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 September 30, 2008

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

For the transition period from                      to                     

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, a non-accelerated filer, or a smaller reporting company. See 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 October 31, 2008
Class A Common Stock, without par value		28,975,889
Class B Common Stock, without par value		1,192,990

 

 

FBL FINANCIAL GROUP, INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2008
TABLE OF CONTENTS

PART I.      FINANCIAL INFORMATION
Cautionary Statement Regarding Forward Looking Information			2
Item 1.            Financial Statements (Unaudited)
Consolidated Balance Sheets			4
Consolidated Statements of Income			6
Consolidated Statements of Changes in Stockholders’ Equity			7
Consolidated Statements of Cash Flows			8
Notes to Consolidated Financial Statements			10
Item 2.            Management’s Discussion and Analysis of Financial Condition and Results of Operations			19
Item 3.            Quantitative and Qualitative Disclosures About Market Risk			50
Item 4.            Controls and Procedures			50
PART II.       OTHER INFORMATION
Item 2.            Unregistered Sales of Equity Securities and Use of Proceeds			51
Item 6.            Exhibits			51
SIGNATURES			54
EXHIBIT 4.8
EX-31.1
EX-31.2
EX-32

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, including the risk factors summarized in Item 1A of our 2007 Annual Report on Form 10-K and those highlighted below, could cause our actual results and experiences to differ materially from the anticipated results or other expectations expressed in our forward-looking statements.

Risk Factors

We are subjected to a variety of risk factors that are identified in Item 1A of our 2007 Annual Report on Form 10-K. You should review these risks as they could materially affect our business, results of operations or financial condition, cause the trading price of our Common Stock to decline materially or cause our actual results to differ materially from those expected or those expressed in any forward looking statements made by or on behalf of the Company. In addition, certain risk factors that are specifically pertinent to the current-period financial statements are listed below.

Current difficult conditions in the financial markets and the economy may materially adversely affect our business and results of operations.

Our results of operations are materially affected by conditions in the financial markets and the economy generally. The stress experienced by financial markets that began in the second half of 2007 continued and substantially increased during the third quarter of 2008. The volatility and disruption in the financial markets have reached unprecedented levels. The availability and cost of credit has been materially affected. These factors, combined with volatile oil prices, depressed home prices and increasing foreclosures, falling equity market values, declining business and consumer confidence and the risks of increased inflation and unemployment, have precipitated an economic slowdown and fears of a severe recession.

The fixed-income markets are experiencing a period of both extreme volatility and limited market liquidity conditions, which has affected a broad range of asset classes and sectors. In addition, there have been credit downgrade events and an increased probability of default for many fixed income instruments. Equity markets have also been experiencing heightened volatility. These events and the continuing market upheavals have had and may continue to have an adverse effect on us. Our revenues may decline in such circumstances, the cost of meeting our obligations to our customers may increase, and our profit margins could erode. In addition, in the event of a prolonged economic downturn, we could incur significant losses in our investment portfolio.

The demand for our products could be adversely affected in an economic downturn characterized by higher unemployment, lower family income, lower consumer spending, lower corporate earnings and lower business investment. We also may experience a higher incidence of claims and lapses or surrenders of policies. Our policyholders may choose to defer or stop paying insurance premiums. We cannot predict whether or when such actions may occur, or what impact, if any, such actions could have on our business, results of operations, cash flows and financial condition.

Continuing adverse financial market conditions may significantly affect our liquidity, access to capital and cost of capital.

As described in the Liquidity and Capital Resources section in Item 2 of this Form 10-Q, our life insurance subsidiaries have historically generated positive cash flow as measured by the degree to which cash inflows are adequate to meet benefit obligations to policyholders and normal operating expenses as they are incurred. While we expect our life insurance subsidiaries to generate positive cash flow in the future, a significant increase in policyholder benefits, including withdrawals and surrenders of life insurance and annuity contracts, could require us to sell fixed maturity securities that are currently in an unrealized loss position. Such sales would result in a charge to income and a reduction in capital. See the Financial Condition section in Item 2 of this Form 10-Q for details regarding the unrealized loss position on our fixed maturity securities.

Adverse capital market conditions have affected and may continue to affect the availability and cost of borrowed funds and could impact our ability to refinance existing borrowings, thereby ultimately impacting our profitability and ability to support or grow our businesses. Without sufficient capital, we could be forced to curtail certain of our operations, and our business could suffer. Actions we might take to access financing may in turn cause rating agencies to reevaluate our ratings.

We manage the amount of our capital to be consistent with an A ratings objective from Standard & Poor’s and A.M. Best. As of September 30, 2008, we estimate that the total adjusted capital of our life insurance subsidiaries were at the capital levels required to meet this rating objective. In addition, during the fourth quarter of 2008, we issued notes to affiliates for an additional $100.0 million to provide financial flexibility. However, this capital may not be sufficient if significant future losses are incurred and, given the current market conditions, access to additional capital could be limited.

Our valuation of fixed maturity securities may include methodologies, estimations and assumptions that are subject to differing interpretations and could result in changes to investment valuations that may materially adversely affect our results of operations or financial condition.

