UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-K

(Mark One)

[X]		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2008

Or

[  ]		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 or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
5400 University Avenue, West Des Moines, Iowa		50266
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (515) 225-5400

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Name of each exchange on which registered
Class A common stock, without par value		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
o Yes x No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
o Yes x No

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. x Yes o No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

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

Large accelerated filer o		Accelerated filer x		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 x No

As of June 30, 2008, the aggregate market value of the registrant’s Class A and B Common Stock held by non-affiliates of the registrant was $253,461,809 based on the closing sale price as reported on the New York Stock Exchange.

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 February 13, 2009
Class A Common Stock, without par value		28,976,158
Class B Common Stock, without par value		1,192,990

DOCUMENTS INCORPORATED BY REFERENCE

Document		Parts Into Which Incorporated
Proxy statement for annual shareholders meeting on May 20, 2009		Part III

 

 

FBL FINANCIAL GROUP, INC.
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2008
TABLE OF CONTENTS

PART I.
		Cautionary Statement Regarding Forward Looking Information			1
Item 1.		Business			3
Item 1A.		Risk Factors			22
Item 1B.		Unresolved Staff Comments			31
Item 2.		Properties			31
Item 3.		Legal Proceedings			31
Item 4.		Submission of Matters to a Vote of Security Holders			31
PART II.
Item 5.		Market for Registrant’s Common Equity, Related Stockholder Matters, Issuer Purchases of Equity Securities and Securities Authorized for Issuance under Equity Compensation Plans			32
Item 6.		Selected Consolidated Financial Data			35
Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			36
Item 7A.		Quantitative and Qualitative Disclosures About Market Risk			82
Item 8.		Consolidated Financial Statements and Supplementary Data			83
		Management’s Report on Internal Control Over Financial Reporting			83
		Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting			83
		Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements			84
		Consolidated Balance Sheets			85
		Consolidated Statements of Operations			87
		Consolidated Statements of Changes in Stockholders’ Equity			88
		Consolidated Statements of Cash Flows			89
		Notes to Consolidated Financial Statements			91
Item 9.		Changes in and Disagreements With Accountants on Accounting and Financial Disclosure			131
Item 9A.		Controls and Procedures			131
Item 9B.		Other Information			131
PART III.		The information required by Items 10 through 14 is incorporated by reference from our definitive proxy statement to be filed with the Commission pursuant to Regulation 14A within 120 days after December 31, 2008.
PART IV.
Item 15.		Exhibits and Financial Statement Schedules			131
SIGNATURES					135
		Report of Independent Registered Public Accounting Firm on Schedules			136
		Schedule I – Summary of Investments – Other Than Investments in Related Parties			137
		Schedule II – Condensed Financial Information of Registrant			138
		Schedule III – Supplementary Insurance Information			142
		Schedule IV – Reinsurance			144
EX-3(II)(C)
EX-10.18
EX-10.19
EX-10.24
EX-12
EX-21
EX-23
EX-31.1
EX-31.2
EX-32

Cautionary Statement Regarding Forward Looking Information

This Form 10-K 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.

	•		Current difficult conditions in the financial markets and the economy may materially adversely affect our business and results of operations.
	•		Continuing adverse financial market conditions may significantly affect our liquidity, access to capital and cost of capital.
	•		The Market Value Adjustment (MVA) feature on certain policies may cause surrenders to increase in an extremely low interest rate environment.
	•		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.
	•		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.
	•		Changing interest rates, market volatility and general economic conditions affect the risks and the returns on both our products and our investment portfolio.
	•		We face competition from companies having greater financial resources, more advanced technology systems, 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.
	•		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.
	•		All segments of our business are highly regulated and these regulations or changes in them could affect our profitability.
	•		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 adverse impact on our net income (loss).
	•		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.
	•		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.
	•		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 the liabilities ceded to reinsurers if the reinsurers fail to meet the obligations assumed by them.

	•		Our business is highly dependent on our relationships with Farm Bureau organizations and would be adversely affected if those relationships became impaired.
	•		Our relationship with Farm Bureau organizations could result in conflicts of interests.
	•		Changes in federal tax laws may affect sales of our products and profitability.
	•		Our ability to maintain competitive costs is dependent upon the level of new sales and persistency of existing business.
	•		If we are unable to attract and retain agents and develop new distribution sources, sales of our products and services may be reduced.
	•		Attracting and retaining employees who are key to our business is critical to our growth and success.
	•		Success of our business depends in part on effective information technology systems and on continuing to develop and implement improvements.
	•		We experience volatility in net income(loss) 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, for additional information.

PART I

ITEM 1. BUSINESS

General

FBL Financial Group, Inc. (we or us) sells individual life and annuity products principally under the consumer brand names Farm Bureau Financial Services and EquiTrust Financial Services. These brand identities are represented by the distribution channels of our subsidiaries, Farm Bureau Life Insurance Company (Farm Bureau Life) and EquiTrust Life Insurance Company (EquiTrust Life). As of December 31, 2008, our Farm Bureau Life distribution channel consisted of 1,962 exclusive agents and agency managers. These agents and agency managers sell our products in the Midwestern and Western sections of the United States. As of December 31, 2008, our EquiTrust Life independent distribution channel consisted of 19,098 independent agents. These agents sell our products in all states except New York, and also in the District of Columbia.

FBL Financial Group, Inc. was incorporated in Iowa in October 1993. Its subsidiary, Farm Bureau Life, began operations in 1945 and subsidiary EquiTrust Life began operations under that name in 1998. Several other subsidiaries support various functional areas and affiliates by providing investment advisory, marketing and distribution, and leasing services. In addition, we manage all aspects of two Farm Bureau affiliated property-casualty insurance companies (Farm Bureau Mutual Insurance Company and Western Agricultural Insurance Company) which operate predominately in eight states in the Midwest and West.

FBL’s Business by Company and Distribution Channel

COMPANY		Farm Bureau Life Insurance Company		EquiTrust Life Insurance Company		Farm Bureau Mutual Insurance Company* Western Agricultural Insurance Company*
CHANNEL		Direct		Direct		FBL’s Managed Property-Casualty Operations
BRAND
DISTRIBUTION		1,962 exclusive Farm Bureau agents and agency managers		19,098 independent agents representing broker/dealers, banks and independent marketing organization		1,176 exclusive Farm Bureau agents and agency managers (included under the 1,962 Farm Bureau Life agents)
PRODUCTS		A comprehensive line of life insurance, annuity and investment products		Traditional fixed-rate and index annuities		A full line of personal and commercial property-casualty insurance products
TERRITORY		15 Midwestern and Western states		Licensed in all states except New York		Arizona, Iowa, Kansas, Minnesota, Nebraska, New Mexico, South Dakota and Utah, and other states for crop and nonstandard auto insurance

Investor information, including electronic versions of periodic reports filed on Forms 10-K, 10-Q and 8-K, and proxy material, are available free of charge through the Financial Information section of our Internet website at www.fblfinancial.com. These documents are posted to our website immediately after they are filed. Also available on our website are many corporate governance documents including a code of ethics for the Chief Executive Officer and senior financial officers, committee charters, corporate governance guidelines, director profiles and more. Product information may be found on our consumer websites, www.fbfs.com and www.equitrust.com.

Business Strategy

Our core business strategies are differentiated by our target markets, which are served by our two life insurance subsidiaries, Farm Bureau Life and EquiTrust Life.

Farm Bureau Life Insurance Company

Our 1,962 Farm Bureau Life agents are multi-line agents who sell both property-casualty insurance products and life insurance and investment products under the Farm Bureau name. Having multi-line agents enhances our ability to develop a more comprehensive relationship with our customers and increases our ability to cross sell our life insurance and investment products to the pool of Farm Bureau property-casualty customers.

The Farm Bureau franchise and distribution channel is our foundation and we are defined by our service to this niche marketplace. Growth in this channel is important to our success and we are focused on delivering consistent, predictable and sustainable growth from this marketplace.

We focus on needs-based selling and have a broad portfolio of life insurance and annuity products so that we have attractive products available to satisfy the needs of our agents and customers. Sales within our Farm Bureau Life target marketplace are the result of perceived good value, excellent customer service and a trusted relationship with a Farm Bureau agent.

Because of their multi-line nature, our Farm Bureau Life agents also focus on cross selling life insurance products to Farm Bureau members who already own a property-casualty policy issued by Farm Bureau affiliated property-casualty companies. For example, in the eight-state region where we manage the affiliated property-casualty insurance companies and related field force (Arizona, Iowa, Kansas, Minnesota, Nebraska, New Mexico, South Dakota and Utah), 17% of our policyholders own both a Farm Bureau property-casualty and a life product. This percentage is and has historically been higher than the industry average for multi-line exclusive agents, which is 10.9% according to the most recent research by Life Insurance and Market Research Association (LIMRA). We believe there is further opportunity for growth from cross-selling as 68% of the Farm Bureau members in the eight-state region have a Farm Bureau property-casualty insurance product, while only 20% of Farm Bureau members in the eight-state region have a life insurance product with us.

We provide our agents with sales materials, the necessary training and a high level of sales support. In addition, throughout our Farm Bureau marketing territory, certain agents are life and investment specialists who work as a resource to help their fellow agents with cross selling techniques and client needs analysis. We also provide a variety of sales support to our agents through the following sources:

•		Just-In-Time Team – Comprised of product and sales experts available to agents through a toll-free call, this team can answer nearly any question related to products, sales approaches, suitability and more.
•		Advanced Markets Team – This group is an extension of the Just-In-Time team and includes high-end experts such as attorneys and others who specialize in financial matters.
•		Life Sales Advisors – These field representatives are located strategically across our 15-state territory. They provide direct, hands-on training and support to agents on our broad portfolio of products.

Over the last several years we have focused on transforming our sales model so that our agents act like entrepreneurial business owners with a retail financial services franchise. Under this model our agents continue to

add sales and service associates, who assist them and are licensed to sell life and annuity products. While our agent count has not changed significantly over time, our production per agent has increased.

Farm Bureau Life’s growth has been augmented by our long and successful history of being a consolidator among Farm Bureau affiliated insurance companies. Over the last 24 years we have had 10 consolidations. This has allowed us to grow to an operation covering 15 states in the Midwest and West. We believe further consolidation in the Farm Bureau network of companies is appropriate due to the similarity of businesses and cultures. While we believe further consolidation makes sense, this is a long term strategy. By focusing on maintaining solid relationships with the leaders of these companies and the Farm Bureau organizations, we are prepared when opportunities arise.

EquiTrust Life Insurance Company

EquiTrust Life was established to capitalize on opportunities to grow outside our traditional Farm Bureau niche marketplace and provide diversification to the overall FBL organization. Today EquiTrust Life has three business dimensions: our EquiTrust Life independent channel, alliances with other companies to distribute our variable products and two closed blocks of coinsured business.

Our EquiTrust Life independent channel began in late 2003 and was developed to serve a growing market of baby boomers and seniors who are approaching or are in retirement. Our focus has been on offering a portfolio of clean and simple fixed annuity products and providing a high level of service. As of December 31, 2008, the EquiTrust Life independent channel had 19,098 appointed independent agents, which compares to 19,781 agents at December 31, 2007 and 15,326 agents at December 31, 2006. These independent agents are affiliated with independent marketing organizations, broker/dealers and banks. Since its inception in 2003, our EquiTrust Life independent channel has had a high rate of growth, causing it to require an increasing amount of capital. Due to adverse market conditions, which have affected the availability and cost of capital, during 2008 we slowed the pace of growth at EquiTrust Life. This slower pace of growth, coupled with natural attrition of existing agents, led to a decrease in appointed agents in 2008.

Future sales levels may be impacted by the enactment of Rule 151A by the Securities and Exchange Commission (SEC). This rule, which is expected to be effective on January 12, 2011, will change the federal law status of index annuities from insurance products to registered securities products. See “Item 1. Business — Regulation” for more information on this rule.

We continue to offer a variety of traditional fixed rate and index annuities. Our multi-year guarantee annuity product allows our customers to lock in competitive rates for a period of their choice, while our index annuities respond to consumers’ desire for products which allow interest credits that reflect movement in broad market indices while limiting the downside risk with certain principal guarantees.

We also have variable product alliances through which we provide our partner companies with competitive variable products. With these alliances, we obtain access to additional distribution systems and our alliance partners benefit because they are able to provide their sales force with variable products. We currently have four variable alliance partners which include three other Farm Bureau affiliated insurance companies doing business outside of our 15-state territory. Our four alliance partners had 2,442 registered representatives at December 31, 2008.

Variable sales by our alliance partners are generally underwritten by EquiTrust Life, but may be underwritten by our partner. Depending on the agreement with each company, we receive 30%, 50% or 100% of the risks, costs and profits of the variable business they sell. For all of our partners, we perform various administrative processing and other services with respect to their variable business. These alliances are important to us, but are a small part of our overall business.

Our two closed block coinsurance agreements have provided us with significant assets and earnings. Up until August 1, 2004, we assumed, through a coinsurance agreement, a percentage of certain annuity business written by American Equity Investment Life Insurance Company (American Equity). Our other closed block coinsurance agreement is with EMC National Life Company (EMCNL), under which we assumed in force business through December 31, 2002.

Marketing and Distribution

Farm Bureau Life Market Area

Sales through our Farm Bureau Life distribution channel are conducted in 15 states which we characterize as follows: multi-line states (we own the Farm Bureau affiliated life company and manage the Farm Bureau affiliated property-casualty companies) — Arizona, Iowa, Kansas, Minnesota, Nebraska, New Mexico, South Dakota and Utah; and life only states (we own the Farm Bureau affiliated life company and non-owned/non-managed Farm Bureau affiliated property-casualty companies manage the exclusive multi-line agents) — Colorado, Idaho, Montana, North Dakota, Oklahoma, Wisconsin and Wyoming.

