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

For the quarterly period ended June 30, 2007

or

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

For the transition period from                      to                     

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 is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o      Accelerated filer þ      Non-accelerated filer 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 July 31, 2007
Class A Common Stock, without par value Class B Common Stock, without par value		28,750,160 1,192,990

 

 

FBL FINANCIAL GROUP, INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2007
TABLE OF CONTENTS

PART I.

FINANCIAL INFORMATION

Cautionary Statement Regarding Forward Looking Information

2

Item 1.

Financial Statements (Unaudited)

Consolidated Balance Sheets

3

Consolidated Statements of Income

5

Consolidated Statements of Changes in Stockholders’ Equity

6

Consolidated Statements of Cash Flows

7

Notes to Consolidated Financial Statements

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

15

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

40

Item 4.

Controls and Procedures

40

PART II.

OTHER INFORMATION

Item 4.

Submission of Matters to a Vote of Security Holders

41

Item 6.

Exhibits

42

SIGNATURES

45

Certification

Certification

Certification

Cautionary Statement Regarding Forward Looking Information

This Form 10-Q includes statements relating to anticipated financial performance, business prospects, new products, and similar matters. These statements and others, which include words such as “expect”, “anticipate”, “believe”, “intend”, and other similar expressions, constitute forward-looking statements under the Private Securities Litigation Reform Act of 1995. A variety of factors could cause our actual results and experiences to differ materially from the anticipated results or other expectations expressed in our forward-looking statements. The risks and uncertainties that may affect the operations, performance, development and results of our business include but are not limited to the following:

	•		If we are unable to attract and retain agents and develop new distribution sources, sales of our products and services may be reduced.
	•		Changing interest rates and market volatility, and general economic conditions, affect the risks and the returns on both our products and our investment portfolio.
	•		Our investment portfolio is subject to credit quality risks which may diminish the value of our invested assets and affect our profitability and reported book value per share.
	•		As a holding company, we depend on our subsidiaries for funds to meet our obligations, but our subsidiaries’ ability to make distributions to us is limited by law, and could be affected by risk based capital computations.
	•		A significant ratings downgrade may have a material adverse effect on our business.
	•		Our earnings are influenced by our claims experience, which is difficult to estimate. If our future claims experience does not match our pricing assumptions or past results, our earnings could be materially adversely affected.
	•		Inaccuracies in assumptions regarding future persistency, mortality and interest rates used in calculating reserve, deferred policy acquisition expense and deferred sales inducement amounts and pricing our products could have a material impact on our net income.
	•		Changes in federal tax laws may affect sales of our products and profitability.
	•		All segments of our business are highly regulated and these regulations or changes in them could affect our profitability.
	•		We face competition from companies having greater financial resources, broader arrays of products, higher ratings and stronger financial performance, which may impair our ability to retain existing customers, attract new customers and maintain our profitability and financial strength.
	•		Our business is highly dependent on our relationships with Farm Bureau organizations and would be adversely affected if those relationships became impaired.
	•		We assumed a significant amount of closed block business through coinsurance agreements and have only a limited ability to manage this business.
	•		Our reinsurance program involves risks because we remain liable with respect to liabilities ceded to reinsurers if the reinsurers fail to meet the obligations assumed by them.
	•		We may experience volatility in net income due to accounting standards for derivatives.
	•		We face risks relating to litigation, including the costs of such litigation, management distraction and the potential for damage awards, which may adversely impact our business.

See Part 1A, Risk Factors, of our annual report on Form 10-K for additional information.

ITEM 1. FINANCIAL STATEMENTS

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

		June 30,				December 31,
		2007				2006
Assets
Investments:
Fixed maturities – available for sale, at market (amortized cost: 2007 - $8,887,293; 2006 - $8,354,564)		$	8,720,105			$	8,375,796
Fixed maturities – trading, at market (cost: 2006 - $15,000)			—				14,927
Equity securities – available for sale, at market (cost: 2007 - $25,140; 2006 - $35,604)			33,508				50,278
Mortgage loans on real estate			1,095,258				979,883
Derivative instruments			156,429				127,478
Investment real estate, less allowances for depreciation of $2,507 in 2007 and $2,452 in 2006			8,674				8,711
Policy loans			179,250				179,899
Other long-term investments			1,300				1,300
Short-term investments			55,666				44,354
Total investments			10,250,190				9,782,626
Cash and cash equivalents			148,789				112,292
Securities and indebtedness of related parties			18,513				17,839
Accrued investment income			108,371				103,027
Amounts receivable from affiliates			8,863				17,608
Reinsurance recoverable			146,432				146,789
Deferred policy acquisition costs			921,640				827,720
Deferred sales inducements			279,083				226,647
Value of insurance in force acquired			44,349				42,841
Property and equipment, less allowances for depreciation of $77,267 in 2007 and $73,433 in 2006			47,125				46,030
Goodwill			11,170				11,170
Other assets			65,522				55,046
Assets held in separate accounts			838,190				764,377
Total assets		$	12,888,237			$	12,154,012

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

		June 30,				December 31,
		2007				2006
Liabilities and stockholders’ equity
Liabilities:
Policy liabilities and accruals:
Future policy benefits:
Interest sensitive and index products		$	8,647,848			$	8,163,318
Traditional life insurance and accident and health products			1,267,161				1,244,712
Unearned revenue reserve			29,400				28,436
Other policy claims and benefits			29,069				38,133
			9,973,478				9,474,599
Other policyholders’ funds:
Supplementary contracts without life contingencies			412,631				391,113
Advance premiums and other deposits			160,615				159,965
Accrued dividends			10,900				11,766
			584,146				562,844
Amounts payable to affiliates			3,002				7,319
Long-term debt			316,893				218,399
Current income taxes			11,252				8,740
Deferred income taxes			30,622				62,380
Other liabilities			258,823				174,496
Liabilities related to separate accounts			838,190				764,377
Total liabilities			12,016,406				11,273,154
Minority interest in subsidiaries			146				138
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 28,746,375 shares in 2007 and 28,468,662 shares in 2006			95,754				86,462
Class B common stock, without par value – authorized 1,500,000 shares, issued and outstanding 1,192,990 shares			7,520				7,519
Accumulated other comprehensive income (loss)			(40,907	)			28,195
Retained earnings			806,318				755,544
Total stockholders’ equity			871,685				880,720
Total liabilities and stockholders’ equity		$	12,888,237			$	12,154,012

See accompanying notes.

