UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 1-11917

FBL Financial Group, Inc.

(Exact name of registrant as specified in its charter)

Iowa		42-1411715
(State of incorporation)		(I.R.S. Employer Identification No.)
5400 University Avenue, West Des Moines, Iowa		50266-5997
(Address of principal executive offices)		(Zip Code)

(515) 225-5400

(Registrant’s telephone number, including area code)

 

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o

Accelerated filer þ

Non-accelerated filer o (Do not check if a smaller reporting company)

Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Title of each class		Outstanding at August 3, 2009
Class A Common Stock, without par value		29,269,247
Class B Common Stock, without par value		1,192,990

 

 

FBL FINANCIAL GROUP, INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2009
TABLE OF CONTENTS

PART I.       FINANCIAL INFORMATION
Item 1.            Financial Statements (Unaudited)
Consolidated Balance Sheets			2
Consolidated Statements of Operations			4
Consolidated Statements of Changes in Stockholders’ Equity			5
Consolidated Statements of Cash Flows			6
Notes to Consolidated Financial Statements			8
Item 2.             Management’s Discussion and Analysis of Financial Condition and Results of Operations			26
Item 3.            Quantitative and Qualitative Disclosures About Market Risk			58
Item 4.            Controls and Procedures			58
PART II.       OTHER INFORMATION
Item 4.            Submission of Matters to a Vote of Security Holders			59
Item 6.            Exhibits			59
SIGNATURES			60
EX-3.II.A
EX-10.4.A
EX-10.29(A)
EX-10.30
EX-31.1
EX-31.2
EX-32

FBL FINANCIAL GROUP, INC.

		June 30,				December 31,
		2009				2008
Assets
Investments:
Fixed maturities — available for sale, at market (amortized cost: 2009 - $10,334,654; 2008 - $10,505,084)		$	9,256,407			$	8,965,443
Equity securities — available for sale, at market (cost: 2009 - $62,369; 2008 - $51,958)			53,440				44,863
Mortgage loans on real estate			1,336,165				1,381,854
Derivative instruments			36,621				12,933
Investment real estate			2,559				2,559
Policy loans			185,393				182,421
Other long-term investments			1,679				1,527
Short-term investments			535,343				262,459
Total investments			11,407,607				10,854,059
Cash and cash equivalents			5,988				37,710
Securities and indebtedness of related parties			19,028				18,921
Accrued investment income			132,414				136,893
Amounts receivable from affiliates			7,426				15,791
Reinsurance recoverable			113,601				107,854
Deferred policy acquisition costs			1,320,993				1,365,609
Deferred sales inducements			440,874				420,147
Value of insurance in force acquired			51,373				63,121
Property and equipment, less allowances for depreciation of $62,765 in 2009 and $63,730 in 2008			19,682				23,074
Current income taxes recoverable			13,478				14,389
Deferred income tax benefit			121,486				305,080
Goodwill			11,170				11,170
Collateral held for securities lending and other transactions			—				67,953
Other assets			91,782				41,623
Assets held in separate accounts			595,047				577,420
Total assets		$	14,351,949			$	14,060,814

FBL FINANCIAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands)

		June 30,				December 31,
		2009				2008
Liabilities and stockholders’ equity
Liabilities:
Policy liabilities and accruals:
Future policy benefits:
Interest sensitive and index products		$	10,373,461			$	10,531,967
Traditional life insurance and accident and health products			1,350,597				1,328,506
Unearned revenue reserve			32,343				34,663
Other policy claims and benefits			29,199				38,256
			11,785,600				11,933,392
Other policyholders’ funds:
Supplementary contracts without life contingencies			512,998				504,885
Advance premiums and other deposits			178,961				167,473
Accrued dividends			9,595				10,241
			701,554				682,599
Amounts payable to affiliates			1,671				247
Short-term debt			—				59,446
Long-term debt payable to affiliates			100,000				100,000
Long-term debt			271,044				271,005
Collateral payable for securities lending and other transactions			33				69,656
Other liabilities			303,101				108,588
Liabilities related to separate accounts			595,047				577,420
Total liabilities			13,758,050				13,802,353
Stockholders’equity:
FBL Financial Group, Inc. stockholders’ equity:
Preferred stock, without par value, at liquidation value – authorized 10,000,000 shares, issued and outstanding 5,000,000 Series B shares			3,000				3,000
Class A common stock, without par value – authorized 88,500,000 shares, issued and outstanding 29,273,391 shares in 2009 and 28,975,889 shares in 2008			106,413				104,090
Class B common stock, without par value – authorized 1,500,000 shares, issued and outstanding 1,192,990 shares			7,522				7,522
Accumulated other comprehensive loss			(349,526	)			(649,758	)
Retained earnings			826,403				793,511
Total FBL Financial Group, Inc. stockholders’ equity			593,812				258,365
Noncontrolling interest			87				96
Total stockholder’s equity			593,899				258,461
Total liabilities and stockholders’ equity		$	14,351,949			$	14,060,814

See accompanying notes.

FBL FINANCIAL GROUP, INC.

		Three months ended June 30,								Six months ended June 30,
		2009				2008				2009				2008
Revenues:
Interest sensitive and index product charges		$	52,991			$	31,785			$	94,131			$	60,906
Traditional life insurance premiums			40,954				38,769				78,908				74,902
Net investment income			182,772				172,173				366,841				340,667
Derivative income (loss)			17,000				(31,685	)			(7,601	)			(130,581	)
Net realized capital gains on sales of investments			33,528				4,007				35,479				4,007
Total other-than-temporary impairment losses			(48,724	)			(78,028	)			(79,851	)			(107,375	)
Non-credit portion in other comprehensive loss			21,317				—				30,823				—
Net impairment loss recognized in earnings			(27,407	)			(78,028	)			(49,028	)			(107,375	)
Other income			4,661				6,955				9,247				12,820
Total revenues			304,499				143,976				527,977				255,346
Benefits and expenses:
Interest sensitive and index product benefits			109,402				104,477				223,838				209,238
Change in value of index product embedded derivatives			51,350				(30,321	)			42,681				(133,491	)
Traditional life insurance benefits			24,453				22,602				46,557				49,854
Increase in traditional life future policy benefits			10,110				11,037				19,828				22,427
Distributions to participating policyholders			5,057				5,023				9,978				10,293
Underwriting, acquisition and insurance expenses			56,203				46,992				128,166				93,683
Interest expense			6,116				4,448				13,048				8,899
Other expenses			5,550				6,137				10,480				12,092
Total benefits and expenses			268,241				170,395				494,576				272,995
			36,258				(26,419	)			33,401				(17,649	)
Income taxes			(11,982	)			9,996				(10,726	)			7,538
Equity income (loss), net of related income taxes			88				(159	)			161				(42	)
Net income (loss)			24,364				(16,582	)			22,836				(10,153	)
Net loss attributable to noncontrolling interest			54				7				92				16
Net income (loss) attributable to FBL Financial Group, Inc.		$	24,418			$	(16,575	)		$	22,928			$	(10,137	)
Earnings (loss) per common share		$	0.81			$	(0.56	)		$	0.76			$	(0.34	)
Earnings (loss) per common share – assuming dilution		$	0.81			$	(0.56	)		$	0.76			$	(0.34	)
Cash dividends per common share		$	0.0625			$	0.1250			$	0.1875			$	0.2500

See accompanying notes.

