UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2009

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

For the transition period from _________ to _________

FBL Financial Group, Inc.

(Exact name of registrant as specified in its charter)

Iowa		42-1411715
(State of incorporation)		(I.R.S. Employer Identification No.)

5400 University Avenue, West Des Moines, Iowa		50266-5997
(Address of principal executive offices)		(Zip Code)

(515) 225-5400

(Registrant’s telephone number, including area code)

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

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

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

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

Large accelerated filer o

Accelerated filer þ

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

Smaller reporting company o

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

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

Title of each class		Outstanding at May 6, 2009
Class A Common Stock, without par value		29,218,427
Class B Common Stock, without par value		1,192,990

 

 

FBL FINANCIAL GROUP, INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2009
TABLE OF CONTENTS

PART I.       FINANCIAL INFORMATION
Item 1.            Financial Statements (Unaudited)
Consolidated Balance Sheets			2
Consolidated Statements of Operations			4
Consolidated Statements of Changes in Stockholders’ Equity			5
Consolidated Statements of Cash Flows			6
Notes to Consolidated Financial Statements			8
Item 2.            Management’s Discussion and Analysis of Financial Condition and Results of Operations			23
Item 3.            Quantitative and Qualitative Disclosures About Market Risk			54
Item 4.            Controls and Procedures			54
PART II.       OTHER INFORMATION
Item 6.            Exhibits			55
SIGNATURES			56
EX-3.II.C
EX-10.11
EX-10.26
EX-10.27
EX-10.28
EX-10.29
EX-31.1
EX-31.2
EX-32

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

		March 31,				December 31,
		2009				2008
Assets
Investments:
Fixed maturities — available for sale, at market (amortized cost: 2009 - $10,453,306; 2008 - $10,505,084)		$	8,881,526			$	8,965,443
Equity securities — available for sale, at market (cost:
2009 - $61,260; 2008 - $51,958)			44,953				44,863
Mortgage loans on real estate			1,362,146				1,381,854
Derivative instruments			15,755				12,933
Investment real estate			2,559				2,559
Policy loans			183,423				182,421
Other long-term investments			1,581				1,527
Short-term investments			383,183				262,459
Total investments			10,875,126				10,854,059
Cash and cash equivalents			11,444				37,710
Securities and indebtedness of related parties			18,971				18,921
Accrued investment income			143,801				136,893
Amounts receivable from affiliates			8,936				15,791
Reinsurance recoverable			107,460				107,854
Deferred policy acquisition costs			1,375,292				1,365,609
Deferred sales inducements			431,934				420,147
Value of insurance in force acquired			61,912				63,121
Property and equipment, less allowances for depreciation of $63,184 in 2009 and $63,730 in 2008			20,835				23,074
Current income taxes recoverable			24,569				14,389
Deferred income tax benefit			285,377				305,080
Goodwill			11,170				11,170
Collateral held for securities lending and other transactions			38,223				67,953
Other assets			34,987				41,623
Assets held in separate accounts			522,591				577,420
Total assets		$	13,972,628			$	14,060,814

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

		March 31,				December 31,
		2009				2008
Liabilities and stockholders’ equity
Liabilities:
Policy liabilities and accruals:
Future policy benefits:
Interest sensitive and index products		$	10,520,377			$	10,531,967
Traditional life insurance and accident and health products			1,338,662				1,328,506
Unearned revenue reserve			34,813				34,663
Other policy claims and benefits			29,894				38,256
			11,923,746				11,933,392
Other policyholders’ funds:
Supplementary contracts without life contingencies			510,762				504,885
Advance premiums and other deposits			174,158				167,473
Accrued dividends			10,407				10,241
			695,327				682,599
Amounts payable to affiliates			830				247
Short-term debt			—				59,446
Long-term debt payable to affiliates			100,000				100,000
Long-term debt			271,025				271,005
Collateral payable for securities lending and other transactions			39,925				69,656
Other liabilities			147,582				108,588
Liabilities related to separate accounts			522,591				577,420
Total liabilities			13,701,026				13,802,353
Stockholders’equity:
FBL Financial Group, Inc. stockholders’ equity:
Preferred stock, without par value, at liquidation value – authorized 10,000,000 shares, issued and outstanding 5,000,000 Series B shares			3,000				3,000
Class A common stock, without par value – authorized 88,500,000 shares, issued and outstanding 29,172,275 shares in 2009 and 28,975,889 shares in 2008			105,558				104,090
Class B common stock, without par value – authorized 1,500,000 shares, issued and outstanding 1,192,990 shares			7,522				7,522
Accumulated other comprehensive loss			(648,469	)			(649,758	)
Retained earnings			803,892				793,511
Total FBL Financial Group, Inc. stockholders’ equity			271,503				258,365
Noncontrolling interest			99				96
Total stockholder’s equity			271,602				258,461
Total liabilities and stockholders’ equity		$	13,972,628			$	14,060,814

See accompanying notes.

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

		Three months ended March 31,
		2009				2008
Revenues:
Interest sensitive and index product charges		$	41,140			$	29,121
Traditional life insurance premiums			37,954				36,133
Net investment income			184,069				168,494
Derivative loss			(24,601	)			(98,896	)
Realized investment gains			1,951				—
Other-than-temporary impairment losses (2009 includes total impairment losses of $31,127, less $9,506 recognized in other comprehensive loss)			(21,621	)			(29,347	)
Other income			4,586				5,865
Total revenues			223,478				111,370
Benefits and expenses:
Interest sensitive and index product benefits			114,436				104,761
Change in value of index product embedded derivatives			(8,669	)			(103,170	)
Traditional life insurance benefits			22,104				27,252
Increase in traditional life future policy benefits			9,718				11,390
Distributions to participating policyholders			4,921				5,270
Underwriting, acquisition and insurance expenses			71,963				46,691
Interest expense			6,932				4,451
Other expenses			4,930				5,955
Total benefits and expenses			226,335				102,600
			(2,857	)			8,770
Income taxes			1,256				(2,458	)
Equity income, net of related income taxes			73				117
Net income (loss)			(1,528	)			6,429
Net loss attributable to noncontrolling interest			38				9
Net income (loss) attributable to FBL Financial Group, Inc		$	(1,490	)		$	6,438
Earnings (loss) per common share		$	(0.05	)		$	0.21
Earnings (loss) per common share – assuming dilution		$	(0.05	)		$	0.21
Cash dividends per common share		$	0.1250			$	0.1250

See accompanying notes.

