UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
FORM
10-Q

(Mark one)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31,September 30, 2020.
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to _______________________

Commission File Number: 1-11917
fbl-20200930_g1.jpg
FBL FINANCIAL GROUP, INC.
(Exact name of registrant as specified in its charter)
FBL FINANCIAL GROUP, INC.Iowa42-1411715
(Exact name of registrant as specified in its charter)
Iowa42-1411715
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
5400 University Avenue,West Des Moines,Iowa50266-5997
(Address of principal executive offices)(Zip Code)
(515)225-5400
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock, without par valueFFGNew York Stock Exchange

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. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one)

Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ 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 classOutstanding at May 4,November 2, 2020
Class A Common Stock, without par value24,630,67724,383,110
Class B Common Stock, without par value11,413


















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FBL FINANCIAL GROUP, INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31,SEPTEMBER 30, 2020
TABLE OF CONTENTS


PART I.FINANCIAL INFORMATION
PART I.FINANCIAL INFORMATION
Item 1.Financial Statements (Unaudited)
Consolidated Balance Sheets
2
Consolidated Statements of Operations
4
Consolidated Statements of Comprehensive Income (Loss)
5
Consolidated Statements of Changes in Stockholders’ Equity
5
Consolidated Statements of Cash Flows
67
Notes to Consolidated Financial Statements
89
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
3334
Item 3.Quantitative and Qualitative Disclosures About Market Risk
5258
Item 4.Controls and Procedures
5258
PART II.OTHER INFORMATION
5359
Item 1A.Risk Factors
5359
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
5359
Item 6.Exhibits
5460
SIGNATURES
5561
    



1


ITEM 1. FINANCIAL STATEMENTS

FBL FINANCIAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands)
September 30,
2020		December 31,
2019
Assets
Investments:
Fixed maturities - available for sale, at fair value (amortized cost 2020 - $7,256,832, 2019 - $7,015,269; and allowance for credit losses 2020 - 12,095, 2019 - $0)$8,244,477 $7,702,628 
Equity securities at fair value (cost: 2020 - $95,409, 2019 - $95,269)93,269 100,228 
Mortgage loans (net of allowance for credit losses 2020 - 1,924, 2019 - $0)972,210 1,011,678 
Real estate955 955 
Policy loans197,009 201,589 
Short-term investments18,434 11,865 
Other investments55,639 62,680 
Total investments9,581,993 9,091,623 
Cash and cash equivalents15,030 17,277 
Securities and indebtedness of related parties80,494 74,791 
Accrued investment income76,164 72,332 
Amounts receivable from affiliates2,421 4,357 
Reinsurance recoverable112,382 107,498 
Deferred acquisition costs201,022 289,456 
Value of insurance in force acquired2,384 2,624 
Current income taxes recoverable4,786 6,427 
Other assets159,824 167,940 
Assets held in separate accounts616,381 645,881 
Total assets$10,852,881 $10,480,206 

 March 31,
2020		 December 31,
2019
Assets   
Investments:   
Fixed maturities - available for sale, at fair value (amortized cost 2020 - $7,115,265, 2019 - $7,015,269; and allowance for credit losses 2020 - $12,146, 2019 - $0)$7,617,165
 $7,702,628
Equity securities at fair value (cost: 2020 - $96,882, 2019 - $95,269)88,610
 100,228
Mortgage loans (net of allowance for credit losses 2020 - $3,279, 2019 - $0)988,854
 1,011,678
Real estate955
 955
Policy loans202,227
 201,589
Short-term investments29,580
 11,865
Other investments41,777
 62,680
Total investments8,969,168
 9,091,623
    
Cash and cash equivalents17,524
 17,277
Securities and indebtedness of related parties77,641
 74,791
Accrued investment income77,263
 72,332
Amounts receivable from affiliates3,916
 4,357
Reinsurance recoverable105,438
 107,498
Deferred acquisition costs337,972
 289,456
Value of insurance in force acquired2,829
 2,624
Current income taxes recoverable7,570
 6,427
Other assets168,045
 167,940
Assets held in separate accounts525,582
 645,881
    
    
    
    
    
    
    
Total assets$10,292,948
 $10,480,206



2



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

September 30,
2020		December 31,
2019
Liabilities and stockholders’ equity
Liabilities:
Future policy benefits:
Interest sensitive products$5,747,604 $5,548,212 
Traditional life insurance and accident and health products1,881,838 1,845,337 
Other policy claims and benefits49,409 46,883 
Supplementary contracts without life contingencies282,715 296,915 
Advance premiums and other deposits258,165 253,458 
Amounts payable to affiliates609 1,218 
Long-term debt97,000 97,000 
Deferred income taxes187,161 152,373 
Other liabilities113,744 107,013 
Liabilities related to separate accounts616,381 645,881 
Total liabilities9,234,626 8,994,290 
Stockholders’ equity:
FBL Financial Group, Inc. stockholders’ equity:
Preferred stock, without par value, at liquidation value - authorized 10,000,000 shares, issued and outstanding 5,000,000 Series B shares3,000 3,000 
Class A common stock, without par value - authorized 88,500,000 shares, issued and outstanding 24,383,110 shares in 2020 and 24,652,802 shares in 2019150,990 152,661 
Class B common stock, without par value - authorized 1,500,000 shares, issued and outstanding 11,413 shares in 2020 and 201972 72 
Accumulated other comprehensive income529,087 354,764 
Retained earnings935,080 975,260 
Total FBL Financial Group, Inc. stockholders’ equity1,618,229 1,485,757 
Noncontrolling interest26 159 
Total stockholders’ equity1,618,255 1,485,916 
Total liabilities and stockholders’ equity$10,852,881 $10,480,206 
 March 31,
2020		 December 31,
2019
Liabilities and stockholders’ equity   
Liabilities:   
Future policy benefits:   
Interest sensitive products$5,646,263
 $5,548,212
Traditional life insurance and accident and health products1,856,580
 1,845,337
Other policy claims and benefits47,713
 46,883
Supplementary contracts without life contingencies293,016
 296,915
Advance premiums and other deposits254,523
 253,458
Amounts payable to affiliates1,015
 1,218
Short-term debt10,000
 —
Long-term debt97,000
 97,000
Deferred income taxes119,093
 152,373
Other liabilities107,841
 107,013
Liabilities related to separate accounts525,582
 645,881
Total liabilities8,958,626
 8,994,290
    
Stockholders’ equity:   
FBL Financial Group, Inc. stockholders’ equity:   
Preferred stock, without par value, at liquidation value - authorized 10,000,000 shares, issued and outstanding 5,000,000 Series B shares3,000
 3,000
Class A common stock, without par value - authorized 88,500,000 shares, issued and outstanding 24,630,777 shares in 2020 and 24,652,802 shares in 2019152,754
 152,661
Class B common stock, without par value - authorized 1,500,000 shares, issued and outstanding 11,413 shares in 2020 and 201972
 72
Accumulated other comprehensive income258,422
 354,764
Retained earnings920,032
 975,260
Total FBL Financial Group, Inc. stockholders’ equity1,334,280
 1,485,757
Noncontrolling interest42
 159
Total stockholders’ equity1,334,322
 1,485,916
Total liabilities and stockholders’ equity$10,292,948
 $10,480,206

See accompanying notes.


3



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

Three months ended September 30,Nine months ended September 30,
2020201920202019
Revenues:
Interest sensitive product charges$35,420 $31,135 $100,049 $94,935 
Traditional life insurance premiums47,792 46,982 147,429 147,361 
Net investment income105,856 101,478 291,208 316,012 
Net realized capital gains (losses)1,991 696 (8,657)11,230 
Change in allowance for credit losses on investments1,903 0 (10,855)0 
Other-than-temporary impairment losses0 (50)0 (919)
Other income4,883 4,417 14,647 12,501 
Total revenues197,845 184,658 533,821 581,120 
Benefits and expenses:
Interest sensitive product benefits79,803 67,147 203,257 202,966 
Traditional life insurance benefits45,529 42,877 136,849 131,512 
Policyholder dividends1,733 2,441 5,879 7,539 
Underwriting, acquisition and insurance expenses38,131 39,197 111,044 114,334 
Interest expense1,212 1,213 3,638 3,637 
Other expenses7,878 5,764 22,524 18,649 
Total benefits and expenses174,286 158,639 483,191 478,637 
23,559 26,019 50,630 102,483 
Income tax(2,883)(1,642)(5,887)(13,429)
Equity income (loss), net of related income taxes277 799 (238)2,423 
Net income20,953 25,176 44,505 91,477 
Net (income) loss attributable to noncontrolling interest21 (47)165 (7)
Net income attributable to FBL Financial Group, Inc.$20,974 $25,129 $44,670 $91,470 
Earnings per common share$0.85 $1.01 $1.81 $3.69 
Earnings per common share - assuming dilution$0.85 $1.01 $1.81 $3.69 
 Three months ended March 31,
 2020 2019
Revenues:   
Interest sensitive product charges$31,720
 $31,266
Traditional life insurance premiums49,308
 49,392
Net investment income74,917
 109,640
Net realized capital gains (losses)(13,401) 10,157
Change in allowance for credit losses on investments(12,261) —
Other-than-temporary impairment losses—
 (869)
Other income4,980
 3,970
Total revenues135,263
 203,556
    
Benefits and expenses:   
Interest sensitive product benefits44,351
 70,596
Traditional life insurance benefits46,208
 46,675
Policyholder dividends2,529
 2,534
Underwriting, acquisition and insurance expenses39,421
 36,189
Interest expense1,213
 1,212
Other expenses7,421
 6,250
Total benefits and expenses141,143
 163,456
 (5,880) 40,100
Income tax benefit (expense)3,081
 (6,276)
Equity income, net of related income taxes228
 220
Net income (loss)(2,571) 34,044
Net (income) loss attributable to noncontrolling interest56
 (1)
Net income (loss) attributable to FBL Financial Group, Inc.$(2,515) $34,043
    
Earnings (loss) per common share$(0.10) $1.37
Earnings (loss) per common share - assuming dilution$(0.10) $1.37

See accompanying notes.


4




FBL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
(Dollars in thousands)
Three months ended September 30,Nine months ended September 30,
2020201920202019
Net income$20,953 $25,176 $44,505 $91,477 
Other comprehensive income (1)
Change in net unrealized investment gains/losses47,211 103,172 173,577 314,228 
Change in underfunded status of postretirement benefit plans250 210 746 629 
Total other comprehensive income, net of tax47,461 103,382 174,323 314,857 
Total comprehensive income, net of tax68,414 128,558 218,828 406,334 
Comprehensive (income) loss attributable to noncontrolling interest21 (47)165 (7)
Total comprehensive income applicable to FBL Financial Group, Inc.$68,435 $128,511 $218,993 $406,327 

(1)Other comprehensive income is recorded net of deferred income taxes and other adjustments for assumed changes in deferred acquisition costs, value of insurance in force acquired, unearned revenue reserve and policyholder liabilities.

 Three months ended March 31,
 2020 2019
Net income (loss)$(2,571) $34,044
Other comprehensive income (loss) (1)   
Change in net unrealized investment gains/losses(96,589) 97,640
Change in underfunded status of postretirement benefit plans247
 208
Total other comprehensive income (loss), net of tax(96,342) 97,848
Total comprehensive income (loss), net of tax(98,913) 131,892
Comprehensive (income) loss attributable to noncontrolling interest56
 (1)
Total comprehensive income (loss) applicable to FBL Financial Group, Inc.$(98,857) $131,891

(1)
Other comprehensive income (loss) is recorded net of deferred income taxes and other adjustments for assumed changes in deferred acquisition costs, value of insurance in force acquired, unearned revenue reserve and policyholder liabilities.


FBL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)
(Dollars in thousands)
FBL Financial Group, Inc. Stockholders’ Equity
Series B Preferred StockClass A and Class B Common StockAccumulated Other Comprehensive IncomeRetained EarningsNon-
controlling Interest		Total Stockholders’ Equity
Balance at July 1, 2019$3,000$152,526 $302,793 $939,143 $80 $1,397,542 
Net income - three months ended September 30, 2019— — — 25,129 47 25,176 
Other comprehensive income— — 103,382 — — 103,382 
Stock-based compensation— 112 — — — 112 
Dividends on preferred stock— — — (37)— (37)
Dividends on common stock— — — (11,838)— (11,838)
Balance at September 30, 2019$3,000$152,638$406,175 $952,397 $127 $1,514,337 
Balance at July 1, 2020$3,000 $152,240 $481,626 $930,937 $(42)$1,567,761 
Net income - three months ended September 30, 2020— — — 20,974 (21)20,953 
Other comprehensive income— — 47,461 — — 47,461 
Stock-based compensation— (184)— — — (184)
Purchase of common stock— (994)— (4,597)— (5,591)
Dividends on preferred stock— — — (37)— (37)
Dividends on common stock— — — (12,197)— (12,197)
Receipt related to noncontrolling interest— — — — 89 89 
Balance at September 30, 2020$3,000$151,062$529,087 $935,080 $26 $1,618,255 


5

 FBL Financial Group, Inc. Stockholders’ Equity    
 Series B Preferred Stock Class A and Class B Common Stock Accumulated Other Comprehensive Income Retained Earnings 
Non-
controlling Interest
 Total Stockholders’ Equity
Balance at January 1, 2019$3,000
 $152,724
 $91,318
 $937,097
 $120
 $1,184,259
Cumulative effect of change in accounting principle related to leases—
 —
 —
 595
 —
 595
Net income - three months ended March 31, 2019—
 —
 —
 34,043
 1
 34,044
Other comprehensive income—
 —
 97,848
 —
 —
 97,848
Stock-based compensation—
 202
 —
 —
 —
 202
Purchase of common stock—
 (410) —
 (4,167) —
 (4,577)
Dividends on preferred stock—
 —
 —
 (38) —
 (38)
Dividends on common stock—
 —
 —
 (48,812) —
 (48,812)
Balance at March 31, 2019$3,000
 $152,516
 $189,166
 $918,718
 $121
 $1,263,521
            
Balance at January 1, 2020$3,000
 $152,733
 $354,764
 $975,260
 $159
 $1,485,916
Cumulative effect of change in accounting principle related to current expected credit loss—
 —
 —
 (2,685) —
 (2,685)
Net loss - three months ended March 31, 2020—
 —
 —
 (2,515) (56) (2,571)
Other comprehensive loss—
 —
 (96,342) —
 —
 (96,342)
Stock-based compensation—
 245
 —
 —
 —
 245
Purchase of common stock—
 (152) —
 (657) —
 (809)
Dividends on preferred stock—
 —
 —
 (38) —
 (38)
Dividends on common stock—
 —
 —
 (49,333) —
 (49,333)
Disbursements related to noncontrolling interest—
 —
 —
 —
 (61) (61)
Balance at March 31, 2020$3,000
 $152,826
 $258,422
 $920,032
 $42
 $1,334,322


FBL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Continued)
(Dollars in thousands)
FBL Financial Group, Inc. Stockholders’ Equity
Series B Preferred StockClass A and Class B Common StockAccumulated Other Comprehensive IncomeRetained EarningsNon-
controlling Interest		Total Stockholders’ Equity
Balance at January 1, 2019$3,000$152,724 $91,318 $937,097 $120 $1,184,259 
Cumulative effect of change in accounting principle related to leases— — — 595 — 595 
Net income - nine months ended September 30, 2019— — — 91,470 7 91,477 
Other comprehensive income— — 314,857 — — 314,857 
Stock-based compensation— 324 — — — 324 
Purchase of common stock— (410)— (4,167)— (4,577)
Dividends on preferred stock— — — (112)— (112)
Dividends on common stock— — — (72,486)— (72,486)
Balance at September 30, 2019$3,000$152,638$406,175$952,397$127$1,514,337
Balance at January 1, 2020$3,000 $152,733 $354,764 $975,260 $159 $1,485,916 
Cumulative effect of change in accounting principle related to current expected credit loss— — — (2,685)— (2,685)
Net income - nine months ended September 30, 2020— — — 44,670 (165)44,505 
Other comprehensive income— — 174,323 — — 174,323 
Stock-based compensation— 126 — — — 126 
Purchase of common stock— (1,797)— (8,203)— (10,000)
Dividends on preferred stock— — — (112)— (112)
Dividends on common stock— — — (73,850)— (73,850)
Receipt related to noncontrolling interest— — — — 32 32 
Balance at September 30, 2020$3,000 $151,062 $529,087 $935,080 $26 $1,618,255 

See accompanying notes.



6
5




FBL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
Nine months ended September 30,
20202019
Operating activities
Net income$44,505 $91,477 
Adjustments to reconcile net income to net cash provided by operating activities:
Interest credited to account balances126,343 119,250 
Charges for mortality, surrenders and administration(98,882)(94,277)
Net realized (gains) losses on investments19,512 (10,311)
Change in fair value of derivatives2,804 2,239 
Increase in liabilities for life insurance and other future policy benefits60,304 49,307 
Deferral of acquisition costs(25,462)(31,908)
Amortization of deferred acquisition costs and value of insurance in force28,606 27,589 
Change in reinsurance recoverable(4,096)(994)
Provision for deferred income taxes(10,838)6,051 
Other15,269 (7,130)
Net cash provided by operating activities158,065 151,293 
Investing activities
Sales, maturities or repayments:
Fixed maturities - available for sale416,454 489,597 
Equity securities2,661 15,109 
Mortgage loans82,394 74,970 
Derivative instruments14,316 9,201 
Policy loans29,651 27,436 
Securities and indebtedness of related parties5,158 6,941 
Other long-term investments4,144 3,686 
Acquisitions:
Fixed maturities - available for sale(635,002)(577,634)
Equity securities(2,708)(14,545)
Mortgage loans(44,850)(35,202)
Derivative instruments(2,401)(14,325)
Policy loans(25,071)(30,424)
Securities and indebtedness of related parties(13,657)(16,189)
Other long-term investments(9,671)(4,397)
Short-term investments, net change(6,569)(7,030)
Purchases and disposals of property and equipment, net(8,135)(11,886)
Net cash used in investing activities(193,286)(84,692)



 Three months ended March 31,
 2020 2019
Operating activities   
Net income (loss)$(2,571) $34,044
Adjustments to reconcile net income to net cash provided by operating activities:   
Interest credited to account balances40,980
 38,531
Charges for mortality, surrenders and administration(33,127) (31,201)
Net realized (gains) losses on investments25,662
 (9,288)
Change in fair value of derivatives1,567
 (29)
Increase in liabilities for life insurance and other future policy benefits21,183
 17,507
Deferral of acquisition costs(9,155) (11,739)
Amortization of deferred acquisition costs and value of insurance in force9,597
 7,774
Change in reinsurance recoverable688
 (805)
Provision for deferred income taxes(6,958) 1,822
Other(20,186) (1,923)
Net cash provided by operating activities27,680
 44,693
    
Investing activities   
Sales, maturities or repayments:   
Fixed maturities - available for sale120,845
 128,274
Equity securities699
 —
Mortgage loans35,295
 24,603
Derivative instruments9,451
 2,121
Policy loans9,913
 9,095
Securities and indebtedness of related parties841
 1,133
Other investments1,333
 1,210
Acquisitions:   
Fixed maturities - available for sale(203,333) (128,578)
Equity securities(2,149) (11,069)
Mortgage loans(15,750) (5,650)
Derivative instruments(5,804) (4,432)
Policy loans(10,551) (10,959)
Securities and indebtedness of related parties(3,990) (4,710)
Other long-term investments(6,100) (975)
Short-term investments, net change(17,715) 4,198
Purchases and disposals of property and equipment, net(1,763) (4,049)
Net cash provided by (used in) investing activities(88,778) 212
7




6



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

Nine months ended September 30,
20202019
Financing activities
Contract holder account deposits$545,238 $438,573 
Contract holder account withdrawals(428,170)(449,211)
Dividends paid(73,962)(72,598)
Proceeds from issuance of short-term debt10,000 20,000 
Repayments of short-term debt(10,000)(4,000)
Issuance or repurchase of common stock, net(10,163)(5,393)
Other financing activities31 0 
Net cash provided by (used in) financing activities32,974 (72,629)
Decrease in cash and cash equivalents(2,247)(6,028)
Cash and cash equivalents at beginning of period17,277 19,035 
Cash and cash equivalents at end of period$15,030 $13,007 
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest$(3,650)$(3,641)
Income taxes(5,556)(30)
 Three months ended March 31,
 2020 2019
Financing activities   
Contract holder account deposits$271,542
 $135,844
Contract holder account withdrawals(170,003) (143,456)
Dividends paid(49,371) (48,850)
Proceeds from issuance of short-term debt10,000
 4,000
Issuance or repurchase of common stock, net(762) (5,421)
Other financing activities(61) —
Net cash provided by (used in) financing activities61,345
 (57,883)
Increase (decrease) in cash and cash equivalents247
 (12,978)
Cash and cash equivalents at beginning of period17,277
 19,035
Cash and cash equivalents at end of period$17,524
 $6,057
    
Supplemental disclosures of cash flow information   
Cash (paid) received during the period for:   
Interest$(1,213) $(1,213)
Income taxes(1,915) —

See accompanying notes.


8
7


FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31,September 30, 2020

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 months ended March 31,September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020,, especially when considering the risks and uncertainties associated with the novel coronavirus ("COVID-19") and the impact it may have on our business, results of operations and financial condition. We encourage you to refer to the notes to our consolidated financial statements included in Item 8 of our Form 10-K for the year ended December 31, 2019 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. Our estimates and assumptions could change in the future as more information becomes known about the impact of COVID-19. Our results of operations and financial condition may also be impacted by evolving regulatory, legislative and accounting interpretations and guidance.

Proposed Transaction - Stock Acquisition

On September 4, 2020, the Company announced receipt of a non-binding proposal from Farm Bureau Property & Casualty Insurance Company (FBPCIC), an affiliate, to acquire all of the outstanding shares of Class A common stock and Class B common stock of the Company that are not currently owned by FBPCIC or the Iowa Farm Bureau Federation (IFBF) at a purchase price of $47.00 per share in cash. The Iowa Farm Bureau Federation owns approximately 60% of the Company's Class A common stock and approximately 67% of the Company's Class B common stock.

The Company’s board of directors has appointed a special committee comprised of independent directors to consider the proposal.This committee has retained its own legal counsel and financial advisor to assist in its review, evaluation and response to the proposal. There can be no assurance that any agreement with respect to the proposed transaction will be executed or that this or any other transaction will be approved or consummated.

See Note 9 to our consolidated financial statements included in Item 8 of our Form 10-K for the year ended December 31, 2019 for information regarding management and other agreements between the Company and FBPCIC.

New Accounting Pronouncements
DescriptionDate of adoptionEffect on our consolidated financial statements or other significant matters
Standards adopted:
Leases
In February 2016, the FASB issued a new leaseguidance amending the accounting standard,for leases, which, for most lessees, results in a gross-up of the balance sheet. Under the new standard, lessees recognize the leased assets on the balance sheet and recognize a corresponding liability for the present value of lease payments over the lease term. The new standard requires the application of judgment and estimates. Also, there are accounting policy elections that may be taken both at transition and for the accounting post-transition, including whether to adopt a short-term lease recognition exemption.
January 1, 2019Upon adoption using the modified retrospective approach, a cumulative effect adjustment of $0.6 million was recorded to retained earnings, representing the elimination of a deferred gain on a sale-leaseback transaction, and both other assets and other liabilities increased by $7.2 million. We elected the practical expedients provided for under the guidance but did not use hindsight in determining lease term. We have no finance leases and have elected to treat leases with terms of twelve months or less as short-term leases.




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Table of ContentsContent

DescriptionDate of adoptionEffect on our consolidated financial statements or other significant matters
Standards adopted:
Financial instruments - credit impairment
In June 2016, the FASB issued guidance amending the accounting for the credit impairment of certain financial instruments. Under the new guidance, credit losses are estimated using an expected loss model under which an allowance for credit losses is established and reflected as a charge to earnings. The allowance is based on the probability of loss over the life of the instrument, considering historical, current and forecast information. The new guidance differs significantly from the incurred loss model used historically, and results in the earlier recognition of credit losses. TheSince changes in the allowance are reflected in earnings, the new guidance may increase the volatility of earnings to the extentas the assumptions used in estimating the allowance are revised as changes in the allowance will be reflected in earnings.revised. Our available-for-sale fixed maturities will continue to apply the incurred loss model; however, such losses will also be in the form of an allowance for credit losses rather than an adjustment to the cost basis of the security. The new guidance permits entities to recognize improvements in credit loss estimates on fixed maturity available-for-sale securities by immediately reducing the allowance account immediately through earnings.
January 1, 2020Upon adoption using the modified retrospective approach, a cumulative effect adjustment of $2.7 million after offsets was recorded to retained earnings as of the first reporting period in which the new guidance was effective. The cumulative effect adjustment arose from the establishment of an allowance for credit losses on our mortgage loan investments totaling $3.1 million and reinsurance recoverable totaling $0.9 million, before offsets. See the discussion that follows for further information. Application of this guidance resulted in a decreasean increase to net income of $0.1$1.6 million (less than $0.01($0.06 per basic and diluted share) forduring the nine months ended September 30, 2020 and $2.2 million ($0.09 per basic and diluted earnings per share) during the third quarter ended March 31,of 2020. Prior periods were not restated.
Standards not yet adopted:
Targeted improvements: long-duration contracts
In August 2018, the FASB issued guidance that will change the accounting for long-duration insurance contracts. The new guidance impacts several facets of the accounting for such contracts including the accounting for future policy benefits associated with traditional non-participating and limited payment insurance contracts as well as for guaranteed minimum benefits and the amortization model used for deferred acquisition costs. Disclosures as well as presentation of financial results will also change under the new guidance.
During the third quarter 2020, the FASB extended the date of adoption one year to January 1, 2022
2023
We are currently evaluating the impact of this guidance on our consolidated financial statements but expect the impact to the timing of profit emergence for the impacted insurance contracts to be significant. Adoption of certain portions of the guidance may be applied on a modified retrospective basis and others on a full retrospective basis.


Allowance for Credit Losses
As discussed above, effective January 1, 2020, we were required to apply new accounting guidance for the treatment of potential credit losses within certain financial instruments. Our accounting policies and practices as they pertain to the financial instruments impacted by this new guidance are as follows:
Fixed Maturities
When the fair value of a fixed maturity security is below its amortized cost, an impairment has occurred. To the extent we decide to sell the security or are required to sell the security prior to its recovery of fair value, a charge is taken to realized investment losses as reported within the Consolidated Statement of Operations, and the amortized cost basis of the security is adjusted for the loss. Under the accounting guidance we followed in 2019 and prior periods,to January 1, 2020, to the extent we had no plan or requirement to sell an impaired security, but believed the impairment was other-than-temporary, we similarly recorded a charge to realized investment losses and the amortized cost basis of the security was adjusted for the loss. Beginning in 2020, to the extent an unrealized loss is due to credit, an allowance for credit loss is recognized within the Consolidated Statement of Operations. While fixed maturities are reported net of the allowance for credit losses in our Consolidated Balance Sheet, the allowance is not considered an adjustment to the amortized cost of the security. Accordingly the allowance may increase or decrease over the life of the security based on changes in the assumptions used to determine the allowance, with such changes reported as “Change in the allowance for credit losses on investments” within the Consolidated Statement of Operations. Fixed maturity securities are written-off to realized investment losses if we determine that no additional payments of principal or interest will be received. The factors considered in determining whether an allowance for credit losses is required are consistent with those considered in determining whether an other-than-temporary impairment loss had occurred under the accounting guidance we followed during 2019 and prior periodsto January 1, 2020 as discussed in Item 8 of our Form 10-K for the year ended December 31, 2019. We have elected the policy to exclude accrued interest receivable from our allowance calculation since uncollectible accrued interest will continue to be evaluated for collectability and written off as warranted.


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9

Mortgage Loans
The allowance for credit losses on our mortgage loan investments is based on an estimate of credit losses that may occur over the life of the loans, which differs from the accounting guidance applied in 2019 andwe followed prior periods,to January 1, 2020, which was based on incurred losses of individual loans. In determining the allowance, we segregate our mortgage loans with a similar risk profile based on an internal loan rating. Loss factors based on the potential frequency and severity of credit losses at different points in time of the portfolio life are applied to future cash flows to estimate the allowance for credit losses. In determining the loss factors, we consider the potential severity and likelihood of loss based on our historical loan loss experience along with that of other similar organizations as well as economic forecasts. We have elected the policy to exclude accrued interest receivable from our allowance calculation since uncollectible accrued interest will continue to be evaluated for collectability and written off as warranted. Mortgage loans are reported in our Consolidated Balance Sheet net of the allowance for credit losses. Changes in the allowance are reported within the Consolidated Statement of Operations as “Changes in allowance for credit losses on investments.” See Note 2 for further information.
Reinsurance Recoverable
The allowance for credit losses on our reinsurance recoverable is based on an estimate of credit losses that may occur over the life of the underlying ceded insurance business, which differs from the accounting guidance applied in 2019 andwe followed prior periods,to January 1, 2020, which was based on incurred losses. We develop loss factors whichthat are applied to the amounts due from each reinsurer, which considers the potential severity and likelihood of loss based on the relative risk profile of each reinsurer, our internal loss history and those of other organizations, along with economic forecasts. We also consider other sources of information regarding individual reinsurers, as applicable, including amounts past-due according to the terms of the reinsurance contracts. Reinsurance recoverable assets are reported in our Consolidated Balance Sheet net of the allowance for credit losses. Amounts deemed to be uncollectible are written off against the allowance. Changes in the allowance are reported within the Consolidated Statement of Operations as “Underwriting, acquisition and insurance expenses.”