FBL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands, except per share data)

		Three months ended June 30,								Six months ended June 30,
		2007				2006				2007				2006
Revenues:
Interest sensitive and index product charges		$	27,930			$	26,495			$	54,916			$	51,809
Traditional life insurance premiums			38,975				35,773				73,512				70,161
Net investment income			154,582				128,972				304,544				251,352
Derivative income (loss)			44,826				(22,431	)			40,949				(5,599	)
Realized/unrealized gains on investments			1,156				222				2,612				11,826
Other income			6,446				6,165				13,542				11,714
Total revenues			273,915				175,196				490,075				391,263
Benefits and expenses:
Interest sensitive and index product benefits			120,845				54,678				211,633				141,380
Traditional life insurance benefits			23,411				22,523				48,081				45,130
Increase in traditional life future policy benefits			11,693				10,441				19,229				19,305
Distributions to participating policyholders			5,656				5,794				11,248				11,445
Underwriting, acquisition and insurance expenses			51,534				47,146				93,644				88,941
Interest expense			4,511				2,878				7,799				5,839
Other expenses			5,673				5,567				11,696				11,064
Total benefits and expenses			223,323				149,027				403,330				323,104
			50,592				26,169				86,745				68,159
Income taxes			(16,940	)			(8,684	)			(29,347	)			(23,065	)
Minority interest in loss (earnings) of subsidiaries			5				(71	)			(5	)			(126	)
Equity income, net of related income taxes			189				288				564				468
Net income			33,846				17,702				57,957				45,436
Dividends on Series B preferred stock			(37	)			(37	)			(75	)			(75	)
Net income applicable to common stock		$	33,809			$	17,665			$	57,882			$	45,361
Earnings per common share		$	1.14			$	0.60			$	1.95			$	1.55
Earnings per common share – assuming dilution		$	1.12			$	0.59			$	1.91			$	1.52
Cash dividends per common share		$	0.120			$	0.115			$	0.240			$	0.230

See accompanying notes.

FBL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)
(Dollars in thousands)

														Accumulated
		Series B				Class A				Class B				Other								Total
		Preferred				Common				Common				Comprehensive				Retained				Stockholders’
		Stock				Stock				Stock				Income (Loss)				Earnings				Equity
Balance at January 1, 2006		$	3,000			$	72,260			$	7,524			$	82,301			$	679,146			$	844,231
Comprehensive loss:
Net income for six months ended June 30, 2006			—				—				—				—				45,436				45,436
Change in net unrealized investment gains/losses			—				—				—				(180,450	)			—				(180,450	)
Total comprehensive loss																							(135,014	)
Stock based compensation, including the issuance of 454,891 common shares under compensation plans			—				9,910				—				—				—				9,910
Dividends on preferred stock			—				—				—				—				(75	)			(75	)
Dividends on common stock			—				—				—				—				(6,765	)			(6,765	)
Balance at June 30, 2006		$	3,000			$	82,170			$	7,524			$	(98,149	)		$	717,742			$	712,287
Balance at January 1, 2007		$	3,000			$	86,462			$	7,519			$	28,195			$	755,544			$	880,720
Comprehensive loss:
Net income for six months ended June 30, 2007			—				—				—				—				57,957				57,957
Change in net unrealized investment gains/losses			—				—				—				(69,117	)			—				(69,117	)
Change in underfunded status of other postretirement benefit plans			—				—				—				15				—				15
Total comprehensive loss																							(11,145	)
Adjustment resulting from capital transactions of equity investee			—				6				1				—				—				7
Stock based compensation, including the issuance of 277,713 common shares under compensation plans			—				9,286				—				—				—				9,286
Dividends on preferred stock			—				—				—				—				(75	)			(75	)
Dividends on common stock			—				—				—				—				(7,108	)			(7,108	)
Balance at June 30, 2007		$	3,000			$	95,754			$	7,520			$	(40,907	)		$	806,318			$	871,685

Comprehensive loss totaled $37.5 million in the second quarter of 2007 and $71.2 million in the second quarter of 2006.

See accompanying notes.

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

		Six months ended June 30,
		2007				2006
Operating activities
Net income		$	57,957			$	45,436
Adjustments to reconcile net income 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			178,408				127,892
Change in fair value of embedded derivatives			(3,768	)			(17,507	)
Charges for mortality and administration			(50,866	)			(47,909	)
Deferral of unearned revenues			715				493
Amortization of unearned revenue reserve			(704	)			(842	)
Provision for depreciation and amortization of property and equipment			6,736				7,021
Provision for accretion and amortization of investments			(6,254	)			(1,577	)
Realized/unrealized gains on investments			(2,612	)			(11,826	)
Change in fair value of derivatives			(28,975	)			1,430
Increase in traditional life and accident and health benefit accruals			22,449				23,691
Policy acquisition costs deferred			(79,668	)			(85,295	)
Amortization of deferred policy acquisition costs			48,581				39,170
Amortization of deferred sales inducements			16,290				12,843
Amortization of value of insurance in force			2,000				1,093
Net sale of fixed maturities – trading			15,000				—
Change in accrued investment income			(5,344	)			(7,444	)
Change in amounts receivable from/payable to affiliates			4,428				(5,550	)
Change in reinsurance recoverable			357				1,124
Change in current income taxes			2,512				(6,978	)
Provision for deferred income taxes			5,450				8,713
Other			81				(34,111	)
Net cash provided by operating activities			182,773				49,867
Investing activities
Sale, maturity or repayment of investments:
Fixed maturities – available for sale			279,806				216,286
Equity securities – available for sale			15,716				32,725
Mortgage loans on real estate			26,964				25,816
Derivative instruments			71,507				15,263
Policy loans			21,399				18,510
Short-term investments – net			—				128,543
			415,392				437,143
Acquisition of investments:
Fixed maturities – available for sale			(774,367	)			(880,425	)
Equity securities – available for sale			(143	)			(256	)
Mortgage loans on real estate			(142,319	)			(103,315	)
Derivative instruments			(40,978	)			(31,565	)
Investment real estate			(17	)			—
Policy loans			(20,749	)			(21,554	)
Short-term investments – net			(11,312	)			—
			(989,885	)			(1,037,115	)