FBL FINANCIAL GROUP, INC.

		FBL Financial Group, Inc. Stockholders’ Equity
						Class A and				Accumulated
		Series B				Class B				Other								Non-				Total
		Preferred				Common				Comprehensive				Retained				controlling				Stockholders’
		Stock				Stock (a)				Loss				Earnings				Interest				Equity
Balance at January 1, 2008		$	3,000			$	108,746			$	(36,345	)		$	827,490			$	91			$	902,982
Change in measurement date of benefit plans			—				—				—				(770	)			—				(770	)
Comprehensive loss:
Net loss — six months ended June 30, 2008			—				—				—				(10,137	)			(16	)			(10,153	)
Change in net unrealized investment gains/losses			—				—				(150,434	)			—				—				(150,434	)
Change in underfunded status of other postretirement benefit plans			—				—				14				—				—				14
Total comprehensive loss (b)																							(160,573	)
Adjustment resulting from capital transactions of equity investee			—				5				—				—				—				5
Stock-based compensation, including the issuance of 144,199 common shares under compensation plans			—				4,569				—				—				—				4,569
Dividends on preferred stock			—				—				—				(75	)			—				(75	)
Dividends on common stock			—				—				—				(7,453	)			—				(7,453	)
Receipts related to noncontrolling interest			—				—				—				—				55				55
Balance at June 30, 2008		$	3,000			$	113,320			$	(186,765	)		$	809,055			$	130			$	738,740
Balance at January 1, 2009		$	3,000			$	111,612			$	(649,758	)		$	793,511			$	96			$	258,461
Reclassification of non-credit impairment losses from prior periods			—				—				(15,641	)			15,641				—				—
Comprehensive income:
Net income — six months ended June 30, 2009			—				—				—				22,928				(92	)			22,836
Change in net unrealized investment gains/losses			—				—				331,851				—				—				331,851
Non-credit impairment losses			—				—				(15,989	)			—				—				(15,989	)
Change in underfunded status of other postretirement benefit plans			—				—				11				—				—				11
Total comprehensive income (b)																							338,709
Stock-based compensation, including the issuance of 297,502 common shares under compensation plans			—				2,323				—				—				—				2,323
Dividends on preferred stock			—				—				—				(75	)			—				(75	)
Dividends on common stock			—				—				—				(5,602	)			—				(5,602	)
Receipts related to noncontrolling interest			—				—				—				—				83				83
Balance at June 30, 2009		$	3,000			$	113,935			$	(349,526	)		$	826,403			$	87			$	593,899

		Three months ended June 30,								Six months ended June 30,
		2009				2008				2009				2008
Total comprehensive income (loss)		$	323,307			$	(65,351	)		$	338,709			$	(160,573	)
Comprehensive income (loss) attributable to FBL Financial Group, Inc.			323,361				(65,344	)			338,801				(160,557	)

See accompanying notes.

FBL FINANCIAL GROUP, INC.

		Six months ended June 30,
		2009				2008
Operating activities
Net income (loss)		$	22,836			$	(10,153	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Adjustments related to interest sensitive and index products:
Interest credited/index credits to account balances, excluding deferred sales inducements			163,757				160,550
Change in fair value of embedded derivatives			42,681				(133,491	)
Charges for mortality and administration			(92,236	)			(56,925	)
Deferral of unearned revenues			963				777
Amortization of unearned revenue reserve			(793	)			(715	)
Provision for depreciation and amortization of property and equipment			3,350				7,876
Provision for accretion and amortization of investments			(3,419	)			(3,429	)
Realized losses on investments			13,549				103,368
Change in fair value of derivatives			2,104				106,786
Increase in traditional life and accident and health benefit accruals			22,091				23,070
Policy acquisition costs deferred			(64,028	)			(86,098	)
Amortization of deferred policy acquisition costs			81,253				47,185
Amortization of deferred sales inducements			34,682				25,716
Amortization of value of insurance in force			1,393				1,067
Change in accrued investment income			4,479				(9,749	)
Change in amounts receivable from/payable to affiliates			9,789				(54	)
Change in reinsurance recoverable			(5,747	)			14,525
Change in current income taxes			911				(4,520	)
Provision for deferred income taxes			12,881				(6,584	)
Other			(22,576	)			(6,974	)
Net cash provided by operating activities			227,920				172,228
Investing activities
Sale, maturity or repayment of investments:
Fixed maturities – available for sale			1,041,040				380,419
Equity securities – available for sale			88				15,473
Mortgage loans on real estate			45,281				32,897
Derivative instruments			10,538				23,293
Policy loans			20,198				19,769
Other long-term investments			14				—
			1,117,159				471,851
Acquisition of investments:
Fixed maturities – available for sale			(686,219	)			(1,078,701	)
Equity securities – available for sale			(10,414	)			(224	)
Mortgage loans on real estate			(475	)			(74,115	)
Derivative instruments			(35,642	)			(116,084	)
Policy loans			(23,170	)			(20,909	)
Short-term investments – net			(272,884	)			(15,521	)
			(1,028,804	)			(1,305,554	)

FBL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Dollars in thousands)

		Six months ended June 30,
		2009				2008
Investing activities – continued
Proceeds from disposal, repayments of advances and other distributions of capital from equity investees		$	25			$	129
Purchases of property and equipment			(2,589	)			(8,356	)
Disposal of property and equipment			2,631				1,220
Net cash provided by (used in) investing activities			88,422				(840,710	)
Financing activities
Receipts from interest sensitive and index products credited to policyholder account balances			936,869				1,170,146
Return of policyholder account balances on interest sensitive and index products			(1,220,008	)			(506,535	)
Repayment of short-term debt			(60,000	)			—
Receipts related to noncontrolling interests – net			83				55
Excess tax deductions on stock-based compensation			15				262
Issuance of common stock			654				3,307
Dividends paid			(5,677	)			(7,528	)
Net cash provided by (used in) financing activities			(348,064	)			659,707
Decrease in cash and cash equivalents			(31,722	)			(8,775	)
Cash and cash equivalents at beginning of period			37,710				84,015
Cash and cash equivalents at end of period		$	5,988			$	75,240
Supplemental disclosures of cash flow information
Cash paid (received) during the period for:
Interest		$	13,084			$	8,895
Income taxes			(2,995	)			3,286
Non-cash operating activity:
Deferral of sales inducements			24,153				33,388

See accompanying notes.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2009

1. Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements of FBL Financial Group, Inc. (we or the Company) have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. Our financial statements include all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of our financial position and results of operations. We have evaluated our consolidated financial statements for subsequent events through August 6, 2009, the date of the filing of this Form 10-Q.