Allowance on Reinsurance Recoverables
Three months ended September 30, 2020Nine months ended September 30, 2020
(Dollars in thousands)
Beginning balance of the allowance for credit losses$857 $868 
Change in allowance for credit losses2 (9)
Ending balance of the allowance for credit losses$859 $859 
Allowance on Reinsurance Recoverables 
 Three months ended March 31, 2020
 (Dollars in thousands)
Beginning balance of the allowance for credit losses$868
Change in allowance for credit losses7
Ending balance of the allowance for credit losses$875

No reinsurance recoverables were considered past due as of March 31,September 30, 2020.
Income Taxes
Income taxes for interim reporting periods are generally recognized based on an estimated annual effective tax rate which is computed based on earnings forecasts for the year. During the first quarter of 2020, the spread of COVID-19 negatively impacted the U.S. economy, causing unusual market volatility which has impacted our first quarter earnings. At this time, we are unable to forecast our 2020 earnings primarily due to uncertainty regarding COVID-19’s potential impact on future investment credit losses. Accordingly, for purposes of estimating tax expense for the first quarter of 2020, we are applying an estimated year-to-date effective tax rate, which is based on estimated taxable earnings incurred through the end of the quarter. We expect to return to an estimated annual effective tax rate at such time as earnings can be reasonably forecast.



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2. Investment Operations

Fixed Maturity Securities

Available-For-Sale Fixed Maturity Securities by Investment Category
September 30, 2020
Amortized
Cost		Gross
Unrealized
Gains (1)		Gross
Unrealized
Losses (1)		Allowance for Credit LossesFair
Value
(Dollars in thousands)
Fixed maturities:
Corporate$3,557,835 $602,632 $(14,971)$(11,497)$4,133,999 
Residential mortgage-backed661,906 64,389 (1,183)0 725,112 
Commercial mortgage-backed996,794 153,295 (658)0 1,149,431 
Other asset-backed740,677 22,502 (8,590)(598)753,991 
United States Government and agencies35,086 2,962 (453)0 37,595 
States and political subdivisions1,264,534 181,171 (1,356)0 1,444,349 
Total fixed maturities$7,256,832 $1,026,951 $(27,211)$(12,095)$8,244,477 

Available-For-Sale Fixed Maturity Securities by Investment Category
March 31, 2020December 31, 2019
Amortized
Cost
 
Gross
Unrealized
Gains (1)
 
Gross
Unrealized
Losses (1)
 Allowance for Credit Losses 
Fair
Value
Amortized
Cost		Gross
Unrealized
Gains (1)		Gross
Unrealized
Losses (1)		Fair
Value
(Dollars in thousands)(Dollars in thousands)
Fixed maturities:         Fixed maturities:
Corporate$3,460,539
 $312,121
 $(103,191) $(12,146) $3,657,323
Corporate$3,376,432 $418,049 $(15,531)$3,778,950 
Residential mortgage-backed624,574
 44,124
 (14,931) —
 653,767
Residential mortgage-backed626,663 47,654 (1,929)672,388 
Commercial mortgage-backed977,147
 167,839
 (3,344) —
 1,141,642
Commercial mortgage-backed969,453 77,433 (1,413)1,045,473 
Other asset-backed742,954
 4,191
 (48,205) —
 698,940
Other asset-backed697,390 19,745 (2,614)714,521 
United States Government and agencies10,829
 3,375
 —
 —
 14,204
United States Government and agencies12,417 1,711 (5)14,123 
States and political subdivisions1,299,222
 152,500
 (433) —
 1,451,289
States and political subdivisions1,332,914 145,125 (866)1,477,173 
Total fixed maturities$7,115,265
 $684,150
 $(170,104) $(12,146) $7,617,165
Total fixed maturities$7,015,269 $709,717 $(22,358)$7,702,628 

 December 31, 2019
 
Amortized
Cost
 
Gross
Unrealized
Gains (1)
 
Gross
Unrealized
Losses (1)
 
Fair
Value
 (Dollars in thousands)
Fixed maturities:       
Corporate$3,376,432
 $418,049
 $(15,531) $3,778,950
Residential mortgage-backed626,663
 47,654
 (1,929) 672,388
Commercial mortgage-backed969,453
 77,433
 (1,413) 1,045,473
Other asset-backed697,390
 19,745
 (2,614) 714,521
United States Government and agencies12,417
 1,711
 (5) 14,123
States and political subdivisions1,332,914
 145,125
 (866) 1,477,173
Total fixed maturities$7,015,269
 $709,717
 $(22,358) $7,702,628
(1)Includes $2.2 million and $2.5 million as of September 30, 2020 and December 31, 2019, respectively, of net unrealized gains on impaired fixed maturities related to changes in fair value subsequent to the impairment date, which are included in AOCI.

(1)Includes $0.5 million and $2.5 million as of March 31, 2020 and December 31, 2019, respectively, of net unrealized gains on impaired fixed maturities related to changes in fair value subsequent to the impairment date, which are included in AOCI.

The amount of accrued interest excluded from the amortized cost basis of fixed maturities and included in accrued investment income on the balance sheet totaled $72.4$71.4 million at March 31,September 30, 2020. Any fixed maturity delinquent on contractual payments over 90 days past due is placed on non-accrual status. If the fixed maturity is placed on non-accrual status the prior accrued interest income is reversed off through net investment income. Interest income received on non-performing fixed maturities is generally recognized on a cash basis. Once fixed maturities are classified as non-accrual, the resumption of the interest accrual would commence only after all past due interest has been collected. The amount of interest reversed during the nine months ended September 30, 2020 was $0.2 million on corporate fixed maturity securities. There are currentlywas no fixed maturities in non-accrual status.

interest reversed during the three months ended September 30, 2020.

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Available-For-Sale Fixed Maturities by Maturity Date
September 30, 2020
Amortized
Cost
Fair Value
(Dollars in thousands)
Due in one year or less$111,399 $113,532 
Due after one year through five years596,286 632,356 
Due after five years through ten years755,949 853,418 
Due after ten years3,393,821 4,016,637 
4,857,455 5,615,943 
Mortgage-backed and other asset-backed2,399,377 2,628,534 
Total fixed maturities$7,256,832 $8,244,477 
Available-For-Sale Fixed Maturities by Maturity Date   
 March 31, 2020
 
Amortized
Cost
 

Fair Value
 (Dollars in thousands)
Due in one year or less$83,447
 $83,726
Due after one year through five years571,783
 572,846
Due after five years through ten years786,392
 817,847
Due after ten years3,328,968
 3,648,397
 4,770,590
 5,122,816
Mortgage-backed and other asset-backed2,344,675
 2,494,349
Total fixed maturities$7,115,265
 $7,617,165


Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Fixed maturities not due at a single maturity date have been included in the above table in the year of final contractual maturity.

Net Unrealized Gains on Investments in Accumulated Other Comprehensive Income
September 30,
2020		December 31,
2019
(Dollars in thousands)
Net unrealized appreciation on:
Fixed maturities - available for sale$999,740 $687,359 
Adjustments for assumed changes in amortization pattern of:
Deferred acquisition costs(288,239)(200,227)
Value of insurance in force acquired(11,102)(12,498)
Unearned revenue reserve27,496 18,025 
Adjustments for assumed changes in policyholder liabilities(46,160)(30,642)
Provision for deferred income taxes(143,164)(97,023)
Net unrealized investment gains$538,571 $364,994 
Net Unrealized Gains on Investments in Accumulated Other Comprehensive Income
 March 31,
2020		 December 31,
2019
 (Dollars in thousands)
Net unrealized appreciation on:   
Fixed maturities - available for sale$514,046
 $687,359
Adjustments for assumed changes in amortization pattern of:   
Deferred acquisition costs(152,526) (200,227)
Value of insurance in force acquired(11,747) (12,498)
Unearned revenue reserve17,362
 18,025
Adjustments for assumed changes in policyholder liabilities(27,382) (30,642)
Provision for deferred income taxes(71,348) (97,023)
Net unrealized investment gains$268,405
 $364,994


Net unrealized investment gains exclude the allowance for credit losses.

Fixed Maturity Securities with Unrealized Losses by Length of Time without an Allowance for Credit Losses  
  March 31, 2020
  Less than one year One year or more Total  
Description of Securities 

Fair Value
 Unrealized Losses (1) 

Fair Value
 Unrealized Losses (1)  Fair Value Unrealized Losses (1) Percent of Total
  (Dollars in thousands)  
Fixed maturities:              
Corporate $797,924
 $(83,568) $39,182
 $(19,623) $837,106
 $(103,191) 60.7%
Residential mortgage-backed 283,851
 (13,927) 4,956
 (1,004) 288,807
 (14,931) 8.8
Commercial mortgage-backed 27,094
 (3,344) —
 —
 27,094
 (3,344) 2.0
Other asset-backed 494,386
 (35,401) 81,185
 (12,804) 575,571
 (48,205) 28.3
States and political subdivisions 8,389
 (56) 2,602
 (377) 10,991
 (433) 0.2
Total fixed maturities $1,611,644
 $(136,296) $127,925
 $(33,808) $1,739,569
 $(170,104) 100.0%


Fixed Maturity Securities with Unrealized Losses by Length of Time without an Allowance for Credit Losses
September 30, 2020
Less than one yearOne year or moreTotal
Description of Securities
Fair Value		Unrealized Losses (1)
Fair Value		Unrealized Losses (1) Fair ValueUnrealized Losses (1)Percent of Total
(Dollars in thousands)
Fixed maturities:
Corporate$144,426 $(8,045)$52,160 $(6,926)$196,586 $(14,971)55.0 %
Residential mortgage-backed52,098 (301)15,449 (882)67,547 (1,183)4.3 
Commercial mortgage-backed30,712 (658)0 0 30,712 (658)2.4 
Other asset-backed119,596 (4,507)70,915 (4,083)190,511 (8,590)31.6 
United States Government and agencies24,894 (453)0 0 24,894 (453)1.7 
States and political subdivisions31,084 (736)2,360 (620)33,444 (1,356)5.0 
Total fixed maturities$402,810 $(14,700)$140,884 $(12,511)$543,694 $(27,211)100.0 %


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Fixed Maturity Securities with Unrealized Losses by Length of Time
December 31, 2019
Less than one yearOne year or moreTotal
Description of SecuritiesFair ValueUnrealized Losses (1)Fair ValueUnrealized Losses (1)Fair ValueUnrealized Losses (1)Percent of Total
(Dollars in thousands)
Fixed maturities:
Corporate$114,520 $(2,476)$84,719 $(13,055)$199,239 $(15,531)69.5 %
Residential mortgage-backed68,743 (1,435)6,941 (494)75,684 (1,929)8.6 
Commercial mortgage-backed46,537 (1,266)2,610 (147)49,147 (1,413)6.3 
Other asset-backed112,462 (519)102,439 (2,095)214,901 (2,614)11.7 
United States Government and agencies0 0 2,494 (5)2,494 (5)0 
States and political subdivisions19,367 (379)5,936 (487)25,303 (866)3.9 
Total fixed maturities$361,629 $(6,075)$205,139 $(16,283)$566,768 $(22,358)100.0 %
Fixed Maturity Securities with Unrealized Losses by Length of Time  
  December 31, 2019
  Less than one year One year or more Total  
Description of Securities Fair Value Unrealized Losses (1) Fair Value Unrealized Losses (1) Fair Value Unrealized Losses (1) Percent of Total
  (Dollars in thousands)  
Fixed maturities:              
Corporate $114,520
 $(2,476) $84,719
 $(13,055) $199,239
 $(15,531) 69.5%
Residential mortgage-backed 68,743
 (1,435) 6,941
 (494) 75,684
 (1,929) 8.6
Commercial mortgage-backed 46,537
 (1,266) 2,610
 (147) 49,147
 (1,413) 6.3
Other asset-backed 112,462
 (519) 102,439
 (2,095) 214,901
 (2,614) 11.7
United States Government and agencies —
 —
 2,494
 (5) 2,494
 (5) —
States and political subdivisions 19,367
 (379) 5,936
 (487) 25,303
 (866) 3.9
Total fixed maturities $361,629
 $(6,075) $205,139
 $(16,283) $566,768
 $(22,358) 100.0%

(1)Non-credit losses reported in AOCI are included with gross unrealized losses resulting in total gross unrealized losses for fixed maturities, available-for-sale being reported in the table.

(1)Non-credit losses reported in AOCI are included with gross unrealized losses resulting in total gross unrealized losses for fixed maturities, available-for-sale being reported in the table.

Fixed maturities in the above tables include 566217 securities from 407178 issuers at March 31,September 30, 2020 and 189 securities from 145 issuers at December 31, 2019. Unrealized losses increased during the threenine months ended March 31,September 30, 2020 primarily due to wider credit spreads. We do not consider securities declines in fair value below amortized cost to be due to a credit loss when the market decline is attributable to factors such as interest rate movements, market volatility, liquidity or spread widening when recovery of all amounts due under the contractual terms of the security is anticipated. Based on our intent not to sell orand our belief that we will not be required to sell these securities before recovery of their amortized cost basis, we do not consider these investments to have a credit loss allowance, and they do not require a loss allowance established at March 31,September 30, 2020. The following summarizes the more significant unrealized losses ofon fixed maturity securities by investment category as of March 31,September 30, 2020.

Corporate securities: The largest unrealized losses were in the energy sector ($208.073.2 million fair value and $55.4$8.1 million unrealized loss) and in the consumer non-cyclical sector ($100.524.9 million fair value and $11.4$1.6 million unrealized loss). The majority of losses were attributable to credit spread widening across the energy sector associated with sharp declines in crude oil prices. The price of crude oil has decreased from $61.06 per barrel at December 31, 2019 to $20.48$40.22 per barrel at March 31,September 30, 2020. Energy-related companies have been negatively impacted by the rapid decline in oil prices due to a decrease in demand and an increase in supply, which has pressured revenues and margins. Spreads widened during the quarter somewhat recovering towards the end of the quarter as the U.S. Federal Reserve Bank has taken a number of actions to stabilize the markets. This includes the establishment of two additional facilities to provide credit to large employers - the Primary Market Corporate Credit Facility (PMCCF) for new bond and loan issuance and the Secondary Market Corporate Credit Facility (SMCCF) to provide liquidity for outstanding investment-grade corporate bonds (with a target of maturities 5 years and less). brought on by COVID-19.

Residential mortgage-backed securities: The unrealized losses on residential mortgage-backed securities were primarily due to price declines on legacy and newer issue bonds. The legacy bonds are still at an unrealized gain overall, but manysome individual securities are nowremain at an unrealized loss that were previously at a gain.loss. We purchased many of these investments at a discount to their face amount and the contractual cash flows of these investments are based on mortgages and other assets backing the securities. The newer issue residential mortgage-backed securities are comprised of bonds issued during and after 2013 with strong underwriting and collateral characteristics. The majority ofPrimarily, losses were attributable to credit spread widening across the asset class, partially offset bywhich led to lower U.S. Treasury rates.prices on some securities. The wider spreads at quarter end were caused by continued market uncertainty and reduced trading from economic contractions due tobrought on by the COVID-19 virus. These securities tend to have higher credit scores with higher credit enhancement and lower loan-to-value ratios which position them favorably against default during economic disruptions such as those caused by COVID-19.

Commercial mortgage-backed securities: The unrealized losses on commercial mortgage-backed securities were primarily due to spread widening, partially offset by lower U.S. Treasury rate during the quarter.widening. The wider spreads were caused by continued market uncertainty from economic contractions due tobrought on by the COVID-19 virus.virus for some securities. The contractual cash flows of these investments are based on mortgages backing the securities.

Other asset-backed securities: TheThe unrealized losses on asset-backed securities (ABS) were primarily due to concerns regarding COVID-19 and the resulting impact on consumer and commercial loans. Spreads widened duringhave tightened and prices have recovered over the quarter somewhat recovering towardsprevious six months as the end of the quarter asactions taken by the U.S. Federal Reserve Bank has taken a number of actions tohelped stabilize the markets. This includes establishment of a Term Asset-Backed Securities Loan Facility (TALF) to facilitate the issuance of ABS


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collateralized by student loans, auto loans, credit card loans, loans guaranteed by the Small Business Administration (SBA) and certain other assets. The majority of our ABS have a sequential-pay structure that increases credit support as the pool amortizes. The average life of our portfolioABS is 3.63.2 years, down from 5.45.2 years at purchase. Average credit support for the portfolio has increased from 11 percent10% at time of purchase to 18 percent22% as of March 31,September 30, 2020. The portfolio is rated nearly 70 percent70% NAIC-1.


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The unrealized losses on collateralized loan obligations (CLO) are due to concerns regarding COVID-19 and the resulting impact on leveraged loans. 

The CLO market willis also benefitbenefiting from the programs that the U.S. Federal Reserve Bank is providing to the market. Our CLO portfolio is higherof high quality, with all of the securities rated NAIC-1. Internal stress testing has indicated that the weighted average constant default rate (CDR) of our portfolio without suffering a loss is 17%.17 percent. The CDR is the constant default rate (annually) that a CLO must suffer before our tranche takes its first dollar loss.

State, municipal and other governments: The unrealized losses on state, municipal and other government securities were primarily due to general spread widening relative to spreads at which we acquired the bonds.

AnOur allowance for credit losses for the three months ended March 31,at September 30, 2020 includes an energy sector bond, and two financial sector bonds, and a consumer non-cyclical bond experiencing ongoing weakness in operating performance. These securities were also impacted by the recent market stresses discussed above. The allowance for these bonds was established as the difference between the fair value of the securities and their amortized cost and was considered to be entirely credit related. Our allowance for credit losses also includes an asset backed security due to the difference between the amortized cost and the present value of the expected cash flows.

Available-For-Sale Fixed Maturities Allowance for Credit Losses
Three months ended September 30, 2020
CorporateOther ABSTotal
(Dollars in thousands)
Beginning balance$12,902 $317 $13,219 
Additions for credit losses not previously recorded0 281 281 
Net decrease to previously recorded allowance(1,405)0 (1,405)
Ending balance$11,497 $598 $12,095 
Available-For-Sale Fixed Maturities Allowance for Credit Losses 
 Three months ended March 31, 2020
 (Dollars in thousands)
Corporate securities: 
Beginning balance of the allowance for credit losses$—
Additions to the allowance for credit losses on securities for which credit losses were not previously recorded12,146
Ending balance of the allowance for credit losses$12,146

Nine months ended September 30, 2020
CorporateOther ABSTotal
(Dollars in thousands)
Beginning balance$0 $0 $0 
Additions for credit losses not previously recorded13,118 598 13,716 
Net decrease to previously recorded allowance(1,621)0 (1,621)
Ending balance$11,497 $598 $12,095 

Mortgage Loans

Our mortgage loan portfolio consists of commercial mortgage loans that we have originated. Our lending policies require that the loans be collateralized by the value of the related property, establish limits on the amount that can be loaned to one borrower and require diversification by geographic location and collateral type. We originate loans with an initial loan-to-value ratio that provides sufficient collateral to absorb losses should we be required to foreclose and take possession of the collateral.

The amount of accrued interest excluded from the cost basis of the mortgage loans and included in accrued investment income on the balance sheet totaled $3.7$3.6 million at March 31,September 30, 2020. Any loan delinquent on contractual payments is considered non-performing. Mortgage loans are placed on non-accrual status if the loan is over 90 days past due. If the loan is placed on non-accrual status the prior accrued interest income is reversed off through net investment income. Interest income received on non-performing loans is generally recognized on a cash basis. Once mortgage loans are classified as non-accrual loans, the resumption of the interest accrual would commence only after all past due interest has been collected or the mortgage loan has been restructured such that the collection of interest is considered likely. At March 31,September 30, 2020 and December 31, 2019, there were no non-performing loans over 30 days past due on contractual payments. At March 31,September 30, 2020, we had committed to provide additional funding for mortgage loans totaling $6.0$21.8 million. These commitments arose in the normal course of business at terms that are comparable to similar investments.


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Mortgage Loans by Collateral Type
September 30, 2020December 31, 2019
Collateral TypeAmortized CostPercent of TotalAmortized CostPercent of Total
(Dollars in thousands)
Office$378,177 38.8 %$417,746 41.3 %
Retail325,305 33.4345,870 34.2
Industrial233,410 24.0235,274 23.2
Apartment24,731 2.5— —
Other12,511 1.312,788 1.3
Total$974,134 100.0 %$1,011,678 100.0 %
Mortgage Loans by Collateral Type        
  March 31, 2020 December 31, 2019
Collateral Type Amortized Cost Percent of Total Amortized Cost Percent of Total
  (Dollars in thousands)
Office $407,723
 41.1% $417,746
 41.3%
Retail 333,975
 33.7
 345,870
 34.2
Industrial 232,748
 23.4
 235,274
 23.2
Apartment 9,005
 0.9
 —
 —
Other 8,682
 0.9
 12,788
 1.3
Total $992,133
 100.0% $1,011,678
 100.0%


Mortgage Loans by Geographic Location within the United States
September 30, 2020December 31, 2019
Region of the United StatesAmortized CostPercent of TotalAmortized CostPercent of Total
(Dollars in thousands)
South Atlantic$261,291 26.8 %$288,299 28.5 %
Pacific165,281 17.0164,996 16.3
East North Central137,241 14.1117,053 11.6
Mountain104,658 10.796,857 9.6
West North Central98,505 10.1108,942 10.8
East South Central78,983 8.181,275 8.0
West South Central65,374 6.776,650 7.6
Middle Atlantic44,625 4.645,687 4.5
New England18,176 1.931,919 3.1
Total$974,134 100.0 %$1,011,678 100.0 %
Mortgage Loans by Geographic Location within the United States  
  March 31, 2020 December 31, 2019
Region of the United States Amortized Cost Percent of Total Amortized Cost Percent of Total
  (Dollars in thousands)
South Atlantic $275,752
 27.8% $288,299
 28.5%
Pacific 168,456
 17.0
 164,996
 16.3
East North Central 126,112
 12.7
 117,053
 11.6
West North Central 101,559
 10.2
 108,942
 10.8
Mountain 95,827
 9.7
 96,857
 9.6
East South Central 80,523
 8.1
 81,275
 8.0
West South Central 67,059
 6.8
 76,650
 7.6
Middle Atlantic 45,337
 4.6
 45,687
 4.5
New England 31,508
 3.1
 31,919
 3.1
Total $992,133
 100.0% $1,011,678
 100.0%

Mortgage Loans by Loan-to-Value Ratio
September 30, 2020December 31, 2019
Loan-to-Value RatioAmortized CostPercent of TotalAmortized CostPercent of Total
(Dollars in thousands)
0% - 50%$442,913 45.5 %$412,973 40.8 %
51% - 60%309,726 31.8310,869 30.7
61% - 70%204,359 21.0256,280 25.4
71% - 80%17,136 1.731,556 3.1
Total$974,134 100.0 %$1,011,678 100.0 %
Mortgage Loans by Loan-to-Value Ratio        
  March 31, 2020 December 31, 2019
Loan-to-Value Ratio Amortized Cost Percent of Total Amortized Cost Percent of Total
  (Dollars in thousands)
0% - 50% $430,798
 43.4% $412,973
 40.8%
51% - 60% 322,097
 32.5
 310,869
 30.7
61% - 70% 209,801
 21.1
 256,280
 25.4
71% - 80% 29,437
 3.0
 31,556
 3.1
Total $992,133
 100.0% $1,011,678
 100.0%


The loan-to-value ratio is determined using the most recent appraised value. Appraisals are updated periodically when there is indication of a possible significant collateral decline or there are loan modifications or refinance requests.

Mortgage loans are rated internally to provide a current qualitative rating of each loan. We review the capital structure, collateral strength, physical occupancy, financial stability of the operating income stream, debt service coverage ratio, outstanding loan balance to estimated value of the collateral, property improvements and the financial strength of the borrower when determining the internal loan rating. Loans of high quality, low risk and with little concern of default or extension risk are rated an A; loans of moderate quality and moderate risk are rated a B; loans of low quality and high risk are rated a C, and loans for which there is concern of credit default are rated a W.


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Mortgage Loans by Internal Rating and Year of Origination
September 30, 2020
202020192018201720162015 & priorTotal
Internal RatingAmortized Cost
(Dollars in thousands)
A$44,643 $56,567 $119,248 $191,141 $136,503 $386,219 $934,321 
B— 11,842 1,900 3,497 — 5,336 22,575 
C— — 4,495 — 3,975 4,535 13,005 
W— — — — — 4,233 4,233 
Total$44,643 $68,409 $125,643 $194,638 $140,478 $400,323 $974,134 
Mortgage Loans by Internal Rating and Year of Origination
 March 31, 2020December 31, 2019
 2020 2019 2018 2017 2016 2015 & prior Total201920182017201620152014 & priorTotal
Internal Rating Amortized CostInternal RatingAmortized Cost
 (Dollars in thousands)(Dollars in thousands)
A $15,750
 $69,026
 $127,394
 $198,421
 $142,996
 $407,362
 $960,949
A$69,319 $128,334 $200,283 $144,311 $119,724 $316,079 $978,050 
B —
 —
 —
 —
 —
 5,403
 5,403
B— — — — — 7,512 7,512 
C —
 —
 —
 —
 —
 21,501
 21,501
C— — — — — 21,812 21,812 
W —
 —
 —
 —
 —
 4,280
 4,280
W— — — — — 4,304 4,304 
Total $15,750
 $69,026
 $127,394
 $198,421
 $142,996
 $438,546
 $992,133
Total$69,319 $128,334 $200,283 $144,311 $119,724 $349,707 $1,011,678 

  December 31, 2019
  2019 2018 2017 2016 2015 2014 & prior Total
Internal Rating Amortized Cost
  (Dollars in thousands)
A $69,319
 $128,334
 $200,283
 $144,311
 $119,724
 $316,079
 $978,050
B —
 —
 —
 —
 —
 7,512
 7,512
C —
 —
 —
 —
 —
 21,812
 21,812
W —
 —
 —
 —
 —
 4,304
 4,304
Total $69,319
 $128,334
 $200,283
 $144,311
 $119,724
 $349,707
 $1,011,678


Our allowance for credit losses on mortgage loans was estimated by incorporating historical internal information, historical industry averages, current conditions as well as conditions for a reasonable and supportable forecast that includes an estimated recessionary period. The loans are segmented by an internal risk rating as well as geographic region with an estimated loss ratio applied against each segment. For the years after our reasonable and supportable forecast period we graded the expected loss ratio over the estimated remaining recessionary period to our actual loss history. During the quarter ended March 31,September 30, 2020, we increased our recession probability factor for our reasonablepositive trends in the historical industry averages, a decrease in the estimated recessionary period and supportable forecast period, which caused our allowance to increase. However, thea decrease in our mortgage loan principal balance from December 31, 2019more than offset our negative internal rating migrations for the quarter which led to March 31, 2020 partially offset the increasea decrease in our allowance resulting in a small increase to our allowance, during the first quarter 2020.allowance. Amounts on mortgage loans deemed to be uncollectible are charged off and removed from the valuation allowance.

 Allowance for Credit Losses on Mortgage Loans
Three months endedNine months ended
 September 30, 2020 September 30, 2020
(Dollars in thousands)
Beginning balance$2,703 $3,164 
Current period provision for expected credit losses(779)(1,240)
Ending balance$1,924 $1,924 
 Allowance for Credit Losses on Mortgage Loans 
 Three months ended March 31, 2020
 (Dollars in thousands)
Beginning balance of the allowance for credit losses$3,164
Current period provision for expected credit losses115
Ending balance of the allowance for credit losses$3,279


Mortgage Loan Modifications

Our commercial mortgage loan portfolio can include loans that have been modified. We assess loan modifications on a loan-by-loan basis to evaluate whether a troubled debt restructuring has occurred. Generally, the types of concessions include reduction of the contractual interest rate to a below-market rate, extension of the maturity date and/or a reduction of accrued interest. The amount, timing and extent of the concession granted is considered in determining if an impairment loss is needed for the restructuring. ThereThe Coronavirus Aid, Relief, and Economic Security (CARES) Act allows lenders to make loan modifications under certain circumstances without triggering troubled debt restructuring status, including extension of the maturity date and payment of interest only. Other than those modifications intended to comply with these provisions of the CARES Act, there were no loan modifications during the threenine months ended March 31,September 30, 2020 or March 31,September 30, 2019.