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

		FBL Financial Group, Inc. Stockholders’ Equity
						Class A and				Accumulated
		Series B				Class B				Other								Non-				Total
		Preferred				Common				Comprehensive				Retained				controlling				Stockholders’
		Stock				Stock (a)				Loss				Earnings				Interest				Equity
Balance at January 1, 2008		$	3,000			$	108,746			$	(36,345	)		$	827,490			$	91			$	902,982
Change in measurement date of benefit plans			—				—				—				(770	)			—				(770	)
Comprehensive loss:
Net income — three months ended March 31, 2008			—				—				—				6,438				(9	)			6,429
Change in net unrealized investment gains/losses			—				—				(101,665	)			—				—				(101,665	)
Change in underfunded status of other postretirement benefit plans			—				—				14				—				—				14
Total comprehensive loss (b)																							(95,222	)
Adjustment resulting from capital transactions of equity investee			—				(6	)			—				—				—				(6	)
Stock-based compensation, including the issuance of 142,330 common shares under compensation plans			—				3,238				—				—				—				3,238
Dividends on preferred stock			—				—				—				(38	)			—				(38	)
Dividends on common stock			—				—				—				(3,726	)			—				(3,726	)
Receipts related to noncontrolling interest			—				—				—				—				47				47
Balance at March 31, 2008		$	3,000			$	111,978			$	(137,996	)		$	829,394				129				806,505
Balance at January 1, 2009		$	3,000			$	111,612			$	(649,758	)		$	793,511			$	96			$	258,461
Reclassification of non-credit impairment losses from prior periods			—				—				(15,641	)			15,641				—				—
Comprehensive income:
Net loss — three months ended March 31, 2009			—				—				—				(1,490	)			(38	)			(1,528	)
Change in net unrealized investment gains/losses			—				—				22,105				—				—				22,105
Non-credit impairment losses.			—				—				(5,185	)			—				—				(5,185	)
Change in underfunded status of other postretirement benefit plans			—				—				10				—				—				10
Total comprehensive income (b)																							15,402
Stock-based compensation, including the issuance of 196,386 common shares under compensation plans			—				1,468				—				—				—				1,468
Dividends on preferred stock			—				—				—				(38	)			—				(38	)
Dividends on common stock			—				—				—				(3,732	)			—				(3,732	)
Receipts related to noncontrolling interest			—				—				—				—				41				41
Balance at March 31, 2009		$	3,000			$	113,080			$	(648,469	)		$	803,892			$	99			$	271,602

See accompanying notes.

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

		Three months ended March 31,
		2009				2008
Operating activities
Net income (loss)		$	(1,528	)		$	6,429
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Adjustments related to interest sensitive and index products:
Interest credited/index credits to account balances, excluding deferred sales inducements			80,589				81,162
Change in fair value of embedded derivatives			(8,669	)			(103,170	)
Charges for mortality and administration			(40,014	)			(27,216	)
Deferral of unearned revenues			464				440
Amortization of unearned revenue reserve			(684	)			(399	)
Provision for depreciation and amortization of property and equipment			1,740				3,783
Provision for accretion and amortization of investments			(1,994	)			(2,285	)
Realized losses on investments			19,670				29,347
Change in fair value of derivatives			18,029				82,779
Increase in traditional life and accident and health benefit accruals			10,156				13,129
Policy acquisition costs deferred			(36,756	)			(40,192	)
Amortization of deferred policy acquisition costs			47,440				23,022
Amortization of deferred sales inducements			19,387				12,683
Amortization of value of insurance in force			741				899
Change in accrued investment income			(6,908	)			(12,826	)
Change in amounts receivable from/payable to affiliates			7,438				6,087
Change in reinsurance recoverable			394				11,810
Change in current income taxes			(10,180	)			(7,993	)
Provision for deferred income taxes			10,340				10,416
Other			7,609				(6,508	)
Net cash provided by operating activities			117,264				81,397
Investing activities
Sale, maturity or repayment of investments:
Fixed maturities – available for sale			231,571				203,042
Mortgage loans on real estate			19,309				19,306
Other long – term investments			14				—
Derivative instruments			841				12,778
Policy loans			9,732				10,077
			261,467				245,203
Acquisition of investments:
Fixed maturities – available for sale			(154,866	)			(360,492	)
Mortgage loans on real estate			(475	)			(26,784	)
Derivative instruments			(21,683	)			(84,509	)
Equity securities			(9,302	)			—
Policy loans			(10,734	)			(9,727	)
Short-term investments – net			(120,724	)			(27,090	)
			(317,784	)			(508,602	)

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

		Three months ended March 31,
		2009				2008
Investing activities – continued
Proceeds from disposal, repayments of advances and other distributions of capital from equity investees		$	7			$	—
Purchases of property and equipment			(357	)			(5,129	)
Disposal of property and equipment			856				726
Net cash used in investing activities			(55,811	)			(267,802	)
Financing activities
Receipts from interest sensitive and index products credited to policyholder account balances			584,562				454,592
Return of policyholder account balances on interest sensitive and index products			(608,988	)			(249,270	)
Repayment of short-term debt			(60,000	)			—
Receipts related to noncontrolling interests – net			41				46
Excess tax deductions on stock-based compensation			—				262
Issuance of common stock			436				1,928
Dividends paid			(3,770	)			(3,764	)
Net cash provided by (used in) financing activities			(87,719	)			203,794
Increase (decrease) in cash and cash equivalents			(26,266	)			17,389
Cash and cash equivalents at beginning of period			37,710				84,015
Cash and cash equivalents at end of period		$	11,444			$	101,404
Supplemental disclosures of cash flow information
Cash paid (received) during the period for:
Interest		$	7,365			$	4,852
Income taxes			(1,377	)			(165	)
Non-cash operating activity:
Deferral of sales inducements			13,654				18,390

See accompanying notes.

