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, 2008

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

For the transition period from                      to                     

FBL Financial Group, Inc.

 

(Exact name of registrant as specified in its charter)

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

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

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

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

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

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

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o
		(Do not check if a smaller reporting company)

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 5, 2008
Class A Common Stock, without par value			28,969,277
Class B Common Stock, without par value			1,192,990

 

 

FBL FINANCIAL GROUP, INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2008
TABLE OF CONTENTS

PART I.		FINANCIAL INFORMATION
		Cautionary Statement Regarding Forward Looking Information			2
Item 1.		Financial Statements (Unaudited)
		Consolidated Balance Sheets			4
		Consolidated Statements of Income			6
		Consolidated Statements of Changes in Stockholders’ Equity			7
		Consolidated Statements of Cash Flows			8
		Notes to Consolidated Financial Statements			10
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			17
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			45
Item 4.		Controls and Procedures			45
PART II.		OTHER INFORMATION
Item 6.		Exhibits			46
SIGNATURES					49
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.
	•		Attracting and retaining employees who are key to our business is critical to our growth and success.
	•		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.
	•		Our ability to grow depends upon the continued availability of capital, which may not be available when we need it, or may only be available on unfavorable terms.
	•		Our ability to maintain competitive costs is dependent upon the level of new sales and persistency of existing business.
	•		Inaccuracies in assumptions regarding future persistency, mortality and interest rates used in calculating reserve, deferred policy acquisition expense and deferred sales inducement amounts and pricing our products could have a material adverse impact on our net income.
	•		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, more advanced technology systems, broader arrays of products, higher ratings and stronger financial performance, which may impair our ability to retain existing customers, attract new customers and maintain our profitability and financial strength.
	•		Success of our business depends in part on effective information technology systems and on continuing to develop and implement improvements.
	•		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 the liabilities ceded to reinsurers if the reinsurers fail to meet the obligations assumed by them.
	•		We 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.
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands)

		March 31,				December 31,
		2008				2007
Assets
Investments:
Fixed maturities – available for sale, at market (amortized cost: 2008 - $9,822,297; 2007 - $9,662,986)		$	9,414,478			$	9,522,592
Equity securities – available for sale, at market (cost: 2008 - $22,410; 2007 - $22,410)			25,007				23,633
Mortgage loans on real estate			1,229,068				1,221,573
Derivative instruments			28,359				43,918
Investment real estate, less allowances for depreciation of $0 in 2008 and 2007			2,559				2,559
Policy loans			179,140				179,490
Other long-term investments			1,300				1,300
Short-term investments			99,095				72,005
Total investments			10,979,006				11,067,070
Cash and cash equivalents			101,404				84,015
Securities and indebtedness of related parties			20,043				19,957
Accrued investment income			130,063				118,827
Amounts receivable from affiliates			5,937				10,831
Reinsurance recoverable			111,849				123,659
Deferred policy acquisition costs			1,089,344				991,155
Deferred sales inducements			353,414				321,263
Value of insurance in force acquired			45,525				41,215
Property and equipment, less allowances for depreciation of $77,678 in 2008 and $75,365 in 2007			49,352				49,164
Current income taxes recoverable			15,405				7,412
Deferred income tax benefit			16,711				—
Goodwill			11,170				11,170
Collateral held for securities lending and other transactions			198,029				186,925
Other assets			22,146				32,458
Assets held in separate accounts			802,225				862,738
Total assets		$	13,951,623			$	13,927,859

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

		March 31,				December 31,
		2008				2007
Liabilities and stockholders’ equity
Liabilities:
Policy liabilities and accruals:
Future policy benefits:
Interest sensitive and index products		$	9,707,117			$	9,557,073
Traditional life insurance and accident and health products			1,297,198				1,284,068
Unearned revenue reserve			29,774				28,448
Other policy claims and benefits			38,193				31,069
			11,072,282				10,900,658
Other policyholders’ funds:
Supplementary contracts without life contingencies			460,554				439,441
Advance premiums and other deposits			162,174				158,245
Accrued dividends			11,134				11,208
			633,862				608,894
Amounts payable to affiliates			1,228				35
Long-term debt			316,949				316,930
Deferred income taxes			—				28,188
Collateral payable for securities lending and other transactions			197,477				202,594
Other liabilities			121,095				104,840
Liabilities related to separate accounts			802,225				862,738
Total liabilities			13,145,118				13,024,877
Minority interest in subsidiaries			129				91
Stockholders’ equity:
Preferred stock, without par value, at liquidation value – authorized 10,000,000 shares, issued and outstanding 5,000,000 Series B shares			3,000				3,000
Class A common stock, without par value – authorized 88,500,000 shares, issued and outstanding 28,969,068 shares in 2008 and 28,826,738 shares in 2007			104,453				101,221
Class B common stock, without par value – authorized 1,500,000 shares, issued and outstanding 1,192,990 shares			7,525				7,525
Accumulated other comprehensive loss			(137,996	)			(36,345	)
Retained earnings			829,394				827,490
Total stockholders’ equity			806,376				902,891
Total liabilities and stockholders’ equity		$	13,951,623			$	13,927,859

See accompanying notes.

