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, 2007

or

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

For the transition period from                      to                     

FBL Financial Group, Inc.

(Exact name of registrant as specified in its charter)

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

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

(515) 225-5400

(Registrant’s telephone number, including area code)

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

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

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

Large accelerated filer o      Accelerated filer þ      Non-accelerated filer o

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

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

Title of each class		Outstanding at May 3, 2007
Class A Common Stock, without par value		28,716,749
Class B Common Stock, without par value		1,192,990

 

 

FBL FINANCIAL GROUP, INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2007
TABLE OF CONTENTS

PART I.		FINANCIAL INFORMATION
		Cautionary Statement Regarding Forward Looking Information			2
Item 1.		Financial Statements (Unaudited)
		Consolidated Balance Sheets			3
		Consolidated Statements of Income			5
		Consolidated Statements of Changes in Stockholders’ Equity			6
		Consolidated Statements of Cash Flows			7
		Notes to Consolidated Financial Statements			9
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			15
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			40
Item 4.		Controls and Procedures			40
PART II.		OTHER INFORMATION
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			41
Item 6.		Exhibits			42
SIGNATURES					45
Certification
Certification
Certification

Cautionary Statement Regarding Forward Looking Information

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

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

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

ITEM 1. FINANCIAL STATEMENTS

FBL FINANCIAL GROUP, INC.

		March 31,				December 31,
		2007				2006
Assets
Investments:
Fixed maturities – available for sale, at market (amortized cost: 2007 - $8,652,860; 2006 - $8,354,564)		$	8,688,538			$	8,375,796
Fixed maturities – trading, at market (cost: 2007 - $9,999; 2006 - $15,000)			9,976				14,927
Equity securities – available for sale, at market (cost: 2007 - $32,334; 2006 - $35,604)			45,828				50,278
Mortgage loans on real estate			1,021,256				979,883
Derivative instruments			127,457				127,478
Investment real estate, less allowances for depreciation of $2,507 in 2007 and $2,452 in 2006			8,674				8,711
Policy loans			180,253				179,899
Other long-term investments			1,300				1,300
Short-term investments			51,506				44,354
Total investments			10,134,788				9,782,626
Cash and cash equivalents			162,196				112,292
Securities and indebtedness of related parties			18,223				17,839
Accrued investment income			112,929				103,027
Amounts receivable from affiliates			4,091				17,608
Reinsurance recoverable			140,828				146,789
Deferred policy acquisition costs			841,476				827,720
Deferred sales inducements			242,115				226,647
Value of insurance in force acquired			41,597				42,841
Property and equipment, less allowances for depreciation of $75,661 in 2007 and $73,433 in 2006			46,101				46,030
Goodwill			11,170				11,170
Other assets			43,708				55,046
Assets held in separate accounts			784,995				764,377
Total assets		$	12,584,217			$	12,154,012

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

		March 31,				December 31,
		2007				2006
Liabilities and stockholders’ equity
Liabilities:
Policy liabilities and accruals:
Future policy benefits:
Interest sensitive and index products		$	8,394,633			$	8,163,318
Traditional life insurance and accident and health products			1,253,791				1,244,712
Unearned revenue reserve			28,136				28,436
Other policy claims and benefits			40,790				38,133
			9,717,350				9,474,599
Other policyholders’ funds:
Supplementary contracts without life contingencies			401,396				391,113
Advance premiums and other deposits			164,317				159,965
Accrued dividends			11,825				11,766
			577,538				562,844
Amounts payable to affiliates			36				7,319
Long-term debt			316,229				218,399
Current income taxes			107				8,740
Deferred income taxes			69,899				62,380
Other liabilities			209,235				174,496
Liabilities related to separate accounts			784,995				764,377
Total liabilities			11,675,389				11,273,154
Minority interest in subsidiaries			148				138
Stockholders’ equity:
Preferred stock, without par value, at liquidation value – authorized 10,000,000 shares, issued and outstanding 5,000,000 Series B shares			3,000				3,000
Class A common stock, without par value – authorized 88,500,000 shares, issued and outstanding 28,641,204 shares in 2007 and 28,468,662 shares in 2006			91,617				86,462
Class B common stock, without par value – authorized 1,500,000 shares, issued and outstanding 1,192,990 shares			7,519				7,519
Accumulated other comprehensive income			30,476				28,195
Retained earnings			776,068				755,544
Total stockholders’ equity			908,680				880,720
Total liabilities and stockholders’ equity		$	12,584,217			$	12,154,012

See accompanying notes.

FBL FINANCIAL GROUP, INC.

		Three months ended March 31,
		2007				2006
Revenues:
Interest sensitive and index product charges		$	26,986			$	25,314
Traditional life insurance premiums			34,537				34,388
Net investment income			149,962				122,380
Derivative income (loss)			(3,877	)			16,832
Realized/unrealized gains on investments			1,456				11,604
Other income			7,096				5,549
Total revenues			216,160				216,067
Benefits and expenses:
Interest sensitive and index product benefits			90,788				86,702
Traditional life insurance benefits			24,670				22,607
Increase in traditional life future policy benefits			7,536				8,864
Distributions to participating policyholders			5,592				5,651
Underwriting, acquisition and insurance expenses			42,110				41,795
Interest expense			3,288				2,961
Other expenses			6,023				5,497
Total benefits and expenses			180,007				174,077
			36,153				41,990
Income taxes			(12,407	)			(14,381	)
Minority interest in earnings of subsidiaries			(10	)			(55	)
Equity income, net of related income taxes			375				180
Net income			24,111				27,734
Dividends on Series B preferred stock			(38	)			(38	)
Net income applicable to common stock		$	24,073			$	27,696
Earnings per common share		$	0.81			$	0.95
Earnings per common share – assuming dilution		$	0.80			$	0.93
Cash dividends per common share		$	0.12			$	0.115

See accompanying notes.

