Delphi Falls Short by a Penny - Analyst Blog
February 16 2012 - 9:09AM
Zacks
Delphi Financial Group, Inc.’s (DFG)
fourth-quarter 2011 core operating income of 88 cents per share
came in just a penny short of the Zacks Consensus Estimate.
Earnings also fell 9% year over year due to lower investment income
and higher expenses.
Full year 2011 earnings of $3.43 per share also missed the Zacks
Consensus Estimate by a penny. Full-year earnings were also up by a
penny from the previous year.
Total revenue for the quarter increased 6.0% year over year to
$490.6 million, led by higher premium and fee income, partly offset
by lower investment income and net realized investment losses of
$9.1 million. The company realized net realized investment gains of
$1.9 million in the prior-year quarter.
Delphi’s net investment income in the fourth quarter was $95.5
million, a decrease of 6.4% from $102.1 million in the fourth
quarter of 2010. A tough environment for fixed income securities,
declining interest rates and tight spreads affected fourth quarter
investment income.
Full-year 2011 total revenue increased 9.4% year over year to
$1.9 billion.
Operating expenses for the quarter increased 12.2% year over
year to $430.5 million due to higher benefits and claims along with
higher commissions and other expenses.
Segment Details
Delphi’s core Group Employee Benefit Segment
premiums increased 11.0% year over year to $384.26 million, while
core production declined 10.2%. The premium growth was driven by an
18.8% increase in core premiums at Delphi’s Safety National
subsidiary, while production declined 1.6%. Core premiums increased
8.2% at Delphi’s Reliance Standard Life subsidiary and core
production declined 11.2%.
Operating income for the segment was $73.2 million, down 3.4%
year over year. Combined ratio declined slightly to 96.2%
from 96.5% recorded in the year-ago quarter.
Delphi’s Asset Accumulation
Segment, which is primarily focused on individual
fixed annuities, recorded new sales of $85.5 million, down
20.0% year over year. Funds under management, as of December 31,
2011, increased 20.1% year over year to $2.1 billion.
Operating income for the segment was $11.2 million, a decrease of
25.7% year over year.
Shareholders’ equity as of December 31, 2011 increased 15.8% to
$1.77 billion from $1.53 billion on December 31, 2010. Diluted book
value per share touched a record $31.60 as of December 31, 2011, up
16.6% from $27.07 as of December 31, 2010.
As of December 31, 2011, total capitalization was $2.3 billion,
including $375 million of corporate debt and $175 million of junior
subordinated debentures. Debt-to-total capitalization was 16.1% as
of December 31, 2011 and holding company financial resources were a
comfortable $172.7 million.
Takeover Update
During the quarter, Delphi Financial agreed to its acquisition
by Tokio Marine Holdings Inc. (ADR) (TKOMY) for
$2.7 billion in cash. The shareholders will get $43.875 per share.
There will also be a $1 per share dividend, which will be payable
to the shareholders prior to the closing of the deal.
The transaction is expected to close in the second quarter of
2012. The takeover price represents approximately 60% premium over
the trailing 12-month average of about $27.50 per share. This is
definitely a good return for Delphi investors. We therefore
have a Neutral stance on the shares.
DELPHI FINL GRP (DFG): Free Stock Analysis Report
TOKIO MARINE HL (TKOMY): Free Stock Analysis Report
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