued to receive increased recognition in the second quarter from the rating agencies. This recognition helped us successfully execute a $175 million hybrid securities offering in May.” Delphi’s net investment income in the second quarter of 2007 rose 14% to $69.1 million, driven by 15% growth in invested assets, which reached $4.7 billion at June 30, 2007. The tax equivalent yield on the Company’s investment portfolio in the second quarter of 2007 was 6.3%, unchanged from the second quarter of 2006. Delphi’s book value per share before accumulated other comprehensive income or loss(3) was $23.46 at June 30, 2007, compared with $23.35 at June 30, 2006. Conference Call On July 25, 2007 at 11:00 AM (Eastern time), Delphi will broadcast the Company’s second 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 July 25, 2007. Investors can also download Delphi’s second 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. After-tax net realized investment gains (losses) were $0.6 million and $(0.2) million, or $0.01 per share and $0.00 per share, for the second quarter of 2007 and 2006, respectively, and $0.4 million and $(1.0) million, or $0.01 per share and $(0.02) for the first half of 2007 and 2006, respectively. The after-tax loss on redemption of the 9.31% junior subordinated deferrable interest debentures underlying the 9.31% Capital Securities, Series A of Delphi Funding L.L.C., which occurred in the first quarter of 2007, was $1.4 million or $0.03 per share for the first half of 2007. After-tax losses from discontinued operations were $0 and $2.9 million, or $0.00 per share and $0.06 per share, for the second quarter of 2007 and 2006, respectively, and $0 and $2.9 million, or $0.00 and $0.06, per share for the first half of 2007 and 2006, respectively. 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. All per share amounts are on a diluted basis. (2) Annualized operating return on beginning equity, which is a non-GAAP financial measure, is based on operating earnings as defined in footnote (1) above divided by beginning shareholders’ equity. The Company believes that this non-GAAP measure is useful in analyzing the Company’s operating trends. (3) Diluted book value per share before accumulated other comprehensive income or loss, which is a non-GAAP financial measure, is based on shareholders’ equity excluding the effect of accumulated other comprehensive income or loss. The Company believes that, because accumulated other comprehensive income or 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 under GAAP, this non-GAAP measure is useful in analyzing the Company’s operating trends. DELPHI FINANCIAL GROUP, INC. Non-GAAP Financial Measures Reconciliation to GAAP (Unaudited; in thousands, except per share data)     Three Months Ended Six Months Ended 6/30/2007 6/30/2006 6/30/2007 6/30/2006 Income Statement Data   Operating earnings (Non-GAAP measure) $ 42,305 $ 36,015 $ 83,172 $ 69,660 Net realized investment gains (losses), net of taxes 609 (191 ) 361 (1,004 ) Loss on redemption of junior subordinated deferrable interest debentures, net of taxes   -   -     (1,425 )   -   Income from continuing operations 42,914 35,824 82,108 68,656 Discontinued operations, net of taxes   -   (2,923 )   -     (2,933 )   Net income (GAAP measure) $ 42,914 $ 32,901   $ 82,108   $ 65,723     Diluted results per share of common stock: Operating earnings (Non-GAAP measure) $ 0.82 $ 0.71 $ 1.61 $ 1.37 Net realized investment gains (losses), net of taxes 0.01 - 0.01 (0.02 ) Loss on redemption of junior subordinated deferrable interest debentures, net of taxes   -   -     (0.03 )   -   Income from continuing operations 0.83 0.71 1.59 1.35 Discontinued operations, net of taxes   -   (0.06 )   -     (0.06 )   Net income (GAAP measure) $ 0.83 $ 0.65   $ 1.59   $ 1.29       Balance Sheet Data 6/30/2007 12/31/2006   Shareholders' equity, excluding accumulated other comprehensive (loss) income $ 1,166,837 $ 1,155,675 Add: Accumulated other comprehensive (loss) income   (24,337 )   19,133     Shareholders' equity (GAAP measure) $ 1,142,500   $ 1,174,808     Diluted book value per share of common stock, excluding accumulated other comprehensive (loss) income (Non-GAAP measure) $ 23.46 $ 23.35 Add: Accumulated other comprehensive (loss) income   (0.44 )   0.35     Diluted book value per share of common stock (GAAP measure) $ 23.02   $ 23.70   Please see note 1 of the press release for a discussion regarding the usefulness of the non-GAAP financial measure "operating earnings." The Company believes that the non-GAAP financial measure "diluted book value per share excluding accumulated other comprehensive (loss) income" provides useful supplemental information because accumulated other comprehensive (loss) income 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 under GAAP. DELPHI FINANCIAL