FBL Financial Group, Inc.		March 31, 2009

FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2009

1. Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements of FBL Financial Group, Inc. (we or the Company) have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. Our financial statements include all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of our financial position and results of operations. Operating results for the three-month period ended March 31, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009. We encourage you to refer to our consolidated financial statements and notes for the year ended December 31, 2008 included in our Annual Report on Form 10-K for a complete description of our material accounting policies. Also included in the Form 10-K is a description of areas of judgments and estimates and other information necessary to understand our financial position and results of operations.

Accounting Changes

Effective January 1, 2009, we adopted Financial Accounting Standards (FAS) Staff Position (FSP) No. 115-2 and 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments.” The FSP provides guidance in determining whether impairments in debt securities are other-than-temporary and require that the non-credit portion of an impairment be recorded in accumulated other comprehensive loss rather than the statements of operations. The FSP also requires additional disclosures relating to other-than-temporary impairments and unrealized losses on investments in interim and annual financial statements. The impact of adoption reduced our net loss by $5.2 million ($0.17 per basic and diluted common share) for the three months ended March 31, 2009 and resulted in a reclassification from retained earnings to accumulated other comprehensive loss of $15.6 million for the non-credit portion of other-than-temporary impairments on securities held on January 1, 2009.

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

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

Effective January 1, 2009, we adopted Statement No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133.” Statement No. 161 requires entities that use derivative instruments to provide qualitative disclosures about their objectives and strategies for using such instruments, as well as any details of credit-risk-related contingent features contained within derivatives. Statement No. 161 also requires entities to disclose additional information about the amounts and location of derivatives located within the financial statements, how the provisions of Statement No. 133 have been applied, and the impact that hedges have on an entity’s financial position, financial performance and cash flows. See Note 3 for disclosures about our derivative instruments and hedging activities.

FBL Financial Group, Inc.		March 31, 2009

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

In April 2009, the Financial Accounting Standard Board issued FSP No. FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments.” This FSP amends Statement No. 107, “Disclosures about Fair Values of Financial Instruments” and APB Opinion No. 28, “Interim Financial Reporting,” and expands annual disclosures about the fair value of financial instruments to interim financial statements. The FSP is effective for interim periods ending after June 15, 2009, with early adoption permitted for interim periods ending after March 15, 2009. We plan to adopt the FSP during the second quarter of 2009 and do not believe that it will have a significant impact on our consolidated financial statements.

Reclassifications

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

2. Investment Operations

Fixed Maturities and Equity Securities

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

		March 31, 2009
						Gross				Gross				Estimated
		Amortized				Unrealized				Unrealized				Fair
		Cost				Gains				Losses				Value
		(Dollars in thousands)
Bonds:
Corporate securities		$	5,729,713			$	37,643			$	(1,012,488	)		$	4,754,868
Residential mortgage-backed securities			1,959,565				33,663				(202,960	)			1,790,268
Commercial mortgage-backed securities			807,520				23,784				(176,293	)			655,011
Other asset-backed securities			218,833				324				(97,532	)			121,625
Collateralized debt obligations			52,011				—				(46,574	)			5,437
United States Government and agencies			254,957				12,405				—				267,362
State, municipal and other governments			1,425,707				5,572				(148,412	)			1,282,867
Redeemable preferred stocks			5,000				—				(912	)			4,088
Total fixed maturities		$	10,453,306			$	113,391			$	(1,685,171	)		$	8,881,526
Equity securities:
Non-redeemable preferred stocks		$	40,649			$	3,759			$	(19,324	)		$	25,084
Common stocks			20,611				1				(743	)			19,869
Total equity securities		$	61,260			$	3,760			$	(20,067	)		$	44,953

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

FBL Financial Group, Inc.		March 31, 2009

Available-For-Sale Fixed Maturity Securities by Maturity Date

		March 31, 2009
		Amortized				Estimated
		Cost				Fair Value
		(Dollars in thousands)
Due in one year or less		$	127,175			$	121,882
Due after one year through five years			1,222,651				1,095,800
Due after five years through ten years			2,912,294				2,452,348
Due after ten years			3,200,268				2,640,504
			7,462,388				6,310,534
Residential mortgage-backed securities			1,959,565				1,790,268
Commercial mortgage-backed securities			807,520				655,011
Other asset-backed securities			218,833				121,625
Redeemable preferred stocks			5,000				4,088
		$	10,453,306			$	8,881,526

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

Net Unrealized Losses on Fixed Maturity and Equity Securities

		March 31, 2009
		(Dollars in
		thousands)
Unrealized depreciation on:
Fixed maturities – available for sale		$	(1,571,780	)
Equity securities – available for sale			(16,307	)
Interest rate swaps			(509	)
			(1,588,596	)
Adjustments for assumed changes in amortization pattern of:
Deferred policy acquisition costs			421,412
Deferred sales inducements			152,283
Value of insurance in force acquired			24,896
Unearned revenue reserve			(7,343	)
Provision for deferred income taxes			349,077
			(648,271	)
Proportionate share of net unrealized investment gains of equity investees			3
Net unrealized investment losses		$	(648,268	)

The changes in net unrealized investment gains and losses are recorded net of deferred income taxes and other adjustments for assumed changes in the amortization pattern of deferred policy acquisition costs, deferred sales inducements, value of insurance in force acquired and unearned revenue reserve totaling $39.9 million for the three-months ended March 31, 2009.

