Superior Financial Performance

Delphi's operating earnings per share of $3.50 for 2010 reached the very top end of the range of guidance we provided at the beginning of the year. Most importantly, our operating return on beginning equity (ROE) of 14.3% was above our target range of 13% to 14%. This ROE level, comfortably above what our peers achieve, was driven by our industry-leading underwriting margins and robust investment performance.

Delphi's group employee benefits combined ratio (the sum of losses and expenses as a percentage of premiums) was 94.8% in 2010. While this was above the range we have reported over the past five years, our ratio remained markedly better than our competitors, many of whom reported combined ratios above 100%. Underwriting profit margins at Safety National remained consistent with prior years, but at Reliance Standard, we were impacted by an industry-wide increase in long-term disability claims incidence. The biggest increase was in self-reported ailments, such as soft tissue injuries, which are likely related to higher and more persistent unemployment rates than the U.S. economy has experienced in the last 30 years. Reliance Standard has taken aggressive actions on pricing and renewals to address this issue. As these actions take effect, we expect a gradual improvement in results during the year, so that our combined ratio for full year 2011 should be similar to 2010's.

Meaningful Diversification

Delphi benefited greatly in 2010 from having insurance lines that provided meaningful diversification, since these lines were not subject to the same competitive pressures or pricing cycles. Core premiums at Safety National rose 9% in 2010, reflecting expansion of its leading market share in its main product, excess workers' compensation for self-insured employers, and strong growth in assumed workers' compensation and casualty reinsurance.

In contrast, the impact of stubbornly high unemployment levels was felt most deeply at Reliance Standard, where the market for group employee benefits was intensely competitive in the first half of the year. We were encouraged by increases in premiums and production at Reliance Standard in the second half of 2010, driven by our strong position in the small case market, our emphasis on voluntary products, and our differentiated offering for larger cases with our Integrated Employee Benefits program.

Delphi's performance in 2010 was also boosted by a strong contribution from our asset accumulation segment, which is focused on individual fixed annuities. Operating profits from this segment increased 12% in 2010 and represented about 16% of Delphi's total operating profits. Annuity sales increased 52% to $377 million and funds under management were up 21% over the prior year to $1.7 billion. Our asset accumulation segment serves as an important hedge against economic pressures on our payroll-based insurance lines, since high savings rates create a strong environment for annuity sales, but a weak environment for the broader economy.

Excellent Investment Results

Despite the low interest rates prevailing in 2010, Delphi's investment income grew 10% to $351 million, driven by a 14% increase in invested assets and excellent total return performance. Total return for Delphi's investment portfolio was over 9% compared to the Barclays Aggregate bond index of 6.5%. Over the past decade, Delphi's total return beat the Barclays Aggregate by 120 basis points on an annualized basis, a record few fixed income investors have achieved. While we were able to put approximately $1.7 billion in new money to work in our portfolio during 2010, we continued to hold more cash than we would like, with $334 million in short-term investments or 5% of invested assets at the end of 2010.

We earned especially attractive yields on non-agency mortgage-backed securities purchased in early 2009. Delphi also benefited from favorable tax-equivalent yields on long-dated municipal bonds. Safety National can utilize the tax benefits, and generates among the longest liability durations of any insurer. Thus we are natural buyers of an under-appreciated market segment, and can create very attractive returns while maintaining a good match of asset and liability durations.

Delphi has also been historically successful in alternative investments. Over the past 10 years, we achieved average annual returns from this asset class of 11%. We comfortably exceeded that average in 2010, with returns from alternative investments of approximately 15%. At the end of 2010, alternative investments were within our target allocation of 4% to 5% of invested assets. These investments add meaningful diversification, providing enhanced investment income while paradoxically reducing overall portfolio volatility, since they are largely uncorrelated with our fixed income investments.

Improved Financial Flexibility

Delphi's balance sheet and capital position are the strongest they have been in the company's history. Shareholders' equity rose 17% in 2010; book value per share grew 15% to an all-time high of $28.16 at year end. We took several actions to reduce the drag of interest expense on our results, and expect pretax interest savings of more than $6 million in 2011 compared to 2010. These actions included issuing $250 million in 10-year notes, retiring $144 million of 30-year notes, and replacing our old bank credit facility with a new $300 million facility. Delphi ended the year with debt-to-capital ratio of 18% and holding company financial assets at a comfortable $107 million.

The capital positions of our insurance subsidiaries remain very strong. Reliance Standard ended the year with a regulatory risk-based capital (RBC) ratio of 344%, up from 331% at the end of 2009. Safety National continues to score very highly on the capital models of individual rating agencies, including A.M. Best. The rating agencies have recognized our improved balance sheet and capital position, and they all have a stable ratings outlook for Delphi. We felt comfortable increasing our cash dividend by 10% in the third quarter, and we closed the year with excellent financial flexibility to support the growth of our insurance businesses and the creation of shareholder value.

Positioned for Long-Term Growth

Delphi's outlook for 2011 is for continued growth, though not at the rates we have achieved historically. We remain cautious since we believe sluggish payrolls will continue to constrain premiums and low interest rates will restrain investment yields. That being said, we anticipate continued growth at Safety National from expansion of our market leadership and expect that Reliance Standard will maintain a strong competitive position and superior underwriting margins. We also believe our asset accumulation business will continue to make an important contribution to profits as we capitalize on favorable trends in the fixed annuity market. We expect to achieve operating return on beginning equity in the range of 13% to 14%, consistent with our long-term targets.

Over longer-term horizons, we remain optimistic that if economic and employment trends improve, Delphi's operating earnings per share growth can return to historical levels of 10% to 12% on average. In any event, we remain confident in our ability to build long-term shareholder value by achieving superior financial returns from our well-diversified mix of attractive businesses.

Respectfully submitted,

Robert Rosenkranz

Chairman of the Board