Our target market for Farm Bureau branded products is Farm Bureau members and “Middle America” in our 15-state territory. We traditionally have been very strong in rural and small town markets and, over the last several years, have focused growth of our agency force in some of the medium-sized cities and suburbs within our 15 states where we believe there are significant life and annuity opportunities. This target market represents a relatively financially conservative and stable customer base. The financial needs of our target market tend to focus on security, insurance needs and retirement savings.

Affiliation with Farm Bureau

Many of our customers are members of Farm Bureau organizations affiliated with the American Farm Bureau Federation (American Farm Bureau), the nation’s largest grass roots farm and ranch organization with more than 6.2 million member families. In order to market insurance products in a given state using the “Farm Bureau” and “FB” designations, related trademarks and service marks, a company must have an agreement with the state’s Farm Bureau organization. Generally, these marketing rights have only been granted to companies owned by or closely affiliated with Farm Bureau federations. For each of the states in our Farm Bureau marketing territory, we have the exclusive right to use the “Farm Bureau” name and “FB” logo for marketing life insurance and investment products.

All of the state Farm Bureau federations in our 15-state Farm Bureau Life marketing area are associated with the American Farm Bureau. The primary goal of the American Farm Bureau is to improve the financial well being and quality of life of farmers and ranchers through education and representation with respect to public policy issues. There are currently Farm Bureau federations in all 50 states and Puerto Rico, each with their own distinctive mission and goals. Within each state, Farm Bureau is organized at the county level. Farm Bureau programs generally include policy development, government relations activities, leadership development and training, communications, market education classes, commodity conferences and young farmer activities. Member services provided by Farm Bureau vary by state but often include programs such as risk management, alternative energy development and guidance on enhancing profitability. Other benefits of membership include newspaper and magazine subscriptions, as well as savings in areas such as health care, entertainment and automobile rebates. In addition, members have access to theft and arson rewards, accidental death insurance, banking services, credit card programs, computerized farm accounting services, electronic information networks, feeder cattle procurement services, health care insurance, property-casualty insurance and financial services.

The American Farm Bureau may terminate our right to use the “Farm Bureau” and “FB” designations in all of our states (i) in the event of a material breach of the trademark license that we do not cure within 60 days, (ii) immediately in the event of termination by the American Farm Bureau of the state Farm Bureau’s membership in the American Farm Bureau or (iii) in the event of a material breach of the state Farm Bureau federation’s membership agreement with the American Farm Bureau, including by reason of the failure of the state Farm Bureau to cause us to adhere to the American Farm Bureau’s policies.

We have royalty agreements with each state Farm Bureau organization in our Farm Bureau marketing territory giving us the right to use the “Farm Bureau” and “FB” designations in that particular state. Each state Farm Bureau organization in our Farm Bureau territory could terminate our right to use the Farm Bureau designations in that particular state without cause at the conclusion of the royalty agreements. The royalties paid to a particular state Farm Bureau organization are based on the sale of our products in the respective state. For 2008, royalty expense totaled approximately $1.9 million. The royalty agreements vary in term and expiration date as shown below.

Royalty Agreements by State

				Percent of
				Farm Bureau Life
		Royalty Agreement		2008 First Year
State		Expiration Date		Premiums Collected
Iowa		December 31, 2014			27.8	%
Kansas		January 1, 2021			18.8
Oklahoma		December 31, 2014			11.4
Minnesota		December 31, 2032			6.7
Nebraska		December 31, 2011			4.9
Utah		December 31, 2032			4.8
Wyoming		December 31, 2011			3.9
Arizona		December 31, 2011			3.8
Idaho		December 31, 2011			3.7
Montana		December 31, 2011			3.1
New Mexico		December 31, 2011			3.0
South Dakota		December 31, 2032			2.8
Wisconsin		December 31, 2011			2.4
Colorado		December 31, 2011			1.9
North Dakota		December 31, 2011			1.0
					100.0	%

Our relationship with Farm Bureau provides a number of advantages. Farm Bureau organizations in our current territory tend to be well known and long established, have active memberships and provide a number of member benefits other than financial services. The strength of these organizations provides enhanced prestige and brand awareness for our products and increased access to Farm Bureau members, which results in a competitive advantage for us.

Our life insurance and investment products are available for sale to both members and non-members. Property-casualty products sold by the property-casualty insurance companies affiliated with Farm Bureau are generally only available for sale to Farm Bureau members. Annual Farm Bureau memberships in our Farm Bureau marketing territory generally cost $35 to $220 and are available to individuals, families, partnerships or corporations.

We have marketing agreements with all of the Farm Bureau-affiliated property-casualty companies in our Farm Bureau Life marketing area, pursuant to which the property-casualty companies provide certain services, which include recruiting and training the shared agency force that sells both property-casualty products for that company and life products for us. The marketing agreements have expiration dates through December 31, 2015, and upon expiration these agreements are renewed annually. For 2008, we incurred fees totaling $8.5 million for the services provided under these agreements.

Our Advisory Committee, which consists of executives of the Farm Bureau property-casualty insurance companies in our marketing territory, assists us in our relationships with the property-casualty organizations and the Farm Bureau federation leaders in their respective states. The Advisory Committee meets on a regular basis to coordinate efforts and issues involving the agency force and other matters. The Advisory Committee is an important contributor to our success in marketing products through our Farm Bureau distribution system.

Farm Bureau Life Agency Force

Our life insurance, annuities and sponsored mutual funds are currently marketed throughout our 15-state marketing territory by an exclusive Farm Bureau agency force. We have a written contract with each member of our agency force. The contracts cover a number of topics including reserving our ownership of customer lists.

Sales activities of our agents focus on personal contact and on cross selling the multiple lines of products available through Farm Bureau affiliated companies. The Farm Bureau name recognition and access to Farm Bureau membership leads to additional customers and cross selling of additional insurance products.

Our Farm Bureau Life agents are independent contractors and exclusive agents. In the multi-line states where we manage the Farm Bureau affiliated property-casualty companies, our agents are led by agency managers employed by the property-casualty companies which are under our direction. There are 1,176 agents and managers in our multi-line states, all of whom market a full range of our life insurance and annuity products. These agents and managers also market products for the property-casualty companies that we manage.

In our life only states, our life insurance and annuity products are marketed by agents of the property-casualty company affiliated with the Farm Bureau federation of that state. These agents and managers, of which there are 786, market our life and annuity products on an exclusive basis and market the property-casualty products of that state’s affiliated property-casualty companies. Agents as well as agency managers are independent contractors or employees of the affiliated property-casualty companies.

In addition, Farm Bureau Life agents market mutual funds sponsored by us, as well as other mutual funds which we allow them to sell.

As of December 31, 2008, 98% of the agents in our multi-line states were licensed with the Financial Industry Regulatory Authority (FINRA) to sell our variable life and annuity products and sponsored mutual funds. We emphasize and encourage the training of agents for FINRA licensing throughout our Farm Bureau Life territory.

We are responsible for product and sales training for all lines of business in our multi-line states, and for training the agency force in life insurance products and sales methods in our life only states.

We structure our agents’ life products compensation system to encourage production and persistency. Agents receive commissions for new life insurance and annuity sales and service fees on premium payments in subsequent years. Production bonuses are paid based on the premium level of new life business written in the prior 12 months and the persistency of the business written by the agent. Persistency is a common measure used in life insurance, which measures the quality and the consistent payment of premiums, and is included in calculating the bonus to either increase or decrease (or even eliminate) the agent’s production bonus. We are willing to pay added incentives for higher volumes of business only as long as the business is profitable. Production bonuses allow agents to increase their compensation significantly. In 2008, approximately 30% of agent compensation in our multi-line states was derived from the sale of life and annuity products.

The focus of agency managers is to recruit and train agents to achieve high production levels of profitable business. Managers receive overwrite commissions on each agent’s life insurance commissions which vary according to that agent’s productivity level and persistency of business. During the first three years of an agent’s relationship with us, the agent’s manager receives additional overwrite commissions to encourage early agent development. Early agent development is also encouraged through financing arrangements and the annualization of commissions paid when a life policy is sold.

We have a variety of incentives and recognition programs to focus agents on production of quality life insurance business. Some recognition programs and incentives are jointly conducted with the property-casualty companies. These programs provide significant incentives for the most productive agents. Approximately 9% of our agents and agency managers qualify for our annual incentive trip. Agent recruiting, training, financing and compensation programs are designed to develop a productive agent for the long term. The four-year agency force retention rate for 2008 in our 15 states was approximately 38%.

EquiTrust Life Market Area

EquiTrust Life is national in scope and is currently licensed to sell products in the District of Columbia and all states except New York. Our typical customer is an individual purchaser of annuities who buys through independent agents and representatives. This includes the aging baby boomer population and seniors who are in or approaching retirement.

EquiTrust Life Independent Channel

An important part of our sales success at EquiTrust Life has been our ability to appoint a significant number of independent agents. Working through independent marketing organizations, broker/dealers and banks, we had 19,098 agents appointed at December 31, 2008.

Our target market for agents consists of independent marketing organizations (IMOs) that recruit and motivate agents and add value to these agents through service, training and sales support. These organizations are not exclusive to EquiTrust Life and may operate in any state where they are licensed. Most are organized for the principal purpose of insurance product sales. Some IMOs are organized for other purposes, such as a bank or broker/dealer. Recruiting expenses are primarily borne by the IMO and their compensation from EquiTrust Life consists of commissions paid on net premiums received from sales by their agents.

We believe agents and IMOs are attracted to EquiTrust Life for several reasons.

	•		We are selective about the IMOs contracted with us and do not hire carrier-owned organizations.
	•		We offer a high level of support and a competitive product portfolio, and are committed to maintaining high ethical standards.
	•		We keep our product design simple and straightforward, and in the case of index annuities have only one moving part – the participation rate or index cap.
	•		We are committed to being fair, honest and open in the way we advertise, sell and service our products, as indicated by being an Insurance Marketplace Standards Association (IMSA) qualified company.
	•		We believe in helping consumers understand what an annuity is and how it can be used to support an individual’s retirement or accumulation needs.

Agents appointed by us are compensated by their assigned IMO or paid directly by EquiTrust Life pursuant to an agent contract. The typical agent is an independent contractor with experience selling the types of products offered by EquiTrust Life.

We require all agents to be contracted with an IMO which is responsible for any uncollectible commission-related debts. Credit, criminal and state license background checks are performed on all applicants and evidence of current errors and omissions insurance coverage is required.

Alliance Partners — Distribution

Our variable alliance partners have 2,442 registered representatives who are licensed to sell variable products under our agreements with them. These alliance partners have incentive programs, like ours, to promote the sale of life insurance and annuity products. The agents earn credit for these incentives by selling our variable products. Our variable product alliance partners are responsible for managing and training their own agency force. We provide each partner with assistance on how to train their agents in the sale of variable products. These agents also have access to our Just-In-Time sales support center.

Segmentation of Our Business

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.

See Note 14 of the notes to consolidated financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Segment Information” for additional information regarding our financial results by operating segment. Included in the following discussion of our segments are details regarding premiums collected by product type and distribution source. 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.

Traditional Annuity – Exclusive Annuity Segment

We sell a variety of traditional annuity products through our exclusive agency force. The Exclusive Annuity segment primarily consists of fixed rate annuities and supplementary contracts (some of which involve life contingencies). Traditional annuities provide for tax-deferred savings and supplementary contracts provide for the systematic repayment of funds that accumulate interest.

Premiums Collected — Exclusive Annuity Segment

		Year ended December 31,
		2008				2007				2006
		(Dollars in thousands)
First year – individual		$	170,675			$	73,266			$	79,546
Renewal – individual			69,177				44,543				55,106
Group			9,187				9,040				5,627
Total Traditional Annuity – Exclusive Distribution		$	249,039			$	126,849			$	140,279

The amount of traditional annuity premiums collected is highly dependent upon the relationship between the current crediting rates on our products and the crediting rates available on competing products, including bank-offered certificates of deposit. We believe the increase in annuity premiums in 2008 is due to lower short-term market interest rates making certificates of deposit and other short-term investments less attractive in relation to these traditional annuities. Average crediting rates on our individual deferred annuity contracts were 4.04% in 2008, 4.33% in 2007 and 4.27% in 2006, while the average three-month U.S. Treasury rate was 1.49% in 2008, 4.39% in 2007 and 4.66% in 2006. Premiums collected in our Farm Bureau market territory in 2008 are concentrated in the following states: Iowa (30%), Kansas (26%) and Oklahoma (11%).

Fixed Rate Annuities

We offer annuities that are generally marketed to individuals in anticipation of retirement. We offer traditional annuities principally in the form of flexible premium deferred annuities (FPDA) that allow policyholders to make contributions over a number of periods. For traditional annuity products, policyholder account balances are credited interest at rates that we determine. Approximately 39% of our existing individual direct traditional annuity business based on account balances is held in qualified retirement plans. To further encourage persistency, a surrender charge against the policyholders’ account balance is imposed for early termination of the annuity contract within a specified period after its effective date. The surrender charge rate varies by product, but typically starts at 10% and decreases 1% per year for the first ten years the contract is in force. The annuitant may elect to take the proceeds of the annuity either in a single payment or in a series of payments for life, for a fixed number of years, or a combination of these options.

In addition to FPDAs, we also market single premium deferred annuity (SPDA) and single premium immediate annuity (SPIA) products which feature a single premium paid when the contract is issued. Benefit payments and the surrender charge structure on SPDA contracts are similar to other fixed rate annuities. Benefit payments on SPIAs begin immediately after the issuance of the contract.

After the payment of acquisition costs, we invest the premiums we receive from fixed rate annuities and the investments reside in our general account. The difference between the yield we earn on our investment portfolio and the interest we credit on our fixed rate annuities is known as the investment spread. The investment spread is a major driver of the profitability for all of our traditional annuity products.

Withdrawal Rates

Withdrawal rates (excluding death benefits) for our individual deferred annuities were 3.9% for 2008, 5.2% for 2007 and 5.1% for 2006. We believe the competitive environment, due to changes in market interest rates discussed above, resulted in fewer surrenders in 2008 and increased surrenders in 2007 and 2006, which impacted the withdrawal rates.