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

	•		historical operating trends;
	•		business prospects;
	•		status of the industry in which the company operates;
	•		analyst ratings on the issuer and sector;
	•		quality of management;
	•		size of the unrealized loss;
	•		level of current market interest rates compared to market interest rates when the security was purchased;

FBL Financial Group, Inc.		March 31, 2009

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

Fixed Maturity Securities with Unrealized Losses by Length of Time Unrealized

		March 31, 2009
		Less than one year								One year or more								Total
Description of		Estimated				Unrealized				Estimated				Unrealized				Estimated				Unrealized
Securities		Fair Value				Losses				Fair Value				Losses				Fair Value				Losses
		(Dollars in Thousands)
Corporate securities		$	2,010,972			$	(271,266	)		$	1,814,988			$	(741,222	)		$	3,825,960			$	(1,012,488	)
Residential mortgage-backed securities			38,192				(1,274	)			1,110,441				(201,686	)			1,148,633				(202,960	)
Commercial mortgage-backed securities			125,071				(17,891	)			143,586				(158,402	)			268,657				(176,293	)
Other asset-backed securities			15,050				(17,631	)			101,030				(79,901	)			116,080				(97,532	)
Collateralized debt obligations			—				—				5,437				(46,574	)			5,437				(46,574	)
State, municipal and other governments			601,060				(43,441	)			525,336				(104,971	)			1,126,396				(148,412	)
Redeemable preferred stocks			4,088				(912	)			—				—				4,088				(912	)
Total fixed maturities		$	2,794,433			$	(352,415	)		$	3,700,818			$	(1,332,756	)		$	6,495,251			$	(1,685,171	)

Included in the above table are 1,391 securities from 910 issuers at March 31, 2009. The unrealized losses are primarily due to wide spreads between the risk-free and corporate and other bond yields. The following summarizes the more significant unrealized losses by investment category as of March 31, 2009.

Corporate securities: The unrealized losses on corporate securities represent 60.1% of our total unrealized losses. The largest losses were in the financial services sector ($1,101.3 million carrying value and $553.2 million unrealized loss). The largest unrealized losses in the financial services sector were in the depository institutions sector ($351.0 million carrying value and $211.1 million unrealized loss) and the holding and other investment offices sector ($429.9 million carrying value and $194.3 million unrealized loss). The unrealized losses in the depository institutions sector are primarily due to a decrease in market liquidity and concerns regarding the underlying credit quality of subprime and other assets held by foreign or large national and regional domestic banks. The majority of unrealized losses in the holding and other investment offices sector are commercial real estate investment trust bonds. The unrealized losses in the real estate investment trust bonds are primarily due to an increase in credit spreads due to the sector’s exposure to commercial real estate and market concerns about the ability to access the capital markets.

The manufacturing sector ($817.4 million carrying value and $181.6 million unrealized loss) had a concentration of losses in the paper and allied products sector ($79.6 million carrying value and $37.2 million unrealized loss), the transportation and equipment sector ($69.1 million carrying value and $19.9 million unrealized loss) and the petroleum and coal products sector ($87.2 million carrying value and $15.3 million unrealized loss). The unrealized losses in these three sectors are due to spread widening that is the result of weaker operating results. The unrealized losses in the remaining corporate sectors are also primarily attributable to spread widening generally due to a decrease in market liquidity, and increase in market volatility and concerns about the general health of the economy.

Because we do not intend to sell or believe we will be required to sell these securities before their anticipated recovery, which may be maturity, we do not consider these investments to be other-than-temporarily impaired at March 31, 2009.

Residential mortgage-backed securities: The unrealized losses on residential mortgage-backed securities represent 12.0% of our total unrealized losses, and were caused primarily by concerns regarding mortgage defaults on Alt-A and other risky mortgages. These concerns resulted in spread widening in the sector as liquidity decreased in the market. We purchased most of these investments at a discount to their face amount and the contractual cash flows

FBL Financial Group, Inc.		March 31, 2009

of these investments are based on mortgages and other assets backing the securities. Because we do not intend to sell or believe we will be required to sell these investments before their anticipated recovery, which may be maturity, we do not consider these investments to be other-than-temporarily impaired at March 31, 2009.

Commercial mortgage-backed securities: The unrealized losses on commercial mortgage-backed securities represent 10.5% of our total unrealized losses, and were caused primarily by spread widening and industry concerns regarding the potential for future commercial mortgage defaults There were also concerns regarding current and future downgrades by the three major rating agencies for tranches below the super senior AAA level. The contractual cash flows of these investments are based on mortgages backing the securities. Because we do not intend to sell or believe we will be required to sell these investments before their anticipated recovery, which may be maturity, we do not consider these investments to be other-than-temporarily impaired at March 31, 2009.

Other asset-backed securities: The unrealized losses on asset-backed securities represent 5.8% of our total unrealized losses, and were caused primarily by concerns regarding mortgage defaults on subprime and home equity loans. There were also concerns regarding potential downgrades or defaults of monoline bond insurers providing credit protection for underlying securities. These concerns resulted in spread widening in the sector as liquidity decreased in the market. We purchased most of these investments at a discount to their face amount and the contractual cash flows of these investments are based on mortgages and other assets backing the securities. Because we do not intend to sell or believe we will be required to sell these investments before their anticipated recovery, which may be maturity, we do not consider these investments to be other-than-temporarily impaired at March 31, 2009.

Collateralized debt obligations: The unrealized losses on collateralized debt obligations represent 2.8% of our total unrealized losses. Our investments in synthetic collateralized debt obligations are backed by credit default swaps with no home equity exposure. The unrealized losses are primarily due to actual defaults in the collateral, general spread widening and market concerns of increased defaults in the future. Our investment professionals have stress tested all of these securities and determined that future principal losses are not expected based on reasonably adverse conditions. Assuming a 35% recovery, on average these investments could all withstand six to eleven more defaults without losing any principal. The number of defaults is an estimate based on the remaining credit enhancement (subordination) that remains in each security. Each default that occurs reduces subordination to the security, depending on the loss amount and exposure. Depending on the investment, the synthetic collateralized debt obligations we own have exposure to approximately 120 to 150 reference names, which results in an average default level of 5.0% to 10.0% before we would lose principal. Based on historical performance and current economic conditions, we do not expect future defaults will exceed these levels and believe the existing subordination is sufficient to maintain the value of our investments. In addition, because we do not intend to sell or believe we will be required to sell these investments before their anticipated recovery, which may be maturity, we do not consider these investments to be other-than-temporarily impaired at March 31, 2009.