FBL FINANCIAL GROUP, INC.

														Accumulated
		Series B				Class A				Class B				Other								Total
		Preferred				Common				Common				Comprehensive				Retained				Stockholders’
		Stock				Stock				Stock				Income				Earnings				Equity
Balance at January 1, 2006		$	3,000			$	72,260			$	7,524			$	82,301			$	679,146			$	844,231
Comprehensive loss:
Net income for three months ended March 31, 2006			—				—				—				—				27,734				27,734
Change in net unrealized investment gains/losses			—				—				—				(91,553	)			—				(91,553	)
Total comprehensive loss																							(63,819	)
Stock based compensation, including the issuance of 378,465 common shares under compensation plans			—				7,074				—				—				—				7,074
Dividends on preferred stock			—				—				—				—				(38	)			(38	)
Dividends on common stock			—				—				—				—				(3,376	)			(3,376	)
Balance at March 31, 2006		$	3,000			$	79,334			$	7,524			$	(9,252	)		$	703,466			$	784,072
Balance at January 1, 2007		$	3,000			$	86,462			$	7,519			$	28,195			$	755,544			$	880,720
Comprehensive income:
Net income for three months ended March 31, 2007			—				—				—				—				24,111				24,111
Change in net unrealized investment gains/losses			—				—				—				2,272				—				2,272
Change in underfunded status of other postretirement benefit plans			—				—				—				9				—				9
Total comprehensive income																							26,392
Adjustment resulting from capital transactions of equity investee			—				2				—				—				—				2
Stock based compensation, including the issuance of 172,542 common shares under compensation plans			—				5,153				—				—				—				5,153
Dividends on preferred stock			—				—				—				—				(38	)			(38	)
Dividends on common stock			—				—				—				—				(3,549	)			(3,549	)
Balance at March 31, 2007		$	3,000			$	91,617			$	7,519			$	30,476			$	776,068			$	908,680

See accompanying notes.

FBL FINANCIAL GROUP, INC.

		Three months ended March 31,
		2007				2006
Operating activities
Net income		$	24,111			$	27,734
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Adjustments related to interest sensitive and index products:
Interest credited/index credits to account balances, excluding deferred sales inducements			79,032				58,512
Change in fair value of embedded derivatives			(4,044	)			11,942
Charges for mortality and administration			(22,412	)			(23,661	)
Deferral of unearned revenues			390				242
Amortization of unearned revenue reserve			(535	)			(162	)
Provision for depreciation and amortization of property and equipment			3,378				3,514
Provision for accretion and amortization of investments			(3,128	)			(310	)
Realized/unrealized gains on investments			(1,456	)			(11,604	)
Change in fair value of derivatives			2,141				(10,957	)
Increase in traditional life benefit accruals			9,079				11,871
Policy acquisition costs deferred			(39,833	)			(38,957	)
Amortization of deferred policy acquisition costs			19,684				18,769
Amortization of deferred sales inducements			4,942				6,484
Amortization of value of insurance in force			912				403
Net sale of fixed maturities held for trading purposes			5,000				—
Change in accrued investment income			(9,902	)			(8,919	)
Change in amounts receivable from/payable to affiliates			6,234				(4,372	)
Change in reinsurance recoverable			5,961				(9,368	)
Change in current income taxes			(8,633	)			8,204
Provision for deferred income taxes			6,291				(1,322	)
Other			10,724				(43,864	)
Net cash provided by (used in) operating activities			87,936				(5,821	)
Investing activities
Sale, maturity or repayment of investments:
Fixed maturities – available for sale			130,896				113,048
Equity securities – available for sale			3,710				32,725
Mortgage loans on real estate			12,550				9,584
Derivative instruments			28,136				5,118
Policy loans			10,202				9,176
Short-term investments – net			—				131,982
			185,494				301,633
Acquisition of investments:
Fixed maturities – available for sale			(397,089	)			(413,673	)
Mortgage loans on real estate			(53,915	)			(58,955	)
Derivative instruments			(16,247	)			(13,994	)
Investment real estate			(17	)			—
Policy loans			(10,555	)			(10,824	)
Short-term investments – net			(7,152	)			—
			(484,975	)			(497,446	)

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

		Three months ended March 31,
		2007				2006
Investing activities — continued
Proceeds from disposal, repayments of advances and other distributions of capital from equity investees		$	14			$	512
Purchases of property and equipment			(4,003	)			(5,023	)
Disposal of property and equipment			555				1,183
Net cash used in investing activities			(302,915	)			(199,141	)
Financing activities
Receipts from interest sensitive and index products credited to policyholder account balances			402,044				387,632
Return of policyholder account balances on interest sensitive and index products			(234,684	)			(178,542	)
Proceeds from long-term debt			97,801				—
Distributions related to minority interests – net			—				(28	)
Excess tax deductions on stock-based compensation			109				1,047
Issuance of common stock			3,200				6,027
Dividends paid			(3,587	)			(3,414	)
Net cash provided by financing activities			264,883				212,722
Increase in cash and cash equivalents			49,904				7,760
Cash and cash equivalents at beginning of period			112,292				5,120
Cash and cash equivalents at end of period		$	162,196			$	12,880
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest		$	3,288			$	1,826
Income taxes			14,843				6,548
Non-cash operating activity:
Deferral of sales inducements			21,823				19,771

See accompanying notes.

FBL Financial Group, Inc.		March 31, 2007

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-month period ended March 31, 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007. We encourage you to refer to our consolidated financial statements and notes for the year ended December 31, 2006 included in our annual report on Form 10-K for a complete description of our material accounting policies. Also included in the Form 10-K is a description of areas of judgments and estimates and other information necessary to understand our financial position and results of operations.

