UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2006

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. x Yes o No

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

Large accelerated filer o       Accelerated filer x       Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes x No

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

Title of each class		Outstanding at August 1, 2006
Class A Common Stock, without par value		28,406,090
Class B Common Stock, without par value		1,192,990

 

 

FBL FINANCIAL GROUP, INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2006
TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
Cautionary Statement Regarding Forward Looking Information			2
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets			3
Consolidated Statements of Income			5
Consolidated Statements of Changes in Stockholders’ Equity			6
Consolidated Statements of Cash Flows			7
Notes to Consolidated Financial Statements			9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			16
Item 3. Quantitative and Qualitative Disclosures About Market Risk			40
Item 4. Controls and Procedures			40
PART II. OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			41
Item 4. Submission of Matters to a Vote of Security Holders			42
Item 6. Exhibits			42
SIGNATURES			45
Form of 2006 Class A Common Stock Compensation Plan
Form of Stock Option Agreement
Section 302 Certification
Section 302 Certification
Section 906 Certification

Cautionary Statement Regarding Forward Looking Information

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

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

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

ITEM 1. FINANCIAL STATEMENTS

FBL FINANCIAL GROUP, INC.

		June 30,				December 31,
		2006				2005
Assets
Investments:
Fixed maturities — available for sale, at market (amortized cost: 2006 - $7,521,622; 2005 - $6,841,432)		$	7,317,955			$	6,950,251
Fixed maturities — trading, at market (cost: 2006 - $15,002; 2005 - $15,004)			14,796				14,848
Equity securities — available for sale, at market (cost: 2006 - $35,587; 2005 - $54,565)			42,943				82,497
Mortgage loans on real estate			918,043				840,482
Derivative instruments			61,946				44,124
Investment real estate, less allowances for depreciation of $2,253 in 2006 and $2,235 in 2005			9,420				9,501
Policy loans			179,916				176,872
Other long-term investments			1,300				1,300
Short-term investments			50,790				179,333
Total investments			8,597,109				8,299,208
Cash and cash equivalents			20,666				5,120
Securities and indebtedness of related parties			24,203				23,379
Accrued investment income			88,935				81,491
Amounts receivable from affiliates			5,719				12,535
Reinsurance recoverable			114,908				116,032
Deferred policy acquisition costs			777,011				695,067
Deferred sales inducements			188,288				146,978
Value of insurance in force acquired			49,106				46,566
Property and equipment, less allowances for depreciation of $68,710 in 2006 and $64,568 in 2005			47,148				46,798
Current income taxes			4,660				—
Deferred income taxes			305				—
Goodwill			11,170				11,170
Other assets			31,005				29,694
Assets held in separate accounts			685,750				639,895
Total assets		$	10,645,983			$	10,153,933

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

		June 30,				December 31,
		2006				2005
Liabilities and stockholders’ equity
Liabilities:
Policy liabilities and accruals:
Future policy benefits:
Interest sensitive and index products		$	7,038,976			$	6,373,099
Traditional life insurance and accident and health products			1,230,289				1,206,598
Unearned revenue reserve			29,519				29,390
Other policy claims and benefits			27,271				25,835
			8,326,055				7,634,922
Other policyholders’ funds:
Supplementary contracts without life contingencies			386,516				383,455
Advance premiums and other deposits			159,405				165,672
Accrued dividends			11,026				11,736
			556,947				560,863
Amounts payable to affiliates			746				13,112
Long-term debt			218,421				218,446
Current income taxes			—				2,318
Deferred income taxes			—				88,148
Other liabilities			145,569				151,834
Liabilities related to separate accounts			685,750				639,895
Total liabilities			9,933,488				9,309,538
Minority interest in subsidiaries			208				164
Stockholders’ equity:
Preferred stock, without par value, at liquidation value — authorized 10,000,000 shares, issued and outstanding 5,000,000 Series B shares			3,000				3,000
Class A common stock, without par value — authorized 88,500,000 shares, issued and outstanding 28,395,232 shares in 2006 and 27,940,341 shares in 2005			82,170				72,260
Class B common stock, without par value — authorized 1,500,000 shares, issued and outstanding 1,192,990 shares			7,524				7,524
Accumulated other comprehensive income (loss)			(98,149	)			82,301
Retained earnings			717,742				679,146
Total stockholders’ equity			712,287				844,231
Total liabilities and stockholders’ equity		$	10,645,983			$	10,153,933

See accompanying notes.

FBL FINANCIAL GROUP, INC.