Interest Crediting Policy

We have an asset/liability management committee that meets monthly, or more frequently if required, to review and establish current period interest rates based upon existing and anticipated investment opportunities. This applies to new sales and to annuity products after an initial guaranteed period. We examine earnings on assets by portfolio. We then establish rates based on each product’s required interest spread and competitive market conditions at the time. Most of our annuity contracts have guaranteed minimum crediting rates. These rates range from 1.50% to 5.50%, with a weighted average guaranteed crediting rate of 3.09% at December 31, 2008 and 3.21% at December 31, 2007.

Interest Crediting Rates of Individual Deferred Fixed Rate Annuities Compared to Guarantees

		Account Value at December 31,
		2008				2007
		(Dollars in thousands)
At guaranteed rate		$	309,307			$	96,885
Between guaranteed rate and 50 basis points over guarantee			56,208				225,882
Between 50 basis points and 100 basis points over guarantee			634,872				22,817
Greater than 100 basis points over guarantee			570,821				1,082,060
Total		$	1,571,208			$	1,427,644

In Force — Exclusive Annuity Segment

		As of December 31,
		2008				2007				2006
		(Dollars in thousands)
Number of direct contracts			51,439				51,311				53,321
Interest sensitive reserves		$	1,971,218			$	1,810,452			$	1,816,811
Other insurance reserves			381,838				407,199				412,801

Traditional Annuity – Independent Distribution Segment

The Independent Annuity segment consists of fixed rate annuities, supplementary contracts (some of which involve life contingencies) and index annuities sold by our independent agents or assumed through our coinsurance agreements.

Premiums Collected — Independent Annuity Segment

		Year ended December 31,
		2008				2007				2006
		(Dollars in thousands)
Direct:
Fixed rate annuities		$	915,843			$	690,646			$	807,103
Index annuities			649,412				878,482				1,001,379
Total direct			1,565,255				1,569,128				1,808,482
Reinsurance assumed			2,381				3,187				4,725
Total Traditional Annuity - Independent Distribution, net of reinsurance		$	1,567,636			$	1,572,315			$	1,813,207

Premiums collected from the independent channel decreased in 2008 as a result of rate and other actions taken to preserve capital in the second half of 2008, partially offset by a more favorable market environment for traditional annuity products. Direct premiums collected decreased in 2007, primarily due to a more favorable market environment during 2006 for the sale of our multi-year guaranteed annuity product combined with a competitive environment for index annuity sales in 2007. Our direct annuity sales in 2008 are widely disbursed throughout the United States with the largest concentration in the states of Pennsylvania (10%), Florida (9%) and California (7%). In 2008, 97 IMOs produced at least $3.0 million of premiums collected with the largest providing approximately $153.5 million. The five largest IMOs combined produced a total of $435.0 million of premium from agents appointed directly with them. No one IMO, bank or broker/dealer accounted for more than 10% of our direct premiums collected in 2008.

Our EquiTrust Life independent channel currently offers a variety of fixed rate and index annuities. These products are available to individuals who are seeking to accumulate tax-deferred savings for retirement or other purposes. In 2008, 41% of premiums were placed in annuities that were part of some tax-qualified benefit plan (primarily IRAs) and 59% in non-qualified plans. Most of the annuity plans can be sold to customers up to age 80. The weighted average issue age of annuitants at December 31, 2008 was 66.

Surrender charge rates on our direct index business range from 0% to 20% and surrender charge periods range from 7 years to 14 years depending upon the terms of the product. Surrender charge rates on our direct fixed rate products range from 4.5% to 10% with the surrender charge periods consistent with the guarantee periods. The surrender charge amount may be impacted positively or negatively by a market value adjustment feature on our products. This adjustment feature may apply if the withdrawal amount exceeds the free withdrawal provision or the contract is surrendered during the surrender charge period. The adjustment is determined by a mathematical formula which measures changes in the interest rate environment since the contract was issued based on the Treasury yield. This feature provides interest rate protection to us in higher interest rate environments and a benefit to contract holders when interest rates are low. Market conditions with low Treasury yields provide an environment where contract holders may be able to surrender with smaller net surrender changes.

Index Annuities

Based on account balance, approximately 62% of the annuities in the Independent Annuity segment are index annuities. With an index annuity, the policyholder may choose from a traditional fixed rate strategy or an index strategy. The underlying indices available under the index strategy vary by product, but may include the S&P 500^®, the Barclays Capital U.S. Aggregate Bond Index and the Barclays Capital U.S. Treasury Bond Index. The products require periodic crediting of interest and a reset of the applicable index at intervals specified in the contracts. Approximately 25% of the direct index annuities’ account value is allocated to the fixed strategy and 75% is allocated to an index strategy. The majority of these products have an annual reset period ending on each contract anniversary date; while certain index strategies have a two-year reset period. Generally, the computation of the index credit is based upon either a point-to-point calculation (i.e., the gain in the applicable index from the beginning of the applicable contract year to the next reset date) or a daily or monthly averaging of the index during the reset period. These products allow contract holders to transfer funds among the various index accounts and a traditional fixed rate strategy at the end of each reset period.

The index annuity contract value is equal to the premiums paid plus (1) interest credited to the fixed portion of the contract, plus (2) index credits on the indexed portion of the contract, plus (3) premium bonus, if applicable, less (4) partial withdrawals taken from the contract. Index credits are based upon the change in a recognized index or benchmark during the indexing period, subject to a cap, asset fee or participation rate.

The participation rate, which is applied to the growth of the index, varies among the products generally from 30% to 100%. Some of the products we coinsure also have an index margin, which is deducted from the growth in the index, and for the one-year accounts range from 0% to 3.5%. The index margins may be adjusted annually, subject to stated limits. In addition, some index accounts within the products are uncapped, while others apply a cap on the amount of index credits the contract holder may earn in any one indexing period, and, for certain products, the applicable cap also may be adjusted annually subject to stated minimums. The annual caps range from 2.0% to 12.5% for the one-year accounts. The minimum guaranteed contract values are equal to 82.5% to 100% of the premium collected plus interest credited at an annual rate ranging from 1.5% to 4.0% on a cumulative basis.

Certain index annuities sold through the EquiTrust Life independent distribution are “bonus” products. These products are credited with a premium bonus ranging from 5% to 10% of the annuity deposit upon issuance of the contract and for subsequent deposits made for a defined number of years.

For our direct business, we purchase one-year or two-year call options on the applicable market indices to fund the index credits due to the index annuity contract holders. We also assume call options from American Equity to fund the majority of index credits on the coinsured index annuity contracts. On the respective anniversary dates of the index annuity contracts, the market index used to compute the index credits is reset and new call options are purchased to fund the next index credit. The cost of the options can be managed through the terms of the index annuities, which permit changes to participation rates, asset fees and/or caps, subject to minimum guarantees.

After the purchase of the call options and payment of acquisition costs, we invest the balance of the index premiums and the investments reside in our general account. With respect to that portion of the index account value allocated to an index crediting strategy, our spread is measured as the difference between the aggregate yield on the relevant portion of our invested assets, less the aggregate option costs and the costs associated with minimum guarantees. If the minimum guaranteed value of an index product exceeds the index value (computed on a cumulative basis over the life of the contract), the general account earnings are available to satisfy the minimum guarantees. If there were little or no gains in the entire series of options purchased over the expected life of an index annuity (typically 15 to 20 years), we would incur expenses for credited interest over and above our option costs. In addition, if we are not successful in matching the terms of call options purchased with the terms of the index annuities, index credits could exceed call option proceeds. This would cause our spreads to tighten and reduce our profits.

Fixed Rate Annuities

Approximately 38% of the annuities in the Independent Annuity segment are fixed rate annuities. We sell multi-year guaranteed annuities (MYGAs) that include guarantees of the annual crediting rate for three-year, five-year, six-year, eight-year or ten-year periods, and we offer SPIA and FPDA products. We coinsure FPDA and SPDA products with characteristics which are generally similar to the products offered directly through the Exclusive Annuity segment.

Certain fixed rate annuities sold through our EquiTrust Life independent distribution offer an additional first year interest rate. The initial crediting rate on these annuities is typically 0% to 6% higher in the first contract year only.

Withdrawal Rates

Withdrawal rates (excluding death benefits) for our individual deferred annuities (including both direct and assumed business) were 7.8% for 2008, 5.5% for 2007 and 5.1% for 2006. The increase in the withdrawal rate in 2008 reflects the aging of the business in force as well as a significant increase in surrender activity at the end of 2008. This was caused by the increase in credit spreads during 2008, combined with Treasury yields being at unprecedented low levels at the end of the year, which provided market value adjustments to contract holders that largely offset their gross surrender charges. .

See “Item 1A. Risk Factors” for information regarding risks related to the market value adjustment feature.

Interest Crediting Policy

We have an asset/liability management committee that meets monthly, or more frequently if required, to review and establish current period interest and index terms for products sold through our EquiTrust Life independent distribution. The interest and index terms are based upon current investment opportunities. This applies to new sales and to annuity products after an initial guaranteed period, if applicable. We then establish rates based on each product’s required interest spread and competitive market conditions at the time. The average interest credited rate on our MYGA contracts, including bonus interest, was 4.93% in 2008, 5.10% in 2007 and 5.66% in 2006. The average rate for these contracts, excluding bonus interest, was 4.71% in 2008, 4.66% in 2007 and 4.56% in 2006. The guaranteed minimum crediting rates for these contracts range from 1.50% to 3.00%, with a weighted average guaranteed crediting rate of 1.57% at December 31, 2008 and 1.60% at December 31, 2007.

Interest Crediting Rates of EquiTrust Life Independent Distribution MYGAs Compared to Guarantees

		Account Value at December 31,
		2008				2007
		(Dollars in thousands)
At guaranteed rate		$	29,897			$	3,157
Between guaranteed rate and 50 basis points over guarantee			2,807				4,894
Between 50 basis points and 100 basis points over guarantee			321,212				192,215
Greater than 100 basis points over guarantee			2,042,625				1,421,029
Total		$	2,396,541			$	1,621,295

The average crediting rate for the traditional fixed rate strategy for our index annuities sold through our EquiTrust Life independent distribution was 2.93% in 2008, 3.01% in 2007 and 2.98% in 2006. The guaranteed minimum crediting rates for the fixed rate strategy of our index annuities range from 1.50% to 2.30%, with a weighted average guaranteed crediting rate of 1.94% at December 31, 2008 and 1.92% at December 31, 2007.

We do not have the ability to adjust interest crediting rates or other non-guaranteed elements of the underlying business assumed through coinsurance agreements, as this authority remains with the direct writer. Average credited rates on fixed rate annuities assumed were 3.35% in 2008, 3.44% in 2007 and 3.42% in 2006. Most of the annuity contracts assumed through coinsurance agreements have guaranteed minimum crediting rates. These rates range from 2.25% to 4.00%.

Interest Crediting Rates of Assumed Fixed Rate Annuities Compared to Guarantees

		Account Value at December 31,
		2008				2007
		(Dollars in thousands)
At guaranteed rate		$	42,038			$	60,294
Between guaranteed rate and 50 basis points over guarantee			386,472				399,098
Between 50 basis points and 100 basis points over guarantee			41,490				34,009
Greater than 100 basis points over guarantee			14,145				54,391
Total		$	484,145			$	547,792

In Force — Independent Annuity Segment

		As of December 31,
		2008				2007				2006
		(Dollars in thousands)
Number of direct contracts			93,769				73,980				51,007
Direct interest sensitive reserves		$	2,398,237			$	1,607,009			$	962,662
Direct index annuity reserves			3,581,396				3,387,727				2,463,086
Assumed annuity reserves			1,583,754				1,766,735				1,928,218
Direct other insurance reserves			145,036				64,242				13,983

Traditional and Universal Life Insurance Segment

We sell a variety of traditional and universal life insurance products through our exclusive agency force. In addition, we have assumed a closed block of in force traditional and universal life insurance. The Traditional and Universal Life Insurance segment consists of whole life, term life and universal life policies. These policies provide benefits upon the death of the insured and may also allow the customer to build cash value on a tax-deferred basis.

Premiums Collected — Traditional and Universal Life Insurance Segment

		For the year ended December 31,
		2008				2007				2006
		(Dollars in thousands)
Universal life:
First year		$	6,672			$	5,448			$	3,208
Renewal			39,338				39,027				38,429
Total			46,010				44,475				41,637
Participating whole life:
First year			12,089				14,680				14,286
Renewal			93,378				91,249				87,753
Total			105,467				105,929				102,039
Term life and other:
First year			10,414				9,291				7,312
Renewal			49,135				44,518				40,837
Total			59,549				53,809				48,149
Total Traditional and Universal Life Insurance			211,026				204,213				191,825
Reinsurance assumed			10,913				11,695				12,464
Reinsurance ceded			(19,094	)			(18,309	)			(16,640	)
Total Traditional and Universal Life Insurance, net of reinsurance		$	202,845			$	197,599			$	187,649

For our direct traditional and universal life insurance premiums collected in our Farm Bureau market territory, premiums collected in 2008 are concentrated primarily in the following states: Iowa (24%), Kansas (16%) and Oklahoma (12%).

Traditional Life Insurance

We offer traditional participating whole life insurance products. Participating whole life insurance provides benefits for the life of the insured. It provides level premiums and a level death benefit and requires payments in excess of mortality charges in early years to offset increasing mortality costs in later years. Under the terms of these policies, policyholders have a right to participate in our surplus to the extent determined by the Board of Directors, generally through annual dividends. Participating business accounted for 41% of direct life receipts from policyholders during 2008 and represented 13% of life insurance in force at December 31, 2008.

We also market non-participating term insurance policies that provide life insurance protection for a specified period. Term insurance is mortality based and generally has no accumulation values. However, beginning in 2007, we introduced the return of premium rider, which returns a percentage of premiums after a set number of years. For a portion of our business, we may change the premium scales at any time but may not increase rates above guaranteed levels.