State, municipal and other governments: The unrealized losses on state, municipal and other governments represent 8.8% of our total unrealized losses, and were primarily caused by general spread widening and concerns regarding the stability of the credit quality of the monoline bond insurers. We purchased most of these investments at a discount to their face amount and the contractual cash flows of these investments are based on the taxing authority of a municipality or the revenues of a municipal project. Because the decline in fair value is primarily attributable to increased spreads and concerns regarding the stability of the monoline bond insurers, and because we do not intend to sell or believe we will be required to sell these investments before their anticipated recovery, which may be maturity, we do not consider these investments to be other-than-temporarily impaired at March 31, 2009.

Excluding mortgage and asset-backed securities, no securities from the same issuer had an aggregate unrealized loss in excess of $17.5 million at March 31, 2009. The $17.5 million unrealized loss is from two B+ rated securities, which are hybrid financial debt obligations. These securities have been impacted by the loss of market liquidity and concerns regarding the underlying credit quality of subprime and other assets held by the financial institution. With respect to mortgage and asset-backed securities not backed by the United States Government, no securities from the same issuer had an aggregate unrealized loss in excess of $64.6 million at March 31, 2009. The $64.6

FBL Financial Group, Inc.		March 31, 2009

million unrealized loss from one issuer relates to 12 different securities that are backed by different pools of commercial mortgage loans. All but one of the 12 securities are rated investment grade and the largest unrealized loss on any one security totaled $11.1 million at March 31, 2009. The non-investment grade security had an unrealized loss of $4.1 million at March 31, 2009. Because we do not intend to sell or believe we will be required to sell these investments before their anticipated recovery, which may be maturity, we do not consider these investments to be other-than-temporarily impaired at March 31, 2009.

We also have $20.1 million of gross unrealized losses on equity securities with an estimated fair value of $44.9 million at March 31, 2009. The majority of the unrealized losses are attributable to non-redeemable perpetual preferred securities in the financial sector. The majority of the unrealized losses on equity securities are less than one year ($11.2 million carrying value and $16.8 million unrealized loss). The unrealized losses on these securities are primarily due to concerns about the quality of the assets the issuers hold and uncertainty regarding when these securities will be called. These securities are similar to fixed maturities as they provide periodic cash flows, contain call features and are similarly rated and priced like other long-term callable bonds. We do not intend to sell or believe we will be required to sell these investments before their anticipated recovery; therefore we do not consider them to be other-than-temporarily impaired at March 31, 2009.

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

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

When an other-than-temporary impairment occurs, the amount recognized in earnings is based on our intent or requirement to sell the security and significant assumptions regarding the present value of expected cash flows for each security. Our assumptions for corporate securities include scheduled interest payments and an estimated recovery value, generally based on the original effective interest rate. For residential mortgage-backed securities, commercial mortgage-backed securities, other asset backed securities and collateralized debt obligations, our assumptions include collateral pledged, scheduled interest payments, default levels, delinquency rates, and the level of nonperforming assets for the remainder of the investments’ expected term. Our United States Government and agencies investment that was other-than-temporarily impaired relates to an investment that we do not intend to hold until recovery of its amortized cost basis; therefore, the impairment charge was recognized in earnings. We did not have any state, municipal and other government investments that were other-than-temporarily impaired during the period.

FBL Financial Group, Inc.		March 31, 2009

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

		Three months ended
		March 31, 2009
		(Dollars in thousands)
Balance at January 1, 2009		$	(106,421	)
Increases for which an impairment was not previously recognized			(17,186	)
Increases to previously impaired investments			(3,570	)
Reductions due to sold investments			32
Balance at March 31, 2009		$	(127,145	)

Sales, Maturities and Principal Repayments on Fixed Maturity Securities

		Three months ended March 31, 2009
						Gross				Gross
		Amortized				Realized				Realized
		Cost				Gains				Losses				Proceeds
		(Dollars in thousands)
Scheduled principal repayments and calls – available for sale		$	96,427			$	—			$	—			$	96,427
Sales – available for sale			133,224				2,068				(148	)			135,144
Total		$	229,651			$	2,068			$	(148	)		$	231,571

Mortgage Loans on Real Estate

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

We establish an allowance as needed, consisting of specific reserves, for possible losses against our mortgage loan portfolio. An allowance is needed for loans in which we do not believe we will collect all amounts due according to the contractual terms of the respective loan agreements. In 2009, we established a valuation allowance for two impaired loans totaling $0.9 million. There was no valuation allowance for mortgage loans at December 31, 2008. At March 31, 2009, we also had two mortgage loans in the process of foreclosure with total outstanding principal balance of $12.3 million and property appraised value of $14.7 million.

3. Derivative Instruments

We have entered into interest rate swaps to manage interest rate risk associated with a portion of our flexible premium deferred annuity contracts. Under the interest rate swaps, we pay a fixed rate of interest and receive a floating rate of interest on a notional amount which totaled $100.0 million at March 31, 2009 and December 31, 2008. These interest rate swaps effectively fix the interest crediting rate on a portion of our flexible premium deferred annuity contract liabilities thereby hedging our exposure to increases in market interest rates. The interest rate settlements increased derivative loss $1.2 million for the first quarter of 2009 and $0.1 million in 2008. Derivative loss was reduced by $0.5 million for the first quarter of 2009 due to the change in unrealized loss on these swaps.

In 2006, we also entered into one interest rate swap to hedge the variable component of the interest rate on our $46.0 million outstanding line of credit borrowings at that time. The terms of this instrument provide that we pay a fixed rate of interest and receive a floating rate of interest on a notional amount of $46.0 million. We closed the line of credit agreement in the first quarter of 2009 and began recording the change in fair value of the underlying swap and interest payments in derivative loss. Prior to 2009, any gain or loss on the interest rate swap settlements offset any increase or decrease in the interest paid on the line of credit, effectively fixing our interest expense related to this portion of the line of credit. Losses from interest rate settlements on this swap increased derivative loss $0.4 million in the first quarter of 2009 and increased interest expense less than $0.1 million in the first quarter of 2008. In 2009, derivative loss also includes the unrealized loss on the swap at December 31, 2008 of $2.7 million, which was

FBL Financial Group, Inc.		March 31, 2009

previously included in accumulated other comprehensive loss, partially offset by the swap’s increase in fair value during the first quarter of 2009, which totaled $0.3 million.

