Fresh Off Debt Reduction, Delphi Hopes to Capitalize.

Delphi Financial Group Inc. has fully implemented its debtreduction strategy and believes it is well-positioned for growth this year in its integrated employee-benefit services business, said Robert Rosenkranz, chairman, president and chief executive officer.

"Management's sole focus is now on insurance operations," Rosenkranz said. "We decided to undertake this even though it cost us earnings."

Analysts and investors had been critical of Delphi's previous strategy of leveraging its earnings. They said the company was taking too much risk, was exposing itself to unnecessary volatility and that the company was too difficult to follow, he said.

And the company also was "taking heat" from rating agencies, he said. "If shareholders were not reaping rewards, then we decided we might as well pay down the debt," he said.

Delphi reduced its corporate debt by $150 million in the first quarter, bringing its debt-to-capitalization ratio to 15%. The company reported core employee-benefit premiums of $109.7 million in the first quarter.

Rosenkranz reported that Delphi has a five-year annual growth rate in after-tax operating profit of 22% and that it expects 10% to 12% in the future. Driving those profits have been a 14% historic growth in core premium and a combined ratio of under 100; in the first quarter, it was 92. He pointed out that management owns more than 40% of Delphi stock, so it is "highly motivated and entrepreneurial."

Rosenkranz is especially bullish about integrated disability, which simplifies administration for employers. Employee absences due to long-term disability, short-term disability, workers' comp and family medical leaves can create "administrative nightmares" for employers, he said.

"But we're one stop. We cover it, no matter what it is, and we deal with it," he said. Absence management and integrated disability also provide opportunities for Delphi to write business with large employers, he added, since it helps the company to "keep up the margins" in a segment that is normally able to negotiate lower margins for its coverage.

He also is optimistic about growth prospects in the company's target markets of small to midsize companies, where there is limited competition. In workers' comp, the company holds a strong niche: It writes excess workers' comp, which Rosenkranz said is particularly appropriate for employers that self-insure the primary risk. Excess workers' comp limits an employer's liability, and Rosenkranz said it is highiy profitable, because Delphi can collect premiums today but may not have to pay a claim for 10 years.

Rosenkranz said a couple of Delphi's product lines traditionally are indicators of a weakening national economy, but he has not yet seen any evidence of weakening. Employees tend to file more disability claims in anticipation of being laid off, but claims have not increased significantly in recent months, he said. Also, the company has seen little difference in travel accident claims, an indication that insured companies have not significantly changed their travel frequency.

Delphi Financial Group

A.M. Best #: 58036

Not Rated Headquarters: New York 

Lines of Business: Group employee benefits in life, workers' comp, disability, travel accident insurance, dental