During periods of market disruption, such as the unprecedented current market conditions, it may be difficult to value certain of our securities if trading becomes less frequent and/or market data becomes less observable. There may be certain asset classes that were in active markets with significant observable data that become illiquid due to the current financial environment or market conditions. As a result, valuations may include inputs and assumptions that are less observable or require greater estimation and judgment as well as valuation methods which are more complex. These values may not be ultimately realizable in a market transaction, and such values may change very rapidly as market conditions change and valuation assumptions are modified. Decreases in value may have a material adverse effect on our results of operations or financial condition.

The decision on whether to record an other-than-temporary impairment is determined in part by our assessment of the financial condition and prospects of a particular issuer, projections of future cash flows and recoverability of the particular security as well as an evaluation of our ability and intent to hold the securities to recovery. Our conclusions regarding the recoverability of a particular security’s market price may ultimately prove to be incorrect as facts and circumstances change.

We may be required to accelerate the amortization of deferred policy acquisition costs or deferred sales inducements, which could adversely affect our results of operations or financial condition.

Deferred policy acquisition costs and deferred sales inducements (collectively, DAC), represent the costs that vary with and are related primarily to the acquisition of new and renewal insurance and annuity contracts, and we amortize these costs over the expected lives of the contracts. We test the DAC recorded on our consolidated balance sheet to determine if these amounts are recoverable under current assumptions. In addition, we regularly review the estimates and assumptions underlying DAC for those products for which we amortize DAC in proportion to gross profits. Given changes in facts and circumstances, these tests and reviews could lead to reductions in DAC that could have an adverse effect on the results of our operations and our financial condition. Increases in actual or expected future withdrawals or surrenders, which are more likely in a severe economic recession, will result in an acceleration of DAC amortization. In addition, significant or sustained equity market declines as well as investment losses could result in an acceleration of DAC amortization related to variable annuity and variable universal life contracts.

ITEM 1. FINANCIAL STATEMENTS

FBL FINANCIAL GROUP, INC.

		September 30,				December 31,
		2008				2007
Assets
Investments:
Fixed maturities — available for sale, at market (amortized cost: 2008 - $10,606,564; 2007 - $9,662,986)		$	9,637,147			$	9,522,592
Equity securities — available for sale, at market (cost:
2008 - $11,288; 2007 - $22,410)			11,263				23,633
Mortgage loans on real estate			1,316,905				1,221,573
Derivative instruments			17,342				43,918
Investment real estate, less allowances for depreciation of $0 in 2008 and 2007			2,559				2,559
Policy loans			181,187				179,490
Other long-term investments			1,300				1,300
Short-term investments			90,094				72,005
Total investments			11,257,797				11,067,070
Cash and cash equivalents			87,248				84,015
Securities and indebtedness of related parties			19,117				19,957
Accrued investment income			145,114				118,827
Amounts receivable from affiliates			10,241				10,831
Reinsurance recoverable			105,613				123,659
Deferred policy acquisition costs			1,268,432				991,155
Deferred sales inducements			399,180				321,263
Value of insurance in force acquired			55,319				41,215
Property and equipment, less allowances for depreciation of $81,881 in 2008 and $75,365 in 2007			46,635				49,164
Current income taxes recoverable			22,360				7,412
Deferred income tax benefit			146,954				—
Goodwill			11,170				11,170
Collateral held for securities lending and other transactions			69,227				186,925
Other assets			25,526				32,458
Assets held in separate accounts			718,501				862,738
Total assets		$	14,388,434			$	13,927,859

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

		September 30,				December 31,
		2008				2007
Liabilities and stockholders’ equity
Liabilities:
Policy liabilities and accruals:
Future policy benefits:
Interest sensitive and index products		$	10,520,516			$	9,557,073
Traditional life insurance and accident and health products			1,317,897				1,284,068
Unearned revenue reserve			32,366				28,448
Other policy claims and benefits			42,472				31,069
			11,913,251				10,900,658
Other policyholders’ funds:
Supplementary contracts without life contingencies			497,580				439,441
Advance premiums and other deposits			171,496				158,245
Accrued dividends			9,922				11,208
			678,998				608,894
Amounts payable to affiliates			110				35
Short-term note payable to affiliate			20,000				—
Long-term debt			330,986				316,930
Deferred income taxes			—				28,188
Collateral payable for securities lending and other transactions			70,311				202,594
Other liabilities			100,275				104,840
Liabilities related to separate accounts			718,501				862,738
Total liabilities			13,832,432				13,024,877
Minority interest in subsidiaries			122				91
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 28,980,603 shares in 2008 and 28,826,738 shares in 2007			106,006				101,221
Class B common stock, without par value – authorized 1,500,000 shares, issued and outstanding 1,192,990 shares			7,519				7,525
Accumulated other comprehensive loss			(377,151	)			(36,345	)
Retained earnings			816,506				827,490
Total stockholders’ equity			555,880				902,891
Total liabilities and stockholders’ equity		$	14,388,434			$	13,927,859

See accompanying notes.

FBL FINANCIAL GROUP, INC.