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

		Three months ended March 31,
		2008				2007
Revenues:
Interest sensitive and index product charges		$	29,121			$	26,986
Traditional life insurance premiums			36,133				34,537
Net investment income			168,494				149,962
Derivative loss			(98,896	)			(3,877	)
Realized/unrealized gains (losses) on investments			(29,347	)			1,456
Other income			5,865				7,096
Total revenues			111,370				216,160
Benefits and expenses:
Interest sensitive and index product benefits			104,761				94,832
Change in value of index product embedded derivatives			(103,170	)			(4,044	)
Traditional life insurance benefits			27,252				24,670
Increase in traditional life future policy benefits			11,390				7,536
Distributions to participating policyholders			5,270				5,592
Underwriting, acquisition and insurance expenses			46,691				42,110
Interest expense			4,451				3,288
Other expenses			5,955				6,023
Total benefits and expenses			102,600				180,007
			8,770				36,153
Income taxes			(2,458	)			(12,407	)
Minority interest in loss (earnings) of subsidiaries			9				(10	)
Equity income, net of related income taxes			117				375
Net income			6,438				24,111
Dividends on Series B preferred stock			(38	)			(38	)
Net income applicable to common stock		$	6,400			$	24,073
Earnings per common share		$	0.21			$	0.81
Earnings per common share – assuming dilution		$	0.21			$	0.80
Cash dividends per common share		$	0.125			$	0.120

See accompanying notes.

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

														Accumulated
		Series B				Class A				Class B				Other								Total
		Preferred				Common				Common				Comprehensive				Retained				Stockholders’
		Stock				Stock				Stock				Income (Loss)				Earnings				Equity
Balance at January 1, 2007		$	3,000			$	86,462			$	7,519			$	28,195			$	755,544			$	880,720
Comprehensive income:
Net income for 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
Balance at January 1, 2008		$	3,000			$	101,221			$	7,525			$	(36,345	)		$	827,490			$	902,891
Comprehensive loss:
Net income for three months ended March 31, 2008			—				—				—				—				6,438				6,438
Change in net unrealized investment gains/losses			—				—				—				(101,665	)			—				(101,665	)
Change in underfunded status of other postretirement benefit plans			—				—				—				14				—				14
Total comprehensive loss																							(95,213	)
Change in measurement date of benefit plans			—				—				—				—				(770	)			(770	)
Adjustment resulting from capital transactions of equity investee			—				(6	)			—				—				—				(6	)
Stock-based compensation, including the issuance of 142,330 common shares under compensation plans			—				3,238				—				—				—				3,238
Dividends on preferred stock			—				—				—				—				(38	)			(38	)
Dividends on common stock			—				—				—				—				(3,726	)			(3,726	)
Balance at March 31, 2008		$	3,000			$	104,453			$	7,525			$	(137,996	)		$	829,394			$	806,376

See accompanying notes.

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

		Three months ended March 31,
		2008				2007
Operating activities
Net income		$	6,438			$	24,111
Adjustments to reconcile net income to net cash provided by operating activities:
Adjustments related to interest sensitive and index products:
Interest credited/index credits to account balances, excluding deferred sales inducements			81,162				79,032
Change in fair value of embedded derivatives			(103,170	)			(4,044	)
Charges for mortality and administration			(27,216	)			(22,412	)
Deferral of unearned revenues			440				390
Amortization of unearned revenue reserve			(399	)			(535	)
Provision for depreciation and amortization of property and equipment			3,783				3,378
Provision for accretion and amortization of investments			(2,285	)			(3,128	)
Realized/unrealized losses (gains) on investments			29,347				(1,456	)
Change in fair value of derivatives			82,779				2,141
Increase in traditional life benefit accruals			13,129				9,079
Policy acquisition costs deferred			(40,192	)			(39,833	)
Amortization of deferred policy acquisition costs			23,022				19,684
Amortization of deferred sales inducements			12,683				4,942
Amortization of value of insurance in force			899				912
Net sale of fixed maturities held for trading purposes			—				5,000
Change in accrued investment income			(12,826	)			(9,902	)
Change in amounts receivable from/payable to affiliates			6,087				6,234
Change in reinsurance recoverable			11,810				5,961
Change in current income taxes			(7,993	)			(8,633	)
Provision for deferred income taxes			10,416				6,291
Other			(6,517	)			10,724
Net cash provided by operating activities			81,397				87,936
Investing activities
Sale, maturity or repayment of investments:
Fixed maturities – available for sale			203,042				130,896
Equity securities – available for sale			—				3,710
Mortgage loans on real estate			19,306				12,550
Derivative instruments			12,778				28,136
Policy loans			10,077				10,202
			245,203				185,494
Acquisition of investments:
Fixed maturities – available for sale			(360,492	)			(397,089	)
Mortgage loans on real estate			(26,784	)			(53,915	)
Derivative instruments			(84,509	)			(16,247	)
Investment real estate			—				(17	)
Policy loans			(9,727	)			(10,555	)
Short-term investments – net			(27,090	)			(7,152	)
			(508,602	)			(484,975	)

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

		Three months ended March 31,
		2008				2007
Investing activities – continued
Proceeds from disposal, repayments of advances and other distributions of capital from equity investees		$	—			$	14
Purchases of property and equipment			(5,129	)			(4,003	)
Disposal of property and equipment			726				555
Net cash used in investing activities			(267,802	)			(302,915	)
Financing activities
Receipts from interest sensitive and index products credited to policyholder account balances			454,592				402,044
Return of policyholder account balances on interest sensitive and index products			(249,270	)			(234,684	)
Proceeds from long-term debt			—				97,801
Receipts related to minority interests – net			46				—
Excess tax deductions on stock-based compensation			262				109
Issuance of common stock			1,928				3,200
Dividends paid			(3,764	)			(3,587	)
Net cash provided by financing activities			203,794				264,883
Increase in cash and cash equivalents			17,389				49,904
Cash and cash equivalents at beginning of period			84,015				112,292
Cash and cash equivalents at end of period		$	101,404			$	162,196
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest		$	4,852			$	3,288
Income taxes			(165	)			14,843
Non-cash operating activity:
Deferral of sales inducements			18,390				21,823

See accompanying notes.