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Realized Gains (Losses) - Recorded in Income
Three months ended September 30,Nine months ended September 30,
2020201920202019
(Dollars in thousands)
Realized gains (losses) on investments
Fixed maturities:
Gross gains$237 $534 $431 $3,671 
Gross losses(11)0 (1,730)(304)
Mortgage loans0 0 0 2,778 
Other(49)0 (58)(4)
177 534 (1,357)6,141 
Net gains (losses) recognized during the period on equity securities held at the end of the period1,814 165 (7,099)5,047 
Net gains (losses) recognized during the period on equity securities sold during the period0 (3)(201)42 
Net gains (losses) recognized during the period on equity securities1,814 162 (7,300)5,089 
Net realized gains (losses)1,991 696 (8,657)11,230 
Credit losses recognized in earnings:
Other-than-temporary impairment losses0 (50)0 (919)
Allowance for credit losses on fixed maturity securities1,124 0 (12,095)0 
Allowance for credit losses on mortgage loans779 0 1,240 0 
Net realized gains (losses) on investments recorded in income$3,894 $646 $(19,512)$10,311 
Realized Gains (Losses) - Recorded in Income 
   
 Three months ended March 31,
 2020 2019
 (Dollars in thousands)
Realized gains (losses) on investments   
Fixed maturities:   
Gross gains$12
 $2,994
Gross losses(159) —
Mortgage loans—
 2,778
Other(9) (4)
 (156) 5,768
    
Net gains (losses) recognized during the period on equity securities held at the end of the period(13,231) 4,419
Net gains and (losses) recognized during the period on equity securities sold during the period(14) (30)
Net gains (losses) recognized during the period on equity securities(13,245) 4,389
Net realized gains (losses)(13,401) 10,157
    
Credit losses recognized in earnings:   
Other-than-temporary impairment losses—
 (869)
Fixed maturity allowance for credit losses(12,146) —
Mortgage loan allowance for credit losses(115) —
Net realized gains (losses) on investments recorded in income$(25,662) $9,288


Proceeds from sales of fixed maturities totaled $5.8$14.5 million during the threenine months ended March 31,September 30, 2020 and $6.7$27.7 million during the threenine months ended March 31,September 30, 2019.

Realized gains and losses on sales of investments are determined based on specific identification.

Variable Interest Entities

We evaluate our variable interest entity (VIE) investees to determine whether the level of our direct ownership interest, our rights to manage operations, or our obligation to provide ongoing financial support are such that we are the primary beneficiary of the entity, and would therefore be required to consolidate it for financial reporting purposes. After determining that we have a variable interest, we review our involvement in the VIE to determine whether we have both the power to direct activities that most significantly impact the economic performance of the VIE, and the obligation to absorb losses or the rights to receive benefits that could be potentially significant to the VIE. This analysis includes a review of the purpose and design of the VIE as well as the role that we played in the formation of the entity and how that role could impact our ability to control the VIE. We also review the activities and decisions considered significant to the economic performance of the VIE and assess what power we have in directing those activities and decisions. Finally, we review the agreements in place to determine if there are any guarantees that would affect our maximum exposure to loss.

We have reviewed the circumstances surrounding our investments in VIEs, which consist of (i) limited partnerships or limited liability companies accounted for under the equity method included in securities and indebtedness of related parties and (ii) non-guaranteed federal low income housing tax credit (LIHTC) investments included in other assets. In addition, we have reviewed the ownership interests in our VIEs and determined that we do not hold direct majority ownership or have other contractual rights (such as kick out rights) that give us effective control over these entities resulting in us having both the power to direct activities that most significantly impact the economic performance of the VIE and the obligation to absorb losses or the right to receive benefits that could be potentially significant to the VIE. The maximum loss exposure relative to our VIEs is limited to the carrying value and any unfunded commitments that exist for each particular VIE. We also have not provided additional support or other guarantees that were not previously contractually required (financial or otherwise) to any of the VIEs as of March 31,September 30, 2020 or December 31, 2019. Based on this analysis, none of our VIEs were required to be consolidated at March 31,September 30, 2020 or December 31, 2019.


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17

LIHTC investments take the form of limited partnerships or limited liability companies, which in turn invest in a number of low income housing projects. We use the proportional amortization method of accounting for these investments. The proportional amortization method amortizes the cost of the investment over the period in which the investor expects to receive tax credits and other tax benefits, and the resulting amortization is recognized along with the tax benefit as a component of federal income tax expense on our consolidated statements of operations.

VIE Investments by Category
September 30, 2020December 31, 2019
Carrying ValueMaximum Exposure to LossCarrying ValueMaximum Exposure to Loss
(Dollars in thousands)
LIHTC investments$34,273 $35,200 $42,907 $43,834 
Investment companies59,661 111,179 53,388 103,125 
Real estate limited partnerships9,888 15,002 9,565 15,527 
Other490 490 492 492 
Total$104,312 $161,871 $106,352 $162,978 
VIE Investments by Category       
 March 31, 2020 December 31, 2019
 Carrying Value Maximum Exposure to Loss Carrying Value Maximum Exposure to Loss
 (Dollars in thousands)
LIHTC investments$40,018
 $40,945
 $42,907
 $43,834
Investment companies55,522
 107,523
 53,388
 103,125
Real estate limited partnerships10,075
 15,379
 9,565
 15,527
Other491
 491
 492
 492
Total$106,106
 $164,338
 $106,352
 $162,978


In addition, we make passive investments in the normal course of business in structured securities issued by VIEs for which we are not the investment manager. These structured securities include all of the residential mortgage-backed securities, commercial mortgage-backed securities and other asset-backed securities included in our fixed maturity securities. Our maximum exposure to loss on these securities is limited to our carrying value of the investment. We have determined that we are not the primary beneficiary of these structured securities because we do not have the power to direct the activities that most significantly impact the entities’ economic performance.

Derivative Instruments

Our primary derivative exposure relates to purchased call options, which provide an economic hedge against the embedded derivatives in our indexed products. We also have embedded derivatives within our modified coinsurance agreements as well as an interest-only fixed maturity investment. We do not apply hedge accounting to any of our derivative positions, and they are held at fair value.

Derivatives Instruments by Type
September 30, 2020December 31, 2019
(Dollars in thousands)
Assets
Freestanding derivatives:
Call options (reported in other investments)$18,376 $31,469 
Embedded derivatives:
Modified coinsurance (reported in reinsurance recoverable)4,054 2,327 
Interest-only security (reported in fixed maturities)97 385 
Total assets$22,527 $34,181 
Liabilities
Embedded derivatives:
Indexed products (reported in liability for future policy benefits)$95,079 $76,346 
Modified coinsurance (reported in other liabilities)326 254 
Total liabilities$95,405 $76,600 

Derivatives Instruments by Type 
 March 31, 2020 December 31, 2019
 (Dollars in thousands)
Assets   
Freestanding derivatives:   
Call options (reported in other investments)$5,661
 $31,469
Embedded derivatives:   
Modified coinsurance (reported in reinsurance recoverable - assumed)1,507
 2,327
Modified coinsurance (reported in reinsurance recoverable - ceded)149
 —
Interest-only security (reported in fixed maturities)349
 385
Total assets$7,666
 $34,181
    
Liabilities   
Embedded derivatives:   
Indexed products (reported in liability for future policy benefits)$61,071
 $76,346
Modified coinsurance (reported in other liabilities)86
 254
Total liabilities$61,157
 $76,600
19



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Derivative Income (Loss)
Three months ended September 30,Nine months ended September 30,
2020201920202019
(Dollars in thousands)
Freestanding derivatives:
Call options$7,495 $1,590 $(1,073)$14,092 
Embedded derivatives:
Modified coinsurance1,452 859 1,655 2,112 
Interest-only security44 (99)85 17 
Indexed products(9,890)(5,831)(3,471)(18,460)
Total loss from derivatives$(899)$(3,481)$(2,804)$(2,239)
Derivative Income (Loss)   
 Three months ended March 31,
 2020 2019
 (Dollars in thousands)
Freestanding derivatives:   
Call options$(22,163) $8,685
Embedded derivatives:   
Modified coinsurance(504) 633
Interest-only security24
 47
Indexed products21,076
 (9,336)
Total income (loss) from derivatives$(1,567) $29


Derivative income is reported in net investment income except for the change in fair value of the embedded derivatives on our indexed products, which is reported in interest sensitive product benefits.

We are exposed to credit losses on our call options in the event of nonperformance of the derivative counterparties. This credit risk is minimized by purchasing such agreements from financial institutions with high credit ratings (currently rated A or better by nationally recognized statistical rating organizations). We have also entered into credit support agreements with the counterparties requiring them to post collateral when net exposures exceed pre-determined thresholds that vary by counterparty. The net amount of such exposure is essentially the market value less collateral held for such agreements with each counterparty. The call options are supported by securities collateral received of $6.7$15.8 million at March 31,September 30, 2020, which is held in a separate custodial account. Subject to certain constraints, we are permitted to sell or re-pledge this collateral, but do not have legal rights to the collateral; accordingly, it has not been recorded on our balance sheet. We have elected to present our derivative receivables netted with the obligation to return cash collateral received on our balance sheet in other investments. We received cash collateral of $3.5$8.9 million included in cash and cash equivalents on our balance sheet as of March 31,September 30, 2020. At March 31,September 30, 2020, none of the collateral had been sold or re-pledged. As of March 31,September 30, 2020, our net derivative exposure recorded on the balance sheet without the off balance sheet collateral was $5.7$18.4 million.


3. Fair Values

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. As not all financial instruments are actively traded, various valuation methods may be used to estimate fair value. These methods rely on observable market data, or, if observable market data is not available, the best information available. Significant judgment may be required to interpret the data and select the assumptions used in the valuation estimates, particularly when observable market data is not available.

In the discussion that follows, we have ranked our financial instruments by the level of judgment used in the determination of the fair values presented above. The levels are defined as follows:

•Level 1 - Fair values are based on unadjusted quoted prices in active markets for identical assets or liabilities.

•Level 2 - Fair values are based on inputs, other than quoted prices from active markets, that are observable for the asset or liability, either directly or indirectly.

•Level 3 - Fair values are based on significant unobservable inputs for the asset or liability.

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. From time to time there may be movements between levels as inputs become more or less observable, which may depend on several factors including the activity of the market for the specific security, the activity of the market for similar securities, the level of risk spreads and the source from which we obtain the information.



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The following methods and assumptions were used in estimating the fair value of our financial instruments measured at fair value on a recurring basis:

Fixed maturities:

Level 1 fixed maturities consist of U.S. Treasury issues that are actively traded, allowing us to use current market prices as an estimate of their fair value.

Level 2 fixed maturities consist of corporate, mortgage- and asset-backed, United States Government agencies, state and political subdivisions and private placement corporate securities with observable market data, and in some circumstances recent trade activity. When quoted prices of identical assets in active markets are not available, we obtain prices from third-party pricing vendors. We have regular interaction with these vendors to ensure we understand their pricing methodologies and to confirm they are utilizing observable market information. Their methodologies vary by asset class and include inputs such as estimated cash flows, benchmark yields, reported trades, credit quality, industry events and economic events. Fixed maturities with validated prices from pricing services, which includes the majority of our public fixed maturities in all asset classes, are generally reflected in Level 2.

Also included in Level 2 are private placement corporate bonds with no quoted market prices available, for which an internal model using substantially all observable inputs or a matrix pricing valuation approach is used. In the matrix approach, securities are grouped into pricing categories that vary by sector, rating and average life. Each pricing category is assigned a risk spread based on studies of observable public market data. The expected cash flows of the security are then discounted back at the current Treasury curve plus the appropriate risk spread.

Level 3 fixed maturities include corporate, mortgage- and asset-backed and private placement corporate securities for which there is little or no current market data available. We use external pricing sources, or if prices are not available, we will estimate fair value internally. Fair values of private corporate investments in Level 3 are determined by reference to the public market, private transactions or valuations for comparable companies or assets in the relevant asset class when such amounts are available. For other securities for which an exit price based on relevant observable inputs is not obtained, the fair value is determined using a matrix calculation. Fair values estimated using matrix pricing methods rely on an estimate of credit spreads to a risk-free U.S. Treasury yield. Selecting the credit spread requires judgment based on an understanding of the security and may include a market liquidity premium. Our selection of comparable companies as well as the level of spread requires significant judgment. Increases in spreads used in our matrix models, or those used to value comparable companies, will result in a decrease in discounted cash flows used, and accordingly in the estimated fair value of the security.

We obtain fixed maturity fair values from a variety of external independent pricing services, including brokers, with access to observable data including recent trade information, if available. In certain circumstances in which an external price is not available for a Level 3 security, we will internally estimate its fair value. Our process for evaluation and selection of the fair values includes:

•We follow a “pricing waterfall” policy, which establishes the pricing source preference for a particular security or security type. The order of preference is based on our evaluation of the valuation methods used, the source’s knowledge of the instrument and the reliability of the prices we have received from the source in the past. Our valuation policy dictates that fair values are initially sought from third-party pricing services. If our review of the prices received from our preferred source indicates an inaccurate price, we will use an alternative source within the waterfall and document the decision. In the event that fair values are not available from one of our external pricing services or upon review of the fair values provided it is determined that they may not be reflective of market conditions, those securities are submitted to brokers familiar with the security to obtain non-binding price quotes. Broker quotes tend to be used in limited circumstances such as for newly issued, private placement corporate bonds and other instruments that are not widely traded. For those securities for which an externally provided fair value is not available, we use cash flow modeling techniques to estimate fair value.

•We evaluate third-party pricing source estimation methodologies to assess whether they will provide a fair value that approximates a market exit price.

•We perform an overall analysis of portfolio fair value movement against general movements in interest rates and spreads.



2021

•We compare period-to-period price trends to detect unexpected price fluctuations based on our knowledge of the market and the particular instrument. As fluctuations are noted, we will perform further research that may include discussions with the original pricing source or other external sources to ensure we agree with the valuation.

•We compare prices between different pricing sources for unusual disparity.

•We meet at least quarterly with our Investment Committee, the group that oversees our valuation process, to discuss valuation practices and observations during the pricing process.

Equity securities:

Level 1 equity securities consist of mutual funds and common stocks that are actively traded, allowing us to use current market prices as an estimate of their fair value.

Level 2 equity securities consist of non-redeemable preferred stock. Estimated fair value for the non-redeemable preferred stock is obtained from external pricing sources using a matrix pricing approach.

Level 3 equity securities consist of non-redeemable preferred stock for which fair value estimates are based on the value of comparable securities that are actively traded. Increases in spreads used to value comparable companies, will result in a decrease in discounted cash flows used, and accordingly in the estimated fair value of the security.

In the case that external pricing services are used for certain Level 1 and Level 2 equity securities, our review process is consistent with the process used to determine the fair value of fixed maturities discussed above.

Other investments:

Level 2 other investments measured at fair value include call options with fair values based on counterparty market prices adjusted for a credit component of the counterparty, net of collateral received.

Cash, cash equivalents and short-term investments:

Level 1 cash, cash equivalents and short-term investments are highly liquid instruments for which historical cost approximates fair value.

Reinsurance recoverable:

Level 2 reinsurance recoverable includes embedded derivatives in our modified coinsurance contracts under which we cede or assume business. Fair values of these embedded derivatives are based on the difference between the fair value and the cost basis of the underlying fixed maturities, which are valued consistent with the discussion of fixed maturities above.

Assets held in separate accounts:

Level 1 assets held in separate accounts consist of mutual funds that are actively traded, allowing us to use current market prices as an estimate of their fair value.

Future policy benefits - indexed product embedded derivatives:

Indexed product contracts include embedded derivatives that are measured at fair value on a recurring basis. These embedded derivatives are a Level 3 measurement. The fair value of the embedded derivatives is based on the discounted excess of projected account values (including a risk margin) over projected guaranteed account values. The key unobservable inputs required in the projection of future values that require management judgment include the risk margin as well as our credit risk. Should the risk margin increase or the credit risk decrease, the discounted cash flows and the estimated fair value of the obligation will increase.



2122

Other liabilities:

Level 2 other liabilities include the embedded derivatives in our modified coinsurance contracts under which we cede business. Fair values for the embedded derivatives are based on the difference between the fair value and the cost basis of the underlying fixed maturities.

Valuation of our Financial Instruments Measured on a Recurring Basis by Hierarchy Levels
September 30, 2020
Quoted prices in active markets
for identical assets (Level 1)		Significant other observable inputs
(Level 2)		Significant unobservable inputs
(Level 3)		Fair Value
(Dollars in thousands)
Assets
Fixed maturities:
Corporate securities$0 $4,129,701 $4,298 $4,133,999 
Residential mortgage-backed securities0 717,719 7,393 725,112 
Commercial mortgage-backed securities0 1,141,289 8,142 1,149,431 
Other asset-backed securities0 727,998 25,993 753,991 
United States Government and agencies27,188 10,407 0 37,595 
States and political subdivisions0 1,444,349 0 1,444,349 
Total fixed maturities27,188 8,171,463 45,826 8,244,477 
Non-redeemable preferred stocks0 65,261 6,816 72,077 
Common stocks (1)12,084 0 0 12,084 
Other investments0 18,376 0 18,376 
Cash, cash equivalents and short-term investments33,464 0 0 33,464 
Reinsurance recoverable0 4,054 0 4,054 
Assets held in separate accounts616,381 0 0 616,381 
Total assets$689,117 $8,259,154 $52,642 $9,000,913 
Liabilities
Future policy benefits - indexed product embedded derivatives$0 $0 $95,079 $95,079 
Other liabilities0 326 0 326 
Total liabilities$0 $326 $95,079 $95,405 
Valuation of our Financial Instruments Measured on a Recurring Basis by Hierarchy Levels
 March 31, 2020
 
Quoted prices in active markets
for identical assets (Level 1)
 
Significant other observable inputs
(Level 2)
 
Significant unobservable inputs
(Level 3)
 Fair Value
 (Dollars in thousands)
Assets       
Fixed maturities:       
Corporate securities$—
 $3,647,867
 $9,456
 $3,657,323
Residential mortgage-backed securities—
 653,767
 —
 653,767
Commercial mortgage-backed securities—
 1,134,437
 7,205
 1,141,642
Other asset-backed securities—
 694,208
 4,732
 698,940
United States Government and agencies3,344
 10,860
 —
 14,204
States and political subdivisions—
 1,451,289
 —
 1,451,289
Total fixed maturities3,344
 7,592,428
 21,393
 7,617,165
Non-redeemable preferred stocks—
 61,011
 6,858
 67,869
Common stocks (1)11,740
 —
 —
 11,740
Other investments—
 5,661
 —
 5,661
Cash, cash equivalents and short-term investments47,104
 —
 —
 47,104
Reinsurance recoverable—
 1,655
 —
 1,655
Assets held in separate accounts525,582
 —
 —
 525,582
Total assets$587,770
 $7,660,755
 $28,251
 $8,276,776
        
Liabilities       
Future policy benefits - indexed product embedded derivatives$—
 $—
 $61,071
 $61,071
Other liabilities—
 86
 —
 86
Total liabilities$—
 $86
 $61,071
 $61,157



23


22

Valuation of our Financial Instruments Measured on a Recurring Basis by Hierarchy Levels
December 31, 2019
Quoted prices in active markets
for identical assets (Level 1)		Significant other observable inputs
(Level 2)		Significant unobservable inputs
(Level 3)		Fair Value
(Dollars in thousands)
Assets
Fixed maturities:
Corporate securities$0 $3,772,362 $6,588 $3,778,950 
Residential mortgage-backed securities0 672,388 0 672,388 
Commercial mortgage-backed securities0 1,032,693 12,780 1,045,473 
Other asset-backed securities0 704,766 9,755 714,521 
United States Government and agencies4,821 9,302 0 14,123 
States and political subdivisions0 1,477,173 0 1,477,173 
Total fixed maturities4,821 7,668,684 29,123 7,702,628 
Non-redeemable preferred stocks0 67,873 6,927 74,800 
Common stocks (1)17,027 0 0 17,027 
Other investments0 31,469 0 31,469 
Cash, cash equivalents and short-term investments29,142 0 0 29,142 
Reinsurance recoverable0 2,327 0 2,327 
Assets held in separate accounts645,881 0 0 645,881 
Total assets$696,871 $7,770,353 $36,050 $8,503,274 
Liabilities
Future policy benefits - indexed product embedded derivatives$0 $0 $76,346 $76,346 
Other liabilities0 254 0 254 
Total liabilities$0 $254 $76,346 $76,600 
Valuation of our Financial Instruments Measured on a Recurring Basis by Hierarchy Levels
 December 31, 2019
 
Quoted prices in active markets
for identical assets (Level 1)
 
Significant other observable inputs
(Level 2)
 
Significant unobservable inputs
(Level 3)
 Fair Value
 (Dollars in thousands)
Assets       
Fixed maturities:       
Corporate securities$—
 $3,772,362
 $6,588
 $3,778,950
Residential mortgage-backed securities—
 672,388
 —
 672,388
Commercial mortgage-backed securities—
 1,032,693
 12,780
 1,045,473
Other asset-backed securities—
 704,766
 9,755
 714,521
United States Government and agencies4,821
 9,302
 —
 14,123
States and political subdivisions—
 1,477,173
 —
 1,477,173
Total fixed maturities4,821
 7,668,684
 29,123
 7,702,628
Non-redeemable preferred stocks—
 67,873
 6,927
 74,800
Common stocks (1)17,027
 —
 —
 17,027
Other investments—
 31,469
 —
 31,469
Cash, cash equivalents and short-term investments29,142
 —
 —
 29,142
Reinsurance recoverable—
 2,327
 —
 2,327
Assets held in separate accounts645,881
 —
 —
 645,881
Total assets$696,871
 $7,770,353
 $36,050
 $8,503,274
        
Liabilities       
Future policy benefits - indexed product embedded derivatives$—
 $—
 $76,346
 $76,346
Other liabilities—
 254
 —
 254
Total liabilities$—
 $254
 $76,346
 $76,600

(1)    A private equity fund with a fair value estimate of $9.1 million at September 30, 2020 and $8.4 million at December 31, 2019 using net asset value per share as a practical expedient, has not been classified in the fair value hierarchy above in accordance with fair value reporting guidance. This fund invests in senior secured middle market loans and had unfunded commitments totaling $0.8 million at September 30, 2020 and $1.7 million at December 31, 2019. The investment is not currently eligible for redemption.

Level 3 Assets by Valuation Source - Recurring Basis
September 30, 2020
Third-party vendorsPriced
internally		Fair Value
(Dollars in thousands)
Corporate securities$0 $4,298 $4,298 
Residential mortgage-backed securities7,393 0 7,393 
Commercial mortgage-backed securities8,142 0 8,142 
Other asset-backed securities25,993 0 25,993 
Non-redeemable preferred stocks0 6,816 6,816 
Total assets$41,528 $11,114 $52,642 
Percent of total78.9 %21.1 %100.0 %

24
Level 3 Assets by Valuation Source - Recurring Basis
December 31, 2019
Third-party vendorsPriced
internally		Fair Value
(Dollars in thousands)
Corporate securities$0 $6,588 $6,588 
Commercial mortgage-backed securities12,780 0 12,780 
Other asset-backed securities8,000 1,755 9,755 
Non-redeemable preferred stocks0 6,927 6,927 
Total assets$20,780 $15,270 $36,050 
Percent of total57.6 %42.4 %100.0 %

Quantitative Information about Level 3 Fair Value Measurements - Recurring Basis
September 30, 2020
Fair ValueValuation TechniqueUnobservable InputRange (Weighted Average)
(Dollars in thousands)
Assets
Corporate securities$4,298 Discounted cash flowCredit spread7.50% - 16.49% (12.32%)
Commercial mortgage-backed securities8,142 Discounted cash flowCredit spread1.97% - 2.77% (2.44%)
Other asset-backed securities18,200 Discounted cash flowCredit spread2.40% - 3.50% (2.94%)
Residential mortgage-backed securities7,393 Discounted cash flowCredit spread1.65% (1.65%)
Non-redeemable preferred stocks6,816 Discounted cash flowCredit spread4.51% (4.51%)
Total assets$44,849 
Liabilities
Future policy benefits - indexed product embedded derivatives$95,079 Discounted cash flowCredit risk
Risk margin		0.50% - 2.00% (1.15%) 0.15% - 0.40% (0.25%)

(1)A private equity fund with a fair value estimate of $9.0 million at March 31, 2020 and $8.4 million at December 31, 2019 using net asset value per share as a practical expedient, has not been classified
Fair ValueValuation TechniqueUnobservable InputRange (Weighted Average)
(Dollars in the fair value hierarchy above in accordance with fair value reporting guidance. This fund invests in senior secured middle market loans and had unfunded commitments totaling $1.1 million at March 31, 2020 and $1.7 million at December 31, 2019. The investment is not currently eligible for redemption.thousands)
Assets
Corporate securities$6,588 Discounted cash flowCredit spread2.11% - 5.85% (4.33%)
Commercial mortgage-backed securities12,780 Discounted cash flowCredit spread1.18% - 2.22% (1.92%)
Other asset-backed securities6,000 Discounted cash flowCredit spread2.15% - 2.30% (2.23%)
Non-redeemable preferred stocks6,927 Discounted cash flowCredit spread2.72% (2.72%)
Total assets$32,295 
Liabilities
Future policy benefits - indexed product embedded derivatives$76,346 Discounted cash flowCredit risk
Risk margin		0.40% - 1.35% (0.80%) 0.15% -0.40% (0.25%)

Level 3 Assets by Valuation Source - Recurring Basis
 March 31, 2020
 Third-party vendors Priced
internally		 Fair Value
 (Dollars in thousands)
Corporate securities$6,983
 $2,473
 $9,456
Commercial mortgage-backed securities7,205
 —
 7,205
Other asset-backed securities4,732
 —
 4,732
Non-redeemable preferred stocks—
 6,858
 6,858
Total assets$18,920
 $9,331
 $28,251
Percent of total67.0% 33.0% 100.0%




23

Level 3 Assets by Valuation Source - Recurring Basis     
 December 31, 2019
 Third-party vendors 
Priced
internally
 Fair Value
 (Dollars in thousands)
Corporate securities$—
 $6,588
 $6,588
Commercial mortgage-backed securities12,780
 —
 12,780
Other asset-backed securities8,000
 1,755
 9,755
Non-redeemable preferred stocks—
 6,927
 6,927
Total assets$20,780
 $15,270
 $36,050
Percent of total57.6% 42.4% 100.0%


Quantitative Information about Level 3 Fair Value Measurements - Recurring Basis
 March 31, 2020
 Fair Value Valuation Technique Unobservable Input Range (Weighted Average)
 (Dollars in thousands)      
Assets       
Corporate securities$9,456
 Discounted cash flow Credit spread 2.00% - 10.75% (7.03%)
Commercial mortgage-backed securities7,205
 Discounted cash flow Credit spread 3.01% - 4.54% (3.93%)
Non-redeemable preferred stocks6,858
 Discounted cash flow Credit spread 6.06% (6.06%)
Total assets$23,519
      
        
Liabilities       
Future policy benefits - indexed product embedded derivatives$61,071
 Discounted cash flow 
Credit risk
Risk margin
 2.25% - 2.85% (2.50%) 0.15% - 0.40% (0.25%)


 December 31, 2019
 Fair Value Valuation Technique Unobservable Input Range (Weighted Average)
 (Dollars in thousands)      
Assets       
Corporate securities$6,588
 Discounted cash flow Credit spread 2.11% - 5.85% (4.33%)
Commercial mortgage-backed securities12,780
 Discounted cash flow Credit spread 1.18% - 2.22% (1.92%)
Other asset-backed securities6,000
 Discounted cash flow Credit spread 2.15% - 2.30% (2.23%)
Non-redeemable preferred stocks6,927
 Discounted cash flow Credit spread 2.72% (2.72%)
Total assets$32,295
      
        
Liabilities       
Future policy benefits - indexed product embedded derivatives$76,346
 Discounted cash flow 
Credit risk
Risk margin
 0.40% - 1.35% (0.80%) 0.15% - 0.40% (0.25%)


The tables above exclude certain securities with the fair value based on non-binding broker quotes for which we could not reasonably obtain the quantitative unobservable inputs.