Operating results for the six-month period ended June 30, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009. We encourage you to refer to our consolidated financial statements and notes for the year ended December 31, 2008 included in our Annual Report on Form 10-K for a complete description of our material accounting policies. Also included in the Form 10-K is a description of areas of judgments and estimates and other information necessary to understand our financial position and results of operations.

Accounting Changes

In June 2009, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (Statement) No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles.” This standard establishes two levels of U.S. generally accepted accounting principles (GAAP) – authoritative and nonauthoritative. The FASB Accounting Standards Codification (Codification) will become the source of authoritative, nongovernmental GAAP, except for rules and interpretive releases of the Securities and Exchange Commission (SEC), which are sources of authoritative GAAP for SEC registrants. All other nongrandfathered, non-SEC accounting literature not included in the Codification will become nonauthoritative. This Statement is effective for financial statements for interim or annual reporting periods ending after September 15, 2009. As the Codification was not intended to change or alter existing GAAP, it will not have any impact on our consolidated financial statements; however references to accounting principles will change to the Codification source upon adoption in the third quarter of 2009.

In June 2009, FASB issued Statement No. 167, “Amendments to FASB Interpretation No. 46(R),” which seeks to improve financial reporting by enterprises involved with variable interest entities. This Statement addresses (1) the effects on certain provisions of FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities,” as a result of the elimination of the qualifying special-purpose entity concept in FASB Statement No. 166, “Accounting for Transfers of Financial Assets,” and (2) constituent concerns about the application of certain key provisions of Interpretation 46(R), including those in which the accounting and disclosures under the Interpretation do not always provide timely and useful information about an enterprise’s involvement in a variable interest entity. This Statement is effective for financial statements for periods that begin after November 15, 2009. We are currently evaluating the impact of adoption, but do not expect it to be material to our consolidated financial statements.

In June 2009, FASB issued Statement No. 166, “Accounting for Transfers of Financial Assets—an amendment of FASB Statement No. 140,” which removes the concept of a qualifying special-purpose entity from Statement 140 and removes the exception from applying FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities,” to qualifying special-purpose entities. The objective of this Statement is to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. This

FBL Financial Group, Inc.		June 30, 2009

Statement is effective for financial statements for periods that begin after November 15, 2009. We are currently evaluating the impact of adoption, but do not expect it to be material to our consolidated financial statements.

Effective June 1, 2009, we adopted Statement No. 165 “Subsequent Events.” This standard is intended to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. Specifically, this standard sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. See the “Basis of Presentation” section above for this new disclosure. The adoption of this Statement did not have any impact on our consolidated financial statements.

In June 2009, we adopted Financial Accounting Standards (FAS) Staff Position (FSP) No. FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments.” This FSP amends Statement No. 107, “Disclosures about Fair Values of Financial Instruments” and APB Opinion No. 28, “Interim Financial Reporting,” and expands annual disclosures about the fair value of financial instruments to interim financial statements. The FSP did not have a significant impact on our consolidated financial statements but did increase our disclosures about fair value measurements.

Effective January 1, 2009, we adopted FAS FSP No. 115-2 and 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments.” The FSP provides guidance in determining whether impairments in debt securities are other-than-temporary and require that the non-credit portion of an impairment be recorded in accumulated other comprehensive loss rather than the statements of operations. The FSP also requires additional disclosures relating to other-than-temporary impairments and unrealized losses on investments in interim and annual financial statements. The impact of adoption increased net income by $16.0 million ($0.53 per basic and diluted common share) for the six months ended June 30, 2009 and resulted in a reclassification from retained earnings to accumulated other comprehensive loss of $15.6 million for the non-credit portion of other-than-temporary impairments on securities held on January 1, 2009.

Effective January 1, 2009, we adopted FAS FSP No. 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (FSP FAS 157-4). FSP FAS 157-4 provides additional guidance in determining whether a market for a financial asset is not active and a transaction is not distressed for fair value measurement purposes as defined in FAS 157, “Fair Value Measurements.” The adoption of FSP FAS 157-4 did not have a significant impact on our consolidated financial statements but did increase our disclosures about fair value measurements.

Effective January 1, 2009, we adopted Statement No. 160, “Accounting and Reporting of Noncontrolling Interest in Consolidated Financial Statements, an amendment of ARB No 51.” This Statement establishes accounting and reporting standards for the noncontrolling interest in a subsidiary, which requires that the noncontrolling interest be reported in equity, and the related net income (loss) and comprehensive income (loss) be included in the respective lines of the consolidated financial statements. The impact of this adoption on our consolidated financial statements was not significant and resulted in a reclassification of the noncontrolling interest amounts for the current and prior periods.

Effective January 1, 2009, we adopted Statement No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133.” Statement No. 161 requires entities that use derivative instruments to provide qualitative disclosures about their objectives and strategies for using such instruments, as well as any details of credit-risk-related contingent features contained within derivatives. Statement No. 161 also requires entities to disclose additional information about the amounts and location of derivatives located within the financial statements, how the provisions of Statement No. 133 have been applied, and the impact that hedges have on an entity’s financial position, financial performance and cash flows. The adoption of this Statement did not have any impact on our consolidated financial statements. See Note 3 for disclosures about our derivative instruments and hedging activities.

FBL Financial Group, Inc.		June 30, 2009

Effective January 1, 2009, we adopted Emerging Issues Task Force (EITF) No. 08-6, “Equity Method Investment Accounting Considerations.” EITF No. 08-6 establishes accounting and reporting standards for valuing equity method investees and their equity transactions. As a result of this adoption, equity adjustments resulting from capital transactions of equity investees are reported as realized gains or losses in the consolidated statements of operations rather than the consolidated statements of changes in stockholders’ equity. Application of this EITF did not have a material impact to our financial statements.

Reclassifications

Certain amounts in the 2008 consolidated financial statements have been reclassified to conform to the 2009 financial statement presentation.