FBL Financial Group, Inc.		March 31, 2008

FBL FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2008

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, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008. We encourage you to refer to our consolidated financial statements and notes for the year ended December 31, 2007 included in our annual report on Form 10-K for a complete description of our material accounting policies. Also included in the Form 10-K is a description of areas of judgments and estimates and other information necessary to understand our financial position and results of operations.

Accounting Changes

Effective January 1, 2008, we adopted Statement of Financial Accounting Standards (Statement) No. 157, “Fair Value Measurements,” which defines fair value, establishes a framework for measuring fair value and expands the required disclosures about fair value measurements. See Note 2, “Fair Value”, for detailed information regarding our fair value measurements. The impact of adoption as of January 1, 2008, was to decrease the carrying value of certain investments and certain policy liabilities and accruals in our consolidated financial statements, resulting in an increase to net income of $5.6 million ($0.19 per basic and diluted common share). The primary impact of this change was a decrease to the embedded derivatives in the index annuity reserves by $26.7 million. The impact on net income of this change is mitigated by offsets for the amortization of deferred policy acquisition costs and deferred sales inducements and income taxes.

Effective January 1, 2008, we adopted the measurement date portion of Statement No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R).” This portion of Statement No. 158 requires measurement of a plan’s assets and benefit obligations as of the end of the employer’s fiscal year. We adopted the measurement date portion of this Statement, using the single measurement date method, which resulted in a decrease to retained earnings totaling $0.8 million.

Effective January 1, 2008, we adopted Financial Accounting Standards Board (FASB) Staff Position FIN 39-1 (FSP FIN 39-1), which amends certain aspects of FASB Interpretation No. 39, “Offsetting of Amounts Related to Certain Contracts – an interpretation of APB Opinion No. 10 and FASB Statement No. 105.” This FSP allows a reporting entity to offset fair value amounts recognized for the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) against fair value amounts recognized for derivative instruments executed with the same counterparty under the same master netting arrangement. The guidance in this FSP is effective for fiscal years beginning after November 15, 2007, with early application permitted. We have elected to implement this statement and have adopted a policy to offset the collateral against the derivatives. At March 31, 2008, we had master netting agreements with counterparties covering cash collateral payable totaling $20.7 million and cash collateral receivable totaling $14.4 million. These amounts are netted against the fair value of the call options included in derivative instruments and interest rate swaps included in other liabilities in our consolidated balance sheets. At December 31, 2007, we had master netting agreements with counterparties covering cash collateral payable totaling $70.9 million and cash collateral receivable totaling $7.5 million. These amounts have been restated in the prior year balance sheet. This FSP has no impact on our consolidated statements of income.

FBL Financial Group, Inc.		March 31, 2008

Reclassifications

Certain amounts in the 2007 consolidated financial statements have been reclassified to conform to the 2008 financial statement presentation.

2. Fair Value

As discussed in Note 1 above, Statement No. 157, “Fair Value Measurements,” defines fair value, establishes a framework for measuring fair value and expands the required disclosures about fair value measurements. Per Statement No. 157, fair value is based on an exit price, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Statement No. 157 also establishes a hierarchal disclosure framework which prioritizes and ranks the level of market price observability used in measuring financial instruments at fair value. Market price observability is affected by a number of factors, including the type of instrument and the characteristics specific to the instrument. Financial instruments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

We have valued our investments, in the absence of observable market prices, using the valuation methodologies described below applied on a consistent basis. For some investments little market activity may exist and management’s determination of fair value is then based on the best information available in the circumstances, and may incorporate management’s own assumptions, which involves a significant degree of judgment.

Investments for which market prices are not observable are generally private investments, non-binding broker quotes or securities with very little trading activity. Fair values of private investments are determined by reference to public market or private transactions or valuations for comparable companies or assets in the relevant asset class when such amounts are available. If these are not available, the specific creditors credit default swap spread adjusted for the maturity/average life differences are used. Spread adjustments are intended to reflect an illiquidity premium and takes into account a variety of factors including but not limited to: senior unsecured versus secured, par amount outstanding, number of holders, maturity, average life, composition of lending group and debt rating. These valuation methodologies involve a significant degree of judgment.

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

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

Level 2 – Pricing inputs are other than quoted prices in active markets which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models or other valuation methods. Financial instruments which are generally included in this category include corporate bonds, short-term securities, less liquid and restricted equity securities and over-the-counter derivatives.

Level 3 – Pricing inputs are unobservable for the financial instrument and include situations where there is little, if any, market activity for the financial instrument. The inputs into the determination of fair value require significant management judgment or estimation. Financial instruments that are included in this category generally include private corporate securities, broker-only quoted public securities and collateralized debt obligations.