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

		Six months ended June 30,
		2007				2006
Investing activities — continued
Proceeds from disposal, repayments of advances and other distributions of capital from equity investees		$	14			$	565
Investments in and advances to equity investees			(250	)			—
Purchases of property and equipment			(9,102	)			(9,517	)
Disposal of property and equipment			1,271				2,146
Net cash used in investing activities			(582,560	)			(606,778	)
Financing activities
Receipts from interest sensitive and index products credited to policyholder account balances			792,495				945,099
Return of policyholder account balances on interest sensitive and index products			(455,835	)			(375,629	)
Proceeds from long-term debt			98,460				—
Distributions related to minority interests – net			2				(82	)
Excess tax deductions on stock-based compensation			1,076				1,288
Issuance of common stock			7,269				8,621
Dividends paid			(7,183	)			(6,840	)
Net cash provided by financing activities			436,284				572,457
Increase in cash and cash equivalents			36,497				15,546
Cash and cash equivalents at beginning of period			112,292				5,120
Cash and cash equivalents at end of period		$	148,789			$	20,666
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest		$	7,721			$	5,881
Income taxes			20,614				18,372
Non-cash operating activity:
Deferral of sales inducements			43,794				41,847

See accompanying notes.

FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2007

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. Operating results for the three- and six-month periods ended June 30, 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007. We encourage you to refer to our consolidated financial statements and notes for the year ended December 31, 2006 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

Effective April 1, 2007, we adopted Statement of Financial Accounting Standards (Statement) 133 Implementation Issue No. G26, “Cash Flow Hedges: Hedging Interest Cash Flows on Variable-Rate Assets and Liabilities That Are Not Based on a Benchmark Interest Rate,” (DIG G26) which clarifies the accounting for a cash flow hedge of a variable-rate asset or liability, specifically addressing when an entity is permitted to hedge benchmark interest rate risk. DIG G26 indicates that the risk being hedged in a cash flow hedge of a variable-rate financial asset or liability cannot be designated as interest rate risk unless the cash flows of the hedged transaction are explicitly based on that same benchmark interest rate. In addition, DIG G26 clarifies that the only permitted benchmarks are the risk-free rate and rates based on the LIBOR swap curve. Hedging relationships that no longer qualify for cash flow hedge accounting based on this guidance must be undesignated prospectively. Changes in fair value of derivatives not subsequently re-designated to a new qualifying hedging relationship are recorded in earnings. Gains or losses previously included in accumulated other comprehensive income remain in accumulated other comprehensive income and are amortized to net income over the remaining term of the swaps as the hedged anticipated cash flows occur. If it becomes probable that the anticipated cash flows will not occur, the deferred gains or losses will be reclassified into earnings immediately. As a result of adopting DIG G26, we undesignated the hedging relationship for the interest rate swaps related to our flexible premium deferred annuity contracts as they are not explicitly based on one of the two permitted benchmarks. Net unrealized gains on these swaps included in accumulated other comprehensive income totaled $2.8 million at March 31, 2007 and are being amortized into income over the life of the individual swaps. Derivative income (loss) includes the change in fair value of these derivatives, which totaled $1.6 million for the second quarter of 2007. Amortization of the net unrealized gain totaled $0.7 million for the three-month period. This guidance does not impact the interest rate swap on our line of credit, as both the derivative instrument and hedged item are based on the three-month LIBOR rate.

Effective January 1, 2007, we adopted Financial Accounting Standards Board (FASB) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes.” Interpretation No. 48 creates a single model to address uncertainty in tax positions and clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. Under the Interpretation, a tax position can be recognized in the financial statements if it is more likely than not that the position will be sustained upon examination by taxing authorities who have full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement. Interpretation No. 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The impact of adopting Interpretation No. 48 was not material to our consolidated financial statements; therefore the cumulative effective of change in this accounting principle, totaling $0.3 million, is reflected as an increase to income tax expense in our 2007 consolidated income statement. We recognize interest accrued related to unrecognized tax

FBL Financial Group, Inc.		June 30, 2007

benefits in interest expense and penalties in other expenses. We are no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years prior to 2001.

Effective January 1, 2007, we adopted Statement of Position (SOP) 05-1, “Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts” issued by the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants. The SOP provides guidance on the accounting for internal replacements of one insurance contract for another insurance contract. Under the SOP, an internal replacement that is determined to result in a replacement contract that is substantially changed from the replaced contract is accounted for as an extinguishment of the replaced contract. As an extinguishment, the unamortized deferred policy acquisition costs, deferred sales inducements, value of insurance in force acquired and unearned revenue reserve from the replaced contract are written off at the time of the extinguishment. An internal replacement that is determined to result in a replacement contract that is substantially unchanged from the replaced contract is accounted for as a continuation of the replaced contract. The impact of adopting SOP 05-1 was not material to our consolidated financial statements for the six months ended June 30, 2007 (estimated to be less than $0.1 million) as our previous accounting policy for internal replacements substantially conformed to current interpretations of the guidance in the SOP.

In April 2007, the FASB issued Staff Position FIN 39-1 (FSP FIN 39-1), which amends certain aspects of FASB Interpretation No. 39, “Offsetting of Amounts Related to Certain Contracts — an interpretation of APB Opinion No. 10 and FASB Statement No. 105.” This FSP allows a reporting entity to offset fair value amounts recognized for the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) against fair value amounts recognized for derivative instruments executed with the same counterparty under the same master netting arrangement. The guidance in this FSP is effective for fiscal years beginning after November 15, 2007, with early application permitted. We intend to adopt FSP FIN 39-1 beginning in 2008. This FSP will have no impact on our consolidated statements of income. We have not yet determined the impact of adoption on our consolidated balance sheets. Net cash collateral at June 30, 2007 totaled $104.6 million.