2. Investment Operations

Fixed Maturities and Equity Securities

Available-For-Sale Fixed Maturity and Equity Securities by Investment Category

		June 30, 2009
						Gross				Gross				Estimated
		Amortized				Unrealized				Unrealized				Fair
		Cost				Gains				Losses				Value
						(Dollars in thousands)
Bonds:
Corporate securities		$	5,624,448			$	74,213			$	(582,145	)		$	5,116,516
Residential mortgage-backed securities			2,042,512				17,790				(210,921	)			1,849,381
Commercial mortgage-backed securities			743,499				15,463				(144,905	)			614,057
Other asset-backed securities			212,368				244				(94,098	)			118,514
Collateralized debt obligations			40,501				—				(32,137	)			8,364
United States Government and agencies			170,682				9,383				(4,231	)			175,834
State, municipal and other governments			1,495,644				10,098				(136,164	)			1,369,578
Redeemable preferred stocks			5,000				—				(837	)			4,163
Total fixed maturities		$	10,334,654			$	127,191			$	(1,205,438	)		$	9,256,407
Equity securities:
Non-redeemable preferred stocks		$	40,649			$	3,256			$	(11,749	)		$	32,156
Common stocks			21,720				2				(438	)			21,284
Total equity securities		$	62,369			$	3,258			$	(12,187	)		$	53,440

Short-term investments have been excluded from the above schedules as amortized cost approximates fair value for these securities.

FBL Financial Group, Inc.		June 30, 2009

Available-For-Sale Fixed Maturity Securities by Maturity Date

		June 30, 2009
		Amortized				Estimated
		Cost				Fair Value
		(Dollars in thousands)
Due in one year or less		$	123,032			$	122,760
Due after one year through five years			1,178,336				1,110,112
Due after five years through ten years			2,818,564				2,617,205
Due after ten years			3,211,343				2,820,215
			7,331,275				6,670,292
Residential mortgage-backed securities			2,042,512				1,849,381
Commercial mortgage-backed securities			743,499				614,057
Other asset-backed securities			212,368				118,514
Redeemable preferred stocks			5,000				4,163
		$	10,334,654			$	9,256,407

Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Net Unrealized Losses on Fixed Maturity and Equity Securities

		June 30, 2009
		(Dollars in
		thousands)
Unrealized depreciation on:
Fixed maturities – available for sale		$	(1,078,247	)
Equity securities – available for sale			(8,929	)
Interest rate swaps			(460	)
			(1,087,636	)
Adjustments for assumed changes in amortization pattern of:
Deferred policy acquisition costs			373,654
Deferred sales inducements			166,019
Value of insurance in force acquired			15,009
Unearned revenue reserve			(4,484	)
Provision for deferred income taxes			188,108
			(349,330	)
Proportionate share of net unrealized investment gains of equity investees			4
Net unrealized investment losses		$	(349,326	)

The changes in net unrealized investment gains and losses are recorded net of deferred income taxes and other adjustments for assumed changes in the amortization pattern of deferred policy acquisition costs, deferred sales inducements, value of insurance in force acquired and unearned revenue reserve totaling $162.1 million for the six months ended June 30, 2009. Subsequent changes in fair value of securities for which a previous non-credit other-than-temporary impairment loss was recognized in accumulated other comprehensive loss are reported along with changes in fair value for which no other-than-temporary impairment losses were previously recognized.

FBL Financial Group, Inc.		June 30, 2009

We monitor the financial condition and operations of the issuers of securities rated below investment grade and of the issuers of certain investment grade securities on which we have concerns regarding credit quality. In determining whether or not an unrealized loss is other than temporary, we review factors such as:

•

historical operating trends;

•

business prospects;

•

status of the industry in which the company operates;

•

analyst ratings on the issuer and sector;

•

quality of management;

•

size of the unrealized loss;

•

level of current market interest rates compared to market interest rates when the security was purchased;

•

length of time the security has been in an unrealized loss position; and

•

our intent and ability to hold the security.

Fixed Maturity Securities with Unrealized Losses by Length of Time Unrealized

		June 30, 2009
		Less than one year								One year or more								Total
Description of		Estimated				Unrealized				Estimated				Unrealized				Estimated				Unrealized
Securities		Fair Value				Losses				Fair Value				Losses				Fair Value				Losses
		(Dollars in thousands)
Corporate securities		$	847,672			$	(82,666	)		$	2,505,700			$	(499,479	)		$	3,353,372			$	(582,145	)
Residential mortgage-backed securities			307,976				(4,678	)			1,056,496				(206,243	)			1,364,472				(210,921	)
Commercial mortgage-backed securities			78,114				(7,466	)			195,716				(137,439	)			273,830				(144,905	)
Other asset-backed securities			22,417				(20,444	)			89,880				(73,654	)			112,297				(94,098	)
Collateralized debt obligations			—				—				7,873				(32,137	)			7,873				(32,137	)
Unites States governments & agencies			21,612				(4,231	)			—				—				21,612				(4,231	)
State, municipal and other governments			298,481				(16,713	)			711,997				(119,451	)			1,010,478				(136,164	)
Redeemable preferred stocks			4,163				(837	)			—				—				4,163				(837	)
Total fixed maturities		$	1,580,435			$	(137,035	)		$	4,567,662			$	(1,068,403	)		$	6,148,097			$	(1,205,438	)

Included in the above table are 1,201 securities from 799 issuers at June 30, 2009. The unrealized losses are primarily due to wide spreads between the risk-free and corporate and other bond yields. The following summarizes the more significant unrealized losses by investment category as of June 30, 2009.

Corporate securities: The unrealized losses on corporate securities represent 48.4% of our total unrealized losses. The largest losses were in the financial services sector ($1,183.9 million carrying value and $377.5 million unrealized loss). The largest unrealized losses in the financial services sector were in the depository institutions sector ($392.0 million carrying value and $149.8 million unrealized loss) and the holding and other investment offices sector ($491.8 million carrying value and $136.4 million unrealized loss). The unrealized losses in the depository institutions sector are primarily due to a decrease in market liquidity and concerns regarding the underlying credit quality of subprime and other assets held by foreign or large national and regional domestic banks. The majority of unrealized losses in the holding and other investment offices sector are commercial real estate investment trust bonds. The unrealized losses in the real estate investment trust bonds are primarily due to an increase in credit spreads due to the sector’s exposure to commercial real estate and market concerns about the ability to access the capital markets.

In addition, the manufacturing sector ($720.9 million carrying value and $100.2 million unrealized loss) had a concentration of losses in the paper and allied products sector ($85.9 million carrying value and $28.3 million

FBL Financial Group, Inc.		June 30, 2009

unrealized loss), the transportation and equipment sector ($55.1 million carrying value and $12.6 million unrealized loss) and the industrial machinery and equipment sector ($64.1 million carrying value and $8.6 million unrealized loss). The unrealized losses in these three sectors are due to spread widening that is the result of weaker operating results. The unrealized losses in the remaining corporate sectors are also primarily attributable to spread widening generally due to a decrease in market liquidity, and increase in market volatility and concerns about the general health of the economy.

Because we do not intend to sell or believe we will be required to sell these securities before their anticipated recovery of amortized cost, we do not consider these investments to be other-than-temporarily impaired at June 30, 2009.