		Three months ended June 30,								Six months ended June 30,
		2006				2005				2006				2005
Revenues:
Interest sensitive and index product charges		$	26,495			$	24,293			$	51,809			$	48,061
Traditional life insurance premiums			35,773				36,915				70,161				70,248
Accident and health premiums			189				186				259				206
Net investment income			128,972				117,931				251,352				232,037
Derivative income (loss)			(22,431	)			120				(5,599	)			(12,280	)
Realized/unrealized gains on investments			222				2,876				11,826				3,288
Other income			5,976				5,423				11,455				10,392
Total revenues			175,196				187,744				391,263				351,952
Benefits and expenses:
Interest sensitive and index product benefits			54,678				75,352				141,380				130,910
Traditional life insurance and accident and health benefits			22,590				23,166				45,251				43,937
Increase in traditional life and accident and health future policy benefits			10,558				10,408				19,311				18,658
Distributions to participating policyholders			5,794				5,678				11,491				11,842
Underwriting, acquisition and insurance expenses			47,156				37,038				88,962				75,506
Interest expense			2,878				3,375				5,839				6,670
Other expenses			5,373				4,784				10,870				9,550
Total benefits and expenses			149,027				159,801				323,104				297,073
			26,169				27,943				68,159				54,879
Income taxes			(8,684	)			(9,829	)			(23,065	)			(19,203	)
Minority interest in earnings of subsidiaries			(71	)			(9	)			(126	)			(107	)
Equity income (loss), net of related income taxes			288				190				468				(69	)
Net income			17,702				18,295				45,436				35,500
Dividends on Series B preferred stock			(37	)			(37	)			(75	)			(75	)
Net income applicable to common stock		$	17,665			$	18,258			$	45,361			$	35,425
Earnings per common share		$	0.60			$	0.63			$	1.55			$	1.23
Earnings per common share — assuming dilution		$	0.59			$	0.62			$	1.52			$	1.21
Cash dividends per common share		$	0.115			$	0.105			$	0.230			$	0.210

See accompanying notes.

FBL FINANCIAL GROUP, INC.

														Accumulated
														Other
		Series B				Class A				Class B				Comprehensive								Total
		Preferred				Common				Common				Income				Retained				Stockholders’
		Stock				Stock				Stock				(Loss)				Earnings				Equity
Balance at January 1, 2005		$	3,000			$	62,234			$	7,524			$	141,240			$	618,613			$	832,611
Comprehensive income:
Net income for six months ended June 30, 2005			—				—				—				—				35,500				35,500
Change in net unrealized investment gains/losses			—				—				—				36,037				—				36,037
Total comprehensive income																							71,537
Stock based compensation, including the issuance of 188,113 common shares under compensation plans			—				4,339				—				—				—				4,339
Dividends on preferred stock			—				—				—				—				(75	)			(75	)
Dividends on common stock			—				—				—				—				(6,055	)			(6,055	)
Balance at June 30, 2005		$	3,000			$	66,573			$	7,524			$	177,277			$	647,983			$	902,357
Balance at January 1, 2006		$	3,000			$	72,260			$	7,524			$	82,301			$	679,146			$	844,231
Comprehensive loss:
Net income for six months ended June 30, 2006			—				—				—				—				45,436				45,436
Change in net unrealized investment gains/losses			—				—				—				(180,450	)			—				(180,450	)
Total comprehensive loss																							(135,014	)
Stock based compensation, including the issuance of 454,891 common shares under compensation plans			—				9,910				—				—				—				9,910
Dividends on preferred stock			—				—				—				—				(75	)			(75	)
Dividends on common stock			—				—				—				—				(6,765	)			(6,765	)
Balance at June 30, 2006		$	3,000			$	82,170			$	7,524			$	(98,149	)		$	717,742			$	712,287

Comprehensive income (loss) totaled ($71.2) million in the second quarter of 2006 and $81.1 million in the second quarter of 2005.

See accompanying notes.

FBL FINANCIAL GROUP, INC.

		Six months ended June 30,
		2006				2005
Operating activities
Net income		$	45,436			$	35,500
Adjustments to reconcile net income to net cash provided by operating activities:
Adjustments related to interest sensitive and index products:
Interest credited to account balances, excluding deferred sales inducements			127,892				106,899
Change in fair value of embedded derivatives			(17,507	)			3,012
Charges for mortality and administration			(47,909	)			(44,672	)
Deferral of unearned revenues			493				512
Amortization of unearned revenue reserve			(842	)			(983	)
Provision for depreciation and amortization of property and equipment			7,021				6,223
Provision for accretion and amortization of investments			(1,577	)			(3,623	)
Realized/unrealized gains on investments			(11,826	)			(3,288	)
Change in fair value of derivatives			1,430				1,731
Increase in traditional life and accident and health benefit accruals			23,691				20,657
Policy acquisition costs deferred			(85,295	)			(68,263	)
Amortization of deferred policy acquisition costs			39,170				27,703
Amortization of deferred sales inducements			12,843				2,952
Amortization of value of insurance in force			1,093				1,639
Net acquisition of fixed maturities — trading			—				(15,006	)
Change in accrued investment income			(7,444	)			(7,106	)
Change in amounts receivable from/payable to affiliates			(5,550	)			(5,007	)
Change in reinsurance recoverable			1,124				1,872
Change in current income taxes			(6,978	)			8,258
Provision for deferred income taxes			8,713				(499	)
Other			(34,111	)			(6,871	)
Net cash provided by operating activities			49,867				61,640
Investing activities
Sale, maturity or repayment of investments:
Fixed maturities — available for sale			216,286				556,067
Equity securities — available for sale			32,725				1,217
Mortgage loans on real estate			25,816				22,148
Derivative instruments			15,263				2,814
Policy loans			18,510				18,751
Short-term investments — net			128,543				—
			437,143				600,997
Acquisition of investments:
Fixed maturities — available for sale			(880,425	)			(881,156	)
Equity securities — available for sale			(256	)			(429	)
Mortgage loans on real estate			(103,315	)			(74,799	)
Derivative instruments			(31,565	)			(11,364	)
Investment real estate			—				(40	)
Policy loans			(21,554	)			(18,852	)
Short-term investments — net			—				(30,495	)
			(1,037,115	)			(1,017,135	)

