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A.M. Best Affirms Ratings of Delphi Financial Group, Inc. and Its Subsidiaries

  A.M. Best Affirms Ratings of Delphi Financial Group, Inc. and Its
  Subsidiaries

Business Wire

OLDWICK, N.J. -- March 5, 2013

A.M. Best Co. has affirmed the issuer credit ratings (ICR) of “a+” and the
financial strength rating (FSR) of A (Excellent) of Reliance Standard Life
Insurance Company (Reliance Standard) (Chicago, IL) and First Reliance
Standard Life Insurance Company (First Reliance) (New York, NY), the
life/health subsidiaries of Delphi Financial Group, Inc. (DFG). Concurrently,
A.M. Best has affirmed the ICRs of “a+” and the FSR of A (Excellent) of Safety
National Casualty Corporation (St. Louis, MO) and its reinsured affiliate,
Safety First Insurance Company (Chicago, IL) (together referred to as Safety
National), the property/casualty subsidiaries of DFG. Additionally, A.M. Best
has affirmed the ICR of “bbb+” and the existing debt ratings of DFG. The
outlook for all ratings is stable. (Please see below for a detailed list of
the debt ratings.) DFG is a direct subsidiary of Tokio Marine & Nichido Fire
Insurance Co., Ltd., whose ultimate parent is Tokio Marine Holdings, Inc.
(Tokio Marine), Japan’s largest non-life insurance organization.

The ratings affirmations of DFG’s life/health subsidiaries reflect its
consistent operating results and sound capitalization, along with their
recognized position as a top-tier group employee benefits carrier. Reliance
Standard, together with its New York marketing arm, First Reliance, continue
to report favorable operating results driven by profitability of their core
employee benefit product lines and supplemented by their annuity operations.
The companies offer a diversified portfolio of true group and voluntary
products as well as turnkey disability insurance through their Custom
Disability Solutions (CDS) division. DFG continues to report net premium
growth and stable persistency across most of its product lines and rising
assets under management within its annuity operations. Despite prolonged low
interest rates, the life/health companies’ spreads are holding up due to
adjustments in credited rates and opportunistic investing. A.M. Best notes
that recent results continue to reflect the company’s proactive underwriting
discipline, including continued pricing adjustments in its somewhat volatile
group disability business line.

Although recognized as a core competency for DFG, A.M. Best continues to
closely monitor the investment allocations at the life/health subsidiaries.
While historically well-managed, the group has experienced some volatility
related to its alternative investments and holds a sizable amount of lower
grade corporate bonds and mortgage-backed structured securities. A.M. Best
notes that the group’s allocation to alternative assets has declined somewhat
over the past few years. However, a recent uptick in subprime residential
mortgage-backed securities reflects DFG’s above-average tolerance for
investment risk and will continue to be closely monitored. Additional concerns
related to the employee benefits business reflect the potential effect of a
continued sustained level of unemployment and sluggish wage growth as well as
the increasingly competitive environment.

Safety National's ratings affirmations reflect the property/casualty group’s
strong operating performance, adequate risk-adjusted capitalization achieved
in part through explicit support from its intermediate parent company, DFG,
and its established market presence within the excess workers' compensation
market.

Partially offsetting these positive rating factors are areas of ongoing
adverse loss release development occurring on accident years 2004 and prior
and the impact of investment market fluctuations, which has hampered the
group's ability to internally generate capital. Despite these concerns, the
outlook recognizes the group's historically solid profitability levels, which
outperform its peer composite, and A.M. Best's expectation that Safety
National should generate surplus growth through strong earnings over the near
term.

The positive rating attributes reflect the group's disciplined underwriting
standards, service-oriented business approach and experienced management team.
Furthermore, A.M. Best believes Tokio Marine is fully committed to supporting
Safety National's operations. The ratings also acknowledge the inherent
synergies between DFG’s insurance entities, which include the sharing of
management expertise, client bases, products, distribution and expenses.

As a more recent member of the Tokio Marine Group of companies, DFG has
potential to benefit from the strength of its parent through the receipt of
capital support, if needed. Currently, the group maintains an appropriate
debt-to-capital ratio at approximately 22% (including some equity credit for
hybrid securities) and a good interest coverage ratio at about five times.

A positive rating action could occur once DFG’s insurance operations become
more fully integrated, and/or the companies receive explicit support from
Tokio Marine. Factors that could lead to a negative rating action include a
material decline in stand-alone operating profitability, increased investment
risk and/or realized losses beyond A.M. Best’s expectations (which would
reduce risk-adjusted capital levels), or a change in A.M. Best's view of the
group's strategic importance of DFG to Tokio Marine.

The following debt ratings have been affirmed:

Delphi Financial Group, Inc.—

-- “bbb+” on $250 million 7.875 % senior unsecured notes, due 2020

-- “bbb-” on $175 million fixed/floating rate junior subordinated notes, due
2037

The methodology used in determining these ratings is Best’s Credit Rating
Methodology, which provides a comprehensive explanation of A.M. Best’s rating
process and contains the different rating criteria employed in the rating
process. Best’s Credit Rating Methodology can be found at
www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world's oldest and most
authoritative insurance rating and information source. For more information,
visit www.ambest.com.

       Copyright © 2013 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

Contact:

A.M. Best Company
Kate Steffanelli—L/H, 908-439-2200, ext. 5063
Senior Financial Analyst
kathryn.steffanelli@ambest.com
or
Brian O’Larte—P/C, 908-439-2200, ext. 5138
Senior Financial Analyst
brian.o’larte@ambest.com
or
Rachelle Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
rachelle.morrow@ambest.com
or
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President Public Relations
james.peavy@ambest.com