25

24

Level 3 Financial Instruments Changes in Fair Value - Recurring Basis
September 30, 2020
Realized and unrealized gains (losses), net
Balance, December 31, 2019PurchasesDisposalsIncluded in net incomeIncluded in other compre-hensive incomeTransfers into
Level 3		Transfers
out of
Level 3 (1)		Amort-ization included in net incomeBalance, September 30, 2020
(Dollars in thousands)
Assets
Corporate securities$6,588 $7,042 $(825)$0 $(1,198)$3,283 $(10,592)$0 $4,298 
Residential mortgage-backed securities0 12,629 0 0 (1)0 (5,235)0 7,393 
Commercial mortgage-backed securities12,780 0 (299)0 217 0 (4,556)0 8,142 
Other asset-backed securities9,755 30,504 (138)0 (633)761 (14,255)(1)25,993 
Non-redeemable preferred stocks6,927 0 0 0 (111)0 0 0 6,816 
Total assets$36,050 $50,175 $(1,262)$0 $(1,726)$4,044 $(34,638)$(1)$52,642 
Liabilities
Future policy benefits - indexed product embedded derivatives$76,346 $11,411 $(6,778)$14,100 $0 $0 $0 $— $95,079 
Level 3 Financial Instruments Changes in Fair Value - Recurring Basis   
 March 31, 2020
      Realized and unrealized gains (losses), net       
 Balance, December 31, 2019 Purchases Disposals Included in net income Included in other compre-hensive income 
Transfers into
Level 3
 
Transfers
out of
Level 3 (1)
 Amort-ization included in net income Balance, March 31, 2020
 (Dollars in thousands)
Assets                 
Corporate securities$6,588
 $6,983
 $(352) $—
 $(154) $—
 $(3,609) $—
 $9,456
Commercial mortgage-backed securities12,780
 —
 (98) —
 (920) —
 (4,556) —
 7,206
Other asset-backed securities9,755
 3,054
 (49) —
 (27) —
 (8,000) (1) 4,732
Non-redeemable preferred stocks6,927
 —
 —
 —
 (70) —
 —
 —
 6,857
Total assets$36,050
 $10,037
 $(499) $—
 $(1,171) $—
 $(16,165) $(1) $28,251
                  
Liabilities                 
Future policy benefits - indexed product embedded derivatives$76,346
 $4,891
 $(997) $(19,169) $—
 $—
 $—
 $—
 $61,071


September 30, 2019
Realized and unrealized gains (losses), net
Balance, December 31, 2018PurchasesDisposalsIncluded in net incomeIncluded in other compre-hensive incomeTransfers into
Level 3		Transfers
out of
Level 3 (1)		Amort-ization included in net incomeBalance,
September 30, 2019
(Dollars in thousands)
Assets
Corporate securities$22,011 $6,000 $(3,172)$0 $465 $0 $(15,230)$(23)$10,051 
Residential mortgage-backed securities0 18,378 0 0 0 0 (2,124)0 16,254 
Commercial mortgage-backed securities67,940 2,984 (280)0 571 0 (59,918)0 11,297 
Other asset-backed securities3,601 20,710 (977)0 (869)0 (16,710)0 5,755 
Non-redeemable preferred stocks6,862 0 0 0 222 0 0 0 7,084 
Total assets$100,414 $48,072 $(4,429)$0 $389 $0 $(93,982)$(23)$50,441 
Liabilities
Future policy benefits - indexed product embedded derivatives$40,028 $10,956 $(4,848)$20,710 $0 $0 $0 $— $66,846 
 March 31, 2019
      Realized and unrealized gains (losses), net       
 Balance, December 31, 2018 Purchases Disposals Included in net income Included in other compre-hensive income 
Transfers into
Level 3
 
Transfers
out of
Level 3 (1)
 Amort-ization included in net income 
Balance,
March 31, 2019
 (Dollars in thousands)
Assets                 
Corporate securities$22,011
 $6,000
 $(1,262) $—
 $212
 $—
 $—
 $(8) $26,953
Commercial mortgage-backed securities67,940
 —
 (92) —
 195
 —
 (59,918) —
 8,125
Other asset-backed securities3,601
 5,000
 (83) —
 (869) —
 —
 —
 7,649
Non-redeemable preferred stocks6,862
 —
 —
 —
 267
 —
 —
 —
 7,129
Total assets$100,414
 $11,000
 $(1,437) $—
 $(195) $—
 $(59,918) $(8) $49,856
                  
Liabilities                 
Future policy benefits - indexed product embedded derivatives$40,028
 $3,479
 $(1,169) $9,553
 $—
 $—
 $—
 $—
 $51,891

(1)Transfers into Level 3 represent assets previously priced using an external pricing service with access to observable inputs no longer available and therefore, were priced using unobservable inputs. Transfers out of Level 3 include those assets that we are now able to obtain pricing from a third-party pricing vendor that uses observable inputs. The fair values of newly issued securities often require additional estimation until a market is created, which is generally within a few months after issuance. Once a market is created, as was the case for the majority of the security transfers out of the Level 3 category above, Level 2 valuation sources become available.

(1)Transfers out of Level 3 include those assets that we are now able to obtain pricing from a third-party pricing vendor that uses observable inputs. The fair values of newly issued securities often require additional estimation until a market is created, which is generally within a few months after issuance. Once a market is created, as was the case for the majority of the security transfers out of the Level 3 category above, Level 2 valuation sources become available.

The Company has other financial assets and financial liabilities that are not carried at fair value but for which fair value disclosure is required. The following table presents the carrying value, fair value and fair value hierarchy level of these financial assets and financial liabilities.


26

25

Valuation of our Financial Instruments Not Reported at Fair Value by Hierarchy Levels
September 30, 2020
Quoted prices in active markets
for identical assets (Level 1)		Significant other observable inputs
(Level 2)		Significant unobservable inputs
(Level 3)		Fair ValueCarrying Value
(Dollars in thousands)
Assets
Mortgage loans$0 $0 $1,053,591 $1,053,591 $972,210 
Policy loans0 0 278,105 278,105 197,009 
Other investments0 35,061 2,404 37,465 37,263 
Total assets$0 $35,061 $1,334,100 $1,369,161 $1,206,482 
Liabilities
Future policy benefits$0 $0 $4,706,931 $4,706,931 $4,400,006 
Supplementary contracts without life contingencies0 0 303,166 303,166 282,715 
Advance premiums and other deposits0 0 251,444 251,444 251,444 
Long-term debt0 0 77,764 77,764 97,000 
Liabilities related to separate accounts0 0 615,361 615,361 616,381 
Total liabilities$0 $0 $5,954,666 $5,954,666 $5,647,546 
Valuation of our Financial Instruments Not Reported at Fair Value by Hierarchy Levels  
 March 31, 2020  
 
Quoted prices in active markets
for identical assets (Level 1)
 
Significant other observable inputs
(Level 2)
 
Significant unobservable inputs
(Level 3)
 Fair Value Carrying Value
 (Dollars in thousands)  
Assets         
Mortgage loans$—
 $—
 $1,006,459
 $1,006,459
 $988,854
Policy loans—
 —
 285,733
 285,733
 202,227
Other investments—
 34,301
 2,271
 36,572
 36,116
Total assets$—
 $34,301
 $1,294,463
 $1,328,764
 $1,227,197
          
Liabilities         
Future policy benefits$—
 $—
 $4,379,568
 $4,379,568
 $4,373,739
Supplementary contracts without life contingencies—
 —
 297,351
 297,351
 293,016
Advance premiums and other deposits—
 —
 245,971
 245,971
 245,971
Short-term debt—
 —
 10,000
 10,000
 10,000
Long-term debt—
 —
 67,822
 67,822
 97,000
Liabilities related to separate accounts—
 —
 524,537
 524,537
 525,582
Total liabilities$—
 $—
 $5,525,249
 $5,525,249
 $5,545,308

 December 31, 2019  
 
Quoted prices in active markets
for identical assets (Level 1)
 
Significant other observable inputs
(Level 2)
 
Significant unobservable inputs
(Level 3)
 Fair Value Carrying Value
 (Dollars in thousands)  
Assets         
Mortgage loans$—
 $—
 $1,059,073
 $1,059,073
 $1,011,678
Policy loans—
 —
 256,787
 256,787
 201,589
Other investments—
 29,534
 2,215
 31,749
 31,211
Total assets$—
 $29,534
 $1,318,075
 $1,347,609
 $1,244,478
          
Liabilities         
Future policy benefits$—
 $—
 $4,381,863
 $4,381,863
 $4,270,073
Supplementary contracts without life contingencies—
 —
 309,601
 309,601
 296,915
Advance premiums and other deposits—
 —
 245,480
 245,480
 245,480
Long-term debt—
 —
 84,438
 84,438
 97,000
Liabilities related to separate accounts—
 —
 644,691
 644,691
 645,881
Total liabilities$—
 $—
 $5,666,073
 $5,666,073
 $5,555,349

December 31, 2019
Quoted prices in active markets
for identical assets (Level 1)		Significant other observable inputs
(Level 2)		Significant unobservable inputs
(Level 3)		Fair ValueCarrying Value
(Dollars in thousands)
Assets
Mortgage loans$0 $0 $1,059,073 $1,059,073 $1,011,678 
Policy loans0 0 256,787 256,787 201,589 
Other investments0 29,534 2,215 31,749 31,211 
Total assets$0 $29,534 $1,318,075 $1,347,609 $1,244,478 
Liabilities
Future policy benefits$0 $0 $4,381,863 $4,381,863 $4,270,073 
Supplementary contracts without life contingencies0 0 309,601 309,601 296,915 
Advance premiums and other deposits0 0 245,480 245,480 245,480 
Long-term debt0 0 84,438 84,438 97,000 
Liabilities related to separate accounts0 0 644,691 644,691 645,881 
Total liabilities$0 $0 $5,666,073 $5,666,073 $5,555,349 

Level 3 Financial Instruments Measured at Fair Value on a Nonrecurring Basis

Certain assets are measured at fair value on a nonrecurring basis, generally mortgage loans or real estate that have been deemed to be impaired during the reporting period. There were no mortgage loans or real estate impaired to fair value during the threenine months ended March 31,September 30, 2020 or March 31,September 30, 2019.



2627

4. Defined Benefit Plan

We participate with affiliates and an unaffiliated organization in defined benefit pension plans, including a multiemployer plan. Our share of net periodic pension cost for the plans is recorded as expense in our consolidated statements of operations.

Components of Net Periodic Pension Cost for FBL and Affiliates Combined - Multiemployer Plan
Three months ended September 30,Nine months ended September 30,
2020201920202019
(Dollars in thousands)
Service cost$1,304 $1,138 $3,911 $3,412 
Interest cost3,142 3,318 9,425 9,955 
Expected return on assets(5,262)(4,707)(15,785)(14,121)
Amortization of actuarial loss2,789 2,228 8,368 6,685 
Net periodic pension cost$1,973 $1,977 $5,919 $5,931 
FBL Financial Group, Inc. share of net periodic pension costs$629 $634 $1,887 $1,900 
Components of Net Periodic Pension Cost for FBL and Affiliates Combined - Multiemployer Plan
 Three months ended March 31,
 2020 2019
 (Dollars in thousands)
Service cost$1,304
 $1,137
Interest cost3,142
 3,318
Expected return on assets(5,262) (4,707)
Amortization of actuarial loss2,789
 2,229
Net periodic pension cost$1,973
 $1,977
    
FBL Financial Group, Inc. share of net periodic pension costs$629
 $633

Components of Net Periodic Pension Cost for FBL and Affiliates Combined - Other Plans
 Three months ended March 31,
 2020 2019
 (Dollars in thousands)
Service cost$79
 $117
Interest cost220
 248
Amortization of actuarial loss317
 266
Net periodic pension cost$616
 $631
    
FBL Financial Group, Inc. share of net periodic pension costs$392
 $362

Components of Net Periodic Pension Cost for FBL and Affiliates Combined - Other Plans
Three months ended September 30,Nine months ended September 30,
2020201920202019
(Dollars in thousands)
Service cost$79 $117 $237 $350 
Interest cost220 248 660 744 
Amortization of actuarial loss317 267 951 800 
Net periodic pension cost$616 $632 $1,848 $1,894 
FBL Financial Group, Inc. share of net periodic pension costs$392 $362 $1,177 $1,087 

5. Credit Arrangements

Short-term debt as of March 31, 2020, consists of a $10.0 million short-term advance, collateralized by fixed maturity securities, payable to Federal Home Loan Bank of Des Moines (FHLB). The advance was taken on March 23, 2020, and matures on June 23, 2020, with an interest rate of 0.48%.


6. Commitments and Contingencies

Legal Proceedings

In the normal course of business, we may be involved in litigation in which damages are alleged that are substantially in excess of contractual policy benefits or certain other agreements. We are not aware of any claims threatened or pending against FBL Financial Group, Inc. or any of its subsidiaries for which a material loss is reasonably possible.

Commitments for Partnership Investments and Private Corporate Bond Investments

At March 31,September 30, 2020, we have unfunded investment commitments to limited partnerships and limited liability companies of $58.2$57.6 million and privately placed corporate securities commitments of $5.8$12.2 million.



2728

7.6. Stockholders’ Equity

Share Repurchases

We periodically repurchase our Class A common stock under programs approved by our Board of Directors. These repurchase programs authorize us to make repurchases in the open market or through privately negotiated transactions, with the timing and terms of the purchases to be determined by management based on market conditions. Under these programs, we repurchased 24,525290,144 shares of stock for $0.8$10.0 million during the threenine months ended March 31,September 30, 2020 and 66,475 shares of stock for $4.6 million during the threenine months ended March 31,September 30, 2019. Completion of this program is dependent on market conditions and other factors. There is no guarantee as to the exact timing of any repurchases or the number of shares that we will repurchase. The share repurchase program may be modified or terminated at any time without prior notice. At March 31,September 30, 2020, $35.5$26.3 million remains available for repurchase under the active repurchase program.

Dividends
Three months ended September 30,Nine months ended September 30,
2020201920202019
Class A and B common stock:
Cash dividends per common share$0.50 $0.48 $1.50 $1.44 
Special cash dividend per common share0 0 1.50 1.50 
Total common stock dividends per share$0.50 $0.48 $3.00 $2.94 
Series B preferred stock dividends per share$0.0075 $0.0075 $0.0225 $0.0225 
Dividends   
 Three months ended March 31,
 2020 2019
Class A and B common stock:   
Cash dividends per common share$0.50
 $0.48
Special cash dividend per common share1.50
 1.50
Total common stock dividends per share$2.00
 $1.98
    
Series B preferred stock dividends per share$0.0075
 $0.0075


Special cash dividends paid to our Class A and Class B common shareholders totaled $37.0 million for the threenine months ended March 31,September 30, 2020 and March 31,September 30, 2019.

Reconciliation of Outstanding Common Stock        
 Class A Class B Total
 Shares Dollars Shares Dollars Shares Dollars
 (Dollars in thousands)
Outstanding at January 1, 201924,707,402
 $152,652
 11,413
 $72
 24,718,815
 $152,724
Stock-based compensation—
 202
 —
 —
 —
 202
Purchase of common stock(66,475) (410) —
 —
 (66,475) (410)
Outstanding at March 31, 201924,640,927
 $152,444
 11,413
 $72
 24,652,340
 $152,516
            
Outstanding at January 1, 202024,652,802
 $152,661
 11,413
 $72
 24,664,215
 $152,733
Stock-based compensation2,500
 245
 —
 —
 2,500
 245
Purchase of common stock(24,525) (152) —
 —
 (24,525) (152)
Outstanding at March 31, 202024,630,777
 $152,754
 11,413
 $72
 24,642,190
 $152,826


Reconciliation of Outstanding Common Stock
Class AClass BTotal
SharesDollarsSharesDollarsSharesDollars
(Dollars in thousands)
Outstanding at January 1, 201924,707,402 $152,652 11,413 $72 24,718,815 $152,724 
Stock-based compensation9,968 324 0 0 9,968 324 
Purchase of common stock(66,475)(410)0 0 (66,475)(410)
Outstanding at September 30, 201924,650,895 $152,566 11,413 $72 24,662,308 $152,638 
Outstanding at January 1, 202024,652,802 $152,661 11,413 $72 24,664,215 $152,733 
Stock-based compensation20,452 126 0 0 20,452 126 
Purchase of common stock(290,144)(1,797)0 0 (290,144)(1,797)
Outstanding at September 30, 202024,383,110 $150,990 11,413 $72 24,394,523 $151,062 


2829

Accumulated Other Comprehensive Income, Net of Tax and Other Offsets
Unrealized Net Investment Gains (Losses) on Fixed Maturities Available-for-Sale (1)Underfunded Status of Postretirement Benefit Plans
Without Non-Credit Impairment LossesWith Non-Credit Impairment LossesTotal
(Dollars in thousands)
Balance at January 1, 2019$96,921 $3,133 $(8,736)$91,318 
Other comprehensive income (loss) before reclassifications317,677 (972)0 316,705 
Reclassification adjustments(2,477)0 629 (1,848)
Balance at September 30, 2019$412,121 $2,161 $(8,107)$406,175 
Balance at January 1, 2020$363,020 $1,974 $(10,230)$354,764 
Other comprehensive income (loss) before reclassifications163,585 (275)(2)163,308 
Reclassification adjustments10,267 0 748 11,015 
Balance at September 30, 2020$536,872 $1,699 $(9,484)$529,087 
Accumulated Other Comprehensive Income, Net of Tax and Other Offsets    
      
 Unrealized Net Investment Gains (Losses) on Fixed Maturities Available-for-Sale (1) Underfunded Status of Postretirement Benefit Plans  
 Without Non-Credit Impairment Losses With Non-Credit Impairment Losses  Total
 (Dollars in thousands)
Balance at January 1, 2019$96,921
 $3,133
 $(8,736) $91,318
Other comprehensive income before reclassifications99,871
 29
 —
 99,900
Reclassification adjustments(2,260) —
 208
 (2,052)
Balance at March 31, 2019$194,532
 $3,162
 $(8,528) $189,166
        
Balance at January 1, 2020$363,020
 $1,974
 $(10,230) $354,764
Other comprehensive income (loss) before reclassifications(104,594) (1,550) —
 (106,144)
Reclassification adjustments9,555
 —
 247
 9,802
Balance at March 31, 2020$267,981
 $424
 $(9,983) $258,422

(1)Includes the impact of taxes, deferred acquisition costs, value of insurance in force acquired, unearned revenue reserves and policyholder liabilities. See Note 2 to our consolidated financial statements for further information.
Accumulated Other Comprehensive Income Reclassification Adjustments
Nine months ended September 30, 2020
Unrealized Net Investment Gains (Losses) on Fixed Maturities Available-for-Sale (1)Underfunded Status of Postretirement Benefit Plans
Without Non-Credit Impairment LossesWith Non-Credit Impairment LossesTotal
(Dollars in thousands)
Realized capital losses on sales of fixed maturity securities$1,299 $0 $0 $1,299 
Change in allowance for credit losses on fixed maturity securities12,095 — — 12,095 
Adjustments for assumed changes in deferred acquisition costs, value of insurance in force acquired, unearned revenue reserve and policyholder liabilities(398)0 0 (398)
Change in unrecognized postretirement items for net actuarial loss0 0 947 947 
Reclassifications before income taxes12,996 0 947 13,943 
Income taxes(2,729)0 (199)(2,928)
Reclassification adjustments$10,267 $0 $748 $11,015 

(1)Includes the impact of taxes, deferred acquisition costs, value of insurance in force acquired, unearned revenue reserves and policyholder liabilities. See Note 2 to our consolidated financial statements for further information.
Nine months ended September 30, 2019
Unrealized Net Investment Gains (Losses) on Fixed Maturities Available-for-Sale (1)Underfunded Status of Postretirement Benefit Plans
Without Non-Credit Impairment LossesWith Non-Credit Impairment LossesTotal
(Dollars in thousands)
Realized capital gains on sales of fixed maturity securities$(3,367)$0 $0 $(3,367)
Adjustments for assumed changes in deferred acquisition costs, value of insurance in force acquired, unearned revenue reserve and policyholder liabilities232 0 0 232 
Change in unrecognized postretirement items for net actuarial loss0 0 797 797 
Reclassifications before income taxes(3,135)0 797 (2,338)
Income taxes658 0 (168)490 
Reclassification adjustments$(2,477)$0 $629 $(1,848)

(1)See Note 2 to our consolidated financial statements for further information.

30
Accumulated Other Comprehensive Income Reclassification Adjustments    
 Three months ended March 31, 2020
 Unrealized Net Investment Gains (Losses) on Fixed Maturities Available-for-Sale (1) Underfunded Status of Postretirement Benefit Plans  
 Without Non-Credit Impairment Losses With Non-Credit Impairment Losses  Total
 (Dollars in thousands)
Realized capital losses on sales of fixed maturity securities$147
 $—
 $—
 $147
Change in allowance for credit losses on fixed maturity securities12,146
 —
 —
 12,146
Adjustments for assumed changes in deferred acquisition costs, value of insurance in force acquired, unearned revenue reserve and policyholder liabilities(198) —
 —
 (198)
Other expenses - net actuarial loss—
 —
 313
 313
Reclassifications before income taxes12,095
 —
 313
 12,408
Income taxes(2,540) —
 (66) (2,606)
Reclassification adjustments$9,555
 $—
 $247
 $9,802
 Three months ended March 31, 2019
 Unrealized Net Investment Gains (Losses) on Fixed Maturities Available-for-Sale (1) Underfunded Status of Postretirement Benefit Plans  
 Without Non-Credit Impairment Losses With Non-Credit Impairment Losses  Total
 (Dollars in thousands)
Realized capital gains on sales of fixed maturities$(2,994) $—
 $—
 $(2,994)
Adjustments for assumed changes in deferred acquisition costs, value of insurance in force acquired, unearned revenue reserve and policyholder liabilities133
 —
 —
 133
Other expenses - net actuarial loss—
 —
 263
 263
Reclassifications before income taxes(2,861) —
 263
 (2,598)
Income taxes601
 —
 (55) 546
Reclassification adjustments$(2,260) $—
 $208
 $(2,052)

(1)See Note 2 to our consolidated financial statements for further information.



29

8.7. Earnings per Share

Computation of Earnings per Common Share
 Three months ended March 31,
 2020 2019
 (Dollars in thousands, except per share data)
Numerator:   
Net income (loss) attributable to FBL Financial Group, Inc.$(2,515) $34,043
Less: Dividends on Series B preferred stock38
 38
Income (loss) available to common stockholders$(2,553) $34,005
    
Denominator:   
Weighted average shares - basic24,762,820
 24,765,277
Effect of dilutive securities - stock-based compensation—
 11,176
Weighted average shares - diluted24,762,820
 24,776,453
    
Earnings (loss) per common share$(0.10) $1.37
Earnings (loss) per common share - assuming dilution$(0.10) $1.37

Three months ended September 30,Nine months ended September 30,
2020201920202019
(Dollars in thousands, except per share data)
Numerator:
Net income attributable to FBL Financial Group, Inc.$20,974 $25,129 $44,670 $91,470 
Less: Dividends on Series B preferred stock37 37 112 112 
Income available to common stockholders$20,937 $25,092 $44,558 $91,358 
Denominator:
Weighted average shares - basic24,497,140 24,758,639 24,660,576 24,760,311 
Effect of dilutive securities - stock-based compensation3,171 10,035 3,862 10,773 
Weighted average shares - diluted24,500,311 24,768,674 24,664,438 24,771,084 
Earnings per common share$0.85 $1.01 $1.81 $3.69 
Earnings per common share - assuming dilution$0.85 $1.01 $1.81 $3.69 
There were no antidilutive stock options outstanding in any of the periods presented.


9.8. Segment Information

We analyze operations by reviewing financial information regarding our primary products that are aggregated into the Annuity and Life Insurance product segments. Our Corporate and Other segment consists of less significant business activities.
Our chief operating decision makers use pre-tax adjusted operating income to evaluate segment performance and allocate resources. Pre-tax adjusted operating income consists of pre-tax net income adjusted to exclude realized gains and losses on investments including the change in fair value of equity securities, the change in allowances for credit losses on investments, and the change in fair value of derivatives as the impact of these items can fluctuate greatly from period to period. These fluctuations make it difficult to analyze core operating trends. In addition, for derivatives not designated as hedges, there is a mismatch between the valuation of the asset and liability when deriving net income (loss). Specifically,income. For example, call options relating to our indexed annuity business are one-year assets while the embedded derivatives in the indexed contracts represent the rights of the contract holder to receive index credits over the entire period the indexed products are expected to be in force. Adjustments to pre-tax net income are net of amortization of unearned revenue reserves and deferred acquisition costs, as well as changes in interest sensitive product reserves. While not applicable for the periods reported herein, in determining pre-tax adjusted operating income we will also remove the impact of settlements or judgments arising from lawsuits, net of any recoveries from third parties, the cumulative effect of changes in accounting principles and discontinued operations.
Segment results are reported net of inter-segment transactions.


31
30

Financial Information Concerning our Operating Segments
Three months ended September 30,Nine months ended September 30,
2020201920202019
(Dollars in thousands)
Pre-tax adjusted operating income:
Annuity$18,916 $8,121 $45,852 $38,420 
Life Insurance2,641 14,032 25,168 42,363 
Corporate and Other829 4,939 4,754 13,853 
Total pre-tax adjusted operating income22,386 27,092 75,774 94,636 
Adjustments to pre-tax adjusted operating income:
Net realized gains/losses on investments (1)4,177 557 (19,118)10,075 
Change in fair value of derivatives (1)(2,632)(666)(6,161)832 
Pre-tax net income attributable to FBL Financial Group, Inc.23,931 26,983 50,495 105,543 
Income tax expense(2,883)(1,642)(5,887)(13,429)
Tax on equity income(74)(212)62 (644)
Net income attributable to FBL Financial Group, Inc.$20,974 $25,129 $44,670 $91,470 
Adjusted operating revenues:
Annuity$53,352 $51,241 $161,543 $158,186 
Life Insurance111,170 104,595 327,877 322,791 
Corporate and Other22,498 23,233 68,560 69,915 
187,020 179,069 557,980 550,892 
Net realized gains/losses on investments (1)3,894 647 (19,513)10,313 
Change in fair value of derivatives (1)6,931 4,942 (4,646)19,915 
Consolidated revenues$197,845 $184,658 $533,821 $581,120 
Financial Information Concerning our Operating Segments   
    
 Three months ended March 31,
 2020 2019
 (Dollars in thousands)
Pre-tax adjusted operating income:   
Annuity$12,019
 $15,662
Life Insurance10,267
 10,092
Corporate and Other219
 4,319
Total pre-tax adjusted operating income22,505
 30,073
    
Adjustments to pre-tax adjusted operating income:   
Net realized gains/losses on investments (1)(25,458) 9,152
Change in fair value of derivatives (1)(2,582) 1,153
Pre-tax net income attributable to FBL Financial Group, Inc.(5,535) 40,378
Income tax benefit (expense)3,081
 (6,276)
Tax on equity income(61) (59)
Net income (loss) attributable to FBL Financial Group, Inc.$(2,515) $34,043
    
Adjusted operating revenues:   
Annuity$54,654
 $52,682
Life Insurance107,215
 107,258
Corporate and Other24,040
 23,128
 185,909
 183,068
Net realized gains/losses on investments (1)(25,666) 9,289
Change in fair value of derivatives (1)(24,980) 11,199
Consolidated revenues$135,263
 $203,556

(1)Amounts are net of adjustments, as applicable, to amortization of unearned revenue reserves, deferred acquisition costs, value of insurance in force acquired and interest sensitive policy reserves attributable to these items.

(1)Amounts are net of adjustments, as applicable, to amortization of unearned revenue reserves, deferred acquisition costs, value of insurance in force acquired and interest sensitive policy reserves attributable to these items.

Interest expense is attributable to the Corporate and Other segment. Expenditures for long-lived assets were not significant during the periods presented above. Goodwill at March 31,September 30, 2020 and December 31, 2019 was allocated among the segments as follows: Annuity ($3.9 million) and Life Insurance ($6.1 million).

Equity income (loss) related to securities and indebtedness of related parties is attributable to the Life Insurance and Corporate and Other segments. The following chart provides the related equity income (loss) by segment.

Equity Income (Loss) by Operating Segment
Three months ended September 30,Nine months ended September 30,
2020201920202019
(Dollars in thousands)
Pre-tax equity income (loss):
Life Insurance$299 $821 $(309)$2,199 
Corporate and Other52 190 9 868 
Total pre-tax equity income (loss)351 1,011 (300)3,067 
Income taxes(74)(212)62 (644)
Equity income (loss), net of related income taxes$277 $799 $(238)$2,423 
Equity Income by Operating Segment   
 Three months ended March 31,
 2020 2019
 (Dollars in thousands)
Pre-tax equity income:   
Life Insurance$375
 $370
Corporate and Other(86) (91)
Total pre-tax equity income289
 279
 
 
Income taxes(61) (59)
Equity income, net of related income taxes$228
 $220


Premiums collected, which is not a measure used in financial statements prepared according to GAAP, includes premiums received on life insurance policies and deposits on annuities and universal life-type products. Premiums collected is a common life insurance industry measure of agent productivity. Net premiums collected totaled $154.0$133.2 million for the quarter ended March 31,September 30, 2020 and $160.7$142.1 million for the same period in 2019. Net premiums collected totaled $413.1 million for the nine months ended September 30, 2020, and $455.1 million for the same period in 2019.