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

		Six months ended June 30,
		2006				2005
Investing activities — continued
Proceeds from disposal, repayments of advances and other distributions of capital from equity investees		$	565			$	1,772
Purchases of property and equipment			(9,517	)			(9,391	)
Disposal of property and equipment			2,146				1,296
Net cash used in investing activities			(606,778	)			(422,461	)
Financing activities
Receipts from interest sensitive and index products credited to policyholder account balances			945,099				668,308
Return of policyholder account balances on interest sensitive and index products			(375,629	)			(297,018	)
Distributions related to minority interests — net			(82	)			(154	)
Excess tax deductions on stock-based compensation			1,288				—
Issuance of common stock			8,621				3,889
Dividends paid			(6,840	)			(6,130	)
Net cash provided by financing activities			572,457				368,895
Increase in cash and cash equivalents			15,546				8,074
Cash and cash equivalents at beginning of period			5,120				27,957
Cash and cash equivalents at end of period		$	20,666			$	36,031
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest		$	5,881			$	5,761
Income taxes			18,372				10,960
Non-cash operating activity:
Deferral of sales inducements			41,847				35,219

See accompanying notes.

FBL Financial Group, Inc.		June 30, 2006

FBL FINANCIAL GROUP, INC.

1.

Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements of FBL Financial Group, Inc. (we or the Company) have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. Our financial statements include all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of our financial position and results of operations. Operating results for the three- and six-month periods ended June 30, 2006 are not necessarily indicative of the results that may be expected for the year ending December 31, 2006. We encourage you to refer to our consolidated financial statements and notes for the year ended December 31, 2005 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 Change and Stock Based Compensation

Effective January 1, 2006, we adopted Statement of Financial Accounting Standards (Statement) No. 123(R), “Share-Based Payment,” using the modified-prospective-transition method. Statement No. 123(R) is a revision of Statement No. 123, “Accounting for Stock-Based Compensation.” Using the modified-prospective-transition method, we have recognized compensation expense in 2006 for all share-based payments granted, modified or settled after the date of adoption, as well as for any awards that were granted prior to the adoption date for which the requisite service had not been provided as of the adoption date. The stock option expense is recognized over the shorter of our five-year vesting schedule or the period ending when the employee becomes eligible for retirement using the straight-line method. In addition, the impact of forfeitures is estimated and compensation expense is recognized only for those options expected to vest. Also, under Statement No. 123(R) we have reported stock option-related tax deductions in excess of recognized compensation expense as a financing cash flow.

As a result of adopting Statement No. 123(R), net income for the full year 2006 is expected to be $0.2 million lower (less than $0.01 per basic and diluted common share) for 2006, than if we had continued to account for share-based compensation under Statement No. 123. This includes a cumulative effect adjustment of $0.1 million (less than $0.01 per basic and diluted common share) relating to the change in accounting for forfeitures which is recorded as a reduction to compensation expense in our 2006 consolidated income statement. For the six months ended June 30, 2006, the impact of adopting Statement No. 123(R), including the cumulative effect adjustment, was to decrease net income by $0.1 million. Also, for the six months ended June 30, 2006, $1.3 million of excess tax deductions are classified as financing cash inflows instead of operating cash inflows as they would have been under Statement No. 123. Results for prior periods have not been restated.

Prior to January 1, 2006, we followed the prospective method under Statement No. 123, which we adopted effective January 1, 2003. Under the prospective method, expense was recognized for those options granted, modified or settled after the date of adoption. The expense was generally recognized ratably over our five-year vesting period without regard to when an employee became eligible for retirement and immediate vesting. In addition, the impact of forfeitures was recognized when they occurred.

FBL Financial Group, Inc.		June 30, 2006

The following table illustrates the effect on net income and earnings per share if the fair value based method under Statement No. 123 had been applied to all outstanding and unvested awards.

		Three months				Six months ended
		ended June 30,				June 30,
		2005
		(Dollars in thousands, except per share data)
Net income, as reported:		$	18,295			$	35,500
Add: Stock-based employee and director compensation expense included in reported net income, net of related tax effects			440				872
Less: Total stock-based employee and director compensation expense determined under fair value based methods for all awards, net of related tax effects			(532	)			(1,060	)
Net income, pro forma		$	18,203			$	35,312
Earnings per common share, as reported		$	0.63			$	1.23
Earnings per common share, pro forma		$	0.63			$	1.22
Earnings per common share – assuming dilution, as reported		$	0.62			$	1.21
Earnings per common share – assuming dilution, pro forma		$	0.62			$	1.20

We have two share-based payment arrangements under our Class A Common Stock Compensation Plan (the Plan), which are described below. Compensation expense for these arrangements for the six months ended June 30 totaled $1.5 million for 2006 and $1.0 million for 2005. The income tax benefit recognized in the income statement for these arrangements for the six months ended June 30 totaled $0.3 million for 2006 and $0.2 million for 2005.