Accounting Changes

Effective January 1, 2007, we adopted Financial Accounting Standards Board (FASB) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes.” Interpretation No. 48 creates a single model to address uncertainty in tax positions and clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. Under the Interpretation, a tax position can be recognized in the financial statements if it is more likely than not that the position will be sustained upon examination by taxing authorities who have full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement. Interpretation No. 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The impact of adopting Interpretation No. 48 was not material to our consolidated financial statements, therefore the cumulative effective of change in this accounting principle, totaling $0.3 million, is reflected as an increase to income tax expense in the first quarter of 2007. We will recognize any interest accrued related to unrecognized tax benefits in interest expense and penalties in other expenses. We are no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years prior to 2001.

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

In February 2007, the FASB issued Statement of Financial Accounting Standards (Statement) No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities,” which permits certain financial assets and liabilities to be measured at fair value, with changes in fair value reported in earnings. This election is allowed on an instrument- by-instrument basis and requires additional reporting disclosures. This Statement is effective for fiscal years

FBL Financial Group, Inc.		March 31, 2007

beginning after November 15, 2007. Early adoption is allowed provided the provisions of Statement No. 157 are also adopted. We are currently evaluating the requirements of this Statement and have not yet concluded if the fair value option will be adopted.

In January 2007, the FASB issued Statement 133 Implementation Issue No. G26, “Cash Flow Hedges: Hedging Interest Cash Flows on Variable-Rate Assets and Liabilities That Are Not Based on a Benchmark Interest Rate,” (DIG G26) which clarifies the accounting for a cash flow hedge of a variable-rate asset or liability, specifically addressing when an entity is permitted to hedge benchmark interest rate risk. DIG G26 indicates that the risk being hedged in a cash flow hedge of a variable-rate financial asset or liability cannot be designated as interest rate risk unless the cash flows of the hedged transaction are explicitly based on that same benchmark interest rate. In addition, DIG G26 clarifies that the only permitted benchmarks are the risk-free rate and rates based on the LIBOR swap curve. Hedging relationships that no longer qualify for cash flow hedge accounting based on this guidance must be undesignated prospectively. Future changes in fair value of derivatives not subsequently re-designated to a new qualifying hedging relationship must be recorded in earnings. Gains or losses previously included in accumulated other comprehensive income will remain in accumulated other comprehensive income and be amortized to net income over the remaining term of the swaps as the hedged anticipated cash flows occur. If it becomes probable that the anticipated cash flows will not occur, the deferred gains or losses will be reclassified into earnings immediately. We intend to adopt this Issue when required in the second quarter of 2007 and undesignate the hedging relationship for the interest rate swaps related to our flexible premium deferred annuity contracts as they are not explicitly based on one of the two permitted benchmarks. The impact of this adoption will vary based on changes in market conditions. Net unrealized gains on these swaps included in accumulated other comprehensive income totaled $2.8 million at March 31, 2007 and $4.4 million at December 31, 2006. This guidance does not impact the interest rate swap on our line of credit, as both the derivative instrument and hedged item are based on the three-month LIBOR rate.

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

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

Impact of Unlocking

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

Based on an experience study performed during the first quarter of 2007, we decreased the lapse assumptions in the models for our direct index annuity business. This assumption change decreased the amortization of deferred policy acquisition costs (a component of “Underwriting, acquisition and insurance expenses”) $1.4 million and decreased the amortization of deferred sales inducements (a component of “Interest sensitive and index product benefits”) $1.2 million in the first quarter of 2007. In total, this unlocking increased pre-tax income $2.6 million, or $0.06 per share after tax on both a basic and diluted basis. There were no unlocking adjustments recorded in the first quarter of 2006.

FBL Financial Group, Inc.		March 31, 2007

Reclassifications

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

2. Credit Arrangements

On March 12, 2007, we issued $100.0 million of 5.875% Senior Notes (Senior Notes) due March 15, 2017. Interest on the Senior Notes will be paid semi-annually beginning September 15, 2007. The Senior Notes are redeemable in whole or in part at any time at our option at a “make-whole” redemption price equal to the greater of 100% of their principal amount or the sum of the present values of the remaining scheduled payments of principal and interest on the Senior Notes, discounted to the redemption date on a semiannual basis at the treasury rate plus 20 basis points.

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

3. Defined Benefit Plans

We participate with several affiliates and an unaffiliated organization in various multiemployer defined benefit plans. Our share of net periodic pension cost for the plans recorded in our consolidated income statements totaled $1.5 million for the three months ended March 31, 2007 and $1.6 million for the three months ended March 31, 2006. Components of net periodic pension cost for all employers in the multiemployer plans are as follows:

		Three months ended March 31,
		2007				2006
		(Dollars in thousands)
Service cost		$	2,341			$	2,396
Interest cost			3,475				3,428
Expected return on assets			(3,087	)			(2,746	)
Amortization of prior service cost			194				201
Amortization of actuarial loss			1,120				1,398
Net periodic pension cost – all employers		$	4,043			$	4,677

4. Commitments and Contingencies

In the normal course of business, we may be involved in litigation where amounts are alleged that are substantially in excess of contractual policy benefits or certain other agreements. At March 31, 2007, management is not aware of any claims for which a material loss is reasonably possible.

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

We participate in a reinsurance pool with various unaffiliated life insurance companies to mitigate the impact of a catastrophic event on our financial position and results of operations. Members of the pool share in the eligible catastrophic losses based on their size and contribution to the pool. Under the pool arrangement, we will be able to cede approximately 60% of catastrophic losses after other reinsurance and a deductible of $0.8 million. Pool losses

FBL Financial Group, Inc.		March 31, 2007

are capped at $11.7 million per event and the maximum loss we could incur as a result of losses assumed from other pool members is $4.2 million per event.