32

31

Under GAAP, premiums on whole life and term life policies are recognized as revenues over the premium-paying period and reported in the Life Insurance segment. The following chart provides a reconciliation of life insurance premiums collected to those reported in the GAAP financial statements.

Reconciliation of Traditional Life Insurance Premiums, Net of Reinsurance
Three months ended September 30,Nine months ended September 30,
2020201920202019
(Dollars in thousands)
Traditional and universal life insurance premiums collected$77,666 $75,043 $238,774 $232,442 
Premiums collected on interest sensitive products(29,882)(27,488)(91,057)(85,384)
Traditional life insurance premiums collected47,784 47,555 147,717 147,058 
Change in due premiums and other8 (573)(288)303 
Traditional life insurance premiums as included in the Consolidated Statements of Operations$47,792 $46,982 $147,429 $147,361 
Reconciliation of Traditional Life Insurance Premiums, Net of Reinsurance   
    
 Three months ended March 31,
 2020 2019
 (Dollars in thousands)
Traditional and universal life insurance premiums collected$82,635
 $78,001
Premiums collected on interest sensitive products(31,996) (28,379)
Traditional life insurance premiums collected50,639
 49,622
Change in due premiums and other(1,331) (230)
Traditional life insurance premiums as included in the Consolidated Statements of Operations$49,308
 $49,392


There is no comparable GAAP financial measure for premiums collected on annuities and universal life-type products. GAAP revenues for those interest sensitive and variable products consist of various policy charges and fees assessed on those contracts, as summarized in the chart below.

Interest Sensitive Product Charges by Segment
Three months ended September 30,Nine months ended September 30,
2020201920202019
(Dollars in thousands)
Annuity
Rider and other product charges$1,481 $1,248 $4,696 $3,881 
Surrender charges295 360 1,045 1,066 
Total1,776 1,608 5,741 4,947 
Life Insurance
Administration charges5,278 4,570 16,134 14,163 
Cost of insurance charges13,565 13,415 40,281 38,861 
Surrender charges611 698 1,942 2,037 
Amortization of policy initiation fees3,789 480 5,234 2,725 
Total23,243 19,163 63,591 57,786 
Corporate and Other
Administration charges1,062 1,118 3,398 3,586 
Cost of insurance charges7,082 6,952 21,384 21,338 
Surrender charges6 17 46 78 
Separate account charges2,025 2,115 5,947 6,067 
Amortization of policy initiation fees71 206 709 458 
Total10,246 10,408 31,484 31,527 
Impact of net realized gains/losses on investments and change in fair value of derivatives on amortization of unearned revenue reserves155 (44)(767)675 
Interest sensitive product charges as included in the Consolidated Statements of Operations$35,420 $31,135 $100,049 $94,935 
Interest Sensitive Product Charges by Segment   
 Three months ended March 31,
 2020 2019
 (Dollars in thousands)
Annuity   
Rider and other product charges$1,530
 $1,263
Surrender charges356
 304
Total1,886
 1,567
    
Life Insurance   
Administration charges5,443
 4,667
Cost of insurance charges13,379
 12,633
Surrender charges705
 621
Amortization of policy initiation fees852
 1,067
Total20,379
 18,988
    
Corporate and Other   
Administration charges1,184
 1,236
Cost of insurance charges7,160
 7,202
Surrender charges32
 24
Separate account charges2,031
 1,936
Amortization of policy initiation fees549
 7
Total10,956
 10,405
    
Impact of net realized gains/losses on investments and change in fair value of derivatives on amortization of unearned revenue reserves(1,501) 306
Interest sensitive product charges as included in the Consolidated Statements of Operations$31,720
 $31,266



33

32

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 insurance subsidiaries Farm Bureau Life Insurance Company (Farm Bureau Life) and Greenfields Life Insurance Company (Greenfields Life). Please read this discussion in conjunction with the accompanying consolidated financial statements and related notes. In addition, we encourage you to refer to our Form 10-K for the year ended December 31, 2019 for a complete description of our significant accounting policies and estimates. Familiarity with this information is important in understanding our financial position and results of operations.

This Form 10-Q includesmay include statements relating to anticipated financial performance, business prospects, new products and similar matters. These statements and others, which include words such as “expect,” “anticipate,” “believe,” “intend” and other similar expressions, constitute forward-looking statements under the Private Securities Litigation Reform Act of 1995. A variety of factors could cause our actual results and experiences to differ materially from the anticipated results or other expectations expressed in our forward-looking statements. See Item 1A, Risk Factors, of our Annual Report on Form 10-K for the year ended December 31, 2019, and Part II within this report for additional information on the risks and uncertainties that may affect the operations, performance, development and results of our business.

Overview

We operate predominantly in the life insurance industry through our principal subsidiary, Farm Bureau Life. Farm Bureau Life markets individual life insurance policies and annuity contracts to Farm Bureau members and other individuals and businesses in the Midwestern and Western sections of the United States through an exclusive agency force. Other subsidiaries provide external wealth management services as well as investment management and other support services to our affiliated insurance companies. In addition, we manage two Farm Bureau-affiliated property-casualty companies.

We analyze operations by reviewing financial information regarding our primary products that are aggregated in Annuity and Life Insurance product segments. In addition, our Corporate and Other segment includes our wealth management business, various support operations, corporate capital and other product lines that are not currently underwritten by the Company. We analyze our segment results based on pre-tax adjusted operating income, which excludes the impact of certain items that are included in pre-tax net income. Pre-tax adjusted operating income is the same basis used for segment reporting under U.S. generally accepted accounting principles (GAAP). We also analyze operations using adjusted operating income on a post-tax basis. Adjusted operating income on a post-tax basis is not a measure used in financial statements prepared in accordance with GAAP, but is a common life insurance industry measure of performance. We have included a reconciliation to the comparable GAAP measure herein. See Note 98 to our consolidated financial statements for further information regarding how we define our segments and pre-tax adjusted operating income.

We also include within our analysis “premiums collected,” another measure that is not used in financial statements prepared in accordance with GAAP, but is a common life insurance industry measure of agent productivity. See Note 98 to our consolidated financial statements for further information regarding this measure and its relationship to GAAP revenues.

We periodically revise key assumptions used in the calculation of the amortization of deferred acquisition costs, value of insurance in force acquired, deferred sales inducements, unearned revenue reserve for participating life insurance and interest sensitive products, as applicable, through an “unlocking” process. These assumptions typically consist of withdrawal and lapse rates, rider utilization, earned spreads and mortality with revisions 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 during the third quarter. See the discussion that follows for further details of the unlocking impact on our results in 2020 and 2019.

On September 4, 2020, the Company announced receipt of a non-binding proposal from Farm Bureau Property & Casualty Insurance Company (FBPCIC) to acquire all of the outstanding shares of Class A common stock and Class B common stock of the Company that are not currently owned by FBPCIC or the Iowa Farm Bureau Federation (IFBF) at a purchase price of $47.00 per share in cash. The Iowa Farm Bureau Federation owns approximately 60% of the Company's Class A common stock and approximately 67% of the Company's Class B common stock.

34
The Company’s board of directors has appointed a special committee comprised of independent directors to consider the proposal.This committee has retained its own legal counsel and financial advisor to assist in its review, evaluation and response to the proposal. There can be no assurance that any agreement with respect to the proposed transaction will be executed or that this or any other transaction will be approved or consummated.

Impact of COVID-19 and Recent Business Environment
The COVID-19 pandemic that swept acrosshas had a significant impact on the U.S. economy during 2020. Beginning late in the first quarter of 2020 the United States experienced significant economic disruption as businesses closed and consumer access to goods and services became limited due to regulated or voluntary quarantine measures. As a result, the financial markets reacted negatively, impacting corporate liquidity and market interest rates. During the second and third quarters of 2020, the U.S. economy improved with the aid of significant economic stimulus measures, resulting in the stabilization of financial markets. However, unemployment remains high and market interest rates remain low as the impact of COVID-19 continues, resulting in economic uncertainty for the remainder of 2020.
The impact of COVID-19 on the United States’ economy has been significant.
•U.S. gross domestic product increased at an estimated annual rate of 33.1% during the third quarter of 2020, compared to decreases of 31.4% during the second quarter of 2020 and 5.0% during the first quarter of 2020. During 2019, U.S. gross domestic product increased 2.2%.
•U.S. unemployment increased to 7.9% at September 30, 2020, negatively impactedcompared to 3.5% at December 31, 2019.
•The energy sector has come under significant pressure as the economyprice of crude oil remains low at $40.22 per barrel at September 30, 2020, compared to $61.06 per barrel at December 31, 2019.
•The yield on the 10-year U.S. Treasury Note decreased to 0.69% at September 30, 2020 from 1.92% at December 31, 2019.
•Corporate credit spreads increased 39 basis points through September 30, 2020 to 135 basis points, compared to 96 basis points at December 31, 2019.

The COVID-19 pandemic, and caused significant societal disruption as businesses were forced to close and individuals were asked to practice social distancing. related economic uncertainty, has had the following impacts on our company.

Operations

As the severity ofCOVID-19 outbreak began in the pandemic became apparent,United States, we formed an incident management work group in accordance with our business continuity plan. This work group, acting in conjunction with the executive management team, monitorsmonitored business developments, identifiesidentified issues, recommendsrecommended solutions and developsdeveloped communications with employees, agents and client/members.
The impact of COVID-19 on the economy has been profound.
U.S. gross domestic product decreased at an annual rate of 4.8% in the first quarter of 2020, compared to a 2.1% increase during the fourth quarter of 2019.
U.S. unemployment rose to 4.4% at March 31, 2020 from 3.5% at December 31, 2019 and is expected to climb higher.


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The energy sector has come under significant pressure as the price of crude oil decreased to $20.48 per barrel at March 31, 2020 from $61.06 per barrel at December 31, 2019.
The yield on the 10-year U.S. Treasury Note decreased to 0.70% at March 31, 2020 from 1.92% at December 31, 2019.
Overall fixed maturity security yields increased during the first quarter of 2020 as increased business risks caused corporate credit spreads to widen to 276 basis points at March 31, 2020 from 96 basis points at December 31, 2019.

The COVID-19 pandemic has had the following impacts on our company:

Operations

To provide for the health and safety of our employees, during the first quarter of 2020 we transitioned to a mostly work-from-home environment in a matter of days.environment. This transformation was carried out with minimal interruption to supporting our agents, advisors and client/members. We remain vigilant in practicing social distancing and have severely restricted company travel. While our employees continue to predominately work from home, during June 2020 we offered additional flexibility for employees to work at our business locations, subject to social distancing requirements and a capped in-office capacity of 50%. We anticipate limited home office capacity until there is resolution of the COVID-19 health risk. Our agents continue to serve our client/members, albeit from a distance, usingutilizing communication technology to service existing business and solicit new business. As summarizedbusiness, while maintaining social distancing in situations where the “Results of Operations” section that follows, we experienced a slight decline in premiums collected during the first quarter of 2020. The issuance of some life insurance business has been delayed due to impediments to completing medical tests.customer and agent are comfortable meeting face-to-face.

Our ability to onboard new agents and wealth management advisors has been temporarily slowed due to the closureclosures of governmental offices that issue required licenses. Furthermore, restrictions during 2020 have preventedlimited in-person training and the ability to have face-to-face meetings with clients.clients in certain geographic areas.

We launched an accelerated underwriting process during the third quarter 2020, which allows for an exam-free and fluid-free underwriting process for eligible client/members. Accelerated underwriting serves several purposes:

•It enhances the client/member and agent experience for purchase of life insurance.
•It allows eligible client/members a less invasive risk selection process.
•It streamlines the application process to be primarily electronic.
•It incorporates new tools and techniques in the risk selection process.


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The recent launch led to some processing delays with a third-party provider during the last week of September and into early October, which the vendor attributed to be partially due to COVID-19. As a result, there was a delay in the completion of certain life product sales. We have taken action to address the processing back-log and are working with the vendor to remediate the accelerated underwriting process. We do not currently expect processing delays will have a material effect on our results of operations going forward, but we continue to monitor the impacts of any sales delays beyond our anticipated timeframes.

Financial results

There were significant economic headwinds brought on by COVID-19 beginning in the first quarter of 2020 which caused a significant downturn in our earnings. As discussedthe markets and economy stabilized during the second and third quarters of 2020, our results have improved although remain down from 2019. The economic impact of COVID-19 on our financial results follows:

•Net realized capital gains/losses and the change in allowance for credit losses totaled $19.5 million for the nine months ended September 30, 2020, including $25.7 million of losses incurred during the first quarter 2020.
•The change in the value of equity investments included in net investment income declined $7.1 for the nine months ended September 30, 2020. During the third quarter of 2020, we experienced $1.8 million of recovery in the value of equity securities as markets improved.
•Equity earnings from limited liability partnerships and limited liability companies resulted in a pre-tax loss of $0.3 million for the nine months ended September 30, 2020, compared to pre-tax income of $3.1 million for the nine months ended September 30, 2019. Pre-tax equity earnings were $0.4 million during the third quarter of 2020, compared to $1.0 million for the third quarter of 2019.
•During the third quarter of 2020, we incurred a pre-tax unlocking charge of $6.7 million, driven largely by a $13.1 million pre-tax charge associated with a change in our outlook for lower investment yields. Additional details regarding the impact of unlocking are included in the discussion of our segments that follows.
•As summarized in the “Results of Operations” section that follows, the economic headwinds brought on by COVID-19 and the attendantwe experienced a decline in annuity premiums collected during the equity markets causedthree- and nine-month periods ended September 30, 2020, compared to the following negative impactsprior year periods, as sales were negatively impacted by crediting rate and cap reductions in response to operations in the first quarter of 2020:declining market interest rates.
Net realized losses on the sales of securities, net realized losses on the value of equity securities and an increase in the allowance for credit losses on investments totaling $25.7 million.
An increase in the reserve for guaranteed living withdrawal benefits of $2.3 million.
An increase in the amortization of deferred acquisition cost on variable annuities and variable universal life insurance contracts totaling $3.7 million.

The impact of COVID-19 on our mortality experience was insignificant. Duringhas been modest, with 33 reported claims during the firstthird quarter of 2020 we identified twototaling $0.8 million in death benefits incurred net of reinsurance and reserves released and 70 reported claims during the nine months ended September 30, 2020 totaling $0.4$3.0 million relating to COVID-19.in death benefits incurred net of reserves released.

As a result of these items, we recorded a net loss totaling $2.5 million forour earnings have decreased during the firstthird quarter of 2020.2020 and the nine months ended September 30, 2020 compared to the prior year periods, as discussed in the “Results of Operations” discussion that follows. The U.S. federal government has taken actions to support the economy, including those unemployed during the crisis.crisis, and is presently considering further actions. To the extent the economic downturn caused by COVID-19 continues for an extended period, or worsens, it is uncertain how that will impact our operations, including sales and the value of our assets and liabilities although we expect the impact would be negative.

Financial position

TheLower U.S. Treasury interest rates resulted in an increase in market interest rates has caused a decline in the marketfair value of our fixed maturity securities during the first quarternine-month period ended September 30, 2020. The increase in fair value of 2020. Accumulated other comprehensive income includedour fixed maturity securities at September 30, 2020, compared with December 31, 2019, resulted in stockholders’ equity declinedan increase in our book value per common share to $258.4 million$66.21 at March 31,September 30, 2020 from $354.8 million$60.12 at December 31, 2019.

Book value per common share totaled $45.73 at March 31, 2020 and $60.12 at December 31, 2019. The decline in book value per share for the quarter is attributable to the decline in accumulated other comprehensive income, our net loss for the first quarter of 2020 and dividends paid to common shareholders totaling $2.00 per share.

Despite these factors, ourOur capital position remains strong, with Farm Bureau Life’s company action level risk-based capital ratio totalingestimated to be 525% at March 31,September 30, 2020.



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Liquidity

Our liquidity position remains strong with cash being generated by operations and financing activities. In addition, we have a significant portion of our liquid fixed maturity securities are in an unrealized gain position. See the “Investments” and “Liquidity and Capital Resources” discussions that follow.



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Risk Factors

See “Part II, Item 1A, Risk Factors”,Factors,” for additional discussion.



Results of Operations for the Periods Ended March 31,September 30, 2020 and 2019
Three months ended September 30,Nine months ended September 30,
20202019Change20202019Change
(Dollars in thousands, except per share data)
Net income attributable to FBL Financial Group, Inc.$20,974 $25,129 (17)%$44,670 $91,470 (51)%
Net income adjustments:
Net realized gains/losses on investments (1)(3,300)(440)650 %15,103 (7,960)(290)%
Change in fair value of derivatives (1)2,079 526 295 %4,867 (657)(841)%
Adjusted operating income (2)$19,753 $25,215 (22)%$64,640 $82,853 (22)%
Pre-tax adjusted operating income:
Annuity segment$18,916 $8,121 133 %$45,852 $38,420 19 %
Life Insurance segment2,641 14,032 (81)%25,168 42,363 (41)%
Corporate and Other segment829 4,939 (83)%4,754 13,853 (66)%
Total pre-tax adjusted operating income22,386 27,092 (17)%75,774 94,636 (20)%
Income taxes on adjusted operating income(2,633)(1,877)40 %(11,134)(11,783)(6)%
Adjusted operating income (2)$19,753 $25,215 (22)%$64,640 $82,853 (22)%
Earnings per common share - assuming dilution$0.85 $1.01 (16)%$1.81 $3.69 (51)%
Adjusted operating income per common share - assuming dilution (2)0.80 1.02 (22)%2.62 3.34 (22)%
Effective tax rate on adjusted operating income12 %7 %15 %12 %
Average invested assets, at amortized cost net of allowance for credit losses (3)$8,546,717 $8,323,273 3 %
Annualized yield on average invested assets (4)4.64 %4.97 %
Other data
Death benefits, net of reinsurance and reserves released, net of tax$26,854 $23,822 13 %$74,852 $70,407 6 %
Impact on adjusted operating income of unlocking deferred acquisition costs, deferred sales inducements, unearned revenue reserve and certain interest sensitive product reserves, net of tax(5,306)(2,109)152(5,306)(2,109)152
Estimated impact from separate account performance on amortization of deferred acquisition costs, deferred sales inducements and unearned revenue reserve, net of tax (5)1,185 (158)(850)%(40)2,054 (102)%
Other investment-related income included in net investment income (1)(6)860 567 52 %1,729 2,837 (39)%


(1)Amounts are net of adjustments, as applicable, to amortization of unearned revenue reserves and deferred acquisition costs, as well as changes in interest sensitive product reserves and income taxes attributable to these items.

 Three months ended March 31,
 2020 2019 Change
 (Dollars in thousands, except per share data)
Net income (loss) attributable to FBL Financial Group, Inc.$(2,515) $34,043
 (107)%
Net income adjustments:     
Net realized gains/losses on investments (1)20,112
 (7,230) (378)%
Change in fair value of derivatives (1)2,039
 (911) (324)%
Adjusted operating income (2)$19,636
 $25,902
 (24)%
      
Pre-tax adjusted operating income:     
Annuity segment$12,019
 $15,662
 (23)%
Life Insurance segment10,267
 10,092
 2 %
Corporate and Other segment219
 4,319
 (95)%
Total pre-tax adjusted operating income22,505
 30,073
 (25)%
Income taxes on adjusted operating income(2,869) (4,171) (31)%
Adjusted operating income (2)$19,636
 $25,902
 (24)%
     
Earnings (loss) per common share - assuming dilution$(0.10) $1.37
 (107)%
Adjusted operating income per common share - assuming dilution (2)0.79
 1.04
 (24)%
Effective tax rate on adjusted operating income13% 14% 
Average invested assets, at amortized cost (3)$8,479,853
 $8,292,919
 2 %
Annualized yield on average invested assets (3)4.72% 4.97% 
      
Other data     
Death benefits, net of reinsurance and reserves released, net of tax$23,550
 $26,777
 (12)%
Estimated impact from separate account performance on amortization of deferred acquisition costs, deferred sales inducements and unearned revenue reserve, net of tax(2,686) 1,738
 (255)%
Other investment-related income included in net investment income (1)(4)454
 1,002
 (55)%
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(1)Amounts are net of adjustments, as applicable, to amortization of unearned revenue reserves and deferred acquisition costs, as well as changes in interest sensitive product reserves and income taxes attributable to these items.
(2)Adjusted operating income is a non-GAAP measure of earnings, see the Overview section above for additional information.
(3)Average invested assets and annualized yield, including investments held as securities and indebtedness of related parties.
(4)Includes prepayment fee income and adjustments to the amortization of premium or discounts from changes in our payment speed assumptions.



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(2)Adjusted operating income is a non-GAAP measure of earnings, see the Overview section above for additional information.
(3)Average invested assets, including investments held as securities and indebtedness of related parties and cash equivalents, is the average of investment balances at the beginning of the reporting period and as of the end of each quarter throughout the reporting period. Average invested assets are used in the calculation of the annualized investment yield.
(4)Annualized yield is the actual annualized investment earnings during the reporting period divided by average invested assets. Annualized yield is used as a measure of investment performance during the reporting periods.
(5)Amounts represent the estimated effect of market performance of policyholder funds invested in the separate accounts on the value of deferred acquisition costs, deferred sales inducements and unearned revenue reserve, net of tax.
(6)Includes prepayment fee income and adjustments to the amortization of premium or discounts from changes in our payment speed assumptions on mortgage and other asset-backed securities.

Net income (loss)and pre-tax adjusted operating income decreased fromin the third quarter of 2020, compared to the prior year period, primarily due to an increase in death benefits and the impact of unlocking actuarial assumptions, partially offset by the impact of market performance on variable product deferred acquisition cost amortization. Net income and pre-tax adjusted operating income decreased in the nine months ended September 30, 2020, compared to the prior year period, due to decreases in net investment income from lower yields on invested assets and equity income, the impact of market performance on reserves associated with guaranteed living withdrawal benefits, increases in death benefits and the impact of unlocking actuarial assumptions. These decreases were partially offset by a decrease in amortization of deferred acquisition costs primarily due to changes in actual and expected profits on the underlying business. Net income also decreased in the nine months ended September 30, 2020, compared to the prior year period, due to net realized capital losses from the change in fair value of equity securities, and an increase in allowances for credit losses on investments. Net income (loss)investments and adjusted operating income decreaseda change in the first quarter of 2020, compared to the prior year period, due to less spread income earned from lower yieldsfair value on invested assets, the impact of market performance on reserves associated with guaranteed living withdrawal benefits and amortization of deferred acquisition costs associated with our variable business, partially offset by a decrease in death benefits.derivatives. See the discussion that follows for details regarding pre-tax adjusted operating income by segment. See the “Impact of COVID-19 and Recent Business Environment” section above for additional information on market performance.

Annuity Segment     
 Three months ended March 31,
 2020 2019 Change
 (Dollars in thousands)
Adjusted operating revenues:     
Interest sensitive product charges$1,886
 $1,567
 20 %
Net investment income52,768
 51,115
 3 %
Total adjusted operating revenues54,654
 52,682
 4 %
      
Adjusted operating benefits and expenses:     
Interest sensitive product benefits33,883
 28,070
 21 %
Underwriting, acquisition and insurance expenses:     
Commissions net of deferrals421
 514
 (18)%
Amortization of deferred acquisition costs2,646
 2,679
 (1)%
Amortization of value of insurance in force175
 163
 7 %
Other underwriting expenses5,510
 5,594
 (2)%
Total underwriting, acquisition and insurance expenses8,752
 8,950
 (2)%
Total adjusted operating benefits and expenses42,635
 37,020
 15 %
Pre-tax adjusted operating income$12,019
 $15,662
 (23)%

Other data     
Annuity premiums collected, direct (1)$58,099
 $69,506
 (16)%
Policy liabilities and accruals, end of period4,528,280
 4,379,558
 3 %
Average invested assets, at amortized cost4,564,600
 4,481,499
 2 %
Other investment-related income included in net investment income (2)705
 1,039
 (32)%
Average individual annuity account value3,179,639
 3,179,153
 — %
      
Earned spread on individual annuity products:     
Weighted average yield on cash and invested assets4.59% 4.76%  
Weighted average crediting rate2.47% 2.53%  
Spread2.12% 2.23%  
      
Individual annuity withdrawal rate5.2% 5.6%  

Footnotes applicable to the segment discussion that follows are summarized below:
(1)Premiums collected is a non-GAAP measure of sales production, see Note 8 to our consolidated financial statements for additional information.
(2)Average invested assets, including applicable investments held as securities and indebtedness of related parties and cash equivalents, is the average of investment balances at the beginning of the reporting period and as of the end of each quarter throughout the reporting period. Average invested assets are used in the calculation of the annualized investment yield.
(3)Includes prepayment fee income and adjustments to the amortization of premium or discounts from changes in our payment speed assumptions on mortgage and other asset-backed securities.
(4)Annualized yield is the actual annualized investment earnings during the reporting period divided by average invested assets. Annualized yield is used as a measure of investment performance during the reporting periods.
(5)Annualized average crediting rates consist of annualized interest credited and index credits applied to policyholders during the reporting period, along with amortization of call option costs and proceeds from sales or maturing call options associated with the call options that back our indexed products as a percentage of the simple average of policyholder account values as of the beginning of the reporting period and end of the reporting period, adjusted for interest credited during the period. Annualized average crediting rates along with annualized average investment yields provides a view of spread margin earned on the underlying products.
(6)Average aggregate individual annuity account value is a measure used to monitor business growth in our individual fixed and indexed annuity product lines and is calculated using a simple average of policyholder account values as of the beginning and end of the reporting period.
(7)Individual annuity withdrawal rate represents withdrawal benefits incurred during the reporting period, excluding internal exchanges, as a percent of the simple average of related policy reserves at the beginning and end of the reporting period. The individual annuity withdrawal rate is a measure customer retention.
(8)Average aggregate interest sensitive life account value is a measure used to monitor business growth in our universal life product lines and is calculated using a simple average of policyholder account values as of the beginning and end of the reporting period.
(9)Life insurance lapse and surrender rate represents the face amount of policyholder lapses and surrenders, incurred during the reporting period, as a percent of the simple average of related insurance in force at the beginning and end of the reporting period. The life insurance lapse and surrender rate is a measure of customer retention.
(10)Average aggregate interest sensitive account value is a measure used to monitor business volume of our variable universal life and variable annuity product lines and is calculated using a simple average of policyholder account values as of the beginning and end of the reporting period.
(11)Amounts represent the estimated effect of market performance of policyholder funds invested in the separate accounts on actual and expected profits and the related impact on the value of deferred acquisition costs, deferred sales inducements and unearned revenue reserve.

(1)Premiums collected is a non-GAAP measure of sales production, see Note 9 to our consolidated financial statements for additional information.
(2)Includes prepayment fee income and adjustments to the amortization of premium or discounts from changes in our payment speed assumptions.
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Annuity Segment
Three months ended September 30,Nine months ended September 30,
20202019Change20202019Change
(Dollars in thousands)
Adjusted operating revenues:
Interest sensitive product charges$1,776 $1,608 10 %$5,741 $4,947 16 %
Net investment income51,576 49,633 4 %155,802 153,239 2 %
Total adjusted operating revenues53,352 51,241 4 %161,543 158,186 2 %
Adjusted operating benefits and expenses:
Interest sensitive product benefits25,652 28,585 (10)%90,053 87,105 3 %
Underwriting, acquisition and insurance expenses:
Commissions net of deferrals320 405 (21)%1,056 1,401 (25)%
Amortization of deferred acquisition costs3,384 8,015 (58)%8,427 13,611 (38)%
Amortization of value of insurance in force175 164 7 %525 490 7 %
Other underwriting expenses4,905 5,951 (18)%15,630 17,159 (9)%
Total underwriting, acquisition and insurance expenses8,784 14,535 (40)%25,638 32,661 (22)%
Total adjusted operating benefits and expenses34,436 43,120 (20)%115,691 119,766 (3)%
Pre-tax adjusted operating income$18,916 $8,121 133 %$45,852 $38,420 19 %
Other data
Annuity premiums collected, direct (1)$45,263 $56,076 (19)%$139,167 $185,234 (25)%
Policy liabilities and accruals, end of period4,561,434 4,392,884 4 %
Average invested assets, at amortized cost net of allowance for credit losses (2)4,613,118 4,489,981 3 %
Other investment-related income included in net investment income (3)1,541 699 120 %2,840 2,245 27 %
Average aggregate individual annuity account value (6)3,180,883 3,173,145 — %
Earned spread on individual annuity products:
Annualized yield on average invested assets (4)4.52 %4.72 %
Annualized average crediting rate (5)2.49 %2.57 %
Spread2.03 %2.15 %
Individual annuity withdrawal rate (7)4.4 %5.7 %

Pre-tax adjusted operating income for the Annuity segment decreasedincreased in the firstthird quarter of 2020 and the nine months ended September 30, 2020, compared to the prior year period,periods, primarily due to the impact of market performance on reserves associated with guaranteed living withdrawal benefitsunlocking and a decrease in other underwriting expenses, partially offset by reduced spread income earned from lower yields on invested assets. The change in the nine-month period was also negatively impacted by market performance on reserves associated with the guaranteed living withdrawal benefits. See the “Impact of COVID-19 and Recent Business Environment” section above for additional information on market performance.