Universal Life Insurance

Our universal life policies provide permanent life insurance protection with a flexible or fixed premium structure which allows the customer to pre-fund future insurance costs and accumulate savings on a tax-deferred basis. Premiums received, less policy assessments for administration expenses and mortality costs, are credited to the policyholder’s account balance. Interest is credited to the cash value at rates that we periodically set.

Underwriting

We follow formal underwriting standards and procedures designed to properly assess and quantify life insurance risks before issuing policies to individuals. To implement these procedures, we employ a professional underwriting staff of 12 underwriters who have an average of 25 years of experience in the insurance industry. Our underwriters review each applicant’s written application, which is prepared under the supervision of our agents, and any required medical records. We generally employ blood and urine testing (including HIV antibody testing) to provide additional information whenever the applicant is age 16 or older and the face amount is $100,000 or greater. Based on the results of these tests, we may adjust the mortality charge or decline coverage completely. Generally, tobacco use by a life insurance applicant within the preceding one-year results in a substantially higher mortality charge. In accordance with industry practice, material misrepresentation on a policy application can result in the cancellation of the policy upon the return of any premiums paid.

Interest Crediting and Participating Dividend Policy

The interest crediting policy for our direct traditional and universal life insurance products is the same as for our traditional annuity products in the Exclusive Annuity segment. See “Interest Crediting Policy” under the Exclusive Annuity Segment discussion. We pay dividends, credit interest and determine other nonguaranteed elements on the individual insurance policies depending on the type of product. Some elements, such as dividends, are generally declared for a year at a time. Interest rates and other nonguaranteed elements are determined based on experience as it emerges and with regard to competitive factors. Average contractual credited rates on our direct universal life contracts were 4.41% in 2008, 4.43% in 2007 and 4.45% in 2006. Our universal life contracts have guaranteed minimum crediting rates that range from 3.00% to 4.50%, with a weighted average guaranteed crediting rate of 3.83% at December 31, 2008 and 3.84% at December 31, 2007.

Interest Crediting Rates of Direct Interest Sensitive Life Products Compared to Guarantees

		Account Value at December 31,
		2008				2007
		(Dollars in thousands)
At guaranteed rate		$	334,536			$	334,475
Between guaranteed rate and 50 basis points over guarantee			40,360				40,882
Between 50 basis points and 100 basis points over guarantee			23,326				22,613
Greater than 100 basis points over guarantee			237,760				230,490
Total		$	635,982			$	628,460

All of the assumed universal life contracts have a guaranteed minimum crediting rate of 4.00% at December 31, 2008 and December 31, 2007.

Interest Crediting Rates of Assumed Interest Sensitive Life Products Compared to Guarantees

		Account Value at December 31,
		2008				2007
		(Dollars in thousands)
At guaranteed rate		$	67,021			$	106,199
Between guaranteed rate and 50 basis points over guarantee			480				9,460
Between 50 basis points and 100 basis points over guarantee			67,689				18,786
Greater than 100 basis points over guarantee			8				5,058
Total		$	135,198			$	139,503

Policyholder dividends are currently being paid and will continue to be paid as declared on participating policies. Policyholder dividend scales are generally established annually and are based on the performance of assets supporting these policies, the mortality experience of the policies and expense levels. Other factors, such as changes in tax law, may be considered as well. Our participating business does not have minimum guaranteed dividend rates.

In Force - Traditional and Universal Life Insurance Segment

		As of December 31,
		2008				2007				2006
		(Dollars in thousands, except face amounts in millions)
Number of direct policies – traditional life			335,505				332,497				328,152
Number of direct policies – universal life			55,094				55,218				56,673
Direct face amounts – traditional life		$	30,998			$	28,552			$	25,993
Direct face amounts – universal life			4,817				4,695				4,675
Direct interest sensitive reserves			634,963				628,563				625,541
Direct other insurance reserves			1,389,546				1,349,141				1,306,987
Assumed insurance reserves			202,829				190,741				199,020

Variable Segment

We sell several variable products through our exclusive agency force. In addition, we receive variable business through our unique EquiTrust Life variable product alliances. The Variable segment consists of variable universal life insurance and variable annuity contracts. These products are similar to universal life insurance and traditional annuity contracts, except the contract holder has the option to direct the cash value of the contract to a wide range of investment sub-accounts, thereby passing the investment risk to the contract holder.

Premiums Collected — Variable Segment

		For the year ended December 31,
		2008				2007				2006
		(Dollars in thousands)
Variable annuities:
Exclusive distribution:
First year		$	40,742			$	65,840			$	50,911
Renewal			23,047				26,377				23,956
Total			63,789				92,217				74,867
Alliance channel:
First year (1)			15,685				30,430				22,382
Renewal (1)			4,417				5,028				3,724
Total			20,102				35,458				26,106
Total variable annuities			83,891				127,675				100,973
Variable universal life:
Exclusive distribution:
First year			4,930				5,557				6,451
Renewal			46,274				46,052				44,954
Total			51,204				51,609				51,405
Alliance channel:
First year (1)			415				779				998
Renewal (1)			2,197				2,102				1,830
Total			2,612				2,881				2,828
Total variable universal life			53,816				54,490				54,233
Total Variable			137,707				182,165				155,206
Reinsurance ceded			(736	)			(856	)			(555	)
Total Variable, net of reinsurance		$	136,971			$	181,309			$	154,651

(1)		Amounts are net of portion ceded to and include amounts assumed from alliance partners.

Variable sales tend to vary with the volatility, performance of and confidence level in the equity markets as well as crediting and interest rates on competing products, including fixed rate annuities and bank-offered certificates of deposit. The S&P 500 Index decreased 38.5% in 2008, and increased 3.5% in 2007 and 13.6% in 2006. Variable premiums collected in our Farm Bureau market territory are concentrated primarily in the following states for 2008: Iowa (35%), Kansas (11%) and Minnesota (10%).

Variable Universal Life Insurance

We offer variable universal life policies that are similar in design to universal life policies, but the policyholder has the ability to direct the cash value of the policy to an assortment of variable sub-accounts and, in turn, assumes the investment risk passed through by those funds. Policyholders can select from variable sub-accounts managed by us as well as sub-accounts that are managed by outside investment advisors. Variable universal life policyholders can also elect a declared interest option under which the cash values are credited with interest as declared. See “Variable Sub-Accounts and Mutual Funds.”

Variable Annuities

For variable annuities, policyholders have the right to direct the cash value of the policy into an assortment of sub-accounts, thereby assuming the investment risk passed through by those sub-accounts. The sub-account options for variable annuity contracts are the same as those available for variable universal life policies. In addition, variable annuity contract holders can also elect a declared interest option under which the cash values are credited with interest as declared.

Our variable annuity products have a guaranteed minimum death benefit (GMDB) rider. The variable annuity products issued by Farm Bureau Life after September 1, 2002 and those issued or assumed by EquiTrust Life generally have a high water mark feature that pays the contract holder the greatest value attained on any anniversary date or the date of a payment or withdrawal. For our variable annuity contracts issued by Farm Bureau Life prior to September 1, 2002, the GMDB is equal to the amount by which premiums less partial withdrawals exceeds the account value on the date of death. In addition, certain of our variable annuity products have an incremental death benefit (IDB) rider that pays a percentage of the gain on the contract upon the death of the contract holder. Our exposure to GMDBs and IDBs, the amount considered in the money, is $152.3 million at December 31, 2008. The reserve for these benefits is determined using scenario-based modeling techniques and industry mortality assumptions. The related reserve recorded at December 31, 2008 totaled $1.4 million. At Farm Bureau Life, we began issuing variable annuity contracts with guaranteed minimum income benefits (GMIB) on June 1, 2008. Under this optional GMIB rider, upon annuitization after the eighth policy year to a single or joint life income option, the contract holder receives monthly income of the higher of the current accumulated value applied to a current payment option, or a guaranteed payment option applied to the premiums paid minus withdrawals accumulated at a specified rate. There is a minimum of eight years before this GMIB benefit may be taken.

Underwriting

Our underwriting standards for direct variable life products are the same as our standards for our traditional and universal life insurance products. See “Underwriting” under the Traditional and Universal Life Insurance segment discussion.

In Force — Variable Segment

		As of December 31,
		2008				2007				2006
		(Dollars in thousands, except face amounts in millions)
Number of direct contracts – variable annuity			20,624				21,041				20,763
Number of direct policies – variable universal life			61,319				63,378				64,502
Direct face amounts – variable universal life		$	7,698			$	7,846			$	7,704
Separate account assets			577,420				862,738				764,377
Interest sensitive reserves			225,539				202,211				206,445
Other insurance reserves			30,382				27,074				30,898

Corporate and Other Segment

The Corporate and Other segment includes (i) advisory services for the management of investments and companies; (ii) marketing and distribution services for the sale of mutual funds and insurance products not issued by us; (iii) leasing services, primarily with affiliates; (iv) a small block of closed accident and health business; (v) interest expense and; (vi) investments and related investment income not specifically allocated to our product segments.

Reinsurance

We reinsure a portion of our life insurance exposure with unaffiliated insurance companies under traditional indemnity reinsurance agreements. New sales of participating whole life and universal life products are reinsured above prescribed limits and do not require the reinsurer’s prior approval within certain guidelines. New sales of certain term life products are reinsured on a first dollar quota share basis and do not require the reinsurer’s prior approval within various guidelines. We do not use financial or surplus relief reinsurance. Generally, we enter into indemnity reinsurance arrangements to assist in diversifying our risks and to limit our maximum loss on risks that exceed our policy retention limits. Our maximum retention limit on an insured life ranges up to $1.1 million depending on when the policy was issued.

In addition, we have reinsurance agreements with variable alliance partners to cede a specified percentage of risks associated with variable universal life and variable annuity contracts. Under these agreements, we pay the alliance partners their reinsurance percentage of charges and deductions collected on the reinsured policies. The alliance partners in return pay us their reinsurance percentage of benefits in excess of related account balances. In addition, the alliance partners pay us an expense allowance for new business and development and maintenance costs on the reinsured contracts.

Reinsurance contracts do not fully discharge our obligation to pay claims on the reinsured business. As the ceding insurer, we remain responsible for policy claims to the extent the reinsurer fails to pay claims. No reinsurer of business ceded by us has failed to pay any material policy claims (either individually or in the aggregate) with respect to our ceded business. We continually evaluate the financial strength of our reinsurers and monitor concentrations of credit risk. If for any reason reinsurance coverages would need to be replaced, we believe that replacement coverages from financially responsible reinsurers would be available.

Primary Reinsurers as of December 31, 2008

		A.M. Best			Amount of
Reinsurer		Rating			In Force Ceded
					(Dollars in
					millions)
RGA Reinsurance Company			A+		$	2,643.8
Generali USA Life Reassurance Company			A			2,249.1
Swiss Re Life & Health America Inc.			A+			2,540.9
Employers Reassurance Corporation			A-			616.4
Scottish Re*			D/E			567.2
Munich American Reassurance Company			A+			261.5
All other (9 reinsurers)		A- to A++				265.3
Total					$	9,144.2

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 64% 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.

In addition, Farm Bureau Life has an annual 100% quota share accidental death reinsurance agreement. Coverage includes all acts of terrorism including those of a nuclear, chemical or biological origin. Coverage is subject to an annual aggregate retention which, effective January 1, 2009, was increased from $10.0 million to $11.0 million. A maximum occurrence limit of $50.0 million applies to policies written on agents of the company who are participating in company-sponsored incentive trips. All other occurrence catastrophes are unlimited in amount.

Variable Sub-Accounts and Mutual Funds

We sponsor the EquiTrust Series Fund, Inc. (the Series Fund) and EquiTrust Variable Insurance Series Fund (the Insurance Series Fund) (collectively, the EquiTrust Funds) which are open-end, diversified series management investment companies. The Series Fund is available to the general public. The Insurance Series Fund offers its shares, without a sales charge, only to our separate accounts and to our alliance partners’ separate accounts as an investment medium for variable annuity contracts or variable life insurance policies.

The EquiTrust Funds each currently issue shares in six investment series (a Portfolio or collectively the Portfolios) with the following distinct investment objectives: (1) long-term capital appreciation by investing in equity securities which have a potential to earn a high return on capital and/or are undervalued by the marketplace; (2) as high a level of current income as is consistent with investment in a diversified portfolio of high-grade income-bearing debt securities; (3) as high a level of current income as is consistent with investment in a diversified portfolio of lower-rated, higher yielding income-bearing securities; (4) high level of total investment return through income and capital appreciation by investing in common stocks and other equity securities, high grade debt securities and high quality short-term money market instruments; (5) maximum current income consistent with liquidity and stability of principal; and (6) growth of capital and income by investing primarily in common stocks of well-capitalized, established companies. The net assets of the EquiTrust Funds at December 31, 2008 totaled $425.0 million.

EquiTrust Investment Management Services, Inc. (the Advisor), a subsidiary, receives an annual management fee based on the average daily net assets of each EquiTrust Portfolio that ranges from 0.25% to 0.60% for the Series Fund and from 0.20% to 0.45% for the Variable Insurance Series Fund. In addition, the Advisor receives a 0.05% accounting fee not to exceed $30,000 per portfolio. EquiTrust Marketing Services, LLC (EquiTrust Marketing), a subsidiary, serves as distributor and principal underwriter for the EquiTrust Funds. EquiTrust Marketing receives from the Series Fund a front-end load fee ranging from 0% to 5.75% for Class A share sales, an annual distribution services fee of 0.25% for Class A shares and 0.50% for Class B shares, a 0.25% annual administration services fee for Class A and B shares and a contingent deferred sales charge paid on the early redemption of Class B shares. EquiTrust Marketing also serves as the principal dealer for the Series Fund and receives commissions and fees.