		Three months ended September 30,								Nine months ended September 30,
		2008				2007				2008				2007
Revenues:
Interest sensitive and index product charges		$	32,931			$	29,129			$	93,837			$	84,045
Traditional life insurance premiums			36,282				34,751				111,184				108,263
Net investment income			181,888				157,016				522,555				461,560
Derivative income (loss)			(40,951	)			6,327				(171,532	)			47,276
Realized/unrealized gains (losses) on investments			(27,156	)			3,932				(130,524	)			6,544
Other income			6,545				6,513				19,365				20,055
Total revenues			189,539				237,668				444,885				727,743
Benefits and expenses:
Interest sensitive and index product benefits			111,074				121,999				320,312				337,400
Change in value of index product embedded derivatives			(37,529	)			10,195				(171,020	)			6,427
Traditional life insurance benefits			23,353				21,595				73,207				69,676
Increase in traditional life future policy benefits			11,084				8,840				33,511				28,069
Distributions to participating policyholders			4,813				4,866				15,106				16,114
Underwriting, acquisition and insurance expenses			50,676				36,198				144,359				129,842
Interest expense			4,464				4,437				13,363				12,236
Other expenses			5,585				5,675				17,677				17,371
Total benefits and expenses			173,520				213,805				446,515				617,135
			16,019				23,863				(1,630	)			110,608
Income taxes			(4,904	)			(7,904	)			2,634				(37,251	)
Minority interest in loss (earnings) of subsidiaries			15				2				31				(3	)
Equity income, net of related income taxes			86				538				44				1,102
Net income			11,216				16,499				1,079				74,456
Dividends on Series B preferred stock			(37	)			(37	)			(112	)			(112	)
Net income applicable to common stock		$	11,179			$	16,462			$	967			$	74,344
Earnings per common share		$	0.37			$	0.55			$	0.03			$	2.50
Earnings per common share – assuming dilution		$	0.37			$	0.54			$	0.03			$	2.46
Cash dividends per common share		$	0.125			$	0.120			$	0.375			$	0.360

See accompanying notes.

FBL FINANCIAL GROUP, INC.

														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, 2007		$	3,000			$	86,462			$	7,519			$	28,195			$	755,544			$	880,720
Comprehensive income:
Net income for nine months ended September 30, 2007			—				—				—				—				74,456				74,456
Change in net unrealized investment gains/losses			—				—				—				(58,863	)			—				(58,863	)
Change in underfunded status of other postretirement benefit plans			—				—				—				10				—				10
Total comprehensive income																							15,603
Adjustment resulting from capital transactions of equity investee			—				36				4				—				—				40
Stock based compensation, including the issuance of 324,505 common shares under compensation plans			—				11,739				—				—				—				11,739
Dividends on preferred stock			—				—				—				—				(112	)			(112	)
Dividends on common stock			—				—				—				—				(10,672	)			(10,672	)
Balance at September 30, 2007		$	3,000			$	98,237			$	7,523			$	(30,658	)		$	819,216			$	897,318
Balance at January 1, 2008		$	3,000			$	101,221			$	7,525			$	(36,345	)		$	827,490			$	902,891
Comprehensive loss:
Net income for nine months ended September 30, 2008			—				—				—				—				1,079				1,079
Change in net unrealized investment gains/losses			—				—				—				(340,820	)			—				(340,820	)
Change in underfunded status of other postretirement benefit plans			—				—				—				14				—				14
Total comprehensive loss																							(339,727	)
Change in measurement date of benefit plans			—				—				—				—				(770	)			(770	)
Adjustment resulting from capital transactions of equity investee			—				(81	)			(6	)			—				—				(87	)
Stock based compensation, including the issuance of 153,865 common shares under compensation plans			—				4,866				—				—				—				4,866
Dividends on preferred stock			—				—				—				—				(112	)			(112	)
Dividends on common stock			—				—				—				—				(11,181	)			(11,181	)
Balance at September, 2008		$	3,000			$	106,006			$	7,519			$	(377,151	)		$	816,506			$	555,880

Comprehensive income (loss) totaled ($179.2) million in the third quarter of 2008 and $26.7 million in the third quarter of 2007.

See accompanying notes.

FBL FINANCIAL GROUP, INC.

		Nine months ended September 30,
		2008				2007
Operating activities
Net income		$	1,079			$	74,456
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			244,467				292,294
Change in fair value of embedded derivatives			(171,020	)			6,427
Charges for mortality and administration			(88,408	)			(76,910	)
Deferral of unearned revenues			1,177				1,060
Amortization of unearned revenue reserve			(1,165	)			(1,724	)
Provision for depreciation and amortization of property and equipment			11,676				10,222
Provision for accretion and amortization of investments			(4,004	)			(8,013	)
Realized/unrealized losses (gains) on investments			130,524				(6,544	)
Change in fair value of derivatives			137,973				(32,615	)
Increase in traditional life and accident and health benefit accruals			33,829				28,415
Policy acquisition costs deferred			(127,680	)			(124,991	)
Amortization of deferred policy acquisition costs			74,741				61,037
Amortization of deferred sales inducements			39,445				15,682
Amortization of value of insurance in force			1,979				3,008
Net sale of fixed maturities – trading			—				15,000
Change in accrued investment income			(26,277	)			(17,301	)
Change in amounts receivable from/payable to affiliates			666				5,840
Change in reinsurance recoverable			18,046				8,048
Change in current income taxes			(14,948	)			(2,092	)
Provision for deferred income taxes			8,765				2,004
Other			(3,351	)			27,769
Net cash provided by operating activities			267,514				281,072
Investing activities
Sale, maturity or repayment of investments:
Fixed maturities – available for sale			495,576				414,328
Equity securities – available for sale			15,474				17,864
Mortgage loans on real estate			45,729				45,223
Derivative instruments			31,633				94,536
Investment real estate			—				9,741
Policy loans			28,688				30,084
			617,100				611,776
Acquisition of investments:
Fixed maturities – available for sale			(1,566,994	)			(1,274,429	)
Equity securities – available for sale			(223	)			(143	)
Mortgage loans on real estate			(141,041	)			(229,011	)
Derivative instruments			(144,283	)			(71,624	)
Investment real estate			—				(536	)
Policy loans			(30,385	)			(29,785	)
Short-term investments – net			(18,089	)			(19,670	)
			(1,901,015	)			(1,625,198	)