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

FBL Financial Group, Inc.		March 31, 2008

The following table summarizes the valuation of our financial instruments presented in our consolidated balance sheets by the fair value hierarchy levels defined in Statement No. 157:

		March 31, 2008
		Quoted prices in
		active markets				Significant other				Significant
		for identical				observable				unobservable
		assets (Level 1)				inputs (Level 2)				inputs (Level 3)				Total
						(Dollars in thousands)
Assets
Fixed maturities – available for sale		$	—			$	8,547,976			$	866,502			$	9,414,478
Equity securities – available for sale			16,585				8,422				—				25,007
Derivative instruments			—				28,359				—				28,359
Other long-term investments			—				—				1,300				1,300
Cash and short-term investments			120,499				80,000								200,499
Reinsurance recoverable			—				9,275				—				9,275
Collateral held for securities lending and other transactions			—				198,029				—				198,029
Assets held in separate accounts			802,225				—				—				802,225

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

		March 31, 2008
		Quoted prices in
		active markets				Significant other				Significant
		for identical				observable				unobservable
		assets (Level 1)				inputs (Level 2)				inputs (Level 3)				Total
		(Dollars in thousands)
Liabilities
Future policy benefits – index annuity embedded derivatives		$	—			$	—			$	662,002			$	662,002
Collateral payable for securities lending			—				197,477				—				197,477
Other liabilities			—				643				—				643

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

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

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

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

Cash, short-term investments and other long-term investments: The carrying amounts reported in the consolidated balance sheets for these instruments approximate their fair values.

Collateral held and payable for securities lending and other transactions: Fair values are obtained from an independent pricing source.

Reinsurance recoverable: Reinsurance recoverable relating to our portion of the call options used to fund index credits on the index annuities assumed from a reinsurer is reported at fair value. Fair value is determined using

FBL Financial Group, Inc.		March 31, 2008

quoted market prices for the call options, less an adjustment for credit risk. Reinsurance recoverable also includes the embedded derivatives in our modified coinsurance contracts under which we cede or assume business. Market values for these embedded derivatives are based on the difference between the fair value and the cost basis of the underlying fixed maturity securities. We are not required to estimate fair value for the remainder of the reinsurance recoverable balance.

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

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

Other liabilities: Other liabilities include interest rate swaps with fair values based on counterparty market prices adjusted for a credit component, net of collateral paid. Prices are verified using analytical tools by our internal investment professionals.

The following table summarizes the Level 3 fixed maturity investments by valuation methodology as of March 31, 2008:

		March 31, 2008
										Mortgage or
		Private				Publicly traded				other asset
		corporation				issues				backed securities				Total
		(Dollars in thousands)
Source of valuation
Third-party vendors		$	315,114			$	324,306			$	163,852			$	803,272
Priced internally			22,203				33,938				7,089				63,230
Total		$	337,317			$	358,244			$	170,941			$	866,502

Approximately 7.3% of level 3 fixed maturity securities are priced internally and the remaining 92.7% are obtained from third party independent sources.

The changes in financial instruments measured at fair value, excluding accrued interest income, for which we have used Level 3 inputs to determine fair value during the first quarter of 2008 are as follows (dollars in thousands):

Fixed maturities – available for sale
Balance, December 31, 2007		$	1,072,697
Purchases (disposals), net			55,595
Realized and unrealized gains (losses), net			(54,549	)
Transfers in and/or (out) of Level 3 (A)			(207,155	)
Included in earnings (amortization)			(86	)
Balance, March 31, 2008		$	866,502
Changes in unrealized gains (losses) on investments held at March 31, 2008		$	(38,659	)

FBL Financial Group, Inc.		March 31, 2008

Future policy benefits – index product embedded derivatives
Balance, December 31, 2007		$	747,511
Premiums less benefits, net			15,424
Impact of unrealized gains (losses), net			(100,933	)
Balance, March 31, 2008		$	662,002
Changes in unrealized gains (losses) on embedded derivatives held at March 31, 2008		$	(100,933	)

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 as expense in our consolidated income statements totaled $1.2 million for the three months ended March 31, 2008 and $1.5 million for the three months ended March 31, 2007. As described in Note 1 above, we also recorded a portion of the net periodic pension costs as a charge to retained earnings totaling $0.8 million as a result of adopting the measurement date portion of Statement No. 158. Components of net periodic pension cost for all employers in the multiemployer plans are as follows:

		Three months ended March 31,
		2008				2007
		(Dollars in thousands)
Service cost		$	1,659			$	2,341
Interest cost			3,709				3,475
Expected return on assets			(3,495	)			(3,087	)
Amortization of prior service cost			196				194
Amortization of actuarial loss			945				1,120
Net periodic pension cost – all employers		$	3,014			$	4,043

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, 2008, management is not aware of any claims for which a material loss is reasonably possible.

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

We participate in a reinsurance pool with various unaffiliated life insurance companies to mitigate the impact of a catastrophic event on our financial position and results of operations. Members of the pool share in the eligible catastrophic losses based on their size and contribution to the pool. Under the pool arrangement, we will be able to cede approximately 65% of catastrophic losses after other reinsurance and a deductible of $0.9 million. Pool losses are capped at $17.8 million per event and the maximum loss we could incur as a result of losses assumed from other pool members is $6.4 million per event.