Stock Option Awards

We grant incentive stock options for Class A common stock to directors, officers and employees. For officers and employees, the options have a contractual term of 10 years and generally vest over a period up to five years, contingent upon continued employment with us. Options to directors are fully vested upon grant and have a contractual term that varies with the length of time the director remains on the Board, up to ten years. The fair value of each option award is estimated on the date of grant using a Black-Scholes-Merton option valuation model. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. We use the historical realized volatility of our stock for expected volatilities within the valuation model. For the 2006 period, the weighted-average expected term for the majority of our options is presumed to be the mid-point between the vesting date and the end of the contractual term, also known as the “shortcut method.” We assume the contractual term approximates the expected life for the remaining options. For the 2005 period, we used historical data to estimate option exercises and employee terminations to determine the expected term assumption. We use the shortcut method due to limited historical share option exercise experience. The change in this assumption did not have a material impact on the expected term of the stock options. Assumptions used in our valuation model for the 2006 and 2005 periods are as follows:

		Six months ended June 30,
		2006				2005
Weighted average risk-free interest rate			4.33	%			4.01	%
Dividend yield			1.40	%			1.50	%
Weighted average volatility factor of the expected market price			0.24				0.32
Weighted average expected term		5.6 years				6.4 years

FBL Financial Group, Inc.		June 30, 2006

A summary of stock option activity as of June 30, 2006, and changes during the six month period then ended is as follows:

										Weighted-
										Average
										Remaining
						Weighted-				Contractual
		Number of				Average Exercise				Term (in				Aggregate
		Shares				Price per Share				Years)				Intrinsic Value
		(Dollars in thousands, except per share data)
Shares under option at January 1, 2006			2,068,576			$	21.00
Granted			450,130				32.57
Exercised			(328,876	)			17.20
Forfeited or expired			(17,801	)			27.09
Shares under option at June 30, 2006			2,172,029			$	23.92				7.20			$	18,488
Vested at June 30, 2006 or expected to vest in the future			2,143,229			$	23.86				7.18			$	18,372
Exercisable options at June 30, 2006			1,087,211			$	20.84				6.11			$	12,582

The weighted average grant-date fair value of options granted per common share for the six months ended June 30 was $8.62 for 2006 and $8.86 for 2005. The intrinsic value of options exercised during the six months ended June 30 totaled $5.3 million for 2006 and $1.7 million for 2005.

Unrecognized compensation expense related to nonvested share-based compensation granted under the stock option arrangement totaled $4.0 million as of June 30, 2006. This expense is expected to be recognized over a weighted-average period of 3.2 years.

We issue new shares to satisfy stock option exercises. We do not have a policy of repurchasing shares on the open market to satisfy share-based payment arrangements. Cash received from stock options exercised totaled $5.5 million for the six months ended June 30, 2006 and $2.2 million for the six months ended June 30, 2005. The actual tax benefit realized from stock options exercised totaled $1.6 million for the six months ended June 30, 2006 and $0.5 million for the six months ended June 30, 2005.

Restricted Stock Compensation Plan

We also grant restricted Class A common shares to certain executives. The restrictions on this stock lapse and the stock vests if the Company meets or exceeds operating goals, such as earnings per share and return on equity targets within or during a three year period. Depending on performance, the actual amount of shares issued could range from zero to 100% of the granted amount. The value of the awards is based on the grant date fair value of the restricted stock adjusted for expected forfeitures and an estimate of the number of shares expected to vest. The estimate for the number of shares to vest is reviewed each period and the impact of any changes in the estimate on expense is recorded in the current period. These awards are charged to expense using the straight-line method over the required service period.

A summary of restricted stock activity as of June 30, 2006, and changes during the period then ended is as follows:

						Weighted-
						Average Grant-
						Date Fair Value
		Number of Shares				per Share
Restricted stock at January 1, 2006			86,256			$	26.02
Granted			132,786				33.82
Forfeited			(1,811	)			33.86
Restricted stock at June 30, 2006			217,231				30.72

FBL Financial Group, Inc.		June 30, 2006

There has been no restricted stock vested and released to employees as of June 30, 2006. Unrecognized compensation expense related to unvested share-based compensation granted under the restricted stock arrangement totaled $1.4 million as of June 30, 2006. This expense is expected to be recognized over a weighted-average period of 2.0 years.

Pending Accounting Changes

In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes.” Interpretation No. 48 creates a single model to address uncertainty in tax positions and clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. Under the Interpretation, a tax position can be recognized in the financial statements if it is more likely than not that the position will be sustained upon examination by taxing authorities who have full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement. Interpretation No. 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Interpretation No. 48 is effective beginning in 2007. We have not yet determined the impact of adopting Interpretation No. 48 on our consolidated financial statements.

In September 2005, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position (SOP) 05-1, “Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts.” The SOP provides guidance on the accounting for internal replacements of one insurance contract for another insurance contract. Under the SOP, an internal replacement that is determined to result in a replacement contract that is substantially changed from the replaced contract is accounted for as an extinguishment of the replaced contract. As an extinguishment, the unamortized deferred policy acquisition costs, deferred sales inducements, value of insurance in force acquired and unearned revenue reserves from the replaced contract are written off at the time of the extinguishment. An internal replacement that is determined to result in a replacement contract that is substantially unchanged from the replaced contract is accounted for as a continuation of the replaced contract. The SOP is effective for internal replacements occurring in fiscal years beginning after December 15, 2006, with earlier application encouraged. We have not yet determined the impact of adopting this SOP, which we plan to implement in 2007.

Underwriting, Acquisition and Insurance Expenses

Underwriting, acquisition and insurance expenses include a pre-tax charge of $4.9 million ($0.11 per basic and diluted common share) in the second quarter of 2006 relating to the settlement of a lawsuit with a husband and wife who had applied for life insurance policies. The settlement ends litigation regarding the process we followed in denying insurance coverage for medical reasons. The settlement was entered into after adverse judicial rulings were made against us in June 2006. Prior to the issuance of the adverse judicial rulings, a material loss, net of insurance recoveries, was not deemed to be reasonably possible.