Residential mortgage-backed securities: The unrealized losses on residential mortgage-backed securities represent 17.5% of our total unrealized losses, and were caused primarily by concerns regarding mortgage defaults on Alt-A and other risky mortgages. These concerns resulted in spread widening in the sector as liquidity decreased in the market. We purchased most of these investments at a discount to their face amount and the contractual cash flows of these investments are based on mortgages and other assets backing the securities. Because we do not intend to sell or believe we will be required to sell these investments before their anticipated recovery of amortized cost, we do not consider these investments to be other-than-temporarily impaired at June 30, 2009.

Commercial mortgage-backed securities: The unrealized losses on commercial mortgage-backed securities represent 12.0% of our total unrealized losses, and were caused primarily by spread widening and industry concerns regarding the potential for future commercial mortgage defaults. There were also concerns regarding current and future downgrades by the three major rating agencies for tranches below the super senior AAA level. The contractual cash flows of these investments are based on mortgages backing the securities. Because we do not intend to sell or believe we will be required to sell these investments before their anticipated recovery of amortized cost, we do not consider these investments to be other-than-temporarily impaired at June 30, 2009.

Other asset-backed securities: The unrealized losses on asset-backed securities represent 7.8% of our total unrealized losses, and were caused primarily by concerns regarding mortgage defaults on subprime and home equity loans. There were also concerns regarding potential downgrades or defaults of monoline bond insurers providing credit protection for underlying securities. These concerns resulted in spread widening in the sector as liquidity decreased in the market. We purchased most of these investments at a discount to their face amount and the contractual cash flows of these investments are based on mortgages and other assets backing the securities. Because we do not intend to sell or believe we will be required to sell these investments before their anticipated recovery of amortized cost, we do not consider these investments to be other-than-temporarily impaired at June 30, 2009.

Collateralized debt obligations: The unrealized losses on collateralized debt obligations represent 2.7% of our total unrealized losses. Our investments in synthetic collateralized debt obligations are backed by credit default swaps with no home equity exposure. The unrealized losses are primarily due to actual defaults in the collateral, general spread widening and market concerns of increased defaults in the future. Our investment professionals have stress tested all of these securities and determined that future principal losses are not expected based on reasonably adverse conditions. Assuming a 35% recovery, on average these investments could all withstand five to ten more defaults without losing any principal. The number of defaults is an estimate based on the remaining credit enhancement (subordination) that remains in each security. Each default that occurs reduces subordination to the security, depending on the loss amount and exposure. Depending on the investment, the synthetic collateralized debt obligations we own have exposure to approximately 120 to 150 reference names, which results in an average default level of 3.0% to 8.0% before we would lose principal. Based on long-term historical performance, we do not expect future defaults will exceed these levels and believe the existing subordination is sufficient to maintain the value of our investments. In addition, because we do not intend to sell or believe we will be required to sell these investments before their anticipated recovery of amortized cost, we do not consider these investments to be other-than-temporarily impaired at June 30, 2009.

FBL Financial Group, Inc.		June 30, 2009

United States Government and agencies: The unrealized losses on U.S. Governments and agencies represent 0.3% of our total unrealized losses, and were caused by spread widening. We purchased most of these investments at a discount to their face amount and the contractual cash flows of these investments are based on direct guarantees from the U.S. Government and by agencies of the U.S. Government. Because the decline in fair value is attributable to increases in general market spreads and market interest rates and not credit quality, and because we do not intend to sell or believe we will be required to sell these investments before their anticipated recovery of amortized cost, we do not consider these investments to be other-than-temporarily impaired at June 30, 2009.

State, municipal and other governments: The unrealized losses on state, municipal and other governments represent 11.3% of our total unrealized losses, and were primarily caused by general spread widening and concerns regarding the stability of the credit quality of the monoline bond insurers. We purchased most of these investments at a discount to their face amount and the contractual cash flows of these investments are based on the taxing authority of a municipality or the revenues of a municipal project. Because the decline in fair value is primarily attributable to increased spreads and concerns regarding the stability of the monoline bond insurers, and because we do not intend to sell or believe we will be required to sell these investments before their anticipated recovery of amortized cost, we do not consider these investments to be other-than-temporarily impaired at June 30, 2009.

Excluding mortgage and asset-backed securities, no securities from the same issuer had an aggregate unrealized loss in excess of $16.9 million at June 30, 2009. The $16.9 million unrealized loss is from one CCC rated collateralized debt obligation. This security has been impacted by the actual defaults in the collateral underlying the security. With respect to mortgage and asset-backed securities not backed by the United States Government, no securities from the same issuer had an aggregate unrealized loss in excess of $55.0 million at June 30, 2009. The $55.0 million unrealized loss from one issuer relates to 12 different securities that are backed by different pools of commercial mortgage loans. All but one of the 12 securities are rated investment grade and the largest unrealized loss on any one security totaled $10.1 million at June 30, 2009. The non-investment grade security had an unrealized loss of $4.1 million at June 30, 2009.

We also have $12.2 million of gross unrealized losses on equity securities with an estimated fair value of $22.5 million at June 30, 2009. The majority of the unrealized losses are attributable to non-redeemable perpetual preferred securities in the financial sector. The majority of the unrealized losses on equity securities are greater than one year ($16.4 million carrying value and $8.6 million unrealized loss). The unrealized losses on these securities are primarily due to concerns about the quality of the assets the issuers hold and uncertainty regarding when these securities will be called. These securities are similar to fixed maturities as they provide periodic cash flows, contain call features and are similarly rated and priced like other long-term callable bonds. We do not intend to sell or believe we will be required to sell these investments before their anticipated recovery; therefore we do not consider them to be other-than-temporarily impaired at June 30, 2009.

Realized gains and losses on sales of investments are determined on the basis of specific identification. The carrying values of all our investments are reviewed on an ongoing basis for credit deterioration. If this review indicates a decline in fair value is other than temporary, the carrying value of the investment is reduced to its fair value. Effective January 1, 2009, with adoption of FSP 115-2 and 124-2, when our review indicates a decline in fair value is other than temporary, a specific write down is charged to earnings for the credit loss and a specific charge is recognized in accumulated other comprehensive loss for the non-credit loss component. For fixed maturity securities, the previous amortized cost adjusted by the credit loss becomes the new cost basis for the security. For equity securities, the fair value becomes the new cost basis for the security. Prior to 2009, the full amount of other-than-temporary impairment write downs was recognized as a realized loss on investments in the statement of operations and the fair value of fixed maturity and equity securities became the new cost basis for the security.

After an other-than-temporary write-down, the cost basis is generally not adjusted for subsequent recoveries in fair value. However, for fixed maturity securities for which we can reasonably estimate future cash flows after a write down, the discount or reduced premium recorded, based on the new cost basis, is amortized over the remaining life of the security. Amortization in this instance is computed using the prospective method and the current estimate of the amount and timing of future cash flows.