We self-insure our employee health and dental claims. However, claims in excess of our self-insurance levels are fully insured. We fund insurance claims through a self-insurance trust. Deposits to the trust are made at an amount

FBL Financial Group, Inc.		March 31, 2008

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 2006, we incurred a pre-tax charge of $4.9 million relating to the settlement of a lawsuit with a husband and wife who had applied for life insurance policies. The settlement ended litigation regarding the process we followed in denying insurance coverage for medical reasons. Insurance claims have been filed under our professional liability and general liability insurance policies for reimbursement of the settlement amount, but coverage has been denied, and we have made a claim against an insurance broker for breach of contractual duties. We have filed lawsuits against the insurer and the insurance broker to recover those damages. While we have received an adverse ruling in the case against the insurer at the district court level, the adverse ruling has been appealed and we continue to believe both claims are valid. 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,
		2008				2007
		(Dollars in thousands, except per share data)
Numerator:
Net income		$	6,438			$	24,111
Dividends on Series B preferred stock			(38	)			(38	)
Numerator for earnings per common share – income available to common stockholders		$	6,400			$	24,073
Denominator:
Weighted average shares			29,789,122				29,516,555
Deferred common stock units relating to deferred compensation plans			70,468				56,448
Denominator for earnings per common share – weighted-average shares			29,859,590				29,573,003
Effect of dilutive securities – stock–based compensation			348,273				649,268
Denominator for diluted earnings per common share – adjusted weighted-average shares			30,207,863				30,222,271
Earnings per common share		$	0.21			$	0.81
Earnings per common share – assuming dilution		$	0.21			$	0.80

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.

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

FBL Financial Group, Inc.		March 31, 2008

	•		realized and unrealized gains and losses on investments;
	•		changes in net unrealized gains and losses on derivatives; and
	•		the cumulative effect of changes in accounting principles.

We use operating income, in addition to net income, to measure our performance since realized and unrealized gains and losses on investments and the change in net unrealized gains and losses on derivatives can fluctuate greatly from quarter to quarter. Also, the cumulative effect of changes in accounting principles is a nonrecurring item. These fluctuations make it difficult to analyze core operating trends. In addition, for derivatives not designated as hedges, there is a mismatch between the valuation of the asset and liability when deriving net income. Specifically, call options relating to our index business are one or two-year assets while the embedded derivative in the index contracts represents the rights of the contract holder to receive index credits over the entire period the index annuities are expected to be in force. For our other embedded derivatives in the product segments and interest rate swaps backing our annuity liabilities, the derivatives are marked to market, but the associated insurance liabilities are not marked to market. A view of our operating performance without the impact of these mismatches and nonrecurring 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.

Financial information concerning our operating segments is as follows:

		Three months ended March 31,
		2008				2007
		(Dollars in thousands)
Operating revenues:
Traditional Annuity – Exclusive Distribution		$	35,696			$	37,138
Traditional Annuity – Independent Distribution			78,282				71,173
Traditional and Universal Life Insurance			83,362				81,703
Variable			15,935				16,361
Corporate and Other			8,497				8,193
			221,772				214,568
Realized/unrealized gains (losses) on investments (A)			(29,432	)			1,456
Change in net unrealized gains/losses on derivatives (A)			(80,970	)			136
Consolidated revenues		$	111,370			$	216,160
Pre-tax operating income (loss):
Traditional Annuity – Exclusive Distribution		$	7,242			$	9,117
Traditional Annuity – Independent Distribution			7,795				11,159
Traditional and Universal Life Insurance			8,164				11,394
Variable			1,168				2,258
Corporate and Other			(2,134	)			(740	)
			22,235				33,188
Income taxes on operating income			(7,167	)			(11,091	)
Realized/unrealized gains (losses) on investments (A)			(12,165	)			954
Change in net unrealized gains/losses on derivatives (A)			3,535				1,343
Cumulative effect of change in accounting principle			—				(283	)
Consolidated net income		$	6,438			$	24,111

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

FBL Financial Group, Inc.		March 31, 2008

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

This section includes a summary of FBL Financial Group, Inc.’s consolidated results of operations, financial condition and where appropriate, factors that management believes may affect future performance. Unless noted otherwise, all references to FBL Financial Group, Inc. (we or the Company) include all of its direct and indirect subsidiaries, including its primary life insurance subsidiaries, Farm Bureau Life Insurance Company (Farm Bureau Life) and EquiTrust Life Insurance Company (EquiTrust Life) (collectively, the Life Companies). Please read this discussion in conjunction with the accompanying consolidated financial statements and related notes. In addition, we encourage you to refer to our 2007 Form 10-K for a complete description of our significant accounting policies and estimates. Familiarity with this information is important in understanding our financial position and results of operations.

Results of Operations for the Three Months Ended March 31, 2008 Compared to Three Months Ended March 31, 2007

		Three months ended March 31,
		2008				2007
		(Dollars in thousands,
		except per share data)
Revenues		$	111,370			$	216,160
Benefits and expenses			102,600				180,007
			8,770				36,153
Income taxes			(2,458	)			(12,407	)
Minority interest and equity income			126				365
Net income			6,438				24,111
Less dividends on Series B preferred stock			(38	)			(38	)
Net income applicable to common stock		$	6,400			$	24,073
Earnings per common share		$	0.21			$	0.81
Earnings per common share – assuming dilution		$	0.21			$	0.80
Other data
Direct premiums collected, net of reinsurance ceded:
Traditional Annuity – Exclusive Distribution		$	45,348			$	35,463
Traditional Annuity – Independent Distribution			326,686				296,060
Traditional and Universal Life Insurance			47,259				45,837
Variable Annuity and Variable Universal Life (1)			41,921				42,783
Reinsurance assumed and other			3,680				3,585
Total		$	464,894			$	423,728
Direct life insurance in force, end of quarter (in millions)		$	41,576			$	38,916
Life insurance lapse rates			6.3	%			6.0	%
Withdrawal rates – individual traditional annuity:
Exclusive Distribution			3.6	%			4.9	%
Independent Distribution			5.9	%			4.1	%