Insurance claims have been filed under our professional liability and general liability insurance policies for reimbursement of the settlement amount, but coverage has been denied, and we have filed a claim against an insurance broker for breach of contractual duties. We believe these claims are valid and have filed lawsuits against the insurer and the insurance broker to recover damages. 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, our second quarter financial statements include the $4.9 million settlement expense, but any recoveries will be recorded in net income in the period the recovery is received.

Reclassifications

Certain amounts in the 2005 consolidated statement of cash flows have been reclassified to conform to the 2006 financial statement presentation.

FBL Financial Group, Inc.		June 30, 2006

2.

Defined Benefit Plans

We participate with several affiliates in various multiemployer defined benefit plans. Our share of net periodic pension cost for the plans recorded in our consolidated income statements for the second quarter totaled $1.6 million for 2006 and 2005 and for the six months ended June 30 totaled $3.2 million for 2006 and $3.1 million for 2005. Components of net periodic pension cost for all employers in the multiemployer plans are as follows:

		Three months ended June 30,								Six months ended June 30,
		2006				2005				2006				2005
		(Dollars in thousands)
Service cost		$	2,396			$	2,161			$	4,792			$	4,323
Interest cost			3,428				3,409				6,856				6,818
Expected return on assets			(2,746	)			(2,712	)			(5,492	)			(5,424	)
Amortization of prior service cost			201				395				402				791
Amortization of actuarial loss			1,398				1,047				2,796				2,093
Net periodic pension cost – all employers		$	4,677			$	4,300			$	9,354			$	8,601

3.

Commitments and Contingencies

In the normal course of business, we may be involved in litigation where amounts are alleged that are substantially more than contractual policy benefits or those contained in certain other agreements. At June 30, 2006, management is not aware of any claims for which a material loss is reasonably possible. See Note 1, “Significant Accounting Policies – Underwriting, Acquisition and Insurance Expenses” for disclosure of a gain contingency relating to a lawsuit settlement.

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

We participate in a reinsurance pool with various unaffiliated life insurance companies to mitigate the impact of a catastrophic event on our financial position and results of operations. Members of the pool share in the eligible catastrophic losses based on their size and contribution to the pool. Under the pool arrangement, we will be able to cede approximately 60% of catastrophic losses after other reinsurance and a deductible of $0.8 million. Pool losses and the maximum loss we could incur as a result of losses assumed from other pool members are capped at dollar amounts per event. In 2005, the total pool loss cap was $7.6 million and our cap was $2.7 million. As of January 1, 2006, the pool’s capacity was increased 50%, and the caps will be recalculated. The 2006 caps will be approximately 50% higher than those in 2005, or approximately $11.0 million for the total pool loss cap and $4.0 million for our cap.

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

FBL Financial Group, Inc.		June 30, 2006

4.

Earnings Per Share

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

		Three months ended June 30,								Six months ended June 30,
		2006				2005				2006				2005
		(Dollars in thousands, except per share data)
Numerator:
Net income		$	17,702			$	18,295			$	45,436			$	35,500
Dividends on Series B preferred stock			(37	)			(37	)			(75	)			(75	)
Numerator for earnings per common share-income available to common stockholders		$	17,665			$	18,258			$	45,361			$	35,425
Denominator:
Weighted average shares			29,336,234				28,820,591				29,261,679				28,776,672
Deferred common stock units relating to deferred compensation plans			45,697				28,903				43,537				27,924
Denominator for earnings per common share – weighted-average shares			29,381,931				28,849,494				29,305,216				28,804,596
Effect of dilutive securities – stock based compensation			473,666				477,412				505,343				495,810
Denominator for diluted earnings per common share – adjusted weighted-average shares			29,855,597				29,326,906				29,810,559				29,300,406
Earnings per common share		$	0.60			$	0.63			$	1.55			$	1.23
Earnings per common share – assuming dilution		$	0.59			$	0.62			$	1.52			$	1.21

Based upon the provisions of the underlying agreement and the application of the “two class” method to our capital structure, we have not allocated undistributed net income to the unvested Class A restricted stock as those instruments possess certain characteristics, such as vesting, that differ from instruments defined as participating securities under current accounting guidance. Also, for the three and six months ended June 30, 2005, we did not allocate any undistributed net income to the Series C preferred stock since the Series C preferred stockholder’s participation in dividends with the common stockholders was limited to the amount of the quarterly regular dividend.

5.

Segment Information

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

We analyze our segment results based on pre-tax operating income (loss). Accordingly, income taxes are not allocated to the segments. In addition, operating results are generally reported net of any transactions between the segments. Operating income (loss) represents net income excluding the impact, net of tax, of (1) realized and unrealized gains and losses on investments, (2) changes in net unrealized gains and losses on derivatives and (3) for 2006, a lawsuit settlement.