FBL Financial Group, Inc.		June 30, 2009

When an other-than-temporary impairment occurs, the amount recognized in earnings is based on our intent or requirement to sell the security and significant assumptions regarding the present value of expected cash flows for each security. Our assumptions for residential mortgage-backed securities, commercial mortgage-backed securities, other asset-backed securities and collateralized debt obligations include collateral pledged, scheduled interest payments, default levels, delinquency rates and the level of nonperforming assets for the remainder of the investments’ expected term. We use a single best estimate of cash flows approach and use the effective yield prior to the date of impairment to calculate the present value of cash flows. Our assumptions for corporate and other fixed maturity securities include scheduled interest payments and an estimated recovery value, generally based on a percentage return of the current market value.

Credit Loss Component of Other-Than-Temporary Impairments on Fixed Maturity Securities

		Three months ended				Six months ended
		June 30, 2009				June 30, 2009
		(Dollars in thousands)
Balance at beginning of period		$	(127,145	)		$	(106,421	)
Increases for which an impairment was not previously recognized			(23,286	)			(40,472	)
Increases to previously impaired investments			(4,121	)			(7,691	)
Reductions due to investments sold			32,840				32,872
Balance at June 30, 2009		$	(121,712	)		$	(121,712	)

Sales, Maturities and Principal Repayments on Fixed Maturity Securities

		Three months ended June 30, 2009
						Gross				Gross
		Amortized				Realized				Realized
		Cost				Gains				Losses				Proceeds
						(Dollars in thousands)
Scheduled principal repayments and calls – available for sale		$	159,535			$	—			$	—			$	159,535
Sales – available for sale			618,560				34,480				(3,106	)			649,934
Total		$	778,095			$	34,480			$	(3,106	)		$	809,469

		Six months ended June 30, 2009
						Gross				Gross
		Amortized				Realized				Realized
		Cost				Gains				Losses				Proceeds
		(Dollars in thousands)
Scheduled principal repayments and calls – available for sale		$	255,962			$	—			$	—			$	255,962
Sales – available for sale			751,784				36,548				(3,254	)			785,078
Total		$	1,007,746			$	36,548			$	(3,254	)		$	1,041,040

Realized losses on sales in the second quarter of 2009 include $2.1 million in losses on two U.S. Government zero callable bonds that were in an unrealized gain position at March 31, 2009 and a $0.8 million loss on a corporate bond that was previously impaired and decreased in fair value in 2009.

Mortgage Loans on Real Estate

Our mortgage loan portfolio consists principally of commercial mortgage loans that we have originated. Our lending policies require that the loans be collateralized by the value of the related property, establish limits on the amount that can be loaned to one borrower and require diversification by geographic location and collateral type.

We establish an allowance as needed, consisting of specific reserves, for possible losses against our mortgage loan portfolio. An allowance is needed for loans in which we do not believe we will collect all amounts due according to the contractual terms of the respective loan agreements. In 2009, we established a valuation allowance for two

FBL Financial Group, Inc.		June 30, 2009

impaired loans totaling $0.9 million. There was no valuation allowance for mortgage loans at December 31, 2008. At June 30, 2009, we had three mortgage loans in the process of foreclosure with total outstanding principal balance of $14.6 million and property appraised value of $16.8 million.

3. Derivative Instruments

We have entered into interest rate swaps to manage interest rate risk associated with a portion of our flexible premium deferred annuity contracts. Under the interest rate swaps, we pay a fixed rate of interest and receive a floating rate of interest on a notional amount which totaled $100.0 million at June 30, 2009 and December 31, 2008. These interest rate swaps effectively fix the interest crediting rate on a portion of our flexible premium deferred annuity contract liabilities, thereby hedging our exposure to increases in market interest rates. Losses from the interest rate settlements totaled $2.4 million during the first six months of 2009 and $1.0 million in the 2008 period. The change in unrealized loss on these swaps increased derivative income $1.6 million for the six months ended June 30, 2009 and $0.5 million in the 2008 period.

In 2006, we also entered into an interest rate swap to hedge the variable component of the interest rate on our $46.0 million outstanding line of credit borrowings at that time. The terms of this instrument provide that we pay a fixed rate of interest and receive a floating rate of interest on a notional amount of $46.0 million. We closed the line of credit agreement in the first quarter of 2009 and began recording the change in fair value of the underlying swap and interest payments in derivative income (loss). Prior to 2009, any gain or loss on the interest rate swap settlements offset any increase or decrease in the interest paid on the line of credit, effectively fixing our interest expense related to this portion of the line of credit. Losses from interest rate settlements on this swap totaled $0.9 million in the first six months of 2009 and were included in derivative income (loss). For the six month period in 2008, these losses increased interest expense $0.2 million. Derivative income (loss) for the six months ended June 30, 2009 also includes the unrealized loss on the swap at December 31, 2008 of $2.7 million, which was previously included in accumulated other comprehensive loss, partially offset by the swap’s increase in fair value during the period, which totaled $0.6 million.

Summary of Swaps

		Notional				Receive				Pay				Carrying and Fair Value
Maturity Date		Amount				Rate				Rate				June 30, 2009				December 31, 2008
														(Dollars in thousands)
1/1/2010		$	50,000			1 month LIBOR*					4.858	%		$	(1,102	)		$	(1,860	)
10/7/2010			46,000			3 month LIBOR*					4.760				(2,103	)			(2,692	)
6/1/2011			50,000			1 month LIBOR*					5.519				(3,949	)			(4,905	)
														$	(7,154	)		$	(9,457	)

When applicable, we formally document hedging relationships, our risk management objectives and strategies for undertaking these transactions. We also test for hedge ineffectiveness at inception of the hedge and at each reporting period as needed. There were no derivative instruments designated as hedges at June 30, 2009. There was no ineffectiveness recorded in the consolidated statements of operations during 2008 for instruments designated as hedges.

We write index annuities directly and assume index annuity business under a coinsurance agreement. Index annuities guarantee the return of principal to the contract holder and credit amounts based on a percentage of the gain in a specified market index. Most of the premium received is invested in investment grade fixed income securities and a portion of the premium received from the contract holder is used to purchase derivatives consisting of one-year or two-year call options on the applicable market indices to fund the index credits due to the index annuity contract holders. On the respective anniversary dates of the index annuity contracts, the market index used to compute the index credits is reset and new call options are purchased to fund the next index credit. Although the call options are designed to be effective hedges from an economic standpoint, they do not meet the requirements for hedge accounting treatment under Statement No. 133, “Accounting for Derivative Instruments and Hedging

FBL Financial Group, Inc.		June 30, 2009

Activities.” Therefore, the change in fair value of the options is recognized in earnings in the period of change. The cost of the options can be managed through the terms of the index annuities, which permit changes to participation rates, asset fees and/or caps, subject to guaranteed minimums.

We held call options relating to our direct business, net of collateral received for counterparty credit risk, with a fair value of $36.6 million at June 30, 2009 and $12.9 million at December 31, 2008. Our share of call options assumed, which is recorded as an embedded derivative in reinsurance recoverable, totaled $10.4 million at June 30, 2009 and $5.6 million at December 31, 2008. Derivative income (loss) includes ($4.7) million for the first six months of 2009 and ($130.4) million for the 2008 period relating to changes in fair value, net of call option proceeds.