Premiums collected is not a measure used in financial statements prepared according to U.S. generally accepted accounting principles (GAAP). There is no comparable GAAP financial measure. We use premiums collected to measure the productivity of our exclusive and independent agents. Direct Traditional Annuity – Independent Distribution premiums collected increased in the three months ended March 31, 2008 compared to the 2007 period

FBL Financial Group, Inc.		March 31, 2008

due to continued growth of our EquiTrust Life independent distribution channel. This is driven largely by an increase in the number of individual licensed independent agents to 20,726 at March 31, 2008, from 16,220 at March 31, 2007.

Net income applicable to common stock decreased 73.4% in the first quarter of 2008 to $6.4 million due primarily to realized losses on investments, a decrease in spreads and an increase in death benefits, partially offset by the impact of the change in unrealized gains and losses on derivative instruments and the impact of an increase in the volume of business in force as discussed in detail below. The increase in volume of business in force is quantified by summarizing the face amount of insurance in force for traditional 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,
		2008				2007
Weighted average yield on cash and invested assets			6.06	%			6.18	%
Weighted average interest crediting rate/index cost			3.92				3.78
Spread			2.14	%			2.40	%

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.

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

		Three months ended March 31,
		2008				2007
		(Dollars in thousands)
Realized/unrealized gains (losses) on investments		$	(29,347	)		$	1,456
Change in net unrealized gains/losses on derivatives			22,199				4,180
Change in amortization of:
Deferred policy acquisition costs			(586	)			(1,174	)
Deferred sales inducements			(5,613	)			(930	)
Value of insurance in force acquired			156				—
Unearned revenue reserve			(85	)			—
Cumulative effect of change in accounting principle			—				(283	)
Income tax offset			4,646				(1,235	)
Net impact of operating income adjustments		$	(8,630	)		$	2,014

FBL Financial Group, Inc.		March 31, 2008

		Three months ended March 31,
		2008				2007
		(Dollars in thousands)
Summary of adjustments noted above after offsets and income taxes:
Realized/unrealized gains (losses) on investments		$	(12,165	)		$	954
Change in net unrealized gains/losses on derivatives			3,535				1,343
Cumulative effect of change in accounting principle			—				(283	)
Net impact of operating income adjustments		$	(8,630	)		$	2,014
Net impact per common share – basic		$	(0.29	)		$	0.07
Net impact per common share – assuming dilution		$	(0.29	)		$	0.07

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 2008.

As described in more detail in Note 1 above, we adopted several accounting changes during the years covered by these consolidated financial statements including the following:

	•		Effective January 1, 2008, we adopted 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. The impact of this adoption was to decrease the carrying value of certain investments and certain policy liabilities and accruals in our consolidated financial statements. The impact of changing the values of certain derivatives was an increase in net income totaling $5.6 million ($0.19 per basic and diluted common share). This impact in included in the change in unrealized gains and losses discussed above.
	•		Effective January 1, 2008, we adopted the measurement date portion of Statement No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R),” which resulted in a decrease to retained earnings totaling $0.8 million.
	•		Effective January 1, 2008, we adopted Financial Accounting Standards Board (FASB) Staff Position FIN 39-1 (FSP FIN 39-1), which amends certain aspects of FASB Interpretation No. 39, “Offsetting of Amounts Related to Certain Contracts — an interpretation of APB Opinion No. 10 and FASB Statement No. 105.” This FSP allows a reporting entity to offset fair value amounts recognized for the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) against fair value amounts recognized for derivative instruments executed with the same counterparty under the same master netting arrangement. This FSP has no impact on our consolidated statements of income.

FBL Financial Group, Inc.		March 31, 2008

Premiums and product charges are as follows:

		Three months ended March 31,
		2008				2007
		(Dollars in thousands)
Premiums and product charges:
Interest sensitive and index product charges		$	29,121			$	26,986
Traditional life insurance premiums			36,133				34,537
Total		$	65,254			$	61,523

Premiums and product charges increased 6.1% in the first quarter of 2008 to $65.3 million. The increase in interest sensitive and index product charges is principally driven by surrender charges on annuity products and cost of insurance charges on variable universal life and universal life products.

Surrender charges totaled $6.1 million in the three-month period ended March 31, 2008 compared to $4.8 million in the 2007 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 $9,259.6 million for the three-month period in 2008 and $7,845.1 million for the three-month period in 2007. 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 coinsurance business and business written directly through EquiTrust Life independent agents as the surrender charge rate decreases with the passage of time (at a rate generally equal to 1.0% per year). This makes a surrender later in the contract period more economical for the contract holder, which results in higher lapse rates as business ages. We started assuming business under coinsurance agreements in 2001 and started selling annuities directly through EquiTrust Life independent agents in the fourth quarter of 2003. Surrender charges on this coinsurance and direct business totaled $5.5 million for the three months ended March 31, 2008 and $4.1 million for the 2007 period.

Cost of insurance charges totaled $16.7 million in the three months ended March 31, 2008 and $16.2 million in the 2007 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 45.7 years at March 31, 2008 and 45.3 years at March 31, 2007.