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

		Nine months ended September 30,
		2008				2007
Investing activities – continued
Proceeds from disposal, repayments of advances and other distributions of capital from equity investees		$	529			$	58
Investments in and advances to equity investees			—				(850	)
Purchases of property and equipment			(11,793	)			(14,904	)
Disposal of property and equipment			1,816				2,904
Net cash used in investing activities			(1,293,363	)			(1,026,214	)
Financing activities
Receipts from interest sensitive and index products credited to policyholder account balances			1,810,387				1,397,704
Return of policyholder account balances on interest sensitive and index products			(807,328	)			(688,691	)
Proceeds from short-term note payable to affiliate			20,000				—
Proceeds from long-term debt			14,000				98,460
Distributions related to minority interests – net			61				2
Excess tax deductions on stock-based compensation			129				1,254
Issuance of common stock			3,126				5,022
Dividends paid			(11,293	)			(10,784	)
Net cash provided by financing activities			1,029,082				802,967
Increase in cash and cash equivalents			3,233				57,825
Cash and cash equivalents at beginning of period			84,015				112,292
Cash and cash equivalents at end of period		$	87,248			$	170,117
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest		$	13,465			$	12,159
Income taxes			3,443				36,680
Non-cash operating activity:
Deferral of sales inducements			46,632				64,151

See accompanying notes.

FBL Financial Group, Inc.		September 30, 2008

FBL FINANCIAL GROUP, INC.

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 nine-month periods ended September 30, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008. We encourage you to refer to our consolidated financial statements and notes for the year ended December 31, 2007 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 January 1, 2008, we adopted Statement of Financial Accounting Standards (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. See Note 2, “Fair Value,” for detailed information regarding our fair value measurements. The impact of adoption as of January 1, 2008, was to decrease the carrying value of certain investments and certain policy liabilities and accruals in our consolidated financial statements, resulting in an increase to net income of $5.6 million ($0.19 per basic and diluted common share). The primary impact of this change was a decrease to the embedded derivatives in the index annuity reserves of $26.7 million. The impact of this change on net income was mitigated by offsets for the amortization of deferred policy acquisition costs and deferred sales inducements and income taxes.

Effective January 1, 2008, we adopted the measurement date portion of 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).” This portion of Statement No. 158 requires measurement of a plan’s assets and benefit obligations as of the end of the employer’s fiscal year. We adopted the measurement date portion of this Statement, using the single measurement date method, which resulted in a decrease to retained earnings totaling $0.8 million.

Effective January 1, 2008, we adopted Financial Accounting Standards Board (FASB) 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 elected to implement this statement and have adopted a policy to offset the collateral against the derivatives. At September 30, 2008, we had master netting agreements with counterparties covering cash collateral payable totaling $8.3 million and cash collateral receivable totaling $5.9 million. These amounts are netted against the fair value of the call options included in derivative instruments and interest rate swaps included in other liabilities in our consolidated balance sheets. At December 31, 2007, we had master netting agreements with counterparties covering cash collateral payable totaling $70.9 million and cash collateral receivable totaling $7.5 million. Any excess collateral that remains after the netting is included in the collateral held or payable for securities lending and other transactions on our consolidated balance sheets. We held excess collateral totaling $0.4 million at September 30, 2008 and $0.1 million at December 31, 2007. These amounts have been restated in the prior year balance sheet. This FSP has no impact on our consolidated statements of income.

FBL Financial Group, Inc.		September 30, 2008

In October 2008, the FASB issued FASB Staff Position (FSP) No. FAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active.” This FSP clarifies the application of SFAS No. 157 in a market that is not active and applies to financial assets within the scope of accounting pronouncements that require or permit fair value measurements in accordance with SFAS No. 157. The FSP was effective upon issuance, including prior periods for which financial statements have not been issued. We adopted this guidance effective September 30, 2008. The impact of this adoption did not have a material effect on our consolidated financial statements.

In December 2007, the FASB issued 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 (minority) interest in a subsidiary, which requires that the minority interest be reported in equity, and the related net income and comprehensive income be included in the respective lines of the consolidated financial statements. This Statement is effective for the first annual reporting period beginning on or after December 15, 2008 and early adoption is prohibited. The impact of this adoption on our consolidated financial statements is expected to be immaterial and will primarily result in a reclassification of minority interest as noted above.

2. Fair Value

As discussed in Note 1 above, 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. Per Statement No. 157, 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 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.

Fair values for fixed maturity securities are obtained primarily from a variety of independent pricing sources, whose results undergo evaluation by our internal investment professionals. Market values of fixed maturity securities are based on quoted market prices, where available in active markets. Market values of fixed maturity securities that are not actively traded are estimated using valuation models that vary by asset class. The models use discounted cash flow analysis to estimate market value. The key inputs into the models are expected cash flows and an assumed discount rate for each security. Cash flows are estimated based on the terms of the underlying security including call and prepayment provisions, risk of default and interest rate scenarios. The discount rate is determined by adding a spread to a benchmark interest rate curve such as the Treasury curve or interest rate swap curve. The appropriate spread to use in the pricing process is determined through reference to various market sources including reported trades of similar securities, broker/dealer quotes, issuer spreads, bids, offers and benchmarking of like securities. In addition, for each type of security, information regarding relevant credit information, perceived market movements and sector news is integrated into the pricing process.