Our variable products include sub-accounts that invest in funds managed by outside investment advisors in addition to the Insurance Series Fund. We receive an annual administrative service fee ranging from 0.05% to 0.25% (annualized) of the sub-account values, generally once the sub-accounts meet a predetermined asset threshold. The outside investment advisors and related sub-accounts available to our variable contract holders include Fidelity Management & Research Company (13 sub-accounts), Franklin Advisers, Inc. (10 sub-accounts), T. Rowe Price Associates, Inc. (9 sub-accounts), Calvert Investments, previously Summit Investment Partners, Inc., (7 sub-accounts), JP Morgan Investment Management Inc. (6 sub-accounts), American Century Investment Management Services, Inc. (5 sub-accounts), Dreyfus Corporation (5 sub-accounts), Columbia Management (4 sub-accounts) and DWS Scudder Investments (2 sub-accounts).

We also sponsor a money market fund, EquiTrust Money Market Fund, Inc. (Money Market Fund), which is a no-load open-end diversified management investment company with an investment objective of maximum current income consistent with liquidity and stability of principal. The net assets of the Money Market Fund were $16.5 million at December 31, 2008.

EquiTrust Series Fund, Inc. and EquiTrust Money Market Fund, Inc. are offered through registered representatives of EquiTrust Marketing, the principal underwriter. For more complete information including fees, charges and other expenses, obtain a prospectus from EquiTrust Marketing Services, LLC, 5400 University Avenue, West Des Moines, Iowa 50266. Please read the prospectus before you invest.

Ratings and Competition

Financial strength ratings are an important factor in establishing the competitive position of insurance companies. Insurer financial strength ratings represent the opinions of rating agencies regarding the ability of an insurance company to meet its financial obligations to policyholders and contract holders. Credit ratings represent the opinions of rating agencies regarding an issuer’s ability to repay its indebtedness. All of our ratings are subject to revision or withdrawal at any time by the rating agencies, and therefore, no assurance can be given that these ratings will be maintained. Our insurer financial strength ratings and credit ratings as of the date of this filing are listed in the table below:

Insurer Financial Strength Ratings

		Rating		Source		Outlook
Farm Bureau Life Insurance Company		A- (Excellent)		A.M. Best		Negative
EquiTrust Life Insurance Company		A- (Excellent)		A.M. Best		Negative
Farm Bureau Life Insurance Company		A (Strong)		Standard & Poor’s		CreditWatch Negative
EquiTrust Life Insurance Company		A (Strong)		Standard & Poor’s		CreditWatch Negative

Credit Ratings

		Rating		Source		Outlook
FBL Financial Group, Inc.		bbb-		A.M. Best		Negative
FBL Financial Group, Inc.		BBB		Standard & Poor’s		Negative

A.M. Best Company, Inc. (“A.M. Best”) has 13 ratings assigned to solvent insurance companies, which currently range from “A++”(Superior) to “D”(Poor). Standard & Poor’s has eight financial strength ratings assigned to solvent insurance companies, ranging from “AAA”(Extremely Strong) to “CC”(Extremely Weak).

A.M. Best’s long-term credit ratings range from “aaa” (exceptional) to “d” (in default). A “+” or “-” may be appended to ratings from “aa” to “ccc” to indicate relative position within a category. A rating of “bbb-” is considered investment grade. Standard & Poor’s long-term credit ratings range from “AAA” (extremely strong) to “D” (payment default). A rating of “BBB” is considered investment grade.

We operate in a highly competitive industry. Insurers compete based primarily upon price, service level and the financial strength of the company. The operating results of companies in the insurance industry historically have been subject to significant fluctuations due to competition, economic conditions, interest rates, investment performance, maintenance of insurance ratings from rating agencies and other factors. We believe our ability to compete with other insurance companies is dependent upon, among other things, our ability to attract and retain agents to market our insurance products, our ability to develop competitive and profitable products and our ability to maintain high ratings from A.M. Best and Standard & Poor’s. In connection with the development and sale of our products, we encounter significant competition from other insurance companies, and other financial institutions, such as banks and broker/dealers, many of which have financial resources substantially greater than ours.

Regulation

Our insurance subsidiaries are subject to government regulation in each of the states in which they conduct business. This regulatory authority is vested in state agencies having broad administrative power dealing with all aspects of the insurance business, including rates, policy forms and capital adequacy, and is concerned primarily with the protection of policyholders rather than stockholders. Our variable insurance products, mutual funds, investment advisor, broker/dealer and certain licensed agents are also subject to regulation by the SEC, FINRA and state agencies.

In 2008 the SEC approved its Rule 151A, which will change the federal law status of index annuities from insurance products to registered securities products. Various organizations within the life insurance industry are challenging this SEC action and are attempting to overturn this rule. Assuming this rule is enacted, its effective date is expected to be January 12, 2011. At that time, index annuities will be considered a type of security and all agents selling index annuities will be required to be registered representatives affiliated with a licensed broker dealer. As a result of this rule, we may incur increased costs and decreased production for our index annuities 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 insurance regulatory framework has been under examination, and certain state legislatures have considered or enacted laws that alter, and in many cases increase, state authority to regulate insurance companies and insurance holding company systems. Legislation has been introduced in Congress in the past which could result in the federal government assuming regulation of the insurance industry. In light of ongoing legislative developments, the National Association of Insurance Commissioners (NAIC) and state insurance regulators continue to reexamine existing laws and regulations, accounting policies and procedures, specifically focusing on insurance company investments and solvency issues, market conduct, risk-adjusted capital guidelines, interpretations of existing laws, the development of new laws, the implementation of non-statutory guidelines and the circumstances under which dividends may be paid. We do not believe the adoption of any of the current NAIC initiatives will have a material adverse impact on us; however, we cannot predict the form of any future proposals or regulation.

Employees

At December 31, 2008, we had 1,866 employees. A majority of our employees, including the executive officers, also provide services to Farm Bureau Mutual and other affiliates pursuant to management agreements. None of our employees are members of a collective bargaining unit.

ITEM 1A. RISK FACTORS

Risk Factors

The performance of our company is subject to a variety of risks which you should review. Occurrence of these risks 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.

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 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 severe recession.

The fixed-income markets are experiencing a period of both extreme volatility and limited market liquidity, 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 additional 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, 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 7 of this Form 10-K, 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 our life insurance subsidiaries have historically generated positive cash flow, 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. At December 31, 2008, we believe the probability we would have to sell investments in an unrealized loss position to meet cash flow needs is remote. See the Financial Condition section in Item 7 for details regarding the unrealized loss position on our fixed maturity securities.

Capital requirements depend on factors including accumulated statutory earnings of our life insurance subsidiaries, statutory capital and surplus of our life insurance subsidiaries, the rate of sales growth of our products, aggregate reserve levels and the levels of credit risk and/or interest rate risk in our invested assets. In order to support these capital requirements, we may need to increase or maintain the statutory capital and surplus of our life insurance subsidiaries through additional financings, which could include debt, equity or other transactions.

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 indicative ratings level from Standard & Poor’s and A.M. Best. As of December 31, 2008, we estimate that we have sufficient capital in the life insurance subsidiaries, combined with capital at the holding company, to meet this rating objective. 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.

The Market Value Adjustment (MVA) feature on certain policies may cause surrenders to increase in an extremely low interest rate environment.

The surrender charge amount on our EquiTrust Life independent channel business may be impacted positively or negatively by a market value adjustment feature on these products. This adjustment feature may apply if the withdrawal amount exceeds the free withdrawal provision or the contract is surrendered during the surrender charge period. The adjustment is determined by a mathematical formula which measures changes in the interest rate environment since the contract was issued based on U.S. Treasury rates. This feature provides us interest rate protection when U.S. Treasury interest rates are greater than the rates in effect when a contract is issued and provides a benefit to contract holders when U.S Treasury interest rates are less than the rates in effect when a contract is issued. Market conditions with low U.S. Treasury yields provide an environment where contract holders may be able to surrender with smaller net surrender charges.

The unprecedented low U.S. Treasury yields late in 2008 and continuing into early 2009 provided an environment where contract holders were able to surrender with smaller net surrender charges, increasing the level of surrender activity. At the same time, credit spreads were increased and a majority or our fixed maturity securities were in an unrealized loss position.

We have initiated conservation efforts to reduce the surrender activity for existing contracts and are evaluating the terms and conditions for future products. In addition, the surrender charge protection has increased since year end with the increase in U.S. Treasury rates from the historic lows experienced at the end of 2008. However, the increase in surrenders, combined with the reduction in sales to preserve capital, may cause EquiTrust Life to incur losses and have net negative cash outflows in 2009. We anticipate using cash on hand and, to the extent necessary, proceeds from investment sales of fixed maturity securities in an unrealized gain position to meet these needs. We cannot predict the extent to which increased surrender activity will continue or what impact such excess surrenders could have on our business, results of operations, cash flows and financial condition.

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.

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.

We are subject to the risk that the issuers of fixed maturity securities and other debt securities in our portfolio (other than U.S. agency securities), and borrowers on our commercial mortgages, will default on principal and interest payments, particularly in the event of a major downturn in economic activity. As of December 31, 2008, we held $9.0 billion of fixed income securities, $0.3 billion of which represented below-investment grade holdings. Of these $0.3 billion of below-investment grade holdings, 88.6% were acquired as investment grade holdings but, as of December 31, 2008, had been downgraded to below investment grade. An increase in defaults on our fixed maturity securities and commercial mortgage loan portfolios could harm our financial strength and reduce our profitability.

We use derivative instruments to fund the credits on our index annuities. We purchase derivative instruments from a number of counterparties directly and assume derivatives through a coinsurance agreement. If our counterparties fail to honor their obligations under the derivative instruments, we will have failed to obtain funds for crediting appreciation in the applicable indices to contract holders. Any such failure could harm our financial strength and reduce our profitability.

We have entered into two interest rate swaps with a total notional amount of $100.0 million to manage interest rate risk on a portion of our flexible premium deferred annuity contracts. We also have one interest rate swap with a $46.0 million notional amount to hedge the variable component of the interest rate on a portion of our line of credit borrowings. We purchased these instruments from three different counterparties. If these counterparties fail to honor their obligations, we will have additional exposure to an increase in interest rates, which could harm our financial strength and reduce our profitability.

Changing interest rates, market volatility and general economic conditions affect the risks and the returns on both our products and our investment portfolio.

The market value of our investments and our investment performance, including yields and realization of gains or losses, may vary depending on economic and market conditions. Such conditions include the shape of the yield curve, level of interest rates and recognized equity and bond indices. Interest rate risk is our primary market risk exposure. Substantial and sustained changes in market interest rates can materially affect the profitability of our products, the market value of our investments and the reported value of stockholders’ equity.

A key component of our net income (loss) is the investment spread. A narrowing of investment spreads would adversely affect operating results. Although we have the right to adjust interest crediting rates on a substantial portion of our direct business in force, changes to crediting rates may not be sufficient to maintain targeted investment spreads in all economic and market environments. In general, our ability to lower crediting rates is subject to a minimum crediting rate filed with and approved by state regulators. In addition, competition and other

factors, including the potential for increases in surrenders and withdrawals, may limit our ability to adjust or maintain crediting rates at levels necessary to avoid the narrowing of spreads under certain market conditions.

The profitability of our index annuities that are tied to market indices is significantly affected by the interest earned on investments, by the cost of underlying call options purchased to fund the credits owed to contract holders and by the minimum interest guarantees owed to the contract holder, if any. If there were little or no gains on the call options purchased over the expected life of an index annuity, we would incur expenses for credited interest over and above our option costs. In addition, if we are not successful in matching the terms of call options purchased with the terms of the index annuities, index credits could exceed call option proceeds. These items would cause our spreads to tighten and reduce our profits.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Market Risks of Financial Instruments” for further discussion of our interest rate risk exposure and information regarding our asset-liability and hedging programs to help mitigate our exposure to interest rate risk.

We face competition from companies having greater financial resources, more advanced technology systems, 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.

See “Item 1. Business — Ratings and Competition” for information regarding risks relating to competition.

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.

As a holding company, we rely on dividends from subsidiaries to assist in meeting our obligations. The ability of our subsidiaries to pay dividends or to make other cash payments in the future may materially affect our ability to satisfy our parent company payment obligations, including debt service and dividends on our common stock.

The ability of our subsidiaries, Farm Bureau Life and EquiTrust Life, to pay dividends to the parent company is limited by law to earned profits (statutory unassigned surplus) as of the date the dividend is paid, as determined in accordance with accounting practices prescribed by insurance regulatory authorities of the State of Iowa. The annual dividend limitation is defined under the Iowa Insurance Holding Company Act as any dividend or distribution of cash or other property whose fair value, together with that of other dividends or distributions made within the preceding 12 months, exceeds the greater of (i) 10% of adjusted policyholders’ surplus (total statutory capital stock and statutory surplus less certain admitted deferred tax assets) as of December 31 of the preceding year, or (ii) the statutory net gain from operations of the insurer for the 12-month period ending December 31 of the preceding year. During 2009, the maximum amount legally available for distribution to FBL Financial Group, Inc., without further regulatory approval, from Farm Bureau Life is $38.2 million. EquiTrust Life cannot pay a dividend without regulatory approval in 2009 due to its unassigned surplus position at December 31, 2008. See Note 13 of our consolidated financial statements for additional details on the dividend limitation.

In addition, the Life Companies are subject to the risk-based capital (RBC) requirement of the NAIC set forth in the Risk-Based Capital for Insurers Model Act. The main purpose of the Model Act is to provide a tool for insurance regulators to evaluate the capital of insurers relative to the risks assumed by them and determine whether there is a need for possible corrective action. U.S. insurers and reinsurers are required to report the results of their RBC calculations as part of the statutory annual statements filed with state insurance regulatory authorities.

The Model Act provides for four different levels of regulatory actions based on annual statements, each of which may be triggered if an insurer’s total adjusted capital, as defined in the Model Act, is less than a corresponding RBC.

•

The company action level is triggered if an insurer’s total adjusted capital is less than 200% of its authorized control level RBC, as defined in the Model Act. At the company action level, the insurer must submit a plan to the regulatory authority that discusses proposed corrective actions to improve its capital position.