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 $21,355 million for the three-month period in 2008 and $19,262 million for the three-month period in 2007. 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 12.4% in the first quarter of 2008 to $168.5 million primarily due to an increase in average invested assets. Average invested assets in the three-month period of 2008 increased 14.5% to $11,317.6 million (based on securities at amortized cost) from $9,887.9 million in the 2007 period, due principally to net premium inflows from the Life Companies and the proceeds totaling $98.5 million from the issuance of Senior Notes in March 2007. The annualized yield earned on average invested assets decreased to 6.09% in the three months ended March 31 2008 from 6.21% in the respective 2007 period. Fee income from bond calls, tender offers and mortgage loan prepayments totaled $1.3 million in the three months ended March 31, 2008 compared to $2.6 million in the respective 2007 period.

FBL Financial Group, Inc.		March 31, 2008

Derivative loss is as follows:

		Three months ended March 31,
		2008				2007
		(Dollars in thousands)
Derivative loss:
Components of derivative loss from call options:
Gains received at expiration		$	15,017			$	20,580
Change in the difference between fair value and remaining option cost at beginning and end of period			(77,551	)			(733	)
Cost of money for call options			(32,228	)			(23,806	)
			(94,762	)			(3,959	)
Other			(4,134	)			82
Total		$	(98,896	)		$	(3,877	)

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 $4,594.3 million for the three months ended March 31, 2008 compared to $3,788.8 million for the respective 2007 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,
		2008				2007
Annual point-to-point strategy			0.0%-2.6	%			6.1%-14.4	%
Monthly point-to-point strategy			—				4.4%-12.7	%
Monthly average strategy – one-year options			0.0%-6.3	%			1.2%-5.7	%
Monthly average strategy – two-year options			7.6%-10.7	%			9.3%-10.0	%
Daily average strategy			1.0%-5.2	%			2.1%-5.3	%

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 growth in the volume of index annuities in force and increased option costs which is driven largely by increased volatility in the equity markets. 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. In addition, beginning in the second quarter of 2007, other derivative loss includes cash flows and the change in fair value of the interest rate swaps relating to our flexible premium deferred annuity contracts due to the adoption of 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.” Derivative income (loss) will fluctuate based on market conditions.

FBL Financial Group, Inc.		March 31, 2008

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

		Three months ended March 31,
		2008				2007
		(Dollars in thousands)
Realized/unrealized gains (losses) on investments:
Gains on sales		$	—			$	1,444
Losses on sales			—				(38	)
Losses due to impairments			(29,347	)			—
Unrealized gains on trading securities			—				50
Total		$	(29,347	)		$	1,456

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 March 31, 2008 and December 31, 2007.

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, 2008, including the circumstances requiring the write downs, are summarized in the following table:

FBL Financial Group, Inc.		March 31, 2008

General Description		Impairment Loss				Circumstance
		(Dollars in
		thousands)
Other asset-backed security		$	9,114			During the first quarter, ratings declined and losses from the underlying home equity loans to Alt-A borrowers increased. (A)
Collateralized debt obligation		$	9,100			During the first quarter, collateral backing this issue declined, which triggered an event whereby we did not receive interest on our investment. Rating declines also occurred during the quarter. (A)
Reinsurance carrier		$	6,789			During the first quarter, rating declines occurred and the fair value decreased significantly due to subprime and Alt-A exposure and the parent’s potential reorganization, which reduced estimates on potential recovery. (A)
Major printing & publishing company		$	2,341			During the first quarter, issuer filed for bankruptcy after unsuccessful attempts to obtain financial assistance. This reduced estimates on potential recovery. (A)
Major printing & publishing company		$	1,603			During the first quarter, 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. Other income in the first quarter of 2007 included $1.0 million of non-recurring contingent administrative fee income. Fluctuations in these financial statement line items are generally attributable to fluctuations in the level of these services provided during the periods.

Interest sensitive and index product benefits and change in value of index product embedded derivatives are as follows:

		Three months ended March 31,
		2008				2007
		(Dollars in thousands)
Interest sensitive and index product benefits:
Interest credited		$	66,679			$	58,095
Index credits			14,608				20,306
Amortization of deferred sales inducements			12,666				4,900
Interest sensitive death benefits			10,808				11,531
			104,761				94,832
Change in value of embedded derivatives			(103,170	)			(4,044	)
Total		$	1,591			$	90,788

Interest sensitive and index product benefits and change in value of index product embedded derivatives decreased 98.2% in the first quarter of 2008 to $1.6 million, primarily due to the impact of market depreciation on the indices

FBL Financial Group, Inc.		March 31, 2008

backing the index annuities, partially offset by an increase in the volume of annuity business in force. Interest sensitive and index product benefits tend to fluctuate from period to period primarily as a result of changes in mortality experience, the impact of changes in the equity markets on index credits and amortization of deferred sales inducements.

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 $8,368.7 million for the 2008 period and $6,952.6 million for the 2007 period. These account values include values relating to index contracts in the first quarter totaling $4,594.3 million for 2008 and $3,788.8 million for 2007.

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 3.92% for the 2008 period and 3.78% for the 2007 period. See the “Segment Information” section that follows for additional details on our spreads.