The reserve for index annuity contracts includes a series of embedded derivatives that represent the contract holder’s right to participate in index returns over the expected lives of the applicable contracts. The reserve includes the value of the embedded forward options despite the fact that call options are not purchased for a period longer than the period of time to the next index reset date. The change in the value of this embedded derivative is reported on a separate line in the consolidated statements of operations and totaled $42.7 million for the first six months of 2009 and ($133.5) million for the 2008 period.

We have modified coinsurance agreements where interest on funds withheld is determined by reference to a pool of fixed maturity securities. These arrangements contain embedded derivatives requiring bifurcation. Embedded derivatives in these contracts are recorded at fair value at each balance sheet date and changes in the fair values of the derivatives are recorded as derivative income or loss. The fair value of the embedded derivatives pertaining to funds withheld on variable business assumed by us totaled ($0.1) million at June 30, 2009 and ($0.9) million at December 31, 2008. The fair value of the embedded derivatives pertaining to funds withheld on business ceded by us was $0.3 million at June 30, 2009 and at December 31, 2008. Derivative income from our modified coinsurance contracts totaled $0.8 million for the first six months of 2009 and $0.3 million for the 2008 period.

4. Fair Values

Statement No. 157, “Fair Value Measurements,” defines fair value, establishes a framework for measuring fair value and expands the required disclosures about fair value measurements. Fair value is based on an exit price, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Statement No. 157 also establishes a hierarchal disclosure framework which prioritizes and ranks the level of market price observability used in measuring financial instruments at fair value. Market price observability is affected by a number of factors, including the type of instrument and the characteristics specific to the instrument. Financial instruments with readily available active quoted prices or those for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value. For some investments, little market activity may exist and management’s determination of fair value is then based on the best information available in the circumstances, and may incorporate management’s own assumptions of what a market participant would consider for the fair value, which involves a significant degree of judgment.

The fixed income markets in 2008 and 2009 experienced a period of extreme volatility and limited market liquidity conditions, which affected a broad range of asset classes and sectors. In addition, there were credit downgrade events and an increased probability of default for many fixed income instruments. These volatile market conditions increased the difficulty of valuing certain instruments as trading was less frequent and/or market data was less observable. There were certain instruments that were in active markets with significant observable data that became illiquid due to the current financial environment or market conditions. As a result, certain valuations require greater estimation and judgment as well as valuation methods which are more complex. These values may not ultimately be realizable in a market transaction, and such values may change very rapidly as market conditions change and valuation assumptions are modified.

We use the methods and assumptions described below in estimating fair value of our financial instruments.

FBL Financial Group, Inc.		June 30, 2009

Fixed maturity securities: Fair values of fixed maturity securities are based on quoted market prices in active markets when available. We have valued our investments using the valuation methodologies described below which have been applied on a consistent basis.

Equity securities: Fair values for equity securities are based on quoted market prices, where available. For equity securities that are not actively traded, estimated fair values are based on values of comparable issues.

Mortgage loans on real estate: Fair values are estimated by discounting expected cash flows of each loan at an interest rate equal to a spread above the U.S. Treasury bond yield that corresponds to the loan’s expected life. These spreads are based on overall market pricing of commercial mortgage loans at the time of valuation.

Derivative instruments: Fair values for call options are based on counterparty market prices adjusted for a credit component of the counterparty, net of collateral received. Prices are verified using analytical tools by our internal investment professionals.

Policy loans: Fair values are estimated by discounting expected cash flows using a risk-free interest rate based on the U.S. Treasury curve.

Other long-term investments, cash and short-term investments: Amounts are reported at historical cost, adjusted for amortization of premiums, depreciation or accrual of discounts, as applicable, which approximates the fair values due to the nature of these assets.

Reinsurance recoverable: The fair value of our portion of the call options used to fund index credits on the index annuities assumed from a reinsurer is determined using quoted market prices, less an adjustment for credit risk. Fair values for the embedded derivatives in our modified coinsurance contracts under which we cede or assume business are based on the difference between the fair value and the cost basis of the underlying fixed maturity securities. We are not required to estimate fair value for the remainder of the reinsurance recoverable balance.

Collateral payable for securities lending and other transactions: Fair values are obtained from an independent pricing source whose results undergo evaluation by our internal investment professionals.

Assets held in separate accounts: Fair values are based on quoted net asset values of the underlying mutual funds.

Future policy benefits and other policyholders’ funds: Fair values of our liabilities under contracts not involving significant mortality or morbidity risks (principally deferred annuities, deposit administration funds, funding agreements and supplementary contracts) are estimated using one of two methods. For contracts with known maturities (including index annuity embedded derivatives), fair value is determined using discounted cash flow valuation techniques based on current interest rates adjusted to reflect our credit risk and an additional provision for adverse deviation. For deposit liabilities with no defined maturities, fair value is the amount payable on demand. We are not required to estimate the fair value of our liabilities under other insurance contracts.

Long-term debt: Fair values are estimated using discounted cash flow analysis based on our current incremental borrowing rate for similar types of borrowing arrangements adjusted, as needed, to reflect our credit risk.

Other liabilities: Fair values for the embedded derivatives in our modified coinsurance contracts under which we cede or assume business are based on the difference between the fair value and the cost basis of the underlying fixed maturity securities. Fair values for interest rate swaps are based on counterparty market prices adjusted for a credit component of the counterparty, net of collateral paid. Prices are verified using analytical tools by our internal investment professionals. We are not required to estimate fair values for the remainder of the other liabilities balances.

Liabilities related to separate accounts: Fair values are based on cash surrender value, the cost we would incur to extinguish the liability.

FBL Financial Group, Inc.		June 30, 2009

Fair Values and Carrying Values

		June 30, 2009
		Carrying Value				Fair Value
		(Dollars in thousands)
Assets
Fixed maturities – available for sale		$	9,256,407			$	9,256,407
Equity securities – available for sale			53,440				53,440
Mortgage loans on real estate			1,336,165				1,263,275
Derivative instruments			36,621				36,621
Policy loans			185,393				233,496
Other long-term investments			1,679				1,679
Cash and short-term investments			541,331				541,331
Reinsurance recoverable			10,711				10,711
Assets held in separate accounts			595,047				595,047
Liabilities
Future policy benefits		$	9,475,614			$	7,866,173
Other policyholders’ funds			690,641				691,974
Long-term debt			371,044				232,175
Collateral payable for securities lending and other transactions			33				33
Other liabilities			137				137
Liabilities related to separate accounts			595,047				575,632

Financial instruments measured and reported at fair value are classified and disclosed in one of the following categories.