	•		The regulatory action level is triggered if an insurer’s total adjusted capital is less than 150% of its authorized control level RBC. At the regulatory action level, the regulatory authority will perform a special examination of the insurer and issue an order specifying corrective actions that must be followed.
	•		If an insurer’s total adjusted capital is less than its authorized control level RBC, the regulatory authority is authorized (although not mandated) to take regulatory control of the insurer.
	•		The mandatory control level is triggered if an insurer’s total adjusted capital is less than 70% of its authorized control level RBC, and at that level the regulatory authority must take regulatory control of the insurer. Regulatory control may lead to rehabilitation or liquidation of an insurer.

Failure to maintain adequate capital levels could lead to ratings downgrades and liquidity issues which could adversely affect our business and financial condition.

A significant ratings downgrade may have a material adverse effect on our business.

Ratings are an important factor in establishing the competitive position of insurance companies. If our ratings were lowered significantly, our ability to market products to new customers could be harmed and existing policyholders might cancel their policies or withdraw the cash values of their policies. These events, in turn, could have a material adverse effect on our net income (loss) and liquidity. A decline in ratings could also violate the covenants of our $60.0 million line of credit and negatively affect the availability and cost of capital of borrowed funds. Our ratings reflect the agencies’ opinions as to the financial strength, operating performance and ability to meet obligations to policyholders of our insurance company subsidiaries. There is no assurance that a credit rating will remain in effect for any given period of time or that a rating will not be reduced, suspended or withdrawn entirely by the applicable rating agency, if in the rating agency’s judgment, circumstances so warrant. See “Item 1. Business — Ratings and Competition” for a summary of our current ratings.

All segments of our business are highly regulated and these regulations or changes in them could affect our profitability.

We are subject to regulation under applicable insurance statutes, including insurance holding company statutes, in the various states in which our life subsidiaries operate. Insurance regulation is intended to provide safeguards for policyholders rather than to protect shareholders of insurance companies or their holding companies. Regulators oversee matters relating to sales practices, policy forms, claims practices, guaranty funds, types and amounts of investments, reserve adequacy, insurer solvency, minimum amounts of capital and surplus, transactions with related parties, changes in control and payment of dividends.

State insurance regulators and the NAIC continually reexamine existing laws and regulations, and may impose changes in the future.

As noted above, our life subsidiaries are subject to the NAIC’s RBC requirements which are used by insurance regulators as an early warning tool to identify deteriorating or weakly capitalized insurance companies for the purpose of initiating regulatory action. Our life subsidiaries also may be required, under solvency or guaranty laws of most states in which they do business, to pay assessments up to certain prescribed limits to fund policyholder losses or liabilities of other insolvent insurance companies.

Although the federal government does not directly regulate the insurance business, federal legislation and administrative policies in several areas, including pension regulation, age and sex discrimination, financial services regulation, securities regulation and federal taxation, can significantly affect the insurance business. As increased scrutiny has been placed upon the insurance regulatory framework, a number of state legislatures have considered or enacted legislative proposals that alter, and in many cases increase, state authority to regulate insurance companies and holding company systems. Legislation has been introduced in Congress in the past which could result in the federal government assuming some role in the regulation of the insurance industry. The regulatory framework at the state and federal level applicable to our insurance products is evolving and could affect the design of such products and our ability to sell certain products. Any changes in these laws and regulations could materially and adversely affect our business, financial condition or results of operations.

In 2008 the SEC approved its Rule 151A, which will change the federal law status of index annuities from insurance products to registered securities products. Various organizations within the life insurance industry are challenging this SEC action and are attempting to overturn this rule. Assuming this rule is enacted, its effective date is expected to be January 12, 2011. At that time, index annuities will be considered a type of security and all agents selling index annuities will be required to be registered representatives affiliated with a licensed broker dealer. As a result of this rule, we may incur increased costs and decreased production for our index annuities 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.

In addition, our investment management subsidiary is a federally registered investment adviser with the SEC. This subsidiary also manages investment companies (mutual funds) that are registered under the Investment Company Act, which places additional restrictions on its managers. Moreover, our separate accounts are registered as investment companies under the Investment Company Act. The investment companies we advise and our registered separate accounts are themselves highly regulated under the Investment Company Act. In addition, our broker/dealer subsidiary that distributes the shares of our managed investment companies’ separate accounts is a broker/dealer registered with the SEC and is subject to regulation under the Exchange Act and various state laws, and is a member of, and subject to regulation by, FINRA. The registered representatives of our broker/dealer subsidiary and of other broker/dealers who distribute our securities products are regulated by the SEC and FINRA and are further subject to applicable state laws. We cannot predict the effect that any proposed or future legislation or rule making by the SEC, FINRA or the states will have on our financial condition or operational flexibility.

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 adverse impact on our net income (loss).

The process of calculating reserve, deferred policy acquisition expense and deferred sales inducement amounts and pricing products for an insurance organization involves the use of a number of assumptions including those related to persistency (how long a contract stays with the company), mortality (the relative incidence of death in a given time or place) and interest rates (the rates expected to be paid or received on financial instruments, including insurance or investment contracts). Actual results could differ significantly from those assumed. Inaccuracies in one or more of these assumptions could have a material adverse impact on our results of operations.

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 and investment losses, which are more likely in a severe economic recession, will result in an acceleration of DAC amortization. In addition, significant or sustained equity and bond market declines could result in an acceleration of DAC amortization related to variable annuity and variable universal life contracts.

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.

Our earnings are significantly influenced by the claims paid under our insurance contracts and will vary from period to period depending upon the amount of claims incurred. There is only limited predictability of claims experience within any given quarter or year. The liability that we have established for future insurance and annuity policy benefits is based on assumptions concerning a number of factors, including interest rates, expected claims,

persistency and expenses. In the event our future experience does not match our pricing assumptions or our past results, our operating results could be materially adversely affected.

We assumed a significant amount of closed block business through coinsurance agreements and have only a limited ability to manage this business.

We have assumed through coinsurance agreements a substantial block of annuity business written by American Equity and certain traditional life, universal life and annuity business written by EMCNL. Our ability to manage the products covered by the coinsurance arrangements is limited and we can make no assurances that our coinsurance counterparties will make decisions regarding the operations of the business covered by the coinsurance agreements in the same manner that we would or in a manner that would have a positive impact on the business covered by the coinsurance arrangements. In addition, we rely on American Equity and EMCNL to supply us with accurate financial and accounting data relating to the business coinsured.

Our reinsurance program involves risks because we remain liable with respect to the liabilities ceded to reinsurers if the reinsurers fail to meet the obligations assumed by them.

We reinsure a portion of our life insurance exposure with unaffiliated insurance companies under traditional indemnity reinsurance agreements. New sales of participating whole life and universal life products are reinsured above prescribed limits and do not require the reinsurer’s prior approval within certain guidelines. New sales of certain term life products are reinsured on a first dollar quota share basis and do not require the reinsurer’s prior approval within various guidelines. Generally, we enter into indemnity reinsurance arrangements to assist in diversifying our risks and to limit our maximum loss on risks that exceed our policy retention limits. Our maximum retention limit on an insured life ranges up to $1.1 million depending upon when the policy was issued.

Indemnity reinsurance does not fully discharge our obligation to pay claims on the reinsured business. As the ceding insurer, we remain responsible for policy claims to the extent the reinsurer fails to pay claims. Should any reinsurer fail to meet the obligations assumed under such reinsurance, we remain liable for these liabilities, 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.

Our business is highly dependent on our relationships with Farm Bureau organizations and would be adversely affected if those relationships became impaired.

Farm Bureau Life’s business relies significantly upon the maintenance of our right to use the “Farm Bureau” and “FB” trade names and related trademarks and service marks which are controlled by the American Farm Bureau Federation. See discussion under “Business — Marketing and Distribution — Affiliation with Farm Bureau” for information regarding this relationship and circumstances under which our access to the Farm Bureau membership base and use of the “Farm Bureau” and “FB” designations could be terminated. We believe our relationship with the Farm Bureau provides a number of advantages. Farm Bureau organizations in our current territory tend to be well known and long established, have active memberships and provide a number of member benefits other than financial services. The strength of these organizations provides enhanced prestige and brand awareness for our products and increased access to Farm Bureau members. The loss of the right to use these designations in a key state or states could have a material adverse effect upon operating results.

Our relationship with Farm Bureau organizations could result in conflicts of interests.

Our business and operations are interrelated to a degree with that of the American Farm Bureau Federation, its affiliates, and state Farm Bureaus. The overlap of the business, including service of certain common executive officers and directors of the Company and the state Farm Bureau organizations, may give rise to conflicts of interest among these parties. Conflicts could arise, for example, with respect to business dealings among the parties, the use of a common agency force, the sharing of employees, space and other services and facilities under intercompany agreements, and the allocation of business opportunities between them. Conflicts of interest could also arise between the Company and the various state Farm Bureau organizations in our life-only states, some of whose presidents serve as directors of the Company, and which control their state affiliated property-casualty insurance company, with respect to the use of the common agency force. We have adopted a conflict of interest policy which requires a director to disclose to the Board of Directors and any appropriate committee of the Board, the existence of

any transaction or proposed transaction in which the Director has a direct or indirect interest, and the material facts relating thereto. In addition, a majority of our directors are independent and our Audit and Compensation and Governance committees are all comprised solely of independent directors.

Changes in federal tax laws may affect sales of our products and profitability.

The annuity and life insurance products that we market generally offer tax advantages to the policyholders, as compared to other savings instruments such as certificates of deposit and taxable bonds. Tax preferences include the deferral of income tax on the earnings during the accumulation period of the annuity or insurance policy as opposed to the current taxation of other savings instruments and the tax-free status of death benefit proceeds. In addition, life insurance companies receive a tax deduction for dividends received by separate accounts.

Legislation eliminating this tax deferral and dividends received deduction could have a material adverse effect on our ability to sell life insurance and annuities. Congress has from time to time considered legislation which would reduce or eliminate the benefits to policyholders of the deferral of taxation on the growth of value within certain insurance products or might otherwise affect the taxation of insurance products and insurance companies relative to other investments. To the extent that the Internal Revenue Code of 1986, as amended, is revised to reduce the tax-deferred status of insurance products, or to reduce the taxation of competing products, our financial position and results of operations could be adversely affected.

Our ability to maintain competitive costs is dependent upon the level of new sales and persistency of existing business.

Maintaining competitive costs depends upon numerous factors, including the level of new sales, persistency of existing business and expense management. A decrease in sales or persistency without a corresponding reduction in expenses could affect our business and results of operations.

If we are unable to attract and retain agents and develop new distribution sources, sales of our products and services may be reduced.

We compete to attract and retain exclusive agents for Farm Bureau Life and independent agents for EquiTrust Life. Intense competition exists for persons and independent distributors with demonstrated ability. We compete primarily on the basis of our products, compensation, support services, rating agency ratings and financial position. Sales and our results of operations and financial condition could be materially adversely affected if we are unsuccessful in attracting and retaining agents and additional distribution sources for our products.

Attracting and retaining employees who are key to our business is critical to our growth and success.

The success of our business is dependent, to a large extent, on our ability to attract and retain key employees. Competition is generally intense in the job market for certain positions, such as actuaries and other insurance professionals with demonstrated ability, particularly in our headquarters city of West Des Moines, Iowa, where we compete with other insurance and financial institutions.

Although we have change in control agreements with members of our management team, we do not have employment contracts with any of them. In general, our employees are not subject to employment contracts. Although none of our executive management team has indicated that they intend to terminate their employment, there can be no certainty regarding the length of time they will remain with us. Our inability to retain our key employees, or attract and retain additional qualified employees, could materially adversely affect our sales, results of operations and financial condition.

Success of our business depends in part on effective information technology systems and on continuing to develop and implement improvements.

Our business is dependent upon the ability to keep up to date with effective, secure and advanced technology systems for interacting with employees, agents, policyholders, vendors, agents, third parties and investors. It is crucial to our business to reach a large number of people, provide sizeable amounts of information, and secure and store information through our technology systems. If we do not maintain adequate systems to reflect technological

advancements, we could experience adverse consequences, including inadequate information on which to base pricing, underwriting and reserving decisions, regulatory problems, litigation exposure or increases in administrative expenses. This could adversely affect our relationships and ability to do business with our clients and provide difficulty attracting new customers.

Some of our information technology systems and software are older legacy-type systems and require an ongoing commitment of resources to maintain current standards. Our business strategy involves providing customers with easy-to-use products and systems to meet their needs. We are continuously enhancing and updating our systems to keep pace with changes in information processing technology, evolving industry and regulatory standards and customer demands. Our success is in large part dependent on maintaining and enhancing the effectiveness of existing systems, as well as continuing to develop and enhance information systems that support our business processes in a cost-effective manner.

In the event of a disaster or catastrophic event, a computer system or information technology failure could occur and potentially disrupt our business, damage our reputation and adversely affect our profitability. Disruptions or breaches could occur as a result of natural disasters, manmade disasters, epidemic/pandemic, industrial accident, blackout, computer virus, criminal activity, technological changes or events, terrorism, or other unanticipated events beyond our control. While the company has obtained insurance and has implemented a variety of preventative security measures such as risk management, disaster recovery and business continuity plans, no predictions of specific scenarios can be made. Unanticipated problems with our business continuity systems and plans could have a material adverse impact on our ability to conduct business and on our results of operations and financial position, particularly if those problems affect our computer-based processing, transmission, storage and retrieval systems and destroy valuable data.

We experience volatility in net income (loss) due to accounting standards for derivatives.

Under Statement of Financial Accounting Standards (Statement) No. 133, as amended, derivative instruments (including certain derivative instruments embedded in other contracts) not designated as hedges are recognized in the balance sheet at their fair values and changes in fair value are recognized immediately in earnings. This impacts the items of revenue and expense we report in the following ways.