Summary of Swaps

		Notional				Receive				Pay				Carrying and Fair Value
Maturity Date		Amount				Rate				Rate				March 31, 2009				December 31, 2008
														(dollars in thousands)
1/1/2010			50,000			1 month LIBOR*					4.858	%		$	(1,248	)		$	(1,860	)
10/7/2010			46,000			3 month LIBOR*					4.760				(2,426	)			(2,692	)
6/1/2011			50,000			1 month LIBOR*					5.519				(4,955	)			(4,905	)
														$	(8,629	)		$	(9,457	)

When applicable, we formally document hedging relationships, our risk management objectives and strategies for undertaking these transactions. We also test for hedge ineffectiveness at inception of the hedge and at each reporting period as needed. There were no derivative instruments designated as hedges at March 31, 2009. There was no ineffectiveness recorded in the consolidated statements of operations during 2008 for instruments designated as hedges.

We write index annuities directly and assume index annuity business under a coinsurance agreement. Index annuities guarantee the return of principal to the contract holder and credit amounts based on a percentage of the gain in a specified market index. Most of the premium received is invested in investment grade fixed income securities and a portion of the premium received from the contract holder is used to purchase derivatives consisting of one-year or two-year call options on the applicable market indices to fund the index credits due to the index annuity contract holders. On the respective anniversary dates of the index annuity contracts, the market index used to compute the index credits is reset and new call options are purchased to fund the next index credit. Although the call options are designed to be effective hedges from an economic standpoint, they do not meet the requirements for hedge accounting treatment under Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities.” Therefore, the change in fair value of the options is recognized in earnings in the period of change. The cost of the options can be managed through the terms of the index annuities, which permit changes to participation rates, asset fees and/or caps, subject to guaranteed minimums.

We held call options relating to our direct business, net of collateral received for counterparty credit risk, with a fair value of $15.8 million at March 31, 2009 and $12.9 million at December 31, 2008. Our share of call options assumed, which is recorded as an embedded derivative in reinsurance recoverable, totaled $4.3 million at March 31, 2009 and $5.6 million at December 31, 2008. Derivative loss includes ($21.7) million in the first quarter of 2009 and ($94.8) million in the first quarter of 2008 relating to call option proceeds and changes in fair value.

The reserve for index annuity contracts includes a series of embedded derivatives that represent the contract holder’s right to participate in index returns over the expected lives of the applicable contracts. The reserve includes the value of the embedded forward options despite the fact that call options are not purchased for a period longer than the period of time to the next index reset date. The change in the value of this embedded derivative is reported on a separate line in the consolidated statements of operations and totaled ($8.7) million in the first quarter of 2009 and ($103.2) million in the first quarter of 2008.

We have modified coinsurance agreements where interest on funds withheld is determined by reference to a pool of fixed maturity securities. These arrangements contain embedded derivatives requiring bifurcation. Embedded derivatives in these contracts are recorded at fair value at each balance sheet date and changes in the fair values of the derivatives are recorded as derivative income or loss. The fair value of the embedded derivatives pertaining to funds withheld on variable business assumed by us totaled ($0.2) million at March 31, 2009 and ($0.9) million at December 31, 2008. The fair value of the embedded derivatives pertaining to funds withheld on business ceded by us was $0.2 million at March 31, 2009 and $0.3 million at December 31, 2008. Derivative income from our modified coinsurance contracts totaled $0.6 million for the first quarter of 2009 and $0.5 million for the first quarter of 2008.

FBL Financial Group, Inc.		March 31, 2009

4. Fair Values of Financial Instruments

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

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

We have elected to report certain financial instruments at fair value in our consolidated balance sheets using the methods and assumptions described below.

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

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

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

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

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

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

FBL Financial Group, Inc.		March 31, 2009

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

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

Other liabilities: Fair values for the embedded derivatives in our modified coinsurance contracts under which we cede or assume business are based on the difference between the fair value and the cost basis of the underlying fixed maturity securities. Fair values for interest rate swaps are based on counterparty market prices adjusted for a credit component of the counterparty, net of collateral paid. Prices are verified using analytical tools by our internal investment professionals.

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

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

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

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

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

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

FBL Financial Group, Inc.		March 31, 2009

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

Valuation of our Financial Instruments by Fair Value Hierarchy Levels

		March 31, 2009
		Quoted prices in
		active markets				Significant other				Significant
		for identical				observable				unobservable
		assets (Level 1)				inputs (Level 2)				inputs (Level 3)				Total
		(Dollars in thousands)
Assets
Corporate securities		$	—			$	4,579,715			$	175,153			$	4,754,868
Residential mortgage-backed securities			—				1,701,976				88,292				1,790,268
Commercial mortgage-backed securities			—				635,716				19,295				655,011
Asset-backed securities			—				105,399				16,226				121,625
Collateralized debt obligations			—				—				5,437				5,437
United States Government and agencies			—				267,362				—				267,362
State, municipal and other governments			—				1,167,023				115,844				1,282,867
Redeemable preferred stocks			—				—				4,088				4,088
Non-redeemable preferred stocks			—				25,084				—				25,084
Common stocks			1,950				17,919				—				19,869
Derivative instruments			—				15,755				—				15,755
Other long-term investments			—				—				1,581				1,581
Cash and short-term investments			394,627				—				—				394,627
Reinsurance recoverable			—				4,498				—				4,498
Collateral held for securities lending and other transactions			—				38,223				—				38,223
Assets held in separate accounts			522,591				—				—				522,591
Liabilities
Future policy benefits — index annuity embedded derivatives		$	—			$	—			$	447,223			$	447,223
Other liabilities			—				180				—				180
Collateral payable for securities lending and other transactions			—				39,925				—				39,925

Approximately 4.8% of the total fixed maturities are included in the Level 3 group. The fair value of the assets and liabilities above include the financial instruments’ nonperformance risk. Nonperformance risk is the risk that the instrument will not be fulfilled and affects the value at which the instrument could be transferred in an orderly transaction. The nonperformance risk for our assets was valued at less than $0.6 million at March 31, 2009. The nonperformance risk for our liabilities was valued at $219.3 million at March 31, 2009.