FBL Financial Group, Inc.		June 30, 2006

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

Financial information concerning our operating segments is as follows:

		Three months ended June 30,								Six months ended June 30,
		2006				2005				2006				2005
		(Dollars in thousands)
Operating revenues:
Traditional Annuity – Exclusive Distribution		$	35,960			$	37,396			$	72,053			$	73,287
Traditional Annuity – Independent Distribution			57,487				39,454				102,750				72,487
Traditional and Universal Life Insurance			83,236				83,851				163,398				163,321
Variable			14,932				14,142				29,194				27,937
Corporate and Other			8,062				7,571				14,938				15,232
			199,677				182,414				382,333				352,264
Realized/unrealized gains on investments (A)			222				2,876				11,827				3,287
Change in net unrealized gains/losses on derivatives (A)			(24,703	)			2,454				(2,897	)			(3,599	)
Consolidated revenues		$	175,196			$	187,744			$	391,263			$	351,952
Pre-tax operating income (loss):
Traditional Annuity – Exclusive Distribution		$	7,857			$	9,536			$	16,630			$	18,310
Traditional Annuity – Independent Distribution			7,011				5,848				12,943				10,989
Traditional and Universal Life Insurance			15,673				14,838				26,623				27,651
Variable			454				(818	)			3,270				(283	)
Corporate and Other			(440	)			(1,102	)			(2,311	)			(2,479	)
			30,555				28,302				57,155				54,188
Income taxes on operating income			(10,244	)			(9,957	)			(19,258	)			(18,998	)
Realized/unrealized gains on investments, net (A)			88				1,274				7,781				1,801
Change in net unrealized gains/losses on derivatives (A)			475				(1,324	)			2,930				(1,491	)
Lawsuit settlement (A)			(3,172	)			—				(3,172	)			—
Consolidated net income		$	17,702			$	18,295			$	45,436			$	35,500

(A)

Amounts are net of adjustments, as applicable, to amortization of unearned revenue reserves, deferred policy acquisition costs, deferred sales inducements, value of insurance in force acquired and income taxes attributable to these items.

Our investment in equity method investees, the related equity income and interest expense are attributable to the Corporate and Other segment. Goodwill at June 30, 2006 and December 31, 2005 is allocated among the segments as follows: Exclusive Annuity ($3.9 million), Traditional and Universal Life Insurance ($6.1 million) and Variable ($1.2 million).

FBL Financial Group, Inc.		June 30, 2006

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 2005 Form 10-K for a complete description of our significant accounting policies and estimates. Familiarity with this information is important in understanding our financial position and results of operations.

Results of Operations for the Three and Six Months Ended June 30, 2006 Compared to Three and Six Months Ended June 30, 2005

		Three months ended June 30,								Six months ended June 30,
		2006				2005				2006				2005
						(Dollars in thousands, except per share data)
Revenues		$	175,196			$	187,744			$	391,263			$	351,952
Benefits and expenses			149,027				159,801				323,104				297,073
			26,169				27,943				68,159				54,879
Income taxes			(8,684	)			(9,829	)			(23,065	)			(19,203	)
Minority interest and equity income (loss)			217				181				342				(176	)
Net income			17,702				18,295				45,436				35,500
Less dividends on Series B preferred stock			(37	)			(37	)			(75	)			(75	)
Net income applicable to common stock		$	17,665			$	18,258			$	45,361			$	35,425
Earnings per common share		$	0.60			$	0.63			$	1.55			$	1.23
Earnings per common share – assuming dilution		$	0.59			$	0.62			$	1.52			$	1.21
Other data
Direct premiums collected, net of reinsurance ceded:
Traditional Annuity – Exclusive Distribution		$	37,432			$	51,503			$	79,312			$	99,826
Traditional Annuity – Independent Distribution			441,713				233,126				718,916				418,465
Traditional and Universal Life Insurance			45,273				45,950				89,573				89,385
Variable Annuity and Variable Universal Life (1)			43,181				45,609				85,017				85,259
Reinsurance assumed and other			4,652				5,537				9,141				11,424
Total		$	572,251			$	381,725			$	981,959			$	704,359
Direct life insurance in force, end of quarter (in millions)										$	37,131			$	34,893
Life insurance lapse rates											6.7	%			7.2	%
Withdrawal rates – individual traditional annuity:
Exclusive Distribution											5.8	%			3.5	%
Independent Distribution											5.0	%			5.2	%

(1)

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

FBL Financial Group, Inc.		June 30, 2006

Premiums collected is not a measure used in financial statements prepared according to U.S. generally accepted accounting principles (GAAP). There is no comparable GAAP financial measure. We use premiums collected to measure the productivity of our exclusive and independent agents. Direct Traditional Annuity – Independent Distribution premiums collected increased significantly in the six months ended June 30, 2006 compared to the 2005 period due to continued growth of our EquiTrust Life independent distribution channel. This is driven largely by an increase in the number of licensed independent agents to 14,479 at June 30, 2006, from 7,487 at June 30, 2005.

Net income applicable to common stock decreased 3.2% in the second quarter of 2006 to $17.7 million and increased 28.0% in the six months ended June 30, 2006 to $45.4 million. As discussed in detail below, net income applicable to common stock for the 2006 periods was positively impacted by growth in the volume of business in force, change in unrealized gains/losses on derivatives and an increase in equity income. The six month period of 2006 also benefited from an increase in realized gains on investments. The impact of these positive items was offset by an increase in expenses resulting from a lawsuit settlement in the second quarter of 2006 totaling $4.9 million ($0.11 per basic and diluted common share, after taxes). We also experienced an increase in death benefits during 2006.