Level 1 — Quoted prices are available in active markets for identical financial instruments as of the reporting date. The types of financial instruments included in Level 1 are listed equities, mutual funds, money market funds and non-interest bearing cash. As required by Statement No. 157, we do not adjust the quoted price for these financial instruments, even in situations where we hold a large position and a sale could reasonably impact the quoted price.

Level 2 — Pricing inputs are other than quoted prices in active markets which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models or other valuation methods. Financial instruments which are generally included in this category include fixed maturity securities (including public and private bonds), less liquid and restricted equity securities and over-the-counter derivatives that are priced by third-party pricing services or internal systems using observable inputs.

Fair values of all Level 2 fixed maturity public securities are obtained primarily from a variety of independent pricing sources, whose results undergo evaluation by our internal investment professionals. We generally obtain one or two prices per security, which are compared to relevant credit information, perceived market movements and sector news. Market indices of similar rated asset class spreads are consulted for valuations and broker indications of similar securities are compared. If the issuer has had trades in similar debt outstanding but not necessarily the same rank in the capital structure, spread information is used to support fair value. If discrepancies are identified, additional quotes are obtained and the quote that best reflects a fair value exit price at the reporting date is selected. Fair value of most of our private investments are determined by our investment professionals using matrix pricing with substantially all observable inputs, such as industry classification, duration and rating.

Level 3 — Pricing inputs are unobservable for the financial instrument and include situations where there is little, if any, market activity for the financial instrument. The inputs into the determination of fair value require significant management judgment or estimation. Financial instruments that are included in this category generally include non-binding broker and internally priced mortgage or other asset-backed securities and other publicly traded issues, private corporate securities and index annuity embedded derivatives.

FBL Financial Group, Inc.		June 30, 2009

Fair values of private investments in Level 3 are determined by reference to public market, private transactions or valuations for comparable companies or assets in the relevant asset class when such amounts are available. For other securities where an exit price based on relevant observable inputs is not obtained, the fair value is determined by our investment professionals using an enhanced matrix calculation. The matrix pricing performed by pricing services and our internal investment professionals includes a discounted cash flow analysis using a spread, including the specific creditors’ credit default swap spread (if available), over U.S. Treasury bond yields, adjusted for the maturity/average life differences. Spread adjustments are intended to reflect an illiquidity premium and take into account a variety of factors including but not limited to: senior unsecured versus secured status, par amount outstanding, number of holders, maturity, average life, composition of lending group and debt rating. These valuation methodologies involve a significant degree of judgment.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, a financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial instrument.

Valuation of our Financial Instruments by Fair Value Hierarchy Levels

		June 30, 2009
		Quoted prices in
		active markets				Significant other				Significant
		for identical				observable				unobservable
		assets (Level 1)				inputs (Level 2)				inputs (Level 3)				Total
						(Dollars in thousands)
Assets
Corporate securities		$	—			$	4,940,261			$	176,255			$	5,116,516
Residential mortgage-backed securities			—				1,836,827				12,554				1,849,381
Commercial mortgage-backed securities			—				582,713				31,344				614,057
Other asset-backed securities			—				102,114				16,400				118,514
Collateralized debt obligations			—				—				8,364				8,364
United States Government and agencies			—				175,834				—				175,834
State, municipal and other governments			—				1,258,809				110,769				1,369,578
Redeemable preferred stocks			—				—				4,163				4,163
Non-redeemable preferred stocks			—				32,156				—				32,156
Common stocks			2,252				19,032				—				21,284
Derivative instruments			—				36,621				—				36,621
Other long-term investments			—				—				1,679				1,679
Cash and short-term investments			541,331				—				—				541,331
Reinsurance recoverable			—				10,711				—				10,711
Assets held in separate accounts			595,047				—				—				595,047
Liabilities
Future policy benefits — index annuity embedded derivatives		$	—			$	—			$	430,889			$	430,889
Other liabilities			—				137				—				137
Collateral payable for securities lending and other transactions			—				33				—				33

Approximately 3.9% of the total fixed maturities are included in the Level 3 group. The fair value of the assets and liabilities above include the financial instruments’ nonperformance risk. Nonperformance risk is the risk that the instrument will not be fulfilled and affects the value at which the instrument could be transferred in an orderly transaction. The nonperformance risk for our assets was valued at less than $0.6 million at June 30, 2009. The nonperformance risk for our liabilities was valued at $152.1 million at June 30, 2009.

FBL Financial Group, Inc.		June 30, 2009

Level 3 Fixed Maturity Investments by Valuation Source

		June 30, 2009
		Third-party				Priced
		vendors				internally				Total
		(Dollars in thousands)
Assets
Corporate securities		$	141,426			$	34,829			$	176,255
Residential mortgage-backed securities			12,554				—				12,554
Commercial mortgage-backed securities			25,984				5,360				31,344
Other asset-backed securities			16,400				—				16,400
Collateralized debt obligations			8,364				—				8,364
State, municipal and other governments			110,769				—				110,769
Redeemable preferred stocks			—				4,163				4,163
Total		$	315,497			$	44,352			$	359,849
Percent of total			87.7	%			12.3	%			100.0	%

Level 3 Financial Instruments Changes in Fair Value

		June 30, 2009
										Realized
										and				Transfers in				Included in
		Balance,				Purchases				unrealized				and/or (out)				earnings				Balance,
		December 31,				(disposals),				gains				of				(amort-				June 30,
		2008				net				(losses), net				Level 3(1)				ization)				2009
		(Dollars in thousands)
Assets
Corporate securities		$	644,162			$	(1,594	)		$	(1,165	)		$	(465,445	)		$	297			$	176,255
Residential mortgage-backed securities			70,003				12,554				—				(70,003	)			—				12,554
Commercial mortgage-backed securities			24,122				312				7,013				—				(103	)			31,344
Other asset-backed securities			17,201				(555	)			(2,438	)			2,231				(39	)			16,400
Collateralized debt obligations			7,414				—				951				—				(1	)			8,364
State, municipal and other governments			140,189				(120	)			(9,292	)			(19,999	)			(9	)			110,769
Redeemable preferred stocks			4,526				—				(363	)			—				—				4,163
Other long-term investments			1,527				—				—				—				152				1,679
Total		$	909,144			$	10,597			$	(5,294	)		$	(553,216	)		$	297			$	361,528

The change in unrealized gains/losses on Level 3 investments held at June 30, 2009 was $10.1 million.

FBL Financial Group, Inc.		June 30, 2009

		Six months ended
		June 30, 2009
		(Dollars in
		thousands)
Future Policy Benefits — Index Product Embedded Derivatives
Balance, December 31, 2008		$	523,515
Premiums less benefits, net			(9,951	)
Impact of unrealized gains (losses), net			(82,675	)
Balance, June 30, 2009		$	430,889
Change in unrealized gains/losses on embedded derivatives held at June 30, 2009 (2)		$	(82,675	)