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The average aggregate account value for individual annuity contracts in force at March 31, 2020 remained level with the prior year period as continued sales and the crediting of interest were largely offset by product benefits and withdrawals. Premiums collected were lowerincreased in the first quarter ofnine months ended September 30, 2020, compared to the prior year period, due to continued sales and the crediting of interest. Premiums collected were lower in

39
the third quarter of 2020 and the nine months ended September 30, 2020, compared to the prior year periods, due to decreased sales of fixed rate deferred annuity and indexed annuity products, partially offsetas sales were negatively impacted by increased sales of indexed annuities.crediting rate and cap reductions in response to declining portfolio yields. Individual fixed rate deferred annuity collected premiums were $22.9$22.8 million in the firstthird quarter of 2020 compared to $39.4and $64.1 million in the firstnine months ended September 30, 2020, compared to $25.0 million in the third quarter of 2019 and $94.7 million in the nine months ended September 30, 2019. Indexed annuity collected premiums were $32.6$20.6 million in the firstthird quarter of 2020 compared to $28.3and $69.7 million in the firstnine months ended September 30, 2020, compared to $30.3 million in the third quarter of 2019 and $87.0 million in the nine months ended September 30, 2019. To increase spread income given lower fixed and indexed annuity sales, we increased the issuance of funding agreements with the Federal Home Loan Bank of Des Moines (FHLB) during 2020. Outstanding funding agreements with FHLB totaled $597.5total $626.5 million at March 31,September 30, 2020, compared with $448.8 million at September 30, 2019.

Amortization of deferred acquisition costs decreased during the third quarter of 2020 and $437.2 million at March 31, 2019.nine months ended September 30, 2020, compared to the prior year periods, due to unlocking actuarial assumptions and changes in actual and expected income earned on the underlying business. Unlocking generally reflects changes in our projected earned spreads, policy lapses, withdrawals and mortality assumptions. The impact of unlocking on pre-tax operating income for the quarter and nine months ended September 30, 2020 and 2019 was as follows:
Impact of Unlocking on Pre-tax Adjusted Operating Income
Three months ended September 30,Nine months ended September 30,
2020201920202019
(Dollars in thousands)
Amortization of deferred sales inducements reported in interest sensitive product benefits$57 $(195)$57 $(195)
Amortization of deferred acquisition costs(1,189)(4,668)(1,189)(4,668)
Changes in reserves reported in interest sensitive product benefits5,358 — 5,358 — 
Increase (decrease) to pre-tax adjusted operating income$4,226 $(4,863)$4,226 $(4,863)

The weightedunlocking impact on the changes in reserves in 2020 is due primarily to updating the expected policyholder utilization of the guaranteed living withdrawal benefit rider on index annuities.

Other underwriting expenses decreased in the third quarter of 2020 and in the nine months ended September 30, 2020, compared to the prior year periods, due to various expense management actions including deferral of projects, reduction in the use of consultants and limiting replacement of employees that leave the company. In addition, travel expenses are lower due to COVID-related travel restrictions.

The annualized average yield on cash and invested assets for individual annuities decreased in the first quarter ofnine months ended September 30, 2020, compared to the prior year period, primarily due to lower yields on new investment acquisitions from premium receipts and reinvestment of the proceeds from maturing investments, compared with the average existing portfolio yield. The annualized average yield decrease was partially offset by higher other investment-related income. See the “Financial Condition” section for additional information regarding the yields obtained on investment acquisitions. WeightedAnnualized average crediting rates on our individual annuity products decreased in the first quarter ofnine months ended September 30, 2020, compared to the sameprior year period, in 2019, due to crediting and cap rate actions taken in 2020 in response to a declining portfolio yield and a change in our mix of business in force.force, partially offset by increased amortization of call option costs.


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Life Insurance Segment     
 Three months ended March 31,
 2020 2019 Change
 (Dollars in thousands)
Adjusted operating revenues:     
Interest sensitive product charges and other income$20,332
 $18,875
 8 %
Traditional life insurance premiums49,308
 49,392
 — %
Net investment income37,575
 38,991
 (4)%
Total adjusted operating revenues107,215
 107,258
 — %
      
Adjusted operating benefits and expenses:    
Interest sensitive product benefits:    
Interest and index credits7,843
 8,051
 (3)%
Death benefits and other16,371
 14,466
 13 %
Total interest sensitive product benefits24,214
 22,517
 8 %
Traditional life insurance benefits:    
Death benefits26,098
 24,416
 7 %
Surrender and other benefits10,142
 9,723
 4 %
Increase in traditional life future policy benefits9,970
 12,534
 (20)%
Total traditional life insurance benefits46,210
 46,673
 (1)%
Distributions to participating policyholders2,529
 2,534
 — %
Underwriting, acquisition and insurance expenses:    
Commission expense, net of deferrals4,832
 4,639
 4 %
Amortization of deferred acquisition costs2,419
 4,799
 (50)%
Amortization of value of insurance in force370
 372
 (1)%
Other underwriting expenses16,749
 16,002
 5 %
Total underwriting, acquisition and insurance expenses24,370
 25,812
 (6)%
Total adjusted operating benefits and expenses97,323
 97,536
 — %
 9,892
 9,722
 2 %
Equity income, before tax375
 370
 1 %
Pre-tax adjusted operating income$10,267
 $10,092
 2 %

Life Insurance Segment
Three months ended September 30,Nine months ended September 30,
20202019Change20202019Change
(Dollars in thousands)
Adjusted operating revenues:
Interest sensitive product charges and other income$23,180 $19,032 22 %$63,404 $57,404 10 %
Traditional life insurance premiums47,792 46,982 2 %147,429 147,361 — %
Net investment income40,198 38,581 4 %117,044 118,026 (1)%
Total adjusted operating revenues111,170 104,595 6 %327,877 322,791 2 %
Adjusted operating benefits and expenses:
Interest sensitive product benefits:
Interest and index credits11,110 8,326 33 %28,453 25,395 12 %
Death benefits and other22,958 17,198 33 %56,175 45,556 23 %
Total interest sensitive product benefits34,068 25,524 33 %84,628 70,951 19 %
Traditional life insurance benefits:
Death benefits25,579 25,233 1 %75,261 70,226 7 %
Surrender and other benefits7,835 9,435 (17)%25,360 29,250 (13)%
Increase in traditional life future policy benefits12,113 8,206 48 %36,227 32,031 13 %
Total traditional life insurance benefits45,527 42,874 6 %136,848 131,507 4 %
Distributions to participating policyholders1,733 2,441 (29)%5,879 7,539 (22)%
Underwriting, acquisition and insurance expenses:
Commission expense, net of deferrals4,547 4,487 1 %14,041 14,305 (2)%
Amortization of deferred acquisition costs8,404 (592)(1,520)%13,888 8,551 62 %
Amortization of value of insurance in force370 372 (1)%1,110 1,116 (1)%
Other underwriting expenses14,179 16,278 (13)%46,006 48,658 (5)%
Total underwriting, acquisition and insurance expenses27,500 20,545 34 %75,045 72,630 3 %
Total adjusted operating benefits and expenses108,828 91,384 19 %302,400 282,627 7 %
2,342 13,211 (82)%25,477 40,164 (37)%
Equity income (loss), before tax299 821 (64)%(309)2,199 (114)%
Pre-tax adjusted operating income$2,641 $14,032 (81)%$25,168 $42,363 (41)%

3741

Life Insurance Segment - continued
Three months ended September 30,Nine months ended September 30,
20202019Change20202019Change
(Dollars in thousands)
Other data
Life premiums collected, net of reinsurance (1)$77,666 $75,043 3 %$238,774 $232,442 3 %
Policy liabilities and accruals, end of period3,184,095 3,057,183 4 %
Life insurance in force, end of period62,695,650 61,025,460 3 %
Average invested assets, at amortized cost net of allowance for credit losses (2)3,237,690 3,132,734 3 %
Other investment-related income included in net investment income (3)103 70 47 %275 1,353 (80)%
Average aggregate interest sensitive life account value (8)903,703 874,574 3 %
Interest sensitive life insurance spread:
Annualized yield on average invested assets (4)4.96 %5.25 %
Annualized average crediting rate (5)3.88 %3.77 %
Spread1.08 %1.48 %
Life insurance lapse and surrender rates (9)3.8 %4.6 %
Death benefits, net of reinsurance and reserves released$26,930$25,8464 %$78,337 $72,385 8 %

Life Insurance Segment - continued     
 Three months ended March 31,
 2020 2019 Change
 (Dollars in thousands)
Other data     
Life premiums collected, net of reinsurance (1)$82,635
 $78,001
 6 %
Policy liabilities and accruals, end of period3,106,864
 3,015,751
 3 %
Life insurance in force, end of period61,852,616
 60,240,261
 3 %
Average invested assets, at amortized cost (2)3,213,376
 3,107,575
 3 %
Other investment-related income included in net investment income (3)59
 330
 (82)%
Average interest sensitive life account value896,688
 869,476
 3 %
      
Interest sensitive life insurance spread:     
Weighted average yield on cash and invested assets (2)4.99% 5.21%  
Weighted average crediting rate3.87% 3.68%  
Spread1.12% 1.53%  
      
Life insurance lapse and surrender rates4.5% 4.6%  
Death benefits, net of reinsurance and reserves released$25,668
 $26,672
 (4)%

(1)Premiums collected is a non-GAAP measure of sales production, see Note 9 to our consolidated financial statements for additional information.
(2)Average invested assets and weighted average yield including investments held as securities and indebtedness of related parties.
(3)Includes prepayment fee income and adjustments to the amortization of premium or discounts from changes in our payment speed assumptions.

Pre-tax adjusted operating income for the Life Insurance segment increaseddecreased in the firstthird quarter of 2020 and in the nine months ended September 30, 2020, compared to the prior year period,periods, primarily due to a decreasethe impact of unlocking actuarial assumptions, increases in death benefits, net of reinsurance and reserves released, partially offset by decreases in other underwriting expenses. The nine-month period, compared to the prior year period, was also impacted by decreases in equity income and amortization of deferred acquisition costs. Thecosts, excluding the impact of these items was largely offset by an increaseunlocking, due to changes in expensesactual and a decrease in net investment income from lower yielding securities.expected profits which included increased mortality expense and less equity income.

Amortization of deferred acquisition costs changedincreased during the firstthird quarter of 2020 and the nine months ended September 30, 2020, compared to the prior year period, primarilyperiods, due to unlocking actuarial assumptions and changes in actual and expected profits on the underlying business.business, which included increased mortality expense and less equity income. Amortization of unearned revenue reserves, as well as reserves held on certain interest sensitive products, were also impacted by unlocking. Unlocking generally reflects changes in our projected earned spreads, policy lapses, premium persistency and mortality assumptions. Unlocking in 2020 included changes in our projected modal premium factors. The impact of unlocking on pre-tax operating income for the quarter and nine months ended September 30, 2020 and 2019 was as follows:

42
Impact of Unlocking on Pre-tax Adjusted Operating Income
Three months ended September 30,Nine months ended September 30,
2020201920202019
(Dollars in thousands)
Amortization of unearned revenue reserve reported in interest sensitive product charges and other income$3,772 $(386)$3,772 $(386)
Amortization of deferred sales inducements reported in interest sensitive product benefits(1,207)45 (1,207)45 
Amortization of deferred sales inducements reported in traditional life insurance benefits138 69 138 69 
Amortization of deferred acquisition costs(5,556)3,728 (5,556)3,728 
Changes in reserves reported in interest sensitive product benefits(7,270)(1,062)(7,270)(1,062)
Increase (decrease) to pre-tax adjusted operating income$(10,123)$2,394 $(10,123)$2,394 
Death benefits, net of reinsurance and reserves released, decreasedincreased in the firstthird quarter of 2020, compared to the prior year period, primarily due to a decreasean increase in average claim amounts, net of reinsurance and reserves released. In the nine-month period ending September 30, 2020, compared to the prior year period, death benefits, net of reinsurance and reserves released, partially offset by an increaseincreased due to increases in the number of claims.claims and average claim amounts, net of reinsurance and reserves released. Death benefits in the Life Insurance segment include COVID-19 related claims, net of reinsurance and reserves released, totaling $0.7 million for the third quarter of 2020 and $2.6 million for the nine months ended September 30, 2020.

Other underwriting expenses increaseddecreased in the firstthird quarter of 2020 and in the nine months ended September 30, 2020, compared to 2019,the prior year periods, due to system enhancementsvarious expense management actions including deferral of projects, reduction in the use of consultants and other general expense increases associated with growthlimiting replacement of our business.employees that leave the company. In addition, travel expenses are lower due to COVID-related travel restrictions.

The weightedannualized average yield on cash and invested assets for interest sensitive life insurance products decreased in the first quarter ofnine months ended September 30, 2020, compared to the prior year period, due to lower yields on new investment acquisitions from premium receipts and reinvestment of the proceeds from maturing investments and a decreasedecreases in other investment-related income. See the “Financial Condition” section for additional information regarding the yields obtained on investment acquisitions. WeightedAnnualized average crediting rates on our interest sensitive life insurance products increased in the first quarter ofnine months ended September 30, 2020, compared to the first quarter of 2019,prior year period, primarily due to a change in the mix of business and increased amortization on ourof call options supporting our indexed universal life product.option costs.



3843

Corporate and Other Segment
Three months ended September 30,Nine months ended September 30,
20202019Change20202019Change
(Dollars in thousands)
Adjusted operating revenues:
Interest sensitive product charges$10,246 $10,408 (2)%$31,484 $31,527 — %
Net investment income7,306 8,277 (12)%22,242 25,505 (13)%
Other income4,946 4,548 9 %14,834 12,883 15 %
Total adjusted operating revenues22,498 23,233 (3)%68,560 69,915 (2)%
Adjusted operating benefits and expenses:
Interest sensitive product benefits10,310 7,642 35 %26,141 26,865 (3)%
Underwriting, acquisition and insurance expenses:
Commission expense, net of deferrals669 720 (7)%2,003 2,170 (8)%
Amortization of deferred acquisition costs111 1,854 (94)%4,533 1,792 153 %
Other underwriting expenses1,562 1,244 26 %5,141 3,810 35 %
Total underwriting, acquisition and insurance expenses2,342 3,818 (39)%11,677 7,772 50 %
Interest expense1,212 1,213 — %3,638 3,637 — %
Other expenses7,878 5,764 37 %22,524 18,649 21 %
Total adjusted operating benefits and expenses21,742 18,437 18 %63,980 56,923 12 %
756 4,796 (84)%4,580 12,992 (65)%
Net (income) loss attributable to noncontrolling interest21 (47)(145)%165 (7)(2,457)%
Equity income, before tax52 190 (73)%9 868 (99)%
Pre-tax adjusted operating income$829 $4,939 (83)%$4,754 $13,853 (66)%
Other data
Average invested assets, at amortized cost net of allowance for credit losses (2)$695,909 $700,558 (1)%
Other investment-related income (loss) included in net investment income (3)$(39)$116 (134)%(13)604 (102)%
Average aggregate interest sensitive account value (10)360,332 362,565 (1)%
Death benefits, net of reinsurance and reserves released6,643 4,261 56 %15,838 16,783 (6)%
Estimated impact on pre-tax adjusted operating income from separate account performance on amortization of deferred acquisition costs, deferred sales inducements and unearned revenue reserve (11)1,500 (200)(850)%(50)2,600 (102)%
Corporate and Other Segment     
 Three months ended March 31,
 2020 2019 Change
 (Dollars in thousands)
Adjusted operating revenues:     
Interest sensitive product charges$10,956
 $10,405
 5 %
Net investment income8,057
 8,640
 (7)%
Other income5,027
 4,083
 23 %
Total adjusted operating revenues24,040
 23,128
 4 %
      
Adjusted operating benefits and expenses:     
Interest sensitive product benefits7,626
 10,365
 (26)%
Underwriting, acquisition and insurance expenses:     
Commission expense, net of deferrals699
 704
 (1)%
Amortization of deferred acquisition costs5,055
 (967) (623)%
Other underwriting expenses1,777
 1,153
 54 %
Total underwriting, acquisition and insurance expenses7,531
 890
 746 %
Interest expense1,213
 1,212
 — %
Other expenses7,421
 6,250
 19 %
Total adjusted operating benefits and expenses23,791
 18,717
 27 %
 249
 4,411
 (94)%
Net (income) loss attributable to noncontrolling interest56
 (1) (5,700)%
Equity income, before tax(86) (91) (5)%
Pre-tax adjusted operating income$219
 $4,319
 (95)%
Other data     
Average invested assets, at amortized cost (1)$701,876
 $703,846
 — %
Other investment-related income included in net investment income (2)4
 121
 (97)%
Average interest sensitive life account value358,936
 361,872
 (1)%
Death benefits, net of reinsurance and reserves released4,343
 7,069
 (39)%
Estimated impact on pre-tax adjusted operating income from separate account performance on amortization of deferred acquisition costs, deferred sales inducements and unearned revenue reserve(3,400) 2,200
 (255)%

(1)Average invested assets including investments held as securities and indebtedness of related parties.
(2)Includes prepayment fee income and adjustments to the amortization of premium or discounts from changes in our payment speed assumptions.

Pre-tax adjusted operating income decreased for the Corporate and Other segment in the firstthird quarter of 2020, compared to the prior year period, primarily due to an increase in death benefits and other expenses, partially offset by a decrease in amortization of deferred acquisition costs resulting from the impact of market performance on our variable business. Pre-tax adjusted operating income decreased in the nine months ended September 30, 2020, compared to the prior year period, primarily due to increases in other expenses and amortization of deferred acquisition costs resulting from the impact of market performance on our variable business and a decrease in corporate investment income from lower yielding securities.

Death benefits, net of reinsurance and reserves released, increased in the third quarter of 2020, compared to the prior year period, primarily due to an increase in the number of claims. Death benefits, net of reinsurance and reserves released, decreased in the nine months ended September 30, 2020, compared to the prior year period, due primarily to a decrease in the average

44
claim amounts, net of reinsurance and reserves released, partially offset by a decreasean increase in death benefits.the number of claims. Death benefits in the Corporate and Other segment include COVID-19 related claims, net of reinsurance and reserves released, totaling $0.2 million for the third quarter of 2020 and $0.4 million for the nine months ended September 30, 2020.

Amortization of deferred acquisition costs changed during the third quarter of 2020 and the nine months ended September 30, 2020, compared to the prior year periods, primarily due to the impact of market performance on our variable business and unlocking of actuarial assumptions. See the “Impact of COVID-19 and Recent Business Environment” section above for additional information on market performance.

Death benefits, net of reinsurance Unlocking generally reflects changes in projected earned spreads, separate account performance, premium persistency and reserves released, decreased in the first quarter of 2020, compared to the prior year period, due to decreases in the number of claimswithdrawal and the average claim amounts, net of reinsurance and reserves released.

Amortization of deferred acquisition costs changed during the first quarter of 2020, compared to the prior year period, primarily due to themortality assumptions. The impact of market performanceunlocking on our variable business.pre-tax operating income for the quarter and nine months ended September 30, 2020 and 2019 was as follows:
Impact of Unlocking on Pre-tax Adjusted Operating Income
Three months ended September 30,Nine months ended September 30,
2020201920202019
(Dollars in thousands)
Amortization of unearned revenue reserve reported in interest sensitive product charges$(62)$(94)$(62)$(94)
Amortization of deferred sales inducements reported in interest sensitive product benefits51 26 51 26 
Amortization of deferred acquisition costs(150)(135)(150)(135)
Changes in reserves reported in interest sensitive product benefits(659)2 (659)2 
Decrease to pre-tax adjusted operating income$(820)$(201)$(820)$(201)
— — 
Other income and other expenses include fees and expenses from sales of brokered products and operating results of our non-insurance subsidiaries, which include wealth management services, advisory, management and leasing activities. Other income and other expenses increased in the firstthird quarter of 2020 and nine months ended September 30, 2020, compared to the prior year period,periods, primarily due to expanding our wealth management business. The expansion of our wealth management business has increased administrative costs along with the costs of implementing a new delivery platform to allow for additional product offerings and an enhanced customer


39

experience. Revenues associated with our wealth management expansion increased modestly as we continue to develop this business, increasing $0.7 million in the third quarter of 2020 and $1.9 million during the quarternine months ended September 30, 2020, compared to the first quarter of 2019.prior year periods. Expenses, including commissions, associated with our wealth management expansion have increased $1.3$1.2 million in the third quarter of 2020 and $3.1 million during the quarternine months ended September 30, 2020, compared to the first quarter of 2019.prior year periods.

Equity Income (Loss)

Equity income (loss) includes our proportionate share of gains and losses attributable to our ownership interest in partnerships, joint ventures and certain companies over which we exhibit some control but have a minority ownership interest. We consistently use the most recent financial information available, generally for periods not to exceed three months prior to the ending date of the period for which we are reporting, to account for equity income. Notably, one of our alternative investments reports earnings two quarters in arrears as it is a fund of funds, which increases the reporting timeline. 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. The level of gains and losses for these entities normally fluctuates from period to period depending on the prevailing economic environment, changes in the value of underlying investments held by the investment partnerships, the timing and success of initial public offerings or exit strategies, and the timing of the sale of investments held by the partnerships and joint ventures.

Equity income (loss), net of related taxes, was $0.2 million infor the firstthird quarter of 2020 was $0.3 million compared with $0.8 million for the third quarter of 2019, and ($0.2) million for the nine months ended September 30, 2020 compared with $2.4 million for the nine months ended September 30, 2019. See Note 28 to our consolidated financial statements for further information.

Income Taxes on Adjusted Operating Income

The effective tax rate on adjusted operating income was 12.7%11.8% for the firstthird quarter of 2020 and 14.7% for the nine months ended September 30, 2020, compared with 13.9%6.9% for the firstthird quarter of 2019 and 12.5% for the nine months ended September 30, 2019. The effective tax rates differ from the federal statutory rate of 21% primarily due to the impact of LIHTC

45
investments and tax-exempt investment income. See Note 1 toIn addition, effective rates for 2019 benefited from non-recurring tax benefits totaling $2.5 million resulting from the consolidated financial statements for further information regarding our estimateexecution of a tax expenses forplanning strategy in the firstthird quarter of 2020.2019.

Components of income tax   
 Three months ended March 31,
 2020 2019
 (Dollars in thousands)
Income tax benefit (expense)$3,081
 $(6,276)
Tax on equity income(61) (59)
Income tax offset on net income adjustments(5,889) 2,164
Income taxes on adjusted operating income$(2,869) $(4,171)
    
Income taxes on adjusted operating income before benefits of LIHTC investments$(3,752) $(5,076)
Amounts related to LIHTC investments883
 905
Income taxes on adjusted operating income$(2,869) $(4,171)

Impact of Adjustments to Net Income Attributable to FBL   
    
 Three months ended March 31,
 2020 2019
 (Dollars in thousands)
Realized gains (losses) on investments and change in fair value of equity securities and derivatives$(28,069) $10,846
Offsets: (1)   
Change in amortization(176) (256)
Reserve change on interest sensitive products205
 (285)
Income tax5,889
 (2,164)
Net impact of adjustments to net income$(22,151) $8,141
Net impact per common share - basic and assuming dilution$(0.89) $0.33

(1)The items excluded from adjusted operating income impact the amortization of deferred acquisition costs and unearned revenue reserve. Certain interest sensitive reserves as well as income taxes are also impacted.


40


Realized Gains (Losses) on Investments   
 Three months ended March 31,
 2020 2019
 (Dollars in thousands)
Realized gains (losses) on investments:   
Realized gains$12
 $5,772
Realized losses(182) (34)
Change in unrealized gains/losses on equity securities(13,231) 4,419
Total other-than-temporary impairment losses—
 (869)
Total allowance for credit losses(12,261) —
Net realized investment gains (losses)$(25,662) $9,288

Components of income tax
Three months ended September 30,Nine months ended September 30,
2020201920202019
(Dollars in thousands)
Income tax expense$(2,883)$(1,642)$(5,887)$(13,429)
Income tax benefit (expense) on equity income(74)(212)62 (644)
Income tax offset on net income adjustments324 (23)(5,309)2,290 
Income taxes on adjusted operating income$(2,633)$(1,877)$(11,134)$(11,783)
Income taxes on adjusted operating income before benefits of LIHTC investments$(3,493)$(2,727)$(13,801)$(14,437)
Amounts related to LIHTC investments860 850 2,667 2,654 
Income taxes on adjusted operating income$(2,633)$(1,877)$(11,134)$(11,783)

Impact of Adjustments to Net Income Attributable to FBL
Three months ended September 30,Nine months ended September 30,
2020201920202019
(Dollars in thousands)
Realized gains (losses) on investments and change in fair value of equity securities and derivatives$780 $(198)$(26,863)$11,092 
Offsets: (1)
Change in amortization639 (343)597 (647)
Reserve change on interest sensitive products126 432 987 462 
Income tax(324)23 5,309 (2,290)
Net impact of adjustments to net income$1,221 $(86)$(19,970)$8,617 
Net impact per common share - basic and assuming dilution$0.05 $(0.01)$(0.81)$0.35 

(1)The items excluded from adjusted operating income impact the amortization of deferred acquisition costs and unearned revenue reserve. Certain interest sensitive reserves as well as income taxes are also impacted.

Realized Gains (Losses) on Investments
Three months ended September 30,Nine months ended September 30,
2020201920202019
(Dollars in thousands)
Realized gains (losses) on investments:
Realized gains$237 $534 $431 $6,524 
Realized losses(60)(3)(1,989)(341)
Change in unrealized gains/losses on equity securities1,814 165 (7,099)5,047 
Total other-than-temporary impairment losses— (50)— (919)
Total allowance for credit losses1,903 — (10,855)— 
Net realized investment gains (losses)$3,894 $646 $(19,512)$10,311 

The level of realized gains (losses) is subject to fluctuation from period to period due to movements in credit spreads and prevailing interest rates, changes in the economic environment, the timing of the sales of the investments generating the realized gains and losses, as well as the timing of allowances, impairments, recovery of allowances and unrealized gains and losses on equity securities. See “Financial Condition - Investments” and Note 2 to our consolidated financial statements for details regarding our unrealized gains and losses on available-for-sale securities at March 31,September 30, 2020 and December 31, 20192019.
.

46
Investment Credit Impairment Losses Recognized in Net Income
Change in Allowance/Credit Impairment Losses Recognized in Net IncomeChange in Allowance/Credit Impairment Losses Recognized in Net Income
Three months ended March 31,Three months ended September 30,Nine months ended September 30,
2020 20192020201920202019
(Dollars in thousands)(Dollars in thousands)
Corporate securities:   Corporate securities:
Consumer ProductsConsumer Products$850 $— $(122)$— 
Financial$5,430
 $—
Financial730 — (4,315)— 
Energy6,716
 —
Energy(175)— (7,060)— 
Other asset-backed—
 869
Other asset-backed(281)— (598)(869)
Securities and indebtedness of related partiesSecurities and indebtedness of related parties— (50)— (50)
Mortgage loans115
 —
Mortgage loans779 — 1,240 — 
Total allowance for credit losses (2020); other-than-temporary impairment losses (2019) reported in net income$12,261
 $869
Total allowance for credit losses (2020); other-than-temporary impairment losses (2019) reported in net income$1,903 $(50)$(10,855)$(919)

Allowance for credit losses for the threenine months ended March 31,September 30, 2020 include an energy sector bond, a consumer products bond, and two financial sector bonds impaired to fair value caused by ongoing weakness in operating performance.performance in addition to an asset backed bond due to a decline in expected cash flows. Improvements in the allowance results in recoveries recognized as realized gains. See Note 2 “Investment Operations” to our consolidated financial statements for more detail on the allowance for credit losses. Other-than-temporary credit impairment losses for the threenine months ended March 31,September 30, 2019 include an asset-backed bond due to a decline in expected cash flows.