Investments for which market prices are not observable are generally private investments, securities valued using non-binding broker quotes or securities with very little trading activity where reasonable prices from independent sources cannot be obtained. We have valued our investments, in the absence of observable market prices, using the valuation methodologies described below applied on a consistent basis. 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.

FBL Financial Group, Inc.		September 30, 2008

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 publicly traded issues priced by independent sources, short-term securities, less liquid and restricted equity securities and over-the-counter derivatives.

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 private corporate securities, non-binding broker and internally priced mortgage or other assets backed securities and other publicly traded issues and index annuity embedded derivatives.

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

		September 30, 2008
		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
Fixed maturities – available for sale		$	—			$	8,753,001			$	884,146			$	9,637,147
Equity securities – available for sale			2,643				8,620				—				11,263
Derivative instruments			—				17,342				—				17,342
Other long-term investments			—				—				1,300				1,300
Cash and short-term investments			97,491				79,851								177,342
Reinsurance recoverable			—				6,008				—				6,008
Collateral held for securities lending and other transactions			—				69,227				—				69,227
Assets held in separate accounts			718,501				—				—				718,501
Liabilities
Future policy benefits – index annuity embedded derivatives		$	—			$	—			$	568,322			$	568,322
Collateral payable for securities lending and other transactions			—				70,311				—				70,311

Approximately 9.2% of the total fixed maturities are included in the Level 3 group.

FBL Financial Group, Inc.		September 30, 2008

We have elected to report the preceding financial instruments at fair value in our consolidated balance sheets and used the following methods and assumptions to determine the fair value.

Fixed maturity securities: Fair values for fixed maturity securities are obtained primarily from a variety of independent pricing sources, whose results undergo evaluation by our internal investment professionals.

Equity securities: The 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.

Derivative instruments: Fair values for call options and 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.

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

Collateral held and 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.

Reinsurance recoverable: Reinsurance recoverable relating to our portion of the call options used to fund index credits on the index annuities assumed from a reinsurer is reported at fair value. Fair value is determined using quoted market prices for the call options, less an adjustment for credit risk. Reinsurance recoverable also includes the embedded derivatives in our modified coinsurance contracts under which we cede or assume business. Market values for these embedded derivatives 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.

Assets held in separate accounts: Separate account assets are reported at estimated fair value in our consolidated balance sheets based on quoted net asset values of the underlying mutual funds.

Future policy benefits — index annuity embedded derivatives: Fair values of index annuity embedded derivatives are calculated using discounted cash flow valuation techniques based on current interest rates adjusted to reflect our credit risk and an additional provision for adverse deviation.

Fair values of all Level 2 fixed maturity securities are obtained from independent pricing services. Fair values of private investments 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 securities where these are not available, an enhanced matrix calculation, as described below, is used to determine a fair value.

We generally obtain one price per security, which is 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.

If an exit price based on relevant observable inputs is not obtained from an independent pricing service, the fair value is determined by our investment professionals using an enhanced matrix calculation and reported in Level 3. 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.

FBL Financial Group, Inc.		September 30, 2008

Valuation sources for Level 3 securities are summarized below.

Level 3 Fixed Maturity Investments by Valuation Source

		September 30, 2008
										Mortgage or
		Private				Publicly traded				other asset -								Percent of
		corporation				issues				backed securities				Total				Total
		(Dollars in thousands)
Source of valuation
Third-party vendors		$	402,077			$	317,978			$	90,653			$	810,708				91.7	%
Priced internally			1,313				59,676				12,449				73,438				8.3
Total		$	403,390			$	377,654			$	103,102			$	884,146				100.0	%

Level 3 Financial Instruments Changes in Fair Value

		Fixed maturities				Other long-term
		available for sale				investments
		(Dollars in thousands)
Assets
Balance, December 31, 2007		$	1,072,697			$	1,300
Purchases (disposals), net			160,445				—
Realized and unrealized gains (losses), net			(167,719	)			—
Transfers in and/or (out) of Level 3 (A)			(181,117	)			—
Included in earnings (amortization)			(160	)			—
Balance, September 30, 2008		$	884,146			$	1,300
Change in unrealized gains/losses on investments held at September 30, 2008		$	(129,491	)		$	—

Future policy benefits – index product embedded derivatives
Balance, December 31, 2007		$	747,511
Premiums less benefits, net			24,673
Impact of unrealized gains (losses), net			(203,862	)
Balance, September 30, 2008		$	568,322
Change in unrealized gains/losses on embedded derivatives held at September 30, 2008 (1)		$	(203,862	)

3. Credit Agreements and Subsequent Event

In the third quarter of 2008, we increased the borrowings on our outstanding line of credit $14.0 million. We also issued a variable rate $20.0 million note payable to our affiliate, Farm Bureau Mutual Insurance Company (Farm Bureau Mutual), which is due on December 29, 2008. Interest on this note, which is prepayable, accrues at a variable rate (5.88% at September 30, 2008).