	•		We must mark to market the purchased call options we use to fund the index credits on our index annuities based upon quoted market prices from related counterparties. We record the change in fair value of these options as a component of our revenues. Included within the change in fair value of the options is an element reflecting the time value of the options, which initially is their purchase cost declining to zero at the end of their lives. The change in the difference between fair value and remaining option cost at beginning and end of year totaled ($109.7) million in 2008, ($51.1) million in 2007 and $75.7 million in 2006.
	•		Under Statement No. 133, the future annual index credits on our index annuities are treated as a “series of embedded derivatives” over the expected life of the applicable contracts. We are required to estimate the fair value of these embedded derivatives. Our estimates of the fair value of these embedded derivatives are based on assumptions related to underlying policy terms (including annual cap rates, participation rates, asset fees and minimum guarantees), index values, notional amounts, strike prices and expected lives of the contracts. The change in fair value of embedded derivatives increases with increases in volatility in the indices and changes in interest rates. We record the change in fair value of embedded derivatives as a component of our benefits and expenses. However, it will not correspond to the change in fair value of the purchased call options because the purchased options 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, which typically exceeds 10 years. Changes in the value of the embedded derivatives included in the index annuity contracts totaled ($189.4) million in 2008, ($5.9) million in 2007 and $70.3 million in 2006.
	•		Changes in the fair value of interest rate swaps backing our annuity liabilities are recorded in derivative income (loss) and totaled ($1.4) million in 2008 and ($4.8) million in 2007. Prior to April 2007, changes in the fair value of these swaps were recorded as a component of the change in accumulated other

comprehensive income (loss). Amounts recorded in accumulated other comprehensive income (loss) as of March 31, 2007, are being amortized over the remaining life of the swap. These amounts totaled ($1.1) million in 2008, ($3.8) million in 2007 and ($1.2) million in 2006.

	•		We adjust the amortization of deferred policy acquisition costs and deferred sales inducements to reflect the impact of the three items discussed above.
	•		Our earnings are also affected by the changes in the value of the embedded derivatives in convertible fixed maturity securities and modified coinsurance contracts. Changes in the value of these embedded derivatives totaled $0 in 2008, less than ($0.1) million in 2007 and ($0.2) million in 2006.

The application of Statement No. 133 to our derivatives and embedded derivatives may cause volatility in our results of operations.

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.

We are occasionally involved in litigation, both as a defendant and as a plaintiff. In addition, state regulatory bodies, such as state insurance departments, the SEC, FINRA, the Department of Labor and other regulatory bodies regularly make inquiries and conduct examinations or investigations concerning our compliance with, among other things, insurance laws, securities laws, the Employee Retirement Income Security Act of 1974 and laws governing the activities of broker-dealers. Companies in the life insurance and annuity business have faced litigation, including class action lawsuits, alleging improper product design, improper sales practices and similar claims. Moreover, we are subject to the risks of errors and misconduct by our affiliated agents, such as fraud, non-compliance with policies and recommending transactions that are not suitable. While we are not a party to any lawsuit that we believe will have a material adverse effect on our business, financial condition or results of operations, there can be no assurance that such litigation, or any future litigation, will not have such an effect, whether financially, through distraction of our management or otherwise.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Our principal operations are conducted from property leased from a subsidiary of the Iowa Farm Bureau Federation under a 15 year operating lease that expires in 2013. The property leased currently consists primarily of approximately 182,000 square feet of a 400,000 square foot office building in West Des Moines, Iowa. Operations related to our EquiTrust Life independent distribution are conducted from approximately 26,000 square feet of another office building in West Des Moines, Iowa, which is leased through 2016. We consider the current facilities to be adequate for the foreseeable future.

ITEM 3. LEGAL PROCEEDINGS

We are a party to lawsuits arising in the normal course of business. We believe the resolution of these lawsuits will not have a material adverse effect on our financial condition or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

ITEM 5.		MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, ISSUER PURCHASES OF EQUITY SECURITIES AND SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

Stock Market and Dividend Information

The Class A common stock of FBL Financial Group, Inc. is traded on the New York Stock Exchange under the symbol FFG. The following table sets forth the cash dividends per common share and the high and low prices of FBL Financial Group Class A common stock as reported in the consolidated transaction reporting system for each quarter of 2008 and 2007.

Class A Common Stock Data (per share)		1st Qtr.				2nd Qtr.				3rd Qtr.				4th Qtr.
2008
High		$	35.21			$	30.05			$	34.86			$	27.47
Low			26.07				17.17				18.39				6.53
Dividends declared and paid		$	0.125			$	0.125			$	0.125			$	0.125
2007
High		$	41.53			$	40.61			$	40.50			$	42.50
Low			36.58				36.89				30.33				33.98
Dividends declared and paid		$	0.120			$	0.120			$	0.120			$	0.120

There is no established public trading market for our Class B common stock. As of February 10, 2009, there were approximately 6,600 holders of Class A common stock, including participants holding securities under the name of a broker (i.e., in “street name”), and 24 holders of Class B common stock.

Class B common stockholders receive dividends at the same rate as that declared on Class A common stock. We intend to declare regular quarterly cash dividends in the future, subject to the discretion of the Board of Directors, which depends in part upon general business conditions, legal restrictions and other factors the Board of Directors deems relevant. It is anticipated the quarterly dividend rate during 2009 will be up to $0.125 per common share.

For restrictions on dividends, see “Management’s Discussion and Analysis of Financial Condition and Results of Operation — Liquidity and Capital Resources” and Notes 1 and 13 to the consolidated financial statements.

Comparison of Five-Year Total Return

				Period Ending
				12/31/03					12/31/04					12/31/05					12/31/06					12/31/07					12/31/08
	FBL Financial Group, Inc.			$	100.00				$	112.28				$	130.91				$	158.00				$	141.40				$	64.97
	S&P 500 Index				100.00					110.88					116.33					134.70					142.10					89.53
	S&P 500 Life & Health Insurance Index				100.00					122.14					149.65					174.36					193.53					100.02

The performance graph shows a comparison of the cumulative total return over the past five years of our Class A common stock, the S&P 500 Index and the S&P 500 Life and Health Insurance Index. The graph plots the changes in value of an initial $100 investment, assuming reinvestment of dividends.

Issuer Purchases of Equity Securities

We did not have any issuer purchases of equity securities for the quarter ended December 31, 2008.

Securities Authorized for Issuance Under Equity Compensation Plans

The following table provides information about our Class A common stock that may be issued upon the exercise of options, warrants and rights, or granted as restricted stock, under our existing equity compensation plans, as of December 31, 2008. These plans include a stock compensation plan, a deferred compensation plan for executives and a deferred compensation plan for directors. Details regarding these plans can be found in Notes 1 and 9 to the consolidated financial statements.

(c) Number of Securities

Remaining

(a) Number

Available for

of Securities

(b) Weighted

Future Issuance

to be Issued

Average

Under Equity

Upon

Exercise Price

Compensation

Exercise of

of

Plans

Outstanding

Outstanding

(Excluding

(d) Total of

Options,

Options,

Securities

Securities in

Warrants

Warrants and

Reflected in

Columns (a)

Plan Category

and Rights

Rights

Column (a))

and (c)

Equity compensation plans approved by shareholders:

Stock compensation plan (1)

2,662,425

$

28.68

3,788,923

6,451,348

Director’s deferred compensation plan

60,825

35,250

96,075

Executive deferred compensation plan

31,843

217,094

248,937

Total

2,755,093

4,041,267

6,796,360

Equity compensation plans not approved by shareholders:

None

None

None

Employer match deferred compensation plan

5,769

–

5,769

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

		As of or for the year ended December 31,
		2008				2007(2)				2006				2005				2004
		(Dollars in thousands, except per share data)
Consolidated Statement of Income Data
Interest sensitive and index product charges		$	127,199			$	114,529			$	105,033			$	96,258			$	89,925
Traditional life insurance premiums			149,186				144,682				138,401				134,618				131,865
Net investment income			707,872				628,031				535,836				475,443				416,081
Derivative income (loss)			(208,793	)			(4,951	)			70,340				(2,800	)			15,607
Realized/unrealized gains (losses) on investments			(156,309	)			5,769				13,971				2,961				8,175
Total revenues			644,465				914,599				887,353				728,148				682,602
Net income (loss)			(18,149	)			86,339				90,129				72,842				66,076
Per common share:
Earnings			(0.61	)			2.90				3.06				2.51				2.31
Earnings – assuming dilution			(0.61	)			2.84				3.01				2.47				2.26
Cash dividends			0.50				0.48				0.46				0.42				0.40
Weighted average common shares outstanding — assuming dilution			29,893,909				30,321,617				29,904,624				29,414,988				29,140,890
Consolidated Balance Sheet Data
Total investments		$	10,854,059			$	11,067,070			$	9,782,626			$	8,299,208			$	7,501,680
Assets held in separate accounts			577,420				862,738				764,377				639,895				552,029
Total assets			14,060,814				13,927,859				12,154,012				10,153,933				9,100,736
Long-term debt			371,005				316,930				218,399				218,446				217,183
Total liabilities			13,802,353				13,024,877				11,273,154				9,309,538				8,267,934
Total stockholders’ equity (1)			258,365				902,891				880,720				844,231				832,611
Book value per common share (1)			8.46				29.98				29.59				28.88				28.87

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

When reading the following Management’s Discussion and Analysis of Financial Condition and Results of Operations, please refer to our consolidated financial statements and related notes included in Item 8, “Financial Statements and Supplementary Data,” of this report. 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).

In this discussion and analysis, we explain our consolidated results of operations, financial condition and where appropriate, factors that management believes may affect future performance, including:

	•		factors which affect our business,
	•		our revenues and expenses in the periods presented,
	•		changes in revenues and expenses between periods,
	•		sources of earnings and changes in shareholders’ equity,
	•		impact of these items on our overall financial condition and
	•		expected sources and uses of cash.

We have organized our discussion and analysis as follows:

	•		First, we discuss our business and drivers of profitability.
	•		We then describe the business environment in which we operate including factors that affect operating results.
	•		We highlight significant events that are important to understanding our results of operations and financial condition.
	•		We then review the results of operations beginning with an overview of the total company results, followed by a more detailed review of those results by operating segment.
	•		We review our financial condition addressing investment portfolio, market risks, sources and uses of cash, capital resources and requirements and commitments.
	•		Finally, we discuss critical accounting policies and recently issued accounting standards. The critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations and require management’s most difficult or complex judgment.

Overview and Profitability

We sell individual life insurance and annuity products through an exclusive distribution channel and individual annuity products through independent agents and brokers. Our exclusive agency force consists of 1,962 Farm Bureau agents and managers operating in the Midwestern and Western sections of the United States. Our independent channel, which we began in 2003, consists of 19,098 agents and brokers operating throughout the United States. In addition to writing direct insurance, we assume business through various coinsurance agreements. Several subsidiaries support various functional areas of the Life Companies and other affiliates, by providing investment advisory, marketing and distribution, and leasing services. In addition, we manage two Farm Bureau affiliated property-casualty companies.

Our profitability is primarily a factor of:

•		The volume of our life insurance and annuity business in force, which is driven by the level of our sales and the persistency of the business written.
•		The amount of spread (excess of net investment income earned over interest credited/option costs) we earn on contract holders’ general account balances.
•		The amount of fees we earn on contract holders’ separate account balances.
•		Our ability to price our life insurance products to earn acceptable margins over the cost of providing benefits and the expenses of acquiring and administering the products. Competitive conditions, mortality experience, persistency, investment results and our ability to maintain expenses in accordance with pricing assumptions

		drive our margins on the life products. On many products, we have the ability to mitigate adverse experience through adjustments to credited interest rates, policyholder dividends or cost of insurance charges.
•		Our ability to manage our investment portfolio to maximize investment returns while providing adequate liquidity for obligations to policyholders and minimizing the risk of defaults or impairments of invested assets.
•		Our ability to manage the level of our operating expenses.
•		Actual experience and changes in assumptions for expected surrender and withdrawal rates, mortality, and spreads used in the amortization of deferred policy acquisition expense and deferred sales inducement amounts.
•		Changes in fair values of derivatives and embedded derivatives relating to our index annuity business.

Impact of Recent Business Environment

The financial markets experienced stress during the second half of 2007, which continued and significantly increased during 2008 and into 2009. The volatility and disruption in the financial markets have reached unprecedented levels, causing the availability and cost of credit to be 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 a severe recession. These economic conditions did not negatively impact our sales in 2008. However, an economic downturn characterized by higher unemployment, lower family income, lower consumer spending, lower corporate earnings and lower business investment may adversely impact the demand for our products in the future. We also may experience a higher incidence of claims, lapses or surrenders of policies. 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.

The fixed income markets are experiencing a period of 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. These volatile market conditions have also increased the difficulty of valuing certain securities as trading is less frequent and/or market data is less observable. There were certain securities that were in active markets with significant observable data that became illiquid due to the current financial environment or market conditions. As a result, certain valuations require greater estimation and judgment as well as valuation methods which are more complex. These values may not ultimately be realizable in a market transaction, and such values may change very rapidly as market conditions change and valuation assumptions are modified.

The volatile and illiquid market conditions increased levels of credit spreads (difference between bond yields and risk-free interest rates) on fixed maturity securities during 2008. While the increase in credit spreads generated a steeper yield curve making our annuity products more attractive to investors, it also caused a significant reduction in the carrying value of our investments, negatively impacting our financial condition and reported book value per share. These conditions also caused us to hold a higher amount of cash and short-term investments in order to maintain a more liquid position during uncertain times.

Our fixed annuity products contain features that allow contract holders to surrender a policy. To encourage persistency, we impose a surrender charge against the account balance for early termination of a contract within a specified period after its effective date. Most of the fixed annuity products sold by the EquiTrust Life independent channel offer a market value adjustment feature which is based on U.S. Treasury rates. This feature provides us interest rate protection when U.S. Treasury interest rates are greater than the rates in effect when a contract is issued and provides a benefit to contract holders when U.S. Treasury interest rates are less than the rates in effect when a contract is issued. Late in 2008 and continuing into early 2009, market conditions emerged with unprecedented low U.S. Treasury yields providing an environment where contract holders were able to surrender with smaller net surrender charges, increasing the level of surrender activity. The unanticipated increase in surrenders required us to update assumptions in the models used to calculate amortization of deferred acquisition costs and deferred sales inducements, which negatively impacted our results of operations in the fourth quarter of 2008.