In February 2007, the FASB issued Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities,” which permits certain financial assets and liabilities to be measured at fair value, with changes in fair value reported in earnings. This election is allowed on an instrument-by-instrument basis and requires additional reporting disclosures. This Statement is effective for fiscal years beginning after November 15, 2007. Early adoption is allowed provided the provisions of Statement No. 157 are also adopted. We are currently evaluating the requirements of this Statement and have not yet concluded if the fair value option will be adopted.

In September 2006, the FASB issued Statement No. 157, “Fair Value Measurements,” which defines fair value, establishes a framework for measuring fair value and expands the required disclosures about fair value measurements. This Statement is effective for fiscal years beginning after November 15, 2007. The impact of adoption is not expected to be material to our consolidated financial statements.

In September 2006, the FASB issued Statement No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R).” While certain aspects of this Statement were adopted effective December 31, 2006, as described in our 2006 Form 10-K, the Statement also requires measurement of a plan’s assets and benefit obligations as of the end of the employer’s fiscal year, beginning with fiscal years ending after December 15, 2008. The impact of adopting this aspect of the Statement is not expected to be material to our consolidated financial statements.

Reclassifications

Certain amounts in the 2006 consolidated financial statements have been reclassified to conform to the 2007 financial statement presentation.

2. Credit Arrangements

On March 12, 2007, we issued $100.0 million of 5.875% Senior Notes (Senior Notes) due March 15, 2017. Interest on the Senior Notes will be paid semi-annually beginning September 15, 2007. The Senior Notes are redeemable in

FBL Financial Group, Inc.		June 30, 2007

whole or in part at any time at our option at a “make-whole” redemption price equal to the greater of 100% of their principal amount or the sum of the present values of the remaining scheduled payments of principal and interest on the Senior Notes, discounted to the redemption date on a semiannual basis at the treasury rate plus 20 basis points. We received net proceeds of approximately $98.5 million from the issuance of the Senior Notes after underwriting fees, offering expenses and original issue discount.

The Senior Notes offering would have caused us to violate the covenants of our revolving line of credit agreement with LaSalle Bank National Association and Bankers Trust Company, N.A. Therefore, on March 12, 2007, this agreement was amended to allow for the Senior Notes offering without violating the financial covenants of that agreement.

3. Defined Benefit Plans

We participate with several affiliates and an unaffiliated organization in various multiemployer defined benefit plans. Our share of net periodic pension cost for the plans recorded in our consolidated income statements for the second quarter totaled $1.5 million for 2007 and $1.6 million for 2006, and for the six months ended June 30 totaled $3.0 million for 2007 and $3.2 million for 2006. Components of net periodic pension cost for all employers in the multiemployer plans are as follows:

		Three months ended June 30,								Six months ended June 30,
		2007				2006				2007				2006
		(Dollars in thousands)
Service cost		$	2,341			$	2,396			$	4,682			$	4,792
Interest cost			3,476				3,428				6,951				6,856
Expected return on assets			(3,087	)			(2,746	)			(6,174	)			(5,492	)
Amortization of prior service cost			193				201				387				402
Amortization of actuarial loss			1,119				1,398				2,239				2,796
Net periodic pension cost – all employers		$	4,042			$	4,677			$	8,085			$	9,354

4. Commitments and Contingencies

In the normal course of business, we may be involved in litigation where amounts are alleged that are substantially in excess of contractual policy benefits or certain other agreements. At June 30, 2007, management is not aware of any claims for which a material loss is reasonably possible.

We seek to limit our exposure to loss on any single insured or event and to recover a portion of benefits paid by ceding a portion of our exposure to other insurance enterprises or reinsurers. Reinsurance contracts do not relieve us of our obligations to policyholders. To the extent that reinsuring companies are later unable to meet obligations under reinsurance agreements, our insurance subsidiaries would be liable for these obligations, and payment of these obligations could result in losses. To limit the possibility of such losses, we evaluate the financial condition of our reinsurers and monitor concentrations of credit risk. No allowance for uncollectible amounts has been established against our asset for reinsurance recoverable since none of our receivables are deemed to be uncollectible.

We participate in a reinsurance pool with various unaffiliated life insurance companies to mitigate the impact of a catastrophic event on our financial position and results of operations. Members of the pool share in the eligible catastrophic losses based on their size and contribution to the pool. Under the pool arrangement, we will be able to cede approximately 60% of catastrophic losses after other reinsurance and a deductible of $0.8 million. Pool losses are capped at $11.7 million per event and the maximum loss we could incur as a result of losses assumed from other pool members is $4.2 million per event.

We self-insure our employee health and dental claims. However, claims in excess of self-insurance levels are fully insured. We fund insurance claims through a self-insurance trust. Deposits to the trust are made at an amount equal to our best estimate of claims incurred during the period. Accordingly, no accruals are recorded on our financial statements for unpaid claims and claims incurred but not reported. Adjustments, if any, resulting in changes in the estimate of claims incurred will be reflected in operations in the periods in which such adjustments are known.

FBL Financial Group, Inc.		June 30, 2007

In the second quarter of 2006, we incurred a pre-tax charge of $4.9 million relating to the settlement of a lawsuit with a husband and wife who had applied for life insurance policies. The settlement ended litigation regarding the process we followed in denying insurance coverage for medical reasons. Insurance claims have been filed under our professional liability and general liability insurance policies for reimbursement of the settlement amount, but coverage has been denied, and we have filed a claim against an insurance broker for breach of contractual duties. We have filed lawsuits against the insurer and the insurance broker to recover damages. While we have received an adverse ruling in the case against the insurer at the district court level, the adverse ruling has been appealed and we continue to believe both claims are valid. Recoveries from third parties are required to be accounted for as gain contingencies and not recorded in our financial statements until the lawsuits are resolved. Accordingly, any recoveries will be recorded in net income in the period the recovery is received.

5. Earnings Per Share

The following table sets forth the computation of earnings per common share and earnings per common share – assuming dilution.