41

Financial Condition

Investments

Our investment portfolio decreased 1.3%increased 5.4% to $8,969.2$9,582.0 million at March 31,September 30, 2020 compared to $9,091.6$9,091.6 million at December 31, 2019. The portfolio decreaseincrease is primarily due to $173.3a $312.4 million decreaseincrease in the net unrealized appreciation of fixed maturities. The decreaseincrease in unrealized appreciation is the result of an increasea decrease in market interest rates driven by an increasea decrease in credit spreads.Treasury rates. Additional details regarding securities in an unrealized gain or loss position at March 31,September 30, 2020 are included in the discussion that follows and in Note 2 to our consolidated financial statements. Details regarding investment impairments are discussed above in the “Realized Gains (Losses) on Investments” section under “Results of Operations.”
We manage the investment portfolio to optimize risk-adjusted yield within the context of prudent asset-liability management. We evaluate multiple cash flow testing scenarios as part of this process. The Company’s investment policy calls for investing primarily in high quality fixed maturities and commercial mortgage loans.

Fixed Maturity Acquisitions Selected Information
Nine months ended September 30,
20202019
(Dollars in thousands)
Cost of acquisitions:
Corporate$287,347 $301,717 
Mortgage- and asset-backed285,243 248,185 
United States Government and agencies25,212 — 
Tax-exempt municipals55,381 27,715 
Total$653,183 $582,617 
Effective annual yield3.20 %3.90 %
Credit quality
NAIC 1 designation73.9 %68.9 %
NAIC 2 designation19.7 %31.1 %
Non-investment grade6.4 %— %
Weighted-average life in years11.016.0

47
Fixed Maturity Acquisitions Selected Information    
  Three months ended March 31,
  2020 2019
  (Dollars in thousands)
Cost of acquisitions:    
Corporate $123,877
 $75,567
Mortgage- and asset-backed 95,381
 57,951
Tax-exempt municipals —
 8,060
Total $219,258
 $141,578
Effective annual yield 3.50% 4.33%
Credit quality    
NAIC 1 designation 66.1% 74.3%
NAIC 2 designation 24.8% 25.7%
Non-investment grade 9.1% —%
Weighted-average life in years 7.0
 15.0
The table above summarizes selected information for fixed maturity purchases. The effective annual yield shown is the yield calculated to the “worst-call“first-call” date.” For non-callable bonds, the worst-call date is always the maturity date. For callable bonds, the worst-callfirst-call date is the call or maturity date that produces the lowest yield.date. The weighted-average life is calculated using scheduled pay-downs and expected prepayments for amortizing securities. For non-amortizing securities, the weighted-average life is equal to the stated maturity date.

A portion of the securities acquired during the threenine months ended March 31,September 30, 2020 and March 31,September 30, 2019 were acquired with the proceeds from advances on our funding agreements with the FHLB. The securities acquired to support these funding agreements often carry a lower average yield than securities acquired to support our other insurance products, due to the shorter maturity and relatively low interest rate paid on those advances. In addition, certain municipal securities acquired are exempt from federal income taxes, and accordingly have a higher actual return than reflected in the yields stated above. The average yield of the securities acquired, excluding the securities supporting the funding agreements and using a tax-adjusted yield for the municipal securities, was 4.73%3.34% during the threenine months ended March 31,September 30, 2020 and was 4.42%3.95% during the threenine months ended March 31,September 30, 2019.

Investment Portfolio Summary
September 30, 2020December 31, 2019
Carrying ValuePercentCarrying ValuePercent
(Dollars in thousands)
Fixed maturities - available for sale:
Public$6,111,775 63.8 %$5,763,570 63.4 %
144A private placement1,837,248 19.2 1,699,924 18.7 
Private placement295,454 3.1 239,134 2.6 
Total fixed maturities - available for sale8,244,477 86.1 7,702,628 84.7 
Equity securities93,269 1.0 100,228 1.1 
Mortgage loans972,210 10.1 1,011,678 11.2 
Real estate955 — 955 — 
Policy loans197,009 2.1 201,589 2.2 
Short-term investments18,434 0.2 11,865 0.1 
Other investments55,639 0.5 62,680 0.7 
Total investments$9,581,993 100.0 %$9,091,623 100.0 %


42

Investment Portfolio Summary 
       
 March 31, 2020 December 31, 2019
 Carrying Value Percent Carrying Value Percent
 (Dollars in thousands)
Fixed maturities - available for sale:       
Public$5,688,408
 63.4% $5,763,570
 63.4%
144A private placement1,680,060
 18.7
 1,699,924
 18.7
Private placement248,697
 2.8
 239,134
 2.6
Total fixed maturities - available for sale7,617,165
 84.9
 7,702,628
 84.7
Equity securities88,610
 1.0
 100,228
 1.1
Mortgage loans988,854
 11.0
 1,011,678
 11.2
Real estate955
 —
 955
 —
Policy loans202,227
 2.3
 201,589
 2.2
Short-term investments29,580
 0.3
 11,865
 0.1%
Other investments41,777
 0.5
 62,680
 0.7%
Total investments$8,969,168
 100.0% $9,091,623
 100.0%

As of March 31,September 30, 2020, 97.496.4% (based on carrying value) of the available-for-sale fixed maturities were investment grade debt securities, defined as being in the highest two National Association of Insurance Commissioners (NAIC) designations. Non-investment grade debt securities generally provide higher yields and involve greater risks than investment grade debt securities because their issuers typically are more highly leveraged and more vulnerable to adverse economic conditions than investment grade issuers. In addition, the trading market for these securities is usually more limited than for investment grade debt securities. We regularly review the percentage of our portfolio that is invested in non-investment grade debt securities (NAIC designations 3 through 6). As of March 31,September 30, 2020,, no single non-investment grade holding exceeded 0.2% of total investments.

48
Credit Quality by NAIC Designation and Equivalent RatingCredit Quality by NAIC Designation and Equivalent RatingCredit Quality by NAIC Designation and Equivalent Rating
 March 31, 2020 December 31, 2019September 30, 2020December 31, 2019
NAIC Designation Equivalent Rating (1) Carrying Value Percent Carrying Value PercentNAIC DesignationEquivalent Rating (1)Carrying ValuePercentCarrying ValuePercent
 (Dollars in thousands)(Dollars in thousands)
1 AAA, AA, A $5,279,557
 69.3% $5,255,079
 68.2%1AAA, AA, A$5,572,781 67.6 %$5,255,079 68.2 %
2 BBB 2,139,645
 28.1
 2,268,920
 29.5
2BBB2,372,784 28.8 2,268,920 29.5 
 Total investment grade 7,419,202
 97.4
 7,523,999
 97.7
Total investment grade7,945,565 96.4 7,523,999 97.7 
3 BB 146,123
 1.9
 123,120
 1.6
3BB229,223 2.7 123,120 1.6 
4 B 41,965
 0.6
 38,272
 0.5
4B57,560 0.7 38,272 0.5 
5 CCC 9,869
 0.1
 17,231
 0.2
5CCC6,097 0.1 17,231 0.2 
6 In or near default 6
 —
 6
 —
6In or near default6,032 0.1 6 — 
 Total below investment grade 197,963
 2.6
 178,629
 2.3
Total below investment grade298,912 3.6 178,629 2.3 
 Total fixed maturities - available for sale $7,617,165
 100.0% $7,702,628
 100.0%Total fixed maturities - available for sale$8,244,477 100.0 %$7,702,628 100.0 %

(1)Equivalent ratings are based on those provided by nationally recognized rating agencies with some exceptions for certain residential mortgage, commercial mortgage- and asset-backed securities that are based on the expected loss of the security rather than the probability of default. This may result in a final designation being higher or lower than the equivalent credit rating.
(1)Equivalent ratings are based on those provided by nationally recognized rating agencies with some exceptions for certain residential mortgage, commercial mortgage- and asset-backed securities that are based on the expected loss of the security rather than the probability of default. This may result in a final designation being higher or lower than the equivalent credit rating.
See Note 2 to our consolidated financial statements for a summary of fixed maturities by contractual maturity date.
Gross Unrealized Gains and Gross Unrealized Losses by Internal Industry Classification
September 30, 2020
Total Carrying ValueCarrying Value of Securities
with Gross Unrealized Gains		Gross Unrealized GainsCarrying Value of Securities
with Gross Unrealized Losses		Gross Unrealized Losses
(Dollars in thousands)
Corporate securities:
Basic industrial$352,188 $333,951 $48,876 $18,237 $(800)
Capital goods335,959 326,008 46,445 9,951 (431)
Communications159,573 154,115 27,448 5,458 (160)
Consumer cyclical189,828 180,396 22,076 9,432 (1,562)
Consumer non-cyclical696,098 671,180 117,952 24,918 (1,631)
Energy428,390 355,180 41,031 73,210 (8,136)
Finance750,292 718,757 78,703 31,535 (1,451)
Transportation139,720 129,571 17,157 10,149 (237)
Utilities176,811 174,535 23,975 2,276 (15)
Technology884,298 872,878 176,413 11,420 (548)
Other20,842 20,842 2,556 — — 
Total corporate securities4,133,999 3,937,413 602,632 196,586 (14,971)
Mortgage- and asset-backed securities2,628,534 2,339,764 240,186 288,770 (10,431)
United States Government and agencies37,595 12,701 2,962 24,894 (453)
States and political subdivisions1,444,349 1,410,905 181,171 33,444 (1,356)
Total$8,244,477 $7,700,783 $1,026,951 $543,694 $(27,211)


4349
Gross Unrealized Gains and Gross Unrealized Losses by Internal Industry Classification
December 31, 2019
Total Carrying ValueCarrying Value of Securities
with Gross Unrealized Gains		Gross Unrealized GainsCarrying Value of Securities
with Gross Unrealized Losses		Gross Unrealized Losses
(Dollars in thousands)
Corporate securities:
Basic industrial$337,004 $330,254 $33,472 $6,750 $(259)
Capital goods302,566 292,480 28,427 10,086 (278)
Communications143,907 139,092 17,900 4,815 (453)
Consumer cyclical154,744 145,584 12,971 9,160 (357)
Consumer non-cyclical611,618 554,145 68,658 57,473 (4,057)
Energy420,805 384,898 42,177 35,907 (6,637)
Finance692,341 667,173 62,295 25,168 (2,287)
Transportation129,421 116,659 11,186 12,762 (415)
Utilities158,073 155,105 15,617 2,968 (23)
Technology804,317 770,167 123,232 34,150 (765)
Other24,154 24,154 2,114 — — 
Total corporate securities3,778,950 3,579,711 418,049 199,239 (15,531)
Mortgage- and asset-backed securities2,432,382 2,092,650 144,832 339,732 (5,956)
United States Government and agencies14,123 11,629 1,711 2,494 (5)
States and political subdivisions1,477,173 1,451,870 145,125 25,303 (866)
Total$7,702,628 $7,135,860 $709,717 $566,768 $(22,358)

Credit Quality of Available-for-Sale Fixed Maturities with Unrealized Losses
September 30, 2020
NAIC DesignationEquivalent RatingCarrying Value of Securities with Gross Unrealized LossesPercent of TotalGross Unrealized LossesPercent of Total
(Dollars in thousands)
1AAA, AA, A$326,561 60.1 %$(9,017)33.1 %
2BBB97,069 17.8 (5,980)22.0 
Total investment grade423,630 77.9 (14,997)55.1 
3BB100,117 18.4 (9,436)34.7 
4B19,942 3.7 (2,778)10.2 
6In or near default5 — — — 
Total below investment grade120,064 22.1 (12,214)44.9 
Total$543,694 100.0 %$(27,211)100.0 %


Gross Unrealized Gains and Gross Unrealized Losses by Internal Industry Classification
 March 31, 2020
 Total Carrying Value Carrying Value of Securities
with Gross Unrealized Gains		 Gross Unrealized Gains 
Carrying Value of Securities
with Gross Unrealized Losses
 Gross Unrealized Losses
 (Dollars in thousands)
Corporate securities:         
Basic industrial$315,125
 $213,895
 $17,975
 $101,230
 $(9,972)
Capital goods296,462
 244,789
 20,944
 51,673
 (2,352)
Communications145,589
 132,610
 16,508
 12,979
 (1,837)
Consumer cyclical166,559
 121,146
 11,343
 45,413
 (6,045)
Consumer non-cyclical615,093
 514,586
 61,483
 100,507
 (11,426)
Energy344,945
 136,945
 13,502
 208,000
 (55,449)
Finance670,913
 488,527
 40,519
 182,386
 (7,909)
Transportation131,266
 98,904
 8,823
 32,362
 (3,260)
Utilities161,218
 128,891
 13,877
 32,327
 (1,993)
Technology785,525
 715,296
 104,734
 70,229
 (2,948)
Other24,628
 24,628
 2,413
 —
 —
Total corporate securities3,657,323
 2,820,217
 312,121
 837,106
 (103,191)
Mortgage- and asset-backed securities2,494,349
 1,602,877
 216,154
 891,472
 (66,480)
United States Government and agencies14,204
 14,204
 3,375
 —
 —
States and political subdivisions1,451,289
 1,440,298
 152,500
 10,991
 (433)
Total$7,617,165
 $5,877,596
 $684,150
 $1,739,569
 $(170,104)
50

 December 31, 2019
 Total Carrying Value Carrying Value of Securities
with Gross Unrealized Gains		 Gross Unrealized Gains 
Carrying Value of Securities
with Gross Unrealized Losses
 Gross Unrealized Losses
 (Dollars in thousands)
Corporate securities:         
Basic industrial$337,004
 $330,254
 $33,472
 $6,750
 $(259)
Capital goods302,566
 292,480
 28,427
 10,086
 (278)
Communications143,907
 139,092
 17,900
 4,815
 (453)
Consumer cyclical154,744
 145,584
 12,971
 9,160
 (357)
Consumer non-cyclical611,618
 554,145
 68,658
 57,473
 (4,057)
Energy420,805
 384,898
 42,177
 35,907
 (6,637)
Finance692,341
 667,173
 62,295
 25,168
 (2,287)
Transportation129,421
 116,659
 11,186
 12,762
 (415)
Utilities158,073
 155,105
 15,617
 2,968
 (23)
Technology804,317
 770,167
 123,232
 34,150
 (765)
Other24,154
 24,154
 2,114
 —
 —
Total corporate securities3,778,950
 3,579,711
 418,049
 199,239
 (15,531)
Mortgage- and asset-backed securities2,432,382
 2,092,650
 144,832
 339,732
 (5,956)
United States Government and agencies14,123
 11,629
 1,711
 2,494
 (5)
States and political subdivisions1,477,173
 1,451,870
 145,125
 25,303
 (866)
Total$7,702,628
 $7,135,860
 $709,717
 $566,768
 $(22,358)



44
Credit Quality of Available-for-Sale Fixed Maturities with Unrealized Losses
December 31, 2019
NAIC DesignationEquivalent RatingCarrying Value of Securities with Gross Unrealized LossesPercent of TotalGross Unrealized LossesPercent of Total
(Dollars in thousands)
1AAA, AA, A$394,099 69.5 %$(6,932)31.0 %
2BBB103,400 18.2 (3,093)13.8 
Total investment grade497,499 87.7 (10,025)44.8 
3BB37,184 6.6 (5,096)22.9 
4B22,928 4.1 (1,616)7.2 
5CCC9,150 1.6 (5,621)25.1 
6In or near default7 — — — 
Total below investment grade69,269 12.3 (12,333)55.2 
Total$566,768 100.0 %$(22,358)100.0 %

Available-For-Sale Fixed Maturities with Unrealized Losses by Length of Time
September 30, 2020
Amortized CostGross Unrealized Losses
Fair Value
is Less than 75% of Cost		Fair Value is
75% or Greater
than Cost		Fair Value is Less than 75% of CostFair Value is
75% or Greater
than Cost
(Dollars in thousands)
Three months or less$3,059 $218,364 $(918)$(3,878)
Greater than three months to six months— 21,955 — (290)
Greater than six months to nine months2,836 166,438 (1,101)(8,362)
Greater than nine months to twelve months— 4,858 — (151)
Greater than twelve months5,942 147,453 (2,121)(10,390)
Total$11,837 $559,068 $(4,140)$(23,071)

December 31, 2019
Amortized CostGross Unrealized Losses
Fair Value
is Less than 75% of Cost		Fair Value is 75% or Greater than CostFair Value is Less than 75% of CostFair Value is
75% or Greater
than Cost
(Dollars in thousands)
Three months or less$— $255,507 $— $(3,518)
Greater than three months to six months— 98,253 — (2,093)
Greater than six months to nine months— 13,944 — (464)
Greater than nine months to twelve months— — — — 
Greater than twelve months25,805 195,617 (8,444)(7,839)
Total$25,805 $563,321 $(8,444)$(13,914)


Credit Quality of Available-for-Sale Fixed Maturities with Unrealized Losses
    March 31, 2020
NAIC Designation Equivalent Rating Carrying Value of Securities with Gross Unrealized Losses Percent of Total Gross Unrealized Losses Percent of Total
    (Dollars in thousands)
1 AAA, AA, A $904,365
 52.0% $(62,180) 36.6%
2 BBB 678,811
 39.0
 (66,156) 38.9
  Total investment grade 1,583,176
 91.0
 (128,336) 75.5
3 BB 123,293
 7.1
 (36,241) 21.3
4 B 29,937
 1.7
 (5,526) 3.2
5 CCC 3,157
 0.2
 (1) —
6 In or near default 6
 —
 —
 —
  Total below investment grade 156,393
 9.0
 (41,768) 24.5
  Total $1,739,569
 100.0% $(170,104) 100.0%
51

    December 31, 2019
NAIC Designation Equivalent Rating Carrying Value of Securities with Gross Unrealized Losses Percent of Total Gross Unrealized Losses Percent of Total
    (Dollars in thousands)
1 AAA, AA, A $394,099
 69.5% $(6,932) 31.0%
2 BBB 103,400
 18.2
 (3,093) 13.8
  Total investment grade 497,499
 87.7
 (10,025) 44.8
3 BB 37,184
 6.6
 (5,096) 22.9
4 B 22,928
 4.1
 (1,616) 7.2
5 CCC 9,150
 1.6
 (5,621) 25.1
6 In or near default 7
 —
 —
 —
  Total below investment grade 69,269
 12.3
 (12,333) 55.2
  Total $566,768
 100.0% $(22,358) 100.0%

Available-For-Sale Fixed Maturities with Unrealized Losses by Length of Time
 March 31, 2020
 Amortized Cost Gross Unrealized Losses
 
Fair Value
is Less than 75% of Cost
 
Fair Value is
75% or Greater
than Cost
 Fair Value is Less than 75% of Cost 
Fair Value is
75% or Greater
than Cost
 (Dollars in thousands)
Three months or less$76,110
 $1,626,219
 $(27,556) $(103,257)
Greater than three months to six months—
 7,982
 —
 (265)
Greater than six months to nine months—
 25,685
 —
 (2,097)
Greater than nine months to twelve months3,944
 8,000
 (2,451) (670)
Greater than twelve months43,961
 117,772
 (17,789) (16,019)
Total$124,015
 $1,785,658
 $(47,796) $(122,308)



45

Available-For-Sale Fixed Maturities with Unrealized Losses by Maturity Date
September 30, 2020December 31, 2019
Carrying Value of Securities with Gross Unrealized LossesGross
Unrealized
Losses		Carrying Value of Securities with Gross Unrealized LossesGross
Unrealized
Losses
(Dollars in thousands)
Due in one year or less$8,038 $(32)$1,498 $(2)
Due after one year through five years31,053 (1,597)17,902 (3,340)
Due after five years through ten years42,100 (3,294)32,003 (478)
Due after ten years173,733 (11,857)175,633 (12,582)
254,924 (16,780)227,036 (16,402)
Mortgage- and asset-backed288,770 (10,431)339,732 (5,956)
Total$543,694 $(27,211)$566,768 $(22,358)
Available-For-Sale Fixed Maturities with Unrealized Losses by Length of Time
 December 31, 2019
 Amortized Cost Gross Unrealized Losses
 
Fair Value
is Less than 75% of Cost
 Fair Value is 75% or Greater than Cost Fair Value is Less than 75% of Cost 
Fair Value is
75% or Greater
than Cost
 (Dollars in thousands)
Three months or less$—
 $255,507
 $—
 $(3,518)
Greater than three months to six months—
 98,253
 —
 (2,093)
Greater than six months to nine months—
 13,944
 —
 (464)
Greater than nine months to twelve months—
 —
 —
 —
Greater than twelve months25,805
 195,617
 (8,444) (7,839)
Total$25,805
 $563,321
 $(8,444) $(13,914)

Available-For-Sale Fixed Maturities with Unrealized Losses by Maturity Date
 March 31, 2020 December 31, 2019
 Carrying Value of Securities with Gross Unrealized Losses 
Gross
Unrealized
Losses
 Carrying Value of Securities with Gross Unrealized Losses 
Gross
Unrealized
Losses
 (Dollars in thousands)
Due in one year or less$21,200
 $(653) $1,498
 $(2)
Due after one year through five years150,892
 (14,130) 17,902
 (3,340)
Due after five years through ten years199,031
 (25,347) 32,003
 (478)
Due after ten years476,974
 (63,494) 175,633
 (12,582)
 848,097
 (103,624) 227,036
 (16,402)
Mortgage- and asset-backed891,472
 (66,480) 339,732
 (5,956)
Total$1,739,569
 $(170,104) $566,768
 $(22,358)

See Note 2 to our consolidated financial statements for additional analysis of these unrealized losses.

Mortgage- and Asset-Backed Securities

Mortgage-backed and other asset-backed securities are purchased when we believe these types of investments provide superior risk-adjusted returns compared to returns of more conventional investments such as corporate bonds and mortgage loans. These securities are diversified as to collateral types, cash flow characteristics and maturity.

The repayment pattern on mortgage and other asset-backed securities is more variable than that of more traditional fixed maturity securities because the repayment terms are tied to underlying debt obligations that are subject to prepayments. The prepayment speeds (e.g., the rate of individuals refinancing their home mortgages) can vary based on a number of economic factors that cannot be predicted with certainty. These factors include the prevailing interest rate environment and general status of the economy.

At each balance sheet date, we review and update our expectation of future prepayment speeds and the book value of the mortgage and other asset-backed securities purchased at a premium or discount is reset, if needed. See Note 1 to our consolidated financial statements included in Item 8 of our Form 10-K for the year ended December 31, 2019 for more detail on accounting for the amortization of premium and accrual of discount on mortgage-backed and asset-backed securities.

Our direct exposure to the Alt-A home equity and subprime first-lien sectors is limited to investments in structured securities collateralized by senior tranches of residential mortgage loans. We also have a partnership interest in one fund at March 31,September 30, 2020 and December 31, 2019, that owns securities backed by Alt-A home equity, subprime first-lien and adjustable rate mortgage collateral. The fund is reported as securities and indebtedness of related parties in our consolidated balance sheets with a fair value of $1.3$0.9 million at March 31,September 30, 2020 and $1.4 million at December 31, 2019.2019. We do not own any direct investments in subprime lenders.
Mortgage- and Asset-Backed Securities by Collateral Type
September 30, 2020December 31, 2019
Amortized CostCarrying ValuePercent
of Fixed Maturities		Amortized CostCarrying ValuePercent
of Fixed Maturities
(Dollars in thousands)
Government agency$213,720 $244,546 3.0 %$220,209 $236,734 3.1 %
Prime387,451 411,217 5.0 338,795 357,769 4.6 
Alt-A59,959 69,997 0.8 68,483 80,732 1.0 
Subprime122,109 130,323 1.6 133,410 144,485 1.9 
Commercial mortgage996,794 1,149,431 13.9 969,453 1,045,473 13.6 
Collateralized loan obligation227,791 223,890 2.7 186,671 185,427 2.4 
Non-mortgage391,553 399,130 4.8 376,485 381,762 5.0 
Total$2,399,377 $2,628,534 31.8 %$2,293,506 $2,432,382 31.6 %



52

46

Mortgage- and Asset-Backed Securities by Collateral Type
 March 31, 2020 December 31, 2019
 Amortized Cost Carrying Value 
Percent
of Fixed Maturities
 Amortized Cost Carrying Value 
Percent
of Fixed Maturities
 (Dollars in thousands)
Government agency$217,813
 $249,048
 3.3% $220,209
 $236,734
 3.1%
Prime341,574
 337,448
 4.4
 338,795
 357,769
 4.6
Alt-A65,376
 69,667
 0.9
 68,483
 80,732
 1.0
Subprime127,284
 123,187
 1.6
 133,410
 144,485
 1.9
Commercial mortgage977,147
 1,141,642
 15.0
 969,453
 1,045,473
 13.6
Collateralized loan obligation192,547
 173,412
 2.3
 186,671
 185,427
 2.4
Non-mortgage422,934
 399,945
 5.3
 376,485
 381,762
 5.0
Total$2,344,675
 $2,494,349
 32.8% $2,293,506
 $2,432,382
 31.6%

The mortgage- and asset-backed securities can be summarized into three broad categories: residential, commercial and other asset-backed securities.

The residential mortgage-backed portfolio includes government agency pass-through and collateralized mortgage obligation (CMO) securities. With a government agency pass-through security, we receive a pro rata share of principal payments as payments are made on the underlying mortgage loans. CMOs consist of pools of mortgages divided into sections or “tranches” with varying stated maturities that provide sequential retirement of the bonds. While each tranche receives monthly interest payments, a subsequent tranche is not entitled to receive payment of principal until the entire principal of the preceding tranche is paid off. We primarily invest in sequential tranches, which allow us to manage cash flow stability and prepayment risk by the level of tranche in which we invest. In addition, to provide call protection and more stable average lives, we invest in CMOs such as planned amortization class (PAC) and targeted amortization class (TAC) securities. PAC bonds provide more predictable cash flows within a range of prepayment speeds and provide some protection against prepayment risk. TAC bonds provide protection from a rise in the prepayment rate due to falling interest rates. We generally do not purchase certain types of CMOs that we believe would subject the investment portfolio to excessive prepayment risk.