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

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

5. Earnings Per Share

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

		Three months ended March 31,
		2007				2006
		(Dollars in thousands, except per share data)
Numerator:
Net income		$	24,111			$	27,734
Dividends on Series B preferred stock			(38	)			(38	)
Numerator for earnings per common share-income available to common stockholders		$	24,073			$	27,696
Denominator:
Weighted average shares			29,516,555				29,187,319
Deferred common stock units relating to deferred compensation plans			56,448				41,135
Denominator for earnings per common share – weighted-average shares			29,573,003				29,228,454
Effect of dilutive securities – stock–based compensation			649,268				537,020
Denominator for diluted earnings per common share – adjusted weighted-average shares			30,222,271				29,765,474
Earnings per common share		$	0.81			$	0.95
Earnings per common share – assuming dilution		$	0.80			$	0.93

6. Segment Information

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

FBL Financial Group, Inc.		March 31, 2007

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

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

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

FBL Financial Group, Inc.		March 31, 2007

Financial information concerning our operating segments is as follows:

		Three months ended March 31,
		2007				2006
		(Dollars in thousands)
Operating revenues:
Traditional Annuity – Exclusive Distribution		$	37,138			$	36,093
Traditional Annuity – Independent Distribution			71,173				45,263
Traditional and Universal Life Insurance			81,703				80,162
Variable			16,361				14,262
Corporate and Other			8,193				6,876
			214,568				182,656
Realized/unrealized gains on investments (A)			1,456				11,605
Change in net unrealized gains/losses on derivatives (A)			136				21,806
Consolidated revenues		$	216,160			$	216,067
Pre-tax operating income (loss):
Traditional Annuity – Exclusive Distribution		$	9,117			$	8,773
Traditional Annuity – Independent Distribution			11,159				5,932
Traditional and Universal Life Insurance			11,394				10,950
Variable			2,258				2,816
Corporate and Other			(740	)			(1,871	)
			33,188				26,600
Income taxes on operating income			(11,091	)			(9,014	)
Realized/unrealized gains on investments (A)			954				7,693
Change in net unrealized gains/losses on derivatives (A)			1,343				2,455
Cumulative effect of change in accounting principle			(283	)			—
Consolidated net income		$	24,111			$	27,734

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, 2007 and December 31, 2006 is allocated among the segments as follows: Exclusive Annuity ($3.9 million), Traditional and Universal Life Insurance ($6.1 million) and Variable ($1.2 million).

FBL Financial Group, Inc.		March 31, 2007

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

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

Results of Operations for the Three Months Ended March 31, 2007 Compared to Three Months Ended March 31, 2006

		Three months ended March 31,
		2007				2006
		(Dollars in thousands,
		except per share data)
Revenues		$	216,160			$	216,067
Benefits and expenses			180,007				174,077
			36,153				41,990
Income taxes			(12,407	)			(14,381	)
Minority interest and equity income			365				125
Net income			24,111				27,734
Less dividends on Series B preferred stock			(38	)			(38	)
Net income applicable to common stock		$	24,073			$	27,696
Earnings per common share		$	0.81			$	0.95
Earnings per common share – assuming dilution		$	0.80			$	0.93
Other data
Direct premiums collected, net of reinsurance ceded:
Traditional Annuity – Exclusive Distribution		$	35,463			$	41,880
Traditional Annuity – Independent Distribution			296,060				277,203
Traditional and Universal Life Insurance			45,837				44,300
Variable Annuity and Variable Universal Life (1)			42,783				41,836
Reinsurance assumed and other			3,585				4,489
Total		$	423,728			$	409,708
Direct life insurance in force, end of quarter (in millions)		$	38,916			$	36,451
Life insurance lapse rates			6.0	%			6.9	%
Withdrawal rates – individual traditional annuity:
Exclusive Distribution			4.9	%			4.5	%
Independent Distribution			4.1	%			4.9	%

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 in the three months ended March 31, 2007 compared to the 2006 period

FBL Financial Group, Inc.		March 31, 2007

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 20,071 at March 31, 2007, from 11,825 at March 31, 2006.

Net income applicable to common stock decreased 13.1% in the first quarter of 2007 to $24.1 million due to a $10.1 million decrease in realized/unrealized gains on investments, partially offset by the impact of an unlocking adjustment on deferred policy acquisition costs and deferred sales inducements described below and an increase in the volume of business in force. The increase in volume of business in force is quantified in the detailed discussion that follows by summarizing the face amount of insurance in force for life products or account values of contracts in force for interest sensitive products. The face amount of life insurance in force represents the gross death benefit payable to policyholders and account value represents the value of the contract to the contract holder before application of surrender charges or reduction for any policy loans outstanding.

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

		Three months ended March 31,
		2007				2006
Weighted average yield on cash and invested assets			6.18	%			6.11	%
Weighted average interest crediting rate/index cost			3.78				3.54
Spread			2.40	%			2.57	%

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

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

Based on an experience study performed during the first quarter of 2007, we decreased the lapse assumptions in the models for our direct index annuity business. This assumption change decreased the amortization of deferred policy acquisition costs (a component of “Underwriting, acquisition and insurance expenses”) $1.4 million and decreased the amortization of deferred sales inducements (a component of “Interest sensitive and index product benefits”) $1.2 million in the first quarter of 2007. In total, this unlocking increased pre-tax income $2.6 million, or $0.06 per share after tax on both a basic and diluted basis. There were no unlocking adjustments recorded in the first quarter of 2006.

Premiums and product charges are as follows:

		Three months ended March 31,
		2007				2006
		(Dollars in thousands)
Premiums and product charges:
Interest sensitive and index product charges		$	26,986			$	25,314
Traditional life insurance premiums			34,537				34,388
Total		$	61,523			$	59,702

Premiums and product charges increased 3.1% in the first quarter of 2007 to $61.5 million. The increase in interest sensitive and index product charges is principally driven by surrender charges on annuity and universal life products,

FBL Financial Group, Inc.		March 31, 2007

cost of insurance charges on variable universal life and universal life products and mortality and expense fees on variable products.