GROUP, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited; in thousands, except per share data)     Three Months Ended Six Months Ended 6/30/2007 6/30/2006 6/30/2007 06/30/2006 Revenue: Premium and fee income $ 324,337 $ 280,270 $ 646,584 $ 543,229 Net investment income 69,107 60,786 140,410 119,815 Net realized investment gains (losses) 937 (294 ) 555 (1,545 ) Loss on redemption of junior subordinated deferrable interest debentures underlying company-obligated mandatorily redeemable capital securities issued by unconsolidated subsidiaries   -   -     (2,192 )   -     394,381   340,762     785,357     661,499   Benefits and expenses: Benefits, claims and interest credited to policyholders 235,483 204,021 473,695 395,639 Commissions and expenses   90,814   78,879     181,365     154,640     326,297   282,900     655,060     550,279     Operating income 68,084 57,862 130,297 111,220   Interest expense: Corporate debt 4,591 5,093 9,645 9,779 Junior subordinated debentures 1,406 - 1,406 - Junior subordinated deferrable interest debentures underlying company-obligated mandatorily redeemable capital securities issued by unconsolidated subsidiaries 479 1,297 1,763 2,568 Income tax expense   18,694   15,648     35,375     30,217     Income from continuing operations 42,914 35,824 82,108 68,656   Discontinued operations, net of taxes   -   (2,923 )   -     (2,933 )   Net income $ 42,914 $ 32,901   $ 82,108   $ 65,723       Basic results per share of common stock: Income from continuing operations $ 0.85 $ 0.72 $ 1.63 $ 1.39 Discontinued operations - (0.06 ) - (0.06 ) Net income $ 0.85 $ 0.66 $ 1.63 $ 1.33   Weighted average shares outstanding 50,441 49,462 50,309 49,471   Diluted results per share of common stock: Income from continuing operations $ 0.83 $ 0.71 $ 1.59 $ 1.35 Discontinued operations - (0.06 ) - (0.06 ) Net income $ 0.83 $ 0.65 $ 1.59 $ 1.29   Weighted average shares outstanding 51,734 50,722 51,601 50,773   Dividends paid per share of common stock $ 0.09 $ 0.08 $ 0.17 $ 0.15 DELPHI FINANCIAL GROUP, INC. SUMMARIZED CONSOLIDATED BALANCE SHEETS (Unaudited; in thousands)     06/30/2007 12/31/2006 Assets: Investments: Fixed maturity securities, available for sale $ 3,562,062 $ 3,377,578 Short-term investments 226,592 400,239 Other investments   874,517     705,563   4,663,171 4,483,380   Cash 53,384 48,204 Cost of business acquired 162,194 267,920 Reinsurance receivables 417,347 410,593 Goodwill 93,929 93,929 Other assets 263,908 251,975 Assets held in separate account   122,320     114,474     Total assets $ 5,776,253   $ 5,670,475     Liabilities and Shareholders' Equity: Policy liabilities and accruals $ 2,264,777 $ 2,107,644 Policyholder account balances 1,096,835 1,119,218 Corporate debt 143,750 263,750 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 810,452 830,819 Liabilities related to separate account   122,320     114,474     Total liabilities 4,633,753 4,495,667   Shareholders' equity: Class A Common Stock 486 480 Class B Common Stock 55 57 Additional paid-in capital 494,716 474,722 Accumulated other comprehensive (loss) income (24,337 ) 19,133 Retained earnings 754,550 763,386 Treasury stock, at cost   (82,970 )   (82,970 )   1,142,500     1,174,808   Total liabilities and shareholders' equity $ 5,776,253   $ 5,670,475   DELPHI FINANCIAL GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited; in thousands)   Six Months Ended 6/30/2007 6/30/2006 Operating activities: Net income $ 82,108 $ 65,723 Adjustments to reconcile net income to net cash provided by operating activities: Change in policy liabilities and policyholder accounts 153,073 90,667 Net change in reinsurance receivables and payables (11,492 ) 15,233 Amortization, principally the cost of business acquired and investments 40,549 32,861 Deferred costs of business acquired (53,659 ) (49,607 ) Net realized losses on investments (555 ) 1,545 Net change in federal income tax liability 9,267 11,034 Other   (38,188 )   (18,313 ) Net cash provided by operating activities   181,103     149,143     Investing activities: Purchases of investments and loans made (665,152 ) (711,078 ) Sales of investments and receipts from repayment of loans 249,879 481,740 Maturities of investments 73,720 97,393 Net change in short-term investments 173,647 (109,554 ) Change in deposit in separate account   (330 )   217   Net cash used by investing activities   (168,236 )   (241,282 )   Financing activities: Deposits to policyholder accounts 55,642 148,809 Withdrawals from policyholder accounts (82,476 ) (63,290 ) Borrowings under revolving credit facility 38,000 29,000 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   4,566     (13,129 ) Net cash (used) provided by financing activities   (7,687 )   99,390     Increase in cash 5,180 7,251 Cash at beginning of period   48,204     28,493   Cash at end of period $ 53,384   $ 35,744