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

		Six months ended June 30,
		2006				2005
Weighted average yield on cash and invested assets			6.04	%			6.29	%
Weighted average interest crediting rate/index cost			3.52				3.74
Spread			2.52	%			2.55	%

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

Premiums and product charges are as follows:

		Three months ended June 30,								Six months ended June 30,
		2006				2005				2006				2005
		(Dollars in thousands)
Premiums and product charges:
Interest sensitive and index product charges		$	26,495			$	24,293			$	51,809			$	48,061
Traditional life insurance premiums			35,773				36,915				70,161				70,248
Accident and health premiums			189				186				259				206
Total		$	62,457			$	61,394			$	122,229			$	118,515

Premiums and product charges increased 1.7% in the second quarter of 2006 to $62.5 million and 3.1% in the six months ended June 30, 2006 to $122.2 million. The increases in interest sensitive and index product charges are driven principally by surrender charges on annuity and universal life products, cost of insurance charges on variable universal life and universal life products and mortality and expense fees on variable products.

Surrender charges totaled $8.8 million in the six-month period ended June 30, 2006 compared to $6.7 million in the 2005 period. Surrender charges increased due primarily to an increase in surrenders relating to growth in the volume and aging of business in force. The average account value for annuity and universal life insurance in force, which increased due to an increase in premiums collected as summarized in the “Other data” table above, totaled $6,343.5 million for the six-month period in 2006 and $5,270.7 million for the six-month period in 2005. We believe aging of the business in force is driving a portion of the increase in surrender charges relating to the annuity business assumed under the coinsurance agreement with American Equity Investment Life Insurance Company (the coinsurance agreement) and business written directly through the EquiTrust Life independent agents as the surrender

FBL Financial Group, Inc.		June 30, 2006

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 less onerous on the contract holder. We started assuming business under the coinsurance agreement in 2001 and started selling annuities directly through EquiTrust Life independent agents in the fourth quarter of 2003. Surrender charges on this business totaled $7.3 million for the six months ended June 30, 2006 and $5.3 million for the 2005 period.

Cost of insurance charges totaled $31.7 million in the six months ended June 30, 2006 and $30.7 million in the 2005 period. Cost of insurance charges increased due primarily to aging of the business in force as the cost of insurance charge rate per each $1,000 in force increases with the age of the insured. The average age of our universal life and variable universal life policyholders was 44.9 years at June 30, 2006 and 44.5 years at June 30, 2005.

Mortality and expense fees totaled $3.9 million in the six-month period ended June 30, 2006 and $3.3 million in the 2005 period. Mortality and expense fees increased due to an increase in the separate account balances on which fees are based. The average separate account balance increased to $669.4 million for the six-month period in 2006, from $561.9 million for the six-month period in 2005 due to the impact of new sales and favorable investment results. Transfers of premiums to the separate accounts totaled $68.3 million for the six months ended June 30, 2006 and $59.3 million for the 2005 period. Net investment income and net realized and unrealized gains on separate account assets totaled $16.2 million in the six-month period of 2006 compared to $4.3 million in the 2005 period.

Traditional premiums decreased due to an increase in reinsurance ceded, partially offset by the impact of an increase in the volume of business in force. The increase in the business in force is attributable primarily 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 traditional life insurance in force, net of reinsurance ceded, totaled $17,884 million for the six-month period in 2006 and $16,851 million for the six-month period in 2005. The change in life insurance in force is not proportional to the change in premium income due to the change in reinsurance premium ceded and to a shift in the composition of our traditional life block of business from whole life policies to term policies. The premium for a term policy per $1,000 face amount is less than that for a whole life policy.

Net investment income, which excludes investment income on separate account assets relating to variable products, increased 9.4% in the second quarter of 2006 to $129.0 million and 8.3% in the six months ended June 30, 2006 to $251.4 million due primarily to an increase in average invested assets, partially offset by a decrease in the annualized yield earned on those assets. Average invested assets in the six-month period of 2006 increased 13.0% to $8,375.7 million (based on securities at amortized cost) from $7,413.3 million in the 2005 period, due principally to net premium inflows from the Life Companies. The annualized yield earned on average invested assets decreased to 6.09% in the six months ended June 30 2006 from 6.36% in the respective 2005 period. Market conditions in the first six months of 2006 and the full year of 2005 impacted our investment portfolio yield as market investment rates were, in general, lower than our portfolio yield or yield on investments maturing or being paid down. The average yields on fixed maturities purchased were 5.94% for the six-month period of 2006 and 5.44% for the year ended December 31, 2005. The average yields on fixed maturity securities maturing or being paid down were 6.49% for the six-month period of 2006 and 6.10% for the year ended December 31, 2005. In addition, for the six months ended June 30, net investment income includes ($1.1) million in 2006 and ($0.3) million in 2005, representing the reversal of net discount accretion on mortgage and asset-backed securities resulting from changing prepayment speed assumptions as of the end of each respective period. See the “Financial Condition — Investments” section that follows for a description of how changes in prepayment speeds impact net investment income. Fee income from bond calls, tender offers and mortgage loan prepayments totaled $2.7 million in the six months ended June 30, 2006 compared to $3.3 million in the respective 2005 period. In addition, during the first six months we recorded $0.1 million in 2006 and $0.9 million in 2005 of net investment income representing past due income that had not been accrued, relating to the redemption of fixed maturity securities that had been impaired in a prior period.