Surrender charges totaled $4.8 million in the three-month period ended March 31, 2007 compared to $4.3 million in the 2006 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 aggregate 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 $7,845.1 million for the three-month period in 2007 and $6,133.7 million for the three-month period in 2006. We believe aging of the business in force is driving a portion of the increase in surrender charges relating to our annuity business as the surrender charge rate decreases with the passage of time (at a rate generally equal to 1.0% per year). This makes a surrender later in the contract period more economical for the contract holder. We started assuming business under a coinsurance agreement with American Equity Investment Life Insurance Company in 2001 and started selling annuities directly through EquiTrust Life independent agents in the fourth quarter of 2003. Surrender charges on this coinsurance and direct business totaled $4.1 million for the three months ended March 31, 2007 and $3.6 million for the 2006 period.

Cost of insurance charges totaled $16.2 million in the three months ended March 31, 2007 and $15.8 million in the 2006 period. Cost of insurance charges increased primarily due to aging of the business in force as the cost of insurance charge rate per each $1,000 in force increases with the age of the insured. The average age of our universal life and variable universal life policyholders was 45.3 years at March 31, 2007 and 44.9 years at March 31, 2006.

Mortality and expense fees totaled $2.3 million in the three-month period ended March 31, 2007 and $1.9 million in the 2006 period. Mortality and expense fees increased due to an increase in the separate account balances on which fees are based. The average separate account balance increased to $774.7 million for the three-month period in 2007, from $661.3 million for the three-month period in 2006 due to the impact of new sales and favorable investment results. Transfers of premiums to the separate accounts totaled $35.5 million for the three months ended March 31, 2007 and $33.0 million for the 2006 period. Net investment income and net realized and unrealized gains on separate account assets totaled $10.8 million in the three-month period of 2007 and $28.3 million in the 2006 period.

Traditional premiums increased due to an increase in the volume of business in force, partially offset by an increase in reinsurance ceded. The increase in the business in force is 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 aggregate traditional life insurance in force, net of reinsurance ceded, totaled $19,262 million for the three-month period in 2007 and $17,710 million for the three-month period in 2006. The change in life insurance in force is not proportional to the change in premium income due to a shift in the composition of our traditional life block of business from whole life policies to term policies. The premium for a term policy per $1,000 face amount is less than that for a whole life policy.

Net investment income, which excludes investment income on separate account assets relating to variable products, increased 22.5% in the first quarter of 2007 to $150.0 million primarily due to an increase in average invested assets. Average invested assets in the three-month period of 2007 increased 20.4% to $9,887.9 million (based on securities at amortized cost) from $8,209.6 million in the 2006 period, due principally to net premium inflows from the Life Companies and the proceeds from the issuance of Senior Notes in March 2007. The annualized yield earned on average invested assets increased to 6.21% in the three months ended March 31 2007 from 6.10% in the respective 2006 period. Fee income from bond calls, tender offers and mortgage loan prepayments totaled $2.6 million in the three months ended March 31, 2007 compared to $1.1 million in the respective 2006 period. For the three months ended March 31, net investment income also includes $0.1 million in 2007 and ($0.9) million in 2006, representing the acceleration (reversal) of net discount accretion on mortgage and asset-backed securities resulting from changing prepayment speed assumptions as of the end of each respective period. See the “Financial Condition – Investments” section that follows for a description of how changes in prepayment speeds impact net investment income.

FBL Financial Group, Inc.		March 31, 2007

Derivative income (loss) is as follows:

		Three months ended March 31,
		2007				2006
		(Dollars in thousands)
Derivative income (loss):
Components of derivative income (loss) from call options:
Gains received at expiration		$	20,580			$	9,962
Change in the difference between fair value and remaining option cost at beginning and end of period			(733	)			21,889
Cost of money for call options			(23,806	)			(14,940	)
			(3,959	)			16,911
Other			82				(79	)
Total		$	(3,877	)		$	16,832

Gains received at expiration are attributable to growth in the volume of index annuities in force and appreciation in the market indices on which our options are based. The average aggregate account value of index annuities in force, which has increased due to new sales, totaled $3,788.8 million for the three months ended March 31, 2007 compared to $2,830.7 million for the respective 2006 period. The changes in the difference between the fair value of the call options and the remaining option costs are caused primarily by the change in the S&P 500 Index^® (upon which the majority of our options are based). The range of index appreciation for S&P 500 Index options during the first three months is as follows:

		Three months ended March 31,
		2007				2006
Annual point-to-point strategy			6.1%-14.4	%			5.1%-10.8	%
Monthly point-to-point strategy			4.4%-12.7	%			3.2%-8.7	%
Monthly average strategy – one-year options			1.2%-5.7	%			0.9%-5.1	%
Monthly average strategy – two-year options			9.3%-10.0	%			—
Daily average strategy			2.1%-5.3	%			0.7%-4.6	%

The change in fair value is also reduced by participation rates and caps, as applicable, on the underlying options. Furthermore, the change in fair value is impacted by options based on other underlying indices and the timing of option settlements. The cost of money for call options increased 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 on investments are as follows:

		Three months ended March 31,
		2007				2006
		(Dollars in thousands)
Realized/unrealized gains (losses) on investments:
Gains on sales		$	1,444			$	13,989
Losses on sales			(38	)			(3	)
Losses due to impairments			—				(2,340	)
Unrealized gains (losses) on trading securities			50				(42	)
Total		$	1,456			$	11,604

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

FBL Financial Group, Inc.		March 31, 2007

March 31, 2007 and December 31, 2006. Gains on sales in 2006 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.

