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Rating Action:

MOODY'S UPGRADES DELPHI FINANCIAL'S CREDIT RATINGS (SENIOR DEBT TO Baa3) AND INSURANCE FINANCIAL STRENGTH RATING OF RELIANCE STANDARD LIFE T0 A3

22 Oct 2004
MOODY'S UPGRADES DELPHI FINANCIAL'S CREDIT RATINGS (SENIOR DEBT TO Baa3) AND INSURANCE FINANCIAL STRENGTH RATING OF RELIANCE STANDARD LIFE T0 A3

New York, October 22, 2004 -- Moody's Investors Service upgraded the credit ratings of Delphi Financial Group, Inc. (Delphi - senior debt rating to Baa3 from Ba1) as well as Delphi's primary life and health insurance company, Reliance Standard Life Insurance Company (Reliance Standard - insurance financial strength rating to A3 from Baa1). The rating agency also upgraded the preferred stock rating of Delphi Funding L.L.C. to Ba1 from Ba2. The outlook for all of the above referenced ratings is now stable. This concludes a review for possible upgrade that was initiated on June 4, 2004.

The rating agency said the upgrade reflects the improvements in Delphi's earnings over the last two years (both on a statutory and GAAP basis) as well as its more conservative capital structure, and an expectation that these positive financial trends will continue over the near to medium term. Additionally, Delphi has reduced its reliance on bank loan financing with a more permanent capital structure now in place with modest refinancing risk over the medium term.

The Baa3 senior debt rating reflects the established position of Delphi's primary life insurance company, Reliance Standard, in the group employee benefits market, as well as Delphi's ownership of Safety National, an excess worker's compensation insurer. Reliance Standard is well positioned in the small to medium size case group employee benefits market and its solid underwriting discipline is demonstrated by its consistently strong combined ratio for this business.

These strengths are tempered by the modest capitalization of the insurance companies, the group's exposure to alternative investments (albeit less than in prior years), and the inherent net income volatility in the company's excess workers compensation line. Despite the company's long track record in excess workers compensation, this low frequency/high severity coverage can generate significant earnings volatility as was highlighted most recently in 2001. Moody's notes that the company does have reinsurance to mitigate its exposure to extreme events. In addition, the rating agency believes that Delphi should be able to re-underwrite or non-renew some of its contracts with high employee concentrations if the Terrorism Risk Insurance Act (TRIA), which provides the company protection in the case of foreign terrorist acts, was not renewed after December 31, 2005.

Moody's added that although the expanding New York Attorney General's Office and regulatory investigations into commissions and other payments from insurers to insurance brokers and consultants represent a potential risk to any company in the employee benefits business, there is currently no indication that Delphi's insurance subsidiaries are under regulatory scrutiny or investigation. The rating agency will monitor the scope and developments of the investigations in this sector and any possible impact on Delphi as additional information becomes available.

The current ratings on Delphi and Reliance Standard incorporate Moody's expectations that:

- Delphi's consolidated debt to capital ratio will not exceed 25% (including trust preferred securities as debt).

- Projected cash on cash coverage of holding company obligations (as calculated by Moody's) is greater than 2.5 times.

- Delphi does not use its bank facility for long-term financing.

- Reliance Standard and Safety National maintain NAIC company action level risk based capital (RBC) ratios of at least 275% and 170%, respectively.

- Reliance Standard maintain its below investment grade bond exposure to no more than 10% of its total bond portfolio and Delphi's total alternative assets (primarily private equity investment funds) remain below 10% of consolidated shareholder's equity.

- Delphi will not be adversely impacted by the industry-wide investigations into commissions and other payments from insurers to insurance brokers and consultants.

Lastly, Moody's expects Delphi to maintain a balance between its employee benefits and excess workers compensation business. Rapid growth of excess workers compensation business that adversely alters the risk profile of the company would place downward pressure on the ratings. In addition, significant losses on the excess workers compensation business (e.g. losses that exceed core operating earnings) would result in downward rating pressure. Heavy reliance on alternative investments (private equity) to produce excess investment income could also negatively impact the company's current ratings.

The following ratings were upgraded with a stable outlook:

Delphi Financial Group, Inc. -- senior debt rating to Baa3 from Ba1; prospective senior debt rating to (P)Baa3 from (P)Ba1; prospective senior subordinated debt shelf rating to (P)Ba1 from (P)Ba2; prospective junior subordinated debt shelf rating to (P)Ba1 from (P)Ba2; prospective preferred stock shelf rating to (P)Ba2 from (P)Ba3;

Delphi Funding L.L.C. -- preferred stock rating to Ba1 from Ba2; prospective preferred stock shelf rating to (P)Ba1 from (P)Ba2;

Reliance Standard Life Insurance Company -- insurance financial strength rating to A3 from Baa1.

Delphi Financial Group, Inc. is a financial services holding company with consolidated GAAP assets of nearly $4.6 billion and consolidated GAAP equity of $835 million at June 30, 2004. Reliance Standard Life Insurance Company, a wholly-owned subsidiary of Delphi, reported statutory assets and capital and surplus of $2.4 billion and $310 million, respectively at June 30, 2004.

Moody's insurance financial strength ratings are opinions of the ability of insurance companies to repay punctually senior policyholder claims and obligations. For more information, visit our website at www.moodys.com/insurance.

New York
Robert Riegel
Managing Director
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Scott Robinson
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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