		Three months ended June 30,								Six months ended June 30,
		2007				2006				2007				2006
		(Dollars in thousands, except per share data)
Numerator:
Net income		$	33,846			$	17,702			$	57,957			$	45,436
Dividends on Series B preferred stock			(37	)			(37	)			(75	)			(75	)
Numerator for earnings per common share – income available to common stockholders		$	33,809			$	17,665			$	57,882			$	45,361
Denominator:
Weighted average shares			29,621,284				29,336,234				29,582,618				29,261,679
Deferred common stock units relating to deferred compensation plans			60,370				45,697				58,420				43,537
Denominator for earnings per common share – weighted-average shares			29,681,654				29,381,931				29,641,038				29,305,216
Effect of dilutive securities – stock-based compensation			603,538				473,666				626,403				505,343
Denominator for diluted earnings per common share – adjusted weighted-average shares			30,285,192				29,855,597				30,267,441				29,810,559
Earnings per common share		$	1.14			$	0.60			$	1.95			$	1.55
Earnings per common share – assuming dilution		$	1.12			$	0.59			$	1.91			$	1.52

FBL Financial Group, Inc.		June 30, 2007

6. Segment Information

We analyze operations by reviewing financial information regarding products that are aggregated into four product segments. The product segments are: (1) Traditional Annuity – Exclusive Distribution (“Exclusive Annuity”), (2) Traditional Annuity – Independent Distribution (“Independent Annuity”), (3) Traditional and Universal Life Insurance and (4) Variable. We also have various support operations and corporate capital that are aggregated into a Corporate and Other segment.

We analyze our segment results based on pre-tax operating income (loss). Accordingly, income taxes are not allocated to the segments. In addition, operating results are generally reported net of any transactions between the segments. Operating income (loss) represents net income excluding, as applicable, the impact of:

	•		realized and unrealized gains and losses on investments,
	•		changes in net unrealized gains and losses on derivatives,
	•		the cumulative effect of changes in accounting principles,
	•		a nonrecurring lawsuit settlement and
	•		discontinued operations.

We use operating income, in addition to net income, to measure our performance since realized and unrealized gains and losses on investments and the change in net unrealized gains and losses on derivatives can fluctuate greatly from quarter to quarter. Also, the cumulative effect of changes in accounting principles, discontinued operations and the lawsuit settlement in 2006 are nonrecurring items. These fluctuations make it difficult to analyze core operating trends. In addition, for derivatives not designated as hedges, there is a mismatch between the valuation of the asset and liability when deriving net income. Specifically, call options relating to our index business are one or two-year assets while the embedded derivative in the index contracts represents the rights of the contract holder to receive index credits over the entire period the index annuities are expected to be in force. For our other embedded derivatives in the product segments, the embedded derivatives are marked to market, but the associated insurance liabilities are not marked to market. A view of our operating performance without the impact of these mismatches and nonrecurring items enhances the analysis of our results. We use operating income for goal setting, determining company-wide bonuses and evaluating performance on a basis comparable to that used by many in the investment community.

FBL Financial Group, Inc.		June 30, 2007

Financial information concerning our operating segments is as follows:

		Three months ended June 30,								Six months ended June 30,
		2007				2006				2007				2006
						(Dollars in thousands)
Operating revenues:
Traditional Annuity – Exclusive Distribution		$	38,251			$	35,960			$	75,389			$	72,053
Traditional Annuity – Independent Distribution			94,376				57,487				165,549				102,750
Traditional and Universal Life Insurance			87,392				83,236				169,095				163,398
Variable			15,762				14,932				32,123				29,194
Corporate and Other			9,297				8,062				17,490				14,938
			245,078				199,677				459,646				382,333
Realized/unrealized gains on investments (A)			1,156				222				2,612				11,827
Change in net unrealized gains/losses on derivatives (A)			27,681				(24,703	)			27,817				(2,897	)
Consolidated revenues		$	273,915			$	175,196			$	490,075			$	391,263
Pre-tax operating income (loss):
Traditional Annuity – Exclusive Distribution		$	8,458			$	7,857			$	17,575			$	16,630
Traditional Annuity – Independent Distribution			8,475				7,011				19,634				12,943
Traditional and Universal Life Insurance			16,217				15,673				27,611				26,623
Variable			3,773				454				6,031				3,270
Corporate and Other			(869	)			(440	)			(1,609	)			(2,311	)
			36,054				30,555				69,242				57,155
Income taxes on operating income			(11,851	)			(10,244	)			(22,942	)			(19,258	)
Realized/unrealized gains on investments, net (A)			1,365				88				2,319				7,781
Change in net unrealized gains/losses on derivatives (A)			8,278				475				9,621				2,930
Cumulative effect of change in accounting principle			—				—				(283	)			—
Lawsuit settlement (A)			—				(3,172	)			—				(3,172	)
Consolidated net income		$	33,846			$	17,702			$	57,957			$	45,436

Our investment in equity method investees, the related equity income and interest expense are attributable to the Corporate and Other segment. Expenditures for long-lived assets were not significant during the periods presented above. Goodwill at June 30, 2007 and December 31, 2006 is allocated among the segments as follows: Exclusive Annuity ($3.9 million), Traditional and Universal Life Insurance ($6.1 million) and Variable ($1.2 million).

FBL Financial Group, Inc.		June 30, 2007

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This section includes a summary of FBL Financial Group, Inc.’s consolidated results of operations, financial condition and where appropriate, factors that management believes may affect future performance. Unless noted otherwise, all references to FBL Financial Group, Inc. (we or the Company) include all of its direct and indirect subsidiaries, including its primary life insurance subsidiaries, Farm Bureau Life Insurance Company (Farm Bureau Life) and EquiTrust Life Insurance Company (EquiTrust Life) (collectively, the Life Companies). Please read this discussion in conjunction with the accompanying consolidated financial statements and related notes. In addition, we encourage you to refer to our 2006 Form 10-K for a complete description of our significant accounting policies and estimates. Familiarity with this information is important in understanding our financial position and results of operations.