Residential Mortgage-Backed Securities by NAIC Designation and Origination Year
September 30, 2020
2004 & Prior2005 to 20082009 & AfterTotal
NAIC DesignationAmortized
Cost		Carrying
Value		Amortized
Cost		Carrying
Value		Amortized
Cost		Carrying
Value		Amortized
Cost		Carrying
Value
(Dollars in thousands)
1$52,706 $54,539 $56,491 $70,340 $545,156 $591,043 $654,353 $715,922 
3214 220 156 171 — — 370 391 
4— — 4,123 4,789 — — 4,123 4,789 
5— — 3,055 4,005 — — 3,055 4,005 
65 5 — — — — 5 5 
Total$52,925 $54,764 $63,825 $79,305 $545,156 $591,043 $661,906 $725,112 

Residential Mortgage-Backed Securities by NAIC Designation and Origination Year  
 March 31, 2020December 31, 2019
 2004 & Prior 2005 to 2008 2009 & After Total2004 & Prior2005 to 20082009 & AfterTotal
NAIC Designation Amortized
Cost		 
Carrying
Value
 Amortized
Cost		 
Carrying
Value
 Amortized
Cost		 
Carrying
Value
 
Amortized
Cost
 
Carrying
Value
NAIC DesignationAmortized
Cost		Carrying
Value		Amortized
Cost		Carrying
Value		Amortized
Cost		Carrying
Value		Amortized
Cost		Carrying
Value
 (Dollars in thousands)(Dollars in thousands)
1 $57,884
 $57,509
 $59,951
 $66,667
 $498,226
 $521,120
 $616,061
 $645,296
1$60,698 $62,145 $61,993 $80,465 $495,061 $519,147 $617,752 $661,757 
2 —
 —
 705
 533
 —
 —
 705
 533
3 214
 199
 190
 195
 —
 —
 404
 394
3279 275 1,113 1,080 — — 1,392 1,355 
4 —
 —
 4,240
 4,381
 —
 —
 4,240
 4,381
4— — 4,297 5,372 — — 4,297 5,372 
5 —
 —
 3,158
 3,157
 —
 —
 3,158
 3,157
5— — 3,216 3,898 — — 3,216 3,898 
6 6
 6
 —
 —
 —
 —
 6
 6
66 6 — — — — 6 6 
Total $58,104
 $57,714
 $68,244
 $74,933
 $498,226
 $521,120
 $624,574
 $653,767
Total$60,983 $62,426 $70,619 $90,815 $495,061 $519,147 $626,663 $672,388 

  December 31, 2019
  2004 & Prior 2005 to 2008 2009 & After Total
NAIC Designation Amortized
Cost		 
Carrying
Value
 Amortized
Cost		 
Carrying
Value
 Amortized
Cost		 
Carrying
Value
 
Amortized
Cost
 
Carrying
Value
  (Dollars in thousands)
1 $60,698
 $62,145
 $61,993
 $80,465
 $495,061
 $519,147
 $617,752
 $661,757
3 279
 275
 1,113
 1,080
 —
 —
 1,392
 1,355
4 —
 —
 4,297
 5,372
 —
 —
 4,297
 5,372
5 —
 —
 3,216
 3,898
 —
 —
 3,216
 3,898
6 6
 6
 —
 —
 —
 —
 6
 6
Total $60,983
 $62,426
 $70,619
 $90,815
 $495,061
 $519,147
 $626,663
 $672,388


47

The commercial mortgage-backed securities (CMBS) are primarily sequential securities. CMBS typically have cash flows that are less subject to refinance risk than residential mortgage-backed securities principally due to prepayment restrictions on many of the underlying commercial mortgage loans.
Commercial Mortgage-Backed Securities by NAIC Designation and Origination Year
September 30, 2020
2004 & Prior2005 to 20082009 & AfterTotal
NAIC DesignationAmortized
Cost		Carrying
Value		Amortized
Cost		Carrying
Value		Amortized
Cost		Carrying
Value		Amortized
Cost		Carrying
Value
(Dollars in thousands)
1$7,527 $8,753 $92,419 $115,186 $855,731 $977,631 $955,677 $1,101,570 
2— — 41,117 47,861 — — 41,117 47,861 
Total (1)$7,527 $8,753 $133,536 $163,047 $855,731 $977,631 $996,794 $1,149,431 


53
Commercial Mortgage-Backed Securities by NAIC Designation and Origination YearCommercial Mortgage-Backed Securities by NAIC Designation and Origination Year  Commercial Mortgage-Backed Securities by NAIC Designation and Origination Year
 March 31, 2020December 31, 2019
 2004 & Prior 2005 to 2008 2009 & After Total2004 & Prior2005 to 20082009 & AfterTotal
NAIC Designation Amortized
Cost		 
Carrying
Value
 Amortized
Cost		 
Carrying
Value
 Amortized
Cost		 
Carrying
Value
 
Amortized
Cost
 
Carrying
Value
NAIC DesignationAmortized
Cost		Carrying
Value		Amortized
Cost		Carrying
Value		Amortized
Cost		Carrying
Value		Amortized
Cost		Carrying
Value
 (Dollars in thousands)(Dollars in thousands)
1 $7,783
 $9,561
 $93,150
 $119,298
 $834,815
 $961,939
 $935,748
 $1,090,798
1$7,908 $8,851 $93,249 $110,805 $826,744 $880,702 $927,901 $1,000,358 
2 —
 —
 41,399
 50,844
 —
 —
 41,399
 50,844
2— — 41,552 45,115 — — 41,552 45,115 
Total (1) $7,783
 $9,561
 $134,549
 $170,142
 $834,815
 $961,939
 $977,147
 $1,141,642
Total (1)$7,908 $8,851 $134,801 $155,920 $826,744 $880,702 $969,453 $1,045,473 

(1)    The CMBS portfolio included government agency-backed securities with a carrying value of $923.4 million at September 30, 2020 and $845.5 million at December 31, 2019. Also included in the CMBS portfolio are military housing bonds totaling $170.5 million at September 30, 2020 and $163.9 million at December 31, 2019. These bonds are used to fund the construction of multi-family homes on United States military bases. The bonds are backed by a first mortgage lien on residential military housing projects.
  December 31, 2019
  2004 & Prior 2005 to 2008 2009 & After Total
NAIC Designation Amortized
Cost		 
Carrying
Value
 Amortized
Cost		 
Carrying
Value
 Amortized
Cost		 
Carrying
Value
 
Amortized
Cost
 
Carrying
Value
  (Dollars in thousands)
1 $7,908
 $8,851
 $93,249
 $110,805
 $826,744
 $880,702
 $927,901
 $1,000,358
2 —
 —
 41,552
 45,115
 —
 —
 41,552
 45,115
Total (1) $7,908
 $8,851
 $134,801
 $155,920
 $826,744
 $880,702
 $969,453
 $1,045,473

(1)The CMBS portfolio included government agency-backed securities with a carrying value of $920.9 million at March 31, 2020 and $845.5 million at December 31, 2019. Also included in the CMBS portfolio are military housing bonds totaling $181.6 million at March 31, 2020 and $163.9 million at December 31, 2019. These bonds are used to fund the construction of multi-family homes on United States military bases. The bonds are backed by a first mortgage lien on residential military housing projects.

The other asset-backed securities are backed by both residential and non-residential collateral. The collateral for residential asset-backed securities primarily consists of second lien fixed-rate home equity loans. The cash flows of these securities are less subject to prepayment risk than residential mortgage-backed securities as the borrowers are less likely to refinance than those with only a first lien mortgage. The collateral for non-residential asset-backed securities primarily includes securities backed by credit card receivables, auto dealer receivables, auto installment loans, aircraft leases, middle market and syndicated business loans, timeshare receivables and trade and account receivables. The majority of these securities are high quality, short-duration assets with limited cash flow variability.

Our CLO portfolio included in other asset-backed securities is high quality, with all of the securities rated NAIC-1. Internal stress testing has indicated that the weighted average constant default rate (CDR) of our portfolio without suffering loss is 17%. The CDR is the constant default rate (annually) that a CLO must suffer before our tranche takes its first dollar loss.

Other Asset-Backed Securities by NAIC Designation and Origination Year
September 30, 2020
2004 & Prior2005 to 20082009 & AfterTotal
NAIC DesignationAmortized
Cost		Carrying
Value		Amortized
Cost		Carrying
Value		Amortized
Cost		Carrying
Value		Amortized
Cost		Carrying
Value
(Dollars in thousands)
1$5,466 $5,194 $122,061 $132,948 $486,476 $488,522 $614,003 $626,664 
2— — — — 110,216 111,540 110,216 111,540 
3152 153 — — 11,939 11,951 12,091 12,104 
41,237 1,320 — — 1,403 1,234 2,640 2,554 
5— — — — 1,727 1,129 1,727 1,129 
Total$6,855 $6,667 $122,061 $132,948 $611,761 $614,376 $740,677 $753,991 

Other Asset-Backed Securities by NAIC Designation and Origination Year  
 March 31, 2020December 31, 2019
 2004 & Prior 2005 to 2008 2009 & After Total2004 & Prior2005 to 20082009 & AfterTotal
NAIC Designation Amortized
Cost		 
Carrying
Value
 Amortized
Cost		 
Carrying
Value
 Amortized
Cost		 
Carrying
Value
 
Amortized
Cost
 
Carrying
Value
NAIC DesignationAmortized
Cost		Carrying
Value		Amortized
Cost		Carrying
Value		Amortized
Cost		Carrying
Value		Amortized
Cost		Carrying
Value
 (Dollars in thousands)(Dollars in thousands)
1 $5,958
 $5,152
 $127,728
 $127,082
 $496,641
 $462,372
 $630,327
 $594,606
1$6,188 $5,981 $134,272 $147,913 $435,077 $435,779 $575,537 $589,673 
2 —
 —
 —
 —
 104,226
 95,925
 104,226
 95,925
21,396 1,488 1,547 1,608 113,762 116,354 116,705 119,450 
3 161
 151
 —
 —
 5,165
 5,170
 5,326
 5,321
3163 160 — — 3,230 3,483 3,393 3,643 
4 1,348
 1,361
 —
 —
 —
 —
 1,348
 1,361
5 —
 —
 —
 —
 1,727
 1,727
 1,727
 1,727
5— — — — 1,755 1,755 1,755 1,755 
Total $7,467
 $6,664
 $127,728
 $127,082
 $607,759
 $565,194
 $742,954
 $698,940
Total$7,747 $7,629 $135,819 $149,521 $553,824 $557,371 $697,390 $714,521 


48

Other Asset-Backed Securities by NAIC Designation and Origination Year  
  December 31, 2019
  2004 & Prior 2005 to 2008 2009 & After Total
NAIC Designation Amortized
Cost		 
Carrying
Value
 Amortized
Cost		 
Carrying
Value
 Amortized
Cost		 
Carrying
Value
 
Amortized
Cost
 
Carrying
Value
  (Dollars in thousands)
1 $6,188
 $5,981
 $134,272
 $147,913
 $435,077
 $435,779
 $575,537
 $589,673
2 1,396
 1,488
 1,547
 1,608
 113,762
 116,354
 116,705
 119,450
3 163
 160
 —
 —
 3,230
 3,483
 3,393
 3,643
5 —
 —
 —
 —
 1,755
 1,755
 1,755
 1,755
Total $7,747
 $7,629
 $135,819
 $149,521
 $553,824
 $557,371
 $697,390
 $714,521

State and Political Subdivision Securities

State and political subdivision securities totaled $1,451.3$1,444.3 million, or 19.1%17.5% of total fixed maturities, at March 31,September 30, 2020,, and $1,477.2 million, or 19.2% of total fixed maturities at December 31, 2019 and include investments in general obligation, revenue and municipal housing bonds. Our investment strategy is to utilize municipal bonds in addition to corporate bonds, as

54
we believe they provide additional diversification and have historically low default rates compared with similarly rated corporate bonds. We evaluate the credit strength of the underlying issues on both a quantitative and qualitative basis, excluding insurance, prior to acquisition. The majority of the municipal bonds we hold are investment grade credits without consideration of insurance. Our municipal bonds are well diversified by type and geography with the top exposure being water and sewer revenue bonds. Our municipal bond holdings were trading at 111.7%114.2% of amortized cost at March 31,September 30, 2020. We do not hold any Puerto Rico-related bonds. Exposure to the state of Illinois and municipalities within the state accounted for 1.1% of our total fixed maturities at March 31, 2020.September 30, 2020. As of March 31,September 30, 2020,, our Illinois-related portfolio holdings were rated investment grade and were trading at 116.3%118.9% of amortized cost.

Mortgage Loans

Mortgage loans totaled $988.9$972.2 million at March 31,September 30, 2020 and $1,011.7$1,011.7 million at December 31, 2019.2019. Our mortgage loans are diversified as to property type, location and loan size, and are collateralized by the related properties. The total number of commercial mortgage loans outstanding was 208212 at March 31,September 30, 2020 and 209 at December 31, 2019.2019. In the first threenine months of 2020, new loans ranged from $4.4$3.3 million to $6.4$7.9 million in size, with an average loan size of $5.3$5.6 million, an average loan term of 1214 years and an average net yield of 3.66%3.54%. Our mortgage lending policies establish limits on the amount that can be loaned to one borrower and require diversification by geographic location and collateral type. The majority of our mortgage loans amortize principal, with 2.2%3.1% that are interest-only loans as of March 31,September 30, 2020. At September 30, 2020,. At March 31, 2020, the average loan-to-value of the current outstanding principal balance using the most recent appraised value was 51.4%50.7% and the weighted average debt service coverage ratio was 1.7 based on the results of our 20182019 annual study. See Note 2 to our consolidated financial statements for further discussion regarding our mortgage loans.


Other Assets and Liabilities
September 30,
2020		December 31,
2019		Percentage change
Selected other assets:
Cash and cash equivalents15,030 17,277 (13.0)%
Reinsurance recoverable112,382 107,498 4.5 %
Deferred acquisition costs201,022 289,456 (30.6)%
Other assets159,824 167,940 (4.8)%
Assets held in separate accounts616,381 645,881 (4.6)%
Selected other liabilities:
Future policy benefits7,629,442 7,393,549 3.2 %
Other policyholder funds590,289 597,256 (1.2)%
Deferred income taxes187,161 152,373 22.8 %
Other liabilities113,744 107,013 6.3 %
Liabilities held in separate accounts616,381 645,881 (4.6)%
 March 31,
2020		 December 31,
2019		 Percentage change
Selected other assets:     
Cash and cash equivalents17,524
 17,277
 1.4 %
Reinsurance recoverable105,438
 107,498
 (1.9)%
Deferred acquisition costs337,972
 289,456
 16.8 %
Other assets168,045
 167,940
 0.1 %
Assets held in separate accounts525,582
 645,881
 (18.6)%
Selected other liabilities:     
Future policy benefits7,502,843
 7,393,549
 1.5 %
Other policyholder funds595,252
 597,256
 (0.3)%
Deferred income taxes119,093
 152,373
 (21.8)%
Other liabilities107,841
 107,013
 0.8 %
Liabilities held in separate accounts525,582
 645,881
 (18.6)%



49


Cash and cash equivalents increased primarily due to normal fluctuations in timing of payments made and received. Deferred acquisition costs increaseddecreased compared to the prior year end primarily due to a $47.7$88.0 million decreaseincrease in the impact of the change in net unrealized appreciation on fixed maturity securities during the period. Assets and liabilities held in separate accounts decreased due to surrenders exceeding inflows from premiums and investment earnings on this closed block of business as well as a decrease in market performance on the underlying investment portfolios.

Future policy benefits increased primarily due to increases in our funding agreements with the FHLB. Deferred income taxes decreasedincreased primarily due to the tax impact of the change in unrealized appreciation/depreciation on investments. Other liabilities increased due to an increase in our liability for unsettled security trades.




55
Stockholders’ Equity

As discussed in Note 76 to our consolidated financial statements, stockholders’ equity was impacted by capital deployment actions during the first quarter ofnine months ended September 30, 2020, which included a special cash dividend of $1.50 per share on Class A and Class B common stock and an increase in our regular quarterly dividend by 4.2% to $0.50 per share.

September 30,
2020		December 31,
2019		Percentage change
(dollars in thousands, except per share data)
Total FBL Financial Group, Inc. stockholders’ equity$1,618,229 $1,485,757 8.9 %
Common stockholders’ equity1,615,229 1,482,757 8.9 %
Book value per share$66.21 $60.12 10.1 %
Less: Per share impact of accumulated other comprehensive income21.69 14.39 50.7 %
Book value per share, excluding accumulated other comprehensive income (1)$44.52 $45.73 (2.6)%

 March 31,
2020		 December 31,
2019		 Percentage change
 (dollars in thousands, except per share data)  
Total FBL Financial Group, Inc. stockholders’ equity$1,334,280
 $1,485,757
 (10.2)%
Common stockholders’ equity1,331,280
 1,482,757
 (10.2)%
      
Book value per share$54.02
 $60.12
 (10.1)%
Less: Per share impact of accumulated other comprehensive income10.48
 14.39
 (27.2)%
Book value per share, excluding accumulated other comprehensive income (1)$43.54
 $45.73
 (4.8)%
(1)Book value per share excluding accumulated other comprehensive income is a non-GAAP financial measure. Since accumulated other comprehensive income fluctuates from quarter to quarter due to unrealized changes in the fair value of investments caused principally by changes in market interest rates, we believe this non-GAAP financial measure provides useful supplemental information.

(1)Book value per share excluding accumulated other comprehensive income is a non-GAAP financial measure. Since accumulated other comprehensive income fluctuates from quarter to quarter due to unrealized changes in the fair value of investments caused principally by changes in market interest rates, we believe this non-GAAP financial measure provides useful supplemental information.

Our stockholders’ equity decreased duringincreased compared to the three months ended March 31, 2020prior year end primarily due to the change in unrealized appreciation ofon fixed maturity securities during the period, andpartially offset by dividends paid.

Liquidity and Capital Resources

Cash Flows

During the first quarternine months of 2020, our operating activities generated cash flows totaling $27.7$158.1 million, consisting of net lossincome of $2.6$44.5 million adjusted for non-cash operating revenues and expenses netting to $30.3$113.6 million. We used cash of $88.8$193.3 million in our investing activities during the 2020 period. The primary uses were $247.7$733.4 million of investment acquisitions, mostly in fixed maturity securities, partially offset by $178.4$554.8 million in sales, maturities and repayments of investments. Our financing activities provided cash of $61.3$33.0 million during the 2020 period. The primary financing source was $271.5$545.2 million in receipts from interest sensitive products credited to policyholder account balances, which was offset by $170.0$428.2 million for return of policyholder account balances on interest sensitive products and $49.4$74.0 million for dividends paid to stockholders. The change in policyholder account balances includes a net increase of $109.2$138.1 million in funding agreements with the FHLB during the first quarternine months of 2020.

Sources and Uses of Capital Resources

Parent company cash inflows from operations consist primarily of fees that it charges various subsidiaries and affiliates for management of their operations, expense reimbursements and tax settlements from subsidiaries and affiliates, investment income, and dividends from subsidiaries, if declared and paid. Revenue sources for the parent company during the threenine months ended March 31,September 30, 2020 included management fees from subsidiaries and affiliates totaling $2.1$6.3 million and dividends of $50.0


50

$86.0 million. Cash outflows are principally for salaries, taxes and other expenses related to providing management services, contributions to non-insurance subsidiaries, dividends on outstanding stock, stock repurchases and interest on our parent company debt.

We paid regular cash dividends on our common and preferred stock during the three-monthnine-month period ended March 31September 30 totaling $12.4$37.0 million in 2020 and $11.9$35.6 million in 2019. In addition, we paid a special $1.50 per common share cash dividend totaling $37.0 million in March 2020 and March 2019. It is anticipated that quarterly cash dividend requirements for 2020 will be $0.0075 per Series B redeemable preferred share and $0.50 per common share. Common stock dividend rates are analyzed quarterly and are dependent upon our capital and liquidity positions. In addition, alternative uses of excess capital may impact future dividend levels. Assuming these quarterly dividend rates, the common and preferred dividends would total approximately $37.1$12.2 million for the remainder of 2020. The parent company expects to have sufficient resources and cash flows

56
to meet its interest and dividend payments throughout 2020. The parent company had available cash and investments totaling $32.5$34.5 million at March 31,September 30, 2020. The parent company expects to rely on available cash resources, dividends from Farm Bureau Life and management fee income to make dividend payments to its stockholders, interest payments on its debt and to fund any capital initiatives such as stock repurchases. In addition, our parent company and Farm Bureau Life have entered into a reciprocal line of credit arrangement, which provides additional liquidity for either entity up to $20.0 million. We had no material commitments for capital expenditures as of March 31,September 30, 2020.

As discussed in Note 76 to our consolidated financial statements, we have periodically taken advantage of opportunities to repurchase our outstanding Class A common stock through Class A common stock repurchase programs approved by our Board of Directors. At March 31,September 30, 2020, $35.5$26.3 million remains available for repurchase under the current Class A common stock repurchase program. Under this program, we repurchased 24,525290,144 shares for $0.8$10.0 million during the threenine months ended March 31,September 30, 2020. Completion of this program is dependent on market conditions and other factors. There is no guarantee as to the exact timing of any repurchases or the number of shares that we will repurchase. The share repurchase program may be modified or terminated at any time without prior notice.

Interest payments on our debt totaled $1.2$3.6 million for the threenine months ended March 31,September 30, 2020 and March 31,September 30, 2019. Interest payments on our debt outstanding at March 31,September 30, 2020 are estimated to be $3.6$1.2 million for the remainder of 2020.

Farm Bureau Life’s cash inflows primarily consist of premiums; deposits to policyholder account balances; income from investments; sales, maturities and calls of investments; and repayments of investment principal. Farm Bureau Life’s cash outflows are primarily related to withdrawals of policyholder account balances, investment purchases, payment of policy acquisition costs, policyholder benefits, income taxes, current operating expenses and dividends. Life insurance companies generally produce a positive cash flow that may be measured by the degree to which cash inflows are adequate to meet benefit obligations to policyholders and normal operating expenses as they are incurred. The remaining cash flow is generally used to increase the asset base to provide funds to meet the need for future policy benefit payments and for writing new business. Continuing operations and financing activities from Farm Bureau Life relating to interest sensitive products provided funds totaling $135.8$275.0 million for the threenine months ended March 31,September 30, 2020 and $45.3$136.9 million for the prior year period.

Farm Bureau Life’s ability to pay dividends to the parent company is limited by law to earned profits (statutory unassigned surplus) as of the date the dividend is paid, as determined in accordance with accounting practices prescribed by insurance regulatory authorities of the State of Iowa. At December 31, 2019, Farm Bureau Life’s statutory unassigned surplus was $508.9 million. There are certain additional limits on the amount of dividends that may be paid within a year without approval of the Insurance Division, Department of Commerce of the State of Iowa as discussed in Note 7 to our consolidated financial statements included in Item 8 of our Form 10-K for the year ended December 31, 2019. During the remainder of 2020, the maximum amount legally available for distribution to the parent company without further regulatory approval is $48.5$12.5 million.

We manage the amount of capital held by our insurance subsidiaries to ensure they meet regulatory requirements. State laws specify regulatory actions if an insurer’s risk-based capital (RBC) ratio, a measure of solvency, falls below certain levels. The NAIC has a standard formula for annually assessing RBC based on the various risk factors related to an insurance company’s capital and surplus, including insurance, business, asset and interest rate risks. The insurance regulators monitor the level of RBC against a statutory “authorized control level” RBC at which point regulators have the option to assume control of the insurance company. The company action level RBC is 200% of the authorized control level and is the first point at which any action would be triggered. Our adjusted capital and RBC is reported to our insurance regulators annually based on formulas that may be revised throughout the year. We estimate our adjusted capital and RBC quarterly; however, these estimates may differ from actual results. As of March 31,September 30, 2020, Farm Bureau Life’s statutory total adjusted capital is estimated at $674.9$696.6 million, resulting in an RBC ratio of 525%, based on company action level capital of $128.6$132.6 million.


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On a consolidated basis, we anticipate that funds to meet our short-term and long-term capital expenditures, cash dividends to stockholders and operating cash needs will come from existing capital and internally-generatedinternally generated funds. However, there can be no assurance that future experience regarding benefits and surrenders will be similar to historic experience since benefits and surrender levels are influenced by such factors as the interest rate environment, our financial strength ratings, the economy and of other factors that impact policyholder behavior. There has beenCOVID-19 had a significant impact to the U.S. economy during the first quarter of 2020, due tofollowed by signs of economic recovery in the COVID-19 pandemic.second and third quarters of 2020. Although there hashave been an impact to the values of certain assets and liabilities due to market volatilityeconomic impacts associated with COVID-19, we expect to continue generating sufficient funds from operations to maintain sufficient liquidity. Our investment portfolio at March 31,September 30, 2020, included $29.6$18.4 million of short-term investments, $17.5$15.0 million of cash and cash equivalents and $587.9$1,880.4 million in carrying value of U.S. Government and U.S. Government agency backed securities that could be readily converted to cash at or near carrying value. In addition, Farm Bureau Life is a member of the FHLB, which provides a source for additional liquidity, if needed. This membership allows us to utilize fixed or floating rate advances offered by the FHLB and secured by qualifying collateral. Our total capacity to utilize such advances is impacted by multiple factors including the market value of eligible collateral, our level of statutory admitted assets and excess reserves and our willingness or capacity to hold activity-based FHLB common stock.

Contractual Obligations

In the normal course of business, we enter into insurance contracts, financing transactions, lease agreements or other commitments that are necessary or beneficial to our operations. These commitments may obligate us to certain cash flows during future periods. There have been no material changes to our total contractual obligations since December 31, 20192019.
.



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risks of Financial Instruments
 
There have been no material changes in the market risks from the information provided in “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our Form 10-K for the fiscal year ended December 31, 2019.

The COVID-19 pandemic presents additional uncertainty to financial markets. See Item II, Management’s Discussion and Analysis, “Impact of COVID-19 and Recent Business Environment” and Part II, Item 1A, “Risk Factors.”


ITEM 4. CONTROLS AND PROCEDURES

At the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Securities and Exchange Act of 1934 (the Act) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Our internal control over financial reporting changes from time-to-time as we modify and enhance our systems and processes to meet our dynamic needs. Changes are also made as we strive to be more efficient in how we conduct our business. In addition, minor modifications regarding how control procedures are executed and documented have been made with the operational changes required in response to COVID-19. While changes have taken place in our internal controls during the quarter ended March 31,September 30, 2020, there have been no changes that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



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PART II. OTHER INFORMATION

ITEM 1A. RISK FACTORS

The performance of our company is subject to a variety of risks that you should review. Occurrence of these risks could materially affect our business, results of operations or financial condition, cause the trading price of our common stock to decline materially or cause our actual results to differ materially from those expected or those expressed in any forward looking statements made by or on behalf of the Company. Please refer to Part I, Item 1A, Risk Factors, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019. We are supplementing the risk factors previously disclosed in such report as follows:

Our business, including our results of operations and financial condition, has been and is expected to continue to be adversely affected by the COVID-19 pandemic and may be adversely affected by any future pandemics.

The COVID-19 pandemic that sweptexperienced across the United States during the first quarter of 2020 negatively impacted the U.S. economy and caused significant societal disruption, as businesses were forced to closeexperienced sales declines or mandated closures, and individuals were asked to practice social distancing. The COVID-19 pandemic has adversely affected our business and we expect it will continue to do so for an uncertain period of time. The future impact of COVID-19 or any other pandemic on our business cannot be predicted with certainty, but may include, without limitation, decreases in demand for or sales of our products, operational difficulties, increases in death benefits and other expenses, decreases in the value of our investment portfolio and/or decreases in our stockholders’ equity.

The COVID-19 pandemic has also had the effect of heightening many of the other risks disclosed in the Risk Factors section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

Our financial condition and our business operations may be negatively impacted as a result of the proposal received from Farm Bureau Property & Casualty Insurance Company to acquire the Company’s common stock not currently owned by it or the Iowa Farm Bureau Federation, and the trading price of our common stock could decline significantly if a transaction is not completed.

The Company received a proposal dated September 4, 2020 from Farm Bureau Property & Casualty Insurance Company (FBPCIC) to acquire all of the outstanding shares of Class A common stock and Class B common stock of the Company that are not currently owned by FBPCIC or the Iowa Farm Bureau Federation at a purchase price of $47.00 per share in cash. The proposal is subject to certain conditions. The Company’s Board of Directors has established a Special Committee comprised of independent directors to consider the proposal, and the Special Committee has retained legal counsel and a financial advisor in connection with its review, evaluation and response to the proposal. To date, no decision has been made with respect to the Company’s response to the proposal and there can be no assurance that any agreement with respect to the proposed transaction will be executed or that this or any other transaction will be approved or consummated. We anticipate incurring expenses associated with the proposal which could be significant, including those for the advisors and any other service providers retained by the Special Committee. Additionally, any actions taken by the Company in response to the proposal could result in litigation against the Company. Any such litigation may result in significant costs and may be a significant distraction to our Board of Directors and our management. Additionally, if a transaction is not completed, the trading price of our common stock could decline, and that decline could be significant.




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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(c) Issuer Repurchases of Equity Securities

The following table sets forth issuer purchases of equity securities for the quarter ended March 31,September 30, 2020.

Period (a) Total Number of Shares (or Units) Purchased(b) Average Price Paid per Share (or Unit)(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
July 1, 2020 through July 31, 2020160,556 $34.82 160,556$26,321,519
August 1, 2020 through August 31, 2020— — —$26,321,519
September 1, 2020 through September 30, 2020— — —$26,321,519
Total160,556 $34.82 
Period  (a) Total Number of Shares (or Units) Purchased (b) Average Price Paid per Share (or Unit) (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
January 1, 2020 through January 31, 2020 —
 $—
 — $36,321,488
February 1, 2020 through February 29, 2020 —
 —
 — $36,321,488
March 1, 2020 through March 31, 2020 24,525
 32.97
 24,525 $35,512,900
Total 24,525
 $32.97
    

We have $35.5$26.3 million available under the repurchase program announced on March 1, 2018, which will expire March 31, 2022. The program authorizes us to make repurchases of Class A common stock in the open market or through privately negotiated transactions, with the timing and terms of the purchases to be determined by management based on market conditions. Completion of the program is dependent on market conditions and other factors. There is no guarantee as to the exact timing of any repurchases or the number of shares, if any, that we will repurchase. The share repurchase program may be modified or terminated at any time without prior notice.



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ITEM 6. EXHIBITS

(a) Exhibits:
10.1*+31.1+
10.2*+
Form of 2020 Restricted Surplus Unit Agreement between the Company and participants
10.3*+
Transition Agreement dated March 2, 2020 between the Company and Charles Happel
31.1+
Certification Pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2+
32+
101+Interactive Data Files formatted in iXBRL (Inline eXtensible Business Reporting Language) from FBL Financial Group, Inc.’s Quarterly Report on Form 10-Q for the period ended March 31,September 30, 2020 as follows: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statement of Changes in Stockholders’ Equity, (v) Consolidated Statements of Cash Flows and (vi) Notes to Financial Statements
104Cover Page Interactive Data File formatted as iXBRL (Inline eXtensible Business Reporting Language) and contained in Exhibit 101.
+Filed herewith
*Exhibit relates to a compensatory plan for management or directors.


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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Date: May 7,November 5, 2020                


FBL FINANCIAL GROUP, INC.
FBL FINANCIAL GROUP, INC.
By
By/s/ Daniel D. Pitcher
Daniel D. Pitcher
Chief Executive Officer (Principal Executive Officer)
By/s/ Donald J. Seibel
Donald J. Seibel
Chief Financial Officer and Treasurer (Principal Financial Officer)
By/s/ Anthony J. Aldridge
Anthony J. Aldridge
Chief Accounting Officer (Principal Accounting Officer)



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