FBL Financial Group, Inc.		March 31, 2009

Level 3 Fixed Maturity Investments by Valuation Source

		March 31, 2009
		Third-party				Priced
		vendors				internally				Total
		(Dollars in thousands)
Assets
Corporate securities (including redeemable preferred stocks)		$	153,583			$	25,658			$	179,241
Residential mortgage-backed securities			—				88,292				88,292
Commercial mortgage-backed securities			13,766				5,529				19,295
Other asset-backed securities			16,226				—				16,226
Collateralized debt obligations			5,437				—				5,437
State, municipals and other			115,844				—				115,844
Total		$	304,856			$	119,479			$	424,335
Percent of total			71.8	%			28.2	%			100.0	%

Level 3 Financial Instruments Changes in Fair Value

		March 31, 2009
						Residential				Commercial				Other												Other
						mortgage-				mortgage-				asset-				Collateralized				States,				long-term
		Corporate				backed				backed				backed				debt				municipals				invest-
		securities				securities				securities				securities				obligations				& other				ments
		(Dollars in thousands)
Assets
Balance, December 31, 2008		$	648,688			$	70,003			$	24,122			$	17,201			$	7,414			$	140,189			$	1,527
Purchases (disposals), net			(10,811	)			—				(301	)			(637	)			—				(54	)			—
Realized and unrealized gains (losses), net			(3,474	)			9,049				1,067				(2,572	)			(1,976	)			(4,287	)			—
Transfers in and/or (out) of Level 3 (1)			(455,128	)			9,224				(5,590	)			2,231				—				(19,999	)			—
Included in earnings (amortization)			(34	)			16				(3	)			3				(1	)			(5	)			54
Balance, March 31, 2009		$	179,241			$	88,292			$	19,295			$	16,226			$	5,437			$	115,844			$	1,581

The change in unrealized gains/losses on level 3 investments held at March 31, 2009 was ($2,193) million.

		Three months ended
		March 31, 2009
		(Dollars in
		thousands)
Future Policy Benefits — Index Product Embedded Derivatives
Balance, December 31, 2008		$	523,515
Premiums less benefits, net			(20,558	)
Impact of unrealized gains (losses), net			(55,734	)
Balance, March 31, 2009		$	447,223
Change in unrealized gains/losses on embedded derivatives held at March 31 (2)		$	(55,734	)

FBL Financial Group, Inc.		March 31, 2009

5. Credit Agreement

At December 31, 2008, we had $60 million in borrowings on a revolving line of credit agreement with Bank of America National Association and Bankers Trust Company, N.A. During the first quarter of 2009, we paid off all borrowings and closed the line of credit.

6. Defined Benefit Plan

We participate with several affiliates and an unaffiliated organization in various multiemployer defined benefit plans. Our share of net periodic pension cost for the plans recorded as expense in our consolidated statements of operations totaled $2.0 million for the three months ended March 31, 2009 and $1.2 million for the three months ended March 31, 2008. The pension cost increased in 2009 primarily due to losses on plan assets in 2008.

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

		Three months ended March 31,
		2009				2008
		(Dollars in thousands)
Service cost		$	1,860			$	1,659
Interest cost			3,890				3,709
Expected return on assets			(2,997	)			(3,495	)
Amortization of prior service cost			185				196
Amortization of actuarial loss			2,216				945
Settlement expense			96				—
Net periodic pension cost — all employers		$	5,250			$	3,014

7. Commitments and Contingencies

In the normal course of business, we may be involved in litigation where amounts are alleged that are substantially in excess of contractual policy benefits or certain other agreements. At March 31, 2009, there are two class action lawsuits claims against EquiTrust Life Insurance Company (EquiTrust Life). These lawsuits relate to the use of allegedly inappropriate sales techniques and products for purchasers of EquiTrust Life deferred annuities. The plaintiffs in these cases are seeking a variety of damages including injunctive relief, rescission, compensatory damages, and punitive damages. These cases are in the pre-class certification stage and parties are conducting initial discovery and are therefore subject to many uncertainties for which the outcomes cannot be predicted. Given these uncertainties, we are unable to assess the likelihood of an adverse ruling or estimate the loss or range of loss that may result from the pending litigation.

In the third quarter of 2008, the jury from a trial in Federal District Court in Utah involving an agency matter awarded Farm Bureau Life Insurance Company (Farm Bureau Life) and Farm Bureau Mutual Insurance Company (Farm Bureau Mutual) actual damages totaling $3.6 million and punitive damages totaling $62.7 million. Approximately 25% of the award is allocable to Farm Bureau Life with the remaining 75% allocable to Farm Bureau Mutual. In February 2009, the court ruled on various post trial motions, upholding the actual damages, but reducing the punitive damages to $3.6 million. The defendants have appealed this decision and Farm Bureau Life and Farm Bureau Mutual have cross-appealed. Recoveries from third parties are required to be accounted for as gain contingencies and not recorded in our financial statements until the lawsuit is resolved.

In 2006, we incurred a pre-tax charge of $4.9 million relating to the settlement of a lawsuit with a husband and wife who had applied for life insurance policies. The settlement ended litigation regarding the process we followed in denying insurance coverage for medical reasons. Insurance claims have been filed under our professional liability and general liability insurance policies for reimbursement of the settlement amount, but coverage has been denied, and we have made a claim against an insurance broker for breach of contractual duties. We have filed lawsuits

FBL Financial Group, Inc.		March 31, 2009

against the insurer and the insurance broker to recover those damages. While we have received an adverse ruling in the case against the insurer at the district court level, the adverse ruling has been appealed and we continue to believe both claims are valid. Recoveries from third parties are required to be accounted for as gain contingencies and not recorded in our financial statements until the lawsuits are resolved. Accordingly, any recoveries will be recorded in net income (loss) in the period the recovery is received.