FBL Financial Group, Inc.		June 30, 2006

Derivative income (loss) is as follows:

		Three months ended June 30,								Six months ended June 30,
		2006				2005				2006				2005
		(Dollars in thousands)
Derivative income (loss):
Components of derivative income (loss) from call options:
Gains received at expiration		$	19,193			$	7,726			$	29,155			$	10,601
Change in the difference between fair value and remaining option cost at beginning and end of period			(24,313	)			2,469				(2,424	)			(3,442	)
Cost of money for call options			(17,095	)			(10,175	)			(32,035	)			(19,412	)
			(22,215	)			20				(5,304	)			(12,253	)
Other			(216	)			100				(295	)			(27	)
Total		$	(22,431	)		$	120			$	(5,599	)		$	(12,280	)

The increase in gains received at expiration in the 2006 periods is primarily attributable to the impact of growth in the volume of index annuities in force and changes in the amount of appreciation in the market indices on which our options are based. The average account value of index annuities in force, which has increased due to new sales, totaled $2,954.6 million for the six months ended June 30, 2006 compared to $2,092.9 million for the respective 2005 period. The changes in the difference between the fair value of the call options and the remaining option costs for 2006 are caused primarily by the change in the S&P 500 Index (upon which the majority of our options are based). For the second quarter of 2006, the S&P 500 Index decreased on a point-to-point basis by 1.9%, compared to a point-to-point increase of 0.9% for the 2005 period. For the six months ended June 30, 2006, the S&P 500 Index increased on a point-to-point basis by 1.8%, compared to a point-to-point decrease of 1.7% for the 2005 period. While the difference between the fair value of the call options and the remaining option costs generally corresponds to the point-to-point change in the S&P 500 Index, the change in fair value is also impacted by options based on daily or monthly S&P 500 Index averages and options which are based on other underlying indices. Furthermore, the timing of option settlements also impacts the change in fair value. The cost of money for call options increased due primarily to the impact of growth in the volume of index annuities in force. Other derivative income (loss) is comprised of changes in the value of the conversion feature embedded in convertible fixed maturity securities and the embedded derivative included in our modified coinsurance contracts. Derivative income (loss) will fluctuate based on market conditions.

Realized/unrealized gains (losses) on investments are as follows:

		Three months ended June 30,								Six months ended June 30,
		2006				2005				2006				2005
		(Dollars in thousands)
Realized/unrealized gains (losses) on investments:
Realized gains on sales		$	238			$	4,646			$	14,227			$	6,921
Realized losses on sales			(8	)			(34	)			(11	)			(1,897	)
Realized losses due to impairments			—				(1,732	)			(2,340	)			(1,732	)
Unrealized losses on trading securities			(8	)			(4	)			(50	)			(4	)
Total		$	222			$	2,876			$	11,826			$	3,288

The level of realized/unrealized gains (losses) is subject to fluctuation from period to period depending on the prevailing interest rate and economic environment and the timing of the sale of investments. See “Financial Condition – Investments” for details regarding our unrealized gains and losses on available-for-sale securities at June 30, 2006 and December 31, 2005. Gains on sales in the six-month period of 2006 period include $13.5 million related to the sale of 2,500,000 shares of our investment in American Equity Investment Life Holding Company (AEL) common stock.

FBL Financial Group, Inc.		June 30, 2006

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

	•		historical operating trends;
	•		business prospects;
	•		status of the industry in which the company operates;
	•		analyst ratings on the issuer and sector;
	•		quality of management;
	•		size of the unrealized loss;
	•		length of time the security has been in an unrealized loss position; and
	•		our intent and ability to hold the security.

If we determine that an unrealized loss is other than temporary, the security is written down to its fair value with the difference between amortized cost and fair value recognized as a realized loss. Details regarding our significant investment impairments for the six months ended June 30, 2006 and 2005, including the circumstances requiring the write downs, are summarized in the following table:

		Impairment
General Description		Loss				Circumstance
		(Dollars in
		thousands)
Six months ended June 30, 2006:
Major United States credit company		$	986			Valuation of this security is tied to the strength of its parent. During the first quarter, continued rating declines and other adverse details regarding the financial status of the parent company became available. (A)
Major United States automaker		$	648			During the first quarter, continued rating declines and other adverse details regarding the financial status of the company became available. In addition, the company faces labor strikes and restated its financial statements during the quarter. (A)
Major United States automaker		$	643			During the first quarter, continued rating declines and other adverse details regarding the financial status of the company became available. (A)
Six months ended June 30, 2005:
Major United States automaker		$	1,295			During the second quarter, adverse details regarding the financial status of the company became available. (A)

(A)

Negative trends in this segment of the industry were considered in our analysis, which is done on an issue-by-issue basis. We concluded that there is no impact on other material investments in addition to amounts already written down.

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

FBL Financial Group, Inc.		June 30, 2006

Interest sensitive and index product benefits are as follows:

		Three months ended June 30,								Six months ended June 30,
		2006				2005				2006				2005
						(Dollars in thousands)
Interest sensitive and index product benefits:
Interest credited		$	47,977			$	47,583			$	96,018			$	95,046
Index credits			20,625				8,914				30,494				12,058
Change in value of embedded derivative			(29,449	)			9,712				(17,507	)			3,012
Amortization of deferred sales inducements			6,312				491				12,775				2,847
Interest sensitive death benefits			9,213				8,652				19,600				17,947
Total		$	54,678			$	75,352			$	141,380			$	130,910