Results of Operations for the Three and Six Months Ended June 30, 2007 Compared to Three and Six Months Ended June 30, 2006

		Three months ended June 30,								Six months ended June 30,
		2007				2006				2007				2006
						(Dollars in thousands, except per share data)
Revenues		$	273,915			$	175,196			$	490,075			$	391,263
Benefits and expenses			223,323				149,027				403,330				323,104
			50,592				26,169				86,745				68,159
Income taxes			(16,940	)			(8,684	)			(29,347	)			(23,065	)
Minority interest and equity income			194				217				559				342
Net income			33,846				17,702				57,957				45,436
Less dividends on Series B preferred stock			(37	)			(37	)			(75	)			(75	)
Net income applicable to common stock		$	33,809			$	17,665			$	57,882			$	45,361
Earnings per common share		$	1.14			$	0.60			$	1.95			$	1.55
Earnings per common share – assuming dilution		$	1.12			$	0.59			$	1.91			$	1.52
Other data
Direct premiums collected, net of reinsurance ceded:
Traditional Annuity – Exclusive Distribution		$	36,616			$	37,432			$	72,079			$	79,312
Traditional Annuity – Independent Distribution			279,352				441,713				575,412				718,916
Traditional and Universal Life Insurance			48,090				45,273				93,927				89,573
Variable Annuity and Variable Universal Life (1)			49,707				43,181				92,490				85,017
Reinsurance assumed and other			4,840				4,652				8,425				9,141
Total		$	418,605			$	572,251			$	842,333			$	981,959
Direct life insurance in force, end of quarter (in millions)										$	39,724			$	37,131
Life insurance lapse rates											6.0	%			6.7	%
Withdrawal rates – individual traditional annuity:
Exclusive Distribution											5.9	%			5.8	%
Independent Distribution											5.3	%			5.0	%

FBL Financial Group, Inc.		June 30, 2007

Premiums collected is not a measure used in financial statements prepared according to U.S. generally accepted accounting principles (GAAP). There is no comparable GAAP financial measure. We use premiums collected to measure the productivity of our exclusive and independent agents. Direct Traditional Annuity – Independent Distribution premiums collected decreased for the 2007 periods as expected, reflecting the unusually high level of fixed rate annuity sales in 2006 as well as actions we took in 2007 to further increase the profitability of the products sold by our EquiTrust Life independent distribution channel.

Net income applicable to common stock increased 91.4% in the second quarter of 2007 to $33.8 million and increased 27.6% in the six months ended June 30, 2007 to $57.9 million. These increases are primarily due to net unrealized gains on derivatives, increases in net investment income and the volume of business in force and a decrease in other underwriting expenses. For the six-month periods these increases were partially offset by a decrease in realized/unrealized gains on investments. The increase in volume of business in force is quantified in the detailed discussion that follows by summarizing the face amount of insurance in force for life products or account values of contracts in force for interest sensitive products. The face amount of life insurance in force represents the gross death benefit payable to policyholders and account value represents the value of the contract to the contract holder before application of surrender charges or reduction for any policy loans outstanding.

The spreads earned on our universal life and individual traditional annuity products are as follows:

		Six months ended June 30,
		2007				2006
Weighted average yield on cash and invested assets			6.10	%			6.04	%
Weighted average interest crediting rate/index cost			3.70				3.52
Spread			2.40	%			2.52	%

The weighted average yield on cash and invested assets represents the yield on cash and investments backing the universal life and individual traditional annuity products net of investment expenses. With respect to our index annuities, index costs represent the expenses we incur to fund the annual index credits through the purchase of options and minimum guaranteed interest credited on the index business. The weighted average crediting rate/index cost and spread are computed excluding the impact of the amortization of deferred sales inducements. See the “Segment Information” section that follows for a discussion of our spreads.

Premiums and product charges are as follows:

		Three months ended June 30,								Six months ended June 30,
		2007				2006				2007				2006
						(Dollars in thousands)
Premiums and product charges:
Interest sensitive and index product charges		$	27,930			$	26,495			$	54,916			$	51,809
Traditional life insurance premiums			38,975				35,773				73,512				70,161
Total		$	66,905			$	62,268			$	128,428			$	121,970

Premiums and product charges increased 7.4% in the second quarter of 2007 to $66.9 million and 5.3% in the six months ended June 30, 2007 to $128.4 million. The increases in interest sensitive and index product charges are principally driven by surrender charges on annuity and universal life products, cost of insurance charges on variable universal life and universal life products and mortality and expense fees on variable products.

Surrender charges totaled $10.5 million in the six-month period ended June 30, 2007 compared to $8.8 million in the 2006 period. Surrender charges increased primarily due to an increase in surrenders relating to growth in the volume and aging of business in force. The average aggregate account value for annuity and universal life insurance in force, which increased due to premiums collected as summarized in the “Other data” table above, totaled $7,972.6 million for the six-month period in 2007 and $6,343.5 million for the 2006 period. We believe aging of the business in force is driving a portion of the increase in surrender charges relating to our annuity business as the surrender

FBL Financial Group, Inc.		June 30, 2007

charge rate decreases with the passage of time (at a rate generally equal to 1.0% per year). This makes a surrender later in the contract period more economical for the contract holder, which results in higher lapse rates as the business ages. We started assuming business under a coinsurance agreement with American Equity Investment Life Insurance Company in 2001 and started selling annuities directly through EquiTrust Life independent agents in the fourth quarter of 2003. Surrender charges on this coinsurance and direct business totaled $8.9 million for the six months ended June 30, 2007 and $7.3 million for the 2006 period.

Cost of insurance charges totaled $32.3 million in the six months ended June 30, 2007 and $31.7 million in the 2006 period. Cost of insurance charges increased primarily due to aging of the business in force as the cost of insurance charge rate per each $1,000 in force increases with the age of the insured. The average age of our universal life and variable universal life policyholders was 45.3 years at June 30, 2007 and 44.9 years at June 30, 2006.

Mortality and expense fees totaled $4.8 million in the six-month period ended June 30, 2007 and $3.9 million in the 2006 period. Mortality and expense fees increased due to an increase in the separate account balances on which fees are based. The average separate account balance increased to $795.9 million for the six-month period in 2007 from $669.4 million for the six-month period in 2006 due to the impact of new sales and favorable investment results. Transfers of premiums to the separate accounts totaled $73.7 million for the six months ended June 30, 2007 and $68.3 million for the 2006 period. Net investment income and net realized and unrealized gains on separate account assets totaled $53.5 million in the six-month period of 2007 and $16.2 million in the 2006 period.