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

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

8. Earnings per Share

Computation of Earnings per Common Share

		Three months ended March 31,
		2009				2008
		(Dollars in thousands, except per share data)
Numerator:
Net income (loss) attributable to FBL Financial Group, Inc.		$	(1,490	)		$	6,438
Dividends on Series B preferred stock			(38	)			(38	)
Numerator for earnings per common share - income available to common stockholders		$	(1,528	)		$	6,400
Denominator:
Weighted average shares			29,850,768				29,789,122
Deferred common stock units relating to deferred compensation plans			107,035				70,468
Denominator for earnings per common share – weighted-average shares			29,957,803				29,859,590
Effect of dilutive securities – stock-based compensation			—				348,273
Denominator for diluted earnings per common share – adjusted weighted-average shares			29,957,803				30,207,863
Earnings per common share		$	(0.05	)		$	0.21
Earnings per common share — assuming dilution		$	(0.05	)		$	0.21

9. Segment Information

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

FBL Financial Group, Inc.		March 31, 2009

We analyze our segment results based on pre-tax operating income (loss). Accordingly, income taxes are not allocated to the segments. In addition, operating results are generally reported net of any transactions between the segments. Operating income (loss) for the first quarter represents net income (loss) excluding, as applicable, the impact of realized and unrealized gains and losses on investments and changes in net unrealized gains and losses on derivatives.

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

Financial Information Concerning our Operating Segments

		Three months ended March 31,
		2009				2008
		(Dollars in thousands)
Operating revenues:
Traditional Annuity – Exclusive Distribution		$	36,660			$	35,696
Traditional Annuity – Independent Distribution			91,133				78,282
Traditional and Universal Life Insurance			86,132				83,362
Variable			16,145				15,935
Corporate and Other			5,598				8,497
			235,668				221,772
Realized losses on investments (A)			(19,680	)			(29,432	)
Change in net unrealized gains/losses on derivatives (A)			7,490				(80,970	)
Consolidated revenues		$	223,478			$	111,370
Pre-tax operating income (loss):
Traditional Annuity – Exclusive Distribution		$	6,826			$	7,242
Traditional Annuity – Independent Distribution			(127	)			7,795
Traditional and Universal Life Insurance			15,443				8,164
Variable			(3,825	)			1,168
Corporate and Other			(6,628	)			(2,134	)
			11,689				22,235
Income taxes on operating income			(3,821	)			(7,167	)
Realized losses on investments (A)			(11,040	)			(12,165	)
Change in net unrealized gains/losses on derivatives (A)			1,682				3,535
Consolidated net income (loss) attributable to FBL Financial Group, Inc.		$	(1,490	)		$	6,438

Our investment in equity method investees, the related equity income and interest expense are attributable to the Corporate and Other segment. Expenditures for long-lived assets were not significant during the periods presented above. Goodwill at March 31, 2009 and December 31, 2008 is allocated among the segments as follows: Exclusive Annuity ($3.9 million), Traditional and Universal Life Insurance ($6.1 million) and Corporate ($1.2 million).

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

This section includes a summary of FBL Financial Group, Inc.’s consolidated results of operations, financial condition and where appropriate, factors that management believes may affect future performance. Unless noted otherwise, all references to FBL Financial Group, Inc. (we or the Company) include all of its direct and indirect subsidiaries, including its primary life insurance subsidiaries, Farm Bureau Life Insurance Company (Farm Bureau Life) and EquiTrust Life Insurance Company (EquiTrust Life) (collectively, the Life Companies). Please read this discussion in conjunction with the accompanying consolidated financial statements and related notes. In addition, we encourage you to refer to our 2008 Form 10-K for a complete description of our significant accounting policies and estimates. Familiarity with this information is important in understanding our financial position and results of operations.

This Form 10-Q includes statements relating to anticipated financial performance, business prospects, new products, and similar matters. These statements and others, which include words such as “expect”, “anticipate”, “believe”, “intend” and other similar expressions, constitute forward-looking statements under the Private Securities Litigation Reform Act of 1995. A variety of factors could cause our actual results and experiences to differ materially from the anticipated results or other expectations expressed in our forward-looking statements. See Part 1A, Risk Factors, of our 2008 Annual Report on Form 10-K for additional information on the risks and uncertainties that may affect the operations, performance, development and results of our business.

Impact of Recent Business Environment

The financial markets continued to be under stress in the first quarter of 2009 and this stress has continued to impact the availability and cost of credit. These factors, combined with depressed home prices and increasing foreclosures, falling equity market values, declining business and consumer confidence and increased unemployment, have precipitated a severe recession. These economic conditions did not negatively impact our sales in 2008 or 2009. 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 are now 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 that have persisted throughout the first quarter of 2009 have kept the levels of credit spreads (difference between bond yields and risk-free interest rates) on fixed maturity securities very wide. While the wide credit spreads have resulted in 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

FBL Financial Group, Inc.		March 31, 2009

channel offer a market value adjustment (MVA) 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 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. While we updated surrender assumptions in the models used to calculate amortization of deferred policy acquisition costs and deferred sales inducements in the fourth quarter of 2008, variances in actual net surrender charge income during 2009 compared to projections resulted in additional amortization of deferred policy acquisition costs in the first quarter. In addition, the increased surrender activity negatively impacted our spreads in 2009 as we now have call option assets that no longer back an index product.

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 and 2009 as a result of the impact of the increased surrender activity and realized and unrealized losses on our investments. In the last half of 2008, we incurred additional debt to assist with our capital requirements and increase our financial flexibility. 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 Months Ended March 31, 2009 and 2008

		Three months ended March 31,
		2009				2008
		(Dollars in thousands,
		except per share data)
Revenues		$	223,478			$	111,370
Benefits and expenses			226,335				102,600
			(2,857	)			8,770
Income taxes			1,256				(2,458	)
Equity income			73				117
Net income (loss)			(1,528	)			6,429
Net loss attributable to noncontrolling interest			38				9
Net income (loss) attributable to FBL Financial Group, Inc.		$	(1,490	)		$	6,438
Earnings per common share		$	(0.05	)		$	0.21
Earnings per common share – assuming dilution		$	(0.05	)		$	0.21