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. We did not have any investment impairments during the first quarter of 2007. Details regarding investment impairments individually exceeding $0.5 million, for the three months ended March 31, 2006, including the circumstances requiring the write downs, are summarized in the following table:

General Description		Impairment Loss				Circumstance
		(Dollars in
		thousands)
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)

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

FBL Financial Group, Inc.		March 31, 2007

Interest sensitive and index product benefits are as follows:

		Three months ended March 31,
		2007				2006
		(Dollars in thousands)
Interest sensitive and index product benefits:
Interest credited		$	58,095			$	48,041
Index credits			20,306				9,869
Change in value of embedded derivative			(4,044	)			11,942
Amortization of deferred sales inducements			4,900				6,463
Interest sensitive death benefits			11,531				10,387
Total		$	90,788			$	86,702

Interest sensitive and index product benefits increased 4.7% in the first quarter of 2007 to $90.8 million, primarily due to the impact of an increase in the volume of annuity business in force and interest sensitive death benefits, partially offset by the impact of less market appreciation on the indices backing the index annuities. Interest sensitive and index product benefits tend to fluctuate from period to period primarily as a result of changes in mortality experience and the impact of changes in the equity markets on index credits and the value of the embedded derivatives in our index annuities.

The average aggregate account value of annuity contracts in force, which increased due to an increase in premiums collected as summarized in the “Other data” table above, totaled $6,952.6 million for the 2007 period and $5,243.5 million for the 2006 period. These account values include values relating to index contracts in the first quarter totaling $3,788.8 million for 2007 and $2,830.7 million for 2006.

The weighted average interest crediting rate/index cost for universal life and individual traditional annuity products, excluding the impact of the amortization of deferred sales inducements, was 3.78% for the 2007 period and 3.54% for the 2006 period.

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

The decrease in amortization of deferred sales inducements is due to the impact of the unlocking adjustment described above in the “Net income applicable to common stock” section and the impact of changes in realized/unrealized gains and losses on investments and derivatives, partially offset by the impact of additional capitalization of costs incurred with new sales and profitability in the underlying business. Amortization of deferred sales inducements increased $0.9 million in the 2007 period and increased $2.6 million in the 2006 period due to the impact of realized/unrealized gains and losses on investments and the change in unrealized gains and losses on derivatives. Deferred sales inducements on interest sensitive and index products totaled $239.2 million at March 31, 2007 and $162.4 million at March 31, 2006.

FBL Financial Group, Inc.		March 31, 2007

Traditional life insurance benefits are as follows:

		Three months ended March 31,
		2007				2006
		(Dollars in thousands)
Traditional life insurance policy benefits:
Traditional life insurance benefits		$	24,670			$	22,607
Increase in traditional life future policy benefits			7,536				8,864
Distributions to participating policyholders			5,592				5,651
Total		$	37,798			$	37,122

Traditional life insurance benefits increased 1.8% in the first quarter of 2007 to $37.8 million primarily due to an increase in traditional life insurance surrender benefits and the impact of an increase in the volume of traditional life business in force, partially offset by a decrease in traditional life future policy benefits. In the first quarter of 2007, surrender benefits increased 25.3% to $9.7 million. The increase in surrender benefits also contributed to a lower increase in traditional life future policy benefits in the 2007 period. The change in traditional life future policy benefits may not be proportional to the change in traditional premiums and benefits as reserves on term policies are generally less than reserves on whole life policies. Traditional life insurance benefits can fluctuate from period to period primarily as a result of changes in mortality experience.

Underwriting, acquisition and insurance expenses are as follows:

		Three months ended March 31,
		2007				2006
		(Dollars in thousands)
Underwriting, acquisition and insurance expenses:
Commission expense, net of deferrals		$	3,405			$	3,518
Amortization of deferred policy acquisition costs			19,684				18,769
Amortization of value of insurance in force acquired			912				403
Other underwriting, acquisition and insurance expenses, net of deferrals			18,109				19,105
Total		$	42,110			$	41,795

Underwriting, acquisition and insurance expenses increased 0.8% for the 2007 period to $42.1 million. Amortization of deferred policy acquisition costs increased in the first quarter primarily due to an increase in the profitability and volume of business in force resulting from new sales from our EquiTrust Life distribution channel, partially offset by the impact of the unlocking adjustment as discussed above in the “Net income applicable to common stock” section. Amortization of value of insurance in force acquired increased $0.5 million in the first quarter of 2007 primarily due to increased profitability on the underlying business. Other underwriting, acquisition and insurance expenses decreased $1.0 million from the 2006 period primarily due to lower retirement expenses.

Interest expense increased 11.0% to $3.3 million in the first quarter of 2007, due to an increase in our long-term debt. The average debt outstanding increased to $235.8 million for the 2007 period from $218.4 million for the 2006 period due to the issuance of Senior Notes in March 2007.

Income taxes decreased 13.7% in the 2007 period to $12.4 million. The effective tax rate was 34.3% for the first quarter of 2007, and 34.2% for the 2006 period. The effective tax rates were lower than the federal statutory rate of 35% primarily due to tax-exempt interest and tax-exempt dividend income. The increase in the effective tax rate is primarily due to a $0.3 million increase in income tax expense from the adoption of Interpretation No. 48, “Accounting for Uncertainty in Income Taxes.” See “Accounting Changes” for additional details on this Interpretation.

Equity income, net of related income taxes, totaled $0.4 million for the first quarter of 2007 compared to $0.2 million in the 2006 period. Equity income includes our proportionate share of gains and losses attributable to our ownership interest in partnerships, joint ventures and certain companies where we exhibit some control but have a

FBL Financial Group, Inc.		March 31, 2007

minority ownership interest. Given the timing of availability of financial information from our equity investees, we will consistently use information that is as much as three months in arrears for certain of these entities. Several of these entities are investment companies whose operating results are derived primarily from unrealized and realized gains and losses generated by their investment portfolios. As is normal with these types of entities, the level of these gains and losses is subject to fluctuation from period to period depending on the prevailing economic environment, changes in prices of equity securities held by the investment partnerships, timing and success of initial public offerings and other exit strategies, and the timing of the sale of investments held by the partnerships and joint ventures.