Traditional premiums increased due to an increase in the volume of business in force, partially offset by an increase in reinsurance ceded. The increase in the business in force is primarily attributable to sales of traditional life products by our Farm Bureau Life agency force exceeding the loss of in force amounts through deaths, lapses and surrenders. Our average aggregate traditional life insurance in force, net of reinsurance ceded, totaled $19,544.2 million for the six-month period in 2007 and $17,883.0 million for the six-month period in 2006. The change in life insurance in force is not proportional to the change in premium income due to a shift in the composition of our traditional life block of business from whole life policies to term policies. The premium for a term policy per $1,000 face amount is less than that for a whole life policy.

Net investment income, which excludes investment income on separate account assets relating to variable products, increased 19.9% in the second quarter of 2007 to $154.6 million and 21.2% in the six months ended June 30, 2007 to $304.5 million, primarily due to an increase in average invested assets. Average invested assets in the six-month period of 2007 increased 19.8% to $10,036.8 million (based on securities at amortized cost) from $8,375.7 million in the 2006 period, principally due to net premium inflows from the Life Companies and proceeds from issuance of Senior Notes in March 2007. The annualized yield earned on average invested assets increased to 6.16% in the six months ended June 30, 2007 from 6.09% in the respective 2006 period. Fee income from bond calls, tender offers and mortgage loan prepayments totaled $6.6 million in the six months ended June 30, 2007 compared to $2.7 million in the respective 2006 period. Net investment income also includes ($1.0) million for the six-month periods in 2007 and ($1.1) million in 2006, representing the reversal of net discount accretion on mortgage and asset-backed securities resulting from changing prepayment speed assumptions as of the end of each respective period. See the “Financial Condition – Investments” section that follows for a description of how changes in prepayment speeds impact net investment income.

FBL Financial Group, Inc.		June 30, 2007

Derivative income (loss) is as follows:

		Three months ended June 30,								Six months ended June 30,
		2007				2006				2007				2006
						(Dollars in thousands)
Derivative income (loss):
Components of derivative income (loss) from call options:
Gains received at expiration		$	41,459			$	19,193			$	62,033			$	29,155
Change in the difference between fair value and remaining option cost at beginning and end of period			25,826				(24,313	)			25,099				(2,424	)
Cost of money for call options			(25,640	)			(17,095	)			(49,446	)			(32,035	)
			41,645				(22,215	)			37,686				(5,304	)
Other			3,181				(216	)			3,263				(295	)
Total		$	44,826			$	(22,431	)		$	40,949			$	(5,599	)

The increase in gains received at expiration is attributable to growth in the volume of index annuities in force and appreciation in the market indices on which our options are based. The average aggregate account value of index annuities in force, which has increased due to new sales, totaled $3,896.5 million for the six months ended June 30, 2007 compared to $2,954.6 million for the respective 2006 period. The changes in the difference between the fair value of the call options and the remaining option costs are caused primarily by the change in the S&P 500 Index® (upon which the majority of our options are based). The range of index appreciation for S&P 500 Index options for the period ended June 30 is as follows:

		Three months ended June 30,								Six months ended June 30,
		2007				2006				2007				2006
Annual point-to-point strategy			5.9%-24.4	%			2.6%-15.0	%			5.9%-24.4	%			2.6%-15.0	%
Monthly point-to-point strategy			5.6%-16.1	%			0.0%-10.1	%			4.4%-16.1	%			0.0%-10.1	%
Monthly average strategy – one-year options			3.4%-14.1	%			3.4%-9.1	%			1.2%-14.1	%			0.9%-9.1	%
Monthly average strategy – two-year options			9.5%-14.6	%			—				9.3%-14.6	%			—
Daily average strategy			3.2%-10.9	%			3.2%-8.7	%			2.1%-10.9	%			0.7%-8.7	%

The change in fair value is also reduced by participation rates and caps, as applicable, on the underlying options. Furthermore, the change in fair value is impacted by options based on other underlying indices and the timing of option settlements. The cost of money for call options increased primarily due to the impact of growth in the volume of index annuities in force. Other derivative income (loss) is comprised of changes in the value of the conversion feature embedded in convertible fixed maturity securities and the embedded derivative included in our modified coinsurance contracts. In addition, beginning in the second quarter of 2007, other derivative income (loss) includes the change in fair value of the interest rate swaps related to our flexible premium deferred annuity contracts due to the adoption of Statement 133 Implementation Issue No. G26, “Cash Flow Hedges: Hedging Interest Cash Flows on Variable Rate Assets and Liabilities That Are Not Based on a Benchmark Interest Rate.” See “Accounting Changes” for additional details on this Issue. Derivative income (loss) will fluctuate based on market conditions.

Realized/unrealized gains on investments are as follows:

		Three months ended June 30,								Six months ended June 30,
		2007				2006				2007				2006
						(Dollars in thousands)
Realized/unrealized gains (losses) on investments:
Realized gains on sales		$	3,571			$	238			$	5,015			$	14,227
Realized losses on sales			(2	)			(8	)			(40	)			(11	)
Realized losses due to impairments			(2,436	)			—				(2,436	)			(2,340	)
Unrealized gains (losses) on trading securities			23				(8	)			73				(50	)
Total		$	1,156			$	222			$	2,612			$	11,826

FBL Financial Group, Inc.		June 30, 2007

The level of realized/unrealized gains (losses) is subject to fluctuation from period to period depending on the prevailing interest rate and economic environment and the timing of the sale of investments. See “Financial Condition – Investments” for details regarding our unrealized gains and losses on available-for-sale securities at June 30, 2007 and December 31, 2006. Gains on sales in the six-month period include $4.9 million in 2007 and $13.5 million in 2006 related to sales of a portion of our investment in American Equity Investment Life Holding Company (AEL) common stock.

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;
	•		length of time the security has been in an unrealized loss position; and
	•		our intent and ability to hold the security.