We maintain certain capital levels in accordance with statutory and rating agency requirements. Fixed annuity products generally place a strain on statutory capital when sold and add to capital in subsequent years. As a result of the significant growth of the EquiTrust Life independent distribution channel business, our need for capital has increased in recent years. In addition, our capital levels were negatively impacted during 2008 as a result of realized

losses on our investments due to the downturn in economic activity, increased level of credit spreads and limited liquidity conditions. In 2008, we incurred additional debt to assist with our capital requirements and provide additional liquidity. During the last half of 2008, we also took rate and other actions to reduce sales of new fixed rate annuity contracts at EquiTrust Life and are evaluating the terms and conditions for future products to preserve our capital position. See the “Liquidity and Capital Resources” section below for additional details regarding our capital position.

Results of Operations for the Three Years Ended December 31, 2008

		Year ended December 31,
		2008				2007				2006
		(Dollars in thousands, except per share data)
Revenues		$	644,465			$	914,599			$	887,353
Benefits and expenses			676,343				788,793				753,865
			(31,878	)			125,806				133,488
Income taxes			13,662				(41,051	)			(44,368	)
Minority interest and equity income			67				1,584				1,009
Net income (loss)		$	(18,149	)		$	86,339			$	90,129
Earnings (loss) per common share		$	(0.61	)		$	2.90			$	3.06
Earnings (loss) per common share – assuming dilution		$	(0.61	)		$	2.84			$	3.01
Other data
Direct premiums collected, net of reinsurance ceded:
Traditional Annuity – Exclusive Distribution		$	249,039			$	126,849			$	140,279
Traditional Annuity – Independent Distribution			1,565,255				1,569,128				1,808,482
Traditional and Universal Life Insurance			191,932				185,904				175,185
Variable Annuity and Variable Universal Life (1)			136,971				181,309				154,651
Reinsurance assumed and other			13,672				15,238				17,604
Total		$	2,156,869			$	2,078,428			$	2,296,201
Direct life insurance in force, end of year (in millions)		$	43,513			$	41,092			$	38,372
Life insurance lapse rates			6.4	%			6.1	%			6.5	%
Withdrawal rates – individual traditional annuity:
Exclusive Distribution			3.9	%			5.2	%			5.1	%
Independent Distribution			7.8	%			5.5	%			5.1	%

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 segment increased in 2008 primarily due to lower short-term market interest rates making certificates of deposits and other short-term investments less attractive in relation to our traditional fixed annuity products. Direct premiums collected in the Traditional Annuity — Independent Distribution segment decreased in 2008 as a result of rate and other actions taken to preserve capital in the second half of 2008, partially offset by a more favorable market environment for traditional annuity products. Direct premiums collected in the Traditional Annuity — Independent Distribution segment decreased in 2007, primarily due to a more favorable market environment during 2006 for the sale of our multi-year guaranteed annuity product combined with a competitive environment for index annuity sales in 2007. We also took actions to further increase the profitability of our products in 2007. Variable premiums collected tend to vary with volatility, performance of and confidence level in the equity markets as well as crediting and interest rates on competing products, including fixed rate annuities and bank-offered certificates of deposit.

The increase in the withdrawal rate for the Independent Distribution segment in 2008 is primarily due to the impact of low U.S. Treasury yields on the market value adjustment feature for our direct fixed annuity products, which

provided an environment where contract holders could surrender with smaller net surrender charges. See additional details on this feature in the “Market Risk of Financial Instruments” section that follows. We also believe aging of the business in force relating to the annuity business assumed under coinsurance agreements and business written directly through the EquiTrust Life independent agents is driving a portion of the increase in withdrawal rates as the surrender 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.

Net income (loss)

Net income (loss) decreased 121.0% in 2008 to ($18.1) million and decreased 4.2% in 2007 to $86.3 million. As discussed in detail below, net income (loss) decreased in 2008 primarily due to realized losses on investments, the impact of changes in the assumptions used to amortize deferred policy acquisition costs and deferred sales inducements and an increase in death benefits. Net income decreased in 2007 due to the impact of changes in unrealized gains and losses on derivatives and a decrease in realized gains on investments, partially offset by the impact of growth in the volume of business in force and decrease in death benefits. 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 following discussion provides additional details on the items impacting net income (loss).

Spreads Earned on our Universal Life and Individual Traditional Annuity Products

		Year ended December 31,
		2008				2007				2006
Weighted average yield on cash and invested assets			6.18	%			6.13	%			6.23	%
Weighted average interest crediting rate/index cost			3.94	%			3.72	%			3.63	%
Spread			2.24	%			2.41	%			2.60	%

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 and 2006 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 and 2007 partially due a shift in the mix of direct business to products with a lower spread target and a decrease in spread earned on assumed business. In addition, in 2008 we had a decrease in prepayment fee income. We also retained a higher amount of cash and short-term investments due to the volatile financial markets limiting the availability of high quality fixed maturity securities and our desire to maintain a more liquid position during uncertain economic times. See the “Segment Information” section that follows for further discussion of our spreads.

Impact of Unlocking on Pre-tax Income

		Year ended December 31,
		2008				2007				2006
		(Dollars in thousands except per share data)
Amortization of deferred policy acquisition costs		$	(14,957	)		$	942			$	1,570
Amortization of deferred sales inducements			(14,437	)			1,134				146
Amortization of value of insurance in force acquired			(265	)			(1,276	)			(405	)
Amortization of unearned revenues			316				405				332
Increase (decrease) to pre-tax income		$	(29,343	)		$	1,205			$	1,643
Impact per common share (basic and diluted), net of tax		$	(0.64	)		$	0.03			$	0.04

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 models for assumptions relating to the significant increase to surrender and withdrawal rates late in 2008 and into 2009 on annuities sold through our independent distribution channel, as discussed above in the “Impact of Recent Business Environment” section. These assumption changes resulted in an unlocking adjustment which totaled $29.6 million in the fourth quarter of 2008. See the “Segment Information” section that follows for additional discussion of our unlocking adjustments.

Impact of Operating Adjustments on Net Income (Loss)

As noted in the “Segment Information” section that follows, we use both net income (loss) and operating income to measure our operating results. Operating income for the years covered by this report equals net income (loss), excluding the impact of: (1) realized gains and losses on investments, (2) the change in net unrealized gains and losses on derivatives, (3) the cumulative effect of change in accounting principles and (4) a lawsuit settlement. The rationale for excluding these items from operating income is explained in the “Segment Information” section that follows and Note 14 to our consolidated financial statements.

		Year ended December 31,
		2008				2007				2006
		(Dollars in thousands)
Realized/unrealized gains (losses) on investments		$	(156,309	)		$	5,769			$	13,971
Change in net unrealized gains/losses on derivatives			75,652				(49,361	)			4,574
Change in amortization of:
Deferred policy acquisition costs			(4,255	)			16,856				(1,561	)
Deferred sales inducements			(19,966	)			12,895				(1,409	)
Value of insurance in force acquired			820				12				54
Unearned revenue reserve			(158	)			(16	)			(1	)
Cumulative effect of change in accounting principle			—				(283	)			—
Lawsuit settlement			—				—				(4,880	)
Income tax offset			36,475				4,846				(3,762	)
Net impact of operating income adjustments		$	(67,741	)		$	(9,282	)		$	6,986
Summary of adjustments noted above after offsets and income taxes:
Realized/unrealized gains (losses) on investments		$	(79,542	)		$	4,501			$	9,222
Change in net unrealized gains/losses on derivatives			11,801				(13,500	)			936
Cumulative effect of change in accounting principle			—				(283	)			—
Lawsuit settlement			—				—				(3,172	)
Net impact of operating income adjustments		$	(67,741	)		$	(9,282	)		$	6,986
Net impact per common share – basic		$	(2.27	)		$	(0.31	)		$	0.24
Net impact per common share – assuming dilution		$	(2.27	)		$	(0.31	)		$	0.23

Changes in Net Income (Loss)

Net income (loss) totaled ($18.1) million in 2008, $86.3 million in 2007 and $90.1 million in 2006. A detailed discussion of changes in net income (loss) is included below.

		Year ended December 31,
		2008 vs. 2007				2007 vs. 2006
Premiums and product charges		$	17,174			$	15,777
Net investment income			79,841				92,195
Derivative income (loss)			(203,842	)			(75,291	)
Realized/unrealized gains (losses) on investments			(162,078	)			(8,202	)
Other income and other expenses			(1,573	)			642
Interest sensitive and index products benefits and change in value of index product embedded derivative			185,561				(27,510	)
Traditional life insurance policy benefits			(10,293	)			(3,069	)
Underwriting, acquisition and insurance expenses			(59,573	)			2,698
Interest expense			(2,901	)			(4,922	)
Income taxes			54,713				3,317
Minority interest and equity income			(1,517	)			575
Total change in net income (loss)		$	(104,488	)		$	(3,790	)

Premiums and Product Charges

		Year ended December 31,
		2008				2007				2006
		(Dollars in thousands)
Premiums and product charges:
Interest sensitive and index product charges		$	127,199			$	114,529			$	105,033
Traditional life insurance premiums			149,186				144,682				138,401
Total		$	276,385			$	259,211			$	243,434

Premiums and product charges increased 6.6% in 2008 to $276.4 million and 6.5% in 2007 to $259.2 million. The increases in interest sensitive and index product charges in 2008 and 2007 are principally driven by surrender charges on annuity and universal life products and cost of insurance charges on variable universal life and universal life products.

Surrender charges totaled $33.6 million in 2008, $23.4 million in 2007 and $18.3 million in 2006. Surrender charges increased primarily due to an increase in surrenders relating to the impact of market value adjustments on certain products sold by our EquiTrust Life independent distribution, as discussed in the “Impact of Recent Business Environment” section above, and also due to growth in the volume and aging of business in force.

Surrender Charges on EquiTrust Life Direct Fixed Annuity Contracts

		Year ended December 31,
		2008				2007				2006
		(Dollars in thousands)
Surrender charges:
Gross surrender charges		$	37,519			$	8,792			$	3,538
Market value adjustments			(15,537	)			1,145				879
Net surrender charges		$	21,982			$	9,937			$	4,417

The average aggregate account value for annuity and universal life insurance in force, which increased due to increases in premiums collected as summarized in the “Other data” table above, totaled $9,715.4 million for 2008, $8,428.8 million for 2007 and $6,861.7 million for 2006. We believe aging of the business in force is also driving a portion of the increase in surrender charges relating to the annuity business assumed under coinsurance agreements and business written directly through the EquiTrust Life independent agents as the surrender 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 coinsurance agreements in 2001 and started selling annuities directly through EquiTrust Life independent agents in the fourth quarter of 2003. Net surrender charges on this coinsurance and direct business totaled $30.5 million for 2008, $20.5 million for 2007 and $15.6 million for 2006.

Cost of insurance charges totaled $68.0 million in 2008, $65.3 million in 2007 and $63.8 million in 2006. 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, and sales of our new universal life secondary guarantee product introduced in 2008. The average age of our universal life and variable universal life policyholders was 46.0 years in 2008, 45.4 years in 2007 and 45.0 years in 2006.

Traditional premiums increased in 2008 and 2007 due to an increase in the volume of business in force. 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 $22,060.9 million for 2008, $20,089.8 million for 2007 and $18,294.4 million for 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

Net investment income, which excludes investment income on separate account assets relating to variable products, increased 12.7% in 2008 to $707.9 million and increased 17.2% in 2007 to $628.0 million. These increases are primarily due to increases in average invested assets. Average invested assets increased 13.5% to $11,835.2 million (based on securities at amortized cost) in 2008 and 18.2% to $10,430.4 million in 2007. Average invested assets totaled $8,822.7 million in 2006. The increase in average invested assets in 2008 and 2007 is principally due to net premium inflows from the Life Companies and proceeds from borrowings in March 2007 and the last half of 2008.

Net investment income was impacted by fee income from bond calls, tender offers and mortgage loan prepayments, which totaled $2.8 million in 2008, $10.1 million in 2007 and $8.9 million in 2006. Net investment income also includes less than $0.1 million in 2008, ($1.3) million in 2007 and $0.1 million in 2006 representing the acceleration (reversal) of net discount accretion on mortgage and asset-backed securities resulting from changing prepayment speed assumptions at 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.

The annualized yield earned on average invested assets decreased to 6.17% in 2008 from 6.19% in 2007 and 6.25% in 2006. The decrease in yield earned in 2008 is primarily due to the reduction in fee income described above and an increase in the level of cash and short-term investments we retained due to the volatile financial markets limiting the availability of high quality fixed maturity securities and our desire to maintain a more liquid position during uncertain economic times. Market conditions also impacted the investment portfolio yields based on the level of market investment rates for new acquisitions compared to our average portfolio yield or the yield on investments maturing or being paid down. The average yields on fixed maturity securities purchased were 6.32% for 2008, 6.11% for 2007 and 6.04% for 2006. The average yields on fixed maturity securities maturing or being paid down were 6.13% for 2008, 6.59% for 2007 and 6.62% for 2006.

Derivative Income (Loss)

		Year ended December 31,
		2008				2007				2006
		(Dollars in thousands)
Derivative income (loss):
Components of derivative income (loss) from call options:
Gains received at expiration		$	36,280			$	156,378			$	67,919
Change in the difference between fair value and remaining option cost at beginning and end of year			(109,727	)			(51,087	)			75,655
Cost of money for call options			(128,514	)			(108,379	)			(73,070	)
			(201,961	)			(3,088	)			70,504
Other			(6,832	)			(1,863	)			(164	)
Total		$	(208,793	)		$	(4,951	)		$	70,340