Segment Information

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

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

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

The impact of realized and unrealized gains and losses on investments and unrealized gains and losses on derivatives also includes adjustments for taxes and that portion of amortization of deferred policy acquisition costs, deferred sales inducements, unearned revenue reserve and value of insurance in force acquired attributable to such gains or losses. Our rationale for using operating income, in addition to net income, to measure our performance is summarized in Note 6, “Segment Information,” to the consolidated financial statements.

FBL Financial Group, Inc.		March 31, 2007

A reconciliation of net income to pre-tax operating income and a summary of pre-tax operating income (loss) by segment follows:

		Three months ended March 31,
		2007				2006
		(Dollars in thousands)
Net income		$	24,111			$	27,734
Realized/unrealized gains on investments			(1,456	)			(11,604	)
Change in net unrealized gains/losses on derivatives			(4,180	)			(9,865	)
Change in amortization of:
Deferred policy acquisition costs			1,174				3,301
Deferred sales inducements			930				2,635
Value of insurance in force acquired			—				(78	)
Unearned revenue reserve			—				(1	)
Cumulative effect of change in accounting principle			283				—
Income tax offset			1,236				5,464
			(2,013	)			(10,148	)
Income taxes on operating income			11,090				9,014
Pre-tax operating income		$	33,188			$	26,600
Pre-tax operating income (loss) by segment:
Traditional Annuity – Exclusive Distribution		$	9,117			$	8,773
Traditional Annuity – Independent Distribution			11,159				5,932
Traditional and Universal Life Insurance			11,394				10,950
Variable			2,258				2,816
Corporate and Other			(740	)			(1,871	)
		$	33,188			$	26,600

FBL Financial Group, Inc.		March 31, 2007

A discussion of our operating results, by segment, follows:

Traditional Annuity – Exclusive Distribution Segment

		Three months ended March 31,
		2007				2006
		(Dollars in thousands)
Pre-tax operating income
Operating revenues:
Interest sensitive and index product charges		$	287			$	283
Net investment income			36,810				35,844
Derivative income (loss)			41				(34	)
			37,138				36,093
Benefits and expenses			28,021				27,320
Pre-tax operating income		$	9,117			$	8,773
Other data
Annuity premiums collected, direct		$	35,463			$	41,880
Policy liabilities and accruals, end of period			2,218,642				2,221,069
Individual deferred annuity spread:
Weighted average yield on cash and invested assets			6.40	%			6.30	%
Weighted average interest crediting rate/index cost			4.05				3.99
Spread			2.35	%			2.31	%
Individual traditional annuity withdrawal rate			4.9	%			4.5	%

Pre-tax operating income for the Exclusive Annuity segment increased 3.9% in the first quarter of 2007 to $9.1 million due primarily to an increase in spreads earned on the underlying business. Net investment income for the three-month period includes $1.1 million in 2007 and less than $0.1 million in 2006 in fee income from bond calls, tender offers and mortgage loan prepayments and the acceleration (reversal) of net discount accretion on mortgage and asset-backed securities.

Premiums collected decreased 15.3% in the 2007 period to $35.5 million. The amount of traditional annuity premiums collected is highly dependent upon the relationship between the current crediting rates on our products and the crediting rates available on competing products, including bank-offered certificates of deposit. We believe the decrease in annuity premiums in 2007 is due to a rise in short-term market interest rates during 2007 and 2006, making certificates of deposit and other short-term investments more attractive in relation to these traditional annuities. We also believe this competitive environment resulted in increased surrenders, therefore increasing the withdrawal rate for the first quarter of 2007. To enhance our competitive position in the current interest rate environment, we introduced a new deferred annuity contract effective July 1, 2006 that has an interest crediting rate based on current market investment rates.

The increase in the weighted average yield on cash and invested assets and spread is primarily due to the items impacting net investment income discussed above. In 2006 we increased the crediting rate on our primary flexible premium deferred annuity product ten basis points in response to increased income generated from interest rate swaps we utilize to hedge a portion of our annuity portfolio. Income from these swaps, which is netted against interest credited, totaled $1.0 million in the 2007 period compared to $0.7 million in the 2006 period.

FBL Financial Group, Inc.		March 31, 2007

Traditional Annuity – Independent Distribution Segment

		Three months ended March 31,
		2007				2006
		(Dollars in thousands)
Pre-tax operating income
Operating revenues:
Interest sensitive and index product charges		$	4,105			$	3,562
Net investment income			71,122				46,641
Derivative loss			(4,054	)			(4,940	)
			71,173				45,263
Benefits and expenses			60,014				39,331
Pre-tax operating income		$	11,159			$	5,932
Other data
Annuity premiums collected, independent channel
Fixed rate annuities		$	74,543			$	44,213
Index annuities			221,517				232,990
Total annuity premiums collected, independent channel			296,060				277,203
Annuity premiums collected, assumed			755				1,280
Policy liabilities and accruals, end of period			5,598,405				3,842,845
Individual deferred annuity spread:
Weighted average yield on cash and invested assets			5.97	%			5.83	%
Weighted average interest crediting rate/index cost			3.59				3.17
Spread			2.38	%			2.66	%
Individual traditional annuity withdrawal rate			4.1	%			4.9	%

Pre-tax operating income for the Independent Annuity segment increased 88.1% in the 2007 period to $11.2 million. The increase is due principally to growth in the volume of business in force and the impact of unlocking as discussed above in the “Net income applicable to common stock” section, partially offset by a decrease in spreads earned on individual deferred annuities. Revenues, benefits, expenses, premiums collected and volume of business in force increased primarily due to the growth of our EquiTrust Life distribution channel. The number of licensed independent agents increased to 20,071 at March 31, 2007, from 11,825 at March 31, 2006. The average aggregate account value for annuity contracts in force in the Independent Annuity segment totaled $5,384.4 million for the 2007 period and $3,671.9 million for the 2006 period.