If we determine that an unrealized loss is other than temporary, the security is written down to its fair value with the difference between amortized cost and fair value recognized as a realized loss. Details regarding investment impairments individually exceeding $0.5 million, for the six months ended June 30, 2007 and 2006, including the circumstances requiring the write downs, are summarized in the following table:

General Description		Impairment Loss				Circumstance
		(Dollars in
		thousands)
Six months ended June 30, 2007:
Major printing and publishing company		$	1,624			During the second quarter, the company announced that it would take the company private in a series of transactions tendering outstanding shares. In addition, rating declines and other adverse details regarding the financial status of the company became available. (A)
United States Military Base housing revenue bond		$	812			During the second quarter, closed one military base leading to a restructuring and tender offer for the bonds. (A)
Six months ended June 30, 2006:
Major United States credit company		$	986			Valuation of this security is tied to the strength of its parent. During the first quarter, continued rating declines and other adverse details regarding the financial status of the parent company became available. (A)
Major United States automaker		$	648			During the first quarter, continued rating declines and other adverse details regarding the financial status of the company became available. In addition, the company faces labor strikes and restated its financial statements during the quarter. (A)
Major United States automaker		$	643			During the first quarter, continued rating declines and other adverse details regarding the financial status of the company became available. (A)

FBL Financial Group, Inc.		June 30, 2007

Other income and other expenses include revenues and expenses, respectively, relating primarily to our non-insurance operations. Our non-insurance operations include management, advisory, marketing and distribution services and leasing activities. Fluctuations in these financial statement line items are generally attributable to fluctuations in the level of these services provided during the periods.

Interest sensitive and index product benefits are as follows:

		Three months ended June 30,								Six months ended June 30,
		2007				2006				2007				2006
						(Dollars in thousands)
Interest sensitive and index product benefits:
Interest credited		$	58,307			$	47,977			$	116,402			$	96,018
Index credits			41,038				20,625				61,344				30,494
Change in value of embedded derivative			276				(29,449	)			(3,767	)			(17,507	)
Amortization of deferred sales inducements			11,301				6,312				16,199				12,775
Interest sensitive death benefits			9,923				9,213				21,455				19,600
Total		$	120,845			$	54,678			$	211,633			$	141,380

Interest sensitive and index product benefits increased 121.0% in the second quarter of 2007 to $120.8 million, and increased 49.7% in the six months ended June 30, 2007 to $211.6 million. These increases were primarily due to the impact of an increase in the volume of annuity business in force, the impact of market appreciation on the indices backing the index annuities and interest sensitive death benefits. Interest sensitive and index product benefits tend to fluctuate from period to period primarily as a result of changes in mortality experience and the impact of changes in the equity markets on index credits and the value of the embedded derivatives in our index annuities.

The average aggregate account value of annuity contracts in force, which increased due to additional premiums collected as summarized in the “Other data” table above, totaled $7,081.6 million for the six-month period in 2007 and $5,452.8 million for the 2006 period. These account values include values relating to index contracts in the second quarter totaling $3,896.5 million for 2007 and $2,954.6 million for 2006.

The weighted average interest crediting rate/index cost for universal life and individual traditional annuity products, excluding the impact of the amortization of deferred sales inducements, was 3.70% for the six-month period of 2007 and 3.52% for the respective 2006 period.

The change in the amount of index credits is impacted by growth in the volume of index annuities in force and the amount of appreciation/depreciation in the underlying equity market indices on which our options are based as discussed above under “Derivative income (loss).” The change in the value of the embedded derivative is impacted by the change in expected index credits on the next policy anniversary dates, which is related to the change in the fair value of the options acquired to fund these index credits as discussed above under “Derivative income (loss).” The value of the embedded derivative is also impacted by the timing of the posting of index credits and changes in reserve discount rates and assumptions used in estimating future call option costs.

The increases in amortization of deferred sales inducements are primarily due to additional capitalization of costs incurred with new sales, profitability in the underlying business and the impact of changes in unrealized gains and losses on derivatives. Deferred sales inducements on interest sensitive and index products totaled $279.1 million at June 30, 2007 and $188.3 million at June 30, 2006. The change in unrealized gains and losses on derivatives increased amortization by $6.8 million in the six-month period of 2007 and $4.9 million in the 2006 period. In addition, changes in assumptions (unlocking) used to calculate amortization of deferred sales inducements decreased amortization $1.1 million for the six-month period of 2007 and $0.1 million for the 2006 period. The impact of unlocking in 2007 is primarily due to decreasing lapse assumptions in the models for our direct index annuity business.

FBL Financial Group, Inc.		June 30, 2007

Traditional life insurance benefits are as follows:

		Three months ended June 30,								Six months ended June 30,
		2007				2006				2007				2006
						(Dollars in thousands)
Traditional life insurance policy benefits:
Traditional life insurance benefits		$	23,411			$	22,523			$	48,081			$	45,130
Increase in traditional life future policy benefits			11,693				10,441				19,229				19,305
Distributions to participating policyholders			5,656				5,794				11,248				11,445
Total		$	40,760			$	38,758			$	78,558			$	75,880

Traditional life insurance benefits increased 5.2% in the second quarter of 2007 to $40.8 million and increased 3.5% in the six months ended June 30, 2007 to $78.6 million primarily due to an increase in traditional life insurance surrender benefits and the impact of an increase in the volume of traditional life business in force, partially offset by a decrease in death benefits. Surrender benefits increased 27.3% to $10.1 million in the second quarter of 2007 and 26.3% to $19.8 million for the six-month period while death benefits decreased 10.5% to $12.0 million for the quarter and 6.1% to $25.7 million for the six-month period. The change in traditional life future policy benefits may not be proportional to the change in traditional premiums and benefits as reserves on term policies are generally less than reserves on whole life policies. Traditional life insurance benefits can fluctuate from period to period primarily as a result of changes in mortality experience.

Underwriting, acquisition and insurance expenses are as follows:

		Three months ended June 30,								Six months ended June 30,
		2007				2006				2007				2006
						(Dollars in thousands)
Underwriting, acquisition and insurance expenses:
Commission expense, net of deferrals		$	3,648			$	3,474			$	7,054			$	6,992
Amortization of deferred policy acquisition costs			28,897				20,401				48,581				39,170
Amortization of value of insurance in force acquired			1,090				691				2,002				1,094
Other underwriting, acquisition and insurance expenses, net of deferrals			17,899				22,580				36,007				41,685
Total		$	51,534			$	47,146			$	93,644			$	88,941