S&P Announces: Delphi Financial Group Inc. Ratings Affirmed; Outlook Stable.

NEW YORK -- On Aug. 17, 2004, Standard & Poor's Ratings Services affirmed its 'A' counterparty credit and financial strength ratings on Delphi Financial Group Inc.'s (DFG) core operating companies: Reliance Standard Life Insurance Co. and its New York-based subsidiary, First Reliance Standard Life Insurance Co. (both collectively, RSL), and Safety National Casualty Corp. (SNCC). The group is collectively known as Delphi.

Standard & Poor's also affirmed its 'BBB' counterparty credit and senior unsecured debt ratings and BB+ preferred stock rating on DFG.

The outlook is stable.

The ratings on Delphi reflect strong diversified niche competitive positions supported by a solid distribution force, consistently strong operating results, appropriate subsidiary capital adequacy, very strong financial leverage and coverage, and strong operating company liquidity. Partially offsetting these strengths are the competitive pressures and modest scope of its chosen market niches that limit the potential for profitable growth and management's appetite for concentrated investment risks.

DFG is a publicly traded insurance holding company, which had consolidated assets of $4.6 billion as of June 30, 2004, and its subsidiaries provide financial services through the production, distribution, and administration of insurance and investment products.

Outlook

In the long term, Standard & Poor's believes management's ability to improve the group's risk profile and ensure the stability of earnings will depend on how successfully the organization can decrease expenses, maintain pricing discipline, profitably expand market scope, and maintain prudent investment and risk management philosophies and practices.

Standard & Poor's expects Delphi's solid performance will continue through at least 2005 with debt plus preferred financial leverage maintained at current levels of less than 25% and fixed-charge coverage of more than 8x. Also, the reduced near-term need for significant dividends from operating subsidiaries will allow organically generated capital to accumulate and support further growth and consolidated capital adequacy of more than 160%.

At RSL, group insurance sales are expected to increase 10% in both 2004 and 2005. GAAP earnings are expected to increase by 5%-10% annually and remain a strength of the ratings. RSL's liquidity ratio will remain strong at more than 275%. In 2004, SNCC's operating performance will mark a continuation of the extremely strong 2003 results. Standard & Poor's expects capitalization at both SNCC and RSL to improve gradually and maintain the levels necessary to continue supporting the reduced reinsurance protection and the relatively narrow competitive focus.

Major Rating Factors

--Since 2000, DFG's financial profile has improved sufficiently to be considered a strength of the ratings rather than a weakness. In 2000, DFG's GAAP debt plus preferred leverage was about 40% but has since been maintained between 20%-25% and as of June 2004 is a comfortable 21.5%. GAAP fixed-charge coverage estimated at more than 10x as of June 2004 is considered very strong. Standard & Poor's generally expects all investment-grade insurance groups to maintain minimal statutory fixed-charge coverage of at least 2x. In 2000, statutory fixed-charge coverage was only 1.5x but has been maintained above minimum expectations since then and as of June 2004 is an acceptable 2.7x.

--SNCC's competitive position is considered strong but concentrated in excess workers' compensation. A leading market share estimated at 25% of the excess workers' compensation market and consistently strong earnings well surpassing industry averages demonstrate this strength. This competitive strength is somewhat mitigated by SNCC's concentration in a relatively small niche (SNCC's 2003 excess workers' compensation premium totaled $148 million), thus limiting the long-term potential for profitable growth in a market niche that constitutes 77% of SNCC's 2003 business.

--At RSL, the group employee benefits and asset accumulation segments are supported by a solid distribution force. RSL is focused primarily on the small to midsize group market niche and maintains a good mix of group life, long-term and short-term disability (LTD; STD), and accident products and a modest fixed-annuity business pursued opportunistically and which Standard & Poor's views as noncore. RSL maintains respectable market share, based on sales premium, in LTD (eighth in 2003), STD (ninth), and group life (10th), though to increase these rankings meaningfully sales would not only have to significantly exceed industry averages but would have to increase by multiples of current levels. The growth potential in these markets is good but is limited for RSL by its focus on limited niches where it can offer value added within the much larger group segments.

--Delphi also provides integrated disability and absence management services nationwide through Matrix Absence Management Inc. (Matrix), which was acquired in June 1998. Matrix's Integrated Employee Benefits (IEB) program enhances RSL's ability to market its group products to large employers. Since its acquisition, Matrix has grown steadily to more than 200 clients nationwide in 2003 including 137 IEB clients, which it shares with RSL. In its first five full years ended December 2003, Matrix increased its premium and fee base more than 10-fold to more than $100 million annually.

--Delphi's suite of focused niche business are mutually complementary and provide a competitive advantage in serving its chosen market segments. SNCC's and RSL's operating results are a leading strength of the ratings on the group and help to mitigate the potential for earnings volatility arising from its concentrated niches and RSL's significant group disability business that is relatively sensitive to economic cycles. Operating results at RSL in 2003, as measured by Standard & Poor's model, were extremely strong and have benefited from favorable mortality results and stable expense ratios. In 2003, SNCC reported net income of $30 million on a combined ratio of 97.1% and ROR of 16.7%. Operating performance in 2003 continued the improvement from 2001's net loss of $10 million, which was due to a number of random events well above historical norms that is unlikely to recur.

--Management has historically shown a strong appetite for concentrated investment risk in both corporate credit and interest rate exposures. Although there has been some overall improvement in recent years, the group's investment philosophy is somewhat more aggressive than most of its peers, exposing the entire organization to potentially significant swings in capital and future earnings. Although a public company, influence over management, operations, and shareholder voting power is concentrated in a single individual, Robert Rosenkranz, who is DFG's President, CEO, and Chairman of the Board and who exercises 49.9% of voting shares, as a result Standard & Poor's sees less shareholder influence on management policy relative to other public entities.

--Delphi's 2003 consolidated capital adequacy ratio (CAR) of 172% is appropriate for the ratings and modestly more than the 160% CAR that must be maintained to be consistent with the ratings. RSL's 2003 CAR was 146% and SNCC's CAR was 203%. Both are modestly more than the 140% and 200% CARs that must respectively be maintained to be consistent with the ratings and their respective risk profiles.

Ratings List

Delphi Financial Group Inc.
  Counterparty credit rating      BBB/Stable/--
  Senior Unsecured rating         BBB
  Preferred Stock rating(A)       BB+
(A) Guaranteeing capital securities of Delphi Funding L.L.C.

Reliance Standard Life Insurance Co.
First Reliance Standard Life Insurance Co.
Safety National Casualty Corp.
  Counterparty credit rating      A/Stable/--
  Financial strength rating       A/Stable

Complete ratings information is available to subscribers of RatingsDirect, Standard & Poor's Web-based credit analysis system, at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com; under Credit Ratings in the left navigation bar, select Find a Rating, then Credit Ratings Search.