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 derivatives 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 derivatives 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 increase in amortization of deferred sales inducements is due to the impact of changes in unrealized gains and losses on derivatives, the capitalization of costs incurred with new sales on the underlying business and the impact of an unlocking adjustment in the first quarter of 2007, partially offset by the impact of realized/unrealized gains and losses on investments. Deferred sales inducements on interest sensitive and index products totaled $351.3 million at March 31, 2008 and $239.2 million at March 31, 2007. The impact of the unlocking adjustment, realized/unrealized gains and losses on investments and the change in unrealized gains and losses on derivatives is detailed in the “Net income applicable to common stock” section above.

Traditional life insurance benefits are as follows:

		Three months ended March 31,
		2008				2007
		(Dollars in thousands)
Traditional life insurance policy benefits:
Traditional life insurance benefits		$	27,252			$	24,670
Increase in traditional life future policy benefits			11,390				7,536
Distributions to participating policyholders			5,270				5,592
Total		$	43,912			$	37,798

Traditional life insurance benefits increased 16.2% in the first quarter of 2008 to $43.9 million primarily due to an increase in traditional life insurance death benefits and the impact of an increase in the volume of traditional life business in force, partially offset by lower surrenders. In the first quarter of 2008, death benefits increased 34.8% to $18.4 million and surrenders decreased 19.0% to $7.9 million. The increase in traditional life future policy benefits was higher this period primarily due to an increase in volume of traditional life business in force and lower surrender benefits. In addition, in the first quarter of 2008, traditional life future policy benefits increased $0.8 million relating to a change in reserve estimate. These increases were partially offset by an increase in reserves released on death benefits. 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.

FBL Financial Group, Inc.		March 31, 2008

Underwriting, acquisition and insurance expenses are as follows:

		Three months ended March 31,
		2008				2007
		(Dollars in thousands)
Underwriting, acquisition and insurance expenses:
Commission expense, net of deferrals		$	3,401			$	3,405
Amortization of deferred policy acquisition costs			23,022				19,684
Amortization of value of insurance in force acquired			899				912
Other underwriting, acquisition and insurance expenses, net of deferrals			19,369				18,109
Total		$	46,691			$	42,110

Underwriting, acquisition and insurance expenses increased 10.9% for the 2008 period to $46.7 million. Amortization of deferred policy acquisition costs increased in the first quarter due to the impact of an increase in the volume of business in force resulting primarily from direct sales from our EquiTrust Life distribution channel, the change in unrealized gains/losses on derivatives and an unlocking adjustment in the first quarter of 2007, partially offset by the impact of realized/unrealized gains and losses on investments. The impact of the unlocking adjustment, realized/unrealized gains and losses on investments and the change in unrealized gains/losses on derivatives is detailed in the “Net income applicable to common stock” section above. Amortization of deferred policy acquisition costs relating to our EquiTrust Life distribution channel, excluding these items totaled $7.6 million in the first quarter of 2008 and $5.0 million in the first quarter of 2007. Other underwriting, acquisition and insurance expenses increased $1.3 million from the 2007 period primarily due to higher salaries and benefits.

Interest expense increased 35.4% to $4.5 million in the first quarter of 2008, due to an increase in our long-term debt. The average debt outstanding increased to $316.8 million for the 2008 period from $235.8 million for the 2007 period due to the issuance of Senior Notes in March 2007.

Income taxes decreased 80.2% in the 2008 period to $2.5 million. The effective tax rate was 28.0% for the first quarter of 2008 and 34.3% for the 2007 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 permanent differences between book and tax income had a greater impact on the effective tax rate in 2008 due to the lower amount of pre-tax income in the quarter.

Equity income, net of related income taxes, totaled $0.1 million for the first quarter of 2008 compared to $0.4 million in the 2007 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 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.

FBL Financial Group, Inc.		March 31, 2008

Segment Information

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

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

	•		realized and unrealized gains and losses on investments;
	•		changes in net unrealized gains and losses on derivatives; and
	•		the cumulative effect of changes in accounting principles.

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.

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,
		2008				2007
		(Dollars in thousands)
Net income		$	6,438			$	24,111
Net impact of operating income adjustments*			8,629				(2,014	)
Income taxes on operating income			7,168				11,091
Pre-tax operating income		$	22,235			$	33,188
Pre-tax operating income (loss) by segment:
Traditional Annuity – Exclusive Distribution		$	7,242			$	9,117
Traditional Annuity – Independent Distribution			7,795				11,159
Traditional and Universal Life Insurance			8,164				11,394
Variable			1,168				2,258
Corporate and Other			(2,134	)			(740	)
		$	22,235			$	33,188

FBL Financial Group, Inc.		March 31, 2008

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

Traditional Annuity – Exclusive Distribution Segment

		Three months ended March 31,
		2008				2007
		(Dollars in thousands)
Pre-tax operating income
Operating revenues:
Interest sensitive and index product charges and other		$	291			$	287
Net investment income			35,538				36,810
Derivative income (loss)			(133	)			41
			35,696				37,138
Benefits and expenses			28,454				28,021
Pre-tax operating income		$	7,242			$	9,117
Other data
Annuity premiums collected, direct		$	45,348			$	35,463
Policy liabilities and accruals, end of period			2,237,420				2,218,642
Individual deferred annuity spread:
Weighted average yield on cash and invested assets			6.17	%			6.40	%
Weighted average interest crediting rate/index cost			4.23				4.05
Spread			1.94	%			2.35	%
Individual traditional annuity withdrawal rate			3.6	%			4.9	%