The increase in interest sensitive and index product charges in the 2007 period is due to an increase in surrender charges. Surrender charges increased due to increases in surrenders relating to growth in the volume and aging of business in force. The increase in net investment income is attributable to growth in invested assets due principally to net premium inflows and the impact of an increase in our investment yield. In addition, net investment income for the three-month period includes $0.9 million in 2007 and ($0.1) million in 2006 in fee income from bond calls, tender offers and mortgage loan prepayments and the acceleration (reversal) of net discount accretion on mortgage and asset-backed securities. The decrease in derivative loss is due to increases in proceeds from call option settlements, partially offset by increases in the cost of money for options as discussed under “Derivative income (loss)” above. Call option settlements in 2007 totaled $20.4 million for the first quarter of 2007 and $10.0 million for the 2006 period. The cost of money for call options in the first quarter of 2007 totaled $23.7 million compared to $14.9 million in the 2006 period.

Benefits and expenses for the 2007 period increased due to growth in the volume of business in force. Index credits totaled $20.2 million in the first quarter of 2007 compared to $9.9 million in the 2006 period due to timing of policy anniversary dates and the amount of appreciation in the underlying indices.

FBL Financial Group, Inc.		March 31, 2007

The weighted average yield increased partially due to additional fee income described above and an increase in market investment rates due to the type and duration of assets purchased. The weighted average crediting rate increased for the 2007 period due to increasing crediting rates and option costs. In addition, fixed rate annuity sales increased 68.6% over the 2006 period and are primarily multi-year guarantee products that typically have a lower spread target.

Traditional and Universal Life Insurance Segment

		Three months ended March 31,
		2007				2006
		(Dollars in thousands)
Pre-tax operating income
Operating revenues:
Interest sensitive product charges		$	11,329			$	11,102
Traditional life insurance premiums and other income			34,537				34,388
Net investment income			35,837				34,672
			81,703				80,162
Benefits and expenses			70,309				69,212
Pre-tax operating income		$	11,394			$	10,950
Other data
Life premiums collected, net of reinsurance		$	48,597			$	47,439
Policy liabilities and accruals, end of period			2,142,815				2,107,702
Direct life insurance in force, end of period (in millions)			31,212				28,936
Interest sensitive life insurance spread:
Weighted average yield on cash and invested assets			6.94	%			6.77	%
Weighted average interest crediting rate			4.60				4.44
Spread			2.34	%			2.33	%

Pre-tax operating income for the Traditional and Universal Life Insurance segment increased 4.1% in the 2007 period to $11.4 million. The increase in the 2007 period is primarily due to higher net investment income and a decrease in other underwriting expenses, partially offset by higher death benefits. The increase in net investment income is attributable to growth in invested assets due principally to net premium inflows and the impact of an increase in our investment yield. Net investment income includes fee income from bond calls, tender offers and mortgage loan prepayments and the acceleration of net discount accretion on mortgage and asset-backed securities totaling $0.7 million in the first quarter of 2007, compared to $0.3 million in the 2006 period.

Death benefits in excess of reserves released for the first quarter of 2007 increased 4.5% to $17.0 million. Other underwriting expenses for the 2007 quarter decreased 10.7% to $7.3 million primarily due to a decrease in retirement expenses.

The changes in the weighted average yield on cash and invested assets are attributable to the items affecting net investment income noted above. The increase in weighted average interest crediting rate is primarily due to an increase in credited rates on assumed business.

FBL Financial Group, Inc.		March 31, 2007

Variable Segment

		Three months ended March 31,
		2007				2006
		(Dollars in thousands)
Pre-tax operating income
Operating revenues:
Interest sensitive product charges		$	11,265			$	10,366
Net investment income			3,473				3,631
Other income			1,623				265
			16,361				14,262
Benefits and expenses			14,103				11,446
Pre-tax operating income		$	2,258			$	2,816
Other data
Variable premiums collected, net of reinsurance		$	42,783			$	41,836
Policy liabilities and accruals, end of period			233,117				240,939
Separate account assets, end of period			784,995				682,700
Direct life insurance in force, end of period (in millions)			7,704				7,515

Pre-tax operating income for the Variable segment decreased 19.8% to $2.3 million in the first quarter of 2007 primarily due to an increase in amortization of deferred policy acquisition costs, partially offset by an increase in the volume of business in force and other income.

Interest sensitive product charges increased due to mortality and expense fee income and cost of insurance charges. For the three-month period of 2007, mortality and expense fee income increased 22.4% to $2.3 million due to an increase in separate account assets. Cost of insurance charges increased 5.4% to $6.9 million in the first quarter of 2007 due primarily to the impact of the aging of business in force.

Other income increased $1.0 million in the first quarter of 2007 due to the recognition of contingent administrative fee income from alliance partners. This is not expected to be a recurring source of income. Amortization of deferred policy acquisition costs totaled $2.8 million in the first quarter of 2007 compared to $0.7 million in 2006, which reflected the impact of an increase in expected future profits recognized in the first quarter of 2006.

Corporate and Other Segment

		Three months ended March 31,
		2007				Adjusted 2006
		(Dollars in thousands)
Pre-tax operating loss
Operating revenues:
Net investment income		$	2,720			$	1,592
Other income			5,473				5,284
			8,193				6,876
Interest expense			3,288				2,961
Benefits and other expenses			6,212				6,008
			(1,307	)			(2,093	)
Minority interest			(10	)			(55	)
Equity income, before tax			577				277
Pre-tax operating loss		$	(740	)		$	(1,871	)