In November 2008 we issued 9.25% notes payable to affiliates totaling $100.0 million that mature in November 2011. One note for $75.0 million was issued to Farm Bureau Mutual and a $25.0 million note was issued to an

FBL Financial Group, Inc.		September 30, 2008

investment affiliate of Iowa Farm Bureau Federation, our majority shareholder. A portion of the proceeds from these notes, which are prepayable at par, will be used to repay the $20.0 million short-term debt that was borrowed from Farm Bureau Mutual during the third quarter. This note offering would have caused us to violate the covenants of our revolving line of credit agreement with Bank of America National Association. Therefore, in November 2008 the line of credit agreement was amended to allow for the note offering without violating the financial covenants.

4. 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 statements of income for the third quarter totaled $1.1 million for 2008 and $1.5 million for 2007, and for the nine months ended September 30 totaled $3.4 million for 2008 and $4.4 million for 2007. As described in Note 1 above, we also recorded a portion of the net periodic pension costs as a charge to retained earnings totaling $0.8 million as a result of adopting the measurement date portion of Statement No. 158.

Components of Net Periodic Pension Cost for all Employers in the Multiemployer Plans

		Three months ended September 30,								Nine months ended September 30,
		2008				2007				2008				2007
		(Dollars in thousands)
Service cost		$	1,659			$	2,341			$	4,977			$	7,023
Interest cost			3,709				3,476				11,127				10,427
Expected return on assets			(3,495	)			(3,087	)			(10,485	)			(9,261	)
Amortization of prior service cost			196				194				588				581
Amortization of actuarial loss			945				1,120				2,835				3,359
Net periodic pension cost – all employers		$	3,014			$	4,044			$	9,042			$	12,129

5. 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 September 30, 2008, 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 65% of catastrophic losses after other reinsurance and a deductible of $0.9 million. Pool losses are capped at $17.8 million per event and the maximum loss we could incur as a result of losses assumed from other pool members is $6.4 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.		September 30, 2008

On June 25, 2008, the Securities Exchange Commission (SEC) published for public comment proposed Rule 151A which would require index annuities to be regulated by the SEC. Under this proposed rule, index annuities would be considered a type of security and all agents selling the product would have to be registered representatives affiliated with a licensed broker dealer. While there is uncertainty regarding the outcome of this proposed rule, it is possible that we will have a more regulated environment for index annuities in the future. If the proposed rule is adopted in its current form, we believe it would likely result in increased costs and decreased production with possible product design and compensation limitations. Index annuities are important to our business; however we also offer a wide variety of life insurance and annuity products and have experience with registered investment products. The proposed rule indicates there would be 12 months between publication and the effectiveness of any final rule. We are confident that we can transition to an SEC regulated environment for our indexed business within this time period.

During the third quarter of 2008, the jury from a trial in Federal District Court in Utah involving an agency matter awarded our insurance subsidiary, Farm Bureau Life Insurance Company (Farm Bureau Life) and an affiliate, Farm Bureau Mutual, actual damages totaling $3.6 million and punitive damages totaling $62.7 million. Approximately 25% of the award is allocable to Farm Bureau Life with the remaining 75% allocable to Farm Bureau Mutual. The time for appealing the verdict and award will not begin until post trial motions have been filed and ruled on by the court. Regardless of the outcome of any rulings, we anticipate an appeal by the defendants unless a settlement has been reached. Recoveries from third parties are required to be accounted for as gain contingencies and not recorded in our financial statements until the lawsuit is resolved.

In 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 made a claim against an insurance broker for breach of contractual duties. We have filed lawsuits against the insurer and the insurance broker to recover those 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. As noted above, any recoveries will be recorded in net income in the period the recovery is received.

FBL Financial Group, Inc.		September 30, 2008

6. Earnings Per Share

		Three months ended September 30,								Nine months ended September 30,
		2008				2007				2008				2007
		(Dollars in thousands, except per share data)
Numerator:
Net income		$	11,216			$	16,499			$	1,079			$	74,456
Dividends on Series B preferred stock			(37	)			(37	)			(112	)			(112	)
Numerator for earnings per common share – income available to common stockholders		$	11,179			$	16,462			$	967			$	74,344
Denominator:
Weighted average shares			29,819,642				29,669,542				29,808,067				29,620,962
Deferred common stock units relating to deferred compensation plans			80,507				61,987				75,727				59,622
Denominator for earnings per common share – weighted-average shares			29,900,149				29,731,529				29,883,794				29,680,584
Effect of dilutive securities - stock-based compensation			150,901				550,763				236,488				601,190
Denominator for diluted earnings per common share – adjusted weighted-average shares			30,051,050				30,282,292				30,120,282				30,281,774
Earnings per common share		$	0.37			$	0.55			$	0.03			$	2.50
Earnings per common share – assuming dilution		$	0.37			$	0.54			$	0.03			$	2.46

7. 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) for the periods ended September 30, 2008 and 2007 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; and
	•		the cumulative effect of changes in accounting principles.

We use operating income (loss), 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 is a nonrecurring item. 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

FBL Financial Group, Inc.		September 30, 2008

index annuities are expected to be in force. For our other embedded derivatives in the product segments and interest rate swaps backing our annuity liabilities, the 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 item enhances the analysis of our results. We use operating income (loss) for goal setting, determining company-wide bonuses and evaluating performance on a basis comparable to that used by many in the investment community.

