HGIC Harleysville Grp. Inc. (MM)

Delphi Financial Group’s (DFG) second quarter 2011 core operating income of 86 cents per share missed the Zacks consensus Estimate by 5 cents but compared favorably with 79 cents reported in the prior-year quarter.

The earnings miss was driven by lower operating income at Delphi’s Asset Accumulation segment, partly offset by higher operating income at its Group Employee Benefit segment.

Total revenue for the quarter was $469.3 million, up 12.6% year over year, led by increased fees and premium income, higher net investment income and lower impairment losses.

Delphi’s core Group Employee Benefit Segment premiums hiked 8.5% year over year to $366.5 million. This premium growth was driven by a 16.6% increase in core premiums at Delphi’s Safety National subsidiary, with production surging 77.2%. At Delphi’s Reliance Standard Life unit, core premiums grew 5.9%, while core production dropped 7.9%.

Operating income for the segment was $73.1 million, an 11.9% increase from the second quarter of 2010. Combined ratio improved to 93.8% from 94.6% in the comparable period last year, primarily due to an improvement in loss ratio resulting from better pricing and other actions taken to address elevated long-term disability claims incidence experienced in the second half of 2010.

Delphi’s Asset Accumulation Segment, which is primarily focused on individual fixed annuities, witnessed new sales of $149.0 million in the quarter, up 90.9% year over year. Funds under management at June 30, 2011 totaled $1.9 billion, up 26.6% year over year. Operating income for the segment was $9.6 million, a decrease of 14.9% from the prior-year quarter. Profitability during the quarter was impacted by lower-than-expected investment income.

Investment income grew 6.3% year over year to $83.2 million due to higher invested assets and solid returns from alternative investments, partially mitigated by lower yields.

Combined ratio for the reported quarter stood at 93.8%, down 80 basis points from the year-earlier period.

Delphi maintained a low debt-to-capital ratio of 16.9% at second quarter end compared with 17.9% at prior-quarter and 18.0% at prior-year-quarter end. 

The reported quarter’s annualized operating return on beginning equity was 12.2% as against 12.9% during the prior-year quarter. Diluted book value per share was $28.00 at June 30, 2011, up 5.4% from December 2010.

During the second quarter of 2011, Delphi announced a 9% dividend hike to 12 cents from the previous level of 11 cents.  The increased dividend was paid on June 8, 2011. The company has been consistently increasing dividends since its initiation of dividend payment in 2001. Delphi has grown its annual dividend by an average of 16.7% over the past five years.

Wilmington, Delaware-based Delphi closely competes with FBL Financial Group Inc. (FFG), Harleysville Group Inc. (HGIC), HCC Insurance Holdings (HCC), and Markel Corp. (MKL).

 
DELPHI FINL GRP (DFG): Free Stock Analysis Report
 
FBL FINL GRP-A (FFG): Free Stock Analysis Report
 
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HARLEYSVILLE GP (HGIC): Free Stock Analysis Report
 
MARKEL CORP (MKL): Free Stock Analysis Report
 
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