Financial Information Concerning our Operating Segments

		Three months ended September 30,								Nine months ended September 30,
		2008				2007				2008				2007
		(Dollars in thousands)
Operating revenues:
Traditional Annuity – Exclusive Distribution		$	35,766			$	36,996			$	106,465			$	112,385
Traditional Annuity – Independent Distribution			88,498				110,671				247,834				276,220
Traditional and Universal Life Insurance			84,552				82,373				254,132				251,468
Variable			15,786				15,327				48,282				47,450
Corporate and Other			8,411				10,299				25,708				27,789
			233,013				255,666				682,421				715,312
Realized/unrealized gains (losses) on investments (A)			(27,133	)			3,932				(130,694	)			6,544
Change in net unrealized gains/losses on derivatives (A)			(16,341	)			(21,930	)			(106,842	)			5,887
Consolidated revenues		$	189,539			$	237,668			$	444,885			$	727,743
Pre-tax operating income (loss):
Traditional Annuity – Exclusive Distribution		$	5,865			$	6,665			$	20,721			$	24,240
Traditional Annuity – Independent Distribution			10,539				10,779				27,229				30,413
Traditional and Universal Life Insurance			13,640				15,114				37,468				42,725
Variable			(510	)			4,381				2,338				10,412
Corporate and Other			(1,898	)			(51	)			(6,536	)			(1,660	)
			27,636				36,888				81,220				106,130
Income taxes on operating income			(8,964	)			(12,462	)			(26,352	)			(35,406	)
Realized/unrealized gains (losses) on investments, net (A)			(12,726	)			2,392				(67,533	)			4,710
Change in net unrealized gains/losses on derivatives (A)			5,270				(10,319	)			13,744				(695	)
Cumulative effect of change in accounting principle			—				—				—				(283	)
Consolidated net income		$	11,216			$	16,499			$	1,079			$	74,456

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 September 30, 2008 and December 31, 2007 is allocated among the segments as follows: Exclusive Annuity ($3.9 million), Traditional and Universal Life Insurance ($6.1 million) and Corporate ($1.2 million).

FBL Financial Group, Inc.		September 30, 2008

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 2007 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 Nine Months Ended September 30, 2008 Compared to Three and Nine Months Ended September 30, 2007

		Three months ended September 30,								Nine months ended September 30,
		2008				2007				2008				2007
		(Dollars in thousands, except per share data)
Revenues		$	189,539			$	237,668			$	444,885			$	727,743
Benefits and expenses			173,520				213,805				446,515				617,135
			16,019				23,863				(1,630	)			110,608
Income taxes			(4,904	)			(7,904	)			2,634				(37,251	)
Minority interest and equity income			101				540				75				1,099
Net income			11,216				16,499				1,079				74,456
Less dividends on Series B preferred stock			(37	)			(37	)			(112	)			(112	)
Net income applicable to common stock		$	11,179			$	16,462			$	967			$	74,344
Earnings per common share		$	0.37			$	0.55			$	0.03			$	2.50
Earnings per common share – assuming dilution		$	0.37			$	0.54			$	0.03			$	2.46
Other data
Direct premiums collected, net of reinsurance ceded:
Traditional Annuity – Exclusive Distribution		$	73,667			$	27,848			$	183,440			$	99,927
Traditional Annuity – Independent Distribution			496,115				489,120				1,361,008				1,064,532
Traditional and Universal Life Insurance			47,087				45,015				143,427				138,942
Variable Annuity and Variable Universal Life (1)			30,943				41,109				111,737				133,599
Reinsurance assumed and other			3,116				3,598				10,508				11,641
Total		$	650,928			$	606,690			$	1,810,120			$	1,448,641
Direct life insurance in force, end of quarter (in millions)										$	42,750			$	40,307
Life insurance lapse rates											6.3	%			6.0	%
Withdrawal rates – individual traditional annuity:
Exclusive Distribution											3.2	%			5.6	%
Independent Distribution											6.7	%			5.2	%

FBL Financial Group, Inc.		September 30, 2008

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 premiums collected in the Traditional Annuity — exclusive distribution and Traditional Annuity — independent distribution segments increased for the 2008 periods due to lower short-term market interest rates making certificates of deposits and other short-term investments less attractive in relation to our traditional annuity products. In addition, the number of individual licensed independent agents our EquiTrust Life independent distribution channel increased to 23,651 at September 30, 2008, from 18,902 at September 30, 2007. In an attempt to preserve capital, it is our intention to reduce the direct premiums collected through the Traditional Annuity — independent distribution channel to approximately $200.0 million per quarter through rate and other actions taken in the second half of 2008.

Our results of operations are materially affected by conditions in the financial markets and the economy generally. The stress experienced by financial markets that began in the second half of 2007 continued and substantially increased during the third quarter of 2008. The volatility and disruption in the financial markets have reached unprecedented levels. The availability and cost of credit has been materially affected. These factors, combined with volatile oil prices, depressed home prices and increasing foreclosures, falling equity market values, declining business and consumer confidence and the risks of increased inflation and unemployment, have precipitated an economic slowdown and fears of a severe recession. This unprecedented market volatility and general decline in the equity markets has directly and materially affected our results of operations and our investment portfolio. Details regarding the impacts of the capital markets and economy are summarized in the sections that follow. The most significant impacts during the third quarter include an increase in realized losses on investments, decreases in derivative income, a decrease in profitability on variable products and an increase in unrealized losses on fixed maturity securities and derivatives.

Net income applicable to common stock for the third quarter of 2008 was $11.2 million compared to $16.5 million for the third quarter of 2007 and was $1.0 million for the nine months ended September 30, 2008 compared to $74.3 million for the 2007 period. These decreases are primarily due to realized losses on investments and an increase in death benefits. These decreases were partially offset by the change in unrealized gains and losses on derivative instruments and the impact of an increase in the volume of business in force. 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.

Spreads Earned on our Universal Life and Individual Traditional Annuity Products

		Nine months ended September 30,
		2008				2007
Weighted average yield on cash and invested assets			5.95	%			6.06	%
Weighted average interest crediting rate/index cost			3.87				3.70
Spread			2.08	%			2.36	%

The weighted average yield on cash and invested assets represents the yield on cash and investments backing the universal life and traditional annuity products net of investment expenses. The yield also includes gains or losses relating to our interest rate swap program for certain individual traditional annuities. The impact of the swap program was previously reported in the weighted average crediting rate/index costs and the 2007 results above have been restated to conform to the 2008 presentation. 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. The spread noted above decreased in 2008 primarily due to a shift in the mix of direct business to products with a lower spread target and a decrease in spread earned on assumed business. See the “Segment Information” section that follows for a discussion of our spreads.

FBL Financial Group, Inc.		September 30, 2008

As noted in the “Segment Information” section that follows, we use both net income and operating income to measure our operating results. Operating income for the periods covered by this report equals net income, excluding the impact of: (1) realized gains and losses on investments, (2) the change in net unrealized gains and losses on derivatives and (3) the cumulative effect of change in accounting principles. The rationale for excluding these items from operating income is also explained in the “Segment Information” section that follows.

Impact of Operating Adjustments on Net Income

		Three months ended September 30,								Nine months ended September 30,
		2008				2007				2008				2007
		(Dollars in thousands)
Realized/unrealized gains (losses) on investments		$	(27,156	)		$	3,932			$	(130,524	)		$	6,544
Change in net unrealized gains/losses on derivatives			21,188				(32,125	)			64,178				(528	)
Change in amortization of:
Deferred policy acquisition costs			(852	)			9,572				(2,796	)			191
Deferred sales inducements			(4,620	)			6,429				(13,944	)			(26	)
Value of insurance in force acquired			(54	)			(3	)			503				5
Unearned revenue reserve			23				—				(170	)			(10	)
Cumulative effect of change in accounting principle			—				—				—				(283	)
Income tax offset			4,015				4,268				28,964				(2,161	)
Net impact of operating income adjustments		$	(7,456	)		$	(7,927	)		$	(53,789	)		$	3,732

		Three months ended September 30,								Nine months ended September 30,
		2008				2007				2008				2007
		(Dollars in thousands, except per share data)
Summary of adjustments noted above after offsets and income taxes:
Realized/unrealized gains (losses) on investments		$	(12,726	)		$	2,392			$	(67,533	)		$	4,713
Change in net unrealized gains/losses on derivatives			5,270				(10,319	)			13,744				(698	)
Cumulative effect of change in accounting principle			—				—				—				(283	)
Net impact of operating income adjustments		$	(7,456	)		$	(7,927	)		$	(53,789	)		$	3,732
Net impact per common share – basic		$	(0.25	)		$	(0.27	)		$	(1.80	)		$	0.13
Net impact per common share – assuming dilution		$	(0.25	)		$	(0.26	)		$	(1.80	)		$	0.12

We periodically revise the key assumptions used in the calculation of the amortization of deferred policy acquisition costs, deferred sales inducements, value of insurance in force acquired and unearned revenues for participating life insurance, variable and interest sensitive and index products, as applicable, through an “unlocking” process. Revisions are made based on historical results and our best estimate of future experience. The impact of unlocking is recorded in the current period as an increase or decrease to amortization of the respective balances. While the unlocking process can take place at any time, as needs dictate, the process typically takes place annually with different blocks of business unlocked each quarter. The impact of unlocking in 2008 was primarily due to updating the amortization model for assumptions relating to withdrawal rates, mortality and the current volume of business in force. The impact in 2007 was primarily due to decreasing lapse assumptions in the models for our direct index annuity business.

FBL Financial Group, Inc.		September 30, 2008

Impact of Unlocking on Pre-tax Income

		Three months ended September 30,								Nine months ended September 30,
		2008				2007				2008				2007
		(Dollars in thousands)
Amortization of deferred sales inducements		$	3			$	8			$	(1,905	)		$	1,129
Amortization of deferred policy acquisition costs			1,432				(1,855	)			2,079				(315	)
Amortization of unearned revenues			(246	)			546				(281	)			544
Increase (decrease) to pre-tax income		$	1,189			$	(1,301	)		$	(107	)		$	1,358
Impact per common share (basic and diluted), net of tax		$	0.03			$	(0.03	)		$	—			$	0.03

Premiums and Product Charges

		Three months ended September 30,								Nine months ended September 30,
		2008				2007				2008				2007
		(Dollars in thousands)
Premiums and product charges:
Interest sensitive and index product charges		$	32,931			$	29,129			$	93,837			$	84,045
Traditional life insurance premiums			36,282				34,751				111,184				108,263
Total		$	69,213			$	63,880			$	205,021			$	192,308